Q1 2021 Flotek Industries Inc Earnings Call
Greetings and welcome to Flotek industries first quarter, 2020, One earnings conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow management's prepared remarks.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce Danielle Allen Senior Vice President and Chief of staff for Flotek. Thank you you may begin.
Thank you and good morning, everyone. Joining me today and participating on the call are John Gibson, Chairman and CEO and president of <unk>.
Michael Gordon Chief Financial Officer, Tim been quiet President of global business, and why and yourself President of chemistry technologies on.
Today's call will first provide prepared remarks around our business and the results for the quarter. Following that we will answer any questions. You may have yesterday, we released our earnings announcement for the first quarter 2020, one which is available on our website today's call is being webcast and a replay will also be available on our website. Please note the.
And any comments, we make on today's call regarding projections or our expectations for future events are forward looking statements forward.
Forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed on our filings with the S. E. C. Also please refer to our reconciliations.
Provided on our earnings press release as management May discuss non-GAAP metrics on our call.
Now I will turn it over to John.
Thank you Danielle and good morning, everyone.
We are pleased with the progress we are seeing and our business. Despite the challenges of the past year, our first quarter sales and earnings were slightly below our expectations of a result of the slow start for the year, followed by major disruption and February from Winter storm Euro impacting the entire supply chain.
And in March and happily we began to see demand significantly increase across both segments.
All of our employees remain optimistic about flotek future and our organization has become more innovative and results oriented as we focus on achieving profitable growth ex.
As the energy industry increases its focus on environment, social and governance performance for ESG amid evolving regulatory frameworks to reduce greenhouse gas emissions by half.
2030, and we were using our passion and knowledge for chemistry and data solutions to reduce the environmental impact of hydrocarbon production on our air water land and people.
Over the last quarter of personally been meeting with the Ceos and C suite leaders and he and piece to understand their ESG strategy and discuss how our chemistry and data solutions can help them achieve their ESG goals.
And what I've learned through those conversations is that the energy industry has big E. S. T ambitions and the most ambitious organizations have ESG plugged and with the C suite and into their operations and supply chain and decision, making or the more at this stage Green chemistry is not yet widely seen as the strategic lever and the ESG Fujian.
As operators of all of their approach the lower the total cost of ownership across the full of like the lifecycle of their programs.
The chemistry is going to become an important and more important than ever and this is precisely where we partner collaboratively to provide value and reduce liability book tax long been known for a differentiated green chemistry, which the EPA defiance and reducing the use of hazardous substances utilizing the less toxic biodegradable chemistry.
The Miocene spills and pollution deploying real time measurements and driving operational efficiencies. When you consider the large volumes of chemicals that must be transported handled and pumped at the well site the green impact both financial and environmental and meet environmental is meaningful.
From a digital transportation perspective, our real time monitoring and data solutions measures the composition of crude and with Brian products every 15 seconds, while flowing without having to take of physical sample, which eliminates the risk of fugitive emissions. It also enables the automation of large scale processes helps on the <unk>.
<unk> of waste and the ruche and <unk>.
The port reprocessing or eliminates the inefficiencies and reprocessing the day, our customers are using this technology to reduce their carbon footprint reduce energy consumption and reduce emissions and the future of our customers will be able to use our barak system, the measure greenhouse gases and real time and the pipe we all.
For greener solutions across our enterprise and that is why we are partnering with leading E&P. The recommend the opportunities to reduce the total financial and environmental cost of ownership there are gaining green chemistry, and real time monitoring.
I'm encouraged by the conversations and we have a lot of room to collaborate and to improve our industries and sustainability.
Transitioning to our first quarter performance.
I would like the address our pending litigation related to a per paint and supply agreement with Florida Chemical company, and we announced on March 29, and an 8-K, we terminated our for paint supply agreement with Florida chemical following their refusal to allow flotek to exercise our contractual right to audit the books and records pretty standard per minute.
Contract and our industry and the supply chain, we have filed the lawsuit seeking recovery of amounts already paid in particular, the last year's payment of $15 million a day the M and we filed the lawsuit against the idea of and subsequently they have all of the Counteraction and Delaware, while we cannot discuss ongoing litigation of spec.
The latest the outcome, we feel very confident on our position. Despite the kind of a nice for the supply agreement, we have sufficient for pain and inventory and ultimate for paint supply sources for meet our requirements for the foreseeable future.
Furthermore, we do not expect the termination of the supply agreement or related litigation.
And any material impact on our operations or our ability to meet customer needs.
And are moving forward, our supply chain management strategy will align our per paying purchases with our demand.
Since we will no longer have the sell excess per paying at a loss while on.
Our top line might be marginally impacted in the short term as a result of our strategy, we will see a very positive impact for our cash use and margin net.
Next I'd like to discuss several highlights of our first quarter, our adjusted EBITDA improved sequentially, driven primarily by strength and our data analytics and we look forward. We're excited about the growth opportunities and our data analytics segment and I am pleased that our first quarter was the best performing period for J P. Three sensor acquisition and buy of last year.
Year top line is improving and our losses are narrowing and we continue to make progress around our international market entry and thank bank will address further and his upcoming comments, how we're doing there and his excitement for the business moving on to a chemistry technologies stripping out the per paint purchases that were reflected in prior quarters our chemistry.
The allergy segment improved quarter to quarter with strong improvement domestically during the first quarter from energy chemistry.
Additionally, I'm pleased to announce we've added two talented leaders to our chemistry technology segment.
And flow through joins us as vice President of the energy chemistry, and Matthew sell of monthly joins us as Vice President of professional Chemistries and Ron will share more about their experience and background. However, I know both will be instrumental and taking our chemistry technology business for the next level.
I'm also in the area of personnel and I'm encouraged by the number of people that are now seeking employment with flotek and its great to see people, calling in and and wanting to be a part of the pain.
But lets transition over the cost measures and the liquidity one of our most important priority is to protect our balance sheet and we are actively evaluating numerous actions such as the sale of noncore real estate property sale leaseback transition transactions and consideration of an asset based alone among other options to improve our financial.
Flexibility and provide the working capital we think we will need as the market continues to improve and we grow.
Well I'm not sure of all of our shareholders. The we are focused on improving financial flexibility and we intend to do so without diluting value for shareholders.
Finally, it's also worth highlighting that as a result of winter storm here.
And in last quarter's call.
We were impacted by the widespread and his for it and decorations of force mature across the entire petrochemical supply chain.
As a result, we have seen the rising price environment.
And with limited supplies of certain raw materials are paying and continues to leverage our supply chain relationships manage costs within this inflationary environment.
For additional details on the quarter I'm going to turn it over the Tang Bank for further discussions on the data analytics segment, and then for Ryan who will give an update on our chemistry technology segment and lastly, the Mike who will provide a more in depth discussion of our financial results.
Thanks, and I know you're excited from I'll turn it over to you. Thank you John I am well in the in Q1, and we remain very focused on executing our strategy of.
Making significant progress on all fronts.
We are pleased to see continuous financial performance improvement and our data and analytics segment.
Revenue experienced double digit growth sequentially for the past two quarters on.
Operating margin improved significantly to and this past quarter, we added several new customers.
And we have repeat buying from existing customers, including of Super Major oil company and for.
One of the needs of the midstream company that became a customer and Q4 came back and for cheese multiple systems last quarter.
We beat the thesis on a testament to the value we bring to our customers through the application of our game changing technology.
We also made progress on the international front on.
And the likes of for the international market and it's going through a very extensive instead of kitchen process.
While these protests of big Bang, that's even wealth multiple certifications and we're making good progress and the Foods, Inc. Is progressing according to plan and.
Meanwhile, we also made progress and our international business development assets.
During the first quarter, we complete the despite the beep on international pilot, the leading oil and gas company and the Middle East.
We are also in the midst of organizing and that despite the V for a second pilot also and the middle East.
We're encouraged by this key milestones despite the challenges of not being able to travel.
These customers during the pandemic.
And the technology development front, we continue to invest and they couldn't be sources and half of it.
We released the first application using machine learning algorithms and the area of batch of interface the pensions for pipelines and.
This new application called advanced in the face detection algorithms.
In short Aida, what's the.
That's the elite install in two locations.
That will enable customers to make best cause.
The patients faster and hence reviews of the batch of interfaces and increased buffer at the beach.
The new application does not need any pimple on E sample the well.
We are also working on federal and meet the long term technology development projects.
On the ESG front, and as John mentioned, a technology offerings and help companies reduce their carbon footprint and reduce energy consumption and reduce the emissions.
For example of many of our systems are used and condensate and crude stabilizes.
The technology used in the stabilization unit provides real time data and help customers produce more liquid and less gas while meeting the specifications required for storage and transportation.
This reduces both emissions and energy consumption.
JP, three and making an impact on improving the environment, helping customers and improve their ESG performance and.
In summary, the made significant progress and the execution of strategy on all fronts of game changing technology, providing real time data and then all of the big helps customers transform their businesses of cuts.
The benefiting from exceptional value, we bring to the table.
The future is very bright.
I'm going to pass the call to Brian.
I'll discuss the chemistry thing out of Japan.
Thank you Cory today, I will discuss our chemistry technology segment performance first I'll provide highlights on our energy chemistry technologies, and then share commentary on a professional chemistries, which includes our recently launched Flotek protocol brand of EPA and FDA registered cleaning disinfecting and sanitizing product lines.
And the fourth quarter of 2020, we reintroduce flotek and the market's enhance the visibility of our goal to become the chemistry of partner of choice to deliver ESG focused operational cost efficiencies and improved well production to our customer base. The integration of our ESG initiatives as part of our value proposition and deliver cost effective.
Environmentally friendly safer chemistry solutions that will help operators increased production and lower cost per barrel and.
In addition, we refined our sales strategy the complement a range of domestic and international customers that include both the E&P operators as well as oilfield service companies to date the market has been receptive to our value proposition and we are pleased with the rate of increase conversions from interest to the execution of sales.
The domestically, we saw a 56% sequential improvement and revenue quarter versus quarter as we diversified our customer concentration between E&P operators and oilfield service companies and despite the impact of the winter storm, we were able to mobilize and execute key field trial the applications of our Green reservoir centric technologies.
The major independent operators.
And we're optimistic that our strategy to target customers for sustainable activity and operational programs, particularly those in unconventional shale markets will continue to be effective as we gained positive reception to our value proposition of cost effect of chemistry solutions that can improve production and overall ESG impact.
None of the National front the.
First of vacation and expansion and continue to be a key area of focus for our energy chemistry business, we are well positioned to leverage significant growth opportunities. Despite the slight headwinds and the market conditions and the middle East and Asia Pacific regions.
And we regained traction in March with the quarter to date outpacing Q1, with the deployment of custom chemistry solutions to the major and Ocs and service companies and the Middle East Africa and Europe.
And last year, we took the advantage of the activity reduction to internally focus on the transformation of our chemistry technologies segment.
And we reduced the operational costs and accelerate efficiencies and our business processes and establish defined and metrics to measure of continuous improvement and moving forward and 2021 and our focus has shifted to the execution of our transformed business and at the completion of the first quarter, we observed solid gains in the operation of a threat as a result of.
And leaner business, we're able to reduce inventory, while improving revenue, we reduce cost across the operations with additional reductions in freight charges and equipment rentals as a percentage of revenue and we continue to rightsize, our footprint for and based on delivery by improvements of strategic sourcing, thus, allowing the closure of and underutilized facility that was not.
Core to our service delivery or our value proposition.
And the execution of these initiatives have enabled us to further streamline our operations with the goal to drive us to positive EBITDA and cash flow.
And finally I'm pleased to welcome Nathan smoked for our team as Vice President of the energy Chemistry, Nathan is an experienced global leader and differentiated oilfield services with roles spanning over the last two decades, ranging from field operations and senior level management across multiple continents, Nathan joins us from Halliburton, whereas most recently the senior region.
Manager of Europe, Eurasia of sub Saharan Africa based out of London, We're excited to have and join our team and look forward to contributing to our growth strategy execution.
Now moving to our professional Chemistries business.
During the first quarter, we saw overall volume improvement sequentially with revenue slightly down and the result of the pricing pressure within a highly competitive market and despite the slow start in January due to the reemergence from the holiday season. We are pleased with the continued momentum and sales during the quarter with notable strength in March that has continued to date with Q2 revenues.
Outperforming Q1.
And yesterday, we announced the hiring of Matt Sullivan as Vice President of professional Chemistries and a 30 year veteran of the janitorial and sanitizing industry matters and experienced leader joining us from Georgia Pacific where he held a variety of leadership roles. Most recently, serving as director of sales for the northeast market for G. P Pro.
Matt has also had sales and marketing roles of Kimberly Clark, Scott worldwide, and Cogs professional as well as helping to build up the technical concepts of the world leader and restroom automation systems, we're excited that for math and leverage the experience and relationships to drive growth and this segment as we continue to build our business for the long term.
And over the past year, we've been able to ramp up production, our branding and marketing and depth of dedicated sales function with the market expertise and leverage our specialty chemistry capabilities and diversify our corporate revenue stream.
We are pleased with the progress we've made and an accelerated timeline of weird and a good position to maintain the strong momentum and growth.
I'll turn it over the Mic board and to discuss our financial results.
Thank you Ryan as John mentioned previously, our first quarter and slightly below our expectations for the challenging start for the quarter is it.
Based on global demand and maintenance disruptions caused by the winter storm. Here. However, we are pleased that March represented solid momentum.
And into this quarter.
During the first quarter consolidated revenue was $11 8 million down two eight per cent from $12 1 million and the fourth quarter and below the $19 4 million of revs.
And during the same period last year.
By segment, we saw a 5% decline of revenue sequentially within the chemistry technologies segment, the $10 3 million and claim was driven by two factors first as a result of the termination of a supply agreement again, the transition away from selling raw inventory chirping and the corner.
Excluding the <unk>.
European sales the segment demonstrated improvement up seven 1% sequentially overall.
Drilling program and to energy Chemistries and we saw notable strength of our domestic energy business sequentially growing 56%. Despite the winter storms in February the <unk>.
<unk> finished for the quarter.
This growth was also by the international sales, which were impacted by overall declines and the market activity, whether it's supply constraints within the quarter.
The way it sounds to future quarters.
And finally, finally, chemistries and explore and starts a year of build momentum entering the second quarter.
The dailies segment saw a $16 seven.
The increase in sales sequentially, driven primarily by the increase of new product sales and North America.
This is the second consecutive quarter of increase in sales and the highest performing quarter and since the acquisition of J P. Three.
Consolidated operating expenses were $13 8 million and the first quarter of 2021 and $43 four per cent decline sequentially and decreased 367 from last year's level.
Of $22 8 million and the first quarter. The claim from Q1, 2020 was driven by a reduction in cost of sales due to the lower revenue as well as lower operating expenses driven by numerous actions taken and reduced the company's expenses.
Corporate G&A declined $2 nine per se for 4 million versus the four 5 million from the first quarter last year due to personnel costs and severance that occurred and the first quarter last year and the reduction in occupancy costs.
And for the company moved out of its corporate headquarters and consolidated to its global research and innovation Center.
Corporate G&A increase from the fourth quarter of 2020 by nearly 700000 associated with higher one off legal fees and other fees essentially of the 10-K buying higher seasonal tax rates also offset by lower compensation expenses.
Research and development costs of $1 5 million of the first quarter generally in line with the fourth quarter and down $1 million from last year.
We are pulling the loss from operations of $8 three fan or a 12 day.
Loss per diluted share and the fourth quarter of 'twenty 'twenty. One is significant improvement over the loss of 64 million for $1 seven loss per share diluted share last year.
Our adjusted EBITDA for the first quarter was the loss of $6 6 billion and despite including one time legal and the higher audit fees and improved over the last quarter's losses of $6 8 million and.
And was slightly above last year's loss of $6 3 million on $7 7 million more revenue.
And.
As the management business, our focus remain relentless on maximizing cost efficiencies and growing our top line as the market continues to recover and generating cash and Bruce to die for growth.
Yeah.
Moving to the balance sheet performance, we remain focused on preserving our liquidity at the end of the first quarter, we had cash and clearance of $33 9 million versus $39 3 million and the fourth quarter driven by our disciplined approach our cash use for a sharper.
The decline in the first quarter as compared to the prior three periods, our cash position was impacted by operating losses and prior severance agreements, which was partially offset by improved working capital.
We have a combined $5 7 million of loans outstanding pursuant to the paper check protection program relates to the cares Act on.
On the tech will be falling from together is on the loans over the next couple of weeks as well as following for the employee retention credit.
Further we are monetizing noncore assets, including our Monahan and facility, which is currently for sale and.
In addition, we're having very positive discussions with various funding sources around the edge of baseline.
Our balance sheet and the Q1 included and crude liabilities of $9 for my name and the fourth quarter and associated with the company's expected usage of Turkey, and the supply agreement with ADM.
Given the already here and say, yeah and was filed just days before the end of Q1, there was no adjustments made to the balance sheet.
Liabilities during the quarter. However, moving forward, we will continue to review and the Guy with the $9 4 million balance based on accounting guidance.
That said I'd like to reiterate that we do not intend to buy of Cherokee for at least the year.
Before closing I want to welcome Suzanne Carson to Flotek.
And our internal audit.
We will manage our improved and kill and control of prices and celebrate the mediation of prior of material weaknesses. We are excited to have such an experienced leader join our team and the then.
For two of driving further improvements.
Point of of pass back the call the John for inspire.
Remarks.
Well, thank you Michael as you've heard.
We have established momentum and are optimistic about the opportunities we see on the second half of the year and into 2020 two for all of our business lines. So let me just summarize with a few of the following highlights our green chemistry, and data and 11 lytic suite of solutions are meaningful to the industry a long history of sustainable Chemistries was bill.
Upon the environmental benefits of our products and today, we have added significant horsepower for those green benefits by helping to drive operational efficiencies that reduce pollution reduce waste and reduce emissions and reduce the total cost of ownership on.
Of engagement with our customers is accelerating market opportunities for us and we are excited to partner and to improve the ESG of performance across the industry as we all seek the transition to a world with cleaner energy cleaner water and cleaner air are.
Our research and innovation team led by the Doctor Silas has been central to our environmental track record and they will continue to drive our company forward with our grain strategy. Our mission is to clearly communicate the impact of the chemistry lifecycle on our customers' goals, particularly their ESG goals and we plan to unveil a new website and the camera.
Much of that more closely represents how the companies becoming grained today.
We were pleased to deliver steady progression of our data analytics segment and continued sequential growth and narrowing losses, coupled with the international opportunities on the horizon. We are really optimistic about the growth of J P. Three.
Our chemistry technology segment remains heavily driven by energy chemistry, and we are thrilled by the 56% sequential increase and revenue domestically as well as the future opportunities, we see and the middle East for.
For the professional Chemistries and we've added high potential talent with decades of experience with the addition of Matt Sullivan and we intend to become a long term meaningful supplier for the Jan San market, which has a market and has a near double digit CAGR anticipated for the years to come.
Finally, we remain responsible stewards of our balance sheet, we're driving ongoing cost reduction and monetizing non core assets and evaluating prudent lines of credit. So that we will have the working capital we see necessary for both domestic and international growth and with that and I. Appreciate you being on the call and we'll open it up for.
The questions Daniel.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Our first question.
It comes from Daniel Burke with Johnson Rice.
Please go ahead.
Yes, good morning, everyone.
Let's see John I guess.
And it's encouraging to hear that activity levels and you know it's tilted higher as you exited Q1.
I don't suppose you'd you'd be willing to give any indication of what with topline could look like for Q2, maybe even if even maybe even if it were just based on say the.
April.
April run rate.
Well lets see I always love those.
The question that day will be the.
Ask me the opined on the future, but I think I can say this safely I do anticipate Q2 being better than Q1 now how much is a matter of of getting everything closed and and going for forward, but there's nothing that we're doing right now that doesn't look like it'll improve sequentially.
Okay got it.
Got it okay, and so the full impact of it and I get that it was at added it to the bottom line, but the full impact of of ceasing the reselling of of European and that that won't be a sequential headwind of scale then.
Well, it's you know that's the dilemma of selling something that keep lose money on every time you sell it so we have it.
On the pay contract, where we were buying well in excess of what was required and then the only way to get the cash back with the salad at market and the and so we were we were selling it as quickly as we could to maintain our cash so that we didn't have inventory that became excess or obsolete.
Inc.
So the whole of the cancellation of that I was a little surprised that they would would breach, but we won't comment too much on that next year, but it did give us an opportunity the cancel that contract which are there and there's no question that was and the best interest of the company and.
And then we as a result of not being able to out of it made us question, whether or not we should go back and try and recover amounts already paid and that's the purpose of the lawsuit.
Yes.
Understood Okay.
And then I guess.
Maybe and maybe my another question and then just on the the professional chemistry side and <unk>.
And to see that you guys are continuing to build out the team there and you can produce at this point fair number of different products all of a lot of different packaging.
I guess it was.
Certainly addressed in the the preface the comments here on the call, but I'd be curious just if you could highlight again, maybe maybe some of the opportunities you see it at this point and professional chemistry, and and some products or areas of focus that'll that'll be key over the next you know six.
The six months 12 months.
Well it is of Great question, and Matt Sullivan is actually sitting here on the road with us and the.
Michael and put him on the spot on the first day on the job but.
We didn't have a great portfolio of products. We're in the marketplace that has the near double digit CAGR that you expected and and not entirely dependent upon COVID-19 those kinds of the CAGR has existed before COVID-19 and are just continuing to go forward as people put a lot of emphasis on on health and the cleanliness and dish.
And factoring and so on our product lines and I. Appreciate the way you asked the question because we're not in the Santa type of business.
And there we have a complete portfolio of products. So includes the graces disinfectant wipes and.
And I believe Matt what we'll do on our next call is have him come on and tell you how the market's developing and where we see opportunities, but it'll be for the most likely for the portfolios of products people don't tend to buy individual products, they're looking for that portfolio and we now have a very robust offering that we can can explain and.
I think Ryan Might've said, it but April may I mean, we had you on the comment we've.
We've seen and like I say, our run rates are continuing to improve.
Kind of did that crossover function and the wear and the pricing pressure we were seeing the volumes are growing and our revenue kind of met down now we're seeing both revenue and volume growth and unique aspect is because of the diversification of the portfolio as John mentioned, we're not leverage this and Sanitizers are cleaners degrees of one step cleaners and stuff that's really based on a lot.
The core chemistry would do around our surfactant and <unk>.
<unk> of our green biodegradable chemicals with the turkeys and everything are a strong foothold in the market and we're starting to see evolve and develop well and I think with you know mass experienced and our channels to market and the portfolio diversification will only help us accelerate this growth even faster and still really optimistic about this day.
And another interesting raising the when.
And I look at COVID-19, what it really did was make everything difficult test the <unk>.
The other people stockpile things early on and so you didn't see him come back for the market for purchases and so it created lumpiness and the lack of predictability and the great part about where we are now is we've got a great line of products. We've got the talent here to really go out and reach for the customers that buy those that suite of products and the markets normalizing.
Where people are using up the inventories that they purchased too much job and March of last year, and I think we will see on a normalized.
The growth in that market and it'll be very accretive for our overall chemistry fish.
Got it that's helpful and so let me ask maybe maybe one last question and I'll ask it on a on on J P. Three I think I think you credited if I heard correctly your credit and one of the reasons for the sequential improvement.
And revenue choose to sort of product sales and the U S and I guess I just wanted to revisit how the the transition towards more of the service model is coming along.
Good.
And then yeah, we are continuing to transition all of its the.
Our focus is the in the future of increasing the E R and non recurring revenue so what we're working towards net right.
Right now.
It's the.
And also an interesting business when you look at it Daniel week, we've had several inquiries lately from large.
Consulting organization service organizations that are interested in putting together the workflows that take advantage of our measurement and our analytics and so I'm beginning to understand that.
Not unlike and I. This is a bit of of stretch. So don't shoot me for hyperbole here, but the if.
If you took a look 20 years ago when S. I P came out of the real revenue came in from the Deloitte and Accenture and.
And the J P. M. G of the Implementers of S. E T and I think that to really accelerate the growth here COVID-19 and I have several meetings coming up associated with getting those high level of workflows and the companies to take full advantage of this the system. This measure much system and I think that will also help us drive more annually recur.
<unk> revenue, if we're able to get those workflows and deployed and I'm pretty excited about the conversations that are going on there.
Okay. It makes sense all of I'll leave it there thanks for the time guys.
No problem. Thank you.
As a reminder, and you have a question. Please press Star then one to be joining for the Q.
Okay.
Uh huh.
Our next question comes from John Bair with ascend wealth advisors. Please go ahead.
Hi, good morning, Thank you for and.
And here I got a couple of questions.
What other markets or industries outside of the traditional oil and gas and M. P.
Markets could your green specialty chemical products the suitable for.
Got it.
You know the it's interesting if we can get the traction we need get back the profitability by remaining laser focused and there are a lot of opportunities for our chemistry and outside of oil and gas and let's see at the heart.
And I won't describe it I have.
We had the agricultural opportunities and the past me getting the efficacy of herbicides pesticides and insecticides debt.
And up is the result of being able to get an even distribution of those chemicals on the leads and Sam's and and we have the scientific capability to do that we've actually had a couple of conversations around the creating.
The coatings for different forms of glass that might be used and and other industries and we have the chemical ability to do that but I think our real strength values that Graeme aspect and the fact that we're using biodegradable chemicals that would that also be biodegradable and the agricultural industry as well and.
There are a lot of opportunities I won't restrict us there, but I will restrict us to staying focused until we're profitable rather than going everywhere and spending money. When you know that it's kind of take a year or more the develop entries into those markets and right now I don't think that'd be the most of the prudent thing for us to do.
Okay Fair enough and then can you kind of share kind.
And I touched on this and the comments right your approach on talking to.
N P companies as well as oilfield service companies.
What.
Kind of of balance do you would you say you have and.
Approaching the big guys versus you know the service providers and so forth and on what's kind of your your focus there who who are you really targeting and think has the most.
Might embrace your your efforts more and offerings more quickly.
You know.
And your question sounds like Youre of director here at Flotek.
It's a.
Really good one so one of if we changed a bit.
First off we have done a substantial amount of work and a recovering and have great conversations going on now.
With oil field service companies, who at one point were the biggest channel Flotek and the company decided to go to a direct channel and and stopped working through the indirect channel. We've got really good conversations going on with the with the service industry and I think that'll continue to pick up as we go forward the.
The next piece and talking to customers and another really good question I mean, I've talked to Ceos that are managing companies that range from say half a billion to a hub.
Billions of dollars and market cap for more.
And and here's the variations, where we can have the biggest immediate impact or in the smaller companies that don't have the sufficient staff to really go in and do a grain scorecard on their chemistry, and so what we're able to do is to really look at what their chemistries are today and tell them, how and that includes and air.
He is where we don't currently have products, but we can tell them how they should have a path of migrating from those two greener chemistry. So they can improve their sustainability. This is a conversation that almost any CEO will have with you right now.
Now when you get to the larger level. They have the large departments that they will go and I asked that question too and so outsourcing that to someone like us is less likely but there's that.
It'll tier where there's really good conversations going on and we're having a tremendous impact there and we've got a pretty good traction.
And so we're taking a look at and all of it I I had once the oh, well named him, but I mean, its entire conversation when I talk to them about ESG was how focused they are on the reduction of waste and so all of you wanted to discuss was how much waste could you take out of the equation.
And as you moved the grander chemicals, there's less waste and start with because of the biodegradable nature of it you're not as concerned with the recovery, but in on everything that you use and totality one of the things Ryan It's bringing is the holistic view of how do we reduce the total volume of chemical use and reduce the toxicity.
City of the chemicals that you use increase the biodegradability of the chemicals that you use and reduce the greenhouse gases associated with.
The transport of the two location and from location and it's why you see people moving to dry of far for rest of that since you're not having to transport huge volumes of water to the location you can use onsite water everything has to be about the totality of the reduction of C. O two methane at the well site.
And our solutions around chemistry, we think are going to make a big difference for our customers there where it's measurable enough that it will be a part of their ESG programs as we go forward.
I'm talking too long on this morning.
So so let me.
As of this and it sounds as if then the majors the bigger organizations.
May turn to Flotek for product as opposed to a total package of the <unk>.
Service and.
The materials is that am I and I am interpreting this.
And in that manner and that is that correct or.
Yeah, No it's right where the rest of the question with the Supermajors and and the N Oh Geez theyre going to have the ability to assess their chemistry ESG on their own but they will work and as a result of the assessment of the products that we're selling other people. We can help them with both of the assessment and the products and so you've got.
And two different sales there you've got one where you're meeting their ESG demands and you're creating it by helping them understand that they need to make chemistry of part of their ESG and sustainability program today, when you call people I'd say.
The 80% plus Havent really put chemistry and to their ESG plant. They understand fugitive emissions and valves you could go look that up their footing and a lot of money and the approval of the valves to the the eliminate methane emissions and and fugitive emissions and Theyre doing a lot with water because of the water production water.
And the induced seismicity everything to do with water based we need to minimize the the water that we produce and inject and where we inject it and so that's really important I think they're just from that as they are evolving their very ambitious about this we won't hydrocarbons to be a clean enough energy that it can be sustained.
<unk> for the long term and and consequently, we have to be accountable for and develop better solutions for everyone I talk to they they will continue to evolve chemistry as the next step it looks like now that we've sort of tackled water. We've tackled the error. We also have to tackle of water by addressing what my.
Contaminate off book versus what might harm our employees when we use it and the field one that we've talked about before xylene that is not the right chemical to be using in the field and we have chemistry that can replace that and we're excited about the elimination of xylene and we think that is a big spot for us to go and aggressively.
Well, because we can eliminate the the impact on employees and impact on the environment potential contamination of Aqua.
All of those can be eliminated by using a biodegradable product derived from Turkey.
Are those biodegradable and cost effective relative to the to the.
And tilings, and and and the traditional chemical and mix.
Well.
The slight dip on it at all.
Well on the question.
It's a long day.
And I'll, let Rob jump in too but.
Wow, that's a great question two things have happened one is we found and then lower concentrations that these products will have great efficacy now so first off we brought down the cost of of using them by using the lower concentrations, but the second thing, which I'll, let Brian address is the are the the market itself for the other products.
And because of supply chain disruptions et cetera, those product prices have gone up is that for you Rob Yeah, and I would say I mean, when you look at direct correlation to of Beech ex Rod you're you're comparing a extremely toxic environmental product versus the biodegradable. When you look at some of the other mutual solve it that you've seen and theres some of the mobile ethers and.
Some of it was due to the the the damage of some of the plants from the storm, that's ongoing and supply chain disruption and believe it or not are our dock and teams and the biodegradable of solve us that we have have actually moved to a more cost effective solution at this point and time and when you compare the total cost of ownership versus beta.
Ex in terms of the additional handling the safety aspect and whichever it was it's still a better T. C. O R of total cost of ownership for the entire service delivery model and so that's the big point that I think when when John was talking about the collaboration that we're driving around these discussions to evaluate debt full value chain.
It's going to be the difference because of its sometimes hard to when you look of some oh, well, it's X cents per pound versus this is for payout, but that's not the true total cost of ownership because of the additional touches or the waste for mediation and that goes on after the usage or the cleaning of the tanks and the totes and all of the other components and disposals and so.
And you know the not only for me is the impact, but the total cost of ownership of significantly better Oh. Some of these biodegradable solvents and their applications, whether it be for remediation reservoir citric treatment or even displacements and the drilling side of it it's actually and I always sort of measure thinks about what's the easiest or the fastest path to revenue.
And when you're trying to sell and improvements in production and the improvements sudden recovery, that's actually a much more difficult detailed sale and so you have to really go through the multi variant analysis of how the mechanical aspects of the well impacted how the skin damage impacts it how perforation.
Design impacts at the number of stages and cluster. It's you have to do quite a lot of work and then we have customers, where they've done that and we are having great impact on their effectiveness, but for the majority of customers. The 85%. When you can go in and talk about reduction and liability ESG performance.
And your cost competitive and they can be greener and meet their sustainability goals that is significantly easier to talk about than trying to go in and do a technical assessment of how you're going and the and a world of many variables. How are you going to improve production for sophisticated customers were very successful at that.
For the ones that are most impacted by efficiency and cost reductions. We now have a story so that that's not and excluded market for us.
Yes.
Very good one last quick question of Mt.
Quick question on.
Because the my line either wasn't very clear or the discussion about the the PPP loan I caught that I think you're going to apply for the for goodness on that could could you reiterate what what you set.
Set on that again please.
Yeah.
So we ended up the out.
We're seeing a sort of tag.
PPP loan and the next two weeks for going to the med for the allowable for goodness.
Given our reporting.
And I began in the next two weeks.
So is it for 100% of.
Is it is it a partial or a full forgiveness.
Apple case and then.
We are going to make based on what we're allowed to probably not ready to give that number out, but we're going to submit to what where the maximum allowable amount and we can submit for.
Okay.
Fair enough and we're also going to apply for the employee retention credit, which will be a significant number for us in Qs, one and Q2 of 2021 and we're gonna be eligible and so we're also applying for the employee retention credit and we've actually are starting to see the benefits of that in Q2.
And the and do you have to include both the the main Flotek PPP loan.
And.
Other words combine the flotek with the J P three or did the they'd have to be two separate.
Applications.
We are doing two separate applications for submitting the one for J P. Three separate from the Flotek. One you have great questions I wouldn't I'd encourage you to to give us a shout and follow up we'd be happy to talk to you while the windows open here so yeah yep.
Probably the jump to our next question here.
Okay, Yeah, I'll get out of here and I'll get out of here and of.
Offline and I. Thank you very much so that'd be the Greg just give us the shelf okay very good. Thank you.
Okay.
Our next question comes from Eric Swergold from Firestorm capital. Please go ahead.
Hi, guys like the two questions for you. This morning, you hear me okay.
You bet.
Our first question is for TDK, how full is your dance card now in terms of getting the same.
All of appointments, you mentioned, you're making some progress and the middle East when do you think you'll actually be able to see customers or face to face.
And then second question is for you John can you remind us on the compensation program about and I can't remember whether suffer $8 of share where if you hit the target for a certain period of time.
Guys finds and make some money for yourself. Thanks.
I will do the toilet.
Thanks, Eric for for U S steel, but nothing to be able to see customers and in fact, some customers allow us to be idea of office already not many so most of the time the of the meetings with the outside.
Lunches, and and and coffee and so on.
Otherwise the meeting could be through no teams or zoom calls.
On the international the meeting for all true.
The teams and zoom as well so the goods travel is not at all not for us to you, but even for our guys in the middle East and I'm able to the customer base of Batesville.
And the travel of it it's really the restricted due to the you know getting on zoom calls of things Paul.
So so.
Obviously, you know nothing beats being piece of phase, but still I think we've been working through that.
Despite the challenges of not being able to see a piece of space and I think he's coming on pretty well and we've got a lot of conversations.
The conversations with customers the same customer and.
That tells you that it's and the interest is pretty high and the international fund across the Asia and also middle East This fall and the recently as well we've got inbound enquiries from even the Africa for example, West Africa and so.
So those are coming on pretty well.
And I put a little pressure on the tank back now are all of the improvement that you're seeing and J P. Three as the result of domestic sales because we havent finished the internationalization and we have and a really significant pipeline of internationally to include India and Mike. This you know it would be right to assume that and India.
They came to a halt as of resolved for the COVID-19 crisis that exists there now and so they're in our thoughts and prayers and India, and but we have tremendous opportunity there as well as the middle East and Africa et cetera, but we haven't had any international revenue. So what <unk> done is really got it back on.
Track domestically and we're really seeing the growth coming there we are working hard on the internationalization of that product and we're making great progress and the pipeline and the business development and the pilots for all assuring that we're not wasting any wall clock time all of that by the time, we have the international product ready, we'll be able to.
Deploy it to sales of immediately so it so I think one of the questions. We need to update you on each time is where are we on the internationalization of air acts and and cord and can do that.
The and so the activity level of extremely high.
Internationally I know COVID-19 worked bikes. The early morning, so when you're talking to the middle East that usually starts around eight or nine o'clock at night and.
And goes to of late so each of our team there are of very connected.
To the question you asked about our compensation.
And as the old saying goes from your lips to God's ears, and $7 of share I'd make some money Eric and the.
I would've hoped I could've gotten there and a shorter period of time, but it looks like the COVID-19 did sort of slow things down. It. We also had the refocus the company where now we've gotten the relationships back with the indirect channel we have a really good strategy on how to be how to sell to the <unk>.
Whole of the market and not just the people on enhanced oil recovery or our AUR. We now can improve their efficiency of their sustainability either ESG go. So you know I'm still here for $7. That's what I came for and I'm focused on it we do have hurdles that occur and the $3 range and the $5 range and the $7 range.
And.
I plan on getting out from those hurdles and the next 12 months. So it is and we go forward I'd like to say, it's Jeff at least one of them here for the end of the year and.
And so we're focused on and get things turned around and getting access to working capital that's needed for us to really take advantage of the growth opportunities that we see in front of us.
Okay. Thank you keep function.
The next question comes from Joseph Bonn, Lasser with and their markets. Please go ahead.
Hey, John how are you.
Doing well Joseph good to hear from you.
So a good call and Oh.
You know I guess.
For a little bit concerned about the cash burn which continues.
I'm sure you are too.
And what is the revenue dollar.
Got you.
The EBITDA breakeven.
And then I have two follow ups after the.
Okay, I have a little bit of trouble can you repeat that for me Danielle.
Oh, I'm, sorry, I said, what revenue will it take for breakeven.
Oh, what revenue will take breakeven okay on the EBITDA line.
It is of Great question, and one we debate because it depends a lot on mix and.
And it and as well as what we're having to pay for raw products now on the supply chain as we've seen some inflation, there and our ability to pass that pricing on impact of that so it it clearly is going to be somewhere.
Above $100 million.
And that's gonna be necessary and we continue to work on our cost structure. So that I can move that number down and so we will continue to work to try to get it down to where that's doable at lower numbers and and so on.
And I sort of say when do you start to get close to 100 million and you're going to start getting close to.
The closer to breakeven will be within striking distance.
And we get there this year or is it too early to tell.
And I L for work, but I think it's a fair question because you know of three products instead of one.
Your one product used to do you know something like 45 or 50 million of quarter in revenue and now it's I don't even know what it's doing because you don't break it out.
So it's it's a it's not an unfair question given you've got.
More than one cylinder.
You know to look to more than one business siloed of look too.
Okay. So it is it's the great question because it's the it's asking me for a forward looking statement.
The statement and Joseph I'd be disappointed and if you didn't try to get as much out of me as you could and I'd be disappointed and me if I answered. So let me see what I can do the come close.
And I did.
Speculate on breakeven when I first joined and that cost me, both personally and as well because I made the statement I wouldn't take any kind of of remuneration and until we got to breakeven and my wife is encourage may not make that promise again and so out of one.
And one of the reasons, we won't have a forward looking statement on when it will break even and that I wont pay for Boeing is still there and as I learned the good less of them I can't control everything.
And I think you know you have to ask for normalcy, and COVID-19 and the recovery of the market and recovery of demand, but what I'm excited about are the things that we can't control I think we've got a really good grip on our cost and we will continue to focus on that we have a great on.
Understanding of water and non core assets and what we will be.
And divesting in order to fund, our working capital needs and or attempting to divesture and the near term and.
And so Clinton breakeven as soon as possible.
It would be the right answer I'm asking people to do it this year, but you know I would love to have it done this year, but one of my going to predict it at I would say I'm going to pass on trying to answer that.
So.
The P. P. Do you expect to recover 100% of it alone.
Well on.
I'll answer for Mike at this time, our intent is to the there's a formula for determining what's recoverable and we are going to ask for the maximum that we can recover what they allow for public companies versus private companies and there's still a TBD, but we're gonna put in for the maximum on.
Cost of debt, we will get a significant portion of it forgiven would be our goal and what our intent of the Astra will report to you as soon as we have a.
And on idea of how much that's going to say.
It's kind of odd I wish we had done some borrowings so that we can explain to people. How we were inside of our covenants right. Now we actually have a lot of cash still are if you take a look at our numbers for the quarter, we used less cash and Q1 and we've used from prior periods and our goal is to use less cash next quarter than we did this quarter.
And less cash and quarter after that so I think we're on the path towards breakeven at this point and have good product strategies to support that which is the best place, we've been in and and probably 12 months.
I got two more John.
John.
The number one.
What did the international revenue look like this quarter if any.
So you talked about Q2 Q1.
And let me I'll just talk about international generally for you the.
The one day afford it.
Okay.
The.
Mike The international revenue Q1, yes, the cooling and the down right because we saw.
The chemistry business is up you talked about the domestic being up at the 6%. So nationally international was down right.
And was down significant right. It was down by a good amount because if we were up 7%.
6% domestically.
International is down none of the lost though Josef it's mostly moved and.
Into the future quarters things did slow down I mean things that you have to factor in to the middle east or with the COVID-19 issue and India. Many of the workers and the field that are true.
And went back for from the Middle East, our Indian Pakistani and and others and so the ability to conduct business there goes down with COVID-19, increasing and nearby countries, you'll see activity levels back up.
And there's weather and wet weather as well.
So I mean, but we didn't lose any business I don't feel like there was anything that was lost everything just sort of moving forward a bit of they are right now where the U S was for.
And for six months ago, let's say, they've got the equivalent of youri, there and the middle East.
It looks strong for Q2 right now as long as things don't slip we're seeing a pretty good much here. During Q2. So net no reason to think that it won't be a significant contributor of this year, but just didn't do as much of Q1.
And in particular is as we get the fair access to the international last I think let's say big up lift.
The last question.
And my experience has been fighting with the Big Guy.
Can be painful.
M and this case should be the big Guy.
Why should I not be.
How should I think about that risk to you guys right.
See you until the cows come home.
And.
And you know so it is just is this something that keeps you up at night.
Well it it it depends how you want to look at the Joseph of Maine.
I've never seen the simpler situation a breach of contract breach of contract on it and any thoughts you go to like breach and therefore, we terminated the contract not buying per paying we don't need is beneficial for the company no question about debt and so that is a good outcome for us the recovery of.
Of amounts already spent is upside to the company and we have of disagreement and we need to go in and review that with them and the right places on the court and so we've made that approach to them and we're working through that but I don't you know I'm pretty big Guy I think of us as the.
Big guys against Big gas, particularly its based upon the facts and it's based upon the merits of the contract on the size and I <unk>.
Think of that we have the facts and the contractual merit on our side and and.
We're going to go in and and see if we can't resolve this with them.
John I really appreciate the color, thanks, and great job keep going well for us.
And look forward to talking to you do follow up with a slate of Joseph of gave any more questions. And then you know that's probably the last one I'll take.
This concludes our question and answer session and I'd like to turn the conference back over to John Gibson for any closing remarks.
Well I can't tell you how thankful I am for you guys to the shareholders and for interest and the company.
And I think it's been worth the wait I believe we're about to see a continuous improvement we've got and strength on the bench, we've got and strength in our discussions with our customers. We are re establishing those links to the.
The indirect channel to the oilfield service companies and so and it just feels like a lot of things are on our side Q2 still I think we're gonna improved sequentially. How much is still a question for me, but the second half of this year is a look really strong.
In terms of the market and how we're telling our story and more importantly, even if you think of flat into 2022, we've got a lot of opportunity to take market share from people that don't have green story that don't have and ESG solution. So we don't need the grade up lift for us to beat our numbers and we're gonna be about the business of delivering.
Value to you guys. That's what we're all focused on thanks, so much and we'll look forward to talking to you and get them export.
This concludes.
The conference. Thank you for attending today's presentation you may now disconnect.