Q2 2021 Flotek Industries Inc Earnings Call
[music].
Greetings and welcome to Flotek industries second quarter tease out from 'twenty, 1 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, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce Nick Thick-knee, Senior Vice President General Counsel and Chief compliance Officer 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 and Michael Morton Chief Financial Officer, <unk>, <unk>, President of global business, and Ryan and Zelle President of Chemistry technologies.
On today's call, we 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 second quarter of 2021, which is available on our website.
Today's call is being webcast and a replay will also be available on our website.
Please note that any comments, we make on today's call regarding projections or our expectations for future events are forward looking statements.
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 and we advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Also please refer to our reconciliations provided in our earnings press release, as we May discuss non-GAAP metrics on this call and with that I will now turn it over to John.
Thank you, Nick and good morning to everyone.
First let me address our second quarter performance, which was meaningfully impacted by market consolidation and the Permian basin.
As we discussed at our annual General meeting in early June 2 of our most significant customers changed ownership and the quarter.
And on accelerated time lines, resulting in a disruption and committed inventory and anticipated revenue and.
Having observed many consolidation events such as they used in my career.
Very common for policies and services or changes and vendors to occur as companies and a great.
We are and talks with both customers about becoming their green chemistry supplier and with 1 we should be back to work shortly flotek.
Flotek has historically had a high customer concentration and our energy chemistry business and diversifying our customer mix theres been a personal mission since I joined the company last year, Unfortunately, with the downturn and challenging to reduce our customer concentration, but we have been making steady progress against our diversification goals as the industry has begun to recover.
Because the industry is recovering we have chosen to accelerate our sales strategy to diversify our customer base, we have diversified our revenue by increasing the number of both E&P operators and oilfield services companies, we sell to today versus a year ago and expect the revenue to grow with our new customers during the coming year to boost revenue.
Growth, we've also reduced non revenue generating cash in order to add sales and marketing resources.
We have focused our expertise and passion on the delivery of Green chemistry, and data solutions to reduce the environmental impact of energy production on air water land and people, we have Cadillac our shift to ESG and we've engaged with the industry to demonstrate the strategic benefits of our sustainable chemistry and data solutions and <unk>.
Port of our customers' esg's and operational goals building.
Building upon our decade, plus track record of supplying our Biobased high performance Chemistries.
Day, we are actively partnering with energy customers to maximize the convergence of asset performance and environmental protection economic value and safety of the community fundamentally we intend to assist our customers and their efforts to sustain the social license to operate and every geography.
We are invigorated by the response, we are receiving as we increase awareness of the benefits of our Green chemistry, and real time data solutions and supported those efforts. We are actively engaging with 1 of the most influential accounting standards agencies to impact the industries ESG chemistry reporting standards and I'm excited about the potential outcomes associated with this.
Engagement, because I am a firm believer and what gets measured gets improved and that vein as we've expanded our C. Suite engagements. We are beginning to see some competitive bids include ESG components as they evaluate chemistry partners the emergence of ESG components and tenders works in our favor.
And we partnered with an important customer to conduct an analysis of their chemistry usage to support their ESG reporting and performance. We envision this scorecard to be the prototype for future engagement with the industry.
And while these are all very encouraging steps, we still have to work to do more broadly drive awareness and action to replace toxic chemicals, such as those formulated with xilinx with cipher renewable and sustainable alternatives, Ron will provide more depth in depth commentary on that when he speaks.
To eliminate delay and the implementation of critical ESG solutions, there must be stronger connectivity throughout our customers' organizations to move from ESG intent to purchasing behavior at the well site. This transition has begun but needs to become an imperative we are ready to support this change with our customers.
And.
Now, let's move on touch few of the quarterly highlights.
While there is no question and lost revenue associated with the change in ownership to customer just discussed was a setback for our energy chemistry business. It is important to note that if we were to exclude those events our sales and adjusted EBITDA were both above our expectations further validating that our focus on green chemistry is gaining momentum.
During the quarter, we marked the 1 year anniversary of the acquisition of <unk>, 3 and I am pleased that our second quarter was the best performing period for J P. III since the acquisition, we continue to make progress around our international market entry and I am thrilled that we have received our first international purchase order and Youre going to hear a lot more about that from <unk>.
Bank Covid momentarily.
We have taken multiple actions to strengthen our balance sheet first we recently announced that we've completed a long term lease agreement for our Waller, Texas facility with resolute oil, which will generate other income while offsetting our call resolute global leader and high quality quite mineral oil and we are excited to explore opportunities to leverage our respective green.
<unk> 2 adjacent markets we serve.
Also in negotiation on a lease for a monahan facility, which will make it income generating as well. Additionally in the quarter, we secured full forgiveness for the J P..3 paycheck protection program or PPP loan and we have filed for forgiveness of Flotek PPP loan and hope to have an update for you next quarter and finally, we are pleased.
And that we've signed a term sheet for and asset based line of credit and we will keep you informed as the details of this agreement are finalized and terms of cost initiatives as referenced earlier and my comments, we are real and our structure to ensure we are built to seize the ESG opportunities ahead of us with.
With a keen awareness and now is the time to grow our market share given our unique position and offerings. As a result, we eliminated roles that were not directly generating revenue and a re investing to expand our sales team the net annualized cost savings of more than $1 million, including the reinvestment.
We're also pleased with our inclusion and the Russell Microcap Index in June which represents an opportunity to improve our visibility within the investor community and to help us expand our shareholder base.
Now before I pass this call over to tank Bang and Ryan.
Let me just.
Give you some commentary on from a.
New key partners that have joined US first I'd like to formally welcome Lisa Meyer to our board of Directors and audit Committee, She's really gives us strength and governance. She has over 25 years of financial accounting experience and is the current CFO of Internet holding a digital infrastructure provider laser is a strong addition, and I know that Sheila.
Lately.
Positive contributions to make to our board and our company I'm also happy to welcome KPMG as our new audit partner, we just began a relationship and July and the team and I are very impressed with their professionalism I'll look forward to a collaborative partnership and I'm amazed that KPMG and our team.
And just 5 weeks manage to get the Q out on time. So congratulations to both of you. We are pleased to have expanded our coverage to include noble capital markets and we welcome research analyst Michael Heim to our call and we look forward to hearing his questions. This morning, along with Daniel Burke, our esteemed analyst for quite some time from Johnson Rice now I would like.
Turn the call over to thank bank for further discussion on our data and analytics segment. Thanks, Greg. Thank you John and good morning, everyone. In the data analytics segment. We are pleased to see continued financial performance improvement.
And revenue and gross margin revenue was up slightly and the quarter improving sequentially over the past 3 quarters and the best quarter since the acquisition of <unk>.
Sales were driven by the addition of a number of new customers, particularly in Canada and existing customers here in the U S continuing to make additional purchases.
New orders and repeat customers with cheeses.
Estimate to a game changing digital transformation and technology that provide real time data and analytics to our customers.
The second quarter months, 2 major milestones, while data and analytics.
First we have completed the specifications and manufacturing of our <unk> and Eliza prototypes for international markets and we are in the final process of undergoing expenses litigation and hope the Athena study because for international deployment and soon.
Secondly, we have received our first international purchase order.
This sale will support a major international oil company.
Presenting 2 exciting first for <unk> III.
This system will be install and and offshore platform in southeast Asia.
Expanding both our geographical footprint and application use cases E and and offshore environment.
Although our focus continues to be on onshore upstream midstream and downstream applications.
The lockup of a competitive bid and supporter offshore operations validate the value of our real time data solutions across the energy sector.
And represents an exciting new frontier with vast market opportunity.
At JBT, we continue to focus on executing our strategy, especially in technology development, and where we have a very robust technology roadmap.
Volume and roadmap that includes many new capabilities that will become available in the near future.
With that I will turn the call to Ryan is valid to discuss our chemistry technologies segment and Ryan.
Thank you cord today, I will discuss our chemistry technology segment performance first highlighting our energy chemistry technologies, and then moving on to professional Chemistries as John mentioned earlier energy chemistry technologies was impacted by the unplanned acceleration of M&A activity affecting to domestic customers and the quarter and excluding the loss of the.
This revenue we were on target to exceed quarterly growth projections and deliver strong results and.
Bit more color around the impact of the revenue loss associated with the market consolidation the business would have been up.
And about 22% if we were to include the expected revenue recognition from these 2 customers.
And despite these consolidations setbacks, we are confident that the execution of our strategy to be the collaborative partner of choice for sustainable chemistry is gaining traction and we are keenly focused on building our market share to include domestic and international E&P operators as well as service companies, thus diversifying our revenue stack.
And minimizing future risks from customer concentration.
And the second quarter, we also reassessed our organizational structure to accelerate these efforts as a result, we made a number of structural changes and reallocated resources to expand our sales and marketing efforts and accordingly, we plan to double our sales force to focus on broader adoption of our green chemistry solution.
Across the energy lifecycle, while generating more than $1 million and annualized salary savings.
Our expanded sales force will help us build upon important fundamental progress that we saw and the second quarter, which includes first and as discussed last quarter. Our green Chemistries are being utilized and an important field trial in the Permian basin.
And based upon the initial success. We are excited that the pilot has been expanded not only and scope to include new technology applications and the Permian, but also into new unconventional basins in North America.
Secondly, during the quarter, we secured multiple new remediation treatment applications utilizing our complex nano fluid technologies. The bio based high performance chemistry built upon non toxic plant based solvent is enabling flotek customers to cost effectively replace the use of benzene toluene and echo benzene and <unk>.
And also referred to <unk> and other harmful solvents, thus, reducing the environmental risks and then remediation and production programs.
And Additionally, we're also pleased to announce we are partnering with a very important customer to provide and ESG scorecard assessment, and therefore will cycle chemistry utilization to identify opportunities supports our ESG reporting goals and operational efficiencies and.
Furthermore, we have made notable progress in rebuilding our indirect channel to market.
And with our service company revenue side, we saw our indirect customer base increased by 58% and domestic indirect channel revenue grew by 68% sequentially.
And expanded we also expanded our operational safety record and the field to exceed more than 2000 days without an osha recordable and lost time incident and.
And finally, we entered into a multiyear agreement with resolute and.
Leisure and high quality White mineral services consumer and industrial customers, Richard all will utilize our chemical blending facility and Waller, Texas to manufacturer USP and and upgrade white mineral that will be distributed globally and our facility is customized for production and green Chemistries and our consumers are taking notice of how.
And then can leverage our capabilities and facilities and drive growth and adjacent green markets net.
Currency professional chemistry business during the second quarter, we saw overall volume improvement sequentially, driven by strength and janitorial disinfectants and cleaning products and we are pleased to see that we are building momentum for these categories contributing to our improved quarterly performance with revenue up more than 30% sequentially.
And the quarter, we made positive progress to build important foundational relationships and will amplify upon our internal sales team led by Janssen and veteran Matt Sullivan. These milestones include the securing of contracts with national and leading large scale distributors and re distributors now I'll turn over the call to Mike to discuss our financial results.
Thank you Ryan building on your earlier comments I will expand on the quarterly financial performance.
During the quarter consolidated revenue was $9.2 million up more than 3% from $8.9 million and the second quarter 2020.
But below the $11.8 million of revenue for the first quarter of 2021.
This segment and the second quarter Chemistry technology segment saw a 3% decline and revenue year over year.
<unk> $7.7 million and a 25% decline sequentially from Q1.2021 declined from Q1 'twenty..1 was primarily driven by the loss of sales from the 2 domestic energy customers discussed earlier on the call.
As we further analyze our chemistry technology segment.
And the energy chemistry saw a decline in revenue sequentially with the loss of the 2.
Clients year over year revenue and energy <unk>, excluding raw chirping inventories sales increased 87%. Despite the loss of sales from the previously discussed clients.
Professional and Chemistries saw improvements sequentially, driven by strength and decreases and disinfectants, but sales were down slight down significantly year over year, given the peak COVID-19 pricing and demand levels a year ago.
Turning to data analytics.
As a reminder, we acquired J P..3 and May of 2020, and thus we do not have a full quarterly year over year comparison for the segment sequential revenue was slightly better for the quarter.
Consolidated operating expenses were $12.1 million and the second quarter of 'twenty, 'twenty, 1 and a 12% decline sequentially, but increased 4% from last year's level of $11.6 million and the second quarter.
The operating expense increase over the last year was impacted by having only a half quarter of J P..3 expenses in Q2.2020 versus a full quarter of expenses in Q2.2021.
Corporate G&A decreased 34% from the first quarter of 2021, primarily due to the receipt of a $1.9 million employee retention credit.
Which includes both the Q1 and Q2.
Credit.
And also a reduction and contractor spend which were partially offset by an accrual for severance expenses associated with personnel changes discussed by John.
And Ryan earlier today.
We reported a net loss of $6.5 million or 9 loss.
Loss per diluted share and the second quarter of 2021 and significant improvement over the net loss of $9.6 million or 14.
Loss per diluted share last year.
Our adjusted EBITDA for the second quarter was a loss of $6.7 million slightly higher than last year's loss of $6.5 million and flat with last year's loss of $6.7 million.
Now, let's move on to the balance sheet, where our focus remains on preserving liquidity.
At the end and the second quarter, we had cash and equivalents of 28.7.
8 million or approximately <unk> 40 per diluted share versus $33.9 million and the first quarter.
Our cash position was impacted by the operating losses and prior severance agreements, which were partially offset by the employee retention credits and improved working capital changes.
We are pleased to report during the second quarter J P..3 received full forgiveness of 881000 paycheck.
Protection program PPP loan from the SBA, which was recorded as other income during the quarter sales.
And also filed in June for forgiveness of a significant portion of the remaining $4.8 million and PPP loans remaining on the balance sheet.
Additionally, we recently signed a term sheet for and asset baseline, which we will use for funding future working capital growth as the business expands.
And lastly, as John and Ryan discussed, we completed a long term lease agreement for Walter facility and we are in negotiations to run our minor hand facility.
Our balance sheet and Q2 still included the accrued liability of $9.4 million associated with the company's previous supply agreement with ADM.
Last year and the fourth quarter.
The $9.4 million represents the expected losses from the sales of excess therapy and beyond our product usage from our clients.
We will continue to monitor this.
<unk> quarterly.
The balance sheet also includes our receivables were $1.1 million for the remainder of the employee retention credit cash benefit.
Our tax net operating loss of $115 million, roughly a $1 per diluted share.
Continues to grow accordingly.
Now I'll turn the call back to John.
Thank you bye.
Thank you, Mike I'll turn my Mic back up.
Before we take any questions I thought I'd make a few summarizing comments first no doubt you'd like to hear how the third quarter is tracking now that July is behind us.
While we will not provide any guidance for the quarter I would like to share that our July revenue number is higher than any individual month and Q2.2021. This is certainly a positive indicator that we're on a solid path and.
And we made significant progress to deliver against our stated commitments demonstrating we're steadily converting aspiration to action because it all comes down to our ability to execute on our strategy.
For many months, we have been working to take steps to further solidify our liquidity and we delivered on several fronts. This quarter and there is more to come.
Very proud of the leasing situation that we have that converts liabilities into income.
Our acquisition of J P..3 tank Bang and the team have been working diligently to internationalize, our <unk> system and this quarter, we secured our first purchase order as well as completed or international prototype.
We have made steady progress toward diversifying our customer base, and our energy chemistry business and I'm optimistic about the future under <unk> leadership.
Finally, I'd encourage you to take a look at our new investor presentation on our website and encapsulate flotek today, and our unique value proposition to advance ESG solutions for our customers. We will be attending the entercom oil and gas conference next week and I'll be presenting on Tuesday afternoon, and we would welcome you to tune in to that as well now with that offer.
And we'd like to open up for questions.
We will now begin the question and answer session.
And I ask a question you May Press Star then 1 on your Touchtone phone.
And using a speakerphone please pick up your handset before pressing the keys.
John Your question. Please press Star and then Q.
We will now pause from Roman to a similar roster.
Our first question today will come from Daniel Burke with Johnson Rice.
Hey, guys, Hey, John Good morning.
Good morning Dana.
Okay.
Let me, let me actually start with 1 on.
And J P..3.
Covid was pretty disruptive last year.
<unk> here.
<unk> on some of the international efforts there could you step back and maybe talk about.
And the efforts as well to rebuild.
J P threes sort of midstream downstream domestic business and where you are with Phillips 66.
I'm happy to do that I'll turn it over to thank bank, firstly, though really exciting to have a sale and the far east and offshore. So you combine those 2 things first offshore sale.
And even that was impacted by Covid as the country made it.
Okay.
Made it difficult for us to actually deploy the equipment yet as a result of COVID-19 being on the platform potentially offshore so and it continues to be a problem and it's a country by country problem with that.
Yes so.
And John to your point and the international market is still affected by Covid restrictions and.
First we thought it was getting better, but obviously with the recent screen prevented us from sending people to install a system and middle East and also in <unk>. So we're working through is getting those people and so we had a few saudis OLED facilities. They can come over here and it's difficult for us to go a day.
So now we've got and train up and hopefully, we'll get that going and the international funds. So despite the COVID-19.
Covid restrictions and all of the issues, we managed to get the scale International and also progressing very well and the pilot.
A few other areas.
And as other countries that we expected some.
From August and with the.
Some of it and I think we can see some some of this coming depletion and probably in the next couple of quarters domestically.
Daniel to your question, we're seeing the net.
Midstream companies budgets, starting to open up so we're seeing progress and that area and.
And especially do it and we will see.
And our budget is opening up and seeing progress and that area on the partnership with holistic fix.
We are continuing to make progress a number of.
Customers, rather all potential customers that we've been working closely with holistic fixed and Frank last week last Friday, we had all our join.
Collaboration and partnership meeting again with them and.
And making I would say, we're making progress despite the COVID-19 situation.
Okay.
Yes.
Thank you.
Yes sure John.
I appreciate the comment on July and that's encouraging.
And.
But still I guess any reason that July could prove to be non representative for quarter on the whole might look like just just want to make sure we don't over extrapolate.
No I don't want to over extrapolate either.
Didn't enjoy having to come out at the AGM last time, and say that wed lost customers. So.
Not anticipating anything I mean, where we are actually and much better shape.
As Ron discussed we've got we've really diversified customers already.
As a result, so I'm not concerned about that.
My 2 biggest concerns would be COVID-19 again, and government reaction to that would be number 1 and customer reaction to it and then the second 1 is sort of.
We'll call it operational fatigue happening and fourth quarter, and so when do they stopped and they stop and.
And thanks, giving her the stockpile and Christmas in terms of spending for the year and so as I look out from the second half it's more of where the budget is going to go and this COVID-19 reared its ugly head again, otherwise we.
Seeing some some solid gains.
And the Green chemistry side that I can get round to comment I don't maybe a little bit and.
I'm optimistic, but I'm not going to give capex.
Understood understood that's helpful.
Yes.
Yes, and maybe just.
A final 1 from me.
Can you can you wrap up.
John.
And that's on Green chemistry, and in the energy markets and we've talked about a number of discussions and and sort of fruitful.
Initial I don't even call initial but efforts that youre seeing out there and fields and our marketing could you can you give us a sense of just how broad those discussions are.
Does that does that makes sense, rather than sort of individual effort.
That'll be fine and I think if I could I'll get Rob to comment on sort of how remediation jobs are are increasing and what else. He sees on the green adoption side, Brian Yes sure John.
And is quite.
Really excited about what we're seeing is we're seeing is if I look at and overall kind of macro scale of it we're starting to see the conversations that we're having the C suite level around green chemistry, now transcending across and to the multiple base and operations and also and some of the impacts we're seeing internationally.
And when we look at the type of business you know the core what is a differentiator for Flotek is around the over 170 patents, we have around green chemistry and utilization of these natural bio based solvents and things that can replace <unk> and what we've really done is we've continued to grow and our stimulation market and with our customer base of we're selling to the oilfield.
Service companies and the directory and UC E&P, operator, we're seeing improvements and uptake in that but what I'm really excited about is now that we're starting to diversify and that these various verticals a little further down the line on the remediation treatment and we've seen substantial application improvement of the Green based chemistry on the remediation side, where traditionally xylene is been used or.
Other <unk> related solve moves or other hour considerably non grosz related to solve it and work and seen it and see that grow and we're really.
We're excited about the future on where thats going around the vertical side and we're also seeing that also translate to operations on the well construction side and when I talk about well construction and I talk about drilling fluids, and cementing products, where we've seen substantial improvement with the oilfield service companies and there and Thats led to some of the things that we're looking at diversifying.
And our customer base, because we're using a similar treatment to do mud flushes and displacement treatments for improved cement bond logs et cetera. So a lot of applications on the green side, they're continuing to evolve and the most notable thing, though as you know when youre out in the basins now these conversations are making their way into the field operation discussions.
And so that's a that's a transitional tree and that we're seeing that may have not been seen in the past. It was typically just a C suite sustainability messaging. So that's a really positive step, but I think is fair and to say.
And.
In Q1, Q2, we did 7 remediation jobs, eliminating xylene and we're anticipating as many as 40 and Q4 for you and so and and the potential there continues to grow as we have the conversation so.
Sort of going from and these are not as big of jobs or stimulation job. So I don't want to overstate here, but but.
And I'd, rather have higher margin smaller revenue opportunities then in terms of per well and then I would less margin big opportunity. So I think we got a really big opportunity here and the remediation space.
Got it Okay, alright, guys I'll leave it there. Thank you for the comments this morning.
And I appreciate it.
Our next question comes from my time with noble financial.
Thanks for taking my question and looking for a little bit more color on the loss of 2 customers and your comments that you might be able to get some of the green business back on 1 of them. So specifically why do you feel that's the case how soon could it come about would we be talking about similar numbers similar sales to what youre doing before.
To be even larger and what's the.
Status of the second customer.
No.
It's a good question.
I know I'm not going to leak 2 kg here, but the 2 customers they were sort of customer a customer b.
Take a look and with regard to our business.
And 1 of the losses.
Which was.
Really important to us went to a customer that does not use flotek at this time and they already have relationships and they have methodologies and we are definitely talking to them at the same suite level.
And we're engaged with them throughout the organization, but I'd say our ability to come back there is more limited than the second customer.
And so but we continue to engage with them all the time and I do look forward to doing business with them again and the future.
The other customer we think we'll be back by Q4, and so we've engaged with the new owner and it's a property that we know well and in both cases and the performance of these properties were better than offset operators and I would say.
We contributed to that obviously, we're not 100% of the reason that's the case, but our chemistry really contributed to their their enhanced production and the premiums they receive for these companies and so I'm, hoping that we'll be able to get out and tell that story and help other companies Inc.
Prove their production to where they receive premiums as well.
And they go forward so 1 stone.
The other 1 back in Q4 and the 1 that that's gone for a while we are steady work and all.
Okay, and then let me ask the question about.
And the cost reductions that you had this year and I know you've talked about the.
Sales force a million dollars, but.
You did a really good job lowering the cost and the other areas and I'm just trying to get a sense are these permanent reductions or the delays and expenditures that maybe you did and reaction to the drop in revenues.
Ron and I don't you talk about the reductions we made in order to hire more sales staff there.
And we looked at quite a few things across the board. These.
These have transcended from cost of goods realignment service deliver realignment on where we're sourcing and.
Chemicals and basin, which is and impacted on <unk>.
Blending costs and logistical costs and operational support needs and more importantly, we did it and alignment with our value proposition and our strategy. We are we looked at every role across the board and the organization to say are we creating value or not and we needed to realign the structure.
For 100% directional approach around growing our revenue and reinvesting in the growth of the sales force focused on our green chemistry applications and that's what we've been able to do.
And the majority of our operational structural changes, we look to be able to maintain.
With significant growth and.
I would say potentially all revenue focused all will be potential improvement on how many additional sales force that we add for coverage because we are looking at base and specific customer representation et cetera for that going forward. So I look for a lot of our structural changes to be maintain these werent just holding of payments et cetera.
Okay, and then and talking about the sales force restructuring before you've talked about it being maybe a 3 to 6 month time process is that still kind of a good number to use and where do you see yourselves.
In terms of how far along and we are.
Did that question come through.
And it seems we may be having some technical difficulties with our speaker line John Please give us a moment here, what we figure that out.
And again, ladies and gentlemen, my apologies it does seem like we are having some difficulties with our speaker line. So just please hold for amendment, while we get them reconnected.
Okay.
Thank you for your patience and it looks like we will be able to resume momentarily.
Okay.
And we have rejoined our speaker line and and like you can go ahead with your question 1 more time and we will begin the call.
Sure well really was my last question. So it almost <unk> apologize for drag and on the call, but I was just asking about the sales force restructuring, which and in the past I've heard you say, it's kind of maybe a 3 to 6 process to get up and running. So I was just kind of wanted to get a sense, where we are and that process and and when do you think things will kind of be completed.
That's a great question and apologize for the balls and their eyes was a radio disc jockey when I was young and.
And have gotten fired for having that long and the Polish showa are.
And I'm pretty sensitive to Dan here.
And when it comes to the sales force we have taken a slightly different approach. We're hiring mainly people, we know that our experienced and understand this failed and know the customers. So that we think that we will minimize any of the delay between the family. They hit the door here and the tablets are able to generate revenue rod and get the comment yeah and won't ever see.
And John were looking definitely toward experience May Korea further advanced hires that have the connections and alignment with our value proposition and pursuits and basin. So it's a pretty extensive.
You know hiring and interview process that we've had is is being very aggressive at this point, we've on boarded a multiple individuals' already and we expect that to be completed and the AR and the coming weeks and and have everybody and the ground and we're seeing.
Those that and uptake working very well for us at this point.
The clear and would tell you that I'm excited about is and I like people that are hungry and Ryan has converted.
Compensation model here to where it is lower fixed and add more at risk.
And we're getting really good people that believe and thank him who can make money here, but by taking advantage of the at risk bank. So.
I think it's a great move for us and lowers our cost and improve the.
The aggressive nature of our sales force.
I was just about to ask how youre able to grow the sales force and lower cost at the same time and I think you've kind of addressed with that last question. So all our rollout plan off that's a really all the Crescent day up.
Appreciate it.
Okay.
Our next question comes from Eric Swergold with Firestorm capital.
Hey, Good morning, guys you hear me okay.
We can have my favorite shareholder.
And doing well thank you have a little earlier.
You touched on xylene and already and have some details on it but what would it take for xylene to get legislated out of use we're in cases, where groundwater contamination as possible.
Brian.
That's a discussion that we've gone about.
And quite a bit I would say that talking about it you know in terms of company awareness versus legislation alloy and when you look at it on the well construction side, it's pretty much been removed and its entirety and you look and drilling fluids and cementing and those other applications, where it's been used for mud breakers and cleaning and dissolution I would say day than the headwind that you see a lot of.
Timezone the initial application on.
Are there being all production of remediation is oftentimes the operators and we consider that a closed system and and that theyre not getting these as annular disruption issue when in reality, we all know that happens and so you know I would say still and the forefront even in a closed system our awareness as we're talking to customers ramp the risk of.
And of moving it and utilizing it and human contact and just overall potential spills and the environment is making headway on the awareness on the application of the xylene and particularly in environmentally sensitive areas like the north slope and salaries.
Upper basins, and the mountain regions and things that we see.
And so I.
In terms of what it looks like on the Legislative part I think that's a that's a longer road and there are some discussions are ongoing around that but I definitely think the uptake from the operators and even with our service comes and service companies are off and aware of that because of what goes on and well construction side of it and if it will happen. We've already got 1 division of the industry that is as eliminate.
And it is and and so as we move forward I think you'll see them and the beginning with the states that are more aggressive on environmental regulations, So anticipate with a state like Colorado.
Alaska that those will be first movers, and layoffs, and new England as well, but.
It's definitely going to happen and what's happening for US is we've got customers, saying, Okay. It's time for us to move on and improve our grain scorecard and improve our ESG score and just add to that and the 1 place. We have seen that happen now is on the international side on offshore applications, they've completely ban that utilization and people are switching where they've had xylene.
4 different flushes and whatever else is they've moved to any area, where they're zero discharge environment application xylene was being eradicated. So it is it is the it is turning and go in that direction.
Okay. Thank Tim My next question and the value creation question, rather and our business operations question, given the significant value and it's locked up and your Nols currently.
And and seeing a number of new ESG oriented spacs, having been form that have yet to put any money to work at all.
If the company were to receive a large cash infusion from us back.
And what would the top 3 priorities free b in terms of putting that cash to work to grow the business. Thanks.
And another 1 of those great forward thinking question Derrick.
Yeah. There's no question that we've continued to expand the sales force to start out we've got a lot of opportunity and I just wish I had more people to chase it.
The international expansion with the sales force will be a critical area because as Ryan mentioned, we've never worked offshore such I've been here and and and I don't think they've had a big offshore business ever but when we look offshore the zero discharge requirements that exist throughout.
Western Africa.
North Sea.
Asia, those really give us a great opportunity to eliminate xylene and so it's the sales force and the stretch and the those market toward area, Florida.
And with J P..3.
We've got a lot of opportunity to add sensors or AD measurement capability. There. So that we can expand beyond just the composition of hydrocarbons to include the identification and quantification of volumes of greenhouse gases.
And our other mark.
Molecules of interest, including water and so I think that would be and area. We can immediately and vast them and grow our opportunities with J P 3 and.
And yep.
And finally, I mean and on the third 1 Ryan going pretty high.
Now I would say from my side, 100% agreement on and where we are with the experience of our sales force of the opportunities also think there'll be potential as we've aligned our operational structure component there would be potential for us to invest and certain.
Operational components that would drive even better cost efficiency for us where we've been and some of these entry points. We began the basins for different lease programs, we can move to <unk> and issuance of capital and and and a violent part I'll say, we've been out running very lean as we've aligned our value props and our green chemistry part of things supporting around.
And additional marketing and sales communications for us would be the final piece, we look at investment margin on the chemistry technologies component.
Okay. Thanks, and thanks, guys and my my third question would be something for people, who are new to the story.
You've done quite a bit to align management with shareholders. If you could review for US where were stock rewards sit at this time and the objectives that have to be achieved in order for you guys.
To make real money for yourselves. Thanks.
Well, we are very much aligned to the share price erect and.
Basically it takes a $3 trigger for a lot of the vesting to occur, particularly from myself and yes, I'll look at this year and my wife encourage me not to say that I wouldn't take a bonus and a conference call because she knows a lot of it but unless we see and improving.
<unk> share price and improving revenue performance I'd do the same thing again this year I would say and now not worthy of an award if we havent gotten turned around but my confidence is increasing that and our bonuses.
Bonuses are and my future and so I'm working on that and everyone. Here is a land to share price accretion and.
In order to be able to get any of their awards are we did move to a scorecard system. This year and working with our new comp share Harsha gaudy and so every 1 of those is associated with on the scorecard of primarily associated with revenue growth.
And for the company as well and those scorecards are clear about that and they still maintain the importance of safety and.
And the environment.
As Ron pointed out we've had 2000 days.
More than 2000 days without an osha aster that that is a great number and it and good management team to do well on safety, so important to us as well, but we are absolutely aligned.
And if share price doesn't go up but none of us you're going to be excited about our own target earnings. So.
And we're there with you.
Sounds good thanks for the added color on all 3 questions today and thank you.
Thank you.
Our next question comes from John Bair, with ascend wealth advisors.
Thank you and good morning folks.
And you hear me good morning, John Yeah, we hear about alright very good.
And couple of questions kind of wanted to cycle back and touch again on this the 2 customers and Gladdock personally you got that out of the way the murders salaried and so forth I just want.
To clarify are you, saying the customer number 1 is essentially.
Out of the picture for the foreseeable future and my and my hearing that right.
Pretty much I mean, I I don't want to be optimistic about it we're in discussions with them but.
And some cases they have.
Contracts with other chemistry providers that we have to wait until that expires and so they would absorb the acquisition into there.
The company and then leverage the volume discounts that they might have with another chemistry supplier, which means you have to wait until the tender comes again, it's not uncommon for them to have 2 year tenders and this case, we're likely a year out from the time that it occurred before we can really get the door open but that doesn't mean, we can't give you and and get on new work and.
And we do have differentiated offerings that allow that to happen and so we have never let off the gas pedal with each cash go and we can help you. We can make you better and it's a good company. Its just that we didn't have a relationship there.
Prior to the acquisition and so we're having to build 1 there post acquisition.
The other company great relationship on both sides and so I think we're back and there is just a matter of when they start and actively working again.
And so in that second customer then would it be read from others to think that.
May be able to get additional.
Business from the combination that might help to offset those.
You know.
Yes pause.
And that first customer.
Yeah, I mean, we've day, where our budget is our budget with or without those cash works for our bonuses and so you can assume that and we get up every morning ago were going to fail and for them.
We've got to go get additional business and so for us to do.
And to make any money is about moving from bonuses as a management team is and our best interest to go out and replace them.
On fortunate that that both of them.
And to be tough for a and b, but hopefully that's a testament to the value we help create.
With with our customers, particularly these private equity help out.
Or individually how credible okay, what I'm.
And what I'm getting at and I mean.
<unk> aside okay, I'm, just trying to get an idea that the combination of customer b.
And it sounds like you acquired should give us upside for 1 should yeah. The acquired you'll give us Samsung will absolutely was the 1 that was your primary customer you can can pull additional revenue from the from the acquiring company. That's what I was trying to get at yes, absolutely on the second customer there should be.
Upside opportunity and the other thing.
We have a customer that hasn't been with us and 2 years.
That came back that I suspect will be.
Greater revenues and are the customer that we lost as we go forward with them, we're having great results with them. They are great partner, they are pulling us into additional basins and they're expanding our offering and so we've got a lot of reasons to be confident that that it's just the nature of acquisitions and integration.
They caused us to miss it and I thought.
Good Great point, John we didn't lose these contracts due to bad performance, we did lindsay contracts due to pricing we didn't lose these contracts to a competitor what we lost lease contracts to where acquisitions, where existing agreements were in place and they're honoring those and we've got to get in and sell again, so there's fundamentally no.
Rob Lowe with Flotek and the loss of these customers, it's simply transactional issue that occurs and M&A.
Right I understand that and I'll, just slip and curve.
Believe it and Ah.
Okay. So let's move on to another question mentioned that J P..3 your offshore and Asia Pacific was the first.
Uh huh.
Work in and offshore situations. So what has held you up as far and are held J P..3 up let's say and the Gulf of Mexico, United States. Besides the fact that.
Operations and their activity there has been pretty muted.
Overall, but what's your opportunity there then.
Well, Hi, John Yeah, and a good question and then suddenly the opportunities I think J P..3 you and J P. Threes started the focus of Australia onshore, which is the right thing to do onshore both upstream and especially midstream.
And as well as downstream so so now that the and and this sort of.
Patricia I'm right away.
It was.
And what somebody else, though they were looking at the booth at <unk> net and then they heard about US then and we share with them all capabilities. They were so impressed they decided to go with us and still have traditionally and what they were buying from and and now we realize that actually that that opens up a market, which we never considered and our bonds at all because we are a very much.
Because on onshore here in North America.
And so it opens up the Gulf of Mexico, but also onshore elsewhere and the world.
Brazil Yeah.
Mhm well out of that.
Texas thing so do you have direct direct.
Focus on trying to develop that now and with some of your sales force now focusing specifically on Gulf of Mexico.
Offshore Brazil.
Uh huh.
Well, so so far here in and North America, we actually hired somebody recently was focus was really on the upstream side. So our focus will be on the Gulf of Mexico.
It's a great question, so I'm going to frame it a little differently, what they really want to do offshore, particularly in the Gulf of Mexico as it begins to come back and it has been a very depressed market offshore.
But is it a re emerges what they'd like to do is fingerprint and their oil so that they can get a premium for it as a result of the lower C. O 2 emissions associated with it so I imagine that the way that we work with J P..3 we can tell you, which oil has what C O 2 content associated with it and they're working through.
How to get premiums based upon lower C O 2 emissions associated with production.
And so we're working through how do we support the goal of fingerprinting hydrocarbons for premiums.
Interest.
Okay.
Next question.
Cost competitive and as Green chemistry asked this last time versus traditional hydrocarbon based.
Fluids and so forth.
Have you seen any narrowing of that.
Given the rise in raw material costs so forth.
But what what's what's the situation there and are you having any issues.
Production and supply change too.
Producer Green chemicals.
That's a great question and I think for US what we have seen is the where we are positioned with our renewable and plant resource natural solvents are that our pricing GAAP differentiation has now we've almost got there relatively close on the advanced formulations that we have and the applications there and.
We have seen and reality.
Our net and impact on more of the I would say traditional chemistries, where there'd be an amount of view ethers Agley calls.
Other products that have gone into other out less environmentally friendly solvents, they've actually come up so it puts us in a very viable and respectable price range to go. After these and traditionally you know we've done quite a bit of advancement and the resources, we got and our research and innovation group to reformulate and have some very.
Cost effective options to definitely go head to head with the traditional <unk> solvent as well as some of these other mutual solvent and so that's been great for us.
The supply side, we're seeing similar disruptive across the board, but nothing and impacts our green chemistry, it's more on the other hydrocarbon related solvers.
This concludes our question and answer session I would like to turn the call back over to John Gibson for any closing remarks.
And I appreciate everybody being on the call today.
And I appreciate the support from shareholders on the candid conversations that we have.
And we're all focused on making money for you here. That's that's what we're here for and that's what our mission and the asset.
We appreciate the opportunity to work for you and look forward to being on the next call and.
And I'm looking forward to finally being able to give some good results here 1 day. So I think all the things, we're executing and give us the opportunity to improve and we just need to stay focused and and execute here.
And here as we go forward markets improving.
And we were going to do our best with thank you and we'll talk soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.