Q2 2022 Flotek Industries Inc Earnings Call

Yeah.

[music].

What day and welcome.

Flotek Industries' second quarter 2022 conference call.

All participants will be in listen only mode.

You need assistance. Please signal conference specialist by pressing the star key followed by zero.

After today's presentation, the way an opportunity to ask Washington's.

Please note that this event is being recorded.

Now I'd like to turn the conference over to Mr. Brian Coleman Senior Vice President corporate development and sustainability. Please go ahead Sir.

Thank you and good morning, everyone. We appreciate your participation joining me today and participating on the call are John Gibson, Chairman, Chief Executive Officer, and President, Brian <unk>, Chief Operating Officer, Sam Carson Interim Chief Financial Officer, James Silas Senior Vice President of research and innovation and Nick Big knee jerk.

Counsel and Chief compliance officer on today's call. We will first provide prepared remarks concerning our business and results for the quarter. Following that we will answer any questions. You have we have now released our earnings announcement for our second quarter 2022 results, which is available on our website. In addition, we posted an update.

<unk> investor presentation that you're welcome to download and referred to during this call. As a reminder, 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. 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 management May discuss non-GAAP metrics on this call I will now turn it over to John .

Thank you Marty good morning, everyone and thank you for joining the discussion of our second quarter results for 2022, we've really been looking forward to reporting our results today as well as providing some color on what's transpired since the end of the quarter second quarter marks the.

First full quarter that Flotek has operated with a landmark pro frac supply agreements, which will be described in detail in past months. We're delighted to report that the contract and the transitional business transactional business for ramping up as envision, resulting in 2.3 X sequential revenue growth and 3.2 X year over year growth well also.

Have significantly improved our cash position, which our interim CFO sung <unk>.

Person will describe in more detail in her remarks.

As a reminder, our contract with pro Frac was effective as of April 1st It spans 10 years. It covers all equivalent volume of our full suite of downhole Chemistries to serve 30 of their flat frac fleets or 70% of their total Frac fleet would.

Whichever is greater.

While we are still in the early days of the contract serving an average of eight fleets in Q2.

We remain confident in their ramp up to the full contract scope over the coming quarters. We also have no reason to expect that our relationship is bounded by the 30 fleet or 70% numbers as we continued to provide exemplary service pro Frac has the incentive to maximize chemical deliveries from flotek due to the structure of our arrangement broke rack recently.

You announced the acquisition of U S well services, which is expected to close in Q4 as a result, they expect to be operating 44 active frac fleets by the end of 'twenty. Two simple maths are 70% or 44 is a bit less than 31. However, we fully expect that we can win more of that business as we scale up and our goal is.

Protract the desire to purchase chemistry from us for its entire fleet, we really won't be a strategic supplier program.

This agreement has proven to be transformational for flotek and the industry.

There's also disagreement e&ps now have a comprehensive vertically integrated completion solution that reduces emissions and delivers greener chemistries, thereby protecting air water land and people over the next decade, we anticipate the agreement should create backlog of more than 2 billion in revenue for Flotek.

Including anticipated revenues in excess of $200 million in 2023 for the pro Frac contract alone.

And this number does not include any of the impact from Protraction announced acquisition of U S. Well services. Once that acquisition is complete we will be able to provide more color on the additional benefits, we expect to see from <unk> increased scale.

I will also continue to stress that this contract is not exclusive allowing us to add new customers continued to grow sales volumes to the rest of our energy chemistry customers, which we've successfully done in the first half of 2020 to illustrate the scale of the growth. We've achieved we've delivered 19 million panels that chemistry for the entire year 2021.

In Q2, 2022 we delivered a total of 40 million pounds of chemistry, with 9 million pounds of the chemistry to our transactional chemistry customers alone 9 million pounds being almost half of what we delivered in the full year to transactional customers in a single quarter, that's going to provide more details about our strong topline growth in his comments.

July 20th.

We were pre released our Q2 revenue numbers due to the material sequential increase in the quarter.

Well, Matt released we promised revenue in excess of 28 million and were pleased to announce that we were able to report revenue of $29 4 billion, which again represents two three X growth over Q1, and 3.2 X growth over Q2, 2021, I'm very proud of the Te fullness in the quarter and achieving this growth it took a lot of effort.

We have an absolutely phenomenal team and great flawless execution in Q2 the.

The growth we've executed has presented some challenges and I want to briefly address our adjusted EBITDA in an attempt to preempt some questions on that topic during the Q&A on our Q1 conference call. We emphasized that we expected to experience higher than usual cost in the coming quarters associated with the rapid increase in activity basically the ramp up that statement proved.

Accurate and we against signaled the higher cost for our July 20th press release.

That'll result in Q2 was an adjusted EBITDA of negative $7 2 million, which represents a slight deterioration over Q1, Brian will provide greater detail on expense drivers in his commentary, but in summary, we are confident in our ability to increase fall through to the bottom line going forward and we are executing as expected we remain committed to it.

<unk> positive adjusted EBITDA margins in the Investor deck that we recently posted to our website. We include a slide illustrating our steady improvement in adjusted EBITDA margin that has taken place over the previous four quarters.

We expect this trend to continue through the second half of 'twenty, two and into 2023.

Our future.

Excess hinges on our ability to maximize success of our customers customer, which are the oil and gas producers that rely on our products to maximize production, while minimizing environmental impact we sense a change in the market here, where our customer focus on minimizing cost is starting to give way to more concerned about initial production rates maximize.

<unk> ultimate recovery, EUR and minimizing the odds of reservoir damage caused by careless chemistry.

This trend trombley favors our core capabilities and market position and we are excited to see how much market share we can gain in the coming years as a result.

Now I'd like to turn it over to doctors Zelle right.

Thank you John and good morning.

This was a defining quarter for flotek as a revenue growth exemplifies our strategy to be the collaborative partner of choice for sustainable optimized chemistry and data solutions is working.

So, let's get right to the highlights.

John mentioned total company revenue increased by 2.3 X sequentially and more than 3.2 eggs over the same period in 2021.

In total we delivered in excess of 40 million pounds of cameras to our test customer base in Q2, which far surpasses. The total volume of cameras to be delivered in the full year of 2021.

Our transactional chemistry technologies revenue grew 15% sequentially. This is outpacing the hydraulic fracturing fleet market growth for the fourth straight quarter further, indicating that we are gaining market share with our customized chemistry solutions.

Additionally, our focus on balance sheet metrics and working capital preservation led to a 28% reduction in our days sales outstanding of 60% reduction in days inventory outstanding and gross inventory Tory only expanded 14% in absolute terms with a.

128% improvement on revenue sequentially.

Finally, this ramp in activity was executed with zero lost time incidents has zero spills and no discharges I'm pleased with the solid performance Flotek delivered in the first half of this year and I want to thank all flotek employees for their hard work and contribution to these outstanding results and the dedication to collaboration.

Safety and service quality.

Now transitioning its a few of the key details for the quarter I'd like to discuss the status of our mutually beneficial partnership with pro Frac, which I am happy to say is off to a very solid start.

In Q2, we concluded the first full quarter of the contract operations by providing downhole chemistry to an average of eight pro frac fleets across four major basins. We expect this number to double to 16, a greater fleets in the third quarter as we continue to execute our accelerated ramp of chemical deliveries.

I'd also like to take a moment to add further color to the details of the appropriate contract that we have not previously spent enough time talking about it.

While we typically discuss the operational execution. It terms of fleets serviced the real underlying driver of the contracts is delivered volume.

There are numerous assumptions calculated into the contract concerning chemicals delivered based on specific product type and geographic location.

Perfect was conservative in their assumptions on the calculated volumes per fleet, when we designed and negotiated the contract and to date. The delivered volume per fleet has run ahead of our expectations in other words, it's very possible that we'll be able to fulfill the contracted volumes at a fleet count that is less than 30.

Yeah.

Additionally, this provides potential upside throughout the 10 year life of the partnership.

And with such prolific increases a differentiated solutions being distributed to the well site.

It is imperative that proper chemical supply manufacturing and logistics be in place for successful implementation.

We made a strategic shift during the downturn too and in basin delivery model of certain high volume chemicals, allowing us to maximize our manufacturing capacity a preservation of working capital, while bringing key components of our chemical supply chain closer to our customer base with.

We previously stated that we have the ability to double our manufacturing capacity utilization levels without significant capital investment.

In reality the shift to in basin delivery means the situation is far better than that and we have no concerns about our ability to satisfy our explosive growth without needing to build additional facilities.

Now looking at the quarterly performance, we continue to make steady progress in growing market share and outpacing industry activity levels I am, particularly pleased that we were experiencing customer portfolio expansion with both domestic and international E&P operators as well as service companies.

As we deliver on our continued commitment to diversify our revenue stack and minimize risk of customer concentration.

This includes the first field application of our integrated approach to digital chemistry at the well site.

In Q2, we successfully deployed a proprietary J P. Three <unk> analyzers on designated fleets to evaluate field gas usage by monitoring pipeline natural gas quality and energy content.

By monitoring consistent gas supply in real time, we were able to reduce diesel usage about 50% to 70% one location by the hydraulic fracturing fleets.

Subsequently, we can enable dual fuel operations to adhere to tier four EPA emissions, which represents an approximate 35% reduction versus tier two.

We believe this will be a powerful use case to protect our customers' capital equipment, while reducing fuel costs and greenhouse gas emissions in the field more importantly, we have elevated this commercially to a five year agreement with <unk> to deploy up to 20 <unk> units on their dual fuel fleets going forward.

With multiple opportunities of similar scale and scope in the pipeline.

I'd also like to refer you to our recent press release for more details on this new commercial agreement with pro Frac.

We're focused on creating synergy between chemistry, and digitization to leverage our differentiated solutions to reduce the impact of chemistry in regard to total cost of ownership as well as environmental cost of ownership for our customers and the industry, both international and domestic markets.

So simply speaking we are focused on protecting water quality minimizing formation damage and improving the estimated ultimate recovery of every single completion.

And in the spirit of minimizing risks, we continue to leverage our increasing volumes with key suppliers to further secure future purchase prices and material allocation volumes with our top product lines as we focus on our accelerated growth.

As we increase volume with our suppliers, we will take advantage of economies of scale to reduce costs and expand margins with that said, we are feeling the impacts of inflation across the supply chain, but these are industry wide and global trends, we are adjusting our pricing accordingly to increase margin to healthier levels also.

I'd like to spend some time focusing on the biggest single driver cost inflation during the quarter, which was freight and logistics costs related to freight and logistics ran higher than we expected at the beginning of the quarter, mainly due to field deployment and mobilization charges, our ISO tank storage fleet.

The massive increase in delivered volume required us to accelerate the mobilization of more than 80, new field deployment takes the various basins across our geographical operations. This growth represents a five fold increase quarter on quarter and we don't expect this expense related ISO deployed to recur as we are advancing capabilities.

For bulk storage in the major basins of activity in the U S. Is subsequently the gross margins in the ramp up are not reflective of our expectations during the steady state execution phase.

And in summary, I continue to be optimistic about the future IMAX.

I'm excited about our mission to provide differentiated solutions that maximize value to our customers, while maintaining our commitment to ESG market share growth and SG&A discipline.

Now I'll turn the call over to Sam to five key financial highlights.

Thank you Ryan I would like to begin by reminding everyone of several accounting considerations related to our convertible notes and supply agreement with profile, which proved to be meaningful in the second quarter.

First there will be a quarterly noncash entry to account for mark to market adjustment to the convertible notes over the one year life.

The Q1 2022 adjustment was a noncash loss of $3 9 million while in Q2, we had a noncash gain of $17 2 million.

I want to go into a little bit more detail and the numbers are significant and will continue to add whatever he volatility to our financial results.

The Q1 2022 noncash loss of $3 9 million applied to the Mark to market adjustment to the initial $10 million of notes issued in Q1 that are associated with the program play agreement as of March 31st.

The big swing in Q2, so a noncash gain of $17 2 million resulted from the additional 69 million face value.

<unk> issued in the second quarter associated with the supply.

And they significantly lower stock price on June 30.

March 31st.

So yes in simple terms when the stock goes down from quarter end to quarter end, we book a game and the more the stock declined the larger the game will be.

I think we can all take to heart in the fact that again being a noncash entry and also that we will only book the key to 2020.

But when the second tranche of the convertible notes convert to equity whichever comes earlier.

During the second quarter, there was a 737000 non cash reduction to revenue recorded related to our pro Frac contract asset.

Our contract as it represents the value of the convertible notes issued as consideration for the initial pro Frac supply agreement in Q1 and Q2.

The cumulative value of these notes as of the closing date of the two tranches with approximately 83 million and recorded as a contract asset which will be amortized over a 10 year life.

The pro Frac supply agreement.

And be reflected as a noncash thing that's interesting to you in our U S GAAP financial.

Again, I want to emphasize these are noncash adjustment, which.

Can you all expect to see additional noncash adjustment each quarter, but the magnitude is difficult to predict at this based on the share price and other variables.

We're interested in getting into the detail of how the convertible notes are valued please refer to our SEC financials for the methodology and underlying assumptions.

Now moving onto the income statement in Q1 consolidated revenue of $29 4 million for the quarter was up 128% compared to Q1 2022.

And that 221% compared to the second quarter last year.

Excluding the noncash reduction in revenue associated with the contract asset revenue was $31 million in Q2.

Consolidated cost of goods sold of $31 7 million was up 134, 9% compared to last quarter.

And 194% year over year.

Increases were primarily attributable to ramp up expenses associated with the perfect supply agreement as Brian previously outlined.

Gross margin during Q2, 2022 was negative $2 3 million down from negative <unk> 5 million in Q1 and negative $1 6 million in Q2, 2021.

Excluding the noncash revenue reduction mentioned above gross margin was negative one 6 million in Q2 2022.

In the second quarter 2022, SG&A of 7.4 million was up 52% compared to Q1 2020 to $4 9 million.

77% compared to Q2 2021, as we took on additional expenses due to professional fees from increased use of contract labor consulting and legal fees relating to the pro fracking type transaction.

However included in SG&A was approximately $1 7 million of professional fees that are not expected to recur.

Our non-GAAP EBITDA for Q2 was positive $8 1 million and $18 million increase from last year's negative $9 9 million.

In Q2 last year was negative $6 3 million.

Major driver of the significant positive swing was $17 2 million noncash to market gain on the convertible notes.

Our non-GAAP adjusted EBITDA for the second quarter was a loss of $7 2 million, which decreased $1 8 million compared to last quarter's loss.

$5 4 million in the second quarter 2021 loss of $6 7 million.

As Brian already discussed we've identified areas of underperformance in Q2, Q2 and have a plan in place to improve adjusted EBITDA in the second half of the year.

Let's move on to the balance sheet now at.

At the end of the second quarter, we had cash and equivalents of $33 1 million versus $24 9 million.

We ended the first quarter.

$11 5 million at the end of 2021.

The much improved cash position was favorably impacted by the 20 million from $19 5 million pipe issuance.

In February and June and several improve working capital metrics, partially offset by the quarterly operating losses, which included <unk> for the closing of the pipe and the previously mentioned pro Frac supply agreement.

In addition in April 2022 as part of the monetization of noncore assets, we sold the Waller, Texas facility for $4 3 million and recorded a $1 9 million gain.

We look forward into the second half of 2022 and 2023. Our goal is to continue to leverage our improving working capital while significantly growing top line revenue.

We also continue to evaluate an offer.

Offers for our Monahan, Texas facility and expect to provide an update on in coming quarters.

While we are in a much more favorable cash position now than we have been we continue our relationship with Piper Sandler on various additional cash generation activities to help address at each of our working capital needs.

At this point I will pass the call back to John for his final remarks.

Well. Thank you very much then.

I'd like to again, thank our shareholders for helping us unlock an incredible opportunity and secure the future of our business with appropriate contract first time in my career up ended a company with such a robust backlog and I am optimistic about our ability to convert revenue growth into earnings going forward. Our teams flawlessly executed the ramp up thus far and our.

Committed to flawless execution going forward imagine delivering two times the volume in a quarter you delivered last year with the same head count and no footfall. These gas our professionals I'm proud to work with them. Thank you very much for joining the call and your continued support and we look forward to the questions.

Thank you and I'll begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

The speaker phone please pick up your handset before pressing the keys.

Put withdraw your question. Please press Star then two.

At this time, we'll pause momentarily to assemble the roster.

Yeah.

First question from Chris Johnson Rice. Please go ahead.

Morning, how are you all doing this morning.

Very well done.

The internet of the best in Ohio.

I wanted to talk about the ramp up in your <unk>.

In providing chemicals to the pro Frac fleets I know in your presentation, you talk about roughly 16 in the third quarter is that a good run rate to go forward.

You would add seven or eight fleets per quarter until you get to.

Either the 30 fleets or two whatever roof rack once you the two.

Supply.

Hey, Doug. This is there's a variety of zale, yeah. So I would say so that appears to be where we're at looking at a steady state aspect of Logan may add that seven to eight per quarter and we talk about this is the quarter average rye, so we'd kind of see it peak go up and down a little bit but from an average standpoint April quarter. It is where we're looking at right now.

Okay.

It'll be sustained until we get to the 30 or the original contract and then after they close U S well and we'll be working with them to try to add in the additional crews that come over with U S well.

Right.

I would have expected as well.

And just to take that a step further is there a geographic constraint in your operations today are you able to kind of.

Are you targeting a geographic area to kind of start the rollout or are you kind of going across all of their.

Fleets dependent on where they are in the country.

When they roll off of one pad onto the next.

We don't we do not currently have any geographical limitations on our operations.

We have delivered chemistry at all the major basins in the U S right now, including some operations in Wyoming have tighter environmental regulations are chemistries are registered there too. So we are good across all basins and we're not limited by anywhere the fleets may go.

Okay, So youre right youre kind of rolling out.

Dependent on customer rollover and between pads.

Correct geographically.

That's correct and and this also includes I mean outside of profile, what we're doing on the international business too, we're seeing our slick water hydraulic pressures visits run internationally as well so we.

We don't have any any of the geographical obligations here, it's just a matter of customer rollover and when we're picking the fleets up.

Okay, and I wanted to ask one on J P. Three obviously, a good contract rolling out 20 fleets with with pro Frac.

Can you just talk about <unk>.

Number one the revenue implications and I don't know how you want to say it you know went up on a.

Fleet per quarter or per year, whatever metric you would like to provide or.

You know what that market could become going forward, obviously, the 'twenty would roll out probably over the next several quarters, but any color you could provide there would be helpful.

Yeah.

It's probably a little premature Don as part of an out revenue numbers all three but if you think about what pro praxis doing they're really leading the industry and in taking advantage of so youll get by implementing the <unk> analyzer solution. So there'd been able to reduce the volumes of diesel by as much as 50% or more.

Now when you look at that as the the whole of our industry. We think that this is nonexclusive with program Pro Frac. We think this program should rollout across all 270 fleet as they begin to move towards dual fuel. So that we're able to reduce diesel reduce the C. O two emissions for our industry and really.

B, the most responsible industry yet.

Out there with regard to our commitment to reducing greenhouse gas I think J P. Three is a critical component in that strategy and as appropriate to every public company.

And as far as rollout for proof rack could you do that this year from the 'twenty.

We're actually all fleets were all fleets now and it's more about how we as more about the capital acceptance into the fleets as they designate the wants to position the equipment all but we're already on two and we'll continue to do the rollout through the year until we're up into the low.

<unk> 20 range is as per the contract specifications.

Okay I appreciate it I'll turn it back.

Thank you. Our next question will be from Jeff Robertson Water Tower Research. Please go ahead.

Thank you good morning, John and Ryan I'm, sorry, if you covered this I dropped my connection for a few minutes, but under the pro fresh contract I think there was a volume amount that related to the Frac fleets can you. Ryan did you can you talk about the volume you all are supplying.

Two pro Frac and how that compares to what was originally contemplated under your agreement.

Yeah, so what.

Well, we have the way it is quite unique in that.

The contract itself the desire for X number of fleets in various geographic locations based on proppant intensity et cetera to calculate baseline volumes and as up to date as we brought the fleets. All we are executing slightly above the volumes per fleet as per the contract and we don't see any reason for a disruption of that is.

We're bringing all the various lease on an average of seven to eight per quarter until we reach or exceed their contracted 30 fleets right now.

Yes, I've had extensive data yes.

And we use that data plus our experience correct sort of calculate what the average volume would be by basin and so its a geographically dependent volume numbers. So some basins are used more fluids than others.

The beauty of it is they were trying to get to a baseline so that they could could make a guarantee which they did and sold at baseline they were conservative, but we're finding there's some upside to those numbers, but they they were confident that they would never do.

Below that and I think we're finding that to be the case.

So John does that mean theres, some revenue upside or I mean over time is there. So if that trend continues is there some revenue upside to the original contract numbers that you all have talked about.

Yes, we do believe there is not.

Not only just from the pure original 30 fleets themselves on the volume as we are executing above that but also the potential addition to the U S. Our well service group is that please come all but.

That too is as I've said in my comments, we did see a shift from minimizing cost, which is what happened during COVID-19 actually maximizing recovery and trying to get that most adults, but recovery from the reservoir you can optimize initial production and reducing decline curves in doing that that actually requires the higher margin.

More complex nano chemical truly our surfactants and and that's a place that we think that the our customers are going to drive this business as well and as they drive that it's going to impact pro frac and what they need for their fleets in order to be more of a reservoir manager that just a stimulation activity I think that bodes well for where our core competency.

Some shrink song.

Okay.

John and Ryan I think you did 9 million pounds of chemistry for Nonpro frac customers compared to the 19 and all of 'twenty one.

Could you can you talk about how you expect the ramp up to Nonpro fact customers to play out over the second half of 'twenty, two and what at least what line of sight you have on that into 'twenty three.

Yes.

That's a great question for us because there's been a lot of such heavy discussion around pro Frac, We're really excited about where our transactional core business is going.

It's outpace the I would say hydraulic fracturing fleet growth quarter over quarter for the last four quarters and our expectation is to continue to see the market acceptance of this technology for us to gain market share through the rest of 2022, we've got some solid wins that we picked up already in Q3, and we'll start those.

Livers it didn't start into September and some that are rolling into Q4. We're also excited about the expansion of what we're doing in the international business as our rollout of the hydraulic fracturing the slick water fluid in the Middle East has gained a lot of acceptance as well as some of our advanced asset stimulation chemistry that we're seeing internationally.

Well.

Uh huh.

And just on the balance sheet can you Sami you mentioned, the working capital requirements and the Doe.

Pre funded warrant capital raise you all did in <unk>.

Late June can you talk about how the current balance sheet is set up to meet the needs over the next six to nine months.

Yeah good morning.

That's a good question.

I was hoping you summarized well.

Funds from the pipe set us up to be able to handle it and we're looking very closely at.

And strategizing with our suppliers, making sure we're set up well there in addition.

Two other opportunities to be able to fund the ramp up and all of the things that will come with it.

I mean, we are doing everything we can Jeff.

To minimize the need for additional working capital and the ramp up and I think us I have pointed out a couple of really important once we've managed to extend our payment terms with our suppliers and reviews, our collection terms with our customers and those two combined to help us on the cash flow side, and we feel like we've got a strong.

Look forward on how we're going to fund this and we continue to ramp up and the cash looks like it's sufficient.

Thanks, I guess last question for Brian or John .

It's correct that you all can expand capacity to both flotek and non flotek customers with the existing facilities. Your chemical facilities, you have with no real capital incremental capital required is that correct.

That is correct and you know for US we're really excited like I say during the downturn, we really focused on lowering our cost profile and how we make a transition to moving our say our blending capabilities in sourcing closer to our customers and the geographical locations that they're in and in doing so as we ramped up we've realized this.

Is eased quite a bit of pressure on our core manufacturing that we have at our main facilities like in Marlow, Oklahoma and it's actually outperforming our expectations in terms of our ability to ramp up and not have to spend any major capital improvements to our I would say expand manufacturing capacity.

Right now we're meeting all the demand on a single ride a shift in the facility it probably on a sub 25% utilization rate of the entire capex there and so we do expect a huge capability for us to continue to expand well above our original expectations without any large capital expenditures there other than they just adding probably.

It worked for shift to work at night, So we're really happy about the position there.

Good. Thank you very much for taking my questions.

Thank you. Our next question will be from Eric Swergold Firestorm capital. Please go ahead.

Thanks, guys.

Can you go into J P. Three a little more I know you guys had written it off from an accounting perspective. So this is a nice surprise to see it having a second life here.

Linda you touched on how it saves producers money in diesel but can you also talk a little bit about remind us how this.

It might help refiners save money and as well as pipeline companies save money and then a separate unrelated question you touched on international can you go into a little more detail on what's happening with the national oil companies in the middle East and how your business might expand with them.

Yes.

So when we look at.

We looked at the J P. Three technologies I'll talk a little bit about what we're doing in the field gas commodity product during the start up which we're very excited about the opportunities that we're executing all with broke bracket looking at I would say.

Pipeline natural gas is coming to the hydraulic fracturing fleets in maag journeys quality. We believe this has a massive amount of scope increase that we can see with other.

I would say their equipment that goes into bill by different compressed and stuff that where there's a huge opportunity there as we transition to slip as further midstream or downstream, we're getting great acceptance in terms of looks that trains mix opportunities.

Prevent contamination, we're seeing a lot of field deployment into other looking at let's say quality different components.

We're still excited about what's going on there and what.

What we're mentioning in terms of the field gas contracting as a new opportunity.

Really really strong core so you've got a brighter and more progress to our digitization in combination of us modestly.

Eric you don't happen to have your own a computer all day.

Uh huh.

I have no beeping sounds coming out of my computer.

We just get feedback here. So go ahead, it sounds better now.

And then and then also you know what.

When we look at what we're doing on the international side of the business for further growth components there.

Theres a substantial I would say when we look at the Nrc's, we're continuing to see that that steady growth CAGR with a lot of those opportunities.

What's really exciting about that is that's in the core of what we're doing is around our surfactants stimulation chemistry, we've got great opportunities with <unk> in Kuwait, what's going on in Oman with AD knock in UAE and also with Saudi Aramco at applying what Oxford and more advanced carbonate type stimulations.

What we're looking for flowback AIDS and also what we're doing on the slick water trials in Saudi so big opportunities there consistent I'll say through the cycle activity that will there will be steady for us in the future on the chemistry side.

Thanks, guys that's helpful.

Yeah.

The pro practically great Erik young with J P. Three side fair ask because you've got a strategic partner and when you sit down its not like a sales meeting it's a value creation meeting for both parties and they are quick to adopt when they see the opportunity to create real value and so it's a real pleasure to sit and talk to them when you're you're focused on improving.

Your your ESG performance, reducing your C O two taking advantage of the new generation of fleets, they're putting out I mean, they are really quick to act when they see an opportunity that creates value.

And in other places we'd run into longer sales cycles, where you've got internal gatekeepers and are not as focused on sort of the fundamentals of being a great company.

Privilege to work with these guys.

Sounds good thank you.

Thank you again, if you don't have to ask a question. Please press Star then one.

Our next question will be from Bill Hyler W. E T. H capital. Please go ahead.

Yes, Hi, I appreciate the call today.

I had a couple of questions on the share count.

The fully diluted share count at June 30, 'twenty, two and and also you know.

Other than the Pik interest payments going forward employee stock comp.

Does that number incorporates all elements of the pro fac contract the pipe.

And maybe give us some idea of where you think these pik payments will approximate in Q3 and Q4. Thanks.

So this isn't that great question.

The share count is calculated on the 10-Q all of the earnings releases for purposes of the SEC.

Just includes what's already been converted so when you're looking at that share number on the back end. There is also the convertible notes that will convert next side.

In Q1, and Q2 as well as the warrants depending on when people convert youre looking probably roughly in the order of a I'd call it off the.

Top line about 100 million shares plus or minus.

We can do the exact math and I think we had valued you probably can as well, but the big point is theyre not included in that $76 million.

Nobody I think he is showing a 124 million average fully diluted for June 30th So there's probably a quarter end number already but does that number with you.

Maybe 130, whatever does that include Faulkenberry, what does that anticipate the fully diluted number that youre showing in the 10 in the press release today.

I would actually have to go back and look at the number of directly of the numbers that have right now the one that youll see on our 10-Q that gets filed.

Presumably later today, we will be about 7 million issued in outstanding roughly $6 million in treasury.

And then the convertible.

Shares other than about $3 million of them haven't converted yet so they won't be included in a number I'm not entirely sure how are you.

The $1 39.

Come back to you on that where we can do something like that.

I can circle back when do you expect the 10-Q to be filed.

It shouldn't be the statement okay.

Okay, Great I appreciate it guys.

Thank you.

This concludes our question and answer session not want to turn the conference back over to Mr. John Gibson for closing remarks.

Thanks, so much.

Everybody being on the call I appreciate our shareholders and sticking with us through all of this and now you're beginning to see what the values that we can create a great chemistry company, both molecules and digital and we have an opportunity to show that in our greatness is really dependent upon the quality of our people and we have great people that are <unk>.

Levering. This I mean again I'll, just repeat think about going up where you've done twice what you did in a year and a quarter with roughly the same head count we're just.

We've got people that are committed to making this a success and we look forward to working with you and create some wealth for everybody as well take care.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.