Flotek(FTK) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The first quarter consolidated revenue was $11.8 million, down 2.8% from $12.1 million in the fourth quarter and significantly below $19.4 million from the same period last year [34] - Adjusted EBITDA for the first quarter was a loss of $6.6 million, an improvement over the previous quarter's loss of $6.8 million and slightly above last year's loss of $6.3 million [39] - Consolidated operating expenses were $13.8 million in the first quarter, a 43.4% decline sequentially and a decrease of 89.6% from last year's level of $22.8 million [35] Business Line Data and Key Metrics Changes - The Chemistry Technology segment saw a 5% decline in revenue sequentially to $10.3 million, primarily due to the termination of the supply agreement with ADM, but excluding terpene sales, the segment improved by 7.1% sequentially [34] - The Data Analytics segment experienced a 16.7% increase in sales sequentially, driven by new product sales in North America, marking the highest performing quarter since the acquisition of JP3 [35] Market Data and Key Metrics Changes - Domestic energy chemistry revenue grew by 56% sequentially despite challenges from Winter Storm Uri, indicating strong demand recovery [34] - International sales were impacted by overall declines in market activity and supply constraints, but progress was made in international business development efforts [21][35] Company Strategy and Development Direction - The company is focusing on green chemistry and data analytics to help clients reduce their environmental impact and improve operational efficiencies [8][45] - A strategic shift in supply chain management aims to align terpene purchases with demand, reducing excess inventory and improving cash flow and margins [14] - The company is actively evaluating actions to improve financial flexibility, including the sale of non-core assets and potential asset-based loans [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second quarter, anticipating better performance than the first quarter, driven by improving demand and operational efficiencies [49] - The company is committed to enhancing its ESG initiatives and believes that its green chemistry solutions will play a significant role in the industry's transition to more sustainable practices [8][45] Other Important Information - The company is facing pending litigation related to its terpene supply agreement, but management is confident that it will not materially impact operations [13] - The company has made significant progress in hiring experienced leaders in its Chemistry Technology segment to drive growth [16][30] Q&A Session Summary Question: What does the top-line look like for Q2? - Management anticipates Q2 to be better than Q1, with ongoing improvements in demand and operations [49] Question: Will ceasing the reselling of terpene be a sequential headwind? - Management indicated that while ceasing the sale of terpene may impact top-line revenue, it was necessary to avoid losses from selling at a loss [51] Question: What opportunities exist in professional chemistry? - Management highlighted a diverse portfolio of products and a focus on health and cleanliness, with expectations for continued growth in the professional chemistry market [52][53] Question: How is the transition towards a service model for JP3 progressing? - The company is focused on increasing annual recurring revenue and is making progress in transitioning to a service model [56][58] Question: What is the approach to E&P companies versus oilfield service companies? - Management is engaging with both sectors, emphasizing the importance of chemistry in ESG initiatives and sustainability programs [61][64]