Flotek Industries Inc (FTK) Q1 2024 Earnings Call Transcript Highlights: Strategic Gains Amidst ...

• Revenue: Q1 2024 total revenues were $40 million, down from the previous year, influenced by seasonality and lower frac fleet activity.

• Net Income: Reported a net loss of $1.6 million in Q1 2024, an improvement from a net loss of $9.3 million in Q1 2023.

• Gross Profit: Increased by $7 million year-over-year, with a gross profit margin of 22%.

• Adjusted Gross Profit: Rose by $7.4 million from the previous year, with an adjusted gross profit margin of 25%.

• Adjusted EBITDA: Improved by $7.9 million year-over-year, marking the 11th consecutive quarter of improvement.

• External Chemistry Sales: Increased by 27% year-over-year, indicating market share gains.

• Data Analytics Revenue: Grew by 18% quarter-over-quarter, with expectations of a 50% growth in 2024.

• SG&A Expenses: Declined to $6.1 million, improving by about 6% from the same quarter last year.

• Debt to EBITDA Ratio: Reduced to 0.3 times as of March 31, 2024.

• 2024 Guidance: Adjusted gross profit margin expected between 18% and 22%, with adjusted EBITDA projected between $10 million and $16 million.

• Warning! GuruFocus has detected 5 Warning Signs with FTK.

Release Date: May 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Flotek Industries Inc reported significant year-over-year improvements in gross profit, adjusted gross profit, and adjusted EBITDA, marking the third consecutive quarter of net income.

• Q1 2024 adjusted EBITDA surpassed the total for the entire year of 2023, demonstrating strong financial performance and operational efficiency.

• External chemistry sales in Q1 2024 were the highest for a first quarter since the turnaround began, showing a 27% increase year-over-year.

• The data analytics segment saw an 18% quarter-over-quarter revenue growth, highlighting progress in data service revenues and the upcoming midyear release of the new Calix spectrometer.

• Flotek Industries Inc maintained a strong safety record with zero recordable and lost time incidents, extending over 843 days of safe operations.

Negative Points

• Revenue was slightly down sequentially from Q4 2023, primarily due to lower external chemistry sales, reflecting seasonal trends that have persisted over the past three years.

• Despite the increase in external chemistry sales, the overall revenue for Q1 2024 was $40 million, down from the previous year, partly due to lower related party activity.

• The company faces ongoing challenges with natural gas directed completions, which impacted the full service demand and contributed to the revenue decline.

• Flotek Industries Inc did not provide specific revenue guidance for 2024, citing uncertainty around the timing of improved natural gas pricing and its impact on completion activity.

• While the company is transitioning to a data as a service model, there is still a need to balance between capital sales and subscription models, which could affect revenue consistency and customer acquisition.

Q & A Highlights

Q: Can you provide an update on the timeline for EPA regulatory approval for JP3 and your expectations for its adoption rate? A: Ryan Ezell, President and CEO of Flotek Industries, indicated that the EPA approval is expected to align with the midyear production timeline of their new Calix model. He highlighted significant adoption of their data as a service, which has grown from 23% to 50% of their revenue year-over-year, suggesting a robust adoption curve post-approval.

Q: With the transition to a more EBITDA and cash generative company, how is Flotek planning to allocate its capital? A: Ryan Ezell discussed investing in trucking capitalization to reduce logistics costs and spending on JP3 advancements. He also mentioned evaluating M&A opportunities, particularly in the chemistry market, to ensure any capital deployment would be highly accretive to Flotek.

Q: Can you discuss the progress and customer feedback on the pilot project for your new technology? A: Ryan Ezell shared that the pilot project is seeing expansion and positive feedback, with an increase in customers interested in monitoring flares in real-time and validating field trials. He noted a significant deployment of units in various geographic locations, indicating strong customer engagement and potential for broader adoption.

Q: Are there any significant CapEx requirements anticipated for scaling up your operations in 2024? A: Ryan Ezell and CFO J. Bond Clement clarified that the CapEx for scaling up is manageable, with a substantial reduction in costs for their new generation analyzers. They have allocated around $2 million for building units, which will cover a significant portion of their needs for the year.

Q: How is Flotek's data analytics and chemistry segments integrating AI to enhance E&P operations? A: Ryan Ezell explained that AI is central to advancing their chemometric modeling and data analytics, particularly in improving the accuracy of models and enhancing the performance of their chemistry solutions. He highlighted the use of AI in optimizing formulations and advancing recovery rates, which positions Flotek uniquely in the market.

Q: What are your expectations for external chemistry sales and adding new operators to your platform in 2024? A: Ryan Ezell expressed optimism about increasing external chemistry sales and adding new operators. He noted a shift in seasonality and a robust pipeline of activities, suggesting strong growth potential in their external chemistry segment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.