Flotek Industries Inc. (NYSE:FTK) Q3 2018 Earnings Conference Call Transcript

Nov 07, 2018 • 10:00 am ET

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Flotek Industries Inc. (NYSE:FTK) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning and welcome to the Flotek Industries Inc. Third Quarter 2018 Earnings Conference Call. (Operator Instructions) This conference is being recorded.

At this time, I would like to turn the conference over to Matt Marietta, Flotek's EVP of Finance and Corporate Development. Mr. Marietta, you may begin.

Executive
Matthew Marietta

Thank you and good morning on behalf of the Flotek team. Joining me this morning are John Chisholm, Flotek's Chairman, President and CEO; Rich Walton, our Chief Accounting Officer; and Josh Snively, EVP and Head of Operations, as well as other key members of our leadership team. Our earnings press release was distributed yesterday afternoon in conjunction with the third quarter earnings supplement presentation, both of which are available on our website. In addition, today's call is being webcast, and a replay will be available on our website.

(Forward-Looking Cautionary Statements)

With that, I'll turn the call over to John Chisholm.

Executive
John Chisholm

Thanks, Matt; and thanks for hanging in there and being under the weather. And thank you all for joining today's call. I'd like to thank all of the Flotek employees for their hard work and our stakeholders for their support.

The structure of today's call will be a little bit different from previous quarters. We posted a supplemental slide deck to our website, which will serve as a useful visual guide to some of the key items discussed today. Additionally, in the interest of being direct, concise and transparent to our shareholders and to leave more time for Q&A, I'll take us through key highlights for the quarter, let Matt come back, provide a brief financial update, and then return with my thoughts on today's industry context, how Flotek is providing value to the market, and conclude with outlook and guidance. We'll then open the line for questions for which Josh Snively and Matt, and our leadership group will be available to elaborate.

In the context of recent reports on the industry activity levels in the third quarter and into the fourth quarter, I'm proud of what we have accomplished in the progress made today. Flotek's third quarter consolidated revenues increased 20% sequentially due to increased demand for Complex nano-Fluid known as CnF, driven by unconventional activity in the Middle East by NOCs.

Adjusted EBITDA of $2 million represents a 51% incremental margin from last quarter and a $6 million sequential improvement from the second quarter. These strong incrementals were made possible by increased CnF sales abroad, our continued expansion in the higher margin Flavor and Fragrance opportunities at Florida Chemical and our relentless focus on cost reduction.

In fact, we removed an additional $3 million of annualized cash SG&A during the quarter and have now reduced cash SG&A by an annual run rate of $28 million compared to our year-end 2016 reference point. We have put into place further structural cost savings to streamline logistics, IT systems and other administrative functions, which will drive greater operational efficiencies going forward.

As a result, we believe we can achieve cash SG&A levels down