Flotek Industries, Inc. (FTK)

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Flotek Industries Inc (FTK)

Q4 2008 Earnings Call

March 16, 2009 10:00 am ET


Jerry Dumas - Chairman, Chief Executive Officer and President

Steve Reeves - Executive Vice President, Chief Operating Officer

Jempy Neyman - Senior Vice President and Chief Financial Officer

Andrew Jowett - Chief Accounting Officer

Brian Shannon - Investor Relations


Mark Brown - Pritchard Capital Partners

Sara Hunt - Alpine

Jacob Segar - Alameda Investments

Tom Sullivan - Private Investor



Good morning, and welcome to the Flotek fourth quarter and year end 2008 results conference call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. An operator will give instructions on how to ask your questions at that time (Operator Instructions). This conference is being recorded.

At this time, I would like to turn the conference over to Brian Shannon. Mr. Shannon, you may begin, sir.

Brian Shannon

Good morning and welcome to the Flotek year end 2008 conference call. Today’s call is being webcast and a replay will be available on Flotek’s website for seven days. The press release announcing the year end results will also be available on the Flotek website.

Before turning the call over to Chairman, CEO and President Jerry Dumas, I’d like to remind everyone that some of today’s comments may include forward-looking statements reflecting Flotek’s views about future events and that potential impact on performance. These matters involve risks and uncertainties that could impact operations and the financial results and cause our actual results to differ from our forward-looking statements. These risks are discussed in Flotek’s filings with the SEC.

Now I’ll turn to call over to Jerry Dumas.

Jerry Dumas

Thank you, Brian and welcome to all of you. We appreciate you joining our call this morning. Joining me today are members of the management Steve Reeves, our Executive Vice President and Chief Operating Officer; Jempy Neyman, our Senior VP and Chief Financial Officer; Andrew Jowett our Chief Accounting Officer.

In today’s call Steve will provide segment results and comments on our operations and Jempy will discuss our financial performance in our liquidity position. We will welcome questions after we complete our prepared remarks and we’d like to say to all of you that we’re looking forward to a very interesting period of time of questions, we welcome those questions.

In the year 2008, we increased our total revenue for the fifth year in a row growing 43% to a total of $226 million. This revenue increase occurred across all three segments of our business. In our drilling product segment, we are pleased with growth assisted by acquisition of Teledrift.

With the addition of this technology, we have achieved a significant increase in operating profit and in addition this gives a technological content to our downhole tool group, which is one of our goals as to continue to build the technological capability. Our proprietary chemicals continue to see greater growth and acceptance from our customers an increased activity could lead to gains in Artificial Lift.

Every year in the fourth quarter, we review goodwill and other intangible assets. Given the general economic climate and have an experience to decline in stock price inline with the market, management determent an impairment of $67.7 million was appropriate to right down goodwill to its fair value. Our net loss for the year was $31.9 million for our current year.

Excluding the effects of the impairment, adjusted income for the full year 2008 was $16.4 million or $0.85 per fully diluted share. Jempy Neyman our CFO who will provide further details in our presentation. He will expand greatly on our credit facility changes, which reflects the corporation and the support of our banking relationship with Wells Fargo, Prudential and Comerica.

I personally continue to monitor closely our SG&A cost and have identified $3 million in one-time cost that have impacted 2008. These costs related to increases in IT expenses, consulting and professional fees to improve assistance for reporting, severance costs and fees associated with Teledrift acquisition.

Although we typically provide earnings guidance for the upcoming year with the current uncertainty surrounding the duration and severity of this downturn, it would be difficult for us to provide earnings guidance within a great level of competence. Therefore we will not be issuing guidance for 2009. My confidence in this company and employees that work side-by-side with management is very strong.

At this point, I would like to have our Chief Operating Officer, Steve Reeves to give the segment performance. He will point out changes and events that affected our fourth quarter beyond the usual occurrences. Steve.

Steve Reeves

Thank you, Jerry. In our Chemical and Logistics sections, year-end revenue increased 26.8% to $109.4 million for 2008. Sales of biodegradable ‘green’, micro-emulsion chemicals grew 37.2% to $77.4 million for the year, as a result of increased fracturing activities and wider acceptance of our micro-emulsion products for both independent and the major pumping companies.

The operating income was $37.4 million in 2008, a 16% increase over 2007. However, due to rising costs of raw materials such as petroleum-based feedstock, operating income as a percentage of revenue declined 34.2% for the year. The increasing cost was partially offset by a price increase to our customers using these products.

Investment in infrastructure for international initiatives and declining market conditions experienced in the fourth quarter also impacted our performance in Chemical and Logistics. In response to declining market conditions and forecast for 2009, we’ve taken measures to size the segment to the marketplace and we’ll continue to do those. One of our production chemical facilities will be relocated to our Marlow Oklahoma facility.

Read the rest of this transcript for free on seekingalpha.com