Flotek Industries, Inc. (FTK)

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Flotek Industries (FTK)

Q3 2012 Earnings Call

November 08, 2012 8:30 am ET

Executives

Glenn Neslony - Vice President and Treasurer

John W. Chisholm - Chairman, Chief Executive Officer and President

Johnna D. Kokenge - Chief Accounting Officer and Vice President

Steven A. Reeves - Executive Vice President of Operations, Business Development and Special Projects

Marc Kevin Fisher - Executive Vice President of Global Business Development

Analysts

Michael R. Marino - Stephens Inc., Research Division

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

Gregory P. Garner - Singular Research

Richard Dearnley

Presentation

Operator

Good morning, and welcome to the Flotek Industries Inc. Third Quarter 2012 Earnings Conference Call. [Operator Instructions] This conference is being recorded. At this time, I would like to turn the conference over to Mr. Glenn Neslony, Vice President and Treasurer of Flotek Industries. Mr. Neslony, you may begin.

Glenn Neslony

Thank you, and good morning. Today's call is being webcast, and a replay will be available on Flotek's website. Our earnings and operational update, press release, as well as our quarterly report with the United States Securities and Exchange Commission, were filed and distributed last evening and are also available on the Flotek website.

Before I turn the call over to Flotek's Chairman and President, John Chisholm, I wish to remind everyone participating in this call, listening to the replay or reading a transcript of this call of the following. Some of the comments made during this teleconference may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act -- Exchange Act of 1934, reflecting Flotek's views about future events and their potential impact on performance.

Words such as expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements on this call. These matters involve risks and uncertainties that could impact operations and the financial results and cause our actual results to differ from such forward-looking statements. These risks are discussed in Flotek's filings with the United States Securities and Exchange Commission.

Now, I'd like to introduce Mr. John Chisholm, Flotek's Chairman of the Board, President and Chief Executive Officer.

John W. Chisholm

Glenn, thank you. I would also like to welcome each of you to Flotek's third quarter conference call. With me today are Johnna Kokenge, Flotek's Vice President and Chief Accounting and Compliance Officer; Steve Reeves, our Executive Vice President of Operations; Kevin Fisher, Executive Vice President of Global Marketing and Business Development; and Chris Edmonds, Flotek's Senior Consulting Director of Finance.

Last evening, we filed our quarterly report with the U.S. Securities and Exchange Commission. While we won't take your valuable time to regurgitate those filings, we will provide a summary of the results, attempt to add some color regarding current operations, as well as a sense of our future, and then be happy to answer your questions.

As our third quarter results suggest, Flotek continues to produce steady results for you, our stakeholders, even as the oilfield technology cycle presents challenges and obstacles to growth. The uncertainty in the global economy and the volatility with downward bias in commodity prices continue to put pressure on oilfield activity in the third quarter. However, as a result of the hard work and determination from my Flotek's colleagues, the company managed to post growth in both revenues and gross margins. In fact, when comparing the third quarter of 2012 to the third quarter of 2011, Flotek was 1 of only 5 oilfield service companies in our peer group that posted revenue growth and 1 of only 2 that showed growth in gross margins, leading the group. On a sequential basis, Flotek also posted growth in both revenues and gross margins, again, among a very small group of peers.

Our success, while somewhat muted in challenging markets, is a result of 2 very important tenets that differentiate Flotek. First, our focus on added value. Oilfield technology creates opportunities for our products across the oilfield cycle. While the time to initial sale may be somewhat longer than commoditized products, once Flotek products are inside a client's system, our retention and existing client growth rates are amongst the best in our industry. Second, we continue to penetrate new markets and new clients. For example, we recently told a story in a recent press release about our work in enhanced oil recovery and how that work for Chaparral Energy, a client committed to leading-edge technology to enhance production, led to an increase in production of 14,000 barrels over a 3-month period or over $1 million in incremental revenue.

Project stories like that and our continued commitment to research and innovation are the reasons each member of the Flotek team brings their A game to work each and every day. While there isn't a lot we can do about the economic uncertainties that create the backdrop for our business, we can and continue to focus each and every day on what we can control: being the best at what we do, providing exceptional service to our customers to build durable relationships and being absolutely committed to providing cutting-edge technology to our clients, whether in the areas of chemistry, downhole technology or Artificial Lift systems, through the best research and innovation team in the industry.

Not only does our commitment to research and innovation benefit customers, it applies to the internal processes of Flotek as well. The best example of the impact of internal innovation and process improvement comes in our chemical group. At our manufacturing facility in Marlow, Oklahoma, our production team worked together to develop a better and more efficient way to grow our production capacity. With cutting-edge design and less than $3 million in capital, Flotek was able to increase production by approximately 32% while reducing man hours worked by 27%. As we continue to grow our businesses, we will strive to find similar efficiencies in all of our business lines.

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