Flotek Industries, Inc. (NYSE: FTK) reported a strong performance in its third-quarter earnings call on October 30, 2024, with CEO Ryan Ezell and CFO Bond Clement highlighting a 5% increase in year-over-year revenue to $49.7 million. The company also saw a significant rise in net income, up 97% to $2.5 million, and a 43% growth in adjusted EBITDA to $4.8 million.
The positive results were attributed to a 30% revenue growth in the data analytics segment and a considerable reduction in asset-based loan borrowings. Despite a 19% drop in revenue from order shortfall penalties, Flotek managed to reduce costs and improve its adjusted EBITDA guidance for 2024, signaling confidence in sustained growth and market expansion.
Key Takeaways
- Flotek Industries announced a 5% year-over-year revenue increase to $49.7 million in Q3 2024.
- Net income surged by 97% to $2.5 million, and adjusted EBITDA grew by 43% to $4.8 million.
- The data analytics segment experienced a 30% revenue growth, driven by a 40% sequential increase in data as a service revenues.
- Flotek reduced its asset-based loan borrowings by 81%, down to $6.1 million.
- The company raised its 2024 adjusted EBITDA guidance to between $16.5 million and $18.5 million, a 35% increase from initial estimates.
Company Outlook
- Flotek anticipates continued growth in the chemistry and data analytics segments, despite challenging market conditions.
- The company projects an adjusted gross profit margin for 2024 between 20% and 22%, up from 15% in 2023.
- Management remains optimistic about future performance, citing innovative solutions and a commitment to safety and quality.
Bearish Highlights
- A 19% drop in revenue was reported due to order shortfall penalties.
- Q4 is expected to be relatively soft for the market.
Bullish Highlights
- Flotek's data analytics segment, particularly flare monitoring services, is showing significant growth.
- The chemistry segment saw a 7% quarter-over-quarter increase, with positive signs for 2025 driven by international markets and operational intensity.
Misses
- Despite overall growth, the company faced a decline in revenue from order shortfall penalties.
Q&A highlights
- CEO Ryan Ezell discussed the growing customer base for flare monitoring services and the preference for rental agreements over capital purchases.
- The sales cycle for new data services is expected to shorten due to regulatory pressures.
- CFO Bond Clement addressed working capital concerns, noting improvements in cash flow management and a 12% improvement in days sales outstanding, excluding the annual order shortfall penalty.
Flotek Industries' third-quarter earnings call revealed a company on the rise, with significant improvements in revenue, net income, and adjusted EBITDA. The data analytics segment, bolstered by the recent EPA approval of the JP3 analyzer, is a particularly strong driver of growth. Flotek's strategic focus on expanding its market share and improving profitability, especially in the chemistry and data analytics segments, appears to be paying off. The company's proactive cost management and reduction in asset-based loan borrowings have further strengthened its financial position. Despite a soft outlook for Q4 and the impact of order shortfall penalties, Flotek's management remains optimistic about the company's trajectory for 2024 and beyond. With an emphasis on innovation, safety, and quality, Flotek Industries' future prospects look promising as it continues to navigate the complexities of the market.
InvestingPro Insights
Flotek Industries' recent strong performance is reflected in the latest data from InvestingPro. The company's market capitalization stands at $181.81 million, underscoring its position in the industry. Notably, Flotek has demonstrated impressive price momentum, with a 73.24% price total return over the past six months and a 45.73% return over the last three months, aligning with the company's reported financial improvements.
An InvestingPro Tip indicates that Flotek is trading near its 52-week high, which corroborates the positive sentiment expressed in the earnings call. This is further supported by the stock's significant 24.24% return over the last month, suggesting continued investor confidence in the company's growth trajectory.
The company's P/E ratio of 18.49 and adjusted P/E ratio of 22.32 for the last twelve months as of Q3 2024 reflect the market's valuation of Flotek's earnings potential. Interestingly, another InvestingPro Tip notes that Flotek is trading at a low P/E ratio relative to its near-term earnings growth, which could indicate potential undervaluation given the company's recent performance and raised guidance.
It's worth noting that InvestingPro offers 11 additional tips for Flotek Industries, providing investors with a more comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable for those looking to make informed investment decisions based on the latest data and expert analysis.
Full transcript - Flotek Industries Inc (FTK) Q3 2024:
Operator: Welcome to the Flotek Industries Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. I would now like turn the conference over to Mike Critelli, Director of Finance and Investor Relations. Please go ahead.
Michael Critelli: Thank you and good morning everyone. We appreciate your participation in Flotek’s third quarter 2024 earnings conference call. Joining me on the call today are Ryan Ezell, Chief Executive Officer and Bond Clement, Chief Financial Officer. First, we will provide prepared remarks concerning our business operations and financial results for the third quarter of 2024 as well as our updated guidance for the full year 2024 following that, we will open up the call for any questions you have. Flotek’s third quarter 2024 financial and operating results press release was issued yesterday afternoon. We also posted an updated Q3 earnings presentation that we will be referencing on today's call. These can all be found on the investor relations section of our website. In addition, today's call is being webcast, and a replay will be available on our website following the conclusion of this call. Please note that the comments made on today's call regarding projections or expectations for future events are forward looking statements. Forward looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and risk factors discussed in our filings with SEC. Please refer to the reconciliation provided in the earnings press release and corporate presentation as management, we'll be discussing non-GAAP metrics on this call. With that I'll turn the call over to our CEO, Ryan Ezell.
Ryan Ezell: Thank you, Mike, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our third quarter of 2024 operational and financial results. I'm pleased with our overall strategy execution during this quarter, but we remain laser focused on elevating our performance to increase market share and profitability growth in both of our complimentary business segments, as we challenge the organization to close out our strongest year since 2017. These final months of the year are going to be arduous work. We are confident in our team's ability to execute in the face of market headwinds and continue the trend of delivering strong results and resultant value creation for Flotek shareholders. With that in mind, I'd like to turn to slide 5 and touch on our key highlights for the quarter that Bond will discuss in detail in just a moment, with the backdrop of weaker North American Oil Field Services activity, we were able to grow total revenue 5% compared to the third quarter of 2023 and 8% sequentially over the second quarter of 2024 highlighting our strong execution and the continued progress we have made in capturing market share. This is quite an accomplishment when considering the fact that the active frac fleet counts have declined over 14% from the peak of the first quarter 2024. Our data analytics segment revenues grew 30% in the third quarter, as shown on slide 7 with data as a service revenue growth of 40% sequentially. Following the EPA’s approval of our JP3 analyzer in mid-July 2024 we recognized our first revenues for flare monitoring in August and September, which comprised 25% of total quarterly segment revenues. Revenue from our chemistry technology segment increased 7% in the third quarter. Our persistent revenue growth in this segment despite a declining frac fleet market is clear evidence that we are gaining market share through our differentiated chemistry technology solutions. We delivered significant year over year improvements in virtually all profitability metrics, resulting in net income of $2.5 million and adjusted EBITDA of $4.8 million representing a year over year increase of 97% and 43% respectively. This marks Flotek’s 5th consecutive quarter of net income and 8th consecutive quarter of improvement in adjusted EBITDA. As a result, we are increasing our adjusted EBITDA guidance for the second time this year. On a trailing 12 month basis, as is shown in slide 8. Flotek has delivered almost $25 million of improvement in adjusted EBITDA. Finally, we reduced borrowings outstanding under the asset base loan by 81% or $6.1 million when compared to year end of 2023 and most importantly, all of these achievements were accomplished with zero recordable and lost time incidents. I'd like to take a moment to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. And I continue to be excited about the future of Flotek, and believe we are well positioned to capture further market share. We continue to be an industry leader, driving innovation and delivering differentiated chemistry and data solutions that are tailored to our customer’s needs. We strive to create solutions for the future challenges that will impact our industry before they are needed by leveraging chemistry as the common value creation platform. Flotek will remain at the forefront of innovation and multi-disciplinary advancements as we bring new technologies to the market through the convergence of data and chemistry solutions, Flotek is creating AI driven reservoir modeling to address the impacts of water inhibition, drive preferential microfluid behavior in nanopore environments, and improve the ultimate recovery of hydrocarbons from each asset. Through the utilization of real time data measurements we are unlocking the potential to apply predictive analytics to holistically manage our customers assets and maximize their return on invested capital. We expect the continued expansion of our data as a service model with the launch of our next generation near infrared raman and aqueous environment measurement systems, unlocking significant upstream and downstream market opportunities if we expect the business to see continued growth going forward. As part of our commitment to being at the forefront of innovation, we announced in July the EPA approval of our JP3 system with respect to recently enacted flare regulations. A picture of our new flare monitoring cart that is currently on location can be seen on slide 10. This state of the art optical instrument is designed for the precise measurement of net heating values and flare gasses, and is the first to be approved as an alternative method under the new regulations. According to the EPA, there are over 55,000 existing players in the United States, and are expected to be subject to monitoring regulations by 2028 and this approval positions Flotek for growth in this new upstream space. We have already received numerous orders, with 11 units already being delivered, which is up from three we mentioned on our call in August. The majority of flare application revenues to-date have been through rental and service contracts which imply a recurring revenue stream. Furthermore, our upstream custody transfer use cases continue to expand into field trials, with a total of three active units in the third quarter, and additional eight committed units added thus far in the fourth quarter, we're on track to receive full certification for field utilization by year end. Our ability to monitor hydrocarbon composition and quality in real time, with measurements taken every five seconds will create an emerging market for Flotek to enter into 2025 and beyond. This revolutionary application creates an elevated level of transparency and enterprise risk minimization for producing wells that's never been achieved in the oil and gas industry to-date. As we look forward, we see the demand for oil and gas is expected to expand for the next decade, with further requirements needed through 2045. For the first time in nearly two decades, the demand for electricity in U.S. is expected to climb 15% by 2030 but natural gas expected to provide the bulk of the incremental demand. We expect the overall expansion of the global economy to continue to create substantial demand for all forms of energy, which will increase service intensity within the sector. As we look at the remainder of 2024 our efforts remain focused on revenue growth, market share expansion, cost efficiency gains, and creating value for our shareholders, as we are well positioned to capitalize on opportunities, both domestically and internationally. We are confident that our expanding suite of services positions us to deliver unique and superior solutions to a variety of our industry's most challenging problems, while maximizing our customers value chain. Now I'll turn the call over to Bond to provide key financial highlights.
Bond Clement: Thanks Ryan. Thank you everyone for joining us. This morning, yesterday afternoon, we reported strong results for the third quarter. On the income statement side, we posted sequential increases in revenue, net income and adjusted EBITDA, even though industry fundamentals were weaker. On the balance sheet side, we increased working capital and paid down debt. Our ABL balance at September 30th, was down 75% from the end of the second quarter as we utilize the 12% improvement in DSOs during the quarter and $5 million in cash flow from operations to pay down the line. Quickly touching on a few specific results, I'll be referring to the slides in the presentation posted to our website yesterday afternoon. Slide 5, summarizes certain of our third quarter achievements, revenues, net income, adjusted EBITDA, were all up compared to the third quarter of last year. Net income nearly doubled, adjusted EBITDA jumped over 40% versus the year ago quarter. Regarding revenue for the quarter, we reported total revenues of $49.7 million, which was a sequential increase of 8% this increase was highlighted by strong growth in revenue from our data analytics segment, as well as a 19% increase in related party chemistry revenue. While external customer chemistry revenues were down sequentially. They're still up 3% through the first nine months versus last year. It's worth noting that we had three large customers experience operational delays in September which caused certain external chemistry sales to be pushed to the fourth quarter. We fully expect external chemistry revenues to bounce back strong in the fourth quarter. Third quarter, gross profit was flat as compared to the second quarter. On a percentage basis, gross profit margin was down around 150 basis points, sequentially stemming from lower external chemistry revenues, which impact our product mix, as well as lower revenue attributable to the order shortfall penalty under our long term supply agreement, which is the result of the sequential growth in our related party business. Partially offsetting these items was our data analytics segment, which provided a meaningful contribution to gross profit during the third quarter. As shown on slide 7, gross profit from data analytics total $1.2 million during the third quarter of this year, an 88% increase compared to the second quarter. Data analytics gross margin came in at 44% during the quarter, a 47% improvement sequentially as we grew recurring revenue during the quarter. These strong margins are why we are so excited about the outlook for continued revenue growth in this segment that Ryan touched upon earlier. Moving down the income statement, we had an outstanding quarter as it relates to reducing overhead. Third quarter, SG&A costs declined to $5.7 million, a 12% improvement compared to the third quarter of last year, and a 9% sequential improvement, SG&A and a cost through the first nine months are now down 15% from last year, resulting in over $3 million in savings, or roughly half of the year to date net income. This is an area we will continue to apply maximum focus on improvement. Moving to slide 8 adjusted EBITDA for the quarter increased to $4.8 million. Keep in mind, we grew adjusted EBITDA 9% sequentially, despite revenue from the order shortfall penalty under our supply agreement declining by 19% or $1.6 million from the second quarter. Touching on the balance sheet at September 30th, we had $1.4 million drawn under the ABL. Our September 30th debt to trailing 12 month adjusted EBITDA was less 0.1 times. With respect to our updated 2024 guidance for the second time this year, we're raising our guidance based on the strong operational performance we delivered to-date and our outlook for the fourth quarter. We now expect adjusted EBITDA to be in the range of $16.5 million and $18.5 million, which is an increase of 35% at the midpoint compared to our initial 2024 guidance range of $10 million to $16 million. Put another way, the floor of our current guidance range now exceeds the ceiling of the original guidance range. Based on current projections, we expect our 2024 adjusted gross profit margin to be between 20% and 22% which compares very favorably to our 2023 adjusted gross profit margin of 15%. In closing, we posted solid third quarter numbers that build upon several consecutive quarters of financial and operational momentum. We're excited about our results for the first three quarters, and we anticipate closing 2024 out in strong fashion. If we're able to hit the midpoint of our updated guidance, we would achieve a $16 million improvement in adjusted EBITDA versus 2023 and a $26 million improvement versus 2022. With that, I'll turn the call back over to Ryan for closing comments.
Ryan Ezell: Thanks, Bond. We're excited about the remainder of 2024 as we have tremendous growth potential in both our chemistry and data analytics segments, despite the ongoing market headwinds. We believe that Flotek continues to represent a compelling investment opportunity. The expanding opportunities within our data analytics segment provides a strong catalyst for future revenue of profitability, growth. Our third quarter results deliver profitability, and we continue to be positioned for sustained growth as a collaborative partner of choice for chemistry and data solutions. I'm proud of the progress we've made, and I'm confident in our ability to continue to execute going forward. We appreciate the continued support of all of our stakeholders, and we hope that you share our excitement regarding the future of Flotek, and we look forward to reporting further progress. Operator, we're now ready to take questions.
Operator: [Operator Instructions]. Your first question comes from Jeff Grampp with Alliance Global Partners (NYSE:GLP).
Jeff Grampp: I wanted to start on the on the flare market, since some nice updates there. First, I'm curious if you guys can touch on kind of the preferred sales model that you're seeing from upstream customers, kind of lease versus buy. And then also, kind of curious on the customer concentration there. Are you guys seeing maybe a few customers really kind of going all in on this? Or is it a few, a broader set of customers that are maybe kind of dipping their toe in the water with some potential for increased adoption later. If you could touch on both those points, that'd be great. Thanks.
Ryan Ezell: Yes, I think when we look at the commercial model, obviously the preferential for us is more on the rental service agreement type, and that's where, as we mentioned in the notes earlier that we push the majority. There are a few customers who are looking at what we would consider to be full time flare monitoring, where they don't just come and monitor for the two week period, as set out by the EPA regulations. In doing so they're looking at a potential capital purchase for those in the long term, where we have a long term agreement in place for the monitoring software, etc. with it. So, but I would say currently, we are pushing in the preferential area of a full rental service model, whether we're doing it multiple wells at each time or single testing. Well going forward, in types of customer concentration, I think that initially we had, I would say 5 to 10 customers who were really pushing forward. Those are your customers that really are focused on sustainability side and overall environmental performance and we've made great progress. But I'll tell you, the diversification of the customer base is quickly expanding. I suspect if you look at what's going today with the current political environment, a few people slowed down in terms of just wanting to see what happened. I don't think it's going to negate the fact that the testing is going to be ongoing. We've had recent conversations with the EPA, and their expectations is that the regulatory and regulations will continue moving forward as is. So we're probably, we're expecting a little bit more of an acceleration at the end of this week, from where we are, but we've had great customer diversity so far.
Jeff Grampp: Great appreciate those details, Ryan, for my follow up on the cost side, you guys have continued to have, you know, really nice performance there, particularly with SG&A, I'm wondering, does there come a point where it makes sense to start to grow that line? You know, given the EBITDA margins are growing and should continue to grow, it seems like. And the growth opportunities you have with things like JP3 like, how do you guys think about, you know, continuing the impressive results you've had on the cost side versus kind of reinvesting in the growth of the company.
Bond Clement: Hey, Jeff it’s Bond, thanks for the question. Yes, we're looking at potentially adding some people relative to this demand that we're seeing on the flare marketing side. So these would be JP3 folks that would most likely show up in the cost of goods sold part of the income statement versus SG&A, but nothing, nothing as of yet right now. We're just kind of monitoring the demand to see how we can do with existing employee group but likely headcount might tweak up a little bit next year. But again, given the growth in the revenue side that we're expecting on a percentage of revenue basis, we would expect SG&A continue to trend down.
Ryan Ezell: Yeah. And I think in the middle of additional color for mine on that, Jeff, we started looking at it from a from an SG&A side. It's more than likely not a significant expansion. It'd be more on the direct cost side for field delivery as we evolve in that service model and there's no doubt that we're looking at probably a good bit of CapEx going into the data as a service business to stay in front of the demand curve that we're going to see coming in 2025.
Operator: Your next question comes from Gerry Sweeney with ROTH Capital.
Gerry Sweeney: I wanted to stay on the on the data side. Just interested in the pipeline. How you see the sales cycle? How long so will it take to -- maybe get deals across the finish line. I think you gave -- Ryan gave a little bit of details on that, especially around the election, but just curious in general. And then just, you know, quad regulation sort of take hold, how that would impact the sales cycle as well, especially as we move as they become a little bit more entrenched next year and the year after.
Ryan Ezell: It's a some great things to add some color around Gerry to be honest with you. Because when we look at our data as a service business, on the data analytics side, we really look at the opportunities in the pipeline. We kind of bifurcate those into what we have was our traditional core business around reid vapor pressure monitoring transmix, crude monitoring, etc, and the CAGR from the market in those areas, those typically have a longer sales cycle. We're looking anywhere from 9 to 12 months, and they follow CapEx plans as part of OpEx expense usually. As we've started to create, I would basically these emerging markets in monitoring flare, gas, our chain of custody that I mentioned, which is an exciting new area. These markets and the size of them are continuing to expand, and they offer intriguing opportunities for the growth of the company, because the sales cycles obviously in a government regulated area are much faster. As people are going to have to start to meet the requirements and so we're seeing these go from 9 to 12 months down to weeks at a time on the pursuit, sometimes less than a month and so that's adding a great opportunity for a market that we're still starting to understand the actual size of it, which you know, if you just start doing some rough math on 55,000 active wells, and if we look on the chain of custody side, probably over 100,000 wells to monitor, you can start to see the potential there. But back to the pipeline, I think on our core business, we've seen about a 15% or 20% growth in opportunities for ‘25 it's expanding double digit percentages every month on the upstream pieces, when you look at the size of what's coming on with flare and chain of custody side. And as we look forward going into ‘25 and ‘26 we're kind of doing a low, medium and high range on the potentials of the sizes of these markets, how we look at ensuring that we reinvest the proper CapEx to make sure that we capture all the growth potential there.
Bond Clement: Hey, Gerry, It’s Bond. Just quick follow up, just to think about the velocity of the sales on the flare monitoring we got the EPA regulations, and call it mid-July we got the approval. August we did about $100,000 of revenue, September we did about $600,000 so it's really starting to gain some traction
Gerry Sweeney: On that front. And that's what I want to get to next was, I think you said you had, and there was a lot of information given out there. So I apologize if I have this wrong. Three units, I think in the quarter, and you're looking to go to 11 units?
Ryan Ezell: Finish the question then I will finish it up.
Gerry Sweeney: No, I want to make sure that is for the flare gas monitoring the 3 units to 11 units, and the numbers Bond just gave sort of implies that the flare gas is starting to take off and is having a meaningful impact in fourth quarter, should see a meaningful impact as more and more units come in on board. Now, I know there's probably some nuances to rental versus capital sale, but maybe we can discuss that.
Ryan Ezell: Yes, so just to clarify on the numbers, so the three we mentioned were on our earnings call we had in August for Q2 they were in location, that number grew from 3 to 11, and that will actually be 12 by Friday of this week active in flare monitoring, and we expect continued growth in that area throughout the quarter. We also discussed our chain of custody applications, a completely different piece where we're looking at hydrocarbon composition of flowing that one was we had three field trials running. We will add an additional 8 units here in Q4 and pushing that number up. So it's quite an exciting story. I would say, three quarters ago we talked about monitoring field gas flare monitoring, chain of custody, and now those use cases are in effect and growing. So a lot of potential there in those areas.
Gerry Sweeney: Little bit of a nuanced question. You have flare monitoring and chain of custody. Are they on track or going growing faster than you maybe anticipated six months?
Ryan Ezell: I would say that. I would call the chain -- I meant the flare monitoring is relatively on track, considering how everybody would feel with the geopolitical issues around November 5, right? I look for those things -- as we had mentioned to you earlier, that we expect them to kick back in even a higher gear on the back half of the year, on deliveries and on flare. And I would say that the chain of custody piece is probably a little ahead of what we're thinking, because there's a lot of pieces around that in terms of what people do with it, the transparency of that data and how it cross in terms of whether they're looking at the price or paying for the composition of that crude, etc, compared to a composite sample. So that's the reason why we're also talking about the certification of the measurement in terms of how the market looks at it, but it's, obviously, it's ahead of schedule right now.
Gerry Sweeney: Yes, I obviously with the election and everything. I think some of the changes to the rigs, I felt like flare gas monitoring is doing really well with some, you know, some nuances in the market and different things going on. It feels like it's actually stronger than I anticipated.
Ryan Ezell: Yeah. And again we're excited about it because of the, you know, great success in the field, we're able to hook up monitor, and we've gone up to three wells in one day with some of the testing. So it's run really well so far.
Operator: Your next question comes from Josh Jayne with Daniel Energy Partners.
Josh Jayne: First question I had is just on the chemistry side up 7% quarter-over-quarter in the face of continued weak frac count and rig count, just you gave some thoughts about electricity demand out to 2030 and I'm not going to ask you for a forecast of that, but maybe you could just talk about where we are in the U.S. land cycle today, what you're hearing from your customers over the next couple of quarters, and if you think that you can, or reasons you may be able to outperform as you have been over the last sort of 9 to 12 months on the chemistry side.
Ryan Ezell: Yes, I think it's still a little bit of a crystal ball for us, right? I would say we weren’t in a spot where we are in Q4 I would think the Q4 is going to be relatively, I would say, for the market itself is going to be relatively soft. I think that we've had some really good, sticky, transactional business with our customer base. And I expect to see an acceleration in our international chemistry markets. And so I think we will have a strong quarter in the chemistry side. When I look at 2025 our customers are telling us over the coming quarters, particularly as you get towards the mid-year that we're going to see a strength in the operational intensity, a little bit of an increase there but I still think that all comes down to the quality of our commodity pricing in terms of natural gas and how the geopolitical environment holds that price of oil on the demand side. But I think that I'm hoping, and what we're reading the tea leaves, is that the Q4 is going to be the slower spot. You'll start to see a little bit of an increase when we roll into 2025 is how we're looking at it right now. And I think the diversification of us supplementing some of the North American activity. What we're doing international markets, in Latin America, in the Middle East, is going to give us a little bit extra window their wings in terms of being able to outperform.
Josh Jayne: Okay, thanks. That's helpful. And then maybe just one on the on the income statement, or, sorry, on the cash flow statement for Bond. Working capitals built a little bit over the last call it nine months. Thoughts on converting some of the AR to cash, just as we move forward over the next couple of quarters and reasons, we may be able to convert more cash than you've been generating so far. Thanks.
Bond Clement: Yeah. Just remember, Josh a big component of that build in working capital is related to the order shortfall penalty. That order shortfall penalty settles on an annual basis, so that receivable just grows throughout the year to the extent ProFrac doesn't purchase the requisite amount of chemistry. So that's one that we don't have a lot of control over. So but if you back out the OSP from the change in working capital. AR was actually down during the second quarter, so we're doing a pretty good job. I think as I mentioned, DSOs were improved by 12% during the quarter when you exclude that order short file penalty, which is kind of on a different pay terms than the rest of our standard business.
Operator: There are no further questions at this time. I will now turn the call over to Ryan Ezell, CEO for closing remarks.
A - Ryan Ezell: Thanks everyone for joining the call again. Again we continue to be excited about the future of Flotek’s, the evolution of our business is how we bring together the synergies of our unique and innovative chemistry technologies group with our emerging markets and data analytics and look forward to our call here in Q4. Thank you for your time today.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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