Flotek Industries, Inc. (FTK) on Q2 2022 Results - Earnings Call Transcript
Operator: Good day, and welcome Flotek Industries Second Quarter 2022 Conference Call. Please note that this event is being recorded. Now I'd like to turn the conference over to Mr. Bernie Colson, Senior Vice President, Corporate Development and Sustainability. Please go ahead, sir.
Bernie Colson: Thank you, and good morning, everyone. We appreciate your participation. Joining me today and participating on the call are John Gibson, Chairman, Chief Executive Officer and President; Ryan Ezell, Chief Operating Officer; Seham Carson, Interim Chief Financial Officer; James Silas, Senior Vice President of Research and Innovation; and Nick Bigney, General Counsel and Chief Compliance Officer. On today's call, we will first provide prepared remarks concerning our business and results for the quarter. Following that, we will answer any questions you have. We have now released our earnings announcement for our second quarter 2022 results, which is available on our website. In addition, we posted an updated investor presentation that you are welcome to download and refer to during this call. As a reminder, today's call is being webcast, and a replay will also be available on our website. Please note that any comments we make on today's call regarding projections or our 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 the risk factors discussed in our filings with the SEC. Also, please refer to our reconciliations provided in our earnings press release as management may discuss non-GAAP metrics on this call. I will now turn it over to John.
John Gibson: Thank you, Bernie. Good morning, everyone, and thank you for joining the discussion of our second quarter results for 2022. We've really been looking forward to reporting our results today as well as providing some color on what's transpired since the end of the quarter. Second quarter marks the full -- first full quarter that Flotek is operated with the landmark ProFrac supply agreement, which we described in detail in past months. We're delighted to report that the contract and the transactional business are ramping up as envisioned resulting in 2.3x sequential revenue growth and 3.2x year-over-year growth. We also have significantly improved our cash position, which our interim CFO, Seham Carson, will describe in more detail in her remarks. As a reminder, our contract with ProFrac was effective as of April 1. It spans 10 years and covers an equivalent volume of our full suite of downhole chemistries to serve 30 of their frac fleets or 70% of their total frac fleet, whichever is greater. While we are still in the early days of the contract serving an average of 8 fleets in Qw2, we remain confident in our ramp-up to the full contract scope over the coming quarters. We also have no reason to expect that our relationship is bounded by the 30 fleet or 70% numbers. As we continue to provide exemplary service, ProFrac has the incentive to maximize chemical deliveries from Flotek due to the structure of our arrangement. ProFrac recently announced the acquisition of U.S. Well Services, which is expected to close in Q4. As a result, they expect to be operating 44 active frac fleets by the end of '22. Simple math says 70% of 44 is a bit less than 31%. However, we fully expect that we can win more of that business as we scale up, and our goal is for ProFrac to desire to purchase chemistry from its entire fleet. We really want to be a strategic supplier for ProFrac. This agreement is proving to be transformational for Flotek and the industry. As a result of this agreement, E&Ps now have a comprehensive, vertically integrated completion solution that reduces emissions and delivers greener chemistries, thereby protecting air, water, land and people. Over the next decade, we anticipate the agreement should create backlog of more than $2 billion in revenue for Flotek, including anticipated revenues in excess of $200 million in 2023 for the ProFrac contract alone. And this number does not include any of the impact from ProFrac's announced acquisition of U.S. Well Services. Once that acquisition is complete, we will be able to provide more color on the additional benefit we expect to see from ProFrac's increased scale. I'll also continue to stress that this contract is nonexclusive, allowing us to add new customers to continue to grow sales volumes to the rest of our energy chemistry customers, which we've successfully done in the first half of 2022. To illustrate the scale of the growth we've achieved, we've delivered 19 million pounds of chemistry for the entire year of 2021. In Q2 2022, we delivered a total of 40 million pounds of chemistry, with 9 million pounds of the chemistry to our transactional chemistry customers alone, 9 million pounds being almost half of what we delivered in the full year to transactional customers in a single quarter. Ryan is going to provide more details about our strong top line growth in his comments. On July 20, we pre-released our Q2 revenue numbers due to the material sequential increase in the quarter. On that release, we promised revenue in excess of $28 million, and we're pleased to announce that we were able to report revenue of $29.4 million, which again represents 2.3x growth over Q1 and 3.2x growth over Q2 2021. I'm very proud of the team's performance in the quarter and achieving this growth. It took a lot of effort. We have an absolutely phenomenal and great flawless execution in Q2. The growth we've executed has presented some challenges, and I want to briefly address our adjusted EBITDA and attempt to preempt some of questions on that topic during the Q&A. On our Q1 conference call, we emphasized that we expected to experience higher-than-usual costs in the coming quarters associated with a rapid increase in activity, basically the ramp-up. That statement proved accurate, and we again signaled a higher cost on our July 20 press release. The final result in Q2 was an adjusted EBITDA of negative $7.2 million, which represents a slight deterioration over Q1. Ryan will provide greater detail on expense drivers in this commentary. But in summary, we are confident in our ability to increase fall-through to the bottom line going forward, and we are executing as expected. We remain committed to achieving positive adjusted EBITDA margins. In the investor deck that we recently posted to our website, we included a slide illustrating our steady improvement in adjusted EBITDA margin that has taken place over the previous 4 quarters. We expect this trend to continue through the second half of '22 and into 2023. Our future success hinges on our ability to maximize success of our customers' customer, which are the oil and gas producers that rely on our products to maximize production, while minimizing environmental impact. We set a change in the market here where a customer focus on minimizing cost is starting to give way to more concern about initial production rates, maximizing ultimate recovery EUR and minimizing the odds of reservoir damage caused by careless chemistry. This trend strongly favors our core capabilities and market position, and we are excited to see how much market share we can gain in the coming years as a result. Now I'd like to turn it over to Dr. Ezell. Ryan?
Ryan Ezell: Thank you, John, and good morning. This was a defining quarter for Flotek as the revenue growth exemplifies our strategy to be the collaborative partner of choice for sustainable, optimized chemistry and data solutions is working. So let's get right to the highlights. As John mentioned, total company revenue increased by 2.3x sequentially and more than 3.2x over the same period in 2021. In total, we delivered in excess of 40 million pounds of chemistry to our customer base in Q2, which far surpasses the total volume of chemistry delivered in the full year of 2021. Our transactional chemistry technologies revenue grew 15% sequentially. This is outpacing the hydraulic fracturing fleet market growth for the fourth straight quarter, further indicating that we are gaining market share with our customized chemistry solutions. Additionally, our focus on balance sheet metrics and working capital preservation led to a 28% reduction in our days sales outstanding, a 60% reduction in days inventory outstanding and gross inventory only expanding 14% in absolute terms with a 128% improvement on revenue sequentially. Finally, this ramp in activity was executed with 0 lost time incidences, 0 spills and no discharges. I'm pleased with the solid performance delivered in the first half of this year. And I want to thank all Flotek employees for their hard work and contribution to these outstanding results and the dedication to collaboration, safety and service quality. Now transitioning into a few of the key details for the quarter. I'd like to discuss the status of our mutually beneficial partnership with ProFrac, which I'm happy to say is off to a very solid start. In Q2, we concluded the first full quarter of the contract operations by providing downhole chemistry to an average of 8 ProFrac fleets across 4 major basins. We expect this number to double to 16 or greater fleets in the third quarter as we continue to execute our accelerated ramp of chemical deliveries. I'd also like to take a moment to add further color to the details of the ProFrac contract that we have not previously spent enough time talking about. And while we typically discuss the operational execution in terms of fleets service, the real underlying driver of the contracts is delivered volume. There are numerous assumptions calculated into the contract concerning chemicals delivered based on specific product type and geographic location. ProFrac was conservative in their assumptions on the calculated volumes per fleet when we designed and negotiated the contract. And to date, the delivered volume per fleet has run ahead of our expectations. In other words, it's very possible that we'll be able to fulfill the contracted volumes at a fleet count that is less than 30. Additionally, this provides potential upside throughout the 10-year life of the partnership. And with such prolific increases of differentiated solutions being distributed to the well site, it is imperative that proper chemical supply, manufacturing and logistics be in place for successful implementation. We made a strategic shift during the downturn to an in-basin delivery model of certain high-volume chemicals, allowing us to maximize our manufacturing capacity and preservation of working capital, while bringing key components of the chemical supply chain closer to our customer base. We previously stated that we have the ability to double our manufacturing capacity utilization levels without significant capital investment. In reality, the shift to in-basin delivery means the situation is far better than that, and we have no concern about our ability to satisfy our explosive growth without needing to build additional facilities. Now looking at the quarterly performance, we continue to make steady progress in growing market share and outpacing industry activity levels. I am particularly pleased that we're experiencing a customer portfolio expansion with both domestic and International E&P operators as well as service companies as we deliver on our continued commitment to diversify our revenue stack and minimize risk of customer concentration. This includes the first field application of our integrated approach to digital chemistry at the well site. In Q2, we successfully deployed our proprietary JP3 Verax analyzers on designated fleets to evaluate field gas usage by monitoring pipeline natural gas quality and energy content. By monitoring consistent gas supply in real time, we were able to reduce diesel usage by 50% to 70% on location by the hydraulic fracturing fleets. Subsequently, we can enable dual fuel operations to adhere to Tier 4 EPA emissions, which represents an approximate 35% reduction versus Tier 2. We believe this will be a powerful use case to protect our customers' capital equipment while reducing fuel costs and greenhouse gas emissions in the field. More importantly, we have elevated this commercially to a 5-year agreement with ProFrac to deploy up to 20 Verax units on their dual fuel fleets going forward with multiple opportunities of similar scale and scope in the pipeline. I'd also like to refer you to our recent press release for more details on this new commercial agreement with ProFrac. And we're focused on creating synergy between chemistry and digitization to leverage our differentiated solutions to reduce the impact of chemistry in regard to total cost of ownership as well as environmental cost of ownership for our customers and the industry, both international and domestic markets. So simply speaking, we are focused on protecting water quality, minimizing formation damage and improving the estimated ultimate recovery of every single completion. And in the spirits of minimizing risk, we continue to leverage our increasing volumes of key suppliers to further secure future purchase prices and material allocation volumes with our top product lines as we focus on our accelerated growth. As we increase volume with our suppliers, we will take advantage of economies of scale to reduce costs and expand margins. With that said, we are feeling the impacts of inflation across the supply chain, but these are industry-wide and global trends, and we are adjusting our pricing accordingly to increase margin to healthier levels. I'd also like to spend some time focusing on the biggest single driver of cost inflation during the quarter, which was freight and logistics. Cost related to freight and logistics ran higher than we expected at the beginning of the quarter, mainly due to field deployment and mobilization charges of our ISO tank storage fleet. The massive increase in delivered volume required us to accelerate the mobilization of more than 80 new field deployment tanks to the various basins across our geographical operations. This growth represents a fivefold increase quarter-on-quarter. And we don't expect this expense-related ISO deployment to recur as we are advancing capabilities for bulk storage in the major basins of activity in the U.S. and subsequently, the gross margins and the ramp-up are not reflective of our expectations during the steady-state execution phase. And in summary, I continue to be optimistic about the future. I'm excited about our mission to provide differentiated solutions that maximize value to our customers, while maintaining our commitment to ESG, market share growth and SG&A discipline. Now I'll turn the call over to Seham to provide key financial highlights.
Seham Carson: Thank you, Ryan. I would like to begin by reminding everyone of several accounting considerations related to our convertible notes and supply agreement with ProFrac, which proved to be meaningful in the second quarter. First, there will be a quarterly noncash entry to account for mark-to-market adjustments to the convertible notes over the 1-year life of the notes. The Q1 2022 adjustment was a noncash loss of $3.9 million, while in Q2, we had a noncash gain of $17.2 million. I want to go into a little bit more detail as these numbers are significant and will continue to add quarterly volatility to our financial results. The Q1 2022 noncash loss of $3.9 million applied to the mark-to-market adjustment to the initial $10 million of notes issued in Q1 that are associated with the ProFrac supply agreement as of March 31. Big swing in Q2 to a noncash gain of $17.2 million resulted from the additional $69 million face value of notes issued in the second quarter associated with the supply agreement and a significantly lower stock price on June 30 as compared to March 31. So yes, in simple terms, when the stock goes down from quarter end to quarter end, we book a gain. And the more the stock declines, the larger the gain will be. I think we can all take to heart in the fact that, again, these are noncash entries and also that we will only book these through Q2 2023 or when the second tranche of the convertible notes convert to equity, whichever comes earlier. Second, during the second quarter, there was a $737,000 noncash reduction to revenue reported related to our ProFrac contract assets. Our contract asset represents the value of the convertible notes issued as a consideration for the initial ProFrac supply agreement in Q1 and the amendment in Q2. The cumulative fair value of these notes as of the closing dates of the 2 tranches was approximately $83 million and reported as a contract asset, which will be amortized over the 10-year life of the ProFrac supply agreement and be reflected as a noncash reduction to revenue in our U.S. GAAP financials. Again, I want to emphasize, these are noncash adjustments, which can all expect to see additional noncash adjustments each quarter, but the magnitude is difficult to predict as it's based on the share price and other variables. If you're interested in getting into the detail of how the convertible notes are valued, please refer to our SEC financials for the methodology and underlying assumptions. Now moving on to the income statement in Q1. Consolidated revenue of $29.4 million for the quarter was up 128% compared to Q1 2022, and up 221% compared to the second quarter last year. Excluding the noncash reduction in revenue associated with the contract asset, revenue was $30.1 million in Q2. Consolidated cost of goods sold of $31.7 million was up 137% compared to last quarter and up 194% year-over-year. Increases were primarily attributable to ramp-up expenses associated with the ProFrac supply agreement as Ryan previously outlined. Gross margin during Q2 2022 was negative $2.3 million, down from negative $0.5 million in Q1 and negative $1.6 million in Q2 2021. Excluding the noncash revenue reduction mentioned above, gross margin was negative $1.6 million in Q2 2022. In the second quarter 2022, SG&A of $7.4 million was up 52% compared to Q1 2022 of $4.9 million and up 77% compared to Q2 2021. As we took on additional expenses due to professional fees from increased use of contract labor, consultants and legal fees relating to the ProFrac and PIPE transactions. However, included in SG&A was approximately $1.7 million of professional fees expected to recur. Our non-GAAP EBITDA for Q2 was positive $8.1 million, an $18 million increase from last year's negative $9.9 million and Q2 last year of negative $6.3 million. The major driver of the significant positive swing was the $17.2 million noncash to market gain on the convertible notes. Our non-GAAP adjusted EBITDA for the second quarter was a loss of $7.2 million, which decreased $1.8 million compared to last quarter's loss of $5.4 million and a second quarter 2021 loss of $6.7 million. As Ryan already discussed, we've identified areas of underperformance in Q2 and have a plan in place to improve adjusted EBITDA in the second half of the year. Let's move on to the balance sheet now. At the end of the second quarter, we had cash and equivalents of $33.1 million versus $24.9 million at the end of the first quarter, and $11.5 million at the end of 2021. The much improved cash position was favorably impacted by the $20 million and $19.5 million PIPE issuances in February and June and several improved working capital metrics, partially offset by the quarterly operating losses, which included fees for the closing of the PIPE and the previously mentioned ProFrac supply agreement. In addition, in April 2022, as part of the monetization of noncore assets, we sold the Waller, Texas facility for $4.3 million and recorded a $1.9 million gain. As we look forward into the second half of 2022 and 2023, our goal is to continue to leverage our improving working capital, while significantly growing top line revenue. We also continue to evaluate offers for our Monahans, Texas facility and expect to provide an update on coming quarters. While we are in a much more favorable cash position now than we have been, we continue our relationship with on Piper Sandler on various additional cash generation activities to help address the future working capital growth needs. At this point, I will pass the call back to John for his final remarks.
John Gibson: Well, thank you very much, Seham. I'd like to again thank our shareholders for helping us unlock an incredible opportunity and secure the future of our business with the ProFrac contract. First time in my career, I've been at a company with such a robust backlog, and I am optimistic about our ability to convert revenue growth into earnings going forward. Our team has flawlessly executed the ramp-up thus far and are committed to flawless execution going forward, imagine delivering 2x the volume in a quarter you delivered last year with the same headcount and no footfall. These guys are professionals. I'm proud work with them. Thank you very much for joining the call and your continued support, and we look forward to the questions.
Operator: First question will be from Donald Crist, Johnson Rice.
Donald Crist: I wanted to talk about the ramp-up in your -- in providing chemicals to the ProFrac fleet. I know in your presentation, you talked about roughly 16 in the third quarter. Is that a good run rate to go forward where you would add 7 or 8 fleets per quarter until you get to either the 30 fleets or to whatever ProFrac wants you to supply?
Ryan Ezell: Don, this is Ryan Ezell. Yes, I would say so, that appears to be where we're at looking at a steady-state aspect of looking to add that 7 to 8 per quarter. And we talk about this as the quarter average, right? So we kind of see it go up and down a little bit. But from an average standpoint, 8 per quarter is where we're looking at right now.
John Gibson: And I think it will be sustained until we get to the 30, our original contract. And then after they close U.S. Well, then we'll be working with them to try to add in the additional crews that come over with U.S. Well.
Donald Crist: Right, as I would have expected as well. And just to take that a step further, is there a geographic constraint in your operations today? Or are you able to kind of -- are you targeting a geographic area to kind of start the rollout? Or are you kind of going across all of their fleets depending on where they are in the country like, when they roll off of 1 pad onto the next?
Ryan Ezell: Yes. We do not currently have any geographical limitations on our operations. We have delivered chemistry in all the major basins in the U.S. right now, and including some operations in Wyoming at the tighter environmental regulations. Our chemistries are registered there too. So we are good across all basins, and we're not limited by anywhere the fleets may go.
Donald Crist: Okay. So you're kind of rolling out depending on customer rollover in between pads would -- not geographically.
Ryan Ezell: That's correct. And this also includes, I mean, outside of ProFrac, what we're doing on the international business, too. We're seeing our slickwater hydraulic fracture business run internationally as well. So we don't have any of the geographical obligations here. It's just a matter of customer rollover and when we're picking the fleets up.
Donald Crist: Okay. And I want to ask one on JP3. Obviously, a good contract rolling out 20 fleets with ProFrac. Can you just talk about, number one, the revenue implications, and I don't know how you want to say it on a fleet per quarter or per year, whatever metric you'd like to provide or what that market could become going forward? Obviously, the 20 would roll out probably over the next several quarters. But any color you could provide there would be helpful.
John Gibson: It's probably a little premature, Donald, to start giving out revenue numbers on JP3. But if you think about what ProFrac is doing, they're really leading the industry and taking advantage of the field gas by implementing the Verax analyzer solution. So they've been able to reduce the volumes of diesel by as much as 50% or more. Now when you look at that as the whole of our industry, we think this is not exclusive with ProFrac. We think this program should build out across all 270 fleets as they begin to move towards dual fuel, so that we're able to reduce diesel, reduce the CO2 emissions for our industry and really be the most responsible industry out there with regard to our commitment to reducing greenhouse gas. I think JP3 is a critical component in that strategy and is appropriate to every public company.
Donald Crist: And as far as rollout for ProFrac, could you do that this year for the 20?
Ryan Ezell: We're actually â we own fleets now. And it's more about how we -- it's more about the capital acceptance into the fleets as they designate the ones to position the equipment on. But we're already on two, and we'll continue to do the rollout through the year until we're up into the 20 range as per the contract specifications.
Operator: Our next question will be from Jeff Robertson, Water Tower Research.
Jeff Robertson : I'm sorry if you covered this, I dropped my connection for a few minutes. But under the ProFrac contract, I think there was a volume amount that related to the frac fleets. Can you -- Ryan, did you -- can you talk about the volume you all are supplying to ProFrac and how that compares to what was originally contemplated under the agreement?
Ryan Ezell: Yes. So what we have -- it's quite unique in that. The contract to sell which is on -- for x number of fleets in various geographic locations based on proppant intensity et cetera, to calculate baseline volumes. And as of to date, as we brought the fleets on, we are executing slightly above the volumes per fleet as per the contract. And we don't see any reason for a disruption to that is we're bringing on the various fleets on an average of 7 to 8 per quarter until we reach or exceed the contracted 30 fleets right now.
John Gibson: I have extensive data, Jeff. And we use that data plus our experience to sort of calculate what the average volume would be by basin. And so it's a geographically dependent volume number. So some basins are used more fluids than others. The beauty of it is they were trying to get to a baseline so that they could make a guarantee, which they did. And so on that baseline, they were conservative and we're finding there's some upside to those numbers. But they were confident that they would never go below that. And I think we're finding that to be the case.
Jeff Robertson: So John, does that mean there's some revenue upside? I mean, over time, is there -- if that trend continues, is there some revenue upside to the original contract numbers that you all have talked about?
Ryan Ezell: Yes. We do believe there is, not only just from the pure original 30 fleets themselves on the volume as we're executing above that, but also the potential addition of the U.S. Well Service Group as that fleets come off.
John Gibson: But beyond that, too, as I said in my comments, we do see a shift from minimizing cost, which is what happened during COVID. It's actually maximizing recovery and trying to get the most of the ultimate recovery from the reservoir you can optimize initial production and reducing decline curves. In doing that, that actually requires the higher margin, more complex nano chemicals, really our surfactants, and that's a place that we think that our customers are going to drive this business as well. And as they drive that, it's going to impact ProFrac and what they need for their fleets in order to be more of a reservoir manager than just a stimulation activity. I think that bodes well for where our core competencies and strengths are.
Jeff Robertson: John and Ryan, I think you did 9 million pounds of chemistry for non-ProFrac customers compared to the '19 in all of '21. Did you -- can you talk about how you expect the ramp-up to non-ProFrac customers to play out over the second half of '22? And what -- at least what line of sight you have into '23?
Ryan Ezell: Yes. And that's a great question for us because there's been a lot of -- such heavy discussion around ProFrac. We're really excited about where our transactional core business is going. It's outpaced the, I would say, hydraulic fracturing fleet growth quarter-on-quarter for the last 4 quarters. And our expectation is to continue to see the market acceptance of this technology for us to gain market share through the rest of 2022. We've got some solid wins that we picked up already in Q3, and we'll start those deliveries at the end of the month starting in September and some that are rolling into Q4. We're also excited about the expansion of what we're doing in the international business as our rollout of the hydraulic fracturing, the slickwater fluid in the Middle East is gaining a lot of acceptance as well as some of our advanced acid stimulation chemistry that we're seeing in international as well.
Jeff Robertson: And just on the balance sheet, can you -- Seham, you mentioned the working capital requirements and the prefunded warrant capital raise you all did in late June. Can you talk about how the current balance sheet is set up to meet the needs over the next 6 to 9 months?
Seham Carson: Yes. That's a good question. I think as you summarize well, the fund from the PIPE set us up to be able to handle it. And we're looking very closely at strategizing with our suppliers, and making sure we're set up well there, in addition to other opportunities to be able to fund the ramp-up and all of the things that will come with it.
John Gibson: I mean we are doing everything we can, Jeff, to minimize the need for additional working capital in the ramp-up. And I think as I have pointed out a couple of really important ones, we've managed to extend our payment terms with our suppliers and reduce our collection terms with our customers. And those 2 combined to help us on the cash flow side. And we feel like we've got a strong look forward on how we're going to fund this, and we continue to ramp up and the cash looks like it's sufficient.
Jeff Robertson: I guess last question for Ryan or John. It's correct that you all can expand capacity to both Flotek and non-Flotek customers with the existing facilities or chemical facilities you have with no real capital -- incremental capital required. Is that correct?
Ryan Ezell: That is correct. And for us, we're really excited, like I said, during the downturn, we really focused on lowering our cost profiles and how we make a transition to moving, I would say, our in-blending capabilities and sourcing closer to our customers in the geographical locations that they're in. And in doing so, as we've ramped up, we've realized this has eased quite a bit of pressure on our core manufacturing that we have at our main facilities like in Marlow, Oklahoma, and it's actually outperforming our expectations in terms of our ability to ramp up and not have to spend any major capital improvements to, I would say, expand manufacturing capacity. Because right now, we're meeting all the demand on a single run shift in the facility and probably on a sub-25% utilization rate of the entire CapEx there. And so we do expect a huge capability for us to continue to expand well above our original expectations without any large capital expenditures there, other than just adding probably a workforce shift to work at night. So we're really happy about the position there.
Operator: Our next question will be from Eric Swergold, Firestorm Capital.
Eric Swergold : Can you go into JP3 a little more? I know you guys had written it off from an accounting perspective. So this is a nice surprise to see it having a second life here. Can you go into -- you touched on how it saves producers money and diesel. But can you also talk a little bit about -- remind us how this might help refiners save money and as well as pipeline companies save money. And then a separate unrelated question. You touched on international. Can you go into a little more detail on what's happening with the national oil companies in the Middle East and how your business might expand with them?
Ryan Ezell: So when we look at the JP3 technology, I'll talk a little bit about what we're doing in the field of gas monitor in . We're very excited about the opportunity we're executing now with ProFrac looking at, I would say, the pipeline natural gas has come in to the hydraulic fracturing fleets in monitoring quality. We believe this has a massive amount of scope increase that we can see with other -- I would say other equipment that goes into build like different compression and stuff. So there's a huge opportunity there as the transition further midstream and downstream, we're getting great acceptance in terms of whatâs that trans mix opportunities prevent contamination. We're seeing a lot of field deployments that two other was looking at on quality, different components. And we're still excited about what's going on there. And what we're mentioning in terms of the field gas company as a new opportunity that's really, really strong for us and we've got to bring more promise to how our digitization and combination of us monitoring going forward.
John Gibson: Eric, you don't have to have your phone at computer on do you?
Eric Swergold : I have no beeping sounds coming out of my computer.
John Gibson: Just get feedback here. So go ahead, it's a little better now.
Ryan Ezell: And then also, when we look at what we're doing on the international side of the business for the growth components there, there's a substantial -- I would say, when we look at NOCs, we're continuing to see that steady growth CAGR with a lot of those opportunities. And what's really exciting about that is that's in the core of what we're doing there is around our -- stimulation chemistry. We've got great opportunities with NOCs in Kuwait, what's going in Oman, with ADNOC in UAE and also with Saudi Aramco and applying more advanced carbonate-type stimulations, what we're looking for flow-back aids and also what we're doing on the slickwater trials in Saudi. So big opportunities there, consistent, I would say, through the cycle activity that there will be steady parse in the future on the chemistry side.
Jeff Robertson: That's helpful.
John Gibson: The ProFrac's been great on the JP3 Verax because you've got a strategic partner. And when you sit down, it's not like the sales meeting. It's a value creation meeting for both parties, and they are quick to adopt and they see the opportunity to create real value. And so it's a real pleasure to sit and talk to them when you're focused on improving your ESG performance, reducing our CO2, taking advantage of the new generation of fleets they're putting out. I mean they are really quick to act when they see an opportunity that creates value. And in other places, we run into longer sales cycles where you've got internal gatekeepers and are not as focused on sort of the fundamentals of being a great company. It's a privilege working with these guys.
Operator: Our next question will be from Bill Hyler of WDH Capital.
Bill Hyler: Yes. I appreciate the call today. I had a couple of questions on the share count. Do you have the fully diluted share count at June 30, '22. And also, other than the PIK interest payments going forward, employee stock comp, does the number incorporate all elements of the ProFrac contract, the PIPE? And maybe give us some idea of where you think these PIK payments will approximate in Q3 and Q4.
Nick Bigney: This is Nick. Great question. The way that share count is calculated on the 10-Q, all of the earnings releases for purposes of -- just includes what's already been converted. So when you're looking at that share number on the back end, there's also the convertible notes that will convert in next Q1 and Q2 as well as the warrants. Depending on when people convert, you're looking probably roughly in the order of, I'd call it, 100 million shares, plus or minus. We can do the exact math, and I think that you probably can as well. But the big point is they're not included in that $76 million number.
Bill Hyler: No, I think you're showing a $124 million average fully diluted for June 30. So there's probably a quarter-end number already. But does that number, which I don't know, maybe 130 or whatever, did that include full -- what does that anticipate, the fully diluted number that you're showing in the press release today?
Nick Bigney: I would actually have to go back and look at the number directly. The numbers that I have right now, the one that you'll see on our 10-Q that gets filed presumably later today, will be about $7 million issued and outstanding roughly $6 million in treasury. And then the convertible shares other than about 3 million of them haven't converted yet. So they won't be included in the number. I'm not entirely sure how the 130 number --
John Gibson: Yes, let us come back to you on that where we can do some --
Bill Hyler: I can circle back. When do you expect the 10-Q to be filed?
John Gibson: Should be this evening.
Operator: This concludes our question-and-answer session. I'd now like to turn the conference back over to Mr. John Gibson for closing remarks.
John Gibson: Thanks. Appreciate everybody being on the call. Appreciate our shareholders and sticking with us through all of this. And now you're beginning to see what the value is that we can create. We're a great chemistry company, both molecules and digital, and we're having an opportunity to show that. And our greatness is really dependent upon the quality of our people, and we have great people that are delivering this. I mean, again, Iâd just repeat, think about going up to where you've done twice what you did in a year and a quarter with roughly the same headcount. We're just -- we've got people that are committed to making us a success. And we look forward to working with you and create some wealth for everybody as well. Take care.
Operator: Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
