Flotek Industries Inc (FTK) 2010 Q3 法說會逐字稿

Good morning, and welcome to the Flotek Industries, Incorporated third quarter 2010 earns 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 the Company's prepared remarks. An operator will provide 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 Mr. Glenn Neslony, Vice President and Treasurer for Flotek Industries. Mr. Neslony, you may begin.

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 on the with the U.S. Securities and Exchange Commission will be filed and -- were filed and distributed last evening and are also available on the Flotek website. Before I turn the call over to Flotek's 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 27- A of Securities Act of 1933, and section 21- E of the Securities Exchange Act of 1934, reflecting Flotek's views about future events and their potential impact on performance.

Words such as expect, 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 by identifying forward- looking statements on this call. These matters involve risk 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 U.S. Securities and Exchange Commission. Now I'd like to introduce Mr. John Chisholm, Flotek's President.

Glenn, thank you. I would also like to welcome you to review the Flotek's third quarter 2010 conference call. With me today are Jempy Neyman, Flotek's Executive Vice President on Finance and Strategic Planning, Steve Reeves, our Executives Vice President of Operations, John Kocane, recently promoted, well deserved I might add, to the position of Flotek's Chief Accounting Officer, and Glenn Neslony, Vice President and Treasurer. Today is Veterans Day, a day in which we honor those who have served our country, many making the ultimate sacrifice, and celebrate with these heroes both represent and protect our nation's freedom. With us on the call is Jempy Neyman. While Jempy serves on our finance team, Jempy is also a graduate of the United States Air Force Academy and proudly served our country. It is people like Jempy, as well as others like Mike Segal and Darrell Riley in Flotek's Information Technology Group, and two of our directors, Dick Wilson and John Reiland, that dedicated themselves to the United States of America and put their lives on the line to make certain we remain the land of the free.

Sometimes it is important to step back and put life in American perspective and Veterans Day, I believe, is one of the days we can do just that. So Jempy, Mike, Darrell, Dick, John and others in the Flotek family, we salute you and say thank you. It is people like you and your brothers and sisters in the armed forces, many of whom gave their lives for our country, that are the real heroes of the American dream. As you walk through an airport, down the street, or around the shopping mall and see a serviceman or woman, please say thank you. It will mean a lot to them and help each of us realize how much they mean to our families and this very special country. It's noted in our press release, last evening we filed our quarterly report with the Securities and Exchange Commission. While we won't take your valuable time to regurgitate those filings, we will provide a summary of those filings, attempt to add some color regarding current operations, as well as a sense of our future and then be happy to answer your questions. It continues to be my privilege to serve as President of your Company.

As I look back over the last year, as it was a year ago this week that I was asked to serve as your President, I'm pleased with what we've accomplished at Flotek and immensely proud and humbled by the commitment and support of members of the Flotek team that believed, as a group, that they could make a difference in the future of Flotek and believed in our vision to restore stability and growth to the Company and continue to be enthused that, through the efforts of our people, the future is filled with opportunities to create value for all of Flotek stakeholders. While pleased with our progress, I understand as does the entire Flotek team that our work has only just begun. There are a plethora of challenges ahead of us in the coming year. The difference today versus a year ago is that our tool chest is much better equipped to both clearly identify those challenges and conceive solutions to turn challenges into opportunities to further enhance the value for Flotek for its shareholders.

I continue to focus my energies on doing everything I can to position Flotek to reemerge as one the preeminent specialty oil field services companies serving both North America and select international markets with our innovative series of specialty chemicals, drilling products and suite of artificial lift applications. At the same time, I'm now focused on thinking strategically about our long-term future to assure we have the right mix of products and services to maximize profitable revenues across our product and service spectrum. With stability now at hand, we have spent and will continue to spend more time examining every facet of our business to make sure all components make sense and to assure that our core businesses have the resources necessary to be both best in class and the opportunity to grow in ways to create accelerating value to stakeholders. At the same time, we will work tirelessly to rationalize and harvest value from business lines that aren't consistent with our longer term growth strategy.

As the data provided in our quarterly report last evening demonstrates, the third quarter of 2010 continued to show meaningful signs of improvement on all metrics, and provide all of us at Flotek with the belief that we are on a path, albeit one that will require significant efforts and additional strategic thinking, to rebuilding what we believe can be a special old field services Company, both by providing value- added transformational products to our customers, as well as once again providing industry- leading returns to our stakeholders. Both Jempy and Steve will walk through the specific financial and operational highlights in a moment. However, before doing so, I would like to provide some high level highlights of the quarter. Revenues for the quarter totaling nearly $40 million were the best in recent memory.

More over, our monthly revenues continue to trend in a positive direction, a result of increased oil field activity, but also successful effort to add market share across all of our operating businesses. Whether it was additional chemical sales in new markets, a significant improvement in Teledrift rentals, or a major new account for artificial lift, our focus on innovative marketing and customer satisfaction is beginning to be rewarded. While top-line success is important for most stakeholders, profits are the bottom-line. While we continue to post a net loss for the quarter, which is unacceptable, we did for the first time in nearly two years post positive income from operations. In fact, the Company posted operating income for the quarter of just over $6 million, which after interest and certain other debt expense for the quarter remained positive by approximately $600,000. Although we know there are still meaningful challenges to reach positive net income, we are on track to exit 2010 with a positive operating income run rate and remain focused on positive net income for 2011.

We know the road to profitability will not be perfectly straight and we will face challenges that may attempt to persuade us to veer off course. Our recent success has made members of the Flotek team even more committed to excellence and profitability. We will face challenges head on and work collaboratively to turn them into opportunities. The Flotek team now knows what is possible and our entire organization, from the Houston corporate headquarters to field offices from Appalachia to the Rockies, is focused on creating profitable growth across all of our business segments. At our Houston headquarters we continue to seek ways to better support our field efforts and empower those on the front line to make decisions that benefit all our stakeholders, from customers to shareholders. At the same time, we continue to look for opportunities to become more efficient by improving processes, eliminating bureaucracy, and reducing costs without sacrificing quality or opportunities.

Our financial team continues to lead the efforts to not only reduce costs and improve efficiencies, but also provide a new and dynamic set of tools that allow the entire Flotek team, from our management group in Houston to our sales and service personnel across the country, to better understand our business, our results and make adjustments to maximize both effectiveness and results. Jonah, Jempy, Glenn. Eddy Griffin, Chris Gonzales and many others continue to tireless work to provide accurate, useful and timely data that directly results in efficiencies and bottom-line improvements. In addition, these new tools help provide timely and insightful data to our stakeholders, including what we believe is an improved quarterly report and narrative. We continued our efforts in the third quarter to re-connect with all of our financial stakeholders, including common stockholders, preferred shareholders and convertible debt investors, as well as the New York Stock Exchange.

While we remain under the watch of the New York Stock Exchange, given our recent lifting deficiencies, we continue to work with the exchange to assure we can remain a proud listed member of the NYSE. Our journey to reestablish Flotek as a premiere oil field service Company is just beginning. As we said last quarter, our efforts must remain focused but flexible to meet the needs of our customers and investors, enthusiastic but measured to assure strategic success, and selfish but selfless to put Flotek's long- term interests ahead of short- term passing fads that will assure the enduring successful future of Flotek. We have a lot of work ahead of us. Over the course of the next several months, we will continue to focus on building our business, while at the same time be mindful of opportunities to continue improve and potentially transform our balance sheet. Of course, as business improves, so, too, will the opportunities to address longer term balance sheet issues. As in the past, I thank each of you for your patience, interest and support for Flotek and hope we can count on you as a long- term supporter of our efforts for years to come. With that, I'd like to turn the call over to Jempy Neyman, Flotek's Executive Vice President of Finance, to discuss the third quarter financial highlights. Jempy?

John, thank you. In the third quarter of 2010 Flotek revenue totaled $40 million, an increase from $31.2 million in the second quarter of 2010 and $23.8 million in the third quarter of 2009. The Company posted a net loss attributable to common shareholders of $2.4 million in the third quarter of 2010, an improvement compared to a loss of $7.4 million in the second quarter of 2010 and $23.9 million in the third quarter of 2009. On a per common share basis, Flotek lost $0.09 in the third quarter of 2010 compared to a loss of $0.28 in the second quarter of 2010 and $1.22 in the third quarter of 2009. Flotek filed its quarterly report on Form 10-Q for the period ending September 30, 2010 with the U.S. Securities and Exchange Commission on Wednesday, November 10, 2010. A complete set of third quarter financial tables can be found in our quarterly report, which can also be accessed on Flotek's website. John and I will be happy to respond to any specific questions you have regarding our financial presentations during the question and answer session following our prepared remarks.

While we're pleased with the continued growth and revenues and the first operating income in well over a year, the net loss in the quarter is not acceptable. As John mentioned, our top priority is profitable growth and we continue to look critically at all aspects of the business to create more efficient processes. We continue to search for new and better ways to operate our business, whether it's improvement in field technology or more efficient process for corporate oversight and control. We continue to strive for meaningful improvement in expenses across our businesses without jeopardizing future growth opportunities. We did make significant progress on a number of fronts in the quarter, most important Flotek's cash position continues to improve. Flotek's cash balance as of September 30, 2010 was approximately $7 million compared to $5.3 million at the end of the second quarter of 2010 and only $600,000 at the end of third quarter of 2009.

Receivables collections accelerated subsequent to the end of the quarter and cash balances as of November 8, 2010 were approximately $10.6 million. Moreover, receivables also continue to increase, a positive signal of future business growth. During the third quarter, Flotek received a federal income tax refund of approximately $7.2 million. The Company used a portion of this tax refund to pay income taxes for a Flotek subsidiary of approximately $700,000. In addition, under the terms of the Company's agreements with its senior lenders, the Company used a portion of the proceeds from the tax return or tax refund to reduce the principal value of the senior secured credit facility by approximately $4.9 million. Flotek also made the semiannual interest payment on its convertible notes of approximately $3 million. In addition under the terms of the credit facility, the Company made an additional principal payment of $250,000 on September 30, 2010.

As a result, during the quarter the Company reduced the principal balance of the credit facility to $34.9 million from the original principal balance of $40 million. In addition, positive EBITDA in the third quarter will result in an additional principal payment of approximately $800,000 towards Flotek's senior debt to be made presently. Finally, a class action suit that was filed in August of 2009 in the United States District Court for the Southern District of Texas on behalf of purchasers of the Company's common stock between May, 2007 and January of 2008 was dismissed by the court on September 29, 2010. The plaintiffs did not file an appeal within the time period required and absent a showing of good cause by the plaintiffs for failure to file this appeal, the time period for appeal of this dismissal has expired.

In addition, a shareholder derivative petition was filed in the Texas State Court on September 17, 2010 by an individual claiming to be a shareholder of the Company. On November 5, 2010 the plaintiff filed a motion with the court asking that the case be dismissed without prejudice. The Company believes that it is likely that the motion to dismiss the case will be granted by the court. If dismissed pursuant to this motion, there would be no legal bar to the case being refiled at a later time. As John indicated, while we've made progress, our plate remains full of both challenges and opportunities. We look forward to working with you and all of our stakeholders in the months ahead. Now, I'd like to turn the call over to Steve Reeves to discuss our business operations. Steve?

Jempy, thank you. As mentioned, a review of the segment revenue and operating profit numbers can be found in our 10- Q in yesterday's earnings press release. I would like to take this opportunity to add some color to those results. In general, a continued increase in North American drilling activity provided a positive backdrop for Flotek stable of products and services. As discussed on our last call, while pricing improvement typically lags in the early stages of recovery, we are beginning to experience incremental pricing power across our business segments and are cautiously optimistic that opportunities for stronger prices will continue. We continue to focus on both pricing and margin improvement in all of our business lines. Our chemicals and logistics segment continue to improve, as sales of both the flagship microemulsion and traditional chemical products grew in the quarter. Chemical and logistic revenue for the quarter ended September 30, 2010 was $18.2 million, an increase of $7.2 million or 65.8%, compared to $10.9 million for the quarter ended September 30, 2009.

Segment income from operations was $6 million for the quarter ended September 30, 2010, an increase of approximately $2.5 million or 70.5%, compared to $3.5 million for the quarter ended September 30, 2009. Sales continue to benefit from our initiatives to reach key decision makers at exploration and production concerns that benefit most from our next generation surfactants. International markets are beginning to provide increased revenue and profits in the segment as well. International revenues were 23% of total segment revenues in the third quarter, a 16% sequential increase. Our sales into Turkey exceeded our $750,000 projection for the quarter, and after completion of a successful high temperature fracking job for our client, we expect sales to continue into the Turkish market. In addition, there are indications the customer will expand its relationship with Flotek to include additional cementing and drilling chemical orders. The Company's decision to develop applications for the liquids market is also yielding results.

While still a relatively small business, revenues from sales of complex nano-fluids for fracturing of liquid wells have increased approximately 60% from January levels. In addition, early results from the use of Flotek's surfactants in enhanced oil recovery applications have resulted in production improvements of up to 90% compared to wells in which Flotek's surfactants were not used. Tests in west Texas, Louisiana, and Mississippi have provided similar results. An early adoption client of Flotek's has, as a result of initial testing, committed to use Flotek surfactants it its ongoing CO2 flood project. Also in the chemicals business, Flotek continues to position itself to proactively address environmental challenges in key developing exploration regions, such as the Appalachian Basin and Marcellus Shale. Flotek believes the environmental friendly nature of its macroemosion offerings provides opportunity to grow its business, as the focus on environmental issues becomes more acute.

In addition during the quarter, Flotek successfully completed early field trials on its encapsulated products for fracture stimulation, an innovative, an innovation the Company believes could be transformational in providing more environmentally friendly delivery systems for completion and production chemicals. Recent news dispatches have provided plenty of color on the importance of environmentally friendly solutions to chemical stimulation. As a result, a number of our key customers have inquired about our ability to work on innovative approaches and solutions to these environmental challenges. While similar to our EOR initiatives, we are in the early stages of this process, we believe our industry leading research capabilities combined with client demand can produce significant opportunities for Flotek's in the year ahead. Our drilling product segment experienced growth in the quarter, a result of an increase in overall drilling activity, combined with success in our new marketing initiatives and demand for our Teledrift technology.

Drilling products revenue for the quarter was $17.2 million, an increase of $6.9 million or 67.5% compared to $10.3 million for the year ago quarter. Segment income from operations was $2.3 million for the quarter, an increase of $5.5 million or 173.7%, as compared to a loss of $3.2 million for the quarter a year earlier. Growth in this segment was led by our Teledrift measurement while drilling products, which posted nearly 35% sequential revenue growth on top of 28% sequential growth in the second quarter when compared to first quarter results. Growth in the Permian Basin and the Haynesville Shale play continue to lead the way, with the Company's midland regional office exceeding $1 million in sales in September. Teledrift also continues to beat previous performance records with the ProShot tool successfully working to 19,000 foot in a Vermilion Parish, Louisiana job. After completing our first job for Saudi Aramco in the second quarter, Flotek received notification that its long form contract had been signed and formal commercial relations with Saudi Aramco could commence.

The Company has shifted additional equipment to Saudi Arabia in anticipation of steady work in the coming months. In addition to Teledrift, the Company's downhole motors business made meaningful progress in the quarter, thanks in part to a significant growth in the liquids rich Bakken and Niobrara plays. Demand has led to an increase in pricing power, which led to margin improvement in this segment. The [Gallian] mining tools division, while small relative to our oil fill operations, continues to post solid results. An [addish] of $1.4 million sequential revenue increase was realized from increased domestic and international product sales to the copper mining industry. Demand for copper and as a result the price of copper continues to increase, which should lead to additional activity in the segment in the coming quarter.

We have made significant headway in our downhole tools business in the last nine month through accelerating growth in Teledrift, an improvement in the overall rental environment, and by expanding opportunities in the international markets. In the fourth quarter we will continue to focus on developing an integrated strategy to identify the core strengths of our downhole tool business. Ultimately, the goal of this process will be to enter 2011 with a focused core tool business that will best serve our customers and provide our stakeholders with a clear and accurate picture of our tool business and its potential. While international markets take time to develop and we will not overpromise and under-deliver, we believe the balance of 2010 and 2011 will provide additional opportunities that can help expand our reach beyond North America. As we look at new international prospects for both our downhole tool and chemical businesses, we will be diligent to evaluate each opportunity in our new markets deliberately and with as little risk as possible and work to use our experience to avoid the pitfalls associated with new ventures.

We won't be perfect, but we believe the Company is now well positioned to take our best in class products to new markets. With patience, long-term success in these ventures could be transformational for Flotek. Artificial lift revenue for the quarter was $4.6 million, an increase of $2 million or 77.8% as compared to $2.6 million for the year ago quarter. Income from operations was $1.2 million for the quarter, an increase of $1 million compared to $100,000 for the same period in 2009. Notwithstanding continued pressure on natural gas prices, our artificial lift segment experienced a sequential gain in revenue and a greater than 10% sequential increase in field operating profit. In the quarter, Flotek began a new contract with a major CBM operator in the Powder River Basin in July, producing $400,000 in monthly revenue in the first month alone.

For the third quarter, this new relationship resulted in approximately $1.4 million in revenue. In addition, another relatively new customer provided an additional $200,000 in third quarter revenue for the division. We certainly face our share of challenges in the weeks and months ahead, depressed natural gas prices chief among them. While we continue to diligently watch domestic gas markets for signs of demand weakness, our initiatives in oil and liquids related activities combined with international opportunity should, overtime, help diversify our portfolio and reduce the correlation between natural gas prices and our growth. As we focus on the conclusion of 2010, we are already beginning to look ahead to 2011 and our budgeting and planning process. While we have achieved important financial and operational milestones so far this year, we have a long road ahead of us. We will continue to look for ways to grow revenues profitably and improve margins on existing sales.

We will be keenly focused on creating more efficient sales and marketing strategies and will be quick to look for ways to rationalize businesses that don't fit our long-term needs. In addition, we will continue to look for ways to better cross-sell Flotek products and services by making service, by making certain all of our field personnel are aware of Flotek's complete line of product offerings and how our customers can benefit from utilizing a wide array of Flotek specialty products in drilling and completion activities. I will be happy to answer any questions at the end of our remarks. For now, I will turn the call back to John.

Steve, thank you very much. In our press release last evening, we provided a glimpse into the fourth quarter, suggesting revenues during October should be in excess of $14.5 million, continuing our positive trend in monthly results. While we're excited about continued growth, we also want to be realistic with you about the balance of the fourth quarter. While a number of opportunities on the horizon will help us continue our trends, business activity tends to moderate in November and December, a result of holidays and the potential impact of weather. That said, we remain focused on our goal of continuing our overall revenue trends and our quest for a positive operating income run rate with our longer term focus on positive net income for 2011. Before we take your questions, I'd like to conclude with one final thought. Sometimes making difficult decisions is as much about what you don't do, as what you do. Nothing illustrates this better than a decision in late 2009 and early 2010 not to cut research and development spending in our Woodlands Research facility.

While it would have been easy to cut costs by halting the work at that facility, it also would have eliminated any chance Flotek had to become a leader in the next generation of environmentally friendly oil field chemicals. It would have also eliminated the opportunities to develop proprietary formulations that are quickly being considered as leading stimulants in liquid production. The capital invested in R&D this year will likely turn out in years ahead to be the best capital investment of 2010. The oil field business is by its nature complex and one where balancing short-term and long-term value can be difficult, and at times, confounding to certain stakeholders and pundits. While we may not always be right, Flotek, while I'm your President, will always focus on creating long-term value for shareholders. We are pleased with what we've accomplished in the first nine months of 2010 and the past year during which I've been fortunate to serve as your President. That said, there's little doubt that Flotek will face challenges every bit as great as we've faced in the past year in the months that lie ahead.

Our task is to address those challenges head on with the enthusiasm, excitement and creativity seen in the last nine months and turn each challenge into an opportunity to create value for you, Flotek stakeholders. We hope this call has been helpful in summarizing Flotek's current financial and market positions. As I said from my first day as President, my top priority is to be openly candid and honest about our Company and our business with all of the stakeholders. I'm probably most proud of the fact that Flotek is once again an exciting place to work. We have a lot of serious work to do that requires serious commitment on the part of our people. We appreciate you remaining interested in our Company and look forward to sharing our successes and challenges with you in the weeks and months ahead. Operator, we will now open the fall to questions. Operator?

(Operator Instructions) Our first question comes from the line of Mike Ogborne with Maple Tree Capital, please go ahead.

Hi, guys. What about your chemicals makes them environmentally friendly and two, what makes them conducive to use in liquids drilling? Thank you.

The makeup of them it comes from the base, sorry, the base that you make comes from, I just forgot. Biodegradable products and it comes from the citrus products that we use to make them, so we have been a leader in this for several years, but right now, we feel like this will just push us a step further. As far as the application in the liquids-rich, we have just started with our research department changing out these microemulsions, doing extra research on them, and we are getting some of the same results in the liquids-rich that we do in the dry gas formations.

And what's the plan for dealing with the debt over the next 12 to 18 months?

Well, as we mentioned here earlier, the operational cash flow we [project will continue to allow us to pay down the first lien debt through regularly scheduled payments and also through a sweep of the EBITDA. And we're clearly aware of the convertible bond situation that expires in 2013 and as the Company continues to evolve, we're confident that we'll have any number of opportunities to address that issue.

Thank you.

Our next question comes from the line of Josh Silverstein with EnereCap Partners, please go ahead

Hi, good morning, guys.

Hello, Josh.

Hi, there. You talked about the low gas price environment and the move towards more liquids drilling. Can you talk about your efforts to work with some of the producers or some of the service companies as to how your product can be, your chemicals product can be a benefit in this low gas price environment?

If you're talking about just straight, the liquid section that we're talking about, Josh, we've run tests with some of the producers in the liquids areas, across the different areas, and we're having very good and we can translate this into some of the E.O.R. type projects, which will help us out in the liquids-rich, even with the depressed prices, this will help our stable of microemulsion products, working with the operators, doing the testing on them, and that's where you come up with some of the results we've had of up to 90% better flow using our products.

Josh, another -- I think what we're talking about, too, when we make those comments is sort of a diversification of our product, with the dry gas price forecast, that would indicate that there could potentially be some lacking in activity in just gas drilling, but the, some of the newer plays like the Eagle Ford and then in the Marcellus and then obviously the Bakken being an oil play with the price of oil and liquids, that is, would bode for continued drilling activity, which obviously plays well into our expectations of what to expect next year.

Got it. And then just focusing on some of the international opportunities. Is the concentration of these opportunities really in the Middle East, is it Europe, elsewhere in Africa? Just kind of or what product lines you guys might see if you can just kind of clarify some of that.

There's some there that are real obvious. The opportunity in Saudi is right in front of us and we addressed that. As you look in there and you start reading about the shales that are being done in Europe, these fall right into shale plays with our chemical group have been very heavily involved on that. Perfect example, if you go back and read the paperwork, the Poland shale frac job that went on, our chemicals were in that and that was a successful frac job. The work we are talking about in Turkey, that was a successful stimulation job and that was -- we are having success in the Latin American countries, Mexico. So we have quite a broad base. We're not focused in any area, but we are limiting where we go because you can't just shotgun these approaches. You have to be effective marketing and looking at them. But there are several areas that fit right in our wheel house of products.

Got you. And John, can you just kind of talk about the margin opportunities here. Are they somewhat better than you see in North America or just how would they balance out? And, I guess, how do you risk that versus doing work here domestically?

Traditionally and what we're finding, the international margins in particular for Teledrift are even better than they are domestically. The chemicals are a slight uplift, nothing significant. And our whole approach internationally is to, and this is going to sound pretty darn obvious, is to find those areas that would be receptive to Flotek technology with the least amount of expense up front by ourselves, where we can look at partnering with established entities that are already there that would accelerate our acceptance of our products and technologies sooner than later. And we are hopeful in the weeks and a month or so ahead that we can further share with our stakeholders some more of that progress that we're making internationally.

Great, that's helpful. Thanks a lot.

Thanks for the question.

Our next question comes from the line of [Rich Bearely] with Longport Partners, please go ahead.

Good morning. To clarify that last answer, does that mean that in the U.S. it's a harder, because of the structure of the way the industry works, that Flotek has to invest more to get your Teledrift used or chemicals used as opposed to, I'm taking off on the answer of we're targeting opportunities where we don't have to put up as much money internationally.

Well, okay. We'll try to clarify the answer for you. I think if you look at the comments made recently by Schlumberger, Halliburton, those companies are focused on trying to drive margins and drive penetration internationally. On a much smaller scale, obviously, we will do the same thing. And the point that I was trying to make, sorry if we didn't do a good job on it, is we want to try to go to those international areas where we believe the time of acceptance will be sooner than later. And we believe we have those targeted. Some we're creating work in right now, that we mentioned in the call, and some we hope to be able to share with you in the not too distant future. Hopefully, that explains it a little bit better.

Right, okay. On -- in Halliburton's analyst day yesterday, they were talking about their clean stem and clean wave and clean stream. Are those competitive processes to ours?

No. What Halliburton was describing there was an entire fluid system that they're to receive a lot of credit for. They're addressing these environmental concerns and issues where they're being able to provide a food grade quality fluid system to facture these non-conventional reservoirs. Other companies are trying to do the same thing, Halliburton, I think, is the first out there. Halliburton is a valued clients of ours. Halliburton is keenly aware of what our capability is and I think we could leave it to say that we look forward to continuing our relationship with Halliburton along with the other pumping service companies.

Oh. So we're, our products get used in those three? Or we hope they do.

You can certainly make that inference. And again, we'll see just exactly as the next year plays out what the industry acceptance is of these more environmentally sensitive fluids. Yes, I think we'll just have to see how that plays out.

Okay. That actually answers, kind of answers the next question as well. Okay. Thank you very much.

Thank you for your questions, they're spot-on.

(Operator Instructions) Our next question comes from the line of Everett Titus with TNC, Inc. Please go ahead.

Good morning, gentlemen. To follow up on the initial question, I wonder if you could provide some color on what alternatives you might consider to further strengthen your balance sheet and perhaps do it more quickly? Is there anything particular you're looking at?

Fair question. Not trying in any way to avoid the question, except to say that there's a wide range of options that are available to us now that, candidly, were not available to us a year ago. It's our view that if the industry cooperates in 2011, as we believe it will, those options will even become broader. We're not in an immediate rush to do something that we would look back on and say why didn't we wait six months longer, or nine months longer to end up with a better solution? So I think the accurate answer is it's a work in progress in terms of strategically figuring out the timeframe that ends up with the best result for the Flotek shareholders.

Fair enough. Thank you.

Our next question is a followup question from the line of Rich Bearly with Longport Partners, please go ahead.

Well, in essence, I asked about the product part, numerous E&T companies in their conference calls the last two weeks have talked about new techniques, as well, of fracking, drilling, everyone's trying to offset cost creek, but most also trying to kind of do the next step in technique or technology efficiency. Have -- I guess, Teledrift plays in that area. Could you talk about any, are we participating in that area as well?

Well, that is a question that has really a wide ranging opportunity for an answer in terms of how folks are changing or modifying their techniques.

Yes.

We'll just -- for example, on a lot of these horizontal wells, folks are drilling more laterally this year and forecasting in 2011 than they were in 2010, that should lead to more stimulation jobs along that horizontal section and that intuitively will lead to a longer period of time before the wells are put on production. We believe and the results show that when you use Flotek's complex nano-fluids, what we've called microemulsions, in those completions, it improves the performance of those wells when they produce them. That's just one example. But we can talk about, Steve, Teledrift if you like.

I think what you're talking in a lot right here, being specific to Teledrift, it was not long ago where we thought Teledrift would be totally driven in vertical wells.n As the marketing has taken off and we've got more involved, we are doing much more work and you see it in our revenue growth. We are doing the surface to curve, where they go down to the horizontal drilling section, part with Teledrift. And by opening up that market and innovatively going into it with both of our new products that are from the Pro series, we've been able to increase the opportunities and that's why you see a lot of Teledrift growth. So we are looking at the new techniques, the new way they are drilling and make each application change. From our motors division, we've gone in with the motors and now in the horizontal wells, when we only had the cab 0 motor line, we did not look to participate in horizontal wells. It just wasn't that big of a deal for us. By combining our sealed bearing line with our CAVO line now, we can make that changeover into the technique of horizontal drilling. So we are constantly staying right with what is going on and changing our technology to take a bigger piece of the pie.

Right, I see. Good. Thank you very much.

Thanks for the followup question.

(Operator Instructions) It appears we have no further questions from the audience participants at this time.

Okay. And we'll like to thank everyone's time, interest, and support. Have a nice veterans day, a nice holiday, and we look forward to talking to you all sometime there in the first part of next year. And again, thanks for your support.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines