Flotek Industries Inc (FTK) 2010 Q4 法說會逐字稿

Good morning and welcome to the Flotek Industries Inc. fourth quarter and year-end 2010 earnings 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 annual report with the United States Securities and Exchange Commission, were filed and distributed last evening and are available on Flotek's website. Before I turn the call over to Flotek's Chairman and President, John Chisholm, I wish to remind everyone participating in this call, listening to the replay or reading a transcript of this call of the following. Some of the comments made during the teleconference may constitute forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Act of 1934 reflecting Flotek's views about future events and their potential impact on performance.

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

Glenn, thank you and happy St. Patrick's Day. I would also like to welcome each of you to Flotek's fourth quarter and year-end 2010 conference call. With me today are Johnna Kokenge, Flotek's Chief Accounting Officer; Jempy Neyman, Flotek's Executive Vice President of Finance And Strategic Planning; Steve Reeves, our Executive Vice President of Operations; and Glenn Neslony, Vice President and Treasurer. Last evening we filed our annual report with the US Securities and Exchange Commission. While we won't take your valuable time to regurgitate those filings, we will provide a summary of the results, attempt to add some color regarding current operations as well as a sense of our future, and then be happy to answer your questions. Before focusing on Flotek's results I'd like to take a moment to share a personal observation.

Too often our daily lives become myopically focused on the professional tasks immediately before us. In Flotek's case we've been laser focused on how to improve our operations, clean up our balance sheet, and grow revenues as we work to return to profitability. While clearly Flotek is very important to everyone on this call, there are the occasional events that help put the myopia of the business world in perspective. This past week the Japanese people experienced a national disaster beyond description. While the death and destruction from the earthquake and tsunami were bad enough, the aftershocks and aftermath of the original event are even worse. For now the initial destruction gives way to the fear of not only aftershocks, but potential contamination from a possible nuclear meltdown, as well as the contamination of food, water and other basic resources.

Moreover, the disruption of life as it once was known, the search for loved ones and ultimately the desperate hope for normalcy will linger for months. Events like those in Japan stand to remind each of us not only how fortunate we are, but also how at times fragile our world can be. It also should remind us of what is truly important in life, our health, our families and our communities. As Flotek recreates itself, we continue to stress the importance of leadership. The traits of solid leaders are many and varied with the most important being much larger than how much money you made in the last three months. Flotek and our team members want to lead by example. As we work to grow our international business, that means being good citizens around the globe.

As a result, Flotek today is committed to give a minimum of $50,000 to the International Red Cross in support of the humanitarian efforts in Japan. In addition, we have invited our employees to participate in the effort and will match our employee contributions dollar for dollar for money donated to the International Red Cross through the end of March. It is Flotek's small way of saying our thoughts, prayers and hope are with the survivors in Japan. As I've said on each call since I took the helm in August of 2009, it continues to be my privilege to serve as President of your Company. As I look back over the last year, 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 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's stakeholders.

While pleased with the great strides Flotek made in 2010, our work has only just begun. And it is critical, more so today than at any point in Flotek's history, that our team members seize the moment and continue to push Flotek to the next level. We will do so by being leaders in innovative products and services that address the needs of our customers, by supporting Flotek team members as they provide exceptional service to our customers, and by accelerating our progress which leads to exceptional returns for stakeholders. That in essence is the Flotek's mantra for 2011, lead, support, and accelerate. We must continue to think smarter, act faster and deliver the best products and services to our customers around the globe. 2010 was a momentum-building year for Flotek.

And as I learned from my days as a professional athlete, you either have momentum or you don't. For Flotek, we will never be satisfied and neutral. It is our intent to grasp the momentum and build upon 2010 by creating a profitable global technology savvy energy services Company that is focused on creating value for all our stakeholders, our customers and our team members. Johnna, Jempy and Steve will walk through the specific financial and operational highlights in a moment. However, before doing so, I'd like to provide some high level highlights of the quarter. Revenues in the fourth quarter totaling $47.5 million were the best in over two years. Moreover, our monthly revenues continue to trend in a positive direction, a result of increased oil field activity, but also the result of successful initiatives 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. For all of 2010, Flotek posted revenues of $147 million, a nearly 31% increase over 2009 levels. More importantly, consistent with fourth quarter results, the monthly trend through the year remained positive, a trend we will endeavor to continue through 2011. That said, Flotek still lost money in 2010 and that is simply not acceptable. Our top priority in 2011 is to create opportunities for profitable growth and to end the year with a bottom-line profit. We know the road to profitability will not be perfectly straight and we will face challenges that may attempt to veer us off course.

Yet, recent successes have 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 continued profitable growth across all business segments. Margins saw modest sequential pressure in the fourth quarter, a combination of more expensive material inputs, as well as the recognition of unanticipated yet strategic expenses. As the market has improved, our pricing power has also improved, which should over time more than overcompensate for increased input costs.

Moreover, as we continue to grow Flotek and reposition the Company to effectively meet the needs of our growing customer base, there will be an occasionally quarterly aberration in margins. We remain steadfastly focused on margin expansion and believe such will be realized as we continue to fine-tune our product mix and grow our international business. Our efforts to reconnect with all of our financial stakeholders, including common stockholders, preferred shareholders, and convertible debt investors as well as the New York Stock Exchange, continued in the fourth quarter. While we remain under the watch of the New York Stock Exchange, given our historical listing deficiencies, we know well exceed the minimum listing requirements of the Exchange and have formally asked the Exchange to consider removing our listing deficiency prior to the end of the remediation period in June.

We are optimistic that the Exchange will review our request in the coming weeks. Our journey to re-establish Flotek as a premier 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 interest ahead of short-term passing fads that will assure the enduring successful future of Flotek. As in the past, I thank each of you for your patience, interest and support for Flotek and hope we can count on each of you as a long-term supporter of our efforts for years to come. With that I'd like to turn the call over to Johnna Kokenge, Flotek's Chief Accounting Officer, to review our fourth quarter and annual financial highlights and provide some additional color on certain financial issues. Johnna.

John, thank you. As John mentioned, Flotek filed its 10-K annual report for the period ending December 31, 2010 with the US Securities and Exchange Commission yesterday afternoon. In that report Flotek reported revenues for the year ended December 31 of $147 million, an increase of $34.4 million or 30.6% compared to $112.6 million for the same period in 2009. Revenue increased across all Company segments due to improved pricing, increased drilling activity and recovery of industry demand for products. In 2010, the Company reported a net loss attributable to common stockholders of $50 million or $1.94 per common share. This is compared to a net loss of $52.6 million or $2.68 per common share in 2009. In our 2010 results, however, a number of non-cash, non recurring items were recognized that unfavorably affected the Company's results.

These included -- an impairment of $9.3 million of long-lived and intangible assets; a $2.1 million loss on the disposal of long-lived rental tool assets within our Drilling Products segment; and $3.1 million of stock-based compensation expense recognized upon the retirement of the Company's former Chief Executive Officer; additionally, as mandated by recent accounting pronouncements, $21.5 million of expenses realized in the statement of operations related to the change in the fair value of the warrants issued in conjunction with the August 2009 preferred stock offering. With the exception of the warrant liability, all charges are discrete, non-recurring charges. None of these charges, including the warrant liability, have or will have any impact on the Company's cash position.

These non-cash items totaled $36 million and if excluded from net loss would result in an adjusted net loss of only $14 million or approximately $0.54 per common share. Flotek's cash position continues to improve. As of December 31, Flotek's cash balance was approximately $19.9 million. Subsequently, the Company's made interest payments of approximately $2.9 million and annual compensatory bonus payment of approximately $1.8 million. Offsetting cash outlays we have collected $2.6 million from warrant exercises. As of March 15, 2011, our cash balance was approximately $17.5 million and current receivables totaled approximately $25.9 million. Another item of note, we recorded a $2.8 million income tax receivable as of December 31. We intend to file for the refund shortly and expect we will receive such in the second or third quarter of 2011.

When John asked me to serve as Flotek's Chief Accounting Officer he charged with me creating an accounting group that provided timely and accurate financial data that could be used by all of Flotek's shareholders to accurately assess Flotek's financial position. Since that time, I believe we have made significant in roads and have dramatically improved Flotek's reporting ability for both internal and external stakeholders. My team has been instrumental in review and improvement of all of Flotek's accounting policies and procedures, making changes where necessary and reinforcing best practices where appropriate. This review, combined with support from Steve Reeves and his operations team, led to determination of the need to assess and adjust as appropriate the carrying value of identified assets and dispose of others. While the valuation resulted in a significant charge in the fourth quarter, the end result is increased financial statement transparency and Company assets are appropriately valued in the current environment.

Our goal of creating a more efficient and effective reporting environment has led to identification and a currently ongoing implementation of a new accounting record keeping and asset tracking system projected to be in use by the end of the year. The new ERP system will be based on an Oracle platform and will provide information and analysis capabilities that until now have been unavailable to corporate and field personnel. While this cost has been a major investment for Flotek, this system will fundamentally change the way Flotek does business and dramatically improve efficiency and our ability to grow in the coming years. Like John, while pleased with our progress in the past year, I am most excited about the future opportunities and possibilities that lie ahead that will continue to support and cause Flotek to be recognized as a leader in oil field technology. I would now like to turn the call over to Jempy Neyman, our Executive Vice President of Finance, to discuss current financial initiatives of the Company. Jempy?

Thanks, Johnna. As of December 31, 2010, the balance of the Company's Senior Credit facility was approximately $33.6 million. The Company anticipates making additional principal payments by the end of March of approximately $1.3 million, depending on certain elections that may be made by our senior lenders. As the Company's financial condition improves, we're considering more traditional lending arrangements to meet the Company's needs. We've begun to discuss opportunities with commercial banks that may lead to a conventional credit line and smaller term loan. Given the current needs of the Company, we would expect a new facility's total value to be in the neighborhood of $30 million. While no decision is imminent nor action guaranteed, the Company's committed to minimizing interest expense and improving financial flexibility. Flotek is also considering a number of options to address the Company's convertible notes. The Company currently has a total of $111 million of convertible notes outstanding that can be put to the Company in February 2013.

With continued improvement in the Company's operations, balance sheet, and cash flows, Flotek believes it has a number of options available to continue to improve its balance sheet. That said, the Company's improvement in both its operating fundamentals and its balance sheet has provided additional flexibility in the timing of any action. We will carefully balance any capital activity with the impact such activity will have on our current stakeholders. We will act opportunistically when market conditions are appropriate and we can minimize dilution. And it is very likely that our capital strategy will involve a number of diverse steps rather than a single event. In addition, in an attempt to improve efficiency in every aspect of our business, we are undertaking a review of many of our current vendor relationships, including insurance and real estate. By better coordinating and streamlining our vendors, we are looking for additional ways to rationalize cost and improve our overall margins. Now, I would like to turn the call over to Steve Reeves to discuss our business operations. Steve?

Thank you, Jempy. In general, acceleration in North American drilling activity continues to provide a positive environment for Flotek's portfolio of oil field technologies. As discussed on our last call, while pricing improvement typically lags in the early stages of a 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. Specifically, we posted a general price increase in our chemical segment on January 1, on top of an increase in May of last year. Pricing for downhole motors continues to strengthen, as does pricing in other areas of our downhole drilling segment. Fourth quarter revenues in our Chemical and Logistics segment were $20.8 million compared to $18.2 million in the third quarter.

Activity increased throughout the Company's key basins in North America. Flotek's work in the Marcellus Shale grew to a level to support new warehousing operations in Pennsylvania and success in specific formulations for the Niobrara shale play should provide significant opportunities for growth in 2011. The Company believes the Niobrara work also provides a baseline to become more active in the Eagle Ford, which is a focused area for Flotek and key customers in early 2011, as well as other unconventional resource plays, both domestically and abroad. In addition, the Company's efforts to inform exploration and production companies of the benefits of Flotek's suite of complex nanofluids are beginning to pay dividends. The Company has recently inked a deal with a major E&P Company with operations in the Barnett Shale to use Flotek's suite of flow back products in all of its completions in the Barnett.

Our advanced laboratory capabilities continues to provide opportunities for basin specific application that should help accelerate our growth in the coming year. For example, the marketing of a new friction reducer for slick-water fracturing applications is gaining traction in a number of formations. In addition, we continue to work on specific applications of our complex nanofluid for enhanced oil recovery and are completing additional field tests in the coming months. International markets continue to provide new opportunities. In recent months, we have discussed our role in new projects in Turkey, Poland and the Paris Basin. Over time, we expect to see more business from all three areas. Specifically, we continue to work with our customer in Turkey to provide a wide array of chemical products and are discussing the possibility of assisting with the development of field laboratory and logistics facilities.

We believe these relationships will grow meaningfully over the course of 2011, although timing of international projects is always less certain than domestic projects. Recent news reports 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. Our world class laboratory located in The Woodlands, Texas, continues to accelerate its delivery of new product ideas to meet the growing trend toward green chemicals in the oil patch. While the science can't be rushed, we are confident our team of chemists will be at the forefront of future developments in environmentally friendly drilling, completion, and production chemistries.

Fourth quarter revenues in our Drilling Products segment were $20.8 million compared with $17.2 million in the third quarter. Teledrift continues to lead the way in our Drilling Products segment. With the rapid acceleration in the Permian Basin, Teledrift revenue increased approximately 130% from January to December. In addition, the Company's focus on upgrading customers from basic Teledrift offerings to the Pro Series tools continue to gain traction, increasing revenues, margin and customer satisfaction. Flotek continues to seek domestic and international markets for Teledrift. In addition to Teledrift, Flotek's downhole motor business continues to post significant growth. From gas centered plays such as the Haynesville and Barnett to more liquids-rich basins such as the Williston, Flotek downhole motors gained meaningful market share in 2010.

Moreover, prices continued to firm, providing solid growth in both revenue and margins. The Company is in the process of introducing next generation designs where early signs of acceptance are very encouraging. While natural gas prices remain challenged, our Drilling Tools division continues to experience leadership from both the Marcellus and Haynesville plays. While we remain vigilant in looking for signs of activity moderation, current activity and pricing is strong. Away from the oil patch, Flotek's Galleon divisions of mining products also posted strong growth, with approximately $7 million in new contracts, as a result of increased mining activity in Chile and Mexico, as well as domestic copper opportunities in the southwestern United States. Artificial Lift revenue for the quarter was $5.8 million compared to $4.6 million in the third quarter.

In the Artificial Lift segment, the Company's new contracts propel strong growth in 2010 with 21% top-line growth, notwithstanding weak coal bed methane prices. As noted in past quarters, while we expected long-term growth to continue, short-term fluctuation in Artificial Lift results are possible given both weather and regulatory interruptions that typically occur in the calendar year. We are excited about the opportunities in front of us in 2011. While we will remain vigilant in our careful watch of commodity prices, drilling activity, we believe we are well positioned to gain market share while at the same time continue to improve margins through pricing power and better operating efficiency. In addition, we will continue to focus on smart international growth that should provide even better margins. While commodity price and economic challenges are likely to continue to present themselves, we feel Flotek is well positioned to continue its rebirth in growth through 2011. With that, I'd like to turn the call back to John Chisholm.

Steve, thank you very much. In our press release last evening, we provided a glimpse into the first quarter, suggesting revenues in January and February were approximately $16 million per month. While we are excited about continued growth, we also want to be realistic with you about the balance of the quarter. While a number of opportunities on the horizon will help us continue our trends, it's important to remember that the first quarter's traditionally the most moderate of the year due to a number of factors, including weather and regulatory delays, as well as typical beginning of the year slowdown. That said, we remain focused on our goal of continuing our overall revenue trends and our quest for reaching positive net income in 2011. While a number of factors impact bottom-line results, January and February have provided positive net income on a monthly basis for Flotek.

It is clear Flotek has what it takes to become profitable. It is now the responsibility of me and Flotek's leadership team to continue the momentum toward profitability for the balance of 2011. One way to assure profitability is to continue to smartly grow our international business opportunities. In February we announced a partnership with Basin Supply Corporation to jointly market Flotek chemicals and its Teledrift products in the countries in the Middle East, North Africa, Latin America, and the former Soviet Union. In the first month, Basin has opened doors in Russia and Colombia that should result in meaningful business opportunities for Flotek products. Many investors have asked why Basin. The answer is simple. Basin has a deep bench of professionals with decades of international energy services experience with the major international integrated service companies.

Basin should be successful in serving up new opportunities for Flotek that are additive to our long standing, growing relationships with other major service companies. I've personally known Basin principals for several years and believe they have the opportunity to propel Flotek into the big leagues in key international markets. That said, as we've noted before, international markets take time and do not at least initially provide consistent results month after month. As such, it is likely early results from our international efforts will be lumpy and inconsistent. However, over time international markets present new opportunities with stronger margins and serve to diversify our customer and revenue base. Finally, we are in the process of planning an investor field trip to our Houston and Oklahoma City operations. While still in the early planning stages, we are looking at dates in early May.

We believe we have a unique story to tell, one that is best told inside our laboratory and manufacturing facilities. If you would like additional information as it becomes available, please drop a note to our new Investor Relations e-mail address, IR@flotekind.com. We will keep you posted as the details are developed. In addition, I hope you'll take an opportunity to review our 10-K, which we believe is in a format that is more useful and easier on the eyes than the traditional format. Developed by Labrador, a new financial printer in the US, we believe it adds value to our stakeholders in a small but very important way. As I reflect, I'm very pleased and proud of what the Flotek team has accomplished in 2010. Skeptics said our Company couldn't survive and was destined for the great oil field graveyard.However, the fact Flotek is stronger than it has been in at least three years is testament to the fortitude and spirit of the people here at Flotek.

However, the time to reflect is over and the time to focus on new challenges and new opportunities is now. We will continue to work tirelessly to be good leaders, support our customers and our team members and accelerate returns to all our stakeholders. Quite simply, in 2011 we will strive to lead, support and accelerate. Of all of our accomplishments in 2010, I'm 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 will require 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'll now open the call to questions.

(Operator Instructions). Our first question comes from the line of Josh Silverstein with EnereCap Partners, please go ahead.

Hello, good morning guys. It seems like you guys are off to a pretty good start with the Basin agreement. I was just curious about the products and the markets. First, I was just kind of curious if your products had been previously offered into these markets and if not, are they competing with the additional -- I'm sorry, if they have been already in those markets, are they unique products or are there competitors there already?

The short answer to that question is we looked at this really on a geographic by geographic area and, no, the chemicals for Flotek have never been offered into the areas that Basin is going to represent and the same thing is true with Teledrift and that's why we have the level of cautious excitement that we do in the weeks and months ahead.

Got you. And then are the products also offered as part of a suite of packages with other service providers or are they unique as Flotek products?

Yes, I think one thing that makes the Basin arrangement so appealing is there's no competitive situation with the companies people are used to us dealing with, the Halliburtons, Schlumbergers, and Baker Hughes. Basin has certain relationships with other service companies that are like an integrated solution sales format and we believe the chemicals and Teledrift will fit into that nicely, whether it is a Basin represented opportunity or whether it's in conjunction with some of those other service companies we've got great relationships with.

Got you. That's helpful. And then I know you also mentioned that the timing of the revenues could be lumpy, but I was curious if you can provide, I guess, where you guys were maybe a year ago, what the 2010 international revenues were and potentially where they may go as a percentage of the total revenue pie, if you were to look out a year from now.

Steve?

As we're looking at it, during the past year, Josh, we kind of helped our steady at doing about 13%, 13.5% of our revenue is international revenue. Because of the Basin contract, because of some of the things happening in Saudi, because of some other good things that have happened for us, we do believe that we will exceed those numbers. Like I've said in the call, international revenues turn out to not be exactly what you think when you think, but we are cautiously optimistic that international revenues as a percentage of our revenue will move upward in 2011 over 2010.

Great. That's helpful. Thank you.

Thank you. Our next question comes from [Hondo Sen with Cedas.] Please go ahead.

Hi, guys, congratulations on a great quarter and a great year. Had a couple quick questions. On the EOR product that you're testing, do you anticipate that you can start commercially marketing that in 2011 or what's the timeframe?

Yes, Hondo, thanks for the comment and that's certainly our expectation.

Great. Great.

The test results to this point are very positive and this is one of these things that we've looked about it. We've got one chance to get it right, so we're being a bit conservative in the way we're going about this commercially, but that is our expectation.

Great. And with the products you're testing now, are those major E&Ps or how would you characterize the customers that are right now using the products?

Yes, again, with the realization that in many times in this industry when you bring in something new and what we're talking about is our complex nanofluids in conjunction with EOR and in conjunction with CO2, you've got one chance to get it right. And so with that in mind, we're dealing with what we would call a reasonably-sized independent or two and to perfect how the application needs to be and then once that happens, we'll be able to go to the more established, larger players in the EOR arena.

Got it. Got it. And finally, on the Basin agreement, are there specific geographies that you're really focused on, whether that's Middle East, Latin America, Europe, et cetera?

Yes, I think it would be fair to say we're very interested in getting Teledrift and chemicals into the former Soviet Union. We're very interested in getting Teledrift into Latin America, more than Argentina, which is a very good revenue producer for us right now. And those two areas, I think in particular, have a keen interest for us and also for Basin.

Great. Well, very much appreciate the time, guys.

Thank you.

Thank you, our next question comes from the line of [Ron Canero] with Morgan Stanley Smith Barney. Please go ahead.

Yes, somebody asked the question about the lumpiness of the revenues. I wonder what are your seasonally strong and weak quarters?

I think that question was probably directed towards the international revenue generation and I don't think it's so much seasonally-driven, as much as it is bureaucratically driven . You have to have several different things all lined up in any of these international geographic areas before you're actually able to say we're generating revenue. I think one thing that caused a lot of frustration to Flotek stakeholders was the story regarding Saudi Arabia and Saudi Aramco regarding Teledrift. That was a two year endeavor to get them comfortable with the technology. Didn't have anything to do with the seasons in Saudi Arabia, it had to do with the technical and administrative bureaucracy of Saudi Aramco. That's why the international has a tendency to be lumpy and when it comes, it comes and it just takes a while for it to happen.

Okay, so it's more the lag time.

Correct.

So it seems to me you guys have got a good story now. You've worked diligently to bring it out with transparency. What are you doing to get more coverage and to perhaps get some exposure at some emerging equity conferences, this type of thing?

Right. Actually, you anticipated one of our closing comments. We're going to be in New York for the IPAA conference and I'll talk about that a little bit specifically at the end of the questions. We spoke in Fort Lauderdale six weeks ago. We're going to be in New York in April. And we believe -- and thank you for the comment. We believe that the coverage will come in time. We're not out there aggressively soliciting that, but we think it will come in time. That's, again, just one step in the process of getting Flotek back to where it needs to be.

Okay and lastly can you just talk about the environmental impact of your products and your Company.

Sure. That's something we're really looking forward to on this Investor Day, if you will, to be able to showcase The Woodlands research facility. We take a lot of pride in the fact that we were the first chemical Company to come out with a patented biodegradable environmentally sensitive surfactant before everybody was talking about it. And the folks that do come to The Woodlands will have a chance to see how all that happens. We're continually working to improve on what we have and what we think we have and it's been confirmed by independent analysis, is best in class, but we're not satisfied with that. We want to improve on what we have.

Thanks a lot.

Thank you, our next question comes from Rich Tosi with Ore Hill Partners LLC. Please go ahead.

Hi, guys, congrats on a great year. I just had a quick question. Have you guys seen any pick-up in business yet as a result of reaction to the President's recent announcement that the Secretary of Interior was going to review all the undrilled, on-shore leases?

We've not seen that. I guess it makes for a great story for the President to say that, but we can't identify anything that's directly related to that comment.

Okay. Great.

(Operator Instructions). Our next question is a follow up question from the line of Josh Silverstein with EnereCap Partners, please go ahead.

Hi, guys, just a couple modeling questions from me. Was hoping just to get either a ballpark number or what the, I guess, what the range would be for the EBITDA in the fourth quarter.

This is Johnna, Josh. EBITDA for the fourth quarter of last year was approximately $21 million negative, is a loss. That is favorably trending in a positive direction.

So you said it was $21 million?

Yes, it was $21 million loss. However, if you look to the adjusted EBITDA, which excludes all of our non-cash, nonrecurring items, the adjusted EBITDA for the fourth quarter was actually a positive $7.2 million.

Okay. That was the number I was looking for. Okay. And then --

We're always looking for the positive number, Josh.

Us too. And then you guys have mentioned the strong revenues for January and February. It looks like, at least on average, $16 million per month, which is already above what the first quarter number was for 2010 without the March numbers in there. Was kind of curious if you think this growth might be indicative on a quarter-over-quarter basis. And you also mentioned that there was some weather impact in the first quarter as well for January and February. I was curious if you guys had either a dollar amount or maybe a percentage amount of what the weather effect might have been.

One of the things that we're real proud of in the second quarter is, or in the second month is in February we still got our $16 million on a short month and the weather was pretty nasty. We lost about three to four days overall both in our chemical facility and across the other product lines because of cold weather, bad weather. So to have held $16 million in February was a very successful run for us and March is shaping right along the same lines. The only hiccup that we could see that we see in the short-term future is in the second quarter we will have some mudding conditions, we will have some Canadian conditions where you will have the frost laws and breakup. But these things we think we can minimize with some of our other efforts we have going on.

Got you. Thank you.

(Operator Instructions). Our next question comes from the line of Peter ember with North Point Partners. Please go ahead.

Hi, guys, great job.

Thanks, Peter.

You got it. Wanted to talk a little more about, I guess, the environmental impact of your products. I know somebody brought it up recently. But with all the increased scrutiny on the fracking processes in all the shale plays, it would seem that, that sort of plays into your hand. How do you capitalize on that? Are you designing special products? Are all the products out there? You just working with customers to try and make them understand that you're going to help them around this problem? It would just seem that this is right in your sweet spot.

I think that's a fair observation. We have initiatives under way with certainly all of the major service companies that we do business with on a regular basis to continue to improve the, if you will, the environmental-friendliness of additives that they put into their frac completion programs. We've recognized that this is a basin by basin opportunity. So the Marcellus Shale core is different than the Niobrara Shale core, is different than the Eagle Ford Shale core, and we're customizing the products that we're developing for those different geographic basins, with a keen focus on, A, they've got to be able to show economic value and at the same time they have to be the most environmentally friendly product that you can put in the well. And we feel very, just very pleased with the progress we're making in that area.

Terrific. Sounds like it's going in the right direction, then. Thank you.

Thanks for the observation.

Our next question comes from the line of Evan Jones with Jefferies & Company. Please go ahead.

Good morning guys. Just circling back to the previous caller who asked about the EBITDA in the fourth quarter, are you guys -- do you add back non-cash stock compensation to that number?

Yes, we have.

Okay. Thank you.

Our final question comes from the line of Don McKierman with Landolt Securities Incorporated. Please go ahead.

Yes, thank you. Comment and a question. I love your new 10-K formatting. I think other companies ought to adopt that as well. And I don't see where you broke out the fourth quarter income statement. I do see the revenue, gross margin, and net income abbreviated, if you will, in a quarterly breakup. But did you put in the quarterly income statement.

There's just a quarterly financial data, that has been a high level synopsis which is in the back.

I saw that.

Right.

It would be helpful to see the full income statement instead of having a breakout.

Typically, you're going to see that in our quarterly Q, but it's not required for your annual 10-K filing, which is why it wasn't specifically highlighted. Not that we would not have liked to have highlighted it since it was so favorable.

Right. And what's the fully diluted share count? And thanks for taking my questions.

There are no further questions at this time. I'd like to turn the call back over to yourself, Mr. Chisholm.

Hold on one second. We want to make sure we get this answer right for that caller in terms of the fully diluted share count, because it fluctuates and has fluctuated based on its warrant exercise.We ended the year at approximately, I believe, 34 million, 35 million shares outstanding before dilution, adding in the potential dilution effect of the outstanding warrant options and, at 5.25, with roughly -- with dilutive and that's not adjusted for fair value, would be around 40 million, approximately 40 million.

Okay, thank you.

So it's in that number. It's in that range of 40 million shares.

Thank you.

Sure. So, again, we would like to thank everyone for their support of Flotek and their questions today. We look forward to speaking to you again in May with our first quarter call and seeing many of you during our Investor Days also in May. Also, for those of you, and the question came earlier, in and around New York and attending the Independent Petroleum Association Annual Oil And Gas Investment Symposium in April, we'll be presenting on Monday, April 11, at 2.50 pm Eastern Daylight Time. Thank you and again, happy St. Patrick's Day to everyone.

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.