Flotek Industries, Inc. (FTK) Earnings Call Transcript & Summary

I'd like to welcome everybody, and thank you for joining us today. I am Jeff Robertson, Managing Director of Natural Resources at Water Tower Research. It's a pleasure today to host John Gibson, Chairman, CEO and President of Flotek for a fireside chat. Flotek is a specialty chemical and data analytics company that primarily serves the oil and natural gas industry. John took his current position with Flotek in January of 2020. And let's kick it off, John. Again, thank you for joining us today.

I'm delighted to be here, Jeff.

John, a lot of people may be unfamiliar with just what is meant by oilfield chemistry. They know about drilling, but may not be familiar with oilfield chemistry. Can you just tell us a little bit about green chemistry and how Flotek's products differ from some of the traditional chemistry solutions that the oil and gas industry has used?

I'll try to without being too technical, and I'd ask you to stop me if I start trying to go too far down in the weeds on this. But when you think about treating a well for completions, which is primarily what our chemistry is designed to do, there's a suite of chemicals that are blended together and used to treat the well that includes the most important component, which is the majority of the fluids, friction reducer. And by friction reducer well, without the friction reducer, the amount of horsepower that would be needed would be tremendous. And so by adding the FR or friction reducer, we're able to minimize the footprint of the horsepower, which reduces the diesel consumption and helps on the environmental side as well. There's also biocides, which are used to reduce the creation of H2S or scaling or other attributes. We don't want to introduce into the subsurface something from the surface. And so we use biocides to treat the fluids before we inject them. They're clay stabilizers that keep the clays from swelling and allow in plugging up the reservoir, so they could flow better. There's also surfactants, which changed the behavior of the reservoir so that certain fluids flow better than others. You can cause the oil to flow better than the water or the gas to flow better than the oil. And so we blend those chemicals together in order to improve the initial production of a well and the total recovery of a well. But now there's a big difference in what you choose. We've adopted the EPA 12 principles of green chemistry. We're really trying to push towards the minimization of things that we're not able to make nontoxic and biodegradable. So you want to use the absolute minimum. You want to use the minimum volume because that reduces the CO2 emissions and delivery to the well; the minimum waste that's created, so you don't want to have any leftover chemicals or chemicals that flowed back that can't be reused. And our principal effort, which is the foundation of the company is producing nontoxic biodegradable surfactants that improve the initial production and total recovery from a well, and that's really important to the end customer here.

So from everything you've described, Flotek is a very science-driven company, and I believe you have a large catalog of intellectual property. How do you collaborate with customers to solve their needs on individual well sites or for individual formations?

This is a science-driven industry. One of the most important things is what kind of reservoir you're producing from? And we talk about meterology, we talk about petrology, but you have to understand the rock. And so the fundamental understanding of the rock tells you what chemicals will best perform in that particular matrix of minerals or sand grains. And so different reservoirs have different characteristics. So working with the customers, we actually get samples of the reservoir, so that we can understand the rock and know the interactions between the chemicals we inject and the matrix itself. It's a bit prescriptive. You actually have to design. It's almost like a -- you want to do it for every well because, again, you don't get scale and scope. So you do it for compartments within a reservoir so that you could produce enough chemical that scale and scope allow you to address pricing. But we also need to understand the fluids that are there, so all the waters that are produced. So we take produced water. We analyzed the produced water for the bacteria that are present and take a look at how the biocide react with that produced water if it's going to be used in that presence. We do a lot of lab work on all aspects of our chemistry to ensure that we exceed the expectations of the producer in terms of how the well performs after our chemistry is injected.

Do the chemistry solutions that Flotek provides -- does it provide the company with a competitive advantage when you're selling through to either the oilfield service customer or the E&P operator?

Sort of. The customer of our customer is who we have to really deliver results to. And the 2 customers have sort of different objectives in some ways that the end customer, the producer, the owner of the reservoir, is really interested in initial production, reduced decline rates and improved recovery. When you're talking about a service company like ProFrac, NextEra, ProPetro, Halliburton, Liberty, they're really interested in minimization of nonproductive time. And so they want to know that the chemicals will be delivered on time to spec. They want to assure that it's been tuned to their equipment, so that they can inject them successfully. And so their -- we're having to meet the demands of both sets of customers. We want a highly efficient operation for the service company that's injecting the fluids, and we want a great outcome for the people that are putting it in their reservoir. And so we're balancing those 2 pieces, so that both of those customers are successful.

John, in the first quarter conference call, you referenced new customers and a little broader customer base. Can you just talk about how broad Flotek's customer base is at the moment?

Well, that's a -- it's an interesting question. Going back 2 years ago when I got here, we were trying to work ourselves out of a customer concentration into a diverse customer base. And that strategy has not changed at all even with the ProFrac contract. So we have 2 activities going on now. One is a strategic account management for ProFrac. So that's not a sales activity. That's an account management activity, making sure that we understand and forecast for them and provide them great results. But then we have dedicated sales force that is growing our business. And I believe Ryan quoted 37% increase in customer diversity during the Q1 call. And so we continue to go out and reach out into the greenfields to bring in new customers. We're primarily successful in doing that in small service companies, small independents and larger independents. We don't really have as great a penetration into super majors, but that's another area where we think our environmental focus is going to give us opportunity with the super majors as well because the larger the company, the greater the emphasis on sustainability, and that's where our strength is. We've converted the culture of the company to be entirely about how can we be more sustainable, how can we address our Scope 2, Scope 3 emissions for our customers, and we're focusing our solutions on that.

John, you talked earlier about reducing the amount of horsepower that might be needed on a completion site about recovering chemicals and some of the ESG benefits of Flotek's chemistry. Is that a big part of the future of the company, do you believe?

So yes, it's essentially. I'm often accused of being an environmentalist in the oil and gas industry, and I guess I don't mind that too much. It's becoming in vogue. If I go back a couple of years ago, Jeff, I would have said that the industry at the C-suite level or even at the Board level, if we go back longer, were very concerned about the social license to operate and were pushing management to change the cultures of company to go into the sustainability area. Now we're seeing the C-suites adopt that and it's beginning to work its way through organizations. We're still at the early stages of true sustainable cultures existing within the whole of the oil and gas industry, but we are on track to be there. And so I'm pretty excited about that. What does that mean for us? Our focus on sustainability and green chemistry I think in large part is what cost the interest in signing the contract with us by ProFrac. It's that commitment to the environmental aspects, the emissions aspects that I think are going to really make the company stronger as we go forward. This is not going to become less prominent in the next 5 years. And so we're continuing to try to innovate and create greener solutions, greener meaning less waste, less volume, nontoxic, biodegradable. I mean, you can look up the EPA 12 principles for green chemistry and assume that, that is how we're trying to develop our company solutions.

Going to know a lot of the chemical solutions are used by operators during the completion portion of a well's life. But does Flotek offer a suite of products that operators can use over the lifespan from drilling to completion to production to even into perhaps secondary recovery or remediation?

A great question, and it turns out we can address adjacent markets with our solutions. So if you think of each one of those as a different market, in many cases it's a different buyer. And so when you start selling the completions piece to a company, the buyer for that is typically the reservoir engineering side and it's a different buyer. When you move to remediation, this is often production operators that are making those decisions. So your sales force has to be adept at addressing both those fire dates. Now can we do it? The answer is yes, we can. One of the exciting things over the last 18 months is we moved into remediation. Why? Well, we've got solutions that are using our surfactants and solvents that allow you to replace BTEX chemicals like xylene, which we know are carcinogenic. And ours are biodegradable and nontoxic, can you go --can we go in. And the great part here is our research team with James Silas, Dr. Silas leading it, allowed us to change the concentration so that we were price competitive with the BTEX, with the carcinogenic chemicals. So you're not in any way compromising the cost side of your equation or your margins. What you're really doing is reducing both short- and long-term liability by pumping in a chemical in a bit that it does follow a fracture or a fault and enter to an aquifer or channel behind pipe. In any way, you lost that chemical into an aquifer where the potable water is, you wouldn't have the kind of negative impact what you do by pumping xylene into a well. So we're seeing rapid growth in the remediation front. I think as we do a better job marketing that and customers continue to look at the secondary impacts of injection and long-term impacts, that's going to be a tremendous growth area for us. Production chemicals, not so much. That's a great business because it's more like a chronic disease. You don't always drill wells and have to complete them, but you're always producing the infrastructure you have. So we'd love to get into that annuity-based production business. It's a great business to be in, and we're doing a little bit, but it's an area of interest for us, but not one where we have a big offering at this time.

John, you touched on fluid migration and aquifers. Can you monitor where in the subsurface the chemicals go through tracers of some sort?

Yes. We do not offer tracers. I mean, you'd have to look at somebody like, NCS Multistage and others with Spectrum that are doing tracers. What we do though is we do have a digital division with JP3 and we can look at the chemicals with regard to what's being injected, what's coming back. But I would say we don't have a great pilot or proof of concept on that yet, but we really are exploring how to do that as we go forward because you want to know the efficiency of what you pump. We'd really like to know that we injected 10,000 gallons and we got back 5,000, which would mean that we injected 2x too much. Or did we pump up at 10,000 to get back none, so that we could have gotten an even better effective treatment if would have increased it. And so for us to be truly focused on reducing waste and not pumping unnecessary volumes, we are trying -- we are working quite hard on how do we know the efficiency of the chemicals that we're injecting and working with operators to try to better understand that. That is the future for chemistry is making sure that you optimize the volumes injected and that's going to take more sensor information for you to validate the injection rate versus a flowback rate.

You touched on the adoption among E&P companies with respect to green chemistry and be -- and them meeting their own environmental goals and sustainability goals. Can you just touch on are they -- is that driving a more conscious effort to understand where chemicals are going subsurface and how much they're getting back just which obviously would impact well performance and economics. But are you really seeing that adoption that move all the way down to the people on the ground?

We have a compensation issue that is probably driving the behavior more than you might think. But when compensations are strictly about margins rather than having that environmental component, you get a certain behavior because people are not going to change unless there's an incentive to change. So people are comfortable with the supply chains, the chemicals they've used; people will actually take change. So change management is a big aspect of what's going on at this time in the industry and we're seeing that because the C-suites are beginning to change the compensation models. They're augmenting budget, so that people can make the switch over to greener chemistry. I won't name companies, but some are pretty forward-looking. I will name one. I mean, I'd really admire EQT and Toby Rice, that moved towards equitable origin and really tracking everything and being a leader in sustainability. I think that's where everything goes, including the service industry. We're going to have to be absolutely on top of all the chemicals we use, how they're manufactured, how they're transported, how they're injected, any loss to the atmosphere, loss to aquifers. We think of chemistry being just like Scope 1 Scope 2, Scope 3, you're going to have to understand the chemicals that you use and how it impacts your customer, your customer's customer, and we're going to have to track that. I think that's definitely coming. And I think our customers are incredibly interested in that.

So in February, Flotek signed a what's become very transformative supply agreement with ProFrac. ProFrac, if people are unfamiliar, is one of the largest hydraulic fracturing service or hydraulic fracturing providers to the U.S. oil and gas industry. The company, I believe, just completed its initial public offering a few weeks ago. And then in May, Flotek closed an expanded supply agreement, which covers 10 years. John, can you talk about what that agreement will do for Flotek as you all move ahead and the kind of revenue visibility it gives you?

Well, it's transformative. That's a great word in the sense that where we were was we were really improving and we had good, strong organic growth, but the cost basis for a public company in trying to go from $40 million to what you need to be an international company, we really needed to have sort of $100 million in revenue. And if you start looking at even strong growth rates of 20% a year, we were going to run out of money before we got to profitability. And I did not want to take people's money and then squander it with the risk of a change in the cycle, et cetera. So what did ProFrac do? Well, that brought us the platform and the foundation to be a very viable long-term company with annual recurring revenue, the ability to hold our cost base fixed and to create free cash flow. It allowed us to be debt-free minus a small PPP loan we're still waiting on forgiveness on. So I want to be viable through full cycle economics in oil and gas. That tells you a little or no leverage. And so we used equity to do the contract, and we were very blessed because the shareholders voted overwhelmingly in favor of the contract and the approval of the equity for ProFrac. It's given us scale and scope with our suppliers. And so we've got better pricing, which will allow some margin expansion for us across the board. And it gives us the ability, and we're still working on this, we're in the early stages of the contract. But you know that with a partner like ProFrac in terms of how we're working, that our ability to take advantage of volume purchases and having the inventory managed is going to be outstanding. I think that's going to give us additional margin points as well. So you've got that stable base and all of the incremental revenue from the organic business, the non-ProFrac customers, is something that's going to benefit from the scale and scope that we've gotten from ProFrac in terms of the pricing that we'll be able to offer.

John, was Flotek's green chemistry solutions really what drew ProFrac to you as they look to -- for their own environmental credentials and to market their services to the E&P customer?

I think without that, it wouldn't have been possible because I know that ProFrac, they're very committed to being the best stewards. I mean, they're working on their fleets to be dual fuel to use field gas, again trying to eliminate flaring of gas unnecessarily as well as eliminate the transportation of diesel. And so everything looking at the sort of Scope 1, 2, 3 emissions and how do you minimize those. So that's one of their agendas. And so without that, it wouldn't have been possible. But that's not enough. You still have to have great chemistry, great results for the customer and the ability to provide the logistics necessary to get the product to the site when you need it. So our operational competence was also attractive to them. But when you combine the operational excellence with the commitment and cultural commitment internally to being the best environmental steward of chemistry, I think that made us the logical choice for them to partner with. And we did go and talk to them first. So we presented that concept, and they adopted it probably in a stronger way than I anticipated. How about that, Jeff? I mean, the first contract was 10 fleets for 3 years, and it very quickly turned into 30 fleets for 10 years. And so I think we both felt like we can be transformational for the industry and get that scale and scope, and then we can offer that to -- it's a nonexclusive agreement, so we can offer that to all of the service providers and the customers. And so it is a tremendous opportunity to change the industry.

How is the rollout going as far as supplying the ProFrac crews? And how many basins do you ultimately think you'll be in with them?

Well, I think in North America, which is where the contract is really focused, potentially in the U.S., we'll be everywhere they operate. And so the Permian, the Eagle Ford, the Marcellus and others, we'll be providing chemicals there. So how is the ramp-up going? I mean, it's going way better than I actually anticipated. I mean, the contract for the 10 fleets for 3 years, which was the initial contract initiated on April 1. And by the time we hit the end of April, we were at somewhere between 7 and 8 fleets taking chemistry from us by the end of April. By the middle of May, we're already up about 10. So if you say that we'll be -- excuse me, middle of May. If you think we can do about 7 fleets per month, which is, I think, a really exceptional ramp-up on both sides -- our ability to deliver, their ability to take that -- and do the movement away from current suppliers to us, you need to do that in an orderly fashion. And so that's happening. I'd say 7 a month is probably about right. It will take us 3, 4, 5 months to get up to 20. And then the next 10 after that, we'll have to do more work with them, but they're absolutely committed. And I don't see any reason for us not to get to the 30 by year-end.

John, are there opportunities to sell other Flotek products to the E&P customers through -- I'm sorry, are there opportunities to sell other Flotek products to the E&P customer in addition to the basic package of well completion chemicals?

Well, I'm excited just to tell you that the relationship for ProFrac is extremely good. And so they are now calling us asking for things that don't necessarily relate to the ProFrac pumping industry. When they see production chemistry opportunities or remediation chemistry opportunities, the bandwidth between the 2 companies is extremely high. And so we're beginning to see some new opportunities through ProFrac, and that's exciting. We also are working with them on using the field gas and so which is not a part of the contract. And to do that, you have to know the quality of the field gas. And so we're actually doing proof of concepts with them using Verax analyzers out of JP3 to understand the BTU content of the gas going into the fleet. And the proof of concepts are quite strong. And so that would be an opportunity to have them as a customer on the Verax side of the business, JP3, as opposed on the chemistry side of the business. If that goes well, I think you've got the good housekeeping seal of approval from ProFrac. It's the kind of transformation to use field gas that could be really important to all the fleets in the industry, including their competitors.

So John, is that basically the ability to monitor the BTU content of the gas as it flows into combustion in their engines, so they can better manage their horsepower and probably also their maintenance?

That is exactly what it does, Jeff. I mean, when you take a look at it, BTU can vary quite a bit, and fuel gas is unprocessed. So you're not looking at something in many cases that has a tremendous amount of processes done to it before it's consumed. And so what we're doing is measuring it so that you can either put in a regulation device to sort of try to sustain the standard BTU level for your engine or you can put in a shut-off valve so that you don't do any damage to your engines, where we're measuring in real-time. So as soon as you see a spike in BTU that would be detrimental to your engines, you can shut it off or you regulate it. And we're working on both those solutions as to who do we integrate with and how does that work. Very exciting opportunity for us on the Verax side because you have to have a real-time centers. It's not really practical for a gas chromatograph. And this gives us an opportunity to open up a brand-new market for the JP3 business.

John, it's obviously a very inflationary time across a lot of industries, including the oil and gas industry. Are there margin protections built into the supply agreements with ProFrac and how do those work?

That's probably the most interesting question you've asked actually, Jeff, because in an inflationary time, one of the things we've done is we've sort of guaranteed margin for what I'd call a loss leader. So friction reducers, the highest volume fluid that's used in the oil and gas industry, so it's 60% to 70% of the volume that's injected. We do all the end analysis for the customers on what friction reducers to rise. We do the lab work and the analytics. But what you want to do on a loss leader is you don't want to touch it, right? So we're choosing which one to use and we're doing all the analytics and then understanding what are the value-added chemicals that go with it. But then we're trying to get it directly from the manufacturer to the well site after we've selected it without touching it again. And so our contract has a fixed margin, which is guaranteed on the friction reducer no matter what the price of it is. High or low, it will be a fixed margin. And that loss leader for everybody else is now something that creates a steady margin for us going through. But we're still going to have better pricing because of the volumes that we're generating to go through and because of the way that we're handling it. So our logistics and supply chain management is going to make that something where the pricing will be better for our customers. And we'll actually get margin instead of having a loss leader like most of our competitors. And so I'm excited about that part. On the remaining part, the margins for the upside piece, all of those are being sold because we are controlling that FR component. So that loss leader is now a margin generator and all of our value-add chemicals now are pulled through. And that's the exciting opportunity for us going forward is more and more value-add chemicals, better understanding of what's needed to improve IPs and recoverability.

John, to fulfill Flotek's obligations under the supply agreements and also to meet other customers' needs, how does the company handle ramping up its capacity and logistics to fulfill the obligations that you have with ProFrac?

So how are we ramping up? So well, I made a commitment to keep our SG&A flat. And I would tell you, I probably was a few headcount short of being flat because the great part about a ramp-up like this is what do I really need? I really need accounts receivable and accounts payable clerks. That's what the staff here because the number of transactions went from 60, 70 transactions a month per person to 300. And so we're going to have to have a couple of AP and AR people. But otherwise, I don't expect great growth in SG&A here to support this. Our plant in Marlow is capable of doing the ProFrac contract and our organic business and doubling in size without additional CapEx. So we've got incredible leverage off of our plants and our facilities. In terms of the ramp-up, our supply chain group, we did have to add additional personnel there because we are procuring a lot more material now than we've done in the past. But by and large, I think we're going to have very small -- I think we'll be best-in-class on SG&A compared to our competitors in terms of the lowest SG&A per dollar of revenue as we go forward. And we're committed to monitoring that and being a leader there. We want the maximum margin that we can produce as a specialty chemical company.

John, you touched on earlier, one of the important aspects of the ProFrac agreement is that it is nonexclusive. I think you have said that this agreement will take up about 50% or maybe a little bit less of your energy chemical capacity. Can you talk about how you market the unused -- the unspoken for capacity to the rest of the industry a bit?

Sure. One of our best sales methodologies is selling to producers. So when we get in and work with them and they understand the improvement in an initial production, which could be anywhere from 10% to 25%, when they understand that the recoverability there, the reduction in decline curves, then they will drive the purchase of their chemicals and they'll tell the pumping companies what chemicals to use, okay? And so what we're trying to do is to create a pull mechanism even for ProFrac, but we're -- our chemicals are what's going to be pumped by -- it doesn't matter what pumping company it is. We love working with any of them. I like to work with Express or next year, Liberty, it doesn't matter to me which one. We're agnostic even though we have the ProFrac contract. I would love to pump more for Liberty than I do for ProFrac, okay? That would be a great outcome for us. And so -- and our plant, no problem whatsoever. We can take on another ProFrac contract without expanding our plant. That would be a very simple thing to do for us. And so we're selling directly to end users, to the producers themselves, and we're also selling to ProFrac's competitors. And so we've got a great channel there, and we're working with those companies to make them more viable and to give them the best possible chemistry as well, and help them be more sustainable.

John, you mentioned on the one of the ProFrac fleets using the Verax analyzer to monitor BTU content in gas. That's a part of the data -- of Flotek's data analytics business, which the company acquired a few years ago. The data analytics basically provides precision measuring devices that can be used across the value chain in energy. Can you just -- for people, can you talk a little bit about how the JP3 Varex analyzers work and what they can measure?

Absolutely. I mean we acquired this sort of mid-2020 in the middle of COVID. I don't think you could have afforded it if we would have waited longer. However, the pipeline for opportunities dried up during COVID because it does require a lot of access to the facility and people did not want you entering their facilities and installing equipment. So we've just begun to see the pipeline for JP3 come back here in 2022. Sort of one of the benefits to vaccinations and COVID reduction is that you can go back to work as normal. So where do we put these? Well, there's opportunities in upstream, which is more of a proof of concept. You could literally put these on wellheads. We'd have the ability to have an audit trail for production for condensate oil and gas in terms of delivering auditability for the volumes that the mineral owners are being paid for on royalties. That was really the concept that created the Varex, the founder, that was his principal area. It's not one of our big areas for use at the moment. Second one is in the midstream area on transmix, which is a big area for it even today. We've got a partnership with Phillips 66. We're super excited to work with them because we're able to install these and measure in real-time changes in refined product in the pipeline. And it allows them to prevent mixing or to minimize mixing. And so they're saving hundreds of thousands of dollars on any particular pipeline for each one of the product changes. And so these pay out in just a matter of months. And so the value proposition for Verax and transmix is outstanding. Also it works on the downstream side, but that's been the hardest market because getting into refinery has been the most difficult for the last couple of years. They are very cautious about COVID and a lot of the projects were suspended. One of the additional complications with JP3 is it's turned in to be more of a CapEx buy than an OpEx buy, which means you have to get into the CapEx cycle. And so we see a phenomenal pipeline, but all of it's going to be timed based upon when the CapEx is being spent on our customers' capital projects. So new build pipelines, a lot of good opportunity there. Expansions on refineries. We just brought in a new leader there, Ron Holsey, who I would love for you to take a look at his resume. He's who's who in the process automation in the industry. I think he's going to be a great leader for that business, and we got a lot of upside ahead there. Digital chemistry is probably a bigger future than anybody realizes.

John, we talked about green chemistry and how that can help customers meet some of their environmental and sustainability goals. Do the Verax analyzers have similar applications across the value chain?

No question, the use case for measuring BTU is the opportunity to eliminate diesel and the transportation of diesel and the miles driven and the safety and the road wear and tear. I mean there's just a lot of positive aspects about helping our customers minimize the use of diesel at the well site. With regard to emissions, we don't directly measure CO2. What we can do, though, is allow you to use other work processes that eliminate the emissions. And so we're actually looking at the integration of CO2 sensors in with the Verax, so that we can do the totality of the measure. It turns out near infrared is not great for measuring CO2 molecules, so we need a different sensor added into it, which is very doable. But I think this is -- it's going to be a big -- a big element of sustainability will be what are you measuring and where. And the sensorification of the industry is underway, and there's so much that we don't measure and sort of universal nature of our analyzer allows us to attack many use cases that I think will prove our customers.

In November, you announced that the analyzers had received certification for harsh environments.

Yes.

What does that do for the potential market opportunity?

Well, we've got a lot of pilots going on in the international market. And pilots in the international market are just a slower sales cycle, but it's opened up places like Saudi Arabia, Kuwait, Oman, United Arab Emirates, Libya, Algeria. Those are the kind of markets we could sell into now with the international certified Varex. And so until you have that, you really -- you can't go over and sell commercially there. We've managed to get that certification. The pilots are moving ahead. I think there's a lot of opportunity in the international markets. It's transformational. Imagine with the Verax that if you're oil minister in a country, that you can put these across all of your producers and you'd have a dashboard that would tell you how much oil and gas and condensate you're making every 5 seconds, right? So how does that allow you to take a look at your GDP or your refinery complex or the infrastructure that you have in the country and understand where you're going to be with regard to refined products months ahead. So I mean, we're looking at who do we partner with on a dashboard that can then give that capability to oil ministers in many countries outside the U.S.

So is it fair to say in terms of market that the approach is to not necessarily target a specific refinery for a rollout, but more to explain the benefits of JP3 to the corporate decision-makers and have them where they might consider rolling it out across their whole portfolio?

That was the change we made bringing in Ron. I mean you can go and try to make a technical sale out a refinery, but it's so robust. It works so well. We don't need to prove that it works. What we need to do is to go in and convince customers at the C-suite level at how it's going to transform their business.

Let's shift gears a little bit. You all, during the early days of COVID, started a professional chemistry segment, which was borne out of I think some of your philanthropic efforts to supply hand sanitizers and disinfectants to first responders and people like that. Can you talk about that business and what the market opportunity is for Flotek?

Well, it's much like talking about upstream and then downstream and midstream business for the chemistry business. Each of midstream, downstream is just adjacent markets. We're not changing the plant. We've got EPA's, FDA's registration for our plant, and we've got the facility designed to do EPA chemicals, which also gives us an opportunity to even do EPA-certified chemicals in the oilfield business. But by having that, there's no real cost at it as a result of this. So we truly are working through other sales channels by having one leader in the pro-chem business that manages that sales channel. And given that we're just taking advantage of our infrastructure, the incremental cost for doing the business is quite small, and the upside is millions of dollars of high-margin products that can go into the industrial sector. So disinfectants, detergents, cleaners, not just sanitizer. And so we've got a complete portfolio of products. And we have a gentleman that really handles the indirect channel for us on that side. We're not trying to build out a direct channel. We're doing almost all through indirect.

And is the marketing effort for that are just an indirect sales force? Can you talk a little bit about where that stands now?

I would say we haven't done a lot of marketing and that's probably why we haven't seen as much growth for the last 2.5 years. I'd say marketing is one of the casualties of COVID, right? There was no real reason to go out and spend a lot of money on advertisements and marketing and literature, et cetera, when you weren't seeing any opportunity to give it to somebody that cared. But as we move forward, that marketing aspect is really important, Jeff. I mean I think we can improve all of our -- every one of our solutions can be improved by having better marketing in the field, closer connection to customers, understanding the use cases better and customizing these products, so that we meet all of their goals. It's something where I think if we invest a little bit there, we could see a lot come back as a result. But we're going to probably be pretty disciplined. I would say right now, I'm more focused on buying and transporting and delivering the chemistries to the well sites that I have on the pro-chem business at the moment. We may let it just continue as we go forward, just running through the indirect channel and focusing on the biggest aspect of our business at the moment, which is the upstream side of the business and completions.

We've talked about what the ProFrac supply agreement does for Flotek. And we've talked about some very interesting opportunities through the JP3 analyzers for the future. Maybe we can just close, John. Can you just talk a little bit about how you see the value proposition for investors in Flotek?

I'm an investor in Flotek and many other things as well. And I would tell you I don't have another investment in my portfolio that has no debt, okay, are low to no debt, that has a 10-year annually recurring revenue contract that securitizes the company going forward, has tremendous upside inside of that contract with ProFrac, has the opportunity due to non-exclusivity to actually go out and use the scale and scope to benefit all of the other people in the industry as well, and has this kind of downside protection against the full cycle economics of oil and gas. I mean I feel confident that we'll go through at least 2 more cycles during this 10-year period and will be that company that doesn't have to be concerned about that because we've got -- we've securitized full cycle economics for our investors for the next decade.

John, I think we'll leave it there today. I want to thank you for taking the time to visit with us.

Well, I'm happy to be here. I wouldn't want to do too many though, Jeff, because people are already tired of listening to me. But I love Flotek, I love what we're doing. We're going to make an environmental difference or sustainability difference. So I hope everybody will watch us.

Well, I'm sure we can find some interesting aspects of Flotek's business to focus on for a subsequent fireside chat. So we'll get that figured out. But again, John, thank you so much for your time today. Take care.