Flotek Announces First Quarter Earnings Results
HOUSTON, May 18, 2020 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the three months ended March 31, 2020.
John W. Gibson, Jr., Chairman, President, and Chief Executive Officer stated: "Today's environment is unprecedented as we face difficult challenges with COVID-19, coupled with an oversupply of crude oil resulting in a sharp reduction in prices. We would like to thank our employees for their hard work and dedication to our business during this crisis, and we will continue to focus on the health and safety of our employees as we manage through this pandemic. Given the volatile environment, we are focusing on new opportunities to diversify our business and better serve our customers amidst accelerating digital transformation in the energy industry. With today's announcement of the acquisition of JP3, a leading data and analytics technology company, we believe that we will be well-positioned for accelerated growth and reduced cyclicality."
First Quarter Financial Results
-- Flotek generated first quarter 2020 revenue of $19.4 million for three
months ended March 31, 2020 compared to $43.3 million in the first
quarter 2019 and declined 0.6% from $19.5 million on a sequential basis.
-- Reported a loss from continuing operations for the first quarter 2020 of
$64.0 million, or a loss of $1.07 per diluted share, compared to a loss
from continuing operations in the first quarter 2019 of $15.2 million,
or a loss of $0.26 per diluted share. The loss of $64.0 million included
a nonrecurring charge of $57.5 million related to the impairment of
property, plant, and equipment, right-of-use assets, and intangible
assets.
-- Operating expenses were $22.8 million in the first quarter 2020 compared
to $44.0 million in the same period last year, primarily reflecting
lower fixed and variable costs, partially offset by a non-recurring
charge of $2.3 million during the first quarter of 2020, which is
comprised of $0.8 million related to a loss on terpene purchase
commitments and $1.5 million related to an incremental reserve against
terpene inventory on hand.
-- Corporate general and administrative expense for the first quarter of
2020 was $4.5 million compared to $7.3 million for the first quarter of
2019. Included in the first quarter was $0.5 million of severance versus
$1.6 million in the first quarter of the prior year.
-- Adjusted EBITDA for the first quarter 2020 was a loss of $6.5 million
versus a loss of $7.6 million for the first quarter of 2019, and
improved 15% on a sequential basis driven by headcount and expense
reductions in freight, equipment rentals, and travel and entertainment.
Balance Sheet and Liquidity
As of March 31, 2020, the Company had cash and equivalents of $80.3 million, no outstanding debt and $6.6 million in escrowed funds on the balance sheet, reflecting Flotek's estimate of its claim to the remaining balance of the indemnity escrow related to the sale of Florida Chemical Corporation ("FCC") to Archer-Daniels-Midland ("ADM") and $6.6 million in taxes receivable, reflecting a $6.1 million tax refund applied for pursuant to the CARES Act extended net operating loss carryback provisions. As previously reported, in February 2020, the Company paid $15.8 million to ADM in exchange for reduced purchase commitments and pricing in the amendment to its terpene supply agreement. Also previously reported in February 2020, as a result of the post-closing working capital dispute resolution determined by a third party, Flotek paid $1.5 million to ADM, in addition to releasing Flotek's remaining claim to funds in post-closing working capital adjustment escrow.
On April 16, 2020, the Company was funded on a $4.8 million promissory note pursuant to the Paycheck Protection Program administered by the United States Small Business Administration as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
Flotek's Response to COVID-19 and Current Energy Market Conditions
In response to COVID-19 and volatile energy market conditions, the Company has taken numerous actions to improve its financial flexibility which include the following:
-- Lowered base salary in exchange for restricted stock for each of the
other executive officers by 10% and for Gibson by 20%
-- Decreased compensation to the Board of Directors by 20%
-- Reduced the workforce by 35%
-- Cut back discretionary spending across all business operations of $4
million on an annualized basis
-- Expanded our products and services to meet the current market
environment including well shut-in activities
-- Implemented new protocols related to shifts for manufacturing
-- Mandated full-facility cleaning procedures
-- Instituted work from home procedures for a majority of the workforce
-- Applied for a $6.1 million tax refund pursuant to the CARES Act extended
net operating loss ("NOL") carryback provisions
-- Finalized plans in Q1 2020 to consolidate office space in Q2 2020, while
maintaining presence in key markets, most notably, relocating Houston
corporate headquarters personnel to its Houston-based Global Research
and Innovation facility. In connection with these plans, in Q2 2020, the
Company was successful in negotiating a termination of its corporate
headquarters lease in exchange for a payment of $1 million, which will
eliminate approximately $2.7 million of future lease costs that would
have otherwise been incurred between mid-2020 and mid-2023.
During this challenging period, Flotek utilized excess manufacturing capacity to produce 12,000 gallons of alcohol-based hand sanitizers to donate to first responders, hospitals, schools, homeless shelters, and senior residential communities.
Acquisition of JP3
On May 18, 2020, the Company separately announced its acquisition of 100% ownership of JP3 Measurement, LLC ("JP3"), a privately held, leading data and analytics technology company, in exchange for cash-and-stock valued at approximately $34.4 million and the assumption of approximately $1.3 million of debt.
Conference Call Details
Flotek will host a conference call on Tuesday, May 19, 2020, at 9:00 AM CT (10:00 AM ET) to discuss its operating results for the three months ended March 31, 2020. To participate in the call, participants should dial 844-835-9986 approximately five minutes prior to the start of the call. The call can also be accessed from Flotek's website at www.flotekind.com. An archived edition of the earnings webcast will also be posted on the Company's website later that day and will remain available to interested parties via the same link.
The conference call may contain forward-looking statements in addition to statements of historical fact. The actual achievement of any forecasted results or the unfolding of future economic or business developments in a way anticipated or projected by the Company involves numerous risks and uncertainties that may cause the Company's actual performance to be materially different from that stated or implied in the forward-looking statements. Such risks and uncertainties include, among other things, risks discussed within the "Risk Factors" section of the Company's most recent Forms 10-Q and 10-K and subsequent 8-Ks.
Non-GAAP Financial Measures
The Company's accounting and reporting policies conform to United States generally accepted accounting principles, or GAAP. The Company's management also evaluates performance based on certain additional non-GAAP financial measures. The Company classifies a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are not included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows.
This earnings release, our investor conference calls and other filings with the Securities and Exchange Commission contain certain non-GAAP financial measures such as "EBITDA" and "adjusted EBITDA" which are supplemental measures that are not required by, or are not presented in accordance with, GAAP. Non-GAAP financial measures do not include operating, other statistical measures or ratios calculated using exclusively financial measures calculated in accordance with GAAP. Non-GAAP financial measures should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the way we calculate the non-GAAP financial measures may differ from that of other companies reporting measures with similar names, which may limit these measures' usefulness as a comparative measure.
Please refer to the table titled "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" at the end of this earnings release for a reconciliation of these non-GAAP financial measures.
About Flotek Industries, Inc.
Flotek empowers the energy industry to maximize the value of their hydrocarbon streams and improve return on invested capital through data-driven platforms and chemistry technologies. Flotek serves downstream, midstream and upstream customers, both domestic and international. Flotek is a publicly traded company headquartered in Houston, Texas, and its common shares are traded on the New York Stock Exchange under the ticker symbol "FTK." For additional information, please visit Flotek's web site at www.flotekind.com.
Forward-Looking Statements
Certain statements set forth in this press release constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding Flotek Industries, Inc.'s business, financial condition, results of operations and prospects. Words such as will, well-positioned, strong position, guidance, looking forward, continue, 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 in this press release. Forward-looking statements in this press release are not historical facts, but reflect the good faith judgment of management and current assumptions and beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside the Company's control. Such statements include estimates, projections, and statements related to the Company's business plan, objectives, expected operating results, and assumptions upon which those statements are based. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Further information about the risks and uncertainties that may impact the Company are set forth in the Company's most recent filing with the Securities and Exchange Commission on Form 10-K (including, without limitation, in the "Risk Factors" section thereof), and in the Company's other SEC filings and publicly available documents. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this press release.
Flotek Industries, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended
3/31/2020
3/31/2019
12/31/2019
---
Revenue $19,416 $43,256 $19,526
Costs and expenses:
Operating expenses (excluding depreciation
and amortization) 22,841 43,968 42,390
Corporate general and administrative 4,493 7,281 8,955
Depreciation and amortization 2,191 2,260 2,028
Research and development 2,555 2,285 2,205
(Gain) loss on disposal of long-lived
assets (33) 1,097 354
Impairment of fixed and long-lived assets 57,454 -
Total costs and expenses 89,501 56,891 55,932
Loss from operations (70,085) (13,635) (36,406)
Other (expense) income:
Interest expense (4) (1,998) (4)
Other (expense) income, net (47) 110 469
Total other (expense) income (51) (1,888) 465
Loss before income taxes (70,136) (15,523) (35,941)
Income tax benefit (expense) 6,169 311 (956)
Loss from continuing operations (63,967) (15,212) (36,897)
Income (loss) from discontinued
operations, net of tax - 46,074 (2,425)
Net (loss) income (63,967) 30,862 (39,322)
Amounts attributable to Flotek shareholders:
Loss from continuing operations $(63,967) $(15,212) $(36,897)
Income (loss) from discontinued
operations, net of tax - 46,074 (2,425)
Net (loss) income attributable to Flotek $(63,967) $30,862 $(39,322)
===
Basic earnings (loss) per common share:
Continuing operations $(1.07) $(0.26) $(0.64)
Discontinued operations, net of tax - $0.79 $(0.04)
Basic earnings (loss) per common share $(1.07) $0.53 $(0.68)
===
Diluted earnings (loss) per common share:
Continuing operations $(1.07) $(0.26) $(0.64)
Discontinued operations, net of tax - $0.79 (0.04)
Diluted earnings (loss) per common share $(1.07) $0.53 $(0.68)
===
Weighted average common shares:
Weighted average common shares used in
computing basic earnings (loss) per
common share 59,836 58,373 58,403
Weighted average common shares used in
computing diluted earnings (loss) per
common share 59,836 58,373 58,403
(1) Results of the Company's
Consumer and Industrial
Chemistry Technologies ("CICT")
segment are presented as
discontinued operations for all
periods.
(2) Prior periods presented for
2019 have been adjusted to
reflect revisions to results
determined not to be material to
those prior periods. The
adjustments include a pretax
$2.8M reduction of gain on the
sale of Florida Chemical, Inc.
related to the transfer of
trademarks and brand names not
previously reflected for
discontinued operations and
pretax expense reductions to
previously reported cost of
sales of $0.6M in Q1 2019 and
$0.2M in Q4 2019 for continuing
operations.
Flotek Industries, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
March 31, 2020
December 31, 2019
---
ASSETS
Current assets:
Cash and cash equivalents $80,263 $100,575
Restricted cash 664 663
Accounts receivable, net of allowance for doubtful accounts of $1,642 and $1,527
at March 31, 2020 and December 31, 2019,
respectively 13,297 15,638
Inventories, net 16,322 23,210
Income taxes receivable 6,635 631
Other current assets 9,005 13,191
Total current assets 126,186 153,908
Property and equipment, net 7,946 39,829
Operating lease right-of-use assets 2,473 16,388
Deferred tax assets, net 169 152
Other intangible assets, net - 20,323
TOTAL ASSETS $136,774 $230,600
===
LIABILITIES AND STOCKHOLDERS' & EQUITY
Current liabilities:
Accounts payable $8,556 $16,231
Accrued liabilities 8,320 24,552
Income taxes payable 72 -
Current portion of lease liabilities 1,223 541
Total current liabilities 18,171 41,324
Long-term operating lease liabilities 9,754 16,973
Long-term finance lease liabilities 144 158
Deferred tax liabilities, net - 116
Total liabilities 28,069 58,571
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued
and outstanding -
Common stock, $0.0001 par value, 80,000,000 shares authorized; 64,338,087
shares issued and 59,942,270 shares outstanding at March 31, 2020;
63,656,897 shares issued and 59,511,416
shares outstanding at December 31, 2019 6 6
Additional paid-in capital 348,375 347,564
Accumulated other comprehensive loss (1,089) (966)
Retained earnings (accumulated deficit) (205,058) (141,091)
Treasury stock, at cost 4,395,817and 4,145,481 shares at March 31, 2020 and
December 31, 2019 respectively (33,529) (33,484)
Total stockholders' equity 108,705 172,029
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,774 $230,600
===
(1) Results of the Company's
Consumer and Industrial Chemistry
Technologies ("CICT") segment are
presented as discontinued
operations for all periods.
(2) Prior periods presented for
2019 have been adjusted to
reflect revisions to results
determined not to be material to
those prior periods. The
adjustments to December 31, 2019
include a $1.5M increase in
inventory related to intercompany
eliminations, a $2.8M reduction
in intangible assets related to
the transfer of trademarks and
brand names not previously
reflected on the sale to Florida
Chemical Inc, and the net
increase of $1.2M in retained
accumulated deficit.
Flotek Industries, Inc.
Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings
(in thousands)
GAAP Loss from Continuing Operations and Reconciliation to Adjusted EBITDA (Non-GAAP)
---
Three Months Ended
3/31/2020
3/31/2019
12/31/2019
Loss from Continuing Operations (GAAP) $(63,967) $(15,212) $(36,897)
Interest Expense 4 1,998 4
Interest Income (269) (226) (405)
Income Tax
(Benefit)
Expense (6,169) (311) 956
Depreciation
and
Amortization 2,191 2,260 2,028
Impairment of
Fixed and Long
Lived Assets 57,454 -
EBITDA (Non-GAAP) $(10,756) $(11,491) $(34,314)
Stock
Compensation
Expense 462 456 1,409
Severance and
Retirement 1,538 1,721 3,753
Shareholder-
Related
Activities - 581
(Gain) loss on
Disposal of
Assets (33) 1,097 355
Inventory
Write-Down 1,468 - 4,438
Supply Chain
Contract
Commitment 825 - 15,750
Adjusted EBITDA (Non-GAAP) $(6,496) $(7,636) $(8,609)
(1) Management believes that
adjusted EBITDA for the three
months ended March 31, 2020,
December 31, 2019 and March 31,
2019, is useful to investors to
assess and understand operating
performance, especially when
comparing those results with
previous and subsequent periods.
Management views the expenses
noted above to be outside of the
Company's normal operating
results. Management analyzes
operating results without the
impact of the above items as an
indicator of performance, to
identify underlying trends in
the business and cash flow from
continuing operations, and to
establish operational goals.
(2) Results of the Company's
Consumer and Industrial
Chemistry Technologies ("CICT")
segment are presented as
discontinued operations for all
periods.
(3) Prior periods presented for
2019 have been adjusted to
reflect revisions to results
determined not to be material to
those prior periods. The
adjustments include a pretax
$2.8M reduction of gain on the
sale of Florida Chemical, Inc.
related to the transfer of
trademarks and brand names not
previously reflected for
discontinued operations and
pretax expense reductions to
previously reported cost of
sales in Q1 2019 of $0.6M and in
Q4 2019 of $0.2M for continuing
operations.
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SOURCE Flotek Industries, Inc.
