Flotek Industries, Inc. Announces Third Quarter 2017 Results
HOUSTON, Nov. 8, 2017 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the three-months ended September 30, 2017.
Highlights
-- Earnings per share (EPS) of ($0.06) for 3Q17, compared to ($0.03) in the
same period last year.
-- Quarterly revenue declined 6.7% sequentially to $79.5 million and
increased 23.5% year-over-year.
-- Net loss from continuing operations of $3.4 million for 3Q17, compared
to $1.9 million in the same period last year.
-- Adjusted EBITDA, a non-GAAP measure, was $3.3 million.
-- Quarterly cash flow from operations was $8.4 million and free cash flow
was $6.8 million (net of Capex).
-- Targeting annual SG&A run-rate cash cost reductions of approximately 20%
from 4Q16 levels.
-- Increased availability on the credit facility from $65 million to $75
million and extended maturity by two years to May 2022.
-- Reduced balance on the credit facility sequentially from $42.7 million
to $40.6 million at quarter end, and to $30.4 million as of 10/31/17.
John Chisholm, Flotek's Chairman, President and Chief Executive Officer commented, "During the third quarter, the oil and gas industry experienced sequentially higher activity levels, but at a much more tempered pace from growth rates experienced in previous quarters. Commentary surrounding completion services inefficiencies, tightness in horsepower availability and overall delays is consistent with challenges our clients continue to navigate. Clearly, these challenges had an impact on our Energy Chemistry Technologies ("ECT") segment, which was also impacted due to previously disclosed hurricane related issues. In addition to the challenges associated with hurricane Harvey, we experienced disappointing declines primarily in our Rockies region. Higher commodity prices and expanding takeaway capacity should help our cadence in this region in the future.
"Our Consumer and Industrial Chemistry Technologies ("CICT") segment continues to be the cornerstone of our Company's leadership in maximizing the value chain in citrus oils. Hurricane Irma has impacted our outlook for declining material costs in this segment which we believed would have become a tailwind across the Company, primarily transferred to our ECT business. While the damage to Florida's crops was significant, we believe it will eventually be offset with the large growth ongoing in the Brazilian crops. We are beginning to see success in our expansions into Japan and believe higher margin opportunities in CICT will continue to present themselves through growing distribution channels. We initially expected greater revenue declines in the quarter, but after Irma, we have begun to see growing spot market opportunities which highlights our strong positioning in the supply chain to our clients. We continue to be well positioned on our raw materials to meet internal and external needs.
"Having addressed what we believe to be underwhelming headline results for the third quarter, let me address the positive structural changes we have made with our SG&A and further planned reductions, which we expect to maximize future cash flow efficiencies of the Company going forward. We remain laser focused on maximizing free cash flow as a Company, and to that extent we generated $7 million in free cash flow during the quarter. This will continue to be a primary focus, accomplished through ongoing cost reduction initiatives, increased pace of new product development to address market needs and continued uptake of our Complex nano-Fluid® (CnF®) offerings and our Prescriptive Chemistry Management(SM) (PCM(SM)) solutions. Additionally, our strong market positioning in our CICT business at Florida Chemical should allow us to continue to navigate citrus supply challenges, and execute higher margin opportunities going forward.
"Total debt has been lowered 37% to approximately $30 million currently, down from $48 million at the beginning of the year. Flotek remains financially sound, and our liquidity remains strong. Our ability to quickly scale growth programs in both segments maximizes our opportunities to allocate capital efficiently, and potentially execute further stock buy-backs.
"Hurricane Irma has impacted our outlook for declining raw material pricing in the near term, and into 2018. We believe this temporary disruption will eventually moderate, however we will adjust our cost structure accordingly to protect the cash flow capabilties of our Company. Meanwhile, the oil and gas industry is beginning to face inflationary pressures while our clients remain cost conscious in a lower for longer period of commodity prices. Despite this dynamic, we continue to see an increasing focus in scalable optimization programs and projects both in the field and through our industry leading Research & Innovation (R&I) facility. We will continue to execute on our plan to structurally reduce SG&A expenses which we believe will create significant long term shareholder value and maximize our cash flow leverage going forward."
Third Quarter 2017 Results
For the three months ended September 30, 2017, Flotek reported revenue of $79.5 million, an increase of $15.1 million, or 23.5%, compared to $64.3 million in the same period of 2016. Revenue decreased $5.7 million, or 6.7%, compared to the second quarter of 2017.
Flotek reported Loss from Continuing Operations for the three months ended September 30, 2017 of $3.4 million, an increase of $1.5 million compared to Loss from Continuing Operations of $1.9 million in the same period of 2016. Loss from Continuing Operations increased $2.3 million compared to second quarter 2017. On a GAAP basis, Flotek reported loss per share (fully diluted) for the three months ended September 30, 2017 of ($0.06) from continuing operations compared to loss per share (fully diluted) of ($0.03) for the three months ended September 30, 2016. Excluding non-cash G&A of $2.0 million, net of tax, or $0.03 per share, adjusted EPS from continuing operations was ($0.03) for the three months ended September 30, 2017, compared to adjusted EPS from continuing operations of $0.01 for the three months ended September 30, 2016.
Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA, for the three months ended September 30, 2017, was $0.2 million, compared to $0.4 million for the three months ended September 30, 2016. Third quarter 2017 adjusted EBITDA, which excludes $3.0 million of non-cash G&A, was $3.3 million. Management believes that adjusted EBITDA provides useful information to investors to better assess and understand operating performance and cash flows.
A summary income statement reflecting third quarter results can be found at the conclusion of this release.
Third Quarter 2017 - Segment Highlights
3Q 2017 2Q 2017 % Change 3Q 2016 % Change
------- ------- -------- ------- --------
Energy Chemistry Technologies ("ECT")
------------------------------------
Revenue $61.2 million $65.9 million (7.1%) $45.0 million 35.8%
------- ------------- ------------- ----- ------------- ----
Gross Margin 30.6% 34.6% (399) bps 40.4% (975) bps
------------ ---- ---- ---- ---------
Income From
Operations $6.9 million $9.3 million (26.2%) $6.2 million 10.8%
----------- ------------ ------------ ------ ------------ ----
Adj. EBITDA $11.7 million $15.9 million (26.0%) $10.6 million 11.1%
----------- ------------- ------------- ------ ------------- ----
Adj. EBITDA
Margin 19.2% 24.1% (487) bps 23.5% (428) bps
----------- ---- ---- ---- ---------
Consumer and Industrial Chemistry Technologies ("CICT")
Revenue $18.3 million $19.3 million (5.2%) $19.3 million (5.3%)
------- ------------- ------------- ----- ------------- -----
Gross Margin 16.4% 17.0% (59) bps 21.6% (518) bps
------------ ---- ---- -------- ---- ---------
Income From
Operations $1.0 million $1.2 million (19.0%) $2.4 million (59.5%)
----------- ------------ ------------ ------ ------------ ------
Adj. EBITDA $1.9 million $2.1 million (12.0%) $3.2 million (42.4%)
----------- ------------ ------------ ------ ------------ ------
Adj. EBITDA
Margin 10.2% 11.0% (78) bps 16.7% (656) bps
----------- ---- ---- -------- ---- ---------
* Percentage change may be different
when calculated due to rounding.
** Segment adj. EBITDA excludes
stock based compensation and R&I
allocations.
Energy Chemistry Technologies Highlights (ECT):
-- Segment revenues decreased 7.1% sequentially to $61.2 million, and
increased 35.8% year-over-year.
-- Global Complex nano-Fluid® (CnF®) volumes and revenue declined 12.9%
and 11.2%, respectively, from the second quarter, and increased 23.1%
and 28.7% year-over-year.
-- Domestic Complex nano-Fluid® (CnF®) volumes and revenue declined 18.4%
and 16.3%, respectively, from the second quarter, and increased 19.1%
and 27.3% year-over-year.
-- Conventional chemistry (Non-CnF) revenue increased 2.5% sequentially
from the second quarter 2017 with continued success of our Prescriptive
Chemistry Management(SM) (PCM(SM)) solutions.
-- Sequentially, segment gross margins declined by ~400 basis points to
30.6% due to lower CnF® sales mix, while EBITDA margins declined ~500
bps to 19.2%.
-- International revenues increased 85.3% sequentially from the second
quarter and 14.3% from the third quarter 2016, primarily due to
increased CnF® sales.
-- Long term domestic CnF® trends remain positive as volumes have
increased 98.5% since the cycle peak in 3Q 2014 relative to EIA
completion data (as of 10/16/17), which has declined 44.6%, and the U.S.
Land Rig Count, which is down 49.5%.
Consumer and Industrial Chemistry Technologies Highlights (CICT):
-- Segment revenues decreased 5.2% sequentially to $18.3 million, and
decreased 5.3% year-over-year.
-- Sequentially, segment gross margins declined by ~60 basis points to
16.4%, while EBITDA margins declined by ~80 basis points to 10.2%.
-- Declining topline and margin for CICT in the quarter was driven by
anticipated larger orange crops in Brazil and Florida for the coming
season, resulting in lower prices for citrus oils.
-- The impact from Hurricane Irma is expected to benefit pricing in the
near term, as citrus oil prices remain elevated.
-- Our new distillation tower is nearing completion, and should be
operational by December.
Balance Sheet and Liquidity
Net Debt decreased 9.3% from $39.3 million to $35.6 million, sequentially, while working capital benefits were $6.0 million primarily driven by inventory and accounts receivable reductions. Total liquidity at quarter end was $39.2 million. Our current balance on our credit facility as of October 31, 2017 was $30.4 million, compared to $42.7 million at the end of the second quarter, and current liquidity is at $47.5 million.
Flotek Outlook
In commenting about Flotek's outlook, Mr. Chisholm added, "For the fourth quarter, we are anticipating a typical slowdown through the holidays in our ECT segment in line with clients' activity levels and fewer daylight hours. In our CICT segment, we expect the top line to modestly decline sequentially with typical seasonality, but outperform last year's quarter year-over-year. We anticipate consolidated G&A to continue to decline, while segment G&A to be somewhat flat sequentially and capital expenses to be in the $3 million to $5 million range."
Conference Call Details
Flotek will host a conference call on Wednesday, November 8th, at 9:30 AM CDT (10:30 AM EDT) to discuss its operating results for the three months ended September 30, 2017. To participate in the call, participants should dial 888-228-0565 approximately 5 minutes prior to the start of the call. The call can also be accessed from Flotek's website at www.flotekind.com.
About Flotek Industries, Inc.
Flotek develops and delivers prescriptive chemistry-based technology, including specialty chemicals, to clients in the energy, consumer industrials and food & beverage industries. Flotek's inspired chemists draw from the power of bio-derived solvents to deliver solutions that enhance energy production, cleaning products, foods & beverages and fragrances. In the oil and gas sector, Flotek serves major and independent energy producers and oilfield service companies, both domestic and international. Flotek Industries, Inc. 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 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.
Although forward-looking statements in this Press Release reflect the good faith judgment of management, such statements can only be based on facts and factors currently known to management. 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. Factors that could cause or contribute to such differences in results and outcomes include, but are not limited to, demand for oil and natural gas drilling services in the areas and markets in which the Company operates, competition, obsolescence of products and services, the Company's ability to obtain financing to support its operations, environmental and other casualty risks, and the impact of government regulation.
Further information about the risks and uncertainties that may impact the Company are set forth in the Company's most recent filings on Form 10-K (including without limitation in the "Risk Factors" Section), 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.
Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings
(in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/2017 9/30/2016 9/30/2017 9/30/2016
--------- --------- --------- ---------
(in thousands, except per share data)
GAAP Net Income (Loss) and Reconciliation to Adjusted EBITDA
(Non-GAAP)
------------------------------------------------------------
Net Income (Loss) (GAAP) $(3,421) $(1,870) $(5,285) $(2,011)
Interest Expense 574 518 1,718 1,536
Income Tax Benefit 17 (942) (746) (1,349)
Depreciation and Amortization (a) 3,068 2,730 9,091 7,380
EBITDA (Non-GAAP) $238 $436 $4,778 $5,556
==== ==== ====== ======
Stock Compensation Expense 3,026 3,463 9,679 8,591
Executive Retirement Expense - - 950 -
Adjusted EBITDA (Non-GAAP) $3,264 $3,899 $15,407 $14,147
====== ====== ======= =======
Select Items Impacting Earnings
-------------------------------
Stock Compensation & Executive
Retirement Expense $3,026 $3,463 $10,629 $8,591
Less income tax effect at 35% (1,059) (1,212) (3,720) (3,007)
Stock Compensation & Executive
Retirement Expense, net of tax $1,967 $2,251 $6,909 $5,584
=============================
Weighted Average Shares
Outstanding (Fully Diluted) 57,602 56,899 57,709 55,523
Stock Compensation & Executive
Retirement Expense Per Share
(Fully Diluted) $0.03 $0.04 $0.12 $0.10
===== ===== ===== =====
(a) D&A reflects additional D&A
included in consolidated Cost of
Revenues.
* Management believes that
adjusted EBITDA for the three
and nine months ended September
30, 2017, and September 30,
2016, is useful to investors to
assess and understand operating
performance, especially when
comparing those results with
previous and subsequent periods.
Management views the expenses
associated with executive
retirement 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.
Flotek Industries, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
September 30, 2017 December 31, 2016
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $4,942 $4,823
Accounts receivable, net of allowance for doubtful accounts of $1,089 and $664 at
September 30, 2017 and December 31, 2016, respectively
56,008 47,152
Inventories 70,716 58,283
Income taxes receivable 2,649 12,752
Assets held for sale 4,135 43,900
Other current assets 10,881 21,708
------ ------
Total current assets 149,331 188,618
Property and equipment, net 73,711 74,691
Goodwill 56,660 56,660
Deferred tax assets, net 21,190 12,894
Other intangible assets, net 48,851 50,352
------ ------
TOTAL ASSETS $349,743 $383,215
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $21,725 $29,960
Accrued liabilities 12,323 12,170
Interest payable 30 24
Liabilities held for sale 1,586 4,961
Current portion of long-term debt 40,589 40,566
------ ------
Total current liabilities 76,253 87,681
Long-term debt, less current
portion - 7,833
Total liabilities 76,253 95,514
------ ------
Commitments and contingencies
Equity:
Cumulative convertible 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; 60,621,786 shares issued
and 56,802,456 shares outstanding at September 30, 2017; 59,684,669 shares issued and
56,972,580 shares outstanding at December 31, 2016
6 6
Additional paid-in capital 334,490 318,392
Accumulated other comprehensive
income (loss) (822) (956)
Retained earnings (accumulated
deficit) (28,736) (9,830)
Treasury stock, at cost;
3,354,344 and 2,028,847 shares
at September 30, 2017 and
December 31, 2016, respectively (31,806) (20,269)
------- -------
Flotek Industries, Inc.
stockholders' equity 273,132 287,343
Noncontrolling interests 358 358
--- ---
Total equity 273,490 287,701
------- -------
TOTAL LIABILITIES AND EQUITY $349,743 $383,215
======== ========
Flotek Industries, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
9/30/2017 9/30/2016 9/30/2017 9/30/2016
--------- --------- --------- ---------
(in thousands, except per share (in thousands, except per share
data) data)
Revenue $79,458 $64,337 $244,589 $192,227
Cost of revenue 57,718 41,983 169,016 124,362
------ ------ ------- -------
Gross profit 21,740 22,354 75,573 67,865
------ ------ ------ ------
Expenses:
Corporate general and
administrative 10,346 10,302 33,773 30,398
Segment selling and
administrative 9,277 9,775 28,972 26,879
Depreciation and
amortization 2,540 2,217 7,464 6,024
Research and development 2,691 2,327 9,940 6,323
(Gain) loss on disposal of
long-lived assets (11) (14) 401 (29)
Total expenses 24,843 24,607 80,550 69,595
------ ------ ------ ------
Loss from operations (3,103) (2,253) (4,977) (1,730)
Other (expense) income:
Interest expense (574) (518) (1,718) (1,536)
Other (expense) income, net 273 (41) 664 (94)
--- --- --- ---
Total other expense (301) (559) (1,054) (1,630)
---- ---- ------ ------
Loss before income taxes (3,404) (2,812) (6,031) (3,360)
Income tax (expense)
benefit (17) 942 746 1,349
--- --- --- -----
Loss from continuing
operations (3,421) (1,870) (5,285) (2,011)
Income (loss) from
discontinued operations,
net of tax 319 (876) (13,621) (33,200)
Net loss $(3,102) $(2,746) $(18,906) $(35,211)
======= ======= ======== ========
Basic earnings (loss) per common share:
Continuing operations $(0.06) $(0.03) $(0.09) $(0.04)
Discontinued operations,
net of tax 0.01 (0.02) (0.24) (0.60)
Basic earnings (loss) per
common share $(0.05) $(0.05) $(0.33) $(0.64)
====== ====== ====== ======
Diluted earnings (loss) per common share:
Continuing operations $(0.06) $(0.03) $(0.09) $(0.04)
Discontinued operations,
net of tax 0.01 (0.02) (0.24) (0.60)
Diluted earnings (loss) per
common share $(0.05) $(0.05) $(0.33) $(0.64)
====== ====== ====== ======
Weighted average common shares:
Weighted average common
shares used in computing
basic earnings (loss) per
common share 57,602 56,899 57,709 55,523
Weighted average common
shares used in computing
diluted earnings (loss)
per common share 57,602 56,899 57,709 55,523
Flotek Industries, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
-----------------
9/30/2017 9/30/2016
--------- ---------
Cash flows from operating activities:
Net loss $(18,906) $(35,211)
Loss from
discontinued
operations, net
of tax (13,621) (33,200)
------- -------
Loss from
continuing
operations (5,285) (2,011)
Adjustments to reconcile loss from continuing
operations to net cash provided by (used in)
operating activities:
Depreciation and
amortization 9,091 7,380
Amortization of
deferred
financing costs 376 308
Loss (gain) on
sale of assets 401 (29)
Stock
compensation
expense 9,679 8,591
Deferred income
tax benefit (8,290) (6,309)
Reduction in tax
benefit related
to share-based
awards 915 883
Changes in current assets and liabilities:
Accounts
receivable, net (8,704) (7,572)
Inventories (12,213) (2,959)
Income taxes
receivable 9,254 (13,687)
Other current
assets 12,649 (51)
Accounts payable (8,262) 5,959
Accrued
liabilities 1,561 10,434
Income taxes
payable - (1,807)
Interest payable 6 45
Net cash
provided by
(used in)
operating
activities 1,178 (825)
----- ----
Cash flows from investing activities:
Capital
expenditures (6,155) (10,618)
Proceeds from
sales of
businesses 18,490 -
Proceeds from
sale of assets 321 38
Payments for
acquisition,
net of cash
acquired - (7,863)
Purchase of
patents and
other
intangible
assets (817) (311)
Net cash
provided by
(used in)
investing
activities 11,839 (18,754)
------ -------
Cash flows from financing activities:
Repayments of
indebtedness (9,833) (15,398)
Borrowings on
revolving
credit facility 310,021 256,738
Repayments on
revolving
credit facility (307,998) (249,324)
Debt issuance
costs (106) (147)
Reduction in tax
benefit related
to share-based
awards - (883)
Purchase of
treasury stock
related to
share-based
awards (1,500) (925)
Proceeds from
sale of common
stock 530 30,610
Repurchase of
common stock (4,174) -
Proceeds from
exercise of
stock options 21 134
Net cash (used
in) provided by
financing
activities (13,039) 20,805
------- ------
Discontinued operations:
Net cash used in
operating
activities (695) (82)
Net cash
provided by
investing
activities 708 74
Net cash flows
provided by
(used in)
discontinued
operations 13 (8)
--- ---
Effect of
changes in
exchange rates
on cash and
cash
equivalents 128 48
--- ---
Net increase in
cash and cash
equivalents 119 1,266
Cash and cash
equivalents at
the beginning
of period 4,823 2,208
----- -----
Cash and cash
equivalents at
the end of
period $4,942 $3,474
====== ======
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SOURCE Flotek Industries, Inc.
