Flotek Announces Third Quarter 2019 Results
HOUSTON, Nov. 11, 2019 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the three months ended September 30, 2019. As the results of the Company's Consumer and Industrial Chemistry Technologies ("CICT") segment are presented as discontinued operations for all periods, the financial discussion and comparisons substantially relate to Flotek's continuing operations, or its Energy Chemistry Technologies ("ECT") segment.
Third Quarter and Recent Highlights
-- Generated revenue of $21.9 million, a net loss from continuing
operations of $11.2 million and an adjusted earnings before interest,
taxes, depreciation and amortization ("adjusted EBITDA") loss of $8.1
million, in comparison to revenue of $34.7 million, a net loss from
continuing operations of $13.0 million and an adjusted EBITDA loss of
$9.6 million for the second quarter of 2019.
-- Revenue and results for the third quarter were directly impacted by a
continued volatile macro-environment for U.S. onshore drilling and
completion activity and the transition in Flotek's sales force,
partially offset by Flotek's previously announced cost reduction
efforts.
-- Reduced operating and corporate general administrative expenses from the
second quarter, including benefiting from cost-cutting initiatives that
were implemented in mid-July. Flotek has also identified and executed on
more than $3.5 million of additional annualized cost reductions in the
fourth quarter that are primarily related to operating expenses. During
2019, the Company has executed on a series of cost-cutting initiatives
that reduce Flotek's annual fixed cash costs by approximately $30
million across the enterprise.
-- Identified and began to implement strategies to drive greater
profitability through order-to-cash efficiencies, including process
enhancements to sales, manufacturing, supply chain and logistics. While
the full process transformation is scheduled for completion by the end
of the fourth quarter, Flotek currently estimates these targeted
improvements could reduce operating expenses by more than $5 million on
annualized basis.
-- The Company's Strategic Capital Committee continues to evaluate
alternatives for the optimal allocation of the net proceeds from the
sale of Florida Chemical Company, LLC to Archer-Daniels-Midland Company
(the "Transaction") in the first quarter of 2019.
Adjusted EBITDA is a Non-GAAP financial measure and is described and reconciled to the closest GAAP measure in the attached tables at the end of this release.
Elizabeth Wilkinson, Flotek's Chief Financial Officer, commented, "Supporting our drive to achieve long-term profitability, we have made significant progress during 2019 in optimizing our cost structure and these efforts will continue. We have also identified further operational changes that improve the effectiveness and efficiency of our sales, manufacturing, supply chain and logistics processes and will lower our breakeven revenue level by more than 10%, even in the current operating environment. In addition to these efforts, we remain extremely focused on leveraging our enhanced sales team and are increasingly engaging with operators of scale that are seeking to deploy reservoir-centric chemistries to improve their asset productivity."
Third Quarter 2019 Financial Results
For the three months ended September 30, 2019, Flotek reported revenue of $21.9 million versus $34.7 million for the second quarter and $53.7 million for the same period in 2018. Primarily impacting sequential revenue was the prevously discussed environment for U.S. land oil and gas development operations.
Flotek reported a loss from continuing operations for the three months ended September 30, 2019 of $11.2 million, or $0.19 loss per diluted share, compared to a loss of $13.0 million, or $0.22 loss per diluted share, for the second quarter, and a loss of $4.8 million, or $0.08 loss per diluted share, in the same period of 2018.
Adjusted net loss from continuing operations for the three months ended September 30, 2019 was $10.7 million, or $0.18 per diluted share, versus $12.3 million, or $0.21 per diluted share, for the second quarter, and $4.4 million, or $0.08 per diluted share, in the same period of 2018. (See the Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings at the conclusion of this release.)
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for the three months ended September 30, 2019 was a loss of $9.9 million compared to a loss of $11.7 million for the second quarter, and a loss of $2.2 million for the same period in 2018. (See the Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings at the conclusion of this release.)
Adjusted EBITDA for the three months ended September 30, 2019 was a loss of $8.1 million versus a loss of $9.6 million for the second quarter and a positive $0.5 million for the same period in 2018. Contributing to the decreased loss from the second quarter were lower operating expenses as a percent of revenue primarily due to the Company's cost reduction efforts, including improved logistics efficiencies and lower personnel expenses. Management believes that adjusted EBITDA provides useful information to investors to better assess and understand operating performance and cash flows. (See the Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings at the conclusion of this release.)
Balance Sheet and Liquidity
As of September 30, 2019, the Company had cash and equivalents of $107.0 million as compared to $97.5 million at June 30, 2019. Significantly contributing to the sequential quarterly net increase in cash and equivalents was a decrease in net accounts receivable, with a days sales outstanding of 70 days at the end of the third quarter compared to 85 days as of June 30, 2019. In addition, as scheduled, Flotek collected $3.3 million of the indemnity escrow established at the closing of the Transaction earlier this year and managed its inventory balances to a slightly lower level. At September 30, 2019, the Company had no outstanding debt and $12.5 million in escrowed funds on the balance sheet, reflecting both the Company's estimate of its claim to the post-closing adjustment working capital escrow and the remaining balance of the indemnity escrow related to the Transaction.
Outlook
John Chisholm, Flotek's Chief Executive Officer, concluded, "2019 has clearly been challenging for substantially all oilfield service providers with U.S. onshore operations as E&P companies strive to operate within cash flow and generate attractive returns for their shareholders. The result has been an intense focus on drilling and completion costs by operators as they execute their extensive well inventory development programs. In this environment, oilfield service providers have been under pressure to lower costs, while providing E&Ps superior offerings and technical differentiation.
"We have responded by transitioning our business into a reservoir-centric chemistry services company that partners with our clients to increase asset productivity. The Company is taking a number of proactive measures to enhance its offerings along with its operations and sales capabilities. As E&Ps face increasing complexity surrounding well spacing and optimized completions variables, Flotek is working alongside its clients' subsurface teams to validate the positive impact that fluid chemistries tailored for the reservoir have in increasing hydrocarbon recovery and enhancing the total cost of ownership of their assets. We look forward to continuing our close collaboration with our clients as they seek differentiated and cost-effective solutions for their complex technical challenges."
Conference Call Details
Flotek will host a conference call on Tuesday, November 12, at 9:00 AM CT (10:00 AM ET) to discuss its operating results for the three months ended September 30, 2019. 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. In addition, the Company has updated its corporate presentation, which is also available on its website.
About Flotek Industries, Inc.
Flotek develops and delivers prescriptive, reservoir-centric chemistry technologies to oil and gas clients designed to address every challenge in the lifecycle of the reservoir and maximize recovery in both new and mature fields. Flotek's inspired chemists draw from the power of bio-derived solvents to deliver solutions that enhance energy production. 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 website 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.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
September 30, 2019
December 31, 2018
---
ASSETS
Current assets:
Cash and cash equivalents $106,994 $3,044
Restricted cash 663 -
Accounts receivable, net of
allowance for doubtful
accounts of $1,520 and $1,190
at September 30, 2019 and
December 31, 2018,
respectively 15,014 37,047
Inventories, net 24,333 27,289
Income taxes receivable 313 3,161
Assets held for sale - 118,470
Other current assets 19,181 5,771
Total current assets 166,498 194,782
Property and equipment, net 41,180 45,485
Operating lease right-of-use
assets 17,625 -
Deferred tax assets, net 476 18,663
Other intangible assets, net 23,578 26,827
Other long-term assets - 126
---
TOTAL ASSETS $249,357 $285,883
===
LIABILITIES AND STOCKHOLDERS' & EQUITY
Current liabilities:
Accounts payable $10,578 $15,011
Accrued liabilities 7,797 10,335
Income taxes payable 276 -
Interest payable - 8
Liabilities held for sale - 9,174
Current portion of lease
liabilities 762 -
Long-term debt, classified as
current - 49,731
Total current liabilities 19,413 84,259
Long-term operating lease
liabilities 17,945 -
Long-term finance lease
liabilities 172 -
Deferred tax liabilities, net 116 -
Total liabilities 37,646 84,259
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; 63,038,397 shares
issued and 58,909,280 shares
outstanding at September 30,
2019; 62,162,875 shares issued
and 57,342,279 shares
outstanding at December 31,
2018 6 6
Additional paid-in capital 346,392 343,536
Accumulated other comprehensive
loss (962) (1,116)
Retained earnings (accumulated
deficit) (100,281) (107,565)
Treasury stock, at cost
4,129,117 and 3,770,224 shares
at September 30, 2019 and
December 31, 2018,
respectively (33,444) (33,237)
211,711 201,624
$249,357 $285,883
===
Flotek Industries, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)
Three Months Ended Nine Months Ended
---
9/30/2019 9/30/2018 6/30/2019 9/30/2019 9/30/2018
---
Revenue $21,879 $53,709 $34,692 $99,827 $134,324
Costs and expenses:
Operating expenses (excluding
depreciation and
amortization) 23,689 45,647 38,306 106,593 117,848
Corporate general and
administrative 5,685 7,476 6,054 19,020 24,634
Depreciation and amortization 2,058 2,259 2,119 6,437 6,935
Research and development 2,297 2,350 2,076 6,657 8,054
(Gain)/loss on disposal of
long-lived assets 3 57 (4) 1,096 119
Impairment of goodwill - 37,180
Total costs and expenses 33,732 57,789 48,551 139,803 194,770
Loss from operations (11,853) (4,080) (13,859) (39,976) (60,446)
Other (expense) income:
Interest expense (1) (746) (16) (2,014) (1,902)
Loss on sale of business (360) (360)
Loss on write-down of assets
held for sale - (2,580)
Other income (expense), net 436 10 693 1,236 (2,599)
Total other expense 435 (1,096) 677 (778) (7,441)
Loss before income taxes (11,418) (5,176) (13,182) (40,754) (67,887)
Income tax benefit (expense) 191 333 192 1,157 (15,545)
Loss from continuing
operations (11,227) (4,843) (12,990) (39,597) (83,432)
Income (loss) from
discontinued operations, net
of tax 117 911 (1,608) 46,881 4,176
Net income (loss) (11,110) (3,932) (14,598) 7,284 (79,256)
Net income attributable to
noncontrolling interests - 357
Net income (loss)
attributable to Flotek
Industries, Inc. (Flotek) $(11,110) $(3,932) $(14,598) $7,284 $(78,899)
Amounts attributable to Flotek shareholders:
Loss from continuing
operations $(11,227) $(4,843) $(12,990) $(39,597) $(83,075)
Income (loss) from
discontinued operations, net
of tax 117 911 (1,608) 46,881 4,176
Net income (loss)
attributable to Flotek $(11,110) $(3,932) $(14,598) $7,284 $(78,899)
Basic earnings (loss) per common share:
Continuing operations $(0.19) $(0.08) $(0.22) $(0.67) $(1.44)
Discontinued operations, net
of tax - 0.02 (0.03) 0.80 0.07
Basic earnings (loss) per
common share $(0.19) $(0.06) $(0.25) $0.13 $(1.37)
===
Diluted earnings (loss) per common share:
Continuing operations $(0.19) $(0.08) $(0.22) $(0.67) $(1.44)
Discontinued operations, net
of tax - 0.02 (0.03) 0.80 0.07
Diluted earnings (loss) per
common share $(0.19) $(0.06) $(0.25) $0.13 $(1.37)
===
Weighted average common shares:
Weighted average common
shares used in computing
basic earnings (loss) per
common share 59,004 58,319 58,608 58,725 57,820
Weighted average common
shares used in computing
diluted earnings (loss) per
common share 59,004 53,319 58,608 58,725 57,820
Flotek Industries, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended
9/30/2019 9/30/2018
---
Cash flows from operating activities:
Net income (loss) attributable to Flotek Industries, Inc.
(Flotek) $7,284 $(78,899)
Income from discontinued operations, net of tax 46,881 4,176
Loss from continuing operations (39,597) (83,075)
Adjustments to reconcile loss from continuing operations to net cash (used in) operating
activities:
Depreciation and amortization 6,437 6,935
Amortization of deferred financing costs 1,428 294
Provision for doubtful accounts 426 176
Provision for excess and obsolete inventory - 1,817
Impairment of goodwill - 37,180
Loss on sale of business - 360
Loss on write-down of assets held for sale - 2,580
Loss on disposal of long-lived assets 1,096 119
Non-cash lease expense 813 -
Stock compensation expense 2,829 6,594
Deferred income tax provision 17,983 15,358
Reduction in tax benefit related to share-based awards 24 312
Changes in current assets and liabilities:
Restricted cash (663) -
Accounts receivable, net 21,629 (10,392)
Inventories, net 3,000 (1,490)
Income taxes receivable 2,853 58
Other current assets (14,974) 1,759
Accounts payable (4,434) 5,672
Accrued liabilities (13,122) (9,001)
Income taxes payable 595 -
Interest payable (8) (37)
Net cash (used in) operating activities (13,685) (24,781)
Cash flows from investing activities:
Capital expenditures (1,869) (3,965)
Proceeds from sales of businesses 169,722 1,665
Proceeds from sale of assets 234 361
Purchase of patents and other intangible assets (590) (1,466)
Net cash (used in) provided by investing activities 167,497 (3,405)
Cash flows from financing activities:
Borrowings on revolving credit facility 42,984 213,612
Repayments on revolving credit facility (92,715) (188,160)
Debt issuance costs - (98)
Purchase of treasury stock related to share-based awards (207) (91)
Proceeds from sale of common stock 7 341
Payments for finance leases 51 -
Loss from noncontrolling interest - (357)
Net cash (used in) provided by financing activities (49,880) 25,247
Discontinued operations:
Net cash (used in) provided by operating activities (321) 880
Net cash (used in) provided by investing activities 337 (630)
Net cash flows provided by discontinued operations 16 250
Effect of changes in exchange rates on cash and cash
equivalents 2 (66)
Net increase (decrease) in cash and cash equivalents 103,950 (2,755)
Cash and cash equivalents at the beginning of period 3,044 4,584
Cash and cash equivalents at the end of period $106,994 $1,829
Flotek Industries, Inc.
Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings
(in thousands, except per share data)
GAAP Loss from Continuing Operations and Reconciliation to Adjusted Net Loss (Non-GAAP)
---
Three Months Ended Nine Months Ended
9/30/2019 9/30/2018 6/30/2019 9/30/2019 9/30/2018
Loss from Continuing Operations (GAAP) $(11,227) $(4,843) $(12,990) $(39,597) $(83,432)
Select Items Impacting Earnings, net of tax 525 412 729 4,619 34,066
Adjusted Net Loss (Non-GAAP) $(10,702) $(4,431) $(12,261) $(34,978) $(49,366)
Weighted Average Shares Outstanding (Fully Diluted) 59,004 58,319 58,608 58,725 57,820
Adjusted Loss Per Share (Fully Diluted) $(0.18) $(0.08) $(0.21) $(0.60) $(0.85)
Select Items Impacting Earnings
---
Severance and Retirement 658 105 356 2,735 227
Shareholder-Related Activities 4 71 656 -
Operations Related Contract Termination 500 -
Inventory Write-down 1,000
Impairment of Goodwill 37,180
Deferred Financing Costs 1,360 -
Loss on Sale of Business 360 360
Loss on Write-down of Assets Held for Sale 2,580
Loss (Gain) on Disposal of Assets 3 57 (4) 1,096 119
Discontinuation of Corporate Projects 1,220
Expenses Relating to Closing of Business Venture 436
Total Select Items $665 $522 $923 $5,847 $43,122
Less income tax effect (21%) (140) (110) (194) (1,228) (9,056)
Select Items Impacting Earnings, net of tax $525 $412 $729 $4,619 $34,066
* Management believes that
adjusted Net Income for the
three and nine months ended
September 30, 2019 and September
30, 2018, and the three months
ended June 30, 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.
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 Nine Months Ended
9/30/2019 9/30/2018 6/30/2019 9/30/2019 9/30/2018
Loss from Continuing Operations (GAAP) $(11,227) $(4,843) $(12,990) $(39,597) $(83,432)
Interest Expense 1 746 16 2,014 1,902
Interest Income (571) (53) (685) (1,483) (288)
Income Tax Benefit Expense (191) (333) (192) (1,157) 15,545
Depreciation and Amortization 2,058 2,259 2,119 6,437 6,935
EBITDA (Non-GAAP) $(9,930) $(2,224) $(11,732) $(33,786) $(59,338)
Stock Compensation Expense 1,160 2,185 1,213 2,829 6,594
Severance and Retirement 658 105 356 2,735 227
Shareholder-Related Activities 4 71 656 -
Operations Related Contract Termination 500 -
Inventory Write-down 1,000
Impairment of Goodwill 37,180
Loss on Sale of Business 360 360
Loss on Write-down of Assets Held for Sale 2,580
Loss (Gain) on Disposal of Assets 3 57 (4) 1,096 119
Discontinuation of Corporate Projects 1,220
Expenses Relating to Closing of Business Venture 436
Adjusted EBITDA (Non-GAAP) $(8,105) $483 $(9,596) $(26,470) $(9,622)
* Management believes that
adjusted EBITDA for the three
and nine months ended September
30, 2019 and September 30, 2018,
and the three months ended June
30, 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.
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SOURCE Flotek Industries, Inc.
