Flotek Announces Fourth Quarter And Full-year 2019 Results

|Mar 5|magazine45 min read

HOUSTON, March 5, 2020 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the three months and full year ended December 31, 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.

Fourth Quarter and Full-Year 2019 Highlights

  • Generated fourth quarter 2019 revenue of $19.5 million, a loss from continuing operations of $37.1 million and an adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") loss of $8.9 million, compared to revenue of $21.9 million, a loss from continuing operations of $11.2 million and an adjusted EBITDA loss of $8.1 million for the third quarter of 2019. In the fourth quarter, adjusted EBITDA was $0.8 million less than the third quarter primarily due to lower revenue and a change in product mix.
  • The $37.1 million loss for the three months ended December 31, 2019 included a non-recurring $15.8 million loss on purchase commitments associated with the Company's terpene supply agreement with Florida Chemical Company, LLC ("FCC") entered into in February 2019, and the recording of an additional $4.4 million reserve related specifically to the Company's terpene inventory balance as of December 31, 2019.
  • Corporate general and administrative expense for the fourth quarter of 2019 was $9.0 million compared to $5.7 million for the third quarter. Included in the fourth quarter was $3.7 million of severance.
  • For the full-year 2019, Flotek generated revenue of $119.4 million, a loss from continuing operations of $76.7 million and an adjusted EBITDA loss of $34.8 million, compared to revenue of $177.8 million, a loss from continuing operations of $73.4 million and an adjusted EBITDA loss of $15.5 million for the full-year 2018.
  • For the full-year 2019, the Company's cost-cutting and process improvement initiatives reduced annualized expenses by approximately $30 million across the enterprise.

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.  

First Quarter 2020 Highlights to Date

  • Flotek remains solidly committed to securing additional sustainable cost reductions. This includes negotiating an amendment to Flotek's terpene supply agreement with FCC, which was ultimately executed on February 26, 2020 and includes the following key provisions:
    • A reduction in the minimum quantity of terpene Flotek is required to purchase from FCC by approximately 3/4ths in 2020 and by approximately half in each of 2021, 2022 and 2023;
    • A fixed per pound price for terpene in 2020;
    • A reduction in the maximum amount of terpene subject to the supply agreement by approximately 1/3rd; and
    • Change in payment terms to net 45 days.

To make the amended terms and conditions effective, Flotek made a one-time payment of $15.8 million to FCC.  The agreed price and volume reduction for the purchase of terpene in the amended contract for 2020 alone should substantially offset the one-time $15.8 million cash payment made to FCC.  In years 2021, 2022 and 2023, the negotiated volume reduction of approximately 50% in each year is expected to reduce the Company's cash commitments proportionately. The amended agreement places Flotek in a more advantageous position to address new markets and to improve margins on current product lines.   

  • Added John W. Gibson, Jr. as Chairman, President and Chief Executive Officer. Mr. Gibson has served in leadership roles in energy technology, upstream, oilfield services and environmental services.
  • Added Nick Bigney as Senior Vice President, General Counsel and Corporate Secretary. Mr. Bigney is responsible for leading Flotek's legal team to promote more effective risk mitigation, as well as reduce legal costs.
  • Promoted Ryan Ezell to Senior Vice President, Operations. Prior to joining Flotek in August 2019, Mr. Ezell was a global leader for more than 12 years at Halliburton Inc., where he served in increasing roles of responsibility in the Drilling and Evaluation Division.
  • Instead of a formal Strategic Capital Committee, the Company will continue to evaluate alternatives with the Board of Directors for the optimal allocation of its cash balance.

Fourth Quarter 2019 Financial Results

For the three months ended December 31, 2019, Flotek reported revenue of $19.5 million versus $21.9 million for the third quarter and $43.4 million for the same period in 2018.

Flotek reported a loss from continuing operations for the three months ended December 31, 2019 of $37.1 million, or $0.64 loss per diluted share, compared to a loss of $11.2 million, or $0.19 loss per diluted share, for the third quarter. As previously discussed, the $37.1 million loss for the three months ended December 31, 2019 included a non-recurring $15.8 million loss on purchase commitments associated with the Company's terpene supply agreement with FCC entered into in February 2019, and the recording of an additional $4.4 million reserve related specifically to the Company's terpene inventory balance as of December 31, 2019. For the the three months ended December 31, 2018, the Company reported income from continuing operations of $9.9 million, or $0.17 per diluted share.  Results for the three months ended December 31, 2018, included a $22.7 million tax benefit primarily associated with the reversal of a valuation allowance against Flotek's deferred tax assets due to the anticipated sale of FCC. 

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") for the three months ended December 31, 2019 was a loss of $34.6 million compared to a loss of $9.9 million for the third quarter, and a loss of $9.6 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 December 31, 2019 was a loss of $8.9 million versus a loss of $8.1 million for the third quarter and a loss of $6.0 million for the same period in 2018. 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 December 31, 2019, the Company had cash and equivalents of $100.6 million, no outstanding debt and $9.9 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 FCC to Archer-Daniels-Midland ("ADM").  In February 2020, the Company paid $15.8 million to FCC in exchange for the amended terpene supply agreement discussed above.  Also in February 2020, the third party mutually engaged by ADM and Flotek to resolve their transaction post-closing working capital dispute awarded the $4.1 million disputed amount in favor of ADM.

Outlook

Mr. Gibson commented, "During my first two months on the job, I have devoted significant time to driving further sustainable cost reductions in the business. Flotek's leadership team and I remain focused on accelerating all cost savings that will benefit the Company. In addition to amending our terpene agreement, we have also identified additional opportunities to further reduce our cost structure.  As an example, we are currently working to execute a plan to consolidate office space without impacting our market presence. 

"I have also focused much of my attention on evaluating our sales efforts and how we can more effectively engage with current and prospective clients. While there is consensus that there will be further softening in the U.S. onshore oil and gas market in 2020, we believe an increase in the adoption of specialty chemicals could more than offset the decrease in drilling and completions activity. Our key sales focus is growing market share by improving returns for our current customers, rebuilding relationships with past customers and identifying new customers that could benefit from our chemistry solutions. Additionally, we are catalyzing focus on total cost of recovery per BOE, rather than initial cost, as well as strengthening the publicly available evidence for the efficacy of using advanced CnF® products to materially impact oil and gas recovery and profitability for operators."

Conference Call Details

Flotek will host a conference call on Friday, March 6, 2020, at 9:00 AM CT (10:00 AM ET) to discuss its operating results for the three months and full year ended December 31, 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.

About Flotek Industries, Inc.

Flotek develops and delivers 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 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. For a complete list of risk-factors that could cause or contribute to such differences in results and outcomes, please see the section titled "Risk Factors" in our most recent Form 10-K.

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)





December 31, 2019


December 31, 2018

ASSETS




Current assets:




Cash and cash equivalents

$                    100,575


$                         3,044

Restricted cash

663


Accounts receivable, net of allowance for doubtful accounts of $1,527 and $1,190 at December 31, 2019 and December 31, 2018, respectively

15,638


37,047

Inventories, net

21,697


27,289

Income taxes receivable

631


3,161

Assets held for sale


118,470

Other current assets

13,191


5,771

Total current assets

152,395


194,782

Property and equipment, net

39,829


45,485

Operating lease right-of-use assets

16,388


Deferred tax assets, net

152


18,663

Other intangible assets, net

23,083


26,827

Other long-term assets


126

TOTAL ASSETS

$                    231,847


$                    285,883

LIABILITIES AND STOCKHOLDERS' & EQUITY




Current liabilities:




Accounts payable

$                      16,231


$                      15,011

Accrued liabilities

24,552


10,335

Interest payable


8

Liabilities held for sale


9,174

Current portion of lease liabilities

541


Long-term debt, classified as current


49,731

Total current liabilities

41,324


84,259

Long-term operating lease liabilities

16,973


Long-term finance lease liabilities

158


Deferred tax liabilities, net

116


Total liabilities

58,571


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; 57,882,396 shares issued and 58,941,416 shares outstanding at December 31, 2019 shares issued and 57,342,279 shares outstanding at December 31, 2018

6


6

Additional paid-in capital

347,564


343,536

Accumulated other comprehensive loss

(966)


(1,116)

Retained earnings (accumulated deficit)

(139,844)


(107,565)

Treasury stock, at cost 4,145,481 and 3,770,224 shares at December 31, 2019 and December 31, 2018, respectively

(33,484)


(33,237)

Total stockholders' equity

173,276


201,624





TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$                    231,847


$                    285,883

 

Flotek Industries, Inc.


Unaudited Condensed Consolidated Statements of Operations


(in thousands, except per share data)













Three Months Ended


Twelve Months Ended


12/31/2019


12/31/2018


9/30/2019


12/31/2019


12/31/2018











Revenue

$      19,526


$      43,449


$   21,879


$   119,353


$   177,773

Costs and expenses:










Operating expenses (excluding depreciation and amortization)

42,631


41,963


23,689


149,225


159,808

Corporate general and administrative

8,955


6,833


5,685


27,975


31,467

Depreciation and amortization

2,028


2,282


2,058


8,465


9,216

Research and development

2,205


2,302


2,297


8,863


10,356

(Gain)loss on disposal of long-lived assets

354


(563)


3


1,450


(443)

Impairment of goodwill





37,180

Total costs and expenses

56,173


52,817


33,732


195,978


247,584

Loss from operations

(36,647)


(9,368)


(11,853)


(76,625)


(69,811)

Other (expense) income:










Interest expense

(4)


(964)


(1)


(2,019)


(2,866)

Loss on sale of business





(360)

Loss on write-down of assets held for sale





(2,580)

Other income (expense), net

469


(2,441)


436


1,708


(5,040)

Total other income (expense)

465


(3,405)


435


(311)


(10,846)

Loss before income taxes

(36,182)


(12,773)


(11,418)


(76,936)


(80,657)

Income tax benefit (expense)

(956)


22,715


191


201


7,216

(Loss) income from continuing operations

(37,138)


9,942


(11,227)


(76,735)


(73,441)

Income (loss) from discontinued operations, net of tax

(2,425)


(1,385)


117


44,456


2,743

Net (loss) income

(39,563)


8,557


(11,110)


(32,279)


(70,698)

Net loss attributable to noncontrolling interests

-


1




358

Net (loss) income attributable to Flotek Industries, Inc. (Flotek)

$   (39,563)


$        8,558


$ (11,110)


$   (32,279)


$   (70,340)











Amounts attributable to Flotek shareholders:










Loss from continuing operations

$   (37,138)


$        9,943


$ (11,227)


$   (76,735)


$   (73,083)

Income (loss) from discontinued operations, net of tax

(2,425)


(1,385)


117


44,456


2,743

Net income (loss) attributable to Flotek

$   (39,563)


$        8,558


$ (11,110)


$   (32,279)


$   (70,340)

Basic earnings (loss) per common share:










Continuing operations

$        (0.64)


$          0.17


$      (0.19)


$        (1.31)


$        (1.26)

Discontinued operations, net of tax

(0.04)


(0.02)


-


0.76


0.05

Basic earnings (loss) per common share

$        (0.68)


$          0.15


$      (0.19)


$        (0.55)


$        (1.21)

Diluted earnings (loss) per common share:










Continuing operations

$        (0.64)


$          0.17


$      (0.19)


$        (1.31)


$        (1.26)

Discontinued operations, net of tax

(0.04)


(0.02)


-


0.76


0.05

Diluted earnings (loss) per common share

$        (0.68)


$          0.15


$      (0.19)


$        (0.55)


$        (1.21)

Weighted average common shares:










Weighted average common shares used in computing basic earnings (loss) per common share

58,403


58,517


59,004


58,750


57,995

Weighted average common shares used in computing diluted earnings (loss) per common share

58,403


58,517


59,004


58,750


57,995

 

Flotek Industries, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands, except per share data)






Years ended December 31,


2019


2018

Cash flows from operating activities:




Net loss attributable to Flotek Industries, Inc. (Flotek)

$  (32,279)


$ (70,340)

Income (loss) from discontinued operations, net of tax

44,456


2,743

Loss from continuing operations

(76,735)


(73,083)

Adjustments to reconcile loss from continuing operations to net cash (used in) provided by operating activities:




Depreciation and amortization

8,465


9,216

Amortization of deferred financing costs

1,428


400

Provision for doubtful accounts

512


839

Provision for excess and obsolete inventory

5,659


2,418

Loss on sale of business


360

Loss on write-down of assets held for sale


2,580

Gain (loss) on sale of assets

1,450


(443)

Impairment of goodwill


37,180

Stock compensation expense

4,235


7,050

Deferred income taxes

18,307


(5,950)

Reduction in tax benefit related to share-awards

24


709

Non-cash lease expense

740


Changes in current assets and liabilities:




Accounts receivable, net

20,993


(2,606)

Inventories

(65)


2,597

Income taxes receivable

2,546


(1,116)

Other current assets

(8,359)


3,177

Accounts payable

1,131


4,631

Accrued liabilities

908


(8,740)

Interest payable

(8)


(35)

Net cash used in by operating activities

(18,769)


(20,816)

Cash flows from investing activities:




Capital expenditures

(2,411)


(3,559)

Proceeds from sale of business

169,722


1,665

Proceeds from sale of assets

240


1,387

Purchase of patents and other intangible assets

(614)


(1,602)

Net cash provided by (used in) investing activities

166,937


(2,109)

Cash flows from financing activities:




Borrowings on revolving credit facility

42,984


277,599

Repayments on revolving credit facility

(92,715)


(255,818)

Debt issuance costs


(111)

Payments for finance leases

(51)


Purchase of treasury stock

(247)


(173)

Proceeds from sale of common stock

35


341

Loss from noncontrolling interest


(358)

Net cash (used in) provided by financing activities

(49,994)


21,480

Discontinued operations:




Net cash (used in) provided by operating activities

(322)


1,296

Net cash provided by (used in) investing activities

337


(1,303)

Net cash flows provided by (used in) discontinued operations

15


(7)

Effect of changes in exchange rates on cash and cash equivalents

5


(88)

Net change in cash, cash equivalents and restricted cash

98,194


(1,540)

Cash, cash equivalents and restricted cash at beginning of year

3,044


4,584

Cash, cash equivalents and restricted cash at end of year

$  101,238


$      3,044

 

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


Twelve Months Ended



12/31/2019


12/31/2018


9/30/2019


12/31/2019


12/31/2018























Income (Loss) from Continuing Operations (GAAP)

$   (37,138)


$        9,943


$ (11,227)


$   (76,735)


$   (73,083)













Interest Expense

4


964


1


2,019


2,866













Interest Income

(405)


(45)


(571)


(1,888)


(332)













Income Tax (Benefit) Expense

956


(22,715)


(191)


(201)


(7,216)













Depreciation and Amortization

2,028


2,282


2,058


8,465


9,216












EBITDA (Non-GAAP)

$   (34,555)


$      (9,571)


$   (9,930)


$   (68,340)


$   (68,549)













Stock Compensation Expense

1,409


480


1,160


4,235


7,050













Severance and Retirement

3,753


1,712


658


6,503


1,712













Shareholder-Related Activities

-


-


4


646


-













Operations Related Contract Termination

-


-


-


500


-













Inventory Write-down

4,438


-


-


4,438


1,000













Impairment of Goodwill

-


-


-


-


37,180













Loss on Write-down of Assets Held for Sale

-


-


-


-


2,580













Loss (Gain) on Disposal of Assets

355


(563)


3


1,450


(443)













Loss on Sale of Business

-


-


-


-


360













Discontinuation of Corporate Projects

-


1,945


-


-


3,165













Expenses Relating to Closing of Business Venture

-


-


-


-


436













Supply Chain Contract Renegotiation

15,750


-


-


15,750


-












Adjusted EBITDA (Non-GAAP)

$      (8,850)


$      (5,997)


$   (8,105)


$   (34,818)


$   (15,509)


* Management believes that adjusted EBITDA for the three and twelve months ended December 31, 2019 and December 31, 2018, and the three months ended September 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.