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Flotek Announces Third Quarter 2019 Results

November 12, 2019
Flotek Industries, Inc. (PRNewsfoto/Flotek Industries, Inc.)
Flotek Industries, Inc. (PRNewsfoto/Flotek Industries, Inc.)

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

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.