HOUSTON, March 5, 2020 / PRNewswire / – Flotek Industries, Inc. (“Flotek” or the “Company”) (NYSE: FTK) today announced results for the quarter and year ended December 31, 2019. Since the results of the Consumer Technologies and Industrial Chemistry (“CICT”) segment of the Company are presented as discontinued operations for all periods, the financial discussion and comparisons relate mainly to the continuing operations of Flotek or its Technologies segment of energy chemistry (“ECT”).
Fourth quarter and full year 2019 highlights
- Q4 2019 revenue generated from $ 19.5 million, a loss of continuing operations from $ 37.1 million and adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of $ 8.9 million, compared to $ 21.9 million, a loss of continuing operations from $ 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 mainly due to lower revenues and a change in product line.
- the $ 37.1 million loss for the three months ended December 31, 2019 included a non-recurring $ 15.8 million loss on purchase commitments related to the Company’s terpene supply agreement with Florida Chemical Company, LLC (“FCC”) entered into February 2019, and recording a $ 4.4 million reserve specifically linked to the balance of the Company’s terpene stocks at December 31, 2019.
- General and administrative expenses for the fourth quarter of 2019 amounted to $ 9.0 million compared to $ 5.7 million for the third quarter. The fourth quarter included $ 3.7 million severance pay.
- For the year 2019, Flotek generated revenues of $ 119.4 million, a loss of continuing operations from $ 76.7 million and an adjusted EBITDA loss of $ 34.8 million, compared to $ 177.8 million, a loss of continuing operations from $ 73.4 million and an adjusted EBITDA loss of $ 15.5 million for the year 2018.
- For 2019, the Company’s cost reduction 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 nearest GAAP measure in the tables attached at the end of this press release.
First quarter 2020 highlights to date
- Flotek remains firmly committed to ensuring further 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 Flotek terpene is required for the purchase from FAC by approximately 3/4ths in 2020 and around half in 2021, 2022 and 2023;
- A fixed price per pound for terpene in 2020;
- A reduction of the maximum quantity of terpene subject to the supply agreement by approximately 1/3rd; and
- Change of payment conditions in net 45 days.
In order for the modified conditions to be effective, Flotek has made a single payment of $ 15.8 million at FCC. The price and volume reduction agreed for the purchase of terpene in the modified contract for 2020 alone should substantially offset $ 15.8 million cash payment to FCC. During the years 2021, 2022 and 2023, the volume reduction negotiated by approximately 50% each year should proportionately reduce the Company’s cash commitments. The amended agreement puts Flotek in a more advantageous position to enter new markets and improve margins on the current product lines.
- Added John W. Gibson, Jr. as Chairman of the Board, President and Chief Executive Officer. Mr. Gibson has held leadership positions in energy technology, upstream, petroleum and environmental services.
- Added Nick Bigney as Senior Vice-President, General Counsel and General Secretary. Mr. Bigney is responsible for leading the Flotek legal team to promote more effective risk mitigation and reduce legal costs.
- Promoted Ryan Ezell the Senior Vice-President, Operations. Before joining Flotek in August 2019, Mr. Ezell has been a world leader for over 12 years at Halliburton Inc., where he has held increasing positions of responsibility in the Drilling and Assessment Division.
- Instead of a strategic committee for strategic capital, the company will continue to evaluate the alternatives with the board of directors for the optimal allocation of its cash balance.
Financial results for the fourth quarter of 2019
For the three months ended December 31, 2019, Flotek reported revenues of $ 19.5 million against $ 21.9 million for the third quarter and $ 43.4 million for the same period in 2018.
Flotek reported loss of continuing operations for the three months ended December 31, 2019 of $ 37.1 million, or $ 0.64 loss per diluted share, compared to 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 related to the Company’s terpene supply agreement with FCC concluded in February 2019, and recording a $ 4.4 million reserve specifically linked to the balance of the Company’s terpene stocks at December 31, 2019. For 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 mainly related to the reversal of a valuation allowance on Flotek’s deferred tax assets due to the planned sale of FAC.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the quarter 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 and non-monetary items affecting results at the end of this press release.)
Adjusted EBITDA for the quarter ended December 31, 2019 was a loss of $ 8.9 million against 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 operational performance and cash flows. (See the reconciliation of non-GAAP and non-monetary items affecting earnings at the end of this release.)
Balance sheet and liquidity
At December 31, 2019, the Company had cash and cash equivalents of $ 100.6 million, no outstanding debt and $ 9.9 million in escrow funds on the balance sheet, reflecting Flotek’s estimate of his claim to the residual balance of the escrow of compensation related to the sale of FAC to Archer-Daniels-Midland (“ADM”). In February 2020, the Company paid $ 15.8 million to FCC in exchange for the modified terpene supply agreement discussed above. Also in February 2020, the third party jointly engaged by ADM and Flotek to resolve their working capital dispute after the closing of the transaction a $ 4.1 million amount disputed in favor of ADM.
Perspective
Gibson commented, “During my first two months on the job, I spent a lot of time promoting further sustainable cost reductions in the business. Flotek’s management team and I remain focused on accelerating all cost savings that will benefit society. In order to modify our terpene agreement, we have also identified additional opportunities to further reduce our cost structure. For example, we are currently working on implementing a plan to consolidate office space without impacting our presence on the market.
“I have also focused much of my attention on evaluating our sales efforts and how we can interact more effectively with current and potential customers. While there is consensus on further easing of the US oil and land gas market in 2020, we believe an increase in the adoption of specialty chemicals could more than offset the decline in drilling activity and of supplements. Our main sales goal is to increase market share by improving returns for our current customers, restoring relationships with old customers and identifying new customers who could benefit from our. In addition, we catalyze the focus on the total cost of recovery by BOE, rather than the initial cost, as well as the strengthening of publicly available evidence for the effectiveness of using advanced CnF® products with a significant impact on oil and gas recovery and profitability for operators. ”
Conference call details
Flotek will hold a conference call on Friday March 6, 2020, at 9:00 AM CT (10:00 a.m.ET) to discuss its operating results for the quarter and the year ended December 31, 2019. To participate in the call, participants must dial 844-835-9986 approximately five minutes before the start of the call. The call is also available on the Flotek website at www.flotekind.com.
About Flotek Industries, Inc.
Flotek develops and supplies oil and gas customers with tank-based chemistry technologies designed to meet all challenges of the tank life cycle and maximize recovery in new and mature fields. Flotek’s chemists leverage the power of bio-derived solvents to provide solutions that improve energy production. Flotek serves the main independent energy producers and petroleum service companies, both national and international. Flotek Industries, Inc. is a publicly traded company headquartered in Houston, Texasand its common shares are traded on the New York Stock Exchange under the ticker symbol “FTK”. For more information, please visit Flotek’s website at www.flotekind.com.
Forward-looking statements
Certain statements contained 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 the business, financial condition of Flotek Industries, Inc., operating results and outlook. Words such as expect, anticipate, hear, plan, believe, research, estimate 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 the forward-looking statements contained in this press release reflect management’s good faith judgment, these statements can only be based on facts and factors currently known to management. Therefore, forward-looking statements are inherently subject to risks and uncertainties, and actual results and results may differ significantly from the results and results discussed in the forward-looking statements. For a full list of risk factors that could cause or contribute to such differences in outcomes and results, please see the section called “Risk Factors” in our most recent Form 10-K.
Further information on the risks and uncertainties that may affect the company is presented in the company’s most recent documents on Form 10-K (including, but not limited to, in the section “Factors of risk ”), as well as in other documents filed by the company with the SEC and documents accessible to the public. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company assumes no obligation to revise or update any forward-looking statements 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 sharing 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 as at December 31, 2019 and December 31, 2018 |
15,638 |
37,047 |
|
Stocks, net |
21,697 |
27,289 |
|
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 |
|
Assets related to the rights to use operating leases |
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 SHAREHOLDERS AND SHAREHOLDERS ‘EQUITY |
|||
Current liabilities: |
|||
Accounts payable |
$ 16,231 |
$ 15,011 |
|
Liabilities payable |
24,552 |
10.335 |
|
Interest payable |
– |
8 |
|
Liabilities held for sale |
– |
9,174 |
|
Current portion of rental 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 responsibilities |
58,571 |
84,259 |
|
Commitments and contingencies |
|||
Equity: |
|||
Preferred shares, par value of $ 0.0001, 100,000 authorized shares; no shares issued and outstanding |
– |
– |
|
Common shares, par value of $ 0.0001, 80 million authorized shares; 57,882,396 shares issued and 58,941,416 shares outstanding as of December 31, 2019 shares issued and 57,342,279 shares outstanding as of December 31, 2018 |
6 |
6 |
|
Premium |
347,564 |
343,536 |
|
Accumulation of other overall losses |
(966) |
(1,116) |
|
Retained earnings (accumulated deficit) |
(139 844) |
(107,565) |
|
Treasury shares, priced at 4,145,481 and 3,770,224 shares as of December 31, 2019 and December 31, 2018, respectively |
(33,484) |
(33,237) |
|
Total shareholder equity |
173,276 |
201,624 |
|
TOTAL LIABILITIES AND EQUITY |
$ 231,847 |
$ 285,883 |
Flotek Industries, Inc. |
||||||||||
Unaudited Condensed Consolidated Statements of Income |
||||||||||
(in thousands, except per share data) |
||||||||||
Three months ended |
Twelve months ended |
|||||||||
12/31/2019 |
12/31/2018 |
09/30/2019 |
12/31/2019 |
12/31/2018 |
||||||
Returned |
$ 19,526 |
$ 43,449 |
$ 21,879 |
$ 119,353 |
$ 177,773 |
|||||
Costs and expenses: |
||||||||||
Operating expenses (excluding depreciation) |
42,631 |
41 963 |
23,689 |
149,225 |
159,808 |
|||||
General and administrative company |
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) |
|||||
Goodwill impairment |
– |
– |
– |
– |
37,180 |
|||||
Total costs and expenses |
56,173 |
52,817 |
33,732 |
195 978 |
247,584 |
|||||
Operating loss |
(36,647) |
(9,368) |
(11,853) |
(76,625) |
(69,811) |
|||||
Other (expenses) income: |
||||||||||
Interest charges |
(4) |
(964) |
(1) |
(2,019) |
(2,866) |
|||||
Loss on sale of business |
– |
– |
– |
– |
(360) |
|||||
Loss on impairment 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 tax |
(36.182) |
(12,773) |
(11,418) |
(76,936) |
(80,657) |
|||||
Tax savings (expense) |
(956) |
22,715 |
191 |
201 |
7,216 |
|||||
(Loss) income from continuing operations |
(37.138) |
9,942 |
(11,227) |
(76,735) |
(73,441) |
|||||
Profit (loss) from discontinued operations, net of tax |
(2,425) |
(1,385) |
117 |
44,456 |
2,743 |
|||||
Net income (loss) |
(39,563) |
8,557 |
(11,110) |
(32,279) |
(70,698) |
|||||
Net loss attributable to non-controlling interests |
– |
1 |
– |
– |
358 |
|||||
Net profit (loss) attributable to Flotek Industries, Inc. (Flotek) |
($ 39,563) |
$ 8,558 |
($ 11,110) |
($ 32,279) |
$ (70,340) |
|||||
Amounts attributable to Flotek shareholders: |
||||||||||
Loss of continuing operations |
($ 37,138) |
$ 9,943 |
$ (11,227) |
($ 76,735) |
($ 73,083) |
|||||
Profit (loss) from discontinued operations, net of tax |
(2,425) |
(1,385) |
117 |
44,456 |
2,743 |
|||||
Net profit (loss) attributable to Flotek |
($ 39,563) |
$ 8,558 |
($ 11,110) |
($ 32,279) |
$ (70,340) |
|||||
Basic earnings (loss) per common share: |
||||||||||
Continuous operations |
$ (0.64) |
$ 0.17 |
$ (0.19) |
$ (1.31) |
$ (1.26) |
|||||
Abandoned activities, excluding taxes |
(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: |
||||||||||
Continuous operations |
$ (0.64) |
$ 0.17 |
$ (0.19) |
$ (1.31) |
$ (1.26) |
|||||
Abandoned activities, excluding taxes |
(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 the calculation of basic earnings (loss) per common share |
58,403 |
58,517 |
59 004 |
58,750 |
57 995 |
|||||
Weighted average ordinary shares used in the calculation of diluted earnings per ordinary 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) |
|
Profit (loss) from discontinued operations, net of tax |
44,456 |
2,743 |
|
Loss of continuing operations |
(76,735) |
(73,083) |
|
Adjustments to reconcile loss of continuing operations with net cash (used in) provided by operating activities: |
|||
Depreciation and amortization |
8,465 |
9.216 |
|
Amortization of deferred financing costs |
1,428 |
400 |
|
Allowance for doubtful accounts |
512 |
839 |
|
Provision for excess and obsolete stocks |
5,659 |
2,418 |
|
Loss on sale of business |
– |
360 |
|
Loss on impairment of assets held for sale |
– |
2,580 |
|
Gain (loss) on sale of assets |
1,450 |
(443) |
|
Goodwill impairment |
– |
37,180 |
|
Stock compensation fees |
4,235 |
7.050 |
|
Deferred taxes |
18,307 |
(5,950) |
|
Reduction of the tax advantage linked to share allocations |
24 |
709 |
|
Non-monetary rental fees |
740 |
– |
|
Changes in current assets and liabilities: |
|||
Accounts receivable, net |
20,993 |
(2,606) |
|
Inventories |
(65) |
2,597 |
|
Taxes receivable |
2,546 |
(1,116) |
|
Other current assets |
(8,359) |
3.177 |
|
Accounts payable |
1,131 |
4,631 |
|
Liabilities payable |
908 |
(8,740) |
|
Interest payable |
(8) |
(35) |
|
Net cash used by operating activities |
(18,769) |
(20,816) |
|
Cash flows from investing activities: |
|||
Capital expenditure |
(2,411) |
(3,559) |
|
Proceeds from the sale of a business |
169,722 |
1,665 |
|
Proceeds from the 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: |
|||
Loans on revolving credit facility |
42 984 |
277,599 |
|
Repayments on the revolving credit facility |
(92,715) |
(255 818) |
|
Debt issue costs |
– |
(111) |
|
Payments for finance leases |
(51) |
– |
|
Purchase of own shares |
(247) |
(173) |
|
Proceeds from the sale of common shares |
35 |
341 |
|
Loss of non-controlling interests |
– |
(358) |
|
Net cash (used in) provided by financing activities |
(49,994) |
21,480 |
|
Interrupted operations: |
|||
Net cash (used in) provided by operating activities |
(322) |
1,296 |
|
Net cash provided by (used in) investing activities |
337 |
(1,303) |
|
Free cash flow provided by (used in) discontinued operations |
15 |
(seven) |
|
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 the start of the year |
3.044 |
4,584 |
|
Cash, cash equivalents and restricted cash at the end of the year |
$ 101,238 |
$ 3,044 |
Flotek Industries, Inc. |
||||||||||
Unaudited reconciliation of non-GAAP and non-monetary items affecting 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 |
09/30/2019 |
12/31/2019 |
12/31/2018 |
||||||
Profit (loss) from continuing operations (GAAP) |
($ 37,138) |
$ 9,943 |
$ (11,227) |
($ 76,735) |
($ 73,083) |
|||||
Interest charges |
4 |
964 |
1 |
2,019 |
2,866 |
|||||
Interest income |
(405) |
(45) |
(571) |
(1,888) |
(332) |
|||||
Income tax expense (benefit) |
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 expenses |
1409 |
480 |
1,160 |
4,235 |
7.050 |
|||||
Severance pay and retirement |
3,753 |
1,712 |
658 |
6,503 |
1,712 |
|||||
Shareholder activities |
– |
– |
4 |
646 |
– |
|||||
Termination of contract related to operations |
– |
– |
– |
500 |
– |
|||||
Inventory reduction |
4.438 |
– |
– |
4.438 |
1,000 |
|||||
Goodwill impairment |
– |
– |
– |
– |
37,180 |
|||||
Loss on impairment 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 |
|||||
End of business projects |
– |
1,945 |
– |
– |
3.165 |
|||||
Costs related to closing a business |
– |
– |
– |
– |
436 |
|||||
Renegotiation of supply chain contracts |
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 month periods ended December 31, 2019 and December 31, 2018, and the quarter ended September 30, 2019, is useful for investors to assess and understand operational performance, in particular when comparing these results with previous and subsequent periods. Management considers that the expenses mentioned above are outside the normal operating results of the company. Management analyzes operating results without the impact of the above elements as a performance indicator, to identify the underlying trends in the business and the cash flows from continuing operations and to establish operational objectives. |
SOURCE Flotek Industries, Inc.
Related links
http://www.flotekind.com