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Flotek Announces Third Quarter 2019 Results

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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.

Flotek Industries, Inc. (PRNewsfoto/Flotek Industries, Inc.)

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

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