HOUSTON,– 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
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
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.
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.