Flotek Announces Second Quarter 2019 Results

HOUSTON, Aug. 7, 2019 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the three months ended June 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.

Second Quarter and Recent Highlights

• Quarter ending cash level of $97.5 million was neutral with the first quarter.
• Generated revenue of $34.7 million, a net loss from continuing operations of $13.0 million and an adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA") loss of $9.6 million, in comparison to revenue of $43.3 million, a net loss from continuing operations of $15.4 million and an adjusted EBITDA loss of $8.3 million for the first quarter of 2019.
• Within the context of the continued volatile macro-environment for U.S. onshore drilling and completion activity, second quarter operational results were directly impacted by the substantial turnover of Flotek's sales team and commencement of the rebuilding and development of a more technically oriented sales organization, deferral of completion activity to the third quarter of 2019 by certain clients, and utilization of performance-driven pricing programs for a limited number of strategic clients.
• Continued to further optimize the cost structure across the business through the identification of more than $5 million of annualized cost-cutting initiatives that were implemented in mid-July and primarily associated with ECT personnel and other operating expenses. To date for 2019, Flotek has announced and executed on initiatives that reduce its annual cash costs by more than $25 million spread across the enterprise.
• Under the oversight of the Strategic Capital Committee, continues to evaluate alternatives for the optimal allocation of the net proceeds from the sale of Florida Chemical Company, LLC ("FCC") to Archer-Daniels-Midland Company ("ADM") (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.  

John Chisholm, Flotek's President and Chief Executive Officer, commented, "As discussed on our first quarter call, we expected during the second quarter that the oilfield services sector would – and in fact, did – continue to operate in a volatile environment for U.S. onshore drilling and completions activity. We anticipate a similar backdrop for the third quarter, which is in-line with the consensus of other oilfield service providers with U.S. land operations. While this has impacted our results, it should not overshadow the important progress we made during the second quarter on a number of key fronts.

''First, I am extremely pleased with the progress we have made to rebuild and reshape our sales organization since Mark Lewis joined the Company as Senior Vice President of Global Sales & Business Development at the end of April. In just a few short months, we have recruited a first-class team of seasoned sales professionals with the diverse technical backgrounds necessary to succeed in today's environment where geologists, geophysicists, and reservoir and petroleum engineers are not only influencing, but are increasingly responsible for, the selection of chemistry technology. We look forward to seeing the impact of our new sales team's efforts within the coming quarters.   

"Through our ongoing cost optimization initiatives, during the second quarter we identified cost-cutting opportunities that we implemented in mid-July. Also, in the second quarter, we conducted an assessment to identify and prioritize additional opportunities to reduce costs and drive greater profitability in the coming months through order-to-cash efficiencies, including process enhancements to sales, supply chain and logistics.

"As we further collaborate with oil and gas operators to identify and define industry challenges, we are encouraged by the opportunities to partner with our clients to provide reservoir-centric chemistry solutions that drive greater capital effectiveness and return on investment. We are also pleased with the progress of our performance-driven pricing programs, which we have utilized on a limited basis, and expect to see the positive impact on revenue and profitability from these programs toward the end of this year.

"Finally, our Strategic Capital Committee continued to make important progress in the second quarter in its detailed review that began with a deep-dive into the business and later moved into an evaluation of the alternative possible uses for the significant amount of cash on our balance sheet as a result of the sale of Florida Chemical Company."

Second Quarter 2019 Financial Results

For the three months ended June 30, 2019, Flotek reported revenue of $34.7 million versus $43.3 million for the first quarter and $39.5 million for the same period in 2018. As previously discussed, impacting sequential revenue was a continued volatile macro-environment for U.S. onshore drilling and completions activity, as well as the transition of personnel in the Company's sales organization, the nearer-term impact related to the deferral of completion activity to the third quarter of 2019 by certain clients, and utilization of performance-driven pricing programs for a limited number of strategic clients.

Flotek reported a loss from continuing operations for the three months ended June 30, 2019 of $13.0 million, or $0.22 loss per diluted share, compared to a loss of $15.4 million, or $0.26 loss per diluted share, for the first quarter, and a loss of $68.6 million, or $1.19 loss per diluted share, in the same period of 2018. Included in results for last year's second quarter was $37.2 million in before-tax charges related to impairment of goodwill for certain assets.

Adjusted earnings from continuing operations for the three months ended June 30, 2019 was a loss of $12.3 million, or $0.21 loss per diluted share, versus a loss of $11.6 million, or $0.20 loss per diluted share, for the first quarter, and a loss of $36.2 million, or $0.63 loss 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 June 30, 2019 was a loss of $11.7 million compared to a loss of $12.1 million for the first quarter, and a loss of $49.9 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 June 30, 2019 was a loss of $9.6 million versus a loss of $8.3 million for the first quarter and a loss of $6.0 million for the same period in 2018. Contributing to the increased loss from the first quarter were tighter operating margins partially offset by lower corporate general and administrative and research and innovation 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 June 30, 2019, the Company had cash and equivalents of $97.5 million as compared to $96.8 million at March 31, 2019. At the end of the second quarter of 2019, Flotek also had no outstanding debt and $15.7 million in escrowed funds on the balance sheet, reflecting a revised estimate of post-closing working capital adjustments related to the Transaction. As of December 31, 2018, the Company had cash and equivalents of $3.0 million and debt of $49.7 million.

Outlook

Mr. Chisholm concluded, "Over the last couple of years, we have successfully transitioned our business and taken approximately $21 million, or 44%, out of annualized spending related to corporate general and administrative and research and innovation support functions, excluding stock-based compensation expense. These optimization efforts have and will continue as we focus on managing our business to sustained long-term profitability in a $50 to $60 per barrel WTI price environment. We continue to see a notable shift in purchasing behaviors in which E&P companies are seeking greater transparency, control and efficacy in their fluid systems. Moreover, as they see diminishing returns on mechanical factors in their completion designs, they are seeking partners who can provide technical expertise to help drive greater value from their assets.  

"In this environment, we have taken a number of proactive measures to enhance our operations and sales capabilities, resulting in deeper technical relationships with leading operators who recognize that best-in-class, reservoir-centric chemistries will be critical as they execute on their extensive inventory development programs. We are beginning to see increased client inquiries and technical report requests, which further supports our optimism and positive longer-term outlook."

Conference Call Details

Flotek will host a conference call on Thursday, August 8, at 9:00 AM CT (10:00 AM ET) to discuss its operating results for the three months ended June 30, 2019. To participate in the call, participants should dial 844-835-9986 approximately 5 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 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.