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FLOTEK ANNOUNCES THIRD QUARTER 2022 FINANCIAL RESULTS

HOUSTON, Nov. 8, 2022 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced third quarter results for the three months ended September 30, 2022.

Flotek Industries, Inc. (PRNewsfoto/Flotek Industries, Inc.)
Flotek Industries, Inc. (PRNewsfoto/Flotek Industries, Inc.)
  • Total third quarter revenue of $45.6MM increased 55% sequentially, 4.5x year-over-year, and exceeded full year 2021 revenue of $43.3MM

  • Announced agreement with ProFrac Services, LLC to supply 20 JP3 Verax® analyzers with six placed in service in the fourth quarter

  • Adjusted EBITDA as a percentage of revenue improved for the fifth consecutive quarter, to negative 18% compared to negative 25% in the second quarter 2022 and negative 42% in the first quarter 2022

  • Quarter-end cash and cash equivalents of $8.6MM was impacted by continued rapid growth and the associated increase in working capital. As of November 8, 2022, cash had improved to $11.1MM

John W. Gibson, Jr., Chairman, President and Chief Executive Officer of Flotek stated, "We are pleased to report our third quarter 2022 results in which revenue of $45.6MM increased 55% compared to the second quarter 2022 and 4.5x compared to the third quarter of 2021. We doubled the number of ProFrac fleets we serviced sequentially, with growth continuing in the fourth quarter. In addition, our transactional chemistry business continues its growth trajectory, achieving double digit sequential revenue growth in the quarter, and gaining market share for the 5th quarter in a row. Overall we served approximately 8.4% of total active US frac fleets in the third quarter."

"Operational momentum continued during the quarter. Gross margin of negative $1.8MM was less negative in Q3 compared to Q2, and included $1.2MM of non-cash contract asset amortization related to the ProFrac contract and a $1.0MM write down of inventory related to discontinuing the FDA-regulated hand sanitizer product line. We continue to market the remaining professional chemistries product portfolio. We are achieving operational efficiencies and economies of scale while rapidly increasing revenue. The difficult freight environment experienced in Q2 improved, and freight spend as a percentage of revenue declined significantly in Q3."

"The third quarter displayed strong revenue growth, improved gross margins, and increased volumes. We are confident that our workforce, infrastructure, and processes are sufficient to capture additional market share. We are pleased that improving gross margins resulted in higher Adjusted EBITDA as a percentage of revenue for the fifth quarter in a row. While Adjusted EBITDA in absolute terms declined from a loss of $7.2MM in the second quarter to a loss of $8.4MM in the third quarter, included in that number is a total bonus accrual of $1.9MM associated with the first three quarters of 2022. In conclusion, the market is robust, our execution is outstanding, and achieving positive Adjusted EBITDA remains our primary focus."

Recent Operational Highlights

  • Served approximately 8.4% of active US frac fleets in the third quarter, representing an order of magnitude increase over the average number of fleets served in 2021.

  • Announced an agreement with ProFrac to supply them with 20 of JP3's Verax® analyzers to be used in the field to enable displacement of diesel fuel with field gas. Our Verax® analyzers have been deployed on six ProFrac fleets, and the initial feedback is positive. Industry research shows that maximizing the use of field gas can result in reduction in diesel fuel consumption of 50%+. This reduces pollution and greenhouse emissions associated with burning diesel fuel at the wellsite, but also reduces fuel burned by delivery trucks and the wear and tear caused by truck rolls.

Key Third Quarter 2022 Financial Results

  • Total revenues:  Flotek generated third quarter 2022 consolidated revenue of $45.6 million, up 55% from $29.4 million in the second quarter of 2022 and up 348% compared to the third quarter of 2021. Higher revenue was driven by continued increases in activity across our customer base in both the Chemistry Technologies and Data Analytics segments. Total revenue included a $1.2 million non-cash amortization of contract assets that reduced revenue.

  • Gross margin: Flotek reported gross margin of negative $1.8 million, up from negative $2.3 million in the second quarter of 2022. This included a non-cash revenue reduction of $1.2 million associated with the ProFrac contract asset and $1.0 million inventory write down associated with our decision to cease the manufacture and sale of FDA-regulated hand sanitizers.

  • Selling, general, and administrative expense: Flotek reported SG&A of $9.0 million, up 22% compared to the second quarter of 2022 of $7.4 million, and up 121% compared to the third quarter of 2021 of $4.1 million. The increase in SG&A includes a $1.9 million bonus accrual.

  • Net Income and EPS: The Company recorded net income of negative $18.8 million, or a loss of $0.25 per basic and diluted share, in the third quarter 2022 compared to net income of $6.2 million, or positive $0.08 per basic share and negative $0.05 per diluted share, in the second quarter of 2022, and $0.5 million ($0.01 per basic and diluted share) in the third quarter of 2021. Net income in the third quarter 2022 included a $4.25 million non-cash loss associated with the revaluation of convertible notes.

  • Non-GAAP Adjusted EBITDA: Adjusted EBITDA for the third quarter of 2022 was negative $8.4 million, a decrease of $1.2 million compared to negative $7.2 million in the second quarter 2022, and a decrease of $2.1 million compared to negative $6.3 million in the third quarter of 2021. Adjusted EBITDA includes a $1.9 million bonus accrual.

Balance Sheet and Liquidity

  • As of September 30, 2022, the Company reported cash and cash equivalents of $8.6 million compared to $33.1 million at the end of the second quarter 2022. Rapid volume growth impacted our working capital in the quarter. We are implementing procedures to improve our order to cash processes, and as of November 8, 2022, our cash and cash equivalents had improved to $11.1 million.

  • The Company is currently marketing for sale the Monahans, TX facility and we expect further progress on that sale in the coming quarters. The Monahans facility remained classified as held for sale as of September 30, 2022.

Conference Call Details
Flotek will host a conference call on November 9, 2022, at 8:00 a.m. CST (9:00 a.m. EST) to discuss its third quarter results for the three months ended September 30, 2022. Participants may access the call through Flotek's website at www.flotekind.com under "Webcasts'' or by telephone at 1-844-835-9986 approximately five minutes prior to the start of the call. Following the conclusion of the conference call, a recording of the call will be available on the Company's website.

About Flotek Industries, Inc.
Flotek Industries, Inc. creates solutions to reduce the environmental impact of energy on air, water, land and people.  A technology-driven, specialty green chemistry and data company, Flotek helps customers across industrial, commercial, and consumer markets improve their Environmental, Social, and Governance performance. Flotek's Chemistry Technologies segment develops, manufactures, packages, distributes, delivers, and markets high-quality cleaning, disinfecting and sanitizing products for commercial, governmental and personal consumer use.  Additionally, Flotek empowers the energy industry to maximize the value of their hydrocarbon streams and improve return on invested capital through its real-time data platforms and green chemistry technologies.  Flotek serves downstream, midstream, and upstream customers, both domestic and international.  Flotek 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 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 will, continue, 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.  Further information about the risks and uncertainties that may impact the company are set forth in the Company's most recent filing with the Securities and Exchange Commission on Form 10-K (including, without limitation, in the "Risk Factors" section thereof), 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 Statements of Operations

(in thousands, except per share data)



Three Months Ended


Nine Months Ended


9/30/2022


9/30/2021


6/30/2022


9/30/2022


9/30/2021











Revenue:










Revenue from external customers

$      15,206


$         8,847


$      12,824


$      38,412


$      29,782

Revenue from related party

30,417


1,332


16,549


49,462


1,332

Total revenues

45,623


10,179


29,373


87,874


31,114

Cost of goods sold

47,465


4,022


31,678


92,500


26,876

Gross loss

(1,842)


6,157


(2,305)


(4,626)


4,238

Operating costs and expenses:










Selling, general, and administrative

9,035


4,092


7,431


21,345


14,379

Depreciation and amortization

177


233


182


554


793

Research and development

985


1,186


1,115


3,515


4,194

Gain on sale of property and equipment

(10)


14


(1,914)


(1,916)


(55)

Gain on lease termination




(584)


Change in fair value of contract consideration
convertible notes payable

4,250



(17,158)


(9,016)


Total operating costs and expenses

14,437


5,525


(10,344)


13,898


19,311

Income (loss) from operations

(16,279)


632


8,039


(18,524)


(15,073)

Other income (expense):










Paycheck protection plan loan forgiveness





881

Interest expense

(2,321)


(18)


(1,597)


(4,586)


(53)

Other income (expense) , net

(187)


(102)


(104)


(67)


(62)

Total other income (expense), net

(2,508)


(120)


(1,701)


(4,653)


766

Income (loss) before income taxes

(18,787)


512


6,338


(23,177)


(14,307)

Income tax expense

(7)


(3)


(98)


(101)


(30)

Net Income (loss)

$     (18,794)


$           509


6,240


(23,278)


(14,337)











Income (loss) per common share:









Basic

$         (0.25)


$          0.01


$          0.08


$         (0.31)


$         (0.21)

Diluted

$         (0.25)


$           0.01


$         (0.05)


$         (0.31)


$         (0.21)











Weighted average common shares:










Weighted average common shares used in computing basic loss per common share

75,312


69,324


74,861


74,095


68,665

Weighted average common shares used in computing diluted loss per common share

75,312


70,176


124,335


74,095


68,665

 

FLOTEK INDUSTRIES, INC.

 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)





September 30, 2022


December 31, 2021

ASSETS




Current assets:




Cash and cash equivalents

$                           8,508


$                         11,534

Restricted cash

100


1,790

Accounts receivable, net of allowance for doubtful accounts of $566
     and $659 at September 30, 2022 and December 31, 2021,
     respectively

17,597


13,297

Accounts receivable, related party

25,916


Inventories, net

19,189


9,454

Other current assets

4,309


3,762

Current contract asset

7,196


Assets held for sale

535


2,762

Total current assets

83,350


42,599

Long-term contract assets

73,878



Property and equipment, net

4,781


5,296

Operating lease right-of-use assets

1,715


2,041

Deferred tax assets, net

278


279

Other long-term assets

17


29

TOTAL ASSETS

$                       164,019


$                         50,244

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

29,653


7,616

Accrued liabilities

9,400


8,996

Income taxes payable

104


4

Interest payable

118


82

Current portion of operating lease liabilities

653


602

Current portion of finance lease liabilities

35


41

Current portion of long-term debt

1,853


1,436

Convertible notes payable

19,055


Contract consideration convertible notes payable

73,030


Total current liabilities

133,901


18,777

Deferred revenue, long-term

74


91

Long-term operating lease liabilities

6,582


7,779

Long-term finance lease liabilities

29


53

Long-term debt

2,935


3,352

TOTAL LIABILITIES

143,521


30,052

Stockholders' equity:




Common stock, $0.0001 par value, 240,000,000 shares authorized; 
     83,424,763 shares issued and 77,283,733  shares outstanding at
     September 30, 2022 ;  79,483,837 shares issued and 73,461,203
     shares outstanding at December 31, 2021

8


8

Additional paid-in capital

386,958


363,417

Accumulated other comprehensive income (loss)

292


81

Accumulated deficit

(332,492)


(309,214)

Treasury stock, at cost; 6,141,030  and 6,022,634 shares at
     September 30, 2022  and December 31, 2021, respectively

(34,268)


(34,100)

Total stockholders' equity

20,498


20,192

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$                       164,019


$                         50,244

 

 

FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



Nine months ended September 30,


2022


2021

Cash flows from operating activities:




Net loss

$              (23,278)


$              (14,337)

Adjustments to reconcile net loss to net cash used in operating activities:




Change in fair value of contingent consideration

(106)


(701)

Change in fair value of contract consideration convertible notes payable

(9,016)


Amortization of convertible note issuance costs

663


Payment-in-kind interest expense

3,861


Amortization of contract assets

1,986


Depreciation and amortization

554


793

Provision for doubtful accounts, net of recoveries

147


(42)

Inventory purchase commitment settlement


(7,633)

Provision for excess and obsolete inventory

666


687

Inventory write down

1,036


Gain on sale of property and equipment

(1,916)


(55)

Gain on lease termination

(584)


Non-cash lease expense

168


223

Stock compensation expense

2,262


2,710

Deferred income tax (benefit) expense

1


13

Paycheck protection plan loan forgiveness


(881)

Changes in current assets and liabilities:




Accounts receivable

(5,748)


111

Accounts receivable, related party

(24,616)


Inventories

(11,373)


2,330

Income taxes receivable

3


405

Other assets

(537)


(1,696)

Contract assets, net

(3,600)


Accounts payable

22,036


(604)

Accrued liabilities

493


415

Operating lease liabilities

(404)


Income taxes payable

100


(53)

Interest payable

36


36

Net cash used in operating activities

(47,166)


(18,279)

Cash flows from investing activities:




Capital expenditures

(175)


(31)

Proceeds from sale of assets

4,215


74

Net cash provided by investing activities

4,040


43

Cash flows from financing activities:




Proceeds from issuance of convertible notes

21,150


Payment of issuance costs of convertible notes

(1,084)


Proceeds from issuance of warrants

19,500


Payment of issuance costs of stock warrants

(1,170)


Payments to tax authorities for shares withheld from employees

(191)


(407)

Proceeds from issuance of stock

24


Purchase from sale of common stock



Payments for finance leases

(30)


(44)

Net cash provided by (used in) provided by financing activities

38,199


(451)

Effect of changes in exchange rates on cash and cash equivalents

211


(70)

Net change in cash, cash equivalents and restricted cash

(4,716)


(18,757)

Cash and cash equivalents at the beginning of period

11,534


38,660

Restricted cash at the beginning of period

1,790


664

Cash and cash equivalents and restricted cash at beginning of period

13,324


39,324

Cash and cash equivalents at end of period

8,508


20,527

Restricted cash at the end of period

100


40

Cash, cash equivalents and restricted cash at end of period

$                  8,608


$                20,567

 

FLOTEK INDUSTRIES, INC.

Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings

(in thousands)



Three Months Ended


Nine Months Ended


9/30/2022


9/30/2021


6/30/2022


9/30/2022


9/30/2021











Net income (loss)

$        (18,794)


$                509


$           6,240


$       (23,278)


$       (14,337)

Interest expense

2,321


18


1,597


4,586


53

Interest income


(1)




(9)

Income tax (benefit) expense

7


3


98


101


30

Depreciation and amortization

177


233


182


554


793

EBITDA (Non-GAAP)

(16,289)


762


8,117


(18,037)


(13,470)

Stock compensation expense

671


960


852


2,263


2,710

Severance and retirement

(219)


11


610


387


991

M&A transaction costs

28


(401)


(228)


(106)


(458)

Inventory write down

1,036




1,036


(Gain) loss on disposal of assets

(10)


14


(1,914)


(1,916)


(55)

Gain on lease termination




(584)


Contract consideration convertible notes payable
revaluation adjustment

4,250



(17,158)


(9,016)


Amortization of contract assets

1,249



737


1,986


PPP loan forgiveness





(881)

Employee retention credit


(927)




(2,851)

Non-Recurring professional fees

882


993


1,742


2,899


2,046

Inventory Purchase Commitment Settlement


(7,633)




(7,633)

Inventory Step-Up


(78)




2

Winter Storm (Natural Disaster)





199

Adjusted EBITDA (Non-GAAP)

$          (8,402)


$          (6,299)


$         (7,242)


$       (21,088)


$       (19,400)




(1) Management believes that adjusted EBITDA for the three and nine months ended September 30, 2022 and 2021, and the three months ended June 30, 2022, 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 analyses 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.