HOUSTON, Aug. 6, 2014 /PRNewswire/ -- Flotek
Industries, Inc. (NYSE:FTK) ("Flotek" or the "Company")
today announced results for the three months ended June 30, 2014.
As reported on Form 10-Q filed with the U.S. Securities and
Exchange Commission, Flotek reported that revenue for the three
months ended June 30, 2014 was
$105.3 million compared to
$93.6 million for the three months
ended June 30, 2013.
Consolidated revenue for the three months ended June 30, 2014 increased $11.7 million, or 12.5%, relative to the
comparable period of 2013. The increase in revenue for the three
months ended June 30, 2014 compared
to the same period of 2013 was primarily due to increased sales in
our Energy Chemical Technologies segment.
For the three months ended June 30,
2014, the Company reported net income of $11.0 million, or $0.20 per common share (fully diluted), compared
to net income of $8.4 million, or
$0.16 per common share (fully
diluted) for the same period in 2013.
As expected, seasonal activity declines in Canada impacted revenue by nearly $3 million collectively in April and May. In
addition, the transition to an optimized CnF® blend in a key basin
caused a transient reduction in revenue of approximately
$1 million as well as a modest
transient impact on chemistry gross margins.
"Flotek's performance in the second quarter, especially when
considering the impact of Canada
and chemistry repositioning, is a testament to the continued
efforts of our entire team that is intensely focused on building a
best-in-class oilfield technology company," said John Chisholm, Chairman, President and Chief
Executive Officer. "Moreover, trends in the quarter suggest the
second-half of the year will be the most successful in Flotek's
history. We expect industry-leading growth in revenue and profits
in the coming quarters."
Chisholm added, "Our growth initiatives – from our
patent-pending FracMax™ technology, which conclusively validates
the efficacy of our Complex Nano-Fluid™ completion chemistries, to
our emerging drilling fluids chemistry solutions which are being
adopted by leading global energy companies – are accelerating to
create meaningful shareholder value. While history suggests
adoption of disruptive technologies is not achieved in a
straight-line pattern, we are confident the end result of Flotek's
portfolio of transformational chemistry, drilling and production
technologies are having a positive impact on client outcomes, are
being more widely adopted around the globe and, over time, will
become standard bearers in an industry focused on improving
shareholder returns. More important, as a result of that success,
we will continue to add value for Flotek shareholders.
Operational Highlights
Flotek continues to make meaningful market penetration with its
patented suite of Complex nano-Fluid™ chemistries. The introduction
of FracMax, the Company's patent-pending application for comparing
the performance of wells using Flotek's advanced next-generation
CnF® completion fluids versus those that use conventional
surfactants, has been successful in fueling interest in Flotek's
innovative chemistries.
"While we are just beginning to roll out our FracMax application
in our marketing efforts, it is already paying important dividends,
adding value to Flotek," added Chisholm. "As a direct result of
FracMax, Flotek has added meaningful commercial chemistry
validation projects with over a dozen prospective clients across
multiple domestic basins. In addition, our team is actively working
on 17 other validation projects, creating the most robust prospect
book in the history of the Company. This is just the beginning of
the impact of FracMax as we believe operators will find it hard to
ignore the data which conclusively validates the economic advantage
of using CnF® chemistry in completions."
In the U.S., the Company continues to see solid growth in
South Texas with new customers
adopting Flotek's CnF® completion chemistries as well as new
opportunities in both West Texas
and the Mid-Continent. In addition, use in the Rockies remains
robust even as one customer reduced spending during the quarter to
re-evaluate completion methods, business we expect to recapture in
the second-half of the year. In addition, Flotek made the decision
to reformulate one CnF® completion chemistry to improve efficacy, a
decision made partly as a result of data gleaned from FracMax. As a
result, the Company deferred sales of approximately $500,000 during June.
In Canada, while spring
break-up had an impact on April and May results, Flotek's presence
continues to accelerate. The Company's monthly Canadian revenue is
four-times 2013 levels, and growth should continue with solid
partnerships with Canadian service companies.
South of the border, Flotek continues to make progress in
Mexico with a CnF® validation
underway with a major energy company. The Company expects the
multiple well validation project to continue through the balance of
the year.
"Our work in Canada and
Mexico is a natural extension of
our North American reach, something we believe will be meaningful
to our results in the coming months," added Chisholm. "Not only is
CnF® chemistry use at record levels in Canada, we expect it to accelerate through the
balance of the year. Moreover, we are beginning to see an increase
in demand for our Xylene replacement technology as Canadian
operators become more focused on environmental stewardship. In
Mexico, we are encouraged by the
early interest and action that could lead to meaningful, long-term
business in the coming months."
Globally, the Company continues to grow its chemistry business
in both the Middle East and
South America. Flotek Gulf, the
Company's Omani joint-venture, continues to progress with Flotek
and Gulf Energy completing negotiations with an engineering and
construction company for the development of Flotek Gulf's chemistry
manufacturing facility. Completion of the facility is expected in
early 2015. Moreover, Flotek's presence in the Middle East has resulted in increased
chemistry sales across the region, including into Saudi Arabia.
Specifically, the Company's core CnF® chemistry continues to
grow in the region along with Flotek's recently acquired drilling
fluids technology, which has garnered the attention of Saudi
Aramco.
"While we continue to move deliberately in our Middle East venture, our presence is having a
positive impact on our results," added Chisholm. "Flotek is
actively shipping chemistry to multiple nations in the region, and
we expect commerce to accelerate in the second-half of the year.
Also exciting is the interest in both our new drilling fluids and
enhanced oil recovery technologies which are gaining traction in
the region."
In Drilling Technologies, the Company's Teledrift™
measurement-while-drilling technology continues to be the market
leader in North America. Moreover,
interest in Teledrift™ continues to spread globally. For example,
Teledrift™ is now working on nearly 40% of all Saudi Aramco rigs.
Additionally, Teledrift™ continues to expand its presence in
Argentina with Teledrift™ working
on over 55% of all rigs drilling in the South American nation.
The Company continues to market the Stemulator™, an axial
vibration tool used both domestically and internationally. While
Flotek's continued tool enhancements have temporarily slowed the
growth of the Stemulator™, the Company expects rentals to grow
steadily in the second-half of this year.
"We continue to be pleased with the progress in Teledrift™,
especially the traction we have seen in Saudi and Argentina in the past several months," added
Chisholm. "While our Stemulator™ performance is lagging initial
expectations, we have said from the beginning we want to make sure
we do it right rather than just fast. We are confident we are on
the cusp of a great product alternative and will see significant
benefits from this improved technology in the months ahead."
Production Technologies, under the leadership of David McMahon, continues to refocus its efforts
on niche, added value technologies that will create a competitive
advantage for Flotek in the coming months. The Company is in the
advanced stages of exploring options to accelerate its growth in
unique technologies and services that will add value to Flotek
clients and stakeholders.
"Historically, the second quarter has been a launching pad for
the second-half of the year and this year is no different, albeit
we are starting from a more robust base than ever before," added
Chisholm. "We have a plethora of opportunities in front us,
potentially the most in the Company's history. We now must execute
to convert opportunities into clients and prospective revenues into
profits. I am more convinced today than ever before, that we have
the tools to do just
that."
Financial Update
A complete review and discussion of the Company's quarter-end
financial performance and position can be found in the Company's
quarterly report on Form 10-Q filed with the U.S. Securities and
Exchange Commission today.
Earnings Before Interest, Taxes, Depreciation and Amortization,
or EBITDA (a non-GAAP measure of financial performance), for the
three months ended June 30, 2014 was
$22.0 million, an increase of
$4.4 million or 25.0%, compared to
$17.6 million for the three months
ended June 30, 2013.
The Company recorded stock-based compensation expense during the
quarter of $2.4 million ($1.6 million, net of tax). That compares to
stock-based compensation expense in the second quarter of 2013 of
$3.6 million ($2.3 million, net of tax).
A presentation of stock-based compensation and a reconciliation
of GAAP net income to EBITDA can be found at the conclusion of this
release.
Flotek's resilient operational performance continues to support
a strong balance sheet and financial position. During the quarter,
Flotek's total outstanding debt increased by $1.9 million, or 3.5%, since March 31, 2014, largely a result of seasonal
inventory accumulation and higher estimated tax payments. However,
compared to outstanding debt on December 31,
2013, Flotek has reduced outstanding debt by $5.2 million, or 8.4%
Inventories in the quarter rose by $10.2
million, primarily a result of a traditional seasonal
increase in citrus product inventory held at Florida Chemical.
Outstanding receivables as of June 30,
2014 were $65.9 million,
compared to $65.0 million as of
December 31, 2013. The Company's
allowance for doubtful accounts was at 1.2% of receivables.
Depreciation and amortization expense for the three months ended
June 30, 2014 increased by
$0.7 million, or 18.1%, relative to
the comparable period of 2013. These increases were primarily
attributable to the depreciation and amortization of assets
recognized as part of the acquisition of Florida Chemical in the
second quarter of 2013.
Interest and other expense increased $0.3
million, or 80.9%, relative to the comparable period of
2013, primarily due to foreign exchange losses attributable to
fluctuations in the valuation of the U.S. dollar compared to the
Canadian dollar. The Company recorded an income tax provision of
$6.0 million, yielding an effective
tax rate of 35.1% for the three months ended June 30, 2014, compared to an income tax
provision of $4.7 million reflecting
an effective tax rate of 35.9% for the comparable period in
2013.
"Flotek's ability to generate cash remains a core strength of
Flotek," added Chisholm. "We are confident of our ability to fund
current operations with internally generated cash flow which
provides meaningful flexibility to consider other strategic growth
opportunities that add value for Flotek shareholders."
Segment Details
Energy Chemical Technologies revenue for the three months ended
June 30, 2014 increased $14.9
million, or 31.2%, relative to the comparable period of
2013. Excluding the incremental revenue impact of
acquisitions of $3.8 million, revenue
increased $11.1 million, or 23.3%,
for the three months ended June 30, 2014 compared to the same
period of 2013. Increased sales of stimulation chemical
additives accounted for the majority of the revenue increase.
Revenue for the six months ended June 30, 2014 increased
$32.6 million, or 35.3%, relative to
the comparable period of 2013. Excluding the incremental
revenue impact of acquisitions of $7.5
million, revenue increased $25.1
million, or 27.1%, compared to the same period of 2013,
primarily due to the increased sales of stimulation chemical
additives mentioned above.
Energy Chemical Technologies gross margin increased $6.8 million, or 33.3%, and $17.0 million, or 42.7%, for the three and six
months ended June 30, 2014, respectively, compared to the same
periods of 2013 primarily due to the increase in product sales
revenue. Gross margin percentage increased to 43.8% for the
three months ended June 30, 2014 from
43.1% in the same period of 2013 and increased to 45.3% for the six
months ended June 30, 2014 from 43.0%
in the same period of 2013. The increased gross margin
percentage is primarily attributable to the supply chain benefits
of the Florida Chemical acquisition, partially offset by an
increase in sales of lower margin non-proprietary products as
compared to total product sales.
Income from operations for the Energy Chemical Technologies
segment increased $4.4 million, or
30.1%, for the three months ended June 30, 2014, and increased
$11.7 million, or 40.4%, for the six
months ended June 30, 2014 relative
to the comparable periods of 2013. The increase in income
from operations for both periods is primarily attributable to an
increase in gross margin partially offset by increased headcount,
travel and associated costs related to the pursuit of growth
opportunities.
CICT revenue for the three months ended June 30, 2014
remained relatively flat compared to the same period in 2013.
The 2013 period only includes the months of May and June, as the
acquisition of Florida Chemical occurred in May 2013. Demand
and sales prices for terpenes both decreased during the three
months ended June 30, 2014 compared
to the same period of 2013. Revenue for the six months ended
June 30, 2014 increased $13.0
million, or 102.3%, from the comparable period of 2013, as
the segment was created in the second quarter of 2013 upon the
acquisition of Florida Chemical.
CICT gross margin for the three months ended June 30, 2014
decreased $0.8 million, or 21.7%,
from the comparable period of 2013, primarily due to lower margins
for terpenes. Gross margin for the six months ended June 30, 2014 increased $3.2 million, or 87.6%, from the comparable
period of 2013, primarily due to the segment being created in the
second quarter of 2013 upon the acquisition of Florida Chemical,
partially offset by the lower gross margins for terpenes.
Gross margin percentage decreased to 22.9% for the three months
ended June 30, 2014 from 29.1% in the
same period of 2013 and decreased to 27.0% for the six months ended
June 30, 2014 from 29.1% in the same
period of 2013. The decreases in gross margin percentage are
primarily due to lower gross margins for terpenes.
Income from operations for the CICT segment decreased
$1.4 million, or 58.6%, for the three
months ended June 30, 2014 compared to the same period of
2013, primarily due to the revenue and gross margin factors
described above and increased employee-related costs as incentive
programs were not in place during the second quarter of 2013
immediately following the acquisition. In addition,
depreciation and amortization costs were higher for the three
months ended June 30, 2014 compared
to the same period of 2013 due to the depreciable and amortizable
assets not being acquired until May 2013. Income from
operations increased $1.0 million, or
40.9%, for the six months ended June 30, 2014 compared to the
same period of 2013, primarily due to the increased revenue between
the two periods.
Drilling Technologies revenue for the three and six months ended
June 30, 2014 decreased $2.5
million, or 8.5%, and $6.6
million, or 11.2%, respectively, relative to the same
periods in 2013. Revenue declines are primarily due to a
decline in Teledrift® rental revenue, decreased international drill
pipe sales, and decreased non-actuated tool rentals during the
first half of 2014.
Product revenue for the three months ended June 30, 2014
compared to the same period of 2013 decreased by $1.5 million, or 14.5%. Product revenue for
the six months ended June 30, 2014
decreased by $3.7 million, or 18.3%,
relative to the same period in 2013. The decreases for each period
are due to decreased international drill pipe sales for the mining
industry and decreased domestic float equipment and motor
sales.
Rental revenue for the three months ended June 30, 2014
decreased $0.7 million, or 4.3%,
compared to the same period of 2013, and can be attributed to a
15.8% decrease in Teledrift® tool rental revenue, due to increased
domestic competitive pricing pressure, a decline in rental tool
utilization in the Permian Basin region and internationally, and a
24.0% decrease in non-actuated tool rentals. These decreases
were partially offset by an increase in actuated tool rentals in
the Bakken region and increased Stemulator™ extended reach tool
rentals. Rental revenue for the six months ended June 30, 2014
decreased by $2.5 million, or 8.1%,
in comparison to the same period of 2013. This year to date
decline is also due to a 12.7% decrease in Teledrift® tool rental
revenue, competitive pricing pressure, and decreased rental tool
utilization, both domestically and internationally. Non-actuated
tool rentals declined by 28% for the six months ended 2014 compared
to the same period of 2013, while actuated tool rentals have
remained flat. These decreases are partially offset by a 266.0%
increase in Stemulator™ tool rentals for the six months ended
June 30, 2014 as compared to the same
period of 2013.
Service revenue for the three and six months ended June 30,
2014 decreased $0.4 million, or 9.7%,
and $0.3 million, or 4.6%,
respectively, relative to comparable periods of 2013. The decrease
in service revenue was primarily related to decreased rig service
jobs and inspections.
Drilling Technologies gross margin for the three and six months
ended June 30, 2014 decreased $1.7
million, or 13.6%, and $3.3
million, or 13.7%, respectively, from the comparable periods
of 2013. These decreases were primarily due to decreased rental
tool utilization, increased international repair expense for
Teledrift® tools, and increased repair costs for non-actuated
tools. This was partially offset by a decrease in direct
costs, including employee-related incentive compensation costs,
operating supplies, and equipment costs, which have decreased by
1.5% and 7.0% during the three and six months ended June 30, 2014, respectively, from the same
periods of 2013.
Drilling Technologies income from operations for the three and
six months ended June 30, 2014 decreased by $1.6 million, or 27.4%, and $3.7 million, or 32.9%, respectively, over the
same periods in 2013 primarily due to increased rental costs and
decreased rental tool utilization explained above.
Revenue for the Production Technologies segment for the three
months ended June 30, 2014 decreased by $0.5 million, or 15.7%, from the same period in
2013 due to declining pump and pump equipment sales. For the six
months ended June 30, 2014, revenue decreased by $2.9 million, or 36.4%, relative to the same
period in 2013 as sales of pumps, pump equipment, and international
valve sales have decreased.
Production Technologies gross margin increased by $0.4 million, or 42.2%, for the three months
ended June 30, 2014 as compared to the same period in 2013,
and gross margin percentage increased to 42.5% for the three months
ended June 30, 2014 from 25.2% for
the same period in 2013. These increases are due to product
mix from increased international Petrovalve sales and decreased
domestic rod pump component sales. Gross margin decreased by
$1.2 million, or 38.5%, for the six
months ended June 30, 2014, compared to the same period in
2013, due to decreases in international Petrovalve sales and
domestic pump sales.
Income from operations increased by $0.1
million, or 27.6%, and decreased by $1.6 million, or 82.3%, for the three and six
months ended June 30, 2014, respectively, compared to the same
periods in 2013. Higher quarterly income from operations is
due to product mix, while lower income from operations for the six
months ended June 30, 2014 is
primarily due to decreases in sales and increases in SG&A costs
attributable to employee-related expenses as the segment continues
to refocus and reposition for growth in the market.
Early Third Quarter Activity
The Company believes that July activity continued to accelerate
from second quarter levels, a trend that should continue throughout
the second-half of the year, absent a change in the overall
exploration and drilling environment. Early returns suggest July
monthly revenue was approximately $37
million.
"While we are pleased with our results from the first-half of
2014, we are not satisfied," concluded Chisholm. "And, as we enter
the second-half of the year, we feel we are off to a good start
with even better results to come. While it is difficult to predict
the timing of opportunity conversion, we believe the opportunities
in front of us provide an unprecedented opportunity to make a
difference for our clients and, in turn, Flotek shareholders. We
have an incredible platform to improve the way our industry
completes wells and produces energy and, at the same time, become
better stewards of the environment. It's hard not to be excited
about those ideas and what they can mean for our industry and for
Flotek."
Conference Call Details
Flotek will host a conference call on Thursday, August 7, 2014 at 7:30 a.m. Central Daylight Time to discuss its
operating results for the three months ended June 30, 2014.
To participate in the call, participants should dial
800-624-1547 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 is a global developer and distributor of innovative
specialty chemicals and down-hole drilling and production
equipment. Flotek manages automated bulk material handling, loading
and blending facilities. It serves major and independent companies
in the domestic and international oilfield service industry. 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 web site
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
filing 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.
GAAP Accounting
Reconciliation
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Three Months Ended
June 30,
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2014
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2013
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(in thousands,
except per share data)
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GAAP Net Income
and Reconciliation to EBITDA (Non-GAAP)
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Net Income
(GAAP)
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$ 11,041
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$ 8,440
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Interest
Expense
|
|
381
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531
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|
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Income Tax
Expense
|
5,981
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4,730
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|
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Depreciation and
Amortization
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4,595
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|
3,890
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EBITDA
(Non-GAAP)
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$ 21,998
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$ 17,591
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Select Non-Cash
Items Impacting Earnings
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Stock Compensation
Expense
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$ 2,422
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$ 3,579
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Less income tax
effect
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(848)
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(1,253)
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Stock Compensation
Expense, net of tax
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$ 1,574
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$ 2,326
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Weighted Average
Shares Outstanding (Fully Diluted)
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55,533
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53,713
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Stock Compensation
Expense Per Share (Fully Diluted)
|
$ 0.03
|
|
$ 0.04
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SOURCE Flotek Industries, Inc.