Amends Credit Facility HOUSTON, March 16 /PRNewswire-FirstCall/ --
Flotek Industries, Inc. (NYSE: FTK), a technology-driven growth
company serving the oil, gas, and mining industries, today
announced results for the year ending December 31, 2008. 4Q 2008
Highlights vs. 4Q 2007 Highlights -- 38.2% growth in Revenue --
Impairment loss of $67.7 million related to goodwill and other
intangible assets -- Loss from Operations of $61.1 million compared
to Income from Operations of $6.3 million income in prior year --
Diluted loss per share of $2.44 compared to diluted income per
share of $0.16 in prior year -- Excluding the effect for the
impairment, our results reflect: -- 5.6% increase in Income from
Operations -- 17.3% increase in Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") -- 33.2% decrease in Net
income or $0.05 per share Jerry Dumas, Chairman of the Board, CEO
and President, stated, " The overall economic outlook combined with
declining commodity prices have resulted in lower well completion
activity, and higher oil and natural gas inventories. The belief
from many economists is that well completion demand will erode
further in 2009, posing a serious challenge for Flotek and other
service companies. However, we remain convinced that our commitment
to technology and attention given to differentiating our business
with proprietary and patented products will help sustain Flotek's
market position." "Flotek achieved overall revenue growth of over
35.0% in the fourth quarter and over 40.0% for the year in 2008. We
increased revenue in all three segments and maintained gross profit
margins of 40.0% for the year. These results point to the
commitment of our employees and our entire company. These results
point to the commitment of our employees to differentiate our
Company, despite current economic conditions." Mr. Dumas added, "We
anticipate further reductions in customer spending in 2009, and
severe pricing competition among those customers completing wells.
As a result, we are taking appropriate measures to size our
business as activity declines. Our decisions, while in reaction to
the current trend, are being made to provide us with the greatest
flexibility to capitalize on the anticipated return to more normal
market conditions in the future." Fourth Quarter Results Total
revenue increased 38.2% to $60.0 million in 2008 compared to $43.4
million for the same period in 2007. Flotek reported a net loss of
$46.3 million, or $2.44 per fully diluted share, compared to net
income of $3.1 million, or $0.16 per fully diluted share in the
fourth quarter of 2007. The net loss in the fourth quarter of 2008
includes a non-cash charge of $67.7 million for the impairment of
goodwill and other intangible assets. The impairment charge
resulted from management's comparison of the current asset carrying
values to their fair-value. The economic outlook in 2009 caused
management to reach the conclusion that the fair market value of
those identified assets had been lowered, or "impaired." Without
the charges, adjusted net income for the fourth quarter of 2008
would have been $2.1 million or $0.11 per fully diluted share. 2008
Highlights vs. 2007 Highlights -- 43.1% increase in Revenue --
Impairment loss of $67.7 million related to goodwill and other
intangible assets in our Drilling Products and Artificial Lift
segments -- Loss from Operations of $30.8 million compared to
Income from Operations of $29.7 million in prior year -- Diluted
loss per share of $1.69 compared to diluted income per share of
$0.88 in prior year -- Excluding the effect for the impairment, our
results reflect: -- 24.4% increase in Income from Operations --
33.7% increase in EBITDA -- 1.7% decrease in Net Income or $0.03
per share Full Year 2008 Results Total revenue increased 43.1% to
$226.1 million for the year ended December 31, 2008 compared to
$158.0 million for the same period in 2007. Revenue increased in
all three segments and Flotek experienced organic growth greater
than 20% compared to the previous year primarily as a result of an
increase in sales, particularly of our proprietary specialty
chemicals, tool rentals, service inspections and expansion of our
mud motor fleet. The Company incurred a net loss from operations
for the year ended December 31, 2008 totaling $30.8 million,
compared to income from operations of $29.7 million for the year
ended December 31, 2008. The net loss for the year ended December
31, 2008 was $31.9 million, or $1.69 per fully diluted share,
compared to net income of $16.7 million and $0.88 per fully diluted
share for the same period in 2007. Excluding the impairment charge,
adjusted net income for 2008 was $16.4 million, or $0.85 per fully
diluted share. Chemicals and Logistics Segment Chemicals and
Logistics revenue for the year ended December 31, 2008 was $109.4
million, an increase of 26.8%, compared to $86.3 million for the
year ended December 31, 2007. The increase in revenue is primarily
a result of an increase in sales of our proprietary specialty
chemicals and the contribution from the Sooner Energy Services,
Inc. acquisition. This increase was partially offset by a decrease
in sales of commoditized products. A price increase implemented in
the first quarter of 2008 was offset in the second half of the year
by rising raw material costs. Sales of our micro-emulsion chemicals
grew 37.2%, to $77.4 million for the year ended December 31, 2008
from $56.4 million for 2007 as a result of increased fracturing
activities and wider acceptance of our micro-emulsion products by
independent pressure pumping companies as well as the majors.
Income from operations was $37.4 million for the year ended
December 31, 2008, approximately 16% higher than the same period in
2007. Income from operations as a percentage of revenue decreased
to 34.2% for the year ended December 31, 2008 from 37.5% for the
year ended December 31, 2007. The rising cost of raw materials
(petroleum-based feedstock) reduced our operating profits which we
partially offset through targeted price increases for certain
products. We also made investments related to a new research and
development facility and for our international initiative. As a
result of the declining market conditions experienced in the fourth
quarter of 2008, we have begun to institute measures to size the
organization to current activity levels and changing geographic
mix. We have recently announced the relocation of one of our
production chemical manufacturing facilities. We are focused on
margin protection through management of raw material and fixed
costs as we anticipate increased pricing pressures from our
customers and competitors. As a technology driven company, we
remain active in our research and development efforts even in a
soft market. Drilling Products Segment Drilling Products revenue
for the year ended December 31, 2008 was $98.3 million, an increase
of 72.9%, compared to $56.8 million for the year ended December 31,
2007. The acquisition of Teledrift, Inc. contributed more than 50%
of the growth in Drilling Products revenues in 2008. Organic growth
related to tool rentals, services and inspection and the expansion
of our mud motor fleet contributed the balance of the revenue
increase. Our initiative to develop Flotek shock subs and drilling
jars, which replace sub-rentals, had a minimal positive impact on
2008, however, we anticipate the benefits of these initiatives to
be realized in the first half of 2009. Loss from operations was
$43.8 million in 2008. Adjusting for the effect of the impairment
of goodwill and other intangible assets of $59.1 million related to
this segment, adjusted income from operations was $15.3 million for
the year ended December 31, 2008, approximately 170% higher than in
2007. Adjusted income from operations as a percentage of revenues
increased to 15.6% for the year ended December 31, 2008. The
increase in adjusted income from operations was primarily driven by
the acquisition of Teledrift and our expansion into higher margin
tools, motors and services. We made strategic investments in new
North American sales facilities and opened two new repair
facilities during the year. The Drilling Products segment requires
higher levels of capital expenditures than our other segments.
Capital expenditures in the current year were approximately $19.8
million for the drilling segment compared to $8.5 million in 2007.
Due to current market conditions that began to develop late in the
year, we plan to reduce capital spending in this segment by more
than 60% in 2009. Our plan is designed to meet our maintenance
capital requirements and provide opportunity to grow our business
in the area of higher margin drilling jars and seal bearing motors
as part of our strategic drilling products suite. We are taking
action to size the Drilling Products segment to the current
marketplace through strategic actions that are focused on personnel
and our fixed costs. These actions are designed to provide us with
the greatest flexibility to capitalize on the anticipated return to
more normal market conditions in the future. Pricing remains very
competitive and we will aggressively defend our market share with
competitive pricing and margin protection by combining sales of our
technology products with our commodity products. Drilling Products
will continue replacing sub-rented drilling jars and shock subs
with higher margin proprietary tools. Additionally, we intend to
further grow our presence in the international market through the
introduction of CAVO mud motors and the Teledrift line of MWD
(Measurement While Drilling) products including the TelePulse MWD
for horizontal drilling that is scheduled for introduction in 2009.
Artificial Lift Segment Artificial Lift revenues for the year ended
December 31, 2008 were $18.4 million, an increase of 23.8%,
compared to $14.9 million for the year ended December 31, 2007. The
increase in revenue is primarily a result of very active coal bed
methane drilling in Wyoming, an increase in rod pump sales and a
price increase implemented in August in response to an increase in
our raw material costs. We opened two new repair facilities in
North America, designed to be scalable to varying activity levels,
to take advantage of market opportunities. Loss from operations was
$6.7 million for the year ended December 31, 2008, primarily as a
result of the $8.6 million impairment charge related to goodwill
and other intangible assets. Excluding the effect of the
impairment, adjusted income from operations was $1.8 million or
approximately 33.5% higher than income from operations of $1.4
million in 2007. Income from operations as a percentage of revenue
increased slightly to 10.0% for the year ended December 31, 2008
from 9.3% in 2007. We made strategic investments by adding two new
pump repair facilities and increased our field sales presence.
Consistent with our strategy within our other two segments, we
began to reduce our operating cost structure to align with the
current market conditions in late fourth quarter 2008 while
maintaining flexibility that should allow us to capitalize on a
return to a more normalized market. Our focus will be on
competitive pricing and exceptional service by offering our
proprietary downhole gas separator technology and Petrovalve rod
pump systems, especially in the international market. Credit
Agreement As a result of the impairment charge of $67.7 million
recorded in the fourth quarter, as previously discussed, we did not
meet the Minimum Net Worth covenant contained in our Credit
Agreement dated March 31, 2008. On February 25, 2009, we entered
into the First Amendment and Temporary Waiver Agreement with our
lenders which amended the terms of the Credit Agreement. This
Amendment, among other things, increased the interest rate margins
applicable to advances under the Credit Agreement, decreased the
aggregate revolving commitment under the Credit Agreement to $15.0
million from $25.0 million, and provided a temporary waiver of any
breach by Flotek of the Minimum Net Worth covenant through the
earlier of May 15, 2009 or the occurrence of certain other
specified events. The Amendment also permits the Company to
exchange shares of its common stock for up to $40.0 million of our
Convertible Senior Notes which otherwise would be prohibited. It
was contemplated that the First Amendment and Temporary Waiver
would be followed in short order with a Second Amendment to address
the potential non-compliance within the next year of the Leverage
Ratio and the Fixed Charge Coverage Ratio covenants based on
financial projections for 2009. We executed a Second Amendment to
the Credit Agreement with our lenders on March 13, 2009. The Second
Amendment, among other things, permanently reduces our aggregate
revolving commitment to $15.0 million, increases our interest rate
and fees associated with borrowings under the Credit Agreement,
limits our permitted maximum capital expenditures to $8.0 million
and $11.0 million for 2009 and 2010 respectively and establishes
new covenants related to Minimum Net Worth, the Leverage Ratio and
the Fixed Charge Coverage Ratio. Amortization schedules were
unchanged requiring quarterly payments of $2.0 million through the
maturity date of March 31, 2011. Based on our current financial
projections for 2009, we expect to comply with the revised
covenants contained in the Second Amendment. FLOTEK INDUSTRIES,
INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For
the Year Ended December 31, 2008 2007 2006 (in thousands, except
per share data) Revenue $226,063 $158,008 $100,642 Cost of revenue
135,307 94,561 61,249 Expenses: Impairment of Goodwill and
Intangible assets 67,695 - - Selling, general and administrative
46,311 30,639 18,919 Depreciation and amortization 5,570 2,273 965
Research and development 1,931 849 656 Total expenses 121,507
33,761 20,540 Income (loss) from operations (30,751) 29,686 18,853
Other income (expense): Interest expense (10,233) (3,501) (1,005)
Investment income and other (96) 956 85 Total other income
(expense) (10,329) (2,545) (920) Income (loss) before income taxes
(41,080) 27,141 17,933 Benefit (Provision) for income taxes 9,139
(10,414) (6,583) Net income (loss) $(31,941) $16,727 $11,350 Other
comprehensive income (loss): Foreign currency translation
adjustment 80 8 37 Comprehensive income (loss) $(31,861) $16,735
$11,387 Basic and diluted earnings (loss) per common share: Basic
earnings (loss) per common share $(1.69) $0.91 $0.66 Diluted
earnings (loss) per common share $(1.69) $0.88 $0.61 Weighted
average common shares used in computing basic earnings (loss) per
common share 18,867 18,338 17,289 Incremental common shares from
stock options, warrants and restricted stock - 620 1,299 Weighted
average common shares used in computing diluted earnings (loss) per
common share 18,867 18,958 18,588 EBITDA Reconciliation: This press
release contains references to EBITDA. EBITDA is a non-GAAP
financial measure that we define as net income (the most directly
comparable GAAP financial measure) before interest, taxes,
depreciation and amortization. EBITDA, as used and defined in this
press release, may not be comparable to similarly titled measures
employed by other companies and is not a measure of performance
calculated in accordance with GAAP. EBITDA should not be considered
in isolation or as a substitute for operating income, net income or
loss, cash flows provided by operating, investing and financing
activities, or other income or cash flow statement data prepared in
accordance with GAAP. Reconciliations of this financial measure to
net income, the most directly comparable GAAP financial measure for
the years and fourth quarters ended December 31, 2008 and 2007, are
provided in the table below. 2008 2007 ---- ---- (in thousands) Net
Income (Loss) $(31,941) $16,727 Interest expense 10,233 3,501
Depreciation and Amortization (1) 12,844 6,537 Impairment of
Goodwill and Intangible assets 67,695 - (Benefit) Provision for
income taxes (9,139) 10,414 ------- ------ EBITDA $49,692 $37,179
======= ======= Q4 2008 Q4 2007 ------- ------- (in thousands) Net
Income (Loss) $(46,294) $3,119 Interest expense 3,084 957
Depreciation and Amortization (1) 3,415 1,984 Impairment of
Goodwill and Intangible assets 67,695 - (Benefit) Provision for
income taxes (17,929) 2,439 EBITDA $9,971 $8,499 ====== ====== (1)
Includes depreciation included in cost of revenue of $7,274 and
$4,264 for the years ended December 31, 2008 and 2007, respectively
and $2,085 and $1,101 for the quarters ended December 31, 2008 and
2007, respectively. Reconciliation of non-GAAP Measures to GAAP
Measures We evaluate our results of operations before certain
impairment items, and also view our results as adjusted for certain
non-cash activities, as it is not indicative of our core operating
activities. We believe our presentation of financial measures
before, or excluding, this item, which is a non-GAAP measure,
enhances our investor's overall understanding of our recurring
operational performance and provides useful information to both
investors and management to evaluate the ongoing operations and
prospects of Flotek Industries. Whenever we use non-GAAP financial
measures, we designate these measures, which exclude the effect of
certain impairment items and other charges as "adjusted" and
provide a reconciliation of non-GAAP financial measures to the most
closely applicable GAAP financial measure. Investors are encouraged
to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most
directly comparable GAAP financial measure. In the tables below, we
reconcile our financial measures before certain impairment items
and other charges to our reported GAAP financial results for the
fourth quarter and full year of both 2008 and 2007. Although we
believe the non-GAAP financial measures enhance an investor's
understanding of our performance, our management does not itself,
nor does it suggest that investors should, consider such non-GAAP
financial measures in isolation from, or as a substitute for,
financial information prepared in accordance with GAAP. The
non-GAAP financial measures we use may not be consistent with the
presentation of similar companies in our industry. However, we
present such non-GAAP financial measures in reporting our financial
results to provide investors with an additional tool to evaluate
our operating results in a manner that focuses on what we believe
to be our ongoing business operations. GAAP to Non-GAAP
Reconciliation 2008 YTD 2008 Q4 -------- ------- (in thousands,
except per share amounts) Income From Operations $(30,751)
$(61,076) Impairment of Goodwill & Intangible Assets 67,695
67,695 ------ ------ Adjusted Income from Operations $36,944 $6,619
======= ====== Net Loss $(31,941) $(46,294) Impairment of Goodwill
& Intangible Assets 67,695 67,695 Tax Benefit from Impairment
(19,316) (19,316) -------- -------- Adjusted Net Income $16,438
$2,085 ======= ====== Basic loss per common share $(1.69) $(2.44)
Effect of Impairment 3.58 3.57 Effect of Tax Benefit from
Impairment (1.02) (1.02) Basic earnings per common share before
Impairment $0.87 $0.11 ===== ===== Diluted loss per common share
$(1.69) $(2.44) Effect of Impairment 3.58 3.57 Effect of Tax
Benefit from Impairment (1.02) (1.02) Effect of Dilution (0.02) -
Diluted earnings per common share before Impairment $0.85 $0.11
===== ===== Weighted average common shares used in computing basic
earnings per common share 18,867 18,969 Incremental common shares
from stock options and restricted stock 460 248 Weighted average
common shares used in computing diluted earnings per common share
19,327 19,217 ====== ====== Year End Conference Call Date &
Time: Monday, March 16, 2009 9:00 AM CDT (10:00 AM EDT) Dial-In
Number: 800-860-2442 (U.S. & Canada) 412-858-4600
(International) Passcode: Flotek Call will be broadcast live at
http://www.flotekind.com/ Replay Number: 877-344-7529 Passcode:
428605# Replay: Available through Friday, March 27, 2009 Webcast
replay available at http://www.flotekind.com/ Flotek Industries,
Inc. Flotek is a global developer and distributor of innovative
specialty chemicals and downhole 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
http://www.flotekind.com/. Forward-Looking Statements: This Press
Release contains forward-looking statements (within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934) regarding
Flotek Industries, Inc. 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 Form 10-Q, 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. DATASOURCE: Flotek Industries, Inc. CONTACT: Brian
Shannon of Flotek, +1-713-849-9911, Web Site:
http://www.flotekind.com/
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