Flotek Reports Fourth Quarter and Full-Year 2023 Results Highlighted by Growth in All Profitability Metrics Including a $31 Million Improvement in Annual Gross Profit
- Positive financial results for Flotek Industries, Inc. in Q4 and full-year 2023.
- Significant improvements in profitability metrics, including net income, gross profit, and adjusted gross profit.
- First positive adjusted EBITDA since 2017.
- $67.0 million year-over-year improvement in net income.
- 38% revenue increase compared to 2022.
- Strong growth in the data analytics segment.
- Strengthened liquidity through an up to $13.8 million Asset Based Loan.
- Key leadership appointments made to enhance the team.
- Management commentary emphasizing transformative year and growth opportunities.
- None.
Insights
The reported financial results by Flotek Industries, Inc. demonstrate a significant turnaround from previous years, with a notable transition from a net loss in 2022 to a net income in 2023. This shift is particularly remarkable considering the $67.0 million year-over-year improvement. The increase in full-year revenue by 38% is a robust indicator of the company's growth and could be attributed to strategic initiatives and market conditions favoring Flotek's product offerings.
Furthermore, the improvement in adjusted EBITDA, which serves as a proxy for the company's operational profitability excluding non-cash expenses and certain variable costs, suggests efficient cost management and potentially improved operational leverage. Investors might view the resolution of the material weakness and going concern issues from the 2022 audit as a positive sign of strengthened financial controls and stability.
The growth in the data analytics segment, with a 47% increase in JP3 revenues, could signal a successful diversification strategy, reducing reliance on traditional revenue streams and tapping into the high-growth data analytics market. This could be seen as a strategic move to insulate the company from volatile commodity prices that typically affect chemical providers in the oil and gas sector.
The substantial growth in revenue and the turnaround to profitability for Flotek Industries underscore a potentially favorable response from the market. The company's focus on sustainable chemistry and data solutions is likely to resonate with current industry trends towards sustainability and efficiency. Flotek's positioning as a collaborative partner in these areas may lead to increased market share and customer retention.
With the upstream completion environment slowing down, the 21% increase in chemistry revenue from external customers indicates that Flotek's offerings are gaining traction despite industry headwinds. This could suggest that their products are not only competitive but also potentially indispensable to their customers' operations.
Investors and stakeholders will likely monitor the company's future performance to see if these positive trends continue, especially in light of the recent leadership changes and the strengthening of the senior leadership team. The market will also be interested in how the company plans to sustain and build upon this growth, particularly in its data analytics segment.
The resolution of material weakness and going concern issues from the previous year's audit is a critical development for Flotek Industries. It indicates a significant improvement in internal controls over financial reporting. This resolution may restore investor confidence and could potentially lead to a reevaluation of the company's risk profile by credit rating agencies and financial institutions.
Additionally, the establishment of an Asset Based Loan (ABL) facility enhances the company's liquidity, providing more flexibility in managing working capital and funding operations or growth initiatives. It is important for the company to maintain compliance with the covenants associated with the ABL to avoid any potential legal or financial repercussions.
The appointment of Dr. Ryan Ezell as Chief Executive Officer is another key development. While typically not directly impacting financial metrics, strong leadership is crucial for maintaining corporate governance and executing strategic plans. Investors will likely observe how Dr. Ezell's leadership influences the company's strategic direction and whether it will lead to continued positive results.
Financial Summary (in thousands)
Three months ended December 31, | Twelve months ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Total Revenues | $ 42,188 | $ 48,217 | $ 188,058 | $ 136,092 | |||
Gross Profit (Loss) | $ 9,430 | $ (2,074) | $ 24,263 | $ (6,700) | |||
Adjusted Gross Profit (Loss) (1) | $ 10,661 | $ (522) | $ 28,666 | $ (1,884) | |||
Net Income (Loss) | $ 2,105 | $ (19,026) | $ 24,713 | $ (42,305) | |||
Adjusted EBITDA (1) | $ 3,953 | $ (5,079) | $ 1,488 | $ (26,169) | |||
(1) A non-GAAP financial measure. See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, | |||||||
Full-Year 2023 Highlights
- Reported net income of
$24.7 million $67.0 million $42.3 million - Delivered year-over-year improvements in gross profit, adjusted gross profit(1) and adjusted EBITDA(1) of
$31.0 million $30.6 million $27.7 million - Full year revenue of
$188.1 million 38% compared to 2022 revenue of$136.1 million 21% over 2022 revenue despite the backdrop of a slowing upstream completion environment. - Generated strong growth in data analytics segment as JP3 revenues grew
47% to$8.1 million $5.5 million - Strengthened liquidity through an up to
$13.8 million - Solidified the senior leadership team through the appointment of Dr. Ryan Ezell as Chief Executive Officer and the previous executive announcements.
- Material weakness and going concern issues identified in connection with the 2022 audit are expected to be resolved.
(1) | A non-GAAP financial measure. See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, including |
Management Commentary
Chief Executive Officer Dr. Ryan Ezell commented, "2023 was a transformative year as we restored profitability and delivered significant improvement in all key financial metrics, strengthened our leadership team with the addition of several key members, enhanced our liquidity through an ABL, and positioned Flotek to be the collaborative partner of choice for sustainable chemistry and data solutions that maximize our customers' value.
This impressive list of achievements reflects stellar execution throughout our entire organization and speaks to tremendous growth opportunities as we leverage our unique approach to chemistry as a common value creation platform to drive market share gains through our differentiated solutions. We are excited about the next generation of our JP3 Verax Near InfraRed measurement system, which will scale our Data Analytics segment more quickly and is expected to deliver associated revenue growth of greater than
Fourth Quarter and Full-Year 2023 Financial Results
- Revenue: Flotek reported total revenues of
$42.2 million $6.0 million 13% , compared to total revenues of$48.2 million 28% increase in chemistry revenues from external customers during the fourth quarter 2023 as compared to the 2022 period. Flotek reported total revenues of$188.1 million $52.0 million 38% , compared to total revenues of$136.1 million - Gross Profit (Loss): The Company generated gross profit of
$9.4 million $2.1 million - The Company generated gross profit of
$24.3 million $6.7 million 38% increase in revenues combined with numerous cost improvements implemented during 2023. - Adjusted Gross Profit (Non-GAAP)(1): Flotek generated adjusted gross profit(1) of
$10.7 million $0.5 million $28.7 million $1.9 million - Selling, General and Administrative ("SG&A") Expense: SG&A expense totaled
$6.6 million $6.2 million $1.9 million $27.9 million $27.1 million - Net Income (Loss) and EPS: Flotek reported net income of
$2.1 million $0.07 $19.0 million $1.51 $24.7 million $0.10 $42.3 million $3.41 ( ,$8.9) million $30.0 million $0.1 million - Adjusted EBITDA (Non-GAAP)(1): Adjusted EBITDA(1) was
$4.0 million $5.1 million $1.5 million $26.2 million
(1) | See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, including reconciliations to the most |
Data Analytics Update
Flotek continues to test the next generation version of its proprietary JP3 Verax Near InfraRed measurement system ("JP3"). JP3 represents the foundational technology behind the Company's Data Analytics business, which supports customers through real-time data, monitoring, and visualization across the energy value chain. The new JP3 analyzer is currently undergoing extensive field-trial testing with customer deployment expected by mid-2024. The new unit's engineering advances will facilitate scale and accelerated pace of production along with a reduction in manufacturing costs allowing access to markets that are currently unavailable.
The Company's plans for 2024 include maintaining JP3's strong presence in the midstream market, as well as pursuing new opportunities to accelerate penetration into the upstream market. Flotek is currently working with landowner groups to improve production allocations on lease sites and custody transfer locations through JP3's accurate, real-time measurements. This application represents a significant market opportunity in replacing traditional allocation measurement technologies. In addition, the Company is participating in a flare monitoring pilot program with a large upstream operator to demonstrate the use of JP3's technical solution in connection with compliance with recently enacted EPA regulations. With over 55,000 existing flares in
Balance Sheet and Liquidity
As of March 11, 2024, the Company's cash and cash equivalents totaled
2024 Guidance
Flotek plans to issue 2024 guidance in conjunction with the release of its first quarter 2024 financial and operating results, consistent with last year's timing.
Upcoming Investor Event
Flotek will participate in the 36th Annual Roth Conference to be held at the Ritz Carlton in
Conference Call Details
Flotek will host a conference call on March 13, 2024, at 9:00 a.m. CT (10:00 a.m. ET) to discuss its fourth quarter and full year 2023 results. Participants may access the call through Flotek's website at www.flotekind.com under "News" within the Investor Relations section or by telephone toll free at 1-800-836-8184 (international toll: 1-646-357-8785) 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.
An updated corporate presentation that will be referenced on the call will be posted to the Investor Relations section of Flotek's website at www.flotekind.com prior to the start of the earnings conference call.
About Flotek Industries, Inc.
Flotek Industries, Inc. is an advanced technology-driven, green chemical and data analytics company providing unique and innovative completion solutions that have a proven, positive impact on sustainability and reducing the overall environmental impact of energy on air, land, water and people. Flotek has an intellectual property portfolio of over 170 patents and a global presence in more than 59 countries throughout
Flotek is based in
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 BALANCE SHEETS (in thousands, except share data) | |||
December 31, 2023 | December 31, 2022 | ||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ 5,851 | $ 12,290 | |
Restricted cash | 102 | 100 | |
Accounts receivable, net of allowance for credit losses of | 13,687 | 19,136 | |
Accounts receivable, related party, net of allowance for credit losses of | 34,569 | 22,683 | |
Inventories, net | 12,838 | 15,720 | |
Other current assets | 3,564 | 3,032 | |
Current contract asset | 5,836 | 7,113 | |
Total current assets | 76,447 | 80,074 | |
Long-term contract assets | 68,820 | 72,576 | |
Property and equipment, net | 5,129 | 4,826 | |
Operating lease right-of-use assets | 5,030 | 5,900 | |
Deferred tax assets, net | 300 | 404 | |
Other long-term assets | 1,787 | 1,030 | |
TOTAL ASSETS | $ 157,513 | $ 164,810 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
Current liabilities: | |||
Accounts payable | $ 31,705 | $ 33,375 | |
Accrued liabilities | 5,890 | 8,984 | |
Income taxes payable | 45 | 97 | |
Interest payable | — | 130 | |
Current portion of operating lease liabilities | 2,449 | 3,328 | |
Current portion of finance lease liabilities | 22 | 36 | |
Asset-based loan | 7,492 | — | |
Current portion of long-term debt | 179 | 2,052 | |
Convertible notes payable | — | 19,799 | |
Contract Consideration Convertible Notes Payable | — | 83,570 | |
Total current liabilities | 47,782 | 151,371 | |
Deferred revenue, long-term | 35 | 44 | |
Long-term operating lease liabilities | 7,676 | 8,044 | |
Long-term finance lease liabilities | — | 19 | |
Long-term debt | 60 | 2,736 | |
TOTAL LIABILITIES | 55,553 | 162,214 | |
Stockholders' equity: | |||
Preferred stock, | — | — | |
Common stock, | 3 | 1 | |
Additional paid-in capital | 463,140 | 388,184 | |
Accumulated other comprehensive income | 127 | 181 | |
Accumulated deficit | (326,806) | (351,519) | |
Treasury stock, at cost; 1,108,707 and 1,021,255 shares at December 31, | (34,504) | (34,251) | |
Total stockholders' equity | 101,960 | 2,596 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 157,513 | $ 164,810 | |
FLOTEK INDUSTRIES, INC. Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share data) | |||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Revenue: | |||||||
Revenue from external customers | $ 19,239 | $ 15,940 | $ 66,518 | $ 54,344 | |||
Revenue from related party | 22,949 | 32,277 | 121,540 | 81,748 | |||
Total revenues | 42,188 | 48,217 | 188,058 | 136,092 | |||
Cost of goods sold | 32,758 | 50,291 | 163,795 | 142,792 | |||
Gross profit (loss) | 9,430 | (2,074) | 24,263 | (6,700) | |||
Operating costs and expenses: | |||||||
Selling, general, and administrative | 6,570 | 6,166 | 27,873 | 27,124 | |||
Depreciation | 204 | 180 | 734 | 734 | |||
Research and development | 255 | 922 | 2,486 | 4,438 | |||
Severance costs | (19) | (387) | (46) | — | |||
Gain on sale of property and equipment | — | (1,000) | (38) | (2,916) | |||
Gain on lease termination | — | — | — | (584) | |||
(Gain) loss in fair value of Contract Consideration | — | 8,941 | (29,969) | (75) | |||
Total operating costs and expenses | 7,010 | 14,822 | 1,040 | 28,721 | |||
Income (loss) from operations | 2,420 | (16,896) | 23,223 | (35,421) | |||
Other income (expense): | |||||||
Paycheck protection plan loan forgiveness | — | — | 4,522 | — | |||
Interest expense | (320) | (2,465) | (2,857) | (7,051) | |||
Other expense, net | 56 | 212 | (26) | 145 | |||
Total other income (expense), net | (264) | (2,253) | 1,639 | (6,906) | |||
Income (loss) before income taxes | 2,156 | (19,149) | 24,862 | (42,327) | |||
Income tax (expense) benefit | (51) | 123 | (149) | 22 | |||
Net income (loss) | $ 2,105 | $ (19,026) | $ 24,713 | $ (42,305) | |||
Income (loss) per common share: | |||||||
Basic | $ 0.07 | $ (1.51) | $ 1.00 | $ (3.41) | |||
Diluted | $ 0.07 | $ (1.51) | $ (0.10) | $ (3.41) | |||
Weighted average common shares: | |||||||
Weighted average common shares used in | 29,396 | 12,567 | 24,830 | 12,404 | |||
Weighted average common shares used in | 30,496 | 12,567 | 28,377 | 12,404 | |||
FLOTEK INDUSTRIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | |||
Twelve Months Ended December 31, | |||
2023 | 2022 | ||
Cash flows from operating activities: | |||
Net income (loss) | $ 24,713 | $ (42,305) | |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||
Change in fair value of contingent consideration | (527) | (25) | |
Change in fair value of Contract Consideration Convertible Notes Payable | (29,969) | (75) | |
Amortization of convertible note issuance costs | 83 | 1,002 | |
Payment-in-kind interest expense | 2,284 | 5,956 | |
Amortization of contract assets | 5,033 | 3,371 | |
Depreciation and amortization | 734 | 734 | |
Amortization of asset-based loan origination costs | 121 | — | |
Provision for credit losses, net of recoveries | 138 | 203 | |
Provision for excess and obsolete inventory | 959 | 1,734 | |
Gain on sale of property and equipment | (38) | (2,916) | |
Gain on lease termination | — | (584) | |
Non-cash lease expense | 3,014 | 226 | |
Stock compensation expense | (254) | 3,325 | |
Deferred income tax (benefit) expense | 104 | (125) | |
Paycheck protection plan loan forgiveness | (4,522) | — | |
Changes in current assets and liabilities: | |||
Accounts receivable | 5,311 | (7,342) | |
Accounts receivable, related party | (11,886) | (21,383) | |
Inventories | 1,938 | (7,917) | |
Income taxes receivable | — | 14 | |
Other assets | (836) | (285) | |
Contract assets, net | — | (3,600) | |
Accounts payable | (1,670) | 25,760 | |
Accrued liabilities | (2,575) | (34) | |
Operating lease liabilities | (3,391) | (507) | |
Income taxes payable | (53) | 93 | |
Interest payable | (8) | 48 | |
Net cash used in operating activities | (11,297) | (44,632) | |
FLOTEK INDUSTRIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (continued) | |||
Twelve Months Ended December 31, | |||
2023 | 2022 | ||
Cash flows from investing activities: | |||
Capital expenditures | (1,081) | (421) | |
Proceeds from sale of assets | 67 | 5,752 | |
Net cash (used in) provided by investing activities | (1,014) | 5,331 | |
Cash flows from financing activities: | |||
Payment for forfeited stock options | (617) | — | |
Payments on long term debt | (149) | — | |
Proceeds from asset-based loan | 68,716 | — | |
Payments on asset-based loan | (61,224) | — | |
Payment for origination costs of asset-based loan | (574) | — | |
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 | (268) | (224) | |
Proceeds from issuance of stock | 77 | 133 | |
Payments for finance leases | (33) | (38) | |
Net cash provided by financing activities | 5,928 | 38,267 | |
Effect of changes in exchange rates on cash and cash equivalents | (54) | 100 | |
Net change in cash and cash equivalents and restricted cash | (6,437) | (934) | |
Cash and cash equivalents at the beginning of period | 12,290 | 11,534 | |
Restricted cash at the beginning of period | 100 | 1,790 | |
Cash and cash equivalents and restricted cash at beginning of period | 12,390 | 13,324 | |
Cash and cash equivalents at end of period | 5,851 | 12,290 | |
Restricted cash at the end of period | 102 | 100 | |
Cash and cash equivalents and restricted cash at end of period | $ 5,953 | $ 12,390 | |
FLOTEK INDUSTRIES, INC. Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings (in thousands)
| |||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Gross profit (loss) | $ 9,430 | $ (2,074) | $ 24,263 | $ (6,700) | |||
Stock compensation expense | 3 | 85 | (132) | 459 | |||
Severance and retirement | 3 | — | 29 | 3 | |||
Contingent liability revaluation | (143) | 81 | (527) | (53) | |||
Sanitizer inventory write down | — | — | — | 1,036 | |||
Amortization of contract assets | 1,368 | 1,386 | 5,033 | 3,371 | |||
Adjusted Gross profit (loss) (Non-GAAP) (1) | $ 10,661 | $ (522) | $ 28,666 | $ (1,884) | |||
Net income (loss) | $ 2,105 | $ (19,026) | $ 24,713 | $ (42,305) | |||
Interest expense | 320 | 2,465 | 2,857 | 7,051 | |||
Income tax expense | 51 | (123) | 149 | (22) | |||
Depreciation and amortization | 204 | 180 | 734 | 734 | |||
EBITDA (Non-GAAP) (1) | $ 2,680 | $ (16,504) | $ 28,453 | $ (34,542) | |||
Stock compensation expense | 307 | 1,062 | (268) | 3,325 | |||
Severance and retirement | 10 | — | (17) | 387 | |||
Contingent liability revaluation | (143) | 81 | (527) | (25) | |||
Sanitizer inventory write down | — | — | — | 1,036 | |||
Gain on disposal of assets | — | (1,000) | (38) | (2,916) | |||
Gain on lease termination | — | — | — | (584) | |||
PPP loan forgiveness | — | — | (4,522) | — | |||
Contract Consideration Convertible Notes Payable revaluation adjustment | — | 8,941 | (29,969) | (75) | |||
Amortization of contract assets | 1,368 | 1,386 | 5,033 | 3,371 | |||
Non-Recurring professional fees | (269) | 955 | 3,343 | 3,854 | |||
Adjusted EBITDA (Non-GAAP) (1) | $ 3,953 | $ (5,079) | $ 1,488 | $ (26,169) | |||
(1) Management believes that adjusted gross profit, EBITDA and adjusted EBITDA for the three and twelve months ended December 31, 2023 and 2022, | |||||||
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FAQ
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