Flotek Reports Second Quarter 2023 Results Highlighted by 108% Sequential Growth in Gross Profit

Source: www.gulfoilandgas.com 8/8/2023, Location: North America

Flotek Industries, Inc. announced significantly improved operational and financial results for the second quarter ended June 30, 2023. The second quarter results further build upon the Company's turn-around momentum as nearly all financial metrics showed strong sequential growth.

Financial Summary

Second Quarter 2023 Highlights
• Reported gross profit of $3.9 million and adjusted gross profit(1) of $5.1 million marking the second consecutive quarter of positive results in both metrics. Second quarter of 2023 gross profit and adjusted gross profit(1) increased 108% and 92%, respectively, as compared to first quarter of 2023 results. Gross profit margin and adjusted gross profit margin(1) for the second quarter of 2023 increased to 8% and 10%, respectively.

• Achieved strong growth in total revenues of 72% from the second quarter of 2022, resulting from Flotek's strategic 10-year supply agreement with ProFrac Holdings, LLC ("ProFrac"). Second quarter of 2023 total revenues increased 5% sequentially despite an industry-wide slowdown in upstream activity and benefited from a 68% increase in transactional (non-ProFrac) chemistry business compared to the first quarter of 2023.

• Improved adjusted EBITDA(1) for the eighth consecutive quarter reporting a 48% sequential increase.

• Appointed Dr. Ryan Ezell to the role of Chief Executive Officer to lead Flotek into its next phase of profitable growth.

• Appointed Mr. Harsha V. Agadi to the role of Chairman of the Board of Flotek.

August 2023 Update
• Reiterate full year 2023 guidance for total revenues of $210 million to $230 million and an adjusted gross profit margin of 8% to 10%.
• Report considerable progress toward securing an asset-based loan ("ABL"). See balance sheet and liquidity discussion below.

Management Commentary
Chief Executive Officer Ryan Ezell commented, "Our second quarter results highlight our operational excellence and the rapid improvement in Flotek's business fundamentals as we execute our corporate strategy. Our cost control initiatives continue to enhance profitability as demonstrated by adjusted gross profit nearly doubling from the first quarter with the associated margin increasing to 10%. Accordingly, we have high confidence in adjusted EBITDA turning positive before year-end.

"Operationally, even as the industry experienced less well stimulation activity during the quarter, our differentiated chemistry solutions, highlighted by the performance of our transactional chemistry business, enabled us to grow revenues and margins. Looking ahead, we are well positioned with a strong balance sheet that will be enhanced by the credit facility that we are actively pursuing. This will augment our liquidity and support our growth and path to sustained profitability."

Second Quarter 2023 Financial Results
• Revenue: Flotek reported total revenues of $50.6 million for the second quarter of 2023, which was an increase of 72% compared to total revenues of $29.4 million for the second quarter of 2022 and a 5% increase compared to total revenues of $48.0 million for the first quarter of 2023. Second quarter of 2023 revenues benefited from a 68% sequential increase in transactional chemistry revenue.

• Gross Profit (Loss): The Company generated gross profit of $3.9 million as compared to a gross loss of $2.3 million for the second quarter of 2022 and gross profit of $1.9 million for the first quarter of 2023. The improvement in second quarter of 2023 gross profit was the result of the increase in transactional chemistry revenue during the quarter and continuing initiatives to drive further cost improvements with respect to freight logistics and materials.

• Adjusted Gross Profit (Loss) (Non-GAAP)(1): Flotek generated adjusted gross profit of $5.1 million during the second quarter of 2023 compared to adjusted gross loss of $1.6 million for the second quarter of 2022 and gross profit of $2.6 million for the first quarter of 2023. Adjusted gross profit (loss) primarily excludes non-cash items, including amortization of contract assets, which reduces both revenue and gross profit.

• Selling, General and Administrative ("SG&A") Expense: SG&A expense totaled $8.4 million for the second quarter of 2023 compared to $6.8 million for the second quarter of 2022 and $6.5 million for the first quarter of 2023. Second quarter of 2023 SG&A included legal costs incurred in connection with the settlement of a portion of ongoing legacy litigation, as well as the final costs associated with the CEO transition. SG&A during the first quarter of 2023 included a $1.1 million credit to stock compensation expense related to head-count reductions. Excluding non-cash stock compensation, second quarter SG&A increased $0.5 million sequentially.

• Severance Costs: Flotek recorded a $2.3 million credit to severance expenses during the second quarter of 2023 in connection with the settlement of a portion of ongoing legacy litigation. The Company had accrued certain severance payments in connection with this litigation in prior years and reversed the accrual during the second quarter after reaching the settlement.

• Net Income (Loss) and EPS: Flotek reported a net loss of $21 thousand, or $0 per basic share, for the second quarter of 2023. This compares to net income of $6.2 million, or $0.08 per basic share, for the second quarter of 2022 and net income of $21.3 million, or $0.22 per basic share, in the first quarter of 2023. Net income/(loss) during the second quarter of 2023 and 2022 and the first quarter of 2023 included non-cash gains on the fair value measurement of convertible notes totaling $3.9 million, $17.2 million, and $26.1 million, respectively.

• Adjusted EBITDA (Non-GAAP)(1): Adjusted EBITDA was negative $2.0 million in the second quarter of 2023 as compared to negative $7.2 million in the second quarter of 2022 and negative $3.9 million in the first quarter of 2023. Adjusted EBITDA continues to trend upward and the Company expects to report positive adjusted EBITDA during 2023.

Balance Sheet and Liquidity
Flotek has received credit approval from a prospective lender in connection with a proposed ABL. The Company is reviewing the loan documents as well as completing final administrative matters prior to closing. The proposed ABL would provide credit availability based upon eligible accounts receivable, inventory and real estate values. The Company expects to provide an update before the end of August 2023.

Cash and cash equivalents were $8.8 million as of June 30, 2023, compared to $12.4 million as of March 31, 2023. Cash and cash equivalents were used during the quarter for working capital purposes.


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