FLOTEK ANNOUNCES THIRD QUARTER 2022 FINANCIAL RESULTS

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Nov 08, 2022, 17:30 ET

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.

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 5^th 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.

SOURCE Flotek Industries, Inc.