- Announces Results of Equity Private Placement and Amendment of
Credit Facility - Announces Management Transition Plan -
Repositions Balance Sheet and Records Goodwill Impairment Charge of
$18.5 million, before tax impacts. HOUSTON, Aug. 13
/PRNewswire-FirstCall/ -- Flotek Industries, Inc. (NYSE: FTK) today
reported expanded results for the second quarter and first six
months of 2009. Highlights comparing Q2 2009 to Q2 2008 and first
six months of 2009 to 2008 include: -- Revenue decrease 58.6% and
37.8%, respectively. -- 124.1% and 98.1% decrease in Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA", a
non-GAAP financial measure), excluding the effect of the goodwill
impairment -- Loss from Operations of $7.0 million and $6.5
million, excluding the effect of the goodwill impairment -- Net
Income decreased $24.3 million and $29.5 million, respectively. --
Diluted Earnings per Share declined $1.24 and $1.50 to $(1.01) and
$(1.11), respectively Consistent with declines in oilfield
activity, total revenue for the second quarter of 2009 was $23.5
million, a decrease of 58.6%, compared to $56.8 million for the
second quarter of 2008. Revenue decreased in all of our operating
segments, a result of a decrease in drilling activity and modest
margin pressure. Since the 2008 cyclical peak, natural gas prices
and drilling activity have declined nearly 60% directly impacting
demand for our products. Through the first six months of 2009,
revenues decreased $39.1 million to $64.2 million. Loss from
operations for the second quarter of 2009 totaled $25.5 million, a
decrease of $36.5 million from the second quarter of 2008.
Excluding the effect of the goodwill impairment of $18.5 million
the loss from operations is $7.0 million. Loss from operations for
the first six months of 2009, excluding the effect of the goodwill
impairment, was ($6.5) million compared to income from operations
of $18.2 million for the 2008 period. As a result of our interim
review of goodwill and other intangible assets, we recorded a
non-cash charge of $18.5 million (pre-tax) to impair goodwill in
our Teledrift reporting unit, which is a part of our Drilling
Products segment. The continued decline through the first six
months of 2009 of broad economic indicators that were impacted
beginning late in the fourth quarter of 2008 caused us to evaluate
our existing business plans. Given the general economic climate, we
assessed our 2009 full year forecast compared to the base year used
in our prior year annual goodwill test and concluded that an
impairment of goodwill was appropriate. Flotek incurred a net loss
of ($19.8) million, or ($1.01) per fully diluted share for the
second quarter 2009 compared to net income of $4.5 million or $0.23
per fully diluted share for the same period in 2008. For the first
six months of 2009, we incurred a net loss of ($21.8) million, or
($1.11) per fully diluted share compared to net income of $7.7
million, or $0.39 per fully diluted share for the 2008 period. "The
second quarter of 2009 was a challenging quarter for the oilfield
service sector and Flotek was no exception," commented Jerry Dumas,
Flotek's Chairman and Chief Executive Officer. "Declines in product
demand accelerated in the quarter which exacerbated pricing
pressure experienced in the first quarter. That said, while it is
too early to call a cyclical bottom, we are beginning to see signs
of stabilization in both demand and price." "While the second
quarter was challenging for the company, Flotek has taken great
strides in reducing costs as we work diligently to re-size the
business for the current reality," Dumas added. "We have
dramatically reduced both headcount and associated costs to a level
we believe will stabilize the company's cash flow in the coming
months." "While the third quarter began much as the second quarter
ended, we have started to see signs of demand and pricing
stabilization," Dumas concluded. "While it is yet too early to
suggest a cyclical bottom is in place, the second-half of July and
early August have shown incremental signs of demand recovery and,
while modest, pricing stability. Given the recent cost reductions
and repositioning of the Flotek team, the company is well
positioned to benefit from an oilfield market recovery." Chemicals
and Logistics Segment Chemicals and Logistics revenue decreased as
a result of lower sales volume related to well fracturing
activities and increased pricing pressures due to the recent
decline in oil and gas exploration activities. Sales of our
proprietary, biodegradable, chemicals declined as the number of
well completions continued to decline. Income from operations
decreased due to higher raw material costs and lower revenues. We
have partially mitigated the effect of our lower demand and pricing
pressure through cost containment efforts. With product pricing
pressures leveling off in North America and anticipated improvement
in international sales, we anticipate modest improvement in revenue
growth and margins for Chemicals and Logistics in the third and
fourth quarters of 2009. "The second quarter was challenging for
our chemicals and logistics segment as North American drilling and
completion activity continued to slow," said Steve Reeves, Flotek's
Executive Vice President and Chief Operating Officer. "While still
subdued, the second-half of July did show signs of a modest
recovery in inquiries and sales, boosted by Canadian growth and the
beginning of new international opportunities." Drilling Products
Segment Drilling Products revenue decreased as a result of lower
drilling activities in North America related to both oil and gas
and competitive pricing pressures, partially offset by revenue from
Teledrift. We have partially offset the effect of this revenue
decline by maintaining our proportional share of the remaining
business activity and through growth in new areas, particularly the
Northeastern United States. "The decline in Drilling Products
revenues and income are a direct result of a continued decline in
drilling activity," added Reeves. "Like our chemical segment, we do
see some signs of modest improvement in North America, although
such growth is not universal and will likely be slow and
inconsistent as the cyclical bottom is established. We do expect
international sales to gradually improve in our Teledrift product
line through the balance of the year." "In addition, the continued
relative growth of horizontal and directional drilling should
create leverage for our Drilling Products segment as the cycle
improves. Flotek is well positioned to capitalize on the long-term
growth trend in unconventional natural gas exploration and
development," added Reeves. In addition to weakness in oil and
natural gas drilling, Flotek has seen a modest downturn in its
mining products business, where the company sells equipment to
domestic and international metals companies. "Weak metals prices
impacted our mining business beginning in late 2008," said Reeves,
adding there are also signs of stability in this business. "While
small compared to oil and gas operations, Flotek's mining business
should improve as copper prices show signs of rebounding."
Artificial Lift Segment Artificial Lift revenue remained consistent
on a year-to-date basis but declined sequentially. For the three
month period, revenue decreased due to a decline in coal bed
methane development activity due both to lower gas prices and
environmental regulations. Income from operations decreased in the
quarterly period mainly due to the revenue decrease and pricing
pressure from our customer base. For the six month period, income
from operations increased due to market share growth in the first
quarter of the year offset by decreased demand in the second
quarter. In Artificial Lift, we expect that a slight improvement in
natural gas prices should lead to an increase in coal bed methane
drilling, which in turn, we expect will improve revenue generation
late in the third quarter through the remainder of the year.
Financial Update, Balance Sheet Review and Description of Preferred
Equity Offering Our ongoing capital requirements arise primarily
from our need to service our debt, to acquire and maintain
equipment, to fund our working capital requirements and to complete
acquisitions. We have funded our capital requirements with
operating cash flows and debt borrowings. We had cash and cash
equivalents of $2.7 million at June 30, 2009 compared to $0.2
million at December 31, 2008. In the six months ended June 30,
2009, we generated $3.7 million in cash from operating activities.
Net loss for the six months ended June 30, 2009 was $21.8 million.
Non-cash additions to net loss during the six months ended June 30,
2009 consisted primarily of the $18.5 million of goodwill
impairment, $7.0 million of depreciation and amortization, $0.7
million of compensation expense related to options and restricted
stock awards as required under FAS No. 123R and $2.3 million
related to the accretion of the debt discount related to our
Convertible Notes. During the six months ended June 30, 2009,
working capital increased operating cash flow by $0.8 million due
mainly to collection of accounts receivable and inventory
reductions partially offset by payments of accounts payable and
accrued liabilities. We continue to focus on our collections
efforts which continued to improve in the second quarter,
notwithstanding difficult market conditions. Capital expenditures
for the six months ended June 30, 2009 totaled approximately $4.9
million. The most significant expenditures related to the expansion
of our Teledrift MWD tools, CAVO mud motor fleet and the addition
of rental tools to expand our rental tool base. We also recognized
approximately $1.5 million of proceeds related to the sale of
assets that were mainly lost-in-hole by our rental customers during
normal drilling activities. As of June 30, 2009, we had $14.2
million outstanding under the revolving line of credit of the New
Senior Credit Facility and $2.7 million of cash on the balance
sheet. Total availability under the revolving line of credit as of
June 30, 2009 was approximately $0.1 million. Bank borrowings are
subject to certain covenants and a material adverse change
subjective acceleration clause. As of June 30, 2009 we were not in
compliance with all covenants and accordingly requested and
received waivers from our lenders for the non-compliance in the
form of an amendment to our New Credit Agreement (the "Third
Amendment"). In addition, our review of the company's current
short- and mid-term liquidity requirements indicated that
additional capital was required to position the company to achieve
its longer term strategic goals. Subsequent to the end of the
second quarter, we entered into a transaction to sell shares of our
Preferred Stock and warrants to certain investors in a private
placement offering for approximately $15 million, net of fees. The
Third Amendment changes the calculation of availability under our
revolving line of credit, sets a minimum liquidity maintenance
amount, amends the annual Excess Cash Flow Recapture, waives the
Mandatory Prepayment Requirement related to certain equity
transactions, reduces the aggregate minimum threshold to trigger
prepayment on an asset sale, increases interest charges related to
margin rates and commitment fees, amends financial covenants
related to Maximum Total Funded Debt to EBITDA, Minimum Fixed
Charge Coverage Ratio and Minimum Net Worth, increases allowable
capital expenditures for 2009, reduces additional indebtedness,
changes certain reporting requirements and limits or restricts the
company's ability to acquire new business, sell assets, enter into
operating leases, accelerate payments of subordinated debt or pay
cash dividends. In conjunction with the Third Amendment we entered
into a private placement transaction (the "Offering") to sell up to
16,000 shares of our Preferred Stock, along with warrants (some of
which are contingent on shareholder approval) enabling the holder
to purchase additional shares of our Common Stock, for proceeds of
$15 million net of expenses. Each Unit is comprised of (i) one
share of cumulative redeemable convertible preferred stock, (ii)
warrants to purchase up to 155 shares of Flotek's common stock at
an exercise price of $2.31 per share and (iii) contingent warrants
to purchase up to 500 shares of Flotek's Common Stock at an
exercise price of $2.45 per share. Dividends on the preferred stock
are payable quarterly in cash or, at Flotek's option after
obtaining shareholder approval, in shares of Flotek common stock
based on the volume weighted average price of such shares for the
ten trading days prior to the date the dividend is paid. Dividends
will accrue at the rate of 15% of the liquidation preference per
annum, and will be cumulative from the date on which the preferred
stock is issued. The dividend rate will increase to 17.5% if Flotek
has not obtained shareholder approval of (1) the contingent
warrants described below, (2) the payment of dividends on the
preferred stock in shares of common stock, and (3) an amendment to
the Company's certificate of incorporation increasing the shares of
authorized common stock ("Shareholder Approval") within 120 days
following the closing of the private placement, will increase
further to 20% if Shareholder Approval is not obtained within 240
days, and will revert to 15% upon any subsequent obtaining of such
Shareholder Approval. Dividends will accumulate if not paid
quarterly. Each share of Preferred Stock will be convertible into
434.782 shares of our Common Stock, for an effective conversion
price of $2.30 per share. At our option, we can automatically
convert the Preferred Stock into Common Stock if the closing price
of our Common Stock is equal to or greater than 150% of the then
current conversion price for any 15 trading days during any 30
consecutive trading day period. If the preferred stock
automatically converts and Flotek has not previously paid holders
amounts equal to at least 8 quarterly dividends on the preferred
stock, Flotek will also pay to the holders, in connection with any
automatic conversion, and amount, in cash or shares of common stock
(based on the market value of the common stock), equal to 8
quarterly dividends less any dividends previously paid to holders
of the preferred stock. The Company used a portion of the proceeds
from the Offering to repay amounts outstanding under its revolving
line of credit, and will use the balance of the proceeds for
general corporate purposes, including for working capital needs and
to satisfy future scheduled debt payments. Our principal source of
liquidity, other than cash flows from operations, is our revolving
line of credit under our New Senior Credit Facility. The borrowing
base under our revolving line of credit is based on our accounts
receivable and inventory. As a result of the current decline in oil
and gas drilling activity, our revenues and inventory are
decreasing which will likely reduce our borrowing capacity under
our revolving line of credit. We are working to lower our working
capital needs and have focused on cash collections of our accounts
receivable balances and reduction of inventory. We expect that cash
and cash equivalents and cash flows from operations will generate
sufficient cash flows to fund our cash requirements. Management
Transition On August 11, 2009 Flotek announced that Jerry Dumas,
Chairman, President and Chief Executive Officer has chosen to
retire from the helm of Flotek and will begin his transition
effective immediately. John Chisholm, currently a director of
Flotek, has been appointed to serve as interim President while the
company conducts the search for a new CEO. Chisholm has been
involved in the oilfield services industry for over three decades
and is the founder of Welllogix, Inc., an international drilling
consulting and services firm. "John brings a wealth of knowledge,
experience and energy to the Flotek table as the company searches
for my successor," said Dumas. "As I transition toward retirement I
look forward to doing everything possible to assist John and the
Board with the transition and continue to work to make Flotek a
success." Dumas added, "While the company faces the challenges
inherent in the cyclical oilfield business, I am confident of its
success. The strength of Flotek is in the people that have helped
build this company over the past decade and those that will lead it
in the future. I wish all of them the very best." John Chisholm,
interim president, added, "We thank Jerry for his decade-plus of
service and his work in building Flotek into a recognized leader in
drilling and completion chemistry, down-hole technology and
artificial lift. We wish him the best in retirement and his future
endeavors." Under the terms of Dumas' retirement, he will remain
Chief Executive Officer until December 31, 2009 or until a
successor is named and serve the balance of his term as Chairman
which ends with the 2010 Annual Meeting of Shareholders. Conference
Call Flotek will hold a conference call on August 13, 2009, at
which time it will provide further details on the Company's second
quarter results and operations. Second Quarter Conference Call Date
& Time: August 13, 2009 8:30 AM EDT Dial-In Number:
800-860-2442 (US & Canada) 412-858-4600 (International)
Passcode: Flotek Call will be broadcast live at
http://www.flotekind.com/ Flotek manufactures and markets
innovative specialty chemicals, down-hole drilling and production
equipment, and manages automated bulk material handling, loading
and blending facilities. It serves major and independent companies
in the domestic and international oilfield service industry. For
additional information, please visit Flotek's web site at
http://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 consummate proposed
acquisitions and 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. Results of Operations Three Six Months Ended Months
Ended June 30, June 30, ----------- ----------- 2009 2008 2009 2008
---- ---- ---- ---- (in millions, except per share data) Revenue
$23.5 $56.8 $64.2 $103.3 Cost of revenue (1) 19.8 32.0 48.0 59.7
Expenses: Impairment of Goodwill 18.5 - 18.5 - Selling, general and
administrative 9.0 11.6 19.4 21.9 Depreciation and amortization 1.3
1.7 2.5 2.6 Research and development 0.4 0.5 0.8 0.9 --- --- ---
--- Total expenses 29.2 13.8 41.2 25.4 ---- ---- ---- ---- Income
(loss) from operations (25.5) 11.0 (25.0) 18.2 Income (loss) from
operations % (108.5)% 19.4% (38.9)% 17.6% Other income (expense):
Interest expense (2) (3.8) (3.8) (7.5) (5.8) Investment income and
other (0.1) - (0.2) - ---- --- ----- --- Total other income
(expense) (3.9) (3.8) (7.7) (5.8) Income (loss)before income taxes
(29.4) 7.2 (32.7) 12.4 Benefit (provision) for income taxes (3) 9.6
(2.7) 10.9 (4.7) --- ----- ---- ----- Net income (loss) $(19.8)
$4.5 $(21.8) $7.7 ====== ==== ====== ==== Basic Earnings Per Share
$(1.01) $0.23 $(1.11) $0.40 ====== ===== ====== ===== Diluted
Earnings Per Share $(1.01) $0.23 $(1.11) $0.39 ====== ===== ======
===== ----------------------------- (1) Includes Depreciation
directly related to production of Revenue of $2.3 million and $1.8
million for the three months ended June 30, 2009 and 2008,
respectively, and $4.5 million and $3.3 million for the six months
ended June 30, 2009 and 2008, respectively. (2) Includes Interest
expense related to the application of FSP 14-1 of $1.1 million and
$1.0 million for the three months ended June 30, 2009 and 2008,
respectively, and $2.3 million and $1.4 million for the six months
ended June 30, 2009 and 2008, respectively. (3) Includes Income tax
benefit related to the application of FSP 14-1 of $0.4 million for
the three months ended June 30, 2008, and $0.7 million and $0.5
million for the six months ended June 30, 2009 and 2008,
respectively. Non-GAAP Reconciliation: ------------------------
Income (loss) from operations $(25.5) $11.0 $(25.0) $18.2
Impairment of Goodwill 18.5 - 18.5 - ---- --- ---- --- Adjusted
income (loss) from operations (7.0) 11.0 (6.5) 18.2 Adjusted income
(loss) from operations % (29.8)% 19.4% (10.1)% 17.6% Total other
income (expense) (3.9) (3.8) (7.7) (5.8) Benefit (provision) for
income taxes (4) 3.4 (2.7) 4.7 (4.7) --- ---- --- ---- Adjusted net
income (loss) $(7.5) $4.5 $(9.5) $7.7 ===== ==== ===== ====
Adjusted Basic Earnings Per Share $(0.38) $0.23 $(0.49) $0.40
====== ===== ====== ===== Adjusted Diluted Earnings Per Share
$(0.38) $0.23 $(0.49) $0.39 ====== ===== ====== ===== (4) Excludes
the tax benefit of $6.2 million related to the impairment for the
three and six months ended June 30, 2009. EBITDA Reconciliation:
This press release contains references to EBITDA, 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,
are provided in the table below (in millions, unaudited): For the
Three For the Six Months Months Ended June 30, Ended June 30,
--------------------- ------------------ 2009 2008 2009 2008 ----
---- ---- ---- Net income (loss) $(19.8) $4.5 $(21.8) $7.7 Interest
expense 3.8 3.8 7.5 5.8 Income taxes (benefit) (9.6) 2.7 (10.9) 4.7
Depreciation and amortization 3.6 3.5 7.0 5.9 --- --- --- ---
EBITDA (22.0) 14.5 (18.2) 24.1 Impairment of goodwill 18.5 - 18.5 -
---- --- ---- --- Adjusted EBITDA $(3.5) $14.5 $0.3 $24.1 ======
===== ==== ===== DATASOURCE: Flotek Industries, Inc. CONTACT:
Investor Relations of Flotek Industries, Inc., +1-713-849-9911 Web
Site: http://www.flotekind.com/
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