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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Flotek Industries Inc | NYSE:FTK | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.03 | -0.86% | 3.47 | 3.59 | 3.38 | 3.53 | 50,350 | 01:00:00 |
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FLOTEK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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90-0023731
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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10603 W. Sam Houston Parkway N., Suite 300
Houston, TX
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77064
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
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¨
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Accelerated filer
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x
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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¨
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June 30, 2018
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December 31, 2017
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||||
ASSETS
|
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||||
Current assets:
|
|
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||||
Cash and cash equivalents
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$
|
3,096
|
|
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$
|
4,584
|
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Accounts receivable, net of allowance for doubtful accounts of $820 and $733 at June 30, 2018 and December 31, 2017, respectively
|
43,218
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|
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46,018
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||
Inventories, net
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90,844
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75,759
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||
Income taxes receivable
|
2,659
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|
2,826
|
|
||
Assets held for sale
|
2,250
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|
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—
|
|
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Other current assets
|
5,797
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|
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8,737
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Total current assets
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147,864
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137,924
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Property and equipment, net
|
66,143
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68,835
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||
Goodwill
|
19,480
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56,660
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||
Deferred tax assets, net
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—
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12,713
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Other intangible assets, net
|
47,025
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|
48,231
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||
Other long-term assets
|
531
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|
|
527
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||
Assets held for sale
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—
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4,998
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||
TOTAL ASSETS
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$
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281,043
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$
|
329,888
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LIABILITIES AND EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
25,646
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|
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$
|
22,048
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Accrued liabilities
|
9,071
|
|
|
14,589
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|
||
Interest payable
|
24
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|
|
43
|
|
||
Long-term debt, classified as current
|
49,126
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27,950
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Total current liabilities
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83,867
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64,630
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Deferred tax liabilities, net
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2,876
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|
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—
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|
||
Total liabilities
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86,743
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64,630
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Commitments and contingencies
|
|
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||||
Equity:
|
|
|
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||||
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding
|
—
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|
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—
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Common stock, $0.0001 par value, 80,000,000 shares authorized; 61,641,525 shares issued and 56,909,623 shares outstanding at June 30, 2018; 60,622,986 shares issued and 56,755,293 shares outstanding at December 31, 2017
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6
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6
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Additional paid-in capital
|
340,618
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336,067
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Accumulated other comprehensive income (loss)
|
(1,045
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)
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(884
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)
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Retained earnings (accumulated deficit)
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(112,192
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)
|
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(37,225
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)
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||
Treasury stock, at cost; 3,606,833 and 3,621,435 shares at June 30, 2018 and December 31, 2017, respectively
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(33,088
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)
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(33,064
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)
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||
Flotek Industries, Inc. stockholders’ equity
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194,299
|
|
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264,900
|
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Noncontrolling interests
|
1
|
|
|
358
|
|
||
Total equity
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194,300
|
|
|
265,258
|
|
||
TOTAL LIABILITIES AND EQUITY
|
$
|
281,043
|
|
|
$
|
329,888
|
|
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Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
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2018
|
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2017
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2018
|
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2017
|
||||||||
Loss from continuing operations
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$
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(75,391
|
)
|
|
$
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(1,122
|
)
|
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$
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(75,324
|
)
|
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$
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(1,866
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)
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Loss from discontinued operations, net of tax
|
—
|
|
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(2,704
|
)
|
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—
|
|
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(13,937
|
)
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||||
Net loss
|
(75,391
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)
|
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(3,826
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)
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(75,324
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)
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(15,803
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)
|
||||
Other comprehensive income (loss):
|
|
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|
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||||||||
Foreign currency translation adjustment
|
18
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|
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(5
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)
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(161
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)
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(14
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)
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||||
Comprehensive loss
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(75,373
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)
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(3,831
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)
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(75,485
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)
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(15,817
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)
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||||
Net loss attributable to noncontrolling interests
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357
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—
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357
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|
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—
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|
||||
Comprehensive loss attributable to Flotek
|
$
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(75,016
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)
|
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$
|
(3,831
|
)
|
|
$
|
(75,128
|
)
|
|
$
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(15,817
|
)
|
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Common Stock
|
|
Treasury Stock
|
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Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
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Retained Earnings (Accumulated Deficit)
|
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Non-controlling Interests
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Total Equity
|
||||||||||||||||||||
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Shares
Issued
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Par
Value
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Shares
|
|
Cost
|
|
|||||||||||||||||||||||||
Balance, December 31, 2017
|
60,623
|
|
|
$
|
6
|
|
|
3,621
|
|
|
$
|
(33,064
|
)
|
|
$
|
336,067
|
|
|
$
|
(884
|
)
|
|
$
|
(37,225
|
)
|
|
$
|
358
|
|
|
$
|
265,258
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(74,967
|
)
|
|
(357
|
)
|
|
(75,324
|
)
|
|||||||
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(161
|
)
|
|
—
|
|
|
—
|
|
|
(161
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)
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|||||||
Stock issued under employee stock purchase plan
|
—
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|
—
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|
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(65
|
)
|
|
—
|
|
|
247
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
247
|
|
|||||||
Restricted stock granted
|
1,019
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Restricted stock forfeited
|
—
|
|
|
—
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Treasury stock purchased
|
—
|
|
|
—
|
|
|
6
|
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
|||||||
Stock compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,304
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,304
|
|
|||||||
Balance, June 30, 2018
|
61,642
|
|
|
$
|
6
|
|
|
3,607
|
|
|
$
|
(33,088
|
)
|
|
$
|
340,618
|
|
|
$
|
(1,045
|
)
|
|
$
|
(112,192
|
)
|
|
$
|
1
|
|
|
$
|
194,300
|
|
|
Three months ended June 30, 2017
|
|
Six months ended June 30, 2017
|
||||
Drilling Technologies
|
|
|
|
||||
Revenue
|
$
|
4,737
|
|
|
$
|
11,534
|
|
Cost of revenue
|
(2,603
|
)
|
|
(7,259
|
)
|
||
Selling, general and administrative
|
(2,740
|
)
|
|
(5,771
|
)
|
||
Research and development
|
(6
|
)
|
|
(6
|
)
|
||
(Loss) gain on disposal of long-lived assets
|
(12
|
)
|
|
62
|
|
||
Loss from operations
|
(624
|
)
|
|
(1,440
|
)
|
||
Other expense
|
(46
|
)
|
|
(117
|
)
|
||
Loss on sales of businesses
|
(1,365
|
)
|
|
(1,365
|
)
|
||
Loss on write-down of assets held for sale
|
(272
|
)
|
|
(6,831
|
)
|
||
Loss before income taxes
|
(2,307
|
)
|
|
(9,753
|
)
|
||
Income tax benefit
|
158
|
|
|
3,147
|
|
||
Net loss from discontinued operations
|
$
|
(2,149
|
)
|
|
$
|
(6,606
|
)
|
|
|
|
|
||||
Production Technologies
|
|
|
|
||||
Revenue
|
$
|
849
|
|
|
$
|
4,002
|
|
Cost of revenue
|
(707
|
)
|
|
(3,189
|
)
|
||
Selling, general and administrative
|
(802
|
)
|
|
(1,675
|
)
|
||
Research and development
|
(92
|
)
|
|
(363
|
)
|
||
Loss from operations
|
(752
|
)
|
|
(1,225
|
)
|
||
Other expense
|
(16
|
)
|
|
(52
|
)
|
||
Gain on sale of businesses
|
171
|
|
|
171
|
|
||
Loss on write-down of assets held for sale
|
—
|
|
|
(9,718
|
)
|
||
Loss before income taxes
|
(597
|
)
|
|
(10,824
|
)
|
||
Income tax benefit
|
42
|
|
|
3,493
|
|
||
Net loss from discontinued operations
|
$
|
(555
|
)
|
|
$
|
(7,331
|
)
|
|
|
|
|
||||
Drilling Technologies and Production Technologies
|
|
|
|
||||
Loss from discontinued operations, net of tax
|
$
|
(2,704
|
)
|
|
$
|
(13,937
|
)
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
Property and equipment, net
|
$
|
4,830
|
|
|
$
|
4,998
|
|
Valuation allowance
|
(2,580
|
)
|
|
—
|
|
||
Assets held for sale, net
|
$
|
2,250
|
|
|
$
|
4,998
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Products
|
$
|
57,630
|
|
|
$
|
83,835
|
|
|
$
|
116,881
|
|
|
$
|
162,350
|
|
Services
|
1,456
|
|
|
1,342
|
|
|
2,721
|
|
|
2,781
|
|
||||
|
$
|
59,086
|
|
|
$
|
85,177
|
|
|
$
|
119,602
|
|
|
$
|
165,131
|
|
Cost of revenue (excluding depreciation and amortization):
|
|
|
|
|
|
|
|
||||||||
Products
|
$
|
45,511
|
|
|
$
|
57,052
|
|
|
$
|
90,028
|
|
|
$
|
107,741
|
|
Services
|
1,227
|
|
|
1,522
|
|
|
2,411
|
|
|
2,458
|
|
||||
|
$
|
46,738
|
|
|
$
|
58,574
|
|
|
$
|
92,439
|
|
|
$
|
110,199
|
|
•
|
Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded within segment selling and administrative expenses.
|
•
|
The majority of the Company’s services are short-term in nature with a contract term of one year or less. For those contracts, the Company has utilized the practical expedient in ASC 606-10-50-14, exempting the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
|
•
|
The Company’s payment terms are short-term in nature with settlements of one year or less. The Company has utilized the practical expedient in ASC 606-10-32-18, exempting the Company from adjusting the promised amount of consideration for the effects of a significant financing component given that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
|
•
|
In most service contracts, the Company has the right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. For these contracts, the Company has utilized the practical expedient in ASC 606-10-55-18, allowing the Company to recognize revenue in the amount to which it has a right to invoice.
|
|
Six months ended June 30,
|
||||||
|
2018
|
|
2017
|
||||
Supplemental non-cash investing and financing activities:
|
|
|
|
||||
Value of common stock issued in payment of accrued liability
|
$
|
—
|
|
|
$
|
188
|
|
Exercise of stock options by common stock surrender
|
—
|
|
|
5,814
|
|
||
Supplemental cash payment information:
|
|
|
|
||||
Interest paid
|
$
|
983
|
|
|
$
|
1,069
|
|
Income taxes paid, net of refunds (received, net of payments)
|
327
|
|
|
(9,489
|
)
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
Raw materials
|
$
|
42,716
|
|
|
$
|
42,750
|
|
Work-in-process
|
3,380
|
|
|
3,284
|
|
||
Finished goods
|
46,690
|
|
|
30,293
|
|
||
Inventories
|
92,786
|
|
|
76,327
|
|
||
Less reserve for excess and obsolete inventory
|
(1,942
|
)
|
|
(568
|
)
|
||
Inventories, net
|
$
|
90,844
|
|
|
$
|
75,759
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
Land
|
$
|
6,639
|
|
|
$
|
6,104
|
|
Buildings and leasehold improvements
|
41,899
|
|
|
42,064
|
|
||
Machinery and equipment
|
40,638
|
|
|
38,913
|
|
||
Fixed assets in progress
|
3,235
|
|
|
4,297
|
|
||
Furniture and fixtures
|
1,709
|
|
|
1,994
|
|
||
Transportation equipment
|
2,177
|
|
|
1,877
|
|
||
Computer equipment and software
|
12,125
|
|
|
12,165
|
|
||
Property and equipment
|
108,422
|
|
|
107,414
|
|
||
Less accumulated depreciation
|
(42,279
|
)
|
|
(38,579
|
)
|
||
Property and equipment, net
|
$
|
66,143
|
|
|
$
|
68,835
|
|
|
Energy Chemistry Technologies
|
|
Consumer and Industrial Chemistry Technologies
|
|
Total
|
||||||
Balance at December 31, 2017
|
$
|
37,180
|
|
|
$
|
19,480
|
|
|
$
|
56,660
|
|
Goodwill impairment recognized
|
(37,180
|
)
|
|
—
|
|
|
(37,180
|
)
|
|||
Balance at June 30, 2018
|
$
|
—
|
|
|
$
|
19,480
|
|
|
$
|
19,480
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
|
Cost
|
|
Accumulated Amortization
|
|
Cost
|
|
Accumulated Amortization
|
||||||||
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
||||||||
Patents and technology
|
$
|
17,539
|
|
|
$
|
6,119
|
|
|
$
|
17,310
|
|
|
$
|
5,586
|
|
Customer lists
|
30,877
|
|
|
8,891
|
|
|
30,877
|
|
|
8,127
|
|
||||
Trademarks and brand names
|
1,539
|
|
|
1,141
|
|
|
1,549
|
|
|
1,117
|
|
||||
Total finite-lived intangible assets acquired
|
49,955
|
|
|
16,151
|
|
|
49,736
|
|
|
14,830
|
|
||||
Deferred financing costs
|
1,882
|
|
|
291
|
|
|
1,791
|
|
|
96
|
|
||||
Total amortizable intangible assets
|
51,837
|
|
|
$
|
16,442
|
|
|
51,527
|
|
|
$
|
14,926
|
|
||
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
||||||||
Trademarks and brand names
|
11,630
|
|
|
|
|
11,630
|
|
|
|
||||||
Total other intangible assets
|
$
|
63,467
|
|
|
|
|
$
|
63,157
|
|
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Carrying value:
|
|
|
|
|
|
|
|
||||||||
Other intangible assets, net
|
$
|
47,025
|
|
|
|
|
$
|
48,231
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
Long-term debt, classified as current:
|
|
|
|
||||
Borrowings under revolving credit facility
|
$
|
49,126
|
|
|
$
|
27,950
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Weighted average common shares outstanding - Basic
|
57,869
|
|
|
57,854
|
|
|
57,566
|
|
|
57,764
|
|
Assumed conversions:
|
|
|
|
|
|
|
|
||||
Incremental common shares from stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Incremental common shares from restricted stock units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average common shares outstanding - Diluted
|
57,869
|
|
|
57,854
|
|
|
57,566
|
|
|
57,764
|
|
•
|
Level 1 — Quoted prices in active markets for identical assets or liabilities;
|
•
|
Level 2 — Observable inputs other than Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
•
|
Level 3 — Significant unobservable inputs that are supported by little or no market activity or that are based on the reporting entity’s assumptions about the inputs.
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying Amount
|
|
Fair
Value
|
||||
Borrowings under revolving credit facility
|
49,126
|
|
|
49,126
|
|
|
27,950
|
|
|
27,950
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
U.S. federal statutory tax rate
|
(21.0
|
)%
|
|
(35.0
|
)%
|
|
(21.0
|
)%
|
|
(35.0
|
)%
|
State income taxes, net of federal benefit
|
6.0
|
|
|
(4.8
|
)
|
|
0.5
|
|
|
(3.8
|
)
|
Non-U.S. income taxed at different rates
|
(15.3
|
)
|
|
(0.1
|
)
|
|
(0.4
|
)
|
|
0.1
|
|
Reduction in tax benefit related to stock-based awards
|
33.5
|
|
|
13.4
|
|
|
1.4
|
|
|
10.7
|
|
Non-deductible expenses
|
18.3
|
|
|
(1.5
|
)
|
|
10.4
|
|
|
(1.2
|
)
|
Research and development credit
|
(20.2
|
)
|
|
2.6
|
|
|
(0.8
|
)
|
|
2.0
|
|
Valuation allowance
|
43.9
|
|
|
0.1
|
|
|
36.4
|
|
|
0.1
|
|
Other
|
0.2
|
|
|
(3.0
|
)
|
|
0.2
|
|
|
(1.9
|
)
|
Effective income tax rate
|
45.4
|
%
|
|
(28.3
|
)%
|
|
26.7
|
%
|
|
(29.0
|
)%
|
Shares issued at December 31, 2017
|
60,622,986
|
|
Issued as restricted stock award grants
|
1,018,539
|
|
Shares issued at June 30, 2018
|
61,641,525
|
|
•
|
Energy Chemistry Technologies designs, develops, manufactures, packages, and markets specialty chemistries used in oil and natural gas well drilling, cementing, completion, and stimulation. In addition, the Company’s chemistries are used in specialized enhanced and improved oil recovery markets. Activities in this segment also include construction and management of automated material handling facilities and management of loading facilities and blending operations for oilfield services companies.
|
•
|
Consumer and Industrial Chemistry Technologies designs, develops, and manufactures products that are sold to companies in the flavor and fragrance industry and the specialty chemical industry. These technologies are used by beverage and food companies, fragrance companies, and companies providing household and industrial cleaning products.
|
For the three months ended June 30,
|
Energy Chemistry Technologies
|
|
Consumer and Industrial Chemistry Technologies
|
|
Corporate and Other
|
|
Total
|
||||||||
2018
|
|
|
|
|
|
|
|
||||||||
Net revenue from external customers
|
$
|
39,546
|
|
|
$
|
19,540
|
|
|
$
|
—
|
|
|
$
|
59,086
|
|
Income (loss) from operations
|
(37,929
|
)
|
|
640
|
|
|
(9,212
|
)
|
|
(46,501
|
)
|
||||
Depreciation and amortization
|
1,797
|
|
|
682
|
|
|
546
|
|
|
3,025
|
|
||||
Capital expenditures
|
1,167
|
|
|
187
|
|
|
87
|
|
|
1,441
|
|
||||
|
|
|
|
|
|
|
|
||||||||
2017
|
|
|
|
|
|
|
|
||||||||
Net revenue from external customers
|
$
|
65,875
|
|
|
$
|
19,302
|
|
|
$
|
—
|
|
|
$
|
85,177
|
|
Income (loss) from operations
|
9,299
|
|
|
1,216
|
|
|
(11,767
|
)
|
|
(1,252
|
)
|
||||
Depreciation and amortization
|
1,795
|
|
|
583
|
|
|
613
|
|
|
2,991
|
|
||||
Capital expenditures
|
1,956
|
|
|
397
|
|
|
278
|
|
|
2,631
|
|
For the six months ended June 30,
|
Energy Chemistry Technologies
|
|
Consumer and Industrial Chemistry Technologies
|
|
Corporate and Other
|
|
Total
|
||||||||
2018
|
|
|
|
|
|
|
|
||||||||
Net revenue from external customers
|
$
|
80,615
|
|
|
$
|
38,987
|
|
|
$
|
—
|
|
|
$
|
119,602
|
|
Income (loss) from operations
|
(38,095
|
)
|
|
3,078
|
|
|
(18,269
|
)
|
|
(53,286
|
)
|
||||
Depreciation and amortization
|
3,566
|
|
|
1,351
|
|
|
1,110
|
|
|
6,027
|
|
||||
Capital expenditures
|
2,178
|
|
|
596
|
|
|
453
|
|
|
3,227
|
|
||||
|
|
|
|
|
|
|
|
||||||||
2017
|
|
|
|
|
|
|
|
||||||||
Net revenue from external customers
|
$
|
126,640
|
|
|
$
|
38,491
|
|
|
$
|
—
|
|
|
$
|
165,131
|
|
Income (loss) from operations
|
17,848
|
|
|
4,921
|
|
|
(24,643
|
)
|
|
(1,874
|
)
|
||||
Depreciation and amortization
|
3,644
|
|
|
1,162
|
|
|
1,217
|
|
|
6,023
|
|
||||
Capital expenditures
|
2,470
|
|
|
897
|
|
|
1,141
|
|
|
4,508
|
|
|
June 30, 2018
|
|
December 31, 2017
|
||||
Energy Chemistry Technologies
|
$
|
130,673
|
|
|
$
|
172,799
|
|
Consumer and Industrial Chemistry Technologies
|
133,543
|
|
|
116,600
|
|
||
Corporate and Other
|
14,577
|
|
|
35,491
|
|
||
Total segments
|
278,793
|
|
|
324,890
|
|
||
Held for sale
|
2,250
|
|
|
4,998
|
|
||
Total assets
|
$
|
281,043
|
|
|
$
|
329,888
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
U.S.
|
$
|
46,602
|
|
|
$
|
71,836
|
|
|
$
|
92,646
|
|
|
$
|
136,485
|
|
Other countries
|
12,484
|
|
|
13,341
|
|
|
26,956
|
|
|
28,646
|
|
||||
Total
|
$
|
59,086
|
|
|
$
|
85,177
|
|
|
$
|
119,602
|
|
|
$
|
165,131
|
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|||
Customer A
|
*
|
|
|
13.3
|
%
|
|
*
|
|
12.7
|
%
|
Customer B
|
*
|
|
|
10.1
|
%
|
|
*
|
|
*
|
|
Customer C
|
12.2
|
%
|
|
*
|
|
|
*
|
|
*
|
|
•
|
Energy Chemistry Technologies designs, develops, manufactures, packages, and markets specialty chemistries used in O&G well drilling, cementing, completion, and stimulation. These technologies developed by Flotek’s Research and Innovation team enable customers to pursue improved efficiencies in the drilling and completion of wells.
|
•
|
Consumer and Industrial Chemistry Technologies designs, develops, and manufactures products that are sold to companies in the flavor and fragrance industries and specialty chemical industry. These technologies are used by beverage and food companies, fragrance companies, and companies providing household and industrial cleaning products.
|
•
|
Drilling Technologies assembles, rents, sells, inspects, and markets downhole drilling equipment used in energy, mining, and industrial drilling activities.
|
•
|
Production Technologies assembles and markets production-related equipment, including pumping system components, electric submersible pumps (“ESP”), gas separators, valves, and services that support natural gas and oil production activities.
|
•
|
Historical, current, and anticipated future O&G prices,
|
•
|
Federal, state, and local governmental actions that may encourage or discourage drilling activity,
|
•
|
Customers’ strategies relative to capital funds allocations,
|
•
|
Weather conditions, and
|
•
|
Technological changes to drilling and completion methods and economics.
|
•
|
Chemistries that improve the economics of their O&G operations,
|
•
|
Chemistries that meet the need of consumer product markets, and
|
•
|
Chemistries that are economically viable, socially responsible, and ecologically sound.
|
•
|
Historical, current, and anticipated future production levels of the global citrus (primarily orange) and guar crops,
|
•
|
Weather related risks,
|
•
|
Health and condition of citrus trees and guar plants (e.g., disease and pests), and
|
•
|
International competition and pricing pressures resulting from natural and artificial pricing influences.
|
•
|
O&G drilling and completion operations,
|
•
|
O&G production operations, and
|
•
|
Non-O&G industrial solvents.
|
TABLE A
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||||
|
2018
|
|
2017
|
|
% Change
|
|
|
2018
|
|
2017
|
|
% Change
|
|||||
Average North American Active Drilling Rigs
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S.
|
1,039
|
|
|
895
|
|
|
16.1
|
%
|
|
1,003
|
|
|
819
|
|
|
22.5
|
%
|
Canada
|
108
|
|
|
117
|
|
|
(7.7
|
)%
|
|
188
|
|
|
206
|
|
|
(8.7
|
)%
|
Total
|
1,147
|
|
|
1,012
|
|
|
13.3
|
%
|
|
1,191
|
|
|
1,025
|
|
|
16.2
|
%
|
Average U.S. Active Drilling Rigs by Type
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Vertical
|
58
|
|
|
77
|
|
|
(24.7
|
)%
|
|
61
|
|
|
73
|
|
|
(16.4
|
)%
|
Horizontal
|
914
|
|
|
751
|
|
|
21.7
|
%
|
|
874
|
|
|
681
|
|
|
28.3
|
%
|
Directional
|
67
|
|
|
67
|
|
|
—
|
%
|
|
68
|
|
|
65
|
|
|
4.6
|
%
|
Total
|
1,039
|
|
|
895
|
|
|
16.1
|
%
|
|
1,003
|
|
|
819
|
|
|
22.5
|
%
|
Average North American Drilling Rigs by Product
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Oil
|
899
|
|
|
771
|
|
|
16.6
|
%
|
|
929
|
|
|
763
|
|
|
21.8
|
%
|
Natural Gas
|
248
|
|
|
241
|
|
|
2.9
|
%
|
|
262
|
|
|
262
|
|
|
—
|
%
|
Total
|
1,147
|
|
|
1,012
|
|
|
13.3
|
%
|
|
1,191
|
|
|
1,025
|
|
|
16.2
|
%
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue
|
$
|
59,086
|
|
|
$
|
85,177
|
|
|
$
|
119,602
|
|
|
$
|
165,131
|
|
Cost of revenue (excluding depreciation and amortization)
|
46,738
|
|
|
58,574
|
|
|
92,439
|
|
|
110,199
|
|
||||
Cost of revenue (excluding depreciation and amortization) %
|
79.1
|
%
|
|
68.8
|
%
|
|
77.3
|
%
|
|
66.7
|
%
|
||||
Corporate general and administrative
|
8,665
|
|
|
11,155
|
|
|
17,158
|
|
|
23,426
|
|
||||
Corporate general and administrative %
|
14.7
|
%
|
|
13.1
|
%
|
|
14.3
|
%
|
|
14.2
|
%
|
||||
Segment selling and administrative
|
6,872
|
|
|
9,386
|
|
|
13,996
|
|
|
19,695
|
|
||||
Segment selling and administrative %
|
11.6
|
%
|
|
11.0
|
%
|
|
11.7
|
%
|
|
11.9
|
%
|
||||
Depreciation and amortization
|
3,025
|
|
|
2,991
|
|
|
6,027
|
|
|
6,023
|
|
||||
Research and development costs
|
3,102
|
|
|
4,109
|
|
|
6,026
|
|
|
7,250
|
|
||||
Loss on disposal of long-lived assets
|
5
|
|
|
214
|
|
|
62
|
|
|
412
|
|
||||
Impairment of goodwill
|
37,180
|
|
|
—
|
|
|
37,180
|
|
|
—
|
|
||||
Loss from operations
|
(46,501
|
)
|
|
(1,252
|
)
|
|
(53,286
|
)
|
|
(1,874
|
)
|
||||
Operating margin %
|
(78.7
|
)%
|
|
(1.5
|
)%
|
|
(44.6
|
)%
|
|
(1.1
|
)%
|
||||
Loss on write-down of assets held for sale
|
(2,580
|
)
|
|
—
|
|
|
(2,580
|
)
|
|
—
|
|
||||
Interest and other expense, net
|
(2,773
|
)
|
|
(312
|
)
|
|
(3,573
|
)
|
|
(754
|
)
|
||||
Loss before income taxes
|
(51,854
|
)
|
|
(1,564
|
)
|
|
(59,439
|
)
|
|
(2,628
|
)
|
||||
Income tax (expense) benefit
|
(23,537
|
)
|
|
442
|
|
|
(15,885
|
)
|
|
762
|
|
||||
Loss from continuing operations
|
(75,391
|
)
|
|
(1,122
|
)
|
|
(75,324
|
)
|
|
(1,866
|
)
|
||||
Loss from discontinued operations, net of tax
|
—
|
|
|
(2,704
|
)
|
|
—
|
|
|
(13,937
|
)
|
||||
Net loss
|
(75,391
|
)
|
|
(3,826
|
)
|
|
(75,324
|
)
|
|
(15,803
|
)
|
||||
Net loss attributable to noncontrolling interests
|
357
|
|
|
—
|
|
|
357
|
|
|
—
|
|
||||
Net loss attributable to Flotek Industries, Inc. (Flotek)
|
$
|
(75,034
|
)
|
|
$
|
(3,826
|
)
|
|
$
|
(74,967
|
)
|
|
$
|
(15,803
|
)
|
Energy Chemistry Technologies (“ECT”)
|
|
|
|
|
|
|
|
||||||||
(dollars in thousands)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue
|
$
|
39,546
|
|
|
$
|
65,875
|
|
|
$
|
80,615
|
|
|
$
|
126,640
|
|
(Loss) income from operations
|
(37,929
|
)
|
|
9,299
|
|
|
(38,095
|
)
|
|
17,848
|
|
||||
(Loss) income from operations - excluding impairment
|
(749
|
)
|
|
9,299
|
|
|
(915
|
)
|
|
17,848
|
|
||||
Operating margin % - excluding impairment
|
(1.9
|
)%
|
|
14.1
|
%
|
|
(1.1
|
)%
|
|
14.1
|
%
|
Drilling Technologies
|
|
|
|
|
|
|
|
||||||||
(dollars in thousands)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue
|
$
|
—
|
|
|
$
|
4,737
|
|
|
$
|
—
|
|
|
$
|
11,534
|
|
Loss from operations
|
—
|
|
|
(624
|
)
|
|
—
|
|
|
(1,440
|
)
|
||||
Operating margin %
|
—
|
%
|
|
(13.2
|
)%
|
|
—
|
%
|
|
(12.5
|
)%
|
Production Technologies
|
|
|
|
|
|
|
|
||||||||
(dollars in thousands)
|
Three months ended June 30,
|
|
Six months ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Revenue
|
$
|
—
|
|
|
$
|
849
|
|
|
$
|
—
|
|
|
$
|
4,002
|
|
Loss from operations
|
—
|
|
|
(752
|
)
|
|
—
|
|
|
(1,225
|
)
|
||||
Operating margin %
|
—
|
%
|
|
(88.6
|
)%
|
|
—
|
%
|
|
(30.6
|
)%
|
•
|
Revenue and expenses experience industry level growth rates annually beyond 2019;
|
•
|
Margins stay in the lower portion of historical ranges; and
|
•
|
Working capital ratios remain consistent with historical levels.
|
•
|
Declining revenue and margin compression in the first half of 2018.
|
•
|
Mid-year sensitivity analysis decreased 2018 and 2019 expectations.
|
|
June 30, 2018
|
|
June 30, 2017
|
||||
Cash and cash equivalents
|
$
|
3,096
|
|
|
$
|
3,422
|
|
Current portion of long-term debt
|
(49,126
|
)
|
|
(42,716
|
)
|
||
Long-term debt, less current portion
|
—
|
|
|
—
|
|
||
Net debt
|
$
|
(46,030
|
)
|
|
$
|
(39,294
|
)
|
|
Six months ended June 30,
|
||||||
|
2018
|
|
2017
|
||||
Net cash used in operating activities
|
$
|
(19,006
|
)
|
|
$
|
(7,243
|
)
|
Net cash (used in) provided by investing activities
|
(3,352
|
)
|
|
13,045
|
|
||
Net cash provided by (used in) financing activities
|
20,944
|
|
|
(7,223
|
)
|
||
Net cash flows provided by discontinued operations
|
—
|
|
|
—
|
|
||
Effect of changes in exchange rates on cash and cash equivalents
|
(74
|
)
|
|
20
|
|
||
Net decrease in cash and cash equivalents
|
$
|
(1,488
|
)
|
|
$
|
(1,401
|
)
|
|
Payments Due by Period
|
||||||||||||||||||
|
Total
|
|
Less than 1 year
|
|
1 - 3 years
|
|
3 - 5 years
|
|
More than 5 years
|
||||||||||
Borrowings under revolving credit facility
(1)
|
$
|
49,126
|
|
|
$
|
49,126
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Operating lease obligations
|
20,606
|
|
|
2,656
|
|
|
4,359
|
|
|
3,699
|
|
|
9,892
|
|
|||||
Total
|
$
|
69,732
|
|
|
$
|
51,782
|
|
|
$
|
4,359
|
|
|
$
|
3,699
|
|
|
$
|
9,892
|
|
Period
|
Total Number of Shares Purchased
(1)
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
|
Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
(2) (3) (4)
|
||||||
April 1, 2018 to April 30, 2018
|
1,732
|
|
|
$
|
6.06
|
|
|
—
|
|
|
$
|
49,704,947
|
|
May 1, 2018 to May 31, 2018
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
49,704,947
|
|
June 1, 2018 to June 30, 2018
|
3,247
|
|
|
$
|
3.10
|
|
|
—
|
|
|
$
|
49,704,947
|
|
Total
|
4,979
|
|
|
$
|
4.13
|
|
|
—
|
|
|
|
|
(1)
|
The Company purchases shares of its common stock (a) to satisfy tax withholding requirements and payment remittance obligations related to period vesting of restricted shares and exercise of non-qualified stock options, (b) to satisfy payments required for common stock upon the exercise of stock options, and (c) as part of a publicly announced repurchase program on the open market.
|
(2)
|
In November 2012, the Company’s Board of Directors authorized the repurchase of up to
$25 million
of the Company’s common stock. Repurchases may be made in open market or privately negotiated transactions. Through
June 30, 2018
, the Company has repurchased all
$25.0 million
of its common stock under this authorization.
|
(3)
|
In June 2015, the Company’s Board of Directors authorized the repurchase of up to an additional
$50 million
of the Company’s common stock. Repurchases may be made in open market or privately negotiated transactions. Through
June 30, 2018
, the Company has repurchased
$0.3 million
of its common stock under this authorization and
$49.7 million
may yet be used to purchase shares.
|
(4)
|
A covenant under the Company’s Credit Facility limits the amount that may be used to repurchase the Company’s common stock. At
June 30, 2018
, this covenant does not permit additional share repurchases.
|
FLOTEK INDUSTRIES, INC.
|
||
|
|
|
By:
|
|
/s/ JOHN W. CHISHOLM
|
|
|
John W. Chisholm
|
|
|
President, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
|
|
|
|
Date:
|
August 8, 2018
|
FLOTEK INDUSTRIES, INC.
|
||
|
|
|
By:
|
|
/s/ MATTHEW B. MARIETTA
|
|
|
Matthew B. Marietta
|
|
|
Executive Vice President of Finance and Corporate Development
(Principal Financial Officer)
|
|
|
|
Date:
|
August 8, 2018
|
FLOTEK INDUSTRIES, INC.
|
||
|
|
|
By:
|
|
/s/ H. RICHARD WALTON
|
|
|
H. Richard Walton
|
|
|
Chief Accounting Officer
(Principal Accounting Officer)
|
|
|
|
Date:
|
August 8, 2018
|
1 Year Flotek Industries Chart |
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