Flotek(FTK) - 2019 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The financial statements reflect the company's financial position as of June 30, 2019, and its performance for the three and six months then ended, highlighting the impact of the CICT segment sale Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (USD) | December 31, 2018 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $97,509 | $3,044 | | Assets held for sale | $0 | $118,470 | | Total Assets | $263,816 | $285,883 | | Liabilities & Equity | | | | Long-term debt, classified as current | $0 | $49,731 | | Total liabilities | $42,140 | $84,259 | | Total stockholders' equity | $221,676 | $201,624 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 (USD) | Three Months Ended June 30, 2018 (USD) | Six Months Ended June 30, 2019 (USD) | Six Months Ended June 30, 2018 (USD) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $34,692 | $39,546 | $77,949 | $80,615 | | Loss from operations | $(13,859) | $(47,140) | $(28,122) | $(56,364) | | Loss from continuing operations | $(12,990) | $(68,987) | $(28,370) | $(78,516) | | Income (loss) from discontinued operations, net of tax | $(1,608) | $(6,404) | $46,764 | $3,192 | | Net income (loss) attributable to Flotek | $(14,598) | $(75,034) | $18,394 | $(74,967) | | Diluted EPS | $(0.25) | $(1.30) | $0.31 | $(1.30) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 (USD) | Six Months Ended June 30, 2018 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(24,510) | $(19,650) | | Net cash provided by (used in) investing activities | $168,868 | $(2,722) | | Net cash (used in) provided by financing activities | $(49,911) | $20,944 | | Net increase (decrease) in cash and cash equivalents | $94,465 | $(1,488) | - The Consumer and Industrial Chemistry Technologies (CICT) segment was classified as held for sale in Q4 2018, with its results presented as discontinued operations, and the sale completed on February 28, 2019[28][44] - The company sold its CICT segment to Archer-Daniels-Midland Company (ADM) for $175.0 million in cash, resulting in a gain on sale of $67.7 million for the six months ended June 30, 2019[44][47] - Following the CICT segment sale, the company repaid its outstanding credit facility balance and terminated the agreement on March 1, 2019[70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 12.3% year-over-year decline in Q2 2019 revenue to a volatile macro-environment, a transition in the sales organization, and client deferrals, while the CICT segment sale provided significant liquidity - Consolidated revenue for Q2 2019 decreased by 12.3% to $34.7 million compared to Q2 2018, primarily due to volatile U.S. onshore activity, sales personnel transition, and client deferrals[123] - Operating expenses as a percentage of revenue increased to 110.4% in Q2 2019 from 89.9% in Q2 2018, driven by higher material costs, lower plant utilization, and a one-time contract termination charge[124] - Corporate general and administrative (CG&A) expenses decreased by 30.1% in Q2 2019 compared to Q2 2018, due to aggressive cost reduction measures, lower consulting fees, and reduced payroll-related costs[125] - The company expects continued volatility in global oilfield activity for the remainder of 2019, with a recent rebuilding of the sales organization potentially impacting revenue in the second half of the year[113][119] - With the proceeds from the CICT segment sale, the company paid off its credit facility and formed a Strategic Capital Committee to evaluate the deployment of remaining net proceeds[144] North American Drilling Rig Activity | Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | % Change | | :--- | :--- | :--- | :--- | | Average U.S. Active Drilling Rigs | 989 | 1,039 | (4.8)% | | Average Canada Active Drilling Rigs | 82 | 108 | (24.1)% | | Total Average North American Rigs | 1,071 | 1,147 | (6.6)% | Item 3. Quantitative and Qualitative Disclosures about Market Risk The company states that there have been no material changes to its exposure to market risks, including interest rates, commodity prices, and foreign currency exchange rates, since its last Annual Report - There have been no material changes to the quantitative or qualitative disclosures about market risk from those set forth in the company's Annual Report[158] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2019, the principal executive and principal financial officers concluded that the company's disclosure controls and procedures were effective[160] - No changes in the company's internal control over financial reporting occurred during the quarter ended June 30, 2019, that have materially affected, or are reasonably likely to materially affect, these controls[161] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is subject to routine litigation incidental to its business but is not aware of any pending or threatened legal proceedings that would have a material effect on its financial condition or results - The company is subject to routine litigation and other claims that arise in the normal course of business, none of which are expected to have a material effect on the company's financial position, results of operations, or liquidity[163] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K and the Quarterly Report for the quarter ended March 31, 2019 - No material changes have been made to the risk factors disclosed in the Company's 2018 Annual Report on Form 10-K and the Q1 2019 Form 10-Q[164] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2019, the company repurchased 3,809 shares at an average price of $3.08 per share to satisfy tax withholding obligations, with $49.7 million remaining under its share repurchase authorization Issuer Purchases of Equity Securities (Q2 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share (USD) | | :--- | :--- | :--- | | April 2019 | 562 | $3.30 | | May 2019 | 0 | $0.00 | | June 2019 | 3,247 | $3.04 | | Total | 3,809 | $3.08 | - As of June 30, 2019, the company had $49.7 million remaining under its authorized share repurchase program, initially approved for $50 million in June 2015[167] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[168] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[169] Item 5. Other Information The company reported no other information for this item - None[170] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and XBRL data files SIGNATURES - The report was duly signed and authorized on August 7, 2019, by John W. Chisholm, President and Chief Executive Officer, and Elizabeth T. Wilkinson, Chief Financial Officer[175][176]