Flotek(FTK) - 2023 Q4 - Annual Results

Executive Summary Financial Summary Flotek reported significant profitability improvements in Q4 and FY2023, achieving positive adjusted EBITDA for the first time since 2017, with full-year revenues up 38% year-over-year | Metric (in thousands) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | Total Revenues | $42,188 | $48,217 | $188,058 | $136,092 | | Gross Profit (Loss) | $9,430 | $(2,074) | $24,263 | $(6,700) | | Adjusted Gross Profit (Loss) | $10,661 | $(522) | $28,666 | $(1,884) | | Net Income (Loss) | $2,105 | $(19,026) | $24,713 | $(42,305) | | Adjusted EBITDA | $3,953 | $(5,079) | $1,488 | $(26,169) | Full-Year 2023 Highlights The company achieved substantial financial improvements in 2023, returning to net income and positive adjusted EBITDA, driven by strong revenue growth and operational enhancements - Reported net income of $24.7 million, a $67.0 million year-over-year improvement, compared to a net loss of $42.3 million for 2022[4] YoY Improvement Metrics | Metric (YoY Improvement) | Amount (Millions) | | :----------------------- | :---------------- | | Gross Profit | $31.0 | | Adjusted Gross Profit | $30.6 | | Adjusted EBITDA | $27.7 | - Full year revenue of $188.1 million increased 38% compared to 2022 revenue of $136.1 million; Chemistry revenue from external customers increased 21%, and data analytics segment (JP3) revenues grew 47% to $8.1 million[4] - Strengthened liquidity through an up to $13.8 million Asset Based Loan ("ABL") and solidified the senior leadership team with the appointment of Dr. Ryan Ezell as CEO[4] Management Commentary CEO highlighted 2023 as a transformative year, restoring profitability, strengthening leadership, and enhancing liquidity, with anticipated significant growth in Data Analytics and sustained chemistry revenues for 2024 - 2023 was a transformative year, restoring profitability and delivering significant improvement in all key financial metrics, strengthening the leadership team, and enhancing liquidity[5] - The next generation of the JP3 Verax Near InfraRed measurement system is expected to scale the Data Analytics segment more quickly and deliver associated revenue growth of greater than 50% in 2024[6] - Anticipates sustained growth in reservoir centric and international chemistry revenues through global footprint expansion[6] Financial Performance Overview Fourth Quarter and Full-Year 2023 Financial Results Flotek demonstrated strong financial recovery in 2023, achieving substantial improvements in gross profit, net income, and adjusted EBITDA, despite a Q4 revenue decline Revenue | Metric | Q4 2023 | Q4 2022 | Change (YoY) | FY 2023 | FY 2022 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Total Revenues | $42.2M | $48.2M | -13% | $188.1M | $136.1M | +38% | | External Chemistry Revenue | N/A | N/A | +28% (Q4) | N/A | N/A | +21% (FY) | - Q4 2023 revenue decline was primarily due to lower North American land completion activity, partially offset by a 28% increase in chemistry revenues from external customers[9] Gross Profit (Loss) | Metric | Q4 2023 | Q4 2022 | Change (YoY) | FY 2023 | FY 2022 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Gross Profit (Loss) | $9.4M | $(2.1)M | Improvement | $24.3M | $(6.7)M | Improvement | - Improvement in gross profit was driven by successful initiatives to reduce costs related to freight, logistics, and materials, alongside increased chemistry revenues from external customers and minimum purchase requirements from the ProFrac supply agreement[8][9] Adjusted Gross Profit (Non-GAAP) | Metric | Q4 2023 | Q4 2022 | Change (YoY) | FY 2023 | FY 2022 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Adjusted Gross Profit (Loss) | $10.7M | $(0.5)M | Improvement | $28.7M | $(1.9)M | Improvement | - Adjusted gross profit excludes non-cash items, primarily amortization of contract assets[9] Selling, General and Administrative ("SG&A") Expense | Metric | Q4 2023 | Q4 2022 | Change (YoY) | FY 2023 | FY 2022 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | SG&A Expense | $6.6M | $6.2M | +$0.4M | $27.9M | $27.1M | +$0.8M | - SG&A during Q4 2022 included a $1.9 million credit related to the reversal of a bonus accrual[10] Net Income (Loss) and EPS | Metric | Q4 2023 | Q4 2022 | Change (YoY) | FY 2023 | FY 2022 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Net Income (Loss) | $2.1M | $(19.0)M | Improvement | $24.7M | $(42.3)M | Improvement | | Diluted EPS | $0.07 | $(1.51) | Improvement | $(0.10) | $(3.41) | Improvement | - Net income (loss) for Q4 2022 and full-year 2023 and 2022 included non-cash gains (losses) on the fair value measurement of convertible notes payable totaling ($8.9) million, $30.0 million, and $0.1 million, respectively[14] Adjusted EBITDA (Non-GAAP) | Metric | Q4 2023 | Q4 2022 | Change (YoY) | FY 2023 | FY 2022 | Change (YoY) | | :----- | :------ | :------ | :----------- | :------ | :------ | :----------- | | Adjusted EBITDA | $4.0M | $(5.1)M | Improvement | $1.5M | $(26.2)M | Improvement | - Full-year 2023 marked the first year of positive adjusted EBITDA since 2017[4] Operational Highlights & Strategic Initiatives Data Analytics Update Flotek is advancing its Data Analytics business with the next-generation JP3 Verax Near InfraRed measurement system, aiming for mid-2024 deployment, designed for scalability and reduced manufacturing costs - Next-generation JP3 Verax Near InfraRed measurement system is undergoing extensive field-trial testing, with customer deployment expected by mid-2024[11] - Engineering advances in the new JP3 analyzer will facilitate scale, accelerated production, and reduced manufacturing costs, allowing access to new markets[11] - Plans for 2024 include maintaining JP3's strong presence in the midstream market and accelerating penetration into the upstream market, including applications for production allocations and a flare monitoring pilot program for EPA compliance[12] Balance Sheet and Liquidity As of March 11, 2024, Flotek maintained a $5.3 million cash position and significantly reduced ABL borrowings compared to year-end 2023 Balance Sheet and Liquidity | Metric | March 11, 2024 | December 31, 2023 | | :----- | :------------- | :---------------- | | Cash and cash equivalents | $5.3 million | N/A | | ABL Borrowings Outstanding | $0.5 million | $7.5 million | Financial Statements Unaudited Condensed Consolidated Balance Sheets The unaudited condensed consolidated balance sheets detail Flotek's financial position at December 31, 2023, compared to 2022, showing changes in assets, liabilities, and equity Unaudited Condensed Consolidated Balance Sheets | ASSETS (in thousands) | December 31, 2023 | December 31, 2022 | | :-------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $5,851 | $12,290 | | Accounts receivable, net | $13,687 | $19,136 | | Accounts receivable, related party | $34,569 | $22,683 | | Total current assets | $76,447 | $80,074 | | Total Assets | $157,513 | $164,810 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | December 31, 2023 | December 31, 2022 | | :-------------------------------------------------- | :---------------- | :---------------- | | Accounts payable | $31,705 | $33,375 | | Asset-based loan | $7,492 | — | | Convertible notes payable | — | $19,799 | | Contract Consideration Convertible Notes Payable | — | $83,570 | | Total current liabilities | $47,782 | $151,371 | | Total Liabilities | $55,553 | $162,214 | | Total Stockholders' Equity | $101,960 | $2,596 | Unaudited Condensed Consolidated Statements of Operations The unaudited condensed consolidated statements of operations detail Flotek's revenues, costs, and expenses, leading to net income (loss) and EPS for Q4 and FY2023 versus prior year Unaudited Condensed Consolidated Statements of Operations | Metric (in thousands, except per share data) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :------------------------------------------- | :------ | :------ | :------ | :------ | | Revenue from external customers | $19,239 | $15,940 | $66,518 | $54,344 | | Revenue from related party | $22,949 | $32,277 | $121,540 | $81,748 | | Total revenues | $42,188 | $48,217 | $188,058 | $136,092 | | Cost of goods sold | $32,758 | $50,291 | $163,795 | $142,792 | | Gross profit (loss) | $9,430 | $(2,074) | $24,263 | $(6,700) | | Selling, general, and administrative | $6,570 | $6,166 | $27,873 | $27,124 | | Income (loss) from operations | $2,420 | $(16,896) | $23,223 | $(35,421) | | Net income (loss) | $2,105 | $(19,026) | $24,713 | $(42,305) | | Basic EPS | $0.07 | $(1.51) | $1.00 | $(3.41) | | Diluted EPS | $0.07 | $(1.51) | $(0.10) | $(3.41) | Unaudited Condensed Consolidated Statements of Cash Flows The unaudited condensed consolidated statements of cash flows present cash generated from or used in operating, investing, and financing activities for FY2023 and 2022 Unaudited Condensed Consolidated Statements of Cash Flows | Cash Flows (in thousands) | FY 2023 | FY 2022 | | :------------------------ | :------ | :------ | | Net cash used in operating activities | $(11,297) | $(44,632) | | Net cash (used in) provided by investing activities | $(1,014) | $5,331 | | Net cash provided by financing activities | $5,928 | $38,267 | | Net change in cash and cash equivalents and restricted cash | $(6,437) | $(934) | | Cash and cash equivalents and restricted cash at end of period | $5,953 | $12,390 | Non-GAAP Reconciliations Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings This section reconciles GAAP to non-GAAP measures like Adjusted Gross Profit, EBITDA, and Adjusted EBITDA, used by management to assess operating performance Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings | Metric (in thousands) | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :-------------------- | :------ | :------ | :------ | :------ | | Gross profit (loss) | $9,430 | $(2,074) | $24,263 | $(6,700) | | Adjusted Gross profit (loss) (Non-GAAP) | $10,661 | $(522) | $28,666 | $(1,884) | | Net income (loss) | $2,105 | $(19,026) | $24,713 | $(42,305) | | EBITDA (Non-GAAP) | $2,680 | $(16,504) | $28,453 | $(34,542) | | Adjusted EBITDA (Non-GAAP) | $3,953 | $(5,079) | $1,488 | $(26,169) | - Management believes adjusted gross profit, EBITDA, and adjusted EBITDA are useful for investors to understand operating performance and underlying business trends, excluding non-cash or non-recurring items[33] Company Information & Outlook 2024 Guidance Flotek plans to release its 2024 guidance with the first quarter 2024 financial and operating results - 2024 guidance will be issued with the release of first quarter 2024 financial and operating results[15] Upcoming Investor Event Flotek will participate in the 36th Annual Roth Conference in March 2024, with CEO and CFO hosting discussions and investor meetings - Flotek will participate in the 36th Annual Roth Conference from March 17-19, 2024, with CEO Ryan Ezell participating in an industry panel and both CEO and CFO Bond Clement hosting one-on-one meetings[16] Conference Call Details Flotek hosted a conference call on March 13, 2024, to discuss Q4 and FY2023 results, with presentation materials available online - A conference call was held on March 13, 2024, to discuss Q4 and full-year 2023 results, with a recording and updated corporate presentation available on the company's website[17][18] About Flotek Industries, Inc. Flotek Industries, Inc. is an advanced technology-driven company specializing in green chemical and data analytics solutions for the energy sector, focusing on sustainability and well performance - Flotek is an advanced technology-driven, green chemical and data analytics company providing unique completion solutions that positively impact sustainability and reduce environmental impact[19] - Holds an intellectual property portfolio of over 170 patents and operates globally in more than 59 countries[19] - Focuses on collaborative partnerships for sustainable and optimized chemistry and data solutions to improve well performance and customer returns on invested capital[19] Forward-Looking Statements This section contains standard forward-looking statements, cautioning that actual results may differ due to risks and uncertainties, with no obligation to update - Statements in the press release are forward-looking and inherently subject to risks and uncertainties, meaning actual results may differ materially from those discussed[21][22] - Readers are urged not to place undue reliance on these statements, and the company undertakes no obligation to revise or update them[22] Investor Contact Investor contact information is provided, with Bond Clement, Chief Financial Officer, as the primary contact - Investor contact: Bond Clement, Chief Financial Officer, E: ir@flotekind.com, P: (713) 726-5322[23]