Flotek Industries, Inc. 2014 results

Flotek Industries, Inc. announced results for the three- and twelve-months ended 31 December 2014.

As reported on Form 10-K filed with the U.S. Securities and Exchange Commission, Flotek reported revenue for the year ended 31 December 2014 of US$449.2 million, an increase of US$78.1 million, or 21.0%, compared to the year ended 31 December 2013. The acceleration in revenue was primarily due to increased sales of the Company’s Complex nano-Fluid® suite of completion chemistries as well as strength in downhole technology sales, especially the introduction of the Stemulator® which assists clients with increasing the rate of penetration during horizontal drilling.

Income from Operations for the year ended 31 December 2014 was US$80.9 million, an increase of 37.7%, compared to US$58.7 million in the same period of 2013.

The company recorded an income tax provision of US$25.3 million, yielding an effective tax rate of 32.0% for the year ended 31 December 2014 compared to an income tax provision of US$20.8 million yielding an effective tax rate of 36.5% in the prior corresponding period.

For the year ended 31 December 2014, the company reported net income of US$53.6 million or US$0.97 per share (fully diluted) an increase of US$.30, or 44.8%, compared to net income of US$36.2 million or US$0.67 per share (fully diluted) for the year ended 31 December 2013.

Earnings Before Interest, Taxes, Depreciation and Amortisation, or EBITDA (a non-GAAP measure of financial performance), for the year ended 31 December 2014 was US$98.3 million, an increase of US$24.2 million, or 32.6%, compared to US$74.2 million for the year ended 31 December 2013.

For the year ended 31 December 2014, Flotek’s non-cash share-based compensation expense was approximately US$10.5 million. For the year ended 31 December 2013, non-cash share-based compensation was US$10.9 million.

A presentation of non-cash share based compensation and a reconciliation of GAAP net income to EBITDA can be found at the conclusion of this release.

Consolidated gross margin increased to 40.7% for the year ended 31 December 2014 from 39.8% from the corresponding 2013 period.

“2014 was a special year for Flotek and its shareholders as the Flotek team continued to set new records in nearly every performance metric,” said John Chisholm, Flotek Chairman, President and Chief Executive Officer. “The hard work and dedication of each member of the Flotek team contributed to record revenue and operating income as well as new operating milestones that continue to better position Flotek for the future.”

“The introduction of our FracMax™ analytical software provides Flotek with a unique competitive advantage that has not previously been available in our industry,” added Chisholm. “In fact, based on the over 75 000 wells available in FracMax with at least one-year of production data, we can confidently indicate that Flotek’s CnF® completion chemistries have created over US$8 billion in additional value for our exploration and production clients in the form of increased production when compared to wells not using CnF chemistry.”

“There is little doubt that 2015 will present a plethora of challenges for the Flotek team,” added Chisholm. “However, we enter this period of uncertainty and volatility with unprecedented financial strength and flexibility, a team that understands how to execute in challenging environments, and a stable of differentiating technologies that will assist our clients in enhancing their exploration and production efforts. Together, we believe these tenets place Flotek in a position of relative strength as we navigate these uncharted waters.”

A complete review of the company’s year-end financial position can be found in the company’s annual report filed with the U.S. Securities and Exchange Commission this afternoon.


Fourth Quarter 2014 Results?

For the three months ended 31 December 2014, Flotek posted revenue of US$124.5 million, an increase of US$23.7 million, or 23.5%, compared to US$100.8 million in the same period of 2013. Revenue increased US$7.7 million, or 6.6%, compared to third quarter, 2014.

Income from operations for the three months ended 31 December 2014 was US$23.6 million, an increase of US$6.0 million, or 34.2%, compared to US$17.6 million in the same period of 2013. Income from Operations increased US$2.7 million, or 13.1%, compared to third quarter, 2014.

In the fourth quarter, 2014 Flotek recorded income tax expense of US$6.9 million, compared to US$6.2 million in the fourth quarter of 2013.

On a GAAP basis, Flotek posted Earnings per Share (fully diluted) for the three months ended 31 December 2014 of US$.29, an increase of US$.09, or 45.0%, compared to Earnings per Share (fully diluted) of US$.20 for the three months ended 31 December 2013. Earnings per Share (fully diluted) increased US$.03, or 11.5%, compared to third quarter, 2014.

Earnings Before Interest, Taxes, Depreciation and Amortization, or EBITDA, for the three months ended 31 December 2014 was US$28.1 million, an increase of US$6.1 million, or 28.0%, compared to US$21.9 million for the three months ended 31 December 2013. EBITDA increased US$2.8 million, or 11.2%, compared to third quarter, 2014.

For the quarter ended 31 December 2014, Flotek’s non-cash share-based compensation expense was approximately US$3.0 million. For the quarter ended 31 December 2013, non-cash share-based compensation was US$2.2 million.

Consolidated gross margins for the three months ended 31 December 2014 were 40.9% compared to 39.5% in the same period of 2013 and 39.5% in the third quarter 2014.

“Even as the swoon in energy commodity prices began to impact activity during the quarter, Flotek continued to show solid growth during the last three months of 2014,” added Chisholm. “Notwithstanding moderated activity and the Thanksgiving and Christmas holidays, CnF usage continued to lead our growth as pressure pumping companies and exploration and production concerns continued to better understand the positive impact Flotek’s completion chemistries have on production and ultimate economics of a well. We believe the ability to maximise economics of a well becomes even more important in a lower-price commodity environment which should provide relative benefits to Flotek.”

A summary income statement reflecting fourth quarter results can be found at the conclusion of this release.


Full Year 2014 – Segment Results?

Energy Chemical Technologies revenue of US$268.8 million for the year ended 31 December 2014 increased US$67.8 million, or 33.8%, from year ago levels, primarily due to the increased sales of stimulation chemical additives, largely the result of the introduction of the Company’s proprietary, patent-pending FracMax software which statistically demonstrates the positive production and economic impact of using Flotek’s CnF chemistries in unconventional well completions. FracMax has led to a record number of new validation projects and accelerated commercial acceptance of the Company’s CnF completion chemistries. Segment gross margin for the year ended 31 December 2014 was essentially unchanged at 43.9% from a year ago. Income from operations of US$84.8 million for the year ended 31 December 2014 increased US$19.5 million, or 29.7%, from year ago levels.

Drilling Technologies revenue of US$113.3 million for the year ended 31 December 2014 increased US$0.9 million, or 0.8% from the full year 2013 primarily due to an increase in actuated tool rentals. Gross margin increased to 40.3% compared to 38.4% from year ago levels. This was primarily due to increased material margins on actuated tool rentals as a direct result of decreases in repair cost and direct expense controls initiated during 2014. Income from operations of US$19.0 million for the year ended 31 December 2014 increased US$0.7 million, or 3.9%, from year ago levels.

Revenue for the Production Technologies segment of US$16.0 million for the year ended 31 December 2014 revenue increased by US$1.2 million, or 8.1% from the prior corresponding period as sales of Petrovalves and lifting units rose by US$4.6 million, or 152.9% in 2014. Offsetting those revenue increases was a decrease in equipment sales and related services of US$3.5 million, or 31.1% in coal-bed methane related business. Segment gross margin increased to 40.9% compared to 35.0% for the year ended 31 December 2013, primarily due to the higher margins associated with the international valve sales and improvement in margins on pump equipment. Income from operations of US$3.2 million for the year ended 31 December 2014 increased US$0.2 million, or 6.1%, from year ago levels.

Consumer and Industrial Chemical Technologies revenue of US$51.1 million for the year ended 31 December 2014 increased US$8.2 million or 19.0%, from the prior corresponding period, as the segment was created in the second quarter of 2013 upon the acquisition of Florida Chemical. Segment gross margin increased to 25.2% for the year ended 31 December 2014 compared to 24.8% in 2013. Income from operations of US$6.6 million for the year ended 31 December 2014 increased US$0.3 million, or 4.8%, from year ago levels.


Fourth Quarter 2014 – Segment Results?

Energy Chemical Technologies segment reported revenue of US$75.6 million for the three months ended 31 December 2014. Energy Chemical Technologies revenue for the three months ended 31 December 2014 increased US$18.7 million, or 32.9%, relative to the comparable period of 2013. Segment revenue for the three months ended 31 December 2014 increased US$7.4 million, or 10.9%, compared to third quarter, 2014.

Income from operations for the Energy Chemical Technologies segment of US$24.2 million increased US$4.1 million, or 20.2%, for the three months ended 31 December 2014 compared to the same period of 2013. Income from operations for the segment increased US$4.3 million, or 21.4%, compared to third quarter, 2014.

Drilling Technologies reported revenue of US$31.2 million for the three months ended 31 December 2014, an increase US$5.1 million, or 19.5%, relative to the same period in 2013. Segment revenue for the three months ended 31 December 2014 increased US$1.3 million, or 4.4%, compared to third quarter, 2014.

Drilling Technologies income from operations of US$5.9 million for the three months ended 31 December 2014 increased by US$3.2 million, or 112.8%, as compared to the same period of 2013. Income from operations for the segment increased US$0.4 million, or 7.1%, compared to the third quarter, 2014.

Revenue for the Production Technologies segment of US$5.9 million for the three months ended 31 December 2014 increased by US$3.1 million, or 107.5%, from the same period in 2013. Segment revenue for the three months ended 31 December 2014 increased US$1.0 million, or 19.5%, compared to third quarter, 2014.

Production Technologies income from operations of US$1.3 million increased by US$1.0 million, or 280.7%, for the three months ended 31 December 2014 compared to the same period in 2013. Income from operations for the segment decreased US$0.3 million, or 16.6%, compared to third quarter, 2014.

CICT revenue of US$11.7 million for the three months ended 31 December 2014 decreased US$3.2 million, or 21.5%, compared to the same period in 2013. Segment revenue for the three months ended 31 December 2014 decreased US$2.0 million, or 14.4%, compared to third quarter, 2014.

Income from operations for the CICT segment of US$1.5 million decreased US$0.1 million, or 7.4%, for the three months ended 31 December 2014 compared to the same period of 2013. Income from operations for the segment decreased US$0.3 million, or 15.2%, compared to third quarter, 2014.


Full Year 2014 - Financial Metrics?

Accounts receivable, net of the allowance for doubtful accounts, at 31 December 2014 were US$78.6 million, compared to US$65.0 million 31 December 2013. The company’s allowance for doubtful accounts was 1.1% of accounts receivable at 31 December 2014.

Depreciation and amortisation expense not included in gross margin, for the year ended 31 December 2014 increased by US$2.5 million, or 33.9% from the prior corresponding period. This increase was primarily attributable to the depreciation and amortisation of assets recognised as part of the acquisition of Florida Chemical in the second quarter of 2013 and the acquisition of EOGA in the first quarter of 2014.

Interest expense decreased US$0.5 million for the year ended 31 December 2014 compared to the prior corresponding period.

During the fourth quarter Flotek repurchased 621 726 shares of its common stock at an average price of US$16.74 per share for an aggregate total of approximately US$10.4 million. The repurchase was made pursuant to a US$25 million share repurchase program authorised by the company’s Board of Directors in November, 2012.

“Not only did Flotek post record growth in 2014, it did so while continuing to improve its financial position, especially its balance sheet,” added Chisholm. “We continue to generate significant cash and, even with our meaningful share repurchases in December remain well positioned to prudently allocate capital as opportunities arise. We continue to be disciplined in our approach to reinvesting capital, looking for opportunities that will continue our commitment to strategic investments that stand in support of Flotek’s goals of remaining an energy technology leader as well as adding value for our shareholders. We will continue to consider all opportunities that we believe create durable value across the pricing cycle.”

“The power of Flotek’s cash generation ability is persuasively demonstrated in our recent decision to repurchase Flotek stock,” opined Chisholm. “While we repurchased US$10.4 million of Flotek shares in December we ended the year with a balance on our revolving credit facility of about US$8.5 million, a clear sign that we continued, even as the market began to slow, to generate significant cash from operations.”

Flotek also continued to improve productivity during 2014. Revenue generation per employee increased by approximately 12% compared to year-ago levels and operating income per employee increased by nearly 22%.

“The success of Flotek is a direct result of the people of Flotek and we are fortunate to have assembled one of the most productive teams in our business,” said Chisholm. “While we understand the challenges ahead, I remain optimistic about Flotek’s future as I am confident my colleagues will embrace the challenges – as they have in the past – and find ways to maximise value for all our stakeholders, remaining a top-performing energy technology company at every point in the cycle.”


Project Updates?

The introduction of FracMax, Flotek’s proprietary, patent-pending analytical software, has provided the Company with a dynamic tool to demonstrate the efficacy of the Company’s CnF completion chemistries. As a result of FracMax, the Company has converted approximately 20 exploration companies from validation clients to ongoing commercial users. Currently, the company has an additional 15-20 companies in the process of conducting or planning validations. Data provided by FracMax Analytics indicates that, of the wells cataloged, CnF completion chemistries have been used by 234 unique operators.

“Our FracMax software technology provides conclusive evidence that our Complex nano-Fluid suite of completion chemistries provides compelling economic benefits to production companies,” added Chisholm. “Regardless of the position of the cycle, the economic value of Flotek’s completion chemistries is compelling given the empirical data available through FracMax, now a hallmark of our growth strategy in the coming year and beyond. We are confident as more producers become aware of the economic benefit of CnF chemistries, the value creation impact will accelerate meaningfully.”

Flotek also announced the introduction of FracMax Canada with approximately 10 000 wells. The company’s penetration into Canada continues to accelerate with nearly every Canadian-based pressure pumping company now pumping CnF completion chemistries in a number of projects.

“We believe FracMax, in just its first year, is quickly being recognised as the premier analytical tool in determining optimal completion methods,” added Chisholm. “Our ability to run virtually limitless production comparisons through our FracMax Analytics subsidiary is not only helping our clients better understand the compelling benefit of using CnF chemistry in the completion process but also assisting clients in developing a better understanding of completion best practices through an analysis of data derived from the FracMax database.”

Recently, Flotek announced plans to begin construction of a new 50 000-plus square foot global research and innovation headquarters in Houston. The state-of-the-art facility will bring all of Flotek’s scientists under one roof and provide unprecedented access to the Company’s theoretical and applied research to Flotek’s clients. The facility is expected to be completed early in 2016.

The company continues to work with a major operator in the Bakken to validate the efficacy of the use of CnF in unconventional formation recompletions. Due to weather and mechanical issues, completion of the project is taking longer than initially expected. While early indications suggest Flotek’s chemistry is performing as expected, formal results are now expected later in the first quarter.

Flotek also continues the process of validation of its MicroSolutions chemistry for use with Saudi Aramco. Laboratory work is being completed and the initial well testing is imminent. The company expects to discuss the results of the trial as soon as practical.

Also on the international front, Flotek initiated land preparation on its chemistry blending facility in Oman through Flotek Gulf, LLC, a joint venture with Gulf Energy, an Omani-based integrated oilfield service company. Permitting and construction should begin in the coming weeks.

“We remain very constructive on our international chemistry business,” added Chisholm. “While commodity prices will have an impact on activity around the globe, Middle Eastern markets do not appear to have reacted as severely as domestic markets. Discussions with our partners and, in turn, their customers suggest a plethora of opportunities to grow our business in the coming months.”

In Drilling Technologies, Flotek continues to introduce new technologies in the market to address the needs of more complex horizontal and directional drilling projects. During 2014, Flotek continued to improve its Stemulator offering, the company’s axial vibration technology that improves the rate of penetration in horizontal drilling. The company now has approximately 100 unique tools to be deployed across basins.

In addition, during the fourth quarter, Flotek began commercial testing of TelePulse™, its Measurement While Drilling tool for use in the lateral section of horizontal wells. The company expects TelePulse to be fully commercial in the first-half of 2015. The company’s core Teledrift® MWD technology continues to be the standard-bearer in vertical applications, experiencing meaningful growth – including key international adoptions - throughout 2014.

“We are very pleased with the performance of our Drilling Technologies segment over the past twelve months,” added Chisholm. “Not only did we experience solid margin growth over the year, the fourth quarter provided the highest quarterly gross margins in 2014. While we are cognisant of the challenges ahead, we believe the commercialisation of the Stemulator and TelePulse do provide new added-value technologies that will somewhat offset an expectation of reduced demand for commoditised tools as the rig count moderates. We will be especially vigilant in watching drilling technologies costs during periods of uncertainty and volatility.”

The company’s Production Technologies segment continues its successful retooling which is beginning to yield results. Flotek saw steady growth in rod pump and hydraulic lifting sales during the year as well as international sales of Petrovalve. During the second-half of the year, the Company opened its Denver office which will serve as the headquarters of the Production Technologies segment as well as a service office in Vernal, Utah.

“We believe Production Technologies is well positioned and could provide positive surprises in the coming year,” said Chisholm. “With the market downturn, we will continue to look for strategic opportunities that will provide technological advantages at value prices. Our focus on niche technologies and superior service should provide Flotek with opportunities to grow this business even in the current market environment and emerge as a significant player when the market cycle accelerates.”

“2014 was a transformational year for Flotek, proving that innovative technologies do make a difference in the oil patch and that a focus on detail and strong financial position do serve to create value for our stakeholders,” added Chisholm. “While we know we face significant headwinds and uncertainty in the weeks and months ahead, our balance sheet and portfolio of proprietary, added-value technologies will provide, we believe, remarkable opportunities to add value for our clients and, in turn, our shareholders. We will be vigilant in rationalising expense in this market environment but, at the same time, will be opportunistic in our quest to create value – both intrinsically and, where appropriate, extrinsically – through a focus on the right technologies with the right people in our pursuit to make certain we remain at the forefront of creating positive economic impact for our clients.”


Conference Call Details?

Flotek will host a conference call on Wednesday, January 28, 2015 at 7:30 AM CST to discuss its operating results for the three and twelve months ended 31 December 2014. To participate in the call participants should dial 800-763-5545 approximately 5 minutes prior to the start of the call.


Edited from various sources by Joe Green

Published on 28/01/2015


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