FLOTEK ANNOUNCES FOURTH QUARTER AND FULL YEAR 2021 RESULTS

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Mar 30, 2022, 21:52 ET

HOUSTON, March 30, 2022 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the fourth quarter and full-year ended December 31, 2021.

"In 2021 we focused on strengthening the fundamentals of our business to emerge as a stronger organization primed for metamorphic opportunities in 2022 and beyond. I am extremely proud of our progress building collaborative partnerships to enhance the energy industry's delivery of responsible energy production through our sustainable chemistry technology and digital analytics solutions. This focus resulted in a long-term contract, subject to shareholder approval, valued at over $2B in revenues over the next decade with a leader in North American hydraulic fracturing services, ProFrac. Our flawless execution culture contributed to our success in achieving a zero total recordable incident rate (TRIR) and zero non-productive time (NPT) for our customers," said John W. Gibson, Jr., Chairman, President, and Chief Executive Officer.

"Flotek now stands as an operationally efficient organization positioned for profitable, long-term growth with a team poised to execute on our mission of delivering solutions that reduce the environmental impact of energy on air, water, land and people."

Fourth Quarter and Full-Year 2021 Financial Results

Fourth Quarter 2021

Consolidated Revenues: Flotek generated fourth quarter 2021 consolidated revenue of $12.2 million, up 20% from $10.2 million in the third quarter, and generally flat compared to $12.1 million in the fourth quarter 2020. The sequential improvement was driven by increased activity with domestic and international energy chemistry customers.
Consolidated Cost of Goods Sold: In 2021, the company changed its presentation of the Consolidated Statement of Operations to better differentiate costs of goods sold from other operational costs. Segment sales, marketing and research and development costs are now included in selling, general and administrative expenses discussed below. Cost of goods sold ("COGS") for the fourth quarter of 2021 was $13.1 million versus $4.0 million for the third quarter 2021 and $23.0 million in the fourth quarter of 2020. The increase in costs between third and fourth quarter 2021 is affected by the net impact of a $7.6 million release of terpene purchase commitment in the third quarter. Year-over-year fourth quarter costs are down as 2020 included a $9.4 million accrual for the terpene purchase commitment.
Selling, General & Administrative Expenses: Selling, general and administrative ("SG&A") expenses for the fourth quarter of 2021 were $5.8 million compared to $4.1 million in the third quarter, and $5.1 million for the fourth quarter of 2020. Fourth quarter 2021 expenses were higher by $0.8 million in costs associated with the restructuring of the sales force supporting chemistry technology as well as certain severance and performance compensation charges. Additionally, third quarter 2021 expenses were benefited by one-time employee retention credits of approximately $0.9 million.
Net Income/Loss: The Company recorded a net loss of $16.2 million in the fourth quarter 2021 and a net income of $0.5 million in the third quarter of 2021 which represents a loss of $0.22 per basic/diluted share and an income of $0.01 per basic/diluted share, respectively. The company recognized a net loss of $17.7 million, or a loss of $0.30 per basic/diluted share in the fourth quarter of 2020. The change in sequential results is primarily impacted by an $8.1 million goodwill impairment charge in the fourth quarter and a $7.6 million release of terpene purchase commitments in third quarter 2021. Year-over-year results reflect the effect of $9.4 million in terpene expense reserve included in 2020 results in conjunction with the current year goodwill impairment.
Adjusted EBITDA: Adjusted EBITDA for the fourth quarter 2021 was a loss of $5.7 million, an 10% improvement from the third quarter 2021 loss of $6.3 million, and a 16% improvement from the fourth quarter 2020 loss of $6.8 million. Chemistry Technology contributed $1.1 million in sequential improvement which was partially offset by losses in the Data Analytics segment and slight increases in R&D spending. Year-over-year results were impacted by chemistry technology earnings and reductions in compensation costs totaling $1.6 million and partially offset by losses in the Data Analytics segment.

FY 2021

For the full-year 2021, Flotek generated revenue of $43.3 million, which is a decrease of 19% from full year 2020 consolidated revenues of $53.1 million. The decrease in revenue is primarily driven by the loss of revenue associated with M&A activity impacting two significant energy chemistry customers as well as a $3.5 million reduction in terpene sales.
Full-year 2021 COGS were $40 million which is a 51% decline from the previous year. The decline includes the net impact of $19 million related to the terpene purchase commitment in 2020 and release of an associated liability of $7.6 million in 2021. 2020 COGS also included $9.6 million in aggregate product rationalization expense. Further, the 2021 COGS reflects a decline in revenue and continued cost savings initiatives primarily in facilities and personnel costs.
Full-year SG&A expenses for 2021 were $20.2 million which is an 11% improvement from the prior year. The year-over-year reduction is primarily attributable to reductions in compensation costs and are partially offset by an increase in non-recurring legal fees related to litigation and investigations.
Net loss improved by $105.9 million, or 78% for the year ended December 31, 2021, versus the same period in 2020. The improvement is primarily a result of reductions of expenses for SG&A, lower research and development, and personnel costs and lower impairment charges for 2021. Previously recorded impairments in 2020 totaled $81.7 million versus the $8.1 million goodwill impairment in 2021.
Full-year 2021 adjusted EBITDA loss was $25.1 million, compared to an adjusted EBITDA loss of $26.2 million for the full-year 2020.

Balance Sheet and Liquidity

As of December 31, 2021, the Company had cash and equivalents of $11.5 million which were impacted by operating losses during the year. Flotek also had $4.8 million in Payroll Protection Program loans outstanding. The Company has applied for forgiveness for its PPP loans and has received an extension of the loan maturity date from April 15, 2022 to April 5, 2025, reducing the current portion of long term debt from $4.8 million to $1.4 million as of December 31, 2021.

Chemistry Technologies Segment

Fourth quarter 2021 sales revenues for Chemistry Technologies were $11.6 million, representing a 23% increase from the third quarter 2021 and a 7% increase from the fourth quarter of 2020. Chemistry Technologies recognized full-year 2021 revenues of $38.9 million which is a 23% decrease in year-over-year activity. The decrease is primarily the result of the loss of revenue associated with two major energy customers during the second quarter of 2021 as a result of market consolidation in the Permian Basin.

Highlights from the quarter include:

Energy Chemistry revenue improved 32% quarter on quarter, outpacing the market and indicating market share growth.
Energy Chemistry revenue generated from domestic accounts grew 34%, while international accounts grew by 24% quarter on quarter, demonstrating the continued emphasis on improving customer concentration and revenue diversification.

Data Analytics Segment

Data Analytics recognized fourth quarter 2021 sales revenue of $0.6 million which is a 27% decrease from the third quarter 2021 and a 53% decline from fourth quarter 2020. In the fourth quarter, the company impaired the remaining $8.1 million in remaining goodwill for the segment.

Highlights include:

Appointed James A. Silas, Ph.D. as interim President of Data Analytics, effective December 09, 2021. Mr. Silas also retains his previous role as Senior Vice President of Research & Innovation.
Developed a new line of Verax analyzers for the international market and obtained the necessary certifications for usage in hazardous locations internationally.
Launched the Advanced Interface Detection Algorithm system, or AIDA, a new patent-pending application that uses advanced machine learning algorithms to enable pipeline operators to cut batches using real time detection of batch interfaces without the need for additional sampling or chemometric modeling.

Conference Call Details

Flotek will host a conference call on Thursday, March 31, 2022, at 9:00 a.m. CST (10:00 a.m. EST) to discuss its fourth quarter results for the three months ended December 31, 2021. Participants may access the call through Flotek's website at www.flotekind.com under "Webcasts'' or by telephone at 1-844-835-9986 approximately five minutes prior to the start of the call. Following the conclusion of the conference call, a recording of the call will be available on the Company's website.

About Flotek Industries, Inc.

Flotek Industries, Inc. creates solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty green chemistry and data company, Flotek helps customers across industrial, commercial, and consumer markets improve their Environmental, Social, and Governance performance. Flotek's Chemistry Technologies segment develops, manufactures, packages, distributes, delivers, and markets high-quality cleaning, disinfecting and sanitizing products for commercial, governmental and personal consumer use. Additionally, Flotek empowers the energy industry to maximize the value of their hydrocarbon streams and improve return on invested capital through its real-time data platforms and green chemistry technologies. Flotek serves downstream, midstream, and upstream customers, both domestic and international. Flotek is a publicly traded company headquartered in Houston, Texas, and its common shares are traded on the New York Stock Exchange under the ticker symbol "FTK." For additional information, please visit 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 will, continue, 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. Further information about the risks and uncertainties that may impact the company are set forth in the Company's most recent filing with the Securities and Exchange Commission on Form 10-K (including, without limitation, in the "Risk Factors" section thereof), 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.

FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	December 31,
	2021	2020
ASSETS
Current assets:
Cash and cash equivalents	$ 11,534	$ 38,660
Restricted cash	1,790	664
Accounts receivable, net of allowance for doubtful accounts of $659 and $1,316 at December 31, 2021 and December 31, 2020, respectively	13,297	11,764
Inventories, net	9,454	11,837
Income taxes receivable	22	403
Other current assets	3,740	3,127
Assets held for sale	2,762	—
Total current assets	42,599	66,455
Property and equipment, net	5,296	9,087
Operating lease right-of-use assets	2,041	2,320
Goodwill	—	8,092
Deferred tax assets, net	279	223
Other long-term assets	29	33
TOTAL ASSETS	$ 50,244	$ 86,210
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 7,616	$ 5,787
Accrued liabilities	8,996	18,275
Income taxes payable	4	21
Interest payable	82	34
Current portion of operating lease liabilities	602	636
Current portion of finance lease liabilities	41	60
Current portion of long-term debt	1,436	4,048
Total current liabilities	18,777	28,861
Deferred revenue, long-term	91	117
Long-term operating lease liabilities	7,779	8,348
Long-term finance lease liabilities	53	96
Long-term debt	3,352	1,617
TOTAL LIABILITIES	30,052	39,039
Commitments and contingencies (See Note 15)
Stockholders' equity:
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding	—	—
Common stock, $0.0001 par value, 140,000,000 shares authorized; 79,483,837 shares issued and 73,461,203 shares outstanding at December 31, 2021; 78,669,414 shares issued and 73,088,494 shares outstanding at December 31, 2020	8	8
Additional paid-in capital	363,417	359,721
Accumulated other comprehensive income (loss)	81	(19)
Accumulated deficit	(309,214)	(278,688)
Treasury stock, at cost; 6,022,634 and 5,580,920 shares at December 31, 2021 and December 31, 2020, respectively	(34,100)	(33,851)
Total stockholders' equity	20,192	47,171
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 50,244	$ 86,210

FLOTEK INDUSTRIES, INC.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)

	Three Months Ended			Twelve Months Ended
	12/31/2021	12/31/2020	9/30/2021	12/31/2021	12/31/2020

Revenue	$ 12,154	$ 12,106	$ 10,179	$ 43,268	$ 53,141
Cost of goods sold	13,131	23,012	4,022	40,012	81,814
Gross profit (loss)	(977)	(10,906)	6,157	3,256	(28,673)
Operating costs and expenses:
Selling, general, and administrative	5,792	5,059	4,092	20,166	22,763
Depreciation and amortization	218	235	233	1,011	3,412
Research and development	1,342	1,540	1,186	5,537	7,213
(Gain) loss on disposal of property and equipment	(39)	(2)	14	(94)	(94)
Impairment of goodwill	8,092	—	—	8,092	11,706
Impairment of property and equipment and intangible assets	—	—	—	—	69,975
Total operating costs and expenses	28,536	29,844	5,525	34,712	114,975
Income (loss) from operations	(16,382)	(17,738)	632	(31,456)	(143,648)
Other income (expense):
Paycheck protection plan loan forgiveness	—	—	—	881	—
Interest expense	(25)	(20)	(18)	(78)	(60)
Other income (expense) , net	149	179	(102)	87	1,079
Total other income (expense), net	124	159	(120)	890	1,019
Income (loss) before income taxes	(16,258)	(17,579)	512	(30,566)	(142,629)
Income tax (expense) benefit	70	(102)	(3)	40	6,179
Net Income (loss)	$ (16,188)	$ (17,681)	509	$ (30,526)	$ (136,450)

Loss per common share:
Basic	$ (0.22)	$ (0.30)	$ 0.01	$ (0.42)	$ (2.00)
Diluted	$ (0.22)	$ (0.30)	$ 0.01	$ (0.42)	$ (2.00)

Weighted average common shares:
Weighted average common shares used in computing basic loss per common share	73,423	59,058	69,324	73,361	68,312
Weighted average common shares used in computing diluted loss per common share	73,423	59,058	70,176	73,361	68,312

FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Years ended December 31,
	2021	2020
Cash flows from operating activities:
Net loss	$ (30,526)	$ (136,450)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of contingent consideration	(808)	2,716
Depreciation and amortization	1,011	3,412
Provision for doubtful accounts, net of recoveries	(127)	652
Inventory purchase commitment provision and settlement	(7,633)	9,402
Provision for excess and obsolete inventory	623	12,261
Impairment of goodwill	8,092	11,706
Impairment of right-of-use assets	—	7,434
Impairment of property and equipment	—	30,178
Impairment of intangible assets	—	32,363
Gain on sale of assets	(94)	(561)
Non-cash lease expense	279	356
Stock compensation expense	3,757	3,044
Deferred income tax benefit	(56)	(187)
Paycheck protection plan loan forgiveness	(881)	—
Changes in current assets and liabilities:
Accounts receivable	(1,406)	3,556
Inventories	1,760	3,955
Income taxes receivable	381	182
Other current assets	(613)	1,026
Other long-term assets	4	(16)
Accounts payable	1,829	(12,323)
Accrued liabilities	(1,463)	(20,662)
Income taxes payable	(17)	84
Interest payable	48	34
Net cash used in operating activities	(25,840)	(47,838)
Cash flows from investing activities:
Capital expenditures	(39)	(1,425)
Proceeds from sale of business	—	9,907
Proceeds from sale of assets	151	109
Purchase of JP3, net of cash acquired	—	(26,284)
Abandonment of patents and other intangible assets	—	(8)
Net cash provided by (used in) investing activities	112	(17,701)
Cash flows from financing activities:
Payment for contingent consideration	—	(1,200)
Proceeds from paycheck protection plan loan	—	4,788
Payments to tax authorities for shares withheld from employees	(390)	(253)
Proceeds from issuance of stock	80	462
Payments for finance leases	(62)	(70)
Net cash (used in) provided by financing activities	(372)	3,727
Effect of changes in exchange rates on cash and cash equivalents	100	(102)
Net change in cash, cash equivalents and restricted cash	(26,000)	(61,914)
Cash and cash equivalents at the beginning of period	38,660	100,575
Restricted cash at the beginning of period	664	663
Cash and cash equivalents and restricted cash at beginning of period	39,324	101,238
Cash and cash equivalents at end of period	11,534	38,660
Restricted cash at the end of period	1,790	664
Cash, cash equivalents and restricted cash at end of period	$ 13,324	$ 39,324

FLOTEK INDUSTRIES, INC.
Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings
(in thousands)

	Three Months Ended			Twelve Months Ended
	12/31/2021	12/31/2020	9/30/2021	12/31/2021	12/31/2020

Net Income (Loss)	$ (16,188)	$ (17,681)	$ 509	$ (30,526)	$ (136,450)
Interest expense	25	20	18	78	60
Interest income	—	(10)	(1)	(9)	(473)
Income tax (benefit) expense	(70)	102	3	(40)	(6,179)
Depreciation and amortization	218	235	233	1,011	3,412
Impairment of goodwill	8,092	—	—	8,092	11,706
Impairment of property and equipment and intangible assets	—	—	—	—	69,975
EBITDA (Non-GAAP)	(7,923)	(17,334)	762	(21,394)	(57,949)
Stock compensation expense	1,090	833	960	3,757	3,045
Severance and retirement	354	334	11	1,344	3,848
Inventory write downs	—	—	—	—	11,858
Terpene purchase commitment	—	9,436	(7,633)	(7,633)	9,436
M&A transaction costs	(107)	(371)	(401)	(565)	3,346
Inventory step-up	21	108	(78)	23	344
(Gain) loss on disposal of assets	(39)	(2)	14	(94)	(94)
Gain on lease termination	—	—	—	—	(576)
PPP loan forgiveness	—	—	—	(881)	—
Employee retention credit	—	—	(927)	(2,851)	—
COVID-19 related costs	—	202	—	—	202
Non-Recurring professional fees	950	2	993	2,996	338
Winter storm (natural disaster)	—	—	—	199	—
Adjusted EBITDA (Non-GAAP)	$ (5,654)	$ (6,792)	$ (6,299)	$ (25,099)	$ (26,202)

(1) Management believes that adjusted EBITDA for the three and twelve months ended December 31, 2021 and December 31, 2020, and the three months ended September 30, 2021, is useful to investors to assess and understand operating performance, especially when comparing those results with previous and subsequent periods. Management views the expenses noted above to be outside of the Company's normal operating results. Management analyses operating results without the impact of the above items as an indicator of performance, to identify underlying trends in the business and cash flow from continuing operations, and to establish operational goals.

SOURCE Flotek Industries, Inc.