Flotek Industries (FTK) Q4 2009 earnings summary

Executive summary

• 2009 revenue fell 50.2% YoY to $112.6M as weaker oil and gas prices, lower rig counts and pricing pressure hurt all three segments.

• Net loss was $50.2M, or $2.68/share, versus a $34.2M loss in 2008; operating losses occurred in all four 2009 quarters.

• Leadership, cost controls and sales incentives were reset, while a new credit facility and planned debt exchange addressed liquidity and capital structure.

Financial highlights

• Revenue was $112.6M vs. $226.1M in 2008; gross margin was $29.4M, or 26.1% of sales, vs. $90.8M, or 40.1%.

• Operating loss was $33.1M vs. $30.8M in 2008; net loss was $50.2M vs. $34.2M, including $18.5M of goodwill impairment in 2009.

• SG&A declined 20.2% to $36.9M, while interest expense rose to $15.4M from $13.8M; a $18.8M deferred-tax valuation allowance contributed to the tax provision.

• Q4 revenue was $24.6M; revenue increased 3.1% and gross-margin percentage rose 1.0% vs. Q3.

Outlook and guidance

• 2010 plan anticipated gradual improvement, with a challenging H1 and slight recovery in H2; timing and scale remained uncertain.

• Expected modest rig-count growth and continued demand gains in unconventional plays; competitive pricing was expected to persist, especially in drilling products.

• 2010 capital spending budget was $3.4M, down from $7.0M in 2009; an additional $4.1M of capital items could be considered as cash flow improves.

• Planned initiatives included reviewing non-core assets and underperforming lines, managing working capital, pursuing international opportunities and enhancing technology.