Flotek Industries (FTK) Q4 2013 earnings summary

Executive summary

• FY 2013 revenue rose 18.6% to $371.1M, largely from the Florida Chemical acquisition; excluding the acquisition, revenue grew 2.3%. Net income fell to $36.2M from $49.8M.

• EBITDA grew ~14% in 2013; shares appreciated 65%, versus 28% for the Philadelphia Oilfield Services Index and 23% for the NYSE Composite.

Financial highlights

• Revenue was $371.1M, up $58.2M YoY; Florida Chemical contributed $50.9M from its May 10 acquisition date.

• Operating income was $58.7M, essentially flat YoY; net income was $36.2M versus $49.8M, and diluted EPS was $0.67 versus $0.97.

• Gross margin was $147.5M, up 12.1%; gross margin rate declined to 39.8% from 42.1%, reflecting acquisition mix and higher non-proprietary chemical sales.

• Adjusted for Florida Chemical’s $4.9M incremental SG&A, SG&A increased $6.9M; excluding acquisition costs, severance, ERP and strategic initiative expenses, the increase was $3.4M, or 5.1%.

• Income tax expense was $20.8M at a 36.5% effective rate, versus a $4.3M benefit in 2012, which included a valuation allowance reduction.

Outlook and guidance

• 2014 capital expenditures planned at ~$18M; operating cash flow expected to fund capex and term-loan payments, with excess cash likely directed to debt reduction.

• Energy Chemical capacity expansion and broader Drilling Technologies offerings planned; management anticipated continued demand for CnF chemistries, Teledrift Pro-Series and Stemulator tools.

• 2014 competition for contracts and margins expected to remain intense; product improvements expected to support incremental share gains.

• Consumer and industrial chemical revenue and margins expected to vary with citrus-oil availability, crop conditions and market prices.