Flotek(US:FTK)2022-03-30 16:00Financial Performance - Total revenues for the year ended December 31, 2021, decreased by $9.9 million, or 18.6%, to $43.3 million compared to $53.1 million in 2020[164]. - Cost of goods sold for the year ended December 31, 2021, decreased by $41.8 million, or 51.1%, to $40.0 million compared to $81.8 million in 2020[165]. - Gross profit for the year ended December 31, 2021, was $3.3 million, representing a gross profit margin of 7.5%, compared to a gross loss of $28.7 million and a margin of -54.0% in 2020[164]. - Selling, general and administrative expenses for the year ended December 31, 2021, decreased by $2.6 million, or 11.4%, to $20.2 million compared to $22.8 million in 2020[166]. - Research and development costs for the year ended December 31, 2021, decreased by $1.7 million, or 23.2%, to $5.5 million compared to $7.2 million in 2020[168]. - Loss from operations improved by $112.2 million, or 78.1%, for the year ended December 31, 2021, resulting in a loss of $31.5 million compared to a loss of $143.6 million in 2020[169]. - Consolidated net loss for the year ended December 31, 2021, was $30.6 million, significantly improved from a loss of $136.5 million in 2020[183]. Revenue Backlog and Agreements - The ProFrac Agreement is expected to generate a revenue backlog of at least $1 billion, potentially increasing to $2.1 billion over the next ten years[25]. - The Company anticipates a backlog of $225 million from the ProFrac Agreement over the next three years[37]. - The Company entered into a long-term supply agreement with ProFrac Services, LLC, which obligates ProFrac to order chemicals from the Company, with a minimum purchase obligation based on their hydraulic fracturing fleets[178]. Research and Development - Research and development expenses were $5.5 million in 2021, representing approximately 12.8% of consolidated revenue[32]. - The Company expects to continue its investment in research and development to support new product development aligned with ESG standards[32]. - The Company’s R&I segment supports the development of ESG solutions through green chemistry and new technology projects[152]. Environmental and Safety Commitment - Flotek's mission is to reduce the environmental impact of energy, focusing on sustainable chemistry technology and digital analytics solutions[44]. - The Company focuses on green, sustainable chemistry solutions that displace harmful chemicals, resulting in lower carbon emissions and resource usage[45]. - The Company achieved a Total Recordable Incident Rate (TRIR) of 0.0 in 2021, indicating a strong safety performance compared to the chemical manufacturing sector[49][50]. Supply Chain and Operational Risks - The DA segment sources spectrometers from a single supplier, which may impact results due to supply chain disruptions[41]. - The Company anticipates supply chain challenges to continue into 2022, impacting shipping costs and availability of raw materials[160]. - The Company faces risks related to the loss of key suppliers and the inability to secure raw materials, which could significantly impact customer service and result in a loss of customers[75]. - The Company’s DA segment relies on specialty components for its Verax measurement system, and sourcing difficulties could hinder the supply of equipment and services[78]. Market and Economic Conditions - Demand for the Company's products is highly sensitive to oil and natural gas prices, with potential declines in capital spending from upstream, downstream, and midstream sectors impacting revenue[106]. - Global credit market conditions can affect the availability of financing for customers, potentially leading to reduced spending on drilling programs and lower demand for the Company's products[107]. - The Company is exposed to risks related to customer spending in the oil and gas industry, which could be affected by economic conditions and regulatory changes[61]. Competition and Market Position - The Company operates in a competitive environment with low barriers to entry, which may require price adjustments to maintain market share[68]. - The Company faces competition from both small and large firms, which may lead to lower sales or increased operating costs[109]. - The Company emphasizes the importance of developing and introducing new products to remain competitive in the specialty chemistry market[67]. Financial Position and Capital Management - As of December 31, 2021, the Company had available cash and cash equivalents of $11.5 million, down from $38.7 million at December 31, 2020[177]. - The Company reported a net cash used in operating activities of $25.8 million for the year ended December 31, 2021, a decrease from $47.8 million in 2020[181]. - Access to capital is dependent on operating cash flows, monetization of non-core assets, and availability of debt and equity financing[216]. - The Company has a history of losses and negative cash flows from operations, expecting to use a significant amount of cash in the year following December 31, 2021[216]. Stock and Shareholder Information - The Company does not plan to pay dividends on its common stock, meaning investors will rely on stock appreciation for returns[120]. - Future issuance of additional shares could dilute ownership interests and negatively impact the Company's stock price[122]. - The Company has authorized 100,000 preferred shares, with none currently outstanding, which may rank senior to common stock in terms of dividends and liquidation[124]. - The Company repurchased a total of 36,810 shares of its common stock during the three months ended December 31, 2021, at an average price of $0.73 per share[142]. Regulatory and Compliance Issues - The Company maintains registrations with the EPA and FDA for certain products, and failure to maintain these could adversely affect its ability to market and sell products[73]. - The Company’s operations are subject to complex environmental regulations, which could result in substantial compliance costs and liabilities[94]. - Changes in laws regarding hydraulic fracturing could negatively impact the Company's revenue, particularly in its CT segment[96]. Audit and Financial Reporting - The Company’s financial statements for the year ended December 31, 2021, were audited and presented fairly in accordance with U.S. GAAP[211]. - The audit included assessing risks of material misstatement and evaluating accounting principles used by management[214]. - The audit identified critical matters that required complex judgments but did not alter the overall opinion on the financial statements[215].