Improving Fundamental Outlook
We hosted a fireside chat with CEO Ryan Ezell on August 23, 2023. The conversation can be accessed on-demand in our full report. Increased scale in Flotek’s Chemistry Technologies segment required to meet obligations under the 10-year ProFrac chemistry supply agreement is driving business gains with other pressure pumping companies. Flotek has analyzed Permian Basin well performance to document production uplift in wells stimulated with its chemistry solutions. The trend among E&P operators to drill longer horizontal wells in certain unconventional plays could increase the frac intensity required to hydraulically fracture wells. Increased intensity could drive incremental demand for Flotek’s completion chemistry solutions. Management believes the next-generation JP3 flow cell sensor for use in its proprietary Verax analyzers represents a manufacturing and operating cost step change that provides significant exposure to new markets. Management is eyeing opportunities in natural gas infrastructure, chain of custody verification, and field gas quality monitoring. Moving forward, the Data Analytics business will be based on a fee-for-service model exposing Flotek to revenue streams from multi-year contracts. Management believes recurring Data Analytics EBITDA could ultimately have positive valuation implications. Efforts to streamline operational performance in the Chemistry Technology segment and lower corporate costs are bearing fruit. On September 14, 2023, Flotek announced that it expected to generate positive adjusted EBITDA for 3Q23. Closure of a new ABL credit facility on August 14, 2023, coupled with shareholder approval of the June 2022 Pre-Funded Warrant on September 5, 2023, has added nearly $20 million of fresh working capital. Enhanced liquidity could help alleviate funding concerns and position Flotek to invest in growth opportunities. A 1-for-6 reverse stock split took effect after market close on September 25, 2023. The split should allow Flotek to regain compliance with the NYSE’s continued listing requirement.Flotek Industries is a global, technology-driven company. The company's operating segment is Energy Chemistry Technologies, which designs, develops, manufactures, packages, distributes, delivers, and markets reservoir-centric fluid systems, including chemistries, for use in oil and gas well drilling, cementing, completion, remediation, and stimulation activities. This segment has a research laboratory and technical services laboratories that focus on design improvements, development and viability testing of new chemistry formulations, and continued improvement of existing products. The company's flagship patented chemistry technologies include Complex nano-Fluid?, Pressure reducing Fluids?, and MicroSolv?.
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