Flotek planning additional steps to repair balance sheet, CEO says

By Jennifer Lanning Drey

Portland, Ore., May 24 - Flotek Industries, Inc.'s recent refinancing of its senior credit facility and partial convertible notes exchange were the first steps in the company's efforts to repair its balance sheet and create a more appropriate and durable capital structure, chief executive officer John Chisholm said during the company's first-quarter earnings conference call on Monday.

"The process will continue to involve a series of strategic decisions, the continued diligent review of all aspects of our business and the appropriate use of equity and other capital markets strategies to reduce debt while at the same time, working to maximize value for all of Flotek's stakeholders," Jesse "Jempy" Neyman, Flotek's executive vice president of finance and strategic planning, said during the call.

In the first quarter, Flotek also worked to reopen lines of communication with its financial stakeholders, Chisholm said. The process yielded ideas "from many stakeholders on how to improve the balance sheet," he said.

The CEO encouraged stakeholders to continue such discussions.

Flotek announced on March 31 that it had entered into a new lending agreement with long-term stakeholders Whitebox Advisors and Gates Capital Management for a $40 million term loan. The facility refinanced Flotek's prior facility with Wells Fargo Bank.

Additionally, the company entered into an agreement with Whitebox and Gates to exchange $40 million of their convertible notes for new secured convertible notes.

"This transaction is the first step in what management hopes will be a transformational year for Flotek," Neyman said.

"The steps to delever our balance sheet will not be easy and will be taken with due care and deliberation by management and the company's board of directors," he said.

The new facility provided Flotek with "less burdensome" covenants as it works to stabilize the company and position it for future growth, Chisholm said.

Revenues up from prior quarter

For the first quarter, Flotek posted $28.4 million of revenues, representing an increase from revenues of $24.6 million in the fourth quarter but a decline from $40.7 million in the first quarter of 2009.

The revenue figure was Flotek's best in more than a year, Chisholm noted.

"The first quarter of 2010 showed meaningful signs of improvement from the end of 2009 and provides all of us at Flotek with a belief that we are on a path - albeit one that will require significant effort and additional strategic thinking - to rebuilding what we believe can be a premier specialty oilfield company," he said.

The company posted a net loss attributable to common shareholders of $12.1 million, which Neyman referred to during the call as "unacceptable."

As a result, Flotek's top priority is generating profitable growth, he said.

The company began a strategic review initiative in the first quarter aimed at reducing expenses across the business.

"While positioning the company for growth is important, all growth must be both strategic and profitable," Chisholm said.

Flotek is a Houston-based oil and gas driller.

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