Stock: FTK
Rating: Hold
Author: Waleed M. Tariq
Overview
- Flotek helps industrial, commercial, and consumer companies improve ESG performance and goals.
- Future quarterly reports will be integrated instead of segmented. After PIPE, the company changes.
Bullish
- Flotek and ProFrac Holdings signed a transformative deal.
- Flotek secured $19 million in net capital through a PIPE offering in February 2022.
Bearish
- The company’s balance sheet, income statement, and cash flow all weak.
- The stock is worth 6.8 times its falling book value.
- The corporation hasn’t recovered with the market from the pandemic.
PIPE Deal Highlights
- Flotek issued 10% convertible notes due in February 2022 to raise $19 million.
- Overnight, contract growth improved stock price. Flotek expects a $10 billion backlog, including $200 million in 2023.
- FTK gave ProFrac $50 million in 10% convertible notes. ProFrac owns 48% of Flotek after conversion.
- ProFrac must get a minimum supply of 30 fracturing fleets or 70% of its 10-year demands.
Profitability declined
- Pandemic hasn’t helped the company’s market. 2019: $119.4 million; 2020: $53.1 million; 2021: $43.3 million.
- Seeking Alpha’s ranking system gave the company a F for its poor profitability relative to its peers.
Unstable Liquidity
- Non-cash expenses aren’t exciting since the organization needs cash. Despite expansion, the company’s cash burn is unsustainable.
- Q2 cash will rise $50 million. 60% levered FCF margin and consecutive FCF per share raise cash conversion concerns.
Valuation
- FTK’s P/B ratio of 6.8 is far higher than the industry standard of 1.89, which is troubling considering its book value declined from $4 to $0.18 in Q1 2019.
Conclusion
- Due to the transformational deal, which may start providing favorable benefits in early 2023, I am neutral on the stock.