A Look at Flotek Industries’ Debt Position in 2Q17
Flotek Industries’ debt
In 2Q17, Flotek Industries’ (FTK) total debt fell ~34% compared to 2Q16. Cash and marketable securities fell 11% during the same period. In effect, net debt fell 36% from 2Q16 to 2Q17. Net debt is short-term and long-term debt minus cash and marketable securities.
Despite the fall in net debt, FTK’s indebtedness (net-debt-to-EBITDA ratio) shot up in the past two quarters as a result of the sharp decline in its adjusted trailing-12-month (or TTM) EBITDA. FTK’s net debt to EBITDA was 15.5x in 2Q17 compared to 2.9x in 2Q16. Net debt to EBITDA reflects FTK’s ability to repay its debts from its operating income and available cash.
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Why FTK’s debt fell in 2Q17
On May 24, 2017, Flotek Industries sold its Drilling Technologies and Production Technologies segments. National Oilwell Varco (NOV) acquired the Drilling Technologies segment for $17 million. The Production Technologies segment was sold to an acquirer for $2.9 million. The proceeds from the transactions were used to reduce FTK’s long-term debt. These transactions have effectively put FTK in a debt-neutral position. Although FTK’s recent working capital demands exceeded its internal projections as a result of higher input costs, the company met higher working capital demands from current debt.
Net debt for FTK’s peers
Schlumberger’s (SLB) net debt by the end of 2Q17 was $12.6 billion, while Superior Energy Services’ (SPN) net debt was $1.1 billion. McDermott International’s (MDR) net debt was $147 million by the end of 2Q17. Read more on SLB in Market Realist’s Why Schlumberger’s 2Q17 Earnings Beat Estimates. FTK makes up 0.05% of the iShares Core S&P Small-Cap ETF (IJR). Year-to-date, IJR has risen 1% compared to a 35% fall in FTK’s stock price during the period.
Next, we will discuss Flotek Industries’ free cash flows.