UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-13270
FLOTEK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
90-0023731
(State of other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5775 N. Sam Houston Parkway W., Suite 400, Houston, TX
77086
(Address of principal executive offices)
(Zip Code)
(713) 849-9911
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.0001 par value
FTK
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark:
• if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
• if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
• whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒
Smaller reporting company ☒ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error
to previously issued financial statements .☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to o § 240.10D-1(b). .☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, June 28, 2024 (based on
the closing market price on the New York Stock Exchange on June 28, 2024) was approximately $68.8 million. At March 10, 2025, there were 29,827,989 outstanding shares of the registrant’s common
stock, $0.0001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s definitive proxy statement in connection with the 2025 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A are incorporated by
reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Forward-Looking Statements
3
PART I
4
Item 1.
Business
4
Item 1A.
Risk Factors
9
Item 1B.
Unresolved Staff Comments
21
Item 1C.
Cybersecurity
21
Item 2.
Properties
21
Item 3.
Legal Proceedings
22
Item 4.
Mine Safety Disclosures
22
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
22
Item 6.
[Reserved]
22
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 8.
Financial Statements and Supplementary Data
30
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
63
Item 9A.
Controls and Procedures
64
Item 9B.
Other Information
65
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
65
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
66
Item 11.
Executive Compensation
66
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
66
Item 13.
Certain Relationships and Related Transactions, and Director Independence
66
Item 14.
Principal Accountant Fees and Services
66
PART IV
Item 15.
Exhibits and Financial Statement Schedules
67
Item 16.
Form 10-K Summary
69
SIGNATURES
70
2
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”), and in particular, Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” contains “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933,
as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are
not historical facts, but instead represent the current assumptions and beliefs regarding future events of Flotek Industries, Inc. (“Flotek” or the “Company”), many
of which, by their nature, are inherently uncertain and outside the Company’s control. Such statements include estimates, projections, and statements related to the
Company’s business plan, objectives, expected operating results, and assumptions upon which those statements are based. The forward-looking statements
contained in this Annual Report are based on information available as of the date of this Annual Report.
The forward-looking statements relate to future industry trends and economic conditions, forecast performance or results of current and future initiatives and the
outcome of contingencies and other uncertainties that may have a significant impact on the Company’s business, future operating results and liquidity. These
forward-looking statements generally are identified by words including, but not limited to, “anticipate,” “believe,” “estimate,” “commit,” “budget,” “aim,”
“potential,” “schedule,” “continue,” “intend,” “expect,” “plan,” “forecast,” “target,” “think,” “likely,” “project” and similar expressions, or future-tense or
conditional constructions such as “will,” “may,” “should,” “could” and “would,” or the negative thereof or other variations thereon or comparable terminology.
The Company cautions that these statements are merely predictions and are not to be considered guarantees of future performance. Forward-looking statements
may also include statements regarding the anticipated performance under long-term supply agreements or amendments thereto and the potential value thereof or
potential revenue or liquidated damages thereafter. Forward-looking statements are based upon current expectations and assumptions that are subject to risks and
uncertainties that can cause actual results to differ materially from those projected, anticipated or implied.
A detailed discussion of potential risks and uncertainties that could cause actual results and events to differ materially from forward-looking statements include,
but are not limited to, those discussed in Part I, Item 1A — “Risk Factors” of this Annual Report and in subsequent reports filed with the Securities and Exchange
Commission (“SEC”). The Company has no obligation, and it disclaims any obligation, to publicly update or revise any forward-looking statements, whether as a
result of new information or future events, except as required by law.
3
PART I
Item 1. Business
General
Flotek creates unique solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty chemistry and data
company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company seeks to provide sustainable
and optimized chemistry and data technology solutions for both domestic and international energy markets.
The Company’s Chemistry Technologies (“CT”) segment designs, develops, manufactures, packages and distributes specialty chemicals that help customers
improve their return on invested capital, lower operational costs and realize tangible environmental benefits aimed at enhancing the profitability of hydrocarbon
producers.
The Company’s Data Analytics (“DA”) segment provides innovative analytical measurement solutions. The DA segment seeks to deliver real-time information
and insights to our customers to enable optimization of operations and reduction of emissions and their carbon intensity.
The Company was initially incorporated under the laws of the Province of British Columbia in 1985. In October 2001, the Company changed its corporate
domicile to the State of Delaware. In December 2007, the Company’s common stock began trading on the New York Stock Exchange (“NYSE”) under the stock
ticker symbol “FTK.”
As used herein, “Flotek,” the “Company,” “we,” “our” and “us” refers to Flotek Industries, Inc. and/or the Company’s wholly-owned subsidiaries. The use of
these terms is not intended to connote any particular corporate status or relationship.
Recent Developments
In August 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an asset-based loan (the “ABL”). In connection
with the second amendment to the ABL effective August 5, 2024, the maturity date was extended to August 2026, the credit availability was increased and the
interest rate spread was reduced.
During the second quarter of 2024, the Environmental Protection Agency (“EPA”) designated the Company’s near-infrared spectrometer measurement system as
an approved measurement technology with respect to recently enacted flare monitoring regulations. The Company believes this approval could provide new
opportunities to grow the DA segment as the Company’s customers evaluate compliance options with respect to the new regulations.
Description of Operations and Segments
The Company’s operations have two business segments, CT and DA, which are both supported by the Company’s Research & Innovation (“R&I”) advanced
laboratory capabilities. Financial information about the Company’s operating segments and geographic concentration is provided in Note 18, “Business Segment,
Geographic and Major Customer and Supplier Information” in Part II, Item 8 – “Financial Statements and Supplementary Data” of this Annual Report.
Chemistry Technologies
The Company’s CT segment provides sustainable, optimized chemistry solutions that we believe maximize our customers’ value by improving return on invested
capital, lowering operational costs and providing tangible environmental benefits. The Company’s proprietary green chemistries, specialty chemistries, logistics,
and technology services enable its customers to pursue improved efficiencies and performance throughout the life cycle of their desired chemical applications
program. The Company designs, develops, manufactures, packages, distributes and markets optimized chemistry solutions that are designed to accelerate existing
sustainability practices to reduce the environmental impact of energy on the air, water, land and people.
Customers of the CT segment include those of energy related markets, such as our related party ProFrac Services, LLC, with whom we have a long-term supply
agreement, as well as industrial companies. Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and
state-owned oil companies, geothermal energy companies, solar energy companies and advanced alternative energy companies may benefit from our best-in-class
technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices.
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ProFrac Supply Agreement
On February 2, 2022, the Company entered into a Chemical Products Supply Agreement with ProFrac Services, LLC, which was subsequently amended on May
17, 2022 and February 1, 2023 (collectively, the “ProFrac Agreement”). The ProFrac Agreement contains minimum requirements for chemistry purchases. If the
minimum volume purchases are not achieved within the applicable measurement period, ProFrac Services, LLC is required to pay to the Company, as liquidated
damages, an amount equal to twenty-five percent (25%) of the difference between (i) the aggregate purchase price of the quantity of products comprising the
minimum purchase obligation and (ii) the actual purchased volume during the measurement period (“Contract Shortfall Fees”). The ProFrac Agreement provides
that payment of Contract Shortfall Fees is to be made within 30 days after the applicable measurement period. The minimum purchase requirements were not met
during the 2023 measurement period of June 1, 2023 through December 31, 2023, and as a result, the Company collected $20.1 million of Contract Shortfall Fees.
The minimum purchase requirements were not met during the 2024 measurement period of January 1, 2024 through December 31, 2024, and as a result, the
Company recorded revenue related to Contract Shortfall Fees of $32.4 million.
Data Analytics
The DA segment delivers real-time information and insights to our customers to enable optimization of operations and reduction of emissions and their carbon
intensity. Real-time composition and physical property measurements are delivered simultaneously on refined fuels, natural gas liquids (NGLs), natural gas, crude
oil, and condensates using the industry’s only field-deployable, in-line optical near-infrared spectrometer that generates no emissions. The instrument's response is
processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver these valuable insights every fifteen seconds.
We believe customers using this technology have obtained significant benefits, including additional profits, by enhancing operations in crude/condensates
stabilization, enhancing blending operations, reducing time impacting transmix operations, increasing efficiencies and optimization of gas plants, allowing for the
use of significantly lower cost field gas instead of diesel to generate power, lowering emissions and protecting equipment, and ensuring product quality while
reducing giveaways, i.e., providing higher value products at the lower value products prices. More efficient operations have the benefit of reducing carbon
footprint, e.g., less flaring and reduction in energy expenditure for compression and re-processing. Our customers in North America include oil and gas
supermajors, some of the largest midstream oil and gas companies, large gas processing plants and independent exploration and production companies. We have
developed a line of Verax™ analyzers for deployment internationally which was certified for compliance in hazardous locations and harsh weather conditions.
Research & Innovation
R&I supports both our business segments through green chemistry formulation, specialty chemical formulations and EPA regulatory guidance, technical support,
basin and reservoir studies, data analytics and new technology projects. The purpose of R&I is to supply the Company’s business segments with enhanced
products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and
industry trends. The R&I facilities support advances in CT and DA segment performance, optimization and manufacturing. For the years ended December 31,
2024 and 2023, the Company incurred $1.7 million and $2.5 million, respectively, of research and development expense. The Company expects that its 2025
research and development investments will continue to support new product development, especially in support of enhanced environmental demands and
customization initiatives for its clients.
Seasonality
Overall, operations generally are not significantly affected by seasonality; however, weather conditions can cause delays in clients’ activity levels. Certain
working capital components build and recede throughout the year in conjunction with established purchasing and selling cycles that can impact operating results
and financial position. The sale of the Company’s products and performance of the Company’s services can be susceptible to both weather and naturally occurring
phenomena, including, but not limited to, the following:
•
the severity and duration of winter temperatures in North America, which impacts natural gas storage levels, drilling activity, commodity prices and
operations at the Company’s facilities;
•
material deviations from normal seasonality for an extended period, which can impact access to operations, reduce performance at manufacturing facilities,
restrict our ability to deploy required personnel, cause supply chain interruptions, cause facility damage and impact customer activity levels;
•
tropical storms and hurricanes, affecting coastal and offshore operations, flash floods, blizzards, extreme cold weather and other severe weather conditions,
which can impact access to operations, reduce performance at manufacturing facilities, restrict our ability to deploy required personnel, cause supply chain
interruptions, cause facility damage and impact customer activity levels; and
5
•
pandemics or similar phenomena, which may impact seasonal purchasing and selling cycles.
Product Demand and Marketing
Demand for the Company’s energy-focused products and services in both the CT and DA segments is driven by energy supply and demand, as well as operator
desire to improve profitability and returns. Demand for the CT segment’s and, to a lesser extent, the DA segment’s products and services is dependent on levels of
conventional and unconventional oil and natural gas well drilling and completion activity, both domestically and internationally. Demand for the Company’s DA
segment products and services is also impacted by applicable regulatory requirements.
The Company markets its products to end user customers using both direct and indirect sales channels. These sales channels are accessed using a mix of in-house
sales professionals as well as certain contractual agency agreements. The Company also actively participates in industry trade shows, both live and virtual,
publishes articles in industry publications, and participates in podcasts and creates other online content to educate the market on its product and service offerings.
While the Company’s primary marketing efforts remain focused in North America, resources and efforts are also deployed on emerging international markets,
especially in the Middle East and Latin America.
Product revenues include significant sales to related parties as described in Note 17, “Related Party Transactions” in Part II, Item 8 - “Financial Statements and
Supplementary Data” of this Annual Report.
Facilities and Offices
See Part I, Item 2 - “Properties,” for information regarding our manufacturing, warehouse and research facilities and sales offices.
Intellectual Property
The Company endeavors to protect its intellectual property, both within and outside of the U.S. The Company considers patent protection for all products and
methods deemed to have commercial significance and that may qualify for patent protection. The decision to pursue patent protection is dependent upon several
factors, including whether patent protection can be obtained, cost effectiveness, and alignment with operational and commercial interests. The Company believes
its patent and trademark portfolio, combined with confidentiality agreements, EPA registrations and licensing, trade secrets, proprietary designs, and
manufacturing and operational expertise, are sufficient to protect its intellectual property and provide continued strategic advantage. As of December 31, 2024, the
Company had 138 granted patents, including 114 patents in our CT segment and 24 patents in our DA segment. In addition, the Company also had 4 pending
patent applications filed in the U.S. and abroad, including 1 for the CT segment and 3 for the DA segment. The patents of the CT segment cover various chemical
compositions and methods of use. The patents of the DA segment cover various systems and methods of use for online determination of chemical composition and
data analysis. We believe the duration of our patents is adequate relative to the expected lives of our products. In addition, the Company had 41 registered
trademarks in the U.S. and abroad, covering a variety of its goods and services.
Competition
Our ability to compete is dependent upon our ability to differentiate our products and services by providing superior quality and service, and maintaining a
competitive cost structure with sufficient and reliable access to raw material supplies. Activity levels in the oilfield goods and services industry are impacted by
current and expected oil and natural gas prices, oil and natural gas drilling activity, production levels, customer drilling and completion-designated capital
spending, the regulatory environment and customer commitment to improved environmental performance. The unpredictability of the energy industry and
commodity price fluctuations create both increased risk and opportunity for the products and services of both the Company and its competitors. The DA segment
faces competition from other providers of equipment and services for real-time information in the upstream, midstream, refining and distribution market. The CT
segment faces competition from traditional competitors and from wholesalers who are selling directly to customers.
Raw Materials
Materials and components used in the Company’s servicing and manufacturing operations, as well as those purchased for sale, are generally available on the open
market from multiple sources. When able, the Company uses multiple suppliers, both domestically and internationally, to purchase raw materials on the open
market. The prices paid for raw materials vary based on availability, weather, other commodity price fluctuations, contractual obligations, tariffs, duties on
imported materials, foreign currency exchange rates, business cycle position and global demand. Higher prices for chemistries and certain raw materials could
adversely impact future sales, contract fulfillment and product margins. The Company is diligent in its efforts to identify alternate suppliers in its contingency
planning utilizing competitive bidding practices to proactively reduce costs and potential supply shortages. The Company has worked to broaden the technical
specifications of some products to help ensure that
6
required molecules can be sourced from more than one supplier. The Company has identified multiple supply sources with respect to certain materials used in the
DA segment in order to mitigate the potential supply chain risk.
Government Regulations
The Company is subject to federal, state, and local laws and regulations, including laws related to the environment, occupational safety, health, transportation and
trade within the U.S. and other countries in which the Company does business. These laws and regulations strictly govern the manufacture, storage, transportation,
sale, use and disposal of chemistry products. The Company strives to ensure full compliance with all regulatory requirements.
The Company continually evaluates the environmental impact of its operations and attempts to identify potential liabilities and costs of any environmental
remediation, litigation or associated claims. Several products of the CT segment are considered hazardous materials. In the event of a leak or spill in association
with Company operations, the Company could be exposed to risk of material cost, net of insurance proceeds, if any, to remediate any contamination. To the
Company’s knowledge, no environmental claims are currently being litigated or investigated with respect to the Company.
Sustainability
Flotek’s vision is to create solutions to reduce the environmental impact of energy on air, water, land and people. Our mission is to be the collaborative partner of
choice for sustainable chemistry technology and digital analytics solutions. We believe that targeted specialty chemistry and digital transformation reduce the total
cost of ownership and environmental risk of our customers and can transform business by reducing carbon footprints, energy consumption, emissions and overall
environmental impact.
We have green, sustainable chemistry at our core, and we focus on providing responsible specialty chemistry solutions that are environmentally friendly and cost-
competitive. Our products offered by our CT segment displace harmful chemicals such as benzene, toluene, ethylbenzene and xylenes (BTEX) in energy
production, and our logistics and delivery methodology results in lower product usage and lower carbon emissions due to delivery. The analyzers produced by our
DA segment are a closed-loop system, meaning that samples of potentially harmful gasses and fluids do not need to be routinely taken and flared, as is the case
with gas chromatographs. This results in lower emissions. In addition, our analyzers’ ability to determine the mixing of two batches of product (“transmix”) in
real-time results in less time, energy and resources spent processing the transmix. Finally, our analyzers, when used to monitor field gas for well-site power
generation, allow customers to significantly reduce the use of higher emission and more expensive diesel.
Human Capital
Employee Overview
As of December 31, 2024, the Company had approximately 142 employees, exclusive of existing worldwide agency relationships. None of the Company’s
employees are covered by a collective bargaining agreement and labor relations are generally good.
Employees & Health, Safety & Environment
The Company is committed to acting with care to protect the health and safety of people, resources and the environment. Each employee is responsible for
working towards the Company’s health, safety and environment (“HSE”) goals, as they are not isolated to certain individuals or roles. We aim to hold each other
accountable to a high standard. Thus, every employee is empowered and expected to stop any activity that could jeopardize people, the environment or assets.
Our safety, health and environmental goals are designed to sustain our drive to zero incidents. As a result, safety is woven into the fabric of the Company, from
our robust training programs, to our safety moments that begin team meetings, to our Hazardous Observation Card program. Our training program is fundamental
to operating safely and protecting people and the environment. The Company maintains a robust health, safety and environmental training program that includes
both classroom and online curriculum. We assign specific trainings to employees based on their role and function within the Company. Additionally, the
Company’s field and plant personnel complete more than 24 hours of training annually. We continuously monitor all operational activities and update training
programs as needed to ensure the curriculum remains relevant and effective for minimizing risk and protecting our employees and the environment.
We have a strong commitment to safety in all aspects of our operations through training, safety culture, and tracking of key safety metrics. For the year ended
December 31, 2024, the Company achieved a total recordable incident rate (“TRIR”) of 0.50. TRIR is a key safety performance metric that calculates the number
of recordable incidents per full-time workers during a one-year period. Generally a score of less than 1.0 is considered an indication of safe operations.
7
Compensation: Wages & Benefits
The Company’s compensation programs are designed to provide employee wages that we believe are competitive and consistent with employee positions, skill
levels, experience, knowledge and geographic location. We align our programs to attract, retain and motivate employees to achieve high-impact results that create
value for all of our stakeholders. In addition to competitive base wages, all employees are eligible for an annual cash performance bonus, which is based upon
both individual performance and certain annual Company financial performance metrics, subject to the Company’s liquidity position and approval by the
Company’s Compensation Committee of the Board of Directors.
Benefits are a key component of our compensation program. We engage an outside benefits consulting firm to independently evaluate the effectiveness and
competitiveness of our employee benefits program, as well as to tailor our program to the unique needs of the Company’s employee base.
All full-time employees are eligible for comprehensive health insurance, including medical insurance, prescription drug benefits, dental insurance and vision
insurance. Additionally, the Company offers flexible spending and health savings accounts, life and disability/accident coverage, telemedicine, critical illness
insurance and paid leave. Eligible employees may elect to participate in the Company’s employee stock purchase plan and retirement plans, including its 401(k)
plan in the U.S. The Company currently matches U.S. employees’ 401(k) contributions at 100% of up to 2% of an employee’s compensation. The Company also
offers access to online and personalized financial planning services as a component of its retirement plan benefit.
The Company continues to prioritize mental health and wellness for employees, maintaining an ongoing dialogue with employees and providing resources through
its employee assistance program, which is available to all employees and their families.
Outlook
Our business is subject to numerous variables that impact our outlook and expectations given the shifting conditions of the oil and gas industry. We have based our
outlook on the market conditions we perceive today. The oil and gas industry is highly cyclical.
Energy Industry
The demand for oil and gas and related services fluctuates due to numerous factors including weather and macroeconomic and geopolitical conditions. Despite the
near-term volatility in commodity pricing, leading to the softening in onshore completion activity, the fundamentals for energy-related services remain fairly
stable. Independent exploration and production companies operate the majority of U.S. land rigs and react quickly to changing commodity prices. In the current
commodity price environment, we generally expect these companies, as well as major exploration and production companies, to maintain current activity levels
over the next 12 months.
Chemistry Technologies
The CT segment is actively advancing integrated solutions to enhance capital efficiency for exploration and production (“E&P”) operators and service companies.
Our approach combines technical leadership, exceptional service quality, reliable delivery, and a strong safety record. We believe that we have optimized service
delivery across key North American basins and are well-positioned to adapt to fluctuations in activity levels. Based upon our strong results during the fourth
quarter of 2024, and customer commitments in early 2025, we anticipate steady demand for our chemistry during 2025.
We believe the expected rise in natural gas demand in the second half of 2025 is likely to drive activity in the Haynesville shale basin, and we expect our
established presence, expertise and capabilities to drive growth in this area.
Internationally, we are seeing an increase in unconventional activity in the Middle East and Argentina, where we expect demand for our chemistry to grow
throughout 2025.
We remain focused on driving innovation between the CT and DA segments, promoting opportunities in upstream applications designed to deliver enhanced
efficiencies for E&P operators and service companies. We believe that these initiatives will lead to deeper integration between our CT and DA segments, creating
a pathway for future growth.
Digital Analytics
The use of data and digital analytics is a growing trend in all industries where technology is leveraged to analyze large datasets of operational information to
improve performance, as well as for predictive maintenance, advanced safety measures and reduced environmental impact of operations. We believe Verax™
analyzers have gained a foothold in North American markets for critical applications where compositional information is needed in real-time. The technology
delivers insight on valuable operations data like vapor pressure, boiling point, flash point, octane level, API (American Petroleum Institute) gravity,
8
viscosity, BTU (British Thermal Unit) and more, simultaneously. We continue to collaborate with our customers to identify further facilities and applications
where our technology has the highest value. To drive recurring revenue, we continue to build on the modular nature of our sensor and analysis packages with new
data processing techniques that enhance the value of our installations. Automated Interface Detection Algorithm (“AIDA”) provides real-time detection of
interfaces in a liquids pipeline without the need for additional sampling or chemometric modeling. The application can identify products such as refined fuels,
crude and NGLs with its advanced machine learning algorithms and detect interfaces real-time versus traditional lab analysis. We believe this allows customers to
cut batches quickly and accurately, reduce transmix and minimize off-spec product that requires downgrades. We are also gaining traction leveraging the Verax™
in applications where operators and service companies are using field gas as a substitute for diesel in dual fuel engines as the market moves to Tier 4 equipment
and eFleets. Analyzing this in real-time allows companies to maximize the field gas for diesel substitution rate providing significant cost savings while lowering
emissions, reducing fuel consumption/costs, and protecting the equipment from damage.
During the second quarter of 2024, the EPA designated the Company’s near-infrared spectrometer measurement system as an approved measurement technology
with respect to recently enacted flare monitoring regulations. The optical measurement system, designed for precise measurement of net heating values in flare
gases, was the first to be approved as an alternative method under the New Source Performance Standards OOOOb regulations. The Company believes that this
approval will facilitate opportunities to provide flare monitoring services, which could become a source of future growth.
Supply Chain
The principal supply issues facing our industry for the next twelve months will include:
•
Fluctuating freight costs for shipping to our customers;
•
Availability of raw materials;
•
Labor shortages;
•
Demand forecasting; and
•
Unknown impact of tariffs.
All bidding will require the risk of shipping costs and delays to be factored into proposals. Trucking availability and pricing will impact North American
opportunities while security of delivery for sea-freight could impact sales of North American manufactured goods being delivered internationally for the
foreseeable future. The overall flow of materials globally could experience price increases. Military conflicts in the Middle East could also result in supply
disruption.
Available Information and Website
The Company’s website is www.flotekind.com. Annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on the Company’s website, as soon as reasonably
practicable, subsequent to electronically filing or otherwise providing such material to the SEC. Corporate governance materials, including but not limited to, our
Corporate Governance Guidelines, our Board of Directors committee charters, our Bylaws, certain policies, and the Company’s Code of Conduct are also
available on the Company’s website. A copy of corporate governance materials is also available upon written request to the Company. Information contained in
the Company’s website is not to be considered as part of any regulatory filing.
The Company filed, or furnished, as applicable, all principal executive officer and financial officer certifications as required under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 with this Annual Report. Information with respect to the Company’s executive officers and directors is incorporated herein by
reference to information to be included in the definitive proxy statement for the Company’s 2025 Annual Meeting of Stockholders.
The Company has disclosed and will continue to disclose any changes or amendments to the Company’s Code of Conduct as well as waivers to the Code of
Conduct applicable to executive management by posting such changes or waivers on the Company’s website or in filings with the SEC.
Item 1A. Risk Factors
The Company’s business, financial condition, results of operations, cash flows, liquidity and prospects are subject to various risks and uncertainties. Readers of
this Annual Report should not consider any descriptions of these risk factors to be a complete set of all potential risks that could affect the Company. These factors
should be carefully considered together with the other information contained in this Annual Report and the other reports and materials filed by the Company with
the SEC. Further, many of these risks are interrelated and, as a result, the occurrence of certain risks could trigger and/or exacerbate other risks. Such a
combination could materially increase the severity of the impact of these risks on the Company’s business, results of operations, financial condition, cash flows,
liquidity or prospects.
9
This Annual Report contains “forward-looking statements,” as defined in Section 27A of the Securities Act and Section 21E of the Exchange Act that involve
risks and uncertainties. Forward-looking statements discuss Company prospects, expected revenue, expenses and profits, strategic and operational initiatives, and
other activities. Forward-looking statements also contain suppositions regarding future oil and natural gas industry and other conditions, both domestically and
internationally. The Company’s results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including
risks described below and elsewhere. See “Forward-Looking Statements” at the beginning of this Annual Report.
Risks Related to the Company’s Business
The Company’s business is largely dependent upon its customers’ spending in the oil and gas industry. Spending could be adversely affected by industry
conditions; new or increased governmental regulations; changes to existing governmental regulations; global economic conditions; the availability of credit;
and oil and natural gas prices.
Demand for and prices of the Company’s products are subject to a variety of factors, including, but not limited to:
•
global demand for energy as a result of population growth, economic development, and general economic and business conditions;
•
political and economic uncertainty, and sociopolitical unrest including the current military conflicts in Ukraine and Middle East and ongoing sanctions
imposed on Russia;
•
the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to influence production levels and the impact of non-OPEC producers on
global supply;
•
availability and quantity of natural gas storage;
•
import and export volumes and pricing of liquefied natural gas;
•
domestic and international refining activity;
•
rising demand for electricity in the U.S. and technological improvements to competing sources of power generation, including wind, solar and hydrogen;
•
pipeline capacity to critical markets and out of producing regions;
•
cost of exploration, production and transport of oil and natural gas;
•
sustained market adoption of green chemistry solutions;
•
technological advances impacting energy production and consumption;
•
new or increased governmental regulation or changes to existing governmental regulations;
•
expectations for inflation and the resulting impact on interest rates;
•
the imposition of tariffs or trade sanctions;
•
weather conditions; and
•
foreign exchange rates.
Volatile commodity prices could adversely impact the activity levels of the Company’s customers.
Demand for the Company’s goods and services may be adversely impacted if volatile economic conditions weaken customer expenditures. It is difficult to predict
the pace of industry growth, the direction of oil and natural gas prices, the direction and magnitude of economic activity, the demand for chemistry and data
analytics products, and to what extent these conditions could affect the Company. However, reduced cash flow and capital availability could adversely impact the
financial condition of the Company’s customers, which could result in customer project modifications, delays or cancellations, general business disruptions, and
delay in, or nonpayment of, amounts that are owed to the Company. This could cause a negative impact on the Company’s results of operations and cash flows.
The Company’s reliance on the ProFrac Agreement could adversely impact our financial condition, results of operations and cash flows.
The ProFrac Agreement is a major source of the Company’s liquidity and we expect it to remain so over the term of the contract. Revenues attributable to the
ProFrac Agreement represented 62% and 65% of our total revenues during 2024 and 2023, respectively. If the Company became unable to execute the
requirements of the agreement financially and operationally, from procuring inventory to meet the needs of ProFrac Services, LLC under the ProFrac Agreement
to executing timely billing and collection, the Company’s liquidity could be adversely impacted. Further, our relationship with ProFrac Services, LLC may impact
their competitors’ willingness to purchase products from the Company or to seek price concessions from the Company.
10
We are also dependent on ProFrac Services, LLC’s compliance in meeting their committed activity levels and paying for our products, including any Contract
Shortfall Fees, on a timely basis, in accordance with the terms of the ProFrac Agreement. Our financial condition, results of operations and cash flows may be
adversely impacted if ProFrac Services, LLC’s financial condition or its spending level under the ProFrac Agreement is negatively impacted and it is unable to
pay its outstanding obligations to the Company, including those payments related to Contract Shortfall Fees. As of December 31, 2024, amounts due to the
Company from ProFrac Services, LLC totaled $52.4 million, including $32.4 million related to 2024 Contract Shortfall Fees.
ProFrac Services, LLC has the right to terminate the ProFrac Agreement by providing written notice to the Company after the occurrence of any of the following
events: (i) the Company’s bankruptcy; (ii) the Company’s failure to produce and deliver the products in accordance with the specifications, or failure to timely
deliver products, and the Company has been unable to cure such failure within a commercially reasonable period determined by ProFrac Services, LLC; (iii) the
Company fails to meet pricing requirements set forth in the ProFrac Agreement; or (iv) the Company is affected by a force majeure event, and such force majeure
event has not been remedied within 30 days of the initial occurrence of such event. ProFrac Services, LLC also has the right to terminate the ProFrac Agreement
for any other material breach of the ProFrac Agreement by the Company if the breach is capable of being cured, but is not cured within 30 days after written
notice. Termination of the ProFrac Agreement would have a material adverse impact on the Company’s financial condition, results of operations and cash flows.
In addition, ProFrac Services, LLC has customary rights to audit our compliance with the terms of the ProFrac Agreement. Any adverse findings during such an
audit could have an adverse impact on the Company’s financial condition, results of operations and cash flows.
The Company’s inability to develop and/or introduce new products or differentiate existing products could have an adverse effect on its ability to be responsive
to customers’ needs and could result in a loss of customers, as well as adversely affecting the Company’s future success and profitability.
The industries in which the Company does business are characterized by technological advancements that have historically resulted in, and will likely continue to
result in, substantial improvements in the scope and quality of specialty chemistries and data analytical services. Consequently, the Company’s future success is
dependent, in part, upon the Company’s continued ability to timely develop innovative products and services. Successful introduction of new technology requires
time and resources, and there is no assurance that the Company will be able to commercialize new technology in a timely manner. If the Company fails to
successfully develop and introduce innovative products and services at price points that appeal to customers, or if existing or new market competitors develop
superior products and services, the Company’s revenue and profitability could deteriorate.
The Company’s business, financial condition, operating results and ability to grow and compete may be affected adversely if adequate capital is not available.
While we believe that our cash, liquid assets, and availability under the ABL will provide us with sufficient financial resources to fund operations to meet our
capital requirements and anticipated obligations as they become due, uncertainty surrounding the long-term stability and strength of the oil and gas markets, and
the resulting potential impact on our customers’ ability to pay their obligations to us in a timely manner, could have a negative impact on our liquidity. The
availability of capital is dependent on the Company’s operating cash flow, which is currently expected to be principally derived from the ProFrac Agreement. The
Company may need additional financing sources, including commercial borrowings and issuances of debt and/or equity securities. The Company’s ability to
procure debt financing, is dependent on, among other things, the willingness of banks and other financial institutions to lend into the Company’s industry and on
their evaluation of the Company’s credit risk. There is no guarantee that the Company will be able to procure additional debt financing or, in the event that it is
able to procure additional debt financing, that the financing will be on favorable terms and conditions or at favorable rates of interest. The Company’s ability to
access the capital markets, is dependent on, among other things, the willingness of investors to purchase new debt and/or equity issuances from the Company.
There is no guarantee that the Company will be able to procure additional capital markets financing or, in the event that is it is able to do so, that the capital raises
will be on favorable terms or conditions to the Company. If the Company cannot access capital on acceptable terms, the Company’s business, financial condition
and operating results may be adversely affected. Further, the ability of the Company to grow and be competitive in the marketplace may be adversely impacted as
the Company may not be able to finance strategic growth plans, take advantage of business opportunities or respond to competitive pressures.
Increased competition could exert downward pressure on prices charged for the Company’s products and services.
The Company operates in a competitive environment populated by large and small competitors and with relatively low barriers to entry. Absent an applicable
restrictive covenant, employees of the Company may leave and compete directly with the Company. Competitors with greater resources and lower cost structures
or who are trying to gain market share may be successful in providing competing products and services to the Company’s customers at lower prices than the
Company
11
currently charges. This may require the Company to lower its prices, resulting in an adverse impact on revenues, margins, and operating results. Thus, competition
could have a detrimental impact on the Company’s business.
If the Company is unable to adequately protect intellectual property rights or is found to infringe upon the intellectual property rights of others, or is unable to
maintain the registrations and certifications of its products and facilities, the Company’s business is likely to be adversely affected.
The Company relies on a combination of patents, trademarks, copyrights, trade secrets, non-disclosure agreements and other methods to access markets and create
a competitive advantage. Although the Company believes that existing measures are reasonably adequate to protect intellectual property rights, there is no
assurance that the measures taken will prevent misappropriation of proprietary information or dissuade others from independent development of similar products
or services. Moreover, there is no assurance that the Company will be able to prevent competitors from copying, reverse engineering, modifying or otherwise
obtaining, infringing and/or using the Company’s technology, intellectual property or proprietary rights to create competitive products or services. The Company
may not be able to enforce intellectual property rights outside of the U.S. Additionally, the laws of certain countries in which the Company’s products and services
are manufactured or marketed may not protect the Company’s proprietary rights to the same extent as do the laws of the U.S. In each case, the Company’s ability
to compete could be significantly impaired.
A portion of the Company’s products and services are without patent protection. The issuance of a patent does not guarantee validity or enforceability. Third
parties may have blocking patents that could be used to prevent the Company from marketing the Company’s own patented products and services and utilizing the
Company’s patented technology.
The Company is exposed and, in the future, may be exposed to allegations of patent and other intellectual property infringement from others. The Company may
allege infringement of its patents and other intellectual property rights against others. Under either scenario, the Company could become involved in costly
litigation or other legal proceedings regarding its patent or other intellectual property rights, from both an enforcement and defensive standpoint. Even if the
Company chooses to enforce its patent or other intellectual property rights against a third party, there may be risk that the Company’s patent or other intellectual
property rights become invalidated or otherwise unenforceable through legal proceedings. These could result in the Company having to discontinue the use,
manufacture and sale of certain products and services, increases in the cost of selling certain products and services, or damage to the Company’s reputation. An
award of damages, including material royalty payments, or the entry of an injunction order against the use, manufacture and sale of any of the Company’s
products and services found to be infringing, could have an adverse effect on the Company’s results of operations and ability to compete.
Certain of the Company’s products and facilities have been qualified or registered with the EPA. The failure of the Company to maintain such EPA qualifications
or registrations could result in the inability of the Company to market or sell its products. In the event that the Company cannot maintain its qualifications,
registrations or licenses or is unable to procure new qualifications, licenses or registrations for new products or in response to changes to regulatory requirements,
the ability of the Company to sell its products and obtain revenue may be adversely affected.
The loss of key customers could have an adverse impact on the Company’s results of operations and could result in a decline in the Company’s revenue.
Revenue derived from the Company’s three largest customers as a percentage of consolidated revenue for the years ended December 31, 2024 and 2023, totaled
75% and 73%, respectively. The Company has seen customer concentration risk increase substantially due to its entry into the ProFrac Agreement. Unlike the
ProFrac Agreement, our other large customer relationships are typically governed by purchase orders or other short-term contractual obligations as opposed to
long-term contracts. Losses of customers also may occur due to product, service or pricing issues, as well as industry consolidation. The Company competes in a
highly competitive environment and must work diligently to create and maintain productive customer relationships, and the failure to maintain those relationships
could result in the loss of one or more key customers. The loss of one or more key customers could have an adverse effect on the Company’s results of operations
and could result in a decline in the Company’s revenue.
Loss of key suppliers, the inability to secure raw materials on a timely basis, or the Company’s inability to pass commodity price increases on to its customers
could have a material adverse effect on the Company’s ability to service its customers’ needs and could result in a significant loss of customers.
Raw materials used in servicing and manufacturing operations, as well as those purchased for sale, are generally available on the open market from multiple
sources. Acquisition costs and transportation of raw materials to the Company’s facilities have historically been impacted by extreme weather conditions.
Additionally, prices paid for raw materials could be affected by energy products and other commodity prices; weather and disease associated with our crop
dependent raw materials; tariffs and duties on imported materials; evolving geopolitical risks; foreign currency exchange rates; and phases of the general business
cycle and global demand.
12
The prices of key raw materials are subject to market fluctuations, which at times can be significant and unpredictable. Availability of key raw materials, weather
events, natural disasters, and health epidemics in countries from which the Company sources raw materials may significantly impact prices. During a period of
scarcity of supply the Company may also be negatively impacted by prioritization decisions enacted by its suppliers.
Furthermore, if key suppliers were to experience significant cash flow constraints or become insolvent, a reduction or interruption in supplies or a significant
increase in the price of supplies could occur, adversely impacting the Company’s results of operations and cash flows.
The Company may be unable to pass along price increases to its customers, which could result in a materially adverse impact on margins and operating profits.
The Company currently does not hedge commodity prices, but may consider such strategies in the future, and there is no guarantee that the Company’s purchasing
strategies will prevent cost increases from resulting in materially adverse impacts on margins and operating profits.
The Company’s DA segment is dependent on its ability to source appropriate technical components for its Verax™ measurement system, certain of which are
specialty products that are sole-sourced and are not easily replaceable with other sources. Any inability to source appropriate components in the future could result
in significant difficulty supplying equipment or services to the Company’s customers.
The new Trump Administration may make substantial changes to fiscal, tax, and international trade policies that may adversely affect our business, financial
condition, and results of operations.
The Trump administration has called for substantial change to various fiscal, tax, and international trade policies. We cannot predict the impact, if any, of these
changes to our business, financial condition and results of operations. However, it is possible that these changes could adversely affect our business. It is likely
that some policies adopted by the new administration will benefit us and others will negatively affect us. Until we know what changes are enacted, we will not
know whether in total we benefit from, or are negatively affected by, the changes.
Failure to collect for goods and services sold to key customers could have an adverse effect on the Company’s financial results, liquidity and cash flows.
The Company performs credit analysis on potential customers; however, credit analysis does not provide full assurance that customers will be willing and/or able
to pay for goods and services purchased from the Company. Furthermore, collectability of international sales can be subject to the laws of foreign countries, which
may provide less protection to the Company in the event of a dispute over payment. Because sales to domestic and international customers are generally made on
an unsecured basis, there can be no assurance of collectability. The Company’s sales revenues are concentrated among customers operating in the oil and gas
industry. Furthermore, the Company has seen an increase in concentration risk as a result of the Company’s entry into the ProFrac Agreement. If one or more
major customers, including ProFrac Services, LLC, are unwilling or unable to pay their obligations to the Company, it could have an adverse effect on the
Company’s financial results, liquidity and cash flows.
Cyberattacks may have a significant and adverse impact on the Company’s operations and related financial condition.
The Company relies on access to information systems for operational, reporting and communication functions. Impairments of these systems, such as ransomware
and network communications disruptions, could have an adverse effect on our ability to conduct operations and could directly impact consolidated reporting.
Phishing attacks could result in sensitive or confidential information being released by the Company. Security breaches pose a risk to confidential data and
intellectual property, which could result in damages to our competitiveness and reputation. The Company’s policies and procedures, system monitoring and data
back-up processes may not prevent or detect potential disruptions or breaches in a timely or effective manner. There can be no assurance that existing or emerging
threats will not have an adverse impact on our systems or communications networks. While the Company does carry cybersecurity insurance, the coverage and
amount of such insurance may not be sufficient to adequately compensate the Company for cybersecurity loss. See “Item 1C. Cybersecurity” in Part I of this
Annual Report.
Unforeseen contingencies such as litigation could adversely affect the Company’s financial condition.
The Company is, and from time to time may become, a party to legal proceedings incidental to the Company’s business involving, among other matters, alleged
injuries, exposure to hazardous substances, patent infringement, employment matters, commercial disputes and shareholder lawsuits. The defense of these lawsuits
may require significant expenses, divert management’s attention, and may require the Company to pay damages that could adversely affect the Company’s
financial condition. In addition, any insurance or indemnification rights that the Company may have might be insufficient or unavailable to protect against
potential loss exposures.
13
The Company’s current insurance policies may not adequately protect the Company’s business from all potential risks.
The Company’s operations are subject to risks inherent in the oil and gas industry, such as, but not limited to, accidents, explosions, fires, severe weather, oil and
chemical spills, and other hazards. These conditions can result in personal injury or loss of life, damage to property, equipment and the environment, as well as
suspension of customers’ oil and gas operations. These events could result in damages requiring costly repairs, the interruption of Company business, including
the loss of revenue and profits, and/or the Company being named as a defendant in lawsuits asserting large claims. The Company does not have insurance against
all foreseeable or unforeseeable risks. Consequently, losses and liabilities arising from uninsured or underinsured events could have an adverse effect on the
Company’s business, financial condition and results of operations.
If the Company does not manage the potential difficulties associated with expansion successfully, the Company’s operating results could be adversely affected.
The Company believes future success will depend, in part, on the Company’s ability to adapt to market opportunities and changes, to successfully integrate the
operations of any businesses acquired, to enhance existing product and service lines, and potentially expand into new product and service areas in which the
Company may not have prior experience. Factors that could result in strategic business difficulties include, but are not limited to:
•
failure to effectively integrate acquisitions, joint ventures or strategic alliances;
•
failure to effectively execute on the ProFrac Agreement;
•
failure to effectively plan for risks associated with expansion into areas in which management lacks prior experience;
•
lack of experienced management personnel;
•
increased administrative burdens;
•
lack of customer retention;
•
lack of familiarity with applicable legal, regulatory and compliance requirements;
•
technological obsolescence; and
•
infrastructure, technological, communication and logistical problems associated with large, expansive operations.
If the Company fails to manage potential difficulties successfully, the Company’s operating results could be adversely impacted.
The Company may pursue strategic acquisitions, joint ventures and strategic divestitures, which could have an adverse impact on the Company’s business.
The Company’s potential future acquisitions, joint ventures, and divestitures involve risks that could adversely affect the Company’s business. Negotiations of
potential acquisitions, joint ventures, or other strategic relationships, integration of newly acquired businesses, and/or dispositions of existing businesses or assets
could be time consuming and divert management’s attention from other business concerns. Acquisitions and joint ventures could also expose the Company to
unforeseen liabilities or risks associated with new markets or businesses. Unforeseen operational difficulties related to acquisitions and joint ventures could result
in diminished financial performance or require a disproportionate amount of the Company’s management’s attention and resources. Additionally, acquisitions
could result in the commitment of capital resources without the realization of anticipated returns. Dispositions could result in the loss of future earnings without
adequate compensation and the loss of unrealized strategic opportunities.
The Company’s ability to use net operating losses and tax attribute carryforwards to offset future taxable income became limited due to an “ownership
change” in 2023.
Under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on the
Company’s ability to utilize pre-change net operating losses (“NOLs”), and certain other tax attributes to offset future taxable income. In general, an ownership
change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage
ownership during the testing period (generally three years). During 2023, the conversion of various debt instruments into the Company’s common stock and
warrants to purchase the Company’s common stock resulted in an ownership change limiting the Company’s ability to utilize existing NOLs and tax attribute
carryforwards. Additional information about these limitations is provided in Note 11, “Income Taxes” in Part II, Item 8 – “Financial Statements and
Supplementary Data” of this Annual Report.
In addition, under the 2017 Tax Act, the ability to carry back NOLs to prior taxable years is generally eliminated, and while NOLs arising in tax years beginning
after 2017 may be carried forward indefinitely, these post-2017 NOLs may only reduce 80% of the Company’s taxable income in a tax year. Limitations imposed
on the ability to use NOLs and tax credits to offset future taxable income could reduce or eliminate the benefit of the NOLs and tax attributes and could require
the Company to pay U.S. federal income taxes in excess of that which would otherwise be required if such limitations were not in effect. Similar rules and
limitations may apply for state income tax purposes.
14
The Company is subject to complex foreign, federal, state and local environmental, health, and safety laws and regulations, which expose the Company to
liabilities that could adversely affect the Company’s business, financial condition, and results of operations.
The Company’s operations are subject to foreign, federal, state, and local laws and regulations related to, among other things, the protection of natural resources,
injury, health and safety considerations, chemical exposure assessment, waste management, and transportation of waste and other hazardous materials. The
Company’s operations are exposed to risks of environmental liability that could result in fines, penalties, remediation, property damage, and personal injury
liability. Sanctions for noncompliance with such laws and regulations could include assessment of administrative, civil and criminal penalties, revocation of
permits, and issuance of corrective action orders.
The Company could incur substantial costs to ensure compliance with existing and future laws and regulations. Laws protecting the environment have generally
become more stringent and are expected to continue to evolve and become more complex and restrictive in the future. Failure to comply with applicable laws and
regulations could result in material expense associated with future environmental compliance and remediation. The Company’s costs of compliance could also
increase if existing laws and regulations are amended or reinterpreted. Such amendments or reinterpretations of existing laws or regulations, or the adoption of
new laws or regulations, could curtail exploratory or developmental drilling for, and production of, oil and natural gas which, in turn, could limit demand for the
Company’s products and services. Some environmental laws and regulations could also impose joint and strict liability, meaning that the Company could be
exposed in certain situations to increased liabilities as a result of the Company’s conduct that was lawful at the time it occurred or conduct of, or conditions caused
by, third parties. Remediation expense and other damages arising as a result of such laws and regulations could be substantial and have a material adverse effect
on the Company’s financial condition and results of operations.
The Company and the Company’s customers are subject to risks associated with doing business outside of the U.S., including political risk, foreign exchange
risk, and other uncertainties.
Less than 10 % of the Company’s revenue for the year ended December 31, 2024 was from customers based outside of the U.S. The Company and its customers
are subject to risks inherent in doing business outside of the U.S., including, but not limited to:
•
governmental instability;
•
corruption;
•
war and other international conflicts;
•
civil and labor disturbances;
•
requirements of local ownership;
•
cartel behavior;
•
partial or total expropriation or nationalization;
•
currency devaluation; and
•
foreign laws and policies, each of which can limit the movement of assets or funds or result in the deprivation of contractual rights or appropriation of
property without fair compensation.
Collections from international customers could also prove difficult due to inherent uncertainties in foreign law and judicial procedures. The Company could
experience significant difficulty with collections or recovery due to the political or judicial climate in foreign countries where Company operations occur or in
which the Company’s products are sold.
The Company’s international operations must be compliant with the Foreign Corrupt Practices Act and other applicable U.S. laws. The Company could become
liable under these laws for actions taken by employees. Compliance with international laws and regulations could become more complex and expensive thereby
creating increased risk as the Company’s international business portfolio grows. Further, the U.S. periodically enacts laws and imposes regulations prohibiting or
restricting trade with certain nations. The current sanctions imposed on trade with Russia do not currently directly impact us because the Company does not have
any activity within that region. The U.S. government could also change these laws or enact new laws that could restrict or prohibit the Company from doing
business in identified foreign countries. The Company conducts, and will continue to conduct, business in currencies other than the U.S. dollar. Historically, the
Company has not hedged against foreign currency fluctuations. Accordingly, the Company’s profitability could be affected by fluctuations in foreign exchange
rates.
The Company has no control over and can provide no assurances that future laws and regulations will not materially impact the Company’s ability to conduct
international business.
15
Regulatory pressures, environmental activism, and legislation could result in reduced demand for the Company’s products and services, increase the
Company’s costs, and adversely affect the Company’s business, financial condition and results of operations.
Regulations restricting volatile organic compounds (“VOC”) exist in many states and/or communities, which limit demand for certain products. Changes in the
perception of VOCs, increased consumer activism against hydraulic fracturing or other regulatory or legislative actions by governments could potentially result in
materially reduced demand for the Company’s products and services and could adversely affect the Company’s business, financial condition, and results of
operations.
Perceptions and related usage of chemistry solutions that are currently considered safe and acceptable, within specified parameters, may be subject to change in
future periods as research and testing of environmental impacts mature.
Changes in laws and regulations relating to hydraulic fracturing may have a negative effect on the Company’s operations.
The majority of the Company’s revenue is generated from its CT segment and the majority of the CT segment’s revenue is derived from customers engaged in
hydraulic fracturing services. Some states have adopted regulations which require operators to publicly disclose certain formulation information. These regulations
could require the reporting and public disclosure of the Company’s proprietary chemistry formulas. The adoption of any future federal or state laws or local
requirements, or the implementation of regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process, could increase the
difficulty of oil and natural gas production activity and could have an adverse effect on the Company’s future results of operations.
Climate change, environmental, social and governance and sustainability initiatives may result in regulatory or structural industry changes that could require
significant operational changes and expenditures, reduce demand for the Company’s products and services and adversely affect the Company’s business,
financial condition, results of operations, stock price or access to capital markets.
Climate change, environmental, social and governance (“ESG”) initiatives and sustainability are a growing global movement. Continuing political and social
attention to these issues has resulted in both existing and pending international agreements and national, regional and local legislation, regulatory measures,
reporting obligations and policy changes. Also, there is increasing societal pressure in some of the areas where the Company operates to limit greenhouse gas
emissions as well as other global initiatives. These agreements and measures, including the Paris Climate Accord, may require, or could result in future
legislation, regulatory measures or policy changes that would require, significant equipment modifications, operational changes, taxes, or purchases of emission
credits to reduce emission of greenhouse gases from the Company’s operations or those of our customers, which may result in substantial capital expenditures and
compliance, operating, maintenance and remediation costs. As a result of heightened public awareness and attention to these issues as well as continued political
and regulatory initiatives to reduce the reliance upon oil and natural gas, demand for hydrocarbons may be reduced, which could have an adverse effect on the
Company’s business, financial condition, and results of operations. The imposition and enforcement of stringent greenhouse gas emissions reduction requirements
could severely and adversely impact the oil and natural gas industry and therefore significantly reduce the value of the Company’s business.
Certain financial institutions, institutional investors and other sources of capital have limited or eliminated their investment in financing of certain energy-related
activities due to concerns about climate change, which could make it more difficult for our customers and for the Company to finance our respective businesses.
Increasing attention to climate change, ESG and sustainability has resulted in governmental investigations, and public and private litigation, which could increase
the Company’s costs or otherwise adversely affect our business or results of operations.
In addition, some organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating
companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings
may lead to increased negative investor sentiment toward the Company and our industry and to the diversion of investment to other companies or industries,
which could have a negative impact on the price of the Company’s securities and our access to and cost of capital.
Any or all of these ESG and sustainability initiatives may result in significant operational changes and expenditures, reduced demand for the Company’s products
and services, and could materially adversely affect the Company’s business, financial condition, results of operations, stock price or access to capital markets.
16
Risks Related to the Company’s Industry
General economic declines or recessions, limits to credit availability, and industry specific factors could have an adverse effect on energy industry activity
resulting in lower demand for the Company’s products and services.
Worldwide economic uncertainty can reduce the availability of liquidity and credit markets to fund the continuation and expansion of industrial business
operations worldwide. The shortage of liquidity and credit combined with pressure on worldwide equity markets may impact the worldwide economic climate.
Geopolitical unrest around the world may also impact demand for the Company’s products and services both domestically and internationally.
Demand for many of the Company’s products and services is dependent on oil and natural gas industry activity and expenditure levels that are directly affected by
trends in oil and natural gas prices. Demand for the Company’s products and services is particularly sensitive to levels of activity in the upstream, downstream and
midstream sectors, and the corresponding capital spending by oil and natural gas companies, including national oil companies. While capital spending programs
for domestic producers appear stable, uncertainties around the potential for weakness in oil and natural gas prices could reduce or defer major expenditures given
the long-term nature of many large-scale development projects. Lower levels of activity could result in a corresponding decline in the demand for the Company’s
oil and natural gas related products and services, which could have a material adverse effect on the Company’s revenue and profitability.
Events in global credit markets can significantly impact the availability of credit and associated financing costs for many of the Company’s customers. Many of
the Company’s upstream customers finance a portion of their drilling and completion programs through third-party lenders or public debt offerings. Lack of
available credit or increased costs of borrowing may cause customers to reduce spending on drilling programs, thereby reducing demand and potentially resulting
in lower prices for the Company’s products and services. Also, the credit and economic environment could significantly impact the financial condition of some
customers over a prolonged period, leading to business disruptions and restricted ability to pay for the Company’s products and services.
A continuous period of swings in oil and natural gas prices could result in further reductions in demand for the Company’s products and services and
adversely affect the Company’s business, financial condition, and results of operations.
The markets for the Company’s products, especially oil and gas markets, have historically been very volatile. Such volatility in oil and natural gas prices, or the
perception by the Company’s customers of unpredictability in oil and natural gas prices, could adversely affect spending levels. The demand for the Company’s
products and services is, in large part, driven by general levels of exploration and production spending and drilling activity by its customers. Future declines in oil
or gas prices could adversely affect the Company’s business, financial condition, and results of operations. The Company presently does not hedge oil and natural
gas prices.
The Company’s industry has a high rate of employee turnover. Difficulty attracting or retaining personnel or agents could adversely affect the Company’s
business.
The Company operates in an industry that has historically been highly competitive in securing qualified personnel with the required technical skills and
experience. The Company’s services require skilled personnel able to perform physically demanding work. Due to industry volatility, the demanding nature of the
work, and the need for industry specific knowledge and technical skills, current employees could choose to pursue employment opportunities outside the
Company that offer a more desirable work environment and/or higher compensation than is offered by the Company. As a result of these competitive labor
conditions, the Company may not be able to find qualified labor, which could limit the Company’s growth. In addition, the cost of attracting and retaining
qualified personnel has increased over the past several years due to competitive pressures. In order to attract and retain qualified personnel, the Company may be
required to offer increased wages and benefits. If the Company is unable to increase the prices of products and services to compensate for increases in
compensation including inflation, or is unable to attract and retain qualified personnel, operating results could be adversely affected.
Our DA segment may be negatively affected by government regulations.
The demand for our equipment and services offerings in our DA segment could be materially affected by additional regulations or changes to existing regulations
on the upstream, midstream, and downstream portions of the oil and gas sectors. Additional regulation on oil and gas production, transportation, or processing of
hydrocarbons may result in significantly reduced demand for our offerings, either individually or as a result of a decline in the overall oil and gas markets in the
United States and abroad. Changes to existing regulations related to the energy industry could also materially affect our DA segment. During the second quarter of
2024, the EPA designated one of our DA segment’s measurement systems as an approved measurement technology with respect to recently enacted flare
monitoring regulations. The optical measurement system, designed for precise measurement of net heating values in flare gases, was the first to be approved as an
alternative method under the New Source Performance Standards OOOOb regulations. Following the EPA’s approval of our analyzer, we recognized our first
revenues
17
from flare monitoring in August 2024. We believe that this approval could facilitate opportunities to access this new application as a source of future growth;
however, future changes in EPA regulations could impact or eliminate the applicability of the measurement system and have an adverse effect on our results of
operations. In addition, our products are subject to export control laws and regulations, and changes to those laws and regulations may negatively impact our
ability to pursue international opportunities. Disruptions to pipelines and refineries, whether due to regulation, weather, demand, or other factors, may also have a
materially adverse effect on our ability to derive revenue from our DA segment. Adjustments to our DA segment’s commercial strategy, with a shift towards
subscription revenue and away from equipment sales, and the market’s response to that strategy, may materially and adversely affect revenues in the near term,
even if the strategic shift is successful, due to longer payback periods on subscription models.
Severe weather could have an adverse impact on the Company’s business.
The Company’s business could be materially and adversely affected by severe weather conditions. Hurricanes, tropical storms, flash floods, blizzards, extreme
cold weather, and other severe weather conditions could result in curtailment of services, damage to equipment and facilities, interruption in transportation of
products and materials, and loss of productivity. If the Company’s customers are unable to operate or are required to reduce operations due to severe weather
conditions, and as a result curtail purchases of the Company’s products and services, the Company’s business could be adversely affected.
A terrorist attack or armed conflict could harm the Company’s business.
Terrorist activities, anti-terrorist efforts, and other armed conflicts involving the U.S. could adversely affect the U.S. and global economies and could prevent the
Company from meeting financial and other obligations. The Company could experience loss of business, delays or defaults in payments from payors, or
disruptions of fuel supplies and markets if pipelines, production facilities, processing plants, or refineries are direct targets or indirect casualties of an act of terror
or war. Such activities could reduce the overall demand for oil and natural gas which, in turn, could also reduce the demand for the Company’s products and
services. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect the Company’s results of
operations, impair the ability to raise capital, or otherwise adversely impact the Company’s ability to realize certain business strategies. The armed conflicts in
Ukraine and the Middle East could affect regions in which the Company does business directly or indirectly and could harm the Company’s ability to sell its good
and services in those regions.
Risks Related to the Company’s Securities
The market price of the Company’s common stock has been and may continue to be volatile.
The market price of the Company’s common stock is subject to significant fluctuations. The following factors, among others, could cause the price of the
Company’s common stock to fluctuate:
•
variations in the Company’s quarterly results of operations;
•
changes in market valuations of companies within the Company’s industry;
•
fluctuations in stock market prices and volume;
•
fluctuations in oil and natural gas prices;
•
issuances of common stock or other securities in the future, including warrants convertible into the Company’s common stock;
•
additions or departures of key personnel;
•
inability of either party to perform its obligations under our agreement with ProFrac Services, LLC regarding the purchase of our chemicals;
•
announcements by the Company or the Company’s competitors of new business, acquisitions, or joint ventures; and
•
negative statements made by external parties about the Company’s business in public forums.
The stock market has experienced significant price and volume fluctuations in recent years that have affected the price of common stock of companies within
many industries including the oil and natural gas industry. The price of the Company’s common stock could fluctuate based upon factors that have little to do with
the Company’s operational performance, and these fluctuations could materially reduce the Company’s stock price. The Company could be a defendant in a legal
case related to a significant loss of value for the shareholders. This could be expensive and divert management’s attention and Company resources, as well as have
an adverse effect on the Company’s business, operating results, cash flows, financial condition or securities.
The Company’s common stock is thinly traded; therefore, our stock price may fluctuate more than the stock market as a whole and it may be difficult to sell
large numbers of our shares at prevailing trading prices.
As a result of the thin trading market for shares of our common stock, meaning that the number of persons interested in purchasing our common stock at or near
bid prices at any given time may be relatively small or non-existent, our stock price
18
may fluctuate significantly more than the stock market as a whole or the stock prices of similar companies. Without a larger public float, shares of our common
stock will be less liquid than the shares of common stock of companies with broader public ownership, and as a result, it may be difficult for investors to sell the
number of shares they desire at an acceptable price. Trading of a relatively small volume of shares of our common stock may have a greater effect on the trading
price than would be the case if our public float were larger. Accordingly, we cannot assure you of the likelihood that an active trading market for our common
stock will develop or be maintained, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares.
The Company’s relationship with ProFrac Services, LLC and certain of its affiliates may create a conflict of interest.
The Company derived 62% and 65% of its revenue for the years ended December 31, 2024 and 2023, respectively, from ProFrac Services LLC. In addition to
being the Company’s largest customer, certain affiliates of ProFrac Services LLC, entered into various convertible debt transactions with the Company during
2022, which were subsequently converted into shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock in 2023
(see Note 9, “Debt and Convertible Notes Payable” and Note 17, “Related Party Transactions,” in Part II, Item 8 - “Financial Statements and Supplementary Data”
of this Annual Report). As a result, ProFrac Holdings, LLC or its affiliates owned approximately 51% of the Company’s common stock as of December 31, 2024
making them the Company’s largest shareholder. In addition, ProFrac Holdings, LLC currently consolidates the Company’s financial results in its financial results
and also has the right to elect four out of seven members of the Company’s Board of Directors. Pursuant to this right, Matt Wilks was nominated and elected to
serve on our Board at the Company’s 2022 annual meeting of shareholders and Evan Farber was appointed to our Board on October 11, 2022. As a result of the
operational and financial relationship with ProFrac Services LLC and its affiliates, as the Company’s largest customer, a Board member and the Company’s
majority shareholder, certain conflicts of interest may occur.
If the Company cannot meet the New York Stock Exchange (“NYSE”) continued listing requirements, the NYSE may delist the Company’s common stock.
The Company’s common stock is currently listed on the NYSE. In the future, if the Company is not able to meet the continued listing requirements of the NYSE,
the Company’s common stock may be delisted. A delisting of its common stock could negatively impact the Company by, among other things, reducing the
liquidity and market price of its common stock; reducing the number of investors willing to hold or acquire the Company’s common stock, which could negatively
impact its ability to raise equity financing; decreasing the amount of news and analyst coverage of the Company; and limiting the Company’s ability to issue
additional securities or obtain additional financing in the future. In addition, delisting from the NYSE might negatively impact the Company’s reputation and, as a
consequence, its business, operating results, cash flows, financial condition or securities.
Future issuance of additional shares of common stock could cause dilution of ownership interests and adversely affect the Company’s common stock price.
The Company is currently authorized to issue up to 240,000,000 shares of common stock. The Company may, in the future, issue previously authorized and
unissued shares of common stock, which would result in the dilution of current stockholders’ ownership interests. Additional shares are subject to issuance
through unexercised warrants, equity compensation plans or through the exercise of currently outstanding equity awards. The potential issuance of additional
shares of common stock may create downward pressure on the trading price of the Company’s common stock. The Company may also issue additional shares of
common stock or other securities that are convertible into or exercisable for common stock in order to raise capital or effectuate other business purposes. Future
sales of substantial amounts of common stock, or the perception that sales could occur, could have an adverse effect on the price of the Company’s common stock.
The Company may issue a substantial amount of securities in connection with future acquisitions, and the sale of those securities could adversely affect the
trading price of our common stock or other securities.
As part of our growth strategy, we may issue additional securities, or securities that have rights, preferences, and privileges senior to our other securities. We may
file future shelf registration statements with the SEC that we may use to sell securities from time to time in connection with acquisitions. To the extent that we are
able to grow through acquisitions and are able to pay for such acquisitions with shares of our common stock or other securities, the number of outstanding shares
of common stock or other securities that will be eligible for sale in the future is likely to increase substantially. Persons receiving shares of our common stock or
other securities in connection with these acquisitions may be more likely to sell large quantities of their common stock or other securities, which may influence the
price of our common stock or other securities. In addition, the potential issuance of additional shares of common stock or other securities in connection with
anticipated acquisitions could lessen demand for our common stock or other securities and result in a lower price than would otherwise be obtained.
19
The Company may issue shares of preferred stock or debt securities with greater rights than the Company’s common stock.
Subject to the rules of the NYSE, the Company’s certificate of incorporation authorizes the board of directors to issue one or more additional series of preferred
stock and to set the terms of the issuance without seeking approval from holders of common stock. Currently, there are 100,000 preferred shares authorized, with
no shares currently outstanding. Any preferred stock that is issued may rank senior to common stock in terms of dividends, priority and liquidation premiums, and
may have greater voting rights than holders of common stock.
Certain anti-takeover provisions of the Company’s certificate of incorporation and applicable Delaware law could discourage or prevent others from
acquiring the Company, which may adversely affect the market price of the Company’s common stock.
The Company’s certificate of incorporation and bylaws contain provisions that, among other things:
•
permit the Company to issue, without stockholder approval, shares of preferred stock, in one or more series and, with respect to each series, to fix the
designation, powers, preferences, and rights of the shares of the series;
•
prohibit stockholders from calling special meetings;
•
limit the ability of stockholders to act by written consent;
•
prohibit cumulative voting; and
•
require advance notice for stockholder proposals and nominations for election to the board of directors to be acted upon at meetings of stockholders.
In addition, Section 203 of the Delaware General Corporation Law limits business combinations with owners of more than 15% of the Company’s voting stock
without the approval of the board of directors. Aforementioned provisions and other similar provisions make it more difficult for a third party to acquire the
Company exclusive of negotiation. The Company’s board of directors could choose not to negotiate with an acquirer deemed not beneficial to or synergistic with
the Company’s strategic outlook. If an acquirer were discouraged from offering to acquire the Company or prevented from successfully completing a hostile
acquisition by these anti-takeover measures, stockholders could lose the opportunity to sell their shares at a favorable price.
ProFrac Holdings, LLC, together with its affiliates, owned approximately 51% of our common stock as of December 31, 2024 making them our largest
shareholder. This level of ownership of shares of our common stock could have the effect of discouraging or impeding an unsolicited acquisition proposal.
The Company has no current plans to pay dividends on the Company’s common stock, and, therefore, investors will have to look to stock appreciation for
return on investments.
The Company does not anticipate paying any cash dividends on the Company’s common stock within the foreseeable future. Any payment of future dividends
will be at the discretion of the Company’s board of directors and will depend, among other things, on the Company’s earnings, financial condition, capital
requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends, and other considerations deemed relevant by the
board of directors. Investors must rely on sales of common stock held after price appreciation, which may never occur, in order to realize a return on their
investment. The lack of plans for dividends may make the common stock of the Company an unattractive investment for investors who are seeking dividends.
General Risk Factors
If the Company loses the services of key members of management, the Company may not be able to manage operations and implement growth strategies.
The Company depends on the continued service of its Chief Executive Officer and Chief Financial Officer and other key members of the executive management
team, who possess significant expertise and knowledge of the Company’s business and industry. The Company has entered into employment agreements with
certain of these key members. Any loss or interruption of the services of key members of the Company’s management could significantly reduce the Company’s
ability to manage operations effectively and implement strategic business initiatives.
The Company’s tax returns are subject to audit by tax authorities. Taxing authorities may make claims for back taxes, interest and penalties. Changes in U.S.
tax legislation may adversely affect our business, results of operations, financial condition and cash flows.
The Company is subject to income, property, excise, employment, and other taxes in the U.S. and a variety of other jurisdictions around the world. Tax rules and
regulations in the U.S. and around the world are complex and subject to interpretation. From time to time, taxing authorities conduct audits of the Company’s tax
filings and may make claims for increased taxes and, in some cases, assess interest and penalties. The assessments for back taxes, interest, and penalties could be
20
significant. If the Company is unsuccessful in contesting these claims, the resulting payments could result in a drain on the Company’s capital resources and
liquidity. In addition, there may be material adverse effects resulting from new or future U.S. tax reforms that have not been identified and that could have an
adverse effect on the Company’s business, results of operations, financial condition and cash flows.
Disclaimer of Obligation to Update
Except as required by applicable law or regulation, the Company assumes no obligation (and specifically disclaims any such obligation) to update these risk
factors or any other forward-looking statement contained in this Annual Report to reflect actual results, changes in assumptions, or other factors affecting such
forward-looking statements.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
The Company faces a variety of cybersecurity threats that could impact its business, financial condition, results of operations, cash flows or reputation. The
Company has established a Cybersecurity Incident Response Team (the “CIRT”) to develop and continually enhance a cyber incident response plan, which guides
the Company in identification, containment, eradication and recovery from cybersecurity incidents. The CIRT is led by the Company’s Director of Information
Technology (the “Director of IT”), who reports to the Company’s Chief Financial Officer. The Director of IT has a formal education in Computer Information
Systems and is a Microsoft Certified Information Systems Professional with 28 years of experience. The Director of IT has comprehensive experience in
cybersecurity controls, including intrusion detection, network security, operating systems, incident response and a track record of identifying cyber risks and
implementing countermeasures to mitigate cyber attacks.
The CIRT is charged with the evaluation and implementation of incident response tools, and the implementation of mandatory training procedures and exercises to
mitigate and remediate potential cybersecurity incidents. The CIRT members are comprised of representatives from management, including the Company’s Chief
Executive and Financial Officers, information technology, legal and communications teams. The CIRT reports to the Risk & Sustainability Committee of the
Company’s Board of Directors, which is tasked with oversight of the general risk and sustainability programs of the Company. The Board has an active role in
overseeing management of the Company’s risks and regularly reviews information regarding the Company’s operations, liquidity and associated risks. While each
committee of the Board is responsible for evaluating certain risks and overseeing the management of those risks, the entire Board is regularly informed through
committee reports.
The Company uses several real-time systems for detecting potential threats to its systems, devices and user accounts. In addition, the Company reviews controls
implemented by its third-party service providers to ensure that the providers’ controls have been designed to effectively mitigate cybersecurity risks that could
affect the Company’s systems. The Company also engages third-party consultants to evaluate its security and disclose any potential weaknesses within the
Company’s systems. The CIRT reviews the findings of these evaluations and will determine the steps required to minimize the effects of any discovered
weaknesses and implement changes as deemed necessary. The Company’s information technology team is tasked with the initial assessment of a suspected
incident and evaluates the suspected incident based on the Company’s cybersecurity policy.
In the event of an incident, we intend to follow our cyber incident response plan. Any assessment that is deemed an actionable incident would trigger an alert to
the CIRT. The CIRT will further assesses the incident according to a predefined scale (e.g., low, medium, high and critical) and initiate the Company’s incident
response plan and communication protocols. The CIRT, in conjunction with the Risk and Sustainability Committee, will assess the materiality of the incident with
respect to the rules, regulations and disclosure requirements of the SEC and NYSE. See “Risk Factors” in Item 1A of this Annual Report. As of December 31,
2024, we have not identified any risks from known cybersecurity threats that have materially affected or are reasonably likely to materially affect the Company,
including its business strategy, results of operations or financial condition.
Item 2. Properties
The Company operates three manufacturing facilities, a corporate headquarters and a research facility in the U.S. The Company owns two of these facilities and
the remainder are leased with lease terms that expire from 2025 through 2030. Internationally, the Company leases a warehouse and a sales office in Dubai, United
Arab Emirates. The following table sets forth our facility locations:
21
Segment
Owned/Leased
Location
Chemistry Technologies
Owned
Marlow, Oklahoma
Chemistry Technologies
Owned
Raceland, Louisiana
Chemistry Technologies
Leased
Dubai, United Arab Emirates
Chemistry Technologies
Leased
Dubai, United Arab Emirates
Chemistry Technologies
Leased
Houston, Texas
Data Analytics
Leased
Austin, Texas
Corporate Headquarters
Leased
Houston, Texas
Item 3. Legal Proceedings
For a discussion of our legal proceedings, please refer to Note 12, “Commitments and Contingencies” in Part II, Item 8 — “Financial Statements and
Supplementary Data” of this Annual Report.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock trades on the NYSE under the stock ticker symbol “FTK.” As of the close of business on March 7, 2025, there were approximately
36 holders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares
are held by banks, brokers and other financial institutions. The Company has never declared or paid cash dividends on its common stock. The Company has no
current plans to declare dividends on its common stock.
Unregistered Sales of Equity Securities
During the year ended December 31, 2024, the Company did not have any sales of securities in transactions that were not registered under the Securities Act of
1933, as amended.
Issuer Purchases of Equity Securities
The Company’s stock compensation plans allow employees to elect to have shares withheld to satisfy their tax liabilities related to non-qualified stock options
exercised or restricted stock vested or to pay the exercise price of the options. When this settlement method is elected by the employee, the Company repurchases
the shares withheld upon vesting of the award stock. Repurchases of the Company’s equity securities during the three months ended December 31, 2024, that the
Company made or were made on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act are as
follows:
Period
Total Number of Shares
Purchased
Average Price Paid per Share
October 1, 2024 to October 31, 2024
—
$
—
November 1, 2024 to November 30, 2024
102
$
6.56
December 1, 2024 to December 31, 2024
15,700
$
8.35
Total
15,802
(1) The Company purchases shares of its common stock to satisfy tax withholding requirements and payment remittance obligations related to period vesting of restricted shares.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with Part 1, including the matters set forth in
Item 1.A. Risk Factors, and our audited consolidated financial statements and related notes thereto, which have been prepared in accordance with U.S. GAAP,
included elsewhere in this Annual Report.
(1)
22
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and
strategy for our business and related financing, includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of
the Exchange Act , and is subject to the safe harbor created by those sections. As a result of many risks and uncertainties, including those factors set forth in Item
1.A. Risk Factors of this Annual Report, our actual results could differ materially from the results described in or implied by the forward-looking statements
contained in the following discussion and analysis. For more information, see “Forward-Looking Statements.” These forward-looking statements are made as of
the date of this Annual Report, and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by
applicable law. All dollar amounts stated herein are in U.S. dollars unless specified otherwise.
Executive Summary
Flotek creates unique solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty chemistry and data
technology company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company seeks to provide
sustainable and optimized chemistry and data technology solutions for both domestic and international energy markets.
The Company’s two operating segments, CT and DA, are supported by the Company’s continuing Research and Innovation (“R&I”) advanced laboratory
capabilities.
Company Overview
Chemistry Technologies
The Company’s CT segment provides sustainable, optimized chemistry solutions that we believe maximize our customers’ value by improving return on invested
capital, lowering operational costs, and providing tangible environmental benefits. The Company’s proprietary green chemistries, specialty chemistries, logistics,
and technology services enable its customers to pursue improved efficiencies and performance throughout the life cycle of their desired chemical applications
program. The Company designs, develops, manufactures, packages, distributes and markets optimized chemistry solutions that are designed to accelerate existing
sustainability practices to reduce the environmental impact of energy on the air, water, land and people.
Customers of the CT segment include those of energy related markets, such as our related party ProFrac Services, LLC, with whom we have a long-term supply
agreement, as well as industrial companies. Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and
state-owned oil companies, geothermal energy companies, solar energy companies and advanced alternative energy companies may benefit from our best-in-class
technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices.
ProFrac Supply Agreement
On February 2, 2022, the Company entered into a Chemical Products Supply Agreement with ProFrac Services, LLC, which was subsequently amended on May
17, 2022 and February 1, 2023 (collectively, the “ProFrac Agreement”).
The ProFrac Agreement contains minimum requirements for chemistry purchases. If the minimum volume purchases are not achieved within the applicable
measurement period, ProFrac Services, LLC is required to pay to the Company, as liquidated damages, an amount equal to twenty-five percent (25%) of the
difference between (i) the aggregate purchase price of the quantity of products comprising the minimum purchase obligation and (ii) the actual purchased volume
during the measurement period (“Contract Shortfall Fees”). The ProFrac Agreement provides that payment of Contract Shortfall Fees is to be made within 30 days
after the applicable measurement period. The measurement period for Contract Shortfall Fees during 2023 was June 1, 2023 through December 31, 2023. Related
party revenues for the year ended December 31, 2023 reflected Contract Shortfall Fees of $20.1 million. The minimum purchase requirements were not met
during the 2024 measurement period of January 1, 2024 through December 31, 2024 and, as a result, the Company recorded revenue related to Contract Shortfall
Fees of $32.4 million.
Data Analytics
The DA segment delivers real-time information and insights to our customers to enable optimization of operations and reduction of emissions and their carbon
intensity. Real-time composition and physical property measurements are delivered simultaneously on refined fuels, natural gas liquids (“NGLs”), natural gas,
crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infrared spectrometer that generates no emissions. The instrument's
response is processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver valuable insights every fifteen
seconds.
We believe customers using this technology have obtained significant benefits, including additional profits, by enhancing operations in crude/condensates
stabilization, enhancing blending operations, reducing time impacting transmix operations,
23
increasing efficiencies and optimization of gas plants, allowing for the use of significantly lower cost field gas instead of diesel to generate power, lowering
emissions and protecting equipment, and ensuring product quality while reducing giveaways, i.e., providing higher value products at the lower value products
prices. More efficient operations have the benefit of reducing carbon footprint, e.g., less flaring and reduction in energy expenditure for compression and re-
processing. Our customers in North America include oil and gas supermajors, some of the largest midstream oil and gas companies, large gas processing plants
and independent exploration and production companies. We have developed a line of Verax™ analyzers for deployment internationally, which was certified for
compliance in hazardous locations and harsh weather conditions.
Research & Innovation
R&I supports both our business segments through green chemistry formulation, specialty chemical formulations and EPA regulatory guidance, technical support,
basin and reservoir studies, data analytics and new technology projects. The purpose of R&I is to supply the Company’s business segments with enhanced
products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and
industry trends. The R&I facilities support advances in CT and DA performance, optimization and manufacturing. For the years ended December 31, 2024 and
2023, the Company incurred $1.7 million and $2.5 million, respectively, of research and development expense. The Company expects that its 2025 research and
development investment will continue to support new product development and customization initiatives for its clients.
Consolidated Results of Operations (in thousands)
Years ended December 31,
2024
2023
Revenue
Revenue from external customers
$
71,263
$
66,518
Revenue from related party
115,762
121,540
Total revenues
187,025
188,058
Cost of sales
147,639
163,795
Cost of sales %
78.9 %
87.1 %
Gross profit
39,386
24,263
Gross profit %
21.1 %
12.9 %
Selling, general and administrative
24,709
27,827
Selling, general and administrative %
13.2 %
14.8 %
Depreciation
891
734
Research and development
1,714
2,486
Gain on disposal of property and equipment
(124)
(38)
Gain in fair value of contract consideration convertible notes payable
—
(29,969)
Income from operations
12,196
23,223
Operating margin %
6.5 %
12.3 %
Other income (expense)
Paycheck protection plan loan forgiveness
—
4,522
Interest expense and other income, net
(1,049)
(2,883)
Total other (expense) income
(1,049)
1,639
Income before income taxes
11,147
24,862
Income tax expense
(649)
(149)
Net income
$
10,498
$
24,713
Net income %
5.6 %
13.1 %
Consolidated revenue for the year ended December 31, 2024 decreased $1.0 million versus the same period of 2023. The decrease in revenue during the year
ended December 31, 2024 was driven primarily by a decrease in activity under the ProFrac Agreement, partially offset by increased Contract Shortfall Fees and
higher revenue from external customers and higher DA revenues.
Consolidated cost of sales for the year ended December 31, 2024 decreased $16.2 million, or 10%, versus the same period of 2023. The decrease is primarily
driven by decreased activity with ProFrac Services, LLC and lower freight and equipment
24
rental costs due to the decreased volume of business, partially offset by higher costs related to increased non-related party volumes and increased salaries and
wages. The reduction in cost of sales as a percentage of revenue in 2024 was the result of higher revenue from Contract Shortfall Fees, which have no associated
costs.
Selling general and administrative (“SG&A”) expenses are not directly attributable to products sold or services provided. SG&A expenses for the year ended
December 31, 2024, decreased $3.1 million, or 11%, versus the same period of 2023 as a result of reduced legal fees in 2024, partially offset by higher stock
compensation expense.
Research and development (“R&D”) costs decreased $0.8 million, or 31%, for the year ended December 31, 2024, versus the same period of 2023 driven by lower
personnel costs resulting from headcount optimization.
Operating income decreased by $11.0 million to $12.2 million for the year ended December 31, 2024 versus the same period in 2023. The decrease in 2024 is
primarily due to the $30.0 million gain in fair value of the Contract Consideration Convertible Notes Payable for the year ended December 31, 2023 with no
corresponding activity for the year ended December 31, 2024, partially offset by a $15.1 million increase in gross profit resulting from higher Contract Shortfall
Fees, a $3.1 million decrease in SG&A expenses and a $0.8 million decrease in R&D expenses.
Total other (expense) income for the year ended December 31, 2024 decreased $2.7 million, driven primarily by a $4.5 million gain for the forgiveness of the
Flotek PPP loan during 2023 with no corresponding activity in 2024, partially offset by a $1.8 million decrease in interest expense related to the maturity of the
Contract Consideration Convertible Notes Payable in the first half of 2023.
Results by Segment (in thousands):
Chemistry Technologies Results of Operations:
Years ended December 31,
2024
2023
Revenue from external customers
$
63,214
$
59,016
Revenue from related party
114,947
120,903
Income from operations
26,602
39,043
CT revenue from external customers for the year ended December 31, 2024, increased $4.2 million, or 7% compared to 2023 due to increased sales with both new
and existing customers. Revenue from related party for the year ended December 31, 2024, including accrued Contract Shortfall Fees, decreased $6.0 million, or
5%, primarily driven by decreased product sales under the ProFrac Agreement, partially offset by increased Contract Shortfall Fees.
Income from operations for the CT segment for the year ended December 31, 2024 decreased $12.4 million, compared to 2023. The decrease was driven by the
gain in fair value of the Contract Consideration Convertible Notes Payable of $30.0 million for the year ended December 31, 2023 without corresponding activity
for the year ended December 31, 2024, partially offset by an increase in gross profit of $15.9 million attributable to higher Contract Shortfall Fees and lower
freight costs.
Data Analytics Results of Operations:
Years ended December 31,
2024
2023
Revenue from external customers
$
8,049 $
7,502
Revenue from related party
815
637
Loss from operations
(939)
(53)
DA external customer revenue for the year ended December 31, 2024, increased $0.5 million, or 7%, compared to revenue for 2023. The increase was driven by
increased service sales primarily related to the Company’s near-infrared spectrometer measurement system, partially offset by decreased product sales. Related
party revenue increased by $0.2 million, or 28%, compared to 2023 relating to services provided to ProFrac Services, LLC outside of the ProFrac Agreement.
Loss from operations for the DA segment for the year ended December 31, 2024 increased $0.9 million compared to 2023. The increase in losses was primarily
due to increased cost of sales related to the change in contingent earnout valuations (see Note 10) and credits included in cost of sales for the year ended
December 31, 2023 with no corresponding activity for the year ended December 31, 2024.
25
Corporate and Other Results of Operations:
Years ended December 31,
2024
2023
Loss from operations
$
(13,467) $
(15,767)
Loss from operations for the year ended December 31, 2024 decreased by $2.3 million, or 15%, compared to the same period of 2023 due to decreased
professional fees, partially offset by increased stock compensation expense.
Capital Resources and Liquidity
Overview
The Company’s capital requirements relate to the acquisition and maintenance of equipment and funding of working capital requirements. During the year ended
December 31, 2024, the Company funded working capital requirements with cash on hand and borrowings under the ABL (defined below).
As of December 31, 2024, the Company had unrestricted cash and cash equivalents of $4.4 million compared to $5.9 million on December 31, 2023. In addition,
at March 10, 2025, the Company had approximately $15 million in available borrowings under the ABL. During the year ended December 31, 2024, the Company
had $12.2 million of operating income, $3.4 million of cash provided by operating activities, $1.8 million of cash used in investing activities and $3.1 million of
cash used in financing activities. While we believe our cash and cash equivalents, cash generated from operating activities, which includes the collection of the
Contract Shortfall Fees as described further below, and availability under the ABL will be sufficient to fund our capital requirements and anticipated obligations as
they become due, uncertainty surrounding the long-term stability and strength of the oil and gas markets, and the resulting potential impact on our customers’
ability to pay their obligations to us in a timely manner could have a negative impact on our liquidity. In addition, the availability of capital is dependent on the
Company’s operating cash flow, which is currently expected to be principally derived from the ProFrac Agreement. The minimum purchase requirements under
the ProFrac Agreement were not met during the 2024 measurement period of January 1, 2024 through December 31, 2024, and as a result, the Company recorded
revenue related to Contract Shortfall Fees of $32.4 million, of which $15.0 million was collected through March 12, 2025.
Asset Based Loan
In August 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an Asset Based Loan, which was amended in
October 2023 and again in August 2024 (as amended, the “ABL”). The August 2024 amendment to the ABL extended the maturity to August 2026, increased the
credit availability and lowered the interest rate spread. The ABL provides up to $20.0 million of credit availability, which is limited by a borrowing base
consisting of (i) 85% of eligible accounts receivable, plus (ii) 60% of the value of eligible inventory not to exceed 100% of the eligible accounts receivable, plus
(iii) 60% of the value of certain real estate holdings.
As of December 31, 2024, the Company had $4.8 million outstanding under the ABL. During the year ended December 31, 2024, the Company incurred $0.7
million in interest and fees related to the ABL. As of December 31, 2024, the Company recorded $0.3 million of unamortized deferred financing costs related to
the ABL.
Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50%) plus 2.0% per annum. The interest rate under the ABL
was 9.5% and 11.0% as of December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, the weighted-average interest rate was 10.8%. The
ABL contains an annual commitment fee equal to 1.0% of the ABL’s borrowing base. Additionally, the Company will be assessed a non-usage fee of 0.25% per
quarter based on the difference between the average daily outstanding balance and the borrowing base limit of the ABL. If the ABL is terminated prior to the end
of its term, the Company is required to pay an early termination fee of 2.50% of the borrowing base limit of the ABL (if terminated with more than 12 months
remaining until the maturity date) or 1.50% of the borrowing base limit of the ABL (if terminated with less than 12 months remaining until the maturity date).
The ABL contains customary representations, warranties, covenants and events of default, the occurrence of which would permit the lender to accelerate the
payment of any amounts borrowed. The ABL requires the Company to maintain a minimum Tangible Net Worth (as defined in the ABL) of not less than $11
million. In addition, the ABL provides the lender a blanket security interest on all or substantially all of the Company’s assets. The Company was in compliance
with all of the covenants under the ABL as of December 31, 2024.
26
Cash Flows
Consolidated cash flows by type of activity are noted below (in thousands):
Years ended December 31,
2024
2023
Net cash provided by (used in) operating activities
$
3,361
$
(11,297)
Net cash used in investing activities
(1,816)
(1,014)
Net cash (used in) provided by financing activities
(3,116)
5,928
Effect of changes in exchange rates on cash and cash equivalents
124
(54)
Net change in cash, cash equivalents and restricted cash
$
(1,447)
$
(6,437)
Operating Activities
Net cash provided by (used in) operating activities was $3.4 million and ($11.3) million during the years ended December 31, 2024 and 2023, respectively.
Consolidated net income for the years ended December 31, 2024 and 2023 was $10.5 million and $24.9 million, respectively.
During the year ended December 31, 2024, non-cash adjustments to net income totaled $11.2 million as compared to $22.8 million for the same period of 2023.
For the year ended December 31, 2024, non-cash adjustments included amortization of contract assets of $5.6 million, stock compensation expense of
$1.4 million and non-cash lease expense of $2.1 million primarily due to ROU Asset amortization for equipment leases. Non-cash adjustments also
include $0.9 million of depreciation expense, $0.3 million of amortization of loan origination costs and the provision for excess and obsolete inventory of
$0.6 million.
For the year ended December 31, 2023, non-cash adjustments included a $30.0 million gain on the fair value valuation of the Contingent Convertible
Notes, a gain of $4.5 million for the Flotek PPP loan forgiveness, paid-in-kind interest on the Convertible Notes Payable and Contract Consideration
Convertible Notes Payable of $2.3 million, amortization of contract assets and convertible note issuance costs of $5.0 million and $0.1 million,
respectively, and stock compensation of ($0.3) million. The non-cash adjustment for the provision for excess and obsolete inventory was $1.0 million and
depreciation was $0.7 million. Non-cash lease expense was $3.0 million primarily due to ROU Asset amortization for equipment leases which were
added in 2022.
During the year ended December 31, 2024, changes in working capital used $18.5 million of cash as compared to $13.2 million used for the same period of 2023.
For the year ended December 31, 2024, changes in working capital resulted primarily from increases in accounts receivable, including related party, of
$21.6 million, and an increase in inventories of $0.7 million. Accrued liabilities increased $5.7 million and operating lease liabilities decreased $2.4
million primarily due to payments on equipment leases.
•
For the year ended December 31, 2023, changes in working capital resulted primarily from increases in accounts receivable, including related party, of
$6.5 million, and a decrease in inventories of $1.9 million due to reduced sales with ProFrac Services, LLC in late 2023. Accounts payable and accrued
liabilities decreased $1.7 million and $2.6 million, respectively. The decrease in accrued liabilities is primarily due to accrued severance, sales taxes and
professional fees, partially offset by higher bonus accruals. Operating lease liabilities decreased $3.4 million primarily due to payments on equipment
leases.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2024 was $1.8 million primarily due to capital additions, including new equipment and
sensors expected to be utilized in flare monitoring. Net cash used in investing activities for the year ended December 31, 2023 was $1.0 million primarily due to
system enhancements and capital additions.
Financing Activities
Net cash used in financing activities was $3.1 million for the year ended December 31, 2024, primarily from $2.7 million in net payments on the ABL and $0.4
million in payments for loan origination fees and shares withheld for taxes.
•
•
•
27
Net cash provided by financing activities was $5.9 million for the year ended December 31, 2023, primarily from net proceeds from the ABL. Net cash provided
was partially offset by severance payments attributed to our former chief executive officer’s forfeited vested stock options, loan origination fees, and payments for
shares withheld for taxes.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion
and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the
amounts reported. Our most significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in Part II, Item 8 —
“Financial Statements and Supplementary Data,” of this Annual Report. The Company believes the following accounting estimates are critical due to the
significant subjective and complex judgments and estimates required when preparing the consolidated financial statements. The Company regularly reviews
judgments, assumptions and estimates related to the critical accounting estimates.
Contract Assets
The Company’s contract assets represent consideration which was issued in the form of convertible notes (Contract Consideration Convertible Notes Payable as
discussed in Note 9, “Debt and Convertible Notes Payable” in Part II, Item 8) and other incremental costs related to obtaining the ProFrac Agreement in 2022. The
contract assets are amortized over the term of the ProFrac Agreement based on forecasted revenues. As goods are transferred to ProFrac Services, LLC, the
amortization is presented as a reduction of the transaction price included in related party revenue in the consolidated statements of operations. The contract assets
are tested for recoverability on a recurring basis and the Company will recognize an impairment loss to the extent that the carrying amount of the contract assets
exceeds the amount of consideration the Company expects to receive in the future for the transfer of goods under the contract less the direct costs that relate to
providing those goods in the future. Significant or unanticipated changes to our forecast could impact the recoverability of the contract assets.
Reserve for Excess and Obsolete Inventory
Inventories consist of raw materials and finished goods and are stated at the lower of cost or market determined using the weighted-average cost method, or net
realizable value. Finished goods inventories include raw materials, direct labor and production overhead.
The Company reviews inventories on hand and current market conditions to determine if the cost of raw materials and finished goods inventories exceed current
market prices and impairs the cost basis of the inventory accordingly. Obsolete inventory or inventory in excess of management’s estimated usage requirement is
written down to its net realizable value if those amounts are determined to be less than cost. Write-downs or write-offs of inventory are charged to cost of sales.
At December 31, 2024 and 2023, the reserve for excess and obsolete inventory was $5.2 million and $6.1 million, or 28.2% and 32.3% of inventory, respectively.
Significant or unanticipated changes to our estimates and forecasts could impact the amount and timing of any additional provisions for excess and obsolete
inventory.
Recent Accounting Pronouncements
Recent accounting pronouncements which may impact the Company are described in Note 2, “Summary of Significant Accounting Policies - Recent Accounting
Pronouncements,” in Part II, Item 8 — “Financial Statements” of this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of market risks, which primarily includes market risk from changes in interest rates, raw material prices, freight costs and
foreign currency exchange rates. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical
change in interest rates, commodity prices, freight or foreign currency exchange rates over the next year. The Company manages exposure to market risks at the
corporate level. The portfolio of interest-sensitive assets and liabilities is monitored and adjusted to provide liquidity necessary to satisfy anticipated short-term
needs. The Company’s risk management policies allow the use of specified financial instruments for hedging purposes only. Speculation on interest rates or
foreign currency rates is not permitted. The Company does not consider any of these risk management activities to be material.
Foreign Currency Exchange Risk
The Company’s functional currency is primarily the U.S. dollar. The Company operates principally in the United States and has limited exposure to foreign
currency risk in its international operations. During 2024, approximately 4.9% of revenue was denominated in non-U.S. dollar currencies and substantially all
assets and liabilities of the Company are denominated in U.S. dollars. However, as the Company expands its international operations, non-U.S. denominated
activity is likely to increase.
28
A 10% devaluation in average foreign currency exchange rates for the U.S. dollar would have resulted in a $0.9 million decrease to our revenues for the year
ended December 31, 2024. The Company has not historically used swaps or foreign currency hedges, however, the Company may utilize swaps or foreign
currency hedges in the future.
Commodity and Freight Risk
The Company, and the CT segment in particular, primarily relies upon supply relationships to meet many of its raw material needs. Commodity and freight price
increases are passed along to the Company’s customers, where applicable or possible. The Company presently does not utilize commodity derivative instruments
but may consider utilizing forms of hedging to mitigate the effects of rising commodity prices on its supplies, in the future.
Interest Rate Risk
The Company is subject to interest rate risk under its ABL, which bears interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50%) plus 2.0% per
annum. The interest rate under the ABL was 9.5% and 11.0% as of December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, the
weighted-average interest rate was 10.8%. During the year ended December 31, 2024, the Company incurred $0.7 million in interest and fees related to the ABL.
Based upon ABL borrowings outstanding as of December 31, 2024 of $4.8 million, a 100 basis point change in interest rates would have resulted in an
approximate $0.1 million change to our annual interest expense.
29
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
Flotek Industries, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Flotek Industries, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the
related consolidated statements of operations, comprehensive income, cash flow, and stockholders’ equity for each of the years in the two-year period ended
December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical
audit matters or on the accounts or disclosures to which they relate.
Recoverability of contract assets
As described in Note 2 to the Company’s consolidated financial statements, the Company’s contract assets represent consideration issued in the form of
convertible notes and other incremental costs related to obtaining the ProFrac Agreement. The contract assets are tested for recoverability on a recurring basis and
the Company will recognize an impairment loss to the extent that the carrying amount of the contract assets exceeds the amount of consideration the Company
expects to receive in the future for the transfer of goods under the ProFrac Agreement less the direct costs that relate to providing those goods in the future. As
described in Note 4, the Company had recorded contract assets, net of $69.0 million as of December 31, 2024.
We identified the evaluation of the recoverability of contract assets as a critical audit matter. There was subjective auditor judgement in evaluating the key
assumptions used in the Company’s contract asset recoverability assessment, specifically the forecasted product revenue and related forecasted costs to provide
products over the term of the ProFrac Agreement.
30
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the
Company’s contract assets recoverability assessment, including controls over the development of forecasted revenue and costs over the term of the ProFrac
Agreement. To assess the Company’s ability to forecast revenue and costs, we compared revenue and cost forecasts for the current year to actual results. We
performed sensitivity analyses over the Company’s contract asset recoverability assessment by evaluating the effect of changes in the forecasted revenue and costs
over the term of the ProFrac Agreement.
/s/ KPMG LLP
We have served as the Company’s auditor since 2021.
Houston, Texas
March 12, 2025
31
FLOTEK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, 2024
December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents
$
4,404
$
5,851
Restricted cash
102
102
Accounts receivable, net of allowance for credit losses of $447 and $745 at December 31, 2024 and
December 31, 2023, respectively
17,386
13,687
Accounts receivable, related party, net of allowance for credit losses of $0 at December 31, 2024 and
December 31, 2023, respectively
52,370
34,569
Inventories, net
13,303
12,838
Other current assets
2,952
3,564
Current contract asset
5,939
5,836
Total current assets
96,456
76,447
Long-term contract asset
63,105
68,820
Property and equipment, net
6,178
5,129
Operating lease right-of-use assets
3,326
5,030
Deferred tax assets, net
51
300
Other long-term assets
1,680
1,787
TOTAL ASSETS
$
170,796
$
157,513
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
38,073
$
31,705
Accrued liabilities
5,912
5,890
Income taxes payable
48
45
Current portion of operating lease liabilities
1,486
2,449
Current portion of finance lease liabilities
—
22
Asset-based loan
4,789
7,492
Current portion of long-term debt
60
179
Total current liabilities
50,368
47,782
Deferred revenue, long-term
14
35
Long-term operating lease liabilities
6,514
7,676
Long-term debt
—
60
TOTAL LIABILITIES
56,896
55,553
Stockholders’ equity:
Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and outstanding
—
—
Common stock, $0.0001 par value, 240,000,000 shares authorized; 30,938,073 shares issued and
29,826,508 shares outstanding at December 31, 2024; 30,772,837 shares issued and 29,664,130 shares
outstanding at December 31, 2023
3
3
Additional paid-in capital
464,620
463,140
Accumulated other comprehensive income
251
127
Accumulated deficit
(316,308)
(326,806)
Treasury stock, at cost; 1,111,565 and 1,108,707 shares at December 31, 2024 and December 31,
2023, respectively
(34,666)
(34,504)
Total stockholders’ equity
113,900
101,960
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
170,796
$
157,513
The accompanying Notes are an integral part of these Consolidated Financial Statements.
32
FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years ended December 31,
2024
2023
Revenue:
Revenue from external customers
$
71,263
$
66,518
Revenue from related party
115,762
121,540
Total revenues
187,025
188,058
Cost of sales
147,639
163,795
Gross profit
39,386
24,263
Operating costs and expenses:
Selling, general, and administrative
24,709
27,827
Depreciation
891
734
Research and development
1,714
2,486
Gain on sale of property and equipment
(124)
(38)
Gain in fair value of Contract Consideration Convertible Notes Payable
—
(29,969)
Total operating costs and expenses
27,190
1,040
Income from operations
12,196
23,223
Other income (expense):
Paycheck protection plan loan forgiveness
—
4,522
Interest expense
(1,095)
(2,857)
Other income (expense), net
46
(26)
Total other (expense) income
(1,049)
1,639
Income before income taxes
11,147
24,862
Income tax expense
(649)
(149)
Net income
$
10,498
$
24,713
Income (loss) per common share:
Basic
$
0.36
$
1.00
Diluted
$
0.34
$
(0.10)
Weighted average common shares:
Weighted average common shares used in computing basic income (loss) per common share
29,534
24,830
Weighted average common shares used in computing diluted income (loss) per common
share
30,889
28,377
The accompanying Notes are an integral part of these Consolidated Financial Statements.
33
FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years ended December 31,
2024
2023
Net income
$
10,498
$
24,713
Other comprehensive income:
Foreign currency translation adjustment
124
(54)
Comprehensive income
$
10,622
$
24,659
The accompanying Notes are an integral part of these Consolidated Financial Statements.
34
FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Years ended December 31,
2024
2023
Cash flows from operating activities:
Net income
$
10,498
$
24,713
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of contingent consideration
71
(527)
Change in fair value of Contract Consideration Convertible Notes Payable
—
(29,969)
Amortization of convertible note issuance costs
—
83
Paid-in-kind interest expense
—
2,284
Amortization of contract assets
5,612
5,033
Depreciation
891
734
Amortization of asset-based loan origination costs
314
121
Provision for credit losses, net of recoveries
181
138
Provision for excess and obsolete inventory
645
959
Gain on sale of property and equipment
(124)
(38)
Non-cash lease expense
2,094
3,014
Stock compensation expense
1,366
(254)
Deferred income tax expense
249
104
Paycheck protection plan loan forgiveness
—
(4,522)
Changes in current assets and liabilities:
Accounts receivable
(3,880)
5,311
Accounts receivable, related party
(17,801)
(11,886)
Inventories
(1,110)
1,938
Income tax receivable
8
—
Other assets
561
(836)
Accounts payable
6,368
(1,670)
Accrued liabilities
(70)
(2,575)
Operating lease liabilities
(2,515)
(3,391)
Income taxes payable
3
(53)
Interest payable
—
(8)
Net cash provided by (used in) operating activities
3,361
(11,297)
Cash flows from investing activities:
Capital expenditures
(1,940)
(1,081)
Proceeds from sale of assets
124
67
Net cash used in investing activities
(1,816)
(1,014)
Cash flows from financing activities:
Payment for forfeited stock options
—
(617)
Payments on long term debt
(179)
(149)
Proceeds from asset-based loan
166,950
68,716
Payments on asset-based loan
(169,653)
(61,224)
Payment of asset-based loan origination costs
(164)
(574)
Payments to tax authorities for shares withheld from employees
(162)
(268)
Proceeds from issuance of stock under Employee Stock Purchase Plan
114
77
Payments for finance leases
(22)
(33)
Net cash (used in) provided by financing activities
(3,116)
5,928
Effect of changes in exchange rates on cash and cash equivalents
124
(54)
Net change in cash and cash equivalents and restricted cash
(1,447)
(6,437)
Cash and cash equivalents at the beginning of period
5,851
12,290
Restricted cash at the beginning of period
102
100
Cash and cash equivalents and restricted cash at beginning of period
5,953
12,390
Cash and cash equivalents at end of period
4,404
5,851
Restricted cash at the end of period
102
102
Cash and cash equivalents and restricted cash at end of period
$
4,506
$
5,953
The accompanying Notes are an integral part of these Consolidated Financial Statements.
35
FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Year Ended December 31, 2024
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total Stockholders’
Equity
Shares
Issued
Par
Value
Shares
Cost
Balance, December 31, 2023
30,773
$
3
1,109
$
(34,504)
$
463,140
$
127
$
(326,806)
$
101,960
Net income
—
—
—
—
—
—
10,498
10,498
Foreign currency translation adjustment
—
—
—
—
—
124
—
124
Stock issued under employee stock purchase plan
—
—
(31)
—
114
—
—
114
Restricted stock granted
94
—
—
—
—
—
—
—
Restricted stock forfeited
—
—
11
—
—
—
—
—
Restricted stock units vested
71
—
—
—
—
—
—
—
Stock compensation expense
—
—
—
—
1,366
—
—
1,366
Shares withheld to cover taxes
—
—
23
(162)
—
—
—
(162)
Balance, December 31, 2024
30,938
$
3
1,112
$
(34,666)
$
464,620
$
251
$
(316,308)
$
113,900
Year Ended December 31, 2023
Common Stock
Treasury Stock
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total Stockholders’
Equity
Shares
Issued
Par
Value
Shares
Cost
(As adjusted, see Note 13)
Balance, December 31, 2022
13,986
$
1
1,021
$
(34,251)
$
388,184
$
181
$
(351,519)
$
2,596
Net income
—
—
—
—
—
—
24,713
24,713
Foreign currency translation adjustment
—
—
—
—
—
(54)
—
(54)
Stock issued under employee stock purchase plan
—
—
(20)
—
77
—
—
77
Restricted stock granted
146
—
—
—
—
—
—
—
Restricted stock forfeited
(7)
—
66
—
—
—
—
—
Restricted stock units vested
82
—
—
—
—
—
—
—
Forfeited stock options purchased
—
—
—
—
(617)
—
—
(617)
Stock compensation expense
—
—
—
(254)
—
—
(254)
Shares withheld to cover taxes
(3)
42
(253)
(15)
—
—
(268)
Exercise of pre-funded warrants
4,228
—
—
—
—
—
—
—
Issuance of stock warrants, net of transaction fee
—
—
—
—
15,092
—
—
15,092
Conversion of convertible notes payable to Pre-Funded
Warrants
—
—
—
—
11,040
—
—
11,040
Conversion of convertible notes payable to Common
Stock
1,723
1
—
—
8,996
—
—
8,997
Conversion of Amended ProFrac Agreement Contract
Consideration Convertible Notes Payable to Common
Stock
10,583
1
—
—
40,637
—
—
40,638
Other
35
—
—
—
—
—
—
—
Balance, December 31, 2023
30,773
$
3
1,109
$
(34,504)
$
463,140
$
127
$
(326,806)
$
101,960
The accompanying Notes are an integral part of these Consolidated Financial Statements.
36
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Nature of Operations
General
Flotek creates unique solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty chemistry and data
company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company seeks to provide sustainable
and optimized chemistry and data technology solutions for both domestic and international energy markets.
The Company’s Chemistry Technologies (“CT”) segment designs, develops, manufactures, packages and distributes specialty chemicals that help customers
improve their return on invested capital, lower operational costs and realize tangible environmental benefits aimed at enhancing the profitability of hydrocarbon
producers.
The Company’s Data Analytics (“DA”) segment provides innovative analytical measurement solutions. The DA segment seeks to deliver real-time information
and insights to our customers to enable optimization of operations and reduction of emissions and their carbon intensity.
The Company’s operating segments, CT and DA, are supported by its Research & Innovation (“R&I”) advanced laboratory capabilities. For further discussion of
our operations and segments, see Note 17, “Business Segment, Geographic and Major Customer Information.”
As used herein, “Flotek,” the “Company,” “we,” “our” and “us” refers to Flotek Industries, Inc. and/or the Company’s wholly-owned subsidiaries. The use of
these terms is not intended to connote any particular corporate status or relationship.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP.
The accompanying consolidated financial statements include the accounts of Flotek Industries, Inc. and subsidiaries it controls. All significant intercompany
accounts and transactions have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less at the date of purchase.
Restricted Cash
The Company’s restricted cash was $0.1 million and $0.1 million as of December 31, 2024 and 2023, respectively. The Company’s restricted cash as of December
31, 2024 and 2023 consisted of cash that the Company is contractually obligated to maintain in accordance with the terms of its credit card program with a
financial institution.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable and accounts receivable, related party, arise from product sales and services and are recorded at the invoiced amount, net of an allowance for
credit losses. This value incorporates an allowance for credit losses to reflect any loss anticipated on accounts receivable balances. The Company applies the
current expected credit loss (CECL) model, which requires immediate recognition of expected credit losses over the contractual life of receivables and records the
appropriate allowance for credit losses as a charge to Operating Cost and Expenses. The allowance for credit losses is based on a combination of the individual
customer circumstances, credit conditions, and historical write-offs and collections. The Company writes off specific accounts receivable when they are
determined to be uncollectible. The recovery of accounts receivable previously written off is recorded as a reduction to the allowance for credit losses charged to
operating expense.
The majority of the Company’s customers are engaged in the energy industry. The cyclical nature of the energy industry may affect customers’ operating
performance and cash flows, which directly impact the Company’s ability to collect on outstanding obligations. Additionally, certain customers are located in
international areas that are inherently subject to risks of economic, political, and civil instability, which can impact the collectability of receivables.
37
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for credit losses are as follows (in thousands):
December 31, 2024
December 31, 2023
Balance, beginning of year
$
745
$
623
Charges to provision for credit losses, net of recoveries
181
138
Write-offs
(479)
(16)
Balance, end of year
$
447
$
745
As of December 31, 2024 and December 31, 2023, the Company had not recorded an allowance for credit losses for the related party accounts receivable from
ProFrac Services, LLC (see Note 17, “Related Party Transactions”).
Contract Assets
The Company’s contract assets represent consideration issued in the form of convertible notes (Contract Consideration Convertible Notes Payable as discussed in
Note 9, “Debt and Convertible Notes Payable”) and other incremental costs related to obtaining the ProFrac Agreement (see Note 17, “Related Party
Transactions”) during the year ended December 31, 2022. The contract assets are amortized over the term of the ProFrac Agreement (originally 10 years) based on
forecasted revenues as goods are transferred to ProFrac Services, LLC and the amortization is presented as a reduction of the transaction price included in related
party revenue in the consolidated statements of operations.
The contract assets are tested for recoverability on a recurring basis and the Company will recognize an impairment loss to the extent that the carrying amount of
the contract assets exceeds the amount of consideration the Company expects to receive in the future for the transfer of goods under the ProFrac Agreement less
the direct costs that relate to providing those goods in the future. Based on our tests of recoverability, we did not identify an impairment of the contract assets
during the years ended December 31, 2024 and 2023.
Inventories
Inventories consist of raw materials and finished goods and are stated at the lower of cost determined using the weighted-average cost method, or net realizable
value. Finished goods inventories include raw materials, direct labor and production overhead. The Company periodically reviews inventories on hand and current
market conditions to determine if the cost of raw materials and finished goods inventories exceeds current market prices and impairs the cost basis of the
inventory accordingly. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its net realizable value if those
amounts are determined to be less than cost. Write-downs or write-offs of inventory are charged to cost of sales.
Property and equipment
Property and equipment are stated at cost. Plant and equipment under finance leases are stated at the present value of the lease payments. The Company
capitalizes costs associated with the acquisition of major software for internal use.
The cost of ordinary maintenance and repair is charged to operating expense, while replacement of critical components and major improvements are capitalized.
Depreciation or amortization of property and equipment, including operating lease right-of-use assets (“ROU”), is calculated using the straight-line method over
the shorter of the lease term or the asset’s estimated useful life as follows:
Buildings and leasehold improvements
2-30 years
Machinery and equipment
7-10 years
Furniture and fixtures
3 years
Land improvements
20 years
Transportation equipment
2-5 years
Computer equipment and software
3-7 years
Property and equipment, including ROU assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an
asset or asset group may not be recoverable. If events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable,
the Company first compares the carrying amount of an asset or asset group to the sum of the undiscounted future cash flows expected to result from the use and
eventual disposal of the asset. If the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the
use and eventual disposal of the asset, the Company will determine the fair value of the asset or asset group. The amount of impairment loss recognized is the
excess of the asset or asset group’s carrying amount over its fair value. Fair value is determined through various valuation techniques including discounted cash
flow models, quoted market values, and third-
38
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
party independent appraisals, as considered necessary. There were no impairments of property and equipment, including ROU assets, during the years ended
December 31, 2024 and 2023.
Assets to be disposed of are reported as assets held for sale at the lower of the carrying amount or the asset’s fair value less cost to sell and depreciation is ceased.
Upon sale or other disposition of an asset, the Company recognizes a gain or loss on disposal measured as the difference between the net carrying amount of the
asset and the net proceeds received.
Leases
The Company leases certain facilities, land, vehicles, and equipment. The Company determines if an arrangement is classified as a lease at inception of the
arrangement. The Company recognizes an ROU asset and a lease liability at the lease commencement date.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the
related lease. Finance leases are under the current and non-current liabilities and the underlying assets are included in property and equipment on the consolidated
balance sheet. For operating and finance leases, the lease liability is initially measured at the present value of the unpaid lease payments at the lease
commencement date. The lease liability is subsequently measured at amortized cost using the effective-interest method.
As most of the Company’s leases do not provide an implicit rate of return, on a quarterly basis, the Company’s incremental borrowing rate is used, together with
the lease term information available at commencement date of the lease, in determining the present value of lease payments. Operating lease liabilities include the
noncancellable period of the lease plus related options to extend or terminate lease terms that are reasonably certain of being exercised. Lease payments included
in the measurement of the lease liability comprise fixed payments owed over the lease term.
Leases with an initial term of 12 months or less (“short term leases”) are not recorded on the balance sheet; and the lease expense on short-term leases is
recognized on a straight-line basis over the lease term.
The Company entered into a sublease for its former headquarters, which is being accounted for under lessor accounting. The nature of the sublease did not relieve
the Company of its obligations under the original lease. The lease for the prior headquarters was an operating lease and, as such, the Company continues to
account for the original lease as it did prior to entering the sublease. Since the former facility is not a component of the Company’s central operations, the income
from the sublease and the expenses under the original lease are recorded in Other income, net on our Consolidated Statement of Operations.
Fair Value Measurements
The Company categorizes financial assets and liabilities using a three-tier fair value hierarchy, based on the nature of the inputs used to determine fair value.
Inputs refer broadly to assumptions that market participants would use to value an asset or liability and may be observable or unobservable. When determining the
fair value of assets and liabilities, the Company uses the most reliable measurement available. See Note 10, “Fair Value Measurements.”
Revenue Recognition
The Company recognizes revenue when it satisfies performance obligations under the terms of the contract with a customer, and control of the promised goods are
transferred to the customer or services are performed, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods
or services.
The Company recognizes revenue based on a five-step model when all of the following criteria have been met: (i) a contract with a customer exists, (ii)
performance obligations have been identified, (iii) the price to the customer has been determined, (iv) the price to the customer has been allocated to the
performance obligations, and (v) performance obligations are satisfied.
Products and services are sold with fixed or determinable prices. Variable consideration is estimated for the Contract Shortfall Fees from the ProFrac Agreement
(see Note 17, “Related Party Transactions”) using the most likely amount and the Company includes an estimated amount of variable consideration in the
transaction price only if it is probable that a subsequent change in the estimate of the amount of variable consideration would not result in a significant revenue
reversal. A significant revenue reversal would occur if a subsequent change in the estimate of the variable consideration would result in a significant downward
adjustment to the amount of cumulative revenue recognized from that contract when the change in estimate occurs. Certain sales include right of return provisions,
which are considered when recognizing revenue and deferred accordingly, and discounts offered to customers for prompt payment. The Company does not act as
an agent in any of its revenue arrangements.
In recognizing revenue for products and services, the Company determines the transaction price of contracts with customers, which may consist of fixed and
variable consideration. Determining the transaction price may require judgment by management, which includes identifying performance obligations, estimating
variable consideration to include in the
39
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transaction price, and determining whether promised goods or services can be distinguished in the context of the contract. The timing of revenue recognition,
billings and cash collections results in billed and unbilled accounts receivable included in accounts receivable, net and accounts receivable, related party on our
Consolidated Balance Sheet.
The majority of the CT segment revenue is chemical products that are sold at a point in time based on when control transfers to the customer determined by agreed
upon delivery terms. Contracts with customers for the sale of products generally state the terms of the sale, including the quantity and price of each product
purchased. Additionally, the CT segment offers various services associated to products sold which includes field services, installation, maintenance, and other
functions. These services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation when the
Company has a right to invoice the customer.
The DA segment recognizes revenue for sales of equipment at the time of sale based on when control transfers to the customer based on agreed upon delivery
terms. Additionally, the Company offers various services associated to products sold which includes field services, installation, maintenance, and other functions.
Services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation. There may be additional
performance obligations related to providing ongoing or reoccurring maintenance. Revenue for these types of arrangements is recognized ratably over time
throughout the contract period. Additionally, the Company provides subscription-type arrangements with customers in which monthly reoccurring revenue is
recognized ratably over time in accordance with agreed upon terms and conditions. Customers may be invoiced for such maintenance and subscription-type
arrangements and revenue not yet recognizable is reported under accrued liabilities and deferred revenue on the consolidated balance sheets. Subscription-type
arrangements were not a material revenue stream in the years ended December 31, 2024 and 2023.
Payment terms for both the CT and DA segments are customarily 30-60 days for domestic and 90-120 days for international from invoice receipt. Under revenue
contracts for both products and services, customers are invoiced once the performance obligations have been satisfied, at which point payment is unconditional.
Contract assets and liabilities associated with incomplete performance obligations are not material.
The Company applies several practical expedients including:
•
Sales commissions are expensed as selling, general and administrative expenses when incurred because the amortization period is generally one year or
less.
•
The Company’s payment terms are short-term in nature with settlements of one year or less. As a result, the Company does not adjust the promised
amount of consideration for the effects of a significant financing component.
•
In most service contracts, the Company has the right to consideration from a customer in an amount that corresponds directly with the value to the
customer of the Company’s performance obligations completed to date and as such the Company recognizes revenue in the amount to which it has a right
to invoice.
•
The Company excludes from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and
concurrent with a specific revenue-producing transaction and collected by the entity from a customer. Such taxes are included in accrued liabilities on our
consolidated balance sheet until remitted to the governmental agency.
Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and
are included in cost of sales in our consolidated statement of operations.
Foreign Currency Translation
The Company’s functional currency is primarily the U.S. dollar. The Company operates principally in the United States and substantially all assets and liabilities
of the Company are denominated in U.S. dollars. Financial statements of foreign subsidiaries that are not U.S. dollar functional currency are prepared using the
currency of the primary economic environment of the foreign subsidiaries as the functional currency. Assets and liabilities of those foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect as of the end of identified reporting periods. Revenue and expense transactions are translated using the
average monthly exchange rate for the reporting period. Resultant translation adjustments are recognized as other comprehensive income within stockholders’
equity.
Comprehensive Income
Comprehensive income encompasses all changes in stockholders’ equity, except those arising from investments and distributions to stockholders. The Company’s
comprehensive income includes consolidated net income and foreign currency translation adjustments.
40
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and Development Costs
Expenditures for research activities relating to product development and improvement are charged to expense as incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for temporary differences between financial
statement carrying amounts and the tax bases of assets and liabilities and are measured using the tax rates expected to be in effect when the differences reverse.
Deferred tax assets are also recognized for operating loss and tax credit carry forwards. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the enactment date.
A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The establishment of a
valuation allowance requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and
verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions
are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which
the change in judgment occurs.
The Company’s policy is to record interest and penalties related to uncertain tax positions as income tax expense.
Stock-Based Compensation
Stock-based compensation expense, related to stock options, restricted stock awards and restricted stock units, is recognized based on their grant-date fair values.
The Company recognizes compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period of the award. Estimated
forfeitures are based on historical experience.
Stock Warrants
The Company evaluated the Pre-Funded Warrants issued in June 2022 (the “Pre-Funded Warrants”) (see Note 13, “Stockholders’ Equity”) in accordance with
ASC 815-40, “Contracts in Entity’s Own Equity” and determined that the warrants meet the criteria to be classified within stockholders’ equity and recorded the
proceeds received for the Pre-Funded Warrants within additional paid in capital in the consolidated balance sheets.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from these
estimates.
Significant items subject to estimates and assumptions include estimated variable consideration included in contract transaction price; the useful lives of property
and equipment; long lived asset impairment assessments; stock-based compensation expense; valuation allowances for accounts receivable, inventories, and
deferred tax assets; recoverability and timing of the realization of contract assets; and the fair value of liability classified Contract Consideration Convertible
Notes Payable until they were converted.
Recent Accounting Pronouncements
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”). We evaluate the applicability and impact of all authoritative
guidance issued by the FASB. Guidance not listed below was assessed and determined to be either not applicable, clarifications of items listed below, have no
material effect on the Company’s financial statements or are already adopted by the Company.
New Accounting Standards Issued and Adopted as of December 31, 2024
The Company has adopted ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"), effective
retrospectively for the year ended December 31, 2024. ASU 2023-07 enhances the disclosures required for operating segments in the Company's annual and
interim consolidated financial statements. As a result of this adoption, the Company's segment disclosure now includes significant expense categories. See "Note
18, “Business Segment, Geographic and Major Customer Information" for the enhanced disclosures associated with the adoption of ASU 2023-07.
41
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Standards Issued and Not Adopted as of December 31, 2024
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"), which is intended
to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 provide for enhanced income tax information
primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company prospectively to all annual
periods beginning after December 15, 2024. The Company continues to evaluate the impact of this standard on its disclosures.
The FASB issued ASU 2024-03, "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures" ("ASU 2024-03"), which
enhances the disclosures required for certain expense captions in the Company's annual and interim consolidated financial statements. ASU 2024-03 is effective
prospectively or retrospectively for fiscal years beginning after December 15, 2026 and for interim periods beginning after December 15, 2027. Early adoption is
permitted. The Company is currently evaluating the impact of this standard on its disclosures.
Note 3 — Revenue from Contracts with Customers
Disaggregation of Revenue
The Company differentiates revenue based on whether the source of revenue is attributable to product sales or service revenue. Product and service revenues
include sales to related parties as described in Note 17, “Related Party Transactions.”
Total revenue disaggregated by revenue source is as follows (in thousands):
Years ended December 31,
2024
2023
Revenue:
Products
$
180,470
$
182,695
Services
6,555
5,363
$
187,025
$
188,058
Disaggregation of Cost of Sales
The Company differentiates cost of sales based on whether the cost is attributable to tangible goods sold, cost of services sold or other costs which cannot be
directly attributable to either tangible goods or services.
Total cost of sales disaggregated is as follows (in thousands):
Years ended December 31,
2024
2023
Cost of sales:
Tangible goods sold
$
128,816
$
144,720
Services
547
528
Other
18,276
18,547
$
147,639
$
163,795
Other cost of sales represent costs directly associated with the generation of revenue but which cannot be attributed directly to tangible goods sold or services.
Examples of other costs of sales are certain personnel costs and equipment rental and insurance costs.
Cost of sales, between external customers and related party, is as follows (in thousands):
Years ended December 31,
2024
2023
Cost of sales:
Cost of sales for external customers
$
67,205
$
64,498
Cost of sales for related party
80,434
99,297
$
147,639
$
163,795
42
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Contract Assets
Contract assets are as follows (in thousands):
December 31, 2024
December 31, 2023
Contract assets
$
83,060
$
83,060
Less accumulated amortization
(14,016)
(8,404)
Contract assets, net
69,044
74,656
Less current contract assets
(5,939)
(5,836)
Contract assets, long term
$
63,105
$
68,820
In connection with entering into the Initial ProFrac Agreement and Amended ProFrac Agreement on February 2, 2022 and May 17, 2022, respectively, as
discussed in Note 9, “Debt and Convertible Notes Payable” and Note 17, “Related Party Transactions,” the Company recognized contract assets of $10.0 million
and $69.5 million, respectively, and associated fees of $3.6 million. As of December 31, 2024 and December 31, 2023, $63.1 million and $68.8 million,
respectively, of the contract assets were classified as long term based upon our estimate of the forecasted revenues from the ProFrac Agreement that will not be
realized within the next twelve months of the ProFrac Agreement. The Company’s estimate of the timing of the future contract revenues is evaluated on a
quarterly basis.
During the years ended December 31, 2024 and 2023, the Company recognized $5.6 million and $5.0 million, respectively, of contract assets amortization that is
recorded as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations. The below table reflects our
estimated amortization per year (in thousands) based on the Company’s current forecasted revenues from the ProFrac Agreement.
Years ending December 31,
Amortization
2025
$
5,939
2026
8,729
2027
10,358
2028
10,358
2029
10,358
Thereafter through May 2032
23,302
Total contract assets
$
69,044
Note 5 — Inventories
Inventories are as follows (in thousands):
December 31, 2024
December 31, 2023
Raw materials
$
4,945
$
5,299
Finished goods
13,581
13,660
Inventories
18,526
18,959
Less reserve for excess and obsolete inventory
(5,223)
(6,121)
Inventories, net
$
13,303
$
12,838
During the years ended December 31, 2024 and 2023, additional reserves recorded were $0.6 million and $0.8 million, respectively, for the CT segment and $13
thousand and $0.2 million, respectively, for the DA segment.
43
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 — Property and Equipment
Property and equipment are as follows (in thousands):
December 31, 2024
December 31, 2023
Land
$
886
$
886
Land improvements
520
520
Buildings and leasehold improvements
5,722
5,483
Machinery and equipment
8,524
6,993
Furniture and fixtures
520
520
Transportation equipment
790
945
Computer equipment and software
1,531
1,696
Property and equipment
18,493
17,043
Less accumulated depreciation
(12,315)
(11,914)
Property and equipment, net
$
6,178
$
5,129
Depreciation expense totaled $0.9 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively.
Note 7 — Leases
The components of lease expense and supplemental cash flow information are as follows (in thousands):
Years ended December 31,
2024
2023
Operating lease expense
$
2,703 $
3,552
Finance lease expense:
Amortization of assets
15
15
Interest on lease liabilities
1
3
Total finance lease expense
16
18
Short-term lease expense
1,383
300
Total lease expense
$
4,102 $
3,870
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
5,399 $
5,508
Operating cash flows from finance leases
30
34
Financing cash flows from finance leases
1
3
Maturities of lease liabilities as of December 31, 2024 are as follows (in thousands):
Years ending December 31,
Operating Leases
2025
$
2,121
2026
1,693
2027
1,741
2028
1,602
2029
1,641
Thereafter
1,407
Total lease payments
$
10,205
Less: Interest
(2,205)
Present value of lease liabilities
$
8,000
44
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental balance sheet information related to leases is as follows (in thousands):
December 31, 2024
December 31, 2023
Operating Leases
Operating lease right-of-use assets
$
3,326
$
5,030
Current portion of operating lease liabilities
1,486
2,449
Long-term operating lease liabilities
6,514
7,676
Total operating lease liabilities
$
8,000
$
10,125
Finance Leases
Property and equipment
$
—
$
147
Accumulated depreciation
—
(70)
Property and equipment, net
$
—
$
77
Current portion of finance lease liabilities
$
—
$
22
Total finance lease liabilities
$
—
$
22
Weighted Average Remaining Lease Term
Operating leases
5.4 years
5.5 years
Finance leases
—
0.6 years
Weighted Average Discount Rate
Operating leases
9.4 %
9.5 %
Finance leases
— %
8.5 %
Sublease Income
On April 1, 2023, the Company entered into an agreement to sublease its office and lab space in Houston, Texas beginning September 1, 2023 and continuing
through October 30, 2030. The Company recorded rental income from the sublease of $0.7 million and $0.3 million for the years ended December 31, 2024 and
2023, respectively, which is included in the Company’s statement of operations in Other income (expense), net. Rental income from the sublease offsets the
monthly rental expense from the Company’s lease of the facility. Sublease rental income for future years are as follows (in thousands):
Years ending December 31,
Rental Income
2025
$
767
2026
767
2027
767
2028
767
2029
767
Thereafter
639
Total rental income
$
4,474
45
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Accrued Liabilities
Current accrued liabilities are as follows (in thousands):
December 31, 2024
December 31, 2023
Severance costs
$
380
$
648
Payroll and benefits
2,901
2,138
Legal costs
99
37
Contingent liability for earn-out provision
127
56
Deferred revenue
808
550
Financed insurance
1,074
1,573
Other
523
888
Total current accrued liabilities
$
5,912
$
5,890
Note 9 — Debt and Convertible Notes Payable
Asset Based Loan
In August 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an Asset Based Loan, which was amended in
October 2023 and August 2024 (as amended the “ABL”). The August 2024 amendment to the ABL extended the maturity to August 2026, increased the credit
availability and lowered the interest rate spread. The ABL provides up to $20.0 million of credit availability, which is limited by a borrowing base consisting of (i)
85% of eligible accounts receivable, plus (ii) 60% of the value of eligible inventory not to exceed 100% of the eligible accounts receivable, plus (iii) 60% of the
value of certain real estate holdings.
As of December 31, 2024 and 2023, the Company had $4.8 million and $7.5 million, respectively, outstanding under the ABL. As of December 31, 2024, the
Company had approximately $8.9 million of available borrowings under the ABL. During the years ended December 31, 2024 and 2023, the Company incurred
$0.7 million and $0.5 million, respectively, in interest and fees related to the ABL. As of December 31, 2024 and 2023, the Company recorded $0.3 million and
$0.5 million, respectively, of unamortized deferred financing costs related to the ABL.
Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50%) plus 2.0% per annum. The interest rate under the ABL
was 9.5% and 11.0% as of December 31, 2024 and 2023, respectively. For the year ended December 31, 2024, the weighted-average interest rate was 10.8%. The
ABL contains an annual commitment fee equal to 1.0% of the ABL’s borrowing base. Additionally, the Company will be assessed a non-usage fee of 0.25% per
quarter based on the difference between the average daily outstanding balance and the borrowing base limit of the ABL. If the ABL is terminated prior to the end
of its term, the Company is required to pay an early termination fee of 2.50% of the borrowing base limit of the ABL (if terminated with more than 12 months
remaining until the maturity date) or 1.50% of the borrowing base limit of the ABL (if terminated with less than 12 months remaining until the maturity date).
The ABL contains customary representations, warranties, covenants and events of default, the occurrence of which would permit the lender to accelerate the
payment of any amounts borrowed. The ABL requires the Company to maintain a minimum Tangible Net Worth (as defined in the ABL) of not less than
$11 million. In addition, the ABL provides the lender a blanket security interest on all or substantially all of the Company’s assets. The Company was in
compliance with all of the covenants under the ABL as of December 31, 2024.
Paycheck Protection Program Loan
In April 2020, the Company received a $4.8 million loan (the “Flotek PPP loan”) under the Paycheck Protection Program (“PPP”), which was created through the
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). In October 2021,
the Flotek PPP loan maturity date was extended from April 15, 2022 to April 15, 2025. On January 5, 2023, the Company received notice from the SBA that
$4.4 million of the $4.8 million principal amount and accrued interest to that date of $0.1 million were forgiven. The remaining principal amount of $0.4 million
and accrued interest is to be repaid in monthly installments of $15 thousand over the remaining term of the loan through April 15, 2025. The forgiveness of the
Flotek PPP loan was accounted for as an
46
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
extinguishment of the debt and the Company recorded a $4.5 million gain in the year ended December 31, 2023, comprising the principal amount forgiven of
$4.4 million and accrued interest of $0.1 million.
Long-term debt, including current portion, is as follows (in thousands):
December 31, 2024
December 31, 2023
Flotek PPP loan
$
60
$
239
Less current maturities
(60)
(179)
Total long-term debt, net of current portion
$
—
$
60
Convertible Notes Payable
On February 2, 2022, Flotek entered into a Private Investment in Public Equity transaction (the “PIPE transaction”) with a consortium of investors to secure
growth capital for the Company. Pursuant to the PIPE transaction, Flotek issued $21.2 million in aggregate initial principal amount of Convertible Notes Payable
for net cash proceeds of approximately $20.1 million (the “Convertible Notes Payable”). The investors were ProFrac Holdings, LLC, Burlington Ventures Ltd.,
entities associated with North Sound Management, certain funds associated with one of Flotek’s former directors including the D3 Family Fund and the D3
Bulldog Fund, and Firestorm Capital LLC. The Convertible Notes Payable accrued paid-in-kind interest at a rate of 10% per annum, had a maturity of one year,
and were convertible into common stock of Flotek or Pre-Funded Warrants to purchase common stock of Flotek. The issuance cost was amortized on a straight-
line basis over the term of the Convertible Notes Payable and the amortization was included in interest expense in the consolidated statements of operations.
On March 21, 2022, a portion of the Convertible Notes Payable, plus accrued paid-in-kind interest thereon, were converted at the holder’s option into shares of
common stock.
Upon maturity on February 2, 2023, the Convertible Notes Payable, excluding those held by ProFrac Holdings, LLC, with a carrying value of $9.0 million,
including accrued paid-in-kind interest of $0.8 million, were converted into 1,722,640 shares of the Company’s common stock.
The Convertible Notes Payable held by ProFrac Holding, LLC, with a carrying value of $11.0 million, including accrued paid-in-kind interest of $1.0 million,
were converted, upon maturity, into 2,113,880 February 2023 Warrants with an exercise price of $0.0001 per share and were recorded as additional paid in capital
upon conversion. On September 6, 2023, the February 2023 Warrants were exercised and the Company issued 2,113,880 shares of the Company’s common stock.
Initial ProFrac Agreement Contract Consideration Convertible Notes Payable
On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (the “Initial ProFrac Agreement”), a subsidiary of
ProFrac Holdings LLC, in exchange for $10 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (“Initial ProFrac
Agreement Contract Consideration Convertible Notes Payable”), under the same terms as the Convertible Notes Payable issued in the PIPE transaction described
above.
On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable, remeasured to and carried at a fair value of $15.1 million
(see Note 10, “Fair Value Measurements”), were converted, upon maturity, into 2,113,881 February 2023 Warrants with an exercise price of $0.0001 per share and
were recorded as additional paid in capital upon conversion. On September 6, 2023, the February 2023 Warrants were exercised and the Company issued
2,113,881 shares of the Company’s common stock.
Amended ProFrac Agreement Contract Consideration Convertible Notes Payable
On May 17, 2022, the Company entered into an amendment to the Initial ProFrac Agreement (the “Amended ProFrac Agreement” and collectively with the Initial
ProFrac Agreement, the “ProFrac Agreement”) upon issuance of $50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable
(“Amended ProFrac Agreement Contract Consideration Convertible Notes Payable”) to ProFrac. The Amended ProFrac Agreement Contract Consideration
Convertible Notes Payable accrued paid-in-kind interest at a rate of 10% per annum.
On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, remeasured to and carried at a fair value of $40.6 million
(see Note 10, “Fair Value Measurements”), were converted, upon maturity, into 10,582,821 shares of common stock.
47
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 — Fair Value Measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. The Company categorizes financial assets and liabilities into the three levels of the fair value hierarchy. The hierarchy prioritizes the inputs
to valuation techniques used to measure fair value and bases categorization within the hierarchy on the lowest level of input that is available and significant to the
fair value measurement.
•
Level 1 — Quoted prices in active markets for identical assets or liabilities;
•
Level 2 — Observable inputs other than Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•
Level 3 — Significant unobservable inputs that are supported by little or no market activity or that are based on the reporting entity’s assumptions about
the inputs.
Fair Value of Other Financial Instruments
The carrying amounts of certain financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accrued liabilities, accounts
payable and ABL approximate fair value due to the short-term nature of these accounts.
Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the Company’s liabilities that are measured at fair value on a recurring basis and the level within the fair value hierarchy (in
thousands):
December 31,
December 31,
Level 1
Level 2
Level 3
2024
Level 1
Level 2
Level 3
2023
Contingent earnout
consideration
$
— $
— $
127 $
127
$
— $
— $
56
$
56
Total
$
— $
— $
127 $
127
$
— $
— $
56
$
56
Contingent Earnout Consideration Key Inputs
In connection with the acquisition of one of the Company’s wholly owned subsidiaries, JP3 Measurement, LLC, the Company entered into a stock performance
earn-out provision with the sellers. The estimated fair value of the remaining stock performance earn-out provision, with respect to this transaction, is included in
accrued liabilities as of December 31, 2024 and December 31, 2023. The estimated fair value of the earn-out provision at the end of each period was valued using
a Monte Carlo model analyzing 20,000 simulations performed using Geometric Brownian Motion with inputs such as risk-neutral expected growth and volatility.
December 31, 2024
December 31, 2023
Risk-free interest rate
4.30 %
4.58 %
Expected volatility
65.0 %
70.0 %
Term until liquidation (years)
0.38
1.38
Stock price
$
9.53
$
3.92
Discount rate
8.00 %
11.86 %
Initial ProFrac Agreement Contract Consideration Notes Payable Key Inputs
The Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were measured at fair value at issuance and on a recurring basis. The Initial
ProFrac Agreement Contract Consideration Convertible Notes Payable had an initial fair value of $10.0 million on February 2, 2022.
On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured, upon maturity, to a fair value of $15.1
million based on the closing price of the shares of common stock on the date of conversion. The fair value adjustment was a $0.8 million increase for the year
ended December 31, 2023.
48
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amended ProFrac Agreement Contract Consideration Convertible Notes Payable Key Inputs
The Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were measured at fair value at issuance and on a recurring basis. The
Amended ProFrac Agreement Contract Consideration Convertible Notes Payable had an initial fair value of $69.5 million on May 17,2022.
On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured, at maturity, to a fair value of $40.6
million based on the closing price of the shares of common stock on the date of conversion resulting in a gain in fair value of Amended ProFrac Agreement
Contract Consideration Convertible Note Payable of $30.8 million for the year ended December 31, 2023.
Assets Measured at Fair Value on a Nonrecurring Basis
The Company’s non-financial assets, including property and equipment and operating lease ROU assets, are measured at fair value on a non-recurring basis and
are subject to adjustment to their fair value in certain circumstances.
Level 3 Rollforward for Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the changes in balances of liabilities for the years ended December 31, 2024 and 2023 classified as Level 3 (in thousands):
Years ended December 31,
2024
2023
Balance - beginning of period
$
56 $
84,153
Increase in principal of Initial ProFrac Agreement Contract Consideration Convertible Notes
Payable for paid-in-kind interest
—
85
Increase in principal of Amended ProFrac Agreement Contract Consideration Convertible
Notes Payable for paid-in-kind interest
—
2,043
Change in fair value of contingent earnout consideration
71
(527)
Change in fair value of Initial ProFrac Agreement Contract Consideration Convertible Notes
Payable
—
786
Change in fair value of Amended ProFrac Agreement Contract Consideration Convertible
Notes Payable
—
(30,754)
Conversion of Initial ProFrac Agreement Contract Consideration Convertible Notes Payable
on maturity
—
(15,092)
Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes
Payable on maturity
—
(40,638)
Balance - end of period
$
127 $
56
Note 11 — Income Taxes
Components of the income tax expense are as follows (in thousands):
Years ended December 31,
2024
2023
Current:
Federal
$
—
$
—
State
400
45
Foreign
—
—
Total current expense
400
45
Deferred:
Federal
—
—
State
249
104
Foreign
—
—
Total deferred expense
249
104
Income tax expense
$
649
$
149
49
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Current state income tax expense during the year ended December 31, 2024 related to the resolution of certain state tax audits for the years ended December 31,
2016 and 2017.
The components of income before income taxes are as follows (in thousands):
Years ended December 31,
2024
2023
United States
$
11,000
$
25,315
Foreign
147
(453)
Income before income taxes
$
11,147
$
24,862
The income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% respectively, to income before income tax for
the reasons set forth below:
Years ended December 31,
2024
2023
U.S. federal statutory tax rate
21.0 %
21.0 %
State income taxes, net of federal benefit
4.6
0.5
Non-U.S. income taxed at different rates
(0.5)
0.3
Tax benefit related to stock-based awards
(0.2)
0.7
Change in valuation allowance
(21.4)
(20.9)
Permanent differences related to CARES Act
—
(3.6)
Other
2.3
2.6
Effective income tax rate
5.8 %
0.6 %
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the
value reported for income tax purposes, at the enacted tax rates expected to be in effect when the differences reverse.
50
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The component of deferred tax assets and liabilities are as follows (in thousands):
December 31,
2024
2023
Deferred tax assets:
Net operating loss carryforwards
$
43,818
$
45,314
Intangible assets
3,252
3,501
Tax credit carryforwards
3,861
3,923
Goodwill
4,008
4,513
Property and equipment
3,096
3,314
Lease liability
2,008
2,507
Inventory valuation reserves
1,102
1,359
Allowance for doubtful accounts
1,164
1,196
Accrued liabilities
279
383
Accrued compensation
599
485
Equity compensation
148
132
Interest limitation
—
137
Other
—
24
Total gross deferred tax assets
63,335
66,788
Valuation allowance
(56,333)
(59,066)
Total deferred tax assets, net
7,002
7,722
Deferred tax liabilities:
ROU asset
(818)
(1,203)
Contract asset
(5,753)
(5,813)
Prepaid insurance and other
(380)
(406)
Total gross deferred tax liabilities
(6,951)
(7,422)
Net deferred tax assets
$
51
$
300
As of December 31, 2024, the Company had U.S. net operating loss carryforwards (“NOLs”) of $187.0 million, including $40.6 million expiring in various
amounts from 2029 through 2037 which can offset 100% of taxable income and $146.4 million that has an indefinite carryforward period which can offset 80% of
taxable income per year. Additionally, the Company has an estimated $75.7 million in certain state NOL carryforwards and $3.8 million in tax credit
carryforwards.
As a result of the ownership change experienced in 2023 (see Note 17, “Related Party Transaction”), the Company’s ability to use NOLs to reduce taxable income
is generally limited by Section 382 of the Internal Revenue Code of 1986 to an annual amount, of $3.5 million plus an uplift of $24.5 million. NOLs that exceed
the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the
carryover period subject to the limitation in each year. The Company’s use of new NOLs arising after the date of the ownership change would not be impacted by
the Section 382 limitation. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward
periods, then the ability to apply those NOLs as offsets to future taxable income is lost. Based on an analysis of the Section 382 limitation, the Company estimates
that $0.9 million of the state NOL carryforwards and $3.8 million of the tax credit carryforwards will expire unutilized. Although the ownership change will
significantly limit the ability of the Company to utilize the pre-change net operating losses and credits, the Company does not expect a significant impact to its
financial statements given the valuation allowance that is recorded to estimate the realizability of the deferred tax assets.
The Company’s cumulative losses (before permanent items) of $6.3 million in the three years ended December 31, 2024 are negative evidence that it will not
likely generate sufficient future taxable income to utilize its deferred tax assets. Therefore, the Company believes that it is not more likely than not that it will
realize its deferred tax assets in all taxing jurisdictions with the exception of a portion related to the State of Texas. Therefore, the Company recorded a valuation
allowance as of December 31, 2024 and December 31, 2023 to reflect the estimated amount of deferred tax asset realizability. The change in valuation allowance
was ($2.7) million and ($5.2) million during the years ended December 31, 2024 and 2023, respectively.
The Company does not have documented plans to reinvest the unremitted earnings of its non-U.S. subsidiaries. As of December 31, 2024 and 2023, the Company
had approximately $6.4 million and $6.3 million, respectively, in unremitted earnings from its
51
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
foreign jurisdictions. As a result of the 2017 Tax Act these earnings have been previously taxed in the U.S. although they have not been repatriated. However,
certain withholding taxes may need to be paid upon repatriation depending on the US treaty with the applicable country. Because all of the Company’s foreign
earnings have been previously taxed, the requirement to record a deferred tax liability on such unremitted earnings is not applicable.
The Company has performed an analysis of its tax positions for the years ended December 31, 2024 and 2023, concluding all tax positions taken were highly
certain. As of December 31, 2024, the Company is not under examination in any federal/national jurisdictions. The tax returns for the years ended 2021 through
2023 remain subject to examination in the US, and the tax returns for the years ended December 31, 2020 through 2023 remain subject to examination in various
state jurisdictions.
Note 12 — Commitments and Contingencies
Litigation
From time to time, the Company is subject to litigation and other claims that arise in the normal course of business. As of December 31, 2024, the Company was
not party to any legal proceedings that, individually or in the aggregate, are reasonably expected to have a material adverse effect on the Company’s results of
operations, financial condition or cash flows. However, the results of current or future matters cannot be predicted with certainty; an unfavorable resolution of one
or more of such matters could have a material adverse effect on the Company’s results of operations, financial condition or cash flows.
Other Commitments and Contingencies
The Company is subject to concentrations of credit risk within trade accounts receivable and related party accounts receivable, as the Company does not generally
require collateral as support for trade receivables. In addition, the majority of the Company’s cash is invested in three major U.S. financial institutions and
balances often exceed insurable amounts.
Note 13 — Stockholders’ Equity
Conversion of Convertible Notes Payable
On February 2, 2023, the Convertible Notes Payable pursuant to the PIPE transaction discussed in Note 9, “Debt and Convertible Notes Payable,” excluding those
held by ProFrac Holdings, LLC, were converted, upon maturity, into 1,722,640 shares of common stock. The Convertible Notes Payable converted into common
stock had a carrying value of $9.0 million, including accrued paid-in-kind interest of $0.8 million and were recorded as additional paid-in-capital upon conversion.
The Convertible Notes Payable held by ProFrac Holding, LLC, with a carrying value of $11.0 million, including accrued interest of $1.0 million, were converted,
upon maturity, into 2,113,880 February 2023 Warrants with an exercise price of $0.0001 per share and were recorded as additional paid-in-capital upon
conversion. On September 6, 2023, the February 2023 Warrants issued upon the conversion of the Convertible Notes Payable held by ProFrac Holding, LLC were
exercised and the Company issued 2,113,880 shares of the Company’s common stock.
On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes
Payable,” remeasured to a fair value of $15.1 million upon maturity, were converted into 2,113,881 February 2023 Warrants and were recorded as additional paid-
in-capital upon conversion. On September 6, 2023, the February 2023 Warrants issued upon the conversion of the Initial ProFrac Agreement Contract
Consideration Convertible Notes Payable were exercised and the Company issued 2,113,881 shares of the Company’s common stock.
On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes
Payable”, were converted, upon maturity, into 10,582,821 shares of common stock. The Contract Consideration Convertible Notes Payable, remeasured to a fair
value of $40.6 million upon maturity, were recorded as additional paid-in-capital upon conversion.
Pre-Funded Warrants
On June 21, 2022, ProFrac Holdings II, LLC paid $19.5 million for Pre-Funded Warrants (the “June 2022 Warrants”) of the Company. The June 2022 Warrants
permit ProFrac Holdings II, LLC to purchase 2,184,140 shares of the Company’s common stock at an exercise price equal to $0.0001 per share, subject to a $4.5
million exercise fee.
52
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ProFrac Holdings II, LLC and its affiliates may not receive any voting or consent rights in respect of the June 2022 Warrants or the underlying shares of common
stock unless and until ProFrac Holdings II, LLC has paid an additional $4.5 million to the Company; provided, however, that ProFrac Holdings II may exercise
the June 2022 Warrants immediately prior to the sale of the shares of common stock subject to such exercise to a non-affiliate of ProFrac Holdings II. The
additional $4.5 million will be accounted for as an equity contribution if received.
Treasury Stock
The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity. During the years ended
December 31, 2024 and 2023, the Company withheld 23 thousand shares and 42 thousand shares, respectively, of the Company’s common stock at fair market
value for payment of income tax withholding owed by employees upon the vesting of restricted shares and the exercise of stock options. Shares issued as
restricted stock awards to employees under the 2018 long-term incentive plan are accounted for as treasury stock when forfeited. During the years ended
December 31, 2024 and 2023, forfeited stock awards returned to treasury stock were 11 thousand shares and 66 thousand shares, respectively.
Note 14 — Stock-Based Compensation and Other Benefit Plans
Stock-Based Incentive Plans
In June 2024, Company stockholders approved an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan (the “2018 Plan”) to increase the
number of shares of Company common stock eligible for issuance under the 2018 Plan. The 2018 Plan permits the Company to grant equity awards to officers,
key employees, non-employee directors and service providers in the form of stock options, restricted stock, restricted stock units, and certain other incentive
awards. In addition, the Company has two other long-term incentive plans, which were created in 2020 and 2019 (the “2020 Plan” and “2019 Plan,” respectively).
The maximum number of shares that may be issued under the 2020 Plan, the 2019 Plan and 2018 Plan are 0.5 million, 0.2 million, and 2.4 million, respectively.
At December 31, 2024 and 2023, the Company had 0.6 million and 0.6 million shares remaining, respectively, to be granted under the 2020 Plan, 2019 Plan and
2018 Plan in the aggregate.
Stock Options
All stock options are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant. During the year ended
December 31, 2024, there were no grants of market-based or performance-based stock options compared to 0.1 million market-based stock options and 0.1 million
performance-based stock options that were granted during the year ended December 31, 2023. The market-based and performance-based options are restricted
until criteria defined in the stock option agreements are met.
Proceeds received from stock option exercises are credited to common stock and additional paid-in capital, as appropriate. The Company uses historical data to
estimate pre-vesting option forfeitures. Estimates are adjusted when actual forfeitures differ from the estimate. Stock-based compensation expense is recorded for
all equity awards expected to vest. During the year ended December 31, 2024, 24 thousand stock options vested compared to none for the year ended
December 31, 2023. The total fair value of the stock options that vested was $0.1 million for the year ended December 31, 2024.
53
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity for the years ended December 31, 2024 and 2023, was as follows:
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Fair Value
Outstanding as of December 31, 2022
693,650
Granted
190,728
$
3.42
$
2.57
Exercised
—
$
—
$
—
Forfeited
(457,815)
$
7.10
$
7.28
Expired
(130,000)
$
7.97
$
5.94
Outstanding as of December 31, 2023
296,563
Granted
—
$
—
$
—
Exercised
—
$
—
$
—
Forfeited
(29,367)
$
6.58
$
4.49
Expired
(47,918)
$
5.46
$
5.47
Outstanding as of December 31, 2024
219,278
Vested or expected to vest at December 31, 2024
185,489
The below table shows the aggregate intrinsic value and weighted average remaining contractual term of share options outstanding, currently exercisable and
vested or expected to vest.
Share Options
Outstanding
Share Options
Currently
Exercisable
Share Options
Vested or Expected
to Vest
Number
219,278
34,306
185,489
Weighted-average exercise price
$
3.91
$
6.49
$
3.97
Aggregate intrinsic value ($000’s)
$
1,230
$
102
$
1,029
Weighted-average remaining contractual term in years
8.12
4.64
8.03
The following table sets forth significant assumptions used in the Monte Carlo model for market-based options to determine the fair value of the 61,984 options
awarded in June 2023 at the date of grant.
June 7, 2023 Awards
Risk-free interest rate
3.79 %
Expected volatility of common stock
110.00 %
Expected life of options in years
10.0
Dividend yield
— %
The following table sets forth significant assumptions used in the Black-Scholes model for performance options to determine the fair value of the 128,744 options
awarded in December 2023 at the date of grant.
December 5, 2023 Awards
Risk-free interest rate
4.13 %
Expected volatility of common stock
90.60 %
Expected life of options in years
6.5
Dividend yield
— %
At December 31, 2024 and 2023, the unrecognized compensation cost related to stock options was $0.4 million and $0.6 million, respectively.
There were no options granted during the year ended December 31, 2024.
54
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock
The Company grants employees and directors either time-vesting or performance-based restricted shares of common stock (“RSAs”) in accordance with terms
specified in the applicable RSA Agreements. During the years ended December 31, 2024 and 2023, all of the RSAs granted were time-vested. Grantees of RSAs
retain voting rights for the granted restricted shares.
•
Time-vesting RSAs vest after a stipulated period has elapsed after the date of grant, generally three years. Certain time-vested RSAs have also been
issued with a portion of the shares granted vesting immediately.
•
Performance-based RSAs are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.
RSA activity for the years ended December 31, 2024 and 2023, are as follows:
Restricted Stock Shares
Shares
Weighted-
Average Fair
Value at Date of
Grant
Non-vested RSAs at December 31, 2022
384,534
$
8.23
Granted
146,204
$
4.52
Vested
(186,058)
$
7.81
Forfeited
(95,667)
$
9.25
Non-vested RSAs at December 31, 2023
249,013
$
5.97
Granted
93,760
$
4.43
Vested
(182,319)
$
5.47
Forfeited
(11,528)
$
7.77
Non-vested RSAs at December 31, 2024
148,926
$
5.46
The total fair value of RSAs that vested during the years ended December 31, 2024 and 2023 was $0.9 million and $0.9 million, respectively. The grant-date fair
value is the market price of the RSAs on the date of grant.
At December 31, 2024 and 2023, unrecognized compensation expense related to non-vested RSAs was $0.4 million and $0.9 million, respectively. The
unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.5 years.
Restricted Stock Units
The Company grants either time-vesting or performance-based restricted share units (“RSUs”) in accordance with terms specified in the applicable RSU
Agreements. Grantees of RSUs do not have voting rights for the granted RSUs until such time as the applicable RSUs vests and shares of common stock are
issued.
•
Time-vesting RSUs vest after a stipulated period has elapsed after the date of grant, generally three years.
•
Performance-based RSUs are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.
55
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RSU activity for the years ended December 31, 2024 and 2023, was as follows:
Restricted Stock Units
Units
Weighted-
Average Fair
Value at Date of
Grant
Non-vested RSUs at December 31, 2022
102,481
$
11.42
Granted
230,816
$
3.82
Vested
(82,730)
$
10.64
Forfeited
(38,000)
$
11.58
Non-vested RSUs at December 31, 2023
212,567
$
3.44
Granted
459,054 $
4.81
Vested
(71,476)
$
3.75
Forfeited
(48,098)
$
3.28
Non-vested RSUs at December 31, 2024
552,047
$
4.55
The total fair value of RSUs that vested during the years ended December 31, 2024 and 2023 was $0.5 million and $0.5 million, respectively. The grant-date fair
value is the market price of the shares on the date of grant.
The RSUs granted in 2024 included 147,050 performance-based RSUs, half of which will vest upon achievement of a market-based criteria and half of which will
vest upon achievement of a non-market-based criteria. The units with a market-based vesting criteria were valued using a Monte Carlo valuation model to
determine the fair value of the awards as of the date of the grant.
The following table sets forth significant assumptions used in the Monte Carlo model to determine the grant date fair value of the 73,525 performance-based
RSUs with a market-based vesting criteria awarded in 2024.
October 30, 2024 Awards
Risk-free interest rate
4.20 %
Expected volatility of common stock
53.10 %
Expected life of RSU in years
1.2
Dividend yield
— %
At December 31, 2024 and 2023, unrecognized compensation expense related to RSUs was $2.3 million and $0.7 million, respectively. The unrecognized
compensation expense is expected to be recognized over a weighted-average period of 2.3 years. Non-vested RSUs at December 31, 2024 consist of both time-
vesting and performance-based awards.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) was approved by stockholders in 2012. The Company registered 500,000 shares of its common stock,
currently held as treasury shares, for issuance under the ESPP. The purpose of the ESPP is to provide employees with an opportunity to purchase shares of the
Company’s common stock through accumulated payroll deductions. The ESPP allows participants to purchase common stock at a purchase price equal to 85% of
the fair market value of the common stock on the last business day of a three-month offering period which coincides with calendar quarters. Payroll deductions
may not exceed 10% of an employee’s compensation. In addition, for each calendar year, an employee may not be granted purchase rights valued over $25,000, as
determined at the time such purchase right is granted. The fair value of the discount associated with shares purchased under the plan is recognized as stock-based
compensation expense and was $20 thousand and $14 thousand for the years ended December 31, 2024 and 2023, respectively. The total fair value of the shares
purchased under the plan during the years ended December 31, 2024 and 2023 was $0.1 million and $0.1 million, respectively. The employee payment associated
with participation in the plan occurs through payroll deductions.
Stock-Based Compensation Expense
Stock-based compensation expense related to stock options, restricted stock, restricted stock unit grants and stock purchased under the Company’s ESPP was $1.4
million and $(0.3) million during the years ended December 31, 2024 and 2023, respectively. Stock based compensation expense for the year ended December 31,
2023 included an adjustment for actual forfeitures of $1.6 million that reduced the total stock-compensation expense.
56
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2023, the Company settled vested equity awards of a terminated officer through a cash payment. The cash payment was made to the employee in lieu of
the equity awards, which were previously granted and vested. The settlement amount was determined based on the fair value of the equity awards at the time of
termination. The Company used the Black-Scholes Model to value the vested equity awards. This transaction resulted in a reduction of the Company's equity
awards liability and a corresponding outflow of cash for $0.6 million.
The key inputs to the Black-Scholes Model used to estimate the fair value of the vested equity awards, as of the date of the termination were as follows:
January 19, 2023
Risk-free interest rate
3.79 %
Expected volatility of common stock
90.00 %
Expected life of options in years
6.92
Stock price (1)
$
1.37
Strike Price
$
1.93
(1)
Stock price is based on the price of common shares prior to the Company’s 1-for-6 reverse stock split in September 2023.
401(k) Retirement Plan
The Company maintains a 401(k) retirement plan for the benefit of eligible employees in the U.S. All U.S. based employees are eligible to participate in the plan
upon employment. The Company currently matches contributions at 100% of up to 2% of an employee’s contributions.
During the years ended December 31, 2024 and 2023, compensation expense included $0.3 million and $0.3 million, respectively, related to the Company’s
401(k) match.
Note 15 — Earnings (Loss) Per Share
Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period
(See Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”). Diluted earnings (loss) per common share is calculated by dividing the
adjusted net income (loss) by the weighted average number of common shares outstanding combined with dilutive common share equivalents outstanding, if the
effect is dilutive. Potentially dilutive common share equivalents consist of incremental shares of common stock issuable upon conversion of convertible notes
payable, exercise of stock warrants and vesting and settlement of stock awards. The dilutive effect of non-vested stock issued under share‑based compensation
plans, shares issuable under the Employee Stock Purchase Plan (ESPP), employee stock options outstanding, and the Pre-Funded stock warrants are computed
using the treasury stock method. The dilutive effect of the Convertible Notes is computed using the if‑converted method.
57
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The calculation of the basic and diluted earnings (loss) per share for the years ended December 31, 2024 and 2023 is as follows (in thousands):
Years ended December 31,
2024
2023
Numerator:
Net income for basic earnings per share
$
10,498
$
24,713
Adjustments to net income available to shareholders
Paid-in-Kind interest expense on convertible notes payable and Contract
Consideration Convertible Notes Payable
—
2,284
Valuation gain on Contract Consideration Convertible Notes Payable carried at fair
value
—
(29,969)
Adjusted net income (loss) for diluted earnings per share
$
10,498
$
(2,972)
Denominator:
Basic weighted average shares outstanding
29,534
24,830
Dilutive effect of convertible notes payable
—
3,547
Dilutive effect of the June 2022 warrants
1,210
—
Dilutive effect of stock options and restricted shares
145
—
Diluted weighted average shares outstanding
30,889
28,377
Basic earnings per share
$
0.36
$
1.00
Diluted earnings (loss) per share
$
0.34
$
(0.10)
Anti-dilutive incremental shares excluded from denominator for diluted earnings computation
Average number of diluted shares for June 2022 warrants
—
1,251
Average number of diluted shares for options and restricted stock
—
94
(1) These items were not included in the dilution calculation for the year ended December 31, 2023 due to their anti-dilutive effect as it would reduce the loss per share.
Note 16 — Supplemental Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Years ended December 31,
2024
2023
Supplemental cash flow information:
Interest paid
$
846
$
434
Income taxes
50
—
Supplemental non cash financing and investing activities:
Conversion of convertible notes payable to common stock
—
8,997
Conversion of convertible notes payable to February 2023 Warrants
—
11,040
Conversion of Initial Contract Consideration Convertible Notes Payable to February
2023 Warrants
—
15,092
Conversion of Amended Contract Consideration Convertible Notes Payable to
common stock
—
40,638
(1)
(1)
58
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17— Related Party Transactions
On February 2, 2022, the Company entered into the Initial ProFrac Agreement, upon issuance of $10 million in aggregate principal amount of the convertible
notes (the “Contract Consideration Convertible Notes Payable”) to ProFrac Holdings LLC (see Note 9, “Debt and Convertible Notes Payable”). Under the Initial
ProFrac Agreement, ProFrac Services, LLC was obligated to order chemicals from the Company at least equal to the greater of (a) the chemicals required for 33%
of ProFrac Services, LLC’s hydraulic fracturing fleets and (b) a baseline measured by the first ten hydraulic fracturing fleets deployed by ProFrac Services, LLC
during the term of the Initial ProFrac Agreement. If the minimum volumes are not achieved in any given year, ProFrac Services LLC is required to pay to the
Company, as liquidated damages an amount equal to twenty-five percent (25%) of the difference between (i) the aggregate purchase price of the quantity of
products comprising the minimum purchase obligation and (ii) the actual purchased volume during such calendar year (“Contract Shortfall Fees”).
On May 17, 2022, the Company entered into the Amended ProFrac Agreement upon issuance of $50 million in aggregate principal amount of Contract
Consideration Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”). The Initial ProFrac Agreement was amended to (a) increase
ProFrac Services LLC’s minimum purchase obligation for each year to the greater of 70% of ProFrac Services LLC’s requirements and a baseline measured by
ProFrac Services, LLC’s first 30 hydraulic fracturing fleets, and (b) increase the term to 10 years.
On February 2, 2023, the Company entered into another amendment to the ProFrac Agreement (the “Amended ProFrac Agreement No. 2”). The Amended
ProFrac Agreement No. 2 has an effective date of January 1, 2023. The ProFrac Agreement was amended to (1) provide a ramp-up period from January 1, 2023 to
May 31, 2023 for ProFrac Services, LLC to increase the number of active hydraulic fracturing fleets to 30 fleets, (2) waive any Contract Shortfall Fee payment
relating to any potential order shortfall prior to January 1, 2023, (3) add additional fees to certain products, and (4) provide margin increases based on margins
with non-ProFrac customers.
During the measurement period for Contract Shortfall Fees of January 1, 2024 through December 31, 2024, the minimum purchase requirements were not met
and, as a result, related party revenues for the year ended December 31, 2024 reflect variable consideration for Contract Shortfall Fees of $32.4 million. The
measurement period for 2023 was June 1, 2023 through December 31, 2023. Related party revenues for the year ended December 31, 2023 included $20.1 million
of Contract Shortfall Fees.
During the years ended December 31, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $115.8 million and $121.5 million, respectively.
For the years ended December 31, 2024 and 2023, these revenues were net of amortization of contract assets of $5.6 million and $5.0 million, respectively. Cost of
sales attributable to these revenues were $80.4 million and $99.3 million, respectively, for the years ended December 31, 2024 and 2023.
As of December 31, 2024 and December 31, 2023 our accounts receivable from ProFrac Services, LLC was $52.4 million and $34.6 million, respectively, which
is recorded in accounts receivable, related party on the consolidated balance sheets.
Also during 2023, we entered into the following related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC:
•
Conversion of Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)
•
Conversion of Contract Consideration Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)
•
Exercise of February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”)
•
Pre-Funded Warrants (see Note 13, “Stockholders’ Equity)
As a result of the above related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of
December 31, 2024.
Note 18 — Business Segment, Geographic and Major Customer Information
Segment Information
The Company's segments are determined as those components whose results are reviewed regularly by the chief operating decision maker ("CODM"), who is the
Company's Chief Executive Officer, in deciding how to allocate resources and assess performance. Each segment is organized and managed based upon the nature
of the Company's markets and customers and consists of similar products and services. Gross profit and income (loss) from operations for each segment are used
by the CODM to assess the performance of each segment in a financial period. The CODM uses segment gross profit and income (loss) from operations as the
measure to make resource (including financial or capital resources) allocation decisions for each
59
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
segment. Accounting policies have been applied consistently by each segment for all reporting periods. Intercompany revenue and expense amounts, if any, have
been eliminated within each segment to report on the basis that management uses internally for evaluating segment performance. Various functions, including
certain sales and marketing activities and general and administrative activities, are provided centrally by the corporate office. Costs associated with corporate
office functions, other corporate income and expense items, and income taxes are not allocated to the reportable segments.
The operations of the Company are categorized into the following reportable segments:
Chemistry Technologies. The CT segment includes specialty chemistries, logistics and technology services, which we believe enables our customers to pursue
improved efficiencies and performance throughout the life cycle of their wells, and also helps our customers improve their ESG and operational goals. Customers
of the CT segment include major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil
companies, and international supply chain management companies.
Data Analytics. The DA segment provides innovative analytical measurement solutions. The DA segment seeks to deliver real-time information and insights to
our customers to enable optimization of operations and reduction of emissions and their carbon intensity Customers of the DA segment span across the entire oil
and gas market, from upstream production to midstream facilities to refineries and distribution networks.
60
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information of the reportable segments is as follows (in thousands):
As of and for the years ended December 31,
Chemistry
Technologies
Data Analytics
Corporate and
Other
Total
2024
Revenue from external customers
Products
$
60,847
$
4,740
$
—
$
65,587
Services
2,367
3,309
—
5,676
Total revenue from external customers
63,214
8,049
—
71,263
Revenue from related party
Products
114,879
5
—
114,884
Services
68
810
—
878
Total revenue from related parties
114,947
815
—
115,762
Cost of sales
141,948
5,691
—
147,639
Gross profit
36,213
3,173
—
39,386
Selling, general and administrative
7,861
3,489
13,359
24,709
Other segment items
1,750
623
108
2,481
Income (loss) from operations
$
26,602
$
(939)
$
(13,467)
$
12,196
Reconciliation of profit to income before income taxes:
Interest expense
$
(1,095)
$
(1,095)
Other income, net
46
46
Income before income taxes
$
11,147
2023
Revenue from external customers
Products
$
56,721
$
5,275
$
—
$
61,996
Services
2,295
2,227
—
4,522
Total revenue from external customers
59,016
7,502
—
66,518
Revenue from related party
Products
120,698
2
—
120,700
Services
205
635
—
840
Total revenue from related parties
120,903
637
—
121,540
Cost of sales
159,574
4,221
—
163,795
Gross profit
20,345
3,918
—
24,263
Selling, general and administrative
8,815
3,272
15,740
27,827
Other segment items
(27,513)
699
27
(26,787)
Income (loss) from operations
$
39,043
$
(53)
$
(15,767)
$
23,223
Reconciliation of profit to income before income taxes:
Paycheck protection plan loan forgiveness
$
4,522
$
4,522
Interest expense
(2,857)
(2,857)
Other income, net
(26)
(26)
Income before income taxes
$
24,862
Other segment items for the year ending December 31, 2024 includes depreciation of $0.6 million and $0.2 million in the CT and DA segments, respectively;
R&D of $1.2 million and $0.5 million in the CT and DA segments, respectively; and gain on sale of property and equipment in the CT and DA segments of $0.1
million and $15 thousand, respectively.
Other segment items for the year ended December 31, 2023 includes $30.0 million gain related to the change in fair value of Contract Consideration Convertible
Notes Payable in the CT segment and depreciation of $0.6 million and $0.1 million in the CT and DA segments, respectively; R&D of $1.9 million and $0.6
million in the CT and DA segments, respectively; and gain on sale of property and equipment in the CT and DA segments of $21 thousand and $17 thousands,
respectively.
61
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets of the Company by reportable segments and corporate and other are as follows (in thousands):
December 31, 2024
December 31, 2023
Chemistry Technologies
$
152,161
$
138,559
Data Analytics
8,632
6,604
Corporate and Other
10,003
12,350
Total assets
$
170,796
$
157,513
Additions to long-lived assets by reportable segments and corporate and other are as follows (in thousands):
As of and for the years ended December 31,
Chemistry
Technologies
Data Analytics
Corporate and
Other
Total
2024
Additions to long-lived assets
$
360
$
1,492
$
88
$
1,940
2023
Additions to long-lived assets
$
180
$
466
$
435
$
1,081
Geographic Information
Revenue by country is based on the location where services are provided and products are sold. For the years ended December 31, 2024 and 2023 no country other
than the U.S. accounted for more than 10% of revenue. Revenue by geographic location is as follows (in thousands):
Years ended December 31,
2024
2023
U.S. (1)
$
177,825
$
180,300
UAE
7,392
6,549
Other countries
1,808
1,209
Total revenue
$
187,025
$
188,058
(1) Includes revenue from related party
Long-lived assets held in countries other than the U.S. are not considered material to the consolidated financial statements.
Major Customers
Revenue from major customers, as a percentage of consolidated revenue, is as follows (in thousands):
Revenue
% of Total Revenue
Year ended December 31, 2024
ProFrac Services, LLC
$
115,762
61.9 %
Year ended December 31, 2023
ProFrac Services, LLC
$
121,540
64.6 %
The concentration with ProFrac Services, LLC and in the oil and gas industry increases credit, commodity and business risk.
62
FLOTEK INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Major Suppliers
Expenditure with major suppliers, as a percentage of consolidated supplier expenditure, is as follows (in thousands):
Years ended December 31,
Expenditure
% of Total
Expenditure
2024
Supplier A
$
24,064
18.9 %
Supplier B
21,410
16.9 %
Supplier C
20,333
16.0 %
2023
Supplier C
$
42,684
30.1 %
Supplier D
28,222
19.9 %
Supplier E
16,447
11.6 %
Note 19 — Subsequent Event
The Company has evaluated the effects of events that have occurred subsequent to December 31, 2024 and there have been no material events that would require
recognition in the 2024 consolidated financial statements or disclosure in the notes to the consolidated financial statements.
63
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submitted
under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The Company’s
disclosure controls and procedures are also designed to ensure such information is accumulated and communicated to management, including the principal
executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance that control objectives are attained.
In accordance with Exchange Act Rules 13a-15(e) and 15d-15(e), we carried out an evaluation under the supervision and with the participation of our
management, including the principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of
December 31, 2024. Based upon this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and
procedures were effective as of December 31, 2024.
Our management, including our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures can
prevent all possible errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that
objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the intentional acts of one or more
persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and while our disclosure controls
and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements
due to possible errors or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2024, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act of 1934, as amended. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because
of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an
evaluation to assess the effectiveness of our internal control over financial reporting as of December 31, 2024, based upon criteria set forth in the Internal Control
—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, the Company’s
management has concluded that, as of December 31, 2024, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to
provide only management’s report in this Annual Report.
64
Item 9B. Other Information.
Trading Arrangements.
During the quarter ended December 31, 2024, no director or officer (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a
Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
65
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 2025 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of December 31, 2024.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 2025 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of December 31, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 2025 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of December 31, 2024.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 2025 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of December 31, 2024.
Item 14. Principal Accountant Fees and Services.
Our independent registered public accounting firm is KPMG LLP, Houston, TX, Auditor Firm ID: 185
The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement for the 2025 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of December 31, 2024.
66
Item 15. Exhibits and Financial Statement Schedules
Exhibit
Number
Description of Exhibit
2.1
***
Membership Interest Purchase Agreement, dated as of May 18, 2020, by and between the Company, JP3 Measurement, LLC, the
Sellers party thereto, and John A. Cardwell, as Seller Representative) (incorporated by reference to Exhibit 2.1 to the Company’s
Form 8-K filed on May 19, 2020).
3.1
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q for the
quarter ended September 30, 2007).
3.2
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-Q for the quarter ended September 30, 2009).
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Flotek Industries, Inc. (incorporated by
reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 7, 2020).
3.4
Certificate of Amendment to the Amended and Restated Certificate of Incorporation (form of which is incorporated by reference to
Appendix B to the Company’s Proxy Statement filed on April 5, 2022).
3.5
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Flotek Industries, Inc. (incorporated by reference
to Exhibit 3.1 to the Company’s Form 8-K filed on September 25, 2023).
3.6
Second Amended and Restated Bylaws, as amended (incorporated by reference to Exhibit 3.6 to the Company’s Form 10-Q for the
quarter ended September 30, 2023)
4.1
Form of Certificate of Common Stock (incorporated by reference to Appendix E to the Company’s Definitive Proxy Statement filed
on September 27, 2001).
4.2
Form of Convertible Note (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on February 4, 2022).
4.3
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on February 4, 2022).
4.4
10% Convertible PIK Note dated May 17, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on May
18, 2022).
4.5
Form of Pre-Funded Warrants (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on June 23, 2022).
4.6
Description of Capital Stock of the Company (incorporated by reference to Exhibit 4.2 to the Company’s Form 10-K filed on March
31, 2022).
10.1
†
Employment Agreement, dated June 6, 2023, between the Company and Ryan Ezell (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on June 8, 2023).
10.2
†
Employment Agreement dated December 19, 2022 between Flotek Industries, Inc. and Bond Clement (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on December 19, 2022).
10.3
†
Employment Agreement dated January 30, 2024, between the Company and Amy Blakeway (incorporated by reference to Exhibit
10.46 to the Company’s Form 10-K for the year ended December 31, 2023).
10.4
†
Director and Officer Indemnification Agreement dated May 5, 2023 (incorporated by reference to Exhibit 10.6 to the Company’s
Form 10-Q filed on May 11, 2023).
10.5
†
Flotek Industries, Inc. Amended and Restated 2012 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on June 30, 2023).
10.6
†
Flotek Industries, Inc. 2018 Long-Term Incentive Plan, as amended (incorporated by reference to Appendix A to the Company’s
definitive Proxy Statement on Schedule 14A filed with the SEC on April 24, 2024).
10.7
†
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement (Time-based vesting)(incorporated
by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 31, 2024).
10.8
†, **** Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement (Performance-based vesting)
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 31, 2024).
10.9
†
Form of Stock Option Award Grant Notice and Stock Option Award Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on December 8, 2023).
10.10
†
Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit
10.2 to the Company’s Form 8-K filed on December 8, 2023).
10.11
†
2023 Management Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on
December 8, 2023).
10.12
†
Stock Option Agreement, dated June 7, 2023, between the Company and Bond Clement (incorporated by reference to Exhibit 10.2 to
the Company’s Form 8-K filed on June 8, 2023).
67
10.13
†
Flotek Industries, Inc. Employment Inducement Plan (incorporated by reference to Exhibit 99.1 to the Company’s Form S-8 filed on
June 17, 2020)
10.14
†
Form of Stock Option Grant Notice and Stock Option Agreement under Flotek Industries, Inc. Employment Inducement Plan
(incorporated by reference to Exhibit 99.3 to the Company’s Form S-8 filed on June 17, 2020)
10.15
†
Form of Restricted Stock Award Grant Notice and Restricted Stock Award Agreement under Flotek Industries, Inc. Employment
Inducement Plan (incorporated by reference to Exhibit 99.2 to the Company’s Form S-8 filed on June 17, 2020)
10.16
†
Form of Restricted Stock Agreement pursuant to the Company’s 2018 Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.6 to the Company’s Form 10-Q for the quarter ended June 30, 2019)
10.17
†
Form of Restricted Stock Agreement pursuant to the Company’s 2019 Non-Employee Director Incentive Plan (incorporated by
reference to Exhibit 10.7 to the Company’s Form 10-Q for the quarter ended June 30, 2019)
10.18
***
Note Purchase Agreement, dated February 2, 2022, by and among Flotek Industries, Inc. and the Purchasers party thereto
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 4, 2022).
10.19
Revolving Loan and Security Agreement dated as of August 14, 2023, among Flotek Industries, Inc., Flotek Chemistry, LLC and JP3
Measurement, LLC, as borrowers, and Amerisource Funding, Inc., as lender (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed on August 14, 2023).
10.20
First Amendment to Revolving Loan and Security Agreement dated as of October 5, 2023, among Flotek Industries, Inc., Flotek
Chemistry, LLC and JP3 Measurement, LLC, as borrowers, and Amerisource Funding, Inc., as lender (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on October 6, 2023).
10.21
Second Amendment to That Certain Revolving Loan and Security Agreement, effective August 5, 2024, among Flotek Industries,
Inc., Flotek Chemistry, LLC and JP3 Measurement, LLC, as borrowers, and Amerisource Funding, Inc., as lender (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 6, 2024).
10.22
****
Chemical Products Supply Agreement between Flotek Chemistry, LLC and ProFrac Services, LLC, dated February 2, 2022
(incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on February 4, 2022).
10.23
***
Amendment No. 1 to Chemical Products Supply Agreement between Flotek Chemistry, LLC and ProFrac Services, LLC dated May
17, 2022 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on May 18, 2022).
10.24
****
Amendment No.2 to the Chemical Supply Agreement dated February 1, 2023 between Flotek Chemistry, LLC and ProFrac Services,
LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 6, 2023).
10.25
***
Securities Purchase Agreement dated February 16, 2022 by and between Flotek Industries, Inc. and ProFrac Holdings, LLC
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on February 22, 2022)
10.26
***
Securities Purchase Agreement between Flotek Industries, Inc. and ProFrac Holdings II, LLC dated June 17, 2022 (incorporated by
reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 23, 2022).
10.27
Master Transaction Agreement between Flotek Industries, Inc. and ProFrac Holdings, LLC, dated February 2, 2022 (incorporated by
reference to Exhibit 10.4 to the Company’s Form 8-K filed on February 4, 2022).
10.28
Registration Rights Agreement, by and between Flotek Industries, Inc. and ProFrac Holdings II, LLC dated May 17, 2022
(incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on May 18, 2022).
10.29
Amendment No. 1 to Registration Rights Agreement Flotek Industries, Inc. and ProFrac Holdings II, LLC dated June 21, 2022
(incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 23, 2022).
19.1
*
Insider Trading Policy of Flotek Industries, Inc.
21.1
*
List of Subsidiaries
23.1
*
Consent of KPMG LLP, independent registered public accounting firm
31.1
*
Rule 13a-14(a) Certification of Principal Executive Officer.
31.2
*
Rule 13a-14(a) Certification of Principal Financial Officer.
32.1
**
Section 1350 Certification of Principal Executive Officer.
32.2
**
Section 1350 Certification of Principal Financial Officer.
68
97.1
Flotek Industries, Inc. Clawback Policy (incorporated by reference to Exhibit 97 to the Company’s Form 10-K for the year ended
December 31, 2023).
101.INS
*
Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are
embedded within the inline XBRL document
101.SCH
*
Inline XBRL Schema Document
101.CAL
*
Inline XBRL Calculation Linkbase Document
101.LAB
*
Inline XBRL Label Linkbase Document
101.PRE
*
Inline XBRL Presentation Linkbase Document
101.DEF
*
Inline XBRL Definition Linkbase Document
104
*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed with this Form 10-K.
**
Furnished with this Form 10-K, not filed.
***
Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental
copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission or its staff.
****
Portions of this exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K in order for them to remain confidential.
†
Management contracts or compensatory plans or agreements.
Item 16. Form 10-K Summary
None.
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FLOTEK INDUSTRIES, INC.
By:
/s/ Ryan Ezell
Ryan Ezell
Chief Executive Officer
Date: March 12, 2025
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ryan Ezell and Bond Clement, and
each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes
as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURES
TITLE
DATE
/s/ Ryan Ezell
Ryan Ezell
Chief Executive Officer and Director
(Principal Executive Officer)
March 12, 2025
/s/ Bond Clement
Bond Clement
Chief Financial Officer
(Principal Financial and Accounting Officer)
March 12, 2025
/s/ Harsha V. Agadi
Harsha V. Agadi
Chairman of the Board
March 12, 2025
/s/ Evan Farber
Evan Farber
Director
March 12, 2025
/s/ Michael Fucci
Michael Fucci
Director
March 12, 2025
/s/ Lisa Mayr
Lisa Mayr
Director
March 12, 2025
/s/ Matt D. Wilks
Matt D. Wilks
Director
March 12, 2025
70
Exhibit 19.1
INSIDER TRADING POLICY
OF
FLOTEK INDUSTRIES, INC.
Approved on August 3, 2020
Amended on April 4, 2023
Amended on March 5, 2025
Purpose of this Policy
Flotek Industries, Inc. (including its subsidiaries, “Flotek”) has adopted this insider trading policy (this “Policy”) to promote
compliance with U.S. federal, state and foreign securities laws that prohibit certain persons who are aware of material nonpublic
information about a company from: (i) engaging in transactions in the securities of that company; or (ii) providing material nonpublic
information to other persons who may trade on the basis of that information. This Policy sets forth certain guidelines concerning
insider trading and trading blackout periods in order to ensure the strict compliance by all insiders with the prohibition against insider
trading and tipping. Additionally, this Policy is meant to help Flotek’s directors, officers and employees comply with insider trading
laws, and to prevent even the appearance of improper conduct on the part of anyone employed by or associated with Flotek.
Scope of this Policy
This Policy applies to all directors, officers and employees of Flotek, as well as their respective family members who reside with them,
anyone else who lives in their respective households, any family members who do not live in their respective households but whose
transactions in Flotek’s securities are directed by them or are subject to their influence or control, and any entities that they influence or
control – referred to as “insiders.” In addition to the persons listed above, Flotek’s Compliance Officer may designate others as insiders
(such as contractors or consultants) because they have access to nonpublic information that would be material to a person making a
decision about trading in Flotek’s securities (often called “material nonpublic information,” which is explained further below). Flotek’s
General Counsel shall serve as the Compliance Officer for the purposes of this Policy and, in that person’s absence, Flotek’s Chief
Financial Officer, and in that person’s absence, Flotek’s Assistant General Counsel, shall be responsible for administration of this
Policy. All determinations and interpretations by the Compliance Officer shall be final and not subject to further review.
This Policy also applies to all transactions in Flotek’s securities, including common stock, options, preferred stock, restricted stock,
debt securities and any other securities Flotek may issue. It applies whether or not the securities are held in an account with Flotek’s
transfer agent, a third-party brokerage account, an employee stock purchase plan, or in any other way.
From time to time, Flotek may engage in transactions in its own securities. It is Flotek’s policy that any transactions in securities by
Flotek will comply with applicable laws with respect to insider trading.
1
There are no exceptions to this Policy, except as specifically noted herein. Transactions that may be necessary or justifiable for
independent reasons (such as the need to raise money for an emergency expenditure), or small transactions, are not excepted from this
Policy. The securities laws do not recognize any mitigating circumstances, and, in any event, even the appearance of an improper
transaction must be avoided to preserve Flotek’s reputation for adhering to the highest standards of conduct.
General Prohibitions
Insiders may, in the course of performing their duties, learn material nonpublic information. As a result, no insider may:
•
Buy, sell, offer to buy or sell, gift, or otherwise trade in Flotek’s securities while aware of material nonpublic information
related to Flotek;
•
Buy, sell, offer to buy or sell, gift, or otherwise trade in Flotek’s securities during any trading blackout period applicable to the
insider, as designated by the Compliance Officer;
•
Disclose material nonpublic information concerning Flotek to any person other than a director, officer or employee of Flotek,
unless required as part of that insider’s regular duties and authorized by the Compliance Officer;
•
Give trading advice of any kind about Flotek to anybody, even if the insider does not have material nonpublic information,
other than to advise not to trade if trading might violate law or this Policy;
•
Engage in short-term trading (e.g., sales of the same class for at least six months after the purchase), short sales, derivative or
hedging transactions relating to Flotek securities, including puts, calls, forward sales, swaps or collars;
•
Hold Flotek securities in a margin account or pledge Flotek securities as collateral;
•
Trade in the securities of a company other than Flotek if the insider has material nonpublic information about that company if
that information is obtained through his or her relationship with Flotek, or give any advice to others about trading in any such
company; or
•
Any other action to unlawfully take advantage of the material nonpublic information concerning Flotek.
Blackout Periods
All insiders are prohibited from trading in Flotek’s securities during blackout periods as defined below.
Quarterly Blackout Periods
Generally speaking, the trading windows will open at the close of trading on the first full trading day following Flotek’s public
announcement of quarterly earnings and will remain open until the close of trading on the day prior to the tenth business day before the
end of the quarter. The window may open later or close earlier in the sole discretion of the Compliance Officer.
Event-Specific Blackout Periods
From time to time, an event may occur that is material to Flotek and is known by only a few employees. These persons (which may
include employees who are insiders by virtue of their
2
position and other employees who have been deemed insiders due to their particular knowledge of the event) may not trade in Flotek
securities so long as the event remains material and non-public. The existence of an event-specific blackout will not be announced,
other than to those who are aware, or made aware, of the event giving rise to the blackout. The Compliance Officer will determine
when an event-specific blackout will be imposed and to whom it will be applied.
Special Restrictions
In addition to the General Prohibitions above, certain insiders may only buy, sell, gift or otherwise trade Flotek’s securities if they are
trading in specific trading windows and have the permission of the Compliance Officer (or, in the case that the Compliance Officer
seeks permission to trade, the Chief Financial Officer). The insiders subject to these special restrictions are:
•
Directors
•
Any officer designated as a “Section 16” officer
•
Any direct report of the Chief Executive Officer, whether or not designated as a “Section 16” officer
•
Any person with the title Vice President (including Senior Vice Presidents and Executive Vice Presidents), whether or not
designated a “Section 16” officer
•
Any person that works in the finance or legal departments
•
Any other person designated by the Compliance Officer
The Compliance Officer will prepare a list of the insiders subject to these special restrictions and inform such insiders that they are
subject to these special restrictions.
Procedure for Trading
Insiders subject to these special restrictions must notify the Compliance Officer in writing at least one business day prior to the
proposed trades of the amount and nature of the proposed trades and must certify in writing that he or she is not aware of material
nonpublic information of Flotek. This notification by the insider may be communicated by electronic mail to the Compliance Officer
and shall state the amount and nature of the proposed trades and shall certify that he or she is not aware of material nonpublic
information of Flotek. The Compliance Officer will notify the insider whether or not the trades are approved. The Compliance Officer
is under no obligation to approve the trades and may determine not to permit the trades. If the trades are approved, the insider may (but
is not required to) make the proposed trades for a period of four business days from and including the proposed trading date (assuming
the insider does not come into possession of material nonpublic information during that period). If the proposed trades do not occur
during the aforementioned period, then the proposed trades must be submitted again for approval by the Compliance Officer. If the
trades are not approved, then the insider should refrain from initiating the trades.
The pre-clearance in no way relieves insiders of their own legal obligation to refrain from trading while in possession of material
nonpublic information. The pre-clearance by the Compliance Officer is not legal advice and will not insulate an individual from
liability under applicable securities laws.
3
Exceptions
The General Prohibitions, Blackout Periods and the Special Restrictions above do not apply to the following trades:
•
Exercise of stock options or similar equity awards, vesting of restricted stock units or similar equity awards, or surrender of
shares to Flotek to cover a stock option exercise price or satisfaction of tax withholding obligations (provided, however, that
any securities acquired pursuant to the exercise of options or the vesting of restricted stock units are otherwise subject to this
Policy);
•
Acquisitions under Flotek’s employee stock purchase plan resulting from periodic payroll contributions to the plan;
•
Bona fide gifts of the Flotek securities if (i) the insider will continue to be the beneficial owner of the Flotek securities
following the gift or (ii) the recipient of the gift is insider who will be bound by this Policy; and
•
Purchases or sales pursuant to a Rule 10b5-1 plan that complies with the terms of this Policy.
Material Nonpublic Information
There is no test or rule for determining whether information is “material” – it depends on the facts and circumstances, and a
determination is related to more than just the potential financial impact. In general, information about Flotek should be considered
material if a reasonable investor would consider the information significant when deciding whether to buy, hold or sell Flotek’s
securities, or the information, if disclosed, could be viewed by a reasonable investor as having significantly altered the total mix of
information available in the marketplace about Flotek. Note that material information is not limited to historical facts but may also
include projections and forecasts. Information is material even if it alone would not determine the investor’s decision; the fact that a
reasonable investor would consider it to be useful in connection with his decision to buy, hold or sell securities may suffice.
If the information could reasonably be expected to affect the price of Flotek’s stock, it should be considered material. While it’s not
possible to identify all information that is material, the following matters should always be considered material:
•
Financial performance, especially quarterly and year-end earnings
•
Projections of future earnings or losses, or other earnings guidance, or a significant change in earnings or earnings projections
•
Pending or proposed mergers and acquisitions
•
Pending or proposed acquisition or sale of significant assets or subsidiaries
•
New major contracts or orders, or the loss of major contracts or orders
•
Major discoveries or changes in products or product lines
•
Significant changes in supplies or inventory, product defects, recalls, etc.
•
A change in dividend policy, stock splits, debt or securities offerings
•
Impending bankruptcy or the existence of liquidity problems
•
Significant changes in senior management
•
Initiation or settlement of major litigation (actual or threatened)
•
Financing activities
4
The above list is intended to be illustrative and is not exhaustive.
Information is “nonpublic” if it has not been publicly disclosed to investors with sufficient time for the public and investors to evaluate
the information, either through publicly released information, through a public filing with the Securities and Exchange Commission or
otherwise. For purposes of this Policy, unless the Compliance Officer otherwise extends the waiting period and notifies the insiders of
the extension, information is considered public after the close of trading on the first full trading day following Flotek’s releases of
material news through widely accessible news outlets, earnings or other Flotek calls, or a filing with the Securities and Exchange
Commission.
Any insider who is unsure whether the information that he or she possesses is material or nonpublic should consult with the
Compliance Officer before trading in any Flotek securities.
Rule 10b5-1 Plans
Rule 10b5-1 plans can help provide an affirmative defense against allegations of insider trading, but they require advance commitments
regarding timing, amounts and pricing of trades, and may not be suitable for all insiders. 10b5-1 plans for trading in Flotek securities
must meet the following requirements:
•
Plans, and changes to plans, must be preapproved by the Compliance Officer;
•
Plans may only be created, and changes to plans may be made, only when the insider would otherwise be permitted to trade in
Flotek securities pursuant to this Policy;
•
The first possible trade under any plan must not be until the expiration of the applicable cooling-off period specified in Rule
10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and no trades occur until after that time;
•
Plans must be entered into in good faith by the insider, and not as part of a plan or scheme to evade the prohibitions of Rule
10b5-1 under the Exchange Act, at a time when the insider is not in possession of material nonpublic information about Flotek;
and, if the insider is a director or officer of Flotek, the 10b5-1 plan must include representations by the insider certifying to that
effect;
•
Plans give a third party the discretionary authority to execute such purchases and sales, outside the control of the insider, so
long as such third party does not possess any material nonpublic information about Flotek; or explicitly specifies the security or
securities to be purchased or sold, the number of shares, the prices and/or dates of transactions, or other formula(s) describing
such transactions;
•
The plan is the only outstanding Rule 10b5-1 plan entered into by the insider (subject to the exceptions set out in Rule 10b5-1
under the Exchange Act); and
•
Transactions under the Rule 10b5-1 trading plans must be reported immediately to the Compliance Officer for the purposes of
Section 16 reporting.
Post-Termination Transactions
This Policy continues to apply to transactions in Flotek securities even after termination of service to Flotek. If an insider is in
possession of material nonpublic information when his or her service terminates, that insider may not engage in transactions in Flotek
securities until that information has become public or is no longer material.
5
Violations
Violations of this Policy, or any other federal or state law related to trading in Flotek’s securities, must immediately be reported to the
Compliance Officer or via Flotek’s hotline. Violation may result in criminal and civil penalties, including cause of actions pursued
vigorously by the Securities and Exchange Commission, the Department of Justice, and state and foreign enforcement authorities, and
civil cause of action for damages. Any violation by an employee of this Policy could result in Flotek-imposed disciplinary action, up to
and including termination for cause.
Company Assistance
Although, upon notification and request by an officer or director who is a Section 16 insider of a change in status, holdings, or the
occurrence of a transaction, Flotek will assist him or her with filing the Section 16 forms, compliance with Section 16 of the Exchange
Act is the personal responsibility of the Section 16 insider and not Flotek’s. Employees who have any questions about specific
transactions or this Policy in general may obtain additional guidance from Flotek’s Compliance Officer, which will not constitute legal
advice or insulate an individual from liability under applicable securities laws. The ultimate responsibility for adhering to this Policy
and avoiding improper transactions rests with each employee or other insider. It is the responsibility of each covered person under this
Policy to make sure that any family member, household member, or any relevant entity or other person that is controlled by the covered
person complies with this Policy.
6
Exhibit 21.1
Flotek Industries, Inc.
List of Subsidiaries
Flotek Chemistry, LLC
JP3 Measurement, LLC
Oklahoma Limited Liability Company
Texas Limited Liability Company
Flotek Paymaster, Inc.
Texas Corporation
Exhibit 23.1
KPMG LLP
811 Main Street
Houston, TX 77002
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (Nos. 333-183617, 333-225865, 333-231749, 333-
239244, 333-264865, 333-272968, and 333-280121) on Form S-8 and (Nos. 333-251043, 333-264875, 333-267916, 333-274629, and
333-274630) on Form S-3 of our report dated March 12, 2025, with respect to the consolidated financial statements of Flotek
Industries, Inc.
/s/ KPMG LLP
Houston, Texas
March 12, 2025
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ryan Ezell, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Flotek Industries, Inc. (“registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
/s/ RYAN EZELL
Ryan Ezell
Chief Executive Officer
Date: March 12, 2025
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bond Clement, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Flotek Industries, Inc. (“registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
/s/ BOND CLEMENT
Bond Clement
Chief Financial Officer
Date: March 12, 2025
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Flotek Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2024, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ RYAN EZELL
Ryan Ezell
Chief Executive Officer
Date: March 12, 2025
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Flotek Industries, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2024, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ BOND CLEMENT
Bond Clement
Chief Financial Officer
Date: March 12, 2025