Flotek Industries 10Q 2024 Q3 Quarterly report


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, 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 Exchange 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

Indicate by check mark 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 ☐

Indicate by check mark 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 ☐

Indicate by check mark 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 Exchange 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At November 4, 2024, there were 29,795,834 outstanding shares of the registrant’s common stock, $0.0001 par value.

TABLE OF CONTENTS


Forward-Looking Statements		3

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets at September 30, 2024 and December 31, 2023	4
	Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	7
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023	8
	Notes to Unaudited Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	36

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38


SIGNATURES		39

FORWARD-LOOKING STATEMENTS

In this Quarterly Report on Form 10-Q (this “Quarterly Report”), unless the context otherwise requires, the terms “Flotek,” the "Company," "we," "us" and "our" refer to Flotek Industries, Inc. and its wholly-owned subsidiaries.

This Quarterly Report on Form 10-Q, and in particular, Part I, Item 2 — “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 the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent the current assumptions and beliefs regarding future events of Flotek, 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 Quarterly Report are based on information available as of the date of this Quarterly 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 thereunder. 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 the Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report” or “2023 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 15, 2024, and periodically in subsequent reports filed with the SEC. The Company has no obligation, and we disclaim 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.

In certain places in this Quarterly Report on Form 10-Q, we may refer to statements provided by third parties that purport to describe trends or developments in supply chain or energy exploration and production activity and we specifically disclaim any responsibility for the accuracy and completeness of such information and have undertaken no steps to update or independently verify such information.

The following information contained in this Quarterly Report on Form 10-Q should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and related disclosures and our 2023 Annual Report.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FLOTEK INDUSTRIES INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	4,997	$	5,851
Restricted cash	101		102
Accounts receivable, net of allowance for credit losses of $388 and $745 at September 30, 2024 and December 31, 2023, respectively	12,220		13,687
Accounts receivable, related party, net of allowance for credit losses of $0 at September 30, 2024 and December 31, 2023, respectively	47,064		34,569
Inventories, net	12,744		12,838


Other current assets	2,687		3,564
Current contract asset	6,480		5,836
Total current assets	86,293		76,447
Long-term contract asset	63,835		68,820
Property and equipment, net	4,958		5,129
Operating lease right-of-use assets	3,759		5,030
Deferred tax assets, net	66		300
Other long-term assets	1,738		1,787
TOTAL ASSETS	$	160,649	$	157,513

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	37,395	$	31,705
Accrued liabilities	4,115		5,890
Income taxes payable	54		45

Current portion of operating lease liabilities	1,642		2,449
Current portion of finance lease liabilities	—		22
Asset-based loan	1,426		7,492
Current portion of long-term debt	104		179


Total current liabilities	44,736		47,782
Deferred revenue, long-term	35		35
Long-term operating lease liabilities	6,871		7,676

Long-term debt	—		60
TOTAL LIABILITIES	51,642		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; 30,891,597 shares issued and 29,789,476 shares outstanding at September 30, 2024; 30,772,837 shares issued and 29,664,130 shares outstanding at December 31, 2023 (As adjusted, see Note 13)	3		3
Additional paid-in capital (As adjusted, see Note 13)	464,143		463,140
Accumulated other comprehensive income	133		127
Accumulated deficit	(320,738)		(326,806)
Treasury stock, at cost; 1,102,121 and 1,108,707 shares at September 30, 2024 and December 31, 2023, respectively (As adjusted, see Note 13)	(34,534)		(34,504)
Total stockholders’ equity	109,007		101,960
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	160,649	$	157,513

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Revenue:
Revenue from external customers	$	16,565	$	17,806	$	47,935	$	47,278
Revenue from related party	33,177		29,462		88,332		98,592
Total revenues	49,742		47,268		136,267		145,870
Cost of sales	40,623		38,221		109,159		131,037
Gross profit	9,119		9,047		27,108		14,833
Operating costs and expenses:
Selling, general, and administrative	5,714		6,526		18,056		21,303
Depreciation	220		181		662		530
Research and development	462		757		1,349		2,231
Severance costs	—		2		23		(28)
Gain on sale of property and equipment	—		(38)		(34)		(38)
Gain in fair value of Contract Consideration Convertible Notes Payable	—		—		—		(29,969)
Total operating costs and expenses	6,396		7,428		20,056		(5,971)
Income from operations	2,723		1,619		7,052		20,804
Other income (expense):
Paycheck protection plan loan forgiveness	—		—		—		4,522
Interest expense	(256)		(160)		(842)		(2,537)
Other income, net	102		(91)		151		(82)
Total other income (expense)	(154)		(251)		(691)		1,903
Income before income taxes	2,569		1,368		6,361		22,707
Income tax expense	(37)		(81)		(293)		(98)
Net income	$	2,532	$	1,287	$	6,068	$	22,609










Income (loss) per common share (As adjusted, see Note 14):
Basic	$	0.09	$	0.04	$	0.21	$	0.97
Diluted	$	0.08	$	0.04	$	0.20	$	(0.18)










Weighted average common shares (As adjusted, see Note 14):
Weighted average common shares used in computing basic income (loss) per common share	29,613		29,358		29,498		23,291
Weighted average common shares used in computing diluted income (loss) per common share	30,897		30,688		30,655		28,034

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

FLOTEK INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Net income	$	2,532	$	1,287	$	6,068	$	22,609
Other comprehensive income (loss):
Foreign currency translation adjustment	(52)		47		6		13

Comprehensive income	$	2,480	$	1,334	$	6,074	$	22,622

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

FLOTEK INDUSTRIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands)


	Nine months ended September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	6,068	$	22,609
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Change in fair value of contingent consideration	(46)		(384)
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	4,341		3,665
Depreciation	662		530
Amortization of asset-based loan origination costs	243		36
Provision for credit losses, net of recoveries	121		97
Provision for excess and obsolete inventory	626		626
Gain on sale of property and equipment	(34)		(38)

Non-cash lease expense	1,661		2,316
Stock compensation expense	915		(565)
Deferred income tax expense	233		50
Paycheck protection plan loan forgiveness	—		(4,522)
Changes in current assets and liabilities:
Accounts receivable	1,346		3,472
Accounts receivable, related party	(12,495)		(2,082)
Inventories	(532)		(776)
Other assets	849		(863)

Accounts payable	5,690		60
Accrued liabilities	(1,730)		(3,179)
Operating lease liabilities	(2,002)		(2,636)
Income taxes payable	9		(54)
Interest payable	—		(8)

Net cash provided by (used in) operating activities	5,925		(9,248)
Cash flows from investing activities:
Capital expenditures	(491)		(593)
Proceeds from sale of assets	34		68



Net cash used in investing activities	(457)		(525)
Cash flows from financing activities:
Payment for forfeited stock options	—		(617)
Payments on long term debt	(135)		(104)
Proceeds from asset-based loan	122,600		27,750
Payments on asset-based loan	(128,666)		(24,380)
Payment of asset-based loan origination costs	(164)		(502)




Payments to tax authorities for shares withheld from employees	(30)		(246)
Proceeds from issuance of stock	88		48
Payments for finance leases	(22)		(24)

Net cash (used in) provided by financing activities	(6,329)		1,925




Effect of changes in exchange rates on cash and cash equivalents	6		13
Net change in cash and cash equivalents and restricted cash	(855)		(7,835)
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	4,997		4,453
Restricted cash at the end of period	101		102
Cash and cash equivalents and restricted cash at end of period	$	5,098	$	4,555

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


Three Months Ended September 30, 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, June 30, 2024	30,867	$	3	1,107	$	(34,528)	$	463,844	$	185	$	(323,270)	$	106,234
Net income	—	—		—	—		—		—		2,532		2,532
Foreign currency translation adjustment	—	—		—	—		—		(52)		—		(52)
Stock issued under employee stock purchase plan	—	—		(6)	—		26		—		—		26


Restricted stock units vested	25	—		—	—		—		—		—		—

Stock compensation expense	—	—		—	—		273		—		—		273
Shares withheld to cover taxes	—	—		1	(6)		—		—		—		(6)
Balance, September 30, 2024	30,892	$	3	1,102	$	(34,534)	$	464,143	$	133	$	(320,738)	$	109,007


Three Months Ended September 30, 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, June 30, 2023	26,370	$	3	1,113	$	(34,480)	$	462,529	$	147	$	(330,197)	$	98,002
Net income	—	—		—	—		—		—		1,287		1,287
Foreign currency translation adjustment	—	—		—	—		—		47		—		47
Stock issued under employee stock purchase plan	—	—		(4)	—		15		—		—		15
Restricted stock granted	145	—		—	—		—		—		—		—
Restricted stock forfeited	—	—		1	—		—		—		—		—


Stock compensation expense	—	—		—	—		270		—		—		270
Shares withheld to cover taxes	(3)	—		—	(2)		(15)		—		—		(17)
Exercise of pre-funded warrants	4,228	—		—	—		—		—		—		—
Balance, September 30, 2023	30,740	$	3	1,110	$	(34,482)	$	462,799	$	194	$	(328,910)	$	99,604

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(continued)

(in thousands)


Nine Months Ended September 30, 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	—	—		—	—		—		—		6,068		6,068
Foreign currency translation adjustment	—	—		—	—		—		6		—		6
Stock issued under employee stock purchase plan	—	—		(25)	—		88		—		—		88
Restricted stock granted	94	—		—	—		—		—		—		—
Restricted stock forfeited	—	—		11	—		—		—		—		—
Restricted stock units vested	25	—		—	—		—		—		—		—

Stock compensation expense	—	—		—	—		915		—		—		915
Shares withheld to cover taxes	—	—		7	(30)		—		—		—		(30)
Balance, September 30, 2024	30,892	$	3	1,102	$	(34,534)	$	464,143	$	133	$	(320,738)	$	109,007


Nine Months Ended September 30, 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	—	—		—	—		—		—		22,609		22,609
Foreign currency translation adjustment	—	—		—	—		—		13		—		13

Stock issued under employee stock purchase plan	—	—		(12)	—		48		—		—		48



Restricted stock granted	148	—		—	—		—		—		—		—
Restricted stock forfeited	(7)	—		65	—		—		—		—		—
Restricted stock units vested	82	—		—	—		—		—		—		—
Forfeited stock options purchased	—	—		—	—		(617)		—		—		(617)
Stock compensation expense	—	—			—		(565)		—		—		(565)
Shares withheld to cover taxes	(3)			36	(231)		(15)		—		—		(246)
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	—		—	—		8,996		—		—		8,996
Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to Common Stock	10,583	2		—	—		40,636		—		—		40,638
Balance, September 30, 2023	30,740	$	3	1,110	$	(34,482)	$	462,799	$	194	$	(328,910)	$	99,604

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED 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 green chemistry and data company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company serves customer needs for both domestic and international energy markets.

The Company’s Chemistry Technologies (“CT”) segment designs, develops, manufactures, packages and distributes green 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 aims to enable users to maximize the value of their hydrocarbon associated processes by providing analytics associated with their hydrocarbon streams in seconds rather than minutes or days. The real-time access to information can prevent waste, reduce reprocessing and allow users to pursue automation of their hydrocarbon streams to maximize their profitability.

The Company’s two operating segments, CT and DA, are supported by its Research & Innovation 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, in the opinion of management, necessary for the fair statement of the financial condition and results of operations for the periods presented. All such adjustments are normal and recurring in nature. The financial statements, including selected notes, have been prepared in accordance with applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting and do not include all information and disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for comprehensive financial statement reporting. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s 2023 Annual Report. A copy of the 2023 Annual Report is available on the SEC’s website, www.sec.gov, or on the Company’s website, www.flotekind.com. The information contained on the SEC’s website and the Company’s website does not form a part of this Quarterly Report.

All significant intercompany accounts and transactions have been eliminated in consolidation. The Company does not have investments in any unconsolidated subsidiaries.

Sources and Uses of Liquidity

These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company currently funds its operations with cash on hand, availability under the ABL (defined below, see Note 9, “Debt and Convertible Notes Payable”) and other liquid assets. The Company recognized $9.1 million and $2.5 million of gross profit and net income, respectively, during the three months ended September 30, 2024 and recognized $27.1 million and $6.1 million of gross profit and net income, respectively, during the nine months ended September 30, 2024. Further, the Company recognized net cash provided by operating activities of $5.9 million during the nine months ended September 30, 2024. 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 (see Note 16, “Related Party Transactions”). Related party revenues for the three and nine months ended September 30, 2024 included Contract Shortfall Fees (defined below) of $6.8 million and $23.8 million, respectively (see Note 16, “Related Party Transactions”). Related party receivables as of September 30, 2024 included accrued Contract Shortfall Fees of $23.8 million, which will be due in the first quarter of 2025 under the terms of the ProFrac Agreement.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Based upon our outlook for future cash flows from operations, which includes the collection of the Contract Shortfall Fees in the first quarter of 2025, combined with cash on hand and availability under the ABL, the Company believes it has sufficient financial resources to fund operations and meet its capital requirements and anticipated obligations as they become due in the next twelve months. While the Company cannot guarantee a sufficient level of cash flows in the future, the unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

Note 2 — Summary of Significant Accounting Policies

Apart from those matters described in this note, there have been no updates to our significant accounting policies since those reported under Note 2 of the 2023 Annual Report.

Accounts Receivable and Allowance for Credit Losses

Changes in the allowance for credit losses are as follows (in thousands):


	September 30, 2024		December 31, 2023
Balance, beginning of year	$	745	$	623
Charges to provision for credit losses, net of recoveries	121		138
Write-offs	(478)		(16)
Balance, end of period	$	388	$	745

As of September 30, 2024 and December 31, 2023, the Company had not recorded an allowance for credit losses for the related party accounts receivable, including ProFrac Services, LLC (see Note 16, “Related Party Transactions”).

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, immaterial or already adopted by the Company.

New Accounting Standards Issued and Not Adopted as of September 30, 2024

The FASB issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures.” This standard improves reportable segment disclosure requirements through enhanced disclosures around significant segment expenses. The amendments under this standard require interim and annual disclosures of significant segment expenses regularly provided to the chief operating decision maker (“CODM”). In addition, public entities are required to disclose the amount of “other segment items” by segment and their composition; make annual disclosures about a reportable segment’s profit/loss and assets; and clarify if the CODM uses more than one measure of a segment’s profit or loss in assessing performance and resource allocation and disclose the name and title of the CODM. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and the amendments are applied retrospectively to all prior periods presented. The Company is currently evaluating the impact of the adoption of the ASU on the related disclosures.

The FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”). The amendments under ASU 2023-09 were created as a response to requests from investors, lenders, creditors and other parties to enhance transparency and effectiveness of tax disclosures to help them better assess how an entity’s operations and related tax risks affect an entity’s tax rate and potential future cash flows. ASU 2023-09 requires that entities annually disclose the amount of taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions and that those amounts are also disaggregated by individual jurisdictions equal to or greater than 5% of total income taxes paid (net of funds received). ASU 2023-09 adds a requirement that entities disaggregate income (loss) from continuing operations before income tax expense (benefit) between domestic and foreign. The amendments also require entities to disaggregate income tax expense (benefit) by federal, state and foreign jurisdictions.

The amendments under ASU 2023-09 also remove certain prior requirements. Public business entities are no longer required to disclose the nature and estimate of change in the unrecognized tax benefits balance in the next 12 months or make a statement that an estimate cannot be determined. In addition, public business entities are no longer required to disclose the cumulative amount of each type of temporary difference for which a deferred tax liability has not been recognized due to the exception to recognizing deferred taxes related to subsidiaries and corporate joint ventures. ASU 2023-09 goes into effect for annual periods beginning after December 15, 2024 and early adoption is permitted for annual financial statements not yet issued or made

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

available for issuance. Adoption of the ASU is on a prospective basis, with the option to apply retrospectively. The Company is currently evaluating the impact of the adoption of the ASU on the related 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 16, “Related Party Transactions.”

Total revenue disaggregated by revenue source is as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Revenue:
Products	$	48,243	$	45,865	$	132,052	$	141,695
Services	1,499		1,403		4,215		4,175
	$	49,742	$	47,268	$	136,267	$	145,870

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):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Cost of sales:
Tangible goods sold	$	35,824	$	33,350	$	95,064	$	116,755
Services	91		128		273		425
Other	4,708		4,743		13,822		13,857
	$	40,623	$	38,221	$	109,159	$	131,037

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 and related party, is as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Cost of sales:
Cost of sales for external customers	$	14,996	$	14,399	$	45,436	$	42,471
Cost of sales for related parties	25,627		23,822		63,723		88,566
	$	40,623	$	38,221	$	109,159	$	131,037

Note 4 - Contract Assets

Contract assets are as follows (in thousands):


	September 30, 2024		December 31, 2023
Contract assets	$	83,060	$	83,060
Less accumulated amortization	(12,745)		(8,404)
Contract assets, net	70,315		74,656
Less current contract assets	(6,480)		(5,836)
Contract assets, long term	$	63,835	$	68,820

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 16, “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 September 30, 2024 and December 31, 2023, $63.8 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 which 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 three months ended September 30, 2024 and 2023, the Company recognized $1.6 million and $1.3 million, respectively, of contract assets amortization which is recorded as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations. During the nine months ended September 30, 2024 and 2023, the Company recognized $4.3 million and $3.7 million, respectively, of contract assets amortization. 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
2024 (excluding the nine months ended September 30, 2024)	$	1,499
2025	6,833
2026	8,868
2027	10,117
2028	10,117
Thereafter through May 2032	32,881
Total contract assets	$	70,315

Based on our tests of recoverability, we did not recognize any impairment of such contract assets as of September 30, 2024.

Note 5 — Inventories

Inventories are as follows (in thousands):


	September 30, 2024		December 31, 2023
Raw materials	$	4,776	$	5,299
Finished goods	13,318		13,660
Inventories	18,094		18,959
Less reserve for excess and obsolete inventory	(5,350)		(6,121)
Inventories, net	$	12,744	$	12,838

The additional reserves recorded for the CT segment during the three months ended September 30, 2024 and 2023 were $0.2 million and $0.1 million, respectively. The Company recorded additional reserves of $16 thousand for the three months ended September 30, 2023 for the DA segment with no corresponding activity for the same period of 2024. During the nine months ended September 30, 2024 and 2023, additional reserves recorded were $0.6 million and $0.5 million, respectively, for the CT segment and $13 thousand and $0.2 million, respectively, for the DA segment.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 — Property and Equipment

Property and equipment are as follows (in thousands):


	September 30, 2024		December 31, 2023
Land	$	886	$	886
Land improvements	520		520
Buildings and leasehold improvements	5,520		5,483
Machinery and equipment	7,216		6,993
Furniture and fixtures	520		520
Transportation equipment	830		945
Computer equipment and software	1,926		1,696
Property and equipment	17,418		17,043
Less accumulated depreciation	(12,460)		(11,914)
Property and equipment, net	$	4,958	$	5,129

Depreciation expense totaled $0.2 million and $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and $0.7 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Note 7 — Leases

The components of lease expense and supplemental cash flow information are as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Operating lease expense	$	640	$	890	$	2,176	$	2,625
Finance lease expense:
Amortization of assets	4		3		11		11
Interest on lease liabilities	—		1		1		3
Total finance lease expense	4		4		12		14
Short-term lease expense	392		138		963		160



Total lease expense	$	1,036	$	1,032	$	3,151	$	2,799

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,245	$	1,331	$	4,232	$	4,246
Operating cash flows from finance leases	7		7		30		24
Financing cash flows from finance leases	—		1		—		3

Maturities of lease liabilities as of September 30, 2024 are as follows (in thousands):


Years ending December 31,			Operating Leases
2024 (excluding the nine months ended September 30, 2024)	$	611
2025			2,117
2026			1,810
2027			1,741
2028			1,602
Thereafter			3,047
Total lease payments			$	10,928
Less: Interest			(2,415)
Present value of lease liabilities			$	8,513

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental balance sheet information related to leases is as follows (in thousands):


	September 30, 2024			December 31, 2023
Operating Leases
Operating lease right-of-use assets	$	3,759		$	5,030

Current portion of operating lease liabilities	1,642			2,449
Long-term operating lease liabilities	6,871			7,676
Total operating lease liabilities	$	8,513		$	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	5.5 years			5.5 years
Finance leases	—			0.6 years

Weighted Average Discount Rate
Operating leases	9.5		%	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 until October 30, 2030. The rental income from the sublease is included in the Company’s statement of operations in Other income (expense), net, and offsets the monthly rental expense of $86 thousand 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
2024 (excluding the nine months ended September 30, 2024)	$	192
2025			767
2026			767
2027			767
2028			767
Thereafter			1,406
Total rental income			$	4,666

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8 — Accrued Liabilities

Current accrued liabilities are as follows (in thousands):


	September 30, 2024		December 31, 2023
Severance costs	$	372	$	648
Payroll and benefits	2,063		2,138
Legal costs	45		37
Contingent liability for earn-out provision	11		56
Deferred revenue, current	452		550
Financed insurance	751		1,573
Other	421		888
Total current accrued liabilities	$	4,115	$	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 (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. The ABL is classified as current debt on our consolidated balance sheet due to the nature of the payment arrangements where the lender is paid from customer payments received into the Company’s collections account. As of September 30, 2024, the ABL provided 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 September 30, 2024, the Company had $1.4 million outstanding with approximately $12.0 million of available borrowings under the ABL. During the three and nine months ended September 30, 2024, the Company incurred $0.3 million and $0.7 million, respectively, in interest and fees related to the ABL. As of September 30, 2024, the Company recorded $0.2 million of amortized 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 5.5%) plus 2.0% per annum. The interest rate under the ABL was 10.0% as of September 30, 2024. 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 September 30, 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

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

extinguishment of the debt and the Company recorded a $4.5 million gain in the nine months ended September 30, 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):


	September 30, 2024		December 31, 2023
Flotek PPP loan	$	104	$	239
Less current maturities	(104)		(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, (a) at the holder's option at any time prior to maturity, at a price of $1.088125 per share on a pre-Reverse Stock Split basis, (b) at Flotek's option, if the volume-weighted average trading price of Flotek's common stock equals or exceeds $2.50 per share on a pre-Reverse Stock Split basis, or $1.741 per share on a pre-Reverse Stock Split basis, for 20 trading days during a 30 consecutive trading day period, or (c) at maturity, at a price of $0.8705 per share on a pre-Reverse Stock Split basis. 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. 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 unaudited condensed consolidated statements of operations. The carrying value was recorded as additional paid in capital.

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 on a pre-Reverse Stock Split basis into 10,335,840 shares of common stock (1,722,640 shares of the Company’s common stock on a post-Reverse Stock Split basis) at a price of $0.8705 per share.

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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,280 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, on a pre-Reverse Stock Split basis, 12,683,280 shares of the Company’s common stock (2,113,880 shares of the Company’s common stock on a post-Reverse Stock Split basis).

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, including paid-in-kind interest at a rate of 10% per annum and conversion features.

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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,281 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, on a pre-Reverse Stock Split basis, 12,683,281 shares of the Company’s common stock (2,113,881 shares of the Company’s common stock on a post-Reverse Stock Split basis).

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 on a pre-Reverse Stock Split basis, upon maturity, into 63,496,922 shares of common stock at a price of $0.8705 per share. As a result of the Reverse Stock Split, these shares were converted into 10,582,821 common shares.

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):


							September 30,								December 31,
	Level 1		Level 2		Level 3		2024		Level 1		Level 2		Level 3		2023
Contingent earnout consideration	$	—	$	—	$	11	$	11	$	—	$	—	$	56	$	56


Total	$	—	$	—	$	11	$	11	$	—	$	—	$	56	$	56

Contingent Earnout Consideration Key Inputs

The estimated fair value of the remaining stock performance earn-out provision, with respect to the JP3 transaction, is included in accrued liabilities as of September 30, 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.


	September 30, 2024			December 31, 2023
Risk-free interest rate	4.28		%	4.58		%
Expected volatility	65.0		%	70.0		%
Term until liquidation (years)	0.63			1.38
Stock price	$	4.98		$	3.92
Discount rate	10.62		%	11.86		%

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 pre-Reverse Stock Split closing price of the shares of common stock of $1.19, on the date of conversion. The fair value adjustment was a $0.8 million increase for the nine months ended September 30, 2023.

Amended ProFrac Agreement Contract Consideration Convertible Notes Payable Key Inputs

On May 17, 2022, the Company measured the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable classified as Level 3 using a Monte Carlo simulation at an estimated fair value of $69.5 million.

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were remeasured, at maturity using a Monte Carlo simulation, to a fair value of $40.6 million based on the pre-Reverse Stock Split closing price of the shares of common stock of $0.64, 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 nine months ended September 30, 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 three and nine months ended September 30, 2024 and 2023 classified as Level 3 (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Balance - beginning of period	$	30	$	260	$	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	(19)		(61)		(45)		(384)
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	$	11	$	199	$	11	$	199

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 11 — Income Taxes

The income tax provision (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 21% to income (loss) before income tax for the reasons set forth below:


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
U.S. federal statutory tax rate	21.0	%	21.0	%	21.0	%	21.0	%
State income taxes, net of federal benefit	1.5		6.1		4.7	%	0.4
Non-U.S. income taxed at different rates	5.8		7.3		(0.2)	%	0.5
Increase (reduction) in tax benefit related to stock-based awards	(0.3)		0.7		0.5	%	0.7
Change in valuation allowance	(30.4)		(5.6)		(23.6)	%	(19.0)
Permanent differences related to CARES Act	—		(16.7)		—	%	(3.0)
Non-deductible expenses	3.9		(6.6)		2.3	%	(0.2)

Effective income tax rate	1.5	%	6.2	%	4.7	%	0.4	%

As of September 30, 2024, the Company had U.S. net operating loss carryforwards (“NOLs”) of $190.1 million, including $43.5 million expiring in various amounts from 2029 through 2037 which can offset 100% of taxable income and $146.6 million that has an indefinite carryforward period which can offset 80% of taxable income per year. Additionally, the Company has an estimated $91.2 million in certain state NOL carryforwards and $3.8 million in tax credit carryforwards.

As a result of the ownership change experienced in 2023, 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 net unrealized built in gain of $24.5 million. The Company’s use of NOLs arising after the date of the ownership change are not impacted by the Section 382 limitation. 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. 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 all carryforwards with the exception of $1.0 million of the state NOL carryforwards and $3.8 million of the tax credit carryforwards will be available for utilization if there is sufficient taxable income in subsequent periods. 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.

Note 12 — Commitments and Contingencies

Litigation

The Company is subject to routine litigation and other claims that arise in the normal course of business. Management is not aware of any pending or threatened lawsuits or proceedings that are expected to have a material effect on the Company’s financial position, results of operations or liquidity.

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

Reverse stock split

On September 14, 2023, the Company announced that the Board of Directors approved a reverse stock split of its common stock at a ratio of 1-to-6 (“Reverse Stock Split”). The Reverse Stock Split was completed on September 25, 2023 and resulted in 184,438,695 issued and outstanding shares of common stock being converted into 30,739,820 shares of common stock.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Reverse Stock Split had no effect on the par value or on the number of authorized shares of common stock. The Company issued one whole share of common stock to any shareholder that would have received a fractional share as a result of the Reverse Stock Split. Therefore, no fractional shares were issued in connection with the Reverse Stock Split and no cash or other consideration was paid in connection with any fractional shares that resulted from the Reverse Stock Split.

The Company adjusted the number of outstanding shares of common stock and treasury stock on the consolidated balance sheet and in the statement of changes in stockholders’ equity for all periods presented to reflect the impacts of the Reverse Stock Split. Where we disclose the number of shares of common stock within the footnotes to the consolidated financial statements we have presented both the pre-Reverse Stock Split and post-Reverse Stock Split amount as denoted.

Unless otherwise noted, all references in the consolidated financial statements and notes to condensed consolidated financial statements to the number of shares, per share data, restricted stock and stock option data have been retroactively adjusted to give effect to the Reverse Stock Split.

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 on a pre-Reverse Stock Split basis, upon maturity, into 10,335,840 shares of common stock (1,722,640 shares of common stock on a post-Reverse Stock Split basis) at a price of $0.8705 per share. The Convertible Notes Payable converted into common stock shares 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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,280 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, on a pre-Reverse Stock Split basis, 12,683,280 shares of the Company’s common stock (2,113,880 shares of the Company’s common stock on a post-Reverse Stock Split basis).

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 on a pre-Reverse Stock Split basis, into 12,683,281 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 on a pre-Reverse Stock Split basis, 12,683,281 shares of the Company’s common stock (2,113,881 shares of the Company’s common stock on a post-Reverse Stock Split basis).

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable discussed in Note 9, “Debt and Convertible Notes Payable”, were converted on a pre-Reverse Stock Split basis, upon maturity, into 63,496,922 shares of common stock at a price of $0.8705 per share (10,582,821 shares of common stock on a post-Reverse Stock Split basis). The Contract Consideration Convertible Notes Payable converted into common stock shares, remeasured to a fair value of $40.6 million upon maturity, were recorded as additional paid-in-capital.

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 on a pre-Reverse Stock Split basis 13,104,839 shares of common stock of the Company (2,184,140 shares of the Company’s common stock on a post-Reverse Stock Split basis) at an exercise price equal to $0.0001 per share, subject to a $4.5 million exercise fee.

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.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 14 — 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, which includes the February 2023 Warrants (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.

For all periods presented in the table below, weighted average shares and earnings (loss) per share reflect the effects of the Reverse Stock Split. The calculation of the basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2024 and 2023 is as follows (in thousands):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Numerator:
Net income for basic earnings per share	$	2,532	$	1,287	$	6,068	$	22,609
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	$	2,532	$	1,287	$	6,068	$	(5,076)





Denominator:
Basic weighted average shares outstanding	29,613		29,358		29,498		23,291
Dilutive effect of convertible notes payable	—		—		—		4,743
Dilutive effect of warrants outstanding	1,190		1,238		1,029		—
Dilutive effect of stock options and restricted shares	94		92		128		—
Diluted weighted average shares outstanding	30,897		30,688		30,655		28,034

Basic earnings per share	$	0.09	$	0.04	$	0.21	$	0.97
Diluted earnings (loss) per share	$	0.08	$	0.04	$	0.20	$	(0.18)
Anti-dilutive incremental shares excluded from denominator for diluted earnings computation

Average number of diluted shares for June 2022 stock warrants (1)	—		—		—		1,308
Average number of diluted shares for options and restricted stock (1)	—		—		—		111

(1) These items were not included in the dilution calculation for the nine months ended September 30, 2023 due to their anti-dilutive effect as it would reduce the loss per share.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 15 — Supplemental Cash Flow Information

Supplemental cash flow information is as follows (in thousands):


	Nine months ended September 30,
	2024		2023







Supplemental cash flow information:
Interest paid	$	654	$	36
Income taxes	50		—
Supplemental non cash financing and investing activities:
Conversion of convertible notes payable to common stock	—		8,996
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

Note 16— 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 is 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 shall 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 an 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.

The current measurement period for Contract Shortfall Fees is January 1, 2024 through December 31, 2024. The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, related party revenues for the nine months ended September 30, 2024 reflect variable consideration for Contract Shortfall Fees of $23.8 million, which will be due in the first quarter of 2025 under the terms of the ProFrac Agreement. The measurement period for 2023 was June 1, 2023 through December 31, 2023. Related party revenues for the nine months ended September 30, 2023 included $10.0 million of Contract Shortfall Fees.

On February 2, 2023, 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 on a pre-Reverse Stock Split basis, upon maturity, into 12,683,280 February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”) and subsequently exercised on September 6, 2023.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On February 2, 2023, the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable, with a carrying value of $11.0 million, including accrued interest of $1.0 million, were converted on a pre-Reverse Stock Split basis, upon maturity, into 12,683,281 February 2023 Warrants and subsequently exercised on September 6, 2023 (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”). The fair value of the Initial ProFrac Agreement Contract Consideration Convertible Notes Payable, as of February 2, 2023, was $15.1 million (see Note 10, “Fair Value Measurements”).

On May 17, 2023, the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable were converted on a pre-Reverse Stock Split basis, upon maturity, into 63,496,922 shares of common stock at a price of $0.8705 per share (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”). The fair value of the Amended ProFrac Agreement Contract Consideration Convertible Notes Payable, as of May 17, 2023 was $40.6 million (see Note 10, “Fair Value Measurements”). As a result of the Reverse Stock Split, these shares were converted into 10,582,821 common shares.

During the three months ended September 30, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $33.2 million and $29.5 million, respectively. For the three months ended September 30, 2024 and 2023, these revenues were net of amortization of contract assets of $1.6 million and $1.3 million, respectively. Cost of sales attributable to these revenues were $25.6 million and $23.8 million, respectively, for the three months ended September 30, 2024 and 2023. During the nine months ended September 30, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $88.3 million and $98.6 million, respectively. For the nine months ended September 30, 2024 and 2023, these revenues were net of amortization of contract assets of $4.3 million and $3.7 million, respectively. Cost of sales attributable to these revenues were $63.7 million and $88.6 million, respectively, for the nine months ended September 30, 2024 and 2023.

As of September 30, 2024 and December 31, 2023 our accounts receivable from ProFrac Services, LLC was $47.1 million and $34.6 million, respectively, which is recorded in accounts receivable, related party on the consolidated balance sheet. During the nine months ended September 30, 2024, the Company collected variable consideration of $20.1 million related to the 2023 Contract Shortfall Fees, which were included in accounts receivable, related party as of December 31, 2023.

Note 17 — Business Segment, Geographic and Major Customer Information

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision-maker in deciding how to allocate resources and assess performance. The operations of the Company are categorized into the following reportable segments:

Chemistry Technologies. The CT segment includes green specialty chemistries, logistics and technology services, which enable its customers to pursue improved efficiencies and performance throughout the life cycle of their wells, and also helping 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 includes the design, development, production, sale and support of equipment and services that create and provide valuable information on the composition and properties of energy customers’ hydrocarbon fluids. The company markets products and services that support in-line data analysis of hydrocarbon components and properties. Customers of the DA segment span across the entire oil and gas market, from upstream production to midstream facilities to refineries and distribution networks.

Performance is based upon a variety of criteria. The primary financial measure is segment operating income (loss). 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.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information of the reportable segments is as follows (in thousands):


As of and for the three months ended September 30,	Chemistry Technologies		Data Analytics		Corporate and Other		Total
2024
Revenue from external customers
Products	$	13,600	$	1,681	$	—	$	15,281
Services	497		787		—		1,284
Total revenue from external customers	14,097		2,468		—		16,565
Revenue from related party
Products	32,962		—		—		32,962
Services	15		200		—		215
Total revenue from related parties	32,977		200		—		33,177
Gross profit	7,944		1,175		—		9,119
Income (loss) from operations	5,559		130		(2,966)		2,723
Depreciation	156		37		27		220

Interest expense	—		—		256		256
Income tax	—		—		37		37
Additions to long-lived assets	158		71		33		262

2023
Revenue from external customers
Products	$	15,764	$	1,025	$	—	$	16,789
Services	562		455		—		1,017
Total revenue from external customers	16,326		1,480		—		17,806
Revenue from related party
Products	29,076		—		—		29,076
Services	176		210				386
Total revenue from related parties	29,252		210		—		29,462
Gross profit	8,240		807		—		9,047

Income (loss) from operations	5,519		(37)		(3,863)		1,619

Depreciation	149		26		6		181

Interest expense	—		—		160		160
Income tax	—		—		81		81
Additions to long-lived assets	—		135		—		135

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


As of and for the nine months ended September 30,	Chemistry Technologies		Data Analytics		Corporate and Other		Total
2024
Revenue from external customers
Products	$	40,427	$	3,920	$	—	$	44,347
Services	1,716		1,872		—		3,588
Total revenue from external customers	42,143		5,792		—		47,935
Revenue from related party
Products	87,705		—		—		87,705
Services	27		600		—		627
Total revenue from related parties	87,732		600		—		88,332
Gross profit	24,888		2,220		—		27,108
Income (loss) from operations	17,810		(652)		(10,106)		7,052
Depreciation	475		108		79		662

Interest expense	—		—		842		842
Income tax	—		—		293		293
Additions to long-lived assets	333		105		53		491

2023
Revenue from external customers
Products	$	39,150	$	4,586	$	—	$	43,736
Services	1,870		1,672		—		3,542
Total revenue from external customers	41,020		6,258		—		47,278
Revenue from related party
Products	97,956		2		—		97,958
Services	179		455		—		634
Total revenue from related parties	98,135		457		—		98,592
Gross profit	11,279		3,554		—		14,833
Change in fair value of Contract Consideration Convertible Notes Payable	(29,969)		—		—		(29,969)
Income (loss) from operations	32,694		550		(12,440)		20,804
Paid-in-kind interest on Contract Consideration Convertible Notes Payable	2,129		—		—		2,129
Paid-in-kind interest on convertible notes payable	—		—		155		155
Depreciation	462		61		7		530

Other interest expense	—		—		253		253
Income tax	—		—		98		98
Additions to long-lived assets	30		230		32		292

Assets of the Company by reportable segments are as follows (in thousands):


	September 30, 2024		December 31, 2023
Chemistry Technologies	$	143,399	$	138,559
Data Analytics	7,917		6,604
Corporate and Other	9,333		12,350
Total assets	$	160,649	$	157,513

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Geographic Information

Revenue by country is based on the location where services are provided and products are sold. For the three and nine months ended September 30, 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):


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
U.S. (1)	$	48,498	$	46,401	$	131,763	$	141,251
UAE	592		635		3,136		3,547
Other countries	652		232		1,368		1,072
Total revenue	$	49,742	$	47,268	$	136,267	$	145,870

(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





Three months ended September 30, 2024
ProFrac Services, LLC	$	33,177	66.7	%
Three months ended September 30, 2023
ProFrac Services, LLC	$	29,462	62.3	%


	Revenue		% of Total Revenue





Nine months ended September 30, 2024
ProFrac Services, LLC	$	88,332	64.8	%
Nine months ended September 30, 2023
ProFrac Services, LLC	$	98,592	67.6	%

The concentration with ProFrac Services, LLC and in the oil and gas industry increases credit, commodity and business risk.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Major Suppliers

Expenditure with major suppliers, as a percentage of consolidated supplier expenditure, is as follows (in thousands):


Three months ended September 30,	Expenditure		% of Total Expenditure
2024
Supplier A	$	8,885	24.6	%
Supplier B	5,187		14.4	%
Supplier C	4,348		12.1	%
Supplier D	3,782		10.5	%
2023
Supplier A	$	6,094	25.3	%
Supplier B	5,581		23.2	%
Supplier C	4,197		17.4	%


Nine months ended September 30,	Expenditure		% of Total Expenditure
2024
Supplier B	$	16,885	17.8	%
Supplier A	16,639		17.5	%
Supplier C	16,583		17.5	%
2023
Supplier A	$	36,318	32.5	%
Supplier B	21,752		19.5	%
Supplier C	13,151		11.8	%

Note 18 — Subsequent Event

The Company has evaluated the effects of events that have occurred subsequent to September 30, 2024 through November 7, 2024, the date at which the Company’s interim financial statements are available to be issued, and has determined that there have been no material events that would require recognition in the September 30, 2024 interim financial statements or disclosure in the notes to the interim financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the 2023 Annual Report and the unaudited consolidated financial statements and accompanying notes included herein. Comparative segment revenues and related financial information are discussed herein and are presented in Note 17 to our unaudited consolidated financial statements. See “Forward Looking Statements” in this report and “Risk Factors” included in our filings with the SEC, including our Quarterly Reports on Form 10-Q and our 2023 Annual Report, for a description of important factors that could cause actual results to differ from expected results. Our historical financial information may not be indicative of our future performance.

Executive Summary

Flotek creates unique solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty green chemistry and data technology company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company serves customers needs for both domestic and international energy markets.

The Company has two operating segments, CT and DA, which are both 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 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 applications. 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 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 the Initial ProFrac Agreement, 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 volumes 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 measurement period for Contract Shortfall Fees during 2023 was June 1, 2023 through December 31, 2023. Related party revenues for the three and nine months ended September 30, 2023 reflected Contract Shortfall Fees of $8.0 million and $10.0 million, respectively. The current measurement period for Contract Shortfall Fees is January 1, 2024 through December 31, 2024. The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, related party revenues for the three and nine months ended September 30, 2024 reflect Contract Shortfall Fees of $6.8 million and $23.8 million, respectively.

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 properties are delivered simultaneously on their refined fuels, natural gas liquids (“NGLs”), natural gas, crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infra-red 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 15 seconds.

We believe customers using this technology have obtained significant benefits, including additional profits, by enhancing operations in crude/condensates stabilization, blending operations, reduction of transmix, increasing efficiencies and

optimization of gas plants, allowing for the use of significantly lower cost field gas instead of diesel to generate power, lower emissions and protect 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 customer’s carbon footprint, e.g., less flaring and reduction in energy expenditure for compression and re-processing. Our customers in North America include the supermajors, some of the largest midstream companies and large gas processing plants. We have developed a line of Verax™ analyzers for deployment internationally, which was certified for compliance in hazardous locations and harsh weather conditions.

During the second quarter of 2024, the Environmental Protection Agency (“EPA”) designated the Company’s JP3 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, is the first to be approved as an alternative method under the new NPS OOOOb regulations. The Company believes that this approval could facilitate opportunities to access this new application as a source of future growth.

Research & Innovation

R&I supports both 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 chemistry performance, detection, optimization and manufacturing. For the three months ended September 30, 2024 and 2023, the Company incurred $0.5 million and $0.8 million, respectively, of research and development expense. For the nine months ended September 30, 2024 and 2023, the Company incurred $1.3 million and $2.2 million, respectively, of research and development expense. The Company expects that its 2024 research and development investment will continue to support new product development, especially in support of enhanced environmental demands and conventional customization initiatives for its clients.

Outlook

Our business is subject to numerous variables which impact our outlook and expectations given the shifting conditions of the industry. We have based our outlook on the market conditions we perceive today. Changes often occur.

Energy

The demand for oil and gas and related services fluctuates due to numerous factors including the supply of oil and gas, weather and macroeconomic and geopolitical conditions. Despite the near-term volatility in commodity pricing, leading to the recent weakness in onshore drilling and completion activity, particularly in basins that are weighted toward natural gas production, fundamentals for energy related services remain strong. The overall expansion of the global economy should continue to create substantial demand for all forms of energy which will increase service intensity. 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 expect companies operating in oil-weighted basins to maintain or increase activity while companies operating in gas-weighted basins are expected to maintain or decrease activity over the next 12 months. In general, we expect the major exploration and production companies to maintain activity levels over the next 12 months.

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, 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. AIDA (Automated Interface Detection Algorithm) 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.

Supply Chain

The principal supply issues facing our industry for the next twelve months are expected to include:

•Fluctuating freight costs for shipping to our customers;

•Availability of raw materials;

•Labor shortages; and

•Demand forecasting.

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 and cost increases.

Consolidated Results of Operations (in thousands)


	Three months ended September 30,						Nine months ended September 30,
	2024			2023			2024			2023
Revenue
Revenue from external customers	$	16,565		$	17,806		$	47,935		$	47,278
Revenue from related party	33,177			29,462			88,332			98,592
Total revenues	49,742			47,268			136,267			145,870
Cost of sales	40,623			38,221			109,159			131,037
Cost of sales %	81.7		%	80.9		%	80.1		%	89.8		%
Gross profit	9,119			9,047			27,108			14,833
Gross profit %	18.3		%	19.1		%	19.9		%	10.2		%
Selling general and administrative	5,714			6,526			18,056			21,303
Selling general and administrative %	11.5		%	13.8		%	13.3		%	14.6		%


Depreciation	220			181			662			530
Research and development	462			757			1,349			2,231
Severance costs	—			2			23			(28)
Gain on sale of property and equipment	—			(38)			(34)			(38)

Gain in fair value of Contract Consideration Convertible Notes Payable	—			—			—			(29,969)
Income from operations	2,723			1,619			7,052			20,804
Operating margin %	5.5		%	3.4		%	5.2		%	14.3		%
Interest and other (expense) income, net	(154)			(251)			(691)			1,903
Income before income taxes	2,569			1,368			6,361			22,707
Income tax expense	(37)			(81)			(293)			(98)
Net income	$	2,532		$	1,287		$	6,068		$	22,609
Net income %	5.1		%	2.7		%	4.5		%	15.5		%

Consolidated revenue for the three months ended September 30, 2024 increased $2.5 million, or 5%, versus the same period of 2023, driven by higher related party activity under the ProFrac Agreement and increased activity in the DA segment, partially offset by decreased accrued Contract Shortfall Fees of $1.2 million and decreased revenue from external customers. Related party revenues in the CT segment are net of $1.6 million and $1.3 million of contract assets amortization for the three months ended September 30, 2024 and 2023, respectively.

Consolidated revenue for the nine months ended September 30, 2024 decreased $9.6 million, or 7%, versus the same period of 2023, driven by lower related party activity under the ProFrac Agreement, partially offset by an increase in accrued Contract Shortfall Fees of $13.8 million. Related party revenues in the CT segment are net of $4.3 million and $3.7 million of contract assets amortization for the nine months ended September 30, 2024 and 2023, respectively.

Consolidated cost of sales for the three months ended September 30, 2024 increased $2.4 million, or 6%, versus the respective period of 2023, primarily due to increased product sales, partially offset by lower freight costs. Gross profit margin during the third quarter of 2024 was lower than the corresponding 2023 period as a result of a shift in product mix and lower Contract Shortfall Fees during the 2024 period. Consolidated cost of sales for the nine months ended September 30, 2024 decreased $21.9 million, or 17%, versus the respective period of 2023, primarily due to decreased product sales under the ProFrac Agreement and lower freight costs. Consolidated cost of sales percentage totaled 82% for the three months ended September 30, 2024 versus 81% in the same period of 2023 and improved to 80% for the nine months ended September 30, 2024 from 90% in the same period of 2023 as a result of higher accrued Contract Shortfall Fees during the nine-month 2024 period, which have no associated costs.

SG&A expenses for the three months ended September 30, 2024 decreased $0.8 million, or 12%, versus the same period of 2023. SG&A expenses for the nine months ended September 30, 2024 decreased $3.2 million, or 15.2%, versus the same period of 2023. The decreases relate primarily to decreased professional fees and salaries partially offset by increased stock compensation expense.

Research and development (“R&D”) costs for the three and nine months ended September 30, 2024 decreased $0.3 million, or 39%, and $0.9 million, or 40%, respectively, versus the same periods of 2023 due to reduced occupancy costs, reduced development costs and reduced legal expenses partially offset by increased third-party testing costs.

Income from operations increased $1.1 million for the three months ended September 30, 2024, versus the same period in 2023. The increase is primarily driven by a $0.8 million decrease in SG&A expenses and $0.3 million decrease in R&D costs for the three months ended September 30, 2024 as compared to the same period of 2023. Income from operations decreased $13.8 million for the nine months ended September 30, 2024, versus the same period in 2023. The decrease is primarily driven by the gain in fair value of the Contract Consideration Convertible Notes Payable of $30.0 million for the nine months ended September 30, 2023 with no corresponding fair value change in the same period of 2024. This gain was partially offset by a $12.3 million increase in gross profit, a $3.2 million decrease in SG&A expenses and a $0.9 decrease in R&D costs during the nine months ended September 30, 2024 as compared to the same period of 2023.

Interest and other expense for the three months ended September 30, 2024 decreased $0.1 million, driven by decreases in interest related primarily to the Contract Consideration Convertible Notes Payable, which matured and converted in 2023. Interest and other expense for the nine months ended September 30, 2024 decreased $2.6 million driven by the $4.5 million gain for the nine months ended September 30, 2023 related to the partial forgiveness of the Flotek PPP loan with no corresponding activity in 2024. The increase was partially offset by a $1.7 million decrease in interest payments, which related primarily to the Contract Consideration Convertible Notes Payable, which matured and converted in 2023.

The Company’s income tax expense for the nine months ended September 30, 2024 and 2023 was $0.3 million and $0.1 million, respectively.

Results by Segment (in thousands):

Chemistry Technologies Results of Operations:


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Revenue from external customers	$	14,097	$	16,326	$	42,143	$	41,020
Revenue from related party	32,977		29,252		87,732		98,135
Income from operations	5,559		5,519		17,810		32,694

CT revenue from external customers for the three months ended September 30, 2024 decreased $2.2 million, or 14%, compared to the same period of 2023 driven primarily by decreased domestic activity. Revenue from related party for the three months ended September 30, 2024 increased $3.7 million, or 12.7%, compared to the same period of 2023 primarily driven by increased activity under the ProFrac Agreement partially offset by decreased accrued Contract Shortfall Fees.

CT revenue from external customers for the nine months ended September 30, 2024 increased $1.1 million, or 3%, compared to the same period of 2023 driven primarily by domestic activity partially offset by decreased international activity. Revenue from related party for the nine months ended September 30, 2024 decreased $10.4 million, or 11%, compared to the same period of 2023 primarily driven by decreased activity partially offset by increased accrued Contract Shortfall Fees.

Income from operations for the CT segment for the three months ended September 30, 2024 was $5.6 million compared to $5.5 million the same period of 2023.

Income from operations for the CT segment for the nine months ended September 30, 2024 decreased $14.9 million compared to the same period of 2023. The decrease is primarily due to the gain in fair value of the Contract Consideration Convertible Notes Payable of $30.0 million for the nine months ended September 30, 2023 with no corresponding valuation changes in the same period of 2024. The decrease was partially offset by increased gross profit of $13.6 million for the nine months ended September 30, 2024 which was related to accrued Contract Shortfall Fees and cost management initiatives.

Data Analytics Results of Operations:


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Revenue from external customers	$	2,468	$	1,480	$	5,792	$	6,258
Revenue from related party	200		210		600		457
Income (loss) from operations	130		(37)		(652)		550

DA revenue from external customers for the three months ended September 30, 2024 increased $1.0 million, or 67%, compared to the same period of 2023 primarily due to increased unit sales. Revenue from related party for the three months ended September 30, 2024 was $0.2 million relating to services provided to ProFrac compared to $0.2 million for the same period in 2023. DA revenue from external customers for the nine months ended September 30, 2024 decreased $0.5 million, or 7%, compared to the same period of 2023 primarily due to reduced unit sales. Revenue from related party for the nine months ended September 30, 2024 was $0.6 million relating to services provided to ProFrac compared to $0.5 million for the same period in 2023.

Income from operations for the DA segment for the three months ended September 30, 2024 increased $0.2 million compared to the same period for 2023 primarily driven by increased activity and cost management initiatives. Income from operations for the DA segment for the nine months ended September 30, 2024 decreased $1.2 million compared to the same period for 2023 primarily driven by decreased activity and increased materials costs.

Corporate and Other Results of Operations:


	Three months ended September 30,				Nine months ended September 30,
	2024		2023		2024		2023
Loss from operations	$	(2,966)	$	(3,863)	$	(10,106)	$	(12,440)

Loss from operations for the three months ended September 30, 2024 decreased $0.9 million, or 23%, compared to the same period of 2023 attributable to decreased personnel costs. Loss from operations for the nine months ended September 30, 2024 decreased $2.3 million, or 19%, compared to the same period of 2023 attributable to decreased professional fees.

Capital Resources and Liquidity

Overview

The Company’s capital requirements relate to the acquisition and maintenance of equipment and funding working capital requirements. During the nine months ended September 30, 2024, the Company funded working capital requirements with cash on hand and borrowings under the ABL (defined below).

As of September 30, 2024, the Company had unrestricted cash and cash equivalents of $5.0 million compared to $5.9 million on December 31, 2023. In addition, at November 5, 2024, the Company had approximately $14.0 million in available borrowings under its amended ABL. During the nine months ended September 30, 2024, the Company had $7.1 million of operating income, $5.9 million of cash provided by operating activities, $0.5 million of cash used in investing activities and $6.3 million of cash used in financing activities.

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 (the “ABL”). During August 2024, the Company entered into a second amendment to the ABL extending the maturity to August 2026, increasing the credit availability and lowering 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 September 30, 2024, the Company had $1.4 million outstanding under the ABL. During the nine months ended September 30, 2024, the Company incurred $0.7 million in interest and fees related to the ABL. As of September 30, 2024, the Company recorded $0.2 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 10.0% as of September 30, 2024. 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).

Sources and Uses of Liquidity

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company currently funds its operations with cash on hand, availability under the ABL (see Note 9, “Debt and Convertible Notes Payable” in Part I, Item 1 of this Quarterly Report) and other liquid assets. The Company recognized $9.1 million and $2.5 million of gross profit and net income, respectively, during the three months ended September 30, 2024 and recognized $27.1 million and $6.1 million of gross profit and net income, respectively, during the nine months ended September 30, 2024. Further, the Company recognized net cash provided by operating activities of $5.9 million during the nine months ended September 30, 2024. 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 (see Note 16, “Related Party Transactions” in Part I, Item 1 of this Quarterly Report). Related party revenues for the three and nine months ended September 30, 2024 included Contract Shortfall Fees of $6.8 million and $23.8 million, respectively (see Note 16, “Related Party Transactions” in Part I, Item 1 of this Quarterly Report). Related party receivables as of September 30, 2024 included accrued Contract Shortfall Fees of $23.8 million, which will be due in the first quarter of 2025 under the terms of the ProFrac Agreement.

Cash Flows

Consolidated cash flows by type of activity are noted below (in thousands):


	Nine months ended September 30,
	2024		2023
Net cash provided by (used in) operating activities	$	5,925	$	(9,248)
Net cash used in investing activities	(457)		(525)
Net cash (used in) provided by financing activities	(6,329)		1,925
Effect of changes in exchange rates on cash and cash equivalents	6		13
Net change in cash and cash equivalents and restricted cash	$	(855)	$	(7,835)

Operating Activities

Net cash provided by operating activities was $5.9 million during the nine months ended September 30, 2024 compared to net cash used in operating activities of $9.2 million for the same period of 2023. Consolidated net income for the nine months ended September 30, 2024 was $6.1 million compared to net income of $22.6 million for the nine months ended September 30, 2023.

During the nine months ended September 30, 2024, non-cash adjustments to net income totaled $8.7 million as compared to $25.8 million for the same period of 2023.

•For the nine months ended September 30, 2024 non-cash adjustments included non-cash positive adjustments of $0.9 million of stock compensation expense, $4.3 million amortization of contract assets and $1.7 million non-cash lease expense.

•For the nine months ended September 30, 2023 non-cash adjustments included $30.0 million for the change in fair value of Contract Consideration Convertible Notes Payable and $4.5 million related to the partial forgiveness of the PPP loan, partially offset by $2.3 million paid-in-kind interest expense and non-cash negative adjustments of $0.6 million of stock compensation expense.

During the nine months ended September 30, 2024, changes in working capital used $8.9 million of cash as compared to $6.1 million for the same period of 2023.

•For the nine months ended September 30, 2024, changes in working capital resulted primarily from an increase in related party accounts receivable of $12.5 million, decreased third party accounts receivable of $1.3 million and net inventories of $0.5 million along with decreased accrued liabilities and operating lease liabilities of $1.7 million and $2.0 million, respectively, partially offset by increases in accounts payable of $5.7 million, and other assets of $0.8 million.

•For the nine months ended September 30, 2023, changes in working capital resulted primarily from a decrease in accrued liabilities and operating lease liabilities of $3.2 million and $2.6 million, respectively, a decrease in related party accounts receivable of $2.1 million and a decrease in other assets of $0.9 million, partially offset by a $3.5 million increase in third-party accounts receivable.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 and 2023 was $0.5 million and $0.5 million, respectively, driven by capital expenditures in both periods.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2024 was $6.3 million and relates primarily to $6.1 million in net payments on the ABL, payments for loan origination costs, payments to tax authorities for shares withheld from employees and payments for finance leases, partially offset by proceeds from the issuance of stock. Net cash provided by financing activities was $1.9 million for the nine months ended September 30, 2023, and relates primarily to payments for forfeited options, payments for loan origination costs, payments to tax authorities for shares withheld from employees and payments on finance leases, offset by $3.4 million in net proceeds from the ABL.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s 2023 Annual Report describes the critical accounting policies and estimates used in the preparation of the Company’s condensed consolidated financial statements. Note 2, “Summary of Significant Accounting Policies,” of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Annual Report describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is primarily exposed to market risk from changes in raw material prices, freight costs and foreign currency exchange rates. There have been no material changes to the quantitative or qualitative disclosures about market risk set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of the Company’s 2023 Annual Report.

Item 4. 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 Securities Exchange Act of 1934, as amended (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 Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2024.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (identified in connection with the evaluation required by Rule 13a-15(d) and Rule 15d-15(d) under the Exchange Act) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Except as described in Note 12, “Commitments and Contingencies” of the Notes to Unaudited Condensed Consolidated Financial Statements contained in Part I, Item 1, there have been no material changes in the legal proceedings as described in “Item3. - Legal Proceedings” in the 2023 Annual Report.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors contained in “Item 1A.-Risk Factors” in our 2023 Annual Report, which could materially affect our business, financial condition and/or future results. As of September 30, 2024, there have been no material changes in our risk factors from those set forth in the Annual Report. The risks described in the Annual Report are not the only risks facing our company. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or future results.

Item 2. Unregistered Sales of Equity Securities

Unregistered Sales of Equity Securities

None.

Issuer Repurchases 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 or exercise of the award. Repurchases of the Company’s equity securities during the three months ended September 30, 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 (1)	Average Price Paid per Share



July 1, 2024 to July 31, 2024	124	$	4.92
August 1, 2024 to August 31, 2024	—	$	—
September 1, 2024 to September 30, 2024	1,015	$	4.52
Total	1,139

(1) The Company purchases shares of its common stock (a) to satisfy tax withholding requirements and payment remittance obligations related to period vesting of restricted shares and exercise of non-qualified stock options and (b) to satisfy payments required for common stock upon the exercise of stock options.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibit


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).


























10.1		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).
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.

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-Q.
**		Furnished with this Form 10-Q, 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.

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.

Date: November 7, 2024



FLOTEK INDUSTRIES, INC.

By:						/s/ Ryan Ezell
						Ryan Ezell
						Chief Executive Officer

By:						/s/ Bond Clement
						Bond Clement
						Chief Financial Officer (Principal Financial and Accounting Officer)

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Flotek Industries (FTK) 10-Q2024 Q3 Quarterly report

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