10-Q 1 ftk-20240930.htm 10-Q ftk-20240930
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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)

Delaware90-0023731
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.0001 par valueFTKNew 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
PART I - FINANCIAL INFORMATION
Unaudited Condensed Consolidated Balance Sheets at September 30, 2024 and December 31, 2023
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2024 and 2023
Notes to Unaudited Condensed Consolidated Financial Statements
PART II - OTHER INFORMATION
Legal Proceedings
Item 1ARisk Factors
SIGNATURES


2


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.

3


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FLOTEK INDUSTRIES INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, 2024December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents$4,997 $5,851 
Restricted cash101 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, net12,744 12,838 
Other current assets2,687 3,564 
Current contract asset6,480 5,836 
Total current assets86,293 76,447 
Long-term contract asset63,835 68,820 
Property and equipment, net4,958 5,129 
Operating lease right-of-use assets3,759 5,030 
Deferred tax assets, net66 300 
Other long-term assets1,738 1,787 
TOTAL ASSETS$160,649 $157,513 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$37,395 $31,705 
Accrued liabilities4,115 5,890 
Income taxes payable54 45 
Current portion of operating lease liabilities1,642 2,449 
Current portion of finance lease liabilities 22 
Asset-based loan1,426 7,492 
Current portion of long-term debt104 179 
Total current liabilities44,736 47,782 
Deferred revenue, long-term35 35 
Long-term operating lease liabilities6,871 7,676 
Long-term debt 60 
TOTAL LIABILITIES51,642 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’ equity109,007 101,960 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$160,649 $157,513 
The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
4


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,
 2024202320242023
Revenue:
Revenue from external customers$16,565 $17,806 $47,935 $47,278 
Revenue from related party33,177 29,462 88,332 98,592 
Total revenues49,742 47,268 136,267 145,870 
Cost of sales40,623 38,221 109,159 131,037 
Gross profit9,119 9,047 27,108 14,833 
Operating costs and expenses:
Selling, general, and administrative5,714 6,526 18,056 21,303 
Depreciation220 181 662 530 
Research and development462 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 expenses6,396 7,428 20,056 (5,971)
Income from operations2,723 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, net102 (91)151 (82)
Total other income (expense)(154)(251)(691)1,903 
Income before income taxes2,569 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 share29,613 29,358 29,498 23,291 
Weighted average common shares used in computing diluted income (loss) per common share30,897 30,688 30,655 28,034 

The accompanying Notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.
5


FLOTEK INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
    
 Three months ended September 30,Nine months ended September 30,
 2024202320242023
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.
6


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

Nine months ended September 30,
 20242023
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 assets4,341 3,665 
Depreciation662 530 
Amortization of asset-based loan origination costs243 36 
Provision for credit losses, net of recoveries121 97 
Provision for excess and obsolete inventory626 626 
Gain on sale of property and equipment(34)(38)
Non-cash lease expense1,661 2,316 
Stock compensation expense915 (565)
Deferred income tax expense233 50 
Paycheck protection plan loan forgiveness (4,522)
Changes in current assets and liabilities:
Accounts receivable1,346 3,472 
Accounts receivable, related party(12,495)(2,082)
Inventories(532)(776)
Other assets849 (863)
Accounts payable5,690 60 
Accrued liabilities(1,730)(3,179)
Operating lease liabilities(2,002)(2,636)
Income taxes payable9 (54)
Interest payable (8)
Net cash provided by (used in) operating activities5,925 (9,248)
Cash flows from investing activities:
Capital expenditures(491)(593)
Proceeds from sale of assets34 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 loan122,600 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 stock88 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 equivalents6 13 
Net change in cash and cash equivalents and restricted cash(855)(7,835)
Cash and cash equivalents at the beginning of period5,851 12,290 
Restricted cash at the beginning of period102 100 
Cash and cash equivalents and restricted cash at beginning of period5,953 12,390 
Cash and cash equivalents at end of period4,997 4,453 
Restricted cash at the end of period101 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.
7



FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)

Three Months Ended September 30, 2024
 Common StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued
Par
Value
SharesCost
Balance, June 30, 202430,867 $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 vested25 — — — — — — — 
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 StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued
Par
Value
SharesCost
(As adjusted, see Note 13)
Balance, June 30, 202326,370 $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 granted145 — — — — — — — 
Restricted stock forfeited— — 1 — — — — — 
Stock compensation expense— — — — 270 — — 270 
Shares withheld to cover taxes(3)— — (2)(15)— — (17)
Exercise of pre-funded warrants4,228 — — — — — — — 
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.
8


FLOTEK INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(continued)
(in thousands)

Nine Months Ended September 30, 2024
 Common StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued
Par
Value
SharesCost
Balance, December 31, 202330,773 $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 granted94 — — — — — — — 
Restricted stock forfeited— — 11 — — — — — 
Restricted stock units vested25 — — — — — — — 
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 StockTreasury StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated DeficitTotal Stockholders’ Equity
 Shares
Issued
Par
Value
SharesCost
(As adjusted, see Note 13)
Balance, December 31, 202213,986 $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 granted148 — — — — — — — 
Restricted stock forfeited(7)— 65 — — — — — 
Restricted stock units vested82 — — — — — — — 
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 warrants4,228 — — — — — — — 
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 Stock1,723 — — — 8,996 — — 8,996 
Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to Common Stock10,583 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.
9


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.
10


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, 2024December 31, 2023
Balance, beginning of year$745 $623 
Charges to provision for credit losses, net of recoveries121 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
11


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,
 2024202320242023
Revenue:
Products$48,243 $45,865 $132,052 $141,695 
Services1,499 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,
 2024202320242023
Cost of sales:
Tangible goods sold$35,824 $33,350 $95,064 $116,755 
Services91 128 273 425 
Other4,708 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,
 2024202320242023
Cost of sales:
Cost of sales for external customers$14,996 $14,399 $45,436 $42,471 
Cost of sales for related parties25,627 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, 2024December 31, 2023
Contract assets$83,060 $83,060 
Less accumulated amortization(12,745)(8,404)
Contract assets, net70,315 74,656 
Less current contract assets(6,480)(5,836)
Contract assets, long term$63,835 $68,820 
12


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 
20256,833 
20268,868 
202710,117 
202810,117 
Thereafter through May 203232,881 
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, 2024December 31, 2023
Raw materials$4,776 $5,299 
Finished goods13,318 13,660 
Inventories18,094 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.
13


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, 2024December 31, 2023
Land$886 $886 
Land improvements520 520 
Buildings and leasehold improvements5,520 5,483 
Machinery and equipment7,216 6,993 
Furniture and fixtures520 520 
Transportation equipment830 945 
Computer equipment and software1,926 1,696 
   Property and equipment17,418 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,
2024202320242023
Operating lease expense$640 $890 $2,176 $2,625 
Finance lease expense:
Amortization of assets4 3 11 11 
Interest on lease liabilities 1 1 3 
Total finance lease expense 4 4 12 14 
Short-term lease expense392 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 leases7 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 
20252,117 
20261,810 
20271,741 
20281,602 
Thereafter3,047 
Total lease payments$10,928 
Less: Interest(2,415)
Present value of lease liabilities$8,513 
14


FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Supplemental balance sheet information related to leases is as follows (in thousands):
September 30, 2024December 31, 2023
Operating Leases
Operating lease right-of-use assets$3,759 $5,030 
Current portion of operating lease liabilities1,642 2,449 
Long-term operating lease liabilities6,871 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 leases5.5 years5.5 years
Finance leases— 0.6 years
Weighted Average Discount Rate
Operating leases9.5 %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 
2025767 
2026767 
2027767 
2028767 
Thereafter1,406 
Total rental income$4,666 
15


FLOTEK INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 — Accrued Liabilities
Current accrued liabilities are as follows (in thousands):
 September 30, 2024December 31, 2023
Severance costs$372 $648 
Payroll and benefits2,063 2,138 
Legal costs45 37 
Contingent liability for earn-out provision11 56 
Deferred revenue, current452 550 
Financed insurance751 1,573 
Other421 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
16


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, 2024December 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).
17


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 1Level 2Level 32024Level 1Level 2Level 32023
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, 2024December 31, 2023
Risk-free interest rate4.28 %4.58 %
Expected volatility65.0 %70.0 %
Term until liquidation (years)0.63 1.38 
Stock price $4.98 $3.92 
Discount rate10.62 %11.86 %
18


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,
2024202320242023
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