What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-08 · 128 added, 134 removed, 708 unchanged (27% of the section changed)

3 unchanged sentences

(in thousands, except share data)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

1 unchanged sentence

Restricted cash 101 102

Accounts receivable, net of allowance for credit losses of $ 410 and $ 745 at June 30, 2024 and December 31, 2023, respectively

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 each of June 30, 2024 and December 31, 2023, respectively

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

1 unchanged sentence

Other current assets 2,687 3,564

Current contract assets 5,786 5,836

Current contract asset 6,480 5,836

Total current assets 86,293 76,447

Long-term contract assets 66,121 68,820

Long-term contract asset 63,835 68,820

Property and equipment, net 4,958 5,129

21 unchanged sentences

Common stock, $ 0.0001 par value, 240,000,000 shares authorized;

30,866,597 shares issued and 29,759,154 shares outstanding at June 30, 2024;

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 unchanged sentences

Treasury stock, at cost;

1,107,442 and 1,108,707 shares at June 30, 2024 and December 31, 2023, respectively (As adjusted, see Note 13)

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 )

5 unchanged sentences

(in thousands, except per share data)

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

18 unchanged sentences

Total other income (expense) ( 154 ) ( 251 ) ( 691 ) 1,903

Income (loss) before income taxes 1,989 ( 14 ) 3,793 21,338

Income before income taxes 2,569 1,368 6,361 22,707

Income tax expense ( 37 ) ( 81 ) ( 293 ) ( 98 )

Net income (loss) $ 1,974 $ ( 21 ) $ 3,536 $ 21,322

Net income $ 2,532 $ 1,287 $ 6,068 $ 22,609

Income (loss) per common share (As adjusted, see Note 14):

6 unchanged sentences

FLOTEK INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

Net income (loss) $ 1,974 $ ( 21 ) $ 3,536 $ 21,322

Net income $ 2,532 $ 1,287 $ 6,068 $ 22,609

Other comprehensive income (loss):

Foreign currency translation adjustment ( 52 ) 47 6 13

Comprehensive income (loss) $ 1,990 $ ( 34 ) $ 3,594 $ 21,288

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

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

1 unchanged sentence

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

3 unchanged sentences

Change in fair value of Contract Consideration Convertible Notes Payable — ( 29,969 )

Amortization of convertible note issuance cost — 83

Amortization of convertible note issuance costs — 83

Paid-in-kind interest expense — 2,284

29 unchanged sentences

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 )

1 unchanged sentence

Payments for finance leases ( 22 ) ( 24 )

Net cash used in financing activities ( 1,765 ) ( 888 )

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

10 unchanged sentences

(in thousands)

Three months ended June 30, 2024

Three Months Ended September 30, 2024

Common Stock Treasury Stock Additional

3 unchanged sentences

Value Shares Cost

Balance, March 31, 2024 30,773 $ 3 1,112 $ ( 34,514 ) $ 463,484 $ 169 $ ( 325,244 ) $ 103,898

Balance, June 30, 2024 30,867 $ 3 1,107 $ ( 34,528 ) $ 463,844 $ 185 $ ( 323,270 ) $ 106,234

Net income — — — — — — 2,532 2,532

1 unchanged sentence

Stock issued under employee stock purchase plan — — ( 6 ) — 26 — — 26

Restricted stock granted 94 — — — — — — —

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

Stock compensation expense — — — — 273 — — 273

Shares withheld to cover taxes — — 1 ( 6 ) — — — ( 6 )

Balance, June 30, 2024

Balance, September 30, 2024

30,892 $ 3 1,102 $ ( 34,534 ) $ 464,143 $ 133 $ ( 320,738 ) $ 109,007

Three months ended June 30, 2023

Three Months Ended September 30, 2023

Common Stock Treasury Stock Additional

4 unchanged sentences

(As adjusted, see Note 13)

Balance, March 31, 2023 15,768 $ 2 1,074 $ ( 34,451 ) $ 421,603 $ 160 $ ( 330,176 ) $ 57,138

Net loss — — — — — — ( 21 ) ( 21 )

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 — — — — —

Restricted stock units vested 18 — — — — — — —

Stock compensation expense — — — — 270 — — 270

Shares withheld to cover taxes ( 3 ) — — ( 2 ) ( 15 ) — — ( 17 )

Conversion of Amended ProFrac Agreement Contract Consideration Convertible Notes Payable to Common Stock 10,583 1 — — 40,637 — — 40,638

Balance, June 30, 2023

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

3 unchanged sentences

(in thousands)

Six months ended June 30, 2024

Nine Months Ended September 30, 2024

Common Stock Treasury Stock Additional

9 unchanged sentences

Restricted stock forfeited — — 11 — — — — —

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

Stock compensation expense — — — — 915 — — 915

Shares withheld to cover taxes — — 7 ( 30 ) — — — ( 30 )

Balance, June 30, 2024

Balance, September 30, 2024

30,892 $ 3 1,102 $ ( 34,534 ) $ 464,143 $ 133 $ ( 320,738 ) $ 109,007

Six months ended June 30, 2023

Nine Months Ended September 30, 2023

Common Stock Treasury Stock Additional

14 unchanged sentences

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

Equity contribution — — — — 11,040 — — 11,040

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, June 30, 2023

Balance, September 30, 2023

30,740 $ 3 1,110 $ ( 34,482 ) $ 462,799 $ 194 $ ( 328,910 ) $ 99,604

28 unchanged sentences

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 Note 18, “Subsequent Event”) and other liquid assets.

The Company recognized $ 9.2 million and $ 2.0 million of gross profit and net income, respectively, during the three months ended June 30, 2024 and recognized $ 18.0 million and $ 3.5 million of gross profit and net income, respectively, during the six months ended June 30, 2024.

Further, the Company recognized net cash provided by operating activities of $ 0.8 million during the six months ended June 30, 2024.

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 six months ended June 30, 2024 included Contract Shortfall Fees (defined below) of $ 8.4 million and $ 17.1 million, respectively (see Note 16, “Related Party Transactions”).

Related party receivables as of June 30, 2024 included accrued Contract Shortfall Fees of $ 17.1 million, which will be due in the first quarter of 2025 under the terms of the ProFrac Agreement.

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.

6 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Balance, beginning of year $ 745 $ 623

2 unchanged sentences

Balance, end of period $ 388 $ 745

As of June 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”).

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

3 unchanged sentences

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 June 30, 2024

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

The FASB issued Accounting Standards Update (“ASU”) No.

25 unchanged sentences

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 June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

2 unchanged sentences

$ 49,742 $ 47,268 $ 136,267 $ 145,870

(1) Product revenue includes sales to related parties as described in Note 16, “Related Party Transactions.”

Disaggregation of Cost of Sales

1 unchanged sentence

Total cost of sales disaggregated is as follows (in thousands):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

7 unchanged sentences

Cost of sales, between external and related party, is as follows (in thousands):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

3 unchanged sentences

$ 40,623 $ 38,221 $ 109,159 $ 131,037

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Contract Assets

Contract assets are as follows (in thousands):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Contract assets $ 83,060 $ 83,060

3 unchanged sentences

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 June 30, 2024 and December 31, 2023, $ 66.1 million and $ 68.8 million, respectively, of the contract assets were classified as long term based upon our estimate of the forecasted revenues from the ProFrac Agreement which will not be realized within the next twelve months of the ProFrac Agreement.

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 June 30, 2024 and 2023, the Company recognized $ 1.5 million and $ 1.1 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 six months ended June 30, 2024 and 2023, the Company recognized $ 2.7 million and $ 2.4 million, respectively, of contract assets amortization.

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 six months ended June 30, 2024)

2024 (excluding the nine months ended September 30, 2024)

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 June 30, 2024.

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):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Raw materials $ 4,776 $ 5,299

3 unchanged sentences

Inventories, net $ 12,744 $ 12,838

The additional reserves recorded during the three months ended June 30, 2024 and 2023 were $ 0.1 million and $ 0.2 million, respectively, for the CT segment.

The Company recorded $ 6 thousand for the three months ended June 30, 2023 for the DA segment.

There were no additional reserves recorded for the three months ended June 30, 2024 for the DA segment.

During the six months ended June 30, 2024 and 2023, additional reserves recorded were $ 0.4 million and $ 0.4 million, respectively, for the CT segment and $ 13 thousand and $ 0.1 million, respectively, for the DA segment.

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.

2 unchanged sentences

Property and equipment are as follows (in thousands):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Land $ 886 $ 886

8 unchanged sentences

Property and equipment, net $ 4,958 $ 5,129

Depreciation expense totaled $ 0.2 million and $ 0.2 million for the three months ended June 30, 2024 a nd 2023, respectively, and $ 0.4 million and $ 0.3 million for the six months ended June 30, 2024 a nd 2023, respectively.

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

Note 7 — Leases

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

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

10 unchanged sentences

Financing cash flows from finance leases — 1 — 3

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

Years ending December 31, Operating Leases Finance Leases

2024 (excluding the six months ended June 30, 2024)

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)

Thereafter 3,047

5 unchanged sentences

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Operating Leases

8 unchanged sentences

Current portion of finance lease liabilities $ — $ 22

Long-term finance lease liabilities — —

Total finance lease liabilities $ — $ 22

1 unchanged sentence

Operating leases 5.5 years 5.5 years

Finance leases 0.1 years 0.6 years

Finance leases — 0.6 years

Weighted Average Discount Rate

6 unchanged sentences

Years ending December 31, Rental Income

2024 (excluding the six months ended June 30, 2024)

2024 (excluding the nine months ended September 30, 2024)

Thereafter 1,406

4 unchanged sentences

Current accrued liabilities are as follows (in thousands):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Severance costs $ 372 $ 648

8 unchanged sentences

Asset Based Loan

On August 14, 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an asset-based loan (the “ABL”).

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 June 30, 2024, the ABL provided up to $ 13.8 million of credit availability, which was 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) 50 % of the value of certain real estate holdings.

Effective August 5, 2024, the Company entered into a second amendment to the ABL (see Note 18, “Subsequent Event” for additional information), which among other modifications, increased the loan commitment to $ 20.0 million.

As of June 30, 2024, the Company had $ 5.8 million outstanding with approximately $ 8.0 million of available borrowings under the ABL.

During the three and six months ended June 30, 2024, the Company incurred $ 0.2 million and $ 0.4 million, respectively, in interest and fees related to the ABL.

As of June 30, 2024, the Company recorded $ 0.2 million of amortized deferred financing costs related to the ABL.

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 11.0 % as of June 30, 2024.

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 24-month 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).

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.

1 unchanged sentence

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 June 30, 2024.

The Company was in compliance with all of the covenants under the ABL as of September 30, 2024.

Paycheck Protection Program Loan

3 unchanged sentences

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, beginning on March 15, 2023.

The forgiveness of the Flotek PPP loan was

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

accounted for as an extinguishment of the debt and the Company recorded a $ 4.5 million gain in the six months ended June 30, 2023, comprising the principal amount forgiven of $ 4.4 million and accrued interest of $ 0.1 million.

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):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Flotek PPP loan

5 unchanged sentences

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 directors including the D3 Family Fund and the D3 Bulldog Fund, and Firestorm Capital LLC.

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.

27 unchanged sentences

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):

June 30, December 31,

September 30, December 31,

Level 1 Level 2 Level 3 2024 Level 1 Level 2 Level 3 2023

2 unchanged sentences

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 June 30, 2024 and December 31, 2023.

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.

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Risk-free interest rate 4.28 % 4.58 %

9 unchanged sentences

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 six months ended June 30, 2023.

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 $ 3.9 million and $ 30.8 million for the three and six months ended June 30, 2023, respectively.

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

1 unchanged sentence

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 six months ended June 30, 2024 and 2023 classified as Level 3 (in thousands):

Three months ended June 30, Six months ended June 30,

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

13 unchanged sentences

federal income tax rate of 21% to income (loss) before income tax for the reasons set forth below:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

13 unchanged sentences

1.5 % 6.2 % 4.7 % 0.4 %

As of June 30, 2024, the Company had U.S.

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 $ 92.8 million in certain state NOL carryforwards, $ 0.6 million in Section 163(j) interest limitation 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 $ 24.5 million.

Additionally, the Company has an estimated $ 91.2 million in certain state NOL carryforwards and $ 3.8 million in tax credit carryforwards.

The Company’s use of NOLs arising after the date of the ownership change are not impacted by the Section 382 limitation.

6 unchanged sentences

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.

During the second quarter of 2023, the Company settled certain litigation resulting in the reversal of $ 2.3 million of accrued severance costs during the three and six months ended June 30, 2023.

Other Commitments and Contingencies

2 unchanged sentences

financial institutions and balances often exceed insurable amounts.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 13 — Stockholders’ Equity

2 unchanged sentences

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.

16 unchanged sentences

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.

FLOTEK INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ProFrac Holdings II, LLC and its affiliates may not receive any voting or consent rights in respect of the June 2022 Warrants or the underlying shares of common stock unless and until ProFrac Holdings II, LLC has paid an additional $ 4.5 million to the Company;

1 unchanged sentence

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

5 unchanged sentences

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 six months ended June 30, 2024 and 2023 is as follows (in thousands):

Three months ended June 30, Six months ended June 30,

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

Net income (loss) for basic earnings per share $ 1,974 $ ( 21 ) $ 3,536 $ 21,322

Net income for basic earnings per share $ 2,532 $ 1,287 $ 6,068 $ 22,609

Adjustments to net income available to shareholders

11 unchanged sentences

Average number of diluted shares for June 2022 stock warrants (1)

— 1,083 — 1,340

Average number of diluted shares for options and restricted stock (1)

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

(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.

2 unchanged sentences

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

Six months ended June 30,

Nine months ended September 30,

Supplemental cash flow information:

Interest paid $ 654 $ 36

Income taxes 50 —

Supplemental non cash financing and investing activities:

14 unchanged sentences

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, the revenues for six months ended June 30, 2024 reflect variable consideration for Contract Shortfall Fees of $ 17.1 million, which will be due in the first quarter of 2025 under the terms of the ProFrac Agreement.

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.

Revenues for the six months ended June 30, 2023 included $ 2.0 million of Contract Shortfall Fees.

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.

6 unchanged sentences

As a result of the Reverse Stock Split, these shares were converted into 10,582,821 common shares.

During the three months ended June 30, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $ 28.0 million and $ 32.8 million , respectively.

For the three months ended June 30, 2024 and 2023, these revenues were net of amortization of contract assets of $ 1.5 million and $ 1.1 million , respectively .

Cost of sales attributable to these revenues were $ 19.5 million and $ 30.2 million, respectively, for the three months ended June 30, 2024 and 2023.

During the six months ended June 30, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $ 55.2 million and $ 69.1 million, respectively.

For the six months ended June 30, 2024 and 2023, these revenues were net of amortization of contract assets of $ 2.7 million and $ 2.4 million , respectively .

Cost of sales attributable to these revenues were $ 38.1 million and $ 65.1 million, respectively, for the six months ended June 30, 2024 and 2023.

As of June 30, 2024 and December 31, 2023 our accounts receivable from ProFrac Services, LLC was $ 40.0 million and $ 34.6 million , respectively, which is recorded in accounts receivable, related party on the consolidated balance sheet.

During the six months ended June 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.

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

16 unchanged sentences

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

As of and for the three months ended June 30,

As of and for the three months ended September 30,

Chemistry Technologies Data Analytics

23 unchanged sentences

Gross profit 8,240 807 — 9,047

Change in fair value of Contract Consideration Convertible Notes Payable ( 3,874 ) — — ( 3,874 )

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

Paid-in-kind interest on Contract Consideration Convertible Notes Payable — — 712 712

Paid-in-kind interest on convertible notes payable — — 155 155

Depreciation 149 26 6 181

4 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of and for the six months ended June 30,

As of and for the nine months ended September 30,

Chemistry Technologies Data Analytics

28 unchanged sentences

Depreciation 462 61 7 530

Interest expense — — 2,377 2,377

Other interest expense — — 253 253

Income tax — — 98 98

1 unchanged sentence

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Chemistry Technologies $ 143,399 $ 138,559

6 unchanged sentences

Revenue by country is based on the location where services are provided and products are sold.

For the six months ended June 30, 2024 and 2023 no individual countries other than the U.S.

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 June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

9 unchanged sentences

Revenue % of Total Revenue

Three months ended June 30, 2024

Three months ended September 30, 2024

ProFrac Services, LLC

$ 33,177 66.7 %

Three months ended June 30, 2023

Three months ended September 30, 2023

ProFrac Services, LLC

1 unchanged sentence

Revenue % of Total Revenue

Six months ended June 30, 2024

Nine months ended September 30, 2024

ProFrac Services, LLC

$ 88,332 64.8 %

Six months ended June 30, 2023

Nine months ended September 30, 2023

ProFrac Services, LLC

5 unchanged sentences

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

Three months ended June 30, Expenditure % of Total Expenditure

Three months ended September 30, Expenditure % of Total Expenditure

Supplier A $ 8,885 24.6 %

1 unchanged sentence

Supplier C 4,348 12.1 %

Supplier D 3,782 10.5 %

Supplier A $ 6,094 25.3 %

1 unchanged sentence

Supplier C 4,197 17.4 %

Six months ended June 30, Expenditure % of Total Expenditure

Nine months ended September 30, Expenditure % of Total Expenditure

Supplier B $ 16,885 17.8 %

5 unchanged sentences

Note 18 — Subsequent Event

The Company has evaluated the effects of events that have occurred subsequent to June 30, 2024 through August 8, 2024, the date at which the Company’s interim financial statements are available to be issued, and has determined that the following subsequent event required disclosure:

Entry into material definitive agreement

Effective August 5, 2024, the Company entered into a second amendment to the ABL (the “Second Amendment”).

Among other matters, the Second Amendment amends the ABL as follows:

(i) the total commitment of the loan is increased to $ 20,000,000 , (ii) the stated maturity date is extended for an additional 12 months, (iii) the applicable margin is decreased by 0.50 %, and (iv) various modifications are made to the borrowing base and criteria for eligible receivables and eligible pledged real estate.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements