HOUSTON, June 11, 2024 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) announced today that the company is set to join the Russell Microcap® Index at the conclusion of the 2024 Russell US Indexes annual reconstitution, effective at the open of US equity markets on Monday, July 1, 2024. About FTSE Russell FTSE Russell is focused on applying the highest industry standards in index design and governance, employing transparent rules-based methodology informed by independent commi ...

Core Viewpoint - Flotek Industries has appointed Leon Chad as Senior Vice President, Commercial, effective June 3, 2024, to enhance its leadership team and drive business strategies in the energy and chemistry sectors [1][2]. Company Overview - Flotek Industries is a technology-driven company focused on green chemicals and data analytics, providing innovative completion solutions that positively impact sustainability and reduce environmental effects [3]. - The company holds an intellectual property portfolio of over 170 patents and operates in more than 59 countries, emphasizing sustainable and optimized chemistry and data solutions [3]. Leadership Appointment - Leon Chad brings over three decades of experience in the energy and chemistry industries, which will support Flotek's strategy to gain market share through differentiated chemistry and data solutions [4]. - Prior to joining Flotek, Chad held significant roles at Baker Hughes, Locus Fermentation Solutions, and Clariant Oil Services, focusing on market growth and business development [5].

Flotek Industries, Inc. is an advanced technology-driven, green chemical and data analytics company providing unique and innovative completion solutions that have a proven, positive impact on sustainability and reducing the overall environmental impact of energy on air, land, water and people. Flotek has an intellectual property portfolio of over 170 patents and a global presence in more than 15 countries throughout North America, Latin America, the Middle East and North Africa. Flotek has established colla ...

[Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section outlines the nature and inherent uncertainties of forward-looking statements, emphasizing potential material differences from actual results - This report contains forward-looking statements, which are not historical facts but represent current assumptions and beliefs about future events, inherently uncertain and outside the Company's control. These statements include estimates, projections, and information related to the Company's business plan, objectives, and expected operating results[11](index=11&type=chunk) - Forward-looking statements are subject to risks and uncertainties that can cause actual results to differ materially from projections, as discussed in the Annual Report on Form 10-K for the year ended December 31, 2023, and subsequent SEC filings[13](index=13&type=chunk) [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Flotek Industries, Inc.'s unaudited condensed consolidated financial statements for Q1 2024 and 2023, with accompanying notes [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Current Assets | $78,268 | $76,447 | | Total Assets | $155,850 | $157,513 | | Total Current Liabilities | $44,781 | $47,782 | | Total Liabilities | $51,952 | $55,553 | | Total Stockholders' Equity | $103,898 | $101,960 | - Total assets decreased slightly from **$157.5 million** at December 31, 2023, to **$155.9 million** at March 31, 2024. Total liabilities also decreased from **$55.6 million** to **$52.0 million**, while total stockholders' equity increased from **$102.0 million** to **$103.9 million**[19](index=19&type=chunk) [Unaudited Condensed Consolidated Statements of Operations](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, costs, and net income or loss, reflecting operational performance Unaudited Condensed Consolidated Statements of Operations (in thousands) | Metric | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total Revenues | $40,374 | $48,007 | | Cost of Sales | $31,553 | $46,127 | | Gross Profit | $8,821 | $1,880 | | Income from Operations | $2,108 | $18,511 | | Net Income | $1,562 | $21,343 | | Basic Income per Common Share | $0.05 | $1.30 | | Diluted Income (Loss) per Common Share | $0.05 | $(0.12) | - Total revenues decreased by **16%** from **$48.0 million** in Q1 2023 to **$40.4 million** in Q1 2024, primarily due to lower related party activity. However, gross profit significantly increased from **$1.9 million** to **$8.8 million**, driven by accrued Contract Shortfall Fees and improved cost management[20](index=20&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk) - Net income decreased substantially from **$21.3 million** in Q1 2023 to **$1.6 million** in Q1 2024, mainly due to a **$26.1 million** gain in fair value of Contract Consideration Convertible Notes Payable in Q1 2023 with no corresponding gain in Q1 2024[20](index=20&type=chunk)[181](index=181&type=chunk) [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement presents net income alongside other comprehensive income items, showing non-owner changes in equity Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net Income | $1,562 | $21,343 | | Foreign currency translation adjustment | $42 | $(21) | | Comprehensive Income | $1,604 | $21,322 | - Comprehensive income for Q1 2024 was **$1.6 million**, a significant decrease from **$21.3 million** in Q1 2023, primarily reflecting the change in net income[22](index=22&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes cash inflows and outflows from operating, investing, and financing activities Cash Flow Activity (in thousands) | Cash Flow Activity | Three months ended March 31, 2024 (in thousands) | Three months ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $3,887 | $1,140 | | Net cash used in investing activities | $(152) | $(157) | | Net cash used in financing activities | $(4,411) | $(818) | | Net change in cash and cash equivalents and restricted cash | $(634) | $144 | - Net cash provided by operating activities increased to **$3.9 million** in Q1 2024 from **$1.1 million** in Q1 2023, despite lower net income, due to changes in working capital and non-cash adjustments[24](index=24&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - Net cash used in financing activities significantly increased to **$4.4 million** in Q1 2024, primarily due to net payments on the Asset-Based Loan (ABL), compared to **$0.8 million** in Q1 2023[24](index=24&type=chunk)[203](index=203&type=chunk) [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) This statement tracks changes in equity components, including net income and stock transactions Stockholders' Equity (in thousands) | Metric | Balance, December 31, 2023 (in thousands) | Balance, March 31, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------- | :------------------------------------- | | Total Stockholders' Equity | $101,960 | $103,898 | | Net Income | N/A | $1,562 | | Additional Paid-in Capital | $463,140 | $463,484 | | Accumulated Deficit | $(326,806) | $(325,244) | - Total stockholders' equity increased by **$1.9 million** from December 31, 2023, to March 31, 2024, primarily driven by net income and stock compensation expense, partially offset by shares withheld for taxes[27](index=27&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of accounting policies and significant financial disclosures [Note 1 — Organization and Nature of Operations](index=9&type=section&id=Note%201%20%E2%80%94%20Organization%20and%20Nature%20of%20Operations) This note describes the company's business segments, operational structure, and primary funding sources - Flotek Industries, Inc. operates in two segments: Chemistry Technologies (CT), which designs, develops, manufactures, and distributes green specialty chemicals for energy markets, and Data Analytics (DA), which provides real-time analytics for hydrocarbon streams[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk) - The Company funds operations with cash on hand, an Asset-Based Loan (ABL), and other liquid assets. Liquidity is significantly dependent on operating cash flow, primarily from the ProFrac Agreement, which includes Contract Shortfall Fees[35](index=35&type=chunk) - As of March 31, 2024, related party receivables included **$13.7 million** in accrued Contract Shortfall Fees, comprising **$5.0 million** from 2023 (collected in April 2024) and **$8.7 million** from 2024 (due Q1 2025)[35](index=35&type=chunk) [Note 2 — Summary of Significant Accounting Policies](index=9&type=section&id=Note%202%20%E2%80%94%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing financial statements - The financial statements are prepared in accordance with U.S. GAAP, assuming the Company will continue as a going concern, and reflect management's necessary adjustments for fair statement[34](index=34&type=chunk)[37](index=37&type=chunk) - Key accounting policies include the application of the current expected credit loss (CECL) model for accounts receivable, amortization of contract assets over the ProFrac Agreement term, and recognition of revenue based on a five-step model when performance obligations are satisfied[42](index=42&type=chunk)[45](index=45&type=chunk)[61](index=61&type=chunk) - Recent accounting pronouncements include ASU No. 2023-09 (Improvements to Income Tax Disclosures) and ASU No. 2023-07 (Segment Reporting), both effective for fiscal years beginning after December 15, 2024, and 2023, respectively, with early adoption permitted. The Company is evaluating their impact[79](index=79&type=chunk)[82](index=82&type=chunk) [Note 3 — Revenue from Contracts with Customers](index=15&type=section&id=Note%203%20%E2%80%94%20Revenue%20from%20Contracts%20with%20Customers) This note disaggregates revenue and cost of sales by source and customer type Total Revenue Disaggregated by Source (in thousands) | Revenue Source | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Products | $39,106 | $46,767 | | Services | $1,268 | $1,240 | | **Total Revenue** | **$40,374** | **$48,007** | Total Cost of Sales Disaggregated (in thousands) | Cost of Sales Category | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------- | :-------------------------------- | :-------------------------------- | | Tangible goods sold | $27,025 | $41,529 | | Services | $94 | $141 | | Other | $4,434 | $4,457 | | **Total Cost of Sales** | **$31,553** | **$46,127** | Cost of Sales Split by Customer Type (in thousands) | Customer Type | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------- | :-------------------------------- | :-------------------------------- | | External | $12,952 | $11,196 | | Related Parties | $18,601 | $34,931 | | **Total** | **$31,553** | **$46,127** | [Note 4 - Contract Assets](index=16&type=section&id=Note%204%20-%20Contract%20Assets) This note details the company's contract assets, their amortization, and recoverability Contract Assets (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Contract assets | $83,060 | $83,060 | | Less accumulated amortization | $(9,672) | $(8,405) | | **Contract assets, net** | **$73,388** | **$74,655** | | Less current contract assets | $(7,019) | $(5,836) | | **Contract assets, long term** | **$66,369** | **$68,820** | - Contract assets, primarily related to the ProFrac Agreement, were **$73.4 million** net as of March 31, 2024. The Company recognized **$1.3 million** in amortization of contract assets for both Q1 2024 and Q1 2023, recorded as a reduction of related party revenue[88](index=88&type=chunk)[89](index=89&type=chunk) - No impairment loss was recognized for contract assets as of March 31, 2024, based on recoverability tests[90](index=90&type=chunk) [Note 5 — Inventories](index=17&type=section&id=Note%205%20%E2%80%94%20Inventories) This note provides a breakdown of inventory components and related reserves Inventories (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Raw materials | $5,618 | $5,299 | | Finished goods | $14,281 | $13,660 | | Inventories | $19,899 | $18,959 | | Less reserve for excess and obsolete inventory | $(6,028) | $(6,121) | | **Inventories, net** | **$13,871** | **$12,838** | - Net inventories increased to **$13.9 million** at March 31, 2024, from **$12.8 million** at December 31, 2023. Additional reserves for excess and obsolete inventory were **$0.3 million** in Q1 2024, primarily for the CT segment[92](index=92&type=chunk) [Note 6 — Property and Equipment](index=17&type=section&id=Note%206%20%E2%80%94%20Property%20and%20Equipment) This note details the company's property and equipment, net of accumulated depreciation, and related expenses Property and Equipment (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Property and equipment | $17,195 | $17,043 | | Less accumulated depreciation | $(12,134) | $(11,914) | | **Property and equipment, net** | **$5,061** | **$5,129** | - Net property and equipment remained relatively stable at **$5.1 million** as of March 31, 2024. Depreciation expense was **$0.2 million** for both Q1 2024 and Q1 2023[93](index=93&type=chunk) [Note 7 — Leases](index=17&type=section&id=Note%207%20%E2%80%94%20Leases) This note outlines the company's lease expenses and related right-of-use assets and liabilities Lease Expense (in thousands) | Lease Type | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Operating lease expense | $784 | $869 | | Finance lease expense | $4 | $5 | | Short-term lease expense | $259 | $41 | | **Total lease expense** | **$1,047** | **$915** | Supplemental Balance Sheet Information Related to Leases (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $4,336 | $5,030 | | Total operating lease liabilities | $9,204 | $10,125 | | Total finance lease liabilities | $13 | $22 | - Total lease expense increased to **$1.0 million** in Q1 2024 from **$0.9 million** in Q1 2023, primarily due to higher short-term lease expenses. Operating lease right-of-use assets and liabilities decreased slightly[94](index=94&type=chunk)[95](index=95&type=chunk) [Note 8 — Accrued Liabilities](index=19&type=section&id=Note%208%20%E2%80%94%20Accrued%20Liabilities) This note details the composition of current accrued liabilities, including payroll and deferred revenue Current Accrued Liabilities (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------------- | :------------- | :---------------- | | Severance costs | $417 | $648 | | Payroll and benefits | $937 | $2,138 | | Legal costs | $201 | $37 | | Contingent liability for earn-out provision | $30 | $56 | | Deferred revenue, current | $303 | $550 | | Taxes other than income taxes | $182 | $656 | | Other | $1,295 | $1,805 | | **Total current accrued liabilities** | **$3,365** | **$5,890** | - Total current accrued liabilities decreased significantly to **$3.4 million** at March 31, 2024, from **$5.9 million** at December 31, 2023, driven by decreases in payroll and benefits, taxes, and other accrued liabilities[97](index=97&type=chunk) [Note 9 — Debt and Convertible Notes Payable](index=19&type=section&id=Note%209%20%E2%80%94%20Debt%20and%20Convertible%20Notes%20Payable) This note describes the company's debt instruments, including the ABL and converted convertible notes - The Company entered into a 24-month Asset-Based Loan (ABL) on August 14, 2023, providing up to **$13.8 million** in credit availability. As of March 31, 2024, **$3.1 million** was outstanding with approximately **$6.0 million** available, bearing interest at Wall Street Journal Prime Rate plus **2.5%** (**11.0%** at March 31, 2024)[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - The remaining principal of the Paycheck Protection Program (PPP) loan was **$0.19 million** as of March 31, 2024, with **$4.5 million** of the loan and accrued interest forgiven in January 2023[102](index=102&type=chunk)[103](index=103&type=chunk) - All Convertible Notes Payable and Contract Consideration Convertible Notes Payable were converted into common stock or warrants during 2023, eliminating these liabilities from the balance sheet[105](index=105&type=chunk)[106](index=106&type=chunk)[109](index=109&type=chunk)[112](index=112&type=chunk) [Note 10 — Fair Value Measurements](index=21&type=section&id=Note%2010%20%E2%80%94%20Fair%20Value%20Measurements) This note explains the fair value hierarchy for financial instruments and contingent earn-out consideration - The Company categorizes financial assets and liabilities using a three-tier fair value hierarchy (Level 1, 2, 3). Most current financial instruments approximate fair value due to their short-term nature[113](index=113&type=chunk)[114](index=114&type=chunk) Liabilities Measured at Fair Value on a Recurring Basis (in thousands) | Metric | March 31, 2024 (Level 3) | December 31, 2023 (Level 3) | | :------------------------ | :----------------------- | :-------------------------- | | Contingent earnout consideration | $30 | $56 | | **Total** | **$30** | **$56** | - The estimated fair value of the contingent earn-out provision decreased from **$56 thousand** at December 31, 2023, to **$30 thousand** at March 31, 2024, valued using a Monte Carlo model[115](index=115&type=chunk)[116](index=116&type=chunk) [Note 11 — Income Taxes](index=23&type=section&id=Note%2011%20%E2%80%94%20Income%20Taxes) This note reconciles the effective income tax rate and discusses net operating loss carryforwards Effective Income Tax Rate Reconciliation | Item | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | U.S. federal statutory tax rate | 21.0 % | 21.0 % | | State income taxes, net of federal benefit | 13.5 % | — % | | Change in valuation allowance | (18.8) % | (20.5) % | | **Effective income tax rate** | **13.5 %** | **— %** | - As of March 31, 2024, the Company had U.S. net operating loss carryforwards (NOLs) of **$194.8 million**, with **$46.4 million** expiring from 2029-2037 and **$148.4 million** with an indefinite carryforward period. The ability to use pre-2023 NOLs is limited by Section 382 due to an ownership change in 2023[124](index=124&type=chunk) [Note 12 — Commitments and Contingencies](index=24&type=section&id=Note%2012%20%E2%80%94%20Commitments%20and%20Contingencies) This note addresses potential impacts from litigation, credit risk, and cash concentrations - The Company is subject to routine litigation and other claims in the normal course of business, but management is not aware of any pending or threatened lawsuits expected to have a material effect on financial position, results of operations, or liquidity[125](index=125&type=chunk) - The Company faces concentrations of credit risk within trade accounts receivable and related party accounts receivable, as collateral is generally not required. Cash is concentrated in three major U.S. financial institutions, with balances often exceeding insurable amounts[126](index=126&type=chunk) [Note 13 — Stockholders' Equity](index=24&type=section&id=Note%2013%20%E2%80%94%20Stockholders%27%20Equity) This note details changes in stockholders' equity, including the reverse stock split and convertible note conversions - A **1-to-6** reverse stock split was completed on September 25, 2023, converting **184,438,695** issued and outstanding shares into **30,772,837** shares, with no effect on par value or authorized shares[127](index=127&type=chunk)[128](index=128&type=chunk) - All Convertible Notes Payable and Contract Consideration Convertible Notes Payable were converted into common stock or Pre-Funded Warrants during 2023, significantly impacting the number of outstanding shares and additional paid-in capital[131](index=131&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - ProFrac Holdings II, LLC paid **$19.5 million** for June 2022 Warrants, allowing purchase of **2,184,140** post-Reverse Stock Split shares at **$0.0001** per share, subject to a **$4.5 million** exercise fee[135](index=135&type=chunk) [Note 14 — Earnings (Loss) Per Share](index=25&type=section&id=Note%2014%20%E2%80%94%20Earnings%20(Loss)%20Per%20Share) This note presents basic and diluted earnings per share calculations, reflecting net income and outstanding shares Earnings (Loss) Per Common Share (in thousands, except per share data) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income for basic earnings per share | $1,562 | $21,343 | | Adjusted net income (loss) for diluted earnings per share | $1,562 | $(3,181) | | Basic weighted average shares outstanding | 29,431 | 16,468 | | Diluted weighted average shares outstanding | 30,316 | 26,462 | | Basic earnings per share | $0.05 | $1.30 | | Diluted earnings (loss) per share | $0.05 | $(0.12) | - Basic EPS decreased from **$1.30** in Q1 2023 to **$0.05** in Q1 2024, while diluted EPS changed from a loss of **$(0.12)** to an income of **$0.05**, reflecting the significant non-cash gain in fair value of convertible notes in Q1 2023 and increased weighted average shares outstanding[139](index=139&type=chunk) [Note 15 — Supplemental Cash Flow Information](index=26&type=section&id=Note%2015%20%E2%80%94%20Supplemental%20Cash%20Flow%20Information) This note provides additional details on cash flow items, including interest paid and non-cash financing Supplemental Cash Flow Information (in thousands) | Item | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest paid | $210 | $18 | | Conversion of convertible notes payable to common stock | — | $8,996 | | Conversion of convertible notes payable to February 2023 Warrants | — | $11,040 | | Conversion of Initial Contract Consideration Convertible Notes Payable to February 2023 Warrants | — | $15,092 | - Interest paid increased significantly to **$0.21 million** in Q1 2024 from **$0.018 million** in Q1 2023. Non-cash financing activities in Q1 2023 included substantial conversions of convertible notes and warrants, which did not recur in Q1 2024[140](index=140&type=chunk) [Note 16— Related Party Transactions](index=27&type=section&id=Note%2016%E2%80%94%20Related%20Party%20Transactions) This note details transactions with related parties, particularly the ProFrac Agreement - The Company has a long-term supply agreement (ProFrac Agreement) with ProFrac Services, LLC, which includes minimum purchase obligations and Contract Shortfall Fees if volumes are not met[141](index=141&type=chunk)[142](index=142&type=chunk) - For Q1 2024, related party revenues included **$8.7 million** in accrued Contract Shortfall Fees, as the Company does not expect minimum purchase requirements to be met for the current measurement period (Jan 1 - Dec 31, 2024). No such fees were reflected in Q1 2023[144](index=144&type=chunk) Revenues and Accounts Receivable from ProFrac Services, LLC (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Revenues from ProFrac Services, LLC | $27,194 | $36,355 | | Cost of sales attributable to these revenues | $18,601 | $34,931 | | Accounts receivable from ProFrac Services, LLC (as of period end) | $38,655 | N/A (Dec 31, 2023: $34,569) | [Note 17 — Business Segment, Geographic and Major Customer Information](index=28&type=section&id=Note%2017%20%E2%80%94%20Business%20Segment%2C%20Geographic%20and%20Major%20Customer%20Information) This note provides disaggregated financial information by business segment and major customer - Flotek operates in two reportable segments: Chemistry Technologies (CT) and Data Analytics (DA). Performance is assessed based on segment operating income (loss)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) Segment Revenue and Operating Income (in thousands) | Segment | Three months ended March 31, 2024 Revenue | Three months ended March 31, 2023 Revenue | Three months ended March 31, 2024 Income (Loss) from Operations | Three months ended March 31, 2023 Income (Loss) from Operations | | :---------------- | :-------------------------------------- | :-------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Chemistry Technologies | $38,699 | $45,490 | $6,106 | $23,379 | | Data Analytics | $1,675 | $2,517 | $(424) | $457 | | Corporate and Other | — | — | $(3,574) | $(5,325) | | **Total** | **$40,374** | **$48,007** | **$2,108** | **$18,511** | - Customer A (ProFrac Services, LLC) accounted for **67.4%** of consolidated revenue in Q1 2024, down from **75.7%** in Q1 2023, indicating a continued high concentration of revenue from a single related party[157](index=157&type=chunk) [Note 18 — Subsequent Events](index=31&type=section&id=Note%2018%20%E2%80%94%20Subsequent%20Events) This note discloses any significant events that occurred after the balance sheet date - No material events requiring recognition or disclosure have occurred subsequent to March 31, 2024, through May 9, 2024[159](index=159&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's discussion and analysis of Flotek's financial condition and results [Executive Summary](index=32&type=section&id=Executive%20Summary) This summary introduces Flotek as a technology-driven green chemistry and data company in energy markets - Flotek is a technology-driven, specialty green chemistry and data technology company focused on reducing the environmental impact of energy across industrial and commercial markets[162](index=162&type=chunk) - The Company operates through two segments: Chemistry Technologies (CT) and Data Analytics (DA), both supported by Research and Innovation (R&I) capabilities[163](index=163&type=chunk) [Company Overview](index=32&type=section&id=Company%20Overview) This section describes the Chemistry Technologies and Data Analytics segments and their offerings - The CT segment provides sustainable, optimized chemistry solutions, including proprietary green chemistries and logistics, to improve customers' return on invested capital, lower operational costs, and provide environmental benefits, serving energy and industrial markets[164](index=164&type=chunk)[165](index=165&type=chunk) - The DA segment delivers real-time information and insights using field-deployable, in-line optical near-infra-red spectrometers with advanced chemometrics, AI, and machine learning, enabling operational optimization, emissions reduction, and carbon intensity reduction[168](index=168&type=chunk)[169](index=169&type=chunk) - Research & Innovation (R&I) supports both segments through green chemistry formulation, EPA regulatory guidance, technical support, and new technology projects, with Q1 2024 R&D expense at **$0.4 million**[171](index=171&type=chunk) [Outlook](index=33&type=section&id=Outlook) This section provides insights into the energy market, digital analytics, and supply chain challenges - The energy market outlook remains strong despite near-term volatility, with expected stable to increased activity in oil-weighted basins and stable to decreased activity in gas-weighted basins over the next **12 months**[173](index=173&type=chunk) - Digital analytics, particularly Verax™ analyzers, are gaining traction in North American markets for real-time compositional data, with new applications like AIDA (Automated Interface Detection Algorithm) enhancing value by reducing transmix and optimizing field gas for diesel substitution[174](index=174&type=chunk) - Supply chain issues for the next **12 months** include fluctuating freight costs, raw material availability, labor shortages, and demand forecasting, with military conflicts potentially causing disruptions[175](index=175&type=chunk)[176](index=176&type=chunk) [Consolidated Results of Operations](index=34&type=section&id=Consolidated%20Results%20of%20Operations) This section analyzes the company's overall financial performance, including revenue, gross profit, and net income Consolidated Financial Performance (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Change (YoY) | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total Revenues | $40,374 | $48,007 | -16% | | Cost of Sales | $31,553 | $46,127 | -32% | | Gross Profit | $8,821 | $1,880 | +369% | | Gross Profit % | 21.8% | 3.9% | +17.9 pp | | Income from Operations | $2,108 | $18,511 | -88.6% | | Net Income | $1,562 | $21,342 | -92.7% | - Consolidated revenue decreased by **$7.6 million** (**16%**) YoY, primarily due to lower related party activity, partially offset by **$8.7 million** in accrued Contract Shortfall Fees and increased external customer revenue[177](index=177&type=chunk) - Gross profit increased by **$6.9 million**, and gross profit percentage improved significantly to **21.8%** from **3.9%** YoY, driven by accrued Contract Shortfall Fees (which have no associated costs) and cost management initiatives[178](index=178&type=chunk)[181](index=181&type=chunk) - Net income decreased by **$19.8 million** YoY, mainly due to a **$26.1 million** gain in fair value of Contract Consideration Convertible Notes Payable in Q1 2023 with no corresponding gain in Q1 2024[181](index=181&type=chunk) [Results by Segment](index=35&type=section&id=Results%20by%20Segment) This section breaks down financial performance by Chemistry Technologies and Data Analytics segments Chemistry Technologies (CT) Segment Performance (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenue from external customers | $11,685 | $9,225 | | Revenue from related party | $27,014 | $36,265 | | Income from operations | $6,106 | $23,379 | - CT external customer revenue increased by **27%** YoY, driven by domestic activity. Related party revenue decreased by **26%** YoY, primarily due to decreased activity, partially offset by **$8.7 million** in accrued Contract Shortfall Fees[184](index=184&type=chunk) Data Analytics (DA) Segment Performance (in thousands) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenue from external customers | $1,495 | $2,427 | | Revenue from related party | $180 | $90 | | (Loss) income from operations | $(424) | $457 | - DA external customer revenue decreased by **38%** YoY due to reduced unit sales. The segment shifted from an operating income of **$0.46 million** in Q1 2023 to an operating loss of **$(0.42) million** in Q1 2024, driven by decreased activity[186](index=186&type=chunk)[187](index=187&type=chunk) [Capital Resources and Liquidity](index=36&type=section&id=Capital%20Resources%20and%20Liquidity) This section discusses the company's cash position, available credit, and ability to fund operations - As of March 31, 2024, the Company had **$5.2 million** in unrestricted cash and cash equivalents, down from **$5.9 million** at December 31, 2023. Available borrowings under the ABL were approximately **$8.0 million** at May 7, 2024[190](index=190&type=chunk) - The Company believes it has sufficient financial resources to fund operations and meet obligations for the next **twelve months**, based on future cash flows from operations (including Contract Shortfall Fees), cash on hand, and ABL availability[196](index=196&type=chunk)[198](index=198&type=chunk) Consolidated Cash Flows (in thousands) | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $3,887 | $1,140 | | Net cash used in investing activities | $(152) | $(157) | | Net cash used in financing activities | $(4,411) | $(818) | | Net change in cash and cash equivalents and restricted cash | $(634) | $144 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section addresses the company's exposure to market risks, including raw material prices and foreign currency rates - The Company's primary market risks include changes in raw material prices, freight costs, and foreign currency exchange rates[205](index=205&type=chunk) - No material changes to quantitative or qualitative disclosures about market risk have occurred since the 2023 Annual Report[205](index=205&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of disclosure controls and internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024, ensuring timely and accurate reporting of information[206](index=206&type=chunk)[207](index=207&type=chunk) - There have been no material changes in the Company's internal control over financial reporting during the three months ended March 31, 2024[208](index=208&type=chunk) [PART II - OTHER INFORMATION](index=39&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This part covers additional disclosures including legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms no material changes in legal proceedings from the 2023 Annual Report - No material changes in legal proceedings have occurred since the 2023 Annual Report, other than those described in Note 12, 'Commitments and Contingencies'[211](index=211&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section directs readers to consider the risk factors outlined in the 2023 Annual Report - Readers should consider the risk factors detailed in 'Item 1A.-Risk Factors' of the 2023 Annual Report[212](index=212&type=chunk) - As of March 31, 2024, there have been no material changes to the Company's risk factors from those presented in the Annual Report[212](index=212&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities and details issuer repurchases - There were no unregistered sales of equity securities during the three months ended March 31, 2024[213](index=213&type=chunk) Issuer Repurchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :----------------------------- | :--------------------------- | | January 1, 2024 to January 31, 2024 | 739 | $3.60 | | February 1, 2024 to February 29, 2024 | — | — | | March 1, 2024 to March 31, 2024 | 2,500 | $2.79 | | **Total** | **3,239** | | - The Company repurchases shares to satisfy tax withholding requirements and payment remittance obligations related to vesting of restricted shares and exercise of non-qualified stock options[214](index=214&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the period[215](index=215&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to Flotek Industries, Inc[215](index=215&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) This section confirms that there is no other information to report for the period - No other information is reported in this section[216](index=216&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including agreements and certifications - The report includes exhibits such as the Membership Interest Purchase Agreement, Amended and Restated Certificate of Incorporation, Bylaws, Forms of Convertible Note and Pre-Funded Warrant, Employment Agreement, and various certifications (Rule 13a-14(a), Section 1350)[217](index=217&type=chunk) - XBRL Instance, Schema, Calculation, Label, Presentation, and Definition Linkbase Documents are also filed as exhibits[217](index=217&type=chunk)

48,007 46,127 1,880 6,451 176 614 2,223 (26,095) (16,631) 4,522 (1,672) (9) 2,841 21,352 (9) 21,343 1.30 (0.12) 16,468 26,462 Unaudited Condensed Consolidated Balance Sheets (in thousands, except share data) Current liabilities: S 35,962 S 31,706 Accounts payable 3,385 Accrued liabilities 5,890 78 45 Income taxes payable Current portion of operating lease liabilities 2,063 2,449 Current portion of finance lease liabilities 13 22 7.402 Asset-based loan 3,111 Current portion of long-term debt 179 179 Total cu ...

| | | | Three months ended March 31, | | | | --- | --- | --- | --- | --- | --- | | | 2024 | | | 2023 | % Change | | Total Revenues | $ | 40,374 | $ | 48,007 | (16)% | | Gross Profit | $ | 8,821 | $ | 1,880 | 369% | | (1) Adjusted Gross Profit | $ | 10,075 | $ | 2,647 | 281% | | Net Income | $ | 1,562 | $ | 21,343 | (93)% | | Diluted Income (Loss) Per Share | $ | 0.05 | $ | (0.12) | n/a | | (1) Adjusted EBITDA | $ | 4,026 | $ | (3,851) | n/a | First Quarter 2024 Highlights Full Year 2024 Profitability Outloo ...

HOUSTON, May 7, 2024 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced operational and financial results for the quarter ended March 31, 2024, highlighted by significant improvement in profitability metrics as compared to the first quarter of 2023. Financial Summary (in thousands, except per share amounts) Three months ended March 31, 2024 2023 % Change Total Revenues $                    40,374 $                     48,007 (16) ...

HOUSTON, April 8, 2024 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced the Company's schedule for releasing its first quarter 2024 financial and operating results for the period ended March 31, 2024.   The Company plans to release its first quarter 2024 financial and operating results press release after market close on Tuesday, May 7, 2024, and host its earnings conference call on Wednesday, May 8, 2024, at 9:00 a.m. CST (10:00 a.m. EST).To participate in the ...

Part I [Business](index=3&type=section&id=Item%201%2E%20Business) Flotek Industries operates in Chemistry Technologies and Data Analytics, driven by the ProFrac agreement and strategic R&D - The company operates through two primary business segments: **Chemistry Technologies (CT)** and **Data Analytics (DA)**, supported by a central **Research & Innovation (R&I)** function[16](index=16&type=chunk)[17](index=17&type=chunk)[23](index=23&type=chunk) - In **2023**, the company appointed Dr. Ryan Ezell as CEO, secured an asset-based loan (ABL) of up to **$13.8 million**, and completed a **1-for-6 reverse stock split** to regain NYSE compliance[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | **R&D Expense** | $2.5 million | $4.4 million | - As of **December 31, 2023**, the company holds **138 granted patents** (**114 in CT**, **24 in DA**) and **41 registered trademarks**[38](index=38&type=chunk) - The company had approximately **146 employees** as of **December 31, 2023**, and achieved a **0.00 TRIR in 2023**, indicating a strong safety performance[45](index=45&type=chunk)[48](index=48&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A%2E%20Risk%20Factors) The company faces significant business, industry, and securities risks, including ProFrac reliance and NOL limitations - The company has a **significant customer concentration risk**, with revenues from the **ProFrac Agreement** representing **65% of total revenues in 2023**, and termination of this agreement would have a **material adverse impact**[68](index=68&type=chunk)[71](index=71&type=chunk) - In **2023**, the company underwent an **"ownership change"** under **Section 382** of the Internal Revenue Code, which **limits** its ability to use pre-change net operating losses (NOLs) and other tax attributes to offset future taxable income[96](index=96&type=chunk)[97](index=97&type=chunk) - A **conflict of interest** may exist due to the relationship with **ProFrac Services, LLC** and its affiliates, which are the company's **largest customer** and, as of **December 31, 2023**, own **approximately 51% of the company's common stock** with the right to elect **four of seven board members**[122](index=122&type=chunk)[123](index=123&type=chunk) - A **material weakness** in internal control over financial reporting identified in 2022 was **remediated** as of **December 31, 2023**[131](index=131&type=chunk)[132](index=132&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=Item%201B%2E%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - Not applicable[138](index=138&type=chunk) [Cybersecurity](index=20&type=section&id=Item%201C%2E%20Cybersecurity) The company maintains a Cybersecurity Incident Response Team (CIRT) and reports no material cybersecurity threats as of December 31, 2023 - The company has a **Cybersecurity Incident Response Team (CIRT)** that reports to the **Risk & Sustainability Committee** of the Board of Directors[139](index=139&type=chunk) - As of **December 31, 2023**, the company has **not identified any risks** from known cybersecurity threats that are reasonably likely to **materially affect** its business, operations, or financial condition[142](index=142&type=chunk) [Properties](index=21&type=section&id=Item%202%2E%20Properties) The company operates manufacturing, warehouse, research, and office facilities across the U.S. and internationally | Segment | Ownership | Location | | :--- | :--- | :--- | | Chemistry Technologies | Owned | Marlow, Oklahoma | | Chemistry Technologies | Owned | Raceland, Louisiana | | Chemistry Technologies | Leased | Dubai, United Arab Emirates | | Chemistry Technologies | Leased | Houston, Texas | | Data Analytics | Leased | Austin, Texas | | Corporate Headquarters | Leased | Houston, Texas | [Legal Proceedings](index=21&type=section&id=Item%203%2E%20Legal%20Proceedings) The company is not aware of any pending or threatened legal proceedings expected to materially affect its financial position or liquidity - The company states that it is **not aware** of any pending or threatened legal proceedings that are expected to have a **material effect** on its financial condition or operations[144](index=144&type=chunk) [Mine Safety Disclosures](index=21&type=section&id=Item%204%2E%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[146](index=146&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205%2E%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under 'FTK', completed a 1-for-6 reverse stock split, and has no plans for cash dividends - The company's common stock trades on the **NYSE** under the ticker **"FTK"** A **1-for-6 Reverse Stock Split** was completed on **September 25, 2023**[149](index=149&type=chunk) - The company has **never declared or paid cash dividends** on its common stock and has **no current plans** to do so[149](index=149&type=chunk) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | — | $ — | | Nov 2023 | 124 | $ 4.08 | | Dec 2023 | 5,627 | $ 3.83 | | **Total Q4 2023** | **5,751** | | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%207%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Flotek's 2023 financial performance significantly improved, driven by the ProFrac agreement, leading to positive gross profit and operating income [Consolidated Results of Operations](index=24&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated revenue increased 38% to $188.1 million in 2023, resulting in a gross profit of $24.3 million and net income of $24.7 million | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | **Total revenues** | **$188,058** | **$136,092** | | Cost of sales | $163,795 | $142,792 | | **Gross profit (loss)** | **$24,263** | **$(6,700)** | | SG&A | $27,873 | $27,124 | | Gain in fair value of contract consideration convertible notes | $(29,969) | $(75) | | **Income (loss) from operations** | **$23,223** | **$(35,421)** | | **Net income (loss)** | **$24,713** | **$(42,305)** | - The improvement in operating income was primarily driven by a **$31.0 million increase in gross profit**, a **$30.0 million gain** on the fair value of Contract Consideration Convertible Notes Payable, and a **$2.0 million decrease in R&D costs**[166](index=166&type=chunk) [Results by Segment](index=25&type=section&id=Results%20by%20Segment) In 2023, CT segment revenue grew to $179.9 million with $39.0 million operating income, and DA segment revenue increased to $7.5 million | Chemistry Technologies (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Revenue from external customers | $59,016 | $48,960 | | Revenue from related party | $120,903 | $81,618 | | **Income (loss) from operations** | **$39,043** | **$(14,729)** | | Data Analytics (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Revenue from external customers | $7,502 | $5,384 | | Revenue from related party | $637 | $130 | | **Loss from operations** | **$(53)** | **$(2,877)** | [Capital Resources and Liquidity](index=25&type=section&id=Capital%20Resources%20and%20Liquidity) As of December 31, 2023, the company had $5.9 million cash, secured a $13.8 million ABL, and resolved going concern doubts - The company entered into an **Asset-Based Loan (ABL)** in **August 2023**, with a **maximum borrowing base of $13.8 million** As of **Dec 31, 2023**, **$7.5 million was outstanding**[175](index=175&type=chunk)[176](index=176&type=chunk) - The ProFrac Agreement's minimum purchase requirements were **not met** for the June-Dec 2023 period, resulting in **$20.1 million in Contract Shortfall Fees** recognized as revenue and receivable **$10.0 million was collected by March 11, 2024**[180](index=180&type=chunk) - Based on **improved outlook**, cash on hand, and ABL availability, management concluded that the conditions raising substantial doubt about the Company's ability to continue as a going concern (disclosed in the 2022 report) **no longer exist**[181](index=181&type=chunk)[233](index=233&type=chunk) | Cash Flows (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,297) | $(44,632) | | Net cash (used in) provided by investing activities | $(1,014) | $5,331 | | Net cash provided by financing activities | $5,928 | $38,267 | [Critical Accounting Estimates](index=28&type=section&id=Critical%20Accounting%20Estimates) Management identifies critical accounting estimates for Contract Assets, Inventory Reserve, and Fair Value of Convertible Notes Payable - Critical accounting estimates include: - **Contract Assets:** Amortized over the ProFrac Agreement term based on forecasted revenues and tested for recoverability - **Reserve for Excess and Obsolete Inventory:** Inventory is written down to net realizable value based on usage estimates The reserve was **$6.1 million** at year-end 2023 - **Fair Value of Contract Consideration Convertible Notes Payable:** Valued using a Monte Carlo simulation until their conversion in 2023[191](index=191&type=chunk)[192](index=192&type=chunk)[195](index=195&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%207A%2E%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are raw material prices, freight costs, and foreign currency, with no current use of hedging instruments - The company is primarily exposed to market risk from **raw material prices**, **freight costs**, and **foreign currency exchange rates**[198](index=198&type=chunk) - The company **does not currently use** financial instruments for **hedging purposes** but may do so in the future[198](index=198&type=chunk)[200](index=200&type=chunk) [Financial Statements and Supplementary Data](index=30&type=section&id=Item%208%2E%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, KPMG's unqualified opinion with two CAMs, and notes detailing the company's financial turnaround [Report of Independent Registered Public Accounting Firm](index=30&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on the financial statements, highlighting two Critical Audit Matters: contract asset recoverability and going concern assessment - The auditor, **KPMG LLP**, issued an **unqualified (clean) opinion** on the consolidated financial statements[203](index=203&type=chunk) - The audit identified **two Critical Audit Matters (CAMs)**: 1. **Recoverability of contract assets:** Evaluating the key assumptions in the recoverability assessment, specifically forecasted revenue and costs under the ProFrac Agreement 2. **Going concern:** Evaluating management's assessment of its ability to continue as a going concern, particularly the forecasted cash flows[208](index=208&type=chunk)[211](index=211&type=chunk) [Consolidated Financial Statements](index=32&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements reflect significant improvement in 2023, showing total assets of $157.5 million, reduced liabilities, and a net income of $24.7 million | Selected Balance Sheet Data (in thousands) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $76,447 | $80,074 | | Total Assets | $157,513 | $164,810 | | Total Current Liabilities | $47,782 | $151,371 | | Total Liabilities | $55,553 | $162,214 | | Total Stockholders' Equity | $101,960 | $2,596 | | Selected Operations Data (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenues | $188,058 | $136,092 | | Gross Profit (Loss) | $24,263 | $(6,700) | | Net Income (Loss) | $24,713 | $(42,305) | | Basic EPS | $1.00 | $(3.41) | [Notes to Consolidated Financial Statements](index=37&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, resolution of going concern, ProFrac agreement revenue, convertible note conversion, reverse stock split, and NOL limitations - **Going Concern (Note 1):** Management concluded that substantial doubt about the Company's ability to continue as a going concern, which was disclosed for FY 2022, **no longer exists** as of **December 31, 2023**[233](index=233&type=chunk) - **Debt (Note 9):** **All convertible notes payable**, including those issued as contract consideration to ProFrac, were **converted into common stock or warrants during 2023**, **significantly deleveraging** the balance sheet[319](index=319&type=chunk)[324](index=324&type=chunk)[327](index=327&type=chunk) - **Income Taxes (Note 11):** An **ownership change in 2023** resulted in a **Section 382 limitation** on the future use of the company's **$192.9 million in U.S. net operating loss carryforwards (NOLs)**[345](index=345&type=chunk) - **Stockholders' Equity (Note 13):** The company completed a **1-for-6 reverse stock split** on **September 25, 2023** All share and per-share data have been **retroactively adjusted**[354](index=354&type=chunk) - **Related Party Transactions (Note 17):** Revenue from ProFrac Services, LLC was **$121.5 million in 2023** (**64.6% of total revenue**), which includes **$20.1 million in Contract Shortfall Fees** because **minimum purchase volumes were not met**[408](index=408&type=chunk)[409](index=409&type=chunk)[425](index=425&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=68&type=section&id=Item%209%2E%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This section is not applicable, indicating no changes or disagreements with the company's accountants - Not Applicable[429](index=429&type=chunk) [Controls and Procedures](index=68&type=section&id=Item%209A%2E%20Controls%20and%20Procedures) Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2023, having remediated a prior material weakness - Management concluded that disclosure controls and procedures were **effective** as of **December 31, 2023**[431](index=431&type=chunk) - A **material weakness** reported for the year ended December 31, 2022, related to controls over lease accounting, prepaid assets, and related-party revenue accruals, was **remediated** as of **December 31, 2023**[432](index=432&type=chunk)[433](index=433&type=chunk)[435](index=435&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of **December 31, 2023**[438](index=438&type=chunk) [Other Information](index=69&type=section&id=Item%209B%2E%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q4 2023 - **No director or officer** adopted or terminated a **Rule 10b5-1 or non-Rule 10b5-1 trading arrangement** during the **fourth quarter of 2023**[440](index=440&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=70&type=section&id=Item%2010%2E%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information is **incorporated by reference** from the Company's **Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders**[444](index=444&type=chunk) [Executive Compensation](index=70&type=section&id=Item%2011%2E%20Executive%20Compensation) Executive compensation information is incorporated by reference from the 2024 Proxy Statement - Information is **incorporated by reference** from the Company's **Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders**[445](index=445&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=70&type=section&id=Item%2012%2E%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and related stockholder matters are incorporated by reference from the 2024 Proxy Statement - Information is **incorporated by reference** from the Company's **Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders**[446](index=446&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=70&type=section&id=Item%2013%2E%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Related party transactions and director independence details are incorporated by reference from the 2024 Proxy Statement - Information is **incorporated by reference** from the Company's **Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders**[447](index=447&type=chunk) [Principal Accountant Fees and Services](index=70&type=section&id=Item%2014%2E%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services by KPMG LLP is incorporated by reference from the 2024 Proxy Statement - The company's independent registered public accounting firm is **KPMG LLP**[448](index=448&type=chunk) - Information on fees and services is **incorporated by reference** from the Company's **Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders**[448](index=448&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=71&type=section&id=Item%2015%2E%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, including corporate documents, material contracts, and management compensatory plans - Lists key corporate documents, including the **Amended and Restated Certificate of Incorporation (Exhibit 3.1)** and **Second Amended and Restated Bylaws (Exhibit 3.5)**[450](index=450&type=chunk) - Includes material contracts such as the **Revolving Loan and Security Agreement (Exhibit 10.7)** and the **Chemical Products Supply Agreement with ProFrac Services, LLC (Exhibit 10.15)**[450](index=450&type=chunk)[451](index=451&type=chunk) - Contains management compensatory plans and agreements, including **employment agreements for the CEO and CFO**, and various **long-term incentive plan documents**[450](index=450&type=chunk)[451](index=451&type=chunk)[452](index=452&type=chunk) [Form 10-K Summary](index=74&type=section&id=Item%2016%2E%20Form%2010-K%20Summary) The company indicates no Form 10-K summary is provided - None[453](index=453&type=chunk)

Financial Data and Key Metrics Changes - Full-year 2023 revenues grew by 38% compared to 2022, achieving the largest volume of product sold in the company's history [38][44] - Adjusted EBITDA improved by $28 million year-over-year, marking the first positive adjusted EBITDA for the full year since 2017 [44][48] - Net income for 2023 was $24.7 million, a significant recovery from a net loss of $42.3 million in 2022 [48] Business Line Data and Key Metrics Changes - Chemistry revenues from external customers increased by 21% in 2023, with a remarkable 100% increase from Q1 to Q4 2023 [44][45] - Data analytics revenue grew by 47% in 2023 compared to 2022, with a 250% increase in subscription-based revenue since 2022 [12][45] - The external chemistry business saw a 10% revenue increase in Q4 2023, while reservoir-centric technology sales related to complex nano-fluids surged by 75% [6][38] Market Data and Key Metrics Changes - Despite a slowdown in overall drilling and completion activity in North America, the impact on the company was mitigated due to its differentiated chemistry and data technologies [13] - The demand for oil and gas is expected to expand over the next decade, necessitating long-term investments to maintain production [14][41] Company Strategy and Development Direction - The company is focused on revenue growth, market share expansion, and cost efficiency gains, positioning itself to capitalize on both domestic and international opportunities [7][23] - The successful commercial launch of slickwater fluid systems in Saudi Arabia and the establishment of a new entity in Abu Dhabi are part of the strategy to enhance international market share [5][40] - The company aims to evolve into a data-as-a-service business model, enhancing its value proposition through technology and analytics [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to execute its strategy and capitalize on growth opportunities, despite near-term volatility in commodity pricing [41][43] - The company anticipates continued growth in reservoir-centric and international chemistry revenues to offset challenges in the upstream completion environment [40][43] Other Important Information - The company has remediated internal control weaknesses disclosed in the previous year's 10-K, improving its financial position [17][43] - The company reported zero recordable and lost time incidents in operations, extending its safety streak to over 753 days [39] Q&A Session Summary Question: Timeline for JP3 pilot projects and revenue ramp-up - Management expects the new generation sensor to be online by the end of H1 2024, with revenue ramp-up anticipated in H2 2024 [54] Question: Opportunities in Saudi Arabia for slickwater technology - Management believes the shift towards gas drilling in Saudi Arabia presents significant opportunities as the market becomes more comfortable with the technology [56] Question: Impact of improved financial position on commercial discussions - The elimination of going concern language in public filings enhances the company's negotiating position with customers and suppliers [67] Question: Consideration of stock buyback - Management indicated that while they have stabilized the business, there are currently no plans for stock buybacks [88] Question: Growth factors away from ProFrac - Non-ProFrac related revenue has increased from 24-25% in Q1 to 45% by year-end, with significant growth in the Chemistry segment [85]