Flotek(US:FTK)2025-08-08 15:08PART I - FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025, show a significant increase in total revenue and gross profit compared to the prior year, with net income of $1.8 million for the second quarter and $7.1 million for the first half of 2025, while the balance sheet reflects a major asset acquisition from a related party, financed through a new note payable and other considerations, resulting in a substantial increase in total liabilities and a decrease in stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total current assets | $86,831 | $96,456 | | Property and equipment, net | $21,223 | $6,178 | | TOTAL ASSETS | $172,243 | $170,796 | | Total current liabilities | $54,676 | $50,368 | | Note payable - related party, net | $39,536 | $0 | | TOTAL LIABILITIES | $100,393 | $56,896 | | Total stockholders' equity | $71,850 | $113,900 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $58,350 | $46,152 | $113,712 | $86,526 | | Gross profit | $14,407 | $9,170 | $26,856 | $17,991 | | Income from operations | $2,587 | $2,222 | $8,154 | $4,330 | | Net income | $1,768 | $1,974 | $7,148 | $3,536 | | Diluted EPS | $0.05 | $0.06 | $0.21 | $0.12 | Condensed Consolidated Statements of Cash Flow Highlights (in thousands) | Cash Flow Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,822 | $827 | | Net cash used in investing activities | ($1,302) | ($195) | | Net cash used in financing activities | ($740) | ($1,765) | | Net change in cash | $625 | ($1,075) | Note 3 — Asset Acquisition On April 28, 2025, the Company acquired mobile power generation assets from a related party, ProFrac, in a series of transactions valued at $107.5 million, with assets recorded at ProFrac's historical book value of $15.1 million, and the $92.4 million excess consideration recorded as a reduction to additional paid-in capital, funded via an offset of a $17.6 million shortfall fee, a new $40 million note payable to ProFrac, a warrant for 6 million shares, and future shortfall fee offsets, with the acquired assets leased back to ProFrac under a six-year agreement - The acquisition of mobile power generation assets from related party ProFrac is classified as an asset acquisition between entities under common control, with assets recorded at ProFrac's historical book value of approximately $15.1 million4755 PWRtek Transactions Consideration Summary (in thousands) | Components of consideration | April 28, 2025 | | :--- | :--- | | April 2025 Warrant (6,000,000 shares) | $42,660 | | PWRtek Note | $40,000 | | 2024 Contractual Shortfall Fee offset | $17,552 | | Future Contract Shortfall Fee offset | $7,248 | | Total consideration | $107,460 | | Total assets book value | $15,060 | | Excess consideration over assets historical book value | $92,400 | - The acquired assets were leased back to ProFrac GDM for a six-year term, with lease revenue recognition for operating units beginning on April 28, 202548 Note 8 — Leases This note details the company's lease expenses as a lessee and its new lease income as a lessor, with significant rental income generated from the ProFrac asset acquisition, projecting $128.8 million in future minimum lease income through April 2030 Future Minimum Lease Agreement Income (in thousands) | Years ending December 31, | Lease Agreement Income | | :--- | :--- | | 2025 (remaining) | $10,218 | | 2026 | $27,375 | | 2027 | $27,375 | | 2028 | $27,375 | | 2029 | $27,375 | | Thereafter | $9,125 | | Total rental income (through April 2030) | $128,843 | Note 17— Related Party Transactions The company has extensive transactions with ProFrac and its affiliates, which owned approximately 61% of the company's common stock, including a long-term supply agreement with minimum purchase obligations, leading to $15.2 million in Contract Shortfall Fees for H1 2025, and the 2024 shortfall fee of $32.6 million was settled via cash and an asset acquisition offset - As of June 30, 2025, ProFrac Holdings or its affiliates owned approximately 61% of the Company's common stock, including the effects of outstanding warrants117 - The company recognized $15.2 million in Contract Shortfall Fees for the six months ended June 30, 2025, as it does not expect ProFrac to meet its minimum purchase requirements for the year, compared to $17.1 million recognized in the same period of 2024113 - The 2024 Contract Shortfall Fees of $32.6 million were settled with $15.0 million in cash and a $17.6 million offset used as consideration for the PWRtek asset acquisition54143 Note 18 — Business Segment, Geographic and Major Customer Information The company operates through Chemistry Technologies (CT) and Data Analytics (DA) segments, with CT driving revenue and operating income, while DA's revenue grew substantially in Q2 2025 due to a new lease agreement with ProFrac, which remains a major customer accounting for 56.8% of total revenue Segment Performance for Q2 2025 vs Q2 2024 (in thousands) | Segment | Revenue Q2 2025 | Revenue Q2 2024 | Operating Income (Loss) Q2 2025 | Operating Income (Loss) Q2 2024 | | :--- | :--- | :--- | :--- | :--- | | Chemistry Technologies | $52,420 | $44,102 | $8,049 | $6,145 | | Data Analytics | $5,930 | $2,050 | $(1,919) | $(358) | - A single related party customer, ProFrac (Customer A), accounted for 56.8% of consolidated revenue for the three months ended June 30, 2025129 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of the recent asset acquisition from ProFrac, which diversifies revenue streams into equipment rental within the Data Analytics segment, leading to a 26% consolidated revenue increase and improved gross profit margin in Q2 2025, with liquidity deemed sufficient for the next twelve months - The recent PWRtek Transactions with related party ProFrac involved acquiring mobile power generation assets for $107.5 million, which are now leased back to ProFrac, creating a new rental revenue stream in the Data Analytics segment136137139 Consolidated Results of Operations Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total revenues | $58,350 | $46,152 | 26% | | Gross profit | $14,407 | $9,170 | 57% | | Gross profit % | 24.7% | 19.9% | +4.8 p.p. | | Income from operations | $2,587 | $2,222 | 16% | - The company's liquidity position is considered sufficient for the next 12 months, supported by $5.0 million in cash, $9.2 million in availability under its ABL as of June 30, 2025, and expected cash flows from operations17717981 Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes to its market risk disclosures from its 2024 Annual Report, with key exposures remaining related to interest rates, raw material prices, freight costs, and foreign currency exchange rates - There have been no material changes to the quantitative or qualitative disclosures about market risk from the 2024 Annual Report195 Controls and Procedures Based on an evaluation as of June 30, 2025, the company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025197 - No material changes to the company's internal control over financial reporting occurred during the three months ended June 30, 2025199 PART II - OTHER INFORMATION Legal Proceedings No material changes in legal proceedings were reported since the 2024 Annual Report - No material changes in legal proceedings were reported since the 2024 Annual Report202 Risk Factors No material changes in risk factors were reported since the Q1 2025 Quarterly Report - No material changes in risk factors were reported since the Q1 2025 Quarterly Report203 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, but repurchased 5,647 shares of common stock during the quarter to satisfy tax withholding obligations for employees related to stock compensation plans Issuer Repurchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 5,523 | $6.82 | | May 2025 | 0 | $0.00 | | June 2025 | 124 | $14.63 | | Total | 5,647 | | Other Information No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter, and effective August 6, 2025, the Board of Directors approved and adopted amendments to the company's bylaws - Effective August 6, 2025, the Company's Board of Directors approved and adopted amendments to the company's bylaws209 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and documents related to the recent asset purchase and lease agreements