Flotek Reports Third Quarter 2023 Financial Results Driven by Strong Growth in Net Income and First Positive Adjusted EBITDA Quarter Since 2018

Three months ended September 30,

Nine months ended September 30,

2023

2022

2023

2022

Total Revenues

$                    47,268

$                    45,623

$                 145,870

$                    87,874

Gross Profit (Loss)

$                      9,047

$                    (1,842)

$                    14,833

$                    (4,626)

Adjusted Gross Profit (Loss) ⁽¹⁾

$                    10,264

$                         249

$                    18,005

$                       (916)

Net Income (Loss)

$                      1,287

$                  (18,794)

$                    22,609

$                  (23,278)

Adjusted EBITDA ⁽¹⁾

$                      3,392

$                    (8,402)

$                    (2,464)

$                  (21,088)

(1)

A non-GAAP financial measure. See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, including reconciliations to the most comparable GAAP measures.

(1)

A non-GAAP financial measure. See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, including reconciliations to the most comparable GAAP measures.

(2)

A non-GAAP financial measure. See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, including reconciliations to the most comparable GAAP measures. We are unable to reconcile this forward-looking non-GAAP financial measure to the most directly comparable GAAP financial measure without unreasonable efforts, as we are unable to predict with a reasonable degree of certainty the impact of certain items that would be expected to impact the GAAP financial measure, including, among other items, the future amortization of our contract assets, certain stock-based compensation costs and the impact of the revaluation of certain liabilities, which is based upon our future stock price. These items do not impact the non-GAAP financial measure.

(1)

See the "Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings" section in this release for more information, including reconciliations to the most comparable GAAP measures.

FLOTEK INDUSTRIES, INC.

 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

September 30, 2023

December 31, 2022

ASSETS

Current assets:

Cash and cash equivalents

$                  4,453

$               12,290

Restricted cash

102

100

Accounts receivable, net of allowance for credit losses of $704 and $623 at
September 30, 2023 and December 31, 2022, respectively

15,568

19,136

Accounts receivable, related party, net of allowance for credit losses of $0 at
September 30, 2023 and December 31, 2022, respectively

24,765

22,683

Inventories, net

15,885

15,720

Other current assets

4,617

4,045

Current contract asset

7,816

7,113

Total current assets

73,206

81,087

Long-term contract assets

68,207

72,576

Property and equipment, net

4,844

4,826

Operating lease right-of-use assets

5,131

5,900

Deferred tax assets, net

355

404

Other long-term assets

773

17

TOTAL ASSETS

$             152,516

$            164,810

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$               33,436

$               33,375

Accrued liabilities

5,430

8,984

Income taxes payable

43

97

Interest payable

—

130

Current portion of operating lease liabilities

2,747

3,328

Current portion of finance lease liabilities

31

36

Current portion of long-term debt

179

2,052

Asset based loan

3,370

—

Convertible notes payable

—

19,799

Contract Consideration Convertible Notes Payable

—

83,570

Total current liabilities

45,236

151,371

Deferred revenue, long-term

35

44

Long-term operating lease liabilities

7,537

8,044

Long-term finance lease liabilities

—

19

Long-term debt

104

2,736

TOTAL LIABILITIES

52,912

162,214

Stockholders' equity:

Preferred stock, $0.0001 par value, 100,000 shares authorized; no shares issued and
     outstanding

—

—

Common stock, $0.0001 par value, 240,000,000 shares authorized; 30,739,820
     shares issued and 29,629,902 shares outstanding at September 30, 2023;
     13,985,986 shares issued and 12,964,732 shares outstanding at December 31,
     2022

3

1

Additional paid-in capital

462,799

388,184

Accumulated other comprehensive income

194

181

Accumulated deficit

(328,910)

(351,519)

Treasury stock, at cost; 1,109,918 and 1,021,255 shares at September 30, 2023 and
     December 31, 2022, respectively

(34,482)

(34,251)

Total stockholders' equity

99,604

2,596

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$             152,516

$            164,810

FLOTEK INDUSTRIES, INC.

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

9/30/2023

9/30/2022

9/30/2023

9/30/2022

Revenue:

Revenue from external customers

$         17,806

$         15,206

$         47,278

$         38,412

Revenue from related party

29,462

30,417

98,592

49,462

Total revenues

47,268

45,623

145,870

87,874

Cost of goods sold

38,221

47,465

131,037

92,500

Gross profit (loss)

9,047

(1,842)

14,833

(4,626)

Operating costs and expenses:

Selling, general, and administrative

6,526

9,254

21,303

20,958

Depreciation

181

177

530

554

Research and development

757

985

2,231

3,515

Severance costs

2

(219)

(28)

387

Gain on sale of property and equipment

(38)

(10)

(38)

(1,916)

Gain on lease termination

—

—

—

(584)

(Gain) loss in fair value of Contract Consideration Convertible Notes Payable

—

4,250

(29,969)

(9,016)

Total operating costs and expenses

7,428

14,437

13,898

Income (loss) from operations

1,619

(16,279)

20,804

(18,524)

Other income (expense):

Paycheck protection plan loan forgiveness

—

—

4,522

—

Interest expense

(160)

(2,321)

(2,537)

(4,586)

Other expense, net

(91)

(187)

(82)

(67)

Total other income (expense), net

(251)

(2,508)

1,903

(4,653)

Income (loss) before income taxes

1,368

(18,787)

22,707

(23,177)

Income tax expense

(81)

(7)

(98)

(101)

Net income (loss)

$           1,287

$       (18,794)

$         22,609

$       (23,278)

Income (loss) per common share:

Basic

$             0.04

$            (1.50)

$             0.97

$            (1.89)

Diluted

$             0.04

$            (1.50)

$            (0.18)

$            (1.89)

Weighted average common shares:

Weighted average common shares used in computing basic income
     (loss) per common share

29,358

12,552

23,291

12,349

Weighted average common shares used in computing diluted income
     (loss) per common share

30,688

12,552

28,034

12,349

FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine months ended September 30,

2023

2022

Cash flows from operating activities:

Net income (loss)

$                  22,609

$                (23,278)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Change in fair value of contingent consideration

(384)

(106)

Change in fair value of Contract Consideration Convertible Notes Payable

(29,969)

(9,016)

Amortization of convertible note issuance costs

83

663

Payment-in-kind interest expense

2,284

3,861

Amortization of contract assets

3,665

1,986

Depreciation and amortization

530

554

Amortization of asset based loan origination costs

36

—

Provision for credit losses, net of recoveries

97

147

Provision for excess and obsolete inventory

626

1,702

Gain on sale of property and equipment

(38)

(1,916)

Gain on lease termination

—

(584)

Non-cash lease expense

2,316

168

Stock compensation expense

(565)

2,262

Deferred income tax (benefit) expense

50

1

Paycheck protection plan loan forgiveness

(4,522)

—

Changes in current assets and liabilities:

Accounts receivable

3,472

(5,748)

Accounts receivable, related party

(2,082)

(24,616)

Inventories

(776)

(11,373)

Income taxes receivable

—

3

Other assets

(863)

(537)

Contract assets, net

—

(3,600)

Accounts payable

60

22,036

Accrued liabilities

(3,179)

493

Operating lease liabilities

(2,636)

(404)

Income taxes payable

(54)

100

Interest payable

(8)

36

Net cash used in operating activities

(9,248)

(47,166)

FLOTEK INDUSTRIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(continued)

Nine months ended September 30,

2023

2022

Cash flows from investing activities:

Capital expenditures

(593)

(175)

Proceeds from sale of assets

68

4,215

Net cash (used in) provided by investing activities

(525)

4,040

Cash flows from financing activities:

Payment for forfeited stock options

(617)

—

Payments on long term debt

(104)

—

Proceeds from asset based loan

27,750

—

Payments on asset based loan

(24,380)

—

Payment for origination costs of asset based loan

(502)

—

Proceeds from issuance of convertible notes

—

21,150

Payment of issuance costs of convertible notes

—

(1,084)

Proceeds from issuance of warrants

—

19,500

Payment of issuance costs of stock warrants

—

(1,170)

Payments to tax authorities for shares withheld from employees

(246)

(191)

Proceeds from issuance of stock

48

24

Payments for finance leases

(24)

(30)

Net cash provided by financing activities

1,925

38,199

Effect of changes in exchange rates on cash and cash equivalents

13

211

Net change in cash and cash equivalents and restricted cash

(7,835)

(4,716)

Cash and cash equivalents at the beginning of period

12,290

11,534

Restricted cash at the beginning of period

100

1,790

Cash and cash equivalents and restricted cash at beginning of period

12,390

13,324

Cash and cash equivalents at end of period

4,453

8,508

Restricted cash at the end of period

102

100

Cash and cash equivalents and restricted cash at end of period

$                    4,555

$                    8,608

FLOTEK INDUSTRIES, INC.

Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings

(in thousands)

Three Months Ended

Nine Months Ended

9/30/2023

9/30/2022

9/30/2023

9/30/2022

Gross profit (loss)

$            9,047

$           (1,842)

$         14,833

$          (4,626)

Stock compensation expense

2

256

(135)

783

Severance and retirement

—

(478)

26

11

Contingent liability revaluation

(61)

28

(384)

(106)

Sanitizer inventory write down

—

1,036

—

1,036

Amortization of contract assets

1,276

1,249

3,665

1,986

Adjusted Gross profit (loss) ⁽¹⁾

$          10,264

$                249

$         18,005

$             (916)

Net income (loss)

$            1,287

$         (18,794)

$         22,609

$        (23,278)

Interest expense

160

2,321

2,537

4,586

Income tax expense

81

7

98

101

Depreciation and amortization

181

177

530

554

EBITDA (Non-GAAP)

$            1,709

$         (16,289)

$         25,774

$        (18,037)

Stock compensation expense

268

671

(574)

2,263

Severance and retirement

2

(219)

(28)

387

Contingent liability revaluation

(61)

28

(384)

(106)

Sanitizer inventory write down

—

1,036

—

1,036

Gain on disposal of assets

(38)

(10)

(38)

(1,916)

Gain on lease termination

—

—

—

(584)

PPP loan forgiveness

—

—

(4,522)

—

Contract Consideration Convertible Notes Payable revaluation adjustment

—

4,250

(29,969)

(9,016)

Amortization of contract assets

1,276

1,249

3,665

1,986

Non-Recurring professional fees

236

882

3,612

2,899

Adjusted EBITDA (Non-GAAP) ⁽¹⁾

$            3,392

$           (8,402)

$          (2,464)

$        (21,088)

(1)

Management believes that adjusted gross profit and adjusted EBITDA for the three and nine months ended September 30, 2023 and 2022, are useful to investors to assess and understand operating performance, especially when comparing those results with previous and subsequent periods.  Management views the income and expenses noted above to be outside of the Company's normal operating results.  Management analyses operating results without the impact of the above items as an indicator of performance, to identify underlying trends in the business and cash flow from continuing operations, and to establish financial and operational goals, excluding certain non-cash or non-recurring items.