Overview of Flotek’s Financial Performance

Flotek is a technology-driven specialty chemistry and data analytics company that helps customers in the energy and industrial sectors improve their environmental performance. The company operates two main business segments - Chemistry Technologies (CT) and Data Analytics (DA).

In 2024, Flotek’s total revenue decreased slightly to $187 million, down from $188 million in 2023. This was driven by a decline in revenue from its related party customer ProFrac Services, LLC, partially offset by higher revenue from external customers and increased revenue from contract shortfall fees.

Gross profit increased to $39.4 million in 2024, up from $24.3 million in 2023. This improvement was due to the higher contract shortfall fees and lower cost of sales as a percentage of revenue. Selling, general and administrative expenses decreased by 11% to $24.7 million, while research and development costs declined by 31% to $1.7 million.

Operating income decreased to $12.2 million in 2024 from $23.2 million in 2023. This was primarily due to a $30 million gain recorded in 2023 from the fair value adjustment of convertible notes that did not recur in 2024, partially offset by the increase in gross profit.

Net income for 2024 was $10.5 million, down from $24.7 million in 2023. The decrease was driven by the lower operating income, as well as a $4.5 million gain from the forgiveness of a Paycheck Protection Program loan in 2023 that did not occur in 2024.

Segment Performance

The Chemistry Technologies (CT) segment, which provides sustainable chemistry solutions, saw its revenue from external customers increase by 7% to $63.2 million in 2024. However, revenue from its related party customer ProFrac Services, LLC, including contract shortfall fees, decreased by 5% to $114.9 million. Operating income for the CT segment declined by $12.4 million to $26.6 million, primarily due to the absence of the $30 million fair value gain recorded in 2023.

The Data Analytics (DA) segment, which delivers real-time data and insights to customers, saw its external customer revenue increase by 7% to $8 million in 2024. Related party revenue from ProFrac Services also increased by 28% to $0.8 million. However, the DA segment recorded an operating loss of $0.9 million in 2024, compared to a $0.1 million loss in 2023, due to higher cost of sales.

Liquidity and Capital Resources

As of December 31, 2024, Flotek had $4.4 million in unrestricted cash and cash equivalents, down from $5.9 million at the end of 2023. The company generated $3.4 million in cash from operating activities in 2024, compared to using $11.3 million in 2023.

In August 2023, Flotek entered into a $20 million asset-based revolving loan (ABL) facility, which was amended in 2024 to extend the maturity and improve the terms. As of December 31, 2024, the company had $4.8 million outstanding under the ABL, with $15 million in available borrowing capacity.

A key source of Flotek’s liquidity is the contract shortfall fees it receives from ProFrac Services under their long-term supply agreement. In 2024, Flotek recorded $32.4 million in contract shortfall fees, of which $15 million had been collected as of March 2025. The company believes its cash, cash flow from operations, and availability under the ABL will be sufficient to fund its capital requirements and obligations.

However, the long-term stability of the oil and gas markets, and the potential impact on Flotek’s customers’ ability to pay, could negatively affect the company’s liquidity. Additionally, the availability of capital is dependent on the ProFrac Agreement, which had unmet minimum purchase requirements in 2024, resulting in the contract shortfall fees.

Key Strengths and Weaknesses

Flotek’s key strengths include:

• Proprietary green and specialty chemistry solutions that help customers improve environmental performance
• Innovative data analytics technology that provides real-time insights to optimize operations and reduce emissions
• Diversified customer base across the energy and industrial sectors
• Long-term supply agreement with related party ProFrac Services, which provides a reliable revenue stream

Weaknesses and risks include:

• Dependence on the oil and gas industry, which can be volatile
• Reliance on the ProFrac Agreement for a significant portion of revenue and liquidity
• Potential impact on customer payments and liquidity if the oil and gas market weakens
• Competitive pressures in the specialty chemistry and data analytics markets

Outlook and Future Prospects

Flotek’s future prospects will depend on its ability to continue developing innovative solutions that help customers improve their environmental performance and operational efficiency. The company plans to maintain its focus on research and development to support new product development and customization for clients.

The long-term stability of the oil and gas industry will be a key factor in Flotek’s success, as it impacts both the demand for the company’s products and services, as well as the financial health of its customers. Flotek will need to closely monitor market conditions and be prepared to adapt its strategy as needed.

Additionally, the company’s liquidity and capital resources will be crucial, particularly its ability to meet the minimum purchase requirements of the ProFrac Agreement and collect the associated contract shortfall fees. Maintaining a strong balance sheet and access to financing will be important to fund Flotek’s growth initiatives and weather any potential industry downturns.

Overall, Flotek appears to be well-positioned with its unique chemistry and data analytics solutions, but the company will need to navigate the challenges of the volatile energy market and manage its reliance on the ProFrac Agreement to achieve long-term success.