FLOTEK INDUSTRIES INCCN

Note 14 —Stock-Based Compensation and Other Benefit Plans

Stock-Based Incentive Plans

In June 2024, Company stockholders approved an amendment to the Flotek Industries, Inc. 2018 Long-Term Incentive Plan (the “2018 Plan”) to increase the number of shares of Company common stock eligible for issuance under the 2018 Plan. The 2018 Plan permits the Company to grant equity awards to officers, key employees, non-employee directors and service providers in the form of stock options, restricted stock, restricted stock units, and certain other incentive awards. In addition, the Company has two other long-term incentive plans, which were created in 2020 and 2019 (the “2020 Plan” and “2019 Plan,” respectively).

The maximum number of shares that may be issued under the 2020 Plan, the 2019 Plan and 2018 Plan are 0.5 million,0.2 million, and 2.4 million, respectively. At December 31, 2024 and 2023, the Company had 0.6 million and 0.6 million shares remaining, respectively, to be granted under the 2020 Plan, 2019 Plan and 2018 Plan in the aggregate.

Stock Options

All stock options are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant. During the year ended December 31, 2024, there wereno grants of market-based or performance-based stock options compared to 0.1 million market-based stock options and 0.1 million performance-based stock options that were granted during the year ended December 31, 2023. The market-based and performance-based options are restricted until criteria defined in the stock option agreements are met.

Proceeds received from stock option exercises are credited to common stock and additional paid-in capital, as appropriate. The Company uses historical data to estimate pre-vesting option forfeitures. Estimates are adjusted when actual forfeitures differ from the estimate. Stock-based compensation expense is recorded for all equity awards expected to vest. During the year ended December 31, 2024,24 thousand stock options vested compared tonone for the year ended December 31, 2023. The total fair value of the stock options that vested was$0.1 millionfor the year ended December 31, 2024.

Stock option activity for the years ended December 31, 2024 and 2023, was as follows:

The below table shows the aggregate intrinsic value and weighted average remaining contractual term of share options outstanding, currently exercisable and vested or expected to vest.

The following table sets forth significant assumptions used in the Monte Carlo model for market-based options to determine the fair value of the 61,984 options awarded in June 2023 at the date of grant.

The following table sets forth significant assumptions used in the Black-Scholes model for performance options to determine the fair value of the 128,744 options awarded in December 2023 at the date of grant.

At December 31, 2024 and 2023, the unrecognized compensation cost related to stock options was $0.4 million and $0.6 million, respectively.

There wereno options granted during the year ended December 31, 2024.

Restricted Stock

The Company grants employees and directors either time-vesting or performance-based restricted shares of common stock (“RSAs”) in accordance with terms specified in the applicable RSA Agreements. During the years ended December 31, 2024 and 2023, allof the RSAs granted were time-vested. Grantees of RSAs retain voting rightsfor the granted restricted shares.

•Time-vesting RSAs vest after a stipulated period has elapsed after the date of grant, generally three years. Certain time-vested RSAs have also been issued with a portion of the shares granted vesting immediately.

•Performance-based RSAs are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.

RSA activity for the years ended December 31, 2024 and 2023, are as follows:

The total fair value of RSAs that vested during the years ended December 31, 2024 and 2023 was$0.9 million and $0.9 million, respectively. The grant-date fair value is the market price of the RSAs on the date of grant.

At December 31, 2024 and 2023, unrecognized compensation expense related to non-vested RSAs was $0.4 million and $0.9 million, respectively. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units

The Company grants either time-vesting or performance-based restricted share units (“RSUs”) in accordance with terms specified in the applicable RSU Agreements. Grantees of RSUs do not have voting rightsfor the granted RSUs until such time as the applicable RSUs vests and shares of common stock are issued.

•Time-vesting RSUs vest after a stipulated period has elapsed after the date of grant, generally three years.

•Performance-based RSUs are issued with criteria defined over a designated period and vest only when, and if, the outlined criteria are met.

RSU activity for the years ended December 31, 2024 and 2023, was as follows:

The total fair value of RSUs that vested during the years ended December 31, 2024 and 2023 was $0.5 million and $0.5 million, respectively. The grant-date fair value is the market price of the shares on the date of grant.

The RSUs granted in 2024 included 147,050 performance-based RSUs, half of which will vest upon achievement of a market-based criteria and half of which will vest upon achievement of a non-market-based criteria. The units with a market-based vesting criteria were valued using a Monte Carlo valuation model to determine the fair value of the awards as of the date of the grant.

The following table sets forth significant assumptions used in the Monte Carlo model to determine the grant date fair value of the 73,525 performance-based RSUs with a market-based vesting criteria awarded in 2024.

At December 31, 2024 and 2023, unrecognized compensation expense related to RSUs was $2.3 million and $0.7 million, respectively. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.3 years. Non-vested RSUs at December 31, 2024 consist of both time-vesting and performance-based awards.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) was approved by stockholders in 2012. The Company registered 500,000 shares of its common stock, currently held as treasury shares, for issuance under the ESPP. The purpose of the ESPP is to provide employees with an opportunity to purchase shares of the Company’s common stock through accumulated payroll deductions. The ESPP allows participants to purchase common stock at a purchase price equal to 85% of the fair market value of the common stock on the last business day of athree-month offering period which coincides with calendar quarters. Payroll deductions may not exceed 10% of an employee’s compensation. In addition, for each calendar year, an employee may not be granted purchase rights valued over $25,000, as determined at the time such purchase right is granted. The fair value of the discount associated with shares purchased under the plan is recognized as stock-based compensation expense and was $20 thousand and $14 thousandfor the years ended December 31, 2024 and 2023, respectively. The total fair value of the shares purchased under the plan during the years ended December 31, 2024 and 2023 was$0.1 million and $0.1 million, respectively. The employee payment associated with participation in the plan occurs through payroll deductions.

Stock-Based Compensation Expense

Stock-based compensation expense related to stock options, restricted stock, restricted stock unit grants and stock purchased under the Company’s ESPP was$1.4 million and$(0.3) million during the years ended December 31, 2024 and 2023, respectively. Stock based compensation expense for the year ended December 31, 2023 included an adjustment for actual forfeitures of $1.6 million that reduced the total stock-compensation expense.

During 2023, the Company settled vested equity awards of a terminated officer through a cash payment. The cash payment was made to the employee in lieu of the equity awards, which were previously granted and vested. The settlement amount was determined based on the fair value of the equity awards at the time of termination. The Company used the Black-Scholes Model to value the vested equity awards. This transaction resulted in a reduction of the Company's equity awards liability and a corresponding outflow of cash for $0.6 million.

The key inputs to the Black-Scholes Model used to estimate the fair value of the vested equity awards, as of the date of the termination were as follows:

401(k) Retirement Plan

The Company maintains a 401(k) retirement plan for the benefit of eligible employees in the U.S. All U.S. based employees are eligible to participate in the plan upon employment. The Company currently matches contributions at 100% of up to 2% of an employee’s contributions.

During the years ended December 31, 2024 and 2023, compensation expense included $0.3 million and $0.3 million, respectively, related to the Company’s 401(k) match.

Note 15 —Earnings (Loss) Per Share

Basic earnings (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period (See Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”). Diluted earnings (loss) per common share is calculated by dividing the adjusted net income (loss) by the weighted average number of common shares outstanding combined with dilutive common share equivalents outstanding, if the effect is dilutive. Potentially dilutive common share equivalents consist of incremental shares of common stock issuable upon conversion of convertible notes payable, exercise of stock warrants and vesting and settlement of stock awards. The dilutive effect of non-vested stock issued under share‑based compensation plans, shares issuable under the Employee Stock Purchase Plan (ESPP), employee stock options outstanding, and the Pre-Funded stock warrants are computed using the treasury stock method. The dilutive effect of the Convertible Notes is computed using the if‑converted method.

The calculation of the basic and diluted earnings (loss) per share for the years ended December 31, 2024 and 2023 is as follows (in thousands):

(1) These items were not included in the dilution calculation for the year ended December 31, 2023 due to their anti-dilutive effect as it would reduce the loss per share.

Note 16 —Supplemental Cash Flow Information

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

Note 17—Related Party Transactions

On February 2, 2022, the Company entered into the Initial ProFrac Agreement, upon issuance of $10 million in aggregate principal amount of the convertible notes (the “Contract Consideration Convertible Notes Payable”) to ProFrac Holdings LLC (see Note 9, “Debt and Convertible Notes Payable”). Under the Initial ProFrac Agreement, ProFrac Services, LLC was obligated to order chemicals from the Company at least equal to the greater of (a) the chemicals required for 33% of ProFrac Services, LLC’s hydraulic fracturing fleets and (b) a baseline measured by the first ten hydraulic fracturing fleets deployed by ProFrac Services, LLC during the term of the Initial ProFrac Agreement. If the minimum volumes are not achieved in any given year, ProFrac Services LLC is required to pay to the Company, as liquidated damages an amount equal to twenty-five percent (25%) of the difference between (i) the aggregate purchase price of the quantity of products comprising the minimum purchase obligation and (ii) the actual purchased volume during such calendar year (“Contract Shortfall Fees”).

On May 17, 2022, the Company entered into the Amended ProFrac Agreement upon issuance of $50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”). The Initial ProFrac Agreement was amended to (a) increase ProFrac Services LLC’s minimum purchase obligation for each year to the greater of 70% of ProFrac Services LLC’s requirements and a baseline measured by ProFrac Services, LLC’s first 30 hydraulic fracturing fleets, and (b) increase the term to 10 years.

On February 2, 2023, the Company entered into another amendment to the ProFrac Agreement (the “Amended ProFrac Agreement No. 2”). The Amended ProFrac Agreement No. 2 has an effective date of January 1, 2023. The ProFrac Agreement was amended to (1) provide a ramp-up period from January 1, 2023 to May 31, 2023 for ProFrac Services, LLC to increase the number of active hydraulic fracturing fleets to 30 fleets, (2) waive any Contract Shortfall Fee payment relating to any potential order shortfall prior to January 1, 2023, (3) add additional fees to certain products, and (4) provide margin increases based on margins with non-ProFrac customers.

During the measurement period for Contract Shortfall Fees of January 1, 2024 through December 31, 2024, the minimum purchase requirements were not met and, as a result, related party revenues for the year ended December 31, 2024 reflect variable consideration for Contract Shortfall Fees of $32.4 million. The measurement period for 2023 was June 1, 2023 through December 31, 2023. Related party revenues for the year ended December 31, 2023 included $20.1 million of Contract Shortfall Fees.

During the years ended December 31, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $115.8 million and $121.5 million, respectively. For the years ended December 31, 2024 and 2023, these revenues were net of amortization of contract assets of $5.6 million and $5.0 million, respectively. Cost of sales attributable to these revenues were $80.4 million and $99.3 million, respectively, for the years ended December 31, 2024 and 2023.

As of December 31, 2024 and December 31, 2023 our accounts receivable from ProFrac Services, LLC was $52.4 million and $34.6 million, respectively, which is recorded in accounts receivable, related party on the consolidated balance sheets.

Also during 2023, we entered into the following related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC:

•Conversion of Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)

•Conversion of Contract Consideration Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)

•Exercise of February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”)

•Pre-Funded Warrants (see Note 13, “Stockholders’ Equity)

As a result of the above related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of December 31, 2024.

Note 18 —Business Segment, Geographic and Major Customer Information

Segment Information

The Company's segments are determined as those components whose results are reviewed regularly by the chief operating decision maker ("CODM"), who is the Company's Chief Executive Officer, in deciding how to allocate resources and assess performance. Each segment is organized and managed based upon the nature of the Company's markets and customers and consists of similar products and services. Gross profit and income (loss) from operations for each segment are used by the CODM to assess the performance of each segment in a financial period. The CODM uses segment gross profit and income (loss) from operations as the measure to make resource (including financial or capital resources) allocation decisions for each segment. Accounting policies have been applied consistently by each segment for all reporting periods. Intercompany revenue and expense amounts, if any, have been eliminated within each segment to report on the basis that management uses internally for evaluating segment performance. Various functions, including certain sales and marketing activities and general and administrative activities, are provided centrally by the corporate office. Costs associated with corporate office functions, other corporate income and expense items, and income taxes are not allocated to the reportable segments.

The operations of the Company are categorized into the following reportable segments:

Chemistry Technologies. The CT segment includes specialty chemistries, logistics and technology services, which we believe enables our customers to pursue improved efficiencies and performance throughout the life cycle of their wells, and also helps our customers improve their ESG and operational goals. Customers of the CT segment include major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, and international supply chain management companies.

Data Analytics. The DA segment provides innovative analytical measurement solutions. The DA segment seeks to deliver real-time information and insights to our customers to enable optimization of operations and reduction of emissions and their carbon intensity Customers of the DA segment span across the entire oil and gas market, from upstream production to midstream facilities to refineries and distribution networks.

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

Other segment items for the year ending December 31, 2024 includes depreciation of $0.6 million and $0.2 million in the CT and DA segments, respectively; R&D of $1.2 million and $0.5 million in the CT and DA segments, respectively; and gain on sale of property and equipment in the CT and DA segments of $0.1 million and $15 thousand, respectively.

Other segment items for the year ended December 31, 2023 includes $30.0 million gain related to the change in fair value of Contract Consideration Convertible Notes Payable in the CT segment and depreciation of $0.6 million and $0.1 million in the CT and DA segments, respectively; R&D of $1.9 million and $0.6 million in the CT and DA segments, respectively; and gain on sale of property and equipment in the CT and DA segments of $21 thousand and $17 thousands, respectively.

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

Additions to long-lived assets by reportable segments and corporate and other are as follows (in thousands):

Geographic Information

Revenue by country is based on the location where services are provided and products are sold. For the years ended December 31, 2024 and 2023 no country other than the U.S. accounted for more than 10% of revenue. Revenue by geographic location is as follows (in thousands):

(1) Includes revenue from related party

Long-lived assets held in countries other than the U.S. are not considered material to the consolidated financial statements.

Major Customers

Revenue from major customers, as a percentage of consolidated revenue, is as follows (in thousands):

The concentration with ProFrac Services, LLC and in the oil and gas industry increases credit, commodity and business risk.

Major Suppliers

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

Note 19 —Subsequent Event

The Company has evaluated the effects of events that have occurred subsequent to December 31, 2024 and there have been no material events that would require recognition in the 2024 consolidated financial statements or disclosure in the notes to the consolidated financial statements.