FLOTEK INDUSTRIES INC/CN/

Note 13 —Stockholders’ Equity

Pre-Funded Warrants

On June 21, 2022, ProFrac Holdings II, LLC paid $19.5 million for Pre-Funded Warrants (the “June 2022 Warrants”) of the Company. The June 2022 Warrants permit ProFrac Holdings II, LLC to purchase 2,184,140 shares of the Company’s common stock at an exercise price equal to $0.0001 per share, subject to a $4.5 million exercise fee.

ProFrac Holdings II, LLC and its affiliates may not receive any voting or consent rights in respect of the June 2022 Warrants or the underlying shares of common stock unless and until ProFrac Holdings II, LLC has paid an additional $4.5 million to the Company; provided, however, that ProFrac Holdings II may exercise the June 2022 Warrants immediately prior to the sale of the shares of common stock subject to such exercise to a non-affiliate of ProFrac Holdings II. The additional $4.5 million will be accounted for as an equity contribution if received.

Treasury Stock

The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity. During the three months ended March 31, 2025 and 2024, the Company withheld 3,000 shares and 2,000 shares, respectively, of the Company’s common stock at fair market value for payment of income tax withholding owed by employees upon the vesting of restricted shares. Shares issued as restricted stock awards to employees under the 2018 Long-Term Incentive Plan are accounted for as treasury stock when forfeited. During the three months ended March 31, 2025 and 2024, forfeited stock awards returned to treasury stock were 3,000 shares and 11,000 shares, respectively.

Note 14 —Earnings Per Share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing the adjusted net income by the weighted average number of common shares outstanding combined with dilutive common share equivalents outstanding, if the effect is dilutive. For the three months ended March 31, 2025 and 2024, there were no adjustments to net income. Potentially dilutive common share equivalents consist of incremental shares of common stock issuable upon exercise of the June 2022 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, employee stock options outstanding, and the June 2022 Warrants are computed using the treasury stock method.

The calculation of the basic and diluted earnings per share for the three months ended March 31, 2025 and 2024 is as follows (in thousands):

Note 15 —Supplemental Cash Flow Information

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

Note 16—Related Party Transactions

On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (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. 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 an amendment to the Initial ProFrac Agreement (the “Amended ProFrac Agreement”) upon issuance of $50 million in aggregate principal amount of Contract Consideration 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 Initial ProFrac Agreement (the “Amended ProFrac Agreement No. 2” and together with the Initial ProFrac Agreement and the Amended ProFrac Agreement, the “ProFrac Agreement”). The Amended ProFrac Agreement No. 2 has an effective date of January 1, 2023. The Initial ProFrac Agreement was further 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.

The current measurement period for Contract Shortfall Fees is January 1, 2025 through December 31, 2025. The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, related party revenues for the three months ended March 31, 2025 reflect variable consideration for Contract Shortfall Fees of $7.5 million, which will be due in the first quarter of 2026 under the terms of the ProFrac Agreement. The measurement period for 2024 was January 1, 2024 through December 31, 2024. Related party revenues for the three months ended March 31, 2024 included $8.7 million of Contract Shortfall Fees.

During the three months ended March 31, 2025 and 2024, the Company’s revenues from ProFrac Services, LLC were $30.9 million and $27.2 million, respectively. For the three months ended March 31, 2025 and 2024, these revenues were net of amortization of contract assets of $1.5 million and $1.3 million, respectively. Cost of sales attributable to these revenues were $21.3 million and $18.6 million, respectively, for the three months ended March 31, 2025 and 2024.

As of March 31, 2025 and December 31, 2024 our accounts receivable from ProFrac Services, LLC was $48.2 million and $52.4 million, respectively, which is recorded in accounts receivable, related party on the consolidated balance sheets.

Also during 2023, the Company entered into various related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC as described in Note 16, “Related Party Transactions” to the consolidated financial statements from the 2024 Annual Report. As a result of these related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of March 31, 2025.

Note 17 —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 environmental, social and governance (“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 three-months ended March 31, 2025 includes depreciation of $0.2 million and $0.1 million in the CT and DA segments, respectively; R&D costs of $0.2 million and $0.1 million in the CT and DA segments, respectively; and gain on sale of property and equipment in the CT segment of $7 thousand.

Other segment items for the three-months ended March 31, 2024 includes depreciation of $0.2 million and $35 thousand in the CT and DA segments, respectively; and R&D costs of $0.3 million and $0.1 million in the CT and DA segments, 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 three March 31, 2025 and 2024 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 18 —Subsequent Event

Remote Power Generation Asset Acquisition and Related Lease Agreement

On April 28, 2025, the Company entered into a series of transactions pursuant to an Asset Purchase Agreement, dated as of April 28, 2025 (the “Purchase Agreement”), with ProFrac GDM, LLC (“ProFrac GDM”), an indirect subsidiary of ProFrac Holding Corp. (“ProFrac”), and various subsidiaries of ProFrac, pursuant to which, among other things, the Company acquired certain mobile power generation assets and related intellectual property (the “Acquired Assets”), certain of which were concurrently leased back to ProFrac GDM pursuant to an Agreement for Equipment Rental, dated as of April 28, 2025, by and between PWRTEK, LLC, an indirect wholly-owned subsidiary of the Company (“PWRTEK”), and ProFrac GDM (the “Lease Agreement”).

Total consideration paid by the Company for all of the transactions contemplated by the Purchase Agreement was $105 million, which consisted of the following: (1) an offset of $17.6 million against the Company’s accrued and yet to be collected Contract Shortfall Fees from the January 1, 2024 through December 31, 2024 measurement period, which was the consideration for the acquisition of the Acquired Assets, (2) a warrant (the “April 2025 Warrant”) to purchase 6 million shares of the Company’s common stock, (3) a secured promissory note, issued by PWRTEK in the initial principal amount of $40 million (the “Note”), and (4) offsets against potential future period Contract Shortfall Fee amounts that may become due under the ProFrac Agreement.

With regard to the financial effect of the transactions outlined above, because ProFrac owns more than 50% of the Company’s outstanding shares and consolidates the Company’s financial results, the Acquired Assets are deemed to be under common control. As such, the Acquired Assets are expected to be recorded at estimated book value as of the acquisition date of approximately $15.1 million. The consideration in excess of the book value of the Acquired Assets is expected to be recorded to stockholders’ equity. Financial results from the Lease Agreement and operation of the Acquired Assets will be reported within the Company’s DA segment.

Pursuant to the terms of the Lease Agreement, ProFrac GDM agreed to lease from PWRTEK 22 units, comprised of 14 digitally enhanced mobile natural gas power generation filtration units andeight gas distribution units andeight additional units, comprised ofseven gas distribution units andone mobile natural gas power generation filtration unit, that are currently under construction or to be constructed (collectively, the “Leased Equipment”) for a period ofsix years. The Lease Agreement provides for fixed rental rates for the Leased Equipment during the first five years of the Lease Agreement and then prevailing market rates during thesixth year of the term. Existing Leased Equipment was placed into service immediately, with fees accruing beginning on the effective date of the Lease Agreement. Leased Equipment under construction, which is expected to be placed into service throughout the second half of 2025, will begin accruing fees at the earlier of the in-service date or January 1, 2026.

The April 2025 Warrant has aseven-year term and can be exercised on a cashless basis for nominal consideration at any time following the date on which the Company’s stockholders have approved the issuance of the shares of the Company’s common stock underlying the Warrant (the “Stockholder Proposal”). The Company expects to hold a special stockholder meeting to approve the Stockholder Proposal in July 2025. An affiliate of ProFrac that beneficially owns shares of the Company’s common stock and the directors and certain executive officers of the Company have entered into voting agreements (“Voting Agreements”) under which such parties have agreed to vote their respective shares of the Company’s common stock beneficially owned in favor of the Stockholder Proposal. Under certain circumstances, including if stockholder approval for the

Stockholder Proposal is not timely obtained, ProFrac may elect to convert the April 2025 Warrant into afive-year promissory note on substantially similar terms to the Note, and having a principal amount equal to the Black-Scholes value of the shares of the Company’s common stock underlying the April 2025 Warrant.

The Note provides for afive-year term and is subject to aten percent annual interest rate, payable in cash or in-kind at PWRTEK’s option. PWRTEK’s obligations under the Note are secured by a first priority lien on the assets acquired by PWRTEK under the Purchase Agreement, including the Leased Equipment. While the Note includes certain prepayment restrictions, PWRTEK and ProFrac GDM can each elect to apply up tofifty percent cumulatively of any future Contract Shortfall Fee that becomes due and payable under the ProFrac Agreement to prepay principal and interest due under the Note without penalty. The obligations of PWRTEK under the Note have been guaranteed by the Company.

In addition, in connection with the foregoing transactions, on April 28, 2025, the Company and the lender under the ABL entered into a letter agreement (the “Letter Agreement”) with respect to the ABL. Pursuant to the Letter Agreement, the lender will not test compliance with the Tangible Net Worth (as defined in the ABL) covenant through and including December 31, 2025, and instead, the Company will be required to maintain positive trailing three-month consolidated net income, tested monthly, and PWRTEK will be prohibited from making distributions (including dividends or similar payments), except as permitted pursuant to the Note.

2024 Contract Shortfall Fees

Contract Shortfall Fees for the measurement period of January 1, 2024 through December 31, 2024 totaled approximately $32.6 million (the “2024 Contract Shortfall Fees”). The Company collected $15 million of the 2024 Contract Shortfall Fees in cash in March 2025. The remaining 2024 Contract Shortfall Fees were offset as consideration for the Acquired Assets as described above.

The following discussion should be read in conjunction with the 2024 Annual Report and the unaudited condensed consolidated financial statements and accompanying notes included herein. Comparative segment revenues and related financial information are discussed herein and are presented in Note 17 to our unaudited condensed consolidated financial statements. See “Forward Looking Statements” in this Quarterly Report and “Risk Factors” included in our filings with the SEC, including our Quarterly Reports on Form 10-Q and our 2024 Annual Report, for a description of important factors that could cause actual results to differ from expected results. Our historical financial information may not be indicative of our future performance.

Executive Summary

Flotek strives to be the collaborative partner of choice for solutions that reduce the environmental impact of energy on air, water, land and people. An advanced technology-driven, chemical and data analytics company, Flotek seeks to provide unique and innovative solutions to its customers in both the domestic and international energy markets. The Company is committed to delivering products and services that endeavor to maximize customer returns by leveraging chemistry as the common value creation platform.

The Company has two operating segments, CT and DA, which are both supported by the Company’s continuing Research and Innovation (“R&I”) advanced laboratory capabilities.

Recent Events

Remote Power Generation Asset Acquisition and Related Lease Agreement

On April 28, 2025, the Company entered into a series of transactions pursuant to an Asset Purchase Agreement, dated as of April 28, 2025 (the “Purchase Agreement”), with ProFrac GDM, LLC (“ProFrac GDM”), an indirect subsidiary of ProFrac Holding Corp. (“ProFrac”), and various subsidiaries of ProFrac, pursuant to which, among other things, the Company acquired certain mobile power generation assets and related intellectual property (the “Acquired Assets”), certain of which were concurrently leased back to ProFrac GDM pursuant to an Agreement for Equipment Rental, dated as of April 28, 2025, by and between PWRTEK, LLC, an indirect wholly-owned subsidiary of the Company (“PWRTEK”), and ProFrac GDM (the “Lease Agreement”).

Total consideration paid by the Company for all of the transactions contemplated by the Purchase Agreement was $105 million, which consisted of the following: (1) an offset of $17.6 million against the Company’s accrued and yet to be collected Contract Shortfall Fee (defined below) from the January 1, 2024 through December 31, 2024 measurement period, which was the consideration for the acquisition of the Acquired Assets, (2) a warrant (the “April 2025 Warrant”) to purchase 6 million shares of the Company’s common stock, (3) a secured promissory note, issued by PWRTEK in the initial principal amount of $40 million (the “Note”), and (4) offsets against potential future period Contract Shortfall Fee amounts that may become due under the ProFrac Agreement.

With regard to the financial effect of the transactions outlined above, because ProFrac owns more than 50% of the Company’s outstanding shares and consolidates the Company’s financial results, the Acquired Assets are deemed to be under common control. As such, the Acquired Assets are expected to be recorded at estimated book value as of the acquisition date of approximately $15.1 million. The consideration in excess of the book value of the Acquired Assets is expected to be recorded to stockholders’ equity. Financial results from the Lease Agreement and operation of the Acquired Assets will be reported within the Company’s DA segment.

Pursuant to the terms of the Lease Agreement, ProFrac GDM agreed to lease from PWRTEK 22 units, comprised of 14 digitally enhanced mobile natural gas power generation filtration units and eight gas distribution units and eight additional units, comprised of seven gas distribution units and one mobile natural gas power generation filtration unit, that are currently under construction or to be constructed (collectively, the “Leased Equipment”) for a period of six years. The Lease Agreement provides for fixed rental rates for the Leased Equipment during the first five years of the Lease Agreement and then prevailing market rates during the sixth year of the term. Existing Leased Equipment was placed into service immediately, with fees accruing beginning on the effective date of the Lease Agreement. Leased Equipment under construction, which is expected to be placed into service throughout the second half of 2025, will begin accruing fees at the earlier of the in-service date or January 1, 2026.

The April 2025 Warrant has a seven-year term and can be exercised on a cashless basis for nominal consideration at any time following the date on which the Company’s stockholders have approved the issuance of the shares of the Company’s common stock underlying the Warrant (the “Stockholder Proposal”). The Company expects to hold a special stockholder meeting to approve the Stockholder Proposal in July 2025. An affiliate of ProFrac that beneficially owns shares of the Company’s common stock and the directors and certain executive officers of the Company have entered into voting agreements (“Voting Agreements”) under which such parties have agreed to vote their respective shares of the Company’s common stock beneficially owned in favor of the Stockholder Proposal. Under certain circumstances, including if stockholder approval for the Stockholder Proposal is not timely obtained, ProFrac may elect to convert the April 2025 Warrant into a five-year promissory note on substantially similar terms to the Note, and having a principal amount equal to the Black-Scholes value of the shares of the Company’s common stock underlying the April 2025 Warrant.

The Note provides for a five-year term and is subject to a ten percent annual interest rate, payable in cash or in-kind at PWRTEK’s option. PWRTEK’s obligations under the Note are secured by a first priority lien on the assets acquired by PWRTEK under the Purchase Agreement, including the Leased Equipment. While the Note includes certain prepayment restrictions, PWRTEK and ProFrac GDM can each elect to apply up to fifty percent cumulatively of any future Contract Shortfall Fee that becomes due and payable under the ProFrac Agreement to prepay principal and interest due under the Note without penalty. The obligations of PWRTEK under the Note have been guaranteed by the Company.

2024 Contract Shortfall Fees

Contract Shortfall Fees for the measurement period of January 1, 2024 through December 31, 2024 totaled approximately $32.6 million (the “2024 Contract Shortfall Fees”). The Company collected $15 million of the 2024 Contract Shortfall Fees in cash in March 2025. The remaining 2024 Contract Shortfall Fees were offset as consideration for the Acquired Assets as described above.

Company Overview

Chemistry Technologies

The Company’s CT segment provides sustainable, optimized chemistry solutions that we believe maximize our customers’ value by improving return on invested capital, lowering operational costs, and providing tangible environmental benefits. The Company’s proprietary green chemistries, specialty chemistries, logistics, and technology services enable its customers to pursue improved efficiencies and performance throughout the life cycle of their desired chemical applications program. The Company designs, develops, manufactures, packages, distributes and markets optimized chemistry solutions that are designed to accelerate existing sustainability practices to reduce the environmental impact of energy on the air, water, land and people.

Customers of the CT segment include those of energy-related markets, such as our related party ProFrac Services, LLC, with whom we have a long-term supply agreement, as well as industrial companies. Major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, national and state-owned oil companies, geothermal energy companies, solar energy companies and advanced alternative energy companies may benefit from our best-in-class technology, field operations, and continuous improvement exercises that go beyond existing sustainability practices.

ProFrac Supply Agreement

On February 2, 2022, the Company entered into a Chemical Products Supply Agreement with ProFrac Services, LLC, which was subsequently amended on May 17, 2022 and February 1, 2023 (collectively, the “ProFrac Agreement”).

The ProFrac Agreement contains minimum requirements for chemistry purchases. If the minimum volume purchases are not achieved within the applicable measurement period, 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 the measurement period (“Contract Shortfall Fees”). The measurement period for Contract Shortfall Fees during 2024 was January 1, 2024 through December 31, 2024. Related party revenues for the three months ended March 31, 2024 reflected Contract Shortfall Fees of $8.7 million. The current measurement period for Contract Shortfall Fees is January 1, 2025 through December 31, 2025. The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, related party revenues for the three months ended March 31, 2025 reflect Contract Shortfall Fees of $7.5 million.

The transactions with ProFrac and ProFrac GDM described above under “Recent Events” do not impact the ProFrac Agreement.

Data Analytics

The DA segment delivers real-time information and insights to our customers to enable optimization of operations and reduction of emissions and their carbon intensity. Real-time composition and physical property measurements are delivered simultaneously on refined fuels, natural gas liquids (“NGLs”), natural gas, crude oil, and condensates using the industry’s only field-deployable, in-line optical near-infrared spectrometer that generates no emissions. The instrument's response is processed with advanced chemometrics modeling, artificial intelligence, and machine learning algorithms to deliver these valuable insights every 15 seconds.

We believe customers using this technology have obtained significant benefits, including additional profits, by enhancing operations in crude/condensates stabilization, enhancing blending operations, reducing time impacting transmix operations, increasing efficiencies and optimization of gas plants, allowing for the use of significantly lower cost field gas instead of diesel to generate power, lowering emissions and protecting equipment, and ensuring product quality while reducing giveaways, i.e., providing higher value products at the lower value products prices. Our ability to facilitate the use of lower cost field gas to generate remote power solutions has been significantly enhanced through the addition of the Acquired Assets described in “Recent Events” above. More efficient operations have the benefit of reducing carbon footprint, e.g., less flaring and reduction in energy expenditure for compression and re-processing. Our customers in North America include oil and gas supermajors, some of the largest midstream oil and gas companies, large gas processing plants and independent exploration and production companies. We have developed a line of Verax™ analyzers for deployment internationally, which was certified for compliance in hazardous locations and harsh weather conditions.

Research & Innovation

R&I supports both our business segments through green chemistry formulation, specialty chemical formulations and EPA regulatory guidance, technical support, basin and reservoir studies, data analytics and new technology projects. The purpose of R&I is to supply the Company’s business segments with enhanced products and services that generate current and future revenues, while advising Company management on opportunities concerning technology, environmental and industry trends. The R&I facilities support advances in CT and DA segment performance, optimization and manufacturing. For the three months ended March 31, 2025 and 2024, the Company incurred $0.4 million and $0.4 million, respectively, of research and development expense. The Company expects that its 2025 research and development investments will continue to support new product development, especially in support of enhanced environmental demands and customization initiatives for its clients.

Outlook

Our business is subject to numerous variables that impact our outlook and expectations given the shifting conditions of the oil and gas industry. We have based our outlook on the market conditions we perceive today. The oil and gas industry is highly cyclical.

Energy Industry

The demand for oil and gas and related services fluctuates due to numerous factors including weather and macroeconomic and geopolitical conditions. Despite the near-term volatility in commodity pricing, partially attributable to the ongoing discussions with respect to tariffs, we believe the fundamentals for energy-related services remain stable. Independent exploration and production companies operate the majority of U.S. land rigs and react quickly to changing commodity prices. In the current commodity price environment, we generally expect these companies, as well as major exploration and production companies, to maintain current activity levels over the next 12 months.

Chemistry Technologies

The CT segment is actively advancing integrated solutions to enhance capital efficiency for exploration and production (“E&P”) operators and service companies. Our approach combines technical leadership, exceptional service quality, reliable delivery, and a strong safety record. We believe that we have optimized service delivery across key North American basins and are well-positioned to adapt to fluctuations in activity levels. Based upon our strong results during the first quarter of 2025, and customer commitments, we anticipate stable demand for our chemistry during 2025. Our expectations are in part based upon our current outlook on oil and gas prices.

As a result of the continued growth in the exportation of natural gas, we expect the demand for natural gas to continue to increase during 2025. Higher natural gas prices would likely increase activity in the Haynesville shale basin, an area where we expect our established presence, expertise and capabilities could provide growth.

Internationally, we are seeing an increase in unconventional activity in the Middle East and Argentina, where we expect demand for our chemistry to grow throughout 2025.

We remain focused on driving innovation between the CT and DA segments, promoting opportunities in upstream applications designed to deliver enhanced efficiencies for E&P operators and service companies. We believe that these initiatives will lead to deeper integration between our CT and DA segments, creating a pathway for future growth.

Digital Analytics

The use of data and digital analytics is a growing trend in all industries where technology is leveraged to analyze large datasets of operational information to improve performance, as well as for predictive maintenance, advanced safety measures and reduced environmental impact of operations. We believe Verax™ analyzers have gained a foothold in North American markets for critical applications where compositional information is needed in real-time. The technology delivers insight on valuable operations data like vapor pressure, boiling point, flash point, octane level, API (American Petroleum Institute) gravity, viscosity, BTU (British Thermal Unit) and more, simultaneously. We continue to collaborate with our customers to identify further facilities and applications where our technology has the highest value. To drive recurring revenue, we continue to build on the modular nature of our sensor and analysis packages with new data processing techniques that enhance the value of our installations. Automated Interface Detection Algorithm (“AIDA”) provides real-time detection of interfaces in a liquids pipeline without the need for additional sampling or chemometric modeling. The application can identify products such as refined fuels, crude and NGLs with its advanced machine learning algorithms and detect interfaces real-time versus traditional lab analysis. We believe this allows customers to cut batches quickly and accurately, reduce transmix and minimize off-spec product that requires downgrades.

As evidenced by and in connection with the transactions with ProFrac and ProFrac GDM described above under “Recent Events”, we are gaining traction leveraging the Verax™ in applications where operators and service companies are using field gas as a substitute for diesel in dual fuel engines as the market moves to Tier 4 equipment and eFleets. Analyzing gas quality in real-time allows companies to maximize the field gas for diesel substitution rate providing significant cost savings while lowering emissions, reducing fuel consumption/costs, and protecting the equipment from damage. In addition, we believe the Acquired Assets can be utilized in numerous vertical markets, including areas outside of the oil and gas industry. We expect the Lease Agreement described above under “Recent Events” to have a significant impact on the future financial results of our DA segment.

Consolidated Results of Operations (in thousands)

Consolidated revenue for the three months ended March 31, 2025 increased $15.0 million, or 37%, versus the same period of 2024, driven by increased sales volumes from external customers as well as increased related party activity under the ProFrac Agreement, partially offset by a decrease in accrued Contract Shortfall Fees of $1.2 million. Related party revenues in the CT segment are net of $1.5 million and $1.3 million of contract assets amortization for the three months ended March 31, 2025 and 2024, respectively.

Consolidated cost of sales for the three months ended March 31, 2025 increased $11.4 million, or 36%, versus the same period of 2024, primarily due to increased product sales and increased freight costs. Consolidated cost of sales percentage was 78% for both the three months ended March 31, 2025 and 2024.

SG&A expenses for the three months ended March 31, 2025 increased $0.2 million, or 3.2%, versus the same period of 2024. The increase relates primarily to increased salaries and stock compensation expense, partially offset by decreased professional fees.

Income from operations increased $3.5 million for the three months ended March 31, 2025, versus the same period in 2024. The increase was primarily driven by a $3.6 million increase in gross profit partially offset by a $0.2 million increase in SG&A expenses during the three months ended March 31, 2025 as compared to the same period of 2024.

Interest and other expense for the three months ended March 31, 2025 decreased $0.2 million driven by a $0.1 million decrease in interest payments compared to the same period of 2024.

The Company’s income tax expense for the three months ended March 31, 2025 and 2024 was $0.1 million and $0.2 million, respectively.

Results by Segment (in thousands):

Chemistry Technologies Results of Operations:

CT revenue from external customers for the three months ended March 31, 2025 increased $10.3 million, or 88%, compared to the same period of 2024 driven primarily by increased activity. Revenue from related party for the three months ended March 31, 2025 increased $3.7 million, or 14%, compared to the same period of 2024, primarily driven by increased activity partially offset by decreased accrued Contract Shortfall Fees.

Income from operations for the CT segment for the three months ended March 31, 2025 increased $2.8 million compared to the same period of 2024. The increase was driven by increased gross profit of $3.0 million for the three months ended March 31, 2025, which was related to increased product volumes partially offset by a corresponding increase in cost of sales.

Data Analytics Results of Operations:

DA revenue from external customers for the three months ended March 31, 2025 increased $0.9 million, or 61%, compared to the same period of 2024 primarily due to increased unit sales. Revenue from related party was $0.2 million for both the three months ended March 31, 2025 and 2024.

Loss from operations for the DA segment for the three months ended March 31, 2025 decreased $0.3 million compared to the same period for 2024 primarily driven by increased activity, partially offset by increased materials costs.

Corporate and Other Results of Operations:

Loss from operations for the three months ended March 31, 2025 decreased $0.4 million, or 10%, compared to the same period of 2024 attributable to decreased professional fees.

Capital Resources and Liquidity

Overview

The Company’s capital requirements relate to the acquisition and maintenance of equipment and funding working capital requirements. During the three months ended March 31, 2025, the Company funded working capital requirements with cash on hand and borrowings under the ABL (defined below). We believe our cash and cash equivalents, cash generated from operating activities, which includes the impact of the transactions described in “Recent Events” above, the collection or offset utilization of future Contract Shortfall Fees as described below, and availability under the ABL will be sufficient to fund our capital requirements and anticipated obligations as they become due over the next twelve months.

However, sustained weakness in the oil and gas markets, and the resulting potential impact on our customers’ ability to pay their obligations to us in a timely manner could have a negative impact on our liquidity. In addition, the availability of capital is dependent on the Company’s operating cash flow, which is currently expected to be principally derived from the ProFrac Agreement and the Lease Agreement. The minimum purchase requirements under the ProFrac Agreement were not met during 2024. As a result, the Company recorded revenue related to the 2024 Contract Shortfall Fees totaling $32.6 million. The Company collected $15.0 million of 2024 Contract Shortfall Fees in cash during the first quarter of 2025. The remainder of the 2024 Contract Shortfall Fees were offset as consideration for the Acquired Assets, see “Recent Events” above. The current measurement period for Contract Shortfall Fees is January 1, 2025 through December 31, 2025. The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, related party revenues for the three months ended March 31, 2025 reflect Contract Shortfall Fees of $7.5 million.

As of March 31, 2025, the Company had unrestricted cash and cash equivalents of$6.3 million compared to $5.9 million on December 31, 2024. In addition, on April 30, 2025, the Company had approximately $13.5 million in available borrowings under the ABL. During the three months ended March 31, 2025, the Company had$5.6 million of operating income, $7.3 million of cash provided by operating activities, $0.6 million of cash used in investing activities and $4.8 million of cash used in financing activities.

Asset Based Loan

In August 2023, the Company entered into a 24-month revolving loan and security agreement in connection with an Asset Based Loan, which was amended in October 2023 and again in August 2024 (as amended, the “ABL”). The August 2024 amendment to the ABL extended the maturity to August 2026, increased the credit availability and lowered the interest rate spread. The ABL provides up to $20.0 million of credit availability, which is limited by a borrowing base consisting of (i) 85% of eligible accounts receivable, plus (ii) 60% of the value of eligible inventory not to exceed 100% of the eligible accounts receivable, plus (iii) 60% of the value of certain real estate holdings.

As of March 31, 2025, the Company had no outstanding balance under the ABL. During the three months ended March 31, 2025, the Company incurred $0.1 million in interest and fees related to the ABL. As of March 31, 2025, the Company recorded $0.1 million of unamortized deferred financing costs related to the ABL.

Borrowings under the ABL bear interest at the Wall Street Journal Prime Rate (subject to a floor of 5.50%) plus 2.0% per annum. The interest rate under the ABL was 9.5% as of March 31, 2025. For the three months ended March 31, 2025, the weighted-average interest rate was 9.5%. The ABL contains an annual commitment fee equal to 1.0% of the ABL’s borrowing base. Additionally, the Company will be assessed a non-usage fee of 0.25% per quarter based on the difference between the average daily outstanding balance and the borrowing base limit of the ABL. If the ABL is terminated prior to the end of its term, the Company is required to pay an early termination fee of 2.50% of the borrowing base limit of the ABL (if terminated with more than 12 months remaining until the maturity date) or 1.50% of the borrowing base limit of the ABL (if terminated with less than 12 months remaining until the maturity date).

In connection with the Company’s entry into the Purchase Agreement described in “Recent Events” above, on April 28, 2025 the Company entered into the Letter Agreement with respect to the ABL. Pursuant to the Letter Agreement, the lender will not test compliance with respect to the Tangible Net Worth (as defined in the ABL) covenant through and including December 31, 2025, and instead, the Company will be required to maintain positive trailing three-month consolidated net income, tested monthly and PWRTEK will be prohibited from making distributions (including dividends or similar payments), except as permitted pursuant to the Note.

Cash Flows

Consolidated cash flows by type of activity are noted below (in thousands):

Operating Activities

Net cash provided by operating activities was $7.3 million during the three months ended March 31, 2025 compared to net cash provided by operating activities of $3.9 million for the same period of 2024. Consolidated net income for the three months ended March 31, 2025 was $5.4 million compared to consolidated net income of $1.6 million for the three months ended March 31, 2024.

During the three months ended March 31, 2025, non-cash adjustments to net income totaled $2.6 million as compared to $3.1 million for the same period of 2024.

•For the three months ended March 31, 2025, non-cash adjustments included non-cash positive adjustments of $0.5 million of stock compensation expense, $1.5 million amortization of contract assets and $0.3 million non-cash lease expense.

•For the three months ended March 31, 2024, non-cash adjustments included non-cash positive adjustments of $0.3 million of stock compensation expense, $1.3 million amortization of contract assets and $0.7 million of non-cash lease expense.

During the three months ended March 31, 2025, changes in working capital used $0.7 million of cash as compared to $0.8 million for the same period of 2024.

•For the three months ended March 31, 2025, changes in working capital resulted primarily from a decrease in related party accounts receivable of $4.1 million, increased third party accounts receivable of $2.5 million and net inventories of $0.4 million along with decreased accrued liabilities and operating lease liabilities of $1.8 million and $0.6 million, respectively, partially offset by increases in accounts payable of $0.9 million and other assets of $0.5 million.

•For the three months ended March 31, 2024, changes in working capital resulted primarily from a decrease in accrued liabilities and operating lease liabilities of $2.5 million and $0.9 million, respectively, an increase in related party accounts receivable of $4.1 million and an increase in net inventories of $1.3 million partially offset by increases in accounts payable of $4.2 million, other assets of $0.9 million and third-party accounts receivable of $2.9 million.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2025 and 2024 was $0.6 million and $0.2 million, respectively, driven by capital expenditures in both periods.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2025 was $4.8 million and relates primarily to $4.8 million in net payments on the ABL, payments for loan origination costs and payments to tax authorities for shares withheld from employees, partially offset by proceeds from the issuance of stock. Net cash used in financing activities was $4.4 million for the three months ended March 31, 2024, and relates primarily to $4.4 million in net proceeds from the ABL, payments for loan origination costs, payments to tax authorities for shares withheld from employees and payments on finance leases, partially offset by proceeds from the issuance of stock in connection with the Company’s Employee Stock Purchase Plan.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the 2024 Annual Report describes the critical accounting policies and estimates used in the preparation of the Company’s consolidated financial statements. Note 2, “Summary of Significant Accounting Policies,” of the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2024 Annual Report describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements.