ROBUST REVENUE GROWTH HIGHLIGHTS FLOTEK'S 2022 FINANCIAL RESULTS

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Mar 20, 2023, 16:51 ET

HOUSTON, March 20, 2023 /PRNewswire/ -- Flotek Industries, Inc. ("Flotek" or the "Company") (NYSE: FTK) today announced results for the fourth quarter and full-year ended December 31, 2022.

Full year 2022 revenue of $136.1 million increased 215% compared to 2021
Amended ProFrac Supply Agreement provides incremental service fee on majority of products delivered under the agreement
Adjusted EBITDA as a percentage of revenue improved for the sixth consecutive quarter
Year-end cash and cash equivalents of $12.3 million
Strong growth continued at JP3 with revenue up 20% sequentially
New senior management team in place

Harsha V. Agadi, Interim Chief Executive Officer of Flotek stated, "In the fourth quarter, we achieved another quarter of increased volumes, strong revenue growth, and improving operational performance while managing our liquidity to facilitate continued growth. For the sixth consecutive quarter, we posted improvement in Adjusted EBITDA as a percentage of revenue, and Adjusted EBITDA in absolute terms improved from a loss of $8.4 million in the third quarter to a loss of $5.1 million in the fourth quarter. This provides further evidence that the strategy is working and we are progressing toward our goal of positive Adjusted EBITDA. The market for our products remains robust, our execution continues to be outstanding, and achieving positive Adjusted EBITDA remains our primary focus."

Leadership Transition

Flotek separated the Chief Executive Officer and Chairman roles
David Nierenberg was appointed Chairman of the Board of Directors.
Harsha V. Agadi was appointed Interim Chief Executive Officer.
Dr. Ryan Ezell was promoted to President.
Bond Clement was appointed to the role of Chief Financial Officer in the fourth quarter of 2022.

Operational Highlights

Increased the average number of ProFrac fleets serviced from 16 to 21 with growth expected to continue through the first half of 2023.
Realized continued revenue growth in the transactional chemistry business in the quarter and gained market share for the sixth quarter in a row.
Achieved approximately 11% market share of the active US frac fleets by the end of the fourth quarter. Well positioned with our workforce, infrastructure, and processes to capture additional market share.

Fourth Quarter and Full Year 2022 Financial Results

Total Revenues: Flotek generated fourth quarter 2022 total revenue of $48.2 million, up 5.7% from $45.6 million in the third quarter of 2022 and up 297% compared to the fourth quarter of 2021. Full year 2022 total revenue of $136.1 million increased 215% compared to total revenue of $43.3 million in 2021. Higher revenue was driven by continued increases in activity across our customer base in both the Chemistry Technologies and Data Analytics segments. Full year and fourth quarter 2022 revenues are net of $3.4 million and $1.4 million, respectively, of non-cash amortization of contract assets that reduced revenue.
Selling, General, and Administrative Expense: Flotek reported SG&A of $5.8 million during the fourth quarter of 2023, down 36% compared to the third quarter of 2022 of $9.0 million, and flat compared to the fourth quarter of 2021 of $5.8 million. During the fourth quarter of 2022, the Company reversed a $1.9 million bonus accrual that was made in the third quarter of 2022. Full year 2022 SG&A of $27.1 million increased 35% compared to $20.2 million reported for the full year 2021. SG&A during 2021 included a $2.9 million COVID related ERC payroll tax credit.
Net Loss and EPS: The Company recorded a net loss of $19.0 million, or a loss of $0.25 per basic and diluted share, in the fourth quarter of 2022 compared to a net loss of $18.8 million, or a loss of $0.25 per basic share and diluted share, in the third quarter of 2022, and a net loss of $16.2 million, or a loss of $0.22 per basic and diluted share, in the fourth quarter of 2021. Full year 2022 net loss totaled $42.3 million as compared to $30.5 million reported for the full year 2021.
Non-GAAP Adjusted EBITDA: Adjusted EBITDA for the fourth quarter of 2022 was negative $5.1 million, an improvement of $3.3 million compared to negative $8.4 million in the third quarter of 2022, and an increase of $0.6 million compared to negative $5.7 million in the fourth quarter of 2021. Full year 2022 Adjusted EBITDA of negative $26.2 million decreased $1.1 million compared to negative $25.1 million reported for the full year 2021.

Balance Sheet and Liquidity

As of December 31, 2022, the Company reported cash and cash equivalents of $12.3 million compared to $8.5 million as of September 30, 2022.
$4.4 million of the $4.8 million PPP loan balance was forgiven in January 2023, leaving a balance of $0.4 million.
The Monahans, TX facility, which was classified as held for sale as of September 30, 2022 was sold in the fourth quarter for $1.5 million.
The Company commenced a process to pursue asset-based borrowing options.

The Company is in the process of finalizing its annual report on Form 10-K. In connection with the related audit, the Company identified a material weakness in its internal controls over financial reporting as of December 31, 2022. The weakness arose due to the Company's limited back office resources as compared to the pace of revenue growth. The Company's new senior management team has implemented plans of action to remediate the control weakness during 2023. In addition, the Company expects that the report of its independent registered public accounting firm in its Form 10-K will include a "going concern" qualification as a result of recurring operating losses and negative cash flows from operations. However, the Company believes that it can continue to fund operations.

Conference Call Details
Flotek will host a conference call on March 21, 2023, at 8:00 a.m. CDT (9:00 a.m. EDT) to discuss its fourth quarter and full year results for the period ended December 31, 2022. Participants may access the call through Flotek's website at www.flotekind.com under "Webcasts'' or by telephone at 1-844-835-9986 approximately five minutes prior to the start of the call. Following the conclusion of the conference call, a recording of the call will be available on the Company's website.

About Flotek Industries, Inc.
Flotek Industries, Inc. creates unique solutions to reduce the environmental impact of energy on air, water, land and people. A technology-driven, specialty green chemistry and data company, Flotek helps customers across industrial and commercial markets improve their environmental performance. The Company's primary focus is to enable its customers to maximize the value of their hydrocarbon streams and improve return on invested capital through its real-time data platforms and green chemistry technologies. Flotek serves downstream, midstream, and upstream energy customers, both domestic and international. In addition, the Company is positioned to integrate parallel industrial chemistry and data platforms by capitalizing on its digitization, engineering, chemical formulation knowledge, and intellectual property to drive multi-disciplinary advancements in sustainability and enterprise risk management. Flotek is a publicly traded company headquartered in Houston, Texas, and its common shares are traded on the New York Stock Exchange under the ticker symbol "FTK." For additional information, please visit www.flotekind.com.

Forward -Looking Statements
Certain statements set forth in this press release constitute forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) regarding Flotek Industries, Inc.'s business, financial condition, results of operations and prospects. Words such as will, continue, expects, anticipates, intends, plans, believes, seeks, estimates and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this press release. Although forward-looking statements in this press release reflect the good faith judgment of management, such statements can only be based on facts and factors currently known to management. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Further information about the risks and uncertainties that may impact the company are set forth in the Company's most recent filing with the Securities and Exchange Commission on Form 10-K (including, without limitation, in the "Risk Factors" section thereof), and in the Company's other SEC filings and publicly available documents. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to revise or update any forward-looking statements in order to reflect, any event or circumstance that may arise after the date of this press release.

FLOTEK INDUSTRIES, INC. Unaudited Condensed Consolidated Statements of Operations (in thousands, except per share data)

	Three Months Ended			Twelve Months Ended
	12/31/2022	12/31/2021	9/30/2022	12/31/2022	12/31/2021

Revenue:
Revenue from external customers	$ 15,940	$ 9,845	$ 15,206	$ 54,344	$ 39,627
Revenue from related party	32,277	2,309	30,417	81,748	3,641
Total revenues	48,217	12,154	45,623	136,092	43,268
Cost of sales	50,291	13,131	47,465	142,792	40,012
Gross profit (loss)	(2,074)	(977)	(1,842)	(6,700)	3,256
Operating costs and expenses:
Selling, general, and administrative	5,779	5,792	9,035	27,124	20,166
Depreciation and amortization	180	218	177	734	1,011
Research and development	922	1,342	985	4,438	5,537
Gain on sale of property and equipment	(1,000)	(39)	(10)	(2,916)	(94)
Gain on lease termination	—	—	—	(584)	—
Change in fair value of contract consideration convertible notes payable	8,941	—	4,250	(75)	—
Impairment of goodwill	—	8,092	—	—	8,092
Total operating costs and expenses	14,822	15,405	14,437	28,721	34,712
Loss from operations	(16,896)	(16,382)	(16,279)	(35,421)	(31,456)
Other income (expense):
Paycheck protection plan loan forgiveness	—	—	—	—	881
Interest expense	(2,465)	(25)	(2,321)	(7,051)	(78)
Other income (expense) , net	212	149	(187)	145	87
Total other income (expense), net	(2,253)	124	(2,508)	(6,906)	890
Loss before income taxes	(19,149)	(16,258)	(18,787)	(42,327)	(30,566)
Income tax benefit (expense)	123	70	(7)	22	40
Net Loss	$ (19,026)	$ (16,188)	$ (18,794)	$ (42,305)	$ (30,526)

Loss per common share:
Basic	$ (0.25)	$ (0.22)	$ (0.25)	$ (0.57)	$ (0.42)
Diluted	$ (0.25)	$ (0.22)	$ (0.25)	$ (0.57)	$ (0.42)

Weighted average common shares:
Weighted average common shares used in computing basic loss per common share	75,405	73,423	75,312	74,425	73,361
Weighted average common shares used in computing diluted loss per common share	75,405	73,423	75,312	74,425	73,361

FLOTEK INDUSTRIES, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)

	December 31, 2022	December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$ 12,290	$ 11,534
Restricted cash	100	1,790
Accounts receivable, net of allowance for doubtful accounts of $623 and $659 at December 31, 2022 and December 31, 2021, respectively	19,136	13,297
Accounts receivable, related party	22,683	—
Inventories, net	15,720	9,454
Other current assets	4,045	3,762
Current contract asset	7,113	—
Assets held for sale	—	2,762
Total current assets	81,087	42,599
Long-term contract assets	72,576	—
Property and equipment, net	4,826	5,296
Operating lease right-of-use assets	5,900	2,041
Deferred tax assets, net	404	279
Other long-term assets	17	29
TOTAL ASSETS	$ 164,810	$ 50,244
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$ 33,375	$ 7,616
Accrued liabilities	8,984	8,996
Income taxes payable	97	4
Interest payable	130	82
Current portion of operating lease liabilities	3,328	602
Current portion of finance lease liabilities	36	41
Current portion of long-term debt	2,052	1,436
Convertible notes payable	19,799	—
Contract consideration convertible notes payable	83,570	—
Total current liabilities	151,371	18,777
Deferred revenue, long-term	44	91
Long-term operating lease liabilities	8,044	7,779
Long-term finance lease liabilities	19	53
Long-term debt	2,736	3,352
TOTAL LIABILITIES	162,214	30,052
Stockholders' equity:
Common stock, $0.0001 par value, 240,000,000 shares authorized; 83,915,918 shares issued and 77,788,391 shares outstanding at December 31, 2022 ; 79,483,837 shares issued and 73,461,203 shares outstanding at December 31, 2021	8	8
Additional paid-in capital	388,177	363,417
Accumulated other comprehensive income	181	81
Accumulated deficit	(351,519)	(309,214)
Treasury stock, at cost; 6,127,527 and 6,022,634 shares at December 31, 2022 and December 31, 2021, respectively	(34,251)	(34,100)
Total stockholders' equity	2,596	20,192
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 164,810	$ 50,244

FLOTEK INDUSTRIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

	Years ended December 31,
	2022	2021
Cash flows from operating activities:
Net loss	$ (42,305)	$ (30,526)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of contingent consideration	(25)	(808)
Change in fair value of contract consideration convertible notes payable	(75)	—
Amortization of convertible note issuance costs	1,002	—
Payment-in-kind interest expense	5,956	—
Amortization of contract assets	3,371	—
Depreciation	734	1,011
Provision for doubtful accounts, net of recoveries	203	(127)
Inventory purchase commitment settlement	—	(7,633)
Provision for excess and obsolete inventory	1,734	623
Impairment of goodwill	—	8,092
Gain on sale of property and equipment	(2,916)	(94)
Gain on lease termination	(584)	—
Non-cash lease expense	226	279
Stock compensation expense	3,325	3,757
Deferred income tax expense	(125)	(56)
Paycheck protection plan loan forgiveness	—	(881)
Changes in current assets and liabilities:
Accounts receivable	(7,342)	(106)
Accounts receivable, related party	(21,383)	(1,300)
Inventories	(7,917)	1,760
Income taxes receivable	14	381
Other assets	(285)	(609)
Contract assets, net	(3,600)	—
Accounts payable	25,760	1,829
Accrued liabilities	(34)	(860)
Operating lease liabilities	(507)	(603)
Income taxes payable	93	(17)
Interest payable	48	48
Net cash used in operating activities	(44,632)	(25,840)
Cash flows from investing activities:
Capital expenditures	(421)	(39)
Proceeds from sale of assets	5,752	151
Net cash provided by investing activities	5,331	112
Cash flows from financing activities:
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	(224)	(390)
Proceeds from issuance of stock	133	80
Payments for finance leases	(38)	(62)
Net cash provided by (used in) provided by financing activities	38,267	(372)
Effect of changes in exchange rates on cash and cash equivalents	100	100
Net change in cash, cash equivalents and restricted cash	(934)	(26,000)
Cash and cash equivalents at the beginning of period	11,534	38,660
Restricted cash at the beginning of period	1,790	664
Cash and cash equivalents and restricted cash at beginning of period	13,324	39,324
Cash and cash equivalents at end of period	12,290	11,534
Restricted cash at the end of period	100	1,790
Cash, cash equivalents and restricted cash at end of period	$ 12,390	$ 13,324

FLOTEK INDUSTRIES, INC. Unaudited Reconciliation of Non-GAAP Items and Non-Cash Items Impacting Earnings (in thousands)

	Three Months Ended			Twelve Months Ended
	12/31/2022	12/31/2021	9/30/2022	12/31/2022	12/31/2021

Gross profit (loss)	$ (2,074)	$ (977)	$ (1,842)	$ (6,700)	$ 3,256
Stock compensation expense	85	242	—	459	1,202
Severance and retirement	—	439	—	3	168
Contingent liability revaluation	81	—	—	(53)	—
Sanitizer inventory write down	—	—	1,036	1,036	—
Amortization of contract assets	1,386	—	1,249	3,371	—
Adjusted Gross profit (loss)	$ (522)	$ (296)	$ 443	$ (1,884)	$ 4,626

Net loss	$ (19,026)	$ (16,188)	$ (18,794)	$ (42,305)	$ (30,526)
Interest expense	2,465	25	2,321	7,051	78
Interest income	—	—	—	—	(9)
Income tax (benefit) expense	(123)	(70)	7	(22)	(40)
Depreciation and amortization	180	218	177	734	1,011
Impairment of goodwill	—	8,092	—	—	8,092
EBITDA (Non-GAAP)	(16,504)	(7,923)	(16,289)	(34,542)	(21,394)
Stock compensation expense	1,062	1,090	671	3,325	3,757
Severance and retirement	—	354	(219)	387	1,344
Contingent liability revaluation	81	(107)	28	(25)	(808)
M&A transaction costs	—	—	—	—	243
Sanitizer inventory write down	—	—	1,036	1,036	—
Terpene purchase commitment	—	—	—	—	(7,633)
(Gain) loss on disposal of assets	(1,000)	(39)	(10)	(2,916)	(94)
Gain on lease termination	—	—	—	(584)	—
Contract consideration convertible notes payable revaluation adjustment	8,941	—	4,250	(75)	—
Amortization of contract assets	1,386	—	1,249	3,371	—
PPP loan forgiveness	—	—	—	—	(881)
Employee retention credit	—	—	—	—	(2,851)
Non-Recurring professional fees	955	950	882	3,854	2,996
Inventory step-up	—	21	—	—	23
Winter Storm (Natural Disaster)	—	—	—	—	199
Adjusted EBITDA (Non-GAAP)	$ (5,079)	$ (5,654)	$ (8,402)	$ (26,169)	$ (25,099)

(1) Management believes that adjusted gross profit and adjusted EBITDA for the three and twelve months ended December 31, 2022 and 2021, and the three months ended September 30, 2022, is useful to investors to assess and understand operating performance, especially when comparing those results with previous and subsequent periods. Management views the expenses noted above to be outside of the Company's normal operating results. Management analyzes 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 operational goals.

SOURCE Flotek Industries, Inc.