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<h2>KEY POINTS</h2>
<ul>
<li>Flotek’s 2Q22 results will show glimpses of the impact the ProFrac chemical supply agreement could have on future growth.</li>
<li>On July 20, Flotek announced that it expects 2Q22 revenue to be more than $28 million, compared with 1Q22 revenue of $12.9 million. Total revenue for all of 2021 was $43.3 million.</li>
<li>During 2Q22, Flotek serviced an average of eight ProFrac hydraulic fracturing fleets. Management reported there were no service quality issues. During 3Q22, Flotek expects to service 16 or more fleets.</li>
<li>Flotek delivered ~40 million pounds of chemistry to customers during 2Q22, including ~31 million pounds (~78%) to ProFrac and ~9 million pounds (~22%) to other customers.</li>
<li>2Q22 results will reflect some one-time expenses to ramp up activity to service the ProFrac contract. Costs incurred to increase the number of field deployment tanks (ISO) to 101 from 20, along with freight and logistics expenses, will likely translate into a negative EBITDA margin during 2Q22.</li>
<li>Management expects the company’s EBITDA margin to improve during 2H22 and that adjusted EBITDA could turn positive before the end of 4Q22.</li>
<li>The continued rollout of Flotek’s chemistry during 2H22 could allow the company to begin realizing some logistic efficiencies and increased purchasing power with suppliers to lower costs and improve margins.</li>
<li>ProFrac and Flotek are on pace to reach the full-fleet adoption as laid out in the supply agreement by the beginning of 2023.</li>
<li>Flotek is expected to release 2Q22 financial results and host a conference call the week of August 8.</li>
</ul>
<h3>COMPANY OVERVIEW</h3>
<div></div>
<p>Flotek Industries is a technology-driven specialty green chemistry and data company. It creates solutions to reduce the environmental impact of energy production on air, water, land, and people. Flotek serves customers across industrial, commercial, and consumer markets, helping meet their goals of improving their performance relative to environmental, social, and governance (ESG) standards. 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. Green chemistry applications span the entire upstream and downstream sectors of the oil and gas industry; geothermal energy companies, solar energy companies, and other advanced alternative energy companies also benefit from</p>
<p>best-in-class technology, field operations, and continuous improvement exercises that extend beyond sustainability practices. Flotek also markets green chemistry surface cleaning products to commercial and personal consumers. The company’s Data Analytics segment provides field-deployable real time, in-line optical analyzers for use in hydrocarbon liquid and natural gas measurement. Flotek is headquartered in Houston, Texas. The company’s homepage is&nbsp;www.flotekind.com.</p>
<h2>CHEMISTRY TECHNOLOGY SEGMENT DRIVING REVENUE GROWTH</h2>
<h2>ProFrac Supply Agreement Underpins Revenue Profile</h2>
<p>Flotek’s 2Q22 financial results will provide glimpses of the future impact of the ProFrac chemical supply agreement. On February 2, 2022, Flotek and ProFrac closed a chemical supply agreement whereby Flotek would supply chemicals to a minimum of 10 ProFrac hydraulic fracturing fleets for three years. The agreement provided $225 million of revenue backlog over the three-year term, which commenced April 1, 2022. ProFrac received $10 million of 10% convertible PIK notes in exchange for the agreement.</p>
<p>The companies announced a proposed amendment to the agreement on February 16, 2022. Flotek shareholders approved the amendment at a special meeting held on May 9, 2022. The transactions outlined in the supply contract amendment closed May 17, 2022.</p>
<p>The amendment significantly increased the scale and duration of the contract. Under the new terms, ProFrac’s minimum yearly chemical purchase obligation increased to the greater of 70% of ProFrac’s requirements and a baseline measured by its first 30 hydraulic fracturing fleets. The term of the contract was also extended to 10 years from three. In exchange for the amendment, Flotek issued $50 million of 10% convertible PIK notes having identical terms to those issued for the original contract. Flotek management estimated that the incremental revenue over the 10-year term would take the company’s visible contract backlog to more than $2 billion.</p>
<p>ProFrac was founded in 2016 and has become one of the largest providers of hydraulic fracturing services in North America. Its supply agreement and investment in Flotek are part of its vertically integrated business strategy to meet customer needs on the wellsite. In its June 2022 corporate presentation, ProFrac listed 31 active fleets deployed across the Permian Basin (13), Eagle Ford Shale (7), East Texas/Louisiana (6), Appalachia (4), and one in the Mid-Continent region. On June 21, 2022, ProFrac announced an agreement to acquire US Well Services, Inc. in a stock-for-stock transaction. The transaction would expand ProFrac’s active fleets to 44 by year-end. We would expect Flotek’s ability to supply chemistry solutions to ProFrac to scale with the latter company’s active fleet.</p>
<h2>2Q22: A Glimpse of the Future</h2>
<p>As noted earlier, the original supply agreement went into effect on April 1, 2022. On July 20, 2022, Flotek’s management announced it expects 2Q22 revenue to eclipse more than ~$28. For comparison, 1Q22 revenue was $12.9 million. Revenue was $43.3 million for all of 2021. During 2Q22, Flotek supplied chemicals to an average of eight ProFrac fleets, reporting no service quality issues. For 3Q22, the company expects the average fleets served will be 16 or more.</p>
<p>During 2Q22, more than 31 million pounds of chemistry was delivered to ProFrac. Another nine million pounds was delivered to other customers, bringing total chemical delivery during the quarter to ~40 million pounds. It is important to note that supplying ProFrac’s requirements utilizes ~50% of Flotek’s existing capacity. Substantial capacity is available to market to other customers. Flotek’s chemical solutions aim to improve the economic performance for the producing well owners.</p>
<p>Management also announced that some costs and expenses were above expectations during 2Q22 to accommodate increased activity to satisfy the contract. One-time expenses were incurred to increase the number of field deployment tanks in use to 101 from 20. Expenses will also reflect inflationary pressured on freight and logistics. Despite cost pressures, management expects consistent improvement in Flotek’s adjusted EBITDA margin during 2H22 expects adjusted EBITDA to turn positive before year-end.</p>
<p>Flotek raised additional capital in 2Q22 to meet its needs to management higher anticipated activity levels in 2H22. On June 17, 2022, Flotek entered into a securities purchase agreement with ProFrac Holdings II, LLC. Flotek received $19.5 million and issued pre-funded warrants to ProFrac. The warrants permit ProFrac to purchase ~13.1 million shares of Flotek common stock at an exercise price equating to a 20% premium to the 30-day volume average price of Flotek’s common stock on June 16. ProFrac and its affiliates may not receive any voting or consent rights related to the common shares underlying the pre-funded warrants unless and until (1) Flotek obtains approval from a majority of its shareholders excluding ProFrac and its affiliates, and (2) ProFrac has paid an additional $4.5 million to Flotek.</p>
<h2>2Q22 Earnings Schedule</h2>
<p>We expect Flotek to release full 2Q22 financial and operating results and host a conference call the week of August 8.</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Jeff Robertson, who is the writer of this report, covers the Natural Resources sector for WTR. Mr. Robertson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

Flotek’s 2Q22 results will show glimpses of the impact the ProFrac chemical supply agreement could have on future growth.
On July 20, Flotek announced that it expects 2Q22 revenue to be more than $28 million, compared with 1Q22 revenue of $12.9 million. Total revenue for all of 2021 was $43.3 million.
During 2Q22, Flotek serviced an average of eight ProFrac hydraulic fracturing fleets. Management reported there were no service quality issues. During 3Q22, Flotek expects to service 16 or more fleets.
Flotek delivered ~40 million pounds of chemistry to customers during 2Q22, including ~31 million pounds (~78%) to ProFrac and ~9 million pounds (~22%) to other customers.
2Q22 results will reflect some one-time expenses to ramp up activity to service the ProFrac contract. Costs incurred to increase the number of field deployment tanks (ISO) to 101 from 20, along with freight and logistics expenses, will likely translate into a negative EBITDA margin during 2Q22.
Management expects the company’s EBITDA margin to improve during 2H22 and that adjusted EBITDA could turn positive before the end of 4Q22.
The continued rollout of Flotek’s chemistry during 2H22 could allow the company to begin realizing some logistic efficiencies and increased purchasing power with suppliers to lower costs and improve margins.
ProFrac and Flotek are on pace to reach the full-fleet adoption as laid out in the supply agreement by the beginning of 2023.
Flotek is expected to release 2Q22 financial results and host a conference call the week of August 8.

COMPANY OVERVIEW

Flotek Industries is a technology-driven specialty green chemistry and data company. It creates solutions to reduce the environmental impact of energy production on air, water, land, and people. Flotek serves customers across industrial, commercial, and consumer markets, helping meet their goals of improving their performance relative to environmental, social, and governance (ESG) standards. 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. Green chemistry applications span the entire upstream and downstream sectors of the oil and gas industry; geothermal energy companies, solar energy companies, and other advanced alternative energy companies also benefit from
best-in-class technology, field operations, and continuous improvement exercises that extend beyond sustainability practices. Flotek also markets green chemistry surface cleaning products to commercial and personal consumers. The company’s Data Analytics segment provides field-deployable real time, in-line optical analyzers for use in hydrocarbon liquid and natural gas measurement. Flotek is headquartered in Houston, Texas. The company’s homepage is&nbsp;www.flotekind.com.
CHEMISTRY TECHNOLOGY SEGMENT DRIVING REVENUE GROWTH
ProFrac Supply Agreement Underpins Revenue Profile
Flotek’s 2Q22 financial results will provide glimpses of the future impact of the ProFrac chemical supply agreement. On February 2, 2022, Flotek and ProFrac closed a chemical supply agreement whereby Flotek would supply chemicals to a minimum of 10 ProFrac hydraulic fracturing fleets for three years. The agreement provided $225 million of revenue backlog over the three-year term, which commenced April 1, 2022. ProFrac received $10 million of 10% convertible PIK notes in exchange for the agreement.
The companies announced a proposed amendment to the agreement on February 16, 2022. Flotek shareholders approved the amendment at a special meeting held on May 9, 2022. The transactions outlined in the supply contract amendment closed May 17, 2022.
The amendment significantly increased the scale and duration of the contract. Under the new terms, ProFrac’s minimum yearly chemical purchase obligation increased to the greater of 70% of ProFrac’s requirements and a baseline measured by its first 30 hydraulic fracturing fleets. The term of the contract was also extended to 10 years from three. In exchange for the amendment, Flotek issued $50 million of 10% convertible PIK notes having identical terms to those issued for the original contract. Flotek management estimated that the incremental revenue over the 10-year term would take the company’s visible contract backlog to more than $2 billion.
ProFrac was founded in 2016 and has become one of the largest providers of hydraulic fracturing services in North America. Its supply agreement and investment in Flotek are part of its vertically integrated business strategy to meet customer needs on the wellsite. In its June 2022 corporate presentation, ProFrac listed 31 active fleets deployed across the Permian Basin (13), Eagle Ford Shale (7), East Texas/Louisiana (6), Appalachia (4), and one in the Mid-Continent region. On June 21, 2022, ProFrac announced an agreement to acquire US Well Services, Inc. in a stock-for-stock transaction. The transaction would expand ProFrac’s active fleets to 44 by year-end. We would expect Flotek’s ability to supply chemistry solutions to ProFrac to scale with the latter company’s active fleet.
2Q22: A Glimpse of the Future
As noted earlier, the original supply agreement went into effect on April 1, 2022. On July 20, 2022, Flotek’s management announced it expects 2Q22 revenue to eclipse more than ~$28. For comparison, 1Q22 revenue was $12.9 million. Revenue was $43.3 million for all of 2021. During 2Q22, Flotek supplied chemicals to an average of eight ProFrac fleets, reporting no service quality issues. For 3Q22, the company expects the average fleets served will be 16 or more.
During 2Q22, more than 31 million pounds of chemistry was delivered to ProFrac. Another nine million pounds was delivered to other customers, bringing total chemical delivery during the quarter to ~40 million pounds. It is important to note that supplying ProFrac’s requirements utilizes ~50% of Flotek’s existing capacity. Substantial capacity is available to market to other customers. Flotek’s chemical solutions aim to improve the economic performance for the producing well owners.
Management also announced that some costs and expenses were above expectations during 2Q22 to accommodate increased activity to satisfy the contract. One-time expenses were incurred to increase the number of field deployment tanks in use to 101 from 20. Expenses will also reflect inflationary pressured on freight and logistics. Despite cost pressures, management expects consistent improvement in Flotek’s adjusted EBITDA margin during 2H22 expects adjusted EBITDA to turn positive before year-end.
Flotek raised additional capital in 2Q22 to meet its needs to management higher anticipated activity levels in 2H22. On June 17, 2022, Flotek entered into a securities purchase agreement with ProFrac Holdings II, LLC. Flotek received $19.5 million and issued pre-funded warrants to ProFrac. The warrants permit ProFrac to purchase ~13.1 million shares of Flotek common stock at an exercise price equating to a 20% premium to the 30-day volume average price of Flotek’s common stock on June 16. ProFrac and its affiliates may not receive any voting or consent rights related to the common shares underlying the pre-funded warrants unless and until (1) Flotek obtains approval from a majority of its shareholders excluding ProFrac and its affiliates, and (2) ProFrac has paid an additional $4.5 million to Flotek.
2Q22 Earnings Schedule
We expect Flotek to release full 2Q22 financial and operating results and host a conference call the week of August 8.
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Jeff Robertson, who is the writer of this report, covers the Natural Resources sector for WTR. Mr. Robertson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

2Q22 Results Will Show Glimpse of ProFrac Contract Impact