FLOTEK INDUSTRIES INC/CN/FTK
FLOTEK INDUSTRIES INC/CN/ Income Taxes Disclosure
Income Taxes
Components of the income tax expense are as follows (in thousands):
| Years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | 209 | 400 | |||||||||
| Foreign | 103 | — | |||||||||
| Total current expense | 312 | 400 | |||||||||
| Deferred: | |||||||||||
| Federal | (10,945) | — | |||||||||
| State | (240) | 249 | |||||||||
| Foreign | — | — | |||||||||
| Total deferred (benefit) expense | (11,185) | 249 | |||||||||
| Income tax (benefit) expense | $ | (10,873) | $ | 649 | |||||||
Current state income tax expense during the year ended December 31, 2024 related to the resolution of certain state tax audits for the years ended December 31, 2016 and 2017.
The components of income before income taxes are as follows (in thousands):
| Years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| United States | $ | 18,841 | $ | 11,000 | |||||||
| Foreign | 814 | 147 | |||||||||
| Income before income taxes | $ | 19,655 | $ | 11,147 | |||||||
The income tax (benefit) expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% respectively, to income before income tax for the reasons set forth below (in thousands, except percentages):
| Years ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| Income before income taxes | $ | 19,655 | $ | 11,147 | ||||||||||||||||
| U.S. federal statutory tax rate | $ | 4,128 | 21.0 | % | $ | 2,341 | 21.0 | % | ||||||||||||
State and Local income taxes, net of federal benefit (1) | (25) | (0.1) | % | 513 | 4.6 | % | ||||||||||||||
Foreign tax effects (2) | (69) | (0.4) | % | (51) | (0.5) | % | ||||||||||||||
| Effect of Changes in Tax Laws or Rates Enacted in the Current Period | ||||||||||||||||||||
| Effect of Cross-Border Tax Laws | 98 | 0.5 | % | 60 | 0.5 | % | ||||||||||||||
| Changes in Valuation Allowances | (14,826) | (75.4) | % | (2,381) | (21.4) | % | ||||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||||||||
| Reduction in tax benefit related to stock-based awards | (890) | (4.5) | % | (26) | (0.2) | % | ||||||||||||||
| Executive compensation limit | 562 | 2.9 | % | 15 | 0.1 | % | ||||||||||||||
| Other (other perms, PY true-up, misc) | 149 | 0.7 | % | 178 | 1.7 | % | ||||||||||||||
| Income tax (benefit) expense and effective rate | $ | (10,873) | (55.3) | % | $ | 649 | 5.8 | % | ||||||||||||
(1)State taxes in Texas and Louisiana made up the majority of the tax effect in this category.
(2)Foreign tax effects in the United Arab Emirates made up the majority of the tax effect in this category.
The Company paid the following amounts for income taxes, net of refunds received, as follows (in thousands):
| Years ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Federal | $ | — | $ | — | |||||||
| State | |||||||||||
| Texas | 97 | 398 | |||||||||
| Oklahoma | 17 | — | |||||||||
| Pennsylvania | 10 | — | |||||||||
| Foreign | |||||||||||
| United Arab Emirates | 11 | — | |||||||||
| Total income taxes paid | $ | 135 | $ | 398 | |||||||
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the value reported for income tax purposes, at the enacted tax rates expected to be in effect when the differences reverse.
The component of deferred tax assets and liabilities are as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 43,248 | $ | 43,818 | |||||||
| Intangible assets | 2,814 | 3,252 | |||||||||
| Tax credit carryforwards | 3,827 | 3,861 | |||||||||
| Goodwill | 3,767 | 4,008 | |||||||||
| Property and equipment | 21,275 | 3,096 | |||||||||
| Lease liability | 1,746 | 2,008 | |||||||||
| Inventory valuation reserves | 803 | 1,102 | |||||||||
| Allowance for doubtful accounts | 1,226 | 1,164 | |||||||||
| Accrued liabilities | 336 | 279 | |||||||||
| Accrued compensation | 813 | 599 | |||||||||
| Equity compensation | 281 | 148 | |||||||||
| Total gross deferred tax assets | 80,136 | 63,335 | |||||||||
| Valuation allowance | (43,933) | (56,333) | |||||||||
| Total deferred tax assets, net | 36,203 | 7,002 | |||||||||
| Deferred tax liabilities: | |||||||||||
| ROU asset | (748) | (818) | |||||||||
| Contract asset | (5,767) | (5,753) | |||||||||
| Prepaid insurance and other | (536) | (380) | |||||||||
| Total gross deferred tax liabilities | (7,051) | (6,951) | |||||||||
| Net deferred tax assets | $ | 29,152 | $ | 51 | |||||||
As of December 31, 2025, the Company had U.S. net operating loss carryforwards (“NOLs”) of $184.6 million, including $38.2 million expiring in various amounts from 2029 through 2037, which can offset 100% of taxable income, and $146.4 million that has an indefinite carryforward period, which can offset 80% of taxable income per year. Additionally, the Company has an estimated $77.2 million in certain state NOL carryforwards and $3.8 million in tax credit carryforwards.
As a result of the ownership change experienced in 2023, the Company’s ability to use NOLs to reduce taxable income is generally limited by Section 382 of the Internal Revenue Code of 1986 to an annual amount of $3.5 million plus net unrealized built in gain of $24.5 million. The Company’s use of NOLs arising after the date of the ownership change are not impacted by the Section 382 limitation. NOLs that exceed the Section 382 limitation in any year continue to be allowed as carryforwards until they expire and can be used to offset taxable income for years within the carryover period subject to the limitation in each year. If the Company does not generate a sufficient level of taxable income prior to the expiration of the pre-2018 NOL carryforward periods, then the ability to apply those NOLs as offsets to future taxable income is lost. Based on an analysis of the Section 382 limitation, the Company estimates that all carryforwards with the exception of $0.9 million of the state NOL carryforwards and $3.8 million of the tax credit carryforwards will be available for utilization if there is sufficient taxable income in subsequent periods. Although the ownership change will significantly limit the ability of the Company to utilize the pre-change net operating losses and credits, the Company does not expect a significant impact to its financial statements.
The Company does not have documented plans to reinvest the unremitted earnings of its non-U.S. subsidiaries. As of December 31, 2025 and 2024, the Company had approximately $6.6 million and $6.4 million, respectively, in unremitted earnings from its foreign jurisdictions. As a result of the 2017 Tax Act these earnings have been previously taxed in the U.S. although they have not been repatriated. However, certain withholding taxes may need to be paid upon repatriation depending on the US treaty with the applicable country. Because all of the Company’s foreign earnings have been previously taxed, the requirement to record a deferred tax liability on such unremitted earnings is not applicable.
The Company has performed an analysis of its tax positions for the years ended December 31, 2025 and 2024, concluding all tax positions taken were highly certain. As of December 31, 2025, the Company is not under examination in any federal/national jurisdictions. The tax returns for the years ended 2022 through 2024 remain subject to examination in the US, and the tax returns for the years ended December 31, 2021 through 2024 remain subject to examination in various state jurisdictions.
On July 4, 2025, the U.S. enacted H.R. 1 “A bill to provide for reconciliation pursuant to Title II of H. Con. Res. 14”, commonly referred to as the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation. ASC 740, “Income Taxes,” requires the effects of changes in tax rates and laws to be recognized in the period in which the legislation is enacted. Changes in tax laws may affect recorded deferred tax assets and deferred tax liabilities and our effective tax rate in the future, and the Company recognized those changes in tax laws in the year ended December 31, 2025.
Valuation Allowance
The Company considered both positive and negative evidence and determined that a full valuation allowance was no longer required for certain deferred tax assets. Positive evidence included our results of operations reaching an adjusted three-year cumulative income position during the year, that indicates a trend of profitability; future reversals of existing taxable temporary differences; and an evaluation of currently available information about future years forecasted taxable income, specifically, the forecasted future income based on existing contracts including the ProFrac Agreement (discussed below in Note 18, “Related Party Transactions”) and the Lease Agreement with ProFrac (see Note 3, “Asset Acquisition”). The Company’s assessment of profitability considered the impact of unusual and non-recurring items on historical book income or losses. However, because of the lack of objectively verifiable information in years after the expiration of the ProFrac Agreement and Lease Agreement, it was determined that forecasted future income may not be sufficient to realize all the deferred tax assets. Therefore, a partial release of valuation allowance for U.S. federal and state deferred tax assets for the year ended December 31, 2025, was recorded totaling $15.5 million ($14.8 million federal and $0.7 million state).
As discussed in Note 3, “Asset Acquisition”, the PWRtek asset acquisition was treated as a purchase of assets under common control resulting in a $92.6 million reduction to additional paid in capital. The $92.6 million of additional consideration results in an originating book tax difference. Accordingly, a deferred tax asset of $20.9 million ($19.4 million federal and $1.5 million state) less an increase in the valuation allowance for the amount estimated to be unrealized of $3.0 million ($2.8 million federal and $0.2 million state) was recorded to additional paid in capital as a net $17.9 million increase.
We intend to continue maintaining a valuation allowance on a substantial portion of our deferred tax assets until there is sufficient evidence to support a reversal of such allowances. The U.S. federal and state valuation allowances currently estimated to be necessary at December 31, 2025 are $43.9 million. The timing and amount of future valuation allowance reductions are subject to future levels of profitability being achieved.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 16, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 23, 2023 | |
| 2021 | Mar 31, 2022 | |
| 2020 | Mar 16, 2021 | |
| 2019 | Mar 6, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 8, 2018 | |
| 2016 | Feb 8, 2017 | |
| 2015 | Jan 27, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.