Common Stock

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company’s Certificate of Incorporation, as amended November 9, 2009, authorizes the Company to issue up to 80 million shares of common stock, par value $0.0001 per share, and 100,000 shares of one or more series of preferred stock, par value $0.0001 per share.

A reconciliation of the changes in common shares issued is as follows:



	Year ended December 31,
	2018	2017
Shares issued at the beginning of the year	60,622,986	59,684,669
Issued as restricted stock award grants	1,539,889	275,029
Issued upon exercise of stock options	—	663,288
Shares issued at the end of the year	62,162,875	60,622,986

Stock-Based Incentive Plans

Stockholders approved long term incentive plans in 2018, 2014, 2010, and 2007 (the “2018 Plan,” the “2014 Plan,” the “2010 Plan,” and the “2007 Plan,” respectively) under which the Company may grant equity awards to officers, key employees, non-employee directors, and service providers in the form of stock options, restricted stock, and certain other incentive awards. The maximum number of shares that may be issued under the 2018 Plan, 2014 Plan, 2010 Plan, and 2007 Plan are 3.0 million, 5.2 million, 6.0 million, and 2.2 million, respectively. At December 31, 2018, the Company had a total of 1.5 million shares remaining to be granted under the 2018 Plan, 2014 Plan, and 2010 Plan. Shares may no longer be granted under the 2007 Plan.

Stock Options

All stock options are granted with an exercise price equal to the market value of the Company’s common stock on the date of grant. Options expire no later than ten years from the date of grant and generally vest in four years or less. Proceeds

received from stock option exercises are credited to common stock and additional paid-in capital, as appropriate. The Company uses historical data to estimate pre-vesting option forfeitures. Estimates are adjusted when actual forfeitures differ from the estimate. Stock-based compensation expense is recorded for all equity awards expected to vest.

The fair value of stock options at the date of grant is calculated using the Black-Scholes option pricing model. The risk free interest rate is based on the implied yield of U.S. Treasury zero-coupon securities that correspond to the expected life of the option. Volatility is estimated based on historical and implied volatilities of the Company’s stock and of identified companies considered to be representative peers of the Company. The expected life of awards granted represents the period of time the options are expected to remain outstanding. The Company uses the “simplified” method which is permitted for companies that cannot reasonably estimate the expected life of options based on historical share option exercise experience. The Company does not expect to pay dividends on common stock. No options were granted to employees during 2018, 2017, and 2016.

The Black-Scholes option valuation model was developed to estimate the fair value of traded options that have no vesting restrictions and are fully-transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value calculation. The Company’s options are not characteristic of traded options; therefore, the option valuation models do not necessarily provide a reliable measure of the fair value of options.

The total intrinsic value of stock options exercised during the years ended December 31, 2017 and 2016 was $2.3 million and $1.0 million, respectively. No stock options vested during the years ended December 31, 2018, 2017, and 2016.

At December 31, 2017, the Company had no remaining outstanding stock options.

Restricted Stock

The Company grants employees either time-vesting or performance-based restricted shares in accordance with terms specified in the Restricted Stock Agreements (“RSAs”). Time-vesting restricted shares vest after a stipulated period of time has elapsed subsequent to the date of grant, generally three years. Certain time-vested shares have also been issued with a portion of the shares granted vesting immediately. Performance-based restricted shares are issued with performance criteria defined over a designated performance period and vest only when, and if, the outlined performance criteria are met. During the year ended December 31, 2018, 84% of the restricted shares granted were time-vesting and 16% were performance-based. Grantees of restricted shares retain voting rights for the granted shares.

Restricted stock share activity for the year ended December 31, 2018 is as follows:



Restricted Stock Shares	Shares		Weighted- Average Fair Value at Date of Grant
Non-vested at January 1, 2018	246,258		$	12.24
Granted to employees	1,287,484		3.67
RSAs converted from 2016 restricted stock units	252,405		12.02
Vested	(578,114	)	10.82
Forfeited	(157,661	)	5.52
Non-vested at December 31, 2018	1,050,372		$	3.47

The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2018, 2017, and 2016 was $3.67, $10.62, and $11.92 per share, respectively. The total fair value of restricted stock that vested during the years ended December 31, 2018, 2017, and 2016 was $6.3 million, $8.6 million, and $15.4 million, respectively.

At December 31, 2018, there was $2.7 million of unrecognized compensation expense related to non-vested restricted stock. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock Units

During the year ended December 31, 2018, the Company granted performance-based restricted stock units (“RSUs”) for 407,698 shares equivalents. The performance period for these share equivalents continues until December 31, 2019.

During the year ended December 31, 2017, the Company granted performance-based RSUs for 604,682 share equivalents, which had a performance period through December 31, 2018. No RSUs were earned during this performance period.

Restricted stock unit share activity for the year ended December 31, 2018 is as follows:



Restricted Stock Unit Shares	Shares		Weighted- Average Fair Value at Date of Grant
RSU share equivalents at January 1, 2018	725,331		$	16.41
2016 RSUs converted to RSAs in 2018	(252,405	)	12.02
2017 share equivalents forfeited	(121,514	)	19.33
2017 share equivalents not earned	(351,412	)	18.56
2017 share equivalents	—		—
2018 share equivalents granted	407,698		3.95
2018 share equivalents forfeited	(105,932	)	3.95
RSU share equivalents at December 31, 2018	301,766		$	3.95

At December 31, 2018, there was $3.2 million of unrecognized compensation expense related to 2018 and 2017 restricted stock units. The unrecognized compensation expense is expected to be recognized over a weighted-average period of 1.3 years.

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) was approved by stockholders on May 18, 2012. The Company registered 500,000 shares of its common stock, currently held as treasury shares, for issuance under the ESPP. The purpose of the ESPP is to provide employees with an opportunity to purchase shares of the Company’s common stock through accumulated payroll deductions. The ESPP allows participants to purchase common stock at a purchase price equal to 85% of the fair market value of the common stock on the last business day of a three-month offering period which coincides with calendar quarters. Payroll deductions may not exceed 10% of an employee’s compensation and participants may not purchase more than 1,000 shares in any one offering period. In addition, for each calendar year, an employee may not be granted purchase rights for Flotek Stock valued over $25,000, as determined at the time such purchase right is granted. The fair value of the discount associated with shares purchased under the plan is recognized as share-based compensation expense and was $0.1 million, $0.1 million, and $0.1 million during the years ended December 31, 2018, 2017, and 2016, respectively. The total fair value of the shares purchased under the plan during the years ended December 31, 2018, 2017, and 2016 was $0.4 million, $0.8 million, and $1.0 million, respectively. The employee payment associated with participation in the plan was satisfied through payroll deductions. Effective after the third quarter 2018 purchase, the Company temporarily suspended the ESPP due to lack of shares.

Share-Based Compensation Expense

Non-cash share-based compensation expense related to restricted stock, restricted stock unit grants, and stock

purchased under the Company’s ESPP was $7.1 million, $10.6 million, and $11.4 million during the years ended December 31, 2018, 2017, and 2016, respectively.

Treasury Stock

The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity. During the years ended December 31, 2018, 2017, and 2016, the Company purchased 102,333 shares, 199,644 shares, and 238,216 shares, respectively, of the Company’s common stock at market value as payment of income tax withholding owed by employees upon the vesting of restricted shares and the exercise of stock options. Shares issued as restricted stock awards to employees that were forfeited are accounted for as treasury stock. During the year ended December 31, 2018, there were no shares surrendered for the exercise of stock options. During the years ended December 31, 2017 and 2016, shares surrendered for the exercise of stock options were 478,287 and 3,225, respectively. These surrendered shares are also accounted for as treasury stock.

Stock Repurchase Program

In November 2012, the Company’s Board of Directors authorized the repurchase of up to $25 million of the Company’s common stock. Repurchases may be made in the open market or through privately negotiated transactions. Through December 31, 2018, the Company has repurchased $25 million of its common stock under this authorization.

In June 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $50 million of the Company’s common stock. Repurchases may be made in the open market or through privately negotiated transactions. Through December 31, 2018, the Company has repurchased $0.3 million of its common stock under this authorization.

During the year ended December 31, 2018, the Company did not repurchase any shares of its outstanding common stock.

During the year ended December 31, 2017, the Company repurchased 905,000 shares of its outstanding common stock on the open market at a cost of $5.2 million, inclusive of transaction costs, or an average price of $5.75 per share. During the year ended December 31, 2016, the Company did not repurchase any shares of its outstanding common stock.

At December 31, 2018, the Company has $49.7 million remaining under its share repurchase program. A covenant under the Company’s Credit Facility limited the amount that may be used to repurchase the Company’s common stock. At December 31, 2018, this covenant did not permit additional share repurchases.