Common Stock

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Common Stock

Common Stock

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,
	2019	2018
Shares issued at the beginning of the year	62,162,875	60,622,986
Issued as restricted stock award grants	924,022	1,539,889
Issued as restricted stock unit grants	570,000	—
Shares issued at the end of the year	63,656,897	62,162,875

Stock-Based Incentive Plans

Stockholders approved long term incentive plans in 2019, 2018, 2014, 2010, and 2007 (the “2019 Plan”, 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 2019 Plan, 2018 Plan, 2014 Plan, 2010 Plan, and 2007 Plan are 1.0 million 3.0 million, 5.2 million, 6.0 million, and 2.2 million, respectively. At December 31, 2019, the Company had a total of 3.9 million shares remaining to be granted under the 2019 Plan, 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. During the fourth quarter 2019, 3.0 million stock options were granted, 1.0 million time-vested and 2.0 million performance-based. The time-vested stock options will vest equally over the next five years. The performance-based options are restricted until performance criteria defined in the agreement are met. 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. 

No stock options vested during the years ended December 31, 2019, 2018, and 2017.

Stock Options	Shares	Weighted-Average Exercise Price
Outstanding as of January 1, 2019	—	$	—
Granted	3,000,000	1.22
Exercised	—	—
Forfeited	—	—
Expired	—	—
Outstanding as of
December 31, 2019	3,000,000	$	1.22
Vested or expected to vest at
December 31, 2019	—	$	—
Options exercisable as of
December 31, 2019	—	$	—

The following table sets forth significant assumptions used in the Black-Scholes model for time-vested options and the Monte Carlo model for performance-based options to determine the fair value of the options at December 31, 2019.

	Time-Vested Options		Performance-Based Options
Risk-free interest rate	1.81	%	1.84	%
Expected volatility of common stock	73.59	%	71.57	%
Expected life of options in years	5.0		7.0
Dividend yield	—	%	—	%
Vesting period in years	5.0		7.0

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, 2019, 63% of the restricted shares granted were time-vesting and 37% were performance-based. Grantees of restricted shares retain voting rights for the granted shares.

Restricted stock share activity for the year ended December 31, 2019 is as follows:

Restricted Stock Shares	Shares		Weighted- Average Fair Value at Date of Grant
Non-vested at January 1, 2019	1,050,372		$	3.47
Granted to employees	1,494,022		2.62
Vested	(615,941	)	3.72
Forfeited	(299,433	)	3.16
Non-vested at December 31, 2019	1,629,020		$	2.66

The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2019, 2018, and 2017 was $2.62, $10.62, and $11.92 per share, respectively. The total fair value of restricted stock that vested during the years ended December 31, 2019, 2018, and 2017 was $6.3 million, $8.6 million, and $15.4 million, respectively.

At December 31, 2019, there was $1.8 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, 2019, the Company granted performance-based restricted stock units (“RSUs”) for 1,071,530 shares equivalents. The performance period for these share equivalents continues until December 31, 2024.

During the year ended December 31, 2018, the Company granted performance-based RSUs for 604,682 share equivalents, which had a performance period through December 31, 2019. No RSUs were earned during this performance period.

Restricted stock units activity for the year ended December 31, 2019 is as follows:

Restricted Stock Units	Units		Weighted- Average Fair Value at Date of Grant
RSU equivalents at January 1, 2019	301,766		$	3.94
2018 equivalents forfeited	(272,046	)	6.39
Total equivalents	29,720		—
2019 equivalents granted	1,071,530		3.75
2019 equivalents forfeited	(62,776	)	1.66
RSU equivalents at December 31, 2019	1,038,474		$	3.24

At December 31, 2019, there was $2.1 million of unrecognized compensation expense related to 2019 and 2018 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, 2019, 2018, and 2017, respectively. The total fair value of the shares purchased under the plan during the years ended December 31, 2019, 2018, and 2017 was $0.1 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. Following shareholder approval for additional shares, the Company initiated the ESPP during the second quarter 2019.

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, 2019, 2018, and 2017, 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, 2019, 2018, and 2017, the Company purchased 93,977 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, 2019, there were no shares surrendered

for the exercise of stock options. During the years ended December 31, 2018 and 2017, 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, 2019, 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, 2019, the Company 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, 2019, the Company had $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, 2019, this covenant did not permit additional share repurchases.