Forward-Looking Statements This Quarterly Report on Form 10-Q ("Quarterly Report"), and in particular, Part I, Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains "forward-looking statements" within the meaning of the safe harbor provisions, 15 U.S.C. § 78u-5, of the Private Securities Litigation Reform Act of 1995 ("Reform Act"). Forward-looking statements are not historical facts, but instead representFlotek Industries, Inc.'s ("Flotek" or "Company") current assumptions and beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside the Company's control. Such statements include estimates, projections, and statements related to the Company's business plan, objectives, expected operating results, and assumptions upon which those statements are based. The forward-looking statements contained in this Quarterly Report are based on information available as of the date of this Quarterly Report. The forward-looking statements relate to future industry trends and economic conditions, forecast performance or results of current and future initiatives and the outcome of contingencies and other uncertainties that may have a significant impact on the Company's business, future operating results and liquidity. These forward-looking statements generally are identified by words including, but not limited to, "anticipate," "believe," "estimate," "continue," "intend," "expect," "plan," "forecast," "project," and similar expressions, or future-tense or conditional constructions such as "will," "may," "should," "could," etc. The Company cautions that these statements are merely predictions and are not to be considered guarantees of future performance. Forward-looking statements are based upon current expectations and assumptions that are subject to risks and uncertainties that can cause actual results to differ materially from those projected, anticipated, or implied. A detailed discussion of potential risks and uncertainties that could cause actual results and events to differ materially from forward-looking statements is included in Part I, Item 1A - "Risk Factors" of the Annual Report on Form 10-K for the year endedDecember 31, 2019 , as amended ("Annual Report") and periodically in subsequent reports filed with theSecurities and Exchange Commission ("SEC"). The Company has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events, except as required by law. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto of this Quarterly Report, as well as the Annual Report. Phrases such as "Company," "we," "our," and "us" refer toFlotek Industries, Inc. and its subsidiaries. Executive Summary Flotek is a technology-driven global chemistry and data company that develops and supplies engineered chemistry solutions, equipment, data and analytical services to industrial, commercial and consumer markets. The Company continued its reinvention, which began in the first quarter of 2020 by reducing expenses, scrutinizing capital spending to ensure alignment to near-term revenue, acquiring JP3 to secure a footprint in the emerging data analytics market, and aggressively launching a sustainable line of sanitizer and disinfectant products built on its expertise in high-quality, specialized chemistry technologies. Continuing Operations With the acquisition of JP3 inMay 2020 , the Company now has two operating segments: Chemistry Technologies and Data Analytics, which are both supported by its continuing Research & Innovation advanced laboratory capabilities. Chemistry Technologies The Company's Chemistry Technologies segment includes specialty chemistries, logistics and technology services. The Company designs, develops, manufactures, packages, distributes, delivers, and markets reservoir-centric fluid systems, including specialty and conventional chemistries, for use in oil and gas well drilling, cementing, completion, remediation, and stimulation activities designed to maximize recovery in both new and mature fields. Customers of this product line of the Chemistry Technologies business segment include major integrated oil and gas companies, oilfield services companies, independent oil and gas companies, pressure-pumping service companies, national and state-owned oil companies, and international supply chain management companies. In the second quarter of 2020, the Company launched a line of sanitizers and disinfectants for commercial and personal consumer use. These products build on the Company's historical expertise in chemistry and leverage its infrastructure, personnel, competencies, supply chain, research, and historic consumer market experiences yielding a competitive product offering in this rapidly growing segment. Given the increase in global demand for sanitizer products due to COVID-19, the Company's concentration of customers is shifting and diversifying, which helps to reduce credit and business risk. 31 -------------------------------------------------------------------------------- Data Analytics The Company's Data Analytics segment, created in conjunction with the acquisition of JP3, includes the design, development, production, sale and support of equipment and services that create and provide valuable information about the composition of its energy customers' hydrocarbon streams. JP3 is continuing its transition to a Data-as-a-Service (DaaS) subscription model of selling data generated by its line of Verax analyzers, deployed remotely "at the edge" across the oil and gas sector, and software services via its cloud-based Viper software platform. JP3 creates and sells data systems and analytics services into the oil and gas market. The Company sells equipment with a software license and (DaaS) subscriptions. The data is provided in real time, every fifteen seconds, at the point-of-use and via the cloud, to end use customers. This composition and physical properties information increases efficiency and decreases operating costs for producers, midstream operators, refiners and distribution companies. The customers of JP3 span across the entire market, from production upstream to midstream facilities to refineries and distribution networks. To date, JP3 has focused sales solely on North American markets. The Data Analytics segment provides real-time hydrocarbon composition data that helps its customers generate additional profit by enhancing blending, increasing efficiencies of towers, enabling automation and robotization of fluid handling, and reducing losses due to give-away. Research & InnovationFlotek Research and Innovation supports both segments through formulations, technical support, basin & reservoir studies, data analytics, and new technology projects. The purpose of the organization is to supply the segments with enhanced products and services that generate current and future revenues, while advising company management on opportunities concerning technology, environmental, and industry trends. The Research and Innovation facilities support advances in chemistry performance, detection, optimization, and manufacturing. Discontinued Operations As previously disclosed, the Company soldFlorida Chemical Company, LLC ("FCC") effective as ofFebruary 28, 2019 . As a result, the Company's CICT segment was classified as discontinued operations. Financial results for the first three and six months of 2019 include results from the Company's CICT segment during that time period. Outlook on Economic Conditions OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a global pandemic, which continues to spread throughoutthe United States and around the world. This outbreak has severely impacted global economic activity, and many countries and many states inthe United States have reacted to the outbreak by instituting quarantines, mandating business and school closures and restricting travel. During the first and second quarters of 2020, the oil and gas markets experienced significant impacts from both the supply and the demand side. On the demand side, the COVID-19 pandemic resulted in a drop in economic activity and a corresponding destruction of global demand for oil, gas and associated products. On the supply side, pricing and production wars between key oil-producing countries led to global oversupply. The demand destruction and oversupply together caused unprecedented disruption to all sectors of the oil and gas markets. Prices for crude oil fell from over$60 /bbl. inJanuary 2020 to nearly$20 /bbl. byMay 2020 , with futures turning negative for a brief period inApril 2020 . Oil and gas operators announced budget cuts of more than 40%, or$42 billion year-over-year, according toRS Energy Group , and announced shut-ins of more than 1.4 million barrels of production. The North American rig count declined approximately 70% fromJanuary 2020 to the end ofJune 2020 , based on the Baker Hughes rig count figures, reflecting disproportionate impact to domestic markets. Midstream and downstream markets were affected as well, as domestic gasoline demand fell by approximately 45% inApril 2020 (almost 5 million barrels per day) and refinery utilization dropped below 70%. The Company expects negative impacts to all facets of the oil and gas markets to continue for an extended period before returning to pre-crash levels. Any further material COVID-19 disruption or significant setback in oil demand arising from a slower economic recovery could present downside risks to this outlook. Conversely, the COVID-19 pandemic has created increased demand for certain specialty chemicals, and in particular disinfectants and sanitizers. The increased usage globally of personal protection equipment has expanded beyond masks, face shields, and gloves to include both disinfectants and sanitizers. With the outbreak of COVID-19, sales of hand sanitizers and disinfectants has swelled 32
-------------------------------------------------------------------------------- across every region in the world, which led to a global shortage. Consequently, the market has experienced shortages of key raw materials used to make these products, including USP-grade alcohol, woven cellulosics for wipes, and various active ingredients. This rapid growth is accompanied by a need for sustained higher volumes of sanitizing products as COVID-19 is expected to have a long-term impact on social awareness, personal hygiene habits and consumer and commercial cleaning protocols. Company Outlook In response to the deteriorating market conditions and anticipating ongoing volatility, Flotek has reduced its cost structure to meet anticipated market activity and reduce the Company's break-even levels. Among other cost-cutting initiatives: • The Company's CEO,John W. Gibson , Jr., reduced his base salary by 20%,
and each of the other executive officers reduced his or her salary by 10%,
through
of
• The board of directors of Flotek approved a 20% reduction in the fees to
be paid to the directors, effective as ofApril 1, 2020 . • The Company consolidated office space by moving all employees at its
corporate headquarters into its GRIC facility and buying out the remaining
term of the corporate headquarters lease for a significant discount, with the move completed by the end ofJune 2020 .
• The Company reduced headcount by 35% on
• The Company decreased discretionary spending across all business operations.
These efforts were in addition to the previously-announced restructuring of the Company's terpene supply agreement in February of 2020, which more closely matched the Company's ongoing obligations for terpene with expected need, and bringing more legal work in-house to reduce outside legal expenses. While the full impact of the COVID-19 outbreak is not yet known, we are closely monitoring the effects of the pandemic on commodity demands and on our customers, as well as on our operations and employees. Any future development and effects will be highly uncertain and cannot be predicted, including the scope and duration of the pandemic; further adverse revenue and net income effects; disruptions to our operations; third party providers' ability to support our operations; customer shutdowns of oil and gas exploration and production; the effectiveness of our work from home arrangements; employee impacts from illness, school closures and other community response measures; any actions taken by governmental authorities and other third parties in response to the pandemic; and temporary closures of our facilities or the facilities of our customers and suppliers. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels. Flotek has also focused on ongoing needs of customers and the market to diversify its business and accelerate growth through deployment of capital, with an emphasis on digital transformation in the oil and gas markets. OnMay 18, 2020 , the Company closed the acquisition of all the ownership interests of JP3, which gives Flotek access to the midstream and downstream markets and diversifies exposure to volatility in the upstream sector. As Flotek's newly-created Data Analytics segment, JP3 is positioned for growth both domestically and internationally. In addition to increasing market share, the Data Analytics segment is pursuing product enhancements that enable growth opportunities with current and prospective customers. The Company's Chemistry Technologies segment has focused on development of competitively-priced product lines that are responsive to current market including wellbore protection and damage mitigation products as the domestic market has shifted to shutting in wells. In response to a forecasted reduction in capital available to customers for drilling with a shift to optimizing existing infrastructure, the Company initiated several efforts to use specialty chemicals to improve enhanced oil recovery (EOR). The Company has also leveraged its international footprint in theMiddle East to include unconventional, conventional, and enhanced oil recovery programs. The Chemistry Technologies segment has also used its expertise in specialty chemistry, existing chemistry infrastructure and facilities, and historical consumer market experience to launch a product line of sanitizers and disinfectants, as discussed above. The Company believes the new sanitizer and disinfectant products slot into the premium market and will be competitive over the long-term. The Company has also made changes to its executive team to align with its growth focus. TengBeng Koid, an experienced energy executive with significant upstream, midstream, downstream and digital experience, joined Flotek as President of Global Business inJune 2020 and oversees all domestic and international sales and business development efforts for both the Chemistry Technologies and the Data Analytics segments. Additionally,Michael E. Borton joined the Company as Chief Financial Officer inAugust 2020 , bringing 35 years of experience serving in financial and operational leadership roles for high-growth, Software as a Service (SaaS) 33
-------------------------------------------------------------------------------- technology companies in a wide range of industries. Finally,Ryan Ezell , Ph.D, has been promoted to the role of President of Chemistry Technologies from Senior Vice President of Operations at Flotek. Consolidated Results of Operations (in thousands): Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Revenue$ 8,880 $ 34,692 $ 28,296 $ 77,949 Operating expenses (excluding depreciation and amortization) 11,632 38,121 34,473 82,089 Operating expenses % 131.0 % 109.9 % 121.8 % 105.3 % Corporate general and administrative 5,395 6,054 9,888 13,335 Corporate general and administrative % 60.8 % 17.5 % 34.9 % 17.1 % Depreciation and amortization 468 2,119 2,659 4,379 Research and development costs 1,638 2,076 4,193 4,360 (Gain) loss on disposal of long-lived assets (22 ) (4 ) (55 ) 1,093 Impairment of fixed assets and long-lived assets - - 57,454 - Loss from operations (10,231 ) (13,674 ) (80,316 ) (27,307 ) Operating margin % (115.2 )% (39.4 )% (283.8 )% (35.0 )% Gain on lease termination 576 - 576 - Interest and other income (expense), net 62 677 11 (1,213 ) Loss before income taxes (9,593 ) (12,997 ) (79,729 ) (28,520 ) Income tax benefit 32 192 6,201 503 Loss from continuing operations (9,561 ) (12,805 ) (73,528 ) (28,017 ) (Loss) income from discontinued operations, net of tax - (1,608 ) - 44,466 Net (loss) income$ (9,561 ) $ (14,413 ) $
(73,528 )
Net (loss) income % (107.7 )% (36.9 )% (259.9 )% (35.9 )% Consolidated Results of Operations: Three and Six Months EndedJune 30, 2020 , Compared to the Three and Six Months EndedJune 30, 2019 Consolidated revenue for the three and six months endedJune 30, 2020 , decreased$25.8 million , or 74.4%, and$49.7 million or 63.7%, respectively, and versus the same periods of 2019. The decrease in revenue was largely a result of the continued volatile macro-environment forU.S. onshore drilling and completion activity, impacted by political and economic events in foreign markets. In addition, concerns related to the COVID-19 virus impacted productivity and customers demand for products. Consolidated operating expenses (excluding depreciation and amortization) for the three and six months endedJune 30, 2020 , decreased$26.5 million , or 69.5%, and$48 million or 58.0%, respectively, versus the same periods of 2019, and, as a percentage of revenue, increased by 21.1%, and 16.5%, respectively for the three and six months endedJune 30, 2020 . The decrease in operating expenses is primarily due to the lower cost of sales as a result of reduced revenues and lower freight, personnel, and travel and entertainment expenses. Corporate general and administrative ("CG&A") expenses are not directly attributable to products sold or services provided. CG&A costs for the three and six months endedJune 30, 2020 , decreased$0.7 million , or 10.9%, and$3.4 million or 25.8%, respectively, versus the same period of 2019. As a percentage of revenue, CG&A increased 43.3% and 17.8% for the three and six months endedJune 30, 2020 . The decrease in CG&A costs were primarily due to lower personnel costs, lower software licensing fees, lower stock based compensation and lower professional fees. Depreciation and amortization expense decreased$1.7 million , or 77.9%, and$1.7 million , or 39.3%, for the three and six months endedJune 30, 2020 , respectively, and versus the same periods of 2019 primarily due to impairment of fixed and long-lived assets recorded in the first quarter 2020. 34 -------------------------------------------------------------------------------- Research and development costs decreased$0.4 million , or 21.1%, and$0.2 million , or 3.8%, for the three and six months endedJune 30, 2020 , respectively, and versus the same periods of 2019 due to lower personnel costs as a result of reduction in force in the first quarter 2020. Gain on disposal of long-lived assets had no change and increased$1.1 million , or 105.0% for the three and six months endedJune 30, 2020 , respectively, and versus the same periods of 2019. Impairment of fixed asset and long-lived assets was$57.5 million due to a write-down of fixed assets, operating right-of-use ("ROU") assets and intangible assets to estimated fair market value and recorded in the first quarter of 2020. Loss from operations decreased$3.4 million , or 25.2%, and increased$53.0 million , or 194.1% and for the three and six months endedJune 30, 2020 , respectively, and versus the same period in 2019. The change in loss is primarily the result of the impairment charges, lower margins, lower sales volumes and lower plant utilization. Interest and other income (expense), net increased$0.6 million , or 90.8%, and decreased$1.2 million , or 100.9% for the three and six months endedJune 30, 2020 , respectively, and versus the same period of 2019, primarily due to the termination of the Amended and Restated Revolving Credit, Term Loan and Security Agreement (as amended, the "Credit Facility") withPNC Bank in the first quarter 2019. The Company recorded an income tax benefit of$6.2 million , primarily as a result of the extended net operating loss carryback provisions included in the CARES Act, yielding an effective tax benefit rate of 0.3%, and 7.7%, for the three and six months endedJune 30, 2020 , respectively, compared to an income tax benefit of$0.5 million , yielding an effective tax benefit rate of 1.6% and and 3.3% for the comparable periods in 2019. 35 --------------------------------------------------------------------------------
Results by Segment (in thousands):
Chemistry Technologies Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 Revenue 7,962$ 34,692 $ 27,378 $ 77,949 Gross margin 1,301 18,180 2,539 54,609 Gross margin % 16.3 % 52.4 % 9.3 % 70.1 % Income from operations (3,596 ) (7,651 ) (66,257 ) (12,984 ) Income from operations % (45.2 )% (22.1 )% (242.0 )% (16.7 )% Chemistry Technologies Results of Operations: Three and Six Months EndedJune 30, 2020 , Compared to the Three and Six Months EndedJune 30, 2019 Chemistry Technologies revenue for the three and six months endedJune 30, 2020 decreased$26.7 million or 77.0%, and$50.6 million or 64.9%, respectively, versus the same period of 2019. The decrease in revenue during the second quarter of 2020 and the majority of the first half of 2020 was significantly driven by impacts from both the supply and the demand side. The COVID-19 pandemic resulted in a sharp decline in economic activity and a corresponding destruction of global demand for oil and gas, while pricing and production wars between key oil-producing countries led to global oversupply. The demand destruction and oversupply together caused unprecedented disruption to all sectors of the oil and gas markets, with a significant reduction in North American drilling and completion activity and its need for chemicals. While experiencing pricing and overall market compression in the oil and gas sector of the Chemistry Technologies segment, growth in the sanitizer and disinfectant sector evolved as a natural fit with the Company's core technical and manufacturing capabilities, with potential positive long-term opportunity for diversification and sustainability of the portfolio, representing revenue for the Company in the second quarter of 2020. Chemistry Technologies gross margin (excluding depreciation and amortization) for the three and six months endedJune 30, 2020 , decreased$16.9 million , or 92.8%, and$52.1 million or 95.4%, respectively versus the same period of 2019, and as a percentage of revenue, decreased 36.1%, and 60.8% for the three and six months endedJune 30, 2020 . Gross margins were influenced by shifts in completion technologies to more cost efficient and simplified chemistry and engineering packages, as well as continued pressure on market pricing to maintain key accounts and available market share. Subsequently, the Company executed on a number of activities to reduce cost of sales, freight, personnel, and its operational cost structure to minimize the impacts of revenue declines and modified product mix. Chemistry Technologies income from operations (excluding depreciation and amortization) for the three and six months endedJune 30, 2020 , improved$4.1 million , or 53.0%, and decreased$53.3 million or 410.3%, respectively versus the same period of 2019, and as a percentage of revenue, decreased 23.1%, and 225.4% for the three and six months endedJune 30, 2020 . The increase in loss during the six months endedJune 20, 2020 is primarily the result of the impairment charges of$57.5 million and lower margins due to sales volumes and plant utilization recorded in the first quarter of 2020. Data Analytics May 18 - June 30 2020 Revenue$ 918 Gross margin 370 Gross margin % 40.3 % Income from operations (1,151 ) Income from operations % (125.4 )% 36
--------------------------------------------------------------------------------
Data Analytics Results of Operations:
During the second quarter of 2020, the Company announced the purchase of JP3, an equipment and data company that automates real-time data and analytics to the energy industry to maximize the value of their hydrocarbons. During the second quarter, revenue was hindered by sluggish-to-nonexistent capital spending across the entire oil and gas market. The second quarter came with site lockdowns and extreme caution to prevent the spread of COVID-19. The segment finished the quarter with$0.9 million of revenue that came from existing JP3 customers. Off-Balance Sheet Arrangements There have been no transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as "structured finance" or "special purpose entities" ("SPEs"), established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As ofJune 30, 2020 , the Company was not involved in any unconsolidated SPEs. The Company has not made any guarantees to customers or vendors nor does the Company have any off-balance sheet arrangements or commitments that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, change in financial condition, revenue, expenses, results of operations, liquidity, capital expenditures, or capital resources that would be material to investors other than the long term terpene agreement discussed in Note 3 in Part I, Item I - Financial Statements of this Quarterly Report. Critical Accounting Policies and Estimates The Company's Financial Statements have been prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). Preparation of these statements requires management to make judgments, estimates, and assumptions that affect the amounts reported in the financial statements and accompanying footnotes. Part II, Item 8 - Financial Statements and Supplementary Data, Note 2 of "Notes to Consolidated Financial Statements" and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Accounting Policies and Estimates" of the Company's Annual Report, and the "Notes to Unaudited Condensed Consolidated Financial Statements" of this Quarterly Report describe the significant accounting policies and critical accounting estimates used to prepare the consolidated financial statements. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of the Company's financial condition and results of operations and require management's most subjective judgments. The Company regularly reviews and challenges judgments, assumptions, and estimates related to critical accounting policies. The Company's estimates and assumptions are based on historical experience and expected changes in the business environment; however, actual results may materially differ from the estimates. There have been no significant changes in the Company's critical accounting policies and estimates during the six months endedJune 30, 2020 . However, during the six months endedJune 30, 2020 , the Company evaluated and recorded remeasurement and impairment charges on right of use assets and fixed assets, respectively. Secondly, during the six months endedJune 30, 2020 , the Company acquired JP3 and recorded the fair value of net assets acquired as of the closing date ofMay 18, 2020 . Recent Accounting Pronouncements Recent accounting pronouncements which may impact the Company are described in Note 2 - "Recent Accounting Pronouncements" in Part I, Item 1 - "Financial Statements" of this Quarterly Report. Capital Resources and Liquidity Overview The Company's ongoing capital requirements relate to the Company's need to to acquire and maintain equipment, fund working capital requirements, and when the opportunities arise, to make strategic acquisitions and repurchase Company stock. During the first six months of 2020, the Company funded capital requirements primarily with cash from operations and cash on hand, including proceeds from the sale of the CICT segment, received onMarch 1, 2019 . Historically, the Company's primary source of debt financing was its$75 million Credit Facility withPNC Bank . Upon closing of the sale of the CICT segment, onMarch 1, 2019 , the Company repaid the outstanding balance, interest, and fees related to the revolving credit facility, and subsequently terminated the Credit Facility. 37
-------------------------------------------------------------------------------- As ofJune 30, 2020 , the Company had available cash and cash equivalents of$59.9 million . For the remainder of 2020, the Company expects capital spending of approximately$2.0 million to$3.0 million for the Company's Chemistry segment and$1.0 million to$2.0 million for the Company's Data Analytics segment. The Company expects to fund operations and capital expenditures with internal cash on hand, including the PPP loan funded inApril 2020 for$4.8 million to Flotek and$0.9 million to JP3, the tax refund of$6.1 million , and the release of$6.6 million from the indemnity escrow established pursuant to the sale of FCC toADM effectiveFebruary 28, 2019 . Any excess cash generated may be used for outside growth opportunities or retained for future use. Cash Flows Consolidated cash flows by type of activity are noted below (in thousands): Six months
ended
2020
2019
Net cash used in operating activities$ (29,216 ) $ (6,344 ) Net cash (used in) provided by investing activities (16,424 )
151,363
Net cash provided by (used in) financing activities 5,023 (49,911 ) Net cash provided by discontinued operations - 16
Effect of changes in exchange rates on cash and cash equivalents
(31 ) 2 Net (decrease) increase in cash and cash equivalents and restricted cash$ (40,648 ) $ 95,126 Operating Activities Net cash used in operating activities was$29.2 million and$6.3 million during the six months endedJune 30, 2020 and 2019, respectively. Consolidated net loss for the six months endedJune 30, 2020 and 2019, totaled$73.5 million and$28.0 million , respectively. The cash used in operating activities is primarily due to two one-time payments, one to FCC to amend the Company's long-term terpene supply agreement and one toADM related to the final post-closing working capital adjustment related to the sale of the CICT segment in 2019. During the six months endedJune 30, 2020 , non-cash adjustments to net income totaled$62.1 million . Contributory non-cash items consisted primarily of a$57.5 million impairment charge consisting of$30.2 million impairment on fixed assets,$15.2 million on impairment of intangibles, and$7.4 million impairment on ROU assets. Additional non-cash charges included$2.7 million for depreciation and amortization,$0.5 million for allowance for doubtful accounts,$1.5 million for stock compensation expense, and$0.5 million for provision for excess and obsolete inventory. During the six months endedJune 30, 2019 , non-cash adjustments to net income totaled$27.0 million . Contributory non-cash items consisted primarily of$17.9 million for changes to deferred income taxes driven by the valuation allowance recorded against deferred tax assets,$4.4 million for depreciation and amortization,$1.1 million on loss of disposal of assets,$0.5 million non-cash lease expense, and$1.7 million for stock compensation expense. During the six months endedJune 30, 2020 , changes in working capital used$17.8 million in cash, primarily resulting from a decrease in accrued liabilities and accounts payable of$27.3 million , increase in accounts receivable, inventories and other current assets of$25.2 million , offset by an increase in income tax payable of$0.1 million and reducing income tax receivable by$6.3 million . During the six months endedJune 30, 2019 , changes in working capital used$5.3 million in cash, primarily resulting from a decrease in accrued liabilities and accounts payable of$14.4 million , increase in accounts receivable and inventories of$7.2 million partially offset by an increase in income tax payable of$1.2 million , and reducing income tax receivable , other current assets and restricted cash by$17.2 million . Investing Activities Net cash used in investing activities was$16.4 million for the six months endedJune 30, 2020 . The cash used in investing activities is primarily due to the acquisition of JP3 during the second quarter 2020. Net cash provided by investing activities was$151.4 million for the six months endedJune 30, 2019 . Cash provided by investing activities primarily included$152.2 million of proceeds from sale of business and$0.1 million of proceeds received from the sale of assets, partially offset by$0.8 million for capital expenditures and$0.2 million for the purchase of various patents. 38 -------------------------------------------------------------------------------- Financing Activities Net cash generated through financing activities was$5.0 million for the six months endedJune 30, 2020 . Cash generated through financing activities primarily included$4.8 million proceeds from borrowings under the PPP, and$0.4 million proceeds from the sale of common stock partially offset by$0.1 million cash used in the purchase of treasury stock. Net cash used in financing activities was$49.9 million for the six months endedJune 30, 2019 , primarily due to using$92.7 million for repayments of debt, offset by borrowings on revolving credit facility of$42.9 million . Contractual Obligations Cash flows from operations are dependent on a variety of factors, including fluctuations in operating results, accounts receivable collections, inventory management, and the timing of payments for goods and services. Correspondingly, the impact of contractual obligations on the Company's liquidity and capital resources in future periods is analyzed in conjunction with such factors. Material contractual obligations consist of payments of finance and operating lease obligations. Contractual obligations atJune 30, 2020 , are as follows (in thousands): Payments Due by Period Less than 1 More than 5 Total year 1 - 3 years 3 - 5 years years Finance lease obligations$ 213 $ 70 $ 101 $ 42 $ - Operating lease obligations 13,969 1,371 2,593 2,684 7,321 Supply commitments for raw materials 17,724 1,974 15,750 - - Total$ 32,390 $ 3,899 $
18,444
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