Flotek Industries (NYSE: FTK) shares fell sharply after short seller Wolf Pack Research said it had taken a short position in the company and alleged that a $400 million Puerto Rico power contract tied to Flotek’s backlog has been canceled.
Wolf Pack said the contract with the Puerto Rico Electric Power Authority, or PREPA, represented roughly 57% of Flotek’s backlog and argued that the company had not yet adequately disclosed the cancellation to investors.
Flotek shares were down nearly 23% at $27.92 in afternoon trading following publication of the report.
Wolf Pack Says PREPA Deal Is ‘Dead’
The dispute centers on an August 3 announcement that Flotek would support local partner Power Expectations in delivering power to PREPA.
Shares jumped as much as roughly 35% after the deal was announced, reflecting investor optimism around the potential size and strategic importance of the contract.
Wolf Pack, however, said in its report that the agreement is no longer viable.
“However, this deal is dead,” the short seller wrote.
The firm alleged that Flotek had failed to recognize multiple warning signs surrounding Power Expectations and the transaction.
Short Seller Questions Flotek’s Due Diligence
Wolf Pack also raised concerns about the background of Power Expectations’ leadership, alleging that the company’s CEO had a prior felony conviction.
The short seller argued that Flotek should have identified such issues during its due-diligence process before entering into the arrangement.
Wolf Pack went further, saying that in its view Flotek may have been misled in connection with the transaction.
The allegations have not been independently verified, and Flotek had not provided a response in the material cited in the report.
Wolf Pack Says Disclosure Should Have Come Earlier
A central element of Wolf Pack’s criticism is the timing of Flotek’s disclosure.
The short seller said the deal had already been in serious jeopardy after a federal regulator publicly raised allegations involving an unauthorized signature on August 7.
Wolf Pack argued that investors should have been informed more quickly if the contract had effectively become nonviable.
“What we find unacceptable, however, is that FTK has yet to notify investors of the cancellation,” the firm said.
The claim is particularly important because Wolf Pack estimates the contract accounted for around 57% of Flotek’s backlog.
Flotek Stock Falls Nearly 23%
The report triggered a sharp market reaction, with Flotek shares falling almost 23% to $27.92 in afternoon trading.
The decline effectively erased a large portion of the gains that followed the original August 3 announcement.
Investors are now likely to focus on whether Flotek confirms the status of the PREPA-related agreement, how much of its reported backlog may be affected, and whether the company provides additional detail on its relationship with Power Expectations.
The episode also places greater scrutiny on Flotek’s disclosure practices and due-diligence process, particularly if the contract represented a material portion of expected future revenue.
