Flotek Industries, Inc. ("Flotek" or the "Company") is a technology-driven, specialty chemistry and data company that serves customers across industrial, commercial and consumer markets. Flotek's Chemistry Technologies segment develops, manufactures, packages, distributes, delivers, and markets high-quality sanitizers and disinfectants for commercial, governmental and personal consumer use. Additionally, Flotek empowers the energy industry to maximize the value of their hydrocarbon streams and improve return on invested capital through its real-time data platforms and chemistry technologies. Flotek serves downstream, midstream and upstream customers, both domestic and international. During the second quarter of 2020, the Company acquired JP3 Measurement, LLC ("JP3") and evaluated segment information. The Company identified two operating segments: Chemistry Technologies and Data Analytics, which are both supported by its continuing Research & Innovation advanced laboratory capabilities. 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 to Flotek Industries, Inc. and its subsidiaries. Continuing Operations



The Company has two operating segments: Chemistry Technologies and Data
Analytics, which are both supported by its continuing Research and Innovation
advanced laboratory capabilities.
Chemistry Technologies
The Company's Chemistry Technologies segment includes an energy-focused product
line that is comprised of 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 addition to its energy-focused product line, the Company continued its growth
of a diversified line of FDA-compliant sanitizers, disinfectants, and surface
cleaners 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
experience. The continued impact of COVID-19 and subsequent modification of
social behavior in regard to the heightened attention to hygiene and sanitation
provide a sustainable yet challenging market to expand the Company's portfolio.
Given the increase in global demand for various forms of sanitizing and
disinfecting products due to COVID-19 and its resultant long-term customer
behavioral changes, the Company is diversifying the revenue stream from upstream
only to encompass both mid and downstream markets.
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 real time
information about the composition and properties for customers' oil, natural gas
and refined products. The segment is continuing its transition to a recurring
revenue subscription model of selling real-time data generated by its line of
Verax analyzers, deployed in the field across the oil and gas sector, support
contracts and software services via its cloud-based Viper software platform.
The customers of the Data Analytics segment span across the entire market,
including upstream, midstream, refineries, and distribution networks. The
segment helps its customers generate additional profit by enhancing blending,
optimizing transmix, ensuring product quality while enabling automation and
robotization of fluid handling. To date, the segment has focused sales solely on
North American markets; however, the segment began preparing for international
deployments, including export control investigations, certifications and product
design modifications to meet the demands of overseas installations. The Company
hired a business development executive to develop a pipeline of opportunity for
2021 for the international market.


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Research & Innovation
Flotek Research and Innovation supports both segments through specialty chemical
formulations, the FDA and Environmental Protection Agency regulatory guidance,
technical support, basin and 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

The Company sold Florida Chemical Company, LLC ("FCC") effective as of February 28, 2019. As a result, the Company's CICT segment was classified as discontinued operations. Financial results for the three and nine months of 2019 include results from the Company's CICT segment during that time period. Outlook on Economic Conditions



On March 11, 2020, the World Health Organization declared the outbreak of the
novel coronavirus ("COVID-19") a global pandemic, which continues to exist
throughout the United States and around the world. While this outbreak has
severely impacted global economic activity, during the third quarter of 2020
many countries and many states within the United States began to gradually
re-open businesses and schools, lift some restrictions related to quarantines
and lift some travel bans with guidance from federal, state and local
legislators. As of early November, the United States has experienced a material
increase in COVID-19 infections.
The effects of the COVID-19 pandemic, including actions taken by businesses and
governments, resulted in significant reductions in international and U.S.
economic activity that continued through the third quarter of 2020. These
effects and the volatility in oil prices have materially and adversely affected,
and may continue to materially and adversely affect the demand for oil and
natural gas. The Company's primary markets in the U.S. are particularly subject
to the financial impact of a collapse in oil prices. In the second and third
quarters of 2020, these conditions and the related financial impact have
continued and, in some cases, worsened. In addition, the Company and most of its
customers continued the practice of social distancing and work-from-home
procedures, which have had and may continue to have an impact on the ability of
employees and management of the Company to communicate and work efficiently.
During the first half 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. The third
quarter of 2020 saw demand for oil increase each month, driven by easing of some
restrictions on the coronavirus and summer holidays in the northern hemisphere.
On the supply side, the North American rig count continued fall through the
majority of third-quarter of 2020 with slight increases in rig count occurring
in late August. The total rig count fell to a record low of 244 rigs during the
week ended August 14, while oil rigs alone fell to a 15-year low at 172 rigs in
the same week, according to Baker Hughes data going back to 1940. Subsequently,
global oil demand exceeded supply in the third quarter of 2020 according to the
U.S. Energy Information Administration.
The oil and gas midstream market that represents the largest customer base of
the Data Analytics segment has seen its gathering and infrastructure capital
spending reduced by 60%, according to a mid-September report from market analyst
Alerian.  Similarly, downstream spending for Data Analytics products and
services has similarly been hampered by drastically lower consumer demand for
refined fuels products due to the COVID-19 response.  As just one example,
Evercore reported in late September 2020 that U.S. driving miles remain down by
34%, causing significantly reduced demand for gasoline and diesel and thus
slowing spending across the refining and distribution segments.  The Company
expects negative impacts to all facets of the oil and gas markets to continue
for an extended period before returning to pre-pandemic 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.

Outside the oil and gas sector, the COVID-19 pandemic has continued to drive increased demand for certain specialty chemicals, particularly disinfectants and sanitizers. With the outbreak of COVID-19, sales of sanitizers and disinfectants swelled across every region in the world, which led to a global shortage during second quarter 2020. Relief on the shortages of key raw materials used to make these products, including USP-grade alcohol, woven cellulosics for wipes, and various active ingredients has been slow to catch up to the growing demand. This persistent growth is accompanied by a need for sustained higher volumes of janitorial and 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. In March 2020, as cases of the pandemic escalated in the U.S., the FDA issued a temporary policy, relaxing requirements for certain alcohol-based hand sanitizers. During that time, the market surged with new producers of hand sanitizer as the world faced a global shortage of sanitizing products. During the third quarter of 2020, as hand




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sanitizer supplies stabilized, many of the new producers held excess quantities of product and began dumping supply in anticipation of a return to the FDA's original, tightened standards. Throughout the pandemic, the Company's products have been compliant with the more stringent FDA specifications.



Company Outlook
While the full impact of the COVID-19 pandemic continues to evolve and the full
extent of the impact is not yet known, the Company continues to closely monitor
the effects of the pandemic on commodity demands and on its customers,
operations and employees. Any future development and effects are highly
uncertain and cannot be predicted, including the scope and duration of the
pandemic; further adverse revenue and net income effects; disruptions to the
Company's operations; third-party providers' ability to support our operations;
customer shutdowns of oil and gas exploration and production; the effectiveness
of 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 the Company's facilities or the facilities of its 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.
The Company 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. On May 18,
2020, the Company closed the acquisition of all the ownership interests of JP3,
which gives the Company access to the midstream and downstream markets and
diversifies exposure to volatility in the upstream sector. 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 focused on development of
competitively-priced product lines that are responsive to the 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. The Company has also leveraged its
international footprint in the Middle East to include unconventional,
conventional, and enhanced oil recovery programs.
The Chemistry Technologies segment 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.
In response to market conditions and anticipating ongoing volatility, the
Company reduced its cost structure to meet anticipated market activity and
reduce the Company's break-even levels. Among other cost-cutting and cash
preservation 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 December 31, 2020, in exchange for restricted stock, effective as
       of April 1, 2020.


•      The board of directors of the Company approved a 20% reduction in the fees
       to be paid to the directors, effective as of April 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 of June 2020.


•      The Company reduced overall headcount by 35% on March 30, 2020.
       Additionally, the Company reduced the headcount of the Data Analytics
       segment by 35% in October 2020.

• The Company decreased discretionary spending across all business operations.







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