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. 29
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Research & InnovationFlotek Research and Innovation supports both segments through specialty chemical formulations, the FDA andEnvironmental 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
OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a global pandemic, which continues to exist throughoutthe 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 withinthe 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 andU.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 theU.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 endedAugust 14 , while oil rigs alone fell to a 15-year low at 172 rigs in the same week, according toBaker Hughes data going back to 1940. Subsequently, global oil demand exceeded supply in the third quarter of 2020 according to theU.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 lateSeptember 2020 thatU.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
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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
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. OnMay 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 theMiddle 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%, throughDecember 31, 2020 , in exchange for restricted stock, effective as ofApril 1, 2020 . • The board of directors of the Company 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 overall headcount by 35% onMarch 30, 2020 . Additionally, the Company reduced the headcount of the Data Analytics segment by 35% inOctober 2020 .
• The Company decreased discretionary spending across all business operations.
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