# Dear Fellow
Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-equipment-services/NYSE_FTK_2020/NYSE_FTK_2020.mmd` · pages 1-7_

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Dear Fellow
Shareholders

From John W. Gibson, Jr.

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That was quite a year.

When I consider the unique challenges of 2020, I'm inspired by the ways in which our management team and employees met and rose above them with courage, ingenuity and skill. And I owe a debt of gratitude to the customers who entrusted us to be part of their response to this unprecedented year.

It was a difficult year not just in economic terms, but in human terms. As I write this, the global COVID-19 pandemic that began in the first quarter of 2020 has taken more than 550,000 lives in the United States alone. That so many of the deaths occurred alone, without loved ones able to be present in those last moments, deepens the tragedy.

The lesson that was reinforced for so many of us, on both personal and business levels, is that the only real choice in the face of a crisis is to see your way through it, endure it and emerge stronger.

## RESULTS

As a company, I feel we have done that. While we set our ambitions for the year to achieve break-even results for 2020, we could not have fathomed the events that would lie ahead when we made that commitment. We ended the year improving our adjusted EBITDA by more than $7 million over 2019 despite revenue declining by more than half.

This result was a minor victory in an environment of reduced oil and gas demand, triggered by both the pandemic and broader economic and political volatility. Reflecting on the full stop that hit the economy in March 2020, our ability to reduce our structural costs and run our business more efficiently gives me confidence in our ability to manage going forward.

One key to our perseverance was that we never lost sight of our values. We never compromised on safety—which, to me, is not about numbers but about lives. Our record was better than the industry, but zero injuries is the only record that will satisfy us. We never compromised our integrity, and we continued to make customer success our focus.

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Our Chemistry Technologies business provides a valued line of energy chemistry products that help upstream onshore operators maximize oil and natural gas production, advance operational efficiency and improve Environmental, Social and Governance (ESG) performance. That focus, however, has inevitably linked our business success to the U.S. domestic rig count and related volatility. When I came on board in January 2020, I realized changing that dynamic meant not leaving those customers behind but adapting our business to expand our opportunities. And our strongest path was to capitalize on our core chemistry expertise and our "green" heritage of plant-based products.

## STRATEGIC GOALS

## We established three
strategic goals:

## [1]

To change our risk profile long term by improving revenue predictability;

## [2]

To shift our business portfolio away from dependence on U.S. unconventional oil and natural gas production by expanding both across the energy spectrum and into international markets (which tend to have less volatility);

## [3]

And to enable the digital and sustainable transformation of the energy industry.

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## FLOTEK + JP3

Our acquisition of JP3 Measurement, LLC, in May addressed all our strategic goals. The customers of what has become our Data Analytics segment span the entire energy market, including upstream, midstream, refineries and distribution networks. JP3's technology combines hardware and cloud-based software to automate real-time analysis of flowing products, helping our customers generate additional profit by enhancing blending, optimizing transmix within pipelines carrying multiple refined products, and ensuring product quality. The technology also enables fluid handling to be automated, reducing safety and environmental risks, and has future potential as a platform for measuring greenhouse gases to enable our customers to achieve and quantify ESG performance goals. The Data Analytics segment is focused on generating recurring revenue as we transform the business model, creating greater predictability in volatile markets. We also undertook an initiative in 2020 to expand the platform to international markets, believing that the largest market opportunity for this service is beyond the U.S.

Some have asked whether our acquisition was the right move in the middle of a pandemic. In hindsight, it was certainly a challenge, but the strategic fit was undeniable, and we knew that it would take a one- to two-year runway to begin reaping the benefits of the new market—particularly its international potential. By seizing the moment when we did, we advanced Flotek into the digital transformation space and believe we will see the benefits that much sooner.

As evidence of this progress, in the first quarter of 2021, we have gained approval for a pilot with a major national oil company based in the Middle East.

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## RESPONSIVENESS

A second strategic move shows our ability to respond quickly to market needs while staying true to our core strengths. At the outset of the pandemic, we used excess manufacturing capacity to produce 12,000 gallons of alcohol-based hand sanitizers to donate to first responders, hospitals, schools, homeless shelters and senior residential communities. As a result of this community support effort, we added to our Chemistry Technologies business a new line of EPA-approved and FDA-compliant surface cleaners, degreasers, disinfectants and sanitizers for commercial and personal consumer use. These made-in-the-USA products are based on our core chemical expertise in alcohols, surfactants and performance chemistries. They are a natural fit within our Chemistry Technologies business and use the same infrastructure, personnel, competencies, supply chain and research. This meant we were able to launch the new products with a minimal capital investment.

Incremental revenues from these professional chemistry products were a small component of our Chemistry Technologies business in 2020, but the promise is exciting. We have identified a long-term market need for these products extending beyond the pandemic-generated demand—focused on large commercial customers. We are now building out our channels-to-market. In the year ahead and beyond, we hope to grow this revenue into a meaningful part of our overall story.

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Houston Mayor Sylvester Turner (center) recognized Flotek for its donations of hand sanitizer to first responders in the early days of the pandemic.

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We brought to the challenges of 2020 five key strengths that enabled us to adapt and set a path to success.

## [SYNERGY]

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Flotek's core chemistry expertise ties together both elements of our Chemistry Technologies business and is at the heart of our Data Analytics business as well. Our people, supply chain and operations are able to support all three markets efficiently.

## [RESEARCH]

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The R&D capabilities embodied in our world-class laboratory not only support our customers today, but also are focused on building next-generation technologies across our businesses.

## [CAPITAL]

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We entered 2020 with a strong balance sheet and no debt to weather the storm of 2020, and we will fiercely protect our liquidity to continue to drive growth. We are focused on sustaining and rebuilding our financial strength during the coming 12 months.

## [ESG]

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Environmental sustainability has long been a key differentiator for Flotek, as well as a core value. Our heritage of green chemistry, based on naturally sustainable and non-toxic citrus oils, is a strong foundation to build upon as our customers look for ways to meet their own sustainability goals.

## [PEOPLE]

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Our human capital is at the center of our mission, and our team stepped up in multiple ways during 2020 to keep us moving forward and to reduce our cost structure. To preserve cash, I and the other members of the leadership team took reduced salaries for 2020 in exchange for equity. This is a strong measure of management's commitment to the future of the company. We consolidated our office space by relocating our Houston-based employees into our Global Research & Innovation Center, and we decreased discretionary spending across all business operations. The hardest part of cost reduction is the human impact—letting people go during the pandemic was gut-wrenching. We wish all of our former employees the best, and have been fortunate to welcome several employees back to the team. And we appreciate our employees who stepped up to fill the gaps.

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The results we achieved show the resilience of our underlying business model and our forward strategy. We continued to support our energy customers' focus on free cash flow by providing cost-effective solutions, including production-enhancing chemistries that improve efficiency and data analytics that provide cost benefits from reservoir development through pipeline monitoring and product transfers. We moved forward on our strategy in driving the digital transformation of the energy industry, decoupling our own business results from rig count dependency, and expanding our international business. We also found a serendipitous opportunity to diversify our business while meeting a real market need by developing the surface cleaning and disinfectant business.

I am an optimist by nature. I came to Flotek with an over-the-top enthusiasm to turn the company around. The confluence of challenges presented by COVID-19, the oil price collapse, and loss of face-to-face contact with our internal team and our champions and buyers within customer companies—all these together could shatter anyone's optimism. But our core strengths shone through in 2020 and are driving us forward in 2021. Our people continue to inspire me.

While we expect the current economic situation to negatively impact the energy sector for an extended period of time, with oil demand recovering during 2021 but not returning to the pre-COVID-19 level, our emphasis in 2021 will be executing our strategy to recover from the varied impacts of the pandemic and grow our businesses. Key to this will be expanding both markets and market share.

The Chemistry Technologies segment will focus on opportunities created by the growing energy industry demand for greener chemistry solutions, while expanding our professional chemistries line.

The Data Analytics segment will maintain its domestic sales effort while advancing international pursuits and market into greenhouse gas measurement.
Clearly, we will continue our relentless focus on safety, sustainability and the responsible management of products and services.

Last year, I shared with you that I would only take a bonus in 2020 if the company achieved breakeven or better. We did not. The market conditions outside of our control did not change the ambitious goals we set for the company, nor my commitment to our shareholders. As a result, I declined any bonus for 2020, in keeping with my promise. I am pleased with what we did accomplish in 2020—and I am very grateful to have the encouragement and support of all of our stakeholders, and especially you, my fellow shareholders, to manage through these challenging times.

We will continue to make a difference for our customers and our environment in 2021.

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—John W. Gibson, Jr.
Chairman, CEO and President