Flotek Industries, Inc.

Greetings and welcome to Flowtech Industries' first quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow management's prepared remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Daniel Allen, Senior Vice President, Chief of Staff for Flow Tech. Thank you. You may now begin.

Thank you, and good morning, everyone. We appreciate your participation. Joining me today are John Gibson, Chairman, Chief Executive Officer and President, Matt Thomas, President of JP3, and Elizabeth Wilkinson, our Chief Financial Officer. On today's call, we will first provide prepared remarks concerning our business and results for the quarter. Following that, we will answer any questions you have. Yesterday, we released our earnings announcement for the first quarter, which is available on our website. Today's call is being webcast, and a replay will also be available on our website. In addition, we have an investor presentation around the acquisition announced that will supplement the earnings call. Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, please refer to our reconciliations provided in our earnings press release as management may discuss non-GAAP metrics on this call. So with that, I am happy to turn it over to John.

Thank you, Danielle. Good. Excuse me. Turn the mic on here. Thanks, Danielle. Hope everyone's healthy and safe. And I just wanted to thank all of our employees, the Flowtuckers, for their hard work and commitment to our organization during this challenging time. The start of this year has been simply unreal. The oil and gas industry has experienced an oversupply of oil, an undersupply of storage, and the decimation of demand by the global reaction to COVID-19. COVID-19 has forced us to transition to distance leadership, where Teams and Zoom usurp most of my days and all of the employees' days as well. Amazingly, what has emerged is less dependence on real estate and face-to-face engagement and a complete and utter focus on our mission. This market's created such chaos that numerous growth opportunities, both organic and inorganic, have emerged. We've been disciplined in vetting those opportunities with the desire to reduce our dependence on rig count, reduce our dependence on U.S. unconventional markets, and establish an offering in the digital transformation market, in particular chemistry in the cloud. As part of this assessment, we're excited to share the news of our acquisition of JP3, a high-growth data and analytics technology company which diversifies our company's business mix and helps us transform our company for the next stage of profitable growth. In our call today, I'd like to first address today's acquisition announcement, We've uploaded a presentation that we will be referencing this morning. We're pleased to have Matt Thomas, President of JP3, join our call and share his thoughts on the deal as well. Next, we'll address ongoing cost measures related to the near-term challenges and our long-term goals to right-size our cost structure, and then briefly discuss our Q1 financial performance. Let me begin by providing you with an overview and a rationale around today's announcement of our acquisition of JP3. We acquired 100% ownership of JP3 in a cash and stock transaction, which is comprised of $25 million in cash and 11.5 million shares in Flowtech stock, with an additional $5 million earn-out based upon appreciation of Flowtech stock, and the transaction closed yesterday, May 18th. The acquisition offers compelling strategic and financial benefits, as we've outlined on slide 4. First, the transaction diversifies Flowtech's business across all segments, of the hydrocarbon value chain. Second, JP3 is a high growth business with significant upside. Over the past four years, JP3 has generated a robust revenue growth rate of 58% with 60 plus clients. And there's an addressable market of about a billion dollars annually in the U.S. alone with significant growth opportunities outside the U.S. that we can leverage by taking advantage of Flowtech's international market access. Third, Flowtech's strong liquidity position can fuel growth opportunities by accelerating JP3's data-as-a-service or DAS product offerings. And finally, JP3's continued transition to the DAS business model will yield a high-margin recurring revenue stream that is sustainable even in a more volatile commodity market. We have a vision for being the platform that will optimize profitability all the way from the reservoir to the refined product's final destination. Lotex innovative chemistries increase the ultimate recovery reserves, and JP3's data enables a new dimension to this vision by measuring the injected chemistry's effectiveness and the reach and power of JP3's data go far beyond that. Refinery optimization requires consistent feedstock. Until the development of JP3's data solutions, buyers used API gravity as a proxy for the composition of hydrocarbons. With the deployment of JP3 systems, the actual composition of the crude can be determined at the wellhead, allowing refiners to purchase oil matching a refinery's design or to blend production from numerous locations to create the most profitable feedstock. Further, having the knowledge of the cuts most valued by refineries, such as the components that go into gasoline or diesel, it will allow us to design reservoir chemicals for producers to enhance recovery of the most valuable molecules. In the simplest terms, we can begin refining within the reservoir. In short, the more we know about hydrocarbons, the more efficient, clean, safe, and profitable we become as an industry. I'm going to turn this over to Matt Thomas, president of JP3, for some remarks. Very excited to have you here. Matt, why don't you take over and tell us about JP3?