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?

Thank you, John. It's a pleasure to be here. We're truly excited to be a part of the Flowtech family. and see many ways in which JP3 is now well-positioned for accelerated growth. Given Flowtech's strong liquidity position and their reach in the global marketplace, JP3 will be able to build on our track record of double-digit growth and fast-track the ongoing transition to recurring revenue in a DAS model. We will continue to drive increased profitability for our clients by maximizing the value of their hydrocarbons using the data created with our real-time optical analyzer systems. JP3 is the leading analyzer and data delivery platform in the oil and gas market, and we were excited for our technologies to be recognized as the benchmark in the industry earlier this year with the adoption of the Midstream Industry Association's GPA 2119 standard. We originally launched our line of advanced VRAX analyzers in 2012, providing our clients with real-time composition and physical properties of their liquid and natural gas hydrocarbon streams from the wellhead to fuel terminal, while cost-effectively overcoming the limitations of traditional technologies. In conjunction with our Viper cloud analytics platform, illustrated on slide 5 of the accompanying deck, we now deliver data to everyone from small independent producers to midstream MLPs to major refineries across North America. Even in the midst of the industry's current state of disruption, JP3's proprietary data platform is enabling our clients to generate increased revenues and higher profits on their existing product streams. And now with Flowtech's capital behind us, we will be able to expand our DAS sales and marketing efforts, accelerate the development of next generation technologies, and create international sales opportunities through Flowtech's global reach. As you can see on slide six, JP3's data products enhance value across the industry in upstream crude analysis at the wellhead, eliminating outdated API gravity proxies, and aligning production contract pricing with finished goods value. In midstream gas plant balancing, optimization, and giveaway reduction, and in refinery optimization of crude feedstock blends and distillation tower performance. To further illustrate the power of the data provided by our analytics systems, I want to highlight one downstream distribution application of particular importance. Last week, we were pleased to announce our joint initiative with Phillips 66 to launch a revolutionary data service solution in the refined fuels market aimed at substantially increasing profits for refined fuel producers, transporters, and distribution terminal operators. First, some context using slide 11 to illustrate. When refined fuel product streams leave a refinery, they travel in a common pipeline carrying gasoline, jet fuel, diesel, and other products to their end markets. Natural mixing occurs between adjacent batches of these fuels, and this interface transportation mixture, or transmix, must be separated and routed to special holding tanks for reprocessing. meaning net losses for operators. Our VARACS data platform is now enabling companies to reduce the level of product downgrades due to transmics and improve profitability by as much as 50%. And the automation and control solutions inherently depend on the real-time data produced by our data platform. JP3's innovative joint marketing agreement with Phillips 66 for DAS sales and refined fuels validates the power of our platform and the profitability that our customers are seeing with the use of our data. Phillips 66 already enjoys a strong position in the refined fuels market, and together we can significantly expand our market share and capture increased value in this space. With the power of JP3 technology platforms and the performance data that Phillips will provide, there is a huge opportunity to expand our presence in the downstream distribution market. And this is just one example of how our clients are using our real-time data to change the financials of their business. In summary, JP3 brings a differentiated technology platform with hundreds of demonstrated applications with growth in the marketplace and a clear runway to a billion-dollar domestic addressable market. And now as a part of Flowtech, JP3 will be able to accelerate our top-line growth and recurring revenue model significantly. Not only are there major opportunities within the oil and gas industry, but our data platform is scalable to other industrial markets as well. We look forward to being a part of the Flowtech team and to helping build shareholder value. And now I'll turn it back over to John. Thanks, John.

Thanks very much, Matt. Well, let's move to the second item here, which is really addressing the market conditions and cost. And given the difficult market conditions that we've been facing, We've developed several cost measures to help mitigate the risk across the business and increase efficiency and effectiveness. We remain disciplined in our expense controls in order to enhance our financial flexibility. And recent near-term actions include lowering the salaries of the executive team, decreasing fees to the board of directors, as well as reducing the size of the board from seven to five, reducing headcount, and cutting back discretionary spending across the entire organization. These actions have not been taken lightly but are necessary in today's market environment. As we look forward, our priority is to focus on de-risking our business as the oil and gas industry's fundamentals have significantly changed. We have been busy identifying additional opportunities for cost reduction so that we can regain profitability over the midterm. Last quarter, we discussed our priority to right-size and reprice our relationship with Florida Chemical Companies. In February, we worked with FCC to amend our terpene supply agreement, which will enable us to materially improve our cost and cash flow through the term of the contract and help us better manage our inventory. Given these changes, we're now in a position to be more competitive in the market with regard to our procurement and specialized chemistry portfolios. This also opens up opportunities to pursue new channels to market, such as utilizing proprietary technology for data analysis to the full hydrocarbon stream from our acquisition of JP3. With these new opportunities, we will be able to reduce operating costs and maximize our profitability. As Q1 2020 unfolded to reveal substantial disruption in our operating environment, we recorded an impairment charge of $57.5 million in the first quarter related to the impairment of property, plant and equipment, right-of-use assets, and intangibles. We also have taken various actions to improve the financial strength of our company as we align our workforce and operations with the level of activity that we are seeing in today's environment, which will enable us to operate more effectively in a totally different world. Additionally, Elizabeth will fill you in on the consolidation of our office spaces. Lastly, we also want to quickly highlight our team's effort in giving back to the community and our customers. I'm extremely proud to see how Flowtech came together to utilize our excess capacity from our manufacturing facilities and competence in chemistry to produce alcohol-based hand sanitizer. As a result, we were able to produce about 12,000 gallons of hand sanitizer to donate to first responders, hospitals, schools, homeless shelters, and senior residential communities in the communities where we serve. With that, I'm going to turn it over to Elizabeth to discuss our financial results in more detail. Elizabeth?

Thanks, John. As we mentioned in prior calls, the financial tables in our press release present the operations of our CICT segment as a discontinued operation for all periods. I will focus my discussion today on quarterly results for our continuing operations, which include our energy chemistry business, which we will refer to as ECT, as well as our supporting research and innovation and corporate functions. As we review our financial results, revenue for the first quarter was $19.4 million compared to $43.3 million for the same period last year, but generally in line on a sequential basis with the $19.5 million from the prior quarter. ECT operating expenses were $22.8 million in the first quarter of 2020 versus $44 million in Q1 of last year. reflecting a 48% reduction year over year. Included in the first quarter of 2020 was a $2.3 million charge reflecting a loss on terpene purchase commitments and an incremental reserve against terpene inventory on hand. As a result of the work done in 2019 to improve supply chain and operational efficiencies, coupled with our negotiation of the amendment to our terpene contract in February, we will be able to dynamically manage our inventory to lower levels going forward. Corporate G&A decreased to 4.5 million in the first quarter of 2020 versus 7.3 million in the first quarter of last year due to a reduction in headcount and other costs, as well as incurring a lower severance charge of 0.5 million in the current quarter versus 1.6 million a year earlier. We reported a loss from continuing operations of $64 million or a $1.07 loss per diluted share for the first quarter of 2020 compared to a loss of $15.2 million or a $0.26 loss per diluted share for the first quarter of the prior year. The loss of $64 million included a $57.5 million impairment charge related to a tempering of our long-term forecast in connection with the developments in the current economic and political environment. Our adjusted EBITDA for the first quarter was a loss of $6.5 million, which narrowed from last year's loss of $7.6 million. The improvement in adjusted EBITDA is primarily due to a significantly lower headcount and significant expense reductions in freight, equipment, and travel and entertainment expense. Please refer to our table in the release for more details. Turning to the balance sheet, we continue to be pleased with the strength of our balance sheet position. As of March 31, 2020, we had cash and equivalents of $80.3 million, no debt outstanding, $6.6 million in escrow funds on the balance sheet reflecting our claim to the remaining balance of the indemnity escrow related to the sale of Florida Chemical to Archer Daniels Midland, or ADM. In addition, as of March 31, we recorded a tax receivable of $6.1 million related to tax refund pursuant to the CARES Act provision for extending the net operating loss carryback period. Furthermore, in Q1, management finalized its plans to consolidate office space in Houston, wherein all corporate personnel will be moving to our Houston Global Research and Innovation Center at the end of this month. In conjunction with this plan, a termination of our Houston headquarters lease has been negotiated at an attractive discount which is anticipated to save the company approximately $900,000 annually between mid-2020 and mid-2023. So with that, we will now open it up for questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Daniel Burke from Johnson Rice. Go ahead.

Yeah, good morning, everyone.

Morning, Daniel.

John, first of all, congrats on the deal. I do have a couple questions on JP3, but maybe one on the existing business first. The pace of this decline in the oil field, in particular on the completion side, has been pretty precipitous. What insight, if any, can you give us on how Q2 and Q3 looked internally and just the ability to manage towards a cash-neutral position over that period of time? I mean, liquidity is a scarce resource right now?

Well, I really haven't changed the goal of getting to break even, which I stated last quarter, and so we're working hard on the cost side of that. You know, cost of goods sold does come down when your activity levels drop as precipitously as they have, and then we really are managing the other cost as tightly as we can. For Q2, Q3, Q2, I mean, we're basically – up to our elbow in that at the moment, and I don't really see an increase in market activity in Q2, nor do I see any of our competitors talking about an increase. We are seeing some stabilization in our customers, Daniel, because the prices come back from a ridiculously low level to something that's at least tolerable and they'll continue to produce, whereas we were beginning to think that shutting in was going to be a predominant activity I think the shut-ins will be declined some, and we're going to see people continue to produce, and the storage capacity didn't get to a point where it was critical. So we've got a reasonable market. We don't have a good market. And so we'll manage our cost to doing that. We'll continue to work on reducing that. Q3, I don't have a crystal ball here, so I'm having a hard time forecasting COVID-19. 19 and its impact, and also in Q4 because it's hard for us to ascertain exactly how rapidly the virus will ramp back up as we go into the fall. And we think that's going to be a bigger driver on activity than oil and gas price. I think that's where we're going to see some difficulty in getting back to work. But I think we're, as you can see from our numbers, we took out a lot of cost, and I think we're down – 47.5% in our cost quarter over quarter, year over year, excuse me. And that includes cost of goods sold, but it shows a real focus on that, and we're going to continue to do that as we go forward. Happy to take another question, though, Daniel. I rambled too long on that one.

No, no, that's helpful, John. Let me pivot to JP3, then. Certainly an interesting deal. Let me ask one more immediate question. Given JP3's midstream, downstream orientation, I would imagine the impacts to their business this year have been modest. Can you give us any footing or perspective on how their business has fared over the last few months?

It obviously slowed down a little bit as a result of COVID, but still strong and a lot of opportunity. It's a part of diligence. I've talked to a number of their customers that are committed not only to what they're doing today, but have use cases that would allow us to expand the company, which is the reason that we're so excited about it. I don't see them being impacted in the same way through the rest of the year that drill bits are impacted. And so one of the important parts of this was, moving ourselves from being rig count oriented and drill bit oriented into having availability of the totality of the market. And we think the midstream, the downstream, and the distribution systems continue to stay strong and have less volatility. And so we're very excited to sort of de-risk where we think the company's going over the next few years by picking up JP3.

Okay. And then... When we think about JP3, maybe just over this initial timeframe from inception here through sort of end of this year, it seems like it should be a pretty capital-light business. But you guys want to invest in the business. You want to foster its growth. I mean, is this business a consumer of capital over the remainder of the year, or is it a generator of cash over the remainder of this year?

I don't think of it as a generator of cash or earnings, really, Daniel. It's an investment opportunity, small company with huge growth rate opportunity that can throw off substantial gross margin as we go forward. But the investments you point out are the right way to look at it. It's not capital-intense business, but it's a business that has been shorted on the sales side, and I hope we can add some sales resource that will continue that acceleration or even catalyze it And we also think that there's a couple of other things that we can do that will bring use cases into our business at Flowtech as well so that we can, in the simplest terms, we want to know how efficient and effective we are on treating reservoirs. So if we pump 1,000 gallons in and we get none back, we should have pumped more. If we pump in 1,000 gallons and we get 500 gallons of it back, we pumped in 100% too much. And so how do we really know that we're doing the right treatments to We think that this is going to actually build some use cases for us on the reservoir chemistry side as well. So we're hoping they'll pull our business through and differentiate us from competitors also. But cash light, yes, investment opportunity. Here is about rapid growth, and that's where we're going to put our focus is they've had 58% growth year over year. We're going to see if we can't make the right moves to accelerate that through enhancing our international market sales effort as well as our domestic sales effort as well.

Got it. Okay, John, well, look, I appreciate it. I'll leave it there. Thank you.

Well, you're welcome.

Again, if you have a question, please press star, then 1. Our next question is from Brian Bode from Excelsior Capital Partners. Go ahead.

Good morning. I was wondering if you could discuss the other alternatives for capital allocation at the corporate level relative to stock buybacks versus growth opportunities like JP3.

In truth, Brian, I probably won't make everybody happy, but I'm not focused on stock buybacks. I'm really focused on stock appreciation. We were talking this morning as a management team here about really focusing on the growth of our company and the growth in our equity value so that we can do more of these acquisitions. I look at this in this way. There are some great high growth, high margin companies available out there that are in that space where there's not an IPO market for them today. but they're very much in line with chemistry, and we can basically provide a platform for them to be public. And so the use of our equity value to sort of transition those companies into our space, almost like you'd think of a SPAC, we want to bring those companies in. So I'm focused on growth in the share value and the ability to really build a platform of high-growth companies and high-growth activities going forward.

Okay, that's a good color. How did you guys find JP3 or how did they find you? And maybe with that in mind, could you speak to kind of current pipeline or current opportunities that are under evaluation?

Well, this is sort of a disclosure moment here for me, I guess. As you know, before joining JP3, Flowtech, I was in investment banking at TPH doing their emerging technologies, energy technologies group, and we identified JP3 then. And I can honestly say that I thought it was a great company when I was at the bank. When I got to Flowtech, out of the whole portfolio, it really matched Flowtech the best in diversification, which does bring me to the fact that I had to make sure that everyone knew that I'm not conflicted in this. I chose to take, you know, I didn't choose to take, I should never take, but I chose to take no bonus from this deal from TPH, and so there'd be no remuneration there, and it was really making sure that I didn't have any conflicts, but I knew, I've known about this company for at least a year, and in fact, several of the customers we've talked to are customers I introduced JP3 to, so I've been on their sales staff already for about 12 months, and understand the technology so it wasn't something that just came about in the last few months. It's something I've had familiarity with for probably a year.

Okay, great. Thank you.

Our next question is from Peter Rabover from Artco Capital. Go ahead.

Hey, guys. I guess congrats on the deal. I guess I just wanted to echo the previous question a little bit more. I mean... You know, John, I know you said you're focused on high growth opportunities. And I guess I'm just wondering, is there any growth in the business? And, you know, what gives you the confidence that this growth will be there given how disarray the oil and gas market is and how, you know, it might take years for it to shake out?

It's a great question. So, you know, I said in the opening comments that we're trying to diversify away from being rig count driven or drill bit driven. I do think that the core properties in the Permian and the Bakken and others will come back because those can be produced profitably even at lower price points. But maybe not all of the acreage comes back in the same way, so I'm expecting a softening in what we think of as the unconventional market. And as a result, we think it's still a good market. It's going to be a smaller market, and we wanted to make sure that we brought on things that had no constraint on growth. And so we still believe there's going to be huge demand for energy. We think that operators will continue to produce. And solutions that improve profitability of the midstream, like the transmix solution that we're working on with Phillips 66, how you handle towers at refineries, all of these are going to be markets that just continue to grow. And so we wanted to move over to a high-growth market. And another real great point about this, I'll go back to Daniel's question. On the capital question, we did not buy a company that requires research and development in order to deliver a product. They have a commercial product. And so we're excited that this is something that simply needs aggressive sales. It's not something where I'm in the R&D business of trying to put capital into a business to make it work. It works today, and we're going to deliver it today, and that's the reason that we We did the acquisition. So we think that's a real high-growth component of the market for us, and we want to just make sure the other side, that we're capital disciplined, that we're cost disciplined, so that we can make that part of the business profitable as well.

Again, if you have a question, please press star, then 1. At this time, we have no questions. Oh, yes, we do. I'm sorry. Oh, we have two. Okay. Our next question is Peter Rabover from Article Capital again.

Hey, sorry, guys. I think it went on mute and I put it on mute and then it got disconnected. But I actually just wanted to follow up on the question about the acquisitions. And, you know, given how much cash you had and what a massacre it was the last few months, I assume you probably had hundreds of calls from guys like JP3. And I guess I'm just curious, you know, what made them so special relative to everybody else? Were they hitting shoulders above everybody else? And, you know, how many more opportunities like that do you see? And then maybe I had a little more on the financials aspect of it.

I'm happy to answer that one. Interestingly, we've vetted a number of companies. One of them, very similar in this space, but had a different approach to measuring chemistry in real time because we believe that if you want to make money, you cannot manage what you cannot measure. And so we took a look at a couple of different companies. I hear some feedback, but thank you. So we looked at several companies, and as I was just saying a moment ago, The very first one we looked at, really a large company, great technology, great people. We felt like it would be anywhere from $10 to $15 million in investment in order to get the product commercial. It wasn't ready for the market. And so after looking at that, and we gathered together as a management team and went, we're not here to try to invest in venture capital. We're here to invest in growth markets where you have a product. And so we passed on it, even though If you're a technical person, you'd have gone, boy, this is great. But it was great, but didn't have that immediate sales opportunity that we had with JP3. So you are absolutely correct. My telephone rings constantly. There are a lot of people in heavy debt situations that need out, so they look at our capital and they'd like for us to basically pay off their debt and merge with the company. We've had opportunities to do other technologies, but The truth be known, we called JP3. JP3 did not call us. And so, Matt, I mean, I'm sure you've had other people call as well. I've been out of the bank for a while, but we really approached JP3 because we knew it was such a perfect fit. Matt, is it?

Yeah, and I just want to add things for the question, Peter. And to build on what John was saying, you know, from our perspective, We looked at this as a really great fit for a few reasons. First of all, certainly the strong liquidity position that Flowtech brings to the table can accelerate our growth. The access to the international markets that we don't have today I think is very attractive for us. But also, you know, this is a very strong management team with an impressive track record. As you probably know, John has a successful history of acquisitions. I think something between 25 and 30 acquisitions in his career. And And we looked at that and said, this is the next step in the growth of JP3 that we've been looking for. And so it really made for an attractive fit for us.

Okay. Thank you. And I guess just – I know you guys have not disclosed financials, et cetera, but I guess I'm just more curious on how you see your cash position shaking out with this investment and – I don't know, is it a loss-making investment? How much cash do you think you'll need to invest in the sales staff? Any call you can give us, we'd really appreciate it.

Obviously, we spent $25 million, so you can expect the $25 million to come out of our cash position. On the investment side, we're going to work hard towards trying to stay within our cost with the goal, again, Still have a goal. I want to get us to break even this year. I have not backed off on that, even though the market is terrible. I will tell you that I saw the hurdle go up significantly over the last couple of months. When I said this in Q1, I had no idea that I was going to have to do a 7.5-foot high jump as opposed to a 2.5-foot high jump. But we're focused on it. We will find the money to enhance their sales performance. Part of it's training some of our sales staff, but part of it's bringing in DAS salespeople, which is a different market. And they have a team already at JP3, and we're already interviewing some senior people that we think would make a big difference in catalyzing this and reached out to them early on in the process to see whether or not they too agreed with what we saw as a market. So it's a bit of validation to see experienced salespeople in the Dash market look at this and consider joining because they see this as a huge growth platform and opportunity for them as well.

Okay. Thanks. I appreciate the call.

Our next question is from Vishal Mishra from Mishra Capital. Go ahead.

Hi. Good morning, John and Matt. Congratulations on the deal. You know, you had this comment in your 10-K, as well as John, you said on the Q1 call that if you were to see a tremendous reduction in the drilling, it should not impact our ability to go out and make a difference on the wells that are being completed. And I know that was a different time. It was like, well, we're declining, but still in the 40s and now we're in the 20s and early 30s. And, you know, CapEx budgets have been cut. It's a different world now. But I was wondering... What does it take for you to sort of maybe be able to restate that comment, which is that it should not impact your ability to go out and make a difference on the wealth which have been completed, or maybe just too damn difficult question to answer given COVID, but any color on your ability to gain market share in the world, which have been great, that would be great.

Okay, so you were breaking up a bit, so it sounded like how are we going to grow market share or grow in our core business? And so being nimble and small is really important. And James Silas is here with us as well. I know Mark's on the telephone who runs our sales. And we had a meeting where we went, you know, you've got to be flexible in a market like this, and what else can our chemistry do other than enhance production on initial production or IP rates? And the other piece that we think we can add a lot of value to is in enhanced oil recovery. Now, in these reservoirs where the wells already exist and the infrastructure to produce is in place, and that is sunk capital, there is a tremendous opportunity to use chemicals to do enhanced oil recovery or enhanced product recovery from these reservoirs. And so we're focusing our efforts there in order to really make sure that we're doing what we believe customers are going to need in the coming months in this, if they don't drill, they'll still produce, and they'd like to produce more. You're looking at recovery factors of between 4% and 8% for unconventional reservoirs in the initial production. If we can do, not unlike the North Sea, but double that recovery from 4% to 8% to 8% to 16% as an industry, that is a huge uptick for the unconventional players. And so we are studying how chemicals impact EOR. And we think that's going to really enhance our core business as we go forward as well, and the shut-in opportunities. But shut-in is what you do when you think the market's not going to come back. EOR activities where we're taking a look at what you do when you think that the market will come back and surge again.

Okay, great. Thanks.

This concludes our question and answer session. I would now like to turn the conference back over to John Gibson, Chairman of the Board and CEO President.

Well, I just want to say thanks to everybody for joining us today. We're excited about the acquisition of JP3 and we do believe it will accelerate our growth and it's going to be complementary to Flowtech's chemistry applications. And it's going to enable the strength of our underlying liquidity and market access is going to leverage that as we go forward. We believe that we're positioning our company for a successful and bright future. And we surely appreciate the support of our shareholders. And hopefully through this acquisition, you see we've been listening to you. You've shared with me where you think the future is. And we'll continue to update everyone on our continued efforts as we move forward with our next stage of growth. I hope you hear from me before...

next quarter you guys have a good day the conference has now concluded thank you for attending today's presentation you may now disconnect