Flotek Industries, Inc.

Greetings and welcome to Flowtech Industries first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow management's prepared remarks. To ask a question please press star then 1. If anyone should require operator assistance during the conference please press star 0 on your telephone keypad. As a reminder this conference is being recorded. It is now my pleasure to introduce Danielle Allen, Senior Vice President, Chief of Staff for Flowtech. Thank you. You may begin.

Thank you and good morning everyone. Joining me today and participating on the call are John Gibson, Chairman, CEO, and President, Michael Borden, Chief Financial Officer, Teng Vang Khoid, President of Global Business, and Ryan Uzell, President of Chemistry Technologies. On today's call, we will first provide prepared remarks around our business and the results for the quarter. Following that, we will answer any questions you may have. Yesterday, we released our earnings announcement for the first quarter 2021, which is available on our website. Today's call is being webcast, and a replay will also be available on our website. 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 of the SEC. Also, please refer to our reconciliations provided on our earnings press release, as management may discuss non-GAAP metrics on our call. Now, I will turn it over to John.

Thank you, Danielle, and good morning, everyone. We are pleased with the progress that we are seeing in our business despite the challenges of the past year. Our first quarter sales and earnings were slightly below our expectations as a result of a slow start to the year, followed by a major disruption in February from winter storm Uri impacting the entire supply chain. Then in March, happily, we began to see demand significantly increase across both segments. Now, our employees remain optimistic about Flowtech's future, and our organization has become more innovative and results-oriented as we focus on achieving profitable growth. As the energy industry increases its focus on environment, social, and governance performance, or ESG, amid evolving regulatory frameworks to reduce greenhouse gas emissions by half by 2030, we are using our passion and knowledge for chemistry and data solutions to reduce the environmental impact of hydrocarbon production on our air, water, land, and people. Over the last quarter, I've personally been meeting with the CEOs and C-suite leaders at ENPs to understand their ESG strategy and discuss how our chemistry and data solutions can help them achieve their ESG goals. What I've learned through those conversations is that the energy industry has big ESG ambitions, and the most ambitious organizations have ESG plugged in at the C-suite and into their operations and supply chain decision-making. Furthermore, at this stage, green chemistry is not yet widely seen as a strategic lever in the EFC toolkit. As operators evolve their approach to lower the total cost of ownership across the full life cycle of their programs, chemistry is going to become more important than ever. This is precisely where we partner collaboratively to provide value and reduce liability. Lotec has long been known for differentiated green chemistry. which the EPA defines as reducing the use of hazardous substances, utilizing less toxic biodegradable chemistries, minimizing spills and pollution, deploying real-time measurements and driving operational efficiencies. When you consider the large volumes of chemicals that must be transported, handled, and pumped at the well site, the green impact, both financial and environmental, is meaningful. From a digital transportation perspective, Our real-time monitoring and data solutions measures the composition of crude and refined products every 15 seconds while flowing without having to take a physical sample, which eliminates the risk of fugitive emissions. It also enables the automation of large-scale processes, helps in the minimization of waste, and improves reprocessing or eliminates the inefficiencies in reprocessing. Today, our customers are using this technology to reduce their carbon footprint, reduce energy consumption, and reduce emissions. In the future, our customers will be able to use our BERAC system to measure greenhouse gases in real time in the pipe. We offer greener solutions across our enterprise, and that is why we are partnering with leading MPs to recommend opportunities to reduce the total financial and environmental cost of ownership through our green chemistry and real-time monitoring. I'm encouraged by our conversations, and we have a lot of room to collaborate to improve our industry's sustainability. Transitioning to our first quarter performance, I would like to address our pending litigation related to our terpene supply agreement with Florida Chemical Company. As we announced on March 29th in an 8K, we terminated our terpene supply agreement with Florida Chemical following their refusal to allow Flowtech to exercise our contractual rights to audit their books and records. Pretty standard term in a contract in our industry in the supply chain. We have filed a lawsuit seeking recovery of amounts already paid, in particular last year's payment of $15 million to ADM, and we filed a lawsuit against ADM, and subsequently they have filed a counteraction in Delaware. While we cannot discuss ongoing litigation or speculate as to the outcome, we feel very confident in our position. Despite the termination of the supply agreement, we have sufficient terpene inventory and alternate terpene supply sources to meet our requirements for the foreseeable future. Furthermore, we do not expect the termination of the supply agreement or related litigation will have any material impact on our operations or our ability to meet customer needs. Moving forward, our supply chain management strategy will align our terpene purchases with our demand. Hence, we will no longer have to sell excess terpene at a loss. While our top line may be marginally impacted in the short term as a result of our strategy, we will see a very positive impact for our cash use and margins. Next, I'd like to discuss several highlights of our first quarter. Our adjusted EBITDA improved sequentially, driven primarily by strength in our data analytics. As we look forward, we are excited about the growth opportunities in our data analytics segment, and I am pleased that our first quarter was the best performing period for JP3 since our acquisition in May of last year. Top line is improving, and our losses are narrowing. We continue to make progress around our international market entry, and Peng Bang will address further in his upcoming comments how we're doing there in his excitement for the business. Moving on to our chemistry technologies, stripping out the terpene purchases that were reflected in prior quarters, our chemistry technology segment improved quarter to quarter with strong improvement domestically during the first quarter from energy chemistry. Additionally, I'm pleased to announce we've added two talented leaders to our chemistry technology segment. Nathan Snow, who joins us as Vice President of Energy Chemistry, and Matthew Sullivan, who joins us as Vice President of Professional Chemistry. Ryan will share more about their experience and background However, I know both will be instrumental in taking our chemistry technology business to the next level. I'm also, in the area of personnel, I'm encouraged by the number of people that are now seeking employment with Flowtech. It's great to see people calling in and wanting to be a part of the team. But let's transition over to cost measures and liquidity. One of our most important priorities is to protect our balance sheet, and we are actively evaluating numerous actions, such as the sale of non-core real estate properties, sale-leaseback transactions, and consideration of an asset-based loan, among other options to improve our financial flexibility and provide the working capital we think we'll need as the market continues to improve and we grow. I want to assure all of our shareholders that we are focused on improving financial flexibility, and we intend to do so without diluting value for shareholders. Finally, it's also worth highlighting that as a result of Winter Storm Uri, as reported in last quarter's call, we were impacted by the widespread historic declarations of force majeure across the entire petrochemical supply chain. As a result, we have seen a rising price environment along with limited supplies of certain raw materials. Our team continues to leverage our supply chain relationships and manage costs within this inflationary environment. For additional details on the quarter, I'm going to turn it over to Tang Bang for further discussions on our data analytics. segment, and then to Ryan, who will give an update on our chemistry technology segment. And lastly, to Mike, who will provide a more in-depth discussion of our financial results.