Flotek Industries, Inc.

Greetings and welcome to Flowtech Industries second 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. 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 Nick Bigney, Senior Vice President, General Counsel, and Chief Compliance Officer 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 Borton, Chief Financial Officer, Teng-Bang Coyd, President of Global Business, and Ryan Ezell, 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 second quarter of 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, and 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 we may discuss non-GAAP metrics on this call. And with that, I will now turn it over to John.

Well, thank you, Nick, and good morning to everyone. First, let me address our second quarter performance, which was meaningfully impacted by market consolidation in the Permian Basin. As we discussed at our annual general meeting in early June, two of our most significant customers changed ownership in the quarter on accelerated timelines, resulting in a disruption in committed inventory and anticipated revenue. Having observed many consolidation events such as these in my career, It's very common for pauses in services or changes in vendors to occur as companies integrate. We are in talks with both customers about becoming their green chemistry supplier, and with one, we should be back to work shortly. Blowtech has historically had a high customer concentration in our energy chemistry business, and diversifying our customer mix has been a personal mission since I joined the company last year. Unfortunately, with the downturn, it's been challenging to reduce our customer concentration, but we have been making steady progress against our diversification goals as the industry has begun to recover. Because the industry is recovering, we have chosen to accelerate our sales strategy to diversify our customer base. We have diversified our revenue by increasing the number of both E&P operators and oilfield services companies we sell to today versus a year ago and expect the revenue to grow with our new customers during the coming year. To boost revenue growth, we've also reduced non-revenue generating costs in order to add sales and marketing resources. We have focused our expertise and passion on the delivery of green chemistry and data solutions to reduce the environmental impact of energy production on air, water, land, and people. We have catalyzed our shift to ESG, and we've engaged with the industry to demonstrate the strategic benefits of our sustainable chemistry and data solutions in support of our customers' ESGs and operational goals. Building upon our decade-plus track record of supplying our bio-based, high-performance chemistries, today we are actively partnering with energy customers to maximize the convergence of asset performance, environmental protection, economic value, and safety of the community. Fundamentally, we intend to assist our customers in their efforts to sustain the social license to operate in every geography. We are invigorated by the response we're receiving as we increase awareness of the benefits of our green chemistry and real-time data solutions. In support of those efforts, we are actively engaging with one of the most influential accounting standards agencies to impact the industry's ESG chemistry reporting standards. I'm excited about the potential outcomes associated with this engagement because I am a firm believer in what gets measured gets improved. In that vein, as we have expanded our C-suite engagements, we are beginning to see some competitive bids include ESG components as they evaluate chemistry partners. The emergence of ESG components in tenders works in our favor. Finally, we partnered with an important customer to conduct an analysis of their chemistry usage to support their ESG reporting and performance. We envision this scorecard to be the prototype for future engagement with the industry. And while these are all very encouraging steps, we still have to work to do more broadly to drive awareness and action to replace toxic chemicals such as those formulated with xylene with safer, renewable, and sustainable alternatives. Ryan will provide more in-depth commentary on that when he speaks. To eliminate delay in the implementation of critical ESG solutions, there must be stronger connectivity throughout our customers' organizations to move from ESG intent to purchasing behavior at the well site. This transition has begun but needs to become an imperative. We are ready to support this change with our customers. Now let's move on and touch a few of the quarterly highlights. While there's no question the loss of revenue associated with the change in ownership the two customers just discussed was a setback for our energy chemistry business, it is important to note that if we were to exclude those events, Our sales and adjusted EBITDA were both above our expectations, further validating that our focus on green chemistry is gaining momentum. During the quarter, we marked the one-year anniversary of the acquisition of JP3, and I am pleased that our second quarter was the best-performing period for JP3 since the acquisition. We continue to make progress around our international market entry, and I am thrilled that we have received our first international purchase order, and you're going to hear a lot more about that from Tang Bang Khoid momentarily. We have taken multiple actions to strengthen our balance sheet. First, we recently announced that we've completed a long-term lease agreement for our Waller, Texas facility with Resolute Oil, which will generate other income while offsetting our cost. Resolute's a global leader in high-quality white mineral oil, and we are excited to explore opportunities to leverage our respective green chemistries to adjacent markets we serve. We are also in negotiation on a lease for our Monahans facility, which will make it income generating as well. Additionally, in the quarter, we secured full forgiveness for the JP3 Paycheck Protection Program, or PPP loan, and we have filed for forgiveness of Flotex PPP loan and hope to have an update for you next quarter. And finally, we're pleased that we've signed a term sheet for an asset-based line of credit, and we'll keep you informed as the details of this agreement are finalized. In terms of cost initiatives, as referenced earlier in my comments, we have realigned our structure to ensure we are built to seize the ESG opportunities ahead of us. With the keen awareness, now is the time to grow our market share, given our unique position and offerings. As a result, we eliminated roles that were not directly generating revenue and are reinvesting to expand our sales team. The net annualized cost savings is more than $1 million, including the reinvestment. We're also pleased with our inclusion in the Russell Micro Cap Index in June, which represents an opportunity to improve our visibility within the investor community and to help us expand our shareholder base. Now, before I pass this call over to Tang Bang and Ryan, let me just give you some commentary on some new key partners that have joined us. First, I'd like to formally welcome Lisa Mayer to our Board of Directors and Audit Committee. She really gives us strength in governance. She has over 25 years of financial accounting experience and is the current CFO of Internet Holding, a digital infrastructure provider. Lisa is a strong addition, and I know that she will immediately have positive contributions to make to our board and our company. I'm also happy to welcome KPMG as our new audit partner. We just began our relationship in July, and the team and I are very impressed with their professionalism, I look forward to a collaborative partnership. And I'm amazed that KPMG and our team, in just five weeks, managed to get the queue out on time. So congratulations to both of you. We are pleased to have expanded our coverage to include noble capital markets, and we welcome research analyst Michael Heim to our call. And we look forward to hearing his questions this morning, along with Daniel Burke, our esteemed analyst for quite some time from Johnson Rice. Now I'd like to turn the call over to Tang Bang for further discussion on our data analytics segment. Tang Bang?