Flotek Industries, Inc.

Greetings and welcome to Flowtech Industries third quarter 2021 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 Nick Bigney, Senior Vice President, General Counsel, and Chief Compliance Officer for Flowtech. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate your participation with us today. Joining me today and participating on the call are John Gibson, Chairman, Chief Executive Officer and President, Michael Borden, Chief Financial Officer, Feng-Beng Coyd, President of Data Analytics, and Ryan Ezell, President of Chemistry Technologies. 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 may have. Yesterday, we released our earnings announcement for the third quarter, which is available on our website. Today's call is being webcast, and a replay will also be available on our website. And before we begin, 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 and which can cause actual results to differ materially from our current expectations. Accordingly, we advise listeners to review our earnings releases and the risk factors discussed in our filings with the SEC. Also, please refer to our reconciliations provided in our earnings release as we may discuss non-GAAP metrics on this call. And with that, I will now turn it over to John.

Thank you, Nick, and good morning, everybody. Our third quarter performance reflects the execution of our strategy to accelerate sales performance for chemistry technology and data analytics and focus on resolving our remaining legacy issues. I'll talk about all of this. We've been working very hard through the third quarter to grow revenues. I'm pleased to report that our revenues for the third quarter are up approximately 11% compared to the second quarter. When we review revenue growth from some of the larger oilfield service companies, we see modest gains versus the second quarter. We believe our quarter-over-quarter results compare favorably against our peers. Mike Morton is going to walk you through the financial numbers in more detail a little later in the call. Our execution of our sales strategy has been a priority for us as we emerged from COVID, and we've already seen a positive impact. During our second quarter call, I communicated that we had trimmed costs in certain areas to reinvest in our sales team. We've executed on that decision, and I can report that we've brought on board 11 new sales professionals to date, eight new members supporting the chemistry business, and three new people for data analytics. These folks are all highly experienced professionals with proven track records and substantial sales quotas in their previous roles, and hopefully in the roles here as well. Their industry relationships will help us execute our go-to-market strategy. We continue to reinvigorate our sales effort with ECT, and the impact has been demonstrable growth and diversity of revenues for that segment. We were also fortunate in the third quarter as Hurricane Ida passed almost directly over our rail spur in Louisiana. We suffered minimal damage there, and we were able to continue service, which was a benefit to the industry and, in particular, our customers. We believe that our operational continuity presents us with upside for that facility, and we expect to see strong performance over the next few quarters in Raceland. In addition to the new sales professionals that I mentioned, our Prochem business has also signed four strategic agreements with manufacturing representation companies. Ultimately, these agreements give us immediate access to a sizable sales force and a broad geography. These alliances are key to our strategy of utilizing an indirect sales channel to increase targeting opportunities. We certainly didn't invent this approach. There are several well-established companies like Clorox, Gojo, and 3M that leverage the model successfully, and we are looking to do the same. We believe this particular strategy has a lot to offer us in terms of minimizing our cost to execute versus potential returns. Ryan's going to give you more detail around the sales and revenue trends for ECT, as well as some additional highlights into Prochem's milestones this past quarter. ECT and Prochem have certainly had a lot of activity over the third quarter, not to be outdone. JP3 issued two significant press releases on product deployment and new patent-pending technology. The first announcement was for the launch of the IDA application, which we're very excited about, a machine learning AI-based application. The later release concerned international certifications for our online analyzers, which we've all been anticipating. I will let Coyd give you more color around those releases. We believe that those two deployments will help us gain ground on our stated goals of increasing international sales and overall profitable revenue growth. Now, we continue to see a decent pace of consolidations in M&A activity in our space. Examples include next year's acquisition of Alamo Pressure Pumping, Profrax acquisition of FTSI, and recently Wilkes merger with Dawson Geophysical. We are actively evaluating the M&A market and looking for opportunities that fit within our criteria for success. There are three main criteria. We would consider deals, only deals, that are quickly accretive. Deals that involve cash requirements that will be supported by the market and shareholders. And finally, the deal has to have the potential to enhance our sustainability objectives. The successful execution of the sustainability objectives is a critical path to our success, as I believe we're now on a path to widespread adoption in our industry of an environmental culture across the whole of the industry. Today, strong safety culture and demonstrable metrics have become table stakes in our industry. Without them, you're not considered a bidder. Similarly, ESG performance will become another factor that defines what desirable business partners look like. There is no doubt that the ESG footprint influences a company's access to capital. We see strong adoption and philosophical alignment at the board and C-suite levels, but there is still some amount of latency in translation to buying habits at the operational levels. The industry's adoption of ESG principles and the establishment and the emergence of an environmental culture is likely to occur at a rapid pace in 2022. Flowtech is well positioned to be the partner of choice for effective, responsible chemistry and data solutions. These changes that we made around our sales strategy and capacity, as well as the groundwork we are laying with JP3, will be key to differentiating ourselves in the marketplace for evolving environmental cultures of our customers. Supply chain uncertainty is a topic that's also gotten considerable media attention of late. We continue to watch developments concerning the possibility of sanctions against China, as prolonged sanctions could change the drilling industry dramatically. China currently produces and exports considerable quantities of polyacrylamide and barium sulfate, both widely used in the OFS industry and by operators. Additionally, inflationary pressures and transportation constraints have the potential to impact our customers by pushing prices up and contributing to sourcing delays. While these factors increase complexity, they also present opportunities for us to work with customers and structure mutually advantageous outcomes. We've implemented processes that are designed to help us monitor and to adapt to many of these macroenvironmental factors. We've made investments in strengthening our own supply chain and logistics function. We've implemented systems designed to more seamlessly communicate sales forecast with supply, and we have a team that is experienced in international agreements. Now, most of my comments so far have really highlighted accomplishments of what we've done in the quarter around our business, and what we see is the path forward. However, I want to take just a moment to discuss one of our legacy matters. As you know, when I started in 2020, I inherited a take-or-pay terpene contract with Florida Chemical Company that was well in excess of our need. At the end of 2020, we booked $9.4 million of accrued liability for losses we expected to incur as a result of that contract. Earlier this year, we became involved in litigation with Florida Chemical and ADM its parent company, and as a result of that contract and our request for an audit, we pursued the litigation. In the course of the litigation, we were able to find a commercial counterpart at ADM, and we were successful in bringing the matter to a close, and we settled the litigation last month. As a part of the settlement, we agreed to pay Florida Chemical 1.75 million, and the terpene contract is confirmed terminated and with it the obligation to purchase an additional 10.5 million pounds of terpene. This allows us to release the 9.4 million accrued liability as well, which Mike will tell you more about in his comments. We're grateful to ADM for their willingness to engage with us in a business negotiation, and we're happy to put this legacy matter behind us. Now, with that, I'd like to turn it over to Tang Bang to cover data analytics. Tang Bang.