Greetings, and welcome to Flotek Industries’ Fourth Quarter and Full Year 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. [Operator Instructions] 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 Flotek. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate your participation with us today. Joining me and participating on the call are John Gibson, Chairman, Chief Executive Officer and President; Michael Borton, Chief Financial Officer; Ryan Ezell, Chief Operating Officer; and James Silas, Interim President of Data Analytics and Senior Vice President of Research and Innovation. On today’s call, we will first provide prepared remarks concerning our business and results for the quarter. Following that, we will answer your questions. We have now released our earnings announcement for our 2021 fourth year and full year – fourth quarter and full year results, which is available on our website. Additionally, we have uploaded an Investor Presentation to 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 and which can cause actual results to differ materially from our current expectations. 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 the 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. I just want to thank you for joining our discussion on the 2021 fourth quarter and full year results. 2021 has been another challenging year for many businesses and individuals, supply chain instability became a household term, worries about inflation have had an impact on market. And as we hold this call, the conflict between Ukraine and Russia continues. Although 2021 was a difficult year here at Flotek, we use the opportunity to strengthen our company both financially and operationally. We’ve also used the time to be laser-focused on our strategic objectives. Those objectives calling us to focus on flawless execution, profitable growth, and strengthening our financial position. In this call, I will highlight the strategic priorities through the lens of what we accomplished in 2021, all of which may not be evident by strictly reviewing the financials. These accomplishments or what put us on the path to transformative deals like the recently announced ProFrac agreement. We believe that the Flotek of 2022 and beyond will be vastly different than the version exiting 2021. And so today, instead of focusing on the past, let me share with you Flotek of the future. Our strategic priorities are built around a core commitment to environmental leadership. In the last few years, the term ESG has gained a tremendous amount of traction. But like many topics in the popular discourse, trending items often have their moment and then they fade away. At Flotek, we believe that the concepts around improved environmental stewardship are inseparable from long-term sustainable growth in the energy industry. In addition to the issue of maintaining a social license to operate, companies already deal with increasing pressure around availability of water, minimizing waste, and maximizing efficiency of operations in the face of tighter cost…

Thank you for the kind words, John, and good morning,everyone. Well, as a segment, we did not achieve our goals in the fourth quarter. I have had the opportunity to work closely with a team since December, and I’m impressed with our customer engagements and the market opportunities that lay in front of us. Let me mention a couple of points about the Data Analytics segment. First, our core JP3 technology. Our new line of Verax [ph] analyzers represent an optimized blend between speed of measurement, versatility of applications and robust operating conditions. We are delivering data every minute that is driving operational efficiencies. These critical compositional and physical property measurements enable our customers to more effectively manage their product and inventory by optimizing their blending and separation processes in real time. Given the enterprise-wide impacts of our solutions, our sales and marketing efforts must shift to be aligned with our customers’ leadership. While our sales efforts today have built powerful use cases, we are expanding our focus beyond siloed single level applications to enterprise-wide solutions and partnerships. We will continue to elevate our engagements with C-Suite customers, especially to communicate the value proposition our technology enables in meaningful improvements in ESG performance. Access to critical real-time information supports decisions that reduce carbon footprint, energy consumption and emissions that automate large-scale processes and that minimize waste and inefficient reprocessing. The versatility of optical analyzers in edge embedded chemometric modeling means that we have the platform capable of delivering next-generation reductions in greenhouse gas emissions. Finally, in 2021, we initiated several international pilot programs currently in various stages of execution. These pilots are on schedule, and we feel confident that they will prove the value proposition that has already been established in our North American markets, and will afford us a defined growth trajectory. In summary, the technology to drive the next generation of ESG performance globally is available here and now. With that, I will turn the call to Ryan to discuss our chemistry technology side.

Thank you, James. Today, I’ll discuss our chemistry technology segment performance, which includes our energy chemistry technologies, as well as our professional chemistries for industrial and consumer chemistry solutions. At the completion of the fourth quarter, I’m pleased to report that our energy chemistry technology strategy to be the collaborative partner of choice for delivering sustainable optimized chemistry solutions is being fully executed and gaining momentum. Flotek differentiated solutions focused on maximizing our customers value by elevating their ESG performance, lowering operational costs, and delivering improved return on invested capital. We’re continuing to see growth with both domestic and international E&P operators, as well as service companies thus delivering on our continued commitment to diversify our revenue stack and minimize risk of customer concentration. In the fourth quarter, we observed implementation of our accelerated structural changes, already paying dividends, as our costs continue to decrease while our revenue growth outpaced the growth of the domestic hydraulic fracturing fleet market. Additionally, we completed a year with a stellar performance in regard to safety, service quality and customer satisfaction. As a result, I’m pleased to report the following highlights for the fourth quarter. First, revenue for the energy chemistry technologies improved 32% quarter-on-quarter, thus significantly outpacing the market and indicating continued market share growth. This marks a 26% improvement from Q4 in the prior year. Secondly, revenue generated from domestic accounts grew 34% while international accounts grew 24% quarter-on-quarter, demonstrating the continued emphasis on improving revenue diversification. And revenue from our Material and Translogistics facility in Raceland, Louisiana with the world’s top oilfield services providers expanded by more than 53% quarter-on-quarter as it became a key facility for delivering services to minimize the impact of Hurricane Ida, and we continue to make notable progress in rebuilding our indirect channels to market with service companies. We have solidified a partnership with ProFrac to deliver downhole chemistries to its hydraulic fracturing fleets in North America. Should the contract extension be approved by shareholders, we anticipate combined organic appropriate related 2023 revenues to be well in excess of $200 million. Furthermore, the segment has continued its growth into adjacent energy markets with revenue generation and geothermal drilling and cementing operations as well as solar panel coatings. In the spirit of minimizing risks, we continue to negotiate with key suppliers to secure future purchase prices and material allocation volumes with our top product lines for 2022 as we focus on accelerated growth and margin expansion. And finally, we’re pleased to announce that Flotek completed the year with zero also recordable in zero hours of non-productive time in the field and manufacturing operations, thus, further exemplify our commitment to execute for the customers and deliver on our value proposition. Going forward, we’re excited about the future and the continued opportunities for our Chemistry Technology segment as we continue to empower our customers socializes, operate with our enhanced chemistry solutions. Now I’ll turn the call over to Mike to discuss our financial results.

Thank you, Ryan. As John mentioned earlier, the 10-K now reflects gross margin in the consolidated statement of operations for the first time since 2017. Segment level sales and marketing costs and corporate G&A is now combined and reported as selling, general and administration on the statement of operations. Cost of goods sold as reported now represents product costs, transportation and certain other costs required to produce and deliver goods and services. The company made these changes in reporting and an effort to provide greater transparency and after considerable review of industry peers and in consultation with our external auditors. Now let’s go through the income statement in more detail. During the fourth quarter, consolidated revenue was $12.2 million, up 20% from the $10.2 million in the third quarter, and slightly up from $12.1 million of revenue during the same period last year. The total revenue for the year was down 19% from 2020 but only impacted by the M&A activity impacting two significant customers and the non-recurring sales of excess terpene. Even with a lower revenue for the year, our losses now from last year both in the fourth quarter and the total year as we manage our business more efficiently across the organization. By segment, chemistry technology, including the impact of excess terpene sales, saw a 23% increase in sequential revenue, or $11.6 million for the fourth quarter. This also represents a 7% increase from the same period in 2020. The Data and Analytics segment saw a 27% decrease in sales sequentially from Q3 driven by several product purchases being pushed out into 2022. In the fourth quarter, we have made an $8.1 million impairment of goodwill roughly $0.11 loss per diluted share relates to the Data and Analytics segment. Ultimately, we believe this asset to have considerable…

Thank you, Mike. Today, Flotek stands as an operationally efficient organization positioned for profitable long-term growth with a team who can execute on our mission of delivering solutions that reduce the environmental impact of energy on air, water, land and people. I believe there’s plenty of room to be optimistic this year. We’ve seen some big names, particularly for the energy producers, posting considerable gains already and through 2021. While there’s typically a time lag between producer events and the impact of service companies, we believe that much of the momentum that operators are having will yield gains for us as well. Looking forward to 2022, we look – we believe we’ll be able to hold the budget flat and we’re going to see our margins improve. As I alluded to earlier, we recently hosted and Investor call and better explained the elements the impact with ProFrac, that gives us $225-plus million and contracted revenue over the next three years, a tremendous upside over the next decade. Combined with the organic growth, we anticipate our first month of business profitability in 2022, which should be followed by uninterrupted profitability thereafter. When I joined the Flotek team in January of 2020, I came in with a philosophy of looking forward. Feel confident today that the ProFrac deal owes the potential to secure our future and allow us to look forward. Of course, this is contingent on approval in our upcoming Special Shareholder Meeting. So I’d like to take this final opportunity to strongly encourage you to vote in favor of the proposals and our proxy at this time. In closing, I just want to thank all the people here at Flotek. It’s been an endurance contest, and we’ve emerged from it in a great and successful position to go forward. Particularly thank our customers and our shareholders for their continued support together, right? And with that, operator, I’ll turn it back to you for questions.

We will now begin the question-and-answer session. [Operator Instructions] At this time, we will pause momentarily to assemble our roster. Our first question is from Jeff Robertson of Water Tower Research. Please go ahead.

Thank you. Good morning. Ryan, can you talk a little bit about capacity utilization on the energy chemistry business in 2022 and 2023 with the ProFrac contract and then also about penetration with other service company customers for utilization of the amount of capacity they are not taking up?

Yeah, absolutely. It’s a great question. When we look at some of the uniqueness for first off around with a ProFrac contract is a non-exclusive agreement. So it allows us to continue growth in our other areas of the market. When we look at the capacity in our current manufacturing operations is, we were actually running probably less than have a look at 15% overall utilization to deliver our field services and chemical blending operations. And that was only all running atypical day shift. When you look at the growth of what this with ProFrac component with, it included with the potential parts of where we’re going. We’ll still be sitting at probably around the full operations with ProFrac. We’ll be probably still less than 52% of our operational capacity on what we can handle without making any type of CapEx expenditure. So we definitely have opportunity to grow without having to spend a lot of money and doing the support. And believe it or not, in the past, if you go back two years, as far back as, say, 2017, we actually moved 300 million pounds of chemicals in that year. And that falls in line with similar to how we’re going to be expanding and the ProFrac operations, all organic growth. So we still have quite a bit of room to take up until we get into any need for capital expansion. The unique part about how we’re doing the service delivery models now is that we also leverage in-basin support, and that we don’t have to bring all the chemicals that we do through our main manufacturing facilities, because some of them are basically repackaged materials that we buy when we consider some of the lower end technologies. And so we sourced those in basin and deliver those straight to the rig side, off rail spurs, et cetera, for some of the chemical companies that we work with and doing that. So we have a great opportunity to not only to do the non-exclusivity components and appropriated contracted grow the core business but also have capacity to handle this growth in the long-term, before we have to do any significant capital expansion.

Ryan, to be clear, the 52% capacity, that’s what will be used for the ProFrac contract, including the supply – the amendment, and what your – what Flotek’s baseline business has been in 2021?

That’s correct. That’s correct.

Okay. Does just ProFrac – does a ProFrac agreement in the basins that they are operating and where you will have or where they will have crews deployed that you will serve us, will that help enhance potentially enhance Flotek margins with other customers in that basin by giving you more scale?

Absolutely, absolutely. We definitely feel that the more – obviously, the more volume we move helps us our leverage component or particular areas where we can look for margin enhancements. It also – the one big thing that suppliers really enjoy is that if we could get an accurate forecasts of this volume out to them, and we started looking at companies like ProFrac, even some companies we brought in our organic business, we’re getting a much better lead time out to forecast what type of material usage we’re going to be, which gives us better leverage with our suppliers on helping us reduce our overall cost and leverage that for margin improvement. That’s correct.

Okay. Mike, you mentioned working with cap – with Piper on alternatives. Can you talk about the – with the pipe financing that was completed in February with the first supply agreement, how much of the working capital for the supply agreement in the expand or the supply amendment is covered by the capital that you all raised in that event?

So thanks for your question, Jeff. So we think a majority of it in the short-term is covered by the pipe. Clearly, we have projections going out that we’ll need some in the future. We’re trying to determine how much it depends on how fast they ramp up, and also as we monetize the other assets in the organization.

So to be clear, that’s a longer-term issue than short-term?

Correct. Correct.

Okay. Thank you.

Operator, before we move on to the next questions in the queue, we’ve must inbound [ph] by e-mail for John from Eric Swergold, Firestorm Capital. Eric asks us what the sensitivity of the ProFrac contract as the oil prices?

I’ll answer a bit and then throw it over to Ryan. The great part about this contract, which I hope does not go unnoticed, is that it gives us continuity regardless of all price. They – the contract promises 70% of the crews or a minimum of 30 crews. And with them at 45 crews that they would have to come down by nearly 33% before we got to the 30 crews or less. I’m not anticipating any price scenario for the commodity that would cause a reduction in cruise that bar. So we basically are I think are one of the only service companies that have true backlog in place that goes out for a decade, that secure in the current price environment. And so pretty excited to know that we can make plans going forward and we have a robust revenue stream to support that. Anything to add, Ryan?

No, I think it’s all correct, John, in alignment with my thought as well. You look at the the near-term, particularly on a plus a decade LinkedIn contract, what we do see is a lot of protection in where the way ProFrac operates. And I would say what we call some of the upper tier service companies are starting to have longer-term operations for their scopes of work and that they’re not so well transaction. This also helps us have a lot of confidence in the work scope, and how we’re forecasts our material. So that’s my I would say the big transition that we’re starting to see and around the capital discipline, and particularly, upper tier hydraulic fracturing operations is that they have a longer guarantee type scope of work. And that’s something that helps gives us stability in the near-term with the oil prices as well.

Another thing that sort of pumps me up as we were going to be doing a call with you again. And probably six or seven weeks, if we report Q1, we’ve been able to get through the month of April, which will be our first month, where we are really ramping up on this contract. And we’re excited about how we’re already engaged with them and the number of crews are being brought on and look forward to giving you details on that. As we come into that call for Q1, we’ll be able to explain how well we’re doing in the ramp up, and that’ll give you a clear indication of what 2020 is going to look like. So pretty excited. Look, go back and click another call.

The next question is from Mike Heim of Noble Capital Markets. Please go ahead.

Thanks for taking my question. I’m looking to get a little bit better understanding on the nature of sales associated with the data analytics. I heard Mike make some comments that maybe some projects were pushed out into 2022. And I certainly understand that it can be a lumpy business, at the same time we were writing down, taking the goods rolled write-down. Just wondering if you could talk a little bit more about the nature of sales, timing issues, the impact of specific projects or customers in terms of affecting timing issues.

Sure. So James is here with me, too. But when we took a look at it, the impairment issue was really related to the sensitivity and discount rates. And we took a look, and I don’t want to have to do this quarter-after-quarter. So we just – we took what was provided to us by third parties, and we felt like it was realistic. And we just go ahead and finish that off. Because right now, we’re so focused on the chemistry business and how big that’s going to be. I don’t want to major in minors here over the next quarter. So it’s like, let’s focus on where are we really going to be making money. At the same time, we’ve got tremendous amount of upside with some big opportunities and the data and analytics sales cycles become a little longer. But we’re excited about the use cases, excited about new customers. And with that, I’ll let James sort of give you some more highlights, but a great business.

Appreciate the question, Mike, I just wanted to reemphasize some of the comments I had earlier in the call. We really are looking to shift from single use or single project to more to technology adoption from the customer side. And in doing that involves customer conversations at multiple levels, as well as engaging in partnerships with other service providers in order to be able to provide a bundled solution to them as well. So those are things we’re looking forward to talk more about as we get those in play later in the year.

The next question is a follow-up from Jeff Robertson of Water Tower Research. Please go ahead.

James, the follow-up on data analytics. So I think you mentioned a international pilot project and moving more to an enterprise type solution for customers. Can you talk about what kind of hurdles you need to cross in what – on those initiatives? And what that would mean as far as being able to sell units across that company’s platform as opposed to one-off sales?

Sure, I’m happy to discuss that. From the international pilot programs, we are on schedule with us as you’re dealing with national oil companies. Schedules can shift from 18 months to 24 months in between initial proposal. So when you’re finishing those programs, and we’re in the middle of that period currently. We view that if we were able to get those successful, which we are expecting to be, we will open up additional market greater than what we currently have available within North America. And so we’re excited to get those up and running and showing value and we’ll be happy to talk about that more as we have something to say.

And is part of the goal trying to get a corporate adoption of the JP3 systems as opposed to, let’s say, one manager and one plan, so the corporate accepts it and deploys it across a much broader asset base.

Yes, I think what James was trying to explain is, we’re looking more to be a platform than to be a device. And so in trying to pursue that, we’ve actually been working with a couple of what I’ll call dashboard, or process engineering companies as to how we plug our sensor into their processes, I think you’ll see us pursuing that as we go forward to the next quarter or so because that supports, how it needs to work in a national oil company, they don’t really need a device, they need a platform that supports business decision. So we’re elevating it from a device sale to a business decision support device. It’s not just a sensor. And that’s where James is taking it. I’m quite excited about it. And we’ll look forward to talking about that more as we go forward.

With that, I think that’s probably the end of the time we have questions this morning. And I just want to thank everybody for joining us. Please go back and review the call from Mark’s pants that covered ProFrac contract. Please get home – get in there and vote in favor of this proxy. We’re excited about working with them. And I think you’re going to begin to see the impacts, particularly in Q3 and Q4. But you’ll see the ramp up and how exciting this is going to be for us going out for the next decade. And you’re going to have a company that really has an annuity in terms of revenue that we can count on and that we’re going to build our cost structure around, so we could provide positive results. So thanks, guys. I really appreciate it. Take care.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.