Flotek Industries Inc Aktie

Good morning, ladies and gentlemen, and welcome to the Flotek Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on August 5, 2026. And now I would like to turn the conference over to Mike Critelli. Please go ahead.

Thank you, and good morning. We're thrilled to have you with us for Flotek's Second Quarter 2026 Earnings Conference Call. Today, I'm joined by Ryan Ezell, Chief Executive Officer; and Bond Clement, Chief Financial Officer. We'll begin with prepared remarks on our operations and financial performance followed by Q&A. Yesterday, we released our second quarter results, updated full year guidance and an updated investor presentation, all available on our Investor Relations website. This call is being webcast with a replay available shortly afterward.

Please note that today's comments may include forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from our projections. For a full discussion of risk factors, please review our earnings release and most recent SEC filings. Please also refer to the reconciliations in our earnings release and investor presentation for non-GAAP measures. With that, I will turn the call over to our CEO, Ryan Ezell.

Thank you, Mike, and good morning, everyone. We appreciate your interest in Flotek and your participation today as we review our second quarter 2026 operational and financial results. In the second quarter, Flotek continued its transformational growth storyline through the execution of its corporate strategy. Driven by the powerful convergence of innovative real-time data and chemistry solutions, as shown on Slide 3, Flotek has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services and proprietary technologies that create value for our customers and improve returns for our shareholders.

The strategic transition of the company into a Data-as-a-Service business model continues to gain momentum while expanding the total addressable market for the company. As a result, Flotek's Data Analytics segment grew exponentially, while our differentiated chemistry segment outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation and total value creation. With that, I'd like to touch on some key highlights for the second quarter that Bond will discuss later in the call.

Company total revenue approached $100 million, up 70% from the second quarter of 2025 and the strongest quarterly performance in the last 10 years. Data analytics achieved its highest quarterly revenue in company history, shattering the first quarter 2026 record by 85%. Chemistry Technologies revenue increased 53% with international chemistry revenue reaching $10.6 million, representing 93% of full year 2025 international chemistry revenue of $11.4 million. Company gross profit climbed 65% versus the second quarter of 2025. It's impactful to note that data analytics accounted for 51% of company gross profit versus 26% in the prior year quarter, marking a major milestone in Flotek's transformation as it became the largest contributing segment to gross profit.

Total company adjusted EBITDA grew 109% year-over-year, totaling $16.8 million. On Monday, we also announced a 10-year $400 million contract award to support PREPA's 400-megawatt Puerto Rico gas power utilities project referenced on Slide 4. Finally, the company updated its 2026 guidance with the new midpoint being 45% and 49% increases versus 2025 actuals on revenue and EBITDA, respectively. This update builds upon a multiyear trend of revenue and profitability growth as the company executes on its strategic initiatives to provide long-term resiliency and profitability as shown on Slide 6.

Most importantly, these results were achieved with 0 lost time incidents in the field of operations. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. Now turning to the larger picture for the energy and infrastructure sector. We continue to believe that the ongoing situation in the Middle East will have impactful and potentially long-term implications on global supply and energy security that will demand action. The industry continues to exhibit a shift in supply side dynamics that's recalibrating the risk profile of regional supply while fundamentally establishing a higher baseline for energy security.

We expect increased investment in localized oil and gas developments, while geographies that do not possess resources look to rapidly diversify energy security exposure. All of these factors point towards a stronger commodity pricing environment for increased upstream activities. Layering in the expanding power demand driven by AI, data centers and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure, the expectations for tailwinds within the energy sector further strengthened. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation.

Flotek is poised to support emerging customers with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting list for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed the greater than 99% uptime requirements. Transitioning from the macro view, let's dive into details, starting with Slide 8. I want to spotlight the transformational growth in our Data Analytics segment. We saw total segment revenues up 223% year-over-year and second quarter 2026 service revenues exceeding total segment revenues from the year ago quarter.

This strong growth is powered by our flagship upstream applications, power services and digital valuation, both of which are generating significant contracted wins and a robust recurring revenue backlog shown on Slide 9. Highlighting those wins are our [ RESA ] /PREPA 10-year 400-megawatt utilities power support contract, generating over $400 million per year backlog through 2036. By the first quarter of 2027, Flotek expects to support over 5 gigawatts of power through measurement or control by our proprietary PWRtek platform. This further validates the demand and scalability of our innovative technologies in the behind-the-meter power space. We're also actively engaged in a potential Phase 2 extension of the Montana Power Services contract.

Finally, we had the successful utilization of our state-of-the-art Smart Skid to optimize gas quality with real-time blending of field gas and CNG for a major IOC. This is the first application of its kind. The momentum gained from these wins has expanded our expected contracted backlog to over $500 million. Power Services led this growth, further reinforcing our shift towards high-margin recurring revenue streams. The PWRtek platform has evolved from a novel analytical approach into a transformative solution for the energy and infrastructure sector. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector as shown on Slide 10.

Our expanding portfolio of patents and field proven use cases position Flotek as a leader across the natural gas value chain. Looking at Slide 11 and when considering the velocity of our measurement, we deliver unmatched real-time fuel monitoring, conditioning, blending and engine control to optimize performance and safety for behind-the-meter distributed power operations. The success of Flotek's power services applications is expanding rapidly as we expect to have proprietary real-time analyzers of more than 50% of the currently active North American e-frac and natural gas powered fleets by year-end.

Additionally, on August 3, 2026, Flotek announced its second contract within the utilities infrastructure sector seen on Slide 4. Leveraging our patented PWRtek platform, Flotek entered into a 10-year agreement to support natural gas-fired grid enhancement initiatives for the Puerto Rico Electric Power Association, which is the electric utility for the Commonwealth of Puerto Rico. Under the agreement, Flotek expects to generate a revenue backlog of approximately $400 million through rental of gas-fired power generation equipment, together with the deployment of the company's proprietary smart conditioning and distribution systems.

Flotek has partnered with Power Expectations, which leads the group executing the emergency temporary power generation project. The initiative is expected to deploy 400 megawatts of natural gas-fired power generation capacity to address Puerto Rico's ongoing energy crisis. Flotek is providing its proprietary PWRtek platform, including 400 megawatts of primary power generation capacity and 6 pairs of smart skids with advanced conditioning, real-time analytics and gas distribution systems, working alongside experienced local partners for on-ground execution and project management. Support equipment is expected to begin deployment in the fourth quarter of 2026 with the initial power generation equipment and conditioning and distribution skids expected by the end of the first quarter of 2027.

Now let's transition to Slide 13, where we'll dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk from producing wells like never before through real-time digital valuation. We believe the XSPCT's speed, accuracy, durability and qualification under the rigorous measurement standards outlined in GPA-2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand this manufacturing and field deployment.

In March of 2026, the XSPCT Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference, further exemplifying its differentiated capabilities. In the first quarter of 2026, we ended the quarter with 57 digital valuation measurement devices deployed or contracted for delivery, and that number has grown 56% to 89 as of the end of the second quarter of 2026. The execution of our transformational strategy to grow the data analytics segment through upstream applications is gaining traction.

But what is most important is what it means for our stakeholders and our investors. First, our data-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Secondly, our proprietary data technologies and superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty and support our value-based service model. And third, long-term high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time.

And lastly, our Chemistry Technologies segment continues to deliver robust performance driven by the differentiation of our prescriptive chemistry management services and our expanding international presence. Slide 16 highlights the resilient performance of our Chemistry segment, which delivered a 53% increase in total revenue for the second quarter of 2026 compared to the second quarter of 2025 despite a 5% decline in the average North American frac fleet count over the same period according to primary vision data. This was the strongest quarter of chemistry sales since 2017 and exceeded our expectations as our work in the Middle East pulled forward, driving strong performance in the month of June.

International revenue totaled $10.6 million, up 172% from a year ago, with the company expecting continued growth in international chemistry sales in the second half of 2026. It's evident that our chemistry team has executed our strategy flawlessly. As we move into the second half of 2026, opportunities leveraging the convergence of prescriptive chemistry management and data services move to the forefront through high-margin services that improve operator ROI. These advanced data-driven services include smart ChemAD units, real-time flowback monitoring and implementation of prescriptive geological targeting.

Looking ahead, I am more confident than ever in Flotek's momentum and our ability to drive sustained profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions that are tailored precisely to our customers' evolving needs. Now I'll turn the call over to Bond to provide key financial highlights.

Thanks, Ryan. Good morning, everyone. Clearly, this was an exceptional quarter compared to both the prior year and the first quarter. As Ryan indicated, second quarter revenue exceeded our expectations by a wide margin. I wanted to provide a little color as to how the quarter came together. Second quarter revenue growth benefited from a very strong month of chemistry business in June. We recognized nearly $31 million of chemistry revenue in June alone. For perspective, that represents more than 50% of the total chemistry revenue generated during the entire first quarter of 2026.

On the strength of our international business, our external customer chemistry revenue in just the month of June totaled $15.2 million, which exceeded the external customer chemistry revenue for the entire first quarter. As a result, external chemistry revenue increased 111% sequentially and accounted for nearly 60% of the company's total second quarter revenue growth of $29 million compared with the first quarter. Our updated guidance builds in a more normalized pace for domestic external customer chemistry revenue in the back half of the year as compared to the second quarter due to the transactional nature of the business. However, in terms of international work, we have inventory shipments expected to arrive in country during August and potentially September that we believe will allow international revenues to remain strong.

We expect both chemistry and Data Analytics segment revenue for each of the third and fourth quarters to outpace our first quarter results. Because we have not yet secured the Phase 2 extension of our Montana Power Services contract, our guidance assumes no revenue from that contract during the fourth quarter. And as noted on Slide 12, we are currently in extension discussions with the various parties to that agreement. In addition, our guidance does not yet consider any financial impact in 2026 from the Puerto Rico contract announced Monday as we continue to work on initial deployment time lines.

As shown on Slide 6, we are estimating total revenue to range between $340 million and $350 million with adjusted EBITDA in the range of $47 million to $51 million. As Ryan pointed out, the midpoints of these ranges imply significant growth in each metric as compared to 2025. Just as a reminder for everyone, our adjusted EBITDA guidance does not add back noncash amortization of contract assets, which is expected to total approximately $9 million during 2026. Moving from guidance to quarterly results. Total revenues for the quarter increased $41 million year-over-year, aided by the strong June chemistry sales previously discussed, 68% of the total revenue growth as compared to the second quarter of last year was attributable to chemistry, while 32% was related to data.

Chemistry segment related party revenues were up 64% from last year's quarter, while external customer revenue increased 38%. As Ryan noted, international chemistry revenue totaled $10.6 million during the quarter, which is up from $4 million a year ago and up from just $1.9 million in the first quarter. Data Analytics delivered another record quarter. Segment revenue represented 19% of total company revenue in the quarter, up from 10% in the year ago.

As outlined on Slide 9, we continue to gain momentum with external customer data analytics sales. 63% of second quarter DA revenue was derived from external customers as compared to 44% in the year ago quarter. The increase in externally derived revenue was driven by our Montana Power Services contract that contributed nearly $6 million in revenue during the quarter as well as a $2.5 million sequential increase in our upstream power services business that continues to expand to external customers.

Looking forward to 2027, we expect the project in Puerto Rico will meaningfully increase the percentage of revenue derived from external data customers. Total company gross profit increased 65% as compared to the year ago quarter. As a percentage of revenue, gross profit totaled 24% during the quarter, which was down less than 100 basis points versus the year ago quarter despite the nearly $7 million decline in the order shortfall penalty as compared to the second quarter of last year. G&A expenses increased 14% year-over-year. Excluding stock comp, G&A was only up 7% versus the year ago quarter.

As revenues continue to scale, we see meaningful leverage in our G&A expenses. Total G&A expense declined to less than 8% of revenue in the second quarter of this year compared to nearly 12% in the year ago quarter. This marks the lowest quarterly G&A rate as a percentage of revenue that we have achieved in at least the last decade. Net income for the quarter was $10 million or $0.26 per share compared to $1.8 million or $0.05 per share in the prior year quarter. Our June 30 balance sheet reflects the increased activity during the quarter, particularly the strong month of sales in June. While our ABL balance was elevated at June 30 relative to funding working capital needs, borrowings outstanding as of this morning on our ABL have been reduced to 0.

First half results were impressive with revenue up 49%, adjusted EBITDA up 81% versus the first half of last year. We've delivered strong growth while maintaining a disciplined balance sheet and low leverage. As shown on Slide 19, using the midpoint of the updated adjusted EBITDA guidance, our leverage ratio is less than 1x based on net debt outstanding as of June 30. We believe this positions us to continue executing our growth initiatives while maintaining financial flexibility. With that, I'll turn it back to Ryan for closing remarks.

Thanks, Bond. Our second quarter results extend our multiyear track record of consistent improvement as we continue transforming Flotek into a data-driven technology leader. The Data Analytics segment delivered strong growth, highlighted by triple-digit increases in service revenue, expanding recurring revenue streams and a robust multiyear contracted backlog now exceeding $500 million. Together with our resilient prescriptive chemistry management services, Flotek is well positioned to gain additional market share and drive further top and bottom line improvement with substantial upside opportunities in our data-driven services.

We remain committed to shaping the industry's digital and sustainable future by leveraging chemistry as our common value creation platform. With our proven execution, expanding high-margin capabilities and clear pathway to scaled growth, Flotek is poised for the next phase of value creation for our investors. Operator, we're ready to open the floor for questions.

[Operator Instructions] So your first question comes from the line of Rob Brown of Lake Street Capital Markets.

Congratulations on all the progress. First question is on kind of the overall power infrastructure business. The Puerto Rico contract was a great add. Could you kind of comment on the overall pipeline in that business? And maybe just some color on what other kind of projects are out there in terms of the pipeline you're pursuing?

Yes. We look at it right now -- right now, I would say that our power services pipeline, particularly related to utilities, infrastructure and data centers are the highest it's been in the history of the company. And this recent award with PREPA is an example of the type of pipeline, and we have a series of different opportunities that we're in various stages of bidding and processing around that. What's exciting is we've now moved measurement devices. We're actually monitoring real-time gas-fired traditional power plants, some in the Northeast, a couple here that are moving in Texas.

We've also expanded our measurement services into data center growth. It was -- I mentioned that project about the real-time blending and control for one of the major IOCs. This is an area that's going to be targeted for data center growth with some of the larger behind-the-meter power generation companies. And so we're seeing a significant pipeline there. I would say when you look at a combined value of well over $1 billion now on the pipeline potential and at various stages of bidding, negotiation, et cetera.

So an exciting time to see what we're doing here at Flotek. And I think it's also important to note that since the starting of our PWRtek segment in the second quarter of last year, we've now grown. We'll be doing measurement and/or some variance of control and distribution on almost 5 gigawatts of power. So it's an exciting growth platform for Flotek and for the future as it continues to gain rapid growth and scalability.

Okay. Excellent. And then just more detail on the Puerto Rico contract. It sounds like you're doing a combination of gas control and power generation. Can you just elaborate on the power generation side when that activity kicks in and how that's going to fit into the mix of what you're doing?

Yes. I would say this was so new where we released that. We're going to be giving some updated numbers on guidance on when we think those financials begin to hit. You'll really start to see those play in, in the first quarter of '27, maybe a little bit of mobilization pieces here at the back part of Q4. Our initial 40 megawatts of prime generation will move pretty quick as kind of a baseline start-up piece there as well as all of our conditioning and distribution setup. I think what we talk about is the conservative financials around the baseline of the contract.

When you look at the infrastructure needs inside Puerto Rico, they're actually out looking at growing almost 3 gigawatts of power as they're trans -- moving over from, I would say, coal and/or diesel type burn fuel facilities to nat gas. So not only is this initial 400 megawatts a great opportunity for us, I think we'll have quite a few other opportunities to expand our work there.

What's unique is this is going to be an LNG transition to CNG potentially combined with, I would say, biogas, some from landfills. And so this is where you start to see the unique real-time monitoring and real-time blending technologies at Flotek become extremely differentiated and why it puts us at a forefront of being able to capture this kind of work. But I think that we'll give some further updates on timing and maybe potential scope increase as we get closer to the kickoff point in Q4.

Your next question comes from the line of Jeff Grampp of Northland Capital.

Congrats on all the recent positive news this week. I was curious to get maybe a little more back story on your involvement with this Puerto Rico contract. My understanding is this project has been in the works for a bit here and potentially, I don't -- maybe you guys were involved in some of the earlier stages while that was being negotiated. But like what's the back story on how you guys became aware of this project or how your partner became aware of you? Just kind of curious how that evolves and how you guys ultimately kind of convey that value add to win the deal.

Yes. It's an interesting evolution piece, I would say, Jeff, is that as we've begun -- we started out with this initial work in Montana, supporting some of the government-driven contracts. This has evolved in some additional pursuit around that. And some of the contacts that we have spoken to there, I would say there's a basket of various opportunities to support land service contracts, utility backup. And then when you look at the government, U.S. government support of Puerto Rico, I mean, technically, they're backing the majority of a lot of this work through the financial, FOMB, they call it Financial Management Oversight Board in combination with 3PPO and PREPA. And so we have been brought in actually initially to look at gas-fired power generation from U.S. government defense contracting sites and they were aware of our technologies.

And as the opportunities expanded, as I mentioned under the umbrella of some of that 3 gigawatt gas-fired power transition there, our technology was brought into play in terms of as they want to look at not only doing that LNG to CNG transition, but also the incorporation of potential biogas and our ability to monitor real-time blend, control and distribute became an extremely strong value proposition. And this didn't happen overnight. This is a multiple quarter pursuit and testing component in there. And so kudos to the team led by Tom Redlinger and our engineering staff at pursuing this and getting it done. And I think it's going to continue to open multiple doors as people start to kind of put on the center stage the capabilities of the PWRtek platform.

Got it. I appreciate those details. For my follow-up, I wanted to understand this metric you guys put in the release, this 5 gigawatts that are under measurement or control. Can you contextualize that like from a revenue perspective? I know the revenue exposure can vary depending on the exact scope of work there. But just trying to, I guess, triangulate the financial impact of that 5 gigawatts and at the risk of being greedy, maybe if you can split that out between oil and gas exposure versus other end markets you guys are penetrating.

You're trying to give me to pull a hamstring on guidance here, Jeff. So what I'll try to do is I'll walk you through a little bit about how we get to 5 gigawatts, right? And then because it's hard to directly extrapolate the revenue because if you look at in the very appendix part of our deck, we talk about the sales pursuit where we go to measurement and then that transitions into control and then the longer-term piece of distribution. So what we've secured is we've secured measurement devices in over 50% of power generation, e-frac and natural gas-fired fleets here in the U.S. on the frac side of business. Those run anywhere from 35 to 40 megawatts per location where we do some form of measurement and/or measurement and control.

Obviously, if we're doing just plain measurement versus measurement, control and distribution, the revenue streams are different. So I'm going to kind of shy away from giving direct revenue on that, but that helps you understand this. I would say it's roughly 75 plus or minus 1 or 2, I would say, measurement and/or control sites on almost 40 gigawatts per site to get your baseline number. Yes. And then we turn around and we've got -- if you take the natural gas-fired power plant facilities like CPV Fairview and a couple of other ones, those are just under 2 gigawatts of power that we're looking at.

And what we're doing there traditionally is we have a measurement device looking at unconventional shale gas, we're trying to figure out do they knock condensates out or what do they do there. Most of these have an ethane capacity problem, and we're trying to figure out do they cryo drop it or do they let it burn through and how much are we going to take on a derated capacity at those facilities. So that contributes just under 2 gigawatts. And then you've got this recent PREPA 400-megawatt award, which puts us right at 5 gigawatts.

And then we talked about our robust pipeline, but that's how it kind of builds up. Each one of them have a little bit different revenue build because I don't want to say they're complicatedly customized, but depending on what level of conditioning and/or distribution or primary power is pulled in there with it that you see kind of a variance in how the revenue evolves there. But as you can imagine, there's significant upside because as we transition from measurement to measurement plus control and control plus distribution, the revenue per location increases dramatically.

Got it. That's awesome details and hopefully [indiscernible] made it through that explanation.

And your next question comes from the line of Gerry Sweeney of ROTH Capital.

I had a question. Obviously, on the data analytics side, you have power, you have digital valuation, you have the e-frac fleet opportunity. These markets are expanding. I think you're getting a better understanding of the opportunity. Is there anything you need to do invest in to maybe attack this market faster, solidify your position, grow a bigger pipeline to drive more consistent -- potential consistency with unlocking opportunities?

Yes, Gerry, that's a very interesting question. I'll try to dissect this is number one. When we look at from a rapid organic growth penetration and scalability, we have now invested going on $13-plus million in CapEx expenditures into monitoring equipment, conditioning equipment, distribution equipment. If you were to take every year that I've been at Flotek and add them together and multiply it times 2, we haven't spent that much CapEx. And this has been solely in growing the power services and digital valuation businesses.

I look for that number to continue to expand even further in the back half of the year as we continue to put -- put CapEx on these is the right thing for us to do and reinvest in cash flow just from the fact of the ROI is very, very solid for the company. Also, there's other opportunities, I think, for us as we look at -- we mentioned some of these contracts that we're picking up in utilities. We don't want to be a pure play power provider, but I think there's opportunities for us to supplement the partners that we work with on some of the mobilization power.

So there's an opportunity there for us to potentially grow some of our, I would say, organic power services, say, 50 to 100 megawatts, just to have to help stabilize the work that we do with the bigger behind-the-meter power generation people. And then I also think there's some opportunities for M&A and/or consolidation for some people that are trying to do some level of gas monitoring or conditioning, albeit not in real time or more mechanical in nature. There's opportunities there that we could take some of their existing equipment and utilize our proprietary blending technology and measurement to upgrade the equipment into a more advanced form of monitoring depending on the pipe, the vertical application there.

So I think those are, I would say, 3 primary pathways we're looking at accelerating the growth. We were speaking to the Board that this growth is kind of choppy. I mean when you start picking up 400, 500-megawatt awards, you've got -- we got to start -- we're pre-investing and having some of those assets. Luckily for us, most of our measurement and/or conditioning assets, we can build in 4 weeks, 5 weeks. So we get a pretty quick turnaround. But I hope that gives you a little bit of color on what we're doing to expand the business and grow the opportunities that we're getting.

Yes, that's helpful. I mean, obviously, you have sometimes these big chunky opportunities, but even on the digital valuation, keeping -- growing those consistently, I think, builds in some of the opportunity as well. Technology, how does this separate you or create advantages in the power market? Are more and more potential customers or clients or partners recognizing this? And how do you actually expand this or sort of highlight it per se?

So I would say that we started our pursuits with heavily in a lot of the behind-the-meter guys that we knew that started in the frac space has now moved into the major top 10 behind-the-meter power suppliers, and we started doing measurements. A good example in the slide deck, we have a representation of the real-time gas condition and gas blending. And if you look in there, that's specific patented technology for us. And there's a graph on there that shows field gas being conditioned by one of these mobile gas power plants or I should say gas conditioning plant. So even when it comes out of that, it's still variable in quality.

And what you can see us tracking is the variance in the methane number of that gas with how we open and close automatically by the measurement device, the blending valve to put the CNG in. And then after doing that, we level out the MN number directly to what's prescribed for the turbine or the recip. In this particular case, it was a turbine. And up until us coming out there, that turbine was shutting down. They had multiple hours of MPT. It was shutting down once or twice a week. We went out on location, and we were out there for 6 weeks and did not have one single shutdown. And then you start to see the value creation component around improved fuel efficiency by doing this. What's really important is the maintenance cycle improvements, which saves a lot of money. Some of these turbines and resets are wearing out faster than what they thought because of the wear and tear on variability and gas quality.

And then also the derating capacity, where you have less equipment on location. And then finally, the value creation in carbon credits from less emissions. And so when you look at the velocity of measurement and this level of control speaking directly to the control modules on the engines, we have a very, very, very differentiated set of technologies. And as we're building these kids, every single one of them are going out contracting on location. So we're really excited about it. And this was the first of its kind being able to do that. So it's an exciting piece. And I would say that these type of case studies, we're going to continue to put them out and put impact and number on the ROI and the value creation from them as we begin to accelerate our adoption within the market space.

Your next question comes from the line of Josh Sullivan of JonesTrading.

Congratulations on the quarter here. I wanted to follow up on that comment, potential to acquire some of the mechanical commissioning operators. How large is the mechanical market, just so we can think of frame of reference?

In terms of -- I would say, in terms of dollars, it's kind of hard to say on what some of them call theirselves doing because it depends on -- some of them are just doing what I would call traditional filtration and knocking sands and/or debris, et cetera, that some people move into more of a JT skid type applications in different parts. But most of the time, when you see fuel gas utilization being run directly to frac fleets, there's traditionally some type of filtration used ahead of it. Now the problem is that they never can really detect what quality of the gas is in real time nor can they effectively blend it.

If they were trying to blend it with real-time measurement, they'd be a violation of our technology patents. So -- but I would say there's I think that when you look at the amount of capital investment that's in the area that -- every e-frac fleet that's running field gas and probably run in some form of CNG should have at least a smart skid type on there, which is a low rental cost considering the ROI that you get on fuel improvements and protection of the equipment. And so right now, there's probably 110 to 120 locations that's possible for it for full conditioning and distribution. And we've got some measurement device on about 75 of those. And I think that puts us in a good place to continue to grow.

The most exciting part is these are the same companies in the majority space that are moving into behind-the-meter power generation that created their own interior or some spin-off of their company, and this type of technology is moving directly with them. And what's even more exciting about it is people have traditionally thought you didn't need some type of monitoring and conditioning even if you have pipeline gas going to data centers. But we've shown that to not be the case because we see that variance in quality in our natural gas-fired power facilities, plus the premature damage on the turbines over a long time, the derating problems and all the other issues that we can really help to solve.

And I guess just a follow-up on that point and all the advantages you guys are bringing to the behind-the-meter conversation, how much inbound are you guys getting versus outbound work are you doing? Is the word out to your point on some of those dynamics you're really helping out on? Or just curious on the inbound at this point.

It's traditionally, what we're starting to see now is we're seeing a growing amount of inbound when companies sort of point of these turbines are shutting down to reset and it takes multiple hours to get them back up and running. And a lot of the inbound we see is where we've already got measurement devices out there, they want to go to the next level of customization. And now we're also -- what I would say, even more excited is we're starting to see more on the, I would say, infrastructure side piece around utilities contractors on inbound pieces coming there. They've seen what our technologies can do for protecting assets.

And then we're seeing some more of the data center inbounds. We are continuing to expand our, I would say, sales and pursuit teams in the field. Right now, we will double those by the end of the year, and we'll continue to add as we see the market piece come. The other side that's been interesting, we've seen strong inbounds on is the OEM engine builders. As we mentioned prior, we didn't talk about in our prepared comments here, but we built the specific XSpec FG units amount directly to reciprocating engines to control fuel quality and adjust timing and firing on those engines. Those tests are going really well in the field, and we're getting constant inbounds from OEMs to test that type of equipment on their various engine types. So it's an exciting time for us. I think we're kind of at that precipice to where the pursuits outward are now being overcome by what we're seeing on inbounds.

Your next question comes from the line of Blake McLean of Daniel Partners.

I thought maybe I'd switch gears a little bit and talk about chemistry and specifically some of the international success that you guys have had. I think it's been kind of a theme that we've seen across the space this quarter, traditionally sort of more North America-focused OFS names, redeploying resources and equipment into international markets. So I thought maybe I'd just ask you to talk about that opportunity set more broadly and maybe comment on how you think about that split going forward?

Yes. It's an interesting strategic piece for us at Flotek in that we've probably got over 3.5, 4 years invested in the evolving growth of our international business. We -- one of the things that I'll say since I came here was focusing on you have these -- a lot of these OFS components of the business, it's much better to have a broad diverse domestic and international piece to stabilize different points in commodity pricing cycles because it used to be if one was strong, one was weak and they kind of kept a little balance of one another. Plus on these long -- on these international contracts, they typically will be of a longer duration, less transactional in nature, a little bit better on a forecastable side.

And so what we had done in the Middle East, and I'll tell you, Leon Chad has done a fantastic job of driving this pursuit with our team in the Middle East for these pursuits and given the technologies approved, tested and continue pursuits and this mobilization through the disruptions we've seen in the Middle East. You've seen this play out now. We moved up to -- we're on 4 frac fleets in the Jafurah field, providing chemistry. right now. We have that potential of that business to expand to 6 by the end of the year. And so you see a little bit play out in our balance sheet at the end of the quarter numbers. You saw us pull revenue number ahead of what we thought would have been in the normal forecast, which kind of exceeded our expectations in a good way, put the supply chain under some strain, but Shane and the team did a great job getting that through.

So I think you'll continue to see strong numbers from the Middle East in the back half of the year with potential upside if we expand by another 2 fleets. The good news about that scope of work is that scope under the Jafurah contract will go for another 4.5-plus years. And so that gives a good runway piece there. Another interesting part is I think there will be some other unconventional areas or indoor gas fields that will follow suit on the design of how that executes. And we are actively promoting our technology systems in those other countries and geographies. We're seeing that start to play out in Latin America as well and moving not only our chemistries down there, but now we're also building data analytics equipment there as well as our real-time ChemAD units there for applications in Latin America.

And I would say that in the Middle East, we've deployed a series of data analytics equipment there for gas monitoring, RVP measurements, transmix, and those are all approved technologies inside ADNOC and Aramco. So it's a lot of exciting pieces there. And I think we're in the real early innings of our international growth. And I think you're going to see that start to proliferate or have the potential to proliferate in the back half of the year and further in '27.

Your next question comes from the line of Poe Fratt of AGP.

I have a couple of questions. The first question I had was if you could just talk about your guidance for the year and mainly on the revenue side. If I back out the first half revenues, it looks like the second half revenues are going to be below the second quarter level. Can you just talk about some of the factors that make the second half revenue look a little bit lighter than the first half revenue?

Yes. So I mean, the second half, if you look at just extrapolation, the second half is going to be bigger than the first half, Poe. We're just trying -- we made the comment during the call that we did kind of a huge month of external chemistry on the domestic side, a huge quarter, $20 million. So we're just moderating our outlook on the back half of the year given that we know there was a couple of customers who moved work from July into June that sort of front-loaded 2Q because you look at the variability in that external chemistry line, we did $12.8 million in the first quarter and then it jumped up to $20 million in the second quarter.

So we're sort of normalizing that in the back half as sort of an average between those 2 quarters. That's probably the biggest change. And the other piece that we pointed out in our call commentary, we currently don't have anything forecasted in the fourth quarter relative to the Montana Power Services contract, which did about $6 million of revenue in 2Q.

And Bond, would the extension of the Montana contract, is that the sort of run rate that you potentially are looking at with an extension? $6 million a quarter?

Correct. Yes, correct. For the time being. Yes.

And can you just roughly frame out the $340 million to $350 million of revenue guidance for the year and split it between data analytics and chemistry?

Yes. So without giving you specific numbers, obviously, we do expect our Data Analytics segment to grow revenue sequentially in the back half with the exception of the fourth quarter. Again, we think we get that extension done, then we'll see sequential growth in both the third and fourth quarters on data. We're holding ProFrac sort of flat with where the numbers have been in the first half on an average.

International, we're assuming continued strong quarters similar to what we put up in the second quarter. And then on the domestic piece, as I mentioned, we're moderating the back half outlook due to the transitional nature. So you kind of look at an average of 1Q and 2Q as a framework for what we're looking at third quarter and fourth quarter.

Okay. That's really helpful. And then from a cash standpoint, if you could just talk about the working capital draw that you saw in the first half, I think it's like, what, about $36 million. And sort of does that unwind over the second half of the year? And then also, Ryan said before that the CapEx number is going to go up. I had built in like $5 million a quarter from here on in out or here on out. Is that roughly a good estimate for CapEx going forward on a quarterly basis?

Yes. Just keep in mind, the CapEx is not going to show up on the cash flow statement because remember, we had about $12.5 million of the shortfall payment at the end of '25 that we transitioned into a construction credit, if you will. So from a cash perspective, that equipment is being constructed currently on a noncash basis because ProFrac is essentially paying us an OSP through equipment. So you won't see that come through on the cash flow statement. But I'll tell you, during the second quarter, we utilized about $3 million of that order shortfall payment, even though it doesn't show up on the cash flow statement, it does show up on the balance sheet.

And we already have POs in place for the remaining kind of $10 million-ish that's in progress right now and coming out sort of on a monthly basis. But yes, we did have some pretty big working capital headwinds during the quarter, obviously, supported a big growth trajectory in the second quarter. As we look this morning, as I mentioned, our ABL balance is down to 0 as we've monetized a lot of the receivables that we built up there at the end of the quarter.

Okay. That's helpful. And then if I could just look at that -- the comments that you made about the 5 gigs of either measurement and control next year by the first quarter. We know 400 megawatts equals $40 million. The power plant component, I think, is 2 gigs. Is there a revenue number associated with that, that you'd like to offer? And then the measurement controls, I think, is a lot lower, but just sort of to get a flavor on sort of the potential revenue impact from that 5 gigs of measurement and control in the first quarter.

Yes. So the -- I'm not going to -- we won't give any revenue numbers on those. But what I would say is on the -- some of these older, like what I would say, just pure gas-fired power plants with big power density turbines, we're mostly just doing measurement, right? There's not a significant amount of control on those. Now as we're getting some of the more advanced designs because those were built, these started pretty good while back, some of our first ones we began monitoring.

As we're looking at some of these more advanced combined cycle and we're seeing improved efficiencies, they will have measurement and potential additional control. So -- but we're not going to really give out the numbers directly on what those are.

Yes. Understood. I'll try to back into them. And then could you talk about the gross margin profile on the PREPA contract, $40 million a year kicking in really the second quarter of '27 because you stated you have about $30 million built in for 2027 that goes up to $40 million in '28. What's the margin profile look like?

Poe, we're going to defer on the margin question as well for now. We'd like to give a more holistic update relative to the financials as we sink our teeth in a bit more. I would tell you, initially, we are thinking the initial power that we will provide will be on a rental basis, similar that we're doing on the Montana project, which will carry lower margins than if we own the equipment. But we're still working through when we might transition from a rental model to a power-owned perspective, which changes the margin profile.

Your next question comes from the line of Eric Swergold of Firestorm Capital.

I can't believe that just a few years ago, I was sitting in your conference room when you were doing $10 million a quarter and had it back against the wall. And now you're doing $100 million in a quarter. Congratulations. Not to put your feet to the fire on one, but we talked a little bit this morning about generators versus turbines, and there's been a lot of discussion about getting built into generators. How about getting built into some of the turbines from the biggest turbine manufacturers as a built-in option from the get-go on those?

Yes. So that's a great question, Eric. I think that's the natural evolution pieces. A lot of the original, I'd say, some of the high-power density turbines have traditionally required a -- they have like a long-standing agreement with some of the gas chromatography suppliers to do that, even though they know they don't take fast measurements and they're lucky to get a measurement every couple of hours. There -- we have had some initial inbounds around that potential component. Now it was always funny because there was a discussion over turbines can burn anything. Well, that's probably true.

But when you start looking at the amount that are on location and the impact of derating and how we can help that overall fuel efficiency over the running in the long term. And then you combine that with the improved maintenance schedules, we present a very, very, very strong value proposition and ROI and our equipment being included as not only an OEM, but as a conditioning package on the front end. And so I would tell you that they're evolving similar to what we saw on the reset side of the business. It's been a little -- it hasn't been as fast, but that is evolving.

Great. That's very helpful. Well, congratulations. Thank you very much for your hard work. Thank you to the entire team. Thanks to Bond for sticking in there when it was really bleak. Thanks to Mike for really helping out with the PWRtek side. You guys have done a fabulous job.

And your next question comes from the line of Jeff Grampp of Northland Capital.

I just had one more quick follow-up. Ryan, the -- integrating the data and the chemistry side sounds pretty interesting. I don't know if you guys have talked too much about kind of early time success or revenue contribution there. I mean it makes a ton of sense to blend those 2 together. But just wondering if you can expand on kind of timing of ramping up some of those opportunities or where kind of the stage of conversation is at with respect to customers adopting that a little bit more extensively.

Yes. Jeff, I got to be honest, you made my day asking about how chemistry and Data works together because that's been one of the key value creation platforms as we talk about the convergence of the 2 segments of the business. I'm extremely happy to report that we have now gotten deployment of direct XSPCT units on wells that we have done chemistry completion on. This is the core backbone of us, number one, not only validating that our targeted chemistry improves uplift because we can see the chemistry that comes out of the hole in combination with the initial production on the initial production wedge, we're able to see not only the quality of the liquids, but also gas, and we can see any NGLs that potentially be lost, massive value creation there.

But more importantly, it's evolved into what we're almost calling reservoir mapping or DNA fingerprinting of higher-end hydrocarbons that we are targeting our PCM treatment to release, which is we're actually looking at the lab, designing to do that, and we validate that flow. And so even on a -- a flow rate that has the same BTU because we can see the real-time speciation and the shift in hydrocarbon quality, there's a higher value for that producing oil. And so this is unlocking tremendous value from multiple customers that we moved in from basically a benchtop discussion to full field deployment, and that is gaining a significant amount of traction.

And if you think about on a higher scale in the industry, you've got the large IOCs of the world between Conoco, Chevron, Ovintiv, and these guys talking about their particular surfactant design, targeted chemistry designs. We have been per se, preaching that gospel for over 1.5 decades. And not only do I feel Flotek is the best in the business at delivering this type of service, we now have the differentiated high velocity, high accuracy measurement devices to show how effective that service is.

And that benefits the entire energy infrastructure chain is now we have measurement devices that can look at every aspect of the value chain up and down inside hydrocarbon production and improve the overall efficiency. And I think you're going to see this have dramatic uptake and really accelerate our digital valuation business hand-in-hand with our prescriptive chemistry management. So we're super excited about it.

And there are no further questions at this time. I will now turn the call over to Mike Critelli. Please go ahead.

Thanks again for joining our call. Please join us at some of our upcoming investor events on August 17 to the 19 at EnerCom Denver, where we will be presenting another updated investor presentation. On September 10 at Lake Street's 10th Annual Best Ideas Growth Conference in New York City. And then join us on November 10 and 11 at the Daniel Energy Partners Annual Permian Barbecue, where we hope to compete for best barbecue dish. For other events and the latest info, look at the Events section of our website. And with that, I'll hand it over to Ryan.

We'd like to thank everyone for joining us today for the continued support of the organization, and we look forward to bring you positive updates here in the back half of the year. Thank you for joining.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Flotek First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, May 6, 2026.

I would now like to turn the conference over to Michael Critelli, VP Commercial. Please go ahead, sir.

Thank you, and good morning. We are thrilled to have you with us for Flotek's First Quarter 2026 Earnings Conference Call. Today, I'm joined by Ryan Ezell, Chief Executive Officer; and Bond Clement, Chief Financial Officer. We'll begin with prepared remarks on our operations and financial performance followed by Q&A.

Yesterday, we released our first quarter results, 2026 full year guidance, and an updated investor presentation, all available on our Investor Relations website. This call is being webcast with a replay available shortly afterward.

Please note that today's comments may include forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from our projections. For a full discussion of risk factors, please review our earnings release and most recent SEC filings. Please also refer to the reconciliations in our earnings release and investor presentation for non-GAAP measures.

With that, I will turn the call over to our CEO, Ryan Ezell.

Thank you, Mike, and good morning to everyone. We appreciate your interest in Flotek and your participation today as we review our first quarter 2026 operational and financial results.

In the first quarter of 2026, Flotek further positioned its industrialized pivot and transformational growth storyline through the continued execution of its corporate strategy.

Driven by the power convergence of innovative, real-time data, and chemistry solutions, as shown on Slide 3, Flotek has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services, and proprietary technologies that create value for our customers and improve returns for our shareholders.

The strategic transition of the company into a Data as a Service business model continues to gain momentum while expanding the total addressable market for the company. As a result, Flotek's Data Analytics segment grew exponentially, while our differentiated chemistry segment outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation, and total value creation.

Now before I discuss the company's vantage point on the evolving geopolitical and macroeconomic dynamics within the sector, I'd like to touch on some key highlights for the first quarter referenced on Slide 4 that Bond will discuss later in the call. Company total revenue grew 27% as compared to the first quarter of 2025, highlighted by 295% growth in data analytics, which was the highest quarterly revenue for data analytics in the company's history.

Chemistry Technologies revenue increased 13% despite 3-year lows in completions activity in North America, which was also the highest quarterly revenues in over 7 years. Company gross profit climbed 25% versus the first quarter of 2025. It's impactful to note that Data Analytics accounted for 50% of the company gross profit versus 8% in the prior year quarter, marking a major milestone in Flotek's transformation. Total company adjusted EBITDA grew 44% year-over-year. And Flotek's Expect Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference.

And finally, 2026 guidance builds upon a multi-year trend of revenue and profitability growth as the company executes on its strategic initiatives to provide long-term resiliency and profitability as shown on Slide 5. Most importantly, these results were achieved with 0 lost time incidents in the field operations. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results.

Now turning to the larger picture for the energy and infrastructure sector. We share the viewpoint that the ongoing situation in Iran will have impactful and potentially long-term implications on global supply and energy security that will demand action. The structural disruption in the Middle East has catalyzed a fundamental shift in supply side dynamics, establishing a higher baseline for energy security and recalibrating the risk profile for regional supply.

As cumulative production deficits and reductions in strategic reserves are trending towards 1 billion barrels, we expect increased investment in localized oil and gas developments, while geographies that do not possess resources look to rapidly diversify energy security exposure. All of these factors point towards a fundamentally tighter energy market than what existed just 60 days ago and support a stronger commodity pricing environment for increased upstream activities.

Layering in the expanding power demand driven by AI, data centers, and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure, the expectations for tailwinds within the energy sector further strengthened. North America is already showing early indicators of recovery as completions activity white space has all but disappeared for the first half of 2026 with spot work interest increasing throughout the remainder of the year.

Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek is poised to support emerging customers with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multi-year waiting list for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed the greater than 99% uptime requirements.

Transitioning from the macro view, let's dive into details, starting with Slide 9. I want to spotlight the remarkable progress in our Data Analytics segment. We saw service revenues increase 785% in the first quarter of 2026 versus the first quarter of 2025, driving gross profit margin to 75% versus 38% in the prior year period.

This strong growth is powered by our flagship upstream applications, power services, and digital valuation, both of which are generating significant contracted wins and a robust recurring revenue backlog shown on Slide 10.

Highlighting these wins are; first, 21 power services measurement units added since closing our original Power Tech deal. These are in addition to the primary long-term Power Tech contract assets. There's a 27-unit order from a large OFS customer with an expanding distributed power fleet to monitor field gas for power generation and digital valuation of fuel quality and consumption, a 15-unit order from a major midstream customer for real-time crude and condensate quality measurement and also a deployment of a Smart Skid rental to a major IOC to optimize gas quality with real-time blending of field gas and CNG, which is one of the first applications of its kind.

We also deployed rental assets to support our large utilities recovery power contract in Montana. This momentum has accelerated with these new contracts, expanding our expected backlog for the remainder of the year in 2026 to $34.1 million and our 3-year expected backlog to more than $90 million. Power Services led this growth, further reinforcing our shift towards high-margin recurring revenue streams.

Flotek's Power Services has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call Power Tech. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector, as shown on Slide 11.

Our expanding portfolio of patents and field-proven use cases position Flotek as a leader across the natural gas value chain. When considering the velocity of our measurement, we deliver unmatched real-time fuel monitoring, conditioning, blending, and engine control to optimize performance and safety for behind-the-meter distributed power operations.

The success of Flotek's Power Services applications is expanding rapidly as we expect to have proprietary real-time analyzers on more than 50% of the currently active North American e-frac and natural gas power fleets by year-end. Additionally, on March 3, 2026, Flotek announced its first contract within the utilities infrastructure sector seen on Slide 12.

Leveraging our patented Power Tech platform, Flotek will partner with leading distributed power service providers to coordinate the installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems to support critical federal disaster recovery initiatives.

We are pleased to announce that we have initiated Phase 1 of the project, which includes the mobilization of 12 megawatts of distributed power, combined with our proprietary gas conditioning and distribution skids to the infill staging area while the site prep work is completed. First power is expected in the third quarter of 2026.

Now let's transition to Slide 13, where we dive into our second upstream application, Digital Valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through real-time digital twinning of the custody transfer process.

In the fourth quarter of 2025, Flotek reported a historic milestone in natural gas measurement. The XSPCT spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA2172, also known as API 14.5. We believe the XSPCT speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in the discussions with prospective customers as we aggressively expand its manufacture and field deployment.

In March of 2026, the XSPCT Analyzer was named Product of the Year at the 2026 Analyzer Technology Conference, further exemplifying its differentiated capabilities. Since completing our Digital Valuation pilot program in the third quarter of 2025, we exited the year at 25 active units deployed. Furthermore, 2026 is off to a great start with that number more than doubling to 57 units currently deployed or contracted for delivery.

It is clear that execution of our transformational strategy to grow the data analytics segment through upstream applications is gaining traction. But what is most important is what it means for our stakeholders and investors. First, our data-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Secondly, our proprietary data technologies and superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty, and support our value-based service model. And finally, long-term high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time.

And lastly, let's move to our Chemistry Technologies segment, which continues to deliver robust performance, driven by the differentiation of our prescriptive chemistry management services and our expanding international presence.

Slide 15 highlights the resilient performance of our Chemistry Technologies segment, which delivered a 13% increase in total revenue for the first quarter of 2026 compared to the first quarter of 2025 despite a 21% decline in the average North American frac fleet count over the same period according to primary vision data.

As mentioned earlier, we believe we have reached the trough of the cycle and see encouraging indicators for cautious optimism in the second quarter of 2026 and beyond. We continue to closely monitor operational and supply chain risk to our international operations amid the ongoing conflicts in the Eastern Hemisphere. It's evident that our chemistry team has executed our strategy flawlessly.

As we move into the second quarter of 2026 and beyond, the opportunities leveraging the convergence of prescriptive chemistry management and data services move to the forefront through high-margin services that improved operator ROI. These advanced data-driven services include smart chem add units, real-time flowback monitoring, and implementation of prescriptive geological targeting.

Looking ahead, I am more confident than ever in Flotek's momentum and our ability to drive sustained profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions that are tailored to precisely meet our customers' evolving needs.

Now I'll turn the call over to Bond to provide key financial highlights.

Thanks, Ryan. Good morning, everyone. Our first quarter results build upon record-setting 2025. We issued our initial guidance for 2026 that points toward continued strong growth in revenue and adjusted EBITDA. Quarterly highlights included achieving our highest quarter of total revenue since the fourth quarter of 2017, driven by the largest quarterly contribution from ProFrac in the more than 4-year history of our supply agreement and the second consecutive quarter in which our Data Analytics segment surpassed $10 million in revenue.

Total revenues for the quarter increased 27% year-over-year and 4% sequentially, driven by continued strength in related party revenue, which increased $21 million or approximately 70% compared to the year ago quarter. Of that increase, roughly $14 million was related to chemistry revenue, while approximately $7 million was attributable to the Power Tech lease agreement.

External customer chemistry revenue declined 33% year-over-year, but was flat on a sequential basis, which we view as an encouraging sign. As Ryan touched upon earlier, we expect external chemistry revenue to increase in the second quarter amid improving customer engagement, reinforcing our belief that completion activity levels are stabilizing and may be in the early stages of recovery as we move through the year.

Data Analytics delivered another strong quarter with service revenue increasing significantly compared to the prior year period.

As highlighted on Slide 9, service revenue accounted for 82% of DA revenue this quarter, up sharply from the year ago quarter, helping to drive first quarter DA gross profit margin to 75%, a 200 basis point improvement sequentially. Data Analytics segment revenue represented 15% of total company revenue in the first quarter, significantly up from 5% in the year ago quarter.

As highlighted in the earnings release, we began mobilizing equipment to location relative to our disaster recovery Power Services contract. As a result of this incremental revenue, we are forecasting sequential growth in Data Analytics during the second quarter. As noted on Slide 12, we currently expect 2026 revenues from this contract to total approximately $12 million before consideration of the contract extension.

Gross profit increased 25% as compared to the year ago quarter. First quarter gross profit as a percentage of revenue totaled 22%, which equated with the year ago quarter despite the nearly $5 million reduction in the order shortfall penalty as compared to the first quarter of last year.

SG&A expenses increased 10% year-over-year, primarily driven by higher noncash stock-based compensation related to the timing of our long-term incentive grants. For context, our 2026 grants were issued in the first quarter, whereas the 2025 grants were made in the fourth quarter. On a sequential basis, SG&A declined 9%, reflecting lower legal and professional fees.

As revenue continued to scale this quarter, we saw meaningful leverage in our G&A expenses. Excluding stock compensation, G&A declined to 8.7% of revenue, down from 10.5% in the year ago quarter. That nearly 200 basis point improvement below the gross profit line reflects the efficiency of our cost structure and was a key driver in the year-over-year expansion in adjusted EBITDA margin in the first quarter of this year.

Net income for the quarter was $4.7 million or $0.12 per share compared to $5.4 million or $0.17 per share in the prior year quarter. The year-over-year decline was primarily driven by higher depreciation and interest expense related to the Power Tech acquisition that closed during the second quarter of 2025 as well as a higher effective tax rate. For the first quarter, our effective tax rate was approximately 26% compared to only 1% in the year ago period, reflecting adjustments that we previously discussed related to our valuation allowance on deferred tax assets.

As an update to our prior expectations, we now anticipate our effective tax rate to be in the range of 23% to 26% going forward, the vast majority of which will be noncash and that incorporates estimated state taxes on top of the 21% federal rate. Per share metrics for the first quarter of 2026 as compared to the year ago quarter also included a higher share count as a result of the 6 million shares issued in conjunction with the Power Tech acquisition in the second quarter of last year.

Our earnings release yesterday included our guidance for 2026.

As shown on Slide 4, we're estimating total revenue in a range of $270 million to $290 million and adjusted EBITDA in a range of $36 million to $41 million. The midpoints of these metrics imply growth of 18% and 17%, respectively, as compared to 2025. As a reminder, our adjusted EBITDA numbers presented in the release and the presentation, including our guidance, do not add back noncash amortization of contract assets, which totaled $2.2 million in the first quarter and are expected to total $6.2 million for the remainder of 2026.

On the balance sheet, you may note a new line item called equipment credit related party. As part of the settlement of the 2025 OSP, we agreed to receive a $12.5 million allowance from which we can place orders for construction of power services equipment. We've already placed POs for approximately $10 million of additional distribution and conditioning assets that we expect to have in service throughout 2026. We expect to fully utilize the equipment credit in 2026, which will represent the bulk of our estimated capital expenditures budget.

We believe 2026 is shaping up to be a significant year for Flotek. Importantly, we've been able to deliver consistent growth metrics while maintaining a disciplined balance sheet and low leverage.

As shown on Slide 16, using the midpoint of our 2026 adjusted EBITDA guidance, our leverage ratio is approximately 1x based on net debt outstanding as of March 31. When you factor in the estimated $8.4 million in 2026 noncash amortization of contract assets, we are less than 1x levered. We believe that this ultimately positions us to continue investing in growth while maintaining financial flexibility.

With that, I'll turn it back to Ryan for closing remarks.

Thanks, Bond. Our first quarter 2026 results extend our multi-year track record of consistent improvement as we continue transforming Flotek into a data-driven technology leader. The Data Analytics segment delivered strong growth, highlighted by triple-digit increases in service revenue, expanding recurring revenue streams and a robust multi-year backlog. Together with our resilient prescriptive chemistry management services, Flotek is well positioned to gain additional market share and drive further top and bottom line improvement with substantial upside opportunities in our data-driven services.

We remain committed to shaping the industry's digital and sustainable future by leveraging chemistry as our common value creation platform. With our proven execution, expanding high-margin capabilities, and clear pathway to scale growth, Flotek is poised for the next phase of value creation for our investors.

Operator, we're ready to open the floor for questions.

[Operator Instructions] [Technical Difficulty]

Operator, we're having trouble hearing you.

This is the operator speaking.

Hearing a lot of background noise on your end. Can you hear us?

I can hear you loud and clear. Is my line coming out crystal clear or do you hear any background noise?

It is now, but it was very garbled for a second. We're ready to turn over to questions. You have Jeff Grampp in the queue.

Yes, Jeff Grampp.

I wanted to start first, Ryan, the data point to get to 50% of your units on frac fleet is impressive. I wanted to start there. As I recall, that was kind of how things initially started with the ProFrac relationship and the IP and value you guys brought from that angle and then obviously ultimately scaling that to a much larger deployment with them. I'm curious, is that kind of the goal or outcome on some of these deployments? Or just what kind of traction or state of conversation we're at to potentially expand the kind of market opportunity with some of these customers?

Yes, Jeff, that's a great question. Well, I'll try to give you some pretty tangible color on how our approach to that is. And when we look at our Power Services business, we've taken a very methodical approach. Our background in monitoring hydrocarbon flow through our Data Analytics group has got over 15 years' experience.

So we took an approach of all the different basins, hydrocarbon quality, gas quality, all these areas to look at the position of where frac fleets are going to be, where potential data center locations will be, other power generation sites, et cetera, and have built our equipment and measurement techniques for those specific geographical locations and went down a pursuit plan of looking at proving out our measurement, then moving into control and then finally, the distribution piece.

What you're seeing now is we definitely targeted our primary experienced customer base, which is around e-frac, natural gas power. And most of these customers now are aggressively moving into other behind-the-meter distributed power platforms. And so when you look at our original work that started back in 2022 with ProFrac, right? And then you look at the continued growth of North America's e-frac fleets and natural gas fleets, we've done -- the team has done a great job at working with a multitude of other clients to get our Verax or XSPCT units out on location to start measuring gas quality, whether it for digital valuation and volume pieces or for potential conditioning.

And this is always the first step in our sales process, and we're proud to announce that between current already awarded work and the recent POs we've just received by the end of the year, we will have an analyzer on location for over 50% of these, what I call, higher tech or upper tier level fleets, which is a phenomenal step in terms of what we're doing here.

And we're hoping that that evolves into our ability to be able to further advance their conditioning and/or optimization of it, whether it be in reciprocating engines or turbines or even their natural gas pumping fleet. And so that's just part of our execution of our sales process.

For my follow-up, on the utility infrastructure side of thing, I appreciate you guys putting some data on the impact of '26. What are you guys kind of expecting? I know we're still early here, but where do you think potentially build beyond this Phase 1 and the 12 megawatts that you guys put out? Is there -- are there additional phases under consideration? Or is that kind of your best guess for what the steady-state work of that contract could be?

Yes. So right now, after we did the initial assessment, yes, we've got -- it looks to be -- there are 2 primary sites, which are Phase 1 and Phase 2. Phase 1 is obviously moving forward. We've mobilized the additional -- the first 12 megawatts of location with our proprietary conditioning and distribution equipment and plan to have that site active in the back half of the year.

We do believe that with the success of that project, we will initiate into a Phase 2, which would probably move an additional 15 to 20 megawatts for that secondary phase. The timing on that at best would be the very end of the year, probably more into the 2027 time frame, if we're being honest about looking at what it takes for site prep for that location. But we do expect this work to continue past just our 6-month measurement part of the contract. But again, I think in a lot of our guidance, we've been conservative until we officially lock that down. But we do expect this project in the end to be between 25 to 30 megawatts with all of our gas distribution equipment on location.

Another point to note, Jeff, we talked about our primary goals of growing our Power Services with related to the oilfield power. But what's exciting to note is that now based on the basin studies we're doing and recent work, we're starting now to see our tentacle stretch out into other areas around data center growth as well as other behind-the-meter power generation opportunities, where we're seeing a sight into 200-plus megawatts of power generation and conditioning opportunities that are coming in the pipeline that we are actively pursuing through the back half of the year and probably roll into sometime like the 2027 time frame. So that pipeline is continuing to grow and fill up.

What's also been interesting is that we've actually got Verax units on 2 different large turbine gas-fired powered power plants. We've been monitoring fuel quality, the percentage of ethane in the natural gas, how we monitor and optimize fuel and all those projects running too. So a lot of exciting things happening in the power services market for Flotek, which are going to, if you look at it, offer us potential upside and where we are in the numbers in the back half of the year and particularly rolling into '27.

Next question comes from Rob Brown with Lake Street Capital Markets.

Congratulations on all the progress. Just following up on the 200-megawatt pipeline you just talked about. How does the cadence of the quotes in that market work? I think you sort of said you're building into '27, but how does the cadence work? And how is the revenue kind of flow through for you as those come into the mix?

Yes. Obviously, our -- Rob, our primary goal is around the gas conditioning and fuel optimization services. And they kind of come in different ways where traditionally, we are usually the primary gas conditioning equipment for, let's say, emergency power start-ups or peak power support because they are using really raw fuel gas that could potentially be wet or different applications to it.

And often cases, there's obviously some power shortages there. So we're able to leverage our relationships with current customers to help pass through or bring some of those power generation assets to it. And then when you move over into the data centers, those are some longer-term plays where we are -- as they're improving the fuel efficiency and/or depending on their geographical location on the gas quality or pipeline quality, that's where we come in to play on those on the heavy side.

Those are typically coming out to be a little bit on the longer end of what I'd say our sales pursuit cycle is because there's engineering, there's proven out, there's gas testing, sampling, all those pieces come in there. And just from the sheer fact of as we're pursuing that pipeline, and we're already halfway into May. That's the reason why I say those are probably more 2027 revenue-generating opportunities.

However, there is opportunities always to pull some of these forward, particularly on those where power assets are already on location, they're having optimization issues or gas quality issues, we're getting pulled in by a lot of clientele to take a look and see if we can fix those problems.

And then on the 57 units that you have deployed around order, how does the order book pipeline look for that product? It seems like it's really growing nicely. How do you sort of see that order book building or the pipeline building?

Yes. I would say, definitely, if you look at the fact that when we just talked a few weeks ago, those numbers have more than doubled on issued POs and contracted delivery and what's been put in the field. What's interesting is it kind of -- it's definitely not a linear growth issue. What we're seeing is we're seeing double-digit orders of units. We get them installed and you're then starting to see amplified opportunities.

And then what's really interesting is we're having a lot of conversations with the midstream providers, which is really the main target audience. And we feel like once we get a solid acceptance rate, we've got 2 major midstream customers right now that are looking. And these guys alone, if they do any type of scale purchases, you could triple the current active number on a couple of POs. And so I think what you're now going to start to see is we hope to start seeing this increase in definitely a nonlinear fashion. And so when you start looking at the target number of units that we have put out there, we want to try to get to roughly 150 by year-end. Those numbers are definitely a striking distance of what we want to do in custody transfer with potential upside.

Our next question is from Gerry Sweeney with ROTH Capital.

I wanted to talk about, obviously, Digital Analytics. Digital Analytics, great opportunity, lots of opportunities starting to emerge. As you're looking at the playing field, I mean, what do you need to maybe solidify some of these orders, get the product out there a little bit further, maybe some of the choke points, do you need some more investment sales? Is it more time oriented, more testing? Just trying -- it feels like we're on the cusp of a few different opportunities as long as -- as well as some longer opportunities, but just wanted to see internally what you need to do to keep that moving along at the fastest pace possible.

Yes. So we -- if we can, we kind of break it down again, when we look at -- let's just talk power services components. We got to kind of break it down into the phases of measurement plus conditioning and then control and distribution. So we're making great headway because we talk about the number of measurements to be before the end of the year, the majority of those POs are already received. We're in the process now of manufacturing and field deployment of the analyzers into the operations.

Then comes into what's probably the better revenue growth component is when we move into conditioning. And we mentioned around our first, I would call, modified smart blending skid where it's actually monitoring the volumes of CNG to field gas for a flat BTU quality that we're seeing every 5 seconds. That's the first of its kind in the field to do that. And what happens is as you get these analyzers on location, the next step is putting pieces of equipment like that as being the next step in the phase.

And so as Bond mentioned, we've already issued POs to build out $10 million dedicated towards the next generation of our conditioning and distribution assets. And so for us, we're expecting a big majority of that equipment to come online by mid-year, and then you're going to start to see it have potential impact and upsides and uptake into the industry. So we are definitely putting at minimum $12 million into capital assets for conditioning. There's potential you could see even more than that as the business cases arise.

And so we've continued to amplify our sales force. We actually have open positions now to put more salespeople on the ground. We picked up a couple of other large-scale engineering firms that are involved in design builds for data centers, et cetera, and that are getting comfortable with our equipment.

And the last piece that I'll say is still pretty exciting is we're in some extremely in-depth conversations with the OEM engine providers. As you know, most of them on reciprocating and/or turbines, projects are sold out for the next 3 years, and they're doubling and tripling their capacity, and we are way down the road in ability to be able to control engines by methane number and WABI index. So look for some exciting things for us on that aspect to provide layered in additional upside opportunities depending on the distribution schedule we could potentially see in the back part of the year.

Are those conditioning skids that you're building and expect to come -- to be available at mid-year? Are they all factored into your guidance? Or are they sort of layered in as you go through the year into next year?

I would say they're layered in conservatively is the way I would look at it. So as they come online, and we probably -- we have them kind of objected utilization rates, there's definitely room and higher utilization rate and then coming online sooner to add in there. And Gerry, this is kind of the new frontier for us. We're getting a better understanding. I would say we traditionally look to more of these conservative components in there with opportunities to really push the envelope on asset utilization and return on these investments. And so we have a pretty positive outlook for the back part of the year.

[Technical Difficulty]

Hello, [ Don ], you there?

Yes. Sorry, I didn't hear the operator. Ryan, I wanted to ask about your comment about the U.S. pressure pumping business, either on the third-party side or with ProFrac. What are you seeing out there? I mean, we're hearing that a lot more pressure pumping is going to work. Just kind of your thoughts around that and chemical sales, whether it be domestically or through ProFrac there.

Yes, Don, we're in advantage point, right? Basically, we kind of break it up in the first half of the year, the second half of the year, where we had a lot of potential things in this first half have now really solidified. The majority of this spot call white space has gone, particularly on the target customers that we have, which are using Tier 4 dual fuel direct drive natural gas or e-fleets. And so we're starting to see an uptick there. Our expectation is our external chemistry customers will continue to strengthen from Q2 onwards.

And we're getting more and more details on the back half of the year where you're starting to see the spot work go up. The availability of this upper tier equipment, Don, is almost gone now. It's pretty tight, which is good for the market. And then so for that to translate into chemistry sales, you've seen that play out with our related party revenues with ProFrac. These fleets have moved into a lot of the gas basins where they have great positioning. We picked up a lot of chemistry there. And so we expect this to transcend to some of our other customers.

And then also, I would say that our external business is slightly impacted by a little bit of weather in the first part of Q1 and some normal repair and maintenance cycles and all the businesses are starting to pick up. Even more importantly is there's a lot of optimism for our frac business in the Middle East. We got through the trial stages. We expect the large deployments of our chemistry to start to hit the ground this quarter. And we're already now moved up. We're on 2 operating fleets, looking to pick up 1 to 2 more by the end of the year. So you're going to see a lot of stage work coming from the Middle East, which is going to start to bolster our external chemistry revenue mix a lot.

So I hope that gives you a little bit more color on what we're seeing. But I think I'm getting a lot more bullish on it. And there's still a lot of talks around the capital discipline piece, where to get a fleet built require long-term commitment, but there's a lot of the higher-end Tier 4 and e-fleets are getting all called out right now.

So Don, just to give you a little bit of numbers around that. When you look at the first quarter external chemistry revenue from 2025 of $22 million, obviously, we're down this quarter. We do believe by the end of the year, we could see those kind of numbers on a quarterly basis that we saw in the first quarter of 2025. So getting back to where we were last year, which would be a big growth driver as we sit today.

Yes. And that was going to be my next question on whether or not the Middle East impacted that $14 million that you generated this year or not. It sounds like it didn't -- it was more kind of year-end related, but any comments around that and just getting chemicals into the Middle East? I know you were talking about going to the West Coast of Saudi and bring them in either through Egypt or the West Coast of Saudi. Just any thoughts around that logistics part too.

Yes. I would say that right now, international business was extremely light in Q1 because we talked about the logistics delays. I've been very pleased with our team's logistics plan for delivery. We're going to see in Q2. We're actually starting to see chemicals get on the ground a few weeks earlier than expected. And with our biggest customer there, they're pleased about that, and we're starting to see a pickup in the total number of stages.

And then looking here domestically, our chemistry team has done a phenomenal job of figuring out some opportunities in growing the business. What's been very interesting is we always talk about the convergence of our data business and our Chemistry business. We're starting to see that play out where there's opportunities to utilize our XSPCT units and 2-channel Verax units for flowback control, crude and gas quality as well as our new advanced real-time [ Chemed ] units, which use micro doses on concentrates, et cetera. So all of these things are fueling not only differentiation, but significant growth opportunities for the Chemistry and resultingly some high-margin data services, too.

Your next question comes from the line of Gowshi Sri from Singular Research.

On the gross margins coming in at 22.2%, I think the D&A is already at 50% of gross profit. As the shortfall penalty mechanism kind of resets through 2026 and DA shares continue to grow, how should we think about the pace of gross margin expansion? Is 25%, 27% realistic range by second half of '26? Or are there other offsets we should model?

So I'll let Bond comment a couple more around just the hard numbers. I think one thing that's going to impact us is we continue to see overall gross margin improvement even with reductions of what we've seen with the OSP, that thing is dwindling down to minimal effect now. The part that's probably going to play the most role is how much actual distributed power revenue is coming through the P&L because traditionally, if we were pulling through distributed power, working with one of our big customers, colleague groups to do that, we typically just have a minimal markup on that.

And so it kind of dilutes some of the profitability, like we particularly said our contract in Montana, whereas traditionally speaking, our conditioning skid is alone coming at the 81% gross margin. And so depending on how additional megawatts move into the back half of the year, it could dilute that down. Bond, you can provide a little additional color on that.

Yes. I mean I think in the back half, we will see margin expansion, but I think it's hard to really forecast that because like we just mentioned, we are going to expect a pretty sizable increase in external chemistry revenue. So when you look at how the gross margin plays through with a chemistry business that's also growing at smaller margins, racing against a DA business that's growing at higher margins, I think 25% by the end of the year is possible, but we are forecasting gross margins to continue to move up.

I just have one more question. On the Q1 deck, you flagged the EPA flare monitoring enforcement I think kind of rolled back. Given that VeraCal was generating around $2 million to $2.5 million of flat and 60% gross margin in '25, how much of that demand has deteriorated from what you originally expected? Is that business pivoting towards voluntary or international regulatory framework to offset that headwind?

Yes. So I think that there's no doubt, it's been a slight bit of softness to it here domestically. Now again, we do have a fleet that's staying relatively busy. But I think in terms of it being a rapid growth mechanism domestically, it's been slowed a bit. Now what we are seeing is deployment internationally. And we look at it -- we also look at it here on the state side, 2 particular states around New Mexico and Colorado are advancing their utilization of the equipment.

So like I say, it doesn't compare an opportunity to the digital valuation or power services, but it's been relatively steady with some domestic pressure on it in Texas. But New Mexico and Colorado still looks to be going pretty strong. I think what we're seeing with it is instead of it being that mobile 14-day test pad thing, they're looking at it more into an overall operational efficiency and the real-time tuning of the flare to where they get into a one of the lower emitter statuses, carbon capture type things on operational efficiency. And we're seeing that not only play out here domestically, but we're also seeing that growth internationally.

There are no further questions at this time. I will now turn the call over to Michael Critelli. Please continue, sir.

Thank you. Join us at -- of our upcoming investor events, May 26 to the 28, you can catch us at the Louisiana Energy Conference, taking meetings and giving an investor presentation. On June 16 and 17 at the Planet MicroCap 2026 Conference at the Bellagio Hotel & Casino in Las Vegas. And August 17 and 18 at EnerCom Denver at the Westin, featuring an investor presentation and one-on-one meetings. For all other events and the latest info, look at the Events section of our website.

Yes. Thanks, everyone, for your time today and your questions on the call. We'll speak to you soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen and welcome to Flotek Industries Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference call over to Mike Critelli, Director of Finance and Investor Relations. Please go ahead.

Thank you, and good morning. We're thrilled to have you with us for Flotek's Fourth Quarter and Full Year 2025 Earnings Conference Call. Today, I'm joined by Ryan Ezell, Chief Executive Officer; and Bond Clement, Chief Financial Officer. We'll begin with prepared remarks on our operations and financial performance followed by Q&A.

Yesterday, we released our Q4 and full year 2025 results, along with an updated investor presentation, both available on the Investor Relations section of our website. This call is being webcast with a replay available shortly after. Please note that the comments made on today's call may include forward-looking statements, which include our projections or expectations for future events. 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 those projected in forward-looking statements. We advise listeners to review our earnings release and most recent 10-K and 10-Q filings for a more complete description of risk factors that could cause actual results to materially differ from those projected in forward-looking statements. Please refer to the reconciliations provided in the earnings press release and investor presentation as management will be discussing non-GAAP metrics on this call.

With that, I will turn the call over to our CEO, Ryan Ezell.

Thank you, Mike. Good morning, everyone. We appreciate your interest in Flotek and your participation today as we review our Q4 and full year 2025 operational and financial results. In the fourth quarter, we saw North American operators maintain the cautious posture initiated in the second quarter as they continue to navigate the return of OPEC Plus fare capacity and persistent global and trade volatility. Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market, the Flotek team remains steadfast in the execution of our corporate strategy. driving transformation and delivering our third consecutive year of significant gross profit and adjusted EBITDA improvement.

Through the powerful convergence of innovative, real-time data and chemistry solutions, as shown on Slide 3, Flotek has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services and proprietary technologies that create value for our customers and improve returns for our shareholders.

Transitioning to Slide 4, Flotek extended its track record of transforming the company into a data-as-a-service business model as our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company. Furthermore, we delivered standout performance throughout 2025, resulting in increased market share in both of our complementary business segments. Data Analytics grew exponentially, while Chemistry outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation and total value creation.

With that, I'd like to touch on some key highlights for the quarter referenced on Slide 7 that Bond will discuss later in the call. Q4 and full year 2025 saw the highest quarterly and annual revenues since 2017. Data Analytics segment achieved its highest ever quarterly and annual revenue in company history. Our gross profit climbed 24% versus the fourth quarter of 2024 and 52% as compared to full year 2024. The Data Analytics gross profit accounted for 48% of the total company gross profit during the fourth quarter of 2025 as compared to only 8% in the quarter a year ago. Adjusted EBITDA grew over 123% year-over-year, while 2025 net income improved 191%. Finally, we completed the onboarding of our power tech assets and the strategic entry into Power services in 2025. This sets the stage for high-margin recurring revenue growth in 2026 and beyond. All of these results were achieved with 0 lost time incidents in the field of operations with our Prescriptive Chemistry Management and Raceland NTI team surpassing over 10 years without a lost time incident. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results.

Now turning to the larger picture for the energy and infrastructure sector. We share the viewpoint that despite the near-term volatility and uncertainty created by the ongoing conflicts in the Middle East, the fundamentals for hydrocarbon demand will continue to grow over the medium to long term. a rebalance of supply and demand is expected due to the combination of steeper decline rates from large percentages of unconventionals, diminishing overall reservoir quality and minimal exploration success will create potential tailwinds for energy and infrastructure services. Substantial investment will be required to maintain current production levels while additional spending would be needed to meet the expanding power demand driven by AI, data centers and industrial reshoring combined with the reliability issues of an aging transmission infrastructure. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation.

Flotek is poised to support these emerging customers with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting list for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed greater than 99% uptime requirements. And transitioning from the micro book, let's dive into the details, starting with Slide 11 of the earnings deck. I want to spotlight the remarkable progress in our data analytics segment which saw service revenues increased 381% in Q4 2025 versus Q4 2024, elevating gross profit to 73% in Q4 2020 and versus only 39% in the same quarter a year ago. This transformational growth in data-driven service revenue is empowered by 3 upstream technology applications, power services, digital valuation and flare monitoring. All of which are fueling significant advancements for our organization while generating recurring revenue backlog. The first is our power services, which has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call Power Tech.

What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector. Looking at Slide 13. At the heart of PWRtek is our Verax analyzer, which goes beyond data collection to deliver custody transfer grade measurements, it provides precise BTU, methane number and volume reporting for royalties, invoicing and performance guarantees. Complementing this, our patented conditioning and distribution trailers actively remove liquids and contaminants conditioning high BTU hydrocarbon fees to meet exact turbine engine or specifications. But PWRtek is more than just a technology. It's about control. Our cloud-based portal enables the monitoring of live BTU trends, H2S alerts, Coriolis flow meter readings and automated CNG blend controls, combined with custom alarm thresholds to automatically isolate Alspec hydrocarbon fees and [indiscernible] turbines or reciprocating engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety.

More importantly, our velocity of measurement enables direct communication to the OEM engine to automatically adjust engine operation parameters and optimize engine performance. We don't believe there is another analyzer technology capable of executing at this level of real-time automation to date. Finally, our 35-plus data analytics patents position Flotek as a leader across the natural gas value chain. When considering our capabilities, we deliver unmatched monitoring, control and safety for field gas operations. On March 3, 2026, Flotek announced its first contract within the utilities infrastructure sector seen Slide 14, leveraging our proprietary PWRtek platform Flotek will partner with leading distributed power service providers to coordinate the installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems to support critical federal disaster recovery initiatives. The impacted area was struck by destructive wind event, which caused significant damage to local power infrastructure. This deployment harnesses real-time data analytics for unparalleled efficiency, ensuring resilient power that drives the community recovery forward.

Under the contract, Flotek will supply and mobilize cutting-edge, smart conditioning skids and advanced gas distribution equipment alongside natural gas power gen sets. The gas distribution skill provides independent fuel control to each genset, allowing seamless maintenance without interrupting the power flow and guaranteeing uptime, even in the harshest conditions. This week, we have boots on the ground of valuating the site solution and continue to work with engineers and customers to determine the site design, exact power demand and full deployment schedule. Now let's transition to Slide 15, where we'll dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before, through real-time digital [indiscernible] of the custody transfer process. By monitoring hydrocarbon quality and composition in real time, we have unlocked a new market for the industry and for Flotek. On October 29, 2025, Flotek reported a historic milestone in natural gas measurement. The expect spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer GPA-2172.

The XSPCT measurement unit is designed to enable more accurate volume and composition of data thereby delivering greater transparency for royalty owners, operators and midstream companies than traditional methods. We believe the expect speed, accuracy, durability and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand its manufacturing field deployment. Since completing our XSPCT pilot program in third quarter 2025, we exited the year with over $120,000 per month in recurring high-margin revenue. Furthermore, 2026 is off to a great start with multiple opportunities on the horizon, each of which can more than double our deployed active expect units.

Let's move to our third upstream application, the VeraCal Flare monitoring solution. We continue to experience strong operational demand in the fourth quarter of 2025 with total flare monitoring revenue for the full year exceeding $2 million. As we proactively navigate the evolving regulatory landscape, particularly the EPAs flare monitoring and methane emission standards, we are deepening strategic partnerships with leading operators and flare technology developers. This collaborative approach not only assures seamless compliance but also deliver substantial operational efficiencies and meaningful methane reductions and enhanced environmental performance for our clients. It's clear that our transformational strategy to grow the data analytics segment through upstream applications is gaining traction. We increased our upstream revenues from $2.1 million in 2024 to over $21 million in 2025 with gross profit expanding from $1.2 million in 2024 and to $18.4 million in 2025. But what is most important is what it means for our stakeholders and investors. Our DASH driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Our proprietary data technologies and superior measurement accuracy enable velocity and decision control and establish a high barrier to entry, secure client loyalty and support our value-based service model.

Finally, long-term high-margin subscriptions position Flotek for sustained growth and margin expansion driving significant shareholder value over time. Now lastly, looking at our Chemistry Technologies segment continues to deliver robust performance, driven by the differentiation of our Prescriptive Chemistry Management services and our expanding international presence. Slide 18 highlights the resilient performance of our Chemistry segments, which delivered a 25% increase in total revenue for full year 2025 compared to 2024, excluding OSP payment. Despite a 24% decline in the average North American frac we count over the same period from 201 at year-end 2024 to 154 at year-end 2025 according to primary vision data. While we anticipate potential near-term commodity price volatility, we see encouraging indicators for cautious optimism in the back half of 2026 and beyond, and we continue to closely monitor operational and supply chain risk for our international operations amid the ongoing conflicts in the Eastern Hemisphere. It is evident that our Chemistry team has executed our strategy flawlessly despite the near- to medium-term headwinds. While uncertainties around near-term activity levels persist due to macro factors, that could affect the completion chemistry market, we remain focused on defining these challenges, delivering differentiated chemistry and data services to provide our customers with industry-leading returns on their investment.

Looking ahead, I am more confident than ever in Flotek's momentum in our ability to drive sustained profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions tailored precisely to our customers' evolving needs. Now I'll turn the call over to Bond to provide key financial highlights.

Thanks, Ryan. Good morning, everybody. Our fourth quarter results capped an exceptional year in which we generated meaningful value for our shareholders. As highlighted in yesterday's presentation on Slide 7, we achieved several important milestones, including our highest quarterly revenue since 2017, driven in part by the largest quarterly contribution from Pro frac in the more than 4-year history of our supply agreement, and the first quarter in which our data analytics segment surpassed $10 million in revenue. The continued expansion of data analytics revenue is translating directly into enhanced profitability. As Ryan noted, in the fourth quarter, DA accounted for 48% of total company gross profit, a significant increase from just 8% in the prior year period. Two really impressive metrics stand out as highlighted on Slide 11. One, our Data Analytics gross profit for 2025 totaled just over $18 million, which represents more than 2x the growth versus last year's total data analytics revenues. And second, the Data Analytics revenue during the fourth quarter exceeded DA revenue for the entire year of 2024.

Both of these metrics highlight the exceptional growth that we realized in 2025 from our DA segment. Regarding total company revenues during the quarter, they were up 33% from the year ago quarter and benefited from a $22 million or approximately 80% increase in related party revenue as compared to the fourth quarter of last year. Approximately $15 million of the Pro frac revenue increase was chemistry-related, while $6.7 million was associated with the PWRtek lease agreement. External customer chemistry revenue declined 30% from the year ago quarter due in large part to slowing activity levels in November and December. However, external Chemistry revenues were still up an outstanding 26% for the full year versus 2024 despite the numerous headwinds in the upstream completion markets that Ryan touched upon earlier. Data Analytics had another solid quarter with product revenue and service revenue up significantly from the year ago driving the segment's highest quarterly and annual revenue ever. Data Analytics segment revenue represented 15% of total company revenue in the fourth quarter, up from just 5% in the year ago quarter.

PWRtek revenues totaled $15.8 million during 2025. And as shown on Slide 11, since closing the PWRtek acquisition in the second quarter, these assets have been a clear catalyst for margin and profitability expansion, driving improvements not only within the DA segment, but also at the corporate level. As a reminder, based on the contractual terms of the lease agreement, PWRtek revenues in 2026 are expected to be north of $27 million or an approximate 70% increase from 2025. So we continue to expect these assets to be a significant contributor to our 2026 results. Gross profit increased 24% and 52%, respectively, as compared to the year ago quarter and fiscal year. Fourth quarter gross profit as a percentage of revenue totaled 22.5% and was impacted by a combination of product mix as well as the approximate $5 million sequential reduction related to the shortfall penalty, which is a byproduct of the huge quarter of revenue we achieved with Pro frac.

SG&A expenses increased compared to the fourth quarter of last year, primarily reflecting higher personnel costs, including stock compensation as well as elevated professional fees, a portion of which relate to the company's first time integrated audit requirements. Importantly, as revenue scale, G&A declined to 11% of revenue from 13% in the prior year quarter, demonstrating improving operating leverage and the efficiency of our cost structure as the business grows. Net income for the quarter totaled $3 million or $0.08 per diluted share compared to $4.4 million or $0.14 per diluted share in the prior year quarter. It's worth pointing out that the current quarter net income and diluted earnings per share as compared to the year ago quarter, were impacted by higher depreciation and interest costs, which are primarily related to the PWRtek acquisition as well as higher effective tax rate driven by noncash adjustments related to the company's valuation allowance on deferred tax assets. The effective tax rate for the fourth quarter was approximately 35% compared to 7% in the year ago period. We do expect the effective tax rate to normalize closer to 21% going forward, and we do not expect to pay cash taxes over the next few years other than minor amounts related to state income taxes.

Earnings per share for the 2025 period as compared to the year ago periods also included a higher share count as a result of the 6 million share warrants issued in connection with the PWRtek acquisition. Although the warrant has not been exercised, the shares have been included in both basic and diluted share counts since the acquisition closed in the second quarter. As noted in yesterday's release, as of the end of 2025, we elected to change our calculation of adjusted EBITDA to better align with the SEC's guidance on non-GAAP financial metrics. What this means is that for external reporting purposes, we will no longer add back noncash amortization of contract assets to our adjusted EBITDA. All adjusted EBITDA references in the earnings release reflect the revised computational methodology. The compute adjusted EBITDA consistent with our prior methodology for purposes of comparison to our original adjusted EBITDA guidance, simply add the noncash amortization of contract assets, as disclosed in the press release, to the revised adjusted EBITDA balance as shown. That map suggests that adjusted EBITDA for the fourth quarter of 2025 under our previous methodology was approximately $10.1 million.

Using the revised calculation, adjusted EBITDA was up 40% versus the year ago quarter and grew 123% for the full year. using either methodology, we were near the top end of the original or revised methodology guidance range on adjusted EBITDA. Wrapping up my comments, touching briefly on the balance sheet. We ended the year with $5.7 million in cash and $3.3 million drawn on our ABL. You'll note that total assets increased to just over $220 million at year-end primarily as a result of the release of the valuation allowance, allowing us to reflect our deferred tax assets on the balance sheet. With that, I'll turn the call back to Ryan for closing remarks.

Thanks, Bond. Our 2025 results build upon our now multiyear track record of consistently posting improved financials as we successfully transformed the organization to enter a new data-driven frontier. Our data analytics segment continues to deliver explosive growth with triple-digit revenue increases expanding recurring revenue streams and a robust multiyear backlog that provides strong visibility into future cash flows and margin expansion. Combined with our resilient prescriptive chemistry management services, Flotek's ability to execute strategic wins, advance asset integrations and differentiate on a technology and returns basis will enable further capture of market share and delivery of continued top and bottom line improvement. We remain fully committed to shaping the industry's digitalized, sustainable future while leveraging chemistry as the common value collision platform unlocking higher returns for our customers and generating compelling opportunities for shareholder value creation.

With our proven execution, expanding high-margin capabilities and clear pathway to scale growth Flotek is poised for an exciting next phase of value delivery to our investors. Operator, we're now ready to open the floor for questions.

[Operator Instructions] Your first question is from Jeff Gramp from Morland Capital Markets.

I was curious to start on the Power Services side and congrats on the recent contract win there. Outside of that opportunity, can you just touch right on the current pipeline of opportunities that you guys are working through? Just kind of curious at the maturity level of those conversations, what stage we're at and how you're kind of viewing other opportunities potentially going into the fold here for the rest of the year?

Yes, Jeff, I'll be glad to provide a little bit of color on that because we're pretty excited about the advancements that may not. I'll kind of refer back to some of the comments I made on our end of quarter, call it, Q3 was -- we set up our PWRtek advancement of our business development units around 3 major steps. One is proving the validation of the measurement then moving to levels of various control and integration. And then therefore, the final thing we do is full distribution and conditioning. I'm proud to say that we moved into even new customers successfully on the measurement side with executed POs and successful field trials, and they are moving into longer-term duration contracts and looking at placing our new advanced NGS or Smart skids as well as ESD. We have right now ongoing about 6 different operations in the field on top of our most recent announcement on the industrialized infrastructure component for utilities.

So it's going really, really well. We've also begun -- we've kind of brought forward what we're looking at our capital spend at building a new pieces of equipment to go out to location. And so from that standpoint, I think we're still on track to hit that run rate of doubling the size of the fleet by the end of the year, if not maybe a little bit sooner on those opportunities. And I think that -- I think the unique capabilities of our technology in some of these harsh conditions is opening up some unique pathways for us to hit some of these really stranded disaster release power locations. And that's been -- it's been an interesting opportunity for us to unlock here at Flotek.

Great. I appreciate that. And on a related question, what the business model or kind of contract approach, if you will, on this utility infrastructure deal? Do you guys view that as kind of a one-off specific to this customer need? Or is that something you guys view as more repeatable for some of the other opportunities that you're discussing with customers?

No, I believe it's 100% repeatable, Jeff. I think that where our wheelhouse of strength is, is the monitoring, conditioning and the setting up of the power generation equipment to be not only successful, but operate safely. And the fact that we can do this as some of the harshest conditions on the planet for field gas no matter isolation or how we look at it with the field gas is that this allows us to work with some of the larger suppliers of power to pull them through and jointly with what we do and work alongside of them. Everybody needs power. So I think there's going to be a multitude of opportunities very similar to this. And we're hoping that the development of working with some additional power providers opens up some additional opportunities for us inside the data center and some of the more established infrastructure components around AI. And right now, I would say that the horizon looks that direction. It's worked to our liking so far, and we hope to have some more exciting updates on that as it progresses throughout Q1.

Your next question is from Rob Brown from Lake Street Capital Markets.

Congratulations on all the progress. On the power services contract or the Power Tech contract, could you kind of clarify how that contract works? I think you said initial 6-month term and then options beyond that. And I think you quoted a kind of $1 million per megawatt, but just a sense of how that revenue flows and kind of the timing of how you expect that to flow in.

Yes. So I'll tell you, we're going to be probably rise of continuous updates on this. There's like a lot of these remote power gen processes kind of -- we're looking at it a little bit on a conservative ramp. Our team has been on location all week. We are expecting to start to see this revenue probably in the starting parts to the middle part which would be initial mobilization is set up. It will probably -- the power will probably be split over 2 locations. One is providing power to the current community and this infrastructure as some of the services there, particularly like the hospitals and things. And then there's a secondary location that will be powering additional housing that will be built to recover from what was destroyed sort of kind of come in, I think, 2 phases. But I think for us, we expect most -- some of that to start mobilization pieces and I'll go here in Q2 and start to build throughout the year.

It does appear that on our initial onset is that I think this will have a high probability of progressing past the 6 months just for the sheer factor. It will take longer than that to build the temporary structures of houses, plus they're looking at a full installation of an additional power plant at the end. So we're expecting this to get extended and be a good contract win for us. And the unique model is that we were initially approached because of our unique capability in terms of conditioning any types or variable types of gas so that they can provide a safe fuel source for operational gen sets. And I think that allowed us to help go out and work with finding these power providers to bring and pull through. So I think we'll see some similar model opportunities in these kind of disaster relief components. I don't know how much that model works when we look at data centers because either those the big megawatt type of installations. But for these remote areas, it's a favorable business model for us to help work with the power providers on doing that. The other side, we'd just be on a pure conditioning aspect.

Okay. Okay. Got it. And then just to clarify, I think you said power type contract that you had was $27 million in revenue. Did that include some of this new award? Or would that be a new award be incremental to that?

Yes, the new award is incremental. That is the -- just the original work that we have on a dry lease program for 5 years, 27 annual on those, plus an extension in year 6 at a market rate. The new industrial or should I say, utility services contract is completely at on top of that.

Your next question is from Gerry Sweeney from ROTH Capital.

I wanted to touch upon an area that I think you mentioned in your prepared remarks. Just you're doing your systems to communicate directly with the engines. And I think it offers a unique ability to improve engine flow, efficiency, life of the engine. Can you -- and I think you're working with some important engine and turbine manufacturers. Can you go into a little bit more detail what's happening on that front and how that opportunity could have emerged a little bit further in '26 and '27.

Yes. Gerry, this is a really kind of exciting platform for us when we look at applications side of PWRtek without dropping any specific names, but I will say the majority of the OEMs that we're working with are the nameplate companies that you see on the majority of these power gen sites, particularly on the reciprocating engine side, but essentially, what we have is whether you're using a [indiscernible] unit is that because most of these engines like to see a gas quality measurement once a day or once every few days just to see that if they're in an operating realm where they set points for potential adjustment -- our capabilities allow data to be fed directly to the OEM engine every 5 seconds. And so this allows a closing in of set points, operational efficiency to where they really get tuned and dialed in to the best operational parameters to not only improve fuel efficiency and emission standards, but also reduce R&M costs for the engines.

And so for us, there's potential to -- for 1 unit to feed multiple engines or we reduce it down to a simplified version of our expect units per engine. And so these projects have been solely focused on engine optimization and improving the overall performance. And it doesn't -- we will still be able to independently run our gas conditioning upstream up from that to where we condition the gas prior to coming to the end. So we technically it's a separate revenue stream. We've got projects with 4 different OEMs on that at various levels. The longest standing one has been in the works in research for about 18 months, and this progressed pretty far down the road in the advanced field trials, and we're hoping to have a little bit more clarity on what a potential long-term relationship looks like there and what that may come back here in 2026. We referenced some of these in a recent social media post with some of the success of the testing here at Flotek. So we're excited about that. And I do believe those will start to be monetized here probably by midyear, not the back half of the year as a potential addition on to a lot of these reciprocating engine operations.

Is this a little bit different approach. I mean, the power side, obviously, you have data centers, fuel gas for frac fleets, et cetera. But this summit sounds as though this is purely -- and I think the one I just mentioned, we're protect the engine, different quality gas. This is more pure efficiency opportunities for the engines and improves...

You're 100% correct. The value proposition is there's what the NGS ESDs, NG now on the broad variety of conditioning perfect horrible gas into much better operational parameters. And then there's what these individual units do per engine in optimizing timing, firing sequence, fuel mixture and everything to work them at their optimum rate to minimize derating or different components there. and then also help them in terms of the potential to reduce our R&M maintenance throughout the year.

Got it. Switching gears, you're starting to highlight opportunities that you have in the field or deployments at some point, would you be able to break out or tell us how many data analytic units you have in the field for tracking purposes? Or would this ever occur? It's just -- or is that asking too much? And it could be asking too much...

I think it's our intent, we're going to -- probably where we are at the end of Q1. We're going to come back with where we are updated on the total number of. When I look at Power techs, I would say the number of types of skids that we have out and operating, and then also combined with where we're doing measurements to improve distribution and PRV, pressure reduction valve units, et cetera, and we'll start talking a little bit more about these growth numbers. But what I would say is that if you look at what our initial contract we had with the original power tech assets, we're progressing nicely to get to that doubling of the fleet in '25. But we'll probably -- as we start to initiate our guidance like we traditionally do at the end of Q1. We'll give an update on where that stands. So it will help you align the guidance over there.

Congrats on a good quarter, too.

Your next question is from Don Crist from Johnson Rice.

Ryan, on that last point of the PWRtek units, just to be clear, I believe you bought 22 or so from ProFrac, but then they were delivered another 8. So the doubling would be off that 30% number, right?

Yes. We actually received -- we had all 30 units by almost say, November time frame of Q4 is when we've taken them all in. So the number we are talking about Don is -- so we have 30 individual units that make up what we call 15 pairs of operating assets. And our goal is to double that number based on the 30 or 15 pairs.

Okay. Yes, just to be clear. And I wanted to touch more broadly on just the construction of whether it be custody transfer units or skids or the cards that you put out for the flares -- just how is all that going? And I guess one for Bond in addition to that is how do we look at CapEx for this year? I'm guessing it won't be that big, but just any kind of rough parameters would be helpful.

Well, I would say, what I would say in terms of lead times here is that we -- the absorption of expect units and our newer technology that we call the 2C unit, which is a dual channel Varex, have been well received post the GPA 2172 passing of the standard. We've seen great progress. We sold out of the 2C units by February. And so we've advanced capital bills on a multitude of those as well as expect units and we've advanced capital to those to start really because we're seeing some strong deployments. We're traditionally done and when we first had acquired or brought the Data Analytics division in, we were selling these things 1 to 2 off at a time. We're now starting to receive POs of double-digit numbers at a time. And some of the unique things about the way we're operating with system Verax works, some of the advancements we made in the software really helps to integrate these units and show day-to-day within the hour of value creation of those.

And so we're seeing a significant adoption and absorption of those. And so I would say we're at we're in a supply constraint yet, but what we are doing is we're making aggressive steps to rapidly expand that ahead of what we were thinking by this time in the year. So we're allocating capital, Bond I'll let you comment on that.

Yes. Don, I mean, certainly, I think 26% is going to be the largest year of CapEx we've had in quite a long time. I think our CapEx in 2025 was somewhere around $2 million. Just rough numbers, we would expect CapEx for 2026 to be somewhere between $10 million and $15 million. Obviously, from a funding perspective, we've got the OSP and then as it relates to equipment financing, we're evaluating options there as well.

Right. And that OSP should more than double over that $10 million to $15 million that you have to put out, right? And that should all come in the first quarter.

Well, it won't double the OSP because remember, we had a $7 million offset related to the Power Tech transaction, which was effectively deferred consideration. So when you look at what the net OSP is at the end of the year, it's right at $20 million, but it surely goes along the way and satisfies from a cash equipment perspective.

Right. Then you'll have cash flow through the year as well. So not a big deal there. And Ryan, I did want to ask, obviously, there's a lot of impact in the Middle East right now. from what's going on with the hostilities, but you spent a lot of time over there and you all sell a lot of chemicals into there. But just an update on how much product you have on the ground and the options of moving shipments rather than going through the straight to other ports, maybe Egypt or something like that and then shipping them in. Any kind of thoughts around that?

Yes. So what I'd say is I kind of [indiscernible]. So number one, the current operations have been going very well. We've had our operations team on the ground and we picked up some of that unconventionals work that we've been speaking of, particularly in the kingdom. It's picked up and running very well, probably to the upper end of our expectations, and we're seeing solid growth there. And just as we're starting to see that we're starting to see, as you can imagine, the supply constraints is in all of the traditional sailing vessel methods that we would deliver, whether it come in from inside the GCC and/or us bringing other chemicals in some of our specialty stuff have been a bit strained as of late, particularly due to the [indiscernible] loss pressure, et cetera. We are identifying alternative pathways -- it will probably, in the near term, have a little bit of additional cost, Don, because they have to be touched twice. But again, our goal is to be a solid working partner for our customers there, and we've been kind of ahead of this by about technically probably a month or 2 because we were concerned that this might happen.

But I do think right now, our supply is relatively stable at this point, but there's no doubt that we're going to be all hands on deck, and we're going to utilize the multi years of experience that we have in global supply chain and our expertise of being on the ground there and from the past to understand about how we get there and level out. But I do think we're going to have to using all -- we're definitely using an alternative delivery method than the traditional sailing routes that we were doing, which will probably include a cross-country trucking methodology. We've done this before, Don, also the initial mobile there. We had some issues around COVID when we first sent chemicals in. So we're familiar with this alternative pathway. It's just not the best on the margin profile. But we'll make it work in the near term to make sure that we stay growing with that revenue opportunity.

Okay. But just to be clear, I mean, other than some excess shipping costs activities basically unchanged right now? I think we...

We haven't seen much. Yes, we haven't seen much disruption in KSA. We have seen a few things that we were doing on the data analytics side, some measurement installs and UAE and a few of those get pushed back a few weeks just because of the location in different pieces. But right now, we're having a call -- Leon and the team are having call it basically every morning, and we're steadily running in KSA right now because the majority of this [indiscernible] is used locally for energy inside the country. And so it will keep running pretty steady. And our bigger customers are like -- I say it's business as usual, all things considered with instability to their neighboring countries. But they are full speed ahead right now.

And I'll just say those -- we'll caveat that a little bit. That's based upon what we know today now.

Yes, we could change -- if this thing expands or extends.

Right. Yes, I get it. But yes, that's what I'm hearing, too, is it's pretty much business as usual unless you're really on the coach, right? And that's about it. I appreciate the color, guys.

Your next question is from Josh Jayne from Daniel Energy Partners.

First one is just on the chemistry side. Obviously, commodity prices are volatile, but wherever oil settles out over the next few weeks, hopefully, in the next few weeks, -- any thoughts on how operators are ultimately likely going to handle sort of a higher commodity price deck than they were thinking coming into this year? I know you haven't given guidance yet for the rest of the year, but I think the world was thinking sort of flattish CapEx and that's what these guys have announced. But maybe just insight. Are you seeing more demand for chemistry heading into the back half of this year in 2016 than you might have been thinking 3 to 6 months ago. Maybe just some thoughts there.

Josh, that is a great question and probably as in-depth as I can maybe look at our hazy crystal ball, right? But -- let me talk about things that I do see in the industry is -- I talked about them a little bit in terms of when you look globally around, you're going to see -- we still see the potential for demand to increase in that medium to long term, if not a little bit sooner, and you see that supply rebalance. But what we are seeing is that there is definitely a reduction in this and where there is in the decline curve contribution because you have such a large percentage of unconventionals contributed to that stack. And so -- and you're also seeing a little bit of decline in reservoir quality, which would tell me what they're focused on is getting the most out of what work they are doing, which means leaning in towards advanced technology, efficiency creating technologies or stuff that improves overall performance. All those things lay into the wheelhouse of what we do well by providing real-time data measurements, making choices based on that and our prescriptive engineering process with our PCM business.

So all those things work really well for what we want to do. And not only that, when you look at product margin basis, they typically run at a little bit better margin for us throughout the cycle piece in that. I think the interesting part is there's no doubt when you look at the products that we sold in Q4 of this year, we saw the frac fleet get to the lowest that it was since probably Q2 '21 coming out of COVID. We saw commodity prices around the same thing, but our revenue was 8x more than it was then. And we made significantly better gross profit and so we've shown that resiliency through the cycle. And what I believe is we're going to continue in this near term to see a little bit of softness in the demand for the chemistry part, but I think we see that upside potential maybe in the back half of the year to start to answer some of the call here, and I think that will require some of the advanced technologies that Flotek is poised to position.

Now the level of that, Josh, I mean, that's hard to say right now. But I do think -- I do see a little bit of silver lining in the back half of the year and as we look at '27.

Yes. I'll just add 1 thing, Josh. I think it's going to be interesting to see how producers react relative to the hedge market. I mean, obviously, the curve is still pretty backward dated. But I think just generally, even looking out past the spike out to the latter months, -- those numbers are probably a good bit higher than what expectations were for oil coming into the year. So if operators have the opportunity and go ahead and lock in those prices over a longer term, I mean, obviously, that underwrites a higher CapEx.

Your next question is from Joichi Sakai from Singular Research.

Can you all hear me?

Yes.

Congrats on a strong year and continued execution. On your expected data analytics drive to be more than half of the company profitability. If we think about that qualitatively, how sensitive is that mix target to the timing of a few large power tech wins? Or is that 50% threshold achieved even for a couple of projects left right of the calendar?

Yes. I mean if you look at the fourth quarter, we were effectively there at 40% gross margins or gross profit from data analytics. So just thinking about how the power tech the Power Tech lease agreement, which we talked about, will be 70% higher in 2026 versus 2025 just due to longer duration for the full year versus a partial year last year. we feel extremely confident we're going to exceed 50% in 2026 on the DA side.

There are no further questions at this time. I will now hand the call back over to Mike Critelli for the closing remarks.

Thanks, Jenny. Join us at some of our upcoming investor events. On March 23 and 24, we will be at the 38 Annual ROTH Conference at Dana Point, California. -- taking one-on-one meetings with investors and participating in energy industry fireside chats. On May 26 to the 28, you can catch us at the Louisiana Energy Conference. -- taking meetings and giving an investor presentation. For all other events and the latest in to look at the Events section of our website.

Yes. And we'd like to thank everyone for joining us today and stay with us as we continue on our converted to real-time data and chemistry solutions. Thank you.

Thank you, ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

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" Northland Capital Markets, Research Division

" ROTH Capital Partners, LLC, Research Division

" Johnson Rice & Company, L.L.C., Research Division

" Daniel Energy Partners, LLC

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" Singular Research, LLC

Good morning, ladies and gentlemen, and welcome to the Flotek Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, November 5, 2025. I would now like to turn the conference over to Delbert Rose. Please go ahead.

Thank you, and good morning. We're thrilled to have you with us for Flotek's Third Quarter 2025 Earnings Conference Call. Today, I'm joined by Ryan Ezell, Chief Executive Officer; and Bond Clement, Chief Financial Officer. We will start with prepared remarks covering our business operations and financial performance. Following that, we will open the floor for questions.

Yesterday, we announced our third quarter 2025 results and an updated earnings presentation, both of which are available on the Investor Relations section of our website. This call is being webcast with a replay available on our website shortly after its conclusion.

Please note that the comments made on today's call may include forward-looking statements, which include our projections or expectations for future events. 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 those projected in forward-looking statements. We advise listeners to review our earnings release and most recent 10-K and 10-Q filings for a more complete description of risk factors that could cause actual results to materially differ from those projected in forward-looking statements.

Please refer to the reconciliations provided in the earnings press release and investor presentation as management will be discussing non-GAAP metrics on this call. With that, I will turn the call over to our CEO, Ryan Ezell.

Thank you, Delbert, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our third quarter of 2025 operational and financial results.

In the third quarter, we saw North American operators maintain the cautious posture initiated in the second quarter as they continue to navigate the return of OPEC+ spare capacity and persistent global trade uncertainty.

Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market, the Flotek team remains steadfast at the execution of our corporate strategy, driving transformation and delivering our 12th consecutive quarter of adjusted EBITDA improvement.

As referenced on Slide 4, Flotek extended its track record of transforming the company into a Data-as-a-Service business model as our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company.

Furthermore, we increased market share in both of our complementary business segments with an unwavering commitment to service quality and value creation for our customers and shareholders through the convergence of innovative data and chemistry solutions.

With that, I'd like to touch on some key highlights for the quarter referenced on Slide 7 that Bond will discuss later in the call.

Total revenue during the quarter rose 13% versus third quarter 2024, highlighted by a 232% increase in data analytics revenue, which is our strongest quarter ever and a 43% increase in external chemistry revenue.

Gross profit climbed 95% versus third quarter 2024, with third quarter 2025 gross profit margin rising to 32%.

Net income totaled $20.4 million, while adjusted EBITDA was up 142% versus third quarter 2024 and up more than 20% sequentially.

On October 29, 2025, Flotek announced that the XSPCT analyzer was the first optical spectrometer to comply with oil and gas custody transfer standards known as GPA 2172, further empowering our ability to build high-margin revenue backlog in the Data Analytics segment.

Finally, we increased our 2025 total revenue and adjusted EBITDA guidance ranges by 6% and 3%, respectively. Above all, these milestones were achieved with 0 lost time incidents in the field of operations. I also want to spotlight our differentiated prescriptive chemistry management service team, which has remarkably maintained over 3,500 days with no OSHA recordables or lost time incidences.

You combine that with the recent achievements at MTI in the third quarter of 2025 saw Flotek achieve its lowest EMR score in company history. I'd like to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results.

Now turning to the larger picture for the energy and infrastructure sector shown on Slide 9. We share the vantage point that the fundamentals for hydrocarbon demand will continue to grow over the long term.

Substantial investment will be required to maintain current production levels, much less to increase production sustainably to meet expanding requirements of power demand driven by AI, data centers and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure.

As our legacy pressure pumping customers diversify into the power generation business to capitalize on this demand opportunity, Flotek is poised to support them and emerging customers with products and services that help protect their investment in power generation equipment.

With multiyear waiting list for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed the greater than 99% uptime requirements.

With this outlook in mind and referencing Slide 10, I've never been more invigorated about Flotek's future as we strengthen our position as a technology leader, spearheading innovation and delivering tailored data and chemistry solutions that meet our customers' specific needs.

We are committed to shaping the industry's digitalized future by leveraging chemistry as the common value creation platform.

Now let's dive into the details, referencing Slide 11 of the earnings investor deck. Today, I want to spotlight the remarkable progress in our Data Analytics segment, which saw service revenues increase 625% in Q3 2025 versus Q3 2024, elevating gross profit to 71% in Q3 2025 versus 44% in the same quarter a year ago. This transformational growth in data-driven service revenue is empowered by 3 upstream technology applications: power services, digital valuation and flare monitoring, all of which are fueling significant advancements for our organization while generating recurring revenue backlog.

The first is our transformative power services, which has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call PWRtek.

What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector.

Looking at Slide 12. At the heart of PWRtek is our Verax analyzer, which goes beyond data collection to deliver custody transfer grade measurements. It provides precise BTU methane number and volume reporting for royalties, invoicing and performance guarantees.

Complementing this is our patented ESD trailers actively remove liquids and contaminants, conditioning high BTU hydrocarbon feeds to meet exact turbine or engine performance specifications.

Because every site and grid condition are unique, we have integrated Coriolis metering, automated CNG blending and seamless backup connections, allowing operators to switch fuels or go off grid with a single button resolving major constraints to the development of data center and grid power infrastructure.

But Biotech is more than just technology. It's about control. Operators interact effortlessly through an on-trailer HMI or a unified web portal that is accessible on desktop, tablet or smartphone.

Our cloud-based portal enables the monitoring of live BTU trends, H2S alerts, Coriolis flow meter readings and automated CNG blend controls, combined with custom alarm thresholds to automatically isolate all-spec hydrocarbon feeds and protect high-value turbines or engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety.

All data flows securely through our patented edge-to-cloud pipeline, ensuring 0 manual intervention, end-to-end encryption, full audit trails and compliant custody transfer recordkeeping.

Finally, our over 35 data analytics patents position Flotek as a leader across the natural gas value chain. When considering our capabilities for advanced fuel blending, zero emissions analytics, custody transfer grade flow cell measurements, wireless ESD actuation and secure edge-to-cloud data transmission, we deliver unmatched monitoring, control and safety for field gas operations.

In April of 2025, we acquired 30 patented real-time gas monitoring and dual fuel optimization assets. We are proud to report that the integration of these assets has gone seamlessly and all units are in service as of today, which is ahead of our original schedule.

Now let's transition to Slide 13, where we'll dive into our second upstream application, digital valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through a real-time digital twinning of the custody transfer processes.

By monitoring hydrocarbon quality and composition in real time, we have unlocked a new market for the industry and for Flotek.

On October 29, 2025, Flotek reported a historic milestone in natural gas measurement. The XSPCT spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172 and API 14.5.

The XSPCT measurement unit is designed to enable more accurate volume and composition of data, thereby delivering greater transparency for royalty owners, operators and midstream companies than traditional methods.

We believe the XSPCT speed, accuracy, durability and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand this manufacture and field deployment.

Let's move to our third upstream application, the VeraCal flare monitoring solution. We continue to see operational demand in the third quarter of 2025 as we navigate the rapidly changing regulatory landscape by partnering with operators and flare developers to deliver value that goes beyond just compliance and unlocks new efficiencies and environmental benefits to our clients. It's clear that our transformational strategy to grow the data analytics segment through upstream applications is gaining traction. But what is most important is what it means for our stakeholders and investors. Our DaaS-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value.

Our proprietary data technology is a superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty and support our value-based service model.

In long time, high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time.

And lastly, our Chemistry Technologies segment continues to deliver robust performance, driven by the differentiation of our prescriptive chemistry management services and our expanding international presence.

Slide 17 underscores the resilient performance of our Chemistry segment with 54% growth in external chemistry revenues and 21% increase in total chemistry revenues for 3 months ended in 2025 versus 3 quarters or 9 months ended 2024, despite a 24% decline in active frac fleets during the same period.

While we anticipate potential commodity price volatility through the remainder of 2025, we do see indicators for cautious optimism in 2026. This presents a strategic opportunity to expand our market share by accelerating the adoption of our prescriptive chemistry management solutions and enhancing asset value for our customers. It's evident that our chemistry team has executed our strategy flawlessly despite the near- to medium-term headwinds. While uncertainties around near-term activity levels persist due to macro factors that could affect the completion chemistry market, we remain focused on defining these challenges, delivering differentiated chemistry and data services to provide our customers with industry-leading returns on their investment.

We're confident that our expanding suite of services positions us to deliver superior solutions to a variety of our industry's most challenging problems while maximizing our customers' value chain. Now I'll turn the call over to Bond to provide key financial highlights.

Thank you, Ryan. Good morning, everyone. I'm excited to discuss our third quarter numbers released yesterday afternoon. Our results were positively impacted by the first full quarter of cash flow contribution from our PWRtek assets. The $6.1 million in PWRtek revenues during the quarter drove a 50% sequential increase in data analytics revenue.

Data analytics gross profit margin totaled 71% during the quarter. That was up 800 bps sequentially as gross margins relative to the PWRtek assets specifically came in at 89%.

The increased data analytics contribution, along with an increase in the chemistry shortfall penalty, combined to raise total company gross profit margin to 32% for the quarter. As noted in the release, all of the PWRtek assets are now in service, so we expect fourth quarter revenues to increase further to approximately $6.8 million.

As shown on Slide 11 in yesterday's deck, since closing the acquisition in April, our PWRtek assets are a clear catalyst for margin and profitability expansion, driving improvements not only within the Data Analytics segment, but also at the corporate level.

Emphasizing PWRtek's impact and as shown on Slide 6, during the third quarter of last year, the Data Analytics segment contributed just 13% of total company gross profit versus 35% during the third quarter of this year.

As a reminder, based on the contractual terms in the lease agreement, PWRtek revenues in 2026 are expected to be north of $27 million or an approximate 70% increase from 2025. So we fully expect these assets to be a significant part of our 2026 results. Looking at the quarter, revenue during the quarter was up 13% from the year ago, and as Ryan said, was driven by the Data Analytics segment. As compared to the year ago quarter, we saw a massive increase in service revenues driven by PWRtek.

Data Analytics segment revenue represented 16% of total company revenue in the third quarter, which is up from 5% in the year ago quarter.

In addition, third quarter revenues from the Data Analytics segment equaled the entire segment revenue for all of 2024. During the quarter, total chemistry revenues were flat versus the '24 quarter, but on a year-to-date basis, as shown on Slide 17, total chemistry sales are up 17% from last year.

More importantly, we have made substantial progress in diversifying our chemistry sales. Excluding the chemistry order shortfall penalty, 53% of third quarter 2025 chemistry sales were to external customers, and that's up from 35% in the year ago quarter. As it relates to international sales, they totaled $10 million through the first 9 months of 2025, which is up about 122% from the year ago period.

SG&A costs during the quarter were up versus the third quarter of last year due to higher personnel costs, including stock comp as well as increased professional fees, some of which are related to the company's first-time requirement for an integrated audit.

On a percentage of revenue basis, G&A was 13% this quarter versus 11% in the year ago quarter. We do expect G&A to trend down in the fourth quarter as compared to the third quarter.

Net income for the quarter totaled $20.4 million or $0.53 per diluted share as compared to $2.5 million or $0.08 per share in the year ago quarter.

Current quarter net income did include a $12.6 million tax benefit, primarily associated with the partial release of the company's valuation allowance on its deferred tax assets.

While the tax benefit is noncash, it is a positive development that illustrates the company's expectation of future profitability along with its outlook on utilizing deferred tax assets.

As shown on Slide 8, during the third quarter, we continued our streak with respect to growing adjusted EBITDA.

Our third quarter 2025 adjusted EBITDA was 24% higher sequentially. And through the first 9 months, adjusted EBITDA is running more than 110% higher than the 9-month 2024 period.

Similar to the gains we saw in gross profit margin, our third quarter adjusted EBITDA margin increased by 500 bps sequentially, primarily as a result of the increased contribution from our mobile power support assets, PWRtek.

In yesterday's release, we increased our 2025 guidance ranges on both total revenue and adjusted EBITDA, which we've summarized on Slide 8.

The midpoint of our revised guidance implies 2025 revenue growth of 19% and adjusted EBITDA growth of 85% as compared to last year.

Again, using the midpoint of both metrics, it implies a 17% adjusted EBITDA margin for 2025 as compared to 11% in 2024, further underscoring the positive margin impact attributable to the PWRtek assets.

Wrapping up my comments on the financials, the third quarter built upon a very strong second quarter, highlighted by continued growth in margins and profitability.

We remain focused on continuing to rebalance our profitability mix, transitioning from chemistry technologies as the primary contributor today to data analytics as the leading driver in the near future.

With that, I'll turn the call back to Ryan for closing remarks.

Thanks, Bond. The third quarter 2025 results build upon our now multiyear track record of consistently posting improved financials as we successfully transformed the organization to enter a new data-driven frontier.

Our 2025 guidance points to the execution of our corporate strategy, leveraging chemistry as the common value creation platform.

Looking at Slide 18, I remain convinced we are still in the early innings of Flotek's transformation as we continue to grow and maximize returns for our customers and shareholders across the entire value chain of the energy landscape.

Our transformative and strategic entry into the energy infrastructure sector is expected to provide a significant increase in high-margin data analytics revenue and cash flow for years to come.

Through the growth of our upstream applications, we anticipate the Data Analytics segment will contribute to over half of the company's profitability in 2026.

We continue to secure long-term contracts for both our Chemistry Technologies and Data Analytics segments, bolstering confidence in Flotek's ability to deliver stable revenue and profitability while effectively shielding our business from the impacts of commodity price fluctuations.

Finishing with Slide 19, we believe no other company in our industry is better positioned to deliver the cutting-edge technologies needed to tackle the unique challenges of our energy and infrastructure sectors. I'm incredibly proud of our progress and confident in our team's ability to execute moving forward.

Given the growth potential for our Chemistry Technologies and Data Analytics segments, we see Flotek as a compelling investment opportunity. Thank you for your continued support, and we're eager to share our vision for Flotek's future and look forward to updating you on our progress in the quarters ahead. Operator, we're ready to open the floor for questions.

[Operator Instructions] Your first question comes from Jeff Grampp with the company Northland.

I wanted to start first on digital valuation. So I saw on the slide deck, there's a goal to get to 25 units to 35 units by year-end, and then there's over 200 installations kind of, I guess, in the pipeline, if you will, with those customers. What's the major factor from your guys' perspective determining the cadence of that ramp to get from that 30-ish to -- it sounds like the goal is kind of over 200. I don't know if that's near term, medium term. Just hoping for a little more granularity on that -- those data points. Yes.

So Jeff, this is Ryan. We look at it as there's kind of 2 to 3, I wouldn't say hurdles, but progressions that have to take place in terms of what we do from digital valuation. We spoke on in earlier quarters this year around some of the successful pilot programs that we had ongoing in 3-plus basins here in the North America land. We've seen those all turn over and are no longer in pilot phase. They're more in commercial phase. So that's one of the driving factors that we'll now start to see multiple unit deployment starting here at the back part of Q4, and that will roll into some of these 200-plus sites we see in 2026. There's also a little bit of piece of looking at the exact location for where they go because the different operators are looking at 2 to 3 different things they do well.

A big value creation point is where when we bring on the production wedge component there at a gathering site, that's one key location that's typically garnering the initial most interest. And then we move into the actual pure 2172 addressing method around custody transfer pieces. So it's just -- it's kind of like walking over that heel to turnover.

The pilot phases are complete. We've now seen full commercialization. We've increased the level of manufacturing. We don't feel we'll have any issues addressing the total number. We've already pre-bought all of the materials and are completely building now. And so what we're doing now is working out final Ts and Cs on customer rollout.

So we expect it to be steady output closing this year and in '26 with increases in total number quarter-by-quarter, if that gives a little bit of better granularity.

Yes, that's perfect, Ryan. And just to, I guess, make sure I was understanding one of your comments right. So it sounds like the issue is -- issue is not the right word, but the inflection point more pertains to customer decisions around where exactly to deploy these, not if to deploy these. Is that fair?

Correct. Yes, that is correct. And so you look at it -- and it kind of goes through a progression, right? The big input we first see is when they're bringing new wells on production because we can see every minute change in production quality and then it goes into monitoring the well over a long period. And so it's kind of like -- as you can imagine, each customer operator and/or midstream client is looking for the maximum ROI on the initial deployments and then it works its way down the value chain.

So that's mostly what we're doing is we'll pick up a customer. It takes a few weeks to go through the technical install pieces, test out how it does. Typically, production wedges are the big pieces we look at first. and then we move into the day-to-day monitoring or what we call creating -- you're essentially making, Jeff, a digital twin of the manual custody transfer sampling process, which is faster, more accurate and more durable in the long term and actually cheaper in the long term as well.

Got it. Those are great details. I appreciate that. My follow-up is on the power gen side with PWRtek. Can you update us on kind of customer conversations for third-party power services and any kind of outlook on when you can get some deployments there?

Yes. So we actually -- I would say, Jeff, excluding what we've done on the PWRtek deal with our initial contract, year-to-date, we've done an additional $2.1 million of revenue secured already after just having the equipment for a quarter. And I'd like to reference you like Slide 12. We try to give a little bit of a schematic to where -- what's going on in the business location in terms of how our sales process works. That first step is proving the measurement out. So that $2.1 million has been solely related to us sending Veraxs or XSPCT to location to monitor the gas and prove the fact to most of these people who are running either turbines or reciprocating engines that, look, we can see your gas quality coming in and out of any type of current manual treatment that you're doing and improve that. And those have gone really well. We've actually seen 6 new customers outside of our deal with ProFrac adopt that already in Q3 with multiple units testing for each one of them.

The next phase of that goes into control, where they look at applying a smart filtration skid or an ESD monitoring unit, and we determine do they need H2S, do they need CO2? Do they need an MRU? Do they need these different pieces at what level of conditioning they need?

And the final piece is issuing distribution and full control. And we've seen great success at working directly, feeding information directly to reciprocating engines and adjusting temperature and gas quality for turbines. So we're making great progress, in my opinion, on this. Now what's also interesting, Jeff, is these sales work a little different, depending on the vertical with inside power generation that you're working and how fast the sale takes place. And they're a little -- I would say they have a little slower turnover period than our traditional frac monitoring power gen and/or chemical sales, which work on a pretty quick sales cycle, almost pad to pad in some cases.

So -- and I think you'll see some of the other, I would say, power service providers commenting on the sales cycle is a little bit different. The pursuit is a little bit different. But if you look at what we laid out here on Slide 12, we really laid a pathway of sales out, and we made great progress in our first phase of the measurement, and we're now transitioning to control the multitude of those clients.

And I would say those client bases are legacy pressure pumping type customers, data center development and building customers and also biogas generation customers. So working in a multitude of verticals depending on the installation time and the equipment provided.

Our next question comes from Gerry Sweeney, ROTH Capital Partners.

I apologize. I was jumping back between a couple of calls here, so I may have missed some stuff. But Bond, I think you said how much did you say PWRtek is projected to do next year? Was it $26 million or $27 million?

Yes, it's $27.4 million next year and for each of the next 5 years or so years. And then in the sixth year of the lease agreement, it reverts to whatever the prevailing market rates are. But for the first 5 years, it's fixed rates and the math is $27.4 million a year of revenue.

So that was just for the acquired assets with your partner. That obviously doesn't apply any growth for the power side.

That's correct. So that excludes the $2 million that Ryan just mentioned on the previous question relative to non-PWRtek power services is not included in that number. That's just the 30 trailers.

Got it. And obviously, what was it -- I still call it custody control, but I think you sort of renamed it. But obviously, I think that's a focus. But how do you start expanding into the power side? Do you have enough skids, monitors, et cetera, manufacturing capacity sales? Can you walk us through sort of how you start to drive additional growth on that front?

Yes. So kind of alluded, I go back to referencing to Slide 12 again, Gerry. Our first step is proving out what the heart of PWRtek and Power Generation services is, and that's our ability to do the real-time gas measurement. Now depending on the type of equipment, whether it's reciprocating engine and/or a turbine is what measurement, whether you're looking at BTU number, methane number, Wobbe index, different components, high heating value, low heating value, et cetera, our equipment does all of that. And it's proving out what the brain of PWRtek does is our initial step.

As I told Jeff earlier, we picked up 5 new customers for that in Q3 alone and testing multiple Verax and/or expat units on location to drive that part. The next piece is once we get a defined point of gas quality, we move into the next part of control as in the ESD trailers or smart filtration skids or H2S monitoring, all the different pieces that bolt on to really condition that gas to optimum output for the turbine and/or reciprocating engine.

We've also moved into being able to -- because we can see BTU or methane number in real time, we have the capabilities to automatically tune a reciprocating engine, which has never been done in the industry before. And we've been working that aggressively in Q3. And so that's where it leverages into the next point of the sale.

And finally is our state-of-the-art distribution trailers. And so it takes -- it's like a methodology that we go through in doing it. And we progressed through what I call Phase 1 pretty aggressively in Q3, and we'll see further expansion into control and distribution in Q4 and all of 2026.

Now addressing capital needs, we've got plenty of measurement devices. We kind of preloaded XSPCT Verax units for that. We've built an initial 4 ESD trailers that are coming out, and we'll be issuing POs for additional distribution trailers here in Q4. And we've got probably the most -- well, not probably, the most aggressive capital delivery plan in Flotek probably in the last decade as we roll into 2026 to drive the deployment to ensure that we can address the needs of the growing customer base of not only some of our legacy pressure pumping customers that's made that transition, but also some new and emerging customers that are out there in the pure mobile power generation piece, and we look at the fixed installation and the biogas treatment facilities as well.

Got it. Jumping back to the custody control or custody transfer, I'm sorry, the GPA 2172, there's a little bit of talk about maybe getting regulations moved around change that would be beneficial for XSPCT and custody transfer. Does that -- clearing that hurdle, GPA 2172 help that and maybe give a little bit of details maybe what the opportunity is?

Yes. Like the GPA 2172 that also relates to API 14.5 was the specific hurdle that had to be addressed. It is the backbone of what actually allows you to say we have a true digitized or digitalized custody transfer model in that it sets the standard of, hey, you have, you can use gas chromatography on another acceptable method, which is the optical spectroscopy. But for the optical spectroscopy to be allowed, it has to meet reproducibility and repeatability of what a GC standard is, and we exceeded all of those capabilities with the XSPCT unit, which is pretty amazing, being it's the first optical spectroscopy unit in the world to be able to do that.

And so that kind of takes away a majority of a lot of -- particularly the midstream guys ask us, hey, is it compliant with 2172 and it is now. And so that was a big deal about being able to do that.

And in all honesty, we had to progress in a lot of our pilot testing earlier in the year to get access to be able to do that to live streams. And so that was some of the big parts that we were able to close up here in the quarter, and we're extremely excited about it.

Our next question comes from Don Crist, Johnson Rice.

Most of my questions on the power side or the data analytics side have been answered. But I did want to ask about on the chemical side, particularly international chemicals. Your customer got a big contract with Saudi, the other day and didn't know how that would kind of play into your future relationship with them. It seems like they're going to be growing rapidly. And I don't know if you all are going to participate in any meaningful way there?

Yes, Don, that's a great insight and a great question as our head teams are over in ADIPEC and following this week in Saudi as well to discuss the impacts of the business expansion with our -- what I consider to be our largest customer in the Middle East.

And if you look at -- we mentioned around how that international revenues year-to-date are up 122%. Getting ready for some of this initial work is what led up to those revenue increases. We saw that slow down as that mega tender for Aramco was completed. And with our customer picking up the majority, well, I guess, 100% of that hydraulic fracturing scope, we do expect to see business pick up in the back half of Q4 and heavily in 2026, which is -- you've talked Bond and I acknowledging over this for the past year. This is what we've been positioning Flotek for is this type of growth in the Middle East.

And we haven't given any guidance on specific expectations around there, but we do expect it to be very positive for us.

Our next question comes from Josh Jayne, Daniel Energy Partners.

First question is just on XSPCT. I think in the press release that [Audio Gap] October, could you elaborate a bit more on the cost and efficiency gains for the [Audio Gap] so that the real-time analysis happens every 15 seconds. I just -- how does that alter decision-making for the customer and.[Audio Gap].

Yes. So I'll talk about a couple of things. Let me talk a little bit around efficiency, right? What -- being the fact that we're now past the GPA 2172, we are now able to deliver a custody transfer level grade measurement to a resource owner, an operator or a midstream first buyer essentially almost every 5 seconds versus what was taking 3 months to 6 months to turn those over.

More importantly is because you get such a regularity of measurement at such high resolution, we're able to resolve a multitude of the potential manual sampling bias that takes place on the production, which removes a layer of, I would say, fog around it provides a lot of transparency over what the true production and production quality out of each individual target location is. So that -- and typically, what we've seen is anywhere from 3% to 5% bias.

What's also important is the fact that we can measure the direct flow line removes the process of manual sampling. So you see cost reduction there. You also manual sampling is never done the same way by anybody. It changes lab to lab. And so there is a variance typically or error introduced by the type of sampling that's done, whether it's pressure drop, temperature issues, et cetera.

And so we remove all those components. So there are significant improvements in measurement quality, accuracy, resolution and reduction in variance -- variability.

In terms of cost, traditionally speaking, we expect overall between CapEx and maintenance, almost a 50% reduction in cost overall through the process.

So as you can see, I mean, this is a transformative step in creating a what I would consider to be a digital twin of -- in a real-time digital twin of the custody transfer process and creating significant efficiency, accuracy and cost gains for the customers.

That's very helpful. And then I did want to hit the chemistry business. Continuous fracturing has been discussed on some recent E&P calls. And maybe could you just discuss what you're seeing with respect to what's left for efficiency gains on the pumping side? And I think you highlighted the revenue growth against declining frac count in the chemistry business. But is there -- maybe just you could speak to your outlook for U.S. land in 2026, the ability to grow chemistry revs even if we're sort of flat to down from a fleet standpoint.

And do you see more customers using chemistry in the current environment trying to get more out of less with respect to acreage?

Yes. So that's a lot to unpack. And so I'll try to do it in 4 or 5 main points. The first thing is around our ability to grow chemistry. Number one, the efforts that we put into stabilizing our revenue streams domestically and internationally is going to provide a solid runway to grow. I think as we kind of alluded to the potential impact of the expansion of our Middle East -- potential impact of our Middle East business is going to be huge for us to provide growth in '26.

And then also some other countries that we have opportunities in, in Latin America and as well as Asia Pac, I think, are going to be positive, but probably not nearly as, I would say, material as what the Middle East will be.

Secondly, as we move to the domestic component of it, everything that the oil and gas operations from the operator and the oilfield service companies are doing right now plays into the strength of Flotek. They want efficiency. They want maximum return on invested capital. They want maximum returns, and they want cost options that digitalize their entire value chain. And that's where the next frontier for Flotek is the tip of the spear and moving.

We've not only been able to improve efficiency just by quality of our PCM services on location, the advanced chemical technologies, but we moved into complete automation by looking at real-time water quality, being able -- we've got our own chemical pumps on location that can adjust on the fly to water quality. We're able to pump concentrates instead of spotting 8 ISOs to 10 ISOs, we can bring 7 totes out to location.

So we're doing a multitude of things that impact the overall progress and the efficiency there overall that to me, what we're hoping to do is bridge that gap between Tier 1 and Tier 2 type acreage, right, where you get similar returns out of the Tier 2 production because we look at it from an overall transition, although pumping hours and everything has increased, we've seen a relatively flat utilization of water. I think we're kind of at the floor. We're going to -- we see indicators of positive movement in 2026.

But for us to really do that, we've got to continue to be sharp on our game and deliver differentiated technologies that allow us to gain that, what do you say, really competitive market share that we're going to go after.

But I will tell you the thing that when I look at it on the long term is -- right now, even with all the efficiency gains, even all the technology things that we've seen here in North America land and the capital discipline, the fact of the matter is we're still at the level of underinvestment.

It probably -- for us just to maintain current production, 90% of the spend right now is going just to do that. And the quality of the production has been steadily declining overall since probably the end of 2021. And so sooner or later, we're going to hit a discontinuity that's going to require a shift in terms of investment going back in there. And I do believe that the differentiated capabilities of Flotek from our data-driven real-time monitoring services, combined with our innovative chemistry solutions is going to put us in a great place to help the industry bridge that gap.

And I think that gap is getting closer to the point when it's going to kick off. And I think we're in a good position there.

So I hope that gives a little bit of color around kind of how I think about that in terms of, one, we've got plenty of room to grow. We're advancing technologies that's going to continue to drive efficiency and get maximum ROI at every well that these operators that work with us are drilling.

And then secondly, there's going to be a demand shift that's going to require not only just to maintain production, but also fuel the demand created by electrification, onshoring, reshoring of industrialization and infrastructure support.

Our next question comes from [ Tom Bishop ], BI Research.

It sounds like a lot of the components and add-ons that they are available for the PWRtek units. But just in terms of the PWRtek units themselves, I mean, do you have a projection of how many additional units you might build and install in 2026?

We haven't given any particular guidance on those numbers yet. I do -- when I look at the health of our pipeline and the continuous expansion of it, our goal would be we say this loosely to get into the doubling the size of our paired fleet by the end of 2026. I think that's a reasonable goal and one that we can potentially exceed. But that's -- when we start to look at capital outlay, we're looking pointed in that direction and doubling that size and some sensitivity pluses and minuses in that direction just to kind of start off.

And I think you'll come to see us as we wrap up the year, we start to understand the impacts of natural gas and some of this transition, and we'll give a little bit better guidance towards the end of the year.

Sure. But to be clear, you'll -- the $27.24 million is a starting point.

That's our... Yes, that's just the base contract with the 15 payers. And our goal would be to work towards doubling that in 2026 in terms of payers and applications.

Okay. And then given the deferred tax credit valuation release event, the $12.6 million in Q3, does this mean the company in the future will be showing maybe a larger tax rate for GAAP reporting?

Yes, Tom, that's exactly right. We'll go back to a more normalized tax rate now that we've got a forecast of realizability of deferred tax assets.

Can you give us -- analysts are going to need this, what kind of a percentage maybe we'd be looking at?

I'd say somewhere in the 20% range.

Okay. And why is ProFac not able to use the amount of chemistry that they contracted for when your other customers show 43% growth, which is amazing, by the way, given the decline in fleet crews. It sounds like I think -- I'm sorry, go ahead, sorry. It sounds like you booked the revenue at the minimum contract requirement leading to that 28% figure included in the $27 million. And is that then what they pay on an -- as an offset to the PWRtek asset purchase price or what they actually pay?

So if -- there's 2 separate agreements we're talking or you're talking about here. We have the lease agreement with PWRtek and then we have the chemistry supply agreement. Under the chemistry supply agreement, ProFrac is obligated to purchase a requisite amount of chemistry on an annual basis. So what we do at each quarter, we assess where they are from a trajectory perspective, and we effectively book a receivable and revenue for what we believe they're going to be under at the end of the year. So that receivable builds up at the end of the year and then it gets released in the first quarter of the following year.

So there's really no tie-in per se between the chemistry shortfall penalty, if you will, and the lease agreement other than we do have some offset rights as it relates to some leverage that ProFrac extended in connection with the PWRtek acquisition.

Well, earlier, you had said you might offset that against the PWRtek acquisition price, I thought. Is that still the plan? Is that what happens?

Yes. sorry. So we've got a deferred liability on the balance sheet for $7.2 million, which was effectively a loan against the 2025 shortfall penalty. So when the order shortfall penalty gets settled up in the first quarter of next year, we'll knock off $7.2 million is effectively part of the consideration from the PWRtek assets.

Okay. Good. But why is it that ProFrac can't get to this -- it is always running behind? And is this minimum likely to get renegotiated?

That's a great question. And what I would say is when you look at the way the minimums were calculated, it was on volumes of chemistry pumped by an average fleet times a certain number of fleets is where we got to these numbers from. And earlier in the contract, when you saw high hydraulic fracturing fleet demand, we were actually meeting and exceeding the revenue numbers on a monthly basis.

And then the back half of 2023, we started to see a correction, efficiency gain in fleet count, but also just a slowing down of the market. And we feel like we're at the trough of where it is right now.

We do expect the chemistry sales to ProFrac to improve in Q4 as we picked up quite a bit more work with those guys. And what's interesting is during that shift between the end of 2023 to where we sit today, there was a massive influx at the earlier part into the Permian Basin.

The buyers in the Permian Basin run significantly simpler hydraulic fracturing formulations and traditionally basically separate the chemical buy -- from the pressure pumper, particularly in markets where there is an oversupply of equipment and the demand for the horsepower is down. They don't necessarily are not able to enforce the wheel per se and selling a particular type of chemistry.

And as we've seen the fleet counts go down, the biggest change in fleet count number has been away from the Permian and into more of these gas-rich basins being the Haynesville and the Northeast, et cetera, where our differentiated solutions make a huge difference. And so it's -- our technology deployment has gotten better and will get better through the back half of this quarter and while we roll into 2026.

But a lot of it has to do with buying behaviors of the operator, the geographic location of those operators and where we are in the cycle on hydraulic horsepower demand and leverage pieces.

And so what was unique about this 10-year contract is we kind of try to model and build in that robustness. There's capability years through the cycle where they'll exceed and it will actually take away and can take away at sometimes OSP that are gained in different pieces. And so at this point in time, we -- there's been no discussions on changing anything related to that supply agreement or an asset for the company. So -- but just trying to give you a little bit of color on the way the cycle influences the buying powers of the chemistry providers and operators.

And Tom, it's important to note that ProFrac did get a significant portion of equity in Flotek in conjunction with that transaction. So that shortfall penalty was always meant to protect the other shareholders in terms of preserving the value of the contract that was exchanged for equity.

Okay. And before I let you go, the number of -- you said the international revenue was up 122%, but what's the dollar amount that is running on an annual basis?

Yes. Well, year-to-date, it's $10 million, right at $10 million international revenues.

Okay. And how much do you expect from the optical spectrometry unit, the -- I forget what all the letters are… I don't know how big a business that is in terms of dollars and what you expect there.

Well, that business, not segment, but that application, if you will, generated its first dollars of revenue in the second quarter of this year. So we're effectively first at bat in the first inning of the game on that business.

Well, hopefully, it's going to amount to a fair amount.

[Operator Instructions] Our next question comes from Joichi [ Sakai ], Singular Research.

Can you hear me?

Yes, we got you.

Yes. Just on the data analytics, can you give us a sense of where that analytics gross margin would normalize as the installed base kind of matures or the recurring revenues outweigh onetime setup and integration costs?

You're talking about our expectation going forward? Yes. So this year, we'll do -- we haven't given guidance really on 2026 as it relates to the various components that drive data analytics revenue. The one thing I'll point you to is, this year, we're going to do, call it, $16 million under that PWRtek agreement. We know those are 89% to 90% margins. Next year, that number jumps by 70%.

Obviously, more revenue from this high-margin business is going to, I think, continue to move margins. It's hard to say what the other contributing factors are for revenue next year because we don't have anything like this big long-term contract that's driving the margin growth this year. But we -- I would expect if the PWRtek business is a meaningful part of next year's revenue, it's going to drive the weighted average gross margins higher than 70%, perhaps even closer to 80%.

Got you. And just that the post-sale customer support for this product installation, is there -- so you don't foresee any resource constraint or additional cost that will have -- that you'll need for continued future renewal rates?

Not at this point in time. I think that we've begun to invest in inventory of the actual measurement devices, whether it be in the Verax or XSPCT expect units. And I think we preloaded and started building out from the PWRtek aspect, multiple ESD and smart filtration skids and we'll be transitioning to additional build-outs of our distribution skids, trying to keep a healthy risk weighting of what we put in the pipeline and what we prebuild versus what's delivered by contract.

Luckily for us, even if we had a large, I would say, tender or award come through that would exceed the capacity most of these pieces of equipment we can build in 5 weeks or less on the big pieces of equipment, we can typically turn expected Verax units out within a few days once we get an order. So we should be able to, at this point in time, keep up.

I will tell you this, that we have looked at -- when we look at capital outlay and manufacturing production, we're looking at this on a 36 month- to 60-month landscape in terms of bottlenecks that could potentially be created by our current facility capacity more than personnel and/or availability of equipment. And that's some of the things that we're looking at is expansions to -- potential expansions to our facilities in the coming months.

Got you. And on the external chemistry side, as your mix kind of shifts, how are the payment delays from your non-anchor clients compared to your legacy business?

So I would say all things considered in the components in the market, our North America land customers pay pretty well. We have relatively, I would say, low DSOs compared to the industry. But as expected, our international customers, particularly in the Middle East, typically pay a little slower. Most of the time because the payment terms with some of the service companies work over there with are already extended due to payment terms from ADNOC or Aramco or the Dorra KJO, et cetera, over there. And it kind of adds 20 days to 25 days additional on the average DSO. But right now, the cash flow has been relatively consistent. I will think we're going to -- if we see the significant ramps in our Middle East business, that will consume a little bit of working capital to get that stabilized. We'd see that pool come in, in the first half of '26 and hopefully stabilize by mid-Q2. But we are looking very carefully at that if we see an accelerated ramp for that business with a little bit longer payment terms. So I would say that's probably our -- the big thing on the radar is just the working capital to complete the ramp.

Got you. And just my last question on that working capital. If these order volumes kind of spike, would you need any alternative backup for working capital facilities? Or do you have headroom in the lending capacity?

Yes. I think we're pretty good right now as it relates to capital. I mean, keep in mind, in the first quarter, we will receive a cash payment relative to the OSP, which I don't know what that's going to be, but net of the $7 million offset could be $20 million to $25 million cash infusion that comes to see us -- we've got plus or minus $15 million of availability under our existing ABL.

We currently have very low leverage. So we -- if we needed to, we could explore some capital raising options in the debt markets. And at the end of the day, the stock has done very well. So if we chose to, we have options relative to the equity.

So we've got a lot of optionality as it relates to liquidity build, but we think just in terms of managing the initial working capital draw potential on expanded international business, the OSP cash payment in 1Q is going to be fine.

There are no further questions at this time. I will now turn the call over to Delbert Rose. Please continue.

Yes. Thank you. Join us at some of our upcoming events. The Permian Basin Barbeque Cook-Off from November 11 to 12 in Midland, Texas. The Invest: Houston Second Edition event on November 20 at the JW Marriott in Houston, Texas; Daniel Energy Partners Executive Series, December 3 in New York City, New York; the 14th Annual ROTH Deer Valley event December 10 through the 13 in Park City, Utah, and we will participate in Northland's Virtual Growth Conference on December 16.

So thanks, everyone, for joining us today, and we look forward to keeping you abreast of the growth and execution of our digitalization strategy.

All right. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

All right. Hi, everyone. Good morning. I'm Jeff Grampp from the research team at Northland. And thanks for joining our fireside chat session today with Flotek, ticker FTK. We currently have an outperformed rating and $16 price target on the stock. With us today from the team, we have CEO, Ryan Ezell; CFO, Bond Clement; and Director of Investor Relations, Mike Critelli.

We'll start this off with just kind of a brief overview of the business for those maybe a little bit newer to the Flotek story and then I can do a Q&A session after that. So please send any questions through the Zoom portal or you can e-mail me directly as well, [email protected], and we can get those addressed in the Q&A portion of our call.

So with that, I'll pass it over to the guys for a little bit of an overview before we get into the Q&A.

Good morning, Jeff. We appreciate you guys having us on the fireside chat today. I'm Ryan Ezell, I'm the CEO here at Flotek. And Flotek is a publicly traded company on the New York Stock Exchange. We've been around for over 30 years. But what I'd like to update you on today is kind of the revolution that we've undertaken here at Flotek since, I would say, starting at the end of 2020.

Myself, I came on board in 2019, over 25 years in the energy chemistry sector. I'm a chemist by trade. And we came on as part of what I would really fundamentally look at as a turnaround story here at Flotek. The company had began to lose revenue and profitability in the late teens due to some strategic transitional issues in the way chemistry took place here in oilfield services.

And my initial discussion with our Board at correcting that trajectory at the end of 2020 as we came in 2021, was that we laid out a plan to build Flotek into an innovative chemistry and technology company that was going to be propelled into the future by our innovative approach to real-time data measurements of our chemistry. We wanted to create a convergence of these innovative solutions to not only work inside of the energy infrastructure sector, but also broaden the horizon in the company as we looked at a 3-, 5- and 10-year overlay.

And in doing so, we laid down the foundation of creating a plan to prepare our fundamental and innovative chemistry technology segments, which forged the way for improved ROI from oil and gas reservoirs and improved performance and combining that with a real-time data analytics, particularly around our proprietary near infrared and Raman technologies that allow us to look at chemistry in a way that's never been seen in terms of what we look at in oil and gas, particularly in energy infrastructure, more importantly, how fast we see the measurements, how accurate the measurements are that can actually drive fundamental, I would say, decisions that impact the overall performance of any operation.

And in doing so, we laid out a plan around prescriptive chemistry management in 2021. I would say, our initial market share going into 2021, was about 1% of the chemistries moving to North American land. As we exit or move into Q3 of 2025, we now represent almost 20% of the chemistries utilized for North American completions.

But most importantly, and what's really exciting is the growth of our Data Analytics segment, where we've continued to see not only a business transform from an acquisition we made of JP3 Measurement in 2020, which was, I would say, 100% capital sales. They were just selling instrumentation.

Since 2021, we've been able to transition that business to where 70% of it or DaaS or recurring revenue service models and continuing to grow. And we're going to more than likely when we see the end of 2025, we will double -- more than double our data analytics revenue from 2024, which was $8.5 million. We'll come in at plus $20 million in revenue from the data analytics segment.

Most importantly, we've now moved those measurement technologies into the upstream where you look at the growing power generation segment where we condition gas to run generators for data centers and power for peak power support where you're going to see massive growth here in North America, electricity needs and also the global demand overall. What we're looking at digital valuation on how you actually monetize the measurements of oil and gas improve valuation for reservoirs and their background production over the next 2 decades. And then also, we're looking on EPA regulatory bodies.

And finally, when we look at in terms of a long-term play, you're starting to see in real time, Flotek transition and make an industrialized pivot to where we're no longer going to be held to the cyclical nature of the oil and gas operations for rig counts or frac fleet numbers. We're going to move into the downstream OpEx-driven components.

We're also looking at adjacent markets for, I would say, other industrial chemical applications, water treatment, advanced analytics for chemical plants and what we're doing in the agricultural landscape. So in the long term, this strategy that we've laid out, has helped us turn the company EBITDA positive in 2023, where we generated about $1.5 million adjusted EBITDA. 2024, we saw that grow to $20.3 million of adjusted EBITDA. And in our current guidance, we have a range between $36 million to $39 million of adjusted EBITDA. And so there's a great trajectory of growth.

The big component of that is going to be delivered by our Data Analytics segment as that helps us make this massive transition. And resultantly, we've seen significant improvements in our share price over the last 18 months. I'd say we're up almost 230%, and so that value creation of the strategy has now transitioned to our ability to deliver value for our shareholders.

And when you lay out things, I would say, in the long term, we're in the first inning of a 9-inning baseball game for what Flotek is going to be. We've seen our addressable market in 2021 of about $2.6 billion expand to almost $20 billion where we sit currently in Q3 of 2025. So we believe that Flotek represents a very strong and strategic investment opportunity for the markets today, as we continue to execute on our strategy, improve profitability in every metric for the company and enter into what we consider to be a long-term play leveraged on real-time data, and that's extremely exciting for us.

And that's kind of the rapid, I would say, 30,000-foot overview when you look at the improvements in adjusted EBITDA, revenue growth. We're early into our data analytics recurring revenue base where we're starting to record backlog. We've actually secured almost $180 million in recurring revenue backlog, which gives continuity for growth and financial performance.

And most importantly, we're now delivering value to our shareholders as we create -- really complete this turnaround and start to move the company forward when we look at on a high-level overview.

Perfect. Thanks, Ryan. Appreciate that. So as a reminder, we can hop into the Q&A here with that -- with those comments in mind. So you can either submit that through the Q&A portal on Zoom or again, e-mail me directly.

Maybe just to kick it off, Ryan, I think as you kind of alluded to kind of shifting the business away from being tied to rig counts or frac fleets. I think most people just kind of say this is an oilfield service company that's going to kind of ebb and flow with cycles. Is there a way to quantify how that business has shifted in terms of how much of the business today is not necessarily tied to those metrics? And what could that be over the next couple of years in terms of that shift?

Yes. So that's a phenomenal question in terms of how we're starting to convey that message to the public markets in terms of -- if you look at 2021, I would say that 99% of our revenue and a little bit of profitabilities that we were incurring as a company, would have all been related to frac, I would say, cyclical nature of business, right?

As we exited 2024, we saw that transition to where the Data as a Service really started to make a transition to where 10% to 15% of the revenue would have been coming from recurring revenue type service models that we had either in chemistry and/or data analytics. And where we sit and as we exited Q2, more than 26% of our gross profit actually comes from recurring revenue data service. So you've seen it grow from 0% to 26% in just the profitability side in those prior years.

And along the way, we've been able to secure a $2 billion recurring revenue type chemistry contract as well as secure another $160 million data analytics contract just to name a couple, that's helped to stabilize the business, and I would say, insulate us from the cyclical nature of a lot of the commodity-driven focus.

And I expect to see that continue to improve as we exit Q3. But more importantly, as you look out to the horizon of 2026, we expect adjusted EBITDA to grow from what our guidance. We haven't given that guidance yet, but we do expect it to grow year-over-year. We also expect that 60% roughly or anticipate around 60% of that adjusted EBITDA to come from data analytics, which would be a massive shift from where we said in 2021.

Great. Thanks, Ryan. I guess just to build on that last point, how much -- for that 60% metric to kind of ring through, how much success or momentum needs to continue from some of those data analytics growth vectors from power, custody transfer, flare and some of these other markets you guys have talked about?

Yes. I mean it's -- I would say a lot of it is already shown in our recurring revenue backlog. So you look at in 2023 -- I'm sorry, 2024, we did about $8.5 million in the Data Analytics segment alone. Our current -- just one of our single PWRtek contracts we delivered just under $30 million alone in 2026, just that single PWRtek contract where we're now moving into multiple contracts.

So I believe that when you look at it just from that basis, you'll start to see a pretty strong directional indicator that we're going to be able to achieve that kind of growth in our adjusted EBITDA, particularly being a percentage of the data analytics revenue. And so we're continuing to see the growth of our digital valuation or custody transfer pieces. We've got almost 30 units out. And up until Q2 of 2025, we had never had one single dollar recorded in revenue. And so now we've got 30 units out on a recurring basis. We're having more and more Verax and gas treatment skids going out in PWRtek.

And our entire flare monitoring fleet is active right now testing flares in the U.S. So we're pretty confident in being able to hit those growth metrics. And hopefully, we typically take a conservative approach because as part of a turnaround business as a recurring profitability, we like to set some strong guidance out and hit those metrics and deliver continuity to our shareholders and our stakeholders within the company.

Perfect. Thanks, Ryan. So one of the questions we had on the contractual side of the business, can you just touch on, I guess, kind of typical contract structure, the duration of these contracts and how that might vary by application?

Yes, for sure. Are you talking about specifically the data or chemistry versus data?

Let's talk more on the data side than [indiscernible] PWRtek. Yes.

Yes. So it's interesting because traditionally speaking, when we look at the data business as a whole, we break it into downstream, midstream and upstream. When you look at the -- I would say, the downstream and midstream section is kind of a blend between recurring revenue services and still what I would consider to be capital sales.

When you look at a big installation like distillation plants or crackers or different components like that on the refinery side, most of those are capital sales that come with a maintenance and services software contract. So we still do some of those. As you move further into the midstream, we look at TransMix, the Vapor Pressure Monitoring, et cetera, those go into a hybrid between an upfront capital purchase and a recurring revenue model.

As you transition fully to the upstream, where we have our PWRtek business, our digital valuation and flare monitoring, those are over 95% recurring revenue model. And it's interesting because as we're seeing the evolution of each one of those businesses in the upstream, we're starting to see it play out as the use cases kind of come above.

And I'll give you an example on PWRtek. Traditionally, on power services, when we look at conditioning fuel, we essentially serve as a smart or modified carburetor to feed dual fuel engines, turbines, different components. We break that segment up into 4 or 5 major categories where you're looking at rig operations, which should include frac or rig power, we look at peak power units that helps provide power support to the grid during high points of summer or during storms, et cetera. We look at data center power and then we look at industrial applications. And it's unique, I would say all of the contracts that go into rig power or oilfield services are all recurring revenue anywhere from 6 months to 2-year type contracts, right, on a fixed basis.

As we move over into the data center side, those tend to go 5 to 10 years that we see in a hybrid, there's a capital purchase upfront and then it comes with recurring revenue rental services for some additional measurements that go along the way. Peak Power does similar to oilfield services because those tend to be mobile generation, and they are mostly recurring revenue models.

On the industrial side, those are similar to data center because they're fixed installation. And so those come with some capital purchase upfront for the fiber, et cetera, for the installs and then they have a recurring revenue model. They typically go anywhere from 5 to 10 years. So as you can imagine, the oilfield services and peaker plants tend to move around and more mobile. And so they have a little bit more, I would say, transactional in nature where the bigger installations have that 5- and 10-year revenue layout.

Got it. That's really helpful, Ryan. And I guess that's kind of interesting commentary. I don't know if you guys saw there's a Wall Street Journal article out in the last week or so about some of these mobile power fleets in data centers, which I think is one of the markets you guys have talked about. And the article seemed to kind of hint that this is a kind of shorter-term gold brush, but yet you're talking about 5- to 10-year contracts. So it would be interesting for you to maybe clarify how you guys can penetrate that market in a more durable way.

Yes. I think what they're starting to see, and it's something we've been studying and the reason why we talk about we want a balanced approach to our power services is that a lot of the larger, I would say, data centers that get above 1 gigawatt are now looking at -- they run a lot of the times on what we call or city gas quality. In other words, it has very little fluctuation in the quality or type or composition of it. And so what they're concerned about is consistency and continuity.

And so most of the other, I would call, support power. So they're seeing massive swings in needs for power. They happen very rapidly. So we'll have these peak power support comes on. What Flotek does in that is we help monitor and distribute the gas. There's not a whole lot of condition that goes on mainline from a refinery. So we help monitor and distribute power equally, so that they can handle the big swings and fluctuation for those well-thought-out plants.

For those that move further into remote locations that take straight from the wellhead gas, that becomes more of an issue of where we have our skids that actually condition, either one, removing water or removing different components of NGLs or doing conditioning with CNG to keep the BTU quality flat. And so I think that these guys look out for how they support because they have this quality where they need the five 9s as they call it, the 99.999% of the time uptime. If they have anything lower than that, the centers can tend to overheat and they have some other electrical issues.

And so you're going to see a unique, I would say, transition there to where it's very fixed installation, high-quality gas, et cetera, for some of these mega centers. But there are those that are out, I would say, in West Texas, South Texas, some of the ones that move in Mexico that use straight from the wellhead. And our value proposition is extremely strong in those have been conditioned the gas.

To me, the interesting market for us is still, there are a lot of remote areas for grid support where they move power to help handle the swings depending on the weather where it's cold during some areas or hot during other ones. And we move with these megawatt installations to provide off the wellhead grid support. And that's another exciting market for us, I think, as well.

Got it. Okay. That's really helpful. On the custody transfer side, we have a question. If you could kind of touch on the growth trajectory expectations there. And maybe for those newer, Ryan, if you want to spend a minute just kind of giving an overview of what specifically that application entails for you guys?

Yes. So we look at custody transfer as part of our digital valuation component in that when you look at our technology, whether it's a Verax unit or XSPCT unit, these are near infrared proprietary devices that plug directly into hydrocarbon flow lines, whether they're direct wellhead, a gathering section of high volume for rich natural gas or liquid hydrocarbons, et cetera.

And what we do is we take compositional analysis of this flow, BTU values, net heating values, et cetera, in real time, measurements taken anywhere from 5 to 8 seconds, which provides constant flow rate monitoring. And the reason why this is important because most of the value of reservoirs, hydrocarbons, inventory, et cetera, are taken on composite manual sampling that only takes place like once every 6 months at a certain time of the day.

And so as you can imagine, if something is flowing in real time over every single day, 24 hours a day, there's potential compositional changes, fluctuations in quality, et cetera, that compositional testing doesn't catch. And we see this all the time where we see as much as 25% changes in BTU values during a single day.

More importantly, the manual sampling itself, depending on what ASTM or standardization that they're following, often introduces error into the sample. It doesn't always catch the natural gas liquids that could come along in rich gas and they bring it to running on gas chromatography. So it's not that we're saying that our instrumentation is more accurate than gas chromatography. What we're saying is there's a methodology issue in terms of the way they look at doing the measurements. And obviously, real-time data points are more accurate.

And if you can look at the slide that we have up on the screen now, those stars represent a composite sample testing where they test it once every 2, 4, 5 days on a 60-day window, whereas that curve you see in the background is the real-time monitoring measurements taken every 8 seconds. And what we are typically seeing is that most of the time, there's a negative 3% to 5% bias by manual sampling in GEC versus what the real-time data actually says. And as you can imagine, these are huge swings in overall valuation of production whenever you have that kind of thing.

We look at the volume in the time period. Some of these sites we're seeing up to $4 million annually per measurement point. And so we believe that we'll be -- we're one of the only -- or the only optical unit that can measure in real time that gives us ASTM standardization levels for doing digital valuation. We've gone out and worked on this for over 1.5 years, proving these points out with customers, and that's where you saw us bring this.

We started talking about these pilot programs last year, and they started to all convert over to revenue creation here in Q2. And we believe that now they're being considered a standard on the new wells that are being built, we're going to see prolific growth in the future with these. There was initial concern that doing them on older production wells could potentially open a liability of a resource owner or a production company that felt they have been underpaid.

Our E&P guys have been underpaid. But -- we're actually, in most cases for that, we're typically brought in to resolve an issue or a conflict over what they think the value should be. And that's worked out pretty well for us because we don't want to be the -- we just want to be the true teller on what the data says. We look at it being a data company.

But when you look at the potential impact, there's over 250,000 of these sites currently in the United States that could utilize real-time measurements, not even counting all the interchanges and injunction points where they collect all these fuels. So we think this is a huge opportunity for Flotek in the future.

And when you look at our instrumentation, these units go out, they have no moving parts. They have on-site calibration that we call a proprietary or patented validation cell. So there's a calibration gas that shot through the laser, goes through at the same time that it's monitoring the flow so that we ensure the unit stays in calibration throughout its lifetime.

We see all these on a real-time monitoring dashboard through our VIPER technology and other proprietary software that we have, which we think is, again, going to give even further growth from a software aspect for Flotek in the future. But there's no doubt, as you can tell my excitement around the digital valuation piece, I think this is going to be an extremely valuable sector for Flotek in the coming years.

Great. Thanks, Ryan. What -- is there a way to kind of quantify like how big could this market be for you guys? I mean is this something where every new well in the country should have one of these or only certain like centralized gathering facilities? Like what's -- how do we wrap our head around this?

So most of the companies that we're working with, they have different value statements for what we do with instrumentation. What started out for us was at these larger junction sites where you have a solid amount of flow, and we really started to see the impact there. Most of these -- on the 30-day trials, we're creating anywhere from $750 million to $1.2 million of initial value in the first month, which is huge for the operators.

These things are sensitive enough that if you've got multiple wells flowing to a location as soon as you turn another well on, we can see it instantaneously. We can see when a junction facility doesn't do a maintenance over the weekend and they have changes in water content. I mean we give them all that data in real time.

And then it expanded to what we're seeing at the wellhead where operators are starting to understand that we could impact the overall inventory of an entire set of wells or reservoirs that they have. And so I think depending on what the operators' intentions are with their future, we see this, like I said earlier, we would base these things on revenues of anywhere from $5 to $8,000 a month per unit, we could put in -- there's opportunities to have hundreds of thousands of these deployed. Now that would be assuming we took all the market. But we do see over 250,000 measurement sites currently in the U.S., and that grows every year as they drill new wells.

Got it. That's really helpful. Is it fair to think -- I guess it's kind of a 2-part question. How do you guys envision a typical contract for custody transfer being structured? But from a practical standpoint, given that these are kind of built in line, no moving parts, all that, I mean this is like I don't know life of the well is a fair kind of duration of contract, but like why wouldn't these just continue to have near 100% renewal rates over time?

Yes. I mean we typically push anywhere from 24- to 36-month type contracts and have like an evergreen renewal, right? As long as they want the measurement service, the device stays at the wellhead. In my opinion, I feel that -- I mean, this thing proves out the life, even if an E&P operator has production for the first 24 months and then they sell it to non-op. The non-op guys want to ensure they're getting paid for what's being produced. So you're seeing a long lifetime of these potential assets for us on the recurring revenue models.

What's interesting though is it does take a little bit longer sales cycle as you introduce new operators. They want to ensure because you got to realize you've got 75 years, 100 years plus of using gas chromatography as the standard for the valuation component. And so there's a lot of people, they just like to see the real-time valuation, prove it out against an ASTM, do a pilot phase and then do a transition.

But -- for the ones, I would say, in the history of our Data Analytics business, these are the ones that are reaching senior executive enterprise-level bias to where we're seeing double-digit units going out at one time for multiple installations that we select out over X number per week or per month. And that's really what we want. And most importantly, these contracts drive that plus 80% gross margin on a basis. And so that's what's really exciting for us.

Got it. Sorry, I was just taking not there's a lot of good stuff in there. On the -- we've got a question on the data center market. Can you, I guess, clarify, is that a market that Flotek is currently generating any revenue on? And what is kind of the, I guess, progression or commercialization pathway there?

So we're definitely -- what I can say on that is without getting anything ahead of the skis here, we are pursuing those opportunities. I think that we're in a good position for that. We haven't disclosed any on what that particular specific revenue to that area is just yet.

But we're definitely, I think, making a lot of headway in those areas, not only for fixed large installations with city gas, but even further support in these -- I consider to be more remote locations that use from the wellhead gas. And so it's pretty interesting. I mean, we're working with a lot of major players in that. And we're hoping to provide a pretty detailed update to that in our -- at the end of Q3 in our earnings call. And so I'll save a little bit of that before we're going to talk about earnings.

Okay. Perfect. And can you touch on -- or I think, Ryan, in the prepared remarks, you talked on just all the data that you guys get from, I guess, both the data analytics and your history in the chemistry side. How are you guys able to leverage that data into any particular insights or strategies and penetrate the customer base? And does that provide any kind of durable competitive advantage in any of your end markets?

Yes. It's -- honestly, Jeff, I think it's interesting because when I laid these strategies out back in 2021, a lot of people that we talked to because the company was still in such financial strain, most people were just caught up with how much money we were [ losing and ] coming in those years and weren't fully grasping the impact that real-time data analytics is going to have on our business. And whether we're looking at the growth of the pure data segment or the impact that our chemistry business has.

But what we did in terms of building out prescriptive chemistry management in combination with data analytics is that we combined -- on the chemistry side, we've completed over 20,000 wells globally in the U.S. And we have the database of every single chemistry type and what the production output has been from those wells, right? And we leveraged that data in combination with our chemometric modeling for our Data Analytics segment with the over 70,000 crude samples that we have already modeled globally from over 1,500 measurement points.

And what that's allowed us to do is fundamentally, when we go to an operator, we do a joint sale approach is that, hey, we receive anywhere from 5 to 8, what I call physical chemical properties of where they want to drill and complete a well. We look at target depth, temperatures, pressures, the XRD analysis of what the reservoir looks like in terms of composition, what that crude looks like from those areas, what the connate water be, et cetera.

We plug that into a chemometric model that pulls from these different databases in real time, which we have been building and those things update every week. They update in the backlog. And so for that, where we used to spend anywhere from $11 million to $12 million a year on technical services and R&D, we're doing it for less than $1.2 million a year now. And we generate solutions faster modifications to the chemistry.

We've combined that to real-time microfluidic modeling, that's allowed us to advance our understanding of reservoirs and deliver more impactful chemistry. What's the best part is that we work with the operators to say, hey, you can leave an XSPCT unit or near infrared monitoring devices at the wellhead. And when you bring this production on, you can actually see the impact of the chemistry. So we're monitoring what chemicals go downhole and their efficacy in real time.

We're also monitoring the impact on the production side of the well as a total solution. And this drives massive understanding and removes the -- I would say, it used to be the veil of what does the chemistry do, how does it work? We're providing a level of transparency and real-time data that's never been achieved before in the U.S. frac space and more importantly, how to handle the quality of production on the back end.

We've advanced what we're doing at the well to where now, we're actually monitoring the water quality, et cetera. And we have built a proprietary chat system in combination with our biggest customer, ProFrac on the pump side to where we're not having to bring 8 to 10 massive tanks out there of this diluted chemistry to pump down. We're bringing out 5 totes on a single trailer, this [ chem ] unit. And based on the water quality in real time, we changed the concentrates utilizing the water on location as they pump it down the hole. So that's faster, quicker, less carbon footprint, operational efficiency and in terms of accuracy for the chemistry goes downhole that's never been achieved before at frac locations.

And so that's how the real-time data drives reservoir performance improvement, operational efficiency, cost, carbon footprint reductions. And we're hoping to get to that holy grail of making this Tier 2 acreage receive the economic impacts of Tier 1. And that's going to be a big thing, I think, for the future. But what that also does for us from a chemical landscape is, look, there's no doubt, we have 170 patents in the chemistry space.

We're going to continue to look for novel innovative solutions there, but the ability to monitor the data and make real-time decisions on operational efficiency helps insulate the commoditization of the chemical business for us. And as long as we have our service revenue components in there, that drives the growth of the business, and it's highly profitable in comparison to just selling commoditized chemistry. And so that's been the whole shift of what we look at. And that's just on the chemistry side.

And then you move over to the data components to where we're out monitoring and we find issues on flow, even in industrial applications, we can identify where they've got acidic conditions with H2S or other products. And we actually sell chemistry to treat the things that we find by the data business. So they've now truly had a convergence and the data business is driving what we do better on the chemistry side.

Got it. That's super cool stuff, Ryan. What -- there's a lot of headlines now about inventory exhaustion, like you mentioned, operators being forced to kind of Tier 2 acreage or maybe deeper gassier zones that are not as preferable as some of their Tier 1 rock. How much is that a tailwind for your business given that operators seem to be needing to get a little more creative to earn the returns that they're accustomed to seeing?

Yes. I would say that this fits, honestly, where we are now fits in the wheelhouse of what this business was designed to do. And that is to provide transparency, efficiency and innovative technologies for what we do.

If you were to go back and look since 2021, public available data and anywhere where our PCM service, combined with our data analytics modeling has been applied, most operators are getting on average 26.3% better production out of target zones. That's on average across all basins in the U.S. There are some where we're getting over 35% better production in comparison. And so that alone should drive better adoption for what we do on the chemical and data side.

And then also when you combine that with being able to look at things that -- for us, when we monitor this data, we can detect paraffin builds, we can detect when there's additional water influxes, anything that can -- needs to be modified to improve flow performance. We see these things in real time. We don't have to wait for 6 months until there's some issue downstream from there to do it.

And all these things just overall make better decisions for the E&P operators and I would say, the OpEx component of the energy infrastructure. And this not only just plays in what we do on the oil and gas side. But you look at the fact that on most of these wells, if we stop drilling to date and we kept doing production, we produce around 10 barrels of water per 1 barrel of oil in the Permian Basin.

And we're now moving into the understanding and measurements of these waters and how we treat those for additional what we call beneficial reuse, whether you put them back into agriculture or you put them in other industries or it permits you having to do the additional disposal downhole, which can cause other issues with the subterranean environment, particularly around -- there's always talks about injection sites and seismic issues. This helps minimize those impacts as well. And so there's a huge proliferation at what we're going to do.

I think it's going to continue to drive efficiency and improvements on the environmental aspect, the efficiency aspect and the overall return on the investment inside this energy space. And I think Flotek is going to be spearheading that, those improvements for time to come.

Great. Shifting back to custody transfer, one of the questions we got was constraints that an E&P may have in adopting the custody transfer solution on all or most of their well sites. What are -- is there -- are there costs or labor or kind of ROI hurdles? Or what's the main bottleneck there?

Traditionally speaking, it's not a cost or an ROI issue. I think it's a fundamental understanding and an inertial dogma shift of how the measurements have been made. I've used the issue of -- for those that are race car fans, whether you're Formula 1 or NASCAR, you go to a race and you've been going to us for a long time and you went to Talladega and you sit in the stage, you used to see in 20 cars that are 1,000 horsepower and the noise and the race, et cetera, and then somebody shows up with electric car that's faster, more powerful, but doesn't make any noise.

Everybody is kind of like, man, I don't -- I got to get used to that. And traditionally, as we come in and we look at whether we're looking at TransMix or we're looking at the Vapor Pressure Monitoring, Digital Valuation, they're like -- they almost have like what do we do with all the data? Like we have so much of it, and it's telling us so many different things that we have to work through and pull out what do you need to focus on and our teams help them do that and just get used to having that thing at your fingertips.

And oftentimes, we find inefficiencies that need to be fixed along how they were handling stuff on during their value chain. And so I think it's just a growth pattern. Anytime you bring something disruptive to the market, these things happen on the front end. And we're helping the operators work through those. But I don't think it's in terms of them understanding the value or the ROIs.

I think it's just an adoption period getting used to saying, hey, I mean, because you got to realize there are a lot of dollars at stake here in terms of what this impact is. They want to ensure that everything meets ASTM standardizations, APIs, et cetera, to where there's no additional liabilities. And we've crossed those hurdles. And so now it's just a proliferation of business and introduction and growth.

Got it. Great. I've got a question on the M&A side of things. Given that you guys did the PWRtek deal a few months back, are there other opportunities in the M&A pipeline you guys are evaluating? And what kind of, I guess, end markets or types of acquisitions might you guys be considering?

Yes. We're definitely -- I mean, since I've been here, we're consistently always looking for potential opportunities for M&A. I do believe that as now you're starting to see the -- how our strategy is executing. I think our opportunities to execute M&A going forward is improving every day.

I think this market lends itself for potential for us to do that. I would say this, though, is that we're more focused on M&A opportunities that move away from the impact of the cycle, which means that we want them to be steady and not cause any volatility to the growth of the business. And so we're also looking for things that have a data component to them.

We don't look to do any M&A activity that would allow us to get a, what I would call commodity chemical business, like we're not interested in that. We prefer something that creates value through data and chemistry or data. And we have a few things that we look for in terms of, one, does it fit our safety and operational culture? Does it fit our technology profile? Do we feel that the activity would be accretive to our stakeholders as a company in terms of share price immediately accretive on the financials.

And then also is in alignment with our long-term strategy for improving cash flow and long-term stability of the company. And those are some of the things that we're weighing out there. But there's no doubt that from sitting in my role from a strategic landscape, we're constantly looking for the right opportunities for Flotek.

And we've been very protective of our balance sheet. I think as we've been -- I would consider to be in the fragile transition of a company recovering, growing and now setting a strong profitability strategic pathway. And we're going to continue to be, I would say, protective of our balance sheet. I think that our vantage point on leverage or anything we do for M&A could potentially change as you're pure volatile field services, you don't want to to any type of leverage.

Our ability to withstand that type of leverage, should we do something gets better as a bigger piece of it is built on recurring revenue, high profitability, et cetera, right? So those are the types of things just to give you some insight on where our head space is and looking for these opportunities, but we are engaged in looking at things that we can help inorganically propel Flotek to plus billion market cap company.

Awesome. Sounds good. Just for the audience out there, if you guys have a couple more questions, we'll try to wrap it up here in the next handful of minutes. We've got a question on the ProFrac side of the business, Ryan. Majority shareholder, largest customer. I know you can't speak explicitly for them, but for those newer to the story, how would you kind of characterize kind of their longer-term engagement ambition? Do they want to remain majority shareholder as best you can tell? Or any thoughts there?

I'll look, to date, I'll speak a little bit on our partnership with those guys. Look, they've been a fantastic partner for Flotek. I mean you look at what they've been able to help us leverage and grow and create an economy of scale in our chemistry business as we brought those guys on in 2022. They've been great for an aspect of there. We've now coordinated a lot of strategic approaches about how we go with customer base on sales pursuits. And that business is firing on all cylinders, I'd say, on the chemistry side, and it's working well.

They've been a proving ground for helping us prove use cases for our Data Analytics segment. When you look at the assets we bought for PWRtek, they help in the field deployment, testing, proving Verax units to condition field gas, they're on the forefront of that. When we look at the advanced Chem unit, they've been at the forefront of letting us try these things out, helping us build because that's their wheelhouse of building a big piece of equipment and advanced design, we provide a lot of logic and drive for it.

So there's -- they've been phenomenal helping us do that. And they're big supporters of what we do operationally. and provide good, I would say, insight into what the markets are doing. And I think the goal there has always been Flotek to grow, and they've been in support of that. I can't really speak, honestly, Jeff, on the long-term positioning.

I do know that I would -- in my conversations with some of the senior leadership there and some highest level executives is that they don't mind their size in Flotek coming down as we grow, whether that's through some M&A type activities or whichever. They're happy with the value that's been created in their investment so far. But they've been a great partner for us. so far. And I think it will continue to work that way. But I can't 100% give any guidance in terms of their position. But I do think that the long-term goal for them was to eventually -- they made a strong investment in us. They've seen us grow. They've helped us proliferate.

And I think in time that, that ownership level will potentially come down. But we'll see how the growth of the company looks from there. But that's just my general feel. But again, I can't 100% speak on their behalf. But they don't have any hold on being of a certain size, right? I just think it comes with the natural growth and evolution of the company.

Understood. Of course. Okay. I think we'll wrap up with this last one unless some other last minute ones come in. But -- last question. With the data points that you guys have on the production side and real-time data and everything, is that an opportunity to organically enter the production chemistry space? Or is that a market just at a high level you're interested in?

Well, if you look back at Flotek's history, believe it or not, some of the companies that were consolidated to build Flotek, where you look at [ Center ] Chemicals, CESI Chemicals, et cetera, particularly our production plant in Oklahoma was built off production chemistry. So we have an entire arsenal of production chemistries. I shut that down in 2019, any pursuits on that until we got our core completion chemistry prepared and repaired and growing and proliferate.

There is no doubt that the production chemistry business is a $5.5 billion, $6 billion a year segment. Margins is better than our completion side is. And it is not cyclical. It works OpEx spend. So if we stop drilling wells to date, we moved into that area where you look at production chemistry or the produced water side of it, either one, which technically need to be able to handle both. We -- it would be good for the company. We have a unique and differentiated way to enter that market and that we can make real-time measurements of composition of quality and create chemical treatments based on analytics in real time.

And so I think that if you look at our Investor Day, which I encourage anyone who has seen to go to our website and check it out, we have a slide in there on the potentials for us in production chemistry. So I do believe that it's a unique opportunity for us. However, please keep in mind that our differentiating factor for that is we will be applying a real-time data service to drive the chemical treatment. And so it's a synergy between the 2 businesses. So the chemical business will come with a data revenue side to it. And that's what we figured. That's where the value creation is for us is that the actual measurements in real time from the Verax or XSPCT unit will drive the chemical treatment. And so that would be our unique approach to potentially entering that market.

And I do suspect you will start to see that from us. There's capabilities for us to do that organically or inorganically. I think that there's the opportunity to do it inorganically gives much more rapid adoption and growth in the sector versus trying to grow it organically and spend there. I think there's -- I personally think there's potentially higher ROI in doing an inorganic approach versus trying to do it slow organically.

Understood. So Ryan, is it fair to say in a world where Flotek is in the production chemistry business, there's chemistry and data analytics revenue opportunities within that...

100%. And what I would say is we would expect that data revenue would be almost the first component in the chemical sales follow based on the measurements that we do.

Got it. Awesome. Okay. Well, I think we'll leave it there, give people some time to refresh for the next 12 top of the hour here. But Ryan team, I appreciate the time as always, and thanks, everyone, for joining. Ryan, if you have any closing remarks, I'll put it in your hands. Otherwise, we'll wrap up. Wish everyone a good week.

No. Look, again, I appreciate it. I think that, again, as I'd like to reiterate, I appreciate everyone's time this morning. I think Flotek offers a very unique investment opportunity for the market as we execute on this industrialized pivot and transition to a real-time and innovative data and chemical company.

We expect this transition to look at the entire energy infrastructure, which we've seen now create a $20-plus billion addressable market for us. We will transition to other, I would say, connected adjacent markets in agricultural and other industrial applications. And this is the first inning of 9 for us. We've got a lot of growth coming. and we look to continue to deliver exciting results in the coming quarters, and thanks, everybody, for tuning in.

All right. Thanks, everyone. Have a great week.

Thank you.