Q2 2024 Flotek Industries Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Flotek Industries 2024 Q2 Earnings Conference Call.
Operator: to earnings conference call. At this time, all lines are in listen-only mode.
Operator: At this time, all lines are in listen-only mode.
Operator: Following the presentation, you will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.
Speaker Change: At this time, all lines are in listen-only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. If at any time at this call you require immediate assistance, please press star zero for the operator.
Operator: This call is being recorded on Wednesday, August 7, 2024.
Michael Critelli: I would now like to turn the conference over to Michael Critelli, Director of Finance and Investor Relations. Please go ahead.
Michael Critelli: This call is being recorded on Wednesday, August 7th, 2024. I would now like to turn the conference over to Michael Critelli, Director of Finance and Investor Relations. Please go ahead.
Michael Critelli: Thank you and good morning, everyone. We appreciate your participation in Flotek's second quarter 2024 earnings conference call. Joining me on the call today are Ryan Ezell, Chief Executive Officer, and Bond Clement, Chief Financial Officer.
Speaker Change: Thank you, and good morning everyone.
Unknown Executive: We appreciate your participation in Flotek's second quarter 2024 earnings conference call. Joining me on the call today are Ryan Ezell, Chief Executive Officer, and Bon Clement, Chief Financial Officer. First, we will provide prepared remarks concerning our business operations and financial results for the second quarter of 2024, as well as our updated guidance for the full year 2024. Following that, we will open up the call to any questions you may have. Flotek's second quarter 2024 financial and operating earnings press release was issued yesterday afternoon.
Michael Critelli: We appreciate your participation in Flotek's second quarter 2024 earnings conference call.
Speaker Change: Joining me on the call today are Ryan Ezell, Chief Executive Officer, and Bon Clement, Chief Financial Officer.
Michael Critelli: First, we will provide prepared remarks concerning our business operations and financial results for the second quarter 2024, as well as our updated guidance for the full year 2024. Following that, we will open up the call for any questions you may have. Flotek's second quarter 2024 financial and operating earnings press release was issued yesterday afternoon. We also posted to our website and updated Q2 earnings presentation that we will be referencing on today's call. This can all be found on the Investor Relations section of our website. In addition, today's call is being webcast, and a replay will be available on our website following the conclusion of this call.
Speaker Change: First, we will provide prepared remarks concerning our business operations and financial results for the second quarter 2024, as well as our updated guidance for the full year 2024. Following that, we will open up the call for any questions you may have.
Speaker Change: Flotek's second quarter 2024 financial and operating earnings press release was issued yesterday afternoon. We also posted to our website an updated Q2 earnings presentation that we will be referencing on today's call.
Speaker Change: These can all be found on the Investor Relations section of our website.
Speaker Change: In addition, today's call is being webcast and a replay will be available on our website following the conclusion of this call.
Michael Critelli: Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. Except for historical information mentioned during the conference call, statements made by Flotek management on today's call are forward-looking statements that are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Unknown Executive: We also posted to our website an updated Q2 earnings presentation that we will be referencing on today's call. These can all be found in the investor relations section of our website. In addition, today's call is being webcast, and a replay will be available on our website following the conclusion of this call. Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures. With that, I will turn the call over to our CEO, Ryan Ezell.
Speaker Change: Before we begin, I'd like to make some brief remarks about forward-looking statements and the use of non-GAAP financial measures.
Speaker Change: Except for historical information mentioned during the conference call, statements made by Flotek management on today's call are forward-looking statements.
Speaker Change: that are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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.
Speaker Change: from our current expectations.
Speaker Change: We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Michael Critelli: In addition, certain non-GAAP financial measures as designed under SEC rules may be discussed on this call as required by applicable SEC rules. The company provides reconciliation of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website. Please refer to the reconciliation provided in the earnings press release and corporate presentations posted on our website.
Speaker Change: In addition, certain non-GAAP financial measures, as designed under SEC rules, may be discussed on this call.
Speaker Change: as required by applicable SEC rules. The company provides reconciliations of any such non-GAAP financial measures to the most directly comparable GAAP measures on its website.
Speaker Change: Please refer to the reconciliations provided in the earnings press release and corporate presentations posted on our website.
Ryan Ezell: With that, I will turn the call over to our CEO, Ryan Azale. Thank you, Mike, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our second quarter, 2024, operational and financial results. I'm extremely pleased with our performance during the first half of the year that continues our trend of delivering revenue and profitability growth. With that in mind, I'd like to turn to slide five. I touch on our key highlights for the quarter that Bond will discuss in the tail in just a moment. Against the backdrop of slower North American old bill service activity, we grew revenue 14% sequentially, highlighting our strong execution and the continued progress we've made in capturing market share.
Speaker Change: With that, I will turn the call over to our CEO, Ryan Ezell.
Ryan Ezell: Thank you, Mike, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our second quarter 2024 operational and financial results.
Ryan Ezell: I'm extremely pleased with our performance during the first half of the year that continues our trend of delivering revenue and profitability growth.
Ryan Ezell: With that in mind, I'd like to turn to slide five and touch on our key highlights for the quarter that Bob will discuss in detail in just a moment. Against the backdrop of slower North American oilfield service activity, we grew revenue 14% sequentially, highlighting our strong execution and the continued progress we've made in capturing market share. This is an impressive accomplishment when considering that the active rig and frack fleet counts declined sequentially during this same period.
Speaker Change: With that in mind, I'd like to turn to slide five and touch on our key highlights for the quarter that Bob will discuss in detail in just a moment.
Bob: Against the backdrop of slower North American oilfield service activity, we grew revenue 14% sequentially, highlighting our strong execution and the continued progress we've made in capturing market share.
Ryan Ezell: This is an impressive accomplishment when considering that the active rig and frag fleet counts the clients sequentially during this same period. Our Q2-2024 external customer chemistry sales grew up 40% from Q1-2024, and our data analytics segment saw a 22% quarter-over-quarter increase. We delivered significant year-over-year improvements in all profitability metrics, resulting in the fourth consecutive quarter of net income and seventh consecutive quarter of improvements in adjusted 80p. We also raised our full-year adjusted EBITDA guidance by 23% at the midpoint. We've amended our ABL facility, resulting in a sizable increase to our loan commitment with the reduction in the interest rate.
Bob: This is an impressive accomplishment when considering that the active rig and frack fleet counts declined sequentially during this same period.
Ryan Ezell: Our Q2 2024 external customer chemistry sales were up 40% from Q1 of 2024, and our data analytics segment saw a 22% quarter over quarter increase. We delivered significant year-over-year improvements in all profitability metrics, resulting in the fourth consecutive quarter of net income and seventh consecutive quarter of improvements and adjusted EBITDA. We also raised our full-year adjusted EBITDA guidance by 23% at the midpoint. Additionally, we amended our ABL facility, resulting in a sizable increase to our loan commitment with a reduction in the interest rate.
Bob: Our Q2 2024 external customer chemistry sales were up 40% from Q1 of 2024, and our data analytics segment saw a 22% quarter-over-quarter increase.
Bob: We delivered significant year-over-year improvements in all profitability metrics, resulting in the fourth consecutive quarter of net income and seventh consecutive quarter of improvements and adjusted ADP-DOC.
Bob: We also raised our full year adjusted EBITDA guidance by 23% at the midpoint.
Bob: We've amended our ABL facility, resulting in a sizable increase to our loan commitment with a reduction in the interest rate.
Ryan Ezell: In addition to this progress, we received approval from the Environmental Protection Agency for the JP3 Analyzer System for utilization and Flair Emission Monitoring, facilitating access to a new upstream market application with an estimated annual total addressable market of $220 million. And most importantly, all of these achievements were accomplished with zero recordable and lost time incidents. I'd like to take a moment to thank our employees for their hard work and commitment to save the inservice quality and achieving these outstanding results. I expect us to continue to build upon this momentum in the second half of 2024.
Ryan Ezell: And in addition to this progress, we received approval from the Environmental Protection Agency for the JP3 analyzer system for utilization in flare emission monitoring, facilitating access to a new upstream market application with an estimated annual total addressable market of $220 million. And, most importantly, all of these achievements were accomplished with zero recordable or lost time.
Bob: And in addition to this progress, we received approval from the Environmental Protection Agency for the JP3 analyzer system for utilization in flare emission monitoring.
Bob: facilitating access to a new upstream market application with an estimated annual total addressable market of 220 million dollars.
Bob: And most importantly, all of these achievements were accomplished with zero recordable and lost time incidents.
Bob: I'd like to take a moment to thank our employees for their hard work and commitment to safety and service quality and achieving these outstanding results. I expect us to continue to build upon this momentum in the second half of 2024.
Ryan Ezell: Now looking at the quarter with a bit more granularity, revenue grew 14% compared to Q1 in 2024. This increase was mostly attributable to a significant growth in external customer chemistry sales versus Q1 in 2024 through the execution of our prescriptive chemistry sales strategy. As shown on slide 6, external chemistry sales and the Permian Basin grew by 186% from the first quarter of 2024 and 68% year over year. Notably, we saw an 89% increase in our proprietary complex nanopolis technology sales in the first half of 2024 versus the first half of 2023. Low tech will remain at the forefront of innovation and multi-disciplinary advancements as we bring new technologies to the market, including AI Drew and Reservoir Modeling to address the impacts of water inhibition, drive preferential microfluid behavior and nanopore environments, and approve the ultimate recovery hydrocarbons from each asset.
Bob: Now looking at the quarter with a bit more granularity.
Bob: Revenue grew 14% compared to Q1 of 2024. This increase was mostly attributable to a significant growth in external customer chemistry sales versus Q1 of 2024 through the execution of our prescriptive chemistry sales strategy.
Ryan Ezell: As shown on slide 6, external chemistry cells in the Permian Basin grew by 186% from the first quarter of 2024 and 68% year over year. Flotek will remain at the forefront of innovation and multidisciplinary advancements as we bring new technologies to the market, including AI-Driven Reservoir Modeling to address the impacts of water immobition, drive preferential microfluidic behavior in nanopore environments and improve the ultimate recovery of hydro Our data analytics segment revenue increased 22% in the first quarter of 2024, unlocking significant upstream market opportunities as we expect the business to see continued growth during the third quarter.
Bob: As shown on slide 6, external chemistry cells in the Permian Basin grew by 186% from the first quarter of 2024 and 68% year-over-year.
Bob: Flotek will remain at the forefront of innovation and multidisciplinary advancements as we bring new technologies to the market, including AI-driven reservoir modeling to address the impacts of water imbibition.
Ryan Ezell: Our data analytics segment revenue increased 22% from the first quarter of 2024. We remain focused on converting to a data as a service model, combined with the launch of our next generation measurement systems, unlocking significant upstream market opportunities as we expect the business to see continued growth during the third quarter. As part of our commitment to being at the forefront of innovation, we recently announced that the EPA approved the JP3 system as an improved measurement technology with respect to recently enacted player regulation. A picture of our new Flair monitoring cart that is currently on location can be slain on slide nine.
Ryan Ezell: As part of our commitment to being at the forefront of innovation, we recently announced that the EPA approved the JP3 system as an improved measurement technology with respect to the recently enacted FLAIR regulations, as seen on slide nine. This state-of-the-art optical instrument is designed for the precise measurement of net heating values in flare gas, and it is the first to be approved as an alternative method under the new regulation.
Speaker Change: A picture of our new flare monitoring cart that is currently on location can be seen on slide 9. This state-of-the-art optical instrument is designed for the precise measurement of net heating values in flare gases.
Ryan Ezell: This state-of-the-art optical instrument is designed for the precise measurement of net heating values in flare gases, and it is the first to be approved as an alternative method under the new regulations. According to the EPA, there are over 55,000 existing flares in the U.S. expected to be subject to monitoring regulations by 2028, and this approval positions Flotek for growth in this new upstream space. We believe we are well positioned to capitalize on this opportunity with approximately 75 units available to be deployed, and we have already received numerous orders, with three units currently on customer locations.
Ryan Ezell: According to the EPA, there are over 55,000 existing flares in the U.S. expected to be subject to monitoring regulations by 2028, and this approval positions Flotek for growth in this new upstream space. The EPA's approval not only validates our cutting-edge technology but provides Flotek with another pillar of growth, given the tangible ESG benefits that flare monitoring can provide. By integrating real-time, autonomous, and continuous data analytics with rigorous environmental measurement, we are providing our clients with innovative solutions that meet regulatory requirements while minimizing operational risk. And despite the near-term volatility in natural gas prices, the long-term fundamentals for energy-related services remain strong. The North American EMP Consolidation Transaction has taken time to integrate impact and near-term drilling and completion activity.
Speaker Change: According to the EPA, there are over 55,000 existing flares in the U.S. expected to be subject to monitoring regulations by 2028.
Ryan Ezell: The EPA's approval not only validates our cutting edge technology, but provides Flotek with another pillar of growth given that tangible ESG benefits that flare monitoring can provide by integrating real time autonomous and continuous data analytics with the rigorous environmental measurement. We are providing our clients with innovative solutions that meet regulatory requirements while minimizing operational risk. And despite the near term volatility and natural gas pricing, the long term fundamentals for energy related services remain strong. The North American EMP consolidation transactions have taken time to integrate, impacting near term drilling and completion activity. And we do expect activity to rebound in 2025 and further accelerate in 2026 as non-core assets assimilated during the consolidation phase are not vested in developed.
Speaker Change: The EPA's approval not only validates our cutting-edge technology, but provides Flotek with another pillar of growth given the tangible ESG benefits that flare monitoring can provide.
Speaker Change: And despite the near-term volatility in natural gas pricing, the long-term fundamentals for energy-related services remain strong.
Ryan Ezell: We do expect activity to rebound in 2025 and further accelerate in 2026 as non-core assets assimilated during the consolidation phase are divested and developed. Our international opportunities will continue to expand as unconventional related activity grows in the Middle East and Latin America. The demand for oil and gas is expected to expand for the next decade, with further requirements needed through 2045. For the first time in nearly two decades, the demand for electricity in the U.S. is expected to climb by 15% by 2030, and natural gas is expected to provide the bulk of this incremental demand.
Ryan Ezell: Our international opportunities will continue to expand as unconventional related activity grows in the Middle East and Latin America. The demand for oil and gas is expected to expand for the next decade, with further requirements needed through 2045. For the first time in nearly two decades, the demand for electricity in the U.S. is expected to climb by 15% by 2030. And natural gas is expected to provide the bulk of this incremental demand. We expect the overall expansion of the global economy to continue to create substantial demand for all forms of energy, which will increase service intensity within the sector.
Speaker Change: And natural gas is expected to provide the bulk of this incremental demand.
Ryan Ezell: We expect the overall expansion of the global economy to continue to create substantial demand for all forms of transport, which will increase service intensity within the sector. As we look at the remainder of 2024, our efforts remain focused on revenue growth, market share expansion, cost efficiency gains, and creating value for our shareholders so that we are well positioned to capitalize on opportunities both domestically and internationally. And we are confident that our expanding suite of services positions us to deliver unique and superior solutions to maximize our customers' value. We believe there is no company better positioned to provide strategic solutions to a variety of the industry's most challenging problems. Now, I'll turn the call over to Von to provide key financial highlights.
Speaker Change: We expect the overall expansion of the global economy to continue to create substantial demand for all forms of energy.
Ryan Ezell: As we look at the remainder of 2024, our efforts remain focused on revenue growth, market share expansion, cost efficiency gains, and creating value for our shareholders. We are well positioned to capitalize on opportunities both domestically and internationally. And we are confident that our expanding suite of services positions us to deliver unique and superior solutions to maximize our customers' value chain.
Speaker Change: which will increase service intensity within the sector.
Speaker Change: As we look at the remainder of 2024, our efforts remain focused on revenue growth, market share expansion, cost efficiency gains, and creating value for our shareholders that we are well positioned to capitalize on opportunities both domestically and internationally.
Speaker Change: And we are confident that our expanding suite of services positions us to deliver unique and superior solutions to maximize our customers' value chain.
Bond Clement: We believe there is no company better positioned to provide strategic solutions to a variety of industries' most challenging problems. Now I'll turn the call over to Warren to provide key financial highlights. Thanks, Ryan. Good morning, everyone. There's obviously a lot to like about our release yesterday, and we're very excited about sharing our continued progress. During the quarter, we group of chemistry and data analytics revenue. We increased our full-year guidance. We reported an expansion of our loan agreement, and we continue our quarterly streak of improved profitability. Our second quarter results continue the financial and operational momentum that began back in 2022 with the execution of our long-term supply agreement.
Von Clement: Thanks, Ryan. Good morning, everyone.
Speaker Change: Thanks, Ryan. Good morning, everyone. There's obviously a lot to like about our release yesterday, and we're very excited about sharing our continued progress.
Von Clement: There's obviously a lot to like about our release yesterday, and we're very excited about sharing our continued progress. During the quarter, we grew both chemistry and data analytics revenue. We increased our full-year guide. We reported an expansion of our loan agreement, and we continue our quarterly streak of improved profitability. Our second quarter results continue the financial and operational momentum that began back in 2022 with the execution of our long-term supply agreement.
Speaker Change: During the quarter, we grew both chemistry and data analytics revenue, we increased our full year guidance, we reported an expansion of our loan agreement.
Speaker Change: Our second quarter results continue the financial and operational momentum that began back in 2022 with the execution of our long-term supply agreement.
Bond Clement: In the face of software, software, oil bill service fundamentals, our ability to grow revenues, profitability, and liquidity is a validation of our strategy to build a resilient and complimentary business that allows us to deliver impressive results through industry volatility. Moving to the specific results, I'll run through a handful of key financial items for the second quarter and refer to slides in the presentation posted yesterday. Slide five highlights our second quarter achievements and growth and profitability. Headlining our results were year-over-year improvements in net income, gross profit, and adjusted EBITDA compared to the second quarter of 2023.
Von Clement: In the face of softer oil bill service fundamentals, our ability to grow revenues, profitability, and liquidity is a validation of our strategy to build a resilient and complementary business that allows us to deliver impressive results through industry volatility. Moving to the specific results, I'll run through a handful of key financial items for the second quarter and refer to slides in the presentation posted yesterday.
Speaker Change: Moving to the specific results, I'll run through a handful of key financial items for the second quarter and refer to slides in the presentation posted yesterday.
Von Clement: Slide five highlights our second quarter achievements and growth and profitability, headlining our results for year over year improvements in net income, gross profit, and adjusted EBITDA compared to the second quarter of 2023. For the second quarter, we reported total revenues of $46 million, which was a sequential increase of 14%. As Ryan mentioned, this increase was driven by the strong growth in chemistry revenue from external customers. We indicated on last quarter's call that our first quarter results were impacted by seasonality, so we were excited to see the strong recovery in 2Q that we said we believed would occur.
Bond Clement: For the second quarter, we reported total revenues of 46 million, which was a sequential increase of 14%. As Ryan mentioned, this increase was driven by the strong growth and chemistry revenue from external customers. We indicated on last quarter's call that our first quarter results were impacted by seasonality, so we were excited to see the strong recovery in 2Q that we said we believed would occur. Gross profit during the quarter increased for the sixth consecutive quarter. Second quarter gross profit grew to 9.2 million, or 136 percent increase compared to gross profit of 3.9 million in the comparable 2023 period.
Speaker Change: For the second quarter we reported total revenues of $46 million, which was a sequential increase of 14%.
Speaker Change: As Ryan mentioned, this increase was driven by the strong growth in chemistry revenue from external customers.
Ryan Ezell: We indicated on last quarter's call that our first quarter results were impacted by seasonality, so we were excited to see the strong recovery in 2Q that we said we believed would occur.
Von Clement: Gross profit during the quarter increased for the sixth consecutive quarter. Second quarter gross profit grew to $9.2 million, or a 136% increase compared to gross profit of $3.9 million in the comparable 2023 period. It's important to note that the minimum chemistry purchase requirements in our supply agreement were in effect during the entire second quarter of 2024 but were only in effect for one month during the second quarter of 2023, as the measurement period for the minimum purchase requirements began on June 1st, 2023.
Speaker Change: Second quarter gross profit grew to $9.2 million or a 136% increase compared to gross profit of $3.9 million in the comparable 2023 period.
Bond Clement: It's important to note that the minimum chemistry purchase requirements in our supply agreement were in effect during the entire second quarter of 2024, but were only in effect for one month during the second quarter of 2023. As the measurement period for the minimum purchase requirements began on June 1st of 2023. The additional revenue from our supply agreement requirements combined with our continued focused on cost improvements allows to deliver strong margins as we realize the gross profit margin and adjusted gross profit margin of 20% and 23%, respectively, for the second quarter is compared to 8% and 10%, respectively, for the year ago quarter.
Speaker Change: It's important to note that the minimum chemistry purchase requirements in our supply agreement were in effect during the entire second quarter of 2024, but were only in effect for one month during the second quarter of 2023, as the measurement period for the minimum purchase requirements began on June 1st of 2023.
Von Clement: The additional revenue from our supply agreement requirements, combined with our continued focus on cost improvements, allows us to deliver strong margins as we realize gross profit margin and adjusted gross profit margin of 20% and 23%, respectively, for the second quarter, as compared to 8% and 10%, respectively, for the year-ago quarter. While revenue did grow 14% sequentially, gross profit margin was down approximately 200 basis points versus the first quarter as a result of product mix changes during the quarter.
Speaker Change: The additional revenue from our supply agreement requirements, combined with our continued focus on cost improvements, allow us to deliver strong margins.
Bond Clement: While revenue did grow 14% sequentially, gross profit margin was down approximately 200 basis points versus the first quarter as a result of products product mix changes during the quarter. During the second quarter of 2024, we saw a meaningful increase in the percentage of sales from friction reducers, which are generally a lower margin product. The increase in FR sales was related to the geographic shift that Ryan touched upon earlier as we are supporting pro-fracts penetration into the Permian Basin as well as increasing our sales in the Permian to external customers. We continue to focus on driving down SG&A costs as our second quarter SG&A declined to 6.3 million, a 25% improvement from the year ago.
Speaker Change: While revenue did grow 14% sequentially, gross profit margin was down approximately 200 basis points versus the first quarter as a result of product mix changes during the quarter.
Von Clement: During the second quarter of 2024, we saw a meaningful increase in the percentage of sales from friction reducers, which are generally a lower margin product. The increase in FR sales was related to the geographic shift that Ryan touched upon earlier. As we are supporting profract penetration into the Permian Basin, as well as increasing our sales in the Permian to external customers, we continue to focus on driving down SG&A costs as our second quarter SG&A declined to $6.3 million, a 25% improvement from the year ago. This decline was primarily the result of lower professional fees during the 2024 quarter.
Speaker Change: During the second quarter of 2024, we saw a meaningful increase in the percentage of sales from friction reducers, which are generally a lower margin product.
Speaker Change: The increase in FR sales was related to the geographic shift that Ryan touched upon earlier as we are supporting Profrax penetration into the Permian Basin as well as increasing our sales in the Permian to external customers.
Speaker Change: We continue to focus on driving down SG&A costs as our second quarter SG&A declined to $6.3 million, a 25% improvement from the year ago. This decline was primarily the result of lower professional fees during the 2024 quarter.
Bond Clement: This decline was primarily the result of lower professional fees during the 2024 quarter. Moving to slide 7, second quarter 2024 adjusted EBITDA increased by 6.4 million compared to the second quarter of last year, and that was a 10% sequential growth. On a trailer 12 month basis, we have now reported 15.8 million in cumulative adjusted EBITDA, as compared to negative 19.3 million for the 12 months into June 30 of 2023. That change represents an incredible $35 million improvement. Judging on the balance sheet, at June 30th, we had $5.8 million drawn under our ABL. Our June 30th debt to trailing 12-month adjusted EBITDA ratio was 0.4x.
Von Clement: Moving to slide 7, second quarter 2024 adjusted EBITDA increased by $6.4 million compared to the second quarter of last year, and that was a 10% sequential growth. On a trailing 12 month basis, we have now reported $15.8 million in cumulative adjusted EBITDA as compared to negative $19.3 million for the 12 months into June 30th, 2023. That change represents an incredible $35 million improvement. Touching on the balance sheet, on June 30th, we had $5.8 million drawn under our ABL.
Speaker Change: On a trailing 12-month basis, we have now reported $15.8 million in cumulative adjusted EBITDA as compared to negative $19.3 million for the 12 months ended June 30, 2023.
Speaker Change: That change represents an incredible $35 million improvement.
Speaker Change: Touching on the balance sheet, at June 30th we had 5.8 million drawn under our ABL. Our June 30th debt to trailing 12-month adjusted EBITDA ratio was 0.4X.
Von Clement: Our June 30th debt-to-trailing 12-month adjusted EBITDA ratio was 0.4x. As noted in our release, on Monday, we closed an amendment to our ABL agreement. We were able to increase the loan commitment by 45% to $20 million while securing a 50 basis point reduction spread from PRIME plus 250 to PRIME plus 200. While this amendment will provide some increase to our current credit availability, the more significant benefit is that our credit availability will now scale proportionally with the growth in assets supporting the borrowing base versus being capped out under the prior commitment level. There were no changes to the covenants, and there were no additional fees incurred in connection with this amendment, so we're very pleased with the outcome.
Bond Clement: As noted in our release, on Monday, we closed an amendment to our ABL agreement. We were able to increase the loan commitment by 45% to $20 million, while securing a 50 point, 50 basis point reduction spread from per on plus to 50 to per on plus to 200. All this amendment will provide some increased our current credit availability. The more significant benefit, it is that our credit availability will now scale proportionately with the growth and assets supporting the borrowing base versus being capped out under the prior commitment level. There were no changes to covenants; there were no additional fees incurred in connection with this amendment, so we're very pleased with the outcome.
Speaker Change: As noted in our release, on Monday we closed an amendment to our ABL agreement.
Speaker Change: We were able to increase the loan commitment by 45% to $20 million while securing a 50 basis point reduction spread from prime plus 250 to prime plus 200.
Speaker Change: While this amendment will provide some increase to our current credit availability, the more significant benefit is that our credit availability will now scale proportionally with the growth in assets supporting the borrowing base versus being capped out under the prior commitment level.
Speaker Change: There were no changes to covenants. There were no additional fees incurred in connection with this amendment, so we're very pleased with the outcome.
Bond Clement: Turning to our updated 2024 guidance, based on the strong operational performance we delivered during the first half of the year, our for the remainder of 2024, we now expect adjusted EBITDA to be in the range of 14 to 18 million, which is an increase of 23% at the midpoint to the previous range of 10 to 16 million. Based on current projections, we continue to expect our 2024 adjusted growth profit margin to be between 18 and 22%, which compares very favorably to our 2023 adjusted growth profit margin of 15%. In closing, we're pleased with our second quarter results.
Von Clement: Turning to our updated 2024 guidance, based on the strong operational performance we delivered during the first half of the year, for the remainder of 2024, we now expect adjusted EBITDA to be in the range of $14 to $18 million, which is an increase of 23% at the midpoint compared to the previous range of $10 to $16 million. Based on current projections, we continue to expect our 2024 adjusted gross profit margin to be between 18 and 22 percent, which compares very favorably to our 2023 adjusted gross profit margin of 15 percent.
Speaker Change: Turning to our updated 2024 guidance, based on the strong operational performance we delivered during the first half of the year, our outlook for the remainder of 2024, we now expect adjusted EBITDA to be in the range of $14 to $18 million, which is an increase of 23% at the midpoint compared to the previous range of $10 to $16 million.
Speaker Change: Based on current projections, we continue to expect our 2024 Adjusted Gross Profit Margin to be between 18 and 22 percent, which compares very favorably to our 2023 Adjusted Gross Profit Margin of 15 percent.
Von Clement: In closing, we're pleased with our second quarter results. We gained market share, we grew profitability, and we improved liquidity. While the rebound in the natural gas market has been slower than many expected, we continue to believe that LNG buildout later this year and continuing into 2025 will lead to higher prices, ultimately incentivizing natural gas producers to increase activity. We continue to believe that we are well positioned to capitalize on the improvement in natural gas fundamentals and the resulting opportunities that will be available. I'll now turn the call back over to Ryan to close it out.
Bond Clement: We gained market share, we grew profitability, and we improved liquidity. While the rebound in the natural gas market has been slower than many expected, we continue to believe that LNG build out later this year and continuing into 2025 will lead to higher prices, ultimately incentivizing natural gas producers to increase activity. We continue to believe that we are well positioned to capitalize on the improvement in natural gas fundamentals and the resulting opportunities that will be available.
Speaker Change: We continue to believe that we are well positioned to capitalize on the improvement in natural gas fundamentals and the resulting opportunities that will be available. I'll now turn the call back over to Ryan to close it out. Thanks, Bond.
Ryan Ezell: I'll now turn the call back over to Ryan to close it out. Thanks, Bond. We're excited about the remainder of 2024, as we believe the flow test continues to represent a compelling investment opportunity. Our second quarter results delivered revenue and profitability growth as part of our Chemistry as a Common Value Creation Platform strategy. The approval of our JP3 analyzer provides a strong catalyst for revenue growth later in this year and into 2025. I'm quite proud of the progress we have made, and I'm confident in our ability to execute going forward. We continue to be an industry leader driving innovation and delivering differentiated chemistry and data solutions that are tailored to our customers' needs.
Ryan Ezell: We are excited about the remainder of 2024 as we believe that Flotek continues to represent a compelling investment opportunity. Our second quarter results delivered revenue and profitability growth as part of our chemistry as a common value creation platform strategy. The approval of our JP3 analyzer provides a strong catalyst for revenue growth later this year and into 2025. I'm quite proud of the progress we have made, and I'm confident in our ability to execute going forward.
Ryan Ezell: We are excited about the remainder of 2024 as we believe that Flotek continues to represent a compelling investment opportunity.
Speaker Change: Our second quarter results delivered revenue and profitability growth as part of our chemistry as a common value creation platform strategy.
Ryan Ezell: The approval of our JP3 analyzer provides a strong catalyst for revenue growth later in this year and into 2025. I'm quite proud of the progress we have made and I'm confident in our ability to execute going forward.
Ryan Ezell: We continue to be an industry leader driving innovation and delivering differentiated chemistry and data solutions that are tailored to our customers' needs. We strive to anticipate future challenges that will impact our industry. So we're at the forefront of delivering chemistry and data solutions before they are needed and creating measurable value for our customers. We appreciate the continued support of all of our stakeholders, and we hope that you share our excitement regarding the future of Flotek, and we look forward to reporting further progress. Operator, we are now ready to take questions.
Ryan Ezell: We strive to anticipate future challenges that will impact our industry, so we're at the forefront of delivering chemistry and data solutions before they are needed and creating measurement value for our customers.
Ryan Ezell: We strive to anticipate future challenges that will impact our industry, so we are at the forefront of delivering chemistry and data solutions before they are needed and creating measurable value for our customers.
Ryan Ezell: We appreciate the continued support of all of our stakeholders, and we hope that you share our excitement regarding the future of flow tech. We look forward to reporting further progress.
Ryan Ezell: We appreciate the continued support of all of our stakeholders, and we hope that you share our excitement regarding the future of Flotek, and we look forward to reporting further progress. Operator, we are now ready to take questions.
Operator: Operator, we are now ready to take questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star button, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Please, should you wish to decline from the polling process, please press the start button followed by the number two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline the polling process, please press the start button followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press the start button followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
Operator: One moment, please, for your first question. Your first question comes from the line of Jeff Grampp, of Alliance Global Partners. Please go ahead.
Jeff Grampp: Your first question comes from the line of Jeff Grampp of Alliance Global Partners. Please go ahead. Want to guess. Thanks for the time. One of the first on morning on the data analytics side, and in particular on your slide that you guys reference, you've already got orders for over 50 flare sites and just I guess these last few weeks with the ETA approval.
Speaker Change: Your first question comes from the line of Jeff Grampp of Alliance Global Partners.
Jeffrey Grampp: Morning, guys. Thanks for the time. Good morning.
Jeff Grampp: Morning, guys. Thanks for the time.
Unknown Attendee: On the data analytics side, and in particular on your slide deck, you guys reference, you've already got orders for over 50 flare sites. And just, I guess, these last few weeks with EPA approval. Can you touch on, I'm curious, I guess, you know, how many customers does that comprise? Are these new customers? Are these upstream? Any of those kind of details to share on those orders would be great.
Jeff Grampp: orders for over 50 flare sites in just, I guess, these last few weeks with the EPA approval. Can you can you touch on, I'm curious, I guess, you know, how many customers does that comprise? Are these new customers? Are these upstream? Any of those kind of details to share on those orders would be great.
Ryan Ezell: Can you touch on, I'm curious, I guess, you know, how many customers does that comprise? Are these new customers? Are these upstream? Any of those kind of details to share on those orders would be great. Yeah, so the majority of the customers are all in the upstream space, and I would say we probably we're probably about a 50 50 blend of customers that we've traditionally done work in the mainstream space and then some that are new. And you know, when we look at that around receiving the orders of, you know, we're 50 flare sites and we're basically it's we've got a lead time about four or six weeks on each car as they're starting to come out.
Ryan Ezell: Yeah, so the majority of the customers are all in the upstream space. And I would say we're probably about a 50-50 blend of customers that we've traditionally done work in the midstream space, and then some that are new. And when we look at that, around receiving orders for over 50 flare sites, and we're basically, we've got a lead time of about four to six weeks on each cart because they're starting to come out.
Speaker Change: Yeah, so the majority of the customers are all in the upstream space, and I would say we're probably about a 50-50 blend of customers that we've traditionally done work in the midstream space and then some that are new.
Speaker Change: And, you know, when we look at that, around receiving the orders of, you know, over 50 flare sites, and we're basically, we've got a lead time of about four to six weeks on each cart, because they're starting to come out, and these orders, most of them are going to be expected delivery in the...
Ryan Ezell: And these orders, most of them are going to be expected delivery in the Q3, Q4, and start of 2025 timeframe, and those orders are continuing to build. So it's quite an exciting time in terms of what we're going to be able to do with this, and the impact of the flare cart because it truly creates a single solution for monitoring flares.
Ryan Ezell: And these orders, most of them, are going to be expected delivery in the Q3, Q4, and the start of 2025 timeframe, and those orders are continuing to build, so it's quite an exciting time. In terms of what we're going to be able to do with this, the impact of the flare car, because it truly creates a single solution for monitoring flare emissions.
Speaker Change: In the Q3, Q4, and the start of 2025 time frame, and those orders are continuing to build, so it's quite an exciting time in terms of what we're going to be able to do with this, the impact of the flare card, because it truly creates a single solution for monitoring flare emissions.
Ryan Ezell: Great, appreciate that, Ryan. And for my follow up, you know, the external customer growth was noteworthy, and I think you guys kind of alluded to seeing that even on last call. Industry activity those headed the other way, so I'm curious, you know, what's kind of the view in the back half of the year in terms of the sustainability of continuing to kind of buck that trend, you know, in the industry is kind of flat to down. You guys have obviously performed quite significantly. Can that continue? When does that start to become a bit of a head one for you guys at all.
Jeffrey Grampp: Great, appreciate that, Ryan. And for my follow-up, you know, the external customer growth was, was noteworthy. And I think you guys kind of alluded to seeing that even on the last call.
Speaker Change: Great, appreciate that Ryan. And for my follow-up, you know the external
Speaker Change: Customer growth was was noteworthy and I think you guys kind of alluded to seeing that even on on last call
Speaker Change: Industry activity, though, is headed the other way. So I'm curious, you know, what's kind of the view in the back half of the year in terms of the sustainability of continuing to kind of buck that trend, you know, when the industry's kind of flattened down? You guys have obviously outperformed quite significantly. Can that continue? When does that start to become a bit of a headwind for you guys, if at all?
Ryan Ezell: Now, and that's a great question, right? And what I would say is, we mentioned on our call last time, we've typically seen post-COVID a little bit of cyclical nature of the impact of activity in Q1, and we see a strong rebound in Q2. But what I would say is that when you look at our Q2 of 23 to the Q2 of 24, it is 10% better in 24, and you've seen a reduction in the average number of frag police in the quarter, which indicates a market share game. When we look at what we're going to see in the back half of the year, we still believe we've got opportunities to grow our chemistry business, even though we're expecting to see about a six, you know.
Ryan Ezell: Industry activity, though, is headed the other way. So I'm curious, you know, what's the view in the back half of the year in terms of the sustainability of continuing to kind of buck that trend? You know, when the industry is kind of flat down? You guys have obviously outperformed quite significantly. Can that continue? When does that start to become a bit of a headwind for you guys at all?
Speaker Change: Now, I mean, that's a great question, right. And what I would say is, as we mentioned on our call last time, we've typically seen post-COVID, a little bit of cyclical nature of the impact of activity in Q1, and we see a strong rebound.
Jeffrey Grampp: Now, I mean, that's a great question, right? And what I would say is, as we mentioned on our call last time, we've typically seen post-COVID a little bit of a cyclical nature of the impact of activity in Q1, and we see a strong rebound in Q2. But what I would say is that when you look at our Q2 of 23 to the Q2 of 24, it's 10% better in 24. And you've seen a reduction in the average number of rack fleets in the quarter, which indicates a market share gain.
Speaker Change: and Q2, but what I would say is, is that when you look at our Q2 of 23 to the Q2 of 24, it's 10% better in 24, and you've seen a reduction in the average number of frag fleets in the quarter, which indicates a market share gain.
Jeffrey Grampp: When we look at what we're going to see in the back half of the year, we still believe we've got opportunities to grow our chemistry business, even though we're expecting to see about a six, you know, I would say five to 6% reduction in average rack fleet count. Because if you were just to compare the average of June and what the average of Q2 was, it's running a little over 6% decline in total activity.
Speaker Change: When we look at what we're going to see in the back half of the year, we still believe we've got opportunities to grow our chemistry business.
Ryan Ezell: 5 to 6% reduction in average rightfully count because if you were just to compare the average of June and what the average of Q2 was, is running a little over 6% decline in total activity, but I do think we're going to continue to see some slight growth, but there's no doubt it won't be the percentage jump that we saw from Q1 to Q2. But I think it's going to still, you know, present, present solid performance of market share penetration as we see that growth is the activities going a little slow, and we expect H2 to kind of be a little bit of a low point in the activity of what we're at in this cycle.
Speaker Change: Even though we're expecting to see about a six, you know, I would say
Speaker Change: 5-6% reduction in average rack fleet count, because if you were just to compare the average of June and what the average of Q2 was, it's running a little over 6% decline.
Jeffrey Grampp: But I do think we're going to continue to see some slight growth, but there's no doubt it won't be the percentage jump that we saw from Q1 to Q2. But I think it's going to still, you know, present solid performance in market share penetration, as we see that growth has been a little slow. And we expect H2 to kind of be a little bit of a low point in the activity of where we're at in this cycle.
Speaker Change: and Total Activity, but I do think we're going to continue to see some slight growth, but there's no doubt it won't be the percentage jump that we saw from Q1 to Q2. But I think it's going to still, you know, present solid performance of market share penetration as we see that growth. The activity has been a little slow.
Speaker Change: We expect H2 to kind of be a little bit of a low point in the activity of what we're at in this cycle.
Jeff Grampp: Yeah, that makes a lot of sense, er, at first the time. Thank you.
Operator: Yeah, that makes a lot of sense. I appreciate the time. Thank you.
Speaker Change: Yeah, that makes a lot of sense. I appreciate the time. Thank you.
Don Christ: Your next question comes from the line of Don Christ of Johnson Rice.
Donald Crist: Your next question comes from the line of Don Crist of Johnson Rice. Please go ahead.
Don Christ: Please go ahead.
Speaker Change: Your next question comes from the line of Don Crist of Johnson Rice. Please go ahead.
Ryan Ezell: Morning, gentlemen. Hey, don't I want to start on the orders for the 50 orders that you've received for the Kellex sensor so far. Any breakdown as to how many are on, where outright sales versus on a subscription model? I know you were twin around with, with kind of shifting over to more of a subscription model, just any color around that. As current the day, all the ones that we've received now have been on subscription based, which has been, you know, fantastic for us in terms of the strategy of moving towards that data is a service and service revenue model.
Donald Crist: Hi Don. I wanted to start on the orders for the 50 orders that you received for the Calix sensor so far. Any breakdown as to how many were outright sales versus on a subscription model? I know you were toying around with kind of shifting over to more of a subscription model. Just any color around that?
Speaker Change: Good morning, gentlemen.
Don Christ: Hey, Don.
Don Christ: I wanted to start on the the orders for the the 50 orders that you received for the calix sensor so far. Any breakdown as to how many are on?
Don Christ: were outright sales versus on a subscription model? I know you were toying around with with kind of shifting over to more of a subscription model. Just any color around that?
Ryan Ezell: As of current to date, all the ones that we've received now have been subscription-based, which has been, you know, fantastic for us in terms of the strategy of moving towards that data-as-a-service and service revenue model. It will be interesting to see as the market matures because there are substantial benefits to having these units monitoring continuously on a single well throughout the year as they can calculate a destruction number, which can actually improve the performance of the well potentially by, you know, two to three percent. But right now, 100 percent of the orders have been on a subscription model.
Speaker Change: As current today, all the ones that we've received now have been all subscription-based.
Speaker Change: which has been, you know, fantastic for us in terms of the strategy of moving towards that data-as-a-service and service revenue model.
Ryan Ezell: It will be interesting to see as the market matures, but cause there is substantial benefits to having these units monitoring continuously on a single well throughout the year as they can calculate a destruction number, which can actually improve the performance of the well potentially by, you know, 2 to 3%. But right now, 100% of the orders have been on a subscription model.
Speaker Change: It will be interesting to see, as the market matures,
Speaker Change: Because there is substantial benefits to having these units monitoring continuously on a single well,
Speaker Change: throughout the year as they can calculate a destruction number, which can actually improve the performance of the well potentially by, you know, two to 3%. But right now, 100% of the orders have been on a subscription model.
Ryan Ezell: Okay, and taking that a step further, obviously in the presentation, you talk about an addressable market of 220 million. How many sensors, just roughly speaking, would that take? Is that double or triple the orders that you've gotten already? Oh, yeah, it's probably larger than that. I mean, the way we look at it is if you take those 55,000, well, they have to be serviced essentially once every five years. So we look at, it's a total market over that five years of a little over a billion dollars. And so we see a recurring revenue space of about 220 million a year.
Donald Crist: Okay, and taking that a step further, obviously, in the presentation, you talk about an addressable market of 220 million. How many sensors, roughly speaking, would that take? Is that double or triple the orders that you've gotten already?
Speaker Change: Okay, and taking that a step further, obviously in the presentation you talk about a addressable market of 220 million. How many sensors, just roughly speaking, would that take? Is that double or triple the orders that you've gotten already?
Ryan Ezell: Oh, yeah, it's probably larger than that. I mean, the way we look at it is if you take those 55,000 wells, they have to be serviced essentially once every five years. So we look at it's a total market over that five years of a little over a billion dollars. And so we see a recurring revenue space of about 220 million a year. As growth and adoption take place, we're targeting the upper teens to 20% market share of that piece.
Speaker Change: Oh yeah, it's probably larger than that. I mean, the way we look at it is if you take those 55,000 wells, they have to be serviced essentially once every five years. So we look at, it's a total market over that five years of a little over a billion dollars.
Ryan Ezell: As a growth and adoption takes place, we're targeting the upper teams at 20% market share of that piece, but that will probably take us, you know, two and a half plus years to get there. But there's no doubt to address that kind of market. It's quite a bit more on a two to three extra wood. We have currently a sale right now. Okay.
Speaker Change: And so we see a recurring revenue space of about $220 million a year.
Ryan Ezell: But that'll probably take us, you know, two and a half plus years to get there. But there's no doubt that we need to address that kind of market. It's quite a bit more on a two to three X of what we currently have on sale right now.
Speaker Change: As the growth and adoption takes place, we're targeting the upper teens, the 20% market share of that piece.
Speaker Change: But that'll probably take us, you know,
Speaker Change: and Larry Critelli, Unknown Executive, Ryan Ezell
Donald Crist: Okay, and on the other side of the measurement business, you know, from the production side, any traction on sales there? I know you've added a bunch of salesmen this year and gone from a small number to a very large number. Any follow through on sales on the production side, not just the flair side?
Ryan Ezell: And on the other side of the measurement business, you know, from the production side, any traction on sales there? I know you've added a bunch of salesmen over this year and, you know, gone from a small number to a very large number. Any follow through on sales on the production side, not on just the flair side. Yeah. So, you know, the chain and custody piece is what I'm assuming you're referring to on the production component. We are seeing significant interest in that part. And we've actually deployed a series of units out on location, taking the measurements.
Speaker Change: Okay, and on the other side of the measurement business, you know, from the production side,
Speaker Change: Any traction on sales there? I know you've added a bunch of salesmen over this year and have gone from a small number to a very large number. Any follow through on sales on the production side, not on just the flair side?
Ryan Ezell: Yeah, so, you know, the chain of custody piece is what I'm assuming you're referring to in the production component. We are seeing significant interest in that part, and we've actually deployed a series of units out on location taking the measurements. The measurements are coming in similar to what we were around our expectations for that, and that customer base is continuing to grow. I think our piece on that comes, I wouldn't say it's a headwind, but it's a component of understanding who that final buyer is going to be in terms of the operator or if that's going to be the leaseholder, et cetera. Traditionally speaking, probably closer to that leaseholder is going to get the larger benefit out of that, but we are seeing a significant amount of interest.
Speaker Change: Yeah, so, you know, the chain of custody piece, is what I'm assuming you're referring to in the production component, we are seeing
Speaker Change: Significant Interest.
Speaker Change: We've actually deployed a series of units out on location taking the measurements.
Ryan Ezell: The measurements are; it's coming in similar to what we were around our expectations on that. And that that customer base is continuing to grow. I think our piece on that that comes, I wouldn't say it's a headwind, but it's a component of understanding who that final buyer is going to be in terms of the operator, or if that's going to be the leaseholder, etc. Traditionally speaking, probably closer towards that leaseholder is going to get the larger benefit out of that. But we are seeing a significant amount of interest. The interesting part about that is the flair becomes such a hard push because it's regulated.
Speaker Change: It's coming in similar to what we were around our expectations on that, and that customer base is continuing to grow.
Speaker Change: Our piece on that that comes, I wouldn't say it's a headwind, but it's a component of understanding who that final buyer is going to be.
Speaker Change: In terms of the operator, or if that's going to be the leaseholder, etc. Traditionally speaking, probably closer towards that leaseholder is going to get the larger benefit out of that. But we are seeing a significant amount of interest.
Donald Crist: The interesting part about that is the flare becomes such a hard push because it's regulated, and this is more of a growing interest, and I won't say proof of concept. We've kind of proven the proof of concept, but it's a matter of getting the understanding out there of how the chain of custody part, how big of an impact that's going to be. We just completed an advanced customer deck, I would say, on the solution case for how it works and the substantial impact that looking at chain of custody monitoring can have. So, we're pretty excited about that.
Speaker Change: The interesting part about that is the flare becomes such a hard push because it's regulated.
Ryan Ezell: And this is more of a growing interest, and I'm going to say proof of concept. We've kind of proven proof of concept, but it's a matter of getting the understanding out there of how the chain and custody part, how big of an impact that's going to be.
Speaker Change: And this is more of a growing interest, and I won't say proof of concept, we've kind of proven it's proof of concept, but it's a matter of getting the understanding out there of how the...
Ryan Ezell: We just completed an advanced customer deck. I would say on the solution case for how it works and the substantially impacted looking at chain and custody monitoring can have. So we're pretty excited about that.
Speaker Change: The chain of custody part, how big of an impact that's going to be. We just completed an advanced customer deck, I would say, on the solution case for how it works and the substantial impact that looking at chain of custody monitoring can have. So we're pretty excited about that.
Don Christ: I agree, and once people understand that they can make more money from their production, that should take off. I appreciate the color guys; I'll turn it back. Thanks.
Donald Crist: I agree. And once people understand that they can make more money from their production, that should take off. I appreciate the color guys. I'll, I'll turn it back.
Speaker Change: I agree. And once people understand that they can make more money from their production, that that should take off. I appreciate the color guys. I'll, I'll turn it back.
Operator: Thanks, everyone. Thanks.
Gerard Sweeney: Your next question comes from the line of Jerry Sweeney of Frost Capital; please go ahead. Thank you, morning, Ryan, and Bon, thanks for taking my call. Hey, Jerry, how are you doing? Good. Just wanted to follow up on the flare gas. I think you just mentioned $220 million, sort of, the dressable market is looking to get to, you know, opportunity and even 20% market share.
Gerard Sweeney: Your next question comes from the line of Jerry Sweeney of Roth Capital. Please go ahead.
Speaker Change: Appreciate it, Don. Thanks.
Speaker Change: Your next question comes from the line of Jerry Sweeney of Roth Capital. Please go ahead.
Gerard Sweeney: Hey, good morning, Ryan and Bond. Thanks for taking my call. Hey, Jerry. How are you doing? Good. Just wanted to follow up on the flare gas side. I think you just mentioned $220 million in the sort of addressable market, looking to get to, you know, the upper teens, even 20% market share. Curious if you could give a little bit of detail, sort of maybe the roadmap as to how you achieve that over the next couple of
Jerry Sweeney: Good morning, Ryan and Bob. Thanks for taking my call.
Ryan Ezell: Hey Jerry, how you doing?
Jerry Sweeney: Good. Just wanted to follow up on the flare gas side. I think you just mentioned $220 million sort of addressable market, looking to get to, you know, up to 10, even 20% market share. Curious if you could give a little bit of detail, sort of maybe the road map.
Ryan Ezell: Curiously, to get a little bit of detail, sort of maybe the roadmap as to how you achieve that over the next couple of years. Yeah, so there's no doubt; we haven't, we haven't specifically given the public revenue guidance on that growth rate just yet. I will say that our expectations on the growth, and what we'll see in 24, definitely comes towards the November-December timeframe because the operators are still in that lay period of the 180 days from May. We are starting to receive numerous POs, but they're taking delivery in the November-December timeframe. Now, we've had some customers, like we mentioned earlier. We've got three on location.
Ryan Ezell: Yeah, so there's no doubt we haven't specifically given the public revenue guidance on that growth rate just yet. I will say that our expectations for the growth and what we'll see in 24 definitely come towards the November-December time frame because the operators are still in that late period of the 180 days from May. We are starting to receive numerous POs, but they're taking delivery in the November-December time frame.
Speaker Change: as to how you achieve that over the next couple of years.
Speaker Change: Yeah, so...
Speaker Change: There's no doubt, we haven't specifically given the public revenue guidance on that growth rate just yet.
Speaker Change: I will say that our expectations on the growth and what we'll see in 24 definitely comes towards the November-December timeframe because the operators are still in that late period of the 180 days from May. We are starting to receive numerous POs.
Ryan Ezell: Now, we've had some customers, like we mentioned earlier; we've got three on location now. They're starting to see the benefits of having it on location for full-time monitoring, but I do expect us to really start to see that accelerate in the next 25. And we are committed; we're spending another million dollars on advancing builds in the back half of this year to accelerate that growth. But I think in terms of starting to talk about that 18 to 20% share drive, that comes probably closer out into the 2026 timeframe, probably before we get all the capital to deployment in place to address all of that market.
Speaker Change: but they're taking delivery in the November-December time frame. Now, we've had some customers, like we mentioned earlier, we've got three on location now. They're starting to see the benefits of having it on location for full-time monitoring, but I do expect us to...
Ryan Ezell: Now, they're starting to see the benefits of having on location for full-time monitoring, but I do expect us to really start to see that accelerate in 25, and we are committed; we're spending another $1 million on advancing builds in the back half of this year to accelerate that growth.
Speaker Change: really start to see that accelerating 25. And we are committed, we're spending another million dollars on advancing builds in the back half of this year to accelerate that growth. But I think in terms of we start talking about that 18 to 20% share drive, that comes probably closer out into the
Ryan Ezell: But I think in terms of, we start talking about that 18 to 20% share drive, that comes probably closer out into the 2026 timeframe, probably when we get all the capital to deployment and place to address all of that market. I'm not sure.
Speaker Change: Yeah, 2026 timeframe, probably before we can get all the capital to deployment in place to address all of that market.
Gerard Sweeney: Got it, sure. And then secondarily, just to follow up on the external chemistry side, obviously great growth. You know, margins got hit by a little bit due to mix, but I'm just curious, is there an ability, as you grow in the Permian and maybe even some other basins, to maybe convince some customers to move to more of the higher-margin, more advanced, you know, chemistries that you're using? Is there an opportunity to upsell them?
Ryan Ezell: And then, secondly, just down the follow-up on external chemistry side. Obviously, great growth. You know, margins got hit by a little bit due to mix, but I'm just curious. Is there an ability, as you grow in the permeant, and maybe even some other basin, to maybe convince some customers to move to more of the higher margin, more advanced, you know, chemistry that you're using? Is there an option to upsell that? You know, we kind of bifurcate the way we look at our external chemistry sales in the two different components. The first one being the EMP operators.
Speaker Change: Got it, sure. And then secondarily, just to follow up on...
Speaker Change: External chemistry side, obviously great growth. You know, margins got hit by a little bit due to mix, but I'm just curious, is there an ability as you grow in the Permian and maybe even some other basins to
Speaker Change: Maybe convince some customers to move to more of the higher margin, more advanced, you know, chemistries that you're using. Is there enough to sort of upsell them?
Ryan Ezell: Yeah, you know, we we kind of bifurcate the way we look at our external chemistry cells in the two different components. The first one being the the EMP operators, and we look at the EMP operators We have a significant amount of success once we get, Our chemistry technology is in the door that we are able to move into higher-end technology applications where you've seen that penetration improvement in our proprietary, not only in our complex nanofluid cells, but all of our value-add chemistry, whether it be in flowback additives, scale control, and everything that really is the backbone of our prescriptive chemistry management systems.
Speaker Change: Yeah, you know, we kind of bifurcate the way we look at our external chemistry cells into two different components. The first one being the EMP operators. And when we look at the EMP operators,
Ryan Ezell: And when we look at the EMP operators, we have a significant amount of success. Once we get our chemistry technologies in the door that we are able to move into higher margin technology applications, where you've seen that penetration improvement in our proprietary, not only in our complex Nanofluis sales, but all of our value at chemistry, whether it be in flowback, additives, scale control, and everything that really is the backbone of our prescriptive chemistry management systems. But whenever you look at the other components and allow the EMP operators, they are still not even the operators, but the service companies that we sell to just being the worst power companies.
Speaker Change: We have a significant amount of success once we get
Speaker Change: Our chemistry technology is in the door, that we are able to move into higher-end technology applications.
Speaker Change: Where you've seen that penetration improvement in our proprietary, not only in our complex nanofluid cells, but all of our value-add chemistry, whether it be in flow-back additives, scale control, and everything that really is the backbone of our prescriptive chemistry management systems.
Ryan Ezell: But whenever you look at the other components and a lot of the EMP operators, they're still, not EMP operators, but the service companies that we sell to, just being horsepower companies, their big concern is controlling friction reduction and different components like that. So, we still move a significant amount of friction reducer into that group of our business. And so, there's not as much, I would say, opportunities to upsell those guys or sell technology to them as they're just wanting the operation to exist on the baseline.
Speaker Change: But whenever you look at the other component of that, a lot of the EMP operators...
Speaker Change: Theo Haley JP Oliveras NC I'm not E. P. Oliveras, but the service companies that we self to just being say the horsepower companies.
Ryan Ezell: Their big concern is controlling a friction reduction, a different component like that. So we still move a significant amount of friction-reducer to that group of our business. And so there's not as much, I would say, opportunities to upsell those guys or technology sell them as they're just wanting the operation to exist on the baseline. However, what we are seeing, and we talked about this prior, is the consolidation of these EMP operators is really starting to push through. They're wanting more, the better return and better production out of every well. So they are starting to listen to us in terms of well spacing, how tight they are, the need for specific chemistry as you down space, and also the impact of where we see that interface between the natural fracking, and what we see those connective carrogens in the backside.
Speaker Change: Their big concern is controlling friction reduction and different components like that. So we still move a significant amount of friction reducer to that group of our business. And so there's not as much...
Speaker Change: I would say opportunities to upsell those guys, or technology sell them as they're just wanting the operation to exist on the baseline. However, what we are seeing...
Ryan Ezell: However, what we are seeing, and we talked about this earlier, is the consolidation of these EMP operators is really starting to push through. They're wanting more, a better return, and better production out of every well. So, they are starting to listen to us in terms of well spacing, how tight they are, the need for specific chemistry as you downspace, and also the impact of where we see that interface between the natural frac and what we see are those connective keragins on the backside.
Speaker Change: and and we talked about this prior is the consolidation of these DMP operators is really starting to push through they're wanting more the better return and better production out of every well.
Speaker Change: So they are starting to listen to us in terms of well spacing, how tight they are, the need for specific chemistry as you downspace, and also the impact of where we see that interface between the natural frac and what we see those connective keragins in the backside.
Ryan Ezell: And so that, as we continue to, you know, pre-step message in that gospel out there, we'll be talking a lot about it at Intercom. We're seeing a solid impact coming from the EMP side, and that's actually translating to some of the pressure pump companies wanting to move those technologies as well.
Ryan Ezell: And so, as we continue to preach that message and that gospel out there, we'll be talking a lot about it at Intercom, we're seeing a solid impact coming from the EMP side, and that's actually translating to some of the pressure pump companies wanting to move those technologies as well.
Speaker Change: And so that, as we continue to preach that message and that gospel out there, we'll be talking a lot about it at Intercom. We're seeing a solid impact coming from the EMP side, and that's actually translating to some of the pressure pump companies wanting to move those technologies as well.
Gerard Sweeney: Got it. I appreciate it. I'll jump back in line.
Ryan Ezell: Got it. I appreciate it.
Unknown Attendee: I'll jump back in line. Thanks.
Speaker Change: Got it. I appreciate it. I'll jump back in line.
Blake McLean: Your next question comes from the line of Blake McLean of Daniel Energy Partners. Please go ahead. Hey, good morning, guys. Thanks for taking my question here. Hey, Blake, how are you doing? Yeah, I'm good. Thanks, man.
Operator: Your next question comes from the line of Blake McLean of Daniel Energy Partners. Please go ahead.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Blake McLean of Daniel Energy Partners. Please go ahead.
Blake McLean: Hey, good morning, guys. Thanks for taking my question here. Hey, Blake, how are you doing? Yeah, I'm good.
Blake McLean: Hey, good morning guys. Thanks for taking my question here.
Blake McLean: Thanks, man. So I wanted to dig a bit more into the data analytics piece. You guys have provided a ton of great information here on the flare gas opportunity. Could you maybe talk a bit more about some of the other applications and market penetration efforts that you guys have? We've hit upstream a bunch, but maybe on the midstream and the downstream side, how are you guys prioritizing efforts there? Where do you see the biggest opportunities?
Ryan Ezell: So I wanted to dig a bit more on the data analytics piece. You guys have provided a ton of great information here on the flare gas. Yeah, that's opportunity.
Speaker Change: Hey Blake, how you doing? Yep.
Blake McLean: I'm good. Thanks, man. So, uh, I wanted
Blake McLean: To dig a bit more on the data analytics piece, you guys have provided a ton of great information here on the flare gas opportunity. Could you maybe talk a bit more about some of the other applications and market penetration efforts that you guys have?
Ryan Ezell: Could you maybe talk a bit more about some of the other applications and market penetration efforts that you guys have. We've hit upstream avoid, but maybe on the midstream in the downstream side. How do you guys prioritizing efforts there? Where do you see the biggest opportunities? Yeah, for sure. If it's all right.
Ryan Ezell: Yeah, for sure. If it's all right, I'll kind of start with the upstream part first because we feel internally that it is some of our biggest opportunities, not only for rapid growth, but it's where our technology is extremely differentiated. If you look at flare gas monitoring, the competition out there is pretty much held to taking samples. However, taking samples is very expensive. It's prone to error and service quality component problems. And so we definitely see not only a better cost-effective application there for us but also better accuracy, which is why the EPA has been so highly touting our technologies in terms of flare monitoring. We see the exact same thing in composite sampling versus our real-time measurements of chain of custody.
Ryan Ezell: I'll kind of start with the upstream part of most because we feel internally. That is some of our biggest opportunities, not only for rapid growth, but it's where our technology is extremely differentiated. If you look at the flare gas monitoring, the competition out there is pretty much held to taking samples. Samples taking samples is very expensive. It's prone to error and service quality component problems. And so we definitely see not only a better cost-effective applications there for us, but also better accuracy, which is why the EPA has been so highly touting our technologies in terms of the flare monitoring.
Speaker Change: Yeah, for sure. If it's all right, I'll kind of start with the upstream part the most because
Speaker Change: We feel internally...
Speaker Change: That is some of our biggest opportunities, not only for rapid growth, but it's where our technology is extremely differentiated. If you look at the flare gas monitoring, the competition out there is pretty much held to taking samples.
Speaker Change: Samples, taking samples is very expensive, it's prone to error and service quality component problems, and so we definitely see not only a better cost-effective applications there for us, but also better accuracy, which is why the EPA has been so highly touting our technologies in terms of the flare monitoring. We see the exact same thing in composite sampling versus our real-time measurements of chain of custody. So that, in my opinion, we've got a
Ryan Ezell: We see the exact same thing. Composite sampling versus our real-time measurements of chain and custody. So that, in my opinion, we've got a pretty good size addressable market that we're highly differentiating on a cost and technical capabilities.
Ryan Ezell: So, in my opinion, we've got a pretty good-sized addressable market that we're highly differentiated on our cost and technical capabilities. As we move into the downstream piece, that's where a lot of our core business existed in terms of transmix, reed vapor pressure monitoring, and even as you move down into refined fuel blendings, etc., and volume increases there. But I'll tell you, you know, transmix is definitely differentiated because we have autonomous real-time sampling, reed vapor pressure, and we do that very, very well.
Speaker Change: A pretty good size addressable market that we're highly differentiated on our cost and technical capabilities.
Ryan Ezell: As we move into the downstream piece, that's where a lot of our core business had existed in terms of transmix, rebate, repression, monitoring, and even as you move down into refined fuel blendings, etc. We've got a better volume increases there, but I'll tell you, you know, transmix definitely differentiated because we have autonomous real time sampling, rebate, repression. We do that very, very well. But as you start in, but that market is probably a little bit more of a limited keger as compared to what we see in the upstream side. And so, as you move further downstream, you move into more fixed installation or capital purchases, and we run head to head against gas chromatography and some of those other components.
Speaker Change: As we move into the downstream piece, that's where a lot of our core business had existed in terms of TransMix.
Speaker Change: Reed Vapor Pressure Monitoring, and even as you move down into refined fuel blendings, etc. and volume increases there.
Speaker Change: But I'll tell you, you know, TransMix definitely differentiated because we have autonomous real-time sampling.
Ryan Ezell: But as you start to, but that market is probably a little bit more of a limited cager as compared to what we see in the upstream side. And so, and as you move further downstream, you move into more fixed installation or capital purchases, and we run head-to-head against gas chromatography and some of those other components, that we start to lose a little bit of the differentiation because some of those GC units have auto-samplings, etc., and the fixed installations, and so we prioritize our efforts more to the areas where we have significant price and or technical differentiation and where we've got a rapid penetration rate into the addressable market, if that makes sense. Yeah.
Speaker Change: Reed vapor pressure, we do that very, very well. But as you start to, but that market is probably a little bit more of a limited CAGR as compared to what we see in the upstream side.
Speaker Change: And so, and as you move further downstream, you move into more fixed installation or capital purchases, and we run head-to-head against gas chromatography and some of those other components.
Ryan Ezell: That we start to lose a little bit of the differentiation because some of those GC units have auto sampling, etc., and the fixed installations. And so we prioritize our efforts more to the areas where we have significant price and or technical differentiation and where we've got a rapid penetration rate and to the addressable market, if that makes sense.
Speaker Change: that we start to lose a little bit of the differentiation because some of those G. C. Units have auto samplings, etcetera, the fixed installations. And so, um, we prioritize our efforts more to the areas where we have significant price and or technical differentiation and where we've got a rapid penetration rate into the addressable market, if that makes sense.
Blake McLean: Yeah, that's all really good color.
Blake McLean: Yeah, that's all really good color. I really appreciate the time this morning, guys.
Unknown Attendee: Really appreciate the time this morning, guys.
Speaker Change: Yeah, that's all really good color really appreciate the time this morning guys
Unknown Attendee: Your next question comes from the line of Gaussian three of singular research.
Operator: Your next question comes from the line of Gauchy 3 of Singular Research. Please go ahead.
Speaker Change: Unknown Speaker I'm going to go ahead and get started. Thanks.
Unknown Attendee: Please go ahead.
Speaker Change: Your next question comes from the line of Gauchy 3 of Singular Research. Please go ahead.
Unknown Attendee: Good morning, guys. Can you hear me? Yeah, good morning, morning.
Unknown Attendee: Good morning, guys. Can you hear me? Yeah, good morning. Given that you have a, can you provide a commentary on your capacity to accommodate external customers considering that you have close to 200 million in annual backlog with pro fact. And maybe you can also give us some color on the background beyond the two billion. Yeah, so, you know, it's a great question for us. It's something we're actually pretty excited about. One of our strategic pillars has always been a capital-life business model. And this has been because of where our facility location is particularly some of our manufacturing facilities.
Speaker Change: Good morning, guys. Can you hear me?
Unknown Attendee: Given that you have a, can you provide a commentary on your capacity to accommodate external customers considering that you have close to $200 million in annual backlog with Profac, and maybe you can also give us some color on the background beyond the $2 billion.
Speaker Change: accommodate external customers considering that you have
Ryan Ezell: Yeah, so, you know, it's a great question for us. It's something we're actually pretty excited about. One of our strategic pillars has always been a capitalized business model. And this has been because of where our facility locations, particularly some of our manufacturing facilities, we have substantial runway to continue to grow revenue and output through those manufacturing facilities and actually gain efficiency costs in our blending of materials and products. If you were to take one of our main facilities, essentially located in Marlo, Oklahoma, just outside of Oklahoma City, we're only running a single day shift right now.
Speaker Change: Yeah, so, you know, it's a great question for us, it's something we're actually pretty excited about. One of our strategic pillars has always been a capitalized business model.
Ryan Ezell: We have substantial runway to continue to grow revenue and output to those manufacturing facilities and actually gaining efficiency costs in our blending of materials and products. If you were to take our one of our main facilities, the Century located in Marlow, Coleman, just us out of Oklahoma City, we're only running a single day shift right now. And it's probably operating about 37% capacity. So you look at, we could probably look at two and a half to three X increase in throughput through that single facility alone at growing revenue on the chemistry side. So I think we have a great runway without to grow the business, improve profitability.
Speaker Change: We have substantial runway to continue to grow revenue and output through those manufacturing facilities and actually gain efficiency costs.
Speaker Change: in our blending of materials and products. Um, if you were to take our one of our main facilities, essentially located in Marlo, Oklahoma, just outside of Oklahoma City, we're only running a single day shift right now. Um, and it's probably operating about 37% capacity.
Ryan Ezell: And it's probably operating at about 37% capacity. So you look at, we could probably look at a two and a half to three X increase in throughput through that single facility alone and growing revenue on the chemistry side. So, I think we have a great runway to grow the business, improve profitability, and gain efficiencies without having to spend a significant amount of capital on the chemistry side. And then when we look at where we're going to try to grow the JP3 business, we spent a significant amount of time not only increasing the sourcing capacity of our proprietary analyzers but also the rate at which we can manufacture them.
Ryan Ezell: Unknown Executive, Ryan Ezell
Ryan Ezell: Really gain efficiencies without having to suspend a significant amount of capital on the chemistry side. And then when we look at where we're going to try to grow the JP three business, we spend a significant amount of time not only increasing the sourcing capacity of our proprietary analyzer, but also the rate at which we can manufacture them. And we talked about that quite a bit some of the prior earnings calls where we're going to see about a 10 X improvement in our manufacturing speed on the proprietary sensors. And we're going through a similar process on advancing the rate at which we can manufacture our cards for the flare monitoring.
Ryan Ezell: And then when we look at...
Speaker Change: where we're going to try to grow the JP3 business. We spent a significant amount of time not only
Speaker Change: increasing the sourcing capacity of our proprietary analyzers, but also
Ryan Ezell: And we've talked about that quite a bit in some of the prior earnings calls where we're going to see about a 10X improvement in our manufacturing speed on the proprietary sensors. And we're going through a similar process to advancing the rate at which we can manufacture our carts for the flare monitoring. So, I think we've got, you know, without having to spend a massive amount of capital intensity, we've got a great runway to continue to grow the business.
Ryan Ezell: So I think we've got, you know, without having to spend a massive amount of capital intensity, we've got a great one way to continue to grow the business. And any color on the backlog beyond the two billion that you have, but perfect. So you know, we consistently talk about it, but because there's no doubt that it's our longest standing unique contract and we're excited to have it and actually work with an advanced partner like ProFract when you look at their commitment on technologies and service quality. But when we look at some of other external customers, there's no doubt we're primary supplier on a multitude of other contracts.
Speaker Change: for the flare monitoring. So I think we've got, you know, without having to spend a massive amount of capital intensity, we've got a great runway to continue to grow the business.
Unknown Attendee: and any color on the backlog beyond the two two billion that you have with ProEffect.
Speaker Change: And any color on the backlog beyond the $2 billion that you have with Profect.
Ryan Ezell: So, you know, we consistently talk about it because there's no doubt that it's our longest-standing unique contract. And we're excited to have it and actually work with an advanced partner like Profrac when you look at their commitment to technologies and service quality. But when we look at some of our other external customers, there's no doubt we're the primary supplier on a multitude of other contracts. However, they do tend to be a little bit more transactional in nature and can often be penetrated by, you know, if you have a technical differentiation or they want to test-drive something. So we think they're a little stickier than they used to be, but they don't nearly represent such a magnitude of backlog as what we see from Profrac.
Speaker Change: So, you know, we consistently talk about it because there's no doubt that it's our longest standing, unique contract.
Speaker Change: We're excited to have it and actually work with an advanced partner like ProFrac when you look at their commitment on technologies and service quality. But when you look at some of our other external customers, there's no doubt we're a primary supplier on a multitude of other contracts.
Ryan Ezell: However, they do tend to be a little bit more transactional in nature and can often be penetrated by, you know, if you have a 10 to 10. If you could differentiate or they want to test trial something. So we think they're a little stickier than they used to be, but they don't nearly represent such a magnitude of backlogs, what we see from ProFract. And maybe a little color for me on the data analytics. I know it's not the revenue model is not a purely a function of the number of units that I installed that small.
Speaker Change: However, they do tend to be a little bit more transactional in nature and can often be penetrated by, you know, if you have a technical differentiation or they want to test trial something. So we think they're a little stickier than they used to be, but they don't nearly represent such a magnitude of backlog as what we see from ProFrac.
Unknown Attendee: And maybe a little color for me on the data analytics side; I know the revenue model is not purely a function of the number of units that are installed; it's more the services that you provide around it. Is there an opportunity to build on those services to become a meaningful offline driver for growth?
Speaker Change: Unknown Speaker 0
Speaker Change: And maybe a little color for me on the data analytics, I know it's not, the revenue model is not purely a function of the number of units that I installed, it's more the services that you provide around it, is there an opportunity to build on those services to become a meaningful
Ryan Ezell: The services that you that you provide is around it. Is there an opportunity to build on those services to become a meaningful. Applied. Violet for growth. I mean, do you have the capacity in terms of talent pool, or would you have to with that be a having habit that you will have to undertake. So I think that when you look at it now is that the strategy of the organization is to grow revenue, which we've been doing an increase percentage of recurring revenue or data as a service or service type revenue inside the model. And doing so, we've actually probably slowed the actual total revenue we could get versus capital sales.
Ryan Ezell: I mean, again, do you have the capacity in terms of the talent pool? Or would you have to? Would that be a hiring effort that you would have to make?
Speaker Change: Online Driver for Growth. I mean, do you have the capacity in terms of talent pool or would you have to, would that be a hiring effort that you will have to undertake?
Ryan Ezell: So I think that when we look at it now, the strategy of the organization is to grow revenue, which we've been doing, and increase the percentage of recurring revenue or data as a service or service-type revenue inside the model. But in doing so, we've actually probably slowed the actual total revenue we could get versus capital sales. However, we've been consistently building that backlog of recurring revenue, which in the long run is going to be substantially more profitable for the organization.
Speaker Change: So I think that when, you know, we look at it now is that
Speaker Change: The strategy of the organization is to grow revenue, which we've been doing, and increase the percentage of recurring revenue, or data as a service, or service type revenue inside the model. In doing so, we've actually probably...
Ryan Ezell: However, we've been consistently building that backlog of recurring revenue, which in the long run is going to be substantially more profitable for the organization. But we also feel that it'll have a significant impact on the valuation of the organization, as most of the data as a service business is traded at a much higher multiple than if we were just doing sensor capital sales and not supporting the service side of the total solution side. I don't feel right now that we're at a huge bottleneck on the acceptance at this point as we may some of these manufacturing changes.
Speaker Change: Slowed the actual total revenue we could get versus capital sales, however, we've been consistently
Ryan Ezell: We also feel that it'll have a significant impact on the valuation of the organization as most of the data as a service business is traded at a much higher multiple than if we were just doing sensor capital sales and not supporting the service side of the total solution side. I don't feel right now that we're at a huge bottleneck on acceptance at this point as we've made some of these manufacturing changes, and we are pre-committing capital into the data analytics side of the business at a much higher rate than what we've even been doing on the chemistry side to ensure that we have the analyzers and stuff to grow the business, and we're not hindered by that aspect.
Speaker Change: which in the long run is going to be substantially more profitable for the organization.
Speaker Change: We also feel that it will have a significant impact on the valuation of the organization as...
Speaker Change: Most of the data as a service business is traded at a much higher multiple than if we were just doing...
Speaker Change: ...censor capital cells and not supporting the service side or the total solutions side...
Ryan Ezell: And we are pre-committing capital into the data is into the JP three of the data like side of the business at a much higher rate than we've even been doing on the chemistry side to ensure that we have the analog stuff to grow the business and we're not hindered by that.
Speaker Change: And we are pre-committing capital into the JP3, the data analytics side of the business at a much higher rate than what we've even been doing on the chemistry side to ensure that we have the analyzers and stuff to grow the business and we're not hindered by that aspect.
Ryan Ezell: Okay, and someone relatively new to the sector, maybe you can help me understand the economics between an oil weighted basin and a gas weighted basin, and how does that specifically, the economics vary between increased activity in between those basins and how do you discuss the difference in types of chemistry required across the various regions? Yeah, that's another great question. Traditionally speaking, and I'll use for an example, the Permian Basin versus the Hainesville, which is an Arctic text region. The Hainesville, the hydraulic fraction takes place, operates at higher pressures, significantly higher temperatures. It requires a much more complex system oftentimes, a hybrid combination between slick water and cross-linked wars, which also carries more corrosion inhibition products, scale inhibition products, et cetera, just to the significant technical challenges that are taken in those bases.
Unknown Attendee: And as someone relatively new to the sector, maybe you can help me understand the economics between an oil-weighted basin and a gas-weighted basin. How does that, specifically the economics, vary with the increased activity between those basins? And can you discuss the difference in types of chemistry required across the various regions?
Ryan Ezell: Yeah, you know, that's another great question. Traditionally speaking, and I'll use the Permian Basin versus the Haynesville, which is in the Arklatex region. The Haynesville fracturing takes place at higher pressures, significantly higher temperatures, and requires a much more complex system, oftentimes a hybrid combination between slick water and cross-linked waters, which also carries more corrosion inhibition products, scale inhibition products, et cetera, just to the significant technical challenges that are taken into account in those bases.
Ryan Ezell: Yeah, you know, that's another great idea.
Speaker Change: Yeah, you know, that's another great question.
Speaker Change: Traditionally speaking, and I'll use for an example, the Permian Basin versus the Hainesville, which is in the Arklatex region.
Speaker Change: It requires a much more complex system, often times a hybrid combination between slick water
Speaker Change: and cross-linked waters, which also carries more corrosion inhibition products, scale inhibition products, etc., just to the significant technical challenges that are taken in those bases. So, typically for us,
Ryan Ezell: So typically for us, we see better revenue per fleet activity in a lot of these gas-driven bases, particularly the Hainesville, as in comparison to what we see in West Texas. And just mostly because of the technology requirements, which also benefits us because we have unique NSA proprietary tech that works very well in those basins. And so when you look at now, when we model it, we have a little bit different revenue per fleet, but you know, you do see a difference in between where we're at, probably 30%, maybe on total, on total average monthly revenue per fleet between the Hainesville versus what you see in the Permian Basin, more of these all-rich basins.
Ryan Ezell: So typically, for us, we see better revenue per fleet activity in a lot of these gas-driven bases, particularly Haynesville, as in comparison to what we see in West Texas. And just mostly because of the technology requirements, which also benefits us because we have unique, and I say proprietary tech, that works very well in those basins. And so when you look at it now, when we model it, we have a little bit different revenue per fleet, but, you know, you do see a difference between where we're at, probably 30%, maybe, on total average monthly revenue per fleet between Haynesville versus what you see in the Permian Basin and more of these oil-rich bases.
Richard Durinling: Your next question comes from the line of Richard Durinling of Longforth Partners. Please go ahead. Good morning. What was the minimum purchase payment for the quarter and the first quarter from ProFreck? So, in the second quarter, it was about $8 million, right? You're talking about the shortfall, the shortfall calculation? Yeah, the make good payment. Yeah. So we'll be following our 10 queue tomorrow, and all those numbers will be in there. For the second quarter, it was about $8 million. And the first quarter, I've probably got that written down. What was that? It was around $8.5 million.
Operator: Your next question comes from the line of Richard Dearnley of Longport Partners. Please go ahead.
Richard Dearnley: Good morning. Well, what was the minimum purchase payment for the quarter and the first quarter from Profrex?
Von Clement: So in the second quarter, it was about 8 million. Right, you're talking about the shortfall, the shortfall calculator?
Richard Dearnley: Yeah, yeah, they make a good payment.
Von Clement: Yeah, so we'll be following our 10-Q tomorrow, and all those numbers will be in there. For the second quarter, it was about $8 million.
Richard Dearnley: And in the first quarter, I probably got that written down.
Von Clement: It was for around $8.5 million.
Richard Dearnley: And as you account for it, I would guess those payments are very high gross. That's correct.
Bond Clement: And as you account for it, I would guess those payments are very high gross margin. Yeah, just to kind of review how this works, we accrue on a quarterly basis the shortfall, but the ultimate settle-up is calculated on an annual basis. So the cumulative amount of the shortfall can fluctuate based upon activity levels throughout the year. And at the end of the year, the shortfall is settled up in the first quarter of the following year. So, as we accrue the 2024 shortfall, I could go up. It could go down based on activity. And then it settles up in the first quarter of 2025.
Von Clement: Yeah, just to kind of review how this works, we accrue on a quarterly basis the shortfall. But the ultimate settle up is calculated on an annual basis. So the cumulative amount of the shortfall can fluctuate based upon activity levels throughout the year. And at the end of the year, the shortfall is settled up in the first quarter of the following year. So as we accrue the 2024 shortfall, it could go up, it could go down based on activity, and then it settles up in the first quarter of 2025. So your A.R. balance or our A.R. The balance will grow throughout the year based upon what that shortfall does.
Speaker Change: But the ultimate settle up as calculated on an annual basis. So the cumulative amount to the shortfall can fluctuate based upon activity levels throughout the year and at the end of the year. The shortfall is settled up in the first quarter of the following year. So as we accrue the 'twenty 'twenty four shortfall. It could go up it could go down based on activity and then it.
Speaker Change: Settles up in the first quarter of 2025, so youre a balance or are a our AR balance will grow throughout the year based upon what that shortfall does.
Operator: So your AR balance or RAR balance will grow throughout the year based upon what that shortfall does. Once again, ladies and gentlemen, should you have a question? Please press the star zero, followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised.
Richard Dearnley: Right. I see. Good. Thank you.
Speaker Change: Right right.
Richard Dearnley: Right. Good. Thank you.
Speaker Change: Great. Thank you.
Speaker Change: Sure.
Operator: Once again, ladies and gentlemen, should you have a question, please press the star zero, followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. There are no further questions at this time. I'd now like to turn the call back over to Michael Critelli for his final closing remarks. Please go ahead.
Speaker Change: Once again, ladies and gentlemen should you have a question. Please press the star zero, followed by the number one on your Touchtone phone, you'll hear a prompt tip. Your hand has been raised.
Mike <unk>: There are no further questions at this time I'd now like to turn the call back over to Mike <unk> for final closing remarks. Please go ahead.
Michael Critelli: Over to Mike Critelli for final closing remarks. Please go ahead. Thank you again for joining us today.
Michael Critelli: Thank you again for joining us today. I'd like to remind everyone that Ryan Ezell, Flotek CEO, will be presenting at Enercom Denver, the Energy Investment Conference, on Monday, August 19th at 9.15 a.m. Mountain Time, as well as the 2024 Gateway Conference in San Francisco, California, on Wednesday, September 4th, 2024. He will be joined by CFO Bon Clement in hosting meetings with investors, and a copy of the presentation that will be used in each discussion will be available on the corporate website prior to the event. We look forward to meeting with many of you at the conference. Thanks again for joining us today. Please feel free to contact us if you have any additional questions. Have a great day!
Mike <unk>: Thank you again for joining us today I'd like to remind everyone that Ryan is L. Flotek CEO will be presenting at Entercom Denver, The energy investment conference on Monday August 19th at 915, a M Mountain time as well as the 2020 for Gateway Conference in San Francisco, California on Wednesday set.
Michael Critelli: I'd like to remind everyone that Ryan Ezell, Flotek CEO, will be presenting at Entercom Denver, the Energy Investment Conference on Monday, August 19th at 9:15 AM Mountain Time, as well as the 2024 Gateway Conference in San Francisco, California on Wednesday, September 4th, 2024. He will be joined by CFO Bond Clement in hosting meetings with investors, and a copy of the presentation that will be used in each discussion will be available on the corporate website prior to the event. We look forward to meeting with many of you at the conference. Thanks again for joining us today.
Mike <unk>: Timber for 2024, he will be joined by CFO bond comment in hosting meetings meetings with investors and.
Speaker Change: And a copy of the presentation that will be used in each discussion will be available on the corporate website. Prior to the event. We look forward to meeting with many of you at the conference. Thanks again for joining US today, please feel free to contact us. If you have any additional questions have a great day.
Michael Critelli: Please feel free to contact us if you have any additional questions.
Operator: Have a great day.
Mike <unk>: Yes.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.