Q1 2025 Flotek Industries Inc Earnings Call
Speaker Change: Good morning ladies and gentlemen and welcome to the Flotek Industries first quarter 2025 earnings conference call
At this time all lines are in listen only mode
Speaker Change: Following the presentation, we will conduct a question and answer session session.
Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator
Speaker Change: This call has been recorded on Wednesday, May 7, 2025. I would now like to turn the conference over to Michael Critelli, Director of Finance and Investor Relations. Please go ahead.
Speaker Change: Thank you, and good morning. We're thrilled to have you with us for Flotek's first quarter 2025 earnings conference call. Today, I'm joined by Ryan Ezell, Chief Executive Officer and Bond Clement, Chief Financial Officer.
Speaker Change: We will start with prepared remarks covering our business operations, financial performance, and the acquisition announced on April 28th, 2025. Following that, we will open up the floor for questions.
Speaker Change: Yesterday we announced our first quarter 2025 results and updated earnings presentation, both of which are available on the Investor Relations section of our website. This call is being webcast with a replay available on our website shortly after its conclusive conclusion.
Speaker Change: Please note that the comments made on today's call regarding projections or expectations for future events are forward-looking statements.
Speaker Change: Four-looking statements are subject to a number of risks and uncertainties.
Speaker Change: Many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations.
Speaker Change: We invite listeners to review our earnings release and the risk factors discussed in our final links with the SEC.
Speaker Change: Please refer to the reconciliations provided in the earnings press release and investor presentation.
As management, we'll be discussing non-GAAP metrics on this call.
Speaker Change: With that, I'll turn the call over to our CEO Ryan Ezell. Thank you Mike and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our first quarter of 2025 operational and financial results.
Speaker Change: This laser focus resulted in the delivery of the strongest quarter in a decade and our strategic expansion into real-time data monitoring and gas conditioning in the energy infrastructure sector [inaudible]
In the first quarter of 2025 In the second quarter of 2025
Speaker Change: Flotek continued its track record of increasing market share and profitability growth in both of our complimentary business segments as we remain unwavering in our commitment to create value for our customers and shareholders through the convergence of innovative chemistry and data solutions.
Speaker Change: With that, I'd like to touch on some key highlights for the quarter that Bob will discuss later in the call.
Speaker Change: As part of our Mr. Moore strategy in the data analytics segment, we acquired 30 real-time gas monitoring and dual fuel optimization assets.
Speaker Change: We also secured a $160 million multi-year contract poised to drive substantial earnings growth and pre-cash flow for the segment.
Speaker Change: First quarter, 2025 results represent the fifth consecutive quarter of growth in revenue, growth, profit, net income, and the just-it-even dot.
Speaker Change: Total revenue during the quarter rose 37% versus the first quarter of 2024, highlighted by an 88% increase in external chemistry revenue, which is our strongest quarter in the last five years, and a 57% increase in data analytics revenue.
Speaker Change: Net income and adjusted EBITDA were up 244% and 93% respectively, first of the first quarter of 2024.
Speaker Change: Most importantly, all of these achievements were accomplished with zero lost time incidents in the field of operations .
Speaker Change: I'd like to take them on what to thank our employees for all their hard work and commitment to safety and service quality in achieving these outstanding results.
Speaker Change: I remain excited about Flotek's future as we strengthen our position as a technology leader, spearheading innovation, and delivering tailored chemistry and data solutions that meet our customer's specific needs.
Speaker Change: We're committed to shaping the industry's future by leveraging chemistry as the Common Value Creation Platform.
Speaker Change: Now let's dive into the details referencing slide five of the earnings deck.
Speaker Change: Today, I want to spotlight the remarkable progress in our data analytic segment.
Speaker Change: We're particularly energized by three upstream technology applications, power generation, custody transfer, and flared monitoring, all in which are fueling significant advancements for our organization.
Speaker Change: The first is our transformative power generation solution which is evolved from a novel analytical approach into a game changer for the energy infrastructure sector which we call power tech in the future.
Speaker Change: What began as advanced analytics has grown into a comprehensive, into infueled management platform.
Redefining Performance Standards and Operations within the sector
Speaker Change: Looking at slide 6, on April 8, 2025, we acquired 30 patented real-time gas monitoring and
Speaker Change: This transaction instantly strengthens our presence across all US basins, adding turnkey capacity for fuel valuation, conditioning, and distribution to support remote energy services, data center, and grid power generation infrastructure.
Speaker Change: and Boosting Free Cashflow. Importantly, this $160 million is just a starting point with additional revenue opportunities embedded in this contract.
Speaker Change: Moving to slide seven at the heart of power tech is our very externalizer which goes beyond data collection to deliver custody-transferred grade measurements.
Speaker Change: It provides precise B-T-U and volume reporting for royalties, invoicing, and performance guarantees.
Speaker Change: Complementing this are patented ESD trailers actively remove liquids and contaminants, conditioning IB-2U hydrocarbon feeds to meet exact turbine or in-jump engine performance specifications.
because every site in Gerard...
Condition are unique. We've integrated Coriola's metering [inaudible]
Speaker Change: Automated CNG blending and seamless backup connections, allowing operators to switch fuels or go off grid with a single button resolving major constraints to the development of data center and grid power infrastructure.
Speaker Change: The power tech is about more than just technology. It's about control.
Speaker Change: Operators interact effortlessly through an own trailer HMI or a unified web portal that is accessible on desktop, tablet or smartphone.
Speaker Change: Our cloud-based portal enables the monitoring of live BTU trans, H2S alerts, Coriolis Flow
Speaker Change: and automated C&G Blend Controls combined with custom alarm thresholds to automatically isolate off-spec hydrocarbons fees and protect high-value turbines or engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety.
Speaker Change: All data flows securely through our patented edge-to-cloud pipeline, ensuring zero manual intervention, into end encryption, full audit trails, and complex custody transfer record keeping.
Speaker Change: Our expanded fleet is already making an impact, monitoring and managing over 50 million cubic feet of gas daily, transferring raw feed stock into optimized safe fuel for our customers.
Speaker Change: Building on success, we're developing a smart filtration skid which is a minimal footprint unit to integrate
Speaker Change: Capturing just 10% of the roughly 500 North American field gas engines.
Speaker Change: Good job, 50 plus kid rentals generating an additional 10 to 14 million in annual revenue at 70 to 80 percent gross margins, all backed by robust precision measurement data.
Speaker Change: Finally, our over 30 data analytics patents combine with five new patents from this acquisition, position Flotek as a leader across the natural gas value chain.
Speaker Change: When considering our capabilities for advanced fuel blending, zero emissions analytics, custody transfer or grade, flow sale measurements.
Speaker Change: wireless ESD actuation and secure edge-to-cloud data transmission. We deliver unmatched, monitoring, control, and safety for field gas operations.
Speaker Change: Now let's transition to slide 8. We will dive into our second upstream application, custody transfer.
Speaker Change: Since January of 2025, a leading AMP partner has been piloting this solution in multiple U.S. basins and the results so far are encouraging.
Speaker Change: At a single pilot site, we've pinpointed an annual customer opportunity of $3.5 million of savings, highlighting the significant value this solution creates.
Speaker Change: Considering the potential scale of the CNP operator, the enterprise value creation at this level is driving further applications with eight custody transfer locations set to transition to recurring DAS revenue in a second quarter of 2025.
Speaker Change: and more conversions planned throughout the year. Additionally, we are actively pursuing opportunities with domestic operators and targeted NOCs in the Middle East.
Speaker Change: By marching hydrocarbon quality and composition in real time and taking measurements every five seconds.
Speaker Change: We're positioned to unlock a new market for Flotek in 2025. This groundbreaking application sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before.
Speaker Change: Let's move to our third upstream application, the Veracow Flair Monitoring Solution. In the first quarter of 2025, we saw an uptick in demand following the EPA's regulatory updates released in late December of 2024.
Starting in mid-February [inaudible]
Customer Interest Accelerated, and by March, Vericast Sales gained momentum.
Speaker Change: We're thrilled about the growth, potential, and flare monitoring as we partner with operators and flare developers to develop value that goes beyond compliance, unlocking new efficiencies, environmental benefits for our clients.
Speaker Change: It's obvious that the strategy to grow our data analytics segment is gaining traction. But what is most important is what it means for our stakeholders and investors.
Speaker Change: First, our dashed ribbon strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value.
Speaker Change: Second, our proprietary technologies and superior measurement accuracy establish a high barrier to entry, securing client loyalty and supporting our value-based service model.
Speaker Change: In third, long-term high-margin subscriptions, position Flotek for sustained growth and margin expansion, driving significant shareholder value over time.
Speaker Change: Now looking over the next decade, global energy demands are projected to expand with sustained requirements to 2045, despite the ongoing market volatility and uncertainty in the near term.
Speaker Change: For the first time in nearly two decades, U.S. Electricity Consumption has expected to surge by 15% by 2030, with natural gas poised to fulfill most of this additional need.
Speaker Change: We foresee continued global economic growth, feeling a strong appetite for all energy sources, heightening service intensity across this entire sector.
Speaker Change: And lastly, our chemistry technology segment continues to deliver robust quarter-over-quarter growth driven by the differentiation of our prescriptive chemistry management services and our expanding presence in the UAE, Saudi Arabia, and Argentina as shown on slide at 13.
Speaker Change: Making an even deeper observation, Slide 14 validates the strong performance of the segment as revenue and profitability grew despite the historical trend of the first quarter being sequentially weaker than Q4 and overall market consolidation.
Speaker Change: It should be noted that the anticipated downward pressure on old prices in the second half of 2025 prompted operators to accelerate first half completion activity taking advantage of the higher prices and in turn increasing PCM adoption for enhancing asset value in the first half of the year.
Speaker Change: It's evident that our chemistry team has executed our strategy flawlessly.
Stanley Capture and Market Shared, while creating value for customers.
Speaker Change: While Q2 schedules remain strong, uncertainties around activity levels in the second half of 2025 persist, due to macro factors that could affect the completion of kimchi market.
Speaker Change: However, we remain focused on defining these challenges, delivering differentiated chemistry and data services to provide our customers with industry leading returns on their investment.
Speaker Change: We are confident that our expanding suite of services positions us to deliver superior solutions to a variety of industries most challenging problems while maximizing our customers' value chain. Now I'll turn the call over to Bond to provide a key financial highlights.
Thanks, Ryan.
Speaker Change: Yesterday afternoon, we reported another quarter of exceptionally strong results that builds upon the financial momentum that began in the fourth quarter of 2022 as shown on slide following the presentation.
Speaker Change: On a sequential basis, we increased revenue 9%, net income 21%, and adjusted EBITDA by 11%. As Ryan mentioned, first quarter of 2025 marked the fifth consecutive quarter that we grew revenue, net income, and adjusted EBITDA.
Ryan Ezell: Before getting into the quarterly results, I wanted to touch briefly on a few details with respect to last week's announced data analytics transaction.
Ryan Ezell: Part of the consideration for the transactions included utilizing a portion of the 2024 and 2025 Chemistry Supply Agreement shortball payment.
Ryan Ezell: Utilizing shortfall amounts against the purchase price does not impact our revenues or profitability in any way as we are electing to use the shortfall payments to purchase assets versus collecting the cash.
Ryan Ezell: We do expect to utilize future shortfall amounts to quickly pay down the $40 million note that we took on in connection with the transactions, as there are no pre-payment penalties to do so. Again, no impact to revenues or net income utilizing shortfall amounts to pay down debt.
Ryan Ezell: We fully expect to see our leverage ratio move well below one time as by the first quarter of 2026 through the combination of debt repayment and growth in adjusted EBITDA. For reference, the midpoint of our 2025 guidance implies 80% growth in adjusted EBITDA in 2025.
Ryan Ezell: To put some context around the impact of the transaction, we noted in last week's release that we expected the contract to generate segment operating income in 2026 that exceeds the total company's 2024 adjusted EBITDA of 20.3 million.
Clearly a very accretive transaction for the company.
Ryan Ezell: Even though eight of the 30 acquired assets are not currently generating fixed fee, recurring revenue, we do expect to clearly see the impact of the transaction on our financials beginning in the second quarter. As the assets under construction come online throughout the year, we expect to see continued quarterly improvements in data analytics, revenues and profitability. Thank you very much.
Ryan Ezell: As shown on slide 9, with all 30 assets and service during 2026, fixed fee revenues expected to exceed 27 million dollars.
Ryan Ezell: Moving quickly through the quarter results, revenue growth was led by an 88% increase in external chemistry versus the year ago quarter, international revenues totaled 3.8 million during the quarter, a roughly 250% increase from the 1.1 million in the year ago quarter.
In total, chemistry revenue grew 36% percent versus the year ago quarter [inaudible]
Ryan Ezell: For data analytics, we grew revenue 57% versus the first quarter of last year. Revenues during the quarter were skewed more heavily to product sales, but we also grew service revenues by 30% as compared to a year ago.
Ryan Ezell: As shown on slide 9, with the power tech transaction, we expect to see a big jump in recurring revenues throughout the remainder of the year as the new mobile power generation contract is expected to provide more revenue in 2025 than the entire data analytics segment reported in 2024.
Ryan Ezell: On the SGNA front, as we indicated in our hearing call, SGNA cost during the first quarter declined sequentially, SGNA has a percentage of revenue decreased to 11% in the first quarter of this year, versus 13% in the fourth quarter.
Ryan Ezell: Net income for the quarter total 5.4 million or 17 cents per share. Our earnings per share in the first quarter represented 50% of the total earnings per share for all of last year.
Ryan Ezell: Yesterday, we also provided our initial 2025 guidance on revenue and adjusted EBITDA, which we've highlighted on slide 12 12.
Ryan Ezell: As a result of the strong start in 2025, combined with the impact of the power generation acquisition, we are guiding for continued growth in 2025 on both metrics.
Ryan Ezell: The midpoint of our revenue and adjusted EBITDA guidance indicates 2025 growth of 12% and 80% respectively as compared to last year.
Ryan Ezell: Impressively, using the midpoint of both metrics implies a 17% adjusted EBITDA margin as compared to only 11% in 2024, demonstrating the positive margin impact that the power generation transaction is expected to provide.
Ryan Ezell: It's worth noting that our guidance does reflect a conservative outlook for the second half of the year as it relates to our chemistry business, given the recent commentary from multiple MP operators on CAPEX reductions due to the uncertainty regarding oil prices and the impact of tariffs on the cost of pipe and tubulars.
Ryan Ezell: Touching on the balance sheet at March 31st, we had nothing drawn under ABL. We did collect 15 million in cash related to the 2024 chemistry shortfall penalty during March and paid off the ABL.
Ryan Ezell: In closing, we're excited about the continued growth in our base chemistry and data analytic segments, and we look forward to realizing the very positive effects that the power generation contract is expected to provide over the next several years in terms of very high margin revenue. I'll now turn the call back over to Ryan for closing remarks. Thanks Bond. Thanks Bond.
Ryan Ezell: The first quarter of 2025 results build upon our now multi-year track record of consistently posting improved financials.
Ryan Ezell: Looking at Slide 10, and as I said at the end of last year, I remain convinced we are still in the early innings of Flotek's transformation as we continue to grow and maximize returns for our customers and shareholders across the entire value chain of the energy landscape.
Ryan Ezell: Our transformative and strategic entry into the energy infrastructure sector is expected to provide a significant increase in high-morge and data analytics revenue and cash flow
Ryan Ezell: Through the growth of our upstream applications, we believe the data analytics segment is poised to contribute over half of the company's profitability in 2026.
Ryan Ezell: We have now secured long-term contracts for both our chemistry and data analytics segments, which should provide confidence and Flotek's ability to deliver consistent revenue and profitability, helping to mitigate the impact of commodity price volatility in the near term on our business.
Ryan Ezell: No other company in our industry is better positioned to deliver the cutting-edge technologies needed to tackle unique challenges of the energy and infrastructure sectors. I'm incredibly proud of our progress and confident in our team's ability to execute moving forward.
Ryan Ezell: Given the growth potential for our chemistry and data analytics segments, we see Flotek as a compelling investment opportunity.
Ryan Ezell: Thank you for your continued support and we're eager to share our vision for Flotek's future and looking forward to updating you on our progress in the quarters ahead.
Operator, we're ready to open the floor for questions
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone?
Speaker Change: You will hear prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speaker phone, please put the hand side before pressing any keys.
Speaker Change: Your first question comes from Donald Crist with Johnson Race. The line is now open.
Donald Christ: Good morning, Ryan and Bond. Hopefully y'all are doing well this morning.
Say it. Oh, no.
John: Doing well. I wanted to start on the power tech side, obviously a very good transformational acquisition for y'all.
But it's going to obviously increase Eva Dearn and...
John: Revenue's as we kind of move forward in the 26th, but I was...
Hearings says to kind of third party demand.
John: On this side, I mean, obviously all those trailers are working with ProFract today.
John: And once they're all delivered in in kind of early 26
John: Just curious as to, you know, how fast you can expand that to third parties and, you know, take over construction of that, all those trailers moving forward.
John: Yeah, Don, that's a great question. And in reality, what is probably the basis of some of the most exciting things that we have going on here at Flotek?
John: is that we've been testing the Verax on almost 10 external or additional customers besides where we have the long-term contract now.
and getting great results.
John: and what most of them have been telling us is they still don't have that fold into in solution even though we're able to monitor the gas for them on their current things they're trying to test now. So what this offer is for us to go back to them is that hey you've been you've been really just our barracks to monitor the gas quality. Now we have the full solution.
John: So we expect some pretty rapid uptake. You know, we're looking at what we're, you know, kind of going forward.
John: We may discuss a little bit further in future calls on what we'll be spending on Capix to build additional units because
John: I can't tell you that we put in excess of 15 additional verax units to other customers in the last quarter at testing gas quality for remote power operations. So we expect some solid opportunities there going forward.
John: It seems like a very good opportunity for y'all and I wanted to shift over to the to the customer transfer obviously that's a very big market.
Speaker Change: for the direct sensors, and eight, you know, pilot locations are convert and over. Just curious as to, you know...
Speaker Change: customer demand and how many other pilot locations you have going right now and you know where you think.
Speaker Change: from a censored count you could get to maybe by the end of the year as kind of those pilot locations transfer over to a monthly revenue and it grows from here.
Speaker Change: Yeah, you know, I would say that, you know, we mentioned around, we have the eight units that only with that one single EMP operator right now that are converting essentially in this month in the revenue streams. They have an additional...
Speaker Change: I want to say 14 verified putting into bases now. Five of those are on location. The other 11, we're finally validating where the install sites are.
Speaker Change: We've got, you know, probably up to 10 additional customers that we're moving those forward to.
Speaker Change: and as a matter of fact, our team, including Tom Redlinger, is in the Middle East right now.
Speaker Change: Validating where we are on the pilot locations into additional countries there in UAE and Saudi and Saudi Arabia.
Speaker Change: So, we do expect the UAE contracts to come online by mid-year. You don't want to conserve us, I may be sooner. And, you know, I really believe that is we're reporting more and more than the people start to understand.
Speaker Change: The Enterprise Value, that this is creating. This thing is going to see a rapid uptick. I do believe we've started looking at from the capital investment side around, you know, this is driven by our new generation measurement unit, the expect unit, which is the third generation. This is going to be the third generation measurement unit, and this is going to be the third generation measurement unit.
We've advanced building those in our facility in Austin.
Speaker Change: to meet this demand. But I do think we're going to continue to see that probably growing a much sharper than linear fashion in the back half of the year. So it's probably overall Don, you know, I know we talked about the power generation side. I have such an immediate impact.
Speaker Change: Um, and we'll continue to be from you look at the energy growth, but I do believe that
Speaker Change: Still all in all, when you look at the enterprise value and the market size for custody transfer it still continues to be the longer to grow, but the still the biggest market that we'll get in the upstream data analytics part of the business.
Speaker Change: I totally agree with you and and if I can sneak in one more on the external chemistry.
You know, you had a huge uplift in international sales.
Speaker Change: Just curious, you know, that's obviously much more stable than the US market as we kind of have them flow here in this environment, but just curious as to where you think that international market.
Speaker Change: Can go in the coming years. Obviously you have some pretty big customers over there and don't know kind of how many you're with today versus what you think you can get to in the future.
Speaker Change: So, I would say, you know, when you look at the international spread, a big majority of hard revenues obviously focused in the Middle East, particularly in Oman, on Arab Emirates and Saudi.
Speaker Change: with the consistent N.O.C. customers you see there, with AdNog, a Ramco.
Speaker Change: Nestor Halliburton, the general trends that we use there.
Speaker Change: I do think, and I can get by in the comment on the percentage numbers, but we will see a material increase your own year in international revenue.
Speaker Change: and I think it's going to be relatively stable. You've seen where Saudi Arabia is adding additional frag leaks and the growth there. We've got our proof slip water system and the mega tender that's been coming out and Adinock will be released in the back part of this year.
Speaker Change: and we are the preferred chemistry supplier and approved technically for the majority of a lot of the specialty chemicals on the traditional acid and carbonate type stimulation solutions. And so I think we're going to see just that consistent, steady, profitable growth.
Ben and Millie, so over the next-
a couple of years, I do believe.
Speaker Change: The Latin American business is interesting because most of it is around Argentina, around our country with our completion chemistries.
Speaker Change: and we're monitoring that. Our big thing there is to make sure that we ensure payment cash flow for that market, but I think it's a great opportunity. Leon and his team are doing a phenomenal job of pursuing that work, what I think is an effective cash flow matter for how we're going to grow our business.
Speaker Change: I appreciate all the color. I'll turn back to the upper. Thanks, guys.
Yep.
Speaker Change: Your next question comes from Jeff Grap with Northland Capital Markets. Your line is now open.
One of guys
and I want to circle back.
Speaker Change: We want to circle back on power tech here. Can you touch a little bit on the competitive environment? What are the main incumbents?
Speaker Change: And then one of the confirming your prepared remarks that think you mentioned a 500 unit kind of tam and North America, I just want to make sure I understood is that kind of specific to the oil and gas market, is that a broader definition of the industry just to make sure I kind of understand the market opportunity you guys see over the next couple of years.
Speaker Change: Yeah, so I'm going to try to, you know, you've talked to me many times if I'm going to try not to fall into my technology definition or all these gaps, right? But you got a lot kind of unpacking that question. So looking at the initial assets that we have during our proprietary verax measurement technologies that we just acquired, they are 100% patented differentiating. [inaudible]
Speaker Change: Turnkey operation for not only detecting out-of-spec field gas, but also safely conditioning it and optimizing the fuel flow to whether you're looking at a turbine, fuel fuel engine or whatever you've got in operation. So it doesn't matter if you're looking at
You know, Energy All-Fill Services, if you were looking at
Speaker Change: The solving the constraint of why data centers haven't grown from field gas because they'll need to be able to control and monitor the volume and create a value wish how to pay the entities.
Speaker Change: It solves all of these problems, even on the grid power support whether you're going remote or not. When we look at some of the other assets that we're looking at, and there's nothing really to compete with these things, it's the pull term key solution.
Speaker Change: What does exist right now is something similar to what we were talking about, where we were looking at our smart filtration skids There are current what we call knockout filtration units out there that can detect What does that mean?
Speaker Change: Big volumes of liquids or they use almost like a JT skid and that they use a pressure drop to drop out some of the heavier hydrocarbons and try to stabilize the BTU, but they can't real time monitor it. They can't condition it.
Speaker Change: They're almost just like a heavy duty filter. And so even our smart filtration skis will be an advancement compared to them differentiated. So our high-level ESDs and veraxes, there's nothing really to compete with them. They're differentiated premium price technologies for any application.
The
Speaker Change: We look at the smart skis, we were targeting most of those will be
All fill locations because you need a smaller footprint.
Speaker Change: to get on location and just that first backup to knock out something that could damage whether you're looking at a gen set or turbine or engine, whereas the other units like these can operate anywhere and it's a much, much, much larger market for those than just all field surfaces. At that, there's a little, you know, the clarity you're looking for.
Speaker Change: Yeah, that's, that's perfect, right? And is that kind of what that 500 unit number represents with respect to kind of the Caminam market? The 500 unit is more, yeah, the 500 unit is mostly just domestic oil and gas. Like when you're looking at rig power or frack power only, not counting that it doesn't address industrialized.
Speaker Change: Grim Power Support, AI Data Center Support, or any of those like what the ESDs can do.
Speaker Change: Okay, perfect. That's great. In other words, it's a much larger market when you pull all of it together.
Speaker Change: Yeah, definitely understood. Okay, great. And then one of the circle back, Ryan, you kind of wrapped up the prepared remarks on slide 10, which I thought was a really cool slide and kind of laying out the longer-term opportunity. I'm curious, I know this doesn't all happen.
Speaker Change: overnight. But what do you see, Ryan? It's kind of the next one or two steps. You know, we get the power tech assets close and integrated. What's what's kind of next for Flotek in that schematic in terms of other, I guess kind of end markets or opportunities you guys are excited about.
Speaker Change: Yeah, you know, you know, how I talk in general terms, I'm always about executing these small steps as part of our multi-phase strategy that we talk about.
Speaker Change: Slide 10 references the overall view of the runway that Flotek is on, so there's no doubt we're going to make a hard impact where you see power take, notated around data center power, grid power, and we call energy services, oil field service power generation.
Speaker Change: The next step for us that we really see focusing is upgrading more of our real-time instrumentation along this value chain from coming out from chain and custody.
Speaker Change: When we can do that, you essentially have a company that can design your completion.
From the chemistry side, monitor the chemicals going down hole
Speaker Change: Once the well comes online, we leave and expect you that monitors the quality of production coming out in the additional assets that we'll put to look at the aqueous phase monitoring gives us.
Speaker Change: The ability to run production chemistry in real time, which opens up a $6 billion market just on the domestic side alone with a differentiated service offering.
Speaker Change: You'll start to see, I'll start just feeling the gaps along here, but I think our real-time monitoring based out of custody transfer and moving in the production chemistry direction will be the next [inaudible]
A big phase that we move into.
Speaker Change: This holistically, you know, Jeff, with the long-term strategy of racism, we're creating an industrialized chemical and data company that can manage the entire energy landscape. If you need to monitor anything related, using chemistry as a platform. And so we think that makes it a massively valued
Investment Opportunity for the market.
Speaker Change: and more importantly, you can see the impact that is having an on an addressable tam for us, right? And that where we started out, when we put the strategy in place, we had about a $2 billion tam, it's opened up to more than $13 billion and that's just talking domestically. Not even, not talking about what we may be able to do internationally.
What's most exciting about it is? [inaudible]
Speaker Change: All of this growth we're talking about would take place if they stopped drilling today and we didn't complete anymore wells because all the stuff is only effects and energy support may escape. And so that's really exciting for the long-term investment in Flotek.
Speaker Change: That's really helpful, Ryan. I appreciate all those details and I guess this time.
Thank you. Bye.
Speaker Change: Your next question comes from Jerry Sweeney with Roth Capital. Your line is now open.
Good morning, Ryan Bond, Mike. Thanks for taking my call.
Speaker Change: Hey Jerry, I want to start with data analytics and then like everybody else, we'll shift over
Speaker Change: Power's Market. But on data analytics, obviously, what are the queries you've been working on? And [inaudible]
Speaker Change: It sounds as though there's a little bit of a longer sales cycle there. Just curious, what can open up that market a little bit? Is that getting a couple, maybe anchor investors, proof of concept or any thoughts on that front? [inaudible]
Yeah, so I think it's, you know, technically...
Speaker Change: You know, when you'd have been talking about this for over a year, you've seen us steadily pull forward. We feel like it's going to be the impact from custody transfer. At a point in time, I would say at the beginning of 2024, we had not completed building the expect even in the full production yet.
Speaker Change: and now that we've gotten there, and we've actually filled proof in the unit, we're starting to see this opportunity and custody transfer.
Speaker Change: Significantly Accelerate. We mentioned then Q2 last year that we were targeting trying to get.
Speaker Change: Five to eight pilot sites. We're now at over 20 and those eight are converting the full-time DAS revenue. And this is like you're telling me this is that proving
Speaker Change: Use Case by a large proven EMP operator that we think is going to drive significant impact.
Speaker Change: We do believe that our international pieces will have secured by mid-year is going to drive impact in terms of use case understanding. And right now I think the biggest hurdles we've kind of crossed is that number one, they want to ensure that.
Speaker Change: You know, honestly, we're seeing such a monumental variance in most of these sites that we test.
Speaker Change: The operas sometimes are like skeptical and that they bring GCs out to location to test, we've always tested within 1% or less variance from a GC.
Speaker Change: Right then, the operators are just taking back and that while you've got, we're getting a measurement that from...
Speaker Change: That unit, this is accurate as our GC, we're getting in every five seconds [inaudible]
Speaker Change: and there's a trust bill there. And then they're starting to realize, we're seeing this potential on one site and we have thousands of these. You know, what you know now is transition from a localized base and operation that the complete enterprise value for the whole company.
Speaker Change: and so we do believe those will really start to accelerate. The biggest risk still for us is helping them understand.
It's easy selling these on new wells, like almost everyone these applications are on a new well.
Speaker Change: The ones where they're still hesitant is putting it on old producing wealth because there's still some potential concern on opening the back door and a liability on someone being underpaid.
Speaker Change: You know, and that's probably the most inertia that we have right now [inaudible]
Speaker Change: and it works out pretty well because we're the unbiased view on that between the operating and resource or the Indies Fire.
Speaker Change: So, but all in all though, I do believe it's just there's just too much enterprise value, Jerry.
Speaker Change: for the whole oil and gas industry to provide this level transparency for it not to grow and move forward. I mean, Warren Buffett even commented, and, unless years ago, the sooner or later, you see such a measurement level of automation that it removes all the snake hole measurement out of it, right? It'll be completely understood data.
Speaker Change: and we want to be the tip of the spiritual innovation side doing that. So I think that we're going to start to see this thing really get critical mass sooner than later, honestly.
Got him. And on the power gen, say, side.
Speaker Change: A lot of information has been thrown out there, I apologize if this was sort of a writing thinking...
Speaker Change: You know, trying to do a couple things here at the same time, but, um...
Speaker Change: Now that you have the assets, and this may not be solidified, which I understand, but, you know...
Speaker Change: You know, going forward this year into next year, I mean, do you need to add salespeople, how do we think about how the opportunity not only develops but you sort of build the scaffolding around it?
Speaker Change: Yeah, that's another solid question in terms of. We look at it very much similar when you look at the power tech component, very similar to what we've done with our chemistry business. We want to create a push pool mechanism.
In that, there are some of the larger entities [inaudible]
Speaker Change: that have enterprise value around selling field gas for the data center components or selling field gas or grid power, etc. that we work directly with provide these assets for the total turnkey solution no matter what it's doing.
Speaker Change: There's also some channel partners for lack of better term that we'll work with.
Speaker Change: that are all on site doing particularly in the energy service design.
Speaker Change: that we will provide the technology to as part of their service to sell to pumping companies or people who are providing mobile turbines or things of that nature. So we want to work with both, right? We want to be...
Speaker Change: Partners with people who are doing a lot of field services where we provide the patent to technology on a service or a data service type mechanism. And then there will be some of these EMP operators who have large install projects.
particularly focused on
Speaker Change: We can solve a lot of problems for what they've seen in the past around data center support.
Speaker Change: or Grid Power by inconsistency of gas, how to pay people, how to value it, and all those, we can solve those problems and we'll work with the MPGAS Direct. So, depending on what the customer is, we have a little bit of a hybrid business model that we hope creates the push pool mechanism.
Speaker Change: This works the same way on chemistry side is, we work with the NPR operators to get a better reservoir
Speaker Change: In terms of how it produces, we work with the pump and companies to get effective output from their pump and equipment with how we look at friction reducers, service quality, tank configuration, real-time monitoring, things like that. So we're going to create a very similar, I would say ecosystem on the power text out of business.
Speaker Change: And on the sales control, we've already started adding, we've already started adding sales force on the power tech side.
Speaker Change: Got it. Would it be fair to say on the, on the power tech side, you know, you enable some of the gas providers or equipment providers, the ability to sell to the data centers, you're given, you provide that certainty of
Quality of gas and uptime, et cetera.
Speaker Change: Yeah, a lot, when you look at, you know, a lot of these data centers, you look at what they're going to do in Texas, right? Or even just electricity demands of Texas to grow, you've got this gas stranded in these remote locations, it comes together in sites. And so one of the two of the big problems that they've had,
Speaker Change: is number one, when you look at just the pure quality gas, they can't necessarily handle the liquids or they can't handle the BTU fluctuations or anything at nature to basically optimize the fuel to the optimized BTU so that you get the maximum life. [inaudible]
Out of the PowerGen devices, right?
Speaker Change: Yeah. Our technology uniquely solves that. But more importantly is, even if they could do that, was they haven't been able to successfully, even if they could do that, they can't meter and value the quality of all the different gases that are co-mingling coming in.
Speaker Change: to the combined point for the data center. And so we can actually give that actual royalty payments accurately to all the people who are supplying gas, which is always problematic too. And so this really unlocks a lot of the past constraints are really making this successful.
Speaker Change: Um, and not to mention is that it has a backup capacity to where if you get a bad point of field gas
Speaker Change: We can automatically actuate off your smartphone, close it, and make it run off, compress natural gas as you can have an emergency tank while you fix the field lines. So it just offers a unique solution that's just not currently out there. It really does some amazing things.
Doddett, I am...
Speaker Change: That's super helpful and I appreciate that tutorial, so I'll drop back in line [inaudible]
Speaker Change: Your next question comes from Gouchy Shreharan with SRI Singular Research. Your line is now open.
A, thanks Bob. Okay, hear me. Good morning.
Speaker Change: Yes, we've got to give them the growth in the international markets.
Speaker Change: How are you seeing whether the impact on tariffs will have any you wouldn't need any external partners or investment in local suppliers?
Speaker Change: Yeah, so it's a good question and it technically speaking is you know when you look at
The way we've been constructing...
Speaker Change: Flotek to be able to manage cycles and changes in commodity pricing and geopolitical environments is that most of the
Speaker Change: Chemicals that we're supply to international markets, we are buying manufactured in country or from partners over there to want to improve our in-country manufacturing, whether we're looking at Iktiva and the other localized country sourcing that we see in the UAE. So we're definitely doing that in terms of just what's required is table stakes to operate those countries.
Speaker Change: But more importantly, we are running consistent inflationary and price changing impacts based on what we see of tariffs of what country we buy and some of this little bit of shift we're seeing.
Speaker Change: There's no doubt though, we've seen, we are experiencing some, let's just say the industry is experiencing some supply chain disruption. I do believe that we're positioned in place to outperform on a lot of our cup competitors in that because...
The team here, Flotek, comes with a-
Speaker Change: You know, a massive amount of experience in the background. We've kind of done a lot of this before and we were really preparing for this potential shift that we're seeing right now. So, but there is no doubt it still calls a little bit headaches, it still calls a little bit of time and problems, but I think, you know. So,
Speaker Change: We've taken some really strong steps to put guard rails in place so that we get maximum benefit from in-country manufacturing, blending, and how we source the materials depending on where we are on the globe bringing operations.
Speaker Change: And I think you've alluded to in the past that there's been some bureaucratic hurdles especially in the Middle East. As we move forward and I think you've kind of become a proven commodity.
Speaker Change: that the margins and the lead times get shorter as we move into flight 26.
Yeah, you know what, I think that, um...
Speaker Change: There, you know, anybody that's dealt in our international markets knows if you're dealing with particularly countries in the Middle East, there's constant pressure on the commoditization of the systems and the margins. However, is one of the unique things that we do on the chemistry side is we're constantly evolving our product mix.
Speaker Change: and how we address those, but I do, but you are correct is that as
Speaker Change: You establish maturity with these operators, there is an expectation of...
Your nimbleness and ability to shorten lead times
Speaker Change: We've actually been working with some local partners there to create that critical footprint force as our revenues growing in those areas.
Speaker Change: And I think that as we continue to grow, we'll look at making, we created our local entities in the UAE and what we're doing there, laboratory-wise, storage-wise, team-wise.
Speaker Change: I do believe as you start to see business for us growing Saudi, that eventually we'll have to convert to potential local entity there, different pieces but...
Speaker Change: There's no doubt on our planning phase out looking at what we're doing on a budgeting aspect. We have those scenarios built in, sure we're able to execute. It's just a matter of timing for that time.
Speaker Change: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Josh Jayne with Daniel Energy Partners. Your line is now open.
Josh Jane: Thanks, good morning. First question, just going back to the power gen inside. I want something you could talk about the transaction a bit more. Obviously, the EBITDA and the accretion and the backlog they all make sense.
Speaker Change: Ryan, could you speak a little bit to why these specifically were the right assets and why this was the right time today to get into that business?
Speaker Change: Yeah, so we're up. There's a couple of things there. I'm going to go all the way back to, you know, Warren.
When we first agreed to bring in...
Speaker Change: ProFRAC is a specific partner with us and we signed the long-term supply agreement.
Speaker Change: We talked a lot about the potential advantages of having a large partner like what they are in terms of there was no alignment with weird and technology that advanced company focused
Speaker Change: That handshake between total cost of ownership, environmental stewardship and technology, right? There's a similar DNA pattern that we see with an operator like ProFract in terms of the amount of
Speaker Change: Tier IV dual fuel, electric fleets, the direction they were wanting to go with their operations.
Speaker Change: So this goes back almost two years, some of the initial discussions I had with leadership's team there of we provided verax is for pilot testing on developing this field testing and operating this equipment and overall development and intellectual property development around it.
because we were looking at, we recognized it.
Speaker Change: You know, these were going to be really big potential solutions most of it to reduce emissions in environmental footprint because the first time we tested the equipment on location.
Speaker Change: The first big site we did, we prevented 1.2 million gallons of diesel from being burned and it was all driven towards that direction. And now, if you've seen the electrification demands and all things come
Speaker Change: to the United States. When we're seeing globally, you see the transmission and distribution line degradation and age that there's going to be a significant need to help balance this out. It was a natural transition.
Speaker Change: You know, for us, it was because the driver of the success of the equipment is around the technology, the automation, integration.
Speaker Change: The Viper's software, different pieces, so it made natural sense for...
us to discuss with Profract, acquiring. [inaudible]
Field-proven, differentiated patent technology to bring over a tariff.
our
Speaker Change: and, you know, stable and grow it out until the point of the business because [inaudible]
Speaker Change: There's a lot of other operators like ProFract and Need Disequipment [inaudible]
Speaker Change: and I think we have relationships with those operators to grow it.
Speaker Change: We also sell chemicals to some of the MP users that can apply this technology to provide natural gas to data centers, or grid power operations, etc.
Speaker Change: And when you look at, even last year, you look at, you know, we our stock performed really well on the growth in our data and chemistry businesses combined. But the stocks had outperformed us, made transitions in supporting.
Speaker Change: Almost an industrialization pivot to supply and grid support and it was a natural step for us and I think the timing works well This bike the little bit of near-term volatility we're seeing a commodity pricing this shift is to get us a weight
Speaker Change: We're filling that volatility right to make it more stable, to make it more predictable and drive data-driven EBITDA. So, I hope that kind of gives a little color about why these figure assets because they're differentiated, they're patented.
Speaker Change: They're driven by decisions driven by our data management, and so we were very familiar and it was, you know, when it was easy, it was an easier piece for us than necessarily doing it all organically because we had a great partner to work with on the development side.
Speaker Change: No, for sure, that's very helpful and then the last question that I have is just when we think about I think he's talked in the past. [inaudible]
Speaker Change: Yeah, throughout your time at Flotek, it's been sort of on a shoestring budget, minimal cash flow and then, you know, with the results that you're projecting in the free cash flow you're seeing, you're going to definitely have more of an opportunity. [inaudible]
Speaker Change: to grow that way. Could you just talk through with all the balls in the air the importance of.
Speaker Change: Building out the bench across the different sub sectors and just how you're thinking about, you know, Flotek over the next couple of years as a full organization and just your strategy and how to execute on all of the different things that you guys have going on. That would be great. Thanks.
Speaker Change: No, I mean, I think, you know, and I'll let Bard come in some of these parts, so I don't get too far out of my skis But, you know, in my opinion, you know, our whole point was we want to get to a point to where the first thing was
You know, the Pascalier Stabilized Business.
Executant, what we told the market, we're going to do it.
Speaker Change: Growth Chemistry, it hands our day to business, and then get to where we start generating free cash flow. That's the big part.
Thank you.
Now, we're getting a stabilized position to do that.
Speaker Change: We have definitely a series of ranked and importance and financial impact investments in CAPEX and growth that we'll be focusing on.
Speaker Change: to even accelerate that cash flow more. So we will definitely be making, I would say in this year we're going to spend more more CapEx than we had.
Speaker Change: Probably the last three years combined. And then in 26, that'll continue to move as we build more YSDs, more smart filtration, build more expect units, because there's no doubt that those finishes are going to grow. But on the grand scheme of things,
Speaker Change: Building these monitoring units are significantly cheaper than by Victor Barnes So I am I think we're staying in the wheelhouse of where we're significantly differentiated and we will help try to maintain a clear balance sheet because [inaudible]
Speaker Change: We still don't want to build up a significant amount of leverage on the business, that's just
Speaker Change: Bond, I don't know if you like. Yeah, I mean, that's sort of the beauty the way we structured the transaction where we're able to utilize these shortfall penalties that, as you guys know, accrue every month, but the only settle annually. So we use the shortfall penalty as part of the initial consideration from a, you know, quote-unquote cash.
Cash perspective, but also in terms of paying down the debt and so what we've effectively done is we've traded. We've traded.
Speaker Change: A crude revenue over a 12 month period for monthly recurring realized revenue to the tune of about over $2 million a month. So it's going to give us a lot of dry powder to continue to invest in the business and utilize free cash flow to get you to grow out other the ports of the business.
Speaker Change: And the great thing is, is all these assets, we build them based on demand. We get relatively fast turnarounds, expectations are lies are usually less than four months.
Speaker Change: and most of these kids at market rates were paid off periods in less than a year. I think it's a great spot for us to be in right now to grow this business.
Appreciate all the information. Thanks, y'all. Congrats Thanks.
Yep, thanks.
Speaker Change: There are no further questions that this time I will now turn the call over to Ryan Ezell for closing remarks.
Ryan Ezell: Yeah, I want to thank everyone again for joining us as we were able to convey, you know, one of our performance.
Ryan Ezell: in the first quarter of 2025, our recent acquisition, and our confidence in the future and the vision here at Flotek. We'll be participating in the Louise and Energy Conference on May 27th through 29th at the four seasons New Orleans. So please secure your spot. You can get that with us there and other than that, thank you for joining us today.
Ryan Ezell: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in SA Police Disconnector Lines.