Q3 2025 Flotek Industries Inc Earnings Call

Speaker #3: Good morning , ladies and gentlemen , and welcome to the tech industry . S third quarter 2025 earnings Conference call . At this time , all lines are in .

Speaker #3: Listen only mode . Following the presentation , we'll 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 #3: This call is being recorded on Wednesday , November 5th , 2025 . I would now like to turn the conference over to Delbert Rose .

Speaker #3: Please go ahead .

Speaker #4: Thank you and good morning . We're thrilled to have you with us for third quarter 2020 Earnings Conference call . Today , I'm joined by Ryan Ezell Chief Executive Officer and Bon Chief Financial officer .

Speaker #4: We will start with prepared remarks covering our business , operations and financial performance . Following that , we will open the floor for questions .

Speaker #4: Yesterday , we announced our third quarter 2020 results and an updated earnings presentation . Both of which are available on the Investor Relations section of our website .

Speaker #4: This call is being webcast with a replay available on our website shortly after its conclusion . Please note that the comments made on today's call may include forward looking statements , which include our projections or expectations for future events .

Speaker #4: Forward looking statements are subject to a number of risks and uncertainties . Many of which are beyond our control . These risks and uncertainties can cause actual results to differ materially from those projected in forward looking statements .

Speaker #4: We advise listeners to review our earnings release and most recent 10-K and 10-q filings for more complete description of risk factors that could cause actual results to materially differ from those projected in forward looking statements .

Speaker #4: Please refer to the reconciliations provided in the earnings press release and investor presentation as management will be discussing non-GAAP metrics on this call .

Speaker #4: With that , I will turn the call over to our CEO , Ryan Ezell .

Speaker #5: Thank you . And good morning . We appreciate everyone's interest in Flo Tech and for joining us today as we discuss our third quarter of 2020 .

Speaker #5: Five operational and financial results . In the third quarter , we saw North American operators maintain the cautious posture initiated in the second quarter as they continue to navigate the return of Opec+ spare capacity and persistent global trade uncertainty .

Speaker #5: Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market , the flow tech team remains steadfast at the execution of our corporate strategy , driving transformation and delivering our 12th consecutive quarter of adjusted EBITDA improvement .

Speaker #5: As referenced on slide four , Flow Tech extended its track record of transforming the company into a data as a service business model .

Speaker #5: Is our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company . Furthermore , we increased market share in both of our complementary business segments with an unwavering commitment to service quality and value creation for our customers and shareholders through the convergence of innovative data and chemistry solutions .

Speaker #5: With that , I'd like to touch on some key highlights for the quarter referenced on slide seven . That bond will discuss later in the call .

Speaker #5: Total revenue during the quarter rose 13% versus third quarter 2020 . For , highlighted by a 232% increase in data analytics revenue , which is our strongest quarter ever and a 43% increase in external chemistry revenue .

Speaker #5: Gross profit climbed 95% versus third quarter of 2020 . Four , with third quarter 2025 gross profit margin rising to 32% . Net income totaled 20.4 million , while adjusted EBITDA was up 142% versus third quarter 2024 and up more than 20% sequentially .

Speaker #5: On October 29th , 2025 , tech announced that the Expect Analyzer was the first optical spectrometer to comply with oil and gas custody transfer standards , known as GPA 2172 .

Speaker #5: Further empowering our ability to build high margin revenue backlog in the data analytics segment . Finally , we increased our 2025 total revenue and adjusted EBITDA guidance ranges by 6% and 3% , respectively .

Speaker #5: Above all , these milestones were achieved with a lost time . Incidents in the field of operations . I also want to spotlight our differentiated prescriptive chemistry management service team , which has remarkably maintained over 3500 days with no OSHA recordable or lost time incidences .

Speaker #5: You combine that with the recent achievements and MTI . In the third quarter of 2025 saw Flow Tech achieve its lowest ever score in company history .

Speaker #5: I'd like to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results .

Speaker #5: Now , turning to the larger picture for the energy and infrastructure sector shown on slide nine , we share the manage point that the fundamentals for hydrocarbon demand will continue to grow over the long term .

Speaker #5: Substantial investment will be required to maintain current production levels , much less to increase production sustainably to meet expanding requirements of power demand driven by AI data centers and industrial reshoring .

Speaker #5: Combined with the reliability issues of an aging transmission infrastructure as our legacy , pressure pumping customers diversify into the power generation business . The capitalize on this demand opportunity , Phototheque is poised to support them and emerging customers with products and services that help protect their investment in power generation equipment .

Speaker #5: With multi-year waiting lists for turbines and reciprocating engines protecting these capital intensive investments is critical . Along with enabling reliability standards that exceed the greater than 99% uptime requirements .

Speaker #5: With this outlook in mind and referencing slide ten , I've never been more invigorated about Flow Tech's future as we strengthen our position as a technology leader , spearheading innovation and delivering tailored data and chemistry solutions that meet our customers specific needs .

Speaker #5: We are committed to shaping the industry's digitalized future by leveraging chemistry as the common value creation platform . Now , let's dive into details referencing slide 11 of the Earnings Investor deck .

Speaker #5: To date . I want to spotlight the remarkable progress in our data analytics segment , which saw service revenues increase 625% in Q3 2025 versus Q3 2020 .

Speaker #5: For elevating gross profit to 71% in Q3 2025 versus 44% in the same quarter a year ago . This transformational growth in data driven service revenue is empowered by three upstream technology applications power services , digital valuation , and flare monitoring , all of which are fueling significant advancements for our organization .

Speaker #5: While generating recurring revenue backlog . The first is our transformative power Services , which has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call Powertech .

Speaker #5: What began as advanced analytics has grown into a comprehensive end to end fuel management platform , redefining performance standards and operations within the sector .

Speaker #5: Looking at slide 12 . At the heart of Powertech is our Verax analyzer , which goes beyond data collection to deliver custody , transfer or grade measurements .

Speaker #5: It provides precise BTU, methane number, and volume reporting for royalties, invoicing, and performance guarantees. Complementing this is our patented ESD trailers, which actively remove liquids and contaminants, conditioning high BTU hydrocarbon feeds to meet exact turbine or engine performance.

Speaker #5: Specifications . Because every site in grid condition are unique , we have integrated Coriolis metering , automated CNG blending , and seamless backup connections , allowing operators operators to switch fuels or go off grid with a single button .

Speaker #5: Resolving major constraints to development of data center and grid power infrastructure . But Powertech is more than just technology . It's about control operators interact effortlessly through an on trailer HMI or a unified web portal that is accessible on desktop , tablet or smartphone .

Speaker #5: Our cloud based portal enables the monitoring of live BTU trends , H2's alerts , Coriolis Flow meter readings , and automated CNG blend controls combined with custom alarm thresholds to automatically isolate all spec hydrocarbon feeds and protect high value turbines or engines from catastrophic damage , thus minimizing downtime and operational risk .

Speaker #5: While enhancing safety . All data flows securely through our patented edge to cloud pipeline , ensuring zero manual intervention . End to end encryption .

Speaker #5: Full audit trails , and compliant custody transfer record keeping . Finally , our over 35 data analytics patents position flow tech as a leader across the natural gas value chain .

Speaker #5: When considering our capabilities for advanced fuel blending , zero emissions analytics , custody transfer grade flow , cell measurements , wireless ESD actuation , and secure edge to cloud data transmission , we deliver unmatched monitoring , control and safety for field gas operations .

on October 29th. 2025, flowtech reported a historic milestone in natural gas measurement.

The expect spectrometer became the first Optical instrument to achieve the stringent reproducibility and repeatability, requirements of the oil and gas industry standard for custody transfer GPA, 2172 and API 14.5.

The expect measurement unit is designed to enable more accurate, volume and compositional data. Thereby delivering greater transparency for royalty owners operators, and ministering companies than traditional methods.

We believe the XX speed, accuracy durability and qualification under the rigorous measurement. Standards, outlined in GPA, 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand its manufacturer and field employment.

Let's move to our third Upstream application, the veric Cal flare monitoring solution.

We continue to see operational demand in the third quarter of 2025. As we navigate, the rapidly changing regulatory landscape by partnering with operators and flare developers to deliver value. That goes beyond, just compliance it unlocks new efficiencies and environmental benefits to our clients.

It's clear that our transformational strategy to grow the data analytics segment through Upstream applications is gaining traction.

But what is most important is what it means for our stakeholders and investors.

Our Dash driven strategy, ensures predictable, recurring revenue and cash flow, delivering, stability, and long-term value.

Our proprietary data. Technology is a superior measurement. Accuracy enabled, velocity and decision control. That establish a high barrier to entry secure client loyalty and support our value based service model and longtime High margins subscriptions position flow tech for sustained growth and margin expansion.

Driving significant shareholder value over time.

And lastly, our chemistry technology segment continues to deliver robust performance during the differentiation of our prescriptive chemistry Management Services and our expanding International presence.

Slash 17 underscore is the resilient performance of our chemistry segment with 54% growth and external chemistry revenues and 21% increase in total chemistry revenues were 3 months ended in 2025 versus 3 quarters in or 9 months. Ended 2024

despite a 24% decline in active practices, during the same period,

The remainder of 2025.

We do see indicators for cautious, optimism in 2026.

This presents a strategic opportunity to expand our market share by accelerating the adoption of our prescriptive, chemistry Management Solutions and enhancing asset value for our customers.

It's evident that our chemistry team has executed our strategy flawlessly, despite the near to medium-term headwinds while uncertainties around near-term activity levels persists due to macro factors that could affect the completion chemistry Market.

We remain focused on defining these challenges, delivering, differentiated chemistry and data services to provide our customers with industry-leading returns on their investment.

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

Thank you, Ryan. Good morning, everyone.

I'm excited to discuss our third quarter numbers released yesterday afternoon.

Our results were positively impacted by the first 4 quarter of cash flow contribution from our power Tech assets.

The 6.1 million in powerjack revenues. During the quarter drove, a 50% sequential increase in data analytics Revenue.

Data analytics, gross profit, margin total 71% during the quarter. That was up 800 basis points, sequentially as gross margins relative to the Powertec assets, specifically came in at 89%.

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

as shown on slide 11 in yesterday's deck. Since closing the acquisition in April, our Powertech assets are a clear Catalyst for margin and profitability expansion driving improvements not only within the data analytics segment but also at the corporate level

Emphasizing powerex impact and is shown on slide 6. During the third quarter of last year, the data analytics segment contributed just 13% of total company growth profit versus 35% during the third quarter of this year

as a reminder, based on the contractual terms in the lease agreement, Powertech revenues in 2026 are expected to be north of 27 million or an approximate 70%, increase from 2025.

so, we fully expect these assets to be a significant part of our 2026 results,

Looking at the quarter Revenue during the quarter was up 13% from the year ago and as Ryan said, was driven by the data analytics segment.

As compared to the year ago quarter, we saw a massive increase in service revenues driven by power Tech.

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

in addition third quarter revenue from the data analytics segment equaled, the entire segment revenue for all of 2024

during the quarter total chemistry revenues were flat versus the 24 quarter. But on a year-to-date basis, as shown on slide 17 total chemistry sales are up 17% from last year.

More importantly, we have made substantial progress in diversifying. Our chemistry sales, excluding the chemistry order shortfall penalty, showed that 53% of third quarter 2025 chemistry sales were to external customers, up from 35% in the year ago quarter.

As it relates to International sales, they total 10 million through the first 9 months of 2025, which is up about 122% from the year ago period.

Sgna cost during the quarter were up versus the third quarter of last year due to higher Personnel costs, including stock comp, as well as increased professional fees. Some of which are related to the company's first time requirement for an integrated audit.

On a percentage of Revenue basis GNA was 13% this quarter versus 11% in the year ago quarter.

We do expect GNA to Trend down in the fourth quarter as compared to the third quarter.

Net income from the quarter total, 20.4 million or 53 cents per diluted share as compared to 2 and a half billion or 8 cents per share in the year ago quarter.

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

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

as shown on slide 8 during the third quarter, we continued our streak with respect to Growing adjusted evida

Is running more than 110% higher than the 9-month 2024 period.

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

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

The midpoint of our revised guidance implies 2025 Revenue, growth of 19% and adjusted. EBA growth from 85% as compared to last year.

Again, using the midpoint of both metrics, it implies a 17% adjusted Eboni margin for 2025 as compared to 11% in 2024. Further. Underscoring the part positive margin impact attributable to the power Tech assets.

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

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

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

Thanks Bond, the third quarter 2025 results. Build Upon Our now. Multi-year, track record of consistently posting improved financials. As we successfully, transformed the organization to enter a new data-driven frontier.

Our 2025 guidance points to the execution of our corporate strategy.

Leveraging chemistry as the common value creation platform?

Looking at slide 18, I remain convinced. We are still in the early Lings of flow text transformation as we continue to grow and maximize returns for our customers and shareholders across the entire value chain of the energy landscape.

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

Through the growth of our Upstream applications. We anticipate the data analytics segments will contribute to over half of the company's profitability in 2026

We continue to secure long-term contracts for both our chemistry Technologies and data analytics segments bolstering confidence at flotex, ability to deliver stable revenue and profitability while effectively shielding our business from the impacts of commodity price fluctuations.

Finishing with slide 19. We believe no other company in our industry is better positioned to deliver The Cutting Edge Technologies needed to tackle the unique challenges of our energy and infrastructure sectors. I'm incredibly proud of our progress and confident in our team's ability to execute moving forward.

Given the growth potential for our chemistry Technologies and data analytics segments.

We see flowtech as a compelling investment opportunity.

Thank you for your continued support. We are eager to share our vision for Flotek's future and look forward to updating you on our progress in the quarters ahead.

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

Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press the star followed by the 1 on your touch phone.

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1 moment, please for your first question.

Your first question comes from Jeff. Gramp with the company Northland, please go ahead.

Good morning, guys.

Wanted to start first on on digital valuation, so I saw on the slide deck. There's a goal to get to 25 to 35 units, by by year end and then there's over, 200, installations kind of, I guess in the pipeline, if you will, with those customers. What's the major factor for from your guys's perspective? Determining the Cadence of that ramp to get from that, you know, 30-ish to it. Sounds like the goal is kind of over 200. I don't know if that's near-term. Medium-term, just open for a little more uh granularity on that those data points. Thanks.

Yeah, so Jeff. This is Ryan. I I you know, we look at it as there's kind of 2 2 to 3. I wouldn't say hurdles but progressions they have to take place in terms of what we do from digital valuation. Um, we spoke on in earlier quarters this year, around some of the successful pilot programs that we had uh, ongoing and

Phase are more in commercial phase. So, that's 1 of the driving factors that will not now start to see multiple unit deployment, um, starting here at the back part of Q4 and that'll roll in to some of these 200 plus sites. We see and uh, 2026. Um, there's also a little bit of piece of the looking at the exact location for where they go because the different operators are looking at 2 to 3 different things they do. Well, a big value creation point is where when we bring on the production wedge component there at a gathering site, that's 1 key location. That's typically garnering the initial most interest and then we move into the actual pure 2172 addressing method, around custody transfer pieces. So it's, it's just, it's kind of like walking over that hill to turn over the pilot phases are complete. We've now seen, you know, full commercialization, we've increased the level of manufacturing, we don't feel. We'll have any issues addressing the total number. We've already

Pre-bought all of the materials in our completely building now. Um,

so what we're doing now is working out, you know, final T's and C's on customer roll out. So we expect it to be, you know, steady output, uh, closing this year and in 26, with with increases in total number quarter by quarter. If that gives you a better granularity

Yeah, that's perfect Ryan and and just to uh, I guess make sure I was understanding 1 of your comments. Right. So it it sounds like

the the issue is issue is not the right word but the, um, inflection point is more pertains to customer decisions around where exactly to deploy these not, if to deploy these. Is that a fair characterization? Correct.

Yeah, that is correct. And so, um, you look at it as it and it kind of goes through a progression, right? The, the big input. We first see is when they're bringing new wells on production because we can see every minute change in production quality, and then it goes into monitoring the well over the long period. And so, it's kind of like, um,

is you could imagine each customer operator and or Midstream client is looking for the maximum Roi on the initial, deployments and then it works its way down the value chain. So,

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

Yeah, those are great details, I appreciate that. Um, my follow-ups on the uh, the powergen side with Powertech give me update us on, on kind of customer conversations for, third-party, power services. And and any kind of outlook on when you can get some deployments there.

Yeah. So, you know, we actually I would say Jeff excluding, what, we're what we've done on the power Tech. Deal with our initial contract, uh, year to date. We've done an additional 2.1 million dollars of Revenue secured already. Um, after just having the equipment for a quarter and I would I'd like to reference you to like slide 12, we tried to give a little bit of a schematic to where what's going on in the business location. In terms of how our sales process works. That first step is is proving the measurement out, so that 2.1 million dollars has been solely related to us, sending vax's or expect to location to monitor the gas and prove the fact to most of these people who are running either turbines or reciprocating engines that. Look, we can see your gas quality coming in and out of any type of current manual treatment that you're doing and improve that and those have gone really well. We've actually seen 6 new customers outside of our deal with profrac adopt that

Already in Q3 with multiple units. Testing for each 1 of them. The next phase of that goes into control, where they look at applying a smart filtration skid or an ESD monitoring unit and we determined, do they need H2S? Do they need CO2, do they need an MRI? Do they need these different pieces at what level of conditioning, they need, and the final piece is issue and distribution and full control. Um, and we see we've seen great success at, uh, working directly feeding information directly to reciprocating engines, and adjusting temperature and gas quality for turbines. So, we're making great progress in my opinion, on this. Now, what's also interesting, um,

Um, and they're little, I would say they have a little slower turnover period than our traditional Frac monitoring, uh, Power gin, and, or chemical cells, which work on a pretty quick sales cycle, almost pad to pad in some cases. Um, so and I think you'll see some of the other, uh, I would say, power service providers, uh, commenting on the sales cycle is a little bit different. The pursuit's a little bit different. But, um, if you look at, you know what, we laid out here on, on slide 12, we really laid a pathway of sales out. And we we make great progress in our first phase of the measurement and we're now transitioning to control of the multitude of those clients.

And I would say those client bases are Legacy. Uh, pressure pumping, type customers, uh, data center, development, and building customers, and also bio gas generation customer. So working in a multitude of verticals. Uh, depending on the installation type and the equipment provided.

Great. Those are all super helpful details are on. I appreciate the time. You guys all turn the path. Thanks.

Yep.

Our next question comes from Jerry Sweeney Roth Capital Partners. Please go ahead.

Uh, good morning, Ryan. Thanks for taking my call.

Morning Jerry.

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

Yeah, it's 27.4 million next year and for each of the next.

5 or so years. And then, in the sixth year of the lease agreement, uh, it it reverts to whatever the prevailing Market rates are. But for the first 5, it's uh, fixed rates and the and the math is 27.4 million a year of Revenue. Got you?

So that that was just for the acquired assets with uh, with your partner at that. Obviously doesn't apply any growth for the power side.

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

Got it and, you know, obviously, um, what was it? Uh, I can still call it custody control, but I think you sort of renamed it. But, you know, obviously, I think that's the focus. Um, but how do you start expanding into the power side? Do you have enough skids monitors Etc, manufacturing capacity? Sales can you walk us through, sort of how you start to drive additional growth on that front?

Yeah, so it's kind of alluding, but I go back to, uh, representing the slide 12 again. Jerry is our first step is, is proving out what the heart of power Tech and power generation Services is, and that's our ability to do the real time, uh, gas measurement. Now, depending on the type of equipment, whether it's a reciprocating engine and or a turbine is what measurement. Whether you're looking at BTU number methane, number Lobby index, different components, High heating value, low heating value, Etc equipment, does all of that, and it's proving out what the brain of power Tech does is our initial step as I told Jeff earlier, we, we picked up 5 new customers for that in Q3 alone and testing multiple verax Andor expect units on location to drive that part. The next piece is is once we we get a defined point of gas quality, we move into the next part of control, as in the ESD, trailers, or smart filtration skills or

You know, H2S monitoring all different pieces that bolt on to really condition that gas to Optimum output for the turbine and or reciprocating engine. We've also moved in to being able to because we can see BECU or methane number in real time, we have the capabilities to automatically tune, a reciprocating engine, which has never been done in the industry before. Uh, and we've been working that um, aggressively in Q3, um, and so that

That's where it leverages into the next point of the sale. And finally is our state of the art distribution trailers. And so it it it takes a it's like a mythology methodology that we go through in doing it. And we progress through what I call Phase 1, uh, pretty aggressively in Q3 and we'll see further expansion into control and distribution and Q4 and all of 2026. Now, addressing Capital needs, we've got plenty measurement devices. Uh, we, we kind of pre-loaded.

The last decade, uh, as we roll in the 20126, to drive the deployment to ensure that we can um, address the needs of of the growing customer base of. Not only some of our Legacy pressure pumping customers, that's made that transition, but also some new and emerging customers that are out there within the pure mobile power generation piece and we look at the fixed installation and the bio gas treatment facilities as well.

Got it. Um,

jumping back to a custody controller. Um,

Custody transfer. I'm sorry. The GPA 2172. Um there's a little bit of talk about maybe getting regulations moved around change. That would be beneficial for you know, expect and and custody transfer does that.

Uh, clearing that hurdle GPA.

2172 help that and maybe give a little bit of details. Maybe what the opportunity is.

Yeah, the like the the GPA 2172. That also relates to API. 14.5 was the specific hurdle that had to be addressed. It is the is the backbone of what actually allows you to say we have a true digitized or digitalized custody transfer model in that it sets the standard of hey you have you can use gas chromatography or another acceptable method which is the optical spectroscopy. But for the optical spectroscopy to be allowed,

It has to meet reproducibility and repeatability of what a GC standard is and we exceeded all of those capabilities with the expect unit, um, which is pretty amazing and being it's the first Optical spectroscopy unit in the world, to be able to do that. And so that kind of takes away uh, a majority of a lot of particularly, the Midstream guys asked us. Hey, does it, is it compliant with 2172? And it is now. And so that was a, uh, that was a big deal about being able to do that, and all honesty. We had to progress in a lot of our pilot testing earlier in the year to get access to be able to do that to live streams. And so that was um some of the big parts that we were able to close up here in the quarter. Um, and we're extremely excited about it.

Got it super helpful. I I'll jump back into you. Thanks.

Our next question comes from Don Christ Johnson rice. Please go ahead.

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

Yeah, Don that is uh that's great Insight. Um and a great question is our uh our head teams are over and out of pecking and and following this weekend in Saudi as well to discuss uh the impacts of the business expansion with our what I consider to be our largest customer in the Middle East. Um and if you look at you know, we mentioned around how you know that International revenues year to date are up 122% um getting ready for some of this initial work is what led up to those Revenue increases. We saw that slowed down as that Mega tender for a ramco was completed.

And with our, uh, with our customer, uh, picking up the majority. Well, I guess 100% of that hydraulic fracturing scope. Uh, we do expect to see, uh, business pick up, uh, in the back half of, uh, Q4 and heavily in 2026. Which is, you know, you you talked about and I aazim over this for the past year, this is what we've been positioning flowtech for um, is this type of growth in the Middle East and um, we haven't given any guidance on specific expectations around there but we we do expect it to be uh, be very positive for us.

I uh appreciate the color. I think everything else has been answered from my side. I'll turn it back.

Thanks Tom.

Our next question comes from Josh Jane. Daniel Energy Partners, please go ahead.

Uh, thanks for taking my questions. Good morning. First question is just on, um, expect. I think in the press release that you

Over. Um, could you elaborate a bit more on the cost and efficiency gains for the...

Altered decision-making for the customer and disc.

Much, yeah, yeah. So I'll talk about a couple things. Let me talk a little bit around efficiency, right? Um, what being being the fact that we we're now past uh the the GPA 2172. We are now able to deliver a custody transfer level grade measurement to a resource owner, an operator or a Midstream you know first buyer

Essentially almost every 5 Seconds versus what was taking 3 to 6 months to turn those over. Um, more importantly is because you get such a regularity of measurement at such high resolution. We're able to resolve a multitude of the potential manual. Sampling bias that takes place on the production, which removes a layer of, I would say, fog around. It provides a lot of transparency over what the true production and production quality out of each individual uh, Target location is so that and and typically what we've seen is anywhere from th 3 to 5%

Bias, um, what's also important is the fact that we can measure the direct flow line, um, removes the process of manual sampling. So you see cost reduction there, you also. Um,

Manual sampling is never done the same way by anybody. It it, it changes lab to lab. And so there is a variance typically, or error introduced by the morrow. Sampling is done, whether it's pressure, drop temperature issues, ETC. And so we remove all those components. So their significance improvements in measurement, quality accuracy, resolution and reduction in, uh, in variance, variability, in terms of cost, um,

traditionally speaking, we we expect, uh,

You know, overall between capex and maintenance, almost a 50% reduction in cost overall through the process. Um, so as you can see, I mean, this is a transformative uh step in creating a what I would consider to be a digital twin of in a real time. Digital twin of the custody transfer process in creating significant, efficiency, accuracy, and cost gains, uh, for the customers.

That that's very helpful. Thank you. And then I did want to hit the, the chemistry business. Um, continuous fracturing has been discussed on some recent, EMP calls and maybe could you just discuss what you're seeing with respect to What's Left? Um, for efficiency gains on the pumping side. And, uh, I think you highlighted, the, you know, the revenue growth against declining. Frac count in the chemistry business, but is, is there, maybe just you could speak to your outlook for, um, us land in 2026, the ability to grow chemistry revs. Even if we're

You know, sort of flat to down from a from a fleet standpoint. Um and do you see more customers using chemistry in the in the current environment trying to get more out of out of less? Um, with respect to acreage, thanks?

Yeah, so those are that's a lot to unpack. And so I I'll try to do it in 4 or 5, you know, main points. So the first thing is around our ability to grow chemistry, um, number 1, the empress that we put into stabilizing, our revenue streams domestically, intern and internationally is going to provide a solid Runway to grow. I think is we kind of alluded to the potential impact of the expansion of our Middle East. Potential is packed of our Middle, East business is going to be huge for us to provide growth in 26. Um and then and then also some other countries that we have opportunities in in Latin America and as well as Asian pack, I think are going to be positive but probably not nearly as I would say material is what the Middle East will be um secondly as we move to the domestic component of it, everything that the oil and gas operations from the operator and the oil field service companies are doing right now plays into the strength of flowtech.

multitude of things that impact the overall progress um and and the efficiency their overall that to me, well, we're hoping to do is bridge that gap between um,

You know, Tier 1 and Tier 2 type acreage right to where you get similar returns out of the Tier 2 production because.

We look at it from an overall, uh, transition. Although pumping hours and everything is increased. We've seen a relatively flat utilization of water. I think we're kind of at the floor and we're going to, we see indicators of positive movement in 2026, but for us to really do that, we've got to continue to be sharp on our game and deliver a differentiated technologies that allow us to gain that. Uh, what do you say really competitive market? Share that? We're going to go after. Um, but I will tell you the thing that, that, that, when I look at it on a long term is

right now, even with all the fishes of the gains, even the, even all the technology things that we've seen here in North America land and the capital discipline. The fact of the matter is, is we're still a level of underinvestment it probably, you know, for us just to maintain current production. Uh, 90% of the spin right now is going just to do that in the, in the quality of the production that's been steadily declining overall, since probably the end of 2021 and so sooner or later, we're going to hit a discontinuity. That's going to require a shift in terms of investment going back in there. And I do believe that the differentiation

Ated capabilities of flow tanks from our data-driven real-time monitoring Services combined with our Innovative chemistry solutions is going to put us in a great place to help the industry bridge that Gap. Um and I think you know,

That gap's getting closer to the point when it's going to kick off, and, um, I think we're in a good position there. So, I hope that it gives a little bit of color around, you know, kind of how I think about that. In terms of 1, we've got plenty of room to grow. Our advancing technology is going to continue to drive efficiency and get...

Maximum ROI at every well of these operators that work with us or drilling. Then, secondly, there's going to be a demand shift that's going to require not only just to maintain production, but also to fuel the demand created by electrification, reshoring of industrialization, and infrastructure support.

Thanks for the thoughtful responses. I'll turn it back.

Our next question comes from Tom Bishop B. I research, please go ahead.

Hi, good morning. Um, it sounds like, um, a lot of the components and add-ons, uh, that there are available for the power Tech units. But just, in terms of the power Tech units themselves, I mean, how do you have a, a projection of how many additional units you might build and install and the 2026?

We haven't given any any particular guidance on those numbers yet. Um, I do when I look at the, the health of our Pipeline and the continuous expansion of it, um, you know, you know, our goal would be, you know, I I we say this Loosely to get into the Dublin, the size of our paired Fleet, uh, by the end of 2026, I think that's a reasonable goal, um, and 1 that we could potentially exceed, but that's when we start to look at Capital outlay. We're, we're, we're looking pointed in that direction, um, and doubling that size and some sensitivity pluses and minuses in that direction just to kind of start off and I think you'll come to see with us. As we wrap up the year, we start to understand the impacts of natural gas as some of this transition. Um and we'll give a little bit better guidance, uh, towards the end of the year.

Sure. Uh uh, but to be clear, you'll the 27.24 million is uh

A starting point, that's our, yeah. That's just the base contract with the 15 Pairs. And, you know, our our goal would be to, uh, work towards doubling that in 2026, in terms of, payers and applications.

Okay. And then given the Deferred tax credit valuation release event, the 12.6 million uh in Q3 does this mean the company in the future will be showing a maybe a larger tax rate for gaap reporting? Um, yeah, that

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

Can you give us, you know, analysts are going to need this? What kind of a percentage? Maybe we'd be looking at.

I'd say somewhere in the 20% range.

Okay, and why is proac?

Growth, which is Amazing by the way, given the decline in Fleet Crews.

Um,

yeah, I I think they're

I'm sorry. Go ahead, sorry.

It sounds like you booked the revenue at the minimum contract requirement leading to that, 28% figure, um, included in the 27 million and is that then what they pay on an off.

Uh, as an offset to the power Tech asset, purchase price or or what they actually pay.

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

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

Well, earlier, it said, you might offset that against the power Tech.

Acquisition price. I thought

Is that still the plan? I mean, is that what happened to you? He said, yes, sorry. So we've got a deferred liability on the balance sheet, for 7.2 million, which was effectively a loan against the 2025 shortfall penalty. So, when the order shortfall penalty gets settled up in the first quarter of next year,

will not knock off 7.2 million. Uh, is effectively part of the consideration from the Powertec assets.

Okay good. But but but why is it that proact can't get to this? Uh,

Is always running behind and and is this minimum likely to get renegotiated?

At some point. So that's that's a great question. That's a great question. Then what I would say is is when you look at the way, the minimums were calculated, it was on volumes of chemistry, pumped by an average Fleet uh times a, certain number of fleets. Uh is where we got to these numbers from and earlier in the contract when you saw High hydraulic fracturing Fleet demand, um we were actually meeting and exceeding, the revenue numbers on a monthly basis and then the back half of 2023, we started to see a correction efficiency, gain in Fleet count but also just a slowing down of the market and we feel like we're at the trough.

of where it is right now we do expect um,

you know, the the chemistry sales to protract to improve in Q4 um as we picked up quite a bit more work with those guys. And what what's interesting is during that shift between 2 the end of 2023 to where we set today,

There was a a massive influx at the earlier part into the permanent basin.

the buyers and the permanent Basin run, significantly simpler, uh, hydraulic fracturing formulations and traditionally, um, basically separate the chemical by,

from the, uh, from the pressure pump or particularly in in markets to where

There, there's an over over supply of equipment, and the demand for the horsepower is down. They don't necessarily or they're not able to enforce, the will per se and sell in a particular type of chemistry.

And as we've seen the fleet counts, go down the biggest change in Fleet. Count number has been away from the permanent and into more of these gas-rich basins, being the Haynesville, the Northeast

Etc, where our differentiated Solutions, make a huge difference. And so it's our technology deployment has gotten better and we'll get better through the back, half through the back half of this quarter. And we are rolling in 2026, but

A lot of it has to do with buying behaviors of the operator, the geographic location that was operators and where we are in the cycle on, you know, hydraulic horsepower demand and and leverage pieces. And so

The buying powers of the uh, uh, the chemistry providers, uh, and uh, operators and Tom, it's, it's important. It's important to note that, uh, proof rack did get a significant portion of equity and flowtech in conjunction with that transaction. So that shortfall penalty was always meant to protect the other shareholders. In terms of preserving the value of the contract that was exchanged for equity.

Okay.

And Before I Let You Go, the number of you said the International Revenue was up, 122%. But what's the dollar amount that that is running?

Your annual be.

Yes.

Well, year to date, it's 10 million dollars right at 10 million dollars, International revenues.

And how much?

I forget what all the letters are expect, expect.

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

Okay, well hopefully it's going to amount to a fair amount. All right? Thank you very much.

Sure.

As a reminder, if there are any further questions, please press star 1 at this time.

Our next question comes from Goshi SRI singular research. Please go ahead

Uh, good morning guys. Can you hear me?

Yeah, we got you.

Oh yeah, just on the uh data analytics. Um can you give us a sense of where that analytics goes margin, would normalize as the installed base? Kind of matures at the recurring revenues outweigh, 1 time setup and integration cost.

You talking about, you know, our expectation going forward. Um, yes, you know,

Yeah. So this year, we'll do, you know, we haven't given guidance really on 2026 as it relates to the various components that drive data analytics Revenue. But 1 thing, I'll point you to is um, this year we're going to do call it 16 million under that power Tech agreement. We know those are 89 89 to 90% margins. Uh, next year that number jumps by 70%. Obviously, more revenue from this high margin, business is going to, uh, I think continue to move margins. It's hard to say what the other contributing factors are for Revenue next year because we don't have anything like this big long-term contract, that's driving the margin growth this year.

um, but we, I would expect uh, you know,

If the power Tech, uh, business is a meaningful part of next year's Revenue. It's going to drive the weighted average gross margins higher than 70%, perhaps even closer to 80%.

Gotcha. And just that, um, the postal customer support for this, uh, for this product installation is there. So you don't foresee any resource constraint or additional cost cost that will uh that will have that, you need for uh uh continued future renewal rates.

Not at this point in time. Um, I think that, you know, we we've begun to invest in inventory of the actual measurement devices, whether it be in the vax or, uh, or expect units, and I think we we've preloaded and started building out from the power Tech aspect, uh, multiple, uh, ESD, and smart filtration skills, and we'll be transitioning to additional buildout of our distribution. Ski is trying to keep a trying to keep a healthy risk. Risk weight in what we put in the pipeline of what we pre-build versus what's delivered by contract, luckily, for us.

even if, you know, we had a um,

Gotcha. And on the, on the external chemistry side, as you'll mix kind of hips. How are the, uh, um, payment of for delays or from the non-ac non-anchor clients compared to your legacy business.

So, I would say, you know, all these considerations in this, uh, components in the market are North America land. Customers pay pretty well. We have a relatively, I would say, uh, low DSO compared to the industry. Um, but as expected, our, uh, international customers, particularly in the Middle East, typically pay a little slower. Um.

Most of the time because the payment terms with some of the service companies work over there with, they're already extended due to the payment terms from adnoc or a ramco or the DIC kajo, Etc, over there. And um, and it kind of adds up as 20 to 25 days additional on the the average DS. So, but, you know, right now, um, the cash flow has been been relatively consistent. Um, I will think, you know, we're going to if we see uh, these significant ramps in our millyz business that will consume a little bit of working capital to get that stabilized. Uh, we'd see that pool come in in the first half of 26 and hopefully stabilize by mid Q2. Um, but you know, we we are looking very carefully at that if we see an accelerated ramp, uh, for that business with a little bit longer payment terms. So I would say that's probably our the big thing.

On the radar is just working capital to complete the ramp.

Gotcha. And just my last question on that working capital is. These will all the volumes kind of Spike. Um, would you need any alternative backup for working capital facilities or do you have head room in the, in the lending testing?

Yeah, I I think we're pretty good good right now as it relates to Capital, I mean, keep in mind in the first quarter, we will receive a cash payment relative to the OSP, which don't know what that's going to be. But net of the 7 million offset could be, you know, 20 to 25 million cash infusion. That comes to see us, we've got plus or minus 15 million of availability under our existing abl. Uh, we currently, you know, have very low leverage. So we, you know, if we needed to, we could explore some Capital, raising options in the debt markets. And at the end of the day the the stocks done very well. So if we chose to we uh we have options relative to the equity. So we're we've got a lot of optionality as it relates to liquidity bill, but we think uh, just in terms of managing the initial working capital draw potential on expanded, international business, the uh the OSP cache payment in 1 Q is going to is going to be fine.

Okay, awesome. Thank you so much, guys. That's all I had.

Thanks man. Thank you.

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

Yes, thank you. Join us at some of our upcoming events. The permanent Basin barbecue kickoff November 11th to 12th in Midland, Texas. The invest Houston second edition event in November on November 20th at the JW. Marriott Houston, Texas.

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