Flotek Industries, Inc.FTKNYSE
Loading
Operator: Good morning, ladies and gentlemen, and welcome to Flotek Industries, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If anyone has any difficulties hearing the conference, I would now like to turn the conference call over to Mike Critelli, Director of Finance and Investor Relations. Please go ahead.
Mike Critelli: Thank you, and good morning. We are thrilled to have you with us for Flotek Industries, Inc.'s fourth quarter and full year 2025 earnings conference call. Today, I am joined by Ryan Ezell, Chief Executive Officer, and Bond Clement, Chief Financial Officer. We will begin with prepared remarks on our operational and financial performance, followed by Q&A. Yesterday, we released our fourth quarter and full year 2025 results, along with an updated investor presentation, both available on the Investor Relations section of our website. This call is being webcast with a replay available shortly after. Please note that the comments made on today's call may include forward-looking statements, which include our projections or expectations for future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from those projected in forward-looking statements. We advise listeners to review our earnings release and most recent 10-Ks and 10-Q filings for a more complete description of risk factors that could cause actual results to materially differ from those projected in forward-looking statements. Please refer to the reconciliations provided in the earnings press release and investor presentation, as management will be discussing non-GAAP metrics on this call. I will now turn the call over to our CEO, Ryan Ezell.
Ryan Ezell: Thank you, Mike. Good morning, everyone. We appreciate your interest in Flotek Industries, Inc. and your participation today as we review our Q4 and full year 2025 operational and financial results. In the fourth quarter, we saw North American operators maintain the cautious posture initiated in the second quarter as they continued to navigate the return of OPEC+ spare capacity and persistent global trade volatility. Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market, the Flotek Industries, Inc. team remains steadfast in the execution of our corporate strategy, driving transformation, and delivering our third consecutive year of significant gross profit and adjusted EBITDA improvement. Through the powerful convergence of innovative real-time data and chemistry solutions, as shown on slide 3, Flotek Industries, Inc. has laid the foundation for a data-driven growth trajectory built on diverse recurring revenue, high-margin services, and proprietary technologies that create value for our customers and improve returns for our shareholders. Transitioning to slide 4, Flotek Industries, Inc. extended its track record of transforming the company into a data-as-a-service business model as our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company. Furthermore, we delivered standout performance throughout 2025, resulting in increased market share in both of our complementary business segments. Data Analytics grew exponentially while Chemistry outpaced the market in a challenging environment through an unwavering commitment to safety, service quality, innovation, and total value creation. With that, I would like to touch on some key highlights for the quarter referenced on slide 7 that Bond will discuss later in the call. Q4 and full year 2025 saw the highest quarterly and annual revenues since 2017. The Data Analytics segment achieved its highest ever quarterly and annual revenue in company history. Our gross profit climbed 24% versus 2024 and 52% as compared to full year 2024. The Data Analytics gross profit accounted for 48% of the total company gross profit during 2025 as compared to only 8% in the quarter a year ago. Adjusted EBITDA grew over 123% year-over-year, while 2025 net income improved 191%. Finally, we completed the onboarding of our PowerTech assets and the strategic entry into Power Services in 2025. This sets the stage for high-margin recurring revenue growth in 2026 and beyond. All of these results were achieved with zero lost time incidents in the field operations, with our Prescriptive Chemistry Management and Raceland NTI team surpassing over 10 years without a lost time incident. I want to thank all of our employees for their hard work and commitment to safety and service quality, achieving these outstanding results. Now, turning to the larger picture for the energy and infrastructure sector, we share the viewpoint that despite the near-term volatility and uncertainty created by the ongoing conflicts in the Middle East, the fundamentals for hydrocarbon demand will continue to grow from the medium to long term. A rebalance of supply and demand is expected due to the combination of steeper decline rates for large percentages of unconventionals, diminishing overall reservoir quality, and minimal exploration success, which will create potential tailwinds for energy and infrastructure services. Substantial investment will be required to maintain current production levels, while additional spending would be needed to meet the expanding power demand driven by AI data centers and industrial reshoring, combined with the reliability issues of an aging transmission infrastructure. Our legacy pressure pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek Industries, Inc. is poised to support these emerging opportunities with products and services that help protect their assets while optimizing their operational performance and fuel efficiency. With multiyear waiting lists for turbines and reciprocating engines, protecting these capital-intensive investments is critical, along with enabling reliability standards that exceed greater than 99% uptime requirements. Transitioning from the macro, let us dive into the details starting with slide 11 of the earnings deck. I want to spotlight the remarkable progress in our Data Analytics segment, which saw service revenues increase 381% in 2025 versus Q4 2024, elevating gross profit to 73% in Q4 2025 versus only 39% 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 while generating recurring revenue backlog. The first is our Power Services, which has evolved from a novel analytical approach into a transformative solution for the energy infrastructure sector that we call PowerTech. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector. Looking at slide 13, at the heart of PowerTech is our VariX analyzer, which goes beyond data collection to deliver custody transfer-grade measurements. It provides precise BTU, methane number, and volume reporting for royalties, invoicing, and performance guarantees. Complementing this, our patented conditioning and distribution trailers actively remove liquids and contaminants, conditioning high-BTU hydrocarbon feeds to meet exact turbine or engine specifications. But PowerTech is more than just a technology. It is about control. Our cloud-based portal enables the monitoring of live BTU trends, H2S alerts, Coriolis flow meter readings, and automated CNG blend controls, combined with custom alarm thresholds to automatically isolate off-spec hydrocarbon feeds and protect high-value turbines or reciprocating engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety. More importantly, our velocity of measurement enables direct communication to the OEM engine to automatically adjust engine operating parameters and optimize engine performance. We do not believe there is another analyzer technology capable of executing at this level of real-time automation today. Finally, our 35+ Data Analytics patents position Flotek Industries, Inc. as a leader across the natural gas value chain. When considering our capabilities, we deliver unmatched monitoring, control, and safety for field gas operations. On 03/03/2026, Flotek Industries, Inc. announced its first contract within the utilities infrastructure sector, seen on slide 14. Leveraging our proprietary PowerTech platform, Flotek Industries, Inc. will partner with leading distributed power service providers to coordinate the installation of up to 50 megawatts of state-of-the-art power generation equipment, including advanced gas distribution and smart conditioning systems, to support critical federal disaster recovery initiatives. The impacted area was struck by a destructive wind event, which caused significant damage to local power infrastructure. This deployment harnesses real-time data analytics for unparalleled efficiency, ensuring resilient power that drives the community recovery forward. Under the contract, Flotek Industries, Inc. will supply and mobilize cutting-edge smart conditioning skids and advanced gas distribution equipment alongside natural gas-powered gensets. The gas distribution skid provides independent fuel control to each genset, allowing seamless maintenance without interrupting the power flow and guaranteeing uptime even in the harshest conditions. This week, we have boots on the ground evaluating the site selection and continue to work with engineers and customers to determine the site design, exact power demand, and full deployment schedule. Now let us transition to slide 15, where we will dive into our upstream application, Digital Valuation. This groundbreaking use case sets a new standard in the oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before through real-time digital twinning of the custody transfer process. By monitoring hydrocarbon quality and composition in real time, we have unlocked a new market for the industry and for Flotek Industries, Inc. On 10/29/2025, Flotek Industries, Inc. reported a historic milestone in natural gas measurement. The XBEG spectrometer became the first optical instrument to achieve the stringent reproducibility and repeatability requirements of the oil and gas industry standard for custody transfer, GPA 2172. The XBEG measurement unit is designed to enable more accurate volume and compositional data, thereby delivering greater transparency for royalty owners, operators, and midstream companies than traditional methods. We believe the XBEG speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 2172 will provide a significant advantage in discussions with prospective customers as we aggressively expand this manufacturing field deployment. Since completing our XBEG pilot program in the third quarter of 2025, we exited the year with over $12.02 million per month in recurring high-margin revenue. Furthermore, 2026 is off to a great start with opportunities on the horizon, each of which can more than double our deployed active XBEG units. Let us move to our third upstream application, the Verical Flare Monitoring solution. We continued to experience strong operational demand in February 2025, with total Flare Monitoring revenue for the full year exceeding $2 million. As we proactively navigate the evolving regulatory landscape, particularly the EPA's flare monitoring and methane emission standards, we are deepening strategic partnerships with leading operators and flare technology developers. This collaborative approach not only ensures seamless compliance, but also delivers substantial operational efficiencies, meaningful methane reductions, and enhanced environmental performance for our clients. It is clear that our transformational strategy to grow the Data Analytics segment through upstream applications is gaining traction. We increased our upstream revenues from $2.1 million in 2024 to over $21 million in 2025, with gross profits expanding from $1.2 million in 2024 to $18.4 million in 2025. But what is most important is what it means for our stakeholders and investors. Our DAS-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Our proprietary data technologies and superior measurement accuracy enable velocity and decision control and establish a high barrier to entry, secure client loyalty, and support our value-based service model. Finally, long-term high-margin subscriptions position Flotek Industries, Inc. for sustained growth and margin expansion, delivering significant shareholder value over time. Now, lastly, looking at our Chemistry Technology segment, it continues to deliver robust performance driven by the differentiation of our Prescriptive Chemistry Management services and our expanding international presence. Slide 18 highlights the resilient performance of our Chemistry segment, which delivered a 25% increase in total revenue for full year 2025 compared to 2024, excluding OSP payment, despite a 24% decline in the average North American frac fleet count over the same period, from 201 at year-end 2024 to 154 at year-end 2025, according to Primary Vision data. While we anticipate potential near-term commodity price volatility, we see encouraging indicators for cautious optimism in the back half of 2026 and beyond, and we continue to closely monitor operational and supply chain risks for international operations amid the ongoing conflicts in the Eastern Hemisphere. It is evident that our Chemistry team has executed our strategy flawlessly despite the near- to medium-term headwinds. While uncertainties around near-term activity levels persist due to macro factors that could affect the completion of the Chemistry market, we remain focused on defining these challenges and delivering differentiated chemistry and data services to provide our customers with industry-leading returns on their investment. Looking ahead, I am more confident than ever in Flotek Industries, Inc.'s momentum and our ability to drive sustained, profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek Industries, Inc. as a high-growth technology leader in the energy and infrastructure sectors, accelerating innovation through the powerful integration of real-time data analytics and advanced chemistry solutions tailored precisely to our customers' evolving needs. I will now turn the call over to Bond Clement to provide key financial highlights.
Bond Clement: Thanks, Ryan. Good morning, everybody. Our fourth quarter results cap an exceptional year in which we generated meaningful value for our shareholders. As highlighted in yesterday's presentation on slide 7, we achieved several important milestones, including our highest quarterly revenue since 2017, driven in part by the largest quarterly contribution from ProFrac in the more than four-year life of our supply agreement, and the first quarter in which our Data Analytics segment surpassed $10 million in revenue. The continued expansion of Data Analytics revenue is translating directly into enhanced product profitability. As Ryan noted, in the fourth quarter, DA accounted for 48% of total company gross profit, a significant increase from just 8% in the prior-year period. Two really impressive metrics stand out as highlighted on slide 11. One, our Data Analytics gross profit for 2025 totaled just over $18 million, which represents more than two times the growth versus last year's total Data Analytics revenues. And second, the Data Analytics revenue during the fourth quarter exceeded DA revenue for the entire year of 2024. Both of these metrics highlight the exceptional growth that we realized in 2025. Total company revenue grew 33% from the year-ago quarter and benefited from a $22 million, or approximately 80%, increase in related-party revenue as compared to the fourth quarter of last year. Approximately $15 million of the ProFrac revenue increase was Chemistry-related, while $6.7 million was associated with the PowerTech lease agreement. External customer Chemistry revenue declined 30% from the year-ago quarter due in large part to slowing activity levels in November and December. However, external Chemistry revenues were still up an outstanding 26% for the full year versus 2024, despite the numerous headwinds in the upstream completion markets that Ryan touched upon earlier. Data Analytics had another solid quarter, with product revenue and service revenue up significantly from the year ago, driving the segment's highest quarterly and annual revenue ever. Data Analytics segment revenue represented 15% of total company revenue in the fourth quarter, up from just 5% in the year-ago quarter. PowerTech revenues totaled $15.8 million during 2025, and as shown on slide 11, since closing the PowerTech acquisition in the second quarter, these assets have been a clear catalyst for margin and profitability expansion, driving improvements not only within the DA segment, but also at the corporate level. As a reminder, based on the contractual terms of the lease agreement, PowerTech revenues in 2026 are expected to be north of $27 million, or an approximate 70% increase from 2025. So we continue to expect these assets to be a significant contributor to our 2026 results. Gross profit increased 24% and 52%, respectively, as compared to the year-ago quarter and fiscal year. Fourth quarter gross profit as a percentage of revenue totaled 22.5% and was impacted by a combination of product mix, as well as the approximate $5 million sequential reduction related to the shortfall penalty, which is a byproduct of the huge quarter of revenue we achieved with ProFrac. SG&A expenses increased compared to the fourth quarter of last year, primarily reflecting higher personnel costs, including stock compensation, as well as elevated professional fees, a portion of which relate to the company's first-time integrated audit requirement. Importantly, as revenue scaled, SG&A declined to 11% of revenue from 13% in the prior-year quarter, demonstrating improving operating leverage and the efficiency of our cost structure as the business grows. Net income for the quarter totaled $3 million, or $0.08 per diluted share, compared to $4.4 million, or $0.14 per diluted share, in the prior-year quarter. It is worth pointing out that the current quarter net income and diluted earnings per share as compared to the year-ago quarter were impacted by higher depreciation and interest costs, which are primarily related to the PowerTech acquisition, as well as a higher effective tax rate driven by non-cash adjustments related to the company's valuation allowance on deferred tax assets. The effective tax rate for the fourth quarter was approximately 35% compared to 7% in the year-ago period. We do expect the effective tax rate to normalize closer to 21% going forward, and we do not expect to pay cash taxes over the next few years other than minor amounts related to state income taxes. Earnings per share for the 2025 periods as compared to the year-ago periods also included a higher share count, a result of the 6 million share warrant issued in connection with the PowerTech acquisition. Although the warrant has not been exercised, the shares have been included in both basic and diluted share counts since the acquisition closed in the second quarter. As noted in yesterday's release, as of 2025, we elected to change our calculation of adjusted EBITDA to better align with the SEC's guidance on non-GAAP financial metrics. What this means is that for external reporting purposes, we will no longer add back non-cash amortization of contract assets to our adjusted EBITDA. All adjusted EBITDA references in the earnings release reflect the revised computational methodology. To compute adjusted EBITDA consistent with our prior methodology for purposes of comparison to our original adjusted EBITDA guidance, simply add the non-cash amortization of contract assets as disclosed in the press release to the revised adjusted EBITDA balances shown. That math suggests that adjusted EBITDA for 2025 under our previous methodology was approximately $10.1 million. Using the revised calculation, adjusted EBITDA was up 40% versus the year-ago quarter and grew 123% for the full year. Using either methodology, we were near the top end of the original or revised methodology guidance range on adjusted EBITDA. Wrapping up my comments, touching briefly on the balance sheet, we ended the year with $5.7 million in cash and $3.3 million drawn on our ABL. You will note that total assets increased to just over $220 million at year end, primarily as a result of the release of the valuation allowance allowing us to reflect our deferred tax assets on the balance sheet. With that, I will turn the call back to Ryan for closing remarks.
Ryan Ezell: Thanks, Bond. Our 2025 results build upon our now multiyear track record of consistently posting improved financials as we successfully transform the organization to enter a new data-driven frontier. Our Data Analytics segment continues to deliver explosive growth with triple-digit revenue increases, expanding recurring revenue streams, and a robust multiyear backlog that provides strong visibility into future cash flows and margin expansion. Combined with our resilient Prescriptive Chemistry Management services, Flotek Industries, Inc.'s ability to execute strategic wins, advance asset integrations, and differentiate on a technology and returns basis will enable further capture of market share and delivery of continued top- and bottom-line improvement. We remain fully committed to shaping the industry's digitalized, sustainable future by leveraging chemistry as the common value collision platform, unlocking higher returns for our customers, and generating compelling opportunities for shareholder value creation. With our proven execution, expanding high-margin capabilities, and clear pathway to scalable growth, Flotek Industries, Inc. is poised for an exciting next phase of value delivery to our investors. Operator, we are now ready to open the floor for questions.
Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to cancel your request, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. Once again, that is star 1 should you wish to ask a question. Your first question is from Jeffrey Scott Grampp from Northland Capital Markets. Your line is now open.
Jeffrey Scott Grampp: Good morning, guys. I was curious to start on the Power Services side, and congrats on the recent contract win there. Outside of that opportunity, can you just touch on the current pipeline of opportunities that you guys are working through? Curious with the maturity level of those conversations, what stage we are at, and how you are kind of viewing other opportunities potentially going into the full year for the rest of the year? Thanks.
Ryan Ezell: Yes, Jeff, I would be glad to provide a little bit of color on that, because we are pretty excited about the advancements, and I will kind of refer back to some of the comments I made on our end-of-quarter call at Q3. We set up our PowerTech advancement of our business development units around three major steps. One is proving the validation of the measurement, then moving to levels of various control and integration, and then the final thing we do is full distribution and conditioning. I am proud to say that we moved into seven new customers successfully on the measurement side, with executed POs and successful field trials, and they are moving into longer-term duration contracts and looking at placing our new advanced NGS or smart skids as well as ESD. We have right now ongoing about six different operations in the field, and it is on top of our most recent announced win on the industrialized infrastructure component for utilities. So it is going really, really well. We have also begun, we have kind of brought forward what we are looking at on capital spend at building new pieces of equipment to go out to location, and so from that standpoint, I think we are still on track to hit that run rate of doubling the size of the fleet by the end of the year, if not maybe a little bit sooner. All those opportunities, and I think that the unique capabilities of our technology in some of these harsh conditions is opening up some unique pathways for us to hit some of these really stranded disaster relief power locations. That has been an interesting opportunity for us to unlock here at Flotek Industries, Inc.
Jeffrey Scott Grampp: Great. I appreciate that. And on a related question, with the business model or kind of contract approach, if you will, on the utility infrastructure deal, do you guys view that as kind of a one-off specific to this customer need, or is that something you guys view as more repeatable for some of the other opportunities that you are discussing with customers?
Ryan Ezell: No, I believe it is 100% repeatable, Jeff. I think that where our wheelhouse of strength is the monitoring, conditioning, and the setting up of the power generation equipment to be not only successful but operate safely, and the fact that we can do this in some of the harshest conditions on the planet for field gas, no matter isolation or how we look at it with a field gas, is that this allows us to work with some of the larger suppliers of power to pull them through jointly with what we do and work alongside of them and provide this power. So I think there are going to be a multitude of opportunities very similar to this, and we are hoping that the development of work of some additional power providers opens up some additional opportunities for us inside the data center and some of the more established infrastructure components around AI. Right now, I would say that the horizon looks that direction. It has worked to our liking so far, and we hope to have some more exciting updates on that as it progresses throughout Q1.
Jeffrey Scott Grampp: Sounds great, Ryan. I appreciate the details. I will turn it back.
Operator: Thank you. Your next question is from Rob Brown from Lake Street Capital Markets. Your line is now open.
Rob Brown: Good morning. Congratulations on all the progress. On the Power Services contract, or the PowerTech contract, could you kind of clarify how that contract works? I think you said an initial six-month term, and then options beyond that, and I think you quoted kind of $1 million per megawatt, but just a sense of how that revenue flows and the timing of how you expect that to flow in?
Ryan Ezell: Yes. I will tell you we are going to be providing continuous updates on this. Like a lot of these remote power gen processes, we are looking at a little bit of a conservative ramp. Our team has been on location all week. We are expecting to start to see this revenue probably in the starting parts to middle part of Q2, which would be initial mobilization and setup. The power will probably be split over two locations. One is providing power to the current community and its infrastructure and some of the services there, particularly the hospitals and things. Then there is a secondary location that will be powering additional housing that will be built to recover from what was destroyed. That is going to come in, I think, two phases. For us, we expect most of that to start the mobilization pieces in Q2 and start to build throughout the year. It does appear that on our initial offsets, this will have a high probability of progressing past six months, just for the sheer fact it will take longer than that to build the temporary structures of houses. Plus, they are looking at a full installation of an additional power plant at the end. So we are expecting this to get extended and be a good contract win for us. The unique model is that we were initially approached because of our unique capability in terms of conditioning any types or variable types of gas so that they can provide safe fuel source for operational gensets, and I think that allowed us to help go out and work with, call it, these power providers to bring and pull through. So I think we will see a similar model in these disaster relief components. I do not know how much that model works when we look at data centers because those are the big megawatt-type installations, but for these remote areas, it is a favorable business model for us to help work with the power providers on doing that. The other side would just be the pure conditioning aspect.
Rob Brown: Okay. Got it. And then just to clarify, I think you said the PowerTech contract that you had was $27 million in revenue. Did that include some of this new award, or would that new award be incremental to that?
Ryan Ezell: Yes. The new award is incremental. That is just the original work that we have on a dry lease program for five years, $27 million annually on those, plus an extension in year six at a market rate. The new industrial, or I should say utility services, contract is completely additive on top of that.
Rob Brown: Okay. Great. Thank you. I will turn it over.
Operator: Your next question is from Gerard J. Sweeney from Roth Capital. Your line is now open.
Gerard J. Sweeney: Good morning, Ryan, Bond, Mike. Thanks for taking my call.
Ryan Ezell: Hey, Gerard. How are you?
Gerard J. Sweeney: I am doing well, thanks. I wanted to touch upon an area that I think you mentioned in your prepared remarks. You are doing, your systems can communicate directly with the engine, and that offers a unique ability to improve engine flow, efficiency, life of the engine. I think you are working with some important engine and turbine manufacturers. Can you go into a little bit more detail on what is happening on that front, and how that opportunity could emerge a little bit further in 2026 and 2027?
Ryan Ezell: Yes. This is a really exciting platform for us when we look at applications inside of PowerTech. Without dropping any specific names, I will say the majority of the OEMs that we are working with are the nameplate companies that you see on the majority of these power gen sites, particularly on the reciprocating engine side. Essentially, what we have is, whether you are using a VariX or an XBEG unit, because most of these engines like to see a gas quality measurement once a day or once every few days just to see that they are in an operating realm where they set setpoints for potential adjustment, our capabilities allow data to be fed directly to the OEM engine every five seconds. This allows a closing in of setpoints and operational efficiency to where they really get tuned and dialed in to the best operational parameters to not only improve fuel efficiency and emission standards, but also reduce R&M costs for the engines. For us, there is potential for one unit to feed multiple engines, or we reduce it down to a simplified version of our XBEG units per engine. These projects have been solely focused on engine optimization and improving the overall performance. We would still be able to independently run our gas conditioning upstream from that, where we condition the gas prior to coming to the engine. Technically, it is a separate revenue stream. We have projects with four different OEMs on that at various levels. The longest-standing one has been in the works and research for about 18 months and has progressed pretty far down the road in the advanced field trials. We are hoping to have a little bit more clarity on what a potential long-term relationship looks like there and what that may come back here in 2026. We referenced some of these in a recent social media post with some of the success of the testing here at Flotek Industries, Inc. We are excited about that and do believe those will start to be monetized here probably by midyear, if not the back half of the year, as a potential addition onto a lot of these reciprocating engine operations.
Gerard J. Sweeney: Is this a little bit different approach? The power side, obviously you have data centers, fuel gas, or frac fleets, etcetera, but this almost sounds as though this is purely an efficiency opportunity for the engines and improves—
Ryan Ezell: 100% correct. The value proposition is there is what the NGS, ESDs, and NGSD do on the broad variety of conditioning, perfect horrible gas into much better operational parameters, and then there is what these individual units do per engine, optimizing the timing, firing sequence, fuel mixture, and everything to work them at their optimum rate to minimize derating or different components there, and then also help them in terms of the potential to reduce R&M maintenance throughout the year.
Gerard J. Sweeney: Got it. Switching gears, you are starting to highlight opportunities that you have in the field or deployments. At some point, would you be able to break out or tell us how many Data Analytics units you have in the field for tracking purposes, or would this ever occur, or is that asking too much?
Bond Clement: It could be asking too much.
Ryan Ezell: It is our intent. We are going to get, and then probably where we are at the end of Q1, we are going to come back with where we are updated on the total number of, when I look at PowerTech, I would say the number of types of skids that we have out and operating, and then also combined with where we are doing measurements to improve distribution and PRV, pressure reduction valve units, etcetera. We will start talking a little bit more about these growth numbers, but what I would say is that if you look at our initial contract we had with the original PowerTech assets, we are progressing nicely to get to that doubling of the fleet in 2025. We will probably, as we start to initiate our guidance like we traditionally do at Q1, give an update on where that stands so it will help you align the guidance.
Gerard J. Sweeney: Got it. I appreciate it. Congrats on a good quarter too. Thank you.
Bond Clement: Yep. Thanks.
Operator: Thank you. Your next question is from Donald Crist from Johnson Rice. Your line is now open.
Donald Crist: Morning, guys. Ryan, on that last point of the PowerTech units, just to be clear, I believe you bought 22 or so from ProFrac, but then they were delivering another 8, so the doubling would be off that 30 number, right?
Ryan Ezell: Yes. We actually received, we had all 30 units by, I am going to say, November time frame of Q4 is when we had taken them all in. So the number we are talking about, Don, is we have 30 individual units that make up what we call 15 pairs of operating assets, and our goal is to double that number based on the 30, or 15 pairs.
Donald Crist: Okay. Just to be clear, and I wanted to touch more broadly on just the construction of whether it would be custody transfer units or skids or the carts that you put out for the flares. Just how is all that going? And I guess one for Bond, in addition to that, is how do we look at CapEx for this year? I am guessing it will not be that big, but just any kind of rough parameters would be helpful.
Ryan Ezell: What I would say in terms of lead times here is that the absorption of XBEG units and our newer technology that we call the 2C unit, which is a dual-channel VariX, have been well received post the GPA 2172 passing of the standard. We have seen great progress. We sold out of the 2C units by February, and so we have advanced capital builds on a multitude of those, as well as XBEG units. We have advanced capital to those to start, really, because we are seeing some strong deployments where traditionally, Don, when we first had acquired or brought the Data Analytics division in, we were selling these things one to two off at a time. We are now starting to receive POs of double-digit numbers at a time. Some unique things about the way our operating system VariX works, some of the advancements we made in the software really helps to integrate these units and show day-to-day, within-the-hour value creation of those. We are seeing significant adoption and absorption of those. I would say we are not at a supply constraint yet, but what we are doing is we are making aggressive steps to rapidly expand that ahead of what we were thinking by this time in the year, and so we are allocating capital.
Bond Clement: Yes, Don. Certainly, I think 2026 is going to be the largest year of CapEx we have had in quite a long time. I think our CapEx in 2025 was somewhere around $2 million. Just rough numbers, we would expect CapEx for 2026 to be somewhere between $10 million and $15 million. Obviously, from a funding perspective, we have the OSP, and then as it relates to equipment financing, we are evaluating options there as well.
Donald Crist: Right. And that OSP should—
Bond Clement: And that OSP should—
Donald Crist: Right. More than double cover that $10 million to $15 million that you have to put out, right? And that should all come in the first quarter.
Bond Clement: It will not double. The OSP, remember, we had a $7 million offset related to the PowerTech transaction, which was effectively deferred consideration. When you look at what the net OSP is at the end of the year, it is right at $20 million. But it surely goes a long way and satisfies from a cash or equipment perspective.
Donald Crist: Right. And you will have cash flow through the year as well. So not a big deal there. And Ryan, I did want to ask, there is a lot of impact in the Middle East right now from what is going on with the hostilities, but you have spent a lot of time over there, and you sell a lot of chemicals into there. Just an update on how much product you have on the ground and the options of moving shipments, rather than going through the Strait, to other ports, maybe Egypt or something like that, and then shipping them in. Any kind of thoughts around that?
Ryan Ezell: What I would say is I kind of stage these in pieces. Number one, the current operations have been going very well. We have had our operation teams on the ground, and we picked up some of that unconventional work that we have been speaking of, particularly in the Kingdom. It has picked up and is running very well, probably to the upper end of our expectation, and we are seeing a solid growth there. Just as we are starting to see that, we are starting to see, as you can imagine, the supply constraints in all the traditional sailing vessel methods that we would deliver, whether coming from inside the GCC and/or us bringing other chemicals in. Some of our specialty stuff has been a bit strained as of late, particularly due to the Straits and Houthi pressure, etcetera. We are identifying alternative pathways that will probably, in the near term, have a little bit of additional cost because they have to be touched twice. But our goal is to be a solid working partner for our customers there, and we have been ahead of this by about a month or two because we were concerned that this might happen. I do think right now our supply is relatively stable at this point, but there is no doubt that we are going to be all hands on deck, and we are going to utilize the multiyears of experience that we have in global supply chain and our expertise of being on the ground there and from the past to understand how we get there and level out. I do think we are going to use an alternative delivery method than the traditional sailing routes that we were doing, which will probably include a cross-country trucking methodology. We have done this before, Don. Also, the initial move out of there, we had some issues around COVID when we first sent chemicals in. We are familiar with this alternative pathway. It is just not the best on the margin profile, but we will make it work in the near term to make sure that we stay rolling with that revenue opportunity.
Donald Crist: Okay. But just to be clear, other than some excess shipping costs, activities basically are unchanged right now, right? Things will move.
Ryan Ezell: We have not seen much disruption in KSA. We have seen a few things that we were doing on the Data Analytics side, some measurement installs in UAE, and a few of those get pushed back a few weeks just because of the location and different pieces. Right now, we are having calls—Leon and the team are having calls basically every morning—and we are steadily running in KSA right now because the majority of this Jafarah field is used locally for energy inside the country. It will keep running pretty steady. Our bigger customers there, I would say it is business as usual, all things considered with the instability to their neighboring countries, but they are full speed ahead right now.
Bond Clement: I will just caveat that a little bit. That is based upon what we know today, Don. It could change if this thing expands or extends.
Donald Crist: Right. I get it. That is what I am hearing too, it is pretty much business as usual unless you are really on the coast. That is about it. I appreciate the color, guys. I will turn it back.
Operator: Thank you. Your next question is from Josh Jain from Daniel Energy Partners. Your line is now open.
Josh Jain: Good morning. Thanks for taking my questions. First one is just on the Chemistry side. Obviously, commodity prices are volatile, but wherever oil settles out over the next few weeks, hopefully in the next few weeks, any thoughts on how operators are ultimately likely going to handle sort of a higher commodity price deck than they were thinking coming into this year? I know you have not given guidance yet for the rest of the year, but I think the world was thinking sort of flattish CapEx, and that is what these guys have announced. Maybe just any insight, are you seeing more demand for Chemistry heading into the back half of this year and 2026 than you might have been thinking three to six months ago? Maybe just some thoughts there.
Ryan Ezell: That is a great question, and it probably is as in-depth as I could look into the hazy crystal ball. Let me talk about things that I do see in the industry. I talked about them a little bit in terms of when you look globally around, you are going to see we still see the potential for demand to increase in that medium to long term, if not a little bit sooner, and you see that supply rebalance. What we are seeing is that there is definitely a reduction in the decline curve contribution because you have such a large percentage of unconventionals contributing to that stack. You are also seeing a little bit of decline in reservoir quality, which would tell me what they are focused on is getting the most out of what work they are doing, which means leaning in towards advanced technology, creating technologies, or stuff that improves overall performance. All those things lay into the wheelhouse of what we do well by providing real-time data measurements, making choices for that in our prescriptive engineering process with our PCM business. All those things work really well with what we want to do. Not only that, when you look at product margin basis, they typically run at a little bit better margin for us throughout the cycle. The interesting part is there is no doubt when you look at the products that we sold in Q4 of this year, we saw the frac fleet get to the lowest that it was since probably Q2 2021 coming out of COVID. We saw commodity prices around the same thing, but our revenue was eight times more than it was then, and we made significantly better gross profit. We have shown that resiliency through the cycle, and what I believe is we are going to continue in this near term to see a little bit of softness in the demand for the Chemistry parts, but I think we see that upside potential maybe in the back half of the year to start to answer some of the call here, and I think that will require some of the advanced technologies that Flotek Industries, Inc. is poised to position. The level of that, it is hard to say right now, but I do see a little bit of silver lining in the back half of the year and as we look at 2027.
Bond Clement: I will just add one thing, Josh. I think it is going to be interesting to see how producers react relative to the hedge market. Obviously, the curve is still pretty backwardated, but I think, generally, even looking out past the spike out to the latter months, those numbers are probably a good bit higher than what expectations were for oil coming into the year. If operators have the opportunity and go ahead and lock in those prices over a longer term, obviously that underwrites higher CapEx.
Josh Jain: For sure. I appreciate the color. Thanks for taking my question.
Operator: Thank you. Your next question is from Gao Xi from Singular Research. Your line is open.
Gao Xi: Good morning, gentlemen. Can you all hear me?
Ryan Ezell: Yes.
Gao Xi: Congrats on a strong year and continued execution. On your expected Data Analytics drive to be more than half of the company profitability, if we think about that qualitatively, how sensitive is that mix target to the timing of a few large PowerTech wins, or is that 50% threshold achieved even if a couple of projects slip right to the end of the calendar?
Bond Clement: If you look at the fourth quarter, we were effectively there at 48% gross profit from Data Analytics. Just thinking about how the PowerTech lease agreement, which we talked about, will be 70% higher in 2026 versus 2025 just due to longer duration for the full year versus a partial year last year, we feel extremely confident we are going to exceed 50% in 2026 on the DA side.
Operator: Thank you. There are no further questions at this time. I will now hand the call back over to Mike Critelli for the closing remarks.
Mike Critelli: Thanks, Jenny. Join us at some of our upcoming investor events. On March, we will be at the 38th Annual ROTH Conference at Dana Point, California, taking one-on-one meetings with investors and participating in energy industry fireside chats. On May 26 to the 28th, you can catch us at the Louisiana Energy Conference taking meetings and giving an investor presentation. For all other events and the latest info, look at the events section of our website. We would like to thank everyone for joining us today, and stay with us as we continue on our convergence of real-time data and chemistry solutions. Thank you.
Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may disconnect your lines.