"

"

"

"

" Northland Capital Markets, Research Division

" ROTH Capital Partners, LLC, Research Division

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

" Daniel Energy Partners, LLC

"

" Singular Research, LLC

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

Thank you, and good morning. We're thrilled to have you with us for Flotek's Third Quarter 2025 Earnings Conference Call. Today, I'm joined by Ryan Ezell, Chief Executive Officer; and Bond Clement, Chief Financial Officer. We will start with prepared remarks covering our business operations and financial performance. Following that, we will open the floor for questions. Yesterday, we announced our third quarter 2025 results and an updated earnings presentation, both of which are available on the Investor Relations section of our website. This call is being webcast with a replay available on our website shortly after its conclusion. Please note that the comments made on today's call may include forward-looking statements, which include our projections or expectations for future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from those projected in forward-looking statements. We advise listeners to review our earnings release and most recent 10-K and 10-Q filings for a more complete description of risk factors that could cause actual results to materially differ from those projected in forward-looking statements. Please refer to the reconciliations provided in the earnings press release and investor presentation as management will be discussing non-GAAP metrics on this call. With that, I will turn the call over to our CEO, Ryan Ezell.

Thank you, Delbert, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our third quarter of 2025 operational and financial results. In the third quarter, we saw North American operators maintain the cautious posture initiated in the second quarter as they continue to navigate the return of OPEC+ spare capacity and persistent global trade uncertainty. Despite the dynamic geopolitical and macroeconomic challenges that have injected uncertainty within the market, the Flotek team remains steadfast at the execution of our corporate strategy, driving transformation and delivering our 12th consecutive quarter of adjusted EBITDA improvement. As referenced on Slide 4, Flotek extended its track record of transforming the company into a Data-as-a-Service business model as our industrial pivot continues to gain momentum while expanding the total addressable market for future growth of the company. Furthermore, we increased market share in both of our complementary business segments with an unwavering commitment to service quality and value creation for our customers and shareholders through the convergence of innovative data and chemistry solutions. With that, I'd like to touch on some key highlights for the quarter referenced on Slide 7 that Bond will discuss later in the call. Total revenue during the quarter rose 13% versus third quarter 2024, highlighted by a 232% increase in data analytics revenue, which is our strongest quarter ever and a 43% increase in external chemistry revenue. Gross profit climbed 95% versus third quarter 2024, with third quarter 2025 gross profit margin rising to 32%. Net income totaled $20.4 million, while adjusted EBITDA was up 142% versus third quarter 2024 and up more than 20% sequentially. On October 29, 2025, Flotek announced that the XSPCT analyzer was the first optical spectrometer to comply with oil and gas custody transfer standards known as…

Thank you, Ryan. Good morning, everyone. I'm excited to discuss our third quarter numbers released yesterday afternoon. Our results were positively impacted by the first full quarter of cash flow contribution from our PWRtek assets. The $6.1 million in PWRtek revenues during the quarter drove a 50% sequential increase in data analytics revenue. Data analytics gross profit margin totaled 71% during the quarter. That was up 800 bps sequentially as gross margins relative to the PWRtek assets specifically came in at 89%. The increased data analytics contribution, along with an increase in the chemistry shortfall penalty, combined to raise total company gross profit margin to 32% for the quarter. As noted in the release, all of the PWRtek assets are now in service, so we expect fourth quarter revenues to increase further to approximately $6.8 million. As shown on Slide 11 in yesterday's deck, since closing the acquisition in April, our PWRtek assets are a clear catalyst for margin and profitability expansion, driving improvements not only within the Data Analytics segment, but also at the corporate level. Emphasizing PWRtek's impact and as shown on Slide 6, during the third quarter of last year, the Data Analytics segment contributed just 13% of total company gross profit versus 35% during the third quarter of this year. As a reminder, based on the contractual terms in the lease agreement, PWRtek revenues in 2026 are expected to be north of $27 million or an approximate 70% increase from 2025. So we fully expect these assets to be a significant part of our 2026 results. Looking at the quarter, revenue during the quarter was up 13% from the year ago, and as Ryan said, was driven by the Data Analytics segment. As compared to the year ago quarter, we saw a massive increase in service…

Thanks, Bond. The third quarter 2025 results build upon our now multiyear track record of consistently posting improved financials as we successfully transformed the organization to enter a new data-driven frontier. Our 2025 guidance points to the execution of our corporate strategy, leveraging chemistry as the common value creation platform. Looking at Slide 18, I remain convinced we are still in the early innings of Flotek's transformation as we continue to grow and maximize returns for our customers and shareholders across the entire value chain of the energy landscape. Our transformative and strategic entry into the energy infrastructure sector is expected to provide a significant increase in high-margin data analytics revenue and cash flow for years to come. Through the growth of our upstream applications, we anticipate the Data Analytics segment will contribute to over half of the company's profitability in 2026. We continue to secure long-term contracts for both our Chemistry Technologies and Data Analytics segments, bolstering confidence in Flotek's ability to deliver stable revenue and profitability while effectively shielding our business from the impacts of commodity price fluctuations. Finishing with Slide 19, we believe no other company in our industry is better positioned to deliver the cutting-edge technologies needed to tackle the unique challenges of our energy and infrastructure sectors. I'm incredibly proud of our progress and confident in our team's ability to execute moving forward. Given the growth potential for our Chemistry Technologies and Data Analytics segments, we see Flotek as a compelling investment opportunity. Thank you for your continued support, and we're eager to share our vision for Flotek's future and look forward to updating you on our progress in the quarters ahead. Operator, we're ready to open the floor for questions.

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

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

So Jeff, this is Ryan. We look at it as there's kind of 2 to 3, I wouldn't say hurdles, but progressions that have to take place in terms of what we do from digital valuation. We spoke on in earlier quarters this year around some of the successful pilot programs that we had ongoing in 3-plus basins here in the North America land. We've seen those all turn over and are no longer in pilot phase. They're more in commercial phase. So that's one of the driving factors that we'll now start to see multiple unit deployment starting here at the back part of Q4, and that will roll into some of these 200-plus sites we see in 2026. There's also a little bit of piece of looking at the exact location for where they go because the different operators are looking at 2 to 3 different things they do well. A big value creation point is where when we bring on the production wedge component there at a gathering site, that's one key location that's typically garnering the initial most interest. And then we move into the actual pure 2172 addressing method around custody transfer pieces. So it's just -- it's kind of like walking over that heel to turnover. The pilot phases are complete. We've now seen full commercialization. We've increased the level of manufacturing. We don't feel we'll have any issues addressing the total number. We've already pre-bought all of the materials and are completely building now. And so what we're doing now is working out final Ts and Cs on customer rollout. So we expect it to be steady output closing this year and in '26 with increases in total number quarter-by-quarter, if that gives a little bit of better granularity.

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

Correct. Yes, that is correct. And so you look at it -- and it kind of goes through a progression, right? The big input we first see is when they're bringing new wells on production because we can see every minute change in production quality and then it goes into monitoring the well over a long period. And so it's kind of like -- as you can imagine, each customer operator and/or midstream client is looking for the maximum ROI on the initial deployments and then it works its way down the value chain. So that's mostly what we're doing is we'll pick up a customer. It takes a few weeks to go through the technical install pieces, test out how it does. Typically, production wedges are the big pieces we look at first. and then we move into the day-to-day monitoring or what we call creating -- you're essentially making, Jeff, a digital twin of the manual custody transfer sampling process, which is faster, more accurate and more durable in the long term and actually cheaper in the long term as well.

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

Yes. So we actually -- I would say, Jeff, excluding what we've done on the PWRtek deal with our initial contract, year-to-date, we've done an additional $2.1 million of revenue secured already after just having the equipment for a quarter. And I'd like to reference you like Slide 12. We try to give a little bit of a schematic to where -- what's going on in the business location in terms of how our sales process works. That first step is proving the measurement out. So that $2.1 million has been solely related to us sending Veraxs or XSPCT to location to monitor the gas and prove the fact to most of these people who are running either turbines or reciprocating engines that, look, we can see your gas quality coming in and out of any type of current manual treatment that you're doing and improve that. And those have gone really well. We've actually seen 6 new customers outside of our deal with ProFrac adopt that already in Q3 with multiple units testing for each one of them. The next phase of that goes into control, where they look at applying a smart filtration skid or an ESD monitoring unit, and we determine do they need H2S, do they need CO2? Do they need an MRU? Do they need these different pieces at what level of conditioning they need? And the final piece is issuing distribution and full control. And we've seen great success at working directly, feeding information directly to reciprocating engines and adjusting temperature and gas quality for turbines. So we're making great progress, in my opinion, on this. Now what's also interesting, Jeff, is these sales work a little different, depending on the vertical with inside power generation that you're working and how fast the sale takes place. And they're a little -- I would say they have a little slower turnover period than our traditional frac monitoring power gen and/or chemical sales, which work on a pretty quick sales cycle, almost pad to pad in some cases. So -- and I think you'll see some of the other, I would say, power service providers commenting on the sales cycle is a little bit different. The pursuit is a little bit different. But if you look at what we laid out here on Slide 12, we really laid a pathway of sales out, and we made great progress in our first phase of the measurement, and we're now transitioning to control the multitude of those clients. And I would say those client bases are legacy pressure pumping type customers, data center development and building customers and also biogas generation customers. So working in a multitude of verticals depending on the installation time and the equipment provided.

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

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

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

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

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

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

Yes. So kind of alluded, I go back to referencing to Slide 12 again, Gerry. Our first step is proving out what the heart of PWRtek and Power Generation services is, and that's our ability to do the real-time gas measurement. Now depending on the type of equipment, whether it's reciprocating engine and/or a turbine is what measurement, whether you're looking at BTU number, methane number, Wobbe index, different components, high heating value, low heating value, et cetera, our equipment does all of that. And it's proving out what the brain of PWRtek does is our initial step. As I told Jeff earlier, we picked up 5 new customers for that in Q3 alone and testing multiple Verax and/or expat units on location to drive that part. The next piece is once we get a defined point of gas quality, we move into the next part of control as in the ESD trailers or smart filtration skids or H2S monitoring, all the different pieces that bolt on to really condition that gas to optimum output for the turbine and/or reciprocating engine. We've also moved into being able to -- because we can see BTU or methane number in real time, we have the capabilities to automatically tune a reciprocating engine, which has never been done in the industry before. And we've been working that aggressively in Q3. And so that's where it leverages into the next point of the sale. And finally is our state-of-the-art distribution trailers. And so it takes -- it's like a methodology that we go through in doing it. And we progressed through what I call Phase 1 pretty aggressively in Q3, and we'll see further expansion into control and distribution in Q4 and all of 2026. Now addressing capital needs, we've got plenty of measurement devices. We kind of preloaded XSPCT Verax units for that. We've built an initial 4 ESD trailers that are coming out, and we'll be issuing POs for additional distribution trailers here in Q4. And we've got probably the most -- well, not probably, the most aggressive capital delivery plan in Flotek probably in the last decade as we roll into 2026 to drive the deployment to ensure that we can address the needs of the growing customer base of not only some of our legacy pressure pumping customers that's made that transition, but also some new and emerging customers that are out there in the pure mobile power generation piece, and we look at the fixed installation and the biogas treatment facilities as well.

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

Yes. Like the GPA 2172 that also relates to API 14.5 was the specific hurdle that had to be addressed. It is the backbone of what actually allows you to say we have a true digitized or digitalized custody transfer model in that it sets the standard of, hey, you have, you can use gas chromatography on another acceptable method, which is the optical spectroscopy. But for the optical spectroscopy to be allowed, it has to meet reproducibility and repeatability of what a GC standard is, and we exceeded all of those capabilities with the XSPCT unit, which is pretty amazing, being it's the first optical spectroscopy unit in the world to be able to do that. And so that kind of takes away a majority of a lot of -- particularly the midstream guys ask us, hey, is it compliant with 2172 and it is now. And so that was a big deal about being able to do that. And in all honesty, we had to progress in a lot of our pilot testing earlier in the year to get access to be able to do that to live streams. And so that was some of the big parts that we were able to close up here in the quarter, and we're extremely excited about it.

Our next question comes from Don Crist, Johnson Rice.

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

Yes, Don, that's a great insight and a great question as our head teams are over in ADIPEC and following this week in Saudi as well to discuss the impacts of the business expansion with our -- what I consider to be our largest customer in the Middle East. And if you look at -- we mentioned around how that international revenues year-to-date are up 122%. Getting ready for some of this initial work is what led up to those revenue increases. We saw that slow down as that mega tender for Aramco was completed. And with our customer picking up the majority, well, I guess, 100% of that hydraulic fracturing scope, we do expect to see business pick up in the back half of Q4 and heavily in 2026, which is -- you've talked Bond and I acknowledging over this for the past year. This is what we've been positioning Flotek for is this type of growth in the Middle East. And we haven't given any guidance on specific expectations around there, but we do expect it to be very positive for us.

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

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

Yes. So I'll talk about a couple of things. Let me talk a little bit around efficiency, right? What -- being the fact that we're now past the GPA 2172, we are now able to deliver a custody transfer level grade measurement to a resource owner, an operator or a midstream first buyer essentially almost every 5 seconds versus what was taking 3 months to 6 months to turn those over. More importantly is because you get such a regularity of measurement at such high resolution, we're able to resolve a multitude of the potential manual sampling bias that takes place on the production, which removes a layer of, I would say, fog around it provides a lot of transparency over what the true production and production quality out of each individual target location is. So that -- and typically, what we've seen is anywhere from 3% to 5% bias. What's also important is the fact that we can measure the direct flow line removes the process of manual sampling. So you see cost reduction there. You also manual sampling is never done the same way by anybody. It changes lab to lab. And so there is a variance typically or error introduced by the type of sampling that's done, whether it's pressure drop, temperature issues, et cetera. And so we remove all those components. So there are significant improvements in measurement quality, accuracy, resolution and reduction in variance -- variability. In terms of cost, traditionally speaking, we expect overall between CapEx and maintenance, almost a 50% reduction in cost overall through the process. So as you can see, I mean, this is a transformative step in creating a what I would consider to be a digital twin of -- in a real-time digital twin of the custody transfer process and creating significant efficiency, accuracy and cost gains for the customers.

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

Yes. So that's a lot to unpack. And so I'll try to do it in 4 or 5 main points. The first thing is around our ability to grow chemistry. Number one, the efforts that we put into stabilizing our revenue streams domestically and internationally is going to provide a solid runway to grow. I think as we kind of alluded to the potential impact of the expansion of our Middle East -- potential impact of our Middle East business is going to be huge for us to provide growth in '26. And then also some other countries that we have opportunities in, in Latin America and as well as Asia Pac, I think, are going to be positive, but probably not nearly as, I would say, material as what the Middle East will be. Secondly, as we move to the domestic component of it, everything that the oil and gas operations from the operator and the oilfield service companies are doing right now plays into the strength of Flotek. They want efficiency. They want maximum return on invested capital. They want maximum returns, and they want cost options that digitalize their entire value chain. And that's where the next frontier for Flotek is the tip of the spear and moving. We've not only been able to improve efficiency just by quality of our PCM services on location, the advanced chemical technologies, but we moved into complete automation by looking at real-time water quality, being able -- we've got our own chemical pumps on location that can adjust on the fly to water quality. We're able to pump concentrates instead of spotting 8 ISOs to 10 ISOs, we can bring 7 totes out to location. So we're doing a multitude of things that impact the overall progress and the efficiency…

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

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

We haven't given any particular guidance on those numbers yet. I do -- when I look at the health of our pipeline and the continuous expansion of it, our goal would be we say this loosely to get into the doubling the size of our paired fleet by the end of 2026. I think that's a reasonable goal and one that we can potentially exceed. But that's -- when we start to look at capital outlay, we're looking pointed in that direction and doubling that size and some sensitivity pluses and minuses in that direction just to kind of start off. And I think you'll come to see us as we wrap up the year, we start to understand the impacts of natural gas and some of this transition, and we'll give a little bit better guidance towards the end of the year.

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

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

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

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

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

I'd say somewhere in the 20% range.

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

So if -- there's 2 separate agreements we're talking or you're talking about here. We have the lease agreement with PWRtek and then we have the chemistry supply agreement. Under the chemistry supply agreement, ProFrac is obligated to purchase a requisite amount of chemistry on an annual basis. So what we do at each quarter, we assess where they are from a trajectory perspective, and we effectively book a receivable and revenue for what we believe they're going to be under at the end of the year. So that receivable builds up at the end of the year and then it gets released in the first quarter of the following year. So there's really no tie-in per se between the chemistry shortfall penalty, if you will, and the lease agreement other than we do have some offset rights as it relates to some leverage that ProFrac extended in connection with the PWRtek acquisition.

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

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

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

That's a great question. And what I would say is when you look at the way the minimums were calculated, it was on volumes of chemistry pumped by an average fleet times a certain number of fleets is where we got to these numbers from. And earlier in the contract, when you saw high hydraulic fracturing fleet demand, we were actually meeting and exceeding the revenue numbers on a monthly basis. And then the back half of 2023, we started to see a correction, efficiency gain in fleet count, but also just a slowing down of the market. And we feel like we're at the trough of where it is right now. We do expect the chemistry sales to ProFrac to improve in Q4 as we picked up quite a bit more work with those guys. And what's interesting is during that shift between the end of 2023 to where we sit today, there was a massive influx at the earlier part into the Permian Basin. The buyers in the Permian Basin run significantly simpler hydraulic fracturing formulations and traditionally basically separate the chemical buy -- from the pressure pumper, particularly in markets where there is an oversupply of equipment and the demand for the horsepower is down. They don't necessarily are not able to enforce the wheel per se and selling a particular type of chemistry. And as we've seen the fleet counts go down, the biggest change in fleet count number has been away from the Permian and into more of these gas-rich basins being the Haynesville and the Northeast, et cetera, where our differentiated solutions make a huge difference. And so it's -- our technology deployment has gotten better and will get better through the back half of this quarter and while we roll into 2026. But a lot of it has to do with buying behaviors of the operator, the geographic location of those operators and where we are in the cycle on hydraulic horsepower demand and leverage pieces. And so what was unique about this 10-year contract is we kind of try to model and build in that robustness. There's capability years through the cycle where they'll exceed and it will actually take away and can take away at sometimes OSP that are gained in different pieces. And so at this point in time, we -- there's been no discussions on changing anything related to that supply agreement or an asset for the company. So -- but just trying to give you a little bit of color on the way the cycle influences the buying powers of the chemistry providers and operators.

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

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

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

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

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

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

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

Can you hear me?

Yes, we got you.

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

You're talking about our expectation going forward? Yes. So this year, we'll do -- we haven't given guidance really on 2026 as it relates to the various components that drive data analytics revenue. The one thing I'll point you to is, this year, we're going to do, call it, $16 million under that PWRtek agreement. We know those are 89% to 90% margins. Next year, that number jumps by 70%. Obviously, more revenue from this high-margin business is going to, I think, continue to move margins. It's hard to say what the other contributing factors are for revenue next year because we don't have anything like this big long-term contract that's driving the margin growth this year. But we -- I would expect if the PWRtek business is a meaningful part of next year's revenue, it's going to drive the weighted average gross margins higher than 70%, perhaps even closer to 80%.

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

Not at this point in time. I think that we've begun to invest in inventory of the actual measurement devices, whether it be in the Verax or XSPCT expect units. And I think we preloaded and started building out from the PWRtek aspect, multiple ESD and smart filtration skids and we'll be transitioning to additional build-outs of our distribution skids, trying to keep a healthy risk weighting of what we put in the pipeline and what we prebuild versus what's delivered by contract. Luckily for us, even if we had a large, I would say, tender or award come through that would exceed the capacity most of these pieces of equipment we can build in 5 weeks or less on the big pieces of equipment, we can typically turn expected Verax units out within a few days once we get an order. So we should be able to, at this point in time, keep up. I will tell you this, that we have looked at -- when we look at capital outlay and manufacturing production, we're looking at this on a 36 month- to 60-month landscape in terms of bottlenecks that could potentially be created by our current facility capacity more than personnel and/or availability of equipment. And that's some of the things that we're looking at is expansions to -- potential expansions to our facilities in the coming months.

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

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

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

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

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

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

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

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