Prepared remarks
Good morning, ladies and gentlemen, and welcome to the Flotek Second Quarter 2026 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you require immediate assistance, please press 0 for the operator. This call is being recorded on August 5, 2026. And now I would like to turn the conference over to Mike Critelli. Please go ahead.
Thank you, and good morning. We are thrilled to have you with us for Flotek's second quarter 2026 earnings conference call. Today, I am joined by Ryan Gillis Ezell, Chief Executive Officer, and J. Bond Clement, Chief Financial Officer. We will begin with prepared remarks on our operations and financial performance followed by Q&A. Yesterday, we released our second quarter results, updated full year guidance, and an updated investor presentation, all available on our Investor Relations website. This call is being webcast with a replay available shortly afterward. Please note that today's comments may include forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from our projections. For a full discussion of risk factors, review our earnings release and most recent SEC filings. Please also refer to the reconciliations in our earnings release and investor presentation for non-GAAP measures. With that, I will turn the call over to our CEO, Ryan Gillis Ezell.
Thank you, Mike, and good morning, everyone. We appreciate your interest in Flotek and your participation today as we review our second quarter 2026 operational and financial results. In the second quarter, Flotek continued its transformational growth storyline through the execution of its corporate strategy. Driven by the powerful convergence of innovative real-time data and chemistry solutions, as shown on slide 3, Flotek 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. The strategic transition of the company into a Data-as-a-Service business model continues to gain momentum while expanding the total addressable market for the company. As a result, Flotek's data analytics segment grew exponentially while our Differentiated Chemistry segment 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 second quarter that Bond will discuss later in the call. Company total revenue approached $100 million, up 70% from the second quarter of 2025, and the strongest quarterly performance in the last 10 years. Data analytics achieved its highest quarterly revenue in company history, shattering the first quarter 2026 record by 85%. Chemistry technology revenue increased 53% with international chemistry revenue reaching $10.6 million, representing 93% of full year 2025 international chemistry revenue of $11.4 million. Company gross profit climbed 65% versus the second quarter of 2025. It is impactful to note that data analytics accounted for 51% of company gross profit versus 26% in the prior year quarter, marking a major milestone in Flotek's transformation as it became the largest contributing segment to gross profit. Total company adjusted EBITDA grew 109% year over year, totaling $16.8 million. On Monday, we also announced a 10-year $400 million contract award to support PREPA's 400 megawatt Puerto Rico gas power utilities project referenced on slide 4. Finally, the company updated its 2026 guidance with the new midpoint being 45% and 49% increases versus 2025 actuals on revenue and EBITDA, respectively. This update builds upon a multiyear trend of revenue and profitability growth as the company executes on its strategic initiatives to provide long-term resiliency and profitability as shown on slide 6. Most importantly, these results were achieved with zero lost time incidents in the field of operations. I want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. Now turning to the larger picture for the energy and infrastructure sector, we continue to believe that the ongoing situation in the Middle East will have impactful and potentially long-term implications on global supply and energy security that will demand action. The industry continues to exhibit a shift in supply-side dynamics that is recalibrating the risk profile of regional supply while fundamentally establishing a higher baseline for energy security. We expect increased investment in localized oil and gas developments while geographies that do not possess resources look to rapidly diversify energy security exposure. All of these factors point toward a stronger commodity pricing environment and increased upstream activities. Layering in the expanding power demand driven by AI data centers and industrial reshoring combined with the reliability issues of an aging transmission infrastructure, the expectations for tailwinds within the energy sector further strengthen. Our legacy pressure-pumping customers continue to capitalize on the portfolio diversification opportunity provided by the demand for remote power generation. Flotek is poised to support emerging customers 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 the greater than 99% uptime requirements. Transitioning from the macro view, let's dive into details starting with slide 8. I want to spotlight the transformational growth in our data analytics segment. We saw total segment revenues up 223% year over year and second quarter 2026 service revenues exceeding total segment revenues from the year-ago quarter. This strong growth is powered by our flagship upstream applications, power services, and digital valuation, both of which are generating significant contracted wins and robust recurring revenue backlog shown on slide 9. Out of this, we saw our PREPA 10-year 400 megawatt utilities power support contract generating over $400 million per year backlog through 2036. By the first quarter of 2027, Flotek expects to support over 5 gigawatts of power through measurement or control by our proprietary Powertech platform. This further validates the demand and scalability of our innovative technologies in the behind-the-meter power space. We are also actively engaged in a potential phase 2 extension of the Montana power services contract. Finally, we had the successful utilization of our state-of-the-art Smart Skid to optimize gas quality with real-time blending of fuel gas and CNG for a major IOC. This is the first application of its kind. The momentum gained from these wins has expanded our expected contracted backlog to over $500 million. Our services led this growth, further reinforcing our shift towards high-margin, recurring revenue streams. The Powertech platform has evolved from a novel analytical approach into a transformative solution for the energy and infrastructure sector. What began as advanced analytics has grown into a comprehensive end-to-end fuel management platform, redefining performance standards and operations within the sector as shown on slide 10. Our expanding portfolio of patents and field-proven use cases position Flotek as a leader across the natural gas value chain. Looking at slide 11, and when considering the velocity of our measurement, we deliver unmatched real-time fuel monitoring, conditioning, blending, and engine control to optimize performance and safety for behind-the-meter distributed power operations. The success of Flotek's power services applications is expanding rapidly as we expect to have proprietary real-time analyzers on more than 50% of the currently active North American e-frac and natural gas powered fleets by year end. Additionally, on August 3, 2026, Flotek announced its second contract within the utilities infrastructure sector seen on slide 4. Leveraging our patented PWRtek platform, Flotek entered into a 10-year agreement to support natural gas-fired grid enhancement initiatives for the Puerto Rico Electric Power Authority, which is the electric utility for the Commonwealth of Puerto Rico. Under the agreement, Flotek expects to generate a revenue backlog of approximately $400 million through rental of gas-fired power generation equipment together with the deployment of the company's proprietary smart conditioning and distribution systems. Flotek has partnered with Power Expectations, which leads the group executing the emergency temporary power generation project. The initiative is expected to deploy 400 megawatts of natural gas-fired power generation capacity to address Puerto Rico's ongoing energy crisis. Flotek is providing its proprietary PWRtek platform including 400 megawatts of primary power generation capacity and six pairs of Smart Skids with advanced conditioning, real-time analytics, and gas distribution systems, working alongside experienced local partners for on-ground execution and project management. Support equipment is expected to begin deployment in the fourth quarter of 2026 with the initial power generation equipment and conditioning and distribution skids expected by the end of the first quarter of 2027. Now let's transition to slide 13, where we will dive into our second 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 valuation. We believe the expected speed, accuracy, durability, and qualification under the rigorous measurement standards outlined in GPA 72 will provide a significant advantage in discussions with prospective customers as we aggressively expand this manufacturing and field deployment. In March 2026, the XSPCT analyzer was named Product of the Year at the 2026 Analyzer Technology Conference, further exemplifying its differentiated capabilities. In the first quarter of 2026, we ended the quarter with 57 digital valuation measurement devices deployed or contracted for delivery, and that number has grown 56% to 89 as of the end of the second quarter of 2026. The execution of 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 our investors. First, our DaaS-driven strategy ensures predictable recurring revenue and cash flow, delivering stability and long-term value. Secondly, our proprietary data technologies and superior measurement accuracy enable velocity and decision control that establish a high barrier to entry, secure client loyalty, and support our value-based service model. And third, long-term high-margin subscriptions position Flotek for sustained growth and margin expansion, driving significant shareholder value over time. Now lastly, our chemistry technology segment continues to deliver robust performance driven by the differentiation of our prescriptive chemistry management services and our expanding international presence. Slide 16 highlights the resilient performance of our chemistry segment which delivered a 53% increase in total revenue for the second quarter of 2026 compared to the second quarter of 2025 despite a 5% decline in the average North American frac fleet count over the same period, according to Primary Vision data. This was the strongest quarter of chemistry sales since 2017 and exceeded our expectations as our work in the Middle East pulled forward, driving strong performance in the month of June. International revenue totaled $10.6 million, up 172% from a year ago with the company expecting continued growth in the international chemistry sales in the second half of 2026. It is evident that our chemistry team has executed our strategy flawlessly. As we move into the second half of 2026, opportunities leveraging the convergence of prescriptive chemistry management and data services move to the forefront through high-margin services that improve operator ROI. These advanced DaaS-driven services include Smart COMBAT units, real-time flowback monitoring, and implementation of prescriptive geological targeting. Looking ahead, I am more confident than ever in Flotek's momentum and our ability to drive sustained profitable growth as we execute our transformative corporate strategy. We are firmly positioning Flotek 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 that are tailored precisely to our customers' evolving needs. Now I will turn the call over to J. Bond Clement to provide key financial highlights.
Thanks, Ryan. Good morning, everyone. Clearly, this was an exceptional quarter compared to both the prior year and the first quarter. As Ryan indicated, second quarter revenue exceeded our expectations by a wide margin. I wanted to provide a little color as to how the quarter came together. Second quarter revenue growth benefited from a very strong month of chemistry business in June. We recognized nearly $31 million of chemistry revenue in June alone. For perspective, that represents more than 50% of the total chemistry revenue generated during the entire first quarter of 2026. On the strength of our international business, our external customer chemistry revenue in just the month of June totaled $15.2 million, which exceeded the external customer chemistry revenue for the entire first quarter. As a result, external chemistry revenue increased 111% sequentially and accounted for nearly 60% of the company's total second quarter revenue growth of $29 million compared with the first quarter. Our updated guidance builds in a more normalized pace for domestic external customer chemistry revenue in the back half of the year as compared to the second quarter due to the transactional nature of the business. However, in terms of international work, we have inventory shipments expected to arrive in country during August and potentially September that we believe will allow international revenues to remain strong. We expect both chemistry and data analytics segment revenue for each of the third and fourth quarters to outpace our first quarter results. Because we have not yet secured the Phase 2 extension of our Montana Power Services contract, our guidance assumes no revenue from that contract during the fourth quarter, as noted on slide 12. We are currently in extension discussions with the various parties to that agreement. In addition, our guidance does not yet consider any financial impact in 2026 from the Puerto Rico contract announced Monday as we continue to work on initial deployment timelines. As shown on slide 6, we are estimating total revenue to range between $340 million and $350 million with adjusted EBITDA in a range of $47 million to $51 million. As Ryan pointed out, the midpoints of these ranges imply significant growth in each metric as compared to 2025. Just as a reminder for everyone, our adjusted EBITDA guidance does not add back non-cash amortization of contract assets, which is expected to total approximately $9 million during 2026. Moving from guidance to quarterly results: Total revenues for the quarter increased $41 million year over year, aided by the strong June chemistry sales previously discussed. 68% of the total revenue growth as compared to the second quarter of last year was attributable to chemistry while 32% was related to data. Chemistry segment related party revenues were up 64% from last year's quarter while external customer revenue increased 38%. As Ryan noted, international chemistry revenue totaled $10.6 million during the quarter, which is up from $4 million a year ago and up from just $1.9 million in the first quarter. Data analytics delivered another record quarter. Segment revenue represented 19% of total company revenue in the quarter, up from 10% a year ago. As outlined on slide 9, we continue to gain momentum with external customer data analytics sales. 63% of second quarter data analytics revenue was derived from external customers, as compared to 44% in the year-ago quarter. The increase in externally derived revenues was driven by our Montana Power Services contract that contributed nearly $6 million in revenue during the quarter as well as a $2.5 million sequential increase in our upstream power services business that continues to expand to external customers. Looking forward to 2027, we expect the project in Puerto Rico will increase the percentage of revenue derived from external data customers. Total company gross profit increased 65% as compared to the year-ago quarter. As a percentage of revenue, gross profit totaled 24% during the quarter, which was down less than 100 basis points versus the year-ago quarter, despite the nearly $7 million decline in the order shortfall penalty as compared to the second quarter of last year. G&A expenses increased 14% year over year. Excluding stock compensation, G&A was only up 7% versus the year-ago quarter. As revenues continue to scale, we have seen meaningful leverage in our G&A expenses. Total G&A expense declined to less than 8% of revenue in the second quarter of this year, compared to nearly 12% in the year-ago quarter. This marks the lowest quarterly G&A rate as a percentage of revenue that we have achieved in at least the last decade. Net income for the quarter was $10 million or $0.26 per share compared to $1.8 million or $0 per share in the prior year quarter. Our June 30 balance sheet reflects the increased activity during the quarter, particularly the strong month of sales in June. While our ABL balance was elevated at June 30 relative to funding working capital needs, borrowings outstanding as of this morning on our ABL had been reduced to zero. First half results were impressive with revenue up 49% and adjusted EBITDA up 81% versus the first half of last year. We have delivered strong growth while maintaining a disciplined balance sheet and low leverage. As shown on slide 19, using the midpoint of the updated adjusted EBITDA guidance, our leverage ratio is less than 1x based on net debt outstanding as of June 30. We believe this positions us to continue executing our growth initiatives while maintaining financial flexibility. With that, I will turn it back to Ryan for closing remarks.
Thanks, J. Bond. Our second quarter results extend our multi-year track record of consistent improvement as we continue transforming Flotek into a data-driven technology leader. The data analytics segment delivered strong growth highlighted by triple-digit increases in service revenue, expanding recurring revenue streams, and a robust multiyear contracted backlog now exceeding $500 million. Together with our resilient prescriptive chemistry management services, Flotek is well positioned to gain additional market share and drive further top- and bottom-line improvement with substantial upside opportunities in our data-driven services. We remain committed to shaping the industry's digital and sustainable future by leveraging chemistry as our common value creation platform. With our proven execution, expanding high-margin capabilities, and clear pathway to scaled growth, Flotek is poised for the next phase of value creation for our investors. Operator, we are ready to open the floor for questions.
Questions and answers
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number 1 on your touch-tone phone, and you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. One moment, please, for your first question. Your first question comes from the line of Rob Brown of Lake Street Capital Markets. Your line is now open.
Good morning. Congratulations on all the progress.
Good morning.
First question is on the overall power infrastructure business. The Puerto Rico contract was a great add. Could you comment on the overall pipeline in that business? And maybe provide some color on what other kinds of projects are out there in terms of the pipeline you are pursuing?
Right now, our power services pipeline, particularly related to utilities, infrastructure, and data centers, is the largest it has been in the history of the company. This recent award with PREPA is an example of the type of opportunity that we have. We have a series of different opportunities that we are in various stages of bidding and processing around. What is exciting is we have moved measurement devices into monitoring real-time gas-fired traditional power plants, some in the Northeast and a couple in Texas. We have also expanded our measurement services into data center growth. I mentioned the project about the real-time blending and control for one of the major IOCs; this area will be targeted for data center growth for some of the larger behind-the-meter power generation companies. We are seeing a significant pipeline there. When you look at the combined value, it is well over $1 billion now, at various stages of bidding and negotiation. Since the start of our Powertech segment in the second quarter of last year, we will be doing measurement and/or some variation of control and distribution on almost 5 gigawatts of power. It is an exciting growth platform for Flotek as it gains rapid growth and scalability.
Excellent. And then just more detail on the Puerto Rico contract. It sounds like you are doing a combination of gas control and power generation. Could you elaborate on the power generation side, when that activity kicks in, and how that will fit into the mix of what you are doing?
This award is new and we will provide updated numbers on guidance timing as we refine deployment milestones. You will really start to see the financials play in the first quarter of 2027, with some mobilization pieces potentially late in Q4 2026. Our initial 40 megawatts of prime generation will move relatively quickly, along with the conditioning and distribution setup. The conservative financials reflect a baseline of the contract. When you look at Puerto Rico's infrastructure needs, they are evaluating growing almost 3 gigawatts of power as they transition from coal and diesel to natural gas. This initial 400 megawatt opportunity could expand. The work includes an LNG transition to CNG potentially combined with biogas sourced from landfills. This is where our real-time monitoring and real-time blending technologies are differentiated, positioning Flotek to capture this work. We will provide further updates on timing and scope as we approach the kickoff in Q4.
Your next question comes from the line of Jeffrey Scott Grampp of Northland Capital. Please go ahead.
Morning, guys. Congrats on all the recent positive news this week.
Thanks.
I was curious to get a little more backstory on your involvement with the Puerto Rico contract. My understanding is this project has been in the works for a bit, and you may have been involved in earlier stages while it was being negotiated. How did you become aware of this project, how did the partner become aware of you, and how did you convey your value proposition to win the deal?
This evolved over time. We started with initial work in Montana supporting government-driven contracts, and that evolved. Through contacts from those pursuits and government engagements, we were brought in initially to look at gas-fired power generation from U.S. government defense contract sites; those parties were aware of our technologies. As the opportunity expanded under the umbrella of a broader gas-fired power transition in Puerto Rico, our technology was brought into play. They wanted to consider an LNG-to-CNG transition and potential incorporation of biogas, and our ability to monitor, real-time blend, control, and distribute became a strong value proposition. This was a multiple-quarter pursuit with testing and validation components. Kudos to the team led by Thomas Redlinger and our engineering staff for pursuing this and getting it done. I think this will open multiple doors as people put the capabilities of the PWRtek platform center stage.
Got it. For my follow-up, you put in the release that you expect to support 5 gigawatts under measurement or control. Can you contextualize that from a revenue perspective? I know revenue exposure can vary depending on scope, but can you split that between oil and gas exposure versus other end markets you are penetrating?
I'll walk through how we get to 5 gigawatts, but it's hard to directly extrapolate revenue because revenues vary by scope—measurement, control, and distribution each have different revenue profiles. We have secured measurement devices on over 50% of power generation e-frac and natural gas powered fleets in the U.S. on the e-frac side. Those run anywhere from 35 to 40 megawatts per location in terms of sizing. If we are doing just measurement versus measurement plus control and distribution, revenue streams differ. I will not provide a direct revenue extrapolation here, but to help you understand: we have roughly 75-plus measurement and/or control sites accounting for baseline megawatt numbers per site. Then, for natural gas-fired power plant facilities like CPV Fairview and a couple others, those account for just under 2 gigawatts where we are focusing on measurement to determine condensate removal, ethane handling, and derating capacity. The recent PREPA 400 megawatt award brings us to roughly 5 gigawatts. Each location has different revenue potential depending on the level of conditioning and distribution involved. As we transition from measurement to control and control plus distribution, revenue per location increases dramatically.
Your next question comes from the line of Gerard Sweeney of Roth Capital. Please go ahead.
Hey. Good morning, Ryan, J. Bond, and Mike. Thanks for taking my call this morning.
Hey, Gerard.
On the data analytics side, you have power, valuation, and the e-frac fleet opportunity. These markets are expanding. Is there anything you need to invest in to attack this market faster, solidify your position, or grow a bigger pipeline to drive more consistent opportunity unlocking?
Three key points. First, we have invested over $13 million in CapEx into monitoring equipment, conditioning equipment, and distribution equipment to grow the power services and digital valuation businesses. If you aggregate prior years, this investment is larger and we expect that number to continue to expand in the back half of the year because the ROI is solid. Second, there is an opportunity to supplement partners and modestly grow our organic power services—potentially adding 50 to 100 megawatts to stabilize work with larger behind-the-meter providers; this would involve pre-investing in some assets. Most of our measurement and conditioning assets can be built in four to five weeks, allowing quick turnaround. Third, there are M&A and consolidation opportunities with mechanical conditioning operators or others doing gas monitoring that are not real-time; we could upgrade their equipment using our proprietary blending and measurement technologies. These are three primary pathways to accelerate growth: continued organic CapEx investment, selective organic expansion, and M&A or consolidation to capture installed base upgrades. We are focused on executing across those levers.
That is helpful. On technology differentiation in the power market: are more potential customers recognizing this, and how do you expand or highlight it?
We started pursuing behind-the-meter customers initially in the e-frac space and have moved into top-tier behind-the-meter power suppliers. Our patented mobile gas conditioning technology is unique. The slide deck shows a case where fuel gas was conditioned by a mobile gas conditioning plant and, even after conditioning, the gas quality was variable. Our measurement device tracked methane number variance and automatically opened and closed a blending valve to add CNG, stabilizing the methane number to the specification required for a turbine. Before our intervention, that turbine was shutting down once or twice a week. We went on site for six weeks and had no shutdowns. This demonstrates value creation through improved fuel efficiency, reduced maintenance costs, extended equipment life, less derating, and potential carbon credit benefits from reduced emissions. By speaking directly to control modules on engines, we offer a highly differentiated set of technologies. Each skid we build is contracted on location, and this is the first application of its kind, creating compelling case studies with measurable ROI.
Appreciate the color. I will jump back in queue. Thanks, and congratulations.
Your next question comes from the line of Josh Sullivan of Jones Trading. Please go ahead.
Good morning. Congratulations on the quarter.
Good morning, Josh. I wanted to follow up on the comment about potential acquisition of mechanical conditioning operators. How large is the mechanical market so we can frame that opportunity? In terms of dollars, it's hard to generalize because operators define their services differently. Some do traditional filtration and debris removal while others do JT skid applications. Typically, fuel gas utilization run direct to frac fleets includes some type of filtration ahead of it. The problem is they cannot detect gas quality in real time or effectively blend it; real-time blending with measurement would violate our technology patent. In my view, every frac or e-frac fleet that runs field gas and CNG should have at least a Smart Skid type solution, which is a low rental cost relative to the ROI from fuel improvements and equipment protection. There are roughly 110 to 120 locations possible for full conditioning and distribution, and we have measurement devices on about 75 of those now. The same companies in this space are moving into behind-the-meter power generation, and this technology moves with them. We have shown that even pipeline gas to data centers exhibits quality variance that affects turbine performance and maintenance. We are seeing a growing amount of inbound interest—companies experiencing turbine shutdowns reach out to us, particularly where we already have measurement devices in place and they want to upgrade to control and conditioning. We are also seeing inbound interest from utilities contractors and data center projects, as well as OEM engine builders testing our XSPCT FG units for reciprocating engine control. Our sales and pursuit teams in the field are expanding; we will double the team by year-end and continue to add as demand grows. We are moving from an outbound-driven pursuit to a mix where inbound opportunities are increasing.
Good to hear. Congratulations on the quarter, and thanks for taking the questions.
Your next question comes from the line of Blake McLean of Daniel Partners. Please go ahead.
Hey. Good morning, guys. Thanks for taking my call here.
Hey, Blake.
I wanted to switch gears to chemistry and specifically the international success you've had. How do you view the broader international opportunity and how do you think about the revenue split going forward?
This is a strategic area we've invested in for over three and a half to four years. One of our focuses has been building a balanced domestic and international footprint to stabilize commodity cycle timing and create longer-duration, less transactional international contracts. Our team, including Leon Chad and Jamal Al-Wabel, has driven pursuits in the Middle East to get technologies approved and tested, and that work has progressed despite regional disruptions. We are currently on four frac fleets in the Jafarah field providing chemistry and potentially expanding to six by year-end. That scope provides multi-year duration—about 4.5-plus years—which gives runway and forecastability. We pulled revenue forward into the quarter, which strained supply chains temporarily, but the team executed well. We also see opportunities in Latin America where we are deploying chemistries and data analytics equipment for real-time chem units. In the Middle East we've deployed data analytics equipment for gas monitoring, RVP measurements, and transmix testing, and those are approved technologies at major NOCs. We're in the early innings of international growth and expect it to proliferate in the back half of the year and into 2027.
Got it. Appreciate the color this morning.
Your next question comes from the line of Bo Fratt of AGP. Please go ahead.
Hey, good morning. I have a couple of questions. First, on guidance: if I back out the first half revenues from your full year guidance, it looks like second half revenues might be below the second quarter level. Can you talk about factors making the second half look lighter than the first half?
If you look at the full-year guidance, the second half is bigger than the first half. We are moderating our outlook in the back half because we had a very large month of external chemistry in June that front-loaded the second quarter. For example, external chemistry was $12.8 million in the first quarter and jumped to $20 million in the second quarter. We are normalizing that volatility and assuming a more average pace between those two quarters for the back half. That is the primary change. We also currently do not have anything forecasted in the fourth quarter relative to the Montana Power Services contract; that contract contributed about $6 million in the second quarter. Our guidance assumes no fourth-quarter revenue from that extension until it is secured. For data analytics, we expect segment revenue to grow sequentially in the back half with the exception that if we don’t secure the Montana extension, the fourth-quarter growth will be impacted. International revenue we assume remains strong similar to the second quarter. In short: the moderation is mainly due to front-loaded domestic chemistry work in June and the currently unforecasted Montana extension in Q4.
Is the Montana extension roughly a $6 million-per-quarter run rate if extended?
Yes, for the time being, that is the run rate we are using.
Can you roughly split the $340 million to $350 million revenue guidance between data analytics and chemistry?
We are not providing a precise split at this time, but the framework is: data analytics segment revenue is expected to grow sequentially in the back half (except for any impact from the Montana extension), international chemistry is expected to remain strong similar to Q2, domestic external chemistry is being normalized given the transactional nature, and pro-frac or domestic pro forma is roughly held flat to the first half pace as a framework for Q3 and Q4. That should help you model segment behavior.
From a cash standpoint: the working capital draw in the first half was about $36 million. Does that unwind in the second half? And regarding CapEx, Ryan said CapEx will go up—would $5 million per quarter be a reasonable estimate going forward?
The CapEx treatment is nuanced. We had about $12.5 million of an order shortfall payment at the end of 2025 that we transitioned into a construction credit; ProFrac is essentially paying us via equipment build rather than cash. So much of that construction is non-cash and will not show up as CapEx on the cash flow statement. During Q2, we utilized about $3 million of that order shortfall payment, which does show up on the balance sheet. We already have POs in place for roughly the remaining $10 million-ish that is in progress and will come out on a monthly basis. We did have working capital headwinds in the quarter to support the big growth trajectory in Q2, but as of this morning our ABL balance is down to zero as we monetized many receivables. That said, some working capital movements are timing-related and could unwind in the second half, particularly as receivables are collected and inventory shipments arrive in international markets in August and September.
Regarding the 5 gigawatts under measurement/control by Q1 2027: you previously noted that 400 megawatts equates to the PREPA contract and about 2 gigawatts from power plant components. Is there a revenue number you can offer or do you prefer we try to triangulate?
We are not providing a direct revenue number for the 5 gigawatts at this time. Some of the larger, older gas-fired power plants will mainly involve measurement, which carries a different revenue profile than measurement plus control and distribution. As those facilities get upgraded to more advanced designs, the revenue profile can increase. We will provide more specifics as projects progress, but we are preserving discretion on granular revenue attribution for now.
Can you discuss margin profile on the PREPA contract? Will it be rental-based initially and therefore lower-margin, or are you considering an owned-power model that would change margins?
We will defer on providing detailed margin guidance for PREPA for now as we continue to work through financials and deployment plans. Initially, we expect the power provided will be on a rental basis similar to the Montana project, which carries lower margins than an owned-power model. We are still evaluating the potential transition from a rental model to owning power assets, which would change the margin profile.
Your next question comes from the line of Eric Benjamin Swergold of Firestorm Capital. Please go ahead.
Good morning, gentlemen. I cannot believe that just a few years ago I was sitting near a conference room and you were doing $10 million a quarter and had your back against the wall. Now you are doing almost $100 million in a quarter. Congratulations. Not to put you on the spot, but we talked a bit about generators versus turbines—what are your thoughts on getting your solution built into turbines by major turbine manufacturers as a factory option?
That's a natural evolution. Historically, high power-density turbines have long-standing agreements with gas chromatography suppliers that cannot provide fast measurements. We've had initial inbound interest from turbine manufacturers on incorporating our equipment as a factory or OEM option. While turbines can burn a range of fuel, the actual impacts on derating, maintenance, and long-term fuel efficiency are meaningful. By including our equipment as a conditioning package on the front end, we present a strong ROI and value proposition for turbine OEMs. This is evolving similarly to what we've seen on the reciprocating engine side, though adoption in turbines has been slower. We are seeing progress.
Great. Congratulations and thanks to the team for the execution.
Your next question comes from the line of Jeffrey Scott Grampp of Northland Capital. Please go ahead.
One more quick follow-up: integrating data and chemistry sounds interesting. Have you had early success or revenue contribution from combined offerings? How do you see the timing for ramping those opportunities?
This convergence is a core value creation platform for us and I'm glad you asked. We have now deployed XSPCT units on wells where we performed chemistry completions. That validates that targeted chemistry improves uplift because we can see the chemistry and initial production in real time. This has evolved into what we call reservoir mapping or 'DNA fingerprinting' of higher-end hydrocarbons that our prescriptive chemistry treatment targets. We design treatments in the lab, then validate flow response in the field in real time. Even when flow rates have similar BTU, real-time speciation reveals hydrocarbon quality shifts that translate to higher value for production. This has moved from bench discussions to full field deployment and is gaining significant traction. Large IOCs and operators are focused on designing targeted chemistries, and Flotek is well-positioned to deliver prescriptive chemistry with differentiated high-velocity, high-accuracy measurement devices. This combination improves efficiency across the value chain and will accelerate our digital valuation business hand-in-hand with prescriptive chemistry management. We are very excited about the momentum.
That's great color. Looking forward to following the details. Thanks, guys.
There are no further questions at this time. I will now turn the call over to Mike Critelli. Please go ahead.
Thanks again for joining our call. Please join us at some of our investor events on August 17 to 19 at EnerCom Denver, where we will be presenting an updated investor presentation; on September 10 at Lake Street's 10th Annual Best Ideas Growth Conference in New York City; and on November 10 and 11 at the Daniel Energy Partners Annual Permian Barbecue, where we hope to compete for best barbecue dish. For other events and the latest information, look at the events section of our website. With that, I will hand it over to Ryan.
We would like to thank everyone for joining us today and for the continued support of the organization. We look forward to bringing you positive updates in the back half of the year. Thank you for joining.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.