Flotek Industries Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2025

Key Takeaways

  • Positive Sentiment: The company reported 26% revenue growth year-over-year, a 57% increase in gross profit, and its 11th consecutive quarter of adjusted EBITDA improvement, with adjusted net income rising to $6 million (+202%).
  • Positive Sentiment: Flotek acquired 30 real-time gas monitoring and dual fuel optimization assets, with 26 already operating, generating $3.2 million in Q2 and anchoring a $156 million revenue backlog under a six-year contract.
  • Positive Sentiment: The data analytics segment saw a 189% rise in overall revenue and a 452% surge in service revenues, lifting its gross profit margin to 63% from 30% year-over-year.
  • Positive Sentiment: Flotek reaffirmed 2025 guidance for 128% revenue growth and 280% adjusted EBITDA growth at midpoint, targeting a 17% EBITDA margin versus 11% in 2024.
  • Negative Sentiment: Despite a 38% jump in chemistry revenues, Flotek cautioned that commodity price volatility in H2 could pressure its chemistry segment, prompting a conservative outlook for the back half.
AI Generated. May Contain Errors.
Earnings Conference Call
Flotek Industries Q2 2025
00:00 / 00:00

There are 9 speakers on the call.

Operator

Morning, ladies and gentlemen. Welcome to Flutec Industries Second Quarter twenty twenty five 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. This call is being recorded on Wednesday, 08/06/2025.

Operator

I would now like to turn the conference over to Michael Crutelli, Director of Finance and Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning. We are thrilled to have you with us for Flotek's second quarter twenty twenty five earnings conference call. Today, I'm joined by Ryan Izzell, Chief Executive Officer and Bon Clement, Chief Financial Officer. We will start with prepared remarks covering our business operations and financial performance. Following that, we will open up the floor for questions.

Speaker 1

Yesterday, we announced our second quarter twenty twenty five 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.

Speaker 1

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. With that, I will turn the call over to our CEO, Ryan Azel.

Speaker 2

Thank you, Mike, and good morning. We appreciate everyone's interest in Flotek and for joining us today as we discuss our 2025 operational and financial results. Throughout the quarter, the sector continued to face dynamic geopolitical and macroeconomic challenges that have generated volatility within the commodities market. Despite these headwinds, the Flotek team demonstrated a resilient focus on executing our corporate strategy, driving transformation and delivering our sixth consecutive quarter of revenue and gross profit growth alongside our eleventh consecutive quarter of adjusted EBITDA improvement. As a result, Flotek continued its track record of increasing market share in both of our complementary business segments as we remain unwavering in our commitment to excellence and value creation for our shareholders and customers throughout the convergence of innovative data and chemistry solutions.

Speaker 2

With that, I'd like to touch on some key highlights for the quarter referenced in slide five that Bon will discuss later in the call. As part of our Measure More strategy in the Data Analytics segment, we acquired 30 real time gas monitoring and dual fuel optimization assets to accelerate Flotek's strategic expansion into the energy infrastructure sector. 26 were operating at the July and all 30 are expected to be operating by 01/01/2026. We continue to build our revenue backlog in the data analytics segment by securing a multi year contract estimated to deliver $156,000,000 in revenue while providing substantial earnings growth and free cash flow for the segment. Total revenue during the quarter rose 26% versus the 2024, highlighted by 189% increase in data analytics revenue, our strongest quarter ever, and a 38% increase in external chemistry revenue.

Speaker 2

Gross profit climbed 57% versus the second quarter twenty twenty four, with the 2025 gross profit margin rising to 25%. Net income totaled 1,800,000 However, excluding $4,200,000 in asset acquisition expenses, adjusted net income totaled $6,000,000 which is a 202% improvement versus the 2024 and more than a 10% improvement sequentially. And adjusted EBITDA was up 113% versus the 2024 and up more than 20% sequentially. And above all, these milestones were achieved with zero lost time incidents in the field of operations. I also want to spotlight our MTI facility in Raceland, Louisiana, which has remarkably maintained a ten year record with no ocean recordables.

Speaker 2

During that period, MTI has moved over three fifty million pounds of dry products and 5,300,000 gallons of liquid products, such an extraordinary feat. So we want to thank all of our employees for their hard work and commitment to safety and service quality in achieving these outstanding results. I remain excited about Flotek's future as we strengthen our position as a technology leader, spearheading innovation and delivering tailored data and chemistry solutions that meet our customer specific needs. We're committed to shaping the industry's future by leveraging chemistry as the common value creation platform. Now let's dive into the details referencing slide nine of the investor earnings day.

Speaker 2

Today, I want to spotlight the remarkable progress in our data analytics segment, which saw service revenues increase 452% in the 2025 versus the 2024 elevating gross profit to 63% in the 2025 versus 30% in the same quarter a year ago. This transformational growth in data driven service revenue is empowered by three upstream technology applications: power generation, custody transfer, and flare monitoring, All of which are fueling significant advancements for our organization while generating recurring revenue backlog. The first is our transformative power generation solution, which has evolved from a novel analytical approach into a game changer 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 11, in April 2025 we acquired 30 patented real time gas monitoring and dual fuel optimization assets.

Speaker 2

This transaction instantly strengthens our presence across all US basins adding turnkey capacity for fuel valuation, conditioning and distribution to support remote and mobile energy services, data center and grid power generation infrastructure. In connection with the asset acquisition, we also secured a six year contract anchoring an estimated $156,000,000 in recurring revenue backlog while generating improvements in annual operating income and boosting free cash flow. At the heart of PowerTech is our Verax analyzer which goes beyond data collection to deliver custody transfer grade measurements. It provides precise BTU volume reporting for royalties, invoicing and performance guarantees. Complementing this, our patented ESD trailers actively remove liquids and contaminants conditioning high BTU hydrocarbon feeds to meet exact turbine or engine performance specifications.

Speaker 2

Because every site and grid condition are unique, we've integrated Coriolis metering, automated CNG blending, and seamless backup connections allowing operators to switch fuels or go off grid with a single button resolving major constraints to the development of data center and grid power infrastructure. But PowerTech is about more than just technology. It's about control. Operators interact seamlessly through an own trailer HMI or a unified web portal that is accessible on desktop, tablet, or smartphone. 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 all spec hydrocarbon feeds and protect high value turbines or engines from catastrophic damage, thus minimizing downtime and operational risk while enhancing safety.

Speaker 2

All data flow securely through our patented edge to cloud pipeline ensuring zero manual intervention and end to end encryption, full audit trails, and compliant custody transfer record keeping. Building on the success, we've also taken delivery of our first smart filtration skid, a minimal footprint unit that integrates custody transfer analyzers to remove liquids, monitor BTU and emissions, and auto divert out of spec gas. Focused on expanding our external customer base, we expect field deployment in the third quarter twenty twenty five with a potential capital expenditure payback in less than three months. Finally, over 35 data analytics patents position Flotek as a leader across the natural gas value chain. When considering our capabilities for advanced fuel blending, zero emissions analytics, custody transfer gate flow cell measurements, wireless ESD actuation, and secure edge to cloud data transmission, we deliver unmatched monitoring, control and safety for field gas operations.

Speaker 2

Now let's transition to slide 12. We will dive into our second upstream application, custody transfer. This January 2025, a leading E and P partner has been piloting this solution in multiple basins. At a single pilot site, we pinpointed an annual customer opportunity of up to $3,500,000 This highlights the significant value the solution creates. Currently nine of the custody transfer locations are now fully commercial, converting to recurring monthly revenue.

Speaker 2

Six additional locations are expected to convert to recurring monthly revenue in the 2025 with further expansion expected. Additionally, we are actively pursuing opportunities with other domestic operators and targeted NOCs in The Middle East. This groundbreaking application sets a new standard in oil and gas industry, delivering unprecedented transparency and minimizing enterprise risk for producing wells like never before. By monitoring hydrocarbon quality and composition in real time and taking the measurements every five seconds, we successfully unlocked a new market for Flowtech. Let's move to our third upstream application, the Veracal flare monitoring solution.

Speaker 2

We continue to see operational demand in the 2025 realizing nearly $1,000,000 in revenue. We're navigating through the rapidly changing regulatory landscape and partnering with operators and flare developers to deliver value that goes beyond compliance, unlocking new efficiencies and environmental benefits for our clients. It's clear that our transformational strategy to grow the data analytics segment through upstream applications is gaining traction. But what is most important is what it means for our stakeholders and investors. Our DAS driven strategy ensures predictable recurring revenue and cash flow delivering stability and long term value.

Speaker 2

Our proprietary data technologies and superior measurement accuracy enables velocity and decision control that establish a high barrier to entry, secure client loyalty and support our value based service model. In 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 as shown on slide 13. Slide 14 underscores the resilient performance of our chemistry segment with second quarter twenty twenty five revenue surging 38% year over year despite a 24% decline in average active frac fleets during the same period. While we anticipate potential commodity price volatility in the 2025, we view this as a strategic opportunity to further expand our market share by accelerating the adoption of our prescriptive chemistry management solutions and enhancing asset values for our customers.

Speaker 2

It's evident that our chemistry team has executed our strategy flawlessly despite the near to medium term headwinds. While uncertainties around activity levels in the 2025 persists due to the macro factors that could affect the completion chemistry market, we remain focused on defying these challenges, delivering differentiated chemistry and data services to provide our customers with industry leading returns on their investment. We are confident that our expanding suite of services position us to deliver superior solutions to a variety of our industry's most challenging problems while maximizing our customers' value chain. Now I'll turn the call over to Bon to provide key financial highlights.

Speaker 3

Thanks Ryan. I'm excited to discuss our second quarter performance released yesterday afternoon. This marks our first opportunity to assess the financial contribution of our newly acquired gas conditioning assets and the accompanying long term lease. As we reported yesterday, our new PowerTech assets had a meaningful impact on our second quarter numbers. Operating for only two months of the quarter, they generated $3,200,000 in revenues and contributed roughly $3,000,000 in gross profit.

Speaker 3

The addition of this new high margin revenue drove total company gross margins for the quarter to 25% or up approximately 200 basis points sequentially. As shown in slide nine of our deck, our Powertech assets served as a clear catalyst for margin and profitability expansion, driving improvements not only within the data analytics segment but also at the corporate level. Emphasizing Powertech's impact, during the 2025, the data analytics segment contributed just 8% of total company gross margin. Compare that with the second quarter of this year where that contribution was up to 26%. The numbers become even more compelling when you consider our expectation that third quarter revenue from these assets will surpass second quarter levels with full year revenue contributions projected to reach approximately 15,000,000 Based on the fixed rental rates in the lease and with all of Powertech assets in service for a full year, 2026 revenues are expected to be north of $27,000,000 Considering that Powertech generated only 5% of second quarter revenue but provided a remarkable 21% of total company gross profit, it's clear the strategic weight data analytics will carry in driving profitability over the coming quarters and the duration of the six year lease.

Speaker 3

Moving to the quarterly results, as Ryan mentioned, the second quarter marked our sixth consecutive quarter of revenue growth. Revenue growth was led by 189% increase in the data analytics segment versus the year ago quarter, highlighted by the increase in service and rental related revenues driven by the PowerTech assets. Data analytics segment revenue represented 10% of total second quarter revenues, up from 4% a year ago. On the chemistry front total revenue grew 19% versus the year ago quarter. Please see slide 14 in our earnings deck that reflects the growth in our chemistry revenues over the last several quarters against the backdrop of declining active frac fleets.

Speaker 3

SG and A costs during the quarter were up versus the second quarter of last year due to higher stock compensation costs. However, a percentage of revenue basis G and A was 12% this quarter versus 14% a year ago. Net income for the quarter totaled $1,800,000 or $05 per share and it was impacted by 4,200,000 in asset acquisition costs which primarily related to legal and various advisory services. Excluding the expense acquisition costs, adjusted net income totaled $6,000,000 or $0.16 per diluted share. Please refer to slide 26 for the reconciliation between net income and adjusted net income.

Speaker 3

As it relates to second quarter share count, as noted in the release, shares outstanding at June 30 did include the weighted average impact of the 6,000,000 shares underlying the warrant that was part of the consideration for the Powertech acquisition. Looking at slide six, during the second quarter we continued our streak with respect to adjusted EBITDA. We have now posted 11 consecutive quarters of improvement. Not only was our second quarter adjusted EBITDA 21% higher sequentially, but when you look at it through the first six months, adjusted EBITDA is running more than 100% higher than the first half of last year. Similar to what we saw on the gross profit margin side, our second quarter adjusted EBITDA margin increased by 200 basis points sequentially, primarily as a result of the new data analytics assets.

Speaker 3

In yesterday's release, we reconfirmed our 2025 guidance, which we have summarized on slide six. The midpoint of our revenue and adjusted EBITDA guidance indicates growth of 1280% respectively as compared to the 2024 metrics. Assuming the midpoint of both metrics implies a 17% adjusted EBITDA margin as compared to only 11% in 2024, further underscoring the positive margin impact that we witnessed during the second quarter with respect to the Powertech assets. Consistent with last quarter's call, our guidance reflects a conservative outlook for the second half of the year as it relates to our chemistry business, given the continued industry data points and commentary regarding potentially slowing upstream activity. Touching on the balance sheet, our June 30 financials reflect the full impact of the Powertech transaction.

Speaker 3

As a reminder, included a portion of our 2024 and 2025 chemistry shortfall payments, a $40,000,000 note and a warrant for 6,000,000 shares. To wrap up my comments on the financials, the second quarter delivered strong performance highlighted by steady growth in revenue, margins and profitability. Based on this initial quarter results from the PowerTech assets, it's clear we're on track to significantly rebalance our profitability mix, transitioning from chemistry technologies as the primary contributor today to data analytics emerging as the leading driver of profitability in the near future. With that, I'll hand the call back to Ryan for closing remarks.

Speaker 2

Thanks, Bon. The 2025 results build upon our now multi year track record of consistently posting improved financials. Our 2025 guidance points to another year of impressive financial improvement as we continue to execute our corporate strategy, leveraging chemistry as the common value creation platform. Looking at slide seven, 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.

Speaker 2

Through the growth of our upstream applications, we anticipate the data analytics segment will contribute over half of the company's profitability in 2026. We have secured long term contracts for both our chemistry technologies and data analytics segments, bolstering confidence at Flotek's ability to deliver stable revenue and profitability while effectively shielding our business from the impacts of commodity price fluctuations. Finishing with slide 15, we believe no other company in our industry is better positioned to deliver the cutting edge technologies needed to tackle the unique challenges of the energy and infrastructure sectors. I'm incredibly proud of our progress and confident in our team's ability to execute moving forward. Given the growth potential for our chemistry technologies and data analytics segments, we see Flotek as a compelling investment opportunity.

Speaker 2

I want to 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

Thank you. Ladies and gentlemen, we will now begin the question and answer session. With that, our first question comes from the line of Jeff Grampp with Northland Capital Markets. Please go ahead.

Speaker 4

Good morning, guys. Nice quarter.

Speaker 5

Morning, Jeff.

Speaker 4

Ryan was hoping to get an update on progress towards contracting additional PowerTech units to third parties. As I recall, I believe most, if not all of these units are earmarked to PROFRAC. I know you guys have some demand from other parties. So just curious to get an update on those efforts.

Speaker 2

Yeah, that's a great question and one we're happy to answer this morning that we've seen solid traction. We've now got an additional five customers that we are going through the pilot phase of testing the VariX monitoring, proving the application that will transfer into the next step of moving the larger assets like an ESDNGD combo or one of our new smart filtration skids on the location. So we do expect the first smart filtration skid to be out in the next couple of weeks and we have accelerated the capital builds on the rest of equipment to start to answer the building demand. So we're really excited about it and we're not only seeing it from the aspect of what I would consider to be rig power, which would be dual fuel or e fleet turbines, but we're also seeing a solid traction in grid power and some of the data center support as well. So exciting time for what's gonna be coming in the future of power tech.

Speaker 4

Awesome. That's that's great to hear. And then shifting to to custody transfer, was I was hoping to kind of dive into a little bit with these few locations that have gone commercial here. Can you give a sense of, I guess, quantity of customers or geographies? I think you mentioned one customer in a few different basins, but just curious kind of the breadth or depth of both number of customers as well as the different geographies you guys are getting some traction in.

Speaker 4

Thanks.

Speaker 2

Yes. So the bigger the larger scale pilot program that we have been conducting in one of the major E and P operators here in North America, that those units, we actually have units operating in virtually every US major basin right now with that one. And they're kind of on, as we had started the pilot program, we install units and after sixty days of actual monitoring, they switch over and convert to commercial. So we've now fully activated nine of them under commercial. They started generating revenue at the back half or the back of May, June 1.

Speaker 2

We've had six more and they're now converting and that numbers continue to climb. The first ones that converted were out mostly in the Permian Basin. We're seeing them come online in what we call the Rockies region and then we've got some moving to the Northeast as well that'll be coming online. We've actually got another, I would say eight to 10 customers that we have monitoring custody transfer in pilot phases. And the reason we call them pilot is because they're doing different things at different locations.

Speaker 2

Some of them we're doing a longer term test actually replace the monetary things they do on spot or composite sampling where they won't do any manual handling. This will turn into the true evaluation component of the flowing gas. We've also got some that are just looking for NGL productions in the first sixteen to ninety days when they bring a well online. So they're all doing different things at different locations as part of custody transfer. But like as I mentioned earlier, I'm extremely bullish on this application and I think it'll be one of our larger segments in the future here for Flotek.

Speaker 4

Great. That's super helpful detail. If I can just sneak one more in, think the release noted something like 90% gross margins on the PowerTech assets. I think you guys were initially targeting something more like 80%. I know it's still early, but just any commentary on the potential sustainability at that level would be interesting to hear.

Speaker 3

Yeah, Jeff. We obviously were pleased with the margins in the first quarter. Keep in mind that those assets were only operating for a part of the quarter, roughly two months. We still think margins are going to be very attractive. It's hard to say if they're going to be sustained at 90%.

Speaker 3

But as we said initially, our expectations were going to be north of 80%. So I think 80% to 90% is probably a reasonable assumption going forward as we sit here today.

Speaker 4

Sounds good. Thanks, Bob. I'll turn it back.

Operator

And your next question comes from the line of Gerry Sweeney with ROTH Capital. Please go ahead.

Speaker 3

Good morning.

Speaker 6

Ryan, Bond, Mike. Thanks for taking my call.

Speaker 2

Hey, Gerry. How are you?

Speaker 6

I'm doing well. So just a follow-up question the power tech side. You'd mentioned five customers or I think five customers are using the power tech or piloting or whatever words are talking to you. How big of a market do those five customers represent?

Speaker 2

So initially, I would say that they're split. So two of them are very specific to oil and gas operations at Turnbike, should it be rig power. And then three of them are related to energy infrastructure, which would be grid power support or monitoring gas for data centers. And I would say that you know, you when you look at if we were to achieve any type of scale, they're they're in a similar size to our largest customer, which would be what we're doing with the Prophrex PowerGen. So they all have similar footprints, not bigger, all five of

Speaker 6

these customers. Is there a difference in terms of the depth of maybe due diligence between the oil and gas guys and the energy infrastructure, maybe getting across the finish line?

Speaker 2

Yeah, you know, we're believe it or not, the path to getting equipment on location is similar to what we did when we did the primary deal with ProFrac is the first thing we do is show the validity and the capabilities of the Varex monitoring system, which is the heart of all these pieces of equipment. And we usually go on a couple of weeks of tests where they're testing the field gas, seeing the in combination with current knockout systems they have on location. And then we move into the larger assets like an ESDNGD combo, which is the monitoring stop gap with distribution or we move it to a smart filtration skid with distribution. The ESD and smart filtration are very similar. It's just a footprint.

Speaker 2

It's a little smaller for for the smart skid. And, you know, the the the diligence part in turn comes into it is they they they both if you're using the really remote and raw field gas, they're very similar. However, when you look at some of these the power facilities, particularly data centers, a lot of them are getting more what I consider to be refined, almost what we call city level gas. So they have a little bit different process. It's more about metering and valuation and volume coming through as much as it is the control of worry about a lot of liquids coming through, if that makes sense.

Speaker 6

Gotcha. And then secondarily, then I'll jump back in line. Just manufacturing capacity, where do you stand on that front just maybe even meeting potential demand as we move into next year?

Speaker 2

Yeah, I would say depending on the service line, I'll talk about PowerTech first. We have plenty of backlog of VariX analyzers to answer the demand. And as you see, we had acquired those initial 30 assets. We've got 26 of the 30 with four more coming. We've already built our first smart filtration kit.

Speaker 2

We have it moving in operations. We've now ordered additional one of those coming online and we're working on placing additional orders of ESD NGDs. Most of them have anywhere from a four to eight week timeline to build. So I think we're gonna be able to keep up. We've got multiple builders that can actually because we've got kind of proprietary framing on those.

Speaker 2

It's not it's not they're not very difficult, I would say, build or take long lead times. When you look at the custody transfer, we've got about 200 plus units available for deployment and we are steadily streamlining and bringing those in because we feel like there'll be larger numbers of those in comparison to the analyzers as you use for power tech as that field deployment starts to grow. But we are still in the process of doing some more advanced streamlining on the expect units as they come online.

Speaker 6

Gotcha. Sorry, I lied last question. But you mentioned 200 units for field custody. So I mean, you're expecting that to ramp significantly over the next twelve, eighteen months with that type of Yeah.

Speaker 2

So the great part is that, you know, our original, we called our core business where we're doing read vapor pressure monitoring or transmix, because they're multi channel units, we could put one or two units in a refinery and they can monitor multiple areas at once. When you look at what we're doing here on custody transfer, these orders are coming in at anywhere from eight to 20 units at a time for a full deployment in areas. So they have a much larger enterprise deployment capabilities than what we would traditionally see in the older core business, which is exactly the reason why we push so much into the upstream is the competitive advantage we have and our ability to monitor in real time plus the larger scale deployment opportunities.

Speaker 3

Got it. I appreciate it.

Speaker 6

I will jump back in line. Thanks. Quarter.

Speaker 2

Yeah. Thank you.

Operator

And your next question comes from the line of Paul Fratt with Alliance Global Partners. Please go ahead.

Speaker 5

Hi. Good morning. You covered a lot of ground, but can we just maybe look at the you know, energy infrastructure, the power tech business, the non, you know, non pro frac revenue. When do you think that's going to hit the, you know, hit the operating results? And can you give us sort of an order of magnitude about the level that we might see this year in non PROFRAC customers for the PowerTech sector?

Speaker 2

So we will start seeing revenue from non ProForerite customers in Q3 of this year and that'll continue to expand because the rental rates of what we would do for the service from just the Virex as we're proving it out versus when we get the higher day rates for the full systems on location are quite a bit different. So we'll start seeing a lot of the initial VariX revenue already coming through because majority of the units have already been delivered in July. And so we'll start to see that come into a larger scale in the back half of the year. But we'll definitely see some in 2025 with a pretty rapid acceleration from what we'll see in 2026.

Speaker 5

Great. And is there any way, Ryan, to quantify the revenue potential per customer? It even relevant to look at the 30 units generating $27,000,000 of annual revenue and compare that to your new customers? That a way to bring it? Or am I missing something?

Speaker 3

Hey, Bo, it's Bon. You got to remember when we talk about power service, it can be a combination of a lot of different types of activities. What we're doing with a lot of non perfract customers today is simply the rental of the barrac unit, which as Ryan mentioned, kind of the brains of the skids that we bought in connection with the Powertech deal. So obviously, those are not going to be as impactful from a revenue perspective. But when we talk about the smart skid that we just rolled out our first one, we expect to put that into service in Q3.

Speaker 3

I think it's too early for us to start getting into financial details relative to the economics of these smart skids since we haven't placed one with a customer today. But those units could be very meaningful financially similar to what we see with the pairs of ESD and distribution skids with ProFrac.

Speaker 5

Okay. And can we do the same thing for the custody transfer business? It looks like third quarter you might see some revenue there. Can you sort of quantify what you might have seen or you might have booked in the second quarter? And then sort of how it scales up over the rest of the year?

Speaker 3

Yeah. Second quarter was very small, less than $50,000 in terms of 2Q. We do expect that obviously to expand with a full quarter of revenue. Again, don't want to get into individual rental rates on these units, given the fact that we're trying to expand customer acceptance of the technology. And we're in some pretty highly competitive discussions right now.

Speaker 5

Okay. That's really helpful. Thank you, Bunt. And then, in the last call, were somewhat a lot of commodity price volatility, obviously, and you're somewhat cautious on the chemistry side of the business looking at the second half of the year. Can you update your view on the outlook for the chemistry business right now relative to what you said on the first call or the last call?

Speaker 2

So I think we have seen if you go back ninety, one hundred and eighty days, we've seen quite a bit of fluctuation in the market. I do think that as we mentioned earlier, there's been some core factors that's impacted commodity pricing on the geopolitical aspect as well as the impacts of what the back half of the year demand may be. You look at OPEC plus versus what a lot of the OECD countries including the IEA think on demand that impact the absorption, I would say, normalization of Saudis and improved production out into the market, how it plays to the price of oil and also how much the demand for natural gas influences this price in upward direction. I do feel that we will see that near term softness. And the way that impacts us is you look at us, we're proprietary technologies and the reason that we continue to grow when there's been a reduction in active frac fleets is that people and our customers are seeing the improvements in the reservoir production with utilization of our chemistry.

Speaker 2

So I think when you look at our proprietary technology around complex nanofluids, surfactant simulations, we'll see those continue to expand and grow and see great adoption. Where I think our chemistry business will be most impacted will be on the commodity chemicals like friction reducers. There's going to be pricing pressure on those and those are like very commoditized chemicals. So I guess where I'm going at is we'll see rate production out of our high margin tech and we'll see a little bit of impact on the FR sales when I was looking at the chemistry side. And that'll probably carry through into the back half of Q4.

Speaker 2

We are starting to see a little light in the tunnel in the back half of Q4. The international business I think is going to hold pretty steady if not grow from the activity we see in Saudi. And I think you know the natural gas demand will eventually have to come online and we'll see some improvement there. We're very strong in a lot of the natural gas basins in comparison to the commodity battle that we see in the Permian.

Speaker 5

Great. Very helpful. Thanks, Frank. And

Operator

your next question comes from the line of Eric Svergold with Firestorm Capital. Congratulations

Speaker 7

to your entire team, both repositioning the company to be able to grow through downturn and also continuing to move up value in terms of product, maybe, and commodity. I know we'll thank you your question, but can you perhaps that first spec into power gen equipment from the top power gen equipment manufacturers? Thanks.

Speaker 3

Eric, do

Speaker 2

you mind just repeating that? You broke up a little bit there.

Speaker 7

My my question was, can you discuss the efforts to get your sensors spec into power gen equipment from the top power gen equipment manufacturers?

Speaker 2

Yeah. That you know, that's that's a great question, Eric. And what we're seeing now is that we've had some we we've got multiple partners right now that are at the supply of a lot of the, I would say the upper end turbine and engine production that we are testing to where there's and most of the testing we're doing now is to optimize the performance and lifetime of the engine in terms of doing dynamic adjustments to fuel and air control going to them to maximize that they run at the optimum rate and prevent engine wear and tear and the costly failure of these piece of equipment. So we are involved in that and what's been unique is that traditionally there was two approaches to looking at that. One would it be like an OEM part that would come with a turbine or a dual fuel asset or would it become a service?

Speaker 2

And we've moved towards it working with these larger producers that it become like a service that they offer and we're the brains of the service. So that is progressing and making good progress and we definitely consider those are strong opportunities for us in the back half of this year. One of those is one of the pilot programs that we're running now that I mentioned earlier.

Speaker 7

Great. Thanks a lot and congratulations again on doing such a good job repositioning the company to grow through a downturn.

Speaker 2

Yeah. Appreciate it, Eric. Thank you.

Operator

And your next question comes from the line of Chris Sakai with Singular Research. Please go ahead.

Speaker 5

Hi. I'm I'm in for Gaussi. Can you with your continued push into prescriptive analytics for chemistry optimization, roughly what portion of chemistry revenue now directly ties to data driven services and how do you expect that ratio to change by next year?

Speaker 2

You know, that's quite unique in that. I would say that the data driven part of what we do on the PCS side of the business touches almost 80% of what we do because where we look at it from on the completion chemistry side right now, we are taking real time data from water quality and different pieces, we make adjustments to chemistry there, plus everything that we do on the PCM side when we bring in and we test whether drill cuttings, core samples, initial crude, potential composition, conate water, the different pieces we do on XRD, we plug those into chemometric models to help us prescribe the technology that we use on location and then before we tweak down basic control and optimization. So it's technically in a way touching almost all we do on the PCM service. Now we do sell some bulk chemistry that is just on a price basis but the big majority of our external customers now use PCM service. What you're going to see from Flotek and if you look I believe it's on slide 10 of the infrastructure slides that we have, we are now moving our ex spec units into real time monitoring of the hydrocarbon quantity produced which will lead to our opportunities to treat production chemistry on the back end.

Speaker 2

We're also looking at advanced techniques and monitoring water on the front end at real time where we can adjust on the fly the technologies and chemistries that we use based on water quality, getting the water in shape so that you get the most optimum production from your frac. So it's pretty, I mean every component when we really say you're starting now to see the convergence of real time data and optimized prescribed chemistry, we're at the tip of the spear at doing that for the industry and we're going to continue to evolve that and drive that as part of the differentiation in the business going forward.

Speaker 1

And that's slide seven too, just a

Speaker 7

quick correction.

Operator

Your next question comes from the line of Josh Jain with Daniel Energy Partners. Please go ahead.

Speaker 8

Thanks. First one for me, just, I guess, a shorter term question. Could you walk through the expected delta between the low and high end of the guidance range looking into back half of the year? Which segments are going to drive it one way or the other? I would assume because of the size just of where it sits today, it's probably the chemistry side of the business.

Speaker 8

But maybe you could talk if there's some variability from some of the other businesses that's ultimately driving the expected outcome in the guidance ranges.

Speaker 3

Yeah. I mean, Josh, as we talked about, I think Ron and I alluded to each in some of our comments, the real variability in the guidance, particularly on the revenue side, is going to be the back half on the chemistry outlook. It's primarily going be focused on North America. We've obviously shown some resilience relative to de correlating with the declining active frac fleets. But we're just taking a conservative look as it relates to our guidance in the back of the year, recognizing that ultimately may come to see us on the chemistry side.

Speaker 3

On the data side, we feel really good given the fact that as we continue to bring more PowerTech units online throughout the year, that revenue stream is expected to increase sequentially in the third quarter and then again in the fourth quarter. So that's obviously going to be supportive to revenue and obviously with the margins that those assets put up supportive to the adjusted EBITDA guidance.

Speaker 8

Understood. Thanks. And then maybe just more of a strategic question for Ryan. I mean, it's been an incredibly busy last twelve months of expansion into a number of different business lines and also growing internationally, etcetera. Is it safe to say that over the next sort of six to nine months, the company is going to be more focused on executing with what you've acquired and built?

Speaker 8

Or are there other things that you're looking at on the M and A side that could ultimately complement some of these moving forward? Maybe just how you're thinking about that would be helpful. Thanks.

Speaker 2

So I look at this is a albeit there is what I would consider to be macro headwinds. I look at this period over the next six to eight months as a great opportunity for the company to further advance our strategy. There's no doubt we're heavily focused on in our operations teams at commissioning the new assets that we're building and the growth of our PowerTech business and expansion of custody transfer and our chemistry technology segments are significantly focused on further expanding the adoption of our complementary services that help improve reservoir performance. But I do believe if you look at where we sit and the value that we bring as opportunities for not only do potential activities that could expand our data analytics footprint but also look for opportunities that do both in the growth of chemistry and data. And so I think that for us we're going to continue to look at focus on opportunities to do some potential inorganic activities that could expand what we do in our footprint that combine the chemical sales with more or measure more plus control strategy on the data side.

Speaker 2

So we will be selectively looking at ways to potentially consolidate chemistry businesses and or grow our data analytics business as long as with a one core value is that they're accretive immediately to the business. And so that's the driving factor there.

Speaker 4

Understood. Thank you. I'll turn it back.

Operator

Thank you. And we have no further questions at this time. I would like to turn it back to Michael Cortelli for closing remarks.

Speaker 1

Thank you everyone for joining our call today. Please join us at some of our upcoming events, Entercom August in Denver, Colorado. We'll also be at the Gateway Conference September in San Francisco, California. We're also excited to be part of the New York Stock Exchange Technology Summit October 14 in New York City. And then lastly, our Permian Power Connection Conference September where we hope to showcase some of our new PowerTech smart filtration skids.

Speaker 1

Please come join us.

Speaker 2

And again, thanks everyone for joining us today in support of Flotek, and we look forward to speaking to you again soon. Thank you.

Operator

Thank you, presenters. And this concludes today's conference call. Thank you all for joining. You may now disconnect.

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