Flowco Holdings Inc. (FLOC) Earnings

Management highlights

• Glocco delivered solid start to 2026, generated adjusted EBITDA of 85.5 million at upper end of guidance range, $52 million free cash flow. • Rental platform momentum: Rental revenues up ~9% sequentially, driven by surface equipment, vapor recovery rental solutions, and Valiant's ESP offering. HPGL seeing incremental demand for accelerating production. VRU becoming ubiquitous in pad development. • Completed acquisition of Valiant Artificial Lift Solutions in March, Valiant performed slightly ahead of expectations in March, integration off to strong start with early opportunities identified. • Product sales delivered solid quarter with sequential growth in downhole components offerings.

Guidance

• Forecasted another quarter of profitable growth in second quarter of 2026, adjusted EBITDA expected to be in range of $93 to $97 million, benefiting from full quarter contribution from Valiant and continued growth in surface equipment and vapor recovery rental businesses. • Remain confident in Valiant's ability to generate approximately $52 million of adjusted EBITDA for full year 2026. • Expect to identify additional revenue synergy opportunities as integrate commercial efforts and continue to look for creative and accretive ways to round out product portfolio.

Segment performance

Production solution segment: First quarter revenue increased 10% sequentially to $140 million, adjusted segment EBITDA increased approximately 7% to $61 million, driven by growth in surface equipment and contribution from Valiant acquisition. Adjusted segment EBITDA margins decreased 125 basis points quarter over quarter due to revenue mix shift. Natural gas technology segment: First quarter revenue was consistent with prior quarter at $69 million, adjusted segment EBITDA was also in line at approximately $30 million. Benefited from growth in vapor recovery rental revenue and increased sale of natural gas systems, offset by modest decline in vapor recovery unit system sales. Rental revenue represented nearly 60% of total revenue during the quarter.

Analyst Q&A

• Q: Hey, good morning, guys. So totally appreciate you're not necessarily seeing material activity increases as of yet, but obviously we've had a lot of news flow over the last couple days. Players like Diamondback giving the green light, Hanako adding another rig. So maybe just if you can help us understand the opportunity set as we work through the year, that call on short cycle barrels, your ability to optimize production for your big customers. So how do you think about that when you're looking out, especially when we're hearing some of these larger EMPs? the public's coming back to work along with the privates.

  A: Derek, certainly you've nailed it. Some of the larger and more nimble companies are starting to increase activity. And those are green shoots for us. As you know, our production-oriented business will follow incremental rig activity, incremental frack spread deployment. companies that are accessing their duck inventory to turn wells in line more aggressively to take advantage of this environment. All that is beneficial for us. So when we say we're not seeing material activity increases as of yet, we're certainly seeing the early days of what we think is sustained higher activity, which will drive business for us. I think it's a back half of the year kind of phenomenon for us and shaping up for a very strong 2027.

• Q: Yeah, good morning, gentlemen. Joe, Bob, I was wondering if you could and John could maybe characterize kind of the growth opportunities you see over the balance of the year in natural gas technologies and perhaps compare and contrast that to what you're seeing on the production solution side.

  A: Arun, thanks for the question. We'll start in reverse order on the production solution side. With the acquisition of Valiant, we now are having much more constructive conversations with customers around the right lift solution for the early stage of a well's life. As newly completed wells get turned online, there are really only two choices that an oil company has. You can produce that well with a high-pressure gas lift system or with an ESP. And we've got both. So I would anticipate, to the extent CapEx may be biased to the upside in this environment, I would anticipate those dollars flowing into our highest return investment opportunities, which are high-pressure gas lift and ESP. So I think that's going to be the priority for us is to look for ways to deploy incremental capital there. On the NGT side, mainly our vapor recovery offering, it's steadier. As I just said in Derek's question, we are incentivizing customers to rent more than to buy. And so, yeah, we'll see incremental demand there, but it's going to be a little steadier, a little later stage. But, yeah, we're very pleased with the market backdrop setting up for an incremental investment from us throughout the balance of the year.

• Q: Thanks. Good morning. When you talk about rounding out the product portfolio, could this at all involve going deeper into ESPs, just given how large a market it is? Or are we more talking about unrelated production optimization areas that you're not currently in? And just the creative comment, was that meant to imply that you could look at avenues beyond just normal M&A?

  A: Phil, yeah, we have a very active M&A pipeline, as you would expect, and I would hope that we can have the stars align on incremental M&A throughout the balance of this year and heading into 2027. We're in most every form of artificial lift. We are missing a couple of specific products that we've been pretty candid. We'd love to add to the to the portfolio. And there are some complementary services that go along with artificial lift that we evaluate similarly. You know, what are adjacent to the lift systems that we are selling to our clients? What else does a customer procure as they think about the optimum lift solution for a well? So, yes, we're evaluating how to enter these adjacencies both organically and inorganically. Obviously, the easiest way is to buy a business that is already in those markets. It comes with a group of people and a management team and a built-in book of business from clients. But we certainly are not afraid of standing something up from scratch. So we're going to continue to listen to our customers of what they are looking to us to do for them and try to add value as we look at our M&A pipeline and our organic efforts as well.

• Q: Hey thanks for taking my questions guys um thank you i wanted to i wanted to ask you kind of talked about the rental nature of high pressure gas lifts vru and esp i mean obviously esp and high pressure gas let's go go on the uh the world for a little while i wanted to get a sense of maybe is there a typical or average contract term length for kind of each of those three between high pressure gas lift, VRU, and ESP? Just trying to get a better sense on how the contract terms work there for the rentals.

  A: Keith, it's all over the map, candidly. Customers on each of those have their own, you know, objectives they're trying to solve. And it's complicated. So there's not a one-size-fits-all. On the high-pressure gas lift product line, some customers are shorter term in nature. Some are multi-years. On the VRU, it's a shorter term by intent. We want to work with customers on the sizing down process. project that I described earlier. So a shorter term contract is desired there. But we've done some extensive analytics, as you would expect. And the average time on location for a given VRU extends well beyond what the contract term is. And then for ESPs, look, it's even more complicated. Some customers prefer to own their fleet of ESPs. They view it as a CapEx item. Some prefer to rent. and some prefer a hybrid model where they rent the surface drive unit that helps power the ESP, and they buy the downhole. So hard to give you a one-size-fits-all answer. It's a pretty dynamic commercial model.

• Q: When you talk about the really strong free cash flow quarter. How should we kind of be thinking about free cash flow conversion from EBITDA through the rest of the year, obviously, as, you know, potentially increase capex to things getting stronger here in the back half of the year?

  A: That's right. I think, you know, with $25 million or $26 million of capex in the quarter, you can do the math and see that we expect to ramp into Q2 and Q3. So, obviously, that's going to have an impact on free cash flow. Second, even though we added Valiant, that added about $50 million of working capital, the underlying kind of pre-Valiant business actually had a reduction in working capital that we don't think is sustainable into Q2. We'll see some of that come back. So I think we would expect to see pre-cash flow moderate a little bit in Q2.

• Q: As the market begins to inflect here, can you guys just speak to how that impacts your pricing strategies over the next several quarters?

  A: Yeah, good question, John. Listen, being in the production phase, we're not subject to the big swings in utilization and the supply-demand imbalances that come with businesses that are levered to drilling and completion, like rigs or frack spreads, right? We don't suffer the pricing decreases on the way down, and we don't get the benefit as much on pricing increases on the way up. It's much, much more stable. So we would anticipate pricing to be pretty consistent. with where we've been. We will, of course, look for ways to drive price where we can, where we can still be constructive with our customer base. But I wouldn't say that pricing on any particular one of our products is going to be a particular driver for the back end of this year.

• Q: Yeah, Jeff, you're a little faint on your question. I think you were asking about regional trends on specific lift techniques across the U.S. onshore, not just the Permian. Is that right? Well, more broadly, just the inflection in demand and activity outside of the Permian specifically.

  A: Well, more broadly, just the inflection in demand and activity outside of the Permian specifically. Got it. Got it. So, look, I think你'll see it in – And some of the oilier basins, okay, the Bakken, South Texas, you know, parts of the DJ, but everything's dwarfed by the Permian, as you know. It produces half of the barrels that come out of the U.S. It's where most of the short-cycle inventory is located. So I think你'll see the vast bulk of activity increases there. But the other basins I think will – They'll be there as well, but I think most of what we are seeing is going to be bound for Texas and New Mexico.