Flowco Holdings Inc. Q1 FY2025 earnings call

• Macro Environment: United States upstream outlook pressured by tariffs, OPEC+ production, and economic uncertainty. Flowco's performance tied to non-discretionary OpEx, not CapEx. EIA projects US crude oil production to be an all-time high in 2025.
• Domestic Supply Chain: All products sold and rented are manufactured in the US with predominantly domestic components. Tariff measures have minimal impact on financial results. Vertical integration and domestic supply chain provide competitive advantage.
• Product Lines: Vapor recovery and high-pressure gas lift continue to gain market share. SurgeFlow and e-Grizzly High-Pressure Gas Lift solutions are being commercialized and scaled. Engagement with midstream customers for VRU platform expansion.
• Innovation and Customer Focus: Proven culture of innovation. SurgeFlow allows seamless conversion to plunger lift. e-Grizzly reduces emissions and cost per barrel. Maintaining investment in rental businesses with contracted revenue model.
• Financial Performance: Delivered growth in revenue, adjusted EBITDA, and net income in Q1. Generated $15 million free cash flow, reduced debt to $176 million, and invested $30 million in high-return opportunities. Annualized adjusted ROCE was approximately 18%. Declared $0.08 per share dividend.

Production Solutions segment: Q1 revenue was $116 million, with adjusted segment EBITDA of $50.6 million, an increase of 2.3% and 1.3% respectively from the fourth quarter of 2024. Natural Gas Technologies segment: Q1 revenue increased 5.1% to $76.4 million compared with the fourth quarter 2024, and adjusted segment EBITDA grew 3.1% to $28.7 million. Consolidated first quarter revenue was $192 million, and adjusted EBITDA was $74.9 million, an increase of 1.5% from Q4 2024. Adjusted EBITDA margins decreased due to mix changes and increased corporate function costs.

• Q2 2025 EBITDA guidance is $74 million to $78 million, same as Q1. Anticipate continued increases in EBITDA and margin improvement in the second half as capital investment in rental businesses shifts revenue mix. Expect year-over-year adjusted EBITDA growth in the low double-digit percentage range in a flat production environment.

• Macro economic uncertainty, evolving tariff policies, and OPEC+ production commentary pose risks. Potential impact on sales of certain downhole components and surface compression packages as customers defer purchases or become more conservative in spending.

Q: Arun Jayaram asked about the competitive advantage of domestically sourced supply chain and U.S. manufacturing base, especially with ESPs manufactured in China.

A: Joe Bob Edwards said the ESP landscape is mature with competitors anchored in China. High-pressure gas lift is pioneered by Flowco with domestic supply chain and critical US-based supplier, providing competitive advantage even before tariffs. Tariff pressures add tailwind.

Q: Derek Podhaizer inquired about HPGL adoption outlook and shareholder returns.

A: Joe Bob Edwards said there's increased market chatter around HPGL, with some specific customer conversations encouraging broader adoption. On shareholder returns, dividend is a first step, share buyback could be considered in future, with focus on ROCE to drive premium valuation.

Q: Phillip Jungwirth asked about rental margins and HPGL reliability.

A: Jon Byers said rental margin driver is pricing power, expected to stay in 70% range. HPGL has mechanical availability and lower upfront/c ongoing costs as benefits, leading to increased customer adoption.

Q: Lloyd Byrne asked about VRU growth and differences from HPGL.

A: Joe Bob Edwards said VRU adoption is economics-driven by methane capture and natural gas demand growth for LNG, gas-fired power. HPGL is about electric vs gas-fired compression and economies of scale. SurgeFlow allows seamless transition to plunger lift.

Q: David Smith asked about growth CapEx outlook and client conversations.

A: Jon Byers said CapEx mix is relatively unchanged, 60-40 split in revenue. Client conversations for VRU and HPGL are consistent, with tariff noise and natural gas fundamentals driving adoption.