Q4 2024 Flowco Holdings Inc Earnings Call
Our remarks and Q&A.
recorded and we've allotted one hour for prepared remarks and Q&A.
Speaker Change: At this time I would like to turn the conference over to Andrew we own Packer.
Andrew Leon-Packer: At this time, I'd like to turn the conference over to Andrew Leon-Packer, Vice President, Finance, Corporate Development, and Investor Relations at Flo-Co. Thank you, sir. You may now begin.
Speaker Change: This president finance corporate development and Investor Relations is local.
Speaker Change: Sir you may now begin.
Speaker Change: Good morning, everyone and thanks for joining us for <unk> fourth quarter and full year results before we begin we would like to remind you that this conference call may include forward looking statements. These statements, which are subject to various risks uncertainties and assumptions could cause our actual results to differ materially from these statements.
Andrew Leon-Packer: Good morning, everyone, and thanks for joining us for FLOCO's fourth quarter and full year results. Before we begin, we would like to remind you that this conference call may include forward-looking statements. These statements, which are subject to various risks, uncertainties, and assumptions, could cause our actual results to differ materially from these statements. These risks, uncertainties, and assumptions are detailed in this morning's press release, as well as our filings with the SEC, which can be found on our website at ir.floco-inc.com.
Speaker Change: These risks uncertainties and assumptions are detailed in this morning's press release as well as our filings with the SEC, which can be found on our website at IR Dot Cuoco Dash, Inc. Dot com.
Speaker Change: We undertake no obligation to revise or update any forward looking statements or information, except as required by law.
Andrew Leon-Packer: We undertake no obligation to revise or update any forward-looking statements or information except as required by law.
Speaker Change: During our call today, we will also reference certain non-GAAP financial information we.
Andrew Leon-Packer: During our call today, we will also reference certain non-GAAP financial information. We use non-gap measures as we believe they more accurately represent the true operational performance and underlying results of our fit. The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Reconciliations of GAAP to non-GAAP measures can be found in this morning's press release and in our FCC file.
Speaker Change: We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business.
Speaker Change: The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with GAAP.
Speaker Change: Reconciliations of GAAP to non-GAAP measures can be found in this morning's press release and in our SEC filings.
Speaker Change: Joining me on the call today is our president and Chief Executive Officer, Joe Bob Edwards, and our Chief Financial Officer, John Byers. Following our prepared remarks, we will open the call for your questions.
Andrew Leon-Packer: Joining me on the call today is our President and Chief Executive Officer, Joe Bob Edwards, and our Chief Financial Officer, John Byers. Following our prepared remarks, we'll open the call for your questions.
John Byers: With that I'll turn the call over to Joe Bob.
Joe Bob Edwards: With that, I'll turn the call over to Joe Bob. Thank you, Andrew. And good morning, everyone.
Speaker Change: Thank you Andrew and good morning, everyone. It is my pleasure and an honor to welcome you to our first investor call as a publicly traded company.
Joe Bob Edwards: It is my pleasure and an honor to welcome you to our first investor call as a publicly traded company. For the benefit of the group, and in particular, all of the investors on the phone with whom we have not met, I'd like to begin the call with a little bit of FloCo history and an overview of our operations and position in the energy market. FLOCO was formed in June of 2024 via the merger of three private companies, Estes Compression, Logistics, and FLOCO Production Solutions. Each of these three companies was formed over 10 years ago and has built market-leading positions in the production optimization sector of the domestic oilfield service market.
Speaker Change: For the benefit of the group and in particular all of the investors on the phone with whom we have not met I'd like to begin the call with a little bit of <unk> history, and an overview of our operations and position in the energy market.
Speaker Change: <unk> was formed in June of 2024 via the merger of three private companies <unk> compression logistics and flow co production solutions.
Speaker Change: Each of these three companies was formed over 10 years ago and has built market leading positions in the production optimization sector of the domestic oilfield service market.
Speaker Change: Each company has also demonstrated a culture of innovation.
Joe Bob Edwards: Each company has also demonstrated a culture of innovation, a customer focused approach to problem solving, and an emphasis on investing in strategies that produce consistent, high rates of return on investment. This common culture and a shared vision for the future led to the merger and importantly, has guided our integration effort.
Speaker Change: A customer focused approach to problem solving and an emphasis on investing in strategies that produce consistent high rates of return on investment.
Speaker Change: This common culture and a shared vision for the future led to the merger.
Speaker Change: And importantly has guided our integration efforts.
Speaker Change: By far the easiest part of our integration was choosing a name for the combined company.
Joe Bob Edwards: By far, the easiest part of our integration was choosing a name for the combined company. The name Flowco not only is the name of one of our notable brands, but it also perfectly describes what we do every day. We help our customers flow their oil and gas wells more efficiently and economically. Willco participates in the production phase of the industry, which is much more stable than either the drilling phase or the fracking phase of the oilfield service market. our revenues are derived from oil and gas company non-discretionary op-ecs rather than their cap-ecs. More broadly, our results can be traced to the absolute levels of oil and gas production in the United States, as well as the number of actively producing oil and gas wells themselves, rather than the number of active drilling rigs or frack spreads.
Speaker Change: Named <unk> not only is the name of one of our notable brands, but it also perfectly describes what we do every day, we help our customers slow their oil and gas wells more efficiently and economically.
Speaker Change: Wilco participates in the production phase of the industry, which is much more stable than either the drilling phase or the fracking phase of the oilfield service market.
Speaker Change: Our revenues are derived from oil and gas company non discretionary opex rather than their capex.
Speaker Change: More broadly our results can be traced to the absolute levels of oil and gas production in the United States as well as the number of actively producing oil and gas wells themselves rather than the number of active drilling rigs or frac spreads.
We sit at the critical path of operations for our energy company partners and quite simply if our equipment is not working properly our clients' wells do not produce to their optimum level.
Joe Bob Edwards: We sit at the critical path of operations for our energy company partners. And quite simply, if our equipment is not working properly, our clients' wells do not produce to their optimum level.
Speaker Change: We are proud to offer a range of solutions that work for the entire lifespan of the well, which in most cases is more than 20 years.
Joe Bob Edwards: We are proud to offer a range of solutions that work for the entire lifespan of the well, which in most cases is more than 20 years.
Speaker Change: Our company is organized and managed through two operating divisions.
Joe Bob Edwards: Our company is organized and managed through two operating divisions, production solutions and natural gas technology. Production solutions includes our artificial lift products, which help oil and gas operators produce their wells after drilling and fracking operations are completed. Our products include a mixture of surface equipment and downhole products, which are designed and installed based on specific well production data. We enjoy market-leading positions in high-pressure gas lift, or HPGL, conventional gas lift, and plunger lift applications, and we count among our customers some of the largest and most well-capitalized oil and gas companies in the world.
Speaker Change: Production solutions and natural gas technologies.
Speaker Change: Production solutions includes our artificial lift products, which help oil and gas operators produce their wells after drilling and fracking operations are completed.
Speaker Change: Our products include a mixture of surface equipment, and downhole products, which are designed and installed based on specific well production data.
Speaker Change: We enjoy market leading positions in high pressure gas lift or <unk>.
Speaker Change: <unk> gas lift and plunger lift applications, and we count among our customers some of the largest and most well capitalized oil and gas companies in the world.
Speaker Change: Next our natural gas technologies Division provides our market leading vapor recovery solutions deployed at surface production locations for the entire life of the field.
Joe Bob Edwards: Next, our Natural Gas Technologies Division provides our market-leading vapor recovery solutions deployed at surface production locations for the entire life of the field. Our proprietary equipment and patented technologies provide operators with a safe and highly profitable method of capturing methane vapors that would otherwise be flared or vented to the atmosphere. These vapor recovery solutions provide some of the most impactful environmental benefits to operators while also providing high value economic returns, especially in today's current natural gas price environment. We help our oil company clients capture and sell hydrocarbon molecules that would otherwise be seen as a waste product.
Speaker Change: Our proprietary equipment and patented technologies provide operators with a safe and highly profitable method of capturing methane vapors that would otherwise be flared or vintage to the atmosphere.
Speaker Change: These vapor recovery solutions provides some of the most impactful environmental benefits to operators, while also providing high value economic returns, especially in today's current natural gas price environment.
We help our oil company clients capture and sell hydrocarbon molecules that would otherwise be seen as a waste product.
Speaker Change: Our GAAP financials reflect a healthy mix of equipment rentals and product sales at a high level. Our equipment rentals are comprised of short term and long term rental contracts on over 4300 active systems across our fleet and include systems that provide high pressure gas lift.
Joe Bob Edwards: Our GAP financials reflect a healthy mix of equipment rentals and product sales. At a high level, our equipment rentals are comprised of short-term and long-term rental contracts on over 4,300 active systems across our fleet and include systems that provide high-pressure gas lift, conventional gas lift, and vapor recovery applications. Our equipment sales are comprised of downhill equipment associated with conventional gas lift and plunger lift applications, and to a lesser extent, the sale of certain types of surface equipment packages. We service our diverse customer base with a dedicated workforce of approximately 1,270 employees through a network of field service locations located in every major U.S.
Speaker Change: <unk> gas lift and vapor recovery applications.
Our equipment sales are comprised of downhole equipment associated with conventional gas lift and plunger lift applications and to a lesser extent the sale of certain types of surface equipment packages.
Speaker Change: We service our diverse customer base with a dedicated workforce of approximately 270 employees through a network of field service locations located in every major U S shale basin.
Speaker Change: We also have a vertically integrated supply chain based in the United States, which provides a competitive advantage, while providing flexibility and stability in periods of geopolitical uncertainty.
Joe Bob Edwards: shale base. We also have a vertically integrated supply chain based in the United States, which provides a competitive advantage while providing flexibility and stability in periods of geopolitical uncertainty. In 2024, we increased pro forma revenue 10% versus 2023, while U.S. oil production increased 2 to 3%. This growth was achieved almost exclusively on an organic basis by investing growth capital to fund expanded offerings primarily in high-pressure gas lift and vapor recovery, our two fastest growing business lines. Based on identified customer demand, U.S. production outlook, and current industry activity, we expect 2025 to be another year of profitable growth with a similar level of growth capital deployment compared to last year.
Speaker Change: In 2024, we increased pro forma revenue, 10% versus 2023, while U S oil production increased 2% to 3%.
Speaker Change: This growth was achieved almost exclusively on an organic basis by investing growth capital to fund expanded offerings, primarily in high pressure gas lift and vapor recovery, our two fastest growing business lines.
Speaker Change: Based on identified customer demand U S production outlook and current industry activity, we expect 2025 to be another year of profitable growth with a similar level of growth capital deployment compared to last year more on this from our Chief Financial Officer, John buyers later in our presentation.
Joe Bob Edwards: More on this from our Chief Financial Officer, John Byers, later in our presentation. Finally, as we optimize and grow our business following the IPO, we will continue to market across our various solutions to our 300 plus customers and look for ways to cross collaborate. Our singular focus on production optimization and an emphasis on continuous technological innovation across our product lines sets us apart from our competition and should lead to increased market share gains over time.
Speaker Change: Finally, as we optimize and grow our business following the IPO, we will continue to market <unk>.
Speaker Change: Cross our various solutions to our 300, plus customers and look for ways to cross collaborate our.
Speaker Change: Our singular focus on production optimization and an emphasis on continuous technological innovation across our product lines sets us apart from our competition and should lead to increased market share gains over time.
John Byers: So with that I'll turn the call over to John buyers, our CFO, who will take you through our 2024 results.
John Byers: So, with that, I'll turn the call over to John Byers, our CFO, who will take you through our 2024 results.
John Byers: Boeing his remarks, I will make a few closing comments and then open the lines for Q&A John.
John Byers: Following his remarks, I will make a few closing comments and then open the lines for Q&A.
John Byers: Thanks, Joe Bob.
John Byers: John? Thanks, Joe Bob.
John Byers: Before reviewing some some of the key financial metrics and results for the fourth quarter and for 2024 I'd like to provide a few reminders on our historical financial information given the combination of <unk> logistics and asked us in June of 2024.
John Byers: Before reviewing some of the key financial metrics and results for the fourth quarter and for 2024, I'd like to provide a few reminders on our historical financial information given the combination of FloCo, Logistics, and Estes in June of 2024. For clarity, note that any financial information presented prior to the June 20, 2024 business combination reflects only the historical performance for Estes. Financial information in the third and fourth quarters reflects the financials for the consolidated entities.
John Byers: For clarity note that any financial information presented prior to the June 28, 2020 for business combination reflects only the historical performance for US This financial information in the third and fourth quarters reflects the financials for the consolidated entities for those looking for pro forma financials for the first nine months of 2024.
John Byers: For those looking for pro forma financials for the first nine months of 2024, I would refer you to the pro forma financials on page 25 of our January 16th perspective.
John Byers: <unk> I would refer you to the pro forma financials on page 25 of our January 16th prospectus.
John Byers: Finally note that our 2020 financials are presented for our operating subsidiary, which was a privately held pass through entity for the entirety of 2024, and therefore incurred no federal income tax.
John Byers: Finally, note that our 2024 financials are presented for our operating subsidiary, which was a privately held pass-through entity for the entirety of 2024, and therefore incurred no federal income tax. Turning now to our financials, in the fourth quarter, we reported adjusted net income of $28.8 million on revenues of $186 million. Revenue was down approximately 1.8% quarter over quarter, as expected, for reasons I'll discuss in a moment. Fourth quarter performance was in line with our expectations and was a result of the strong execution of our production solutions and natural gas technology business segments, where we saw growth in both adjusted segment EBITDA and adjusted segment EBITDA margins.
John Byers: Turning now to our financials in the fourth quarter, we reported adjusted net income of $28 8 million on revenues of $186 million revenue was down approximately one 8% quarter over quarter as expected for reasons I will discuss in a moment fourth quarter performance was in line with our expectations and was a.
John Byers: Result of the strong execution of our production solutions and natural gas technology business segments, where we saw growth in both adjusted segment EBITDA and adjusted segment EBITDA margins.
John Byers: Fourth quarter production solutions revenue was $113 3 million with adjusted segment EBITDA of $49 9 million, an increase of one 5% and five 2% respectively from the third quarter adjusted segment EBITDA margins increased roughly 150 basis points quarter over quarter.
John Byers: Fourth quarter production solutions revenue was $113.3 million, with adjusted segment EBITDA of $49.9 million, an increase of 1.5% and 5.2% respectively from the third quarter. Adjusted segment EBITDA margins increased roughly 150 basis points quarter over quarter. The increase in all metrics in the segment were the result of higher operating leverage combined with a slight shift in revenue mix change towards our surface equipment business unit from Downhole Solutions. Fourth quarter natural gas technologies revenue decreased 6.5% to $72.7 million in comparison with the third quarter. The decrease in revenue was expected and was primarily attributable to the completion of a large customer project within the Natural Gas Systems business unit in the first half of the quarter.
John Byers: The increase in all metrics in this segment or the result of higher operating leverage combined with a slight shift in revenue mix change towards our surface equipment business unit from downhole solutions.
Fourth quarter natural gas technologies revenue decreased six 5% to $72 7 million in comparison with the third quarter.
John Byers: The decrease in revenue was expected and was primarily attributable to the completion of a large customer project within the natural gas systems business unit in the first half of the quarter.
John Byers: Utilization of our vertically integrated manufacturing for third party sales is returning to normal levels. After several above average years, while revenues decreased adjusted EBITDA grew four 5% to $27 8 million over the same period for the segment with adjusted EBITDA margins up 400 basis points due to strong performance of vapor recovery.
John Byers: Utilization of our vertically integrated manufacturing for third-party sales is returning to normal levels after several above-average years. While revenues decreased, adjusted EBITDA grew 4.5% to $27.8 million over the same period for the segment, with adjusted EBITDA margins up 400 basis points due to strong performance of vapor recovery, which offset the impact of the decline in revenues from natural gas systems. Overall, consolidated fourth quarter adjusted EBITDA was $73.8 million, which was roughly flat compared to the third quarter, with adjusted EBITDA margins increasing by roughly 50 basis points. Notably, absent the $3.9 million of cost associated with standing up our public company infrastructure, adjusted EBITDA would have seen growth on a quarter-over-quarter basis, highlighting the strong underlying performance of our business segment.
John Byers: <unk>, which offset the impact of the decline in revenues from natural gas systems.
John Byers: Overall consolidated fourth quarter, adjusted EBITDA was $73 8 million, which was roughly flat compared to the third quarter with adjusted EBITDA margins, increasing by roughly 50 basis points.
John Byers: Notably absent the $3 9 million of cost associated with standing up our public company infrastructure adjusted EBITDA would have seen growth on a quarter over quarter basis, highlighting the strong underlying performance of our business segments.
John Byers: On capital investments the majority of our fourth quarter investment of $35 4 million was directed towards growing our surface equipment in vapor recovery rental fleet, given the attractive payback periods and returns on capital employed.
John Byers: On capital investments, the majority of our fourth quarter investment of $35.4 million was directed towards growing our surface equipment and vapor recovery rental fleet, given the attractive payback periods and returns on capital employed. While we plan to provide an annual adjusted return on capital employed metric going forward, today we'll share our fourth quarter annualized adjusted ROSI, which is approximately 20%. When calculating adjusted ROSI, we make adjustments for amortization and intangibles associated with the merger transaction, given our merged entities were combined and not acquired. We define adjusted ROSI as operating income plus amortization, divided by total assets, minus goodwill and intangible assets, and minus current liability.
John Byers: While we plan to provide an annual adjusted return on capital employed metrics going forward today, we will share our fourth quarter annualized adjusted Rowsey, which is approximately 20%.
John Byers: When calculating adjusted Rowsey, we make adjustments for amortization and intangibles associated with the merger transaction given our merged entities were combined and not acquired we define adjusted Rowsey as operating income plus amortization divided by total assets minus goodwill and intangible assets and <unk>.
John Byers: As current liabilities.
Speaker Change: As Joe Bob mentioned, we anticipate a similar level of capital investment in 2025 as in 2024, mostly dedicated to our rental fleet.
John Byers: As Joe Bob mentioned, we anticipate a similar level of capital investment in 2025 as in 2024, mostly dedicated to a rental fleet. as we are achieving incremental returns in excess of 20%. These significant capital investments in our rental fleet will lead to a progressive increase in profitability into the second half of the year.
John Byers: As we are achieving incremental returns in excess of 20%.
John Byers: These significant capital investments in our rental fleet will lead to a progressive increase in profitability into the second half of the year.
John Byers: Shifting to a few notes on corporate costs and reporting going forward as I mentioned previously we had $3 9 million of costs associated with the establishment of our public company infrastructure and the fourth quarter. This is primarily professional services and head count additions related to our IPO.
John Byers: Shifting to a few notes on corporate costs and reporting going forward, as I mentioned previously, we had $3.9 million of costs associated with the establishment of our public company infrastructure in the fourth quarter. This is primarily professional services and headcount additions related to our IPO. which we will continue to build out in 2025.
John Byers: Which we will continue to build out in 2025.
John Byers: Following the completion of our IPO, we become a federal and state income taxpayer anticipate a blended tax rate in the low to mid 20% range, both the corporate cost and the increase in taxes will impact comparability in subsequent quarters.
John Byers: Also, following the completion of our IPO, we've become a federal and state income taxpayer and anticipate a blended tax rate in the low to mid 20 percent range. Both the corporate cost and the increase in taxes will impact comparability in subsequent quarters.
John Byers: Turning to our balance sheet and liquidity, we're very pleased with our strong financial position following our successful IPO in January.
John Byers: Turning to our balance sheet and liquidity, we're very pleased with our strong financial position following our successful IPO in January. Importantly, we utilized most of the primary proceeds from the offering to pay down borrowings on our revolving credit facility. As of March 14, 2025, borrowings on the revolving credit facility were $195.7 million, with a borrowing base of $723.5 million. We had availability under the revolving credit facility of $527.7 million. We're working to integrate the businesses post-merger and expect a near-term increase in working capital in the first half of 2025. As we've stated before, we'll be thoughtful and maintain tight capital discipline when considering any future investments.
John Byers: Importantly, we utilized most of the primary proceeds from the offering to pay down borrowings on our revolving credit facility.
John Byers: As of March 14th 2025 borrowings on our revolving credit facility for $195 7 million with a borrowing base of $723 5 million, we had availability under the revolving credit facility of $527 7 million.
John Byers: We're working to integrate the businesses post merger and expect a near term increase in working capital in the first half of 2025 as we've stated before we'll be thoughtful and maintained tight capital discipline, when considering any future investments on the capital allocation front as noted in our press release, we are considering the initiation of a small sustainable dividend.
John Byers: On the capital allocation front, as noted in our press release, we're considering the initiation of a small, sustainable dividend to return capital to shareholders over time. In summary, the business delivered solid performance in 2024, ending the year with a fourth quarter in line with our expectations. As Joe Bob mentioned, we saw 10 percent pro forma revenue growth in 2024 versus 2023. Reviewing the EIA production data, this compares to only two to three percent growth in U.S. oil production over the same period, illustrating our thesis that our business can grow in a relatively flat production environment.
John Byers: To return capital to shareholders over time.
John Byers: In summary, the business delivered solid performance in 2024, ending the year with the fourth quarter in line with our expectations.
Speaker Change: Joe Bob mentioned, we saw 10% pro forma revenue growth in 2024 versus 2023.
Speaker Change: <unk> the EIA production data. This compares to only 2% to 3% growth in U S oil production over the same period illustrating our thesis that our business can grow in a relatively flat production environment.
Speaker Change: As we continue to collaborate with our customers, we are seeing new opportunities to grow our partnerships and business every day.
John Byers: As we continue to collaborate with our customers, we're seeing new opportunities to grow our partnerships and business every day. On high pressure gas lift, we're seeing increased orders with multi-year contract terms as customers further prove out and realize the significant benefits of our technology within their operations. In vapor recovery, we are uncovering new opportunities as more midstream customers are recognizing the value in capturing and selling methane emissions from their operations. As a result, our expectations for 2025 as we laid out during the IPO are unchanged as we continue to execute against our strategy.
Speaker Change: On high pressure gas lift we're seeing increased orders with multi year contract terms as customers further prove out and realize the significant benefits of our technology within their operations and vapor recovery, we are uncovering new opportunities as more midstream customers are recognizing the value and capturing and selling methane emissions from their operations as a result.
Speaker Change: Our expectations for 2025, as we laid out during the IPO are unchanged as we continue to execute against our strategy back to you Joe Bob.
Joe Bob Edwards: Back to you, Joe Bob. Thanks, John. As we've highlighted this morning, we accomplished a tremendous amount in 2024, and absent any significant unforeseen changes in the market, 2025 is setting up to be another strong year for Flowco.
Speaker Change: Thanks, John as we've highlighted this morning, we accomplished a tremendous amount in 2024 and absent any significant unforeseen changes in the market 2025 is setting up to be another strong year for <unk>.
Turning now to guidance.
For the first quarter of 2025, we expect adjusted EBITDA.
Joe Bob Edwards: Turning now to God. For the first quarter of 2025, we expect adjusted EBITDA of $74 to $78 million.
Speaker Change: Of $74 million to $78 million.
Speaker Change: Before I open up the call to Q&A I want to acknowledge and thank a number of people that have been instrumental in our success and vital throughout the IPO process.
Joe Bob Edwards: Before I open up the call to Q&A, I want to acknowledge and thank a number of people that have been instrumental in our success and vital throughout the IPO process. our advisors, the lawyers, bankers, consultants, and other people that worked so incredibly hard to help us prepare the process and guided us through investor meetings and pricing. Thank you for your impressive work in helping us execute our very successful IPO.
Speaker Change: Our advisors the lawyers bankers consultants and other people that worked so incredibly hard to help us prepare the process and guided us through investor meetings and pricing.
Speaker Change: For your impressive work in helping us execute our very successful IPO.
Speaker Change: Through our private equity sponsors at GEC White deer, and Genesis Park.
Joe Bob Edwards: to our private equity sponsors at GEC, White Deer, and Genesis Park. Your unwavering support over the years is much appreciated. We look forward to many successful years of partnership in the next phase of Flowco's journey.
Speaker Change: Your unwavering support over the years as much appreciate it we look forward to many successful years of partnership and the next phase of <unk> journey.
For our customers.
Speaker Change: Thank you for supporting each of our industry, leading brands through our merger last year and your ongoing support as a combined company operating under the <unk> banner.
Joe Bob Edwards: For our customers, thank you for supporting each of our industry leading brands through our merger last year and your ongoing support as a combined company operating under the Flowco banner.
Speaker Change: And importantly to my Loco employee family, including the large number of loco employee owners.
Joe Bob Edwards: And importantly, to my FLOCO employee family, including the large number of FLOCO employee owners. Thank you for your friendship. Thank you for your trust. And thank you for your partnership.
Speaker Change: Thank you for your friendship. Thank you for your trust and thank you for your partnership together, let's continue to innovate and build upon <unk> position as a pure play provider of production optimization solutions to the oil and gas industry.
Joe Bob Edwards: Together, let's continue to innovate and build upon FloCo's position as a pure play provider of production optimization solutions to the oil and gas industry. We accomplished a tremendous amount together in the last 12 months, but there's a lot of work still to be done.
Speaker Change: We accomplished a tremendous amount together in the last 12 months, but there is a lot of work still to be done.
Speaker Change: Lastly to our new investors, who made our IPO a reality.
Joe Bob Edwards: Lastly, to our new investors who made our IPO a reality. Thank you for the confidence you have placed in our management team and the trust you have bestowed upon us to manage your investment in Flowco. We will work tirelessly to earn that trust every day and vow to never take that support for granted. We look forward to working with you along with our covering analysts.
Speaker Change: Thank you for the confidence you have placed in our management team and the trust you have bestowed upon us to manage your investment in <unk>.
Speaker Change: We will work tirelessly to earn that trust every day and vowed to never take that support for granted.
Speaker Change: We look forward to working with you along with our covering analysts and.
Speaker Change: And I look forward to seeing many of you Tonight and tomorrow at the Piper Sandler Conference in Las Vegas.
Joe Bob Edwards: and I look forward to seeing many of you tonight and tomorrow at the Piper Sandler Conference in Las Vegas.
Speaker Change: So with that I'll turn it back over to the operator for Q&A.
Andrew Leon-Packer: So with that, I'll turn it back over to the operator for Q&A. Thank you.
Speaker Change: Thank you.
Speaker Change: I'll now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question at this time you May press star one from your telephone keypad.
Andrew Leon-Packer: If you would like to ask a question at this time, you may press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: And then a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to withdraw your question from the queue.
Andrew Leon-Packer: Let me press star 2 if you'd like to withdraw your question from the queue. Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.
Speaker Change: For participants using speaker equipment may be necessary to pick up the handset before pressing the star keys.
Speaker Change: Please can we pull from the first question. Thank you.
Andrew Leon-Packer: One moment, please, while we poll for the first question. Thank you.
Speaker Change: Thank you and our first question comes from the line of Arun <unk> with Jpmorgan. Please proceed with your question good morning, gentlemen.
Arun Jayam: Thank you, and our first question comes from the line of Arun Jayam with J.P. Morgan. Please proceed with your question. Good morning, gentlemen. Good morning, everyone. How are you doing? I'm doing well, doing well. Good to see your report this morning.
Arun: My question are you doing I am doing well doing well good to see your report this morning.
Speaker Change: Yes, just general questions, we've been getting from from the buy side on <unk> is quite a bit has changed.
Joe Bob Edwards: Yeah, just, you know, general, you know, questions we've been getting from the buy side on FloCo is quite a bit has changed, you know, since the IPO in terms of the macro environment with some tariffs, as well as the potential resolution of the Ukraine-Russia conflict. So I guess our broader question, we heard the commentary on 1Q guidance essentially in line, at least with our forecast, and John mentioned that your overall expectations are largely unchanged from the IPO commentary.
Speaker Change: Since the IPO in terms of the macro environment with some tariffs as well as the potential resolution of the Ukraine, Russia conflict.
Speaker Change: So I guess a broader question we heard the commentary on one Q guidance essentially in line at least with our forecast.
Speaker Change: And John mentioned that your overall expectations are largely unchanged from the IPO commentary, but I just wanted to see if we could dig in to 2025 as a whole just in the context as we have seen some softer forecast from your peers and just general commodity price uncertainty for us.
Joe Bob Edwards: But I did want to see if we could dig into 2025 as a whole, just in the context as we have seen some softer forecast from your OFS peers and just general commodity price uncertainty for upstream operators. Yeah, happy to elaborate Arun. Look, a lot has changed since we went public roughly, what, six weeks ago or so. But at the same time, a lot is the same, right? Our story is the same. We are levered to production volumes, not the vagaries and volatility associated with drilling and completion expenditures. Commodity prices certainly matter. Geopolitical events certainly matter.
Speaker Change: Extreme operators.
Speaker Change: Yes happy to elaborate Arun look a lot has changed since.
Speaker Change: We went public roughly what six weeks ago or so.
Speaker Change: <unk>.
Speaker Change: But at the same time a lot is the same right. Our story is the same we are we are levered to production volumes, not the vagaries and volatility associated with drilling and completion expenditures.
Commodity prices certainly matter geopolitical events certainly matter.
Speaker Change: But what I am optimistic about is the durability of the U S shale business and.
Joe Bob Edwards: But what I am optimistic about is the durability of the U.S. shale business. And we've gone from, you know, 5, 6 million barrels a day 10 years ago to where we are today, leading the world. And with the consolidation that's taken place among our customer base, the outlook seems much less volatile. I think the customers that are prosecuting the shale developments today are taking a manufacturing approach. They're taking a multi-year view. And so I'm encouraged by where we sit within the industry today. Certainly, you know, things like tariffs being put on and off inside of a matter of days make it really hard to operate.
Speaker Change: <unk> gone from <unk>.
Speaker Change: $5 6 million barrels a day 10 years ago to where we are today, leading the world.
Speaker Change: And with the consolidation that's taken place among our customer base.
Speaker Change: The outlook seems much less volatile.
Speaker Change: I think the customers that are prosecuting. These shale developments today are taking a manufacturing approach. They are taking a multi year view and so I'm encouraged by where we sit within the industry today.
Speaker Change: Certainly.
Speaker Change: Things like tariffs being put on and off inside of a matter of days.
Speaker Change: Make it really hard to operate but I would highlight actually our domestic supply chain as a.
Joe Bob Edwards: But I would highlight actually our domestic supply chain as a defensive mechanism against volatility in the tariff regimes. And also the fact that we don't rely on far-flung supply chains for critical materials. Everything is sourced here domestically. We maintain our own ability to ramp up and ramp down our growth capital expenditures because we control our destiny through our manufacturing facilities. So, look, in a world that has undoubtedly become a little less stable, I like where we sit. Great, thanks for that.
Speaker Change: As a as a defensive mechanism against volatility and the tariff regimes.
Speaker Change: And also the fact that we don't rely on far flung supply chain for critical materials.
Speaker Change: Everything is sourced here domestically.
Speaker Change: We maintain our own ability to ramp up and ramp down our growth capital expenditures, because we we control our destiny through our manufacturing facilities. So look.
Speaker Change: In a world that has undoubtedly become a little less.
Speaker Change: A little less stable I like where we sit.
Speaker Change: Great. Thanks for that and my follow up is just.
Speaker Change: Kind of on margins you guys had strong margin performance called 150 basis points of margin expansion and production solutions sequentially.
Joe Bob Edwards: And my follow-up is just kind of on margins. You guys had strong margin performance called 150 basis points of margin expansion in production solutions sequentially and over 400 in natural gas technologies.
Speaker Change: Over 400, and natural gas technologies could you give us a sense of how you think about margin progression over the balance of 2025.
Joe Bob Edwards: Could you give us a sense of how you think about margin progression over the balance of 2025? Yeah, look, the margin progression is really a function of, I'd say, two things. Obviously, mix and pricing. And the mixed shift in our top-line revenue, Arun, is trending more toward rental, less toward sales. Product sales come at a lower margin than equipment rental. So I think you'll see margins continue to bleed higher. And that's just as a result of our growth capital investment in our surface equipment fleet across high-pressure gas lift and vapor recovery system.
Okay.
Speaker Change: Yes.
Speaker Change: The margin progression is really a function of I'd say, two things, obviously mix and pricing.
Speaker Change: Pricing and the mix shift in our topline revenue alone is trending more towards rental.
Speaker Change: Less towards sales product sales come at a lower margin than equipment rental.
Speaker Change: I think you'll see margins continue to.
Speaker Change: Bleed higher.
Speaker Change: And that's just as a result of our growth capital investment in our surface equipment fleet across high pressure gas lift and.
Speaker Change: In vapor recovery systems.
Speaker Change: Great. Thanks, a lot gentlemen.
Joe Bob Edwards: Great.
Joe Bob Edwards: Thanks a lot, gentlemen.
Speaker Change: Thank you.
Joe Bob Edwards: Thank you.
Speaker Change: Our next question is from the line of Ryan Byrnes with Jefferies. Please proceed with your questions.
Lloyd Byrne: Our next question is from the line of Lloyd Byrne with Jeffries. Please choose your question. Hey, good morning, Joe, Bob, John team. Morning.
Ryan Byrnes: Hey, good morning, Joe Bob John and team.
Speaker Change: Good morning, I was wondering if you guys could just comment on administration policy and then how that impacts the <unk>.
Joe Bob Edwards: I was wondering if you guys could just comment on administration policy and then how that impacts the VRU. Is there anything in the IRA or waste emissions that would change? the NatCast tech trajectory going forward or the VRU. Yeah, Lloyd, good to hear from you. Thanks for the question. And and it's something obviously we track closely.
Ryan Byrnes: Anything in the IRI airway submissions that would change.
Ryan Byrnes: The Natgas Tac trajectory going forward or are you.
Speaker Change: Yes, good to hear from you. Thanks for the question.
Speaker Change: And it's something obviously, we track closely let me remind everyone, what we do and why it matters and while we're not particularly concerned about the volatility that this new administration is introducing two.
Joe Bob Edwards: Let me remind everyone what we do and why it matters and why we're not particularly concerned about the volatility that this new administration is introducing to to this sector. Our vapor recovery systems are deployed by oil companies to capture highly profitable molecules that were previously seen as waste product. Okay, what and the the the presence of natural gas handling capability at the wellhead as well as natural gas takeaway capacity out of in particular, the Permian has led to this, this type of product, our vapor recovery system at these large pads that are being brought on.
Speaker Change: This sector.
Speaker Change: Our vapor recovery systems are deployed by oil companies to capture highly profitable molecules that were previously seen as waste product okay.
And the.
Speaker Change: The presence of natural gas handling capability at the wellhead as well as natural gas takeaway capacity out of in particular, the Permian has led to this.
Speaker Change: This type of product our vapor recovery system at these large pads that are being brought on.
Speaker Change: These are standard equipment nowadays.
Joe Bob Edwards: These are standard equipment nowadays, the the equipment deployment is highly profitable, virtually at any gas price, but at today's gas price, in particular gas with a four handle on it actually feels a lot better than down in the twos where we were, you know, a year ago. The Inflation Reduction Act enacted by the Biden administration did have a waste emissions charge in it, which was scheduled to come into play in 2025. We saw that. We continue to see that, should it actually survive, as a tailwind on top of the economic benefits that our vapor recovery systems provide.
Speaker Change: The equipment deployment is highly profitable virtually any gas price, but at today's gas price in particular gas with a four handle on it actually feels.
Speaker Change: Feels a lot better than down in the twos, where we were a year ago.
Speaker Change: The.
Speaker Change: The inflation reduction act enacted by the by the administration did have a waste emissions charge in it which was scheduled to come into play in 2025.
Speaker Change: We saw that we continue to see that should it should it actually survive as a tailwind on top of the economic.
Speaker Change: The benefits that our vapor recovery systems provide because.
Speaker Change: With waste emissions charges comes effectively taxation on operators and so that would just increased demand for products that would eliminate fugitive methane emissions like vapor recovery systems.
Joe Bob Edwards: Because with waste emissions charges comes effectively taxation on operators. And so that would just increase demand for products that would eliminate fugitive methane emissions like vapor recovery systems. So to the extent those get rolled back, that does not impact at all the financial viability of our product. In many ways, it makes what we do a little less murky, because we then have a level playing field without any government intervention. So we're going to continue to keep our head down and offer the industry's leading solution in that area. And our customers, hopefully, will continue to support us in deploying more units over time.
Speaker Change: So to the extent those get rolled back.
Speaker Change: That does not impact at all the financial viability of our product.
Speaker Change: In many ways it makes what we do.
Speaker Change: Little less a little less murky.
Speaker Change: Because we then have a level playing field without any sort of government intervention. So.
Speaker Change: We're going to continue to keep our head down and offer the industry's leading solution in that area and our customers hopefully will continue to support us in deploying more units over time.
Speaker Change: That's great. Thanks, let me follow up to with.
Joe Bob Edwards: That's great, thanks.
Joe Bob Edwards: And let me follow up too with, I think, maybe it was John who mentioned that VRU is finding incremental customers in the midstream.
Speaker Change: I think maybe this is John you mentioned that.
Speaker Change: <unk> is finding incremental customers in the midstream.
Speaker Change: Can you just talk about the potential there or the potential to take it to other.
Joe Bob Edwards: Can you just talk about the potential there, or the potential to take it to other? pieces of the oil infrastructure as well. Yeah, so historically, our business has been built on the back of upstream operators utilizing this technique to capture vapors at central gathering facilities. Okay, so very much a, you know, a system, a business model that was built in and around upstream facilities operations. Okay. Obviously, as you move further down the natural gas delivery system, you have various points of methane leak potential methane leakage all along pipeline systems, compressor stations, even all the way down to, you know, where gas is either being consumed or liquefied for export.
Speaker Change: Piece.
Speaker Change: Pieces of the oil infrastructure as well.
Speaker Change: Yes, so historically our business has been built on the back of upstream operators.
Speaker Change: Utilizing this technique to capture vapors at.
Speaker Change: Central gathering facilities, okay, so very much a.
Speaker Change: Our system.
Speaker Change: Our business model that was built in and around upstream.
Speaker Change: Facilities operations, Okay, obviously as you move further down the natural gas delivery system, you have various points of methane potential methane leakage all along pipeline systems compressor stations, even all the way down to.
Speaker Change: Where gas is either being consumed or liquefied for export.
Speaker Change: We're looking at that entire value chain today as additional end market demand centers in particular, the midstream space largely the pipeline operators that have lots of.
Joe Bob Edwards: We're looking at that entire value chain today, as additional in market demand centers, in particular, the midstream space, largely the pipeline operators that have lots of concentration of emissions around certain points in the delivery system, as a next leg of growth for floco. We think that some of the largest operators in in the US pipeline operators in the US will see value in this in this sort of technology deployment, and we're talking with all of them.
Speaker Change: Concentration of emissions around search.
Speaker Change: And points in the delivery system as a next leg of growth for <unk>, we think that.
Speaker Change: Some of the largest operators.
Speaker Change: In the U S pipeline operators in the U S. We.
Speaker Change: We will see value in this and this sort of technology deployment and we're talking with all of them. So I hope to see some positive news on that sometime during 2025.
Joe Bob Edwards: So I hope to see some positive news on that sometime during 2025. That's great. Thank you, team. Thank you.
Speaker Change: That's great. Thank you Tim.
Speaker Change: Yeah.
Speaker Change: Thank you Andrew.
Speaker Change: Wanted to ask a question at this time you May press star one from your telephone keypad.
Andrew Leon-Packer: As a reminder to ask a question at this time, you may press star 1 from your telephone keypad.
Speaker Change: The next question is from the line of Derek <unk> with Piper Sandler. Please proceed with your question.
Derek Pizer: The next question is from the line of Derek Pizer with Piper Sandler. Hey, good morning guys. Welcome to the to the public markets and the call. Congratulations. I just wanted to dig into maybe about your customer base with HPGL. So obviously you talked about a little bit, Joe, but we've seen that wave of EMP consolidation. Maybe could you talk to how that impacts Flowco and the adoption of HPGL and then maybe how we should think about incremental or new customer ads for 2025. So just some thoughts around your customer base for HPGL.
Speaker Change: Hey, good morning, guys.
Speaker Change: And welcome to the public markets on the call congratulations.
Speaker Change: I just wanted <unk>.
Speaker Change: Hey, I just wanted to dig into maybe about your customer base at <unk>. So obviously, you talked about a little bit Joe Bob what we've seen that wave of E&P consolidation, maybe could you talk to how that impacts flow co and the adoption of <unk> and then maybe how we should think about incremental or new customer adds for 2025. So just some thoughts around your customer.
Great days for <unk> specifically.
Speaker Change: Yes, So let me start at a high level, Derek and remind everyone kind of what we're what we're talking about and what we're looking at so the.
Joe Bob Edwards: Yeah, so let me start at a high level, Derek, and remind everyone kind of what we're what we're talking about and what we're looking at. So the rice dad, which is I think one of the better research groups out there, sizes the North American, or excuse me, the US onshore artificial lift market at roughly six to $7 billion. Okay, and only only half of that market is is serviced by floco. Okay, so that's high pressure gas lift, gas lift, traditional gas lift and plunger lift. The other half is serviced by ESP and rod lift. Okay, so we happen to be in and among the faster growing sectors of artificial lift.
Speaker Change: <unk>, which is I think one of the better.
Speaker Change: Our troops out there size.
Speaker Change: Sizes, the North American or excuse me the U S onshore.
Speaker Change: Artificial lift market at roughly $6 billion to $7 billion, Okay, and only only half of that market is serviced by <unk>. Okay. So thats high pressure gas lift gas lift traditional gas lift than plunger lift the.
Speaker Change: The other half is serviced by.
Speaker Change: ESP and rod lift okay. So we happen to be.
Among the faster growing sectors of artificial lift and we're really really happy to be market leaders in each of the forms of lift that we actually offer our customer base.
Joe Bob Edwards: And we're really, really happy to be market leaders in each of the forms of lift that we actually offer our customer base. Our high pressure gas lift offering in particular, is our fastest growing offering. We were pioneers in developing this technique alongside a couple of oil company clients. And we enjoy a market leading position and a customer base of sort of everyone that you would know. And what we have done to build that business, Derek is what we're going to continue to do to expand it. And that is we're going to push the technical envelope in terms of what the system can do, where it's applicable, how it can actually expand on what it's good at, which is producing high flow shale wells in really tough situations, you know, lots of sand, lots of gas.
Speaker Change: Our high pressure gas lift offering in particular is our fastest growing offering we were pioneers in developing this technique alongside a couple of oil company clients.
And we enjoy a market leading position.
Speaker Change: And a customer base of sort of everyone that you would know.
Speaker Change: And what we have done to build that business. Derek is what we're going to continue to do to expand it and that is we're going to push the technical envelope.
Speaker Change: Yes.
Speaker Change: In terms of what the system can do where it's applicable how it can actually expand on what it is good at which is producing high flow shale wells.
Speaker Change: And really tough situations.
Speaker Change: Lots of sand lots of gas on these.
Speaker Change: Are there areas operating environments, where asps are not comfortable right. So we'll continue to push that operating envelope every.
Joe Bob Edwards: These are areas and operating environments where ESPs are not comfortable, right. So we'll continue to push that operating envelope every day, okay, through technology development, as well as through just good old trial and error with customers. And the customer base is sort of who you would expect. It's the technology leaders in the U.S. onshore, okay? We count among our customers the 60 largest and most financially secure oil companies in the U.S. But we have over 300 customers as a company. So we continue to go to the customers that are not users of HPGL and tell them the benefits of it specifically against DSPs.
Speaker Change: Today, Okay through through technology development, as well as through just going to trial and error with customers.
And the customer base.
Speaker Change: Is it sort of who you would expect it's the Technip technology leaders in.
Speaker Change: In the U S onshore, okay, we count among our customers the 60.
Speaker Change: The largest and most financially secure oil companies in the U S but.
Speaker Change: But we have over 300 customers as a.
Speaker Change: As a company. So we continue to go to the customers that are not users of <unk> and tell them the benefits of it specifically against Piceance Dsp's now we've built a heck of a mousetrap if you.
Joe Bob Edwards: Now, we built a heck of a mousetrap, if you will, with an HPGL, but I want to be very clear that there's a big market out there for ESPs where HPGL is not the right technical solution, okay? We think that today we have pushed the envelope enough to where we can penetrate roughly 40% of the total available market for ESPs and HPGL. There's going to be a sector of the market, Derek, where an ESP is always going to be the right solution, okay? Conventional reservoirs, water floods, areas where you don't have the flow rates that an HPGL requires to actually be deployed.
Speaker Change: With an <unk>, but I want to be very clear that there is a big market out there for ESPN, where <unk> is not the right technical solution. Okay, we think that.
Speaker Change: Today, we have pushed the envelope enough to where we can penetrate roughly.
Speaker Change: 40% of the total available market for ESPN and <unk>.
Speaker Change: There's going to be a sector of the market, where an ESP is always going to be the right solution, okay conventional reservoirs water floods.
Speaker Change: Areas, where.
Speaker Change: You don't have the flow rates that.
Speaker Change: <unk> requires to actually be deployed so.
Speaker Change: We're going to continue to look at that market, we're going to continue to look at our solution and how we can we can expand it and and yet.
Joe Bob Edwards: So we're going to continue to look at that market. We're going to continue to look at our solution and how we can expand it and, yeah, get after it one customer at a time to try to have additional penetration. Right now, that's a good call.
Speaker Change: After it one customer at a time to try to to try to have additional penetration.
Speaker Change: Alright, thats good color I appreciate that.
Speaker Change: This question might be for John but I just wanted to talk about the free cash flow outlook or maybe the moving pieces as we look into 2025, obviously, you said similar capex year over year increase of working capital in the first half and maybe if you could break it down how we should think about growth versus maintenance Capex and then maybe the conversion rates from EBITDA down into free cash flow for 2020.
Joe Bob Edwards: I appreciate that.
John Byers: This question might be for John, but just wanted to talk about the free cash flow outlook, or maybe the moving pieces as we look into 2025. Obviously, you said similar CapEx year over year increase of working capital in the first half, and maybe if you can break it down, how we should think about growth versus maintenance CapEx, and then maybe the conversion rates from EBITDA down into free cash flow for 2025.
Speaker Change: Five.
Speaker Change: Yes, so we're not going to give any any full year guidance I think everything is still in line with the expectations that we kind of we.
John Byers: Yes, we're not going to give any any full year guidance. I think everything's still in line with the expectations that we kind of we laid out in the in the roadshow. Got it. Okay. Fair enough.
Speaker Change: We've laid out in the in the Roadshow.
Speaker Change: Got it Okay fair enough I'll turn it back thanks, guys.
John Byers: I'll turn it back. Thanks, guys. Thank you.
Speaker Change: Thank you.
Speaker Change: Once again as a reminder, if you'd like to ask a question you May press star one from your telephone keypad.
Andrew Leon-Packer: And again, as a reminder, if you'd like to ask a question today, you may press star 1 from your telephone keypad.
Speaker Change: The next question comes from the line of Phillip Jungwirth with BMO capital markets.
Linah Philip-Jungler: The next question comes from Linah Philip-Jungler with BMO Capital Markets. Yeah, thanks. Good morning, guys.
Speaker Change: And with your questions.
Speaker Change: Yes, thanks, good morning, guys.
Speaker Change: Wondering if you could discuss the E Grizzly unit, which you called out in the press release.
Joe Bob Edwards: What wondering if you could discuss the the e grizzly unit, which you called out in the press release, first electric multi well high pressure gas lift unit and just what what's the opportunity set here? And what are the benefits to customers from either an electric motor or multi well model, which in this case, it's both? Yeah. Hey, Phil. Thanks for the question. Good to hear from you. Yeah, you know this, but just to level set for everybody. a compressor can be powered by their electricity or natural gas fired engine, right? And we have a mix of both throughout our fleet.
Speaker Change: First electric multi well high pressure gas what unit and just what's the opportunity set here and what are the benefits to customers from either an electric motor or multi well model, which in this case both.
Speaker Change: Yeah, Hey, Phil Thanks for the question and good to hear from you.
Speaker Change: <unk>.
Speaker Change: You know this but just to level set for everybody.
Speaker Change: A compressor can be powered by their electricity or natural gas fired engine right.
Speaker Change: We have a mix of both throughout our fleet and as we developed the high pressure gas lift capability.
Joe Bob Edwards: And as we developed the high pressure gas lift capability, we developed both the ability to deploy compression and our technique of high pressure gas lift via either an electric motor or a natural gas engine. And the technique was developed for one wellbore, okay? So one point of compression, one wellbore. Yeah, one unit, one wellbore, okay? Over time, through technology development, we learned how to use one point of compression. to lift multiple wellbores, and we first deployed that capability with a natural gas-fired engine, and then, over time, developed the ability to provide that solution with an electric motor.
Speaker Change: Both the ability to deploy compression.
Speaker Change: And our technique of high pressure gas lift.
Speaker Change: Via via either an electric motor or a natural gas engine.
Speaker Change: The technique was developed for one wellbore, okay. So one point of compression one wellbore.
Speaker Change: Yes.
Speaker Change: Unit, one wellbore, okay over time through technology development.
Speaker Change: Learn how to use one point of compression.
Speaker Change: To lift multiple levels.
Speaker Change: And we first deployed that capability with a natural gas fired engine and.
Speaker Change: Then over time developed the ability to.
Speaker Change: To provide that solution with an electric motor so.
Speaker Change: It's going to be fit for purpose for places where operators have embedded power infrastructure. They have the ability to actually utilize an electric fired compression unit.
Joe Bob Edwards: So it's going to be fit-for-purpose for places where operators have embedded power infrastructure. They have the ability to actually utilize an electric-fired compression unit, and we're just in the early days of rolling that out, and we're getting good customer reception as we do so.
Speaker Change: And we're just in the in the early days of rolling that out and we're getting good customer reception as we do so, but it's going to be customer by customer based on power availability and also obviously the size of the well pad that theyre, bringing online.
Joe Bob Edwards: But it's going to be customer-by-customer based on power availability, and also, obviously, the size of the well pad that they're bringing online. Okay, great.
Speaker Change: Okay, Great and then I was wondering if you could also talk through the company's vertically integrated manufacturing operations and.
Joe Bob Edwards: And then wondering if you could also talk through the company's vertically integrated manufacturing operations and supply chain logistics and just how does this help you reduce execution risk and then anything to note in terms of inflationary pressures across the key components and how that's So we manufacture all of our equipment in the United States. We really have four centers of excellence, Kilgore, Texas, El Reno, Oklahoma, Lafayette, Louisiana, and Houston, Texas, where we manufacture everything from downhole components to surface equipment packages. The critical components that we have still are sourced from domestic sources, largely. Those domestic sources, of course, have their own supply chains, some of which have some international exposure.
Speaker Change: In supply chain logistics and just how does this help you reduce execution risk and then anything to note in terms of inflationary pressures across the key components and how that's managed.
Speaker Change: So we manufacture all of our equipment.
In the United States, we really have four centers of excellence Kilgore, Texas.
Speaker Change: El Reno, Oklahoma, Lafayette, Louisiana, and Houston, Texas, where we manufacture everything from downhole components to surface equipment packages. The critical components that we have Philip are sourced from domestic sources largely.
Speaker Change: Domestic sources of course have their own supply chain, some of which have some international exposure, but as we think about tariff exposure as we think about supply chain risk.
Joe Bob Edwards: But as we think about tariff exposure, as we think about supply chain risk, we've all lived through situations where the risk on both of those are way higher. I think we have a little bit of an embedded benefit along two fronts. Number one, we can ramp up and ramp down capital investment very quickly based on the fact that we control it all in-house. We estimate at any given time, we have about six months of capital at risk in our delivery schedule. Number two, we think that our competitors, where it's a competitive technology or a similar technology sourced overseas, we think our competitors have more exposure on the tariff front.
Speaker Change: We've all lived through situations, where the risk on both of those are way higher okay.
Speaker Change: We have a little bit of a of.
Of an embedded benefit.
Speaker Change: Among along two fronts number one we can ramp up and ramp down capital investments.
Speaker Change: Very quickly based on the fact that we control it all in house, Okay. We estimate at any given time, we have about six months of capital at risk.
Speaker Change: And our delivery schedule okay.
Speaker Change: Number two we think that are competitive.
Speaker Change: Our competitors, where it's a competitive technology or a similar technology sourced overseas, we think our competitors have more exposure on the tariff front. Okay. So so we think that.
Joe Bob Edwards: So we think that in a very dynamic market, we sit at a place that's pretty comfortable, and we like where we sit. Great. Thanks, guys. Thank you.
Speaker Change: In a very dynamic market, we sit in a place that's that's pretty comparable.
Speaker Change: Sure.
Speaker Change: And we like where we sit.
Speaker Change: Alright, thanks, guys.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you. The next question is from the line of David Smith with Pickering Energy Partners. Please proceed with your question.
David Smith: Hey, good morning, and thank you for taking my question.
David: Hey, good morning, and thank you for taking my question. Hey, David. A lot of good questions have been asked already, so I'll go in a different direction.
Speaker Change: Hey, David.
Speaker Change: A lot of good questions have been asked already so I'll go in a different direction.
Ryan Byrnes: Given your history of successful M&A as well as lower valuations, we are seeing across at least the public Oss space year to date wanted to ask for any color on how you're thinking about potential acquisition opportunities.
Joe Bob Edwards: Given your history of successful M&A, as well as the lower valuations we're seeing across at least the public OFS space here to date, I wanted to ask for any color on how you're thinking about potential acquisition opportunities, or whether you've seen any any meaningful changes in the asking levels across the private space. Yeah, look, this, this business, I think, is very well positioned to be a market leader in, in one market niche, which is the ability to handle production, the ability to sustain production, the ability to work with oil and gas companies to increase and maintain production with innovative technologies.
Speaker Change: Whether you are seeing.
Speaker Change: Any any meaningful changes in the.
Speaker Change: Yes, asking levels.
Speaker Change: Across the private space.
Speaker Change: Yes look this business I think is very well positioned to be a.
Speaker Change: <unk> a market leader in in one market niche, which is the ability to handle production the ability to sustain production the ability to work with oil and gas companies too.
Speaker Change: Increase and maintain production with innovative technologies.
Speaker Change: Importantly.
Joe Bob Edwards: Importantly, we don't offer every unique technology to every oil company on the market, right? So there's a, there is a large, there's a big world out there, David, as you know, and we're constantly on the lookout for innovative technologies, like-minded management teams that see the world the same way we do, customer-focused, technology-oriented businesses. M&A has always been part of our strategy. The business was really formed via M&A and combining three companies that, that checked all those boxes that I just mentioned. And, and, and yes, we are, we have an M&A pipeline. It will be part of our strategy.
Speaker Change: We don't offer every unique technology to every oil company on the planet right. So there is a there is a large there's a big world out there David.
Speaker Change: David as you know.
Speaker Change: And we're constantly on the lookout for innovative technologies like.
Speaker Change: Minded management teams that see the world the same way we do.
Speaker Change: <unk> focused technology oriented businesses.
Speaker Change: M&A has always been part of our strategy. The business was really formed via M&A and combining three companies.
Speaker Change: Checked all those boxes that I just mentioned.
Speaker Change: And yes, we are we have an M&A pipeline it will be part of our strategy as we said on our road show and I want to repeat now we want to we want to get through today, we want we want to get through the ability to report earnings and and then certainly M&A will be part of a of a process I also want to be real clear though.
Joe Bob Edwards: As we said on our roadshow, and I want to repeat now, we want to, we want to get through today, we want, we want to get through, you know, the ability to report earnings, and, and then certainly M&A will be part of a, of a process. I also want to be real clear, though, we, we, we are fortunate to be traded at a, what I think is a very nice, attractive valuation level. It can never be high enough. And, and you're right, you've alluded to it, David, the M&A markets are significantly below that. We are going to be very disciplined with capital.
Speaker Change: We.
Speaker Change: We are.
Speaker Change: <unk> fortunate to be traded at a what I think is a very nice.
Speaker Change: Tractive valuation level it can never behind us.
David Smith: And Youre right, you've alluded to a David the M&A markets are significantly below that.
Speaker Change: We are going to be very disciplined with capital. Okay. We are a returns oriented management team our board Incentivizes us.
Joe Bob Edwards: Okay, we are a returns-oriented management team. Our board incentivizes us, and we've all built our careers around being good stewards of capital. So as I said on the road, I'll say it again here, just because something is accretive to earnings doesn't mean it's accretive to returns. And we want to do returns-accretive M&A in areas that make sense. And if we can find situations like that with like-minded management teams, we're all in.
Speaker Change: And we've all built our careers around being good stewards of capital.
Speaker Change: So as I said on the road I'll say it again here just because something is accretive to earnings doesn't mean, it's accretive to returns and we want to do returns accretive M&A in areas that makes sense and if we can find situations like that with like minded management teams rollout.
Speaker Change: Really appreciate that color I guess, the only related question I have is.
David: Really appreciate that color.
Joe Bob Edwards: I guess the the only related question I have is, you know, if you could please remind us on your your comfort level around the leverage, particularly with that M&A question. Yeah, we really like where our balance sheet sits today. We've got plenty of availability. We also are not, you know, we understand financial engineering and the ability to utilize leverage to drive returns, but none of us are excited to try out the limits of that. We are envious of other balance sheets that have less leverage than us, but we're going to continue to be prudent, David.
Speaker Change: If you could please remind us on your comfort level around.
Speaker Change: The.
Speaker Change: Leverage.
Speaker Change: Particularly.
Speaker Change: With that M&A M&A question in mind.
Speaker Change: Okay.
Yes, we we.
Speaker Change: We really like where our balance sheet sits today, we've got plenty of availability.
Speaker Change: We also.
Speaker Change: We're not we understand financial engineering, and the ability to utilize leverage to drive returns.
Speaker Change: But none of us are excited to try out the limits of that.
Speaker Change: We.
Speaker Change: We are envious of other balance sheets that have less leverage than us.
Speaker Change: But we're going to continue to be prudent David we lived through enough of this industry to know that leverage can can really gets you into hot water and none of us are looking forward to getting that and getting into that book.
Joe Bob Edwards: We've lived through enough of this industry to know that leverage can really get you into hot water, and none of us are looking forward to getting into that boat.
Speaker Change: Great. That's all I have thank you.
David: Great, that's all I have.
Andrew Leon-Packer: Thank you.
Speaker Change: Thank you once again as a reminder, you May press star one to ask a question at this time.
Andrew Leon-Packer: Once again, as a reminder, you may press star 1 to ask a question at this time.
Speaker Change: I'll pause a moment and simple queue. Thank you.
Andrew Leon-Packer: We'll pause a moment to assemble the queue.
Andrew Leon-Packer: Thank you.
Speaker Change: Thank you.
Speaker Change: At this time I will turn the floor back to Joe Rob Edwards for closing remarks.
Joe Bob Edwards: At this time, I'll turn the floor back to Joe Loved, Edwards for closing remarks. Excellent. Well, thank you all. Appreciate you tuning in. Look forward to seeing you all in the weeks to come. Appreciate it. Thank you.
Speaker Change: Excellent well. Thank you all appreciate you tuning in and look forward to seeing you all in the weeks to come I appreciate it.
Speaker Change: Thank you. This will conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Andrew Leon-Packer: This will conclude today's teleconference. We disconnect your lines at this time. Thank you for your participation.