Q1 2025 Flowco Holdings Inc Earnings Call
Operator: Good morning and welcome to Floco Holdings Inc. first quarter fiscal 2025 results conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.
Good morning, and welcome to slow Ko Holding's, Inc. First quarter fiscal 'twenty 25 results conference call today's call is being recorded and we've allocated one hour for prepared remarks and Q&A.
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 Flowco. Thank you.
Speaker Change: At this time I'd like to turn the conference over to Andrew Leon Tucker, Vice President Finance corporate development and Investor Relations at <unk>. Thank you you may begin.
Operator: You may begin.
Andrew Leon Packer: Good morning, everyone, and thanks for joining us for Flowco's first quarter 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, 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. We undertake no obligation to revise or update any forward-looking statements or information except as required by law.
Everyone and thanks for joining us for <unk> first quarter results before we begin we would like to remind you that this conference call may include forward looking statements.
Speaker Change: 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 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 slow co 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: During our call today, we will also reference certain non-GAAP financial information. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. 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 SEC filing.
Speaker Change: Our call today, we will also reference certain non-GAAP financial information, 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 join.
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.
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'll open the call for your questions with that I'll turn the call over to Joe Bob.
Joe Bob Edwards: With that, I'll turn the call over to Joe. Thank you, Andrew, and good morning, everyone. Before discussing our solid first quarter results, I want to take a moment to address the macro environment currently impacting our industry. Over the past several weeks, the United States' upstream outlook has come under pressure from evolving tariff policies, OPEC plus commentary suggesting accelerated production, and broader economic uncertainty. Given this backdrop, I want to take a few moments to reiterate what we talked about during our IPO roadshow and on our fourth quarter call several weeks ago, and that is Floco's differentiated business model in the context of the broader oil services sector.
Speaker Change: Thank you Andrew and good morning, everyone.
Speaker Change: Before discussing our solid first quarter results I want to take a moment to address the macro environment currently impacting our industry.
Speaker Change: Over the past several weeks the United States upstream outlook has come under pressure from evolving tariff policies, OPEC plus commentary, suggesting accelerated production and.
Speaker Change: And broader economic uncertainty.
Speaker Change: Given this backdrop I want to take a few moments to reiterate what we talked about during our IPO roadshow.
And on our fourth quarter call several weeks ago and that is <unk> differentiated business model in the context of the broader oil services sector.
Joe Bob Edwards: First and foremost, Flowco's performance is driven by our customers non-discretionary OPEX rather than their CAPEX. Our results are tied to absolute levels of oil and gas production in the United States, not the number of active drilling rigs or frack spread. At current commodity price levels, many of our customers have announced plans to modestly reduce capital spending. However, most have reiterated or only slightly reduced their production expectations. In fact, despite these market concerns, the EIA recently projected that the United States crude oil production as a whole will average an all-time high of 13.4 million barrels per day in 2025, up from the 13.1 million barrels per day average in January of this year.
Speaker Change: First and foremost focused performance is driven by our customers' non discretionary opex rather than their capex.
Speaker Change: Our results are tied to absolute levels of oil and gas production in the United States not the number of active drilling rigs or frac spreads.
Speaker Change: At current commodity price levels, many of our customers have announced plans to modestly reduce capital spending however, most have reiterated or only slightly reduced their production expectations.
Speaker Change: In fact, despite these market concerns the EIA recently projected that the United States crude oil production as a whole will average at all time high of $13 4 million barrels per day in 2025.
Speaker Change: Up from the $13 1 million barrels per day average in January of this year.
Joe Bob Edwards: While some have forecasted that domestic production growth may flatten or decline, we remain confident in the long-term strength of U.S. shale and its pivotal role in satisfying global demand. Industry consolidation, the maturity of shale development, and strong operator balance sheets all contribute to what we believe is a more stable and sustainable landscape than in cycles past. Flowco's strategic focus on production optimization and our integral role in the critical path of our customers' operations uniquely positions us to deliver value, as we work alongside operators to drive greater performance through this dynamic market backdrop. Second, I want to remind everyone that all of the products we sell and rent are manufactured here in the United States.
Speaker Change: While some have forecasted that domestic production growth may flatten or decline, we remain confident in the long term strength of U S shale and its pivotal role in satisfying global demand.
Speaker Change: Industry consolidation the maturity of shale development and strong operator balance sheets, all contribute to what we believe is a more stable and sustainable landscape than in cycles past.
Speaker Change: Locos strategic focus on production optimization in our integral role in the critical path of our customers' operations uniquely positions us to deliver value as we work alongside operators to drive greater performance through this dynamic market backdrop.
Speaker Change: Second I want to remind everyone that all of the products, we sell and rent are manufactured here in the United States.
Joe Bob Edwards: we use predominantly domestically sourced components and raw material. We operate six manufacturing centers of excellence across Texas, Oklahoma, and Louisiana. We've conducted a thorough review of our supply chain, including a detailed analysis of our vendors upstream sourcing, and we are confident that the tariff measures currently under consideration by the administration will have minimal impact on our financial results. Moreover, our vertical integration and fully domestic supply chain give us a meaningful competitive advantage, enabling us to scale growth capital investments up or down with greater flexibility than many of our peers. Third, our two fastest-growing product lines, vapor recovery and high-pressure gas lift, continue to gain market share from legacy optimization and production methods such as electrical submersible This momentum continued through the first quarter, and we anticipate additional customer conversions throughout the remainder of 2025.
Speaker Change: We used predominantly domestically sourced components and raw materials, we operate six manufacturing centers of excellence across Texas, Oklahoma and Louisiana.
Speaker Change: We've conducted a thorough review of our supply chain, including a detailed analysis of our vendors upstream sourcing and we are confident that the tariff measures currently under consideration by the administration will have minimal impact on our financial results.
Speaker Change: Moreover, our vertical integration and fully domestic supply chain give us a meaningful competitive advantage, enabling us to scale growth capital investments up or down with greater flexibility than many of our peers.
Speaker Change: Third our two fastest growing product lines vapor recovery and high pressure gas lift continued to gain market share from legacy optimization and production methods such as electrical submersible pumps.
Speaker Change: This momentum continued through the first quarter and we anticipate additional customer conversions throughout the remainder of 2025.
Joe Bob Edwards: As over 75 percent of the industry's ESPs are manufactured in China, we believe our competitive advantage with HPGL will only improve in an environment of heightened tariffs. In parallel, demand for vapor recovery units is becoming more ubiquitous as operators recognize the compelling economics of capturing and commercializing incremental natural gas. VRUs are a critical component of the production infrastructure that enables natural gas to reach high growth in markets such as LNG export facilities and gas-fired power generation, both sectors with strong and durable long-term fundamentals. Fourth, we have a proven culture of innovation and a deeply customer focused approach to problems. Principles that remain constant regardless of commodity price movement.
Speaker Change: As over 75% of the industry's esp's are manufactured in China, We believe our competitive advantage with H P. G. L will only improve in an environment of heightened tariffs.
Speaker Change: In parallel demand for vapor recovery units is becoming more ubiquitous as operators recognize the compelling economics of capturing and commercializing incremental natural gas D.
Speaker Change: V or use are a critical component of the production infrastructure that enables natural gas to reach high growth end markets, such as LNG export facilities and gas fired power generation, both sectors with strong and durable long term fundamentals.
Fourth we have a proven culture of innovation and a deeply customer focused approach to problem solving principles that remain constant regardless of commodity price movements.
Joe Bob Edwards: As we noted on our fourth quarter earnings call, we have successfully commercialized and are scaling our SurgeFlow product, which is part of our PlungerLift solution. SurgeFlow is a piece of surface equipment installed as part of the wellhead assembly. It allows for a seamless conversion to plunger lift as a well matures, increasing efficiency and ultimately profitability for our customers. In addition to SurgeFlow, our newly developed eGrizzly high-pressure gas lift solution allows customers to deploy high-pressure gas lift solutions across multiple wells while lowering both emissions and cost per barrel of oil. We are actively identifying new opportunities to apply our technology across the production landscape, and most notably, we continue to engage with midstream customers to expand the adoption of our VRU platform, which would further extend our reach and impact across the value chain.
Speaker Change: As we noted on our fourth quarter earnings call. We have successfully commercialized and are scaling our surge flow product, which is part of our plunger lift solution.
Speaker Change: Third flow is a piece of surface equipment installed as part of the wellhead Assembly. It allows for a seamless conversion to plunger lift as a well matures increasing efficiency and ultimately profitability for our customers.
Speaker Change: In addition to surge flow our newly developed E. Grizzly high pressure gas lift solution allows customers to deploy high pressure gas lift solutions across multiple wells, while lowering both emissions and cost per barrel of oil.
Speaker Change: We are actively identifying new opportunities to apply our technology across the production landscape and most notably we continue to engage with midstream customers to expand the adoption of our V or U platform, which would further extend our reach and impact across the value chain.
Joe Bob Edwards: Finally, we remain confident in our ability to grow in a flat production environment while delivering best-in-class returns on capital employed, or ROSI, and strong free cash flow generation. In the current market backdrop, we anticipate more muted growth in our product sales businesses as customers defer purchases or become more conservative in their spending, particularly our downhaul conventional gas lift product offering and in the sale of conventional gas lift compression packaging. That said, our outlook for our rental businesses remains unchanged. These operations continue to benefit from increasing customer adoption in a contracted revenue model, providing a high degree of visibility.
Speaker Change: Finally, we remain confident in our ability to grow in a flat production environment, while delivering best in class returns on capital employed or Rosie and strong free cash flow generation.
Speaker Change: In the current market backdrop, we anticipate more muted growth in our product sales businesses as customers defer purchases or become more conservative in their spending, particularly our downhole conventional gas lift product offering and in the sale of conventional gas lift compression packages.
Speaker Change: That said our outlook for our rental businesses remains unchanged.
Speaker Change: These operations continued to benefit from increasing customer adoption and a contracted revenue model, providing a high degree of visibility.
Joe Bob Edwards: As a result, we are maintaining our investment in these divisions. We've carefully reviewed our previously stated capital expenditure plans and anticipate only minor adjustments. reflecting the strength and resilience of our opportunity set, even amid evolving market conditions. We demonstrated the resiliency of our business in the first quarter, delivering growth in revenue, adjusted EBITDA, and net income compared to the fourth quarter. We generated approximately $15 million of free cash flow during the quarter. and have reduced our debt balance to $176 million as of last Friday, all while investing $30 million in high-return opportunities that exceeded the ROSI benchmark we shared last quarter.
Speaker Change: As a result, we are maintaining our investment in these divisions. We have carefully reviewed our previously stated capital expenditure plans and anticipate only minor adjustments, reflecting the strength and resilience of our opportunity set even amid evolving market conditions.
Speaker Change: We demonstrated the resiliency of our business in the first quarter delivering growth in revenue adjusted EBITDA and net income compared to the fourth quarter.
Speaker Change: We generated approximately $15 million of free cash flow during the quarter.
Speaker Change: And have reduced our debt balance to 176 million as of last Friday, all while investing $30 million in high return opportunities that exceeded the rosy benchmark, we shared last quarter.
John Byers: With that, I'll turn it over to John to provide more detail on our first quarter financial and operational performance. After his remarks, I'll close with a few thoughts before we open the line for Q&A. John? Thanks, Joe Bob.
Speaker Change: With that I'll turn it over to Jon to provide more detail on our first quarter financial and operational performance. After his remarks I'll close with a few thoughts before we open the line for Q&A John.
Jon: Thanks, Joe Bob before reviewing some of the key financial metrics and results for the first quarter I'd like to provide a reminder, 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 first quarter, I'd like to provide a reminder 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, such as the first quarter 2024 financials, reflects only the historical performance for Estes. Financial information in the first quarter of 2025 and the fourth quarter of 2024 reflects the financials for the consolidated entity. Turning now to our financials, first quarter performance was in line with our expectations driven by strong execution across both our production solutions and natural gas technologies business segments.
Jon: For clarity note that any financial information presented prior to the June 20th 2020 for business combination.
Jon: As the first quarter 2020 for financials reflects only the historical performance for US This financial information in the first quarter of 2025 in the fourth quarter of 2024 reflects the financials for the consolidated entities.
Jon: Turning now to our financials first quarter performance was in line with our expectations driven by strong execution across both our production solutions and natural gas technologies business segments.
John Byers: we delivered adjusted net income of $32.8 million on revenue of $192 million. Revenue was up approximately 3.4 percent while adjusted EBITDA was up 1.5 percent quarter over quarter. Adjusted EBITDA margins were down slightly for reasons I'll elaborate on within each segment discussion. In our production solutions segment, first quarter 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. Adjusted segment EBITDA margins decreased modestly over the quarter by 44 basis points. The increases in Production Solutions revenue and adjusted EBITDA were the result of higher operating leverage combined with a progressive shift in revenue mix towards our Surface Equipment Rental Business Unit from Downhole Solutions.
Jon: We delivered adjusted net income of $32 8 million on revenue of $192 million.
Jon: Revenue was up approximately three 4%, while adjusted EBITDA was up one 5% quarter over quarter.
Jon: Adjusted EBITDA margins were down slightly for reasons I'll elaborate on within each segment discussion.
In our production solutions segment first quarter revenue was $116 million with adjusted segment EBITDA of $50 6 million, an increase of two 3% and one 3% respectively from the fourth quarter of 2024.
Jon: Adjusted segment EBITA margin decreased modestly over the quarter by 44 basis points. The increases in production solutions revenue and adjusted EBITDA were the result of higher operating leverage combined with the progressive shift in revenue mix towards our surface equipment rental business unit from downhole solutions.
John Byers: Adjusted segment EBITDA margin was down slightly, quarter over quarter, due to expenses credited to the production solutions segment in the fourth quarter related to the establishment of our corporate function. Absent these credits, adjusted segment EBITDA margin would have grown. In our natural gas technology segment, first quarter revenue increased 5.1% to $76.4 million compared with the fourth quarter, 2024. The increase in revenue is attributable to delayed Q4 natural gas system sales that shifted into the first quarter. Adjusted segment EBITDA also grew 3.1% to $28.7 million over the same period, while adjusted segment EBITDA margins decreased by 73 basis points due to a revenue mix shift towards natural gas systems from vapor recovery, a trend that we expect to reverse in the coming quarters.
Jon: Adjusted segment EBITDA margin was down slightly quarter over quarter due to expenses credited to the production solutions segment in the fourth quarter related to the establishment of our corporate function absent. These credits adjusted segment EBITDA margin would have grown.
Jon: In our natural gas technology segment first quarter revenue increased five 1% to $76 4 million compared with the fourth quarter 2024. The increase in revenue is attributable to delayed Q4 natural gas system sales that shifted into the first quarter adjusted.
Jon: Segment EBITDA also grew three 1% to $28 7 million over the same period, while adjusted segment EBITDA margins decreased by 73 basis points due to a revenue mix shift towards natural gas systems from vapor recovery a trend that we expect to reverse in the coming quarters.
John Byers: Overall, consolidated first quarter adjusted EBITDA was $74.9 million, an increase of 1.5% from Q4 2024. Adjusted EBITDA margins decreased by approximately 73 basis points due to a change in mix at the segment level and an increase in costs associated with building out our public corporate function. In the first quarter, the majority of our capital investment of $27.9 million was directed towards expanding our surface equipment and vapor recovery rental fleet given the projected demand and attractive expected returns on capital employed. Our annualized adjusted ROSI for the first quarter was approximately 18 percent. As a reminder, our adjusted ROSI calculation excludes amortization and intangibles associated with the merger transaction of June 2024 as our legacy businesses were combined rather than acquired.
Jon: Overall consolidated first quarter adjusted EBITDA was $74 9 million an increase of one 5% from Q4 2024, adjusted EBITDA margins decreased by approximately 73 basis points due to a change in mix at the segment level and an increase in costs associated with building out our public corporate functions.
Jon: The first quarter the majority of our capital investment of $27 9 million was directed towards expanding our surface equipment in vapor recovery rental fleet, given the projected demand and attractive expected returns on capital employed.
Jon: Our annualized adjusted Rosie for the first quarter was approximately 18% as a reminder, our adjusted Rowsey calculation excludes amortization and intangibles associated with the merger transaction of June 'twenty 'twenty four as our legacy businesses were combined rather than acquired.
John Byers: For any future potential inorganic growth, we would not apply the same adjustment. As Joe Bob mentioned, we anticipate only minor changes to the CapEx program we discussed in the fourth quarter. Our capital allocation decisions remain grounded in our capital return framework and are informed by real-time customer demand. Based on current analysis, we continue to expect incremental returns in excess of 20% on these investments. Looking ahead, we anticipate our capital investment in the rental fleet, coupled with potential muted growth in our sales business, to drive a higher rental revenue mix and margin expansion in the second half of the year.
Jon: Or any future potential inorganic growth, we would not apply the same adjustment as Joe Bob mentioned, we anticipate only minor changes to the Capex program, we discussed in the fourth quarter.
Jon: Our capital allocation decisions remain grounded in our capital return framework and are informed by real time customer demand based on current analysis. We continue to expect incremental returns in excess of 20% on these investments.
Jon: Looking ahead, we anticipate our capital investment in the rental fleet, coupled with potential muted growth in our sales business to drive a higher rental revenue mix and margin expansion in the second half of the year.
John Byers: Shifting briefly to corporate costs and reporting, as noted last quarter, we became a federal and state income taxpayer during the first quarter. For the portion of the quarter in which we were subject to corporate taxes, we incurred a blended effective tax rate of approximately 22 percent. When evaluating our tax expense and earnings per share, it's important to consider that we operated as a privately held, limited liability company from January 1 through January 16, 2025, prior to our IPO.
Jon: Shifting briefly to corporate cost in reporting as noted last quarter, we became a federal and state income taxpayer during the first quarter.
Jon: For the portion of the quarter in which we were subject to corporate taxes, we incurred a blended effective tax rate of approximately 22% when evaluating our tax expense and earnings per share. It is important to consider that we operated as a privately held limited liability company from January one through January 16, 2025 prior draw.
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John Byers: Turning to our balance sheet and liquidity, we ended the quarter in a strong financial position. As I mentioned on our Q4 call, we experienced a temporary increase in networking capital related to the integration of the business following the merger, a trend that we expect to continue in the second quarter. Even with the networking capital impacts in the first quarter, we generated $15 million of free cash flow. which we utilized to pay down the balance on our revolving credit facility. As of May 9, 2025, borrowings on the revolving credit facility were $175.6 million. With a borrowing base of $723 million, we had availability under the revolving credit facility of $547.4 million.
Jon: Turning to our balance sheet and liquidity, we ended the quarter in a strong financial position as I mentioned on our Q4 call. We experienced a temporary increase in networking capital related to the integration of the business. Following the merger a trend that we expect to continue in the second quarter.
Jon: Even with the net working capital impacts in the first quarter, we generated 15 million of free cash flow.
Jon: Which we utilized to pay down the balance on our revolving credit facility as of May nine 2025 borrowings on our revolving credit facility were $175 6 million with a borrowing base of $723 million, we had availability under the revolving credit facility of $547 4 million finally, reflecting the board's cant.
John Byers: Finally, reflective of the Board's confidence in our resilient business model combined with our healthy balance sheet and cash generation, FLOCO declared an $0.08 per share dividend on May 2, payable May 28, reinforcing our commitment to return value to our shareholders while investing in our business. In summary, we delivered another solid quarter, achieving our outlook, with EBITDA landing within our guidance range. Looking ahead, the growing demand for our solutions, our strategic focus, and broad capabilities supporting production optimization position us well amid a more uncertain market backdrop. While broader industry pressures persist, we remain confident in our ability to grow adjusted EBITDA by low double-digit percentages year-over-year within this flat production environment.
Jon: <unk> and our resilient business model combined with our healthy balance sheet and cash generation flow code declared an <unk> <unk> per share dividend on may 2nd payable may 28, reinforcing our commitment to return value to our shareholders, while investing in our business.
Jon: In summary, we delivered another solid quarter, achieving our outlook with EBITDA landing within our guidance range looking ahead, the growing demand for our solutions, our strategic focus and broad capabilities supporting production optimization position us well amid a more uncertain market backdrop.
Joe Bob: While broader industry pressures persist, we remain confident in our ability to grow adjusted EBITDA by low double digit percentages year over year within this flat production environment back to you Joe Bob.
Joe Bob Edwards: Back to you, Joe Bob. Thanks, John. We are very proud of our first quarter performance, our first quarter as a public company. And in the face of heightened market uncertainty, we remain committed to solid execution and delivering on our growth objective.
Speaker Change: Thanks, John.
Speaker Change: We are very proud of our first quarter performance, our first quarter as a public company.
Speaker Change: And in the face of heightened market uncertainty, we remain committed to solid execution and delivering on our growth objectives.
Joe Bob Edwards: Turning now to our thoughts for the remainder of 2025. As John mentioned, we expect continued increases in EBITDA and further improvement in EBITDA margins throughout the year, as our ongoing capital investment in our rental businesses continues to shift revenue mix in that direction. John mentioned year-over-year EBITDA growth in the low double-digit percentage range, and I'm comfortable with that.
Speaker Change: Turning now to our thoughts for the remainder of 2025.
Speaker Change: As John mentioned, we expect continued increases in EBITDA and further improvement in EBITDA margins throughout the year as our ongoing capital investment in our rental businesses continues to shift revenue mix in that direction.
Speaker Change: John mentioned year over year EBITDA growth in the low double digit percentage range and I'm comfortable with that.
Joe Bob Edwards: However, more immediately, our second quarter guidance will reflect some of the uncertainty and market pressures we've discussed today, particularly around the sale of certain downhole components and surface compression packages. Therefore, we are maintaining the same guidance range as Q1, 74 to 78 million of EBITDA for Q2 2025.
Speaker Change: However, more immediately our second quarter guidance will reflect some of the uncertainty and market pressures, we've discussed today, particularly around the sale of certain downhole components and surface compression packages.
Speaker Change: Therefore, we are maintaining the same guidance range as Q1 $74 million to $78 million of EBITDA for Q2 2025.
Joe Bob Edwards: We will remain disciplined in our capital deployment while actively identifying opportunities to further optimize our business.
Speaker Change: We will remain disciplined in our capital deployment, while actively identifying opportunities to further optimize our business I want to extend my sincere. Thanks to all <unk> employees for their persistence hard work and unwavering commitment to supporting our customers we've been through environments like this before.
Joe Bob Edwards: I want to extend my sincere thanks to all Floco employees for their persistence, hard work, and unwavering commitment to supporting our customers. We've been through environments like this before. and we know how to execute through volatility. While we anticipate continued market fluctuations, our strategic positioning, differentiated solutions, and exceptional team give us confidence in our ability to navigate today's challenges and continue delivering strong returns for our shareholders.
Speaker Change: And we know how to execute through volatility, while we anticipate continued market fluctuations our strategic positioning differentiated solutions and exceptional team give us confidence in our ability to navigate today's challenges and continue delivering strong returns for our shareholders. So with that I'll turn it back over to the operator for Q&A.
Operator: So with that, I'll turn it back over to the operator for Q&A.
Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star 2. One moment please while we poll for questions.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment it may be necessary.
Speaker Change: Sorry to pick up your handset before pressing the star keys one.
Speaker Change: One moment, please I'll we poll for questions.
Arun Jaram: Our first question comes from Arun Jaram with J.P. Morgan. Please proceed with your question.
Speaker Change: Our first question comes from our own Jerome with J P. Morgan. Please proceed with your question.
Joe Bob Edwards: Yeah, Joe, Bob, I wanted to start with your thoughts on the competitive advantage of your domestically sourced, largely domestically sourced supply chain and US manufacturing base. You highlighted how the bulk of ESPs are manufactured in China, obviously, with the tariff situation. I wonder if you could maybe elaborate on how this situation could benefit you. disproportionately. Happy to do it, Arun, and thanks for the question. Hope you're doing well. So, yeah, look, the ESP landscape is very mature, right, and the competitors in that market sector have really anchored their production capability in China. High pressure gas lift, as you know, is a process that we pioneered several years ago using gas compression capability as an alternative.
Speaker Change: Yes, Joe Bob I wanted to start with your thoughts on the competitive advantage of your domestically sourced largely domestically source supply chain and in U S. Manufacturing base you highlighted how the bulk of ESP is or are manufactured in China.
What the tariffs the choice I Wonder if you could maybe elaborate on what this how this situation.
Speaker Change: Could benefit you.
Speaker Change: Disproportionately.
Speaker Change: Happy to do it around and thanks for the question Hope you hope you're doing well.
Speaker Change: So yes look the.
Speaker Change: The ESP landscape is.
Speaker Change: <unk> is very mature right and the.
Speaker Change: <unk> in that market sector have really anchored their production capability in China.
Speaker Change: <unk> gas lift as you know is.
Speaker Change: A process that we pioneered several years ago using.
Speaker Change: Gas compression capability as an alternative.
Joe Bob Edwards: The gas compression expertise really exists and is able to be delivered through the unique way that we package the system as well as the reliance on a critical supplier, and that critical supplier, Aerial Compression, is based in the United States. They manufacture all of their compression units in Ohio. We have a very close relationship with them, consider them a critical vendor. They consider us to be a top customer. We visited their facilities last year and have a great dialogue with them on their supply chains. Where do they cast their products? Where are their foundries? And so, we're confident in what we've said, which is our domestic supply chain we think is a competitive advantage.
Speaker Change: Gas compression.
Speaker Change: Expertise really exists and is able to be delivered through the unique way that we packaged the system as well as the.
Speaker Change: The reliance on a critical supplier and.
Speaker Change: Critical supplier area of compression is based in the United States. They manufacture all of their compression units in Ohio.
Speaker Change: We have a very close relationship with them consider them a critical vendor they consider us to be a top customer we visited their facilities last year and have a great dialog with them on their supply chains, where do they.
Speaker Change: Where do they cast there their products where are their foundries and so we're confident in.
Speaker Change: And what we've said, which is our domestic supply chain. We think is a competitive advantage.
Joe Bob Edwards: Once we get to critical components, we bring them into our manufacturing facilities, split between Texas and Oklahoma, package them up, send them out on location, and put them in our rental fleet. So, it's a very straightforward supply chain compared to what we compete against. Even before the tariff situation came into play, ARUN, we felt that we had a very clear operational advantage against an ESP in certain well conditions. Reminder, like I said last quarter, this is not a tool for every brand new horizontal well. It works in about a third to a half of the new high-volume liquids wells that are brought online.
Speaker Change: Once we get the critical components, we bring them into our manufacturing facilities split between Texas and Oklahoma.
Speaker Change: Package them up certain amount on location and put them in our rental fleet. So it's.
Speaker Change: It's a very straightforward supply chain compared to what we compete against.
Speaker Change: Even before the tariff situation came into play a rune we felt that we had a very clear operational advantage against against an ESP in certain well conditions reminder, like I said last quarter. This is not a tool for for every brand new horizontal well it works and about a third to a half.
Speaker Change: Of the new high volume liquids wells that are brought online, but where it fits.
Joe Bob Edwards: But where it fits, it's a better tool. And I think the increased tariff pressures that are put upon the competing technology are an additional tailwind for us. Great.
Speaker Change: It's a better tool and I think the increased tariff pressures that are put upon the competing technology or additional tailwind for us.
Speaker Change: Great.
Arun Jaram: And then my follow-up, I was wondering if you could maybe help us understand what you view as the current mix between product sales and rental revenue, and just maybe if you could elaborate on John's comments about low double-digit growth year over year. Obviously a lot of uncertainty in the marketplace, but that would imply, call it a little bit of a higher second half EBITDA running range, and call it the low $80 million or high $70. So I just wanted, if you could talk through what perhaps improves in the second half of the year based on your modeling.
Speaker Change: And then my follow up I was wondering if you could maybe help us.
Speaker Change: I understand what what you view is the current mix between product sales and rental.
Speaker Change: Revenue and just maybe if you could elaborate on Johns comments about low double digit growth.
Speaker Change: Year over year, obviously, a lot of uncertainty in the marketplace, but that would imply call it up a little bit of a higher second half EBITDA.
Speaker Change: EBITDA running a range call it the low $80 million or high 70. So just wondering if you could talk through what.
Speaker Change: What perhaps improves in the second half of the year based on your modeling.
Joe Bob Edwards: John can give you some numbers, but at a high level, Arun, we continue to invest in our rental business, mainly our high-pressure gas lift offering as well as more vapor recovery units. As you know, those come in at a higher margin than the product sales businesses that we offer to the market. So from a business mix standpoint, more rentals as a percentage of total will result in a higher EBITDA margin. I think we're comfortable telegraphing a nice growth trajectory in a relatively flat market given that incremental investment, and I don't think you're far off in terms of what you're thinking on a quarterly basis.
John: John can give you some numbers, but at a high level, our run and we continue to invest in our rental business, mainly our high pressure gas lift offering as well as more vapor recovery units as you know those come in at a higher margin than the product sales businesses.
Speaker Change: That we.
Speaker Change: We offer to the market so from a rental or from a business mix standpoint, more rentals as a percentage of total will result in a higher EBITDA margin.
Speaker Change: I think we're comfortable telegraphing.
Speaker Change: Nice growth trajectory in a relatively flat market given that incremental investment.
Speaker Change: I don't think you're far off in terms of what Youre, what youre thinking on a quarterly basis, Yes, yes, Joe Bob I I agree I think with the more moderate outlook and our downhole components of natural gas systems business units within the two segments.
John Byers: Yeah, Joe Bob, I agree. I think with the more moderate outlook in our downhole components and natural gas systems business units within the two segments, we expect the trend that we've seen between rental and sales to accelerate. So you go back a couple years, sales to rentals was probably 60-40. We've achieved about a 50-50 split now, and we expect that to, based on our continued investment in the fleet, we expect that to move up into the low to mid-50s by year-end.
Speaker Change: We expect.
Speaker Change: The trend that we've seen between rental and sales to kind of accelerate so you go back a couple of years.
Speaker Change: Sales to rentals was probably 60 40.
Speaker Change: We've achieved about kind of a 50 50 split now and we expect that to based on our continued investment in our fleet, we expect that to move up into the kind of low to mid <unk> by year end.
Arun Jaram: Great. That's a lot of help. Thanks.
Speaker Change: Great. That's a lot of help think spike.
Arun Jaram: Bye.
Speaker Change: Yes.
Derek Putheiser: Our next question comes from Derek Putheiser with Typer Sandler. Please proceed with your question. Hey, good morning. Just wanted to kind of revisit your HPGL adoption outlook. You talked about 75% of ESPs being manufactured in China. That might help the conversations with EMPs a little bit. But have you seen any incremental wins with certain customers? Or should we still think about it as being characterized as just increasing your wallet share with your current customers?
Speaker Change: Our next question comes from Derek <unk>, Charlie Piper Sandler. Please proceed with your question.
Derek <unk>: Hey, good morning, just wanted to kind of revisit your <unk> adoption outlook, you talked about 75% of ESP being manufactured in China that might help the conversations of E&P is a little bit but have you seen any incremental wins with certain customers or should we still think about it as being characterized as just increasing your wallet share.
Derek <unk>: With your current cost are customers, maybe just some updated thoughts just around the adoption of <unk> so far.
Derek Putheiser: Maybe just some updated thoughts just around the adoption of HPGL so far.
Joe Bob Edwards: Hey, Derek. Yeah, happy to happy to lean into that a little bit. There's definitely increased market chatter around high-pressure gas lift. I think it's a combination of our IPO and, you know, the volume of conversations that we've had with industry participants as well as with the investor base about the technique, and the tariffs have only heightened that market chatter. We've had a few specific customer conversations that are encouraging. Let's call it broader market adoption or broader program adoption across, you know, acreage that's being developed compared to, you know, previously where they were hedging their bets a bit or still, you know, on a slower adoption curve, a wait-and-see attitude.
Speaker Change: Hey, Derik, yeah happy to happy to lean into that a little bit.
Speaker Change: There's definitely increased market chatter around hybris or gas lift I think it's a combination of our IPO and the volume of conversations that we've had with industry participants as well as with the Investor base about the technique.
Speaker Change: And the tariffs have only heightened that that market chatter.
Speaker Change: Had a few specific customer count.
Speaker Change: Conversations that that are encouraging.
Speaker Change: Let's call it broader market adoption or a broader program adoption across.
Speaker Change: Acreage, that's being developed compared to previously where they were hedging their bets a bit or or still.
Speaker Change: On a slower adoption curve of wait and see attitude I think I think more folks who are leaning into it.
Joe Bob Edwards: I think more folks are leaning into it. Rising GORs help, obviously, and longer laterals, which produce higher IPs, help. So there are a lot of structural reasons, even before you start talking about tariffs, that are helping with increased adoption. I think any sort of tariff noise in the market, and, you know, we're late in the reporting cycle, but several have already indicated that they ordered a lot of equipment ahead of a potential tariff impact. Others are trying to actively diversify away from China, their supply chains. That's just going to create more disruption, I think, in the market as they try to respond to just an uncertain environment.
Speaker Change: Rising Gol has helped obviously.
Speaker Change: And longer laterals, which produce higher ip's health. So there is there are a lot of structural reasons, even before you start talking about tariffs that are helping with increased adoption.
Speaker Change: Any any sort of tariff noise in the market and.
Speaker Change: We're late in the reporting cycle, but several have already indicated that they they ordered a lot of equipment ahead of.
Speaker Change: Potential tariff impact others are trying to actively diversify away from China their supply chains, that's just going to create more disruption I think in the market.
As they try to respond to a just an uncertain environment. So we're going to continue to lean into it and think that the balance of 2025 should produce some some incremental customer wins.
Derek Putheiser: So we're going to continue to lean into it and think that the balance of 2025 should produce some incremental customer. I know that's helpful.
Speaker Change: Got it that's helpful.
Derek Putheiser: Maybe just something on shareholder returns, you know, great to see the $0.08 dividend that you guys recently announced.
Speaker Change: Maybe just something on shareholder returns great to see the <unk> dividend that you guys recently announced maybe just taking a step back how do you.
Joe Bob Edwards: Maybe just taking a step back, how do you foresee growing your shareholder returns, whether it's a steady dividend growth, layer in a buyback at some point, maybe just your overall thoughts as you look out over the next few years, how you see shareholder returns progress through the cycle? Great question. We had an extensive discussion about this at our most recent board meeting, and it follows up, Derek, as you know, the framework that we debated and outlined during our IPO. We are a returns-driven management team. The culture of returns really is embedded within the entire organization.
Speaker Change: See growing our shareholder returns, whether it's a steady dividend growth.
Speaker Change: They're in a buyback at some point, maybe just your overall thoughts as you look out over the next few years, how you see shareholder returns progressed through the cycle.
Speaker Change: Great question, we had an extensive discussion about this at our most recent board meeting and it follows up Derek as you know.
Speaker Change: The the that the framework that we debated and outlined during our IPO.
Speaker Change: We are a returns driven.
Speaker Change: Management team the culture of returns really is embedded without or with within the entire organization.
Joe Bob Edwards: We are incentivized to produce returns for shareholders. Our North Star is our ROCE roadmap. John quoted an 18% ROCE for Q1. That's slightly below our 20% ROCE that we raised money around at our IPO. We're going to continue to make decisions that impact returns on capital employed. That's the shareholder return that we are producing with the asset base that we have. We think if we can grow and continue to make investments in the business that are accretive to that level, we think that will produce a premium valuation and a positive outcome for shareholders. In terms of return of capital to shareholders, this dividend is a good first step.
Speaker Change: We are incentivized to two two to produce returns for shareholders.
Speaker Change: And our North Star is our Rowsey roadmap right. So John quoted an 18% rosy for Q1, that's slightly below our 20% royalty that we raised money around at our IPO.
Speaker Change: We're going to we're going to continue to make decisions that will that impact returns on capital employed so thats.
Speaker Change: The shareholder return that we are producing with the asset base that we have.
Speaker Change: We think if we can grow and continue to.
Speaker Change: Make investments in the business that accrete that.
Speaker Change: And are accretive to that level, we think that will produce.
Speaker Change: A premium valuation in a positive outcome for shareholders.
Speaker Change: In terms of return of capital to shareholders. This dividend as a good first step.
Joe Bob Edwards: Obviously, we think a share buyback could make sense in the future. With a very limited float, we want to be careful with how much we lean into reducing that public float. But it's certainly in the tool bag, and we will continue to think about it going forward. We think this nice first dividend is a commitment to shareholders that we made on the roadshow that we are following through with. We certainly think it's defensible through cycles. We believe our financial position today, our liquidity today can support it. We're happy to get it out there and hope that the market appreciates it.
Speaker Change: Obviously, we think a share buyback could make sense in the future.
Speaker Change: With a very limited float we want to be careful with how much we lean into reducing that net public float.
Speaker Change: But it's certainly in the tool bag and we will continue to think about it going forward.
Speaker Change: We think this nice.
Speaker Change: First dividend as a as a commitment to.
Speaker Change: To shareholders that we made on the road show that we are following through with.
Speaker Change: We certainly think it's defensible through cycles, we believe our financial.
Speaker Change: Today, our liquidity today can can support it so we're happy to get it out there and hope that the market appreciates it.
Derek Putheiser: Thanks, Joe.
Joe Bob: Thanks, Joe Bob I appreciate the comments I'll turn it back.
Derek Putheiser: Bob, appreciate the comments.
Operator: We'll turn it back. Our next question comes from...
Speaker Change: Our next question comes from.
Philip Jungwirth: Philip Jungwirth with BMO Capital Markets. Please proceed with your question. Thanks. Good morning, guys.
Speaker Change: Phillip Jungwirth with BMO capital markets. Please proceed with your question.
Phillip Jungwirth: Thanks, Good morning, guys.
Philip Jungwirth: You mentioned a higher rental versus product mix in the second half, and just as we think about the margin side for rentals, what are the main pushes and pulls here as we think about how that will evolve over the course of the year? Yeah, you know, I think the driver is going to be, you know, pricing, pricing power, which we're, you know, we, we, we focus on that we're pushing that as much as we can, but there's obviously limits with which we can do it. Overall, we don't have, you know, we, as we look at our forecast, we haven't really modeled a significant difference in margins relative to where we are on the rental business.
Speaker Change: You mentioned, the higher rental versus product mix in the second half and just as we think about the margin side for rentals.
Speaker Change: But what are the main pushes and pulls here as we think about how that will evolve over the course of the year.
Speaker Change: Yes, I think the driver is going to be.
Speaker Change: <unk> pricing power, which were.
Speaker Change: We focus on that we're pushing that as much as we can but theres obviously limits.
Speaker Change: With which we can do it overall, we don't have.
Speaker Change: As we look at our forecast, we haven't really modeled a significant difference in margins relative to where we are in the rental business. So right in that 70% range is what we're thinking about.
John Byers: So right in that 70% range is what we're thinking about.
Philip Jungwirth: Okay, great.
Speaker Change: Okay, Great and one on one of the benefits of HP Dell is mechanical availability.
Joe Bob Edwards: And one of the benefits of HPDL is mechanical availability. Just with producers closer to maintenance production, does reliability become a greater focus in the discussions? And also just how much more important is the high upfront cost for ESPs as producers look to manage cash flow? Yeah, Philip, those are two key selling points. When commodity price fluctuations happen like they have, when CapEx budgets get trimmed as they are, there is a higher level of focus from our customer base on their existing production. And oil production is the mother's targets that they have to meet. And so the mechanical availability that we offer relative to the competing technique is not lost on them.
Speaker Change: With producers closer to maintenance production.
Speaker Change: Reliability become a greater focus in discussions and then also just how much more important is the high upfront cost for ESP that producers will have to manage cash flow.
Speaker Change: Yes, so those are two key selling points.
Speaker Change: When when commodity price fluctuations happened like the half when capex budgets get trimmed as they as they are.
Speaker Change: There is a there is a higher level of focus from our customer based on their existing production.
Speaker Change: And oil.
Speaker Change: Oil production is the mother's milk.
Speaker Change: Of an oil company right. So.
Speaker Change: So they've got production forecasts and profit targets that they have to meet and so the mechanical availability that we offer relative to the competing technique is not lost on them.
Joe Bob Edwards: And as you point out correctly, the high upfront capital cost as well as the ongoing maintenance cost of pump changeouts that happen over time as well as mature. So we feel like we're in a good spot with HPGL. And that's, as I mentioned earlier, leading to increased customer adoption as well as more programmatic rollout of the technique across a broader series of locations.
Speaker Change: And as as you point out correctly, the high upfront capital costs as well as the ongoing maintenance cost a pump change outs that happen over time as well as mature. So we feel like we're in a good spot with <unk> as I mentioned earlier leading to incur.
Speaker Change: Increased customer adoption as well as more programmatic.
Speaker Change: The rollout of the technique across the.
Speaker Change: Broader series of.
Speaker Change: <unk> locations.
Philip Jungwirth: Great.
Alright, thanks, guys.
Philip Jungwirth: Thanks, guys.
Operator: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: As a reminder.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Lloyd brain: Our next question comes from Lloyd Brain with Jeffreys. Please proceed with your question. Hey, good morning, fellas. Thank you for the, for all the comments. Can you just comment on VRU Broke? And I know you talked a little bit about LNG, but just how that trajectory can be different than... High Pressure Gas Lift. Thanks, Lloyd. Good to hear from you. Yeah, high pressure gas or excuse me, vapor recovery adoption is increasing.
Speaker Change: Our next question comes from Lloyd brain with Jefferies. Please proceed with your question.
Lloyd brain: Hey, good morning Fellows.
Speaker Change: Thank you.
Speaker Change: Following the comments can you just comment on.
Speaker Change: <unk> growth.
Speaker Change: And I know you.
Speaker Change: You talked a little bit about the LNG, but just how that trajectory can be different.
Speaker Change: High pressure gas lift.
Speaker Change: Thanks, Lloyd good to hear from you, yes high pressure gas or excuse me vapor recovery adoption is increasing.
Joe Bob Edwards: And let's let's talk about why that was leading up to our IPO and what has changed in the last, say, six months. This is a great way for the deployment of vapor recovery systems are a great way for operators to eliminate fugitive methane emissions. Obviously, that's an it has an environmental benefit. But what it also does is it allows operators to capture high BTU vapor. These are not just methane molecules, but also include natural gas liquids that tend to trade at a higher price. So the growth in VRU up through, you know, up through today has largely been economics driven, driven around that methane capture.
Speaker Change: Let's talk about why that was leading up to our IPO and what has changed in the last say six months.
Speaker Change: This is a great way for the deployment of vapor recovery systems are a great way for operators to eliminate fugitive methane emissions, obviously, that's and it has an environmental benefit.
Speaker Change: But what it also does is it allows operators to capture high Btu.
Speaker Change: Vapors.
Speaker Change: These are not just methane molecules, but also include natural gas liquids that tend to trade at a higher price.
Speaker Change: So the growth in VR you up through.
Speaker Change: Through today has largely been economics driven.
Speaker Change: Driven around that methane capture.
Joe Bob Edwards: Now, we've lived through the last couple of years, a period of depressed natural gas prices. Sometimes in the field, gas prices have approached zero. We have grown VRU adoption through that natural gas backdrop. What has changed in the last, call it 6 to 12 months, is the dramatically improved outlook for natural gas demand in the United States. Whether it's LNG exports or it's incremental natural gas demand from gas-fired power generation, we think the outlook for VRU today, and more broadly, natural gas infrastructure today, is as bright as it's been in quite some time. So we're having incremental discussions with customers, not just upstream, our traditional customer base, but in the midstream around VRU adoption as a way to drive incremental profitability.
Speaker Change: Now we've lived through the last couple of years a period of <unk>.
Speaker Change: Depressed natural gas prices.
Speaker Change: Sometimes in the field gas prices have approached zero.
Speaker Change: We have grown VR you adoption through that natural gas backdrop, what has changed in the last call. It six months to 12 months.
Speaker Change: Is the dramatically improved outlook for natural gas demand in the United States, whether it's LNG exports or its incremental natural gas demand from gas fired power generation, we think the outlook for VR, you today and more broadly natural gas infrastructure today.
Speaker Change: Is as bright as it's been in quite some time, so we're having incremental discussions with customers not just upstream our traditional customer base, but in the midstream.
Speaker Change: Round via our <unk> adoption as a way to drive incremental profitability and we think any any newbuild out of of gas infrastructure or industrial facilities that utilize gas to either produce power or to export or two to make something in the petrochemical process is just more tailwind for VR you.
Joe Bob Edwards: And we think any new build-out of gas infrastructure or industrial facilities that utilize gas to either produce power or to export or to make something in the petrochemical process is just more tailwind for VRU.
Lloyd brain: Uh, that's great. Thank you. And, uh, just to follow up on, uh, some of your comments on.
Speaker Change: That's great. Thank you.
Speaker Change: Just as a follow up.
Speaker Change: On some of your comments.
Joe Bob Edwards: The guest list, can you just talk about Grizzly and Then maybe a little bit of CirqueFlo and a little bit more details there on how those are being received Our e-Grizzly product line is an electric high-pressure gas lift system specifically configured to inject gas at a high pressure into multiple wellbores at the same time. that differs from our legacy offering, which is known as an E-WOLF, okay? Now, the E in each of those products denotes the fact that it is electric drive compression, okay? We have those same products, same names, just without the E, that are powered by natural gas-fired gas compression, okay?
Speaker Change: The gas lift can you just talk about appraisal.
Speaker Change: Maybe a little bit about some flow from.
Speaker Change: A little bit more details there and how it goes.
Speaker Change: Sure.
Speaker Change: R E Grizzly product line is an electric high pressure gas lift system, specifically configured to inject gas at a high pressure into multiple well bores at the same time.
Speaker Change: That differs from our legacy offering which is known as an E Wolf. Okay now the E and each of those products denotes the fact that it is electric drive compression okay.
Speaker Change: We have those same products same names just without the E R.
Speaker Change: Are powered by natural gas fired.
Speaker Change: Gas compression okay. So.
Joe Bob Edwards: So, as operators electrify their production infrastructure and as they try to reduce their cost per BOE, one compressor to drive two wells, obviously, is economies of scale, instead of having one high-pressure gas lift unit for one well bore. So, certain operators are leaning into that. It really depends on how they're configuring their production infrastructure, their paths. So, it's not for every customer. You have to really get ahead of the well pad design for this to make sense, and you have to have power to the well pad for this to be economic, okay? But it is something that we're noticing increased adoption of.
Speaker Change: As operators electrify their production infrastructure and as they try to reduce their cost per Boe.
Speaker Change: One compressor to drive two wells.
Speaker Change: Obviously.
Speaker Change: As economies of scale instead of having one.
Speaker Change: One high pressure gas lift unit for one wellbore so.
Speaker Change: Certain operators are leaning into that.
Speaker Change: It really depends on how they're configuring their.
Speaker Change: Their production infrastructure, there that their pads.
Speaker Change: So it's not for every customer you have to really get ahead of the well pad design to for this to make sense and you have to have power to the to the well pad to for this to be economic okay, but it is something that we were noticing increase adoption.
Joe Bob Edwards: Completely separately, on the surge flow side, You know, as I said in my prepared remarks, SurgeFlow itself is a piece of wellhead infrastructure that is installed with the broader wellhead assembly. And it allows for the wellhead to be installed at the initial completion of the well, a first type of production method to be utilized, and then over time it allows for a more seamless transition to plunger lift without incremental maintenance expenditure in the field compared to the way that plunger lift changeover or rod lift changeover is done today. Okay, so it's an efficiency offering to our customers.
Speaker Change: Completely separately on the <unk> side.
Speaker Change: The as I said in my prepared remarks search flow itself is a piece of wellhead infrastructure that is.
Speaker Change: That is.
Speaker Change: Installed with the broader wellhead assembly and it allows for.
Speaker Change: At the wellhead to be installed at the initial completion of the well.
Speaker Change: A first.
Speaker Change: Type of production method to be utilized and then over time. It allows for a more seamless transition to plunger lift without incremental maintenance expenditure in the field compared to the way the under lift changeover or rod lift changeover is done today. Okay. So so it's in ifs.
Speaker Change: <unk> see.
Speaker Change: Offering to our customers and once once our.
Joe Bob Edwards: And once our specific bit of hardware is demonstrated to customers, it's like a lightbulb goes off. They completely understand why this is a better way of configuring this part of a wellhead assembly, and it's just driving a conversation around plunger lift more broadly. So we're seeing some very nice uptakes, some orders at scale from some very large operators. So we look forward to sharing more about that as 2025 progresses. Great, thank you all.
Speaker Change: Specific bit of hardware is demonstrated to customers.
Speaker Change: It's like a light bulb goes off.
Speaker Change: Clearly understand why this is a better way of configuring. This part of a wellhead assembly.
Speaker Change: And it's just driving a conversation around plunger lift more broadly.
Speaker Change: So we're seeing some very nice uptake.
Speaker Change: Some orders at scale from some very large operators so.
Speaker Change: So we look forward to sharing more about that as 2025 progresses.
Speaker Change: Alright, Thank you all.
David Smith: Our next question comes from David Smith with Pickering Energy Partners. Please proceed with your question. Hey, good morning, and thank you for taking my question. So, Bob, regarding the relatively unchanged growth capex outlook for this year, I wanted to ask if the expected mix between the segments for growth capex is also relatively unchanged. David, that's correct. You know, Joe Bob referenced some minor tweaks. But, you know, we're generally looking at if you take the two segments, it's kind of a 60 40 split in revenue, we're generally looking at the same allocation, you know, kind of maybe plus or minus 5% relative to where we were at the beginning of the year.
Speaker Change: Our next question comes from David Smith, with Pickering Energy Partners. Please proceed with your question.
David Smith: Hey, good morning, and thank you for taking my questions.
Bob: Hey, Bob.
Bob: Regarding the relatively unchanged growth capex outlook for this year, but wanted to ask at the expected mix between the segments for growth Capex is also relatively unchanged.
David Smith: David that's correct.
David Smith: Joe Bob referenced some minor tweaks, but we're generally looking at if you take the two segments is kind of a 60 40 split in revenue were generally looking at the same allocation.
David Smith: Kind of maybe plus or minus 5%.
David Smith: Relative to where we were at the beginning of the year.
David Smith: Okay. I appreciate that.
Speaker Change: Okay I appreciate that and is it fair to think that the growth Capex outlook is heavily supported by client conversations and if so can you speak to whether those clients are keeping their activity plans relatively unchanged, whether youre seeing growing share with that client base or perhaps this is.
John Byers: And is it fair to think that the Growth CapEx Outlook is heavily supported by client conversations? And if so, can you speak to whether those clients are keeping their activity plans relatively unchanged, whether you're seeing growing share with that client base, or perhaps this is meeting new demand with new clients? Yeah, David, it's a little bit of all of the above. Again, with the production focus, the conversations that we're having with clients are not nearly as stressful as you would expect those that are more drilling or completions oriented. So you really kind of have to look through to each of our specific product lines.
David Smith: Meeting new demand with new clients.
Yes, David it's a little bit of all of the above.
David Smith: Again with the production focus the conversations that we're having with clients are not nearly as as stressful as you would expect those that are more drilling or completions oriented.
David Smith: So so you really kind of have to look through to each of our specific product lines.
Joe Bob Edwards: But within VRU and within high-pressure gas lift, the two fastest-growing product lines that we have, conversations with customers, I would say, are consistent with what we saw last quarter, if anything, a little bit better. And it has to do with what we talked about, the tariff noise that is in the market around the competing technique for HPGL, as well as just the incremental natural gas fundamentals or more positive natural gas fundamentals that are driving adoption on VRU. So I would hate to characterize things as overly rosy with our customers in this kind of current market backdrop, but things feel pretty good.
David Smith: But within VR, you and within Hyperscale gas lift the two fastest growing product lines that we have.
David Smith: Conversations with customers I would say our.
David Smith: Consistent with what we saw last quarter, and if anything a little bit.
David Smith: A little bit better.
David Smith: And it has to do with what we talked about the.
David Smith: The tariff noise that is in the market around the competing technique for HP GL.
David Smith: As well as.
David Smith: Just the incremental natural gas fundamentals are more positive natural gas fundamentals that are driving.
David Smith: Adoption on <unk> are you.
David Smith: So I would.
David Smith: To characterize.
David Smith: Things as overly rosy with our customers in this kind of current market backdrop, but things feel things feel pretty good.
Operator: Really appreciate the color. I'll turn it back. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. It appears that there are no further questions at this time.
David Smith: Really appreciate the color I'll turn it back.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: It appears that there are no further questions at this time I would now like to turn the floor back over to Joe Bob Edwards for closing comments.
Joe Bob Edwards: I would now like to turn the floor back over to Joe Bob Edwards for closing comments. Well, thank you everyone for tuning in and reach out if you have any questions, look forward to seeing you next quarter. Thank you.
Speaker Change: Well. Thank you everyone for tuning in and reach out if you have any questions look forward to seeing you next quarter.
Speaker Change: Thank you.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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