Flowco Holdings Inc. Class A

Good morning, and welcome to FloCo Holding, Inc.' 's fourth quarter and full year 2025 earnings call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Andrew Leonpacker, Vice President, Finance, Corporate Development, and Investor Relations at FloCo. Thank you. You may begin.

Good morning, everyone, and thanks for joining us to discuss 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.flowcode-inc.com. We undertake no obligation to revise or update any forward-looking statements or information except as required by law. 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 filings. 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.

Thank you, Andrew. Good morning, everybody, and thank you for joining us today. I'll begin today by reviewing our fourth quarter and full year performance, including operational details, and then provide an update on the Valiant acquisition we announced earlier this month. John will follow up with more details on our financials, capital allocation, and balance sheet, as well as the mechanics of the Valiant transaction. I'll wrap up with our perspective on the current market environment, our outlook for next quarter, and key strategic priorities for the coming year before we open up the line for your questions. Cloco ended the year with a very strong fourth quarter, underscoring consistent execution and differentiated growth across both operating segments. In the quarter, we generated 83.5 million of adjusted EBITDA, exceeding expectations. For the full year, adjusted EBITDA grew 11% versus pro forma consolidated 2024, even after absorbing approximately $15 million of incremental public company cash costs. This performance demonstrates the strength and durability of our business model in a market environment that remained dynamic throughout the year. Importantly, in the fourth quarter, we maintained our industry-leading margins, driven by the continued strength of our resilient, high-margin rental business. We generated $63 million of free cash flow in the quarter, reducing leverage to levels below where we stood prior to the August acquisition of HPGL and VRU assets from ArchRock. This reflects our disciplined approach to capital allocation and reinforces the strength and flexibility of our balance sheet. Turning to operational performance, our rental platform continued to build on strong momentum in the quarter. Rental revenues grew approximately 4% quarter over quarter, driven by steady demand for our HPGL and VRU solutions. Customers continue to value these technologies for the reliability and production uplift they deliver, as well as the attractive economics they generate across the life of the well. Importantly, our rental fleet generates contracted recurring revenue, adding durability and visibility to our overall business. We continue to see meaningful runway for these technologies as operators expand deployment across their asset bases, and we are already seeing incremental demand early in 2026 activities. Shifting to sales, we had a solid quarter of growth as anticipated. Within the natural gas technology segment, we saw healthy activity in vapor recovery sales, along with a notable rebound in natural gas systems. We were also pleased with the performance at downhole components, where we experienced less seasonality than expected. Particularly within conventional gas lift and plunger lift, operators remained focused on deploying these solutions to enhance existing production as they closed out the year. driving better than anticipated results and reinforcing the value of our differentiated offerings. Earlier this month, we announced our agreement to purchase Valiant Artificial Lift Solutions at an attractive valuation. Valiant is a leading pure play provider of ESP systems with an established presence in the Permian Basin. This transaction expands our suite of Artificial Lift Solutions, meaningfully broadens our addressable market, and allows us to support customers with both primary early life lift techniques deployed across the industry. Strategically, this combination strengthens our production optimization platform. Bringing ESP together with HPGL, conventional gas lift, and plunger lift creates meaningful cross-selling opportunities at key transition points over the life of the well, while enhancing our ability to deliver the right solution in each well every time. We believe our expanded offering will enable us to deliver improved customer outcomes while generating attractive returns and durable free cash flow. The transaction remains subject to customary regulatory approvals, and we expect to close in the first week of March. Our teams are actively preparing for integration with a focus on disciplined execution and maintaining continuity for customers and employees. Overall, I'm very pleased with how the team executed in 2025. We expanded margins, generated robust free cash flow, reduced leverage, grew our rental platform, and laid the groundwork for a strategic step forward with Valiant. We believe FloCo is very well positioned for additional success as we move further into 2026. And with that, I'll turn it back over to John.