Flowco Holdings Inc. Class A

Good morning. Welcome to FloCo Holdings Inc. Third Quarter 2026 Earnings Call. Today's call is being recorded. We have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Andrew Leonpacher, Vice President, Finance, Corporate Development, and Investor Relations at FloCo. Thank you. You may begin.

Andrew Leonpacher, Vice President, Finance, Corporate Development, and Investor Relations at FloCo Good morning, everyone, and thanks for joining us to discuss FloCo's Third 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, and assumptions are detailed in this morning's press release and in 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 are available in this morning's press release and in our SEC filings. Joining me on the call today are 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's call with a review of our third quarter performance and key highlights, as well as a review of the lifting solutions acquisition we closed in early October following the end of the quarter. John will then discuss our financial results, our segment performance, capital allocation, and balance sheet in more detail. I'll conclude with our perspective on the current market environment and our outlook for the next quarter. Flickr delivered another solid quarter in Q3, generating approximately $104 million of adjusted EBITDA, our highest quarterly adjusted EBITDA since becoming a public company. Revenue increased 10% sequentially, while adjusted EBITDA grew 11%. Both segments, production solutions and natural gas technologies, had strong performance during the quarter. Within production solutions, our surface equipment division was the primary driver of our outperformance, highlighting the durability of our rental model and the value embedded in our term contracts for compression units supporting gas lift applications. In addition to another solid quarter of underlying rental activity, we recognized accelerated rental revenue associated with the early release of several active high pressure gas lift systems. John will go into detail on the numbers, but these releases represent only a small portion of our active fleet. The take or pay nature of our contracts enables us to realize the remaining value of a contract upon notice of return while freeing up those systems to capture additional demand without incremental investment in new equipment. Turning to natural gas technologies, the segment delivered its highest quarterly adjusted EBITDA since our IPO, supported by continued growth in vapor recovery and strong demand for conventional gas lift compression packages. Our vapor recovery rental business continues to expand. as operators increasingly recognize the economic benefits of capturing and monetizing liquids-rich natural gas vapors. Additional takeaway capacity in the Permian and other key basins are enablers of this continued growth, providing the infrastructure necessary for operators to capture and commercialize these gas streams. Our third quarter results reinforce the value of our positioning as a pure play production optimization provider, where consistent demand for our solutions is driven by the ongoing needs of producing wells, rather than the more cyclical capital spending associated with drilling and completions. We delivered another strong quarter of free cash flow, generating a quarterly record of $72 million, representing 70% free cash flow conversion from adjusted EBITDA. Our recurring highly visible rental revenue combined with our capital efficient sales businesses supports consistent free cash flow generation, giving us the flexibility to invest in strategic growth while also providing the ability to reduce debt and return capital to shareholders. As operators remain focused on maximizing returns from their existing assets, We see opportunities to expand our customer relationships through our broader suite of production optimization solutions. Our ESP offering through Valiant once again exceeded our expectations this quarter. We recently secured a significant contract to provide ESPs to a large independent operator by leveraging legacy FloCo relationships across multiple business units. We expect this customer could become one of our largest ESP customers over time. This is a great example of how our expanding capabilities and established customer relationships, coupled with cross-selling through recently acquired businesses, are translating into new commercial opportunities across our platform. Subsequent to quarter end in early October, we continue to round out our production optimization portfolio and expand our geographic reach through the acquisition of lifting solutions. a vertically integrated artificial lift provider headquartered in Edmonton with a footprint that spans across Canada, the United States, the Middle East, and other international markets. The acquisition adds continuous rod and progressing cavity pump technologies, broadening our artificial lift offering and strengthening our position in later life well applications. We expect revenue generated outside the United States to be approximately 10% of our total revenue following the transaction, marking a meaningful step in our international expansion efforts. Similar to Valiant, with lifting solutions, we see opportunities to leverage our combined customer relationships, technologies, and geographic footprints to drive growth across the broader FloCo platform. I want to spend just a minute highlighting some of the significant steps we are taking in our international expansion efforts. Specifically, in Venezuela, we have secured multiple orders and expect to deliver 20 ESP systems during Q4 of 2026. And we have increased demand for more ESPs extending into 2027. Additionally, we have secured orders for multiple sets of gas lift equipment and associated digital gauges into the country. Finally, through Lifting Solutions' existing presence in Venezuela, we expect to deliver roughly 250 progressing cavity pumps into Venezuela during 2026, including over 100 pumps which are currently on order for delivery in Q4 2026. We're seeing similar momentum in the Middle East, where we have secured orders for 20 ESP systems from a major multinational operator with presence in Iraq. and Lifting Solutions Existing Operations in Oman are performing ahead of expectations. More broadly, with Lifting Solutions providing its offerings across 16 countries supported by 19 distributor relationships, we see a meaningful cross-selling opportunity and hope to accelerate international growth across the entire FloCo portfolio. Rounding out my thoughts on the quarter, I am very pleased with our performance and with the progress we've made advancing strategic priorities. Year over year in the third quarter, we've grown revenue by 46%. Over the last four quarters, we've generated nearly a quarter billion dollars of free cash flow, representing 65% conversion of adjusted EBITDA into free cash flow. We believe our combination of strong margins and returns, consistent free cash flow generation, and capital efficient growth continues to differentiate FloCo within our sector. With that, I'll turn it over to John.