Flowco Holdings Inc Class A Aktie

Good morning, and welcome to the Flowco Holdings, Inc.'s First Quarter 2026 Earnings Call. Today's call is being recorded and we have allocated 1 hour for prepared remarks and Q&A.

At this time, I would like to turn the call over to Andrew Leonpacher, Vice President, Finance, Corporate Development, and Investor Relations at Flowco. Please go ahead.

Good morning, everyone, and thanks for joining us to discuss 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 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.flowco-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 are our President and Chief Executive Officer, Joe Bob Edwards; and our Chief Financial Officer, Jon 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, everyone, and thank you for joining us today. I'll start today's call with a review of our first quarter performance and key operational highlights, followed by an update on how our recent acquisition of Valiant Artificial Lift Solutions is progressing after we closed the transaction in early March. Jon will then cover our financials, including segment performance and provide additional detail on capital allocation and on the balance sheet. I'll close with our perspective on the current market environment as well as our outlook for the next quarter.

Flowco delivered a solid start to 2026 during the first quarter, generating adjusted EBITDA growth and consistent execution across both operating segments. We generated $85.5 million of adjusted EBITDA during the quarter, at the upper end of our guidance range. We sustained our industry-leading margins, driven by the strength of our rental platform and modest sequential improvement in gross margins quarter-over-quarter.

During the first quarter, we generated $52 million of free cash flow, enabling us to reduce debt while continuing to return capital to shareholders through dividends and share repurchases. Pro forma for the Valiant transaction, we remain conservatively leveraged with ample liquidity to continue executing on our strategic priorities.

Turning to operational performance. Our rental platform continued to build momentum during the quarter. Rental revenues increased approximately 9% sequentially, driven by steady demand across our surface equipment and vapor recovery rental solutions as well as our newly added ESP offering acquired with Valiant. Customers continue to adopt these technologies to maximize production and optimized returns across the life cycle of the well.

Spending a moment on each. Within surface equipment and in particular, high-pressure gas lift, we are seeing incremental demand in the early part of the year as operators increasingly deploy this technology to accelerate production in a constructive commodity price environment. Given its high uptime and ability to operate efficiently at elevated GORs, HPGL enables operators to bring on production earlier and sustain higher output, ultimately improving well-level economics.

Our vapor recovery units are becoming increasingly ubiquitous in pad development as operators use this capital-efficient solution to capture and monetize gas that would otherwise be vented or flared, thereby turning emissions into incremental revenue with minimal additional investment. Importantly, these captured vapors include not just methane, but also the heavier hydrocarbons that are significantly more valuable, often resulting in gas stream values multiple times higher than dry gas, particularly in the current NGL pricing environment.

As announced in March, we completed the acquisition of Valiant Artificial Lift Solutions, a leading pure-play provider of ESP systems with an established Permian Basin presence. This transaction expands our capabilities into the largest addressable segment of the artificial lift market, allowing us to offer ESPs where they are the optimal solution for a given well.

Valiant performed slightly ahead of expectations in March and the integration is off to a very strong start. We are encouraged by the early alignment across the organization as we begin to identify incremental opportunities from the combination.

Let me highlight 2 early examples. First, the Valiant team is now utilizing Flowco's in-house ESP cable installation capabilities, reducing reliance on third-party providers. Second, we are leveraging insights from ESPs on Valiant's well monitoring platform, Optimus, to better identify follow-on gas lift candidates as wells mature and become better suited for alternative forms of lift. Opportunities like these give me confidence in our ability to drive significant revenue synergies as we integrate Valiant's operations with ours.

Across all 3 of these rental-oriented product lines, HPGL, VRU, and ESP, rental revenue is largely contracted and recurring in nature, supporting strong visibility and consistency in our financial profile. As a company, rental revenue represented nearly 60% of total revenue during the quarter.

Shifting to product sales. We delivered another solid quarter with sequential growth driven by performance within our downhole components offerings. Within Natural Gas Technologies, we saw consistent demand in vapor recovery sales as well as third-party sales and natural gas systems. Our sales-focused businesses remain a key contributor to free cash flow given their minimal incremental capital requirements quarter-over-quarter.

Overall, I'm very pleased with how the team executed during the first quarter. We delivered disciplined results, generated strong levels of free cash flow while returning capital to shareholders. And we successfully closed on the Valiant acquisition. We are very well positioned to build on this momentum as we move through 2026.

And with that, I'll turn it over to Jon.

Thanks, Joe Bob. Turning to our financials. First quarter performance was at the higher end of our guidance range, driven by ongoing expansion in our high-margin rental business and 1 month of contribution from Valiant.

Total revenue increased 6% sequentially to $209 million, primarily driven by growth within Production Solutions. Building on this revenue growth and supported by margins underpinned by our high-return rental model, adjusted EBITDA increased by $2 million quarter-over-quarter.

As Joe Bob mentioned, we maintained our industry-leading margins in the quarter, achieving adjusted EBITDA margins of 40.8%, even while absorbing some incremental corporate costs in the quarter, which I'll touch on later. This performance reflects disciplined execution and strong operating leverage as customers continue to recognize the value of our differentiated solutions.

In our Production Solutions segment, first quarter revenue increased 10% sequentially to $140 million, while adjusted segment EBITDA increased approximately 7% to $61 million, driven by growth in Surface Equipment and the contribution from the Valiant acquisition. Within the segment, Valiant is now reflected in downhole components as our ESP offering. Adjusted segment EBITDA margins decreased 125 basis points quarter-over-quarter, primarily driven by a revenue mix shift towards downhole components following the inclusion of Valiant.

In our Natural Gas Technologies segment, first quarter revenue was consistent with the prior quarter at $69 million, while adjusted segment EBITDA was also in line at approximately $30 million. The segment benefited from growth in vapor recovery rental revenue and increased sale of natural gas systems, which were offset by a modest decline in vapor recovery unit system sales quarter-over-quarter.

Turning to corporate costs. First quarter corporate expenses increased to $5.6 million from approximately $4 million in the prior quarter. This increase was driven by incremental filing and legal expenses associated with our S-3 filing on February 4, 2026, and subsequent secondary offering. Costs we do not expect to recur on a regular basis. Looking to the remainder of 2026, we expect corporate expenses to normalize to approximately $5 million per quarter.

Overall, consolidated first quarter adjusted EBITDA was $85.5 million, reflecting continued execution and the resilience of our operating model. In the first quarter, we invested $26 million of growth capital, primarily to expand our rental fleet across surface equipment and vapor recovery and our annualized adjusted return on capital employed for the quarter was approximately 18%.

Looking to the remainder of 2026, our capital outlook is unchanged from last quarter, supporting meaningful free cash flow generation. We will continue to pace investment alongside customer activity, focusing on high-return opportunities. With a 6-month lead time on our equipment, combined with our vertically integrated manufacturing model, we retain meaningful flexibility to adjust capital deployment as conditions evolve in the current market backdrop.

On March 2, we closed the acquisition of Valiant Artificial Lift Solutions for approximately $200 million in total net consideration. Integration is progressing well with teams working closely across the organization to align operations, systems and commercial activities.

Looking to the remainder of the year, we remain confident in Valiant's ability to generate approximately $52 million of adjusted EBITDA for the full year 2026, consistent with the expectations we previously outlined. As integration progresses, our focus is on executing a disciplined plan to capture incremental revenue opportunities. And we have the capacity and flexibility to support additional activity as those opportunities develop.

Turning to our balance sheet, liquidity, and capital allocation. We ended the quarter in a strong financial position and have continued to build on that momentum. As of May 1, 2026, we had $333 million of borrowings outstanding under our credit facility. With a borrowing base of $722 million, this represents approximately $388 million of available capacity.

On a pro forma basis for the Valiant transaction, leverage remains at a conservative level below 1x. Our balance sheet strength and cash flow profile provide flexibility for both reinvestment and shareholder returns. During the quarter, we utilized $16.5 million of cash flow to repurchase 780,000 shares in connection with the secondary offering by selling shareholders.

As a related note, our average daily trading volume has more than doubled year-to-date following the secondary offering. And with our increased public ownership, we have emerged from controlled company status.

Shifting to the dividend. On May 1, our Board of Directors unanimously approved a 12.5% increase to our cash dividend, raising the first quarter dividend to $0.09 per share. This decision reflects our confidence in our growing and sustainable free cash flow profile, which enables us to execute on our long-term growth plans while also returning capital to shareholders.

In conclusion, we delivered a strong quarter with results at the high end of our adjusted EBITDA range. We've entered 2026 with a durable earnings foundation and strong cash flow generation, supported by our positioning within production optimization and a constructive market environment.

Back to you, Joe Bob.

Thanks, Jon. Let's turn now to the market outlook. Recent geopolitical and military developments in the Middle East have heightened the world's focus on energy security and have reinforced the need for reliable, diversified sources of supply to satisfy energy demand.

With the Strait of Hormuz closed and the U.S. Navy blockading Iranian oil exports, industry experts estimate that approximately 10% of global crude oil supply and 20% of global LNG supply is effectively offline. Emergency inventories are being depleted at a rapid rate. Approximately 60 days into this conflict, industry sources estimate that up to 15% of strategic petroleum reserves globally have been consumed to satisfy this supply disruption. And the longer this conflict endures, the tighter the supply chains that rely on this supply will become.

Of course, we are all hoping for a swift conclusion to the current situation. But whatever the new normal looks like on the other side of this conflict, we believe the world will increasingly look to North America to produce the most reliable and secure energy to drive economic activity.

So with that backdrop, what are we hearing from our customers? As others have reported, we are not seeing material activity increases as of yet. Rather, those with access to short-cycle opportunities to increase production, thereby taking advantage of today's improved pricing environment are selectively pursuing high-return investments. More broadly, though, our customers are increasingly focused on existing production.

How do I optimize what I'm currently operating? How do I improve recovery factors? How can I manage my artificial lift system more efficiently to drive more production? Flowco's product and service offerings sit at the epicenter of these conversations. And I would expect us to contribute meaningfully to our customer success over the coming quarters.

Against this backdrop, we are forecasting another quarter of profitable growth in the second quarter of 2026 with adjusted EBITDA expected to be in the range of $93 million to $97 million. We will benefit from a full quarter of contribution from Valiant. And we anticipate continued growth across our surface equipment and vapor recovery rental businesses.

We remain focused on building our position as a leading provider of production optimization solutions for our customers. The addition of Valiant significantly strengthens our platform. Throughout the balance of 2026, we expect to identify additional revenue synergy opportunities as we integrate our commercial efforts. And of course, we will continue to look for creative and accretive ways to round out our product portfolio as we strive to deliver on our aim to offer our customers the right solution in each well every time.

With that, I'll turn it back to the operator for Q&A.

[Operator Instructions] Your first question comes from Derek Podhaizer from Piper Sandler.

So I totally appreciate you're not necessarily seeing material activity increases as of yet. But obviously, we've had a lot of news flow over the last couple of days, players like Diamondback given the green light, Conoco adding another rig. So maybe just if you can help us understand the opportunity set as we work through the year, that call on short-cycle barrels, your ability to optimize production for your big customers. So how do you think about that when you're looking out, especially when we're hearing some of these larger E&Ps, the publics coming back to work along with the privates?

Yes, Derek, certainly, you've nailed it. Some of the larger and more nimble companies are starting to get -- to increase activity. And those are green shoots for us. As you know, our production-oriented business will follow incremental rig activity, incremental frac spread deployment. Companies that are accessing their DUC inventory to turn wells in line more aggressively to take advantage of this environment. All that is beneficial for us.

So when we say we're not seeing material activity increases as of yet, we're certainly seeing the early days of what we think is sustained higher activity, which will drive business for us. I think it's a back half of the year kind of phenomenon for us and shaping up for a very strong 2027.

And then maybe switching to VRUs. I mean, very interesting comments as far as how the VRU side can also benefit from more of this call on short cycle just given the elevated commodity price, especially NGL versus dry gas. Anything to read into as far as more rentals for VRUs versus more sales? I think that was one of your initial investment thesis where you wanted more of the rental market to pick up versus sales. But is this just an in-quarter phenomenon? Is this just more idiosyncratic to this quarter? How should we think about VRU, the rental versus sales mix as we move through the remainder of the year and into '27?

Yes. Listen, on VRU, we are listening to our customers' preferences and through commercial activities on our end. We are incentivizing them to rent more than they buy. But look, certain customers like to have these assets as a permanent installation in their production infrastructure.

So if customers would like to buy them and rely on our aftermarket and our technology to help run them as an owned asset on their balance sheet, we'll certainly go that way as well. But we do see incremental demand for more rental units. Customers like the ability to size down the units over time as the pad matures. And so as you know, we've got every size of VRU imaginable.

So we can work with customers along the way with rental terms that incentivize them to size these units down over time. But yes, we're seeing incremental rental demand from customers. I think you'll see that reflected in our CapEx estimates for the rest of the year.

Your next question comes from Arun Jayaram from JPMorgan.

Joe, I was wondering if you could and Jon could maybe characterize kind of the growth opportunities you see over the balance of the year in natural gas technologies and perhaps compare and contrast that to what you're seeing on the Production Solutions side.

Yes, Arun, thanks for the question. I'll start in reverse order on the Production Solutions side. With the acquisition of Valiant, we now are having much more constructive conversations with customers around the right lift solution for the early stage of a well's life as newly completed wells get turned online. There are really only 2 choices that an oil company has.

You can produce that well with a high-pressure gas lift system or with an ESP. And we've got both. So I would anticipate to the extent CapEx may be biased to the upside in this environment, I would anticipate those dollars flowing into our highest return investment opportunities, which are high-pressure gas lift and ESP. So I think that's going to be the priority for us is to look for ways to deploy incremental capital there.

On the NGT side, mainly our vapor recovery offering, it's steadier. As I just said in Derek's question, we are incentivizing customers to rent more than to buy. And so yes, we'll see incremental demand there, but it's going to be a little steadier, a little later stage. But yes, we're very pleased with the market backdrop setting up for an incremental investment from us throughout the balance of the year.

And my follow-up is just your thoughts on scaling your business opportunities within the Valiant assets, ESPs. Jon, you guys reiterated your outlook for, call it, $52 million of annualized EBITDA from there. But Joe Bob did mention that things were trending perhaps a little bit better than you expected in March.

But just wanted to talk about the scale because you did mention on the last call that the supply chain is a little bit longer than what you're seeing on the HPGL side. And maybe just an updated thought on CapEx because I think last quarter, you highlighted $115 million of CapEx for the full year. But I don't think you gave us an estimate on CapEx related to Valiant.

That's right. That $115 million did not include Valiant. For Valiant, we're expecting around $20 million to $25 million in incremental CapEx over the 10 months that we'll own it in the course of the year.

And Jon, just thoughts on scaling that business.

Yes. Arun, look, we are very optimistic. And I tried to convey this in our prepared remarks. This is a revenue synergy story. We're seeing some very early, very positive indications that we're going to be able to grow that business with customer overlap.

And I'll highlight really 2 key areas there. Valiant's customer base consists of about 30 to 35 customers, Flowco's customer base more broadly consists of over 300 customers. In high-pressure gas lift alone, we work for over 65 individual oil companies.

So you can understand the playbook when we say we're going to approach key accounts with a truly agnostic offering, whereas before, we were trying to convince customers for every one of their newly drilled and completed wells to use a high-pressure gas lift system. Now we can go in and actually be more thoughtful about the right solution for that well. So that's sort of point one.

And then point two, it can't be emphasized enough. After you have a high-pressure gas lift system or now an ESP in a well for a period of time, call it, anywhere from 1 to 3 years, that well has to be handed over to another form of lift. And now that we have the ESP data that we're collecting every day in our proprietary digital technology that we can monitor remotely well conditions with each of the ESPs that we have in the well. We can get ahead of well handovers, failures that occur when a well gets out of spec for an ESP production.

So we can be in a customer's office proactively with a gas lift solution or a plunger lift solution before a well goes down, before that customer goes out for bid on the well for the next phase. So that's a synergy opportunity that I think very few can have. And we're unlocking with the Valiant acquisition and our disciplined integration efforts.

Your next question comes from Phillip Jungwirth from BMO Capital Markets.

When you talk about rounding out the product portfolio, could this at all involve going deeper into ESPs just given how large a market it is? Or are we more talking about unrelated production optimization areas that you're not currently in? And just the creative comment, was that meant to imply that you could look at avenues beyond just normal M&A?

So yes. We're -- we have a very active M&A pipeline, as you would expect. And I would hope that we can have the stars aligned on incremental M&A throughout the balance of this year and heading into 2027. We're in most every form of artificial lift. We are missing a couple of specific products that we've been pretty candid. We'd love to add to the portfolio. And there are some complementary services that go along with artificial lift that we evaluate similarly.

What are adjacent to the lift systems that we are selling to our clients? What else does the customer procure as they think about the optimum lift solution for a well? So yes, we're evaluating how to enter these adjacencies, both organically and inorganically.

Obviously, the easiest way is to buy a business that is already in those markets that comes with a group of people and a management team and a built-in book of business from clients. But we certainly are not afraid of standing something up from scratch. So we're going to continue to listen to our customers of what they are looking to us to do for them and try to add value as we look at our M&A pipeline and our organic efforts as well.

And then Flowco was never really impacted by tariffs, but I believe Valiant was as an ESP provider. Just curious what's the ability to recoup any past payments here? And if so, what's that process look like?

Yes. There is an opportunity to recoup the tariffs. That's a process that's underway. The portal, I believe, is open. And so we're in the process of trying to recoup those tariffs. Some of those may end up going back to customers. We'll see. But right now, the process is still a little bit murky. So time will tell on that.

Your next question comes from Keith Beckmann from Pickering Energy Partners.

I wanted to ask, you kind of talked about the rental nature of high-pressure gas lift, VRU, and ESP. I mean, obviously, ESP and high-pressure gas lift go on the wells for a little while. I wanted to get a sense of maybe is there a typical or average contract term length for kind of each of those 3 between high-pressure gas lift, VRU, and ESP? Just trying to get a better sense on how the contract terms work there for the rentals.

Yes, Keith, it's all over the map, candidly. Customers on each of those have their own objectives they're trying to solve and it's complicated. So there's not a one size fits all. On the high-pressure gas lift product line, some customers are shorter term in nature. Some are multi-years. On the VRU, it's a shorter term by intent. We want to work with customers on the sizing down project that I described earlier.

So a shorter-term contract is desired there. But we've done some extensive analytics, as you would expect. And the average time on location for a given VRU extends well beyond what the contract term is.

And then for ESPs, look, it's even more complicated. Some customers prefer to own their fleet of ESPs. They view it as a CapEx item. Some prefer to rent and some prefer a hybrid model where they rent the surface drive unit that helps power the ESP and they buy the downhole. So hard to give you a one-size-fits-all answer. It's a pretty dynamic commercial model.

Then my second question I wanted to ask was just around the really strong free cash flow quarter. How should we kind of be thinking about free cash flow conversion for EBITDA through the rest of the year, obviously, as potentially increased CapEx with things getting stronger here in the back half of the year?

That's right. I think with $25 million of -- or $26 million of CapEx in the quarter, you can do the math and see that we expect to ramp into Q2 and Q3. So obviously, that's going to have an impact on free cash flow. Second, even though we added Valiant, that added about $50 million of working capital, the underlying kind of pre-Valiant business actually had a reduction in working capital that we don't think is sustainable into Q2. We'll see some of that come back. So I think we would expect to see free cash flow moderate a little bit in Q2.

Your next question comes from John Daniel from Daniel Energy Partners.

As the market begins to inflect here, can you guys just speak to how that impacts your pricing strategies over the next several quarters?

Yes. Good question, John. Listen, we've -- being in the production phase, we're not subject to the big swings in utilization and the supply-demand imbalances that come with businesses that are levered to drilling and completion like rigs or frac spreads, right? So we don't suffer the pricing decreases on the way down. And we don't get the benefit as much on pricing increases on the way up. It's much, much more stable.

So we would anticipate pricing to be pretty consistent with where we've been. We will, of course, look for ways to drive price where we can, where we can still be constructive with our customer base. But I wouldn't say that pricing on any particular one of our products is going to be a particular driver for the back half of this year.

And then going back to the growth opportunities from an organic perspective. If you were to feed some money to some guys to go start up something new, Joe Bob, like how much grace period will you give them to get it going? Like what's an expectation for time?

Yes, it's a good question. Within a business of our size and given the focus that we have and the discipline we have around free cash flow generation, John, the answer is very little. We want something to be immediately accretive to both earnings, free cash flow and returns. So if we don't see an immediate path to something earning its keep, we're likely not even going to hit the go button.

[Operator Instructions] Your next question comes from Jeff LeBlanc from TPH.

You referenced the increased interest in artificial lift. But can you talk about regional trends and how prominent outside of the Permian?

Yes, Jeff, you're a little faint on your question. I think you were asking about regional trends on specific lift techniques across the U.S. onshore, not just the Permian. Is that right?

Well, more broadly, just the inflection in demand and activity outside of the Permian specifically.

Got it. So look, I think you'll see it in some of the oilier basins, okay, the Bakken, South Texas, parts of the DJ. But everything is dwarfed by the Permian, as you know. It produces half of the barrels that come out of the U.S. It's where most of the short-cycle inventory is located. So I think you'll see the vast bulk of activity increases there. But the other basins, I think, will -- they'll be there as well. But I think most of what we are seeing is going to be bound for Texas and New Mexico.

And there are no further questions at this time. I will turn the call back over to Joe Bob Edwards, CEO, for closing remarks.

Thank you all for tuning in. And we'll talk to you in 90 days.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

Good morning, and welcome to Flowco Holdings Inc.'s Fourth Quarter and Full Year 2025 Earnings Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Andrew Leonpacher, Vice President, Finance, Corporate Development and Investor Relations at Flowco. Thank you. You may begin.

Good morning, everyone, and thanks for joining us to discuss Flowco'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.flowco-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.

Flowco 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 Technologies 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 Flowco is very well positioned for additional success as we move further into 2026. And with that, I'll turn it back over to John

Thanks, Joe Bob. Before reviewing some of the key financial metrics and results for the fourth quarter, I'd like to provide a reminder on our historical financial information, given the combination of Flowco Logistics and Estis in June of 2024. For clarity, note that any financial information presented prior to the June 20, 2024, business combination, such as information contained within our full year 2024 performance reflects only the historical performance forest. Financial information for the third and fourth quarters of 2025 as well as the fourth quarter of 2024 reflects the financials for the consolidated entities.

Turning to our financials. Fourth quarter performance exceeded expectations, reflecting continued growth in our rental fleet and strong performance and profitability across all our sales business units. We reported adjusted net income of $43 million on revenue of $197 million. Total revenue increased 11% sequentially, primarily driven by higher sales across both segments with the largest contribution coming from Natural Gas Technologies.

Supported by the sales growth and further underpinned by the continued expansion of our higher-margin rental portfolio, adjusted EBITDA increased $6.7 million quarter-over-quarter. Notably, rental revenue, most of which is recurring, surpassed $110 million for the first time in the quarter. As Joe Bob mentioned, we maintained our industry-leading margins in the fourth quarter, achieving adjusted EBITDA margins of 42.4%. That performance reflects strong operating leverage within our rental fleet as well as the impact of the revenue mix shift as sales rebounded.

In our Production Solutions segment, fourth quarter revenue increased 1.5% sequentially to $127 million, while adjusted segment EBITDA increased 4% from the third quarter to $57 million. Adjusted segment EBITDA margins expanded 110 basis points quarter-over-quarter. Revenue growth was primarily driven by higher rental revenue at Surface Equipment and better-than-expected downhole components product sales as the business unit outperformed typical seasonality. The improvement in adjusted segment EBITDA and margin was largely attributable to increased high-margin surface equipment revenue, lower segment level SG&A and a more favorable revenue mix compared to the third quarter.

In our Natural Gas Technologies segment, fourth quarter revenue increased 36% sequentially to $70 million, while adjusted segment EBITDA increased 18.4% to $30 million. The growth was primarily driven by higher natural gas systems and vapor recovery sales during the quarter, along with strong vapor recovery rental performance. Adjusted segment EBITDA margin decreased 634 basis points, reflecting a revenue mix shift towards sales from rentals, particularly through an increase in sales of lower-margin natural gas systems.

Turning briefly to corporate costs and SG&A. Fourth quarter corporate expenses were roughly flat at $3.9 million. Looking to 2026, we expect annual corporate expenses of $18 million to $20 million associated with the consolidation of corporate functions and completion of the build-out of our public company capabilities.

Overall, consolidated fourth quarter adjusted EBITDA was $83.5 million as we delivered another quarter of profitable growth. In our first full year as a public company, we delivered 4% year-over-year revenue growth and increased adjusted EBITDA by 11% versus pro forma consolidated 2024. This performance came despite a more challenging macro backdrop than when we entered the public markets, underscoring our ability to grow in a dynamic environment. This performance reflects the strength of our high-return investments, the scalability of our differentiated platform and the value our solutions provide to our customers as they maximize recovery and generate cash flow from their existing production base.

In the fourth quarter, we deployed $24 million of capital, bringing full year CapEx, excluding M&A, to $127 million, with the majority of this capital allocated towards expanding our surface equipment and vapor recovery rental fleet to support sustained customer demand at attractive returns. Considering our CapEx investments in the context of return on capital employed, our annualized adjusted ROCE for the quarter was approximately 19%. The sequential increase reflects higher product sales, which more than offset incremental capital deployed for the asset acquisition completed in August.

Looking ahead to 2026 and excluding any capital associated with Valiant or other M&A, we expect to invest total CapEx, including maintenance of approximately $115 million, which should support higher free cash flow for the year. We will continue to assess market conditions and customer activity levels to calibrate the appropriate pace of capital deployment, prioritizing investments that support profitable growth and meet our return thresholds. With a typical investment lead time of approximately 6 months, combined with our vertically integrated manufacturing model, we retain meaningful flexibility to adjust capital investment as we monitor customer demand and broader market conditions.

Earlier this month, we entered into a definitive agreement to acquire Valiant Artificial Lift Solutions for approximately $200 million in total consideration. The transaction represents an attractive valuation of approximately 3.9x projected 2026 adjusted EBITDA and does not consider any revenue or cost synergies. The purchase price consists of approximately $170 million in cash, and the issuance of roughly 1.5 million shares of Flowco Class A common stock with the cash portion expected to be funded through our existing credit facility. Pro forma for the transaction, we expect leverage to remain conservative at below 1 turn, and we intend to utilize the combined business' meaningful free cash flow generation to further delever over the course of the year.

We expect Valiant to generate approximately $52 million of adjusted EBITDA for the full year of 2026. And as Joe Bob mentioned, we expect the transaction to close in the first week of March, which would result in approximately 10 months of earnings contribution for Flowco. As we move toward closing, we're focused on executing a disciplined integration plan designed to capture cross-selling opportunities and position the combined platform to drive incremental revenue synergies.

Turning to our balance sheet, liquidity and capital allocation. We ended the quarter in a strong financial position and have made continued progress into the start of the year. As of February 20, 2026, we had $142 million of borrowings outstanding under our credit facility. With a borrowing base of $722 million, we had $580 million of available capacity. The improvement in liquidity was driven by strong free cash flow generation for the quarter, along with continued progress in net working capital efficiency. On January 30, Flowco declared a quarterly dividend of $0.08 per share payable on February 25. The strength and consistency of our cash flow generation give us flexibility to invest in organic growth, execute on strategic opportunities and return capital to shareholders, all while maintaining a conservative leverage profile.

In summary, we delivered a strong fourth quarter, exceeding our adjusted EBITDA guidance while delivering on the expected strength in sales. As we move into 2026, our rental fleet remains well positioned to generate stable, predictable earnings underpinned by durable demand and contracted revenue streams. Across our sales business, we expect continued operational resilience and meaningful free cash flow generation. As we integrate Valiant, we expect to further enhance our growth profile and deepen the advantages of our integrated platform. Supported by disciplined capital allocation and our differentiated operating model, we're confident in our ability to sustain performance and deliver attractive returns in the years ahead. Back to you, Joe Bob.

Thanks, John. Let's turn now to the market outlook. In 2025, U.S. oil production reached a new record of 13.9 million barrels per day despite commodity price volatility and macro uncertainty. We believe this sustained production durability is not solely the result of consistent capital deployment, but increasingly reflects our customers' optimization of existing production and improvements in asset level efficiency. That shift toward maximizing returns from existing production aligns directly with Flowco's core strengths in production optimization, artificial lift and emissions management and monetization, all of which are increasingly important for sustaining output.

Against this backdrop, we are entering 2026 with continued momentum and expect a strong start to the year. For the first quarter, we anticipate adjusted EBITDA of $82 million to $86 million. We expect continued incremental growth across our surface equipment and vapor recovery rental fleets, supported by strong utilization and contracted revenue visibility.

Within Production Solutions, excluding Valiant, we anticipate segment revenue generally consistent with the fourth quarter of 2025. In Natural Gas Technologies, we expect sales activity to be similar to fourth quarter levels as well. As John described, we expect corporate expenses to increase modestly in the first quarter. This first quarter guidance also includes approximately 1 month of contribution from Valiant, assuming the transaction closes in line with our expectations in early March.

Beyond the quarter, we remained focused on strengthening our business for sustained long-term value creation. The pending integration of Valiant represents an important next step in expanding our artificial lift capabilities, particularly in ESP, further enhancing the differentiation of our platform and increasing our addressable market in the lower 48 by approximately 70%.

We are approaching integration with discipline and clear objectives: capture revenue synergies, leverage our combined expertise to better serve our customers and build upon the solid operational foundation that Valiant team has built. Also during the first part of 2026, we are taking our first steps toward expanding our international presence. As we outlined on our investor call regarding Valiant, ESP represents a natural avenue for selective international growth, and we are fortunate to have leadership experience within both Valiant and Flowco that has successfully scaled artificial lift businesses globally.

Separately, over the past few months, Flowco has signed 2 agreements with partners in the Middle East and Latin America, both of whom will enhance our ability to grow in these important markets. While we remain in the early innings of potential international expansion and we'll pursue it in a measured capital-light manner, we are encouraged by the initial response from customers and excited about the long-term opportunity.

Across the organization, we continue to advance operational initiatives to drive efficiency and margin expansion. Early applications of our internally developed machine learning capabilities are already improving maintenance planning, uptime and profitability. Across our field footprint, we are identifying opportunities to streamline processes, enhance collaboration and better leverage our full suite of solutions to serve customers over the life of the well.

Looking ahead, we believe continued innovation, technology-enabled efficiency, disciplined capital deployment and deeper customer partnerships will define the next phase of growth for Flowco. As we integrate Valiant in 2026 and execute across our business segments, we are confident in our ability to drive incremental growth and long-term value while further advancing Flowco production optimization strategy. And with that, I'll turn it back over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Arun Jayaram with JPMorgan.

I wanted to see if you could just talk a little bit about the trends you're seeing between rentals and kind of product sales. It sounds like you hit $110 million in the quarter. But how do you expect -- maybe just give us a sense of how that mix has been trending and maybe expectations as we think about 1Q and over the balance of the year.

Yes. No, happy to do it. Listen, we've been consistently investing in primarily our HPGL fleet and our VRU fleet, as you know. And that CapEx level, Arun, has driven our growth in rental revenue and rental EBITDA. It's led to a mix shift in the overall company. That's why you see margin improvements quarter-over-quarter. And we expect that to continue in 2026.

John, we've invested growth CapEx in the $100 million per year range for the last several years. And so Arun, I think that's going to continue in 2026. Is it going to be at that level or slightly above, slightly below? Market conditions will dictate, but we see no reason to let our foot off the CapEx accelerator because these assets generate really attractive returns. Customers like what they do for them, and we're going to continue to do that until there's no more market demand left to be had.

Understood. And Joe Bob, you intrigued me on your commentary on pursuing some international growth initiatives. You have the team and now with Valiant, maybe the product portfolio to do that. Can you maybe just give us a little bit more details on kind of the plans to scale globally? You mentioned 2 partners in the Middle East and LatAm. But maybe just talk a little bit about what the game plan is for 2026 as you pursue some of these international ambitions.

So the international expansion is obviously very exciting. But to be clear, we are early, okay? But I just want everybody to know that it's something on our radar because our customers that we have so loyally supported in the U.S. are looking internationally to export their capability in unconventional development plays that look a lot like what we've experienced in the last 10, 15 years here in the States. So we want to support that effort.

And to do that, we are getting prepared to follow them as well as to share with new customers, mainly national oil companies who are importing U.S. style innovation to help develop unconventional resource base. So in the Middle East region, obviously, there are several very large national oil companies as well as a handful of multinational independent oil companies as well as some household names that are in the early stages of developing unconventional resource base.

We want to be there to support them. And we feel like, in particular, with this Valiant acquisition, we have the capability to offer more than what we did before, and we want to set ourselves up for success there. The agreements that we've signed are partnership agreements in various forms. They are companies that have deep experience in both of those geo markets. They have local service capability. As I said in the prepared remarks, we're going to take a capital-light approach to this first, make sure we have the right sort of local content, the right sort of balanced approach as we take steps into these 2 international markets.

Our next question comes from the line of Derek Podhaizer with Piper Sandler.

Maybe just to keep going on the Valiant acquisition. It's been a few weeks now since you announced the deal and you're going to close here in a couple of weeks. But as you acquired Valiant and talk to your customers, what's been the initial reaction there, now having the ability to fold in ESPs to your overall production optimization solution or toolkit? Just maybe some thoughts and comments around that initial reaction from your customers and what gives you the excitement as you kind of step forward and being able to deliver all the well -- all the artificial lift solutions at any time in the well.

Yes, Derek, it's been very positive. As we talk to our customers as well as Valiant customers, and as you would assume, several of those are common, it's been a very welcomed collaboration. We now can truly deliver on what we say we want to do for customers, which is to offer the right solution in their well as they bring it online, right? So previously, we only had the ability to offer a high-pressure gas lift solution early in a well's life. And there are wells in the U.S. that are clearly ESP wells. Now we've got both. So we can quite credibly now say that we can be there for the life of the well, including both forms of early lift application.

In addition to that, and what I said in the prepared remarks, this is a revenue synergy story, okay? The ESP application is only a first year or 2 or 3 application in the shale wells where those systems make sense. What does that mean? Well, at the end of the life of the ESP, those wells go on something else, and they most commonly go on conventional gas lift. So we're the market leader in conventional gas lift. So that's a natural sales pipeline for us to pick up as those ESPs get pulled and put on to the next form of lift. So that's what we're most excited about. That's what our commercial teams have been preparing for as we get into integration when this business hopefully closes early next week.

Great. That's great color. And the second question, the free cash flow really impressed this quarter and conversion stepped up to 55% of EBITDA. Obviously, you have some assumption in there with Archrock acquisition effectively pulling that CapEx forward. But how should we think about the free cash flow conversion of the combined business now with Valiant moving into 2026, you gave us the CapEx guide. But clearly, you had a significant step up. I'm just trying to work through the moving pieces and how we should think about pro forma that free cash flow conversion now with the Archrock assets and now with Valiant.

Yes, Derek, the Valiant business has similar cash flow conversion characteristics to our business. Q4 was a great quarter, obviously, in terms of cash flow conversion as we finished our capital plan. We had the Archrock assets that allowed us to pull forward some of the CapEx and our working capital came down mainly on the back of better DSOs and AR. I don't expect to continue at that level in 2026. I think you see something more along the lines of what you saw over the course of the year in 2025.

Our next question comes from the line of Phillip Jungwirth with BMO Capital Markets.

We heard a lot from the E&Ps this quarter in the Permian about targeting deeper zones just with Woodford, Barnett across the Midland Basin in particular. So higher pressure, higher GOR. Recognizing now offer HPGL and ESP, but just how do you see the optimal lift solution for this type of development and opportunity for Flowco if we see more of this in the future?

Yes. Good question. Look, it's still early in those new zones. As our customers have pointed out, they're trying to figure out the right -- not only the right lifting technique, but the right completion technique, right? And as one of our more prominent customers said, never bet against the American engineer, and that's the camp we sit in. We think that there's a lot of room to go in the additional formations in the Permian in particular.

So we're right there with them, helping them evaluate early production data as these wells get completed and turned on. You mentioned higher pressures and higher GORs. Look, both of those feed straight into our gas lift solutions. The -- in particular, the high GORs, that's a tough application for ESPs. But it's early. The good news is we've got both, and we've got an active dialogue going with a lot of the folks that are targeting formations like the Barnett. So very exciting that they're making progress, and we're here to support them.

Okay. Great. And then on the Valiant acquisition call, you did mention selling ESPs in the non-Permian markets where they historically haven't had a presence. Can you talk through how quickly you look to penetrate these markets? And when you -- and also as somewhat of a new entrant, just what are the things you look to do just to maintain comparable margins in these other basins to what Valiant has realized in the past?

Yes. The good news is we've got a footprint that expands beyond the Permian to markets that are big ESP markets in the States. So a lot of the work has, to an extent, already been done with local presence with local infrastructure. And obviously, the customer day-to-day contacts and service that goes along with being in those markets -- the natural markets are the Bakken and the Midcon, okay? These are 2 tried and true ESP markets.

They're not nearly as large as the Permian, but these are areas where we have footprint, and we have active dialogue with customers to hopefully support them there. As for margin profile, I think time will tell. I think we're expecting those markets to be pretty similar to the Permian from our past history. They're not as deep, but they're every bit as profitable for service companies compared to the Permian.

Our next question comes from the line of Keith Beckmann with Pickering Energy Partners.

I just wanted to ask another sort of M&A question around -- we had the Valiant acquisition that really broadened out the portfolio and opened up kind of the total TAM that you're going to be able to address here. I wanted to know if there's any other acquisition opportunities or products that you see you're missing at this point? You guys have a lot of other stuff, and I expect it to be something smaller, but just wanted to get an idea on if there's any other production optimization or elsewhere holes in your portfolio you think that you would fill.

Yes, Keith, we're always looking for the right opportunities, the right types of people, the right types of cultures to join our team. And we do have a robust M&A pipeline, as you would expect. We've been very clear with investors that we want to round out the product portfolio, and we want to expand the geographies in which we operate while always staying true to our production focus. So look, there are a handful of additional lift capabilities that we don't have in the toolkit. There are complementary services and technologies that go along with lift that we can either build or buy.

And as we said in the prepared remarks, there's a big international market out there that we can either go attack organically or via acquisition or both. So all of the above are on the table. I'd say that we're going to stay true to what we've told investors and what we've told ourselves and our Board, which is we're going to be disciplined. We're going to put every opportunity through the screen of returns and never lose sight of the fact that we're here to serve our customers in this production phase, which is what we feel like we do really well. So look, stay tuned, but we're excited to get this transformative deal done, hopefully, early next week.

Awesome. That's really helpful. And then my second question was just kind of asking around CapEx lead times. If I remember right, I believe that you guys kind of have a 6-month investment lead time on customer projects was sort of the right way to think about it, I believe. I wanted to know if that changes at all, looking at the ESP market, like has that changed at all? Is the ESP market different at all? And then has the 6-month investment lead time changed at all here over the last year?

No, it's pretty consistent. Look, the ESP business, the supply chain that supports the ESP business, not just for us, but for all of our competition, it's a slightly more complicated supply chain. You've got some international navigation you need to do. But no, the 6-month lead time is pretty consistent. It's also -- it's not a build to order. It's a -- you're building inventory in advance of expected customer demand. And this is the same thing we're doing in our other product lines. So no, I think the 6-month lead time is pretty accurate.

John mentioned the cash flow conversion, the margin profile. It's all remarkably consistent with what we currently have. So the only added complexity is the slightly more complicated supply chain, which we're very comfortable navigating. And so no, I think you're thinking about it the right way.

[Operator Instructions] Our next question comes from the line of Jeff LeBlanc with TPH.

As operators are more vocal about developing secondary horizons and continue to extend lateral length, have you observed any shifts on how your customers are approaching artificial lift across the well's life, whether it be assuming the primary form of artificial lift is in place for longer or preemptively mapping out their solutions for the various stages?

Look, I'd say that operators are just more pointedly, they're focused on production. They're focused on making do with less. They're looking to their existing reservoirs for longevity, for durability and lift is part of that conversation. As it relates to us, Jeff, we are increasingly talking with operators proactively about the prospective changes in lift as a well matures, okay? As a production profile gets to a level where the existing lift solution becomes less effective, we're right there with them to propose changes, to propose modifications.

We do this early in the well's life. We also do this prospectively. We host 4 artificial lift schools per year for free to our customers in kind of the usual places you would expect, Houston, Midland, Oklahoma City, Denver. And so we're always talking with customers about the tools that we can provide them to give them that look at preventative and proactive lift changeouts, okay? So it's not just lift, it's other things, too, that are helping them make their production more durable. But we're just pleased to be part of that conversation and to be proactive with each one of our customers.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Edwards for final comments.

Well, thank you all for tuning in. And everybody, have a great weekend and a great 2026.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Good morning. Welcome to Flowco Holdings, Inc.'s conference call to discuss its acquisition of Valiant Artificial Lift Solutions. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and questions and answers. At this time, I would like to turn the conference over to Andrew Leonpacher, Vice President of Finance, Corporate Development and Investor Relations at Flowco. Please go ahead.

Good morning, everyone, and thank you for joining us to discuss Flowco's acquisition of Valiant Artificial Lift Solutions. Before we begin, I'd like to remind you that today's call includes forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. These risks are described in the press release we issued this morning announcing the transaction as well as in our SEC filings, which are available on our website. We undertake no obligation to update these statements, except as required by law. We'll also reference certain non-GAAP financial measures, which we believe provide useful insight into the underlying performance of our business.

For those joining by phone or via live webcast, the presentation is available on the webcast or for download from our website and can be referenced throughout the discussion.

Joining me on the call today are our President and Chief Executive Officer, Joe Bob Edwards; and our Chief Financial Officer, Jon Byers. Following our prepared remarks, we'll open the call for questions. With that, I'll turn the call over to our President and Chief Executive Officer, Joe Bob Edwards.

Thanks, Andrew, and thank you to everyone for joining us today. This morning, we announced that Flowco has entered into an agreement to acquire Valiant Artificial Lift Solutions, a leading pure-play ESP provider in the Permian Basin. This transaction represents an important step forward in our strategy to build a differentiated production optimization platform, one that allows us to deliver the right solutions to our customers throughout the life cycle of their producing wells.

Today, we'll walk through the strategic rationale, the transaction details and why we believe this acquisition is the right fit for Flowco. Let's start on Slide 3, and I'll take you through some of the details. We have agreed to acquire Valiant for a total consideration of $200 million, consisting of $170 million in cash and $30 million in newly issued Flowco shares. This transaction implies an attractive purchase price multiple of approximately 3.9x estimated 2026 adjusted EBITDA and is expected to be accretive to both earnings and free cash flow.

The transaction will be funded with modest borrowings under our existing ABL. Post transaction, net leverage is expected to remain below 1 turn, consistent with our disciplined approach to capital allocation with strong free cash flow supporting continued deleveraging throughout the year. We expect the transaction to close in early March, subject to customary closing conditions, including regulatory approval. Following the closing of the transaction, Valiant will operate as part of our Production Solutions segment, and we plan to report results within the segment subject to the concurrence of our auditors.

Turning now to Slide 4. Let's describe a bit of what Valiant is, and I'll spend a minute on why we're so excited about this opportunity. We have known Valiant for quite some time, and we've been impressed by what they've built, particularly their focus on execution and operational discipline. Those are attributes that align closely with Flowco's culture. They've grown the business the right way, staying focused on reliability and responsiveness, which has allowed them to take share over time, including with large operators who value a high level of service.

While the majority of Valiant's revenue today is derived from the Permian Basin, the team brings meaningful experience operating internationally and has established relationships that provide clear line of sight to opportunities outside the U.S. over time. Operationally, Valiant maintains in-house assembly and repair capabilities and supports its customers with proprietary monitoring and analytics tools that help optimize system performance. From a financial standpoint, Valiant is expected to generate approximately $52 million of adjusted EBITDA in 2026 with EBITDA margins around 40%, which are in line with Flowco's margins and are supported by a recurring service-oriented revenue model.

Turning now to Slide 5, where -- let's talk for a minute about the strategic rationale of this transaction. This acquisition fits well within the long-term strategy that we've adopted at Flowco, where we work with customers to deliver the right artificial lift solution at each point of a well's life cycle. By expanding into ESP, we are now able to offer both of the early life lift techniques used by our customers, high-pressure gas lift where it makes sense and ESPs where well conditions are more conducive to that form of lift. Additionally, the transaction creates opportunities to deepen customer relationships through cross-selling across a highly complementary customer base.

And finally, the acquisition reflects our disciplined approach to M&A within production optimization with a focus on attractive valuations and strong returns.

Turning now to Slide 6. This slide highlights how the combined Flowco and Valiant offering expands our presence across more artificial lift applications and deepens our customer relationships over time. Flowco already has meaningful touch points across the well life cycle through HPGL, conventional gas lift, plunger lift and our complementary digital solutions, providing insight into well performance and operating conditions. By adding ESPs, we expand that presence across a much broader set of wells, which gives us early visibility into how wells are performing and how operating conditions are changing over time. There are a large number of wells today producing on ESPs where subsequent artificial lift applications, including conventional gas lift and plunger lift are natural next steps as wells mature.

By being involved earlier and having better well-level data, we are better positioned to know when those transitions are coming and to support customers with the right solution at the right time. The result is more touch points over the life of the well, more opportunities to support our customers and a more durable solutions-oriented relationship with clients.

Maybe taking a step back on Slide 7 and looking at the market, the addition of ESPs meaningfully expands Flowco's addressable market, and it allows us to participate in the largest segment of the artificial lift market. In the Lower 48 alone, the ESP market represents approximately $2.5 billion annually, and the international opportunity is even larger. With that in mind, we are having regular conversations with customers early in the life of the well where ESP is the right solution based on well conditions. Until now, not having an ESP offering has limited our ability to participate fully in those opportunities. And by adding ESPs, this is a natural extension of our offering, and it allows us to support customers with the right solution when it's needed.

Importantly, this expansion is additive. Our conviction around HPGL remains unchanged. HPGL represents approximately $1.5 billion of annual spend in the onshore U.S. market, where we continue to see strong customer demand and growth, and we believe we are still in the early innings of addressing that market opportunity. With the combination of Flowco and Valiant, we believe the expanded offering and combined customer relationships position us to continue gaining share across the artificial lift market over time.

Turning now to Slide 8 and to provide a little bit of a conclusion here, in summary, Valiant is a strong fit with Flowco, and it aligns closely with how we operate and create value. Both organizations share a focus on production optimization, operational discipline and delivering reliable solutions that improve well performance for customers. With Valiant, we believe our expanded offering will allow us to deliver better outcomes for customers while generating attractive returns and strong free cash flow. Just as important, the Valiant team shares Flowco's long-term mindset and commitment to building a durable business, which we believe positions the combined organization well for continued growth and strong returns.

With that, I'll turn it back to the operator for Q&A.

[Operator Instructions]

Our first question is from Derek Podhaizer with Piper Sandler.

Congrats on the deal. So maybe just to kick off. I know at the time of the IPO around this time last year, we talked a lot about ESP being that potential extension for your solution. I think just maybe take some time to remind investors of that. Obviously, you have the HPGL technology. It was always talked about as a replacement technology for ESPs, but now you'll have this fuller portfolio. So maybe, how do you plan on interact with your customers between the ESPs and the HPGL, not maybe pushing one over another. I think this is going to be a new cultural fit for the team. So maybe just how your customers will think about it, how you'll bring that solution approach to your customers when we think about HPGL and ESP and now it's not necessarily a replacement technology, but more of a in line with each other as you do the life of the well with your customers.

Yes. It is truly what you just said, Derek. It is our ability to offer our customers the right solution at the right point in time. of every well, right? And if you have both forms of early lift solution in your toolkit, you can truly be dispassionate about offering them a solutions-oriented sale versus just a sale of a product, right? And importantly, I think it's also worth noting that the expansion of our early well market exposure, Derek, gives us that much more value of incumbency, the ability to be early in the life of the well with the customer ensures that we have better data on how that well is producing, and we can work alongside their engineering teams to determine when that well needs to go to a different form of lift. So this just dramatically increases our shots on goal, okay?

And yes, having the ability to have both allows us to work with the customer to provide the right solution every time.

Got it. That's helpful. And then so Valiant is 100% Permian Basin. You've talked about the opportunities for international expansion. Maybe just help us understand more what that could look like? And maybe just bringing Valiant on the Flowco platform just domestically in the U.S., how you might be able to expand those ESPs across different basins where maybe ESP is more a preferred solution over an HPGL?

Yes, happy to do it. So the founding team from Valiant has deep experience in ESPs really for their entire career. And in fact, ran a global business under a different banner years ago, started the business from scratch roughly 10 years ago and grew it to where it is today. So very impressive start-up and growth early in their life to lead them to this natural evolution. As we mentioned in our prepared remarks, they've got a history in certain international markets that are quite attractive. It's exactly where shale is being exploited, Derek.

So I think it's natural for Flowco to -- now that we have a more expanded product offering to look to new areas overseas for potentially a next leg of growth. And this team would plug right into those efforts, which are ongoing every day within the Flowco team. Closer to home, yes, they are exclusively in the Permian Basin, but Flowco has, as you know, a footprint across every shale basin in the United States. And many of those shale basins has ESP as part of early lift techniques. The Bakken comes to mind as probably the second largest ESP market in the U.S. Valiant does not have a presence in the Bakken, but we do. So that could be a natural step. And what's not asked, but I'd be remiss if I didn't mention is the cross-selling opportunity, Derek, between their customer base and ours.

And we've got just deep decades-long experience with customers that they don't have and vice versa. So I think this is truly going to be a revenue synergy story, much more so than a cost synergy story, and I'm excited to share more about that as these businesses get integrated over the course of the next year or so.

Our next question is from Arun Jayaram with JPMorgan.

Joe Bob, I was wondering if you could talk a little bit about the capital intensity of the ESP business that you're acquiring. Obviously, you mentioned that you expect the deal to be free cash flow accretive to Flowco. But give us a sense of what type of capital this business do you think will need to continue to support your Permian Basin position here.

Yes. Happy to, Arun. And Jon is here with me, too. He can expand. But look, the ESP business in the United States is a mixture of a rental business and an OEM sales business. And as you know, we've got both within Flowco. So our margin profile today at the EBITDA line, as you know, reflects roughly a 40% EBITDA margin. Capital intensity ranges between our businesses, surface equipment and downhole are slightly different. Valiant is a mix of both, okay? They've got some rental, they've got some sale. What I can tell you is from a free cash flow conversion, when you get from EBITDA down to free cash flow, they are roughly in line with where we are, okay? So I think that's a positive.

And Jon, in terms of specifics around that free cash flow conversion, remind me kind of where we are and where they are.

Yes. We've run historically in the 40% to 50% range. This business is in the -- has been kind of in the low 30s. In terms of maintenance capital in this business, we expect to be somewhere between $15 million and $20 million on around $50 million of EBITDA. So it's -- but overall profile of the business, whether it's rental versus sales mix, return on capital employed, payback on equipment, all of those screen very similar to where we are.

Okay. And maybe, Joe Bob, can you could elaborate a little bit on how you'd help us understand maybe the products that you're acquiring. How do these kind of compare to kind of your key oil service peers in terms of technology? And just wanted to know where you'll be competing? Will these products compete at the very high end of the market or a little bit more 80-20 kind of rule? Just a little bit more about the products would be helpful.

Yes. No, it's a good question. Listen, what I can tell you is that the customer base that Valiant has built over time, which we're not going to talk about name by name, obviously, but I can tell you that those customers are not acquired without leading technology as well as leading service quality. And I want to make sure that everybody understands that service quality in this business matters. And I think that's where this business has been able to differentiate their ability to work more closely with customers as pumps need to be sized down over time. That's something that they're very proud of.

In terms of technology, there are a couple of things that I'd like to point out and give a shout out to this team for building. Their proprietary human interface with the system has been built in-house, and it allows their systems to be operated and optimized remotely, much more efficiently than what I would call more commoditized ESPs. That's been something that's been very impressive to us. And then separately, the remote monitoring capability, they've got a facility in Oklahoma City as well as in Midland that allows a team of engineers 24/7 to monitor every well that they are in, and customer by customer. And it gives them data that they are able to interface with their clients with in real time, predictive analytics that allow the Valiant team to work with customers on changing well conditions and what could happen to get ahead of the ultimate service call that's going to be required when the well gets to a point and it needs to be serviced.

So they've done a fantastic job of taking technology and incrementalizing it and rolling it out to their customers with really good success.

Our next question is from Jack Kindregan with BMO Capital Markets.

This is Jack on for Phil. Just curious, as you move into the ESP market versus HPGL and BRU where you're the market leader, you're going up against some pretty large players. It looks like Valiant has grown the business successfully over time. But can you talk about the go-to-market strategy and how to capture additional share in ESP over time?

Yes. Thanks for the question. Happy to. Listen, the onshore U.S. ESP market is one that not only the Valiant team, but the Flowco team knows exceptionally well. And you're right, there are some large players among the largest in our sector that participate in ESPs. But I will reemphasize for the crowd what I think you already know, but is truly the differentiator, and that is that Flowco is the only company that focuses exclusively on the production phase of the well's life, okay? That specialization, that true focus on our customers' well-being in the production phase is really what differentiates us.

That's what's going to allow us to continue to take share. It's going to really be the calling card for Flowco to really get in front of all of our clients and say, hey, Mr. Customer, guess what, we now can offer you an additional solution for your production. I'm excited to report in the quarters to come how we're able to do that. And going against some of our larger brethren while initially might seem intimidating, we're very excited for the challenge. So look forward to it.

Great. And then just my follow-up is on the supply chain for Valiant. I'm just curious if it differs at all from other ESP providers and how they have navigated tariffs over the past year and what success they might have had with passing through those costs.

Yes. Good question. It's -- the supply chain for every ESP player is complicated. And Valiant is well down the path of mitigating exposures to any one key geography, not just from China, which we've talked about in the past, they're well down the path on the various subcomponents that are subject to international supply chains and so therefore, potential tariff risks. We're well ahead of it. Now what I'll also say is that we're a year into this new heightened level of tariff exposure and the industry itself is more comfortable with the varying tariff exposures that the energy business has and the ESP players have.

So whether it's the interactions with customers or those suppliers, the industry is just getting more comfortable dealing with it. And so I would say that Valiant is certainly no worse off than any other player in the ESP business as it relates to tariffs and I think actually better positioned with a couple of key critical components, which we hope to leverage in the coming months.

Our next question is from Jeff LeBlanc with Tudor, Pickering, Holt.

I think you referenced in the prepared remarks the expectation to continue gaining market share over 2026. How should we think about the impact the continued consolidation of the upstream industry will have on achieving this goal, particularly when it feels like the broader expectation for Permian oil production is flattish or slightly down on an exit basis?

Jeff, are you referring to maybe a potential announcement that happened today among our customer base? Yes. Listen, obviously, the consolidation continues amongst our customer base with the Devon, Coterra announcement this morning. That's something that the entire industry obviously needs to come to grips with and figure out their own path forward. What I can tell you is the consolidations that have taken place to date have been a net positive for Flowco. And I expect the one that was announced today as well as any incremental ones that will continue to be the case.

And the reason is quite easy to understand. Smaller, more entrepreneurial businesses that tend to be acquired in the consolidation that we've seen among our customer base are usually the early adopters of new techniques. And are the proving ground for solutions like high-pressure gas lift, okay? And when a larger company buys a smaller company, immediately, they look to the acquired entities for success stories that could be deployed over their larger footprint. And the customers that have emerged into today's market have all done that.

And I don't anticipate that slowing down anytime soon. We benefited at every turn from customers recognizing our specialty, recognizing the fact that we are innovating and have worked with us. I think the service industry needs to keep pace. I think that this acquisition represents, I think, an important step for the service sector to continue to build out broader expertise to support the broader or the larger oil company customer base. So I'm excited to work alongside them and hope that this most recent one is, again, a net positive for us.

There are no further questions at this time. I would like to hand the conference back over to Joe Bob for closing remarks.

Well, thank you all for tuning in, and we look forward to our next scheduled call to talk about our Q4 results in roughly a month's time. But in the meantime, everybody, have a great week, and thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Good morning. Welcome to Flowco Holdings, Inc.'s Third Quarter 2025 Earnings Call. Today's call is being recorded, and we have allocated 1 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 Flowco. Thank you. You may begin.

Good morning, everyone, and thanks for joining us to discuss Flowco'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 as well as our filings with the SEC, which can be found on our website at ir.flowco-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, Jon 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, and good morning, everybody, and thank you for joining us today. I'll start today by reviewing our third quarter results and operational performance, along with an update on the integration of the assets we acquired in August.

Jon will then provide additional detail on our financial and segment results, our balance sheet and thoughts on capital allocation. I'll wrap up with our perspective on the current market environment and our outlook for the remainder of the year before we open up the line for your questions.

In the third quarter, Flowco delivered another period of strong operational and financial execution. We generated adjusted EBITDA of $76.8 million, exceeding expectations, and we saw a 382 basis point expansion in our adjusted EBITDA margin quarter-over-quarter.

Excluding the capital associated with our recent asset acquisition, we generated approximately $43 million in free cash flow, underscoring the durability of our cash flow generation and our disciplined execution across the business.

Our performance reflects a shift toward our high-margin rental portfolio, which is growing through targeted investment and incremental customer demand for high-pressure gas lift and vapor recovery systems.

On HPGL, our solutions are delivering measurable improvements in production efficiency, uptime and reliability, helping operators enhance recovery and returns. Customers continue to value the consistency and economic uplift these systems provide, particularly in an environment that rewards capital efficiency and sustained performance.

On VRU, we are seeing continued momentum as operators recognize the financial and operational benefits of capturing and monetizing natural gas that would otherwise be vented or flared.

Together, our HPGL and VRU fleets provide contracted recurring cash flows that offer visibility and consistency across cycles. These technologies are strengthening Flowco's leadership in production optimization, and we believe there remains substantial runway ahead as customers broaden deployment across their assets and recognize the long-term value of these solutions.

Our high-margin rental portfolio was further bolstered by the acquisition of 155 high-pressure gas lift and vapor recovery systems, which we completed in August and discussed on our second quarter call.

The integration of these assets has gone extremely well and is now complete, with the units performing in line with expectations and contributing to our enhanced margin profile. The acquired systems all deployed in the Permian have also enabled us to establish new relationships with several blue-chip customers while strengthening service to existing accounts. We will continue to evaluate inorganic opportunities within production optimization that complement our portfolio and align with our disciplined capital allocation framework.

Spending a moment on sales and consistent with what we discussed in our second quarter call, revenues declined sequentially in both our Production Solutions and Natural Gas Technologies segments. Jon will expand on this in his remarks, but much of this impact was driven by our Natural Gas Systems business unit, which is our lowest margin business but remains a critical part of our internal supply chain, and it also provides us operational flexibility.

Within Production Solutions, product sales were also impacted, but performance remained resilient considering the environment, and they exceeded our expectations for gross margin performance.

This result underscores the sustained demand for our differentiated high-quality products and highlights the emphasis operators continue to place on reliability and performance in the current environment.

Overall, I am pleased with our operational and financial performance in the third quarter. We continue to execute well across the organization, expanding margins, generating strong free cash flow and strengthening our high-margin rental portfolio through both organic growth and the integration of our acquired assets. These results highlight the resiliency of our business model and consistency of our execution in a dynamic market environment.

With that, I'll turn it over to Jon to provide more detail on the third quarter. Jon?

Thanks, Joe Bob. Before reviewing some of the key financial metrics and results for the third quarter, I'd like to provide a reminder on our historical financial information given the combination of Flowco, Flogistix, and Estis in June of 2024.

For clarity, note that any financial information presented prior to June 20, 2024, business combination, such as the third quarter 2024 financials reflects only the historical performance for Estis. Financial information for the second and third quarters of 2025 reflects the financials for the consolidated entities.

Turning to our financials. Third quarter performance exceeded expectations, reflecting continued growth in our rental fleet and stronger-than-anticipated profitability within our sales business units. We reported adjusted net income of $37.3 million on revenue of $176.9 million.

Total revenue declined 8% sequentially, driven by lower product sales activity in both our Production Solutions and Natural Gas Technologies segment. Despite lower revenue, adjusted EBITDA increased sequentially supported by the continued growth of our rental portfolio and its higher margin profile. As a side note, rental revenue, most of which is recurring, increased to $107 million versus $102 million last quarter.

Adjusted EBITDA margin expanded by 382 basis points quarter-over-quarter, reflecting the benefit of our portfolio mix shift and the operating leverage we continue to capture across the business.

In our Production Solutions segment, third quarter revenue decreased 2.1% to $126 million, while adjusted segment EBITDA increased 3.6% from the second quarter to $55 million. Adjusted segment EBITDA margin expanded 240 basis points quarter-over-quarter. The decline in revenue was primarily driven by lower downhole components product sales and partially offset by higher rental revenue from both our existing fleet and the recently acquired assets.

The increase in adjusted EBITDA margin was largely attributable to improved operating leverage within our surface equipment rental business and an improvement in gross margin performance in downhole components.

In our Natural Gas Technologies segment, third quarter revenue decreased 21% to $51 million compared with the second quarter, while adjusted EBITDA decreased 7.6% to $25 million over the same period, which were attributable to a decrease in natural gas systems and vapor recovery system sales in the quarter. Adjusted segment EBITDA margin increased by 714 basis points due to a favorable revenue mix shift towards vapor recovery from natural gas systems.

Turning briefly to corporate costs. Third quarter corporate expenses were $3.8 million, down from $4.3 million in the second quarter, primarily reflecting lower third-party professional service costs during the period and a reduction in G&A.

Overall, consolidated third quarter adjusted EBITDA was $76.8 million. Since becoming a public company, we've delivered consistent EBITDA growth while expanding margins and sustaining top quartile profitability even against a more challenging macro backdrop than when we entered the public markets.

In the third quarter, we deployed $39.7 million of organic capital with the majority of capital allocated to expanding our surface equipment and vapor recovery rental fleet to support sustained customer demand at attractive returns. As we look to the remainder of the year, we expect only modest adjustments to organic capital spending and anticipate fourth quarter CapEx to decline relative to the third quarter.

As noted last quarter, we accelerated a portion of our 2026 capital plan into 2025 in connection with the asset transaction, and we are assessing market conditions and customer activity levels to determine the appropriate pace of capital deployment for next year. We will continue to prioritize opportunities that enhance growth while meeting our return thresholds in alignment with our broader capital allocation strategy.

Our typical investment lead time is approximately 6 months, which, combined with our vertically integrated manufacturing provides flexibility to adapt spending as we gauge customer demand and market conditions.

On return on capital employed, our annualized adjusted ROCE for the quarter was approximately 16%. The sequential decrease reflects lower product sales in the period and the incremental capital deployed for the asset acquisition.

As an update on our assessment of the One Big Beautiful Bill Act, in the third quarter, we benefited from the reinstatement of 100% bonus depreciation for certain fixed assets applicable to both our current year capital expenditures and the acquired assets. As a result, we've had a reversal of income tax expense in the quarter and anticipate minimal federal income tax burden for the remainder of the year.

Turning to our balance sheet, liquidity and capital allocation. We ended the quarter in a strong financial position. As of October 31, 2025, we had $205.2 million of borrowings outstanding on our credit facility. With a borrowing base of $723.5 million, we had $518.3 million of availability under the facility.

On October 31, Flowco declared a quarterly dividend of $0.08 per share payable on November 26. In addition, during the quarter, we returned $15 million of capital to shareholders through share repurchases. Our ability to pursue both organic and inorganic growth while returning capital to shareholders and maintaining low leverage highlights the durability of our business model and the strong cash flow generation across our business units.

In summary, we delivered a solid third quarter, outperforming our expectations with adjusted EBITDA above our guidance range. We executed well despite a softer upstream backdrop that weighed on product sales. And based on current visibility, we expect sales to improve in the fourth quarter. Joe Bob will speak shortly to the market environment and our outlook as we close out the year.

Looking ahead, we expect our rental fleet to continue delivering consistent, predictable performance, supported by strong demand and contracted cash flows. We also anticipate continued resilience and strong free cash flow generation across our sales business units. Our disciplined capital deployment and differentiated business model give us confidence in our ability to continue delivering strong results.

Back to you, Joe Bob.

Thanks, Jon. Turning now to the market outlook. As we noted last quarter, the North American upstream landscape remains dynamic. with operators continuing to balance production growth with capital discipline in a lower commodity price environment.

While macro uncertainty and commodity price volatility persists, activity levels have generally stabilized and customers are increasingly focused on maximizing returns from their existing production base. We continue to see a shift toward prioritizing operating expenditures over capital expenditures to sustain or grow production, an approach that aligns directly with Flowco's core strengths in production optimization.

Considering this market backdrop, our growth expectations for the remainder of the year are unchanged, and this is reflected in our fourth quarter guidance. In the fourth quarter, we expect adjusted EBITDA of $76 million to $80 million. This outlook reflects continued momentum and growth in our surface equipment and vapor recovery rental fleets, inclusive of a full quarter contribution from the assets acquired in August.

Within Production Solutions, we anticipate a small incremental seasonal slowdown in product sales that will lead to an overall decrease in revenue in the Production Solutions segment. For the Natural Gas Technologies segment, based on current visibility, we anticipate a rebound in sales across both natural gas systems and vapor recovery systems, resulting in segment revenues slightly above second quarter levels.

Finally, we expect SG&A to remain broadly consistent with the third quarter. I am pleased with the solid performance of our business this quarter, and I want to thank all of our employees across Flowco for their continued dedication and disciplined execution.

While we are encouraged by our positioning, we remain focused on strengthening the business for the long term. We are committed to continuously improving our operations and advancing our strategic priorities.

Within Natural Gas Technologies, we are seeing positive early returns from the use of machine learning to improve efficiency, reduce maintenance expenditures and enhance margins through an internally developed proprietary system.

Across our manufacturing and operational footprint, we are evaluating opportunities to further streamline processes and increase profitability. As we strengthen collaboration across the organization, we are identifying ways to more fully service customers through our complete suite of products and solutions.

And we continue to assess both organic and inorganic opportunities to enhance our technology and service offerings, positioning Flowco to further support our customers in maximizing their production and profitability.

2025 has reinforced the value of our strategic focus on production optimization, where advancing artificial lift technologies within Production Solutions and improving vapor recovery performance across Natural Gas Technologies is creating meaningful value for our customers and for Flowco.

We believe the next phase of value creation will be driven by technology-enabled efficiency, continued innovation across our offerings and deeper collaboration with our customers to unlock value over the life of the well.

Flowco is well positioned to continue advancing our strategy and to deliver meaningful long-term value for our customers and shareholders.

And with that, I'll turn it back over to the operator for Q&A.

[Operator Instructions] Our first question is from Derek Podhaizer with Piper Sandler.

Just wanted to start with Natural Gas Technologies, more specifically, the progression of optimizing natural gas systems. It seems like that drove some of the top line decrease, but we've also saw 700 bps margin expansion there. I know, this was a point of emphasis last quarter. So maybe just update us on your progression optimizing that business unit because it seems like you made a lot of progress in the quarter and how we should think about it moving forward as you continue to optimize NGS?

Yes. Certainly, Derek. Thanks for the question. Good to hear from you. So, remember, the natural gas systems business unit is our supply chain, right? Its primary function is to build vapor recovery systems as well as the conventional and high-pressure gas lift systems for our rental fleets.

In addition to that, from time to time, we will sell systems to customers that would prefer to own versus rent. Again, we do not sell high-pressure gas lift systems, but we will sell conventional gas lift packages as well as vapor recovery systems when the stars align and the price is right, okay?

So, with that said, we did take in the earlier part of this year, the step to optimize that part of our supply chain by consolidating one of our facilities into our center of excellence in El Reno. I think you've been there. It's a world-class manufacturing facility, very proud of that facility. We took the painful step to close down one of our sister facilities in Pampa, Texas and reallocate the capacity to El Reno, Oklahoma.

One particular point that we're particularly proud of is the fact that with all of the redundancy that took place in Pampa through various job placement exercises and career fairs that we hosted, we placed almost 100% of those employees in neighboring facilities in the Pampa region.

So even though it was a painful step, it was a necessary step for our shareholders, but we did right by the community that we operate in every day and taking care of those employees. There might be more to go there. We have additional capacity elsewhere in the system. We continue to evaluate it as we look at the demand profile going into 2026. But yes, we're happy to get that behind us this year and move forward in a leaner way.

Got it. Okay. That's helpful color. And then I guess just on the rentals, right, like we're up to 60% of revenue now. We were 50% in first quarter. Is this where you expect the run rate to kind of be going forward as we move into 2026? Or are you continuing to target rentals of HPGL and VRUs that we could see something north of 60% as we move into next year?

It will largely depend on the capital deployment pace, Derek. The shift from 50% to 60% this year is really due to the capital we've deployed as well as the softer product sales, okay? So, it's a mix shift coupled with growth CapEx kind of phenomenon.

Heading into next year, we see -- and we'll talk on this. I think Jon will probably address this in a minute. We see capital deployment roughly in line with what we're deploying -- what we have deployed in 2025. There will be some mix shift within the capital deployment, of course, depending on the demand profile we see. But we fully expect product sales to be largely consistent with where they are in 2025, absent some sort of industry activity boost.

Remember, the product sales are a function of both what happens downhole as well as the surface equipment, and we've seen particular weakness in the surface equipment sales business in 2025.

So yes, look, hard to tell if 60% is going to be the new norm or if it's going to go down. My guess is it's probably going to go down a bit as sales recover heading into the end of the year and then going into '26. Anything to add to that?

No, I agree. I think, I mean, 60% is almost a flip from a couple of years ago because of all the investment we've made in our rental fleet, but Q3 was particularly low in terms of product sales. We expect that to recover a little bit in the next quarter. So I think you'll see that kind of bump back down a little bit. And overall, that will have an impact on margins as well as we sell more than we ramp.

Our next question is from Philip Jungwirth with BMO Capital Markets.

You've operated the Archrock assets for the last couple of months, can you give a bit more detail on the customer response and feedback to date as they work with the Flowco team? And is there any cross-selling potential or increased HPGL penetration that can be done across the new blue-chip customers?

Certainly. To answer the second question first, yes, we inherited a couple of accounts that we, for a variety of reasons, had trouble penetrating, specifically with HPGL, Phil. And we think that the -- and it's early, but we think that those accounts are going to be open to the broader commercial discussions that our teams can have as they progress through the Wells progression from HPGL to another form of lift, most likely traditional gas lift. So those conversations are happening. We're starting to see some good early returns there, and that's just a daily part of the battle on our commercial efforts.

In terms of the first part of your question having to do with really the integration of the systems into our fleet, it was seamless, okay? The reception that we got from customers of us really the leader in the space and what we do is focus on production at the wellhead, customers were very pleased that we were the buyer of these assets and are now the custodian of their early production efforts.

So I'd say all around, it was very positive. I certainly hope all future M&A is as seamless as this. This is a particularly unique one, though, I think. But no, it's gone really well.

Great. Great to hear. And then can you talk about recent trends in VRU adoption across maybe both upstream and midstream? And just given that captured methane is put back into the sales pipeline, I mean one of the big themes we've seen is just the amount of Permian pipelines and construction FID-ed in the last couple of months and what the strip is implying from Waha post 2026. Does this at all make you any more optimistic on increased VRU adoption after you see higher in-basin gas prices?

No question. We are as optimistic, if not more, based on the fundamentals of the natural gas build-out. You mentioned pipeline capacity. It seems like any time you have a new pipeline announcement, it just inevitably gets filled with all of the associated gas that's coming out of the Permian.

And then the massive amount of data center power build-out that's taking place, a very large portion of that will be fueled by natural gas. So, I think the demand profile for natural gas, the fundamentals for natural gas coming out of the Permian in particular, just continue to strengthen.

And vapor recovery is becoming ubiquitous with pad design and with the undeniable economics that it provides to an operator to deploy our systems, we remain confident in additional system deployment. We really track a couple of key KPIs on a month-by-month basis. And one of the most critical ones is the number of units that we set every month net of those that come back to us in terms of returns.

And I'm pleased to say that, we just continue to see positive months as we build more systems, as customer demand improves, that net set number continues to trend in the right direction. So we see no reason to back away from the capital deployment that we plan for 2026 in VRU, and look forward to hopefully providing more positive data points in the quarters to come.

Our next question is from Sean Mitchell with Daniel Energy Partners.

Joe Bob, you kind of mentioned technology in the opening comments. But just are you guys building out kind of proprietary software tools in-house? Are you partnering with kind of digital specialists to accelerate kind of AI and automation capabilities?

Good question, Sean. We actually have built out over the last 10 years, if you can believe it. In-house proprietary software systems that have helped manage and operate our vapor recovery systems more efficiently, more profitably than our competitors, okay? So, this is a legacy of previous investments we've made as a private entity pre-IPO. We're in the very early stages of leveraging that internal capability of software development, specifically software development to help optimize surface equipment more efficiently. We're in the early phases of deploying that capability across the rest of our businesses.

And then obviously, from there, integrating data that we can collect downhole, either with our own equipment or with third-party equipment into more efficient operation of a system that marries downhole lift techniques with surface drive that will enable the lift technique to take place. So, this is largely an in-house effort. We alluded to it in some of our prepared remarks, but we are starting to see some very positive early returns from years' worth of investment and hopefully more to come there.

I think the ultimate end goal is to work with customers who have more data than we do, right, to integrate what they see in their production information with what we can provide with our lift and VRU techniques to help optimize their production on a field-wide basis, not just well by well. But that's the end goal. We're on the journey and look forward to hopefully sharing more good news over time.

Congrats on the quarter.

[Operator Instructions] Our next question is from Jeff LeBlanc with TPH & Company.

I wanted to see if you could help frame the tailwind for your HPGL and VRU businesses as operators start to target gassier benches. I know you just talked about the tailwind for natural gas demand, but it actually seems like at least you're starting to see the shift on phase windows in the Anadarko and Eagle Ford and then probably over time, you can also see it in the Permian. So, I would just appreciate any color there.

For HPGL, what you're really -- what we're really looking at is oil production, right? So, as we look at big picture production data for the country, oil production continues to hang in there. And we haven't seen the meaningful decline in production that I think folks feared earlier this year might take place as commodity prices corrected and activity levels started to be curtailed.

So, I think high-pressure gas lift certainly plays a part of that, and we're going to continue to invest in that effort. We've really seen no change from customers' demand for our systems, in particular, in the Permian, which is our largest concentration of units in the U.S.

So, we expect to continue to generate positive growth out of that specific product line over the next few quarters and really have not seen any kind of demand profile shift. So hopefully, that answers your question. I know, there's not a ton of detail in there, but that's how we see it.

Our next call is a follow-up from Derek Podhaizer with Piper Sandler.

I wanted to ask about the buyback. Nice to see $15 million for this quarter. Maybe just updated thoughts on how you're thinking about that as far as your capital allocation strategy. Obviously, we have the dividend for a couple of quarters. Now we have the buyback. I know you have an authorization out there. You're balancing your capital deployment. Will this just be opportunistic? Will this be more formulaic, returning over 50% of free cash flow, which is really nice to see. Just maybe some more thoughts around the buyback, just given that you just kicked it off.

Yes, certainly, Derek. Listen, we've been very, very careful to not be prescriptive in telegraphing to the market how our capital allocation framework will be period full stop. We've been much more opportunistic in looking at ways to deploy the free cash flow that we generate every day.

As we look during the quarter at our internal opportunities as well as every day how we're valued, it just became increasingly more clear that we're undervalued. And so, we leaned into share repurchases during the quarter, and we will continue to as long as we feel like we are not valued where we feel like we should be, certainly, that in relative terms against the opportunity set that we have to deploy capital in our existing business and, of course, in M&A.

So, look, we'll remain opportunistic. We were happy to start the process during the quarter. to buy back stock opportunistically, and we'll just continue to evaluate it as it hits the screen every day.

Got it. No, that makes sense. And then maybe just looking out to 2026, I appreciate that it's early. But how do you start to think about that kind of where you're comfortable, where estimates are today for next year? And just thinking about the progression of obviously kind of these weaker product sales. We have some seasonal dip in 4Q, but we should have some recovery next year. So maybe just some early thoughts as you look out to 2026 and kind of where numbers are shaking out right now.

Listen, we're a brand-new public company. We've started to and have been consistent in guiding quarter-by-quarter. I think we're going to continue that cadence, Derek. We provided you some guidance for Q4. We obviously have a view on '26, but we're going to see how the planning process goes between now and the end of the year.

What I can tell you is that the opportunity set that we are investing in today, and remember, we're kind of a 6-month lead time kind of organic CapEx organization. The opportunity set looks strong. And we are making capital decisions out through June. And I'd say, they're largely consistent with the opportunity set that we've seen this year. So I don't see any reason why we're going to curtail capital spending certainly through midyear next year.

The form of the capital may be different, moving from electric to natural gas drive or conventional from HPGL. It will move around within the systems that we operate. But I'd say as we see it today, it's pretty steady.

The product sales, as you point out, are shorter cycle. And you tell me what the price deck is for next year, and we can pontificate on what the year could be? But we're just not comfortable enough to give you any kind of full year guidance just yet. But as we look into Q4, things look good, and we're optimistic that we're going to deliver another good quarter with some growth and positive free cash flow and returning capital to shareholders, just as you pointed out.

This will conclude our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you, everybody. Look forward to talking to you again in 90 days. I hope everybody has a great Thanksgiving and good rest of the year. Thank you.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

All right. For the final session today, we have Flowco, a leading provider of production optimization, artificial lift and methane abatement solutions for the oil and natural gas industry. I'd like to introduce Mr. Joe Bob Edwards, President and CEO of Flowco since June of last year. Joe Bob, thanks for joining us today.

Well, thank you, and thanks for having me, and thank you all for showing up to hear a little bit more about Flowco. I'd love to maybe spend about 15 minutes telling you a little bit about who we are, how we got to where we are and as importantly, what we plan to build, and save about 10, 15 minutes for some discussion on stage and maybe some Q&A from the audience.

But maybe as a highlight, I won't make you read our legal disclaimer, we are a pure-play production optimization and artificial lift company. All we focus on is the production phase of an oil and gas well. We are not exposed to drilling expenses or fracking expenses, okay? So when an oil company turns on a well, that's when our revenue line starts. We lead the way in every one of our products. We have a #1 market position in everything we do. And as I said, virtually all of what we do is onshore U.S.

We have a highly visible recurring revenue stream, which we can touch on as we go through our products. And we have a who's who of customers ranging from large majors to large independents and also on down to small family-owned and private equity-backed oil companies.

Roughly 1,300 employees operating in every major basin in the U.S. We have a vertically integrated model where we manufacture everything that we either sell or rent. We're headquartered in Houston, have over 200 customers. And you can see the numbers on the right. I think what the key takeaway is, is that over the last several years and even if you go back further through cycles, we've been able to continue to grow our business and generate very high and very attractive rates of return on invested capital, which we think is a differentiator in the OFS space.

So we are organized in 2 divisions and maybe rewinding a bit to the formation of the business. We merged 3 companies together roughly 18 months ago to create what is today Flowco. You'll see the brand names at the bottom. These were all highly successful either founder-owned or private equity-backed oilfield service companies that had one key thing in common, which is the focus on helping oil companies manage their production, not helping them drill or complete new wells, but rather being their chosen partner to help them manage production for the life of the well. We took these businesses, put them together and did so for that exact industrial logic.

The oil company clientele that we have in the United States likes the specialty that we bring to the table. They like the fact that we have organized what were multiple brand names into 2 operating divisions. On the left, you have our Production Solutions segment. This is roughly 60% of our business. We manufacture and rent and also sell artificial lift systems to help oil companies flow their fluids in a more efficient way to the surface. We'll touch on the various methods of that as we go through.

On the natural gas technology side, we are the leaders in methane abatement. What does that mean? We actually capture methane vapors that are a byproduct of oil and gas production, and allow oil companies to monetize molecules that would otherwise be vented or flared to the atmosphere. So a very clear environmental benefit to an oil company, but more importantly, a very compelling commercial proposition to an oil company looking to add to their P&L with what was previously considered a waste product.

We have over 4,400 active rental systems spread across every active shale basin in the U.S. I said earlier, roughly 200 customers, 43 field locations and 6 manufacturing centers of excellence, very stable, very loyal workforce, which we're proud to call part of Flowco.

I think as you look at our company and you compare it to the rest of the oilfield service sector, the production focus cannot be overemphasized. This page attempts to boil down into a couple of statistics, really what causes us to stand apart. And if you look at the bottom left-hand graph on this page, you can see that producer operating expenses are projected to grow at roughly a 4% CAGR for the next several years. And this is in the face of what the market is telling us is a flattening production profile.

So how does that happen? Why do we think that production will be flat while the expenditures on maintaining that production will actually grow? And it has everything to do with the fact that this industry has to run hard to stay flat, right? The decline curve never sleeps. So oil companies are continually bringing on new production to replace production that is declining. Therefore, you have more wellbores that are with us for decades at a time that need to be managed over the life of that well. That's why very simply, OpEx continues to rise as production flattens.

And the beauty of our business model is that we are there for the life of the well. We have a suite of technologies that we can offer an oil company early as the well is turned on. As the well matures, that operator has to switch to a different form of artificial lift to maximize the production out of that wellbore, and we're there for that changeover. And then as the life of the well is into its second decade, we're there for kind of the final form of lift as well. The beauty of all of this is if you're there early, you're there as an incumbent, you're allowed to be first in line in the customer's office to talk about the new solution as the well matures. Our vapor recovery systems are there for the life of the well pad, and they have a similar characteristic of downsizing as well pads mature from large to medium to small to more optimally produce hydrocarbons from the well pad.

At a really high level, just to orient you on our artificial lift business, we participate in a roughly $15 billion market globally. Roughly half of that is in the United States. And of the half of the $7 billion to $8 billion market in the United States, we participate today in roughly half of that. So our total addressable market in the United States today approaches $3.5 billion. Again, we lead in every one of these market niches with #1 shares. And what you hear from us is an organic growth strategy and a demonstrated ability to grow with this technology at the top of the list here called high-pressure gas lift displacing legacy forms of artificial lift.

There are 2 ways you can lift a well at the beginning of its life. You can either inject natural gas downhole to produce fluid or you can deploy a mechanical device downhole and connect it electrically to the surface to mechanically lift the well. The latter is an ESP. The former is a high-pressure gas lift system. We invented the technique of high-pressure gas lift roughly 6 years ago. And from 1 unit and 1 customer, we have grown to roughly 800 units and roughly 60 customers across all major shale basins. And that's really been the driver of the -- of our artificial lift business for the last several years.

We have taken from scratch roughly 15% of the market from the legacy forms of artificial lift, mainly ESPs. So we think there's room to grow there. It's early innings, and that's part of our growth CapEx plan that we went through in our IPO roadshow. We've continued to reaffirm that as we've reported our first couple of quarters post IPO. And that growth market share gain is still very much intact even in today's more challenging environment that we find ourselves in.

When you look at the artificial lift market in total, the sectors that we're exposed to are growing more quickly than the legacy forms of lift that we do not participate in. They all share the common theme of taking natural gas compressed at the surface, injecting it into the wellbore to lift fluid from the reservoir to the surface. That's the common theme between our high-pressure gas lift system, our conventional gas lift and our plunger lift systems. As you can see on the right, as demonstrated and projected further by Rystad, we think that our forms of lift are growing well north of 10% per year, whereas the legacy forms of lift are growing at roughly half those rates.

We completed a very exciting acquisition just in the last 6 weeks or so, our first acquisition post IPO. We purchased from Archrock 155 units that were being utilized for both high-pressure gas lift as well as vapor recovery applications, both 2 product lines that, again, we are market leaders in. We paid a very attractive price. We arrived at fair value by really determining what we could build the units for -- and these were all pretty much brand-new units built in the last 2 to 3 years, what can we build the units for and what's the current value of the contracts and there's your purchase price.

So in terms of integration, we plugged these systems into our existing fleet operations, hired a total of 3 people, assumed 0 overhead to managing these systems and novated roughly a dozen contracts from existing customers over to us. We inherited 3 very key accounts that we had not penetrated to our liking in buying these assets. And importantly, I think, solidified our sector leadership in the deployment of high-pressure gas lift systems. We've gotten nothing but positive feedback from our customer base post acquisition, and Archrock were great to deal with. We consider them really good at what they do. I think they would say the same about us. So this was a real win-win for both them and for us.

Okay. So we've been talking about artificial lift. This is the oily side of our product portfolio. I want to spend a minute on vapor recovery. That's the 40% of our business that is in our natural gas technologies business unit. And just as a little bit of a primer, when you produce an oil and gas well to the surface, you have a mixture of oil, gas, water and other substances that are coming out of the formation. When it flows from 10,000 to 15,000 feet below the surface of the earth at a very high temperature, it gets to atmospheric pressure and ambient temperature. And what happens to hydrocarbons when you subject them to that change in an environment is you have a recharacterization of the hydrocarbon. What was a liquid wants to be a gas because of the pressure differential and the temperature change.

And in the old days, when oil companies used to only want to produce black oil or only want to produce natural gas or methane, they would view these very volatile hydrocarbons as waste products. And as a safety measure or sometimes even just as an efficiency measure, they would send those hydrocarbons to a flare. And when you flare those hydrocarbons, you get rid of them as a waste product, but you don't have the ability to monetize those molecules that have BTU content. So we, with our customer support, embarked upon a journey to create the world's leading vapor recovery unit, which we've successfully done. We have about a 50% market share in the U.S. today. And we have over 2,500 systems on rent every day to the who's who of the industry.

And what makes a vapor recovery unit a no-brainer for an oil company to add to their production infrastructure is the fact that the minute it turns on, it starts generating profit for that oil company. The monthly rental rate can be covered inside of the first month of the sale of the hydrocarbons that come off of the tank battery. So it's been a wonderful success. We're building more every month. This is another organic growth story that we're very proud of. We've attacked roughly 10% to 15% of the addressable market, but let me break that down a little bit more because there's actually government statistics to back up our claims here.

On the right-hand side, you will see the percentage of tank batteries in each one of the major shale plays that actually have vapor recovery units attached to them to eliminate fugitive methane emissions. And as you can see in the Permian over the last 7 years, the deployment of vapor recovery systems has roughly doubled. So as a percentage of total, the Permian on every new tank battery pretty much, you've seen the vapor recovery system deployed. And it has everything to do with the ability to move that natural gas to market after we capture something that was otherwise vented or flared.

We feel like our vertical integration, our customer relationships and the fact that we've got such a lead in market position in each one of these highly critical production-oriented services really provides us with a deep competitive moat. We think that the investment thesis that we sold at the IPO is intact. The combination of generating attractive rates of return on existing and future CapEx as well as the ability to grow in a flat market, we think, is a true differentiator for our business model.

And this page, we're very proud of, and we spend a lot of time with investors educating them on why Flowco, why we stand apart and why we feel like we should be the first name you think of when you want to think of a resilient, durable OFS story in the North American market. We generate leading -- industry-leading returns while still being able to generate double-digit growth in a flat production environment. And with consensus where it is in terms of what production is projected to be in the United States for the next several years and with our organic growth market share capture story still being prosecuted, we think that Flowco has room to run. And our consensus estimates are obviously there for you to peruse, but we feel really comfortable with where the Street has us this year and next. And so we think that this is a true differentiator and are very proud of this stat.

With that, I'm 15 seconds over 15 minutes. So I think I've pretty much arrived at the end of prepared remarks. So I'll join you here, if that's okay.

Sounds great. Bob, thanks for that overview. Just a couple of questions for you here before we take some questions from the audience. So last year and again this year, production in the lower 48 has surprised to the upside, which is frustrating for a services analyst. We hear a lot about drilling and completion efficiencies, and that's probably part of it. But one thing we don't hear about a lot is production enhancement. So are you actually seeing any noticeable change in customer behavior and investing more into production enhancement utilizing the different types of lift you provide like this year, last year versus maybe, say, 5 years ago?

Yes. I think what's changed with this market change is and it makes sense when you think about it just from a human standpoint, whenever a company is growing aggressively, an oil company, right, what are their objectives? They're pushing their service companies to drill faster, frac harder, make do with less, drive efficiencies, and they're focused on the drilling and completion expenditures, right? In times where they're cutting, which is where we are today, they need to make do with what they have and look to their production to sustain their profitability, right, to maintain their production guidance to actually really pick some low-hanging fruit candidly from their portfolio of operations. And that's where we actually shine.

In this kind of a market, we have much deeper customer engagement about the right solution in every well every time, right? So how can we help that customer with the method selection. Those conversations were happening during periods of more aggressive growth, but not as intimately. And so that's been the real change. Where you see that is really in our share gains, okay? So a customer now is open to a new way of doing something if you can demonstrate that you can actually provide them an NPV uplift to their production profile with high-pressure gas lift, for instance, as opposed to an ESP. If you can explain to them the economic benefit of a VRU and the fact that they're quite literally burning money by sending something to a flare stack, that's a pretty easy conversation to have in this market.

Got it. Speaking of high-pressure gas lift systems or HPGL you mentioned they're displacing ESPs. Are they almost interchangeable? And like if a well currently has an ESP today, can they just say, "I'm going to take out the ESP, or I'm not -- if I'm drilling a new well and I'm producing from it, I was thinking about using an ESP, but I can just use HPGL in place of it and not have to use ESPs at all?"

So yes is the answer. And the -- what do you have to have to make the system work? You have to have access to natural gas. You have to have the right kind of initial production rates to make the deployment of the system, from a physics standpoint, actually feasible. And then yes, you install it, you turn it on and you let it go. The benefit of the system is from an operational efficiency standpoint, our statistics are 99.6% uptime, which means 0.4% of the time we have to change spark plugs and filters on the engine, right? An ESP in most shale wells is not the right solution because an ESP was engineered and built 100 years ago to do a completely different application. And oil companies deployed that technique when oily shales became a thing because that was the only tool available.

So an ESP works really well with consistent downhole conditions, a consistent level of fluid and a very benign operating environment. None of that describes shale production. There's lots of sand, there's slugs of gas that come through intermittently, and there's a decline curve that you just cannot fight. And so when a decline curve kicks in, it makes the pump less effective and it breaks. So the average uptime on a field that is produced with an ESP is more like 92%. So when you add up that 7% differential between uptime and you do a PV calculation of the production that you are pulling forward because of that better uptime, then we provide a significant value to the customer by switching. And that's how we actually came to penetrate as much as we did in the market.

Now all that being said, we only think we can displace about half of ESP demand in the United States. There's an entire other half of the market that has well conditions that are more fit for purpose for ESP production. So we'd like to get all of it, but we don't think we can.

What are some of those well conditions? Are they like specific basins or...

You think about consistent production, mature production that's still generating roughly 500 barrels a day, think waterfloods. So there's some major waterflood activity out in New Mexico and up in the Uinta, up in Utah. It's just -- those are great ESP markets. Offshore, that's an ESP market. But for shale, including some of the international shales which are now starting to become commercial, I think high-pressure gas lift has a lot to offer.

Where are HPGLs in that journey of displacing ESPs industry-wide? I know you make up a large portion of that market, but you said 50% displacement of ESPs is the total addressable market. Where are we?

We're at about -- at the time of the IPO, we actually did some granular work. We were at about 15% based on 2023 data, which is the latest available data at the time of our IPO. It's higher than that now. If I had to guess, it's roughly 20%. But we're continuing to take share. We're continuing to build more systems, and we've got good intel on where the competitive technology is, and they're kind of treading water. We're going to actually -- we think we're going to probably come up with some more granular data and update our investor deck in the next couple of quarters.

How do you get that remaining 30%? Is it...

Great question.

Is it just -- operators are just so used to using ESPs...

There's a lot of -- their pads are designed for ESP production. They have a legacy fleet of ESPs that they have made a big investment in. Sometimes it's as simple as, "This is the way I've always done it. I want to continue to do it this way. I'm comfortable with this." And so we push on all those points repeatedly. And we've gone from 0 customers to roughly 65 in the last 6 years. There's more to go. What we've been able to do is once a customer has tried the technique where it makes sense, they've never gone back. So we've not lost a single customer who says, "I don't really like this. I want to go back to ESP."

Great to hear. U.S.-based supply chain, vertically integrated footprint, do you -- on the slide, you said you have 6 manufacturing centers of excellence. Do you manufacture all your lift and VRU products domestically? Are there certain components you import that could be subject to tariffs? Has there been any negative impact from the tariff environment?

Great question. The short answer is no. We've actually -- you highlighted everything that we emphasize, domestic manufacturing footprint, vertical integration, we make all of our own stuff. But even if you look at our supply chain, it's largely a domestic supply chain. And then if you look at our suppliers' supply chains, it's largely domestic. So even the knock-on tertiary impacts that could come from tariffs on acquired parts, we've done the work. We don't think it's going to be material at all.

If you look at the competitive artificial lift techniques, largely ESPs, over 75% of all ESPs come from China. And that includes some of the largest, most well-known oil service companies that are buying their products from Chinese suppliers. Now what are they doing? They're trying to pass tariffs through to customers, number one. But number two, they're aggressively trying to diversify their supply chains away from China, either exclusively or at least partly so that they can mitigate some of that tariff risk. But it's going to be a really long road to recreate a domestic supply chain for something that specialized because it requires foundries, heavy machining. And I can't tell you the last time we built a foundry in this country. It's been a while. Right.

Shifting over to VRUs. It seems like a no-brainer, as you mentioned. I mean, you have fugitive methane that you're flaring or you could actually earn some cash from it. What's the conversation like with customers? And is there kind of pushback? Is it just the cost of the VRU system that...

No. It's actually -- the VRUs historically -- by the way, VRU technology is something that everybody in this room has used, right? If you've ever filled up a tank of gas in your car, you've used the VRU. That pump actually is engineered to capture the methane -- the volatile vapors that escape when you transfer fluid from tank A to tank B, okay? So it's not a hard technique to do unless you have very volatile conditions, which is what you have in -- on a well pad, okay? You'll have slugs of gas that are produced that come in and they settle out aggressively in a tank.

And so historically, the VRUs that have been engineered to help manage vapors at a tank battery have not been reliable, okay? So the last 10 years of Flowco's journey has been to invest in technology to improve our uptime from kind of mid-90s where the industry norm is to 99% plus, which is where Flowco is. And so that demonstrated reliability factor is what we've mostly been selling to customers because years ago, a customer conversation would be, "I don't want one of these things, they never work," right? Well, now we've got data to show that they work all the time. And we've got a P&L to show them that what they capture is actually extremely volatile.

A lot of times, too, when we get questions from investors, not necessarily from customers, but isn't this tied to natural gas prices? And aren't you concerned about sustained low natural gas prices causing headwinds for the demand curve on VRU? And the answer is no because when you're capturing natural gas vapors, you're not just capturing methane molecules. You're capturing the natural gas liquids that are embedded within the hydrocarbon itself, so high BTU gas. So we've done the analysis in a typical Permian pad, what is a $2.50 Henry Hub molecule that you're capturing is actually more like $10 because of the BTU uplift you get from the sale of the NGLs, the butanes, the propanes and the pentanes. So it's a very economic add-on to a production infrastructure spend.

Got it. I just have one more question for you, but we do have maybe time for one or two questions from the audience. So we'll get the mic on. My last question is just on M&A. You recently acquired 155 HPGL and VRU systems from Archrock. How many total systems do you now have of HPGL and VRU? And are you done with M&A for the near term? Or are there -- are you looking to continue to expand?

So we don't disclose how many specific individual pieces of unit that we have, but we have over 4,500 total rental systems between high-pressure gas lift, vapor recovery and conventional gas lift.

Definitely not done with M&A. We have, I think, a structure, a culture and a very clearly defined M&A strategy. Very clearly, we want to be able to credibly approach a customer and say, we want to be your chosen partner in all phases of production. And so we've got gaps in our product portfolio that we'd like to fill in. We've got other things on the natural gas side that I think can make some sense that are in adjacent sectors.

Great. So just on the methane recovery business, as the pipelines come along in the Permian and debottleneck to get the gas out of there, is that considered a direct competitor to you? And how do you compete with that? Or...

No. The methane vapors that we capture are at the well pad, okay? So as more well pads get constructed, there's more addressable market for us to actually go deploy our solution. As gas moves down the value chain, it's got to go through gas processing, which is another place where you do need vapor recovery. And then it has to go through various compressor stations, which also struggle with fugitive methane emissions.

So actually, in our last couple of quarterly calls, we've highlighted midstream as not necessarily a headwind for us, but more likely a tailwind because we think there's more market that we can get by selling VRUs into that midstream build-out because there are multiple points along that system where methane vapors can escape.

Will it be the same VRU system that you could just apply to midstream?

It is a smaller unit typically because the volumes are less. And I think midstream players would view this as infrastructure spend versus a rental item. So I think you could see us sell multiple systems to midstream players. But you're talking hundreds of systems here because these are obviously very large companies with huge networks. So the opportunity is big, but it will be on the sale, not the rent.

Got it. Any final questions? All right. We'll leave it there. Joe Bob, thanks for the time today.

You bet. Thanks for having me.

Appreciate it.

Good morning, and welcome to Flowco Holdings Inc's Second Quarter 2025 Results Conference Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A.

At this time, I'd like to turn the conference over to Andrew Leonpacher, Vice President, Finance, Corporate Development and Investor Relations at Flowco. Thank you. You may begin.

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.flowco-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, Jon 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, 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+ 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 road show and on our fourth quarter call several weeks ago, and that is Flowco's differentiated business model in the context of the broader oil services sector. First and foremost, Flowco's performance is driven by our customers' nondiscretionary 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 frac spreads. 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. Clearly, this is our second quarter call, not our first quarter call, so apologies about that, everyone.

We're going to do this old-school way and we're going to go live. So Andrew, do you want to kick us off?

Yes. I think the statement I previously made about the first quarter -- the first quarter metrics and with regard to forward-looking statements and other metrics, just refer you back to our first quarter statements around -- forward-looking statements and non-GAAP reconciliations. We've posted our press release this morning and encourage you to review those risk statements that are stated in our first quarter and the end of the year. So Bob, over to you.

Great. Well, again, apologies, everyone, sorry for that snafu, but we're going to go through what we actually pre-reported yesterday, but we'll just do it in real time. So we will begin by walking you through our second quarter results and operational performance as well as our recent acquisition that we announced yesterday of HPGL and VRU assets from Archrock.

After that, Jon will provide a more detailed review of our financial performance, our balance sheet, including some impressive efforts, improving our working capital position. And then finally, we'll give you some thoughts on capital allocation. I'll then close by sharing our perspectives on the current market environment and how we see things shaping up for the third quarter and the remainder of the year. And then finally, we'll open the call to your questions.

In the second quarter, Flowco delivered strong financial performance, generating adjusted EBITDA of $76.5 million, while expanding margins by 65 basis points quarter-over-quarter. We also generated approximately $46 million in free cash flow, underscoring our disciplined execution and progress in working capital efficiency across the organization. This performance was achieved despite the challenges we face in today's difficult macroeconomic environment, which I will touch on a bit later.

Our improved EBITDA and margin performance was largely driven by strong sequential growth in our high-margin rental fleets, particularly within our high-pressure gas lift and vapor recovery businesses. Adoption of our HPGL solutions continues to grow as customers move away from legacy optimization methods and gain confidence in our technologies, which delivered greater uptime and accelerate production earlier in the well's life cycle.

At the same time, demand for our VRU offerings remains strong, supported by our -- by favorable natural gas market dynamics, including rising LNG exports and increased gas-fired power generation. As operators place greater emphasis on generating cash flow in the current environment rather than growth, these technologies help enhance near-term returns and maximize the long-term value of existing assets. HPGL by improving recovery and operational efficiency and VRU by capturing and monetizing incremental natural gas that would otherwise be vented or flared. Both our HPGL and VRU solutions are supported by our U.S.-based supply chain and vertically integrated manufacturing footprint, which have seen minimal impact from the recently enacted tariffs.

This vertically integrated platform strengthens our ability to deliver reliably and cost effectively, while reducing exposure to current and potential tariffs that may affect competing technologies. Subsequent to the quarter and in support of accelerating growth in our high-margin rental fleets, we completed the acquisition of 155 HPGL and VRU systems from Archrock, which they originally acquired as part of their acquisition of TOPS in June of 2024.

100% of these systems are electric drive, and the large majority are HPGL units supported by contracts with new and existing blue-chip customers in the Permian Basin. We are actively integrating these systems into our fleet and look forward to a seamless transition of operations delivered through our existing field service network. This transaction marks our first acquisition post IPO and reflects our disciplined approach to M&A, targeting production optimization opportunities at attractive valuations that align with our long-term strategy.

Overall, I am very pleased with our operational and financial performance in the second quarter. Despite a challenging macroeconomic environment, we again delivered top quartile returns on capital employed, while expanding margins and driving strong free cash flow generation. This performance underscores the clear differentiation of our business and reinforces the resilience of our strategic positioning as a market leader exclusively focused on production optimization.

With that, I'm going to turn it over to Jon to provide more detail on the second quarter.

Thanks, Joe Bob. Before reviewing some of the key financial metrics and results for the second quarter, I'd like to provide a reminder on our historical financial information given the combination of Flowco, Flogistix and Estis in June of 2024. For clarity, note that any financial information presented prior to June 20, 2024, business combination, such as the second quarter 2024 financials reflects only the historical performance for Estis.

Financial information for the first and second quarters of 2025 reflects the financials for the consolidated entities. Turning now to our financials. Second quarter performance was in line with our expectations, driven by strong execution across segments and bolstered, as Joe Bob mentioned, by the returns we're realizing in our rental fleet investments.

In fact, our quarterly rental revenues exceeded $100 million in the second quarter for the first time ever. We delivered adjusted net income of $33 million on revenues of $193.2 million, revenue grew minimally, while adjusted EBITDA was up 2.1% quarter-over-quarter as higher-margin rental revenue increased our profitability, even with the decrease in product sales revenue.

Adjusted EBITDA margins were up 65 basis points as rental revenue represented an increased portion of our revenue mix. In our Production Solutions segment, second quarter revenue was $128 million, with adjusted segment EBITDA of $53 million an increase of 10.6% and 5.4%, respectively, from the first quarter of 2025.

Adjusted segment EBITDA margins decreased quarter-over-quarter by 202 basis points. The increases in Production Solutions revenue and adjusted EBITDA were the result of growth and higher operating leverage in our surface equipment rental business unit and strong sales in the Downhole Components. Adjusted segment EBITDA margin was down quarter-over-quarter due to increased sales in our lower margin Downhole Components business unit.

In our Natural Gas Technologies segment, second quarter revenue decreased 14.9% to $65 million compared with the first quarter, while adjusted EBITDA decreased 4.4% over the same period. The decrease in revenue and adjusted EBITDA are attributable to a decrease in natural gas system sales in the quarter. Adjusted segment EBITDA margins increased by 463 basis points due to favorable revenue mix shift towards vapor recovery from natural gas systems.

With regards to the midstream opportunities we've highlighted in prior quarters within our Natural Gas Technologies segment. We successfully executed a few sales of smaller vapor recovery and designed to capture emissions in midstream operations. We continue to engage in constructive discussions with large midstream operators and remain optimistic about the growing adoption of vapor recovery solutions in this vertical.

Overall, consolidated second quarter adjusted EBITDA was $76.5 million an increase of 2.1% from the first quarter of 2025. Our top quartile EBITDA margins and sequential growth illustrates the sustained demand for our differentiated solutions and the ongoing focus on efficiency throughout our organization. In the second quarter, the majority of our $35.8 million capital investment was focused on expanding our surface equipment and vapor recovery fleet driven by sustained demand and attractive expected returns on capital employed.

Our annualized adjusted return on capital employed for the quarter was approximately 18%. Based on the quarter outlook, we anticipate only minor adjustments to the organic capital expenditure program discussed last quarter for the remainder of 2025, but we're monitoring the market outlook for CapEx investments that will impact 2026. Subsequent to the quarter, as Joe Bob mentioned, we invested approximately $71 million in cash drawn from our revolving credit facility to acquire 155 HPGL and VRU systems from Archrock.

We executed this transaction at an attractive valuation and it's expected to be immediately accretive to both free cash flow per share and earnings per share. We're actively integrating these assets and anticipate realizing a full quarter of benefit from them in the fourth quarter of this year. We expect to lower our 2026 capital expenditures as a result of this transaction.

We will continue to invest in growth, while maintaining capital discipline, targeting high-return opportunities aligned with our capital return framework. For our organic growth opportunities, our typical investment lead time is approximately 6 months. These shorter-cycle investments, combined with our vertically integrated manufacturing platform provide the flexibility to scale capital deployment up or down as we respond to potential shifts in customer demand and market conditions.

Turning briefly to corporate costs. In the second quarter, we reported $4.3 million of corporate expenses in line with the $4.4 million of costs in the first quarter. We anticipate a slight increase in corporate costs in the second half of the year as we complete the build-out of our public corporate function.

Subsequent to the quarter, on July 4, the 1 big beautiful bill was signed into law. We're continuing to assess the potential impacts of this legislation, but we anticipate that we will benefit from the restoration of 100% bonus depreciation for certain fixed assets. Separately, following the expiration of the IPO lockup period on July 23, 2025, we entered into an amendment with our 2 largest shareholders, GEC and White Deer to revise the prior requirement that the company filed a shelf registration statement within 180 days of the IPO. While GEC and White Deer retain the right to request such filing in the future the company does not currently have a shelf registration statement on file.

Turning to our balance sheet and liquidity. We ended the quarter in a strong financial position using free cash flow generated during the period to reduce outstanding borrowings under our revolving credit facility. As of August 1, 2025, total borrowing on the facility stood at $226.6 million, including approximately $71 million drawn related to the Archrock acquisition.

With a borrowing base of $723 million, we had about $497 million of availability under the facility. On August 1, Flowco declared its second consecutive quarterly dividend of $0.08 per share payable on August 29. This action reflects the Board's continued confidence in the strength of our business model and the overall health of our balance sheet. It also highlights our balanced capital allocation strategy, returning capital to shareholders, while continuing to invest in disciplined high-return growth.

In summary, we delivered another solid quarter, meeting our outlook with adjusted EBITDA within our guidance range. We executed effectively despite the challenging upstream market environment that negatively impacted product sales a trend we anticipate will continue into the third quarter. Joe Bob will share additional insights on our market outlook shortly. Looking ahead, our emphasis on production optimization, combined with the resilience of our solutions and strong customer relationships, positions us well to navigate a more uncertain operating environment. Back to you, Joe Bob.

Thanks, Jon. Turning now to our view of the upstream market and expectations for the remainder of 2025. As we noted during our first quarter call, evolving tariff policy increased oil supplies from OPEC+ and broader macroeconomic uncertainty have continued to weigh on commodity prices as well as North American production outlook more broadly.

And these headwinds have persisted and in some areas have worsened. Leading to lower activity levels across our North American customer base as operators respond to a more uncertain outlook. While our business is not directly tied to rig count or completion activity, the sustained moderation exhibited by our customers over the last several months is beginning to impact production trends more broadly.

The EIA has recently revised its outlook for U.S. crude oil production downward, now we're expecting production to be flat in 2026 versus 2025. Furthermore, cost cutting and reorganization efforts have slowed our customers' decision-making, impacting the pace of spending, even in the areas of production optimization. We remain well positioned as our production-oriented solutions are OpEx oriented, nondiscretionary services to help our customers maintain cash flow.

That said, the current market environment has modestly tempered our near-term growth expectations for the second half of the year. In particular, we now anticipate a sequential decline in product sales in the third quarter. Most notably in the sale of vapor recovery units and conventional gas lift compression packages. Downhole component sales are also expected to be flat to slightly down.

Importantly, we continue to benefit from the strength of our high-margin rental fleet, which delivers visible free cash flow and helps to offset softness in these equipment sales. Given the current market environment, we're taking proactive steps to further optimize our operations. During the second quarter, we consolidated a portion of our manufacturing capacity within our Natural Gas Technologies segment. A decision which will reduce overhead and drive improvements in working capital efficiency.

We will continue to evaluate additional opportunities to streamline our operations, while maintaining our commitments to service quality. So what does all this mean in terms of guidance? We think adjusted EBITDA for the third quarter will be somewhere in the range of $72 million to $76 million. This range accounts for the current market uncertainty the near-term weakness in equipment sales that I described earlier as well as 2 months contribution of the recently acquired assets from Archrock.

Speaking more broadly about the back half of the year and our full year expectations, we anticipate a better Q4, finishing the year close to the EBITDA growth range communicated on the first quarter call. During the fourth quarter, we will benefit from a full quarter of earnings contribution from the Archrock assets as well as some equipment sales that are expected to occur before the end of the year.

We believe our performance in 2025 and particularly our sector-leading growth and ability to generate attractive returns on capital in such a challenging market reflects the resilience of our production-focused business and the market share capture story for HPGL and VRU. So with that, I'll turn it back over to the operator for Q&A.

[Operator Instructions] Our first question comes from the line of Arun Jayaram with JPMorgan.

I was wondering, if you could provide maybe some additional details and color around the acquisition from Archrock. Is this a deal that improves, call it, the competitive dynamics of the HPGL, VRU kind of segments? And just maybe just general thoughts on [Technical Difficulty] in the back half of the year, you mentioned 2 months is in your outlook for 3Q and obviously, a full quarter contribution in 4Q?

Yes. Arun, thanks for the question. Good to hear from you. So as you know, this is a technique that we pioneered. We invented the high-pressure gas lift technique 6, 7 years ago and we maintain the market leader in this space. Archrock ended up with these assets, as I said, through their acquisition of TOPS last year. And it took them some time to figure out that these assets require different operating characteristics and different customer service intensity.

And so through a series of discussions, we ultimately, I think, arrived at a very good outcome, which is a consolidation of those assets into our fleet. The electrification theme is a very positive one. 100% of these assets are electric, which is great. We're picking up some new customers, some customers that we've been working on, both converting to the method as well as using us for quite some time, so that's positive.

And we're filling in more market share with existing clients as well. Very importantly, we're getting some idle units. There were a handful of units that were not deployed, but built and ready to go. So that's good. That helps us with some available capacity to satisfy some existing customer demand. And given kind of what's going on in the market, we obviously saw this competitive acquisition coming. So we have moderated our forward capital spend appropriately.

So as Jon mentioned, this is going to really pull forward CapEx from '26, which is a good thing. And I think absent any rebound in the market condition, will likely temper 2026 capital ambition for us. So all in all, a good deal. We think about value on this transaction really in a couple of different pieces. Obviously, you've got contracted assets with immediately generating free cash flow, the minute you buy them. So we allocate some purchase price allocation to the value of the existing contracts.

And then obviously, we know what it costs to build these things because we have a lot of them in our fleet. So it's a good deal. It's immediately accretive, as we said, what do you think, Jon, kind of low single-digit earnings accretion kind of thing?

Yes, that's right.

Yes. And I think some room to grow in '26 with the deployment of the idle units that we acquired.

Great. And maybe my follow-up, Joe Bob, I was wondering if you could highlight some of the thoughts around midstream and your entry with some of the smaller vapor recovery units and potential to grow with this midstream customer base kind of over time?

Yes. We've been making progress with I'd say half a dozen to a dozen customers in the midstream space, Arun. And these are the large guys that would be household names that could potentially deploy hundreds of these systems through their nationwide networks. We're at the early stages of this. We have sold, I think, cumulatively less than 50, but it's on the order of a few dozen units far more than a trial basis, this is much more of customers deploying systems to get comfortable with the way that they operate to get comfortable with the operating efficiencies that we claim as we sell these units to them.

And we've been led to believe that, that was the first step toward a much larger demand profile coming our way. Now we'll see. We've been working on this for a few quarters now and again, well beyond trial phase. But it could be something that is pretty exciting to talk about in the coming quarters.

Thank you. Our next question comes from the line of Phillip Jungwirth with BMO Capital Markets.

Just on the reduction in Permian spending during the quarter. It looks to us like the activity declines have been broad-based across E&Ps. But wondering how you're viewing it in terms of public versus private, Delaware versus Midland and -- but what that means for Flowco customers and the overall market share?

Yes, Philip, thanks for the question. Private's -- you know this, right? Privates definitely respond more aggressively than publics, whether it's private equity owned or family-owned, family office-owned private company. So you're seeing rig count declines, frac spread declines from privates much more aggressively.

The consolidation that has taken place in the Permian has moderated the response from the publics. And you're seeing customers that are taking a much more long-term view to field development. The very largest super majors are in the case of 1 very, very large company, they're still growing, right? They're still anticipating and doubling of production over the next 5 years or so.

But it's definitely having an impact. You just see it in the production data. We're flattening out, projecting to stay roughly flat in 2026 based on latest estimates. And as I said in our prepared remarks, it's starting to show up in demand for services even in our wheelhouse.

Now that being said, without our services and without the maintenance of existing production, their production declines rapidly, right? So we feel like we're better off than most in places like the Permian to help maintain and grow production when customers want it. So in a challenging market, we feel like we're in pretty good shape.

Great. And then you mentioned the moderating growth capital in 2026, since given market conditions and the Archrock acquisition. Can you remind us how you view maintenance CapEx? And then as far as the growth capital component, is there any good way to think about that in terms of sensitivity to overall production growth outlooks or as a percent of sales?

Look, the good news is, and Jon will give you a little bit more of a nuanced answer, but the good news is we don't have to make decisions on that right now. We've got -- we control our own destiny with our vertically integrated supply chain or vertically integrated manufacturing capability as well as domestic supply chains. Lead times for critical components are about 6 months out. So we obviously keep an eye on that. But based on where we are today, we just think that next year is going to be less growth CapEx compared to this year.

The last several years, we've spent pretty consistently $100 million to $150 million of growth CapEx to grow our business. The Archrock acquisition helps offset some of that expected growth in '26 unless the market gets a lot better. We just anticipate a more moderate spending level next year.

Yes, I agree. I think we had indicated around $110 million of growth capital this year. I think we'll come inside that, particularly with the Archrock acquisition. And then as we get into Q4, we'll start to make kind of more long-term decisions on 2026 capital spend, but I do expect it would come down relative to the numbers Joe Bob was talking about.

On maintenance capital, we've run in that $20 million range. As our fleet grows, we expect that to grow a little bit, but not significantly. So I think somewhere slightly north of $20 million is what we'd see in 2026.

[Operator Instructions] Our next question comes from the line of Derek Podhaizer with Piper Sandler.

I wanted to ask a question about rentals. It was up 5% quarter-over-quarter. Maybe if you could just pull that apart for us a little bit. Is this a sign of accelerated adoption you're seeing from HPGL, just taking over the legacy ESPs just given a lot of the tariff-related weaknesses that we've heard from some of the providers over the last few weeks.

And with now rentals representing 53% of the company, how can we -- how should we start thinking about where this could trend for the remainder of the year and as we start thinking about 2026?

Derek, thanks for the question. The rental increase has been pretty consistent over the last several years, and you've nailed it. It has to do with market adoption of HPGL displacing legacy production techniques, most notably ESPs. As well as VRU is becoming standard equipment on, in particular, large Permian pads that get brought online.

So you'll see a continued increase in rental revenue as a percentage of total Flowco revenue. Certainly, as our product sales businesses are reasonably flat, right? So just from a mix standpoint, you'll see rental revenues trending higher, you'll see our overall EBITDA margins continue to grind higher, and our return metrics hopefully improving as we invest more growth capital and higher returning assets.

So that's how we think about it. We think that growth story, that market adoption story is very much intact and is healthy even in this challenging market. So that's, I think, evidenced by the fact that we had the confidence to buy $71 million worth of equipment from Archrock. So we're going to continue to talk about the virtues of HPGL and VRU and continue to invest as the market dictates.

That's helpful. I guess, just on the acquisition, I know you already answered questions on it. But maybe help us understand the remaining competitive landscape there. I mean, it was my understanding is during the IPO road show, there was not that many players in HPGL and you have a commanding market share position. Obviously, you just grew that with this acquisition. But -- can you give us any sense as far as the remaining landscape out there and then how you're viewing that and where market share could ultimately grow for HPGL?

Market is pretty small when you get right down to it, Derek. We have a commanding market position, but if you think about, who we compete with, it's not just a handful of players that are also offering high-pressure gas lift. It's the vast, big market for ESPs, right? So it's still $1 billion, $1.5 billion market even in today's environment. And our penetration is higher than it was at IPO, but it's still not anywhere close to fully saturated.

So we really view our competitors as the inferior technology. And so we will continue to install the virtues of the method. I know that's not really the answer to the question you asked, but that's how we think about it.

And if I could just squeeze 1 more in. It seems like you can seamlessly integrate these assets. Is any capital required to fold them in and integrate into your fleet?

No. The beauty of really our market position in the Permian is these are as close to seamless plug-and-play as you can get I think we hired a grand total of 3 people associated with these new assets. So it's very efficient in the integration.

Our next question comes from the line of David Smith with Pickering Energy Partners.

Most of the acquisition ones have been hit. So I just wanted to circle back and double check, if I got the Q3 guidance correctly, for a range of 72% to 76%. And sorry, if I missed it, but I wanted to ask if you could help with just some broad guardrails around the moving items, but particularly especially excluding the acquisition announced yesterday. Should we think about rental as being roughly flat sequentially with more of the impact on lower product sales and maybe a little bit higher corporate cost?

Yes, Dave, thanks for the question. Listen, rental will continue to go to bleed higher as a percentage of our revenue as well as on a quarter-over-quarter basis, I anticipate it being up somewhat in Q3 as opposed to Q2. What's really happening is a couple of things, right? And I said it, but let's just drill in on it a little bit.

Our product sales are made up of a couple of different things, right? It's the sale of packages that we build in our manufacturing facility for VRU or compressor packages, right? And so those are weak in Q3. And this is a backlog business. We've got a lot of visibility. We know the delivery schedules. And as we look at Q3, that business is going to be off sequentially, as I said, okay?

So -- now what does that mean, right? That's among our lowest profit margin business. It's also a business that we are deemphasizing over time in favor of focusing more on our rental fleet. So that's a line item that's just going to be down quarter-over-quarter, somewhere in the order of 10%.

The larger sales item in our GAAP financials is the sale of downhole products, namely gas lift valves, mandrels, plunger lift systems. That's -- we just anticipate that to be reasonably flat in the quarter, okay? So more broadly, sales of downhole components flattish sales of packaged equipment to third parties, which are in backlog today, down, okay?

Now again, the backlog business, we're looking into Q4, it looks better in Q4. So we think it's transitory somewhat. We think that when you look at growth rates on a year-over-year basis from '24 to '25, again, I want to make sure everybody has their numbers right on '24 in particular. Our '24 financials are not fully burdened for the full cost of being a public company. And when you make that adjustment and you look at where we're going this year versus last year, we're still confident in that previous guide from last quarter of roughly low double-digit growth year-over-year, okay?

So I just want to make sure we're talking about the same comparisons. So that's kind of where we see it in Q3, more broadly into the end of Q4, Dave, and hopefully, that's clear.

We have reached the end of the question-and-answer session. I'll now turn the call back over to the management for closing remarks.

Excellent. Well, thank you, everyone. I hope you appreciated this live performance and look forward to following up with you in the coming weeks. I hope everybody is enjoying summer, and we'll talk to you soon. Thanks.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

All right. Great. We're on the back 9 of day 1. Hopefully, Joe Bob, you're more like J.J. Spaun at the U.S. Open and not Tommy Fleetwood, who maybe messed up -- anyways. Enough of my golf joke.

Well, again, really pleased to have Flowco to present today. And for those who don't know the story, this is one of the more unique stories we have in oilfield services because they have a really disruptive technology that Joe Bob is going to talk about. And they're also more levered to the production phase of the oil and gas life cycle. I think one of the themes from the conference you've heard from companies like SLB and others is they're more focused today on getting leverage to the OpEx part of the cycle versus just D&C. And I think this company really fits with that theme of providing leverage to the OpEx production size of the oil and gas life cycle, which should be more resilient. The other thing about it is they have some unique technology, which drives not only really strong margin potential from the company, but also growth.

With that, excited to have Flowco, Joe Bob Edwards, who's the CEO of the company. We're going to -- Joe Bob will start with some introductory comments just to talk a little bit about Flowco, and then we'll end up with -- we'll finish up with the fireside chat. Joe Bob?

Excellent. So Arun, would you like me at the podium sitting with ...

Why don't you start with the podium, and then we'll pivot to a fireside chat.

Happy to do it. Well, good afternoon, everybody, and thank you for your attention, and thank you for your interest in Flowco. As Arun mentioned, I'm Joe Bob Edwards, President and CEO of Flowco. I spent a career as a private equity investor in energy, and most recently ran a firm called White Deer Energy, which is today an owner of Flowco.

But to be clear, I've left behind my life as a private equity investor. I'd like to say I'm no longer a private equity overlord. I'm actually now sitting in the seat to be judged by my private equity investors and all of you. So I'm thrilled to be here in front of you today to tell you what I think is a very exciting story about a truly differentiated oilfield service name in the North American onshore market. We are a pure-play production optimization and artificial lift company. We count among our clients, some of the largest and most well-capitalized oil companies in the U.S., and we really sit at the epicenter of what makes U.S. energy work.

As Arun said, we are an OpEx story, not a CapEx story, and we've got an interesting mix of growth and returns that we'd like to tell you about today. So maybe by the numbers, we've been compounding our top line at just north of 20% year-on-year. We've got some guidance out there for 2025, which we can touch on later. We have very attractive returns in the space, approaching 40% EBITDA margins. But most importantly, as I like to tell my team, you can't eat a margin, but you can certainly eat a return. So we generate north of 20% rate of return on invested capital year in and year out on the capital base that we have as a company. Over 1,200 employees scattered across 43 field locations in the U.S. We have 6 manufacturing locations, really 3 manufacturing centers of excellence, and we're headquartered in Houston.

We put 3 companies together a year ago in a merger of 3 privately owned businesses to create what is today Flowco. But the 3 businesses were far from a private equity mashup in advance of an IPO. They actually make a ton of industrial logic together. We are organized today into 2 segments. Production Solutions on the left-hand side of this page is our artificial lift offering. We go to market with a combination of surface equipment and downhole components. The surface equipment that we offer clients are largely compression packages that help make our downhole components work properly. And on the right-hand side is our natural gas technologies business, largely our vapor recovery operation. So left-hand side, artificial lift, right-hand side, vapor recovery. So left-hand side, oil, right-hand side, natural gas. So we've got a very good balance between an exposure to the 2 main commodities that make the U.S. oil and gas business work.

As I said, we're kind of everywhere where there is shale production in the U.S. We sit really at the critical juncture of where production happens. So that's at the well site, helping an oil company select the right production technique for the -- not just the specific wellbore characteristics, but also the phase of production that the well might find itself in. What you do early in the life of the well is not what you do late in the life of the well, okay? So this is a representative decline curve once an operator drills and completes a well, they've got to live with it for 20 years. And the type of production technique that, that oil company will deploy early in the life of the well is critical in making that wellbore that they drill and frac a profitable investment. And that's where our technique comes in early in the life of the well before changing over to more conventional types of artificial lift.

Again, we are there for the life of the well to help the client with the selection of the right tool in every well. Along the way, too, we are capturing fugitive methane emissions to enable oil companies to actually monetize what was previously seen as a waste product, and that is our vapor recovery offering. If you look at the -- again, the left-hand side of that previous page I showed you, our artificial lift solutions and you really look at the market more broadly, there are 5 main forms of artificial lift that an oil company can select and put in their wellbore. We offer 3 out of the 5 for our clients. The 3 have in common that they utilize the inherent energy that exists within compressed natural gas to drive fluid to the surface from the subsurface, okay? So that is high-pressure gas lift, conventional gas lift and plunger lift.

The 2 forms of lift that we don't offer are really the legacy forms of artificial lift that have existed in both cases for 100 years, okay? An electrical submersible pump and a rod lift system rely upon a mechanical or an electrical connection between the surface driver of the power required to actuate the downhole pump to actually effectuate the lift. So we are in the 3 fastest-growing forms of lift. And we're also in a very exciting area that we pioneered, in particular, the high-pressure gas lift solution, which is taking share from the ESP offering. So maybe just diving in on that for a minute. What is high-pressure gas lift? Why is it exciting? Why did we focus on developing this technique? So we are the pioneers of this method of artificial lift. We started with unit #1 roughly 6 years ago with 2 oil company client sponsors, SM Energy and EOG.

There is a co-authored white paper written for the SPE out there. You can download to look at. And quite simply, we are utilizing gas compression to lift a well with no downhole moving parts. So we are injecting natural gas into the production tubing and producing up the annulus of a well at a rate comparable to what an ESP can produce. And importantly, this lack of downhole moving parts, this more reliable mechanical availability of over 99% uptime compares to the average uptime for an ESP on the order of 92%. Now why does an ESP not work virtually all the time? It's because it hasn't been engineered to do the job of lifting a shale well. An ESP doesn't like sand, it doesn't like gas. It tends to short out when downhole conditions change, and that is the nature of shale production.

So when you factor in this additional operational uptime, it yields additional profitability, additional NPV for our clients. And that's how we've been able to take our very first unit and build upwards of 700 of them and put them on rent every day to over 60 oil company clients who rely on us for their early production phase. It's a quite elegant technique. We're very proud to lead the market in this area with upwards of 70% market share. I talked about this a little bit earlier. I don't want to dwell on it. In the United States, the artificial lift market is roughly $6 billion, $6 billion to $7 billion in size. We touch about half of that. The bit that we touch is growing more rapidly than the ESP and rod lift markets that we are not in. I always throw a caveat in when I talk about this page. The ESP and rod lift solutions are not going anywhere. So there will always be a place in the market for both of those. I think Flowco is a perfect acquisition or acquirer of additional lift techniques, which could include the 2 forms of lift that we are not in today. Okay.

How am I doing, Arun? I'm almost up to time. So real quick, let's talk about vapor recovery. This is our other very exciting fast-growing product line. We are capturing fugitive methane emissions from oil company tank batteries where by design, historically, oil companies would allow methane vapors to settle out of solution and be vented to the atmosphere or sent to a flare stack. Obviously, a horribly environmentally costly solution to methane emissions. So we have deployed a system not only is solving an environmental problem, but allowing oil companies to maximize profits because what you send to a flare could otherwise be captured and sold for a profit and we have over 4,000 of these things on rent every day in the market.

This market is only roughly 17% penetrated. If you look at the Permian specifically, roughly 40% of all tank batteries have vapor recovery installed, lots of room to grow organically, and that's what our plan is not only this year, but going forward. The rest of this, I'll leave for your viewing pleasure. I want to end on this, Arun, before we have a chat. We went public, I think, as a differentiated production story levered to OpEx, not CapEx in the oilfield. We are able to grow in a flat production environment. We've demonstrated that the last several years. We've got guidance out there this year that would indicate that we should be able to continue that.

But on this page, we've plotted our normal comp set, and we have highlighted for you what we think is the precursor to superior equity valuation. And the ability to continue to compound rates of return north of 20% on the invested capital that we have by deploying our free cash flow into unaddressed markets or markets that are being addressed by inferior forms of artificial lift and continue to grow at double-digit rates should yield, I think, a superior stock price performance over time.

So hopefully, you guys agree, and we'll go out and prove me right, but that's Flowco.

Great. Joe Bob, thanks for the introductory comments. I wanted to maybe talk to you a little bit about what we're seeing in the field and understanding that you're more levered to production, but we have seen a little bit of a pullback in activity. We monitor this on a weekly basis, but we've seen about 30 rigs in oil and combo basis come down, which is offset by about 11 rig increase in gas basins. What are you seeing in some of your -- of some of these -- or what are you seeing in the field in terms of activity declines in the oil basins? And does the recent Iran, Israel conflict, are you seeing any changes in planned activity levels from operators?

So our -- again, we're levered to production, not drilling. So we are muted in terms of the impact of the day-to-day swings in rig count and frac spread count and the direct impact on our business. But we're not immune, okay? In particular, some of our more short-cycle products that are sold downhole have seen some pressure this year. We telegraphed this on our Q1 call. I think if you parsed our language carefully on our Q1 call, which you did, and you've taken our 2025 expectations down roughly 5%. Again, I would contrast that with the rest of the space that has come down more.

So we've definitely been impacted by, I'd say, market sentiment more so than activity levels. The most recent, call it, last 2 weeks, did we spend 24 hours in World War III? I don't know. It was a very quick battle. But that -- we haven't really processed that yet. So your guess is as good as mine there.

Okay. I'm going to go back to the 1Q call. You trimmed a little bit, but you're still delivering very robust growth. You and John talked about your expectation that Flowco could still deliver year-over-year EBITDA growth in the low double digits. Do you still have confidence kind of in the outlook? Again, a lot of uncertainty, volatility in the marketplace today.

Yes. No, we do. If you look at our Q1 actual and our Q2 guide and you think about what we're seeing in terms of the CapEx deployment in our rental fleet, we still have confidence that we can deploy $100 million, $110 million of growth capital this year at very nice rates of return. That's going to get you into that low double-digit EBITDA growth. Still feel good about that. And yes, that's still our plan.

Can you talk a little bit about the revenue mix between rentals and product sales?

It's a good mix, Arun. It's roughly 50-50. It's going to trend more toward rentals as we continue to invest in both the VRU and the high-pressure gas lift solution. Those investments are going to be in rental systems that yield higher margins. So I think you'll see some margin improvement in our business. We're in the high 30s. I think you could see us hit 40%, if not a touch above on a quarterly basis from here to the end of the year and certainly going into 2026.

One of the things that's become really important in this phase where the U.S. is implementing tariffs on foreign countries is just the supply chain. And can you talk about Flowco supply chain?

Yes. Yes. So we have -- first of all, our systems that we rent and all of the downhole equipment that we sell is made in the U.S.A. Now the rental items that we put out on rent are made up of critical components that we purchase from suppliers. And when you look at those supplier supply chains, those are largely domestic. So as we said on our Q1 call, we feel like any tariff pressure that the industry is under, in particular, from places like China, we are going to be able to absorb it and pass it through. And we don't even think we're going to see a financial impact.

The good news is that our competitive technologies that we are selling against, in particular, ESPs, 75% of the market's ESPs are sourced from China. And having been in the ESP business before, I can tell you that ESP players will try to pass all of that tariff along to the client. So if you think about our technique as a competitive -- a better mousetrap than an ESP in some cases, if they're under pricing pressure, our system just got that much more profitable.

Got it. Got it. Could you talk about just general market penetration for high-pressure gas lift versus ESPs?

Yes, absolutely. We actually have a page on this, if I can get back to it. When we went to market, we looked at 2023 data, here we go. And we estimate that if you look at lift in total in the United States, ESPs service about a $3 billion market. We think only about half of that can be addressed by high-pressure gas lift or $1.2 billion in 2023. Of that $1.2 billion, we've only penetrated 14% of the market. Now as of today, mid-2025, is that higher? Yes. By how much? Not really sure, call it, somewhere between 15% and 20%, but we have 60 customers for this technique, Arun. Everybody who has tried it has endorsed it and has, in fact, asked for more of it. So we're going to continue to build into that demand profile and hopefully get as much of this market as we can.

Okay. Maybe going back to ESPs. You mentioned how 75% of them are made in China. Costs are clearly going up for a competing technology. Have you seen any -- is this shaping any customer changes? Or how are conversations progressing that we may start to see more people switch over to HPGL?

Yes. We've seen customers do what you would expect, right? If a vendor comes in and says, "Hey, I've got a tariff, I need to increase price. We've seen customers come to us and say, how quickly can I get more HPGL?" So we've seen that. Now what we've also seen are the ESP players react in a variety of ways. They are going to actively try to diversify their supply chains away from China. They are also going to try to pass through as much tariff as they can. Some of them will actually absorb the cost to try to gain market share. So there are a lot of levers to pull. We think we're the beneficiary, though, net-net of the tariff noise going on in the market.

Okay. Let's talk about some things that you highlighted on your 1Q call. Talk about your e-Grizzly product line.

So in e-Grizzly is an electric compressor that is configured for this application, high-pressure gas lift and allows an operator to utilize machine to lift multiple wells at the same time. So the way that we've configured the compressor, the way that we have engineered the system to work overall allows an oil company to rent one machine versus multiple machines. So feeding into this whole efficiency curve that the operators are chasing. We hope to build more. We've got more demand for these. It's a pretty slick system.

Okay. What about SurgeFlow?

Look, SurgeFlow is a wellhead assembly that is installed really as the well is completed that allows an operator to switch from their intermediate phase of lift to plunger lift much more seamlessly. So again, it feeds into more efficiency, less downtime later in the well's life. We're starting to sell a lot of SurgeFlow systems, which is a precursor to more plunger lift systems. The reason why we highlighted both of these, I just want to be really clear, it's indicative of the innovative culture that Flowco has. We are constantly coming up with ways to work with our clients to provide a more seamless solution, a more fit-for-purpose technique of artificial lift and vapor recovery. And these 2 made it all the way through from whiteboard to commercialization under our ownership. So we're really proud of them. And we think that the growth in these 2 product lines could be greater than the company as a whole.

All right. Let's shift gears and talk a little bit about natural gas technologies, that segment. VRUs, I think in a period of stronger gas prices, I think this is an easier maybe sale to the customer. But talk to us about market penetration from your traditional E&P customers as well as maybe moving into the midstream space.

You bet. So this is a page that actually -- for those of you that attended our roadshow presentation for the IPO, this is a new page that relies on government data provided to the EPA by operators that indicates that of the 182,000 tanks that are in the oilfield in the Lower 48, only 17% of those tanks have a vapor recovery unit deployed and actually actively capturing methane vapors, okay? So 31,000 tanks out of a total addressable market of 182,000.

On the right-hand side, you can see that the Permian has adopted these much more aggressively. You mentioned gas prices, Arun, and that's a critical point here. The only reason why an operator will deploy one of our systems is if it makes money for them, okay? There are no methane taxes. There was for a brief moment in time embedded within the Inflation Reduction Act, there was a waste emissions charge that was due to come in, in 2025, but that's been gutted by the new administration. So our market penetration has been as a result of economics. So even at $2 gas, given the composition of the molecules that we actually help operators capture, these things are extremely economic. I'm talking about paybacks for an oil company in the matter of a month or 2 to deploy a VRU to capture fugitive methane emissions.

Now the reason why we don't have greater penetration in places like the Bakken or the DJ is because they lack the natural gas takeaway capacity to actually move the molecules after you capture them. So it's not economic to capture where you don't have natural gas handling, processing and takeaway capacity. But every new pad in the Permian is being hooked up with natural gas takeaway capacity, rising GORs help us here. So the trends are good for us in this space.

Okay. Let's shift gears, talk a little bit about capital allocation. Talk to us about your CapEx plans for 2025, including the mix of sustaining versus growth capital?

Yes. Our -- I think our all-in CapEx is going to be on the order of $140 million-ish and call it, $110 million to $120 million of that is going to be growth. So we estimate only about $20 million of maintenance CapEx to maintain the equipment that we have. If you want to think more broadly of, call it, [ three-ten of -- I think that's your model, three-ten ] of EBITDA for the year, after CapEx, you get down to kind of $200 million of discretionary cash flow. You factor in some interest, you factor in some dividends. You get down to $100 million of -- and some growth CapEx. You get down to $100 million of true free cash flow. We're going to pay down debt. We do have a share buyback authorized, but we've got, I think, a very strong position to continue to diversify the business inorganically as well.

Okay. I want to address some more current events, recent events, your COO, John Gatlin, announced effective August 1, he'd be leaving the company. Talk to us about this departure. It sounds like you're not planning to replace John. You got 2 really strong divisional heads? And maybe talk a little bit about the bench in this decision.

Yes, you bet. So when we formed what is today Flowco, we merged, as I said earlier, 3 businesses together. Well, 3 businesses had 3 different management teams. And when you form something like this, you're obviously picking best athletes for every role. And the 2 divisions that we're organized into Production Solutions and Natural Gas Technologies are run by 2 former CEOs of legacy businesses, okay?

All operations that we perform, be they manufacturing, sales, field service, all report to those 2 individuals and those 2 individuals from the get-go have reported to me, okay? John, as Chief Operating Officer, has led our integration efforts. He has really helped pull together 3 disparate businesses into one cohesive company. Candidly, he was running out of things to do because we're a year into our integration, obviously, post IPO. And so John and I had a conversation about the future of Flowco and my vision for how the business is going to be run, and we agreed that it was probably best to part ways.

Great. More recently, the Board authorized a $50 million buyback. Talk to us about -- and that was in mid-June. Can you elaborate on this decision? Obviously, welcome by investors.

Yes. We look at our share price and obviously, we're not happy. We're trading below IPO. Now the world has changed. And I know that we've guided down, and so there's probably a little bit of investor reaction to where our shares are trading. But the Board agreed with our recommendation that if you put in place an authorization, you can at least be in a position to opportunistically buy back stock if the valuation of the company starts to compete for capital for other opportunities that the company has to grow. And so we've got our organic growth efforts, our M&A efforts, and we're going to keep an eye on where the shares are trading and maybe opportunistically buy a few.

We're not going to put in place. We had no plans to put in place a programmatic share buyback purchase or share buyback program. And look, on a personal note, it just -- it kills me to think that we're going to buy back from the public what we worked so hard to list. But it's the right thing to do if the valuation gets to a point where you just can't ignore it. So we wanted to make the authorization, get it out there, have it available as a tool in the toolkit if and when we feel like we need to use it.

Okay. We have time for 1 or 2 questions. I know the next presentation with our CEO is at 3:30, but any questions from the audience?

[indiscernible] What is maintenance capital looks like for the business as kind of the installed base of rental and [indiscernible] then what is the useful life of the [indiscernible] as well as these things that last 3 years of relatively low ongoing CapEx? Or are you having to constantly replace that?

It's a good question, [ Chetan ]. So $20 million a year of maintenance CapEx is what we have telegraphed to the market. As the rental fleet grows, that maintenance CapEx number will increase pro rata as the number of units -- with the number of units that we add. Useful life of the systems, we think, is on the order of 20 years. Paybacks on new construction of units are on the order of 2 to 4 years. Okay? And contract lengths on these new systems as we build them range from a low of 60 days to a long of 3 years. So we're getting really good contract cover on a long-lived asset with low maintenance CapEx that we can redeploy as the initial contract matures.

So a lot of times, we get questions about capital efficiency. Is this a capital-intensive business to grow? The answer is yes. But the returns on the capital that we're deploying, I think, are quite attractive. And the long-lived nature, low CapEx nature of the assets make them quite unique in the oilfield.

Now sorry, one more thing on that. Our book depreciation is going to be less than this 20 years that I quoted you. So if you look at our financials, you're going to see something that looks more like 12-ish. We're -- it's a constant argument with our auditors on what is the useful life of these systems, but that's how we're depreciating them on the books.

Great. We are out of -- oh, one more. Sorry.

Could you talk about the quality of your fabrication business on the compression side? I know some of your competitors perhaps more generic products, they have terrible margins. Sort of how do you think about the quality of that business and margins going forward?

So our fabrication capability is really our internal supply chain. So that ability -- and our vertical integration, that ability to build our own systems enables us to ramp up and down CapEx far more nimbly than, let's say, the larger horsepower compression operators, okay? Now you're correct, the margins on building those units for sale are quite pedestrian. They're dilutive to our overall company margin. And that's why we're not leaning into the sale of compression systems to third parties.

Got it. Yes. We're out of time. Thank you so much, Joe Bob.

You bet. Thank you, Arun. Appreciate it.