Flowco NYSE: FLOC reported second-quarter results that included sequential revenue growth, adjusted EBITDA of about $94 million and $50 million in free cash flow, supported by rental-business growth, a full-quarter contribution from its Valiant acquisition and stronger downhole-components sales.
President and Chief Executive Officer Joe Bob Edwards said revenue rose 13% from the first quarter, while adjusted EBITDA increased 10%. The company maintained an adjusted EBITDA margin of roughly 40% during the period. Rental revenue accounted for 56% of quarterly revenue, providing what Edwards described as a high degree of revenue visibility.
“The second quarter demonstrated our ability to deliver profitable growth, generate meaningful free cash flow, and continue executing on our long-term strategy,” Edwards said.
Production Solutions Drives Sequential Growth
Total second-quarter revenue was $236 million, up 13% sequentially. Chief Financial Officer Jon Byers said growth was primarily driven by the Production Solutions segment, where revenue increased 22% from the prior quarter to $171 million. Adjusted segment EBITDA rose about 16% to $71 million.
The increase was led by the downhole-components business, including contributions from Valiant, which Flowco acquired to expand its electrical submersible pump, or ESP, capabilities. Byers said Valiant was performing ahead of the company’s expectations and that integration activities were substantially complete.
Production Solutions adjusted EBITDA margin declined 229 basis points sequentially. Byers attributed the decline to a revenue mix shift toward downhole components following Valiant’s inclusion, as well as higher operating and maintenance costs, including lubricant and fuel expenses.
The company expects those cost pressures to continue into the third quarter. Management said it is seeking to mitigate the impact through cost management, maintenance-program efficiencies, overtime optimization and efforts to reduce fuel and lubricant costs where possible.
Edwards said lubricant costs are being affected by elevated refining crack spreads, and the company has limited ability to pass the higher costs through to customers. Flowco periodically locks in lubricant prices, but its most substantial existing contract is priced 90 days in advance, meaning third-quarter costs are largely set, according to management.
Natural Gas Systems Sales Decline, Rental Business Grows
In the Natural Gas Systems segment, revenue and adjusted segment EBITDA each declined 6% sequentially, to approximately $65 million and $28 million, respectively. Byers said lower vapor-recovery-system sales more than offset continued growth in the vapor-recovery rental business.
Edwards said Flowco continues to view vapor recovery as a growth opportunity, particularly in the Permian Basin, where vapor recovery units, or VRUs, are increasingly included in well-pad facility designs. He also cited additional pipeline takeaway capacity and the growth of in-basin power generation as potential tailwinds for VRU adoption.
Management characterized quarter-to-quarter changes in VRU sales as part of the business’s normal lumpiness, while maintaining confidence in its ability to either sell systems to customers or add equipment to its rental fleet.
Cash Flow, Capital Spending and Shareholder Returns
Flowco generated approximately $50 million in free cash flow during the quarter while investing $45 million of capital. The capital spending primarily supported expansion of surface-equipment and vapor-recovery rental fleets and continued growth at Valiant. The company’s annualized adjusted return on capital employed was approximately 18% for the quarter.
Byers said capital investment was elevated because of Valiant and rental-fleet expansion, but Flowco’s full-year capital outlook was unchanged. He said the company’s vertically integrated manufacturing model and approximately six-month equipment lead time give it flexibility to respond to demand.
As of Aug. 7, Flowco had approximately $274 million of borrowings under its credit facility, against a borrowing base of $722 million, leaving about $446 million of available capacity. Management said leverage had fallen below one times.
The board approved a one-time special dividend of $0.14 per Class A share, in addition to a quarterly discretionary dividend of $0.09 declared July 30. Byers said the special dividend reflects cash accumulated under Flowco’s Up-C ownership structure and that the company does not expect similar special dividends in the future.
Third-Quarter Outlook and Valiant Opportunities
Flowco forecast third-quarter adjusted EBITDA of $92 million to $98 million. Management expects surface-equipment activity to remain relatively flat sequentially and anticipates a modest increase in Natural Gas Systems activity, driven by its packaging business. The company noted that its downhole-components business, including Valiant, can be more variable on a quarter-to-quarter basis than its rental operations.
Edwards said Flowco is using its broader customer base to expand Valiant’s commercial reach. He cited an immediate cross-selling opportunity involving Flowco’s cap-and-spooling service, which installs ESP cable and capillary strings. Flowco is increasingly using its internal capabilities on Valiant ESP installations rather than relying on external providers, he said.
The company also plans to use operational data from Valiant’s Optimus monitoring and optimization software to identify intervention needs and potential transitions among artificial-lift methods. Edwards said the technology currently relies on people monitoring real-time ESP operating data, while AI could eventually support predictive analytics and autonomous operational adjustments with customer approval.
Management said adoption of AI-enabled operations remains at an early stage among U.S. onshore customers, with operators showing varying levels of comfort with reducing human involvement in managing large well portfolios.
About Flowco (NYSE:FLOC)
We are a leading provider of production optimization, artificial lift and methane abatement solutions for the oil and natural gas industry. Our products and services include a full range of equipment and technology solutions that enable our customers to efficiently and cost-effectively maximize the profitability and economic lifespan of the production phase of their operations. Our principal products and services are organized into two business segments: (i) Production Solutions; and (ii) Natural Gas Technologies.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Continue following MarketBeat
Add MarketBeat as your preferred source on Google to see our latest stories in your feed.
Before you consider Flowco, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Flowco wasn't on the list.
While Flowco currently has a Moderate Buy rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
The space race is growing fast, and you don’t have to have gotten in early on SpaceX to profit. This report shows seven space stocks you can buy today that may grow as rockets, satellites, defense, space internet, and new space technology become more important.
Get This Free Report
