Flowco Holdings Q4 2024: Unraveling Contradictions in Production, Margins, and Demand

These are the key contradictions discussed in Flowco Holdings Inc.'s latest 2024 Q4 earnings call, specifically including: Blackwell production and supply chain constraints, gross margin expectations, and issues with product roadmap execution and supply chain:



Financial Performance and Revenue Growth:
- Flowco Holdings reported adjusted net income of $28.8 million on revenues of $186 million for Q4 2024, with revenue down approximately 1.8% quarter-over-quarter.
- The growth was achieved organically by investing in high pressure gas lift and vapor recovery, two fastest growing business lines, despite a relatively flat production environment.

Segment Performance and Margin Expansion:
- Production Solutions revenue for Q4 was $113.3 million, with adjusted segment EBITDA growing 5.2% quarter-over-quarter, and adjusted segment EBITDA margins increasing by 150 basis points.
- This was due to a shift in revenue mix from downhole solutions to surface equipment, which is more profitable, and higher operating leverage.

Natural Gas Technologies and Vapor Recovery:
- Natural Gas Technologies revenue decreased 6.5% to $72.7 million, but adjusted EBITDA grew 4.5%, with an increase in adjusted EBITDA margins by 400 basis points.
- The decline in revenue was due to the completion of a large customer project, but strong performance in vapor recovery offset this impact.

Capital Expenditure and ROCE:
- Flowco invested $35.4 million in Q4, mainly for growing the surface equipment and vapor recovery rental fleet, achieving an annualized adjusted ROCE of approximately 20%.
- The significant capital investments are expected to drive incremental returns, leading to increased profitability in the latter half of 2025.

2025 Outlook and Dividend Consideration:
- For 2025, Flowco anticipates a similar level of capital investment as in 2024, focusing on growing the rental fleet, and is considering initiating a sustainable dividend.
- The company is optimistic about its strategic position and expects new opportunities in high pressure gas lift and vapor recovery to contribute to growth in 2025.