S-1: Flowco Holdings Inc. Files for Initial Public Offering on NYSE

Flowco Holdings Inc., a leading provider of production optimization, artificial lift, and methane abatement solutions, has filed for an initial public offering of its Class A common stock on the New York Stock Exchange under the ticker symbol FLOC.

Summary

• Flowco Holdings Inc. is going public with an initial public offering of Class A common stock.
• The company is a leading provider of production optimization, artificial lift, and methane abatement solutions for the oil and natural gas industry.
• Flowco operates in two segments: Production Solutions and Natural Gas Technologies.
• The company has a fleet of over 4,300 active systems as of September 30, 2024.
• The initial public offering price is estimated to be between $ and $ per share.
• The company intends to list its Class A common stock on the New York Stock Exchange under the symbol FLOC.
• Following the offering, the company will have two classes of common stock: Class A and Class B.
• Class B common stock will be held by the Continuing Equity Owners and will represent approximately % of the voting power after the offering.
• The company will enter into a Tax Receivable Agreement with certain Continuing Equity Owners and Blocker Shareholders that will provide for certain cash payments in respect of certain of the future tax benefits received by Flowco Holdings Inc.
• The company will be a holding company and its principal asset will consist of LLC Interests in Flowco LLC.
• The company will be a controlled company within the meaning of the NYSE rules.
• The company is an emerging growth company and will be subject to reduced disclosure and public reporting requirements.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook for the company, highlighting its strengths, strategies, and market position. However, it also acknowledges risks and challenges, which tempers the overall sentiment. The document is a prospectus, so it is expected to be positive, but it also includes a risk section, which is a standard part of a prospectus.

Positives

• The company is a pure play market leader for production optimization, artificial lift and methane abatement.
• The company has differentiated technologies and services that drive superior returns for its customers.
• The company has a broad scope of production services that distinguishes it from competitors and supports retention and long-term partnerships with customers.
• The company's cash flows are driven by customers recurring production operating expenditures rather than short-term drilling and completion capital expenditures.
• The company has a vertically integrated supply chain that drives technology implementation and delivers industry leading margins and returns.
• The company has a high quality and diverse customer base of leading oil and natural gas producers across every major onshore producing region in the U.S.
• The company has best-in-industry technical capabilities that drive continuous improvement and a robust technology pipeline.
• The company has a highly experienced management team that has driven substantial value creation for stakeholders in past endeavors.
• The company has a substantial fleet of service equipment with long useful lives, low maintenance capital requirements and low customer churn that drive earnings durability and support strong returns.
• The company has a strong balance sheet that provides ample access to capital and flexibility to support its strategic objectives.

Negatives

• The company has identified material weaknesses in its internal control over financial reporting.
• The company is subject to risks relating to existing international operations and expansion into new geographical markets.
• The company could lose customers or generate lower revenue, operating profits and cash flows if there are significant increases in the cost of raw materials or if it is unable to obtain raw materials.
• The company might be unable to successfully compete with other companies in its industry.
• The company could be directly affected by adverse litigation or indirectly affected if the cost of compliance or the risks of liability limit the ability or willingness of our customers to operate.
• The company is subject to information technology, cybersecurity and privacy risks.
• The company's failure to successfully integrate the businesses of Estis, FPS and Flogistix from the 2024 Business Combination may adversely affect the value of our Class A common stock.

Risks

• Trends in crude oil and natural gas prices may affect production-related activities and production-related operating expenditures by our customers, and therefore the demand for, and profitability of, our products and services.
• Decreased expenditures by our customers can adversely impact our customers demand for our products and services and our revenue.
• Our operations could be adversely affected by global market and economic conditions in ways we may not be able to predict or control.
• Investor sentiment towards climate change, fossil fuels and other Environmental, Social and Governance matters could adversely affect our access to and cost of capital and stock price.
• Federal, state and local legislative and regulatory initiatives relating to oil and gas development and the potential for related litigation could result in increased costs and additional operating restrictions or delays for our customers, which could reduce demand for our products.
• We and our customers are subject to extensive environmental and health and safety laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.
• Following this offering, GEC and White Deer will collectively control us, and each of them will individually have significant influence over us, including control over decisions that require the approval of stockholders.
• We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and share price.

Future Outlook

The company expects the demand for production optimization, artificial lift and methane abatement solutions to continue to rise, and many of its customers are currently utilizing Flowco products in one or more but not all of its product categories. The company believes there is ample opportunity for it to accelerate growth in its business by capturing additional revenue with key customers through cross-selling of additional Flowco products and services in the near-term.

Management Comments

• Our products are chosen due to their reliability and ability to aid our customers in achieving maximum output and cash flow from their producing wells.
• We believe that the demand for our products and services is more stable than demand for drilling and completion related services, and this demand has resulted in a more durable, recurring cash flow for our products and services than is typical in many other oilfield services.
• We believe our HPGL systems can deliver the same, or better, production rates when compared to electric submersible pump (ESP) systems, which are commonly used for the initial phase of a wells production.
• We believe we have a high rate of contract renewal and long-term deployments due to the high reliability of our systems and our high levels of customer service.

Industry Context

The company operates in the oil and natural gas industry, which is cyclical and experiences periodic downturns. The demand for the company's products and services is sensitive to the level of operating and capital spending by oil and natural gas companies. The production phase of a well is the most stable and least capital-intensive phase of the well lifecycle, driving consistent revenue, durable earnings and stable through-cycle performance for the company's business. The company's products and services also integrate proprietary digital technologies that allow for remote monitoring and control, and other enhanced uses of its equipment. The company's VRUs and other methane abatement solutions capture fugitive emissions of methane, which is a natural byproduct of oil production. Demand for these solutions was initially driven by safety benefits, but accelerated as producers became more aware of the value of monetizing captured vapors, leading to high return on investment outcomes for our customers. Due to recent and emerging regulatory requirements aimed at reducing fugitive methane emissions across oil and natural gas operations from numerous Federal and state-level entities, operating expenses associated with our methane abatement solutions have become increasingly required and therefore non-discretionary in nature.

Comparison to Industry Standards

• The document positions Flowco as a leader in production optimization, artificial lift, and methane abatement, emphasizing its comprehensive solutions and technology leadership.
• Flowco's focus on the production phase of the well lifecycle, which is less capital-intensive and more stable than drilling and completion, is a key differentiator from many other oilfield service companies.
• The company's vertically integrated supply chain, which includes domestic manufacturing of core technologies like HPGL and VRUs, is a competitive advantage compared to companies that rely on third-party vendors.
• Flowco's emphasis on digital solutions and remote monitoring capabilities aligns with the industry trend towards automation and data-driven decision-making.
• The company's focus on methane abatement solutions positions it well to capitalize on the growing demand for environmentally responsible technologies in the oil and gas industry.
• The document highlights Flowco's strong customer relationships with leading oil and gas producers, which is a key factor for success in the industry.
• The company's financial metrics, such as pro forma revenue and Adjusted EBITDA, are not directly compared to specific industry benchmarks, but the document emphasizes the company's strong margins and returns.

Related Party Transactions

• Prior to the completion of this offering, Flowco Holdings Inc. will enter into a Tax Receivable Agreement with certain Continuing Equity Owners and the Blocker Shareholders that will provide for certain cash payments to be made by Flowco Holdings Inc. to such Continuing Equity Owners and the Blocker Shareholders in respect of certain of the future tax benefits received by Flowco Holdings Inc.
• In connection with the Transactions, and immediately prior to the consummation of this offering, GEC and White Deer will effect transactions that result in the distribution of LLC Interests held directly by the Original Equity Owners to their direct or indirect members, including the Continuing Equity Owners and the Blocker Shareholders that will remain affiliates of GEC and White Deer.
• Under the Stockholders Agreement, (i) GEC will have the right to designate two (2) of our directors, or the GEC Directors, for as long as GEC and its affiliates (the GEC Affiliates) beneficially own, directly or indirectly, in the aggregate at least 20% of our issued and outstanding Class A common stock (assuming that all outstanding LLC Interests in Flowco LLC are redeemed for newly issued shares of our Class A common stock on a one-for-one basis) (our Deemed Outstanding Class A Shares), and if at any time the GEC Affiliates beneficially own, directly or indirectly, in the aggregate less than 20% and at least 10% of our Deemed Outstanding Class A Shares, GEC will have the right to designate one (1) of our directors as a GEC Director, and (ii) White Deer will have the right to designate one (1) of our directors, or the White Deer Director, which will be the White Deer Director for as long as White Deer beneficially owns, directly or indirectly, in the aggregate, at least 10% of our Deemed Outstanding Class A Shares.
• The initial directors upon the consummation of this offering will be Jonathan B. Fairbanks and Alexander Chmelev, as the GEC Directors, Ben A. Guill, as the White Deer Director, Joseph R. Edwards, our CEO, and three independent directors mutually agreed by GEC and White Deer.
• Following the consummation of this offering, (i) for so long as the GEC Affiliates beneficially own, directly or indirectly, in the aggregate at least 30% of our Deemed Outstanding Class A Shares, GEC will also be entitled to designate for nomination by the board of directors (the Board) in any applicable election, that number of individuals who satisfy specified NYSE and SEC independence requirements (the Independence Requirements), which, assuming all such individuals are successfully elected to the board, when taken together with any incumbent independent director initially designated at the closing of this offering or subsequently designated for nomination by GEC (an Independent Director) not standing for election in such election, would result in there being at least three (3) Independent Directors on the Board (and to designate for nomination by the Board in any applicable election any other directors intended to qualify as Independent Directors), and (ii) if at any time, the GEC Affiliates beneficially own, directly or indirectly, in the aggregate less than 30% but at least 20% of the Deemed Outstanding Class A Shares, GEC will be entitled to designate for nomination by the Board in any applicable election that number of individuals who each satisfy the Independence Requirements, which, assuming all such individuals are successfully elected to the Board, when taken together with any incumbent Independent Director not standing for election in such election, would result in there being two (2) Independent Director serving on the Board.
• Under the Stockholders Agreement, GEC and White Deer will also have special consent rights with respect to certain actions by the company and its subsidiaries as long as GEC Affiliates or White Deer Affiliates, respectively, beneficially own, directly or indirectly, at least 10% of the Deemed Outstanding Class A Shares.
• We will enter into a Tax Receivable Agreement with the Continuing Equity Owners, the Blocker Shareholders, and other persons from time to time that may become a party thereto (collectively the TRA Participants) that will provide for the payment by Flowco Holdings Inc. to the TRA Participants of 85% of the amount of tax benefits, if any, that Flowco Holdings Inc. actually realizes (or in some circumstances is deemed to realize) as a result of (i) Flowco Holdings Inc.s allocable share of existing tax basis acquired in connection with the Transactions and increases to such allocable share of existing tax basis; (ii) Flowco Holdings Inc.s utilization of certain tax attributes of the Blocker Companies (as defined above) (including the Blocker Companies allocable share of existing tax basis); (iii) increases in tax basis resulting from (a) Flowco Holdings Inc.s (and the Blocker Companies) purchase of LLC Interests directly from Flowco LLC, as described under Use of Proceeds, (b) future redemptions or exchanges (or deemed exchanges in certain circumstances) of LLC Interests for Class A common stock or cash as described above under Redemption rights of holders of LLC Interests and (c) certain distributions (or deemed distributions) by Flowco LLC (any resulting tax basis increases, the Basis Adjustments); and (iv) certain additional tax benefits arising from payments made under the Tax Receivable Agreement.
• Pursuant to the Registration Rights Agreement, we will, subject to the terms and conditions thereof, agree to register the resale of the shares of our Class A common stock that are issuable to certain of the Continuing Equity Owners in connection with the Transactions.

Stakeholder Impact

• Shareholders will have the opportunity to invest in a leading provider of production optimization, artificial lift and methane abatement solutions.
• Employees will have the opportunity to participate in the company's growth through equity ownership.
• Customers will benefit from the company's innovative and reliable products and services.
• Suppliers will have the opportunity to partner with a growing company.
• Creditors will be repaid with the proceeds from the offering.

Next Steps

• The company intends to apply to list its Class A common stock on The New York Stock Exchange (the NYSE) under the symbol FLOC.
• The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York on , 2024.
• Through and including , 2025 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus.

Key Dates

Keywords

production optimization, artificial lift, methane abatement, oil and gas, energy, vapor recovery, gas lift, plunger lift, digital solutions, emissions reduction