Flowco (FLOC) Q1 2026 Earnings Transcript

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DATE

Wednesday, May 6, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Joseph Edwards
• Chief Financial Officer — Jonathan Byers

TAKEAWAYS

• Adjusted EBITDA -- Flowco Holdings (NYSE:FLOC) reported $85.5 million, achieving the upper end of its guidance range, supported by rental platform growth and gross margin improvement quarter over quarter.
• Free Cash Flow -- $52 million was generated, enabling both debt reduction and shareholder capital returns via dividends and buybacks.
• Rental Revenue Mix -- Rental activities accounted for nearly 60% of total revenue, with steady demand across surface equipment, vapor recovery units, and newly acquired electric submersible pump (ESP) offerings.
• Total Revenue -- $209 million, a 6% sequential increase, driven primarily by the Production Solutions segment and including one month of Valiant contribution.
• Production Solutions Segment Revenue -- $140 million, up 10% sequentially, with adjusted segment EBITDA increasing 7% to $61 million, attributed to growth in Surface Equipment and Valiant addition.
• Adjusted EBITDA Margin -- 40.8%, reflecting sustained industry-leading levels while absorbing incremental corporate costs related to an S-3 filing and secondary offering.
• Natural Gas Technologies Segment Revenue -- $69 million, remaining stable compared to the prior quarter; segment EBITDA was approximately $30 million.
• Growth Capital Investment -- $26 million invested primarily to expand the rental fleet for surface equipment and vapor recovery units.
• Annualized Adjusted Return on Capital Employed -- Approximately 18% for the quarter.
• Corporate Expenses -- Rose to $5.6 million due to non-recurring legal and filing costs; expected to normalize to $5 million per quarter for the rest of 2026.
• Valiant Acquisition -- Closed for $200 million on March 2, 2026; pro forma leverage remains below 1x, and Valiant is projected to contribute approximately $52 million of adjusted EBITDA for full-year 2026.
• Liquidity Position -- $333 million in credit facility borrowings with a $722 million borrowing base, resulting in $388 million of available capacity after the Valiant transaction.
• Share Repurchases -- $16.5 million used for buybacks of 780,000 shares during the quarter in connection with a secondary offering.
• Dividend Increase -- Quarterly cash dividend was raised 12.5% to $0.09 per share, effective May 1, 2026, following Board approval.
• Capital Outlook -- Full-year 2026 capital expenditure guidance of $115 million does not include Valiant; Valiant-related CapEx is expected to total $20 million to $25 million over 10 months.
• Q2 2026 Guidance -- Projected adjusted EBITDA in the range of $93 million to $97 million, reflecting a full quarter of Valiant’s results and continued rental growth.
• Market Environment -- Management cited geopolitical disruptions in the Middle East, stating, "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."
• Segment Revenue Drivers -- Sequential growth in the Production Solutions segment was attributed to both organic surface equipment demand and the Valiant acquisition, while Natural Gas Technologies experienced modest offsetting declines in vapor recovery unit system sales.

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RISKS

• CFO Byers noted that elevated free cash flow in the first quarter is not expected to repeat, citing increased capital expenditure and anticipated partial reversal of temporary working capital reductions in subsequent quarters.
• CEO Edwards stated, "we are not seeing material activity increases as of yet," indicating continued uncertainty in broader customer activity despite geopolitical supply disruptions.
• Integration of Valiant involves navigating longer supply chains for ESPs and potentially slower ramp-up relative to high-pressure gas lift products.
• The company indicated the process for recouping tariffs previously paid by Valiant is "still a little bit murky" and the outcome remains uncertain.

SUMMARY

Management at Flowco Holdings highlighted expanded capabilities in artificial lift following the Valiant acquisition and emphasized recurring rental revenue, which comprised the majority of its revenue mix. The Board’s unanimous approval of a 12.5% dividend increase, as well as substantial flexibility in capital allocation, signaled confidence in free cash flow generation and the balance sheet. Geopolitical instability and major global supply disruptions present both an opportunity and ongoing uncertainty for customer activity and short-cycle oil and gas project deployment.

• Integration synergies from the Valiant deal include deployment of in-house cable installation for ESPs and leveraging digital well monitoring data to proactively upsell gas lift and alternative lift solutions.
• Public ownership has increased following the secondary offering, with average daily trading volume more than doubling year-to-date, and the company has exited "controlled company" status.
• Management reiterated a disciplined approach to capital expenditure, explicitly pacing growth investments alongside customer demand and retaining flexibility backed by vertically integrated manufacturing and six-month equipment lead times.
• Customer demand for vapor recovery units is increasingly skewed to rentals over outright sales, incentivized by flexible contract structures and the ability to scale units down as production pads mature.
• The company maintains an active M&A pipeline targeting expansion of the artificial lift product suite and complementary service offerings, with opportunities being pursued organically or via acquisitions.

INDUSTRY GLOSSARY

• ESP (Electric Submersible Pump): Downhole pump system used to lift hydrocarbons, especially in high-volume wells, enabling artificial lift where reservoir pressure is insufficient.
• High-Pressure Gas Lift (HPGL): Artificial lift technology that injects high-pressure gas into the well to enhance the flow of oil or gas from the reservoir to the surface.
• VRU (Vapor Recovery Unit): Equipment used to capture and compress hydrocarbon vapors for sale or reuse, preventing emissions from venting or flaring at well sites.
• NGT (Natural Gas Technologies): Refers to Flowco’s segment focused on vapor recovery systems and related natural gas capture or processing solutions.
• DUC (Drilled but Uncompleted) Inventory: Wells that have been drilled but not yet completed for production, representing potential near-term production additions.

Full Conference Call Transcript

Joseph Edwards: 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.

Jonathan Byers: 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.

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

Derek Podhaizer: 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?

Joseph Edwards: 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.

Derek Podhaizer: 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?

Joseph Edwards: 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.

Operator: Your next question comes from Arun Jayaram from JPMorgan.

Arun Jayaram: 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.

Joseph Edwards: 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.

Arun Jayaram: 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.

Joseph Edwards: 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.

Arun Jayaram: And Jon, just thoughts on scaling that business.

Jonathan Byers: 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.

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

Phillip Jungwirth: 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?

Joseph Edwards: 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.

Phillip Jungwirth: 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?

Joseph Edwards: 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.

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

Keith Beckmann: 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.

Joseph Edwards: 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.

Keith Beckmann: 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?

Jonathan Byers: 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.

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

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

Joseph Edwards: 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.

John Daniel: 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?

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

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

Joseph Edwards: 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?

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

Joseph Edwards: 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.

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

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

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

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