As filed with the Securities and Exchange Commission on December 20, 2024.

 

Registration No. 333-283663

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Flowco Holdings Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		3533		99-4382473
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification No.)

1300 Post Oak Blvd., Suite 450

Houston, Texas 77056

Telephone: 713-997-4877

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

Joseph R. Edwards

President and Chief Executive Officer

1300 Post Oak Blvd., Suite 450

Houston, Texas 77056

Telephone: 713-997-4877

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

David C. Buck John W. Stribling Sidley Austin LLP 1000 Louisiana Street, Suite 5900 Houston, Texas 77002 Telephone: (713) 495-4500		Ryan J. Maierson Nick S. Dhesi Latham & Watkins LLP 811 Main Street, Suite 3700 Houston, Texas 77002 Telephone: (713) 546-5400

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☐
				Emerging growth company		☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated December 20, 2024.

  Shares

 

Flowco Holdings Inc.

Class A Common Stock

This is an initial public offering of shares of Class A common stock of Flowco Holdings Inc. We are selling      shares of Class A common stock.

Prior to this offering, there has been no public market for the Class A common stock. It is currently estimated that the initial public offering price per share of Class A common stock will be between $   and $  . We intend to apply to list our Class A common stock on The New York Stock Exchange (the “NYSE”) on the under the symbol “FLOC.” This offering is contingent upon final approval of our listing of the Class A common stock on the NYSE.

We will have two classes of common stock outstanding after this offering: Class A common stock and Class B common stock. Each share of our Class A common stock entitles its holder to one vote per share and each share of our Class B common stock entitles its holder to one vote per share on all matters presented to our stockholders generally. Immediately following the consummation of this offering, all of the outstanding shares of our Class B common stock will be held by the Continuing Equity Owners (as defined herein), which will represent in the aggregate approximately  % of the voting power of our outstanding common stock after this offering (or approximately  % if the underwriters exercise in full their option to purchase additional shares).

Our post-offering organizational structure, commonly referred to as an umbrella partnership-C-corporation, or UP-C structure, provides potential future tax benefits to both Flowco Holdings Inc. and our Continuing Equity Owners. Prior to the completion of this offering, Flowco Holdings Inc. will enter into a Tax Receivable Agreement (as defined herein) with certain Continuing Equity Owners and the Blocker Shareholders (as defined herein) 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., utilizing cash for the benefit of such unitholders that otherwise would have been available to us for other uses and for the benefit of all of our stockholders. See “Certain Relationships and Related Person Transactions—Tax Receivable Agreement.”

We will be a holding company, and upon consummation of this offering and the application of proceeds therefrom, our principal asset will consist of LLC Interests (as defined herein) we acquire directly from Flowco MergeCo LLC (“Flowco LLC”) with the proceeds from this offering and indirectly from the Blocker Shareholders (as defined herein) collectively representing an aggregate  % economic interest in Flowco LLC. The remaining  % economic interest in Flowco LLC will be owned by the Continuing Equity Owners through their ownership of LLC Interests.

Flowco Holdings Inc. will be the sole managing member of Flowco LLC. We will operate and control all of the business and affairs of Flowco LLC and its direct and indirect subsidiaries and, through Flowco LLC and its direct and indirect subsidiaries, conduct our business.

Following this offering, we will be a “controlled company” within the meaning of the NYSE rules. See “Our Organizational Structure” and “Management—Controlled Company Exception.”

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, and will be subject to reduced disclosure and public reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.

 

 

Investing in our Class A common stock involves risks. See “Risk Factors“ beginning on page 26 to read about factors you should consider before buying shares of our Class A common stock.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

		Per Share				Total
Initial public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Proceeds, before expenses, to Flowco Holdings Inc.		$				$

 

(1)

We refer you to “Underwriting” beginning on page 161 of this registration statement for additional information regarding underwriting compensation.

The underwriters have the option to purchase up to an additional      shares of Class A common stock from us at the initial price to the public less the underwriting discount within 30 days of the date of this prospectus.

The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York on    , 2024.

 

 

 

 

J.P. Morgan		Jefferies		Piper Sandler

 

Evercore ISI		BofA Securities		BMO Capital Markets

 

Pickering Energy Partners		Fearnley Securities		Pareto Securities

 

		TPH&Co.

 

Prospectus dated    , 2024

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY			1
RISK FACTORS			26
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			56
OUR ORGANIZATIONAL STRUCTURE			59
USE OF PROCEEDS			64
CAPITALIZATION			65
DIVIDEND POLICY			67
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION			71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			85
INDUSTRY OVERVIEW			104
BUSINESS			114
MANAGEMENT			131
EXECUTIVE COMPENSATION			138
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			144
PRINCIPAL STOCKHOLDERS			158
DESCRIPTION OF CAPITAL STOCK			161
DESCRIPTION OF INDEBTEDNESS			168
SHARES ELIGIBLE FOR FUTURE SALE			171
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO NON-U.S. HOLDERS OF CLASS A COMMON STOCK			173
UNDERWRITING			177
LEGAL MATTERS			187
EXPERTS			187
WHERE YOU CAN FIND MORE INFORMATION			187
GLOSSARY OF OIL AND GAS TERMS			189
INDEX TO FINANCIAL STATEMENTS			F-i

We have not, and the underwriters have not, authorized anyone to give you any information other than in this prospectus and the information incorporated by reference herein. We can provide no assurances as to the reliability of any other information that others may give you. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus that we file with the Securities and Exchange Commission. This prospectus is an offer to sell only the shares offered by this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

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

 

i

prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

For investors outside the United States: We have not, and the underwriters have not, done anything that would permit this offering or the possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of Class A common stock and the distribution of this prospectus outside the United States. See “Underwriting.”

 

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BASIS OF PRESENTATION

Organizational Structure

In connection with the closing of this offering, we will undertake certain organizational transactions to reorganize our corporate structure. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the organizational transactions described in the section titled “Our Organizational Structure” and this offering, and the application of the proceeds therefrom, which we refer to collectively as the “Transactions.”

See “Our Organizational Structure” for a diagram depicting our organizational structure after giving effect to the Transactions, including this offering.

Certain Definitions

As used in this prospectus, unless the context otherwise requires, references to:

 

•

“2024 Business Combination” refers to the acquisition by Flowco LLC, on June 20, 2024, of 100% of the membership interests of each of Estis Intermediate, Flowco Productions and Flogistix Intermediate, as described more fully in “Summary—Recent Developments—2024 Business Combination” and elsewhere in this prospectus.

 

•

“Blocker Companies” refers to (i) WD Thunder CV Parallel Blocker LP, (ii) WDE Flogistix Upper TE, LLC, (iii) WDE Flogistix Upper FI, LLC, (iv) GEC III-GI FPS Blocker Corp. and (v) GEC III-GI Estis Blocker Corp.

 

•

“Blocker Shareholders” refer to the owners of the Blocker Companies prior to the Transactions, who will exchange their interests in the Blocker Companies for shares of our Class A common stock in connection with the consummation of the Transactions.

 

•

“Continuing Equity Owners” refer collectively to holders of LLC Interests and our Class B common stock immediately following consummation of the Transactions, including certain executive officers, employees and other minority investors and their respective permitted transferees who may, following the consummation of this offering, exchange at each of their respective options, in whole or in part from time to time, their LLC Interests (along with an equal number of shares of Class B common stock (and such shares shall be immediately cancelled)) for, at our election, cash or newly-issued shares of our Class A common stock as described in “Certain Relationships and Related Party Transactions—Flowco LLC Agreement—Agreement in Effect Upon Consummation of the Transactions.”

 

•

“Estis” means Estis Compression, LLC, a Delaware limited liability company. Estis Compression, LLC is the predecessor to Flowco LLC (as defined below).

 

•

“Estis Intermediate” means Estis Intermediate Holdings, LLC, a Delaware limtied liability company.

 

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“Estis Member” means GEC Estis Holdings, LLC, as an Original Equity Owner following the 2024 Business Combination.

 

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“Flogistix” means Flogistix, LP, a Texas limited partnership.

 

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“Flogistix Intermediate” means Flogistix Intermediate Holdings, LLC, a Delaware limited liability company.

 

•

“Flogistix Member” means Flogistix Holdings, LLC, as an Original Equity Owner following the 2024 Business Combination.

 

•

“Flowco LLC” refers to Flowco MergeCo LLC, a Delaware limited liability company. Flowco LLC was formed during June 2024 to effectuate the 2024 Business Combination.

 

iii

•

“Flowco LLC Agreement” refers to Flowco LLC’s second amended and restated limited liability company agreement, which will become effective substantially concurrently with or prior to the consummation of this offering.

 

•

“Flowco MasterCo” means Flowco MasterCo LLC, a Delaware limited liability company and a wholly owned subsidiary of Flowco LLC.

 

•

“Flowco Productions” means Flowco Productions LLC, a Delaware limited liability company.

 

•

“FPS” or the “FPS Member” means Flowco Production Solutions, L.L.C., as an Original Equity Owner following the 2024 Business Combination. The FPS Member contributed substantially all of its assets to Flowco Productions immediately prior to the contribution of its equity interests in connection with the 2024 Business Combination, and for purposes of such historical financial statement presentations herein, we refer to such entity as “FPS.”

 

•

“GEC” means GEC Advisors LLC, a Delaware limited liability company.

 

•

”GEC Affiliates” means GEC and its affiliates, including Jonathan B. Fairbanks.

 

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“LLC Interests” refer to the common units of Flowco LLC, including those that we purchase with a portion of the net proceeds from this offering.

 

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“Original Equity Owners” refer to the owners of LLC Interests in Flowco LLC prior to the consummation of the Transactions, collectively, which consist of FPS Member, Estis Member and Flogistix Member.

 

•

“Transactions” refer to the organizational transactions and this offering, and the application of the net proceeds therefrom.

 

•

“we,” “us,” “our,” the “Company,” “Flowco” and similar references refer: (i) following the consummation of the Transactions, including this offering, to Flowco Holdings Inc., and, unless otherwise stated, all of its direct and indirect subsidiaries, including Flowco LLC; and (ii) prior to the completion of the Transactions, including this offering, to Flowco LLC and, unless otherwise stated, all of its direct and indirect subsidiaries, or, as applicable, the Predecessor.

 

•

“White Deer” means White Deer Management LLC, a Delaware limited liability company.

 

•

”White Deer Affiliates” means White Deer and its affiliates.

Flowco Holdings Inc. will be a holding company and the sole managing member of Flowco LLC, and upon consummation of the Transactions, its principal asset will consist of its direct ownership in LLC Interests and a direct non-economic managing member interest in Flowco LLC.

Presentation of Financial Information

Estis and Flowco LLC are accounting predecessors of Flowco Holdings Inc. for financial reporting purposes. Flowco Holdings Inc. will be the public registrant and successor entity following this offering. Accordingly, this prospectus contains the following historical financial statements:

 

•

Flowco Holdings Inc. Other than the balance sheet, dated as of November 30, 2024, the historical financial information of Flowco Holdings Inc. is not included in this prospectus as it is a newly incorporated entity, has no business transactions or activities to date and had no assets or liabilities during the periods presented in this prospectus. Flowco Holdings Inc. will be the successor upon completion of the organizational transactions discussed in this registration statement.

 

iv

•

Flowco LLC. Flowco LLC prior to the 2024 Business Combination was determined to lack commercial substance as it had not engaged in any business activities and therefore, one or more of the operating companies would be deemed the accounting acquirer.

 

•

Estis. Estis was determined to be the accounting acquirer and predecessor to Flowco LLC and Flowco Holdings Inc. primarily based on its relative size when compared to the other two merging entities, majority of economics, majority of board seats nominated as well as significant representation on the executive management team upon the closing of the 2024 Business Combination.

On June 20, 2024, Flowco LLC acquired 100% of the membership interests of each of Estis Intermediate, Flowco Productions and Flogistix Intermediate. We refer to these business combinations as the “2024 Business Combination.” In connection with the 2024 Business Combination, Estis Member contributed substantially all of its assets (including the membership interest of Estis Compression LLC) to Estis Intermediate immediately prior to the consummation of the 2024 Business Combination and the contribution of the membership interest of Estis Intermediate to Flowco LLC. FPS Member also contributed substantially all of its assets to Flowco Productions LLC immediately prior to the consummation of the 2024 Business Combination and the contribution of the membership interests of Flowco productions LLC to Flowco LLC. Flogistix Holdings, LLC also contributed substantially all of its assets (including the equity interests in Flogistix GP, LLC and Flogistix, LP) to Flogistix Intermediate Holdings, LLC immediately prior to the consummation of the 2024 Business Combination and the contribution of the membership interests of Flogistix Intermediate Holdings, LLC to Flowco LLC.

Except as noted in this prospectus, the unaudited pro forma financial information of Flowco Holdings Inc. presented in this prospectus has been derived from the application of pro forma adjustments to the historical consolidated financial statements of Flowco LLC as the predecessor of Flowco Holdings Inc. and the historical consolidated financial statements of FPS and Flogistix as significant acquirees and all are included elsewhere in this prospectus. Subsequent to the 2024 Business Combination on June 20, 2024 the unaudited pro forma financial information of Flowco Holdings Inc. have been derived from the application of pro forma adjustments to the historical consolidated financial statements of Flowco LLC and its subsidiaries. These pro forma adjustments give effect to the 2024 Business Combination and the Transactions as described in “Our Organizational Structure,” including the consummation of this offering, as if all such transactions had occurred on January 1, 2023 in the case of the unaudited pro forma condensed consolidated statements of operations data, and as of September 30, 2024 in the case of the unaudited pro forma condensed consolidated balance sheet data. See “Unaudited Pro Forma Condensed Consolidated Financial Information” for a complete description of the adjustments and assumptions underlying the pro forma financial information included in this prospectus. References to the “Pro Forma Fiscal Year 2023” refer to the pro forma financial information derived from or presented in the “Unaudited Pro Forma Condensed Consolidated Financial Information” for the year ended December 31, 2023 and references to the “Pro Forma for the nine months ended September 30, 2024” refer to the pro forma financial information derived from or presented in the “Unaudited Pro Forma Condensed Consolidated Financial Information” for the nine months ended September 30, 2024.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Percentage amounts included in this prospectus have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this prospectus may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in this prospectus. Certain other amounts that appear in this prospectus may not sum due to rounding.

 

v

Non-GAAP Financial Measures

We use non-GAAP financial measures, such as EBITDA and Adjusted EBITDA, to supplement financial information presented in accordance with generally accepted accounting principles in the United States, or GAAP. We believe that excluding certain items from our GAAP results provides management additional insight on the consolidated financial performance from period to period to project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP financial measures provide our stakeholders with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period to period comparisons. We define EBITDA as net income, plus interest expense, provision for income taxes and depreciation and amortization expense. We define Adjusted EBITDA as EBITDA plus share-based compensation expense, and other non-cash and non-recurring expense. There are limitations to the use of the non-GAAP financial measures presented in this prospectus. For example, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. See “Prospectus Summary—Summary Historical and Pro Forma Condensed Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

TRADEMARKS

This prospectus includes our trademarks and trade names which are protected under applicable intellectual property laws and are our property. This prospectus also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this prospectus may appear without the ^®, ^™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent permitted under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry, competitive position and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our Class A common stock. The occurrence of any of the events described below could adversely affect our business, results of operations, financial condition, reputation, and prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, results of operations, financial condition, and prospects. See “Cautionary Note Regarding Forward-Looking Statements.”

Risks Related to Our Business

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.

The oil and natural gas industry is cyclical in nature and experiences periodic downturns of varying length and severity. Demand for our products and services is sensitive to the level of operating and capital spending by global oil and natural gas companies, and in particular production-related operating expenditures. The level of production-related operating expenditures is directly affected by trends in crude oil and natural gas prices, which are influenced by numerous factors affecting the supply and demand for oil and gas, including:

 

•

worldwide economic activity, including potential disruption to global trade;

 

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supplies of, and demand for, oil and gas both domestically and globally;

 

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the level of exploration and production activity;

 

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the industry cost of, and access to, capital;

 

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environmental regulation;

 

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domestic and global political and economic uncertainty, socio-political unrest and instability, terrorism or hostilities;

 

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U.S. federal, state and foreign government policies and regulations regarding current and future exploration and development of oil and gas;

 

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the ability and/or desire of the Organization of the Petroleum Exporting Countries (“OPEC”) and other major international producers (collectively, with OPEC, “OPEC+”) to set and maintain production levels and influence pricing;

 

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the cost of exploring and producing oil and gas;

 

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the availability, expiration date and price of onshore and offshore leases;

 

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the discovery rate of new oil and gas reserves in onshore and offshore areas;

 

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the success of drilling for oil and gas in unconventional resource plays such as shale formations;

 

•

the depletion rate of existing oil and gas wells in productions;

 

26

•

takeaway capacity within oil and natural gas producing basins;

 

•

alternative investments in onshore exploration and production opportunities;

 

•

shifts in business and personal travel with increased adoption of remote work arrangements;

 

•

health pandemics and epidemics;

 

•

exceptional weather conditions, including severe weather events in the U.S. Gulf Coast; and

 

•

the pace of adoption and cost of developing alternative energy sources.

We expect continued volatility in both crude oil and natural gas prices (including the possibilities that such prices could remain at current levels or decline further for an extended period of time), as well as in the level of production-related operating expenditures as a result of the level of interest rates and costs of capital, decisions of OPEC and other oil exporting nations regarding production, and the other factors listed above. Our ability to modify and adopt our operating activities in response to lower oilfield service activity levels during periodic industry downturns or in the transition to a lower carbon economy is important to our business, results of operations and prospects. However, a significant further decline in the industry could continue to impact demand for our products and services and could have a material adverse effect on our business, results of operations, financial condition and cash flows, and could result in asset impairments, including an impairment of the carrying value of our goodwill, along with other accounting charges.

Decreased expenditures by our customers can adversely impact our customers’ demand for our products and services and our revenue.

Our business is directly affected by changes in spending by our customers, and reductions in their spending or changes in the allocation of their expenditures could reduce demand for our products and services and have a material adverse effect on our revenue. Some of the factors impacting our customers’ operating and capital spending may include:

 

•

oil and natural gas prices, as described above;

 

•

the inability of our customers to access capital on economically advantageous terms, which may be impacted by, among other things, interest rate fluctuations, global market and economic conditions, or a decrease of investors’ interest in hydrocarbon producers due to environmental and sustainability initiatives;

 

•

changes in customers’ capital allocation, including (i) allocation to alternate suppliers or an increased allocation to the production of renewable energy or other sustainability efforts, leading to less focus on oil and natural gas production growth and (ii) allocation to other production-enhancing activities for existing wells;

 

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restrictions on our customers’ ability to get their produced oil and natural gas to market due to infrastructure limitations;

 

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consolidation of our customers;

 

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customer personnel changes; and

 

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adverse developments in the business or operations of our customers, including write-downs of oil and natural gas reserves and borrowing base reductions under customers’ credit facilities.

Our operations could be adversely affected by global market and economic conditions in ways we may not be able to predict or control.

Concerns over global economic conditions, inflation, energy costs, geopolitical issues, supply chain disruptions, the availability and cost of credit, and the continuing conflicts between Russia and Ukraine and in the Middle

 

27

East have contributed to increased economic uncertainty. An expansion or escalation of the Russian-Ukraine or Middle East conflicts or an economic slowdown or recession in the United States or in any other country that significantly affects the supply of or demand for oil or natural gas could negatively impact our operations and therefore adversely affect our results. Global economic conditions have a significant impact on oil and natural gas prices and any stagnation or deterioration in global economic conditions could result in less demand for our services and could cause our customers to reduce their planned spending on drilling and production activity. Adverse global economic conditions may cause our customers, vendors and/or suppliers to lose access to the financing necessary to sustain or increase their current level of operations, fulfill their commitments and/or fund future operations and obligations. Furthermore, challenging economic conditions may result in certain of our customers experiencing bankruptcy or otherwise becoming unable to pay vendors, including us. In the past, global economic conditions, and expectations for future global economic conditions, have sometimes experienced significant deterioration in a relatively short period of time and there can be no assurance that global economic conditions or expectations for future global economic conditions will recover in the near term or not quickly deteriorate again due to one or more factors. These conditions could have a material adverse effect on our business, financial condition and results of operations.

We 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 we are unable to obtain raw materials.

We purchase raw materials, sub-assemblies and components for use in manufacturing operations, which exposes us to volatility in prices for certain commodities. Significant price increases for these commodities could adversely affect our operating profits. Like others in our industry, we have faced, and continue to face, inflation in raw materials cost. While we will generally attempt to mitigate the impact of increased raw material prices by endeavoring to make strategic purchasing decisions, broadening our supplier base and passing along increased costs to customers, there may be a time delay between the increased raw material prices and the ability to increase the prices of our products. Additionally, we may be unable to increase the prices of products due to the terms of existing contracts, a competitor’s pricing pressure or other factors. The inability to obtain necessary raw materials on acceptable terms could affect our ability to meet customer commitments and satisfy demand for certain products. Certain of our product lines depend on a limited number of third-party suppliers and vendors. The ability of these third parties to deliver raw materials may be affected by events beyond our control. In addition, public health threats, severe influenza and other highly communicable viruses or diseases could limit access to vendors and their facilities, or the ability to transport raw materials from our vendors, which would adversely affect our ability to obtain necessary raw materials for certain of our products or increase the costs of such materials. A significant price increase in or the unavailability of raw materials may result in a loss of customers and adversely impact our business, results of operations, financial condition and cash flows, and could result in asset impairments, including an impairment of the carrying value of our goodwill.

Continuing inflation and cost increases may impact our sales margins and profitability.

Cost inflation including significant increases in raw material and component costs, labor rates, and global transportation and logistics costs have and could continue to impact profitability. In addition, our customers are also affected by inflation and the rising costs of goods and services used in their businesses, which could negatively impact their ability to purchase our products, which could adversely impact our revenue and profitability. There is no guarantee that we can increase selling prices, replace lost revenue, or reduce costs to fully mitigate the effect of inflation on our costs and business, which may adversely impact our sales margins and profitability.

 

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We might be unable to successfully compete with other companies in our industry.

The business in which we operate is highly competitive. The principal competitive factors are customer service, product technology, product quality and performance, breadth of product offering, price, payment terms, allocation of risk, geographic footprint, technical expertise and innovation. In some of our product and service offerings, we compete with the oil and natural gas industry’s largest oilfield service providers. These large national and multinational companies may have longer operating histories, greater brand recognition, and a stronger presence in geographies than us. They may also have more robust organizational and technical capabilities. In addition, we compete with many smaller companies capable of effectively competing on a regional or local basis. Our competitors may be able to respond more quickly to new or emerging technologies and services and for changes in customer requirements. Many contracts are awarded on a bid basis, which further increases competition based on price. As a result of the competitive environment in which we operate, if we are unable to successfully compete in our industry, we may lose competitive share, be unable to maintain or increase prices for our products and services, or be unable to develop new business opportunities, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

If we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share.

The businesses in which we operate are characterized by changing technologies and the introduction of new products and services. As a result, our success is dependent upon our ability to develop or acquire new products and services on a cost-effective basis, to introduce them into the marketplace in a timely manner, and to protect and maintain critical intellectual property assets related to these developments. Difficulties or delays in research, development or production of new products and technologies, or failure to gain customer acceptance of new products and technologies, may significantly reduce future revenue and materially and adversely affect our competitive position. While we intend to continue to commit financial resources and effort to the development of new products and services, our ability to do so may be impacted by the prolonged industry downturn and/or we may not be able to successfully differentiate our products and services from those of our competitors. Our customers may not consider our proposed products and services to be of value to them or may not view them as superior to our competitors’ products and services. In addition, our competitors or customers may develop new technologies which are similar to, or improvements on, our existing technologies.

Further, we may not be able to adapt to evolving customer needs and technologies, including the transition to a lower-carbon economy and energy system by our customers, develop new products, and achieve and maintain technological advantages in developing products and services in support of the evolving industry. If we do not successfully compete through the development and introduction of new products and technologies, our business, results of operations, financial condition and cash flows could be materially adversely affected.

Our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a result, we are exposed to potential liabilities that may affect our financial condition and reputation.

Our products are used in potentially hazardous production applications in the oil and natural gas industry where an accident or a failure of a product can potentially have catastrophic consequences. Risks inherent in these applications, such as equipment malfunctions and defects, failures, equipment misuse and explosions can cause personal injury, loss of life, suspension of operations, damage to formations, damage to facilities, business interruption and damage to or destruction of property, surface and drinking water resources, equipment and the environment. While we currently maintain insurance protection against some of these risks and seek to obtain indemnity agreements from our customers requiring them to hold us harmless from some of these risks, our current insurance and contractual indemnity protection may not be sufficient or effective

 

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enough to protect us under all circumstances or against all risks. The occurrence of a significant event not fully insured or indemnified against, or the failure of a customer to meet its indemnification obligations to us could adversely affect our business, results of operations, financial condition and cash flows.

Consolidation in our industry may impact our results of operations.

Business consolidations within the oil and natural gas industry in recent years have resulted in some of our largest customers combining and using their size and purchasing power to seek economies of scale and pricing concessions. Continuing consolidation within the industry may result in reduced operating and capital spending by some of our customers or the acquisition of one or more of our primary customers, which may lead to decreased demand for our products and services. There is no assurance that we will be able to maintain our level of sales to a customer that has consolidated, or replace that revenue with increased business activity with other customers. As a result, the acquisition of one or more of our primary customers may have a significant adverse impact on our business, results of operations, financial condition and cash flows. We are unable to predict what effect consolidations in the industry may have on prices, operating or capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.

The credit risks of our customer base could result in losses.

The majority of our customers are oil and natural gas companies that have faced or may in the future face liquidity constraints during adverse commodity price environments. These customers are also affected by prolonged changes in economic and industry conditions such as geopolitical unrest and instability, volatility in oil and natural gas prices as a result of associated changes in demand for such commodities, and continuing inflationary pressures, including increased interest rates and cost of credit. If a significant number of our customers experience prolonged business declines, disruptions, or bankruptcies, we may incur increased exposure to credit risk and losses from bad debts.

The loss of one or more significant customers could have an adverse impact on our financial results.

We have long-standing customer relationships with many of the largest operators in oil and natural gas drilling and production. Our customers include international and national oil and natural gas companies, large integrated operators as well as independent conventional and unconventional oil and gas companies, major oilfield equipment and service providers, and pipeline companies. Our customer base is generally diverse, but in certain international jurisdictions, our business may be concentrated in and depend on one or a few customers. We do have significant customer concentration in our top ten customers; therefore, the loss of a major customer could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Changes in our customer and product mix could cause our profit margin to fluctuate.

From time to time, we may experience changes in our customer mix or in our product mix. Our customer relationships depend, in part, on our ability to provide customers the products they need when they need them and our ability to provide an appropriate level of service to gain and retain customers. If our customers’ experience is negative or our customers require lower-margin products from us and fewer higher-margin products, our results of operations and financial condition may suffer.

We are subject to information technology, cybersecurity and privacy risks.

We depend on various information technologies and other products and services to store and process business information and otherwise support our business activities. We also manufacture and sell hardware and

 

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software to provide monitoring, controls and optimization of customer critical assets in oil and natural gas production and distribution. In addition, certain of our customer offerings include digital components, such as remote monitoring of certain customer operations. We also provide services to maintain these systems. Additionally, our operations rely upon partners, suppliers and other third-party providers of information technology and other products and services. If any of these information technologies, products or services are damaged, cease to properly function, are breached due to employee error, malfeasance, system errors, or other vulnerabilities, or are subject to cybersecurity attacks, such as those involving unauthorized access, malicious software and/or other intrusions, we and our partners, suppliers or other third parties could experience: (i) production downtimes, (ii) operational delays, (iii) the compromising of confidential, proprietary or otherwise protected information, including personal and customer data, (iv) destruction, corruption, or theft of data, (v) security breaches, (vi) other manipulation, disruption, misappropriation or improper use of our systems or networks, (vii) hydrocarbon pollution from loss of containment, (viii) financial losses from remedial actions, (ix) loss of business or potential liability, (x) adverse media coverage, and (xi) legal claims or legal proceedings, including regulatory investigations and actions, and/or damage to our reputation. Increased risks of such attacks and disruptions also exist as a result of geopolitical conflicts, such as the continuing conflict between Russia and Ukraine and the Middle East. While we have not experienced a material breach of our information technologies and we attempt to mitigate these risks by employing a number of measures, including employee training, technical security controls and maintenance of backup and protective systems, the Company’s and our customers’, partners’, vendors’ and other third- parties’ systems, networks, products and services remain potentially vulnerable to known or unknown cybersecurity attacks and other threats, any of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

While we currently maintain cybersecurity insurance, such insurance may not be sufficient in type or amount to cover us against claims related to cybersecurity breaches or attacks, failures or other data security-related incidents, and we cannot be certain that cyber insurance will continue to be available to us on economically reasonable terms, or at all, or that an insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could materially and adversely affect our results of operations, cash flows, and financial condition.

Our 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.

We completed the 2024 Business Combination on June 20, 2024, and we are continuing to integrate combined operations. Estis, FPS and Flogistix, including their respective subsidiaries, were operated independently prior to the completion of the business combination. The success of the 2024 Business Combination will depend, in part, on our ability of to realize anticipated benefits from combining the separate businesses of Estis, FPS and Flogistix. If we are unable to achieve our objectives successfully, the anticipated benefits of the business combination may not be realized fully or at all, or may take longer to realize than expected.

We have also incurred, and will continue to incur, fees and expenses related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the business combination. Ongoing integration efforts for the three companies will divert management attention and resources. The integration process could also result in difficulties, including (i) the disruption of each prior company’s ongoing businesses, (ii) the loss of key employees, (iii) inconsistencies in each company’s standards, controls, procedures and policies; and (iv) identifying material weaknesses or significant deficiencies in the internal controls over financial reporting of the other businesses. The occurrence or any unforeseen extended

 

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scope of these matters could adversely affect the combined company’s ability to maintain relationships with customers and employees or to achieve anticipated benefits of the business combination. These integration matters could have an adverse effect on our combined business and future results of operations. We will continue to assess the magnitude of both these expenses and achievement of any net benefits.

We 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.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses are as follows:

 

•

We did not design and maintain an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked a sufficient complement of resources with an appropriate level of knowledge and experience to establish effective processes and controls. Additionally, the lack of a sufficient number of professionals resulted in an inability to consistently establish appropriate authorities and responsibilities in pursuit of the financial reporting objectives, as demonstrated by, among other things, insufficient segregation of duties in the finance and accounting functions.

This material weakness contributed to the following additional material weaknesses:

 

•

We did not design and maintain effective controls related to the period-end financial reporting process, including designing and maintaining formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures. Additionally, we did not design and maintain controls over the preparation and review of account reconciliations and journal entries, including maintaining appropriate segregation of duties for all significant accounts.

 

•

We did not design and maintain effective information technology (“IT”) general controls for information systems that are relevant to the preparation of the financial statements. Specifically, we did not design and maintain:

 

(i)

program change management controls to ensure that program and data changes are identified, tested, authorized and implemented appropriately;

 

(ii)

user access controls to ensure appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel;

 

(iii)

computer operations controls to ensure that processing and transfer of data, and data backups and recovery are monitored; and

 

(iv)

program development controls to ensure that new software development is tested, authorized and implemented appropriately.

These material weaknesses resulted in a revision to a disclosure in the consolidated financial statements as of and for the year ended December 31, 2023 and immaterial adjustments to the consolidated financial statements as of and for the years ended December 31, 2023 and 2022. Additionally, these material weaknesses could result in misstatements of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

We are working to develop a plan to remediate the material weaknesses described above. Those remediation measures will include (i) hiring additional qualified accounting and IT personnel; (ii) designing and

 

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implementing controls to formalize roles and review responsibilities and designing and implementing controls over segregation of duties; (iii) designing and implementing formal accounting policies, procedures and controls supporting our period-end financial reporting process, including controls over account reconciliations, journal entries, financial reporting and disclosures; and (iv) designing and implementing IT general controls.

We are working to remediate the material weaknesses as efficiently and effectively as possible. At this time, we cannot provide an estimate of when the remediation will be complete nor the costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time-consuming, will result in us incurring significant costs and will place significant demands on our financial and operational resources.

While we are designing and implementing measures to remediate the existing material weaknesses, we cannot predict the success of such measures or the outcome of the assessment of these measures at this time. We can give no assurance that these measures will remediate any of the deficiencies in our internal control over financial reporting, or additional material weaknesses in our internal control over financial reporting will not be identified in the future. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business, personnel, IT systems and applications, or other factors. Any failure to design or maintain effective internal control over financial reporting or any difficulties encountered in our implementation or improvement could increase compliance costs, negatively impact share trading prices, or otherwise harm our operating results or cause us to fail to meet our reporting obligations. The effectiveness of our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. If we are unable to remediate the material weaknesses, our ability to record, process, summarize and report information within the time periods specified in the rules and forms of the SEC could be adversely affected, which, in turn, may adversely affect our reputation and business and the market price of our Class A common stock. In addition, any such failures could result in litigation or regulatory actions by the SEC or other regulatory authorities, loss of investor confidence, delisting of our securities and harm to our reputation and financial condition, or diversion of financial and management resources from the operation of our business.

As a public company, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company,” as defined in the JOBS Act. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting, in which case our independent registered public accounting firm could not issue an unqualified opinion related to the effectiveness of our internal control over financial reporting. If we are unable to conclude that we have effective internal control over financial reporting and our independent registered public accounting firm is unable to issue an unqualified opinion related to the effectiveness of our internal control over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our Class A common stock.

We are subject to risks relating to existing international operations and expansion into new geographical markets.

While sales outside of the U.S. represented less than 0.6% of our revenue for the nine months ended September 30, 2024, we continue to focus on expanding sales globally as part of our overall growth strategy and expect sales from outside the United States to represent a growing portion of our revenue. Our international operations and global expansion strategy are subject to general risks related to such operations, including:

 

•

political, social and economic instability and disruptions;

 

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•

export controls, economic sanctions, embargoes or trade restrictions;

 

•

the imposition of duties and tariffs and other trade barriers;

 

•

limitations on ownership and on repatriation or dividend of earnings;

 

•

transportation delays and interruptions;

 

•

labor unrest and current and changing regulatory environments;

 

•

increased compliance costs, including costs associated with disclosure requirements and related due diligence;

 

•

difficulties in staffing and managing multi-national operations;

 

•

limitations on our ability to enforce legal rights and remedies;

 

•

access to or control of networks and confidential information due to local government controls and vulnerability of local networks to cyber risks; and

 

•

fluctuations in foreign currency exchange rates.

If we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational risks of our existing international operations, these risks could have a material adverse effect on our growth strategy into new geographical markets, our reputation, our business, results of operations, financial condition and cash flows.

Adverse health events, such as a pandemic, could adversely affect our business, liquidity, and financial results.

From time to time, various diseases have spread across the globe such as COVID-19, SARS and the avian flu. If a disease spreads sufficiently to cause an epidemic or a pandemic, the ability to operate our business or the businesses of our suppliers, contractors or customers could be reduced due to illness of employees, local restrictions to combat the disease and demand for our products and services or those of our customers could decrease. Our supply chain could be disrupted if access to vendor facilities is limited or they experience labor shortages, or our ability to obtain components from our vendors could be limited, adversely affecting the price or availability of products, which could result in a loss of revenue and profitability. Demand for our products could decrease if our customers curtail their activities, due to lower demand for their products, budget constraints or other capital discipline measures, which may adversely affect our revenue and cash flow.

Our failure to attract, retain and develop personnel could have an adverse effect on our results of operations, financial condition and cash flows.

The delivery of our services and products requires personnel with specialized skills and experience, and our growth, profitability and effectiveness in conducting our operations and executing our strategic plans depend in part on our ability to attract, retain and develop qualified personnel, and align them with appropriate opportunities for key management positions. We may experience employee turnover or labor shortages if our business requirements and/or expectations about when and how often employees work either on-site or remotely are inconsistent with the expectations of our employees or if employees pursue employment in fields with less volatility than in the energy industry. Additionally, during periods of increased investment in the oil and natural gas industry, competition for qualified personnel may increase and the availability of qualified personnel may be further constrained. Although we believe we generally offer competitive compensation packages, our costs of operations and selling, general and administrative expenses could increase in the future if required to attract and retain qualified personnel and there is no assurance that the prices of our products

 

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and services could be increased to offset any such increases. If we are unsuccessful in our efforts to attract and retain sufficient qualified personnel on terms acceptable to us, or do so at rates necessary to maintain our liquidity and competitive position, our business, results of operations, financial condition, cash flows, and market share could be adversely affected.

The inability to protect or obtain patent and other intellectual property rights could adversely affect our revenue, operating profits and cash flows.

We own patents, trademarks, licenses and other intellectual property related to our products and services, and we continuously invest in research and development that may result in innovations and intellectual property rights. We employ various measures to develop, maintain and protect our innovations and intellectual property rights. These measures may not be effective in capturing intellectual property rights, and they may not prevent our intellectual property from being challenged, invalidated, circumvented, infringed, misappropriated or otherwise violated, particularly in countries where intellectual property rights are not highly developed or protected. We also may not be successful in fully protecting innovations and intellectual property we develop or acquire. In addition, if licenses to certain intellectual property are no longer available, we may not be able to continue providing services or products relating to that license, which could adversely affect our financial condition, results of operations and cash flows. Unauthorized use of our intellectual property rights and any potential litigation we may initiate or have initiated against us in respect of our intellectual property rights could adversely impact our competitive position and have a negative impact on our business, results of operations, financial condition and cash flows.

Natural disasters and unusual weather conditions could have an adverse impact on our business.

Our business could be materially and adversely affected by natural disasters or severe weather conditions, including the effects of climate change. Hurricanes, tropical storms, tornadoes, flash floods, blizzards, extreme cold weather and other natural disasters or severe weather conditions, which may increase in frequency or intensity as a result of climate change, could result in evacuation of personnel, curtailment of services, damage to equipment and facilities, interruption in transportation of products and materials and loss of productivity. For example, certain of our manufactured products and components are manufactured at a single facility, and disruptions in operations or damage to any such facilities could reduce our ability to manufacture our products and satisfy customer demand. If our customers are unable to operate or are required to reduce operations due to natural disasters or severe weather conditions, our business could be adversely affected as a result of curtailed deliveries of our products and services. Our headquarters and certain manufacturing facilities are located in the U.S. Gulf Coast, and this region is also home to many of our customers and suppliers. Hurricanes or other severe weather events impacting the Gulf Coast could materially and adversely affect our operations, our ability to obtain raw materials at reasonable cost, or at all, and our customers in the region.

Our growth and results of operations may be adversely affected if we are unable to complete future third-party acquisitions on acceptable terms and integrate such acquisitions.

We expect to make future acquisitions that broaden our existing technological, geographic and business offerings, thereby complementing our businesses. However, there can be no assurance that we will be able to find suitable opportunities to purchase or acquire such capabilities on acceptable terms. If we are unsuccessful in our acquisition efforts, our revenue growth could be adversely affected. In addition, we face the risk that a completed acquisition may underperform relative to expectations. We may not achieve the synergies originally anticipated, may become exposed to unexpected liabilities, or may not be able to sufficiently integrate completed acquisitions into our then-current business and growth model. There can be significant challenges inherent in the process of integrating acquired businesses, including the ability to ensure the effectiveness of internal control over financial reporting, integrating information technology, accounting, finance and other

 

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systems, as well as retention of key officers and personnel. The successful or cost-effective integration of acquired businesses cannot be assured. These factors could potentially have an adverse impact on our business, results of operations, financial condition and cash flows.

Risks Related to Financial Condition and Markets

Investor sentiment towards climate change, fossil fuels and other Environmental, Social and Governance (“ESG”) matters could adversely affect our access to and cost of capital and stock price.

Increasing attention to climate change, societal expectations on companies to address climate change, investor and societal expectations regarding voluntary ESG initiatives and disclosures, and consumer demand for alternative forms of energy may result in increased costs, including, but not limited to, increased costs related to compliance, stakeholder engagement, contracting and insurance, reduced demand for our products, reduced profits, increased investigations and litigation, and negative impacts on the price of our common units and access to capital markets. For instance, there have been efforts within the investment community (including investment advisors, investment fund managers, sovereign wealth funds, public pension funds, universities and individual investors) to promote the divestment of, or limit investment in, the stock of companies in the oil and natural gas industry. There has also been pressure on lenders and other financial services companies to limit or curtail financing of companies in the oil and natural gas industry. If these efforts continue or expand, our stock price and our ability to raise capital may be negatively impacted.

Members of the investment community are also increasing their focus on ESG practices and disclosures, including practices and disclosures related to climate change and sustainability, D&I initiatives, and heightened governance standards, among companies more generally. In addition, organizations that voluntarily provide information to investors on corporate governance and related matters have developed rating processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with fossil fuel energy-related assets could lead to increased negative investor sentiment toward us, our customers and our industry and to the diversion of investments to other industries, which could have a negative impact on our access to and costs of capital.

As a result, we may continue to face increasing pressure regarding our ESG disclosures and practices. Over the past few years, there has also been an acceleration in investor demand for ESG investing opportunities, and many large institutional investors have committed to increasing the percentage of their portfolios that are allocated towards ESG investments. With respect to any of these investors, our ESG disclosures and efforts may not satisfy the investor requirements or their requirements may not be made known to us. If we are unable to meet the ESG standards or investment criteria set by these investors and funds, we may lose investors or investors may allocate a portion of their capital away from us, our cost of capital may increase, and our stock price may be negatively impacted.

Our Credit Agreement imposes restrictions that limit our operating flexibility and such facility may not be available if financial covenants are violated or if an event of default occurs.

Our Credit Agreement contains a number of covenants restricting, among other things, our ability to incur liens and indebtedness, sell assets, repurchase our equity shares and make certain types of investments. We are also subject to certain financial covenants, including but not limited to compliance with certain leverage and interest coverage ratios as defined in the Credit Agreement. A breach of any covenant or our inability to comply with the required financial ratios could result in a default under our Credit Agreement, and we can provide no assurance that we will be able to obtain the necessary waivers or amendments from our lenders to remedy a default. In the event of any default not cured or waived, the lenders are not obligated to provide funding or issue letters of

 

36

credit and could declare any outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable, thus requiring us to apply available cash to repay any borrowings then outstanding. If we are unable to repay borrowings with respect to our Credit Facility when due, our lenders could proceed against the guarantees of our material domestic subsidiaries. If any indebtedness under our Credit Agreement is accelerated, we can provide no assurance that our assets would be sufficient to repay such indebtedness in full.

Our exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact our results of operations.

A portion of our business is transacted and/or denominated in foreign currencies, and fluctuations in currency exchange rates or the inability to exchange or repatriate foreign currencies could have a significant impact on our results of operations, financial condition and cash flows, which are presented in U.S. dollars. Cross-border transactions, both with external parties and intercompany relationships, result in increased exposure to foreign exchange effects. We conduct business in countries that have restricted or limited trading markets for their local currencies and restrict or limit cash repatriation. We may accumulate cash in those geographies, but we may be limited in our ability to convert our profits into U.S. dollars, repatriate the profits from those countries or reinvest those earnings to fund operations in other countries. Significant changes in currency exchange rates could negatively affect our results of operations. Additionally, a future strengthening of the U.S. dollar potentially exposes us to competitive threats from lower cost producers in other countries and could result in unfavorable translation effects as the results of foreign locations are translated into U.S. dollars for reporting purposes.

Our indebtedness could adversely affect our financial condition and operating flexibility.

Our ability to make payments on, and to refinance, our indebtedness, as well as any future indebtedness that we may incur, will depend upon the level of cash flows generated by our operations, our ability to sell assets, availability under our revolving Credit Agreement and our ability to access the capital markets and/or other sources of financing. Our ability to generate cash is subject to general economic, industry, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are not able to repay or refinance our indebtedness as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including (i) reducing financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes or (ii) dedicating an unsustainable level of cash flow from operations to the payment of principal and interest on the indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in the oil and natural gas industry could be impaired.

Disruptions in the capital and credit markets, low commodity prices, our debt level and other factors may restrict our ability to raise capital on favorable terms, or at all.

Disruptions in the capital and credit markets, in particular with respect to companies in the energy sector, could limit our ability to access these markets or may significantly increase our cost to borrow. Continued low commodity prices, the rapid increases in interest rates by the U.S. Federal Reserve to counteract inflation, as well as other factors, have caused some lenders to increase interest rates, enact tighter lending standards which we may not satisfy as a result of our debt level or otherwise, refuse to refinance existing debt at maturity on favorable terms, or at all, and in certain instances have reduced or ceased to provide funding to borrowers. If we are unable to access the capital and credit markets on favorable terms or at all, it could adversely affect our business, financial condition, results of operations and cash flows.

 

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Legal and Regulatory Risks

Federal, state and local legislative and regulatory initiatives relating to oil and natural 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.

Environmental laws, regulations and policies could limit our customers’ exploration and production activities. Although we do not directly engage in drilling or hydraulic fracturing activities, we provide products and services to operators in the oil and natural gas industry. There has been significant growth in opposition to oil and natural gas development both in the United States and globally. This opposition is focused on attempting to limit or stop hydrocarbon development in certain areas. Examples of such opposition include: (i) efforts to reduce access to public and private lands; (ii) delaying or canceling permits for drilling or pipeline construction or export facilities; (iii) limiting or banning industry techniques such as hydraulic fracturing, and/or adding restrictions on the use of water and associated disposal; (iv) delaying or denying air-quality permits; and (v) advocating for increased regulations, punitive taxation, or citizen ballot initiatives or moratoriums on industry activity.

In addition, various state and local governments have implemented, or are considering, increased regulatory oversight of oil and natural gas development through additional permitting requirements, operational restrictions, including on the time, place and manner of drilling activities, disclosure requirements and temporary or permanent bans on hydraulic fracturing, exports of liquified natural gas or other facets of crude oil and natural gas exploration and development in certain areas such as environmentally sensitive watersheds. Increased regulation and opposition to oil and natural gas activities could increase the potential for litigation concerning these activities, and could include companies who provide products and services used in hydrocarbon development, such as us.

From time to time, legislation has been introduced, but not enacted, in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. Additionally, some states have adopted, and other states are considering adopting, regulations that could impose new or more stringent permitting, disclosure or well construction requirements on hydraulic fracturing operations. The adoption of new laws, regulations or policies at the federal, state or local levels imposing reporting obligations, or otherwise limiting or delaying hydrocarbon development, could make it more difficult for our customers to complete oil and natural gas wells, increase our customers’ costs of compliance and doing business, and otherwise adversely affect the oil and natural gas activities they pursue. Such developments, which could increase costs for our customers, could negatively impact demand for our products and services. In addition, heightened political, regulatory and public scrutiny, including lawsuits, could expose us or our customers to increased legal and regulatory proceedings, which could be time-consuming, costly or result in substantial legal liability or significant reputational harm. We 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. Such costs and scrutiny could directly or indirectly, through reduced demand for our products and services, have a material adverse effect on our business, results of operations, financial condition and cash flows.

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.

Our operations and the operations of our customers are subject to numerous and complex federal, state, local and foreign laws, regulations and policies relating to the protection of human health, safety and the environment. These laws, regulations and policies may adversely affect us by limiting or curtailing our customers’ exploration, drilling and production and export activities, impacting the products and services we

 

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design, market and sell and the facilities where we manufacture our products. For example, our operations and the operations of our customers are subject to numerous and complex laws, regulations and policies that, among other things: may regulate the management and disposal of hazardous and non-hazardous wastes; may require acquisition of environmental permits related to our operations; may restrict the types, quantities and concentrations of various materials that can be released into the environment; may limit or prohibit operational activities in certain ecologically sensitive and other protected areas; may regulate specific health and safety criteria addressing worker protection; may require compliance with operational and equipment standards; may impose testing, reporting and record-keeping requirements; and may require remedial measures to mitigate pollution from former and ongoing operations. Sanctions for noncompliance with such laws, regulations and polices may include revocation of permits, corrective action orders, administrative or civil penalties, criminal prosecution and the imposition of injunctions to prohibit certain activities or force future compliance.

Some environmental laws, regulations and policies provide for joint and several strict liability for remediation of spills and releases of hazardous substances. In addition, we or our customers may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. These laws and regulations may expose us or our customers to liability for the conduct of or conditions caused by others, or for our acts or for the acts of our customers that were in compliance with all applicable laws and regulations at the time such acts were performed. Any of these laws and regulations could result in claims, fines or expenditures that could be material to our business, results of operations, financial condition and cash flows.

Environmental laws, regulations and policies, and the interpretation and enforcement thereof, frequently change, and have tended to become more stringent over time. New laws, regulations treaties, or international agreements related to greenhouse gases (“GHG”) and climate change, including incentives to conserve energy or use alternative energy sources, and temporary or permanent bans on certain activities or licenses or permits for certain activities may have a material adverse effect on our customers by limiting or curtailing their exploration, drilling, and production and export activities, which may adversely affect our operations by limiting demand for our products and services. Additionally, the implementation of new laws, regulations and policies may have a material adverse effect on our operating results by requiring us to modify our operations or products or shut down some or all of our facilities.

Various laws, regulations and policies exist or are under development that seek to regulate the emission of GHG, including establishing GHG “cap and trade” programs, increased efficiency standards, participation in international climate agreements, issuance of executive orders by the U.S. presidential administration and incentives or mandates for pollution reduction, use of renewable energy sources, or use of alternative fuels with lower carbon content. Any regulation of GHG emissions could result in increased compliance costs or additional operating restrictions for us and/or our customers and limit or curtail exploration, drilling and production and export activities of our customers, which could directly or indirectly, through reduced demand for our products and services, adversely affect our business, results of operations, financial condition and cash flows.

In addition, oil and natural gas operations may be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect wildlife. Seasonal restrictions may limit our customers’ ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay our customers’ operations or materially increase their operating and capital costs, which could in turn reduce demand for our products and services.

 

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Our reputation, ability to do business and results of operations may be impaired by violations of U.S. and international laws and regulations regarding, anti-bribery, trade control, trade sanctions, anti-corruption and similar laws.

Our operations require us to comply with a number of U.S. and international laws and regulations, including those relating to anti-corruption, anti-bribery, fair competition, export and import compliance, money laundering and data privacy. In particular, our international operations are subject to the regulations imposed by the Foreign Corrupt Practices Act as well as anti-bribery and anti-corruption laws of various jurisdictions in which we operate. While we strive to maintain high ethical standards and robust internal controls, we cannot provide assurance that our internal controls, training and compliance systems will always protect us from acts committed by our employees, agents or business partners that would violate such U.S. or international laws or regulations. Any such violations of law or improper actions could subject us to civil or criminal investigations in the United States or other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties and related stockholder lawsuits, could lead to increased costs of compliance and could damage our reputation, business, results of operations, financial condition and cash flows.

Tariffs and other trade measures could adversely affect our results of operations, financial position and cash flows.

Our material input costs are adversely affected by tariffs imposed by the U.S. government on products imported into the United States and by trade restrictions imposed on business dealings with particular entities and/or individuals. Further trade restrictions, retaliatory trade measures and additional tariffs could result in higher input costs for our products, disrupt our supply chain and logistics, cause adverse financial impacts due to volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, and heighten cybersecurity threats and other restrictions. We may not be able to fully mitigate the impact of these increased costs or pass price increases on to our customers. We cannot predict future developments, and such existing or future tariffs could have a material adverse effect on our results of operations, financial position and cash flows.

Changes in domestic and foreign governmental laws, regulations and policies, risks associated with emerging markets, changes in statutory tax rates and laws, and unanticipated outcomes with respect to tax audits could adversely affect our business, profitability and reputation.

Our domestic and international sales and operations are subject to risks associated with changes in laws, regulations and policies (including environmental and employment regulations, export/import laws, local content and local ownership requirements, tax policies such as export subsidy programs and research and experimentation credits, carbon emission regulations and other similar programs). Failure to comply with any of the foregoing laws, regulations and policies could result in civil and criminal, monetary and non-monetary penalties, as well as damage to our reputation. In addition, we cannot provide assurance that costs of complying with new and evolving regulatory reporting requirements and current or future laws, including environmental protection, employment, data security, data privacy and health and safety laws, will not exceed our estimates. In addition, we have made investments in certain countries, and we may in the future invest in other countries, which may carry high levels of currency, political, compliance, or economic risk. While these risks or the impact of these risks are difficult to predict, any one or more of them could adversely affect our business, results of operations and reputation.

We are subject to taxation in a number of jurisdictions. Accordingly, our effective tax rate is impacted by changes in the mix among earnings in countries with differing statutory tax rates. A material change in the statutory tax rate or interpretation of local law in a jurisdiction in which we have significant operations could adversely impact our effective tax rate and impact our financial results.

 

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Our tax returns are subject to audit and taxing authorities could challenge our operating structure, taxable presence, application of treaty benefits or transfer pricing policies. If changes in statutory tax rates or laws or audits result in assessments different from amounts estimated, then our business, results of operations, financial condition and cash flows may be adversely affected. In addition, changes in tax laws could have an adverse effect on our customers, resulting in lower demand for our products and services.

War, terrorism or civil unrest could harm our business.

Due to the unsettled political conditions in many natural gas and oil-producing countries, our operations, revenue and profits are subject to adverse consequences of war, terrorism, civil unrest, strikes, currency controls, and governmental actions. These risks cause us to increase spending on security worldwide, cause us to cease operating in certain countries and disrupt financial and commercial markets, including the supply of and pricing for oil and natural gas. In addition, any possible reprisals as a consequence of military or other action, such as acts of terrorism in the United States or elsewhere, could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Organizational Structure

Our principal asset after the completion of this offering will be our interest in Flowco LLC and, as a result, we will depend on distributions from Flowco LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement. Flowco LLC’s ability to make such distributions may be subject to various limitations and restrictions.

Upon the consummation of this offering and the Transactions, we will be a holding company and will have no material assets other than our ownership of LLC Interests in Flowco LLC. As such, we will have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, will be dependent upon the financial results and cash flows of Flowco LLC and its subsidiaries and distributions we receive from Flowco LLC. There can be no assurance that Flowco LLC and its subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in our debt instruments, will permit such distributions. Although Flowco LLC is not currently subject to any debt instruments or other agreements that would restrict its ability to make distributions to us, the terms of our Credit Agreement and other outstanding indebtedness restrict the ability of our subsidiaries to pay dividends to Flowco LLC.

Flowco LLC will continue to be treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to any entity-level U.S. federal income tax. Instead, any taxable income of Flowco LLC will be allocated to holders of LLC Interests, including us. Accordingly, we will incur income taxes on our allocable share of any net taxable income of Flowco LLC. Under the terms of the Flowco LLC Agreement, Flowco LLC will be obligated, subject to various limitations and restrictions, including with respect to our debt agreements, to make tax distributions to holders of LLC Interests, including us. In addition to tax expenses, we will also incur expenses related to our operations, including payments under the Tax Receivable Agreement, which we expect could be significant. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” We intend, as its managing member, to cause Flowco LLC to make cash distributions to the holders of LLC Interests in an amount sufficient to (i) fund all or part of their tax obligations in respect of taxable income allocated to them and (ii) cover our operating expenses, including payments under the Tax Receivable Agreement. However, Flowco LLC’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would either violate any contract or agreement to which Flowco LLC is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Flowco LLC insolvent. If we do not have sufficient funds to pay tax or other

 

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liabilities, or to fund our operations (including, if applicable, as a result of an acceleration of our obligations under the Tax Receivable Agreement), we may have to borrow funds, which could materially and adversely affect our liquidity and financial condition, and subject us to various restrictions imposed by any lenders of such funds. To the extent we are unable to make timely payments under the Tax Receivable Agreement for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement resulting in the acceleration of payments due under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement” and “Certain Relationships and Related Party Transactions—Flowco LLC Agreement—Flowco LLC Agreement in Effect Upon Consummation of the Transactions—Distributions.” In addition, if Flowco LLC does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired. See “—Risks Related to the Offering and Ownership of our Class A Common Stock” and “Dividend Policy.”

Under the Flowco LLC Agreement, we intend to cause Flowco LLC, from time to time, to make distributions in cash to its members (including us) in amounts sufficient to cover the taxes imposed on their allocable share of taxable income of Flowco LLC. As a result of (i) potential differences in the amount of net taxable income allocable to us and to Flowco LLC’s other stockholders, (ii) the lower tax rate applicable to corporations as opposed to individuals, and (iii) certain tax benefits that we anticipate from (a) future purchases or redemptions of LLC interests from the Continuing Equity Owners, (b) payments under the Tax Receivable Agreement and (c) any acquisition of interests in Flowco LLC from other stockholders in connection with the consummation of the Transactions, these tax distributions may be in amounts that exceed our tax liabilities. Our board of directors will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of obligations under the Tax Receivable Agreement and the payment of other expenses. We will have no obligation to distribute such cash (or other available cash) to our stockholders. To the extent we do not distribute such excess cash as dividends on our Class A common stock we may take other actions with respect to such excess cash, for example, holding such excess cash, contributing such cash to Flowco LLC in exchange for additional LLC Interests or lending it (or a portion thereof) to Flowco LLC, some of which may result in shares of our Class A common stock increasing in value relative to the value of LLC Interests. The holders of LLC Interests may benefit from any value attributable to such cash balances if they acquire shares of Class A common stock in exchange for their LLC Interests, notwithstanding that such holders may have participated previously as holders of LLC Interests in distributions that resulted in such excess cash balances.

The Tax Receivable Agreement with the Continuing Equity Owners requires us to make cash payments to them in respect of certain tax benefits to which we may become entitled, and we expect that such payments will be substantial.

In connection with the consummation of this offering, we will enter into a Tax Receivable Agreement with Flowco LLC and each of the TRA Participants. Under the Tax Receivable Agreement, we will be required to make cash payments to the TRA Participants equal to 85% of the tax benefits, if any, that we actually realize, or in certain circumstances are 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 (including the Blocker Companies’ allocable share of existing tax basis); (iii) the increases in our share of the tax basis of assets of Flowco LLC resulting from (a) the purchase of LLC Interests directly from Flowco LLC, as described under “Use of Proceeds,” (b) any future redemptions or exchanges of LLC Interests from the Continuing Equity Owners as described under “Certain Relationships and Related Party Transactions—Flowco LLC Agreement—Flowco LLC Agreement in Effect Upon Consummation of the Transactions—Common Unit Redemption Right,” and (c) certain distributions (or deemed distributions) by Flowco LLC; and (iv) certain other tax benefits arising

 

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from payments under the Tax Receivable Agreement. We will be required to make such payments to the TRA Participants even if all of the Continuing Equity Owners were to exchange or redeem their remaining LLC Interests.

The payment obligation is an obligation of Flowco Holdings Inc. and not of Flowco LLC. We expect that the amount of the cash payments we will be required to make under the Tax Receivable Agreement will be substantial. Any payments made by us to the TRA Participants under the Tax Receivable Agreement will not be available for reinvestment in our business and will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make timely payments under the Tax Receivable Agreement for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us, provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement resulting in the acceleration of payments due under the Tax Receivable Agreement. The payments under the Tax Receivable Agreement are not conditioned upon continued ownership of us by the exchanging Continuing Equity Owners. Furthermore, if we experience a change of control (as defined under the Tax Receivable Agreement), which includes certain mergers, asset sales, and other forms of business combinations, we would be obligated to make an immediate payment, and such payment may be significantly in advance of, and may materially exceed, the actual realization, if any, of the future tax benefits to which the payment relates. This payment obligation could (i) make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that are the subject of the Tax Receivable Agreement and (ii) result in holders of our Class A common stock receiving substantially less consideration in connection with a change of control transaction than they would receive in the absence of such obligation. Accordingly, the Continuing Equity Holders’ interests may conflict with those of the holders of our Class A common stock. The existing tax basis acquired in connection with the Transactions, the actual increase in tax basis, and the actual utilization of any resulting tax benefits, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors: including the timing of redemptions by the Continuing Equity Owners; the price of shares of our Class A common stock at the time of the redemption; the extent to which such redemptions are taxable; the amount of gain recognized by such Continuing Equity Owners; the amount and timing of the taxable income allocated to us or otherwise generated by us in the future; the portion of our payments under the Tax Receivable Agreement constituting imputed interest; and the federal and state tax rates then applicable.

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that will not benefit holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners.

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that will not benefit the holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners. We will enter into the Tax Receivable Agreement with Flowco LLC and each of the TRA Participants in connection with the completion of this offering and the Transactions, which will provide for the payment by us to the TRA Participants of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of: (i) Flowco’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 (including the Blocker Companies’ allocable share of existing tax basis); (iii) the increases in our share of the tax basis of assets of Flowco LLC resulting from (a) the purchase of LLC Interests directly from Flowco LLC, as described under “Use of Proceeds,” (b) any future redemptions or exchanges of LLC Interests from the Continuing Equity Owners as described under “Certain Relationships and Related Party Transactions—Flowco LLC Agreement—Flowco LLC Agreement in Effect Upon Consummation of the Transactions—Common Unit Redemption Right” and (c) certain distributions (or deemed distributions) by Flowco LLC; and (iv) certain other tax benefits arising from

 

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payments under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.” Although we will retain 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A common stock.

Additionally, we are a holding company and have no material assets other than our ownership of LLC Interests. As a consequence, our ability to declare and pay dividends to the holders of our Class A common stock is subject to the ability of Flowco LLC to provide distributions to us. If Flowco LLC makes such distributions, the Continuing Equity Owners that hold LLC Interests will be entitled to receive equivalent distributions from Flowco LLC on a pro rata basis. However, because we must pay taxes, amounts ultimately distributed as dividends to holders of our Class A common stock are expected to be less on a per share basis than the amounts distributed by Flowco LLC to such Continuing Equity Owners on a per unit basis. This and other aspects of our organizational structure may adversely impact the future trading market for our Class A common stock.

In certain cases, payments under the Tax Receivable Agreement to the TRA Participants may be accelerated or significantly exceed any actual benefits we realize in respect of the tax attributes subject to the Tax Receivable Agreement.

The Tax Receivable Agreement will provide that if (i) we materially breach any of our material obligations under the Tax Receivable Agreement, (ii) certain mergers, asset sales, other forms of business combinations or other changes of control were to occur after the consummation of this offering, or (iii) we elect an early termination of the Tax Receivable Agreement, then our obligations, or our successor’s obligations, under the Tax Receivable Agreement to make payments would be based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement.

As a result of the foregoing, we would be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the Tax Receivable Agreement, based on certain assumptions, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. We could also be required to make cash payments to the TRA Participants that are greater than the specified percentage of any actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no assurance that we will be able to fund or finance our obligations under the Tax Receivable Agreement. We may need to incur debt to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise.

We will not be reimbursed for any payments made to the TRA Participants under the Tax Receivable Agreement in the event that any tax benefits are disallowed.

Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, and the U.S. Internal Revenue Service (the “IRS”) or another tax authority, may challenge all or part of the tax basis increases or other tax benefits we claim, as well as other related tax positions we take, and a court could sustain such challenge. If the outcome of any such challenge would reasonably be expected to materially affect a recipient’s payments under the Tax Receivable Agreement, then we will not be permitted to settle or fail to contest such challenge without the consent (not to be unreasonably withheld or delayed) of certain TRA Participants. The interests of the TRA Participants in any such challenge may differ from or conflict with our interests and your interests, and the TRA Participants may exercise their consent rights relating to any such challenge in a manner adverse to our interests and your interests. We will not be reimbursed for any cash

 

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payments previously made to the TRA Participants under the Tax Receivable Agreement in the event that any tax benefits initially claimed by us and for which payment has been made to a TRA Participants are subsequently challenged by a taxing authority and are ultimately disallowed. Instead, any excess cash payments made by us to a TRA Participant will be netted against any future cash payments we might otherwise be required to make to such TRA Participants, under the terms of the Tax Receivable Agreement. However, we might not determine that we have effectively made an excess cash payment to a TRA Participants for a number of years following the initial time of such payment and, if any of our tax reporting positions are challenged by a taxing authority, we will not be permitted to reduce any future cash payments under the Tax Receivable Agreement until any such challenge is finally settled or determined. Moreover, the excess cash payments we made previously under the Tax Receivable Agreement could be greater than the amount of future cash payments against which we would otherwise be permitted to net such excess. The applicable U.S. federal income tax rules for determining applicable tax benefits we may claim are complex and factual in nature, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, payments could be made under the Tax Receivable Agreement significantly in excess of any actual cash tax savings that we realize in respect of the tax attributes with respect to a TRA Participant that are the subject of the Tax Receivable Agreement.

Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.

We are subject to taxes by the U.S. federal, state, local and foreign tax authorities. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

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allocation of expenses to and among different jurisdictions;

 

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changes in the valuation of our deferred tax assets and liabilities;

 

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expected timing and amount of the release of any tax valuation allowances;

 

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tax effects of stock-based compensation;

 

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costs related to intercompany restructurings;

 

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changes in tax laws, tax treaties, regulations or interpretations thereof; or

 

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lower than anticipated future earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated future earnings in jurisdictions where we have higher statutory tax rates.

In addition, we may be subject to audits of our income, sales and other taxes by U.S. federal, state, and local and foreign taxing authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.

If Flowco LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we and Flowco LLC might be subject to potentially significant tax inefficiencies.

We intend to operate such that Flowco LLC does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is a partnership the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof. Under certain circumstances, redemptions of LLC Interests pursuant to the redemption right, or other transfers of LLC Interests, could cause Flowco LLC to be treated as a publicly traded partnership. Applicable U.S. Treasury regulations provide for certain safe harbors from treatment as a publicly traded partnership, and we intend to operate such that redemptions or other transfers of LLC Interests qualify for one or more such safe harbors.

 

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If Flowco LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, significant tax inefficiencies might result for us and for Flowco LLC, including as a result of the inability to file a consolidated U.S. federal income tax return with Flowco LLC.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended, or the 1940 Act, including as a result of our ownership of Flowco LLC, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

We and Flowco LLC intend to conduct our operations so that we will not be deemed an investment company. As the sole managing member of Flowco LLC, we will control and operate Flowco LLC. On that basis, we believe that our interest in Flowco LLC is not an “investment security” as that term is used in the 1940 Act. However, if we were to cease participation in the management of Flowco LLC, or if Flowco LLC itself becomes an investment company, our interest in Flowco LLC could be deemed an “investment security” for purposes of the 1940 Act.

We and Flowco LLC intend to conduct our operations so that we will not be deemed an investment company. If it were established that we were an unregistered investment company, there would be a risk that we would be subject to monetary penalties and injunctive relief in an action brought by the SEC, that we would be unable to enforce contracts with third parties and that third parties could seek to obtain rescission of transactions undertaken during the period it was established that we were an unregistered investment company. If we were required to register as an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business.

Risks Related to the Offering and Ownership of Our Class A Common Stock

Following this offering, GEC and White Deer will collectively control us, and each of them individually will have significant influence over us, including pursuant to the Stockholders Agreement and control over decisions that require the approval of stockholders.

Upon consummation of this offering, GEC and White Deer will control, in the aggregate, approximately  % of the voting power represented by all our outstanding classes of stock, and individually will control approximately  % and  %, respectively, of the voting power represented by all our outstanding classes of stock. In connection with this offering, GEC, White Deer and certain of their affiliates will also enter into a Stockholders’ Agreement relating to, among other things, the election of our directors. As a result, such Continuing Equity Owners will continue to exercise significant influence over all matters requiring stockholder approval, including the election and removal of directors and the size of our board, and will continue to have significant control over our business, affairs and policies. The directors such Continuing Equity Owners elect have the authority to incur additional debt, issue or repurchase stock, declare dividends and make other decisions that could be detrimental to stockholders.

We expect that for some period of time following the consummation of this offering, members of our board will continue to be appointed by and/or affiliated with GEC and White Deer, who will have the right pursuant to our

 

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Stockholders Agreement to nominate the majority of our directors. Such Continuing Equity Owners can take actions that have the effect of delaying or preventing a change of control of us or discouraging others from making tender offers for our shares, which could prevent stockholders from receiving a premium for their shares. These actions may be taken even if other stockholders oppose them. The concentration of voting power with such Continuing Equity Owners may have an adverse effect on the price of our Class A common stock. Such Continuing Equity Owners may have interests that are different from yours and may vote in a way with which you disagree and that may be adverse to your interests.

In addition to rights relating to the nomination of directors and our board, the Stockholders Agreement includes certain consent rights with respect to actions by the company and our 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. The interests of GEC and White Deer may be different than the interests of other stockholders, and such consent rights could limit our ability to engage in certain transactions in a way that is adverse to your interests. For more information, see “Certain Relationships and Related Party Transactions—Stockholders Agreement.

Further, our amended and restated certificate of incorporation, which will be in effect upon the consummation of the Transactions, will provide that the doctrine of “corporate opportunity” will not apply with respect to any director or stockholder who is not employed by us or our subsidiaries. GEC, White Deer and their respective affiliates have investments in other oilfield services companies that may compete with us, and GEC, White Deer and their respective affiliates may invest in such other companies in the future. By renouncing our interest and expectancy in any business opportunity that may be from time to time presented to any member of a GEC or White Deer affiliated entity or any of our directors or officers who is also an employee, partner, member, manager, officer or director of any GEC or White Deer affiliated entity, our business or prospects could be adversely affected if attractive business opportunities are procured by such parties for their own benefit rather than for ours. See “Risk Factors—Risks Related to the Offering and Ownership of Our Class A Common Stock—Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply with respect to any director or stockholder who is not employed by us or our subsidiaries.”

We cannot predict the effect our dual class structure may have on the market price of our Class A common stock.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock, in adverse publicity, or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indices. In July 2017, FTSE Russell announced that it plans to require new constituents of its indices to have greater than 5% of the company’s voting rights in the hands of public stockholders, and S&P Dow Jones announced that it will no longer admit companies with multiple-class share structures to certain of its indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400, and S&P SmallCap 600, which together make up the S&P Composite 1500. Also in 2017, MSCI, a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. Under such announced policies, the dual class structure of our stock would make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to track those indices would not invest in our Class A common stock. These policies are relatively new and it is unclear what effect, if any, they will have on the valuations of publicly-traded companies excluded from such indices, but it is possible they may depress valuations, compared to similar companies that are included. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.

 

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We are a “controlled company” within the meaning of the NYSE rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You may not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.

After the consummation of the Transactions, GEC, White Deer and certain of their affiliates collectively, who will be parties to the Stockholders’ Agreement relating to the election of directors, as a group will have more than 50% of the voting power for the election of directors, and, as a result, we will be considered a “controlled company” for the purposes of the NYSE rules. As such, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements, including the requirements to have a majority of independent directors on our board of directors, an entirely independent nominating and corporate governance committee, an entirely independent compensation committee or to perform annual performance evaluations of the nominating and corporate governance and compensation committees.

The corporate governance requirements and, specifically, the independence standards are intended to ensure directors who are considered independent are free of any conflicting interest that could influence their actions as directors. Following this offering, we intend to utilize certain exemptions afforded to a “controlled company.” As a result, we will not be subject to certain corporate governance requirements, including that a majority of our board of directors consists of “independent directors,” as defined under the NYSE rules. In addition, we will not be required to have a nominating and corporate governance committee or compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, or to conduct annual performance evaluations of the nominating and corporate governance and compensation committees.

Accordingly, you may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE rules. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

Certain provisions of Delaware law and anti-takeover provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of Delaware law and our amended and restated certificate of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer, or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. These provisions provide for, among other things:

 

•

a classified board of directors with staggered three-year terms;

 

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the ability of our board of directors to issue one or more series of preferred stock without stockholder approval;

 

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advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at our annual meetings;

 

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certain limitations on convening special stockholder meetings and actions by stockholders through a written consent;

 

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prohibit cumulative voting in the election of directors;

 

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the removal of directors only for cause and only upon the affirmative vote of the holders of at least a majority of the voting power represented by our then-outstanding common stock entitled to vote generally in the election of directors; and

 

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•

that certain provisions of amended and restated certificate of incorporation may be amended only by the affirmative vote of at least 66-2/3% of the voting power represented by our then-outstanding common stock.

These antitakeover provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many of our stockholders. As a result, our stockholders may be limited in their ability to obtain a premium for their shares.

In addition, we have opted out of Section 203 of the General Corporation Law of the State of Delaware(the “DGCL”), but our amended and restated certificate of incorporation will provide that engaging in any of a broad range of business combinations with any “interested” stockholder (any stockholder with 15% or more of our voting stock) for a period of three years following the date on which the stockholder became an “interested” stockholder is prohibited, subject to certain exceptions, including an exclusion for GEC, White Deer and their affiliates. See “Description of Capital Stock.”

The JOBS Act will allow us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information we provide in our reports filed with the SEC. We cannot be certain if this reduced disclosure will make our Class A common stock less attractive to investors.

The JOBS Act is intended to reduce the regulatory burden on “emerging growth companies.” As defined in the JOBS Act, a public company whose initial public offering of common equity securities occurs after December 8, 2011, and whose annual net revenues are less than $1.235 billion will, in general, qualify as an “emerging growth company” until the earliest of:

 

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the last day of its fiscal year following the fifth anniversary of the date of its initial public offering of common equity securities;

 

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the last day of its fiscal year in which it has annual gross revenue of $1.235 billion or more;

 

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the date on which it has, during the previous three-year period, issued more than $1.0 billion in nonconvertible debt; and

 

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the date on which it is deemed to be a “large accelerated filer,” which will occur at such time as the company (i) has an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (ii) has been required to file annual and quarterly reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, for a period of at least 12 months, and (iii) has filed at least one annual report pursuant to the Exchange Act.

Under this definition, we will be an “emerging growth company” upon completion of this offering and could remain an “emerging growth company” until as late as the fifth anniversary of the completion of this offering. For so long as we are an “emerging growth company,” we will, among other things:

 

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not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act;

 

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not be required to hold a nonbinding advisory stockholder vote on executive compensation pursuant to Section 14A(a) of the Exchange Act;

 

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not be required to seek stockholder approval of any golden parachute payments not previously approved pursuant to Section 14A(b) of the Exchange Act;

 

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be exempt from the requirement of the Public Company Accounting Oversight Board, or PCAOB, regarding the communication of critical audit matters in the auditor’s report on the financial statements; and

 

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be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period and, as a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.

We cannot predict if investors will find our Class A common stock less attractive as a result of our decision to take advantage of some or all of the reduced disclosure requirements above. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile.

Our ability to pay regular cash dividends on our Class A common stock following this offering may be limited.

Our ability to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, general and economic conditions, our results of operations and financial condition, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, and such other factors that our board of directors may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under our Credit Agreement. Therefore, any return on investment in our Class A common stock is solely dependent upon the appreciation of the price of our Class A common stock on the open market, which may not occur. See “Dividend Policy” for more detail.

No market currently exists for our Class A common stock, and an active, liquid trading market for our Class A common stock may not develop, which may cause our Class A common stock to trade at a discount from the initial offering price and make it difficult for you to sell the Class A common stock you purchase.

Prior to this offering, there has not been a public market for our Class A common stock. We cannot predict the extent to which investor interest in us will lead to the development of a trading market or how active and liquid that market may become. If an active and liquid trading market does not develop or continue, you may have difficulty selling any of our Class A common stock that you purchase at a price above the price you purchase it or at all. The initial public offering price for the shares was determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our Class A common stock. The market price of our Class A common stock may decline below the initial offering price, and you may not be able to sell your shares of our Class A common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters and the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.

Our amended and restated certificate of incorporation will provide (A) (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any

 

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current or former director, officer, other employee or stockholder of the Company to the Company or the Company’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws (as either may be amended or restated) or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (iv) any action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware; and (B) the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, the exclusive forum provision shall not apply to claims seeking to enforce any liability or duty created by the Exchange Act. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated certificate of incorporation.

Our amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply with respect to any director or stockholder who is not employed by us or our subsidiaries.

The doctrine of corporate opportunity generally provides that a corporate fiduciary may not develop an opportunity using corporate resources, acquire an interest adverse to that of the corporation or acquire property that is reasonably incident to the present or prospective business of the corporation or in which the corporation has a present or expectancy interest, unless that opportunity is first presented to the corporation and the corporation chooses not to pursue that opportunity. The doctrine of corporate opportunity is intended to preclude officers or directors or other fiduciaries from personally benefiting from opportunities that belong to the corporation. Our amended and restated certificate of incorporation, which will be in effect upon the consummation of the Transactions, will provide that the doctrine of “corporate opportunity” will not apply with respect to any director or stockholder who is not employed by us or our subsidiaries. Any director or stockholder who is n ot employed by us or our subsidiaries will, therefore, have no duty to communicate or present corporate opportunities to us, and will have the right to either hold any corporate opportunity for their (and their affiliates’) own account and benefit or to recommend, assign or otherwise transfer such corporate opportunity to persons other than us, including to any director or stockholder who is not employed by us or our subsidiaries.

As a result, certain of our stockholders, directors and their respective affiliates will not be prohibited from operating or investing in competing businesses. We, therefore, may find ourselves in competition with certain of our stockholders, directors or their respective affiliates, and we may not have knowledge of, or be able to pursue, transactions that could potentially be beneficial to us. Accordingly, we may lose a corporate opportunity or suffer competitive harm, which could negatively impact our business, operating results and financial condition.

If securities analysts do not publish research or reports about our business or if they downgrade our stock or our sector, or if there is any fluctuation in our credit rating, our stock price and trading volume could decline.

The trading market for our Class A common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts. Securities and industry

 

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analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of us, the trading price of our shares would likely be negatively impacted. Furthermore, if one or more of the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business, the price of our stock could decline. If one or more of these analysts stops covering us or fails to publish reports on us regularly, we could lose visibility in the market, which, in turn, could cause our stock price or trading volume to decline.

Additionally, any fluctuation in the credit rating of us or our subsidiaries may impact our ability to access debt markets in the future or increase our cost of future debt, which could have a material adverse effect on our operations and financial condition, which in return may adversely affect the trading price of shares of our Class A common stock.

As a public reporting company, we will be subject to rules and regulations established from time to time by the SEC and NYSE regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner.

Upon completion of this offering, we will become a public reporting company subject to the rules and regulations established from time to time by the SEC and the NYSE. These rules and regulations will require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.

In addition, as a public company we will be required to document and test our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act so that our management can certify as to the effectiveness of our internal control over financial reporting by the time our second annual report is filed with the SEC and thereafter, which will require us to document and make significant changes to our internal control over financial reporting. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the JOBS Act, and we become an accelerated or large accelerated filer. As described above, we could potentially qualify as an “emerging growth company” until as late as the fifth anniversary of the completion of this offering.

We expect to incur costs related to implementing an internal audit and compliance function in the upcoming years to further improve our internal control environment. If we identify future deficiencies in our internal control over financial reporting or if we are unable to comply with the demands that will be placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. We also could become subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.

We will incur significant costs as a result of operating as a public company.

Prior to this offering, we operated on a private basis. After this offering, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the NYSE and other applicable securities laws and regulations. The expenses incurred by public companies

 

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generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more difficult, time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. We also expect that being a public company and being subject to new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our Class A common stock, fines, sanctions and other regulatory action and potentially civil litigation. These factors may, therefore, strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

Future sales, or the perception of future sales, by us or our existing stockholders in the public market following this offering could cause the market price for our Class A common stock to decline.

After this offering, the sale of shares of our Class A common stock in the public market, or the perception that such sales could occur, could harm the prevailing market price of shares of our Class A common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Upon consummation of the Transactions, we will have outstanding a total of     shares of Class A common stock. Of the outstanding shares, the shares sold in this offering (or shares if the underwriters exercise in full their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, other than any shares held by our affiliates. In addition, the shares of Class A common stock issued to the Blocker Shareholders in the Transactions will be eligible for resale pursuant to Rule 144 without restriction or further registration under the Securities Act, other than affiliate restrictions under Rule 144. Any shares of Class A common stock held by our affiliates will be eligible for resale pursuant to Rule 144 under the Securities Act, subject to the volume, manner of sale, holding period and other limitations of Rule 144.

Our directors and executive officers, and substantially all of our stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, subject to certain exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of, (i) offer, sell, contract to sell, pledge, grant any option to purchase, lend or otherwise dispose of any shares of our Class A common stock, or any options or warrants to purchase any shares of our Class A common stock, or any securities convertible into or exchangeable for or that represent the right to receive shares of our Class A common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant); (ii) engage in any hedging or other transaction or arrangement (including, without limitation, any short sale or the purchase or sale of, or entry into, any put or call option, or combination thereof, forward, swap or any other derivative transaction or instrument, however described or defined) which is designed to, or which reasonably could be expected to lead to, or result in, a sale, loan, pledge or other disposition of shares of our Class A common stock or such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Class A common stock or such other securities, in cash or otherwise; or (iii) make any demand for or exercise any right with respect to the registration of any shares of our Class A common stock or any security convertible into or exercisable or exchangeable for our common stock. See “Underwriting.”

In addition, we have reserved shares of Class A common stock equal to    % of the total number of outstanding LLC Interests following this offering for issuance under the Incentive Plan. Any Class A common

 

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stock that we issue under the Incentive Plan or other equity incentive plans that we may adopt in the future would dilute the percentage ownership held by the investors who purchase Class A common stock in this offering.

As restrictions on resale end or if these stockholders exercise their registration rights, the market price of our shares of Class A common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our shares of Class A common stock or other securities.

In the future, we may also issue securities in connection with investments, acquisitions or capital raising activities. In particular, the number of shares of our Class A common stock issued in connection with an investment or acquisition, or to raise additional equity capital, could constitute a material portion of our then- outstanding shares of our Class A common stock. Any such issuance of additional securities in the future may result in additional dilution to you, or may adversely impact the price of our Class A common stock.

Our stock price may change significantly following the offering, and you may not be able to resell shares of our Class A common stock at or above the price you paid or at all, and you could lose all or part of your investment as a result.

The initial public offering price for the shares was determined by negotiations between us and the underwriters. You may not be able to resell your shares at or above the initial public offering price due to a number of factors included herein, including the following:

 

•

results of operations that vary from the expectations of securities analysts and investors;

 

•

results of operations that vary from those of our competitors;

 

•

changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

 

•

technology changes, changes in consumer behavior or changes in merchant relationships in our industry;

 

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security breaches related to our systems or those of our merchants, affiliates or strategic partners;

 

•

changes in economic conditions for companies in our industry;

 

•

changes in market valuations of, or earnings and other announcements by, companies in our industry;

 

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declines in the market prices of stocks generally, particularly those of global payment companies;

 

•

strategic actions by us or our competitors;

 

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announcements by us, our competitors or our strategic partners of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships, or capital commitments;

 

•

changes in general economic or market conditions or trends in our industry or the economy as a whole and, in particular, in the consumer spending environment;

 

•

changes in business or regulatory conditions;

 

•

future sales of our Class A common stock or other securities;

 

•

investor perceptions of the investment opportunity associated with our Class A common stock relative to other investment alternatives;

 

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•

the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

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announcements relating to litigation or governmental investigations;

 

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guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance;

 

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the development and sustainability of an active trading market for our stock;

 

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changes in accounting principles; and

 

•

other events or factors, including those resulting from system failures and disruptions, natural disasters, war, acts of terrorism, an outbreak of highly infectious or contagious diseases, such as COVID-19, or responses to these events;

Furthermore, the stock market may experience extreme volatility that, in some cases, may be unrelated or disproportionate to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the market price of our Class A common stock, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our Class A common stock is low.

In the past, following periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of management from our business regardless of the outcome of such litigation.

If you purchase shares of Class A common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our Class A common stock. Therefore, if you purchase shares of our Class A common stock in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. You will experience immediate dilution of $   per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, investors who purchase Class A common stock from us in this offering will have contributed     % of the aggregate price paid by all purchasers of our outstanding equity but will own only approximately     % of our outstanding equity after this offering. See “Dilution” for more detail, including the calculation of the pro forma net tangible book value per share of our Class A common stock.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding the Transactions, including the consummation of this offering, expected growth, future capital expenditures and debt service obligations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms, such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but are not limited to, the following:

 

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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;

 

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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;

 

•

we 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 we are unable to obtain raw materials;

 

•

continuing inflation and cost increases may impact our sales margins and profitability;

 

•

we might be unable to successfully compete with other companies in our industry;

 

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if we are unable to develop new products and technologies, our competitive position may be impaired, which could materially and adversely affect our sales and market share;

 

•

our products are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a result, we are exposed to potential liabilities that may affect our financial condition and reputation;

 

•

consolidation in our industry may impact our results of operations;

 

•

the credit risks of our customer base could result in losses;

 

•

the loss of one or more significant customers could have an adverse impact on our financial results;

 

•

changes in our customer and product mix could cause our profit margin to fluctuate;

 

•

we are subject to information technology, cybersecurity and privacy risks;

 

•

we identified material weaknesses in our internal control over financial reporting, and if we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or

 

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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;

 

•

we are subject to risks relating to existing international operations and expansion into new geographical markets;

 

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adverse health events, such as a pandemic, could adversely affect our business, liquidity, and financial results;

 

•

failure to attract, retain and develop personnel could have an adverse effect on our results of operations, financial condition and cash flows;

 

•

the inability to protect or obtain patent and other intellectual property rights could adversely affect our revenue, operating profits and cash flows;

 

•

natural disasters and unusual weather conditions could have an adverse impact on our business;

 

•

our growth and results of operations may be adversely affected if we are unable to complete third party acquisitions on acceptable terms and integrate such acquisitions;

 

•

investor sentiment towards climate change, fossil fuels and other Environmental, Social and Governance (“ESG”) matters could adversely affect our access to and cost of capital and stock price;

 

•

our Credit Agreement imposes restrictions that limit our operating flexibility and such facility may not be available if financial covenants are violated or if an event of default occurs;

 

•

our exposure to exchange rate fluctuations on cross-border transactions and the translation of local currency results into U.S. dollars could negatively impact our results of operations;

 

•

our indebtedness could adversely affect our financial condition and operating flexibility;

 

•

disruptions in the capital and credit markets, low commodity prices, our debt level and other factors may restrict our ability to raise capital on favorable terms, or at all;

 

•

war, terrorism or civil unrest could harm our business;

 

•

federal, state and local legislative and regulatory initiatives relating to oil and natural 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;

 

•

our reputation, ability to do business and results of operations may be impaired by violations of U.S. and international laws and regulations regarding, anti-bribery, trade control, trade sanctions, anti-corruption and similar laws;

 

•

tariffs and other trade measures could adversely affect our results of operations, financial position and cash flows; and

 

•

changes in domestic and foreign governmental laws, regulations and policies, risks associated with emerging markets, changes in statutory tax rates and laws, and unanticipated outcomes with respect to tax audits could adversely affect our business, profitability and reputation.

 

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The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Many of the important factors that will determine these results are beyond our ability to control or predict. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 

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OUR ORGANIZATIONAL STRUCTURE

Flowco Holdings Inc., a Delaware corporation, was formed on July 25, 2024 and is the issuer of the Class A common stock offered by this prospectus. Prior to this offering and the Transactions (as defined below), all of our business operations have been conducted through Flowco LLC and its direct and indirect subsidiaries, and the Original Equity Owners are the only owners of Flowco LLC. We will consummate the Transactions, excluding this offering, substantially concurrently with or prior to the consummation of this offering.

Existing Organization

Flowco LLC is treated as a partnership for U.S. federal income tax purposes and, as such is generally not subject to any U.S. federal entity-level income taxes. Taxable income or loss of Flowco LLC is included in the U.S. federal income tax returns of Flowco LLC’s members. Prior to the consummation of this offering, the Original Equity Owners were the only members of Flowco LLC.

Transactions

Prior to the Transactions, we expect there will initially be one holder of common stock of Flowco Holdings Inc. Pursuant to a Master Reorganization Agreement and related documents, we will consummate the following organizational transactions in connection with this offering:

 

•

we will amend and restate the existing limited liability company agreement of Flowco LLC, which will become effective substantially concurrently with or prior to the consummation of this offering, to, among other things, (i) recapitalize all existing ownership interests in Flowco LLC into LLC Interests and (ii) issue a non-economic member interest and appoint Flowco Holdings Inc. as the sole managing member of Flowco LLC upon its acquisition of LLC Interests in connection with this offering;

 

•

we will amend and restate Flowco Holdings Inc.’s certificate of incorporation to, among other things, provide (i) for Class A common stock, with each share of our Class A common stock entitling its holder to one vote per share on all matters presented to our stockholders generally and (ii) for Class B common stock, with each share of our Class B common stock entitling its holder to one vote per share on all matters presented to our stockholders generally, and that shares of our Class B common stock may only be held by the Continuing Equity Owners and their respective permitted transferees as described in “Description of Capital Stock—Common Stock—Class B Common Stock;”

 

•

Flowco Holdings Inc. will acquire, by means of one or more mergers, the Blocker Companies and will issue to the Blocker Shareholders      shares of our Class A common stock, and the Blocker Companies will be subsequently merged into Flowco Holdings Inc.;

 

•

we will issue      shares of our Class B common stock to the Continuing Equity Owners, which is equal to the number of LLC Interests held by such Continuing Equity Owners, for nominal consideration;

 

•

we will issue      shares of our Class A common stock to the purchasers in this offering (or shares if the underwriters exercise in full their option to purchase additional shares of Class A common stock) in exchange for net proceeds of approximately $   million (or approximately $   million if the underwriters exercise in full their option to purchase additional shares of Class A common stock) based upon an assumed initial public offering price of $   per share (which is the mid-point of the estimated price range set forth on the cover page of this prospectus), less the underwriting discount and estimated offering expenses payable by us;

 

•

we will use the net proceeds from this offering to purchase     newly issued LLC Interests (or     LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common

 

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stock) directly from Flowco LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering less the underwriting discount and estimated offering expenses payable by us;

 

•

Flowco LLC intends to use the net proceeds from the sale of LLC Interests to Flowco Holdings Inc. to (i) repay indebtedness under our Credit Agreement; (ii) to redeem approximately $   million of Flowco LLC interests (assuming an initial public offering price of $   per share) from certain non-affiliate holders; and (iii) for general corporate purposes, in each case, as described under “Use of Proceeds;” and

 

•

Flowco Holdings Inc. will enter into (i) the Stockholders Agreement with GEC, White Deer and certain of their affiliates, (ii) the Registration Rights Agreement with the Continuing Equity Owners and the Blocker Shareholders and (iii) the Tax Receivable Agreement with Flowco LLC and each of the TRA Participants. For a description of the terms of the Stockholders Agreement, the Registration Rights Agreement and the Tax Receivable Agreement, see “Certain Relationships and Related Party Transactions.”

Organizational Structure Following the Transactions

 

•

Flowco Holdings Inc. will be a holding company and its principal asset will consist of the LLC Interests it acquires directly from Flowco LLC and indirectly from certain of the Continuing Equity Owners and the Blocker Shareholders;

 

•

Flowco Holdings Inc. will be the sole managing member of Flowco LLC and will control the business and affairs of Flowco LLC and its direct and indirect subsidiaries;

 

•

Flowco Holdings Inc. will own      LLC Interests of Flowco LLC, representing approximately  % of the economic interest in Flowco LLC (or      LLC Interests, representing approximately  % of the economic interest in Flowco LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

•

GEC Affiliates directly and indirectly (including through certain Blocker Shareholders) will own (i)      shares of Class A common stock of Flowco Holdings Inc. (or      shares of Class A common stock of Flowco Holdings Inc. if the underwriters exercise in full their option to purchase additional shares of Class A common stock), representing approximately  % of the combined voting power of all of Flowco Holding’s common stock and approximately  % of the economic interest in Flowco Holdings Inc. (or approximately  % of the combined voting power and approximately  % of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock), (ii) directly through the GEC Affiliates’ ownership of LLC Interests and indirectly through Flowco Holdings Inc.’s ownership of LLC Interests, approximately  % of the economic interest in Flowco LLC (or approximately  % of the economic interest in Flowco LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and (iii)      shares of Class B common stock of Flowco Holdings Inc., representing approximately  % (and, together with the shares of Class A common stock,  %) of the combined voting power of all of Flowco Holdings Inc.’s common stock (or      shares of Class B common stock of Flowco Holdings Inc., representing approximately  % (and, together with the      shares of Class A common stock,  %) if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

•

White Deer Affiliates (directly and indirectly including through certain Blocker Shareholders) will own (i)      shares of Class A common stock of Flowco Holdings Inc. (or      shares of Class A common stock of Flowco Holdings Inc. if the underwriters exercise in full their option to purchase additional shares of Class A common stock), representing approximately  % of the combined voting power of all of Flowco Holdings Inc.’s common stock and approximately  % of the economic interest in Flowco Holdings Inc. (or approximately  % of the combined voting power and approximately  % of the economic interest if the

 

60

underwriters exercise in full their option to purchase additional shares of Class A common stock), (ii) directly and indirectly through Flowco Holdings Inc.’s ownership of LLC Interests, approximately  % of the economic interest in Flowco LLC (or approximately  % of the economic interest in Flowco LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and (iii)      shares of Class B common stock of Flowco Holdings Inc., representing approximately  % of the combined voting power of all of Flowco Holdings Inc.’s common stock (or      shares of Class B common stock of Flowco Holdings Inc., representing approximately  % if the underwriters exercise in full their option to purchase additional shares of Class A common stock); and

 

•

The Continuing Equity Owners (excluding GEC Affiliates and White Deer Affiliates) will collectively own (i)      LLC Interests of Flowco LLC, representing approximately   % of the economic interest in Flowco LLC (or      LLC Interests, representing approximately  % of the economic interest in Flowco LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock) and (ii)      shares of Class B common stock of Flowco Holdings Inc., representing approximately  % of the combined voting power of all of Flowco Holdings Inc.’s common stock (or      shares of Class B common stock of Flowco Holdings Inc., representing approximately  % if the underwriters exercise in full their option to purchase additional shares of Class A common stock);

 

•

the purchasers in this offering will own (i)      shares of Class A common stock of Flowco Holdings Inc. (or      shares of Class A common stock of Flowco Holdings Inc. if the underwriters exercise in full their option to purchase additional shares of Class A common stock), representing approximately  % of the combined voting power of all of Flowco Holdings Inc.’s common stock and approximately   % of the economic interest in Flowco Holdings Inc. (or approximately   % of the combined voting power and approximately  % of the economic interest if the underwriters exercise in full their option to purchase additional shares of Class A common stock), and (ii) through Flowco Holdings Inc.’s ownership of LLC Interests, indirectly will hold approximately  % of the economic interest in Flowco LLC (or approximately  % of the economic interest in Flowco LLC if the underwriters exercise in full their option to purchase additional shares of Class A common stock).

 

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The diagram below depicts our organizational structure after giving effect to the Transactions, including this offering, assuming no exercise by the underwriters of their option to purchase additional shares of Class A common stock.

 

As the sole managing member of Flowco LLC, we will operate and control all of the business and affairs of Flowco LLC and, through Flowco LLC and its direct and indirect subsidiaries, conduct our business. Following the Transactions, including this offering, Flowco Holdings Inc. will have a minority economic interest in Flowco LLC, but will control the management of Flowco LLC as its sole managing member. As a result, Flowco Holdings Inc. will consolidate Flowco LLC and record a significant non-controlling interest in a consolidated entity in Flowco Holdings Inc.’s consolidated financial statements for the economic interest in Flowco LLC held by the Continuing Equity Owners.

Unless otherwise indicated, this prospectus assumes the shares of Class A common stock are offered at $   per share (the mid-point of the estimated price range set forth on the cover page of this prospectus). Pursuant to the terms of the Existing LLC Agreement, the split between the number of LLC Interests among the Original Equity Owners will vary depending on the initial public offering price in this offering. The initial public offering price will also impact the relative allocation of LLC Interests issued in the Transactions among the Original Equity Owners and, in turn, the shares of Class A common stock and Class B common stock issued to the

 

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Original Equity Owners in the Transactions. Additionally, while the number of shares of Class A common stock being offered hereby to the public will not change, any increase or decrease in the number of shares of Class A common stock sold by Flowco Holdings Inc. in this offering due to a change in the initial public offering price will result in a corresponding increase or decrease in the number of LLC Interests purchased by Flowco Holdings Inc. directly from Flowco LLC at a price per unit equal to the initial public offering price per share of Class A common stock in this offering. Therefore, the indirect economic interest in Flowco LLC represented by the shares of Class A common stock sold in this offering will be largely unaffected by the initial public offering price. See “Use of Proceeds.”

Incorporation of Flowco Holdings Inc.

Flowco Holdings Inc., the issuer of the Class A common stock offered by this prospectus, was incorporated as a Delaware corporation on July 25, 2024. Flowco Holdings Inc. has not engaged in any material business or other activities except in connection with its formation and the Transactions. The amended and restated certificate of incorporation of Flowco Holdings Inc. that will become effective immediately prior to the consummation of this offering will, among other things, authorize two classes of common stock, Class A common stock and Class B common stock, each having the terms described in “Description of Capital Stock.”

Reclassification and Amendment and Restatement of the Flowco LLC Agreement

Prior to or substantially concurrently with the consummation of this offering, the existing limited liability company agreement of Flowco LLC will be amended and restated to, among other things, recapitalize its capital structure by creating a single new class of common units that we refer to as “LLC Interests” and provide for a right of redemption of common units in exchange for, at our election (as determined by at least two of our independent directors (within the meaning of the rules of the NYSE)), newly-issued shares of our Class A common stock on a one-for-one basis or cash. In connection with any such redemption or exchange of LLC Interests, a corresponding number of shares of Class B common stock held by the relevant Continuing Equity Owner will automatically be transferred to Flowco Holdings Inc. and be canceled. See “Certain Relationships and Related Party Transactions—Flowco LLC Agreements.”

 

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USE OF PROCEEDS

We estimate, based upon an assumed initial public offering price of $  per share (which is the mid-point of the estimated price range set forth on the cover page of this prospectus), that we will receive net proceeds from this offering of approximately $   million (or $   million if the underwriters exercise in full their option to purchase additional shares of Class A common stock), after deducting the underwriting discount and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering to acquire LLC Interests of Flowco LLC, and Flowco LLC intends to use such proceeds to: (i) repay indebtedness under our Credit Agreement; (ii) redeem approximately $   million of Flowco LLC interests (assuming an initial public offering price of $   per share) from certain non-affiliate holders; and (iii) for general corporate purposes.

On August 20, 2024, Flowco MasterCo LLC, Flowco Productions, Estis Intermediate and Flogistix Intermediate, as borrowers, entered into a first lien credit agreement, or the Credit Agreement, which currently provides for a $725 million aggregate principal amount senior secured revolving credit facility, which has a maturity date of August 20, 2029. Borrowings under the Credit Agreement are, at the option of the Borrowers, either based on an alternate base rate (“ABR”) or a term SOFR rate. Loans comprising each ABR borrowing under the Credit Agreement accrue interest at the ABR plus an applicable margin ranging from 0.75% to 1.50% per annum, dependent upon the Total Leverage Ratio (as defined in the Credit Agreement). Loans comprising each SOFR rate borrowing accrue interest at a Term SOFR rate plus an applicable margin ranging from 1.75% to 2.50%, depending on the Total Leverage Ratio. Initial borrowings under the Credit Agreement in August 2024 were used to repay outstanding indebtedness under prior credit facilities of Flowco LLC and its subsidiaries and $50.0 million was used in connection with a distribution to members of Flowco LLC. Subsequently, in addition to short-term borrowings used for working capital, proceeds from borrowings under the Credit Agreement were used for an additional $50.0 million distribution to members of Flowco LLC in September 2024. For additional information, see “Description of Indebtedness.”

Assuming no exercise of the underwriters’ option to purchase additional shares of Class A common stock, each $1.00 increase (decrease) in the assumed initial public offering price of $   per share (which is the mid-point of the estimated price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by approximately $   million and, in turn, the net proceeds received by Flowco LLC from the sale of LLC Interests to Flowco Holdings Inc. by $   million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.

Each 1,000,000 share increase (decrease) in the number of shares offered by us in this offering would increase (decrease) the net proceeds to us from this offering by approximately $   million and, in turn, the net proceeds received by Flowco LLC from the sale of LLC Interests to Flowco Holdings Inc. by $   million, assuming that the price per share for the offering remains at $   (which is the mid-point of the estimated price range set forth on the cover page of this prospectus), and after deducting the underwriting discount and estimated offering expenses payable by us.

Flowco LLC will bear or reimburse Flowco Holdings Inc. for all of the expenses incurred in connection with the Transactions, including this offering.

 

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CAPITALIZATION

The following table sets forth the cash and capitalization as of September 30, 2024, as follows:

 

•

of Flowco LLC and its subsidiaries on a historical basis;

 

•

of Flowco Holdings Inc. and its subsidiaries on an as adjusted basis to give effect to the Transactions, excluding this offering; and

 

•

of Flowco Holdings Inc. and its subsidiaries on a pro forma basis to give effect to the Transactions, including the sale of the shares of Class A common stock in this offering at an assumed initial public offering price of $   per share (which is the mid-point of the estimated price range set forth on the cover page of this prospectus), after deducting the underwriting discount and estimated offering expenses payable by us, and the application of the net proceeds therefrom as described under “Use of Proceeds.”

For more information, please see “Our Organizational Structure,” “Use of Proceeds” and “Unaudited Pro Forma Condensed Consolidated Financial Information” included elsewhere in this prospectus. You should read this information in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other financial information contained in this prospectus.

 

		As of September 30, 2024
		Flowco LLC Historical				Flowco Holdings Inc. As Adjusted(4)				Flowco Holdings Inc. Pro Forma
Cash and cash equivalents		$	23,124			$	23,124			$
Long-term debt (including current portion)(1):
Credit Agreement(2)(3)		$	575,491			$	575,491			$
Total long-term debt			575,491				575,491
Members’/stockholders’ equity:
Members’ equity:
Class A units			—				—				—
Additional paid-in capital			891,616				—				—
Retained earnings			24,681				—				—
Stockholders’ equity:
Class A common stock, par value $0.0001 per share; no shares authorized, issued and outstanding, actual;     ,000,000 shares authorized and      shares issued and outstanding, as adjusted			—
Class B common stock, par value $0.0001 per share; no shares authorized, issued and outstanding, actual;     ,000,000 shares authorized and      shares issued and outstanding, as adjusted			—
Additional paid-in capital			—
Retained earnings			—
Total members’/stockholders’ equity			916,297
Non-controlling interests			—
Total equity			916,297
Total capitalization		$	1,514,912			$				$

 

(1)

See “Description of Indebtedness” for a description of our currently outstanding indebtedness.

 

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(2)

Effective August 20, 2024, the Prior Estis Credit Facility was refinanced by the Credit Agreement. See “Description of Indebtedness” for a description of our currently outstanding indebtedness. As of December 19, 2024, outstanding indebtedness under the Credit Agreement was $615.8 million. In addition, subsequent to September 30, 2024, Flowco LLC has made distributions of cash to its equityholders in an aggregate amount of $66 million and anticipates making additional distributions in the aggregate amount of $34 million prior to January 3, 2025.

 

(3)

Net of debt issuance costs.

 

(4)

Does not include      restricted stock units (“RSUs”) that we expect to issue to certain directors, officers and other employees in connection with this offering (based on an assumed initial public offering price of $    per share).

Each $1.00 increase (decrease) in the assumed public offering price of $   per share (which is the mid-point of the estimated price range set forth on the cover page of this prospectus) would increase (decrease) each of total indebtedness, additional paid-in capital and total members’ / stockholders’ equity on a pro forma as adjusted basis by approximately $   million, assuming that the price per share for the offering remains at $   (which is the mid-point of the estimated price range set forth on the cover page of this prospectus), and after deducting the underwriting discount and estimated offering expenses payable by us.

Each 1,000,000 share increase or decrease in the number of shares offered in this offering by us would increase or decrease each of total indebtedness, additional paid-in capital and total members’ / stockholders’ equity on a pro forma as adjusted basis by approximately $   million, assuming that the price per share for the offering remains at $   (which is the mid-point of the estimated price range set forth on the cover page of this prospectus), and after deducting the underwriting discount and estimated offering expenses payable by us.

 

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DIVIDEND POLICY

We currently intend to pay a dividend from available funds and future earnings on our Class A common stock. Because we are a holding company, our ability to pay cash dividends on our Class A common stock depends on our receipt of cash distributions from Flowco LLC and, through Flowco LLC, cash distributions and dividends from our other direct and indirect subsidiaries. Our ability to pay dividends may be restricted by the terms of our Credit Agreement and any future credit agreement or any future debt or preferred equity securities of us or our subsidiaries. See “Description of Capital Stock,” “Description of Indebtedness” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources.”

Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to compliance with contractual restrictions and covenants in the agreements governing our current and future indebtedness. Any such determination will also depend upon our business prospects, results of operations, financial condition, cash requirements and availability and other factors that our board of directors may deem relevant.

As noted above, immediately following this offering, we will be a holding company, and our principal asset will be the LLC Interests we purchase from Flowco LLC. If and when we decide to pay a dividend in the future, we will need to cause Flowco LLC to make distributions to us in an amount sufficient to cover such dividend. If Flowco LLC makes such distributions to us, the other holders of LLC Interests will be entitled to receive pro rata distributions. See “Risk Factors—Risks Related to Our Organizational Structure—Our principal asset after the completion of this offering will be our interest in Flowco LLC, and, as a result, we will depend on distributions from Flowco LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement. Flowco LLC’s ability to make such distributions may be subject to various limitations and restrictions.”

 

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DILUTION

The Continuing Equity Owners will own LLC Interests after the Transactions and in such capacity will not have any right to receive distributions from Flowco Holdings Inc. Accordingly, we have presented dilution in pro forma net tangible book value per share both before and after this offering assuming that all of the holders of LLC Interests (other than Flowco Holdings Inc.) had their LLC Interests exchanged for newly-issued shares of Class A common stock on a one-for-one basis (rather than for cash) and the automatic transfer to the Company and cancellation for no consideration of all of their shares of Class B common stock (which are not entitled to receive distributions or dividends, whether cash or stock from Flowco Holdings Inc.) in order to more meaningfully present the dilutive impact on the investors in this offering. We refer to the assumed exchange of all LLC Interests for shares of Class A common stock as described in the previous sentence as the “Assumed Exchange.”

Dilution is the amount by which the offering price paid by the purchasers of the Class A common stock in this offering exceeds the pro forma net tangible book value per share of Class A common stock after the offering. Flowco LLC’s pro forma net tangible book value as of prior to this offering and after giving effect to the other Transactions and the Assumed Exchange was $   million. Pro forma net tangible book value per share prior to this offering is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock deemed to be outstanding after giving effect to the Assumed Exchange.

If you invest in our Class A common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma net tangible book value per share of our Class A common stock after this offering.

Pro forma net tangible book value per share after this offering is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock deemed to be outstanding, after giving effect to the Transactions, including this offering and the application of the proceeds from this offering as described in “Use of Proceeds,” and the Assumed Exchange. Our pro forma net tangible book value as of after this offering would have been approximately $   million, or $   per share of Class A common stock. This amount represents an immediate increase in pro forma net tangible book value of $   per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $   per share to new investors purchasing shares of Class A common stock in this offering. We determine dilution by subtracting the pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock. The following table illustrates this dilution:

 

Assumed initial public offering price per share						$
Pro forma net tangible book value per share as of September 30, 2024 before this offering		$
Increase per share attributable to new investors in this offering
Pro forma net tangible book value per share after this offering
Dilution per share to new Class A common stock investors in this offering						$

A $1.00 increase (decrease) in the assumed initial public offering price of $   per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, would increase the pro forma net tangible book value per share after this offering by approximately $  , and dilution in pro forma net tangible book value per share to new investors by approximately $   assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.

 

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If the underwriters exercise in full their option to purchase additional shares of Class A common stock, the pro forma net tangible book value after the offering would be $   per share, the increase in pro forma net tangible book value per share to existing stockholders would be $   per share and the dilution in pro forma net tangible book value to new investors would be $   per share, in each case assuming an initial public offering price of $   per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus.

The following table summarizes, as of September 30, 2024 after giving effect to the Transactions (including this offering) and the Assumed Exchange, the number of shares of Class A common stock purchased from us, the total consideration paid, or to be paid, to us and the average price per share paid, or to be paid, by existing owners and by the new investors. The calculation below is based on an assumed initial public offering price of $   per share, which is the mid-point of the estimated price range set forth on the cover page of this prospectus, before deducting the underwriting discount and estimated offering expenses payable by us.

 

		Shares Purchased								Total Consideration								Average Price Per Share
		Number				Percent				Amount				Percent
Original Equity Owners							%			$					%			$
New investors							%								%			$
Total							100.0%			$					100.0%

Each $1.00 increase (decrease) in the assumed initial public offering price of $   per share would increase (decrease) the total consideration paid by new investors and the total consideration paid by all stockholders by $   million, assuming the number of shares offered by us remains the same and after deducting the underwriting discount but before estimated offering expenses.

A $1.00 increase (decrease) in the assumed initial public offering price of $   per share would also increase (decrease) the aggregate value of LLC Interests redeemed by Flowco LLC from certain non-affiliate equity holders who are non-accredited investors or would own limited interests in Flowco LLC after giving effect to liquidating distributions by the Original Equity Owners to such holders of profits units, including the number of LLC Interests allocable to such assignees under agreements with the Original Equity Owners, with such aggregate redemption amount changing from an estimated $   to $   (based on a $1.00 increase) or $   (based on a $1.00 decrease), resulting in a change in the total consideration paid and average price per share by Original Equity Owners to $   and $   (based on a $1.00 increase), or to $   and $   (based on a $1.00 decrease). Amounts differing from a $1.00 increase (decrease) will be subject to non-linear changes based on allocations determined under distribution waterfalls for the applicable profits units of the Original Equity Owners.

Except as otherwise indicated, the discussion and the tables above assume no exercise of the underwriters’ option to purchase additional shares of Class A common stock. In addition, the discussion and tables above exclude shares of Class B common stock, because holders of the Class B common stock are not entitled to distributions or dividends, whether cash or stock, from Flowco Holdings Inc. The number of shares of our Class A common stock outstanding after this offering as shown in the tables above is based on the number of shares outstanding as of September 30, 2024, after giving effect to the Transactions and the Assumed Exchange, and excludes      shares of Class A common stock reserved for issuance under our Incentive Plan (as described in “Executive Compensation—Incentive Plan”), including approximately      shares of Class A common stock issuable pursuant to RSUs we intend to grant to certain of our directors, executive officers and other employees, including certain of our named executive officers, in connection with this offering as described in “Executive Compensation—IPO Grants.”

 

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To the extent any of these RSUs vest, there will be further dilution to new investors. To the extent all these RSUs vest as of September 30, 2024, the pro forma net tangible book value per share after this offering would be $  , and total dilution per share to new investors would be $  .

If the underwriters exercise in full their option to purchase additional shares of Class A common stock:

 

•

the percentage of shares of Class A common stock held by the Original Equity Owners will decrease to approximately  % of the total number of shares of our Class A common stock outstanding after this offering; and

 

•

the number of shares held by new investors will increase to      , or approximately  % of the total number of shares of our Class A common stock outstanding after this offering.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2024 and the unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2024 and for the fiscal year ended December 31, 2023 (collectively, “unaudited pro forma condensed consolidated financial information”) present our financial position and results of operations after giving pro forma effect to the accounting for the following transactions as if such transactions occurred on September 30, 2024 for the unaudited pro forma condensed consolidated balance sheet and on January 1, 2023 for the unaudited pro forma condensed consolidated statements of operations:

 

(1)

The 2024 Business Combination described elsewhere in this registration statement;

 

(2)

The organizational transactions as described elsewhere in this registration statement under “Our Organizational Structure;”

 

(3)

The Tax Receivable Agreement, as described elsewhere in this registration statement under “Our Organizational Structure,” and under “Certain Relationships and Related Party Transactions;”

 

(4)

This offering and the application of the estimated net proceeds from this offering as described under “Use of Proceeds;” and

 

(5)

Financing transactions associated with the $700 million revolving credit facility “Financing Transactions.”

We refer to the adjustments related to the 2024 Business Combination, excluding the adjustments related to the offering, as the “2024 Business Combination Adjustments.” We refer to the adjustments related to the organizational transactions, tax receivable agreement and this offering as “Transaction Adjustments.” We refer to the adjustments related to the revolving credit facility as “Financing Transaction Adjustments.”

Following the completion of the Transactions, Flowco Holdings Inc. will be a holding company whose principal asset will consist of  % of the outstanding LLC Interests (or  % of LLC Interests if the underwriters exercise in full their option to purchase additional shares of Class A common stock) that it acquires directly from Flowco LLC. The remaining LLC Interests will be held by the Continuing Equity Owners. Flowco Holdings Inc. will act as the sole managing member of Flowco LLC, will operate and control the business and affairs of Flowco LLC and its direct and indirect subsidiaries and, through Flowco LLC and its direct and indirect subsidiaries, conduct its business.

The unaudited pro forma condensed consolidated statement of operations and unaudited pro forma condensed consolidated balance sheet are derived from and should be read in conjunction with the following, which are all included elsewhere in this prospectus:

 

•

Audited financial statement of Flowco Holdings Inc. as of November 30, 2024 and related notes included elsewhere within this prospectus;

 

•

Unaudited consolidated financial statements of Flowco MergeCo LLC (Predecessor) (“Flowco LLC”) as of September 30, 2024 and for the nine months ended September 30, 2024 and 2023 and the related notes included elsewhere within this registration statement, and the audited consolidated financial statements of Flowco LLC as of December 31, 2023 and for the years ended December 31, 2023 and 2022 and the related notes included elsewhere within this registration statement;

 

•

Unaudited consolidated financial statements of Flowco Production Solutions, L.L.C. (“FPS”) as of March 31, 2024 and for the three months ended March 31, 2024 and the related notes, and the audited consolidated

 

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financial statements of FPS as of December 31, 2023 and for the years ended December 31, 2023 and 2022 and the related notes included elsewhere within this registration statement; and

 

•

Unaudited consolidated financial statements of Flogistix, LP (“Flogistix”) as of March 31, 2024 and for the three months ended March 31, 2024 and the related notes, and the audited consolidated financial statements of Flogistix as of December 31, 2023 and for the years ended December 31, 2023 and 2022 and the related notes included elsewhere within this registration statement.

The unaudited pro forma condensed consolidated financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” These unaudited pro forma condensed consolidated financial statements do not present any estimatable synergies and only present the 2024 Business Combination Adjustments, Financing Transaction Adjustments and Transaction Adjustments. These unaudited pro forma condensed consolidated financial statements have been presented to provide relevant information necessary for an understanding of the transactions discussed above. The unaudited pro forma condensed consolidated financial information reflects adjustments that are described in the accompanying notes and are based on available information and certain assumptions we believe are reasonable but are subject to change.

The 2024 Business Combination Adjustments are described in the notes to the unaudited pro forma condensed consolidated financial information, and principally include the impact to the statement of operations for costs incurred to complete the transaction and the ongoing impacts resulting from the application of Accounting Standards Codification Topic 805—Business Combinations. Estis has been determined to be both the accounting acquirer and accounting predecessor of Flowco LLC and Flowco Holdings Inc. in the 2024 Business Combination for financial reporting purposes primarily based on its relative size when compared to the other two merging entities, majority of economics, majority of board seats nominated as well as significant representation on the executive management team upon the closing. Flowco LLC prior to the 2024 Business Combination was determined to lack commercial substance as it had not engaged in any business activities and therefore, one or more of the operating companies would be deemed the accounting acquirer. For a description of the 2024 Business Combination, see “Business—2024 Business Combination.”

The Transaction Adjustments are described in the notes to the unaudited pro forma condensed consolidated financial information and principally include the following:

 

•

the amendment and restatement of the limited liability company agreement of Flowco LLC to, among other things, issue a non-economic member interest and appoint Flowco Holdings Inc. as the sole managing member of Flowco LLC and provide certain redemption rights to the Continuing Equity Owners;

 

•

the redemption by Flowco LLC of LLC Interests from non-affiliate equity holders who are non-accredited investors or would own limited interests in Flowco LLC after giving effect to liquidating distributions by the Original Equity Owners, for an aggregate of approximately $   (based on an assumed initial public offering price of $   per share, the mid-point of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discount);

 

•

the issuance of      shares of our Class A common stock to the investors in this offering in exchange for net proceeds of approximately $   (based on an assumed initial public offering price of $   per share, the mid-point of the estimated price range set forth on the cover page of this prospectus), after deducting the underwriting discount but before estimated offering expenses payable by us;

 

•

the payment of fees and expenses related to this offering and the application of the net proceeds from the sale of Class A common stock in this offering to purchase LLC Interests directly from Flowco LLC, at a purchase price per LLC Interest equal to the initial public offering price per share of Class A common stock

 

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less the underwriting discount and estimated offering expenses payable by us, with such LLC Interests representing  % of the outstanding LLC Interests; and

 

•

the application by Flowco LLC of the proceeds from the sale of LLC Interests to us as described under “Use of Proceeds.”

Except as otherwise indicated, the unaudited pro forma condensed consolidated financial information presented assumes no exercise by the underwriters of their option to purchase additional shares of Class A common stock in the offering.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these additional procedures and processes and, among other things, additional directors’ and officers’ liability insurance, director fees, additional expenses associated with complying with the reporting requirements of the SEC, transfer agent fees, costs relating to additional accounting, legal and administrative personnel, increased auditing, tax and legal fees, stock exchange listing fees and other public company expenses. We have not included any pro forma adjustments relating to these costs in the information below.

The unaudited pro forma condensed consolidated financial information is included for informational purposes only. The unaudited pro forma condensed consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the 2024 Business Combination, Financing Transaction and the Transaction including this offering, occurred on the dates assumed. The unaudited pro forma condensed consolidated financial information also does not project our results of operations or financial position for any future period or date. The unaudited pro forma condensed consolidated statement of operations and balance sheet should be read in conjunction with the “Risk Factors,” “Prospectus Summary—Summary Historical and Pro Forma Condensed Consolidated Financial and Other Data,” “Selected Historical Condensed Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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Flowco Holdings Inc.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of September 30, 2024

(Amounts in thousands of U.S. dollars, except share data)

 

		Flowco LLC				Financing Adjustments								Transaction Adjustments								Pro Forma
Assets
Current Assets
Cash and cash equivalents		$	23,124			$								$					(1	)		$
																			(8	)
Accounts receivable—trade, net			110,311												-								110,311
Inventory			169,113												-								169,113
Prepaid expenses and other assets			6,435												-								6,435
Total current assets			308,983
Property, plant and equipment, net			694,624												-								694,624
Operating lease right-of-use assets			18,109												-								18,109
Finance lease right-of-use assets			21,535												-								21,535
Intangible assets, net			285,856												-								285,856
Deferred tax assets			-																(2	)
Goodwill			267,524												-								267,524
Other assets			9,107																(7	)
Total assets		$	1,605,738
Liabilities And Members’/Stockholders’ Equity
Current Liabilities
Accounts payable			32,348												-								32,348
Accrued expenses			36,239												-								36,239
Current portion of operating lease obligations			6,381												-								6,381
Current portion of finance lease obligations			9,185												-								9,185
Deferred revenue			6,056												-								6,056
Total current liabilities			90,209												-								90,209
Long-term Liabilities
Tax receivable agreement liability			-																(3	)
Long-term debt			575,491								(9	)							(8	)
Operating lease obligations, net of current portion			11,751												-								11,751
Finance lease obligations, net of current portion			11,990												-								11,990
Total long-term liabilities			599,232
Total Liabilities			689,441
Members’/Stockholders’ Equity
Class A units			-												-								-
Class A common stock, par value $0.0001 per share			-																(5	)
Class B common stock, par value $0.0001 per share			-																(5	)
Additional paid-in capital			891,616								(9	)							(6	)
Retained Earnings			24,681								(9	)			-								24,681
Total Members’/Stockholders’ Equity			916,297
Non-controlling interests			-																(4	)
Total equity			916,297
Total Liabilities and Members’/Stockholders’ Equity		$	1,605,738			$								$								$

See accompanying “Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements”

 

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Flowco Holdings Inc.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the nine months ended September 30, 2024

(Amounts in thousands of U.S. dollars, except share and per share data)

 

		Flowco LLC				FPS (6) (3/31)				Flogistix (6) (3/31)				FPS (6) (4/1-6/19)				Flogistix (6) (4/1-6/19)				2024 Business Combination Adjustments				Pro Forma as adjusted for the 2024 Business Combination Adjustments				Financing Transaction Adjustments				Transaction Adjustments				Pro Forma
Revenues
Rentals		$	184,982			$	—			$	34,953			$	—			$	31,732			$	—			$	251,667			$	—			$	—			$	251,667
Sales			164,303				60,638				9,663				52,640				8,356				—				295,600				—				—				295,600
Total revenues			349,285				60,638			$	44,616				52,640				40,088				—				547,267				—				—				547,267
Operating expense
Cost of rentals (exclusive of depreciation and amortization disclosed separately below)			48,956				—				12,052				—				11,326				—				72,334				—				—				72,334
Cost of sales (exclusive of depreciation and amortization disclosed separately below)			124,073				39,069				6,926				33,614				5,900				(7,921	)(1iii)			201,661				—				—				201,661
Selling, general and administrative expenses			36,204				8,710				7,390				8,615				6,275								67,194				—					(5)
Depreciation and amortization			56,502				2,098				8,895				2,044				8,378				11,224	(1i)			88,351				—				—				88,351
																							(790	)(1ii)
Loss on sale of equipment			727				204				—				122				—				—				1,053				—				—				1,053
Income (loss) from operations			82,823				10,557				9,353				8,245				8,209				(2,513	)			116,674				—
Other income (expense)
Interest expenses			(22,174	)			(671	)			(4,231	)			(480	)			(3,937	)			—				(31,493	)			(1,402)	(7)				(8)
Loss on debt extinguishment			(221	)			—				—				—				—				—				(221	)			—				—				(221	)
Other income			—				8				66				144				—				—				218				—				—				218
Other expenses			(1,813	)			(138	)			—				—				(877	)			—				(2,828	)			—				—				(2,828	)
Total other income (expense)			(24,208	)			(801	)			(4,165	)			(336	)			(4,814	)			—				(34,324	)			(1,402	)
Income before provision for income taxes			58,615				9,756				5,188				7,909				3,395				(2,513	)			82,350				(1,402	)
Provision for income taxes			(702	)			(188	)			—				(637	)			—				—				(1,527	)			—					(2)
Net income			57,913				9,568				5,188				7,272				3,395				(2,513	)			80,823				(1,402	)
Net income attributable to non-controlling interests			—				—				—				—				—				—				—				—					(3)
Net income attributable to members and class A common stockholders		$	57,913			$	9,568			$	5,188			$	7,272			$	3,395			$	(2,513	)		$	80,823			$	(1,402	)		$				$
Pro forma net income per share(4):
Earnings per unit attributable to Flowco LLC Members (basic and diluted)		$	8.34
Weighted average Class A Units outstanding (basic and diluted)			6,941,971																																			$
Earnings per unit attributable to Flowco Holdings, Inc.’s shareholders (basic and diluted)
Weighted average of shares of Class A common stock outstanding (basic)
Incremental shares of Class A common stock attributable to dilutive instruments
Weighted average of shares of Class A common stock outstanding (diluted)

See accompanying “Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements”

 

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