Q1 2024 Forum Energy Technologies Inc Earnings Call
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Website I will now turn the conference over to Rob Cucolo Director of Investor Relations. Please proceed sir.
Thank you Gigi good morning, and welcome to <unk> first quarter 2024 earnings Conference call with me today are Neil Lux, Our President and Chief Executive Officer, and La Williams, our Chief Financial Officer.
Yesterday, we issued our earnings release and it is available on our website.
Please note that we are relying on the safe harbor protections afforded by federal law listeners are cautioned that our remarks today may contain information other than historical information. These remarks should be considered in the context of all factors that affect our business, including those disclosed in <unk> Form 10-K, and other SEC filings.
Yeah.
Finally management's statements may include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release during todays call all statements related to EBITDA refer to adjusted EBITDA and unless otherwise noted all comparisons our first quarter 2024 to fourth quarter 2023.
I will now turn the call over to Neil.
Thank you, Rob and good morning, everyone.
When we announced the their Perm acquisition late last year.
We use words like transformative accretive and scale.
This quarter, we realized the value of their perm.
S E T financial results.
Sequentially.
We achieved 9% revenue growth and importantly, EBITDA increased 69% with.
With EBITDA margins, improving by 460 basis points.
The team delivered on our promises with both revenue and EBITDA within our guidance range.
With favorable sales mix and continued cost management.
Our EBITDA came in at $26 million.
Above the midpoint of the range.
I am pleased with our 13% EBIT margins.
I'm confident we'll achieve our mid teens margin goal with our differentiated products and operating leverage.
As expected.
<unk> rebounded in the first quarter.
Our book to Bill ratio was 101%.
With approximately 80% of our product portfolio sales being consumable and activity base.
Our book to Bill ratio around 100% is generally expected.
However, we will occasionally exceed this level.
When we receive large awards.
From a capital intensive and project based businesses.
As expected during the quarter.
With oil prices around $80 per barrel.
And depressed gas prices U.
U S rig count and Frac counts were flat.
However, we did see a pickup in demand and our stimulation and intervention product line.
Our quality wireline business.
A nice uptick in demand for our premium Greece was a cable system.
Although the global rig count was essentially flat.
We did see some seasonal softness in the international markets as customers were slow to release budgets.
Let me briefly discuss their firm and its operational results this quarter.
First off the integration of <unk> is going very well.
Our teams have done an excellent job of working together and importantly.
We have integrated their financial results into our operating systems, which is critical for a publicly traded company.
This is never an easy task and I would like to thank everyone involved for making this happen in such a short timeframe.
This acquisition broadens and enhances <unk> existing artificial lift and downhole offerings.
The sales teams from Svt's traditional downhole product line.
And there.
We're making substantial progress working together.
This collaboration.
Third expand FEP total addressable market.
Canada.
Through revenue synergies and the broadening of our customer base.
Operationally.
Bear Perm has great leaders that will continue to run the business as efficiently and successfully.
As they did prior the acquisition.
Earlier this year, we outlined our market views for Canada.
And forecasted a softer first half of the year.
Driven by uncertainty of the Trans Mountain Express pipeline startup.
And seasonal breakup.
Their firm's first quarter results were generally in line with our expectations.
But softer than historical revenue run rate due to these near term headwinds.
Despite lower revenue.
They're part of managed costs very effectively and margins held steady.
Looking ahead.
We anticipate stronger oilsands activity in the back half of the year as operators in Canada realize higher prices for their oil.
Based on the first quarter results.
And with no material change to our original global rig count forecast, which was roughly flat.
We are reaffirming our full year 2024 guidance with EBITDA of $100 million to $120 million and free cash flow of $40 million to $60 million.
Before turning the call over to Lyle.
Let me discuss our growth and profitability strategy to beat the market.
We will continue to capture opportunities for market activity.
Lyle: With their perm now in our portfolio.
Lyle: Between 75% to 80% of our revenue should be tied to activity.
We will use our trusted brands and relentless commercial efforts to increase our share within existing markets.
As we grow we will focus on niche markets, where FEP is truly differentiated itself.
We have developed strong intellectual property and proprietary knowhow over many years of operation.
This strength combined with our people are experts in their fields, and who understand how to solve our customers' problems.
This creates a strong barrier of entry and maintains a favorable competitive landscape for FCT.
Therefore, we can command higher margins and generate greater returns.
Also we will continue to develop and commercialize new products as well as continuously innovate and improve our current product portfolio.
This is accomplished by working closely with our customers to iterate newer and better solutions.
Further separating us from our competitors.
This allows the FEP to capture more market share.
Expanding its total addressable market.
During last quarter's call.
I went into great detail on a number of examples, including our graceless wireline cable system.
Our fr 120 iron roughneck.
Our SaaS connect medical system.
Lyle: And the pump savr plus.
Our innovation is laying the foundation for sustainable and profitable growth in the years ahead.
In addition, we have an optimized global footprint.
With strategically located manufacturing and distribution hubs.
Our asset light model allows the FEP disappointed products and solutions to our customers wherever they are.
We can be nimble and pivot with changing market conditions to go where our customers lead us.
Lyle: We do not need to spend capital within a specific country or region, where activity is growing.
Just ship our products there.
Lastly.
We will take advantage of increasing service intensity.
To keep up with growing operator demands for greater efficiency reduction in well costs and increase safety.
Our customers are doing a lot more with less equipment.
They are drilling rigs and frac fleets.
<unk> pushed to run at full utilization.
With more pumping hours.
Lyle: More stages more drilling feet and reduce time between wells.
To achieve this.
They do not need to invest in new fleet the rigs.
Most upgrade their capability to keep up and remain relevant.
That where <unk> products are critical and allow our customers to drive these efficiencies.
I'm now going to turn the call over to Lyle for more details on <unk> first quarter financial results and second quarter 2020 for outlook.
Lyle: Thank you Neil good morning, everyone.
I am going to start by discussing the rationale for our new reporting segments, the drilling and completion segment and the artificial lift and downhole segment.
This structure mirrors, our internal management and reporting structure.
And it better aligns reporting segments with the markets activity drivers and customers we serve.
For example, the drilling and completion segment focuses on oilfield services customers, while the artificial lift and downhole segment.
Lyle: E&P operators and other end users.
We will continue to report revenue in our historical seven product lines with.
With revenues with Vera permit financial results included in the downhole product line.
Lyle: We have a broad product and solutions offering which can make understanding FEP a challenge for new investors.
Lyle: The new reporting segments simplify <unk> investment story.
We have provided supplemental schedules in the earnings release, showing 2023 quarterly results in the new reporting format.
After the filing of this quarters Form 10-Q, we will issue an 8-K that includes recast historical financial information.
Let me share some additional information regarding our new segments and their first quarter results.
The drilling and completion segment is comprised of the drilling subsea coiled tubing and stimulation and intervention product lines.
The customer base within this segment includes many of the worlds largest oilfield service companies, primarily in the drilling hydraulic fracturing, well intervention and deepwater installation and service markets.
Lyle: We supply mission critical consumable products and capital equipment to these companies, allowing them to improve efficiency reduce well costs and increase the safety of their operations.
The majority of the capital equipment provided by FEP.
Falls within the drilling and completion segment and represents roughly one third of segment revenue.
Industry activity.
Lyle: Measured by global rig count or U S Frac spread count drives this segment.
Although rig count has declined over the last decade, the quality and capability of rigs has greatly improved for example over the last 10 years in the U S. The average footage drilled per rig is up two to three times.
On the Frac side quality and capability of hydraulic fracturing fleets follows a similar trend.
We've gotten longer with more stages and more profit than in recent years.
However, the number of Frac fleets operating has not increased wells completed per fleet is up almost 60% over the last 10 years.
The gains will not stop here operators demand greater capabilities and efficiencies and these gains are only possible because our customers have invested in the products that FEP provides.
In the first quarter, the drilling and completions segment revenue decreased 6%.
Primarily related to two <unk> projects that were completed last quarter lower demand for drilling capital equipment and lower international coiled tubing sales.
During the quarter, we saw an increase in demand in our stimulation and intervention product line.
Our customers were catching up on the pullback witnessed in the second half of the year and.
In fact, we set a new quarterly revenue record for our <unk> wireline cables.
Favorable product mix drove segment EBITDA growth of 13%.
Resulting in EBITDA margins, improving 190 basis points to 12%.
Orders were $117 million up $3 million with a book to bill ratio of 98%.
The artificial lift and downhole segment includes the downhole production equipment and valve solutions product lines.
And binding Vera firms premium downhole solutions with our Davis Lynch casing hardware and our multi lift artificial lift solutions enhances <unk> existing artificial lift portfolio.
Lyle: And it facilitates revenue synergies from sales pull through both in Canada and around the globe.
The artificial lift and downhole segment customers primarily include E&P operators and other end users who own our process oil and natural gas from production at the well site to downstream processing and refining.
This segment's revenue were primarily driven by well count well complexity and well production.
Compared to a decade ago, the average wells in the U S.
Lyle: The average wells per rig in the U S is up almost 40%.
Lyle: And those wells are on average almost twice as long and produce three times as much oil per well.
This is possible by our customers' strategic investment in products and technologies that <unk> provides both in the well and on the surface.
Earlier, Neil discuss the transformational impact <unk> had on <unk> financial results. This is also evident in the artificial lift and downhole segment's sequential improvement.
With revenue growth of 42%.
EBITDA expansion of 107% and margin improvement of 680 basis points to 22%.
In addition to the impact of Aero Perm artificial lift and casing equipment sales increased while revenue from processing equipment at valves declined.
Favorable product mix boosted EBITDA improvements in the quarter.
Orders were $88 million and 89% increase driven by contributions from <unk>.
The segment book to Bill of 105% was above one as we secured long lead time orders for production equipment.
Our consolidated first quarter results were down the guidance fairway in terms of revenue and EBITDA.
For the second quarter, we expect revenue and EBITDA growth in the U S and international markets, where budgets have been approved and customers are executing on their spending plans.
However, these increases may be offset by the second quarter Canadian breakup.
Depending on the weather the seasonal impact typically causes Canadian rig count activity to decrease by around 50% from the first to second quarter.
With a larger portion of our revenue now derived from Canada breakup could have a more significant impact on our results than in previous years.
We anticipate second quarter revenue in the range of $200 million to $220 million in EBITDA in the range of $24 million to $28 million.
Here are a few details for modeling purposes for the second quarter, we anticipate corporate cost of $7 million interest expense to be $8 million and depreciation and amortization expense of roughly $13 million.
Let me turn our attention to free cash flow results.
Yeah.
We are pleased with our first first quarter free cash flow of $2 million exceeded our expectation and guidance.
Putting this in context.
And each of the past two years, our first quarter free cash flow was roughly negative $25 million as we made beginning of the year payments for property taxes and annual incentives.
And as we build working capital to fuel full year growth plans.
The improvement this year came from two sources, the <unk> acquisition and net working capital management.
The <unk> acquisition was especially attractive because of their ability to convert EBITDA to free cash flow.
<unk> did that in the first quarter generating cash flow in line with our expectation and their historical trend.
We expect this performance to continue through the year.
Net working capital pro forma for the Werra firm acquisition was roughly flat quarter on quarter. In contrast to the builds and net working capital we experienced in the prior two years.
Our teams managed inbound material receipts and lowered inventory levels, while meeting customer demand, we have the ability to drive inventory lower and we will push for increased inventory turns through the year.
As a reminder, our free cash flow or I'm, sorry, our full year free cash flow guidance.
Assumed our EBITDA of $100 million to $120 million less.
Less cash taxes, and interest of $45 million capex of $10 million and approximately $7 million for other payments primarily related to the <unk> acquisition.
We did not assume any reduction in net working capital for the year.
Therefore, our solid first quarter performance and second quarter outlook increases our confidence in achieving our full year free cash flow guidance of $40 million to $60 million.
And for the second quarter, we expect free cash flow to be positive in line with our full year guidance.
We have fielded investor questions about our plans to address our 2025 notes and for returning cash to shareholders.
Our base case plan for both has not changed since the announcement of the <unk> acquisition last November.
Let me review the specifics of our plan starting with liquidity.
We ended the first quarter with $49 million of cash on hand, and $72 million of availability under our revolving credit facility with.
With total liquidity of $121 million.
Between our current liquidity and guided 2020 for free cash flow.
We expect to retire the remaining $134 million of our 9% senior secured notes by the end of the year.
These notes mature in August of 2025 and are callable at no premium beginning in August of this year.
In a similar fashion, we expect to utilize 2025 free cash flow to pay off the seller note around the middle of 2025.
This seller note matures at the end of 2026 and is callable at any time without premium or penalty.
In summary, and 5% to six quarters, we expect to have retired all of our long term debt with net leverage of around one times trailing EBITDA.
With this low leverage and flexible capital structure, we would be in position to return a portion of our free cash flow to shareholders through share repurchases or dividends.
As an example of a dividend or repurchase using 50% of our 2020 for free cash flow could be $20 million to $30 million or around a 10% yield at current market prices.
And this would still leave considerable free cash flow for net debt reduction.
Other strategic growth investments or incremental distributions.
We have explored options to refinance our long term debt and an enhanced flexibility for a more rapid return of cash to shareholders to date, we have not found an option that meets our expectations or requirements.
We will continue to evaluate options that could accelerate the timing and size of potential distributions, while we execute our base case plan.
Lyle: Let me turn the call back to Neil for closing remarks Neil.
Thank you Lyle.
Operationally, our customers are demanding greater efficiencies and safety in the field with less equipment.
We have led and will continue to lead these efforts through innovative products and solutions.
Financially, we delivered solid results to start the year.
The markets are holding steady with our expectations and this gives us greater confidence in achieving our full year guidance.
With our strong liquidity and expected cash generation, we have a clear path to paying off our long term debt.
This will provide greater flexibility and optionality for returning cash to shareholders.
Lastly, we could not make this happen without the hard work and dedication of our employees.
Thank you.
Gigi please take the first question.
Thank you.
As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Josh Jayne from Daniel Energy Partners.
Thanks, Good morning.
Good morning.
I just wanted to follow up maybe you could just walk us through.
Your activity assumptions.
That's great and you highlighted 75% to 80% of the revenue going forward it will be tied to activity, but just maybe your assumptions going forward for this year on the U S land market.
And how you're thinking about not only rig count, but well kind of going forward for the balance of the year.
Yes, I appreciate it.
So really no no change to our outlook from from the beginning of the year, we expected the U S rig count to be down.
And I think if we were a U S only company.
It would be more challenging.
For us, though internationally, we do see.
Rig count growing.
Lyle: Internationally, especially as the year gets started.
Start the year, but should grow in the back half similar story with Canada and oil sands activity, we see it as the second half.
Bruce of the year, So I think overall global rig count we see it as roughly flat with the U S down down a bit but.
Canada flat and international making up for that for the U S being down.
And then could you speak to just building outside of the U S. Internationally. The markets that you are potentially excited about over the next 18 months to 24 months not only on the on the land side, but when I think about the subsea business as well, where do you think that could be going over the next 18 to 24.
Months would be great just to expand on a little bit.
Yeah.
So I think the obviously for us the middle East land and.
In the Jackup market has.
Lyle: <unk> seen some acceleration over the last few years, we expect that overall to continue so yes.
<unk>.
Our position there and we'll continue to to take advantage of that.
Especially as we as we move.
They have the ability now with their perm to look to export some of their products and projects. There. So I think that's exciting.
The other big areas offshore we do believe we are nearing a full utilization point with with Rovs.
We think that there's a great opportunity and whether it's Brazil Guyana.
Or go back to the Golden Triangle, West Africa, and Gulf of Mexico to see an acceleration of ROE V Awards over or I guess, you said over the next 18 months or so.
Speaker Change: Great. Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Dave storms from Stonegate.
Good morning.
Good morning, Dave.
Just hoping.
Obviously, you had very strong margins and lifting downhole understand a lot of that to bear from acquisition can you help us.
Can you just parse out.
How much of those margins are from Berry farm and how much of those margins or problems.
Speaker Change: Pre bear Perm operations.
Speaker Change: Sure sure Dave I think as you think about and look at that big uplift in our overall margins as Neil mentioned.
There is a significant on a total basis and for the.
Artificial lift and downhole segment, even more more impactful a lot of that is the benefit from the acquisition of <unk>.
So we saw a strong growth there we also had a bit of favorable mix.
Stronger sales in the quarter for our artificial lift and casing hardware products.
And a little bit softer for our other products, which is production equipment and valves, which typically have softer contribution margin. So say the majority vast majority of that growth is with <unk>, which we expected and then a little bit of mix after that within the rest of the segment.
Understood. That's very helpful. Just one more from me.
Have a logistical question I know <unk> came to you pretty turnkey how.
How much or if any integration is less.
Since we've got a more synergies or anything like that.
Yes so.
As I said it was very well run.
<unk>.
<unk> is going well.
Speaker Change: We're pleased with where we are now and again as we traditionally have when you when you buy a great business, we want to let them to keep running the business as they are so I think where we see more opportunity is getting our teams working together.
Speaker Change: And look at revenue synergies. So I think we're at very early innings there.
But we are starting to quote packages together, so that would that would be a big uplift and we will keep driving that it takes time. So I think that that's going to occur over the next next few quarters, but early returns are exciting.
That's very helpful. Thank you for taking my questions and good luck in Q2.
Thank you.
Thank you.
One moment for our next question.
Our next question comes from the line of Dan Pickering from Pickering Energy partners.
Good morning, guys.
Good morning, Dan.
Hi.
A couple a couple of questions.
I just wanted to make sure that I think Neil I heard you say when we looked at kind of the traditional downhole technology business that the non Vera Perm revenues were higher.
Quarter to quarter or is that Q4 to Q1 is that right. So we had some strength in that business.
That's correct.
Okay, great and so yes.
Just kind of thinking about bear perm quarter to quarter. It sounds like you had a little weakness there revenue wise, but thats just a function of what's happening in Canada right now.
That's correct.
I think the delays in the Trans Mountain I think their customer base, who are the large very large operators in the oil sands I think.
They tap the brakes, a little bit coming into the year.
And we will have just a little bit of seasonal slowdown here.
In Q2 with breakup and then I think.
Our plan in our conversations lead us to expect a.
Speaker Change: A more robust second half, where we can get back to the the revenue run rate we were at last year.
Got you Okay. Thanks, and then.
Question for you while on the just to make sure I understand we've got about 99.
$90 million on the revolver, one I just want to confirm that that confirm that that's the case and there is no penalty for paying that down.
Fast.
You don't have any requirements to hold the balance on that revolver to you.
No you are correct in that we can pay that off at any time.
And the balance there ended probably right around $96 million, so just a little bit higher than it had.
At the beginning of the year.
Got you okay. Thank you.
And then maybe.
Ever wants to take the question.
I have two I'll lump them together one is one is just you've found their perm, obviously great acquisition.
Are you thinking about others and what's what.
The deal environment and then the second question is more operational.
If you saw any trends consistent trends.
As you move through Q1 did did things soften during Q1 did they accelerate during Q1, just trying to figure out.
What kind of trend as we go into Q2 looks like.
Alright, let me start with the second part Dan.
We did we did see an acceleration.
I wouldn't say it was.
Formula one type acceleration, but it was.
Speaker Change: Activity did pick up.
As the quarter quarter went on I think part of that is international we thought the IND.
In the international side was a little slow to release release budgets.
Which can sometimes happen that's not not overly unusual but we.
We did see the international activity pick up as the quarter went on so I think.
That gives a little it gives us good confidence in the end of Q2 and towards the end of the year there as well.
On M&A.
There's a lot of good opportunities out there there is a robust pipeline that that we'd look at.
With R R.
Wide breadth of product lines, I think we have a lot of a lot of opportunities.
Their perm.
Was really a homerun value margin if we can find another one like that we'll be happy, but we're going to stick to our criteria has to have strong industrial logic.
Our portfolio and we want to maintain conservative leverage on our balance sheet and finally, the financial accretion is important and an area. We want to we want to stick to.
Overall, we have a great plan to generate cash this year to get to get our balance sheet and a great great position.
We want to continue that but we'll be opportunistic if there is a good a good opportunity out there.
Okay perfect. Thank you.
Thanks, Dan.
Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone.
Wait for your name to be announced to withdraw your question. Please press star one one again.
Our next question comes from the line of Eric Carlson.
Hey, guys good morning.
Good morning, Eric.
I was just wondering if you could.
Just touch a little bit more.
I mean, I think we saw CMS actually officially announced its coming online.
Speaker Change: In the past couple of days.
Speaker Change: And just from their businesses perspective. So is that is the majority of the revenue kind of in the oil sands market is that during the drilling and completion phase and then.
Sure.
And that's kind of just activity based business all the way around or is there one.
Once the products are installed in a well I mean is there adjustments that needed to be done I'm, just trying to get a little bit.
Speaker Change: Flavor.
Kind of.
Rig count versus the well count.
That business and kind of what drives revenue going forward.
Eric Lau.
I'll take that a bit and then Neil if you want to bill can chime in.
Yes, the <unk> products are primarily used in the drilling and completion.
Oil sands wells with their sand control products and flow control mitigating sand incursion and maximizing the benefit of the steam injection into the well so.
So very good very good products there.
So they do have a pretty good linkage with.
With activity and rig count is a good measure recognizing that not all rigs in Canada drill drill in the oil sands. So there is a little bit of nuance to that piece.
There is another piece of <unk> business and about 15% of their revenue in the first quarter was not in Canada.
So they ship products into the U S into different markets and in this quarter, we had revenue coming out of Latin America and out of the middle East. So so really a global business that matches, well with us and as Neil mentioned, our ability to maximize pull through there will be a will be a good add for verifone.
And I think I would add one more piece to that that the activity that they see on the drilling and completion side is not just related to new product or new projects, but generally the majority of the activity is work on existing projects, where you have the steam.
<unk> facility in place and then they are adding adding wells to that so.
Speaker Change: We're not it's not relying on new new budgets or new money coming in but really keeping the existing projects going where we think 95% of their their activities that may come from.
Alright Thats helpful.
And then just maybe touching on the middle East a little bit I mean thats been.
And the area, where the business is already ahead of kind of pre COVID-19 numbers and seeing some of our larger peers.
Speaker Change: I would think that the ATP call and they have kind of rigs being delivered.
If there is kind of additional tenders that they'll put out there as they focus more on kind of the unconventional gas development I am just wondering Mike from your perspective.
When you think about the business.
Speaker Change: In the Middle East on a go forward basis.
Where are the tailwind for kind of their ambitious.
Gas gas.
Production build out.
Yes, I think a couple a couple of areas.
In.
In Saudi so think about us specifically.
The capital equipment side, as you mentioned A&P as those companies.
Speaker Change: Companies like <unk>, who are our customers as they transition rigs or add rigs internationally, they're going to need to upgrade the equipment on those rigs. So that's a great opportunity for us on our capital capital side, especially the drilling equipment on.
Speaker Change: On the gas development side, what's helpful to us is a lot of the.
Products and solutions that we designed for U S unconventional, they're being applied internationally, whether it's Argentina or the middle East they are using our equipment there and so that that's a great great opportunity on the on our stimulation and intervention product line and within our coiled tubing product line as well we see.
Significant activity there.
Okay. That's helpful.
And then I guess you guys have addressed a lot of tenable.
<unk> plans on the balance sheet and what you see on a go forward basis.
I noticed obviously, a very small amount of it looked like shares were repurchased during the quarter and then I'm. Just wondering what you have left on that kind of first.
<unk> authorization.
Eric.
I'll talk to that.
<unk>.
In the first quarter those shares repurchases were tied to.
Equity awards to employees and that was the cash tax that was the tax portion of those that were recouped by the company and paid in cash taxes paid in cash.
So we did not buy any shares in the market in the first quarter and we've got a relatively small amount of authorization left and small amount of capacity under our current indentures to be able to do that today.
So our plan as we talked about and tried to outline on the call is leveraging our liquidity and our cash flow to pay down this long term debt and ultimately get that flexibility. So we can open up the avenue for larger and faster distributions back to our shareholders and we are.
Pretty excited about that.
Yeah.
That's great and then I guess the last thing I mean, you guys had mentioned it.
Speaker Change: Handful of times over the last couple of calls, but really focusing on kind of the financial accretion.
It sounds like more on a per share metric and then the only thing I would say is as some of the larger cap both upstream and.
Kind of your larger cap service peers have come out of 2020, you've seen.
Management incentives tied more to those metrics, which I mean, you guys are obviously hitting but.
That's something where when I just looked at the proxy statement that was released.
Basically most of the incentive is still based on just it looks like a pure EBITDA margin with a smaller.
Free cash flow number number and then some strategic objectives, and so on and so forth but.
I guess my point would be is I like the focus and obviously if you just pay down.
Bunch of debt over the next year I mean, just the interest savings alone increases free.
Free cash flow share in a pretty material way from where we are now.
I guess, what I would suggest is thinking about.
Speaker Change: Aligning incentives with what you guys are really strategic can be focused on and that's something that you guys can easily accomplish so.
I guess, what im saying is.
Show me the incentive and I'll show you. The result, I think the resulting from there, but I think you guys should be incentivized for that so that could just be up.
Strong suggestion to align those goals on a go forward basis, and I think we're set up very very well given kind of where activity.
You might as well get paid out in the process to do that.
Speaker Change: Yes.
That's great great Great 0.1 that we agree with the 100%.
We've aligned our our 2024.
Incentive very closely with free cash flow increase that that weighting there so that the.
Not just the executive team, but all key managers will be aligned in generating free cash flow and I think we started to see the results of our focus on free cash flow.
Later last year, and I think to see it this year Q1.
Really is a tough quarter for a manufacturing company.
To have free cash flow.
Just with all the sizable kind of become seasonal payments are cash that have to go out and so I think as well as having some some cash payments go out for our acquisition so to be cash flow positive in Q1, I'm really excited and it's something that we want to want to continue and then I think.
Speaker Change: On the executive team we have.
I think fairly significant ownership of equity and we we are we are aligned I think as well as we can be.
With with our shareholders and I think we're going to drive the results that I.
I think you've outlined here and in previous calls.
I think as <unk> outlined in our in his section that it's important to us to get our debt down and it is important to us to get the flexibility to evaluate and find the best option for shareholder returns and we're looking forward to that we're laser focused on that.
Great.
Great quarter.
Speaker Change: Just keep driving it forward.
Thanks, Eric Thanks, Eric.
Speaker Change: Thank you one moment for our next question.
Our next question comes from the line of Jeff Robertson from water Tower research.
Thank you good morning.
Neil.
You talked in your comments about increasing intensity and I guess my question is in the context of a flat to maybe a little bit down.
US rig count that you spoke about that was the increasing intensity of the wells that are being drilled really driving your revenue on a per rig basis and does that give you any greater ability to maybe forecast how you think.
The replacement and upgrade cycle could impact the business as you look out into even as far as 2025.
Yes, I think the.
In general absolutely that the wear and tear on equipment makes it makes a big difference.
Speaker Change: It's not.
It's no longer just.
The revenue per rig can change I think the.
On the forecast side, it can be a little little more difficult to get.
Get it precise because of just.
More micro economic kind of decisions, our customer make but overall I think the big picture that over time that we're going to consume a lot more are industries that consume a lot more.
Equipment and material and consumables that we provide per rig than.
And then they did in the past and so I think that's really the key part of what we wanted to do there now.
On top of that where we have a great opportunity is on new products and new product development I mentioned in prior calls.
And this cost gives me some of the new products, we introduced in.
And I got I am really really excited about what our teams are doing we are we have a great pipeline.
The new products that are in there I mean, a lot of products are in early stages of commercialization.
One of them fast connect which is our frac manifolds replacement system.
Speaker Change: We've put our first unit into the field and it is working incredibly well that system is pumped a 165 million pounds of sand.
Speaker Change: <unk> 250 stages and true transition between wells at a much faster rate than traditional manifolds, so our SaaS kinect.
Speaker Change: Is helping customers do more with the same equipment and it did it all those those examples I just provided did it all with zero downtime. So this is a patented technology really is a game changer for operators and pumper, who want to increase their efficiency. So that that's the type of product.
Where we can we can grow faster than rig count.
Our teams are really focused on doing that so.
So excited about SaaS connect we really are accelerating our rollout in the second half of the year and we hope to see some great results going forward.
So as that rollout at least from an operator standpoint, if they see the benefit of having that equipment on their job or on their pad.
Do they then put pressure.
You sit tell the pressure pumping provider that you need this on all of the all the <unk>.
Cruise.
That you have dedicated to our business does that help pull demand for that product into the.
Into the into the fleet.
When we when we rollout a product like this in an admittedly SaaS connect can be can be sold to.
Two to pressure pumper is can be sold or pressure control companies or can be sold directly to operators and sometimes that happens, but when we when we roll out a new product like this.
We want the operators to see the benefit and we will market directly to them. So they can they can see what's happening on their well site and they can drive drive efficiency.
We never really want to be in the position of having our customers told to use our products, but we want our customers to really enjoy and really love our products and so that's where our teams are focused and if we can provide the value. Our customers are going to are going to have a good uptake and we're seeing that with with the SaaS connect today.
And again I, just can't can't get over how excited I am about.
Our product pipeline.
The teams are really.
Really focused on.
In a flattish rig environment, if we're going to be a successful company we have to bring in new revenue, we have to grow faster than the market. So new product development is an absolute.
Pillar of that growth and we're focused on it completely.
So it really comes down to showing the customer the economic benefit of the product and that will.
Because if it enhances their returns and they'll want more of it and obviously that's good for your business.
Yes, absolutely.
Speaker Change: We're our teams are focused to as less let's look at the value. It provides so rather than.
Say, hey, this saves you money what I think is really more important is this is allowing you to generate more revenue youre going to be pumping more if you have a SaaS connect on your well site.
And that I think is where it gets really exciting for our customers and for the operators.
Last question just on <unk>, a follow up I think earlier on you talked about.
Using their products and <unk>.
<unk> International distribution.
To pull some of that to.
Maybe expand their international business I know, it's very early days, but is there can you provide any color on.
What youre doing in that realm.
Yes, so it's the it.
It is very very early into that and just to.
Kind of reframe it last year their perm was extremely busy on the oil sands in Canada right. It was a big step up.
They were really 100% focused on taking care of their customers there.
Now that we have the acquisition done.
We are looking at other opportunities I think the.
This type of technology is used in the middle East it's used offshore so those those areas, where we have high value where the customers want the types of products. The premium products that fair Perm provides we're going to target those areas, we're going to want to do in a way.
That makes sense and keeps our brand value.
Speaker Change: Thank you for taking my questions.
Thank you at this time I would now like to turn the conference back over to Neil Lux CEO for closing remarks.
I wanted I want to thank everyone for their support and participation on today's call. We look forward to talking to you again in early August to discuss FEP second quarter 2024 results.
This concludes today's conference call. Thank you for participating you may now disconnect.
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