Q2 2024 Forum Energy Technologies Inc Earnings Call

Yeah.

Gigi: Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies' second quarter 2024 earnings conference call. My name is Gigi, and I'll be your coordinator for today's call. There is a process for entering the question and answer queue. To ask a question during the call, you will need to press * 11 on your telephone.

Gigi: Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies second quarter 2024 earnings Conference call. My name is Gigi and I'll be your coordinator for todays call. There is a process for entering the question and answer queue to ask a question during the session you will.

Gigi: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. A link with instructions can also be found on the company's Investor Relations website under the Events section. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise.

Need to press Star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again.

Speaker Change: Link with instructions can also be found on the company's Investor Relations website under the events section at this time all participants are in a listen only mode and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the Companys website I will now turn the call.

Gigi: This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the call over to Rob Kukla, Director of Investor Relations. Please proceed, sir.

<unk> over to Rob Kuechler director of Investor Relations. Please proceed sir.

Rob Kukla: Thank you, Gigi. Good morning, everyone, and welcome to FET's second quarter 2024 earnings conference call. With me today are Neal Lux, our President and Chief Executive Officer, and Lyle 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 FET's Form 10-K and other SEC filings. Finally, management statements may include non-GAAP financial measures.

Rob Kuechler: Thank you Gigi good morning, everyone and welcome to <unk> second quarter 2024 earnings Conference call with me today are Neil <unk>, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer.

Speaker Change: Yesterday, we issued our earnings release and it is available on our website.

Speaker Change: 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.

Speaker Change: Yeah.

Finally management's statements may include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release.

Neil: During today's call all statements related to EBITDA refer to adjusted EBITDA and unless otherwise noted all comparisons are second quarter 2024 to first quarter 2024, I will now turn the call over to Neil.

Rob Kukla: For a reconciliation of these measures, you may refer to our. During today's call, all statements related to EBITDA refer to a just, and unless otherwise noted, all comparisons are second quarter 2024 to first quarter 2024. I will now turn the call over to Neal. Thank you, Rob. And good morning, everyone.

Neil: Thank you, Rob and good morning, everyone.

Neal Lux: Now that we are halfway through the year, it is a good time to take stock of our progress, and I am pleased with our direction. Free cash flow results have been strong, and we have converted EBITDA into cash faster than planned. This performance has provided confidence to raise our free cash flow guidance for full year 2025. Also, we are in the process of redeeming more than half of our 2025 notes prior to the end of the third quarter. And it is our intention to retire the ballots around the end of the year.

Neil: Now that we are halfway through the year. It is a good time to take stock of our progress.

Neil: And I am pleased with our direction.

Speaker Change: Free cash flow results have been strong and we have converted EBITDA into cash faster than our plan.

Speaker Change: This performance has provided confidence to raise our free cash flow guidance for full year 2024.

Also we are in the process of redeeming more than half of our 2025 notes prior to the end of the third quarter.

Neil: And it is our intention to retire the balance around the end of the year.

Neal Lux: At that point, the remainder of our debt will be fully prepayable without penalty and will not mature until December 2026. This is a big step for our balance. In addition... We are executing our beat the market strategy through new product development and international market penetration. These results are evident in our market share gains and increased sales outside of the United States, which were 50% of FET's total in the second quarter. Finally, our financial results demonstrate the positive benefits of the Veriperm acquisition.

At that point, the remainder of our debt will be fully pre payable without penalty and we will not mature until December 2026.

Speaker Change: This is a big step for our balance sheet.

Speaker Change: In addition.

Speaker Change: We are executing our beat the market strategy through new product development and international market penetration.

These results are evident in our market share gains and increased sales outside of the United States.

Speaker Change: We're 50% of Fct's total in the second quarter.

Finally, our.

Speaker Change: Our financial results demonstrate the positive benefits of the <unk> acquisition.

Neal Lux: We have increased EBITDA nearly 50% year over year, despite a more challenging market. The combination of our companies has successfully increased our scale and margin as a management team. We have a strong focus on free cash flow, and this quarter. We generated $21 million through consistent profitability and improved working capital management. This allowed us to repurchase 13 million of our 2025 notes and announce the redemption of another $60 million. In addition... We are raising our full year 2024 free cash flow guide to between $50 million and $70 million. The team continues to execute at a high level, and I am proud of their efforts. Putting it all together, we are following through on our plan to create value through a strong balance. Once complete,

Speaker Change: We have increased EBITDA, nearly 50% year over year, despite a more challenging market.

Speaker Change: Combination of our companies has successfully increased our scale and margins.

Speaker Change: As a management team.

Speaker Change: We have a strong focus on free cash flow and this quarter, we generated 21 mill it through consistent profitability and improved working capital management.

Speaker Change: This allowed us to repurchase $13 million of our 2025 notes and announced the redemption of another $60 million.

In addition, we are raising our full year 2020 for free cash flow guidance to between 50 and $70 million.

Speaker Change: The team continues to execute at a high level and I am proud of their efforts.

Speaker Change: Putting it all together we are following through on our plan to create value through our strong balance sheet once complete.

Speaker Change: <unk> would be positioned to return cash to shareholders around the middle of next year.

Neal Lux: FET would be positioned to return cash to shareholders around the middle of next. Last quarter, we discussed our growth and profitability strategy, which consists of four foundational pillars: growing profitable market share, developing differentiated products and technology, utilizing our optimized global manufacturing and distribution footprint, and expanding our participation in the energy transition. I'd like to provide an update on progress made so far. First, we are seeing the benefits of new product development. We have a growing opportunity pipeline within the power generation sector for our industry-leading Jumbotron XL heat transfer unit. The Jumbotron XL is a critical component for power systems that are utilized for many applications, and the concluding AI Data Center.

Speaker Change: Last quarter, we discussed our growth and profitability strategy.

Speaker Change: This consists of four foundational pillars.

Growing profitable market share.

Neil: Developing differentiated products and technologies.

Speaker Change: Utilizing our optimized global manufacturing and distribution footprint and expanding our participation in energy transition.

Speaker Change: I'd like to provide an update on progress made so far.

Speaker Change: First we are seeing the benefits from new product development.

Speaker Change: We have a growing opportunity pipeline within the power generation power generation sector for our industry, leading jumbotron XL heat transfer units.

Speaker Change: The jumbo Tron XL is a critical component for power systems that are utilized for many applications, including AI data centers.

Neal Lux: The PowerGen market should grow rapidly over the coming years. Importantly, these opportunities are geographically diverse, with demand in the U.S., Middle East, Canada, and Latin America. This is an exciting opportunity that expands FET's addressable market. We are also benefiting from our optimized global presence, to meet growing global demand and provide our products around the world. We do not need to expand our roofline or invest additional growth capital.

Speaker Change: The power Gen market should grow rapidly over the coming years.

Speaker Change: Importantly, these opportunities are geographically diverse with demand in the U S Middle East, Canada, and Latin America.

Speaker Change: This is an exciting opportunity that expands <unk> addressable market.

Speaker Change: We are also benefiting from our optimized global presence.

Speaker Change: To meet growing global demand and provide our products around the world, we do not need to expand our roofline or invest additional growth capital. We can service the world with a strategic manufacturing and distribution hubs that are already in place.

Neal Lux: We can service the world with the strategic manufacturing and distribution hubs that are already in place. A great example is our Saudi Arabian manufacturing facility, where we are delivering products and technologies to support unconventional resource development throughout the Middle East. These products include key hydraulic fracturing components, Casing Equipment and Hardware, Coil Tubing, and Artificial Lift Solutions.

Speaker Change: A great example is our Saudi Arabian manufacturing facility, where we are delivering products and technologies to support unconventional resource development throughout the middle East.

Speaker Change: These products include key hydraulic fracturing components casing equipment and hardware coil tubing and artificial lift solutions.

Neal Lux: For the first half of 2024, we have grown our Middle East revenue by 16% compared to the first half of 2023. This highlights our ability to pivot with changing market conditions and grow where our customers are spending money. Turning to the second quarter, we delivered revenue and EBITDA within our guidance range despite softer than expected U.S. activity. Our year-over-year results demonstrate the benefit of our beat-the-market strategy and the Veriperm acquisition. Our revenue increased 11 percent, and EBITDA was up 48%, with a 320 basis point improvement in margin. These results are particularly impressive given that the global rate count was down about 5%.

Speaker Change: For the first half of 2024, we have grown our middle east revenue by 16% compared to the first half of 2023. This highlights our ability to pivot with changing market conditions and grow where our customers are spending money.

Speaker Change: Turning to the second quarter, we delivered revenue and EBITDA within our guidance range, despite softer than expected U S activity.

Speaker Change: Our year over year results demonstrate the benefit of our beat the market strategy and the <unk> acquisition.

Speaker Change: Our revenue increased 11%.

Speaker Change: And EBITDA was up 48% with a 320 basis point improvement in margins.

Speaker Change: These results are particularly impressive given that the global rig count was down about 5%.

Neal Lux: Their firm performed well during the quarter, even though the Canadian market was down due to typical seasonality, while revenue was essentially flat. Favorable mix and cost controls helped Veriperm deliver increased EBITDA and margin contribution. They were also a meaningful portion of FET's free cash flow. Revenue synergies from the acquisition are starting to re-benefit FET by working closely with Verifirm's experts to expand FET's market share. We increased our artificial lift and casing equipment sales in Canada by 5%.

Speaker Change: <unk> performed well during the quarter, even though the Canadian market was down due to typical seasonality.

Speaker Change: Revenue was obsessionally essentially flat.

Speaker Change: Favorable mix and cost controls helped their perm delivered increased EBITDA and margin contribution.

Speaker Change: They were also a meaningful portion of free.

Speaker Change: Free cash flow.

Speaker Change: Revenue synergies from the acquisition are starting to reap benefits.

Speaker Change: By working closely with <unk> experts to expand share.

Speaker Change: We increased our artificial lift and casing equipment sales in Canada by 5%.

Neal Lux: Also... We are leveraging an existing distribution network to have product readily available for these customers. Gaining share in a new market takes time, but we do have some early wins. Now, let me give you additional color on the prior quarter's market conditions and how they impacted our results. In the U.S., E&P consolidation continues to slow drilling and completion spending as companies evaluate their combined portfolios. Also, weak natural gas prices contributed to a decline in U.S. rate count and hydraulic fracturing activity. Internationally, rig activity declined 6% due entirely to Canadian breakers.

Speaker Change: Also we are leveraging an existing distribution network to have product readily available for these customers.

Speaker Change: Gaining share in a new market takes time, but we do have some early wins.

Speaker Change: Now, let me give you additional color on the prior quarters market conditions and how it impacted our results.

Speaker Change: In the U S. E&P consolidation continues to slow drilling and completion spending as companies evaluate their combined portfolios also weak natural gas prices contributed to a decline in U S rig count and hydraulic fracturing activity.

Speaker Change: Internationally rig activity declined 6% due entirely to Canadian breakup.

Neal Lux: Outside of Canada, Red Camel's Flat, with strengthening activity from shale plays in the Middle East and Latin America. Also, offshore activity remains vibrant, as demonstrated by our strong subsea quotation pipeline. Now, let me turn to our outlook for the remainder of the year. We believe it is unlikely that the U.S. rig count and hydraulic fracturing activity will experience a significant increase from current levels.

Speaker Change: Outside of Canada rig count was flat with strengthening activity from shale plays in the Middle East and Latin America.

Speaker Change: Also offshore activity remains vibrant as demonstrated by our strong subsea quotation pipeline.

Speaker Change: Now, let me turn to our outlook for the remainder of the year.

Speaker Change: We believe it is unlikely that U S rig count and hydraulic fracturing activity will experience a significant increase from current levels.

Neal Lux: As a result, we now expect U.S. rig count to be down 15% on average for the year compared to our initial expectation of a 5% decline. However, the benefits of our VARIPRM acquisition and beat-the-market strategy should mitigate this offset. With this revised market outlook, we are reducing the top end of our 2024 EBITDA guidance by 10 million.

Speaker Change: As a result, we now expect U S rig count to be down 15% on average for the year compared to our initial expectation of a 5% decrease how's.

Speaker Change: However, the benefits of our <unk> acquisition and beat the market strategy should mitigate this softness.

Speaker Change: With this revised market outlook, we are reducing the top end of our 2020 for EBITDA guidance by $10 million.

Neal Lux: Therefore, our updated range is now 100 to 110 million. We anticipate the third quarter to be relatively on par with the second, with revenue in the range of $200-$220 million and EBITDA in the range of $24-$28 million, hence this change in our EBITDA guidance. We have increased confidence in our ability to generate free cash flow. As a result, we have increased our guidance range by 10 million to between 50 and 70 million.

Speaker Change: Therefore, our updated range is now $100 million to $110 million.

Speaker Change: We anticipate the third quarter to be relatively on par with the second with revenue in the range of $200 million to $220 million and EBITDA in the range of 24% to $28 million.

Speaker Change: Despite this change in our EBITDA guidance, we have increased confidence in our ability to generate free cash flow as.

Speaker Change: As a result, we have increased our guidance range by $10 million to between 50 and $70 million.

Neal Lux: This reflects the benefit of our capital light business model and operations. I am now going to turn the call over to Lyle for more details on FEP's second quarter financial results. Thank you, Neal. Good morning, everyone.

Speaker Change: This reflects the benefit of our capital light business model and operational execution.

Speaker Change: I am now going to turn the call over to Lyle for more details on <unk> second quarter financial results.

Lyle Williams: Thank you Neil good morning, everyone.

Lyle Williams: I will begin my comments by providing more color on our strong cash flow and our balance sheet. We generated free cash flow of $21 million in the second quarter. This represents an 81% EBITDA to free cash flow conversion. A decrease in networking capital driven by inventory management and good collections contributed to the strong free cash flow result. Reductions in inventory have generated significant cash flow so far this year. Our teams continue to drive down inventory by tightening our supply chain. We are reducing the flow of inbound raw materials to match market conditions while still meeting customer demand.

Lyle Williams: I will begin my comments, providing more color on our strong cash flow and our balance sheet.

Lyle Williams: We generated free cash flow of $21 million in the second quarter.

Lyle Williams: This represents an 81% EBITDA to free cash flow conversion.

Speaker Change: A decrease in net working capital driven by inventory management and good collections contributed to the strong free cash flow results.

Speaker Change: Reductions in inventory have generated significant cash flow so far this year.

Speaker Change: Our teams continue to drive down inventory by tightening our supply chain.

Speaker Change: We are reducing the flow of inbound raw material to match market conditions, while still meeting customer demand.

Lyle Williams: We have the ability to drive inventory lower, and we'll push for increased inventory turn. Our efforts to achieve more timely collections are also paying off. We have achieved significant improvement in our day sales outstanding since the beginning of 2023. In fact, excluding the impact of Veriperm, our second quarter DSOs decreased by nine days year over year.

Speaker Change: We have the ability to drive inventory lower and we'll push for increased inventory turns.

Speaker Change: Our efforts to achieve more timely collections are also paying off.

Speaker Change: We have achieved significant improvement in our days sales outstanding since the beginning of 2023 and.

Speaker Change: Fact, excluding the impact of <unk>, our second quarter Dsos decreased by nine days year over year.

Lyle Williams: Net net, we have reduced working capital by $11 million this year, which boosted our free cash flow results. Recall that our prior free cash flow guidance assumed no reduction in networking capital. With the net working capital reduction already achieved and our plans for the remainder of the year, I want to reiterate the guidance Neal discussed earlier. We are raising our full year free cash flow guidance by $10 million, with working capital benefits driving the overperformance. We ended the quarter with $32 million of cash on hand and $103 million of availability under our revolving credit facility, with total liquidity of $135 million. Our net debt was $225 million.

Speaker Change: Net net we have reduced working capital by $11 million this year, which boosted our free cash flow results.

Speaker Change: Recall that our prior free cash flow guidance assumed no reduction in networking capital.

Speaker Change: With a net working capital reduction already achieved and our plans for the remainder of the year I want to reiterate the guidance Neil discussed earlier, we are raising our full year free cash flow guidance $10 million with working capital benefit driving the over performance.

Speaker Change: We.

Speaker Change: Did the quarter with $32 million of cash on hand, and $103 million of availability under our revolving credit facility.

Speaker Change: With total liquidity of $135 million.

Speaker Change: Our net debt was 225 million.

Lyle Williams: Utilizing annualized first half EBITDA, the net leverage ratio was 2.2 times, a slight improvement from the previous result. Last quarter, we laid out a plan to put FET in a position to return cash to shareholders, with the announced $60 million partial redemption of the 2025 notes in August, our current liquidity, and guided free cash flow. We remain on track with this plan. We expect to retire the 2025 notes around the end of this year and the seller note around the middle of next year.

Speaker Change: Utilizing annualized first half EBITDA net leverage ratio was two two times.

Speaker Change: Light improvement from the previous results.

Speaker Change: Last quarter, we laid out a plan to put <unk> in position to return cash to shareholders.

Speaker Change: With the announced 60 million partial redemption of the 2025 notes in August are.

Speaker Change: Our current liquidity and guided free cash flow.

Speaker Change: We remain on track with this plan.

Speaker Change: We expect to retire the 2025 notes around the end of this year and the seller note around the middle of next year.

Lyle Williams: With low leverage and a flexible capital structure, we would be in a position to return cash to shareholders through share repurchases or dividends, and this would still leave considerable free cash flow for further reduction of our revolver balance. Strategic Growth Investments, our incremental distribution. We will continue to evaluate refinancing options that could accelerate this plan while we execute in the third and fourth quarters. Now let me provide comments on our segment results. The drilling and completion segment revenue decreased 2%, primarily due to lower sales of ROVs, Cable Management Systems, and Treating Iron.

Speaker Change: With low leverage and a flexible capital structure, we would be in position to return cash to shareholders through share repurchases or dividends.

Speaker Change: And this would still leave considerable free cash flow for further reduction of our revolver balance.

Speaker Change: Strategic growth investments.

Speaker Change: Our incremental distributions.

Speaker Change: We will continue to evaluate refinancing options that could accelerate this plan, while we execute in the third and fourth quarters.

Lyle Williams: During the quarter, coil tubing revenue increased 24% as the international markets caught up from a slower first quarter. We also saw a 50% increase in frack power and shipment, as we added a new large customer and had an increase in refurbishment work. Lower revenue and a less favorable product mix drove the segment EBITDA decline of 16%. Orders were $110 million, down 6% with a book to bill ratio of 94%.

Speaker Change: Now let me provide comments on our segment results.

Speaker Change: The drilling and completions segment revenue decreased 2%, primarily due to lower sales of Rovs cable management systems and treating iron.

Speaker Change: During the quarter coiled tubing revenue increased 24% as the international markets caught up from a slower first quarter.

Speaker Change: We also saw a 50% increase in Frac power in shipments as we added a new large customer and had an increase in refurbishment work.

Speaker Change: Lower revenue and less favorable product mix.

Speaker Change: The segment EBITDA decline of 16%.

Speaker Change: Orders were $110 million down, 6% with a book to bill ratio of <unk>, 94% orders for drilling and stimulation related capital equipment were lower during the quarter.

Lyle Williams: Orders for drilling and stimulation-related capital equipment were lower during the quarter, partially offset by increased international orders in the coil tubing product line. The artificial lift and downhole segment revenue was up 6%. Higher sales in the Middle East for both our casing equipment and valves products drove the growth. Favorable mix in the downhole product line pushed segment EBITDA up by 9% and EBITDA margins up 70 basis points to over 22%. Orders for $70 million, a 20% decrease due to our production equipment product line, where order timing creates swings quarter to quarter. The outlook for production equipment is solid, as their backlog remains strong, with a year's worth of work in the system.

Speaker Change: Really offset by increased international orders in the coiled tubing product line.

Speaker Change: The artificial lift and downhole segment revenue was up 6%.

Speaker Change: Sales in the middle East for both our casing equipment and valve products drove the growth.

Speaker Change: Favorable mix and the downhole product line pushed segment EBITDA up by 9% and EBITDA margins up 70 basis points to over 22%.

Speaker Change: Orders were $70 million, a 20% decrease due to our production equipment product line, where.

Speaker Change: Our order timing create swings quarter to quarter.

Speaker Change: The outlook for production equipment as solid as they are backlog remains strong with a year's worth of work in the system.

Lyle Williams: Now, let me provide some color on our revenue by geography, given the disparity between activity in the U.S. and international markets. In the second quarter, international revenues grew to 50% of our total revenue, compared with 35% just a year ago. This shift is significant given the softness in the U.S. And, as Neal mentioned, our strategy to grow internationally is making progress. In the second quarter, international revenues were up 13%, with the majority of the improvement in the Middle East.

Speaker Change: Now let me provide some color on our revenue by geography, given the disparity between activity in the U S and international markets.

Speaker Change: In the second quarter International revenues grew to 50% of our total revenue compared with 35% just a year ago.

Speaker Change: This shift is significant given the softness in the U S.

Speaker Change: And as Neil mentioned, our strategy to grow internationally is making progress.

Neil: Second quarter International revenues were up 13% with the majority of the improvement in the Middle East There. We recognized large project shipments of coiled tubing and the valves manufactured in our Saudi Arabian facility.

Lyle Williams: There, we recognize large project shipments of coil tubing and the valves manufactured in our Saudi Arabian facility. Downhole revenues also strengthened with market share gains for casing hardware and artificial lift products. In addition to growth in the Middle East, our Canadian revenues grew slightly in contrast to our expectations of a decline due to spring breakup. These results demonstrate the value of our global footprint in mitigating the softer U.S. market, and the U.S. market has been down this year.

Speaker Change: Downhole revenues also strengthened with market share gains for casing hardware and artificial lift products.

Speaker Change: In addition to growth in the Middle East our Canadian revenues grew slightly in contrast to our expectations of a decline due to spring breakup.

Speaker Change: These results demonstrate the value of our global footprint and mitigating the softer U S market.

Speaker Change: And the U S market has been down this year.

Lyle Williams: Our revenue correlates with rig count, so when the U.S. market begins to improve, we should benefit. To wrap up, let me provide a few details for modeling purposes for the third quarter. We anticipate corporate costs and depreciation and amortization expense to be roughly in line with the second quarter. We will see reduced levels of interest expense in future quarters with $13 million of the 2025 notes repurchased in the second quarter and the $60 million redemption in August. For the third quarter, we expect interest expense to be approximately $8 million, or about $700,000 less than the second quarter.

Speaker Change: Our revenue correlates with rig count so when the U S market begins to improve we should benefit.

Speaker Change: To wrap up let me provide a few details for modeling purposes for the third quarter.

Speaker Change: We anticipate corporate costs, and depreciation and amortization expense to be roughly in line with the second quarter.

Speaker Change: We will see reduced levels of interest expense in future quarters with a $13 million of the 2025 notes repurchased in the second quarter and the $60 million redemption in August.

Speaker Change: For the third quarter, we expect interest expense to be approximately $8 million or about 700000 less in the second quarter for the fourth quarter, we should realize an incremental 600000 of benefit from the reduced amount of outstanding 2025 notes.

Lyle Williams: For the fourth quarter, we should realize an incremental $600,000 of benefit from the reduced amount of outstanding 2025 notes. With the retirement of these notes, we will write off the related unamortized debt discount and debt issuance costs. These were roughly $3.5 million at June 30th. The discount originated in 2020 when we issued the notes and recognized a gain based on the fair market value estimated at that time. In the third quarter, we expect a non-recurring charge of approximately $1.8 million associated with the $60 million we will redeem in August.

Speaker Change: With the retirement of these notes, we will write off the related unamortized debt discount and debt issuance costs.

Speaker Change: These were roughly $3 5 million at June 30.

Speaker Change: The discount originated in 2020, when we issued the notes and recognized a gain based on the fair market value estimated at that time.

Speaker Change: In the third quarter, we expect a nonrecurring charge of approximately $1 8 million associated with the $60 million, we will redeem in August.

Lyle Williams: Finally, we anticipate income tax expense in the back half of 2024 to be slightly higher than the $6 million reported for the first half of this year. Now, I'll turn the call back to Neal for closing remarks.

Speaker Change: Finally, we anticipate income tax expense in the back half of 2024 to be slightly higher than the 6 million reported for the first half of this year.

Speaker Change: Let me turn the call back to Neil for closing remarks, Neil Thank you all.

Neal Lux: Thank you, Lyle. Looking ahead, we expect the U.S. market to remain soft and down from our original estimate earlier this year. However, our outlook for Canada and the international markets remains intact and will help mitigate this additional softening.

Speaker Change: Looking ahead, we expect the U S market to remain soft and down from our original estimate earlier. This year. However, our outlook for Canada, and the international markets remains intact and will help mitigate this additional softness.

Neal Lux: We will continue to execute and deliver financial results that support our long-term strategy. Our focus on cash generation is paying off. We raised our guidance and expect to generate strong free cash flow this year. Our plan remains on track to retire both the 2025 notes and the seller's term loan around the middle of next year. This will provide greater flexibility and optionality for returning cash to shareholders. To conclude, I would like to thank our global team for their hard work and dedication, especially our Houston area employees impacted by Hurricane Beryl. Despite having limited or no power, cell service, or internet, they found a way to get the job done.

Speaker Change: We will continue to execute and deliver financial results that support our long term strategy.

Speaker Change: Our focus on cash generation is paying off we raised our guidance and expect to generate strong free cash flow this year.

Speaker Change: Our plan remains on track to retire both the 2025 notes and sellers term loan around the middle of next year.

Speaker Change: This will provide greater flexibility and optionality for returning cash to shareholders.

Speaker Change: To conclude I would like to thank our global team for their hard work and dedication.

Speaker Change: Especially our Houston area employees impacted by Hurricane barrel does.

Speaker Change: Despite having limited or no power self service or Internet. They found a way to get the job done.

Gigi: Again, thank you. Gigi, please take the first question. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Speaker Change: Again, thank you.

Speaker Change: Gigi please take the first question.

Gigi: 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.

Gigi: Please stand by while we compile the Q&A roster. Our first question comes from the line of Dave Storms from Stonegate. Morning, Dave.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Dave storms from Stonegate.

Dave Storms: Good morning.

Dave: Good morning, Dave.

Dave Storms: Just hoping we could start with cash flow guidance. Great to see it take a step up. Would you help us understand that? Take settle, the higher lower end of that guide.

Dave Storms: Good morning, just hoping we could start with cash flow guidance, great to see it take a step up.

Speaker Change: Could you help us understand just kind of some of the puts and takes that will put you on either the higher or lower end of that guidance range.

Neal Lux: Yeah, maybe I'll start and let Lyle jump in. But I think, you know, in general, we were seeing a good conversion of working capital into free cash flow. So our teams are focused on reducing DSOs and really matching the inventory that we're receiving to market demands. I think with the guidance that we laid out for EBITDA, we feel really confident in the free cash flow range that we've provided. Yeah, Dave, and I'll give you a little bit of a little bit of detail there.

Speaker Change: Yes, maybe I'll start and let Laura jump in but I think.

Speaker Change: In general.

Speaker Change: We are seeing a good.

Speaker Change: Conversion of working capital in the free cash flow. So our teams are focused on.

Speaker Change: Reducing reducing dsos and really matching the inventory that we're receiving to market demands I think with the the guidance that we laid out for for EBITDA. We feel we feel really confident in the in the free cash flow range that we've provided.

Speaker Change: Yes, David I'll give a little bit of a little bit of detail. There. If you think about the key contributors that's going to be maybe a swing plus or minus in EBITDA, given our full year EBITDA range.

Lyle Williams: If you think about the key contributors, that's going to be maybe a swing plus or minus in EBITDA given our full year EBITDA range. And then the free cash flow range is a little bit wider, and that's the flux is going to be plus or minus on working capital that Neal talked about. So if we're closer to the top end of our EBITDA range, I think we'll get a little bit less juice out of the working capital just based on higher accounts receivable.

Speaker Change: And then the free cash flow range is a little bit wider and thats. The flux is going to be plus or minus on working capital that Neil talked about so.

Speaker Change: If we're closer to the top end of our EBITDA range I think we'll get a little bit less juice out of the working capital just based on higher accounts receivable, but if we're at the bottom and I think we would get the opposite and so kind of net each other out.

Lyle Williams: But if we're at the bottom end, I think we get the opposite. So they'll kind of net each other. And then I know, you know, there's a lot of anticipation here. Is there any more color you can give us on what that may look like?

Speaker Change: Understood that's very helpful. Thank you.

Speaker Change: And then I know, there's a lot of anticipation around returning capital to shareholders middle of next year.

Speaker Change: Is there any more color you can give us on what that May look like I know you mentioned repurchases or dividends, maybe just any variables that would sway your decision or is that a decision one way or another.

Neal Lux: You know, it's something that we're obviously thinking about a lot. We have some time. But I think to us, the key is we are going to return cash to shareholders, something we really want to do. And so we're going to really evaluate all the options and see what makes sense for the long term. So we think it's an investment that we need to be consistent, and that's where we want to be for a long time. If I could ask one for international... coming out of the first quarter.

Speaker Change: It's something that we're.

Speaker Change: We're obviously thinking about a lot we have some time.

Speaker Change: But I think to us. The key is we are going to return cash to shareholders something we really want to do and so we're going to really evaluate.

Speaker Change: All the options and see what what makes sense.

Speaker Change: For long term. So we think it's a commitment that we need to be consistent with and that's where we want to be as a long term company.

Speaker Change: Understood and if I could ask one.

Speaker Change: For International I know coming out of the first quarter International markets were maybe a little slower release their budgets.

Dave Storms: So that 50%. How much of that may be a catch-up, and how much of that maybe is a really good baseline for that going forward? Yeah, Dave, the 50% of our revenue that's international is really a shift from what was 35% last year. So as we've grown international, we've added Veriperm, which is another contributor there, and the US is a little softer as a percentage of our revenue. It

Speaker Change: 50% number in <unk>.

Speaker Change: How much of that may be a catch up and how much of that maybe.

Speaker Change: Maybe it's a really good baseline for background.

Speaker Change: Yes, Dave the 50% of our revenue that's international is really a shift from what was 35% last year. So as we've grown international we've added for Perm, which is another contributor there and use as little softer as a percentage of our revenue it's larger.

Lyle Williams: Also, if you think about the sequential increase, overall international revenues were up 13%. So we do experience some pluses or minuses around project shipments. As we mentioned, some of the valves and coil tubing catch up maybe sequentially.

Speaker Change: Also if you think about the sequential increase overall international revenues were up 13%. So there we do experienced some pluses or minuses around project shipments. So we mentioned some of the valves and coiled tubing catch up maybe sequentially, but I think very importantly is the market share growth that we've seen.

Neal Lux: But I think very importantly is the market share growth that we've seen outside the U.S., whether that's around our casing hardware business, we mentioned artificial lift products, and some of that incremental frack power in sales that we had were aimed specifically at unconventional plays in Latin America and the Middle East. So we've had some market pickup and market share gain there as well. And if I could ask just one more question, you mentioned you brought in a customer, and Yeah, we, you know, for us, you know, our, you know, one of our core values is to remain customer focused, and we look at the markets where we participate. And, you know, we want to find customers where we can solve their problems.

Speaker Change: Seen outside the U S. Whether that's around our casing hardware business, we mentioned artificial lift products and.

Speaker Change: And some of that incremental Frac power in sales that we had were aimed specifically at unconventional plays in Latin America, and the Middle East. So we've had some market pick up market share gain there as well.

Speaker Change: Yes.

Speaker Change: Very helpful and if I could ask just one more question.

Speaker Change: You mentioned you brought on a customer and drilling and completion pretty sizable customer just curious as to what the.

Speaker Change: Overall customer acquisition environment is like.

Speaker Change: Given all the pickup in market share internationally.

Speaker Change: Yes.

Speaker Change: For us.

Speaker Change: One of our core values is remain customer focused and we look at look at the markets, where we participate and we want to find customers, where we can solve their problem and for many of our products.

Neal Lux: And for many of our products, they last longer, they allow our customers to go deeper, they reduce their overall OPEX, and so we want to get that value proposition in front of as many customers as possible in markets where we have good scale and can generate more margins. I think where we're seeing a kind of, let's call it a secular trend, is the exportation of, let's call it technology that we've utilized in unconventional resources in the U.S., exporting that technology overseas. We've seen it in coil tubing.

Speaker Change: They last longer they allow our customers to go deeper they reduce their overall opex and so we wanted to get that value proposition in front of as many customers as possible and markets, where we have good scale and can generate generate more margins I think where we.

Speaker Change: We're seeing a kind of a let's call. It a secular trend is the exportation of kind of let's call. It technology that we've utilized in unconventional resources in the U S. Exporting that technology overseas, we have seen in coiled tubing, we've seen in stimulation intervention, we've seen it in other drilling and so.

Neal Lux: We've seen it in stimulation intervention. We've seen it in other drilling. And so that's where we're able to take advantage is that we've helped this industry. The productivity gains that this industry has achieved come from products that we provide. We've seen that productivity in the U.S., and we're helping grow that productivity internationally with the same thing. Thank you for taking my questions, and good luck in the third quarter. Thank you. Our next question comes from the line of Dan Pickering from Pickering Energy Partners. Morning, gentlemen. Morning, Dan.

Speaker Change: That's where we're able to take advantage as we've helped this industry.

Speaker Change: The productivity gains this industry has achieved come from products that we provide we've seen that productivity in the U S.

Speaker Change: And we're helping grow that productivity internationally with those that same technology.

Speaker Change: That's all very helpful. Thank you for taking my questions and good luck on the third quarter. Thank.

Speaker Change: Thank you Dave.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Dan Pickering from Pickering Energy partners.

Dan Pickering: Good morning, gentlemen.

Speaker Change: Hey, Dan.

Dan Pickering: Yeah, Canada. Impressive performance there. I want to make sure I heard flat quarter-to-quarter for Canada revenues overall, and I also think I heard flat veriperm quarterly revenues. Is that right? Canada was 5% up, so I think what we wanted to say was our casing hardware and artificial lift solutions. We grew our share there a little bit, so about 5%, but their firm was essentially flat quarter to quarter by, obviously, you know, spring break up.

Speaker Change: Canada.

Dan Pickering: Impressive performance there I want to make sure I heard I think I heard flat quarter to quarter for Canada revenues overall, and I also think I heard flat quarter to quarter revenues does that is that right.

Speaker Change: Canada was 5% up.

Speaker Change: So I think what we wanted to say is our casing hardware and artificial lift solutions. We grew our share there a little bit so about 5%, but their perm was essentially flat quarter to quarter. Okay.

Speaker Change: Despite obviously spring breakup.

Dan Pickering: Right, right. And that certainly caught my eye because it's a pretty substantial difference relative to, you know, kind of your thought that it could be down as much as half. Is there, was there a customer win?

Speaker Change: Right right.

Speaker Change: I guess certainly caught my eye, because it's a pretty substantial difference relative to kind of your thought it could be down as much as half is there.

Speaker Change: Is there was.

Speaker Change: Was there a customer when was it just steadier business than you expected, what's there or is it just getting to know their perm and the volatility in that business and it surprised me a little bit.

Neal Lux: Was it just a steadier business than you expected? What's the secret, or is it just getting to know Veriperm and the volatility in that business? And I was surprised.

Neal Lux: I think the study is part of it. The other part is the share we gain by utilizing bare perms. Contacts Distribution Network, I mean, that team up there has done a fantastic job with their customer base and they've opened a lot of doors for us. And again, we're early on in that revenue synergies, but we're excited about that. Yeah, that's awesome.

Speaker Change: I think the study is part of it the other the other part is the share we gained by by utilizing <unk>.

Speaker Change: Their firms.

Speaker Change: For context distribution network.

Speaker Change: That team up there has done a fantastic job with their customer base and.

Speaker Change: They've opened a lot of doors for us and again.

Speaker Change: Early on in that revenue synergies, but we're excited about that potential.

Neal Lux: Earlier in the year, you talked about the sort of second half being stronger for their term, oil sands activity, et cetera. Is that still the outlook? Is there any update given, you know, the fluctuations we've seen in crude prices? We don't really see a change in that outlook.

Speaker Change: Yes.

Speaker Change: Awesome.

Speaker Change: Earlier in the year you talked about.

Speaker Change: Sort of second half being stronger for near term oil sands activity et cetera is that still the outlook is there any update given the fluctuations we've seen in crude price.

Speaker Change: We don't really see a change in that outlook, it's something we'll monitor I think with those big those projects there in the drilling schedule could consulting shift from.

Neal Lux: It's something we'll monitor. I think with those projects there and the drilling schedule, could something shift from Q4 into Q1? I think that's possible.

Speaker Change: Q4 into Q1, I think that's possible, but right now and really no no change in our outlook for for oil Sands development.

Neal Lux: But right now, there's really no change in our outlook for oil sands. Okay, so second half better than first half, and the first half here has been a little bit better than you thought. Correct. Good. That's a that's a nice start for that acquisition. I wanted to shift over, if we could, to the balance sheet. And so Lyle, I think I heard you saying, can you just walk us through the note redemption process? We know it's 60 million bucks. You've said August several times. Is there a specific date here?

Speaker Change: Okay.

Speaker Change: Half better than first half and in the first half here has been a little bit better than you thought.

Speaker Change: Correct correct.

Speaker Change: That's a nice start for that acquisition.

Speaker Change: I wanted to shift over if we could keep the balance sheet and so while I think I heard you, saying.

Speaker Change: Can you just walk us through the note redemption process it.

Speaker Change: 60 million Bucks, you said August several times in their specific date here.

Dan Pickering: And then how do we fund that? Do we fund it, do we pull cash balances down a little bit more? Do we bump the revolver up? How do you see, you know, kind of processing that, that pain?

Speaker Change: And then how how do we fund that can be funded we pull cash balance is down a little bit more than we thought the revolver.

Speaker Change: How do you see kind of processing that debt paydown.

Lyle Williams: Thanks for the question, Dan. Basically, we're a little bit ahead of our process in that we did retire, we did redeem, or buyback, sorry, $13 million worth of notes in the second quarter and did that with cash on hand and a revolver. The $60 million specifically in mid-August, our indenture of the notes requires a 30-day notice period to redeem notes.

Speaker Change: Okay. Thanks, Thanks for the question Dan.

Speaker Change: Basically we are a little bit ahead of our process and that we did retire we did redeem or buybacks or $13 million worth of notes in the second quarter did that with cash on hand, and our revolver. The 60 million specifically in mid August.

Lyle Williams: So on July 17th, we issued that redemption notice for $60 million. We'll redeem those in August, on August 16th, for that first $60 million. When we think about where the funding is going to come from for that, it's going to come a little bit out of cash flow in the third quarter and a little bit with an addition to our revolver. Importantly, we ended the second quarter with $135 million of total liquidity, and that's cash plus the availability of our revolvers.

Speaker Change: So on July 17th we issued debt redemption notice for $60 million, we will redeem those in August on August 16th for that other 60 that first $60 million. When we think about where the funding is going to come from that is going to come a little bit out of cash flow in the third quarter and a little bit.

Speaker Change: With addition onto our revolver and importantly, we ended the second quarter was $135 million of total liquidity and Thats cash plus availability of our revolver. So we've got a lot of dry powder, there and be able to redeem those notes with that.

Lyle Williams: We've got a lot of dry powder there and will be able to redeem those notes with that. Do a similar process in the fourth quarter to get the rest of those 25 notes redeemed by the end of the year. And Lyle, is there a similar process?

Speaker Change: Do a similar process in the fourth quarter to get the reverse the rest of those 25 notes redeemed by the end of the year.

Speaker Change: And while is there a similar.

Dan Pickering: You've got the redemption notice process. So, you know, you issued a press release saying, hey, we're going to redeem the remainder. And so will it follow the same? We'll follow the same process. We'll see something in October, November, and that redemption that would fall 30 days later. It would, Dan, that would be a similar process.

Speaker Change: Redemption notice process so.

Speaker Change: You issued a press release, saying, Hey, we're going to redeem the remainder and so we'll follow the same we'll follow the same process, we'll see something in October November and that redemption that would follow 30 days later.

Speaker Change: It would then that would be the similar process.

Lyle Williams: Okay, good. That's helpful. Um, And then my last question, and it's one more focused on operations, your valve business, you know, you had a nice bump. Can you talk a little bit about that?

Speaker Change: Okay.

Speaker Change: Okay. That's helpful.

Speaker Change: And then.

Speaker Change: My last question in.

Speaker Change: We're more focused on operations your valve business you had a nice Bob can you talk a little bit with that.

Dan Pickering: Is that a restocking by distributors? Was it Middle East growth that drove that? I'm just curious if we're seeing a change in business dynamics. Yeah, I'd say.

Is that a restocking by distributors.

Speaker Change: Is it the middle east growth that that drove that I'm. Just curious if we're seeing any change and business dynamics.

Speaker Change: Yes.

Lyle Williams: No change in business dynamics, no restocking by distributors; this is more product deliveries in both the U.S. and Canada. I'm pleased with the kind of trend we're seeing in Saudi; I think it's gone well, to keep that up, but no real change in the valves. Okay, thanks.

Speaker Change: No no change in business dynamics, no restocking, but by distributors. This is more <unk>.

Speaker Change: Deliveries in both the U S and in Arabia. So.

Speaker Change: Pleased with the.

Speaker Change: A trend we're seeing in Saudi I think it's gone well.

Speaker Change: And so we'll keep that up but no no real change in the valves the industry dynamics there.

Dan Pickering: And I said it was my last question, but every other quarter I asked you about the environment for, you know, bolt-on acquisitions and opportunities. You know, Veriperm, obviously, you're early in that process still, but things seem to be going well. What's the, what's the overall environment for things like, you know, another Variperm or opportunities? And, as you're answering that question, I guess North America is sloppy right now. Would you stay away from North American exposure?

Speaker Change: Thanks, and I said it was my last question I do have one more kind of every other quarter.

Speaker Change: I ask you about.

Speaker Change: The environment for bolt on acquisitions and opportunities. There obviously are early in that process still but.

Speaker Change: Things seem to be going well, what's the what's the overall environment for us.

Speaker Change: Things like another <unk> opportunities and and as you're answering that question I guess, North American sloppy right now would you stay away from North American exposure or.

Neal Lux: Or, you know, do you think about North America as an opportunity? No, good. I think, you know, obviously, Veraperm for us was a home run, right?

Speaker Change: Do you think about do you think about North America as an opportunity.

Speaker Change: Yes.

Speaker Change: Good.

Speaker Change: I think obviously their perm for us was a homerun right value margin.

Neal Lux: Value margin. I'd love to find another one, but those will be hard to find; we'll continue to look. I think that the overall environment, though, there are opportunities out there, I think activity is robust, the deals seem to be getting done, and with our kind of breadth of product lines and our geography diversity, we can kind of hit both the U.S. and international markets. We're not running away from the U.S. You know, I think, ideally, I would want to find a business that would have both a U.S. and an international presence.

Speaker Change: As robust the deal seem to be getting done and with our kind of breadth of product lines and our geography diversity.

Speaker Change: We can kind of hit both the U S and international we're not running away from the U S.

I think ideally we'd want to find a business that would have both the U S and in international presence.

Speaker Change: So we will continue to look for that but.

Neal Lux: And so we'll continue to look for that. But really, our criteria, though, is we want to find strong industrial logic, you know, where it fits in our portfolio, and we're going to be conservative with the leverage on our balance. Thanks much.

Speaker Change: Really our criteria those we want to we want to find the strong industrial logic, where it fits in our portfolio and we're going to be conservative with the leverage on our balance sheet.

Speaker Change: Going forward.

Speaker Change: Okay.

Dan Pickering: Well done. Thank you, Dan. Thank you. Our next question comes from the line of Jeff Robertson from Water Tower Research. Thank you. Good morning.

Speaker Change: Thanks, so much.

Dan Pickering: Thank you Dan.

Speaker Change: Thank you. Our next question comes from the line of Jeff Robertson from water Tower research.

Jeff Robertson: Neal, you spoke a little bit about revenue per rig. And I'm wondering if you can talk both about the US and international markets. Do you see further gains in the type of sales mix that will offset the weakness you see in the rig count? And then, secondly, are those gains pretty sticky if you start to see some sort of improvement in the rig count in 2025? Yeah, good, good question.

Jeff Robertson: Thanks, and good morning.

Jeff Robertson: Neil you spoke a little bit about revenue per rig and I'm wondering if you can talk both.

Jeff Robertson: Between the U S and international markets.

Jeff Robertson: Where do you see further gains in the type of sales mix that will offset the weakness you see in the rig count and then secondly are those gains are pretty sticky if you start to see some sort of improvement in rig count in 2025.

Neal Lux: So yeah, I think in the US, we have, you know, methodically increased our revenue, let's call it US revenue per US rig. You know, if we were to estimate, we're probably up by 4% or so year-over-year and that would truly be, [inaudible] I think on the, you know, with about 75% of our sales being activity-based driven. And, you know, my experience, and our experience with the business we have is that once you get in with that customer and you deliver, you do have some stickiness, right?

Speaker Change: Yes. Good good question. So yes, I think in the in the U S. We have Ms.

Jeff Robertson: <unk> increased our revenue, let's call. It U S revenue per U S rig.

Jeff Robertson: If we were to estimate we're probably up up 4% or so year over year and that would truly be be market share gains I think on the with about 75% of our sales being activity base driven.

And.

Jeff Robertson: My experience our experience with the business we have that once you you get in with that customer and you deliver.

Jeff Robertson: You do have some stickiness right and you understand their needs with what they value.

Neal Lux: And you understand their needs, what they value, and you can have the product ready for them, and you can deliver on time, and those are really key points. So, yeah, I think our expectation and the, Neal, are some of those gains driven by the service providers wanting FETs products, or is it a mix of that plus? the EMP operator or the well owner saying, if you're going to drill our well, we want these types of products on site for that FET supply. Yeah, I think it's a good combination of both.

Jeff Robertson: And you can have the product ready for them and you can deliver on time and those are really key key point so yes.

Jeff Robertson: Our expectation and the.

Jeff Robertson: Challenge, we're going to put to our teams is not only do we need to hold those customers, we do need to grow grow it as the market rebounds.

Jeff Robertson: Some of those gains driven by the service providers wanting.

<unk> products or is it a mix of that plus.

Jeff Robertson: The E&P operator of the well known we're saying if you're going to drill a well we want these types of products on site.

Jeff Robertson: <unk> supplies.

Jeff Robertson: So we do see pull through, you know, from the E&P to the service company for certain products we have that help the service company increase their productivity. We also, you know, about half of our sales are directly to E&P operators already, so we're able to put that value proposition directly to them. So a combination of both, you know, our strategies, we want to differentiate; we want to deliver technology and solutions that make our customers more efficient.

Jeff Robertson: Yes.

Speaker Change: I think it's a good combination of both so we do see pull through.

From the E&P to the service company for certain products, we have that that helped the service company increase their productivity. We also about half of our sales are directly to E&P operators already so we're able to put that value proposition directly to them.

Combination combination of both our our strategy as we want it we want to differentiate we want to deliver technology and solutions that make our customers more efficient so the better we are at.

Neal Lux: The better we are at laying out that value proposition, the more often we're going to we're going to we're going to grow that. On renewables or energy transition, you mentioned power generation as a potential new revenue opportunity in your Jumbotron XL system. Is that because you're seeing requests for bids and people doing fabrication studies?

Speaker Change: Laying out that value proposition.

Speaker Change: More often we're going to we're going to we're going to grow that share.

Speaker Change: And on renewables or energy transition, you mentioned power generation as a potential.

Speaker Change: <unk>.

Speaker Change: Revenue opportunity Jumbotron XL systems.

Speaker Change: Is that because we're seeing requests for bids in.

Jeff Robertson: Or are you actually starting to see orders for products to build these types of systems around the world? Yes, so we have delivered these sales already, you know, last year and this year, but what's exciting to us is the pipeline does seem to be, you know, expanding really rapidly, and I think, just as maybe more of an industry comment, that as these data centers are being built out.

Speaker Change: People do in fabrication studies are you actually starting to see orders for products to be.

Speaker Change: To build out these types of systems around the world.

Speaker Change: So we have delivered deliver these.

Sales already.

Speaker Change: Last year and this year, but what's exciting to US is the pipeline does seem to be expanding really rapidly.

Speaker Change: And I think.

Speaker Change: Just as a maybe more of a industry comment that as as these data centers are being built out.

Jeff Robertson: And, you know, there just seems to be a lot of concern about where the power is going to come from. So we're seeing more of that. Let's call it mobile power generation being utilized, different applications, so we're seeing that bid activity directly, and we've seen a really big spike. Again, these projects do take time.

Speaker Change: And there just seems to be a lot of concern about where the power is going to come from so we're seeing more of that.

Speaker Change: Let's call it a mobile power Gen.

Speaker Change: Being utilized in different different application so.

Speaker Change: We're seeing that bid activity directly and we've seen a really big Spike again. These are these projects do take time, but we see that as a long term growth driver for us.

Neal Lux: We see that as long-term growth. Pardon me, and then to follow on that, do those types of projects create aftermarket business through the servicing and replacement cycle? They do. You know, our, you know, our, our units are really robust. So they do last a long time.

Speaker Change: Yeah.

Speaker Change: Aftermarket business through servicing and replacement cycles.

Speaker Change: They do.

Speaker Change: Sure.

Speaker Change: Our units are really robust so they do they do last a long time and so I think it's a longer service cycle for.

Jeff Robertson: And so I think it's a longer service cycle for us. But once that unit's in place, it'll run for a decade, and so we'll have a tale to that. It'll, it'll start, a couple of years before we see any aftermarket from it. Once that's installed, we have a long tail.

Speaker Change: For us, but once that that units in place it will run for you now.

Speaker Change: A decade, and so we will have.

Speaker Change: A tail to that.

It'll start to it will be a couple of years before we see any aftermarket from it but once that once that's installed we got we got a long tail there.

Neal Lux: And then a last question on the Middle East and your revenue growth in the second quarter. Are you seeing projects or big, big-scale projects that you see that continuing, not necessarily the quarterly growth, but are you seeing continued exposure for increased sales as you look out into 2025 and maybe even 2026? Yeah, I was actually just sitting with one of our Middle East sales leaders yesterday, talking with him. See, he sees a good pipeline.

Speaker Change: And then a last question on the on the Middle East and your revenue growth in the second quarter.

Speaker Change: Are you seeing projects are big big scale projects that you'll see that continuing in not necessarily the quarterly growth, but are you seeing continued operate exposure for increased sales as you look out into 2025, maybe even 2026.

Yes, Yes, I was actually just just sitting with.

One of our middle East sales leaders yesterday and.

Talking with him.

Jeff Robertson: And I agree that the 25 really no, No change to the trend, and so we'll benefit from that, and I still think there's a lot of opportunity there for us. Again, keep exporting not only the unconventional technology but our downhole. And just on margins, Neal or Lyle were with 12 and a half to 13% margins in the first two quarters of this year.

Speaker Change: See he sees a good a good pipeline.

Speaker Change: I agree in the 25 really know.

No change to the trend and so we'll continue to.

To benefit from that and I still think Theres a lot of opportunity there for us to again keep export in not only the unconventional technology, but our downhole, our downhole technology as well.

Neal: And then just on margins Neal <unk> with the 12, 5% to 13% margins in the first two quarters of this year.

Jeff Robertson: Do you think the product mix as you think about 2025 will be similar to 2024? Can it lead to similar-type margins, or do you think there's room for expansion? Yeah, I'll work on that one, Jeff. If you look at our overall margins, they've been relatively flat post the acquisition and integration of Veriperm, which gave us a really nice boost. And you mentioned mix, but clearly, in my comments, we talked a lot about mix being the driver.

Neal: Do you think the product mix as you think about 2025 will be similar to 2024.

Neal: Can lead to similar type margins or do you think theres room for expansion.

Lyle Williams: And so that is something that we're looking at. I think where we can control mix and influence mix is with our market share gains that we have. So take, for example, Artificial Lift and Downhole sequentially.

Neal: Yes.

Neal: I'll work on that one Jeff.

If you look at our overall margins they've been relatively flat post the acquisition close to the integration of <unk>, which gave us a really nice boost and you mentioned mix, but clearly in my comments, we've talked a lot about mix being the driver.

Speaker Change: And so that is something that we're looking at I think where we can control mix and influence mix is with our market share gains that we have.

Lyle Williams: Incremental EBITDA margins were about 37%. We talked a little bit earlier about Veriperm. Their revenue was down just slightly, so we call it roughly flat, but their overall profitability was up, quarter and quarter. We also talked about our other downhole products being stronger. Those come at a nice, healthy margin, offset a little bit by softer margins with valves.

Speaker Change: So take for example, artificial lift and downhole sequentially incremental EBITDA margins were about 37%.

Speaker Change: Talked a little bit earlier about for Perm their revenue was down just slightly so call it roughly flat, but their overall profitability was up quarter on quarter. We also talked about our other downhole products being stronger those come at a nice healthy margin offset a little bit by softer margins.

Speaker Change: With valves, so as we continue to grow our downhole product line with share gains I think that will be a boost in a tailwind to our margins. The other tailwind that would come is through operating leverage. So our revenues have been decently flat with market activity coming down, but if we get that turn in.

Lyle Williams: So as we continue to grow a downhole product line with share gains, I think that will be a boost and a tailwind to our margins. The other tailwind that would come is operating leverage. So our revenues have been decently flat with market activity coming down, but if we get that turn and we can see a run-up in revenues, we could benefit, and our margins will benefit from operating leverage as well. So a couple of levers that would make those go higher in the future. Thank you very much.

Speaker Change: Thank you very much.

Jeff Robertson: Thank you, Jeff. Thanks, Jeff. Thank you. One moment for our next question. Our next question comes from the line of Eric Carlson. Hey, guys, morning. Morning, Eric. Hi, Eric.

Thank you Jeff Thanks, Jeff.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Eric Carlson.

Eric Carlson: Hey, guys good morning.

Eric Carlson: Eric Hi, Eric.

Eric Carlson: Another great quarter. I mean, it's hard to complain when you can almost generate 25% of your market cap and cash in a whole year, which I think the international markets are probably a little bit underappreciated by the market currently, but maybe just a little bit more on Canada. And when you think about activity there, I think a solid Baker Hughes is 144 oil-specific rigs currently, which is, I mean, maybe 20 plus percent above last year. And just to do, maybe just share a little bit on when you think about Canadian activity. Obviously, it is.

Speaker Change: Full year, which I think the international markets are probably a little bit underappreciated.

Speaker Change: I mean, maybe 20 plus percent above last year could you, maybe just share a little bit.

Neal Lux: Am I correct in thinking that being more oil weighted is a benefit to, [inaudible] Yes, yeah, absolutely. You know, there's a certain percentage of those rigs that you mentioned that work in the, in the oil fans. And so it, It's timing of those wells that are being drilled, and so I think, you know, bare firm, you know, we always, when we did the acquisition, we felt had a long-term run rate there, not only with new projects, but as the fields would be, let's call it infill drilled, just to keep up with the decline rate, just to stay flat, they would need to keep utilizing their product.

Speaker Change: Barogram specifically.

Speaker Change: Yes, yes, absolutely.

Speaker Change: There is a certain percentage of those rigs that you mentioned that work in the.

Speaker Change: In the oil sands and so.

It's timing of those of those.

Speaker Change: Wells that are being drilled and so I think.

Speaker Change: They are firm.

Speaker Change: We when we did the did the acquisition we felt had a long term run rate there.

Speaker Change: Not only with new projects, but.

Speaker Change: The.

Speaker Change: Fields would be lets call. It infill drilled just to keep up with the decline rate just to stay flat they would need to keep keep utilizing their product and then the other maybe other part of that is the newer wells today typically have longer laterals and require more more more units there from product.

Neal Lux: The newer wells today typically have longer laterals and require more units of veraperm product per well, so I think that's another secular trend that we're pleased to see. So yeah, more oil rigs in Canada should absolutely help veraperm. Great.

Speaker Change: Per well, so I think that that's another secular trend that we're pleased to see so you have more oil rigs in Canada should should absolutely help their firm.

Eric Carlson: And then maybe just on that longer lateral comment in the industry broadly, I mean, obviously, when you think about kind of the business lines you have, If you listen to any of the EMP calls, you hear basically longer laterals, more... David Storms, Rob Kukla, Neal Lux, Forum Energy Technologies Inc., building a product mix for the future as technology continues to improve. I mean, do you think about how we benefit from more stages complete or call it lateral miles drilled or whatever that may be and focus less on kind of the pure rig count number?

Speaker Change: Great and then maybe just on the longer lateral comment.

Speaker Change: The industry broadly I mean, obviously when.

Speaker Change: When you think about kind of the business lines you have.

Speaker Change: If you listen to any of the E&P calls.

Speaker Change: You hear basically longer laterals.

Speaker Change: More.

Speaker Change: Stages completed per day, and when you think about like a four mile lateral versus a two mile lateral obviously, you need less rigs to complete that work with the intensity of those rigs and the materials are there. So when you think about the.

Speaker Change: Building product mix for the future as technology continues to improve I mean, do you think about how do we benefit from more stages complete or.

Speaker Change: Paul it lateral mild drilled or whatever that maybe and.

Speaker Change: If less on kind of the pure rig count number.

Provide some thoughts around that.

Eric Carlson: Can you just provide some thoughts around that? Yeah, no, that's, you hit right on the kind of trends that we see. I think, you know, we generally refer to RIG because it's published weekly.

Speaker Change: Yeah no that's.

Speaker Change: You hit right on the kind of the trends that we see I think we generally refer to rig because its published weekly it's something everyone has access to.

Neal Lux: It's something, you know, everyone has access to. We internally track, you know, we track stages, we track wells. There's a little bit of a lag in the data, so it makes it hard to be forward looking. But we all, you know, our focus, you know, is, you know, really the service intensity. As you made a mention of longer laterals, so that would be, as the lateral gets longer, the coil tubing string is longer, so that's more revenue per string. The wire line string is longer, so that's more revenue per cable.

Speaker Change: We internally track, we track stages, we track well, there's a little bit of a lag in the data. So it makes it makes it hard to be forward looking.

But we all our focus.

Speaker Change: Is is really the service intensity so.

Speaker Change:

As you you made a mention of longer lateral so that would be the lateral gets longer.

Speaker Change: Oil tubing string is longer so that's more revenue per string the wireline string is longer so that's more more revenue per cable.

Eric Carlson: As you pump more stages per day, you're going to wear out your power ends, you're going to wear out your flexible hoses more quickly this year than you did the year before. So you're going to see increased replacement cycles. So all that will benefit us. So yeah, you're right.

Speaker Change: As you pump more stages per day, youre going to wear out your power and youre going to wear out your flexible hoses more quickly.

Speaker Change: This year than you did the year before so you're going to see increased replacement cycle. So all of that will will benefit as.

Speaker Change: We will benefit us so, yes, youre right rig count maybe isn't.

Speaker Change: Isn't the best.

Speaker Change: View of our business, but over time, we're going to increase our <unk> our U S revenue per U S rig and I think we have.

Neal Lux: Rig count maybe isn't the best view of our business, but over time, we're going to increase our US revenue per US rig. I think we have, we said about 4% or so already, and we'll continue to improve on that as time goes on.

Speaker Change: Have we set about 4% or so already and will continue to improve on that as time goes forward.

Eric Carlson: And then maybe you can just share a little bit more info on kind of the Middle East, specifically, obviously, I see a lot of unconventional gas announcements and listening to kind of the other service providers, they expect to deliver rigs into the Middle East. And maybe just, I don't know, like, what the market opportunity there is. And I even saw the announcement, I think there was a post somewhere where you guys are going to manufacture the radiators within the Saudi Arabian facility now. Maybe correct me if I'm wrong, but just can you provide some context to the market opportunity there?

Speaker Change: Great.

Speaker Change: Maybe if you could share a little bit more.

Speaker Change: Info on kind of the middle East, specifically, obviously you'd see a lot of unconventional.

Speaker Change: Gas announcements and looking into kind of the other service providers that can deliver rig into the middle East and maybe just.

Speaker Change: I don't know.

Speaker Change: The market opportunity, there and I, even saw like the announcement I think there was a post somewhere where you guys.

Speaker Change: Kind of.

Speaker Change: We are going to manufacture the radiators within Lasalle.

Speaker Change: The Saudi Arabian facility amount, maybe correct me, if I'm wrong I guess.

Speaker Change: Can you provide some context.

Speaker Change: Market opportunity there I mean, obviously, a number that are way above where the COVID-19. So you guys are kind of executing there, but does that become I mean is that problem.

Eric Carlson: I mean, obviously, numbers are way above pre-COVID, so you guys are kind of executing there, but does that become, I mean, is that probably the biggest growth potential, and then all incremental U.S. activity just becomes a ton of torque to the upside? Or how do you, I mean, I guess, how do you think about the product mix geographically going forward? Yeah, I think your last comment there was really spot on that we do see, let's say, long-term growth in the Middle East.

Speaker Change: Hey, good growth potential in them all incremental U S activity depends upon a part to the upside or how do you I mean, I guess, how do you think about the product mix geographically going forward.

Speaker Change: Yes, I think your last last comment there is really spot on that we do see let's say long term growth in the middle East if the U S.

Eric Carlson: If the U.S. were to return to more normal levels, we would see a ton of torque. You know, historically, the internet or the Middle East was maybe less service intensive. So you didn't see the types of sales per rig that maybe you would see in the United States. However, that is changing. You mentioned our radiator manufacturing that we're looking to conduct. We are conducting drilling in Saudi. They are starting to drill unconventional wells in a big way.

Speaker Change: Where to return the U S were to return back to let's call. It more normal levels, we would see a ton of torque.

Speaker Change: Historically internet or Middle East was maybe less service intensive so you didn't see the.

Speaker Change: Types of sales per rig that maybe you would see in the United States.

However that is that is changing and that's <unk>.

Speaker Change: You mentioned, our radiator manufacturing that we.

Speaker Change: We're looking to conduct we are conducting an in Saudi.

Speaker Change: They are starting to drill unconventional wells in a big way that's going to use a lot of coil can use a lot of wireline.

Eric Carlson: That's going to use a lot of coils, it's going to use a lot of wire lines, it's going to consume a lot of power ends, and they're going to require new radiators to, you know, the newest types of radiators for their factories.

Speaker Change: To consume a lot of power ends and theyre going to require new radiator's to the newest types of radiators for their for their frac fleets there.

Neal Lux: Here we are. We are bullish about the Middle East. We're also bullish about the offshore markets in our subsea business. So, if you think about that business, and one of the big drivers that everyone watches is subsea wallheads or subsea tree orders, and subsea tree orders have been up and strong. As we mentioned last quarter, we're seeing higher and higher utilization of the existing ROV fleets, which is a big driver for us. Initially, that's driving spare parts.

Speaker Change: So Eric we are we are.

We're bullish about the middle East we're also bullish about.

Speaker Change: The offshore markets in our subsea business. So if you think about that business and one of the big drivers that everyone watches is.

Subsea wellheads or subsea tree orders in subsea tree orders have been up in strong we mentioned last quarter, we're seeing higher and higher utilization of the existing rovs fleets, which is a big driver for US initially that's driving spare parts.

Speaker Change: Our pipeline of new inquiries for incremental rovs to add to our customers' fleets as meaningful. So we're excited about that as well as opportunities in the defense sector. So while we do see a lot of excitement around the middle East We also see.

Neal Lux: Our pipeline of new inquiries for incremental ROVs to add to our customers' fleets is meaningful. So, we're excited about that, as well as opportunities in the defense sector. So, while we do see a lot of excitement around the Middle East, we also see opportunities coming on the subsea side as well into next year. Okay, great.

Speaker Change: Opportunities coming on the subsea side as well.

Speaker Change: Next year.

Speaker Change: Okay great.

Speaker Change: That's all very helpful and I guess this is my last.

Speaker Change: Question.

Speaker Change: Slash comment and just kind of want your thoughts.

Speaker Change: We're a little bit of a ways away, but getting closer and when you think about the potential to return capital.

Speaker Change: I'd just encourage you if youre trading at a 25% free cash flow yield and a 50% discount to your peers on a EBITDA multiple basis.

Speaker Change: Every dollar possible.

Speaker Change: Bancshares now obviously, if the market reprice with your dividends are great and then using share repurchases.

Either increase free cash flow per share or the ability to pay dividend per share without increasing the cash outlay, that's great, but at current valuation I would pound the table on buying back your shares.

Speaker Change: That reduces liquidity or whatever it may be.

Speaker Change: It's kind of irrelevant from a long term shareholder standpoint, so just kind of like they are in.

Speaker Change: I'll comment, but we're kind of evaluation.

Speaker Change: Relative to peers.

Speaker Change: Obviously this is hypothetical because you can't do it at this point in time, but if you can return capital to shareholders.

Speaker Change: Like what are you guys have thoughts once you get to that point.

Neil: Great question and as Neil mentioned earlier, we're working through that process, but we see the same thing that you do with with our free cash flow yield that we have is tremendous theres not many companies that have that as an opportunity.

Speaker Change: And our and part of that is because our multiple our valuation on a multiple basis is less than a lot of similarly situated company. So.

I think either way either that multiple recovers and we're pleased with that <unk>, we have an opportunity to retire shares buy back shares that would be really strong. So things that we would definitely look at it like you mentioned, we will come up with that plan and share that when we get closer.

Speaker Change: Great.

Speaker Change: Great quarter. Thank you I appreciate you taking the question.

Speaker Change: Thanks, Sarah and thank you Eric.

Speaker Change: Thank you at this time I would now like to turn the conference back over to Neil <unk> for closing remarks.

Neil: Thank you again, Gigi and thank you for your support and participation on today's call. We look forward to talking to you. All again in early November to discuss <unk> third quarter 2024 results.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

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Eric Carlson: That's all very helpful, and I guess this is my last question: increase free cash flow per share or the ability to pay dividends per share without increasing the cash outlay. That's great. But at the current valuation, I would pound the table on buying back your shares. And if that reduces liquidity or whatever it may be, it's kind of irrelevant from a long-term shareholder standpoint. So I just kind of like your internal comments on where valuations fit relative to peers. I mean, obviously, this is hypothetical because you can't do it at this point in time.

Gigi: Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies second quarter 2024 earnings Conference call. My name is Gigi and I will be your coordinator for todays call. There is a process for entering the question and answer queue to ask a question. During this session you will need to press star.

Gigi: One one on your telephone.

Gigi: We'll then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again.

Speaker Change: A link with instructions can also be found on the company's Investor Relations website under the events section at this time all participants are in a listen only mode and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the Companys website I will now turn the.

Eric Carlson: But if you could return capital to shareholders, like what are your guys' thoughts once you get to that point? Eric, great question. And as Neal mentioned earlier, we're working through that process, but we see the same thing that you do. With the free cash flow yield that we have, it's tremendous. There are not many companies that have that as an opportunity.

Lyle Williams: And part of that is because our multiple, our valuation on a multiple basis, is less than a lot of similarly situated companies. So I think either way, either that multiple recovers, and we're pleased with that, or we have an opportunity to retire shares, buy back shares that would be really strong. So things that we would definitely look at, like you mentioned, we'll come up with that plan and share that when we get closer. Great. Oh, great quarter! Thank you.

Speaker Change: Thank you Gigi good morning, everyone and welcome to <unk> second quarter 2024 earnings Conference call with me today are Neil <unk>, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer.

Speaker Change: Yesterday, we issued our earnings release and it is available on our website.

Speaker Change: 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.

Speaker Change: Wings.

Speaker Change: Finally management's statements may include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release.

During today's call all statements related to EBITDA refer to adjusted EBITDA and unless otherwise noted all comparisons are second quarter 2024 to first quarter 2024, I will now turn the call over to Neil.

Eric Carlson: I appreciate you taking the question. Thanks, Eric. Thank you, Eric. Thank you.

Neal Lux: At this time, I would now like to turn the conference back over to Neal Lux for closing remarks. Thank you again, Gigi, and thank you for your support and participation on today's call. We look forward to talking to you all again in early November to discuss FET's third quarter 2024. This concludes today's conference call. Thank you for participating. You may now disconnect.

Neil: Thank you, Rob and good morning, everyone.

Gigi: [inaudible] ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies' second quarter 2024 earnings conference call. My name is Gigi, and I'll be your coordinator for today's call. There is a process for entering the question and answer queue. To ask a question during the session, you will need to press star one one on your telephone.

Gigi: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. A link with instructions can also be found on the company's Investor Relations website under the Events section. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise.

Neil: Now that we are halfway through the year. It is a good time to take stock of our progress.

Neil: And I am pleased with our direction.

Neil: Free cash flow results have been strong and we have converted EBITDA into cash faster than our plan.

Speaker Change: This performance has provided confidence to raise our free cash flow guidance for full year 2024.

Rob Kukla: This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the call over to Rob Kukla, Director of Investor Relations. Please proceed, sir.

Neil: Also we are in the process of redeeming more than half of our 2025 notes prior to the end of the third quarter and it is our intention to retire the balance around the end of the year.

Rob Kukla: Thank you, Gigi. Good morning, everyone, and welcome to FET's second quarter 2024 earnings conference call. With me today are Neal Lux, our President and Chief Executive Officer, and Lyle 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 FET's Form 10-K and other SEC filings. Finally, management statements may include non-GAAP financial measures.

Neil: At that point, the remainder of our debt will be fully pre payable without penalty and we will not mature until December 2026.

Neil: This is a big step for our balance sheet.

Neil: In addition.

Neil: We are executing our beat the market strategy through new product development and international market penetration.

Neil: These results are evident in our market share gains and increased sales outside of the United States.

Neil: Which were 50% of Fct's total in the second quarter.

Rob Kukla: For a reconciliation of these measures, you may refer to our, During today's call, all statements related to EBITDA refer to a just. And unless otherwise noted, all comparisons are second quarter 2024 to first quarter 2024. I will now turn the call over to Neal. Thank you, Rob. And good morning, everyone.

Neil: Finally.

Neil: Our financial results demonstrate the positive benefits of the <unk> acquisition.

Neil: We have increased EBITDA, nearly 50% year over year, despite a more challenging market.

Neil: The combination of our companies have successfully increased our scale and margins.

Neil: As a management team we.

Neal Lux: Now that we are halfway through the year, it is a good time to take stock of our progress, and I am pleased with our direction. Free cash flow results have been strong, and we have converted EBITDA into cash faster than planned. This performance has provided confidence to raise our free cash flow guidance for full year 2025. Also, we are in the process of redeeming more than half of our 2025 notes prior to the end of the third quarter. And it is our intention to retire the ballots around the end of the year.

Neil: We have a strong focus on free cash flow and this quarter, we generated $21 million through consistent profitability and improved working capital management.

Neil: This allowed us to repurchase $13 million of our 2025 notes and announced the redemption of another $60 million.

Neal Lux: At that point, the remainder of our debt will be fully prepayable without penalty and will not mature until December 2026. This is a big step for our balance. In addition... We are executing our beat the market strategy through new product development and international market penetration. These results are evident in our market share gains and increased sales outside of the United States, which were 50% of FCT's total in the second quarter.

Neil: In addition, we are raising our full year 2020 for free cash flow guidance to between 50 and $70 million.

Neil: The team continues to execute at a high level and I am proud of their efforts.

Neil: Putting it all together we are following through on our plan to create value through our strong balance sheet once complete.

Neil: <unk> would be positioned to return cash to shareholders around the middle of next year.

Neil: Last quarter, we discussed our growth and profitability strategy.

Neal Lux: Our financial results demonstrate the positive benefits of the Veriperm acquisition. We have increased EBITDA by nearly 50% year over year. Despite a more challenging market, the combination of our companies has successfully increased our scale and margin as a management team. We have a strong focus on free cash flow, and this quarter, we generated $21 million through consistent profitability and improved working capital management. This allowed us to repurchase 13 million of our 2025 notes and announce the redemption of another $60 million. In addition,

Neil: This consists of four foundational pillars.

Neil: Growing profitable market share.

Neil: Developing differentiated products and technologies.

Neil: Utilizing our optimized global manufacturing and distribution footprint and expanding our participation in energy transition.

Neal Lux: We are raising our full year 2024 free cash flow guidance to between 50 and 70 million. The team continues to execute at a high level, and I am proud of their effort. Putting it all together, we are following through on our plan to create value through a strong balance once complete.

I'd like to provide an update on progress made so far.

Neal Lux: FET would be positioned to return cash to shareholders around the middle of next year. Last quarter, we discussed our growth and profitability strategy, which consists of four foundational pillars: growing profitable market share, and developing differentiated products and technology.

Neil: First we are seeing the benefits from new product development.

Neal Lux: Utilizing our optimized global manufacturing and distribution footprint and expanding our participation in energy transition, I'd like to provide an update on progress made so far. First, we are seeing the benefits of new product development. We have a growing opportunity pipeline within the power generation sector for our industry-leading Jumbotron XL heat transfer unit. The Jumbotron XL is a critical component for power systems that are utilized for many applications, including AI Data Center.

Neil: We have a growing opportunity pipeline within the power generation power generation sector for our industry, leading jumbotron XL heat transfer units.

Neil: The jumbo Tron XL is a critical component for power systems that are utilized for many applications, including AI data centers.

Neal Lux: The PowerGen market should grow rapidly over the coming years. Importantly, these opportunities are geographically diverse, with demand in the U.S., Middle East, Canada, and Latin America. This is an exciting opportunity that expands FET's addressable market. We are also benefiting from our optimized global presence, to meet growing global demand and provide our products around the world. We do not need to expand our roofline or invest additional growth capital.

Neil: The power Gen market should grow rapidly over the coming years importantly.

Neil: Importantly, these opportunities are geographically diverse with demand in the U S Middle East, Canada, and Latin America.

Speaker Change: This is an exciting opportunity that expands <unk> addressable market.

Speaker Change: We are also benefiting from our optimized global presence.

Speaker Change: To meet growing global demand and provide our products around the world, we do not need to expand our roofline or invest additional growth capital. We can service the world with a strategic manufacturing and distribution hubs that are already in place.

Neal Lux: We can service the world with the strategic manufacturing and distribution hubs that are already in place. A great example is our Saudi Arabian manufacturing facility, where we are delivering products and technologies to support unconventional resource development throughout the Middle East. These products include key hydraulic fracturing components, Casing, Equipment, and Hardware, Coil Tubing, and the Artificial Lift Solution.

Speaker Change: A great example is our Saudi Arabian manufacturing facility, where we are delivering products and technologies to support unconventional resource development throughout the middle East.

Speaker Change: These products include key hydraulic fracturing components casing equipment and hardware coil tubing and artificial lift solutions.

Neal Lux: For the first half of 2024, we have grown our Middle East revenue by 16% compared to the first half of 2020. This highlights our ability to pivot with changing market conditions and grow where our customers are spending money. Turning to the second quarter, we delivered revenue and EBITDA within our guidance range despite softer than expected U.S. activity. Our year over year results demonstrate the benefit of our beat the market strategy and the verifier acquisition. Our revenue increased 11 percent, and EBITDA was up 48%, with a 320 basis point improvement in margin. These results are particularly impressive given that the global rate count was down about 5%. Veriperm performed well during the quarter, even though the Canadian market was down due to typical seasonality, while revenue was essentially flat.

Speaker Change: For the first half of 2024, we have grown our middle east revenue by 16% compared to the first half of 2023. This highlights our ability to pivot with changing market conditions and grow where our customers are spending money.

Speaker Change: Turning to the second quarter, we delivered revenue and EBITDA within our guidance range, despite softer than expected U S activity.

Speaker Change: Our year over year results demonstrate the benefit of our beat the market strategy and the <unk> acquisition.

Speaker Change: Our revenue increased 11%.

Speaker Change: And EBITDA was up 48%.

Speaker Change: With a 320 basis point improvement in margins.

Speaker Change: These results are particularly impressive given that the global rig count was down about 5%.

Speaker Change: While revenue was obsessionally essentially flat favorable mix and cost controls helped their perm delivered increased EBITDA and margin contribution.

Neal Lux: Favorable mix and cost controls helped Veriperm deliver increased EBITDA and margin contribution. They were also a meaningful portion of FET's free cash flow. Revenue synergies from the acquisition are starting to re-benefit by working closely with Verifirm's experts to expand FET share. We increased our artificial lift and casing equipment sales in Canada by 5%, also. We are leveraging an existing distribution network to have product readily available for these customers.

Speaker Change: They were also a meaningful portion of <unk> free cash flow.

Speaker Change: Revenue synergies from the acquisition are starting to reap benefits.

Speaker Change: By working closely with <unk> experts to expand share.

Speaker Change: We increased our artificial lift and casing equipment sales in Canada by 5%.

Speaker Change: Also we are leveraging an existing distribution network to have product readily available for these customers.

Neal Lux: Gaining share in a new market takes time, but we do have some early wins. Now, let me give you additional color on the prior quarter's market conditions and how they impacted our results. In the U.S., E&P consolidation continues to slow drilling and completion spending as companies evaluate their combined portfolios. Also, weak natural gas prices contributed to a decline in U.S. rate count and hydraulic fracturing activity. Internationally, rig activity declined 6% due entirely to Canadian breakdowns.

Speaker Change: Gaining share in a new market takes time, but we do have some early wins.

Speaker Change: Now, let me give you additional color on the prior quarters market conditions and how it impacted our results.

Speaker Change: In the U S. E&P consolidation continues to slow drilling and completion spending as companies evaluate their combined portfolios also weak natural gas prices contributed to a decline in U S rig count and hydraulic fracturing activity.

Speaker Change: Internationally rig activity declined 6% due entirely to Canadian breakup.

Neal Lux: Outside of Canada, Rigg Campbell's Flat, with strengthening activity from Shale Place in the Middle East and Latin America. Also, offshore activity remains vibrant, as demonstrated by our strong subsea quotation piping. Now, let me turn to our outlook for the remainder of the year. We believe it is unlikely that U.S. rig count and hydraulic fracturing activity will experience a significant increase from current levels.

Speaker Change: Outside of Canada rig counts flat with strengthening activity from shale plays in the Middle East and Latin America.

Speaker Change: Also offshore activity remains vibrant as demonstrated by our strong subsea quotation pipeline.

Speaker Change: Now, let me turn to our outlook for the remainder of the year.

Speaker Change: We believe it is unlikely that U S rig count and hydraulic fracturing activity will experience a significant increase from current levels.

Neal Lux: As a result, we now expect U.S. rig count to be down 15% on average for the year compared to our initial expectation of a 5% decline. However, the benefits of our VARIPRM acquisition and beat the market strategy should mitigate this offset. With this revised market outlook, we are reducing the top end of our 2024 EBITDA guidance by 10 million.

Speaker Change: As a result, we now expect U S rig count to be down 15% on average for the year compared to our initial expectation of a 5% decrease.

Speaker Change: However, the benefits of our <unk> acquisition and beat the market strategy should mitigate this softness.

Speaker Change: With this revised market outlook.

Speaker Change: We are reducing the top end of our 2020 for EBITDA guidance by $10 million.

Neal Lux: Therefore, our updated range is now 100 to 110 million. We anticipate the third quarter to be relatively on par with the second, with revenue in the range of $200 to $220 million and EBITDA in the range of $24 to $28 million, despite this change in our EBITDA guidance. We have increased confidence in our ability to generate free cash flow. As a result, we have increased our guidance range by 10 million to between 50 and 70 million.

Speaker Change: Therefore, our updated range is now $100 million to $110 million.

Speaker Change: We anticipate the third quarter to be relatively on par with the second.

Speaker Change: With revenue in the range of $200 million to $220 million and EBITDA in the range of $24 million to $28 million.

Speaker Change: Despite this change in our EBITDA guidance.

Speaker Change: We have increased confidence in our ability to generate free cash flow.

Speaker Change: As a result, we have increased our guidance range by $10 million to between 50 and $70 million.

Neal Lux: This reflects the benefit of our capital light business model and operations. I am now going to turn the call over to Lyle for more details on FET's second quarter financial results. Thank you, Neal. Good morning, everyone.

Speaker Change: This reflects the benefit of our capital light business model and operational execution.

Speaker Change: I am now going to turn the call over to Lyle for more details on our second quarter financial results.

Lyle Williams: Thank you Neil good morning, everyone.

Lyle Williams: I will begin my comments by providing more color on our strong cash flow and our balance sheet. We generated free cash flow of $21 million in the second quarter. This represents an 81% EBITDA to free cash flow conversion. A decrease in networking capital driven by inventory management and good collections contributed to the strong free cash flow result. Reductions in inventory have generated significant cash flow so far this year. Our teams continue to drive down inventory by tightening our supply chain. We are reducing the flow of inbound raw materials to match market conditions while still meeting customer demand.

Lyle Williams: I will begin my comments, providing more color on our strong cash flow and our balance sheet.

Lyle Williams: We generated free cash flow of $21 million in the second quarter.

Lyle Williams: This represents an 81% EBITDA to free cash flow conversion.

Lyle Williams: A decrease in net working capital driven by inventory management and good collections contributed to the strong free cash flow results.

Speaker Change: Reductions in inventory have generated significant cash flow so far this year.

Speaker Change: Our teams continue to drive down inventory by tightening our supply chain.

We are reducing the flow of inbound raw material to match market conditions.

Speaker Change: While still meeting customer demand.

Lyle Williams: We have the ability to drive inventory lower, and we'll push for increased inventory turn. Our efforts to achieve more timely collections are also paying off. We have achieved significant improvement in our day sales outstanding since the beginning of 2023. In fact, excluding the impact of Veriperm, our second quarter DSOs decreased by nine days year over year. Net net, we have reduced working capital by $11 million this year, which boosted our free cash flow results. Recall that our prior free cash flow guidance assumed no reduction in networking capital.

Speaker Change: We have the ability to drive inventory lower and we'll push for increased inventory turns.

Speaker Change: Our efforts to achieve more timely collections are also paying off.

Speaker Change: We have achieved significant improvement in our days sales outstanding since the beginning of 2023 in fact, excluding the impact of <unk>, our second quarter Dsos decreased by nine days year over year.

Speaker Change: Net net we have reduced working capital by $11 million this year, which boosted our free cash flow results.

Lyle Williams: With the net working capital reduction already achieved and our plans for the remainder of the year, I want to reiterate the guidance Neal discussed earlier. We are raising our full year free cash flow guidance by $10 million, with working capital benefits driving the overperformance. We ended the quarter with $32 million of cash on hand and $103 million of availability under our revolving credit facility, with total liquidity of $135 million. Our net debt was $225 million.

Speaker Change: With a net working capital reduction already achieved and our plans for the remainder of the year I want to reiterate the guidance Neil discussed earlier, we are raising our full year free cash flow guidance $10 million with working capital benefit driving the over performance.

Speaker Change: We ended.

Speaker Change: Did the quarter with $32 million of cash on hand, and $103 million of availability under our revolving credit facility with total liquidity of $135 million.

Speaker Change: Our net debt was $225 million utilizing annualized first half EBITDA net leverage ratio was two two times a slight improvement from the previous results.

Lyle Williams: Utilizing annualized first half EBITDA, the net leverage ratio was 2.2 times, a slight improvement from the previous result. Last quarter, we laid out a plan to put FET in a position to return cash to shareholders, with the announced $60 million partial redemption of the 2025 notes in August, our current liquidity, and guided free cash flow. We remain on track with this plan. We expect to retire the 2025 notes around the end of this year and the seller note around the middle of next year.

Speaker Change: Last quarter, we laid out a plan to put <unk> in position to return cash to shareholders.

Speaker Change: With the announced 60 million partial redemption of the 2025 notes in August.

Speaker Change: Our current liquidity and guided free cash flow.

Speaker Change: We remain on track with this plan.

Speaker Change: We expect to retire the 2025 notes around the end of this year and the seller note around the middle of next year.

Lyle Williams: With low leverage and a flexible capital structure, we would be in a position to return cash to shareholders through share repurchases or dividends, and this would still leave considerable free cash flow for further reduction of our revolver balance. Strategic Growth Investments, our incremental distribution. We will continue to evaluate refinancing options that could accelerate this plan while we execute in the third and fourth quarters. Now let me provide comments on our segment results. The drilling and completion segment revenue decreased 2%, primarily due to lower sales of ROVs, Cable Management Systems, and Treating Iron.

Speaker Change: With low leverage and a flexible capital structure, we would be in position to return cash to shareholders through share repurchases or dividends.

Speaker Change: And this would still leave considerable free cash flow for further reduction of our revolver balance strategic.

Speaker Change: Strategic growth investments or incremental distributions.

Speaker Change: We will.

Speaker Change: <unk> to evaluate refinancing options that could accelerate this plan, while we execute in the third and fourth quarters.

Lyle Williams: During the quarter, coil tubing revenue increased 24% as the international markets caught up from a slower first quarter. We also saw a 50% increase in frack power and shipment, as we added a new large customer and had an increase in refurbishment work. Lower revenue and a less favorable product mix drove the segment EBITDA decline of 16%. Orders were $110 million, down 6%, with a book-to-bill ratio of 94%

Speaker Change: Now let me provide comments on our segment results the.

Speaker Change: The drilling and completions segment revenue decreased 2%, primarily due to lower sales of Rovs Kate.

Speaker Change: Cable management systems and treating iron.

Speaker Change: During the quarter coiled tubing revenue increased 24% as the international markets caught up from a slower first quarter.

Speaker Change: We also saw a 50% increase in Frac power in shipments as we added a new large customer and had an increase in refurbishment work.

Speaker Change: Lower revenue and less favorable product mix.

Speaker Change: Drove the segment EBITDA decline of 16%.

Orders were $110 million down, 6% with a book to bill ratio of 94% orders for drilling and stimulation related capital equipment were lower during the quarter.

Lyle Williams: Orders for drilling and stimulation related capital equipment were lower during the quarter, partially offset by increased international orders for the coil tubing product. The artificial lift and downhole segment revenue was up 6%. Higher sales in the Middle East for both our casing equipment and valves products drove the growth. Favorable mix in the downhole product line pushed segment EBITDA up by 9% and EBITDA margins up 70 basis points to over 22%. Orders for $70 million, a 20% decrease due to our production equipment product line, where order timing creates swings quarter to quarter. The outlook for production equipment is solid as their backlog remains strong with a year's worth of work in the system.

Speaker Change: Partially offset by increased international orders in the coiled tubing product line.

Speaker Change: The artificial lift and downhole segment revenue was up 6%.

Speaker Change: Higher sales in the middle East for both our casing equipment and valve products drove the growth.

Speaker Change: Favorable mix and the downhole product line pushed segment EBITDA up by 9% and EBITDA margins up 70 basis points to over 22%.

Speaker Change: Orders were $70 million, a 20% decrease due to our production equipment product line, where order timing create swings quarter to quarter.

Speaker Change: The outlook for production equipment as solid as their backlog remains strong with a year's worth of work in the system.

Lyle Williams: Now, let me provide some color on our revenue by geography, given the disparity between activity in the U.S. and international markets. In the second quarter, international revenues grew to 50% of our total revenue compared with 35% just a year ago. This shift is significant given the softness in the U.S. And, as Neal mentioned, our strategy to grow internationally is making progress. In the second quarter, international revenues were up 13%, with the majority of the improvement in the Middle East.

Now let me provide some color on our revenue by geography, given the disparity between activity in the U S and international markets in the second quarter International revenues grew to 50% of our total revenue compared with 35% just a year ago.

This shift is significant given the softness in the U S.

Speaker Change: And as Neil mentioned, our strategy to grow internationally is making progress.

Neil: Second quarter International revenues were up 13% with the majority of the improvement in the Middle East There, we recognize large project shipments of coiled tubing and the valves manufactured in our Saudi Arabian facility.

Lyle Williams: There, we recognize large project shipments of coil tubing and the valves manufactured in our Saudi Arabian facility. Downhole revenues also strengthened with market share gains for casing hardware and artificial lift products. In addition to growth in the Middle East, our Canadian revenues grew slightly in contrast to our expectations of a decline due to spring break-up. These results demonstrate the value of our global footprint in mitigating the softer U.S. market, and the U.S. market has been down this year.

Neil: Downhole revenues also strengthened with market share gains for casing hardware and artificial lift products.

Neil: In addition to growth in the Middle East our Canadian revenues grew slightly in contrast to our expectations of a decline due to spring breakup.

Neil: These results demonstrate the value of our global footprint and mitigating the softer U S market.

And the U S market has been down this year.

Lyle Williams: Our revenue correlates with rig count, so when the U.S. market begins to improve, we should benefit. To wrap up, let me provide a few details for modeling purposes for the third quarter. We anticipate corporate costs and depreciation and amortization expense to be roughly in line with the second quarter. We will see reduced levels of interest expense in future quarters with $13 million of the 2025 notes repurchased in the second quarter and the $60 million redemption in August. For the third quarter, we expect interest expense to be approximately $8 million, or about $700,000 less than the second quarter.

Our revenue correlates with the rig count so when the U S market begins to improve we should benefit.

Neil: To wrap up let me provide a few details for modeling purposes for the third quarter.

Neil: We anticipate corporate costs, and depreciation and amortization expense to be roughly in line with the second quarter.

Neil: We will see reduced levels of interest expense in future quarters with a $13 million of the 2025 notes repurchased in the second quarter and the $60 million redemption in August.

Neil: For the third quarter, we expect interest expense to be approximately $8 million or about 700000 less in the second quarter for the fourth quarter, we should realize an incremental 600000 of benefit from the reduced amount of outstanding 2025 notes.

Lyle Williams: For the fourth quarter, we should realize an incremental $600,000 of benefit from the reduced amount of outstanding 2025 notes. With the retirement of these notes, we will write off the related unamortized debt discount and debt issuance costs. These were roughly $3.5 million at June 30th. The discount originated in 2020 when we issued the notes and recognized a gain based on the fair market value estimated at that time. In the third quarter, we expect a non-recurring charge of approximately $1.8 million associated with the $60 million we were redeemed in August.

Neil: With the retirement of these notes, we will write off the related unamortized debt discount and debt issuance costs.

Neil: These were roughly $3 5 billion at June 30.

Neil: The discount originated in 2020, when we issued the notes and recognized a gain based on the fair market value estimated at that time.

Neil: In the third quarter, we expect a nonrecurring charge of approximately $1 8 million associated with the $60 million, we will redeem in August.

Lyle Williams: Finally, we anticipate income tax expense in the back half of 2024 to be slightly higher than the $6 million reported for the first half of this year. Now, I'll turn the call back to Neal for closing remarks.

Neil: Finally, we anticipate income tax expense in the back half of 2024 to be slightly higher than the 6 million reported for the first half of this year.

Let me turn the call back to Neil for closing remarks, Neil Thank you will.

Neal Lux: Thank you, Lyle. Looking ahead, we expect the U.S. market to remain soft and down from our original estimate earlier this year. However, our outlook for Canada and the international markets remains intact and will help mitigate this additional softening.

Speaker Change: Looking ahead, we expect the U S market to remain soft and down from our original estimate earlier. This year. However, our outlook for Canada, and the international markets remains intact and will help mitigate this additional softness.

Neal Lux: We will continue to execute and deliver financial results that support our long-term strategy. Our focus on cash generation is paying off. We raised our guidance and expect to generate strong free cash flow this year. Our plan remains on track to retire both the 2025 notes and the sellers' term loan around the middle of next year. This will provide greater flexibility and optionality for returning cash to shareholders. To conclude, I would like to thank our global team for their hard work and dedication, especially our Houston area employees impacted by Hurricane Beryl. Despite having limited or no power, cell service, or internet, they found a way to get the job done. Again, thank you. Gigi, please take the first question.

Speaker Change: We will continue to execute and deliver financial results that support our long term strategy.

Speaker Change: Our focus on cash generation is paying off we raised our guidance and expect to generate strong free cash flow this year.

Speaker Change: Our plan remains on track to retire both the 2025 notes and sellers term loan around the middle of next year.

Speaker Change: This will provide greater flexibility and optionality for returning cash to shareholders.

Speaker Change: To conclude I would.

Speaker Change #100: We'd like to thank our global team for their hard work and dedication.

Speaker Change #100: Especially our Houston area employees impacted by Hurricane barrel.

Speaker Change #100: Despite having limited or no power self service or Internet.

Speaker Change #101: I found a way to get the job done.

Speaker Change #101: Again, thank you.

Speaker Change #101: Gigi please take the first question.

Gigi: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Gigi: 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.

Gigi: Please stand by while we compile the Q&A roster. Our first question comes from the line of Dave Storms from Stonegate. Morning, Dave.

Speaker Change #102: Please standby, while we compile the Q&A roster.

Speaker Change #103: Our first question comes from the line of Dave storms from Stonegate.

Dave Storms: Good morning.

Dave Storms: Good morning, Dave.

Dave Storms: Just hoping we could start with cash flow guidance. Great to see it take a step up. Would you help us understand? Take settled, the higher, lower end of that kind. Yeah, maybe I'll start and let Lyle jump in.

Dave Storms: Good morning, just hoping we could start with cash flow guidance, great to see it take a step up.

Speaker Change #104: Could you help us understand just kind of some of the puts and takes that will put you on either the higher and lower end of that guidance range.

Neal Lux: But I think, you know, in general, we were seeing a good conversion of working capital into free cash flow. So our teams are focused on reducing DSOs and really matching the inventory that we're receiving to market demands. I think with the guidance that we laid out for EBITDA, we feel really confident in the free cash flow range that we've provided. Yeah, Dave, and I'll give a little bit of a little bit of detail there.

Speaker Change #105: Yes, maybe I'll start and let <unk> jump in but I think.

Speaker Change #105: In general.

Speaker Change #107: We were seeing a good.

Speaker Change #108: Conversion of working capital and our free cash flow. So our teams are focused on.

Speaker Change #109: Reducing reducing dsos and really matching the inventory that we're receiving to market demand. So I think with the the guidance that we laid out for for EBITDA. We feel we feel really confident in the in the free cash flow range that we provided.

Speaker Change #109: Yes, David I'll give a little bit of a little bit of detail. There. If you think about the key contributors thats going to be maybe a swing plus or minus in EBITDA, given our full year EBITDA range.

Lyle Williams: If you think about the key contributors, that's going to be maybe a swing plus or minus in EBITDA given our full year EBITDA range. And then the free cash flow range is a little bit wider. And that's the flux is going to be plus or minus on working capital that Neal talked about. So if we're closer to the top end of our EBITDA range, I think we'll get a little bit less juice out of the working capital just based on higher accounts receivable.

Speaker Change #110: And then the free cash flow range is a little bit wider and thats. The flux is going to be plus or minus on working capital that Neil talked about so.

Speaker Change #111: If we were closer to the top end of our EBITDA range I think we'll get a little bit less juice out of the working capital just based on higher accounts receivable, but if we're at the bottom and I think we'd get the opposite so kind of net each other out.

Lyle Williams: But if we're at the bottom end, I think we get the opposite. So they'll kind of net each other. And then, I know, you know, there's a lot of anticipation. Is there any more color you can give us on what that may look like?

Speaker Change #112: Understood that's very helpful. Thank you.

Speaker Change #113: I know, there's a lot of anticipation around returning capital to shareholders middle of next year.

Speaker Change #114: Is there any more color you can give us on what that May look like I know you mentioned repurchases or dividends, maybe just any variables that would sway your decision or is that a decision one way or another.

Neal Lux: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host. You know, it's something that we're obviously thinking about a lot. We have some time. But I think to us the key is we are going to return cash to shareholders, something we really want to do. And so we're going to really evaluate all the options and see what makes sense for the long term. So we think it's a commitment that we need to be consistent with, and that's where we want to be as a long... If I could ask one for international... coming out of the first quarter?

Speaker Change #115: It's something that we're.

Speaker Change #116: We're obviously thinking about a lot we have some time.

Speaker Change #116: But I think to us. The key is we are going to return cash to shareholders something we really want to do and so we're going to really evaluate all the options and see what what makes sense.

Speaker Change #116: For long term, so we think it's a commitment.

Speaker Change #116: That we need to be consistent with and that's where we want to be as a long term company.

Speaker Change #117: Understood and if I could ask one for.

Speaker Change #117: For International I.

Speaker Change #119: I know coming out of the first quarter International markets were maybe a little slow it's released their budgets.

Lyle Williams: So that 50%, how much of that may be a catch-up, and how much of that maybe is a really good baseline for that going forward. Yeah, Dave, the 50% of our revenue that's international is really a shift from what was 35% last year. So as we've grown international, we've added veriperm, which is another contributor there, and us is a little softer as a percentage of our revenue. It'

Speaker Change #119: 50% number in <unk>.

Speaker Change #120: How much of that may be a catch up and how much of that maybe.

Speaker Change #120: Maybe it's a really good baseline for background.

Lyle Williams: Also, if you think about the sequential increase, overall international revenues were up 13%. So we do experience some pluses or minuses around project shipments. So we mentioned some of the valves and coil tubing catch up maybe sequentially, but I think very importantly is the market share growth that we've seen outside the U.S., whether that's around our casing hardware business, we mentioned artificial lift products, and some of that incremental frack power in sales that we had were aimed specifically at unconventional plays in Latin America and the Middle East.

Speaker Change #120: Yes, Dave the 50% of our revenue that's international is really a shift from what was 35% last year. So as we've grown international we've added fair Perm, which is another contributor there and U S is a little softer as a percentage of our revenue it's larger.

Speaker Change #121: Also if you think about the sequential increase overall international revenues were up 13%. So there we do experienced some pluses or minuses around project shipments. So we mentioned some of the valves and coil tubing catch up maybe sequentially, but I think very importantly is the market share growth that we've seen.

Speaker Change #121: Seen outside the U S. Whether that's around our casing hardware business, we mentioned artificial lift products.

Speaker Change #121: And some of that incremental Frac power in sales that we had were aimed specifically at unconventional plays in Latin America, and the Middle East. So we've had some market pickup market share gain there as well.

Lyle Williams: So we've had some market pickup, market share gain there as well. If I could ask just one more question, you mentioned you brought on a customer and http://www.forumenergy.com. Yeah, we, you know, for us, you know, our, you know, one of our core values is to remain customer focused. And we look at the markets where we participate. And, you know, we want to find customers where we can solve their problems. And for many of our products. They last longer, and they allow our customers to go deeper.

Speaker Change #121: Yes.

Speaker Change #122: Very helpful and if I could ask just one more question.

Speaker Change #123: You mentioned you brought on a customer and drilling and completion pretty sizable customer just curious as to what the overall customer acquisition environment is like.

Speaker Change #123: Given all the pickup in market share internationally.

Speaker Change #123: Yes.

Speaker Change #123: For us.

Speaker Change #124: One of our core values is remain customer focused and we look at look at the markets, where we participate and we want to find customers, where we can solve their problem and for many of our products.

Speaker Change #124: They last longer they allow our customers to go deeper they reduced their overall opex and so we want to get that value proposition in front of as many customers as possible in markets, where we have good scale and can generate generate more margins I think where we're seeing a kind of a let's call. It.

Neal Lux: They reduced their overall OPEX, and so we want to get that value proposition in front of as many customers as possible in markets where we have good scale and can generate more margins. And I think where we're seeing a kind of a secular trend is the exportation of, let's call it, technology that we've utilized in unconventional resources in the U.S., exporting that technology overseas. We've seen it in coil tubing, we've seen it in stimulation intervention, we've seen it in other drilling, and so that's where we're able to take advantage, because we've helped this industry grow.

Speaker Change #124: At a secular trend is the exportation of kind of let's call. It technology that we've utilized in unconventional resources in the U S. Exporting that technology overseas, we have seen in coiled tubing, we've seen in stimulation and intervention we've seen it in other drilling and so that's where we're able to take advantage of.

Speaker Change #124: As we've helped this industry.

Neal Lux: The productivity gains this industry has achieved come from products that we provide. We've seen that productivity in the U.S., and we're helping grow that productivity internationally with the same. Thank you for taking my questions and good luck in the third quarter.

Speaker Change #124: The productivity gains this industry has achieved come from products that we provide.

We've seen that productivity in the U S and we're helping grow that productivity internationally with those that same technology.

Speaker Change #125: That's all very helpful. Thank you for taking my questions and good luck on the third quarter. Thank.

Speaker Change #126: Thank you Dave.

Speaker Change #127: Thank you.

Dave Storms: Thank you. Our next question comes from the line of Dan Pickering from Pickering Energy Partners. Morning, gentlemen. Morning, Dan.

Speaker Change #127: Our next question comes from the line of Dan Pickering from Pickering Energy partners.

Dan Pickering: Good morning, gentlemen.

Speaker Change #128: Hey, Dan.

Dan Pickering: Canada. Impressive performance there. I want to make sure I heard flat quarter to quarter for Canada revenues overall, and I also think I heard flat veriperm quarter to quarter revenues. Is that, is that right? that Canada was 5% up. So I think what we wanted to say was our casing hardware and artificial lift solution. We grew our share there a little bit, so about 5%, but their firm was essentially flat quarter to quarter. Okay. But obviously, you know, spring break is coming up.

Speaker Change #128: Canada.

Dan Pickering: Impressive performance there I want to make sure I heard I think I heard flat quarter to quarter for Canada revenues overall, and I also think I heard flat <unk> quarter to quarter revenues does that is that right.

Speaker Change #129: Canada was 5% up.

Speaker Change #130: So I think what we wanted to say is our casing hardware and artificial lift solutions. We grew our share there a little bit so about 5%, but their perm was essentially flat quarter to quarter. Okay.

Speaker Change #129: Obviously.

Speaker Change #129: Spring breakup.

Neal Lux: Right, right. And that certainly caught my eye because it's a pretty substantial difference relative to, you know, kind of your thought, it could be down as much as half. Is there, was there a customer win?

Speaker Change #129: Right right.

Yes, certainly caught my eye, because it's a pretty substantial difference relative to kind of your thought it could be down as much as half is there.

Speaker Change #131: Is there.

Dan Pickering: Was it just a steadier business than you expected? What's the secret, or is it just getting to know Veriperm and the volatility in that business? And I was surprised.

Speaker Change #132: Is there a customer when was it just steadier business than you expected, what's the where is it just getting to know their permit and the volatility in that business.

Speaker Change #132: Is there a little bit.

Neal Lux: I think the study is part of it. The other part is the share we gain by utilizing bare perms. Contacts Distribution Network, I mean, that team up there has done a fantastic job with their customer base and, They've opened a lot of doors for us. And again, we're early on in that revenue synergies, but we're excited about it. Yeah, that's, that's awesome.

Speaker Change #132: I think the steady as part of it the other the other part is the share we gained by by utilizing.

Speaker Change #132: For context distribution network I mean, they that team up there has done a fantastic job with their customer base and.

Speaker Change #132: They've opened a lot of doors for us and again.

Speaker Change #132: Early on in that revenue synergies, but we're excited about that potential.

Dan Pickering: Earlier in the year, you talked about the second half being stronger for their perm oil sands activity, et cetera. Is that still the outlook? Is there any update given, you know, the fluctuations we've seen in crude prices? We don't really see a change in that outlook. It's something we'll monitor. I think with those projects there and the drilling schedule, could something shift from Q4 into Q1? I think that's possible. But right now, there is really no change in our outlook for oil sands. Okay, so the second half was better than the first half, and the first half here was a little bit better than you thought.

Speaker Change #132: Yes.

Speaker Change #132: Awesome.

Speaker Change #134: Earlier in the year you talked about.

Sort of second half being stronger for near term oil sands activity et cetera is that still the outlook is there any update given.

Speaker Change #135: The fluctuations we've seen in crude price.

Speaker Change #136: We don't really see a change in that outlook, it's something we'll monitor I think with those big those projects there in the drilling schedule could consulting shift from.

From Q4 into Q1, I think that's possible, but right now really no no change in our outlook for for oil Sands development.

Speaker Change #136: Okay.

Speaker Change #137: Half better than first half and in the first half here, it's been a little bit better than you thought.

Speaker Change #138: Correct correct.

Neal Lux: Correct. Good. That's a nice start for that acquisition. I wanted to shift over, if we could, to the balance sheet. And so Lyle, I think I heard you saying, can you just walk us through the note redemption process? We know it's 60 million bucks. You've said August several times. Is there a specific date here?

Speaker Change #139: That's a nice start for that acquisition.

Speaker Change #140: I wanted to shift over if we could keep the balance sheet and so while I think I heard you, saying whats can you just walk us through the note redemption process it.

Speaker Change #141: We know that 60 million Bucks you said August several times in their specific date here.

Dan Pickering: And then how do we fund that? Do we fund it? Do we pull cash balances down a little bit more? Do we bump the revolver up? How do you see, you know, kind of processing that, that, that pain?

Speaker Change #142: And then how how do we fund that and we funded that we pull cash balance is down a little bit more than we thought the revolver.

Speaker Change #143: How do you see kind of processing that debt paydown.

Lyle Williams: Thanks for the question, Dan. Basically, we're a little bit ahead of our process in that we did retire, we did redeem, or buyback, sorry, $13 million worth of notes in the second quarter and did that with cash on hand and a revolver. The $60 million specifically in mid-August, our indenture of the notes requires a 30-day notice period to redeem notes.

Speaker Change #144: Thanks, Thanks for the question Dan.

Speaker Change #145: Basically we are a little bit ahead of our processing that we did retire we did redeem or buybacks for $13 million worth of notes in the second quarter did that with cash on hand, and our revolver. The 60 million specifically in mid August.

Speaker Change #145: Our indenture of the nodes requires a 30 day notice period to redeem notes.

Lyle Williams: So on July 17th, we issued that redemption notice for $60 million. We'll redeem those on August 16th for that first $60 million. When we think about where the funding is going to come from for that, it's going to come a little bit out of cash flow in the third quarter and a little bit with an addition to our revolver. Importantly, we ended the second quarter with $135 million of total liquidity, and that's cash plus the availability of our revolver.

Speaker Change #145: So on July 17th we issued that redemption notice for $60 million will redeem those in August on August 16th for that other 60 that first $60 million. When we think about where the funding is going to come from that is going to come a little bit out of cash flow in the third quarter and a little bit.

Speaker Change #145: With addition onto our revolver and importantly, we ended the second quarter with $135 million of total liquidity and Thats cash plus availability of our revolver. So we've got a lot of dry powder, there and be able to redeem those notes with that.

Lyle Williams: So we've got a lot of dry powder there and will be able to redeem those notes with that. Do a similar process in the fourth quarter to get the rest of those 25 notes redeemed by the end of the year. And Lyle, is there a similar process?

Speaker Change #145: Do a similar process in the fourth quarter to get the reverse the rest of those 25 notes redeemed by the end of the year.

Speaker Change #145: And while is there a similar.

Dan Pickering: You've got a redemption notice process. So, you know, you issued a press release saying, hey, we're going to redeem the remainder. And so will it follow the same? We'll follow the same process. We'll see something in October, November, and that redemption that would fall 30 days later. It would, Dan.

Speaker Change #145: Can notice process so.

Speaker Change #146: You issued a press release, saying, Hey, we're going to redeem the remainder and so we'll follow the same we'll follow the same process, we'll see something in October and November in net redemption that would follow 30 days later.

Speaker Change #146: It would then that would be the similar process.

Lyle Williams: That would be the similar process. Okay, good. That's helpful. And then my last question, and this is one more focused on operations, your valve business, you know, you had a nice bump. Can you talk a little bit about that?

Speaker Change #146: Okay.

Speaker Change #147: Okay. That's helpful.

Speaker Change #147: And then.

Speaker Change #149: One last question and it's.

Speaker Change #150: We're more focused on operations your valve business you had a nice Bob can you talk a little bit was that is that a restocking by distributors.

Dan Pickering: Is that a restocking by distributors? Was it this, or was it Middle East growth that drove that? I'm just curious if we're seeing a change in business dynamics. Yeah, I'd say.

Speaker Change #150: Is it the middle east growth that that drove that I'm. Just curious if we're seeing any change and business dynamics.

Speaker Change #151: Yes, I'd say.

Lyle Williams: No change in business dynamics, no restocking by distributors, this is more product deliveries in both the U.S. and the U.S. Pleased with the kind of trend we're seeing in Saudi, I think it's gone well. We'll keep that up, but no real change in the valves. Okay, thanks.

No no change in business dynamics, no restocking, but by distributors. This is more project deliveries in both the U S and in Arabia. So.

Speaker Change #152: Pleased with the kind of trend were seeing in Saudi I think it's gone well.

Speaker Change #152: And so we will keep that up but no no real change in the valves industry dynamics there.

Dan Pickering: And I said it was my last question, but every other quarter, I asked you about the environment for, you know, bolt-on acquisitions and opportunities. You know, Veriperm, obviously, you're early in that process still, but things seem to be going well. What's the, what's the overall environment for things like, you know, another Variperm or opportunities? And, as you're answering that question, I guess North America is sloppy right now. Would you stay away from North American exposure?

Speaker Change #153: Thanks, and I said it was my last question I do have one more kind of every other quarter.

Speaker Change #154: Ask you about the.

Speaker Change #154: The environment for bolt on acquisitions and opportunities there.

Speaker Change #155: Obviously, you're early in that process still but.

Speaker Change #156: Things seem to be going well whats the whats the overall environment for us.

Speaker Change #156: Things like another their perm, our opportunities and and as you're answering that question I guess, North American sloppy right now would you stay away from North American exposure or.

Neal Lux: Or, you know, do you think about North America as an opportunity? No, good. I think, you know, obviously, Veriperm for us was a home run, right?

Speaker Change #157: Do you think about do you think about North America as an opportunity.

Yeah no. Good so I think obviously very <unk> for us was a homerun right value margin.

Neal Lux: Value margin. I'd love to find another one, but those will be hard to find; we'll continue to look. I think that the overall environment, though, there are opportunities out there, I think activity is robust, the deals seem to be getting done, and with our kind of breadth of product lines and our geography diversity, we can kind of hit both the U.S. and international markets. We're not running away from the U.S. You know, I think, ideally, I would want to find a business that would have both a U.S. and an international presence.

Speaker Change #157: I'd love to find another one of those those will be hard part aside we will continue to look I think that the overall environment. Though there are there are there are opportunities out there I think activity.

As robust the deal seem to be getting done and with our kind of breadth of product lines and our geography diversity.

We can kind of hit both the U S and international we're not running away from the U S.

Speaker Change #157: I think ideally we'd want to find a business that would have both the U S and in international presence.

Speaker Change #157: So we will continue to look for that but.

Neal Lux: And so we'll continue to look for that. But really, our criteria, though, is we want to find strong industrial logic, you know, where it fits in our portfolio. And we're going to be conservative with the leverage on our balance. Thanks much.

Speaker Change #157: Really our criteria those we want to we want to find the strong industrial logic, where it fits in our portfolio and we're going to be conservative with the leverage on our balance sheet.

Speaker Change #157: Going forward.

Speaker Change #157: Okay.

Speaker Change #157: Thanks, so much.

Dan Pickering: Well done. Thank you, Dan. Thank you. Our next question comes from the line of Jeff Robertson from Water Tower Research. Thank you. Good morning.

Dan Pickering: Thank you Dan.

Speaker Change #158: Thank you. Our next question comes from the line of Jeff Robertson from water Tower research.

Jeff Robertson: Neal, you spoke a little bit about revenue per rig. And I'm wondering, both between the US and international markets, whether you see further gains in the type of sales mix that will offset the weakness you see in the rig count. And then, secondly, are those gains pretty sticky if you start to see some sort of improvement in the rig count in 2025? Yeah, good, good question.

Jeff Robertson: Thanks, Good morning.

Jeff Robertson: Neil you spoke a little bit about revenue per rig and I'm wondering if you can talk both.

Jeff Robertson: Between the U S and in international markets.

Speaker Change #159: Where do you see further gains in the type of sales mix that will offset the weakness you see in the rig count and then secondly are those gains are pretty sticky if you start to see some sort of improvement in rig count in 2025.

Neal Lux: So yeah, I think in the US, we have, you know, methodically increased our revenue, let's call it US revenue per US rig. If we were to estimate, we're probably up 4% or so year-over-year, and that would truly, I think on the, you know, with about 75% of our sales being activity-based driven. And you know, my experience, our experience with the business we have is that once you get in with that customer and you deliver, you do have some stickiness, right? And you understand their needs, what they value, and you can have the product ready for them, and you can deliver on time. And those are really key points.

Speaker Change #159: Yes. Good good question, so, yes, I think in the in the.

Speaker Change #159: The U S. We have methodically increased our revenue, let's call. It U S revenue per U S rig.

Speaker Change #159: If we were to estimate we're probably up up 4% or so year over year and that would truly be be market share gains I think on the with about 75% of our sales being activity base driven.

Speaker Change #159: <unk>.

My experience our experience with the business we have that once you you get in with that customer and you deliver you do have some stickiness right and you understand their needs what they value and.

Speaker Change #159: And you can have the product ready for them and you can deliver on time and those are really key key point so yes.

Jeff Robertson: So, yeah, I think our expectation and Jeff Williams, Jeff Kukla, Neal Lux, Forum Energy Technologies Inc. Neal, are some of those gains driven by the service providers wanting FETs products, or is it a mix of that plus? The EMP operator or the well owner saying if you're going to drill our well, we want these types of products on site for that FET supply. Yeah, I think it's a good combination of

Speaker Change #159: Our expectation and the.

Speaker Change #159: The challenge, we're going to put to our teams is not only do we need to hold those customers, we do need to grow grow it as the market rebounds.

Speaker Change #159: Some of those gains driven by the service providers wanting.

Speaker Change #159: These products or is it a mix of that plus.

Speaker Change #159: The E&P, operator, or the well one we're saying if you're going to drill a well we want these types of products on site.

Speaker Change #159: <unk> supplies.

Speaker Change #159: Yes.

Speaker Change #160: I think it's a good combination of both so we do see pull through.

Neal Lux: So we do see pull through, you know, from the E&P to the service company for certain products we have that help the service company increase their productivity. We also, you know, about half of our sales are directly to E&P operators already, so we're able to put that value proposition directly to them. So a combination of both, you know, our strategies, we want to differentiate; we want to deliver technology and solutions that make our customers more efficient.

Speaker Change #160: From the E&P to the service company for certain products, we have that that helped the service company increase their productivity. We also about half of our sales are directly to E&P operators already so we're able to put that value proposition directly to them. So combination combination.

Speaker Change #160: Both are our strategies, we want it we want to differentiate we want to deliver technology and solutions that make our customers more efficient so the.

The better we are at.

Neal Lux: The better we are at laying out that value proposition, the more often we're going to we're going to grow that. On renewables or energy transition, you mentioned power generation as a potential new revenue opportunity in your Jumbotron XL system. Is that because you're seeing requests for bids and people doing fabrication studies? Or are you actually starting to see orders for products to build out these types of systems around the world?

Speaker Change #160: Laying out that value proposition.

Speaker Change #160: More often we're going to we're going to we're going to grow that share.

Speaker Change #161: On renewables or energy transition, you mentioned power generation as a potential new <unk>.

Speaker Change #160: Revenue opportunity.

Speaker Change #160: <unk> XL systems.

Speaker Change #162: Is that because we're seeing requests for bids.

Speaker Change #163: People do in fabrication studies or are you actually starting to see orders for products.

Speaker Change #164: So build out these types of systems around the world.

Neal Lux: Yes, so we have delivered these sales already, you know, last year and this year, but what's exciting to us is the pipeline does seem to be, you know, expanding really rapidly, and I think, just as maybe more of an industry comment, that as these data centers are being built out. And, you know, there just seems to be a lot of concern about where the power is going to come from. So we're seeing more of that, call it mobile power generation being utilized, different applications, so we're seeing that bid activity directly, and we've seen a really big spike. Again, these projects do take time.

Speaker Change #164: So we have delivered deliver these.

Speaker Change #164: Sales already.

Speaker Change #164: Last year and this year, but what's exciting to US is the pipeline does seem to be expanding really rapidly.

Speaker Change #164: And I think.

Speaker Change #164: Just as a maybe more of a industry comment that as as these data centers are being built out.

And there just seems to be a lot of concern about where the powergen have come from so we're seeing more of that.

Let's call it mobile power Gen.

Speaker Change #164: Being utilized in different different application so.

Speaker Change #164: We're seeing that bid activity directly and we've seen a really big Spike again. These are these projects do take time, but we see that as a as a long term growth driver for us.

Jeff Robertson: We see that as long-term growth. Pardon me, and then to follow on that, do those types of projects create aftermarket business through the servicing and replacement cycle? They do. You know, our, you know, our, our units are really robust. So they do last a long time.

Pardon me and then to follow on that do those types of projects.

Speaker Change #164: Aftermarket business through servicing and replacement cycles.

Speaker Change #164: They do.

Speaker Change #164: Sure.

Speaker Change #164: Our units are really robust so they do they do last a long time and so I think it's a longer service cycle for.

Neal Lux: And so I think it's a longer service cycle for us. But once that unit's in place, it'll run for a decade, and so we'll have a tale to that, it'll start, a couple of years before we see any aftermarket from it. Once that's installed, we have a long tail.

Speaker Change #164: But once that that units in place it will run for.

Speaker Change #164: A decade, and so we will have.

Speaker Change #164: A tail to that.

Speaker Change #164: It'll start to it will be a couple of years before we see any any aftermarket from it but once that once that's installed we got to wait a long tail there.

Jeff Robertson: And then a last question on the Middle East and your revenue growth in the second quarter. Are you seeing projects or big, big-scale projects that you see that continuing, not necessarily the quarterly growth, but are you seeing continued exposure for increased sales as you look out into 2025 and maybe even 2026? Yeah, I was actually just sitting with one of our Middle East sales leaders yesterday, talking with him.

Speaker Change #164: Yes.

Speaker Change #165: And then a last question on the Middle East and your revenue growth.

The second quarter.

Speaker Change #166: Are you seeing projects are big big scale projects that you'll see that continuing in not necessarily the quarterly growth, but are you seeing continued operate exposure for increased sales as you look out into 2025, maybe even 2026.

Yes, Yes, I was actually just just sitting with.

One of our middle East sales leaders yesterday in.

Speaker Change #166: Talking with him and see he sees a good a good pipeline and I agree in the 25 really know.

Jeff Robertson: See, he sees a good pipeline and I agree in the in the 25 really know, no change to the trend, and so we'll benefit from that, and I still think there's a lot of opportunity there for us to keep exporting not only unconventional technology but our downhole. And just on margins, Neal or Lyle had 12 and a half to 13% margins in the first two quarters of this year.

Speaker Change #166: No change to the trend and so we will continue to benefit from that and I still think theres a lot of opportunity there for us to again keep export in not only the unconventional technology, but our downhole, our downhole technology as well.

Neal: And then just on margins Neal <unk> with the 12, 5% to 13% margins in the first two quarters of this year.

Jeff Robertson: Do you think the product mix, as you think about 2025, will be similar to 2024? Can it lead to similar-type margins, or do you think there's room for expansion? Yeah, I'll work on that one, Jeff. If you look at our overall margins, they've been relatively flat post the acquisition and integration of Veriperm, which gave us a really nice boost. And you mentioned mix, but clearly, in my comments, we talked a lot about mix being the driver.

Neal: Do you think the product mix as you think about 2025 will be similar to 2024.

Neal: Can lead to similar type margins or do you think there is room for expansion.

Lyle Williams: And so that is something that we're looking at. I think where we can control mix and influence mix is with our market share gains that we have. So take, for example, Artificial Lift and Downhole sequentially.

Neal: Yes.

Neal: I'll work on that one Jeff.

Speaker Change #167: If you look at our overall margins they've been relatively flat post the acquisition close to the integration of <unk>, which gave us a really nice boost and you mentioned mix, but clearly in my comments, we've talked a lot about mix being the driver.

Speaker Change #168: And so that is something that we're looking at I think where we can control mix and influence mix is with our market share gains that we have.

Lyle Williams: Incremental EBITDA margins were about 37%. We talked a little bit earlier about Veriperm. Their revenue was down just slightly, so call it roughly flat, but their overall profitability was up, quarter and quarter. We also talked about our other downhole products being stronger. Those come at a nice healthy margin, offset a little bit by softer margins with valves.

Speaker Change #168: So take for example, artificial lift and downhole sequentially incremental EBITDA margins were about 37%.

Speaker Change #169: <unk> talked a little bit earlier about ferro Perm their revenue was down just slightly so call it roughly flat, but their overall profitability was up quarter on quarter. We also talked about our other downhole products being stronger those come at a nice healthy margin offset a little bit by softer margin.

Lyle Williams: So as we continue to grow a downhole product line with share gains, I think that will be a boost and a tailwind to our margins. The other tailwind that would come is operating leverage. So our revenues have been decently flat with market activity coming down, but if we get that turn and we can see a run-up in revenues, we could benefit, and our margins will benefit from operating leverage as well. So a couple of levers that would make those go higher in the future. Thank you very much.

With valves. So as we continue to grow downhole product line with share gains I think that will be a boost in a tailwind to our margins. The other tailwind that would come is through operating leverage. So our revenues have been decently flat with market activity coming down, but if we get that turn in.

Speaker Change #169: We can see a run up in revenues, we could benefit our margins will benefit from operating leverage as well. So a couple of levers that would make those go higher in the future.

Thank you very much.

Jeff Robertson: Thank you, Jeff. Thank you. One moment for our next question. Our next question comes from the line of Eric Carlson. Hey, guys, morning. Morning, Eric. Hi, Eric.

Speaker Change #169: Thank you Jeff Thanks, Jeff.

Speaker Change #170: Thank you one moment for our next question.

Speaker Change #170: Our next question comes from the line of Eric Carlson.

Eric Carlson: Hey, guys good morning.

Eric Carlson: Eric Hi, Eric.

Eric Carlson: Another great quarter. I mean, it's hard to complain when you can almost generate 25% of your market cap in cash over a whole year, which I think the international markets are probably a little bit underappreciated by the market currently, but maybe just a little bit more on Canada. And when you think about activity there, I think it's not like Baker Hughes has 144 oil specific rigs currently, which is, I mean, maybe 20 plus percent above last year. And could you maybe just share a little bit about what you think about Canadian activity? Obviously, it is.

Eric Carlson: Another great quarter, I mean, it's hard to complain when you can almost generate 25% of your market cap in cash.

Speaker Change #171: Full year, which I think the international markets are probably a little bit underappreciated.

Speaker Change #172: By the market currently, but maybe just a little bit more on Canada, and when do you think about activity there.

Speaker Change #173: Baker Hughes is 144 oil specific rig currently Richard.

Speaker Change #174: I mean, maybe 20 plus percent above last year could you maybe just share a little bit when you think about Canadian activity obviously.

Neal Lux: Am I correct in thinking that being more oil weighted is a benefit to Barrow-Broom specifically? Yes. Yeah, absolutely. There's a certain percentage of those rigs that you mentioned that work in the oil sands, and so it's the timing of those wells that are being drilled, and so I think, you know, bare firm, when we did the acquisition, we felt we had a long-term run rate there, not just keep using their product. And then maybe the other part of that is, newer wells today typically have longer laterals and require more units of veraperm product per well, so I think that's another secular trend that we're pleased to see. So yeah, more oil rigs in Canada should absolutely help veraperm. Great

Speaker Change #173: Yes.

Speaker Change #175: Am I correct in thinking that being more oil weighted is a benefit.

Bear: Bear brand specifically.

Speaker Change #176: Yes, yes, absolutely.

Speaker Change #178: Theres a certain percentage of those rigs that you mentioned that work in the.

Speaker Change #178: In the oil sands and so it's.

Speaker Change #179: It's timing of those of those.

Speaker Change #179: Wells that are being drilled and so I think.

Speaker Change #179: Their firm.

Speaker Change #179: When we did the did the acquisition we felt had a long term run rate there.

Speaker Change #179: Not only with new projects, but.

Speaker Change #179: The.

Speaker Change #179: Fields would be lets call. It infill drilled just to keep up with the decline rate just to stay flat they would need to keep keep utilizing their product and then the other maybe other part of that is the newer wells today typically have longer laterals and require more more more units of their firm product.

Speaker Change #179: Per well, so I think that that's another secular trend that we're pleased to see so you have more oil rigs in Canada should should absolutely held their firm.

Eric Carlson: And then maybe just on that longer lateral comment, in the industry broadly, I mean, obviously, when you think about kind of the business lines you have, If you listen to any of the E&P calls, you hear basically longer laterals, more... David Storms, Rob Kukla, Neal Lux, Forum Energy Technologies Inc., building a product mix for the future as technology continues to improve. I mean, do you think about how we benefit from more stages complete or call it lateral miles drilled or whatever that may be and focus less on kind of the pure rig count number?

Speaker Change #179: Great and then maybe just on the longer lateral comment.

Speaker Change #180: The industry broadly I mean, obviously when.

Speaker Change #181: When you think about kind of the business lines you have.

Speaker Change #181: If you listen to any of the E&P calls.

Speaker Change #181: You hear basically longer laterals.

Speaker Change #181: More.

Speaker Change #181: Stages completed per day, and when you think about like a four mile lateral versus a two mile lateral obviously, you need less rigs to complete that work with the intensity of those rigs and the materials are there. So when you think about the.

Speaker Change #181: Building product mix for the future as technology continues to improve.

Speaker Change #181: Do you think about how do we benefit from more stages complete or.

Speaker Change #181: Paul it lateral miles drilled or whatever that may be.

If less on kind of the pure rig count number.

Eric Carlson: Can you just provide some thoughts around that? Yeah, no, that's, you hit right on the kind of trends that we see. I think, you know, we generally refer to RIG because it's published weekly. It's something, you know, everyone has access to.

Speaker Change #182: Provide some thoughts around that.

Paul: Yeah no that's.

Speaker Change #184: You hit right on the kind of the trends that we see I think we generally refer to rig because it's published weekly it's something everyone has access to.

Neal Lux: You know, we internally track, you know, we track stages, we track wells. There's a little bit of a lag in the data, so it makes it hard to be forward looking.

We internally track, we track stages, we track well, there's a little bit of a lag in the data. So it makes it makes it hard to be forward looking but.

Neal Lux: But we all know, our focus, you know, is, you know, really the service intensity. So, as you made a mention of longer laterals, so that would be the lateral gets longer, the coil tubing string is longer, so that's more revenue per string. The wire line string is longer, so that's more revenue per cable.

Speaker Change #184: But we all our focus is is really the service intensity. So.

Speaker Change #184: As you may.

Speaker Change #184: Made mention of longer lateral so that would be the lateral gets longer.

Oil tubing string is longer so that's more revenue per string the wireline string is longer so that's more more revenue per cable.

Neal Lux: As you pump more stages per day, you're going to wear out your power ends, you're going to wear out your flexible hoses more quickly this year than you did the year before. So you're going to see increased replacement cycles. So all that will benefit us. So yeah, you're right, recount maybe isn't the best view of our business.

Speaker Change #185: As you pump more stages per day, youre going to wear out your power and youre going to wear out your flexible hoses more quickly.

Speaker Change #185: This year than you did the year before so you're going to see increased replacement side.

Speaker Change #185: Cycle, so all of that will will benefit.

Eric Carlson: But over time, we're going to increase our red, our US revenue per US rig, you know. I think we have, you know, we said about 4% or so already, and we'll continue to improve on that as time goes on. And then maybe you can just share a little bit more info on kind of the Middle East specifically. Obviously, you see a lot of unconventional gas announcements and listen to kind of the other service providers they expect to deliver rigs into the Middle East.

Speaker Change #185: We will benefit us so, yes, youre right rig count maybe.

Speaker Change #185: Isn't the best.

Speaker Change #185: View of our business, but over time, we're going to increase our <unk> our U S revenue per U S rig and I think we have.

Speaker Change #185: Have we said about 4% or so already and will continue to improve on that as time goes forward.

Speaker Change #185: Great.

Speaker Change #186: Maybe if you could share a little bit more.

Speaker Change #187: Info on kind of the middle East, specifically, obviously, you see a lot of unconventional.

Speaker Change #187: Gas announcements and looking into kind of the other service providers that can deliver rig into the middle East and maybe just.

Eric Carlson: And maybe just, I don't know, like what the market opportunity there is. And I even saw the announcement, I think there was a post somewhere where you guys kind of are going to manufacture the radiators within the Saudi Arabian facility now. Maybe correct me if I'm wrong, but just can you provide some context to the market opportunity there? I mean, obviously, numbers are way above pre-COVID, so you guys are kind of executing there, but does that become, I mean, is that probably the biggest growth potential, and then all incremental U.S. activity just becomes a ton of torque to the upside?

Speaker Change #188: I don't know.

Speaker Change #188: B.

The market opportunity, there and I, even saw like the announcement I think there was a post somewhere where you guys kind.

Speaker Change #188: No.

Speaker Change #188: Going to manufacture the radiators within.

Speaker Change #189: Saudi Arabian facility amount, maybe correct me if I'm wrong.

Speaker Change #190: Can you provide some context for that.

Market opportunity there I mean, obviously, a number that are way above.

Speaker Change #191: So you guys are kind of executing there, but does that become.

Speaker Change #192: Is that problem.

Speaker Change #193: Hey, good growth potential in them all incremental U S activity that becomes upon a part to the upside or how do you I mean, I guess, how do you think about the product mix geographic going forward.

Eric Carlson: Or how do you, I mean, I guess, how do you think about the product mix geographically going forward? Yeah, I think your last comment there was really spot on, that we do see, let's say, long-term growth in the Middle East. If the U.S. were to return to, let's call it, more normal levels, we would see a ton of torque. You know, historically, the internet or the Middle East was maybe less service intensive.

Speaker Change #194: Yes, I think your last last comment there is really spot on that we do see let's say long term growth in the middle East if the U S.

Speaker Change #194: Where to return the U S were to return back to let's call. It more normal levels, we would see a ton of torque.

Speaker Change #194: Historically.

Speaker Change #195: Internet or middle East was maybe less service intensive so you didn't see the.

Speaker Change #195: Types of sales per rig that maybe you would see in the United States.

Eric Carlson: So you didn't see the types of sales per rig that maybe you would see in the United States. However, that is changing, and that's, you mentioned our radiator manufacturing that we're looking to conduct. We are conducting drilling in Saudi. They are starting to drill unconventional wells in a big way. That's going to use a lot of coils, it's going to use a lot of wire lines, it's going to consume a lot of power ends, and they're going to require new radiators to, you know, the newest types of radiators for their factories.

Speaker Change #195: However that is that is changing and that's you.

Speaker Change #195: You mentioned, our radiator manufacturing that where we're looking to conduct we are conducting an in Saudi they.

Speaker Change #195: You are starting to drill unconventional wells in a big way thats going to use a lot of coil can use a lot of wireline.

Speaker Change #195: To consume a lot of power ends and theyre going to require new radiator's to the newest types of radiators for their for their frac fleets there.

Neal Lux: Eric, we are very bullish about the Middle East. We're also bullish about the offshore markets in our subsea business. So, if you think about that business, and one of the big drivers that everyone watches is subsea wallheads or subsea tree orders, and subsea tree orders have been up and strong. As we mentioned last quarter, we're seeing higher and higher utilization of the existing ROV fleets, which is a big driver for us initially, that's driving spare parts.

Speaker Change #195: So Eric we are we are.

Speaker Change #196: <unk> about the Middle East. We're also bullish about the offshore markets in our subsea business. So if you think about that business and one of the big drivers that everyone watches as subs.

Subsea wellheads or subsea tree orders in subsea tree orders have been up in strong we mentioned last quarter, we're seeing higher and higher utilization of the existing rovs fleets, which is a big driver for US initially that's driving spare parts.

Neal Lux: Our pipeline of new inquiries for incremental ROVs to add to our customers' fleets is meaningful. So, we're excited about that, as well as opportunities in the defense sector. So, while we do see a lot of excitement around the Middle East, we also see opportunities coming on the subsea side as well into next year.

Speaker Change #196: <unk> of new inquiries for incremental rovs to add to our customers' fleets as meaningful. So we're excited about that as well as opportunities in the defense sector. So while we do see a lot of excitement around the middle East We also see.

Speaker Change #196: Opportunities coming on the subsea side as well into next year.

Eric Carlson: Okay, great. That's all very helpful, and I guess this is my last question: increase free cash flow per share or the ability to pay dividends per share without increasing the cash outlay. That's great. But at the current valuation, I would pound the table on buying package shares. And if that reduces liquidity or whatever it may be, it's kind of irrelevant from a long-term shareholder standpoint. So I just kind of like your internal comments on where the kind of valuations fit relative to peers. I mean, obviously, this is hypothetical because you can't do it at this point in time.

Speaker Change #197: Okay great.

Speaker Change #198: That's all very helpful. And then I guess this is my last.

Speaker Change #198: Question Slash.

Speaker Change #200: Slash comment and just kind of wanted your thoughts.

Speaker Change #201: We're a little bit a ways away, but getting closer and when you think about kind of the potential to return capital I guess I would just encourage you if youre trading at a 25% free cash flow yield and a 50% discount to your peers on a EBITDA multiple basis.

Speaker Change #201: To put every dollar possible buying shares now obviously, if the market repriced with your dividends are great and then using share repurchases.

Speaker Change #202: Either increase free cash flow per share or the ability to pay dividend per share without increasing the cash outlay, that's great, but at current valuation I would pile on the table on buying back your shares.

Speaker Change #202: If that reduces liquidity or whatever it may be.

Speaker Change #203: It's kind of irrelevant from a long term shareholder standpoint, so just kind of like their.

Speaker Change #203: Internal comment, but we're kind of.

Valuations in that realm.

Speaker Change #203: Relative to peers.

Speaker Change #203: Obviously this is hypothetical because you can't do it at this point in time, but if you can return capital to shareholders.

Speaker Change #205: Like what are you guys have thoughts once you get to that point.

Lyle Williams: But if you could return capital to shareholders, what are your guys' thoughts once you get to that point? Eric, great question. And as Neal mentioned earlier, we're working through that process, but we see the same thing that you do. With the free cash flow yield that we have, it's tremendous. There are not many companies that have that as an opportunity, and part of that is because our multiple, our valuation on a multiple basis, is less than a lot of similarly situated companies.

Eric Carlson: Eric Great question, and as Neil mentioned earlier, we're working through that process, but we see the same thing that you do with with our free cash flow yield that we have is tremendous theres not many companies that have that as an opportunity.

Speaker Change #206: And our and part of that is because our multiple our valuation on a multiple basis is less than a lot of similarly situated companies. So.

Lyle Williams: So I think either way, either that multiple recovers, and we're pleased with that, or we have an opportunity to retire shares, buy back shares that would be really strong. So things that we would definitely look at, like you mentioned. We'll come up with that plan and share that when we get closer. Great. Oh, great quarter! Thank you. I appreciate you taking the time to answer the question. Thanks, Eric. Thank you, Eric. Thank you. At this time, I would now like to turn the conference back over to Neal Lux for closing remarks.

Speaker Change #207: Either way either that multiple recovers and we're pleased with that <unk>, we have an opportunity to retire shares buy back shares that would be really strong. So things that we would definitely look at it like you mentioned, we will come up with that plan and share that when we get closer.

Speaker Change #206: Great.

Speaker Change #208: Great quarter. Thank you I appreciate you taking the questions.

Speaker Change #208: Thanks, Darren Thank you Eric.

Thank you at this time I would now like to turn the conference back over to Neil <unk> for closing remarks.

Lyle Williams: Thank you again, Gigi, and thank you for your support and participation on today's call. We look forward to talking to you all again in early November to discuss FET's third quarter 2024. This concludes today's conference call. Thank you for participating. You may now disconnect.

Neil: Thank you again, Gigi and thank you for your support and participation on today's call. We look forward to talking to you. All again in early November to discuss <unk> third quarter 2024 results.

Speaker Change #209: This concludes today's conference call. Thank you for participating you may now disconnect.