Q4 2024 Forum Energy Technologies Inc Earnings Call
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Gigi: 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.
Speaker Change: This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.
Speaker Change: Thank you, Gigi. Good morning, everyone, and welcome to FET's fourth quarter and full year 2024 earnings conference call.
Speaker Change: With me today are Neal Lux, 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: 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: Finally management's statements may include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release during todays call all statements related to EBITDA refer to adjusted EBITDA.
Speaker Change: And then unless otherwise noted all comparisons are fourth quarter 2024 to <unk> third quarter 2024, I will now turn the call over to Neil.
Neil: Thank you, Rob and good morning, everyone.
I would like to begin by congratulating, Chris Scott and Leslie buyer to Rpt's Board members.
Speaker Change: Leslie was recently nominated to serve as assistant Secretary for land and minerals management in the U S Department of interior.
Lastly, as leadership and experience. It makes her an excellent choice to help out our country navigate critical energy challenges.
Speaker Change: I would also like to congratulate Chris on his announced retirement.
Speaker Change: This has been involved with the SVT for almost 20 years, both as a dedicated board member and previously as Chief Executive Officer.
Speaker Change: I would like to personally thank Chris for his mentorship guidance and friendship.
Speaker Change: He has been invaluable throughout my time at MPT, and especially since my appointment as CEO in January 2022.
Speaker Change: With these announcements I think it is appropriate to step back and reflect on the great progress. We have made the last three years revenue is up 51% during this time.
Speaker Change: Market share as measured by revenue per rig is up 19%.
Speaker Change: EBITDA increased five times and margins expanded 800 basis points.
Speaker Change: Net debt is down 30% and we significantly improved our net leverage from 11 to just under one five times.
Speaker Change: These results clearly illustrate the progress we have made.
Speaker Change: Now, let's talk about key achievements from the year, specifically our financial results.
Speaker Change: The completion of a transformational acquisition.
Speaker Change: Fortification of our balance sheet.
Speaker Change: Authorization of a significant share repurchase program and solid execution of our beat the market strategy.
Speaker Change: Financially, we delivered meaningful growth.
Speaker Change: With revenue and EBITDA up 10, and 49% respectively.
Speaker Change: This resulted in a 42% incremental margin and over 300 basis point margin improvement.
Speaker Change: Impressively, we generated $105 million in free cash flow from strong EBITDA growth and efficient working capital management.
Speaker Change: Therefore contributed meaningfully to our financial results as promised when we announced this acquisition.
Speaker Change: Despite some market headwinds their firm delivered stronger than expected EBITDA margins and outperformed the full year free cash flow plan.
Speaker Change: We also executed a 100 million senior secured bond offering, which refinanced our long term debt and maintained a strong liquidity position.
Speaker Change: Importantly, the refinancing provided flexibility for deployment of cash.
Speaker Change: In December we announced a $75 million share repurchase program.
Speaker Change: Delivering on our promise to shareholders.
Speaker Change: The size of this program relative to our market capitalization is significant.
Speaker Change: It also reflects our confidence in generating consistent free cash flow in 2025 and beyond.
Speaker Change: Okay.
Speaker Change: This year, we made great progress on our beat the market strategy by capturing profitable market share leveraging our global footprint and developing differentiated technologies.
Speaker Change: For example, we gained market share as demonstrated by our 15% revenue per rig growth.
Speaker Change: Also outside the U S. We utilized our strategically located manufacturing facilities to grow international revenue by almost 42%.
Speaker Change: And as an industry.
Speaker Change: Industry innovator delivering new products to the market.
Speaker Change: Here are a few examples.
Speaker Change: Fr 120 SC the next generation Iron Roughneck that combines best in class torque capacity with the reduced rig floor footprint.
Speaker Change: SaaS connect a safer and more efficient zipper manifold system for multi well pad frac operations.
Speaker Change: Powertrain and industry, leading heat transfer unit for mobile power generation.
Speaker Change: Pumps, savr, plus an incredible solution that increases oil production and reduces downtime and rod lift production systems.
Speaker Change: Magna Guard a breakthrough product that enables widespread adoption of efficient permanent magnet motor ESP.
Speaker Change: And my last example, unity.
A leading edge technology that remotely controls rovs to reduce personnel on vessels.
Speaker Change: Now turning to our outlook, we strongly believe long term demand for energy will grow and continued investment will be required to supply this growth.
Speaker Change: However, we expect 2025 to be a transitional year for market activity, driven by geopolitical and macroeconomic uncertainties.
Speaker Change: Overall, we anticipate global drilling and completion activity in 2025, we will decrease 2% to 5% from 2024 levels.
Speaker Change: In North America, both rig count and Frac fleet count or forecasted disaster.
Speaker Change: Internationally, we anticipate activity to be generally flat.
Speaker Change: We expect that continued market share gains through our beat the market strategy will partially or fully offset the impact of declining market activity.
Therefore, our full year 2025, adjusted EBITDA guidance range is $85 million to $105 million.
Speaker Change: There are a couple of variables however, not in our 2020 forecast that we are tracking closely.
Speaker Change: The first is natural gas and.
Speaker Change: In our guidance, we do not assume a rebound in natural gas drilling and completions activity.
Speaker Change: If demand triggers a meaningful commodity price increase there may be some upside to activity later in the year.
Speaker Change: The second variable is tariffs.
Speaker Change: For most product families. We believe we are in a position to mitigate and pass through tariff impacts with increased pricing and supply chain optimization.
Speaker Change: This result may not be achieved immediately and we may see short term impacts and variability in our businesses.
Speaker Change: We are continuing to monitor this fluid situation and we'll adapt accordingly.
Speaker Change: Before turning the call over to Lyle I would like to summarize our capital deployment framework.
Lyle Williams: First we are forecasting 2025 free cash flow between $40 million to $60 million.
Lyle Williams: We expect to allocate 50% of this free cash flow to net debt reduction.
Lyle Williams: The remaining 50% would go towards strategic investments, including share repurchases.
Lyle Williams: We continually evaluate acquisition opportunities and compare relative value to SVT.
Lyle Williams: <unk>.
Lyle Williams: With our industry, leading free cash flow yield we have yet to find a better investment than ourselves.
Lyle Williams: Buying back shares provides the best current value to shareholders.
Lyle Williams: Alright, I am now going to turn the call over to Leila for more details on <unk> fourth quarter results and other financial highlights.
Leila: Thank you Neil good morning.
Lyle Williams: I am pleased to provide details on our strong free cash flow performance.
Lyle Williams: Why we believe generating free cash flow in the future is sustainable.
Lyle Williams: For the full year 2024, we generated $105 million of free cash flow. This is the highest annual amount since 2015 and.
Lyle Williams: And $35 million higher than the top end of our latest guidance.
Lyle Williams: These results benefited from the real estate sale leaseback transaction, we announced in mid December and for meaningful net working capital reductions.
Lyle Williams: Inventories dropped by $34 million as key initiatives pay meaningful dividends.
Lyle Williams: Also our days sales outstanding decreased generating $8 million of cash.
Lyle Williams: Monetizing these assets allows us to redeploy capital for a better return.
Lyle Williams: We remain confident in the foundation, we have built to sustainably generate free cash flow, our 2025 guidance of $40 million to $60 million is consistent with our 2024 result, excluding the large release of working capital and the sale leaseback transaction.
Lyle Williams: Included in our guidance, our interest and cash tax payments of about $35 million and capital expenditures of around $10 million.
Lyle Williams: This guidance reflects another year of strong free cash flow, allowing us to further reduce net debt while simultaneously returning cash to shareholders.
Lyle Williams: It is important to note that we are committed to maintaining conservative net leverage.
Lyle Williams: And as Neil mentioned, 50% of our free cash flow would further reduce our net debt.
Lyle Williams: Our remaining free cash flow would be used for strategic investments that increase shareholder value.
Speaker Change: As we have said before we believe our stock is undervalued and it is hard to find a better investment than in FMT.
Speaker Change: And shareholder returns have already begun in January we repurchased approximately 105000 shares of our stock for an aggregate amount of $2 million.
Speaker Change: At the time, we met the two conditions of our bonds that address repurchases.
Speaker Change: First we can repurchase up to 50% of the previous fiscal years free cash flow.
Speaker Change: Excluding the sale leaseback proceeds.
Speaker Change: So for 2025, we have over $42 million of share repurchase capacity.
Speaker Change: Second our net leverage ratio must be below one five times pro forma for any repurchases.
Speaker Change: Going forward. This incurrence test will be the limiting factor for when and how large our purchases can be.
Speaker Change: Based on the seasonality of our free cash flow, we expect our repurchases to be weighted to the second half of this year.
Speaker Change: We fortified our balance sheet this year.
Speaker Change: With strong free cash flow, we retired $100 million of debt incurred in connection with the <unk> acquisition.
Speaker Change: To put that in perspective within a year of the closing we retired two thirds of the debt added for this transformational acquisition.
Speaker Change: And with our bond refinancing completed in November we have no debt maturities until 2028.
Speaker Change: We ended this year with $45 million of cash on hand, and $61 million available under our revolving credit facility with total liquidity of $106 million.
Speaker Change: Our net debt was $149 million down $50 million from last quarter for year, ending net leverage ratio of 1.49 times.
Speaker Change: On the income statement, our consolidated fourth quarter revenue of $201 million and EBITDA of $22 million or within our guidance ranges.
Speaker Change: The slowdown in U S completions activity led to a sequential decrease in our revenue.
Speaker Change: And our EBITDA margin was negatively impacted by lower sales of quick turn hi.
Speaker Change: High profit products.
Speaker Change: In the fourth quarter, we recorded two unusual noncash items that impact net income, but not EBITDA.
Speaker Change: First we recorded a charge of $119 million to impair the intangible assets of our coiled tubing product line.
Speaker Change: Based on market conditions, we performed an impairment test and determined the carrying value of these assets should be fully written down.
Speaker Change: Going forward this will reduce our annual amortization expense by $15 million.
Speaker Change: Coiled tubing remains a valuable contributor to RPT with strong profitability and differentiated technology.
Speaker Change: We also recorded an $11 million noncash benefit to income tax expense by releasing the valuation allowance reserves that we held for Germany, and Saudi Arabia.
Speaker Change: As our operation in each country have become more profitable it is appropriate to release these reserves.
Speaker Change: Turning to our segment results the drilling and completions segment revenue decreased by 10% with lower U S completions related activity sales volumes for wireline cable coiled tubing and stimulation capital equipment were lower.
Speaker Change: Segment, EBITDA decreased 34% due to lower sales volumes and unfavorable product mix.
Speaker Change: Orders were $103 million down 20% relative to the third quarter, which included large orders of drilling equipment, including iron Roughnecks and Catwalks.
Speaker Change: The artificial lift and downhole segment revenue was up 7% primarily related to increased sales of our refinery defaulting technology and artificial lift products.
Speaker Change: Sales increases in these higher margin products led to EBITDA growth of 11%.
Speaker Change: And orders in the quarter were up 14% with increased demand across our production equipment and downhole product lines.
Speaker Change: I will conclude my comments by providing modeling details and our forecast for the first quarter 2025.
Speaker Change: For the full year 2025, we estimate corporate costs of $30 million.
Depreciation and amortization expense of $35 million and tax expense of $13 million.
Speaker Change: We are expecting around $17 million of interest expense.
Speaker Change: Which assumes a reduction in our ABL balance through the year.
Speaker Change: We assume first quarter values to be roughly one fourth of these full year amounts.
From a guidance perspective, many of our customers have publicly indicated a slower first quarter with progressive improvements throughout the year.
Speaker Change: Therefore, we expect first quarter 2025 revenue to be in the range of $185 million to $205 million in EBITDA in the range of $20 million to $24 million.
Speaker Change: Included in our quarterly and annual guidance are additional lease expenses from the sale leaseback transaction of $1 $7 million per year.
Speaker Change: Our first quarter free cash flow will be impacted by annual management and incentive payments and property taxes, while we do not guide specific free cash flow on a quarterly basis, we do anticipate generating positive free cash flow in the first quarter.
Neil: Let me turn the call back to Neil for closing remarks Neil.
Neil: Thank you Lyle.
Neil: I want to note one more achievements from 2024.
Neil: Safety is our number one core value and.
Neil: And over the years, we have done an outstanding job keeping our employees safe.
Neil: While we were pleased with our past results we are not satisfied.
Neil: Last year, we challenged ourselves to radically improve our safety performance and culture.
Neil: Im ecstatic to announce we exceeded our expectations.
Neil: The team has embraced our initiatives and significantly improved our key metrics to world class levels.
This is a fantastic achievement and I want to thank the employees of <unk> for their hard work and dedication.
Neil: Job well done.
Speaker Change: Gigi please take the first question.
Speaker Change: 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 so withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of John Daniel from Daniel Energy Partners.
John Daniel: Hey, good morning, guys. Neil I was trying to take copious notes as youre going through your prepared remarks.
Speaker Change: I think you mentioned something about a new product tied to mobile power.
Speaker Change: Did I hear that correctly and if so can you elaborate on what it is what it'll do but the opportunity set.
Speaker Change: Yes, so the.
Speaker Change: Yes, good good call. So we are in.
Speaker Change: Power Gen segment.
Speaker Change: We have a.
Speaker Change: Our product called our powertrain.
Speaker Change: Our our heat exchanger that we supply into that into that market. So it's paired paired with our <unk>.
Speaker Change: Gas Recip engine.
Speaker Change: It builds off our kind of leading leading market share in the frac industry and so we've adapt adopted this product too to really fit the.
Speaker Change: To hit the power Gen side so.
Speaker Change: We've had a kind of a good start to the year on the quotation side, it's been been pretty robust and we're looking forward to closing some orders there.
Speaker Change: Those are all big all domestic.
Speaker Change: Yes, it would be domestic.
Speaker Change: Ivan I think for us as well so we think about.
Speaker Change: Increasing power demand.
Speaker Change: Another product that does apply there as our coiled line pipe, bringing in bringing the gas to the to the data centers as well.
Speaker Change: Okay got it and then just one on sort of the traditional sort of coil wireline completion stuff.
Speaker Change: As orders have moderated a tad I mean are you seeing a setup, where youre going to three to four to five quarters now see a spike in those orders does it do you get the sense theyre working through their inventory just any thoughts there.
Speaker Change: Yeah, So I think.
Speaker Change: On a consumable basis, which the wireline cable is coiled tubing. Those are those are getting consumed in turning turning well for U S land.
Speaker Change: More capital type products, whether it's power ends or <unk>.
<unk> things like that I think those are the those are the items that are looking for spike as you say, maybe a few quarters out right whether it's later this year or into next year as that equipment ages.
Speaker Change: Okay got it I'll turn it over thank you guys.
Donna: Thank you Donna.
Speaker Change: Thank you one moment for our next question.
Dave Storms: Our next question comes from the line of Dave storms from Stonegate.
Speaker Change: Morning.
Speaker Change: Good morning, Dave.
Speaker Change: Good morning, just wanted to start with maybe some of the puts and takes on guidance you mentioned that the beat the market strategy should help maintain the top line. Despite maybe some overall market weakness, but it still looks like your EBIT midpoint guidance is about a 5% decrease year over year, just hoping you could speak to maybe some of the margin assumptions our price mix volume decisions.
Speaker Change: That would drive that.
Speaker Change: Yes, I think as we look out to 2025.
Speaker Change: We said the in the market could be down two 2% to 5%. So really the EBITDA guidance range. We put in there is really how successful we are to either partially or fully offset that that market decline. So.
Speaker Change: At the at the midpoint you could see.
Speaker Change: The market down a lot in Dallas called at 5%, but where we gain a little more share or at the low end of the market, let's say the down 2%.
Speaker Change: We don't gain as much share. So we wanted to give kind of that.
That range.
Speaker Change: Ideally if the market stays flat and we add revenue we'd be closer to the top end of that range.
Speaker Change: Understood that's very helpful and just kind of on that.
Speaker Change: With the China market.
Speaker Change: I expect it to declines of 2% to 5% are you seeing any pockets of strength I know international has been a bright spot could be a little choppy for you guys. Just curious as to if there is any green shoots that you are seeing out there.
Speaker Change: I think it really is more on the types of product side I think our consumables, we've seen a nice nice start to the year I think capital is still a little a little slower to start.
Speaker Change: As our customers get their get their budgets together.
Speaker Change: I think over overall international is probably going to be.
Speaker Change: For the year going to be a bright spot for us whether I think it's a good start in Canada to the year as we will see if that can hold.
Speaker Change: And then outside North America again, whether it's Saudi maybe a little lighter, but Kuwait Oman.
Speaker Change: But I think all all are.
Going to be going to be pretty good for us this year.
Speaker Change: So thats very helpful. Thanks for taking my questions and good luck in the first quarter.
Speaker Change: Thanks, Dave.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jeff Robertson from water Tower research.
Jeff Robertson: Thank you good morning, Neal you talked about gaining market share in 2020 forward and over the last three years.
Jeff Robertson: As you look at the market conditions in 2025 are there areas, where you think you still have room to grow market share and are those.
So are those product lines in.
Jeff Robertson: Ones that would have a favorable impact on margins versus maybe.
Jeff Robertson: Lower sales.
Jeff Robertson: In other lines.
Jeff Robertson: Yes.
Good great question.
Jeff Robertson: Our focus is we want to grow profitable market share. So we are putting the time to those.
Jeff Robertson: Those key key product lines that do have the higher margins, where we've incentivized our teams to to gain that share. So I think the the areas artificial lift to downhole.
Jeff Robertson: That segment high margin.
Jeff Robertson: It's one that.
Jeff Robertson: We've added a lot of new products over the year I've mentioned Magna guard.
Jeff Robertson: As well as our pumps Eva plus.
We continue to build out that product portfolio. So I think thats, an obvious area of growth I.
Jeff Robertson: I mentioned coiled line pipe earlier.
Jeff Robertson: Power Gen. We also are seeing international projects that are that are offshore that could be could be a nice boost there as well so.
Jeff Robertson: I don't think our are gaining share is done is done I think we have a good runway on that and I think over time.
Jeff Robertson: We are absolutely focused on beating market and executing that strategy.
Jeff Robertson: On the products you mentioned the unity remote control system for Rovs is that been field.
Speaker Change: Field tested to the point, where.
Jeff Robertson: Youre getting more.
Jeff Robertson: Interest in it from from a broader group of customers.
Jeff Robertson: Yes.
Jeff Robertson: We are.
Jeff Robertson: We're utilizing it today.
Jeff Robertson: In the middle of testing those systems right now.
Jeff Robertson: We're going to have them delivered here in Q1, we had a bit a little delayed.
In Q4 with one customer so we pushed it into Q Q1 here.
Jeff Robertson: But yes, I think it's still early but it is an area where.
Jeff Robertson: It's.
Jeff Robertson: Taking personnel off vessels Thats, a huge savings for the for our customers. So the us executing that I think is a really really good a good deal I think what's most exciting to us we could upgrade already existing installed rovs and thats a great opportunity for us.
Jeff Robertson: In the past with respect to returning cash to shareholders you all have.
Jeff Robertson: Broadly talked about the possibility of a dividend.
Jeff Robertson: Does the share repurchase plan do you think just give you the most flexibility as you look at the options on the value of FCT versus the valuations that youre seeing in the acquisition market.
Jeff Robertson: Yeah, Jeff I'll take that one at this point, we don't have any specific dividend plans and do really feel like given the relative valuation of <unk>.
Jeff Robertson: Stock versus other things that we could invest capital and that's just such a screaming buy that that's where we ought to be so that's our focus for now for that 50% of our cash flow I think the other 50% will continue to go to our net debt reduction.
Jeff Robertson: We feel like.
Jeff Robertson: If you use the midpoint of our guidance on cash of which was 50 take half of that is 25 that'd be about 10% of our market cap. So if we achieve that in this year, that's a very big amount and at the same time, we can pull our net leverage down to one 1% quarter, one three times something like that over the same period of time.
Jeff Robertson: Thank you Laura.
Jeff Robertson: Thank you.
Jeff Robertson: One moment for our next question.
Speaker Change: Our next question comes from the line of Steve Samra Zani from Sidoti.
Speaker Change: Good morning, everyone. I. Appreciate you taking my question I did want to follow up a couple of the earlier questions in terms of your breakdown on seeing 2% to 5% decline in drilling and completions.
Speaker Change: Just trying to think about some of your individual markets Vera Perm has been really successful less high margin.
Speaker Change: December we saw a pretty healthy guidance from the bigger oil sands producers, but that was pre tariff talk.
Speaker Change: You said that that Canada started up healthy for you are you seeing any kind of impact at this point are you expecting any kind of impact.
Speaker Change: Yes, so I think the.
Speaker Change: In Canada. It was a good fourth quarter and I think the.
Rig count has been has been good here as well to start the first quarter.
Speaker Change: Haven't seen an impact from tariffs, it's something that boy, we do it a lot of analysis I think we could see a slowdown if we did have that that 10% oil.
Speaker Change: Oil tariff come through on Canadian crude.
Speaker Change: That would be something that we'd have to adjust to for sure.
Speaker Change: Okay, and then the other side of the border and I don't know how much exposure.
Speaker Change: Exposure country to country, but Mexico, obviously very soft could that hit you in the first half.
Speaker Change: Yes.
Speaker Change: Our exposure to Mexico is fairly limited.
Speaker Change: Really small part of our business.
Speaker Change: As concern there I think.
Speaker Change: In North America for US is primarily Canada and the U S.
Speaker Change: Okay.
Speaker Change: And Steve maybe I'll touch on just sure. So let me jump in on the on the tariff comment just to give a little more color. There on how we're thinking about as Neil mentioned, we don't have any tariff impact included in the guidance that we provided is just too early to really understand but we do have experience with what happened in prior tariff regimes.
Speaker Change: What that look like.
Speaker Change: Our view is we have probably a similar outcome and that is that first hour well given our market position with a lot of our product offerings. We have the ability to pass on tariff increases to our customers and that would be our expectation. However, the uncertainty and volatility that can come from that until the mark.
Speaker Change: Settle out.
Speaker Change: Definitely could be a near term outlook.
Speaker Change: Let's call it choppiness or Lumpiness in results. So we don't have anything in there, but definitely something that we're watching and our teams are monitoring really daily too to make sure we take the appropriate actions.
Speaker Change: Excellent.
Speaker Change: If I get one more in obviously your balance sheet extremely strong.
Speaker Change: The outperformance of <unk>.
Speaker Change: We end up in this sort of soft environment flat to slightly down year.
Speaker Change: New opportunities might emerge given the balance sheet I understand the better returns from share buybacks are you open and ready to go.
Speaker Change: The next bar Perm comes up and not to say it would.
Speaker Change: Yes, I think if we can get it I think in our comments, we talked about looking at the relative value of our shares nurses versus opportunities out there. So I think if we if we saw a relative value in an acquisition I think we would absolutely as you mentioned Vera Perm Fantastic acquisition, great team, we'd love to.
Speaker Change: That add another one.
Speaker Change: Excellent thanks, everyone.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next comes from the line of Eric Carlson.
Hey, good morning, guys.
Speaker Change: Good morning, Eric Good morning.
Speaker Change: I was wondering.
Speaker Change: Maybe talk through a little bit of I mean, clearly with the kind of the large impairment charge in Q4, the kind of the headline income and EPS numbers, probably grab a lot of attention but.
Speaker Change: You have to forgive my my quick my quick math, but I think it was.
Speaker Change: Just over $100 million loss for the year, but a lot of that kind of attribute that to.
Speaker Change: The impairment charge and then.
Speaker Change: FX and then a higher interest expense. So maybe just on a go forward basis. If you just look at kind of the income statement.
Speaker Change: It feels like it's set up to be a little bit more normalized incentive all these one offs from transaction expenses and so on and so forth.
Speaker Change: Thoughts there would be interesting.
Speaker Change: Sure, Eric definitely and definitely a lot of noise noise in there. So just draw your attention to the earnings release in our table in the back that would show and our full year adjusted net income numbers.
Speaker Change: If you look at those who want to spend a minute on those if you look at those on a year over year basis. Our adjusted net income is actually down from like one and a negative one 5% to negative 10.
Speaker Change: What is that and Thats really driven by interest expense that we added for the <unk> acquisition.
Speaker Change: About $12 million.
Speaker Change: But with our net debt now coming down and with our guidance, we expect a really meaningful improvement on a year over year basis, So 2025 should be better the other.
Speaker Change: The place that there was a year over year increase was on tax expense again, an increase due to Vera perm and a little bit tied to this pillar two global minimum tax that's out there. So through this year, we have already restructured some of that and we'll be able to have a lower go forward tax guidance that we have so.
Speaker Change: Between those items lower interest forward lower taxes forward lower amortization expense going forward, we're set up for a much improved net income and EPS result in 2025 versus 2024.
Speaker Change: Okay. That's helpful.
Speaker Change: I guess and then looking at kind of the cash flow numbers. So obviously finished very strong but for the full year of about 45% of current market cap.
Speaker Change: Cash generated.
The majority of that just from operation So.
Speaker Change: Im thinking of.
Speaker Change: The context of I know some people have brought up.
Speaker Change: Ways to return capital and kind of the relative value I mean I did.
Speaker Change: And a quick math.
Speaker Change: Looks like kind of the medium.
Speaker Change: EV to EBITDA on kind of the peer group at least stated in kind of the proxy statement for incentives.
Speaker Change: Maybe it's six five and that's excluding a few I couldn't find information on but.
Speaker Change: You guys tend to trade at.
Speaker Change: Under 4375, so almost 50% discount to that.
Speaker Change: I mean, when you think about deploying capital obviously, a buyback makes a ton of sense, there's a lot of.
Speaker Change: Kind of surety, but what you are getting there and maybe just when you think about the relative value.
Speaker Change: If I know I can buy 10% of my shares that increases my free cash flow by share.
Speaker Change: Per share by 10% I can kind of put that on a flywheel and repeat it versus what is the relative value needed by.
Speaker Change: Our strategic acquisition on the outside so maybe just thinking about the hurdle rate or different ways to do that because obviously buying your stock seems like a no brainer.
Speaker Change: But if I can buy you can buy your stock at under four times EBITDA.
Speaker Change: What's the hurdle rate like what do you need to be able to buy.
Speaker Change: Our beer Paramount again does it need to be.
Speaker Change: Three times or it doesn't need to be.
Speaker Change: Maybe provide some context to that because I think that'd be really helpful.
Speaker Change: Yes, I think we'd go back to what's what's our acquisition guideline strategy right. We want to we want to get companies that have differentiated products in niche markets, we wanted to happen to accretion.
Speaker Change: Two key multiples of cash flow per share I think would be would be one of those.
Speaker Change: We don't want to we don't want to put ourselves in a tight balance sheet.
Speaker Change: By adding a lot of that so.
Speaker Change: As far as a specific hurdle rate I think we would just really stick with our.
Speaker Change: Our guidance there I think we'd look at it on a case by case basis.
Speaker Change: I think.
Speaker Change: Accretion would be a big point to that and so I think it would be.
Got to find the right it would have to be the right deal at the right price and the really the rate discounts to where we sit to to get it done.
Speaker Change: Okay. That's helpful and then maybe in deploying kind of buyback.
Speaker Change: Comment already was probably weighted a little bit more heavily.
Speaker Change: Can you just.
Speaker Change: Provide some.
Speaker Change: What are kind of your limitations on terms of daily volume and then.
Speaker Change: In terms of maybe opportunities that saw some larger blocks of shares just kind of looking at the filings I mean, they are still at.
Speaker Change: At least one really large bondholder is still holding I mean 900000 shares. So I mean, when you think about how you deploy that most effectively.
Provide some context.
Speaker Change: Sure sure.
Speaker Change: Talked about in our prepared remarks really the limiting factor is going to be our one five times net leverage ratio pro forma for the buyback. So we ended the fourth.
<unk> fourth quarter, just under that opening the door for us to be able to get some things done obviously as we buyback shares that kind of increases that on that pro forma number. So we will generate free cash flow through the year, probably lighter in Q1 will exit guided lighter in Q1, and then stronger in the later part of the year, which opens up opportunity.
Speaker Change: For us.
Speaker Change: The other thing we would do is we look at open market purchases, we want to make sure we sit within the appropriate safe harbors. So we're limited in terms of.
Speaker Change: Average daily trading volumes and what that would be for us so that would be kind of an open market kind of an opportunity. So I think we look at those there is plenty of volume out there and in January when we did buy we were able to get that done.
Speaker Change: In a short amount of days. So I think when we were in the market, we could do that relatively quickly and be able to buy up some of those shares but we will be focused on that one five times measure as we get under that.
Speaker Change: Provides more opportunity more.
Speaker Change: More opportunity for us.
Speaker Change: Okay.
Speaker Change: Then you said so the based on the math, it's $42 million would be kind of available, but obviously with the kind of cash flow projections it would come in.
Speaker Change: Under that right.
And then maybe the last my last question would be.
Speaker Change: You have been able to do some things to take advantage of kind of generating one off cash.
Speaker Change: Cash flow.
Speaker Change: With sale leaseback at the end of this year you did it in previous years as well just wondering if there's any other low hanging fruit out there to kind of.
Speaker Change: Generate kind of cash above and beyond operations.
Speaker Change: Yes. So if you look at our if you look at our guidance and what we guided the 40% to 60 really that doesn't include any incremental cash from an asset monetization likes a sale leaseback and also it doesn't include any working capital benefit or increase right. So kind of assuming flat numbers in both of those.
Speaker Change: Were big contributors in 2024, so we will continue to look at ways to do that both on the working capital side. Our teams are very focused on inventory reduction.
Speaker Change: Given the kind of market condition here and what's going on with potential tariffs were being prudent around not getting too short on inventories. These days. So so I think that that'll be something we'll have to balance through the course of the year and then clearly as we look at our portfolio, both what new product additions, we want to make.
Speaker Change: And where we might want to trim back on our portfolio. It's all about returns.
Speaker Change: How do we improve the returns cash returns that those portfolios can gift. So we'll be looking at those as well, but but nothing specific included in our guidance at this point. Okay. That's helpful. Thanks, guys good quarter good year. Thank you.
Speaker Change: Eric.
Speaker Change: Thank you.
Speaker Change: I'd now like to turn the conference back over to Neil Lux for closing remarks.
Neil Lux: Okay, well. Thank you for your support and participation in today's call. We look forward to our next meeting in May to discuss our first quarter 2025 results.
Neil Lux: This concludes today's conference call. Thank you for participating you may now disconnect.
Neil Lux: Okay.
Neil Lux: [music].
Neil Lux: Yes.
Neil Lux: Yes.
Neil Lux: Okay.