Q1 2025 Forum Energy Technologies Inc Earnings Call
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Rob: At this time all participants are in 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 company's website I will now turn the conference over to Rob to claw director of Investor Relations. Please proceed sir.
Operator: This conference call is being recorded for replay purposes and will be available on the company's website.
Rob Kukla: I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.
Sure.
Neal Lux: Good morning, everyone, and welcome to FET's first quarter 2025 earnings conference call.
Speaker Change: Thank you Gigi good morning, everyone and welcome to <unk> first quarter 2025 earnings Conference call with me today are Neil <unk>, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer.
Neal Lux: With me today are Neal Lux, our president and chief executive officer, and Lyle Williams, our chief financial 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 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.
Rob: Yesterday, we issued our earnings release it is available on our website.
Rob: 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.
Rob: Remarks should be considered in the context of all factors that affect our business.
Rob: Those disclosed in <unk> Form 10-K, and other SEC filings.
Neal Lux: Finally, management statements may include non-GAAP financial 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 first quarter 2025 to fourth quarter 2025.
Finally management's statements may include non-GAAP financial measures for a reconciliation of these measures you may refer to our earnings release.
Rob: During today's call all statements related to EBITDA refer to adjusted EBITDA unless otherwise.
Neil: As noted all comparisons our first quarter 2025 to fourth quarter 2024, I will now turn the call over to Neil.
Neal Lux: I will now turn the call over to...
Neal Lux: Thank you, Rob, and good morning, everyone.
Neil: Thank you, Rob and good morning, everyone.
Neal Lux: Since our earnings call in February, U.S.
Neil: Since our earnings call in February U S trade and tariff policies have undergone a radical upheaval.
Neal Lux: trade and tariff policies have undergone a radical upheaval. This has generated significant economic uncertainty and dampened the outlook for commodity demand. In addition, OPEC Plus announced faster supply growth than previously anticipated. The combination of these events is putting pressure on commodity prices. Oil prices have declined dramatically and are hovering near four-year lows. While we have not seen a change in market activity In our experience, rig count declines tend to lag commodity prices by three to six percent. FET's activity-based sales are highly correlated to rate count. And unless oil and gas prices rebound. we could see a decline in revenue starting in the third quarter.
Neil: This has generated significant economic uncertainty and dampened the outlook for commodity demand.
Neil: In addition.
Neil: OPEC plus announced faster supply growth than previously anticipated.
Neil: The combination of these events is putting pressure on commodity prices.
Neil: Oil prices have declined dramatically and are hovering near 40 year lows.
Neil: While we have not seen a change in market activity.
Neil: In our experience rig count declines tend to lag commodity prices by three to six months.
Neil: S E T activity based sales are highly corridor correlated to rig count.
Neil: And unless oil and gas prices rebound.
Neil: We could see a decline in revenue starting in the third quarter.
Neal Lux: given this uncertainty.
Given this uncertainty.
Neal Lux: We are proactively mitigating tariffs, optimizing our supply chain, and reducing costs and inventory. In March, we announced price increases to counter the cost impacts of tariffs. while we utilize U.S. source content. for a majority of our raw materials, it is important to note that tariffs increase prices broadly, not just on energy. for example. one of the largest domestic U.S. steel producers. has increased prices by over 30% since January. This is broad-based price inflation. and we must pass these costs on to our customers. Another way we are mitigating tariffs is by leveraging our global footprint. We are increasing assembly activities at our facilities in Saudi Arabia and Canada to efficiently serve global markets.
Neil: We are proactively mitigating tariffs optimize optimizing our supply chain and reducing cost and inventory.
Neil: In March we announced price increases the counter the cost impacts of tariffs.
Neil: While we utilized U S source content for a majority of our raw materials. It is important to note that tariffs increase prices broadly not just on imports for example.
Neil: One of the largest domestic U S. Steel producers has increased prices by over 30% since January.
Neil: This is broad based price inflation, and we must pass these costs onto our customers.
Neil: Another way, we are mitigating tariffs is by leveraging our global footprint.
Neil: We are increasing assembly activities at our facilities in Saudi Arabia, and Canada to efficiently serve global markets.
Neal Lux: In addition, over the past several years We have strategically de-risked our supply chain to minimize dependence on a specific country and provide optionality in sourcing.
Neil: In addition.
Neil: Over the past several years, we have strategically derisked, our supply chain to minimize dependence on a specific country.
Neil: And provide optionality in sourcing.
Neal Lux: Another area of focus is expense and inventory management. We are aligning our constructs. to operate under potentially lower activity levels. Approximately 80-85% of our cost base is variable, primarily materials and labor. We can efficiently manage these costs as activity declines. In addition, we are insourcing components to increase facility utilization. thereby improving efficiency and lowering expenses. We initiated actions to eliminate $10 million of annualized costs. Inventory management also plays a key role.
Neil: Another area of focus is expense and inventory management.
Neil: We are aligning our cost structure.
Neil: To operate under potentially lower activity levels.
Neil: Approximately 80% to 85% of our cost base is variable primarily materials and labor.
Neil: We can efficiently manage these costs as activity declines.
Neil: In addition, we are in sourcing components to increase facility utilization there.
Neil: Thereby improving efficiency and lowering expenses.
Neil: Also.
Neil: We initiated actions to eliminate $10 million of annualized cost.
Neil: Inventory management also plays a key role.
Neal Lux: In 2024, we generated the highest level of free cash flow in nearly a decade. by focusing on working capital management. specifically. We generated approximately $40 million from inventory reduction. given the softer out We are actively managing inbound material orders and will carefully align the business with market conditions.
Neil: And 'twenty 'twenty four we generated the highest level of free cash flow in nearly a decade by focusing on working capital management space.
Neil: Specifically, we generated approximately $40 million from inventory reductions.
Neil: Given the softer outlook, we are actively managing inbound material orders and will carefully align the business with market conditions.
Neal Lux: Turning to our full-year outlook. at the outset of the year. We forecasted a modest 2-5% decline in global drilling and completions activity. We anticipated North America rig count would soften. while international activity would be generally flat. We also assumed a slower first quarter with progressive improvements as we moved through the season. As I discussed earlier, there is limited visibility beyond the second Commodity prices remain at current levels. It is reasonable to expect a reduction in global recount in the second half. In that scenario, we believe full-year EBITDA would be around $85 million. with this out.
Neil: Turning to our full year outlook.
Neil: At the outset of the year.
Neil: We forecasted a modest two 5% decline in global drilling and completions activity.
Neil: We anticipated North America rig count with soften.
Neil: International activity would be generally flat.
Neil: We also assumed a slower first quarter with progressive improvements as we moved through the year.
Neil: As I discussed earlier, there is limited visibility beyond the second quarter.
Neil: If commodity prices remain at current levels. It is reasonable to expect a reduction in global rig count in the second half of the year.
Neil: In that scenario, we believe full year EBITDA would be around $85 million.
Neil: With this outlook.
Neal Lux: Our focus on generating free cash flow is important. with the measures described earlier. especially our cost and inventory management efforts. We are confident in our previously announced guidance range. $40 to $60 million in free cash. This result would allow us to execute meaningful share buybacks and significant debt reduction.
Neil: Our focus on Janet generating free cash flow is important.
Neil: With the measures described earlier, especially our cost and inventory management efforts. We are confident in our previously announced guidance range of 40 to 60 million in free cash flow.
This result would allow us to execute meaningful share buybacks and significant debt reduction.
Lyle Williams: I am going to turn the call over to Lyle. Following his comments, I will conclude by discussing our long-term.
Neil: I am going to turn the call over to Lyle. Following his comments I will conclude by discussing our long term outlook.
Lyle: Thank you Neal and good morning.
Lyle Williams: The team overcame tariff impacts to deliver positive financial results in the first quarter. These results met our expectations with revenue of $193 million and EBITDA of $20 million. orders increased 6% to $201 million for a book-to-bill ratio of 104%. Stimulation and intervention product line orders returned to customary levels. And we received meaningful bookings for subsea projects in the quarter. Furthermore, in April, we have already booked another 8 million of subsea orders. Growing backlog in the subsea product line reflects the strength of the offshore market and will support overall revenue through the next few quarters. The drilling and completion segment performed well in the quarter.
Lyle: The team overcame tariff impacts to deliver positive financial results in the first quarter.
Lyle: These results met our expectations with revenue of $193 million.
Lyle: And EBITDA of $20 million.
Lyle: Orders increased 6% to $201 million for a book to bill ratio of 104%.
Lyle: Stimulation and intervention product line orders returned to customary levels and we received meaningful bookings for subsea projects in the quarter.
Furthermore, in April we have already booked another $8 million of subsea orders.
Lyle: Growing backlog in the subsea product line reflects the strength of the offshore market and will support overall revenue through the next few quarters.
Lyle: The drilling and completion segment performed well in the quarter.
Lyle Williams: Revenue increased $5 million, driven by a rebound in sales of completions-related consumable and capital equipment. Favorable product mix and overhead cost reduction initiatives supported 64% incremental EBITDA margin. and Operating Profitability benefited further from lower amortization expense. In contrast, our artificial lift and downhole segment revenues declined. and Unfavorable Product Mix Lowered Margin. First quarter results were impacted by the timing of shipments of project orders and softer demand for Veriperm products. Given the strength of its fourth quarter results, Veriperm had a high performance bar to overcome. This product family experienced particular weakness in Canada with unfavorable customer and product mix impacting results.
Lyle: Revenue increased $5 million driven by a rebound in sales of completions related consumable and capital equipment.
Lyle: Favorable product mix and overhead cost reduction initiatives supported 64% incremental EBITDA margins.
Lyle: Operating profitability benefited further from lower amortization expense.
Lyle: In contrast, our artificial lift and downhole segment revenues declined.
Lyle: An unfavorable product mix lowered margins.
Lyle: First quarter results are impacted by the timing of shipments of project orders and softer demand for <unk> products.
Lyle: Given the strength of its fourth quarter results very firm had a high performance bar to overcome.
Lyle: This product family experienced particular weakness in Canada, with unfavorable customer and product mix impacting results.
Lyle Williams: However, our investment thesis for Veriperm remains intact and we anticipate positive progression through the year. In addition, we are experiencing negative headwinds in our valve solution product line. On our fourth quarter call, we stated that we may see short-term impacts and variability in our results as we pass through tariff impacts with increased prices. The magnitude of tariffs levied on Chinese imports has impacted demand for our valves product line, which, like our competitors, sources a large amount of product from China. With the uncertainty around these tariffs, our customers began a buyer strike, significantly reducing orders and delaying near-term deliveries.
Lyle: However, our investment thesis for <unk> remains intact, and we anticipate positive progression through the year.
Lyle: In addition, we are experiencing negative headwinds in our valve solutions product line.
Lyle: On our fourth quarter call. We stated that we may see short term impacts and variability in our results as we pass through tariff impacts with increased pricing.
Lyle: The magnitude of tariffs levied on Chinese imports has impacted demand for our valves product line, which black our competitors sources, a large amount of product from China.
Lyle: With the uncertainty around these tariffs our customers began a buyer strike significantly reducing orders and delaying near term deliveries.
Lyle Williams: We believe these reduced purchase levels could continue for a couple quarters. until tariff levels wane or distributor inventories are depleted. In the meantime, for Valve Solutions and our other product lines, we are adjusting sourcing strategies and raising prices in response to specific tariff-driven impacts.
We believe these reduced purchase levels could continue for a couple of quarters.
Until tariff levels wane.
Lyle: Or distributor inventories are depleted.
Lyle: In the meantime.
Lyle: Our valve solutions and our other product lines, we are adjusting sourcing strategies and raising prices in response to specific tariff driven impacts.
Lyle Williams: Looking ahead to the second quarter, despite market uncertainty, we have not seen operators deviate materially from their plans. Some customers have indicated more white space on their calendars beginning late in the second quarter, but this could be offset by pickup and natural gas activity. Overall indications are that drilling and completions activity should remain relatively stable from first quarter level.
Lyle: Looking ahead to the second quarter, despite market uncertainty, we have not seen operators deviate materially from their plans.
Lyle: Some customers have indicated more white space on their calendars beginning late in the second quarter, but this could be offset by a pickup in natural gas activity.
Lyle: Overall indications are the drilling and completions activity should remain relatively stable from first quarter levels.
Lyle Williams: Therefore, we expect flat quarter-over-quarter results. with second quarter revenue to be in the range of $180 to $200 million and EBITDA to be between $18 and $22 million. We estimate corporate costs of $7 million, depreciation and amortization expense of $8 million, interest expense of $5 million, and tax expense of $3 million.
Lyle: Therefore, we expect flat quarter over quarter results with second quarter revenue to be in the range of $180 million to $200 million.
Lyle: And EBITDA to be between 18 and $22 million.
Lyle: We estimate corporate cost of $7 million, depreciation and amortization expense of $8 million.
Lyle: Interest expense of $5 million and tax expense of $3 million.
Lyle Williams: With our focus on cash, we generated $7 million in free cash flow in the first quarter, up three times from the prior year first quarter. This marks our seventh consecutive quarter of positive free cash flow generation. As Neal mentioned, we remain confident in our full year free cash flow guidance of $40 to $60 million.
Lyle: With our focus on cash we generated $7 million and free cash flow in the first quarter.
Lyle: Three times from the prior year first quarter.
Lyle: This marks our seventh consecutive quarter of positive free cash flow generation.
Lyle: As Neil mentioned, we remain confident in our full year free cash flow guidance of $40 million to $60 million.
Lyle Williams: in the event that market activity declines and our EBITDA is closer to the $85 million. then we expect unwinding working capital to bridge the potential decrease in EBITDA. Our full year of confidence comes from more than just our ability to convert working capital. Over the past two years, we transformed our business systems and reinforced these improvements with key performance indicators and financial incentives aimed at strong, repeatable free cash flow generation. We envision FET being a cash flow engine that regardless of market condition yields three and a half to five dollars of free cash flow per share this year.
Speaker Change: In the event that market activity declines and our EBITDA is closer to the $85 million.
Speaker Change: Then we expect unwinding working capital to bridge the potential decrease in EBITDA.
Speaker Change: Our full year confidence comes from more than just our ability to convert working capital.
Speaker Change: Over the past two years, we transformed our business systems and reinforced these improvements with key performance indicators and financial incentives aimed at strong repeatable free cash flow generation.
Speaker Change: We envision <unk> being a cash flow engine that regardless of market condition, youll, three and a half to $5 of free cash flow per share this year.
Lyle Williams: The balance sheet improvements we made over the past several years, including the debt conversion to equity, organic debt retirement, and refinancing, put FET in a solid financial position. We have 108 million of liquidity and no debt maturities until 2028. At the end of the first quarter, our net debt was $146 million for a quarter-ending net leverage ratio of 1.56 times. This strong balance sheet and continued free cash flow allow us to further reduce net debt and return cash to shareholders.
Speaker Change: The balance sheet improvements, we made over the past several years, including the debt conversion to equity organic debt retirement, and refinancing put <unk> in a solid financial position.
Speaker Change: We have $108 million of liquidity and no debt maturities until 2028.
Speaker Change: At the end of the first quarter, our net debt was $146 million for our quarter ending net leverage ratio of 1.56 times.
Speaker Change: This strong balance sheet and continued free cash flow allow us to further reduce net debt and return cash to shareholders.
Lyle Williams: We began our shareholder returns in the first quarter by repurchasing roughly 1% of our outstanding shares for $2 million.
Speaker Change: We began our shareholder returns in the first quarter by repurchasing roughly 1% of our outstanding shares for $2 million.
Lyle Williams: As we outlined last quarter, our plan is to utilize 50% of our free cash flow to further reduce our net debt. The remaining free cash flow would be used for strategic investment. that increase shareholder value, including share repurchase. As a reminder, our net leverage ratio must be below 1.5 times for us to repurchase shares. Given the market uncertainty and potential for slower activity, this incurrence test may impact the size and timing of our share of purchases. However, With our forecasted free cash flow, we remain comfortable with our ability to both reduce net leverage and continue shareware purchases this year.
Speaker Change: As we outlined last quarter, our plan is to utilize 50% of our free cash flow to further reduce our net debt.
Speaker Change: The remaining free cash flow would be used for strategic strategic investments.
Speaker Change: That increase shareholder value, including share repurchases.
Speaker Change: As a reminder, our net leverage ratio must be below one five times for us to repurchase shares.
Speaker Change: Given the market uncertainty and potential for slower activity. This incurrence test may impact the size and timing of our share repurchases. However.
Speaker Change: With our forecasted free cash flow, we remain comfortable with our ability to both reduce net leverage and continuing share continued share repurchases. This year.
Neal Lux: Let me turn the call back to Neal for closing comments. Neal?
Neil: Let me turn the call back to Neil for closing comments Neil.
Neal Lux: Thank you all. Taking a step back, the market we find ourselves in today is uncertain. While we are eliminating expenses to adjust to potential market activity, we will not jeopardize our future. We have the resources to execute our beat-the-market strategy. We will continue to make commercial and engineering investments that will drive profitable market share growth through innovation. We believe strongly that the investment case for FET remains intact. This belief is based on our track record of significant outperformance. the incredible value of our stock and our long-term growth potential. Since 2021, FET has grown revenue at a compound annual rate of 15%.
Speaker Change: Thank you al.
Taking a step back the market, we find ourselves in today is uncertain.
Speaker Change: While we are eliminating expenses to adjust to potential market activity, we will not jeopardize our future we have the resources to execute our beat the market strategy. We will continue to make commercial and engineering investments that will drive profitable market share grew.
Speaker Change: Through innovation.
Speaker Change: We believe strongly that the investment case for FCT remains intact.
Speaker Change: This belief is based on our track record of significant outperformance the incredible value of our stock and our long term growth potential.
Since 2021.
Speaker Change: F. T has grown revenue at a compound annual rate of 15% three.
Neal Lux: three times faster than the Russell 2000 Index, which we are a part of. We have grown EBITDA and cash flow over 70% many, many, many times better than our end. Simply put. We have delivered spectacular relative financial results, and yet we trade at a significant discount to the Russell 2000 and with our oil field service peers. Today, our forward free cash flow yield is north of 25%. Very few stocks trade at yields this high while also having FET's long-term growth potential. This unlocked value makes share buybacks extremely compelling. since we announced our buyback authorization in December.
Speaker Change: Three times faster than the Russell 2000 index, which we are a part of.
Speaker Change: We have grown EBITDA and cash flow over 70% annually. Many many many times better than our index.
Speaker Change: Simply put we have delivered spectacular relative financial results and yet we trade at a significant discount to the Russell 2000, and with our oilfield service peers.
Speaker Change: Today, our free forward free cash flow yield is north of 25%.
Speaker Change: Very few stocks trade at yields this high.
I'll also having <unk> long term growth potential.
Speaker Change: Hello.
Speaker Change: This.
Speaker Change: Unlocked value makes share buybacks extremely compelling.
Speaker Change: Since we announced our buyback authorization in December.
Neal Lux: We have outperformed the Oil Field Service Index, the Russell 2000, and the average of our peers by significant margins. This performance has confirmed our buyback thesis, and we will seek to buy as many shares as possible within our returns framework. There is uncertainty over the next 6 to 12 months, however, longer term.
Speaker Change: We have outperformed the oilfield service index, the Russell 2000, and the average of our peers by significant margins.
Speaker Change: This performance has confirmed our buyback thesis and we will seek to buy as many shares as possible within our returns framework.
Speaker Change: There is uncertainty over the next six to 12 months, however longer term.
Neal Lux: We envision strong growth for FET. The world needs energy. Over the next decade, population growth, economic expansion, and full-scale implementation of artificial intelligence will drive energy demand. Investment will be required to supply the world. It is only a matter of time. for the headwinds we see today. will turn into tailwinds, supercharging our growth. In the meantime, we are executing our Beat the Market strategy. We will deliver our products to customers around the world with our global footprint. and we will continue to innovate and develop new products and solutions. that increase the safety and efficiency of energy production.
Speaker Change: We envision strong growth for FCT.
Speaker Change: The world needs energy.
Speaker Change: Over the next decade population growth economic expansion and full scale implementation of artificial intelligence will drive energy demand.
Speaker Change: Estimate will be required to supply the world's needs.
Speaker Change: It is only a matter of time.
Speaker Change: Before the headwinds we see today.
Speaker Change: We will turn into a tailwind supercharging our growth.
Speaker Change: In the meantime.
Speaker Change: We are executing our beat the market strategy.
Speaker Change: We will deliver our products to customers around the world with our global footprint.
And we will continue to innovate and develop new products and solutions that increase the safety and efficiency of energy production.
Neal Lux: Thank you for joining us today.
Speaker Change: Thank you for joining us today.
Operator: GG, please take the first question. Thank you.
Speaker Change: Gigi please take the first question.
Operator: As a reminder to ask a question, please press star 1 1 on your telephone. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone.
Speaker Change: To withdraw your question. Please press star one one again please.
Speaker Change: Please standby, while we compile the Q&A roster.
Josh Jayne: Our first question comes from the line of Joshua Jayne from Daniel Energy Partners. Thanks. Good morning. Hi, Josh. First question I wanted to hit on the subsea side, you talked about bookings were up 60% quarter over quarter due to the customer adoption of some new products. And then you also highlighted, I think, an additional order in April, maybe you guys could talk about more about that given at least on the rig count side, we've seen a bit of a slowdown in rigs being contracted, but you seem to highlight some strength there.
unknown: Our first question comes from the line of Joshua Jayne from Daniel Energy Partners.
Joshua Jayne: Thanks, Good morning.
Speaker Change: Hi, Josh.
Speaker Change: First question I wanted to hit on the subsea side, you talked about bookings were up 60% quarter over quarter.
Speaker Change: Customer adoption of some new products and then you also highlighted I think an additional order in April.
Speaker Change: Maybe you guys could talk about more about that given at least on the rig count side, we've seen a bit of a.
Speaker Change: Down in rigs being contracted but you seem to highlight some strength there so talk about the products that are.
Neal Lux: So talk about the products that are getting adopted and the outlook there a bit more. Yeah, you know, we're really excited about the progress of making in subsea. You know, we we address, you know, obviously offshore oil and gas, you know, offshore offshore wind and defense with that product line. And really across, you know, all three areas where we're seeing, seeing good inbound you know, inquiries, as well as turning those inquiries into orders. You know, we provide remote-operated vehicles, ROVs, and launch and recovery systems. for those markets. And I think we've established over the years a position of strong market share.
Speaker Change: Getting adopted and the outlook there a bit more.
Speaker Change: Yes.
Speaker Change: We're really excited about the progress we're making in subsea.
Speaker Change: We address all obviously offshore oil and gas offshore offshore wind and defense with that product line.
Speaker Change: And really across all three areas, where we're seeing seeing good inbound.
Speaker Change: Inquiries as well as turning those inquiries and orders.
Speaker Change: We provide remote operated vehicles rovs and launch and recovery systems for those markets and I think we've established over the years a position of strong market share in.
Neal Lux: And, you know, we believe around 30 percent of the vehicles, you know, that are in use today or more were our brand. And so I think as those vehicles have aged and the work has increased, you know, we're seeing a lot more demand for those vehicles. And allows for more remote operation capability. We've sold about eight more of those systems since the beginning of the year. And we'll be delivering those throughout the year. So, you know, excited about the activity we're seeing in subsea. I think it also shows really the breadth of our reach. You know, subsea is about 10 percent of our revenue.
Speaker Change: We believe around the 30% of the vehicles that are in use today or or more where our brand is I think as those vehicles have aged and the work as.
Has increased.
Speaker Change: We're seeing a lot lot more demand for those vehicles and then with the unity software system operating system that we developed that allows for for more remote operation.
Speaker Change: Capability, we've sold about eight more of those systems since the beginning of the year and we will be delivering those throughout the year. So.
Speaker Change: We're excited about the activity we're seeing in subsea. It I think it also shows really the breath of our of our reach subsea is about 10% of our revenue, but offshore we think is around 15% 20% of our total revenue whether it's.
Neal Lux: But, you know, we think is around 15 to 20 percent of our total revenue, whether it's, you know, done through our offshore pipelines or equipment we deliver with our drilling. Okay, thanks for that.
Speaker Change: Done through our offshore pipelines or equipment, we deliver with our drilling group.
Neal Lux: And then as my follow-up, another thing that sort of jumped out a little bit, released, was part of the increase in orders for drilling completion was for stimulation-related equipment.
Speaker Change: Okay. Thanks for that and then as my follow up.
Speaker Change: Another thing that sort of jumped out a little bit release was part of the increase in orders for drilling completion was for stimulation related equipment.
Neal Lux: Could you talk about what products there saw strength, given that completion crews aren't moving higher, and has a lot of inventory been exhausted, and could you see a similar level of orders, even if crew counts are sort of flat to down, given the uncertainty you talked about in the second half of the year? Yes, I think the, you know, we, we ended last year, when I say we, our industry was, was really lean. You know, they, you know, the, the frack crews that were working, you know, really limited all, all purchases as they, they were doing.
Speaker Change: Could you talk about what products Theyre saw strength.
Speaker Change: Given that completion crews aren't moving higher end.
Speaker Change: Has a lot of inventory then exhausted and could you see a similar level similar level of orders, even if crew counts are sort of flat to down given the uncertainty you talked about in the second half of the year.
Yes, I think the.
Speaker Change: We ended last year, when I say our industry.
Speaker Change: It was really lean.
Speaker Change: The frac crews that we're working.
Speaker Change: Really limited all purchases as a David.
Neal Lux: to a minimum as they finish Q4. In the quarter, I think we rebounded to what's a normal level to be at. And what we are seeing is as maybe there's fewer crews working, but they are doing more per day. They're pumping more stages per day. They're working more hours per day. And so we're seeing key items like our power ends, which is really the drive for frack pumps. Historically, we call it capital. But what we're seeing is that those power ends are being replaced. or rebuilt significantly, you know, after 12 or 18 months. So they're being replaced much more quickly than, you know, just a few years ago when those pieces of equipment would last three or four years.
Speaker Change: To a minimum as I finished Q4 in the quarter I think we rebounded to what's a normal a normal level.
Speaker Change: To be at.
Speaker Change: And what we are seeing is as maybe theres fewer crews working or but they are doing more per day. They are pumping more.
Speaker Change: More stages per day, they're working more hours per day, and so we're seeing key items like our power ends which is really the drive for Frac ponds.
Speaker Change: Historically was call it capital.
Speaker Change: But what we're seeing is that those power ends are being replaced.
Speaker Change: Or rebuilt significantly after 12 or 18 months, so they're being replaced much more quickly than just a few years ago. When those those pieces of equipment with last three or four years. So I think thats part of it really view that as a rebound also saw a rebound in our our wireline.
Neal Lux: So I think that's part of it. Really view that as a rebound. We also saw a rebound in our wireline product line, which, again, serves the completion I think they get a rebound from Q4, but also, you know, our cables are going, you know, farther in the hole and are working more stages per day. They're just going to wear out quicker, so that's part of the cadence there. Thanks a lot.
Speaker Change: Product line, which against serves serves the completion group.
Speaker Change: I think they get a rebound from Q4, but also our.
Speaker Change: Our cables are going farther in the hole and are working more stages per day.
Speaker Change: They are just going to wear out quicker so thats part of the cadence there as well.
Neal Lux: I'll turn it back.
Speaker Change: With that I'll turn it back.
Neal Lux: Thanks, Josh. Thank you.
Joshua Jayne: Thanks, Josh.
Speaker Change: Thank you one moment for our next question.
Daniel Pickering: Our next question comes from the line of Dan Pickering from Pickering Energy Partners.
Speaker Change: Our next question comes from the line of Dan Pickering from Pickering Energy partners.
Lyle Williams: Morning, guys. Lyle, could you remind us, so you indicated that you repurchased shares during the quarter, and you talked about that 1.5 leverage ratio, which sounds like you ended the quarter slightly above the metric, but you repurchased shares during the quarter. Does that mean you paid down the facility, or how did that work during the quarter, and how do we think about that variability as we move into the Q2 and Q3? Yeah, that's a super question, Dan, and there's a good nuance there with how our metrics are done. We'll report to you and our other investors on a quarterly basis both our EBITDA and our net debt, and hence we ended with that 1.56.
Dan Pickering: Good morning, guys.
Speaker Change: Dan.
Speaker Change: Could you could you remind us.
Speaker Change: So you indicated that you repurchased shares during the quarter.
Speaker Change: And you talked about that 1.5 leverage ratio, which it sounds like you ended the quarter slightly above the metric.
Speaker Change: But you repurchase shares during the quarter does that mean, you would pay down the facility or how did that work during the quarter.
Speaker Change: And how do we how do we think about that variability as we move into that.
Speaker Change: And to the Q2 and three.
Speaker Change: Yes, that's a super question, Dan and Theres, a good nuance there with how our metrics are done we'll report to you and our other investors on a quarterly basis.
Speaker Change: Both our EBITDA and our net debt and hence we ended with that 156 for the incurrence test ratio of one five times, we measure EBITDA quarterly just like we do for our public filings here, but we measure net debt within 30 days of buying back our shares our bondholders wanted us to do.
Lyle Williams: For the incurrence test ratio of 1.5 times, we measure EBITDA quarterly just like we do for our public filings here, but we measure net debt within 30 days of buying back our shares. Our bondholders wanted us to do that just so we kept a tighter rein maybe than quarter to quarter, called month to month or even week to week as far as how cash moves. So that opens up windows for us to buy shares within a quarter, and that's what happened in the first quarter. We were able to take advantage of the market early and our leverage ratio there.
Speaker Change: Do that just so we kept the tighter range, maybe even quarter to quarter month to month or even week to week as far as how cash moves so that opens up windows for us to buy shares within a quarter and.
Speaker Change: And that's what happened in the first quarter, we were able to take advantage of the market early.
Lyle Williams: Similarly, as we think ahead to the second quarter we're in now, even the third quarter those windows were open based on just the intra-quarter timing of how our cash flows in the quarter. So expect that and expect that those windows will open and we'll be able to take advantage of them here in the second and third quarters.
Speaker Change: Our leverage ratio there. Similarly, as we think ahead to the second quarter. We're in now even the third quarter. Those windows were open based on just the intra quarter timing of how our cash flows in the quarter. So expect that and expect that that those windows will open and we'll be able to take advantage of them here in the second.
Lyle Williams: Okay, that's, that's helpful.
Speaker Change: Third quarter.
Lyle Williams: And then maybe, can you spend a little bit of time talking about the cost efforts? You know, you mentioned in the press release and the call sort of 10 million annualized. Is that just, just tell us a little bit about how we'll start to see that? Do we think we get some of it immediately? Or is it longer dated? How do we how do we expect to see it flow through? Yeah, we did see a little bit of benefit already in the first quarter with some of the activities and cost reduction measures that we put in place even before, kind of call it the April noise that happened in the market.
Speaker Change: Okay.
Speaker Change: That's helpful. And then maybe can you spend a little bit of time talking about that.
Speaker Change: Cost efforts.
Speaker Change: You mentioned in the press release, and the call sort of $10 million annualized.
Speaker Change: Is that just.
Speaker Change: Just tell us a little bit about how we will start to see that do we think we get.
Speaker Change: Some of it immediately or is it longer dated how do we how do we expect to see it flow through.
Speaker Change: Yes, we did see a little bit of benefit already in the first quarter with some of the activities and cost reduction measures that we put in place even before kind of call. It the April noise that happened in the market. So we've seen a little bit there, but if we think about our our cost structure, it's a really highly variable cost.
Lyle Williams: So we've seen a little bit there, but if we think about our cost structure, it's a really highly variable cost structure between material and labor and overhead being a significant portion of our overall cost structure. Good news is that makes it very variable. So with activity coming down, we can manage those costs down very well. What we're specifically targeting with the $10 million is some of the more fixed costs. So those are ones that won't necessarily vary with revenue, and those could be embedded in cost of goods sold, could also be within our SG&A. So we'll be looking at efficiency gains, changes that we can make, and the like that will drive some cost out.
Speaker Change: <unk> <unk> between material and labor and overhead being a significant portion of our overall cost structure. Good news is that makes it very variable so with activity coming down we can manage those those costs down very well, what we're specifically targeting with the $10 million as some of the more fixed costs. So those are one.
Speaker Change: That won't necessarily vary with revenue.
Speaker Change: And those could be embedded in cost of goods sold could also be within our SG&A.
Speaker Change: So we'll be looking at efficiency gains change changes that we can make.
Lyle Williams: Those are going on right now, and we'd expect some benefit in the second quarter and more benefit to roll through into the third quarter as well.
Speaker Change: And the like that will drive some cost out those are going on right now and we would expect some benefit in the second quarter and more benefit to roll through into the third quarter as well.
Neal Lux: Okay, thank you. And then Neal, maybe as you indicated, we haven't seen any softness yet. There's risk. What specific business lines or, you know, is it order in intake? What are you watching as you're sort of canary in the coal mine around, you know, activity and any softness?
Speaker Change: Okay. Thank.
Speaker Change: Thank you.
Speaker Change: And then.
Speaker Change: Maybe as you you indicated we haven't seen any softness yet.
Speaker Change: There is risk what what specific business lines or is it order intake what are you watching as youre sort of Canary in the coal mine around.
Speaker Change: Activity.
Neal Lux: Yeah, yes, Dan, we have haven't seen that yet. I think a couple couple things, you know, about 80 to 85% of our revenue is activity based. So these are consumables that are required to operate for our.
Speaker Change: And any softness.
Dan Pickering: Yes, Dan we haven't seen that yet I think couple couple of things.
Speaker Change: 80% to 85% of our revenue is activity based so these are consumables that are required to operate for our customers, whether it's coiled tubing or wireline or our downhole tool. So yes.
Neal Lux: at www.forumenergy.com. unless there's a rebound, we believe rig count or overall activity is going to follow with a lag. And so part of our cost-saving effort, part of our material, let's call it slowdown of inbound material, that we wanted to get ahead of this thing. So I think it's easier if you make the cut sooner. And then let's say we work a little bit more overtime, we use a little bit more inventory. And if oil prices, let's say, rebound in the next couple months or next couple weeks, it won't hurt our long-term ability to respond to that.
Speaker Change: We're really close to that with what we wanted to do though and what we thought was prudent is when you see oil prices come down to a level like they are at now and.
Speaker Change: Unless there is a rebound we will leave rig count our overall activity is going to follow with a lag and so part of our cost saving effort part of our.
Speaker Change: Our material lets call it slowdown of inbound inbound material that we wanted to get ahead of this thing so I think it's easier.
Nathan: Nathan cut sooner.
Nathan: And then let's say we were a little bit more over time, we use a little bit more inventory and if oil prices, let's say rebound in our next next couple months or next couple of weeks.
Nathan: Don't hurt our long term ability to respond to that so we're going to stay close to the customers.
Neal Lux: So we're going to stay close to the customers. We're going to follow our inbound orders in the canary in the coal mine if we see shipments drop off in a month. We'll know our customers are pulling back, but for right now, we haven't heard any specific indications of that, so we're operating business as usual, but we're keeping an eye out and we're going to be proactive in how we do that.
Nathan: We're going to follow our inbound orders.
Nathan: The Canary in the coal minus if we if we see see shipments drop off in a month.
Nathan: No. We will know our customers are pulling back but right now we haven't heard any specific indications of that so we are operating business as usual, but we're keeping an eye out and we're going to be proactive in how we respond.
Neal Lux: Good. Well, I applaud you guys for being quick on the trigger here.
Speaker Change: Okay, well I applaud you guys for being bringing being quick on the trigger here.
Neal Lux: Last question for me. You mentioned pushing price in certain areas related to rising costs. Is it holding? Is it sticking? Is that part of the buyer strike on the valve side, for instance, is they don't like the higher price and they're waiting to see if it'll come down? Just what's the reaction to price? So we have a lot of different, Dan, as you know, we have a lot of different products. We address a lot of different markets. I think each of those are unique. To me, the valve story is it's China specifically where almost all valves that are imported in the U.S.
Speaker Change: Last question for me, you mentioned pushing price in certain areas related to rising costs.
Speaker Change: Is it is it holding is it sticking is that part of the buyer strike on the valve side for instance is they don't like the higher price and they're waiting to see if that will come down just whats the whats the reaction to price.
Speaker Change: So we.
Speaker Change: <unk>.
Dan Pickering: Lot of different Dan as you know, we have a lot of different products, we addressable.
Dan Pickering: So I think each of those are unique to me the valve story is China specifically.
Dan Pickering: Almost all all valves that are important in the us originate and I think also our customer see the.
Neal Lux: originate. And I think also our customers see the quick change, whether the tariffs start at 30 percent, then they go up to 145. Are they going to come down in a week based on a tweet? So I think that's part of the valve specific story is unless you absolutely positively must have a valve, you are better off holding off in almost all cases. We think that inventory is going to run out, our customers are going to need it, and they're going to have to have to buy it. That said, we are also looking at alternative strategies that could take away or radically improve our cost position and make us far more competitive.
Dan Pickering: Quick change whether the tariff start at 30% then they go up to 145 are they going to come down.
Dan Pickering: Based on a tweet so I think thats part of the valves specific story is.
Dan Pickering: Unless you absolutely positively must have a valve.
Dan Pickering: Our better off holding off in almost all cases now we think that inventory is going to run out.
Dan Pickering: Our customers are going to need it and they're going to they're going to have to have to buy it.
Dan Pickering: Said, we are also looking at alternative strategies that could take.
Dan Pickering: Takeaway or radically improve our cost position and make us far more competitive so where we're implementing those efforts not ready to get into those details yet today, but.
Neal Lux: So we're implementing those efforts, not ready to get into those details yet today, but we want to find a way to take these lemons and make lemonade out of them.
Dan Pickering: We want to find a way to take take these 11 to make lemonade out of them.
Dan Pickering: Thank you.
Neal Lux: Thanks, Dan.
Dan Pickering: Thanks, Steve.
Dan Pickering: Thank you one moment for our next question.
Jeff Robertson: Our next question comes from the line of Jeff Robertson from Water Tower Research. Thanks. Good morning. Morning, Joe. You all spoke about a little bit of turbulence in Canada in the first quarter. Can you elaborate on what's going on up there with Veraperm and whether or not that's seasonal or temporary or anything? Yeah, so I think, you know, I think it's definitely temporary, and I think we're also heading into what's typically a slower season in Canada overall, but, you know, what we saw with Veriperm is really a combination of customer and product mix, and what we mean by customers is that there's certain oil sands operators where we have a higher market share, so if more of those customers are working, you know, obviously it's more share for us, so I think our customer mix or the share of who is working or drilling in Q1 was unfavorable for Veriperm.
Speaker Change: Our next question comes from the line of Jeff Robertson from water Tower research.
Jeff Robertson: Thanks, Good morning.
Speaker Change: Good morning, Joe.
Speaker Change: I spoke about a little bit of turbulence in Canada in the first quarter keeps elaborate on whats going on up there with <unk> and whatnot.
Speaker Change: Seasonal or temporary or.
Speaker Change: Yes, so I think.
Speaker Change: I think it's definitely temporary and I think we're also heading into what's what's typically is a slower season in Canada overall, but.
Speaker Change: What we saw with with their Perm is really a combination of customer and product mix and what we mean by customers is that there are certain.
Speaker Change: Oil sands operators, where we have a higher market share so if more and more of those customers are working obviously, it's more share for us. So I think our customer mix or the share of who is working our drilling in Q1 was unfavorable for <unk> I think the other part was that for those.
Neal Lux: I think the other part was that for those that were working that we were selling to, they didn't utilize our flow control products as much as what other operators would, so it was a product mix there as well, so a little bit off there, but overall, you know, Veriperm's still generating a ton of cash, you know, I think they're still in the right position, they're still innovating, so I think as we look to the back half of the year, I think we'll see some improvement with that business going forward, still love it, still have the type of margins we're impressed with, you know, just had a great fourth quarter, maybe not quite as good in Q1, don't see any long-term.
Speaker Change: That we're working that we were selling to.
Speaker Change: He didnt utilize our flow control products as much as what other operators with I think it was a product mix there as well, so a little bit a little bit off there but.
Speaker Change: Overall.
Speaker Change: Fair Fair is still generating a ton of cash.
Speaker Change: I think they are still in the right position, there's still innovating. So I think as we as we look to the back half of the year I think we will see see some improvement with with that business going forward still love. It still have the type of margins we're impressed with.
Speaker Change: Just had a great fourth quarter, maybe not quite as good in Q1, DLT any any long term impact though.
Neal Lux: We're basically a month into a lower oil price, so your comments around the lag in activity is that your customers are trying to figure out their businesses. Can you share any color on recent... Conversations with customers about longer lead time. as they're thinking about that. You know, our our longest lead time items tend to be with our capital businesses. And so, you know, that's, for example, subsea. And we are seeing more more activity there on our consumable based businesses. You know, the the conversations we're having with our customers really haven't changed from from where we've been.
Speaker Change: We're basically a month into a lower.
Speaker Change: Oil price so.
Speaker Change: Comments around that.
Speaker Change: The logging activities as your customers try to figure out can you share any color on recent.
Speaker Change: Conversations with customers about longer lead time.
Speaker Change: Items.
Speaker Change: So we're thinking about that.
Speaker Change: Our longest lead time items tend to be with our capital businesses and so that's for example, subsea and we are seeing more and more activity there.
Speaker Change: On our consumable based businesses.
Speaker Change: The conversations we're having with our customers really hasnt changed from from where we've been so.
Neal Lux: So at the at the ops level, they are not not seeing any any changes. Again, our our view is that we want to be prepared and get out in front of it. And that's that's why we're acting this way. We just we feel like the the macro in many in many ways leads the activity. And unless oil prices rebound or gas price, you know, gas activity really jumps. We just we just envision recount coming down. If you do see over time a shift toward more gas directed drilling where There can be higher temperatures and higher downhaul pressures to deal with.
Speaker Change: At the at the ops level, they are not not seeing any changes they get our our view is that we want to be prepared.
Speaker Change: Get out in front of it and that's why we're acting this way we feel like.
Speaker Change: The macro in many in many ways leads the activity and unless oil prices rebound or gas price gas activity really jumps.
Speaker Change: We just we just envision rig count coming down in the next three to six months.
Speaker Change: If you do see over time, a shift towards more gas directed drilling where.
Speaker Change: There can be higher temperatures and higher downhole.
Neal Lux: Does that affect the life of some of the consumables and maybe shorten the replacement cycle of certain products versus having them work in oil reservoirs? You got it 100% right there, Jeff. Yeah, absolutely. Gas tends to be higher pressure, higher temperature. Items like wireline, coil tubing, even some of our downhole tools, they do outwear out more quickly and need to be replaced. So yeah, even surface items like pumps wear out more quickly under that higher pressure. So yeah, all in all, a shift to more gas, I think, would help our Thanks.
Speaker Change: Pressures to deal with.
Speaker Change: Does that affect the life of some of the consumables and maybe shorten the replacement cycle of certain products versus having them working in oil reservoirs.
Jeff Robertson: You got a 100% right there Jeff yes, absolutely.
Speaker Change: Gas tends to be higher pressure higher temperature.
Speaker Change: Items like wireline coiled tubing.
Speaker Change: Even some of our downhole tools, they do do out where out more quickly it needs to be replaced more frequently.
Speaker Change: So, yes, even actually even even surface items like like pumps well.
Speaker Change: We're out more quickly I know that higher pressure. So all in all a shift to more gas I think would help or would help our consumable demand.
Neal Lux: And then just lastly, have you seen any change in any of the renewable type? exposure that you have, whether it's data centers with, I think, your cooling units or RV demand or off-road landing. Yeah, let me let me start with the offshore. So we, you know, I think our offshore business is really Eastern Hemisphere or Southern, let's call it South America focus. So we have not seen a change. In fact, we've seen acceleration in the offshore. Again, I think part of that is oil and gas, part of that's defense, part of that is also the offshore wind.
Speaker Change: Thanks, and then just lastly have you seen any change in.
Speaker Change: Any of the renewable type.
Speaker Change: Exposure that you have whether it's data centers.
Speaker Change: Your cooled units or.
Speaker Change: The demand over rented.
Speaker Change: Yes, let me, let me start with the the offshore so we.
Speaker Change: I think our offshore business is really eastern hemisphere.
Speaker Change: Our southern let's call it South America focus so we have not seen a change in fact, we've seen acceleration in the offshore again I think part of that is oil and gas part of Thats. The first part of that is also the offshore wind so no no change there.
Neal Lux: So no, no change there. On the PowerGen side data centers, we are still still at it. We're still setting and still booking our coolers that that go into those applications. The Powertron, which is our radiator for a power application. We're still seeing a nice uptake there and we expect that to continue through the year.
Speaker Change: The power Gen side data centers.
Speaker Change: We are still still adding and still booking.
Speaker Change: Our coolers that go into those applications. So.
Speaker Change: The power charge, which is our radiator for.
Speaker Change: For power applications.
Speaker Change: Still see a nice nice uptake there and we expect to expect that to continue through the year.
Speaker Change: Thank you.
Jeff Robertson: Thanks, Jeff.
Jeff Robertson: Thank you one moment for our next question.
Steve Ferazani: Our next question comes from the line of Steve Ferazani from Sudoti. Morning, everyone. Appreciate all the detail on the call.
Speaker Change: Our next question comes from the line of Steve Farrens Donny from Sidoti.
Jeff Robertson: Sure.
Speaker Change: Good morning, everyone I appreciate all the detail on the call.
Steve Ferazani: I wanted to ask about how you can benefit from your geographical diversification in this environment. I mean, the expectation that you walk through it, the U.S. short cycle probably gets hit first. But, you know, when you hear the calls, certain markets that you're in are likely to hold up better.
Speaker Change: I wanted to ask about your how you can benefit from your geographical diversification in this environment.
Speaker Change: The expectation that you walked through it to U S short cycle, probably gets hit first but.
Speaker Change: When you hear the call certain markets that you're in are likely to hold up better can you talk about is there any way to target the stronger markets and you can't completely replace what Youll, losing U S short cycle, but what you can do in that kind of environment.
Neal Lux: Can you talk about is there any way to target the stronger markets? And you can't completely replace what you'll lose in U.S. short cycle, but what you can do in that kind of environment.
Neal Lux: Yeah, great, great question. I think maybe first example is the subsea business, right? I think there's, there have been times where, you know, that I think the longer cycle or subsea just was out of favor and there's more focus on U.S. land. I think we're seeing really the opposite now. We're seeing really strong momentum. I think our bookings in subsea was that we had the best bookings quarter in five quarters or so. So I think that was really encouraging. So that's part of how we do it. Again, if you think about our subsea business, typically it's Eastern Hemisphere related or South America.
Speaker Change: Yes, Greg.
Speaker Change: Great question I think maybe first examples the subsea business right. I think there is there have been times, where that the longer cycle. Our subsidiary was out of favor and there is more focus on U S land.
Speaker Change: We're seeing really the opposite now we're seeing really strong strong momentum I think our our bookings in subsea was was that we had the best bookings quarter in five quarters or so so I think that was that was really really encouraging. So thats part of how we do it again, if you think about our subsea business typically its eastern hemisphere.
Speaker Change: Related or South America, so that that's going well.
Neal Lux: So that's going well.
Neal Lux: We also are expanding our downhole business line into the Middle East. Those efforts started obviously a few years ago. They're continuing and we still see good results.
Speaker Change: We also.
Speaker Change: We are expanding our downhole business line into into the Middle East those efforts started obviously a few years ago. They are continuing.
Speaker Change: And we still see see good results there.
Lyle Williams: And Steve, I'll jump in. In addition to what we might see from the markets, I think there are cost and or tariff advantages that we can take advantage of with our geographic footprint from a manufacturing perspective. We clearly have a lot of manufacturing footprint in the U.S. and for months have been working on an effort to insource product that previously had been outsourced. Through doing that, we increase manufacturing utilization, which is great at this potentially softer time, but also can avoid some of the tariff impacts. And similarly, we can use our international facilities, like Neal mentioned on the call, in order to avoid U.S.
Speaker Change: And Steve jump in in addition to what we might see from the markets. I think there are cost indoor tariff advantages that we can take advantage of with our geographic footprint from a manufacturing perspective, clearly have a lot of manufacturing footprint in the U S.
Speaker Change: And for months had been working on an effort to in source product. It previously had been outsourced.
Speaker Change: Through doing that we increase manufacturing utilization, which is great at this potentially softer time, but also can avoid some of the tariff impact.
Speaker Change: Similarly, we can use our international facilities like Neil mentioned on the call in order to avoid U S facilities completely so that's shifting supply chain, where may be components come in from high tariff countries into.
Lyle Williams: facilities completely. So that's shifting supply chain, where maybe components come in from high-tariff countries into the U.S. to then be re-exported for international markets. We just skip the U.S. step. Whether that's leveraging our facility in Saudi or in Canada, a product can head in there from international locations, be manufactured, assembled, tested, and then shipped out. So that international footprint is really something we're able to take advantage of here in this time of tariff-related uncertainty.
Speaker Change: The U S to then be re exported for international markets. We just skip the U S step, whether that's leveraging our facility in Saudi or in Canada product and head in there from international locations be manufactured or assembled tested and then shipped out so that international footprint is really something we're able to tell.
Speaker Change: The advantage of here in this time of tariff related uncertainty.
Neal Lux: He never knew the flexibility was going to be this useful, I'm assuming, but very helpful right now, no doubt. Good to see you're ahead of it.
Speaker Change: Never knew the flexibility was going to be this useful I'm, assuming but very <unk>.
Speaker Change: Helpful Right now no doubt.
Speaker Change: This year, yes.
Speaker Change: Can I ask.
Speaker Change: Yes.
Neal Lux: I was going to ask about, look, steel price has been the most obvious one. You can you can You can raise prices, but there's going to be a lag. Do you have any idea right now based on your 2Q guidance? what the impact is from tariffs? Is there any way to quantify that? And there's a lot of moving parts to that. What the impact to you is in 2Q based on your guidance from higher costs and tariffs? Yeah, I think The biggest impact will be valves, right, so we talked about the wire structure, I think that's in our number, so that is concerning for us.
Speaker Change: Uh huh.
Speaker Change: I was going to ask about look steel price has been the most obvious one you can you can.
Speaker Change: You can raise prices, but theres going to be a lag.
Speaker Change: You have any idea great.
Speaker Change: Right now based on your <unk> guidance.
Speaker Change: What the impact is from tariffs is there any way to quantify that and there's a lot of moving parts to that what the impact to you is into Q based on your guidance from higher costs and tariffs.
Speaker Change: I think the biggest impact will be valves right. So we talked about the strength and I think thats in our number so that is concerning for us.
Neal Lux: to put that in our forum. The other areas where we've seen price increase, I think a couple, you're right on the price, you're going to have a lag when you raise price, but we also have a lag of when the cost goes up. I think we're hopeful that those balance and that, you know, any tariff impact that's out there, we're going to recoup with either price or change. are supplied. Okay, that's helpful.
Speaker Change: We implement we've put that in our forecast.
Speaker Change: The other areas, where we've seen price increase.
Speaker Change: Youre right on the price you're going to have a lag when you when you raise price, but we also have a lag in when the costs are going up because we did as we do have some inventory. We do have some orders I think we're hopeful that those balance in that.
Speaker Change: Any tariff impact that's out there, we're going to recoup with either price or change in our supply chain.
Neal Lux: Last one for me, and I guess maybe hopefully we don't run into this scenario. There is the event where you're building cash, but the window remains closed for an extended period. In that event, Do you just build is the plan to build cash or would you would you look for alternate usage? No, great, great question.
Speaker Change: Okay.
Speaker Change: Uh huh.
Speaker Change: Last one for me I understood.
Speaker Change: I guess, maybe hopefully we don't run into this scenario there is the <unk>.
Speaker Change: Where you are building cash.
Speaker Change: Window remains closed for an extended period in that event.
Speaker Change: Do you just bill is the plan to build cash or would you could you look for alternate usage.
Neal Lux: And I think, you know, as recall, in our in our framework that we've laid out, first half of our cash is going to go to net debt reduction. And when we restructure our debt last year, Steve, you'll remember that we left a decent chunk of cash on our revolver. So the idea there is we not only reduce net debt, but we actually reduce absolute debt and save interest expense. So that half will go to paying down our revolver. If there's a reason why we're can't buy back shares for some period of time, I think we continue to pile down the revolver that will lower net debt and ultimately open the window back up.
Speaker Change: No great Great question, and I think as recall in our in our framework that we've laid out first half of our cash is going to go to net debt reduction and when we restructure our debt last year, Steve Youll remember that we left a decent chunk of cash on our revolver.
Speaker Change: So the idea there is we not only reduce net debt, but we actually reduce absolute debt and save interest expense. So that half will go to paying down our revolver. If there is a reason why we cant buy back shares for some period of time I think we continue to pile down the revolver that will lower net debt and ultimately open the window.
Ryan: So open Ryan.
Neal Lux: So I think we'll get the benefit of reduced interest expense if that happens. But really, we believe we can get there with a leverage ratio on on a more expedited Thanks, everyone. Appreciate it. Thank you.
Ryan: I think we will get some benefit of reduced interest expense if that happens, but really we believe we can get there with a leverage ratio on a more expedited basis.
Ryan: Perfect. Thanks, everyone appreciate it.
Ryan: Thank you.
Ryan: Thank you one moment for our next question.
Dave Storms: Our next question comes from the line of Dave Storms from Stonegate.
Speaker Change: Our next question comes from the line of Dave storms from Stonegate.
Dave Storms: Good morning, everyone. I appreciate you taking my questions. Morning, Dave. I just want to start, and apologies if I miss this, but assuming the tariff levels do wane a little bit over the coming months, how much of the demand do you think could be made up and how much of those orders, you know, are just kind of... Now, that's a great question. I think a big feature of what we're talking about, remember, is our valves product line. And we will look at the valves that we primarily manufacture and source from China. The major supply chain for our competitors is also from China.
Speaker Change: Good morning, everyone. I appreciate you taking margins I'm wondering Dave.
Speaker Change: Just wanted to start and apologies if I missed this but assuming the tariff levels you weighing a little bit over the coming months, how much of the demand do you think could be made up and how much of those orders.
Speaker Change: Just kind of gone.
Speaker Change: No. That's a great question I think a big feature of what we're talking about remember reserve out of our valves product line and we will look at the valves that we primarily manufacture and source from China. The major supply chain for our competitors is also from China. So so we feel that all.
Neal Lux: So we feel that all of our competitors are seeing the same thing. And we hear about similar price increases and price types. So I think what that means is we really have this buyer strike, where buyers just aren't buying product. At some point, the ultimate demand and end-use rebounds, you know, where things could be delayed more permanently is really, call it capital spend by end-users. So that's in a refinery or a pet chem project or on a pipeline. If that's deferred, then that demand just gets deferred. But if it's maintenance or if it's depleting inventories, then I think we could see a rebound.
Speaker Change: All of our competitors are seeing the same thing.
Speaker Change: And we hear about similar price increases and price actions. So I think what that means is we really have this buyer's strike where buyers just arent buying product at some point the ultimate demand and then use rebounds.
Speaker Change: Where things could be delayed more permanently is really call. It capital spend by end users. So that's in a refinery or a pet Chem project are in our pipeline. If thats deferred then that demand just gets deferred if it's maintenance or if it's depleting inventories and I think we could see a rebound so.
Neal Lux: So a really positive move would be a decrease in those tariffs. I think as we look at the geopolitical macro and what's being said about trade policies, we're not expecting that. So I think what we expect is a longer run with these tariffs. Maybe they come down some, but still see a pretty high number, which gets back to Neal's comment about us looking at alternate sourcing strategies, using other facilities to move in and mitigate the impact of tariffs, and ultimately have a much lower cost per share.
Speaker Change: So a really positive move would be a decrease in those tariffs I think as we look at the geopolitical.
Macro and what's being said about trade policies, we're not expecting that so I think what we expect as longer run with these tariffs maybe they come down some but still see a pretty high number which gets back to neal's comment about us looking at alternate sourcing strategies using other facilities to move in.
Speaker Change: Mitigate the impact of tariffs and ultimately have a much lower cost basis.
Neal Lux: That's perfect. Thank you. And then just kind of dovetailing off of that, what kind of competition are you seeing in finding those alternate sourcing of the supply lines? I got to imagine kind of everyone has has the same plan. You know, we haven't seen, let's call it, much competition for that. I think we've set up a lot of these supply lines. earlier. So we If you go back in time, you know, Trump really introduced tariffs and duties, you know, 2017. We've been we've been dealing with this for the last last eight years or so. Big push on our side is to have supply chain resiliency, so I think we've built that in there.
Speaker Change: Perfect. Thank you and then just kind of dovetailing off of that what kind of competition are you seeing and finding those alternate sourcing.
Speaker Change: <unk> lines I got to imagine.
Speaker Change: Kind of everyone has the same plan.
Speaker Change: Yeah.
Speaker Change: We haven't seen let's call it much competition for that I think we've set up a lot of these supply lines.
Speaker Change: Earlier, so again.
Speaker Change: If you go back in time, you know Trump Trump really introduce tariffs and duties for 2017. So we've been we've been dealing with this for the last eight years or so so.
Speaker Change: Big push on our side is to is to have supply chain resiliency I think we've built that in there.
Neal Lux: Maybe the, what would be a little different was, would be the. Assembly activities that I think that both Lyle and I have both mentioned. you know, that's a little new. And again, that's, that's more All right.
Speaker Change: Maybe the what would be a little different was would be the.
Speaker Change: The assembly activities that I think that both Lal and I both mentioned.
Speaker Change: That's a little new and again, that's more just to.
Speaker Change: To avoid the tariffs again, which to me is ironic is that we added these tariffs and yet we're now pushing manufacturing outside the United States because of them. So I think theyre, just a terrible trade policy and hopefully we can we can fix that.
Neal Lux: I think they're just a terrible trade policy and hopefully we can And then one more for me, if I could, just thinking about the customers and the buyer strike, any sense, finger in the wind, you know, crystal ball question on how long they could hold out, you know, kind of maybe how much track is in front of them before there would be capitulation? Could it be a quarter, two quarters, two years? I'm not really sure, you know, they don't keep, you know, I think over the last few years they've been more lean with inventories. You know, it's like I could see it, you know, slowly, slowly move, but if the price remains high, you know, they'll, it's not going to be a full capitulation, they're just going to buy the minimum of what's.
Speaker Change: That's great and then one more for me if I could just thinking about the customers and the buyer strike any sense finger in the wind Crystal ball question on how long they could hold out kind of maybe how much track is in front of them.
Speaker Change: There would be capitulation could it be a quarter two quarters two years.
Speaker Change: Not really sure.
Speaker Change: They don't keep.
Speaker Change: I think over the last few years, they've been more lean with inventories.
Speaker Change: So I could see it slowly slowly move, but if the price remains high.
Speaker Change: It's not going to be a full capitulation theyre just going to buy the minimum of what they need.
Speaker Change: To get to get through but I think once there's certainty around where the tariffs are and if they're not moving yet I think they need to get back to business as usual.
Operator: https://www.forumenergy.com Thank you very much and good luck in Q2. Thank you.
Speaker Change: That's great. Thank you very much and good luck in Q2. Thank.
Speaker Change: Thank you.
Eric Carlson: One moment for our next question. Our next question comes from the line of Eric Carlson. Hey guys, good morning. I had a long list of questions that I kind of crossed off most of them as we went here. When I think about how you've kind of managed cash over the last few years and kind of the outlook here. So going to generate close to 100% of current market cap in cash over 2024 and 2025. And what did you say the net that level is that currently or as of I guess of 331? It's about 150, so 148 I think is the number.
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 good.
Speaker Change: Morning, Eric.
Speaker Change: I had a long list of questions that are kind of cross off most of them as we went here I guess.
Speaker Change: Yes.
Speaker Change: When I think about how you kind of manage cash numbers.
Speaker Change: Glass.
Speaker Change: Two years in kind of the outlook here, so going to generate close to 100% of current market cap in cash over 2020, four and 2020 falls and what did you say.
Speaker Change: Level is that currently or as of I guess.
Speaker Change: 31.
Speaker Change: It's about $150 140, 148, I think is the number.
Lyle Williams: Okay, 148. So basically the potential to get kind of that net debt down to... 100 to 115, depending on how the year plays out. current market cap sorry I'm doing quick math you're I mean you're basically looking at trading by year end 3.2 to 3.5 times EBITDA or the enterprise value under 300 million.
Speaker Change: Okay.
Speaker Change: So basically the potential to get kind of that net debt down.
Speaker Change: 100 to 115, depending on how the year plays out so.
Speaker Change: Current.
Speaker Change: Market cap, sorry, I'm doing quick math.
Speaker Change: You're basically looking at trading by year end 3.2 to three five times EBITDA.
Speaker Change: Prize value under $300 million.
Lyle Williams: Um Maybe a little context. So 2020, you had negative 20 million of EBITDA and finished the year at 230 million of enterprise value. I'm doing quick math. 2021, 20 million positive EBITDA, end of the year with 275 million enterprise value, so not far off what kind of year-end looks like, and clearly significantly better.
Speaker Change: Maybe a little context, so 2020.
Speaker Change: <unk> negative $20 million.
Speaker Change: EBITDA and finished the year at $230 million of enterprise value I am doing quick math 2021 $20 million positive EBITDA.
Speaker Change: End of the year.
Speaker Change: $275 million enterprise value, so not far off what kind of year end looks like.
Speaker Change: Clearly significantly better so maybe.
Lyle Williams: So maybe the question would be, how do you execute buybacks in a meaningful way? without maybe pushing market price too much and taking advantage of this while it lasts. Can you source directly from some of the other large shareholders or the bondholders that still exist? Maybe talk me through execution of the buyback and maybe how that has happened so far. Yeah, Eric, it's a great question. And it's something that we were definitely, definitely focused on. As we've seen, since we announced our share buyback, our value has moved pretty materially in the market, and being impacted recently by what's gone on with trade and tariff policies and OPEC plus.
Speaker Change: My question would be is how do you execute buybacks in a meaningful way.
Speaker Change: Without maybe pushing market price too much and taking advantage.
Speaker Change: While it lasts can you source directly from some of the other large shareholders are the bondholders that still exists maybe talking through execution of the buyback and maybe how that has happened so far.
Eric Carlson: Yes, Eric.
Eric Carlson: It's a great question and it's something that we are definitely definitely focused on.
Eric Carlson: As we've seen since we announced our share buyback are our value has moved pretty materially in the market.
Eric Carlson: And being impacted recently by what's going on with trade and tariff policies and OPEC plus.
Lyle Williams: So I think as we think about the way to do that, clearly, being in the market could have an upward pressure on our stock price. I think as we look at that, though, we're trading at a pretty significant discount. You highlighted some of those metrics that are out there. I think we feel the same way. So there's an opportunity to really move what's going on from a stock price perspective, move the amount of shares we buy back given the current stock price, and definitely something that we would love to take advantage of. There'll be some carefulness in what we do, but I would expect us to try to get out in the market and be there, especially when those windows open for us related to our net leverage ratio.
Eric Carlson: So I think as we think about the way to do that clearly being in the market could have an upward pressure on our stock price.
Eric Carlson: I think if we as we as we look at that though we are trading at a pretty significant discount you highlighted some of those metrics.
Eric Carlson: That are out there I think we feel the same way so.
Eric Carlson: There is an opportunity to really move whats going on from a stock price perspective.
Eric Carlson: Move the amount of shares we buy back given the current stock price and definitely something that we would love to take advantage of there'll be some carefulness in what we do but but but I would expect us to try to get out of the market and be there, especially when those windows open for us.
Eric Carlson: Related to our net leverage ratio.
Lyle Williams: Yeah, I mean, for our thinking, to be north of 25%, again, this is our forward free cash flow yield at kind of the midpoint of our guidance, that just seems like a ridiculous would think that there's a lot of value there. So even if the price were to double. There's still, you know, 12 and a half percent free cash flow yield. More and more people have interest. I think if you look at our track record of performance, we've done what we've said we should do. We've outperformed almost every index that we're a part of. If you're an investment portfolio manager and you can compare us with the index, like the Russell 2000, if that's where you're being measured.
Eric Carlson: Yes.
Eric Carlson: Our thinking to be north of 25% again. This is our forward free cash flow yield at kind of the midpoint of our guidance.
Eric Carlson: It just seems like a ridiculous number.
Eric Carlson: So we think that there's a lot of value there. So even even if the price were to double Theres still 12, 5% free cash flow yield is still with <unk>.
Eric Carlson: It put us in the top quartile of peers are higher so I think the.
Eric Carlson: Whats frustrated us as the undervalue and again, we need to get our story out.
Eric Carlson: We've been doing that we're going to consistently do that we think there is there is more and more people that interest I think if you look at our track record of performance. We've done what we've said what we should do we've outperformed almost every index that we're a part of Europe, if you're an investor portfolio manager and you can compare.
Eric Carlson: US with the indexes like the Russell 2000, and Thats, where you are being measured.
Lyle Williams: Why wouldn't you be an a- The value is there, the performance is there, and ultimate, I think... It's really exciting for us. It's long term. We think there's a lot of growth here as well. So it's a great combination, and it's one that's... We're excited and we're going to try to try to buy these shares. as many as possible as we can.
Eric Carlson: Why wouldn't you be in FMT.
Eric Carlson: The values there the performance is there an ultimate I think what's really exciting for us.
Eric Carlson: As long term.
We think theres a lot of growth here as well so it's a great combination.
Eric Carlson: And it's one that.
Eric Carlson: We're excited and we're going to try to try to buy the shares as many as possible as we can.
Lyle Williams: especially while the price And then maybe the last thing is, in the context of long-term, maybe, obviously, the cure for low prices is low prices and kind of a headwind turning into a tailwind, ultimately. I mean, what have you guys learned? I know, like, when we... kind of came into 2023, built working capital a little bit in 2023. I mean, how have you guys changed from as headwinds turned to tailwinds and thinking about managing cash, really kind of hammering home this return of capital story, keeping leverage low? Maybe just walk me through kind of as we turn the corner, which will ultimately happen.
Eric Carlson: Specially while the price of this is this cheap.
Eric Carlson: Yes, great.
Eric Carlson: Great.
Eric Carlson: So maybe the last thing is in.
Eric Carlson: In the context of long long term maybe.
Eric Carlson: Obviously, the cure for low prices is low prices and kind of.
Eric Carlson: A headwind turning into a tailwind ultimately.
Eric Carlson: I'm wondering if you guys learned now.
Eric Carlson: When we.
Eric Carlson: Kind of came into 2023 built working capital a bit in 2023, I mean, how have you guys changed from.
Eric Carlson: As headwinds turn to tailwind if im thinking about managing cash really kind of hammering on this return of capital story keeping leverage low.
Eric Carlson: Maybe just walk me through kind of as we turn the corner, which will ultimately happen.
Lyle Williams: I mean, how have you guys changed your mindset or? As you plan for that and think about that, maybe just some color would be helpful. Yeah, no, I think if you go back to our origins, where we began, I think, you know, as a small cap company in a growing industry, we sought to grow EBITDA. That was the focus that's been the focus of our careers for many years. I think as we got into this cycle and we saw it, We want to be cash. We ultimately want to generate free cash flow. If the cycle begins to turn and we start to see growth, we're going to have a high bar of returns for each of our businesses.
Speaker Change: How have you guys.
Eric Carlson: Change your mindset or.
Eric Carlson: And as you plan for that and think about that maybe just some color would be helpful.
Speaker Change: Yes, no I think if you go back to our origins, where we began I think.
Eric Carlson: As a small cap company and a growing growing industry.
Eric Carlson: <unk> sought to grow EBITDA that was that was that focus that's that's been the focus of our careers for many years I think as we got into this cycle and we saw.
Eric Carlson: No changes.
Eric Carlson: We want to be cash focused.
Eric Carlson: We ultimately want to generate free cash flow so.
Eric Carlson: If the cycle begins to turn and we start to see growth.
Eric Carlson: We're going to have a high bar of returns for each of our businesses and we think we can achieve it but we want it we want to be turning our working capital very quickly and so we think about key.
Lyle Williams: And we know we can achieve it, but we want to be turning our working capital very quickly. And so if we think about key measures, ones that we have internally, our incremental return on incremental working capital, we want to get that. Whatever working capital we add in a year, we want to have that back in cash. And so that's going to be a focus on the turn. Our best businesses are going to get the capital. Our ones that don't achieve those results, they're not going to. And so we want to utilize our working capital, which, again, is our biggest use of cash.
Eric Carlson: Key measures ones that we have internally our incremental return on an incremental working capital we want to get that whatever working capital we add in a year, we want to have that back in cash and so that's going to be a focus on the turn our best businesses are going to get the capital are ones that don't achieve those result.
Eric Carlson: They're not going to and so that we're going to we want to we want to utilize our working capital, which again is our biggest biggest use.
Lyle Williams: We want to do it in the most efficient way.
Eric Carlson: Cash we want to do in the most efficient way possible.
Lyle Williams: And maybe the last thing I'm going to ask would be, I know we've seen a few of the sale leaseback transactions over the last few years, is there anything out there potentially that could be an off-cash generator really set you below that and that leverage to show and open up a big window? to be determined, just curious if there's anything that you could see in the short term to generate kind of a one-time cash flow. Yeah, Eric, the teams have done a really good job over the last few years of turning our real estate, our dirt, into capital that we could redeploy and use, and that's been very good.
Eric Carlson: That's helpful.
Eric Carlson: Last one on capital.
Eric Carlson: No.
Eric Carlson: Jim.
Speaker Change: The sale leaseback transactions over the last few years is there anything.
Out there potentially that could be lost.
Eric Carlson: Cash general really Scott you below that.
Eric Carlson: Sean.
Eric Carlson: Hey, Bill.
Eric Carlson: Sure.
Eric Carlson: To be determined just curious if theres anything that.
Eric Carlson: You can see in the short term to generate kind of a one time cash flow.
Eric Carlson: Yeah, Eric the teams have done a really good job over the last few years of turning our real estate, our dirt and the capital that we could redeploy and use and thats been very good the amount of real estate that we have left is getting really pretty thin as far as what's available.
Lyle Williams: The amount of real estate that we have left is getting really pretty thin as far as what's available, and that's good news. We've now gotten our cash redeployed, our capital redeployed, so definitely things that we look at is, are all of our assets generating appropriate returns? And to the extent that they're not, it's a question that we ask ourselves is, should we monetize that and be able to put that cash to a more high-return use? So definitely something we look at, and we'll keep you updated if something pops to the surface. Thanks guys. Appreciate it.
Eric Carlson: And Thats good news, we've now gotten our cash redeployed our capital redeployed. So definitely things that we look at is our all of our assets generating appropriate returns and to the extent that they're not.
Eric Carlson: A question that we ask ourselves is should we monetize that.
Eric Carlson: To put that cash to a more high return use so definitely something we look at and we will keep you updated if something Pops list.
Eric Carlson: Thanks, guys I appreciate it.
Lyle Williams: Thanks, Eric. Thank you.
Neal Lux: At this time, I would now like to turn the conference back over to Neal Lux for closing remarks. Thanks, Gigi. And thank you, everyone, for your support and participation on today's call.
Eric Carlson: Eric.
Speaker Change: At this time I would now like to turn the conference back over to Neil <unk> for closing remarks.
Neil: Thanks, Gigi and thank you everyone for your support and participation on today's call. We look forward to our next meeting at the end of July to discuss our second quarter 2025 results.
Operator: We look forward to our next meeting at the end of July to discuss our second quarter 2025 This concludes today's conference call. Thank you for participating. You may now disconnect.
Neil: This concludes today's conference call. Thank you for participating you may now disconnect.
Neil: Okay.
Neil: [music].
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