Q2 2025 Forum Energy Technologies Inc Earnings Call
Speaker #2: Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies second quarter 2025 earnings conference call. My name is Gigi, and I'll be your coordinator for today's call.
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Speaker #2: 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.
Speaker #2: I will now turn the conference over to Rob Kukla, Director of Investor Relations, please proceed, sir.
Speaker #3: Thank you, Gigi. Good morning, everyone, and welcome to FET's second quarter 2025 earnings conference call. With me today are Neal Lux, our President, and Chief Executive Officer, and Laia Williams, our Chief Financial Officer.
Speaker #3: Yesterday, we issued our earnings release, which is available on our website. Please note that we are relying on the Safe Harbor protections afforded by federal law. Listeners are cautioned that our remarks today may contain information other than historical information.
Speaker #3: 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.
Speaker #3: Finally, management statements may include non-GAAP financial measures. For a reconciliation of these measures, please refer to our earnings release. During today's call, all statements related to EBITDA refer to adjusted EBITDA.
Speaker #3: And unless otherwise noted, all comparisons are second quarter 2025 to first quarter 2025. I will now turn the call over to Neal.
Speaker #4: Thank you, Rob. And good morning, everyone. The FET team achieved strong results this quarter. We delivered sequential growth in bookings, revenue, EBITDA, and free cash flow.
Speaker #4: Also, revenue and EBITDA were in the top half of our guidance ranges. Bookings this quarter were strong across most of our product lines and drove backlog to the highest level in over 10 years.
Speaker #4: Our subsea product lines' performance was impressive, with significant bookings for ROVs and a large submersible rescue vehicle system. We continue to see strength in the offshore market across a wide array of industries.
Speaker #4: Including oil and gas, wind, and defense. Importantly, we generated $23 million in free cash flow in the second quarter, bringing us to $30 million for the first six months of this year.
Speaker #4: That is a 27% year-over-year increase and marks our eighth consecutive quarter of positive free cash flow. Over that time, we have generated $168 million in free cash flow.
Speaker #4: Also, we believe this momentum will continue for the rest of the year. We are raising full-year 2025 free cash flow guidance to between $60 million and $80 million.
Speaker #4: A $20 million increase. Applying our capital returns framework, we will use this free cash flow to further reduce net debt and execute share repurchases.
Speaker #4: This year, we repurchased approximately 5% of our shares outstanding. And, based on our full-year guidance and current stock price levels, we are on track to repurchase an additional 10%.
Speaker #4: Concurrently, we plan to reduce net leverage to 1.3 times by year-end. With a free cash flow yield around 30% and significant long-term growth potential, continued buybacks are extremely compelling.
Speaker #4: The strong results I just outlined demonstrate the benefits of our beat-the-market strategy. Since its implementation in 2022, our annualized revenue per global RIC is up 20%.
Speaker #4: As a reminder, this strategy aims to grow profitable market share by competing in targeted markets utilizing our competitive advantages developing differentiated technologies and leveraging our global footprint.
Speaker #4: Now, we refined our strategy by aggregating our addressable markets into two broad categories: leadership markets and growth markets. This approach concentrates the impact of our technical and commercial resources.
Speaker #4: Today, FET derives about two-thirds of our revenue from the leadership markets. These are markets where our solutions are fully adopted by the industry, where we have few competitors and broad geographic reach.
Speaker #4: We estimate that the leadership markets in aggregate total $1.5 billion, and we have a meaningful 36% share. A few examples from our portfolio are global tubing, quality waterline, Veriperm, and Perry ROVs.
Speaker #4: In these markets, we will continue to invest in product development to maintain and expand our leadership position. These are great markets, and I love our dominant products.
Speaker #4: In addition, we have identified substantial growth opportunities in markets that are about twice the size of our leadership markets, or roughly $3 billion. We call these growth markets.
Speaker #4: Our products and solutions here are differentiated, proven, and have few competitors. However, they may be in the early stage of industry adoption or may have a narrower customer base or may be geographically limited.
Speaker #4: As a result, our aggregate market share here is relatively low, around 8%. However, this creates an exciting opportunity to increase revenue rapidly through wider industry adoption, new customer acquisition, and expanded global utilization.
Speaker #4: Since this opportunity is so meaningful to FET, let's spend a few moments diving deeper with a few examples. First, let's begin with coiled line pipe.
Speaker #4: A product that saves time and money. This fantastic solution eliminates 95% of a pipeline's welds and can be installed faster than traditional steel pipe.
Speaker #4: The last hurdle holding back wider customer adoption is inertia. As we move forward, I expect our customers to prioritize saving time and money over the status quo.
Speaker #4: The market opportunity for coiled line pipe is immense, and has very few competitors. Also, we employ one of the most efficient production methods for this product.
Speaker #4: With these factors in our favor, coiled line pipe should be a strong contributor to FET's results. We saw a glimpse of this potential in the second quarter with growing demand in the U.S., the Middle East, and offshore.
Speaker #4: The second example I want to highlight is from our artificial lift product family. The value proposition to operators is very simple: our patented products extend the life of downhole pumps, allowing more production at significantly lower cost.
Speaker #4: Execution of this value proposition has made us the market leader in the United States. The exciting part for us is that the international market is more than four times larger than our home market, and demand is tied to production operating expense.
Speaker #4: By leveraging our global footprint to address these markets efficiently, we have a significant opportunity to grow revenue. Our goal over time is to double our share and growth markets.
Speaker #4: To put that in perspective, eight points of market share gain could be an additional $240 million in revenue. At a 30% incremental margin, that is $72 million of additional EBITDA.
Speaker #4: This example illustrates the enormous revenue and EBITDA potential in just a flat market. This is exciting and demonstrates the value of FET's beat-the-market strategy.
Speaker #4: Now, for more color, on our quarterly results and outlook, I am going to turn the call over to Laia.
Speaker #5: Thank you, Neal. Good morning. FET delivered solid second-quarter results. Revenue of $200 million was at the top end of our guidance range, as we grew revenue in the face of declining global RIC count.
Speaker #5: US revenue was up 3%, as our artificial lift and downhole segment rebounded from a softer first quarter, despite a 3% decline in RIC count.
Speaker #5: Revenue in Canada was down just slightly, as the market experienced its usual second quarter breakup. And our international revenue excluding Canada increased by 6%, as most of our product lines grew revenue with a decline in international activity.
Speaker #5: As Neal highlighted, we had a great bookings quarter, up 31% from last quarter, with a book-to-build of $132%. While subsea was the biggest contributor in the quarter, we had nice order flow from a number of other product lines.
Speaker #5: For perspective, excluding the subsea product line, total bookings would have been up 7%, with a book-to-build of $102%. Encouragingly, bookings and quote activity remain strong in the third quarter.
Speaker #5: Consolidated EBITDA was $21 million, up 2%, and above the midpoint of our guidance range. These consolidated results include improvement from higher revenue, sequential benefit from cost reductions, and impacts from tariff mitigation efforts.
Speaker #5: Let me elaborate on these factors. During the quarter, we made significant progress toward our $10 million cost reduction goal. We are 70 to 80 percent of the way, and recognized about one and a half million dollars of benefit in the second quarter.
Speaker #5: These savings come primarily through fixed cost reductions that we believe to be permanent in nature. Based on our progress, we expect achieve to achieve our savings goal this year.
Speaker #5: Tariff impacts played out in the quarter much as we expected, despite the on-again, off-again nature of tariff announcements. As we mentioned on last quarter's call, our tariff mitigation plan includes matching costs with price increases.
Speaker #5: And leveraging our global footprint to avoid tariffs altogether. Beginning in the first quarter, we announced price increases to offset tariff expenses incurred in the second quarter.
Speaker #5: The impact was a slight 10 to 20 basis point reduction in our consolidated EBITDA margin. Results of our valve product line were somewhat better than we feared, following a softening of trade rhetoric.
Speaker #5: However, the valve's buyer strike continues, as the uncertainty around the magnitude of tariffs on Chinese imports has dramatically reduced volumes. We expect this to continue until distributor inventories are depleted.
Speaker #5: Drilling and completion segment revenue increased 1%. Our coiled line pipe offering grew with market share gains in the US, and revenue recognition on a large Middle East project.
Speaker #5: We also saw an uptick in drilling-related capital shipments. Primarily for international markets. On the other hand, our stimulation and intervention product line declined with the headwinds of softer US completions activity.
Speaker #5: The resulting product mix negatively impacted segment EBITDA margins. Our artificial lift and downhole segment performed well in the quarter, with revenue increasing 6%. Demand increased for some of our higher-margin products, including downhole casing equipment, sand control solutions, and cable protection products.
Speaker #5: This favorable product mix and cost reductions lifted segment EBITDA above 20%. Our consolidated free cash flow of $23 million benefited from reductions in networking capital and another sale leaseback transaction.
Speaker #5: This transaction is the latest move in our drive to redeploy capital to higher value applications. Net of this sale, the business generated $15 million of free cash flow, a 71% conversion from EBITDA.
Speaker #5: And we expect strong free cash flow to continue. We are raising full-year guidance by $20 million implying another 30 to 50 million of free cash flow in the second half of the year.
Speaker #5: We expect continued reduction in networking capital since we slowed raw material purchases in response to softening market expectations. Walking from EBITDA to the midpoint of this new cash flow guidance, we now expect cash interest and taxes of $40 million; working capital reductions of $25 million; and net capital expenditures to be around zero.
Speaker #5: Thanks to the operation team's diligent action to generate free cash flow, we reduced our net debt by $20 million and accelerated our share repurchase program.
Speaker #5: In June, we repurchased 225,000 shares for $4 million. In July, we repurchased another 249,000 shares for $5 million. In 2025, we have repurchased 579,000 shares, or 5% of the shares outstanding at the beginning of the year.
Speaker #5: As of the end the second quarter, our net debt outstanding was $126 million, with a leverage ratio of 1.4 times. Expected free cash flow should keep the incurrence threshold from being a limiting factor.
Speaker #5: Therefore, we believe we are in a to continue executing significant shareholder returns while further reducing net debt. Now, turning to the market and our financial guidance for the remainder of the year.
Speaker #5: We believe commodity prices will remain near current levels, and therefore expect industry activity to continue at gradual downward trend through the remainder of the year.
Speaker #5: At this time, we are not forecasting a significant fourth quarter decline, as spending and activity are already at subdued levels. Despite softening activity, our results for the back half of the year should remain relatively steady, with support from elevated backlog, share gains from our beat-the-market strategy, and further cost savings.
Speaker #5: Therefore, the for the third quarter, we forecast revenue of $180 to $200 million and EBITDA $19 to $23 million. We expect our full-year 2025 revenue to be between $760 and $800 million and EBITDA to be around $85 million.
Speaker #5: Let me provide a little more detail for modeling purposes. For third quarter, we estimate corporate costs of $8 million; depreciation and amortization expense of $9 million; and interest and tax expense of $5 million each.
Speaker #5: For the full year, we estimate corporate costs of $30 million, depreciation and amortization expense of $35 million, interest expense of approximately $19 million, and tax expense of $17 million.
Speaker #5: Let me turn the call back to Neal for closing remarks. Neal?
Speaker #4: Thank ou, Laia. Based on the guidance we just provided, the next few quarters require continued focused execution. However, the investment case for FET remains compelling for the following reasons.
Speaker #4: First, this management team has a track record of outperformance. Since 2021, we have grown revenue and free cash flow by 15% and 73% annually.
Speaker #4: Second, our stock remains an incredible value with a free cash flow yield of around 30%. Third, we aim to return a prodigious amount of capital to shareholders.
Speaker #4: We have $64 million remaining under our current share repurchase program. That represents approximately 28% of our current market cap. Finally, we are poised for growth and have a plan in place to significantly increase free cash flow per share.
Speaker #4: We call this plan Vision 2030. Looking out five years, there is general consensus that World GDP will increase by nearly 30 trillion dollars and the global population will add 400 million people.
Speaker #4: These are staggering numbers. These staggering numbers will drive daily world oil demand up 5 million barrels by 2030. And given the high decline rates of existing fields, the oil industry will need to replace 30 million barrels of daily supply in that time.
Speaker #4: In addition, demand for natural gas will grow rapidly to power AI data centers and supply worldwide LNG. Significant investment will be required to satisfy global oil and natural gas demand.
Speaker #4: To meet these challenges, our customers will need to be even more efficient while also adding a modest amount of capacity. Under this growth scenario, FET's addressable market would expand by more than 50%.
Speaker #4: This expansion and our beat-the-market strategy could organically double revenue from current levels. With our strong operating leverage and capitalized business model, our free cash flow per share would grow dramatically.
Speaker #4: By 2030, we would have significant cash on hand and the firepower to execute strategic investments, including accretive acquisitions and additional shareholder returns. Vision 2030 is our North Star.
Speaker #4: Thank you for joining us today. Gigi, please take the first question.
Speaker #2: Thank you. As a reminder to ask a question, please press star 11 on your telephone. And wait for your name to be announced. To withdraw your question, please press star 11 again.
Speaker #2: Please stand by while we compile the Q&A roster. Our first question comes from the line of Joshua Jane from Daniel Energy Partners.
Speaker #6: Thanks. Good morning. In the prepared remarks, you talked about the opportunity to double the market share in your growth markets, which could potentially add $240 million in revenue and over $70 million of EBITDA.
Speaker #6: What's the timeframe that you would hope to do that? And how would you view sort of what would you view as sort of a success with respect to timing on that?
Speaker #4: Yeah. This is part of our long-term vision, Josh, and you know I think that will happen over time. You know for many of these products, I think we talked about, you know, they're vent solutions.
Speaker #4: You know we have to get over you know get you ow acquire the customers. We have expand the geographic reach. So I think those those steps take time.
Speaker #4: But what's exciting to us is going to the original part of that statement these are proven. You know we've seen the value that our solutions have in the US.
Speaker #4: And other markets. And I think just expanding these to new customers, new markets, you know over the next you know three to five years, that's the kind of success we're looking .
Speaker #6: Okay. Thanks. And then could you go into a little bit more detail on you highlighted some orders for offshore defense in the commentary. Are those longer lead time or maybe just some additional color around there and how we should thinking about the timing of them ultimately hitting your P&L?
Speaker #4: Yeah. There are a bination of of some shorter-term you ow more standard products. The the rescue submarine system is a longer-term product. That'll you know that'll deliver over the over the next two years or so.
Speaker #4: So that's long gestation. So that's a unique unique product for us. But the other defense, what we're seeing is the is the application of our current you ow ROV systems where we're seeing the adoption of those for for other navies around the world.
Speaker #4: So outside of of just oil and gas.
Speaker #6: Okay, thanks. I'll hop back. Thank you.
Speaker #4: Thanks, Josh.
Speaker #2: Thank you. One moment for our next question. Our next question comes from the line of Dan Pickering from Pickering Energy Partners.
Speaker #7: Morning, guys.
Speaker #4: Good morning. You know.
Speaker #8: I always hate getting on earnings calls and hearing everybody say good quarter and congratulate a company on doing a good job when sometimes the the results are mediocre.
Speaker #8: But I do have to say, you guys are really executing quite well. And above expectations. So tried and true, good quarter. When I just kind of a uple of mechanical things and talk a little bit about kind of some of these growth markets and your targets.
Speaker #8: Laia, you talked about the share repurchase. What's your expectation for shares outstanding in Q3 and Q4? If we didn't do thing from here, I'm just thinking about how the math rolls through on the share repurchase side.
Speaker #9: Yeah. No. Great question. Dan, like we mentioned, you're to date, we've we've repurchased about 5% of the shares that were outstanding at the beginning of the year.
Speaker #9: And so that number has moved down pretty well. And I think importantly, maybe just for a inder for context, we've been limited a bit in our share repurchases by kind of timing of our free cash flow, but also by limits that were in our bond and denture, primarily the one and a half times net leverage threshold.
Speaker #9: So with us being below that, we think that now the second half of the year, that moves through a lot more quickly. The kind of quick math is under the indenture, we'd have about another $25 million worth of of cash that could be deployed for share repurchases.
Speaker #9: And Neal mentioned that you know another 10% of our shares so kind of call it another $1.2 million shares could get bought at current stock price levels.
Speaker #9: So meaningful, if we can deploy that $25 million and would pull us down nearly 15% from the start of the year level by December.
Speaker #6: Okay. And on a net basis, I know
Speaker #8: there are typically you know shares issued for employee plans, etc. What's the what's your expectation there? How many shares we get to issue given we're offsetting you ow that we will be offsetting with repo?
Speaker #9: Yeah. Yeah. We do we do have we do have stock comp that that rolls through every year. It's a significant number relative to what we're buying back.
Speaker #9: I don't have that number right here on the top of head, but but I would expect a pretty meaningful year-round decline including the addition of shares from stock compensation.
Speaker #8: Gotcha. On the free cash side, you highlighted that you know a $20 million increase in your range. And sort of for the second half of the year, you know that's a $30 million to $50 million number.
Speaker #8: You did 30 in the first half. I follow. So you know a second half equal to first half, I get the 30. You know an incremental 20, what would be the what would be the gears?
Speaker #8: Are there more sale-lease facts to discuss? Is it a significant amount of working capital that you'd pull out? Would it result in revenue upside?
Speaker #8: What's what's the kind of variability getting us from you know that 30 number to the the upside 50 number?
Speaker #9: No. Great, great, great question. The biggest movement for us is working capital reduction in the second half of the year. So when when activity dropped on us earlier this year in March timeframe, our teams redirected supply chains and slowed down inbound raw material.
Speaker #9: It takes a little bit for it to work its way through the process. So really, we didn't see a lot of working capital reduction through the first six months of the year.
Speaker #9: And that that driver of cash flow is really going to kick in for us in the second half. So really, the delta from our first half run rate to to get to that second half run rate 30 to 50 million is the majority of that's ing to be more working capital reduction.
Speaker #8: Got it. Okay.
Speaker #9: I think, Dan, we've also you ow seen some seen some improvement on our operations and how fast we're turning you know incremental working capital.
Speaker #9: And so that's something—putting those measures in place. I think our teams have done just a fantastic job of we're only buying what we need and returning it quickly.
Speaker #9: And it's still satisfying customer demand while also having strong revenue.
Speaker #8: Got it. Well done. I'm going to sneak a couple more in here if I could. You talked in your growth strategies about how to enter new markets. I'm just wondering how you do that while spending as little capital as possible.
Speaker #8: do we have to think about more CapEx you know to attack some of the growth market opportunities?
Speaker #9: No, really minimal CapEx if not zero. Because, you know, we have the global footprint in place. We have really the commercial teams that are in place.
Speaker #9: So it's it's it's more about having the time to convince the customer. So let me let me step back and give you maybe an example there.
Speaker #9: You know we supply a lot of systems to protect downhole pumps. The alternative is to just not go with a without go without protection.
Speaker #9: And so, across the world, many operators just choose to leave, you know, for lack of a better term, leave their pumps naked and not protect them.
Speaker #9: What we got to do is go sit down, provide the you know the technical the technical background, the you know convince the customer. There's trials, obviously, right, that you got to go through.
Speaker #9: And that's what takes time. But that's where we're focusing our efforts. So 's really not a capital draw for us. And so it's just it's getting those markets penetrated and and you ow and and just really convincing the customer to adopt our solutions.
Speaker #9: That that's what's exciting to us.
Speaker #8: So 's so it's sellable and grease, basically?
Speaker #9: Yes. Yes. With the with the resources we have in place. Correct.
Speaker #8: Got it. Final question for me. Vision 2030, I like that. I mean, we can talk about that for the next five years. But when when you when you discussed that earlier, you you basically it sounded to me like put M&A you ow strategic acquisitions, things like you know what I would call Veriperm, the last big one that you did.
Speaker #8: It sounded like you were putting those toward the end of the queue. Are they or can can ou talk about how tactical acquisitions fit in with with your strategy as ou look ahead?
Speaker #9: Yeah. Yeah. I think what we want to do is lay out a first you know organically. You know I think what what do we control as best as we can?
Speaker #9: And I think that's a lot of what is organic draw, obviously. But I think there's there's definitely acquisitions you know we've talked about if we could find another Veriperm, we would we would love love to add it in.
Speaker #9: You know that you know acquisitions that are accretive, you know that have strong financial metrics that would, you know, increase our cash flow per share.
Speaker #9: We we we love those and we'll continue to look for them. So I think they they absolutely play a part. I think, too, we've also committed to, again, return a lot capital.
Speaker #9: So we're going to 're going to balance that while also reducing debt. So you ow finding a a company that you know yields a 30% free cash flow you know it's hard to find that.
Speaker #9: So until our price doubles and we can we can go find some other other opportunities, our our opportunity list gets bigger. That.
Speaker #8: Thank you.
Speaker #9: Thanks, Dan.
Speaker #6: Thanks, Dan.
Speaker #2: Thank ou. One moment for our next question. Our next question comes from the line of Jeff Robertson from Watertower Research.
Speaker #10: Thank ou. Good morning.
Speaker #8: Neal, can you k a little bit about the defense market globally and what kind of opportunities that presents for FET?
Speaker #4: Yeah. You know So you know great example is the submarine rescue vehicle that we just booked in Q2. You know we see more of those opportunities specifically around you know we're also you know seeing navies around the world want to have more let's call it undetected type you ow underwater vehicles that can do you know do whatever work that they don't tell us that they do.
Speaker #4: And so our vehicles play a role there. A good example, you know we've we've been you know selling to the to the you know United Kingdom the Ministry of Defense for for some some vehicles as well.
Speaker #4: So I ink the the applications that we've developed for oil and gas also you know play well on the defense side. And you know our our teams have a you ow have a long history of addressing both markets.
Speaker #4: So we're we're excited. I ink the the spend is is swinging that way. And we're we're taking advantage of the opportunities as they come.
Speaker #8: Is the revenue stream from that both selling or contracting ROVs but also servicing them over their useful lives?
Speaker #4: Yes. Absolutely. And in fact, most of our our our our offshore and subsea vehicles, so we'll we'll sell the vehicles. So we we we don't rarely we don't rent the vehicles, but we'll we'll sell them to the end user.
Speaker #4: A lot of the value over time comes from the the spare parts and and the and and service that we we provide.
Speaker #8: Does the operating system that you all have developed, which allows someone to operate them remotely, serve as a big selling point for that market?
Speaker #4: Absolutely. Absolutely. So you know if you know even even on the shore side where you know that market has been been relatively hot, they want to take cost out.
Speaker #4: And our unity operating system that removes personnel from the vessel, you know, in order to have operations done onshore in a controlled environment, is incredibly interesting to our customers.
Speaker #4: So that is driving sales of existing products, and we expect that to drive upgrades over time as they upgrade existing vehicles with this new software and new operating system.
Speaker #8: And if I could ask one on the growth markets that you have highlighted, are those is that growth actually kind chunky? In other words, does an NOC approve a product for use and then there's a a quick adoption to create some earnings growth or revenue growth?
Speaker #8: And then is can you talk about the margin mix in your growth markets compared to your leadership markets?
Speaker #4: Yeah. So I'll start at the end first and then work backwards. So the margin should will be will be comparable to our to our leadership markets.
Speaker #4: The you know we're we want to go and sell you know high-value products. So in in many cases, the the solutions that we have that that we're bringing to our ustomers you know we're we're creating a lot more value for them than you know than they're paying to us.
Speaker #4: So they see it as a as a value add. So we're we're able to generate nice nice margins on those on those products. So very very similar.
Speaker #4: So growth would be very similar, potentially even better, than our leadership markets because, again, we have very few competitors in those spaces.
Speaker #4: On the kind the the chunkiness, you know most of the the products we're selling would would be more of our consumer they'd be consumable.
Speaker #4: So they you ow you would buy so many per month. So yeah, getting NOC approval would is a is a big deal. But you'd still have I think still some sort of ramp time.
Speaker #4: And you know in terms of our overall margin, it would it would just need to build build over time. So I I wouldn't expect any you know wild swings you know with an approval that way.
Speaker #8: Thank you.
Speaker #4: Thanks, Jeff.
Speaker #2: Thank ou. One moment for our next question. Our next question comes the line of Steve Ferrazzani from Sidoti.
Speaker #11: Morning, everyone. Happy Friday. I just wanted to actually get the easiest, most basic question, which is we’ve seen a couple of months of significant rate count declines in the Permian and global declines.
Speaker #11: We've gone two weeks, and the earnings calls haven't been super happy. I mean, you guys had sequential revenue improvement and flat margins. Can you walk through how you do it when clearly some of the demand for some of your drilling and completions replacement equipment should decline in this market?
Speaker #4: Maybe I'll start and let Laia jump in. Yeah. It's not been easy. I can tell you that. You know I think with your question a couple of ings come to mind.
Speaker #4: You know we have a broad you ow broad portfolio where we touch a lot of the value chain. So while US land you ow has been has been weak, weaker and declining, you know offshore has done well.
Speaker #4: International stays strong. And you know we talk about expanding our geographic reach with the new products that we've done well with in the U.S.
Speaker #4: You know South America has been fantastic for us where we're sending our products products down there for for part of their unconventional development. So that's that's been a been a key part of it.
Speaker #4: You know cost reductions, though, you ow our our team has has gone in and and been really really diligent about about cutting costs. They've also remained focused on you know being more efficient with with inventory and ing capital.
Speaker #4: So I think all that's that's played a role in in the results we had and and and finally ally our beat-the-market strategy. You know we want to gain share so if the the market's up, we're ing to grow faster.
Speaker #4: If the market's down, we're hope we're oping that we don't we don't fall as fast as the market itself. So that's that's part of our our outlook and part of our strategy.
Speaker #6: Yes, Steve. I guess the things I would add and to put put some some color and maybe a little bit of numbers to that, you know we do talk about our beat-the-market strategy in in one high-level way that we want to measure that is our revenue per you know global rig that's working.
Speaker #6: And comparing the first six months of this year to the first six months of last year, we're up almost 2%. So while that that may not sound like a lot, over time, those those percentages compound and it gets to be a lot of revenue.
Speaker #6: So a little bit of market share gain on a year-over-year basis. And and then also we think about the cost actions that we've taken.
Speaker #6: We announced in our last call that we that based on the softer market, we were going to endeavor to take $10 million on an annualized basis of cost out of our fixed cost structure.
Great, that's helpful. I and I do want to ask about the, the raised cash flow guidance because you, you're not really, for, for obvious reasons, not moving. But, uh, if you can just walk through as a manufacturer factor that often gets compared to traditional oil field services the levers, you're actually able to pull here to be able to generate that much stronger cash flow.
In a difficult Market.
Sure, I think I think let me start and then Neil.
Chime in chime in please. Um, really the the big lever for us in this year. Steve is is working capital and I'd say a bit of bit of capex. So if we go back to our beginning of your guidance, we, we thought we'd be at that, 40 to 60 million dollars worth of cash flow with really, no, decrease in networking Capital. Um, right? So now is activities come down. We're able to unwind some working capital that's going to be a big
Addition to our cash flow more than offsetting the the full year decline in our thoughts on ibida. Then also, with our capex, you know, we are not a heavy capex user. You mentioned comparing with other oil field services, companies for us to grow. We don't need to add a lot of capex or budget, wasn't high this year and in a softer Market, we're even able to dial back, what we would need to spend. So net of the sale lease back well about zero capex on a full year, on a full year basis. So those 2 levers, you know, working capital and capex, really helped us on cash.
I think, maybe maybe.
And so we're focused on on generating a free cash flow, you know, on on a you know, everything we do and I think as we go back to a growth cycle at some point again we think the next few quarters we need we need Focus execution but as we go back to growth we're going to we're going to maintain that cash focus and we want to turn turn that working capital as quickly as possible as even as we grow. So uh, it's the teams doing a fantastic job. So we really appreciate what they've? What they've done. Embracing this. This cash flow Focus.
Great. I appreciate the caller. Thanks, everyone.
Thanks Steve. Thanks Steve.
Thank you. 1 moment for our next question.
Our next question comes from the line of Eric Carlson.
It has morning.
Morning morning. Eric.
um,
So you you guys have um, kind of outlined the, what we look look for kind of towards the end of the year in terms of net debt, I think. So, just implying the 85 million EBA Target into 1.3 times multiple,
About $110 million in net debt towards the end of the year and probably somewhere around 11 million shares outstanding. So that kind of leaves us with...
340 million of Enterprise Value at year end and really kind of still trading in that 3.9 times or under 4 times, ebita range of nothing changes from here which I'm
I wouldn't. I would hope it does, but I guess, um, to have that buyback in your pocket, there's worse things than having a low share price for a while. Um, and maybe the question would be regarding the prodigious return of capital word, for which I had to look up the definition. Um, when you look at the balance sheet at the end of the year. So, you have a $110 million net debt.
100 of that is the kind of new notes you did last year.
How does that change? As you get the credit line down to zero, when you think about return of capital, does it increase buybacks?
Um, does it allow you to actually return cash to shareholders in some way, shape, or form? Maybe just talk me through that if you look beyond this year.
Yeah, Eric um, great great, great question for us. And, you know, we've laid out over the last few quarters, our uh, our thoughts and our our framework, for returning, cash to shareholders. So it was just a kind of walk through those to to reiterate. That is we want to use about 50% of our cash flow for net, debt reduction,
About 25% aimed at Sherer purchases in the last 25% for things that we view as as more strategic and we put incremental, uh, Sheriff purchases in that especially at our current cash flow yield. So I think even as we roll through to, you know, nothing drawn on the revolver and effectively cash on the balance sheet, we would still be looking towards that that, uh, net debt reduction. Um, so I think we'll hold that strategy as we roll through. Obviously, we could get a little more bullish with incremental liquidity as that plays out that way. Um, but it, it wouldn't hurt us at all to be in position in, uh, in a couple more years to even look to retire. Uh, those Nordic notes early, uh, and get to a lower cost of debt, uh, on a, on a go forward basis.
Okay, that's helpful. And then I guess just in that regard, I mean, I know it gets brought up every quarter in terms of acquisitions. Obviously, the vertical per acquisition...
Was about as good as you're going to get. And you basically it you're going to basically have paid that off over a 2 year period just in in cash flow. Um, so obviously nothing wrong with that. But when you think about organic versus inorganic growth and then
Balancing that return of capital, obviously, the only guarantee is...
Is cash. I mean, you can buy something very well and still have it go wrong. So when you think about just organic versus inorganic and then.
Uh, again, let’s kind of hammer home on cash returns specifically as we kind of turn the corner here.
Um,
I mean, I guess I would personally just highlight that some sort of pure cash return is probably appropriate at the right net debt level, because the organic opportunity is so good in terms of revenue on a longer-term basis.
If we look out ahead 5 years, it's it's hard to believe that we won't have as an industry, have to invest a lot of capital and then we're going to be a beneficiary of that, with, with more activity. So, I, I think the organic opportunities their market share gains overall Market size growth that that all fits
And you know as a as a company we don't require a lot of a lot of capital. Right. So our we're pushing to be even more efficient on our our working capital. Ideally you know incremental working capital almost paid for itself in in a year or less.
and so we'll have that and you know as we look at growth opportunities, you know, sorry inorganic growth opportunities, you know, we want to have a a strong
Strong lens. We, you know, we we want to have good criteria and it's something that we'll we'll absolutely look at. And again if we found something like very from fine um but we're not going to we're not going to push. We're not going to. We're not going to take take excessive risk there because we have so much good. Good organic opportunity.
Yeah, that's helpful. Um, I guess the last thing from me would be, obviously, from a competitive perspective, you guys sit in a very strong position given kind of the cash generation, what you've done to lower that level and kind of that accelerating the even into year-end here. I mean, just when you look at,
Um, your peers or even some of your customers, I mean where do you think that that...
That you sit in, versus kind of the competition. And also, in terms of a competitive perspective, there's obviously some...
Uh, of pressure, but I think everybody has their kind of...
Head up and eyes on 2026 and beyond, just as we see.
U.S. production flatlined a little. I think the...
The large-cap services have been...
I'm not incredibly bullish on the rest of this year, but the outlook looks good. So just how has that been in terms of conversations with them?
And, and kind of building what you think looks like.
Hopefully, a better 2026.
Yeah, as we as we think about our, you know, let's call it commercial competition. You know, you know, we we try and again, obviously focus on areas where we have very few competitors.
Generally most of those competitors are, are private or, or small, you know, not even publicly traded. So they they have a different view on, you know, than, than our publicly traded peers. Uh, so I, I think the, for us, the position is by having a strong balance sheet, but being able to invest in our people and, and have the right resources also having a global footprint, we think we're going to out. Compete out innovate, uh, those smaller less capitalized competitors there, I think on our our publicly traded peers which we, we
As we get logged in, I just want to emphasize that our focus is to generate a lot of cash. That's where we're going. I'm not quite sure where they are looking.
Per se, but I think for us, you know,
The future, I think, is going to be strong in our industry. And, um, we're going to be there to take advantage of it.
Very, very helpful. Thanks, guys. Good quarter. Thanks, sir. Thanks, sir.
Thank you. One moment for our next question.
Our next question comes from the line of Joshua Jane from Daniel Energy Partners.
I just had 1 final follow-up, which was um, how do you or how close are we to a bottom? Do you think in your stimulation and intervention, uh, business on a quarterly run rate basis based on where we are in the cycle today?
Yeah, I, um, I think this, we, you know, we outlined kind of a general gradual decline from here, so I don't, I don't think we're quite at the bottom yet. As we, you know, if I talked to our teams and talked to our customers, I think we got some time to go on the Frac space, especially in the U.S.
Um, you know where we've tried to position ourselves?
Focused technology, quality wireless line being 1, but also stimulation products or heat exchangers—those products are all being demanded. Um, and so seeing opportunities for growth, uh, with capital spend by our customers in those other regions.
Great. Thanks for taking all my questions. I appreciate it.
Thanks Josh.
Thank you. At this time, I would now like to turn the conference back over to Neal Lux, CEO, for closing remarks.
All right. Well, thank you, everyone, for your support and participation on today's call. We look forward to our next meeting in early November to discuss our third-quarter 2025 results.
This concludes today's conference.
Call, thank you for participating. You may now disconnect.