FET - NYSE

Good morning, ladies and gentlemen, and welcome to the First Quarter 2025 Forum Energy Technologies Inc. Earnings Conference Call. My name is Gigi, and I'll be your coordinator for today's call. There is a process for entering the question-and-answer queue. [Operator Instructions] 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 Kukla, Director of Investor Relations. Please proceed sir.

Thank you, Gigi. Good morning everyone and welcome to FET's first quarter 2025 earnings conference call. With me today are Neal Lux, our President and Chief Executive Officer; and Lyle Williams, our Chief Financial Officer. Yesterday, we issued our earnings release, and it is available on our website. Please note that we are relying on the safe harbor protections afforded by federal law. Listeners are cautioned that our remarks today may contain information other than historical information. These remarks should be considered in the context of all factors that affect our business, including those disclosed in FET's Form 10-K and other SEC filings. Finally, management statements may include non-GAP financial measures. For a reconciliation of these measures, you may refer to our earnings release. During today's call, all statements related to EBITDA refer to adjusted EBITDA. And unless otherwise noted, all comparisons are first quarter 2025 to fourth quarter 2024. I will now turn the call over to Neal.

Thank you, Rob, and good morning, everyone. Since our earnings call in February, US 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+ 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 months. FET's activity-based sales are highly correlated to rig count, and unless oil and gas prices rebound, we could see a decline in revenue starting in the third quarter. Given this uncertainty, 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 utilized US sourced content for a majority of our raw materials, it is important to note that Tariffs increase prices broadly, not just on imports. For example, one of the largest domestic US steel producers has increased prices by over 30% since January. This is broad-based price inflation, and we must pass these costs onto 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. 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. Another area of focus is expense and inventory management. We are aligning our cost structure to operate under potentially lower activity levels. Approximately 80% to 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. Also, we initiated actions to eliminate $10 million of annualized costs. Inventory management also plays a key role. 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 reductions. Given the softer outlook, we are actively managing inbound material orders and will carefully align the business with market conditions. Turning to our full year outlook, at the outset of the year, we forecasted a modest 2% to 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 year. As I discussed earlier, there is limited visibility beyond the second quarter. 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. In that scenario, we believe full year EBITDA would be around $85 million. With this outlook, 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 of $40 million to $60 million in free cash flow. This result would allow us to execute meaningful share buybacks and significant debt reduction. I am going to turn the call over to Lyle. Following his comments, I will conclude by discussing our long-term outlook.

Thank you, Neal. Good morning. 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. 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 margins, and operating profitability benefited further from lower amortization expense. In contrast, our Artificial Lift and Downhole segment revenues declined, and unfavorable product mix lowered margins. First quarter results were impacted by the timing of shipments of project orders and softer demand for Variperm products. Given the strength of its fourth quarter results, Variperm had a high performance bar to overcome. This product family experienced particular weakness in Canada with unfavorable customer and product mix impacting results. However, our investment thesis for Variperm remains intact, and we anticipate positive progression through the year. In addition, we are experiencing negative headwinds in our Valve Solutions 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 pricing. 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. 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. 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 a pickup in natural gas activity. Overall indications are that drilling and completions activity should remain relatively stable from first quarter levels. Therefore, we expect flat quarter-over-quarter results with second quarter revenue to be in the range of $180 million to $200 million and EBITDA to be between $18 million 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. With our focus on cash, we generated $7 million in free cash flow in the first quarter, up 3 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 million to $60 million. 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 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 $3.5 to $5 of free cash flow per share this year. 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. We began our shareholder returns in the first quarter by repurchasing roughly 1% of our outstanding shares for $2 million. 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 investments that increase shareholder value, including share repurchases. 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 occurrence test may impact the size and timing of our share repurchases. However, with our forecasted free cash flow, we remain comfortable with our ability to both reduce net leverage and continue share repurchases this year. Let me turn the call back to Neal for closing comments. Neal?

Thank you, Lyle. 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%, 3 times faster than the Russell 2000 index, which we are a part of. We have grown EBITDA and cashflow over 70% annually, many, many, many times better than our index. 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. 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, we have outperformed the Oilfield 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, 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's needs. It is only a matter of time before 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. Thank you for joining us today. Gigi, please take the first question.

[Operator Instructions] 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 50% percent 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. So, talk about the products that are getting adopted and the outlook there a bit more.

Yeah. We're really excited about the progress we're making in subsea. We address obviously offshore oil and gas, offshore wind and defense with that product line. And really across all three areas we're seeing good inbound inquiries as well as turning those inquiries into orders. We provide remote operated vehicles, ROVs, launch and recovery systems for those markets. And I think we've established over the years a position of strong market share. And, we believe around 30% of the vehicles that are in use today or more were our brand. So I think as those vehicles have aged and the work has increased, we're seeing a lot more demand for those vehicles. And then with the Unity software system, operating system that we developed that 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, excited about the activity we're seeing in Subsea. I think it also shows really the breadth of our reach. Subsea is about 10% of our revenue, but offshore, we think, is around 15% to 20% of our total revenue, whether it's done through our offshore pipelines or equipment we deliver with our drilling group.

Okay, thanks for that. And then as my follow up, another thing that sort of jumped out a little bit, at release, was part of the increase in orders for drilling completion was for stimulation-related equipment. 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 flattened down given the uncertainty you talked about in the second half of the year?

Yes, I think the -- we ended last year, when I say we, our industry, was really lean. They, the frat crews that were working, really limited all purchases as they -- to a minimum as they finished 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 frac pumps. Historically, it was -- we call it capital. But what we're seeing is that those power ends are being replaced or rebuilt significantly after 12 or 18 months. So they're being replaced much more quickly than just a few years ago when those pieces of equipment would last three or four years. So I think that's part of it. I really view that as a rebound. We also saw a rebound in our wireline product line, which again serves the completion group. I think, again, a rebound from Q4, but also our cables are going farther than the hole and are working more stages per day. So they're just going to wear out quicker. So that's part of the cadence there as well.

Thanks a lot. I'll turn it back.

Thanks, Josh.

Thank you. One moment for our next question. Our next question comes from the line of Dan Pickering from Pickering Energy Partners.

Good morning, guys.

Hi, Dan.

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 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, call it 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. Similarly, as we think ahead to the second quarter, we're in now, even the third quarter, those windows will 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 quarter.

Okay. That's helpful. And then maybe can you spend a little bit of time talking about the cost efforts? You mentioned in the press release and the call sort of $10 million annualized. Is that -- 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 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. 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. Those are going on right now and would expect some benefit in the second quarter and more benefit to roll through into the third quarter as well.

Okay. Thank you. And then, Neil, maybe as you indicated, we haven't seen any softness yet. There's risk. What specific business lines? Or is it order intake? What are you watching as you're sort of canary in the coal mine around activity and any softness?

Yes. Yes, Dan, we haven't seen that yet. I think a couple of things. About 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 tools. So we're really close to that. 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're at now, 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 of months or next couple of weeks, it won't hurt our long-term ability to respond to that. So we're going to stay close to the customers. We're going to follow our inbound orders. The canary in the coal mine, if we see shipments drop off in a month, we'll know our customers are pulling back. But 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 respond.

Good. Well, I applaud you guys for being quick on the trigger here. 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 will come down? Just what's the reaction to price?

So we have just a lot of different -- Dan, as you know, we have a lot of different products. We address a lot of different markets. So 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 US originate. And I think also our customers see the quick change, whether the tariffs start at 30%, 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. Now we think that inventory is going to run out. Our customers are going to need it, and they're going 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. 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.

Thank you.

Thanks, Dan.

Thank you. One moment for our next question. Our next question comes from the line of Jeff Robertson from Water Tower Research.

Thanks, good morning.

Good morning, Jeff.

You all spoke about a little bit of turbulence in Canada in the first quarter. Can you elaborate on what's going on out there with Variperm and whether or not that's seasonal or temporary or anything more?

Yeah. So I think it's definitely temporary. And I think we're also heading into what's typically a slower season in Canada overall. But what we saw with Variperm is really a combination of customer and product mix. And what we mean by customers is that there are certain oil sands operators where we have a higher market share. So if 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 or drilling in Q1 was unfavorable for Variperm. 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. So I think it was a product mix there as well. So a little bit off there. But overall, Variperm is still generating a ton of cash. 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. Just had a great fourth quarter, maybe not quite as good in Q1. I don't see any long-term impact though.

We're actually a month into a lower oil price. So your comments around the lag in activity as your customers try to figure out their business. Can you share any color on recent conversations with customers about longer lead time items and how they're thinking about that?

Our longest lead time items tend to be with our capital businesses. And so that's, for example, Subsea, and we are seeing more activity there. On our consumable-based businesses, the conversations we're having with our customers really haven't changed from where we've been. So, at the ops level, they are not seeing any changes. Again, our view is that we want to be prepared and get out in front of it, and that's why we're acting this way. We just -- we feel like the macro in many ways, leads the activity. And unless oil prices rebound or gas price -- gas activity really jumps, we just envision rig count coming down in the next three to six months.

If you do see over time a shift toward more gas-directed drilling where there can be higher temperatures and higher downhole pressures to deal with, 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, coiled tubing, even some of our downhole tools, they do wear out more quickly and need to be replaced more frequently. So yeah, even actually 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 consumable demand.

Thanks. 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 for offshore wind?

Yeah. Let me start with the offshore. So we -- I think our offshore business is really Eastern Hemisphere or Southern, let's call it, South America focused. 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 is defense, part of that is also the offshore wind. So no change there. On the power gen side, data centers, we are still adding and still booking our coolers that go into those applications. So the Power Tron, which is our radiator for power applications, we're still seeing a nice uptake there, and we expect that to continue through the year.

Thank you.

Thanks, Jeff.

Thank you. One moment for our next question. Our next question comes from the line of Steve Ferazani from Sidoti.

Good morning, everyone. Appreciate all the detail on the call. I wanted to ask about your -- how you can benefit from your geographical diversification in this environment. I mean the expectation, and you walked through it that U.S. short cycle probably gets hit first. But 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 you'll lose in US short cycle, but what you can do in that kind of environment?

Yeah. Great question. I think maybe first example is the Subsea business, right? I think there have been times where that the longer cycle or subsea just was out of favor and there was more focus on US 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, 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. So that's going well. We also -- we 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 there.

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 US and for months have been working on an effort to in-source 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 impact. And similarly, we can use our international facilities, like Neil mentioned on the call, in order to avoid US facilities completely. So that's shifting supply chain where maybe components come in from high-tariff countries into the US to then be re-exported for international markets. We just skipped the US step. Whether that's leveraging our facility in Saudi or in Canada, 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.

You never knew the flexibility was going to be this useful, I'm assuming, but very helpful right now, no doubt, and good to see it. Can I ask -- I was going to ask about, look, steel price has been the most obvious one. 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? And 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 buyer strike. I think that's in our number. So that is concerning for us. And we've put that in our forecast. 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 costs are going up because we do have some inventory, we do have some orders. I think we're hopeful that those balance and that any tariff impact that's out there, we're going to recoup with either price or change in our supply chain.

Okay. That's helpful. Last one for me, and I guess, maybe hopefully, we don't run into the 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 look for alternate usage?

No, great question. And I think as you recall, in our framework that we've laid out, first half of our cash is going to go to net debt reduction. And when we restructured 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 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. I think we'll 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.

Perfect. Thanks, everyone. Appreciate it.

Thanks, Steve.

Thank you. One moment for our next question. Our next question comes from the line of Dave Storms from Stonegate.

Good morning, everyone. Appreciate you taking my questions.

Good morning, Dave.

Just want to start, and apologies if I missed 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 are just kind of gone?

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. So we feel that all of our competitors are seeing the same thing, and we hear about similar price increases and price actions. 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, where things could be delayed more permanently is really, call it, capital spend by end users. So whether that's in a refinery or a petchem project or on a pipeline, if that's deferred, then that demand just gets deferred. If it's maintenance or if it's depleting inventories, then I think we could see a rebound. 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 Neil'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 basis.

That's perfect. 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 the same plan.

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 -- again, if you go back in time, Trump really introduced tariffs and duties for 2017. So we've been dealing with this for the last 8 years or so. So big push on our side is to have supply chain resiliency. So I think we've built that in there. Maybe the -- what would be a little different would be the assembly activities that I think that both Lyle and I have both mentioned. That's a little new. And again, that's more just 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 they're just a terrible trade policy and hopefully we can fix that.

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 before there would be capitulation? Could it be a quarter, two quarters, two years? Any thoughts?

I'm not really sure. They don't keep -- I think over the last few years, they've been more lean with inventories. So I could see it slowly, slowly move. But if the price remains high, it's not going to be a full capitulation. They're just going to buy the minimum of what they need to get through. But I think once there's certainty around where the tariffs are and that they're not moving, yeah, I think they need to get back to business as usual.

Thank you very much.

Thank you.

Thank you. One moment for our next question. Our next question comes from the line of Eric Carlson.

Hey, guys. Good morning.

Good morning, Eric.

I had a long list of questions that I kind of crossed off most of them as we went here. I guess 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 kind of 100% of current market cap in cash over 2024 and 2025. And what did you say the net debt level is at currently or as of, I guess, of 3/31?

It's about $150 million. So $148 million, I think, is the number.

Okay. $148 million. So basically, the potential to get kind of that net debt down to $100 million to $115 million depending how the year plays out. So current market cap, sorry, I'm doing quick math. I mean, you're basically looking at trading by year-end 3.2 times to 3.5 times EBITDA with an enterprise value under $300 million. 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, ended the year with $275 million enterprise value. So not far off what kind of year-end looks like and clearly significantly better. So maybe the question would be is 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're 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 going on with trade and tariff policies and OPEC+. 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 if we -- 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 of the market and be there, especially when those windows open for us related to our net leverage ratio.

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 number. And so we think that there's a lot of value there. So even if the price were to double, there's still 12.5% free cash flow yield is still probably put us in the top quartile of peers or higher. So I think the -- what's frustrated us is the undervalue. And again, we need to get our story out, and we've been doing that. We're going to consistently do that. We think there's more and more people that 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 portfolio manager and you can compare us with the index like the Russell 2000, if that's where you're being measured, why wouldn't you be an FET? The value is there, the performance is there. And ultimately, I think what's really exciting for us is long term, we think there's a lot of growth here as well. So it's a great combination, and it's one that we're excited, and we're going to try to buy these shares as many as possible as we can, especially while the price is this cheap.

Yes. Agreed. And then maybe the last thing is in the context of long term, maybe the -- 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 turn 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, 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 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 changes, we want to be cash focused. We ultimately want to generate free cash flow. So 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. 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 that -- we're going to -- we want to utilize our working capital, which again is our biggest use of cash. We want to do it in the most efficient way possible.

That's helpful. And then maybe the last thing on cash would be and my last question 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 a one-off cash generator really set you below that kind of net leverage ratio and open up a big window or to be determined? Just curious if there's anything that you could see in the short term to generate kind of a onetime cash flow.

Yes, 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. 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 or 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 loose.

Thanks guys. Appreciate it.

Thanks, Eric.

Thank you. 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. We look forward to our next meeting at the end of July to discuss our second quarter 2025 results.