Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies third quarter 2023 earnings conference call. My name is Gigi, and I'll be your coordinator for today's call. There is a process for entering the question and answer queue. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. A link with instructions can be found on the company's Investor Relations website under the Events section. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the 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, and welcome to FET's third quarter 2023 earnings conference call. With me today are Neil Lux, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer. Yesterday, we issued our earnings release and announced FET's acquisition of VeriPerm Energy Services. Both press releases are available on our website. Investor presentation slides relating to the VeriPerm acquisition are also 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 SEC filings, our earnings release, and VeriPerm acquisition announcement. Management statements may include non-GAAP financial measures. For a reconciliation of these measures, you may refer to our earnings release and the VeriPerm acquisition announcement. During today's call, all statements related to EBITDA refer to adjusted EBITDA. And unless otherwise noted, references to FET's standalone comparative financial results are third quarter 2023 to second quarter 2023. And finally, Statements relating to FET and Verifirm on a combined basis are trailing 12 months as of September 30, 2023. I will now turn the call over to Neil.

Thank you, Rob, and good morning, everyone. As noted in yesterday's press release, we are extremely pleased to announce the Verifirm Energy Services acquisition. I want to welcome the Verifirm employees to the FET family. We are excited to have you join our team and look forward to working together following closing in January. I also want to recognize the strong support we received from our syndicate of credit facility lenders. Before discussing our transformative acquisition, I would like to spend a few minutes on FET's third quarter results and 2023 outlook. During the quarter, soft US market conditions continued with rig count declining 10%. This was counter to the industry's and our expectations at the time of our earnings call. We also saw a rapid decline in activity-based capital equipment demand from our pressure pumping customers who paused orders in response to softening well completion activity. This led to a $14 million sequential revenue decline in our stimulation and intervention product line. Excluding this product line, FET's revenues would have been up 6%, a significantly higher growth rate as compared to global recount, which was effectively flat in the quarter. While revenue was down, we experienced an increase in bookings during the quarter, demonstrating the benefit of our global footprint. Our sales and marketing teams have been actively working with customers positioning FET as a key partner, and their efforts are paying off. We had another strong quarter of backlog growth supported with a 111% book-to-bill ratio. In fact, all three segments posted a book-to-bill ratio greater than 100%. Overall, I am pleased with how well our teams executed this quarter. and managed through market headwinds. We have successfully grown international revenues, which have mostly offset declining activity in the United States. Even though revenue declined slightly, gross profit and EBITDA remained steady. In general, we held our pricing firm and did not sacrifice margins for volume. Also, we managed expenses well through a combination of increased utilization and cost savings initiatives. These efforts allowed us to deliver EBITDA within our guidance range and generate $24 million in free cash flow this quarter. Looking ahead to the fourth quarter, indications are that the U.S. rate count may have finally bottomed. The modest increases seen the past few weeks have been encouraging. We anticipate average RIG and FRAC fleet counts will remain below third quarter levels. This is based on feedback from our customers that they anticipate a holiday slowdown due to budget exhaustion. Internationally, we expect activity to remain high with RIG counts modestly increasing. Putting it together, we expect the operating environment for FET to be similar to the third quarter. Therefore, we are forecasting revenue and adjusted EBITDA to be flat compared to the third quarter. And we are confident in delivering $45 to $55 million of free cash flow in the second half of 2023. Our ability to generate cash is an important part of our business and gives us flexibility to pursue strategic opportunities. This leads us back to VeriPur. a company we have been watching closely for a few years. We've previously outlined our acquisition criteria, and this transaction checks all the boxes. It is expected to be highly accretive, transform FET's financial metrics, and increase free cash flow. The mix of cash and equity consideration allows us to maintain conservative net leverage and strong liquidity. This strategic acquisition demonstrates strong industrial logic as various differentiated products and technologies complement our artificial lift product portfolio. From a financial perspective, the combination meaningfully increases the scale and profitability of FET. Putting the two companies together expands EBITDA to 121 million and increases EBITDA margins to 14%. This elevates FET above many of our peers and improves our investment profile. Also, the transaction's valuation and financing is highly accretive to earnings and cash flow metrics. If the free cash flow yield for the combined companies is similar to what FET has recently experienced, this acquisition would create significant value for shareholders. And the acquisition is a continuation of the value our management team has created over the past few years. For those unfamiliar with the FET story, we entered the COVID pandemic with around $400 million in total debt. We refinanced our senior notes in August of 2020 during a time of existential risk for the industry. In addition, we streamlined our business, eliminated significant fixed costs, and divested non-core assets. From a base EBITDA of $20 million in 2021, We are on track to grow EBITDA by 250% in 2023. The combination of these steps drove our share price and helped us achieve mandatory conversion on nearly half of our outstanding long-term debt. Through free cash flow generation, asset sales, and debt to equity conversion, we reduced our net leverage from 4.8 times in 2019 to 1.4 times EBITDA at the end of the third quarter. More importantly, these actions allowed us greater flexibility to generate shareholder value, including through strategic and accretive acquisitions. And that is where we are today. With VeriPerm, we are acquiring a leading manufacturer of sand and flow control products for heavy oil production. They have a great customer base of large-cap operators and have maintained long-term relationships, in some cases over 25 years. Verifirm has four primary manufacturing locations and just under 300 employees. Their highly engineered and customized products are protected with patents and proprietary manufacturing techniques. As we think about longer-term growth prospects, VeriPUR has a clear path of increased customer adoption within Canada and upside from international and offshore markets using FET's global distribution network. Also, this combination expands the total addressable market for FET's artificial lift product family. Together, we are a formidable manufacturer of highly engineered products and solutions for the energy market. This is an exciting development for FET. I am going to turn the call over to Lyle for more detail on the acquisition and FET's financial results.

Thank you, Neil. Good morning, everyone. As Neil mentioned, we are very excited about the VeriPerm acquisition. Let me hit some of the details of the transaction and financial highlights. This week, we signed agreements to acquire the equity of VeriPerm for total consideration of 2 million shares of FET stock and $150 million of cash. As of signing, this equated to roughly $195 million of total consideration. or 3.7 times Verifirm's trailing 12 months of EBITDA. We expect the transaction to close in January following Canadian regulatory approval and satisfaction of other customary closing conditions. To give context to the regulatory review, FET and Verifirm do not provide overlapping products or services. In addition, to avoid closing delays, all sources of cash have been secured and leave the combined company with a conservative amount of leverage and adequate liquidity to both manage future obligations and fund organic growth. Cash consideration for the transaction will be funded through $90 million of cash from on-hand balances and borrowings under our ABL credit facility and from the funding of a $60 million seller term loan. Prior to closing the Verifirm acquisition, we will explore an alternative financing arrangement to the seller term loan. Following closing and without regard to any alternative financing arrangement, we expect net leverage to be 1.9 times EBITDA with liquidity of roughly $140 million. I'm pleased to announce that in conjunction with the acquisition, FET lenders agreed to amend our ABL credit facility to, among other things, permit the VeriPerm acquisition, increase the aggregate revolving commitments from $179 million to $250 million, and extend the maturity date to September 2028, and allow the seller term loan. The amendment is conditioned upon the closing of the acquisition. Once finalized, the expansion of the revolver is advantageous to FET and allows us to increase our borrowing base by between $20 and $25 million, based on including VeriPerm working capital. We are thankful to our banking group for their continued support of our growth. These banks include Wells Fargo, JP Morgan, Bank of America, and Amogee. And we are pleased to welcome Goldman Sachs, who has joined our credit facility as a lender. The seller term loan would mature in three years and is prepayable at any time and without penalty. The interest rate of 11% is subject to escalation after the first anniversary of the loan. We structured the seller loan with longer maturity than a traditional bridge with terms that fit within our existing debt arrangements. If we utilize the seller loan We expect to be able to retire our remaining 9% senior secured notes in the third quarter 2024 without seeking any additional external funding. This structure puts our balance sheet in a strong position. Between the mix of stock and cash consideration, the seller term loan, and the credit facility amendment, we believe we have the appropriate leverage, liquidity, and visibility for us to move forward confidently with the acquisition of Verifirm. Neil has already covered the industrial logic between Verifirm and FET, which we are excited about. Let me provide a bit more color on the financial merits of the transaction before shifting to FET's third quarter results. The transaction's valuation at 3.7 times trailing 12 months EBITDA provides meaningful accretion for FET. More importantly, the combination creates a business with increased EBITDA, strong EBITDA margins, and significant free cash flow. On a combined basis, the company's revenue increases to $873 million. EBITDA increases to $121 million, and EBITDA margin improves to 14%. Net of incremental interest combined free cash flow increases to $70 million. Shortly after closing, we will complete our purchase accounting analysis. Then, we'll have a more accurate approximation of pro forma net income, which we expect to be noteworthy. Let me provide directionality to our per share metrics. While share count will increase by just under 20%, EBITDA improves 77%, free cash flow increases 84%, and net income improved substantially. The per share improvement in all of these metrics will be significant, and this is another reason why we're so excited about the transaction. Now, turning to third quarter FET results. Sequentially, our consolidated revenue decreased by $6 million. As Neil detailed earlier, the rapid decrease in U.S. completions activity drove our stimulation and intervention revenues down by $14 million. As pressure pumping customers idled fleets, they slowed purchases of consumable products and delayed demand for stimulation-related capital equipment, such as power ends, manifold trailers, hoses, and radiators. Despite the decline in revenue, EBITDA fell by only $1 million. In the middle of the third quarter, realizing that U.S. market conditions had yet to bond, our teams took action to control costs. In the quarter, we reduced expenses by over $1 million through headcount and variable cost reductions. Highlighting international revenue. Similar to the last quarter, FET's international sales growth nearly offset softer U.S. market conditions. Revenue outside the U.S. increased by $10 million sequentially, or roughly 15% driven by a significant increase in shipments for coil tubing and an increase in project revenues for our Forum Process Technology product family. Most of these increases were recognized in the Middle East region, where nearly all product lines saw revenue growth, and total revenue increased approximately 50%. Benefiting from a strong international tailwind, non-U.S. revenues accounted for 42% of our total revenue. The drilling and downhole segment had revenue and EBITDA growth of $500,000. Drilling product line revenues declined with activity in the US, while downhole and subsea revenues increased. A more favorable mix of products and our aforementioned cost management actions supported EBITDA margins, which increased by 50 basis points. Segment book-to-bill ratio was 117% as we booked an order for four PERI XLX work class ROV systems. We remain excited about the continued strengthening outlook for international drilling and subsidy opportunities as customers add capacity and upgrade equipment to support future oil and gas production and offshore wind farm development. Completion segment revenue and EBITDA were impacted this quarter as the dramatic decline in well completion activity slowed demand for our stimulation intervention products where revenue declined by 30%. Our global tubing business provided the bright spot for the quarter. Revenues jumped on international shipments and profit drop through in the business was strong as the team favorably managed costs in the quarter. Our segment book to bill ratio was 104%, slightly higher than we would expect for these activity based product lines. Our production segment continues to improve and provide consistent results. Segment book-to-bill ratio was 105%, driven by an improvement in orders for our valve solutions product line. Revenue increased sequentially and on a year-over-year basis. And EBITDA margins continue to improve, reaching 6.8% this quarter, up nearly double from a year ago. Now let me share with you our fourth quarter forecast. Neil discussed how we see the markets going forward. Our fourth quarter is in line with third quarter results, with revenue and EBITDA ranges of $170 to $190 million and $15 to $19 million, respectively. With this forecast, our full year EBITDA is expected to be between $67 and $71 million. This estimate for the full year 2023 is lower than our forecast provided in last quarter's call, driven by softer US activity in both the third and fourth quarters. We remain confident in a long-term, increasing market outlook as the world solves a structural shortfall in energy supply. Here are a few details for modeling purposes. In the fourth quarter, we anticipate corporate costs to be generally in line with the third quarter, interest expense to be $5 million, and depreciation and amortization expense of roughly $9 million. For the full year, cash income taxes are expected to be around $8 million, primarily due to Canadian income. Capital expenditures for 2023 are expected to remain below $10 million. Turning to cash and the balance sheet, we generated free cash flow of $24 million, driven by a decrease in networking capital from strong collections. Given the softness in the U.S. market, Our teams continue to drive down working capital by tightening our supply chain and reducing the flow of inbound raw material to match market conditions. And we are working with our customers to achieve more appropriate collection timing. We are pleased with the turnaround in free cash flow in the second half of the year in line with our forecast. We ended the quarter with $37 million of cash on hand and $155 million of availability under our revolving credit facility for total liquidity of $192 million. As of September 30, our net debt was $97 million, with a corresponding net leverage ratio of 1.4 times. FET remains well positioned to fund operations with ample liquidity and a strong balance sheet. Let me turn the call back to Neal for closing remarks.

Thank you, Lyle. We believe the Verifirm acquisition is transformational. However, it does not change who we are. We remain a manufacturer of highly engineered and differentiated products, operating in niche markets where we have competitive advantages. We are a global company whose solutions are utilized around the world, making our customers' operations safer, more efficient, and environmentally friendly. We believe demand for energy and the investment required to supply it will continue to grow FET revenue. We have a long-term tailwind. And we can grow faster than the market through the introduction of new products while remaining committed to our Capital Light business model. Adding a great business like VeriPerm makes the FET story even more compelling for existing shareholders and new ones. Gigi, please take the first question.

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. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Daniel from Daniel Energy Partners.

Hey, guys. Congratulations on the acquisition. Hopefully you can hear me okay. Yeah, thanks, John. Okay, good. Sorry, I'm just driving here. I know you mentioned there's not necessarily a product overlap, per se, with the transaction, but I'm curious – Is there an opportunity where the person you're selling to within the customer base might be the same person? I'm not trying to get to a bundling concept, but just where you're bringing more to the table, if you will, to the same buyer. Does that make sense?

That does, John. Yeah, I think there's a great opportunity for our multi-lift product family. If you think about the wells where VeriPerm's products are being utilized, Generally, there's an ESP involved on the production well, and we think that that's a great opportunity to cross-sell or utilize, I think, VeriPerm's great success with their customers. You know, we also share, you know, some of the, you know, from our other parts of our production segment where we sell through distribution partners. Many of the end users are are the same customers that VeraPerm sells to today. So I think we have some, but I think this is a great opportunity to expand that as we integrate and get to know each other even better. Right. Okay.

And I know everybody wants to talk international, so I'll let the next people ask that question. But on the U.S. land side, coiled tubing, I don't know if you saw some pretty impressive announcements by the coiled tubing providers in terms of the total distance they've been achieving in terms of the wells. What are you guys seeing right now on not just the demand for the coil itself, but any changes in designs as these laterals keep going longer?

Yeah, absolutely, John. That's a key focus for our teams. I think as you may have known over the years, we've spent a lot of time hiring engineers specifically in our coil that have experience in the field and developing specific specific designs that get to longer laterals. And we believe with the designs and kind of proprietary approach that we take, just by utilizing our product versus a competitor's, you can get more reach and more weight on bit with products from Global Tubing.

Okay. Is there a theoretical maximum that you guys see in terms of how far it will actually go out? It seems to keep getting longer.

Yeah, I think it really comes down to our customers' equipment and the ability to move it. But I think what I've seen, and I've been involved in the business now for many years, is that our customers always seem to find a way to overcome challenges, whether it's the transportation or amount of pipe they can get on a reel. So I think as long as our customers and the service companies remain creative and I think we have the product that can allow them to do the job. Okay. That's all I got.

Thank you for including me.

Thanks, John.

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

Thank you. Good morning. Good morning, Jeff. You all talked to me about your fourth quarter outlook. Can you add any color on the kind of conversations you're having with customers as they're based on how they're thinking about 2024?

Yeah, I think there's, it's a, you know, you, depending on which, which part of the completion side or drilling side that they sit, you know, you can kind of get a little bit of a different color. But I think the general view is that the first half of next year will be stronger than the first. I think it's a second half of this year. So I think really the idea is how fast do we start out of the gate? Do we have a quick first quarter ramp up as the E&P companies utilize their budgets or not? So I think that would be that focus on U.S. land. Now, internationally, we are just We just had a great show in early October, and I think that shows that, again, record attendance, and I think that reflects the sentiment that we're seeing internationally.

When you think about the VeriPerm offering suite, you mentioned international. If you take some of those products to international markets, places like the Middle East, is there some sort of an adoption process that they would have to go through to be certified?

Yes, I believe there would be. I think every operator has different standards, but I think what's helpful and what value that we could provide is we've gone through those evaluations with our other product lines and have the contacts, have the long-term stability. Again, we've had a company in Saudi Arabia for many years now, a footprint there. similar in Abu Dhabi. So I think having that long-term footprint relationship and knowing the landscape that we operate in could ease or speed up the adoption or qualification if we approach that.

A question on the margin improvement that you show on slide four of the deck. When you combine these products, product lines, excuse me, and think about 2024, 2025. Do you see the opportunity for further margin improvement beyond what you're showing on this slide?

Yeah, hey, Jeff, it's Lyle. Why don't I take that? So, the slide, just so we reference back to what we're looking at, is just a combined TTM of the two companies from September 30th. And so we haven't included any synergies. We talked about that, but we haven't stuck any synergies in those numbers. I think what's unique about FET as a manufacturing products company, and it fits with VeriPerm as well, is the concept of operating leverage. Each business has relatively low fixed costs, but the costs that we do have can be leveraged across more volumes. So as revenues increase, then we do tend to see improved margins from operating leverage. And I think another thing that's similar about both businesses is the capability of introducing and growing the revenue from higher margin, more differentiated products. We've been doing that at FET for a number of years and driven up our margin effectively that way. and expect we see the same opportunity for VeriPerm. So, yes, I do think we have the opportunity for some margin expansion there, and those are two of the key drivers.

Thanks, and if I can, one last one. Just on the financing, Lyle, you talked about retiring the 9% bonds next year. With a larger balance sheet scale, would you expect to retire those through pre-cash flow, or would you expect to maybe combine some sort of financing to extend the maturities out?

No, good question there. And just to be clear, what our comment was related to is with the financing structure that we've already talked about and free cash flow generation that we expect for next year, we'd be in position to organically, without any other kind of debt, retire those notes. I think anything else we do would be opportunistic as we look at the markets.

Thank you. Thanks for clarifying that.

Thank you, Jeff.

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

Good morning. Congrats on the announcement. When we've talked about acquisitions in the past, it's almost seemed like it'd be a hard thing to accomplish to buy something that could actually make you cheaper on a go-forward basis. I was just kind of running our numbers now, and Fed is at about four and a half times trailing 12-month EBITDA. So kind of combined with the purchase, it looks like at the end of the year, assuming the stock price stays kind of where it is, is about four times. So that seems as we've reiterated many times, um, um, very cheap. And then I think a lot of people, um, kind of, uh, focused on the accretion, but when I, when you look at cashflow and the, the ability that gives you to be very flexible, whether it's retire the notes with cash, if you can do, um, a larger, broader financing and free that up to, um, create even more value and then, Just one of the things I was interested in is obviously this brings SCF back into the mix, which is probably not a long-term holder just given the nature of their business. And when you look at that cash flow, if we were able to kind of do a broader long-term debt package, is there an opportunity there to take advantage of perhaps them needing or wanting to sell once the lockup would expire. I'm just kind of curious on when you think broader and kind of continuing to manage the balance sheet, which you guys have done a phenomenal job off at the bottom, and you kind of touched on where debt has moved from then to now, but just kind of thoughts on the balance sheet and the optionality and just thinking about a go forward, um, plan and, and understanding that a lower float stock, like you guys have, um, has some challenges, but that also offers a lot of opportunity. So yeah, just thought to be great.

Oh, great, great, great questions there, Eric, and definitely things that we thought about in this acquisition and I prepared remarks were really aimed at, um, a lot of time was spent on making sure we got the balance sheet right and stable. So we'd be in a super spot going forward. And I think we've achieved that. Now we have, as you mentioned, that flexibility. So we'll generate free cash flow. We do have the opportunity just to organically retire notes. We don't have to look outside. And so I do think that creates some options for us. As we do think about SCF, we're pleased to have the current shareholders of Verifirm become shareholders of FET. I think that was a vote of confidence by them in the business that they're selling, but also in the combined company. And as you mentioned, long-term, these are probably sellers of the notes. We do have a 180-day lockup on those shares agreed with the sellers to give time for the acquisition to integrate and to marinate here. But after that, we expect those shares to be freely traded and be out in the market. So I think the ultimate end of that increased float is a good thing for us. that will get more volume out there. And, you know, under the right financing structure timeline, like you talked about, provides us the opportunity to potentially acquire some of those shares with our stronger free cash flow.

Great. Yeah, no, this is exciting. It looks great. Appreciate the work. And, yeah, keep it up. Thank you, Eric.

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

Morning, gentlemen.

Good morning, Dan. So I'm going to bear with me. I'm going to ask a number of questions about VeriPerm just because it's obviously it's a very meaningful transaction for you and we're just kind of learning the business. I appreciate the the deck that you put on your website about it. Um, and so when we look at this business, uh, I guess first question is we're seeing the results on a historical, you know, trailing 12 basis. Is there anything, it's an equipment sale based, uh, business. And so is there anything lumpy about the last year? Just thinking about what the next year or 2024 looks like is, is, Is 23 a representative look to 24? Any lumpiness in the revenue profile?

Yeah, Dan. I don't think there was any large projects that were unusual that they delivered in 2023. I think as we look ahead and as we model the business, our focus was looking at what's the kind of demand that's going to come from the maintenance drilling just to keep production flat. And I think that's where our expectation is that 90 to 95% of the go forward was really just to make up for declining activity, or declining production, excuse me.

Yeah. And Dan, I would just chime in on that. If we look back over time at the business, they've got a really great correlation with energy prices and with activity, very similar to our business. and probably mirror the more activity-driven side of FET rather than the a bit more lumpy capital side of FET. So expectation is that over time this will be a dampener of volatility on combined FET revenues.

I think another interesting driver that I'm not sure if you heard John Daniels' comment on longer laterals, That's another great driver in this business. As they continue to drill newer wells and fill in the development, they're extending their laterals, which for VeriPerm and the combined company will be more product per well. So as the meter lengths grow, we have more revenue per well.

Gotcha. And this product does – it is a new well product, so it's not a – There aren't a lot of maintenance revenues associated here. It goes in the well when the well is drilled, and then you're waiting on the next well drilled to generate your next set of revenue?

Correct. I think there's occasionally remediation work where they'll go in an existing well, but I think the typical is that it's a new well, a new set of wells, an injector and a producer that's planted in the ground. Right. to fill in the maintenance capital and utilize the steam generation of the central processing plant.

Gotcha. And as you think about your opportunity set internationally, so this is a heavy oil application. Where do you see the top two, three, four countries that you might focus an expanded sales effort?

I think we'll want to focus on areas where we have a good footprint, where we can utilize our fixed costs and do this in a good and profitable way. I think the Middle East and the areas around there and the countries around the Middle East really are going to be our key focus. Again, that's where we at FET have seen the most activity, and I think if we step outside of Canada, I think that's the next big area.

Okay. And the kind of historical information that you showed in the acquisition press release highlighted they had a couple million bucks of CapEx on a trailing 12-month basis. That'd be your expectation, so low capital intensity here for the business?

Absolutely. It's a strong conversion of EBITDA to free cash flow, which I think is something that really drew us to this business, along with what the team's been able to accomplish, and the technology, the customer relationships, and then the outcomes they have, I think just really are all fantastic.

Okay. Cost opportunities, they're an existing business, you're an existing business. Is there any overlap here? Should we expect you to save some money out of the combination?

Dan, As we look at Verifirm, a very well-run private company, don't expect a lot in the way of cost synergies or cost additions, for that matter, as we integrate them into FET. The business is really well-run. They've done a great job, and so expectation is that they will continue on their current path.

Okay, perfect. Again, thanks for letting me press on all these things. So SCF was mentioned earlier. They're locked up for 180 days. I saw that in your commentary. Is there any restriction in allowing them after that 180 days to distribute out to their shareholders? Do they have to control this stock or could it wind up out with their LPs?

There would be no shareholder's – I'm sorry, no restrictions after that 180-day on the shareholders. So, again, our expectation is getting those extra shares and float out in the market could actually be beneficial to the story. And so we look forward to that.

Yeah. And, Lyle, any – so we didn't see any announcements, so no SCF person comes on the board post – post the close of the deal?

No, that's right. That's right. So we've got, as you know and others know, we've got a great independent board, a lot of experience in the industry, and they do a super job of representing all of our shareholders.

Yep, perfect. And then don't laugh because you've now had this announced for a grand total of 12 hours or something like that, but I'm assuming... that Veriperm was not the only potential acquisition that you guys have been looking at. Um, it's a big one. Uh, you've, you've now got that in place, but as we think about, you know, your history of making acquisitions, um, as you, you know, success begets success. Uh, so as you think about sort of looking into 2024 and the other things you've had on the list here, does this sort of take you out of the acquisition game for a while as you integrate VeriPerm? Or do we keep thinking about, you know, are there other potential things like this out there for you?

You know, I think our near-term focus will be the successful closing and, you know, integration of VeriPerm. But the thesis that we have is still in place, that we think there are a number of good businesses that are out there And consolidation absolutely makes sense. We're going to continue to analyze and screen and identify good fits and where they make sense. We don't want to let good opportunities get by.

And while you've mentioned several times, it doesn't hurt to have an increased float for your business. We're taking debt up here to 1.9 times today. is there any thought, and I know you've got some flexibility on this seller note, is there any thought that you need more equity as a component of this transaction? In other words, is 1.9 times uncomfortable? Is it a comfortable level? How do you think about this mix of cash, but there's a lot of debt here, debt versus equity?

Yeah, no, Dan, great question. And as mentioned, we really are pleased with the mix that we have on equity and cash slash debt consideration for the transaction 1.9 times is a comfortable number for us um and and primarily because as we look forward both fet and varaparm are well set to generate cash free cash flow going forward and manage that debt and and so we feel very good about the the directionality where we stand and where we can take it and just as a reminder hitting on the fact that we would expect net leverage to drop by the end of next year to between 1 and 1.3 times. I think that's indicative of what can happen with that cash flow, and with even modest growth in EBITDA, we could get there.

Great. Thank you, guys. Appreciate it.

Thank you. Thanks, Dan.

Thank you. I would now like to turn the conference back over to Neil Lux, CEO, for closing remarks.

Thank you, Gigi, and thank you all who are on the call today for your support and participation. We look forward to talking to you again next year in early March to discuss FET's fourth quarter and full year results. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.