Forum Energy Technologies, Inc.

Star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. A link with instructions can also be found on the company's investor relations website under the events section. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. 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 first quarter 2024 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 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. Management statements may include non-GAAP 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 2024 to fourth quarter 2023. I will now turn the call over to Neil.

Thank you, Rob. And good morning, everyone. When we announced the VeriPerm acquisition late last year, we used words like transformative, accretive, and scale. This quarter, we realized the value of VeriPerm adds to the FET's financial results. Sequentially, we achieved 9% revenue growth, and importantly, EBITDA increased 69%, with EBITDA margins improving by 460 basis points. The teams delivered on our promises with both revenue and EBITDA within our guidance range. With favorable sales mix and continued cost management, our EBITDA came in at $26 million above the midpoint of the range. I am pleased with our 13% EBITDA margins. I am confident we will achieve our mid-teens margin goal with our differentiated products and operating leverage. As expected, bookings rebounded in the first quarter and our book to bill ratio was 101%. With approximately 80% of our product portfolio sales being consumable and activity based, a book to bill ratio around 100% is generally expected. However, we will occasionally exceed this level when we received large awards from our capital-intensive and project-based businesses. As expected during the quarter, with oil prices around $80 per barrel and depressed gas prices, U.S. rig count and frac counts were flat. However, we did see a pickup in demand in our stimulation and intervention product line. Our quality wireline business saw a nice uptick in demand for our premium greaseless cable systems. Although the global rate count was essentially flat, we did see some seasonal softness in the international markets as customers were slow to release budgets. Let me briefly discuss VeriPerm and its operational results this quarter. First off, the integration of VeriPerm is going very well. Our teams have done an excellent job of working together, and importantly, we have integrated their financial results into our operating systems, which is critical for a publicly traded company. This is never an easy task, and I would like to thank everyone involved for making this happen in such a short timeframe. This acquisition broadens and enhances FET's existing artificial lift and downhole offerings. The sales teams from FET's traditional downhole product line and VeriPerm are making substantial progress working together. This collaboration should expand FET's total addressable market in Canada through revenue synergies and the broadening of our customer base. Operationally, VeriPerm has great leaders that will continue to run the business as efficiently and successfully as they did prior the acquisition. Earlier this year, we outlined our market views for Canada and forecasted a softer first half of the year, driven by uncertainty of the Trans Mountain Express pipeline startup and seasonal breakup. VeriPerm's first quarter results were generally in line with our expectations but softer than historical revenue run rate due to these near-term headwinds. Despite lower revenue, VeriPUR managed costs very effectively and margins held steady. Looking ahead, we anticipate stronger oil sands activity in the back half of the year as operators in Canada realize higher prices for their oil. Based on the first quarter results, And with no material change to our original global rig count forecast, which was roughly flat, we are reaffirming our full year 2024 guidance with EBITDA of 100 to 120 million and free cash flow of 40 to 60 million. Before turning the call over to Lyle, let me discuss our growth and profitability strategy to beat the market. We will continue to capture opportunities for market activity. With VeriPerm now in our portfolio, between 75 and 80% of our revenue should be tied to activity. We will use our trusted brands and relentless commercial efforts to increase our share within existing markets. As we grow, we will focus on niche markets where FET has truly differentiated itself. We have developed strong intellectual property and proprietary know-how over many years of operation. This strength is combined with our people who are experts in their fields and who understand how to solve our customers' problems. This creates a strong barrier of entry and maintains a favorable competitive landscape for FET. Therefore, we can command higher margins and generate greater returns. Also, we will continue to develop and commercialize new products, as well as continuously innovate and improve our current product portfolio. This is accomplished by working closely with our customers to iterate newer and better solutions, further separating us from our competitors. This allows FET to capture more market share while expanding its total addressable market. During last quarter's call, I went into great detail on a number of examples, including our greaseless wireline cable system, our FR120 iron roughneck, our FastConnect manifold system, and the Pump Saver Plus. Our innovation is laying the foundation for sustainable and profitable growth in the years ahead. In addition, we have an optimized global footprint with strategically located manufacturing and distribution hubs. Our asset light model allows FET to supply products and solutions to our customers wherever they are. We can be nimble and pivot with changing market conditions to go where our customers lead us. We do not need to spend capital within a specific country or region where activity is growing. We just ship our products there. Lastly, we will take advantage of increasing service intensity. To keep up with growing operator demands for greater efficiency, reduction of well costs, and increased safety, our customers are doing a lot more with less equipment. Their drilling rigs and frac fleets are being pushed to run at full utilization with more pumping hours, more stages, more drilling feet, and reduced time between wells. To achieve this, they do not need to invest in new fleets or rigs, but must upgrade their capabilities to keep up and remain relevant. That's where FET's products are critical and allow our customers to drive these efficiencies. I'm now going to turn the call over to Lyle for more details on FET's first quarter financial results and second quarter 2024 outlook.

Thank you, Neil. Good morning, everyone. I am going to start by discussing the rationale for our new reporting segments, the drilling and completion segment and the artificial lift and downhole segment. This structure mirrors our internal management and reporting structure, and it better aligns reporting segments with the markets, activity drivers, and customers we serve. For example, the drilling and completion segment focuses on oilfield services customers, while the artificial lift and downhole segment serves E&P operators and other end users. We will continue to report revenue in our historical seven product lines with revenues with VeraPerm's financial results included in the downhole product line. We have a broad product and solutions offering which can make understanding FET a challenge for new investors. The new reporting segments simplify FET's investment story. We have provided supplemental schedules in the earnings release showing 2023 quarterly results in the new reporting format. After the filing of this quarter's Form 10-Q, we will issue an 8-K that includes recast historical financial information. Let me share some additional information regarding our new segments and their first quarter results. The drilling and completion segment is comprised of the drilling, subsea, coil tubing, and stimulation and intervention product lines. The customer base within this segment includes many of the world's largest oilfield service companies, primarily in the drilling, hydraulic fracturing, well intervention, and deep water installation and service markets. We supply mission critical consumable products and capital equipment to these companies, allowing them to improve efficiency, reduce well costs, and increase the safety of their operations. The majority of the capital equipment provided by FET falls within the drilling and completion segment and represents roughly one-third of segment revenue. Industry activity measured by global rig count or U.S. frac spread count drives this segment. Although rig count has declined over the last decade, the quality and capability of rigs has greatly improved. For example, over the last 10 years in the U.S., the average footage drilled per rig is up two to three times. On the frac side, quality and capability of hydraulic fracturing fleets follows a similar trend. Wells have gotten longer with more stages and more profit than in recent years. However, the number of frac fleets operating has not increased. Wells completed per fleet is up almost 60%. over the last 10 years. The gains will not stop here. Operators demand greater capabilities and efficiencies, and these gains are only possible because our customers have invested in the products that FET provides. In the first quarter, the drilling and completion segment revenue decreased 6%, primarily related to two ROV projects that were completed last quarter. Lower demand for drilling capital equipment and lower international coil tubing sales. During the quarter, we saw an increase in demand in our stimulation and intervention product line. Our customers were catching up on the pullback witnessed in the second half of the year. In fact, we set a new quarterly revenue record for our greaseless wireline cables. Favorable product mix drove segment EBITDA growth of 13%, resulting in EBITDA margins improving 190 basis points to 12%. Orders were 117 million, up 3 million with a book-to-bill ratio of 98%. The artificial lift and downhole segment includes the downhole, production equipment, and valve solutions product lines. Combining VeriPerm's premium downhole solutions with our Davis Lynch casing hardware, And our multi-lift artificial lift solutions enhances FET's existing artificial lift portfolio. And it facilitates revenue synergies from sales pull-through, both in Canada and around the globe. The artificial lift and downhole segment customers primarily include E&P operators and other end users who own or process oil and natural gas from production at the well site to downstream processing and refining. This segment's revenue are primarily driven by well count, well complexity, and well production. Compared to a decade ago, the average wells per rig in the U.S. is up almost 40%, and those wells are, on average, almost twice as long and produce three times as much oil per well. This is possible by our customers' strategic investment in products and technologies that FET provides, both in the well and on the surface. Earlier, Neil discussed the transformational impact VeriPerm had on FET's financial results. This is also evident in the artificial lift and downhole segments sequential improvement, with revenue growth of 42%, EBITDA expansion of 107%, and margin improvement of 680 basis points to 22%. In addition to the impact of VeriPerm, artificial lift and casing equipment sales increased while revenue from processing equipment and valves declined. Favorable product mix boosted EBITDA improvements in the quarter. Orders were 88 million and 89% increase driven by contributions from VeriPerm. The segment booked a bill of 105% was above one as we secured long lead time orders for production equipment. Our consolidated first quarter results were down the guidance fairway in terms of revenue and EBITDA. For the second quarter, we expect revenue and EBITDA growth in the U.S. and international markets where budgets have been approved and customers are executing on their spending plans. However, these increases may be offset by the second quarter Canadian break-up. Depending on the weather, this seasonal impact typically causes Canadian rig count activity to decrease by around 50% from the first to second quarter. With a larger portion of our revenue now derived from Canada, breakup could have a more significant impact on our results than in previous years. We anticipate second quarter revenue in the range of $200 to $220 million and EBITDA in the range of $24 to $28 million. Here are a few details from modeling purposes for the second quarter. We anticipate corporate costs of $7 million, interest expense to be $8 million, and depreciation and amortization expense of roughly $13 million. Let me turn our attention to free cash flow results. We are pleased with our first quarter free cash flow of $2 million exceeded our expectation and guidance. Putting this in context, In each of the past two years, our first quarter free cash flow was roughly negative $25 million as we made beginning of the year payments for property taxes and annual incentives and as we built working capital to fuel full year growth plans. The improvement this year came from two sources, the VeriPerm acquisition and networking capital management. The VeriPerm acquisition was especially attractive because of their ability to convert EBITDA to free cash flow. VeriPerm did that in the first quarter, generating cash flow in line with our expectation and their historical trend. We expect this performance to continue through the year. Networking capital pro forma for the VeriPerm acquisition was roughly flat quarter on quarter, in contrast to the builds in networking capital we experienced in the prior two years. Our teams managed inbound material receipts and lowered inventory levels while meeting customer demand. We have the ability to drive inventory lower and will push for increased inventory turns through the year. As a reminder, our free cash flow, I'm sorry, our full year free cash flow guidance assumed our EBITDA of 100 to 120 million, less cash taxes and interest of 45 million, capex of 10 million, and approximately seven million for other payments, primarily related to the VeriPerm acquisition. We did not assume any reduction in net working capital for the year. Therefore, our solid first quarter performance and second quarter outlook increases our confidence in achieving our full year free cash flow guidance of 40 to 60 million. And for the second quarter, we expect free cash flow to be positive in line with our full year guidance. We have fielded investor questions about our plans to address our 2025 notes and for returning cash to shareholders. Our base case plan for both has not changed since the announcement of the VeriPerm acquisition last November. Let me review the specifics of our plan, starting with liquidity. We ended the first quarter with $49 million of cash on hand and $72 million of availability under our revolving credit facility with total liquidity of $121 million. Between our current liquidity and guided 2024 free cash flow, we expect to retire the remaining $134 million of our 9% senior secured notes by the end of the year. These notes mature in August of 2025 and are callable at no premium beginning in August of this year. In a similar fashion, we expect to utilize 2025 free cash flow to pay off the seller note around the middle of 2025. This seller note matures at the end of 2026 and is callable at any time without premium or penalty. In summary, in five to six quarters, we expect to have retired all of our long-term debt with net leverage of around one times trailing EBITDA. With this low leverage and flexible capital structure, we would be in position to return a portion of our free cash flow to shareholders through share repurchases or dividends. As an example, a dividend or repurchase using 50% of our 2024 free cash flow could be $20, $30 million, or around a 10% yield at current market prices. And this would still leave considerable free cash flow for net debt reduction, other strategic growth investments, or incremental distributions. We have explored options to refinance our long-term debt and enhance flexibility for a more rapid return of cash to shareholders. To date, we have not found an option that meets our expectations or requirements. We will continue to evaluate options that could accelerate the timing and size of potential distributions while we execute our base case plan. Let me turn the call back to Neil for closing remarks. Neil?

Thank you, Lyle. Operationally, our customers are demanding greater efficiencies and safety in the field with less equipment. We have led and will continue to lead these efforts through innovative products and solutions. Financially, we delivered solid results to start the year. The markets are holding steady with our expectations, and this gives us greater confidence in achieving our full year guidance. With our strong liquidity and expected cash generation, we have a clear path to paying off our long-term debt. This will provide greater flexibility and optionality for returning cash to shareholders. Lastly, We could not make this happen without the hard work and dedication of our employees. Thank you. Gigi, please take the first question.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Josh Jane from Daniel Energy Partners.

Thanks. Good morning. Good morning. I just wanted to follow up. Maybe you could just walk us through your activity assumptions. It's great. You highlighted 75% to 80% of the revenue going forward will be tied to activity, but just Maybe your assumptions going forward for this year on the U.S. land market and how you're thinking about not only rig count but well count going forward for the balance of the year.

Yeah, appreciate it. So really, no change to our outlook from the beginning of the year. We expected the U.S. rig count to be down. And I think if we were a U.S.-only company, it would be more challenging. For us, internationally, we do see rig count growing internationally, especially as the year gets started. We have a slow start to the year, but should grow in the back half. Similar story with Canada and oil sands activity. We see it as a second half boost to the year. I think overall, global rig count, we see it as roughly flat with U.S. down a bit, but Canada flat and international making up for the U.S. being down.

And then could you speak to where just, you know, building outside of the U.S. internationally, the markets that you're potentially excited about over the next 18 to 24 months, not only on the land side, but, you know, when I think about the subsea business as well, where you think that could be going over the next 18, 24 months would be great just to expand on a little bit.

Yeah. So I think the, you know, obviously for us, the Middle East land and, and, you know, and the jacket market has, has, you know, seen some acceleration over the last few years. We expect that overall to continue. So, you know, have, you know, have our, our position there and we'll, we'll continue to, to take advantage of that. Especially as we, as we move, you know, have the ability now with their perm to, to look to export some of their products and projects there. So I think that's exciting. The other big areas is offshore. We do believe we're nearing a full utilization point with ROVs, and we think that there's a great opportunity, whether it's Brazil, Guyana, or go back to the Golden Triangle, West Africa, and Gulf of Mexico, to see an acceleration of ROV awards, I guess you said, over the next 18 months or so.

Great. Thank you.

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

Good morning. Good morning, Dave. Good morning. Just hoping, you know, obviously you had very strong margins in lifting downhole. I understand a lot of that was from the Verichrom acquisition. Can you help us kind of just parse out how much of those margins are from VeriPerm and how much of those margins are from, you know, pre-VeriPerm operations?

Sure, Dave. I think as you think about and look at that big uplift in our overall margins, as Neil mentioned, it's really significant on a total basis and for the artificial lift and downhole segment even more impactful. A lot of that is the benefit from the acquisition of VeriPerm. So we see a strong growth there. We also had a bit of favorable mix. We had stronger sales in the quarter for our artificial lift and casing hardware products and a little bit softer for our other products, which is production equipment and valves, which typically have softer contribution margins. So the vast majority of that growth is with VeriPerm, which we expected, and then a little bit of mix after that within the rest of the segments.

Understood. That's very helpful. Just one more from me, more of a logistical question. I know Veriparm came to you pretty turnkey. How much, or if any, integration is left to squeeze out IMR synergies and anything like that?

Yeah. So, as I said, it was very well run. The integration is going well, and we're pleased with where we are now. And again, as we traditionally have when you buy a great business, you know, we want to let them keep running the business as they are. So I think where we see more opportunity is getting our teams working together and look at revenue synergy. So I think we're at very early innings there, but we're starting to quote packages together. So that would be a big uplift and we'll keep driving that. It takes time. So I think that's going to occur over the next few quarters, but early returns are exciting.

Thank you for taking our questions, and good luck in Q2. Thank you.

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. Good morning, Dan. Hi. A couple questions. I just want to make sure that I think, Neil, I heard you say when we looked at kind of the traditional downhole technology business that the non-Veraperm revenues were higher quarter to quarter. Is that Q4 to Q1? Is that right? So we had some strength in that business?

That's correct.

Okay, great. And so... I'm just kind of thinking about bear perm quarter to quarter. It sounds like you had a little weakness there revenue-wise, but that's just a function of what's happening in Canada right now.

That's correct. I think the delays in the Trans Mountain, I think their customer base, who are the very large operators in the oil sands, I think they capped the brakes a little bit coming into the year. And, you know, we will have, you know, just a little bit of seasonal slowdown here in Q2 with breakup. And then I think, you know, our plan and our conversations, you know, lead us to expect a, you know, a more robust second half where we can get back to the revenue running rate we were at last year.

Gotcha. Okay, thanks. And then a question for you, Lyle, just to make sure I understand. We've got about 90% $90 million on the revolver one. I just want to confirm that that's the case. And there's no penalty for paying that down fast, slow. You don't have any requirements to hold a balance on that revolver, do you?

No, you're correct in that we can pay that off at any time. And the balance there ended probably right around $96 million, so just a little bit higher than it was at the beginning of the year.

Gotcha. Okay, thank you. Then maybe whoever wants to take the question, I have two. I'll lump them together. One is just, you know, you found VeriPerm, obviously a great acquisition. Are you thinking about others, and so what's the deal environment? And then the second question is more operational related. if you saw any consistent trends as you move through Q1. Did things soften during Q1? Did they accelerate during Q1? Just trying to figure out what the kind of trend as we go into Q2 looks like.

All right. Let me start with the second part, Dan. Sure. We did see an acceleration there. I wouldn't say it was a Formula One type acceleration, but activity did pick up as the quarter went on. I think part of that is international. We thought the international side was a little slow to release budgets, which can sometimes happen. That's not overly unusual, but we did see the international activity pick up as the quarter went on. I think that gives us a little gives us good confidence into Q2 and towards the end of the year there as well. On M&A, you know, I think there's a lot of good opportunities out there. You know, there's a robust pipeline that we look at, you know, with our, you know, wide, you know, breadth of product lines. I think we have a lot of opportunities. Verifirm, you know, was really a home run in the value margin. You know, if we can find another one like that, we'll be happy. But We're going to stick to our criteria. You know, we have to have strong industrial logic within our portfolio. And we want to maintain, you know, conservative leverage on our balance sheet. And finally, the financial accretion is important and an area we want to stick to. You know, overall, you know, we have a great plan to generate cash this year to get our balance sheet in a great, great position. And we want to continue that. but we'll be opportunistic if there's a good opportunity out there.

Okay, perfect. Thank you. Thanks, Dan. Thanks, Dan.

Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Our next question comes from the line of Eric Carlson.

Hey, guys. Good morning. Morning, Eric.

Yeah, I was just wondering if you could just touch a little bit more on Verifirm. I mean, I think we saw TMX actually officially announce it's coming online in the past couple of days. And just from their business's perspective, so is that – is the majority of the revenue kind of in the oil sands market? Is that during the drilling and completions phase and then – that's kind of just an activity-based business all the way around, or is there, once the products are installed in a well, I mean, is there adjustments that need to be done? I'm just trying to get a little bit of a flavor of kind of the rig count versus the well count in that business and kind of what drives revenue going forward.

Eric, I'll take that a bit, and then Neil, if you want to, you can chime in. The Yes, the VERIPRM products are primarily used in the drilling and completion of oil sands wells with their sand control products and flow control, mitigating sand incursion and maximizing the benefit of the steam injection into the well. So very good products there. So they do have a pretty good linkage with activity and rig count as a good measure. recognizing that not all rigs in Canada drill in the oil sands. There's a little bit of nuance to that piece. There is another piece of Verifirm's business, and about 15% of their revenue in the first quarter was not in Canada. So they shipped products into the U.S. into different markets, and in this quarter, we had revenue coming out of Latin America and out of the Middle East. So really a global business that matches well with us, and as Neil mentioned, our ability to maximized pull-through there will be a good add for Verifarm.

I think I would add one more piece to that, that the activity that they see on the drilling and completion side is not just related to new projects, but generally the majority of the activity is work on existing projects where you have the steam generation facility in place, and then they're adding wells to that. So it's not relying on new budgets or new money coming in, but really keeping the existing projects going where we think 95% of their activity is going to come from.

Great. That's helpful. And then just maybe touching on the Middle East a little bit. I mean, that's been an area where, I mean, the business is already ahead of kind of pre-COVID numbers and seen some of the larger peers. And I listened to the H&P call and they have kind of rigs being delivered. And I think that there's kind of additional tenders that they'll put out there as they focus more on kind of the unconventional gas development. I'm just wondering, like, from your perspective, when you think about the business in the Middle East on a go-forward basis, like, where are the tailwinds for kind of their ambitious plans gas production buildup?

Yeah, I think in a couple areas, you know, in Saudi. So think about us specifically, you know, the capital equipment side, as you mentioned, H&P, you know, as those, as companies like H&P who are, you know, our customers, they transition rigs or add rigs internationally and they're going to need to upgrade the equipment on those rigs. So that's a great opportunity for us on our capital side, especially the drilling equipment. On the gas development side, what's helpful to us is a lot of the products and solutions that we design for U.S. unconventional, they're being applied internationally, whether it's Argentina or the Middle East, they're using our equipment there. So that's a great opportunity. Great opportunity on our stimulation intervention product line and within our coil tubing product line as well. We see significant activity there.

Okay, that's helpful. And then I guess you guys addressed a lot of the kind of the plans on the balance sheet and what you see on a go-forward basis. I noticed, obviously, a very small amount of it looked like shares were repurchased during the quarter, and then just wondering what you had left on that kind of first smaller authorization?

Eric, I'll talk to that. In the first quarter, those shares or purchases were tied to equity awards to employees, and that was the tax portion of those that were recouped by the company and taxes paid in cash. So we did not buy any shares in the market in the first quarter. We've got a relatively small amount of authorization left and a small amount of capacity under our current indentures to be able to do that today. So our plan, as we talked about and tried to outline on the call, is leveraging our liquidity and our cash flow to pay down this long-term debt and ultimately get that flexibility so that we can open up the avenue for larger companies and faster distributions back to our shareholders. And we're pretty excited about that.

That's great. And then I guess the last thing, I mean, you guys have mentioned it a handful of times over the last couple of calls, but really focusing on kind of the financial accretion on, it sounds like more on a per share metric. And then the only thing I would say is as some of the larger cap, both upstream and offshore, kind of your, your larger cap service peers have come out of 2020, you've seen management incentives tied more to those metrics, which, I mean, you guys are obviously hitting, but that's something where, when I just looked at the proxy statement that was released, I mean, basically most of the incentive is still based on just, it looks like a pure EBITDA margin with a smaller free cashflow number, number, and then some strategic objectives and so on and so forth. But yeah, I guess my point would be is I like the focus. And obviously, if you just pay down a bunch of debt over the next year, I mean, just that interest savings alone increases pre-cash flow share in a pretty material way from where we are now. I guess what I would suggest is thinking about, I mean, aligning incentives with what you guys are really strategically focused on. And that's something that you guys can easily accomplish. So I guess what I'm saying is, again, show me the incentive and I'll show you the result. I think the result is there, but I think you guys should be incentivized for that. So that would just be a strong suggestion to align those goals on a go forward basis. And I think, I mean, we're set up very, very well given kind of where activity sits, but you might as well get paid in the process to do that.

Yeah. No, Eric, that's great. Great. Great point. One that we, we agree with a hundred percent, you know, we, we, we've aligned our, our 2024, uh, uh incentive very closely with with free cash flow increase that that weighting there so that the uh not just the executive team but all all key managers will be be aligned and generate free cash flow and i think we we started to see the results of our focus on free cash flow um you know later last year and i think to see it this year you know q1 really is a tough quarter for a manufacturing company to have free cash flows, you know, just with all the sizable kind of become seasonal payments of cash that have to go out. And so I think as well as having some cash payments go out for our acquisition. So to be cash flow positive in Q1, I'm really excited and it's something that we want to want to continue. And then I think On the executive team, we had, I think, fairly significant ownership of equity. And we are aligned, I think, as well as we can be with our shareholders. And I think we're going to drive the results that I think you've outlined here and in previous calls. And I think as Lyle outlined in his section, that it's important to us to get our debt down. And it's important to us to get the flexibility to evaluate and find the best option for shareholder returns. And we're looking forward to that. We're laser focused on that.

Great. Yes. Well, great quarter. And I guess keep driving it forward. Thanks. Thanks, Eric. Thanks, Eric.

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. Neil, you talked in your comments about increasing intensity. And I guess my question is, in the context of a flat to maybe a little bit down US rig count that you spoke about, how is the increasing intensity of the wells that are being drilled really driving your revenue on a per rig basis? And does that give you any greater ability to maybe forecast how you think the replacement and upgrade cycle could impact the business as you look out into even as far as 2025?

Yeah, I think the, in, in general, absolutely that the wear and tear on equipment makes, makes a big difference. So it's, it's not the, you know, it's no longer just, you know, the revenue parade can change. I think the, On the forecast side, it can be a little more difficult to get it precise because of just more microeconomic kind of decisions our customers make. But overall, I think the big picture that over time that we're going to consume a lot more, our industry is going to consume a lot more equipment and material and consumables that we provide per rig than they did in the past. And so I think that's really the key part of what we wanted to do there. Now, on top of that, where we have a great opportunity is on new products and new product development. I mentioned in prior calls or even in this call, excuse me, some of the new products we introduced and And I got to admit, I am really, really excited about what our teams are doing. We have a great pipeline of new products that are in there. A lot of products are in early stages of commercialization. One of them, Fast Connect, which is our frack manifold replacement system, we put our first unit into the field, and it is working incredibly well. That system has pumped 165 million pounds of sand, completed 250 stages, and transition between wells at a much faster rate than traditional manifolds. So our FastConnect is helping customers do more with the same equipment. And it did it all. Those examples I just provided, it did it all with zero downtime. So this patented technology really is a game changer for operators and pumpers who want to increase their efficiency. So that's the type of product where we can grow faster than rig count. And our teams are really focused on doing that. So excited about Fast Connect. We really are accelerating our rollout in the second half of the year, and we hope to see some great results going forward.

Does that rollout, at least from an operator standpoint, if they see the benefit of having that equipment on their job or on their pad, can they then put pressure or pressure basis that tell the pressure pumping provider that you need this on all the frack crews that you have dedicated to our business? Does that help pull demand for that product into the fleet?

When we roll out a product like this, and admittedly, FastConnect can be sold to pressure pumpers, can be sold to pressure control companies, or can be sold directly to operators, and sometimes that happens. But when we roll out a new product like this, we want the operators to see the benefit, and we will market directly to them so they can see what's happening on their well site and they can drive efficiency. we never really want to be in the position of having our customers told to use our products, but we want our customers to really enjoy and really love our products. And so that's where our teams are focused. And if we can provide the value, our customers are going to have a good uptake. And we're seeing that with the FastConnect today. And, again, I just can't get over how excited I am about our product pipeline. The teams are really – really focused on, you know, in a, in a flattish rig environment, if we're going to be a successful company, we have to bring in new revenue. We have to grow faster than the market. So new product development is an absolute pillar of that growth and we're focused on it completely.

So it really comes down to showing the customer, the economic benefit of the product and that'll, If it enhances their returns, then they'll want more of it, and obviously that's good for your business.

Yeah, absolutely. And where our teams are focused, too, is let's look at the value it provides. So rather than say, hey, this saves you money, what I think is really more important is this is allowing you to generate more revenue. you're going to be pumping more if you have a fast connect on your well site. And that, I think, is where it gets really exciting for our customers and for the operators.

Last question, just on VeriPerm to follow up. I think early on you talked about using their products and FET's international distribution to maybe expand their international businesses. I know it's very early days, but can you provide any color on what you're doing in that realm?

Yeah, so it is very, very early into that. And just to kind of reframe it, last year, Veriperm was extremely busy on the oil sands in Canada, right? It was a big step up, and they were really 100% focused on taking care of their customers there. Now that we have the acquisition done, we are looking at other opportunities. I think this type of technology is used in the Middle East. It's used offshore. So those areas where we have high value, where the customers want the types of products, the premium products that VeriPerm provides, we're going to target those areas. We're going to want to do it in a way that makes sense and keeps our brand value.

Thank you for taking my questions.

Thank you. At this time, I would now like to turn the conference back over to Neil Lux, CEO for Closing Remarks.

All right. I want to thank everyone for their support and participation on today's call. We look forward to talking to you again in early August to discuss FET second quarter, 2024 results.

This concludes today's conference call. Thank you for participating.