Forum Energy Technologies, Inc.

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 also be found on the company's investor relations website under the events section. 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 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. Finally, 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 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, U.S. trade and tariff policies have undergone a radical upheaval. This has generated significant economic uncertainty and dampened the outlook for commodity demand. In addition, OPEC Plus announced faster supply growth than previously anticipated. The combination of these events is putting pressure on commodity prices. Oil prices have declined dramatically and are hovering near four-year lows. While we have not seen a change in market activity, in our experience, rig count declines tend to lag commodity prices by three to six 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 utilize U.S. source content for a majority of our raw materials, it is important to note that tariffs increase prices broadly, not just on imports. For example, one of the largest domestic U.S. steel producers has increased prices by over 30% since January. This is broad-based price inflation. and we must pass these costs on to our customers. Another way we are mitigating tariffs is by leveraging our global footprint. We are increasing assembly activities at our facilities in Saudi Arabia and Canada to efficiently serve global markets. 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. 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 rate 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 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.