Good morning, everyone, and welcome to the Forum Energy Technologies Second Quarter 2024 Earnings Conference Call. My name is Gigi, and I will be your coordinator for today's call. All participants are currently in a listen-only mode, and all lines are muted to avoid background noise. This call is being recorded for replay purposes and will be available on the company’s website. I will now hand it over to Rob Kukla, Director of Investor Relations. Please go ahead, Rob.

Thank you, Gigi. Good morning, everyone, and welcome to FET's second quarter 2024 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 protection 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's 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 second quarter 2024 to first quarter 2024. I will now turn the call over to Neal.

Thank you, Rob, and good morning, everyone. Now that we are halfway through the year, it is a good time to take stock of our progress, and I am pleased with our direction. Free cash flow results have been strong, and we have converted EBITDA into cash faster than our plan. This performance has provided confidence to raise our free cash flow guidance for full year 2024. Also, we are in the process of redeeming more than half of our 2025 notes prior to the end of the third quarter, and it is our intention to retire the balance around the end of the year. At that point, the remainder of our debt will be fully prepayable without penalty and will not mature until December 2026. This is a big step for our balance sheet. In addition, we are executing our beat-the-market strategy through new product development and international market penetration. These results are evident in our market share gains and increased sales outside of the United States, which were 50% of FET's total in the second quarter. Finally, our financial results demonstrate the positive benefits of the Variperm acquisition. We have increased EBITDA nearly 50% year-over-year despite a more challenging market. The combination of our companies has successfully increased our scale and margins. As a management team, we have a strong focus on free cash flow. And this quarter, we generated $21 million through consistent profitability and improved working capital management. This allowed us to repurchase $13 million of our 2025 notes and announced the redemption of another $60 million. In addition, we are raising our full-year 2024 free cash flow guidance to between $50 million and $70 million. The team continues to execute at a high level, and I am proud of their efforts. Putting it all together, we are following through on our plan to create value through a strong balance sheet. Once complete, FET would be positioned to return cash to shareholders around the middle of next year. Last quarter, we discussed our growth and profitability strategy. This consists of four foundational pillars: growing profitable market share, developing differentiated products and technologies, utilizing our optimized global manufacturing and distribution footprint, and expanding our participation in energy transition. I'd like to provide an update on progress made so far. First, we are seeing the benefits from new product development. We have a growing opportunity pipeline within the power generation sector for our industry-leading JumboTron XL heat transfer unit. The JumboTron XL is a critical component for power systems that are utilized for many applications, including AI data centers. The power generation market should grow rapidly over the coming years. Importantly, these opportunities are geographically diverse with demand in the U.S., Middle East, Canada, and Latin America. This is an exciting opportunity that expands FET's addressable market. We are also benefiting from our optimized global presence. To meet growing global demand and provide our products around the world, we do not need to expand our roofline or invest additional growth capital. We can service the world with the strategic manufacturing and distribution hubs that are already in place. A great example is our Saudi Arabian manufacturing facility, where we are delivering products and technologies to support unconventional resource development throughout the Middle East. These products include key hydraulic fracturing components, casing equipment, hardware, coiled tubing, and artificial lift solutions. For the first half of 2024, we have grown our Middle East revenue by 16% compared to the first half of 2023. This highlights our ability to pivot with changing market conditions and grow where our customers are spending money. Turning to the second quarter, we delivered revenue and EBITDA within our guidance range despite softer than expected U.S. activity. Our year-over-year results demonstrate the benefit of our beat-the-market strategy and the Variperm acquisition. Our revenue increased 11% and EBITDA was up 48% with a 320 basis point improvement in margins. These results are particularly impressive given that the global rig count was down about 5%. Variperm performed well during the quarter, even though the Canadian market was down due to typical seasonality. While revenue was essentially flat, favorable mix and cost controls helped Variperm deliver increased EBITDA and margin contribution. They were also a meaningful portion of FET's free cash flow. Revenue synergies from the acquisition are starting to reap benefits. By working closely with Variperm's experts to expand FET's share, we increased our artificial lift and casing equipment sales in Canada by 5%. Also, we are leveraging an existing distribution network to have product readily available for these customers. Gaining share in a new market takes time, but we do have some early wins. Now let me give you additional color on the prior quarter's market conditions and how it impacted our results. In the U.S., E&P consolidation continues to slow drilling and completion spending as companies evaluate their combined portfolios. Also, weak natural gas prices contributed to a decline in U.S. rig count and hydraulic fracturing activity. Internationally, rig activity declined 6% due entirely to the Canadian breakup. Outside of Canada, rig count was flat with strengthening activity from shale plays in the Middle East and Latin America. Also, offshore activity remains vibrant as demonstrated by our strong subsea quotation pipeline. Now let me turn to our outlook for the remainder of the year. We believe it is unlikely that U.S. rig count and hydraulic fracturing activity will experience a significant increase from current levels. As a result, we now expect U.S. rig count to be down 15% on average for the year compared to our initial expectation of a 5% decrease. However, the benefits of our Variperm acquisition and beat-the-market strategy should mitigate the softness. With this revised market outlook, we are reducing the top end of our 2024 EBITDA guidance by $10 million. Therefore, our updated range is now $100 million to $110 million. We anticipate the third quarter to be relatively on par with the second with revenue in the range of $200 million to $220 million and EBITDA in the range of $24 million to $28 million. Despite this change in our EBITDA guidance, we have increased confidence in our ability to generate free cash flow. As a result, we have increased our guidance range by $10 million to between $50 million and $70 million. This reflects the benefit of our capital-light business model and operational execution. I am now going to turn the call over to Lyle for more details on FET's second quarter financial results.

Thank you, Neal. Good morning, everyone. I will begin my comments providing more color on our strong cash flow and our balance sheet. We generated free cash flow of $21 million in the second quarter. This represents an 81% EBITDA to free cash flow conversion. A decrease in net working capital driven by inventory management and good collections contributed to the strong free cash flow results. Reductions in inventory have generated significant cash flow so far this year. Our teams continue to drive down inventory by tightening our supply chain. We are reducing the flow of inbound raw material to match market conditions while still meeting customer demand. We have the ability to drive inventory lower and will push for increased inventory turns. Our efforts to achieve more timely collections are also paying off. We have achieved significant improvement in our days sales outstanding since the beginning of 2023. In fact, excluding the impact of Variperm, our second quarter DSOs decreased by nine days year-over-year. Net-net, we have reduced working capital by $11 million this year, which boosted our free cash flow results. Recall that our prior free cash flow guidance assumed no reduction in net working capital. With the net working capital reduction already achieved and our plans for the remainder of the year, I want to reiterate the guidance Neal discussed earlier. We are raising our full year free cash flow guidance to $10 million, with working capital benefit driving the overperformance. We ended the quarter with $32 million of cash on hand and $103 million of availability under our revolving credit facility with total liquidity of $135 million. Our net debt was $225 million. Utilizing annualized first half EBITDA, net leverage ratio was 2.2 times, a slight improvement from the previous result. Last quarter, we laid out a plan to put FET in position to return cash to shareholders. With the announced $60 million partial redemption of the 2025 notes in August, our current liquidity and guided free cash flow, we remain on track with this plan. We expect to retire the 2025 notes around the end of this year and the seller notes around the middle of next year. With low leverage and a flexible capital structure, we would be in a position to return cash to shareholders through share repurchases or dividends. And this would still leave considerable free cash flow for further reduction of our revolver balance, strategic growth investments, and our incremental distributions. We will continue to evaluate refinancing options that could accelerate this plan while we execute in the third and fourth quarters. Now let me provide comments on our segment results. The Drilling and Completions segment revenue decreased 2%, primarily due to lower sales of ROVs, cable management systems, and treating iron. During the quarter, coiled tubing revenue increased 24% as the international markets caught up from a slower first quarter. We also saw a 50% increase in frac power and shipments as we added a new large customer and had an increase in refurbishment work. Lower revenue and less favorable product mix drove the segment EBITDA decline of 16%. Orders were $110 million, down 6% with a book-to-bill ratio of 94%. Orders for drilling and stimulation-related capital equipment were lower during the quarter, partially offset by increased international orders in the coiled tubing product line. The artificial lift and downhole segment revenue was up 6%. Higher sales in the Middle East for both our casing equipment and valves products drove the growth. Favorable mix in the downhole product line pushed segment EBITDA up by 9% and EBITDA margins up 70 basis points to over 22%. Orders were $70 million, a 20% decrease due to our production equipment product line, where order timing creates swings quarter-to-quarter. The outlook for production equipment is solid as their backlog remains strong with a year's worth of work in the system. Now let me provide some color on our revenue by geography given the disparity between activity in the U.S. and international markets. In the second quarter, international revenues grew to 50% of our total revenue compared with 35% just a year ago. This shift is significant given the softness in the U.S. And as Neal mentioned, our strategy to grow internationally is making progress. Second quarter international revenues were up 13%, with the majority of the improvement in the Middle East. There, we recognized large project shipments of coiled tubing and of valves manufactured in our Saudi Arabian facility. Downhole revenues also strengthened with market share gains for casing hardware and artificial lift products. In addition to growth in the Middle East, our Canadian revenues grew slightly in contrast to our expectations of a decline due to spring breakup. These results demonstrate the value of our global footprint in mitigating the softer U.S. market. And the U.S. market has been down this year. Our revenue correlates with rig count. So when the U.S. market begins to improve, we should benefit. To wrap up, let me provide a few details for modeling purposes for the third quarter. We anticipate corporate costs and depreciation and amortization expense to be roughly in line with the second quarter. We will see reduced levels of interest expense in future quarters with a $13 million of the 2025 notes repurchased in the second quarter and the $60 million redemption in August. For the third quarter, we expect interest expense to be approximately $8 million or about $700,000 less than the second quarter. For the fourth quarter, we should realize an incremental $600,000 of benefit from the reduced amount of outstanding 2025 notes. With the retirement of these notes, we will write off the related unamortized debt discount and debt issuance costs. These were roughly $3.5 million at June 30. The discount originated in 2020 when we issued the notes and recognized a gain based on the fair market value estimated at that time. In the third quarter, we expect a nonrecurring charge of approximately $1.8 million associated with the $60 million we were deemed in August. Finally, we anticipate income tax expense in the back half of 2024 to be slightly higher than the $6 million reported for the first half of this year. Let me turn the call back to Neal for closing remarks.

Thank you, Lyle. Looking ahead, we expect the U.S. market to remain soft and down from our original estimate earlier this year. However, our outlook for Canada and the international markets remains intact and will help mitigate this additional softness. We will continue to execute and deliver financial results that support our long-term strategy. Our focus on cash generation is paying off. We raised our guidance and expect to generate strong free cash flow this year. Our plan remains on track to retire both the 2025 notes and seller's term loan around the middle of next year. This will provide greater flexibility and optionality for returning cash to shareholders. To conclude, I would like to thank our global team for their hard work and dedication, especially our Houston area employees impacted by Hurricane Beryl. Despite having limited or no power, self-service, or Internet, they found a way to get the job done. Again, thank you. Gigi, please take the first question.

Thank you. Our first question comes from Dave Storms from Stonegate.

Good morning.

Good morning, Dave.

Good morning. Just hoping we could start with cash flow guidance. Great to see it take a step up. Could you help us understand just kind of some of the puts and takes that will put you on either the higher or lower end of that guidance range?

Maybe I'll start and let Lyle jump in. I think in general, we're seeing a good conversion of working capital into free cash flow. So our teams are focused on reducing DSOs and really matching the inventory that we're receiving to market demand. So I think with the guidance that we laid out for EBITDA, we feel really confident in the free cash flow range that we've provided.

I'll give a little bit of detail there. If you think about the key contributors, that's going to be maybe a swing plus or minus in EBITDA given our full year EBITDA range. And then the free cash flow range is a little bit wider and that's the flux is going to be plus or minus on working capital that Neal talked about. So if we're closer to the top end of our EBITDA range, I think we'll get a little bit less juice out of the working capital, just based on higher accounts receivable. But if we're at the bottom end, I think we get the opposite. And so they've kind of net each other out.

Understood. That’s very helpful. Thank you. And then, I know there's a lot of anticipation around returning capital to shareholders middle of next year. Is there any more color you can give us on what that may look like? I know you mentioned repurchases or dividends. Maybe just any variables that would sway your decision or is the decision one way or another?

It's something that we're obviously thinking about a lot. We have some time. But I think to us, the key is we are going to return cash to shareholders, something we really want to do. And so we're going to really evaluate all the options and see what makes sense for long term. So we think it's a commitment that we need to be consistent with, and that's where we want to be as a long-term company.

Understood. And if I could ask one for international. I know coming out of the first quarter, the international markets may be a little slow to release their budgets, so that 50% number in 2Q. How much of that may be a catch-up? And how much of that maybe is a really good baseline for FET Co.?

Yes, Dave. The portion of our revenue that comes from international markets has increased to 50% from 35% last year. As we have expanded internationally, we have added Variperm, which also contributes to this growth. Although the U.S. revenue is larger in absolute terms, it has become a smaller percentage of our overall revenue. Additionally, if we look at the sequential growth, international revenues increased by 13%. We do see fluctuations with project shipments, as we noted with some valves and coiled tubing catching up. However, it is crucial to highlight the growth in market share we have achieved outside the U.S., particularly in our casing hardware and artificial lift product segments, as well as increased frac power sales targeted at unconventional markets in Latin America and the Middle East. Overall, we have experienced market share gains in those areas.

Yeah. Very helpful. And if I could just ask one more question. You mentioned, you've brought on a customer in Drilling and Completions, pretty sizable customer. Just curious as to what the overall customer acquisition environment is like, especially given all the pickup in market share internationally.

We have a core value of staying customer-focused. We analyze the markets we are involved in and aim to find customers whose problems we can solve. Many of our products have a longer lifespan, enabling our customers to go deeper and reduce their overall operating expenses. Our goal is to present this value proposition to as many customers as possible in markets where we can achieve good scale and higher margins. We're observing a long-term trend in exporting technology that we've used in unconventional resources in the U.S. to international markets. This includes areas such as coiled tubing and stimulation intervention among others in drilling. We leverage this to benefit the industry, as the productivity gains seen in the U.S. are now being expanded internationally with that same technology.

That’s all. Very helpful. Thank you for taking my questions. Good luck on the third quarter.

Thank you, Dave.

Thank you. Our next question comes from the line of Dan Pickering from Pickering Energy Partners.

Good morning, gentlemen.

Good morning, Dan.

Canada performed impressively. I believe I heard that revenues for Canada were flat quarter-to-quarter, and I also think I heard that Variperm revenues were flat quarter-to-quarter as well. Is that correct?

Canada was 5% up. So I think what we wanted to say is our casing hardware and artificial lift solutions, we grew our share there a little bit, so about 5%. But Variperm was essentially flat quarter-to-quarter. Despite obviously, spring breakup.

Okay. That certainly caught my attention because it's a significant difference compared to your expectation of potentially declining by as much as half. Was there a customer win? Was the business just more stable than you anticipated? Or is it simply that you are getting familiar with Variperm and the fluctuations in that sector, which took you by surprise a bit?

I think the steady business is a factor. Another factor is the market share we gain by using Variperm's contact distribution network. Their team has done an excellent job with their customer base and they've opened many opportunities for us. We're still in the early stages of that revenue synergy, but we are excited about the potential it holds.

Yeah. That's awesome. Earlier in the year, you talked about sort of second half being stronger for Variperm oil, sands activity, etc. Is that still the outlook? Is there any update, given the fluctuations we've seen in crude price?

We don't see any change in that outlook. It's something we will monitor. I think it's possible that some of the major projects and the drilling schedule could shift from Q4 into Q1. But for now, there’s really no change in our outlook for oil sands development.

Okay. So second half better than first half, and the first half here has been a little bit better than you thought.

Correct.

That's a nice start for that acquisition. I wanted to shift over to the balance sheet. Can you walk us through the note redemption process? We know it's $60 million, but you've mentioned August several times. Is there a specific date for that? How do we fund it? Do we pull cash balances down a little more or increase the revolver? How do you envision processing that paydown?

Thank you for the question, Dan. We are currently ahead of schedule in our process, having retired or bought back $13 million worth of notes in the second quarter using cash on hand from our revolver. In mid-August, we will redeem an additional $60 million. Our indenture requires a 30-day notice to redeem notes, so we issued that notice on July 17 for the $60 million redemption on August 16. The funding for this will come partly from our cash flow in the third quarter and by increasing our revolver. As a reminder, we finished the second quarter with $135 million in total liquidity, which includes cash and the availability of our revolver. This provides us with ample resources to redeem these notes and we plan to do a similar operation in the fourth quarter to redeem the remaining $25 million worth of notes by year-end.

And Lyle, is there a similar redemption notice process? So you issued a press release saying, hey, we're going to redeem the remainder. And so we will follow the same process? We'll see something in October, November and that redemption that would follow 30 days later.

It would, Dan. That would be the similar process.

Okay. Good. That’s helpful. And then my last question and it's one more focused on operations. Your valve business, you had a nice bump. Can you talk a little bit was that. Is that a restocking by distributors? Was it the Middle East growth that drove that? I'm just curious if we're seeing a change in business dynamics.

No change in business dynamics, no restocking by distributors. This is more project deliveries in both the U.S. and in Arabia. So, pleased with the kind of trend we're seeing in Saudi, I think it's gone well. And so we'll keep that up. But no real change in the valve industry dynamics there.

Thanks. And I said it was my last question. I do have one more. Kind of every other quarter I asked you about the environment for bolt-on acquisitions and opportunities. Variperm, obviously, you're early in that process still, but things seem to be going well. What's the overall environment for things like another Variperm or opportunities? And as you're answering that question, I guess, North America is sloppy right now. Would you stay away from North American exposure or do you think about North America as an opportunity?

Yeah. Good. So I think obviously, Variperm for us was a home run right value margin. I’d love to find another one. Those will be hard to find. We’ll continue to look. I think that the overall environment though, there are opportunities out there. I think activity is robust. The deals seem to be getting done. And with our kind of breadth of product lines and our geography diversity, we’ll – we can kind of hit both the U.S. and international. We’re not running away from the U.S. I think ideally would want to find a business that would have both a U.S. and an international presence. And so we’ll continue to look for that. But really, our criteria, though, is we want to find the strong industrial logic, where it fits in our portfolio, and we’re going to be conservative with the leverage on our balance sheet going forward.

Okay. Thanks so much. Well done.

Thank you, Dan.

Thanks, Dan.

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

Thanks. Good morning. Neal, you spoke a little bit about revenue per rig. And I'm wondering if you can talk both between the U.S. and international markets? Where do you see further gains in the type of sales mix that will offset the weakness you see in the rig count? And then secondly, are those gains pretty sticky if you start to see some sort of improvement in rig count in 2025?

Yes, that's a good question. In the U.S., we have systematically increased our revenue per rig. If we estimate, we are likely up about 4% year-over-year, which indicates market share gains. With around 75% of our sales being driven by activity, my experience shows that once you establish a relationship with a customer and deliver effectively, there tends to be some stickiness. You come to understand their needs and value, ensuring that you have the right product ready and can deliver on time. These are crucial aspects. Therefore, our expectation, and the challenge for our teams, is to not only retain those customers but also to grow as the market improves.

Are some of those gains driven by the service providers wanting FET's products or is it a mix of that plus the E&P operator or the well owners saying if you're going to drill our well, we want these types of products on site for that FET supplies?

I believe it's a strong combination of both aspects. We observe a connection between exploration and production to the service companies for specific products we offer that enhance their productivity. Additionally, around half of our sales are made directly to exploration and production operators, allowing us to present our value proposition directly to them. Our strategy focuses on differentiation, aiming to provide technology and solutions that improve our customers' efficiency. The more effectively we communicate that value proposition, the more we will increase our market share.

Regarding renewables or energy transition, you mentioned power generation as a potential new revenue opportunity in your JumboTron XL system. Are you receiving requests for bids and seeing fabrication studies, or are actual orders for products being placed to develop these systems globally?

Yeah. So we have delivered these sales already last year and this year. But what's exciting to us is the pipeline does seem to be expanding really rapidly. And I think just as maybe more of an industry comment that as these data centers are being built out, there just seems to be a lot of concern about where the power is going to come from. So we're seeing more of that, let's call it, mobile power gen being utilized in different applications. So we're seeing that bid activity directly, and we've seen a really big spike. Again, these projects do take time, but we see that as a long-term growth driver for us.

And then to follow on that, do those types of projects create aftermarket business through servicing and replacement cycles?

Our units are very durable and have a long lifespan. Once a unit is installed, it can operate for about ten years, leading to ongoing revenue for us. While it may take a couple of years before we begin to see any aftermarket activity, we anticipate significant recurring business from these installed units over time.

And then a last question. On the Middle East and your revenue growth in the second quarter, are you seeing projects or big-scale projects that you see that continuing in not necessarily the quarterly growth, but are you seeing continued exposure for increased sales as you look out into 2025 and maybe even 2026?

I was sitting with one of our Middle East sales leaders yesterday, and he mentioned that he sees a strong pipeline. I agree that as we look towards 2025, there is no change in the trend. We will continue to benefit from this, and I believe there are still many opportunities for us to export both our unconventional technology and our downhole technology.

Just on margins, Neal or Lyle, with the 12.5% to 13% margins in the first two quarters of this year. Do you think the product mix as you think about 2025 will be similar to 2024 can lead to the similar type margins or do you think there’s room for expansion?

I will address that, Jeff. If you review our overall margins, they have remained relatively stable since the acquisition and integration of Variperm, which provided us a significant boost, as you noted regarding mix. We have emphasized that mix is a key factor for us, and it's an area we are monitoring closely. We can manage and influence our mix through the market share gains we are achieving. For instance, in the artificial lift and downhole sectors, our incremental EBITDA margins were approximately 37%. We mentioned earlier that Variperm's revenue was slightly down but their overall profitability improved compared to the previous quarter. Additionally, our other downhole products showed strong performance, which come with healthy margins, though this was somewhat offset by softer margins in valves. As we continue to expand our downhole product line and gain market share, I believe this will provide a positive impact on our margins. Another factor contributing positively would be operating leverage. Our revenues have been reasonably stable despite a downturn in market activity. However, if we see a rebound in revenues, our margins could benefit from operating leverage as well. So there are several factors that could increase our margins in the future.

Thanks very much.

Thank you, Jeff.

Thanks, Jeff.

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.

Hi, Eric.

Another great quarter. I mean it's hard to complain when you can almost generate 25% of your market cap in cash in a whole year, which I think the international markets are probably a little bit underappreciated by the market currently, but maybe just a little bit more on Canada and when you think about activity there. I guess Baker Hughes 144 oil-specific rigs currently, which is, I mean, maybe 20-plus percent above last year. And could you maybe just share a little bit on when you think about Canadian activity, obviously, am I correct in thinking that being more oil-weighted is a benefit to Variperm specifically?

Yes, definitely. A portion of the rigs you mentioned are utilized in the oil sands. The timing of the wells being drilled is important. When we acquired Variperm, we believed it had a long-term growth potential, not just from new projects but also as existing fields are infill drilled to manage decline rates and maintain stability, which means continued use of their product. Additionally, newer wells generally have longer laterals and require more Variperm product per well, which is a positive trend. Therefore, the increase in oil rigs in Canada should certainly benefit Variperm.

Great. And then maybe just on that longer lateral comment in the industry broadly. I mean, obviously, when you think about kind of the business lines you have, if you look in to any of the E&P calls, you hear basically longer laterals, more stages completed per day. And when you think about like a 4-mile lateral versus a 2-mile lateral, obviously, you need less rigs to complete that work, but the intensity of those rigs and the materials are there. So when you think about just building product mix for the future as technology continues to improve. I mean, do you think about how do we benefit from more stages complete or, call it, lateral miles drilled or whatever that may be. And we'll get less on kind of the pure rig count number? Can you just provide some thoughts around that?

You addressed the trends we observe accurately. We often reference rig count because it is published weekly and accessible to everyone. Internally, we monitor stages and wells, but there is some delay in the data, which makes forecasting challenging. Our primary focus is on service intensity. For instance, longer laterals mean a longer coiled tubing string, resulting in more revenue per string, and similarly for wireline strings. As we increase the number of stages pumped each day, components like power ends and flexible hoses will wear out faster this year than in the previous year, leading to a quicker replacement cycle. All of this will be beneficial to us. While rig count might not provide the best perspective on our business, we anticipate increasing our U.S. revenue per U.S. rig over time. We have made about a 4% improvement so far, and we plan to continue enhancing that as time progresses.

Could you provide more information about the Middle East market? There have been many announcements regarding unconventional gas, and I'm curious about the expectations for the delivery of rigs to the region from other service providers. Additionally, I've seen something about your plans to manufacture radiators in Saudi Arabia—is that correct? Could you elaborate on the market opportunity there? It's evident that numbers are significantly higher than pre-COVID levels, indicating good execution on your part. Does this region represent the greatest growth potential, along with the incremental activity in the U.S.? How do you envision the geographic product mix evolving in the future?

I think your previous comment was very accurate as we observe long-term growth potential in the Middle East. If the U.S. and Canada were to return to more typical levels, we would experience significant momentum. Historically, the Middle East required less service intensity, which resulted in lower sales per rig compared to the United States. However, this is changing. As you mentioned, we are currently manufacturing radiators in Saudi Arabia. They are increasingly drilling unconventional wells, which will utilize a lot of coil, wireline, and power ends, and will require the latest types of radiators for their frac fleets.

Eric, we are bullish about the Middle East. We're also bullish about the offshore markets and our subsea business. So if you think about that business and one of the big drivers that everyone watches is subsea wellheads or subsea tree orders and subsea tree orders have been up and strong. We mentioned last quarter, we're seeing higher and higher utilization of the existing ROV fleets which is a big driver for us initially, that's driving spare parts. Our pipeline of new inquiries for incremental ROVs to add to our customers' fleets is meaningful. So we're excited about that as well as opportunities in the defense sector. So while we do see a lot of excitement around the Middle East, we also see opportunities coming on the subsea side as well into next year.

Okay. Great. That’s all. Very helpful.. And then, I guess this is my last question, last comments and just kind of one of your thoughts. I mean we're a little bit ways away, but it's getting closer. And when you think about kind of the potential to return capital, I guess I would just encourage you, if you're trading at a 25% free cash flow yield and a 50% discount to your peers on an EBITDA multiple basis to put every dollar possible to buying shares. Now obviously, if the market reprices you, dividends are great and then using share repurchases to either increase free cash flow per share or the ability to pay dividend per share without increasing the cash outlay. That's great. But at current valuation, I would pound the table on buying factor shares. And if that reduces liquidity or whatever it may be, it's kind of irrelevant from a long-term shareholder standpoint. So I just kind of like your internal comments of where your kind of valuation sits relative to peers. I mean, obviously, this is hypothetical because you can't do it at this point in time. But if you could return capital to shareholders, like what are your guys have thoughts once you get to that point?

Great question. As Neal mentioned earlier, we're navigating that process, and we share your perspective. Our free cash flow yield is remarkable, and not many companies can boast such an opportunity. This is partly due to our valuation multiple being lower than many of our peers in similar situations. Whether our multiple recovers, which we would welcome, or we take the opportunity to retire or buy back shares, both scenarios are quite promising. These are definitely strategies we will consider, and we will develop a plan to share with you as we get closer.

Great. Well great quarter. Thanks, guys. Appreciate you taking the question.

Thanks, Eric.

Thank you, Eric.

Thank you. At this time, I would now like to turn the conference back over to Neal Lux for closing remarks.

Thank you again, Gigi, and thank you for your support and participation on today's call. We look forward to talking to you all again in early November to discuss FET's third quarter 2024 results.

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