Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies Third Quarter 2024 Earnings Conference Call. My name is Gigi, and I'll be your coordinator for today's call. 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 third 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 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'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 third quarter 2024 to second quarter 2024. I will now turn the call over to Neal.

Thank you, Rob, and good morning, everyone. This quarter, our FET team delivered on multiple fronts. First, we dramatically strengthened our financial position on an accelerated timeline. Second, new products continue to reflect FET's reputation for innovation and allow us to execute our 'beat the market' strategy. Finally, our financial performance was steady despite softening market activity. Let me expand on these key points. Earlier this year, we outlined a plan to organically pay off our 2025 notes and seller term loan by the middle of next year. In parallel, we explored refinancing options to accelerate that plan and meet our goals sooner. Our evaluation of alternatives included key transaction criteria. We wanted a solution that would allow us to return cash to shareholders and invest in strategic acquisitions. In addition, it was important to maintain our $250 million ABL facility for flexible growth financing. Finally, these criteria had to be met at a reasonable cost and with manageable covenants. After a patient and methodical search, we finalized a $100 million senior secured bond offering, which will allow us to pay off the 2025 notes and seller term loan when we close next week. In addition, this offering checks a lot of strategic boxes. First, it immediately eliminates the current portion of long-term debt and extends the maturity out to 2028 and 2029 for both the credit facility and our new bonds. Second, it enhances our liquidity position and by year-end should give us an estimated $80 million of available cash, an amount that we expect to grow with free cash flow. Third, it provides flexibility for deployment of cash. We are committed to maintaining conservative net leverage and a meaningful portion of our free cash flow will be used for further debt reduction. In addition, we expect to have ample flexibility for strategic investments. This could be in the form of traditional M&A or investing in ourselves through share buybacks. With a cash flow yield over 30%, it will be hard to find a better investment than FET. These strategic investments will be possible because we continue to deliver strong free cash flow. For example, we generated $48 million in the first nine months of 2024, putting us nearly within the full year guidance range. Therefore, for the second time this year, we are raising our cash flow forecast to between $60 million and $70 million. To put that into perspective, that's a range of $4.90 to $5.70 per share compared to yesterday's closing price of just under $14. Importantly, as Lyle will detail shortly, we believe this performance is repeatable over the long term. The FET team continues to execute our 'beat the market' strategy. As a quick reminder, this consists of growing profitable market share, developing differentiated products and technologies, utilizing our optimized global footprint, and expanding our participation in energy transition, all to achieve our objective of creating shareholder value by growing faster than the market. One way to measure the performance of our 'beat the market' strategy is to compare FET revenue with global rig count. For the first nine months of this year, our revenue per rig has increased 16% year-over-year as we integrated Variperm into FET. Let me provide a few highlights, starting with some exciting new products and technology we are delivering to the market. Permanent magnet motor ESPs are the most efficient pumps in the artificial lift industry today. However, their usage has been limited due to safety concerns. To help mitigate their risks, we recently added MagnaGuard to our extensive artificial lift portfolio. This tool provides reliable protection from possible execution saves our customers money by eliminating third-party services and removes a critical barrier for greater adoption of permanent magnet motors. Also, our tool can be used on all ESP brands, which expands our addressable market. This is a great advancement for our industry, and MagnaGuard could meaningfully enhance FET's profitability. Another area of innovation is within the offshore robotics market. The industry is driving towards fewer personnel and vessels to improve safety and reduce costs. To meet this demand, FET has designed Unity, an operating system for remotely controlling ROVs. This system can be installed on new ROVs and as an upgrade for existing fleets. This leading-edge technology utilizes cloud-based monitoring and supports AI tools for predictive maintenance. Initially, this technology would reduce personnel on vessels, but the end goal is to have ROVs operated entirely remote from a central control station. For example, an operator in Norway could control an ROV in Brazil. We will deliver our first system before year-end and four additional systems in the first quarter of next year. We are excited about this technology and for what it can do for our customers. Last quarter, I mentioned a growing global opportunity outside the traditional oil and gas market. Our industry-leading JumboTron XL heat transfer units have found applications in the power generation sector. We expect the power generation market to grow rapidly over the coming years with energy transition. Recently, we received sizable orders for power generation applications that can be utilized in AI data centers. This is an exciting and fast-growing opportunity that expands FET's revenue potential. In addition to new product development, leveraging our global footprint is another pillar of our 'beat the market' strategy. We can ship our products around the world to countries where our customers are investing. A good example is the shift to more unconventional activity in international markets, particularly in the Middle East and Argentina. Through our facility in Saudi Arabia, we distribute a wide range of products including casing hardware, artificial lift, high-pressure pumps, and coiled tubing, all of which are critical to exploiting unconventional reservoirs. In addition, last week, we showcased our leading unconventional products at a large oil show in Argentina. Economic stability, slowing inflation, and loosening currency controls are spurring investment and growth in the energy industry there. During our interaction with customers, some expected activity to increase 10% to 15% next year. Similar to shale plays in the U.S, service intensity is increasing, and this will require equipment upgrades. Now, let me provide a few comments on our market outlook. For the fourth quarter, we believe the markets will be more cautious through the end of the year. Commodity prices remain volatile driven by Middle East unrest, lower demand in China, and uncertainty around OPEC plus supply. In the U.S, efficiencies in drilling and completions have brought activity forward. This will allow our customers to meet their production and spending plans prior to year-end. Therefore, we expect U.S. demand to slow due to budget exhaustion and holiday disruptions. However, international and offshore activity, as well as our 'beat the market' strategy, should help mitigate U.S. softness. For the fourth quarter, we expect revenue and adjusted EBITDA to be in the ranges of $190 million to $210 million and $22 million to $26 million respectively. Our fourth quarter EBITDA forecast puts us within our previous full-year guidance range of $100 million to $110 million. Turning to 2025, it is still too early to provide a specific financial outlook for FET. However, as we start the planning process, here are a few baseline points. Customer indications and industry commentary suggest U.S. drilling and completions activity could be down as much as 5% from 2024. Also, based on the spending cadence observed in the last two years, activity may be slightly weighted toward the first half of the year. Not contemplated in our planning process is a rebound in natural gas drilling and completions activity. If LNG or data center electricity demand trigger a meaningful commodity price increase, there may be some upside to activity. For Canada and the rest of the world, we currently believe demand will remain relatively flat to slightly up compared to 2024. Regardless of market conditions next year, our focus will remain on free cash flow and returning capital to shareholders. I'm going to turn the call over to Lyle for more details on FET's third quarter financial results and highlights.

Thank you, Neal. Good morning, everyone. Let me start with additional details on our debt refinancing. After having explored opportunities in the U.S., including high yield markets and private debt placements, we ultimately secured financing in the Nordic high yield bond market. The Nordic market has been quite receptive to the oilfield services industry both onshore and offshore. Also, the size of our offering fits well with typical Nordic issuances. And as a side benefit of this process, we were able to share the FET story with a broad audience of international investors. We issued $100 million of notes at par with a 10.5% coupon. The yield compares favorably with our existing long-term debt and market comps. With our new capital structure, FET's blended interest rate will reduce by 130 basis points for the first quarter next year. Also, the yield is favorable to recently announced private debt and Nordic market issuances. This pricing reflects investor confidence in the strength of FET's low leverage, free cash flow generation, and asset-light business model. In addition to pricing, we are pleased with the Nordic bond terms. The notes have a five-year tenure and a two-and-a-half-year no call period. During the life of the bonds, we will be subject to financial covenants of a maximum net leverage ratio of 4x and minimum liquidity of $25 million. Given our commitment to maintain a low leverage ratio, we do not believe these covenants to be overly restrictive. Importantly, as Neal highlighted, the bonds provide flexibility to execute our strategy. First, the bonds not only permit the company to use cash for acquisitions but also include provisions for a follow-on offering. This feature provides up to $150 million of incremental capital to execute strategic acquisitions provided our net leverage remains below 2.5x. Second, the bonds permit distribution of cash to shareholders. Specifically, the bonds allow shareholder distributions of up to 50% of prior year adjusted free cash flow when our net leverage ratio is below 1.5x pro forma for the distribution. We will calculate the amount available for 2025 after filing our 10-K next quarter. However, assuming our free cash flow guidance of $60 million to $70 million for 2024, we would have $30 million to $35 million that could be distributed once our leverage is below the incurrence threshold. That is over 15% of FET's current market capitalization. Our 2024 free cash flow results are compelling and repeatable looking forward. Let me explain. Next year, we expect interest payments of about $20 million or less, cash income taxes around $15 million, and capital expenditures of around $10 million or $45 million in total for these items. Assuming flat EBITDA year-over-year and before changes in net working capital, that would yield free cash flow between $50 million and $60 million. This provides ample dry powder to reduce our net leverage over time while executing our growth strategy and returning cash to shareholders. We anticipate communicating a shareholder return framework on our February call. In addition to improving our balance sheet, FET printed a clean tape operationally. Revenue and EBITDA results landed within our guidance range and were consistent with our first half results, despite a softer U.S. market. Our third quarter consolidated revenue was $208 million, up 16% year-over-year, and EBITDA was up 55% over the same period. EBITDA margins year-to-date are 13%, the strongest in nearly a decade. FET orders were $206 million, up 14% for a book-to-bill ratio of 99%. Both segments achieved higher orders as did six of our seven product lines. Allow me to highlight three product lines in particular. We secured drilling-related capital equipment awards in support of new land drilling rigs for the Middle East region. These awards included iron roughnecks and catwalks and contributed to a 38% increase in drilling orders. Subsea orders were up 19% as utilization of ROVs increased, demand for FET's subsea product offering continues to strengthen. Our customers that support the construction of oil and gas wells and offshore wind turbines indicate high utilization of their equipment with no sign of decline. As a result, our pipeline of new subsea booking opportunities is as robust as we have seen in a number of years. Our production equipment product line doubled orders from the second quarter. Included in the order book was a large U.S. desalting project which will utilize FET's Forumix technology. Despite a softer U.S. land market, the outlook for production equipment remains solid as the business maintains nearly a year of backlog. Turning to segment results, the Drilling and Completion segment revenue increased 6%, primarily due to higher project revenue recognized from ROVs and launch and recovery systems. In addition, our quality wireline product family grew revenue by 20%, setting another quarterly record. Partially offsetting this segment's revenue were lower power end and hose sales. EBITDA was $15 million, up 26% on higher revenue and favorable product mix. The segment improved EBITDA margins by 190 basis points to almost 12%. The Artificial Lift and Downhole segment revenue was $84 million, down 5%, and EBITDA was $17 million, down 12%. Lower casing hardware volume coming off a strong second quarter in the Middle East and lower valve product sales contributed to the decline. However, segment EBITDA margins were nearly 21%. With over nine months since the closing of the Variperm acquisition, let me provide you with an update on the business. Project timing has a more pronounced impact on Variperm's results than the traditional rig count measure. With the Canadian markets heating up, lead times for tubulars are delaying pipe deliveries from our customers, ultimately deferring Variperm revenue. Despite a soft start to the year, Variperm's orders have trended up each quarter this year and the outlook remains strong. In the second quarter, Variperm's revenue was up 2% with meaningful EBITDA and margin contribution. They are maintaining a strong market position while delivering free cash flow above our budgeted level. And speaking of cash, we generated $25 million of free cash flow in the quarter, up $3 million sequentially. We ended with $33 million of cash on hand and $59 million of availability under our revolving credit facility, with total liquidity of $92 million. Our net debt was $199 million, down $26 million from last quarter. Using annualized first nine months EBITDA, the net leverage ratio was 1.9x. This is a good start, and we remain committed to further reducing net leverage. Finally, let me provide a few details for modeling purposes for the fourth quarter. We anticipate corporate costs to be approximately $7 million, down slightly from the third quarter. Depreciation and amortization expense should be roughly in line with the third quarter. We expect interest expense to be approximately $5 million and income tax expense to be approximately $3 million. Let me turn the call back to Neal for closing remarks.

Thank you, Lyle. We delivered solid financial results this quarter despite uncertainty around commodity prices and activity. And we continue to fortify our balance sheet, generate free cash flow, and execute our strategy. As we close out the year, I want to express my gratitude to the entire FET team for their hard work and dedication. Gigi, please take the first question.

Our first question comes from Dave Storms at Stonegate.

Just hoping we could start with maybe some of the puts and takes on the guidance range for free cash flow. Is that mostly just driven by enhanced profitability or is there more to that story that we should be aware of?

I think, Dave, if you're thinking about the kind of look forward on what cash flow might be, really there all we've done is look at what our fixed cash obligations are on a go-forward basis. So, interest about $20 million or less next year, cash income taxes of $15 million, and CapEx, kind of in that $10 million range, where we've been before, so about $45 million. And then assuming everything else remains constant, so EBITDA constant, net working capital constant, that gets us to that $50 million to $60 million range. I think there are obviously levers that we could pull that would enhance that. One of those would be growth, our 'beat the market' strategy that Neal talked about, helping us to grow faster than the market, and obviously any ability to continue working down our net working capital would be a plus to that number.

Understood. Thank you. And I know in both the release and on today's call, you mentioned that the new debt situation still gives you the ability to be strategically acquisitive. What's the kind of profile that would pique your interest? Would it look a lot like Variperm, or would you go in a different direction?

Yes, Dave, this is Neal. I think Variperm obviously was a home run acquisition, fantastic margins, differentiated product, a niche market, one that fit well with our portfolio. So, another acquisition like Variperm, absolutely. As we look out, we see a lot of acquisition opportunities in the pipeline that have been sitting there. We're going to be very methodical and choosy as we look through what acquisitions make sense, but it's been part of our history at FET how we've grown, and it will be a lever we'll continue to push for growth as well.

Understood. Thank you. I have one more question, which is more about the macro environment. With the upcoming U.S. election, there has been a lot of discussion regarding possible tariff increases. How do you view the potential effects on the international demand outlook if the U.S. tariff rate were to rise?

I guess I would characterize it more as a supply issue rather than a demand issue. I look at it more as a supply of our raw materials that we'd be most concerned about, and it's something we've actually been living with for a while now, even going back to the first Trump administration. There were tariffs on raw materials that we regularly import. So we've diversified our supply chain and have multiple suppliers that provide key raw materials. That's really been our focus there on the tariff side.

That's all very helpful. Thank you for taking my questions, and good luck on the fourth quarter.

Thank you, Dave.

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

Hey, Neal and team. I just want to follow up on one of the prior questions on M&A. I guess, if you look at the, call it, frac capital equipment market, which is hitting a little bit of an air pocket right now. Do you look at that as an opportunity for where you might focus on acquisitions or would you rather stay more towards production-related or drilling-related stuff?

Yes. Our goal is to keep expanding our activity-based consumable sales. The capital side is a bit more challenging, whether it be in fracking or similar drilling areas. We are particularly excited about the Variperm acquisition and others we have made, like Global Tubing, Quality Wireline, and Multi Lift Solutions, which operate on a per-well sales model. These are areas where we want to remain actively involved. We will also seek opportunities in the frac capital equipment market. We have introduced some new technology there and achieved good success, and we will continue down this path. However, the frac capital space is currently facing some difficulties.

Okay. And then you cited Global Tubing. It seems like every time you look at LinkedIn, another one of the coil guys is doing some drill-out on like 27,000, 28,000 plus feet. I'm curious, how is all of that impacting the demand? I mean, I'm assuming it's positive, but if you could just elaborate a bit more on what you're seeing there?

Yes, I believe there are two main factors at play. Firstly, the wells are extending further, which means we need longer lengths of coiled tubing, resulting in higher prices per string. Additionally, thicker wall tubing is necessary to reach the farthest laterals. Most importantly, we have a dedicated team of engineers who design our strings using our proprietary taper designs to maximize the reach to these distant laterals. By doing so, we optimize the weight on bit, which is exciting for us as we possess the expertise and processes to effectively help our customers achieve their objectives.

Have you had to do any changes to the plant to accommodate the longer strings or were you good there?

No, we're good there. We are pushing limits, but as one of the newest manufacturers, we designed our operations for heavy installations. An additional benefit we had is that when we upgraded to quench and temper, we made our quench and temper line continuous, consolidating it into one step. We believe we hold a patent for that, so we think we're the only manufacturer that can produce coil tubing quench and temper continuously.

Got it. Okay. Well, thanks for including guys.

Thanks, John.

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

Lyle, I want to make sure that I understood what you said around Variperm. Did I hear you say that Q3 was a 2% increase from Q2, or was that a year-over-year number?

That's correct. It was a sequential number, Dan.

Okay, thanks. And so it sounds like we can look through your prior disclosure and the consolidation, et cetera. Are we kind of creating this coiled spring effect with some of these project delays in Canada? Do we think that we have kind of a snapback Q4 there? Or do we think we're pushing some of those projects out into 2025?

Yes. Dan, I think the short answer is I think we are pushing some of these projects out into 2025. If you remember on our earlier call, we talked about delays that happened with the TMX pipeline. And the good news is the TMX pipeline opens up the Canadian crude market to the world market on the West Coast and put a pretty nice bump in the underlying crude oil price in Canada. End of last year, beginning of this year, there was uncertainty as to when that timing was going to occur. A lot of operators began to defer projects, and, as a result, suppliers, primarily tubular suppliers, delayed manufacturing. So when that TMX did come online early this year, everyone was okay, great, we're back to the right races. There is a supply chain lag that has yet to catch up. And so that's really what we're seeing as far as the delay year-on-year for Variperm. And I do think that the activity we'd see continue and pick up in 2025.

Yes. To clarify, our customers handle the procurement and supply of those tubulars for us. So, we are really waiting on our customers to restore their supply chain operations.

As you look to Q4 for Variperm, do you expect it to remain flat? It seems like you're operating at a similar rate in Q3 compared to Q2. Will that level be maintained in Q4?

That feels right. Yes.

Okay. Got you. Thank you. I appreciate that. And then, just want to make sure I understand the ebbs and flows here on the balance sheet. So while we're sitting at the end of Q3 with, call it, $232 million of debt, we've got confirm these numbers for me, roughly $60 million of the convert outstanding and then the seller notes another $60 million. So we pay down $120 million of debt with our new debt and your cash flow in Q4. And so basically, we end the year kind of at the same cash balance, maybe a little bit better than we said at the end of Q3. Is my math kind of tying there?

It is. And I would look at maybe total liquidity there, so the cash balance and or balance on our revolver because that can be a little fungible between those two. And so yes, I think we would expect to end the year maybe a little bit lower. So we ended with $92 million of liquidity at Q3. I think we'll be a little bit lower than that kind of when you do the math on paying down the rest of our debt, right? So you're right on the $120 million of debt that we will pay off with $100 million of new debt. So we'll use $20 million of our cash less revolver, some fees to get that finished up. So it should put us right about just a little bit below the $92 million for year-ending liquidity.

Got you. And then I appreciate the outlook for ’25 on the free cash side. It sounds like I want to make sure the way you were describing cash is essentially in a flat revenue, flat EBITDA environment. Maybe, Neal, if you could take a couple of minutes and just talk about where you kind of what product lines or you feel best about as you go into 2025 given kind of your order, your momentum, the things you're seeing from the customers?

Yes. I think it's still really early. And the indications now that we're hearing from our customers obviously indicate that Q4 we're going to see a slowdown at the end of the year.

Yes, sloppy. Sure.

Yes. And typically in Q1, we've seen that pick up. So, I think the U.S. would rebound a little bit in Q1. So I think for that part of it, I think we'll see our consumable business whether it's case to wireline from Quality Wireline, coiled tubing, I think that will and as well as our drilling consumables product lines picking up. I think exciting though for us is we are seeing a good pipeline of inquiries for our subsea business. So I think we've talked about the utilization being pretty high for the fleets out there. So we are seeing a lot of inquiries come through. So we're hopeful we could have a nice backlog coming into 2025 and going further out for deliveries of ROVs. We talked a little bit about our Unity system, which is exciting technology. So we want to expand on that development and continue to grow our subsea business.

Okay. And if we think about the puts and takes as we go into 2025, feels now like Variperm should have this kind of catch up. It's obviously a higher margin business. Do we in a flat revenue environment, how much margin expansion do you think you guys could potentially see just based on mix alone?

Yes. I think higher, obviously, I think a higher contribution from Variperm would help with mix, obviously, in a flat revenue market. Our goal though is to continue to grow revenue in a flat market. Again, that's our 'beat the market' strategy. So we think there are several product lines, whether it's in our downhole, casing hardware or Multi-Lift Solutions, artificial lift. We think we can grow market share just by better bundling, better customer account management, and just more boots on the ground to grow that market share. Because, a lot of times, good example, our multi-lift solution, it's an insurance policy. And we have some customers, some operators out there who live without insurance. And so our goal is to convince them that insurance is a good thing for their pocketbook, and a good thing for their well. So I think that's just a continuous opportunity that we're going to remain focused on.

Great. Last question, I think I ask it about every other quarter. I just want to check in again. If you look at the business mix, the things that you've rationalized in your portfolio over the past couple of years, kind of the product lines that we see you're comfortable with right now, are you stating that you are not planning any significant divestitures from here?

We'll continue to look at all our business. We want to expand our margins, right? I think we had mentioned in Lyle’s part of the script we talked about having the highest margins in nearly a decade. We're roughly at 13%. I think mid-teens is where we want to go. And so if we had more of a tailwind in revenue growth, I think our operating leverage could get us there. In a flat market, we need to both grow revenue with our 'beat the market' strategy, but we also need to look at cost and portfolio rationalization. So that's a continuous process that we follow. And so I don't want to say we're always satisfied. We're never satisfied. We'll keep on that.

Okay. Thanks guys. Appreciate it.

Thanks, Dan.

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

Neal, I think you mentioned in your thought process around 2025 that U.S. drilling could be down about 5%. Did I hear that right?

You did.

Do you get any sense that there is an increased focus on optimizing production and spending for those types of products? And if that's the case, does that drive demand for FET to gain market share? Because some of your products are more efficient than maybe what else is out there in the market?

Yes, I believe there's definitely an opportunity there. Our customers, including service companies and operators, are seeking ways to become more efficient and reduce operating costs, which is where much of our technology is targeted. Our expectation of a potential decline next year is influenced by commodity prices and the consolidation among operators as they reassess their acreage and make decisions about what projects to pursue. I'm also considering that we're not anticipating a rebound in natural gas prices, which adds an element of uncertainty. A cooler winter could increase demand for electricity from applications like AI, power generation, and LNG. We will monitor these factors closely, aiming for a realistic outlook for 2025, although it's still early and circumstances may evolve. With the upcoming election, we will continue to observe demand indicators, but that's our position at the moment.

Would an increase in natural gas-related activity increase demand for some of your products, and that could have an effect on the margin mix?

It does. And this is a really general comment, but natural gas drilling and completions activity seems to usually involve higher pressure, and higher pressure will wear out our consumables more quickly. And so, that's what we've seen in the past as we go to gas, is just maybe a higher turn of consumables.

Then just a question on the Unity system for the ROVs. Would that system increase the type of work those ROVs can do? Or would it just make it easier to operate them from, like you said, remote locations?

I think it will be a combination. Again, it's still early. We are providing a good system to the operators, and they will need to become proficient with it. There may be opportunities for them to work more quickly with the programming and AI. For example, when setting up a node and moving from one location to another, they could potentially do that more efficiently with an automated or remote system. This is a possibility. As mentioned, we are still in the early stages and are delivering our first system at the end of this year, with four more to follow next year. We will continue to gather feedback during this process.

Are those going to different operators?

The first order, the first five, I think, are going to the same operator. So we'll get, I think, pretty good consistent feedback there. I believe that's the case, Jeff.

And lastly on the MagnaGuard, does that, apart from increasing safety, does it also have any effect on the run times of ESPs?

No. I think it's really more of the safety. It's when they shut down and they have the sand fallback, what it'll actually do is the magnet motor will send a current up the cable, and that's where the electricity risk comes out. The MagnaGuard acts as a break and doesn't allow that motor to turn, and by preventing the motor from turning, it prevents the electricity from the current from being generated. So that's really the safety feature. So I think what we look at it as is, I've talked to customers who really like permanent magnet motors, right? The efficiency that they have, the lower electricity usage that permanent magnet motors have that they all see that as positive. If we can help them overcome the safety risk, which is real and which is concerning, obviously, electrocution is a scary event in the field, we can prevent that, and that can really help the adoption of permanent magnet motors.

Thank you.

Thanks, Jeff.

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

Cash flow continues to be strong. When you produce 25% of your current market cap in cash over the first three quarters, it seems to be reaching a point where it can open the door for opportunities. Considering the durability of free cash flow, and based on what you mentioned, it helps that the year-over-year interest expense from 2025 to 2024 is probably down by a third, maybe even a bit more. Can you confirm the 1.9x net leverage ratio? Is that as of the close of the high yield bonds?

Yes, that's a great point. So 1.9x refers to year-to-date EBITDA annualized, which includes the full impact of Variperm. You're correct about the cash situation; it's exciting for us. Early in the year, we set what we thought was an ambitious goal for our cash range, something we needed to commit to. Being at the bottom end of that range, which we raised last quarter and then again this quarter, feels like a positive track record. We aimed to provide guidance moving forward, ensuring that this is not a temporary situation where we're just capitalizing on a significant amount of working capital. We believe this is sustainable. As we continue generating cash, our new debt structure will enable us to reduce more debt. We are refinancing $120 million of debt with $100 million in new bonds for a five-year term while leaving some on the revolver. As we produce cash, we'll lower that revolver balance, allowing us to further cut interest expenses and create a beneficial cycle. We're very optimistic about our future cash outlook, which we are committed to. We believe it will open up opportunities for reducing debt, facilitate M&A growth, and enable us to return cash to shareholders.

Yes. So would the expectation be high yield that closes next week? I would assume you guys are going to try to issue a redemption notice for the existing long-term notes, and then that's like a month-long process. And then what is the process on the seller note? You can just pay that in cash whenever you'd like.

Yes, very similar. There's a redemption process and all of that is happening simultaneously. We will pay off our existing debt when we close the bond issuance next week. So that's all in process.

Okay. And then, so 1.9x net leverage, the new high yield notes, you need to get to 1.5x to be able to kind of do that 50-50 return cash to shareholders. That's correct, right?

That's right. So we need to be at 1.5x leverage pro forma for the – pro forma for a share buyback or for any kind of a distribution. And given our guidance, we should be somewhere in the 1.8x to 1.9x range at the end of this year. And then think about that cash flow, obviously one of the reasons we wanted to look ahead with cash is that continues to get better over time. And then the question for us and the challenge is how do we get do even better than that? How do we increase our EBITDA, so that we can pull that net leverage ratio down or how do we generate more cash? So those can come through our beat to market strategy, gaining share, margin improvement that could come through mix. I think Dan's question alluded to that or cost management, all of which boosts our EBITDA number. And then asset monetization, so that $50 million to $60 million number did not have any working capital drawdown there, which would obviously enhance cash and lower our leverage. So all those levers we've got our hands on and working to pull those as hard and as quickly as we can.

Great. Yes. So that kind of puts you towards, I mean, next year, when you can kind of think about getting to, I don't know, call it 3.0, kind of fix the balance sheet, look good, then kind of take on the return to capital, whether that's buybacks, dividends, pay down debt or even go out and buy something. But I guess my last thought was, I mean Variperm has helped a lot and kind of a home run. I think you bought that at 3.7x trailing 12-month EBITDA. At least that was when it was announced.

That's right.

And now, if we look at FET as a whole, based on the pro forma numbers, Variperm is trading at approximately 3.6 times at $14 a share with a 35% free cash flow yield or more. It appears challenging to find a better use for cash than repurchasing shares of what you already own. There's a notable distinction between mergers and acquisitions since you have the flexibility with the new high yield notes. If you can identify an opportunity that could add to free cash flow without significantly increasing leverage, the hurdle rate is different due to that added flexibility. When considering the option to buy your own stock at its current value versus acquiring another company, are there opportunities in the market, such as private markets or carve-outs from other companies, that present the right hurdle rate to make an M&A transaction worthwhile? Alternatively, would it make more sense to be patient and focus on buying back your own stock, taking control of your own future instead of relying on market conditions?

Yes. Eric, I think as you were talking there, I think you laid out really the evaluation that we do, right? I think when we look at acquisitions, is that investment in the acquisition going to increase our free cash flow per share, or are we better off using that capital to buy our shares? And I think that will be the threshold that we analyze going forward. And again, it is hard to find something as attractive as our own stock. 30% to 35% free cash flow yield, it's hard to buy companies like that. If we find one though, we may snap that up if it's better, but all signs I think right now point to we're probably one of the best investments that you can make.

That's helpful. Yes, I don't think I have anything else. The only other thing I would say is, I listened to the precision drilling call. I mean, they seem pretty bullish on Canada going into next year. And then I didn't see it in the release. I'm sure it'll be in 10-K your quarterly filing. But I know that the Middle East was kind of a revenue growth outlier relative to kind of activity growth, kind of year-to-date through Q2. Is that still kind of holding true? And if you could just talk maybe a little bit more on the opportunity set there, it would be interesting because it feels like one of the markets that kind of could be a pretty big driver.

Yes, Eric. We're excited about opportunities internationally. You mentioned Canada, and the market does seem to be more bullish there as far as adding rigs. As we get deeper into the oil sands journey, there are a lot of rigs outside of the oil sands in the Montney and other places generating gas, and that seems to be a big piece of the uplift there, oil sands being more steady, which we like that. Also, you mentioned the Middle East, and we did have a really good Q2, and we're excited about what that looks like moving forward. So the Q3 revenue for us was a little bit softer than the second quarter, and that's really just timing of deliveries of product. But the opportunities there in the Middle East seem to be really strong. And I know Neal can chip in on that as well.

Yes. In fact, I'll be there, being in the region next week and spending time with customers. And as we're kind of doing our prework with my teams, there definitely seems to be a lot of opportunities that we're chasing and hopeful to be closing in the Middle East and beyond again. We think the unconventional story is expanding, and we're getting a lot of tailwind from that as we export our technology, Argentina and the Middle East as well. So it's exciting. I think we're fairly early there. And again, with our footprint for a company our size, we're able to play very well.

Great. That's all helpful. Another good quarter. Keep the cash coming.

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, Gigi, and thank you all for your support and participation in today's call. We look forward to our next meeting in February to discuss FET's fourth-quarter and full-year 2024 results. Thank you.

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