Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies Second Quarter 2025 Earnings Conference Call. My name is Gigi, and I'll be your coordinator for today's call. A link with instructions can be found on the company’s Investor Relations website under the Events section. 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 Second Quarter 2025 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, please 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 2025 to first quarter 2025. I will now turn the call over to Neal.

Thank you, Rob, and good morning, everyone. The FET team achieved strong results this quarter. We delivered sequential growth in bookings, revenue, EBITDA and free cash flow. Also, revenue and EBITDA were in the top half of our guidance ranges. Bookings this quarter were strong across most of our product lines and drove backlog to the highest level in over 10 years. Our Subsea product lines' performance was impressive with significant bookings for ROVs and a large submersible rescue vehicle system. We continue to see strength in the offshore market across a wide array of industries, including oil and gas, wind and defense. Importantly, we generated $23 million in free cash flow in the second quarter, putting us at $30 million for the first six months of this year. That is a 27% year-over-year increase and marks our eighth consecutive quarter of positive free cash flow. Over that time, we have generated $168 million of free cash flow. Also, we believe this momentum will continue for the rest of the year. We are raising full year 2025 free cash flow guidance to between $60 million and $80 million, a $20 million increase. Applying our capital returns framework, we will use this free cash flow to further reduce net debt and execute share repurchases. This year, we repurchased approximately 5% of our shares outstanding. And based on our full year guidance and current stock price levels, we are on track to repurchase an additional 10%. Concurrently, we plan to reduce net leverage to 1.3x by year-end with a free cash flow yield around 30% and significant long-term growth potential; continued buybacks are extremely compelling. The strong results I just outlined demonstrate the benefits of our beat the market strategy. Since its implementation in 2022, our annualized revenue per global rig is up 20%. As a reminder, this strategy aims to grow profitable market share by competing in targeted markets, utilizing our competitive advantages, developing differentiated technologies and leveraging our global footprint. Now we have refined our strategy by aggregating our addressable markets into two broad categories: leadership markets and growth markets. This approach concentrates the impact of our technical and commercial resources. Today, FET derives about two-thirds of our revenue from the leadership markets. These are markets where our solutions are fully adopted by the industry, where we have few competitors and broad geographic reach. We estimate that the leadership markets in aggregate total $1.5 billion, and we have a meaningful 36% share. A few examples from our portfolio are Global Tubing, Quality Wireline, Variperm and Perry ROVs. In these markets, we will continue to invest in product development to maintain and expand our leadership position. These are great markets, and I love our dominant products. In addition, we have identified substantial growth opportunities in markets that are about twice the size of our leadership markets or roughly $3 billion. We call these growth markets. Our products and solutions here are differentiated, proven and have few competitors. However, they may be in the early stage of industry adoption or may have a narrower customer base or may be geographically limited. As a result, our aggregate market share here is relatively low, around 8%. However, this creates an exciting opportunity to increase revenue rapidly through wider industry adoption, new customer acquisition and expanded global utilization. Since this opportunity is so meaningful to FET, let's spend a few moments diving deeper with a few examples. First, let's begin with coiled line pipe, a product that saves time and money. This fantastic solution eliminates 95% of a pipeline's wells and can be installed faster than traditional steel pipe. The last hurdle holding back wider customer adoption is inertia. As we move forward, I expect our customers to prioritize saving time and money over the status quo. The market opportunity for coiled line pipe is immense and has very few competitors. Also, we employ one of the most efficient production methods for this product. With these factors in our favor, coiled line pipe should be a strong contributor to FET's results. We saw a glimpse of this potential in the second quarter with growing demand in the U.S., the Middle East and offshore. The second example I want to highlight is from our Artificial Lift product family. The value proposition to operators is very simple. Our patented products extend the life of downhole pumps, allowing more production at significantly lower cost. Execution of this value proposition has made us the market leader in the United States. The exciting part for us is that the international market is more than four times larger than our home market and demand is tied to production operating expense. By leveraging our global footprint to address these markets efficiently, we have a significant opportunity to grow revenue. Our goal over time is to double our share in growth markets. To put that in perspective, eight points of market share gain could be an additional $240 million in revenue at a 30% incremental margin which is $72 million of additional EBITDA. This example illustrates the enormous revenue and EBITDA potential in just a flat market. This is exciting and demonstrates the value of FET's beat the market strategy. Now for more color on our quarterly results and outlook, I'm going to turn the call over to Lyle.

Thank you, Neal. Good morning. FET delivered solid second quarter results. Revenue of $200 million was at the top end of our guidance range as we grew revenue in the face of declining global rig count. U.S. revenue was up 3% as our Artificial Lift and Downhole segment rebounded from a softer first quarter despite a 3% decline in rig count. Revenue in Canada was down just slightly as the market experienced its usual second quarter breakup. And our international revenue, excluding Canada, increased by 6% as most of our product lines grew revenue with a decline in international activity. As Neal highlighted, we had a great bookings quarter, up 31% from last quarter with a book-to-bill of 132%. While Subsea was the biggest contributor in the quarter, we had nice order flow from a number of other product lines. For perspective, excluding the Subsea product line, total bookings would have been up 7% with a book-to-bill of 102%. Encouragingly, bookings and quote activity remained strong in the third quarter. Consolidated EBITDA was $21 million, up 2% and above the midpoint of our guidance range. These consolidated results include improvement from higher revenue, sequential benefit from cost reductions and impacts from tariff mitigation efforts. Let me elaborate on these factors. During the quarter, we made significant progress toward our $10 million cost reduction goal. We are 70% to 80% of the way and recognized about $1.5 million of benefit in the second quarter. These savings come primarily through fixed cost reductions that we believe to be permanent in nature. Based on our progress, we expect to achieve our savings goal this year. Tariff impacts played out in the quarter much as we expected despite the on-again, off-again nature of tariff announcements. As we mentioned on last quarter's call, our tariff mitigation plan includes matching costs with price increases and leveraging our global footprint to avoid tariffs altogether. Beginning in the first quarter, we announced price increases to offset tariff expenses incurred in the second quarter. The impact was a slight 10 basis point to 20 basis point reduction of our consolidated EBITDA margin. The results of our valves product line were somewhat better than we feared following a softening of trade rhetoric. However, the valves buyer strike continues as the uncertainty around the magnitude of tariffs on Chinese imports has dramatically reduced volumes. We expect this to continue until distributor inventories are depleted. Drilling and Completions segment revenue increased 1%. Our coiled line pipe offering grew with market share gains in the U.S. and revenue recognition on a large Middle East project. We also saw an uptick in drilling-related capital shipments, primarily for international markets. On the other hand, our stimulation and intervention product line declined with the headwinds of softer U.S. completions activity. The resulting product mix negatively impacted segment EBITDA margins. Our Artificial Lift and Downhole segment performed well in the quarter with revenue increasing 6%. Demand increased for some of our higher-margin products, including downhole casing equipment, sand control solutions and cable protection products. This favorable product mix and cost reductions lifted segment EBITDA above 20%. Our consolidated free cash flow of $23 million benefited from reductions in net working capital and another sale-leaseback transaction. This transaction is the latest move in our drive to redeploy capital to higher-value applications. Net of this sale, the business generated $15 million of free cash flow, a 71% conversion from EBITDA. And we expect strong free cash flow to continue. We are raising full year guidance by $20 million, implying another $30 million to $50 million of free cash flow in the second half of the year. We expect continued reduction in net working capital since we slowed raw material purchases in response to softening market expectations. Walking from EBITDA to the midpoint of this new cash flow guidance, we now expect cash interest and taxes of $40 million, working capital reductions of $25 million and net capital expenditures to be around 0. Thanks to the operations team's diligent action to generate free cash flow, we reduced our net debt by $20 million and accelerated our share repurchase program. In June, we repurchased 225,000 shares for $4 million. And in July, we repurchased another 249,000 shares for $5 million. In 2025, we have repurchased 579,000 shares or 5% of the shares outstanding at the beginning of the year. As of the end of the second quarter, our net debt outstanding was $126 million with a leverage ratio of 1.4x. Expected free cash flow should keep the incurrence threshold from being a limiting factor. Therefore, we believe we are in a position to continue executing significant shareholder returns while further reducing net debt. Now turning to the market and our financial guidance for the remainder of the year. We believe commodity prices will remain near current levels and therefore, expect industry activity to continue a gradual downward trend through the remainder of the year. At this time, we are not forecasting a significant fourth quarter decline as spending and activity are already at subdued levels. Despite softening activity, our results for the back half of the year should remain relatively steady with support from elevated backlog, share gains from our beat the market strategy and further cost savings. Therefore, for the third quarter, we forecast revenue of $180 million to $200 million and EBITDA of $19 million to $23 million. We expect our full year 2025 revenue to be between $760 million and $800 million and EBITDA to be around $85 million. Let me provide a little more detail for modeling purposes. For the third quarter, we estimate corporate costs of $8 million, depreciation and amortization expense of $9 million and interest and tax expense of $5 million each. For the full year, we estimate corporate costs of $30 million, depreciation and amortization expense of $35 million, interest expense of approximately $19 million and tax expense of $17 million. Let me turn the call back to Neal for closing remarks.

Thank you, Lyle. Based on the guidance we just provided, the next few quarters require continued focused execution. However, the investment case for FET remains compelling for the following reasons. First, this management team has a track record of outperformance. Since 2021, we have grown revenue and free cash flow by 15% and 73% annually. Second, our stock remains an incredible value with a free cash flow yield around 30%. Third, we aim to return a prodigious amount of capital to shareholders. We have $64 million remaining under our current share repurchase program. That represents approximately 28% of our current market cap. Finally, we are poised for growth and have a plan in place to increase free cash flow per share significantly. We call this plan Vision 2030. Looking out five years, there is general consensus that world GDP will increase by nearly $30 trillion and the global population will add 400 million people. These are staggering numbers. These staggering numbers will drive daily world oil demand up 5 million barrels by 2030. And given the high decline rates of existing fields, the oil industry will need to replace 30 million barrels of daily supply in that time. In addition, demand for natural gas will grow rapidly to power AI data centers and supply worldwide LNG. Significant investment will be required to satisfy global oil and natural gas demand. To meet these challenges, our customers will need to be even more efficient while also adding a modest amount of capacity. Under this growth scenario, FET's addressable market would expand by more than 50%. This expansion and our beat the market strategy could organically double revenue from current levels. And with our strong operating leverage and capital-light business model, our free cash flow per share would grow dramatically. By 2030, we would have significant cash on hand and the firepower to execute strategic investments, including accretive acquisitions and additional shareholder returns. Vision 2030 is our North Star. Thank you for joining us today. Gigi, please take the first question.

Our first question comes from the line of Joshua Jayne from Daniel Energy Partners.

First question, in your prepared remarks, you mentioned the chance to double market share in your growth markets, which could potentially lead to an additional $240 million in revenue and over $70 million in EBITDA. What is the expected time frame for achieving this? Additionally, how would you define success regarding the timing of this goal?

Yes, this is part of our long-term vision, and I think that will occur over time. For many of these products, we have discussed that they are proven solutions. We need to acquire customers and expand our geographic reach. These steps will take time. However, what excites us is that these solutions have a proven track record. We have seen their value in the U.S. and other markets. We believe that expanding these solutions to new customers and new markets over the next 3 to 5 years represents the kind of success we are aiming for.

Okay. Could you provide more detail on the orders for offshore defense mentioned earlier? Are those longer lead time? Could you also share some additional information about the timing of them impacting your P&L?

Yes. They're a combination of some shorter-term, more standard products. The rescue submarine system is a longer-term product that will deliver over the next two years or so. So that's long gestation. That's a unique product for us. But the other defense, what we're seeing is the application of our current ROV systems. We're seeing the adoption of those for other navies around the world, so outside of just oil and gas.

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

I often dislike participating in earnings calls where everyone praises the company for a good quarter, even when the results are just average. However, I must admit that you all are performing exceptionally well and exceeding expectations. Overall, it was a solid quarter. I want to discuss a few logistical details and touch on your growth markets and targets. Lyle, you mentioned the share repurchase; what are your expectations for shares outstanding in Q3 and Q4, assuming no further action is taken? I'm considering how the numbers look with regard to the share repurchase.

Yes. No, great question. Dan, like we mentioned, year-to-date, we've repurchased about 5% of the shares that were outstanding at the beginning of the year. And so that number has moved down pretty well. And I think importantly, maybe just a reminder for context, we've been limited a bit in our share repurchases by kind of timing of our free cash flow, but also by limits that were in our bond indenture, primarily the 1.5x net leverage threshold. So with us being below that, we think that now the second half of the year, that moves through a lot more quickly. Kind of quick math is under the indenture, we have about another $25 million worth of cash that could be deployed for share repurchases. And Neal mentioned that another 10% of our shares, so kind of, call it, another 1.2 million shares could get bought at current stock price levels. So meaningful if we can deploy that $25 million and would pull us down nearly 15% from the start of the year level by December.

Okay. Regarding the net basis, I understand there are usually shares issued for employee plans. What is your expectation for the number of shares we will issue, especially considering we will be offsetting that with repurchases?

Yes. Yes, we do have stock compensation that rolls through every year. It's not a significant number relative to what we're buying back. I don't have that number right here on the top of my head, but I would expect a pretty meaningful year-end decline, including the addition of shares from stock compensation.

Got you. On the free cash side, you highlighted a $20 million increase in your range and sort of for the second half of the year, that's a $30 million to $50 million number. You did $30 million in the first half, I follow. So second half equal to the first half, I get to $30 million. An incremental $20 million, what would be the gears? Are there more sale leasebacks to do? Is it a lot of working capital that you'd pull out? Would it be revenue upside? What's the kind of variability getting us from that $30 million number to the upside $50 million number?

No, great question. The biggest movement for us is working capital reduction in the second half of the year. So when activity dropped on us earlier this year in March time frame, our teams redirected supply chains and slowed down inbound raw material. It takes a little bit for that to work its way through the process. So really, we didn't see a lot of working capital reduction through the first six months of the year. And that driver of cash flow is really going to kick in for us in the second half. So really, the delta from our first half run rate to get to that second half run rate, $30 million to $50 million is the majority of that is going to be more working capital reduction.

I think, Dan, we've also seen some improvement in our operations and how fast we're turning incremental working capital. And putting those measures in place, I think our teams have done just a fantastic job of we're only buying what we need and returning it quickly and still satisfying customer demand while also having strong revenue.

Well done. I'm going to sneak a couple more in here, if I could. You talked about in your growth strategies, the new markets. I'm just wondering how do you do that with spending as little capital as you're doing? Or do we have to think about more CapEx to attack some of the growth market opportunities?

We have very minimal capital expenditures, if any, because we already have a global presence and established commercial teams. The focus is on taking the time to persuade the customer. For example, we provide systems to protect downhole pumps, while many operators opt not to use protection for their pumps. Our goal is to meet with them, share our technical expertise, and demonstrate the value of our solutions. There are trials that need to be conducted, which takes time, but our main focus is on penetrating these markets and convincing customers to adopt our offerings. We're excited about this approach as it does not require significant capital investment.

So saleable agrees basically?

Yes. Yes, with the resources we have in place, correct.

Final question for me, I appreciate the Vision 2030 initiative. We could discuss it for the next five years. However, earlier when you mentioned it, it seemed like you were placing mergers and acquisitions, particularly strategic ones like Variperm, lower on your priority list. Can you elaborate on how tactical acquisitions might align with your strategy moving forward?

Yes. I think what we want to do is lay out first organically. I think what do we control as best as we can. And I think that's a lot of organic, obviously. But I think there's definitely acquisitions. We've talked about if we could find another Variperm, we would love to add it in. That acquisitions that are accretive that have strong financial metrics that would increase our cash flow per share. We love those, and we'll continue to look for them. So I think they absolutely play a part. I think, too, we've also committed to, again, return a lot of capital. So we're going to balance that while also reducing debt. So finding a company that yields a 30% free cash flow, it's hard to find that. So until our price doubles and we can go find some other opportunities, our opportunity list gets bigger then.

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

Neal, can you talk a little bit about the defense market globally and what kind of opportunity that presents for FET?

Yes. So a great example is the submarine rescue vehicle that we just booked in Q2. We see more of those opportunities specifically around. We're also seeing navies around the world want to have more, let's call it, undetected type underwater vehicles that can do whatever work that they don't tell us that they do. And so our vehicles play a role there. A good example, we've been selling to the United Kingdom Ministry of Defense for some vehicles as well. So I think the applications that we've developed for oil and gas also play well on the defense side. And our teams have a long history of addressing both markets. So we're excited. I think that the spend is swinging that way, and we're taking advantage of the opportunities as they come.

Is the revenue stream from that both selling or contracting ROVs, but also servicing them over their useful lives?

Yes, absolutely. Most of our offshore and subsea vehicles are sold directly to the end user rather than rented. The ongoing value primarily comes from the spare parts and service we offer over time.

Does the operating system that you all have developed that allows someone to operate them remotely, is that a big selling point for that market?

Absolutely, absolutely. So even on the offshore side, where that market has been relatively hot, they want to take cost out. And our Unity operating system that removes personnel from the vessel in order to have operations done onshore in a controlled environment are incredibly interesting to our customers. So that is driving sales of existing, and we expect that to drive upgrades over time as they upgrade existing vehicles with this new software, new operating system.

Can you elaborate on the growth markets you mentioned? Is that growth significant? For example, when a product is approved for use by an NOC, is there a rapid adoption leading to increased earnings or revenue? Additionally, could you discuss the margin mix in your growth markets in comparison to your leadership markets?

Yes. I'll start by saying that our margins should be similar to those in our leading markets, but our focus is on selling high-value products. The solutions we're providing create significantly more value for our customers than what they pay us, which they recognize as a value add. This allows us to achieve good margins on those products. Our growth could match or even exceed that of our leading markets, particularly because we face very few competitors in those areas. Most of the products we offer are consumables, meaning customers will purchase a set amount each month. While getting NOC approval is important, there will still be some time needed before seeing full ramp-up. As for our overall margin, we expect it to gradually improve over time without any drastic fluctuations following an approval.

Our next question comes from the line of Steve Ferazani from Sidoti.

I just want to ask actually just the easiest, most basic question, which is we've seen a couple of months of significant rig count declines in the Permian, global declines. We've gone through two weeks of earnings calls that haven't been super happy. I mean you guys had sequential revenue improvement, flat margins. Can you walk through how you do it when clearly some of the demand for some of your drilling and completions replacement equipment should decline in this market?

Maybe I'll start and let Lyle jump in. Yes, it's not been easy. I can tell you that. I think with your question, a couple of things come to mind. We have a broad portfolio where we touch a lot of the value chain. So while U.S. land has been weaker and declining, offshore has done well. International stays strong. And we talk about expanding our geographic reach with products that we've done well in the U.S. South America has been fantastic for us where we're sending our products down there for part of their unconventional development. So that's been a key part of it. Cost reductions, though, our team has gone in and been really, really diligent about cutting costs. They've also remained focused on being more efficient with inventory and working capital. So I think all that's played a role in the results we had. And finally, really our beat the market strategy. We want to gain share. So if the market is up, we're going to grow faster. If the market is down, we're hoping that we don't fall as fast as the market itself. So that's part of our outlook and part of our strategy.

Yes, Steve, I would like to add some details and numbers to that. We discuss our strategy to beat the market, and one way we measure it is by looking at our revenue per active global rig. Comparing the first half of this year to the same period last year, we're seeing nearly a 2% increase. While this may not seem significant, these percentages accumulate over time, resulting in considerable revenue growth. This represents a small market share gain year-over-year. Additionally, we've taken cost-saving actions. In our last call, we mentioned that due to the softer market, we aimed to reduce our fixed costs by $10 million annually through efficiency improvements. We already recognized about $1.5 million of those savings in the second quarter. With us being about 70% to 80% of the way there, we anticipate an additional $1 million to $2 million benefit in the third quarter. This self-help is aiding us in managing the softness in the U.S. market.

Is that your confidence for the full year EBITDA guide? Because I mean you're guiding for flat to even slightly up in the second half, knowing that you're going to feel probably still further U.S. decline and the impact on pricing?

That's right, Steve. We do think we're going to pick up a little bit more share. We've got some costs coming out. And then finally, we are sitting on the highest backlog we've had in 10 years. And while some of it like our submarine rescue vehicle is going to play out in revenue over the next couple of years, there's other backlog that will be shorter in nature in churn for us. So we've got that support. And our guidance really expects a gradual continued decline, not some sort of year-end holiday or drop-off in the fourth quarter. We think activity has already seen a pretty meaningful drop and probably kind of muddles lower from here.

How does your guidance reflect the continued issues around the valve business?

Yes. I think we think valves stays pretty consistent with what it's done given the current tariff noise. And what we're seeing is our distributors just aren't replenishing their inventories. So at some point, they'll run out of inventory, and then we'll see a change. But in the near term and until that happens, we think valves kind of stays at a depressed level.

So when we look at the strong EBITDA and revenue number, it's really missing a key piece.

Yes. I would say that is true. As Neal mentioned, we have a very broad portfolio of products. While this can be challenging at times—especially during upswings when not all parts are performing equally—it's also beneficial when one area is struggling, as other segments of the business can help compensate.

Great. That's helpful. And I do want to ask about the raised cash flow guidance because you're not really, for obvious reasons, not moving EBITDA. If you can just walk through as a manufacturer that often gets compared to traditional oilfield services, the levers you're actually able to pull here to be able to generate that much stronger cash flow in a difficult market?

Sure. I think let me start and then Neal chime in, please. Really, the big lever for us in this year, Steve, is working capital, and I'd say a bit of CapEx. So if we go back to our beginning of the year guidance, we thought we'd be at that $40 million to $60 million worth of cash flow with really no decrease in net working capital. So now as activities come down, we're able to unwind some working capital. That's going to be a big addition to our cash flow, more than offsetting the full year decline in our thoughts on EBITDA. And also with our CapEx, we are not a heavy CapEx user. You mentioned comparing with other oilfield services companies. For us to grow, we don't need to add a lot of CapEx. Our budget wasn't high this year. And in a softer market, we're even able to dial back what we would need to spend. So net of the sale leaseback, we'll have about 0 CapEx on a full year basis. So those two levers, working capital and CapEx really help us on cash.

Yes. I think I'd maybe add last to that is it comes down to the teams and execution. A couple of years ago, we changed our annual incentives to make cash flow a big part, a meaningful part of that incentive. And our teams have really adopted it and engaged. And so we're focused on generating free cash flow on everything we do. And I think as we go back to a growth cycle at some point, again, we think in the next few quarters, we need focused execution. But as we go back to growth, we're going to maintain that cash focus, and we want to turn that working capital as quickly as possible even as we grow. So the team is doing a fantastic job. So we really appreciate what they've done embracing this cash flow focus.

Our next question comes from the line of Eric Carlson.

So you guys have kind of outlined what we look for kind of towards the end of the year in terms of net debt, I think. So just implying the $85 million EBITDA target and the 1.3x multiple, about $110 million net debt towards the end of the year and probably somewhere around 11 million shares outstanding. So that kind of leaves us with $340 million of enterprise value at year-end and really kind of still trading in that 3.9x or under 4x EBITDA range if nothing changes from here, which I would hope it does, but I guess to have that buyback in your pocket, there's worse things than having a low share price for a while. And maybe the question would be is regarding the prodigious return of capital, a word for which I had to look up the definition. When you look at the balance sheet at the end of the year, so you have $110 million net debt, $100 million of that is the kind of the new notes you did last year. How does that change as you get kind of the credit line down to 0 when you think about return of capital, does it increase buybacks? Does it allow you to actually return cash to shareholders in some way, shape or form? Maybe just talk me through that if you look beyond this year.

Yes, Eric, great question for us. And we've laid out over the last few quarters our thoughts and our framework for returning cash to shareholders. So just to kind of walk through those to reiterate that is we want to use about 50% of our cash flow for net debt reduction, about 25% aimed at share repurchases and the last 25% for things that we view as more strategic, and we put incremental share repurchases in that, especially at our current cash flow yield. So I think even as we roll through to nothing drawn on the revolver and effectively cash on the balance sheet, we would still be looking towards net debt reduction. So I think we'll hold that strategy as we roll through. Obviously, we could get a little more bullish with incremental liquidity as that plays out that way. But it wouldn't hurt us at all to be in a position in a couple more years to even look to retire those Nordic notes early and get to a lower cost of debt on a go-forward basis.

That's helpful. In that regard, I know acquisitions come up every quarter. The Variperm acquisition was outstanding and you will effectively have paid it off over a two-year period just from cash flow, which is commendable. However, when considering organic versus inorganic growth and balancing that with capital return, cash is the only guarantee. A well-made acquisition can still go wrong. So as we consider the balance of organic and inorganic growth while focusing on cash returns as we move forward, I think it would be sensible to prioritize pure cash return at the appropriate net debt level because the organic opportunities for long-term revenue are very promising. I'd appreciate your thoughts on this.

Yes, we agree on the organic opportunities and wanted to emphasize them in relation to our strategy for outperforming the market and identifying growth and leadership opportunities. Looking ahead five years, it's hard to believe that our industry won't need to invest significantly, and we are positioned to benefit from increased activity. The organic opportunities, market share gains, and overall market growth all align well with our objectives. As a company, we don't need a large amount of capital, which encourages us to improve our efficiency regarding working capital. Ideally, additional working capital should pay for itself within a year or less. When considering growth opportunities, particularly inorganic ones, we aim to apply strict criteria and maintain a cautious approach. If we encounter a suitable opportunity like Variperm, we would consider it, but we won't take unnecessary risks because we have substantial organic opportunities available.

Okay. Yes, that's helpful. I guess last thing from me would be, obviously, from a competitive perspective, you guys sit in a very strong position given kind of the cash generation, what you've done to lower debt levels and kind of that accelerating even into year-end here. I mean just when you look at your peers or even some of your customers, I mean, where do you think that you sit versus kind of the competition? And also in terms of a competitive perspective, there's obviously some OFS pressure, but I think everybody has their kind of head up and eyes on 2026 and beyond just as we've seen U.S. production flatline a little. I think the large-cap servicers have been not incredibly bullish on the rest of this year, but the outlook looks good. So just how has that been in terms of conversations with them and kind of building what you think looks like hopefully a better 2026?

Yes. As we think about our, let's call it, commercial competition, we try and again, obviously focus on areas where we have very few competitors. Generally, most of those competitors are private or small, not even publicly traded. So they have a different view than our publicly traded peers. So I think for us, the position is by having a strong balance sheet, by being able to invest in our people and have the right resources, also having a global footprint, we think we're going to outcompete, out-innovate those smaller, less capitalized competitors there. I think on our publicly traded peers, which we get loved into, our focus is to generate a lot of cash, and that's where we're going. I'm not sure where they're looking per se. But I think for us, the future, I think, is going to be strong in our industry, and we're going to be there to take advantage of it.

Our next question comes from the line of Joshua Jayne from Daniel Energy Partners.

I just have one final follow-up question. How close do you think we are to reaching a bottom in your stimulation and intervention business on a quarterly run rate basis, considering where we are in the cycle today?

I believe we have outlined a general gradual decline from this point. I don’t think we have reached the bottom yet based on conversations with our teams and customers. We still have time to go in the frac space, particularly in the U.S., where we have positioned ourselves effectively, especially with our quality wireline product family which is less specific to frac fleets. For us, it’s more about stages; that product line is consumed on a per stage basis. Therefore, even with a reduction in frac fleets, the determining factor for the bottom in that part of our business is when we reach a bottom in stages and when stage count begins to increase. We could see an improvement in our business sooner than the bottom of frac fleet count.

The other thing I might add, Josh, there is the international aspect. So with unconventional development picking up in South America and the Middle East, we're seeing demand for some of our more traditional U.S. land-focused technology, quality wireline being one, but also stimulation products, our GHT heat exchangers, those products are all being demanded. And so seeing opportunities for growth with capital spend by our customers in those other regions.

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

All right. Well, thank you, everyone, for your support and participation on today's call. We look forward to our next meeting in early November to discuss our third quarter 2025 results.

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