Earnings Call Transcript
FORUM ENERGY TECHNOLOGIES, INC. (FET)
Earnings Call Transcript - FET Q1 2025
Operator, Operator
Good morning, ladies and gentlemen, and welcome to the First Quarter 2025 Forum Energy Technologies Inc. Earnings Conference Call. My name is Gigi, and I'll be your coordinator for today's call. There is a process for entering the question-and-answer queue. At this time all participants are in listen-only mode and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.
Rob Kukla, Director of Investor Relations
Thank you, Gigi. Good morning everyone and welcome to FET's first 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 statements may include non-GAAP financial measures. For a reconciliation of these measures, you may refer to our earnings release. During today's call, all statements related to EBITDA refer to adjusted EBITDA. And unless otherwise noted, all comparisons are first quarter 2025 to fourth quarter 2024. I will now turn the call over to Neal.
Neal Lux, CEO
Thank you, Rob, and good morning, everyone. Since our earnings call in February, US trade and tariff policies have undergone a radical upheaval. This has generated significant economic uncertainty and dampened the outlook for commodity demand. In addition, OPEC+ announced faster supply growth than previously anticipated. The combination of these events is putting pressure on commodity prices. Oil prices have declined dramatically and are hovering near four-year lows. While we have not seen a change in market activity, in our experience, rig count declines tend to lag commodity prices by three to six months. FET's activity-based sales are highly correlated to rig count, and unless oil and gas prices rebound, we could see a decline in revenue starting in the third quarter. Given this uncertainty, we are proactively mitigating tariffs, optimizing our supply chain, and reducing costs and inventory. In March, we announced price increases to counter the cost impacts of tariffs. While we utilized US sourced content for a majority of our raw materials, it is important to note that tariffs increase prices broadly, not just on imports. For example, one of the largest domestic US steel producers has increased prices by over 30% since January. This is broad-based price inflation, and we must pass these costs onto our customers. Another way we are mitigating tariffs is by leveraging our global footprint. We are increasing assembly activities at our facilities in Saudi Arabia and Canada to efficiently serve global markets. In addition, over the past several years, we have strategically de-risked our supply chain to minimize dependence on a specific country and provide optionality in sourcing. Another area of focus is expense and inventory management. We are aligning our cost structure to operate under potentially lower activity levels. Approximately 80% to 85% of our cost base is variable, primarily materials and labor. We can efficiently manage these costs as activity declines. In addition, we are insourcing components to increase facility utilization, thereby improving efficiency and lowering expenses. Also, we initiated actions to eliminate $10 million of annualized costs. Inventory management also plays a key role. In 2024, we generated the highest level of free cash flow in nearly a decade by focusing on working capital management. Specifically, we generated approximately $40 million from inventory reductions. Given the softer outlook, we are actively managing inbound material orders and will carefully align the business with market conditions. Turning to our full year outlook, at the outset of the year, we forecasted a modest 2% to 5% decline in global drilling and completions activity. We anticipated North America rig count would soften, while international activity would be generally flat. We also assumed a slower first quarter with progressive improvements as we moved through the year. As I discussed earlier, there is limited visibility beyond the second quarter. If commodity prices remain at current levels, it is reasonable to expect a reduction in global rig count in the second half of the year. In that scenario, we believe full year EBITDA would be around $85 million. With this outlook, our focus on generating free cash flow is important. With the measures described earlier, especially our cost and inventory management efforts, we are confident in our previously announced guidance range of $40 million to $60 million in free cash flow. This result would allow us to execute meaningful share buybacks and significant debt reduction. I am going to turn the call over to Lyle. Following his comments, I will conclude by discussing our long-term outlook.
Lyle Williams, CFO
Thank you, Neal. Good morning. The team overcame tariff impacts to deliver positive financial results in the first quarter. These results met our expectations with revenue of $193 million and EBITDA of $20 million. Orders increased 6% to $201 million for a book-to-bill ratio of 104%. Stimulation and intervention product line orders returned to customary levels, and we received meaningful bookings for subsea projects in the quarter. Furthermore, in April, we have already booked another $8 million of subsea orders. Growing backlog in the subsea product line reflects the strength of the offshore market and will support overall revenue through the next few quarters. The drilling and completion segment performed well in the quarter. Revenue increased $5 million driven by a rebound in sales of completions-related consumables and capital equipment. Favorable product mix and overhead cost reduction initiatives supported 64% incremental EBITDA margins, and operating profitability benefited further from lower amortization expense. In contrast, our Artificial Lift and Downhole segment revenues declined, and unfavorable product mix lowered margins. First quarter results were impacted by the timing of shipments of project orders and softer demand for Variperm products. Given the strength of its fourth quarter results, Variperm had a high performance bar to overcome. This product family experienced particular weakness in Canada with unfavorable customer and product mix impacting results. However, our investment thesis for Variperm remains intact, and we anticipate positive progression through the year. In addition, we are experiencing negative headwinds in our Valve Solutions product line. On our fourth quarter call, we stated that we may see short-term impacts and variability in our results as we pass through tariff impacts with increased pricing. The magnitude of tariffs levied on Chinese imports has impacted demand for our valves product line, which, like our competitors, sources a large amount of product from China. With the uncertainty around these tariffs, our customers began a buyer strike, significantly reducing orders and delaying near-term deliveries. We believe these reduced purchase levels could continue for a couple of quarters until tariff levels wane or distributor inventories are depleted. In the meantime, for Valve Solutions and our other product lines, we are adjusting sourcing strategies and raising prices in response to specific tariff-driven impacts. Looking ahead to the second quarter, despite market uncertainty, we have not seen operators deviate materially from their plans. Some customers have indicated more white space on their calendars beginning late in the second quarter, but this could be offset by a pickup in natural gas activity. Overall indications are that drilling and completions activity should remain relatively stable from first quarter levels. Therefore, we expect flat quarter-over-quarter results with second quarter revenue to be in the range of $180 million to $200 million and EBITDA to be between $18 million and $22 million. We estimate corporate costs of $7 million, depreciation and amortization expense of $8 million, interest expense of $5 million, and tax expense of $3 million. With our focus on cash, we generated $7 million in free cash flow in the first quarter, up 3 times from the prior year first quarter. This marks our seventh consecutive quarter of positive free cash flow generation. As Neal mentioned, we remain confident in our full-year free cash flow guidance of $40 million to $60 million. In the event that market activity declines and our EBITDA is closer to the $85 million, then we expect unwinding working capital to bridge the potential decrease in EBITDA. Our full-year confidence comes from more than just our ability to convert working capital. Over the past two years, we transformed our business systems and reinforced these improvements with key performance indicators and financial incentives aimed at strong, repeatable free cash flow generation. We envision FET being a cash flow engine that regardless of market condition yields $3.5 to $5 of free cash flow per share this year. The balance sheet improvements we made over the past several years, including the debt conversion to equity, organic debt retirement, and refinancing put FET in a solid financial position. We have $108 million of liquidity and no debt maturities until 2028. At the end of the first quarter, our net debt was $146 million for a quarter ending net leverage ratio of 1.56 times. This strong balance sheet and continued free cash flow allow us to further reduce net debt and return cash to shareholders. We began our shareholder returns in the first quarter by repurchasing roughly 1% of our outstanding shares for $2 million. As we outlined last quarter, our plan is to utilize 50% of our free cash flow to further reduce our net debt. The remaining free cash flow would be used for strategic investments that increase shareholder value, including share repurchases. As a reminder, our net leverage ratio must be below 1.5 times for us to repurchase shares. Given the market uncertainty and potential for slower activity, this occurrence test may impact the size and timing of our share repurchases. However, with our forecasted free cash flow, we remain comfortable with our ability to both reduce net leverage and continue share repurchases this year. Let me turn the call back to Neal for closing comments.
Neal Lux, CEO
Thank you, Lyle. Taking a step back, the market we find ourselves in today is uncertain. While we are eliminating expenses to adjust to potential market activity, we will not jeopardize our future. We have the resources to execute our beat the market strategy. We will continue to make commercial and engineering investments that will drive profitable market share growth through innovation. We believe strongly that the investment case for FET remains intact. This belief is based on our track record of significant outperformance, the incredible value of our stock, and our long-term growth potential. Since 2021, FET has grown revenue at a compound annual rate of 15%, three times faster than the Russell 2000 index, which we are a part of. We have grown EBITDA and cash flow over 70% annually, many times better than our index. Simply put, we have delivered spectacular relative financial results, and yet we trade at a significant discount to the Russell 2000 and with our oilfield service peers. Today, our forward free cash flow yield is north of 25%. Very few stocks trade at yields this high while also having FET's long-term growth potential. This unlocked value makes share buybacks extremely compelling. Since we announced our buyback authorization in December, we have outperformed the Oilfield Service Index, the Russell 2000, and the average of our peers by significant margins. This performance has confirmed our buyback thesis and we will seek to buy as many shares as possible within our returns framework. There is uncertainty over the next 6 to 12 months. However, longer term, we envision strong growth for FET. The world needs energy. Over the next decade, population growth, economic expansion, and full-scale implementation of artificial intelligence will drive energy demand. Investment will be required to supply the world's needs. It is only a matter of time before the headwinds we see today will turn into tailwinds, supercharging our growth. In the meantime, we are executing our beat the market strategy. We will deliver our products to customers around the world with our global footprint, and we will continue to innovate and develop new products and solutions that increase the safety and efficiency of energy production. Thank you for joining us today. Gigi, please take the first question.
Operator, Operator
Our first question comes from the line of Joshua Jayne from Daniel Energy Partners.
Joshua Jayne, Analyst
Thanks. Good morning.
Neal Lux, CEO
Hi, Josh.
Joshua Jayne, Analyst
First question I wanted to hit on the subsea side. You talked about bookings were up 50% quarter over quarter due to the customer adoption of some new products, and then you also highlighted, I think, an additional order in April. Maybe you guys could talk about more about that given at least on the rig count side, we've seen a bit of a slowdown in rigs being contracted, but you seem to highlight some strength there. So, talk about the products that are getting adopted and the outlook there a bit more.
Neal Lux, CEO
Yeah. We're really excited about the progress we're making in subsea. We address obviously offshore oil and gas, offshore wind, and defense with that product line. And really across all three areas, we're seeing good inbound inquiries as well as turning those inquiries into orders. We provide remote-operated vehicles (ROVs), launch and recovery systems for those markets. And I think we've established over the years a position of strong market share. I believe around 30% of the vehicles that are in use today or more were our brand. So I think as those vehicles have aged and the work has increased, we're seeing a lot more demand for those vehicles. And then with the Unity operating system that we developed that allows for more remote operation capability, we've sold about eight more of those systems since the beginning of the year, and we'll be delivering those throughout the year. So, excited about the activity we're seeing in Subsea. I think it also shows really the breadth of our reach. Subsea is about 10% of our revenue, but offshore, we think, is around 15% to 20% of our total revenue, whether it's done through our offshore pipelines or equipment we deliver with our drilling group.
Joshua Jayne, Analyst
Okay, thanks for that. And then as my follow up, another thing that sort of jumped out a little bit at the release, was part of the increase in orders for drilling completion was for stimulation-related equipment. Could you talk about what products there saw strength given that completion crews aren't moving higher and has a lot of inventory been exhausted, and could you see a similar level of orders even if crew counts are sort of flattened down given the uncertainty you talked about in the second half of the year?
Neal Lux, CEO
Yes, I believe our industry ended last year in a very lean state. The frac crews that were operating limited their purchases to a minimum as they wrapped up Q4. During the current quarter, we have returned to a more typical level. Although there may be fewer crews working, they are accomplishing more each day. They are pumping more stages and working longer hours. As a result, we are witnessing significant demand for our power ends, which drive frac pumps. Traditionally, these were viewed as capital investments. However, we now observe that the power ends are being replaced or rebuilt much more frequently, within 12 to 18 months, compared to a few years ago when they would last three to four years. This trend reflects a rebound. We also saw a recovery in our wireline product line, which supports the completion group. This again shows improvement from Q4, and our cables are reaching greater depths and working more stages each day, which contributes to their quicker wear and tear. This is part of the current situation as well.
Joshua Jayne, Analyst
Thanks a lot. I'll turn it back.
Neal Lux, CEO
Thanks, Josh.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Dan Pickering from Pickering Energy Partners.
Dan Pickering, Analyst
Good morning, guys.
Neal Lux, CEO
Hi, Dan.
Dan Pickering, Analyst
Lyle, could you remind us about the share repurchases during the quarter? You mentioned a 1.5 leverage ratio, which seems to indicate you ended the quarter slightly above that metric. Did those share repurchases mean you paid down the facility? How did that work during the quarter? And how should we view that variability as we approach Q2 and Q3?
Lyle Williams, CFO
Yeah. That's a super question, Dan, and there's a good nuance there with how our metrics are done. We'll report to you and our other investors on a quarterly basis, both our EBITDA and our net debt. And hence, we ended with that 1.56 for the incurrence test ratio of 1.5 times. We measure EBITDA quarterly, just like we do for our public filings here, but we measure net debt within 30 days of buying back our shares. Our bondholders wanted us to do that just so we kept a tighter rein, maybe more month-to-month or even week-to-week as far as how cash moves. So that opens up windows for us to buy shares within a quarter. And that's what happened in the first quarter. We were able to take advantage of the market early and our leverage ratio there. Similarly, as we think ahead to the second quarter, we're in now, even the third quarter, those windows will open based on just the intra-quarter timing of how our cash flows in the quarter. So expect that and expect that those windows will open, and we'll be able to take advantage of them here in the second and third quarter.
Dan Pickering, Analyst
Could you elaborate on the cost initiatives? You mentioned an annualized figure of $10 million in the press release and during the call. Can you give us some insight into when we might start seeing those benefits? Will some of it be realized right away, or will it take longer? How do you anticipate it will be reflected in our results?
Neal Lux, CEO
Yeah. We did see a little bit of benefit already in the first quarter with some of the activities and cost reduction measures that we put in place even before kind of the April noise that happened in the market. So we've seen a little bit there. But if we think about our cost structure, it's a really highly variable cost structure between material and labor and overhead being a significant portion of our overall cost structure. Good news is that makes it very variable. So with activity coming down, we can manage those costs down very well. What we're specifically targeting with the $10 million is some of the more fixed costs. So those are ones that won't necessarily vary with revenue. And those could be embedded in cost of goods sold, could also be within our SG&A. So we'll be looking at efficiency gains, changes that we can make and the like that will drive some costs out. Those are going on right now and would expect some benefit in the second quarter and more benefit to roll through into the third quarter as well.
Dan Pickering, Analyst
Okay. Thank you. And then, Neil, maybe as you indicated, we haven't seen any softness yet. There's risk. What specific business lines? Or is it order intake? What are you watching as you're sort of canary in the coal mine around activity and any softness?
Neal Lux, CEO
Yes. Yes, Dan, we haven't seen that yet. I think a couple of things. About 80% to 85% of our revenue is activity based. So these are consumables that are required to operate for our customers, whether it's coiled tubing or wireline or our downhole tools. So we're really close to that. What we wanted to do, though, and what we thought was prudent is when you see oil prices come down to a level like they're at now, unless there's a rebound, we believe rig count or overall activity is going to follow with a lag. And so part of our cost-saving effort, part of our material, let's call it, slowdown of inbound material that we wanted to get ahead of this thing. So I think it's easier if you make the cut sooner. And then, let's say, we work a little bit more overtime. We use a little bit more inventory. And if oil prices, let's say, rebound in the next couple of months or next couple of weeks, it won't hurt our long-term ability to respond to that. So we're going to stay close to the customers. We're going to follow our inbound orders. The canary in the coal mine, if we see shipments drop off in a month, we'll know our customers are pulling back. But right now, we haven't heard any specific indications of that. So we're operating business as usual, but we're keeping an eye out, and we're going to be proactive in how we respond.
Dan Pickering, Analyst
Good. Well, I applaud you guys for being quick on the trigger here. Last question for me. You mentioned pushing prices in certain areas related to rising costs. Is it holding? Is it sticking? Is that part of the buyer strike on the valve side for instance, is they don't like the higher price and they're waiting to see if it will come down? Just what's the reaction to price?
Neal Lux, CEO
We have a wide range of products that cater to various markets, each with its unique aspects. The situation with valves is particularly focused on China, as most valves imported into the US come from there. Our customers are noticing the volatility in tariffs, which can fluctuate significantly. Unless they urgently need a valve, it’s generally advisable to wait before making a purchase. We anticipate that inventory will deplete and demand will increase, prompting our customers to buy. Meanwhile, we are exploring alternative strategies to enhance our cost structure and boost our competitiveness. We are working on those initiatives and will share more details soon, as we aim to turn challenges into opportunities.
Dan Pickering, Analyst
Thank you.
Neal Lux, CEO
Thanks, Dan.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Jeff Robertson from Water Tower Research.
Jeff Robertson, Analyst
Thanks, good morning.
Neal Lux, CEO
Good morning, Jeff.
Jeff Robertson, Analyst
You all spoke about a little bit of turbulence in Canada in the first quarter. Can you elaborate on what's going on out there with Variperm and whether or not that's seasonal or temporary or anything more?
Neal Lux, CEO
Yeah. So I think it's definitely temporary. And I think we're also heading into what's typically a slower season in Canada overall. But what we saw with Variperm is really a combination of customer and product mix. And what we mean by customers is that there are certain oil sands operators where we have a higher market share. So if more of those customers are working, obviously, it's more share for us. So I think our customer mix or the share of who is working or drilling in Q1 was unfavorable for Variperm. I think the other part was that for those that were working that we were selling to, they didn't utilize our flow control products as much as what other operators. So I think it was a product mix there as well. So a little bit off there. But overall, Variperm is still generating a ton of cash. I think they're still in the right position. They're still innovating. So I think as we look to the back half of the year, I think we'll see some improvement with that business going forward. Still love it, still have the type of margins we're impressed with. Just had a great fourth quarter, maybe not quite as good in Q1. I don't see any long-term impact though.
Jeff Robertson, Analyst
We're actually a month into a lower oil price. So your comments around the lag in activity as your customers try to figure out their business. Can you share any color on recent conversations with customers about longer lead time items and how they're thinking about that?
Neal Lux, CEO
Our longest lead time items are primarily associated with our capital businesses, such as Subsea, where we are noticing increased activity. However, for our consumable-based businesses, discussions with our customers haven't changed from previous interactions. At the operational level, there are no noticeable changes. We believe it is important to be proactive, which is why we are taking these measures. We feel that macroeconomic conditions significantly influence activity levels. Unless there is a rebound in oil prices or a significant increase in gas activity, we anticipate a decline in rig count over the next three to six months.
Jeff Robertson, Analyst
If you do see over time a shift toward more gas-directed drilling where there can be higher temperatures and higher downhole pressures to deal with, does that affect the life of some of the consumables and maybe shorten the replacement cycle of certain products versus having them work in oil reservoirs?
Neal Lux, CEO
You got it 100% right there, Jeff. Yeah, absolutely. Gas tends to be higher pressure, higher temperature, items like wireline, coiled tubing, even some of our downhole tools, they do wear out more quickly and need to be replaced more frequently. So yeah, all in all, a shift to more gas, I think, would help our consumable demand.
Jeff Robertson, Analyst
Thanks. And then just lastly, have you seen any change in any of the renewable type exposure that you have, whether it's data centers with, I think, your cooling units or RV demand for offshore wind?
Neal Lux, CEO
Let me start with the offshore segment. Our offshore business is primarily focused on the Eastern Hemisphere and South America. We have not observed any changes; in fact, there has been growth in our offshore operations. This growth is driven by oil and gas, defense, and offshore wind projects. On the power generation front, particularly with data centers, we are still adding and booking our coolers for those applications. Our Power Tron radiator designed for power applications is experiencing good demand, and we anticipate this trend to continue throughout the year. Thank you.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Steve Ferazani from Sidoti.
Steve Ferazani, Analyst
Good morning, everyone. Thank you for the detailed information shared during the call. I wanted to inquire about how your geographical diversification can be advantageous in the current environment. The expectation is that the U.S. short cycle may be impacted first. However, certain markets you're involved in seem likely to perform better. Can you discuss how you might target the stronger markets? While it’s understood that you can’t fully offset losses in the U.S. short cycle, what strategies do you have for navigating this type of environment?
Neal Lux, CEO
Yes, that's a great question. A good example is our Subsea business. There have been periods when Subsea was less favored, and more attention was given to US land activities. However, we are currently experiencing strong momentum in this area. Our recent bookings in Subsea marked our best quarter in about five quarters, which is very encouraging. Typically, our Subsea operations are concentrated in the Eastern Hemisphere and South America, and those segments are performing well. Additionally, we are expanding our downhole business line into the Middle East. This initiative started a few years ago and is still yielding positive results.
Lyle Williams, CFO
Steve, I'll jump in. In addition to what we might see from the markets, I think there are cost and/or tariff advantages that we can take advantage of with our geographic footprint from a manufacturing perspective. We clearly have a lot of manufacturing footprint in the US and for months have been working on an effort to in-source product that previously had been outsourced. Through doing that, we increase manufacturing utilization, which is great at this potentially softer time, but also can avoid some of the tariff impact. And similarly, we can use our international facilities, like Neil mentioned on the call, in order to avoid US facilities completely. So that's shifting the supply chain where maybe components come in from high-tariff countries into the US to then be re-exported for international markets. We just skipped the US step. Whether that's leveraging our facility in Saudi or in Canada, product can head in there from international locations, be manufactured, assembled, tested, and then shipped out. So that international footprint is really something we're able to take advantage of here in this time of tariff-related uncertainty.
Steve Ferazani, Analyst
You never anticipated the flexibility being this beneficial, but it's proving to be quite helpful at the moment, and it's nice to see that. Can I inquire about the steel prices? They’ve been quite noticeable. While you can increase prices, there will be a delay in that effect. Do you have any insight on what the impact from tariffs is based on your Q2 guidance? Is there a way to quantify that? There are many variables at play regarding how higher costs and tariffs will affect you in Q2 according to your guidance.
Neal Lux, CEO
I believe the most significant impact will come from valves. We've mentioned the buyer strike, which we have factored into our numbers and that is a concern for us. We've included this in our forecast. Regarding other areas where we've observed price increases, you’re correct that there will be a lag after we raise prices. However, we also experience a delay when costs rise because we have some inventory and outstanding orders. We are optimistic that these will balance out and that any tariff-related impacts can be recovered through price adjustments or changes in our supply chain.
Steve Ferazani, Analyst
Okay, that's helpful. I have one last question. In a scenario where you're accumulating cash but the opportunity remains unavailable for a prolonged time, is the strategy to continue accumulating cash, or would you consider other uses for it?
Neal Lux, CEO
No, great question. And I think as you recall, in our framework that we've laid out, first half of our cash is going to go to net debt reduction. And when we restructured our debt last year, Steve, you'll remember that we left a decent chunk of cash on our revolver. So the idea there is we not only reduce net debt, but we actually reduce absolute debt and save interest expense. So that half will go to paying down our revolver. If there's a reason why we can't buy back shares for some period of time, I think we continue to pile down the revolver. That will lower net debt and ultimately open the window back up. I think we'll get some benefit of reduced interest expense if that happens. But really, we believe we can get there with a leverage ratio on a more expedited basis.
Steve Ferazani, Analyst
Perfect. Thanks, everyone. Appreciate it.
Neal Lux, CEO
Thanks, Steve.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Dave Storms from Stonegate.
Dave Storms, Analyst
Good morning, everyone. Appreciate you taking my questions.
Neal Lux, CEO
Good morning, Dave.
Dave Storms, Analyst
Just want to start, and apologies if I missed this. But assuming the tariff levels do wane a little bit over the coming months, how much of the demand do you think could be made up? And how much of those orders are just kind of gone?
Neal Lux, CEO
That's a great question. I think a big feature of what we're talking about, remember, is our valves product line. And we will look at the valves that we primarily manufacture and source from China, the major supply chain for our competitors is also from China. So we feel that all of our competitors are seeing the same thing, and we hear about similar price increases and price actions. So I think that what that means is we really have this buyer strike where buyers just aren't buying product. At some point, the ultimate demand and end-use rebounds, where things could be delayed more permanently is really, call it, capital spend by end users. So whether that's in a refinery or a petchem project or on a pipeline, if that's deferred, then that demand just gets deferred. If it's maintenance or if it's depleting inventories, then I think we could see a rebound. So a really positive move would be a decrease in those tariffs. I think as we look at the geopolitical macro and what's being said about trade policies, we're not expecting that. So I think what we expect is a longer run with these tariffs, maybe they come down some, but still see a pretty high number, which gets back to Neil's comment about us looking at alternate sourcing strategies using other facilities to move in and mitigate the impact of tariffs and ultimately have a much lower cost basis.
Dave Storms, Analyst
That's perfect. And then just kind of dovetailing off of that, what kind of competition are you seeing in finding those alternate sourcing of the supply lines? I got to imagine kind of everyone has the same plan.
Neal Lux, CEO
We haven't observed much competition in that area. We've established many of these supply lines early on. Looking back, since Trump introduced tariffs and duties in 2017, we've been navigating this for about eight years. A major focus for us is ensuring supply chain resilience, which we've incorporated. The only notable change might be the assembly activities that Lyle and I have mentioned, which is somewhat new. This is primarily to circumvent tariffs, which ironically have led us to shift manufacturing outside the United States. I consider these tariffs to be poor trade policy, and I hope we can find a resolution.
Dave Storms, Analyst
That's great. And then one more for me, if I could. Just thinking about the customers and the buyer strike, any sense finger in the wind, crystal ball question on how long they could hold out kind of maybe how much track is in front of them before there would be capitulation? Could it be a quarter, two quarters, two years? Any thoughts?
Neal Lux, CEO
I'm not really sure. I think over the last few years, they've been more conservative with inventories. So I could see it gradually changing. But if the price stays high, it won't be a complete shift. They'll just purchase the minimum they need to manage. However, I believe once there is clarity regarding the tariffs and they remain stable, they will need to return to normal operations.
Dave Storms, Analyst
Thank you very much.
Neal Lux, CEO
Thank you.
Operator, Operator
Thank you. One moment for our next question. Our next question comes from the line of Eric Carlson.
Unidentified Analyst, Analyst
Hey, guys. Good morning.
Neal Lux, CEO
Good morning, Eric.
Unidentified Analyst, Analyst
I had a long list of questions that I kind of crossed off most of them as we went here. I guess when I think about how you've kind of managed cash over the last few years and kind of the outlook here, so going to generate close to kind of 100% of current market cap in cash over 2024 and 2025. And what did you say the net debt level is at currently or as of, I guess, of 3/31?
Neal Lux, CEO
It's about $150 million. So $148 million, I think, is the number.
Unidentified Analyst, Analyst
Okay. $148 million. So basically, the potential to get kind of that net debt down to $100 million to $115 million depending how the year plays out. So current market cap, sorry, I'm doing quick math. I mean, you're basically looking at trading by year-end 3.2 times to 3.5 times EBITDA with an enterprise value under $300 million. Maybe a little context. So 2020, you had negative $20 million of EBITDA and finished the year at $230 million of enterprise value. I'm doing quick math, 2021, $20 million positive EBITDA, ended the year with $275 million enterprise value. So not far off what kind of year-end looks like and clearly significantly better. So maybe the question would be is how do you execute buybacks in a meaningful way without maybe pushing market price too much and taking advantage of this while it lasts. Can you source directly from some of the other large shareholders or the bondholders that still exist? Maybe talk me through execution of the buyback and maybe how that has happened so far.
Neal Lux, CEO
It's a great question, and we are definitely focused on it. Since we announced our share buyback, our value has changed significantly in the market, influenced by trade and tariff policies and OPEC+. We believe that being active in the market could positively impact our stock price. Currently, we are trading at a substantial discount, and we see the potential to enhance our stock price by increasing the number of shares we buy back given the current market conditions. While we plan to proceed carefully, we intend to be active in the market, especially when opportunities arise related to our net leverage ratio.
Lyle Williams, CFO
For us to believe the forward free cash flow yield should exceed 25% at the midpoint of our guidance, that figure seems quite extraordinary. We see a lot of value in this scenario. Even if the stock price were to double, a 12.5% free cash flow yield would still place us in the top quartile or higher compared to our peers. What’s been frustrating is the undervaluation. We need to communicate our story effectively, and we are committed to doing that consistently. We believe that more people are becoming interested. Our track record demonstrates that we have delivered on our commitments, outperforming nearly every index we're included in. If you are a portfolio manager evaluating us against an index such as the Russell 2000, it’s hard to see why you wouldn’t choose FET. The value and performance are evident, and we are also excited about the long-term growth potential. It's a compelling combination, and we are eager to acquire as many shares as possible, especially while the price remains low.
Unidentified Analyst, Analyst
Yes, I agree. In the long term, low prices can help turn challenges into opportunities. What insights have you gained? When we entered 2023, we focused on building working capital. How have you adapted as challenges turn into opportunities, particularly in managing cash and emphasizing capital returns while maintaining low leverage? As we anticipate a positive shift, how has your approach evolved, and could you provide some additional details?
Neal Lux, CEO
I believe that when we started out as a small-cap company in a growing industry, our primary goal was to grow EBITDA. That has remained our focus for many years. Now, as we navigate through this cycle and observe changes, our aim is to concentrate on cash generation and ultimately produce free cash flow. As the cycle begins to shift towards growth, we will set high return expectations for each of our businesses. We are confident in our ability to meet these targets, but we must also ensure our working capital is managed efficiently. One key measure we track internally is the incremental return on additional working capital; we aim to recoup any working capital added within a year in cash. Therefore, we will emphasize maximizing this efficiency. The best-performing businesses will receive capital, while those that fall short will not. We're committed to using our working capital, which is our largest cash expense, in the most effective manner possible.
Unidentified Analyst, Analyst
That's helpful. And then maybe the last thing on cash would be and my last question would be, I know we've seen a few of the sale leaseback transactions over the last few years. Is there anything out there potentially that could be a one-off cash generator really set you below that kind of net leverage ratio and open up a big window or to be determined? Just curious if there's anything that you could see in the short term to generate kind of a one-time cash flow.
Lyle Williams, CFO
Yes, Eric, the teams have done a really good job over the last few years of turning our real estate, our dirt into capital that we could redeploy and use, and that's been very good. The amount of real estate that we have left is getting really pretty thin as far as what's available. And that's good news. We've now gotten our cash redeployed or our capital redeployed. So definitely things that we look at is are all of our assets generating appropriate returns. And to the extent that they're not, it's a question that we ask ourselves is, should we monetize that and be able to put that cash to a more high return use? So definitely something we look at, and we'll keep you updated if something pops loose.
Unidentified Analyst, Analyst
Thanks, guys. Appreciate it.
Neal Lux, CEO
Thanks, Eric.
Operator, Operator
Thank you. At this time, I would now like to turn the conference back over to Neal Lux for closing remarks.
Neal Lux, CEO
Thanks, Gigi, and thank you, everyone, for your support and participation on today's call. We look forward to our next meeting at the end of July to discuss our second quarter 2025 results.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.