Forum Energy Technologies, Inc. (FET) Earnings Call Transcript & Summary

I am Jeff Robertson Managing Director of Natural Resources at Watertown Research. Before we begin, I would like to remind participants that our discussion today could include forward-looking statements as of today, May 21, 2025. FET's disclosures regarding such statements can be found under the Investor Relations tab of its corporate home page. Neal, Lyle, I'd like to take a minute and thank you for joining us today.

Great to be here, Jeff.

FET provides technological solutions to the oil, natural gas and industrial and renewable energy industries. The company's products are designed to help customers safely increase operational efficiency and reduce the environmental impact of their activities. Operational efficiency is measured in improved performance resulting in lower costs for the customer and higher returns on their investments. The company's product lines are segregated into 2 reporting segments: drilling and completions and artificial lift and downhole. FET serves some of the largest oilfield services companies in the world with its drilling and completion segment and E&P operators who own and process hydrocarbons with its artificial lift and downhole segments. Neal, let's start with the macro outlook since that's gaining a lot of headlines today. The cloud's oil price outlook with respect to global demand growth and OPEC supply, and there's obviously uncertainty around tariff impacts have caused many oil producers to talk about curbing activity in the second half of the year. Can you share any insight based on your conversations over the last several months with how you think your customers are adapting to the uncertainty?

Yes. Yes, Jeff, this topic is definitely front and center, especially here in the near-term. Again, U.S. trade tariff policies, the economic uncertainty there, I think has dampened the outlook for commodity demand. I think also with OPEC+ announcing faster supply growth, we kind of have a demand slowdown and a supply increase. So I think the combination is obviously putting pressure on commodity prices. So our customers and discussions we've had with them recently have not really changed their path forward. So our expectation is that drilling and completions activity should remain relatively stable in the second quarter, and we expect second quarter results for FET to be essentially flat with the first quarter. But what we've seen is that when oil prices have declined historically, and they are right now at 4-year lows that in past scenarios, and past situations, rig activity follows in the next 3- to 6-month lag. And in our earnings call, we laid out a scenario where if oil prices remain at current levels through the remainder of the year, we would expect rig count to follow to be at lower levels in the back half of the year. That was part of our reasoning for say EBITDA could be closer to around $85 million for the year for the company. And while we expect the next few quarters, I think, to be challenging, let's say, 2 to 4 quarters. We believe that this scenario, I think, overall, is going to be good for our industry. We're going to eliminate OPEC+ spare capacity. Also, I think if U.S. rig count falls too far, we've heard some E&P commentary that this would stop U.S. production growth, in fact, roll it over, have lower production. I think lower production from the U.S. would ultimately help oil prices recover. And then I think that would allow our industry to grow significantly again with more activity. I think that's a great scenario. So I think in the meantime, we have some headwinds, but -- so we're going to continue to manage our costs. We're going to continue to mitigate tariffs, optimize supply chain and reduce cost. That's part of our impetus for our $10 million announcement in our earnings call of annualized cost savings. So our focus is on taking cost out, operating at a lower environment and ultimately generating free cash flow at levels of activity.

To your point on the production outlook in the first quarter letter to shareholders, I think it was Travis Stice at Diamondback, who mentioned the notion that at least supply in the Permian where Diamondback operates could roll over with decreased drilling activity and probably pointing to a little bit of resource maturity in the basin. Oil prices have trended lower. However, gas prices have remained relatively strong. I think in last week's Baker Hughes rig count, which totaled roughly 585 rigs, about 100 of those were drilling for natural gas. If -- how would a potential increase in gas-directed drilling because of the market strength have an impact on FET's business?

Yes. For us, our portfolio, and what I really like about it is we're generally agnostic to whether our customers are drilling for oil or gas. It's really overall activity. So I think with the -- as you mentioned, the stronger gas prices, which I think are being driven by power gen and AI needs and LNG that any increase in drilling activity could help offset any potential oil-related activity. Also, when we think about our consumable products on the gas side, when our customers take those products and work in hotter or higher pressure wells, which were gas is typically found the equipment is going to work harder and wear out faster. So for us, for them to keep up the efficiencies. Our customers are overall going to consume more of our products and ultimately generate more revenue. So for us gas, gas increases are, I think, a net positive, and I'm really encouraged to see that activity hold up.

In the first quarter, we're actually over a longer period of time. The U.S. accounts for 50% or a little bit over 50% of FET's revenue. Let's talk a little bit about tariffs. How do you think tariffs could impact the company's U.S. business and U.S. margins?

Yes. Yes. Again, in the U.S., we do utilize locally sourced content for a large percentage of our raw materials. But what we found, and it's been my experience in my career that tariffs really increase prices broadly, not just on imports. One example, and we gave this in our earnings call, is 1 of the largest U.S. steel producers announced price increases of over 30% just since January. So for us, we have to get back to our strategy, and we've talked about it of passing on cost increases to our customers through increased prices. So we have to do that. One area that we did note where we had, I think, an outsized tariff impact was in our valve solutions product line. And I think that's really more due to just the magnitude and the variability of tariffs on China, where almost all U.S. manufacturers and source their components for valves. We saw what we characterize as a buyer strike where customers are just waiting to get more clarity on potentially lower tariffs. And we've actually seen that now here in this recent announcement. So I think valves is an area where we've had maybe more of an outsized impact on what we're going to manage over the next 2 quarters. So in the near-term, have some variability there. But I think in the long-term and medium-term, we're going to mitigate tariffs through price increases.

So if half of the company's revenue is in the U.S., obviously, the other half is in international markets, including Canada. How does your global footprint help you manage around the tariff situation with respect to your international businesses?

Yes. I think managing tariffs is something we've been working on for a while. We believe, first, we had to derisk our supply chain. So we really have a little -- few of our products depend on 1 country for our sourcing. But as you mentioned, our global footprint also gives us the ability to manufacture in countries where we don't have tariff impact. So for sales in Canada or sales in the Middle East, we can utilize our facilities in those countries to assemble and manufacture the products and ship them directly to customers without coming into the U.S. and without having an impact on tariffs. So for us, our global footprint gives us a lot of optionality and overall is a great advantage for our international sales.

FET has talked a lot over the last couple of years about your beat the market strategy. The strategy aims to compete in markets where FET can innovate technological solutions that allow it to gain share and margin accretive type of product lines. Just staying on the theme of the macro in general, how does that strategy adapt to the environment we're in right now where there's some turbulence around current commodity prices, costs and just at least the near-term outlook.

Yes. I really don't think the strategy changes at all, right? So if the market is down, we're not going to be down as much as the market -- when the market is up, we want to grow faster. That's really the key part of our beat the market. And we're going to do that through our differentiated products and technologies in our global footprint. Also, we try to think about our portfolio really and market share by kind of separating out our revenue. About 2/3 of our revenue comes in product companies or product portfolio companies that we have significant market share, let's call it, 30% to 40% combined market share. We call that our leadership markets. In this market, again, we compete with just a few competitors. They're niches. They have high barriers to entry, good examples of our coiled tubing artificial lift, our sand and flow control products at Variperm and our wireline products. So we have great market share in these markets. The other markets we have, we like to call it our growth markets. So these are areas where we've identified opportunities to gain outsized share by either expanding regional distribution and sales or by modifying existing products to fit new applications. So importantly, these markets give us the best opportunity to grow much quickly, much more quickly. So we have less share here. Great example of where we've done that is in our casing equipment product family. We have grown our sales significantly in the Middle East by modifying existing products to fit local applications and by utilizing our manufacturing facility in Saudi Arabia. Putting together, we believe this strategy supports FET in both growing markets and the tougher macro environment that you mentioned. Overall, I think we like to look at the outcome of the strategy. And I think it's really best illustrated by the growth we've achieved on a revenue per rig metric. So we've grown our revenue per rig at a 5% compound annual growth rate for the past 5 years. So as we get back to a normal operating environment, we think we can get back to that growth rate of 5% plus over the next 5 years. And if we continue at that level, FET will be a $1 billion revenue company. And with our operating leverage, we're going to turn 30% to 40% of that revenue growth into EBITDA and free cash flow. So beat the market is really our key to long-term growth.

But when times get a little tougher, companies and customers tend to focus a lot more on cost and efficiencies. There's been a big push by the E&P operators. And I think the oilfield service companies as well over the last several years to increase their operational efficiency to get more done with less money. Do you see customers put even a greater premium on the type of technologies that FET delivers that help them accomplish that goal when times are tough. And then does that maybe increase share, does that stick when things get better? Do they say that product worked really well for us. We'll keep using it if prices go up and do you actually get to gain share with some of those products and then you can ride to win when things get better?

Yes, Jeff, maybe starting with the end of your question, the stickiness. I think if we -- I think that's really important in times when times are tougher, if you're there with your customer, if you're helping them achieve the goals they need to achieve in a difficult environment. as times get better, boy, I've seen in my career that you really stick close with that customer base. So I think that's a big advantage. So we're going to continue to do that to continue to work with our customers. I think overall, though, in our industry, the drive for efficiency is going to continue, whether it's good times or bad. And that's really where our products fit in. The unconventional revolution that we've seen both in oil and gas over the last 25 years has come from the products that FET provides. So we're key to that. And I think as that revolution becomes more mature here in the U.S., it's going to get exported around the world, and we're seeing that. So efficiency is the name of the game and our products and solutions is really what allows that. We allow wells to be drilled faster. We allow fracs to be completed more quickly. We allow more stages to be done per day. That's the value that we have at FET.

To that point, Neal, operators in U.S. shale basins are routinely drilling 2- to 3-mile laterals, depending on obviously, their lease geometries. I think ExxonMobil has talked in recent quarters about drilling up to 4-mile laterals in some hard-reach areas of the Permian Basin. You mentioned it earlier with respect to gas, but how does the increased intensity of longer lateral wells and which require larger completions and more horsepower and everything has to get a little bit bigger. How does that affect demand for your consumable products, but also maybe just some of the power units that you all provide to frac fleets?

Yes. Yes. No, I think that really just to sum that up, the longer the lateral, the more product that goes in the hole, the heart of the rigs have to work, the harder the frac fleets have to work. So that's really good for our consumable portfolio, right? The harder each rig is working, the more intensity we have. And then also the more downhole products that we go -- that go into well we're going to -- the more revenue we're going to get. So our -- again, our products are really key to allowing ExxonMobil and other operators like that to do these really difficult and long laterals. So that's really right down our wheelhouse. The more complicated, the better and then ultimately, the more revenue that we're going to generate per rig.

So part of your business is being in the [indiscernible] business to provide the high-end equipment that companies actually need to produce their wealth?

Yes. I think the [indiscernible] and really, it's just the -- we're the enabler of that. And we've talked a lot about consumables, and we still have some part of our portfolio that's capital, but I do want to mention some of that. On the capital side, we provide key components that upgrade rigs, upgrade frac fleets. So as we think about our capital business and where it fits in, we don't necessarily need a big increase in new drilling rigs or new frac fleets, just on the upgrades of existing equipment. For example, our FR120, Iron Roughneck is a tool that allows drillers to quickly assemble and run in whole larger drill pipes. So these longer laterals need larger drill pipe. They need bigger tools on their rigs. Our FR120 fits there. So while that's part of our capital. It's not necessarily a new build, and it fits in really, really nicely. So again, we provide the tools, both consumables and capital equipment and enable these really amazing feats 4-mile laterals, different types of U-turn laterals. We're there for that.

You talked last year about the Iron Roughneck upgrades and the ability to install those on rigs. You also talked, I think, about your FASTConnect system and some greaseless cable products and just the large cooling units that FET provides. Do those all fall under the capital area? And are there other technologies that you're starting to see demand for that could further increase your addressable market and opportunity with your clients or customers.

Yes, those are absolutely the capital that we're talking about. I think the Powertron jumbo, Powertron radiator or heat transfer unit that you mentioned there. What's exciting to us about that is we're addressing the power gen -- the mobile power generation market. So this is -- it's a niche that is really adjacent to where we're at. We've provided heat transfer equipment for the frac fleets that are mobile to move that to power generation units is really exciting. It's a new market, 1 that we see a long-term tailwind and while it is capital, it comes in nice bite-sized chunks. And so we're able to deliver that within our existing footprint. And so we're really excited about the opportunities there.

Neal, some E&P operators talk about trying to install or upgrade their power in the Permian Basin, and that's just for field operations. You hear from time to time, talk about data centers and putting it close to areas where there's natural gas. Obviously, the Permian Basin is long natural gas, and they suffer for it from a price realization standpoint.

Right.

But when investors hear, people talk about some of those types of projects that might be in more remote areas. Should they think about that creating opportunity for FETs heat transfer units and some of the other products that you provide?

Yes. I think these data centers, what we're seeing, I think it's still early stages, but many of them are using what we typically consider mobile power or almost backup power, also the primary power and just the ability to get up quickly and get started quickly. So as data center demand grows, yes, we think that's absolutely a great use for our Powertron heat transfer units. Also, I think about it too, and ultimately, the demand for get natural gas that we're going to see more drilling demand. And I think that's going to pull through our overall product portfolio. So AI and data center growth is a really good tailwind for our industry and drilling and completions as a whole.

With respect to gas, and you mentioned an area like the Haynesville earlier, is I know it's activity, but are there any products that are specifically geared toward the kind of conditions that operators have to deal with, with some of these deeper gas reservoirs that affect your product mix and maybe affect margins?

Yes. So these -- when you get in these deeper reservoirs, higher pressure, the equipment tends to be bigger. So if you have a low pressure oil well, you may get by with a 10,000 psi BOP or blowout preventer. As you get to these higher pressure gas wells, you need a 15,000, for example, PSI blowout preventer. That's a higher-margin unit for sure. Also, the cables you use will tend to -- will need to be able to withstand higher pressure. Usually, that's more material, more revenue. Coiled tubing tends -- will have to be thicker, higher strength. So we have the products that can meet that. Many of our businesses were developed in the kind of the go-go years of horizontal gas, the shale gas developments in the early 2000s, and we've just expanded and utilize those product lines for oil here recently. If we shift back to gas, I think our portfolio is really perfectly situated to handle those higher pressures. And ultimately, I think, yes, you're right, we'll have higher margins with those products.

We've talked a lot about unconventional activity in the U.S., but unconventional gas has gained a lot of traction in the Middle East as countries look to displace oil from their power generation capacity. And I think probably also reserve their oil production capacity to serve oil customers globally. How is FET exposed to the Middle East markets where capital spending, like I said, to maintain oil production really probably is less volatile maybe than U.S., but capital spending to increase gas production capacity for power is probably not really dependent on gas prices even. It's more related to the goal of increasing gas use for power for a lot of different reasons.

Yes. And I think that's -- we're seeing really the, let's call it, the exporting of U.S. shale and unconventional technology to the Middle East, as you mentioned, also to Argentina. I'll talk about that in a second. But Middle East specifically, really important market for us, about 10% to 15% of overall revenue. So key markets. Part of the reason why we have manufacturing and distribution facilities in Saudi Arabia and the UAE where we can service the Middle East. That shift to conventionals happened in the U.S., it's happening there. in the Middle East. And that's why we're getting the calls because of our expertise in these unconventional technologies, whether it's pressure pumping, coiled tubing, wire or even some of the drilling tools. We're helping our customers achieve their goals in whether it's gas production or oil. In Argentina, it's unconventional oil production. And we're seeing consistent demand for the products that we've typically used in the U.S. outside of the U.S. in Saudi and in Argentina.

I think am I right that in Argentina, the political shift with the current administration helped clear the decks for increased activity in the Vaca Muerta?

It's sure. I'm not a political expert, but it sure seems like it. We've -- from what we've seen is since the change, we've seen a really steady increase in demand. It's been a great market for us. And it's one where we've seen our customers increase the type of products they use. They go into more sophisticated products in that region. So that's been exciting and helped us as well.

You all highlighted on the first quarter earnings call a couple of weeks back that Subsea was a bright spot in the first quarter and that the second quarter had gotten off to a really solid start. Is demand there really tied to the ROV replacement cycle and FET's line of ROVs and some of the automation systems that you all have for them?

Yes. I think it's a function of really both new technology and also just the aging out of the fleet. The offshore market, I think, has been pretty strong. And while there may be white space in the drilling offshore calendar I think on the installation of offshore trees and wells, which is really where our ROVs are used, those are staying strong. So as we think about the installed base, we believe we have about 1/3 of the current installed base, but many of these ROVs were sold to customers 10-plus years ago. So I think there is a replacement cycle as equipment gets old and need a replacement. Also, with the new technology we have, especially this Unity operating systems, which -- this is a new technology that we developed that allows ROVs to be remotely operated from anywhere in the world. So this reduces personnel required on the vessel. Again, getting back to more efficiency. Our Unity operating system allows our customers to operate more safely, more efficient and with less personnel on a boat, so less cost. So this is a big deal. The system Unity that we developed is gaining traction. We delivered our first unit last quarter and have contracts out for 8 more to be delivered throughout this year. So a great area for us. Maybe I want to make one last comment, Jeff, on Subsea. And I think this is a little really unique for us is an area that's growing is the defense space. We're seeing a lot more defense interest in ROVs in our rescue submarines that we've developed and our cable and wind systems. So while I think there's some, let's call it, clouds over U.S. land outlook, as I think about Subsea, we're seeing a lot of demand for both the oil and gas, offshore wind and defense. So exciting opportunities for us.

There was a recent headline with respect to offshore wind in the U.S. that the Trump administration had lifted a pause on a big wind project offshore New York that they have put in place after they took office, I think Equinor operates the Empire project, which is the subject of that -- was the subject of that pause. But to your point on defense, is some of that market share or some of that increased penetration really attributable to your new operating system and the ability that you talked about to do things more remotely?

I think the remotely helps. I think it's also a push for maybe just more offshore defense spending as well. I think with the world and satellites, the ability to be able to see anything that's on -- either on the water or on land, I think being Subsea below the surface is important. And I think that's probably as big a driver as any in demand that we're seeing is what can we do below the service and not be spotted by satellites or enemies in any fashion.

You've talked about areas outside of the traditional oil and gas with respect to Subsea, and I know that FET has with your power heat transfer units and things like that, some exposure to nontraditional oil and gas markets. Where do you see the best near- and long-term opportunities for FET to compete in some of those businesses? And would they be margin accretive to your existing business and allow you to really leverage the intellectual property that's contained within the company.

Yes. No, I think -- really, I think the defense is the biggest, Jeff. I mean, that fits right there, the power gen, which you've mentioned. And as -- I think for us as a manufacturer, because we have that fixed cost base that's relatively small that as we add on these new products, again, for us, the operating leverage is really strong. And so definitely margin accretive as we address these adjacent markets, again, for us, defense, offshore wind, I think are the best and then power gen.

One of your current customers have talked about opportunities in renewable fuels and other types of markets that they can leverage their expertise in -- do you see any change in their appetite for those types of projects? And how do those projects affect FET?

We haven't -- we really haven't seen a change. Yes, I think that for us, the biggest change in the political environment has been the thought that we're going to need oil and gas for a long time that I think all of us in the industry realized that, that was the case, it's good to see mainstream kind of pick it up again. So I think there's really going to be a balance, right, renewables, renewable fuels as well as other types of energy generation, whether it be offshore wind, remote power. I think we're going to see a lot of, let's call it, experimentation or a lot of market development over the next few years. And so there's always going to be someone looking for that edge. And for us, as equipment and product manufacturer, we can help those companies get into those markets and it's a good spot for us as well.

Well, Neal earlier talked about full year 2025 adjusted EBITDA, maybe around $85 million depending on what happens to activity levels in the second half of the year. FET's original guidance for full year EBITDA was $85 million to -- I think it was $105 million you still expect free cash flow to be in the $40 million to $60 million range, even potentially if EBITDA trends toward the lower end of your outlook. How do you manage working capital in the current environment to really help support your free cash flow?

Jeff, I appreciate that. That's a good question. And we did lay out in February, full year guidance of $85 million to $105 million of EBITDA like you mentioned, and cash flow of $40 million to $60 million. And as Neal mentioned, we're taking actions now for the possibility of reduced activity in the back half of the year, and that includes managing our cash. So we believe that despite any potential reduction in activity, and us being at the lower end of an EBITDA range with that. We're still confident in generating cash flow. So let me walk you through a little bit about why we're confident there. So that full year guidance included a $40 million to $60 million of cash included about $45 million of cash out $35 million of that being for interested taxes and just $10 million for CapEx. So that's about the $45 million, and that's the bridge between our initial EBITDA and initial cash flow that was there but do they include any working capital adjustments in that guidance. But now in a scenario where activity might be lower, revenue and EBITDA might be lower we do have an opportunity to harvest some working capital. So as a product manufacturing company, our biggest investment is in working capital, specifically in inventory. As activity drops, our revenue comes down and as a result, our receivables should turn into cash. But also we'll procure less material, and so we'll reduce our payables. Those 2 roughly offset each other, and that leaves us with inventory, and that's a key for us, inventory management. So in a lower activity scenario, we're going to need less inventory to run the business. So we will buy and have already begun buying less material and we'll work through our inventory on hand. We'll turn that inventory into cash. And that really is the gap or bridges the gap, sorry, between potentially lower EBITDA in that initial guidance. So still really strong confidence in $40 million to $60 million of cash flow for 2025.

Well, I'd like to go back to something Neal touched on earlier, which is revenue per rig. In the first quarter, FET's global revenue per rig was roughly $455,000, which was up slightly from first quarter of '24 and up pretty significantly from first quarter of '23. So I know there's some seasonality to your business. But the rig count during that time where first quarter average total rig count was 1,706 and it was in the first quarter of '24,almost 1,800 rigs. Should investors take that as a point of gaining share with their customers spending habits as that's really driven by FET's technological solutions to their problems?

Yes, Jeff, we've said, and I think it's a really key feature about FET is that with 80% of our revenue being consumable products, that our revenue is very tied to activity levels and a good measure of that is global drilling rig count. So we look at our revenue per rig as a key metric. And when that is rising, that's a sign that our beat the market strategy is working, and we're taking share. Clearly, as activity falls, we may have a fluctuation or a decrease in overall revenue, and we like to look at that revenue per rig metric as a share gain metric and see how that runs over time. I think we can look quarter-to-quarter, you look Q1 versus Q1, better metric is to look at that over time, right, because we can have as some of our revenue is point-in-time sale. So we're going to have product revenue move from Q1 to Q2 or vice versa and move that around on a quarterly basis. But looking at that over a trend is how we do it, I think the best way, and as Neal mentioned earlier, we've seen a pretty steady growth in our revenue per rig over the past few years.

In Canada, you had a little bit of noise in the Variperm business in the first quarter. Can you just expand for people how you think that plays out over the balance of 2025?

Sure. I absolutely can. So again, Variperm serves primarily oil sands customers in -- with their sand and flow control solutions, dealing with downhole challenges that they have. What we found through Variperm is there is some project nature of that business. We think of it as activity driven. So we sell tools per meter lateral length into the oil sands as that -- as those lateral lengths change, grow, revenue can change and grow, and our customers will typically buy what they need for a new drilling campaign. So we see some lumpiness in revenue fourth quarter, for example, for Variperm was really strong. And as a result, sequentially, first quarter looks a little bit softer. We also have a bit of mix in Variperm between customer and product mix. So while we have a nice market share in Canada, certain of our customers choose to split business with us and our competitors, that's fine. And so depending on where the work is happening and who's doing it, our revenues might fluctuate up and down a bit. So we watch that, we think, over time, that corrects itself and expect the back half of the year for that business to be stronger than the first.

Well, you've talked about cash flow allocation -- or I'm sorry, free cash flow allocation a lot over the last 1.5 years now. I know that the FET put in a $75 million share repurchase plan in December of last year in anticipation of strong free cash flow this year. The allocation for free cash flow, I think, as Neal, you and Lyle have laid out, was 50% toward debt reduction and 50% towards strategic investments, including share repurchases. For people, I know that with the adventure of the bonds, Lyle, can you talk about how the mechanics work with the 1.5x leverage ratio based on trailing 12 months EBITDA?

Absolutely. I can definitely do that. And thanks for the question. Maybe I'll broaden out a little bit. Free cash flow generation power of FET is really, we believe, an exciting differentiator in our investor story. And maybe to broad it out, why are we talking about this so much? As you know, Jeff, last year, we generated over $100 million of free cash flow. And this year with our guidance of $40 million to $60 million, that means that in 2 years, we'll have generated roughly or a little bit more than 80% of our current market capitalization and free cash flow. So really solid cash flow generation. And importantly, our balance sheet is in great shape. We don't have any debt maturities until 2028. So the reason we've been talking about cash flow deployment is what do we do with all this cash and an important question for us. You're right that we mentioned we'll use about 50% of our free cash flow for net debt reduction. We think it's important to continue to have a conservative net leverage focus, and we'll do that. And then we have an opportunity to be more strategic about our investments, looking at inorganic growth opportunities or share buybacks. Our indenture that we put in place in November of last year does allow for share repurchases, subject to us being at or below 1.5x net leverage covenant and that's what you referenced in your question. So a little bit of a dynamic of how that works. Net leverage is obviously how much debt we have on the balance sheet, net debt and EBITDA. We measure EBITDA quarterly. That's the best way for us to do that based on our quarterly financial statements. And so that denominator changes every quarter. Our bondholders really preferred us to look at net debt on a more near-term basis. So within 30 days of us making a share repurchase. So within any given quarter, the amount of net debt that we have obviously moves up and down based on collections and payments, the timing of cash. So we could see us either be above or below that 1.5x net leverage threshold through the quarter. So we can have windows of share buyback opportunity open and closed within the quarter. And that's just a dynamic that's a little bit odd of maybe how that might work versus a pure quarterly metric, but it's one that I think gives all of us more confidence in knowing what our net debt is when we're making share repurchases. So we can see those windows open and close, and we probably will until our net debt gets much more below 1.5x.

You talked about working capital swings impacting net debt within the quarter, but also just the goal of your reducing debt over time, adds another element to that calculation. And so it's really dynamic, both in terms of funds in and funds out, but it's also based on FET's ability to pay down debt in any given quarter or any given month for that matter.

That's right. We ended the first quarter just over 1.5x net leverage on a trailing basis. So as we generate more cash as we reduce our net debt, then that number will come down. Once it gets meaningful below 1.5x, it will be less of a question of when we can repurchase shares. But in this period, especially as EBITDA looks to maybe be coming down, reducing that debt will be important in order to continue to have the window for repurchases.

Well, I'm not sure there are very many companies that have a free cash flow yield that's probably in the mid-20% range based on 2025, especially in a year where the -- at least from a revenue standpoint, there are a few clouds in the back half of the year.

We're excited about that free cash flow yield number. I think we quoted pretty often. And we are always looking at the best investments to make but there's not very many places we can put our cash and get a 25% yield back. So we're pretty excited about what we can do with that.

Neal, maybe you can bring us home. Can you just summarize for participants how you think FET's actions over the past couple of years and the execution of the beat the market strategy positions the company to prosper in at least what could be a near-term turbulent outlook, but even longer-term as you look to serve the customers.

Yes. I think the market, as you mentioned, we find ourselves in today is uncertain. And again, we're going to eliminate expenses to be competitive and adjust to market activity where we are. But we're not going to jeopardize our future. We're going to make sure we have the resources available to execute or beat the market strategy. Again, we're going to continue to make commercial and engineering investments to drive profitable market share growth through innovation. And I think for us, that goes back to what's the investment case for FET. And it's one that we believe strongly. And again, it's based on our track record of significant outperformance. Since 2021, we've grown our revenue at a compounded annual rate of 15% over 3x faster than the Russell 2000 Index. We've grown EBITDA and cash flow over 70% annually, which again is much, much better than our index. And I think we've delivered some really superior financial results and yet we trade at a significant discount to the Russell 2000 in our oilfield service peers. So as you mentioned, today with our free cash flow yield north of 25% we think there are very few stocks out there at yields this high that also have FET's long-term growth potential. So we're going to unlock value today with share buybacks where we can. And if you look since December when we had the authorization. We've outperformed our index. We've outperformed the Russell 2000. We've outperformed our peers by significant margins. So we believe our buyback thesis makes sense, and we're going to seek to buy as many shares as possible within that return frameworks that Lyle laid out. Over the longer-term, though, we think there's going to be strong growth for FET. Again, the world needs energy. And as population grows over the next decade as the economy expands and as we see the full-scale implementation of artificial intelligence, those factors will drive energy demand and investment will be required to supply that energy. So I think it's only a matter of time before the headwinds that we've talked about today are going to turn into tailwinds supercharging our growth. So putting that together with our beat the market strategy, we are well positioned today and tomorrow, while being in a tremendous value. So I'm excited. Our team is excited. We think FET is in one of the best positions it has been in many, many years.

It sounds like the strategy really -- execution of the strategy really positions FET to take advantage of cyclical downturns and really prosper then, but also gain share and really prosper when you have a cyclical up cycles. Is that -- am I thinking about it the correct way?

Yes, absolutely. Absolutely. That's why we want to beat the market. If the market goes down, we're going to do better. If the market goes up, we're going to do much better. So that's the goal of our strategy. And over the last 3 or 4 years, we've executed on it, and we plan to execute going forward.

Great, Neal. Lyle, I want to -- we'll leave it there for today. I'd like to thank you for taking the time to join us, and we look forward to hosting another fireside chat.

Great. Great to be here, Jeff. Thank you.

Appreciate it.

Thank you.