Forum Energy Technologies - Q2 2023

Transcript

Operator (participant)

Good morning, ladies and gentlemen. Welcome to the Forum Energy Technologies' Second Quarter 2023 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. A link with instructions can be found on the company's investor relations website under the Events section. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. At this time, all participants are in a 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, welcome to FET's Second Quarter 2023 Earnings Conference Call. With me today are Neal Lux, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer. We issued our earnings release yesterday, 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 our 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 second quarter 2023 to first quarter 2023. I will now turn the call over to Neal.

Neal Lux (President and CEO)

Thank you, Rob. Good morning, everyone. To start today, I'm going to share our view on recent market conditions and the outlook for the remainder of 2023. Commodity price declines and volatility have been a consistent theme throughout the year. For example, during the second quarter, oil prices fluctuated significantly between a range of $80 and $67 per barrel. Further, oil prices were below $75 per barrel, about 70% of the trading days during the quarter. For the natural gas complex, prices remained below $3 during the second quarter after spending almost all of 2022 above $4. As a consequence, the appetite for exploration and production company investment was dampened and rig count declined. Despite lower investment levels decreasing U.S. service demand, U.S. drillers and pressure pumpers remained relatively disciplined with pricing. This was achieved by idling equipment.

As a result, day rates were generally robust for utilized high-spec rigs, wireline and coiled tubing units, and pressure pumping equipment. Ultimately, this discipline is good for our industry, but in the short term, this means lower US drilling and Completions activity. The combination of lower commodity prices and firm service pricing drove operators, particularly privately held operators, to pull back on drilling activity. Last year, private operators increased their rig count by 25%. That trend has completely reversed. This year, they have dropped all the rigs they added last year and then some. While public operators tend to have a longer-term focus, even their activity has declined this year. In total, U.S. rig count is down 81 rigs or 11% from the end of the first quarter, an elevated rate of decline very few industry observers expected.

This has also led to a softening of hydraulic fracturing activity. Pressure pumpers and related service providers began to see more white space on their calendars and reduced their spending for fleet additions and upgrades. Despite these weaker U.S. market conditions, our teams are executing. FET is outperforming. We continue to gain market share with our winning products and solutions. Compared to the second quarter 2022, our U.S. revenue was up 4% versus a relatively flat average quarterly rig count. As we look out for the remainder of this year, U.S. rig count and frack activity will be weaker than we anticipated in early May. In this environment, and given our customers' capital discipline, we anticipate a slight uptick in idled units. This will defer some demand for our products into later this year or 2024.

Within the last month, commodity prices have rebounded and the outlook has improved, with some in the industry expecting U.S. rig count to bottom close to current levels in the third quarter. Although the timing of an activity increase is uncertain, we anticipate an upward inflection occurring later this year or early next. It is important to remember that for the drilling rigs and frac fleets that are working, service intensity remains high. They need the best performing equipment to be efficient in this market. Very recently, we have received a large capital equipment inquiry from a North American drilling contractor, who is looking to upgrade a sizable portion of their fleet in anticipation of stronger activity. Despite this budding optimism, we now expect 2023 U.S. drilling and completion activity to be lower than our previous forecast.

As a result, we now expect to generate around $80 million in EBITDA, which is the low end of our original guidance. While I am disappointed that market conditions are preventing us from achieving our goal of $100 million of EBITDA for the year, I am pleased with FET's performance during this cycle. With the updated guidance, our EBITDA would be up 36% year-over-year, with revenue meaningfully outperforming the global market. Our updated guidance assumes international and offshore revenue growth will partially offset the U.S. decline. While the U.S. market has been challenging, the international markets are just the opposite. This was evident in the second quarter, as FET's international revenue increased 10% sequentially, outpacing international rig count growth. Looking ahead, large international field development, production, and LNG projects are being approved.

As a result, this is giving our customers demand visibility through 2025 and beyond. With FET's global footprint and strategic manufacturing facilities, we are winning work, as demonstrated by our growing backlog. This gives us momentum heading into next year as this global upcycle continues. During last quarter's call, I talked about the growth in leads and opportunities we have seen in the international markets. To increase their efficiencies and meet growing demand, international drillers are building new and upgrading existing rigs. For example, we have opportunities on 20 new build rigs for two customers in the Middle East. They want FET's full suite of capital equipment, including iron roughnecks, catwalks, cranes, and handling tools. We are building on our wins from the second quarter, when we sold more iron roughnecks internationally than all of last year. On the offshore side, customer activity is increasing as well.

In the second quarter, we booked new and refurbished ROVs. In addition, we expect to announce the award of several ROV new builds in the third quarter. These vehicles are expected to be utilized for both traditional energy production and offshore wind construction. As new energy investment ramps up during the decade, our portfolio of vehicles is expected to be utilized in all phases of future offshore wind installations. In addition to international and offshore growth, FET is gaining market share through commercial efforts and new product development. The development of new products and solutions helps our customers drive efficiencies and lower operating costs, while also creating value through environmental and safety benefits. We are making good progress in these efforts, as new products accounted for almost 50% of revenue in our stimulation product family this quarter.

We are developing our next generation iron roughneck, and based off the success of our FR120, we will expand our addressable market significantly. In addition to developing new products, we continuously update and differentiate winning ones. One example of many is the latest version of our Enviro-Lite greaseless cable system, a popular product where we extended our lead over the competition. Enviro-Lite had a record sales month in June, as more and more customers adopted our technology as their preferred solution. FET is changing the landscape by delivering new and innovative solutions to our customers. I will now turn the call over to Lyle for more detail on our second quarter results and the third quarter 2023 outlook.

Lyle Williams (EVP and CFO)

Thank you, Neal. Good morning, everyone. For the second quarter, revenue and EBITDA were within our guidance range at $185 million and $17 million, respectively. Compared to the second quarter of 2022, revenue and EBITDA increased by 8% and 12%, respectively, with margin improvement of about 40 basis points. Sequentially, our consolidated revenue was down 2%. As Neal detailed earlier, softer U.S. market conditions were almost offset by FET's international and offshore sales. Specifically, U.S. revenue decreased by $10 million, while international revenue increased by $6 million. Despite the modest revenue decline, overall, EBITDA was essentially flat. Bookings rebounded in the second quarter with a $7 million increase. Once again, backlog increased for the 10th of the last 12 quarters. At the end of the second quarter, our backlog is up 13% from a year ago.

Product lines that have larger international sales base drove this growth in revenue. The Drilling Technologies and Downhole Technologies backlogs increased 20% and 25% year-over-year, respectively. In addition, our Production Equipment product line had a nice backlog build. Year-over-year, backlog is up 46%, with large bookings this quarter for U.S.-based Production Equipment and international ForuMix technology sales, as well as benefit from the Saudi Arabia desalter project we booked last quarter. In general, our backlog is scheduled to deliver through this year and into 2024, providing support for our full year forecast. Let me share some additional segment details. The Drilling & Downhole segment had sequential revenue growth of 5%, led by the Drilling Technologies and Subsea Technologies product lines. EBITDA was down about $500,000 due to less favorable product mix.

Segment book-to-bill ratio was 102%, driven by the increased demand for Subsea Technologies ROVs, drilling capital equipment, and bearings. Of note, our subsea bookings increased 35% sequentially. We are excited about the strengthening outlook for international drilling and subsea opportunities as customers add capacity and upgrade equipment to support future oil and gas production and offshore wind farm development. Completions segment revenue and EBITDA were impacted this quarter by slowing frac-related power end and radiator sales, as pressure pumpers hit pause on capacity expansion and upgrades. However, we did see higher demand for manifolds, high-pressure hoses, pressure control equipment, and wireline this quarter. Orders for coiled tubing also increased, with nice awards in the Middle East and Latin America. The Completions segment set several records this quarter. Our Quality Wireline product family grew revenue 3%, again, beating the record it set last quarter.

Our stimulation team sold a record number of high-pressure hoses this quarter, and the Global Tubing team milled a new world record string of 2 and 3/8 inch tubing, coming in at 43,000 feet. Finally, our Production segment had another strong quarter of orders, up 30% from the last quarter, with a book-to-bill of 126%. Production Equipment posted strong orders with several large international ForuMix technology and U.S. production-based awards for 2024 delivery. Valve Solutions product line orders decreased sequentially, coming off a very strong first quarter that included approximately $6 million of orders won by our Forum Arabia team. Revenue increased 10% year-over-year, with EBITDA margins up 380 basis points. Sequentially, revenue was down, but we were able to keep EBITDA margins relatively steady at the stronger levels we have seen over the past few quarters.

Now, let me share with you our third quarter forecast. Neal discussed how we see the markets going forward. To summarize Neal's comments, U.S. rig count declines of 11% this quarter were more severe than we had expected. We also saw our frac customers begin to have white space on their calendars subsequent to these rig declines. Hence, we expect third quarter U.S. activity to decrease slightly, and we expect international activity to continue steady expansion. Our third quarter forecast is on par with the second quarter, with forecasted revenue and EBITDA ranges of $180 million-$200 million and $16 million-$20 million, respectively. Here are a few details for modeling purposes. In the second quarter, corporate costs were down slightly from the first quarter.

In the third quarter, we anticipate corporate costs to be generally in line with the second quarter, interest expense to be $4 million, and depreciation and amortization expense of roughly $8 million. For the full year, cash income taxes are expected to be around $9 million, primarily due to Canadian income. Turning to cash in the balance sheet, free cash flow of negative $7 million was driven by an increase in net working capital. Similar to last quarter, earlier than anticipated supply chain deliveries, as well as purchases to meet a previously stronger outlook for 2023, drove inventory higher. Also, our accounts receivable balance increased this quarter, despite a decrease in revenue. Our customers continue to stretch payments to reflect stronger cash flow on their reported financials. Given the softness in the U.S. markets, we have made adjustments to our plans to ensure strong cash flow.

For one, we have decided to hold off on non-critical capital expenditures through the back half of this year. For the full year of 2023, we now expect capital expenditures to go from our previous guidance of approximately $15 million to approximately $8 million. On par with 2022. In the first six months of 2023, we have spent just under $3 million. This reduction in capital expenditures will not impact our ability to design, build, and deliver products to our customers. In addition to modifying capital expenditures, our teams are driving down working capital by tightening our supply chain and reducing the flow of inbound raw material, and we're working with our customers to achieve more appropriate collection timing. Despite our lower activity outlook for the remainder of the year, we are confident we will make progress in improving our working capital.

Through our enhanced collections efforts with our customers, inventory management for the softer outlook, and reduced capital expenditures, we expect to deliver full year free cash flow of approximately $20 million. This implies second half 2023 free cash flow of approximately $50 million. We ended the quarter with $25 million of cash on hand and $146 million of availability under our revolving credit facility, with total liquidity of $171 million. As of June 30, our net debt was $119 million, with a corresponding leverage ratio of 1.7 times. FET remains well positioned to fund operations and exploit organic and strategic growth opportunities with ample liquidity and a strong balance sheet. Let me turn the call back to Neal for closing remarks. Neal?

Neal Lux (President and CEO)

We remain steadfast in the belief that our industry must increase capital spending to supply energy for growing global demand. To increase living standards around the world, operators must invest in new fields and optimize production from existing ones. Service companies must invest in new equipment and components to increase their efficiency and lower their costs. All signs point to a rebound in U.S. activity, an acceleration in offshore and international demand, and a resumption of the capital equipment upgrade cycle. The market dynamics are in place for a strong run for FET, and we have the teams in place to capture a growing share of the market through innovation. With the opportunities in front of us, I am excited about FET's future. Gigi, please take the first question.

Operator (participant)

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of John Daniel from Daniel Energy Partners.

John Daniel (Founder and President)

Hey, guys. Just two questions. Neal, you, you discussed or you made a comment about the rising orders on the manifolds, and I'm curious, can you just walk us through what the ongoing opportunities are for maintenance and the replacement cycle for those manifolds?

Neal Lux (President and CEO)

Yeah, I think, you know, we're I think on the, on the manifold side, we're continuing to see our customers, you know, upgrade, upgrade their fleets going towards electric, and generally, they're then also upgrading their, their manifold systems to really complete that, that upgrade. We're kind of in, I'd say, the early stages of that. We're seeing a number of, of manifold inquiries that we're, we're turning into orders. I think, you know, through the year, the key is, is adding the technology. We've added some, some new check valves that last longer and, and lower the operating costs, as well as our, our high-pressure flexible hoses. That's the small diameter that go from the pump to our manifold, as well as the, the large diameter that go from the manifold to the wellhead.

John Daniel (Founder and President)

Right. It's not like the fluid ends, are we to think about multiple replacement opportunities per year? Is that or am I wrong on that?

Neal Lux (President and CEO)

I think if we think about what's the consumable, what we're excited about is our check valves.

John Daniel (Founder and President)

Okay

Neal Lux (President and CEO)

... and the kits that go along with them. Those are consumables. The hoses last, you know, 1.5-2 years. We are, from the ones we delivered, you know, in 2021, we are say, starting to see a replacement cycle. Really, for us, it's replacing the iron that, that folks are still using on their, on their fleets with-

John Daniel (Founder and President)

The old stuff.

Neal Lux (President and CEO)

with hose, or replacing their old, old manifolds with just better technology that's easier to maintain and faster to set up.

John Daniel (Founder and President)

Okay. The, the final question just has to do with, you know, North America onshore versus international. Things are, look, look good, right? When you look out into the international market, it's a little bit dicey here in North America land. I'm just curious, as a management team, are you spending more time dealing with sort of localized headaches or spending more time out there doing BD and international pitches?

Neal Lux (President and CEO)

Yeah. I think we have the infrastructure in place, John, that we can address both, I think, efficiently, without having to sacrifice, you know, one or the other. I think that's carried over from our history of having roughly half of our revenue, you know, come from international. You know, on the US side, you know, I think I mentioned it in our comments, that we are starting to see an improvement, it really starts.

John Daniel (Founder and President)

Sure

Neal Lux (President and CEO)

... with, with commodity prices, right? Oil's had a nice run in July, you know, up 16% or so. Inventories are low. We're starting to see early signs of confidence from our, our drilling customers. You know, I think that's a positive sign. You know, so our view, it's not when rig count increases, or if rig count increases, but when.

John Daniel (Founder and President)

Right.

Neal Lux (President and CEO)

That's the kind of the spot we're in right now.

John Daniel (Founder and President)

Okay. That's all I got. Thanks for including me.

Neal Lux (President and CEO)

Yeah, thanks, John.

John Daniel (Founder and President)

All right. Take care, guys.

Operator (participant)

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

Dan Pickering (Founder and Chief Investment Officer)

Morning, gentlemen.

Neal Lux (President and CEO)

Morning, Dan.

Dan Pickering (Founder and Chief Investment Officer)

A couple of questions, if you don't mind. I was intrigued by your comment, Neal, of the, you know, inquiry for the upgrades in North America. You made it sound like it was more of a systematic, sort of a bunch of rigs, not just a one-off type of inquiry. Can you, can you tell us a little bit more about, about that? Is that a, is that a, a, a package where the ticket size would be bigger than you're typically booking in the Drilling segment, or is it just sort of a standard order opportunity?

Neal Lux (President and CEO)

It's so it would be for multiple, multiple rigs, and it's an upgrade of their existing capability. You know, I don't wanna get into too much details. We're still early in the discussion. To me, what I found intriguing and as a positive sign, is that they're thinking about next year and wanting.

Dan Pickering (Founder and Chief Investment Officer)

Right

Neal Lux (President and CEO)

... to get their, their operating costs lower. it, it was for our, an FR120, again, which I think is the, the leading iron roughneck in, in the industry. We have a big install base now. Customers are seeing the, the benefit. In fact, I think what's also driving it, Dan, is the operators are, are pushing for it. They want to avoid, you know, downtime, you know, that they're seeing with the older iron roughnecks that are still being used on even what are so-called high-spec rigs. To have a true high-spec rig, I think you need a tool like, like our FR120.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm. That, and that inquiry came, you know, at the beginning of the quarter before rig count really rolled, or did it come, you know, kind of recently, so they're asking, even though rig count's down and, and there's a little bit of activity pressure?

Neal Lux (President and CEO)

Yeah, this is, this is very recent, which is why-

Dan Pickering (Founder and Chief Investment Officer)

Oh

Neal Lux (President and CEO)

I really don't have too much information, but this is just kind of-

Dan Pickering (Founder and Chief Investment Officer)

Yeah

Neal Lux (President and CEO)

... hot off the line.

Dan Pickering (Founder and Chief Investment Officer)

Yeah, that's encouraging. Then you talked about the international opportunity. I think you said you had 20, you know, 20, you're tracking 20 opportunities for in the Middle East. How do those typically work through the system? Do you, do you get the indication there may be something? Are you bidding and it takes, you know, six months for those contracts or, to, to be awarded? Is it a second half of 2024 or first half of 2024 type opportunity?

Neal Lux (President and CEO)

Sure. like, generally, they're, they're a pretty fast for our, our part of the equipment.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm

Neal Lux (President and CEO)

You can see is on a new build rig, you know, other, other parts and pieces can get held up and, and maybe slow down our revenue recognition, for example, because they're just not ready to handle, handle everything. Compared to, for example, subsea, which is a much longer, let's say, order to delivery time...

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm

Neal Lux (President and CEO)

... these, these should be relatively quick. This is a, this is a 3-6 month type process, unless the, the rig manufacturer has, has more delays in, in, in their process.

Dan Pickering (Founder and Chief Investment Officer)

Okay, great. Lyle, you mentioned, you mentioned backlog. Can you quantify for us what the aggregate backlog is at the end of the second quarter?

Lyle Williams (EVP and CFO)

Yeah, Dan, we typically haven't quantified that backlog, but, but it is up, it is up nicely over last year. I think that's the, that's the key point. Typically, our business is kind of two-thirds more consumable, things that look more like book and ship and 40% capital.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm

Lyle Williams (EVP and CFO)

Which is more of what's in backlog. We think back to the last major capital build cycle, all the way back in 2014, that, that capital piece of our business was greater than 50%. As we see that backlog growing, I think we'll see a push to, more long lead delivery, better visibility in revenue, and, and a higher capital versus consumable mix, to our business. We're seeing that and, and wanna give the indication that, that, that backlog is in hand, and has.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm

Lyle Williams (EVP and CFO)

... continued to grow really over the last three years.

Neal Lux (President and CEO)

Mm-hmm.

Dan Pickering (Founder and Chief Investment Officer)

Yeah. Great.

Neal Lux (President and CEO)

Maybe-

Dan Pickering (Founder and Chief Investment Officer)

Um-

Neal Lux (President and CEO)

... we're sort of in the cycle too, Dan, of the seeing the offshore pickup, which for us, the subsea is, is, is kind of the later part. What's exciting is that we're already seeing some really nice, nice demand for our, our ROVs today. We think with the combination of, you know, offshore wind build-out and, you know, I think we're offshore energy build-out as well, that the install base needs to grow. And we're, we're well positioned to, to fill that, to fill that need.

Dan Pickering (Founder and Chief Investment Officer)

Great. I've got a couple more. Kick me off if you've got a big backlog of questioners. Lyle, could you help us with, as you think about your second half guidance, $50 million, give or take, of free cash and your Q3 EBITDA guidance, does that imply, I'm just trying to think about what US rig count you sort of baked into your expectations? Is it that rig count stabilizes here? Is it that it drops a little bit more? Just wanna try and properly calibrate expectations. If rig count took another 10% dive, you know, would we, would we worry about the guidance range, or have you kind of incorporated further weakness in your forecast?

Lyle Williams (EVP and CFO)

Yeah, great question, Dan, and it's, it's almost the $64,000 question. I think as, as we've thought about that, you know, in Q2, if you look at Q2 versus Q1, rig count was down in the U.S., 5%.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm.

Lyle Williams (EVP and CFO)

If you look at current levels of rig count, I guess as of, as of last week, rig count was down 8% more from the 2Q.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm.

Lyle Williams (EVP and CFO)

Our view is, is everything we're hearing, is that we're nearing a bottom in rig count here. I think when we indicated we do think that the U.S. is gonna be down slightly, that's kind of hanging in that range of where we are today for rig count, but also beginning to see some softening on, on the pressure pumping side as well.

Dan Pickering (Founder and Chief Investment Officer)

Mm-hmm

Lyle Williams (EVP and CFO)

... as, as there's been indication of that white space, there. Maybe a, a flat from here, with the back half, back end of the year, beginning to see some counterseasonal pickup.

Dan Pickering (Founder and Chief Investment Officer)

Okay. Okay. Thank you. You've, you've scaled back your CapEx for the back half of the year. Neal, you know, I ask every quarter about acquisitions. Does, does the current dynamic, one, make you less excited about trying to find bolt-ons? Two, is it making things easier to do or harder to do?

Neal Lux (President and CEO)

Great question, Dan. I think what's encouraging is that it, it does seem like deals are getting done now at reasonable, reasonable valuations, that the, you know, the bid and ask is, is much closer. I think that's encouraging. You know, while it'd be great to, to be on a full, full bore, you know, growth mode to, to be looking for acquisitions, I think this is a great opportunity to, to be opportunistic, and we'll continue to, to evaluate what's out there. You know, key as well is our liquidity. You know, we feel really good about where we're at on, on the balance sheet and how we could handle our, our long-term debt.

I think putting all that together, we, we wanna continue to find, you know, businesses that have a great industrial fit for us, you know, high margin, nice, you know, nice moat, and we're gonna continue to be, to be opportunistic and try to find a, a, a deal that makes sense for FET.

Dan Pickering (Founder and Chief Investment Officer)

Great. Fantastic. Thank you, guys. Appreciate you taking my questions.

Lyle Williams (EVP and CFO)

Thanks, Dan.

Neal Lux (President and CEO)

Thank you, Dan.

Operator (participant)

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

Eric Carlson (Equity Research Analyst)

Hey, guys. Good morning.

Lyle Williams (EVP and CFO)

Hey, good morning, Eric.

Neal Lux (President and CEO)

Good morning.

Eric Carlson (Equity Research Analyst)

I guess just, just some thoughts. I mean, it, it, it does seem at least encouraging that we're looking at almost 40% EBITDA growth year-over-year, given kind of the pullback in activity. My question is more just centered around when we, when we look at the potential for the free cash flow in the back half of the year, then probably activity growth into 2024 as inventories kind of force the issue there, and hopefully, price kind of triggers activity gains. Just, just thinking a little bit about if you guys have thought, what do you do with that cash as we kind of turn the corner here, if, if activity bottoms in Q3 and we, we see things start to rebound, it looks a little bit promising.

You have $50 million of free cash flow added to the balance sheet in the back half of the year. You probably have some momentum going into 2024. Just when we look at kind of the debt levels that we kind of had pre-pandemic to now being about a third of that and interest expense down considerably, I mean, what do you look to do with the cash? I know there's been talk to acquisitions, but obviously, the current valuation of the stock.

I mean, I'm kind of a broken record at this point, but it's obviously very attractive, and the debt is in the way of doing a lot of return of capital type, type things like peers are doing, and the large caps have kind of reiterated they're gonna return 50% of free cash flow or, or a greater number of that. I mean, how do you guys think, if you could just paint a picture on a 1-2-year basis and, and looking at the, the debt plus any other options to return capital, buybacks, then obviously being opportunistic if, if acquisitions. If you could lay out anything that you have in terms of thoughts, if this cycle continues to play out, like we probably think it will. I mean, what does that look like? If you could just share some thoughts.

Lyle Williams (EVP and CFO)

Sure, Eric. Why don't, why don't I take a, take a crack at that? Appreciate the, appreciate the question. I, I think first is maybe to make sure we set, set the context around one of the key natures of FET's business as a manufacturing company, and that is a capital light business, meaning we ought to be able to convert a, a good portion of our EBITDA into free cash flow. CapEx is light, and over time, we will build working capital, but as, as the market, you know, as, as business softens, then that working capital un- could unwind. That's not a, a permanent investment. We end up with a strong, a strong, free cash flow, numbers.

That's what we're seeing in our full year guidance, clearly with the seasonality of a build early in the year and some reversal in the next half, we'll have a lot of free cash flow generation. So you're right, and we are excited about that and see that happening. To roll forward to 2022, obviously, we, we could have a, a very similar looking, similar looking free cash flow trend. We've talked on earlier calls about what do we do with cash and our balance sheet. We, we are in good position with that. Our notes mature in 2025, so we've got a long time to deal with that and a lot of free cash flow runway. One, one option for dealing with that is an organic path.

The other, the other is to look at something and take advantage of plugging in some portion of that or all of that into more of a long-term debt and retaining liquidity for an M&A opportunity or the opportunity to grow our business. We see a lot of opportunities in that in the space. Neal, Neal alluded to a better market for deals. There are a lot of private companies that are in a position of wanting to try to find some opportunity for their business. That could put us in a position to take advantage of those kind of opportunities. We're considering the fact that we've got a strong balance sheet now and real opportunities to to transform the business with the right kind of a deal, but we're looking out there.

Neal Lux (President and CEO)

Yeah. We, we wanna grow our free cash flow per share, and that's, that's organically and, and inorganically where it makes sense.

Eric Carlson (Equity Research Analyst)

Great. Then if you, if you think a little bit about, I mean, the, the goal of growing free cash flow per share is to ultimately find a way to return, return that to shareholders. I mean, when you look at the valuation of the stock now, kind of the, the year-over-year growth in EBITDA, despite activity being down, I mean, it seems like if you can find opportunities to, to, I guess, remove the, the restrictions of the debt and be able to kind of invest in yourself, first by, by buying your own stock, that seems like kind of the, the number one priority, at least in my head.

And then ultimately, if you, if you can continue to kind of grow on that free, free cash flow per share, you might get into to the, the scenario where you can actually return some cash while also growing organically and, and, and inorganically. So, yeah, that, that's just kind of my thoughts there.

Neal Lux (President and CEO)

Yeah, appreciate that, Eric. I, I think we have a lot of, lot of options going forward. And, and again, I, I think as, as you mentioned, you know, we are really proud of the results we've we achieved, right? In a, in a relatively flat or down market, you know, with the projection to grow EBITDA 36% this year. That's a great result, and I think we can, we can do more. So we're gonna, we're gonna continue to do that. We appreciate, we appreciate your support and the questions.

Eric Carlson (Equity Research Analyst)

Sure. Thank you.

Neal Lux (President and CEO)

Thank you.

Operator (participant)

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

Neal Lux (President and CEO)

Thank you, Gigi, and again, everyone on the call, thank you for, for your support and participation today. We look forward to talking to you again in November to discuss our third quarter results. Thank you.

Operator (participant)

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