Summary of Forum Energy Technologies (FET) Conference Call Company Overview - **Company**: Forum Energy Technologies (FET) - **Ticker**: FET - **Industry**: Energy Equipment Manufacturing - **CEO**: Neil Lux - **Coverage Initiation**: Coverage launched with a $24 price target due to strong global presence and cash flow generation capabilities [2][10] Core Business and Financial Performance - FET does not drill wells or produce hydrocarbons but manufactures critical capital equipment and consumable products for energy production [6][7] - Revenue segments include: - **Artificial Lift and Downhole**: Products for maintaining production and increasing efficiency [8] - **Drilling and Completion**: Equipment for drilling rigs and well completion activities [9] - Financial performance highlights: - Revenue growth at a compound rate of 15% since 2021 [9] - EBITDA growth over 70% annually, with margins improving from under 4% in 2021 to over 12% in 2024 [10] - Approximately 50% of sales are outside the U.S. [9] Market Demand and Growth Drivers - Global energy demand is projected to increase by 30% over the next two decades, driven by population growth, energy security, and quality of life improvements [13][15] - Fossil fuels are expected to satisfy around two-thirds of energy demand by 2050, despite growth in alternative energy sources [16] - FET's revenue is closely correlated with global drilling rig counts, indicating that increased energy demand will drive revenue growth [17] Competitive Strategy - FET aims to grow market share through: - Developing differentiated products and technologies [20] - Competing in niche markets with limited competition [22] - Focusing on innovation to meet customer demands for efficiency and safety [24] - Examples of innovative products include: - EnviroLite greaseless cable for faster operations [25] - DuraCoil coil tubing for enhanced performance [26] - Veraperm Energy Services for customized sand and flow control solutions [27] Financial Guidance and Shareholder Returns - 2025 is expected to be a transitional year with a potential 2-5% decrease in global drilling activity [32] - Adjusted EBITDA guidance for 2025 is between $80 million to $105 million, with free cash flow guidance of $40 million to $60 million [32] - FET plans to utilize 50% of free cash flow for debt reduction and the remainder for strategic investments, including a $75 million share repurchase program [38][39] Risk Management and Market Conditions - The company is proactively managing risks related to geopolitical and macroeconomic uncertainties, including price increases to offset tariffs [34][35] - FET's low capital expenditure requirements (less than 1% of revenue) allow for better cash flow generation compared to traditional oilfield service companies [54][56] Conclusion - FET presents a compelling investment opportunity with a strong track record of performance, significant free cash flow yield, and a robust growth strategy [39][40] - The company is well-positioned to capitalize on increasing energy demand while maintaining a focus on innovation and shareholder returns [41][63]

Financial Performance & Growth - Forum Energy Technologies (FET) reported Q1 2025 revenue of $193 million[7] - The company's revenue has grown from $541 million in 2021 to $816 million in 2024[7] - Adjusted EBITDA increased from $20 million in 2021 to $100 million in 2024[7] - EBITDA margin has improved from 4% in 2021 to 12% in 2024[7] - The company anticipates 2025 EBITDA to be in the range of $85 million to $105 million and free cash flow between $40 million and $60 million[39] Strategy & Market Position - FET's geographical revenue split is 51% US and 49% international (TTM ended March 31, 2025)[7] - The company has a $75 million share repurchase program and repurchased $2 million of shares in Q1 2025[10, 42] - The company focuses on niche markets with competitive advantages and high barriers to entry[20, 22] - FET aims to allocate 50% of free cash flow to net debt reduction[41] Debt Reduction - The company has substantially deleveraged since 2019, with net debt decreasing from $344 million to $146 million as of March 31, 2025[44] - Net leverage ratio has decreased from 473x in December 31, 2019 to 156x in March 31, 2025[44]

Summary of FET Conference Call Company Overview - FET provides technological solutions to the oil, natural gas, industrial, and renewable energy industries, focusing on operational efficiency and environmental impact reduction [3][4][5] - The company operates in two segments: drilling and completions, and artificial lift and downhole [3] Macro Outlook - Current oil price outlook is uncertain due to global demand growth and OPEC supply adjustments, leading to potential curbing of activity by oil producers [4][6] - Customers are adapting to economic uncertainty, with expectations of stable drilling and completions activity in Q2 2025 [6][7] - Historical trends indicate that declining oil prices lead to reduced rig activity within three to six months [6][7] - If oil prices remain low, rig counts are expected to decrease in the latter half of the year, impacting EBITDA, projected at around $85 million for 2025 [7][8] Industry Dynamics - Natural gas prices remain strong, with a significant portion of drilling activity directed towards gas [13][15] - Increased gas-directed drilling could positively impact FET's business, as the company is agnostic to whether customers are drilling for oil or gas [15][16] - Tariff impacts are significant, particularly in the valve solutions product line, leading to price increases and potential buyer strikes [18][19][20] Strategic Positioning - FET's "beat the market" strategy aims to outperform market trends through innovation and market share growth [24][26] - The company has a strong market share in leadership markets (30-40%) and is expanding in growth markets [26][28] - Revenue per rig has grown at a 5% compound annual growth rate over the past five years, indicating effective market share gains [29][75] Financial Performance - FET's revenue per rig was approximately $455,000 in Q1 2025, reflecting a positive trend in market share [74][75] - The company expects to generate free cash flow between $40 million and $60 million in 2025, despite potential lower EBITDA [70][71] - FET has a share repurchase plan in place, allocating 50% of free cash flow towards debt reduction and strategic investments [80][82] Future Opportunities - The company is exploring opportunities in adjacent markets such as defense and offshore wind, which are expected to be margin accretive [64][66] - Demand for FET's products is anticipated to grow due to the increasing complexity of drilling operations and the need for higher pressure equipment [48][49] - The Middle East and Argentina are key markets for FET, with significant growth potential in unconventional oil and gas production [52][54] Conclusion - FET is well-positioned to navigate current market challenges while capitalizing on long-term growth opportunities through its strategic initiatives and innovative product offerings [96][97][98]

Core Insights - Forum Energy Technologies, Inc. (FET) reported Q1 2025 financial results with revenue of $193.3 million, adjusted EBITDA of $20.1 million, and adjusted net income of $0.5 million, which were slightly below consensus estimates [1][7] Financial Performance - Revenue of $193.3 million was in line with expectations, while gross profit margin (GPM) was slightly below expectations [1] - Adjusted EBITDA margins were reported at 10.4%, which also fell short of expectations [1] - Adjusted net income of $0.5 million was below the anticipated $4.4 million [1] Cash Flow and Cost Management - FET generated approximately $7.0 million in free cash flow (FCF) in Q1 2025, marking the seventh consecutive quarter of positive cash flow results [7] - The company initiated actions to eliminate approximately $10 million in annualized costs [7] Segment Performance - Drilling and Completions revenue increased by approximately 4% sequentially to $116.0 million [7]

Revenue Performance - For the three months ended March 31, 2025, total revenue was $193.3 million, a decrease of $9.1 million, or 4.5%, compared to the same period in 2024[98]. - The Drilling and Completions segment generated revenue of $115.6 million, down $3.5 million, or 2.9%, primarily due to a 12.0% decrease in the Drilling product line[98]. - The Artificial Lift and Downhole segment reported revenue of $77.8 million, a decrease of $5.5 million, or 6.7%, with a notable 8.8% decline in the Downhole product line[99]. Market Conditions - The global drilling rig count decreased by 5.0% in Q1 2025 compared to Q1 2024, driven by a 5.6% decline in the U.S. rig count[92]. - Average oil prices for WTI were $71.78 per barrel in Q1 2025, compared to $77.50 in Q1 2024, while average natural gas prices at Henry Hub increased to $4.14 per Mcf from $2.15[93]. Operating Income - The company’s operating income for Q1 2025 was $8.8 million, a significant increase of 175.1% compared to $3.2 million in Q1 2024[97]. - Segment operating income for Drilling and Completions rose to $9.4 million, with an operating margin of 8.1%, up from 3.8% in the previous year[97]. - Segment operating income for the three months ended March 31, 2025, was $9.0 million, a slight decrease from $9.1 million in the same period of 2024, with an operating margin percentage of 4.6% compared to 4.5%[100]. - The Drilling and Completions segment reported an operating income of $9.4 million, or 8.1%, for the three months ended March 31, 2025, up from $4.6 million, or 3.8%, in the prior year, attributed to reduced amortization expenses[100]. - The Artificial Lift and Downhole segment's operating income decreased to $7.3 million, or 9.4%, for the three months ended March 31, 2025, down from $11.8 million, or 14.1%, due to an unfavorable product mix[101]. Cash Flow and Investments - Net cash provided by operating activities improved to $9.3 million for the three months ended March 31, 2025, compared to $5.0 million in the same period of 2024, driven by an increase in net income adjusted for non-cash items[113]. - Net cash used in investing activities was $2.1 million for the three months ended March 31, 2025, significantly lower than $152.8 million in the prior year, which included a $150.1 million acquisition of Variperm Holdings Ltd.[114]. - Net cash used in financing activities was $21.0 million for the three months ended March 31, 2025, a shift from $151.8 million provided in the same period of 2024, primarily due to net repayments from the revolving Credit Facility[115]. Debt and Capital Expenditures - As of March 31, 2025, the company had $73.8 million in borrowings under its revolving Credit Facility and $100.0 million principal amount of 2029 Bonds outstanding[108]. - The company anticipates total capital expenditures for 2025 to be approximately $10.0 million, mainly for replacing end-of-life machinery and equipment[109]. Shareholder Returns - The board of directors approved a share repurchase program of up to $75.0 million, with $2.0 million spent to repurchase 105 thousand shares during the three months ended March 31, 2025[111]. Tax Expenses - The company recorded a tax expense of $3.8 million for the three months ended March 31, 2025, compared to $3.5 million in the same period of 2024[106]. Future Outlook - The company expects long-term energy demand to rise, with a focus on both hydrocarbons and renewable energy applications[87]. - The company plans to continue developing products aimed at reducing costs and emissions for oil and gas operators while expanding into renewable energy[87].

Financial Data and Key Metrics Changes - The company reported revenue of $193 million and EBITDA of $20 million for the first quarter, meeting expectations [16] - Orders increased by 6% to $201 million, resulting in a book-to-bill ratio of 104% [16] - Free cash flow generated in the first quarter was $7 million, three times higher than the same period last year, marking the seventh consecutive quarter of positive free cash flow generation [22] Business Line Data and Key Metrics Changes - The Drilling and Completion segment saw a revenue increase of $5 million, driven by a rebound in sales of consumables and capital equipment [17] - The artificial lift and downhole segment experienced a decline in revenues due to unfavorable product mix and timing of shipments [18] - The Valve Solutions product line faced negative headwinds due to tariffs impacting demand, leading to a buyer strike [20] Market Data and Key Metrics Changes - Oil prices have declined significantly, hovering near four-year lows, which may lead to a reduction in rig counts and revenue starting in the third quarter if prices do not rebound [8] - The company anticipates a modest 2% to 5% decline in global drilling and completions activity for the year, with North America rig count expected to soften [13] Company Strategy and Development Direction - The company is focusing on mitigating tariff impacts, optimizing the supply chain, and reducing costs and inventory [9] - Plans include increasing assembly activities in Saudi Arabia and Canada to serve global markets more efficiently [11] - The company aims to utilize 50% of free cash flow for debt reduction and the remaining for strategic investments, including share repurchases [24] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about economic uncertainty due to trade policies and commodity price pressures, indicating a potential decline in revenue if oil prices do not recover [7][8] - The company remains confident in its ability to generate free cash flow and maintain a strong balance sheet, with no debt maturities until 2028 [23] - Long-term growth is expected to be driven by increasing energy demand due to population growth and economic expansion [29] Other Important Information - The company has strategically de-risked its supply chain to minimize dependence on specific countries and provide sourcing flexibility [11] - The balance sheet has improved significantly, with a net debt of $146 million and a net leverage ratio of 1.56 times [23] Q&A Session Summary Question: Can you elaborate on the strength in the Subsea side despite a slowdown in rig counts? - Management highlighted strong bookings in Subsea due to customer adoption of new products and a significant market share in remote-operated vehicles [35][36] Question: What products saw strength in the drilling completion segment? - Management noted a rebound in sales of frac pump power ends and wireline products, indicating increased activity despite fewer crews [38][40] Question: How are share repurchases managed in relation to leverage ratios? - Management explained that share repurchases are timed based on net debt measurements within 30 days of buying back shares, allowing flexibility in execution [46][47] Question: What is the impact of tariffs on pricing and demand? - Management acknowledged that tariffs have led to a buyer strike in the valve product line, affecting demand and pricing strategies [54][82] Question: How does the company plan to manage cash and debt reduction? - The company plans to use half of its free cash flow for net debt reduction and will continue to monitor market conditions for share repurchases [84][85] Question: What is the outlook for the Veraperm product line in Canada? - Management indicated that the recent performance was temporary and attributed to customer and product mix, with expectations for improvement in the second half of the year [63][65]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $193 million, with EBITDA of $20 million, meeting expectations [16] - Orders increased by 6% to $201 million, resulting in a book-to-bill ratio of 104% [16] - Free cash flow generated in Q1 was $7 million, three times higher than the same quarter last year, marking the seventh consecutive quarter of positive free cash flow [21][22] Business Line Data and Key Metrics Changes - The Drilling and Completion segment saw a revenue increase of $5 million, driven by a rebound in sales of completions-related consumables and capital equipment [17] - The artificial lift and downhole segment experienced a revenue decline due to unfavorable product mix and softer demand for Veraperm products [18] - The Valve Solutions product line faced negative headwinds due to tariffs impacting demand, leading to a buyer strike and reduced orders [19] Market Data and Key Metrics Changes - Oil prices have declined significantly, hovering near four-year lows, which may lead to a reduction in global rig count in the second half of the year [8] - The company anticipates a modest 2% to 5% decline in global drilling and completions activity for the full year [13] - Despite market uncertainty, operators have not materially deviated from their plans, with expectations for flat quarter-over-quarter results in Q2 [20] Company Strategy and Development Direction - The company is focusing on mitigating tariff impacts, optimizing the supply chain, and reducing costs and inventory [9] - Plans include increasing assembly activities in Saudi Arabia and Canada to efficiently serve global markets [10] - The company aims to utilize 50% of free cash flow for debt reduction and the remaining for strategic investments, including share repurchases [24] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the economic uncertainty due to U.S. trade policies and OPEC's supply growth, which could pressure commodity prices [7] - The company remains confident in its ability to generate free cash flow and maintain a strong balance sheet, with no debt maturities until 2028 [23] - Long-term growth potential is viewed positively, driven by increasing energy demand due to population growth and economic expansion [28] Other Important Information - The company has strategically de-risked its supply chain to minimize dependence on specific countries [11] - A focus on expense and inventory management has led to the highest level of free cash flow in nearly a decade in 2024 [12] Q&A Session Summary Question: Subsea bookings and product adoption - Management highlighted a 60% quarter-over-quarter increase in subsea bookings due to customer adoption of new products, with strong demand for remote-operated vehicles [34][35] Question: Strength in drilling completion orders - The increase in orders for stimulation-related equipment was attributed to a rebound from low purchase levels at the end of the previous year, with crews working more efficiently [36][38] Question: Share repurchases and leverage ratio - Management clarified that share repurchases were executed despite ending the quarter slightly above the 1.5 leverage ratio, with plans to continue as cash flows allow [44][45] Question: Cost reduction efforts - The company is targeting $10 million in annualized cost reductions, with some benefits expected in Q2 and more in Q3 [46][47] Question: Customer behavior regarding pricing and tariffs - Management noted that customers are currently hesitant to purchase due to high prices and tariff uncertainty, leading to a buyer strike [51][52] Question: Seasonal impacts in Canada for Veraperm - Management indicated that the challenges faced by Veraperm in Canada are temporary and linked to customer and product mix, with expectations for improvement in the second half of the year [60][61] Question: Geographical diversification benefits - The company is leveraging its geographical diversification to mitigate tariff impacts and optimize manufacturing processes [74][75]

Financial Performance - First quarter 2025 revenue was $193 million, with a net income of $1 million or $0.09 per diluted share[2] - Total revenue for the three months ended March 31, 2025, was $193.3 million, a decrease of 4.5% compared to $202.4 million for the same period in 2024[21] - The company reported a net income of $1.1 million for Q1 2025, a significant improvement from a net loss of $10.3 million in Q1 2024[27] - Operating income for the three months ended March 31, 2025, was $8.8 million, representing an operating margin of 4.6%, compared to $3.2 million and 1.6% in the same period of 2024[25] - EBITDA for Q1 2025 was $18.9 million, with an EBITDA margin of 9.8%, compared to $15.8 million and 7.8% in Q1 2024[25] Cash Flow - Free cash flow generated in Q1 2025 was $7 million, marking the seventh consecutive quarter of positive free cash flow[4] - The company maintains its full year 2025 free cash flow guidance of $40 to $60 million[5] - Free cash flow before acquisitions for Q1 2025 was $7.2 million, significantly up from $2.3 million in Q1 2024[29] - Net cash provided by operating activities was $9.3 million in Q1 2025, up from $5.0 million in Q1 2024[29] - The Company emphasizes that free cash flow before acquisitions is a critical measure for evaluating profitability and capital management[29] Segment Performance - Drilling and Completions segment revenue rose 4% to $116 million, driven by increased demand for completions equipment[7] - Artificial Lift and Downhole segment revenue decreased 13% to $78 million, primarily due to reduced demand for valve products[8] - Revenue from the Drilling and Completions segment was $115.6 million, accounting for 59.8% of total revenue in Q1 2025[32] - The Stimulation and Intervention segment generated $37.4 million in revenue, representing a 19.3% share of total revenue for Q1 2025[32] - Downhole revenue was $47.7 million, making up 24.7% of total revenue in Q1 2025[32] - The Artificial Lift and Downhole segment contributed $77.8 million, which is 40.2% of total revenue for Q1 2025[32] Orders and Book-to-Bill Ratio - Orders totaled $201 million with a book-to-bill ratio of 104%[6] - Orders for Drilling and Completions increased to $132.1 million in Q1 2025, up 13.3% from $116.6 million in Q1 2024[23] - The total book-to-bill ratio for the company was 1.04 in Q1 2025, indicating improving market demand compared to 1.01 in Q1 2024[23] - Total orders for the company were $200.7 million in Q1 2025, slightly down from $204.4 million in Q1 2024[23] Cost Management - The company is implementing actions to eliminate $10 million in annualized costs to adapt to potentially lower demand levels[3] - Adjusted EBITDA for Q1 2025 was $20 million, despite tariff uncertainties impacting results[6] - For Q2 2025, adjusted EBITDA is expected to be in the range of $18 to $22 million[5] Impairment and Capital Expenditures - The company experienced a significant impairment of intangible assets amounting to $119.1 million in Q4 2024, impacting overall financial performance[25] - Capital expenditures for property and equipment were $2.1 million in Q1 2025, compared to $2.9 million in Q1 2024[29] - The Company reported proceeds from sale-leaseback transactions of $20.3 million in Q4 2024, which positively impacted cash flow[29]

Core Viewpoint - Forum Energy Technologies (FET) is expected to report first-quarter earnings on May 2, 2025, with earnings estimated at 43 cents per share and revenues at $196.3 million, reflecting a significant year-over-year earnings increase but a slight revenue decline [1][2]. Group 1: Earnings Expectations - The Zacks Consensus Estimate for FET's earnings indicates a 458.3% year-over-year increase [2] - Revenue estimates suggest a 3% decline compared to the previous year's actual figures [2]. Group 2: Business Operations - FET generates income primarily through manufacturing and selling consumable and capital equipment products, with additional revenue from rental services and aftermarket technical services [3]. - The company has seen a 15% year-over-year increase in market share in 2024, attributed to its focus on niche markets and differentiated technologies [4]. Group 3: Cost and Market Challenges - Rising costs, particularly in the fourth quarter, were driven by higher cost of sales and increased operating expenses, contributing to a net loss of $103.5 million [5]. - Management noted inflationary pressures and commodity price volatility, with expectations of a 2-5% decline in global drilling and completion activity in 2025, which may continue to impact margins [6]. Group 4: Earnings Prediction Model - The current model does not predict an earnings beat for FET, as the Earnings ESP is 0.00% and the Zacks Rank is 3 (Hold) [7][8].

Company Overview - Forum Energy Technologies, Inc. (FET) is a global manufacturer serving the oil and gas, industrial, and renewable energy sectors [1] - The company operates through two main segments: Drilling and Completions, and Artificial Lift and Downhole [1] Segment Details - The Drilling and Completions segment focuses on selling capital equipment [1] - The Artificial Lift and Downhole segment is also a key area of operation for the company [1]