Forum Energy Technologies(FET) - 2024 Q2 - Quarterly Report

PART I Financial Statements (Unaudited) Revenue increased due to the Variperm acquisition, improving operating cash flow despite a widened net loss for the first half of 2024 Condensed Consolidated Statements of Comprehensive Loss Revenue increased in Q2 and H1 2024, driven by gross profit, though higher expenses led to a widened net loss for the six-month period Condensed Consolidated Statements of Comprehensive Loss (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $205,209 | $185,449 | $407,601 | $374,406 | | Gross Profit | $63,073 | $51,306 | $126,832 | $103,408 | | Operating Income | $7,934 | $6,407 | $11,134 | $13,258 | | Net Loss | $(6,696) | $(6,579) | $(17,011) | $(10,065) | | Diluted Loss Per Share | $(0.54) | $(0.64) | $(1.39) | $(0.99) | Condensed Consolidated Balance Sheets Total assets and liabilities increased significantly as of June 30, 2024, primarily due to the Variperm acquisition and related debt financing Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $31,826 | $46,165 | | Inventories, net | $291,087 | $299,639 | | Goodwill | $62,689 | $0 | | Intangible assets, net | $249,826 | $167,970 | | Total Assets | $976,757 | $821,061 | | Long-term debt, net | $246,348 | $129,567 | | Total Liabilities | $534,767 | $408,428 | | Total Equity | $441,990 | $412,633 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to a positive $28.1 million in H1 2024, while investing activities were dominated by the Variperm acquisition Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $28,073 | $(29,491) | | Net cash used in investing activities | $(154,476) | $(1,703) | | Net cash provided by financing activities | $114,908 | $4,123 | | Net decrease in cash | $(14,339) | $(26,273) | - The primary use of cash in investing activities was the $150.1 million payment for the Variperm business acquisition[9] Notes to Condensed Consolidated Financial Statements Notes detail segment realignment, the $150 million Variperm acquisition, and the resulting increase in debt structure and goodwill - In Q1 2024, following the Variperm acquisition, the company realigned its reportable segments into two new categories: (1) Drilling and Completions and (2) Artificial Lift and Downhole. Historical results were recast to reflect this change[18][45] - On January 4, 2024, the company acquired Variperm Holdings Ltd. for approximately $150.0 million in cash and 2.0 million shares of common stock. The acquisition resulted in the recording of $63.9 million in goodwill[24][25][26] Debt Composition (in thousands) | Debt Instrument | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | 2025 Notes | $121,212 | $134,208 | | Seller Term Loan | $59,677 | $0 | | Credit Facility | $72,781 | $0 | | Long-term debt, principal amount | $257,052 | $137,072 | Revenue by New Segment (Six Months Ended June 30, in thousands) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Drilling and Completions | $236,096 | $257,106 | | Artificial Lift and Downhole | $171,511 | $117,324 | | Total Revenue | $407,601 | $374,406 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth driven by the Variperm acquisition, segment performance, and liquidity, anticipating stronger international market conditions Overview and Market Conditions The company, serving diverse energy sectors, notes a decline in global drilling rig count, particularly in North America, with international markets expected to strengthen - The company serves the oil, natural gas, industrial, and renewable energy industries. For the six months ended June 30, 2024, approximately 80% of revenue was from consumable products and activity-based equipment[61] - The global drilling rig count decreased 5.3% in Q2 2024 compared to Q2 2023, mainly due to an 11.6% decline in North America. International markets are expected to outperform the U.S. in 2024[67] Total Inbound Orders (in millions) | Segment | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Drilling and Completions | $110.1 | $116.6 | $121.9 | | Artificial Lift and Downhole | $70.0 | $87.8 | $64.4 | | Total Orders | $180.1 | $204.4 | $186.3 | Results of Operations Q2 2024 revenue increased 10.7% to $205.2 million, driven by Artificial Lift and Downhole segment growth, while H1 2024 operating income declined due to transaction expenses Q2 2024 vs Q2 2023 Results (in thousands) | Metric | Q2 2024 | Q2 2023 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $205,209 | $185,449 | 10.7% | | Drilling and Completions Revenue | $117,025 | $130,342 | (10.2)% | | Artificial Lift and Downhole Revenue | $88,169 | $55,117 | 60.0% | | Operating Income | $7,934 | $6,407 | 23.8% | | Net Loss | $(6,696) | $(6,579) | (1.8)% | Six Months 2024 vs Six Months 2023 Results (in thousands) | Metric | H1 2024 | H1 2023 | Change % | | :--- | :--- | :--- | :--- | | Total Revenue | $407,601 | $374,406 | 8.9% | | Drilling and Completions Revenue | $236,096 | $257,106 | (8.2)% | | Artificial Lift and Downhole Revenue | $171,511 | $117,324 | 46.2% | | Operating Income | $11,134 | $13,258 | (16.0)% | | Net Loss | $(17,011) | $(10,065) | (69.0)% | - The increase in interest expense in both the three and six-month periods of 2024 was due to increased borrowings under the revolving Credit Facility and the new Seller Term Loan used to fund the Variperm Acquisition[77][86] Liquidity and Capital Resources The company maintains adequate liquidity with $31.8 million cash and $103.1 million credit availability, supported by improved operating cash flow despite acquisition-related capital uses - As of June 30, 2024, the company had $31.8 million in cash and cash equivalents and $103.1 million of availability under its Credit Facility[89] - During H1 2024, the company repurchased $13.0 million of its 2025 Notes. Subsequent to June 30, 2024, it issued a redemption notice for an additional $60.0 million of these notes[89] Cash Flow Summary (Six Months Ended June 30, in millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $28.1 | $(29.5) | | Net cash used in investing activities | $(154.5) | $(1.7) | | Net cash provided by financing activities | $114.9 | $4.1 | Quantitative and Qualitative Disclosures about Market Risk Disclosure is not required for this section as the company qualifies as a 'smaller reporting company' under Regulation S-K - Disclosure is not required under Regulation S-K for 'smaller reporting companies'[99] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2024, with ongoing integration of the Variperm acquisition into internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024[100] - The company is in the process of integrating Variperm, acquired in January 2024, into its internal controls over financial reporting[101] PART II Legal Proceedings The company is involved in various legal actions, but management does not anticipate a material adverse effect on its financial position - The company is involved in various legal actions in the ordinary course of business, but management does not expect the outcomes to have a material adverse effect on its financial position, results of operations, or cash flows[52][103] Risk Factors No material changes to risk factors were reported since the 2023 Annual Report on Form 10-K - For additional information, readers are referred to the 'Risk Factors' section in the company's 2023 Annual Report on Form 10-K[103] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased during Q2 2024, with $2.4 million remaining under the stock repurchase authorization - No shares were repurchased during the three months ended June 30, 2024[104] - The remaining authorization under the company's stock repurchase program is $2.4 million[103] Other Information No Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 officers during the quarter - No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading plans during the quarter[104] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents