Workflow
Forum Energy Technologies(FET) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) Forum Energy Technologies reported Q1 2019 revenue of $271.8 million, an 8.6% increase, but shifted to a $7.9 million net loss from prior year's net income, with total assets at $1.85 billion and positive operating cash flow Q1 2019 vs Q1 2018 Financial Highlights (in thousands) | Financial Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Revenue | $271,842 | $250,231 | | Gross Profit | $70,098 | $67,287 | | Operating Income (Loss) | $4,297 | $(6,706) | | Net Income (Loss) | $(7,888) | $28,066 | | Diluted EPS | $(0.07) | $0.25 | Balance Sheet Summary (in thousands) | Balance Sheet Item | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $742,820 | $766,017 | | Total Assets | $1,850,170 | $1,829,652 | | Total Current Liabilities | $233,700 | $236,930 | | Total Liabilities | $819,111 | $799,526 | | Total Equity | $1,031,059 | $1,030,126 | Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $17,887 | $(19,322) | | Net Cash from Investing Activities | $(3,553) | $(6) | | Net Cash from Financing Activities | $(32,036) | $(52,675) | | Net Decrease in Cash | $(17,547) | $(72,876) | - In Q1 2019, the company changed its reporting segments to Drilling & Downhole, Completions, and Production to better align with the well cycle, with historical results recast to reflect this change2465 Notes to Condensed Consolidated Financial Statements Notes detail significant accounting policies and events, including the adoption of ASU 842, a $4.6 million contingent consideration benefit, and a debt structure primarily of $400 million Senior Notes - Adopted new lease standard ASU 842 on January 1, 2019, resulting in the recognition of net operating lease assets of approximately $54 million and operating lease liabilities of approximately $65 million28 - Recognized a $4.6 million contingent consideration benefit in Q1 2019 from reducing the estimated fair value of the contingent cash liability associated with the 2018 acquisition of Houston Global Heat Transfer LLC (GHT)36126 - In Q1 2018, the company disposed of its subsea rentals business, recognizing a gain of $33.5 million38129 Revenue by New Segment (in thousands) | Segment | Q1 2019 Revenue | Q1 2018 Revenue | | :--- | :--- | :--- | | Drilling & Downhole | $85,940 | $76,864 | | Completions | $94,659 | $88,054 | | Production | $91,995 | $86,421 | Debt Summary as of March 31, 2019 (in thousands) | Debt Component | Amount | | :--- | :--- | | 6.25% Senior Notes due 2021 | $400,000 | | Senior secured revolving credit facility | $89,000 | | Total Debt | $488,024 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 8.6% revenue growth to increased segment sales and acquisitions, with a shift to net loss due to the absence of prior year's one-time gains, while generating $17.9 million in operating cash flow - For Q1 2019, approximately 86% of revenue was derived from consumable products and activity-based equipment, with the remainder from capital products and services98 - Management noted that lower oil prices in late 2018 led to reduced 2019 capital expenditure budgets by customers, negatively impacting demand, particularly in the U.S. onshore market107 - Tariffs on imported steel and aluminum have increased the company's cost of raw materials, with the company taking actions to mitigate the impact, including diversifying its supply chain108 Total Inbound Orders by Segment (in thousands) | Segment | Q1 2019 | Q4 2018 | Q1 2018 | | :--- | :--- | :--- | :--- | | Drilling & Downhole | $82.0 | $89.0 | $77.1 | | Completions | $80.3 | $106.2 | $87.1 | | Production | $79.9 | $75.6 | $96.8 | | Total Orders | $242.2 | $270.8 | $261.0 | Results of Operations Total revenue for Q1 2019 increased 8.6% to $271.8 million, with all segments showing growth, and total segment operating income improving to $0.3 million from a prior year loss - Drilling & Downhole revenue increased by $9.1 million (11.8%) due to growth in artificial lift products and higher sales of ROVs and other subsea capital equipment117 - Completions revenue increased by $6.6 million (7.5%), primarily from higher international sales in the Coiled Tubing product line and the contribution from the GHT acquisition118 - Production revenue increased by $5.6 million (6.4%), driven by higher sales volumes of surface production equipment119 - The Completions segment operating margin declined from 10.2% to 7.2% YoY due to a less favorable sales mix and incremental costs from steel tariffs and the GHT acquisition121 Liquidity and Capital Resources As of March 31, 2019, the company had $29.7 million in cash and $194.4 million available under its credit facility, with total debt at $488.0 million, and operating cash flow turning positive to $17.9 million Liquidity Position as of March 31, 2019 | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $29.7 | | Availability under Credit Facility | $194.4 | | Total Debt | $488.0 | - Net cash provided by operating activities improved to $17.9 million in Q1 2019 from a use of $19.3 million in Q1 2018, primarily due to favorable changes in working capital134 - Net cash used in financing activities was $32.0 million, including net debt repayments of approximately $31.1 million136 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency and interest rate changes, with no significant profile changes in Q1 2019 - The company's primary market risks are from changes in foreign currency exchange rates and interest rates143 - There were no significant changes to the company's market risk profile during the first quarter of 2019144 Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2019, with internal control changes made for the new lease accounting standard (ASU 2016-02) - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019146 - Changes were implemented to internal controls to address the adoption of the new lease accounting standard, ASU No. 2016-02147 PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal actions in the ordinary course of business, with no material adverse effect on financial position expected - Information regarding legal proceedings is detailed in Note 12 of the financial statements, which states that any potential liability is not expected to be material14972 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - The report refers to the risk factors detailed in the company's 2018 Annual Report on Form 10-K149 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2019, the company repurchased 8,111 shares for tax obligations and issued 113,544 shares for prior acquisitions, with $49.8 million remaining in the stock buyback program - Repurchased 8,111 shares from employees to cover tax withholding obligations from vested restricted stock grants152 - As of March 31, 2019, $49.8 million remained available for repurchase under the company's stock buyback program152 - Issued 82,962 shares and 30,582 shares of common stock as contingent consideration for prior acquisitions, exempt from registration under Rule 4(a)(2)153154 Exhibits The report lists several exhibits filed with the SEC, including forms of stock and cash award agreements, a severance agreement, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include various forms of employee and director compensation agreements (Restricted Stock, RSUs, Performance Shares)159 - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act were filed159