Forum Energy Technologies(FET) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - First quarter revenue was $272 million, essentially flat compared to the prior quarter, with a net loss of $8 million or $0.07 per diluted share [10][18] - Adjusted EBITDA for the first quarter was $22 million, representing 8% of revenue, with a sequential improvement of 30 basis points [17][18] - Free cash flow generated in the first quarter was $14 million, after paying approximately $5 million in cash severance costs, with a plan to generate $100 million on an annualized basis [14][24] Business Line Data and Key Metrics Changes - In the Drilling & Downhole segment, orders increased by 8% to $82 million, while revenue decreased by 3% to $86 million due to lower rig counts in North America [21] - The Completions segment saw orders decrease by 24% to $80 million, but revenue increased by $1 million to $95 million, driven by a significant project delivery in the Middle East [22] - The Production segment experienced a 6% increase in orders to $80 million, with revenue increasing by 1% to $92 million, attributed to higher demand for upstream and midstream valves [23] Market Data and Key Metrics Changes - International revenue increased sequentially by about 20% in the first quarter, indicating early signs of recovery in offshore and subsea activity [8][10] - The shift in demand from capital equipment to consumable products is notable, particularly for pressure pumping customers, with increasing demand for higher-margin consumable products [11][12] Company Strategy and Development Direction - The company has realigned its three business segments to enhance operational efficiency and capitalize on market share opportunities [7] - Focus on consumable products is emphasized as customers prefer to maintain existing equipment rather than invest in new capital equipment [35] - The company is committed to generating free cash flow consistently and reducing excess inventory to improve liquidity [14][24] Management's Comments on Operating Environment and Future Outlook - Management expects second quarter operating results to be similar to the first quarter, with a focus on working down the backlog of capital equipment while increasing demand for consumable products [16] - The company remains confident in achieving year-over-year EBITDA growth based on current market conditions and a strong start in the first quarter [16] Other Important Information - The company has initiated an inventory reduction program, with net inventory decreasing by over $7 million in the first quarter [28] - The balance sheet remains strong, with liquidity improving to approximately $224 million and net debt at $458 million [25] Q&A Session Summary Question: Expectations for domestic top line in Q1 and Q2 - Management indicated that international growth is expected to continue, while domestic revenue may see a decline as capital equipment backlog is worked off [37] Question: Breakdown of completion segment revenue - The completion segment is currently highly weighted towards consumable and sustaining spending, with a focus on replacement units rather than new capital equipment [38] Question: Annualized free cash flow expectations - Management is on track to achieve a $100 million annualized free cash flow run rate, with strong cash flow expected to be used for debt reduction [39] Question: Components driving free cash flow progression - The primary contributors to cash flow are expected to be cash flow from operations and working capital release, particularly through inventory reductions [42][43] Question: Outlook for valves business - The valves business is expected to grow due to continued spending on midstream and downstream infrastructure projects, both in North America and internationally [48] Question: Margin differences between consumables and capital equipment - Generally, consumable products carry better margins compared to capital equipment, with the competitive nature of capital equipment bids affecting pricing [51][52] Question: Growth outlook for artificial lift products - The artificial lift portfolio is expected to continue growing, particularly in North America and international markets, driven by differentiated technology [55][58] Question: Inventory management strategies moving forward - The company is focusing on improved planning and working with suppliers to manage inventory more effectively, avoiding large inventory bets based on anticipated growth [72][76]