Forum Energy Technologies(FET) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported consolidated revenue of $208 million, up 16% year-over-year, and EBITDA increased by 55% over the same period, with EBITDA margins year-to-date at 13%, the strongest in nearly a decade [30][36] - Free cash flow generated in the first nine months of 2024 was$ 48 million, leading to an increased cash flow forecast for the year to between $60 million and$ 70 million, translating to a range of $4.90 to$ 5.70 per share [11][30] - Net debt decreased to $199 million, down$ 26 million from the previous quarter, resulting in a net leverage ratio of 1.9x [36][80] Business Line Data and Key Metrics Changes - The Drilling and Completion segment revenue increased by 6%, driven by higher project revenue from ROVs and launch and recovery systems, while EBITDA was $15 million, up 26% [33] - The Artificial Lift and Downhole segment revenue was$ 84 million, down 5%, with EBITDA at $17 million, down 12%, attributed to lower casing hardware volume and valve product sales [34] - Variperm's revenue increased by 2% sequentially, with a strong outlook despite project timing impacts [35][52] Market Data and Key Metrics Changes - The company noted a cautious market outlook for the fourth quarter, with expectations of slower U.S. demand due to budget exhaustion and holiday disruptions, while international and offshore activity is expected to mitigate this softness [20][22] - Economic stability and investment growth in Argentina were highlighted, with expectations of a 10% to 15% increase in activity next year [19] Company Strategy and Development Direction - The company is focused on a "beat the market" strategy, which includes growing profitable market share, developing differentiated products, and expanding participation in energy transition [12] - New product innovations include the MagnaGuard for permanent magnet motor ESPs and the Unity operating system for remotely controlling ROVs, aimed at enhancing safety and operational efficiency [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to generate free cash flow and return capital to shareholders, despite uncertainties in commodity prices and market activity [20][22] - For 2025, management anticipates a potential 5% decrease in U.S. drilling and completions activity, but remains focused on free cash flow and shareholder returns [22][69] Other Important Information - The company successfully completed a$ 100 million senior secured bond offering, which will allow for the payoff of 2025 notes and seller term loans, enhancing liquidity and extending debt maturities [8][25] - The company expects to communicate a shareholder return framework in February [29] Q&A Session Summary Question: Guidance on free cash flow - Management indicated that the guidance is based on fixed cash obligations and potential growth from their "beat the market" strategy [39][40] Question: M&A strategy - Management is open to acquisitions similar to Variperm, focusing on businesses that enhance free cash flow [41][42] Question: Impact of U.S. tariffs on international demand - Management noted that supply chain diversification has mitigated concerns regarding tariffs on raw materials [43] Question: Demand outlook for frac capital equipment - Management prefers to focus on consumable sales rather than capital equipment, but remains open to opportunities in the frac capital space [46] Question: Variperm's revenue outlook - Management expects some project delays to push revenue into 2025, but remains optimistic about future activity [54][56] Question: Balance sheet and liquidity - Management confirmed that they expect to end the year with slightly lower liquidity than the previous quarter due to debt repayments [58] Question: Market opportunities in Canada and the Middle East - Management highlighted strong opportunities in both regions, with a bullish outlook for Canada and ongoing growth in the Middle East [91][92]