FORUM ENERGY TECHNOLOGIES, INC. Q3 FY2024 earnings call

• Debt Refinancing: Finalized a $100 million senior secured bond offering to pay off 2025 notes and seller term loan, extending maturity and enhancing liquidity. Blended interest rate will reduce by 130 basis points next year.
• New Products: Permanent magnet motor ESPs with MagnaGuard for safety, Unity operating system for ROVs with cloud-based monitoring and AI, and JumboTron XL heat transfer units for power generation.
• Global Footprint: Utilizing facilities in Saudi Arabia and Argentina to distribute products for unconventional activity, with expected service intensity increase in these regions.
• Financial Performance: Third quarter consolidated revenue $208 million, up 16% YOY; EBITDA up 55% YOY. Orders $206 million, up 14% with a book-to-bill ratio of 99%.

Drilling and Completion segment: Revenue increased 6%, EBITDA was $15 million, up 26% on higher revenue and favorable product mix. EBITDA margins improved by 190 basis points to almost 12%. Artificial Lift and Downhole segment: Revenue was $84 million, down 5%, EBITDA was $17 million, down 12%. Segment EBITDA margins were nearly 21%.

• Fourth Quarter: Expect revenue and adjusted EBITDA in ranges of $190 million to $210 million and $22 million to $26 million respectively. Fourth quarter EBITDA within full year guidance of $100 million to $110 million.
• 2025: U.S. drilling and completions activity could be down as much as 5% from 2024; activity may be weighted towards first half. Potential upside from natural gas drilling if commodity prices increase. Canada and rest of world demand relatively flat to slightly up.

Q: Just hoping we could start with maybe some of the puts and takes on the guidance range for free cash flow. Is that mostly just driven by enhanced profitability or is there more to that story that we should be aware of?

A: I think Dave, if you're thinking about the kind of look forward on what cash flow might be, really there all we've done is look at what are our kind of fixed cash obligations on a go forward basis. So interest about $20 million or less next year, cash income taxes of $15 million and CapEx kind of in that $10 million range where we've been before, so about $45 million. And then assuming everything else remains constant, so EBITDA constant, net working capital constant that gets us to that $50 million to $60 million range. I think there are obviously levers that we could pull that would enhance that. One of those would be growth, our beat the market strategy that Neal talked about, helping us to grow faster than the market, and obviously any ability to continue working down our net working capital would be a plus to that number.

Q: Understood. Thank you. And I know in both the release and on today's call, you mentioned that the new debt situation still gives you the ability to be strategically acquisitive. What's the kind of profile that would piqued your interest? Would it look a lot like Variperm or would you go in a different direction?

A: Yes, Dave, this is Neal. I think Variperm obviously was a home run acquisition, fantastic margins, differentiated product, a niche market, one that fit well with our portfolio. So another acquisition like Variperm, absolutely. As we look out, we see a lot of acquisition opportunities kind of in the pipeline that are that have been sitting there. We're going to be very methodical and choosy as we look through what acquisitions make sense, but it's been part of our history of FET of how we've grown and it will be a lever we'll continue to push for growth as well.

Q: Just hoping we could start with maybe some of the puts and takes on the guidance range for free cash flow. Is that mostly just driven by enhanced profitability or is there more to that story that we should be aware of?

A: I think Dave, if you're thinking about the kind of look forward on what cash flow might be, really there all we've done is look at what are our kind of fixed cash obligations on a go forward basis. So interest about $20 million or less next year, cash income taxes of $15 million and CapEx kind of in that $10 million range where we've been before, so about $45 million. And then assuming everything else remains constant, so EBITDA constant, net working capital constant that gets us to that $50 million to $60 million range. I think there are obviously levers that we could pull that would enhance that. One of those would be growth, our beat the market strategy that Neal talked about, helping us to grow faster than the market, and obviously any ability to continue working down our net working capital would be a plus to that number.

Q: Understood. Thank you. And I know in both the release and on today's call, you mentioned that the new debt situation still gives you the ability to be strategically acquisitive. What's the kind of profile that would piqued your interest? Would it look a lot like Variperm or would you go in a different direction?

A: Yes, Dave, this is Neal. I think Variperm obviously was a home run acquisition, fantastic margins, differentiated product, a niche market, one that fit well with our portfolio. So another acquisition like Variperm, absolutely. As we look out, we see a lot of acquisition opportunities kind of in the pipeline that are that have been sitting there. We're going to be very methodical and choosy as we look through what acquisitions make sense, but it's been part of our history of FET of how we've grown and it will be a lever we'll continue to push for growth as well.