FORUM ENERGY TECHNOLOGIES, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights:

• Proactively mitigating tariffs by optimizing supply chain, increasing assembly in Saudi Arabia and Canada, and reducing costs/inventory.
• Announced price increases to counter tariff impacts; 80%-85% of cost base is variable, allowing efficient cost management as activity declines.
• Insourcing components to improve facility utilization and efficiency.
• Initiated actions to eliminate $10 million of annualized costs.
• Subsea product line saw growing backlog, supporting revenue through next quarters.
• Drilling and completion segment rebounded with higher sales of completions-related equipment.
• Valve Solutions adjusting sourcing strategies and raising prices in response to tariff impacts.
• Variperm's investment thesis intact despite first-quarter weakness, with anticipation of positive progression.

Segment Performance:

• Drilling and Completion: Revenue increased $5 million driven by rebound in completions-related consumable and capital equipment sales, with 64% incremental EBITDA margins.
• Artificial Lift and Downhole: Revenue declined; unfavorable product mix affected margins. Variperm experienced weakness in Canada due to customer and product mix issues.
• Valve Solutions: Impacted by tariffs on Chinese imports, leading to customer buyer strike, reduced orders, and delayed deliveries.
• Subsea: Bookings increased 6% to $201 million, with $8 million in additional subsea orders in April, reflecting strength in the offshore market and supporting future revenue.

Guidance:

• Full-year EBITDA expected around $85 million if commodity prices remain low.
• Full-year free cash flow guidance $40 million to $60 million.
• Second quarter revenue expected $180 million to $200 million, EBITDA $18 million to $22 million, with flat quarter-over-quarter results expected despite market uncertainty.

Risks:

• Commodity price decline and rig count lagging, potentially leading to revenue decline in third quarter.
• Tariff impacts on Valve Solutions causing customer buyer strike and reduced orders.
• Variperm weakness in Canada due to unfavorable customer and product mix.
• Uncertainty in tariff levels and customer inventory depletion affecting valve orders.

Question and Answer: Q: Talk about subsea product line bookings and adopted products.

A: Neal Lux mentioned subsea bookings up, with demand in offshore oil and gas, wind, and defense, and growth in remote operated vehicles and Unity software systems.

Q: Cost efforts and how $10M annualized costs flow through.

A: Neal Lux said some benefit seen in first quarter, targeting fixed costs to manage as activity declines.

Q: Reaction to price increases, especially in valves.

A: Neal Lux noted valve customers on buyer strike due to tariff uncertainty, but inventory will run out, and alternative strategies being implemented.

Q: Geographical diversification benefits.

A: Neal Lux and Lyle Williams discussed Subsea business momentum, international manufacturing utilization to avoid tariffs, and in-sourcing to mitigate impacts.

Q: Buyback execution and net leverage.

A: Lyle Williams explained intra-quarter windows for share buybacks based on net debt measurement, allowing flexibility despite leverage ratio.