Forum Energy (FET) 9 Nov 222022 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies Third Quarter 2022 Earnings Conference Call. My name is Towanda, and I will be your coordinator for today’s call. [Operator Instructions] At this time, all participants are in a listen-only mode. And all lines have been place on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the Company’s website. to Investor conference Relations. like Kukla, to now of Director would turn over the Rob I Please sir. proceed,

Thank you, today and closed Towanda. and issued third our our quarter our Good on and it Lyle morning, and earnings President at after Financial website call. is welcome Williams, conference earnings our available With Officer. Executive release yesterday me Chief are Chief Lux, XXXX Neal ir.f-e-t.com. Officer; to We FET’s market the

forward-looking like would to we statements. begin, regarding listeners we Before caution

may Harbor Our than All information. Management’s measures. along non-GAAP XX-K by disclosed today factors considered other remarks contain relying SEC affect statements other many historical may with include the be Law. that Please those information in are in our we our on Federal of financial including filings. the such should Form note protections that remarks the context Safe afforded business,

release. For to our a earnings these refer reconciliation measures, of

statements And over quarter refer will During to will second turn today’s XXXX. EBITDA noted, all third Neal. XXXX are call the otherwise related comparisons now unless call, quarter to EBITDA. to I adjusted to all

Rob. your And welcome many of earnings you, first calls. Thank FET to

help today. in and It with story excited tell margins industry. business energy tell. spend, numerous and XX great to operating capital the production, has joined FET. the We activity a two compelling converting and years of global the for our finance model, begins for year’s market what grew through us more increasing quarter, growth story have and EBITDA the and robust. higher all products backlog years performance fundamentals, with expanding optimization, light within investors. future Over positions quarter twice throughout we EBITDA is outlook bookings million. we In in further shareholder And this investment $XXX for three leverage remains revenue oil opportunity already a third FET He together, Putting XXXX. have to past to with is of asset innovative the for is Rob propelling for free value. exciting in have see portfolio equipment family. to confidence are that is that going quarters, Rob all rooted only time, solutions held My of we in experience our the The into Demand in gas over he’s After it we relations. investor eighth consecutive FET’s and flow. cash FET and

will the an Our team is that meet results of aggressive upper XXXX end on plan. track deliver to

this It million we this million. look finished success. EBITDA We fundamental is flow long-term and forecasts quarter year includes to This in Importantly, year. in half to confident free a finishing flow cash FET’s And our for $XX important million a quarter. remain second $XX to the just forward turned to payment the a over in million $XX the quarter strong. we interest element of fourth forecast of free of note, also is cash of $XX third great

some share to ahead we thoughts to like year. as I’d Now, look next

demand count rig energy trajectory the growth. on activity While support participants between in mixed views industry supply global and the XXXX, of imbalance strong have domestic

States Activity FET’s more hours, well as wide growth feet, equipment and intensity will construction, harder, utilization. of service However, revenue industry will and the products. range runs to in for their drive intensity increase lift pumping full pushing artificial drilling United completions more the

growth. another In driver expect spending equipment of to we be international capital activity addition, and

XX% of and outside in to comes FET’s United me and some the products the gas country our nearly Let reach to us States. our from allows global world. share international XX% to extensive oil footprint specifics. ship every producing revenue

to direct record with is the spend of well-known Middle beyond activity are had years. our FET They Also, brands and in additional East. year in our and the are Their strongest customers long a demand. that with energy capital companies track seen for and opportunity of portfolio increased will by considerable excitement next expanding their and equipment Recently, expectation safer time makes fleet on had and I’ve a Our beneficiary to production meet adding be service many equipment success. more the I equipment will efficient. demand. spending drive burgeoning

During versus ended equipment nearly that third in today. capital accounted global XXXX, revenues half of investment just the cycle for last a our

and offshore reactivated and or capital constructed, land components handling parts, will rigs like key pipe are supply pump FET cranes, As tools. mud catwalks,

expect already demand orders this beyond. and accelerate inquiries in and seeing to are We it with XXXX and

of capital fracturing where see growth great area equipment hydraulic we fleets. spending with Another is

equipment more friendly transition obsolete specialized products significantly and to deliveries consumable environmentally and to This for for complement they are These radiators. than our customers demand business capital horizontal a cube efficient technically engines, our aged great example versions, expect based more upgrading lines. are where a to replace our XXXX. As major in strong we increase is radiators

revenue for opportunities the I of growth. a we have market With just further line mentioned, sight

in today those Importantly, the meet capacity we to place have more. demands and

every we minimal with capital investment. $XXX with revenue could FETs grow And operating generate expect of to of incremental we high $XX fact, In EBITDA $XX to revenue. leverage, XX% for

guidance throughout today’s presenting formal earnings the call, growth next investment year. opportunity On for next We we cycle. for are have not this outsized

to sheet. we with meaningful flow incremental strong net out, Depending market, increasing our of see will a good generation we mix and With cash how cycle U.S. balance expect expect continued of drivers revenue these growth XXXX. international play in timing revenue derive capital, we deleverage activity, However, management could capital and EBITDA. on further a upgrade the double-digit growth growing free equipment working

remainder to the tail of for to and our third strong turn and more our strategic end the initiatives with call beyond. of remain market, XXXX confident will the continue for the on over this we execute results I financial we and detail As in Lyle delivering year. performance quarter in outlook on

is million financial execution the of the our margins of XXXX, $XX of up a in Thank up strong. pricing fell third drilling solid EBITDA and our EBITDA Revenue and revenue in in and Over third exceeded with X% in to of backlog. you, quarter with cost XX%. from Neal. XX% provided. we team guidance time, FET’s rig of performance the by growth expectations count that quarter $XXX excess middle FET $XX improving global EBITDA increases million Revenue was has XXX%. increase of million line yielded our inflation, nearly strategy Comparing

implies quarter, million the performance margins. quarter fourth this with flat midpoint, $XXX incremental the of acknowledge that third revenue modest we of $XX We roughly and range and million. the EBITDA guiding to For to million $XX at million are $XXX guidance

this million However, important this our EBITDA incentive healthcare $XX additional full quarter guidance recognize end of employee will and fourth it line, us to third expense, compensation and of Bottom guidance our is that million. at put year top variable includes to expense. results even benefit the $XX including additional

that our We cash XXXX of us expectation cash third keeping flow previous be for $XX on $XX to free back are pleased our half over $XX within to quarter track was just million. million, free million flow

lack and despite nearly conversion increasing cash keeping revenue from of cash EBITDA the XXX% a receivable accounts Our from free payment. balances flat, quarterly interest inventory benefited of relatively flow and to

to the down look of quarter quarter working achieve drive to cash in fourth strong another capital We flow. will free

quarter, capital XX update provided $XXX,XXX on After which SCF structure. owned little under approximately repurchased third of to shares initial the total of shares by moments our stock from funds, in for formation few and ago. a repurchase of program take represent years prices. Partners, you capital market share consideration the the of at the end a we the XX,XXX me current of the SCF more shares then than These the FET Let last investment

repurchase we authorization SCF’s Accounting remaining repurchase now have for partnership the many fourth our plan this quarter We announced thankful under amount, of $X.X these are XXXX. for of in share years. over million

a our includes On ABL total for ahead. the a leverage notes. size, long-term $XXX the greater this objective debt facility third and million capacity and some our ended million credit ABL, years facility total liquidity available and Reducing flexibility ABL key With quarter facility We of under focus. convertible side, borrowing million. base, the provides $XX and than $XXX liquidity with company million $XXX third our quarter the of structure is

callable, Now flexibility we objective. have notes are additional in that reaching that convertible our

trade notes diluted then a be is would The as feature. treated conversion share with as notes be XX% for of Roughly how of basis, of XX.X our the Let when would average such Pro common $XXX our third no million. unique of end debt of share conversion sheet. VWAP of to stock mandatory daily the notes convert our of a path offers will to million me these balance quarter, the substantial forma mandatory the day our further remaining of conversion a above fully on count XX stock transformation $XX.

run our manageable third would million levels. to segments be Importantly, to of believe share trading segment EBITDA share the objective. margins. is achieve X.X from posted multiple amount for aggressively net quarter, performance our current current in upside Shifting a This net debt our of current this price business than and leverage EBITDA reduction results highlights business above considerable are our of roughly such and merits rate We less ABL availability. debt rerating a a our $XX EBITDA million. $XXX times each we Therefore, of few where deleveraging operations, driving me increased let

to product million, later Technologies and and offset $XX noteworthy line at be global X% electronic considerably segment the subsea X%. It and up Downhole count. subsea was caused our XX%. products and capital, recognition by orders from for product and quarter-to-quarter. bookings achieved contrast, All a In Drilling consumable segments and Drilling timing Downhole backlog delays down in growth rig decrease capital lines was for driven to XX% product supply were Our line bookings fluctuates revenue for and of large tend drilling hydraulic down The capital. components Technologies is shift for Orders revenue as Drilling chain was that sub slightly the timing their by by increasing growth revenue decreased as periods. into Subsea

of the spares. of under spending in mix from discussion drilling significant the the in across $X Despite X%, leverage increase recently. being growth. the by activity activity segment cables additional Revenue increases U.S. power-ends, XX% for customers for line pumping in high and EBITDA for hoses defense offshore flat. radiators, product in acquired stimulation segment and to revenue number pressure third the their support manifold XXX,XXX, essentially wireline as Completions and and pressure quality our the intervention The was quarter, and million by our trailers segment despite of line encouraged ratio up new are setting revenue number book-to-bill product a bulk revenue stimulation in XX%. $XX million, increased announced record. XXX%. favorable of million operating the or XX%, margin for for increase were drop Bookings EBITDA segment. was ROV XX%, We our segment Demand demand an drove benefiting the in grew resulting of was Completions $XX in also related the quarterly products completions our consistent orders. the The up projects a

mix increased a both favorable addition, experienced an for XX% million segment, to a revenue pipe up margin. $X and in EBITDA as million, line our $XX product million XX% Production In Middle $X EBITDA quarter customer in installation was third growth. margins increasing In Completions revenue order activity. from we product for $XX improving was lines double-digit for segment tied coiled received million the East. the offshore

double bookings revenue lockdowns quarter, As to bookings received allowing production and COVID sequentially, quarter, quarter remained our leverage to segment annual continues equipment the product $XX valves were in lifted, quarter. million in our surface margin EBITDA were were we result. primarily Even book-to-bill China ratio lower, for segment the increased segment following processing bookings doubled down grow. second line. X%, chain for the and large for was second nearly strong operating mentioned we as on EBITDA though at valves equipment demand our total recover. volume Production Production last in supply XXX% the

modest revenue as this we improved XX% Our year incremental with production margins performance the face competitive that growth. company. has most significantly Margin a are on EBITDA markets segment nearly

improvement and this exploiting in focusing and longer the in alternative We term margin, applications. higher future will segment energy reduction drive leverage on emission inherent by operating margin by

purposes. Now, quarter, In with details let corporate expected. me third for costs were second as modeling provide a the the quarter flat few

depreciation costs interest up of we roughly quarter million corporate expense $XX fourth be the and to expense million. to $X For slightly, be and amortization expect

than results We improving $XX year continue income to in market. full less to expect $X taxes roughly of an cash million expenditures performance capital $X reflect In solid by million. and summary, million another team our of FET

Neal? the turn me call to for let closing Now, remarks. Neal over

Lyle. Thanks,

want FET behalf I family, acknowledge the their for like the Veterans entire day a veterans closing, for thank the Also, we of service. Day I’d to United of team. week, On very Before our FET important the recognize later States. performance to this

a an our You I clear customers to for amazing delivering earning season, they your done be have am job honored customers. further our and high-level have expect this executing colleague. growth. it made at thankful and Through

While we by innovative hydrocarbons, drill solutions. at the wells, happen providing holes the we don’t or stimulate it products make the produce or FET and

cleaner We’re last critical and quarter. I’m prepared to with my message to safer, efficient end production. more energy today’s from going remarks

strong, Our is take a story increasing, future. Towanda, a fundamentals is great first profitability backlog is compelling please FET are company growing, simple. Industry question. the is with

from the of John first Daniel Partners. Daniel Energy with line Instructions] [Operator comes Our question

with curious my trip event taking Every there that all some of -- the do bit talked my just or just guys. look you Hey from from also that I’m question there. were to call. it I’ve over did on was customers positive folks and it Thank Neal, what And had and were the there there? Good over for has the you how your about little how you attended. ADIPEC to you potential as first well and have more you morning. opportunities, a international feedback customers East speaking other at elaborate learned demand Middle was

participation I’ve Yes. this show. the It’s the seen. John.. over really Thanks many events was a definitely that and fantastic times one of It I’ve one highest was years, attended

for from year, within at next show. East that the the to feedback looking really customers lot got expand general adequate sure gearing Middle and definitely year for a And up we great beyond. is who and a think fleets our focus their are of busy I are

So But a East in the expect I think I show. think international for broad-based the year. we year good focus that is Middle really definitely next

America? North outperforming Okay,

Yes.

and really -- service good capital from see we demand companies. the equipment internationally inquiries think see good North American with orders I do We in side. coming

and I think mentioned in But one following our opportunities the we example. on other aftermarket with So, radiators remarks, as frac side. that

think growing, I capital service an will us now reactivating of But U.S. the in will on well. tailwind us I So, busy. internationally have equipment keep think we intensity additional keep adding will as or

has Final Okay. on with your the to question do comment radiators.

of companies for to might who also the POs fleets, you are As the market? getting frac color the building you the coming be equipment or potentially entrants there rebuilding Any from from orders existing seeing packagers are great. new be sort would

Sure.

and they I think the general upgrading DGB feel is most of the units then are to existing are engine fleets radiator. upgrading are also where they their a

in I think applications. some are power radiators providing cases, for we

would that the that I frac be on newer -- fleets, but would think e be primarily be that would side. for

our Thank next for question. you. Please by stand

next line Our of comes Eric from Your question Carlson. the [Ph] open. is line

taking for Hi, guys. Thanks another quarter. congrats again question, my and on

that ends on I kind and think when if follow-up pro one up of the forma converting.

mean, looking positive million point I that target happens up are debt-to-EBITDA with forward, of a that now well. flow and about net $XX allocated But at free and that where does do a what like flow, that are of We mind expense at freeing we interest as forward like kind looking see net $XXX -- you have just debt, inflection cash cash of you get of basically in on million maybe also go basis? when do

that for you you’re Thank would Eric. that. on to that and some question, you Great give conversion We good color picked how tried right, work, up.

net into generation, ahead quarter free fourth XXXX. to a pro for here in guide both as post well and to continue forma of million as cash $XXX So conversion flow QX, debt wanted the

that look times of times target X ahead, kind our we would debt-to-EBITDA. as net -- historically have X between and So, said target we

want we of business we viewer as at where working think a our capital. stand, I and look we be to conservative

in business it. does a have Our lot leverage operating of

So base, think modest our maybe And is accounts to do on we more then, the that’s receivable we of upside, that a net be number. how function positive. keep very that about at cautious a of so debt

go looking basis. I the conversion, forward that reducing think net we that is post on would debt to a means our what continue be

callable be with revolver, ability more to the availability those notes do bring we should choose our and aggressive. have this point under to them in to We being at that

to to I Inflation you there or benefit as at what of any Act producer the transition, all, gears, and how know implication kind have shifting equipment? don’t that of Maybe it play your Reduction speak. is of about of support guys thought maybe a can of if the some that energy so products that into the Is kind

his What production that can competitive that and There newer generally our technologies most face. line have some one is made Rob is, with as generally, are we and think, and the equipment, investments emissions. in doing mentioned is product done I remarks handle we methane in we

where trials produce we methane. And customers few have are that -- without today we’re been additional our to so, field a helping ongoing, continue emitting

think that’s exciting I So, an area.

have prior sequestration. our been I mentioned, for in used used pipe think, capture, in carbon coiled calls line we

think another I positive growth, of area too. that’s

think skate I think an Act. and continue So customer take emissions any help and to puck we can to of base, of look advantage can the and as manufacturer, the put into is their and I -- products continue reduce And solutions we’ll going. Inflation that Reduction where to new we again, ultimately them talk overall, R&D equipment benefits to our

Instructions] [Operator Energy Pickering Dan the question next Our from line Partners. comes with of Pickering

want here, second million million half. the a If sure $XX cash So, checking bear with $XX make in I I about of -- comment to just questions me. couple to math, your the free of

the the that $XX printed quarter. third So in off back we we million

capital working the another it QX. assumes et to in $XX call $XX adjustments, million all That So, million cetera.

of net-net everything, correct? that’s So,

million. include the be payment that’s And semiannual interest third in Dan. That right, will that $XX does our over That’s quarter.

we’re working the of pull to guide does our down with EBITDA mean there get capital kind implied going quarter. fourth to So in

And would the payables to or just in or expect across see you board? primarily that inventory the

board. across Pretty the

on know done the We some there’s a of history in payments year. the at industry receivables. has team holding the of job end good Our a the

conscious that. we’re of So,

sight line big revenue. inventory So, is our having good focus is to of to around going really some with our through that and roll how

is midpoint Talk quarter, about You range, at growth sounds like the bit that how little it the millions of comp revenue apples-to-apples just how think about, I expense mean, fourth at that dollars, guidance a performing in the is midpoint. business figure of about number? comp away I’m from discussed. to you the your flattish small Lyle, to is this a trying us margins out this delta. to talked continued that

No. Yes. that. Happy to do

Just to give Dan. that, a more little on color

through we we’re Our practice in extra, And higher took earned accruing performance of quarters. end, been to it’s those when third the fourth, happened than have level little we If in expense of accrue we accelerate margins our would incremental high-XXs. would bit a previous as the what continued kind at to bonus is the where back for in be the incentive comp normalize expenses, in year. of here has and a the

what So, of expect kind you give a an high-end to range we’d in is the of there. idea

pretty incremental So, ex those is good -- incremental costs.

think in the no change there’s business business. I fundamental -- really the underlying

great amount almost I had year. team’s had our that of the we teams think times are year. X last delivering the And EBIT the results. a Again,

So, to we’re earn compensation. have them that excited

Sure.

you revenues year, about into top think as revenue to QX the plus talked domestic, If we we’re rate some incrementals. of things of on a and $XXX going go XX% next growth that that So, we XX% about. of you million to like outlook about feels when ‘XX, for talked extrapolate run Lyle, to knocking both it try this couple on given for international I’m and

cash next higher capital got I mean, so, generation it feels if those we’ve with free like year, picks revenues. pretty even up strong working And

feel are the there? year, So, I XX% price confirm to some just leverage, XX% incrementals like doable. is getting want they’re to And for just next operating that we

comfortable there lot we here. did from I ahead on of we with And uncertainty, a are that Again, we pick revenue XX% gross that far up that next but is kind year is of margin great get what of did. too our XX%, long-term really up see the question. and of with Yes. guidance end low Great, you don’t And we to want out for think concept definitely the pluses feel margin. incremental there hold to some

leverage no getting almost of So out that.

operating at be to little So a year to gaining that some product function certain we’ve high-end, been is more going the leverage. the net And higher price, able than some would be a of which lines. through in Dan, do

you again, So, line. the pretty the flow. get about And bullish on cash I we think there EBITDA are

knock year, call year, the under the items cash is that EBITDA, year, cash $XX just we expense those you If CapEx fixed was have X. XX. take This tax, And taxes, of million. some away out our from in interest this our it

So, those the million if go $XX of you that’s net out, that cash about door. kind would out worth of

cash bullish well that free us So, on next positive, gets pretty could significantly free flow -- year. cash cash we to in working fund a pretty that a change before number And and capital. still flow number flow positive be

it Yes. mean, EBITDA like range. ballpark. striking million I is $XXX I mean, in looks

difference So mean, what or Congratulations. I a year make. two that’s, a

mentioned -- share You repurchase SCF repurchase.

from so the is in all out SCF now So longer of business? they’re no their funds, totally and shareholder

That’s right.

XX years. stuck that pleased We’re around us really for with they

equity that’s years. know, us for private a period and you hold for partners a As been investor, through long great these they’ve

of they of that the formation we’re So FET. pleased were part

Yes, to selling absolutely. overhang of been their it’s Well, bit have a an and pressure.

at So point. it’s good this see to out them

question. average $XX do happens, once that just you to When are reached, don’t issue my if and you it to hit whatever my convert? -- and you do expectation And VWAP talk will. call think going if the would then assume decide hurdle is You that I it, the mechanics, it mandatorily of XX-day was, do release is what’s I that’s press the sometime a process, actually that? -- actual you the mechanics? What the to to I majority couple next, you of quarters. mind in call just you your, is

there, is And feature mandatory. Yes, Dan, good question. conversion the

decision thing, like not to example. call an So a for optional be or it’s

would of and that had to across threshold rolled that, the and outstanding shares. XX% trustee fact trustee So the conversion we the of when we notes those through roughly the the worked notify noteholders exchange been for met

and shareholders into we’d event have the new a some joined So, big delevering family.

for me. question Last you. Got

wanting As pay when as this can. about cash debt we talked down think and you to about free generation, you

You’ve also inexpensive fairly mix got repurchase a How after performance forward even stock year-to-date. the a on in fit the basis? go share does

call like Dan, kind to Yes. we shares or repurchase the flexibility that. have to the of

are to so, think forward. continue And I we going to look at that going

Board have the so convertible obviously of or from authorization million We have $X of our the back and another shares, bonds. to these again, callability buy

I think we will it. agree you. continue at to I look with

repurchases multiple our trading as are get also share debt to but so is well. the Our reducing up compelling,

Great. you, Keep guys. Thank up. it Sure.

you. you everyone’s appreciate very All This Thank our time. We right. concludes call. much. Thank

this Ladies for you gentlemen, and participation. conference Thank your concludes call. today’s

You now may disconnect.