FET - Earnings call transcript Q2 2019 | Forum Energy Technologies, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies Second Quarter 2019 Earnings Conference Call. My name is Prince, and I’ll be your coordinator for today’s call. At this time, all participants are in a listen-only mode. [Operator Instructions]

I will now turn the conference over to Mark Conlon, Director of Investor Relations. sir. proceed Please

Mark Conlon

and Good Lyle second Prince. today welcome Forum Operations. Chief Forum’s to present as as Thank Mercado, Senior Pablo XXXX morning, Vice earnings Technologies’ our Chairman Gaut, Cris quarter remarks Officer; us Executive conference Energy Officer; formal well and you, Financial are and Chief Williams, call. to of With President

including on the last and our earnings actual to matters issued release night this from and materially conference is These during our forward-looking to results may call, The website. uncertainties questions, statements. available answers statements your cause statements. include made We it differ our that forward-looking may risks involve

with matters described Commission. release These Exchange our statements any risks We do have we not reason. any that forward-looking to revise include, any Securities or the publicly undertake for update and our in filings obligation earnings and in

contains judgment call. the that this information reflects conference addition, statements include best Management’s of call date non-GAAP financial management’s In measures. of time-sensitive the as only live

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

recorded. over replay our Executive This I’m being following Officer. pleased call. be the for two A our Gaut, is of weeks the will the now turn to available to call Cris on call call website Cris? Chief

Cris Gaut

and good Mark morning, Thanks, everyone.

objective. pleased this primary report on that significant on reduce to free am good generating And focus progress I to is net we Our cash flow debt. to make continue

cash months quarter, expect current and a consecutive our this on significant cash free third Our flow. flow it’s noting million free nine was that changed ago cash worth cash flow our in capitalization believe is first over free in quarter free our I market further we of million the in and I XX%. strategy the strong since quarter our improvement yield quarter flow third $X equity $XX that second from the was that’s our

by debt our of the we year $XX half $XXX ended we of net For have second the the quarter million first million reduced with and liquidity.

our in on cost Of efficiency. course, flow and focus cash alone are we not

you are spending also and now operators and and spending. companies constrained think now I that reducing have all their their consumable significantly aware operating capital are service

customers of run, the in maintenance but Forum’s spending it affected low sustainable by the results second our level is certainly not This long quarter. in

a we we As segment. our announced Completion primarily in sales last products, month, of reduction experienced short-cycle our significant in

$X current have As a had result $XX our million our in implemented our we sequentially. million Forum, adjusted Consistent were strategy our market cost decrease a environment, revenue additional reductions costs the sequential for manage a $X in with and EBITDA. and reduction to million down SG&A

Another our growth is element with products lifts such drive are our we products. our as seeing strategy to gains artificial share for of continued winning market strong where

and an in to of orders turn ongoing half the with we level which inquiries, some of are increased international into XXXX. improvement in second seeing addition, In of markets, offshore we expect the

drilling and ahead other completions Drilling to flat in offset expect Subsea quarter, and revenue focused increases the internationally our areas U.S. activity. softening roughly as and product Looking we third Downhole, land

Taking EBITDA and mix to favorable market to expect second the flat and more We continue conditions up be become we more product to quarter. into to cost to a compared shift slightly as efficient. account

take to our Pablo financial ask position. and me let Pablo? Now, you through results

Pablo Mercado

Thank Good morning. you Cris.

the to million, completions drilling was revenue $XXX quarter down million and slow U.S. down second activity. in $XX Our sequentially due

gains. back was equity-based for of does $X X.X% not foreign I quarter $XX EBITDA of but we $X million add adjusted non-cash the of note second adjusted Our do revenue. our million that would or compensation, exchange subtract EBITDA million out

of share. million million $XX million charges foreign the for restructuring and for of or Net GAAP $X.XX for diluted costs was $X pretax $X per results quarter exchange loss the gains. quarter included

increase items million We our our these per special $X.X assets special expense down in second a quarter of earnings net accounting in provided the allowance, items. tax rules. table deferred these included share, writing $X.XX in reference. diluted was accordance reconciliation excluding valuation for the a tax release with our Our your loss Adjusted for

results higher I sequential This on due orders subsea Drilling will rig now basis. count or $X America, projects. $XX was summarize offset segment, a our on decrease. North our were a Downhole decrease Segment of revenue in lower the to revenue segment million & recognition was partially a In by million, million, X.X% X%. $XX

$XX lift by Adjusted million joint our XX% EBITDA the of decreased first in and quarter. $X.X to lower revenue, improvement segment, of basis margin subsea Completions a the artificial products million. seasonal $XX to or delivered and This X% improvement pressure In orders the pumping for announced revenue coiled higher project decrease non-recurring driven segment sales a $XX an our was line offshore in XXX due points, was of previously million, pipe million. products was of Segment venture.

shift saw customers maintenance significant Pressure customer quarter, in idle second defer consumables the a pumping fleets. destock patterns. to cannibalize During we and began spend, spending

of pumping the approximately EBITDA a products basis to points XXX As decreased operating pressure decreased of volumes higher margins XX%. lower margin adjusted and result leverage,

We costs have both reduce variable fixed moved swiftly in this to area. and

distributors others a inventory of of revenue Production X%. like million, valves were destocking upstream industry. deferring segment to sales flow and due lower free orders orders in on improving levels their with our decrease, midstream primarily they cash was million, $XX and X% Segment decrease as a $XX focus

the we and in end as ERP an the new first the were we X% The the the the be to book-and-ship orders product implementation on during to products the able well a impact quarter. not flat of receive. that factor for quarter essentially the Adjusted affected results EBITDA margins were well at that factor It third is ability was valves from One of will had our as completed system quarter. working our segment, ship quarter. line to it the

and results about financial our additional Forum position I’ll details at now level. the discuss some

quarter improvement of an million, was the million flow over after Our from free quarter. expenditures $X the from – third cash quarter net $XX capital the in second first

this underway cash aggressively to to program year. excess to flow the Our half reduction contribute expect second generation reduce inventory our the we of in and is

Our reduce cash debt primary is liquidity. further free improve and use of to flow

net expenditures the $X second capital Our quarter were million. in

our XXXX expenditures for under million. to be expect total capital $XX We

Our and balance sheet financial strong. position remained

liquidity XX%. $XXX Our was approximately Net net second end debt-to-total was to position and at capitalization of quarter the debt our improved the $XXX ratio million. million

in We the and quarters. expect to improve to reduce liquidity continue coming debt

for million, and respectively was and Interest the million depreciation reported in second were amortization share Our diluted count million $XX second XXX the quarter $X shares. and quarter.

at third remain the quarter. We expect these in levels expenses to similar

in expect we remain the third to $X.X similar expenses million the second corporate quarter. at Adjusted and quarter were them in levels

compared are Our actions. to the prior down of XX% our half cost-reduction of the first in corporate expenses XXXX year because more than

expense for some in our rate we benefit With are respect loss international we tax jurisdictions as rate, low losses. not net recognizing overall but loss-making have recognize as net operating profitable continue loss-making tax continue to Once to we our some we relatively we with tax to an jurisdictions, a tax turn despite the will have begin income. expense jurisdictions, to in use tax

review For more release the earnings financial our information website. our please results, about on

call the initiatives. turn let to operating some Now to over discuss key me Lyle

Lyle Williams

everyone. Hello, Pablo. you, Thank

some inventory objectives. progress products toward structure a make reductions, and employees improving how our provide continue are will of cost strategic achieving on to our brief performing. our Forum’s winning good our I update

reducing to we incoming on holding were the the second in tighten of our customers from material experienced behalf. headwinds, half the expectations inventory. second inventory inventory system and and $XX connection with In the first by year revenue are of decrease who therefore, Despite and, vendors the of distribution significant quarter, improving We dropped XXXX. lower our our between our a during for by the changing versus our these shipments manufacturing our million our locations more partnership half by level

on inventory hand at making through will progress inventories Further liquidating enhance flow manufacturing were quarters. cash by and reducing in our We substitution upcoming in reductions slower-moving also inventory have plants. our we

this by first basis In we our quarter the an compared lower of cost restructuring million reduced reflect on annualized from financial resulting a half results SG&A to $XX structure efforts. XXXX. total, have Our

product We continue moving organizational streamline into and functional our authority our lines. back to structure, accountability

footprint. also We have reduced our facility

distribution exited and consolidated Houston locations. in For facility, our example, international office operating corporate offices our headquarters have into consolidated we our

costs cost also are labor we front, direct demand. adjusting with overhead line the in and On

are Despite the challenges from activity a markets. we in slowing benefiting increases we offshore and international are market, domestic facing from

customers. nonoil line And well quarter Our our product capital defense, in gas product subsea line traditional equipment continues see applications. rig inquiry and strong this activity as drilling gas such number and for oil orders destined international as of a received from to applications, as

change are in seen meaningful order activity these XXXX products by not of encouraged and direction. this Some have we since

revenues. failure increase electric artificial market Our sand failure products by America. lift lift modes the artificial This increases of critical acceptance across gain of of These and ESP longevity gaining continues systems gas and share portfolio to lugs with are and North customers products addressing growing of cabling. portfolio

markets, significant international to We also opportunity see which we’re beginning penetrate. only in now

associated team solutions other as well address modes other Our our to with to failure technologies. applying ESPs engineering lift innovative working as is artificial

continued very lift this pleased artificial forward area. growth We are the with products in our and look progress to of

product cable. of EnviroLite driving growth is innovation Another Forum wireline greaseless for example our

strong product and seen this XXXX in introduced penetration. have Forum we market

other significantly was more operating solution have and through than time conventional greaseless use. environmentally reduced wireline, a friendly initially obtained While developed as gained operators its efficiencies cable running

to Forum’s that the for life features design which this enables coating on unique of of longer cable. these We exterior and this found product will believe strong continue the increases adhesion to share Customers coating the durability have wireline, based and the better benefits. product market gain of

over the turn concluding remarks. me Let Cris to call back for

Cris Gaut

Lyle. Thanks,

due companies. how reluctance under to yet our We cannibalization it and resulting it in last. domestic is maintenance by not are widespread headwinds sustainable some strategy, to and difficult by deferred of say to a a equipment spend operators will is service money business investment land The long facing

things and is benefit of Forum’s have a will improving substantial control. be portfolio balanced international can to we offshore the focus exposure a We markets. on at Forum we However,

we capital even will our monetize cash reduce more excess working We to debt. generate as

more will We winning efficient cost we on products. will become and grow

and to responsibilities employees on want a for their as our dedication I actions. cost have particularly commitment, those closing, result additional taken thank Before who our of

Operator, first the question. you. Thank take let’s

Operator

Instructions] Meakim Sean [Operator JPMorgan. the from question line comes of First you. from Thank

Your line is now open.

Sean Meakim

morning. Good you. Thank

Cris Gaut

Hi, Sean.

Sean Meakim

developing situation more the cannibalization. respect in Cris, was just with to little to So I bit hoping dive maybe into a

number thought contractors? maybe we heard XQ have and would than providers conference gapping within forward an just you last a You’re looks across compare activity frac our how cannibalization lower pumpers. the month, from contrast We completions of that talked and about exit we outlook, among previously. from the particularly as yesterday we we’re perspective them at seeing drilling as Could versus maybe the

of types challenges get And the of so that portion you’re try and back a of half your for how similar seeing base customer year. sense of the approach

Cris Gaut

Yes, sure.

I we kinds in think this more for of it’s at pressure point of the available the fleets provide. for significant products So, pumpers percentage of terms the right

field used would repair in ends. that equipment a be have, pressure able the any cannibalize And stock iron pumping available stack that the to one out or a for as company the frac activity stack available would they the fluid stack They for of that off decline or trailers, flow unit equipment. of stripped their would and service manifold needs stack from a instance, unit, working to would absorbed in So, from that mean feet the unit, service. pumping until the send replace used would fleet, have to available that choose they

what’s do as they’re to to decline. pricing effort that’s companies margin of continue that they’re on to there’s so avoid now far they equipment to pressure adding this seeing and for think pressure But that go. margins, continues frac I to as the and with as cannibalize with pressure and money good So and And what an expense can their operating in preserve service margins utilization Clearly wanting long can spending possible. happening as pressure de-stock. show the only pumping will to

smaller of that has activity the Drilling the segment given already in we’re the and equipment. expected From of subsea taken segment The terms, consumable the Sean, say, part has course, drilling we our forward. largest change decline percentage that gone the percentage point and fleet. inflection is in place revenue In on the that improving offshore from for and Downhole peak an Downhole I for international and particularly this over activity to activity. from forward point in drilling of several for this Drilling point the a our the years. from of that expect And improvement parts would at show segment, and past largest side, drilling is drilling drilling

Sean Meakim

Right. collections discerning sense. the they the had quarter-end into basis of Cris, E&Ps really companies. details. sheets indications addressing their on a impact some on you cash for helpful. That heard season potentially makes That thank balance when was We’ve that’s for all an service and of some

flow of free scenario through the way some Could any you terms So the you starting the like seems as could plan. like extent any behavior of that I’m in system. trend work seen critical if of that, capital to a becomes management customers, you’ve inklings cash the speak payables? in think least like which and supply a getting Or other companies nature as through something that, as this given of moves part service curious working chain, terms have be of you its your stretching it to levers your of to at the about how that that managing

Pablo Mercado

It Pablo. good a Sean, question. Hey, it’s is

and for several quarter balance with sheets, And in slowing of end of watching been and customers something thinking we’ve terms really us about, been particularly payments. quarters our sort that’s their at

first our think, thing I tends to is strong to companies. be know customer base mostly is

So a tends of best It’s be the slow more capitalized of quarter. just us. that will, to there payers a and credit the are risk the companies at less there worst of if much is end the you actually paying

help been we’ve internally our really hard to doing what So working is process.

reducing So we it – from at successful XX%. DSOs, quarter there excuses. We can under everything our our high quarter ended them we third about to And so were in customers, not which that’s give to collect year, of fairly that faster second last the call have in any been do were control our XX%.

been we’ve do to able So that.

Cris Gaut

measure is paid. Days sales outstanding a quickly of getting how we’re

Pablo Mercado

that on and in continue on work quarter. to something pronounced happening. more could collections. It is But it our – process work fourth continue we that to the So be is drive

we’re why process. on working that’s So our internal

Cris Gaut

to address payables point. and maybe a this lever Lyle, pretty receivables the it’s actually. And the side, you us on have And greatest that’s probably available So we that’s can inventory. where one big at

Lyle Williams

is It – is. It Yes. thanks, Cris.

inventory inventory X.X our still we’ve three, around overall we’re turn and turns. as reduction, said, goal So our is target hovering

think it’s So lot combination what’s we aggregate in and draining inventory what’s levels. out. of reduce speeding And we’ve opportunity about the our pool coming doing, that’s we’ve like a of to a the up going got really what down and in swimming been slowing

what’s doing and getting my and that So our vendors comments inventory, into some our at of were on coming aimed also other working with what success we’ve but slowdown, to the been growing at inventory out side.

and some side, On the some very material liquidation to move. slower substitution inventory good other our through of been through of that’s

second we’ve how deceleration in that things talked completions those short to quarter. sales the in impacted a alone pretty negatively release. earnings pull able And about rapid we we that quarter both saw cycle the In the much were in of inventory out and valves is

draw in had more significant see closer to we much if inventory. would’ve So our where our what we expected been a to expectations

inbounds, to side, inventory rate So what continued doing to even see increasing expect we’re cash our an outbound on going by enhance come forward. we by accelerated slowing but on down and down the to flows those

Sean Meakim

gentlemen. That’s very helpful. Thank you,

Cris Gaut

Thanks, John

Operator

question Tudor, from line Company. of Holt from O’Leary Next Pickering, comes George the &

Your now line is open.

George O’Leary

Cris, Pablo, morning morning Morning Lyle.

with or and plus? of countries Just equipment materializing the that what customers could just discussions of kind quarters? year are or the if off kind then driving for international larger maybe dialogue what you guys growth type with items even ensuing are service beyond this speak of XXXX capital revenue longer of we’re end if driving in lead starting geomarkets you And hearing engaged the from any I’m the curious commentary companies, to squares the kind there drilling the

Cris Gaut

capital improvement in are seeing an business. we drilling equipment Yes, orders our in

our We’re an and is in improvement capital internationally. cases in And subsea an orders handling seeing tool business, build some with new which capital-oriented. more in associated uptick

where the of there So drilling where Middle improvement capable number on of seeing in are more in clearly land countries. East, a the push geomarkets bigger, the side, equipment drilling the towards the new we’re a bandits strongest is generation drilling

this heard drilling So the you’ve and both contractors. from about

contracts are is that are work, we’re handling equipment improvement for place seeing long-term capital awarded rig for in in tools they we new book for ourselves And to and they happening. it’s in And new-build the So a orders that then the driver the equipment. position that orders there. the several as

to as We’re tool some that seeing back an some rigs improvement go to handling in some rigs orders going as equipment offshore those back well for and are upgrade ancillary work. work of

be to would Asia areas. that So in some Sea the in Pacific, extent North

and the So be seeing answer Pacific answer I would outside to would Sea to – Middle George, improvement. that your the Asia North question, the are question East, say, U.S. geomarkets

their countries in a market, from that in Latin side. equipment of downhole certain is we For might less capital But add the America. factor

a effort driver and we And another gas market, as there then into is the continued nonoil we’re subsea on seeing more improvement put side. the

So our defense but not new for markets capital FIDs equipment, only projects renewables orders driven subsea by the the in big and for well. as also equipment finally, improvement subsea

Pablo Mercado

Great.

it’s Just Pablo. – sorry,

well Just to But year, so we both into are go we do as so get in equipment for to be add as backlog, definitely for those borders asked lumpy. begin capital Cris XXXX. in about subsea. up, tend say, build of whether in would yes, to you expected XXXX, Inquiries to expect later that build some – some in I’d that this drilling of described, to as

George O’Leary

market looking where the that side. you very, area then That’s are grow Great. Clearly, guys lift portfolio. on taking also share artificial to very helpful. an And and

comments your ESP, mentioned on of forms in opportunities there, there other You are of outside that lift.

forms what ESPs. of largest you of Just apply opportunities, you those to see lift outside mean curious might I where the

Lyle Williams

progressive SandGuard onto back falling to have to areas pump are of – that apply bunch applied that different two Lyle. to It’s and from which prevents opportunity able sand nature on we broadly are really can lift the the a a be of the lift broadly be tools tools be especially George. the really applied effective working The is can applied pump technology. broad to – tool cavity team Sure, given to

to at on side. addition new team we’re help be which ESP In looking will some outside the tools what doing able now even ESPs, to the and testing enhance is of

lift going So pumps and grow to well with penetration ESP technology we new a got think, as we’ve on cavity the side progressive broad ability as forward.

Cris Gaut

things Some are of factor the sand and lift of for artificial a are gas in that well clearly longevity types downhole several negative the slugs.

– the artificial talk Forum’s make helps what and so keep our don’t we protects with its And make we extends clearly don’t do make about are when it to ancillary equipment that more efficient. we become equipment lift this don’t and make rod portfolio that lift ESPs, we PCPs, effort equipment, we working, life

products extend Our service the as the that of interest well live companies. are to operators as

George O’Leary

could. I if more one in sneak I’d Great.

I with headway there’s and you you side about guys positioning production side if nature, doing think on kind more the how be business, just the to skin a talked bespoke in then kits recently strategically effort bespoke I large making larger strategically where larger of bit guys more that were multi-well one, business; are of I wonder two, the guys that customers. opportunities marketing the assume just may with of pads or or little and separation aligning you there. margin-accretive and

Cris Gaut

equipment. mean side dogfight production business, that’s well I Yes. a

but our recently good We margins. base, progress customer efficiency improving past and in years made, importantly, our think have improving of over the improving the I couple

customers how able or ongoing number So positions with or of in have we Northeast our Texas, maintain Mid-Continent the those and whether in good because are programs of to we with it a positions is in equipment, success And quality we better can to engineering, and record margins is competitive that more become and produce with we highly ability that which in key safety space. efficient deliver. a our to

George O’Leary

very much for guys back turn it call. you I’ll Thank the over.

Operator

line [Operator from from Simmons Instructions] Energy. of Next the Watson question comes John

is Your line open. now

John Watson

morning. Good you. Thank

Cris Gaut

Hi, John.

Pablo Mercado

Hi, John.

John Watson

function guidance payments? detail generation further provide in improvement of XQ any this of The continues impress a for cadence the Is Hey the uplift guys. you’re to Can primarily your level is flow of and encouraging. regarding expecting? interest cash semiannual free you

Cris Gaut

improvement. as the certainly, us frankly, factors the But inventory, confidence that confidence inventory. will well payment addressed helpful. good the just quarter of having combination Those cadence and didn’t to, because be QX the capital, Lyle later progress as us of making increased payments I not interest would other interest expected the on working progress flow. of improved progress receivables much Well, got an and third cash third there are make see semiannual that of in give inventory all give orders as We in that on sales will think in the deferred. as we’re the And quarter. outflow slowing quarter so occur free on very of we particularly yes,

John Watson

by completion certain just are if that stimulation, could curious Okay. more that, cannibalization and and are than share softness Thanks for there of being I’m the Cris. Within the there’s activity, so you products affected equipment there. detail others? additional

Cris Gaut

more I whether that a right really tell what working now. position service the that – that ends, they fluid want have, rather seen or the just they No, trailers at they’d things say new our anything use don’t up to we’re are we’re it’s or than hey, power interest, or or missile we’ve ends money not to iron companies in just buy us, it’s think radiators, just but have making, they all and spend customers have efficient

Pablo Mercado

I add intervention. as to reported clarify, and would we stimulation John, just just

board. So fracs. super of There’s that kind the on for that having what the the destocking it’s hydraulic talked side, Lyle wireline we’re it’s Cris and really the traction the was example, with – cannibalization good same. really about, as referring not latch cable or across helps same as and the well to, with but products the we there certainly stimulation intervention all not the

there is revenue So momentum there as and continues that some international well.

Completions all not tubing and that cannibalization. are coil and of kind not destocking it’s think seeing interventions I So

John Watson

that you curious by but year-end Pablo. your And be Thanks. to Thanks, the on update countries facilities could there could specific and right. exit some All G&A. progress significant was have you’ve would Any if initiatives really there decrease on the Are might targets that I lastly, us you close? or are further additional what great. already. we color SG&A shown you side, of

Cris Gaut

in more our and of do that efficient there to feel consolidation, achieved from terms we major So, what standpoint. we we’ve the of international part want we’re

given our but the So, have quarter, reorganized that facilities we to in as a what do you further need have are do what which our U.S. in here to on reorganized And to look regard. and and segments, us market. – also, we has chance committed to we attrition, we’ve to taking absolutely major made this successful need need become in can great do more a efficient current last though, we’re or hard we you in we there what being do. the we progress market at

our and and that costs part foremost, then of first are and that. emphasis flow free EBITDA but dollars, putting cash certainly, is a on driving

I think we are making progress.

that EBITDA. And see growth our and well point, get in that successful we part I terms in going are higher – as of a to to And the very cash can think optimistic market internally flow have margin, we our our brands, goals. products, I’m better current more good even we resources well to on where both winning environment. is of alignment shifting

John Watson

Great it I’ll to hear. that, back. for Thanks Cris. turn

Cris Gaut

again, to to very thanks you. Thank talking look the interest future. and in much. you forward Well, near the We quarter appreciate this

Operator

and today’s participation Thank conference. for you day. concludes Ladies wonderful this a and gentlemen, your have

disconnect. all may You

Forum Energy (FET) 26 Jul 192019 Q2 Earnings call transcript