FET - Earnings call transcript Q2 2022 | Forum Energy Technologies, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies Second Quarter 2022 Earnings Conference Call. My name is Lilia, and I will be your coordinator for today’s call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I will now turn the conference over to Lyle Williams, Chief Financial Officer. Please proceed sir.

Lyle Williams

Lilia. you, Thank welcome call. and second XXXX quarter Good to conference earnings morning, FET’s With President Lux, Officer. Neal me is today our and Executive Chief We our after it release issued closed our and yesterday the is website. market on available earnings

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

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

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

EBITDA. of During and I being over today’s Neal. call, call statements the will to call to all on adjusted call a now This recorded, related our replay EBITDA be the will available is the website. turn to refer

Neal Lux

lot Lyle. great highlights. a We just of up Thank you, wrapped with quarter a

over were in three highest six are margins a highest the bookings year-over-year our respectively since was XXX% consecutive Revenue quarter, basis. quarter and for and increased We’ve $XXX up years. EBITDA backlog Second on XXXX. gross June the XX% million

a These past positioned outsized We improving the served our activity profitability us than to in thank environment. commercializing These are have strategy excellent that cost improve radically team years over FET the focusing on a products. product lean as on to environment. the prior for structure strategy. now we market ago, Today, I share where our return few the of want financial us to meaningful implementing Two new accelerates business have the and more of and macro initiatives current pandemic. results for years and maintaining well and executing profitable of strategy we by implemented

inventories Oilfield many to fracturing capital and for is activity have remain manifold have Serpent capital Roughneck highlighted extended in cannot Iron spending industry. a we Oil spare and been economic equipment upgrades new FET period best products, products. These consumable few rigs, gas increases Our significantly. for on years. has is recent host levels. need and as our service grow level. builds companies low these in current in investment is portfolio calls, a and grows our the with customers to activity replacing invest capacity Worldwide On supply market growth increased to maintain of and will of the new and limited components more just Series of Macro capital at occur well it very meeting and consumable until items drilling indicator and demands differentiated sites. for hydraulic flexible such system further. signal FRXXX,

our two to want I aftermarket items. of highlight quarter, This and consumable

is wire zipper service The greaseless our cables The of these and and simul-frac performance by efficiency quality is line, conventional companies. line to first the cables used critical example completions operations. and focused electric

while lasting field Our and new faster, to offerings. allowed than us gain of designs can longer had that innovative many years run the in has of teams with and competitive out share. performance experience This wellbore customers developed win

from it many cost a which a condition. module competitive service, our though new product in patented recently and country, significantly inspected performs is an of our our and consumables. team, of of modules. was years technical customer’s better branded line. pump Even Another tends one our fluid product visited offer with year. is low almost to module is products a we bore rig mud drilling example Well drilling I one fail less in The than than within our a in

recognized its was I even see was very product, more our with excited our to of I pleased customer While durability the value.

and liability manufacturers performance like customer a Our more highly years of teams will in and FET. few for engineered over field, disposable. last and This change favor the is cheap the solutions sentiment in want

The it they outstanding few been There want are over thrive. an handing the backs that fundamentals to industries at Before Lyle, do. I years. market have the FET is in to many well best win their are to like position we summarize very have in

We the and traditional markets address right have applications. and products to niche portfolio fast gas energy oil in growing new

components drilling past years, of FET another lever for revenue completion have for positioned our Over our increases two products. this for and well driven growth. strong is capital the will Demand consumable demand. activity add

few position second more Very quarter turn have We to without excel or updated call companies results detail the the the we by XX% growth in more our like over our I’ll revenue and Lyle significant to guidance. capacity CapEx. on are for increase to are.

Lyle Williams

you, Thank Neal.

bookings quarter EBITDA range. revenue EBITDA margin guidance second and million by indeed financial million strong. yielding XX% a incremental margin. grew Our of growth XXX%. On high the was increase for of million Revenue of with book-to-bill results basis, in in count. end EBITDA second rig ratio the $X respectively our a $XX.X quarter $XXX and sequential XX% were resulted And million $XX sequential quarter. growth roughly U.S. the EBITDA the exceeded both line of Revenue our in in X% second was

mix continued segment price leverage, operating completions growth. significant reflects profitability with improvement revenue favorable net associated increased Our and

demand $XXX $XX of third year, million. forecast rest therefore to drive million Looking $XXX products. $XX to to revenue and between industry EBITDA strong million and continues quarter million our We be to ahead for increase and to the activity the between

expect full million million. the near previous to our top we of For $XX $XX year, EBITDA end range of be now the to guidance

flow of quarter guidance. cash the our Second with with and negative first line quarter in was $XX million free

grew net drove by revenue mitigate higher receivable our inventory working million, increased and to as accounts chain capital expected, challenges. supply $XX As

second interest million the We also our the semi-annual made quarter. payment $XX at beginning of of

$XX growth, quarter cash facility liquidity a $XX credit last company an $XX revolving for And forecast million, is to total of estimate cash to total see between our indicated and million. conversion cash for million the quarter, ended CapEx be working minimal we capital products year. and expect EBITDA under million As $XXX free $XXX the of the to We our over near-term. second Since by we to of required million. FET, of of the end decrease availability net significant we with half flow return positive asset-light with

will We ways continue up to cash from to look for net sheet to balance our debt. free reduce

overall products by that assets the inventory sale competitor. with inventory For end more to example, pulls a and non-core associated The cash million improve subsequent forward us allows to the than a the we monetizing of sold quarter, of second one drilling in our little and profitability. $X to

a our segment the for highlights from results second quarter. share Let few me

EBITDA for Well quarter. our contractor. in the & the tripled, drilling the revenue -bill bookings revenue segment typical, East greater Significant on increase Our Downhole one, in a consecutive Roughnecks of quarter and $X increased was the Drilling million for leverage operating catwalks were by include segment pricing XX%. and EBITDA our segment incremental $X quarter Completion from consumables. resulting in ratio X% Middle our Highlights rigs. tripled a order our performance. for for $XX favorable increase drilling line and than second are margins million the products product is $XX growth equipment, the grew Downhole short accelerate & FRXXX new inquiries as and segment and service and cycle by an are by driven strong as new Orders which our this Iron Drilling and international drilling drilling book-to million Hawker customers capital sequentially. for upgrade of of domestic million in orders segment build the under drove mix strong just for where we seeing an Orders two Bookings nearly quarter, units million XX% completion $XX for most second or

increase of demand supply in on chain. global and improved quality the operation, wire May. line lines XX% grew orders. achieving their our revenues as XX%, Also, note, tubing back domestic product revenues the record Of increased with near revenues our performance segment of international grew All and this grew our in revenue this by customers

We quarter. contributors these strong see the grow two are second in to pleased

GHT of for positive for with the and our our high on the legacy power-ins, increase compared iron. line and products. grew our reduction downtime We feedback are hose demand also meaningfully. fracturing, Revenues pleased and in Serpent hydraulic single flexible a with our based manifold meaningful Series, performance radiators, pressure Series Serpent setup We’ve received to offerings from our ease on capital customers

less million these EBITDA increase We favorable items, our of or due than our steel lower or quarter upgrade frac by for existing to typical In fleets, for $X margins and capital production to incremental further declined results. and demand impacting sequentially price revenue second mix, as segment, segment Sequential expect customers new ones. XX% X%. this inflation add

were we and lifted June, the in half As Chinese and uplift COVID has the government, line. product for shipments the valves measures by operations Since supply our recovered, our these year. lockdowns of manufacturing precautionary implemented disrupted in second expect chain

segment bookings for market midstream down from While were demand were product for upstream XX% revenues segment slightly increased the strong sequentially Valve by in grew orders and customer led lines. XX% bookings every as by increase a customers. for both

XXXX. $XX equipment of more demand sequentially. in order than covering the XX% a or production half Marcellus Our for by bookings million received large their from grew operator We an

addition, received customers East. from orders equipment we’ve the processing technology In in meaningful two Middle electrostatic for

leverage Segment on valve in delivery the are of favorable we increased our production in some for operating already margins, backlog for recognized building be will orders XXXX, equipment While solid these line. year. product and revenue a next EBITDA

provide by the compensation a certain costs. million corporate me In increased for the variable due purposes. second few approximately timing Let of quarter, $X costs details to employee modeling

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

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

drive and product positive We a our growth free net generate advantage we capital, cash with market to decrease expect further expect of to to And revenue working margins. in strengthening take flow. the enhance

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

Neal Lux

simple, compelling are FET Operator, the first is please profitability is are future. story increasing. take company a with a strong, fundamentals orders industry question. great accelerating The Lyle. Thanks, is

Operator

[Operator Please question Daniel you. Energy while roster. Daniel we Thank And Partners. stand-by our the first Q&A the Instructions] from from of line compile John coming

open. is line Your

John Daniel

heading bookings Good direction. margins the in to right and see

the me, a release but If I’m you of excited it can will, you everything, rank haven’t from for away please opportunities of call kind and terms the but really I wins just months? like, X and caught of in to scrub to over my nice you going lot next had forgive you if XX victories so chance desktop, forward, me, most

Neal Lux

we I the John, portfolio. drought Yes, a strength you across of as lot think had said,

our with growth business example the line but we’re lift equipment capital good start and good completion FRXXX ends. solution the we see with in orders for single our also and saw quality inquiries that tubing, mentioned also well in we that’s consumables, with product ROEs. as line seeing And our and So, on line with stimulation seeing drilling subsea wire multi with inquiries more also like the Roughneck artificial also global drilling, consumables for Catwalks and for inbound Iron power side manifold seeing line,

John Daniel

buying quality, I shying they the customer perhaps about people of American, can and heard cheapest be your a of and from pleased ESG was where correctly, there continuing for the American buying trend this international customers versus offering see price basically you a situation an with been any will you just couple you to out North appreciated? it’s least at offering. the lower get. point this called perspective away Normally, would a last any at from an your Do thoughts years, care product if

Neal Lux

we quality. great a that’s question. John are to seeing, a flight Again, is

you as we well. our know, you, right. what high follow is industry think hear I I And utilization, really

the they they had more drilling can. fracking in our they as a they’re hours are they And So and fast in working day are reliability. past, are customers need more than hours as they fracking been

cash was few So, environment. was it a tight, years ago tough industry

great of do that that. need and are right. Our flight equipments, We busy Today call really a our cash I to to to survive generate do they they what doing a and customers to they earnings saw did they’re from segment. do quality. But see reliable had lot well,

John Daniel

not get could think asking over guidance And is then the Neal, you realistically year? of, forma last but your times. do me, one sort X.X pro the to this Where next book-to-bill for

Neal Lux

us, for it’s… know, You

John Daniel

if hope your will? be would What you

Neal Lux

I Yes. a great question. it’s No, think no

macro count the I excited when strong. industry, and really, And environment, an our think about We’re revenues obvious about grow is really there’s think right. and to that our need you with increase it activity. And rig

a to XX%, transformative think think I it’s rigs that’s I gets rate it run a we that year, with have And incremental a billion. You I quite strong think, next incremental EBITDA know, possible. and $X of, X,XXX us result. margins, call let’s And very

John Daniel

Thank you that the I and giving answer. for appreciate it. taking

Operator

question. next our for moment One

Pickering Next question the Dan line of from Energy coming Pickering with Partners.

open. line is Your

Neal Lux

Hi, Dan.

Daniel Pickering

My were your about phone you out at as X,XXX revenue next year. talking rigs blanked potential

want I think I but you’ve to said confirm that. just $X billion,

Lyle Williams

Yes. well activity. Dan, really correlate with as Neal U.S. mentioned, we do rig

While product correlation it always of correlate say driver $X that’s revenue. would roughly historic each does X,XXX not our the our lines And businesses, of rigs of well. billion of is

is leverage And so to have. that in without XX% what than impressive. We operating the we XX% and from could our that. means We be flow-through about facilities do and do our and that’s the line more capacity able good more to significant feel of revenue capital drop-through bottom CapEx

do to and the industry are go both up. We’ve potential. is to the but with ultimately going service about and excited the CapEx, all companies, customers watch indications what operators our E&P spending So got

Daniel Pickering

That makes sense. Yes.

call, While ballpark And can talk didn’t give new you gross cost able look and what a like from us on a I about net are pricing. for increases? you during you pricing much the orders to pass you kind of kind pricing your hear along just us perspective? pricing, view Can of

Lyle Williams

board. been We’ve now talking and winning across pricing a really for Sure, and Dan. pricing about the nearly pricing gains year pushing

I your inflation. pricing is really one are think gains that is a good we where net getting question beat

customers. products our think we value net we’ve additional most our areas seen more where those to I differentiated gains pricing are add the in where

drilling that, that Neal like the about, . module value. fluid talked price we’re to push creating end and where really able example, products extra we’re For

whether also of more our even line. product drilling pricing on products, We’re starting gains some our some to see or some net even in our that’s commoditized more consumables valves of in

push pricing that we’re the it goes. continue across and to So seeing board as

to still it’s think they that where important in back below are XXXX. prices note I our were

company to is do And pushing same. so tighter their getting goes looking service price higher customers our we’ll pricing as spending and as demand, up the with as getting on market customers be the are

Daniel Pickering

it event And while, push then Or to through margins? little take does get it could flow while and we see a as impacts that realize as flow is price that price, it immediately? Or it through? really kind ‘XX almost before Does QX? of in does quickly a

Lyle Williams

Yes.

on of the the nature. I think at business, look that we As depends kind

book Any see Dan, production through So our consumable our ship, flow or capital things to items and like to going longer-term there be products, a that mentioned ship more more get are there. in drive order we’re we that going is going XXXX. to quickly. gain to the much for equipment that’s mostly

favorable benefit. margins, of quarter bit little our substantially but completions incremental and second Our that leverage net also some margins XX% than a recognizing there, were drive higher gross operating some with of EBITDA clearly, pricing mix does

Daniel Pickering

a talked to revenues in basis. applicable a on go-forward Got non-oil products just applications? you. little patch your you for see When bit some know transition. area that, that’s X you hope that might think you’ve you I you where talk the about generate about energy past Could

Neal Lux

product Dan, make Yes. really subsea our markets. different the decades support lot manufacturer. Again, are address from transition Those portfolio, I adjacent well and lot require experience we those as And farms. wind have installation thankful of equipment maintenance. engineering example, line, because a our to our to, ROVs I of of think, energy to have and farms products. we for Great that. wind offshore of are a to And think where positioned capability we

products are and our as control with to developing missions technologies equipment touching site. key, well And the line, customers we’re with see those at especially also new today. that. help we a production We product And

Daniel Pickering

question, substantial working of guided cash And capital, half Lyle. Working last for Okay. free toward kind or if of a release of will, you the capital, you second year. the

And revenue sorry, consuming look said will pretend you would net we see ‘XX, maybe deliver number see that let’s -- his help remarks, XXXX working you think growth? closing capital as $X in billion for cash that I or said or to XXXX. Neal happens we that’s free for to then

Lyle Williams

question. good Dan,

cash. that current about mitigate supply of plan grew points on cash kind what’s In year, of excluding assets, half with first by most coming from increasing chain. key recap we So net our of on to inventories, the million, the on going $XX

we buffer that, in growth ahead then So And see we’ve we built top do a to slowing as good with the look and but there. implies receivables, decline. back half And kind of line the of our growth. of guidance balances turn a inventory lower year, rate

can we in place, as buffers the year we get in out later those pull there. put think we the So we

get? we low do flow EBITDA been where free CapEx. relative we has to have position high good because a is. ahead, our cash with FET where We’ve mentioned looking So CapEx story always our really

think while undoubtedly ought in And good metrics there. to grow, growth. we I strong cash build of shape to good need top conversion working we’ll as we’re EBITDA we level line some with flow have really capital

Daniel Pickering

Tailwinds behind Great. guys. Thanks you. are

Neal Lux

Thank Dan. you,

Operator

from coming Our Eric Carlson. of line next the question

Your line is open.

Eric Carlson

the I’ll that the of into and at congrats else of in little guys a return has when kind of Hi, the results. year on do what the bit end everybody of just look going the guys maybe into what terms buyback flow outlook and on there’s you piggyback cash we available, capital? XXXX outstanding. know said focus I maybe a on

what there’s And as we’re at shares on automatically number Clearly, is at great. comments there additionally, that per look potentially to approximately is guess, $XXX of I debt ability Some any removing the share. I value of principal of ahead, be million And million converts believe debt that dilution. we look outstanding, below then that X.X would that and $XX now. calling

on comments would Thanks. great. some that Just be

Neal Lux

free bonds a cash we -- redeeming would it the think conversion if generate is again, we we cash investment, as one flow. would good I do I we think, to flow, prior look to Eric, we, had as -- with Yes, free

Lyle Williams

Eric, of a some maybe detail there. let me little bit with jump in

first leverage a capital. for see us the did good as back So year, overall half to than as we macro, and and step is like it. we consume of working And a higher we amount would of the cash company still think

leverage have need small we at had, you mentioned down. we’re the the but flow, down. and looking right that is giant Free leverage of us, come a of that not the clearly, to mover need a in indicative the that different step there. asset debt mentioned, in thinking we think to that place. right direction net overall we having the that as we’re cash to get seeing all number, So And come divestiture I we I kind get needle for of continuing options

we that worth the notes, back a convertible million do when we a We’ve number drive some give It’s those notes, share. So notes in that our notes way that $XXX trades about later key and details the half stock the on a we’ll get being $XX at today. of that about talked updated of there. convertible. to Q a And roughly convert reminder file have would

as little And you a of nice that as a last years. we’ve a couple so very bit the place out. share we is is had say, see plan $XX for in for us what But

we at looking other got the in So ways manage we three years until could maturity. We’ve are options debt. that

total cash being leverage. of sheet looking ultimately efficient level deal our reducing of at ways we’ll get that, So time. and to balance more out we keep have with our to and

Operator

next question Ehret coming from our Peter Texas. with ERS And of

is open line Your

Peter Ehret

got Congrats a pretty I’m point this that’s at feel sure on good after long the time. quarter. to

know on thank of nice not lot dwell to you. but for just in notes congrats a a But and anyways, liquidity and work, too going the there’s that So this much, there. just I minute could I back

lot at just you that purchases, did during So couldn’t a quarter? you least chip away And the but try with do open to that do in anyways any of it market on way? do

Lyle Williams

the repurchase quarter. notes did let that. Peter, me take Yes, We not in any

on mentioned, notes. As liquidity is thin the really you

to divestiture did holders note we we of that of per repurchases indenture. XXXX cash big kind the XXXX, return in the Our were of back end asset the did at a back following

The there. the a notes traded of But par. So have you definitely notes. some opportunity not a as mentioned, below there’s liquidity in little lot out

I no us in that think they callable the on a out expires call period become effective but notes big call is in those premium August. and a August, there, there’s change for

presents that there So before opportunity time. that really new had a we that haven’t

Peter Ehret

least what is of million, of M&A-wise, save Yes, X does in kind kind stock your see $XX, dilution, the general? make on things if and other I up, about the in of lot it course, could do bid are buy offer X thing a spreads you things progress, but of picking there wondering of out you all do wouldn’t at kind maybe you was million just hit but just what thoughts

Neal Lux

think I our this of makes think we acquisition prior Works. a product with consolidator. we’ve think are logical said last in Hawker type line We in we did sense. drilling We year calls, Well that

We production last also applications. that energy that Reach of like end that our technology that’s Again, disruptive or did was of example again the addresses at good we year. solutions a new acquisition

always So good opportunities. at looking

We look want analyze make and the margin we address portfolio have markets to continue sure we highest at our addressable and can. that largest products the we can we and to

Peter Ehret

better Or how better Just But for characterize that? are companies? other the you out things balance? functioning offered things would is how bid there? or Are

Lyle Williams

something. market more they’re in equity in, you’ve something opportunity some or sellers are those sellers that in of if seeing spreads monetize even that definitely whether got an here. really to as bid-ask from thinking big cash high got time, this it’s buyers our a And in markets. are view, extremely really we’re The seeing market, activity with valuable. have still they’ve recognizing Peter, Sellers, a have M&A families for rising business the been long private been

And spread. that still so there’s

activity going and a in much seen result. done But to actually question space as out I to the deals see we’ll as continue a ton of get is haven’t get We to think how completed.

Neal Lux

We call. joining thank today. everybody Peter. conclude This will our for Thanks, us

Operator

for your participation. and today. gentlemen, does that conference Thank you for contour Ladies

disconnect. now may You

Forum Energy (FET) 5 Aug 222022 Q2 Earnings call transcript