Forum Energy Technologies, Inc. Price & Performance (FET)

Finally, management's statements may include non GAAP financial measures. For a reconciliation of these measures, you may refer to our earnings release. During today's call, all statements related to EBITDA, refer to adjusted EBITDA. And unless otherwise noted, all comparisons are fourth quarter twenty twenty four to third quarter twenty twenty four. I will now turn the call over to Neal. Thank you, Rob, and good morning, everyone. Would like to begin by congratulating Chris Scott and Leslie Bayer two of FPT's Board members.

Leslie was recently nominated to serve as Assistant Secretary for Land and Minerals Management in the U. S. Department of Interior. Leslie's leadership and experience makes her an excellent choice to help our country navigate critical energy challenges. I would also like to congratulate Chris on his announced retirement. Chris has been involved with FET for almost twenty years.

Both as a dedicated Board member and previously as Chief Executive Officer. Would like to personally thank Chris for his mentorship, guidance and friendship. He has been invaluable throughout my time at FET and especially since my appointment as CEO in January 2022. [indiscernible] these announcements, I think it is appropriate to step back and reflect on the great progress we have made the last three years. Revenue is up 51% during this time.

Market share. As measured by revenue per rig is up 19%. EBITDA increased five times and margins expanded 800 basis points. Net debt is down 30% and we significantly improved our net leverage from 11 to just under 1.5 times. These results clearly illustrate the progress we have made. Now let's talk about key achievements from the year specifically our financial results, the completion of a transformational acquisition the fortification of our balance sheet authorization of a significant share repurchase program and solid execution of our beat the market strategy. Financially, we delivered meaningful growth with revenue and EBITDA of 1049% respectively. This resulted in a 42% incremental margin and over 300 basis point margin improvement. Impressively, we generated $105,000,000 in free cash flow from strong EBITDA growth and efficient working capital management. Verifer contributed meaningfully to our financial results As promised when we announced this acquisition, Despite some market headwinds, Verapyrm delivered stronger than expected EBITDA margins and outperformed the full year free cash flow plan. Also executed a $100,000,000 senior secured bond offering which refinanced our long term debt and maintained a strong liquidity position. Importantly, the refinancing provided flexibility for deployment of cash. In December, We announced a $75,000,000 share repurchase program.

Delivering on our promise to shareholders. The size of this program relative to our market capitalization is significant. It also reflects our confidence in generating consistent free cash flow In 2025, and beyond. This year, we made great progress by capturing profitable market share leveraging our global footprint and developing differentiated technologies. For example, we gained market share as demonstrated by our 15% revenue per rig growth. Also, outside The U. S, we utilized our strategically located manufacturing facilities to grow by almost 42%.

And FET is an industry innovator. Delivering new products to the market. Here are a few examples. FR120SC, the next generation iron roughneck, that combines best in class torque capacity, with a reduced rig floor footprint.

FastConnect a safer and more efficient zipper manifold system. For multi well pad frac operations. [indiscernible] an industry leading heat transfer unit for mobile power generation [indiscernible] an incredible solution that increases oil production, and reduces downtime in rod lift production systems. [indiscernible] a breakthrough product that enables widespread adoption of efficient permanent magnet motor ESPs. [indiscernible] my last example, [indiscernible] a leading edge technology that remotely controls ROVs to reduce personnel on vessels. Now turning to our outlook. [indiscernible] strongly believe long term demand for energy will grow and continued investment will be required However, we expect 2025 to be a transitional year for market activity driven by geopolitical and macroeconomic uncertainties. Overall, we anticipate global drilling and completion activity in 2025 will decrease 2% to 5% from 2024 levels. In North America, both rig count and frac fleet count are forecasted to soften. Internationally, we anticipate activity be generally that continued market share gains through our beat the market strategy we'll partially or fully offset the impact of declining market activity. Therefore, our full year 2025 adjusted EBITDA guidance range is $85,000,000 to 105,000,000 There are a couple of variables, however, not our 2025 forecast that we are tracking closely.

In our guidance, we do not assume a rebound in natural gas drilling and completions activity. If demand triggers a meaningful commodity price increase, there may be some upside to activity later in the year. The second variable is tariffs. For most product families, we believe we are in a position to mitigate and pass through tariff impacts with increased pricing supply chain optimization. This result may not be achieved immediately, and we may see short term impacts and variability in our businesses. We are continuing to monitor this fluid situation and will adapt accordingly. Before turning the call over to Lyle, I would like to summarize our capital deployment framework. First, we are forecast between $40,000,000 to $60,000,000 We expect to allocate 50% of this free cash flow debt reduction. The remaining 50% would go towards strategic investments including share repurchases. We continually evaluate acquisition opportunities and compare relative value With our industry leading free cash flow yield, we have yet to find a better investment than ourselves. Buying back FET shares provides the best current value to shareholders.

All right. I am now going to turn the call over to Lyle for more details on FPT's fourth quarter results and other financial highlights.

I am pleased to provide details on our strong free cash flow performance and why we believe generating free cash flow in the future is sustainable. For the full year 2024, we generated $105,000,000 of free cash flow. This is the highest annual amount since 2015 and $35,000,000 higher than the top end of our latest guidance.

These results benefited from the real estate sale leaseback transaction we announced in mid December and for meaningful net working capital reductions. Inventories dropped by 34,000,000 as key initiatives paid meaningful dividends, Also, our days sales outstanding decreased generating $8,000,000 of cash.

Monetizing these assets allows us to redeploy capital for a better return. We remain confident in the foundation we have built to sustainably generate free cash flow.

Our 2025 guidance of $40,000,000 to 60,000,000 is consistent with our 2024 result excluding the large release of working capital, the sale leaseback transaction.

Included in our guidance are interest, and cash tax payments of about $35,000,000 and capital expenditures of around $10,000,000 This guidance reflects another year of strong free cash flow allowing us to further reduce net debt while simultaneously returning cash to shareholders.

It is important to note that we are committed to maintaining conservative net leverage.

And as Neil mentioned, 50% of our free cash flow would further reduce our net debt Our remaining free cash flow would be used for strategic investments that increase shareholder value.

As we have said before, we believe our stock is undervalued. And it is hard to find a better investment than an FET. And shareholder returns have already begun.

In January, we repurchased approximately 105,000 shares of our stock. For an aggregate amount of $2,000,000 At the time, we met the two conditions of our bonds that address repurchases. First, we can repurchase up to 50% of the previous fiscal year's free cash flow.

Excluding the sale leaseback proceeds. So for 2025, we have over $42,000,000 of share repurchase capacity Second, our net leverage ratio must be below 1.5x pro form a for any repurchases, Going forward, this incurrence test will be the limiting factor for when and how large our repurchases can be. Based on the seasonality of our free cash flow, we expect our repurchases to be weighted to the second half of this year.

Fortified our balance sheet this year. With strong free cash flow, we retired $100,000,000 of debt incurred in connection with the VERA PERM acquisition. To put that in perspective, within a year of the closing we retired two thirds of the debt added for this transformational acquisition. And with the bond refinancing completed in November, we have no debt maturities until 2028.

We ended this year with $45,000,000 of cash on hand, and $61,000,000 available under our revolving credit facility. With total liquidity of $106,000,000 Our net debt $149,000,000 down $50,000,000 from last quarter for a year ending net leverage ratio of 1.49 times. On the income statement, our consolidated fourth quarter revenue of $2.00 $1,000,000 and EBITDA of $22,000,000 or within our guidance ranges The slowdown in U. S. Completions activity led to a sequential decrease in our revenue. And our EBITDA margin was negatively impacted by lower sales of Quick TURN, high profit products In the fourth quarter, we recorded two unusual non cash items that impact net income, but not EBITDA. First, we recorded a charge 119,000,000 of our coiled tubing product line. Based on market conditions, we performed an impairment test and determined the carrying value of these assets should be fully written down. Going forward, this will reduce our annual amortization expense by $15,000,000 Coiled tubing remains a valuable contributor to FET. With strong profitability, [indiscernible] We also recorded an $11,000,000 non cash benefit to income tax expense. By releasing the valuation allowance reserves that we held for Germany, and Saudi Arabia.

As our operation in each country it is appropriate to release these reserves.

Turning to our segment results, the Drilling and Completion segment revenue decreased by 10% With lower U. S. Completions related activity, sales volumes for wireline cable, coiled tubing and stimulation capital equipment were lower.

Segment EBITDA decreased 34% due to lower sales volumes and unfavorable product mix, Orders were $103,000,000 down 20% relative to the third quarter, which included large orders of drilling equipment including iron roughnecks, and Catwalks. The artificial lift and downhole segment revenue was up 7% primarily related to increased sales of our refinery desalting technology and artificial lift products.

Sales increases in these higher margin products led EBITDA growth of 11% and orders in the quarter were up 14% With increased demand across our production equipment, and downhole product lines.

I will conclude my comments by providing modeling details and our forecast for the first quarter twenty twenty five.

For the full year 2025, we estimate corporate costs of $30,000,000 Depreciation and amortization expense of $35,000,000 and tax expense of $13,000,000 We are expecting around $17,000,000 of interest expense which assumes a reduction in our ABL's balance through the year. We assume first quarter values to be roughly one fourth of these full year amounts.

From a guidance perspective, many of our customers have publicly indicated a slower first quarter.

With progressive improvements throughout the year. Therefore, we expect first quarter twenty twenty five revenue to be in the range of $185,000,000 to $2.00 $5,000,000 and EBITDA in the range of $20,000,000 to 24,000,000 Included in our quarterly and annual guidance are additional lease expenses from the sale leaseback transaction, of $1,700,000 per year.

Our first quarter free cash flow will be impacted by annual management incentive payments and property taxes. While we do not guide specific free cash flow on a quarterly basis, we do anticipate generating positive free cash flow in the first quarter. Let me turn the call back to Neil for closing remarks.

Neil? Thank you, Lyle. I want to note one more achievement, Safety is our number one core value and over the years we have done an outstanding job keeping our employees safe. While we were pleased with our past results, we are not satisfied. Last year, we challenged ourselves to radically improve our safety performance and culture. I am ecstatic to announce we exceeded our expectations. The teams embraced our initiative and significantly improved our key metrics to world class levels. This is a fantastic achievement I want to thank the employees of FET for their hard work and dedication. Job well done. Gigi, please take the first question.

Thank you. Our first question comes from the line of John Daniel from Daniel Energy Partners.

Hey, good morning guys. Neil, I was trying to take copious notes as you're going through your prepared remarks. I think you mentioned something about a new product tied to mobile power. Did I hear that correctly? And if so, can you elaborate on what it is, what it will do and the opportunity set?

Yes. So the good call. So we in the PowerGen segment, we have a product called our PowerTRON This is our our heat exchanger that we supply into that market. So it's paired paired with a gas reship engine. It It builds off our kind of leading market share in the the frac industry. And so we've we've adopted this product to really fit to fit the power gen side. So So we've had a kind of a good start to the year on the quotation side. It's been pretty robust and we're looking forward to closing some orders there. Okay. Those are all big domestic Yes, it would be domestic. I think for us as well as we think about increasing power demand I think our another product that does apply there is our coiled line pipe. And bringing the gas to the data centers as well.

Okay.

Got it.

And then just one on sort of the traditional sort of coil wireline completion stuff. [indiscernible] moderated a tad, I mean, are you seeing a setup where you're going going to three to four to five quarters now see a spike in those orders? Does you get the sense they're working through their inventory?

Just Yes. So I think on a consumable basis, which the wireline cables, coiled tubing, Those are getting consumed and turning turning well for U. S. Land. Our more capital type products whether it's power ends or radiators, things like that. I think those are the items that are looking for a spike, as you say, maybe a few quarters out later this year or into next year as that equipment ages.

Okay. Got it. I'll turn it over. Thank you guys.

Thanks, John.

Thank you.

One moment for our next question. Our next question comes from the line of Dave Storms from Stonegate.

Good morning. Good morning, Dave.

Good morning. Just wanted to start with maybe some of the puts and takes on guidance. Mentioned that the beat the market strategy should help maintain the top line despite maybe some overall market weakness, but it still looks like your EBITDA midpoint guidance is about percent decrease year over year. Just hoping you could speak to maybe some of the margin assumptions or price mix volume decisions That would drive that.

Yes. I think as we look out to 2025, we said the market could be down 2% to 5%.

So really the EBITDA guidance range we put in there is is really how successful we are to either partially or fully offset that that market decline. So I think at the midpoint, you could see The market down a lot and Dallas called it 5%, but we're gain a little more share or at the low end of the market, let's say, they're down 2%. Then we don't gain as much share. So we wanted to give kind of that that range Ideally, if the market stays flat and we add revenue, we'd be closer to the top end of that range.

Understood. That's very helpful. And just kind of on that, with the general market expected to decline to 2% to 5%. Are you seeing any pockets of strength? I know international has been a bright spot, could be a little choppy for you guys. Just curious as to if there's any green shoots that you are seeing out there?

I think it really is more on the the types of product side. I think our consumables, we've seen a nice nice start to the year. I think capital is still a little slower to start as as our customers get their budgets [indiscernible] I think overall, international is probably going to be [indiscernible] for the year, going to be a bright spot for us whether I think it's a good start in Canada to the year. We'll see if that can hold And then outside North America, again, whether it's Saudi, maybe a little lighter, but Kuwait, Oman, Abu Dhabi, I think all our going to be pretty good for us this year. That's very helpful. Thank you for taking my questions and good luck in the first quarter. Thanks, Dave.

Thank you. Our next question comes from the line of Jeff Robertson from Water Tower Research.

Thank you. Good morning. Neil, you talked about gaining market share in 2024 and over the last three years. As you look at the market conditions in 2025, are there areas where you think you still have room to grow market share? And are those if so, are those product lines in ones that would have a favorable impact on margins versus maybe [indiscernible] in other lines.

Yes. No, that's a a good, great question. Our focus we want to grow profitable market share. So we are putting the time to those key product lines that do have the higher margins [indiscernible] to gain that share. So I think the areas are artificial lift and downhole, that segment high margin It's one that we've added a lot of new products over the year. I mentioned [indiscernible] as well as our Pum Saver Plus.

We've We continue to build out that product portfolio. So I think that's an obvious area of growth. I mentioned coiled line pipe earlier on the PowerJEM, we also are seeing international projects that are offshore that could be a nice boost there as well. So I don't think our gain share is done. I think we have a good runway on that. And I think over time, We are absolutely focused on beating market and executing that strategy.

On the products you mentioned, the Unity remote control system for ROVs, has that been field tested to the point where getting more interest in it from from a broader group of customers? [indiscernible] today. We're actually in the middle of testing those systems right now. We're going to have them delivered here in Q1. We had a little delay just to in Q4 with one customer, so we pushed in the Q Q1 here. But yes, I think it's still early, but it is an area where it's It's taking personnel off vessels, that's a huge savings for our customers. So us executing that, I think, is is a really, really good good deal. I think what's exciting too we could upgrade already existing installed ROVs and that's a great opportunity Forum us.

In the past with respect to returning cash to shareholders, you all have I guess broadly talked about the possibility of a dividend. Does the share repurchase plan, do you think just give you the most flexibility as you look at the options on the value of FET versus the valuations that you're seeing in the acquisition market? Yes, Jeff. I'll take that one.

At this point, we don't have any specific dividend plans. And do really feel like given the relative valuation of FET stock versus other things that we could invest capital in, It's just such a screaming buy that that that's where we ought to be. So that's our focus for now for that 50% of our cash flow think the other 50% will continue to go to our net debt reduction We feel like just kind of use the midpoint of our guidance on cash of just 50 take half of that as '25, that would be about 10% of our market cap. So if we achieve that this year, that's a very big amount. And at the same time, we can pull our net leverage down to 1.25 times, 1.3 times, something like that over the same period of time.

Thank you, Lau.

Thank you.

One moment for our next question. Our next question comes from the line of Steve Ferrazzani from Sidoti.

Good morning, everyone. Appreciate you taking my question. I did want to follow-up a couple of the earlier questions. In terms of your breakdown on seeing 2% to 5% decline in drilling and completions, I'm just trying to think about some of your individual markets Verapyrm has been really successful at high margin. In December, we saw pretty healthy guidance from the bigger oil sands producers, but that was pre tariff talk.

You said that Canada started up healthy for you. Are you seeing any kind of impact this point? Are you expecting any kind of impact?

Yes. I think the in Canada, it was a good fourth quarter. I think the [indiscernible] There's been has been good here as well to start the first quarter. Haven't seen an impact yet Forum tariffs. It's something that Boy, we're doing a lot of analysis. I think we could see a slowdown if we did have that that 10% oil tariff come through on Canadian crude. That would be something that we'd have to adjust to Forum sure.

Okay. And then it's in the other side of the border and I don't know how much exposure country to country, but Mexico obviously very soft Could that hit you in the first half?

Yes. Our exposure to Mexico is fairly limited. It's a really small part of our business So not as concerned there. I think North America for us is primarily Canada and The U. S. And Steve, maybe I'll just touch in on just Sure.

Let me jump in on the tariff comment just to give a little more color there on how we're thinking about it. As Neil mentioned, we don't have any tariff impact included in the guidance that we provided. Just too early to really understand but we do have experience with what happened in prior tariff regimes and what that looked like. And our view is have probably a similar outcome and that is that first, our well, given our market position with a lot of our product offerings, we have the ability to pass on tariff increases to our customers. And that would be our expectation However, the uncertainty and volatility that can come from that until the market settle out definitely could be a near term let's call it choppiness or bumpiness in results. So we don't have anything in there, but definitely something that we're watching and our teams are monitoring really daily to make sure we take the appropriate actions.

Excellent. If I get one more in, obviously, your balance extremely strong. You noted that the outperformance of Variperm If we end up in this sort of soft environment flat to slightly down year, new opportunities might emerge given the balance sheet and I understand the better returns Forum share buybacks. Are you open and ready to jump if the next VERIPERM comes up? And not to say it would, Yes. I think if we can get in our comments, we talked about looking at the relative value right, of our shares versus versus opportunities out there. So I think if we saw the relative value in an acquisition, I think we would absolutely as you mentioned Verapyrm fantastic acquisition, great team. We'd love to add another one.

Excellent.

Thanks, everyone.

Thank you.

Thank you. Our next question comes from the line of Eric Carlson.

Good morning, guys.

I was wondering if this maybe talk through a little bit of I mean, clearly with the kind of the large and impairment charge in Q4, the kind of the headline income and EPS numbers probably grab a lot of attention. But you have to forgive my quick my quick math, but I think it was just over $100,000,000 loss for the year, but a lot of that kind of attributed to the impairment charge and then FX and then a higher interest expense. So maybe just on a go forward basis, if you just look at kind of the income statement, it feels like it's set up to be a little bit more normalized instead of all these one offs from transaction expenses and so on and so forth. Forum, hey, this a few stocks there would be interesting.

Sure, Eric. Definitely. And definitely a lot of noise.

Noise in there. So just draw your attention to the earnings release and our table in the back would show in a full year adjusted net income numbers. And if you look at those, want to spend a minute on those. If you look at those on a year over year basis, our adjusted net income is actually down from negative 1.5% to negative 10%, which what is that? And that's really driven by interest expense that we added of about $12,000,000 but with our net debt now coming down and with our guidance, we expect a really meaningful improvement on a year over year So 2025 should be better The other place that there was a year over year increase was on tax expense. Again, an increase due to VERIPERM and a little bit tied to this pillar two global minimum tax that's out there. So through this year, we've already restructured some of that and we'll be able to have a lower go forward tax guidance. We have. So between those items, lower interest forward lower taxes forward, lower amortization expense going Forum. We're set up for a much improved net income and EPS result in 2025 versus 2024.

Okay. That's helpful. I guess and then just looking at kind of the cash flow numbers. So obviously, [indiscernible] very strong, but for the full year about 45% of current market cap in cash generated and a good majority of that just from operations. So maybe I'm thinking of the context of I know some people have brought up ways to return capital and kind of the relative value. I mean, I did kind of quick math, but it looks like kind of the median EV to EBITDA on kind of the peer group at least stated in kind of the proxy statement Forum [indiscernible] maybe 6.5% and that's excluding a few. I couldn't find information on. But do you guys kind of trade at under Forum, three point seven five, so almost 50% discount to that I mean, when you think about deploying capital, obviously, a buyback makes a ton of sense. There's a lot of kind of surety to what you're getting there. And maybe just when you think about the relative value like if I know I can buy 10% of my shares that increases my free cash flow by share per share by 10%, I can kind of put that on a flywheel and repeat it.

Versus what is the relative value needed by a strategic acquisition on the outside? So maybe just thinking about the hurdle rate of different ways to do that because obviously buying your stock seems like a no brainer. But like if I can buy if you can buy your stock at under four times EBITDA, what's the hurdle rate? Like what do you need to be able to buy a bare Permatica? And does it need to be three times or it doesn't need to be just maybe provide some context for that because I think that'd be really helpful.

Yes, I think we we'd go back to what's our acquisition guideline strategy, right? We want to get companies that have differentiated products in niche markets. We want to have an accretion to key multiples and cash flow per share, I think would be one of those. And we don't want to ourselves in a tight balance sheet by adding a lot of debt. So So as far as a specific hurdle rate, I think we would just really stick with our guidance there, I think we'd look at it on a case by case basis. I think accretion would be a big point to that So I think it would be we got to find the right it would have to be the right deal at the right price and really the right discount to where we sit too. Get it done.

Okay. That's helpful. And then maybe in deploying kind of buyback, I know the comment already was probably weighted a little bit more heavily to provide some mean, what are kind of your limitations on terms of daily volume and then in terms of maybe opportunity to source some larger blocks of shares, just kind of looking at the filings, I mean there's still at least one really large bondholder still holding I mean, 900,000 shares. So, I mean, when you think about how you deploy that most effectively Maybe just provide some context Sure. Eric, talked about in our prepared remarks really the limiting factor is going to be our 1.5x net leverage ratio pro form a for the the buyback. So we ended fourth quarter just under that, opening the door for us to be able to get some things done. Obviously, as we buy back shares that kind of increases that on that pro form a number. So we'll generate free cash flow through the year, probably like to say guided lighter in Q1. And then stronger in the later part of the year, which opens up opportunity for us. The other we would do is we look at open market purchases.

We want to make sure we sit within the appropriate safe harbors So we're limited in terms of average daily trading volumes and what that would be for us. So that would be kind of an open market kind of an opportunity. So I think we look at those. There's plenty of volume out there and January, when we did buy, we were able to get that done in a short amount of days. So I think when we are in the market, we could do that relatively quickly and be able to buy up some of those shares.

But we'll be focused on that 1.5 times measure as we get under that.

That provides more opportunity Forum us.

Okay. And then you said so the based on the math, it's $42,000,000 would be kind of available. But obviously, with cash flow projections, it would come in under that. That's right.

And then maybe the last my last question would be, you have been able to do some things to take advantage of kind of generating one off cash flow like sale leaseback at the end of this year, you did it in previous years as well. Just wondering if there's any other low hanging fruit out there to kind of generate kind of cash above and beyond operations?

Yes. So if you look at our guidance and what we guided, the 40 to 60 Really, it doesn't include any incremental cash from an asset monetization like the sale leaseback. It also doesn't include any kind of assuming flat numbers and both of those were big contributors in 2024. So we'll continue to look at ways to do that.

Both on the working capital side. Our teams are very focused on inventory reduction. Given the market condition here and what's going on with potential tariffs We're being prudent around not getting too short on inventories these days. So I think that will be something we'll have to balance through the course of the year. And then clearly, as we look at our portfolio, both [indiscernible] new product additions we want to make where we might want to trim back on our portfolio. It's all about returns. And how do we improve the returns, cash returns that those portfolios can give. So we'll be looking at those as well, but nothing specific included in our guidance at this point.

Okay.

That's helpful.

Thanks, guys. Good quarter, good year.

I would now like to turn the conference back over to Neil Lucks for closing remarks.

Okay. Well, thank you for your support and participation in today's call.

We look forward to our next meeting in May discuss our first quarter twenty twenty five results.

This concludes today's conference call.

Thank you for participating. You may now disconnect.