Company Overview
Forum Energy Technologies, Inc. (FET) is a global manufacturing company serving the oil, natural gas, industrial, and renewable energy industries. Headquartered in Houston, Texas, FET provides value-added solutions that increase the safety, efficiency, and environmental impact of its customers’ operations. The company’s highly engineered products include both capital equipment and consumable products, catering to a diverse customer base that includes oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, pipeline and refinery operators, and renewable and new energy companies.
History and Growth
FET’s history dates back to 2005 when it was founded with the goal of becoming a leading provider of differentiated products and services to the energy industry. Over the years, the company has strategically expanded its product portfolio and global footprint through both organic growth and strategic acquisitions, cementing its position as a trusted partner to its customers. In 2010, FET acquired Global Tubing, a leader in coiled tubing products and services, which strengthened its presence in the production and infrastructure markets. This was followed by the acquisition of Quality Wireline Services in 2013, expanding the company’s offerings in the well construction and intervention markets. In 2019, FET faced a significant challenge when it took a $532 million impairment charge related to goodwill and other intangible assets, driven by the prolonged downturn in the oil and gas industry. To address this, the company rationalized its product portfolio and optimized its global manufacturing footprint while maintaining its focus on innovation and new product development. In 2020, FET further strengthened its position in the artificial lift and downhole markets through the acquisition of Variperm, a manufacturer of downhole technology solutions, expanding its capabilities in providing sand and flow control products for heavy oil applications.
Business Segments
In the first quarter of 2024, FET realigned its reportable segments to better reflect its business activity drivers and the way management reviews and evaluates operating performance. The company now operates in two reportable segments: Drilling and Completions, and Artificial Lift and Downhole. The Drilling and Completions segment designs, manufactures, and supplies products and solutions to the drilling, subsea, coiled tubing, well stimulation, and intervention markets, including applications in oil and natural gas, renewable energy, defense, and communications. The Artificial Lift and Downhole segment, on the other hand, focuses on products and solutions for the artificial lift, well construction, production, and infrastructure markets.
Financials
FET’s financial performance in recent years has been marked by a focus on generating strong free cash flow. In the first nine months of 2024, the company generated $48 million in free cash flow, putting it on track to exceed its previously raised guidance of $60 million to $70 million for the full year. This robust cash flow generation has allowed FET to take significant steps to strengthen its balance sheet and optimize its capital structure.
For the most recent fiscal year (2023), FET reported revenue of $738.86 million, a net loss of $18.88 million, operating cash flow of $8.18 million, and free cash flow of $239,000. In the most recent quarter (Q3 2024), the company’s revenue was $207.81 million, representing a 16% increase compared to Q3 2023. The net loss for Q3 2024 was $14.82 million, while operating cash flow reached $25.60 million and free cash flow totaled $31.24 million.
The Drilling and Completions segment’s revenue for Q3 2024 was $123.59 million, an increase of $4.67 million or 3.9% compared to Q3 2023. This increase was driven by higher project revenue from ROVs and Launch and Recovery Systems (LARS) in the Subsea product line, as well as increased sales of power ends and wireline cable in the Stimulation and Intervention product line. However, these gains were partially offset by decreased sales in the Drilling product line due to declining U.S. drilling activity.
The Artificial Lift and Downhole segment’s revenue for Q3 2024 was $84.23 million, a significant increase of $23.87 million or 39.5% compared to Q3 2023. This growth was primarily attributable to revenue contributed by the acquired Variperm business, which more than offset a decrease in demand for surface production equipment.
Liquidity and Capital Structure
In October 2024, the company priced a $100 million senior secured bond offering, the net proceeds of which were used to redeem all outstanding 9.000% Convertible Senior Secured Notes due 2025 and repay all borrowings under the seller term loan issued in connection with the Variperm Energy Services acquisition. This transaction not only eliminated FET’s current debt maturities but also extended the maturity of its capital structure, providing the company with greater financial flexibility to execute its strategic initiatives.
As of the end of the third quarter of 2024, FET had a net leverage ratio of 1.9x, calculated using annualized year-to-date EBITDA. The company’s debt-to-equity ratio stood at 0.52, with $33.31 million in cash on hand and $58.80 million available under its $250 million revolving credit facility. FET’s current ratio was 1.93, and its quick ratio was 0.87, indicating a healthy short-term liquidity position. This strong financial position, combined with the company’s focus on free cash flow generation, has positioned FET to weather any potential market volatility and capitalize on strategic growth opportunities, both organically and through acquisitions.
Geographic Performance
FET’s revenue is primarily generated in the United States, which accounted for 52% of total revenue in Q3 2024. The company’s global footprint is evident in its diverse geographic revenue distribution, with Canada contributing 17% of revenue, the Middle East 12%, Europe/Africa 8%, Asia-Pacific 5%, and Latin America 6%.
Strategy and Innovation
Despite the challenges faced by the broader energy industry in recent years, FET has demonstrated its ability to adapt and innovate. The company’s “beat the market” strategy, which focuses on growing profitable market share, developing differentiated products and technologies, optimizing its global footprint, and participating in the energy transition, has allowed it to outperform industry benchmarks.
One example of FET’s innovative approach is the development of its Unity operating system for remotely controlling remotely operated vehicles (ROVs). This cloud-based technology, which the company expects to begin delivering to customers before the end of 2024, has the potential to revolutionize the offshore robotics market by enabling fewer personnel and vessels to be used, thereby improving safety and reducing costs.
Another area of innovation is the company’s MagnaGuard tool, which provides reliable protection from potential safety risks associated with the use of permanent magnet motor electric submersible pumps (ESPs). By addressing this critical barrier to the greater adoption of these highly efficient pumps, FET is helping its customers to lower expenses and enhance the environmental performance of their operations.
Outlook and Guidance
For Q4 2024, FET expects revenue to be in the range of $190 million to $210 million and adjusted EBITDA to be in the range of $22 million to $26 million. This Q4 EBITDA guidance puts FET within their previous full year 2024 EBITDA guidance range of $100 million to $110 million.
Looking ahead to 2025, FET’s management has noted that while U.S. drilling and completions activity could be down as much as 5% compared to 2024, international and offshore activity, as well as the company’s “beat the market” strategy, are expected to help mitigate any potential softness in the domestic market. Canada and international demand is expected to remain relatively flat to slightly up compared to 2024.
While specific financial guidance for 2025 has not been provided, FET has estimated that with flat EBITDA year-over-year, interest payments of approximately $20 million, cash taxes of approximately $15 million, and capital expenditures of approximately $10 million, they could generate free cash flow in the range of $50 million to $60 million. Regardless of market conditions, FET remains focused on generating strong free cash flow and returning capital to shareholders, either through strategic investments or share repurchases.
Industry Trends
The global oil and gas equipment and services market is expected to grow at a compound annual growth rate (CAGR) of 4-6% over the next five years. This growth is primarily driven by increased investments in unconventional oil and gas exploration and production, as well as the ongoing energy transition to renewable sources. FET’s diversified product portfolio and global footprint position the company well to capitalize on these industry trends.
Conclusion
In conclusion, Forum Energy Technologies is a well-positioned global manufacturer serving the evolving energy industry. With a strong balance sheet, a focus on innovation, and a proven track record of delivering value-added solutions to its customers, FET is poised to continue navigating the changing energy landscape and creating long-term shareholder value. The company’s solid financial results in Q3 2024, marked by strong revenue growth, improved profitability, and healthy liquidity, demonstrate its resilience and adaptability in a dynamic market environment. As FET continues to execute its “beat the market” strategy and invest in innovative technologies, it remains well-equipped to address the challenges and opportunities presented by the ongoing energy transition and evolving industry landscape.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.