Company Overview

Forum Energy Technologies, Inc. (FET) is a leading global manufacturing company serving the oil, natural gas, industrial, and renewable energy industries. Headquartered in Houston, Texas, FET has a rich history of providing value-added solutions aimed at improving the safety, efficiency, and environmental impact of its customers' operations.

Founded in 2005, FET's journey has been marked by strategic acquisitions, technological advancements, and a steadfast commitment to serving its diverse customer base. The company's highly engineered products include both capital equipment and consumable products, catering to the needs of oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, pipeline and refinery operators, and renewable energy providers.

FET's revenue composition reflects the diversification of its business model, with approximately 80% of its 2024 revenue derived from consumable products and activity-based equipment, and the remaining 20% primarily from capital products, with a small portion from rental and other services. This balanced approach has enabled the company to navigate the inherent cyclicality of the energy industry and position itself for long-term growth.

Corporate History

FET completed its initial public offering on April 17, 2012, marking a significant milestone in its corporate history. Since then, the company has pursued an aggressive growth strategy through strategic acquisitions, particularly focusing on expanding its Coiled Tubing and Stimulation and Intervention product lines. These acquisitions have played a crucial role in diversifying FET's product portfolio and strengthening its market position.

Challenges and Successes

The company has faced its share of challenges over the years. In 2019 and 2020, FET encountered difficulties due to tariffs on raw materials and experienced lower sales volumes during the COVID-19 pandemic. In 2021, the company grappled with sourcing sufficient steel to meet customer demand for its Coiled Tubing product line, necessitating the use of alternative suppliers. This led to increased costs and supply chain disruptions, highlighting the company's ability to adapt to changing market conditions.

Despite these obstacles, FET has achieved several notable successes. In 2017, the company entered into an agreement with seven of its primary insurers to cover 80% of the costs associated with handling and settling asbestos-related claims against one of its subsidiaries. This agreement provided much-needed stability and predictability regarding the financial impact of these claims.

Another significant victory for FET came in October 2017 when its subsidiary, Global Tubing, filed a lawsuit against Tenaris alleging that its DURACOIL products did not infringe certain Tenaris patents. The court ruled in favor of Global Tubing, finding all of Tenaris' patents unenforceable and dismissing the infringement claims. This legal triumph further solidified FET's position in the market and demonstrated its commitment to protecting its intellectual property.

Strategy and Market Position

Recognizing the evolving energy landscape, FET remains focused on serving its customers in both traditional oil and natural gas, as well as the growing renewable energy sector. The company's beat the market strategy has been instrumental in driving market share gains, leveraging its global footprint, and developing differentiated technologies to meet the changing needs of its customers.

Financials

In 2024, FET's revenue grew by 10% year-over-year, reaching $816.4 million, while its adjusted EBITDA increased by 49% to $100 million. This impressive financial performance was underpinned by the successful integration of the Variperm acquisition, which contributed meaningfully to the company's results. FET's free cash flow generation also reached a five-year high of $105 million, showcasing the strength of its business model and operational efficiency.

For the full year 2024, FET reported a net loss of $135.3 million, primarily due to a $119.1 million impairment charge on intangible assets within the Coiled Tubing product line. The company's gross profit margin improved to 31.2% in 2024, up from 27.6% in 2023, reflecting higher profitability in the Artificial Lift and Downhole segment.

In the fourth quarter of 2024, FET reported revenue of $201 million, a 3.3% decrease year-over-year, and a net loss of $103.5 million, largely due to the aforementioned impairment charge.

Segment Performance

FET operates in two reportable segments: Drilling and Completions, and Artificial Lift and Downhole.

The Drilling and Completions segment, which comprised 57.7% of FET's total revenues in 2024, designs, manufactures, and supplies products and solutions to the drilling, subsea, coiled tubing, well stimulation, and intervention markets. This segment reported operating income of $17.8 million, or 3.8% operating margin, for the year ended December 31, 2024, compared to $19.4 million, or 3.9% operating margin, in the prior year.

The Artificial Lift and Downhole segment, accounting for 42.3% of FET's total revenues in 2024, designs, manufactures, and supplies products and solutions for the artificial lift, well construction, production, and infrastructure markets. This segment's operating income increased to $48.9 million, or 14.1% operating margin, for the year ended December 31, 2024, compared to $31.6 million, or 13.4% operating margin, in the prior year. The $17.3 million increase in segment operating results was primarily driven by the acquisition of Variperm in January 2024.

Innovation and Product Portfolio

Despite the challenges posed by the market, FET has demonstrated its ability to adapt and innovate. The company's product portfolio has evolved to address the changing needs of its customers, with the introduction of groundbreaking solutions such as the FR 120 SC Iron Roughneck, the FastConnect zipper manifold system, Powertron heat transfer units, PumpSaver Plus, and the MagnaGuard permanent magnet motor ESP technology.

Geographic Diversification

FET's geographic diversification has also been a key driver of its growth, with international revenue increasing by almost 42% in 2024. The company's strategically located manufacturing facilities have enabled it to capitalize on global opportunities and serve its customers with greater efficiency and responsiveness. Around 50% of FET's revenue in 2024 came from outside the United States, with notable strength in Canada, the Middle East, and Europe/Africa.

Future Outlook

Looking ahead, FET anticipates a transitional year in 2025, as the global market is expected to see a 2-5% decline in drilling and completion activity. However, the company's confidence in its beat the market strategy and its ability to gain market share suggest that it may be able to partially or fully offset the impact of the broader market softness.

For full-year 2025, FET provided guidance of adjusted EBITDA in the range of $85 million to $105 million and free cash flow between $40 million to $60 million. For the first quarter of 2025, the company expects revenue to be in the range of $185 million to $205 million and EBITDA between $20 million to $24 million.

Liquidity and Capital Allocation

FET's capital deployment framework reflects its commitment to shareholder value creation. The company plans to allocate 50% of its forecasted 2025 free cash flow towards net debt reduction, while the remaining 50% will be directed towards strategic investments, including share repurchases. This balanced approach underscores FET's focus on maintaining a strong financial position while also providing returns to its shareholders.

As of December 31, 2024, FET had $44.7 million in cash and $61.2 million available under its $250 million revolving credit facility, providing total liquidity of $106 million. The company's current ratio was 2.46 and quick ratio was 1.14, indicating a healthy short-term financial position. FET's debt-to-equity ratio stood at a low 0.006, suggesting a conservative approach to leverage.

Conclusion

In conclusion, Forum Energy Technologies is a well-positioned player in the energy industry, with a diversified business model, a track record of innovation, and a steadfast commitment to serving its customers. The company's strong performance in 2024, exceeding previous guidance, demonstrates its ability to execute effectively in a challenging market environment. As the energy landscape continues to evolve, FET's ability to adapt and capitalize on emerging opportunities positions it well for long-term success. With a clear strategy for market share growth, ongoing product innovation, and disciplined capital allocation, FET is poised to navigate the transitional period ahead and emerge as a stronger, more competitive player in the global energy market.