Forum Energy Technologies, Inc. (NYSE:FET): Transformative Variperm Acquisition Drives Impressive Q1 Results

Published on September 24, 2024 | Ticker: FET

Forum Energy Technologies, Inc. (NYSE:FET) reported impressive first quarter 2024 results, driven by the transformative acquisition of Variperm. The company's revenue for the quarter reached $202.4 million, up 7.1% year-over-year, while its adjusted EBITDA surged 69% sequentially to $26 million, with margins improving by 460 basis points to 13%.

Business Overview

The key driver behind Forum Energy Technologies' strong performance was the successful integration of Variperm, a manufacturer of downhole technology solutions. The acquisition, completed in January 2024, has significantly enhanced Forum Energy Technologies' Artificial Lift and Downhole segment, which saw a 42% sequential increase in revenue and a 107% jump in EBITDA. Variperm's premium downhole products and solutions have expanded Forum Energy Technologies' addressable market, particularly in the Canadian oil sands region.

In the Drilling and Completions segment, revenue declined 6% year-over-year, primarily due to the completion of two ROV projects in the prior quarter, lower demand for drilling capital equipment, and softer international coiled tubing sales. However, the segment's EBITDA grew 13%, with margins improving 190 basis points to 12%, driven by favorable product mix.

Forum Energy Technologies' book-to-bill ratio for the quarter was 101%, indicating a healthy demand environment. The company's global footprint and diversified product portfolio, with 75-80% of revenue tied to activity, provide resilience in the face of fluctuating market conditions.

Outlook

Looking ahead, Forum Energy Technologies expects to see revenue and EBITDA growth in the U.S. and international markets in the second quarter, though this may be offset by the seasonal Canadian breakup. The company has reaffirmed its full-year 2024 guidance, with EBITDA expected to be in the range of $100 million to $120 million and free cash flow of $40 million to $60 million.

Liquidity

Forum Energy Technologies' strong liquidity position, with $49 million in cash and $72 million in available credit facility as of March 31, 2024, provides the company with the flexibility to retire its remaining $134 million in 2025 notes by the end of the year. This, in turn, will enable Forum Energy Technologies to explore options for returning cash to shareholders through share repurchases or dividends, while maintaining a low leverage ratio of around 1x trailing EBITDA.

Recent Developments

The company's focus on innovation and product development has been a key driver of its success. Forum Energy Technologies' new products, such as the FASTConnect frac manifold replacement system, have been well-received by customers, helping them improve efficiency and reduce well costs. The company's relentless commercial efforts and differentiated product offerings have allowed it to capture market share and command higher margins.

Forum Energy Technologies' global footprint and asset-light model have also been instrumental in its performance. The company's strategically located manufacturing and distribution hubs enable it to be nimble and pivot with changing market conditions, shipping products to where its customers need them.

The company's management team has demonstrated a strong commitment to shareholder value creation. The recent alignment of executive compensation with free cash flow generation is a testament to this focus. Forum Energy Technologies' solid liquidity position and expected cash flow generation provide a clear path to deleveraging and positioning the company for potential shareholder returns in the future.

Conclusion

Overall, Forum Energy Technologies' impressive first quarter results, driven by the transformative Variperm acquisition and the company's focus on innovation and operational excellence, position it well for continued success in the dynamic energy market. The company's diversified product portfolio, global reach, and strong financial profile make it an attractive investment opportunity for investors seeking exposure to the oilfield services industry.

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