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Innovation Creates Opportunities to Gain Share

We hosted a fireside chat with President and CEO Neal Lux and CFO Lyle Williams on May 21, 2024. We discussed Forum Energy Technologies’ (FET) strategy to “beat the market” with innovative solutions in the traditional energy industry and opportunities unfolding in the energy transition. This report contains a transcript of the conversation, which can be accessed on demand. Link is accessible in our full report. FET’s strategy to increase shareholder value is to “beat the market” with its lineup of products that help customers increase operational efficiency and safety to increase the returns on their activities. Execution is tied to the company’s ability to innovate and increase the total addressable market for its products and leverage its global manufacturing and distribution footprint to maximize its own profitability. The global rig count is a proxy for industry activity that underpins demand for FET’s products. More than 75% of FET’s 1Q24 revenue was derived from activity-driven consumable products, with the remainder from capital equipment. US unconventional operators are increasing the service intensity of development wells with longer laterals requiring more complex stimulations, shortening the replacement cycle for some consumable products. As a result, revenue growth opportunities remain despite a stagnant US rig count. Margin accretion from the January 2024 Variperm Energy Services acquisition was clear in FET’s 1Q24 financial results. Adjusted EBITDA margin in the Artificial Lift and Downhole segment, which includes Variperm, was 21.6% in 1Q24, 536 bps higher than 1Q23. Variperm established FET in the Canadian oil sands market where it is a leading supplier of sand and flow control solutions. Management expects it can gain share with Canadian customers increasing their exposure to FET’s other technology solutions and, over time, it can gain share in global markets where it can bring Variperm’s solutions to existing customers. FET works closely with customers to develop newer and better technological solutions to constantly innovate and improve its product catalogue. Prime examples include greaseless wireline cables, the FR120 Iron Roughneck, FASTConnect manifold systems, and Pump Saver Plus, which have increased FET’s addressable market creating market share gain opportunities. Its engineers work with customers to design coiled tubing strings to meet the specific operating challenges of the wells they drill. Many of FET’s traditional oil & gas products can also be used in energy transition projects such as carbon capture, renewable fuels, hydrogen, and offshore wind. In many cases, existing customers are beginning to expand into those markets creating new revenue opportunities for FET. Free cash flow and availability under FET’s existing ABL facility provide visibility to eliminating long-term debt by mid-2025, at which time, the board could consider a plan to return cash to shareholders.