Forum Energy Technologies Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Dave Storms - Stonegate Capital Partners - Analyst : Good morning. Just hoping we could start with cash flow guidance. Great to see it take a step up. Could you help us understand just kind of some of the puts and takes that will put you on either the higher or lower end of that guidance range?

Question: Dave Storms - Stonegate Capital Partners - Analyst : Understood. That's very helpful. Thank you. And then, I know there's a lot of anticipation around returning capital to shareholders middle of next year. Is there any more color you can give us on what that may look like? I know you mentioned repurchases or dividends. Maybe just any variables that would sway your decision or is the decision one way or another?

Question: Dave Storms - Stonegate Capital Partners - Analyst : Understood. And if I could ask one for international. I know coming out of the first quarter, the international markets may be a little slow to release their budgets, so that 50% number in 2Q. How much of that may be a catch-up? And how much of that maybe is a really good baseline for FET Co.?

Question: Dave Storms - Stonegate Capital Partners - Analyst : Yeah. Very helpful. And if I could just ask one more question. You mentioned, you've brought on a customer in Drilling and Completions, pretty sizable customer. Just curious as to what the overall customer acquisition environment is like, especially given all the pickup in market share internationally.

Question: Dave Storms - Stonegate Capital Partners - Analyst : That's all. Very helpful. Thank you for taking my questions. Good luck on the third quarter.

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Good morning, gentlemen.

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Canada, impressive performance there. I think I heard flat quarter-to-quarter for Canada revenues overall, and then also think I heard flat Variperm

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Okay. Right. And that, I guess, certainly caught my eye because it's a pretty substantial difference relative to kind of your thought it could be down as much as half. Was there a customer win? Was it just steadier business than you expected? Or is it just getting to know Variperm and the volatility in that business and it surprised you a little bit?

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Yeah. That's awesome. Earlier in the year, you talked about sort of second half being stronger for Variperm oil, sands activity, etc. Is that still the outlook? Is there any update, given the fluctuations we've seen in crude price? We don't really see a change in that outlook. It's something we'll monitor.

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Okay. So second half better than first half, and the first half here has been a little bit better than you thought. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 02, 2024 / 3:00PM, FET.N - Q2 2024 Forum Energy Technologies Inc Earnings Call

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Good. That's a nice start for that acquisition. I wanted to shift over if we could, to the balance sheet. And so while I think I heard you saying, can you just walk us through the note redemption process. We know its $60 million but you've said August several times. Is there a specific date here? And then how do we fund that? Do we fund it? Do we pull cash balances down a little bit more? Do we bump the revolver up? How do you see kind of processing that paydown?

Question: Daniel Pickering - Pickering Energy Partners - Analyst : And Lyle, is there a similar redemption notice process. So you issued a press release saying, hey, we're going to redeem the remainder. And so we will follow the same process? We'll see something in October, November and that redemption that would follow 30 days later.

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Okay. Good. That's helpful. And then my last question and it's one more focused on operations. Your valve business, you had a nice bump. Can you talk a little bit was that. Is that a restocking by distributors? Was it the Middle East growth that drove that? I'm just curious if we're seeing a change in business dynamics.

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Thanks. And I said it was my last question. I do have one more. Kind of every other quarter I asked you about the environment for bolt-on acquisitions and opportunities. Variperm, obviously, you're early in that process still, but things seem to be going well. What's the overall environment for things like another Variperm or opportunities? And as you're answering that question, I guess, North America is sloppy right now. Would you stay away from North American exposure or do you think about North America as an opportunity?

Question: Daniel Pickering - Pickering Energy Partners - Analyst : Okay. Thanks so much. Well done.

Question: Jeffrey Robertson - Water Tower Research - Analyst : Thanks. Good morning. Neal, you spoke a little bit about revenue per rig. And I'm wondering if you can talk both between the US and international markets.? Where do you see further gains in the type of sales mix that will offset the weakness you see in the rig count? And then secondly, are those gains pretty sticky if you start to see some sort of improvement in rig count in 2025?

Question: Jeffrey Robertson - Water Tower Research - Analyst : Are some of those gains driven by the service providers wanting FET's products or is it a mix of that plus the E&P operator or the well owners saying if you're going to drill our well, we want these types of products on site for that FET supplies?

Question: Jeffrey Robertson - Water Tower Research - Analyst : And on renewables or energy transition, you mentioned power generation as a potential new revenue opportunity in your JumboTron XL system. Is that because you're seeing requests for bids and people doing fabrication studies? Or are you actually starting to see orders for products to build out these types of systems around the world?

Question: Jeffrey Robertson - Water Tower Research - Analyst : And then to follow on that, do those types of projects create aftermarket business through servicing and replacement cycles?

Question: Jeffrey Robertson - Water Tower Research - Analyst : And then a last question. On the Middle East and your revenue growth in the second quarter, are you seeing projects or big-scale projects that you see that continuing in not necessarily the quarterly growth, but are you seeing continued exposure for increased sales as you look out into 2025 and maybe even 2026?

Question: Jeffrey Robertson - Water Tower Research - Analyst : Just on margins, Neal or Lyle, with the 12.5% to 13% margins in the first two quarters of this year. Do you think the product mix as you think about 2025 will be similar to 2024 can lead to the similar type margins or do you think there's room for expansion?

Question: Jeffrey Robertson - Water Tower Research - Analyst : Thanks very much.

Question: Erik Carlsson - - Analyst : Another great quarter. I mean it's hard to complain when you can almost generate 25% of your market cap in cash in a whole year, which I think the international markets are probably a little bit underappreciated by the market currently, but maybe just a little bit more on Canada and when you think about activity there. I guess Baker Hughes 144 oil-specific rigs currently, which is, I mean, maybe 20-plus percent above last year. And could you maybe just share a little bit on when you think about Canadian activity, obviously, am I correct in thinking that being more oil-weighted is a benefit to Variperm specifically?

Question: Erik Carlsson - - Analyst : Great. And then maybe just on that longer lateral comment in the industry broadly. I mean, obviously, when you think about kind of the business lines you have, if you look in to any of the E&P calls, you hear basically longer laterals, more stages completed per day. And when you think about like a 4 mile lateral versus a 2 mile lateral, obviously, you need less rigs to complete that work, but the intensity of those rigs and the materials are there. So when you think about just building product mix for the future as technology continues to improve. I mean, do you think about how do we benefit from more stages complete or, call it, lateral miles drilled or whatever that may be. And we'll get less on kind of the pure rig count number? Can you just provide some thoughts around that?

Question: Erik Carlsson - - Analyst : And then maybe you can just share a little bit more info on kind of the Middle East specifically. Obviously, you see a lot of unconventional gas announcements and looking into kind of the other service providers, they expect to deliver rigs into the Middle East? And maybe just, I don't know, like what is the market opportunity there? And I even saw like the announcement, I think there was a post somewhere where you guys kind of are going to manufacture the radiators within the Saudi Arabian facility now maybe correct me if I'm wrong. Can you provide some content to the market opportunity there? I mean obviously, numbers are way above pre COVID, so you guys are kind of executing there. But does that become I mean, is that the biggest growth potential and then all incremental US activity that becomes a ton of torque to the outsider? I guess how do you think about the product mix geographically going forward?

Question: Erik Carlsson - - Analyst : Okay. Great. That's all. Very helpful.. And then, I guess this is my last question, last comments and just kind of one of your thoughts. I mean we're a little bit ways away, but it's getting closer. And when you think about kind of the potential to return capital, I guess I would just encourage you, if you're trading at a 25% free cash flow yield and a 50% discount to your peers on an EBITDA multiple basis to put every dollar possible to buying shares. Now obviously, if the market reprices you, dividends are great and then using share repurchases to either increase free cash flow per share or the ability to pay dividend per share without increasing the cash outlay. That's great. But at current valuation, I would pound the table on buying factor shares. And if that reduces liquidity or whatever it may be, it's kind of irrelevant from a long-term shareholder standpoint. So I just kind of like your internal comments of where your kind of valuation sits relative to peers. I mean, obviously, this is hypothetical because you can't do it at this point in time. But if you could return capital to shareholders, like what are your guys have thoughts once you get to that point?

Question: Erik Carlsson - - Analyst : Great. Well great quarter. Thanks, guys. Appreciate you taking the question.