Forum Energy at Sidoti’s Conference: Strategic Insights and Growth

On Wednesday, 11 June 2025, Forum Energy Technologies (NYSE:FET) participated in Sidoti’s Small-Cap Virtual Conference. CEO Neil Lux outlined the company’s strategic positioning amid global energy demand, highlighting its robust financial performance and proactive measures to mitigate market uncertainties. While emphasizing growth opportunities, Lux also addressed potential challenges from geopolitical and macroeconomic factors.

Key Takeaways

• Forum Energy Technologies has achieved a compound annual revenue growth rate of 15% since 2021.
• The company reported over 70% annual growth in EBITDA, with margins improving significantly.
• FET’s strategic focus includes market share expansion, product innovation, and entry into new energy sectors.
• The company is committed to shareholder returns through debt reduction and share repurchase programs.
• Operational cost mitigation and strategic investments are key components of FET’s future outlook.

Financial Results

• Revenue Growth: Achieved a 15% CAGR since 2021, with 50% of sales outside the U.S.
• EBITDA Growth: Over 70% annual growth, with margins improving from under 4% in 2021 to over 12% in 2024.
• 2025 Guidance: Adjusted EBITDA expected between $85 million and $105 million; free cash flow guidance set at $40 million to $60 million.
• Free Cash Flow: Positive for seven consecutive quarters, with a 25% yield at the midpoint of guidance.
• Capital Expenditure: Maintained at 1% of sales, indicating low CapEx requirements.
• Debt Reduction: Net leverage ratio reduced from 4.7x in 2019 to just over 1.5x by Q1 2025.
• Share Repurchase Program: $75 million allocated, representing over 7% of market cap.

Operational Updates

• Market Segments: Includes Artificial Lift, Downhole, and Drilling and Completion segments.
• Geographical Reach: 44 locations across nine countries, with key manufacturing sites in the U.S., Canada, UK, Germany, and Saudi Arabia.
• Subsea Business: Growth driven by aging equipment and high utilization rates, with innovations like the Unity operating system enhancing efficiency.
• Cost Mitigation Measures: Price increases, supply chain optimization, and $10 million in annualized cost reductions.
• New Energy Initiatives: Products for biogas, hydrogen, geothermal, offshore wind, and mobile power generation.

Future Outlook

• 2025 Expectations: Global drilling and completions activity anticipated to decline by 2-5% compared to 2024.
• Long-Term Growth: Focus on profitable market share growth, product differentiation, and new energy sector expansion.
• Shareholder Returns: Plan to use 50% of free cash flow for debt reduction, with remaining cash for strategic investments.

Q&A Highlights

• Innovation: Emphasized as a key factor in process efficiency and cost reduction.
• Subsea Business: Growth supported by secular factors and cost-reducing innovations.
• Cash Flow Generation: Strong free cash flow capability due to low CapEx requirements.
• Share Buybacks: Focus on debt reduction and strategic investments before active buybacks.
• Acquisition Strategy: Open to strategic acquisitions, balancing with stock value.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - Sidoti’s Small-Cap Virtual Conference:

Steve Ferrizani, Analyst, Sidoti: Morning, everyone, and welcome to Sidoti Small Cap Virtual Conference. I’m Steve Ferrizani, an analyst at Sidoti. So pleased to be joined this morning by CEO Neil Lux of Forum Energy Technologies. The ticker is FET. We launched coverage just a month ago.

If you haven’t seen the report, please reach out to your sales institutional sales rep. Otherwise, it’s on our website. You can find it on Bloomberg or fax that we did initiate with a $24 price target, citing FET’s strong global presence and ability to generate cash flow. Again, if you have the chance to check out that report, I know Neil will cover a lot of these topics during his presentation. We will have time remaining after the presentation for questions.

If you have any, press that q and a box at the bottom of your screen. Type them in, and we’ll get to, absolutely as many as we can. And with that, let me turn it over to CEO, Neil Lux.

Neil Lux, CEO, Forum Energy Technologies: Thanks, Steve. Yep. Good morning, everybody. I’ll begin with just a quick introduction. I joined FET about eight years ago.

I was, adopted, through an acquisition. I was a founder of a company called Global Tubing, which, remains one of FET’s key product lines today. I’ve been in the energy equipment manufacturing industry for for twenty years. And in addition to my operating roles, I’ve been involved in a lot of product development and innovation through through that time. For example, I I developed a patented product that has generated significant amount of revenue over the last thirteen years for Global Tubing and and FET.

So innovation has been a a key part of my success and remains in, my DNA and FETs. So, with that, I’m gonna jump ahead to, slide three and and really begin with with FET at a at a glance. So we don’t drill, wells. We don’t drill holes, but we sell critical capital equipment to industry leaders that do. We don’t stimulate wells, but we manufacture consumable products that enable the world’s largest service companies to do so.

And we don’t produce hydrocarbons, but we do engineer and deliver specialized downhole tools for our blue chip customers to optimize oil and gas production. We make it happen by manufacturing value added products and solutions that increase the safety and efficiency of energy production. So we are a global manufacturer. Almost all of our revenue is derived from selling new products and solutions along with aftermarket parts and service. We have a wide range of differentiated products in our portfolio, and our deep base of industry knowledge allows us to develop new solutions for our customers and separate ourselves from our competition.

We report, our financials through two segments, our artificial lift and downhole and drilling completion segments. Within our artificial lift and downhole segment, we have three product lines, downhole, production equipment, and valve solutions. Customers in this segment include global energy companies who own and process hydrocarbons such as ExxonMobil, Aramco, and Canadian Natural Resources. The products, in this segment support, maintaining production, protecting downhole pumps, increasing wellbore efficiency, and removing impurities from hydrocarbon production. Within our drilling and completion line, segment, excuse me, we have four product lines, drilling, subsea, stimulation intervention, and coil tubing.

The products in, these segments are in this segment are critical to new production, such as pipe handling equipment for drilling rigs, subsea robotics for deepwater tree installation, and coil tubing, wireline, and high pressure pumps for well completion activities. Customers in this segment include the largest oilfield service companies such as SLB, Halliburton, and Baker Hughes. And as a truly global manufacturer, about 50% of our sales are realized outside The United States. Finally, moving to the chart to the right, our financial performance demonstrates steady improvement. Revenue has grown at a compound rate of 15% since 2021.

EBITDA has grown much more quickly at over 70% annually. We have improved our EBITDA margins from under 4% in 2021 to over 12% in 2024 by reshaping our product portfolio, commercializing new value added technologies, and completing accretive acquisitions. Financially, FET is in its strongest position in many years. This is who we are, but I think for this audience, the more important question is why? Why FET?

Why is FET a great company and better investment? the world needs energy. Energy is the fundamental building block of economic growth. Demand will propel strong global investment in energy production, and our blue chip customer base will look to FET to provide the tools to safely and efficiently produce more energy. This will drive revenue growth since our products are critical components and demand for them will grow.

As a manufacturer, our operating leverage will drive margin expansion. In the long run, for every $100 increase in revenue, 30 to $40 will drop to EBITDA. These are strong incremental margins. And with our capital light business model, we will convert a significant percentage of incremental EBITDA into free cash flow. Finally, we expect to continue to reduce net debt while buying back our shares.

And with our current free cash flow yield, FET is an incredible investment. So let’s spend the next few minutes diving into more detail on why FET. The world needs energy a lot more. Several factors drive energy demand growth. Population growth, more people, more energy required.

Energy security, with conflicts in The Middle East and Ukraine, energy security is vital to geopolitical strength. Quality of life, there are six to 7,000,000,000 people in the world who consume a fraction of the energy we do in the West. As quality of life improves for these people, they will consume more energy. And a newer driver of energy demand stems from growth in data centers and artificial intelligence. The amount of energy needed will be staggering.

Consistent with these drivers, the US Energy Information Administration or the EIA estimates global energy demand will increase by 30% over the next two decades. So where will this energy come from? You know, non fossil fuel sources such as renewable energies, they will have their place. But importantly, fossil fuels will remain a significant contributor to overall global energy supply. Politically, support for fossil fuels is at its strongest in many years because the source of energy is highly reliable and abundant, while alternative sources have, many years of technology development to overcome their inherent intermittency.

And according to the EIA, energy supply from fossil fuels will satisfy around two thirds of energy demand by 2050 even after forecasting rapid growth in alternative fuels. Interestingly, given the support or political support of fossil fuels, it is entirely possible that this chart underestimates fuse future demand significantly. So how does this future supply growth impact FET? So while we have a broad portfolio of products and solutions across the energy value chain, the primary driver of our revenue is industry activity. We measure industry activity using a number of active drilling rigs on a global basis.

Chart on the left illustrates our strong revenue correlation with global rig count. Therefore, as growing demand for energy drives investment in new oil and gas supply, the resulting activity will drive FET revenue. Moving to the right side. About 80% of our sales are from activity driven consumables. Our consumable products represent a small share of our customer spend, but they are critical.

Generally, our customers cannot complete or drill wells without our products. And our consumables are not just, you know, nuts and bolts. These are big ticket items with unit prices usually in the thousands, if not hundreds of thousands of dollars. The remaining 20% of our revenues are from longer lived, capital equipment. This revenue source provides an upside growth driver in the event global demand increases meaningfully.

Our capital equipment includes, equipment for land and offshore drilling rigs, deepwater subsea robotics for traditional oil and gas and for offshore wind, and pumping equipment for well stimulation. Finally, as illustrated in the lower left part of this slide, FET’s revenue per global rig has increased over the past few years. This growth highlights another driver of our results, and that is service intensity. Service intensity reflects the fact that drilling rigs will drill more feet per day, and frac fleets will pump more stages per day. These factors increase the amount of wear and tear on equipment and drive FET’s consumable revenue.

Additionally, increasing revenue per rig is indicative of FET’s expanding market share through our growth strategy, which I’ll outline on the next slide. We are strong believers in energy. We believe there’s a long tailwind in demand for our products. But to deliver exceptional value for our shareholders, we need to beat the market. Our beat the market strategy consists of four parts.

One, grow profitable market share through FET’s competitive advantage, develop differentiated products and technologies, for our the for the markets we serve, utilize our global manufacturing and distribution footprint to service our customers anywhere in the world and expand our participation in new energy. Our success with this strategy will drive revenue growth faster than the overall industry. So let’s spend some time on each of these pillars on the next few slides. Over the past few years, we have strategically shifted our portfolio to ensure we compete in markets with certain attractive characteristics. We focus on niche markets with limited competition and where we have meaningful market share.

About two thirds of our revenue comes from these leadership markets, and most of our competitors here are smaller, privately held companies. This allows us to compete where we have a differentiated advantage. Within our niche markets, we erect high barriers to entry with intellectual property, specialized manufacturing, and decades of continuous product innovation. Then we use our close customer relationships to facilitate further innovation and ensure continued relevance of our solutions through market cycles. And with our dedicated manufacturing sites, we can quickly ramp up production to meet demand and establish a leadership position.

We believe we can capture market share over time and realize the compound revenue effects from our efforts. And with the pillar of our strategy, innovation, we can supercharge these efforts. New product development and innovation are critical to beating the market. Operators are demanding greater efficiencies, lower well cost, and increased safety. To remain relevant, our customers must upgrade their capabilities.

By innovating and working together, we make them safer and more efficient. And this is FET’s opportunity to increase our total addressable market. On the right, we have three examples of products FET provides and developed through customer collaboration. is the EnviroLite greaseless cable. This is a specialized cable that can run-in and out of the well much faster than traditional cables.

This eliminates wasted steps and allows for more pumping time per day. The next example is DuraCoil coil tubing. To increase performance and reliability in high pressure operations, we developed and patented an in line quench and temper process for coil tubing. This process significantly enhances the fatigue life of coil tubing and allows us to garner a premium price. Final example is Veraperm Energy Services sand and flow control solutions.

Verapert was a fantastic acquisition we closed over a year ago. They have a differentiated differentiated product offering in the sand and flow control niche market. Their customers or operators provide core samples from their production reservoirs, and the Veraperm engineering and sales team customizes a solution specifically for their wells. This customization, along with five decades of brand awareness, make Veraperm the market leader. These are just a few examples.

Again, at FET, we have technology in our name and innovation in our DNA, and we will use our global manufacturing and distribution footprint to deliver our innovations around the world. At FET, we have an extensive global reach. About half our sales are outside The United States with roughly 20% of our sales for offshore applications. We ship to virtually every oil and gas producing region as illustrated by the map on the right. To support these sales, we have 44 locations across nine countries staffed by a global team of about 1,800 employees.

This includes key manufacturing locations in The US, Canada, United Kingdom, Germany, and Saudi Arabia. To meet growing global demand and to provide our products around the world, we do not need to expand our roofline or invest additional capital for growth. We have the footprint in place to expand our revenue by 50 with very little growth CapEx. This is a great feature of our business model. At FET, we will use our core competencies of manufacturing, engineering, and supply chain to address the energy needs of today and tomorrow.

We have products that are suitable for biogas, hydrogen, and geothermal applications, and others that can capture methane and carbon. A couple of areas where we have seen meaningful demand is offshore wind and mobile power generation. Our products, specialized remote operated vehicles or ROVs, are dual use for traditional oil and gas and the development of offshore wind farms. The great part is we share the same client for both industries, and we are a critical supplier of heat exchanging equipment for mobile power generation. Supporting development of alternative energy also aligns with our core values and commitment to sustainability.

We strive to be good stewards of the environment where we work and live. We strive to be a good place to work where our employees thrive in their careers, and good governance is nonnegotiable. We’ve discussed how we can grow into the future. Now let’s take a look back at our financial results over the past few years. As I mentioned in the beginning of the presentation, we have demonstrated strong revenue growth and EBITDA over the past few years.

Now let me walk you through our thoughts on this year, 2025. In February, we expected 2025 to be a transitional year for market activity driven by geopolitical and macroeconomic uncertainty. We had anticipated global drilling and completions activity to be about two to 5% lower than 2024 levels. However, we expected to gain continued market share gains through our beat the market strategy would partially or fully offset the impact of lower market activity. Therefore, our adjusted EBITDA guidance range of 80 to 85 to a 105,000,000 with free cash flow guidance between forty and sixty.

That was our call in in February. Since that call, US trade and tariff policies have generated significant uncertainty. In addition, OPEC plus announced faster supply growth than previously anticipated. The combination of these events has put pressure on oil prices, which have been hovering near four year lows. So while we have not seen a change in market activity, in our experience, rig count declines tend to lag commodity prices by three to six months.

Given this uncertainty, we are taking and have been taking proactive measures, to mitigate these impacts. to overcome tariffs, we are passing through price increases. In March, we announced price increases to our customers. we are optimizing our supply chain by leveraging our global footprint. Good example of that is we are increasing assembly activities in Saudi Arabia and Canada to avoid tariffs coming in and out of The United States.

Also, over the past several years, we have strategically derisked our supply chain to minimize dependence on a specific country and provide optionality in sourcing. And we are reducing costs and inventory. We are aligning costs and manage inbound material orders to carefully align with business, the business with market conditions, and we initiated actions to eliminate 10,000,000 of annualized costs. On an earnings call last month, we laid out a scenario where if commodity prices don’t rebound from current levels, we could see a decline in revenue starting in the third quarter. In this case, we believe our full year EBITDA would be around $85,000,000 More importantly, though, with our mitigation efforts, we are confident in our previously announced guidance range of 40,000,000 to $60,000,000 in free cash flow.

This result would allow us to execute meaningful share buybacks and significant debt reduction. So let’s spend some time on shareholder returns. we have a proven track record of substantially strengthening our balance sheet. In the upper right, you will see our net leverage ratio declining from 4.7 times in 2019 to just over one and a half at the end of the first quarter of twenty twenty five. Over this time, we were able to accomplish this reduction through a combination of debt to equity conversion, organic debt retirement, and refinancing.

Our debt maturities extend out to 2028 and 2029. we have generated positive free cash flow for seven consecutive quarters. Over the past two years, we have transformed our business systems and reinforced these improvements with key performance indicators and financial incentives aimed at strong, repeatable free cash flow generation. We envision FET being a cash flow engine. At the left side, we have laid out a plan for the uses of cash that create value for our shareholders, build off our strong balance sheet, and continue free cash flow generation.

We will utilize 50% of free cash flow to further reduce our debt. We are committed to maintaining conservative net leverage. The remaining cash would be used for strategic investments, including share repurchases. We have a 75,000,000 share repurchase program in place. That represents just over a of FET’s market cap, highlighting the confidence our directors have on our ability to generate strong free cash flow in the future.

Financially, FET is in a great position. To sum it all up, why FET? We believe the investment case remains strong. This belief is based on our track record of significant outperformance, the incredible value of our stock, and our long term growth potential. We have the resources to execute our beat the market strategy and generate sustainable free cash flow.

Today, our free cash flow yield at the midpoint of our guidance range is around 25%. Very few stocks trade at yields this high while also having FET’s long term growth potential. This unlocked value makes share buybacks extremely compelling. Since we announced our buyback authorization in December 2024, we have outperformed the Oilfield Service Index, the Russell two thousand, and the average of our peers by significant margins. This performance has confirmed our buyback thesis, and we will seek to buy as many shares as possible within our returns framework.

The pieces are in place for a great run, and we are confident the employees of FET will deliver. And together, we will unlock real we will unlock unrealized shareholder value.

Steve Ferrizani, Analyst, Sidoti: Thanks so much, Neil.

Neil Lux, CEO, Forum Energy Technologies: Yep.

Steve Ferrizani, Analyst, Sidoti: We have about five or six minutes remaining. If you have any questions, press the q and a button at the bottom of your screen. Type them in, and we’ll get to as many as we can. Neil, I I wanna kick it off just to ask a little bit about you had a had a slide regarding product innovation. We certainly know in North America, investors are pred pressuring producers to operate within cash flow.

Does that make innovation less important where, clearly, they are being directed by investors to focus on price?

Neil Lux, CEO, Forum Energy Technologies: Yeah. I think what what we find is that our products, our innovation make the, make the process more efficient. Right? So if we’re more efficient, you’re ultimately gonna gonna lower the cost. So, I think we can we can get a higher margin by providing our consumables that last longer, for example, or that make the product, the process more efficient, while lowering cost for lowering expenses for our customers.

So I think it’s it’s a win win for for both of us. So, yeah, the focus on on cash for our our customer base, just like the focus we have, makes innovation, I think, even more important today.

Steve Ferrizani, Analyst, Sidoti: Okay. Okay. Now, you know, we we know that lower oil prices, you covered wide rig count. Certainly, short cycle US land, we’re seeing some impact, probably gets impacted into the third quarter. But you have the global diversification.

You also have that significant offshore piece, which you reported pretty good backlog and a strong results in q one. What can you tell us about what’s going on with your subsea business and why that’s been so l healthy?

Neil Lux, CEO, Forum Energy Technologies: Yeah. No. The we’re we’re excited about the the subsea business. It’s it’s it’s couple couple really secular factors. Right?

The the last really big build cycle for capital equipment in the subsea subsea product line occurred more than a decade ago. So the equipment’s is getting older, and the utilization of the equipment we’ve sold a decade ago is getting is is really high. So our customers need to upgrade. They need to buy new equipment. So we have that going for us.

We’ve also innovated there. So we’ve created

Steve Ferrizani, Analyst, Sidoti: Okay.

Neil Lux, CEO, Forum Energy Technologies: You know, our Unity operating system. And, again, going going back to the cost and efficiency question you had earlier, our Unity operating system removes personnel from expensive offshore vessels and allows them to operate from shore. So that’s a huge, you know, a huge improvement in efficiency and lower cost for for our customers. So, subsea, going really strong. We’re also what’s interesting there, and we haven’t talked a lot about it, is our Subsea business also, has defense applications.

So we are seeing more, defense interest in in our applications there. So, that’s that’s progressing well. So we have, I think, a strong, you know, strong order book, a lot of opportunities that that we’re seeing on our subsea side. And, again, I think it’s good to show the diversification of our product portfolio. So US land may be a little weak here for the next six six to twelve months.

I think Canada oil sands will continue to be strong as well as our our offshore subsea business.

Steve Ferrizani, Analyst, Sidoti: I I going back to the your some of your closing comments regarding, the share buyback and also the reiterating of the the of the cash flow guidance. That’s a lot of the questions we’ve gotten in the last month or so since we launched coverage, and you you you have conviction there. And I think if you could explain a little bit because oilfield service names typically struggle to generate cash flow in a slower market. The difference is you’re a manufacturer, and your CapEx at 1% ish of sales Mhmm. Is phenomenal in any industry.

If you can walk through a little bit about your the ability, if people don’t understand it, to generate cash flow Yeah. In in differing markets.

Neil Lux, CEO, Forum Energy Technologies: That’s it. Right? So we’re we’re we’re a different model. We you know, I think, unfortunately, we get we get lumped into oilfield services as as an industry, but we’re we are a manufacturer. So our CapEx requirements are really low, as you said, less than less than 1% of revenue.

Our main, capital requirement or cap use need, let me let’s put it that way, comes from working capital. So it’s it’s, you know, it’s it’s receivables. It’s inventory. So that’s that’s why we we talked about some of the mitigation efforts that if we see slower demand coming, we’re gonna reduce inbound material orders so that rather than having inventory on hand that we can’t sell, we’re only gonna have on hand what we can turn into cash very quickly. So I think that’s a a big differentiation in in our model versus our our customers.

So, you know, they they they do they do a lot of great stuff. They have a lot of good leverage, but they cannot generate free cash flow like we can.

Steve Ferrizani, Analyst, Sidoti: K. Do you think the market is still not quite getting it? Because as you noted, at a 25% cash flow yield is pretty astonishing, particularly the balance sheet and the fact you have the buyback in place. Do you think people just wanna see you buy back shares? What do you think does it?

Neil Lux, CEO, Forum Energy Technologies: No. I I I I I do think you know, when when we talk to investors, they they do wanna they do they’re very curious about when we’re we’re when we’re gonna start buying back shares more. You know, we have the plan in place. Yeah. You know, we do have some we have an incur incurrence test with our with our bonds where we need to be under one and a half times leverage.

So for us, we don’t really wanna be buying back shares above that anyway. So we think that’s a good that’s a good limit. But our, you know, our focus on, you know, what we’re gonna do with the free cash flow. Right? We’re gonna continue to reduce debt, and we’re gonna make strategic investments.

So I think we have a good long term growth strategy that doesn’t require a lot of capital. And when we generate the free cash flow from execution of that strategy, we can be we can be investors. And and, again, FET is a compelling investment to us today.

Steve Ferrizani, Analyst, Sidoti: Does that rule out I mean, the Veraperm acquisition, you’ve shown the the phenomenal performance already. If another Veraperm falls in your lap, does that preclude you?

Neil Lux, CEO, Forum Energy Technologies: No. I mean, again, it’s the best the best investment we can make with with our free We are we would, let’s say, compare an another investment with our own stock. Right? And so, I I think the best result is we continue to generate free cash flow, but our yield goes down to to 10%, right, which which I think would make sense.

And then

Steve Ferrizani, Analyst, Sidoti: Every every investor would be very happy.

Neil Lux, CEO, Forum Energy Technologies: Every investor would be happy. We’d all be happy. Then we could compare that to to other to other alternatives with our cash.

Steve Ferrizani, Analyst, Sidoti: Perfect. Covered a lot of ground today, Neil. Any any closing remarks? We’re a little over time. So before we wrap it up

Neil Lux, CEO, Forum Energy Technologies: Yeah. No. Again, I I appreciate the the time today. Again, I I think we have a great story. I think we’re compelling value, and, you know, we are delivering on the on the promises we’ve made in the past, and we’ll continue to do so going forward.

Steve Ferrizani, Analyst, Sidoti: Excellent. Neil Lucks, CEO of Forum Energy Technologies, the ticker’s FET. Neil, thanks so much for sharing the story today. And thanks, everyone, for joining us, and hope you enjoy the remainder of Sidoti’s virtual investor conference. Thanks, everyone.

Thank you. Thanks, Neil.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.