DALLAS, TX -- February 24th, 2024 -- Forum Energy Technologies, Inc. (NYSE: FET)  Stonegate Capital Partners updates their coverage on Forum Energy Technologies, Inc. (NYSE: FET). FET reported revenue, adj EBITDA, and adj net income of $201.0M, $22.2M, and ($5.9)M, respectively. This compares to our/consensus estimates of $201.9M/$201.9M, $24.1M/$24.1M, and $1.0M/($0.6)M. It is noted that revenues were in-line with our expectations while GPM was slightly below expectations. Adj. EBITDA margins were also slightly below expectations at 11.0%. Adj. NI fell short of our expectations due to weaker than expected OPM and the release of a valuation allowance on deferred tax assets in Germany and Saudi Arabia. 

Company Update:

Drilling and Completions: In 4Q24, FET's Drilling and Completions segment reported revenue of $111.1M, reflecting a 10.1% sequential decline due to reduced sales in capital equipment, wireline cable, and coiled tubing, driven by lower U.S. completions activity. Segment Adj. EBITDA decreased by 34.0% to $10.0M, primarily due to a less favorable product mix and declining revenue. Orders for the segment reached $103.0M, resulting in a book-to-bill ratio of 93.0%, down from 105.0% in 3Q24. This decrease was led by reduced demand for drilling and stimulation-related capital equipment. Despite near-term challenges, the segment remains well positioned to leverage international demand and expected long-term industry investment.

Artificial Lift and Equipment: The Artificial Lift and Downhole segment delivered a strong quarter, with revenue increasing by 6.8% sequentially to $89.9M, driven by increased demand for artificial lift products and processing equipment technologies. Total orders climbed 14.0% to $87.0M, reflecting robust growth in Production Equipment orders. Adj. EBITDA for the segment improved by 11.0% to $19.0M, supported by a favorable revenue mix.

Debt Refinance & Strategic Initiatives: In FY24, FET successfully completed a debt refinancing initiative, strengthening the Company’s balance sheet and enhancing financial flexibility. In January, FET began executing on its announced $75.0M share repurchase program. Going forward, 50% of FCF will be allocated to net debt reduction, with the remainder for strategic investments, including additional share repurchases. FET’s 'Beat the Market' strategy and Variperm acquisition in 2024 boosted market share by ~15.0% as measured by revenue per global rig.

Cash Flows: FET reported another strong quarter with FCF before acquisitions reaching $56.9M in 4Q24, up $32.4M sequentially. This brings the full-year figure to $105.0M, marking the Company’s highest since 2015. This strong performance is attributed to the successful integration of Variperm and effective working capital management.

Guidance: For 2025, FET has provided an Adj. EBITDA outlook ranging from $85.0M to $105.0M, reflecting expectations of market share gains despite an anticipated 2% to 5% decline in global drilling and completion activity. FCF guidance for the year was given at $40.0M to $60.0M. In conjunction with previously stated factors, we believe this guidance is reasonable and have adjusted our model accordingly.

Valuation: We use a DCF model and EV/EBITDA comp analysis to guide our valuation. Our DCF analysis produces a valuation range of $25.37 to $29.00 with a mid-point of $27.03. Our EV/EBITDA valuation results in a range of $26.97 to $31.04 with a mid-point of $29.00.

About StonegateStonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.

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