Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies' first quarter 2021 earnings conference call. My name is Stephanie, and I will be your coordinator for today's call. At this time, our participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. As a reminder, this conference call is being recorded for replay purposes. I want to turn today's conference over to Lyle Williams, Chief Financial Officer. Please proceed, sir.

Thank you, Stephanie. Good morning, and welcome to Forum Energy Technologies, first quarter 2021 earnings conference call. With me today are Chris Gott, Forum's chairman and chief executive officer, and Neil Lux, our chief operating officer. We issued our press release after the market closed yesterday, and it is available on our website. Before we begin, we would like to caution listeners regarding forward-looking statements. Our remarks today may contain information other than historical information. Please note that we are relying on the safe harbor protections afforded by federal law. All such remarks should be considered in the context of the many factors that affect our business, including those disclosed in our Form 10-K, along with other SEC filings. Management statements may include non-GAAP financial measures. For a reconciliation of these measures, refer to our earnings release. This call is being recorded, and a replay of the call will be available on our website for two weeks. I'll now turn the call over to Chris.

Thanks, Bilal, and good morning. It will soon be one year since oilfield activity bottomed due to the pandemic, and the increase in drilling and completion activity over the past 12 months has been significant. Although our customers remain very conservative on their spending, we are seeing that some idle equipment is being reactivated and they are working off their inventory and consumable spares from decommissioned equipment. Customers are becoming concerned about supply chains as raw material prices and lead times are starting to increase. As a result of these factors, demand is improving nicely for FET's short cycle products. Customers may not yet be willing to spend capital dollars on new equipment, but clearly their spending is increasing to keep equipment working and to reactivate stacked equipment. FET is uniquely positioned to benefit from this short cycle spending to support higher drilling and completion activity. As we have high graded our product portfolio, our higher margin products are especially benefiting from this increase in spending. as Neil will talk about shortly. During Q1, FET saw a 21% increase in our inbound orders compared to Q4. That's excluding from the comparison the businesses we sold in Q4. And our book-to-bill ratio of 1.2 is our highest level in over four years. Clearly, the demand for our short cycle consumable products was driving these orders so far. as spending on capital goods remains constrained. However, we are beginning to have positive customer discussions for our new generation of capital equipment for drilling, pressure pumping, and subsea applications. This accelerating level of inbound orders is very encouraging, as bookings are obviously the best leading indicator for our future financial results. As our new orders convert to increased revenue, a key consideration is how much of that revenue flows through to the bottom line. I believe FET has excellent operating leverage due to the significant structural cost reductions we have made, our available manufacturing capacity to accommodate more volume and revenue, and our portfolio repositioning from lower margin to higher margin products. Incremental margins will vary from quarter to quarter due to the mix and timing of shipments, but our performance in Q1 was exceptional. FET delivered 70% incremental margins as EBITDA increased from Q4 by $7 million on a $10 million increase in revenue pro forma for the Q4 divested valve lines. Now, we're not a software company, so I don't expect our incremental margins to be at that level going forward, but I do think our operating leverage on higher revenue will be attractive. The recovery in U.S. rig count will clearly be the most important driver for our near-term results. However, FET has exposure to markets away from U.S. upstream oil and gas. More than 40% of our revenue comes from other drivers, such as international activity, new energy and GHG reduction, and other non-oil and gas sources. In the longer term, these other revenue sources will become even more important for us. Now let me turn the call back to Lyle.