Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies' third quarter 2021 earnings conference call. My name is Annie, and I will be your coordinator for today's call. At this time, all 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 will now turn the conference over to Lyle Williams, Chief Financial Officer. Please proceed, sir.

Thank you, Annie. Good morning, and welcome to Forum Energy Technologies' third 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 earnings 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 will now turn the call over to Chris.

Thanks, Lyle, and good morning. The improvement in drilling and completions activity is continuing with strong rig count additions during the third quarter, both domestically and internationally. We are also seeing more interest in offshore oil and gas activity, as well as subsea opportunities in defense and for the energy transition. All this improvement in activity drove another strong increase in our inbound orders, the fifth increase in quarterly bookings in a row. We are now seeing higher orders across all of our product lines, and in the third quarter, we had a record high book-to-bill ratio for the company. Our longer lead time capital equipment businesses, such as Subsea and parts of our drilling product line, are seeing strong orders that stretch into next year. Even our short cycle businesses are seeing high orders as customers become more concerned about availability. However, This sharp increase in demand is running into the same supply chain issues affecting all manufacturing companies and indeed affecting us all now in our daily life. Cost of raw materials are up significantly, and virtually everything is taking longer to ship or is on backwater, with freight costs up several fold. Although our team at FET is doing a good job managing these issues, we are not immune. and supply chain did have even more of an impact on our revenue and margins in the third quarter than we previously anticipated. Without these additional supply chain delays, our revenue would have been $10 to $15 million higher than the level we actually achieved in the third quarter. We are, of course, raising our prices as a result of cost inflation, and we did realize some pricing improvement in Q3 to partially offset higher input costs. However, we expect that in this fourth quarter, our pricing will begin to catch up with cost inflation and our margins will start to improve again. Given the current level of supply chain constraints and resulting limits on productivity, our guidance for FET's fourth quarter, our revenue in the range of $145 to $155 million and EBITDA of $9 to $11 million. So revenue $145 to $155 million, EBITDA $9 to $11 million. With higher activity levels and our strong orders, we expect an improved growth rate in 2022 as supply chain issues become more manageable. Industry fundamentals have improved with high oil and gas prices very attractive economics for drilling and completion, and the need to reactivate and maintain more oil service equipment. So we believe the outlook for FET is very attractive. We also believe our stock is undervalued relative to other asset-like manufacturing companies in our sector, especially given our high international exposure, expanding opportunities as part of the energy transition, and the clear path we have to automatically de-lever our balance sheet once our stock exceeds $30. For these reasons, our board has authorized a $10 million stock buyback program, representing about 8% of our shares outstanding at the current stock price. We feel our own stock represents the highest return, best investment available to us now. And with that, I'll turn it back to Lyle. Thank you, Chris.