Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies third quarter 2022 earnings conference call. My name is Tawanda, and I will be your coordinator for today's call. There is a process for entering the question and answer queue. A link with instructions can be found on the company investors relations website under their events section. At this time, all participants are on a listen-only mode, and all lines have been placed on mute to prevent any background noise. This conference call is being recorded for replay purposes and will be available on the company's website. I would now like to turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.

Thank you, Tawanda. Good morning, and welcome to FET's third quarter 2022 earnings conference call. With me today are Neil Lux, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer. We issued our earnings release after the market closed yesterday, and it is available on our website at ir.f-e-t.com. 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 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. During today's call, all statements related to EBITDA will refer to adjusted EBITDA. And unless otherwise noted, all comparisons are third quarter 2022 to second quarter 2022. I will now turn the call over to Neil.

Thank you, Rob. And welcome to your first of many FET earnings calls. We are excited to have Rob join the FET family. He has over 20 years of experience in the oil and gas industry. Over that time, he's held numerous positions within finance and investor relations. Rob is going to help us tell the FET story to more investors. And we have a great story to tell. It begins with market fundamentals propelling investment in energy production. revenue increasing with global activity and higher capital equipment spend, margins expanding through operating leverage and portfolio optimization, and with our asset-light business model, converting EBITDA into free cash flow. Putting it all together, we have a compelling opportunity for further growth in shareholder value. The future is exciting for FET. My confidence in FET's outlook is rooted in our performance throughout the past two years and what we see today. In the third quarter, we grew backlog for the eighth consecutive quarter with bookings of 198 million. Demand for innovative products and solutions remains robust. After only three quarters, this year's EBITDA is already twice that for all of 2021. Our team is on track to deliver results that will meet the upper end of an aggressive 2022 plan. Importantly, we turned EBITDA into over $17 million of free cash flow in the third quarter. This is a fundamental element to FET's long-term success, and we remain confident in our $30 to $40 million forecast of free cash flow for the second half of this year. It is also important to note this forecast includes a fourth quarter interest payment of $12 million. We just finished a great quarter and look forward to finishing the year strong. Now, I'd like to share some thoughts as we look ahead to next year. While the imbalance between global energy supply and demand supports strong domestic activity in 2023, Industry participants have mixed views on the trajectory of rig count growth. However, service intensity will increase as the industry runs harder, pumping more hours, drilling more feet, pushing their equipment to full utilization. Activity and intensity in the United States will drive revenue growth for FVT's wide range of well construction, artificial lift, and completions products. In addition, we expect international activity and capital equipment spending to be another driver of growth. Let me share some specifics. FET's international footprint and extensive global reach allows us to ship our products to nearly every oil and gas producing country in the world. 30 to 40% of our revenue comes from outside the United States. Our brands are well known and have a long track record of success. Recently, I had the opportunity to spend considerable time with our customers in the Middle East. Their excitement and expectation for activity next year and beyond is the strongest I have seen in many years. They are expanding their fleet and adding equipment to meet burgeoning demands. FET will be a direct beneficiary with our portfolio of equipment that makes energy production safer and more efficient. Also, increased capital spending on equipment by service companies will drive additional demand. During the last global investment cycle that ended in 2014, capital equipment accounted for nearly half of our revenues versus just a third today. As land and offshore rigs are reactivated or constructed, FET will supply key capital components like catwalks, mud pump parts, cranes, and pipe handling tools. We are seeing this demand already with inquiries and orders and expect it to accelerate in 2023 and beyond. Another area of capital equipment spending where we see great growth is with hydraulic fracturing fleets. As our customers transition to more environmentally friendly engines, they are upgrading to our specialized cubed radiators. These radiators are significantly more efficient than horizontal versions, and we expect a major increase in deliveries for 2023. This is a great example where demand for capital equipment to replace aged and technically obsolete products complements our strong consumable-based business lines. With the market opportunities I just mentioned, we have a line of sight for further revenue growth. Importantly, we have the capacity in place today to meet those demands and more. In fact, we could grow revenue 50% with minimal capital investment. And with FET's high operating leverage, we expect to generate $25 to $40 of EBITDA for every $100 of incremental revenue. we have the opportunity for outsized earnings growth throughout this next investment cycle. On today's call, we are not presenting formal guidance for next year. However, we expect a growing U.S. market, increasing international activity, and a capital equipment upgrade cycle will drive revenue growth in 2023. Depending on the mix and timing of how these drivers play out we could see double-digit revenue growth with continued strong incremental EBITDA. With good management of net working capital, we expect meaningful free cash flow generation to further deleverage our balance sheet. As we continue to execute on our strategic initiatives and with the tailwind of this market, we remain confident in delivering strong financial performance in 2023 and beyond. I will turn the call over to Lyle for more detail on our third quarter results and outlook for the remainder of the year.