Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies fourth quarter 2022 earnings conference call. My name is Gigi, and I'll 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's investor relations website under the events section. At this time, all participants are in a listen-only mode, and all lines have been placed on mute to prevent any background noise. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.

Thank you, Gigi. Good morning, everyone, and welcome to FET's fourth 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 yesterday, and it is available on our website. Please note that we are relying on the safe harbor protections afforded by federal law. Listeners are cautioned that our remarks today may contain information other than historical information. These remarks should be considered in the context of all factors that affect our business, including those disclosed in FET's Form 10-K and our other SEC filings. Finally, management statements may include non-GAAP financial measures. For a reconciliation of these measures, you may refer to our earnings release. During today's call, All statements related to EBITDA refer to adjusted EBITDA. And unless otherwise noted, all comparisons are fourth quarter 2022 to third quarter 2022. I will now turn the call over to Neil.

Thank you, Rob. And good morning, everyone. Reflecting on our 2022 achievements, I am pleased to say that we exceeded expectations. And as we will discuss during today's call, I think FET is just getting started. Let's begin with some key highlights from our annual and fourth quarter results and our debt conversion. Our teams delivered strong 2022 financial results. We ended the year with the highest backlog since 2018. Revenue and EBITDA grew by 29% and 194% respectively on a year-over-year basis. Also during the year, we increased our gross margins by 230 basis points and doubled our EBITDA margin to over 8%. This growth reflects our operating leverage and differentiated product portfolio. In the fourth quarter, we had robust bookings and revenue growth of 35% and 29%, respectively, year over year. Demand for our products and solutions remained strong. EBITDA of $17 million was within our quarterly guidance range and up nearly 300% versus fourth quarter 2021. Finally, and most importantly for the company's future performance, we were able to significantly improve our balance sheet during the quarter with the conversion of our long-term debt to common stock. The conversion marks a significant milestone for a number of reasons. First, pro forma for the conversion, our year-end net debt was approximately $83 million, or 1.4 times full year 2022 adjusted EBITDA. FET's credit rating was upgraded as a result of our significantly reduced leverage. Second, the conversion nearly doubled our market capitalization and our daily trading volume has increased substantially. Both of these factors have improved our investment profile. Third, the reduction in debt decreases FET's annual cash interest payments by roughly $11 million, enhancing our free cash flow conversion. And finally, the balance of our long-term debt is now significantly below year-ending liquidity. This achievement opens up several strategic options, including share repurchases, further debt reductions, and acquisitions. Lyle will discuss these options in greater detail during his remarks. In addition to strategic options, we have an incredible foundation for organic growth as a result of the attributes I listed during our earnings call in February 2022. One, our employees are key differentiators. Two, industry fundamentals are expected to remain strong. Three, FET is continuing to develop and launch innovative products and solutions. Four, we have opportunities for significant margin expansion. And five, FET is positioned to access growing markets outside oil and gas. And now we can add a sixth attribute, a solid balance sheet bolstered with meaningful, positive, free cash flow. Our colleagues at FET are dedicated and focused on delivering value to the customer and the company. And as we demonstrated with our impressive bookings in 2022, Customers see the value we bring through technology, innovation, and quality. Today, our customers are in a good financial position because industry fundamentals are solid. While commodity prices have recently moderated, some forecasters, such as the International Energy Agency, expect oil demand to surpass supply in the second half of 2023. This should put a floor under activity now and provide incentives for a prolonged energy investment cycle. While increasing industry activity provides a tailwind for growth, we want SET to grow faster than the market. To accomplish this goal, we are introducing products and technologies that our customers value. Our key components and consumable products enhance our customers' long-life assets to make energy production safer, cleaner, and more efficient. For example, we recently showcased our new FastConnect frac automated switch technology system at a Society of Petroleum Engineers technical conference. The FastConnect system allows service companies to perform hydraulic frac operations without a traditional zipper manifold. Through automation, our solution increases the safety of field personnel and stages completed per day while eliminating a significant portion of a manifold's operating expense. In addition, the FastConnect system significantly improves the environmental impact of a frac fleet by eliminating the grease consumed. If our system was adopted on every zipper frack fleet, we estimate operators would eliminate 18 million pounds of grease from their well sites per year. The environmental improvement would be astounding. The total addressable market in the United States for this solution is between 300 to 500 million dollars. As an asset-light manufacturer with an international footprint, we address key markets around the world. A great example is a recent electrostatic desalter system award from one of the largest national oil companies in the world. The system will utilize FET's Edge desalting technology and Forumix, our high-efficiency multi-phase technology. The contract has a value of approximately $25 million with potential for meaningful subsequent awards. I'm extremely proud of everything we accomplished in 2022, but it's time to focus on 2023. As I mentioned earlier, I'm excited about FET's future. Long-term, market fundamentals remain strong. Supply and demand imbalances will continue to fuel the need for more investment. However, there are mixed views on where the US rig count goes from here. We anticipate moderate rig count growth during the year with the trajectory to be determined. However, equipment utilization and service intensity will remain at high levels. Our customers are telling us they are sold out and have essentially no spare capacity. As their older equipment wears out, customers are upgrading and replacing it with more efficient and advanced capital items from our product catalogs. As we demonstrated in 2022, increased demand for our differentiated products will enable us to go to further grow our EBITDA margins. The international markets are ramping up and FET will be there to participate in the growth. Historically, international revenue has been between 40 to 50% of total revenue. As international markets grow, so do we. And I believe that FET has a unique advantage. With an optimized global footprint, with a select number of manufacturing and distribution hubs that can strategically supply our customers with the products and solutions they need anywhere in the world. In addition, We can service nearly every oil and gas producing country without spending any additional capital or adding roofline. We can ship anywhere. The offshore market is also heating up. Through 2022, the offshore drilling rig count has increased meaningfully. Service intensity of offshore operations exceeds land-based activity and drives additional demand for FET products. In the near term, this reactivation should benefit our drilling capital products for mud systems and tubular handling operations. Over the longer term, growing subsea activity should drive demand for our work class and inspection ROVs and related products. With the opportunities we see in front of us, I am confident we can deliver revenue and EBITDA growth and generate strong free cash flow in 2023. We therefore expect EBITDA to be in the range of $80 to $100 million and free cash flow of $20 to $40 million. I will turn the call over to Lyle for more detail on fourth quarter results, outlook for the first quarter 2023, and our capital deployment options.