Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen. Welcome to the Forum Energy Technologies second quarter 2023 earnings conference call. My name is Jeanne, 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. 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. At this time, all participants are in 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 will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.

Thank you, Gigi. Good morning, and welcome to FBT's second quarter 2023 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 websites. 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 second quarter 2023 to first quarter 2023. I will now turn the call over to Neil.

Thank you, Rob, and good morning, everyone. To start today, I'm going to share our view on recent market conditions and the outlook for the remainder of 2023. Commodity price declines and volatility have been consistent theme throughout the year. For example, during the second quarter, oil prices fluctuated significantly between a range of $80 and $67 per barrel. Further, oil prices were below $75 per barrel about 70% of the trading days during the quarter. For the natural gas complex, Prices remained below $3 during the second quarter after spending almost all of 2022 above $4. As a consequence, the appetite for exploration and production company investment was dampened and rig count declined. Despite lower investment levels decreasing U.S. service demand, U.S. drillers and pressure pumpers remained relatively disciplined with pricing. This was achieved by idling equipment. As a result, day rates were generally robust for utilized high-spec rigs, wireline and coil tubing units, and pressure pumping equipment. Ultimately, this discipline is good for our industry. But in the short term, this means lower US drilling and completion activity. The combination of lower commodity prices and firm service pricing drove operators, particularly privately held operators, to pull back on drilling activity. Last year, private operators increased their rig count by 25%. That trend has completely reversed. This year, they have dropped all the rigs they added last year and then some. While public operators tend to have a longer-term focus, even their activity has declined this year. In total, U.S. rig count is down 81 rigs, or 11% from the end of the first quarter, an elevated rate of decline very few industry observers expected. This has also led to a softening of hydraulic fracturing activity. Pressure pumpers and related service providers began to see more white space on their calendars and reduced their spending for fleet additions and upgrades. Despite these weaker U.S. market conditions, our teams are executing and FET is outperforming. We continue to gain market share with our winning products and solutions. Compared to the second quarter 2022, our U.S. revenue was up 4% versus a relatively flat average quarterly rig count. As we look out for the remainder of this year, U.S. rig count and frac activity will be weaker than we anticipated in early May. In this environment, and given our customers' capital discipline, we anticipate a slight uptick in idled units. This will defer some demand for our products into later this year or 2024. However, within the last month, commodity prices have rebounded and the outlook has improved with some in the industry expecting U.S. recount to bottom close to current levels in the third quarter. Although the timing of an activity increase is uncertain, we anticipate an upward inflection occurring later this year or early next. It is important to remember that for the drilling rigs and frack fleets that are working, service intensity remains high. They need the best performing equipment to be efficient in this market. And very recently, we have received a large capital equipment inquiry from a North American drilling contractor who is looking to upgrade a sizable portion of their fleet in anticipation of stronger activity. Despite this budding optimism, we now expect 2023 US drilling and completion activity to be lower than our previous forecast. As a result, we now expect to generate around $80 million in EBITDA, which is the low end of our original guidance. While I am disappointed that market conditions are preventing us from achieving our goal of $100 million of EBITDA for the year, I am pleased with FET's performance during this cycle. With the updated guidance, our EBITDA would be up 36% year over year with revenue meaningfully outperforming the global market. Our updated guidance assumes international and offshore revenue growth will partially offset the U.S. decline. While the U.S. market has been challenging, the international markets are just the opposite. This was evident in the second quarter, as FET's international revenue increased 10% sequentially, outpacing international rig count growth. Looking ahead, large international field development, production, and LNG projects are being approved. As a result, this is giving our customers demand visibility through 2025 and beyond. With FET's global footprint and strategic manufacturing facilities, we are winning work as demonstrated by our growing backlog. This gives us momentum heading into next year as this global upcycle continues. During last quarter's call, I talked about the growth in leads and opportunities we have seen in the international markets. To increase their efficiencies and meet growing demand, international drillers are building new and upgrading existing rigs. For example, we have opportunities on 20 new build rigs for two customers in the Middle East. They want FET's full suite of capital equipment, including iron roughnecks, catwalks, cranes, and handling tools. We are building on our wins from the second quarter when we sold more iron roughnecks internationally than all of last year. On the offshore side, customer activity is increasing as well. In the second quarter, we booked new and refurbished ROVs. In addition, we expect to announce the award of several ROV new builds in the third quarter. These vehicles are expected to be utilized for both traditional energy production and offshore wind construction. As new energy investment ramps up during the decade, Our portfolio of vehicles is expected to be utilized in all phases of future offshore wind installations. In addition to international and offshore growth, FET is gaining market share through commercial efforts and new product development. The development of new products and solutions helps our customers drive efficiencies and lower operating costs, while also creating value through environmental and safety benefits. We are making good progress in these efforts, as new products accounted for almost 50% of revenue in our stimulation product family this quarter. Also, we are developing our next generation iron roughneck, and based off the success of our FR120, we will expand our addressable market significantly. In addition to developing new products, we continuously update and differentiate winning ones. One example of many is the latest version of our EnviroLite greaseless cable system, a popular product where we extended our lead over the competition. EnviroLite had a record sales month in June as more and more customers adopted our technology as their preferred solution. FET is changing the landscape by delivering new and innovative solutions to our customers. I will now turn the call over to Lyle for more detail on our second quarter results and the third quarter 2023 outlook.