Forum Energy Technologies, Inc.

Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies second quarter 2026 earnings conference call. My name is Lateef, and I will be your coordinator for today's call. There is a process for answering the question and answer queue. To ask a question during the session, you will need to press star 11 on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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 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, Lateef. Good morning, everyone, and welcome to FET's second quarter 2026 earnings conference call. With me today are Neal Lux, our president and chief executive officer, and Lyle Williams, our chief financial officer. Yesterday, we issued our earnings release, which is available on our website. We are relying on federal safe harbor protections for forward-looking statements. Listeners, our cautions that are remarked today will 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 other SEC filings. Finally, management statements may include non-GAAP financial measures. For reconciliation of these measures, please refer to our earnings release and website. During today's call, all statements related to EBITDA refer to adjusted EBITDA, and net income refers to adjusted net income. and unless otherwise noted, all comparisons are second quarter 2026 to first quarter 2026. I will now turn the call over to Neal.

Thank you, Rob, and good morning, everyone. FET's financial results showcase incredible earnings power. During the quarter, we executed our strategy and demonstrated the leverage in our business model. We delivered sequential and year-over-year growth in revenue and profitability Expanding margins across the board. We generated free cash flow, strengthened the balance sheet, and returned capital to shareholders. Also, we continued to gain market share through product innovation, international expansion, and exceptional execution for our customers. And while oil prices moved higher during the quarter, our customers remained disciplined and focused on cash generation. In North America, stronger completions drove frac utilization, benefiting our wireline, coil tubing, and downhole products. We also saw strong demand in the Canadian oil sands, where technology and reliability remain important differentiators. Outside North America, regional activity was impacted by the Middle East conflict. However, Investment for offshore and unconventional developments remained robust. Customers continue to prioritize technologies that improve uptime, safety, efficiency, and production performance. These priorities align directly with FET strengths, leading to our international revenue growth. Going forward, we expect industry activity to remain broadly stable with modest improvement in selected areas during the second half of the year. More importantly, we expect FET to outperform through market share gains, new products, geographic expansion, and operating discipline. Looking out further, long-term fundamentals remain supportive for FET's 2030 growth vision. We expect oil and natural gas demand to rise with global GDP increased urbanization, expanding LNG exports, and AI-driven power consumption. On the supply side, our customers will need to add capacity and increase operating efficiency to offset steep production declines. In addition to traditional supply and demand drivers, the Middle East conflict has made reliable oil and gas supply a strategic initiative. We expect new investment decisions to be driven by the need for increased energy security and replenishment of inventory reserves. We project these fundamentals to expand FET's addressable markets by more than 50% over the next five years. This growth, combined with our targeted share gains, creates a clear path to doubling our revenue by 2030. With our operating leverage and capital life business model, we would expect revenue growth to drive significantly greater EBITDA and free cash flow. Capturing this opportunity, however, takes more than a favorable market. It requires a winning strategy and disciplined execution. Market share gains are a clear indication of successful execution. Since launching our Beat the Market strategy in 2022, We have increased revenue per global rig by 34%. We are winning through differentiated technology and commercial execution. Also, our global footprint allows us to export the technologies developed for U.S. unconventional basins to customers around the world. Our goal is to double share in targeted markets by 2030. We believe the steps we are taking today are putting us on the path to achieve that goal. Let me cover a few good examples. In the Middle East, field trials with one of the world's largest oil companies are progressing for SandGuard, our artificial lift protection solution. This product has been remarkably successful in the U.S. and has significant potential in the region. Another example is Venezuela. After receiving regulatory approval, we have delivered a significant number of coil tubing strings into the country. This success has expanded demand for other products, including pressure control and coiled line pipe. We are in the early stages for these opportunities, but expect long-term growth here. Our innovation pipeline continues to drive share gains. Following the substantial DuraLine order for Argentina announced last quarter, we are now seeing increased inquiries and proposal activity in the United States. Our technology significantly increases the efficiency and safety of frac operations. We are also seeing expanded demand for Unity, our software and control platform, for operating ROVs from shore. During the quarter, we received substantial aftermarket orders to upgrade ROVs built by FET as well as systems built by competitors. This is a substantial opportunity for our subsea product line. Finally, in our heat transfer product family, we achieved two critical milestones for long-term growth. After several years of product development, we received an order from a major service company for a high-temperature frack application. This product operates at 140 degrees Fahrenheit, ideally suited for harsh Middle East environments. And in power generation, our stationary cooling solution, which I first mentioned last quarter, has quickly progressed from commercial interest to an initial order. This solution complements our existing Powertron offering, where we also received a meaningful order this quarter. With these developments, we are taking great steps forward in the expansion of our data center and mobile power product portfolio. While these examples provided demonstrate progress towards our FET 2030 vision, We now expect full-year revenue between $870 and $910 million and EBITDA between $115 and $125 million. Compared to last year, revenue in EBITDA would increase 13% and 40% respectively, with incremental margins of 34%. This is incredible growth. Also, we now expect net income between $42 and $52 million and full-year free cash flow between $57 and $77 million. This improved outlook reflect the proactive changes we have made to the business, not simply a better market. Our priorities for the remainder of the year are clear. Convert backlog to sales, gain share, and generate cash. Now, to provide more detail on our second quarter results and near-term financial outlooks, I will turn the call over to Lyle.

Thank you, Neal. Revenue, EBITDA, and net income. all exceeded the high end of guidance as our beat-the-market strategy continued to deliver. Revenue increased 8% to $226 million. EBITDA increased 39% to $32 million, and net income increased 148% to $14 million. Orders totaled $236 million during the quarter, resulting in an overall book-to-bill of 104%, exceeding revenue for five of the last six quarters. This performance reflects continued market share gains, growing customer adoption of our technologies, and increasing contribution from international markets. Three primary drivers propelled our year-over-year second quarter performance. First, we continued to perform well in the Canadian oil sands market, where customer activity levels remained robust. Our downhole product line saw increased demand for sand and flow control products, delivering meaningful year-over-year and sequential growth. The combination of improving market activity and penetration of our high-value technologies contributed significantly to profit growth within the artificial lift and downhole segment. For the second driver, our drilling product line delivered a meaningful turnaround. following the operational restructuring and cost reduction actions we implemented. We are seeing the benefits of those efforts through improved margins, stronger operating leverage, and increased competitiveness. In addition, our innovative drilling capital equipment continues to gain traction in international markets, particularly in the Middle East where customer adoption and project activity are creating new growth opportunities. and for the third driver, our subsea business executed exceptionally well as we converted backlog into revenue. Deliveries of ROV systems, aftermarket products and related technologies drove improvement in both revenue and earnings. More importantly, the delivery of our backlog demonstrates the benefits of operational discipline and project management across the organization. These three drivers, Canadian oil sands growth, the turnaround in drilling, and continued subsea backlog delivery are representative of the success of our beat the market strategy and demonstrate our ability to grow through market share gains, technology differentiation, and operational execution. Both of our operating segments contributed to the quarter's strong results. Drilling and completions revenue increased 10% to 139 million. Growth was driven by higher demand for coiled tubing products, wireline cables, and capital equipment, particularly iron roughnecks and radiators. EBITDA increased 29% to approximately 16 million, and EBITDA margins expanded 180 basis points to 12%. Growing orders resulted in a book-to-bill ratio of 104% during the quarter. Artificial lift and downhole also delivered an impressive quarter. Revenue increased 6% to $87 million, driven primarily by high demand for sand and flow control products, artificial lift products, and casing hardware. EBITDA increased 30% to approximately $22 million, and EBITDA margins expanded to nearly 25%. Favorable Mix drove an outsized incremental EBITDA margin of 95% as growth in our high-value downhole product line was partially offset by a decrease in shipments of our mechanical production equipment. Orders remained strong, resulting in a book-to-bill ratio of 105% during the quarter. Turning to cash flow and capital allocation, we generated $10 million of free cash flow during the quarter, consistent with our expectation of increasing free cash flow through the year. While accounts receivable increased with revenue, inventory remained well managed and overall working capital performance continued to support cash generation. A significant accomplishment during the quarter was the continuing deleveraging of our balance sheet. Net debt declined to $115 million at the same time Trailing 12-month EBITDA increased to 100 from 89 million. As a result, our net leverage ratio improved dramatically from 1.4 times to 1.1 times. The combination of higher earnings, improved margins, and free cash flow generation allows us to simultaneously reduce leverage while continuing to return capital to shareholders. Consistent with our capital allocation framework, We repurchased approximately 8 million of shares during the first half of 2026 and returned 42 million to shareholders over the past two years. We finished the quarter with total liquidity of 96 million and our balance sheet remains well positioned to support both organic growth and strategic opportunities as they arise. We believe acquisitions can augment our performance and evaluate potential opportunities based on earnings accretion and the target's ability to grow free cash flow. We seek acquisitions that align with our beat the market strategy and advance our FET 2030 vision. As we enter the second half of the year, we remain focused on profitable growth, margin expansion and cash generation with disciplined capital allocation. We expect continued growth with third quarter revenue between $225 and $245 million and EBITDA between $31 and $37 million. At the midpoint, these represent approximately 20% revenue growth and 48% EBITDA growth compared to the third quarter of 2025. In line with this profitability guidance, we expect net income of between $12 and $18 million and Free Cash Flow between $15 and $25 million for the third quarter. With that, I will turn the call back to Neal for closing remarks.

Thank you, Lyle. Our second quarter results are another example of FET delivering on its commitments. Through disciplined execution, innovation and commercial excellence, we are converting targeted opportunities into higher earnings, strong cash flow, and increased shareholder value. Just as importantly, we are strengthening the foundation of the business and making meaningful progress towards the objectives outlined in our FET 2030 strategic vision. Looking ahead, we remain confident in our outlook. Sustained offshore demand, growing international opportunities, broader adoption of our differentiated technologies and Improving Industry Fundamentals continue to support our business. With strong first half momentum, FET is well positioned to deliver a successful 2026 and create long-term value as we advance towards FET 2030. Before turning the call over for questions, I want to congratulate our employees on their stellar safety performance this year. Thank you for living up to our number one core value. Well done and keep it up. Thank you for joining us today. Lateef, please take the first question.

As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. Our first question comes from the line of Steve Ferrazani. of Sudoti. Your line is open, Steve.

Morning, everyone. Appreciate the detailed review of the quarter, obviously executing in a volatile market. Neal, obviously you exceeded even the high end of your guidance. What can you point to for the outperformance? Where did you see things coming in better than maybe you expected when you guided three months ago?

Yeah. Thanks, Steve. First off, I'm sure you recall for sure, our Q2 guidance was up from Q1, so we did expect better results. Our team stepped up to the faster cadence with really great execution, and I'm confident they can increase that pace again here in Q3. And as Lyle outlined in his prepared remarks, Canadian oil sands market penetration, adoption of our new technology there, The turnaround in our drilling product line has been really fantastic. And then we have a lot of big projects in our subsea product line, and that team there is executing and delivering and converting that backlog into revenue really well. So those three drivers and then, again, just a strong execution by our teams. Couldn't be more proud.

Excellent. When we think about the revenue this quarter and also What's in the significant orders? Are you seeing any kind of a geographic shift from your traditional pattern?

I think it's pretty broad-based, Steve. We saw completions in North America pick up. That's helping our consumables, coil tubing, wireline. We are still in the Middle East. We're still delivering on products there, even with the conflict. But ultimately, Canada has been strong and the team up there has been delivering for their customers well. And so, again, that's a big driver there.

Great. When I think about the margin lift this quarter, obviously greater throughput at your plants, but that margin seems even better than just a throughput performance. Are we seeing efficiency gains? Is that mixed? Can you talk a little bit about the margin lift?

Yeah, Steve, let me jump on that one. Definitely, you're right about operating leverage. Remember, as a manufacturing products company, operating leverage is a big deal for us. So when we see incremental growth, we get nice uplift. We also, in the quarter, had the benefit from our cost reduction initiatives. We started those last year. We talked a lot about them and really wrapped that up in Q1. saw a nice sequential pop and sustainable pop from reducing those costs out of our system. I think the third part in the quarter was mix. We talked about that. Downhole product line did extremely well. That high value, high margin product lines really grew a lot in the quarter, so that's favorable. But at the same time, we had a decrease in revenue in our production equipment product line really tied to timing of shipments. So that change in mix was really favorable in the quarter. So if you put all those things together, very solid, very positive, but also I think important to talk about sustainability of those, right? So the market continues to do well, and as we continue to grow, we see that more operating leverage will flow through. Cost savings are in, they're done, and that's locked in. And then it's really about mix as we continue to take share in these targeted high-margin products. We should continue to expect that the kind of margins we saw here in Q2.

Very helpful. I did want to turn to capital allocation. Any update or changes to your targets? I mean, when I think about I don't think you can be under levered, but you're you're moving in that direction. When we think about how you're thinking about one, you're guiding for better EBITDA in the second half to second half is typically much, much stronger free cash flow. where you're headed, what you're thinking about, do you have a leverage target, and any change to percentage of cash flow you would devote to share buybacks?

Steve, as we mentioned in our first quarter call, we think further debt reduction is really building dry powder for potential acquisitions or other strategic objectives. So we'll continue to do that. We are always evaluating acquisitions that could meet our criteria, get differentiated products, targeted markets, accretive financial measures, and could we get the deal done without increasing our leverage. And ultimately, we want to grow free cash flow per share. And if we can find a way to augment that with acquisitions, we'll do so.

Helpful. And then on the repurchase side, any change in how you would allocate cash flow to repurchases?

No. I think, again, as we mentioned in the first call, and I think you just noted, our cash flow has definitely weighted to the back half of the year. And so we'll align our purchases with our cash flow generation.

Fantastic. Thanks, everyone.

Thanks, Steve.

Thank you. Our next question comes from the line of Richard Tullis. of Water Tower Research. Your line is open, Richard.

Thank you. Good morning, everyone. I'm sitting in for Jeff Robertson today. Just wanted to touch a little bit on the mention during the prepared remarks, the exciting 50% potential increase in the addressable market. What would be the rough geographic allocation you might be looking at there? I know the Middle East must be playing a part. and certainly agree with your energy security concerns globally. That seems to be a hot topic now.

Yeah, good morning, Richard. Good to have you on the call. As we think about our market share or as we define it as our revenue per rig in the U.S., we're over $700,000 per rig annually. Internationally, that number is lower. Let's call it $300,000 and change. And so as we think about our opportunities for growth, exporting the technologies, the solutions that we've developed for U.S. unconventional shale, bring those solutions to the Middle East, bring those solutions to Latin America, other key regions. That's a great growth driver for us. So I would expect over time that our international revenue will continue to grow. Not giving up on U.S. and North American technology by any stretch of the imagination, but I think that's a great, great growth opportunity for us there.

Thank you. That's helpful. And, you know, the SG&A was down nicely year over year in total dollars, and, you know, despite the significant uptick in revenue, it actually was about 1.5% below our 2Q estimate on a percentage basis. How do you see SG&A trending in the third quarter and throughout the rest of the year, particularly with the outlook for higher revenue at the midpoint in the third quarter, quarter over quarter?

Going back to last year, we started taking structural costs out of the business. SG&A was part of that. We also want to leverage technology, leverage software tools where we can to be more efficient. So we've begun to do that. So as we think about on a go-forward basis, we don't expect a large increase in SG&A as we progress through the year.

Well, that's all from me. Thanks a bunch.

Thanks, Richard.

Thank you. Our next question comes from the line of Jim Rolison of Raymond James. Your line is open, Jim.

Hey, good morning, gents. Morning, Jim. Neil, if I look at kind of revenue growth in the quarter, high teens, 3Q guide, high teens, just kind of curious, for one, you know, how much of that is market activity improvement versus share gains, given your kind of targeted expansion of market share through 2030?

Yeah, I think a good portion of that is share gains. I think if you look at the first half of the year, rig count globally hasn't increased. It's actually basically flattish. So as we think about going forward, we see a modest activity increase, but much of that share gains, we mentioned the Canadian oil sands, You know, adoption of key technology there has been great. As we think about our consumables and consumption, again, as more frac fleets are working, you know, we're going to see more demand for, you know, wireline, coil tubing, you know, other drilling consumables. So as long as that activity is churning, you know, we think we're going to gain a bigger part of that share.

Makes sense. And if I think about that and translate it into your 2030 view, You know, your updated guidance is now almost $900 million of revenues. And if I remember that chart, you kind of had a billion to $1.6 billion as kind of your path. Are we just accelerating down that path, or is the path actually, you know, the end point getting bigger, do you think?

Jim, you're going to get me in trouble here. I think that path makes sense. I think we're finding ourselves to be on that path. Again, internally, we want to always push for more, but that path that we laid out, whether it's a flat market, we want to be a billion-dollar company, or again, as we expect that our markets grow and then we continue to gain share, I could see the $1.6 billion over the next five years. So it's Maybe one change to that is with the conflict, with energy security, I think we've brought forward some activity. We had expected 2026 to be a roughly flat year on activity, and I think it's going to be up slightly. So I think that's maybe an acceleration there.

Yeah, that's kind of what I was looking for. And then last one for me, just you mentioned Middle East on multiple occasions in some of your different kind of products and testing and opportunities. Obviously, we're sitting here with the conflict still having some impact in the region right now. I'm just kind of curious how to think about that or how you think about when that opportunity set you're kind of laying out actually starts to kick in. Is it kind of once we get past this conflict and things normalize a bit better that that actually contributes to maybe better 27 growth or just maybe how you think about that?

Yeah, I think that's a pretty fair assumption. We're still active. Middle East is still roughly 10%, 11% of our overall revenue. It depends where you're working and what part of the region. It varies a bit. But as we look ahead, I think once we are past the conflict and we can resume to normal growth, I see a lot of great opportunities with the oil companies in the region and wanting to expand and expand their activity, and they want to adopt the technologies that their U.S. and North American counterparts have used to become more efficient, and that's the kit that we provide.

Perfect. Appreciate your time.

Great to have you, Jim. Thanks for joining.

Thank you. Our next question comes from the line of Don Crist of Johnson Rice. Please go ahead, Don.

Good morning, guys. Thanks for letting me in. I wanted to ask about the pressure pumping market here in the US first. You know, the pressure pumpers are holding the line and trying to boost margins here and really haven't talked about new equipment ads or anything of that sort yet. But are you seeing things in the background where they're kicking the tires to see what lead times would be and that sort of stuff? Because as we see it, The market looks really tight on the pressure pump we saw in the U.S., and we could see the need for a lot more equipment in 27. Are you seeing that as well?

We are. I think it's a background. We don't see a lot of what's called big fleet additions, but upgrades to existing fleets or upgrades to existing equipment I think has been the focus so far. Maybe one differentiator out there is we're generally a shorter part of that lead time, so the components we provide can be provided in a quarter or two versus, let's say, an engine where you have to get out there early and get in the queue. We're starting to see that pick up on the replacement side, but I agree with you that there is a lot of tightness in the frack market, but we still saw activity increase in the quarter, and again, we think that Our customers are still finding more and more efficiencies to continue to increase and use our consumables.

Okay. And one on the international side for me, and I don't necessarily want you to have FRAC specific on this, but we're hearing a lot more Oil companies and EMPs move into the kind of North Africa region and Turkey and Pakistan and other places outside of the traditional Middle East. Are you seeing people start to come across your transom that want new equipment, not recycled equipment from the U.S. to start expanding activity in those areas as well?

We are. You know, you mentioned more, let's call it frontier equipment. Thank you for joining us. and then our technology, we can ship it around the world. We're seeing more and more customers interested in how do we be as efficient as the guys in the U.S. We're excited about that. I think we'll sell the big kit, but then behind that comes the consumables. That's where we really get excited.

I appreciate all the color. Thanks for letting me in. I'll turn it back. Thanks, Tom.

Thank you. Our next question comes from the line of John Daniel of Daniel Energy Partners. Your line is open, John.

Hey, guys. Just one for me, and it's a follow-on to Don's question. Neal, you mentioned that you're a shorter part of the lead times for the frac market, but I'm curious, could your lead times extend if all of a sudden The U.S. frack market gets that pricing signal to, say, push forward with 20 to 25 new fleets early next year. How do your lead times change in that scenario?

Yeah, if we have a massive, massive increase in demand, we would do everything we could to adapt to it. Our teams are nimble, and we're talking to our customers, right? So I think we wouldn't necessarily be surprised if they came hard. and, you know, I think also we've built up the supply chain. We still, you know, while Frac has been relatively quiet, you know, over the last couple of years, we are, you know, getting the power, the power demand story has been there and I know you cover it really well. You know, we noted a couple key orders here on our, with our heat transfer side that I think put us in good position. But as you think about the opportunity that we have on the data and mobile power up, you know, product portfolio, every engine that is supplied for that application needs a radiator. There's 5,000 or 6,000 engines that could be delivered over the next 5 or 6 years. That is a massive market opportunity for us. We want to get our fair share. We started making progress in Q2 with our stationary radiator order, but I think we're building a reasonable backlog in that business and look to continue to grow it.

Okay. Thank you. And not to be perceived as a troublemaker here, but Again, following in a lot of Don's questions, but do the inquiries from those companies, the frack players, does it sync with their guidance?

I would think so because, again, we're not seeing the big ad. We're not getting those 15 or 20 fleet inquiries, John. We're seeing more one-off.

Okay. Fair enough. Thank you, guys. Great quarter.

Thanks, John. Appreciate it.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from the line of Richard Tullis of Water Tower Research. Richard, your line is open.

Thank you, Neal. One more from me, please. Touching on Venezuela and the potential market there or the size of that potential market, do you see that presenting some additional upside to your FET 2030 goals?

It can be a huge market, right? You know, we've pretty much been out of that market, you know, since what, 2007 or so. You know, I can remember, you know, visiting the country, you know, around that time and seeing the infrastructure then needing work. And I can only imagine what it stands now. So I think that could be, you know, a great driver of our vision. I think where we stand out or where we want to stay focused, we want to remain nimble and go where the activity is. And we don't always know where the oil is going to be produced, but we can get our products there to support its production. And so that's where we want to be. If it's Venezuela or Argentina or the Middle East, we're going to be there and we're going to have our products there.

Very good. Thanks, everyone.

Thank you, Richard.

Thank you. I would now like to turn the conference back to Neal Lux for closing remarks. Sir?

Well, thank you for your support and participation on today's call. We look forward to our next meeting in October to discuss FET's third quarter 2026.

This concludes today's conference call. Thank you for participating. You may now disconnect.