FORUM ENERGY TECHNOLOGIES INC

Previous wording

We are a global manufacturing company serving the oil, natural gas, industrial and renewable energy industries. With headquarters in Houston, Texas, FET provides value added solutions aimed at improving the safety, efficiency, and environmental impact of our customers’ operations. Our highly engineered products include capital equipment and consumable products. FET’s customers include oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, pipeline and refinery operators, and renewable energy and new energy companies. Consumable products are used by our customers in drilling, well construction and completion activities and at processing centers and refineries. Our capital products are directed at drilling rig equipment for constructing new or upgrading existing rigs, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital projects and capital equipment for renewable energy projects. For the three months ended March 31, 2024, approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

Current wording

We are a global manufacturing company serving the oil, natural gas, industrial and renewable energy industries. With headquarters in Houston, Texas, FET provides value added solutions aimed at improving the safety, efficiency, and environmental impact of our customers’ operations. Our highly engineered products include capital equipment and consumable products. FET’s customers include oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, pipeline and refinery operators, and renewable and new energy companies. Consumable products are used by our customers in drilling, well construction and completion activities and at processing centers and refineries. Our capital products are directed at drilling rig equipment for constructing new or upgrading existing rigs, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital projects and capital equipment for renewable energy projects. For the six months ended June 30, 2024, approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

Previous wording

In the first quarter 2024, following the Variperm Acquisition, we aligned our reportable segments with business activity drivers, our customer base, and the manner in which we review and evaluate operating performance. FET now operates in the following two reportable segments: (1) Drilling and Completions and (2) Artificial Lift and Downhole. Refer to Note 10 Business Segmentsfor the product lines making up each segment. Our historical results of operations were recast retrospectively to reflect these changes in accordance with U.S. GAAP.

Current wording

In the first quarter 2024, following the Variperm Acquisition, we aligned our reportable segments with business activity drivers, our customer base, and the manner in which management reviews and evaluates operating performance. FET now operates in the following two reportable segments: (1) Drilling and Completions and (2) Artificial Lift and Downhole. Refer to Note 10 Business Segmentsfor the product lines making up each segment. Our historical results of operations were recast retrospectively to reflect these changes in accordance with U.S. GAAP.

Previous wording

Compared to fourth quarter 2023, oil and natural gas prices have remained relatively flat despite tightened supply from OPEC+ production cuts and continued geopolitical tensions in Ukraine and the Middle East. These tensions could lead to a disruption to world energy markets and international supply chains. Although these near-term macroeconomic events have presented challenges, we expect that the world’s long-term energy demand will continue to rise and may outpace global supply as OPEC+ remains committed to maintaining stable oil prices. We expect that hydrocarbons will continue to play a vital role in meeting the world’s long-term energy needs while renewable energy sources become increasingly prominent.

Current wording

Compared to 2023 full year average prices, oil and natural gas average prices have remained relatively flat despite tightened supply from OPEC+ production cuts and continued geopolitical tensions in Ukraine and the Middle East. These tensions could lead to a disruption to world energy markets and international supply chains. Although these near-term macroeconomic events have presented challenges, we expect that the world’s long-term energy demand will continue to rise and may outpace global supply as OPEC+ remains committed to maintaining stable oil prices. We expect that hydrocarbons will continue to play a vital role in meeting the world’s long-term energy needs while renewable energy sources become increasingly prominent.

Previous wording

The price of oil has varied dramatically over the last several years. Average West Texas Intermediate (“WTI”) and United Kingdom Brent (“Brent”) oil prices were slightly higher in the first quarter 2024 compared to the first quarter 2023. In addition, average natural gas prices were 18.6% lower in the first quarter 2024 compared to the first quarter 2023.

Current wording

Average West Texas Intermediate (“WTI”) and Brent oil prices were higher in the second quarter 2024 compared to the second quarter 2023. In addition, average natural gas prices were lower in the second quarter 2024 compared to the second quarter 2023.

Previous wording

Our revenues, over the long-term, are highly correlated to the global drilling rig count, which decreased 5.3% during the first quarter 2024 compared to average global rig count during first quarter 2023. The decrease was driven by decline in North America rig count of 15.3%, offset by growth in international rig count of 5.5% compared to first quarter 2023. International markets are expected to continue to outpace the U.S. in 2024. In the U.S., publicly owned exploration and production companies are expected to continue to exercise disciplined capital spending while privately owned exploration and production companies fluctuate their activity in response to changes in oil and natural gas prices.

Current wording

Our revenues, over the long-term, are highly correlated to the global drilling rig count, which decreased 5.3% during the second quarter 2024 compared to average global rig count during second quarter 2023. The decrease was mainly driven by a decline in North America rig count of 11.6%. International markets are expected to continue to outpace the U.S. in 2024. In the U.S., publicly owned exploration and production companies are expected to continue to exercise disciplined capital spending while privately owned exploration and production companies fluctuate their activity in response to changes in oil and natural gas prices.

Previous wording

Our revenue for the three months ended March 31, 2024 was $202.4 million, an increase of $13.4 million, or 7.1%, compared to the three months ended March 31, 2023. For the three months ended March 31, 2024, our Drilling and Completions and Artificial Lift and Downhole segments comprised 58.8% and 41.2% of our total revenue, respectively, which compared to 67.1% and 32.9% of our total revenue, respectively, for the three months ended March 31, 2023. The overall increase in revenue is primarily related to the revenue contributed from the acquired Variperm business, partially offset by the decline in overall global drilling and completions activities in 2024 compared to 2023. The changes in revenue by operating segment consisted of the following:

Current wording

Our revenue for the three months ended June 30, 2024 was $205.2 million, an increase of $19.8 million, or 10.7%, compared to the three months ended June 30, 2023. For the three months ended June 30, 2024, our Drilling and Completions and our Artificial Lift and Downhole segments comprised 57.0% and 43.0% of our total revenue, respectively, compared to 70.3% and 29.7% of our total revenue, respectively, for the three months ended June 30, 2023. The overall increase in revenue is primarily related to the revenue contributed from the acquired Variperm business, partially offset by the decline in U.S. drilling and completions activity in the second quarter 2024 compared to the second quarter 2023. The changes in revenue by operating segment consisted of the following:

Previous wording

Segment operating income for the three months ended March 31, 2024 was $9.1 million, a $2.5 million increase compared to $6.6 million for the three months ended March 31, 2023. For the three months ended March 31, 2024, segment operating margin percentage was 4.5% compared to 3.5% for the three months ended March 31, 2023. Segment operating margin percentage is calculated by dividing segment operating income by revenue for the period. The change in operating income for each segment is explained as follows:

Current wording

Segment operating income for the three months ended June 30, 2024 was $9.4 million, a $2.4 million increase compared to an income of $6.9 million for the three months ended June 30, 2023. For the three months ended June 30, 2024, segment operating margin percentage was 4.6% compared to 3.7% for the three months ended June 30, 2023. Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period. The change in operating income (loss) for each segment is explained as follows:

Previous wording

Artificial Lift and Downhole segment— Segment operating income was $11.8 million, or 14.1%, for the three months ended March 31, 2024 compared to $8.6 million, or 13.9%, for the three months ended March 31, 2023. The $3.2 million increase in segment operating results was primarily driven by the acquisition of Variperm and an increase in project revenue recognized from process oil treatment equipment, partially offset by the decline in sales of our valve products.

Current wording

Artificial Lift and Downhole segment— Segment operating income was $13.5 million, or 15.3%, for the three months ended June 30, 2024 compared to an income of $7.0 million, or 12.6%, for the three months ended June 30, 2023. The $6.5 million increase was primarily driven by the acquisition of Variperm.

Previous wording

Corporate— Selling, general and administrative expenses for Corporate were $7.3 million for the three months ended March 31, 2024 compared to $7.0 million for the three months ended March 31, 2023. Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel; professional fees for legal, accounting and related services; and marketing costs.

Current wording

Corporate— Selling, general and administrative expenses for Corporate were $7.0 million for the three months ended June 30, 2024 compared to $6.6 million for the three months ended June 30, 2023. Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel; professional fees for legal, accounting and related services; and marketing costs.

Previous wording

Other income and expense includes interest expense and foreign exchange gains (losses) and other. We incurred$8.8 million of interest expense during the three months ended March 31, 2024, an increase of$4.2 million compared to the three months ended March 31, 2023, due to the increased borrowings under our revolving Credit Facility and borrowings under the Seller Term Loan entered into in connection with the Variperm Acquisition. See Note 7 Debt for further details related to the Credit Facility and Seller Term Loan.

Current wording

Other income and expense includes interest expense, foreign exchange gains (losses) and other, and loss on extinguishment of debt. We incurred $8.7 million of interest expense during the three months ended June 30, 2024, an increase of $4.0 million compared to the three months ended June 30, 2023, due to the increased borrowings under our revolving Credit Facility and borrowings under the Seller Term Loan entered into in connection with the Variperm Acquisition. See Note 7 Debt for further details related to the Credit Facility and Seller Term Loan.

Previous wording

Drilling and Completions segment— Revenue was $119.1 million for the three months ended March 31, 2024, a decrease of $7.7 million, or 6.1%, compared to the three months ended March 31, 2023. Due to the decline in overall global drilling and completions activities, the decrease in revenue was led by an $8.8 million, or 18.5%, decrease in the Stimulation & Intervention product line, a $4.1 million, or 15.7%, decrease in the Coiled Tubing product line, and a $3.8 million, or 9.5%, decrease in the Drilling product line. The decrease was partially offset by an increase of $9.0 million, or 70.5%, in our Subsea product line due to higher project revenue recognized from ROVs and cable management systems.

Current wording

Drilling and Completions segment— Revenue was $236.1 million for the six months ended June 30, 2024, a decrease of $21.0 million, or 8.2%, compared to the six months ended June 30, 2023. The decrease in segment revenue included a $17.9 million, or 19.1%, decrease from the Stimulation & Intervention product line, a $13.2 million, or 15.5%, decrease from the Drilling product line, and a $2.3 million, or 4.5%, decrease from the Coiled Tubing product line, all primarily the result of declining U.S. drilling and completions activity. The decrease was partially offset by an increase of $12.5 million, or 47.8%, in our Subsea product line due to higher project revenue recognized from ROVs and cable management systems.

Previous wording

Artificial Lift and Downhole segment— Revenue was $83.3 million for the three months ended March 31, 2024, an increase of $21.1 million, or 34.0%, compared to the three months ended March 31, 2023. Revenue for our Downhole product line increased by $29.0 million, or 125.1%, primarily due to revenue contributed from the acquired Variperm business and an increase in casing equipment sales. This increase was partially offset by an $6.5 million, or 33.9% decrease, in sales of our valve products, and $1.4 million, or 7.1%, decrease in sales within our Production Equipment product line.

Current wording

Artificial Lift and Downhole segment— Revenue was $171.5 million for the six months ended June 30, 2024, an increase of $54.2 million, or 46.2%, compared to the six months ended June 30, 2023. Revenue for our Downhole product line increased by $60.0 million, or 132.6%, primarily due to revenue contributed from the acquired Variperm business and an increase in casing equipment sales from increased international activity. This increase was partially offset by a $4.8 million, or 14.0% decrease, in sales of our valve products, and $1.0 million, or 2.7%, decrease in sales within our Production Equipment product line.

Previous wording

Drilling and Completions segment— Segment operating income was $4.6 million, or 3.8%, for the three months ended March 31, 2024 compared to $5.0 million, or 3.9%, for the three months ended March 31, 2023. The $0.4 million decrease in segment operating results is primarily attributable to lower demand for capital equipment that was nearly offset by higher project revenue in Subsea product line.

Current wording

Drilling and Completions segment— Segment operating income was $7.4 million, or 3.1%, for the six months ended June 30, 2024 compared to $11.6 million, or 4.5%, for the six months ended June 30, 2023. The $4.2 million decrease in segment operating results is primarily attributable to decreased operating leverage from lower sales volumes for capital equipment that was partially offset by higher project revenue in Subsea product line and lower freight costs.

Previous wording

We recorded tax expense of $3.5 million and $2.8 million for thethree months ended March 31, 2024 and 2023, respectively. The estimated annual effective tax rates for thethree months ended March 31, 2024 and 2023 were impacted by losses in jurisdictions where the recording of a tax benefit is not available. Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

Current wording

We recorded tax expense of $6.0 million and $4.7 million for thesix months ended June 30, 2024 and 2023, respectively. The estimated annual effective tax rates for thesix months ended June 30, 2024 and 2023 were impacted by losses in jurisdictions where the recording of a tax benefit is not available. Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

Previous wording

As of March 31, 2024, we had $134.2 million principal amount of 2025 Notes outstanding, $96.5 million of borrowings under our revolving Credit Facility and $59.7 million principal amount of the Seller Term Loan outstanding. The 2025 Notes mature in August 2025 and, subject to certain exceptions, the Credit Facility matures in September 2028 and the Seller Term Loan matures in December 2026. See Note 7 Debt for further details related to the terms for our debt arrangements.

Current wording

As of June 30, 2024, we had $121.2 million principal amount of 2025 Notes outstanding, $72.8 million of borrowings under our revolving Credit Facility and $59.7 million principal amount of the Seller Term Loan outstanding. During the six months ended June 30, 2024, we repurchased an aggregate $13.0 million of principal amount of our 2025 Notes. Subsequent to June 30, 2024, we issued a notice of redemption for $60.0 million aggregate principal amount of our 2025 Notes with a redemption date of August 16, 2024. The 2025 Notes mature in August 2025. The Credit Facility matures on the earliest of (a) September 8, 2028, (b) the date that is 91 days prior to the maturity of 2025 Senior Notes (which will not apply if the 2025 Senior Notes are repaid prior to to such 91st day) and (c) the date that is 91 days prior to the maturity of the Seller Term Loan if the outstanding aggregate principal amount thereunder is equal to or greater than $30 million. The Seller Term Loan matures in December 2026. See Note 7 Debt for further details related to the terms for our debt arrangements.

Previous wording

As of March 31, 2024, we had cash and cash equivalents of $48.5 million and $71.6 million of availability under the Credit Facility. We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. Furthermore, availability under the Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable sublimits. In addition, we expect total 2024 capital expenditures to be approximately $10.0 million, primarily for replacement of end of life machinery and equipment.

Current wording

As of June 30, 2024, we had cash and cash equivalents of $31.8 million and $103.1 million of availability under the Credit Facility. We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. Furthermore, availability under the Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable sublimits. In addition, we expect total 2024 capital expenditures to be approximately $10.0 million, primarily for replacement of end of life machinery and equipment.

Previous wording

In November 2021, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $10.0 million. Shares may be repurchased under the program from time to time, in amounts and at prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations. During the three months ended March 31, 2024, we did not repurchase shares of our common stock and the remaining authorization under this program is $2.4 million.

Current wording

In November 2021, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $10.0 million. Shares may be repurchased under the program from time to time, in amounts and at prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations. During the six months ended June 30, 2024, we did not repurchase shares of our common stock and the remaining authorization under this program is $2.4 million.

Previous wording

Our cash flows for the three months ended March 31, 2024 and 2023 are presented below (in millions):

Current wording

Our cash flows for the six months ended June 30, 2024 and 2023 are presented below (in millions):

Previous wording

Net cash provided by operating activities was $5.0 million for the three months ended March 31, 2024 compared to net cash used in operating activities of $23.1 million for the three months ended March 31, 2023. This improvement in operating cash flow usage is primarily attributable to an increase in cash provided from working capital, mainly accounts receivable and inventories. It was offset by an increase in cash used for accounts payable and accrued liabilities of $24.1 million for the three months ended March 31, 2024 compared to $5.5 million for the three months ended March 31, 2023.

Current wording

Net cash provided by operating activities was $28.1 million for the six months ended June 30, 2024 compared to net cash used in operating activities of $29.5 million for the six months ended June 30, 2023. This improvement in operating cash flow usage is primarily attributable to changes in working capital which provided cash of $10.7 million for the six months ended June 30, 2024 compared to a use of cash of $43.8 million for the six months ended June 30, 2023.

Previous wording

Net cash used in investing activities was $152.8 million for the three months ended March 31, 2024, mainly related to Variperm Acquisition of $150.1 million and $2.9 million of capital expenditures, partially offset by $0.2 million of proceeds from the sale of property and equipment. Net cash used in investing activities was $0.8 million for the three months ended March 31, 2023, including $1.1 million of capital expenditures, partially offset by $0.3 million of proceeds from the sale of property and equipment.

Current wording

Net cash used in investing activities was $154.5 million for the six months ended June 30, 2024, mainly related to Variperm Acquisition of $150.1 million and $4.4 million of capital expenditures. Net cash used in investing activities was $1.7 million for the six months ended June 30, 2023, including $2.8 million of capital expenditures, partially offset by $1.1 million of proceeds from the sale of property and equipment.

Previous wording

Net cash provided by financing activities was $151.8 million for the three months ended March 31, 2024 compared to $19.4 million of cash provided by financing activities for the three months ended March 31, 2023, respectively. The change in net cash provided by financing activities primarily resulted from $96.5 million in borrowings from the revolving Credit Facility and net $59.7 million from the Seller Term Loan during the three months ended March 31, 2024 compared to a net $25.0 million of borrowings on the revolving Credit Facility during the three months ended March 31, 2023.

Current wording

Net cash provided by financing activities was $114.9 million for the six months ended June 30, 2024 compared to $4.1 million of cash provided by financing activities for the six months ended June 30, 2023, respectively. The change in net cash provided by financing activities primarily resulted from $72.8 million in borrowings from the revolving Credit Facility and $59.7 million from the Seller Term Loan, partially offset by repurchase of 2025 Notes of $13.0 million, during the six months ended June 30, 2024 compared to a net $10.0 million of borrowings on the revolving Credit Facility during the six months ended June 30, 2023.

Previous wording

There have been no material changes in our critical accounting policies and procedures during the three months ended March 31, 2024. For a detailed discussion of our critical accounting policies and estimates, refer to our 2023 Annual Report on Form 10-K. For recent accounting pronouncements, refer to Note 2 Recent Accounting Pronouncements.

Current wording

There have been no material changes in our critical accounting policies and procedures during the six months ended June 30, 2024. For a detailed discussion of our critical accounting policies and estimates, refer to our 2023 Annual Report on Form 10-K. For recent accounting pronouncements, refer to Note 2 Recent Accounting Pronouncements.