Forum Energy Technologies, Inc. 2026 Q2 Earnings Call

Good morning, everyone, welcome to FET's second quarter 2026 earnings conference call. With me today are Neal Lux, our President and Chief Executive Officer, 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 are cautioned that our remarks 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. 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, net income refers to adjusted net income.

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. We continued to gain market share through product innovation, international expansion, and exceptional execution for our customers. While oil prices moved higher during the quarter, our customers remained disciplined and focused on cash generation. In North America, stronger completions drove frack utilization, benefiting our wireline, coiled 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's 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-light 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.

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 coiled 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 U.S. 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. First, after several years of product development, we received an order from a major service company for a high-temperature frac application. This product operates at 140 degrees Fahrenheit, ideally suited for harsh Middle East environments.

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 also remain focused on delivering results today. Our strong first-half performance and elevated backlog gives us confidence to meaningfully raise financial guidance for the remainder of 2026. We now expect full-year revenue between $870 million and $910 million, and EBITDA between $115 million and $125 million. Compared to last year, revenue and EBITDA would increase 13% and 40% respectively, with incremental margins of 34%. This is incredible growth. We now expect net income between $42 million and $52 million and full-year free cash flow between $57 million and $77 million.

This improved outlook reflects 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. 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. 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.