Forum Energy Technologies, Inc. Water Tower Research Virtual Insights Conference

Thank you for joining this session of the Water Tower Research Virtual Insights Conference. I am pleased to welcome Forum Energy Technologies. We are joined today by CEO Neal Lux and CFO D. Lyle Williams Jr. I am Jeff Robertson, managing director for natural resources here at Water Tower Research. Before we begin, I would like to note that FET's safe harbor disclosures regarding forward-looking statements can be found under the investor relations tab of the company's homepage. Investors can submit questions through the conference portal, which we will seek to answer in the follow-up management series report, and investors can indicate interest in meeting with management can be submitted through the portal, and our team will work to coordinate meetings following the conference.

By way of introduction, FET is a global manufacturer of value-added products and technology solutions for the upstream oil and gas industry, operating through two segments, artificial lift and downhole drilling and completions. The company solutions are highly engineered to enable customers to develop their resources safely and efficiently to maximize their returns on investment. FET manufactures products in several countries and sells to the global market, with about half of revenue generated in the U.S. and half generated from international markets. FET's business model is capital light, requiring CapEx equating to about 1% of revenue, which results in a high free cash flow conversion. Management has been executing a beat the market strategy, which is geared toward maintaining market share in leadership markets and gaining share in growth markets, with the goal of quadrupling adjusted EBITDA and tripling free cash flow by 2030 from a 2025 base.

Neal, Lyle, with that bit of introduction out of the way, I want to thank you so much for taking the time to join us.

Jeff, great to be here. Looking forward to our fireside chat.

Neal, let's start with the top. Execution of the beat the market strategy, as I mentioned earlier, has contributed to FET's ability to increase revenue per rig by about 34% since 2022, despite a global rig count, which has been flat to down during that period. For someone who's new to the company and what you all do, can you describe the FET strategy to compete in the global oilfield services industry?

Yeah, for sure, Jeff. It really starts out with who we are. We are a manufacturer. We provide solutions that make energy production safer, more efficient, more economical. If you think about our types of sales, about 80% of our revenue is activity-based, so we're creating recurring demand for our products, especially as activity moves. As we look at our strategy, we call it beat the market, and we really want to beat the market when it goes up, and if the market goes down, we want it to decline less. Our strategy really is based on four pillars. The first being we want to compete in targeted markets with few competitors and where our customers value the products and solutions that we deliver. Essentially, we want to compete where we can win. Second, when we do compete, we want to utilize our competitive advantages.

We have very high-tech manufacturing. We have a lot of know-how, a lot of intellectual property, and we have brands that have been around for decades, and key employees that understand how our products are used in the field and how we can make them better. The third part of our beat the market strategy is our continuous new product development. We want to continue to make new and differentiated products that separate us from our competition. We have continuous innovation that protects our existing market positions, and then we also have innovation that expands the addressable markets that we can touch, which is always really exciting for me. The final pillar is we have a global manufacturing and distribution footprint that allows us to respond to customer demand wherever it is around the world.

If you think about the energy industry, it is a global industry. We can deliver our products wherever the energy industry needs them. Putting it together, the objective, again, of our beat the market strategy is to grow faster than our markets through share gains, innovation, and geographic expansion. As you've mentioned, we have been incredibly successful growing our revenue per rig by about 34% since we implemented the strategy.

Can you characterize how much of that growth in terms of revenue per rig is attributable to product mix and pricing, and how much is attributable to some of the innovative solutions that FET brings to the market?

The primary driver of our growth has been new product development and geographic expansion. Really, very little price add. I think this was really evident in the first half of this year, where we increased our revenue by about 11%, while global rig count was broadly flat. If you think about profitability, if you think about the second quarter that we just completed, we did know we had favorable product mix, so that helped us increase profitability, especially with our higher value product line of our downhole products. In that product line, we saw really good activity in Canada, as well as increased penetration of some of the new products that we developed. Overall, I think innovation, geographic expansion, that is how we capture market share and grow the top line, while mix and operating leverage is how we strengthen the margin impact.

You all have defined leadership markets as those where you hold about roughly a mid-30s percentage to market share with an approximate $1.5 billion addressable market, and growth markets as those where the share is below 10%, but the total addressable market is much larger at roughly $3 billion in market. What product lines, Neal, do you put in leadership markets, and how do you maintain and potentially even grow your market share in those types of markets?

Great question. Just to level set, our leadership markets are roughly two thirds of our revenue in 2025 last year. In those markets, in aggregate, we believe we hold about 36% share. So our products are really fully adopted, and they are broadly adopted geographically, so up and down the industry chain and geography. Couple examples there, coiled tubing, one of three global manufacturers of quench and temper coiled tubing, cased hole wireline, again, one of three manufacturers of high pressure wireline for frac applications, subsea ROVs, again, remote operated vehicles for offshore applications, and then sand and flow control solutions for thermal oil sands. Again, so we have some really good products. I think our position for the FET 2030 objective is we want to sustain our leadership. As those markets grow, we want to sustain our share and grow with them.

Again, we're going to have to continue to innovate. We're going to have to continue to deliver value for our customers. But we are in a great position to do that because we're leaders. We're leaders in that. As we grow through innovation, aftermarket penetration, and again, keep expanding where we are in proven geographies. As our markets get bigger, we're going to get bigger with it.

It probably holds true for the growth markets, which we're going to touch on in a minute, but operators, especially in the U.S. unconventional shale basins, are increasing the intensity of the wells they drill with longer laterals, which require bigger stimulations. Is that part of what you're talking about when you say as the leadership markets grow, because of that intensity, you all expect to maintain your share as the industry evolves?