Forum Energy Technologies, Inc. EnerCom Denver – The Energy Investment Conference

Morning. Thanks for joining us here once again for EnerCom. Hard to believe, 31 straight years here at EnerCom. A great mix of return attendees and, of course, some new ideas, some new people, and of course, with that always comes some new opportunity. I'm Jim Felton with EnerCom. Look forward to seeing all of you tonight at Casino Night, a great event, a great fundraiser for a great cause. I am happy, it's my pleasure this morning to introduce Forum Energy Technologies, a global energy products company serving the drilling, subsea, completions, production, and infrastructure markets. It's my pleasure again to introduce the Chief Financial Officer of the company for Forum Energy, and Executive Vice President, Lyle Williams. Lyell. Get you all powered up. There you go. Thank you, Jim, and thanks to the EnerCom team for hosting us.

Lyle Williams, glad to be here and introduce you to FET or Forum Energy Technologies. Before we get started, and obviously we'll have some forward-looking statements, so you know the drill with our disclaimer there. Let me first introduce you to FET. As Jim said, we're a global manufacturer of equipment for the upstream industry, providing value-added solutions to our customers around the world. When we think about our business and how we attack the market, really through two segments. First segment is artificial lift and downhole. We provide downhole equipment as well as surface processing equipment to the world's largest E&Ps. We do that around the world, and our goal there is to help them produce more oil and more gas at a lower cost.

The other segment, drilling and completions, we manufacture a mix of consumable and capital equipment, and we sell that to the world's largest service companies. That helps them be safer and more efficient drilling wells and completing wells faster and at a lower cost. When we think about where we sell our products, we leverage our global footprint, manufacturing equipment in the U.S., Canada, the U.K., Germany, and Saudi Arabia, and we sell our products around the world. About half of our revenue comes from the U.S., the other half internationally. Big markets that we participate in are Canada, the Middle East, Europe, and Latin America. I think a very interesting thing about our product portfolio, and we'll talk about this a bit more, is our mix of revenue. Nearly 80% of our revenue comes from what we call activity-based consumables.

We're not dependent on service company CapEx to grow our revenue. We're looking at activity levels and what that means for the industry. The other 20% of our revenue is CapEx. We sell capital to the big service companies to help them improve the efficiency of their operations. We've grown our revenue and EBITDA really well over the last several years. We just updated our full year 2026 guidance in our last earnings call. So a revenue of $890 million, about a 13% growth year-over-year, and EBITDA of $120 million. That's a 40% growth on a year-over-year basis. So a big move for us this year. I'll talk a little bit about where that's coming from. Market cap for FET is just tickling a billion. So if I do my job today, maybe we'll get there. So that's who FET is.

Let me talk a little bit about why FET and why we think FET is a good investment for investors. Really four reasons that we will walk through today. First, our track record of outperformance. Second, despite that outperformance, we are still an incredible value. We have had significant returns of capital to shareholders, and most importantly, we are poised to grow our business organically. Let me walk you through these points and what that looks like. First, starting with our track record of outperformance. When we look at our revenue, we have grown our revenue well over the last five years, compound annual revenue growth rate of 10%. We compare that to the Russell 2000, so other small cap opportunities who have grown at a compound annual growth rate of 7%. A big focus for FET is generating cash flow.

We have grown our cash flow rate at a compound growth rate of 46% per year, so massive growth in cash, and you can see how that compares to the growth in cash flow for the Russell 2000 as an average. Now, how have we done that? We have done that through taking market share and through targeted acquisitions. We have done that through the nature of our business as a manufacturing company with high operating leverage. As we grow, we generate a lot of incremental profit. Finally, FET is a capital-light business. We do not need a lot of capital expenditures to grow. Typically, CapEx has run for us about 1% of revenue, and we think we can grow our revenue about 50% from where we are today without having to change that model. So a lot of upside from a cash flow perspective.

What does that mean for returns? Over the last five years, and this is through the end of June, we have grown our share price at a compound rate of 16% per year. Again, compared to other small cap companies, really outperforms that. Just in the last year, we increased our stock price 158% relative to what the Russell did. Obviously, there, our strong financial performance is a big piece of that. We have got a great balance sheet. We will talk about that in a second, but we have de-levered our balance sheet materially over the last number of years. We have got no debt maturities until 2029 and a really healthy ability to grow if we were needing to call on that. Finally, we have talked about our significant outlook for growth, and I will focus on that in a couple of minutes.

Despite that great run-up, we still think FET is an incredible value. We compare FET on a bunch of different valuation metrics here to a smaller group of the Russell 2000. Really, companies focused on manufacturing or industrial-looking companies. First, looking at free cash flow yield. Our free cash flow yield on a 2026 basis, back where we were about a month or so ago, is 17%, almost three times what you would get with an average Russell 2000 manufacturing company. From a valuation perspective, whether you look at EV to EBITDA or price to sales, you are getting kind of double the value with FET. Finally, we talked about leverage. Our net debt to EBITDA leverage is 1.1 times, compared to the average company in that peer group of about two. What that yields for FET is really strong cash generation relative to the option.

We've got a compelling relative valuation, and we've got a strong and flexible balance sheet to support growth. We also talk about significant capital returns. We've generated a lot of cash over the last several years, so what have we done with that cash? First, we've repurchased quite a bit of shares and focused on targeted acquisitions. Over the last two years, we've repurchased about 1.5 million shares outstanding. Net reduction in our share count of about 1 million shares or roughly 8% of our share count. At the same time, we focused on net debt reduction and de-leveraging the business, giving us a lot of dry powder for further growth. Specifically, if you look at our net leverage ratio over the last five years, we've gone from almost four times leverage, which was a high number, to 1.1 times at the end of June.

A really great position that we put us in. Overall, our capital returns framework of balancing shareholder returns and net debt reduction reduced our share count by 8%, reduced our outstanding debt by 67%, and at the same time, we've completed five accretive acquisitions that have tucked in and grown our business and improved our product portfolio. Good track record of outperformance. Still an incredible value with good shareholder returns. What's really exciting to us is how do we grow, right? If you're looking at small cap companies, I think that's got to be a piece of the story and where do we grow. Let me talk to you about our organic growth strategy and what that looks like. We call this our beat the market strategy. Obviously, we're tied to a cyclical industry. When it's up, we want to be up more.

If it's going to be down, we want to be down less. How do we compete? We compete and we choose to compete in targeted markets. These are markets that have limited competition with differentiated product offerings and good barriers to entry. We compete in markets where we can utilize our competitive advantages. Those would be manufacturing know-how. Several of the products that we manufacture are complex and would be very challenging for a new entrant or where we have intellectual property protection. We also compete with brands that are well-known in the industry and with industry experts. Each of our product families are led by veterans from the service companies or from the operators who know how our products work in practice and know how to solve the customer's problems. We stay ahead of the game with continuous innovation.

That could be iterative innovation, where we're making small changes to stay ahead of the competition, or it could be new products where we're stepping out and increasing the total addressable market that we compete in. Finally, I mentioned our global footprint. We can leverage, and we do leverage our global footprint. That could be making it easier for us to respond to customer demand or maintaining a very resilient supply chain. How has that worked for us? What's that look like? We measure our success and beat the market strategy by comparing our global revenue to the global drilling rig count. Just a good measure of industry activity. You can see that over the last four years, we've increased our revenue per rig by 27%. We think of that as taking market share, as we've grown faster than the market.

We look at where we've done that. We mentioned our mix of revenue. In the U.S., we generate U.S. revenue compared to U.S. drilling rigs, about $700,000 per rig. Internationally, it's about half that, of 350. A great tailwind for FET is the internationalization of what's gone on with unconventional drilling, in the U.S. now to areas like Argentina, the Middle East, discussions in Australia, and North Africa. As the technology that has been deployed in the U.S. to make our industry so efficient is being called on outside the U.S., it's a great opportunity for FET to raise our revenue per international rig. Beat the market strategy is working. We're delivering share gains. More so than that, we have opportunities to leverage our product portfolio and take additional market share.

Really, we break that down into a couple of ways to think about that. About two-thirds of our revenue is based on what we call leadership markets. These are products that compete and where we have meaningful market share, where the solutions that we're offering are fully adopted by the industry. There's not a question of does it work? They're globally accepted, so we sell around the world. The markets there are leadership markets, about $1.5 billion, and in aggregate, FET has 36% share. We have a dominant position in these markets, and our long-term goal is to sustain our edge through the continuous innovation that we talked about and grow with the market. The other third of our revenue competes in growth markets. These are our opportunities to take share and grow our share.