FORUM ENERGY TECHNOLOGIES, INC. Q3 FY2026 earnings call

• Strategic Execution: Management highlighted strong execution of the 'Beat the Market' strategy, focusing on mission-critical applications, targeted markets with limited competition, continuous innovation, and global footprint leverage.
• Innovation & New Markets: Introduced a new high-tensile strength tube for perforating gun housings, expanding addressable market by ~$200 million. Gaining traction in Canadian oil sands with flow control technology and data center stationary cooling products via advanced-stage RFQs.
• International Growth: International revenue is up 31% year-to-date. Specific highlights include 32% revenue growth in the Middle East despite geopolitical volatility, early-stage opportunities in Venezuela (shipping coil tubing/pressure control), and emerging demand in Argentina.
• Acquisition Success: Completed the accretive acquisition of Premier Torque Rings for $33 million. The deal adds differentiated torque ring technology, which is critical for complex wells, and leverages shared customers for cross-selling.
• Operational Efficiency: Revenue per global rig has increased 35% since 2022. Book-to-bill ratio was 103%, with orders exceeding revenue for six of the last seven quarters.
• Capital Allocation: Generated $41 million free cash flow YTD. Reduced net debt by $13 million to $97 million (net leverage improved from 1.1x to 0.9x). Repurchased $1.4 million in shares at below-market prices.

Consolidated revenue increased 5% sequentially to $237 million. Adjusted EBITDA rose 14% to $36 million, with margins expanding 120 basis points to just over 15%. Net income grew 33% to $18 million. The Drilling and Completion segment saw revenue increase 6% to $147 million, with EBITDA up 28% to approximately $21 million (margin expansion of 240 basis points to 14%). Artificial Lift and Downhole revenue increased 3% to $90 million, driven by the Premier Torque Rings acquisition and higher demand for sand/flow control solutions; EBITDA was flat at $21 million due to offsetting freight and tariff costs.

• Full Year 2026 Outlook Raised: Revenue expected between $900 and $920 million. EBITDA between $123 and $129 million. Net income between $52 and $58 million. Free cash flow between $66 and $71 million. These midpoints represent significant upside vs. 2025 (Revenue +15%, EBITDA +46%, Net Income +639%).
• Fourth Quarter 2026 Guidance: Revenue expected between $230 and $250 million. EBITDA between $33 and $39 million. Net income between $15 and $21 million. Free cash flow between $25 and $30 million.
• One-Time Items: Q4 GAAP net income will be impacted by a one-time incremental stock-based compensation charge of approximately $5 million related to equity award settlements.
• 2027 Expectations: Management anticipates a growth year, with annualized midpoints suggesting 5% revenue and 14% EBITDA growth compared to 2026.

• Geopolitical Volatility: Ongoing conflict in the Middle East poses disruption risks, though no meaningful order cancellations have occurred yet. Management remains concerned about potential future escalation.
• Country Risk in Emerging Markets: Operations in Venezuela and Argentina carry credit and expropriation risks. Mitigation strategies include shipping from the U.S., receiving USD payments, using Letters of Credit, and avoiding local asset ownership.
• Cost Pressures: Higher freight and tariff costs partially offset revenue growth in the Artificial Lift and Downhole segment during Q3.
• Litigation Costs: A $3 million charge plus $500,000 in legal fees were recorded for resolving a previously disclosed litigation matter.

Q: Analyst asked about customer conversations underpinning confidence in 2027 activity levels and whether clients are leaning into budgets early. / A: CEO noted it is early budget season but large service companies project mid-to-high single-digit activity growth. He emphasized that FET benefits not just from rig count increases, but from well complexity (longer laterals, more stages) consuming more consumables. Management feels current Q3/Q4 operating levels are sustainable, with further upside if share gains continue.

Q: Analyst inquired about the Q4 contribution of the Premier Torque Rings acquisition and its synergy potential across other markets. / A: CFO estimated a run-rate contribution of ~$8M annually ($2M/quarter), with ~$1M added in Q4 due to mid-quarter close. CEO highlighted strong synergies with existing downhole lines, shared customers, and international expansion. He stressed the product’s field-friendly nature and importance for complex casing designs in both unconventional and conventional wells.

Q: Analyst questioned the company’s comfort level with debt and priorities among buybacks, debt repayment, and M&A. / A: CEO stated debt levels are comfortable, allowing flexibility for strategic investments. CFO corrected prior comment, noting net debt reduced by $18M. They view current leverage as low enough to provide "dry powder" for M&A or buybacks. Criteria for acquisitions include differentiated products, limited competition, and alignment with organic growth strategies like FET 2030.

Q: Analyst asked about free cash flow conversion rates as growth picks up and the status/conversion speed of the backlog. / A: CFO explained that while working capital reinvestment is needed, incremental EBITDA margins should remain 25-35%, with 60-70% converting to FCF. CEO noted backlog converts in <1 year generally, except for long-cycle subsea projects like the Rescue Submarine. He emphasized that ~80% of sales are activity-based consumables booked and shipped within the quarter, making volume/share key drivers.

Q: Analyst asked about the risk profile in the Middle East and how currency/country risks are managed in Venezuela and Argentina. / A: CEO acknowledged ongoing geopolitical risks but noted no major disruptions so far. For Venezuela/Argentina, management avoids local assets and credit risk by shipping from the U.S., requiring USD payments, and using LCs. Initial focus is on consumables (coil tubing, pressure control) and infrastructure pipes, prioritizing secure payment over aggressive growth.