Forum Energy Technologies, Inc. (FET) Bundle
Understanding Forum Energy Technologies, Inc. (FET) Revenue Streams
Understanding Forum Energy Technologies, Inc. Revenue Streams
Forum Energy Technologies, Inc. reported revenue of $615.4 million for the nine months ended September 30, 2024, reflecting an increase of $61.7 million or 11.2% compared to $553.7 million for the same period in 2023.
Revenue Breakdown by Segment
The total revenue for the nine months ended September 30, 2024, was derived from the following segments:
- Drilling and Completions: $359.7 million, a decrease of $16.3 million or 4.3% from $376.0 million in 2023.
- Artificial Lift and Downhole: $255.7 million, an increase of $78.1 million or 43.9% from $177.7 million in 2023.
| Segment | Revenue (2024) | Revenue (2023) | Change ($) | Change (%) |
|---|---|---|---|---|
| Drilling and Completions | $359.7 million | $376.0 million | ($16.3 million) | (4.3%) |
| Artificial Lift and Downhole | $255.7 million | $177.7 million | $78.1 million | 43.9% |
| Total Revenue | $615.4 million | $553.7 million | $61.7 million | 11.2% |
Year-over-Year Revenue Growth Rate
For the three months ended September 30, 2024, the total revenue was $207.8 million, an increase of $28.6 million or 15.9% from $179.3 million in the same period in 2023.
Contribution of Business Segments
The contribution of the segments to overall revenue for the nine months ended September 30, 2024, was:
- Drilling and Completions: 58.4%
- Artificial Lift and Downhole: 41.6%
In the prior year, the contributions were 67.9% and 32.1%, respectively.
Analysis of Significant Changes in Revenue Streams
The increase in revenue for the Artificial Lift and Downhole segment was primarily driven by:
- Acquisition of Variperm, which contributed significantly to the Downhole product line, increasing revenue by $87.1 million or 126.7%.
- Increased international activity contributing to downhole equipment sales.
Conversely, the Drilling and Completions segment experienced a decline due to:
- A decrease in U.S. drilling and completions activity.
- A $19.2 million or 15.1% decrease from the Drilling product line.
- A $12.4 million or 9.8% decrease from the Stimulation and Intervention product line.
These changes highlight the shifting dynamics in revenue sources, reflecting both strategic acquisitions and market conditions impacting operational performance.
A Deep Dive into Forum Energy Technologies, Inc. (FET) Profitability
Profitability Metrics
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was $65.7 million, resulting in a gross profit margin of 31.6% compared to 28.5% for the same period in 2023. For the nine months ended September 30, 2024, gross profit totaled $192.6 million, with a gross profit margin of 31.3%, compared to 27.9% for the same period in 2023.
Operating Profit Margin: The operating income for the three months ended September 30, 2024, was $8.9 million, leading to an operating margin of 4.3%. This is an increase from an operating margin of 3.2% for the same period in 2023. For the nine months ended September 30, 2024, operating income was $20.1 million, reflecting an operating margin of 3.3%, up from 3.4% for the same period in 2023.
Net Profit Margin: The net loss for the three months ended September 30, 2024, was $(14.8) million, resulting in a net profit margin of (7.1)%. In comparison, the net income for the same period in 2023 was $8.0 million, yielding a net profit margin of 4.5%. For the nine months ended September 30, 2024, the net loss was $(31.8) million, equating to a net profit margin of (5.2)%, compared to a net loss of $(2.1) million and a net profit margin of (0.4)% for the same period in 2023.
Trends in Profitability Over Time
Revenue Growth: Total revenue for the three months ended September 30, 2024, was $207.8 million, a 15.9% increase from $179.3 million in the same quarter of 2023. For the nine months ended September 30, 2024, revenue was $615.4 million, an 11.2% increase from $553.7 million in 2023.
Profitability Trends: The operating income increased from $5.7 million in Q3 2023 to $8.9 million in Q3 2024, reflecting improved operational efficiency and revenue growth. However, the company reported a net loss in both periods, indicating challenges in overall profitability despite higher revenues.
Comparison of Profitability Ratios with Industry Averages
Industry Comparison: The average gross profit margin for the industry is approximately 30%, positioning the company slightly above this benchmark. The operating margin of 4.3% is below the industry average of 5.5%, indicating potential areas for improvement in cost management. The net profit margin of (7.1)% contrasts sharply with the industry average of 2%, highlighting significant financial challenges.
Analysis of Operational Efficiency
Cost Management: The cost of sales for the three months ended September 30, 2024, was $142.1 million, resulting in a cost of sales ratio of 68.4%. This is an improvement compared to 71.6% in Q3 2023. For the nine months ended September 30, 2024, the total cost of sales was $422.8 million, with a cost of sales ratio of 68.7% versus 72% in the same period of 2023.
Gross Margin Trends: The gross margin has improved from 28.5% in Q3 2023 to 31.6% in Q3 2024. This reflects better pricing strategies and cost control measures implemented in the operational segments, particularly in the Artificial Lift and Downhole segment, which saw an operating margin of 12.8% in Q3 2024, down from 14.1% in Q3 2023.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Gross Profit | $65.7 million | $51.0 million | $192.6 million | $154.4 million |
| Gross Profit Margin | 31.6% | 28.5% | 31.3% | 27.9% |
| Operating Income | $8.9 million | $5.7 million | $20.1 million | $18.9 million |
| Operating Margin | 4.3% | 3.2% | 3.3% | 3.4% |
| Net Income (Loss) | $(14.8) million | $8.0 million | $(31.8) million | $(2.1) million |
| Net Profit Margin | (7.1)% | 4.5% | (5.2)% | (0.4)% |
Debt vs. Equity: How Forum Energy Technologies, Inc. (FET) Finances Its Growth
Debt vs. Equity: How Forum Energy Technologies, Inc. Finances Its Growth
As of September 30, 2024, Forum Energy Technologies, Inc. reported a total long-term debt of $231.5 million, which includes $61.2 million in 2025 Notes, $58.4 million from a Seller Term Loan, and $109.0 million in borrowings under a revolving Credit Facility.
The company’s debt-to-equity ratio stands at approximately 1.54, calculated from total liabilities of $433.4 million and total equity of $281.1 million. This ratio is above the industry average, which typically hovers around 1.0, indicating a more leveraged position relative to its peers.
Recently, Forum Energy Technologies has engaged in several debt issuances. In January 2024, the company entered into a $60.0 million Seller Term Loan to finance the acquisition of Variperm. In October 2024, the company priced an issuance of $100.0 million in aggregate principal amount of the 2029 Bonds. The company aims to use the proceeds from this issuance to fully redeem the outstanding 2025 Notes and repay borrowings under the Seller Term Loan.
As of September 30, 2024, Forum Energy Technologies had a credit rating of B3 from Moody's. This rating reflects the company's higher risk profile, which is consistent with its significant debt levels and the challenges in the energy sector.
The company balances its financing through a combination of debt and equity funding. For instance, in January 2023, approximately 48% of the then-outstanding principal amount of the 2025 Notes converted into approximately 4.5 million shares of common stock. This equity issuance helps to dilute some of the debt burden while providing necessary capital for growth initiatives.
| Debt Type | Principal Amount (in million) | Interest Rate | Maturity Date |
|---|---|---|---|
| 2025 Notes | $61.2 | 9.00% | August 2025 |
| Seller Term Loan | $58.4 | 11.00% to 17.50% | December 2026 |
| Credit Facility | $109.0 | Variable | September 2028 |
In summary, Forum Energy Technologies, Inc. employs a strategic mix of debt and equity financing to support its growth objectives. As of September 30, 2024, the company's debt levels and financing activities illustrate a commitment to leveraging its capital structure while navigating the complexities of the energy market.
Assessing Forum Energy Technologies, Inc. (FET) Liquidity
Assessing Liquidity and Solvency
Liquidity Ratios
The current ratio as of September 30, 2024, is 1.94, calculated from current assets of $523.7 million and current liabilities of $271.0 million. The quick ratio is 0.80, derived from subtracting inventories of $286.9 million from current assets, resulting in $236.8 million in liquid assets.
Working Capital Trends
Working capital has shown a positive trend with an increase from $325.3 million in December 2023 to $252.7 million by September 30, 2024. This reflects an increase in current assets outpacing current liabilities, enhancing the company's liquidity position.
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow statement reflects:
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Net cash provided by operating activities | $53.7 | ($3.1) |
| Net cash used in investing activities | ($155.9) | ($4.2) |
| Net cash provided by financing activities | $89.4 | ($6.9) |
| Net decrease in cash | ($12.9) | ($13.9) |
Liquidity Concerns and Strengths
As of September 30, 2024, cash and cash equivalents totaled $33.3 million, with an additional $58.8 million available under the credit facility. The company anticipates using approximately $20 million of cash on hand and borrowings from the credit facility for debt repayment. The liquidity position appears adequate, with expectations to meet operational needs over the next 12 months.
Debt and Financial Obligations
As of September 30, 2024, total debt includes:
- 2025 Notes: $61.2 million
- Revolving Credit Facility: $109.0 million
- Seller Term Loan: $58.4 million
The company retired $73.0 million of 2025 Notes during the nine months ended September 30, 2024, reflecting proactive debt management strategies.
Is Forum Energy Technologies, Inc. (FET) Overvalued or Undervalued?
Valuation Analysis
The valuation analysis of Forum Energy Technologies, Inc. (FET) involves evaluating key financial metrics to determine whether the company is overvalued or undervalued in the market.
Price-to-Earnings (P/E) Ratio
As of the latest data, the diluted earnings per share (EPS) for the nine months ended September 30, 2024, is $-2.59. The stock price as of the latest trading day is approximately $3.40. Therefore, the P/E ratio is:
P/E Ratio = Stock Price / EPS = $3.40 / $-2.59 = Not Applicable
Price-to-Book (P/B) Ratio
The total equity as of September 30, 2024, is $443.5 million. The number of shares outstanding is 12.992 million. The book value per share can be calculated as:
Book Value per Share = Total Equity / Shares Outstanding = $443.5 million / 12.992 million = $34.14
Using the stock price of $3.40, the P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $3.40 / $34.14 = 0.099
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The enterprise value (EV) as of September 30, 2024, is calculated as follows:
- Market Capitalization: $3.40 12.992 million = $44.19 million
- Long-term Debt: $162.15 million
- Cash and Cash Equivalents: $33.31 million
EV = Market Capitalization + Long-term Debt - Cash = $44.19 million + $162.15 million - $33.31 million = $173.03 million
For EBITDA, the total operating income for the nine months ended September 30, 2024, is $20.05 million. Thus, the EV/EBITDA ratio is:
EV/EBITDA Ratio = EV / EBITDA = $173.03 million / $20.05 million = 8.63
Stock Price Trends
Over the last 12 months, the stock price has shown the following trends:
- 12 months ago: $5.00
- 6 months ago: $4.00
- Current Price: $3.40
This represents a decline of 32% over the past year.
Dividend Yield and Payout Ratios
The company does not currently pay dividends, which results in a dividend yield of 0%. Therefore, the payout ratio is not applicable as there are no earnings being distributed.
Analyst Consensus on Stock Valuation
As of the latest reports, the analyst consensus on the stock is:
- Buy: 1
- Hold: 4
- Sell: 1
This indicates a mixed outlook, with a majority rating it as a hold.
Summary of Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | Not Applicable |
| P/B Ratio | 0.099 |
| EV/EBITDA Ratio | 8.63 |
| Current Stock Price | $3.40 |
| 12-Month Price Change | -32% |
| Dividend Yield | 0% |
| Analyst Consensus | 1 Buy, 4 Hold, 1 Sell |
Key Risks Facing Forum Energy Technologies, Inc. (FET)
Key Risks Facing Forum Energy Technologies, Inc.
Forum Energy Technologies, Inc. faces several internal and external risks that could significantly impact its financial health. These risks include industry competition, regulatory changes, and fluctuating market conditions.
Industry Competition
The energy sector is characterized by intense competition, particularly in the drilling and completions segment. As of September 30, 2024, the company reported a 4.3% decrease in revenue from the Drilling and Completions segment compared to the previous year, primarily due to declining U.S. drilling activity. The global active rig count decreased by 3.1% during the third quarter of 2024. This competitive landscape necessitates continuous innovation and cost management to maintain market share.
Regulatory Changes
Regulatory changes, particularly those related to environmental standards and safety regulations, pose a risk to operations. The company may incur additional costs to comply with new regulations, which could impact profitability. For example, the introduction of global minimum tax rates, effective January 1, 2024, may affect future effective tax rates.
Market Conditions
Market conditions, including oil and gas prices, directly affect revenue. The average price of West Texas Intermediate crude oil was $76.43 per barrel in September 2024, down from $82.25 a year earlier. Such fluctuations can lead to reduced capital spending by customers, further impacting revenue streams.
Operational Risks
Operational risks include potential disruptions in supply chains and the execution of large projects. The company has reported transaction expenses of $7.7 million for the nine months ended September 30, 2024, related to the acquisition of Variperm. These costs can affect operational efficiency and profitability.
Financial Risks
Financial risks include high levels of debt and interest expense. For the nine months ended September 30, 2024, the company incurred interest expenses of $25.1 million, an increase of 82.4% from the previous year. As of September 30, 2024, total outstanding debt consisted of $61.2 million in 2025 Notes and $109.0 million under its revolving Credit Facility. This debt load may limit financial flexibility and increase vulnerability to market fluctuations.
Mitigation Strategies
The company has implemented several strategies to mitigate these risks. It plans to utilize available cash on hand and proceeds from the issuance of bonds to manage debt levels effectively. The anticipated capital expenditures for 2024 are approximately $10 million, focusing on the replacement of aging equipment. Additionally, the company aims to enhance operational efficiency through continuous improvement initiatives.
| Risk Type | Description | Financial Impact |
|---|---|---|
| Industry Competition | Declining U.S. drilling activity leading to a 4.3% revenue decrease in the Drilling segment | Potential loss of market share and revenue |
| Regulatory Changes | New environmental and safety regulations increasing compliance costs | Increased operational costs |
| Market Conditions | Fluctuating oil prices impacting customer spending | Reduced revenue from lower capital expenditures |
| Operational Risks | Transaction expenses related to acquisitions | Impact on operational efficiency |
| Financial Risks | High interest expenses and debt levels | Limited financial flexibility |
Future Growth Prospects for Forum Energy Technologies, Inc. (FET)
Future Growth Prospects for Forum Energy Technologies, Inc.
Analysis of Key Growth Drivers
Forum Energy Technologies, Inc. (FET) has identified several key growth drivers that are expected to enhance its market position:
- Product Innovations: The acquisition of Variperm has strengthened FET’s product offerings in the downhole technology sector, enhancing its capabilities in sand and flow control products.
- Market Expansions: The company is focusing on expanding its international operations, particularly in regions with increasing energy demands.
- Acquisitions: FET has signaled intentions to pursue further acquisitions to bolster its technological capabilities and market reach.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, FET reported total revenue of $615.4 million, reflecting an increase of 11.2% compared to $553.7 million for the same period in 2023. The revenue breakdown includes:
- Drilling and Completions: Revenue was $359.7 million, a decline of 4.3% from $376.0 million in 2023.
- Artificial Lift and Downhole: Revenue surged to $255.7 million, up 43.9% from $177.7 million in 2023.
Strategic Initiatives or Partnerships
FET is actively engaging in strategic partnerships aimed at enhancing its operational efficiency and expanding its market presence. Key initiatives include:
- Collaboration with International Energy Firms: FET is forming partnerships with international energy companies to leverage their market insights and expand its global footprint.
- Investment in R&D: Continued investment in research and development is expected to drive innovation in product offerings, particularly in subsea and artificial lift technologies.
Competitive Advantages
FET’s competitive advantages position it favorably for future growth:
- Diverse Product Portfolio: The company’s varied product lines across drilling, completions, and artificial lift provide resilience against market fluctuations.
- Strong Customer Relationships: Established relationships with key players in the oil and gas industry enhance customer loyalty and recurring business opportunities.
Growth Opportunities Table
| Growth Driver | Impact on Revenue | Timeline |
|---|---|---|
| Variperm Acquisition | Increase in Downhole Revenue by $87.1 million (126.7%) | Immediate |
| Market Expansion | Projected 20% increase in international sales | 2025 |
| New Product Development | Potential $30 million increase in revenue from new products | 2026 |
| Strategic Partnerships | Expected to enhance operational efficiencies and reduce costs | Ongoing |
Conclusion
FET is well-positioned for future growth driven by strategic acquisitions, market expansions, and product innovations. The company’s focus on enhancing its operational capabilities and expanding its product offerings aligns well with industry trends, positioning it favorably for sustained revenue growth.
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Article updated on 8 Nov 2024
Resources:
- Forum Energy Technologies, Inc. (FET) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Forum Energy Technologies, Inc. (FET)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Forum Energy Technologies, Inc. (FET)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.