Forum Energy Technologies Q3 2025 Earnings Call: Contradictions Emerge on Sales Incentives, Share Repurchase Capacity, Tariffs, and Market Demand

Date of Call: None provided

Financials Results

• Revenue: $196M, approaching top end of guidance; U.S. revenue down ~10% this quarter; most product-line revenues averaged ~5% decline; international sales surpassed U.S.; backlog up 21% (highest since 2015).
• Operating Margin: Adjusted EBITDA margin ~12%, up ~150 basis points sequentially (EBITDA $23M, up 13%).

Guidance:

• Q4 revenue expected $180M–$200M and EBITDA $19M–$23M.
• Full-year 2025 revenue $770M–$790M and EBITDA $83M–$87M.
• Full-year 2025 free cash flow raised to $70M–$80M.
• Q4 income tax expense expected ~$2M–$3M; corporate costs and D&A ~ $8M each; interest expense ~ $5M.
• Expect gradual activity decline into Q4 but elevated backlog and cost saves should keep results steady.
• Free cash flow will support continued buybacks and further net-debt reduction.

Business Commentary:

• Strong Financial Performance and Cash Flow:
• Forum Energy Technologies reported revenue of $196 million for Q3 2025, approaching the top end of guidance.
• The company achieved EBITDA of $23 million, up 13%, and free cash flow increased by 23% to $28 million.

• These results were driven by increased bookings, higher backlog levels, and operational efficiency improvements.

• Backlog Growth and Market Share Expansion:

• Forum Energy Technologies experienced a 21% increase in backlog to its highest level since 2015, driven by offshore and international awards.
• The company captured market share gains through new product development and targeted commercial efforts.

• This growth was supported by strong quoting activity and new orders, particularly in subsea products.

• Cost Savings and Structural Improvements:

• The company achieved $21 million in non-cash inventory and other asset impairments and implemented cost-saving measures.
• Forum Energy Technologies accelerated its progress toward a $10 million structural cost reduction goal and consolidated manufacturing plants.

• These efforts improved product mix, incremental margins, and overall operational efficiency.

• Shareholder Returns and Capital Allocation:

• Forum Energy Technologies repurchased 5% of its shares outstanding in Q3, with a total of 8% for the year.
• The company reduced net leverage to 1.3 times by year-end, a quarter ahead of schedule.
• These actions were made possible by strong free cash flow generation and a focus on reducing net debt through share buybacks and strategic capital allocation.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted outperformance and capital returns, saying they raised full-year free cash flow guidance to $70–$80M, backlog increased 21% (highest since 2015), repurchased 8% of shares year-to-date, and reduced net leverage to 1.3x one quarter ahead of plan.

Q&A:

• Question from Dan Pickering (Pickering Energy Partners): Have you changed sales incentives or the go-to-market approach given accelerated bookings?
  Response: No wholesale incentive overhaul; bookings reflect multi-year execution of the 'beat-the-market' strategy, targeted market focus, product fit, and improved sales/process alignment.

• Question from Dan Pickering (Pickering Energy Partners): How should we think about margins embedded in the backlog—are new orders higher margin than 2025 levels?
  Response: Backlog mix (more subsea with pass-through items) may pressure contribution margins, but ongoing cost-savings initiatives should offset and benefit 2026 margins.

• Question from Dan Pickering (Pickering Energy Partners): With facility consolidation, will manufacturing capacity constrain targeted revenue growth (e.g., $800M to $1B+)?
  Response: Consolidations reduce costs and improve utilization but will not constrain growth—company believes it still has capacity to grow ~50% without major new capital.

• Question from Dan Pickering (Pickering Energy Partners): What is remaining capacity for share repurchases given leverage and FCF caps?
  Response: Buyback cap tied to net leverage and prior-year FCF; roughly $36M total 2025 capacity, ~$21M used, leaving ~ $15M of buyback capacity remaining in 2025; program resets annually with sizeable capacity into 2026.

• Question from Joshua Jayne (Daniel Energy Partners): Where are you in the cycle across U.S. land, international, and offshore—how does that shape allocation over 12–24 months?
  Response: Management focuses on market segments (leadership vs growth) rather than strict geographies; backlog and market-share plans position them for a solid 2026 though it's too early to call a market bottom.

• Question from Joshua Jayne (Daniel Energy Partners): Can Coiled Line Pipe realistically double heading into 2026?
  Response: Significant growth potential over time; doubling is a multi-year objective (five-year target), but doubling within a single year would be unlikely due to timing/awards.

• Question from Joshua Jayne (Daniel Energy Partners): Any new product launches for 2026 that could drive growth even in a muted market?
  Response: Key priorities include expanding artificial lift offerings (e.g., Rod Lift / PumpSaver Plus), rolling out the Unity ROV operating system, and scaling heat-transfer/power solutions.

• Question from Jeff Robertson (Water Tower Research): Do lower oil prices tend to increase adoption of your efficiency-driving technologies?
  Response: Yes—tighter/low-price environments accelerate adoption of time- and cost-saving technologies as operators and service companies pursue efficiency.

• Question from Jeff Robertson (Water Tower Research): What is Dayton pipe facility capacity before further capex is needed for coil/coiled line pipe growth?
  Response: Dayton has significant unused capacity; growth bottleneck is commercial bookings and shifts/efficiency, not immediate capital investment.

• Question from Jeff Robertson (Water Tower Research): Will achieving FET 2030 rely solely on oil & gas or include adjacent markets/acquisitions?
  Response: Primary path is organic oil & gas growth plus expansion into adjacencies like defense and selective M&A to broaden addressable markets.

• Question from Steve Ferazani (Sidoti): How are you positioned if WTI falls below $50—can you offset pressure on consumables?
  Response: Well-positioned—efficiency solutions should be in demand in a lower-price environment, enabling customers to maintain production while cutting costs.

• Question from Steve Ferazani (Sidoti): How far does the current backlog extend across quarters—how much converts over next five quarters?
  Response: Typical backlog runs 2–3 quarters, but subsea-related bookings extend into 2027; bulk of current backlog expected to convert through 2026 with some projects lasting longer.

• Question from Steve Ferazani (Sidoti): What drove sequential improvements in valves and sand control—are valve destocking impacts easing and what's happening in Canada?
  Response: Valves saw restocking after earlier buyer pause tied to tariff uncertainty (tariff volatility remains); sand control strength in Canada tied to a large customer’s extended drilling program.

• Question from Steve Ferazani (Sidoti): Is serving the rod-lift market a new addressable area for FET or do you have prior presence?
  Response: Rod lift is a relatively new but already-entered market for FET; PumpSaver Plus provides a technical foothold and management is scaling commercialization.

Contradiction Point 1

Sales Incentive Strategy

It involves the approach to incentivizing sales teams, which directly impacts business performance and growth strategies.

Have you changed your sales team's incentive system? Are you approaching challenges differently? Given the accelerated bookings and worsening global conditions, are you doing something right? - Dan Pickering (Pickering Energy Partners)

2025Q3: We've looked at our markets, our sales process. This has been ongoing, something we've been working on for many years. I think we're starting to really see the fruits of that. - Neal Lux(CEO)

How will reducing net debt to zero impact shareholder capital returns, and are acquisitions still part of the strategy? - Joshua W. Jayne (Daniel Energy Partners)

2025Q2: We're not on pace to hit the $35 million. I think that's a pretty optimistic number if we look at what we've done over the last few years. - Neal Lux(CEO)

Contradiction Point 2

Share Repurchase Capacity

It involves the company's ability to repurchase shares, which impacts shareholder value and financial strategy.

Considering repurchase constraints and leverage limits, what is our share repurchase capacity for the next few quarters based on the current balance sheet? - Dan Pickering (Pickering Energy Partners)

2025Q3: Our share purchase capability is really limited by two factors, one of them being our net leverage of 1.5 times, and we're below that level now, so we're in good shape. - Lyle Williams(CFO)

What are your expectations for shares outstanding in Q3 and Q4, assuming no additional repurchases, and how does this impact share repurchase calculations? - Daniel Ray Pickering (Pickering Energy Partners LP)

2025Q2: Year-to-date, about 5% of shares have been repurchased, with the potential for another 10% given current stock prices. - David Lyle Williams(CFO)

Contradiction Point 3

Impact of Tariffs on Business

It directly impacts expectations regarding the financial implications of tariffs on the company's operations, which could affect revenue and profitability.

Is pricing stable in high-cost areas like valves? - Dan Pickering(Pickering Energy Partners)

2025Q3: Biggest impact is in valves due to the buyer strike. We're hoping price increases and changes in supply chain can balance tariff impacts. - Neal Lux(CEO)

Which business lines are you monitoring for softness? - Dan Pickering(Pickering Energy Partners)

2025Q1: The biggest impact is in valves due to the buyer strike. We're exploring alternative sourcing strategies to mitigate tariff impacts, but inventory levels may lead to a rebound in demand. - Neal Lux(CEO)

Contradiction Point 4

Market Conditions and Product Demand

The responses indicate differing views on the market conditions and demand for the company's products, which could impact business strategy and investor expectations.

Have you changed your sales team's incentive system or adopted different strategies? Despite a worsening market, bookings have accelerated—what factors are driving this success? - Dan Pickering (Pickering Energy Partners)

2025Q3: I think the market feels a little bit better right now, I think it's because we're just seeing more opportunities in the fact that we have a better product portfolio than we've ever had. - Neal Lux(CEO)

Are there any areas of strength in the market amid the expected 2% to 5% decline? - John Daniel (Daniel Energy Partners)

2024Q4: It sounds like, just from our customer base, I think that people are still trying to decide, they're still trying to gather information and decide what they want to do. - Neal Lux(CEO)

Contradiction Point 5

Share Repurchase and Net Leverage Ratio

It involves the company's financial strategy regarding share repurchases, which directly impacts shareholder value and investment decisions.

Given constraints on share repurchase and leverage levels, what’s our capacity to repurchase shares in the next few quarters based on the current balance sheet? - Dan Pickering(Pickering Energy Partners)

2025Q3: Our share purchase capability is really limited by two factors, one of them being our net leverage of 1.5 times, and we're below that level now, so we're in good shape. The other being the amount of free cash flow we generated in the last fiscal year. - Lyle Williams(CFO)

How do the share repurchase and net leverage ratio work, and how are you managing costs? - Dan Pickering(Pickering Energy Partners)

2025Q1: Leverage ratio is measured monthly, while EBITDA is measured quarterly. We can buy shares within quarters as long as we meet the net leverage ratio. - Lyle Williams(CFO)