Forum Energy Technologies Navigates Headwinds with Subsea Strength in Q1 2025 Earnings

Forum Energy Technologies (FET) delivered a mixed but resilient performance in Q1 2025, balancing strong subsea segment growth with challenges stemming from commodity price declines and tariff-related disruptions. The quarter highlighted the company’s strategic execution in high-margin markets while exposing vulnerabilities tied to macroeconomic uncertainty. Here’s what investors need to know.

Operational Momentum: Subsea and Cost Discipline Drive Resilience

FET’s subsea segment emerged as a clear bright spot, with orders surging 60% year-to-date, driven by demand for advanced ROV systems and the Unity software platform. The company sold eight Unity systems in early 2025, signaling long-term growth potential in offshore oil/gas, renewables, and defense sectors. A robust backlog, including $8 million in April bookings, suggests revenue visibility into 2026.

Cost-cutting initiatives also bore fruit. FET reduced fixed costs by $10 million annually, with benefits already flowing into Q1 results. Free cash flow rose to $7 million—a threefold increase from Q1 2024—marking the seventh straight quarter of positive cash generation. Management emphasized its focus on preserving liquidity, with $108 million in cash and no debt maturities until 2028.

Challenges and Risks: Tariffs, Oil Prices, and Segment Weakness

Despite these positives, FET faces significant headwinds. U.S. tariffs on Chinese imports triggered a “buyer strike” in its valve solutions segment, reducing orders and delaying deliveries. Meanwhile, oil prices have fallen to near four-year lows, threatening revenue starting in Q3 if prices remain depressed.

The artificial lift/downhole segment also struggled, with revenue down 13% sequentially due to an unfavorable product mix and soft demand for Variperm products in Canada.

Strategic Priorities: Navigating Uncertainty with Agility

FET is responding to these challenges through geographic diversification and supply chain optimization. Expanding assembly operations in Saudi Arabia and Canada allows the company to bypass tariffs, while price hikes on U.S. steel aim to offset inflation. The company also plans to prioritize share repurchases if leverage ratios fall below 1.5x—a near-term goal given the current 1.56x ratio.

CEO Neal Lux emphasized FET’s role as a “cash flow engine,” targeting $3.5–$5 free cash flow per share in 2025. This focus aligns with full-year guidance of $85 million EBITDA and $40–$60 million free cash flow, assuming stable activity levels.

Outlook: Caution Amid Long-Term Opportunities

While near-term risks loom, FET’s long-term prospects remain anchored in secular trends. Offshore wind and defense spending are driving subsea demand, and management sees opportunities in AI-driven energy solutions and infrastructure expansion.

However, the outlook for 2025 hinges on oil prices and drilling activity. FET anticipates global drilling/completion activity to decline 2–5% year-over-year, with North American weakness offsetting flat international activity. Q2 guidance calls for $180–$200 million in revenue and $18–$22 million EBITDA, assuming stable conditions.

Conclusion: A Resilient Bet on Energy Transition, With Caveats

FET’s Q1 results underscore its ability to capitalize on high-margin subsea opportunities while managing costs through a downturn. The company’s free cash flow generation, strong liquidity, and backlog visibility provide a foundation for resilience. However, investors must weigh these positives against risks tied to oil prices and tariff uncertainty.

With a free cash flow yield above 25% and a manageable debt load, FET offers value for investors willing to bet on its long-term positioning in energy transition markets. Yet the path to $5 per share free cash flow remains contingent on stabilization in oil prices and resolution of trade disputes. For now, FET is a stock to watch—especially if subsea growth outpaces near-term headwinds.

Final Take: FET’s Q1 performance reflects a company navigating choppy waters with agility. While risks are clear, its subsea dominance and cash flow discipline position it to thrive as energy markets evolve.