Forum Energy Technologies, Inc. (FET)

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Forum Energy Technologies, Inc. (FET)

Q4 2012 Results Earnings Call

February 15, 2013 10:00 ET

Executives

Mark Traylor - VP, Investor Relations and Planning

Chris Gaut - Chairman, President and CEO

Jim Harris - SVP and Chief Financial Officer

Charlie Jones - President, Drilling and Subsea Division

Wendell Brooks - President, Production and Infrastructure Division.

Analysts

Jonathan Sisto - Credit Suisse

Brad Handler - Jefferies & Company

Doug Becker - Bank of America Merrill Lynch

Blake Hutchinson - Howard Weil

Jeff Tillery - Tudor, Pickering, Holt

Robin Shoemaker - Citi

Mike Urban - Deutsche Bank

Josh Lingsch - Simmons & Company

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the Forum Energy Technologies Earnings Release Conference Call for the Fourth Quarter 2012. My name is Shanelle, and I will be your coordinator for today's call. At this time all participants are in listen-only mode. And all lines have been placed on mute to prevent any background noise.

We will be facilitating a question-and-answer session after the speakers' remarks. As a reminder this conference call is being recorded for replay purposes. After the speakers' remarks today I'll instruct you on procedures for asking questions.

I will turn the conference over to Mark Traylor, Vice President, Investor Relations & Planning. Please proceed, sir.

Mark Traylor

Thank you, Shanelle. Good morning, and welcome to Forum Energy Technologies Quarterly Earnings Conference Call for the Fourth Quarter 2012. With us today to present formal remarks are Cris Gaut, Forum's Chairman and Chief Executive Officer and Jim Harris, Senior Vice President and Chief Financial Officer. Also with us today are Forum's two division presidents, Charlie Jones, President of Drilling and Subsea Division, and Wendell Brooks, President of our Production and Infrastructure Division.

We issued our earnings release last night and it is available on our website. The statements made during this conference call, including the answers to your questions, include information that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. These risks include, among other things, matters that we describe in our earnings release and in our filings with the Securities and Exchange Commission. We do not undertake any ongoing obligation, other than that imposed by law to publicly update or revise our forward-looking statements to reflect future events, information, or circumstances that arise after this call.

In addition this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the live call. This call is being recorded and replay of the call will be available on our website for 30 days following the call. Management statements may include non-GAAP financial measures. For reconciliation of these measures, refer to our earnings release available on our website.

I am now pleased to turn over the call to Chris Gaut.

Chris Gaut

Thanks, Mark and good morning. I will start with some highlights from the quarter and the full and offer a few thoughts and the outlook for our business and then I will turn it over to Jim who will provide greater detail on our financial performance.

Our fourth quarter, diluted earnings per share were $0.26, but this includes $0.02 of charges for acquisition transactions, severance and foreign currency expenses. During the fourth quarter oil and gas operators reduced their spending resulting in a declining U.S. rig count. This lack of spending in activity especially in the latter part of the quarter affected our sales of consumable products and we also saw some customers defer the acceptance of capital goods they already had on order from us. This lower level of activity caused us to have an under absorption of manufacturing costs, which depressed our operating margins in the fourth quarter across many of our product lines.

Total customer orders during the fourth quarter were $335 million. The fourth quarter book-to-bill ratio was 101% for the company as a whole for Drilling & Subsea division in with 99% and for Production and Infrastructure division was 105%. On a sequential basis, we had a 6% decrease in orders from the third quarter on lower orders for Drilling, Subsea and Valve product lines.

Production equipment orders although down from the third quarter as well, remained at a very high level and we have recently received a number of large orders from modular equipment from major operators. We also saw an increase in orders for Flow equipment and we believe this business has now begun to improve.

The outlook for our Subsea Technologies product line looks good. And based on recent customer discussions we expect strong demand for our remotely operated vehicles our ROVs and component parts in 2013.

Our Drilling and Subsea segment completed 4 acquisitions in the fourth quarter of 2012 for an aggregate purchase price of $140 million. In 2013, the combined revenue for these 4 acquisitions is expected to be approximately $100 million. And we expect the acquired entities to generate operating income of approximately $20 million this year.

We welcome the employees of Dynacon and Merrimac, our two most recent acquisitions to Forum. The other 2 fourth quarter acquisitions were Syntec and Wireline Solutions both of which we talked about on our conference call in October.

Dynacon is the leading provider of launch and recovery systems used for deployment of ROVs and also manufactures high quality specialized cable and umbilical handling equipment for the marine industry. Dynacon expands our Subsea Technologies capability and integrates an important part of the ROV supply chain. We plan to continue Dynacon's well earned reputation of providing top quality systems to its customers.

Read the rest of this transcript for free on seekingalpha.com