Forum Energy Technologies, Inc. (FET)

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Forum Energy Technologies, Inc. (FET)

Q2 2014 Results Earnings Conference Call

July 25, 2014, 10:00 AM ET


Mark Traylor - Vice President, IR and Planning

C. Christopher Gaut - Chairman and CEO

James W Harris - SVP and CFO

Prady Iyyanki - EVP and COO


Jeff Tillery - Tudor, Pickering, Holt

Douglas L. Becker - Bank of America Merrill Lynch

Blake Hutchinson - Howard Weil

Jonathan Sisto - Credit Suisse

Robert MacKenzie - Iberia Capital

J. David Anderson - JPMorgan

Darren Gacicia – Guggenheim

Daniel Leben - Robert W. Baird



Good day, ladies and gentleman and welcome to the Second Quarter 2014 Forum Energy Technologies Earnings Conference Call. My name is Crystal and I will be the operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn over to your host for today, Mr. Mark Traylor, Vice President of Investor Relations and Planning. Please proceed.

Mark Traylor

Thank you, Crystal. Good morning and welcome to Forum Energy Technologies' quarterly earnings conference call for the second quarter 2014. With us today to present formal remarks is Chris Gaut, Forum's Chairman and Chief Executive Officer; as well as Jim Harris, Chief Financial Officer; and Prady Iyyanki, Chief Operating Officer.

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. Those risks include among other things, matters that we have described 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 any 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 the date of the live call.

Management's statements may include non-GAAP financial measures. For a reconciliation of these measures refer to our earnings news release available on our website.

This call is being recorded. A replay of the call will be available on our website for 30 days following the call.

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

C. Christopher Gaut

Thanks, Mark and good morning. I will provide an overview of our second quarter performance and offer a few thoughts on the outlook for our business and then turn it over to Jim who will provide more detail on our financial results.

Adjusted net income was $0.44 per diluted share and adjusted EBITDA was $83 million, excluding $0.03 per share for foreign exchange and transaction expenses. We are pleased with the 6% sequential revenue growth compared to the first quarter 2014 which was wide spread across our product lines and our 8% increase in operating contribution. I think we are seeing the benefits of our focus on improving operating execution, integration and operating margins.

EBITDA margins in the second quarter were consistent with the first quarter margins. This is our fourth consecutive quarter with EBITDA margins at or near our 20% target. Although margin improvement and organic growth remain primary objectives we have also returned to pursuing our accretive acquisition program. We closed the acquisition of Quality Wireline and Cable during the second quarter. Based in Calgary Canada Quality is a leading manufacturer of wireline cable, a critical consumable product used on wireline units to perform various well completion and intervention activities. Quality has a similar customer base to that of our other products for wireline service company customers to whom we supply BOP, lubricators and wireline tools.

Total inbound orders during the second quarter were $441 million, a 9% decrease from our all-time high amount of orders received in the first quarter. The second quarter book-to-bill ratio was 104% for the company as a whole, 111% for the Drilling and Subsea segment and 91% for Production and Infrastructure segment.

During the second quarter the drilling product line experienced another strong quarter with near-record revenue and orders with a second consecutive quarterly book-to-bill ratio exceeding 120%. We continue to see high demand for consumable and tubular handling products and capital drilling equipment. Driving this demand is the growing level of horizontal drilling in North America and the continued strength in orders for newbuild land rigs and jack-ups.

At our Subsea product line revenue increased 20% sequentially, although orders in the second quarter were down 18% compared to the very high level in the first quarter. As previously announced during the second quarter we received the contract to supply four work-class remotely operated vehicles for West Africa, each complete with the Dynacon Launch and Recovery Systems. The order includes three of the latest generation Perry XLX series ROVs. We expect further large orders for work-class vehicles in the third quarter so our backlog in the Subsea business would continue to be strong going into 2015.

The Downhole Technologies product line realized a sequential order increase of 13% primarily on improved demand in the North America markets for our Davis-Lynch branded cementing and casing products. Though international bookings were softer in the second quarter we received a $5 million award to supply our cementing and casing equipment to a customer for the Middle East. Strong demand continues for our ProDrill composite frac plugs and for our Cannon protectors.

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