Forum Energy Technologies, Inc. — 2021 Q2 Form 10-Q Summary
Business context and reporting period
Forum Energy Technologies, Inc. is a global provider of engineered and consumable products for the oil, natural gas, industrial and renewable energy industries. The company reports through Drilling & Downhole, Completions and Production segments. This unaudited filing covers the quarter and six months ended June 30, 2021, compared primarily with the corresponding 2020 periods.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $137.4 million | $113.3 million | $251.9 million | $295.9 million |
| Gross profit | $32.2 million | $12.9 million | $58.4 million | $35.0 million |
| Gross margin | 23.4% | 11.4% | 23.2% | 11.8% |
| Operating loss | $(9.6) million | $(35.0) million | $(24.0) million | $(90.4) million |
| Net loss | $(21.8) million | $(5.5) million | $(51.5) million | $(42.6) million |
| Loss per diluted share | $(3.87) | $(0.98) | $(9.15) | $(7.66) |
| Cash flow from operations | Not separately provided | Not separately provided | $2.4 million | $(2.1) million |
- Second-quarter revenue increased 21.3%, primarily from improved drilling, hydraulic fracturing and well-intervention activity. Six-month revenue declined 14.9%, reflecting the severe market weakness carried over from early 2021 and the 2020 divestiture of the ABZ and Quadrant valve brands.
- Second-quarter segment operating loss improved to $10.0 million from $35.5 million; segment operating margin improved to negative 7.3% from negative 31.3%.
- At June 30, 2021, cash and cash equivalents were $60.4 million, compared with $128.6 million at December 31, 2020. Total assets were $804.2 million and total equity was $361.7 million.
- Total debt was $232.7 million, including $258.8 million principal amount of 2025 Notes before discounts and issuance costs. No borrowings were outstanding under the revolving Credit Facility; $125.8 million remained available, subject to borrowing-base requirements.
- Six-month financing cash outflow was $70.8 million, including $56.7 million used to repurchase $58.0 million principal amount of 2025 Notes and $13.1 million to repay the revolving Credit Facility.
Material changes versus the prior comparable period
- Drilling & Downhole second-quarter revenue rose 30.5% to $61.6 million and returned to segment operating income of $2.7 million from a $9.4 million loss.
- Completions second-quarter revenue rose 164.6% to $46.5 million, and its operating loss narrowed to $0.4 million from $17.8 million. The improvement reflected higher stimulation, intervention and coiled-tubing activity and lower inventory write-downs.
- Production second-quarter revenue fell 39.6% to $29.3 million and its operating loss widened to $4.0 million, primarily because of the ABZ and Quadrant divestiture and weaker valve and production-equipment sales.
- Six-month operating loss improved by $66.4 million, but net loss increased by $8.8 million because 2020 included a $43.7 million gain on extinguishment of debt and a $14.8 million tax benefit, while 2021 included a $5.1 million debt-extinguishment loss and $2.9 million of tax expense.
- No long-lived-asset impairments were recorded in the first half of 2021, compared with $17.4 million of impairment expense in the 2020 income statement and $26.8 million of total long-lived-asset impairments disclosed for the first half of 2020.
Guidance, outlook, commentary and risks
- Management expects 2021 capital expenditures to be less than $10.0 million and stated that cash on hand, operating cash flow and estimated Credit Facility availability should fund current operations for the next 12 months.
- Management may use operating cash flow, divestiture proceeds, securities offerings or other capital to reduce the 2025 Notes or other debt.
- Market conditions improved in the first half of 2021 as vaccination-related reopening increased oil and natural-gas demand. Average second-quarter WTI and Brent prices were $66.19 and $68.98 per barrel, respectively, versus $27.96 and $29.70 in the prior-year quarter.
- Global supply-chain disruptions, COVID-19 variants, inflationary pressure, energy-price volatility, customer capital discipline and dependence on drilling and completion activity remain significant risks.
- The Credit Facility matures in October 2022 and the 2025 Notes mature in August 2025. Credit Facility availability can decline with reductions in eligible receivables or inventory, and additional financial-covenant requirements apply if excess availability falls below specified thresholds.
- Outstanding letters of credit totaled $14.8 million. Management reported immaterial legal reserves and no material changes to previously disclosed litigation matters.
- The company reported effective disclosure controls as of June 30, 2021 and no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether the second-quarter recovery in orders and operating performance continues, particularly in Drilling & Downhole and Completions.
- The sustainability of liquidity given $60.4 million of cash, ongoing net losses and the October 2022 Credit Facility maturity.
- The borrowing-base availability and covenant headroom under the Credit Facility.
- The company’s ability to refinance, repay or otherwise manage the 9.00% secured convertible 2025 Notes.
- The comparability of future Production results after the ABZ and Quadrant valve-brand divestiture.
- Exposure to COVID-19-related supply-chain disruption, inflation, commodity-price changes and customer spending constraints.