Forum Energy Technologies, Inc 10-Q for FY2020 Q1

Forum Energy Technologies, Inc. (FET)

10-Q 2020-05-08 For: 2020-03-31

Added on April 04, 2026

About this 10-Q

Forum Energy Technologies, Inc filed this 10-Q on May 8, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $182.63M; down 32.8% from $271.84M a year earlier
Net loss: $37.14M; compared with a net loss of $7.89M a year earlier
Diluted EPS: -$0.33; compared with -$0.07 a year earlier

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Delaware									61-1488595
(State or other jurisdiction of									(I.R.S. Employer Identification No.)
incorporation or organization)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	FET	New York Stock Exchange


PART I - FINANCIAL INFORMATION			3
Item 1. Financial Statements (Unaudited)			3
Condensed consolidated statements of comprehensive loss			3
Condensed consolidated balance sheets			4
Condensed consolidated statements of cash flows			5
Condensed consolidated statements of changes in stockholders’ equity			6
Notes to condensed consolidated financial statements			8
Item 2. Management's discussion and analysis of financial condition and results of operations			24
Item 3. Quantitative and qualitative disclosures about market risk			33
Item 4. Controls and procedures			33
PART II - OTHER INFORMATION			33
Item 1. Legal proceedings			33
Item 1A. Risk factors			33
Item 2. Unregistered sales of equity securities and use of proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 4. Mine Safety Disclosures			36
Item 5. Other Information			36
Item 6. Exhibits			37
SIGNATURES			38


	Three Months Ended March 31,
(in thousands, except per share information)	2020		2019
Revenue	$	182,632	$	271,842
Cost of sales	160,542		201,744
Gross profit	22,090		70,098
Operating expenses
Selling, general and administrative expenses	60,161		68,968
Transaction expenses	37		593
Impairments of intangible assets, property and equipment	17,320		—
Contingent consideration benefit	—		(4,629)
Loss (gain) on disposal of assets and other	(21)		20
Total operating expenses	77,497		64,952
Loss from equity investment	—		(849)
Operating income (loss)	(55,407)		4,297
Other expense (income)
Interest expense	6,724		8,181
Foreign exchange and other losses (gains), net	(5,007)		2,277
Gain on extinguishment of debt	(7,459)		—
Deferred loan costs written off	1,829		—
Total other expense (income), net	(3,913)		10,458
Loss before income taxes	(51,494)		(6,161)
Income tax expense (benefit)	(14,350)		1,727
Net loss	(37,144)		(7,888)

Weighted average shares outstanding
Basic	111,173		109,643
Diluted	111,173		109,643
Loss per share
Basic	$	(0.33)	$	(0.07)
Diluted	(0.33)		(0.07)

Other comprehensive income (loss), net of tax:
Net loss	(37,144)		(7,888)
Change in foreign currency translation, net of tax of $0	(8,846)		4,834
Gain (loss) on pension liability	21		(9)
Comprehensive loss	$	(45,969)	$	(3,063)


(in thousands, except share information)	March 31, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	108,949	$	57,911
Accounts receivable—trade, net of allowances of $8,277 and $9,048	145,392		154,182
Inventories, net	392,944		414,640
Prepaid expenses and other current assets	45,009		33,820
Accrued revenue	1,226		1,260
Costs and estimated profits in excess of billings	2,739		4,104
Total current assets	696,259		665,917
Property and equipment, net of accumulated depreciation	136,451		154,836
Operating lease assets	36,820		48,682
Deferred financing costs, net	1,036		1,243
Intangible assets, net	259,082		272,300
Deferred income taxes, net	141		654
Other long-term assets	15,703		16,365
Total assets	$	1,145,492	$	1,159,997
Liabilities and equity
Current liabilities
Current portion of long-term debt	$	1,021	$	717
Accounts payable—trade	98,850		98,720
Accrued liabilities	74,754		86,625
Deferred revenue	5,708		4,877
Billings in excess of costs and profits recognized	4,876		5,911
Total current liabilities	185,209		196,850
Long-term debt, net of current portion	444,936		398,862
Deferred income taxes, net	2,229		2,465
Operating lease liabilities	46,382		49,938
Other long-term liabilities	24,674		25,843
Total liabilities	703,430		673,958
Commitments and contingencies
Equity
Common stock, $0.01 par value, 296,000,000 shares authorized, 119,584,140 and 118,840,611 shares issued	1,196		1,189
Additional paid-in capital	1,235,039		1,231,650
Treasury stock at cost, 8,216,637 and 8,211,919 shares	(134,499)		(134,493)
Retained deficit	(541,911)		(503,369)
Accumulated other comprehensive loss	(117,763)		(108,938)
Total equity	442,062		486,039
Total liabilities and equity	$	1,145,492	$	1,159,997



☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended March 31,
(in thousands)	2020		2019
Cash flows from operating activities
Net loss	$	(37,144)	$	(7,888)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense	7,355		7,513
Amortization of intangible assets	6,838		8,846
Impairments of intangible assets, property and equipment	17,320		—
Impairments of operating lease assets	9,483		2,481
Inventory write down	11,567		377
Stock-based compensation expense	3,223		3,910
Loss from unconsolidated subsidiary	—		849
Contingent consideration benefit	—		(4,629)
Gain on extinguishment of debt	(7,459)		—
Deferred loan costs written off	1,829		—
Deferred income taxes	1,152		(1,021)
Noncash losses (gains) and other, net	(734)		2,366
Changes in operating assets and liabilities
Accounts receivable—trade	6,773		684
Inventories	6,704		6,948
Prepaid expenses and other assets	(11,002)		(3,031)
Cost and estimated profit in excess of billings	1,374		1,015
Accounts payable, deferred revenue and other accrued liabilities	(14,955)		1,251
Billings in excess of costs and estimated profits earned	(757)		(1,784)
Net cash provided by operating activities	$	1,567	$	17,887
Cash flows from investing activities
Capital expenditures for property and equipment	(958)		(3,687)
Proceeds from sale of equity investment, property and equipment	37		134
Net cash used in investing activities	$	(921)	$	(3,553)
Cash flows from financing activities
Borrowings of debt	55,000		20,000
Repayments of debt	(3,463)		(51,063)
Repurchases of stock	(179)		(973)
Deferred financing costs	(254)		—
Net cash provided by (used in) financing activities	$	51,104	$	(32,036)

Effect of exchange rate changes on cash	(712)		155

Net increase (decrease) in cash, cash equivalents and restricted cash	51,038		(17,547)
Cash, cash equivalents and restricted cash at beginning of period	57,911		47,241
Cash, cash equivalents and restricted cash at end of period	$	108,949	$	29,694

Noncash activities
Operating lease right of use assets obtained in exchange for lease obligations	688		6,568
Finance lease right of use assets obtained in exchange for lease obligations	931		453


Three Months Ended March 31, 2020
(in thousands)	Common stock		Additional paid-in capital		Treasury stock		Retained deficit		Accumulated other comprehensive income / (loss)		Total equity
Balance at December 31, 2019	$	1,189	$	1,231,650	$	(134,493)	$	(503,369)	$	(108,938)	$	486,039
Stock-based compensation expense	—		3,223		—		—		—		3,223
Restricted stock issuance, net of forfeitures	5		(178)		—		—		—		(173)
Shares issued in employee stock purchase plan	2		344		—		—		—		346
Adjustment for adoption of ASU 2016-13	—		—		—		(1,398)		—		(1,398)
Treasury stock	—		—		(6)		—		—		(6)
Currency translation adjustment	—		—		—		—		(8,846)		(8,846)
Change in pension liability	—		—		—		—		21		21
Net loss	—		—		—		(37,144)		—		(37,144)
Balance at March 31, 2020	$	1,196	$	1,235,039	$	(134,499)	$	(541,911)	$	(117,763)	$	442,062


Three Months Ended March 31, 2019
(in thousands)	Common stock		Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income / (loss)		Total equity
Balance at December 31, 2018	$	1,174	$	1,214,928	$	(134,434)	$	63,688	$	(115,230)	$	1,030,126
Stock-based compensation expense	—		3,910		—		—		—		3,910
Restricted stock issuance, net of forfeitures	6		(931)		—		—		—		(925)
Shares issued in employee stock purchase plan	2		682		—		—		—		684
Contingent shares issued for acquisition of Cooper Valves	1		374		—		—		—		375
Treasury stock	—		—		(48)		—		—		(48)
Currency translation adjustment	—		—		—		—		4,834		4,834
Change in pension liability	—		—		—		—		(9)		(9)
Net loss	—		—		—		(7,888)		—		(7,888)
Balance at March 31, 2019	$	1,183	$	1,218,963	$	(134,482)	$	55,800	$	(110,405)	$	1,031,059


	March 31, 2020		December 31, 2019		Decrease
							$		%
Accrued revenue	$	1,226	$	1,260
Costs and estimated profits in excess of billings	2,739		4,104
Contract assets	$	3,965	$	5,364	$	(1,399)	(26)	%

Deferred revenue	$	5,708	$	4,877
Billings in excess of costs and profits recognized	4,876		5,911
Contract liabilities	$	10,584	$	10,788	$	(204)	(2)	%


	March 31, 2020		December 31, 2019
Raw materials and parts	$	172,316	$	172,082
Work in process	26,959		29,972
Finished goods	262,045		278,661
Gross inventories	461,320		480,715
Inventory reserve	(68,376)		(66,075)
Inventories	$	392,944	$	414,640


	March 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Intangibles		Amortization Period (In Years)
Customer relationships	$	267,567	$	(105,252)	$	162,315	10-15
Patents and technology	90,389		(21,310)		69,079		5-19
Non-compete agreements	188		(108)		80		2-6
Trade names	41,924		(20,415)		21,509		7-19
Distributor relationships	14,120		(12,262)		1,858		15-22
Trademarks	5,089		(848)		4,241		15
Intangible Assets Total	$	419,277	$	(160,195)	$	259,082


Impairments of:	Drilling & Downhole		Completions		Production		Total Impairments
Property and equipment ⁽¹⁾	$	1,076	$	9,608	$	1,378	$	12,062
Intangible assets ⁽²⁾	5,258		—		—		$	5,258
Operating lease right of use assets ⁽³⁾	1,429		6,139		1,915		$	9,483
Total impairments	$	7,763	$	15,747	$	3,293	$	26,803


	March 31, 2020		December 31, 2019
6.25% Senior Notes due October 2021	$	389,150	$	400,000
Unamortized debt premium	650		770
Debt issuance cost	(1,697)		(3,232)
Senior secured revolving credit facility	55,000		—
Other debt	2,854		2,041
Total debt	445,957		399,579
Less: current maturities	(1,021)		(717)
Long-term debt	$	444,936	$	398,862


(281)			949-2500


	Three Months Ended March 31,
	2020		2019
Drilling Technologies	$	36,638	$	41,926
Downhole Technologies	24,951		30,425
Subsea Technologies	15,054		13,589
Stimulation and Intervention	24,476		51,311
Coiled Tubing	26,347		43,348
Production Equipment	18,749		36,568
Valve Solutions	36,856		55,427
Eliminations	(439)		(752)
Total revenue	$	182,632	$	271,842


	Three Months Ended March 31,
	2020		2019
United States	$	123,890	$	196,967
Canada	7,952		16,463
Europe & Africa	11,146		17,597
Middle East	13,140		19,285
Asia-Pacific	18,793		14,759
Latin America	7,711		6,771
Total Revenue	$	182,632	$	271,842


	Three Months Ended
	March 31,		December 31,		March 31,
	2020		2019		2019
Average global oil, $/bbl
West Texas Intermediate	$	45.34	$	56.84	$	54.82
United Kingdom Brent	$	50.27	$	63.27	$	63.10

Average North American Natural Gas, $/Mcf
Henry Hub	$	1.90	$	2.39	$	2.92


Condensed consolidating statements of comprehensive loss

	Three Months Ended March 31, 2020
	FET (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
	(in thousands)
Revenue	$	—	$	147,384	$	52,206	$	(16,958)	$	182,632
Cost of sales	—		133,195		43,928		(16,581)		160,542
Gross Profit	—		14,189		8,278		(377)		22,090
Operating Expenses
Selling, general and administrative expenses	$	—	$	49,691	$	10,470	$	—	$	60,161
Transaction expenses	—		37		—		—		37
Impairments of intangible assets, property and equipment	—		16,823		497		—		17,320
Loss (gain) on disposal of assets and other	—		(23)		2		—		(21)
Total operating expenses	—		66,528		10,969		—		77,497
Equity earnings (loss) from affiliate, net of tax	(35,820)		1,267		—		34,553		—
Operating loss	(35,820)		(51,072)		(2,691)		34,176		(55,407)
Other expense (income)
Interest expense (income)	6,954		22		(252)		—		6,724
Foreign exchange and other losses (gains), net	—		264		(5,271)		—		(5,007)
Gain on extinguishment of debt	(7,459)		—		—		—		(7,459)
Deferred loan costs written off	1,829		—		—		—		1,829
Total other (income) expense, net	1,324		286		(5,523)		—		(3,913)
Income (loss) before income taxes	(37,144)		(51,358)		2,832		34,176		(51,494)
Income tax expense (benefit)	—		(15,538)		1,188		—		(14,350)
Net income (loss)	(37,144)		(35,820)		1,644		34,176		(37,144)

Other comprehensive income (loss), net of tax:
Net income (loss)	(37,144)		(35,820)		1,644		34,176		(37,144)
Change in foreign currency translation, net of tax of $0	(8,846)		(8,846)		(8,846)		17,692		(8,846)
Gain on pension liability	21		21		21		(42)		21
Comprehensive loss	$	(45,969)	$	(44,645)	$	(7,181)	$	51,826	$	(45,969)


Condensed consolidating balance sheets

	March 31, 2020
	FET (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	—	$	88,122	$	20,827	$	—	$	108,949
Accounts receivable—trade, net	—		106,526		38,866		—		145,392
Inventories, net	—		330,613		71,035		(8,704)		392,944
Prepaid expenses and other current assets	—		44,141		868		—		45,009
Accrued revenue	—		—		1,226		—		1,226
Costs and estimated profits in excess of billings	—		2,606		133		—		2,739
Total current assets	—		572,008		132,955		(8,704)		696,259
Property and equipment, net of accumulated depreciation	—		117,741		18,710		—		136,451
Operating lease assets	—		22,802		14,018		—		36,820
Deferred financing costs, net	1,036		—		—		—		1,036
Intangible assets	—		234,398		24,684		—		259,082
Deferred income taxes, net	—		80		61		—		141
Other long-term assets	—		6,449		9,254		—		15,703
Investment in affiliates	303,976		209,553				(513,529)		—
Long-term advances to affiliates	594,318		—		114,089		(708,407)		—
Total assets	$	899,330	$	1,163,031	$	313,771	$	(1,230,640)	$	1,145,492
Liabilities and equity
Current liabilities
Current portion of long-term debt	$	—	$	877	$	144	$	—	$	1,021
Accounts payable—trade	—		75,793		23,057		—		98,850
Accrued liabilities	14,164		25,897		34,693		—		74,754
Deferred revenue	—		1,998		3,710		—		5,708
Billings in excess of costs and profits recognized	—		722		4,154		—		4,876
Total current liabilities	14,164		105,287		65,758		—		185,209
Long-term debt, net of current portion	443,104		1,651		181		—		444,936
Deferred income taxes, net	—		—		2,229		—		2,229
Operating lease liabilities	—		28,779		17,603		—		46,382
Other long-term liabilities	—		14,931		9,743		—		24,674
Long-term payables to affiliates	—		708,407		—		(708,407)		—
Total liabilities	457,268		859,055		95,514		(708,407)		703,430

Total equity	442,062		303,976		218,257		(522,233)		442,062
Total liabilities and equity	$	899,330	$	1,163,031	$	313,771	$	(1,230,640)	$	1,145,492


Condensed consolidating statements of cash flows

	Three Months Ended March 31, 2020
	FET (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Consolidated
	(in thousands)
Cash flows from operating activities	$	(1,105)	$	9,488	$	(5,702)	$	(1,114)	$	1,567
Cash flows from investing activities
Capital expenditures for property and equipment	—		(756)		(202)		—		(958)

Proceeds from sale of equity investment, property and equipment	—		37		—		—		37
Long-term loans and advances to affiliates	(50,100)		—		3,038		47,062		—
Net cash provided by (used in) investing activities	$	(50,100)	$	(719)	$	2,836	$	47,062	$	(921)
Cash flows from financing activities
Borrowings of debt	55,000		—		—		—		55,000
Repayments of debt	(3,362)		(96)		(5)		—		(3,463)
Repurchases of stock	(179)		—		—		—		(179)
Deferred financing costs	(254)		—		—		—		(254)
Long-term loans and advances from affiliates	—		47,062		—		(47,062)		—
Dividend paid to affiliates	—		—		(1,114)		1,114		—
Net cash provided by (used in) financing activities	$	51,205	$	46,966	$	(1,119)	$	(45,948)	$	51,104

Effect of exchange rate changes on cash	—		—		(712)		—		(712)

Net increase (decrease) in cash, cash equivalents and restricted cash	—		55,735		(4,697)		—		51,038
Cash, cash equivalents and restricted cash at beginning of period	—		32,387		25,524		—		57,911
Cash, cash equivalents and restricted cash at end of period	$	—	$	88,122	$	20,827	$	—	$	108,949


(in millions of dollars)	Three Months Ended
	March 31,		December 31,		March 31,
	2020		2019		2019
Drilling & Downhole	$	70.0	$	73.8	$	82.0
Completions	49.9		58.3		80.3
Production	50.7		69.7		79.9
Total Orders	$	170.6	$	201.8	$	242.2


	Three Months Ended March 31,								Change
(in thousands of dollars, except per share information)	2020			2019			$		%
Revenue:
Drilling & Downhole	$	76,643		$	85,940		$	(9,297)	(10.8)	%
Completions	50,823			94,659			(43,836)		(46.3)	%
Production	55,605			91,995			(36,390)		(39.6)	%
Eliminations	(439)			(752)			313		*
Total revenue	182,632			271,842			(89,210)		(32.8)	%
Operating income (loss):
Drilling & Downhole	$	(4,145)		$	(2,499)		$	(1,646)	(65.9)	%
Operating margin %	(5.4)		%	(2.9)		%
Completions	(17,318)			6,851			(24,169)		(352.8)	%
Operating margin %	(34.1)		%	7.2		%
Production	(8,179)			4,335			(12,514)		(288.7)	%
Operating margin %	(14.7)		%	4.7		%
Corporate	(8,429)			(8,406)			(23)		(0.3)	%
Total segment operating income (loss)	(38,071)			281			(38,352)		(13,648.4)	%
Operating margin %	(20.8)		%	0.1		%
Transaction expenses	37			593			(556)		*
Impairments of intangible assets, property and equipment	17,320			—			17,320		*
Contingent consideration benefit	—			(4,629)			4,629		*
Loss (gain) on disposal of assets and other	(21)			20			(41)		*
Operating income (loss)	(55,407)			4,297			(59,704)		(1,389.4)	%
Interest expense	6,724			8,181			(1,457)		(17.8)	%
Foreign exchange losses (gains) and other, net	(5,007)			2,277			(7,284)		*
Gain on extinguishment of debt	(7,459)			—			(7,459)		*
Deferred loan costs written off	1,829			—			1,829		*
Total other (income) expense, net	(3,913)			10,458			(14,371)		(137.4)	%
Loss before income taxes	(51,494)			(6,161)			(45,333)		(735.8)	%
Income tax expense (benefit)	(14,350)			1,727			(16,077)		(930.9)	%
Net loss	$	(37,144)		$	(7,888)		$	(29,256)	(370.9)	%

Weighted average shares outstanding
Basic	111,173			109,643
Diluted	111,173			109,643
Loss per share
Basic	$	(0.33)		$	(0.07)
Diluted	$	(0.33)		$	(0.07)
* not meaningful


Period	Total number of shares purchased (a)	Average price paid per share		Total number of shares purchased as part of publicly announced plan or programs (b)	Maximum value of shares that may yet be purchased under the plan or program (in thousands) (b)
January 1, 2020 - January 31, 2020	1,718	$	1.68	—	$	49,752
February 1, 2020 - February 29, 2020	3,000	$	0.99	—	$	49,752
March 1, 2020 - March 31, 2020	—	$	—	—	$	49,752
Total	4,718	$	1.24	—


Exhibit
Number		DESCRIPTION

10.1**#	—	Form of Restricted Stock Unit Agreement (Employees and Consultants)

10.2**#	—	Form of Performance Share Award Agreement (Employees and Consultants)

10.3**#	—	Form of Stock Appreciation Right Agreement (Employees and Consultants - Group 1)

10.4**#	—	Form of Stock Appreciation Right Agreement (Employees and Consultants - Group 2)

10.5*#	—	Retirement and Consulting Agreement between Forum Energy Technologies, Inc. and James L. McCulloch

10.6*	—	Amendment No. 1 to the Third Amended and Restated Credit Agreement, dated as of February 3, 2020, among Forum Energy Technologies, Inc., the lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and the other borrowers and guarantors party thereto.

31.1**	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**	—	Inline XBRL Instance Document

101.SCH**	—	Inline XBRL Taxonomy Extension Schema Document.

101.CAL**	—	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB**	—	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE**	—	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF**	—	Inline XBRL Taxonomy Extension Definition Linkbase Document.

104**	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


Vesting Date						Additional Percentage of Total Number of RSUs Vesting on Vesting Date
First Anniversary of Date of Grant						33%
Second Anniversary of Date of Grant						33%
Third Anniversary of Date of Grant						Remainder


FORUM ENERGY TECHNOLOGIES, INC.

By:
			C. Christopher Gaut President and CEO

EMPLOYEE


Ten Company Payout Schedule
Company Ranking			Payout Multiplier
1			3.00
2			2.50
3			2.00
4			1.50
5			1.10
6			0.90
7			0.75
8			0.50
9			0.25
10			0.00


Nine Company Payout Schedule
Company Ranking			Payout Multiplier
1			3.00
2			2.45
3			1.90
4			1.45
5			1.00
6			0.75
7			0.50
8			0.25
9			0.00


Eight Company Payout Schedule
Company Ranking			Payout Multiplier
1			3.00
2			2.00
3			1.50
4			1.00
5			1.10
6			0.75
7			0.50
8			0.00


Seven Company Payout Schedule
Company Ranking			Payout Multiplier
1			3.00
2			2.00
3			1.50
4			1.00
5			0.75
6			0.50
7			0.00