Neil Lux with Forum Energy Tech.
Thanks, Adam. Great to be here. Again, I'm looking forward to presenting. It's our first time here at Planet Microcap, and we're excited for the next few days. Really just want to spend the next 25 minutes with you all talking about why do we think FET is a great company, but more importantly, why do I think it's a better investment? So we'll get started with a forward-looking statement, so not the most exciting slide, but one I think you all are familiar with, and we'll move on. So FET, Form Energy Technologies at a Glance, we are a global manufacturer, so I think that's the very first part. We address the market today with two primary segments, our downhole and artificial lift segment, and our drilling and completion segment. within artificial within downhole we sell directly to operators so these are the producers of oil and gas that own the hydrocarbons companies like ExxonMobil Canadian Natural Resources Saudi Aramco we help them produce more oil more gas at a lower cost drilling completion side our largest customers are the world's largest service companies companies like Baker Hughes Halliburton uh slb doff sub c here uh here's where we've provided you know what we consider that the tools for the shale revolution if i go back in my career and think about the early 2000s we were as a country importers of oil we had uh high natural gas prices since the shale revolution we've been able to export more than we import we've been able to lower gas prices the tools to do that were provided by us so that's who we provide our drilling and completions tools to our revenue split is about half and half u.s and half international again energy is a global a global business and we've supported that way and then the purchase cycle as we think about how our products are are used and consumed about three quarters of our of our products what we call activity-based consumables. So these are products that our customers buy, they utilize for two, three, or four months or on a per well basis, and then they have to buy more. These aren't necessarily, you know, nuts and bolts or, you know, brackets and things like that. These are high-dollar consumables that are critical to getting the job done. The other part of our revenues are capital equipment. So these are tools that we provide, products we provide that upgrade our customers' equipment, allows the drilling rig to go deeper, allows the frack unit to work under higher pressure, allows our service company, offshore service customers to go deeper and do more work. And finally, just a quick summary on our financials on the right side. On top, dark blue revenue. We had strong revenue growth over the past five years, projecting about a 16% increase in revenue in 2026 and just below that in the light blue on the EBITDA side again you know EBITDA is about five times higher than it was in 2021 so strong EBITDA growth as we think about our our 2026 guidance our assumption coming into this year was relatively flat activity not not high high oil prices but really stable oil prices as we head into this year obviously a war in Iran. We've had a change in kind of the activity. We're going to reassess. And as we think about our Q2 call, we'll update that if we see a change in activity. But again, this growth that you see here is execution of our backlog, and it is our market share gains. So that's our company at a glance, maybe a little more detail as to why. Why FET? Why do we think we're a great company, but an even better investment. I think it starts really at four pillars. One, we've got a track record of outperformance. Two, we are an incredible value, even after a significant run-up in our stock price. Three, significant capital returns. And finally, and really the part that gets me excited, gets our teams excited, is we are poised for growth. So I'll step through each one of those, starting with track record. So think about key financial performance metrics, and we compare ourselves to our index, the Russell 2000. We've grown our revenue to 10% kegger over the last five years versus about 7% for the Russell. On a cash flow basis, though, this is where we really have shined. We've grown our cash flow at a 46% kegger the last five years versus only about 10% for the Russell. We've done that through market share gains and acquisitions. Having high operating leverage, I'll talk a little bit in more detail later on that, but high operating leverage in this business where a little bit of revenue growth yields strong cash. And finally, we have a capital light business model. We do not require a lot of investment for growth. We can self-fund our growth very, very easily and still have excess cash. Continuing on the outperformance, so we've had strong, obviously, financial performance, revenue, cash flow. That's led to strong stock price performance. So last five years, 26% Kager versus 2% for the Russell. Had that accelerate this year, right? Last about 192%. Again, I think that's a recognition of the steps we've been doing of strong financial growth a fortified balance sheet and meaningful capital returns have led to this this return track record so thinking about value so why are we still a good value we think about our our comps we look at other russell 2000 manufacturing companies and and how do we stack up thinking about cash flow yield enterprise value to ebitda price to sales net debt. Where do we measure up? Adjusted free cash flow, again, versus manufacturing comps. Again, these aren't biotech companies or no revenue companies. These are manufacturing companies. About twice as much cash per share with FET or more than with our comps. Again, advantage FET. Enterprise value to EBITDA, price to sales. Again, those measures are about twice twice as rich for our comps versus FET. Again, value there. Advantage us. And finally, we're not executing with a lot of leverage. Only about 1.4 times leverage versus 2x for our manufacturing comps. Again, not highly levered. Advantage FET. Cash generation advantage. Compelling relative valuation and a strong balance sheet that we are flexible with value third pillar capital returns what are we doing with the cash I think it's important to look at our framework so what's our uses of cash within our framework first share repurchases and accretive acquisitions main use of cash at the end of last year excuse me the end of 2024 through the first quarter of this year, we've repurchased about 8% of our shares outstanding, and we've done it at a price of about $26 a share. That's about half of where we sit today. So great purchases. Second use of cash is we build dry powder through net debt reduction. Since the end of 2019, we've reduced our leverage or net debt by 65% from about 3.9 times to 1.4 times. So good use of our capital of the cash that we've done again we've improved the balance sheet we've made acquisitions and we've reduced our share count at a very good price good capital returns i think all that those first three important things that we have to do but the the reason the why the why we're here i think the reason that you should be interested is i think we're poised for growth and i want to talk a lot about that right now it begins with our beat the market strategy first we compete in targeted markets so we want to compete where we have very few competitors and where our customers value our products again that's the differentiated product offering second we want to continue to utilize our competitive advantages so this is our manufacturing know-how our intellectual property our brands that have been around for decades and our people Early on, we talked about our two segments that we report by. We have seven product families underneath those segments, and actually, excuse me, seven product lines underneath those segments, and we have 20 product families really in total or so. Within each of those product families, we have key experts that understand how our products are used. We employ a large number of engineers, many of whom have worked in the field and understand how our products are utilized. That allows us to continue to innovate. Innovate continuously is the third one, right? So how does our products work? How do we improve them? And how do we develop differentiated technology? Big part of our success. Other is that we increase the total addressable market. by rather than just competing in a set market through innovation, we're able to expand the areas where we can sell our products and expand our addressable market. And then the final part of our beat the market strategy is our global footprint. Energy is a global game. It's a global industry. By having our footprint, we can rapidly respond to wherever energy is needed, where our products are demanded. Also, we have a very efficient supply chain. We can produce products around the world and ship it directly to the customer, whether it's in West Africa, South America, or in the Middle East. Since we started this strategy of Beat the Market, we have increased our share of revenue per rig by 26%. That is a big number. So that is us taking share from our competitors through innovation, through utilizing our competitive advantages, and by picking the right areas to compete. as we came into this year we thought it was important to look look ahead and say what where do we want to be in the next five years so we took this strategy and we we we sharpened it a bit and we looked at what could we do differently and we looked at our portfolio and we separated our portfolio out into two two areas we call it our leadership markets and our growth markets let me talk a little bit about that our leadership markets are our products and solutions they today they're about two-thirds of our revenue and we have meaningful share in these markets also we have solutions that are fully adopted by the industry so they're not waiting on qualification or trials they're already fully adopted and they have broad geographic exposure they're utilized in the US, utilized in South America, utilized in the Middle East. This addressable market size is about one and a half billion. Our share in aggregate is 36%. So good share, good size market, very meaningful. A couple examples, coil tubing. We are one of three manufacturers of quench and tempered coil tubing globally one of three case toll wireline we are one of three manufacturers of high-pressure greaseless cable that's utilized in fracturing applications ROVs remote-operated vehicles these are work-class robotics that can operate in deep water, let's call it 6, 7, 8,000, 10,000 feet of water depth. Specialized vehicles. We have the world's largest installed base. Sand and flow control. These are downhole tools that enable increased oil production of heavy oil and thermal and oil sands applications. We are the leader in this application. So our goal as we think out the next five years for 2030 is we want to sustain our edge in these markets. So as our markets grow, we want to grow with them. Exciting part for us is now what about our other third of our of our sales? Those sit in our growth markets. So these are the products and solutions that we have that give us the opportunity for new customer acquisition. What's interesting is they have very similar market characteristics with our leadership that's targeted with few competitors. You know, we're not trying to be a commoditized or we're not trying to go bigger. We're still targeted. So that's very important. Maybe a difference, though, is these innovations are earlier on the adoption scale so that the they're not as widely widely adopted. We're still gaining adoption here. And then finally, the geographic reach. These are earlier on the adoption cycle by geography. So we may be strong in the U.S., but not as strong internationally. So that's our opportunity for growth. It's interesting. This addressable market is twice the size of our leadership markets at $3 billion. And our share is much smaller at only 8%. So this is our opportunity. A few examples. Defense. the picture you see there is a rescue submarine that's is our fourth one that we've developed that we've sold to a Navy in in Asia this is us taking the knowledge the engineering the supply chain the manufacturing capability that we've utilized for deep water oil and gas and applying it to the defense industry great opportunity here for for the not only the sub but other applications And coil line pipe allows us to help our customers transport oil and gas with far fewer welds and far, far more efficiently. Another example, pump protection. This one's my favorite. We provide tools that extend the life of downhole pumps. So we don't make a downhole pump. Schlumberger, Baker Hughes, Halliburton, they make downhole pumps. We make the tools that extend the life of that pump, pump protection. So the value proposition, I think, is very simple. By utilizing our products, our customers can pump more oil, and they can do it at a lower cost. Pretty simple value prop there. However, internationally, customers don't necessarily use that protection. So they're choosing to go naked in their wells and to let their pumps fail. So by utilizing pump protection, we have a huge opportunity. So the share we have in the U.S., very strong. Internationally, they haven't adopted it yet. Huge opportunity for us. Final example, power generation. We make heat transfer products that cool the engines as well as ancillary equipment for frack equipment. That same technology has applications in mobile power and also in fixed power for data centers and other applications. So we've just recently developed a new product for fixed PowerGen application, having very good commercial interest, look forward to that growth part. So our goal in our growth markets is to double our share. Bigger market, smaller share. We want to go from 8% to 16% by 2030. That alone gives us significant revenue growth, and let's put that together. So looking at our 2030 outlook, kind of two scenarios. Flat market, assuming that oil and gas demand doesn't go up, prices aren't that attractive for new investment, nothing changes. In that scenario, we believe we can grow our revenue 5% a year through our beat the market strategy. Again, through the innovation, through the targeted markets, through the development of new solutions, and drive our revenue from about $840 million this year to a billion dollars in 2030. That's the baseline. However, we don't think that's the case. We think there will be demand for oil and gas growth. global GDP, urbanization, electricity demand will drive oil and gas demand. We will need the commodity. And the need for that will require more investment to grow and grow meaningfully. So we think global rig count will need to increase. And those rigs need to be as efficient as the rigs that are working today. So they will acquire the products and solutions that FET provides. In that scenario, we think our markets grow 9% a year. So with our beat the market strategy and with our markets growing as well, we think we can grow our revenue to 15% kegger or double where we were last year, from $800 to $1.6 billion. Maybe another look at it. What does that mean financially? Again, two scenarios, 2025, looking at going to 2030 in a flat market or 2030 in a growth market, either $1 billion or $1.6 billion in revenue. With that type of revenue growth, we utilize our operating leverage. So with our operating leverage, 25% to 35% of our incremental revenue turns into incremental EBITDA. And with our capital light business model, 60% to 70% of that incremental EBITDA turns into free cash flow. So we double revenue, quadruple EBITDA, and triple free cash flow. That's what we're talking about when we say we are poised for growth. FET 2030 would be an increase in free cash flow by 3x. That's a big deal. That's our growth story. So why FET? track record, incredible value, significant capital returns. But I think most importantly for us here, we are poised for growth and we have a plan to get there. So with that, I will open it up for Q&A. Yes, sir. Yeah. So the question was, obviously we deal with the big guys. Do we deal with the smaller operators? The answer is absolutely. So in the US, there's a, excuse me, there's a lot of smaller operators working. And so they are a bigger part, they are a big part of our customer base. So if you think about about half of our sales in the, in the US, a good portion of those would be to smaller operators as well. I do, you know, the big guys are great. Smaller ones are also more, they're, they're good too, because they can be more efficient. They can be quick to change. They'd be quick to implement our products and solutions so so good balance there yeah uh so the probably a more let's do it on maybe a more regional basis if that helps so so half of our sales are outside the u.s canada would be our next biggest market uh and then they would be about about a quarter and then after that it would be the middle east and latin america but we also sell into asia as well so pretty pretty wide. You know, a lot of times, you know, we're included in, let's call it oil field services market, you know, when you think about our stock, you know, a lot of those are service companies. And so for a service company to operate internationally, many times they have to set up bases, add people, add infrastructure. We don't have to do that. Our products generally don't require service to go along with it. We can sell our product, put it on a vessel, and deliver it to the country that needs to go to. So, you know, we have sales in West Africa, you know, just around the world where we don't have bases. Rebuild. That was, you know, maybe some of the earlier parts of our company may have after the invasion. You know, we provide key elements of infrastructure, right? Maybe a more relevant or newer example, Venezuela. Venezuela's, you know, obviously been neglected for many years. That's an area that we are adding a lot of new products to. We've shipped, you know, I think we've shipped quite a few orders there here recently, you know, once the sanctions were changed. So anywhere that needs key infrastructure, especially after, you know, neglect or potentially war, that would be an area that we could participate in. Yes, sir. Yeah. So what I would say is, you know, we don't necessarily need oil price. You know, so the oil price has to hit a threshold. So it has to hit a threshold where there's activity. So once you're at that threshold, whether it goes up or down, you know, you just need to be at that threshold. So we are generally tied to how many, I think a better example would be rigs, how many rigs are running. And as rig count goes up, our revenue should go up with it. That's why we call it the beat the market. So rather than just say if rig count's up 10%, our revenue's up 10%, our view is that if rig count's up 10%, we should be up 12, 15, or more. So that's probably a better indicator of what we're tied to. So I think get to a price that allows investment, and then rig count will follow that. And that's where we participate with our activity-based consumables. Yeah, that's a great, great question. And it's one we take very seriously, right, with our cash. So as we think about our free cash flow yield, Can we make an acquisition that has a better free cash flow yield than ourselves? I think we feel good about our level of debt, especially in relation to our EBITDA. But can we buy so it has a better free cash flow yield? And if we can't find that opportunity, again, our criteria is we want to have good financial metrics of an acquisition. We don't want to over-lever the balance sheet. And we want to have something that's differentiated. differentiated. If it hits that criteria and we can find something that's accretive, especially on free cash flow, that would be where we'd put our cash. We can't find that. I still think a 13% free cash flow yield is really attractive. Don't mind buying FET. Okay, we got to wrap. Thank you.