What changed in this filing

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Item 1. Financial Statements

2023-11-03 compared with 2023-08-04 · 81 added, 54 removed, 362 unchanged (27% of the section changed)

2 unchanged sentences

and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended June 30, Six Months Ended June 30,

Condensed Consolidated Statements of Comprehensive Loss

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per share information) 2023 2022 2023 2022

11 unchanged sentences

Total other expense (income), net ( 3,775 ) ( 10,145 ) 14,871 ( 13,503 )

Income (loss) before income taxes ( 4,718 ) 10,980 ( 5,388 ) 3,634

Income before taxes 9,446 17,847 4,058 21,481

Income tax expense 1,477 1,370 6,154 4,939

9 unchanged sentences

Change in foreign currency translation ( 10,710 ) ( 22,690 ) 1,197 ( 46,199 )

Gain on pension liability 6 57 21 87

Comprehensive income (loss) $ 1,176 $ ( 7,197 ) $ 1,863 $ ( 23,358 )

Gain (loss) on pension liability ( 36 ) 66 ( 15 ) 153

Comprehensive loss $ ( 2,777 ) $ ( 6,147 ) $ ( 914 ) $ ( 29,504 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Balance Sheets

(in thousands, except share information) June 30, 2023 December 31, 2022

(in thousands, except share information) September 30, 2023 December 31, 2022

Current assets

40 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2023 2022

26 unchanged sentences

Repurchases of stock ( 5,996 ) ( 826 )

Net cash provided by financing activities 4,123 32,642

Net cash provided by (used in) financing activities ( 6,906 ) 9,168

Effect of exchange rate changes on cash 261 ( 1,524 )

10 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(in thousands) Common stock Additional paid-in capital Treasury stock Retained

16 unchanged sentences

Balance at June 30, 2023 $ 109 $ 1,367,441 $ ( 142,057 ) $ ( 690,660 ) $ ( 115,557 ) $ 419,276

Stock-based compensation expense — 1,247 — — — 1,247

Restricted stock issuance, net of forfeitures — ( 626 ) — — — ( 626 )

Currency translation adjustment — — — — ( 10,710 ) ( 10,710 )

Change in pension liability — — — — ( 36 ) ( 36 )

Net income — — — 7,969 — 7,969

Balance at September 30, 2023 $ 109 $ 1,368,062 $ ( 142,057 ) $ ( 682,691 ) $ ( 126,303 ) $ 417,120

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(in thousands) Common stock Additional paid-in capital Treasury stock Retained

16 unchanged sentences

Balance at June 30, 2022 $ 62 $ 1,252,647 $ ( 135,562 ) $ ( 684,242 ) $ ( 124,451 ) $ 308,454

Stock-based compensation expense — 765 — — — 765

Restricted stock issuance, net of forfeitures — ( 467 ) — — — ( 467 )

Currency translation adjustment — — — — ( 22,690 ) ( 22,690 )

Change in pension liability — — — — 66 66

Net income — — — 16,477 — 16,477

Balance at September 30, 2022 $ 62 $ 1,252,945 $ ( 135,562 ) $ ( 667,765 ) $ ( 147,075 ) $ 302,605

The accompanying notes are an integral part of these condensed consolidated financial statements.

10 unchanged sentences

In management's opinion, all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position, results of operations and cash flows have been included.

Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other interim period.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or any other interim period.

These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.

27 unchanged sentences

Such contract liabilities typically result from billings in excess of costs incurred on construction contracts and advance payments received on product sales.

The following table reflects the changes in our contract assets and contract liabilities balances for the six months ended June 30, 2023 (in thousands):

June 30, 2023 December 31, 2022 Decrease

The following table reflects the changes in our contract assets and contract liabilities balances for the nine months ended September 30, 2023 (in thousands):

September 30, 2023 December 31, 2022 Increase / (Decrease)

Accrued revenue $ 771 $ 665

6 unchanged sentences

Contract liabilities $ 18,879 $ 14,706 $ 4,173 28 %

During the six months ended June 30, 2023, our contract assets decreased by $ 2.9 million and our contract liabilities decreased by $ 0.2 million primarily due to the timing of milestone billings for projects in our Subsea Technologies product line.

During the six months ended June 30, 2023, we recognized $ 11.4 million of revenue that was included in the contract liability balance at the beginning of the period.

During the nine months ended September 30, 2023, our contract assets decreased by $ 7.6 million and our contract liabilities increased by $ 4.2 million primarily due to the timing of milestone billings for projects in our Subsea Technologies product line.

During the nine months ended September 30, 2023, we recognized $ 12.6 million of revenue that was included in the contract liability balance at the beginning of the period.

Substantially all of our contracts are less than one year in duration.

As such, we have elected to apply the practical expedient which allows an entity to exclude disclosures about its remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less .

The Company's significant components of inventory at June 30, 2023 and December 31, 2022 were as follows (in thousands):

June 30, 2023 December 31, 2022

The Company's significant components of inventory at September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

Raw materials and parts $ 98,100 $ 94,182

8 unchanged sentences

Intangible Assets

Intangible assets consisted of the following as of June 30, 2023 and December 31, 2022, respectively (in thousands):

June 30, 2023

Intangible assets consisted of the following as of September 30, 2023 and December 31, 2022, respectively (in thousands):

September 30, 2023

Gross Carrying Amount Accumulated Amortization Net Intangibles Amortization Period (In Years)

13 unchanged sentences

Total intangible assets $ 403,315 $ ( 211,834 ) $ 191,481

Notes payable and lines of credit as of June 30, 2023 and December 31, 2022 consisted of the following (in thousands):

June 30, 2023 December 31, 2022

Notes payable and lines of credit as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):

September 30, 2023 December 31, 2022

2025 Notes $ 134,208 $ 256,970

6 unchanged sentences

Long-term debt, net of current portion $ 128,537 $ 239,128

In August 2020, we exchanged $ 315.5 million principal amount of our previous 6.25 % unsecured notes due 2021 for new 9.00 % convertible secured notes due August 2025 (the “2025 Notes”).

The 2025 Notes pay interest at the rate of 9.00 %, of which 6.25 % is payable in cash and 2.75 % is payable in cash or additional notes, at the Company’s option.

The 2025 Notes are secured by a first lien on substantially all of the Company’s assets, except for Credit Facility priority collateral, which secures the 2025 Notes on a second lien basis.

During the six months ended June 30, 2023, $ 122.8 million or 48 % of the principal amount of the 2025 Notes mandatorily converted into approximately 4.5 million shares of common stock.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Continued)

In August 2020, we exchanged $ 315.5 million principal amount of our previous 6.25 % unsecured notes due 2021 for new 9.00 % convertible secured notes due August 2025 (the “2025 Notes”).

The 2025 Notes pay interest at the rate of 9.00 %, of which 6.25 % is payable in cash and 2.75 % is payable in cash or additional notes, at the Company’s option.

The 2025 Notes are secured by a first lien on substantially all of the Company’s assets, except for Credit Facility priority collateral, which secures the 2025 Notes on a second lien basis.

During the nine months ended September 30, 2023, $ 122.8 million or 48 % of the principal amount of the 2025 Notes mandatorily converted into approximately 4.5 million shares of common stock.

Credit Facility

6 unchanged sentences

Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our receivables and inventory.

As of June 30, 2023, our total borrowing base was $ 178.3 million, of which $ 10.0 million was drawn and $ 22.8 million was used for security of outstanding letters of credit, resulting in remaining availability of $ 145.5 million.

As of September 30, 2023, our total borrowing base was $ 173.3 million, of which no amount was drawn and $ 18.5 million was used for security of outstanding letters of credit, resulting in remaining availability of $ 154.8 million.

Borrowings under the U.S.

3 unchanged sentences

The Canadian line base rate is determined by reference to the greater of (i) the one-month CDOR plus 1.00 % and (ii) the prime rate for Canadian dollar commercial loans made in Canada as reported by Thomson Reuters, subject to a floor of 0.00 %.

The weighted average interest rate under the Credit Facility was approximately 8.00 % for the six months ended June 30, 2023.

The weighted average interest rate under the Credit Facility was approximately 8.28 % for the nine months ended September 30, 2023.

The Credit Facility also provides for a commitment fee in the amount of (a) 0.375 % on the unused portion of commitments if average usage of the Credit Facility is greater than 50 % and (b) 0.500 % on the unused portion of commitments if average usage of the Credit Facility is less than or equal to 50 %.

4 unchanged sentences

In connection with the September 2021 Credit Facility amendment, we deferred approximately $ 1.6 million of loan costs that will be amortized over the facility's remaining life.

Other debt consists primarily of various finance leases of equipment.

Letters of Credit and Guarantees

We execute letters of credit in the normal course of business to secure the delivery of product from specific vendors and also to guarantee our fulfillment of performance obligations relating to certain large contracts.

The Company had $ 22.8 million and $ 21.8 million in total outstanding letters of credit as of June 30, 2023 and December 31, 2022, respectively.

Forum Energy Technologies, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Continued)

Other debt consists primarily of various finance leases of equipment.

Letters of Credit and Guarantees

The Company had $ 18.5 million and $ 21.8 million in total outstanding letters of credit as of September 30, 2023 and December 31, 2022, respectively.

For interim periods, our income tax expense or benefit is computed based on our estimated annual effective tax rate and any discrete items that impact the interim periods.

For the three and six months ended June 30, 2023, the Company recorded a tax expense of $ 1.9 million and a tax expense of $ 4.7 million, respectively.

For the three and six months ended June 30, 2022, the Company recorded a tax expense of $ 1.7 million and $ 3.6 million, respectively.

For the three and nine months ended September 30, 2023, the Company recorded a tax expense of $ 1.5 million and $ 6.2 million, respectively.

For the three and nine months ended September 30, 2022, the Company recorded a tax expense of $ 1.4 million and $ 4.9 million, respectively.

The estimated annual effective tax rates for all periods were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

Finally, the Company believes that it is reasonably possible that a decrease of approximately $ 1.5 million of noncurrent unrecognized tax benefits may occur by the end of 2023 as a result of a lapse of the statute of limitations.

We have deferred tax assets related to net operating loss and other tax carryforwards in the U.S.

2 unchanged sentences

In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning and recent operating results.

As of June 30, 2023, we do not anticipate being able to fully utilize all of the losses prior to their expiration in the following jurisdictions:

As of September 30, 2023, we do not anticipate being able to fully utilize all of the losses prior to their expiration in the following jurisdictions:

the U.S., the U.K., Germany, Singapore, China and Saudi Arabia.

As a result, we have certain valuation allowances against our deferred tax assets as of June 30, 2023.

As a result, we have certain valuation allowances against our deferred tax assets as of September 30, 2023.

Fair Value Measurements

The Company had $ 10.0 million of borrowings outstanding under the Credit Facility as of June 30, 2023.

The Company had no borrowings outstanding under the Credit Facility as of September 30, 2023.

The Credit Facility incurs interest at a variable interest rate, and therefore, the carrying amount approximates fair value.

1 unchanged sentence

The fair value of our 2025 Notes is estimated using Level 2 inputs in the fair value hierarchy and is based on quoted prices for those or similar instruments.

At June 30, 2023, the fair value and the carrying value of our 2025 Notes approximated $ 132.3 million and $ 126.1 million, respectively.

At September 30, 2023, the fair value and the carrying value of our 2025 Notes approximated $ 130.1 million and $ 127.0 million, respectively.

At December 31, 2022, the fair value and the carrying value of our 2025 Notes approximated $ 272.8 million and $ 237.9 million, respectively.

There were no other significant outstanding financial instruments as of June 30, 2023 and December 31, 2022 that required measuring the amounts at fair value on a recurring basis.

We did not change our valuation techniques associated with recurring fair value measurements from prior periods, and there were no transfers between levels of the fair value hierarchy during the six months ended June 30, 2023.

There were no other significant outstanding financial instruments as of September 30, 2023 and December 31, 2022 that required measuring the amounts at fair value on a recurring basis.

Forum Energy Technologies, Inc.

6 unchanged sentences

Summary financial data by segment follows (in thousands):

Three Months Ended

June 30, Six Months Ended June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

9 unchanged sentences

Corporate ( 6,861 ) ( 8,411 ) ( 20,538 ) ( 24,501 )

Total segment operating income (loss) 6,949 5,076 13,540 ( 610 )

Segment operating income 5,526 7,650 19,066 7,040

Loss (gain) on disposal of assets and other ( 145 ) ( 52 ) 137 ( 938 )

1 unchanged sentence

A summary of consolidated assets by reportable segment is as follows (in thousands):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Drilling & Downhole $ 347,503 $ 340,819

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended June 30,

September 30, Nine Months Ended September 30,

2023 2022 2023 2022

9 unchanged sentences

The following table presents our revenues disaggregated by geography (in thousands):

Three Months Ended

June 30, Six Months Ended June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

9 unchanged sentences

Management has reviewed such pending judicial and legal proceedings, the reasonably anticipated costs and expenses in connection with such proceedings, and the availability and limits of insurance coverage, and has established reserves that are believed to be appropriate in light of those outcomes that are believed to be probable and can be estimated.

The reserves accrued at June 30, 2023 and December 31, 2022, respectively, are immaterial.

The reserves accrued at September 30, 2023 and December 31, 2022, respectively, are immaterial.

In the opinion of management, the Company’s ultimate liability, if any, with respect to these actions is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

13 unchanged sentences

The calculation of basic and diluted earnings per share for each period presented was as follows (dollars and shares in thousands, except per share amounts):

Three Months Ended

June 30, Six Months Ended June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

9 unchanged sentences

Diluted $ 0.77 $ 1.82 $ ( 0.21 ) $ 2.37

For the three months and six months ended June 30, 2023, we excluded all potentially dilutive restricted shares and stock options in calculating diluted earnings per share as the effect was anti-dilutive due to net losses incurred for these periods.

For the three months and six months ended June 30, 2022, the diluted earnings per share calculation excludes approximately 59 thousand and 116 thousand shares, respectively.

The calculation of diluted earnings per share excluded approximately 46 thousand shares that were anti-dilutive for the three months ended September 30, 2023.

For the nine months ended September 30, 2023, we excluded all potentially dilutive restricted shares and stock options in calculating diluted earnings per share as the effect was anti-dilutive due to net losses incurred for the period.

For the three months and nine months ended September 30, 2022, the diluted earnings per share calculation excluded approximately 54 thousand and 95 thousand shares, respectively.

Diluted earnings per share was calculated using treasury stock method for the restricted shares and stock options;

and if-converted method for the convertible notes.

Stockholders' Equity

Stock-based compensation

During the six months ended June 30, 2023, the Company granted 86,912 time-based restricted stock units to employees that vest ratably over three years .

In addition, during the six months ended June 30, 2023, the Company granted 86,912 performance restricted stock units to employees (assuming target performance) that vest based upon the total shareholder return of the Company's common stock as compared to a group of peer companies over three different performance periods.

During the nine months ended September 30, 2023, the Company granted 86,912 time-based restricted stock units to employees that vest ratably over three years .

In addition, during the nine months ended September 30, 2023, the Company granted 86,912 performance restricted stock units to employees (assuming target performance) that vest based upon the total shareholder return of the Company's common stock as compared to a group of peer companies over three different performance periods.

The performance periods run from January 1, 2023 through December 31, 2023, January 1, 2023 through December 31, 2024 and January 1, 2023 through December 31, 2025, and 1/3 of each award is allocated to each performance period.

1 unchanged sentence

Related Party Transactions

The Company has sold and purchased inventory, services and fixed assets to and from affiliates of a former director.

The Company has sold and purchased inventory, services and fixed assets to and from various affiliates of certain directors.

The dollar amounts of these related party activities are not significant to the Company’s unaudited condensed consolidated financial statements.

Forum Energy Technologies, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Continued)

Subsequent Events

On November 1, 2023, the Company and its wholly owned subsidiary entered into a purchase agreement with Variperm Holdings Ltd.

("Variperm") and its shareholders to acquire all of the issued and outstanding common shares of Variperm.

The Company expects the transaction to close during January 2024.

Variperm, headquartered in Canada, is a manufacturer of downhole technology solutions, providing sand and flow control products for heavy oil applications.

Total consideration for the acquisition includes approximately $ 150.0 million of cash and 2.0 million shares of the Company's common stock, subject to customary purchase price adjustments set forth in the purchase agreement.

The purchase agreement was filed in the Company's Current Report on Form 8-K on November 3, 2023.

On November 1, 2023, the Company entered into an amendment to the Credit Facility that, among other things, permits the acquisition of Variperm, permits the incurrence of either new secured notes in an amount not to exceed $ 200.0 million or other financing, extends the maturity date of the Credit Agreement to September 8, 2028, increases the aggregate revolving commitments to $ 250.0 million from $ 179.0 million, and updates the CDOR provisions with Canadian Overnight Repo Rate Average .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements