FORUM ENERGY TECHNOLOGIES, INC. 10-Q

Item 1. Financial Statements Forum Energy Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, (in thousands, except per share information) 2024 2023 Revenue $ 202,392 $ 188,957 Cost of sales 138,633 136,855 Gross profit 63,759 52,102 Operating expenses Selling, general and administrative expenses 54,666 45,511 Transaction expenses 5,921 — Gain on disposal of assets and other ( 28 ) ( 260 ) Total operating expenses 60,559 45,251 Operating income 3,200 6,851 Other expense Interest expense 8,760 4,549 Foreign exchange and other losses, net 1,227 2,972 Total other expense 9,987 7,521 Loss before income taxes ( 6,787 ) ( 670 ) Income tax expense 3,528 2,816 Net loss $ ( 10,315 ) $ ( 3,486 ) Weighted average shares outstanding Basic 12,201 10,179 Diluted 12,201 10,179 Loss per share Basic $ ( 0.85 ) $ ( 0.34 ) Diluted $ ( 0.85 ) $ ( 0.34 ) Other comprehensive income (loss), net of tax of $ 0 : Net loss $ ( 10,315 ) $ ( 3,486 ) Change in foreign currency translation ( 804 ) 4,158 Gain (loss) on pension liability ( 15 ) 15 Comprehensive income (loss) $ ( 11,134 ) $ 687 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Forum Energy Technologies, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share information) March 31, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 48,488 $ 46,165 Accounts receivable—trade, net of allowances of $ 9,983 and $ 10,850 161,978 146,747 Inventories, net 303,003 299,639 Prepaid expenses and other current assets 20,893 21,887 Costs and estimated profits in excess of billings 10,488 13,365 Accrued revenue 1,935 1,801 Total current assets 546,785 529,604 Property and equipment, net of accumulated depreciation 87,660 61,401 Operating lease assets 54,818 55,399 Deferred financing costs, net 2,585 1,159 Intangible assets, net 261,405 167,970 Goodwill 63,202 — Deferred income taxes, net 130 368 Other long-term assets 4,804 5,160 Total assets $ 1,021,389 $ 821,061 Liabilities and equity Current liabilities Current portion of long-term debt $ 5,150 $ 1,186 Accounts payable—trade 108,254 125,918 Accrued liabilities 64,937 62,463 Deferred revenue 10,276 10,551 Billings in excess of costs and profits recognized 4,480 4,221 Total current liabilities 193,097 204,339 Long-term debt, net of current portion 282,302 129,567 Deferred income taxes, net 28,183 940 Operating lease liabilities 59,898 61,450 Other long-term liabilities 11,707 12,132 Total liabilities 575,187 408,428 Commitments and contingencies Equity Common stock, $ 0.01 par value, 14,800,000 shares authorized, 12,992,570 and 10,901,878 shares issued 130 109 Additional paid-in capital 1,413,970 1,369,288 Treasury stock at cost, 708,900 and 708,900 shares ( 142,057 ) ( 142,057 ) Retained deficit ( 709,786 ) ( 699,471 ) Accumulated other comprehensive loss ( 116,055 ) ( 115,236 ) Total equity 446,202 412,633 Total liabilities and equity $ 1,021,389 $ 821,061 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Forum Energy Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (in thousands) 2024 2023 Cash flows from operating activities Net loss $ ( 10,315 ) $ ( 3,486 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation expense 4,072 2,570 Amortization of intangible assets 9,766 6,016 Inventory write down 534 892 Stock-based compensation expense 1,573 841 Deferred income taxes ( 1,002 ) 421 Noncash losses and other, net 1,299 1,398 Changes in operating assets and liabilities Accounts receivable—trade 8,783 ( 10,047 ) Inventories 8,577 ( 18,123 ) Prepaid expenses and other assets 2,694 1,037 Cost and estimated profit in excess of billings 2,822 769 Accounts payable, deferred revenue and other accrued liabilities ( 24,071 ) ( 5,527 ) Billings in excess of costs and estimated profits earned 291 111 Net cash provided by (used in) operating activities 5,023 ( 23,128 ) Cash flows from investing activities Capital expenditures for property and equipment ( 2,910 ) ( 1,083 ) Proceeds from sale of property and equipment 177 264 Payments related to business acquisition, net of cash acquired ( 150,086 ) — Net cash used in investing activities ( 152,819 ) ( 819 ) Cash flows from financing activities Borrowings on Credit Facility 245,167 119,426 Repayments on Credit Facility ( 148,696 ) ( 94,426 ) Proceeds from issuance of Seller Term Loan 59,677 — Payment of capital lease obligations ( 147 ) ( 273 ) Deferred financing costs ( 3,070 ) — Repurchases of stock — ( 3,497 ) Payment of withheld taxes on stock-based compensation plans ( 1,090 ) ( 1,873 ) Net cash provided by financing activities 151,841 19,357 Effect of exchange rate changes on cash ( 1,722 ) 325 Net increase (decrease) in cash, cash equivalents and restricted cash 2,323 ( 4,265 ) Cash, cash equivalents and restricted cash at beginning of period 46,165 51,029 Cash, cash equivalents and restricted cash at end of period $ 48,488 $ 46,764 Noncash activities Operating lease right of use assets obtained in exchange for lease obligations $ 2,775 $ 1,835 Finance lease right of use assets obtained in exchange for lease obligations 750 926 Stock issuance related to business acquisition 44,220 — Conversion of debt to common stock — 113,650 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Forum Energy Technologies, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended March 31, 2024 (in thousands) Common stock Additional paid-in capital Treasury stock Retained deficit Accumulated other comprehensive income / (loss) Total equity Balance at December 31, 2023 $ 109 $ 1,369,288 $ ( 142,057 ) $ ( 699,471 ) $ ( 115,236 ) $ 412,633 Stock-based compensation expense — 1,573 — — — 1,573 Restricted stock issuance, net of forfeitures 1 ( 1,091 ) — — — ( 1,090 ) Stock issuance related to business acquisition 20 44,200 — — — 44,220 Currency translation adjustment — — — — ( 804 ) ( 804 ) Change in pension liability — — — — ( 15 ) ( 15 ) Net loss — — — ( 10,315 ) — ( 10,315 ) Balance at March 31, 2024 $ 130 $ 1,413,970 $ ( 142,057 ) $ ( 709,786 ) $ ( 116,055 ) $ 446,202 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Forum Energy Technologies, Inc. and subsidiaries Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) Three Months Ended March 31, 2023 (in thousands) Common stock Additional paid-in capital Treasury stock Retained deficit Accumulated other comprehensive income / (loss) Total equity Balance at December 31, 2022 $ 62 $ 1,253,613 $ ( 138,560 ) $ ( 680,595 ) $ ( 127,485 ) $ 307,035 Stock-based compensation expense — 841 — — — 841 Restricted stock issuance, net of forfeitures 1 ( 1,874 ) — — — ( 1,873 ) Conversion of debt to common stock 46 113,604 — — — 113,650 Treasury stock — — ( 3,497 ) — — ( 3,497 ) Currency translation adjustment — — — — 4,158 4,158 Change in pension liability — — — — 15 15 Net loss — — — ( 3,486 ) — ( 3,486 ) Balance at March 31, 2023 $ 109 $ 1,366,184 $ ( 142,057 ) $ ( 684,081 ) $ ( 123,312 ) $ 416,843 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 1. Organization and Basis of Presentation Forum Energy Technologies, Inc. (the “Company,” “FET,” “we,” “our,” or “us”), a Delaware corporation, is a global manufacturing company serving the oil, natural gas, industrial and renewable energy industries. With headquarters located in Houston, Texas, FET provides value added solutions that increase the safety and efficiency of energy exploration and production. Basis of Presentation The Company's accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated in consolidation. 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 months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 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. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2023, which are included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC on March 5, 2024. Change of Segment In the first quarter 2024, following the Variperm Holdings Ltd. ("Variperm") acquisition, we aligned our reportable segments with business activity drivers, our customer base, and the manner in which we review and evaluate operating performance. FET now operates in the following two reportable segments: (1) Drilling and Completions and (2) Artificial Lift and Downhole. Refer to Note 10 Business Segments for the product lines making up each segment. Our historical results of operations were recast retrospectively to reflect these changes in accordance with U.S. GAAP. 2. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB"), which the Company adopts as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company's consolidated financial statements upon adoption. Accounting Standards Issued But Not Yet Adopted Segment Reporting (Topic 280) . In November 2023, FASB issued ASU 2023-07, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. This update is effective retrospectively for fiscal years beginning after December 15, 2023, and interim periods within fiscal years after December 15, 2024. Early adoption is permitted. The Company is in the process of evaluating the impact it may have on our consolidated financial statements. Income Taxes (Topic 740). In December 2023, FASB issued ASU 2023-09, which improves income tax disclosures. This update is effective for fiscal years beginning after December 15, 2025. Early adoption is permitted. This update should be applied prospectively but retrospective application is permitted. The Company is in the process of evaluating the impact it may have on our consolidated financial statements. 3. Revenue Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. For a detailed discussion of our revenue recognition policies, refer to the Company’s 2023 Annual Report on Form 10-K. 9 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) Disaggregated Revenue Refer to Note 10 Business Segments for disaggregated revenue by product line and geography. Contract Balances Contract balances are determined on a contract by contract basis. Contract assets represent revenue recognized for goods and services provided to our customers when payment is conditioned on something other than the passage of time. Similarly, the Company records a contract liability when we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a sales contract. 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 three months ended March 31, 2024 (in thousands): March 31, 2024 December 31, 2023 Decrease $ % Accrued revenue $ 1,935 $ 1,801 Costs and estimated profits in excess of billings 10,488 13,365 Contract assets - current 12,423 15,166 Contract assets - noncurrent 1,070 1,828 Contract assets $ 13,493 $ 16,994 $ ( 3,501 ) ( 21 ) % Deferred revenue $ 10,276 $ 10,551 Billings in excess of costs and profits recognized 4,480 4,221 Contract liabilities $ 14,756 $ 14,772 $ ( 16 ) — % During the three months ended March 31, 2024, our contract assets decreased by $ 3.5 million and our contract liabilities decreased nominally primarily due to the timing of milestone billings for projects in our Subsea product line. The noncurrent portion of contract assets is recorded on the consolidated balance sheets as other long-term assets. During the three months ended March 31, 2024, we recognized $ 5.5 million of revenue that was included in the contract liabilities 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 such obligation is part of a contract that has an original expected duration of one year or less . 10 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 4 . Acquisition On January 4, 2024, the Company and its wholly owned subsidiary acquired all of the issued and outstanding common shares of Variperm (the “Variperm Acquisition”). 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 Variperm Acquisition includes approximately $ 150.0 million of cash and 2.0 million shares of the Company’s common stock determined using the market price at closing date, which was subject to customary purchase price adjustments. In connection with the closing, to fund the cash portion of the purchase price, the Company borrowed $ 90.0 million under its senior secured asset-based lending facility (“Credit Facility”) on January 2, 2024 and entered into a $ 60.0 million second lien seller term loan credit agreement (“Seller Term Loan”) on January 4, 2024. In March 2024, in connection with the finalization of working capital adjustments, the principal amount of the Seller Term Loan was reduced by $ 0.3 million. During the three months ended March 31, 2024, the Company recognized acquisition-related costs of $ 5.9 million for consulting fees and other costs expensed as transaction expenses. The acquisition of business on the statement of cash flow is presented net of the cash and cash equivalents acquired. The following table summarizes the fair value of identified assets acquired and liabilities assumed at the date of acquisition. The preliminary allocation of consideration transferred is based on management's estimates, judgments and assumptions. These estimates, judgments and assumptions are subject to change upon final valuation and should be treated as preliminary values. Management estimated that consideration paid exceeded the fair value of the net assets acquired. Therefore, goodwill of $ 63.9 million was recorded, most of which is not expected to be deductible for income tax purposes. The final allocation of purchase consideration could include changes in the estimated fair value of inventories; property, plant and equipment; intangible assets comprising of customer relationships, backlog and trade names; deferred income taxes; and leases. The Company has preliminarily estimated the useful lives of customer relationships, backlog and trade names as approximately eight years , two years and eight years , respectively. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in thousands): Cash and cash equivalents $ 4,388 Accounts receivable—trade 24,036 Inventories 13,422 Property and equipment 26,213 Intangible assets 104,600 Prepaid expenses and other assets 3,718 Total assets acquired 176,377 Current liabilities 11,760 Long-term liabilities 29,864 Total liabilities assumed 41,624 Total identifiable net assets acquired 134,753 Goodwill 63,941 Total purchase consideration $ 198,694 The excess of the total equity value of Variperm based on the purchase consideration over net assets acquired was recorded as goodwill. The goodwill is primarily attributable to revenue synergies and assembled workforce expected to be realized from the acquisition. Intangible assets acquired as a result of the Variperm Acquisition are amortized on a straight-line basis to reflect the pattern in which the economic benefits of the intangible assets are realized. Acquired goodwill and intangibles relate to our Downhole reporting unit and Downhole asset group. The fair value for trade names were estimated using the income approach, specifically the relief-from-royalty method which estimates the cost savings that accrue to the owner of the intangible assets that would otherwise be payable as royalties or licenses fees on revenues earned through the use of the asset. The fair value of customer relationships and backlog were estimated using the multi-period excess earnings method. The excess earning 11 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) method model estimates revenues and cash flows derived from the asset and then deducts portions of the cash flow that can be attributed to supporting assets. The resulting cash flow, which is attributable solely to the asset acquired, is then discounted at a rate of return commensurate with the risk of the asset to calculate the present value. Unaudited Pro Forma Financial Information The acquired Variperm business contributed revenues and net income of $ 27.4 million and $ 4.4 million, respectively, to the Company for the period from January 4, 2024 to March 31, 2024. The following unaudited pro forma summary presents the results of operations of the Company as if the acquisition of Variperm occurred on January 1, 2023: Three Months Ended March 31, 2024 2023 Revenue $ 202,392 $ 226,700 Net income (loss) ( 7,148 ) ( 5,587 ) The amounts have been calculated after applying the Company's accounting policies and adjusting the results of Variperm to reflect additional depreciation, amortization, and other purchase accounting adjustments assuming the fair value adjustments to the property, plant and equipment and intangibles assets and other purchase accounting adjustments have been applied on January 1, 2023. The pro forma amounts do not include any potential cost savings or other expected benefits of the acquisition, and are presented for illustrative purposes only and are not necessarily indicative of results that would have been achieved if the acquisition had occurred as of January 1, 2023 or of future operating performance. 5. Inventories The Company's significant components of inventory at March 31, 2024 and December 31, 2023 were as follows (in thousands): March 31, 2024 December 31, 2023 Raw materials and parts $ 99,096 $ 92,563 Work in process 27,574 28,693 Finished goods 212,782 216,570 Total inventories 339,452 337,826 Less: inventory reserve ( 36,449 ) ( 38,187 ) Inventories, net $ 303,003 $ 299,639 12 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 6. Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill from December 31, 2023 to March 31, 2024, were as follows (in thousands): Artificial Lift and Downhole Goodwill, December 31, 2023 $ — Acquisitions 63,941 Impact on non-U.S. local currency translation ( 739 ) Goodwill, March 31, 2024 $ 63,202 Goodwill is not amortized and is tested for impairment at least annually or when events and circumstances indicate that fair value may be below its carrying value. Intangible Assets Intangible assets consisted of the following as of March 31, 2024 and December 31, 2023, respectively (in thousands): March 31, 2024 Gross Carrying Amount Accumulated Amortization Net Intangibles Amortization Period (In Years) Customer relationships $ 366,577 $ ( 171,760 ) $ 194,817 10 - 35 Patents and technology 88,983 ( 42,533 ) 46,450 5 - 19 Trade names 46,677 ( 29,423 ) 17,254 7 - 19 Trademarks 5,089 ( 2,205 ) 2,884 15 Non-compete agreements 189 ( 189 ) — 5 Total intangible assets $ 507,515 $ ( 246,110 ) $ 261,405 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Intangibles Amortization Period (In Years) Customer relationships $ 267,838 $ ( 164,672 ) $ 103,166 10 - 35 Patents and technology 89,151 ( 41,189 ) 47,962 5 - 19 Trade names 42,847 ( 28,974 ) 13,873 7 - 19 Trademarks 5,089 ( 2,120 ) 2,969 15 Non-compete agreements 190 ( 190 ) — 5 Total intangible assets $ 405,115 $ ( 237,145 ) $ 167,970 13 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 7. Debt Debt as of March 31, 2024 and December 31, 2023 consisted of the following (in thousands): March 31, 2024 December 31, 2023 2025 Notes $ 134,208 $ 134,208 Seller Term Loan 59,677 — Credit Facility 96,471 — Other debt 3,340 2,864 Long-term debt, principal amount 293,696 137,072 Unamortized debt discount ( 4,341 ) ( 5,074 ) Debt issuance cost ( 1,903 ) ( 1,245 ) Long-term debt, carrying value 287,452 130,753 Less: current portion ( 5,150 ) ( 1,186 ) Long-term debt, net of current portion $ 282,302 $ 129,567 2025 Notes Our 9.00 % convertible secured notes due August 2025 (“2025 Notes”), of which $ 134.2 million principal amount was outstanding at March 31, 2024, 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. In January 2023, $ 122.8 million or 48 % of the then-outstanding principal amount of the 2025 Notes mandatorily converted into approximately 4.5 million shares of common stock. Seller Term Loan On January 4, 2024, the Company entered into the Seller Term Loan in connection with the closing of the Variperm Acquisition, which had an initial principal amount of $ 60.0 million and matures in December 2026. In March 2024, in connection with the finalization of purchase price adjustments, the principal amount of the Seller Term Loan was reduced by $ 0.3 million. The Seller Term Loan bears interest at the rate of (i) 11.00 % per year for the period commencing on the Closing Date to (but excluding) the first anniversary of the Closing Date, (ii) 17.00 % per annum for the period commencing on the first anniversary of the Closing Date to (but excluding) the second anniversary of the Closing Date and (iii) 17.50 % per annum for the period commencing on the second anniversary of the Closing Date to (but excluding) the maturity date. The Company has an option to prepay the Seller Term Loan anytime without premium or penalty. The Seller Term Loan requires the Company to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the last day of each fiscal quarter commencing at the time excess availability is less than the greater of (x) 12.5 % of the Line Cap and (y) $ 31.25 million and continuing until excess availability exceeds the greater of (x) 12.5 % of the Line Cap and (y) $ 31.25 million for 60 consecutive days. “Line Cap” has the meaning set forth in the Credit Facility. Subject to customary exceptions, all obligations under the Seller Term Loan are guaranteed, jointly and severally, by our wholly owned U.S. and Canadian subsidiaries and are secured by substantially all assets of each such entity and the Company, subject to customary exclusions pursuant to certain intercreditor arrangements. The Seller Term Loan also contains customary representations and warranties and affirmative and negative covenants, as well as customary events of default, with corresponding grace periods, including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness and bankruptcy-related defaults. Credit Facility Our Credit Facility, which has a maturity date , subject to certain exceptions, of September 2028, provides revolving credit commitments of $ 250.0 million (with a sublimit of up to $ 70.0 million available for the issuance of letters of credit for the account of the Company and certain of its domestic subsidiaries) (the “U.S. Line”), of which up to $ 50.0 million is available to certain of our Canadian subsidiaries for loans in U.S. or Canadian dollars (with a sublimit of up to $ 10.0 million available for the issuance of letters of credit for the account of our Canadian 14 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) subsidiaries) (the “Canadian Line”). Lender commitments under the Credit Facility, subject to certain limitations, may be increased by an additional $ 100.0 million . Availability under the Credit Facility is subject to a borrowing base calculated by reference to eligible accounts receivable in the U.S., Canada and certain other jurisdictions (subject to a cap) and eligible inventory in the U.S. and Canada. Our borrowing capacity under the Credit Facility could be reduced or eliminated, depending on future fluctuations in our receivables and inventory. As of March 31, 2024, our total borrowing base was $ 189.1 million, of which $ 96.5 million amount was drawn and $ 21.0 million was used as security for outstanding letters of credit, resulting in remaining availability of $ 71.6 million. Borrowings under the U.S. Line bear interest at a rate equal to, at our option, either (a) the Secured Overnight Financing Rate (“SOFR”), subject to a floor of 0.00 %, plus a margin of 2.25 % to 2.75 %, or (b) a base rate plus a margin of 1.25 % to 1.75 %, in each case based upon the Company's quarterly total net leverage ratio. The U.S. Line base rate is determined by reference to the greatest of (i) the federal funds rate plus 0.50 % per annum, (ii) the one-month adjusted term SOFR plus 1.00 % per annum, and (iii) the “prime rate” of interest announced by Wells Fargo Bank, National Association, subject to a floor of 0.00 %. Borrowings under the Canadian Line bear interest at a rate equal to, at our Canadian borrowers’ option, either (a) Canadian Overnight Repo Rate Average (“CORRA”), subject to a floor of 0.00 %, plus a margin of 2.25 % to 2.75 %, or (b) a base rate plus a margin of 1.25 % to 1.75 %, in each case based upon the Company's quarterly net leverage ratio. The Canadian Line base rate is determined by reference to the greater of (i) the Floor, (ii) the one-month CORRA, and (iii) 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 8.34 % and 7.96 % for the three months ended March 31, 2024 and 2023, respectively. The Credit Facility also provides for a commitment fee in the amount of (a) 0.375 % on the unused portion of revolving commitments if average usage of the Credit Facility is greater than 50 % and (b) 0.500 % on the unused portion of revolving commitments if average usage of the Credit Facility is less than or equal to 50 %. If excess availability under the Credit Facility falls below the greater of 12.5 % of the borrowing base and $ 31.25 million, we will be required to maintain a fixed charge coverage ratio of at least 1.00 :1.00 as of the end of each fiscal quarter until excess availability under the Credit Facility exceeds such threshold for 60 consecutive days. Subject to customary exceptions, all obligations under the Credit Facility are guaranteed, jointly and severally, by our wholly-owned U.S. subsidiaries and, in the case of the Canadian Line, our wholly-owned Canadian subsidiaries, and are secured by substantially all assets of each such entity and the Company, subject to customary exclusions. The Credit Facility contains various covenants that, among other things, limit our ability (none of which are absolute) to incur additional indebtedness or issue certain preferred shares, grant certain liens, make certain loans and investments, pay dividends, make distributions or make other restricted payments, enter into mergers or acquisitions unless certain conditions are satisfied, change our lines of business, prepay certain indebtedness, enter into certain affiliate transactions or engage in certain asset dispositions. If an event of default exists under the Credit Facility, the lenders will have the right to accelerate the maturity of the obligations outstanding under the Credit Facility and exercise other rights and remedies. Obligations outstanding under the Credit Facility, however, will be automatically accelerated upon an event of default arising from a bankruptcy or insolvency event. An event of default includes, among other things, nonpayment of principal, interest, fees or other amounts within certain grace periods; representations and warranties proving to be untrue in any material respect; failure to perform or otherwise comply with covenants in the Credit Facility or other loan documents, subject, in certain instances, to grace periods; cross-defaults to certain other indebtedness if such default occurs at the final maturity of such indebtedness or if the effect of such default is to cause, or permit the holders of such indebtedness to cause, the acceleration of such indebtedness; bankruptcy or insolvency events; material monetary judgment defaults; invalidity or unenforceability of the Credit Facility or any other loan document; and the occurrence of a Change of Control (as defined in the Credit Facility). Other Debt Other debt consists of various finance leases of equipment. 15 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 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 $ 21.0 million and $ 20.3 million in total outstanding letters of credit as of March 31, 2024 and December 31, 2023, respectively. 8. Income Taxes 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 months ended March 31, 2024 and 2023, the Company recorded a tax expense of $ 3.5 million and $ 2.8 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 2024 as a result of a lapse of the statute of limitations. The Organization for Economic Co-operation and Development (“OECD”) introduced Base Erosion and Profit Shifting (“BEPS”) Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries, including European Union member states, have enacted, or are expected to enact, legislation to be effective January 1, 2024 with general implementation of a global minimum tax by January 1, 2025. Based on current enacted legislation, we do not expect a material impact on our future effective tax rate. We have deferred tax assets related to net operating loss and other tax carryforwards in the U.S. and in certain states and foreign jurisdictions. We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including, but not limited to, our recent history of pretax losses over the prior three year period, the goodwill and intangible asset impairments for various reporting units, the future reversals of existing taxable temporary differences, the projected future taxable income or loss and tax-planning. We believe that there is a reasonable possibility that within the next 12 months, a portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. As of March 31, 2024, 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 March 31, 2024. 9. Fair Value Measurements The Company had $ 96.5 million and $ 59.7 million borrowings outstanding under the Credit Facility and Seller Term Loan as of March 31, 2024. The Credit Facility incurs interest at a variable interest rate, and therefore, the carrying amount approximates fair value. The Company has an option to prepay the Seller Term Loan anytime without premium or penalty, therefore, the carrying amount approximates fair value. The fair value of the debt is classified as a Level 2 measurement because interest rates charged are similar to other financial instruments with similar terms and maturities. 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 March 31, 2024, the fair value and the carrying value of our 2025 Notes approximated $ 134.1 million and $ 128.8 million, respectively. At December 31, 2023, the fair value and the carrying value of our 2025 Notes approximated $ 130.9 million and $ 127.9 million, respectively. There were no other significant outstanding financial instruments as of March 31, 2024 and December 31, 2023 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 three months ended March 31, 2024. 16 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 10. Business Segments In the first quarter 2024, following the Variperm Acquisition, we aligned our reportable segments with business activity drivers, our customer base, and the manner in which we review and evaluate operating performance. FET now operates in the following two reportable segments: (1) Drilling and Completions and (2) Artificial Lift and Downhole. Our historical results of operations were recast retrospectively to reflect these changes in accordance with U.S. GAAP. The Drilling and Completions segment designs, manufactures and supplies products and solutions to the drilling, subsea, coiled tubing, well stimulation and intervention markets, including applications in oil and natural gas, renewable energy, defense and communications. The Artificial Lift and Downhole segment designs, manufactures and supplies products and solutions for the artificial lift, production and infrastructure markets. The Company’s reportable segments are strategic units that offer distinct products and services. They are managed separately since each business segment requires different marketing strategies. Operating segments have not been aggregated as part of a reportable segment. The Company evaluates the performance of its reportable segments based on operating income. This segmentation is representative of the manner in which our Chief Operating Decision Maker and our board of directors make decisions on how to allocate resources and assess performance. We consider the Chief Operating Decision Maker to be the Chief Executive Officer. The amounts indicated below as “Corporate” relate to costs and assets not allocated to the reportable segments. Summary financial data by segment follows (in thousands): Three Months Ended March 31, 2024 2023 Revenue Drilling and Completions $ 119,071 $ 126,764 Artificial Lift and Downhole 83,342 62,207 Eliminations ( 21 ) ( 14 ) Total revenue $ 202,392 $ 188,957 Segment operating income Drilling and Completions $ 4,559 $ 4,990 Artificial Lift and Downhole 11,786 8,633 Corporate ( 7,252 ) ( 7,032 ) Segment operating income 9,093 6,591 Transaction expenses 5,921 — Gain on disposal of assets and other ( 28 ) ( 260 ) Operating income $ 3,200 $ 6,851 A summary of consolidated assets by reportable segment is as follows (in thousands): March 31, 2024 December 31, 2023 Drilling and Completions $ 593,294 $ 615,033 Artificial Lift and Downhole 413,533 178,785 Corporate 14,562 27,243 Total assets $ 1,021,389 $ 821,061 Corporate assets primarily include cash, certain prepaid assets and deferred loan costs. 17 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) The following table presents our revenues disaggregated by product line (in thousands): Three Months Ended March 31, 2024 2023 Drilling $ 36,472 $ 40,307 Subsea 21,835 12,806 Stimulation and Intervention 38,560 47,310 Coiled Tubing 22,204 26,341 Downhole 52,243 23,211 Production Equipment 18,482 19,896 Valve Solutions 12,617 19,100 Eliminations ( 21 ) ( 14 ) Total revenue $ 202,392 $ 188,957 The following table presents our revenues disaggregated by geography (in thousands): Three Months Ended March 31, 2024 2023 United States $ 111,317 $ 129,186 Canada 35,639 13,668 Europe & Africa 21,602 11,672 Middle East 17,355 17,982 Asia-Pacific 10,168 7,681 Latin America 6,311 8,768 Total revenue $ 202,392 $ 188,957 11. Commitments and Contingencies In the ordinary course of business, the Company is, and in the future could be, involved in various pending or threatened legal actions, some of which may or may not be covered by insurance. 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 March 31, 2024 and December 31, 2023, 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. For further disclosure regarding certain litigation matters, refer to Note 12 of the notes to the consolidated financial statements included in Item 8 of the Company’s 2023 Annual Report on Form 10-K filed with the SEC on March 5, 2024. 18 Table of Contents Forum Energy Technologies, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited) 12. Earnings (Loss) Per Share 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 March 31, 2024 2023 Net loss $ ( 10,315 ) $ ( 3,486 ) Weighted average shares outstanding - basic 12,201 10,179 Dilutive effect of stock options and restricted stock — — Weighted average shares outstanding - diluted 12,201 10,179 Loss per share Basic $ ( 0.85 ) $ ( 0.34 ) Diluted $ ( 0.85 ) $ ( 0.34 ) For the three months ended March 31, 2024 and 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. Diluted earnings per share was calculated using treasury stock method for the restricted shares and stock options. 13. Stockholders' Equity Stock-based compensation During the three months ended March 31, 2024, the Company granted 86,391 performance restricted stock units (assuming target performance) to an employee that vest based upon the Company's total shareholder return compared to the total shareholder return of a group of peer companies over three different performance periods. The performance periods run from January 1, 2024 through December 31, 2024, January 1, 2024 through December 31, 2025 and January 1, 2024 through December 31, 2026, and 1/3 of each award is allocated to each performance period. The performance restricted stock units may settle for between 0 % and 200 % of the target units granted. Also, the Company granted 20,000 time-based restricted stock units to employees that vest after 1 year. Liability-classified awards During the three months ended March 31, 2024, the Company granted 82,406 performance restricted stock units (assuming target performance) to employees with same terms as the performance restricted stock units above. Also, during the three months ended March 31, 2024, the Company granted 168,797 time-based restricted stock units to employees that vest ratably over three years . 14. Related Party Transactions The Company has sold and purchased inventory, services and fixed assets to and from affiliates of certain directors. The dollar amounts of these related party activities are not significant to the Company’s unaudited condensed consolidated financial statements. 19