Item 2. Management’s Discussion and Analysis
Item 2. Management’s discussion and analysis of financial condition and results of operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.
All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause actual results to differ materially from our plans, intentions or expectations. This may be the result of various factors, including, but not limited to, those factors discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on March 3, 2025, and elsewhere in this Quarterly Report on Form 10-Q. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Overview
We are a global manufacturing company serving the oil, natural gas, industrial and renewable energy industries. With headquarters in Houston, Texas, FET provides value added solutions aimed at improving the safety, efficiency, and environmental impact of our customers’ operations. Our highly engineered products include capital equipment and consumable products. FET’s customers include oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, pipeline and refinery operators, and renewable energy and new energy companies. Consumable products are used by our customers in drilling, well construction and completion activities and at processing centers and refineries. Our capital products are directed at drilling rig equipment for constructing new or upgrading existing rigs, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital projects and capital equipment for renewable energy projects. For the three months ended March 31, 2025, approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.
We expect that the world’s long-term energy demand will continue to rise for many decades. We also expect hydrocarbons will continue to play a vital role in meeting the world’s long-term energy needs while renewable energy sources develop to scale. As such, we remain focused on serving our customers in both oil and natural gas as well as renewable energy applications. We are continuing to develop products to help oil and gas operators lower expenses, increase production, and reduce their emissions while also deploying our technologies in renewable energy applications.
The Company operates in the following two reportable segments: (1) Drilling and Completions and (2) Artificial Lift and Downhole. Refer to Note 9 Business Segments for the product lines making up each segment.
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A summary of the products and services offered by each segment is as follows:
• Drilling and Completions . This segment designs, manufactures and supplies products and solutions to the drilling, subsea, coiled tubing, well stimulation and intervention markets, including applications in the oil and natural gas, renewable energy, defense and communications industries. The products and solutions consist primarily of (i) capital equipment and consumable products used in the drilling process; (ii) capital equipment and aftermarket products including subsea remotely operated vehicles ("ROVs") and trenchers, submarine rescue vehicles, specialty components and tooling, and technical services; (iii) capital equipment and consumable products sold to the pressure pumping market, including hydraulic fracturing pumps, cooling systems, and high-pressure flexible hoses and flow iron; (iv) wireline cable and pressure control equipment used in the well completion and intervention service markets; and (v) coiled tubing strings and pressure control equipment used in coiled tubing operations, as well as coiled line pipe and related services.
• Artificial Lift and Downhole . This segment designs, manufactures and supplies products and solutions for the artificial lift, well construction, production and infrastructure markets. The products and solutions consist primarily of: (i) products designed to safeguard artificial lift equipment and downhole cables; (ii) well construction casing and cementing equipment; (iii) customized downhole technology solutions, providing sand and flow control products for heavy oil applications; (iv) engineered process systems, production equipment, as well as specialty separation equipment; and (v) a wide range of industrial valves focused on oil and natural gas as well as power generation, renewable energy and other general industrial applications.
Market Conditions
Generally, demand for our products and services is directly related to our customers’ capital and operating budgets. These budgets are heavily influenced by current and expected energy prices. In addition, demand for our capital products is driven by the utilization of service company equipment. Utilization is a function of equipment capacity and durability in demanding environments.
Average oil prices were lower in the first quarter 2025 compared to the first quarter 2024, while average natural gas prices nearly doubled. The decline in average oil prices is attributable to a faster than expected return of the Organization of Petroleum Exporting Countries and its allies ("OPEC+") production combined with global recessionary fears triggered by the expected imposition of broad based trade policy changes by the Trump Administration. The increase in average natural gas prices is attributable to strong demand, tightening supply and geopolitical uncertainty.
Subsequent to March 31, 2025, the Trump Administration's newly imposed trade policies and the uncertainty around their imposition led to concerns regarding ongoing consumer spending and the overall health of the world economy. This uncertainty coupled with increased supply from OPEC+ led to a further decrease in oil and natural gas prices. We will continue to monitor market conditions and assess risks, including macroeconomic uncertainty, trade policy, oil price volatility, and changes in regulations.
Our revenues, over the long-term, are highly correlated to the global drilling rig count, which decreased 5.0% during the first quarter 2025 compared to average global rig count during first quarter 2024. The decrease was mainly driven by a decline in U.S. rig count of 5.6%. In the U.S., publicly owned exploration and production companies are expected to continue to exercise disciplined capital spending while privately owned exploration and production companies fluctuate their activity in response to changes in oil and natural gas prices.
The table below shows average crude oil and natural gas prices for Average West Texas Intermediate (“WTI”), Brent, and Henry Hub:
Three Months Ended
March 31, December 31, March 31,
2025 2024 2024
Average global oil, $/bbl
WTI $ 71.78 $ 70.73 $ 77.50
Brent $ 75.87 $ 74.66 $ 82.92
Average North American Natural Gas, $/Mcf
Henry Hub $ 4.14 $ 2.44 $ 2.15
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The table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes, based on the weekly rig count information published by Baker Hughes Company.
Three Months Ended
March 31, December 31, March 31,
2025 2024 2024
Active Rigs by Location
United States 588 586 623
Canada 216 196 208
International 902 926 965
Global Active Rigs 1,706 1,708 1,796
Land vs. Offshore Rigs
Land 1,498 1,482 1,547
Offshore 208 226 249
Global Active Rigs 1,706 1,708 1,796
U.S. Commodity Target
Oil 482 480 502
Gas 101 101 118
Unclassified 5 5 3
Total U.S. Active Rigs 588 586 623
U.S. Well Path
Horizontal 525 521 560
Vertical 13 15 13
Directional 50 50 50
Total U.S. Active Rigs 588 586 623
The table below shows the amount of total inbound orders by segment:
Three Months Ended
March 31, December 31, March 31,
(in millions of dollars) 2025 2024 2024
Drilling and Completions $ 132.1 $ 103.0 $ 116.6
Artificial Lift and Downhole 68.6 87.0 87.8
Total Orders $ 200.7 $ 190.0 $ 204.4
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Results of operations
Three months ended March 31, 2025 compared with three months ended March 31, 2024
Three Months Ended March 31, Change
(in thousands of dollars, except per share information) 2025 2024 $ %
Revenue
Drilling and Completions $ 115,569 $ 119,071 $ (3,502) (2.9) %
Artificial Lift and Downhole 77,796 83,342 (5,546) (6.7) %
Eliminations (86) (21) (65) *
Total revenue 193,279 202,392 (9,113) (4.5) %
Segment operating income
Drilling and Completions 9,379 4,559 4,820 105.7 %
Operating margin % 8.1 % 3.8 %
Artificial Lift and Downhole 7,297 11,786 (4,489) (38.1) %
Operating margin % 9.4 % 14.1 %
Corporate (7,698) (7,252) (446) (6.2) %
Total segment operating income 8,978 9,093 (115) (1.3) %
Operating margin % 4.6 % 4.5 %
Transaction expenses 51 5,921 (5,870) *
Loss (gain) on disposal of assets and other 123 (28) 151 *
Operating income 8,804 3,200 5,604 175.1 %
Interest expense 4,983 8,760 (3,777) (43.1) %
Foreign exchange losses (gains) and other, net (1,068) 1,227 (2,295) *
Total other expense 3,915 9,987 (6,072) (60.8) %
Income (loss) before income taxes 4,889 (6,787) 11,676 172.0 %
Income tax expense 3,767 3,528 239 6.8 %
Net income (loss) $ 1,122 $ (10,315) $ 11,437 110.9 %
Weighted average shares outstanding
Basic 12,303 12,201
Diluted 12,568 12,201
Earnings (loss) per share
Basic $ 0.09 $ (0.85)
Diluted $ 0.09 $ (0.85)
* not meaningful
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Revenue
Our revenue for the three months ended March 31, 2025 was $193.3 million, a decrease of $9.1 million, or 4.5%, compared to the three months ended March 31, 2024. For the three months ended March 31, 2025, our Drilling and Completions and our Artificial Lift and Downhole segments comprised 59.8% and 40.2% of our total revenue, respectively, compared to 58.8% and 41.2% of our total revenue, respectively, for the three months ended March 31, 2024. The overall decrease in revenue is primarily related to the decline in global drilling and completions activity in 2025 compared to 2024. The changes in revenue by operating segment consisted of the following:
Drilling and Completions segment — Revenue was $115.6 million for the three months ended March 31, 2025, a decrease of $3.5 million, or 2.9%, compared to the three months ended March 31, 2024. The decrease in segment revenue included a $4.4 million, or 12.0%, decrease from the Drilling product line and a $1.1 million, or 2.9%, decrease from the Stimulation and Intervention product line, primarily the result of declining global drilling and completions activity. These decreases were partially offset by an increase of $1.7 million, or 7.6%, in our Coiled Tubing product line due to the completion of coiled line pipe projects in the U.S. and Latin America.
Artificial Lift and Downhole segment — Revenue was $77.8 million for the three months ended March 31, 2025, a decrease of $5.5 million, or 6.7%, compared to the three months ended March 31, 2024. Revenue for our Downhole product line decreased by $4.6 million, or 8.8%, primarily due to decreased U.S. activity, partially offset by an increase in sales of international casing equipment hardware. Also, there was a $1.5 million, or 12.3%, decrease in sales volumes of our valve products, particularly sales into the North America downstream oil and natural gas market.
Segment operating income (loss) and segment operating margin percentage
Segment operating income for the three months ended March 31, 2025 was $9.0 million, a $0.1 million decrease, compared to $9.1 million for the three months ended March 31, 2024. For the three months ended March 31, 2025, segment operating margin percentage was 4.6%, compared to 4.5%, for the three months ended March 31, 2024. Segment operating margin percentage is calculated by dividing segment operating income by revenue for the period. The change in operating income for each segment is explained as follows:
Drilling and Completions segment — Segment operating income was $9.4 million, or 8.1%, for the three months ended March 31, 2025 compared to $4.6 million, or 3.8%, for the three months ended March 31, 2024. The $4.8 million increase in segment operating results due to reduction in amortization expense following intangible asset impairments recognized in the fourth quarter of 2024.
Artificial Lift and Downhole segment — Segment operating income was $7.3 million, or 9.4%, for the three months ended March 31, 2025 compared to $11.8 million, or 14.1%, for the three months ended March 31, 2024. The $4.5 million decrease in segment operating results was due to unfavorable product mix.
Corporate — Selling, general and administrative expenses for Corporate were $7.7 million for the three months ended March 31, 2025 compared to $7.3 million for the three months ended March 31, 2024. This increase was primarily related to higher compensation costs and professional fees.
Other items not included in segment operating income (loss)
Transaction expenses, gain (loss) on the disposal of assets and other are not included in segment operating income (loss), but are included in total operating income.
Other income and expense
Other income and expense includes interest expense and foreign exchange gains (losses) and other. We incurred $5.0 million of interest expense during the three months ended March 31, 2025, a decrease of $3.8 million compared to the three months ended March 31, 2024, due to decreased borrowings. See Note 6 Debt for further details related to debt.
The foreign exchange gains and losses are primarily the result of movements in the British pound, Canadian dollar and Euro relative to the U.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S. dollar.
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Taxes
We recorded tax expense of $3.8 million and $3.5 million for the three months ended March 31, 2025 and 2024, respectively. The estimated annual effective tax rates for the three months ended March 31, 2025 and 2024 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.
Liquidity and capital resources
Sources and uses of liquidity
Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit, the Credit Facility, and 2029 Bonds. Our primary uses of capital have been for inventory, sales on credit to our customers, maintenance and growth capital expenditures and debt repayments. We continually monitor other potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to generate positive operating cash flow and access outside sources of capital.
As of March 31, 2025, we had $73.8 million of borrowings under our revolving Credit Facility and $100.0 million principal amount of the 2029 Bonds outstanding. See Note 6 Debt for further details related to the terms for our debt arrangements.
As of March 31, 2025, we had cash and cash equivalents of $31.1 million and $77.4 million of availability under the Credit Facility. We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. Furthermore, availability under the Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable sublimits. In addition, we expect total 2025 capital expenditures to be approximately $10.0 million, primarily for replacement of end of life machinery and equipment.
We expect our available cash on-hand, cash generated by operations, and estimated availability under the Credit Facility to be adequate to fund current operations during the next 12 months. In addition, based on existing market conditions and our expected liquidity needs, among other factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital to reduce outstanding debt or repurchase shares of our common stock under our repurchase program.
In December 2024, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $75.0 million. Shares may be repurchased under the program from time to time, in amounts and at prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations. During the three months ended March 31, 2025 , we repurchased 105 thousand shares of our common stock for approximately $2.0 million and the remaining authorization under this program is $73.0 million.
Our cash flows for the three months ended March 31, 2025 and 2024 are presented below (in millions):
Three Months Ended March 31,
2025 2024
Net cash provided by operating activities $ 9.3 $ 5.0
Net cash used in investing activities (2.1) (152.8)
Net cash provided by (used in) financing activities (21.0) 151.8
Effect of exchange rate changes on cash 0.3 (1.7)
Net increase (decrease) in cash, cash equivalents and restricted cash $ (13.5) $ 2.3
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Net cash provided by operating activities
Net cash provided by operating activities was $9.3 million for the three months ended March 31, 2025 compared to net cash provided by operating activities of $5.0 million for the three months ended March 31, 2024. This improvement in operating cash flows is primarily attributable to increase in net income adjusted for non-cash items which provided $11.1 million of cash for the three months ended March 31, 2025 compared to $5.9 million for the three months ended March 31, 2024.
Net cash used in investing activities
Net cash used in investing activities was $2.1 million for the three months ended March 31, 2025, mainly related to capital expenditures. Net cash used in investing activities was $152.8 million for the three months ended March 31, 2024, mainly related to the acquisition of Variperm Holdings Ltd. (“Variperm”) of $150.1 million and $2.9 million of capital expenditures.
Net cash provided by (used in) financing activities
Net cash used in financing activities was $21.0 million for the three months ended March 31, 2025 compared to $151.8 million of cash provided by financing activities for the three months ended March 31, 2024. The change in net cash used in financing activities primarily resulted from $16.5 million in net repayments from the revolving Credit Facility during the three months ended March 31, 2025 compared to a $96.5 million in net borrowings on the revolving Credit Facility and $59.7 million proceeds from the second lien seller term loan related to the Variperm acquisition, during the three months ended March 31, 2024.
Critical accounting policies and estimates
There have been no material changes in our critical accounting policies and estimates during the three months ended March 31, 2025. For a detailed discussion of our critical accounting policies and estimates, refer to our 2024 Annual Report on Form 10-K. For recent accounting pronouncements, refer to Note 2 Recent Accounting Pronouncements .
Item 3. Quantitative and qualitative disclosures about market risk
Not required under Regulation S-K for “smaller reporting companies.”