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Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

Forum Energy Technologies  / Equity Bottom-Up

<ul><li>FET’s refinanced balance sheet and free cash flow potential position the company to consider alternatives to return cash to shareholders in 2025.</li><li>Proceeds from a $100 million issuance of 10.5% senior secured bonds, together with cash on hand, funded the repayment of the seller term loan and will be used to fund the redemption of the remaining 2025 notes on December 8, 2024.</li><li>The new notes have a tack-on feature in the indenture allowing for the issuance of up to $150 million of incremental notes.</li></ul>

FET’s refinanced balance sheet and free cash flow potential position the company to consider alternatives to return cash to shareholders in 2025.Proceeds from a $100 million issuance of 10.5% senior secured bonds, together with cash on hand, funded the repayment of the seller term loan and will be used to fund the redemption of the remaining 2025 notes on December 8, 2024.The new notes have a tack-on feature in the indenture allowing for the issuance of up to $150 million of incremental notes.

Forum Energy Technologies, Inc. - Refinanced Balance Sheet Paves Way to Consider Returning Cash

<ul><li>FET plans to redeem all of its 9.00% Convertible Senior Secured Notes before year-end 2024 and the Variperm Seller Term Loan in 2025, paving the way to consider returning cash to shareholders in 2H25.</li><li>After repurchasing $13 million of the convertible notes in 2Q24, management announced its intent to redeem the $60 million principal amount of the notes on August 16, 2024.</li><li>Further, management intends to redeem the remaining ~$61 million of convertible notes in 4Q24. </li></ul>

FET plans to redeem all of its 9.00% Convertible Senior Secured Notes before year-end 2024 and the Variperm Seller Term Loan in 2025, paving the way to consider returning cash to shareholders in 2H25.After repurchasing $13 million of the convertible notes in 2Q24, management announced its intent to redeem the $60 million principal amount of the notes on August 16, 2024.Further, management intends to redeem the remaining ~$61 million of convertible notes in 4Q24. 

Forum Energy Technologies, Inc. - FET: Pathway to Return Cash to Shareholders in Sight

<ul><li>We are updating our estimates to reflect higher expected interest expense in 2Q24.</li><li>On the May 3, 2024, earnings call to discuss 1Q24 results, management indicated that 2Q24 interest expense would be ~$8 million.</li><li>Our previously published 2Q24 interest expense estimate was $7.1 million. </li></ul>

We are updating our estimates to reflect higher expected interest expense in 2Q24.On the May 3, 2024, earnings call to discuss 1Q24 results, management indicated that 2Q24 interest expense would be ~$8 million.Our previously published 2Q24 interest expense estimate was $7.1 million. 

Forum Energy Technologies, Inc. - Estimate Update

<ul><li>Variperm’s margin accretive impact on FET’s financial performance was clearly evident in the company’s 1Q24 results.</li><li>The acquisition, which closed in early January 2024, helped drive a 458-bp expansion in FET’s adjusted EBITDA margin in 1Q24, compared with 4Q23, and a 353-bp expansion Y/Y.</li><li>The acquisition significantly enhanced FET’s Downhole and Artificial Lift segment product portfolio, exposing FET to new markets.</li></ul>

Variperm’s margin accretive impact on FET’s financial performance was clearly evident in the company’s 1Q24 results.The acquisition, which closed in early January 2024, helped drive a 458-bp expansion in FET’s adjusted EBITDA margin in 1Q24, compared with 4Q23, and a 353-bp expansion Y/Y.The acquisition significantly enhanced FET’s Downhole and Artificial Lift segment product portfolio, exposing FET to new markets.

Forum Energy Technologies, Inc. - Technological Solutions That Improve Performance

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Last week we noted that in order for us to turn bullish on the broad market, we need to see breakouts to YTD highs in small-caps (IWM), Financials (XLF), Energy (XOP), and equal-weighted Discretionary (RCD). We now have the breakout we needed in Energy (RYE, XOP), but the other areas are still consolidating. Therefore, we still see a mixed market and we remain neutral yet constructive overall.Stocks highlighted: XOP, WTI Crude Oil, IWD, IWM, S&amp;P 500, Equal-weighted Nasdaq 100 (QQEW), HLT, SEAS, DRI, PLAY, COP, EOG, PXD, OXY, DVN, CLR, CTRA, FANG, MRO, XEC, APA, AR, MUR, RRC, SWN, MTDR, PDCE, SM, BSM, CPE, VNOM, LPI, DMLP, CHX, WHD, NOA, TTI, NR, EXTN, NGS, FET, and CCLP

Last week we noted that in order for us to turn bullish on the broad market, we need to see breakouts to YTD highs in small-caps (IWM), Financials (XLF), Energy (XOP), and equal-weighted Discretionary (RCD). We now have the breakout we needed in Energy (RYE, XOP), but the other areas are still consolidating. Therefore, we still see a mixed market and we remain neutral yet constructive overall.Stocks highlighted: XOP, WTI Crude Oil, IWD, IWM, S&amp;P 500, Equal-weighted Nasdaq 100 (QQEW), HLT, SEAS, DRI, PLAY, COP, EOG, PXD, OXY, DVN, CLR, CTRA, FANG, MRO, XEC, APA, AR, MUR, RRC, SWN, MTDR, PDCE, SM, BSM, CPE, VNOM, LPI, DMLP, CHX, WHD, NOA, TTI, NR, EXTN, NGS, FET, and CCLP

Upgrading Energy To Overweight; WTI Crude Oil and XOP With Major Long-Term Breakouts

United States

Forum Energy Technologies, Inc. offers manufactured technologies and applied products to the energy industry. The Company designs, manufactures, and provides products and related services to the drilling and intervention sectors, as well as to the subsea services and construction sectors.

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Forum Energy Technologies (FET US)

Forum Energy Technologies, Inc. - Refinanced Balance Sheet Paves Way to Consider Returning Cash

FET’s refinanced balance sheet and free cash flow potential position the company to consider alternatives to return cash to shareholders in 2025.

Water Tower Research

Forum Energy Technologies, Inc. - FET: Pathway to Return Cash to Shareholders in Sight

FET plans to redeem all of its 9.00% Convertible Senior Secured Notes before year-end 2024 and the Variperm Seller Term Loan in 2025, paving the...

Water Tower Research

Forum Energy Technologies, Inc. - Estimate Update

Our previously published 2Q24 interest expense estimate was $7.1 million. Our updated 2Q24 adjusted EPS estimate is $0.04 versus our prior $0.12...

Water Tower Research

Forum Energy Technologies, Inc. - Technological Solutions That Improve Performance

The acquisition, which closed in early January 2024, helped drive a 458-bp expansion in FET’s adjusted EBITDA margin in 1Q24, compared with 4Q23,...

Water Tower Research

Upgrading Energy To Overweight; WTI Crude Oil and XOP With Major Long-Term Breakouts

Recent developments lead us to believe that Energy is likely to outperform moving forward: WTI crude oil is breaking above $77, and the RYE and XOP...

Vermilion Research

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