SEC Filing - Forum Energy Technologies, Inc.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________

FORM 10-Q

___________________________________



☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2019



☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 001-35504

FORUM ENERGY TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)




Delaware									61-1488595
(State or other jurisdiction of									(I.R.S. Employer Identification No.)
incorporation or organization)

10344 Sam Houston Park Drive

Suite 300

Houston

Texas

77064

(Address of Principal Executive Offices)

(Zip Code)


(281)			949-2500

(Registrant’s telephone number, including area code)

______________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock	FET	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October 29, 2019 there were 110,464,461 common shares outstanding.

Table of Contents


PART I - FINANCIAL INFORMATION			3
Item 1. Financial Statements (Unaudited)			3
Condensed consolidated statements of comprehensive income			3
Condensed consolidated balance sheets			4
Condensed consolidated statements of cash flows			5
Condensed consolidated statements of changes in stockholders’ equity			6
Notes to condensed consolidated financial statements			8
Item 2. Management's discussion and analysis of financial condition and results of operations			30
Item 3. Quantitative and qualitative disclosures about market risk			41
Item 4. Controls and procedures			42
PART II - OTHER INFORMATION			42
Item 1. Legal proceedings			42
Item 1A. Risk factors			42
Item 2. Unregistered sales of equity securities and use of proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. Mine Safety Disclosures			43
Item 5. Other Information			43
Item 6. Exhibits			43
SIGNATURES			44

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Forum Energy Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except per share information)	2019		2018		2019		2018
Revenue	$	239,266	$	267,037	$	756,756	$	791,271
Cost of sales	176,632		192,496		560,836		576,774
Gross profit	62,634		74,541		195,920		214,497
Operating expenses
Selling, general and administrative expenses	63,471		71,790		195,320		215,369
Transaction expenses	254		769		972		2,164
Impairments of goodwill, intangible assets, property and equipment	532,336		—		532,336		14,477
Contingent consideration benefit	—		—		(4,629)		—
Loss (gain) on disposal of assets and other	(107)		205		(71)		(1,495)
Total operating expenses	595,954		72,764		723,928		230,515
Earnings (loss) from equity investment	(39)		659		(318)		46
Operating income (loss)	(533,359)		2,436		(528,326)		(15,972)
Other expense (income)
Interest expense	7,766		7,923		24,170		23,871
Foreign exchange and other gains, net	(3,200)		(1,325)		(3,069)		(3,634)
Gain realized on previously held equity investment	(1,567)		—		(1,567)		—
Gain on contribution of subsea rentals business	—		—		—		(33,506)
Total other expense (income), net	2,999		6,598		19,534		(13,269)
Loss before income taxes	(536,358)		(4,162)		(547,860)		(2,703)
Income tax expense (benefit)	(3,371)		(1,108)		6,749		(12,366)
Net income (loss)	(532,987)		(3,054)		(554,609)		9,663

Weighted average shares outstanding
Basic	110,295		108,856		109,977		108,666
Diluted	110,295		108,856		109,977		110,801
Earnings (loss) per share
Basic	$	(4.83)	$	(0.03)	$	(5.04)	$	0.09
Diluted	(4.83)		(0.03)		(5.04)		0.09

Other comprehensive income (loss), net of tax:
Net income (loss)	(532,987)		(3,054)		(554,609)		9,663
Change in foreign currency translation, net of tax of $0	(6,260)		(1,536)		(2,833)		(13,884)
Gain (loss) on pension liability	(17)		7		(21)		78
Comprehensive loss	$	(539,264)	$	(4,583)	$	(557,463)	$	(4,143)

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

Forum Energy Technologies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share information)	September 30, 2019		December 31, 2018
Assets
Current assets
Cash and cash equivalents	$	28,897	$	47,241
Accounts receivable—trade, net of allowances of $9,618 and $7,432	182,649		206,055
Inventories, net	443,432		479,023
Prepaid expenses and other current assets	31,803		23,677
Accrued revenue	1,084		862
Costs and estimated profits in excess of billings	4,640		9,159
Total current assets	692,505		766,017
Property and equipment, net of accumulated depreciation	160,173		177,358
Operating lease assets	50,706		—
Deferred financing costs, net	1,450		2,071
Intangible assets	279,371		359,048
Goodwill	—		469,647
Investment in unconsolidated subsidiary	—		44,982
Deferred income taxes, net	—		1,234
Other long-term assets	14,947		9,295
Total assets	$	1,199,152	$	1,829,652
Liabilities and equity
Current liabilities
Current portion of long-term debt	$	1,220	$	1,167
Accounts payable—trade	124,062		143,186
Accrued liabilities	87,148		81,032
Deferred revenue	7,152		8,335
Billings in excess of costs and profits recognized	4,507		3,210
Total current liabilities	224,089		236,930
Long-term debt, net of current portion	399,805		517,544
Deferred income taxes, net	12,627		15,299
Operating lease liabilities	51,718		—
Other long-term liabilities	25,451		29,753
Total liabilities	713,690		799,526
Commitments and contingencies
Equity
Common stock, $0.01 par value, 296,000,000 shares authorized, 118,594,202 and 117,411,158 shares issued	1,186		1,174
Additional paid-in capital	1,227,768		1,214,928
Treasury stock at cost, 8,209,974 and 8,200,477 shares	(134,487)		(134,434)
Retained earnings (deficit)	(490,921)		63,688
Accumulated other comprehensive loss	(118,084)		(115,230)
Total equity	485,462		1,030,126
Total liabilities and equity	$	1,199,152	$	1,829,652

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

Forum Energy Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(in thousands)	2019		2018
Cash flows from operating activities
Net income (loss)	$	(554,609)	$	9,663
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense	22,873		24,975
Amortization of intangible assets	25,621		30,905
Impairments of goodwill, intangible assets, property and equipment	532,336		14,477
Inventory write down	5,775		9,180
Stock-based compensation expense	11,923		17,173
(Earnings) loss from unconsolidated subsidiary	317		(46)
Contingent consideration benefit	(4,629)		—
Gain realized on previously held equity investment	(1,567)		—
Gain on contribution of subsea rentals business	—		(33,506)
Deferred income taxes	(1,438)		(14,406)
Noncash losses (gains) and other, net	5,938		2,372
Changes in operating assets and liabilities
Accounts receivable—trade	20,515		(19,550)
Inventories	28,200		(67,507)
Prepaid expenses and other assets	237		(12,551)
Cost and estimated profit in excess of billings	4,190		(877)
Accounts payable, deferred revenue and other accrued liabilities	(21,328)		12,073
Billings in excess of costs and estimated profits earned	1,297		3,279
Net cash provided by (used in) operating activities	$	75,651	$	(24,346)
Cash flows from investing activities
Capital expenditures for property and equipment	(12,607)		(19,856)
Acquisition of businesses, net of cash acquired	—		(8,000)
Proceeds from sale of equity investment, property and equipment	39,805		9,194
Net cash provided by (used in) investing activities	$	27,198	$	(18,662)
Cash flows from financing activities
Borrowings of debt	97,000		100,000
Repayments of debt	(217,333)		(141,866)
Repurchases of stock	(1,050)		(2,499)
Proceeds from stock issuance	—		150
Net cash used in financing activities	$	(121,383)	$	(44,215)

Effect of exchange rate changes on cash	190		(1,053)

Net decrease in cash, cash equivalents and restricted cash	(18,344)		(88,276)
Cash, cash equivalents and restricted cash at beginning of period	47,241		115,216
Cash, cash equivalents and restricted cash at end of period	$	28,897	$	26,940

Noncash activities (1)

Assets contributed for equity method investment	$	—	$	18,070
Note receivable related to equity method investment transaction	$	4,725	$	4,067

(1) See Note 8 Leases for additional information about noncash activities related to leases and the impact from adoption of ASU 842.

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

Forum Energy Technologies, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


Nine Months Ended September 30, 2019
(in thousands)	Common stock		Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income / (loss)		Total equity
Balance at December 31, 2018	$	1,174	$	1,214,928	$	(134,434)	$	63,688	$	(115,230)	$	1,030,126
Stock-based compensation expense	—		3,910		—		—		—		3,910
Restricted stock issuance, net of forfeitures	6		(931)		—		—		—		(925)
Shares issued in employee stock purchase plan	2		682		—		—		—		684
Contingent shares issued for acquisition of Cooper Valves	1		374		—		—		—		375
Treasury stock	—		—		(48)		—		—		(48)
Currency translation adjustment	—		—		—		—		4,834		4,834
Change in pension liability	—		—		—		—		(9)		(9)
Net loss	—		—		—		(7,888)		—		(7,888)
Balance at March 31, 2019	$	1,183	$	1,218,963	$	(134,482)	$	55,800	$	(110,405)	$	1,031,059
Stock-based compensation expense	—		4,352		—		—		—		4,352
Restricted stock issuance, net of forfeitures	—		(64)		—		—		—		(64)
Currency translation adjustment	—		—		—		—		(1,407)		(1,407)
Change in pension liability	—		—		—		—		5		5
Net loss	—		—		—		(13,734)		—		(13,734)
Balance at June 30, 2019	$	1,183	$	1,223,251	$	(134,482)	$	42,066	$	(111,807)	$	1,020,211
Stock-based compensation expense	—		3,661		—		—		—		3,661
Restricted stock issuance, net of forfeitures	—		(8)		—		—		—		(8)
Shares issued in employee stock purchase plan	3		864		—		—		—		867
Treasury stock	—		—		(5)		—		—		(5)
Currency translation adjustment	—		—		—		—		(6,260)		(6,260)
Change in pension liability	—		—		—		—		(17)		(17)
Net loss	—		—		—		(532,987)		—		(532,987)
Balance at September 30, 2019	$	1,186	$	1,227,768	$	(134,487)	$	(490,921)	$	(118,084)	$	485,462

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

Forum Energy Technologies, Inc. and subsidiaries

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)


Nine Months Ended September 30, 2018
(in thousands)	Common stock		Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income / (loss)		Total equity
Balance at December 31, 2017	$	1,163	$	1,195,339	$	(134,293)	$	438,774	$	(91,967)	$	1,409,016
Stock-based compensation expense	—		5,302		—		—		—		5,302
Restricted stock issuance, net of forfeitures	4		(1,611)		—		—		—		(1,607)
Issuance of performance shares	2		(275)		—		—		—		(273)
Shares issued in employee stock purchase plan	1		995		—		—		—		996
Contingent shares issued for acquisition of Cooper Valves	—		125		—		—		—		125
Treasury stock	—		—		(66)		—		—		(66)
Adjustment for adoption of ASU 2016-16 (Intra-entity asset transfers)	—		—		—		(1,006)		—		(1,006)
Currency translation adjustment	—		—		—		—		6,287		6,287
Change in pension liability	—		—		—		—		16		16
Net income	—		—		—		28,066		—		28,066
Balance at March 31, 2018	$	1,170	$	1,199,875	$	(134,359)	$	465,834	$	(85,664)	$	1,446,856
Stock-based compensation expense	—		5,314		—		—		—		5,314
Restricted stock issuance, net of forfeitures	1		(222)		—		—		—		(221)
Treasury stock	—		—		(45)		—		—		(45)
Currency translation adjustment	—		—		—		—		(18,635)		(18,635)
Change in pension liability	—		—		—		—		55		55
Net loss	—		—		—		(15,349)		—		(15,349)
Balance at June 30, 2018	$	1,171	$	1,204,967	$	(134,404)	$	450,485	$	(104,244)	$	1,417,975
Stock-based compensation expense	—		6,557		—		—		—		6,557
Restricted stock issuance, net of forfeitures	—		(257)		—		—		—		(257)
Exercised stock options			150		—		—		—		150
Shares issued in employee stock purchase plan	1		938		—		—		—		939
Treasury stock	—		—		(30)		—		—		(30)
Currency translation adjustment	—		—		—		—		(1,536)		(1,536)
Change in pension liability	—		—		—		—		7		7
Net loss	—		—		—		(3,054)		—		(3,054)