Prepared remarks
Thank you. Good morning, ladies and gentlemen, and welcome to the Forum Energy Technologies second quarter 2026 earnings conference call. My name is Lateef, and I will be your coordinator for today's call. This conference call is being recorded for replay purposes and will be available on the company's website. I will now turn the conference over to Rob Kukla, Director of Investor Relations. Please proceed, sir.
Thank you, Lateef. Good morning, everyone, and welcome to FET's second quarter 2026 earnings conference call. With me today are Neal Lux, our President and Chief Executive Officer, and Lyle Williams, our Chief Financial Officer. Yesterday, we issued our earnings release, which is available on our website. We are relying on federal safe harbor protections for forward-looking statements. Listeners are cautioned that our remarks today will contain information other than historical information. These remarks should be considered in the context of all factors that affect our business, including those disclosed in FET's Form 10-K and other SEC filings. Finally, management statements may include non-GAAP financial measures. For reconciliation of these measures, please refer to our earnings release and website. During today's call, all statements related to EBITDA refer to adjusted EBITDA, and net income refers to adjusted net income, and unless otherwise noted, all comparisons are second quarter of 2026 to first quarter of 2026. I will now turn the call over to Neal.
Thank you, Rob, and good morning, everyone. FET's financial results showcase incredible earnings power. During the quarter, we executed our strategy and demonstrated the leverage in our business model. We delivered sequential and year-over-year growth in revenue and profitability, expanding margins across the board. We generated free cash flow, strengthened the balance sheet, and returned capital to shareholders. Also, we continued to gain market share through product innovation, international expansion, and exceptional execution for our customers. And while oil prices moved higher during the quarter, our customers remained disciplined and focused on cash generation. In North America, stronger completions drove frac utilization, benefiting our wireline, coil tubing, and Downhole products. We also saw strong demand in the Canadian oil sands, where technology and reliability remain important differentiators.
Outside North America, regional activity was impacted by the Middle East conflict. However, investment for offshore and unconventional developments remained robust. Customers continue to prioritize technologies that improve uptime, safety, efficiency, and production performance. These priorities align directly with FET's strengths, leading to our international revenue growth. Going forward, we expect industry activity to remain broadly stable with modest improvement in selected areas during the second half of the year. More importantly, we expect FET to outperform through market share gains, new products, geographic expansion, and operating discipline. Looking out further, long-term fundamentals remain supportive for FET's 2030 growth vision. We expect oil and natural gas demand to rise with global GDP, increased urbanization, expanding LNG exports, and AI-driven power consumption. On the supply side, our customers will need to add capacity and increase operating efficiency to offset steep production declines.
In addition to traditional supply and demand drivers, the Middle East conflict has made reliable oil and gas supply a strategic initiative. We expect new investment decisions to be driven by the need for increased energy security and replenishment of inventory reserves. We project these fundamentals to expand FET's addressable markets by more than 50% over the next 5 years. This growth, combined with our targeted share gains, creates a clear path to doubling our revenue by 2030. With our operating leverage and capital-light business model, we would expect revenue growth to drive significantly greater EBITDA and free cash flow. Capturing this opportunity, however, takes more than a favorable market. It requires a winning strategy and disciplined execution. Market share gains are a clear indication of successful execution. Since launching our Beat the Market strategy in 2022, we have increased revenue per global rig by 34%.
We are winning through differentiated technology and commercial execution. Also, our global footprint allows us to export the technologies developed for U.S. unconventional basins to customers around the world. Our goal is to double share in targeted markets by 2030. We believe the steps we are taking today are putting us on the path to achieve that goal. Let me cover a few good examples. In the Middle East, field trials with one of the world's largest oil companies are progressing for SandGuard, our artificial lift protection solution. This product has been remarkably successful in the U.S. and has significant potential in the region. Another example is Venezuela. After receiving regulatory approval, we have delivered a significant number of coil tubing strings into the country. This success has expanded demand for other products, including pressure control and coiled line pipe. We are in the early stages for these opportunities, but expect long-term growth here.
Also, our innovation pipeline continues to drive share gains. Following the substantial DuraLine order for Argentina announced last quarter, we are now seeing increased inquiries and proposal activity in the United States. Our technology significantly increases the efficiency and safety of frac operations. We are also seeing expanded demand for Unity, our software and control platform for operating ROVs from shore. During the quarter, we received substantial aftermarket orders to upgrade ROVs built by FET, as well as systems built by competitors. This is a substantial opportunity for our subsea product line. Finally, in our heat transfer product family, we achieved two critical milestones for long-term growth. First, after several years of product development, we received an order from a major service company for a high-temperature frac application. This product operates at 140 degrees Fahrenheit, ideally suited for harsh Middle East environments.
And in power generation, our stationary cooling solution, which I first mentioned last quarter, has quickly progressed from commercial interest to an initial order. This solution complements our existing Powertron offering, where we also received a meaningful order this quarter. With these developments, we are taking great steps forward in the expansion of our data center and mobile power product portfolio. While these examples provided demonstrate progress towards our FET 2030 vision, we also remain focused on delivering results today. Our strong first-half performance and elevated backlog gives us confidence to meaningfully raise financial guidance for the remainder of 2026. We now expect full-year revenue between $870 million and $910 million and EBITDA between $115 million and $125 million. Compared to last year, revenue and EBITDA would increase 13% and 40% respectively, with incremental margins of 34%.
This is incredible growth. Also, we now expect net income between $42 million and $52 million and full-year free cash flow between $57 million and $77 million. This improved outlook reflects the proactive changes we have made to the business, not simply a better market. Our priorities for the remainder of the year are clear. Convert backlog to sales, gain share, and generate cash. Now, to provide more detail on our second quarter results and near-term financial outlooks, I will turn the call over to Lyle.
Thank you, Neal. Revenue, EBITDA, and net income all exceeded the high end of guidance as our Beat the Market strategy continued to deliver. Revenue increased 8% to $226 million. EBITDA increased 39% to $32 million. And net income increased 148% to $14 million. Orders totaled $236 million during the quarter, resulting in an overall book-to-bill of 104%, exceeding revenue for 5 of the last 6 quarters. This performance reflects continued market share gains, growing customer adoption of our technologies, and increasing contribution from international markets. Three primary drivers propelled our year-over-year second quarter performance. First, we continued to perform well in the Canadian oil sands market, where customer activity levels remained robust. Our Downhole product line saw increased demand for sand and flow control products, delivering meaningful year-over-year and sequential growth.
A combination of improving market activity and penetration of our high-value technologies contributed significantly to profit growth within the artificial lift and Downhole segment. For the second driver, our drilling product line delivered a meaningful turnaround following the operational restructuring and cost reduction actions we implemented. We are seeing the benefits of those efforts through improved margins, stronger operating leverage, and increased competitiveness. In addition, our innovative drilling capital equipment continues to gain traction in international markets, particularly in the Middle East, where customer adoption and project activity are creating new growth opportunities. And for the third driver, our subsea business executed exceptionally well as we converted backlog into revenue. Deliveries of ROV systems, aftermarket products, and related technologies drove improvement in both revenue and earnings.
More importantly, the delivery of our backlog demonstrates the benefits of operational discipline and project management across the organization. These three drivers, Canadian oil sands growth, the turnaround in drilling, and continued subsea backlog delivery are representative of the success of our Beat the Market strategy and demonstrate our ability to grow through market share gains, technology differentiation, and operational execution. Both of our operating segments contributed to the quarter's strong results. Drilling and Completions revenue increased 10% to $139 million. Growth was driven by higher demand for coiled tubing products, wireline cables, and capital equipment, particularly iron roughnecks and radiators. EBITDA increased 29% to approximately $16 million, and EBITDA margins expanded 180 basis points to 12%. Growing orders resulted in a book-to-bill ratio of 104% during the quarter.
Artificial Lift and Downhole also delivered an impressive quarter. Revenue increased 6% to $87 million, driven primarily by high demand for sand and flow control products, artificial lift products, and casing hardware. EBITDA increased 30% to approximately $22 million, and EBITDA margins expanded to nearly 25%. Favorable mix drove an outsized incremental EBITDA margin of 95% as growth in our high-value Downhole product line was partially offset by a decrease in shipments of our mechanical production equipment. Orders remain strong, resulting in a book-to-bill ratio of 105% during the quarter. Turning to cash flow and capital allocation, we generated $10 million of free cash flow during the quarter, consistent with our expectation of increasing free cash flow through the year. While accounts receivable increased with revenue, inventory remained well managed and overall working capital performance continued to support cash generation.
A significant accomplishment during the quarter was the continuing deleveraging of our balance sheet. Net debt declined to $115 million. At the same time, trailing 12-month EBITDA increased to $100 million from $89 million. As a result, our net leverage ratio improved dramatically from 1.4x to 1.1x. The combination of higher earnings, improved margins, and free cash flow generation allows us to simultaneously reduce leverage while continuing to return capital to shareholders. Consistent with our capital allocation framework, we repurchased approximately $8 million of shares during the first half of 2026 and returned $42 million to shareholders over the past 2 years. We finished the quarter with total liquidity of $96 million, and our balance sheet remains well positioned to support both organic growth and strategic opportunities as they arise. We believe acquisitions can augment our performance and evaluate potential opportunities based on earnings accretion and the target's ability to grow free cash flow.
We seek acquisitions that align with our Beat the Market strategy and advance our FET 2030 vision. As we enter the second half of the year, we remain focused on profitable growth, margin expansion, and cash generation with disciplined capital allocation. We expect continued growth with third quarter revenue between $225 million and $245 million and EBITDA between $31 million and $37 million. At the midpoint, these represent approximately 20% revenue growth and 48% EBITDA growth compared to the third quarter of 2025. In line with this profitability guidance, we expect net income of between $12 million and $18 million and free cash flow between $15 million and $25 million for the third quarter. With that, I will turn the call back to Neal for closing remarks.
Thank you, Lyle. Our second quarter results are another example of FET delivering on its commitments. Through disciplined execution, innovation, and commercial excellence, we are converting targeted opportunities into higher earnings, strong cash flow, and increased shareholder value. Just as importantly, we are strengthening the foundation of the business and making meaningful progress towards the objectives outlined in our FET 2030 strategic vision. Looking ahead, we remain confident in our outlook. Sustained offshore demand, growing international opportunities, broader adoption of our differentiated technologies, and improving industry fundamentals continue to support our business. With strong first half momentum, FET is well positioned to deliver a successful 2026 and create long-term value as we advance towards FET 2030. Before turning the call over for questions, I want to congratulate our employees on their stellar safety performance this year. Thank you for living up to our number one core value. Well done and keep it up. Thank you for joining us today. Lateef, please take the first question.
Questions and answers
Our first question comes from the line of Steve Ferazani of Sidoti.
I appreciate the detailed review of the quarter, obviously executing in a volatile market. Neal, obviously you exceeded even the high end of your guidance. What can you point to for the outperformance? Where did you see things coming in better than maybe you expected when you guided three months ago?
Yes, thanks, Steve. First, our Q2 guidance was up from Q1, so we did expect better results. Our team stepped up to the faster cadence with excellent execution, and I'm confident they can increase that pace again in Q3. As Lyle outlined in his prepared remarks, the drivers were Canadian oil sands with market penetration and adoption of our new technology there, the turnaround in our drilling product line, and a number of large projects in our subsea product line where the team has been executing and converting backlog into revenue. Those three drivers, combined with strong execution across the organization, explain the outperformance. I couldn't be more proud of the team.
Excellent. When we think about the revenue this quarter and also what's in the significant orders, are you seeing any kind of a geographic shift from your traditional pattern?
I think it's pretty broad-based, Steve. We saw completions in North America pick up, which is helping our consumables, coil tubing, and wireline. We are still active in the Middle East and still delivering products there, even with the conflict. Ultimately, Canada has been particularly strong and the team there has been delivering for customers well, and that's been a big driver.
Great. When I think about the margin lift this quarter, obviously greater throughput at your plants, but that margin seems even better than just a throughput performance. Are we seeing efficiency gains? Is that mix? Can you talk a little bit about the margin lift?
Yes, Steve, let me jump on that one. You're right about operating leverage — as a manufacturing products company, operating leverage is a big driver for us. When we see incremental growth, we get a nice uplift. We also had the benefit from our cost reduction initiatives. We started those last year and wrapped them up in Q1, and we saw a nice sequential and sustainable improvement from removing those costs from our system. The third factor in the quarter was mix. The Downhole product line, which is a high-value, high-margin line, did extremely well. At the same time, we had a decrease in revenue in our production equipment product line tied to timing of shipments, so that mix shift was favorable. Put together — operating leverage, cost savings locked in, and favorable mix — and you get the margin expansion we saw. On sustainability, the market continues to perform, the cost savings are implemented, and as we continue to take share in targeted high-margin products, we expect similar margin performance going forward.
Very helpful. I did want to turn to capital allocation. Any update or changes to your targets? When I think about where you're headed, do you have a leverage target, and any change to the percentage of cash flow you would devote to share buybacks?
Steve, as we mentioned in our first quarter call, we see further debt reduction as building dry powder for potential acquisitions or other strategic objectives. We'll continue to reduce debt where appropriate. We are always evaluating acquisitions that meet our criteria — differentiated products, targeted markets, accretive financial measures, and the ability to grow free cash flow — and we would pursue those without increasing leverage unnecessarily. Ultimately, we want to grow free cash flow per share, and if acquisitions can augment that, we will consider them.
Helpful. And then on the repurchase side, any change in how you would allocate cash flow to repurchases?
No change. As we noted earlier, our cash flow is weighted to the back half of the year, so we'll align repurchases with our cash flow generation.
Our next question comes from the line of Richard Tullis of Water Tower Research.
I'm sitting in for Jeff Robertson today. Just wanted to touch a little bit on the mention during the prepared remarks, the exciting 50% potential increase in the addressable market. What would be the rough geographic allocation you might be looking at there? I know the Middle East must be playing a part. I certainly agree with your energy security concerns globally. That seems to be a hot topic now.
Yes, good morning, Richard. As we think about revenue per rig, in the U.S. we're over $700,000 per rig annually. Internationally, that number is lower — around $300,000 and change. Our opportunity is to export technologies and solutions we've developed for U.S. unconventional shale to regions like the Middle East and Latin America and other key regions. I would expect our international revenue to grow over time. We're not giving up on U.S. and North America, but exporting our technology internationally is a strong growth driver.
Thank you. That's helpful. And the SG&A was down nicely year-over-year and total dollars despite the significant uptick in revenue. How do you see SG&A trending in the third quarter and throughout the rest of the year, particularly with the outlook for higher revenue at the midpoint in the third quarter, quarter-over-quarter?
Going back to last year, we took structural costs out of the business, including SG&A. We are leveraging technology and software tools to be more efficient, so we don't expect a large increase in SG&A as we progress through the year.
Our next question comes from the line of Jim Rollyson of Raymond James.
Neal, if I look at kind of revenue growth in the quarter, high teens; Q3 guide, high teens; just curious, for one, how much of that is market activity improvement versus share gains, given your targeted expansion of market share through 2030?
I think a good portion of that is share gains. In the first half of the year, the global rig count was basically flat, so much of the growth has been share gains. The Canadian oil sands adoption of our technology has been a major contributor, along with growth in consumables as more frac fleets operate. As long as activity churns, we believe we'll gain a larger part of that share.
Makes sense. If I translate that into your 2030 view — your updated guidance is now almost $900 million in revenues. If I remember that chart, you had $1 billion to $1.6 billion as the path. Are we accelerating down that path or is the end point getting bigger, do you think?
Jim, that path still makes sense. We're finding ourselves on that path. Internally, we push for more, but the path we laid out — getting to a billion dollars in a flat market and up to $1.6 billion if markets grow and we continue to gain share — remains plausible. With the current conflict and energy security focus, some activity has been brought forward, and 2026 may be slightly stronger than we originally expected, which could accelerate the path.
That's what I was looking for. Last one for me — you mentioned the Middle East on multiple occasions. With the conflict impacting the region, how should we think about when that opportunity set starts to kick in? Is it once we get past this conflict and things normalize that contributes to better 2027 growth, or how do you view that timing?
That's a fair assumption. We're still active in the Middle East — it's roughly 10% to 11% of our overall revenue, depending on the sub-region. Once conditions normalize and companies resume normal project activity, I expect significant opportunities as oil companies in the region expand and adopt technologies that have driven efficiency in the U.S. That's the equipment and solutions we provide.
Our next question comes from the line of Don Crist of Johnson Rice.
I wanted to ask about the pressure pumping market here in the U.S. first. The pressure pumpers are holding the line and trying to boost margins and haven't talked about new equipment adds yet. Are you seeing activity in the background where they're checking lead times and that sort of thing? The market looks tight on the pressure pumping side and we could see the need for a lot more equipment in '27. Are you seeing that as well?
We are seeing background activity. We don't see a lot of big fleet additions yet, but upgrades to existing fleets and replacement of equipment have been the focus. One differentiator for us is generally shorter lead times for our components — we can deliver in a quarter or two versus engines where lead times can be much longer. We're starting to see pickup on replacements. I agree there's tightness in the frac market, but we still saw activity increase in the quarter and expect continued demand for our consumables.
One on the international side — we're hearing more oil companies and E&Ps move into North Africa, Turkey, Pakistan and other areas outside the traditional Middle East. Are you seeing inquiries from customers who want new equipment to expand activities in those areas, not just recycled equipment from the U.S.?
We are. We've sold our DuraLine manifold into Argentina earlier this year, and we're seeing more inquiries like that. Our global footprint and ability to ship technology worldwide is an advantage. Customers want to be as efficient as the U.S. players, and that drives demand for both the big kits and the ongoing consumables behind them. We're excited about those opportunities.
Our next question comes from the line of John Daniel of Daniel Energy Partners.
One for me, a follow-on to Don's question. Neal, you mentioned that you're a shorter part of the lead times for the frac market, but could your lead times extend if the U.S. frac market gets a pricing signal and decides to add 20 to 25 new fleets early next year? How would your lead times change in that scenario?
If we have a massive increase in demand, we would do everything we could to adapt. Our teams are nimble and we're talking to customers, so we wouldn't be surprised if they ramped quickly. We've built up the supply chain and made progress on the power demand story, including key orders on the heat transfer side, which positions us well. On the data and mobile power product portfolio, every engine needs a radiator, and there are several thousand engines that could be delivered over the next five to six years — that's a massive opportunity. We want to get our fair share; we started making progress in Q2 with a stationary radiator order and are building a backlog in that business.
Thank you. Not to be a troublemaker, but do the inquiries from those frac companies sync with their guidance?
I would think so. We're not seeing the big fleet-add inquiries; we're seeing more one-off requests and upgrades, which generally align with their guidance.
Our next question comes from the line of Richard Tullis of Water Tower Research.
Thank you, Neal. One more from me, please. Touching on Venezuela and the potential market there or the size of that potential market, do you see that presenting some additional upside to your FET 2030 goals?
It can be a huge market. We were largely out of that market since about 2007 and the infrastructure there needs work. If activity ramps, Venezuela could be a significant driver of our vision. We aim to remain nimble and go where activity is. Whether it's Venezuela, Argentina, or the Middle East, we'll have our products in market to support production.
I would now like to turn the conference back to Neal Lux for closing remarks. Sir?
Well, thank you for your support and participation on today's call. We look forward to our next meeting in October to discuss FET's third quarter 2026.
This concludes today's conference call. Thank you for participating. You may now disconnect.