Good day, ladies and gentleman and welcome to the Fourth Quarter Forum Energy Technologies Earnings Conference Call. My name is Denise, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Mark Traylor, Vice President of Investor Relations and Planning. Please proceed.

Thank you, Denise. Good morning and welcome to Forum Energy Technologies Quarterly Earnings Conference Call for the fourth quarter 2013. With us today to present formal remarks is Chris Gaut, Forum's Chairman and Chief Executive Officer as well as Jim Harris, Senior Vice President and Chief Financial Officer. Also, with us today is, Prady Iyyanki, Chief Operating Officer and Wendell Brooks, President of Production and Infrastructure division. We issued our earnings release last night and it is available on our website. The statements made during this conference call including the answers to your questions, provide information that we believe to be forward looking statements within the meaning of the Private Securities Litigation Reform Act. Forward looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. Those risks include among other things matters that we have described in our earnings release and in our filings with the Securities and Exchange Commission. We do not undertake any ongoing obligation other than that imposed by law to publicly update or revise any forward looking statements to reflect future events, information or circumstances that arise after this call. In addition, this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the live call. Management's statements may include non-GAAP financial measures. For reconciliation of these measures refer to our earnings news release available on our website. This call is being recorded. A replay of the call will be available on our website for 30 days following the call. I am now pleased to turn the call over to Chris Gaut, our CEO.

Thanks, Mark. Good morning. I will start with highlights from the fourth quarter and the full year, and offer some thoughts on the outlook for our business. Then I will turn it over to Jim, who will provide more detail on our financial performance. In the fourth quarter 2013, we had record revenue of $394 million. The fourth quarter results include $0.03 per share of severance and restructuring charges and several non operating items. Excluding these items, adjust net income was $0.39 per share and adjusted EBITDA was $76 million. EBITDA margins in the fourth quarter were 19.2%, just under our third quarter and targeted margins of 20%. Margin improvement remains our primary objective. Total orders during the fourth quarter were a record $387 million, a 9% increase over orders in the third quarter. Bookings increased sequentially for subsea equipment downhole and completion products and Production Equipment. The fourth quarter book-to-bill ratio was 98% of the company as a whole, 100% for the Drilling and Subsea segment and 95% for the Production and Infrastructure segment. Our Drilling and Subsea achieved a 5% increase in sequential revenue on record quarterly sales of drilling and downhole products. However, margins were down sequentially from the third quarter, due to cost overruns on one drilling project and delays in subsea deliveries. Orders continued at a strong pace for capital drilling equipment part and especially for international and offshore customers. During the fourth quarter, the drilling product line had record revenue, also officially opened a 150,000 square-foot manufacturing facility in Broussard, Louisiana, and we rolled out a new organization structure to better align product offerings with our customers. Our subsea product line orders in the fourth quarter were up over 50%, sequentially, primarily on the previously announced contract with DOF Subsea to supply seven Perry…

Thank you, Chris, and good morning. Consolidated revenues of $394 million for the fourth quarter are up approximately 1%, sequentially, and represent a record level for the company. Our Drilling and Subsea segment revenue increased 5%, sequentially, while our Production and Infrastructure segment revenue was down 7% from the third quarter. Net income for the fourth quarter was $35 million, including $3 million in restructuring non-operational charges. Operating income, excluding these charges was $59 million, down $4 million or about 7% from the third quarter. The sequential decline was partially attributable to severe weather in North Texas and Oklahoma, affecting of our production facilities, exacerbated by customers' holiday schedules making year end delivery as a challenge. As previously disclosed, the fourth quarter was also impacted delays in receipt of orders and production of subsea equipment. Finally, consolidated gross margins were down 170 basis points, a major contributor to the decline being overruns on deliveries against a significant quarter in drilling for our newly design larger and more complex Catwalk. This order dates from 2011 and has undergone significant scope change over the course of design and construction. The last of these units will be delivered in the first quarter, which will also be at low margins. Our fourth quarter adjusted EBITDA margins came in at 19.2% just under our target of 20%. Adjusted diluted earnings per share for the fourth quarter of $0.39 are down a nickel from the third quarter. In addition to the operational issues already highlighted, higher interest expense on the $400 million in unsecured bonds issued during the quarter contributed $0.02 to the sequential decline. Going forward, full quarter's incremental interest on the bonds will cost about $.03 per quarter. We are pleased to have successfully completed the offering, which combined with our recently amended $600…

Thanks, Jim. I believe Forum is well positioned as we begin a new year. We have strengthened our management team and our organization. We have made great progress on integrating our acquisitions and we have improved our processes. There is still much to do and plenty of opportunities for internal improvement remain. We will maintain our internal focus in the first half of 2014. I think, the benefit of this effort will be apparent this year. I am pleased with the progress Forum has made and I especially want to thank our employees for their strong effort. We have a great team. Thank you for your interest in listening to our remarks. At this point, we will open the line for questions. Denise, let's take the first question.

(Operator Instructions) Our first question comes from Blake Hutchinson with Howard Weil. Please proceed at this time.

First just starting off, Chris, relating to the statutory expenses was delivering the Catwalk s here, I think the industry at large is pretty wary these expense issues and their tendency to get transformed from one-time into kind of an issue that's maybe around for a while. Can you kind of walk us through what you have seen there and your thoughts on how you need to [take] this from the product as it delivers through the year and give us some clarity on perhaps that expense going away.

Right. These Catwalks for a Middle East customer both were very large land rigs, with the rig for elevated 50 feet in the air, which is the larger and in higher than we have done before. Remember from geometry, if you are having to take pipe up across hypotenuse of the triangle, as you increase the height, the length of that Catwalk becomes the much more. There was a lot of scope change in that project as well, originally to do doubles two length of drill pipe. Customer actually ended up wanting to do triples with the Catwalk, so a lot of design change since this original order took place back in 2011. A lot of engineering change, a lot of engineering hours and we weren't done percentage in completion. When finally delivered the first group of these in the fourth quarter, the costs that we had incurred in the design stage over that extended period of time, were quite high. I think that having designed now Catwalk for a 50-foot rig floor, we got that work done. I don't think it will have an impact on future projects. Although, we do have as Jim said a few more of these to deliver during the first quarter at suppressed margins, but I think to your point, Blake, I think few things to keep in mind. This is a legacy project and I think we have learned from it. It's not like we are going to have an ongoing series like that. I think, we perhaps improved our process going forward, tie the organization closer together and I think this is an unusual legacy circumstance for us. You look across the Forum in our other areas, we don't have those kinds of projects in our backlog.

Just to be clear, at this point, there's nothing in the order book. It looks particularly onerous for beyond 1Q from a cost perspective?

Right.

Okay.

Now, Blake, we will continue to work on product development and expanding our product line. We are moving into the offshore market and have contracts there, so we don't expect to have a repeat of this experience. I think, one of the things that got us on this one is the Catwalk cuts a large and shipping it to the Middle East and we actually had the design, we've broken down into two pieces for shipment and then be able to be reassembled. I think that this was an unusual circumstance, although we are developing projects for the offshore market, I think we have learned from this experience.

Then just finally, as you mentioned the top of your commentary, your commitment to margin improvement here. The 3Q margins that we saw out of drilling in Subsea and we are approaching kind of 20% operating margin, the kind of reset for us looking out for '14, is look we have got a different mixtures, so there is going to be different interplay between the sub-segments. Is that's 3Q margin kind of the realistic goal for the team? Put that in perspective for us.

Yes. Blake. We do believe that the fourth quarter was the operation because of these contracts. We will see improvement in the first quarter. We won't get all the way back to that level, because of the overhang of these additional units, but the expectation of the team is to get back to that third quarter level and then look beyond in the future.

Great. Thanks. I'll turn it over. Appreciate it.

Thanks, Blake.

Our next question comes from Jonathan Sisto with Credit Suisse. Please proceed.

Jonathan?

Your line is currently open. Please proceed.

Sorry about that. Prady, welcome to the team.

Thanks, Jonathan.

Jim, if I could, the higher incentive compensation expense that you highlighted for the first quarter, should we be doing that as 1Q kind of event or will that persist over the course of 2014?

Yes, so on a sequential basis that's taking the third quarter to the first, so as you proceed through it's the second quarter and the subsequent quarters, we burned by the same amount. [As they could equal] over the year. We do assess that accrual over the year, up or down, depending on how operations are going. Since our bonuses are self-funded, meaning that the bonuses come out before we measure our achievement, the bonus accruals would never up go up and that operations were sufficiently hiding to more than cover that, so it should be at the consistent accrual through the course of the year. Jonathan.

Okay. Chris, I think in your prepared remarks, you highlighted that Flow Equipment revenue is fairly flat quarter-over-quarter. The market seems to be getting a little bit more excited about tightening, some gas drilling going on. Any sort of anecdotal evidence you can share with us as far as demand recertification work kind of stuff and flow equipment.

Sure. In the fourth quarter, we did not see a change or an improvement in orders in the fourth quarter over the third quarter. However since the beginning of this year, and it's still early days yet, we have seen a notable increase in orders within our Flow Equipment product line. Again it's too early to assess whether that is just a deferral or a makeup of deferred purchases from the prior periods or whether it is indeed a sustainable increase. Would you agree, Wendell?

Yes. I think that we have seen an improvement. I think what we can't say is it feels better to us, and we have seen some new equipment purchases, our service business is active. I agree with Chris is early days yet, but we can say we feel better about the market start this year.

We will keep our fingers crossed for $5 gas, I guess. Chris, as you look at CapEx $60 million for '14, just maybe walk us through the allocation of that.

Right. As in 2013, our sustaining maintenance level CapEx will be in the $25 million range, and the addition will be for growth. We have allocated some growth capital for a number of our businesses and I think that that is an advantage that Forum has within the level of our DD&A that Jim was sharing with you. It does provide significant growth capital for us that we can spread across businesses.

Appreciate it. Thanks very much.

Our next question comes from Robin Shoemaker of Citi. Please proceed.

Thank you. Good morning, Chris. I wanted to just pursue a little bit. You mentioned that you had gone out and visited many of your field locations and were detecting some optimism about 2014, and certainly that's something we sort of hear echoed from other companies, yet of course most of your other commentary had kind of a flattish rig count and maybe a slightly higher well count. I mean, I am just want to probe that a little bit, about what kind of your businesses re-detecting a sense of optimism?

Well, Prady and I visited our drilling business, our downhole business flow and Production Equipment and Valve, so I think we have been five or six product line for the past couple of weeks and I will let Prady comment, but I think that there was a more of positive tone as we visited with the folks that have got buffet relative comparison to earlier visits obviously, but was, I think, enthusiasm I think anecdotes from customers are going to look better. I think a characteristic of Forum is that we are activity related. Prady, maybe you can comment a bit about what you saw and some of the opportunity.

Yes. To just echo what Chris mentioned, the enthusiasm and the momentum in the shop seems positive, even though it's just four weeks in the quarter and the year, so how much of that is compared to the last year and how much of that is sustainable. We would see down the road, but one thing we do feel good about on a move-forward basis is our focus on the operating performance, where execution, the project management structure, we are going to put into place this year and driving the lean principles, which will help us on the operation performance and our focus on quality with a total cost of quality, which is which will help us with the margins, but also a focus on the sourcing. Our source base has increased [company] the last few years ago and we are going to focus on our source base not only from quality standpoint, but also to leverage some of the source basis we have and the last focus clean margins, where the variable cost, [the cost] and the SG&A, all those would be big as a focus and obviously we need to [money] we get from a cost perspective on products and to be more competitive in our space.

Okay. We talked about little bit of the upstream. I know that you have got some leverage to downstream projects that are expected to accelerate, particularly the here in the U.S. petrochemicals and so forth in terms of your of Valve Solutions business for example, so what are you seeing there in terms of the these projects we have been expecting to get truly on track?

Robin, the valves' orders are remaining fairly flat, steady. We have not seen large orders coming in connection with petrochemical or LNG facilities at this point. We continue to do some bidding. I think that's helping E&C companies with their planning and feed work. Our expectation is, late this year and into 2015, we will see that increment in the Valves business. They haven't seen it yet.

I see, but you do have some visibility as these projects are coming, because you are [us] to give some kind of a ballpark quotes for their budgeting purposes, I guess?

Absolutely.

Yes. Understood. All right. Well, Thank you, Chris.

Thanks, Robin.

Our next question comes from Bob McKenzie with Jefferies. Please proceed.

This is Brad Handler actually, so I am not sure.

Hi, Brad.

I wasn't sure if I was on. Anyway, I got it. Okay. Would you guys be comfortable sharing revenue or indicative revenue by division for Q1 of '14?

The Q1 revenue by the division, no. We are not going to get in that quantitatively, Brad. I think from a qualitative standpoint in 2014, our growth engine is going to be our drilling in subsea division, right? We see growth in each of product lines within Drilling and Subsea during 2014. You know that we have had strong orders for a number of quarters now building quarter-over-quarter in the Drilling business. Again, I guess, fourth quarter was not that much over third quarter, but is at a quite high level. Subsea, we are very pleased with these two packages for the total of 15 ROVs that we have had in the past couple of months. The Downhole business continues to receive impressive orders from our new target customer base. They are the large service companies and is also recovering share with the domestic customer, so I think that will be the growth side. On the P&I side, particularly in the first part of the year, until some of the Valve improvements kicks in, we are expecting fairly steady performance from Valves and Production Equipment. We talked about flow, it's really too early to say, but there's certainly some optimistic signs there. We are not yet building that into our thinking…

Okay. Well, I appreciate that color, Chris. That's very helpful. Just to clarify your comment about Production Equipment, so it's more of a flattish revenue outlook for the year, or is that just early.

Yes. It's a bit of a U-shape, so Production Equipment was very strong in the first half of 2013, then came off a bit and we are expecting a reversal of that pattern in '14 that we are building from the lower run rate coming out of '13 building that over the course of the year, right?

Right.

And rebuilding the backlog there and that's beginning to happen and it's going build over the course of the year.

Is that a function of demand or is that a function of that transition? I think you made a transition in manufacturing facility and are you sort of revamping in that new place?

Do, we have that up and running now? I think, it's just some changes in the market that I think we commented on this last quarter that there is a lot of fabrication capacity to serve the old Service and Equipment market. As that capacity was not needed for pressure pumping spreads or frac tanks or that kind of thing, these fabricators were looking for other things that they could do, right, so we saw more entrants there, right? Our response to that is to expand our customer base and to go after some and more of this growing opportunity in the multi-well pad sites and the modular large equipment that would be associated with those the multi-well sites where there will less competition and we are executing on that strategy.

Thank you. If I could steal one more, you made a reference to a negative mixed shift in the fourth quarter in Downhole, I think, lower margins on some international product? Could you just elaborate a little on that and then I will jump off.

The legacy domestic business, Brad, was shorter runs, lower volumes, quicker response, and as a result, higher margins. The international business tends to be well-planned in advance and large volumes and very attractive margins, but not as high margins as that kind of short notice low volume worked on domestic side and we have seen a shift to significantly more international work over the past couple of years. We think that is a very attractive market that we can grow, but we are also looking to recover and have a significant presence in this higher margin domestic market too.

Thank you.

Our next question comes from, Rob MacKenzie with FBR Capital. Please proceed at this time.

Good. All right. Thanks. I wanted to follow-up, Chris, on your comments in response to the prior questioner about the optimistic signs you said you were seeing in flow equipment. I guess, one of your competitors earlier today kind of modeling that business flat and didn't talk as bullishly as you seemed to be. Can you give us some more color as to what you are seeing there?

Okay. Flow equipment, let's be clear there. We are and as we said in our prepared remarks, we are being conservative in the sense of we are assuming a flattish rig count and well count increasing modestly above the rig count. That's implicit in our assumptions with regards flow equipment. What we are saying is, we have seen some additional orders and an uptick there, but it is too soon to say whether that's sustainable or not or whether it's just catch up on some previously deferred spending. Our emphasis in our flow equipment is on the consumable products, not on the capital side.

Okay.

And we will move with activity.

Fair enough. My next question comes back to Subsea Technologies. You had a couple of good back-to-back orders there in Subsea. How you think about the outlook now in what appeared to be fairly rapidly weakening deepwater rig environment, albeit, still growing in terms of number of active rigs, but are you seeing any impact on tenders or bidding for you ROVs in that business yet?

Yes. Let's keep in mind that deepwater market is a very long lead indicator and a number of deepwater rigs working is at a high level. I think the issue with rig companies is more about rate with the rapid increase in supply there, right? Now, moving from the initial drilling to what we serve, which is the offshore construction and maintenance and repair phase, that will be driven by new infrastructure installed on the seafloor, but also the need to maintain and service that infrastructure over time, which is obviously growing. We are currently seeing, I think, a pretty good amount of discussion level and close activity with our Subsea customers. We are pleased to have one of these big orders, but we are definitely looking for growth in our Subsea business in 2014.

Great. That's very helpful. Thanks. I guess my next question is a little more strategic even. You guys have historically relied on a lot of acquisitions to help position yourselves for growth here. What's your view Chris on your maybe selling off or spitting out some of the pieces of what you bought. Is that something you looking at or not?

The six product lines that we have within our two segments are ones that we feel are the right ones to grow and provide the balance that we have and we think there are opportunities to add new products internally or through acquisition within those existing six product areas. Are there some smaller pieces that don't provide as core to fit to our overall strategy? Yes, there probably are and we will look at those over time as we refine our strategy, but I think there are compelling attractive strategic reasons and plans for our two segments and the six product lines that we have and I think that the any divestment opportunities we would look at would be pretty small.

Great. Thanks. Then back on the acquisition front. Is it still you guys knew that - let's digest what we have before we get back into the buying some more pieces?

We do have an internal focus and I think there is more we can do in that regard and that is where we are spending our time and attention. We continue to monitor and follow and pursue potential acquisitions for the future, but one should not look for us closing any transactions in the first quarter for sure. Prady, maybe you can address some of the opportunities that we might be addressing internally with this focus.

If you look at 2013, we have integrated about 13 acquisitions and three of them in 2013, so we still have some work to do to make sure we get the benefit of integration and synergies of these acquisitions, which will be a focus area for us 2015, but as Chris mentioned, a big focus this year in '14 is on our operating performance quality. It is how we compete in the marketplace and improving our margins, but also some of the cost we are going to get focus on cost of quality and margins with the investment money in products from an organic growth standpoint and that's going to be our focus in '15. Once we feel good about our operational performance, then the relook into our marketing strategy.

It's very helpful. Thank you. I'll turn it back.

Thanks.

Our next question comes from Mr. George O'Leary with Tudor, Pickering, please proceed.

Good morning, guys.

Hi, George.

Give you guys have shied away from providing annual earnings guidance. Could you just maybe qualitatively talk about margin progression expectations for 2014? Then also the margin implicit in your Q1 '14 EPS guidance?

Sure. George, as we said in the prepared remarks, we do have a little over in first quarter, so margin progression should be at or possibly little better. In the fourth quarter, and we should in the first quarter, we would expect to see that to improve over the course of the year and then ending the year about where we were in the third quarter. I think that's a good target and that's what implicit in our current thinking.

Okay. That's very helpful. On the Downhole tool side, some good results, some good commentary there. Can you talk about your market penetration progression, whether that's actually incremental demand and whether you guys think you are actually stealing share from competitors?

That's a delicate question.

Okay.

Well, maybe some of both and with that I think we'll leave it at that.

Thank you, guys.

Our next question comes from Tom Dillon with William Blair. Please proceed.

Hi. Can you share your thoughts about the aging of the ROV maintenance and service fleet, i.e. construction, what's the average age of that industry fleet right now and are there any regulations that could render the older generations obsolete?

Right, so the age of ROVs and the need for replacement, on average ROVs tend to be replaced work-area on a seven or eight-year timeframe, but there is a wide range, right? Some have unfortunate incidents then have a short life and due to some operational issues that are not reliability related, but getting away for colors and things like that. Others when properly maintained and rebuilt and so forth can last more than 10 of 12 years. I think growing opportunity that we have that has been probably underexploited is for us to do more in the aftermarket side to rebuilding and reconditioning that has not been an emphasis before, but is something that (Inaudible) has joined us heading up that the product line has identified there is a good opportunity. These are just the hardware though, these are underwater robots with significant software and controls and like anything driven by software, there are generational changes there, so there is an obsolescence just in from that the capability standpoint as well. Also, the needs of the customers change. I mentioned that DOF Subsea order that we have is for our 200 horsepower ROVs. That's a higher horsepower than we would supplied a few years ago as there is a need for greater payload, greater hydraulic power to do the installation work that our customers have in mind.

Okay. Great. Thanks for the detail.

Our next question comes from [Darren] with Guggenheim Securities. Please proceed.

Thanks for taking my question. I guess the first one is that seems like there was some impact from Downhole pools to the positive side during the quarter. Is there any kind of end-of-year seasonality sort of inventory restock that maybe happens as people throw the valve kind of go through the end of their budgets or anything like that that may not recur and how do we quantify if that's the case?

Daren, I don't think it was seasonal from that regard. I think there is some lumpiness in international orders, we can receive a large international order that we fulfill and I think that that was for the sequential growth in Q4 relative to Q3. We had a large amount of international orders that we filled there, so that's not necessarily - actually, we continue this flow, but I don't think it's driven by seasonality so much as the lumpiness in international work.

Why do your customers sort of manage when they decide the order or not? What makes it lumpy? Is it kind of a project-by-project management thought process? Is that kind of how orders come? [projects] on then they come and talk to you or does it have more of a holistic total company approach?

We tend this to buy for a particular project or reason, right? so they would price their orders for their cementing and casing accessories. We are prepared to the work for that project.

Got it. Switching gears a little bit, I know that there has been some talk about absorbing acquisitions and [ROVs]. From a leverage on Plant and Manufacturing perspective, I am trying to drill down a little bit here. To what extent in terms of like machining, tooling and kind of what's on the floor? Do you have the ability to consolidate and maybe crossover product lines in terms of what you required maybe get some more leverage out of your existing plant. Is that something you can do across product lines or maybe more on a limited basis? Can you expand on that a little bit?

Sure. Yes. We are definitely realizing some consolidation benefits on the distribution side, right? Some of you may have visited our [facility] consolidated distribution facility 250,000 square-foot facility here in Houston. We are bringing together as we upgrade our manufacturing facilities, more capability with this drilling facility, because it is in Broussard that's going to serve several different types of products there, but Prady, maybe you can address the opportunity that you have seen so far.

I think we will continue to focus on consolidation of our operations. I mean, a good example is any global occasion. For example, the case of Singapore, we have already done that while putting multiple product lines and I think the opportunity is there. We will take a look at it where it sense. Obviously, we try to make the business sense for us before we do that, because in some cases the customer base and the products are different even though the chip cutting is the same. We will look at the consolidation businesses From a procurement standpoint, it's a little different because our cost base has increased significantly for few years as our revenue has gone up. Then there is a synergy there and there is opportunity there for us to take the advantage of the scale we have the source base and that will be a focus area for us in 2014, not only from a cost perspective, but also from a quality perspective, it is impacting our operations.

Is that like a 100-basis point, 200-basis point, 300-basis point type of move. What's the order of magnitude you think can get out of that?

Darren, we are not going to get carried away on that. I think we understand it has got to be a show-me situation. We are, as Jim said, looking to get our EBITDA margins for the year to 20% level, this year. We believe that there is additional potential beyond that, but we are not going to overpromise on that one, we got to deliver. We see a lot of opportunity. Obviously, is a great deal of opportunity as we look around here, but we are taking a step at a time.

Well, I appreciate the help. I had General, I figure I would ask. Have a good day.

Thanks, Darren. Well, I think that wraps up our time here. We appreciate your interest and good questions. We'll hand it over to Denise for closing.

This concludes today's conference. You may now disconnect. Have a great day.