Mark Traylor - VP, IR and Planning Chris Gaut - Chairman and CEO Jim Harris - SVP and CFO Prady Iyyanki - EVP and COO.

Doug Becker - Bank of America Merrill Lynch Jeff Tillery - Tudor, Pickering, Holt Blake Hutchinson - Howard Weil Jonathan Sisto - Credit Suisse Brad Handler - Jefferies Rob MacKenzie - FBR Capital Markets Robin Shoemaker - KeyBanc Capital Markets Brandon Dobell - William Blair Darren Gacicia - Guggenheim Securities.

Good day, ladies and gentleman and welcome to the Q3 2014 Forum Energy Technologies Inc. Earnings Conference Call. My name is Ian and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

(Operator Instructions) As a reminder, the call is being recorded. I would now like to hand the call over to Mr. Mark Traylor, Vice President of Investor Relations. Please proceed, sir..

Thank you, Ian. Good morning and welcome to Forum Energy Technologies' third quarter 2014 earnings conference call. With us today to present formal remarks is Chris Gaut, Forum's Chairman and Chief Executive Officer; as well as Prady Iyyanki, Chief Operating Officer and Jim Harris our Chief Financial Officer.

We issued our earnings release last night and it is available on our Web site. The statements made during this conference call, including the answers to your questions, may include 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 a reconciliation of these measures please refer to our earnings release. This call is being recorded.

A replay of the call will be available on our Web site for 30 days following the call. I am now pleased to turn the call over to Chris Gaut our Chief Executive Officer.

Chris?.

Thanks Mark, good mourning. I will provide an overview of our third quarter performance and offer a few thoughts on the outlook for our business and then I will turn it over to Prady who will talk about our business improvement and operational excellence initiatives. Jim will provide more detail on our financial results.

We were very pleased with the quarter as we delivered record revenues and operating income, growth, margin improvement and operational excellence remained primary focus areas for us and we’re beginning to see the fruits of several initiatives we have put in place.

We have continued to add strong new talent throughout the organization to augment these efforts and we expect to see additional benefits from these initiatives as we move through 2015. Adjusted net income was $0.52 per diluted share and that’s excluding $0.02 per share of non-operational items for foreign exchange gains and transaction expenses.

Revenues for the third quarter were a record $469 million a sequential increase of 10% from the second quarter of this year. Operating income excluding non-operational items was a record $78 million. Adjusted EBITDA was a record $95 million, that’s a 14% increase over the second quarter.

Total inbound orders during the third quarter were the highest ever for the Company at $498 million, an 11% increase over the second quarter. The third quarter book-to-bill ratio was 104% for the Company as a whole, 103% for Drilling & Subsea and 106% for the Production & Infrastructure segment.

Within our Drilling & Subsea segments the Drilling product line experienced another strong quarter with record revenue and a book-to-bill ratio exceeding 100% as it has for a number of quarters now. We continue to see high demand for consumable and tubular handling products, as well as drilling capital equipment.

Driving this demand is the growing level of horizontal drilling in North America and the strength in orders of new build rigs. During the quarter we received orders for over 50 Pipe Wranglers’ catwalks in over 50 Floorhand iron roughnecks. Sales for our Drilling product line are now about equally split between North America and International.

At our Subsea product line, although revenue decreased 2% sequentially from the record levels of the prior quarter, order levels were up 6% compared to last quarter. As previously announced, we received a contract to supply 8 Perry Work-Class ROVs with delivery dates throughout 2015.

Our backlog in the Subsea business is at its highest level ever and will be strong going into 2015. The Downhole Technologies product line realized a sequential order increase of 13%, primarily on improved demand in both North America and International markets for Davis-Lynch cementing and Casing products.

We also saw strong demand for our ProDrill Composite Frac Plugs as stage counts continue to increase for the fracturing of horizontal well completions. Moving to our Production & Infrastructure segment, we had sequential revenue growth of 8% with increases in Flow Equipment’s pressure pumping consumable products and in Valve Solutions.

Inbound orders in this segment increased sequentially by 26% compared to Q2 with strength [Technical difficulty]. Flow Equipment’s third quarter revenue increased 24% sequentially, while orders increased 45% in the third quarter due to the high levels of hydraulic fracturing activity in North America.

The construction of our new much larger manufacturing center in Corpus Christi is on-schedule for completion later in the fourth quarter to serve our Flow Equipment product line. Our Infrastructure businesses are beginning to see the improvements in the second half of the year that we had been anticipating.

Valves revenue increased 10% sequentially and inbound orders were up 7%. In Production Equipment, orders were up 32% sequentially and we are seeing larger tenders from customers seeking to lock-up capacity for Production Processing Equipment.

Across Forum, much of our business is tied directly to the activity levels of the global oilfield service companies and of the North America land drilling contractors. We have experienced five consecutive quarters of record revenues and strong bookings. At this point, the demand outlook for our equipment and products is favorable.

Our focus continues to be on growth, margin improvement and operational excellence.

I will now hand it over to Prady Iyyanki, our Chief Operating Officer to update you on our progress in these focus areas, Prady?.

Thank you, Chris and good morning everyone. Though we’re in the early stages of our business improvement initiatives, I am pleased with the progress the team has made to-date. Overall, operational execution is getting better across all product lines, and we are seeing the results in our performance.

We have added significant new talent at the product lines and at the corporate to increase the impact of initiatives we have in place. And I’ll mention a few of these key individuals during my remarks. We have improved our manufacturing and distribution on-time delivery and we’re also working on improvement of our inventory turns.

We promoted Larry Maurer, previously the Vice President of Manufacturing for Drilling to Vice President of Global Manufacturing for Forum to drive further improvements in productivity, on-time delivery and inventory turns. We have added a Vice President of Procurement for Forum, Darren Harvey.

Darren is a seasoned procurement professional who has joined us from Honeywell. We have realized savings in 2014 from a procurement initiative that was begun prior to his arrival and we expect further improvements in 2015 and beyond under his leadership.

The development of our quality management strategy is underway with key hires in most of our product lines. And we have started lien projects to reduce cost and cycle time in Production Equipment and Flow Equipment product lines.

We are evaluating and prioritizing the product development opportunities which best serve our customer needs and expect approximately 30 million to 50 million of incremental revenue growth in 2015 from this initiative.

We are in the early stages to produce growth and operational excellence and we expect to build on these earlier results as the Company matures. Now our CFO Jim Harris will discuss our financial results in great detail.

Jim?.

Thank you, Prady and good morning everyone. Consolidated revenue of $469 million for the third quarter is up 10% sequentially and represents the fifth consecutive quarterly revenue record for the Company.

Our Drilling & Subsea segment revenue of $307 million was 10% higher than the previous record, primarily due to the high demand for drilling equipment. Our Production & Infrastructure segment also had record quarterly revenue of $162 million, an increase of 8% sequentially on higher sales of pressure pumping consumable products and Valves.

Net income for the third quarter was $52 million including $4.5 million in foreign translation gains, mostly attributable to the appreciation of the U.S. dollar relative to the British pound during the third quarter, offset by $1.5 million of transaction expenses.

As we have discussed in prior quarters, we treat these book foreign exchange gains and losses as non-operational since they relate primarily to the translation of U.S. dollar denominated receivables and to another currency for reporting purposes and have no economic impact in dollar terms.

Operating income excluding the non-operational items was $78 million, up $10 million or 16% from the second quarter. Drilling & Subsea operating income of $58 million was up [Technical Difficulty] most of the increase coming in the drilling product line.

Production & Infrastructure operating income of $30 million an 11% improvement sequentially was due primarily to increased shipments of pressure pumping consumable products.

Adjusted EBITDA margins in the third quarter were 20.2%, in line with our expectations with both segments improving sequentially, as we’re beginning to see the benefit of the initiatives that Prady just addressed.

As previously disclosed, we aim to consistently achieve EBITDA margins of 20% or better even as we invest in new product development and operational improvement initiatives.

Adjusted diluted earnings per share for the third quarter were $0.52, we expect diluted earnings per share for the fourth quarter of between $0.45 and $0.51, the slight decrease from the third quarter is due to the holiday season slowdown that we have come to expect from our customers.

Our diluted share count for the third quarter was 96.2 million shares. Net debt at the end of the third quarter was $347 million, down $57 million from the second quarter as we continue to pay down debt with free cash flow. We had $17 million outstanding on our $600 million revolver at the end of the quarter.

We generated $56 million in free cash flow after capital expenditures during the third quarter putting us at $140 million year-to-date. Interest expense for the quarter was $7.7 million and is expected to be about the same in the fourth quarter.

Corporate expenses were $10.2 million in the third quarter and we expect the run rate for corporate expenses to be around this level in the fourth quarter. Capital expenditures were $12.5 million in the quarter and are now projected to come in at $55 million for the full year.

Depreciation and amortization expense was $16.6 million for the quarter and is expected to be about the same in the fourth quarter. Our effective tax rate for the third quarter was 29% and we expect the same 29% for the full year. For more information about our financial results please review the earnings release and our Web site.

I will now turn the call back over to Chris for concluding remarks and to moderate Q&A..

Thanks Jim. I am very pleased with our strong performance in the third quarter and believe Forum is on the right track as we finish 2014 and look forward to 2015. We will continue our focus on growth, operating excellence and margins. I want to recognize and thank our employees for their efforts and the good performance.

We’re coming together as a Company and are progressing well on our objectives. Now thanks for your interest. And this point we will open the line for questions. Ian let’s take the first question..

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Certainly, sir. (Operator Instructions) Please standby for your first question which comes from the line of Doug Becker at Bank of America Merrill Lynch. Please go ahead Doug..

I wanted to touch base on the guidance for the fourth quarter. I appreciate the holidays coming up.

Can you give us any quantification of what type of normal seasonality your business sees as the holidays approach and you have fewer manufacturing days?.

I wanted to touch base on the guidance for the fourth quarter. I appreciate the holidays coming up.

Can you give us any quantification of what type of normal seasonality your business sees as the holidays approach and you have fewer manufacturing days?.

Yes I think there are two things that impact the fourth quarter, Doug. One is just the number of holidays, and particularly in the second half of December or late December, and the other is just weather issues, very hard to recover from any weather issues that would occur. They tend to happen late in the quarter and there is just no time to recover.

I guess there is one other factor as well, is, since very little of our business is on percentage of completion but rather on actual completion and shipping in order to recognize revenue, we are dependent upon our customers to actually accept delivery of the goods at the end of the quarter and as folks get focused on balance sheet measures and their CapEx spending, what we have seen in the past couple of years is sometimes customers would prefer to defer taking delivery until right after the first of the year.

So, it’s hard to quantify all those factors. But we’ve tried to take some of that into accounts and in our guidance. But we have seen no slowing in our orders or in our performance as at this point in time..

And if you characterize the weather, you try and take a situation like last year, which, I guess I would characterize a little more severe than usual.

And have you tried taking your oil price concerns into that guidance?.

And if you characterize the weather, you try and take a situation like last year, which, I guess I would characterize a little more severe than usual.

And have you tried taking your oil price concerns into that guidance?.

We have not factored oil price concerns into that guidance. I think we’ve take into account more of a normalized weather environment, not -- and I think last year was more severe..

And maybe one for Prady, you mentioned $30 million to $50 million of incremental revenue growth for next year.

And can we get any color on where those gains might be coming from?.

And maybe one for Prady, you mentioned $30 million to $50 million of incremental revenue growth for next year.

And can we get any color on where those gains might be coming from?.

Well I would say the Drilling product line has a couple of products the Flow Equipment, Valves. I would say those are -- and the Downhole, those are three full product lines where we expect to see some of those gains..

Yes, the well intervention space as well, we’ve got I think some important products coming out as well..

Yes. .

And then just one last one as we think about 2015, in Drilling & Subsea.

Just any initial thoughts in where -- which of your businesses you think grow the fastest in that segment?.

And then just one last one as we think about 2015, in Drilling & Subsea.

Just any initial thoughts in where -- which of your businesses you think grow the fastest in that segment?.

Within Drilling & Subsea?.

Correct..

Correct..

So, we’ve seen the strong orders in Drilling reflecting the level of activity and its move to the next-generation of land rigs. I think the Downhole and Completion product space is benefiting from the more complex completions and higher stage count that’s happening there in longer laterals.

So as we look ahead, I think, those would be high on the list of companies that we would look to for growth. Over in the Production & Infrastructure side, I recognize you didn’t ask about that. But I think the Valves business has turned the corner as reflected in our comments and it’s looking up and we’re expecting growth there in 2015..

And our Pressure Pumping business continues to be strong going into 2015..

Great, thank you very much..

Great, thank you very much..

Thank you. We have another question for you. This one is from the line of Jeff Tillery at Tudor, Pickering, Holt. Please go ahead..

I apologize if I missed this, and my line was breaking up when you were discussing the P&I orders. Could you just give some color around, obviously it’s a huge improvement sequentially. You’ve talked about qualitative Valves and Production Equipment turning the corner.

Could you just give us some color, is it new customers, is it new geographies? Just some color behind what drove that increase?.

I apologize if I missed this, and my line was breaking up when you were discussing the P&I orders. Could you just give some color around, obviously it’s a huge improvement sequentially. You’ve talked about qualitative Valves and Production Equipment turning the corner.

Could you just give us some color, is it new customers, is it new geographies? Just some color behind what drove that increase?.

So, on the production infrastructure side, within flow equipment it is the activity levels right. And it is mostly on the aftermarket service side, repair and replacement. There is probably some new capital equipment involved in that, since we continue to get some level of manifold trailer, missile trailer orders.

But it is driven by activity and the repair and replacement side. The Valves pickup I think is driven at this point by the upstream and midstream demand. We have not yet seen the larger project orders associated with the process industries.

And then on the Production Equipment side, we have been looking for an improvement in that business in the second half of the year. Their order book has begun to increase. And as we mentioned, we are bidding, but not yet have been awarded some larger contracts there..

And then the color you gave in the release and on the call around the 50 plus on iron roughnecks and catwalks order.

Could you just put that in context? What is then a normal kind of full year, what are the shipments for products like those?.

And then the color you gave in the release and on the call around the 50 plus on iron roughnecks and catwalks order.

Could you just put that in context? What is then a normal kind of full year, what are the shipments for products like those?.

Yes. So, Jeff, to give a feel for a normal quarter for us looking back over the past couple of years for both catwalks and for the roughnecks, I mean a good quarter would be anywhere from 20 to maybe high 30s, so that should put in context that to be over 50 is a excellent quarter for both of those products..

And then the last question I had was just around the Subsea business, and I'm not looking for customers who have changed behavior based on oil price. But just given there has been a longer gestation period in terms of kind of the IOCs flattening up their spin levels.

Has the discussions with your ROV customers changed at all over the last six months?.

And then the last question I had was just around the Subsea business, and I'm not looking for customers who have changed behavior based on oil price. But just given there has been a longer gestation period in terms of kind of the IOCs flattening up their spin levels.

Has the discussions with your ROV customers changed at all over the last six months?.

Most of the ROVs that have been ordered this year, many of them have been parts of large bid packages associated with additional vessels, new vessels that are being built and need to be outfitted with the ROVs. And those vessels are going to be delivered and the ROVs shift to our customers during 2015 and some probably into the early part of 2016.

So we are seeing a wave of new vessel construction here. Don't know that that's going to continue at the very high rate it's been here recently.

But we do think there will be an opportunity to be more active and something we're focused on is the aftermarket business for the large fleet of Perry brand ROVs we've supplied to our customers over the years.

The aftermarket business I think can be an important one, if not one that we have focused on as much as we could, given the activity on the new-build side..

Thank you very much Jeff. We have another question for you. This one is from the line of Blake Hutchinson at Howard Weil. Please go ahead Blake..

My first question is around the Downhole completion tools business and some of the numbers that you gave out, very good quarter there. Is what you are seeing there kind of the culmination of expanding your manufacturing capacity to service both the U.S.

channels to market as well as International and that kind of having the first full quarter of maybe of servicing both of those markets at one time, having that capacity, or is it more an indication of kind of a ketchup in current demand, like the Flow Equipment side have seen?.

My first question is around the Downhole completion tools business and some of the numbers that you gave out, very good quarter there. Is what you are seeing there kind of the culmination of expanding your manufacturing capacity to service both the U.S.

channels to market as well as International and that kind of having the first full quarter of maybe of servicing both of those markets at one time, having that capacity, or is it more an indication of kind of a ketchup in current demand, like the Flow Equipment side have seen?.

Also on two fronts, the team has made great progress Blake. We continued to build our presence internationally and so internationally that business is growing very strong but also they have made great progress in North America. We have better commercial presence across all the basins and that team gaining share in North America..

So not necessarily anything to warn us off that being a better baseline to work from at this point?.

So not necessarily anything to warn us off that being a better baseline to work from at this point?.

I think that it is a reflective of activity levels and I think we now have our production up where we wanted to be there, so as Prady said good improvement in that business..

And then just a follow-up on the catwalks and iron roughneck orders, should we assume I guess qualitatively those are spec to new build or is this indicative of either replacement or upgrade type of a market evolving?.

And then just a follow-up on the catwalks and iron roughneck orders, should we assume I guess qualitatively those are spec to new build or is this indicative of either replacement or upgrade type of a market evolving?.

I would say most of the catwalks are for new build rigs Blake. The Floorhand tools is probably a mix, of both new build rigs but also some replacement Floorhand iron roughnecks as those have a frequent replacement cycle..

Thank you, Blake. We have another question for you. And this comes from the line of Jonathan Sisto from Credit Suisse. Please go ahead Jonathon..

Chris I wanted to follow back up on production infrastructure, obviously the commentary around Flow Equipment was very good. Global tubing is very additive but if you exclude those you mentioned Valves has turned the corner.

I was wondering if you could maybe give a little bit more color about Valves Production & Infrastructure and how we should be thinking about that business both as it was in Q3 but on a go-forward basis?.

Chris I wanted to follow back up on production infrastructure, obviously the commentary around Flow Equipment was very good. Global tubing is very additive but if you exclude those you mentioned Valves has turned the corner.

I was wondering if you could maybe give a little bit more color about Valves Production & Infrastructure and how we should be thinking about that business both as it was in Q3 but on a go-forward basis?.

Well, let's look back a bit. Both the Valves business and the Production Equipment business were growing quite nicely for us until the middle of last year. And then in the second half of ’13, both of those Infrastructure businesses as we refer to them hit a soft spot, I think for different reasons.

We anticipated that there would be an upturn in the second half for them. The Valves business has begun to see that upturn and we were quite pleased with the performance in the Valves business.

On the Production Equipment side, although we saw the increase in orders, we have not yet seen the -- we did not see in the third quarter the increase in revenue for Production Equipment and we are expecting that to begin in the fourth quarter.

Different factors driving them, as I said I think the Valves, the upstream and particularly midstream areas, and we're anticipating that these bigger projects in the process industries will kick in, in 2015 and give that Valve business some good legs..

And then I might as try and take a stab here at 2015. You are more manufacturing by nature of the Company as a whole, thus you have kind of longer cycle businesses in several of your product lines.

Should your visibility be better than onshore activity for 2015 and your top-line growth be able to kind of keep that 10% to 15% organic cadence in a $80 WTI type environment?.

And then I might as try and take a stab here at 2015. You are more manufacturing by nature of the Company as a whole, thus you have kind of longer cycle businesses in several of your product lines.

Should your visibility be better than onshore activity for 2015 and your top-line growth be able to kind of keep that 10% to 15% organic cadence in a $80 WTI type environment?.

Our customer base, Jonathan, as you know, is mostly the service companies and the drilling contractors. So, our revenue will be driven by their CapEx and operating expenditures as rigs keep working as stages continue to fraced. Our OpEx products will continue to have a good market.

I don’t think we have the overstocked situation, or anything close to it that we had back say in 2012. On the CapEx side, we have the benefit of some backlog there associated with the new rigs and new ROVs that have been ordered and we continue to hear our customers talking about those because they can continue to get a longer term contracts.

And we’re keeping an eye on that as well. It’s harder to give more definite picture of 2015 at this point but as our customers firm up there, plans that will give [Technical Difficulty]..

Yes, so it’s a tough one to answer. Tell me where the oil price is going to be and for how long. Thanks Chris, have a good afternoon..

Yes, so it’s a tough one to answer. Tell me where the oil price is going to be and for how long. Thanks Chris, have a good afternoon..

Thank you. We’ve another question for you. This one is from the line of Brad Handler at Jefferies. Please go ahead Brad..

I guess a similar sort of topic may be coming at the questions a slightly different way. You Chris just mentioned on the ROV side how much has been tied to new vessels. How deep into what visibility you have on new vessels have awards been given for ROVs? That question is clear..

I guess a similar sort of topic may be coming at the questions a slightly different way. You Chris just mentioned on the ROV side how much has been tied to new vessels. How deep into what visibility you have on new vessels have awards been given for ROVs? That question is clear..

Right, right. So, I think there are still some situations that we are aware of that we are in discussions for. But I don't know that we are going to see too more of these kind of mega orders that we have seen for six, seven, eight ROVs at a time. Those have been quite remarkable in our experience.

Sometimes you talk to a customer that they want to standardize on your equipment and they’ll give you an order for two, and then two, and then two later on. But to get six, seven and eight, at a time as we have done several times this year, that's been pretty good, and probably I wouldn’t expect that to continue..

Okay, that’s helpful.

And it sounds like there aren’t that many vessels that you’re aware of, that for which ROVs have not been granted I don’t know if you can put some percentages on that if you can?.

Okay, that’s helpful.

And it sounds like there aren’t that many vessels that you’re aware of, that for which ROVs have not been granted I don’t know if you can put some percentages on that if you can?.

Yes, there are some. And both in the work-class area and in the larger trencher area, but as I said, I think the very mega orders that we’ve seen associated with large building programs don’t see as many of those at this point..

Sure. .

Sure. .

However, the afterlife market which Chris addressed early on from a business case standpoint, that becomes more attractive for customers. And that’s what we’re focused on apart from the new build ROVs is to build that business up from a afterlife standpoint..

Sure. Okay, thank you for that. I appreciate the color. Can I ask the same sort of question for U.S. land rigs? How deep into what has been ordered or the visibility we all have on ’15 land rig orders.

Have your equipment -- have you sold equipment into or has equipment been sold into? Same sort of question, right are you, is there a lot more of the 200 some odd land rigs that appear to be coming into the market based on announced cadences of by the drilling contractors? How deep into that have you sold equipment? How much more or conversely, how much more is there just based on what that visibility lends us is there for you to sell into?.

Sure. Okay, thank you for that. I appreciate the color. Can I ask the same sort of question for U.S. land rigs? How deep into what has been ordered or the visibility we all have on ’15 land rig orders.

Have your equipment -- have you sold equipment into or has equipment been sold into? Same sort of question, right are you, is there a lot more of the 200 some odd land rigs that appear to be coming into the market based on announced cadences of by the drilling contractors? How deep into that have you sold equipment? How much more or conversely, how much more is there just based on what that visibility lends us is there for you to sell into?.

Well Brad, you see the continuing announcements as we do for the land drilling contractors in North America.

And if the number of new land rig announcements just keeps coming, right?.

Yes..

Yes..

And so that continues the pace. I would also mention on the jackup side that there are very a large number of jackup rigs on order over the next couple of years and we have not seen all the orders that we expect to receive coming out of that either..

Got you, okay thank you very much, I appreciate that..

Got you, okay thank you very much, I appreciate that..

Thank you, Brad. We have another question for you. And this one is from Rob MacKenzie at FBR Capital. Please go ahead Rob..

Thanks guys. I guess my question comes back to margins and I apologize if this was asked earlier, I just stepped up briefly. But you obviously came back above 20% EBITDA margins this quarter I know that’s been a goal for you guys that sometimes you’d be sustainably at or above that level.

Your guidance seems to imply fourth quarter margins taking a dip here.

Can you give us some thoughts as to how you see margin see margin progression not just near-term but also longer-term particularly in the context of bringing in your new procurement executives and the other moves you are making which seem to support better margins going forward?.

Thanks guys. I guess my question comes back to margins and I apologize if this was asked earlier, I just stepped up briefly. But you obviously came back above 20% EBITDA margins this quarter I know that’s been a goal for you guys that sometimes you’d be sustainably at or above that level.

Your guidance seems to imply fourth quarter margins taking a dip here.

Can you give us some thoughts as to how you see margin see margin progression not just near-term but also longer-term particularly in the context of bringing in your new procurement executives and the other moves you are making which seem to support better margins going forward?.

Yes Rob we have had as a goal that we talked about for the past few quarters of 20% EBITDA margins. We have achieved that in Q3 and we don't look to be retreating from that in Q4, okay.

I think the question on Q4 is just how much we can ship and deliver and recognize revenue on given the holidays and the weather and customers desire to put things on their balance sheet by the end of the year..

And then how much of those margin gains from your step-up initiatives do you think you can preserve going into next year? And frankly what would your next target be if you’re so bold on EBITDA margins? And if you wouldn’t mind trying to roll into that thought process, how weaker [Technical Difficulty]..

And then how much of those margin gains from your step-up initiatives do you think you can preserve going into next year? And frankly what would your next target be if you’re so bold on EBITDA margins? And if you wouldn’t mind trying to roll into that thought process, how weaker [Technical Difficulty]..

Sure Rob as we have mentioned in the earlier calls our strategy for the next several quarters is still going to be at the 20% EBITDA margin.

On one side we’re going to take cost out from a procurement standpoint, from manufacturing standpoint on the other front we’re going to invest in the product development and some of the systems and structure and commercial presence we got to put in place all to position us for growth.

And that’s been our strategy for the last several quarters and that’s our strategy at least for the next few quarters going into 2015..

Thank you, Rob. And we have another question for you. This one is from the line of Robin Shoemaker from KeyBanc Capital Markets..

And I wanted to ask you about the manufacturing procurement/outsourcing I guess initiatives that you’ve had underway in which you've already started demonstrating progress.

So if the business does start to slow and orders start to fall, in terms of these initiatives, how would you expect them to perhaps benefit you in a business slowdown compared to where you might have been, had you not undertaken these?.

And I wanted to ask you about the manufacturing procurement/outsourcing I guess initiatives that you’ve had underway in which you've already started demonstrating progress.

So if the business does start to slow and orders start to fall, in terms of these initiatives, how would you expect them to perhaps benefit you in a business slowdown compared to where you might have been, had you not undertaken these?.

Well let me start that and then I would turn it over to Prady. Clearly on the procurement side reducing our cost of material is a direct impact on our margins. And then on the manufacturing efficiency side I think we are going to be better positioned to manage our direct labor costs in the face of changing market conditions up or down..

So I’ll take couple of fronts; number one our cash position is pretty good as you know.

If there is a slowdown, obviously we’ll look at the M&A standpoint if assets get attractive but independent from that from an operational standpoint, we are managing the variable cost which also includes the indirect cost which is directly proportional to the amount of manufacturing we need to do.

And from a procurement standpoint obviously it gives us more leverage on suppliers to take more cost out. Right so I think there are angles on both sides whether it’s a growth standpoint or whether it is a slowdown, but I think the manufacturing and procurement should give us benefits on both sides of the, whether it is the growth or a slowdown..

So I wonder a follow-up question here you did mention briefly M&A acquisitions and we can see that this year has been a slightly less active year specially compared to last year. So how do you see the environment and I know Chris you have been through several cycles.

You now have seen a big retreat in the equity market, equity valuations of public companies.

How does that play into the valuations of private companies you may be looking at? And is there a kind of -- are we kind of frozen in terms of valuations, buyer’s perception versus seller’s?.

So I wonder a follow-up question here you did mention briefly M&A acquisitions and we can see that this year has been a slightly less active year specially compared to last year. So how do you see the environment and I know Chris you have been through several cycles.

You now have seen a big retreat in the equity market, equity valuations of public companies.

How does that play into the valuations of private companies you may be looking at? And is there a kind of -- are we kind of frozen in terms of valuations, buyer’s perception versus seller’s?.

So I think the primary things that drives our timing on acquisitions is that we took that pause, in the second half of last year and the first half of this year as we focused on our internal improvement and consolidation and integration initiatives.

And then we have really gotten cranked up again on acquisitions here from the middle of this year on and it takes a while to move those forward to finality.

As regards your question about kind the market and pricing my experience has been that if there is, if in the event of a down market on the private side sometimes seller’s expectations are a bit sticky right, whereas on the public side you get that feedback every day.

On the private side sellers can get a number in their mind and it’s a little harder that they don’t get the immediate feedback about how that market is changing right. So that makes it a little bit more difficult on the private side in a down situation and might stir some external pressures on the seller..

Right, right because certainly now your financial situation, I mean, you are very well positioned to do some sizable acquisitions, even above the kind of 50 million to 100 million sweet spot that you have identified in the past. So it would seem to be a good time.

But as you say the buyers may not have translated all that's happened here lately into their expectations..

Right, right because certainly now your financial situation, I mean, you are very well positioned to do some sizable acquisitions, even above the kind of 50 million to 100 million sweet spot that you have identified in the past. So it would seem to be a good time.

But as you say the buyers may not have translated all that's happened here lately into their expectations..

Right the sellers, that’s right. And you’re right we do have the firepower..

Okay. Thank you, Chris..

Okay. Thank you, Chris..

Thank you, Robin. And we have another question for you. This one is from Brandon Dobell from William Blair. Please go ahead Brandon..

Thanks.

Maybe guys if you could give us some, I mean some expectations for how we should think about [Technical Difficulty] or levels and DSOs as we kind of finish out here in ’14 and move into ’15 just as a way to gauge some of the operational or process improvements that you guys are making? How that impacts some of the working capital dynamics?.

Thanks.

Maybe guys if you could give us some, I mean some expectations for how we should think about [Technical Difficulty] or levels and DSOs as we kind of finish out here in ’14 and move into ’15 just as a way to gauge some of the operational or process improvements that you guys are making? How that impacts some of the working capital dynamics?.

Sure, Brandon. We are very focused on our cash flow in the fourth quarter. And as you rightly point out, the largest consumer of working capital for us or cash flow is working capital. So our DSOs have trended up a little bit this year in a matter of days, up a few days.

We’re very focused in the fourth quarter of getting that back down to our historical levels, which have been at the 60 days or better. So you should plan on in the fourth quarter seeing that happen.

We have a challenge, generally at the end of the calendar quarter customers tend to pay less and at the end of the year with the holiday season that can be worse but we’re going to push for achieving as much of those collections as we can prior to that mid-December.

We've also seen a good increase in our turns, inventory turns this year pushing to get back up against above our target, so three turns, but we are starting to approach that with the initiatives that Prady described earlier.

Going back to DSOs for just a moment, Brandon, we also have a higher international mix of customers, which historically they have also extended DSO's and that’s part of what’s driven this up a few days we’ve had. But we do feel we have an opportunity to bring that back in..

Okay. And then Chris, you talked about the aftermarket or kind of service business in ROVs.

Any feel for at what point that starts to make a difference in revenue growth and given it can be a pretty good margin business? And how should we think about the potential impact for you guys on the margins?.

Okay. And then Chris, you talked about the aftermarket or kind of service business in ROVs.

Any feel for at what point that starts to make a difference in revenue growth and given it can be a pretty good margin business? And how should we think about the potential impact for you guys on the margins?.

Yes, it will take some time. You’re right Brandon, to really ramp that up into a significant part.

So what would you think would be reasonable Prady there?.

The opportunity we’re looking at is over 400 ROVs or Perry units install fleet. I don’t think everyone then will be a target. But I would say 60% to 70% would be target for us over a period of time. But by the time we build infrastructure and presence and the customers are expecting regional presence in Brazil, in Singapore, in Houston.

So by the time we build that and build the business, we expect to see the returns over the next five years..

And in terms of when you might begin to see it in our result and here us talking about it, I don’t think that will be before the second half of next year..

Okay, fair enough.

And then final one for me, if you look at a couple of the major product categories Downhole Tools, Consumables maybe even ROVs, how much improvement have you guys seen in manufacturing times or manufacturing process issues? I guess I'm just trying to gauge how much more improvement you guys can get on the manufacturing throughput now that you have got some of these systems and the capacity put in place?.

Okay, fair enough.

And then final one for me, if you look at a couple of the major product categories Downhole Tools, Consumables maybe even ROVs, how much improvement have you guys seen in manufacturing times or manufacturing process issues? I guess I'm just trying to gauge how much more improvement you guys can get on the manufacturing throughput now that you have got some of these systems and the capacity put in place?.

And also we’re in the early stages of making those improvements. If we look at our biggest business line Drilling we have made about 5 to 10 points of on-time delivery important improvements over the last several months.

And there are still a lot more opportunity for us to make improvements on on-time delivery on the manufacturing and also on the distribution..

Okay, thanks guys..

Okay, thanks guys..

And we think that through the large new facilities we opened in the Drilling business beginning of this year, we’re going to do the opening of our new consolidated facility in our Flow Equipment business in December of this year. And that will bring some of those efficiencies.

And then in our Downhole business we’ll look to be doing some of that next year..

Okay, thanks I appreciate it..

Okay, thanks I appreciate it..

We’ll take one more question here..

Okay, thank you. We have a question here. It’s from Darren Gacicia I believe from Guggenheim Securities. Please go ahead Darren..

You talked about kind of success in the Downhole business.

Can you give a little sense of the product lines that they are driving there, is it frac plugs? And if you can kind of lead in there a little bit about how do you think lead times are for orders there and where inventories may stand in those businesses for those product lines?.

You talked about kind of success in the Downhole business.

Can you give a little sense of the product lines that they are driving there, is it frac plugs? And if you can kind of lead in there a little bit about how do you think lead times are for orders there and where inventories may stand in those businesses for those product lines?.

Within our Downhole products business, they need to be responsive business. They have to be able to respond quickly to orders. So that is true in our frac plug composite frac plug, drill the frac plug business.

It is true in our artificial lift-related business Cannon Services and in our Cementing and Casing Accessory business, Davis-Lynch, so all of those are seeing the benefits of a more intensive completions market and in the case of Cannon artificial lift and complex wells.

And from a geographic standpoint, although the frac plugs is U.S., both Cannon and Davis-Lynch are benefiting from the North America market and International and our property mix..

And where do you think inventories are kind of products across lines and where do you believe the lead times you see for order flow. So it seems like you are fairly constructive on what the near-term outlook is.

The equity market is kind of suggesting a little bit more concern [Technical Difficulty] what the visibility point is in case something changes?.

And where do you think inventories are kind of products across lines and where do you believe the lead times you see for order flow. So it seems like you are fairly constructive on what the near-term outlook is.

The equity market is kind of suggesting a little bit more concern [Technical Difficulty] what the visibility point is in case something changes?.

Darren you broke up the last few points of your question.

Could you repeat it please?.

I was saying inventory levels kind of within the market on your different lines within Downhole and then a little bit more on kind of lead times to order flow because the market is definitely showing that it’s, considering the stock market anyway definitely it is only concerned about what the trajectory of businesses are.

I just didn't know when you may have visibility to kind of maybe change what seems to be a pretty positive viewpoint if it were to happen?.

I was saying inventory levels kind of within the market on your different lines within Downhole and then a little bit more on kind of lead times to order flow because the market is definitely showing that it’s, considering the stock market anyway definitely it is only concerned about what the trajectory of businesses are.

I just didn't know when you may have visibility to kind of maybe change what seems to be a pretty positive viewpoint if it were to happen?.

I will say the businesses like the Downhole or the Flow Equipment, Pressure Pumping, some of the consumable part of the business and the Drilling, on-time delivery, lead times, that’s the recipe for success in those businesses.

So as our on-time delivery and cycle time reduction initiatives continue to make progress, we will continue to do better in those businesses. The execution, both in the Pressure Pumping, the Flow Equipment business and also in the Downhole businesses have become better.

As you know we are building our, we’re increasing our capacity of the Flow Equipment business by end of the year in Atlas and that will give us some more capacity and we’re doing the same thing in Downhole but in general our cycle times are getting shorter and our on-time delivery is getting better..

That's right, just taking the Davis-Lynch product line for instance, we are getting the inventory on-hand and in our distribution sites, so we have the right inventory and can respond more quickly to our customers and that's helping us gain share in the North America market so that's what we’re looking to do.

I do not think that our customers have an oversupply of inventory and these kinds of parts on-hand themselves. They’re looking to us and folks like us to have those stocks that they can order from when they need it..

If I could slip kind of one more on a slightly different topic, people ask a lot about kind of supply chain gain, benefits to margins and the rest. And one of the answers you talked about -- you kind of countered with also to talk about R&D.

Is there kind of an offset here, where some of the gains you may get from supply chain benefits? You’re looking at deploying to R&D and that maybe mutes kind of the, what could be a better trajectory for margins, because we’re reinvesting in product lines?.

If I could slip kind of one more on a slightly different topic, people ask a lot about kind of supply chain gain, benefits to margins and the rest. And one of the answers you talked about -- you kind of countered with also to talk about R&D.

Is there kind of an offset here, where some of the gains you may get from supply chain benefits? You’re looking at deploying to R&D and that maybe mutes kind of the, what could be a better trajectory for margins, because we’re reinvesting in product lines?.

Well Darren you’re right, I think our strategy is on one side to focus on procurement and manufacturing efficiencies and cycle time and on-time delivery and take cost out of the system and make the cycle times better. It that was the only activity involved? Yes, the margins would go up. But at the same time we have to position the business for growth.

We need to address new product development and our commercial presence not only in North America but also internationally all those needs investments, so we’re taking some of the cost, we’re taking out of the system and putting it back in investments.

And as a result what we’re targeting is to be at the 20% EBITDA for the next several quarters, which is what we have done for the last four or five quarters..

Great, Darren thank you. Great, we appreciate you all joining us and good discussion. Ian, I think that will conclude the call..

Thank you. So, ladies and gentlemen that concludes your conference. You may now disconnect. Thank you very much for joining us today. Do enjoy the rest of your day..