Mark Traylor - Vice President, Investor Relations and Planning Christopher Gaut - Chairman of the Board and Chief Executive Officer Prady Iyyanki - Chief Operating Officer and Executive Vice President James Harris - Senior Vice President and Chief Financial Officer.

Jeff Tillery - Tudor, Pickering, Holt Jacob Lundberg - Credit Suisse Blake Hutchinson - Howard Weil David Anderson - Barclays James West - Evercore Robin Shoemaker - KeyBanc Capital Markets Brad Handler - Jefferies Chase Mulvehill - SunTrust Mike Urban - Deutsche Bank Brandon Dobell - William Blair.

Good day, ladies and gentleman, and welcome to the Forum Energy Technologies first quarter 2015 earnings conference call. [Operator Instructions] I would now like to introduce your host for today's conference, Mark Traylor, Vice President of Investor Relations. Please go ahead, sir..

Thank you, Danielle. Good morning, and welcome to Forum Energy Technologies first quarter 2015 earnings conference call. With us today to present formal remarks is Cris Gaut, Forum's Chairman and Chief Executive Officer; as well as Prady Iyyanki, our Chief Operating Officer; and Jim Harris, Chief Financial Officer.

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, 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 refer to our earnings release. This call is being recorded.

And 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 Cris Gaut, our Chief Executive Officer..

Thanks Mark, and good mourning. I will start with some highlights of our first quarter performance and offer a few thoughts on the outlook for our business. And then, I'll turn it over to Prady, who will talk about our business improvement and operational excellence initiative. Jim will then provide more detail on our financial results.

The rate of decline in drilling and completions activity this year has been breathtaking, as we all know. Despite upstream activity and our revenue declining further and faster than we anticipated, I think our team at Forum did a commendable job of managing our cost down.

We were largely able to preserve our operating margins in the first quarter, demonstrating the scalability of our business. We are at $0.30 per share on an adjusted basis. And EBITDA for the first quarter, excluding non-operational items, was $62 million. EBITDA margins in the first quarter were 17.7%.

We generated free cash flow of $38 million, net of capital expenditures, which represents 130% of our earnings in the quarter. Of course, the decline in oil prices had a significant impact on spending by our customers. Total inbound orders during the first quarter were $288 million, that's a 32% decrease from the level in the fourth quarter.

The first quarter book-to-bill ratio was 83% for the company as a whole; 76% for the Drilling and Subsea segment and 93% for the Production and Infrastructure segment.

Within our Drilling and Subsea segment, the drilling product line experience a book-to-bill ratio of 69% in the first quarter on substantially lower orders for consumable products, due to significantly reduced number of active rigs in North America.

We continue to see lower orders for drilling capital equipment due to a slowdown in orders or new build rigs. At our subsea product line, orders decreased 21% sequentially from the fourth quarter, due to the general softness in the deepwater and offshore construction market.

However, we have a significant backlog of work-class ROVs to deliver during 2015. And during the first quarter we received a large order from Heerema for equipment to be supplied for a project offshore Angola as well as another order outside the oil and gas industry.

The downhole technologies product line had a sequential decrease in orders for our Davis-Lynch cementing and casing products, as fewer wells were drilled. But this was partially offset by increased orders for our composite frac plugs, as we gained some new customers for this product.

Moving to our Production and Infrastructure segment, inbound orders decreased sequentially by 33% compared to the fourth quarter, primarily due to the significant decline in completions activity, as oil and gas companies defer the completion of drilled wells in United States.

We don't expect to rebound in orders for our well production and separation equipment and our pressure pumping consumable products, until operators begin to complete these inventoried well. But when they do start completing wells, we expect a rapid recovery in these product lines.

Our valves product line remains an island of stability, with the book-to-bill ratio of 114% in the first quarter, as we receive orders for project work in the refining and petrochemical industries.

Looking ahead to the second quarter, not only did we start this quarter at a far lower level of activity than we had expected, the downward ride in rig count and well completions is continuing. We therefore expect the depressed activity, industry-wide pricing pressure and lower orders to mean a further decline in our revenue in the second quarter.

We will continue to manage our cost structure aggressively. I expect our decremental margins to be greater than the 26% we were able to achieve in Q1, but we will still look to achieve EBITDA margins in the mid-teens for the second quarter. We expect our second quarter diluted earnings per share to be in the range of $0.15 to $0.20.

I will now hand over the call to Prady Iyyanki, Forum's Chief Operating Officer, to update you on our progress in these focus areas.

Prady?.

Thanks, Cris. Good morning, everyone. The first quarter market conditions were challenging, as the market deteriorated faster than we expected with a sharp decline in rig count, and in addition operators not completing the wells.

I'm proud of our team's execution in the first quarter, we were proactive and decisive on aggressively reducing our cost structure. We have made several tough decisions and we are seeing the impact of our efforts in margins and in our results. On pricing, we continue to work with our customers to help them reduce their cost.

Our discussions have been collaborative and have resulted in pricing discounts with our strategic customers, especially when we have secured volume. We expect to have continued discussions on pricing, and we will feel more of the impact of pricing on margins, starting in the second quarter.

However, our procurement efforts are gaining momentum, providing tangible savings and helping to preserve margins in the mid-teens. On the opportunistic front, our customer and new product focus areas has resulted in adding several new customers across the product lines.

We also identified several strategic customers, where we are leveraging our existing relationship to pull-through other Forum products, and we are getting momentum in this area.

We will continue to align our cost structure, the areas of direct and indirect cost, procurement and SG&A to respond to market conditions, including restructuring, footprint consolidation and manufacturing efficiency.

Our decisive actions on cost structure, financial strength, our offensive plays, and their ability to scale our operations will position us to compete well. Now, our CFO, Jim Harris, will now discuss our financial results in greater detail.

Jim?.

Thank you, Prady, and good morning. I will summarize our quarterly results, comparing the first quarter 2015 sequentially with the fourth quarter 2014.

Consolidated revenue of $348 million for the first quarter was down 21% sequentially, as the severe drop in oil prices has had a significant impact on the spending by our customers across our product line.

Our Drilling and Subsea segment revenue of $215 million was down 23% on lower volumes of Drilling and Subsea capital equipment, and softer demand for activity-based consumable products across the segment. Our Production and Infrastructure segment had quarterly revenue of $133 million, a decrease of 17% compared to the fourth quarter 2014.

The segment was negatively impacted by the decline in completions activity in the North American land market.

Net income for the first quarter was $29 million, including $6.6 million in foreign translation gains on the stronger U.S dollar, offset by $4.9 million of restructuring charges, as we continue to take actions to reduce our cost in the face of declining market activity.

In addition to our direct cost initiatives, we are on track to reduce our SG&A by at least $40 million on an annual basis from our 2014 second half run rate. Operating income, excluding the non-operational items, was $45 million, down 35% from the fourth quarter, with decremental margins of 26% on the reduced revenue.

Drilling and Subsea operating income of $34 million was down 29% sequentially on the lower revenue across the segment. Production and Infrastructure operating income of $20 million was down 39% sequentially, primarily from decreased shipments of our pressure pumping consumable products and lower demand for surface production processing equipment.

Adjusted EBITDA margins in the first quarter were 17.7%, a decrease of only 140 basis points from the prior quarter on the even lower than expected volumes, as our cost savings initiatives limited decremental margins.

Adjusted diluted earnings per share for the first quarter were $0.30, achieved on lower than expected revenue, but with good and timely cost containment measures throughout the company.

While we entered 2015 with a good backlog of orders, predominantly for our capital equipment, only about 40% of those orders were scheduled for delivery in the first quarter. The significant decrease from fourth quarter earnings is mostly attributable to the very fast reaction by our customers to lower oil prices.

We experienced lower bookings, starting in the latter part of the fourth quarter, as the exploration and production companies cut their capital spending budgets in response to the lower oil prices, and those declines have only accelerated in 2015.

The result has been a precipitous drop in the rig count, especially in North America, and hence lower demand for our drilling and completions consumable products.

As we have noted, we have taken and we continue to undertake the necessary actions to adjust our cost base in line with our outlook, with revenue for revenue, and we expect to maintain EBITDA margins in the mid-teen. Our weighted average diluted share count for the first quarter was 91.5 million shares.

As of quarter end, we had $50 million remaining under our authorized $150 million share repurchase program. Net debt at the end of the fourth quarter was $385 million, up $33 million from the fourth quarter, including the $65 million acquisition of J-Mac Tool during the quarter.

We had $65 million outstanding on our $600 million revolver at the end of the quarter. Our leverage ratio, at the end of the quarter, on a net debt basis was 1.2x trailing 12 months EBITDA. For the first quarter, we generated $38 million in free cash flow. Interest expense was $7.6 million in the first quarter. Corporate expenses were $8.3 million.

And we expect corporate expenses to be around $8 million per quarter in 2015, down about 25% from 2014, after implementing our cost reductions. Capital expenditures were $11.4 million in the quarter, as we completed several projects initiated in 2014. Our budget for 2015 capital expenditures is approximately $35 million.

Depreciation and amortization expense was $16.3 million for the quarter; and excluding the impact of any additional acquisitions, should be approximately $65 million for the full year. Our effective tax rate for the first quarter was 27%, just below our prior estimate of 28%.

While we currently expect our full year tax rate for 2015 will be approximately 27%, the higher declines in U.S. activity, which is subject to higher statutory tax rate compared to more resilient international operations could result in our effective tax rate coming down further, as the year progresses.

For more information about our financial results, please review the earnings release on our website. I will now turn the call back to over to Cris for concluding remarks and to moderate Q&A..

The North American rig count declined 44% during the first quarter this year, and the decline has not stopped yet. At Forum, we have adjusted our costs and appropriately sized our operations for the downturn in our industry. We will continue to monitor drilling and completion activity levels and scale our operations accordingly.

During this downturn, our focus is on generating free cash flow, reducing our costs and preserving operating margins, while improving our operational performance to better position Forum to support our customer needs when this cycle turns.

Given our waiting to short-cycle consumable products, Forum will be among the first to see an increase in drilling and completion activity reflected in the financial results. I want to thank our employees for their dedication and extraordinary effort, as this is not an easy time to work in our industry. Thank you for your interest.

And at this point, we will open the line for questions. Danielle, can we take the first question please..

[Operator Instructions] And our first question from Jeff Tillery from Tudor, Pickering, Holt..

Could you talk a little bit about the business mix within the segments that drove margins? I presume, it makes sense that the P&I margins compressed a fair bit with the dramatic slowdown in the frac-related businesses. But within Drilling and Subsea, margins held up a lot better then I would have guessed.

Could you just talk about the mix within that segment?.

I'll start, and Jim and Prady can add. I think our drilling group did a real good job of anticipating this downturn and managing their cost in a proactive fashion. With subsea side, we did have the backlog that we were working off.

Jim, can you add some color there?.

Drilling, as you know, Jeff, is our largest product line and its margins were very resilient in the quarter. And so, while they contributed more than a-third, about 37% of the revenue for the quarter is more than that in terms of operating incomes, right, so that strong performance really drove this segment..

Although, they did have a decline in revenue, it was really managing the cost side..

Also both Drilling and Subsea had a very strong backlog coming into the year. And to Cris' point, the drilling team did a fantastic job on the cost side..

And then, I guess, staying on subsea for a minute. I'm curious if you could talk about -- I mean, I think the perception is this is most exclusively a new build oriented business. Could you just talk about -- and I know last call you talked a little bit about the aftermarket opportunities.

Could you give us some color on the mix as we step forward over the next 12 to 18 months, how that evolved or what the relative importance is of the more recurring revenue base?.

Within subsea, the new build component, the remotely operated vehicles that we built tends to be around 50% of our revenue for that product line, Jeff. And the rest is kind of operating expense spend by that same offshore construction customer base. And in first quarter that OpEx spend was down a bit.

It was down a bit more, with declining activity, with destocking, et cetera, and that's kind of a common story I think across many of our businesses..

The last question I have is just qualitatively as you think about the rest of the year, I mean obviously we're in this destocking period, where your business catches up to the lower activity.

Do you think the second and third quarter kind of middle parts of this year are respectively getting through that destocking period? And from there the underlying business is more reactive to whatever the end-market demand is?.

Once I think the decline in activity level is out, we'll work through that destocking.

And then the first step for us is that our revenue will reflect that level of activity wherever it does level out, but then any incremental increase involving equipment going back to work would require that restocking of that equipment to be put back into the field, and that's what we are referring to when we say that our business is responsive to activity levels..

And our next question comes from Jim Wicklund from Credit Suisse..

This is Jacob Lundberg on for Jim. So you mentioned lower orders in the drilling capital equipment.

I was just curious to get your take on this? If we don't order any deepwater rigs for the next couple of years, what does that drilling segment look like?.

Well, we focuses our drilling capital equipments primarily on land rigs and on the jack-up rig side to a limited extent. So the new build spend on the ultra deepwater market is not the market that we participate in to a great extent. So we would not have a lot of exposure to that positively or negatively..

Cris, Jim, here if I could. But the jack-up market start to rollover as well, and we've idled half of the land rig now.

So that doesn't look like it's going to perk-up anytime soon, and just deepwater -- but the overall outlook for next two years for adding drilling capacity, how does that look and what does that impact?.

Yes, we do have backlog associated with the large number of jack-up rigs that are still on orders, you know Jim. And then the equipment that we manufacture on the capital side for the land rigs, the catwalks, roughnecks and so on. There is a replacement cycle on that. It doesn't last as long as the draw-works or the mast or the mud pumps, et cetera.

But of course in our drilling business about two-thirds of our revenue comes from OpEx spend. And that follows the cycles we were talking about in the prior questions.

And as we work this equipment harder, as there is more pad drilling, and this efficiency drive, all that means more footage, drills, more making and breaking connections all of which means more wear and tear on the kinds of the things that we make..

And then if I could ask a follow up. You mentioned cutting $40 million from operating costs, adjusting the cost base, and so I would imagine that can't all be just fat that was cut, so there's sort of some implied element of expected duration of the weakness that we've seen so far.

Is that fair?.

Yes, Jake, so the $40 million that we referenced was specifically SG&A costs, and it's off of our run rate from the second half of last year. So those costs would include this cooperate cost savings that we discussed, but also some sales and engineering personnel and others that are in SG&A cost.

So we are in line with our strategy adjusting our cost base for current activity levels.

We're taking initiatives not just direct savings initiatives, but also general savings initiatives, so we can keep as many of the skill positions as we can going through the downturn and be prepared for the upturn, but there is no question that we have cut these..

We're also taking the opportunity to streamline our operations, which is difficult to do during an upturn. But during the downturn, it does give us the opportunity to streamline our operations.

I mean, just to give some examples, there're small fabrication shop in Caithness, Scotland and we've consolidated that with Moffat, which is a much bigger fabrication shop. And we had a tooling consolidation. We have a winch business in U.K., which we're consolidating with our [ph] Kirby business in U.K.

BOP consolidation, we have Vanoil brand business in Canada. We also have a BOP business in Broussard, Louisiana where we manufacture. And this was a right time to consolidate into the Broussard manufacturing facility, which was designed for scalability.

And then there was a business in UKPS, which is service personnel, it is not a strategic fit, and we decided to exit that particular product line too. So I mean these are just examples where we are streamlining our operations..

And your next question comes from Blake Hutchinson from Howard Weil..

Just wanted to make sure we're getting what we should out of your thoughts around order flow, Cris.

I know that the $288 million for 1Q was representative of a fairly abrupt halt to customer spending, but I take it from the tenor of your conversation here that you might expect order flow to move down maybe in line once again here with kind of quarter-to-quarter activity, maybe even just quarter-to-quarter U.S.

activity, if that's too punitive?.

Right, until activity bottoms out and the destocking has run its cores, I think there is more downside on the orders, but the orders do obviously lead the revenue side, so new orders will bottom out before revenue does, so watch the space. But we've had couple of quarters of dramatic decline in orders now.

And I think that is a good indicator of when our revenue will bottom out..

And I guess, again, I'm just trying to -- again the abrupt nature that we saw in 1Q would maybe lead us to believe that orders could bottom out.

But I mean, would you caution us away from that? And maybe we should be thinking of something more in the 15% to 20% decline in your type of range?.

Yes, I think we will see a further decline in Q2 in the consumable side, because there were continuing declines through the first quarter. But beyond Q2, we'll see, not calling that one yet. It's just more of this destocking running its cores on the consumable products..

And then I wanted to talk a little bit about the direct cost savings numbers. You've done a great job kind of educating on some of the scalability of the business this year.

I take it from, again, this conversation today that most of the savings on the cost of goods sold on has been direct labor and overhead rather than the big bites that we might expect from materials and the supply chain initiatives last year.

And is that kind of a correct read? And we probably still have kind of multiple basis points of margin that can be gained through material savings as the year progress here..

Yes, that savings has to work its way through the inventory balance. Prady, can you address the progress we're making on our procurement savings, and then that will flows to the income statement over time through the inventory..

I mean a biggest cost is direct cost. And as we have mentioned in the past, we have scalable business, low CapEx business. So direct cost is a biggest cost, which is primarily material and labor, which we can scale it down quickly by downsizing the operations, also some of the consolidations we just talked about.

On the procurement side, apart from downsizing the material piece is we're also getting tangible savings, now that we have six months into the procurement effort and there are lot of still opportunity here from a procurement standpoint and that's one of the reasons why we're going to hold our margins in 1Q, and also in 2Q we expect to hold the margins in mid-teens.

Again, there's lot of opportunity on the procurement front, consolidating the source space, getting dual sources in some cases where we have single sources, logistics is another good area where we are focusing on, we're getting tangible savings and also some of the consolidations, a good example is, BOP in Canada had their own source space and AMT pipeline in Broussard had their own source space.

So as we consolidate into one shop, in Broussard you also consolidate the source space and you get more savings..

Thanks, Prady. Now, just to add, there were probably two reasons that affected timings and slow the timing of how that flows through our income statement. One is, as I said, procurement as an input to the inventory and working through average costs.

The other is just that with the lower activity, we have had to dramatically slow our rate of new purchases, right, so it's not like we're buying one for one of what we're selling, right, because we're obviously looking and will be working down our inventory, so that kind of slows the rate at which we add the newer lower cost items as we're working through the inventory of older items that are already in inventory at a higher price.

Does that makes sense?.

Yes, it does. I appreciate that, the way you've kind of opened up that conversation for us here..

And our next question comes from David Anderson from Barclays..

So Cris, I was wondering if you could just kind of help me isolate just kind of your North American consumables.

If I just think about the drilling on side and the flow equipment on the other, could you help me understand how much roughly those businesses combined came down sequentially in terms of topline and what you're expecting it for next year? I am just trying to gauge -- we've got a pretty good idea where kind of services have ended up on that front.

So I'm just kind of curious where you're business is on that front?.

Yes, it will be the drilling or downhole products used in well construction and completion and the flow equipment, pressure pumping consumables..

So David, I think it's the best way to look at flow equipment because of the impact of the acquisition J-Mac that was acquired mid-quarter is more on a pro forma basis. And that business was hit harder than our other product lines and is down about a-third sequentially. So it's pretty much a book and ship business.

And so as not only was were fewer rigs drilling, but fewer wells were being completed that had a significant impact on that business..

You're talking flow equipment [multiple speakers]..

Yes, flow equipment overall on a pro forma basis..

So that was more or less in line with kind of what we're seeing in services, because it seems kind of a one for one..

Yes. Now, drilling and down-hole were not down that much. They did held-up better during the quarter, drilling partially because of its backlog, but also with the initiatives that they had going. They did not suffer as much of a decline in the quarter..

And in the case of downhole, even though they did see the impact of the market, they have done a much better job of holding, primarily because they've also added some new customers to the portfolio..

So when we're thinking about of kind of this inventory correction, I know you guys have talked that you don't think it will be as deep as last cycles, because nobody -- they didn't order up as much. Just kind of curious, what part of your business of those two -- it sounds like flow equipment, you're not too worried.

I don't know if it's operating leverage, but it sounds like you're not too worried about the inventory correction on that side, but it will be more acute on the drilling side, is that fair?.

I think there is destocking on both, as units continue to be parked, right. But it is also true I think in both cases that there was not the overstocking by our customers that there has been in past downturns like this, because the market just wasn't as high going into this.

Pressure pumping had barely really gotten back on its feet after the 2013 downturn. And on the drilling side, there was not the overstocking there that we need to work through. But, yet, every incremental unit that is part does create the opportunity for some cannibalization.

And not the de-stocking that's going on, it's not so much that there are large warehouses of spare equipment that need to be worked through this time..

But it sounds like from your earlier comments that you're thinking about kind of that inventory kind of lag effect between kind of activity in your business. It sounds like its maybe a quarter or two.

You sound like you're fairly optimistic of things going to be improving in the fourth quarter?.

Yes, if things stop going down..

If things stop going down second quarter, you think kind of by fourth quarter, you should start seeing improvement there in those businesses..

And our next question comes from James West from Evercore..

So, Chris, just maybe to follow-up on the last question, on the consumable side, particularly the flow equipment and well intervention businesses. So if I am hearing you correctly, even though activity has come down, there wasn't major overstocking and activity is not going to zero here.

So you should start to see some orders come back here in the next, call, a quarter or two. Maybe not 2Q obviously, because we're still going down, but 3Q and 4Q, and you should start to see the early signs of at least a stabilization in their business, which would lead to an upturn in your business.

Is that a fair characterization?.

Yes, I think a stabilization would give us a minor upturn. But then as the completions activity begin to increase and these drilled and uncompleted wells begin to be taken advantage of by operators, that would be the upturn that would be more significant for us..

And then, just another question for me on the M&A side. You're obviously back in the M&A game now, after kind of getting the business back in order.

How does the market look at this point or bid-ask spreads coming in line or they come in more favorable or are we still a couple of quarters away from that?.

We are seeing more things on the M&A side that are of interest to us. I would still say that the bid-ask spreads are a challenge. So we're trying to be creative and thinking about those. But we are seeing an increase in opportunities in our space, which is that less than $100 million kind of area..

And our next question comes from Robin Shoemaker from KeyBanc Capital Markets..

So, Chris, I wanted to ask about if you could characterize for us what you see in your international markets. 40% of your sales, I guess will probably be a higher percentage this year, it sounds like. And Jim described these markets as resilient.

What we hear from some other companies that are big in the international is, the Middle East market is holding up well; other markets are fading; some are really in a major downturn, like Mexico or Columbia.

So just for your product lines, when you say resilient international markets, what do you see over the balance of this year?.

So certainly, we would agree that the Middle East is the sole bright spot geographically. But if we drill down in our drilling business, excuse that, even in our handling tools market, we've got the legacy Forum business, which is more North America based.

And then we have the Blohm and Voss, Hamburg, Germany based handling tools that serve more the international market. And clearly the Blohm and Voss handling tools business is holding up significantly better, as they serve more just international land rigs generally as well as international offshore rigs.

I mean offshore rig count hasn't come down that much. Certainly, there is supply issues, we all know. But the activity levels are still descent there. And thus we're still getting some good orders from little parts. So that's a tangible example.

But I would agree that geographically we can't point to many more bright spots other than the Middle East, but that is one where we are focused and see some opportunities perform..

Two or three product lines which are not penetrated from a Forum standpoint in Middle East. A good example of that is downhole products and well intervention and valves. And as discussed in the last analyst call, that has been a focus area for us this year, Middle East, to penetrate that market.

And we are seeing progress there and we expect to get some volume from Middle East for those product lines in the second half of the year..

And Rob, and let me just also put my earlier comment into context. More resilient was meant to be a relative term, not indicating that international would not be down. But for our geographic mix, what we showed in the first quarter was the international business was down by less than half on a percentage basis from the domestic.

And in the context of the tax rate, my only point was if that mix continues, then we will see more opportunities for that rate to come down, the tax rate..

So let me just ask also about the other bright spot, which is a valve. So we've been hearing for years that there will be a resurgence of petrochemical construction based on the surge in natural gas liquids and so forth on the Gulf Coast. Is that in anyway coming through --- one of yesterday, Cameron had very weak orders in valves.

So your book-to-bill was 114%, anyway.

What can you add further in terms of explaining the performance of your valve business?.

I think there is a different mix in the vale business that we have. And we are more weighted towards process industries, and I think that is the reason for the different perspective that you're getting there, Robin.

But, yes, we are seeing the benefit of more orders and bidding opportunities associated with this project work for the petrochemical plants and the refinery expansions that are going on along the Gulf Coast. And that is the primary driver of the good orders that we're seeing and the resiliency that we're seeing in our valves business..

And like some of the other businesses too, we have seen the impact of upstream business, the valves going down, but the business has been able to hold primarily because of what Cris mentioned, the petrochemical, the pipeline and the midstream part of the business..

And our next question comes from Brad Handler from Jefferies..

China, as I guess we always try to read tea leaves within the segments a little bit. And as you've described drilling and downhole being, again it's a relative comment I know.

But if it fell a little bit less sequentially, perhaps that suggested that subsea revenues fell more than I might have guessed, and maybe more than the Drilling and Subsea average.

Is that true and is that reflect sort of a lull in deliveries? And then, how am I to describe the path, given the backlog for 2015 delivery?.

Well, certainly the orders were down in subsea, as one would expect, right. But from a revenue standpoint, no, I don't think that's right. I think that they're all about the same. And the subsea side, again, driven by the OpEx side..

An unrelated follow-up then, and again, without necessarily trying to draw you into a whole, bringing back everything you said in the call, you mentioned mid-teens margins.

I was just trying to understand whether that was a second quarter comment, about it being sustainable or if that's more something you feel comfortable talking about for all of '15 mid-teen EBITDA?.

I think for every call it's hard to go too far in the future. Things are pretty murky out there. We're primarily talking about second quarter here, Brad. During the call here today, we've speculated a bit on the direction and what it would take for things to flatten out or turn up.

But if things continue to go down -- the reason our margins will be down a bit in Q2 is just the declining marginal returns, right, as we eat away at the revenue and it declines, and the operating leverage works against us on pricing pressure. So if the market continue to head down, yes, we'll do the best we can, right.

But the scenario that we've been, that other questionnaires have been addressing, of getting to what to say for things to flatten out. And I think that our guidance would be more in this same mode..

I just couldn't quite feel a lot whether the procurement conversation had that much more leverage within it, so that it gave extra confidence around that. But I understand what you're saying. Okay, I'll turn it back..

And our next question comes from Chase Mulvehill from SunTrust..

So I guess a few questions here.

If we think about the levers or the drivers that kind of could put you in the low-end versus the high-end of 2Q guidance, if you could just kind of walk us through kind of what would you put you in the low-end and the high-end?.

The biggest is revenue, right. Our biggest challenge in the first quarter was how sharp the decline was and how much lower revenue was in Q1 than we expected going into the quarter or even when we talk to you all at the time of the fourth quarter call. Nonetheless, our team did a great job of anticipating that getting ahead on the costs.

And even though revenue was significantly lower, because of activity than we expected, we were right in the heard of the range that we had indicated to you. So as we look at the range for next year, again, revenue is the biggest driver. And if it comes in lower, then we've got to work harder on the cost side. And I know our folks are working very hard.

As I said, the operating leverage as we get lower does work against us. And as Prady mentioned, there is pricing pressure across the industry, especially for our customers that I have not seen before in a downturn..

Even the procurement front as we buy less, the savings will also be impacted by that. Our rate of savings would go up, but the absolute dollar value will be impacted..

So would you characterize pricing pressure is being worse than you would have thought this time last quarter?.

Yes, I think just about everybody is feeling that the pricing pressure is more than was expected or that they've experienced in other downturns. I haven't talked to anyone in the industry who doesn't feel that way. And that those companies dealing directly with the operators, I think feel that most..

So last quarter's conference call, you guys were talking about decrementals of 30% to 35%, obviously you outperformed this quarter. But as we move forward, it seems that the pricing pressures are a little bit worse.

Is the 30% to 35% still a good decremental number as we go forward?.

I think what we're going to stick with is the guidance that we've given in terms of the margins, and that's a mix effect there between the revenue and the cost. And so I think we'll stick with the mid-teens as our guidance and we'll get there. We'll have to work harder on the cost side if the revenue is lower. And that's our job, that's what we'll do..

So mid-teens for EBITDA margins, which implies higher decrementals than what we have in the first quarter, just to be clear..

One more, if you're thinking about right sizing your business, so how do you guys think about overall U.S.

service activity and the timing of a recovery?.

So I think that the first bit of recovery that we will likely see in North America and the U.S. will be on the completion side, this large inventory of wells.

Once the operators feel that they've gotten the service company cost down as low as they're going to get it, if they see some upturn in oil prices at all here they'll -- I think we could see that upturn in completions activity, and that will be early on in that cyclical recovery.

And then with those additional wells coming down, if there is resiliency in oil prices, then I think we can begin to see some higher drilling activity coming back gradually. But I think that scenario is more of a gradual recovery. It's not a sharp V. I think that the industry has worked hard on costs throughout the supply chain.

And I think that's going to make us all more efficient going forward, which is a good thing actually for ability to preserve activity and that see an upturn in activity with probably lower oil and gas product prices than we've had over the past four years or so..

And our next question comes from Mike Urban with Deutsche Bank..

Cris, one of the primary dramatic plays or verticals, if you will, that you're attacking whenever you put the company together, and have since been growing, it has been in the offshore and deepwater and subsea markets.

I think a lot of people, as we've gone through the downturn here, have started to question that as a long-term secular growth story, at least to the same extent that it was in the past, how do you view that? Is that kind of transitory trend, if you will, something that will pass over time, or are you changing a view on that as well as you think about how you grow and invest in different sectors going forward?.

Mike, I would say a very important point about Forum as we put together, and the strategy remains consistent, and that we're not tying ourselves to just one macro trend. We're not tied just to deepwater or deepwater rigs rather. Forum is strategically looking to take advantage of increasing service intensity.

The need that that service intensity drives for repetitive sell items across the drilling and the completions to subsea and production markets.

And I'm often asked in the context of M&A, where do we see our focus being, and I'd say both from an internal product development, although we have those across the company and from an M&A standpoint, the completions area is one that we're very focused on building.

But I think the strengths of Forum is that we see over time and there're different cycles and different timing, and yes, deepwater is out of favor right now, but having ability to leverage to that service intensity across drilling completions, subsea and production, I think is the key to what Forum is then will become..

And I totally get the diversification theme. And just trying to get a sense as you think maybe two, three, five years out, and I hear you on the completion side is deepwater subsea more or less or same, similar level of focus for Forum going forward. Quite frankly I cannot disagree with that consensus view that deepwater is dead.

And I think it's just more of a timing issue, but I'd be interested --.

And I absolutely agree with that. I think that yes, it's out of favor at the moment, but it will come back, there is just too much in the way of reserve potential. I think the majors still view as evidenced by what Shell has recently spent in their acquisition that it will come back. But we're not tying just to betting on one horse here..

Our next question comes from Brandon Dobell from William Blair..

If you could maybe give us some color on how much of an order, an inbound order headwind we're going to see from ROVs this year, and then maybe how to think about just a knock on effect of a revenue headwind moving into, I guess late this year, but especially into next year given, I'm guessing a pretty big push out on new ROV orders given deepwater?.

I don't think we're in a period here for the next 18 months that there will be a large amount of new orders for anything associated with deepwater vessels or rigs or things like that, however, that we will get some orders.

We have very strong relationships with many of largest ROV fleets out there, and we'll, I think see some orders, but significantly down from what they have been. And that's probably the rest of this year and into next year, if I have to guess. But beyond that, yes, I think that there is a good chance of a recovery.

But I think in the meantime, we will focus our subsea business on some other things that will position us well for the future on helping our customers with aftermarket support, and maintenance and renewal of their existing fleet, working on product development for our models that we offer on the vehicle side, and the OpEx side, and adding to our portfolio of things that we can do for our customers in that regard..

Of your bright spots in our subsea business, like the market business secured a big order, that Cris talked about in the script, and also Dynacon business is holding pretty well..

And it's worth mentioning too that the ROV business is not exclusively oil and gas. Lot of what our equipment does is associated with other industries. We sell ROVs, some big ones into Asia for cable laying, fiber optic laying. We sell a lot associated with renewable industry, with the wind farm industry.

There have been some articles recently about the push of wind farms offshore, and of course, all that cabling, and it needs to be buried and that's great for our business there. So we're not tied to exclusively to oil and gas, and in fact one of the orders Prady is referencing was communications outside oil and gas..

And then a quick one, relative exposure or sized exposure to work over rigs and coil tubing, and I guess that would both U.S.

as well as international, how do we size that exposure for you guys?.

Yes. Our well intervention product area is focused on exactly those kinds of things. And it's probably 10% of our revenue little more from a operation contribution given the joint venture and all. But in the coil tubing string area, we've got exposure to that.

And again that is part of what we see as a business long-term with the rest of what we generally describing as completions that we want to have a significant focus in. Well, thank you all. Good questions. Enjoyed the discussion this morning and we look forward to talking with you all again in three months time. End of Q&A.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day..