Forum Energy Technologies Inc (FET) 2013 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Forum Energy Technologies earnings release conference call for the first-quarter 2013. My name is Leanne and I will be your coordinator for today's call. At this time all participants are in a listen only mode and all lines have been placed on mute to prevent any background noise. We will be facilitating a question-and-answer session after the speakers' remarks. As a reminder, this conference call is being recorded for replay purposes. After the speakers' remarks today, I will instruct you on the procedure for asking questions.

I will turn the conference over to Mark Traylor, Vice President of Investor Relations and Planning. Please proceed, sir.

Good morning, and welcome to Forum Energy Technologies quarterly-earnings conference call for the first quarter of 2013. With us today to present formal remarks is Cris Gaut, Forum's Chairman and Chief Executive Officer; as well as Jim Harris, Senior Vice President and Chief Financial Officer. Also with us today are Forum's two division Presidents -- Charlie Jones, President of the Drilling and Subsea division, and Wendell Brooks, President of our Production and Infrastructure division.

We issued our earnings release last night and it is available on our website. The statements made during this conference call, including the answers to your questions, include information that we believe to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements involve risk 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 e vents, 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 statements may include non-GAAP financial measures. For reconciliation of these measures, please refer to our earnings news release available on our website. This call is being recorded. A replay of the call will be available on our website for 30 days following this call.

I am now pleased to turn the call over to Cris Gaut, our CEO.

Thanks, Mark, and good morning. I will start with some highlights from the quarter and offer a few thoughts on the outlook for our business, and then I will turn it over to Jim, who will provide greater detail on our financial performance.

In the first quarter 2013, our diluted earnings-per-share were $0.34. We generated $65 million of EBITDA on $373 million of revenue producing EBITDA margins of 17.3%. During the first quarter, we improved sequential revenue, operating income, and margin in both of our business segments on improved customer spending for our capital equipment and consumable products, delivery in the first quarter of previously-deferred capital equipment orders and the full-quarter benefit of the four acquisitions completed during the fourth quarter of 2012. Total orders during the first quarter were $385 million. On a sequential basis, we had a 15% increase in orders from the fourth quarter and higher orders for the drilling, subsea, and valve product lines. The first quarter book-to-bill ratio was 103% for the Company as a whole, 118% for drilling and subsea division, and 81% for the production and infrastructure division. Although production and infrastructure experience a lower book-to-bill ratio in the quarter, their backlog is strong due to the very high level of new orders received in the prior quarter for delivery throughout 2013.

The Drilling Technologies product line experienced an increase in orders for both drilling consumable products and capital equipment in the first quarter and reverses the three prior quarterly trend of declining orders attributed to this steady decrease in the North American rig count during 2012. We are pleased with this increase in orders to begin the new year in our drilling product line. I would note that there has been a shift in capital equipment orders to international markets which carry longer lead times and later revenue recognition. In our subsea product line, we saw good orders for ROVs in the first quarter and our outlook for additional orders is strong. During the quarter, Forum Subsea won a record level of new orders for our ROVs systems and spares. Included in these orders are launch and recovery systems and buoyancy products from our recent acquisitions. The strength in ROV orders covered our full range of observation and work-class as well as trenching vehicles, including a very large 1500-horsepower trencher for helix energy. Further, we are winning vehicle orders from new customers we haven't served previously.

In the Downhole Technologies product line we are opening an 82,000 square foot distribution center to support demand growth. At one of our recent acquisitions, Wireline Solutions, we are pleased with the market uptake of our pro-drill composite hydraulic fracturing plugs.

Moving to our production and infrastructure segment, our Production Equipment product line, where we make well-site separation equipment, continued its impressive growth trend and generated record quarterly revenue in the first quarter. However, orders for production equipment were down from the fourth quarter primarily due to our capacity considerations as we had received very strong orders in the fourth quarter for 2013 delivery. We are in the process of adding additional capacity which we expect to have online later this year. The customer quoting activity remains at very high levels from major operators including additional orders from multi-well modular equipment. We make production equipment for all the major unconventional basins in the United States. Demand for well-site separation, processing, and storage systems is strong and we remain positive about the outlook for this product line.

Our Valve Solutions product line had a steady sequential increase in bookings, revenue, and operating income. The business is experiencing broad-based growth across several markets including midstream transmission, pipeline integrity, refining, and petrochemicals. Our Flow Equipment product line's first-quarter revenue increased 8% sequentially, as our pressure pumping customers worked through their inventories of consumable products. Although we anticipate gradual improvement in 2013 for our Flow Equipment product lines, we are seeing pricing pressure for certain products especially fluid ends.

Now, looking ahead to 2013, we continue to anticipate sequential quarterly revenue and margin improvement in both of our segments, as most of our product lines are seeing increased demand. However, our drilling product line is not expected to fully recover until the North America rig count improves. Our revised 2013 earnings-per-share guidance of $1.70 to $1.80, that we provided in our earnings release reflects a slower rate of increase in the North America drilling activity and the extended delivery times associated with more international capital equipment orders. But, essentially no change in the earnings run rate we expect by year-end. We are encouraged by the long-term demand trends we are seeing, especially as related to deep-water activity, valve intensive infrastructure projects and completion activity in oily basins as well as increased activity in offshore and international areas.

Our CFO Jim Harris will now discuss our financial results in greater detail. Jim?

Thank you Cris and good morning everyone.

Consolidated revenues of $373 million for the first quarter 2013 are up 3% year-over-year and 13% over the fourth quarter 2012. Our Drilling and Subsea segment revenue increased 4% over the prior-year period and 19% sequentially. While our Production and Infrastructure segment revenue was basically flat relative to the first quarter 2012 and up 5% over the fourth quarter. On a year-over-year comparison, Subsea Technologies revenue improved 28%. We benefited from over $123 million in orders, which was a record and approximately 50% higher than our previous record. As Cris indicated, the increase in order flow for Subsea was balanced across the entire spectrum of ROVs including workclass and observation class vehicles and trenchers, and strong contributions from the recently acquired Dynacon launch and recovery systems.

Production Equipment and Valve Solutions continued their rapid growth phase with revenue up approximately 20% in each of these product lines. Offsetting the growth in these product lines year-over-year, Drilling Technologies revenue was down in line with the 11% decline in the North America lands drilling activity and Flow Equipment was off substantially from its extraordinary first-quarter 2012 performance. Both of these product lines however achieved sequential growth in the first quarter 2013, up 6% and 8% respectively from what we believe was a market bottom for us in the fourth-quarter 2012. In comparing our first-quarter 2013 fully diluted earnings-per-share of $0.34, with the results for the first-quarter 2012 of $0.57, please keep in mind that the shares issued in our IPO in the second-quarter 2012 have a dilutive effect on the 2013 first-quarter. Comparing our net income for the two periods is more meaningful. Our net income in the first-quarter 2013 of $32 million is down 25% from the first-quarter 2012 as a result of lower margins in both the Drilling Technologies and Flow Equipment product lines.

As expected, our consolidated EBITDA margins for the first quarter 2013 improved over the first quarter 2012 up almost 2 full percentage points to 17.3% but remain below historical levels above 20%. Consolidated EBITDA of $65 million for the quarter was up 26% sequentially from the fourth-quarter 2012. While activity levels are improving, our drilling product line, which is our largest, along with flow equipment continue to face market challenges. Orders for drilling consumable products and capital equipment were 19% higher sequentially, although many of these orders -- as Chris noted -- are for international customers which carry longer lead times and will not be delivered in the second-quarter 2013. We continue to expect further improvement in our drilling product line as North America land drilling activity is projected to pick up modestly in the second half of this year. Albeit a little later than we had anticipated. Flow Equipment should also see modest sequential improvement each quarter. As a result, we expect continued improvement in our consolidated EBITDA margins in the second-quarter 2013 while the return to total company EBITDA margins better than 20% will likely be achieved in the third-quarter 2013.

I will now review our segment results comparing the first-quarter 2013 sequentially with the fourth-quarter 2012. Our Drilling and Subsea segment revenue of $222 million was up $35 million or 19%. A little over 50% of the revenue gain was attributable to the four acquisitions completed during the fourth quarter 2012. The best performance in the quarter for this segment and for the company was the 56% increase in revenue for Subsea. On a pro-forma basis, for the Dynacon and Syntech acquisitions, treating both as if we had owned them for the entire fourth-quarter 2012, organic revenue growth for subsea was 44%. Operating income for Drilling and Subsea increased $8 million in the quarter or 28%, again mostly attributable to the Subsea revenue gain coupled with Subsea margin improvement. Our Production andIinfrastructure segment revenue of $151 million in the first-quarter 2013 was up $8 million or 5% compared to the fourth-quarter 2012. Production Equipment and Flow Equipment achieved revenue gains of about 8% each and while Valve Solutions had record shipments in the quarter, revenue was only up slightly from the very strong fourth-quarter 2012. Operating income from Production and Infrastructure increased $4 million or 25% sequentially as operating margins improved 220 basis points with all three product lines contributing.

I will now summarize our expectations for the second-quarter 2013 and reiterate guidance for the full-year results. We still expect to see North America land drilling activity pick up gradually for the remainder of the year, although with the later and slower start than originally anticipated. On that basis, we estimate fully diluted earnings-per-share will continue to improve sequentially and for the growth rate to accelerate in the second half of the year. We expect second quarter 2013 diluted earnings-per-share to be between $0.35 and $0.40, and for the year between $1.70 and $1.80. In the first quarter 2013, Drilling and Subsea contributed about 60% of consolidated revenue and is expected to remain at 60% for all of 2013. Net debt at the end of the first-quarter 2013 was $362 million, and interest expense for the quarter was $3.4 million. Net debt decreased $18 million sequentially from the fourth-quarter 2012 due to good cash flows in the first quarter. Interest expense for 2013, excluding any additional debt incurred for acquisitions, is expected to be approximately $14 million.

Our effective tax rate for the first quarter was -- and the estimated annual rate for 2013 -- is approximately 32.5%. Our diluted share count for the first quarter was approximately 94.4 million shares. We anticipate our diluted share count for the second-quarter 2013 to remain constant. Cash flow from operations in the first-quarter 2013 was $28 million. We provided for a portion of our management incentive program for 2013 to be based on efficient use of working capital to further improve the organization's focus on managing cash flow. Capital expenditures were $10 million for the first-quarter 2013 and we still expect 2013 capital expenditures to be approximately $64 million for the full-year. For more information about our financial results please review the earnings release on our website.

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

Thanks, Jim. I think Forum had a good first quarter and start to the year. We improved our sequential financial performance in both business segments and have made progress with the integration of our four recent acquisitions, and continue to position the company for further growth. Let me finish with some comments on 2013. We expect sequential improvement throughout 2013 in our results, and a significant contribution from our recent acquisitions. Although our Drilling product line continues to face headwind, our other businesses are seeing growing demand and good prospects. They are seeing an increase in orders, which will drive an improvement in our results over the course of 2013. Although we have moderated our expectations on the rate of earnings improvement, our expectations for the run rate by the end of the year have not changed. I am pleased with the progress Forum has made and I want to recognize and thank our employees for their good work.

Thank you for your interest, and at this point, we will open the line for questions.

(Operator Instructions).

Doug Becker, BofA.

Cris, is it fair to say that the lower guidance is entirely attributable to the Drilling Technologies product line and is this a business that we can actually see out pace North American rig count -- it sounds like some of the orders coming in are little bit more internationally oriented?

Yes, we are attributing the change in the guidance to the fact that this is obviously been a very flat North America rig count market that has impacted first and foremost our Drilling product line, rate of consumable sales associated with that flat lower rig count has been lower. The mix of products that we are selling is a bit less favorable, also the lower revenue in our drilling business does affect our margins. Obviously, because of the ability to cover our fixed costs. The Flow Equipment in that business is also in a tough environment although that business has bottomed and I guess is actually had two quarters of sequential improvement in revenue, it's it still not an exciting level I would say, Doug.

I guess, in terms of thinking about the Drilling business going forward, should we think about it just as a North American rig count type of growth or could it actually exceed those levels?

Charles?

I believe it could. I mean for example, we saw strong orders in Q1, but they came late in the quarter. And as we transition to more international business, those are longer lead times as well so what we are seeing is the revenue timing is going to be further out in the year for that.

And we have seen that increase in orders here, so even with a flat rig count we have seen a pickup in orders so that, I think, adds confidence to what Charlie was just saying.

Yes, are you willing to call the bottom in consumables for the drilling portion of the business at this point?

Yes, I think we are, yes.

And then just a quick question on just any early thoughts about the integration of the acquisitions that you made at the end of last year and any particular surprises?

Very pleased with the performance of each of the four acquisitions. The launch and recovery systems at Dynacon is seeing exceptionally strong demand that we are working on increasing their capacity. We are keeping Syntech busy in the subsea space as well with the significant orders that we received and that we are expecting. As I mentioned in the prepared remarks, our Wireline acquisition, the composite frac plugs, seeing very good demand there. And good ability to leverage Forum sales and marketing structure to expand the market for those good Prodrill products.

And you know Chris also Merrimac as well. The acquisition of Merrimac we are very happy with. it's going to help us on the consumable side of our drilling business as well, so we are very pleased with it.

Thank you.

Brad Handler, Jefferies & Company.

Well, perhaps I start by please asking what are your rig count or well count or activity assumptions for the US that are embedded in your revised guidance?

Okay, so it's fairly modest improvement in the rig count from this point through the end of the year, mid-single digits kind of improvement in percentage improvement in the rig count. And on the well count, it somewhat above that, because with the rigs being more efficient, with the backlog of uncompleted wells, we are seeing a well-oriented, well count oriented businesses perform at bit better including our Production Equipment side, good demand in our Downhole group, and things like that.

Okay. That is helpful. What sort of pricing pressures might you be embedding in your forecast currently and is there some risk that, that might prove to be somewhat more accentuated or might be a little harder in a sluggish environment?

Yes, I think we are counting on a price competitive market in our Flow Equipment business and then in certainly the drilling items, yes, there has been some price competitiveness there, but with the increase in orders, we do not expect that to be any more severe and with any improvement, the rig count should see some pickup in demand there obviously.

Okay. So it doesn't sound like there are too many product lines or too many of the divisions that would be impacted within the guidance structure, it doesn't sound like there are too many that you are concerned about. Okay. I guess, maybe forgive me for putting the question this way, but I think part of what we all need to do now is gain conviction in the guidance. Appreciating that the market has been considerably more sluggish than I think many, you and many of your peers, assumed it would be. But, I guess to maybe you can help us -- to what degree might you have baked in a bit more conservatism then you think you -- exaggerated conservatism if you will and in what ways might have you taken a little extra slack?

Well, Brad, I guess, if we had not -- if we had not given guidance, right, and you and your colleagues on the sales side were working in the absence of guidance, I do not know that you probably would have seen things much differently, right? It has been a market where things have moved sideways during the first quarter and the expected recovery during the year has been pushed out. So therefore, any business that is tied to rig count would not have seen improvement start until later than was previously expected. So, we were not I do not think more optimistic than the market generally at the outset of the year, if anything less so. But, as -- and in keeping with that conservative view, we have further pushed out our expectations for market improvement. Does that answer your question?

Yes, I take your point absolutely, I do take the first point especially and I do understand it. If I may just one more, and I am sorry, I may be just cheating a little. But on the flow equipment comments, I am sorry I mean -- on your production equipment comments, obviously it's a good problem to have to be facing the capacity constraints. When you said -- later in the year -- is that something we might consider in terms of that pick up only really happens in the fourth quarter with capacity expansion?

No -- we have had to slow the rate we have taken on orders and we ration back through longer deliveries and through pricing. But, by moving some of our production planning around among our seven facilities, we do feel that we can get more out of our current capacity over the next couple of quarters until the additional capacity fully available to us. So we are not saying we are flat-lined in that business segment, in fact we can see some further growth in revenue and contribution, but the next step change will come when this capacity addition is fully on board later in the year.

Got it. Okay. Very helpful. Thanks.

Very good, Brad, thanks.

Jonathan Sisto, Credit Suisse.

Cris, by my count it looks like you received six or seven ROV orders in the quarter and you commented about the strong outlook. Appreciating that it's probably 25% of your business, what is a good year-over-year revenue target for the subsea business, there are some pretty lofty subsea tree numbers out the marketplace, bearing in mind you do not manufacture subsea trees, just wanted to feel you out on your outlook for the subsea business line.

So I think you are about right on the work class vehicles in addition to that, we had a bunch of observation class vehicles and some trenchers as well. So, the order flow is good there. And certainly with the addition of Dynacon to our subsea business, that adds substantially to the revenue run rate potential in our subsea business. And we are also looking at ways we can expand our capacity there. So, first quarter is not in any way a limit on what we can do their and with the strong orders that we are seeing and the strength of the deep-water market in general, as you point out, we are planning so that we can take on additional projects, additional revenue, and have capacity expansion plans underway such as Dynacon and our main manufacturing facility in the UK.

Charlie anything you want to add to that? Did that get most of your question Jonathan?

Yes, that was great. And as you and Charlie are out talking to customers are you trying to get more kinda fleet standardization-type programs in-house?

I think we've got, I think customers that we are in good shape and we want to keep those customers happy, right Charles?

Yes and what we are hearing is the standard uptime and they are looking at our vehicles and trying to compare our vehicles to maybe other vehicles they have in their fleet and the performance of uptime. And so for them it is all about the uptime and what they are telling us is our uptime is better than others and we believe we are winning business because of that.

And that is so important in the deep-water, reliability. It is not just the ROV itself that is just the point of the spear for the whole spread that is doing the work and everything and what you're when you're talking about deep-water has to work, because the costs of that spread are just so great.

And Cris just one more if I could, changing gears a little bit. Is your team still very busy vetting deals? I bear in mind the fact that the four deals in the fourth quarter, the ink has not even dried, but is there still a good amount of deals to be looked at?

We think the deal flow is good and our folks in the corporate development area are quite busy and it's hard to forecast the timing and the probability of closings, but the pipeline of things that we are working on is good. And includes further things in the subsea space, but also international deals in general and things that relate to the completions area and service intensity.

International is definitely becoming a bigger piece. Thank you Cris, I will turn it back.

Michael Marino, Stephens Inc.

Just one for me on flow equipment I was wondering if you guys have a feel for maybe what industry-wide what inventory levels look like for fluid ends?

Yes, our view is that the overhang of inventory with customers is being worked down, that is not to say that they do not have any, of course they do, but it's a heck of a lot, with customers it's a lot better shape than it was. With suppliers, there is still available inventory and plenty of available capacity and that is more where the source probably of the competitive environment that we see now. Is that how you see it Wendell?

That is right. We are seeing repeat orders on a daily basis with our client so we feel pretty good the bottom has been hit and we are into a utilization issue. But as Cris mentioned I think the industry as we intend to do, overbuild and working on that inventory. I think as people begin to have to replace orders for new fluid ends, manufacturing new fluid ends, likely we will see some relief then but for awhile it's going to be competitive.

Yes, and it's likely to be a book and chip business not one that has the long delivery times that we had a year, a year and a half ago which caused the customers for fear of shortages to take on their own inventory. Right? And so we ended up with this double overstocking situation. So, what we are saying is we feel that the customers have worked down their overstocking and now the suppliers and our competitors are working on that as well.

Got it. Shifting gears back to the drilling products business. You talked about orders increasing sequentially and it sounds like they are more international which is longer lead times, but maybe help me understand if -- in that business, if orders, say if orders bottomed in Q4 of last year, when does revenue bottom? I know there is a lot of mix that goes into that, but just generally speaking, help me understand a lag time between orders and when it flows through the P&L.

Yes, so, our Drilling revenue is up in the first quarter and we think it will be up more in the second quarter. But, with more of these international orders that atypical order for us has a domestic order of a capital nature 3 to 6, then internationally and often that might involve delivery, not just selling at our gate, you add 3 months to that, so 6 months to 9 months lead time is not unusual for international capital orders.

Okay. Thanks.

Robin Shoemaker, Citigroup.

I wanted to explore that a little further. When you've been around many cycles and you know when we get into a downturn, the drop in sales for drilling equipment and pressure pumping is exaggerated because people work down their inventories and cannibalize idle equipment. And then usually there is a quarter or two as you come out of that downturn where the opposite occurs and sales are a little bit exaggerated on the high side as idle equipment maybe goes back to work or whatever. Do you think there's any reason to think this is different that there is truly a kind of gradual recovery as opposed to what we've typically seen in the past?

No, I do not and I think that could be a very reasonable expectation for the drilling market over the course of this year. And the flow equipment side with somewhat moderated by these inventories among the group of suppliers here, but you are exactly right.

Okay. Turning to the international side, which I think is like 40% of your sales, something like that. But, could you highlight a few areas of individual regions, countries, markets, where you see particularly strong growth where you are getting very good order income?

Well, anything to do with the offshore internationally is pretty strong, right? So, all sales to International Offshore markets are quite good. On the drilling capital equipment side, the Middle East is a stronger market as we see going forward, certainly driven by optimism around the rig count going up in Saudi and other services in Saudi is an issue. And then in Southeast Asia, just generally, not necessarily tied to deep-water, but just work there in general and even in areas in Europe we are seeing demand in capital equipment orders.

I'm assuming Canada is very slow like the US?

Yes, we include that in North America.

Okay.

But, yes, I think is the answer to that.

Okay. Thanks a lot.

Bill Sanchez, Howard Weil. Cris, I was just curious, your call commentary certainly sounds encouraging here and I thought it was a testament to your outlook here that the earnings run rate is really unchanged by year-end. I know there's been a lot of concern about the rig count and the inflection there and the intensity of that inflection, but it sounds like all your confidence is certainly being driven by the fact that over 50% of the revenue stream here for you as a whole is being driven on the consumable side of the business, and certainly on the drilling side you have two-thirds of that business that is consumables. It is just an expectation that people are going to be working through that inventory regardless and that is going to be a net benefit to us as we think about our franchise as a whole.

It is that, Bill, but also an even a bigger driver on business is well count, and the things that we see going on in our well count driven business is in the continued improvement there and the opportunities we see are good. So, we feel that we've got maybe of, well, the majority of our business is tied to offshore and well count and feel good about those and then when you look to the rig count oriented businesses, it's just as you described. Right? Later, but still with the orders that we are already seeing, feel that it will happen. It's just going to happen later and slower than we had thought, which has an impact on revenue and on margins.

Sure, are we seeing the full impact now, Cris, in the earnings stream of the acquisitions that have been made to date or still some of that to come in the second-half expectations here?

I think it will be growing over the course of the year.

Okay. Fair enough.

Yes.

Okay, great. That is all I had. Thanks for the time, Cris.

Very good, thanks, Bill.

Brandon Dobell, William Blair & Company.

Guys back to the international opportunity. It sounds like that is going to be at least for little bit maybe a drag on cash flow, but should we expect those capital equipment orders to be more profitable for you guys especially if you ramp up in scale just given the competitive dynamics? Or, is there capacity utilization issue going to keep profitability lower there?

Jim, maybe you can address cash flow and then Charlie on margin specs.

Sure, so, during the quarter we did see -- we had a good reduction in inventories but to your point, we did have an increase in receivables and our DSOs did go up which you would expect to see on international sales.

Yes.

We have an intensive effort going on in the company right now implementing a global credit collections management system which we believe is going to help us take some of the days out of those -- out of our collection so that we won't see, in fact we will see improvements from where we are now over the course of the rest of the year, an improvement in cash flow even though more of the mix of earnings will be international.

So, no negative impact on cash. We are looking for cash generation to continue to expand during the year.

Yes.

And for the margins Charlie?

My comments are related to the drilling business internationally our subsea business is so international.

Right.

We are already there but on drilling we've been talking about capital equipment orders and we're seeing them. For international markets you need to understand that these longer lead times and these products are little bit more risk specific so included in our guidance is I would say a margin expectation line with what I would call the risk or the difficulty of getting started serving those markets. So, in the long-term, we do know those margins will improve that our current guidance includes what we believe the margins will be for that business.

Okay and then coming from a segue of your systems, comment there earlier, as you think about the acquisition integration and your broader systems requirements, how do you guys think about the potential impact of those efforts on costs through this year? Are there ways you can squeeze the cost structure down from a corporate or G&A perspective or do you think you have a pretty lean organization as you think about margin structure this year?

Yes, I think we are very focused on our G&A and getting our margins back where we think they should be. Right? And we do not think the first quarter is representative of that. That is partly operating leverage, but it is other things as well. And I would say in each of the divisions and almost every product line, we have initiatives underway to improve margins.

Okay. And then final one just to make sure I have the semantics here right. When you're talking about exit rate for earnings at the end of 2013, being unchanged, so, basically you are taking the $0.10 earnings revision out of Q2 and a little bit out of Q3 or is it the Q4 number relative to prior guidance which would remain pretty much unchanged? Is that the right way to think about that?

Obviously we haven't given guidance. It is a qualitative statement not a quantitative statement. And we haven't given guidance for those last two quarters of the year, but qualitatively you are right.

Okay. Great. Thanks a lot.

Mike Urban, Deutsche Bank.

I had to drop off for a minute so I apologize if this is repetitive, but Cris you had talked a little bit about pricing pressure especially I think in fluid ends. Is that expanded beyond that? Are you seeing any pressure in other business lines and I guess how severe is the pricing issue in fluid ends?

Well just within flow equipment, it's most significant in the fluid end product area. In other products within flow equipment there is price competitiveness, but not nearly to the extent it is in the fluid ends, where there seems to be plenty of availability I guess. And then in other product lines, we point to some select areas in the drilling area where there is price competitiveness, just because of slower demand for some of our consumable products. But, do not want to overstate that. It's pretty flat environment. And, then the other product areas, there is no pricing pressure and in some cases pricing opportunity.

Okay. Great. And is this something that takes a while to improve or is it just a situation where as you've alluded to previously, a little bit of help from the activity in the US or North America goes along way to resolving it?

I think it's flow equipment it's excess availability that in the market. And in drilling, it's just a little bit of slack that's the demand and this was pointed out by an early question or, the history would tell one that as rigs go back to work, and rigs that have been cannibalized need to be re-outfitted, there is often a snap back in demand there.

Yes, make sense. And again apologized if you mentioned this previously, did you give a bookings number for the quarter?

We did and it was 103% of revenue, 118% for Drilling and Subsea, and 81% for production and infrastructure and total bookings were $385 million, that we do that book-to-bill in our total revenue not just what comes out of backlog.

Okay. Okay. Great. That's all for me. Thank you.

We have time for one more question.

Brad Handler, Jefferies & Company.

Just quickly, I did not -- I'm not sure I caught all of the comments. So on your downhole tools, facility expansion, I know you said I think you said you opened or was it that you are opening the new center?

Man you do listen closely. We are opening. We are now moving into it but I would not describe it as fully up and operational yet, but the concept there is, we are reorganizing, so that we have more manufacturing capacity and space in our manufacturing facility and warehousing, we are moving to a new facility and taking that whole function of logistics and distribution and separating it out and we think that will bring some additional efficiencies to us. And I figure it's probably the end of the second quarter when we feel that we will have that fully operational, but you have got a good ear, Brad.

Thanks, Cris. (laughter) So just almost to refresh my own memory, I think you were waiting to make sure that was up and running before proceeding with some opportunities that you sense are immediately available to you.

We continue to feel that there is very good demand and excellent opportunities with that business and as we've described, we are working very hard to reorganize that business to address the capacity increases that we feel we will need to take on this new demand for us and for customers.

Got you. Very nicely said. Okay. Thanks, guys.

Thanks Brad. Well, thank you all very much. It was good to talk with you. Good questions and look forward to seeing you, whether at OTC or at other venues and talking with you next quarter. Mark?

Great. Thanks everyone for listening to the Forum Energy Technologies first-quarter 2013 conference call.

Thank you Leanne. Bye.

Thank you for your participation in today's conference, this concludes the presentation. You may now disconnect and have a great day.