TechnipFMC plc (FTI) Q3 2014 Earnings Report, Transcript and Summary

Welcome to the FMC Technologies third quarter earnings analyst call. My name is Ellen, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Brad Alexander. Mr. Alexander, you may begin.

Thank you, Ellen. Good morning, and welcome to FMC Technologies' third quarter 2014 earnings conference call. Our news release and financial statements issued yesterday can be found on our website. I would like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our 10-K, 10-Q and other filings with the SEC. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to John Gremp, FMC Technologies' Chairman, President and CEO.

Good morning. Welcome to our third quarter 2014 conference call. With me today is Maryann Seaman, our Chief Financial Officer. I'll discuss highlights from the quarter, Maryann will provide specifics on our financial performance, and then we will open up the call for your questions. Total company quarterly revenue was $2 billion, with operating profit of $319 million and earnings per diluted share of $0.72 for the quarter. Earnings were negatively impacted by $0.07 for a nonoperating item that Maryann will discuss in her comments. We delivered strong quarterly operational results, driven by outstanding performance in our subsea business, growth from our North America fluid control business, and continued strength in our international surface wellhead business. In subsea technologies, margins were 15.7% on $1.3 billion of revenue in the quarter. Our focus on execution, the strength of our backlog, and the growth of subsea service revenue drove these results. We received $1.1 billion of subsea awards in the quarter, which included another pre-salt manifold award from Petrobras, and the Edradour project from Total. In addition, we continue to see consistent levels of smaller project awards, along with increasing levels of subsea service activity. We're confident in exceeding $5 billion of 2014 subsea inbound, which is supported by our 2 recently announced fourth-quarter project awards. The first of these was the $280 million Wintershall Maria project, located offshore Norway. This is the first call up award received from Wintershall following our recently signed frame agreement to supply subsea production systems for their developments offshore Norway. We were also awarded the Total Glenlivet project, located West of Shetlands in the UK. Our 2014 awards will provide us with a year-end backlog of approximately $6 billion. This positions us well in 2015 to deliver another year of record subsea revenue and earnings, as our backlog conversion improves and our subsea service revenue increases. This will drive our 14th consecutive year of overall Company earnings growth. Our expectation of another strong year of subsea orders in 2015 remains intact, with a belief that will be as strong as it is in 2014. We have a significant list of projects we're currently tracking, and conversations with our customers indicate they plan to move forward on these offshore developments. Because operators remain focused on improving the returns of their deepwater portfolios, their interested in standardization has increased significantly. A good example of this is our joint development agreement with Shell, BP, Anadarko and ConocoPhillips for the next generation new high pressure, high temperature equipment technology. This was formed as a way to reduce development cost, reduced lead times, and establish an industry design standard. For conventional technology the industry recognizes the success of standardization, the plays for operators with the lowest development cost and shortest lead times to first oil. And we've had the most success in driving standardization, where we've established long-term relationships in the form of frame agreements with the operators. Recently, we've successfully executed on this strategy by adding 3 new frame partners. In addition to the frame agreement we signed with Wintershall, we've added 2 additional global frame agreements. We signed a global master services agreement with ConocoPhillips, and we're very close to finalizing a global frame agreement to be their preferred supplier of subsea equipment and related services. As a long-time customer, this agreement demonstrates the confidence that they have in FMC Technologies to partner with them in developing their growing portfolio of deepwater assets. We've also signed a 10-year global frame agreement with BG Group to provide subsea equipment and services for their developments worldwide. This frame agreement expands on the existing frame agreement that we signed in 2010 with their Norwegian subsidiary. Turning to our surface technology segment, we experienced strong sequential and year-over-year revenue and margin growth. Our North America fluid control repair and replacement activity has remained strong, as customers have increased their overall frac activity and intensity. Additionally in the quarter, we're continuing to receive capital orders, but the volatility in recent oil price does pose some risk. Our surface wellhead business is also performing well. The international markets have remained robust, and we expect this to continue, while our North America business continues to improve. To summarize our current performance, subsea revenue continues to grow, we're demonstrating solid subsea project execution, and we are achieving the margins that we expected. Subsea inbound is strong, and will exceed our $5 billion full-year target. We will end the year with strong subsea backlog, and position 2015 for both revenue and earnings growth. Lastly, we expect 2015 subsea inbound to be as strong as it is this year. In surface technologies, our business continues to strengthen. Revenue growth in fluid control, continued strong performance from surface wellhead international, and improved performance from surface wellhead in the US will deliver record earnings this year. Maryann will now take you through some of the financial details for the quarter.

Thanks, John. We delivered strong performance this quarter, with record subsea technologies and surface technologies operating profits. Subsea technologies operating profit was $204 million in the quarter, with a margin of 15.7%. Subsea technologies operating margins improved 490 basis points year over year, with operating profit increasing 69%. We benefited from continued solid execution and higher volumes in all our regions, conversion of a favorably price backlog and an improving mix of service and activity. The quarterly performance is consistent with the mid-teen margins we expected in the second half of the year. In surface technologies, operating profit in the third quarter was $110 million, a 47% increase from the prior-year quarter. Margins were 19.7%. North American fluid control orders were strong throughout the quarter, as both repair and replacement activity and capital orders associated with new fleet construction contributed significantly to the results. Our international surface wellhead business continued to perform well, and turned in a record quarter for both revenue and operating income. Our positive order flow in the quarter kept our backlog at high levels, and positions us very well to finish the year strong. In the US, we're beginning to see the improvements in our service wellhead business, as the organizational changes we put in place at the beginning of the year are improving our performance. Completion services earnings improved in the quarter, as we came out of Canadian breakup, and activity increased as we forecast. Surface technologies margins in the fourth quarter should remain strong. There is, however, the risk of a late fourth-quarter slowdown in the North American market. Energy infrastructure operating income for the third quarter was $5 million, with a margin of 4.1%. This performance reflects the negative impact of a correction of previously reported 2014 quarterly operating results made in our automation and control business. I'll turn to the corporate items now. Corporate expense in the quarter was $16.1 million. We expect this expense to be approximately $17 million to $18 million in the fourth quarter. Other revenue and expense net reflects expense of $35.1 million. As John indicated, we had a nonoperating charge in the third quarter related to an inter-company foreign currency transaction of $17.1 million net of tax, or $0.07 per diluted share, that caused our actual result to differ from our forecast. We expect other revenue and expense net to be approximately $30 million of expense in the fourth quarter. This estimate continues to include an expense associated with the planned de-risking of our pension plan of approximately $20 million, and is subject to foreign currency fluctuations. Our third-quarter tax rate was 34.7%, which reflects a larger concentration of US earnings. We anticipate our 2014 tax rate to be between 33% and 34% for the full year. Capital spending this quarter was $104 million, primarily directed towards subsea technologies' strategic growth initiatives. We expect capital spending in 2014 to be approximately $400 million. At the end of the third quarter, we had net debt of $836 million. It is comprised of $512 million of cash and $1.3 billion of debt. We averaged 237 million diluted shares outstanding in the quarter. We repurchased 1.019 million shares of stock during the third quarter, at an average cost of $56.67 per share. Let me summarize. We delivered a strong operational quarter on our subsea technology results, came in at the high end of our expectations, the result of solid execution on a favorably priced backlog and an improving mix of service activity. Our surface technologies operating results were driven by the strength in the North American land market, as well as continued strong performance in our international surface wellhead business. As we look to the balance of the year, we expect our diluted earnings per share to range between $2.75 to $2.85. This excludes the second-quarter gain associated with the sale of the material handling products business. This estimate does include the pension cost estimated in the fourth quarter, and the foreign currency charge in the third quarter. Both our subsea revenue and orders will exceed $5 billion in 2014, as subsea activity has continued to exhibit sustainability throughout the year. We expect our fourth-quarter subsea margin to be around 15%, and now expect full-year subsea technologies margins of at least 14%. This margin performance continues to support our confidence in 2015 subsea margins of approximately 15% for the year. The North American land market should remain strong in the fourth quarter, absent a slowdown in the – late in the year. Operator, you may now open up the call for questions.

Thank you. [Operator Instructions] The first question is from Chuck Minervino with Susquehanna. Please go ahead. Charles Minervino – Susquehanna Financial Group: Thanks, good morning. John Gremp Good morning, Chuck. Charles Minervino – Susquehanna Financial Group: Hey, I just wanted – John, you know, in light of the recent move in crude prices, I was wondering if you could talk a little bit about your updated views on field development CapEx in 2015? It sounds like you upped your order outlook for 2015 a little bit from maybe your prior PowerPoint presentations. Can you just talk a little bit about that development CapEx? And in your conversations with your customers, have you sensed yet any changes in plans or expectations for spending?

Chuck, our conversations with the customers have been, and remain, pretty much the same as they have been all year. And that is, they are clearly – they are focused on capital discipline. They want to proceed with developing their extensive deepwater portfolios, but they're very focused on improving returns. And that's the discussion that we're having with them. And they've had some success. I mentioned in the last quarterly call the award of Kaombo, the progress that BP has made on Shah Deniz, and what they're making on Mad Dog, are all examples of how the operators are actually being successful in re-working these projects to improve returns so they can go forward with the development of their projects. I think in 2014, we saw that happening, in the sense that there's been a number of awards that have been made recently over the last 2 months. We announced awards that were in the third quarter, and then we announced 2 awards that will show up in the fourth quarter, fairly significant ones. The smaller project activity remained very strong. And in fact, the third quarter, it went up to almost $900 million of subsea inbound for us, up from the previous quarter, which was about – a little over $800 million. So that remains strong. And then we are quite confident, and expect to book another major subsea award between now and the end of the year. So from our perspective, operators are in fact proceeding with their development plans, despite the pressure to demonstrate lower capital discipline and improved returns. As you look into 2015, the list of subsea projects remains very healthy. Now a lot of those projects, the major projects anyway, are African projects, and are always subject to national oil company risk of being moved around a little bit. But that list is – remains healthy. The activity in the Gulf of Mexico is expected in 2015 to remain strong, and that's what gives us confidence that the 2015 inbound will be as strong as what we're seeing now in 2014. And I think this is all – again, it's driven not so much by the very recent changes in commodity prices, but more what we've seen over the last year, in terms of their desire to improve returns and proceed with developing these deepwater projects. Charles Minervino – Susquehanna Financial Group: Thank you. And just one follow-up. You've been around this space for quite some time, and it's obviously well-known that floater day rates have been falling for quite some time. In your experience in this space, how much of a factor does falling day rates play in maybe stimulating some new demand by your customers that may not have been there before?

Chuck, I don't know about stimulating new demand, but we know that the drilling component of a deepwater development is the single largest component. And obviously, rig rates are the single largest component of the drilling cost. So deepwater rig rates dropping whatever they've dropped, 30% plus, will have a material effect on the overall cost of developing a deepwater prospect. And it should improve the returns and lower the capital required. Whether or not it opens up new projects or just secures the projects that they were intended to go forward with, I'm not sure. But clearly it improves the returns.

The next question is from Jim Wicklund with Credit Suisse. Please go ahead. Jim Wicklund – Credit Suisse: Good morning, guys.

Good morning, Jim. Jim Wicklund – Credit Suisse: John, how much of your surface business is the frac tree manifold rental, frac water flow back and wire line stuff these days? How big is that business?

It's still in the minority. The biggest part of service, and as you know, the most profitable part, is fluid control, followed by surface wellhead, particularly in our international market. And then the third largest component is flow back completion service and frac rental. So, it's third-highest component of surface technologies. Jim Wicklund – Credit Suisse: Okay. That's good. I appreciate that. And orders this year will exceed your $5 billion. They will hit $6 billion or so. And they should be that level next year. On your revenue for subsea, I know at the beginning of this year, there was talk about the book to bill issue possibly being below one-to-one. Is 2015 going to be above one-to-one in your current forecast and plan?

Let's start with 2014. You said $6 billion, and our target is above $5 billion. Jim Wicklund – Credit Suisse: $5 billion, I'm sorry. Yes.

We are well on track to do that, when you add the 2 announcements that we've made. Our expectation of another major project to be award to us between now and the end of the year, and strong smaller projects in service. We will be above, well above $5 billion this year. Our current book to bill in 2014 is 1.0. I'm confident, full year, it will be above 1.0 in 2014. We will roll into 2015 with very strong backlog, better conversion rates, as Maryann said, and we'll show revenue growth in 2015 over 2014. Now I said that we expect 2015, based on the list of projects, to be as good as 2014. How much better than 2014 to have a book to bill at 1.0 or better is going to – we have to wait till we get there. And we have got to see if these Africa projects, which are named, and they are being tendered, if they actually stay in the year. If they stay in the year, then we've got one situation. If they don't, we have another. So I think – I guess I could say, I would expect to certainly be close to 1.0 book to bill, but we've got to wait until we get a little bit closer to call that out. Jim Wicklund – Credit Suisse: I understand. Thank you very much, and good quarter, good margins. Thanks, John.

Thank you.

The next question is from Ole Slorer with Morgan Stanley. Please go ahead. Ole Slorer – Morgan Stanley: And thank you very much. And yes, very impressive margins in the subsea. Norway looks like it's slowing down a little bit near-term. A year ago, when you had margin issues, it was because of a mismatch of cost and revenue, and largely centered around Norway. How confident do you feel about your margin outlook, in light of a geographic mix that is likely to play out?

Ole, you are right. I think there is going to be some shifting geographically. You're going to see Africa very strong. I think you're going to see Gulf of Mexico strong. Clearly, the North Sea is not going to be as strong, given by our largest customer in North Sea, Statoil's pullback. But our Norwegian organization also supplies most of our major projects to Africa. So although the Norwegian market may be a little soft while Statoil goes through what they going through, our Eastern region will be there to support the big projects in West Africa. So I don't see – we have no expectations of any margin erosion coming out of Norway. They will just shift their activity from being more Norway-centric to Africa-centric, as they have historically. And as I mentioned, the Africa market is going to be one of the strongest in major project awards in 2015, and our Eastern region will benefit as a result of that. Ole Slorer – Morgan Stanley: Okay. Just checking that we're not missing anything on the sustainability of the margins. The follow-up question would just be, in terms of what you see for next year, in terms of order intake, you mentioned a similar dollar number. I presume that entails maybe a subtle mix shift within how that's put together. Could you shed a little light on what's going on at that level? Are you assuming more revenue per tree, the same number of trees, more of a subsea after-market component? Or how is your business shifting within that similar – let's say, similar dollar in order intake number?

You're right, Ole. If you look at the number of trees that we think were awarded in the industry year to date, including the third quarter, it's going to be just barely over 200, I think. And we will obviously have, should have – the industry should have a reasonably good fourth quarter. But trees are becoming less relevant to the overall subsea revenue market, for exactly the reasons that you mentioned. We see service revenue growing. We see more infrastructure cost. And I know something that you have talked a lot about, is the coming importance of subsea processing, which all these things will keep raising the revenue per tree. And I absolutely see, that in 2015 that you're going to see revenue per tree growth in 2015, as you see subsea processing projects awarded, the continued growth of additional subsea services. You see more manifolds and infrastructure, and also, even the more complex. We talk about high pressure, high temperature trees. The cost of this high pressure, high temperature equipment is going to be more than lower pressure equipment. So all these things contribute to revenue growth per tree. And I think that will be an important part of the shift, really, going forward.

The next question is from Bill Herbert with Simmons & Company. Please go ahead. Bill Herbert – Simmons & Company International: Thank you. Good morning. Back to the order front here, with subsea. Composition of your orders this year has been pretty much – you've had Jangkrik, Shah Deniz, you've had the TBR, Manifolds. And then now we've had the Wintershall Maria and Glenlivet. So really West Africa, or Africa in general, or sub-Sahara Africa hasn't been all that prominent. And it looks to be disproportionately weighted for next year, in terms of importance. Is that correct? With Agbami, Cameia, 1506, maybe Bonga Southwest, et cetera, there could be a very large concentration of orders coming from that particular region?

Bill, that's exactly right, and we need to start talking about Africa instead of West Africa. When you start – when you think about Golfinho and Mozambique, and what happens in Tanzania, you're exactly right. Yes. You're right. When I look at the project list for 2015, it is heavily, heavily weighted towards Africa. When I look at the composition for 2014, we were successful in Africa, mostly on where we were the incumbent, like follow-on orders for Agbami, or our partners like Cobalt Cameia and so forth. But you're – and we also entered, I think, a BP blockade teen project. So there, we did have West Africa inbound, but year-over-year comparisons? Big shift. Bill Herbert – Simmons & Company International: But with regard to – there have been 3 projects that you guys have been targeting, and maybe you've been awarded them. I haven't noticed them. But Cobalt Cameia, Agbami and 1506. What's the status of those 3 particular projects at this juncture?

Agbami, we are the incumbent, having provided all the Agbami trees for Chevron throughout the life of the project. And they have real requirements. We're working with Chevron to have those manifest into awards. But the progress is, we expect those awards to come to us, whether they'll make it between now and the end of the year is – that's kind of a West Africa thing. That's well – we're well into that. When you look at Cobalt Cameia, there's a – we are Cobalt's partner, so they have standardized on our equipment. So we're in the favored position to provide that equipment. But again, it's West Africa, so Cobalt has had conversations to finish up with Senegal before they proceed. There's a possibility that they could be between now and the end of the year, possibly into next year, but it's imminent. It's not going to move outside of 2015. And then 1506 with ENI in Angola, that project is well into the evaluation and proposals and approvals from Senegal. So we would expect 1506 to also be imminent. So those are 3 projects that FMC targeted, and are close to being awarded, if not this year, early next year.

The next question is from Bill Sanchez with Howard Weil. Please go ahead. Bill Sanchez – Howard Weil Incorporated: Thanks. Maryann, my question for you is – I guess it's really just looking at more than your term, subsea backlog, numbers here. And John, I know you gave a $6 billion target for year end. But I'm just looking at 3Q here, and I just doing the typical formula of bookings less revenue. It looks like your backlog is actually about $250 million less than otherwise one would think. And I'm just curious, was there some FX translation adjustments there? I know that had been an issue in years past. But is that causing backlog to be a bit less than it otherwise would be? And maybe can you talk about that as how it impacts 4Q, if at all? And how to think about the conversion factor for revenue, if that is in fact stated lower?

Sure, Bill. So you're absolutely right. We had about $280 million worth of impact in the backlog, due to translation on that backlog. If you go through the math of what we recognized, what we inbound, et cetera, we've got translation there. As you know, when we look at where the backlog comes from, we've got a lot in the Eastern region, followed by Brazil, and the strength of the dollar certainly had impact on that. So you're correct. When we talk about [indiscernible] that backlog into 2015, as I think we have talked about in the past, this year we had lower conversion rates, partly because of the makeup of the projects that we had. That being the large Egina project of $1.2 billion, and then also the orders from Petrobras having a longer tail. When you look at the inbound that John has talked about for 2014, it follows, if you will, that more traditional S-curve. So our expectation for next year, that being 2015, in terms of top line for subsea would be a return to more traditional conversion rates. We would expect to see, at least in these early stages, higher growth on the top line than we did this year. The other thing to keep in mind in the backlog, when we talk about that $6 billion of backlog in subsea, is it is largely equipment. For the most part, we do not backlog services. So when we talk about a $6 billion backlog in subsea, it is largely equipment backlog. Hard to predict, actually, what's going to happen in terms of the strength of the dollar going forward. But absent that, that would be somewhat of a landscape that we talk about for 2015. Bill Sanchez – Howard Weil Incorporated: And the FX translation impact doesn't really affect, I guess, since cost are also in those local dollars. There's no real P&L impact. Is that a fair way to think about it?

That's correct. Bill Sanchez – Howard Weil Incorporated: Okay. My follow-up question is just a way to think about 4Q, and we think the full-year guidance here. And we've got a $0.10 spread for the full year. I'm just curious, it's a pretty big, wide fairway here for just one quarter. What kind of puts and takes, as we think about it, John or Maryann, as to how you bridge the gap between the low end and high end here, in terms of expectations?

Yes, so let me focus on subsea for a moment, and then I'll address surface. With respect to subsea, we had a really good strong quarter, as you saw in the third quarter. These margins for the back half of the year are very consistent with what we've been talking about. I think, as you might have heard in my guidance, we certainly think margins of at least 14% from a full-year perspective are what we see for subsea. We do have a mix of things coming through in our backlog, as you know, right? Depending on the allocation of the amount of services, the projects that come through. It's not a perfect science. And then of course, how well we execute. We did really well in the third quarter. The other impact in our fourth quarter for subsea, we have a higher R&D budget. It's consistent from a full year, but higher R&D. On the surface side, we see continued strength in the fourth quarter, absent a slowdown, as we talked about. So the margins that we projected last quarter, in the range of 17 to 18, we certainly see achieving the high end of the range, as I mentioned in my guidance. So, nothing abnormal there.

The next question is from James West with ISI Group. Please go ahead. James West – Barclays Capital: Hey, good morning, John, Maryann.

Good morning, James. James West – Barclays Capital: John, is there any reason to think that subsea orders in 2016 shouldn't show a pretty significant ramp-up relative to (inaudible) 2015, – relative to (inaudible)14? It seems like we're troughing out here in orders. I recognize there is a lot of stuff from West Africa, which can be pushed around a little bit, but what's your gut feel in terms of the order rate? Do you think we could be in a position where we see a nice acceleration in orders?

2016 is a long ways away, given the volatility. James West – Barclays Capital: Sorry, 2015. My bad.

Okay. Let's get that right. Okay, 2015. There we go. My – now I feel better. My – it's really what I said in the prepared remarks. I'm impressed with the list of projects, identified discoveries that the EMP companies have targeted to develop. First oil in the 2018, 2017 range, which means they have to start buying equipment in 2015. And if that list of projects that I've been describing throughout the call, if that weren't strong, then I wouldn't have as much confidence in 2015 inbound. Secondly, when I look at the strength in the Gulf of Mexico and the development of lower tertiary, they don't get as much play, because they're not large enough to announce. But they represent an increasingly large portion of our inbound. And as the market leader in the Gulf of Mexico, built on the many, many alliances and frame agreements we have, that gives me further confidence that 2015 inbound should be solid. Now, a lot of these big projects are going to be dependent on the operators, and quite frankly, our success in helping improve the returns so they can go forward. But the inventory of deepwater discoveries, sizable discoveries, that the operators would like to develop is there. The question is, can we develop in a cost-effective way, at the high returns that the EMP companies demand now. We've had some success with Kaombo, Mad Dog, and some of the others. And I understand even Rosebank is being reworked to proceed. As long as that success continues, I'm confident that deepwater portfolios of these major operators will be developed. And that will give us a robust 2015 subsea inbound for FMC, and possibly for the industry. James West – Barclays Capital: Okay. Good. Then we definitely agree with that. And under your fracturing related businesses, with the recent pullback in commodity prices, are you seeing any kind of change in the order rate, or the conversations you are having with the fracking companies about the ordering of equipment? Or is it just all systems go right now?

James, first of all, this is a short cycle business. So it's going to turn on a dime. So I think I wouldn't – it may be all systems go for the next hour, and then it could change again. So what they are – we have not seen anything. We've heard that maybe some of the smaller frac companies are pulling back on CapEx. Maybe the larger – some of the signals from the larger pressure pumping companies are more steady as she goes. So, I think there's a couple of different messages there. Secondly, there's a difference between additional capacity and the possible increase in consumables. We know that the frac intensity is growing. We know that the consumable portion of our business has a better chance of staying strong if there is a pullback. And if anything is pulled back, it would be on capacity addition. So that's pretty much what we're hearing on the frac side.

The next question is from Kurt Hallead with RBC Capital Markets. Please go ahead. Kurt Hallead – RBC Capital Markets: Hey, good morning.

Good morning, Kurt. Kurt Hallead – RBC Capital Markets: Hey, John. Giving a lot of really good color and insights vis-a-vis what you're seeing out there. Obviously, the mentality on the marketplace and the investor base is that the subsea order growth rates are going to slow substantially over the course of the next couple of years. And a lot of that, obviously, driven by the drop in oil price over the past 3 or 4 months. Given what you guys are trying to do with standardization and reduced cost dynamics and so on, and given your experience in this business, are we looking at a period of time where things are going to get pushed to the right more frequently now, do you think? Or have the oil companies in 2014 gone through their cost reassessments and ready to move forward more aggressively?

Kurt, I think they're just working through that process. You see some operators, maybe like Statoil, being more aggressive in their prioritization and pullback. But then you see other operators with their big portfolios proceeding ahead. So at this point, to claim that there's a slow substantially, and a decrease in subsea orders, I don't think it's good to declare the patient dead when there's still breathing. This is not – I don't see anything like that. I think that's maybe an over-reaction. I think they have to work through it. We know that they want to develop their – every operator that we have talked to remains completely committed to their deepwater portfolio. And they've got to work through their capital allocation. They have to work through projects where they want to improve their returns, and they are in the process of doing that. So I think that would be overstated, to say that there's going to be a substantial reduction in subsea activity. Kurt Hallead – RBC Capital Markets: All right. Thanks. And then one follow-up for Maryann. So Maryann, you indicate that subsea margins in 2015 of 15% or so looks to be achievable. Now, given the improvement in margins that you have had throughout the course of the past year and a half, and the exit that you are seeing here in the third quarter of 14%, 15% would almost seem like a disappointment relative to what you guys have put up in the third quarter. So can you provide some additional maybe color or clarity on that 15% for 2015?

Yes. Sure, Kurt. So as you know, it's certainly not meant to be guidance here for 2015. As we get into our – when we provide you full-year results in our fourth quarter, we will provide more comprehensive guidance. Certainly just trying to give you an indication on the strength and the conviction of our ability to maintain the execution and the performance we have. We're seeing our margins and backlog improve. So, when we get to next year, 2014, we will give you – or excuse me, 2015, we will give you some real solid guidance. But that's not meant to be guidance. It certainly just meant to give you an indication of our confidence.

The next question is from Doug Becker with BofA Merrill Lynch. Please go ahead. Doug Becker – BofA Merrill Lynch: Thanks. John, you highlighted that Africa is going to be a disproportionate amount of the subsea order growth going forward. This has obviously been an area that's been difficult to execute in, for FMC and others. What steps have you taken to address this growth in the region, and make sure that the good execution we've seen in the last couple of quarters is maintained?

A number of steps. First of all, a lot of the equipment that goes into Africa comes from our Houston organization, as well as Norway. And so all of the improvements in execution that we put in place last year, then you have seen the results of this year in the margin improvement. That's the same execution improvement that will be applied to Africa. So I think, the work that we've done over the last year and a half has strengthened our ability to execute. We're now producing a record number of subsea Christmas trees. Our on-time delivery performance is at record levels. And you have seen, in the last 3 and 4 quarters, a significant change in margin erosion, liquidated damages and so forth. So, when we think of Africa execution, we should think of our Eastern region and Houston organizations improvement on execution. And that will all accrue to the projects in Africa. Now Africa does require a substantial amount of local content, and we're getting better and better and better at that. The Egina project for Total in Nigeria has the highest level of local content that the industry has ever provided into Nigeria. And that project is on track, and we're managing the in-country portion of that very well. We've made substantial investments in Angola, adding a machine shop, expanding our assembly and test facilities, so we have more than adequate capacity to handle the in-country component of our Angolan business. In Ghana, we are the only in-country manufacturer of an assembly and test of subsea Christmas trees, demonstrating the on-time delivery for the Ghana Jubilee tree. So we feel very confident about where we are, in really all locations in Africa. So I – when you're providing equipment in Africa, there's always execution risk. But we think we've made a step change in our execution of subsea equipment for the African market. Doug Becker – BofA Merrill Lynch: Sounds encouraging. And then on subsea services, obviously an area that you've been highlighting for growth. Maybe just some of the puts and takes there. What could drive expectations higher in subsea services growth in 2015? And was it services that accounted for the base orders approaching $900 million in the quarter, versus, say, $850 million or so in the second quarter?

I'll answer the second part of your question first. Services certainly did help the growth, but we had a lot of call-off orders in the third quarter, from being the incumbent or from our alliance partners. It was something like 80% plus of the small orders that we got in the third quarter were related to either an alliance partner or we were the incumbent supplier. But services were up in the third quarter over the second quarter, so it did contribute. Going forward in 2015, we expect our joint venture with Edison Chouest FTO to contribute to revenue – or inbound growth and revenue growth in 2015. As you know, we had our fourth Riserless Light Well Intervention stack later this year and early next year, and that will contribute to revenue growth. And our whole services strategy starts – services growth strategy starts to mature, and we will see the results of that or the effects of that in 2015. So we absolutely have an expectation that services will grow, and subsea services will grow in 2015 versus 2014.

The next question is from Byron Pope with Tudor, Pickering, Holt. Please go ahead. Byron Pope – Tudor, Pickering, Holt & Company Securities: Good morning. Just one question for me, and it actually relates to Doug's question on subsea services, where I wanted to get your thoughts on the longer-term drivers for subsea services. And here, I'm thinking specifically – I've thought of the insulation piece of the service – subsea services portfolio as being the biggest chunk. But, do you see that continuing to be the case in 2015, versus well access and asset management? And then I was hoping you could just frame the order of magnitude of subsea services growth that you saw in 2014 year over year versus what you might be thinking for 2015?

Let's start with the second part of your question. In 2014, we saw services growth. A lot of that was just coming from our standard installation growth, shipping more trees, shipping more manifolds, the installation services or our conventional subsea services to support that business grew in 2014. It's the additional services that you're referring to – the Riserless Light Well Intervention. We had a very strong year in 2014. Of course, we had the recertification of the stacks earlier in the year. That's now behind us. So we finished the year stronger. But it's the additional stack that we'll roll out in 2015. We'll grow Riserless Light Well Intervention services in 2015. And then the other service areas, like asset management, that we expect to contribute to service revenue growth in 2015. If that gets that covered – Byron Pope – Tudor, Pickering, Holt & Company Securities: Thanks.

The next question is from Marshall Adkins with Raymond James. Please go ahead. Marshall Adkins – Raymond James & Associates, Inc.: Good morning, John. Could you spend a second addressing the pricing that you think might be in backlog? Are we seeing any kind of pricing improvement on the stuff you're bidding right now? Or is it just basically capturing any kind of cost change?

Actually, Marshall, our margins in backlog in the third quarter were again, up from the previous quarter. Again, this is margins and backlog now, so it's different than pricing. But it's the exiting of the lower margin, the remnants of the lower margin business we took years ago, being replaced by stronger margins that we bid over the course of the last year. So our margins and backlog continue to improve. But your question was more about the – maybe the pricing environment, and we haven't seen much of a change, to be honest. Most of the conversations, again, that we're having with operators are around, how can we reduce costs? How can we improve our returns? As opposed to squeezing the margins of the subsea equipment. Marshall Adkins – Raymond James & Associates, Inc.: Okay. But it sounds like some of that lower-priced backlog has phased itself out. Is that fair?

Yes, it is phasing itself out. And then I think the margins that you are seeing will start to flatten out over time, as it gets phased out. But again, we're not seeing any – to answer maybe your – try to answer your question. We're not seeing any deterioration in our margins and backlog. But you're right, as it phases out, which it will largely do through this year, we will see maybe a more stabilizing of the margins going forward.

The next question is from Rob MacKenzie with Iberia Capital. Please go ahead. Rob MacKenzie – Iberia Capital: Great. Thank you. Great job summarizing so far, John. I guess my question to you – actually, first for Maryann. Maryann, can you also help us a little bit more with the margins in the energy infrastructure segment? You had talked about a correction from previously accrued profit in the first half of the year, 4% margin this quarter. How should we expect that to return now? Because we also had an impact of – in the second quarter, at least, a divestiture of the material handling business, right? So what should we think about in terms of going-forward margins there?

Yes. So for the fourth quarter, we're looking at more traditional margins in that energy infrastructure group. We think all of that automation and control issue, as I mentioned to you, is completed. So, we're looking at margins on a full-year basis in a range of 10% to 10.5%. We have strength coming out of the measurement solutions division, as well as loading systems, the 2 strongest businesses within that sector. Rob MacKenzie – Iberia Capital: Okay. Thank you, and then separately, back to John. What kind of lead time do you think you have on moving parts in the fluid control business? Is it really very short term and unpredictable as to when and how that might wane due to falling commodity prices?

The cycle time in fluid control's business is very, very short. They carry 30 to 40 days backlog, particularly for their flow line products. So, if there was to be a falloff in demand, which is not what we're projecting – a falloff in demand, you would see it within, really, a month or two. It happens very, very quickly.

The next question is from Michael LaMotte with Guggenheim. Please go ahead. Michael LaMotte – Guggenheim Securities LLC: Thanks, good quarter. And most of my questions have been answered, but John, just maybe a general one for you. Beyond the obvious execution, and the impact of the recent drop in oil prices, what are you watching closely as you go into 2015? Are there any concerns within the organization, things that are within your control?

Thanks, Michael. The things that we are focused on is strengthening and expanding our partnerships with the operators. This is the foundation of our Company's market-leading position in deepwater. Regardless of what happens next year or the year after, the strength of these partnerships is what's going to keep FMC in a leadership position. Having added 3 partnerships, which we announced in the call this morning, that is a big deal to us. That means that these operators have decided, we are going to use FMC's technology, whether they're – regardless of the pace at which they develop their deepwater portfolio. So adding partnerships, expanding those partnerships, strengthening them. Those are foremost in FMC's focus area, and is something that we control. Secondly is technology. You can't be the market leader in the complex world of subsea if you're not the technical leader. And that's why the partnership that we formed for high pressure, high temperature equipment was so important to FMC. And so Maryann mentioned our R&D spending in the fourth quarter. We are going to remain focused on making sure that our Company rolls out the next generation cost-effective subsea equipment. And then finally, sure, we are pleased with the progress we made in execution, but execution matters in this industry. And we know that it matters to our partners. The best way to destroy returns on a deepwater project? Miss the delivery, affect first oil, and have a big cost overrun. So we know that, to the extent that we can continue to improve execution going forward, and shorten lead times, that we'll support our partners and help them improve their returns. So these are the 3 areas our Company is focused on that are within our control. And we expect 2015 and 2016 to be better years for us in each of these categories. Michael LaMotte – Guggenheim Securities LLC: That's great. Thanks, John.

You're welcome.

The next question is from Brad Handler with Jefferies. Please go ahead. Brad Handler – Jefferies & Company: Thanks. Good morning, guys. We've obviously covered a lot of ground. But I'm curious, to come back to the subsea, I guess I'm curious for your thoughts around Nigeria. We have covered, like I said, West Africa a little bit. But how important is it to – do you think, to the progress of the Nigerian project to get a petroleum law passed? Obviously, the Senate is trying to say some nice things about expediting it, I guess once it is presented to them. But maybe your sense of how much of it is – activity is contingent on that, please?

Obviously, I'm a little removed from the impacts of petroleum law, but I can speak to what I saw. 3 years ago, there was essentially no Nigerian projects that were awarded, because they had not successfully passed a Nigerian law, and we were worried about it then. And then the operators, maybe because of the price of oil, maybe because of things I don't understand, decided to proceed with developing their deepwater projects, despite the fact that a petroleum law was not signed. And then came the Shell projects, the Total projects, the Chevron projects, despite – and even the Exxon projects, despite the fact that a petroleum law had not been passed. So it's hard for me to gauge if the absence of a petroleum law will in fact affect the development of the Nigerian projects – the future Nigerian projects that are targeted for 2015 and beyond, because it didn't the last time. Brad Handler – Jefferies & Company: Right. That's interesting color. Okay. A related follow-up, I guess. But maybe just one that hardly counts is, if you could share the number of trees that were in-bounded in the quarter, just for old habit's sake? And then if you could speak to – you mentioned boosting in response to an earlier question, or maybe processing more generally. But could you update us? There been a handful of projects, I guess, on the list for some time. Did those – has that list remains the same? What are your thoughts about how 2015 might proceed? Might a couple of those on the list finally get – or come to fruition, so to speak, and get awarded? I know Appomattox is on that list, for example, and I think you have some optimism around that coming through in the next year. So if you could speak to that project list, please?

Okay. FMC in-bounded 30 – at least something like 38 trees in the quarter. Quest hasn't published the whole industry total, but I imagine it will be just under 100, or between – I imagine it will be between 60 and 80, or somewhere in that range. I really don't know. But we in-bounded 38 trees. With regard to the major subsea projects that could be awarded in 2015, these are projects that have been fully tendered, at least a handful of them – at least, maybe, 30% or 40% of them have been fully tendered. And they are in the evaluation process. So you would think that those projects have a pretty good chance of proceeding and staying in the 2015 timeframe. You have a couple of others that are just starting the tendering process, and those, probably, are the ones that may be a little bit more risk to move to the right.

The next question is from Ed Muztafago with Societe Generale. Please go ahead. Ed Muztafago – Societe Generale: Thanks for squeezing me in there. I was wondering if you could talk a little bit – you highlighted the improvement in, or expected improvement, in lower tertiary work. And clearly, from a drilling perspective, that stuff is significantly more service-intensive. Can you all talk to maybe what the equipment intensity of the lower tertiary project is like? We're hearing that they really don't work without things like boosting or separation, et cetera.

That's right. There's some lower tertiary is developed without – at least in the initial stages, without subsea boosting. But you're correct in that subsea processing is an important technology for fully developing the lower tertiary in the Gulf of Mexico. Which, again, is why it was so important for us to have the high pressure, high temperature technology to complement the subsea processing equipment that we hope to supply when the lower tertiary gets to that point of development. Ed Muztafago – Societe Generale: Okay.

And further, the joint venture we have with Edison Chouest, and the activity of our FTO joint venture, is also going to come into play in developing the lower tertiary. Ed Muztafago – Societe Generale: Okay. And does that stuff command 2 times the dollar revenue that a typical subsea development would? And feel for that, or…

Yes, the high pressure, high temperature equipment is not going to be less expensive than lower pressure, lower temperature equipment. So clearly, it's more expensive. And when you add the process equipment on the seabed, you're going to incur those costs. But remember, that processing equipment that you are putting on the seabed is equipment you don't have to put on the topside facilities. So, I think there might be a transfer of the revenue from topside facility to subsea in developing the lower tertiary. Ed Muztafago – Societe Generale: But all good for you. And then just as an unrelated follow-up. The last time things slowed down a little bit, I think we were all surprised by the proliferation of tie back activity that went on. And just, as you look forward in the lower oil price environment, if we do see a slowdown, do you all think there's the potential that in 2015, the onesies and twosies market could substantially surprise everyone? And generate a lot more inflow for FTI than what people might be expecting?

I think you're on the right track. Nobody knows what this new environment – it's just really only occurred in the last 2 weeks; how it's actually going to manifest itself, in terms of activity levels. But one sensible thing is to look backwards on what happened the last time we went through a downturn. So I think that's meaningful to think about tie backs and small orders increasing. It certainly makes sense, if the infrastructure is there, the returns on a tie back are going to be better than a big infrastructure project. The problem is, longer term, to really replace the declining oil that's required by the market, these bigger fields have to be developed. You can't meet the world's supply over the long term just by doing tie backs. But certainly, the returns are better, maybe, in the short term if they go through a little cycle.

And that was the last question for today. I'd like to turn the call back to Brad Alexander for closing remarks.

This concludes our third quarter conference call. A replay of our call will be available on our website, beginning at approximately 2:00 PM Eastern Time today. We will conduct our fourth quarter 2014 conference call on February 11, 2015, at 9:00 AM Eastern time. If you have any further questions, please feel free to contact me. Thank you for joining us. Ellen, you may now end the call.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.