TechnipFMC plc (FTI) Q2 2015 Earnings Report, Transcript and Summary

Welcome the Second Quarter 2015 Earnings Analyst Call. My name is Loraine, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Brad Alexander. Mr. Alexander, you may begin.

Thank you, Loraine. Good morning, and welcome to FMC Technologies' second quarter 2015 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 and CEO. John T. Gremp - Chairman, President & Chief Executive Officer: Good morning. Welcome to our second quarter 2015 conference call. With me today are Maryann Seaman, our Chief Financial Officer and Doug Pferdehirt, our President and Chief Operating Officer. I'll discuss highlights from the quarter, Maryann will provide specifics on our financial performance, and then we'll open up the call for your questions. Earnings were $0.46 per diluted share for the quarter. Total company quarterly revenue was $1.7 billion, and operating profit was $216 million. Quarterly revenue for Subsea Technologies was $1.2 billion, with margins of 14.8%. Our focus on execution and the strength of our backlog has continued to drive our strong margins. For the full year, we still expect Subsea margins of around 15%. Our activity levels remain near our record 2014 levels, but our full year revenue will be down as a result of the strong U.S. dollar. Maryann will provide further detail on this currency impact. Our quarterly Subsea Technologies inbound totaled $1 billion, bringing our total for the first half of the year to $1.6 billion. We recently received a $297 million BP Shah Deniz Stage 2 Project Award for Manifolds & Controls in Azerbaijan. This is a second major award we received from BP for this development. Our second quarter Subsea orders also included awards for the long lead time materials for two large projects that we've been tracking. We expect full funding for these awards in the coming quarters. Second quarter value for each of these awards is relatively small, but the total value for each of these projects will be significant. Smaller project award activity increased sequentially, and Subsea service activity remained strong during the quarter. With year-to-date Subsea orders of $1.6 billion, we now have increased confidence in exceeding $3 billion of Subsea awards. This is supported by continued strength in our service activity, increasing small order inbound, and some large projects we expect to book before year-end. Our customers remain committed to developing their deepwater portfolios and continue to evaluate their offshore projects for upcoming development. Some of these are in advanced stages and are set to move forward with minimal changes to their original plans. The design and scope of many projects however, are being significantly reworked to reduce costs and improve project economics. Operators are showing a willingness to accept alternative approaches to the traditional tendering process and are much more open to our vendor-based solutions. As offshore projects make up a large part of the future production of many operators, the achievement of improved project economics is imperative. Our Forsys Subsea joint venture with Technip, which became operational in June, provides a meaningful and immediate step change in project economics. The initial response received from operators, both partners and non-partners alike, has exceeded our expectations. This includes IOCs, NOCs and independent operators. The potential fields are in basins throughout the world and the scope of the projects varies from tiebacks to greenfield developments. The rate at which our clients have identified projects in their portfolios as strong candidates for FEED and concept design using Forsys Subsea capabilities demonstrates the importance of this new approach. The pace and breadth of their commitment gives us confidence of at least one award in 2015 and that the first related EPCI award will come next year. In our Surface Technologies segment, revenue decreased 19% sequentially as we experienced significant declines in North America activity in the second quarter consistent with the 35% sequential U.S. rig count decline and the impact of Canadian breakup. More than 1,000 rigs have come out of the market in the last three quarters. In response, customer spending reductions have been significant and price reductions have had a greater impact on us than in prior down cycles. Our daily fluid control orders fell dramatically in the quarter. We do not expect material changes to this level in the third quarter, and it's unlikely we'll see much recovery before 2016. As we implement our integrated strategy for our North America business, we continue to consolidate many of our bases and rationalize our workforce to improve our overall operating effectiveness. Our Surface Wellhead business outside of North America continues to perform very well. We continue to forecast strong activity through the remainder of the year but remain vigilant and we'll react swiftly should we see prolonged market weakness. Looking forward, the North America land market will remain challenged going into 2016. We're taking actions to consolidate many of our operations within this segment. These will make us a stronger, more integrated business with greater capabilities and a lower cost structure. We remain confident in our ability to deliver full-year Subsea margins of around 15%. We will continue to right-size our Subsea organization in line with our improved efficiencies and anticipated activity levels while protecting our market leadership. Deepwater assets continue to be a significant part of many operators' portfolios. As project reevaluations move forward, new approaches are beginning to emerge that improve overall project economics. These are placing a greater reliance on vendor-based solutions and integrated field design and development. We expect this will help the positive order momentum that began in the second quarter continue through the second half of 2015 and into next year. Maryann will now take us through some of the financial details for the quarter. Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Thanks, John. Before I review our operations, I'd like to note that our quarterly earnings results were negatively impacted by total company restructuring charges in the quarter of $0.03 per diluted share and an IRS tax settlement charge of $0.03 per diluted share. Our Subsea Technologies segment continues to deliver strong operating results. Excluding the impact of foreign currency translation, total revenue would have increased by $62 million year-over-year. Subsea Technologies' operating profit was $184 million in the quarter. Excluding the impact of foreign currency translation, total operating profit would have increased $15 million year-over-year. Operating margins were 14.8%. We incurred restructuring cost of $5.4 million in the quarter. Excluding these costs, margins were 15.2%, a sequential improvement of 60 basis points from the first quarter. These results are driven by our solid execution of a strong project backlog and the continued strength of Subsea service activity despite weaker activity in the North Sea. Although our activity remains high, we were able to reduce further our Subsea head count during the quarter in areas where our internal standardization efforts have delivered efficiency improvements. In the coming quarters, workforce reductions will be more reflective of the anticipated decrease in future-year activity due to delayed Subsea project inbound. We anticipate an additional $15 million to $20 million of charges in the second half of the year. Further head count reductions will be made to support future activity levels. Given the international composition of Subsea, we have experienced continued headwinds of the strong U.S. dollar. In the first half of 2015, the U.S. dollar is significantly stronger than currencies we have the greatest exposure to, NOK, euro and the real. Subsea revenue for the first six months of 2015 includes a $251 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, total revenue increased by $117 million year-over-year. Operating profit included a $35 million unfavorable impact of foreign currency translation. Excluding the impact of foreign currency translation, operating profit increased $52 million. Moving to Surface Technology results, Surface Technologies' operating profit for the second quarter was $28 million, with a margin of 7.5%. In the quarter, we incurred restructuring cost of $2.8 million. Excluding these costs, margins were 8.3%. These results are reflective of the severe slowdown we are seeing in all of our North American land businesses. The sequential drop also includes the impact of Canadian breakup. We have now largely completed the planned head count reductions associated with the lower activity levels. As John stated, we do not expect to see much recovery before next year. Therefore, our overall U.S. activity is likely to be lower in the second half of the year when compared with the first half. We expect some of this decline to be offset by improvement in our Completion Services business, which will benefit from increased activity in Canada, as we come out of breakup. As we have been discussing, we are in the process of reducing our operating cost structure in North America, while integrated related services on the pad. We expect these actions to continue throughout the remainder of the year and will result in further head count reductions. These actions will reduce cost and improve our competitive position as market recovers. Our Surface Wellhead business outside of North America continued to perform well, primarily related to activity in the Middle East, offset by some volume decline in Europe. Segment backlog exiting the quarter stands at $467 million. This is predominantly Surface Wellhead business outside of North America. Energy Infrastructure operating income for the second quarter was $5 million, with a margin of 5.2%. In the quarter, we incurred restructuring cost of $1.3 million. Excluding this cost, margins were 6.5%. We experienced sequential improvement in our Loading Systems business, but it was partially offset by weakness in our Measurement Solutions business due to slower activity. We expect segment margins to approach double digits in the back half of the year, due to Loading Systems' continued improvement and somewhat higher activity levels for Measurement. Let's turn to the corporate items. Corporate expense in the quarter was $14 million. We expect spending of approximately $15 million per quarter throughout 2015. Other revenue and expense net reflects expense of $30 million. The majority of the higher-than-forecast expense relates to foreign currency losses, primarily associated with the devaluation of the Angolan kwanza. Given the potential for future devaluation of the kwanza, it is possible we will incur further losses in the second half of the year. For the remainder of 2015, we expect other revenue and expense to be approximately $14 million per quarter of expense, with the potential for further foreign currency fluctuations increasing that amount. Our second quarter tax rate was 34.1%. This includes a U.S. tax adjustment of $8 million, or $0.03 per diluted share, related to an IRS audit settlement for years 2007 through 2011. Excluding this, our tax rate would have been 29%. We continue to expect our 2015 full-year tax rate to be between 25% and 27%, which includes the U.S. tax audit settlement. Capital spending this quarter was $75 million. We expect capital spending in 2015 of approximately $250 million. At the end of the second quarter, we had net debt of $699 million. It was comprised of $587 million of cash and $1.3 million of debt. We averaged 233 million diluted shares outstanding in the quarter. And we repurchased 1.5 million shares of stock during the second quarter, at an average cost of $41.62 per share. Looking forward, Energy Infrastructure revenue will be down at least 20% year-over-year, with full-year margins in the mid- to high-single digits, negatively impacted by the results in the first half of the year and slower activity in our Measurement Systems business. Surface Technologies revenue will be down at least 25% from last year, due to reduced North America market activity and continued pricing pressure. Full-year operating margins should be approximately 12%, excluding severance cost. Subsea revenue for the full-year should be approximately $4.8 billion. We continue to expect Subsea margins of around 15%, as service activity levels remain high and we continue to execute well on our backlog. The current market conditions are presenting a number of challenges to our near-term results. However, the strategies we are implementing across our businesses will result in long-term cost savings, while preserving our capability to improve our execution as the market recovers. Operator, you may now open up the call for questions.

Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up question. And our first question comes from Jud Bailey from Wells Fargo. Please go ahead.

Thanks. Good morning. I wanted to kind of follow up on Subsea margins. Maryann, you mentioned that, as your backlog starts to come down, as your backlog starts to come down, you'll reduce your workforce appropriately. What other steps can you take, as your backlog comes down, to try to preserve margins into 2016? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Yeah. Good morning. So maybe just a little bit of color before I completely address your question. As we look back at prior cycles, this cycle looks very different than it has in the past. So, first of all, we're coming off of a very solid well-priced backlog in this cycle versus last. You may remember, during the last down cycle, we were in the process of actually growing our head count to prepare for growth. In this cycle actually, we've begun our reduction of workforce heading into this cycle, so another positive. You've seen growth in our Subsea services for the last several quarters. And then lastly, as we have demonstrated, our execution continues to improve. All of those things will work quite well for us. Standardization and all the internal work that we have done, if you will, to rationalize the workforce, as well as standardize our own internal portfolio, will help that as well. All of those things give us confidence in our ability to maintain those margins this year. Clearly, next year, we'll have some struggle at maintaining a 15% margin, obviously because of pricing, but we are very confident that we will not see the level of margin this cycle that we did last. So, we will not see single-digit margins next cycle.

Okay. Is there a way to think about as we look into next year of all the moving parts, is to think about the magnitude of the margin deterioration given all the factors you mentioned? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Yeah. So, again, we're a little early stages. Obviously, as we look at the next couple of quarters and the inbound orders that are coming in, that will have some impact on it. But again, we are not expecting single digit. I would tell you kind of low-double-digit margins for 2016 is what we're looking at. A little bit difficult for us to sort of give you some quarterly rollout of that just yet. Keep in mind, you remember always our first quarter versus our fourth quarter is always cycled down because of service levels. That help?

Thank you. And our next question comes from Bill Herbert from Simmons & Company. Please go ahead. William A. Herbert - Simmons & Company International: Thank you. Good morning. Maryann, if we could stick on Subsea margins here for a second and talk a little bit more about the glide path, 15% margin for this year, low-double-digit margin for next year. Walk me through that again, because, I mean, I get the virtues (19:29) with regard to well price backlog, right-sizing head count, positive mix shift in Subsea services, offset by perhaps operating leverage and pricing. Just strikes me that the latter two are going to have a disproportionate impact in 2016 to arrive at a low-double-digit margin. So can you amplify on that for me? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Yeah. Sure. So Bill, keep in mind we are still working off of a very solid backlog, right. William A. Herbert - Simmons & Company International: Got that. Maryann T. Seaman - Chief Financial Officer & Executive Vice President: As you know, right, as we're going to be inbounding more price sensitive, the first if you will, sort of 12 months of a project, we typically don't see much more than 10% to 15% of that roll through. William A. Herbert - Simmons & Company International: Okay. Maryann T. Seaman - Chief Financial Officer & Executive Vice President: So your comments are probably more impacting 2017 than they will be 2016. So we'll still be rolling off, as you know, we started the year with a pretty substantial backlog. So we'll still be rolling off a lot of that well-priced backlog into 2016. Later in 2016 and beginning into 2017 is when you'll really see the impact of that lower margin. And by then, we're quite hopeful that all of the additional cost structuring work that we're doing, all of the work within Subsea and the internal standardization will help us offset that as well. So I think you can begin to talk about the end of 2016 seeing that challenge as we move into 2017 with some of that newly priced inbound given the pricing pressures. William A. Herbert - Simmons & Company International: Okay. So that makes more sense to me. So a low-double-digit margin kind of in 2017 somewhere in between 2016. So that makes more sense to me. Secondly John, if you could just talk a little bit more about – you've talked about this before but I'd love to hear kind of a specific update with regard to your narrative on vendor based solutions and the change in mindset on the part of your customer base. What anecdotes can you provide us on that front, please? Thank you. John T. Gremp - Chairman, President & Chief Executive Officer: Sure, Bill. We're seeing it really from two fronts. A lot of our partners and non-partners alike are engaged in discussions with us on how we can improve their project economics other than exclusively through price. And that's where we're able to push our standards, our new technology, and obviously the execution improvements that we've made. So, those conversations are happening as just in the normal course, again, with partners and non-partners alike. The other obvious thing that's happening, and I'd like to ask Doug to give more specific commentary on the actual discussions, is the introduction of Forsys. I mentioned in my prepared remarks that the reaction by partners, non-partners, large, small, independents, even NOCs, the reaction to the Forsys concept has really exceeded our expectations. And so it's through that mechanism we're also seeing the operators engage with us on the ways that we can accelerate new technology adoption, drive standards, which has been a challenge for the industry, and then these new business models through Forsys. So I'll ask Doug to talk – we've got a couple of really very specific conversations with a whole variety of operators, particularly around the Forsys concept and I think that might illustrate the operators' reaction to change. Doug? Douglas J. Pferdehirt - President & Chief Operating Officer: Thanks, John. Yeah, Bill, very interesting meetings that we've had a result of the Forsys Subsea announcement and introduction into the market. We closed in early June, and we're now out actively engaging with our clients. And as John said, it's a wide breadth of clients, both partners, non-partners, IOCs, NOCs and independent operators. And as a result of that, we've entered into discussions deep within their organizations where they've actually assigned teams to work along our teams to look at ways to work differently. This means not only the subsea field architecture and the installation of that architecture, but also the way that we look at the life of the field and how we look at production over the life of the field and therefore, how we design the up-front equipment and how we introduce sensors and monitoring as a result of that. But what's really quite intriguing is we'll often go in prepared to talk about a particular project or a particular opportunity, and before the meeting's over, we've had on more than one occasion the customer introduce to us a portfolio of projects. And these are those projects that have been, if you will, on the cusp or just slightly outside of the – the project economics have been just outside of the threshold to move those projects forward. And they're now introducing that portfolio and saying, "Look, if this can work, we have multiple projects that we'd like to conduct under this manner." Now, this does mean a change of commercial behavior, and in any organization, there's resistance to changes to commercial behavior. But we're seeing a very quick and early uptake and a willingness to move forward and operate in a different manner.

Thank you. And our next question comes from Bill Sanchez from Howard Weil. Please go ahead.

Thanks. Good morning. John T. Gremp - Chairman, President & Chief Executive Officer: Good morning, Bill.

My first question is referring to the Surface business. Maryann, you gave guidance here for margins for full year, averaging at 12% which is at the low end of the guidance you gave on the first quarter call of 12% to 13%, yet you had a big step down in profitability in 2Q here. It's clearly, I think, worse that you all's expectations at the time of the first quarter call. What's giving you guys the confidence now to see that kind of margin ramp in the back half of the year to get you back to almost even with what you guys thought 90 days ago? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Hey, Bill. So I think I mentioned in my comments a lot of the head count reductions in Surface that we've been talking about have largely been made. We will continue to see the benefit of that in the back half of the year along with, beginning to see some of the benefits of the restructuring. We still have more work to do with respect to the integration of the pad that John has talked about as well but we expect to get some benefit. So the absence of severance cost in the back half of the year and the benefit from the lower work force given we've taken out about 15% of that head count in Surface so far this year.

So just the timing was delayed in 2Q, Maryann, from when you all expected to kind of get that benefit? Is that a fair way to think about it? I mean it doesn't look like the margin decline was as structural as maybe one would think just looking at the release. Maryann T. Seaman - Chief Financial Officer & Executive Vice President: So again, Bill, I think first of all, the second quarter pricing pressure was a little bit worse than what we had expected. We think that will continue, but we do believe that the back half of the year, we will have the benefit of all of the cost reduction initiatives that were taken. We moved more aggressively in the first half of the year than initially thought as we saw these actions happening.

Thank you. And our next question comes from Ole Slorer from Morgan Stanley. Please go ahead. Ole H. Slorer - Morgan Stanley & Co. LLC: Thank you very much. So John, it's easy to understand if you and Thierry meet with the C-level executives amongst your clients that they are very receptive for the concept of Forsys. But to what extent – can you elaborate a little bit more on to what extent you are seeing this being accepted, lower down in the oil company organizations? Because that's typically where you get the biggest resistance. John T. Gremp - Chairman, President & Chief Executive Officer: Thanks, Ole. Let me kind of hopefully not digress but sort of set the stage. When you think of any industry, particularly our industry, attempting to go through a major step change in how we do business, it seems like it requires certain things. First of all, it requires the business imperative, which now we have, not just because of low oil prices but because of declining returns. So, there's a sense of urgency, there's a business imperative to make change. And we've talked about that before. It can't be incremental change to improve the returns. They have to be significant, material, and they have to be sustainable. So, the industry, it has that imperative because of the declining returns. The second, I think, important thing is that the solution that drives a step change, it has to be real, it has to be tangible, and it has to be compelling. And the Forsys Subsea change in business model is very much that. And then thirdly, if you're going to make a step change, it has to be relatively simple to implement. Something that's compounded, just complex and convoluted is going to be very difficult for an industry to make that kind of a step change. And then finally, and this ultimately may be the most important thing, if you're asking an industry to make a significant step change, it requires a leap of faith, and a leap of faith requires some level of trust. And so, when I think of – when Thierry and I and the team talk to operators, and again, as Doug described, it is the full range. I was actually pretty surprised that of all oil companies, national oil companies are even interested in that. But it's large, small, it's these four elements that end up in the conversation. It almost always ends up around trust. And you're right. Given the relationships that we've built at all levels in the organization through our partnerships and non-partnerships, there's a great deal of trust there, and I think we're capitalizing on that as we have this conversation about how to make a step change. What is especially interesting, and Doug alluded to it, it's not uncommon when we approach an operator that very quickly, we get beyond the interest and intrigue into this new concept, and fairly quickly, in the course of even the initial meeting, we're talking about specific projects. And as Doug said, we go from specific projects to the entire portfolio. What we've also seen happen, and I think it was – well, to a degree, it's being adopted is unexpected, very quickly, we go from the C-level conversation and the high level vectors to assigning a joint project team to pursue applying this concept to a likely candidate from their portfolio. So, very quickly, we're getting – and this is especially true of the smaller independents who don't have all those layers, very quickly, we get to a project team with the operator joined with ours pursuing that with the direction from the C-level. So, we've actually been pretty impressed, especially with smaller independents, even some that have been non-partners of ours, of how quickly they've been able to influence and convince the levels below them to seriously look at this concept. Now, a larger operator with many, many more levels, maybe a larger subsea organization that has to be convinced, I don't think we're naïve. We know that it's going to take more of an effort. But one of the things that is different here though, again, is, even at C-level and below, they're going beyond the interest and intrigue and they're naming projects. And I think that'll be one of the keys. Doug, do you want to add to that, based on your more specific experience in some of these conversations? Douglas J. Pferdehirt - President & Chief Operating Officer: No. As John pointed out, Ole, it's very, very positive in the – it's not just the tone and not just the interest in the concept, but it's actually standing up teams, engaging directly with the project teams because, as you alluded to, there's often resistance between the C-level and the coal face when it comes time to implement change. It's there, we're not naïve. We recognize it's there, but there's been much less resistance than we had expected to experience. And even with the large operators, we're sitting there talking about fields and, again, portfolios of opportunities that they're anxious to move forward, now that there's a solution. And as John said, the commercial model, although it's different, because of the combination of our two companies and the breadth of our two companies in the offering and the simplicity in the commercial model, they're wanting to embrace that, and taking the necessary actions to do so. Ole H. Slorer - Morgan Stanley & Co. LLC: Okay. So (32:52) have a little bit further along here. Could you give us an update on your thought process on overall cost reduction from the average, if there is such a thing, kind of mid-deepwater field development? I mean we had the pleasure (33:05) some detail with Tore in Norway, and he made one specific example of a big West Africa project where there was a rather substantial project, but the cost saving on the Subsea and installation, but I don't know if that was a unique situation. So, what's your latest thought on offshore cost reductions, let's say, compared to how things were done a few years ago, and how you think you can deliver a year or two out? Douglas J. Pferdehirt - President & Chief Operating Officer: Thank you for the question and obviously, an important question, and that is the value proposition. And again, it comes from a combination of improved execution, standardization, new technology, driving new technology that's going to reduce the footprint, but more importantly, the overall operating cost, both in terms of the installability, uptime, and serviceability. In addition to that, there's – obviously we're trying to drive new business, new commercial models, through Forsys Subsea. We have several examples, several examples of where we're working with our customers right now as they either reengineer projects that had not moved forward given the current economics and/or new projects, including both tiebacks and greenfields. And we're going through these, if you will, these four steps, to drive and improve the overall Subsea project economics with the overall objective of, obviously, creating more market and moving those projects forward. We continue to see savings in the range that we had previously indicated, and that you indicated. And again, it depends on the particular project and can come from a combination of those things, again, standardization, new technology, and enhanced and improved commercial models. But yes, we continue to see those type of results. And that's why we're going from a theoretical discussion and – not only to a single project, but to a portfolio of projects discussion, because we're able to realize those type of savings.

Thank you. And our next question comes from David Anderson from Barclays. Please go ahead.

John, I was wondering if you can just comment, a little bit of a comment, kind of more the near-term outlook on the Subsea side. We've heard from service companies talking about a shift in offshore from exploration towards development. You put up a nice number in Subsea today, with increased confidence on the $3 billion number. I understand all the talk about change of business model. That doesn't seem to be what's happening right now in the market. Can you talk a little bit more what's happening right now in these orders, and your confidence? Is it because the projects or – our costs are coming down enough to move projects ahead? Are these things – is this more about cash flow? Can you just help us understand a little bit more about how the order pattern develops over the next, call it, six to 12 months? John T. Gremp - Chairman, President & Chief Executive Officer: Okay. So, Dave, let's talk about the balance of 2015 and why we have confidence in exceeding the $3 billion. So, obviously, we had a strong Q2. You add the Q1 and Q2 together, $1.6 billion. We're over halfway to our target of $3 billion. What gives us the confidence? We said in the last quarter that we were pleased with the Subsea service activity in the first quarter. It sort of mirrored the run rates that we had in 2014. We thought it would hold up. It did hold up in the second quarter. Second quarter Subsea service numbers were equivalent, actually a little bit better than the first quarter numbers. That's two quarters in a row in this downturn of Subsea service inbound holding up. That gives us confidence. The second thing is the small, less than $100 million orders. In the first quarter, they were down substantially from our run rate in 2014. In the second quarter, they bounced back fairly significantly sequentially. And they start to mirror the small order inbound that we got in 2013 and 2014. And we hope that that was the case. I think in the first quarter call, we said that we thought the low number on small orders was a result of the operators kind of stopping everything while they redid their budgets, and we were hopeful that that would come back this year. And sure enough, it did in Q2. So, we expect that number to be stronger going forward. Obviously, winning the Shah Deniz project was important to us, and we had counted on that. We were tracking a handful of other projects, some of which we expect to be inbounded in 2015. Winning two major projects, long lead time material, is really important to us. That means those projects are likely to go ahead, and it means that we're going to win them. Now, when they actually fall, they could move into 2016, but that gives us a lot of confidence that we'll pick up the couple of projects we need for the balance of the year, and therefore now, we have more confidence that we'll exceed the $3 billion target that we put out there. So that's 2015. Now, going into 2016, it's what you alluded to. The long list of projects – over $7 billion of major projects had been identified for 2015 before the downturn. Those have all now been deferred – many of them, not all, but many of them have been deferred and they're being reworked. We expect that rework, which is happening fairly fast, and hopefully in part even due to the efforts that we're working with our partners, whether it's Forsys or non-Forsys to improve those economics, that those start to move forward. And we should start seeing that move forward, balance of 2015 into 2016, and we start to ramp back up at some point to the historical numbers of Subsea developments that we saw in the past. We know that the discoveries are there, we know the fields are there, the portfolios are there. The question is how fast can the operators adopt some of these new concepts, rework their scope of these development projects and get back to the pace that we saw in 2013 and 2014. But we expect that to start picking up in 2016. I'm not saying the 2016 inbound level will replicate 2013 or 2014, but we ought to see some sort of ramp up as this backlog of projects go through the rework process, go through the FID process and turn into awards.

So in other words, you were talked about the smaller awards in the services side? I guess I could think about that as sort of more cash flow driven or kind of it generates more cash flow for IOCs. So, is there enough running room right now from what you see over the next, call it, 12 months to kind of stabilize that part and then the incremental comes from lower project costs. Is that kind of a good way to think about it for the next 12 months? John T. Gremp - Chairman, President & Chief Executive Officer: I think it's an excellent way to think about it. One reason why we saw the Q2 bump up in smaller projects, not surprisingly they were in the Gulf of Mexico and many of them were our partners. We have a lot of partners in the Gulf of Mexico. We have a strong position. The Gulf of Mexico, the projects are smaller, they don't cut as much into the capital budgets. They usually have better economics because they're tying back through existing infrastructure. They happen faster because national oil companies aren't involved in the production sharing contract bidding process. So, yeah, I think the smaller projects bounce back first because they're generally Gulf of Mexico related and they don't have – they're smaller, so their capital demands are less and the lead times are faster. So yeah, I guess when you think about it that way, they would come back faster. The bigger projects, they're going to come back as they're being more related to the pace of rework. I think that's a great way to look at it.

Thanks, John.

Thank you. And our next question comes from Doug Becker from Bank of America. Please go ahead.

Thanks. Certainly don't want to beat a dead horse but still want to get a little more clarity on the Subsea margins. Is the low-double-digit margin commentary related to new work or really for Subsea Technologies overall? In other words, 2016 margins should be higher than that double digits and then for 2017, while it's still early, margins may be gravitating toward that level but there's the potential for offsets with the cost inefficiencies? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Yeah. So my comment about the sort of low-double-digit margins is the comment on average for 2016. The first half of the year we would obviously expect to be a bit stronger than the back half of the year as we're working off backlog. So in my comment to address 2017 is when you would actually see more backlog being converted to revenue from what we expect to be lower-priced inbound coming in now. And at that juncture in 2017, much more of the cost reduction work that we're doing and the rationalization of the workforce, as well as other structural changes within Subsea should be able to offset that in 2017.

Got it. And then John, maybe just a little more color on the moving parts in Subsea services for 2016, particularly as it relates to, at least it would seem like the potential for lower installation work just because of the slowdown this year, and then uncertainty around refurbishment work in Norway next year. John T. Gremp - Chairman, President & Chief Executive Officer: Certainly, the installation-related service activity will be driven by our backlog, and that will start to decline. So, we're anticipating some. It's a little hard to predict that. I mean, they've got equipment at inventory, and so forth. So, it's a little hard to predict. But we would expect installation to start to drift down. Actually, the refurbishment outside of Norway is holding up pretty well. Our Brazilian operation, believe it or not, is holding up well. Gulf of Mexico is very, very strong, and probably will actually get stronger in 2016 because of that load. The refurbishment in Norway decline is mostly around 2015. We haven't set targets for 2016 yet, so I wouldn't count that out yet. I think 2016, we have to look at capital budgets, how they're formed, we've got to get a bigger sense. But we're not – there will be some pressure on Subsea service revenue in 2016 just because of the declining backlog. But beyond that, I think the rest should remain solid.

Thank you. And our next question comes from Kurt Hallead from RBC Capital Markets. Please go ahead.

Hey, good morning. John T. Gremp - Chairman, President & Chief Executive Officer: Good morning, Kurt.

I just (43:27) a lot of conversation so far in Subsea, so I'll shift it a bit and ask about Surface. You already mentioned and gave us some insights on the improvement in margins the back half of the year. As we roll forward, can you give us some general sense as to how much your business going into 2016 may be driven by frac equipment versus other dynamics around Surface? And given the significant excess capacity and some major service companies have indicated, 50% spare capacity in the business, give us some indication of how you might see a improvement in frac equipment orders as you kind of work through that excess. John T. Gremp - Chairman, President & Chief Executive Officer: Kurt, just to ground everybody, our largest historically and even today in the downturn and most significant business in onshore surface North America is our Fluid Control business. The Fluid Control business is one step back in the supply chain. Our customers aren't the E&P customers. Our customers are the pressure pumpers. So, we're encouraged that the pressure pumpers are coming out saying that they've seen the bottom. That's good news. We can't say that because our biggest customer is them, and between their reaction to rig count and their orders to us are things like inventory levels, their restocking plans, and the degree to which they've cannibalized assets that are underutilized. We don't have that kind of visibility so we wouldn't necessarily want to call the bottom right away until we see the pressure pumpers stabilize and increase their activity to Fluid Control. But it's got to happen. The good news is they see the bottom. Eventually, they run out of their inventory, eventually, they have to restock. You can't cannibalize forever, and we'll start to see that uptick. So that's how we view the balance of 2015. For all of Surface we think it'll be relatively flat. We're a little unsure of Fluid Control so we don't want to call it yet. But then we see the recovery starting in 2016, and the restocking that'll occur by the pressure pumpers, we'll start to see the uptick in our most significant business in Surface Wellhead, Fluid Control.

Okay. That's great. Great color. Appreciate that. Maybe just one follow-up. In terms of use of cash, you indicated your CapEx plans for the remainder of the year. Just wondering what you may be seeing out there in terms of any acquisition opportunities and bid-ask spreads related to acquisition opportunities. Have they narrowed at all? And how does that kind of dovetail into the prospect for buying back some more stock? John T. Gremp - Chairman, President & Chief Executive Officer: Right. So, as you pointed out, our capital spend is down. It'll stay down. We have plenty of capacity. Even our most recent investments in Subsea service-related assets should start to slow. So that number will stay down. We don't anticipate it ticking up at all over the next couple of years. So the remaining cash will certainly be available for M&A. You know in the environment, in this kind of environment, it does present opportunities. Our approach, really, for the last six or so years has been to focus our M&A attention on fulfilling our growth strategies for the business, and that's not going to change. There are things that we can do to support our growth strategies, and as there are opportunities available to use our cash for that, we will. We don't anticipate and we're not pursuing any kind of transformational acquisition at all. We're very much focused on our existing growth strategy, so M&A will be related to that. And then surplus cash, we'll probably continue our – depending on the nature of the cash flows, remember, we are still in uncertain times, will be directed towards stock buybacks.

Thank you. And our next question comes from Brad Handler from Jefferies. Please go ahead.

Thanks, guys. Good morning. Maryann, a couple questions from me. Maybe I'll ask them both and just let you address both. The first is, thanks to you guys, I now know that the Angolan kwanza has devalued by 6% in June. I was not aware of that before. But the black market suggests that it could devalue a whole lot more as you alluded to in your comments. But could you help us understand, if it does indeed trade down to the 190 (48:06) level that the black market is trading to, what's the financial impact on you? What steps can you take to protect against that as we think about the corporate? So, that's question number one. And question number two is simpler, I guess. Accounts receivable were up a fair amount in 2Q. What is your thoughts around – was that related to one big customer? What are your thoughts around working that back down as we might have expected in the second half of the year? Thanks. Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Hi, Brad. Sure. So, with respect to the kwanza, we have a couple of opportunities to protect against that sort of going forward. But you're right and, hence, that's why I made the comment that there is some risk given the dependence on oil price and oil revenues to that economy. We are protected largely until the time at which we actually bill. So, we have sort of two elements of risk. One is the receivable risk. And we have been and continue to be talking with our customers. Much of our contractual language gives us relief and protection. Some of our customers we have actually been able to reach good conclusion with. Others we are still in the process. So customer discussions to protect that, in other words, once we invoice, we have to invoice in kwanza as you know from the law change in 2013. And so that's where the risk exist in further devaluation as we're waiting for payment. Once we get payment of course, then we have the cash risk. So our opportunities there in addition to working with our customers to protect us so that neither one of us are unfairly penalized, if you will, is looking at opportunities to invest in country. That is a challenge, but we're looking very hard at being able to do that. So, we would have some interest income to offset any potential. And then most importantly, is to minimize the amount of assets sitting in country. You know, at that point in time, we happened to be sitting with a fairly large receivable position, which is why it happened. So, we are also looking at good measures for us to be able to minimize the amount of kwanza that we have sitting there. There is a forward market for kwanza, but it's about a three-month market, and it's, on average, about 40% cost to us. So heretofore, we have made the conscious decision not to do that and we think, obviously so far, that has been the right decision. So customer discussions, movement of cash, reinvestment of cash and obviously, doing everything we can to minimize the amount of cash that's sitting out there.

Okay. Maryann T. Seaman - Chief Financial Officer & Executive Vice President: On the receivables question, no, nothing in particular. We are moving a lot of projects into final execution phase. So, we have no concerns over any receivable risk whatsoever. This is just normal business as we would've expected; no risk here at all.

Okay. Thank you.

Thank you. And our next question comes from Rob MacKenzie from IBERIA Capital. Please go ahead.

Thank you. I guess my question will be for you, Doug. Having worked both in the equipment and on the service side of the business, recently one of your competitors is mimicking your Forsys venture, bringing in a SURF player, and already has a downhole component, if you will, to their joint venture. Do you see any strategic benefit in further expanding the Forsys joint venture to go more downhole? Douglas J. Pferdehirt - President & Chief Operating Officer: Hey, Rob. Thank you. Just to reiterate what John said. There's really four components that are required to successfully transform a business model, or to introduce a new commercial model. There's the environment, there's a true, real, value-added, compelling proposition. And there's simplicity in the concept and therefore, the ease of implementation. And then trust to make the leap of faith or the change. And we really think those are the four key elements. So regardless of the configuration of companies, if you cannot meet those four requirements, it will introduce barriers and challenges along the way. And as we've been able to articulate this morning, and hopefully convince you, we're getting that feedback and we're moving forward in a very positive way. In regards to the reservoir, we work very closely with our clients, and so when we talk about a Forsys Subsea approach, that's really a combination between the two industry leaders, being Technip in the SURF category and FMC Technologies in the SPS category. And our customer, and our customer brings that knowledge and that competence and that ownership of the reservoir to the table, and we work very closely together.

Great. Thank you. That's all I had.

Thank you. And our next question comes from Byron Pope from Tudor, Pickering, Holt. Please go ahead. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: Good morning. I just have a very quick question on Surface Technologies. John, you mentioned in your prepared remarks that the pricing reductions in Surface, North America Surface, were a bit worse than you expected. And was that the case across Wellheads, Fluid Control and Completion Service? And my sense is, that might just be a function of how far and fast activity has fallen, as opposed to there being some industry structure change that has made the pricing environment tougher. So, just was hoping you could comment on that. John T. Gremp - Chairman, President & Chief Executive Officer: Yeah. Well, Byron, I think you're right. One, it was across the board, and you got it right. I mean, when we gave our estimate of what the impact in the downturn would be on Surface, we were reflecting on past downturns. It's all we had to go on. And this downturn is different. The pressure on pricing and what we've had to accept across the board, Surface, Fluid Control, Completion Services, has been much more severe than we saw in the past. And I think you're right. It's the severity and the steepness and the speed at which this downturn occurred, drove much more aggressive pricing pressure, and that's what made this cycle different than the past, and why our Q2 numbers were disappointing from where we thought they would be. As Maryann pointed out, we're taking action. We didn't anticipate this cycle to be different. Now that it is, we're going through another round of restructuring. And I think more importantly, if I can, Byron, I'd like to talk a little bit about our North America strategy, because that's more than just restructuring. It's really transforming our approach in North America. Maybe, Doug, you can walk Byron through how we see North America in the future, even beyond the downturn. Douglas J. Pferdehirt - President & Chief Operating Officer: Yeah. We're putting in place very structural and sustainable changes to the way that we operate our business in North America. As you know, we have three primary businesses in North America and they have worked somewhat autonomously in the past, servicing their individual portions of the market. We think there's real value in the integration of those services, and that's why we made the acquisition we made a couple years back to really fulfill the requirements to be able to offer that full integrated solution. So we call that Surface Integrated Solutions, and that's our North America business. And as we discussed last quarter, and John just alluded to, the transformation of that is underway. Our SIS offering provides a unique combination of surface products and services, providing our customers the benefit of accelerated time to sales and optimized flow rates. We're progressing well with the necessary operational and structural changes to enable the offering. And in the quarter, as we indicated, we took structural charges related to, not only the severe drop in activity, as John pointed out, but also because we have the opportunity now to optimize our operating footprint. So we've had several base closures and also additional head count reductions associated with a leaner, flatter organization. And then finally, we're shifting our supply chain to more optimal cost base, which will provide even additional benefit. So, we're confident that these tactical actions, along with the enhanced commercial model, or this integrated approach, will yield elevated and sustainable results. The full benefit of which – we won't begin to see the full benefit until 2016. But as Maryann pointed out, some of the more tactical steps that we're taking, we'll see the benefit in the second half of this year. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc.: That's very helpful. Thank you.

Thank you. And our last question comes from Jim Wicklund from Credit Suisse. Please go ahead. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Good morning, guys. Thanks for squeezing me in. John T. Gremp - Chairman, President & Chief Executive Officer: Good morning, Jim. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Maryann, are Subsea services margins accretive to Subsea? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: You mean Subsea Technologies in total? The answer is yes, Jim. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Okay. And so, the intervention work, which isn't really backlog driven in those type services, should continue to grow for the next couple of years regardless of slowdown in new project awards, right? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Yeah. So, you're right. We are very optimistic about the growth of Subsea services. For 2016, we're assuming that we'll be able to continue levels. We'll see continued operation of Light Well Intervention both in the North Sea, and then obviously the potential for the Gulf of Mexico as well. So, yes, that would be improvements to the margin. And we're quite optimistic that we'll see those levels continue into 2016. James Wicklund - Credit Suisse Securities (USA) LLC (Broker): Okay. And you talk about the $5 million-plus in restructuring in Subsea in the quarter, and you said there was another $15 million to $20 million in restructuring charges and I'm sorry, my phone may have missed it. Is that this year or next year or just in future periods? Maryann T. Seaman - Chief Financial Officer & Executive Vice President: Yeah, Jim. I'm talking all about 2015 right now. You may remember a call or two ago, we talked about somewhere in the neighborhood of 10% reduction as we were preparing and watching for this downturn. We are probably going to approach close to 15% of total head count. Much of Surface has already been done, but given the activity levels that we've got in Subsea, we've only begun to work on our Subsea structure where standardization has given us efficiency gains. So, what we'll be doing in the balance of this year will largely be Subsea as we're preparing for lower volumes, but I am talking that number in 2015.

Thank you. I will now turn the call over to Mr. Brad Alexander for closing remarks.

This concludes our second 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 third quarter 2015 conference call on October 21 at 9:00 a.m. Eastern Time. If you have any further questions, please feel free to contact me. Thank you for joining us. Loraine, you may now end the call.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.