TechnipFMC : FTI USQ Transcript 2021 07 22

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FTI.N - Q2 2021 TechnipFMC PLC Earnings Call

EVENT DATE/TIME: JULY 22, 2021 / 12:00PM GMT

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JULY 22, 2021 / 12:00PM, FTI.N - Q2 2021 TechnipFMC PLC Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Alf T. Melin TechnipFMC plc - Executive VP & CFO

Douglas J. Pferdehirt TechnipFMC plc - Executive Chairman & CEO

Matt Seinsheimer TechnipFMC plc - VP of IR

C O N F E R E N C E C A L L P A R T I C I P A N T S

Arun Jayaram JPMorgan Chase & Co, Research Division - Senior Equity Research Analyst

Bertrand Hodee Kepler Cheuvreux, Research Division - Head of Oil and Gas Sector Research

Ian MacPherson Piper Sandler & Co., Research Division - Senior Research Analyst

John David Anderson Barclays Bank PLC, Research Division - Director and Senior North America Oilfield Services & Equipment Analyst Marc Gregory Bianchi Cowen and Company, LLC, Research Division - MD & Lead Analyst

Nikolaos Konstantakis Exane BNP Paribas, Research Division - Analyst of Oil and Gas

Vaibhav D. Vaishnav Coker Palmer Institutional, Research Division - Oilfield Services and Energy Transition Analyst

Waqar Mustafa Syed ATB Capital Markets Inc., Research Division - MD of North American Energy Services & Head of U.S. Institutional Equity Research

P R E S E N T A T I O N

Operator

Good day, and thank you for standing by. Welcome to the TechnipFMC Second Quarter 2021 Earnings Conference. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Matt Seinsheimer. Please go ahead.

Matt Seinsheimer - TechnipFMC plc - VP of IR

Good morning and good afternoon, and welcome to TechnipFMC's Second Quarter 2021 Earnings Conference Call. Our news release and financial statements issued yesterday can be found on our website. I'd 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 most recent 10-K, most recent 10-Q and other periodic filings with the U.S. Securities and Exchange Commission and the French AMF. 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 Doug Pferdehirt, TechnipFMC Executive Officer.

Douglas J. Pferdehirt - TechnipFMC plc - Executive Chairman & CEO

Thank you, Matt. Good afternoon. Thank you all for participating in today's call. Joining me today is Alf Melin, our Chief Financial Officer. Second quarter results reflect another strong quarter for our company. Total company revenue improved sequentially to $1.7 billion. Adjusted EBITDA for the quarter was $144 million, with both Subsea and Surface Technologies reporting and adjusted EBITDA margin of 11%. Total company inbound orders were $1.6 billion. In Subsea, we demonstrated our ability to continue winning with inbound totaling $1.3 billion for the quarter.

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JULY 22, 2021 / 12:00PM, FTI.N - Q2 2021 TechnipFMC PLC Earnings Call

The strength in the first half of the year has been indicative of the continued market progression we outlined last year. This includes 10 announced awards, 50% of which will be executed as integrated or iEPCI projects. The strong start to 2021 is clear evidence of our leadership position and is highlighted by significant milestones achieved in the second quarter. These include the addition of 2 new iEPCI clients, Karoon, where we will execute our first iEPCI in Brazil for the Patola field, and Tullow, where we utilized our Subsea Studio digital solution to optimize field layout for the Jubilee development in Ghana.

Also in the quarter, we announced an award from Equinor for the Kristin Sør Field, where we leveraged our early engagement capabilities and will utilize the Deep Arctic, which is equipped with a hybrid battery solution that reduces greenhouse gas emissions. And an award from Petrobras for the supply of production equipment, installation services and intervention support for field 6 through 9 of the Buzios project.

Importantly, the SURF opportunities for these fields remain on our Subsea opportunity list each of which have been identified with values in a range of $500 million to $1 billion. Our long history of partnerships and collaboration continues to benefit our inbound orders. Direct awards in the quarter were nearly 60% of inbound orders, which came from iEPCI, direct awards and Subsea Services.

In Surface Technologies, inbound orders were $268 million, up 32% from the first quarter. By region, international orders increased by more than 50%, as well completion activity continued to recover from the prior year decline. Growth was led by the Middle East, including Saudi Arabia, the United Arab Emirates, Bahrain, Qatar as well as the North Sea and China. Orders in the Americas increased by approximately 10%, reflecting continued momentum in drilling and completion activity and the success of our iComplete offering. Our 2021 revenue guidance for Surface Technologies anticipates further order growth in the second half of the year when compared to the first half, fueled by increased market activity, new customer alliances, expansion of our manufacturing capabilities in Saudi Arabia and the continued market penetration of new technologies.

In total, our second quarter results demonstrate that our businesses and end markets continue to improve. Subsea inbound orders of $2.8 billion in the first half of the year were very strong. We continue to see a healthy list of prospects and remain very confident in our full year guidance of more than $4 billion. Furthermore, growth in 2022 is supported by an increasing set of opportunities. When using the midpoint value of our Subsea opportunity list, the project award potential has increased by nearly 20% to $17 billion over the next 24 months.

Looking beyond the strengthening of the traditional market, we believe that offshore will play a meaningful role in the new energy mix. Last quarter, I introduced the 4 pillars underpinning our approach toward new and novel energies, wind, wave, hydrogen and carbon transportation and storage. As we look at them today, we are making steady progress in our partnerships focused on wind and wave opportunities. The market momentum for wind development continues to support increased investment in this abundant source of renewable energy. And when combined with wave technology, we can generate even greater energy output and reduced intermittency, utilizing the integrated offshore solutions. Our Deep Purple solution is centered around technology development and integration capabilities that convert this renewable energy into hydrogen, enabling economies of scale that were previously unattainable by offshore renewables projects. Our client conversations are now centered on commercial projects utilizing Deep Purple technologies.

Last week, we announced our partnership with Portuguese Energy Utility, EDP as well as several notable research partners in a concept study for the development of a new offshore system for green hydrogen production from offshore wind power. This project is called BEHYOND. Working with our consortium partners, we will leverage our extensive experience in Subsea engineering, technologies developed on Deep Purple and essential integration capabilities with a goal to develop a standardized solution that can be implemented worldwide, allowing for a large-scale hydrogen production from renewable wind resources.

Lastly, while the energy industry is devoting significant attention to carbon reduction, there is still much work to be done. Importantly, the carbon has to be stored somewhere. We believe one of the safest and most efficient locations for the storage can be found offshore, where it can be maintained in naturally occurring reservoirs that exist in many regions around the world. We are well positioned to be the leading provider in subsea carbon transportation and storage. We have been investing in this space for some time and have also partnered with others in the development of new technologies.

We look forward to further showcasing our progress, including several of the technologies and integration capabilities being utilized across the new energy space at our upcoming investor event scheduled for November 16.

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JULY 22, 2021 / 12:00PM, FTI.N - Q2 2021 TechnipFMC PLC Earnings Call

With the development of new energy solutions, we are still -- while the development of new energy solutions are still in their infancy, our fundamental belief is that clean energy will be increasingly sourced and stored offshore given the anticipated volume and scale required to meet future energy demand.

As the Subsea architect, we are building partnerships in support of new energy, leveraging our differentiated technologies and capitalizing on subsea expertise and integrated project execution. Our 4 pillars are not mutually exclusive. And yet it is not clear which single pillar or combination will prove to be the market's preferred choice in the energy transition. Regardless, TechnipFMC is well positioned to play a material and successful role in their development, driven by our core competencies, collaboration, innovation and integration. I will now turn the call over to Alf to discuss our financial results and to provide an update to our full year financial guidance.

Alf T. Melin - TechnipFMC plc - Executive VP & CFO

Thank you, Doug. We had another solid quarter as total company inbound orders were $1.6 billion. Revenue in the quarter was $1.7 billion with adjusted EBITDA of $144 million. Total company backlog increased sequentially to $7.3 billion at the end of the period. Backlog for Subsea stands at $7 billion, of which close to $5 billion is scheduled for execution beyond 2021. We ended the quarter with cash and cash equivalents of $855 million and net debt of $1.6 billion.

During the quarter, we recognized a loss of $147 million related to our equity ownership in Technip Energies. This primarily relates to the change in market value during the period. Loss per share from continuing operations was $0.39 per diluted share in the quarter, when excluding the impact of the change in fair market value of our Technip Energies stake and other charges that netted to an after-tax charge of $0.33. The adjusted loss from continuing operations per share was $0.06. We also reported income from discontinued operations of $0.02 in the quarter. The income is due to a tax benefit related to the spin-off of Technip Energies.

Now let me turn to the segment results. I will focus on our sequential performance comparing the second quarter to our first quarter results. In Subsea, revenue of $1.4 billion was unchanged when compared to the first quarter with a seasonal improvement in installation and services, largely offset by lower project activity in the period. Subsea adjusted EBITDA margin of 11.1% improved sequentially by 140 basis points, benefiting from higher margins in backlog and increased installation and services activity. Inbound orders were $1.3 billion in the period, demonstrating a second consecutive quarter of order strength.

In Surface Technologies, second quarter revenue of $275 million increased 12% from the first quarter. The increase was primarily driven by higher activity in North America, increased international services and strong project execution. The segment also benefited from further adoption of the iComplete ecosystem. Adjusted EBITDA margin of 11% was unchanged from the first quarter. Inbound orders for the quarter were $268 million, an increase of 32% sequentially, driven by strength in the Middle East, the North Sea and North America.

Turning to corporate and other items in the period. Our corporate expense was $30 million. We incurred an $11 million loss on foreign exchange and tax expense totaled $35 million.

Moving to cash flow. Cash required by activities from continuing operations was $86 million in the period. Capital expenditures were $40 million. This resulted in a free cash flow consumption of to $126 million in the second quarter. Importantly, the Q2 outflows were expected, and we remain on track to meet our full year free cash flow guidance of $120 million to $220 million, with subsequent quarters to benefit from strong working capital inflows.

More specifically, these Q2 outflows included the scheduled and concluding payment of $53 million related to our previous settlement with the DOJ and Brazilian authorities, primarily related to legacy activities where we no longer participate and that occurred over a decade ago, as well as typical quarterly variation in working capital resulting from our predominantly projects-based business. CapEx for the second half of the year will include spending related to previously announced project awards, and we do see potential for full year expenditures to come in below our guidance of approximately $250 million.

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JULY 22, 2021 / 12:00PM, FTI.N - Q2 2021 TechnipFMC PLC Earnings Call

Other items favorably impacting our net debt in the period included a net inflow of $258 million related to the sale transactions of a portion of our ownership stake in Technip Energies. Proceeds from assets totaling $84 million, including a further rationalization of our fleet with the sale of the G1200 vessel. And the full repayment of the $200 million outstanding balance on our revolving credit facility. Taken together, net debt was reduced by $155 million to $1.6 billion when compared to the first quarter.

Before I discuss the changes made to our expectations, let me first share with you how we intend to communicate our guidance and updates with you in the future. As most of you know, we do not give quarterly guidance. In keeping with historical practice, we will continue to give our initial guidance for the upcoming year with our fourth quarter earnings release. Moving forward, we will also provide a midyear update to this guidance with our second quarter financial results. We believe that this modified approach will provided you with greater transparency and clarity of our projected results as we progress through each calendar year. Turning to the midyear updates to our 2021 financial guidance. As a reminder, guidance is based on continuing operations and thus excludes the impact of Technip Energies, which is reported as discontinued operations.

Our full year guidance for Subsea revenue has been increased to a range of $5.2 billion to $5.5 billion. Our full year guidance for adjusted EBITDA for Surface Technologies has been increased to a range of 10% to 12%. Net interest expense has been increased to a range of $135 million to $140 million for the full year, and our reported tax provision has been revised higher to a range of $85 million to $95 million.

I will close by highlighting a few key takeaways. Our updated guidance capturing the strength of the first half and further refines our view of the second half. Free cash flow for the first half year was slightly positive, and we remain on track to meet our full year commitment of $120 million to $220 million as working capital improves in the back half of the year. We ended the period with an improved balance position sheet position with cash and cash equivalents of $855 million and net debt of $1.6 billion. And lastly, we will continue to monetize our remaining 31% stake in Technip Energies and utilize the proceeds to reduce our outstanding debt over the coming quarters.

I will now turn the call back over to Doug for his closing remarks.

Douglas J. Pferdehirt - TechnipFMC plc - Executive Chairman & CEO

Thank you, Alf. Before we move to Q&A, I would like to close with a few remarks. Our solid first half results were driven by our unique positioning as an industry pure play, levered to Subsea and international land markets. We see continued improvement in the broader market outlook as evidenced by the growing value of our Subsea opportunity list as well as proprietary iFEED and iEPCI opportunities. And these support our full year financial guidance, where we have increased our expectations for both operating segments.

Our success is driven by our core competencies, having pioneered and delivered next-generation Subsea Technologies and the industry's only fully integrated commercial model, and we are demonstrating that these unique capabilities are 100% transferable to the renewables energy space, giving us confidence in our ability to extend our leadership in subsea to the development of new and novel energy resources offshore.

Operator you may now open the line for questions.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions)

Our first question comes from the David Anderson from Barclays.

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