Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the check me actually see first quarter 2020 earnings conference call. At this time, all participants are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Matthew sign timer. Thank you. Please go ahead Sir.
Good afternoon, and welcome to tell me about them see first quarter 2020, <unk> earnings Conference call. Our news release, some financial statements issued yesterday can be found on our website.
I'd like to caution you with respect 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 and implied by these statements.
No and material factors that could cause our actual results to differ from our projected results.
Described in our most recent 10-K, most recent 10-Q and other periodic filings with the U.S. Securities and Exchange Commission, the French en masse and the UK for natural conduct authority.
Wishes to caution you not to place undue reliance on any forward looking statements, which speak only as of the day care up.
We undertake no obligation to publicly update or revise any of our forward looking statements. After the date there made whether as a result of new information future events or otherwise.
I'll now turn the call loved the dog 40 hurt Technip FMC is chairman and Chief Executive Officer.
Thank you, Matt good morning, and good afternoon. Thank.
Thank you for participating in our first quarter earnings call.
With me today are very demanding chief financial Officer, Katherine Mcgregor President of checking the energy.
I also know we have dialed in different locations across the globe.
And I wish I could be impacted Cobra 19 continues to happen on our daily large.
Two months ago, we provided our initial view 2020.
Everything's too much much trouble to world has changed.
Including the spread of Tobin 19.
Shifting OPEC policy and the sharp selloff in equity markets.
Most of these effects and going after launch.
She will lead to real lasting change.
Today I want to share with you somebody to specific actions, we're taking in direct response to the market environment and how these actions, Oregon, reshape certainly, but I can see as we transition to the new energy landscape.
Over the short term, we're taking immediate actions to protect our people reduce cost and preserve liquidity.
First of all actually.
Just a responsibility we all have to protect the health and safety of our employees contractors and customers Im sure.
We have taking a number of specific actions in this Jason.
These include onsite prevention measures, such as social distancing stagger shifts and health screening to ensure shape will work environment.
Strict show isolation procedures for boys, who may have been exposed to the bars that extend beyond recommended guidelines.
We're also maintaining business continuity.
I think our employees you'd be appropriate equipment and services to work remotely when possible and.
Salvation protocols that allow for remote inspection of manufacturing processes, and leveraging old Navy footprint by transferring lessons learned.
Collectively these actions are below most of our vessels manufacturing and service locations to operate throughout this period, providing us with the ability to advance many projects and meet customer requirements, albeit at a reduced productivity.
Second on April 1st we announced the series.
Cost reduction initiatives that will result in an annualized savings of at least $130 million or surface technologies segment incorporated.
And we all identified actions that will result in additional savings more than 220 million that will extend across the entire company.
The total annualized savings are now estimated to exceed $350 million and we anticipate achieving the targeted run rate by the end of this year.
Additionally, we have announced revision to executive compensation, which includes a 30% reduction so my salary and a 20% reduction to the executive leadership team through the end of the here.
Our directors, you're also reducing their cash retainer by 30%.
And the third measure we are taking is intended to further preserve our cash and liquidity companies Board of directors announced earlier this week, but it is chosen to lower the annual dividend by 75%.
13 cents per share, reducing the annual cash outflow by $175 million when compared to the previous years distribution.
Back in March we also announced our decision to postpone the company separation into to diversify pure play.
This was a very difficult decision, particularly given the late stage of separation activities.
However, the strategic rationale remain unchanged and we are fully committed to completing the transaction over the medium term.
And it gets further emphasize this point, we have renamed the onshore offshore segment to take me batteries and that's completely and have completed nearly all of the work required to ensure the two companies are ready for separation when the markets sufficiently recover.
Looking longer term, it's clear that the energy industry must continue to evolve the challenges we face will not resolve themselves things will be definitely in companies must down.
Let me back and she has been an agent of change from the beginning.
And then a carton bar me, we will look to accelerate our own agenda for change by protecting our core competencies investing in new technologies and expanding our digital platforms.
We will continue to play a key role in the energy transition.
Importantly, we will further strengthen our partner relationships and more closely aligned with those clients that demonstrate a willingness to embrace the new commercial models and new technologies that are critical to success.
The change will be most profound for Austin sub sea.
We're taking additional actions to further streamline the organization in support of our vision toward simplification standardization and reduced cycle times.
We are playing to our stress.
Our success as evidenced by the strong order growth in 2000 by Jean and the clear adoption of our integrated model you Pcr.
We anticipate as much as 40, [laughter] new equipment orders will come from 62.0 with nearly half of our customers now focused on 2.0 as their system of choice and they're starting to see studio digital platform will host 70% of a front end and system Engineering studies to.
Transforming conventional concept feed and tender phases into ultra fast digital development.
Hi, <unk>.
Sub sea 2.0 subscriber studio, but these are not conventional solutions only those netted out to stay ahead in the new energy landscape meeting the needs of individual customers and the bespoke fashion required to many resources introduces too much cost in project risk.
Creates too much organizational complexity.
Our recognition of the need for change resulted in the creation of techniques FMC and our pioneering culture will ensure that we remain an industry leader.
Looking ahead, we will accelerate change were possible and we will align with those clients and partners, let's see the shared benefits of our way forward.
Technique best in she is well positioned to manage the unprecedented uncertainty due to our strong foundation one built on the strength of our backlog and balance sheet.
$22 billion.
That's the amount of total company backlog in hand today.
We're not immune to the impacts of reduced capital spending however, the effects have been largely limited to changes in project scheduling not project cancellations. This has reduced our near term revenue backlog, but it also extends the backlog duration.
We have over $8 billion in backlog scheduled for execution over the remainder of 2020.
With the remaining 14 billion scheduled for 2021 and beyond.
Besides the duration of our basketball in addition to net liquidity of $5.6 billion, which maryann will cover in more detail provide us with the flexibility just take aggressive and bold actions that will better position our company for the future.
Turning to the market outlook.
For techniques energies LNG accounts for more than 50% of our current backlog and provides us with very good visibility that extends over several years.
Today, we have three LNG projects that were that are contributing to our financial results.
Yamal LNG, which is largely complete and successfully progressing through the warranty things Corral floating LNG, which is now more than two years into project delivery and over 60% complete and art LNG to our largest project currently underway whose revenue contribution.
In 2020 and extend well beyond.
Well the near term outlook for new LNG prospects to reach final investment decision has changed because it opened 19 and the challenging that macro backdrop. The long term fundamentals for natural gas and LNG in particular remain strong given its critical role as a transition fuel.
We continue to engage in a range of additional LNG projects. These include Sheplers coastal zone, which the customers you indicated will be sanctioned in the near term.
We're Bloomberg remains an important project for techniques energies and despite exxonmobils recent decision to delay the projects if ideas, we continue to engage with the customer to further optimize the project development and we're continuing with our scope under limited notice to proceed.
In addition to these projects we're involved in the commercial process for a major LNG prospect in the Middle East and we have recently secured feed rules on several new prospects.
Oh, whether the ultimate project on stage three were broached the for taking the bathroom see remains a partner of choice.
Jack selectivity foremost in our mind as we consider future opportunities.
Turning to downstream.
Sector typically proves to be more resilient through downturns.
Over the course of 2018 2019, we secured nearly $9 billion of refining and petrochemical window and we remain laser focused on executing these projects.
We see potential for additional process prospects to be awarded to us during 2021 of which could exceed $1 billion.
And our strong foothold in energy transmission markets beyond LNG continues to increase in the first quarter, we announced that aligns with nesting to provide front end loading services for future next BTL projects.
Also covers our participation during the execution things, we're proud to be mysteries partner of choice for renewable diesel projects we have.
We have also had notable recent success in the area of recycling, including an extension to our long held alliance with BP to include the Infinium technology that enables circularity for difficult to recycle plastic waste.
Moving to surface technologies in North America.
Significant touched the industry capital expenditures have impacted the service just <unk> across the board.
Market expectations now hold for the rig count for the second quarter to be down by approximately 50% from year end outside North America investment continues to move forward, but it has been constrained mainly due to logistics in light of recent events additional deferrals or likely.
We also expected benefits from our differentiated capabilities are high level vertical integration provides us with more control over our manufacturing and product deliveries and less dependency on external supply chains. This differentiation has helped mitigate the livery disruptions and afforded us new opportunities where industry.
Supply has been challenged.
We therefore anticipate international revenues of 2020 will prove to be far more resilient than North America.
Moving to succeed we believe the deep water will become even more prevalent piece of the energy mix. This project economics remain attractive.
Particularly for Brown field developments.
In the near term, we continue to assess the lovely impacts of lower capital spending on major project F.I.D.'s. Many of our clients are still reviewing their planes are prioritizing their projects.
Based on currently available information, we believe that approximately 50% of the nearly $15 billion total project value reflected on our subsea opportunities list is still likely to move forward over the next 24 months.
All other projects remain active but potentially extend beyond this 24 month timeframe.
When we think about the next 12 months, we believe as much as 20% of the project value is likely to reach Jeff I'd and we're well positioned for many of these opportunities.
We will provide updates to the based as we gain greater clarity from our clients over the coming bonds.
In addition, as we have demonstrated Technip FMC has access to a proprietary set of opportunities.
He's got I'm from our alliance partners or from our unique integrated feed capabilities, which often lead to direct hi, MPCI Project Awards.
And beyond project activity, we generate additional revenue from sub sea services activity, where we benefit from the industry's largest installed base of subsea equipment in operation today.
We anticipate resiliency in services activity as a result of the expected shift by some clients from Greenfield developments to brownfield intervention.
And our earnings release yesterday, we provided updated you on guidance for 2020.
Although market uncertainty remains a clarification around play capital expenditures is ongoing I want to offer some additional thoughts in support of did these updates at this time.
All of the guidance items, we have provided assume no further material degradation from the impacts of Tobin 19 on our current ability to execute on our project portfolio.
In sub sea, where we are benefiting from near record levels have been bought a.
Strong backlog and our resilience sub sea services business, we have a solid foundation to navigate through the near term.
We continue to engage with our alliance partners and customers in order to align on project scheduling and new capital expenditures.
Given this dynamic situation in lieu of traditional guidelines, we have provided our expectations for the major inputs that continue to influence our outlook for subsidy revenue and margin.
Turning to revenue first.
Our current estimate for backlog to be converted into revenue for the remainder of the year is $3.1 billion. We're still in discussion with many of our customers over project scheduling and the remains risks that some of this backlog could still be rescheduled for execution future periods. However, strong inbound booked in June.
2019 provides us with much greater flexibility to manage our business through this challenging period. If we had not generated a record inbound last year. The plan. The planning scenario would look very different for us.
It is also clearly Nicky change in backlog scheduling well only deferred revenues to future periods, providing more revenue coverage and twentytwenty one it'd be on.
In subsea services, we provide aftermarket services on over 50% of the sub sea installed base generating a resilient revenue stream of approximately $1 billion for the full year.
This incorporates our expectation for some modest leveled activity deferral.
A decrease from our prior expectation for growth.
And lastly, with respect to book in turn revenue. Our current view is that inbound orders, which serves as the basis for this revenue stores could be down as much it's 50% versus full year 2019.
Next the factors impacting sub sea margin include our revised expectation for less inbound and therefore less book in turn revenue for 2020, which we will not be able to fully offset through cost reductions.
Several of our manufacturing plants had been running at high utilization Kobin 19 presents real challenges to both the supply chain and our manufacturing workflows are prior margin expectation also assumed increased fleet utilization as we progressed through the year. We have several installation campaigns that are increasingly at risk.
Good deferments, a 2021 due to the impact of travel restrictions, leaving us with limited flexibility to mitigate costs are fine replacement work for these fixed assets over the very near term.
Looking at the second quarter, we do anticipate a sequential decline in adjusted EBITDA margin when compared to the first quarter largely due to more significant impact from cobot 19.
However in order to navigate through these headwinds we're advancing our restructuring plans in subsea and we will begin to recognize the benefited these actions in the second half of the year.
In summary, having greater clarity on the duration of cobot 19, and the ultimate scheduling our backlog will provide us the ability to move more fully assessed our subsea outlook for the remainder of the year.
Moving to guidance for technique synergies, we're relatively insulated in appear in the current period due to the long cycle nature of the business. The resilience in mature maturity of the projects in backlog and our diversified global footprint today, we have been able to mitigate a very very.
Portion of Koby 19 operational impacts were the effects relate more to operationally efficiencies and timing issues, but not the stoppage of projects.
However, the revenue outlook for the year has been impacted by first the delay in or do you see project, if I'd east and the impact of this lower in bound for execution in 2020 much of which we believe is simply shifted beyond the current year and second revised schedules on some of our projects within backlog for certain scopes.
Well it originally planned for 2020, partly shifted into 2021.
Due to these effects were revising our revenue guidance to a range of 6.3 to 6.8 billion.
We still remain at or above our 2019 results.
Guidance for adjusted EBITDA margin is unchanged from our prior view of at least 10% the resilience in margin even with the reduction in revenue is driven by the continued strength in project execution and this exceptional environment and some benefit from project mix.
And finally surface technologies are short cycle business has been most impacted by recent events.
Outside of North America, our surface business is much less impacted by the global spending reductions.
International markets are typically more resilient in a downturn and we expect to benefit from the flight to quality associated with our higher tier products as we have experienced during recent during previous cycles.
We anticipate our business makes outside of North America, well now represent as much as 60% of total segment revenue in 2020.
In North America, the actions taken by our clients in response to the sharp decline in commodity prices are almost unprecedented.
We are responding aggressively as evidenced by the prior announcement of our intent to deliver more than $100 million an annualized cost savings. Most of this will occur in North America, where the industry spending reductions have been particularly superior.
With these actions, we believe that we could be modestly profitable in North America for the full year when excluding charges based on our current.
Moving beyond the operating segments. We have also provided updates to several other items that were included in our earnings press release and presentation deck will provide additional segment guidance and updates as we gain more clarity over the coming months.
Without question. This is the most challenging business environment that are industry has ever phase, we're not simply responding to a health crisis, where commodity prices or an economic places. We're responding so all three on a global stage at the same time.
In the face of such extreme uncertainty, we're focusing on what we can control, we're taking steps to ensure that all of our employees and contractors regain safe.
We're spending more time with clients than ever before working with them to better understand their priorities and working together to solve our collective issues strengthening the relationships, we have and building new ones for the road ahead.
And we are focused on shrink business continuity working diligently and a bit similarly to solve problems and better anticipate new complexities that may arise from the unforeseen challenges of cobot 19.
We are ultimately take within this year and decisive actions in response to the near term challenges.
We're preserving our liquidity with the board's decision to revise the dividend policy.
We have significantly increased our annualized savings targets are more than $350 million. This includes additional cost reductions from all of our business segments, our support functions and executive and director compensation.
We are uniquely position with our strong balance sheet and backlog. This includes $5.6 billion in cash and liquidity and nearly 22 billion in total company backlog that extends out for several years.
And we're doing all of these things, which is supporting support dedication and commitment of the exceptional women and men of Technip FMC.
Through everything we have phase they have shown a level strength and resiliency that is nothing short of inspiring and these most difficult time.
I will now turn the call over to Marianne to briefly discuss a few highlights of the first quarter and provide you with an update on our cash and liquidity position Marianne.
Thank you Dan.
Total company revenue was 3.1 billion in the quarter, increasing 8% versus the prior year driven by solid growth in take me vanderzee as well at month, well modest growth in Betsy.
Adjusted EBITDA was 220 million.
First quarter cash flow from operation what $28 million.
Adjusted loss per share was 11 man in the quarter when excluding after tax charges in crane.
In dollars and 17 cents per diluted share.
The total after tax charges and credits of $3.2 billion largely reflect non cash charge in for goodwill impairment in the not see and surface technologies segment.
These impairments were due to significant decline in the company's market capitalization since our last measurement period.
We have also identified direct Colgate 19 extent in totaling $9 million Nicole winter.
It is important to note that these days and I mean do not capture that gets reduction related overhead absorption utilization and other operational impact which are not specifically called out not included in our adjusted result.
Also included in our adjusted earning our items for which we do not provide guidance.
Including any Ben.
I think from increased liability to the joint venture partner of eight cents per diluted share and foreign exchange losses, a 10 cents per diluted share.
These two items impacted EPS by 18 cents in a period and excluded our adjusted earnings would have been Kevin.
Diluted share.
We are responding to the current environment by taking a series of action in an effort to further reduce cost and preserve liquidity.
I spoke earlier to the significant increase in our cost reduction target, which now totals 350 million an annualized saving and we expect this run rate by the ended the year.
I also want to reiterate our previously announced reduction to capital expenditure, where we have reduced our prior guidance by $150 million to approximately 300 million for the full year.
And this week the bore our board revived the dividend policy to 13 cents per share on an annualized basin.
75% reduction to our annual payout will preserve 175 million in liquidity when compared to the prior year.
Turning to liquidity, we had 5.8 billion in cash and that liquidity at the ended the quarter.
In a recent filing we provided further transparency to our cash position, which we have updated with our first quarter with no.
Cash and cash equivalents total 5 billion as of March 31st.
We had just over 3 billion held in project joint ventures. Good cash is readily available to you I to execute the remaining liability on our JV project.
Our total approximately 1.8 billion was related to your model LNG.
<unk> cash is held in support of 1.2 billion an outstanding contract liability.
From much jumped over 50% of any future profitability should remain when it comes back and E.
Operating cash and cash equivalent was approximately 1.8 billion a significant portion of which is readily available for corporate you.
We also have a $2.5 billion secured senior secured revolving revolving credit facility.
At the ended the quarter, our net borrowing capacity under this facility with approximately 600 million, reflecting 1.4 billion of commercial paper outstanding and 500 million of direct borrowing under the revolver.
Taken together this brings our net liquidity to 5.6 billion and provides us with sufficient on to cover our net project liability near term debt maturity and any distribution joint venture partner.
Operator, you May now open the call for questions.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please stand by what we can pilot Q and a roster.
And our first question comes from the line of Sean Meakim from JP Morgan Your line is open.
Thank you I everyone.
Sean how are you.
I'm doing well. Thank you. So I appreciate you, making the best efforts here to fill in.
Parameters for 2020, where you have visibility over.
Just pulling all of it it's very helpful and I certainly appreciate the uncertainty given co bid and the shifting plans on for your customers on their projects.
Given the outlook. There's also an emphasis in the market on balance sheet strength and maximizing free cash minimizing cash burn you reduce the dividend you cut capex, you're taking cost out, but they're also likely be some cash drag in 2020 that to affect that perhaps prepays are less than this year than we would've thought coming into it.
I agree with the production in the Energy's revenue guidance, so if I pull that together.
How should investors be thinking about your cash balance in liquid and liquidity, where those could be when we exit this year and head into 2021.
Sean. Thank you very much for the question and I think you frame it very well I think you've hit on many of the key elements and the parameters that we're dealing with as a company and more broadly that the industry is currently dealing with.
And as you pointed out weve taken victory Swift and decisive steps to ensure that are.
Most focus is always has been it remains on that liquidity in the strength of our company.
You know as you know we ought to be very strong balance sheet and we have a very strong backlog those provide the key foundations on which for us to continue to operate at the same time will move forward with aggressive cost reduction activities and some of the other items that you noted.
I'll hand, it over to Marianne can add some additional details around of the subject Marianne. Thanks, Doug Yes. Thanks, Sean So based on the outline of dollar segment performance and the view that down has provided and that incorporate all of that we we expect cash.
Cash flow from operation to be positive, but he will be below the billion dollars that we previously provided or will there be previously guided our guidance assumed then that certain inbound project, along with no corresponding mile and you've outlined and payment and what we would receive in 2020.
And as we shared we are seeing some deferrals of those project award and therefore, obviously from cash flow impacting the deferral. A. Good example is one that I've talked about that's the exxonmobils replacement projects being delayed into 2021, but as we further develop the segment do you have been have greater clarity on the range of outcome well update our cash.
Hello projection, but again, we continue to expect cash flow from operations can be positive this year, but it will be below the 1 billion previously guided.
Got it I appreciate that thanks for all that feedback and then and the opening comments I thought that the ones around digital with sub sea studio were interesting it's become a consistent theme this earnings season.
These initiatives aren't new but they're getting highlighted given the pressure your customers are facing.
Could you maybe elaborate a on the the impact of these types of initiatives around further reducing feed cycle times manufacturing cycle times ultimately time to first oil for customers is there anymore. You can elaborate around how that can help drive project economics.
With pleasure Sean. Thank you for the question. So we have been systematically attacking this cycle time of sub sea since the creation of certain either FMC. It was one of the fundamental reasons for creating the company we've done that very successfully in the execution.
Please.
We're now able to execute project should 50 with a 50% reduction in the in the normal a true in the time that it would take to do those projects in using a traditional a traditional approach and we've done that on a consistent basis. Hence the reason we have received.
I'll repeat awards in almost all cases from the clients that we have served with our new MPCI model.
At the same time, we realized that we need to attack the front end and we also need to reduce the cycle time associated with the front end and there's actually two ways to do that Sean there's the digital platform, which we call sub sea studio, which is very exciting and dramatically reduces that cycle time.
And we'll begin to also include machine learning, which will allow us the even further improve the field design the optimization and the cycle time. In addition to that is the importance of the ability to be able to deliver technology and that.
New technology, coupled with the sub sea studio digital platform will dramatically decreased the cycle time with the front end as we do that we'll be able to further reduce the cycle time of sub sea projects and vastly improved the project returns, which will become even more critical.
As we move forward.
Very helpful. Thanks, Doug.
Our next question comes from the line of Michael offer from Citigroup. Your line is open.
Hello, and thanks for taking my question. So, let's say, Doug I think you could elaborate little bit more in your comments around succeed business.
EBITDA margin with what about 400 basis points down quarter on quarter.
And I'm just wondering if you could perhaps give a bit more granularity as to what was driving that decline between seasonality I guess, the pot choke mix unclear did either the challenges facing around the coast at 90.
Situation.
It really is the reason for the question was to try and quantify and understand how big the sequential decline would be into twoq. Thank you.
No Michael Thank you very much for the question they.
It needs to be clarified it's obviously been a a topic of discussion over the last 12 hours and I think it's important that we clarify.
When we provided the 2020 guidance, we specifically stated that Q1 as always would be the seasonal low point.
For our company, which is was our view with the time and that seasonal impact really has to do with the ability or the inability for our vessels to offerings in certain geographies due to the weather conditions.
Which always leads to the first quarter being the soft this quarter.
The consensus number I, often say did not take that into account, even though that that was I clearly articulated so that's point number one.
Number two is the Kobin 19 impacts our real.
And they are meaningful.
I just want to share with you a little bit of what's happening in what we are how we're addressing it as a company.
I spoke about my prepared remarks that we're going above and beyond recommended guidelines what does that mean.
Michael what that means is that we will never put a place on an employee health and well be.
So we are taking extraordinary efforts to ensure that especially in can find environments like operating on our vessels are operating offshore we don't put other employees at risk or other part or contractors and clients that were working.
So we actually had a situation on a vessel where we identified symptoms.
Potential.
Central Kobin related Cincinnati on it with an individual.
We didn't just remove that individual and continue businesses more.
We went above and beyond we took the extraordinary decision.
To shut down operations on that vessel for 14 days.
To test all employees on that vessel.
As a result of that.
We now know we prevented us we could have been at a much more significant impacts into health and wellbeing of our employees.
We're now doing not across the entire fleet.
We are testing all individuals prior to them going.
Into service.
When we're finding a number of positive cases and being able to prevent that.
In addition, we had two vessels that were unable to operate for a period of time simply due to crew availability due to travel restrictions that were in place and UN partnered in different parts of the world.
If you take all of that into account it almost at 100 basis point impact on the adjusted EBITDA margin for the business. So so these are real and these are meaningful.
In addition to that Weve can we continue to managing very complex supply chain in terms of impact on delivery in our ability to achieve certain milestones of delivery of finished product in finished goods, but it's not just the supply chain. It's also the logistics.
We worked very hard to keep most of our manufacturing footprint open and it'd be able to continue to advance progress progress on projects, but often it comes down to the inability to be able to shipper transport due to local regulatory constraints.
In terms of the closure porch air airplane.
Airports.
Marine ports et cetera.
So these are all of that type of things that we're dealing with so I'm going to just recap by saying Michael you you know the seasonal impact.
Needed was there and needed to be taking into account and wasn't on top of that we had a significant impact on the utilization of our fleet some of which was was simply imposed by ourselves.
We weren't going to just keep working in an environment that we thought it with the health and wellbeing of our people at risk we won't do that.
So instead, we took that additional impact to our operating margin, but I will always make that decision.
And then finally, the ongoing challenges constraints of the supply chain and logistics and shipping and that will continue to facing will face additional constraints in the second quarter.
So looking towards the second quarter as stated in my prepared remarks, we won't just have the 30 to 40 days of the cobot impact well, obviously have even more so as we've said that we expect further margin degradation in the second quarter that being said, we are taking very swift and decisive action and we are busy.
Let's not forget sub sea has an incredible foundation built upon a proven winning strategy.
At our alliance partners, our technology, and our differentiated differentiated differentiated offering of I.E.P.C. I.
Clearly proven to be the winning combination.
We have the strength of our backlog.
Almost $8 billion a backlog of 3.1 remains to be delivered in the remaining quarters of 2020.
We have not had any cancellations, yes, we're in discussions about potential deferrals on backlog and we'll continue to work closely with our clients to achieve what's best for our company and to achieve what's best for their company.
We had this on the foundation of a resilient subsea services business, we have reaffirmed will deliver over $1 billion and additional back book in turn backlog revenue for our company and 2020.
Thank you Michael.
Thanks, Doug that was really helpful.
A quick follow up shown on the previous question around the balance sheet and Ameriana, some where the cash like Threed Marianne comments and could you maybe say, whether you think you'll be free cash flow positive lay off the capex.
Twentytwenty given another capex guidance that you provided and maybe just to sort of cover off the the patients around the redeemable liability was 4 million I think in the quarter 300 million. It's on the balance sheet. How much do you think you'll pay this year. Thank you.
Sure Michael Thank you so when we expect to make another payment to partnered in the second quarter and that will further reduce that 300 million MRL liability and then we'll evaluate that in the back half of the year. It will not be all of that MRL. In Q2. However, so you know you you may want to within maybe half of that.
In the second quarter.
That's helpful and we continue to expect to see you know for full year I for your modeling a range of 40 500 million in incremental revenue to be total as we as we have explained before in that guidance that guidance remain.
To your first question again still a little bit in a range of outcomes to talk about Youre absolutely right now we have reduced capex and that will certainly be contributing as you heard you know 175 million in further benefit coming from you know the dividend redemption I, we do expect cash flow.
From operations to be positive, but that's in a range of outcome and as we continue to get the feedback from our client and further refine our guidance, we'll be able to give you can clarity, but certainly all the things that we're doing I'm truly help.
Improved that position, but at this time little too soon to call on free cash flow.
That's great thanks, very much device.
Our next question comes from the line of Angie Sedita from Goldman Sachs. Your line is open.
Thanks, Good morning.
Good morning, Doug maybe you could talk a little bit about the separation and the conditions that you would need to speak to move forward again on that separation and you think about it could factors change around what was originally plan such a technical energy is having a year.
That's a b R and is there a scenario where you believe it should not moving forward as far as separation could get a little more color.
Oh, yes, Angie. Thanks for the question look we still consider to be we still consider the transaction has a very strong strategic rationale that has not changed and we do believe that it is important as a way to create.
You know shareholder value.
Our intent is to continue to track in and complete the transaction in a timeframe that would be I can do so.
There's a variety of different factors that we are considering all but clearly the current market environment in the dynamics in the market would not be inappropriate Todd.
So.
It's it's unlikely to be in the near term, but in the medium term or we would intend to move forward. I. Appreciate you asking the question specifically about potential HDR listings for Technip energies as we would move toward as a separate company.
That easy that is very much a consideration and very much part of the workload in the processes that we have ongoing that way we would be communicating further as we move forward to advance our decisions I want to make it very clear so that there's not a sense of let's say uncertain.
TV in the how the trends how the transaction would move forward or when the market conditions would prevail.
We will be able to move very swiftly.
Oh, we believe that we will be able to complete from announcement to the completion of the transaction in a 90 day window.
That's really important because we don't want to create this period Oh.
Information back to you.
So will we now have advanced all of the critical steps.
Both internally and with the regulators to be able to from announcement very quickly provide things like perspectives capital markets day 80, our listing.
Requirements things like that in a very swiftly and removing that uncertainty that was created through the process. Initially so I. Appreciate you ask him to that question, so I could clarify that.
Thanks, that's very very helpful. Thank I appreciate that and then maybe we could go to Marianne on that subsea margins and I know, it's challenging to give a lot of color here, but is it fair or maybe not to think that Q2 could be the trough for the year.
Or the installation campaigns in the push out of that but that how does that play in the second half coupled with the cost reduction program that you clearly have underway and really move back on track to where they rigs go past wasn't that go into 21 or is that migrants would go under 21.
Yes, I'll go ahead, and platelet Angie I think Thats a.
Really system, but again I think it's a key question.
This time and again, none of us a.
Fully understand the duration or the ultimate impact cobot 19, but from what we know what this time about you know the virus, what we know it this time.
About the business et cetera, I look forward. Indeed, we would expect Q2 to be the trough.
We would expect the recovery in the second half again, it's important to note you know no techniques FMC and our subsea business.
We're very active we're very busy we had record inbound in 2019, we had $8 billion of inbound we had a book to bill of 1.4 or five over almost 50% of that was enabled by the creation of Technip FMC in the PCI model.
Q1 alone we book this year 1.2 billion almost a 1.0 book to bill into New I'd PCIA Awards. This quarter. So we continue to have a lot of activity that we have to execute a lot of milestones that we have to deliver upon.
As the Tobin 19 issues mitigate which we all hope will occur in the second quarter, we would expect that to be the trough and a more resilient second half of the year.
And keep in mind, whatever the ultimate results for 2020, maybe.
They will include declared declare challenges in disruptions of vivid and a very swift shift in the market demand.
In no way reflects a normalized operating in barb environment for our company and will not be indicative of what we may be.
Be able to.
Delivering 2021.
So again I think it has to be looked in the context of this very unique environment, not as an indication or rebaselining of what we're able to deliver as a company.
Thanks, God fair enough. Thank you I'll turn it over.
And our next question comes from the line up at Mic to pick up from Barclays. Your line is open.
Hi, good afternoon, everyone on a couple of questions. If I may benefit on some on Jay on the slippage of projects I can understand onshore you slow down engineering procurement and Ah you crews and yet you stop I'm, sorry to reduce numbers, but now showing up vessels any call. These studies and just wondering if.
Slippage of projects into 21, given that you already had a pretty healthy 21 already lined up you started to cause issues and whether there will be availability issues middle of next summer.
It's a she is what no stops make entrepreneurs that she's let Doug.
[noise] yeah. Thank you Mick.
Indeed.
The offshore installation activity in subsea was ramping up.
Second half, a 2021 and ultimately to 22.
That being said, we're working very closely with our customers aligning schedules I'm still fluid.
As Mary and pointed out and I I want to reemphasize, our clients have not made their decision yet.
We're working very closely with them in a very collaborative way and they are only they are now working on it and reworking their project schedules.
And in some cases, we don't expect to have that final deliverables from our clients, which is if you will be input for our plans until the middle of this upcoming month, if not the end of May is the schedule that they are on the decisions that are being made by an appliance.
That being said.
From what we can see at this point and we have.
A fair amount of visibility in terms of the the vessel requirements.
We're confident admit that we'll be able to deliver upon those those needs. Although yes, it will create a bit of a stocking effect.
But we think it's manageable at this time.
Okay I can follow from that it can you just talk about the conversations you're having with clients. Clearly you are some solutions, which run them up so see going forward. If you just talk about me early conversations you're having whether the coming to you and talking about things haven't previously talked about what sort of changes that make it.
Yes, yes. So obviously you know all of the conversations at them here I mean, I am having with clients right now or under strict confidentiality.
Because they're making very serious decisions about their plans in the scheduling of their projects and that is impact on their partners and it is impacts on local governments and other key stakeholders. So.
So I'll just be it a barry.
Very high level.
I have to be a bit opaque here.
The good news is worth having those conversations across our company. That's the benefit of having these deep into make client relationships that we have built up over many many years, we're in a very unique position.
They are telling us they are speaking to us they are not talking to others. They consider us to be a trusted partner. They are trying to work with us to mitigate the impact on our company there will be an impact when a company, but to mitigate the impact in our company versus some others our customers are becoming very.
Aware that not everyone will make it through this cycle.
So they are reaching out and trying to we'd sure that they are shifting their Spain and.
In.
Shoring up if you will do they believe will be the winners I don't want to say survivors, it's more than surviving who will be the winners when we get through this period.
There could be up to a 50% reduction in available capacity in the marketplace. Both in terms of people when assets are in terms of companies and assets excuse me. When this is all said and done I would say that's the biggest realization. This cycle, it's not just about squeezing at hammering and try.
Hi into a inforce changes of Oh, well commercial terms, there's a real serious discussion at least going on with our company I can only speak for our company and I believe diesel what our clients are saying it is somewhat unique.
To the discussions you're having with us versus others, it's really about ensuring that.
We're going to be there and we're going to be strong.
For them.
This is all sitting on.
Okay. Thank you very much on can stay safe.
Our next question comes from the line of Kurt Hallead from RBC. Your line is open.
Dug in and Marianne gathering hope everybody is healthy on your fronts.
Thank you likewise same to you.
Thank you.
Thank you.
Yeah. Thanks, So so Doug.
As you as you did mention you.
Companies in a very unique position with $22 billion total backlog.
Obviously for anybody a key here's a look beyond 2020, I'm, hoping you could provide some insights.
As to kind of the margin in backlog for sub sea and energies.
And.
And what can be done above and beyond what you've already discussed this morning to protect or maximize those margins any insights on that would be would be fantastic.
Oh sure. So I'll start with a subsea then I'm going to pass it over Catharina talk about taking synergies.
[noise], both current and important question. It's we've emphasized a couple of times in the script and again verbally here and I Wonder just do one last time.
We have not had cancel those agents from our backlog we are talking to our customers about deferrals, which is you know all us all working and sharing and trying to reach the same objective, which is you know preservation of cash and et cetera.
But they're working with US again, and it opened in collaborative way, which is allowing us to mitigate some of the impact that it would have on our company and in some cases more than some in several cases, where the where theyre actually shifting work to us from others are for reasons that I mentioned earlier, when I was talking to mix.
So we consider ourselves to be privileged.
And humbled and we'll continue do everything we can to help and support our customers. So it hasn't affected the margin in the backlog. If you will which is to get into your question and that margin has been in has been improving we went through the period, where the margin to backlog was declining as we were working through some higher margin backlog from the past.
It was replaced with some you know less favorable more backlog and it's now being more influenced by MPCI, including almost 50% of the record inbound last year.
Oh, the 8 billion for sub sea were almost 4 billion of that came from I. I you PCI and that's good high quality gross margin.
So yes, the gross margin in backlog is something that's very important to US now it comes down to execution. The challenge will have this quarter is the ability to execute and I think you know that was the you know the comment I was making to Angie and I think it's it's really important you can't look at the company in the lens of today and say you know this is there.
Ability to execute we are extremely extremely restrained and our ability to execute from the delivery of materials to the transportation to finished products to.
No restrictions on our ability to be able to work in certain geographies to be the you know our what we think is aggressive in in the highest standard of the managing of health and wellbeing of our employees, including the examples I gave us the offshore vessel example, that I gave earlier well.
We were were going to we're going to put the health and wellbeing of our people a first and foremost always have an always willing we're demonstrating that today at least most challenging times.
But you have to set that aside and Curt and you have to look forward and you have to say this company still is 22 billion a backlog total it's still is 8 billion in subsea.
Backlog will still be executed it was under good terms and conditions in it you know and our ability to execute I think we've demonstrated.
You know repeatedly the high quality ability to be able to execute so therefore, when you look past is coded scenario when it doesn't end when the Covis viruses is addressed it obviously, we'll have some lingering effects, but it doesn't it does it should not be a reflection or a rebaselining of our ability and what will be able.
To deliver and 2021 to be on it and I. Thank you for the question Kathryn.
Yeah. Thank you. So the question Ken everybody. So I think it very much along the line of my thought would staying on the taking you've been at each side. We have let's say my tongue backlog. We added 2.8 billion yen. So now and if you look at what.
That means you can kind of and any decent.
You bet the Green light Vicki.
And does that Lucky, we didn't even adding 21 and beyond.
Now if I look at the underlying machines on the backlog it might be media because there is going so.
Well advertised lending team approach to prospects that we add up to now Oh by the why.
You know the backlog into my 50% and then he and the Nike downstream and in the downstream.
Well you.
Typically I'm glad you brought back where we have either direct customer engagement.
He actually engagement, probably 8 billion incumbency and.
Combination of all that which helps sense, but that's a magazine endpoint within heated she didnt, even though we truly didn't even add project, which and you know it.
I think she didn't exactly physical.
Our leading when I look on backlog I'm I'm I'm really comfortable obviously, you always have tonami not budgeted yeah, my winding down, but I think the mess up the project is indeed, they have team and he is not that Peter my ability to execute which again something we only patrolling you've been Mds, we like to my remark on.
We are being able to if he could project any t. The condition sneak went on to put that margin and only point, but any than yesterday Monday. The consistency of these margins over time and I'd say that may be comfortable on where we spend not any back to you.
Great I really appreciate the color and insights from both thanks appreciate it that's it for me.
And our last question today will come from the line of James Evans from Exane BNP Paribas <unk>. Your line is open.
Hi, Good afternoon. Thank you for search my phone question I took a I wanted to ask about subsea older outlook. He said it kept it down as much as 50%.
Frontage feels a little bit bullish to me given the fact that customer see just for everything to a halt but I know you spend the worst time with the so maybe just gives a little bit more detail pardon me.
Around.
Graphically you will see just where you maybe twosies some additional commitments to anybody but because the customer base through the economics of the shift thank you.
Thank you James.
Clearly, we're sharing our view with you have the information that we have available to us at this time.
As stated earlier, our customers you're still working through their plans and final decisions have not been made.
With internally nor have they been shared with our company, but we have had a series of decisions or discussions those discussions that that have led to.
The information that we provided.
It was based upon those.
See real time discussions that we're having.
Clearly if you look at green opportunity outlook map that we that we share with you know the large greenfield projects, all but maybe you know one or two are likely to be shifted.
Maybe even outside of the 24 month timeframe.
There are a few <unk> mid size Greenfield projects that we expect to continue to move forward again, they may have a deferral from the original timeframe, which we anticipated in 2020 to 2021, but for a variety of different reasons, which are.
Our obviously first and foremost economics, but there's also other things that are clients consider in terms of.
Lease rights in terms of other.
Stakeholders, including local governments et cetera.
And in some cases, and we're seeing more of it not less of it.
Incentives to actually move projects forward.
So you know when we look at.
When we look at South America, when we look at the North Sea. When we look at you know brownfield opportunities globally. You know is what allows us to be able to give you the confidence that we have at this time again based on the information that's available to us which is not complete.
You know on I'm sharing with you as openly and transparently as possible at this time versus just you know, saying, we're pulling guidance or no guidance.
We're going a bit above and beyond and I understand the risk associated with that James.
But you know that's the spirit of how we've always operated and we will continue to operate so that's our view at this time, that's kind of where we see the activity in both in terms of geographically as well as in terms of.
The type of projects you know bearing in mind when you put together the combination of now Subcu studio.
With the integrated execution model I MPCI with sub sea 2.0 technology.
You can achieve some pretty significant.
No.
Break a project economics, both in terms of the acceleration of timing reduction in capital whilst at the same time the portion of the sub sea development that we don't directly influence I either drilling.
Those costs are likely to be even we reduced even further than where they are today.
So, let's see project economics, even more attractive.
Okay understood. Thank you for the response.
Also note.
[noise] Thanks again.
I would now like turn the call back over to map you sign heimer for closing remarks.
Thank you. This concludes our first quarter conference call a replay of our call will be available on our website beginning at approximately eight P.M. British summertime today.
If you have any further questions. Please feel free to contact the Investor Relations team. Thank you for joining US Lisa you may now in the call.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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