Q1 2021 TechnipFMC PLC Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Technip FMC first quarter 2020 earnings Conference call.
At this time, all participants are in listen only mode.
After the speaker's presentation, there will be a question and answer session to ask the question. During the session you will need to press star one on your telephone.
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I would now like to hand, the conference over to your Speaker today, Matt sang timer. Please go ahead.
Yes.
Good morning, and good afternoon, and welcome to the Technip Fmc's first 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 a M S.
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 day they are made.
Weather was the result of new information future events or otherwise.
I will now turn the call over to Doug Ferdie hurt Technip FMC is chairman and Chief Executive Officer.
Thank you Matt.
Our first quarter as the leading pure play technology and services provider to both traditional and new energy industries began with solid financial results.
Notable achievements that uniquely position us in the growing markets we serve.
This was reflected through strong operational execution and improving market backdrop that is poised to be even stronger for longer.
The continued development of real and material opportunities for Technip, FMC and the energy transition.
Starting with the operational performance, we had an exceptional quarter in both operating segments instead.
In subsea revenue grew sequentially in the period, driven by particularly strong execution of project backlog that offset the seasonal reduction in installation activity.
In surface technologies, our international operations represented nearly 70% of total segment revenue and we remain focused on delivering profitable results supported by strong execution. Both in the both in the international and U S markets.
In the U S. We experienced sequential revenue growth despite the severe winter weather.
Adjusted EBITDA from continuing operations totaled $165 million.
Free cash flow from continuing operations totaled $137 million.
We ended the quarter with net debt of $1 $8 billion.
And earlier this week, we announced the partial sale of our stake in Technip energies.
Four of approximately $360 million.
Inbound orders from continuing operations improved sequentially to $1.7 billion.
Subsea inbound of more than doubled sequentially to $1.5 billion, reflecting solid order momentum in the book to Bill of 1.1.
Integrated projects comprised nearly 40% of our subsea order inbound in the quarter with particular strength in our E. P. C. I orders and increased adoption of two point of <unk> technologies.
During the quarter, we announced two separate I E PCI projects with energy and building upon our previous experience with the Currish development and leveraging our ICT capabilities to further extend our collaborative relationship to additional opportunities.
We also received an <unk> contract for the Petro nice limb body on project in Malaysia.
The first deepwater development.
Awarded based on our subsea two point of old technology.
And integrated execution.
Other projects awards in the period included a contract from manifolds for the Petrobras Marlin in the door fields offshore Brazil.
The manifolds will utilize our next generation all electric robotic technology that replaces traditional subsea hydraulics as well as thousands of mechanical parts, while providing real time data and analysis on performance.
The use of digital automation and control allows for a more compact unit that is smaller less complex and less costly with the significantly reduced carbon footprint.
And the robotic software can be remotely upgraded increasing the overall reliability and availability of the subsea systems.
Turning to the market outlook.
The conversations remain constructive, suggesting a further increase in activity.
Additionally, the external conditions that have driven oil and gas price is higher could provide greater price stability over the intermediate term.
These include expansion of economic activity driven by strong fiscal stimulus.
COVID-19 vaccinations and expanded the reopening of local economies.
And more constrained supply of function of disciplined capital spend particularly for OPEC plus.
Whose actions appear focused on realizing of price that supports economic growth and continued energy investment.
In surface technologies International revenue continued to expand and represented nearly 70% of the segment in the quarter driven by strength in the middle East.
North Sea and Asia Pacific.
These markets demand higher specification equipment.
Global services and local capabilities areas, where we continue to further differentiate our offering.
In the Kingdom of Saudi Arabia, we are nearing completion and startup of the new facility that will significantly increase our local manufacturing capabilities.
And in the North Sea, our extensive experience and high pressure high temperature technologies provide us significant opportunities in a region, where activity remains robust and well supported by government incentives.
We believe our unique capabilities will allow us to extend our leadership positions in these more resilient geographies.
In subsea we are confident in our 2021 outlook of more than $4 billion in inbound orders.
And we are well on our way to meeting this commitment just three months into the year.
We expect continued benefit from our differentiated market strategy as well as favorable market fundamentals.
More specifically, we believe that integrated project awards of the potential to more than double versus the prior year.
And the combination of direct awards and our service related orders could represent 50% of total inbound for the full year.
We also believe that we will see order growth again in 2022 supported in part by an expanding list of opportunities on our opportunities map, where total project revenue.
Value grew 10% sequentially at the midpoint. Despite the award of three projects during the period.
In summary, we see potential for a recovery in global activity that is longer and more sustainable than what has been experienced in previous cycles, allowing for continued investment in traditional markets, while providing incremental capital for the development of new energy.
Horses.
With regard to new energy sources, we believe that renewable energy will be increasingly sourced and stored offshore for both environmental and scalability reasons.
The momentum has clearly shifted for offshore wind in particular, which has attracted considerable attention in recent months.
There was significant interest in the recent auction for seabed leases in the U K with sites auction for more than 10 times price is paid in the previous auction.
Norway is also moving forward with North Sea wind powered awarding.
Awarding its first development licenses for both fixed and floating wind developments.
In the United States has unveiled the growth our goal to expand offshore wind energy and the coming decade by opening new areas for development accelerating permits and increasing public of project financing.
We believe that an increasing share of this investment will be made in deeper waters, where winds are stronger and more consistent.
It is estimated that nearly 80% of the world's offshore wind resource potential is in waters deeper than 60 meters.
This will require floating and the seabed infrastructure for energy generation storage and transmission.
All of which can be enabled by our deep purple technology.
During the quarter, we announced two strategic partnerships both of which are focused on generating renewable energy from novel wind and wave resources.
First we announced the partnership with May ignore.
To jointly pursue offshore wind project development opportunities.
The ignore a holds the strategic position within the renewable energy sector as an owner and wind project development.
The partnership has already commenced operations and is focused on opportunities in Scotland, and Norway, and we will consider entering new markets in the coming months.
Additionally, we announced the strategic partnership with Bombora.
To bring together, both wind and wave power utilizing bombora is M wave technology, coupled with proprietary technologies from Technip FMC to convert wave energy into electricity.
Combining both wind and wave we believe we can generate even higher yields from floating turbines when compared to fixed projects.
Further lowering project development costs.
Importantly.
We will look to further differentiate ourselves in the marketplace by utilizing the very same playbook.
That led to the successful transformation of our subsea business and extended our technological differentiation increased project economics and improved our market positioning.
And to be clear, we are playing the long game built around our differentiated technologies and integration capabilities and focused on selecting the right partners and the right projects.
Remember the benefits of this path, we're not obvious at the time, we initiated I E. P C I.
Integrated project execution was a fundamental change in the approach the subsea project delivery and.
And its tremendous success gives us absolute confidence that we are taking the right steps to create a sustainable and high returns business to address the market demand for a renewable future.
I will now turn the call over to ultimately.
Thank you Doug.
Total company revenue in the quarter was $1 6 billion with adjusted EBITDA of $165 million.
The orders were $1 7 billion total company backlog was largely unchanged sequentially and stood at $7 2 billion at the end of the period.
Backlog for subsea was $6 9 billion of which $3 9 billion is scheduled for execution beyond 2020 one.
We ended the quarter with cash and cash equivalents of $753 million and net debt of one 8 billion.
During the quarter, we recognized the gain of 470 million related to our equity ownership into keep energy.
This relates primarily to the change in fact, and the fair market value of our remaining stake which put this initial period reflects the difference between book value at the time of separation and the market value at quarter end.
Income per share from continuing operations was 95 cents per diluted share in the quarter when excluding the impact of the change in fair market value of the keep energies and other charges that net income after tax credit of 99 cents.
Adjusted loss from continuing operations per share what's the three cents.
With the partial spin off of Technip energies completed during the quarter financial results for Technip energies are now reported as discontinued operations in our financial statements.
For the three months ended March 31, 2021 the results of discontinued operations on the income statement include the.
The historical results of Technip energies prior to its spin off on February 16th 2021, and all separation related costs incurred for the transaction.
Additionally, there were no assets or liabilities classified as discontinued operations on the balance sheet at the end of the quarter.
Our investment and Technip energies is not reflected in current assets at the market value as of March 31, 2021.
Now, let me turn to the segment results, although the focus on our sequential performance with the first quarter compared to our fourth quarter 2020 segment results in.
In subsea.
The orders were $1 5 billion in the quarter, providing us with a very strong start to the year.
Revenue of $1 4 billion increased approximately 4% benefiting from strong project execution of backlog the geographic mix of projects mitigated the seasonal decline in activity.
Subsea adjusted EBITDA margin of nine 7% improved sequentially by 100 basis points have been increased manufacturing productivity more than offset the decline in services activity.
In surface technologies.
First quarter revenue of 245 million decreased 6% sequentially driven by the seasonal decline in customer activity and the timing of backlog conversion in international markets.
The revenue in North America declined due in part two of the company's exit from certain underperforming markets, partially offset by growth in the U S where we benefited from further adoption of the I complete the ecosystem.
Adjusted EBITDA margin of 11% of declined 80 basis points versus the fourth quarter, primarily due to lower volumes, partially offset by continued improvement in operational performance and the lower cost structure.
Turning to cash flow cash from continuing operations was 182 million in the period cash.
The expenditures were 44 million the.
This resulted in free cash flow of $137 million.
During the quarter of BPI friends acquired 100 million into keep energy shares from our retained stake as part of the share purchase agreement related to the span of V.
The P. I, France had previously provided funding to us for up to 200 million of shares.
The result of the revised the level of investment we refunded 100 millions of BPI, France earlier this month.
Neither of these items the impact our free cash flow that's the activities related to disposition of Technip energies shares are reported in the investment section of our cash flow statement.
Turning to corporate items, our corporate expense.
The corporate expense was $29 million in the period, excluding charges totaling $3 million expense was $26 million during the quarter, we experienced the 28 million gain on foreign exchange. We also incurred 24 million loss on the early extinguishment of debt related to the refinancing of our debt.
The structure at the time of the spin.
Tax expense for the quarter was $25 million.
Now let me provide you with an update on our financial guidance.
For 2021.
Our strong start to the year keeps us vote of confidence in our outlook and we reiterate our full year segment guidance.
That's the reminder guidance is based on continuing operations in the US excludes the impact of Technip energies, which is reported as discontinued operations.
The separation related tax items and costs were also reported in discontinued operations during the first quarter and that's the result of this change in where these expenses are recorded we have removed the anticipated impact from our guidance.
Our full year guidance for the tax provision has been revised lower from a range of $70 million to $80 million, which now excludes the separation related tax items of approximately $40 million.
While the free cash flow guidance for the full year has been revised higher to a range of $120 million to $220 million, which now excludes the separation related tax items and costs of approximately $70 million.
The estimated separation related expenses remain in line with our expectations, but are now included in discontinued operations. These ex.
Spencers were incurred during the first quarter and we do not anticipate calling out any further material separation related items in our financial statements.
And finally this week, we announced the sale of $26 8 million shares of our ownership stake in taking advantage of it.
For the proceeds of approximately 360 million to technique that's M C.
There is no tax liability associated with the sale of all of our shares the share.
Share sale will reduce our ownership stake to $55 5 million shares or approximately 31% of technip energies outstanding shares.
As we have previously stated we do not intend to remain of long term shareholder I'm thinking of your of energies and this transaction clearly demonstrates our commitment to exit our holdings in a timely and orderly manner.
I will close by highlighting the key takeaways regarding our cash related items.
But the first quarter with cash and cash equivalents of $753 million and net debt of $1 8 billion free.
Free cash flow in the period was one of $37 million and we expect that our performance over the remainder of the year guidance.
And lastly, after adjusting for the 100 million refund to BPI, France meant that the in the second quarter will benefit from approximately $260 million in proceeds related to the announced block sales transaction.
This leaves us with increased liquidity and greater financial flexibility, while demonstrating solid progress towards our commitment to return to investment grade status.
I will now turn the call back over to argue for his closing remarks.
Thank you Earl.
In closing our first quarter results provide us with a very strong start to the year in support of our 2021 commitments.
Our strong order inbound clearly demonstrates that we continue to solidify our leadership position in conventional energy.
Looking ahead, we expect growth Boston sustained activity across our businesses supported by improving market fundamentals and our competitive differentiation.
Our work to develop novel wind and wave energy and subsea hydrogen technologies through our deep Purple project is progressing well.
The strategic partnerships, such as May ignore and bombora will further advance and accelerate our efforts.
We remain committed to delivering of 50% reduction in greenhouse gas emissions by 2030.
To help achieve the school, we have converted an existing vessel the deep Arctic.
Into the world's first hybrid dive support vessel.
And we will continue to leverage our core strengths to create a unique position for Technip FMC and the development of new energy sources as we have done successfully in our conventional business.
We're also very excited to announce that we will host an analyst day.
<unk> for the 16th of November, where we will showcase our strategic priorities and initiatives that support them.
Operator, you May now open the line for questions.
As a reminder to ask a question you will need to press star one on your telephone you May ask one question and one follow on.
So what's you out of your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from David Anderson with Barclays.
Good morning, Doug how are you.
Good morning, David very well. Thank you hope you will also.
I am the let me start off with the kind of a big picture question for you, but the business line Julien I think you probably have more insight into the global offshore production trends than just about anybody of Saar.
Do we live with this with you, but the subsea trees peaked at 550 in 2014 floating rigs the $2 60, and we've been the lesson out of less than half of those levels for several years now get the forecast I see I'd say rice debt for instance, so global offshore production stayed flat out to 2025, the only of decline rates of about 5% of their models kind of surprising.
4 million barrels of incremental new capacity coming on by 'twenty five.
I mean, I I get it ease of long cycle projects that take years to complete but shouldn't the huge.
Dropping rigs and trees start manifesting in production soon I'm really having trouble tying the two together.
We'd like to get European how you're thinking about kind of global offshore production over the next let's say five years.
Sure and David when you say manifest in and of and you're speaking of increased activity, you said production, but actually the well I'm just looking at the production line I'm just trying to get the yeah, just tying together the two of them kind of your activity in the end of production and why they are not really why we're not seeing that kind of show up in the numbers and when you do start to the into the numbers and went through.
The kind of offshore really starts to come down.
Sure and I'd, just emphasize that because of the point that you made in your question, which was you know these are long cycle projects, where there is a time lag between the activity and the actual increase in production.
So look the let's just kind of break it down a little bit obviously, you know our company has experienced not only the benefit of an increase in activity.
But a significant increase in our market position.
You will that's the result of bringing to the market something new something innovative both in terms of technologies subsea two point O as well as in terms of of unique commercial model I E. P. C I or the integrated project, where we're the only single entity that can provide such a such a combination.
This was manifested in the recent Petro nationally by Young award dishes Petronas is first the deepwater they do a lot of offshore but this was their first deepwater project and they saw the benefit of both subsea two point of when I Pee see eye. If you will combined into an a.
<unk> two point of award of it went to our company.
So you know we're seeing certain activity are the let's say the rest of the market is not experiencing.
We're very privileged and very grateful for that in addition to that as I mentioned in my prepared remarks, we do see an increase level of.
Well, we've been I mentioned back in 2019 that we were seeing an increased level of front end engineering of work or IV studies as well as traditional feed studies Friday in engineering and design and then again in last year in 2020, I emphasized how we were seeing any further increase in I E. P. C. I studies.
As mentioned at the time, there nine to 18 months, depending upon the project and the customer and what time they could move forward to the F. I D. Phase. So we're kind of seeing that manifest itself right now which is why back in October.
Of 2019.
2020, excuse me I was able to give guidance in terms of our potential inbound for for this year, which at the time, let's face it was.
Still there so it wasn't a lot of visibility into the market at the time it hits that price Proprietory set of opportunities that we have they just gave us a completely different view of the market M.
You know that that's why we were able to provide the guidance we gave.
One of the indication around inbound orders for this year and again off to a very strong sort of it. So you know David were seeing it happen I don't you know I think you have to look at taking up the FMC through a slightly different lens than if you will the rest of the market and you have you know just understanding that we have access to a market.
Our debt that is quite significant again I mentioned.
This year it could be 50 per cent of our inbound could be direct awarded to our company. So yeah, we're seeing it and it's what gives us the confidence in you know David He spent a long time I think since anybody in this industries talked about 2022 inbound in first quarter of 2021, or if you will that far ahead and as I said.
In my prepared remarks, we definitely are looking out of 'twenty 'twenty two inbound now obviously things can happen, but barring.
The extension of the pandemic or some other global economic crisis, we see 2022.
As of further inflection point in our inbound orders and activity that will then translate to production as those projects come on line.
Gotcha and then so it was obviously the impressive subsea orders this quarter. We've also heard from.
From rather positive comments from some of the surface guys and as you're starting to kind of ramp up obviously your U E. P. C modestly just perfectly suited for the kind of market.
And I guess, if you're smoking out I mean.
I'll give you a lot of credit for having a conference kind of look out to 'twenty, two but kind of look out. The next several years I guess the question is do you think theres enough opportunities out there in this type of business. If you kind of stay on this level of it maybe even ignoring some of the bigger projects do you think the subsea the subsea business overall can kind of get back to those double digit year on.
The year growth.
And if you think that's enough force I'm talking in the next couple of years, So I am not pushing it on our near term guidance, but do you think that's enough to get subsea margins back into that kind of 13% ish range of kind of where they were before that whole peak that we saw on the 13th and 14th.
Yeah, well, yeah, we provided our guidance for this year and we obviously started off with a very good first quarter in our subsea margins, obviously subsea revenue was very strong.
So we would expect as we continue to move forward with the increased level of activity that we that you should expect and we expect that we would deliver and increasing margin as well. So if you look at our margin guidance right now we're not far from your target. So I think that when you put the.
Our target out there for the next.
Two or three years is I think how you framed it I don't think that that's an unrealistic expectation at all.
Thank you Doug.
Your next question comes from Julian <unk> with.
Society journals.
Good morning. Thank you for taking my question the question Fahad.
Uh huh followings of discipline or the.
I think the Pos shorts.
How should we think about your working capital.
Or should we model it.
We'll provide us so maybe I'm wrong.
Yeah, I would say guideline, which would make sense all right. Thank you very much.
Thank you for the question. So when we think about the working capital obviously first of all the knowledge that we had some working capital inflow in the first quarter and it's not unusual that we're going to have some some quarters that have some inflow and outflow debt that varies over the period of a year, we'd like to.
Think of that it nets out to some degree, but if we specifically looked at the forecast for the rest of the year. We are confident that we will be the close to working capital neutral. So I mean, I would always start with the starting point of working capital neutral and then from that point you know, we will we will advice and in the forecast.
Or unusual items that impacts beyond that so so when you look out for the full year. This year, we expect to basically keep people working capital favorability, we be recognized so far in this first quarter the more neutral from the rest of the year and the end up where the where the.
Free cash flow.
That is in line with our guidance.
Very clear. Thank you very much I tend to think of it.
Right.
Your next question comes from Marc Bianchi with Cowen.
Hi, Thank you.
So Doug you mentioned on the subsea performance in the first quarter of strong and it sounded like there was some some of that manufacturing throughput at that helped there and certainly as we progress from here I would suspect that that stays at a at a similar level or improves and then.
You've got a seasonal recovery in services. So just based on that understanding I would think that your margins would be by of tire.
In the in the second and third quarter from where you were in the first of just curious if you have any commentary on that.
Sure Mark as you know, we give annual guidance, we we try to avoid getting into the quarterly guidance a routine.
But I would not disagree with your thought in terms of you know there is certain efficiencies that debt.
You know we are we're seeing is obviously recovery from everything that we went through in our supply chain went through in 2020.
We obviously have some very good solid backlog I mentioned this last quarter, maybe even the quarter before and I will reemphasize it because it's really quite important and I think unique to our company.
Our margins in backlog are improving.
So it's it's quality not quantity.
Quality and quantity in our case, so that's very very important as well as we continue to look forward you know that being said you know we did you know these are is this the project type business. So when you have increased performance.
Performance in execution performance or cadence that accelerates our milestones, but it doesn't necessarily repeat every quarter because you achieve those milestones those milestones happen on an intermittent basis. So you know I just want to caution that we just don't draw a straight line.
You know from a soft the north.
But I understand that you know the business is performing very very well and I'm very proud of the work that the women. The women and men are doing and have done two out of very difficult 2021 and now really seeing the potential of this company as we move forward as a standalone pure play.
Great. Thanks, Thanks for that debt.
The next next question I had was.
A bit longer term and related to the purple you mentioned technology, there and my understanding of the deep purple is it's per.
Perhaps more of a concept at this stage than actual technology development.
I suspect you disagree with that and I'm curious on your.
Sort of what tangible technologies you have the that's being developed scored that project and then also if you could comment on the.
Agreement with the ignore it and sort of widen ignore of versus perhaps some other offshore of developers that could be out there.
Sure two great questions on the first I'm on the it's.
It's not that I disagree with you.
Certainly, it's a unique concept and.
And secondly, yes, we do of technology to support it.
You know the.
Keep bear in mind that we're talking about a substance. If you will that is you know.
Very difficult to handle.
Both from a corrosive point of view.
But also from of stability point of view, so there's a tremendous amount of technology development that has been going on for four years. Mark you know we didn't talk about this four years ago, because you know we like to have something real debt.
Before we start talking about it if you will marketing things.
And it was important for us to develop this it's been a long process. Yes. It started as a concept you know over four years ago, but we've been well into the technology. The it's called the T. R. L process, where youre actually qualifying your products, where you're qualifying their capability ceiling surfaces containment.
The et cetera.
To be able to operate not only with a particularly challenging substance hydrogen but also to do it in a particularly challenging environment, which we know very very well, which is a subsea so.
If you'll allow me to you know.
Kind of throw out of a little a little marketing opportunity here.
We hope that you will participate in November in our analyst day, because that will give us the opportunity to really showcase the technology.
And that's you know will be a big portion of that of that analyst day. So I'll leave that of where that is for now, but progressing quite well and.
And you know, we're well into a multiple phases on the deep purple project ignore thank you for asking the loop, we're very pleased to partner with May ignore it.
We felt it was you know for us it's finding the right relationship where we can where we can.
Worked well together collaborate well together, that's what our company does we build deep intimate client relationships.
We've worked with clients for 2025 years on an exclusive basis in our traditional business and we would expect to do the same as we move into the new energies. So we spend a lot of time in building that relationship before just jumping into you know jumping into a partnership that being said we are likely to have other part.
<unk> are in the offshore wind as well so we don't make nor was the right partner at this time with a good opportunity set that we're very proud to be part of it and to work with but it doesn't mean that there won't be other partners just like in our traditional business, where we have multiple partners of multiple relationships.
Great. Thanks, so much.
Your next question comes from Amy Wong with UBS.
Hi, good morning, guys.
Couple of questions from me.
The first question is I think one of the kind of notable data points for the quarter is in your subsea backlog of it seems to have had a pretty decent increase of.
In bound converting into 2021 execution is that a fair observation.
Yeah is there any kind of trend to call out.
In terms of the types of projects of our clients are moving as part of like that maybe there's a bit of pent up demand that seems to like the.
Bond is converting to teach them about the new in a slightly shorter time frame than usual.
It's hard because of the south here I can take that one of them.
Let's say this every every quarter there is some movement in the in the backlog scheduling in the game. In this case you are absolutely right that there is some accelerated the man and it makes it even in our execution. So we are able to capitalize on that and that's the overall is driving us in terms of the look now at the full year guidance from a revenue.
The trend a little bit more to go towards the high end of the guidance range pool of reported revenue in sub sea. So overall, that's possibly the picture.
And Amy good afternoon, all I'll add to that.
In terms of you you you were asking was there any change in if you will the client mix or the project mix of clearly as clients move to optimizing the utilization of their installed offshore infrastructure.
Other words doing more tie backs or more brownfield opportunities IEP see how in subsea 2.0 is.
It's just the right the right thing at the right time. So you know we've already demonstrated a pronounced now for years, our ability to be able to take a 20 month project and deliver it in 14 months install the commission on the seabed.
Working all through 'twenty 'twenty during the pandemic, we were working very closely with almost all of our major part of all of the major subsea players almost all of them.
Had programs underway to really study what additional resource could be tied back to their infrastructure of potentially their own or potentially that of another oil company and what they are and we've been part of that discussion we've been in some ways part of you know.
And working with multiple different oil companies to bring that two of reality because we have this unique solution, where we can go out and and deliver you know installed commissioned on the sea bed in the half the time as the as the conventional market or the competition.
And that's true that will drive if you will a quicker acceleration or conversion between the inbound and the revenue and net.
The profitability as we see a greater mix of those type of projects in our backlog.
Gotcha, Okay and my second question just relates to the our announcements at the heart of your analyst day in November the quite quite far I couldn't put a long way away, but just wanted to understand is the ti.
Yeah.
Turning off of energy are you guys pursuing a bit more of like the new branch with you out of the shop.
And should we expect from think strategic update in November or are you characterize as the slightly differently is the only just.
Rather the more focus on just the kind of technology.
Yeah.
Well, Amy let me start by saying we know you all are under a high demand and usually popular and that is the busy time of the year of both in terms of conferences as well as in terms of potentially other people having capital markets days. Your analyst day. So we just wanted to get on your calendar early and we certainly hope that you'll be able to.
Join us in terms of the structure sure you should expect that we'll be talking strategy as well as technology. You know, we're a company that drives change where a company of innovation I think we continue to surprise to the upside.
And not only surprised of the upside but to deliver against our would we what we state. So we're certainly excited for it we think it'll be time, well spent and we hope that you'll be able to join us.
Hey, Thanks for the has that I'm tired of it.
Your next question comes from George O'leary with T. P. H M company.
Good morning, good morning, guys.
Yeah.
Good morning.
The free cash flow guidance increase was very nice to see I was just wondering if you could frame the low end of the high end of what drives kind of at the low end of the high end of that range.
Sure.
So first first of all free cash flow guidance the increase than we thought it was trying to be very clear in my prepared remarks. This is the direct result of the separation related expenses that we are we had previously.
The assumed would be of not continuing operations that are now in our recorded in discontinued operations in the in the first quarter, but overall, if you're honest with you if I'm honest. The there is mostly the the variations will be around working capital timing, so sort of for the most part even though we're confident the them, but we can do.
Liver around the neutral working capital for for the for the for the.
The remainder of the year there is still some risk there can we manage other other pieces all day all of the free cash flow such as capital expenditures, yes, possibly so there are some dynamics of net where obviously the.
You know demonstrating here some some of our believing that the guidance in terms of of the revenue potential in subsea and and even to some degree the the margin potential in surface. So far can drive some favorability. So overall, we're looking we're looking favorably at the our ability to deliver the full year cash free cash flow forecast as we.
As we have guided to.
That's very helpful. And then just the bigger picture question.
With respect to the renewables or the energy transition side of the equation and just curious if you could frame the pathway of glide path too.
That side of the business, becoming a material portion of revenue and then.
But the nearest term opportunities are comprised of whether it's offshore wind floating solar tidal wave plus land all three.
Any color on the on the glide path and in the competition.
The Georgia, a very good question, one that we spend a lot of time on and one that we you know I alluded to or spoke to in the prepared remarks, because I think it's really really critical.
One, we'll certainly be talking more about in November at our analyst day, but just of foreshadowed a little bit.
First and foremost our new energy strategy is around four pillars.
That's offshore wind, particularly floating wind and again, we believe that will comprise 80 per cent of the total offshore wind.
So we're not really chasing the fixed when it's very fragmented there is no integration.
And there is very little technology other than the turbine.
You know provide about the turbine manufacturer. So you know just to chase that to get short term vessel utilization.
And to call that new energy of renewables revenue.
I'm not really doing anything right I'm, just using my boat for a different application.
So we're not looking at it that way we're looking at it as what can we bring just like we do in the conventional energy what can we bring to differentiate our company from a technology and from an integrated offering. So we'll approach. This very differently. We believe it will allow us to jet of.
The type of returns that would be acceptable to you and to our shareholders versus what is available in if you will just selling the vessel at a lower day rate in.
In the renewables of.
Market of fixed fixed I'm, sorry fixed of wind market to date. So that's what we mean about playing the long game. We did the same thing if you remember in our traditional business back back in 17, and 18 or 18 and 19, we were very disciplined and we didn't just chase activity. We said a PCI. We believe was going to work and we were going to have.
The capacity of our floating assets available to us to deliver those IEP Ci projects and that's what we're seeing today and that's why we're having success and differentiate the success today. So we're doing the same thing in wind and wave, it's very clear, we're going to focus on the technology and the integration of the technology.
All of the G width.
Hum with wind we believe if you put when we've demonstrated if you put wind and wave together, we believe we can increase the output by as much as 30% that's significant.
In addition to that the ability to be able to store and or convert offshore will be critical that's our deep purple project because of we could be converting generating to hydrogen and storing hydrogen we could be storing and other forms of energy storage of wind and wave power as well.
And then the ability to be able to potentially distribute debt offshore versus having to do everything at a M.
The near shore of Port and we can do this type of transfer of offshore.
So that covers kind of wind wave hydrogen and then it is in addition to that would be carbon transportation and storage.
I find it difficult to believe that to get to the levels required which we all support.
That you will be sequestering that carbon I'm, sorry, you will be story net carbon.
Oh on land.
So therefore, a lot of the sector.
The sequestration will happen near the coast, we will we are and again there'll be more to come on this subject we will be announcing very novel technology that will allow us to safely transport and store that carbon.
The the C O two that is a sequestered a sub.
Subsea or offshore if you will so you know that's kind of our mentality. That's the way we go about it there's always three pillars are they're not mutually exclusive from our perspective, we will try to integrate as many of those together as possible.
Bear in mind 50 per cent of the world Subsea infrastructure is hours sitting on the sea floor today, our ability to be able to use that potentially is distribution out of the storage hubs or injection hubs could be very unique application. It will require some very sophisticated technologies, we've talked about earlier.
When I was answering the deep purple question to Mark that you know this isn't just using the same equipment, it's a very different type.
Type of equipment that we'll be talking about that as we announce some technology new technologies in the coming quarters. So you put all of that together and it's a very exciting roadmap for US now specifically to your question is okay. When when do we see it and how big is how big is the potential or the potential is obvious I mean, I think the potential is.
Big is our conventional business. The question is when and is there a crossover for how long do they there's one grow while the others growing we just got done saying that the conventional business is growing and we see growth now through 2022 and potentially deal and I'm just not going to go past 2020.
Two for right now so with that you know starting to see some growth in the in the renewables you know maybe carbon happens in wind happens maybe before hydrogen of I don't know you know, it's it's it's kind of a combination of lot of it has to do with a local.
Local support.
Legislation you know other things will help drive, which one gets ahead of the other we just want to be well positioned to be the offshore company the.
The offshore company as we are today in subsea for conventional hydrocarbon for the renewables.
And you know whenever one takes off first will be well positioned to benefit from that but but again, we're going to track of renewable revenue is is that that's sustainable revenue that can generate high returns versus just chasing utilization with our existing assets today.
Very helpful answer thank you debt.
Your next question comes from Michael I'll start with Citigroup.
Although the thanks for taking my questions I've got a couple of plays.
Firstly, if I could the fleet.
You've done the quake, Joe but to driving greater efficiency through the business, but I guess following separation.
The significant areas of where you see the ability to keep because the across the organization.
Well, Michael as you know this management team, we know there's a relentless pursuit.
For operational improvement and I can't say enough about the leadership throughout our organization of our engineering manufacturing and supply chain as well as in the operating segments and just across the organization of the word we use in this organization is simplicity.
Let's remove the complexity, obviously that we benefited from that now as a standalone pure play company to remove some of the complexity and really be focused.
And we're driving that through everything that we do so you know Michael I'm not going to announce the big massive you know cost reduction program or something like that but you should rest assured every single day, we're looking to make the organization more efficient which creates by the way of better work environment for our employees of by removing some of it by removing.
The complexity and cost.
Okay, Thanks, and just to take the follow up on the cash flow I'm. Just wondering does any of any specific and net flows.
The quarters, such as the unwinding of provisions of the let's say tax rebates the outdoors the.
With the free cash flow of its own simply just the flow of the milestone payments from contracts.
During the course of things.
Yeah, So you're talking about the first quarter impact here.
Exactly yeah I was just wondering whether there's anything specific in that quickly.
Working capital inflow that helped drive pre tax net higher.
Yes, the silver.
Thanks for the question, Yes, there was some items in the first quarter debt where.
Beneficial we had of settlement.
The went into the first quarter, we did have some other negative items as well, but the overall that settlement benefited the the free cash flow for the quarter.
And just roughly how much was that.
Yeah, Michael Let me just add to that you know this was you know theres always.
There's the you know theres, which contributed from operations and there's always other things that come in and out of you know.
Of the cash flow, but these were all part of our forecasted cash flow. So nothing nothing out of the ordinary or unexpected that created the positive momentum just good solid.
On the cash flow side.
Right Okay. Thanks.
Your next question comes from of course I eat.
The T V capital markets.
Hi, Thanks for taking my question two questions.
First one of you.
Made a comment that you see of sustainable long term kind of a growth activity offshore.
And.
We've seen in the industry to get out of restructure of the rationalization of employee base and the average employee the need for subsea is a lot more sophisticated and trained do you have the right people the right number of people to be able to efficiently manage that growth that could be a multi years of kind of up cycle.
Thank you a car the wheel.
I'll have biases, there's unconscious unconscious bias is I'm going to be very clear. This is a conscious bias.
I believe we of the best people and I mean that from my heart.
They have demonstrated and what they have delivered on a consistent basis, particularly during the last year is just nothing short of inspiring so look we as we've made adjustments and the adjustments we had to make we're unfortunate we have done.
On everything we can to protect.
The talent in the organization and not only the protect but to continue to provide them opportunities for development.
Further progress of their career within our company.
M you raise of very valid.
Valid point, though the thorough.
Whether you go into the supply chain you, sometimes find smaller companies and you sometimes find companies that are more co dependent on one or two customers. In this case, we would be of customer versus the versus a contractor and so we also work very closely with our key suppliers and we shifted workers.
Just as our customers did for us some of our customer sat down and took work from the competition and gave it to us because they said you know they knew who they wanted to work with when it was all said and done and they wanted to make sure that we had the volume that would help us through a difficult year last year. So we did the same with our.
Suppliers of that being said as we any growth cycle does create.
You know pinch points, but we're doing our best to go in the eyes wide open and we've done a lot of work to.
To protect the not only protect the to motivate and make sure that our work force is well prepared to deliver.
We'll put in a plug if you will for the way that we do our business I E. P. C. I is of much more efficient way to do business in terms of assets, particularly human assets as well as subsea 2.0 in terms of you know the manufacturing roof line and the and the and the individuals are required.
You know, it's not just an upturn we're going into this upturn very different we're going in with the next generation of subsea equipment debt now represents as I said, you know a significant portion of our total work now so it's a very different recovery for us that we believe we are well prepared for.
More of a car, but most definitely eyes wide open and acknowledged that there will be pinch points as the growth continues.
Thanks, Tom if I may squeeze in another question.
Good for you.
The the saturation of the Technip energies happened you have the set of assumptions about how the interaction with the customers and employees and of an investor's change following the following the separation in not just the interaction, but the the behavior there.
And and how it would have a F. T. I know the separation has happened how is the reality being compared to a set of assumptions going into the into the separation.
In regard to customer relations customer relationships.
The next yeah, obviously all of us.
Three kind of who the customers employees and invest says.
I mean, the starting with the customers you you'd had the view that you could maybe get better.
You know maybe the there'll be some uptake in kind of revenue that different technip energies of.
The following the separation and is that kind of is it are you seeing some of that.
Yeah, Yeah, you know what's clear the car is you know and I kind of alluded to that in just a minute ago. So I won't go back through it but.
Our customers we have.
We're honored to have the deep intimate relationships that we have with many of our customers. They work with us differently than they worked with many of the others in their supply chain.
That's that's not a given that earned overtime pay based upon performance and trust and transparency and.
It's obviously stronger as a pure play only because you know.
Your you are too.
The holdco at two very different models with very two very different contractual approaches. So this if you will allows that increasing the intimacy and I do believe that we are benefiting from that and it's not just what I believe it's you know we've announced new many several new relationships over the past year and will be of.
I'm seeing even new relationships. This year, most of which are exclusive to our company in terms of the employees of light.
Obviously, you have an opportunity now to be more focused spend more time be more visible.
You know some of the bigger projects that we were doing in the past required an enormous amount of management bandwidth focus and attention.
And we now can spread that more equitably across the organization, which I think is is the right thing to do and in terms of shareholders I Hope we demonstrated in Q1, the the value of an independent company.
Great. Thank you very much that appreciate it.
And our last question comes from Bertrand Hode Kepler chaperone.
Yes. Thank you for taking my question one on the on Mozambique the.
Backing out 2019 that you're one of the substantial contract 1.1 billion dollar cause of sepsis.
Yes.
Of the of Mozambique, LNG can you give.
He doesn't have debt obviously following the.
It's a thought of as the first Moshe do you see in the any direct impact in debt.
And if you can share of any color or especially when he's left.
In the back of.
From a contract in Q.
Sure if the trial and thank you very much for the question because I think it's important and I wanted to clarify some of the things that have been written net were incorrect. So bear in mind that yes, we announced this is the substantial award, meaning a plus $1 billion.
The recognition you'll of typical project of that size would the revenue would be recognized over plus or minus a five year period. So you can kind of do the math. If you will assuming it was linear it's not linear but you can get an idea of kind of the annual impact plus or minus I will tell you right now we are only the.
Getting to have discussions with total to hotel is a very serious customer hotel is a serious partner of ours. We of the deepest respect for total and the fact, the total was making decisions based upon the health and well being and security of their personnel and their contractors personnel, including us.
We deeply respect.
The second point is we are an offshore company. Our scope is offshore we have no in country exposure all of the work that we're doing at this point is the manufacturing we are well into the manufacturing of the subsea equipment. So that will continue to go on for some time.
We are progressing on plan on schedule and everything is going quite well and it's being done thousands of 100, well thought of yet tens of thousands of thousands of Homeaway from Mozambique, I haven't done the calculation.
So yeah, just just realize we're not doing any we're not doing any onshore infrastructure. If you will where an offshore company and the work that we're doing right now is in the manufacturing phase, which is being done of far away. The way its progressing very very well and we continue to to work on that that being said we deeply respect.
Hotels position on this and we're going to work closely with total of Stoke tell I'm sure I'll wants to do the best for per their people and for our contractors and we're confident that we'll continue to move forward, but let me make sure that it I'm very clear on this next point.
If something was to occur.
The impact our revenue or profit from that project. This year just to be very clear it would not lead us to revise our.
Our guidance both in terms of the you know the guidance on the revenue of the EBITDA range, what am I emphasizing by that an important project, but we have many many projects. We're a large company. We're a global company and we're very well diversified so there should be no concern if and I repeat it because we are.
Working very closely and it's in the very early discussions and again, where we're not exposed to the issues that are you know the potential the potential security issues about working in country. We are doing this work outside but if and repeating if there is an impact it would not lead us to revise our guidance for 2021, I think I said.
'twenty 2021 excuse me.
Okay Crystal clear.
The dog so to summarize the only new ways. We can see is the ease of delay in the offshore campaign installation down the road in terms of schedule of the of the 70 contract.
Ah, yes that potential exists, but again, we've been given no. There's been no decision made at this time, we're working closely with total.
Okay.
I squeeze Ah another.
I'm not the one I'm not and I know the region.
Can you give us the feel of what you see in terms of activity.
Our U S Gulf of Mexico.
After the I would say of the election of Joe by the D C less traction.
Yeah, and you seem to do your IC, the I like to say.
Package of project I E.
The attraction in East region.
Yeah like in many mature markets of the Gulf of Mexico, being the very mature market for subsea Theres, a significant amount of infrastructure operator owned infrastructure.
That is not operating at capacity today.
Kind of globally, a rough a rough figure globally is most offshore infrastructure on average is only operating at about 60 per cent of nameplate capacity. So therefore, there's an opportunity to bring additional additional hydrocarbon into that facility to be a process.
Without any significant increase in capital cost in terms of infrastructure. So, hence brownfield tieback opportunities as I was talking to Amy we're uniquely positioned we've been working with many operators in the Gulf Coast same idea, let's look at let's look at your infrastructure would ask that you have of roundwood leases you have around your infrastructure.
What other leases could potentially be tied back we have new technologies out there included a pipe in pipe electric trace heated pipe that allows us to significantly increase the tieback radius buy up the four times four times greater so the circle that you would've drawn just two years ago around the infrastructure is the radius is now four times.
Larger and so there's a lot of things that we're gonna be able to do it'll drive our subsea processing business as well in terms of subsea boosting.
So it's exciting opportunities for us and yes, the Gulf of Mexico, There's lots of activity going on I would not be surprised to also see potentially a greenfield project of new Greenfield hub the announced in the Gulf of Mexico This year as well.
Thank you of that.
Thank you I would now like to turn the call back over to Matt.
This concludes our first quarter conference call a replay of the call will be available on our website beginning at approximately eight P M. British summer time today.
If you have any further questions. Please feel free to contact the Investor Relations team. Thank you for joining US operator, you may now end the call.
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Yeah.