Q3 2021 TechnipFMC PLC Earnings Call

Good day My name is Lisa and I will be your conference operator today.

At this time I would like to welcome everyone to the Technip FMC third quarter 2021 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a.

A question and answer session.

We would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If you would like to withdraw your question press the pound key.

I would now like to turn the call over to Mr. Matt Science Hymer. Please go ahead Sir.

Thank you Lisa good.

Good morning, and good afternoon, and welcome to Technip Fmc's third 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.

<unk> 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.

<unk> 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.

Pectase to publicly update or revise any of our forward looking statements. After the date. They are made whether as a result of new information future events or otherwise.

I will now turn the call over to Doug for the Art Technip FMC is chairman and Chief Executive Officer.

Thank you Matt.

Morning.

And good afternoon.

You all for participating in today's call.

Joining me today is ultimately our chief financial Officer.

Results in the quarter reflect continued strength in operational performance and further support our confidence in achieving full year financial.

The annual guidance.

Total company revenue in the period was $1 $6 billion.

Total company adjusted EBITDA was $141 million with an adjusted EBITA margin of eight 9%.

Total company inbound orders in the quarter.

$1.3 billion.

Subsea inbound orders were $1 1 billion, bringing the year to date segment total to $3.9 billion.

The strength of our inbound in the quarter was driven by direct awards Subsea services Alliance.

<unk> and several long term vessel charters.

Additionally, our subsea opportunity list expanded for the fourth consecutive quarter.

Now shows project opportunities totaling 19 billion for potential award over the next 24 months.

Port when assuming the midpoint of the project ranges.

Inbound orders for surface technologies were $250 million in the third quarter.

It is important to note that we expect a significant increase in order activity in the fourth quarter as we.

So page several multiyear awards will be made in the middle East.

Subsea inbound growth in 2020, one partly reflects the momentum we are seeing in Brazil.

This has always been an important region for Technip FMC.

We have been president.

We anticipate entry for over five decades, with a well established supply chain and over 98% local content contributing significantly to our success.

Additionally, an important part of our global research and development is carried out at our technology Center in Rio.

Oh D Janeiro.

This year, our Brazil teams have achieved several impressive milestones.

We received two contract awards from Petrobras the.

First for the Marlin <unk> fields, where we will provide subsea manifolds utilize.

Utilizing our second.

Is it into generation all electric robotic valve controller.

And the second award to supply equipment and services for the Buzzi O six through nine fields, extending our backlog will be on the first scheduled delivery in 2023.

Karun.

Second G awarded us with our first Ie PCI project in Brazil.

Another significant step in the global adoption of our integrated model.

And we delivered our 700 tree manufactured in country.

Reflecting our leadership position that has been built upon our long history.

Energy innovation and strong project execution.

During the quarter. We also signed three long term vessel charter contracts with Petrobras.

These awards will serve the Brazilian market for the next three plus years.

The first two charters where for pipe lay support.

Three of the vessels owned and operated through our joint venture with off subsea.

The third was for our wholly owned vessel that provides us with the ability to install flexible pipe in any water depths up to 3000 meters and one that has consistently been awarded the clients' highest rating for.

Support regional performance quality of war and health safety and environment.

These awards also serve as a leading indicator of the strong demand for the flexible pipe market in Brazil.

Yeah.

For decades flexible pipe has been the preferred solution in Brazil.

Also on our pipes versatility has allowed the technology to evolve with the industry adapting from shallow water to deep and ultra deepwater.

Technip FMC has been a pioneer in flexible since the early 19 seventies.

We are constantly improving quality and reliability and increasing.

I'll really harsh environments.

And our assumed facility as a showcase for advanced manufacturing automation.

More than 11000 kilometers have been installed across the region.

More than half of which was supplied by Technip FMC and we remain the market leader today.

High concentrations of C O two in pre salt fields as opposed to industry challenges for some applications of flexible pipe, particularly pre salt gas injection risers.

Leading to a reduction in flexible volumes since the market peak in 2017.

Outside.

Creasing it of these limited applications, the low CEO to flexible as market in Brazil remains robust.

Supported by recent industry Awards, and tendering activity, which we believe will result in annualized volumes over the next three years.

That are more than double the current levels.

<unk> signed 2018 to.

To address the high Cotwo industry Challenge, we created a strategic alliance and made a minority investment in Magna global.

Leader in advanced composite technologies.

With the ongoing success of this technology Alliance, we were pleased to announce.

We acquired the remaining interest in Magna and we are excited to welcome them to the Technip FMC family.

By combining their proprietary technology with our flexible pipe.

We are advancing the development of a hybrid flexible pipe solution for use in the Brazilian pre salt fields.

Our long history in Brazil, our research capabilities, our investment in disruptive technologies, our leadership and flexible our high performing fleet and most notably the women and men that continue to drive our success.

Positions us well in what is expected to be.

The strongest subsea market this decade.

We have previously outlined our focus areas of wind wave hydrogen and carbon transportation and storage.

We are making real progress in all of these areas.

Additionally, we believe that.

Composite technologies for magma will be a critical enabler to the new energy transportation system.

We were also pleased to announce a long term strategic alliance with Telos energy to develop and deliver solutions for carbon capture and storage or Ccs.

This is an important step for both companies combining telus is offshore operational strength and subsurface experience with our long history in subsea engineering system integration and automation and control.

The Alliance will initially focus on the U S Gulf Coast, which.

Which is a major source of Cotwo emissions with a heavy concentration of refineries liquefied natural gas plants and emerging blue hydrogen facilities.

The alliance provides a platform to address this growing market need and we look forward to working with <unk> and the conversion.

<unk> of these identified opportunities.

This type of collaboration innovation and integration will position Technip FMC to be a leading provider in carbon transportation and storage.

I will now turn the call over to al to discuss.

<unk> our financial results.

Thank you Doug.

We had another solid quarter led by total company inbound orders of $1 4 billion revenue in the quarter was $1 6 billion with adjusted EBITDA of $141 million.

Total company backlog.

7 billion at the end of the period.

Backlog for subsea stands at $6 7 billion of which just over $5 7 billion is scheduled for execution beyond 2021 we.

We ended the quarter with cash and cash equivalents of 1 billion and net debt of $1 2 billion.

During the quarter, we recognized charges and credits that netted to an expense of 16 million and included the following items.

Expenses totaling $44 million related to impairment restructuring and other charges primarily related to a 37 million noncash impairment.

<unk> initial investment in my global.

These items were partially offset by income of $29 million on our equity ownership in Technip energies, which primarily relates to the favorable change in market value during the period.

Loss from continuing operations was.

Two are in cents per diluted share in the quarter.

When excluding the impact of charges and credits that netted to an after tax expense of three cents per share. The adjusted loss from continued continuing operations per share was six cents.

The adjusted loss from continuing operations also included the following items.

<unk> loss on early extinguishment of debt of $60 million and a foreign exchange loss of $6 million.

Now, let me turn to the segment results I will focus on our sequential performance comparing the third quarter to our second quarter result in subsea.

Revenue of.

One 3 billion decreased 6% driven by lower activity in the North Sea and Asia.

Adjusted EBITDA was $141 million with an adjusted EBITDA margin of 11, 2% a sequential increase of 10 basis points. Despite the revenue decline.

And orders were $1 1 billion in the period, demonstrating our continued commercial success.

In surface technologies third quarter revenue of $267 million decreased 3% from the second quarter revenue decreased primarily due to the timing of large multiyear International awards.

It's partially offset by increased revenue in North America.

The continued growth in North America was driven by higher drilling and completion activity.

Adjusted EBITDA was $28 million adjusted EBITDA margin was 10, 6% a decrease of 40 basis points from the second quarter driven.

Largely by lower lower segment revenue.

Inbound orders for the quarter were $250 million.

Turning to corporate and other items in the period corporate expense was $29 million, we incurred a 6 million loss on foreign exchange net interest expense was 39 million.

And lastly, Texas tax expense, which came in at $12 million for the quarter.

Cash from continuing operations was 136 million with capital expenditures totaling $47 million.

This resulted in free cash flow of 89 million in the third quarter.

Free cash.

<unk> from continuing operations for the first nine months of the year was $100 million and we are on track to meet our full year free cash flow guidance of $120 million to $220 million.

Cash flow in the quarter benefited from solid working capital inflows, which was in line with the commentary we provided on our second quarter earnings.

Cash flow capital expenditures are anticipated to increase from the third quarter level, largely driven by previously announced project awards in subsea.

We continue to see the potential for full year expenditures to come in below our guidance of approximately $250 million.

In the third quarter, we may.

Call significant progress in the monetization of our remaining stake in Technip energies.

Announcing sales totaling 34 million shares of Technip energies in multiple transactions.

We received proceeds of $326 million in the quarter from a portion of the sales with the remaining sale transaction scheduled for settlement before.

Made thinking of October for proceeds of approximately $115 million.

Upon completion of these sales we will have reduced our ownership in technip energies by 75% and will retain at 12% stake, which is currently valued at more than $350 million.

There is no lockup.

The associated with our remaining position.

During the quarter, we purchased $164 million of our six 5% senior notes due 2026, the highest coupon depth within our capital structure through a tender offer.

With regard to investment activity, we acquired the remaining 40.

49% of shares in T O our joint venture with island offshore for 49 million during the quarter.

This transaction brings to the company additional subsea expertise that will enhance our life of field services capabilities and provide a complete range of wealth services to our clients globally.

And as Doug mentioned in his remarks, we also acquired the remaining shares of Magna Global in early October for $64 million. As a reminder, we entered into a collaboration agreement with Magna in 2018, which included the purchase of a 25% ownership stake.

As a result of the acquisition we recorded.

Our noncash impairment in the third quarter to our initial magma investment, reflecting the purchase price paid for the remaining stake.

The cash consideration will be paid to shareholders on logmein in three installments.

Let me close by highlighting a few takeaways from the quarter.

Recorded delivered solid operational performance in the period with total company adjusted EBITDA of 141 million and free cash flow from continuing operations of $89 million.

Given these results we are confident that we will meet our financial guidance for 2021.

Additionally, the free cash flow generation of our.

With an ongoing monetization of our ownership stake in Technip energies are supporting several important objectives first that we improve our capital structure, which we demonstrated during the quarter with a 400 million a reduction of net debt as well as $185 million reduction of short and long term debt.

And second that we maintain the flexibility to invest in our future, which we have also demonstrated with strategic investments in tears and magma.

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

Thank you Alf before we move to Q&A I want to close with a few remarks.

Our third quarter results reflect the continuation of the strong operational performance that we demonstrated over the first half of the year as al stated.

We remain very confident in achieving our full year financial guidance.

Subsea orders have nearly matched the 4 billion inbound.

All of 2020.

We remain on track to achieve solid double digit growth.

And the acquisition of magma and our strategic Alliance with Telos service tangible progress in further demonstrate the impactful role we will play in the energy transition.

Finally I.

And to remind everyone that on Tuesday November 16th we will host our analyst day.

During the event, we will demonstrate how we are leveraging and extending our core competencies of innovation integration and collaboration to develop both new and novel Energy resources.

I would like to work.

We will provide updates on how we are using new commercial models and new technologies to further improve project economics and.

Reduced carbon intensity in our conventional business, while also transforming the way we fundamentally operate today.

Offshore also have real examples on display to show you all Technip FMC continues to drive change in the energy industry.

And we hope to see you all there.

Operator, you May now open the line for questions.

At this time I would like to remind everyone. If you would like to ask a question.

Please press Star then the number one on your telephone keypad.

So just a moment to compile the Q&A roster.

Your first question comes from the line of Jairam with J P. Morgan Chase.

Yeah good morning.

My first question is for Al I wanted.

Question to talk a little bit about the balance sheet improvement you talked about $185 million of debt reduction.

And I just wanted to get your thoughts on how your leading edge conversations are going with the rating agencies.

And is it reasonable to assume that you could be in line for an upgrade.

Wanted to I D status in the next year or so.

Sure. Thank you for the question Yeah. So first of all.

It remains one of our primary objectives of course to continue our deleveraging as we have stated in previous calls we were successful in reducing our net debt by 400 million from $1.

Six to $1 two in the quarter.

We have continued to realize or take deep into shares and we have started our debt reduction process with a debt tender offer this this quarter, which netted about $164 million in debt reduction.

In terms of looking ahead at at the rating agency question that you.

You just raised a little bit more complicated to give me a straight answer on how fast we can move on that we are first and foremost are really dedicated to our debt reduction and I'm going to let that play out and as these metrics the debt and the leverage metrics improve we clearly expect it.

To get into a range.

Where it's possible to get back to investment grade now exact timing of that I'm not going to go out and say that I'm that I have an exact timing, but it's not going to happen lets say in the short term at least in the near term. So it will be something that is more on an intermediate term basis.

Great and then just my follow up Doug what type of visibility are you seeing in subsea orders into 2023, just given the improvement.

And the outlook for commodity prices and then just maybe on the on the analyst day. It sounded like we're going to get to see a lot of it sounds like it's gonna be relatively meager.

Media update can you maybe highlight on the financial side and anything we can look forward to in terms of the longer term outlook comments for you guys and our next month.

Sure Good morning, Arun, let's start with the analyst day question first.

Indeed, you're going to see some longer term projections that I think.

He quite a quite inspiring for many people. So I will leave it at that we have more we'll have more to say here in just a few weeks at analyst day, but yes, you should expect some additional longer term outlook as we really begin to see the full leverage potential of this pure play company.

Let me.

The pivot to your second question or the first question you had for me which was around.

The outlook around inbound orders for subsea.

Let me break it down you know.

He said two to 2023, that's a bit further than we've.

Provided any sort of guidance or any sort of commentary.

But in fairness, we are getting close to 'twenty 'twenty. Two so let me give you kind of my best outlook as we see things stacking up.

You know first and foremost our front end engineering activity continues to ramp up.

We have exceeded the level that we anticipated for this year.

And what's really interesting about what's going on is all of those proprietary projects that we're working on.

Again, we had another solid quarter inbound in Q3.

Certainly when you compare it to the rest of the market.

And the question is how can we do that and again it comes back to.

Two the direct awards that we receive by being the only company that has a fully integrated offering as well as the strength of our alliance partners. So just to give you. An example of that and those front end engineering studies that we're currently performing approximately two thirds of those are integrated projects of which 75%.

That will be direct awarded to our company they'll never go out into the competitive marketplace.

So it gives you an idea of kind of the pipeline that we're building up.

If I try to translate that into some numbers that you might anticipate.

Looking at fourth quarter as we indicated we expect to be in line with consensus we commented on that last.

Last quarter.

We don't change our view in any way on that and that would deliver solid double digit growth 2021 versus 'twenty 'twenty again, a fairly substantial feat coming out of 2020.

If you look a bit further beyond that it gets.

A little more opaque Arun as you can expect at this time, but things are stacking up relatively nicely. We do have that proprietary pipeline that's unique to our company. So if you'll allow me to look at it from a five quarter perspective in meaning give me Q4, plus 2022 because some of the orders.

In Q4 May slide into 2022, or some orders that we anticipate currently early in the first quarter may be pulled into the fourth quarter that just comes down to our client's budgetary considerations.

At the end of the year. So if I look at those five quarters of rune.

We could see we could very well see.

Our subsea inbound orders approaching $7 billion.

That's great color. Thanks, a lot.

Okay.

Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Ask that you. Please limit your questions to one plus one follow up.

Your next question comes from.

In light of my car side with ATB capital markets.

Thank you for taking my question.

Could you maybe talk about some.

Supply chain.

Disruptions, if they had any impact on the quarter or in the coming quarters.

On the surface side in subsea side, and then Ah that he talked about some of the competitive landscape and how your position on the surface. The subsea side, but could you talk about on the surface side, what the competitive landscape is and what the pricing dynamics, maybe in that segment of the market.

Sure. Thank you recall.

Again, I'll start with the second one first so you know.

Surface our surface business is very different as we have pointed out many times between surface international and surface Americas surface International is a much larger business for us and surface Americas and it's.

It's a business, it's a market in which we are the industry leader, it's driven by technology. It's.

It's driven by projects.

And we have a very unique vertically integrated supply chain.

So and we're going to talk more about that at analyst day as a matter of fact, we're going to show you a demonstration between.

Our surface international tree system versus a surface Americans tree system, and I think it'll help everybody understand what we've been talking about and how different they are I've often said, it's about a 10 times difference.

So that's our Si business, our surface international business.

We have really strong positions.

Physicians, particularly in the middle East as well as North Africa I mentioned in my prepared remarks, we're anticipating a really strong fourth quarter in inbound orders for surface international mainly being driven by the middle East are two or three countries in the middle East and we couldnt be more excited about that.

Surface Americas.

<unk> very different surface America's there's lots of lots and lots of competition.

And we're not the market leader.

We have a strong team and a strong reputation and we have some very important clients.

To be the larger clients that we work for.

And we have a we're real proud of the work that.

We perform but it is more of a commoditized product market, which is not necessarily where we are we're really differentiate as a technology company.

In terms of pricing in.

In both markets, we continue to see additional volumes coming through with additional volumes come through that time.

Tends to translate into pricing, but let me leverage or let me transition from the pricing question into the supply chain question. So when you look at our business, we're mainly a mid cycle to long cycle type business. It's why we have such a substantial backlog, which as you know, we're very favorable, particularly having gone through.

With the industry and our company went through in 2020, we benefited by the strength of that backlog and have now come out even stronger and just got done talking about the potential inbound opportunities, which I think are quite eye opening hopefully for everybody on the call for our subsea business. So when we when we.

Think about the pricing and surface in particular are in in terms of the cycle of the business. When you have a short cycle business and there's inflationary pressures and look where we're all experiencing inflationary pressures we're experiencing it in our personal lives as well as our professional lives.

So its very real now I'm very.

Proud of the work that our supply chain team has done.

We've done really unique things to be able to offset a significant amount of the impact from the inflation. That's why we don't call. It out we manage around it if you will but it's there. It's absolutely there are of course, so when you're in a short cycle business, where you don't have the ability.

T two really.

No lock in a predetermined amounts of materials et cetera, and you're responding to the market. There is greater inflation. So there we would expect and we manage the business so that our pricing offsets that inflationary pressures so in surface Americas certainly.

Pricing is a major discussion with our clients and something that we will continue to do to offset the.

The inflationary pressure in that short cycle business again in the longer cycle businesses, we have.

Much better control of the inflation because of the uniqueness of our supply chain the intimate partnerships that we.

We not only have with our clients, but also with our suppliers. We've helped many of them go through the 2020 period, we'd become stronger as a result of that in terms of the relationship between our companies and they're giving us the benefit of that as we move into an inflationary environment. So there's many different aspects involved.

But we have a much better chance and opportunity to manage that inflation in the longer cycle businesses than in the shorter cycle businesses, where yes, you have to rely on pricing.

Thank you very much.

Your next question comes from the line of David Anderson with Barclays.

Good morning, Doug.

Of that $7 billion number on orders that you just put out there was that a subsea number or was that a total order number.

Subsea Wow.

And then on that subsea side can you just talk a little bit about how much of that you think is Brazil, it's kind of one area. We're starting to see a lot out of you.

You've noted a couple of awards.

Awards recently can you, maybe just talk about that market and kind of.

How do you see kind of Petrobras is getting back to kind of maybe where they were before do you see obviously, they're a big chunk of offshore rigs at one time and kind of how theyre coming back can you just kind of talk a little bit about some of the.

Some of the dynamics that have gone down there and how you see the order book that I'm just kind of curious.

How much of that seven could be a Brazilian number.

Sure. So let me expand a just slightly David in say South America right. So.

South America is by far the most important market for our subsea business this decade, but.

But it's not just Brazil, Brazil.

Don't forget Guiana Hunter is usually important to us.

Deeply grateful for the relationship that we have with Exxonmobil in house in the country and the ability that we've been able to supply all of the subsea equipment in Brazil to date and continue to to drive.

<unk>, our project performance and hopefully future awards in Guyana. So liana is very important we know that <unk> and other areas are beginning to develop later in the decade I would say towards the end of the decade, we would anticipate Mexico as well as being potentially a very important country in South America in terms.

<unk> subsea business now.

Now turning to Brazil, clearly the largest as bill pointed out in my prepared remarks, we've been there for five decades, we have 98% local content.

We have more capabilities in Brazil than we have in any other country in terms of manufacturing the fleet.

<unk> have some D. The people.

So forth and so on and just a long rich history, we manufactured seven we reached the manufacturing.

Of our 700 tree in Brazil, I, I believe that's more than more or less the more more of the all the rest combined so.

It's a very very significant market for us we're very very proud we feel very privileged to have a great relationship and a very long relationship with Petrobras. We've done a lot of new technology development with Petrobras, we talked about a robust robotic valve controlled manifold. I mean this is this is amazing.

<unk> technology, we're already on our second generation of this technology in Brazil, and it really feeds our all electric ambitions around the world. So a very important partnership with well established partnership and yes, Brazil will play a major role both in the 2020.

2022, inbound, but I would expect it to play.

They are major room beyond that as well.

And Doug in your prepared remarks, you are.

Talking about the surface orders kind of coming up here you said it was a couple of big tenders that are coming up on a couple of big contracts aren't can you expand a little bit about that I believe you're talking about the surface side in the middle East could a little more color on there'll be much appreciate it. Thanks.

Sure David and yes, thanks for clarifying I Wanna be it as we were talking to the significant increase in Q4 orders was in reference to surface technologies, specifically in the middle East.

And more specifically from.

In Abu Dhabi for Mad Dog, and in Saudi Arabia from Saudi Aramco.

Yes.

Great. Thank you very much.

Your next question comes from the line of Ian Macpherson with Piper Sandler.

Thanks, Good morning, Doug.

Good morning.

Hi, I was curious if you we've seen that your pipe.

The blind.

<unk> is has expanded over the past couple of quarters with a couple of.

Major project.

Two very large and one.

And several medium sized projects being added to the visible pipeline.

Would we be crazy to extrapolate.

A trend.

And expect.

More accretion in that that opportunity to come into your view as you update that over the next couple of quarters would that be.

As you expect or do you think that maybe we've seen some bobble that projects come back into focus and maybe that's more of a one off phenomenon.

That.

Ian Thank you.

Interesting question.

<unk>.

First of all four quarters doesn't make a trend, although I would caution not to extrapolate and I'll explain why here in just a second.

Prior to explaining that ill comment.

On the latter part of the question.

No when I look at this opportunity list look Theres a couple let's be candid that had been on this list for quite some time.

Have not yet moved to project E. But the vast majority that are on this list are relatively new.

We'll within.

Comment on the recent quarter, so I wouldn't think of it as a I don't know.

I think you said is bottled up kind of projects coming through the pipeline certainly not when I think back to the comment I made and when we look at our front end activity.

Which again is somewhat a reflection of.

Within the pre opportunity subsea opportunity list right things that may not yet beyond the subsea opportunity list and.

And speaking of things that may not yet beyond the subsea opportunity. This I think it's also important to remember for our company all of that integrated direct awards never show up on the subsea opportunity list, obviously, it would be a huge compared.

So advantage for me to give.

Give that information freely to to the market.

So again like this quarter when we have $1 1 billion in inbound and not really named specific project.

In our press release, we had the vessels, but the vessel charters, but not necessarily a project I mean that's.

That's a strong foundation that we built but again that comes through these this proprietary set of opportunities that isn't on the subsea opportunity list now all the way back to the beginning of your question and the reason I said I'd just be a little bit cautious.

You've you've seen press releases or you maybe don't press releases, but you've seen.

<unk> news articles and you know there are certain market intelligent out there around a couple of the Buzzi <unk> projects that are likely to be <unk>.

In the coming quarters.

Other potentially other projects that you may have heard about in the North sea.

So I could see quite a few of these because once they're awarded then we take them off of the subsea opportunity list.

Is there are there other projects to backfill absolutely as I indicated earlier, but I just wouldnt want to leave the impression that one could just extrapolate.

Quarter over quarter.

<unk> over quarter of growth, even though we have experienced that for the past four quarters, I'm, just being very conservative and saying if in a particular quarter or two or three or four of these were awarded that could be several billion dollars coming off the list and maybe being replaced by more than several billion, but not necessarily in the same quarter.

Very very.

Very clear thank you.

For a follow up maybe I don't know, who we all don't necessarily want to completely front run your content for next month, but.

I know you'll talk about.

Positioning for new energy projects.

Purple and otherwise, but just curious what timeframe you think that type of work.

Comes material in your subsea backlog is that are we going to start to see the beginnings of that in your orders in 'twenty two or does maybe.

The reawakening, the quickening of conventional subsea oil projects.

Comment at the deferment or the expense of energy transition projects.

Being accelerated.

Sure. Thank you Ian.

For sure you're going to hear much more about that here in a few weeks, but since you asked the question I'll give you.

Something to think about in anticipation of the analyst day.

As we pointed out.

We're very much focused on.

Wind wave hydrogen and carbon transportation and storage by the way potentially some other offshore energy sources are not named in those four as well.

But just sticking to those four as we've said we want we believe our role is to be the enabler, we wanted to advance and accelerate.

Celebrate the energy transition.

But as a system integrator, which is deep in the DNA of our company. That's what we do we integrate various technologies we create deal.

The architect who brings together all of those elements and creates a very unique.

System, where we're somewhat agnostic to which.

Which of those energy sources.

If you will generate revenue the quickest or even which one generates the most revenue for our company. We just want to help the world and help the industry drive the energy transition by bringing 70% of the surface area of the.

Of the globe.

I'm, making it available to them I E offshore that's our domain. That's what we know thats, what we know very very well and because of that more and more companies are coming to us and you see us announcing one to three of these per quarter.

Announcing new investments that we've made new relationships that we form.

Warm in this particular area. So let me just talk about one in particular, which is.

Carbon capture and storage so we couldnt be more proud of the announcement, we made just within the last few days of an alliance that we formed with Telos energy for doing carbon capture and storage in the Gulf of Mexico as indicated.

In my prepared remarks, there's a significant amount of activity around the Gulf coast region that would benefit from carbon capture and storage and as a way to really advance.

The objectives that we share.

Much of the world chairs and really driving down greenhouse gas emissions so in that particular.

Other area again, having announced the alliance.

It is possible that in 2022 already we could begin to see no potential award of projects are moving forward in the area of carbon capture and storage.

That's great. Thanks, I'll look forward to hearing more in a few weeks. Thanks for the perspective this morning.

Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Next question comes from Bad that's not with Coker Palmer.

Hey, good morning, and thank you for taking my question.

Yeah.

Just trying to put in context of that 7 billion.

What's potentially the larger over the next 12 months.

Is that is it fair to think that could be around one times book to bill.

And I listen to ballpark, when I say that.

Okay.

So let me clarify just one thing it was over the next five quarters. So that would be over the next 15 months right I. What I was saying was it's hard to pinpoint exactly Q4 versus Q1, because some things will move back and forth. So I said based on five quarters or 15 months, we see we see a lot you know at this time and look at.

Ancient will provide an update as we have more visibility, but we have a line of sight right now to up to $7 billion of orders in the next five quarters or the next 15 months.

Certainly if you do the math behind that and make an assumption for Q4, you're looking at a book to bill above one dot O for sure.

For 2022 which is exciting and certainly speaks volumes for where we are as a company and our position in this industry.

And as we think about.

The news improving next year and over the next few years.

How should we think about Capex is like just do 50 million Capex is good enough Oh like a starting point.

Do we need to think about it that embodies increased capex ultimately inquiries.

Yeah.

Yeah, Let me just start by reiterating our philosophy.

So our philosophy is to focus on through cycle returns. We've done some very unique things I believe you've seen us really let's say do things differently from the past in terms of how we manage and operate the assets of our company.

We have actually reduced the size of our fleet, while growing the company.

And we do.

Right through forming very important relationships and being a company that works well with others and.

And we can do that through alliances for example, like we have an alliance with all six.

We now work with them and look for opportunities together with them.

Do that fitting both companies, but also benefiting the broader the broader industry. So a real discipline, if you will and I'm going to turn it over to <unk> to give a bit more insight into kind of what you should be thinking about in terms of the actual capex numbers.

Yes, thank you dug in with the background of what Doug said.

This.

Ben.

Not expected to grow relative to revenue. So you can if you look at the ratio that we're at right now it will certainly not be expected to grow over that ratio for any extended periods of times.

If you also further look at our business and what Doug was saying more and more as we grow further in revenue and then.

Port of third party alliances, we we believe that the capex incremental capex can actually be at the lower level for some of our core business. If you also look at some of the other things we're doing in our business. We are investing in our subsea two point, though product technology, it's driving more standardization and also allows us for four actually investing in less increments.

With us about Capex per manufacturing unit. If you will so there are a couple of drivers that can be helpful for the long term.

Right now if you want to stay at a relative ratio I think you should be fairly safe instead of staying at that relative ratio between revenue and capex as it's stated today.

That's very helpful. Thank you for taking my questions.

Increment at this time there are no further questions I would like to turn the call over to Matt <unk> for closing remarks.

This concludes our third 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.

Patients team. Thank you very much for joining US operator, you may now in the call.

This concludes today's conference you may now disconnect.

[music].

Yeah.

[music].

[music].

[music].

Good day My name is Lisa and I will be your conference operator today.

At this time I would like to welcome everyone to the Technip FMC third quarter 2021 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a.

A question and answer session.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If you would like to withdraw your question press the pound key.

I would now like to turn the call over to Mr. Matt <unk>. Please go ahead Sir.

Thank you Lisa good.

And good afternoon, and welcome to Technip Fmc's third quarter 2021 earnings conference call.

Our news release and financial statements issued yesterday can be found on our website I'd.

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 X.

Good morning, <unk> beliefs, and assumptions regarding future developments and business conditions. They.

Our 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.

<unk> 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 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.

Obligation to publicly update or revise any of our forward looking statements. After the date. They are made whether as a result of new information future events or otherwise.

I will now turn the call over to Doug pretty hurt Technip, FMC is chairman and Chief Executive Officer.

Thank you Matt good morning.

And good afternoon.

You all for participating in today's call.

Joining me today is ultimately our chief financial Officer.

Results in the quarter reflect continued strength in operational performance and further support our confidence in achieving full year financial.

Guidance.

Total company revenue in the period was $1 $6 billion.

Total company adjusted EBITDA was 141 million with an adjusted EBIT margin of eight 9%.

Total company inbound orders in the quarter.

There were one $3 billion.

Subsea inbound orders were $1 1 billion, bringing the year to date segment total to $3.9 billion.

The strength of our inbound in the quarter was driven by direct awards subsea services and alliance.

Partners and several long term vessel charters.

Additionally, our subsea opportunity list expanded for the fourth consecutive quarter and now shows project opportunities totaling 19 billion for potential award over the next 24 months.

When assuming the midpoint of the project ranges.

Inbound orders for surface technologies were $250 million in the third quarter.

It is important to note that we expect a significant increase in order activity in the fourth quarter as we.

To page several multiyear awards will be made in the middle East.

Subsea inbound growth in 2021 partly reflects the momentum we are seeing in Brazil.

This has always been an important region for Technip FMC.

We have been present.

And in the country for over five decades, with a well established supply chain and over 98% local content contributing significantly to our success.

Additionally, an important part of our global research and development is carried out at our technology Center in Rio.

Antigen arrow.

This year, our Brazil teams have achieved several impressive milestones.

We received two contract awards from Petrobras the.

First for the Marlin <unk> fields, where we will provide subsea manifolds utilized I think utilizing our second.

Oh degeneration, all electric robotic valve controller.

And the second award to supply equipment and services for the Buzzi O six through nine fields, extending our backlog well beyond the first scheduled delivery in 2023.

Karun.

Second G awarded us with our first IH PCI project in Brazil.

Another significant step in the global adoption of our integrated model.

And we delivered our 700 tree manufactured in country.

Reflecting our leadership position that has been built upon our long history.

<unk> of innovation and strong project execution.

During the quarter. We also signed three long term vessel charter contracts with Petrobras.

These awards will serve the Brazilian market for the next three plus years.

The first two charters where for pipe lay support.

Support vessels owned and operated through our joint venture with the oft subsea.

The third was for our wholly owned vessel that provides us with the ability to install flexible pipe in any water depths up to 3000 meters and one that has consistently been awarded the clients' highest rating for.

Our operational performance quality of work and health safety and environment.

These awards also serve as a leading indicator of the strong demand for the flexible pipe market in Brazil.

Yeah.

For decades flexible pipe has been the preferred solution in Brazil.

Pipes versatility has allowed the technology to evolve with the industry adapting from shallow water to deep and ultra deepwater.

Technip FMC has been a pioneer in flexible since the early 19 seventies.

We are constantly improving quality and reliability and increase.

Jill Lee harsh environments.

And our assumed facility as a showcase for advanced manufacturing automation.

More than 11000 kilometers have been installed across the region.

More than half of which was supplied by Technip FMC and we remain the market leader today.

Creasing high concentrations of C O two in pre salt fields as opposed to industry challenges for some applications of flexible pipe, particularly pre salt gas injection risers.

Leading to a reduction in flexible volumes since the market peak in 2017.

Outside.

Net of these limited applications, the low <unk> flexible market in Brazil remains robust.

Supported by recent industry Awards, and tendering activity, which we believe will result in annualized volumes over the next three years.

That are more than double the current levels.

<unk> signed 2018 to.

To address the high Cotwo industry Challenge, we created a strategic alliance and made a minority investment in Magna global.

Leader in advanced composite technologies.

With the ongoing success of this technology Alliance, we were pleased to announce.

We acquired the remaining interest in Magna and we are excited to welcome them to the Technip FMC family.

By combining their proprietary technology with our flexible pipe.

We are advancing the development of our hybrid flexible pipe solution for use in the Brazilian pre salt fields.

Our long history in Brazil, our research capabilities, our investment in disruptive technologies, our leadership and flexible our high performing fleet and most notably the women and men that continue to drive our success.

Positions us well in what is expected to be.

The strongest subsea market this decade.

We have previously outlined our focus areas of wind wave hydrogen and carbon transportation and storage.

We are making real progress in all of these areas.

Additionally, we believe that composite.

CIT technologies for magma will be a critical enabler to the new energy transportation system.

We were also pleased to announce a long term strategic alliance with Talos energy to develop and deliver solutions for carbon capture and storage or Ccs.

<unk>. This is an important step for both companies combining telesis offshore operational strength and subsurface experience with our long history in subsea engineering system integration and automation and control.

The Alliance will initially focus on the U S Gulf Coast, which.

Major source of Cotwo emissions with a heavy concentration of refineries liquefied natural gas plants and emerging blue hydrogen facilities.

The alliance provides a platform to address this growing market need and we look forward to working with <unk> and the conversion.

<unk> of these identified opportunities.

This type of collaboration innovation and integration will position technip FMC to be a leading provider and carbon transportation and storage.

I will now turn the call over to al to discuss.

<unk> our financial results.

Thank you Doug.

We had another solid quarter led by total company inbound orders of $1 4 billion.

Revenue in the quarter was $1 6 billion with adjusted EBITDA of $141 million.

Total company backlog.

7 billion at the end of the period.

Backlog for subsea stands at $6 7 billion of which just over $5 7 billion is scheduled for execution beyond 2021 we.

We ended the quarter with cash and cash equivalents of 1 billion and net debt of $1 2 billion.

During the quarter, we recognized charges and credits that netted to an expense of 16 million and included the following items.

Expenses totaling $44 million related to impairment restructuring and other charges primarily related to a 37 million noncash impairment.

Two our initial investment in my my global.

These items were partially offset by income of $29 million on our equity ownership in Technip energies, which primarily relates to the favorable change in market value during the period.

Loss from continuing operations was.

Nine cents per diluted share in the quarter.

When excluding the impact of charges and credits that netted to an after tax expense of three cents per share. The adjusted loss from continued continuing operations per share was six cents.

The adjusted loss from continuing operations also included the following items.

<unk> loss on an early extent extinguishment of debt of 60 million and a foreign exchange loss of $6 million.

Now, let me turn to the segment results I will focus on our sequential performance comparing the third quarter to our second quarter results in subsea revenue.

Two 3 billion decreased 6% driven by lower activity in the North Sea and Asia.

Adjusted EBITDA was $141 million with an adjusted EBITDA margin of 11, 2% a sequential increase of 10 basis points. Despite the revenue decline.

One on orders were $1 1 billion in the period, demonstrating our continued commercial success.

In surface technologies third quarter revenue of $267 million decreased 3% from the second quarter revenue decreased primarily due to the timing of large multiyear International awards.

It's partially offset by increased revenue in North America.

The continued growth in North America was driven by higher drilling and completion activity.

Adjusted EBITDA was $28 million adjusted EBITDA margin was 10, 6% a decrease of 40 basis points from the second quarter driven.

Embodied by low lower segment revenue.

Inbound orders for the quarter were $250 million.

Turning to corporate and other items in the period corporate expense was 29 million, we incurred a 6 million loss on foreign exchange net interest expense was 39 million.

And lastly, Texas tax expense, which came in at $12 million for the quarter.

Cash from continuing operations was $136 million with capital expenditures totaling 47 million.

This resulted in free cash flow of $89 million in the third quarter.

Free cash.

Loss from continuing operations for the first nine months of the year was $100 million and we are on track to meet our full year free cash flow guidance of $120 million to $220 million.

Cash flow in the quarter benefited from solid working capital inflows, which was in line with the commentary we provided on our second quarter earnings.

Cash flow capital expenditures are anticipated to increase from the third quarter level, largely driven by previously announced project awards in subsea.

We continue to see the potential for full year expenditures to come in below our guidance of approximately $250 million.

In the third quarter, we may.

Made significant progress in the monetization of our remaining stake in Technip energies.

Announcing sales totaling 34 million shares of Technip energies in multiple transactions.

We received proceeds of $326 million in the quarter from a portion of the sales with the remaining sale transaction scheduled for settlement before.

For the end of October for proceeds of approximately $115 million.

Upon completion of these sales we will have reduced our ownership in technip energies by 75% and will retain at 12% stake, which is currently valued at more than $350 million.

There is no lockup.

Associated with our remaining position.

During the quarter, we purchased $164 million of our six 5% senior notes due 2026, the highest coupon depth within our capital structure through a tender offer.

With regard to investment activity, we acquired the remaining 40.

Percent of shares in T O our joint venture with island offshore.

$49 million during the quarter.

This transaction brings to the company additional subsea expertise that will enhance our life of field services capabilities and provide a complete range of wealth services to our clients globally.

And as Doug mentioned in his remarks, we also acquired the remaining shares of Magna Global in early October for $64 million. As a reminder, we entered into a collaboration agreement with Magna in 2018, which included the purchase of a 25% ownership stake.

As a result of the acquisition we recorded.

Recorded a noncash impairment in the third quarter to our initial magma investment, reflecting the purchase price paid for the remaining stake.

The cash consideration will be paid to shareholders on dogma in three installments.

Let me close by highlighting a few takeaways from the quarter.

We delivered solid operational performance in the period with total company adjusted EBITDA of 141 million and free cash flow from continuing operations of $89 million.

Given these results we are confident that we will meet our financial guidance for 2020 one.

Additionally, the free cash flow generation of our.

And ongoing monetization of our ownership stake in Technip energies are supporting several important objectives first that we improve our capital structure, which we demonstrated during the quarter with a $400 million reduction of net debt as well as $185 million reduction of short and long term debt.

And second that we maintain the flexibility to invest in our future, which we have also demonstrated with strategic investments in tears and magma.

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

Thank you Alf before we move to Q&A I want to close with a few remarks.

Our third quarter results reflect a continuation of the strong operational performance that we demonstrated over the first half of the year as al stated.

We remain very confident in achieving our full year financial guidance.

Subsea orders have nearly matched the 4 billion inbound.

All of 2020.

We remain on track to achieve solid double digit growth.

And the acquisition of magma and our strategic Alliance with Telos service tangible progress in further demonstrate the impactful role we will play in the energy transition.

Finally I.

I would like to remind everyone that on Tuesday November 16th we will host our analyst day.

During the event, we will demonstrate how we are leveraging and extending our core competencies of innovation integration and collaboration to develop both new and novel Energy resources.

Offshore.

We will provide updates on how we are using new commercial models and new technologies to further improve project economics and reduced carbon intensity in our conventional business. While also transforming the way we fundamentally operate today.

We will also have real examples on display to show you all Technip FMC continues to drive change in the energy industry.

And we hope to see you all there.

Operator, you May now open the line for questions.

At this time I would like to remind everyone. If you would like to ask a question.

Please press Star then the number one on your telephone keypad, well pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Jairam with J P. Morgan Chase.

Yeah good morning.

My first question is for Al I.

Wanted to talk a little bit about the balance sheet improvement you talked about $185 million of debt reduction.

And I just wanted to get your thoughts on how your leading edge conversations are going with the rating agencies and is it reasonable to assume that you could be in line for an upgrade.

Question I D status in the next year or so.

Sure. Thank you for the question Yeah. So first of all.

It remains one of our primary objectives of course to continue our deleveraging as we have stated in previous calls we were successful in reducing our net debt by 400 million from one.

Tests to 1.2 in the quarter.

We have continued to realize a RTP finishes shares and we have started our debt reduction process with a debt tender offer this this quarter, which netted about $164 million in debt reduction.

In terms of looking ahead at at the rating agency question that you.

You just raised a little bit more complicated to give a straight answer on how fast we can move on that we are first and foremost are really dedicated to our debt reduction and I'm going to let that play out and as these metrics the debt and the leverage metrics improve we clearly expect it.

To get into a range.

Where it's possible to get back to investment grade now exact timing of that.

I'm not going to go out and say that I'm that I have an exact timing, but it's not going to happen lets say in the short term at least in the near term. So it will be something that is more on an intermediate term basis.

Great and then just my follow up Doug what type of visibility are you seeing in subsea orders into 2023, just given the improvement.

And the outlook for commodity prices and then just maybe on the on the analyst day. It sounds like we're going to get to see a lot of it sounds like it's gonna be a relatively meager.

Media update can you maybe highlight on the financial side and anything we can look forward to in terms of the longer term outlook comments for you guys and our next month.

Sure. Good morning, Arun, let's start with the analyst day question first indeed, youre going to see some longer term projections that I think.

He quite quite inspiring for many people. So I will leave it at that we have more we'll have more to say here in just a few weeks at analyst day, but yes, you should expect some additional longer term outlook as we really begin to see the full leverage and potential of this pure play company.

Let me.

It will be to your second question or the first question you had for me which was around.

The outlook around inbound orders for subsea.

Let me break it down.

You said two to 2023, that's a bit further than we've.

Provided any sort of guidance or any sort of commentary.

But in fairness, we are getting close to 2022. So let me give you kind of my best outlook as we see things stacking up.

First and foremost our front end engineering activity continues to ramp up.

We have exceeded the level that we anticipated for this year.

The pivot and what's really interesting about what's going on is all of those proprietary projects that we're working on.

Again, we had another solid quarter inbound in Q3.

Certainly when you compare it to the rest of the market.

And the question is how can we do that and again it comes back to.

Two the direct awards that we receive by being the only company that has a fully integrated offering as well as the strength of our alliance partners. So just to give you. An example of that and those front end engineering studies that we're currently performing approximately two thirds of those are integrated projects of which 75%.

Our direct awarded to our company they'll never go out into the competitive marketplace.

So it gives you an idea of kind of the pipeline that we're building up.

If I try to translate that into some numbers that you might anticipate.

Looking at fourth quarter as we indicated we expect to be in line with consensus we commented on that last.

That will be border.

We don't change our view in any way on that and that would deliver solid double digit growth 2021 versus 'twenty 'twenty again, a fairly substantial feat coming out of 2020.

If you look a bit further beyond that it gets.

A little more opaque Arun as you can expect at this time, but things are stacking up relatively nicely. We do have that proprietary pipeline that's unique to our company. So if you'll allow me to look at it from a five quarter perspective in meaning give me Q4, plus 2022 because some of the orders.

Last Q4 may slide into 2022, or some orders that we anticipate currently early in the first quarter may be pulled into the fourth quarter that just comes down to our client's budgetary considerations.

At the end of the year. So if I look at those five quarters of room.

We could see we could very well see.

In Q subsea inbound orders approaching $7 billion.

That's great color. Thanks, a lot.

Yeah.

Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. We ask that you. Please limit your questions to one plus one follow up.

Your next question comes from.

Our car side with ATB capital markets.

Thank you for taking my question.

Could you maybe talk about some supply.

Supply chain.

Disruptions, if they had any impact on the quarter or in the coming quarters.

Your line stuff aside and subsea side, and then Doug you talked about some of the competitive landscape and how you're positioned on the surface side and on the subsea side, but could you talk about on the surface side, what's the competitive landscape is and what the pricing dynamics, maybe in that segment of the market.

Sure. Thank you recall.

Again, I'll start with the second one first so you know surface our surface business is very different as we have pointed out many times between surface international surface Americas surface International is a much larger business for us and surface Americas and it's.

So it's a market in which we are the industry leader it is driven by technology. It's.

It's driven by projects.

And we have a very unique vertically integrated supply chain.

So and we're going to talk more about that at analyst day as a matter of fact, we're going to show you a demonstration between.

Quinn, our surface international tree system versus a surface America's tree system.

It will help everybody understand what we've been talking about and how different they are I've often said, it's about a 10 times difference.

So that's our Si business, our surface international business.

We are really.

And positions, particularly in the middle East as well as North Africa I mentioned in my prepared remarks, we're anticipating a really strong fourth quarter inbound orders for surface international mainly being driven by the middle East are two or three countries in the middle East and we couldnt be more excited about that.

Surface.

Strong is very different surface America's theres lots of lots and lots of competition.

And we're not the market leader.

We have a strong team and a strong reputation and we have some very important clients tends to be the larger clients that we work for.

And we have a we're real proud.

Some area that we perform.

It is more of a commoditized product market, which is not necessarily where we are we're really differentiate as a technology company.

In terms of pricing.

In both markets, we continue to see additional volumes coming through in additional volumes come through.

The work tends to translate into pricing, but let me leverage or let me transition from the pricing question into the supply chain question. So when you look at our business, we're mainly a mid cycle to long cycle type business. It's why we have such a substantial backlog, which is very favorable, particularly having gone.

Gone through with the industry and our company went through in 2020, we benefited by the strength of that backlog and have now come out even stronger and just got done talking about the potential inbound opportunities, which I think are quite eye opening hopefully for everybody on the call for our subsea business. So when we.

Through that and we think about the pricing and surface in particular are in in terms of the cycle of the business. When you have a short cycle business and there's inflationary pressures and look where we're all experiencing inflationary pressures we're experiencing it in our personal lives as well as our professional lives.

So its very real now.

I'm very proud of the work that our supply chain team has done.

We've done really unique things to be able to offset a significant amount of the impact from the inflation. That's why we don't call. It out we manage around it if you will but it's there. It's absolutely there are of course, so when you're in a short cycle business, where you don't have the.

The ability to really lock in a predetermined amounts of materials et cetera, and you're responding to the market. There is greater inflation. So there we would expect and we manage the business so that our pricing offsets that inflationary pressures so in surface Americas search.

Certainly pricing is a major discussion with our clients and something that we will continue to do to offset the.

The inflationary pressure in that short cycle business again in the longer cycle businesses, we have.

Much better control of the inflation because of the uniqueness of our supply chain the intimate partnerships.

<unk> that we not only have with our clients, but also with our suppliers. We've helped many of them go through the 2020 period, we'd become stronger as a result of that in terms of the relationship between our companies and they're giving us the benefit of that as we move into an inflationary environment. So there's many different aspects of it.

Involved, but we have a much better chance and opportunity to manage that inflation in the longer cycle businesses than in the shorter cycle businesses, where yes, you have to rely on pricing.

Thank you very much.

Your next question comes from the line of David Anderson with Barclays.

Hey, good morning.

That $7 billion number on orders that you just put out there was that a subsea number or was that a total order number.

Subsea Wow.

And then on that subsea side can you just talk a little bit about how much of that you think is Brazil, it's kind of one area. We're starting to see a lot out of you.

You've noted.

A couple of awards recently can you, maybe just talk about that market and kind of.

How do you see kind of Petrobras is getting back to kind of maybe where they were before do you see obviously, they're a big chunk of offshore rigs at one time and kind of how they are coming back can you just kind of talk a little bit about some of the.

Some of the dynamics that are going down there and how you see the order book there I'm just.

Kind of curious how much of that.

It could be a Brazilian a number.

Sure. So let me expand a just slightly David in say South America right. So South America is by far the most important market for our subsea business. This decade.

But it's not just breeze.

Brazil.

Forget Guiana Hunter is usually important to us.

We're deeply grateful for the relationship that we have with Exxonmobil in house in the country and the ability that we've been able to supply all of the subsea equipment in Brazil to date and continue to.

To drive our project performance and hopefully future awards.

In Guyana, So liana is very important we know that Suriname and other areas are beginning to develop later in the decade I would say towards the end of the decade, we would anticipate Mexico as well as being potentially a very important country in South America.

<unk> in terms of subsea business now.

Now turning to Brazil, clearly the largest as bill pointed out in my prepared remarks, we've been there for five decades, we have 98% local content.

We have more capabilities in Brazil than we have in any other country in terms of manufacturing the fleet.

R&D people.

So forth and so on and just a long rich history.

We manufactured seven we reached the manufacturing.

Of our 700 tree in Brazil, I believe that as more than more or less in a more more of the.

All the rest combined.

So it's a very very significant market for us we're very very proud we feel very privileged.

Have a great relationship and a very long relationship with Petrobras, we've done a lot of new technology development with Petrobras, we talked about a robotic valve controlled manifold. I mean this is this is amazing.

In technology, we're already on our second generation of this technology in Brazil, and it really feeds our all electric ambitions around the world. So a very important partnership where well established partnership and yes, Brazil will play a major role both in the 2020.

2022, inbound, but I would expect.

To play a major role beyond that as well.

And Doug in your prepared remarks, you were.

Looking about the surface orders kind of coming up here you said, there's a couple of big tenders that are coming up on a couple of big contracts, sorry can you expand a little bit about that I believe you're talking about the surface side in the middle East could a little more color on there'll be much appreciate it. Thanks.

Sure David and yes, thanks for clarifying I'm gonna be yes. It did as we were talking to.

The significant increase in Q4 orders was in reference to surface technologies.

Specifically in the Middle East.

And more specifically from.

In Abu Dhabi for Mad Dog, and in Saudi Arabia from Saudi Aramco.

Okay.

Great. Thank you very much.

Your next question comes from the line of Ian Macpherson with Piper Sandler.

Thanks, Good morning, Doug.

Okay.

Good morning.

Hi, I was curious if you we've seen that your pipe.

In slide has has expanded over the past couple of quarters with a couple of <unk>.

Major project well.

Two very large and one in.

And several medium sized projects being added to the visible pipeline.

Would we be crazy to extrapolate.

A trend.

<unk> and expect.

More accretion in that opportunity to come into your view as you update that over the next couple of quarters would that be.

As you expect or do you think that maybe we've seen some bottled up projects come back into focus and maybe that's more of a one off.

From then on.

Ian Thank you that's a very interesting question.

First of all four quarters doesn't make a trend although I would caution not just to extrapolate and I'll explain why here in just a second.

Prior to explaining that.

Phenomena on the latter part of the question.

No when I look at this opportunity list look Theres a couple let's be candid that had been on this list for quite some time.

Have not yet moved to project F E.

The vast majority of that are on this list are relatively new if you will within.

Comment in the recent quarters, so I wouldn't think of it as a I don't know.

I think you said is bottled up kind of projects coming through the pipeline certainly not when I think back to the comment I made and when we look at our front end activity.

Which again is somewhat a reflection of.

The pre opportunity subsea opportunity list right things that may not yet beyond the subsea opportunity list and.

And speaking of things that may not yet beyond the subsea opportunity list I think it's also important to remember for our company all of that integrated direct awards never show up on the subsea opportunity list, obviously, it would be a huge compared.

<unk> disadvantage for me to give.

Give that information freely to to the market.

So again like this quarter when we have $1 1 billion in inbound and not really named specific project.

In our press release, we had the vessels, but the vessel charters, but not necessarily a project I mean that's.

That's a strong foundation that we built but again that comes through these this proprietary set of opportunities that isn't on the subsea opportunity list now all the way back to the beginning of your question and the reason I said I'd just be a little bit cautious.

You've you've seen press releases or you, maybe not press releases, but you've seen.

The news articles and there are certain market intelligent out there around a couple of the <unk> projects that are likely to be <unk>.

In the coming quarters.

Other potentially other projects that.

You may have heard about in the North sea.

So I could see quite a few of these because once they are awarded then we take them off of the subsea opportunity list.

As there are.

Are there other projects to backfill absolutely as I indicated earlier, but I just wouldnt want to leave the impression that one could just extrapolate.

Quarter over quarter.

<unk> quarter of growth, even though we have experienced that for the past four quarters, I'm, just being very conservative and saying if in a particular quarter or two or three or four of these were awarded that could be several billion coming off the list and maybe being replaced by more than several billion, but not necessarily in the same quarter.

Very very.

Quarter over here. Thank you.

For a follow up maybe I don't know who don't necessarily want to completely front run your content for next month, but.

I know you'll talk about <unk>.

Positioning for new energy projects.

Purple and otherwise, but just curious what timeframe you think.

That type of work.

Very material in your subsea backlog is that are we going to start to see the beginnings of that in your orders in 'twenty, two or does maybe the the.

The reawakening, the quickening of conventional subsea oil projects.

Comment at the deferment or the expense of energy transition projects.

Being accelerated.

Sure. Thank you Ian.

For sure you're going to hear much more about that here in a few weeks, but since you asked the question I'll give you something to think about in anticipation of the analyst day.

As we pointed out.

Very much focused on.

Wave hydrogen and carbon transportation and storage by the way potentially some other offshore energy sources are not named in those four as well.

But just sticking to those four as we've said we want we believe our role is to be the enabler, we wanted to advance and accelerate.

Celebrate the energy transition.

As a system integrator, which is deep in the DNA of our company. That's what we do we integrate various technologies we create deal.

The architect who brings together all of those elements and creates a very unique.

System, where we're somewhat agnostic to which.

Which of those energy sources.

If you will generate revenue the quickest or even which one generates the most revenue for our company. We just want to help the world and help the industry drive the energy transition by bringing 70% of the surface area of the.

Of the globe.

I'm, making it available to them I E offshore that's our domain. That's what we know that's what we know very very well and because of that more and more companies are coming to us and you see us announcing one to three of these per quarter.

Announcing new.

Investments that we've made new relationships that we form.

In this particular area. So let me just talk about one in particular, which is.

Carbon capture and storage so we couldnt be more proud of the announcement, we made just within the last few days of an alliance that we formed with Telos energy for doing carbon capture and storage in the Gulf of Mexico as indicated.

In my prepared remarks, there's a significant amount of activity around the Gulf coast region that would benefit from carbon capture and storage and as a way to really advance.

The objectives that we share.

And much of the world chairs and really driving down greenhouse gas emissions. So in that particular.

Our area again, having announced the alliance.

It is possible that in 2022 already we could begin to see.

Potential award of projects are moving forward in the area of carbon capture and storage.

That's great. Thanks, I'll look forward to hearing more in a few weeks. Thanks for the perspective this morning.

Once again, if he would like to ask a question. Please press Star then the number one on your telephone keypad.

Question comes from that.

Not with Coker Palmer.

Hey, good morning, and thank you for taking my question.

It does.

Just to try to put in context of that 7 billion Awards potential awards over the next 12 months.

Is that is it fair to think that's could be around one times book to Bill.

And I at least in the ballpark when I say that.

Yeah.

So let me clarify just one thing it was just over the next five quarters. So that would be over the next 15 months right. What I was saying was it's hard to pinpoint exactly Q4 versus Q1, because some things will move back and forth. So I said based on five quarters or 15 months, we see we see a lot you know at this time and look at.

It will change and we'll provide an update as we have more visibility, but we have a line of sight right now to up to $7 billion of orders in the next five quarters or the next 15 months.

Certainly if you do the math behind that and make an assumption for Q4, you're looking at a book to bill above one dot O for sure.

2022 which is exciting and certainly speaks volumes for where we are as a company and our position in this industry.

Got it.

And as we think about the avenues, improving next year and over the next few years.

How should we think about Capex is like this do 50 million Capex is good enough Oh like a starting point.

Do we need to think about it the revenues increase the capex ultimately to inquiries.

Yeah.

Yeah, Let me just start by reiterating our philosophy.

Right. So our philosophy is to focus on through cycle returns. We've done some very unique things I believe you've seen us really let's say do things differently from the past in terms of how we manage and operate the assets of our company, we have actually reduced the size of our fleet while growing the company.

And we do.

Through forming very important relationships and being a company that works well with others.

And we can do that through our alliances for example, like we have an alliance with all CS.

And we now work with them and look for opportunities together with them.

Do that feeding both companies, but also benefiting the broader the broader industry. So a real discipline, if you will and I'm going to turn it over to <unk> to give a bit more insight into kind of what you should be thinking about in terms of the actual capex numbers.

Yes, thank you dug in with the background of what Doug said.

This.

Ben It is not expected to grow relative to revenue. So you can if you look at the ratio that we're at right now it will certainly not be expected to grow over that ratio for any extended periods of times if.

If you also further look at our business and what Doug was saying more and more as we grow further in revenue and then.

With the support of third party alliances, we we believe that the capex incremental capex can actually be at the lower level for some of our core business. You also look at some of the other things we're doing in our business. We are investing in our subsea two point, though product technology, it's driving more standardization and also allows us for four actually investing in less increments.

Danville Capex per manufacturing unit. If you will so there are a couple of drivers that can be helpful. For the long term, but right now if you want to stay you know what it is.

A relative ratio I think you should be fairly safe instead of staying at that relative ratio between revenue and capex as it's stated today.

That's very helpful. Thank you for taking my questions.

At this time there are no further questions I would like to turn the call over to Matt sign timer for closing remarks.

Incrementation team. Thank you very much for joining US operator, you may now end the call.

This concludes today's conference you may now disconnect.