Q3 2022 TechnipFMC PLC Earnings Call

October 27, 2022

Yeah.

Thank you for holding and welcome everyone to the technique F. M. C third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time.

Please press star followed by the number one on your telephone keypad. If you like to withdraw your question again press the star one thank.

Thank you I would now like to turn the call over to Matt <unk>.

Senior Vice President of Investor Relations and corporate development. Mr. <unk>. Please go ahead.

Thank you Jack good morning, and good afternoon, and welcome to Technip Fmc's third quarter 2022 earnings Conference call.

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

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.

We wish to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof, we undertake.

No obligation to publicly update or revise any of our forward looking statements. After the date. They are made whether as a result of new information future events or otherwise.

I will now turn the call over to Doug Friday, Harte, Technip, FMC as chair and Chief Executive Officer.

Thank you Matt.

Good morning, and good afternoon.

Thank you for participating in our third quarter earnings call.

Total company revenue in the period was $1 7 billion.

Revenue was in line with the second quarter and our outlook.

A solid achievement given the foreign exchange headwind experienced during the period.

Total company adjusted EBITDA was $200 million with a margin of 11 five.

This excludes a foreign exchange loss.

Both subsea and surface technologies achieved sequential improvement in adjusted EBITDA margin in the quarter.

Total company inbound orders were $1 9 billion.

Subsea inbound was one 4 billion with year to date orders now totaling $5 2 billion exceeding the level achieved in all of last year.

Project Awards inbound in the period included Toto Energy's LABA northeast development offshore, Brazil, where.

Where we will install and <unk> and flexible pipe and a new configuration to further secure the production of the field.

This award highlights the diversity of work scope and customer opportunity in the region.

We also received a contract from shell for the Jack Dol development the <unk>.

Project will use our pipe in pipe technology for the tie back from the new <unk> platform to shell's existing shearwater hub supplying much needed gas to the region.

Additionally, we received an award for the Exxon Mobil gas to energy project in Guyana.

Which will be included in future inbound once the project receives RFID and government approvals.

This project will enable Guiana to shift a portion of its power generation to cleaner natural gas source from nearby offshore fields.

Beyond our announced awards inbound orders in the quarter reflected strong tie back activity in the Gulf of Mexico, The North Sea and West Africa.

During the quarter, we also renewed our technology alliance with Halliburton, where we have demonstrated strong collaboration since the creation of Technip FMC in 2017.

The alliance accelerates the development and commercialization of new technologies that deliver integrated production solutions that span subsea and subsurface applications.

An example of this is a digital technology Odyssey.

Odyssey subsea fiber optic solution.

Which we first introduced in 2020 and has already been deployed in key subsea developments.

The alliance continues to develop innovative and disruptive technologies that can be used in all electric subsea field development, subsea well intervention and carbon capture and storage.

Now looking ahead.

We are confident that offshore will provide significant volumes of oil and gas with attractive returns that in many cases are amongst the most compelling opportunities available to our customers.

Project Economics have improved driven by lower cost and accelerated time to first oil providing solid support for continued development activity.

This is supported by the fact that approximately 90% of estimated subsea capital expenditures through 2025 are based on break evens of less than $40 a barrel.

Our subsea opportunity list remains at a record level.

This strong project pipeline and the active dialogue with our large and expanding customer base.

Give us continued confidence that our full year subsea orders will be up as much as 40% versus the prior year.

With orders approaching $7 billion in 2022.

And if we extend the outlook into 2023.

We believe orders over the next five quarters.

We'll be at least $9 billion.

Moving to surface technologies inbound was strong at $449 million, representing a book to bill of one four.

Importantly, inbound activity in the period benefited from the acceleration of orders from Aramco Cigna.

A significant portion of which will result in revenue in future periods.

The resulting growth in backlog also provides us with increased visibility for continued growth in our international revenue in 2023.

Investment in oil and gas resources will continue and we are confident that offshore and subsea will be critical enablers for the energy transition.

Opportunities in greenhouse gas removal hydrogen and floating offshore renewables, including wind wave and tidal energy.

Our accelerating.

We have made several announcements regarding strategic agreements and partnerships and we have already achieved notable commercial wins.

We have secured two title energy contracts in the UK through our partnership with orbital Marine power.

The multi turbine projects will be capable of delivering seven two megawatts a predictable title energy <unk>.

Positioning us as the leader in floating title energy.

And we have signed the option to lease agreement for the Scott wind and three area through our partnership May ignore offshore wind.

The project scope will include the installation of 33 floating wind turbines, which when combined can provide enough energy to power more than 600000 homes in the United Kingdom.

Our growing presence in commercial wins in these particular offshore renewable markets are creating new opportunities across an expanding list of potential partners and geographies.

We are confident that as the energy transition accelerates so too will the opportunity set for our company.

In summary.

We remain focused on meeting our commitments in 2022.

And looking beyond the current year, we continue to see the potential for strong growth in EBITDA.

Cash flow and returns as evidenced by our stated objective to achieve more than $1 billion of subsea EBITDA by 2025.

Further demonstrating our confidence in this outlook, we announced a new 400 million share buyback program in July , which we quickly put into action with the repurchase of $50 million of our shares in the quarter.

We have also reaffirmed our commitment to a dividend, which we intend to initiate in the second half of 2023.

This outlook is enabled by the fundamental changes we have made to our company and the continued strength in the markets we serve.

The next leg of growth in oil and gas will be fueled by offshore in the middle East.

The bold steps, we took five years ago to create Technip FMC have resulted in a pure play technology company that is uniquely levered to both of these markets.

Our portfolio of innovative products solutions and disruptive commercial models has further strengthened our leadership position.

And we are now taking full advantage of the market growth that lies ahead.

I will now turn the call over to al.

Okay.

Thanks, Doug.

Total company inbound orders were $1 9 billion in the quarter.

With subsea inbound of $1 4 billion and surface technologies of $449 million total company backlog decreased 2% sequentially to eight 8 billion due to a foreign exchange impact of just over $300 million in the period.

Revenue in the quarter was $1 7 billion adjusted.

Adjusted EBITDA was $200 million when excluding a foreign exchange loss of $14 5 million.

Third quarter income from continuing operations was 5 million, which included after tax charges and credits been netted to an expense of $8 million.

When excluding the impact of charges and credits are adjusted income from continuing operations was $13 million or <unk> three per share.

Now turning to segment results in subsea revenue of $1 4 billion benefited from higher project installation activity in Brazil, and Guyana, which was offset by the negative impact of foreign exchange.

Adjusted EBITA was $184 million, an increase of 4% sequentially.

<unk> benefited from improved margins in backlog and increased installation activity.

Adjusted EBITDA margin was 13% up 60 basis points versus the second quarter.

In surface technologies revenue was $380 million up 5% from the second quarter.

We experienced revenue growth globally with particular strength in the middle East adjusted EBITDA was 41 million or 26% increase sequentially. The increase was.

Was primarily due to higher international activity, including the progressive ramp up in middle East volume and timing of associated costs adjust.

Adjusted EBITDA margin was 12, 8% up 210 basis points versus the second quarter.

Turning to corporate and other items in the period corporate expense was $25 million net interest expense was $31 million and tax expense was $43 million.

Cash flow from continuing operations was $212 million capital expenditures were $31 million. This resulted in free cash flow of $181 million in the third quarter.

We ended the quarter with cash and cash equivalents of $712 million.

That was $655 million, which was a reduction of $135 million from the second quarter.

In July we announced our intention to begin shareholder distributions with an authorization to repurchase up to $400 million of our common stock, which at the time represented 14% of the company's outstanding shares.

In the third quarter, we repurchased five 8 million shares amounting to $50 million.

We remain committed to returning cash to shareholders and we believe that our shares represent attractive.

Value.

Moving to our guidance for full year 2022, we continue to expect subsea revenue and adjusted EBITDA margin to be at the midpoint of the guidance range.

In surface technologies, we now expect full year revenue to be at the midpoint of the guidance range with adjusted EBITDA margin at the low end of the range.

Moving to corporate expense, we expect full year expense to be at the midpoint of the range.

Taken together 2022 full year EBITDA is expected to be between 650 and $670 million.

I want to reiterate that adjusted EBITDA guidance does not include the impact of foreign exchange.

Beyond our operating segments in corporate expense all other guidance items remain within their respective ranges with the exception of capital expenditures, we have reduced our guidance for capital expenditures by $50 million to approximately $180 million for the full year primarily.

Driven by timing of vessel re certifications.

Now looking to 2023, we are increasing our view of total company EBITDA to around $825 million.

And we will give our complete full year 2023 guidance in February .

Additionally, we foresee a material improvement in free cash flow in 2023 with our current expectation that we will convert approximately 35% of EBITDA to free cash flow.

In closing I will share with you my key takeaways from the quarter.

First free cash flow generation improved as expected in the period totaling $181 million.

Second we repurchased $50 million of stock taking advantage of the recent buyback authorization to repurchase our shares at an attractive valuation.

And third we remain focused on improving our financial returns based on the outlook. We have provided today, we see the potential for a 25% increase in EBITDA in 2023, when compared to the midpoint of our updated guidance for the current year.

Operator, you May now open the line for questions.

Certainly.

As a reminder, if you'd like to ask a question. Please press star one.

Dave Anderson with Barclays. Your line is open.

Hey, good morning, Doug So at your Analyst day last year, you laid out a number of medium term targets, including margins for 2025 lots.

A lot of change last year. So I guess my question is have the assumptions around those targets also changed in terms of say expected volumes and pricing. Maybe this is already in those targets, but I'm. Just wondering if maybe we should now be thinking something higher than the <unk>.

15% EBITDA margins in subsea by 2025.

Good morning, Dave. Thank you very much for the question.

Indeed, the assumptions have evolved in a very favorable way since what is now almost one year ago.

Our analyst day in November of 2021 at that point, there were a few things obviously the commodity price, but also.

The focus on energy security and the need to accelerate the development of energy sources, all energy sources.

But.

In the immediate term and Thats, what were really seeing in the marketplace today.

With that indeed, there is a pricing element that then evolves as a result of that so.

Sure.

When we gave the 15% guidance at the time, we were at 10, 5% margin for subsea going to 15% margin. We had revenues growing to 7 billion, we had inbound coming in at $8 billion.

As you heard in my prepared remarks, the inbound has certainly accelerated.

Inbound and translates into revenue, which translates into EBITDA.

So it is reasonable to assume that the 15%.

Guidance for 2025 could be achieved earlier and I'll also emphasize it's reasonable to assume that the 15% margin is no way an indication that that is the upper end of our potential for our subsea business.

Right, you, obviously, well above 15% kind of last cycle.

Even just a couple of years ago. So I would imagine you should definitely be able to get higher than that.

Doug kind of a different subject here, but maybe it's a simplification, but it seems like subsea projects are sort of falling into two buckets. These days on the one hand, we have these kind of larger multibillion dollar projects integrate projects with majors on the other hand, we have these smaller.

Let's come $3 43 jobs that are often with an independent.

My question is what's better for <unk>, what would you prefer or would you rather have one large integrated project or would you rather have several smaller ones that make up that same size. I was just wondering if you could maybe compare and contrast, the two and would you expect higher margins than the smaller projects.

Hey, that's a very astute question and one we contemplate often as we're looking at what opportunities, we're going to pursue or for that matter would opportunities we do not pursue.

We.

The size and the scale does matter and you always want to kind of have a balance of the two where you have some larger longer term projects, but obviously benefiting from the supporting knows with this smaller shorter cycle projects as well.

You look at really which transpired over 2022, you can see that those smaller projects are really becoming a significant portion of our inbound.

And historically I would say at almost double the historical rates for that matter and you saw it again this quarter, we only had two announced awards.

Neither of which were very large they were they were not they were large but not very large.

And we posted $1 4 billion of inbound, which tells you that that underlying market for those smaller projects as well as our subsea services business continues to grow and be very robust.

Now the kind of the prioritization that we look at when we're working through opportunities is first of all partner.

We always treat our partners.

With making sure that we have the capacity to be able to serve their needs and as you know we have a significant number of partners from the largest <unk> in the world and many new operators that are emerging in the market today, and making up that that group of smaller orders with 40 plus.

Different operators that we're now working for.

The second one is IEP Ci clearly we believe the way that we can generate the greatest value for our customers is by improving their subsea project economics, the best way to do that is to use it to do it through an integrated project or our IEP Ci.

Model, which typically can save nine to 15 months.

Shorter time or accelerate oil first oil by buy up by approximately one year and that is a material implication obviously to the project economics.

The next is to point out.

To point out for us and for the industry for that matter is quickly becoming the standard so to point, though is what I. When I say 2.0, I know you know, but for everyone on the call. That's the next generation of subsea architecture that is unique to our company that.

We introduced into the marketplace a few years ago. It's now the majority of our orders.

<unk> certainly almost all of what we're doing in terms of our early engineering studies and the market is rapidly moving in the direction of two point.

That allows us to create leverage and move into a configure to order or a CTO model versus an eto model. This is very important for us in terms of ensuring that we're capturing a fair and representative portion of the value economic value that we create so it's really that combination. So when you see us announcing that.

<unk> Oh for a partner well, let's put it this way you shouldn't be surprised to hear us announcing a lot of <unk> for our partners.

Because that opportunity pipeline is very rich for us right now.

Sorry, Doug if I could sneak one more in here you talked about 40 customers earlier. This year I guess the question is when you look out over those next five quarters are those 40 customers ordering again I guess, that's what I'm kind of wondering about is is it just a one I guess theres concerns or is it just a one and done or do you need to keep backfill in this with smart although it is going to be repeat customers I guess, that's the question.

Look most of these.

Have taken on either existing leases or developing new leases and they all have multiyear multipronged project opportunity set.

Thanks, Doug.

Yeah.

Arun.

Jairam with J P. Morgan your line is open.

Yeah, Doug I wanted to start and I was wondering if you could give us your thoughts on perhaps some of the near term and longer term implications of the much needed a consolidation.

That looks to be taking place in the subsea space and thoughts around what this means for FTA.

Yeah.

Sure Arun good morning, Thank you for the question.

Hum.

We.

I had a vision seven years ago.

What the market needed to really make subsea projects, the most attractive economics, and our customers' portfolios, which we believe we've achieved today.

We put that into our initially studied it through a joint venture where we worked on the front end and then we consummated the relationship five years ago create.

Creating the only integrated subsea company so as far as we were as far as we're concerned that is behind us and that's what we're benefiting from and the market is benefiting from and our customers are benefiting from it and that's what and that's what's most important.

In terms of further consolidation in the subsea space, that's really not that's not.

That's something we will be participating in.

But we don't need to because of what we've already created and we talked a minute ago about subsea two <unk> and configure to order that also allows us to double the throughput capacity through our facilities.

And if we're able to double the capacity through our facilities, there's no need to consolidate or buy more of the same theres just no advantage for us to do that if we instead, we invested in the technology and the development of the technology that allowed us to really optimize and double again.

Our capacity and then as you know on the vessel side, we're developing very important relationship.

With companies like <unk> and companies like Saipem that we build a vessel ecosystem, where they can benefit from participating in our integrated projects and we can benefit from having access to their vessels.

As far as other other consolidation I think.

It clearly is a validation that the subsea market is both strong and very durable I think its acknowledgement of the integrated commercial model again that we pioneered and introduced five years ago.

And then finally this these things are what is driving potential market realignment around this new reality.

Great.

And just my follow up.

A few.

Essentially blessed the street EBITDA number for 2023 at a $25 million.

I think so just around that number I didn't want to see if you could give us a little bit more color around the fourth quarter.

The midpoint is slightly below the street, maybe that seasonality is wondering if you could give us some thoughts on any any.

Any impacts in terms of for Q, even though 2023 looks to be bang on where the street's at.

Sure I'll do that.

So first of all.

You are right that we reiterated guidance for subsea at the midpoint and we did indicate that surface would be a little bit lighter on the on the full year guidance for the EBITDA. If you look at subsea first.

A strong quarter for us we had high installation activity and we also had some completion on several key projects that kind of.

Took a little bit of an advantage for us in the quarter.

And when you take that into consideration this.

Timing of project completions as well as some of the seasonal slowdown that is kind of more normal for the sub sea us as we see slow down both in installation services activity, that's kind of what is impacting the subsea business.

So that in summary, that's why full year guidance is still intact, but youll see a little bit of a shift between Q3 and Q4, we have some similar dynamics going on in surface where.

We had a good quarter.

We had.

Strong margin margin performance, but we do have some timing of certain expense that we expected to land in the third quarter and that now is landing in the fourth quarter. So again, that's why full year guidance not a lot of change, but there are some dislocations between Q3 and Q4 as you correctly point out.

Right. Thanks, a lot.

Yeah.

Chase Mulvehill with Bank of America. Your line is open.

Yeah.

Hey, good morning, or afternoon, if you're over in Europe .

Yes.

And a quick follow up on some of the discussion around kind of the unannounced orders obviously it was pretty strong this quarter.

It looks like it was kind of in the $1 billion range.

And then the last time, you kind of hit that was kind of pre COVID-19 and did that in the back half of <unk>.

But I guess, maybe kind of a couple of questions I guess first.

Could you talk about the mix of that kind of $1 billion of orders. This year between kind of the smaller Sps and vessel based and some other stuff I know that you announced the title energy stuff. So I'm not sure how material that was.

And then could you just talk to kind of how sustainable this $1 billion level is about announced orders.

And if that is kind of the new run rate.

If it's not then like how should we think about the run rate of unannounced orders over the next 12 months to 24 months.

Yeah.

Thanks Chase.

Always a little more difficult to forecast the unannounced awards because they are sometimes they come at us in.

Very short.

<unk> timeframe versus obviously, the larger awards that are going through a tender process a.

A bit more visibility many many of the smaller awards are direct awarded to our company.

And some of those are actually customers that we have that have moved to our subsea two <unk> standard that are basically if you will building trees on spec. So that they have those available so that they can benefit from very short cycle.

Tie backs in the period of 12 to 14 months, which is half the time. It has taken historically to do that type of work and they get a huge benefit.

So what I would say is this quarter was probably a bit stronger than I would expect in future quarters, but we had a similar quarter back in Q2. So.

It is definitely moving in that direction and remember it's a combination of the smaller awards, but also the strength of our underlying subsea services business. So.

Certainly it is going to be stronger than in the past, but I would say that this level and maybe maybe a bit elevated to what I would model.

Going forward on a on a more average basis.

Okay perfect.

Unrelated follow up just wanted to kind of talk through some of the FX impacts.

There's obviously a few components here I mean, obviously you point to that to the FX.

And some of the cost here, but the $14 5 million.

Balance sheet translation as I understand it.

Cash.

But theres also a couple of other translation FX impact that I, just kind of want to ask backlog. It looks like there was some negative backlog translation.

And then obviously you've got the EBITDA, which is a function of revenue and cost translation.

Maybe could you just kind of talk.

What the revenue and cost and ultimately EBITDA translation impact was if you have that.

In the quarter and then what.

Rates should we be focused on as we kind of look forward and think about.

Revenue in cost translation.

Yes, no. Thank you for the question on the on this topic. So first of all the $14 5 million, which you correctly characterized.

Sure.

Mostly that is unhedged positions on on cash or asset positions that are denominated in a currency that we cannot really hedge. So that's where the majority of that is there is also an element of some increase in cost of hedging is the volatility in the market and the higher interest rate environment. We're in it's impacting somewhat.

And creating some fluctuation, but then going to your second topical backlog.

Clearly the biggest impact for the quarter.

And this is true for both revenue and backlog when you think about subsea we do have a large portion of our revenue denominated in non us dollar currencies and as the dollar moves in one direction or another.

Does impact our top line as well as our earnings as you point out.

So the backlog impact was 300 million a little.

A little bit north of that and but maybe to quantify the numbers that you might be looking for in the revenue and the earnings I would say that it's around 5% impact. If you look at Q2 to Q3.

Obviously going forward, we are more balanced at the at the.

The.

Current level, but so that's 5% of subsea revenue and an EBITDA basically.

Okay.

Could you close the loop on that and just as we look forward.

What.

Thanks.

Currency should we be focused on when we think about hopefully maybe positive translation over the next 12 months, but who knows.

I'll say this first of all we don't take a view on on where the where the currency is going so it's important so basically we recalibrate our forecast based on where we land with the rates at the quarter end basically so that you can kind of say that that's the that's the jump off point for looking forward what are the rates at the end of this.

<unk>.

Okay. I was just trying to figure out which currencies you are mostly exposed to so we could track that.

Oh, Okay, Oh, well so let me go back then too.

Two subsea again.

The major currencies that we're exposed to.

In Brazil, because we have a large large portfolio in Brazil, and as well as Norwegian kroner, and some pounds, a little bit of euro, but mostly Norwegian kroner in pounds.

Okay perfect. Thanks, Al Thanks, guys I'll turn it back over.

Again, if you'd like to ask a question. Please press star one on your telephone keypad, Kim <unk> with <unk>. Your line is open.

Yes.

Good morning, good morning.

Just maybe.

A quick question regarding the vision that you can act.

Okay.

Do you see as a consequence.

New patients.

If your question with your clients.

And to what extent should we expect.

Keith.

On your Q2 activities over the next quarters.

Given this new piece of fleet decision. Thank you.

Good afternoon Gale.

The real impact it has on our company is on the second portion, which is which you.

Which you mentioned which is the.

Carbon capture sequestration opportunities as you know we've developed an integrated carbon transportation and storage system, we highlighted that back at our analyst day a year ago.

It has been fully qualified and.

Again, I want to emphasize the belief that for carbon in transportation and storage. We can just quote reverse the flow is simply not not the case, it's going to require a very specific set of equipment and in many cases designed to a much different standard than we use.

Use in traditional oil and gas development. So we're there we have it as you know we've we've developed the.

The technology, we built our partnerships, where we're working with <unk> in the Gulf of Mexico, and others and other places around the world.

But in reference to the IRA I'll highlight the relationship with <unk> and the impact it has on the 45 Q regulation.

Which we believe is very favorable and will certainly help accelerate the development of the various projects that we're working on at this time so.

Okay.

Thanks Danny.

Marc Bianchi with Cowen Your line is open.

Hi, Thanks.

I wanted to first ask about the $9 billion of awards over the next five quarters can you.

Tell us how much is <unk>.

Subsea services, how much would be unannounced and how much would be large.

Thanks Mark.

I appreciate the question, we don't really break that down.

We have you have an idea that subsea services typically comes in in that.

One two range, we indicated that we want to grow the inbound of subsea services to $1 5 billion by 2025 going all the way back to Dave's original question as other metrics that we laid out at that time or milestone objectives that to may be achieved earlier than.

<unk> 2025, but you kind of have a range there on the subsea services.

And in terms of the unannounced awards as we talked about earlier.

I think you want to try to find kind of a midpoint between some of these peak quarters like Q2, and Q3, yes Q.

Q2, and Q1 in Q3, Matt.

And.

Kind of versus where we have been historically the historical average I would probably go to the midpoint kind of in between the two of those.

But look let me be very clear the $9 billion, we have a clear line of sight.

I will repeat we have a clear line of sight.

The vast majority of that will be direct awarded to our company. This is the magic and this is what makes us so proud of our company.

Great. Thanks for that Doug and I guess, maybe just related to that as I think about the that order rate was above what we had in our model.

It seems to be above what is reflected in consensus.

However, the guide that you're giving for 'twenty three is essentially in line with consensus is there is that the FX that we were talking about before with Alf is there.

<unk> been there in terms of backlog conversion I, just would've thought that there'd be some upward bias to.

To the outlook, if you've got such strong orders.

So mark I, just want to make sure I am following your questioning.

Im talking about the inbound orders that doesn't really translate.

In the current year that takes some time for it to translate into revenue and EBITDA, but what it shows is obviously.

We've got the backlog coverage already pretty much for 2023. So when you think about it it really sets up 2024 and beyond.

Got it Super and then just one more if I could for Alf on the Capex here.

Any any thoughts on what's embedded in that 35% conversion for 'twenty, three and how we should be thinking about capex longer term.

Sure. So capex, obviously first it's.

This year, we are have experienced a little bit lower run rate than normal. So that's an important statement.

You saw us take down our capex guidance by $50 million from $2 30 to $1 80.

But capex in fourth quarter is still going to be around $85 million.

The vessel certifications that I mentioned in my prepared remarks are taking place in the fourth quarter rather than earlier in the year as we plan these activities around our operations.

Looking ahead really we remain very focused on managing our capital intensity and when you look into 2023, where we are really still committed to being at the low end of the range that we have expressed before which is really three 5% of revenue. So we feel very comfortable that we are we have reached a place where the <unk>.

Capital intensity is simply lowering in our business than it has been historically.

And I think that's really what's so unique about how we've changed our operating model, where we wouldn't be able to do that we would see capex levels, increasing quite dramatically with the vessel ecosystem that we've developed and with the benefit of the CTO. We can stay at that low end of the range.

Okay, great. Thanks, so much guys I'll turn it back.

I will now turn the call back over to Matt <unk> for closing remarks.

Thank you Jack 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 relations team. Thanks for joining us Jackie can now in the call.

We thank you for your attendance you may now disconnect.

Okay.

[music].

Thank you for holding and welcome everyone to the technique F. M. C third quarter earnings conference call. All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

To withdraw your question again press the star one.

Thank you I would now like to turn the call over to Matt <unk>.

Senior Vice President of Investor Relations and corporate development. Mr. <unk>. Please go ahead.

Thank you Jack good morning, and good afternoon, and welcome to Technip Fmc's third quarter 2022 earnings Conference call.

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

Like to caution you with respect to any forward looking statements made during this call.

We wish to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof.

We undertake no obligation to publicly update or revise any of our forward looking statements. After the date. They are made whether as a result of new information future events or otherwise.

I will now turn the call over to Doug Friday, Harte, Technip, FMC as chair and Chief Executive Officer.

Thank you Matt.

Good morning, and good afternoon.

Thank you for participating in our third quarter earnings call.

Total company revenue in the period was $1 7 billion.

Revenue was in line with the second quarter and our outlook.

Solid achievement, given the foreign exchange headwind experienced during the period.

Total company adjusted EBITDA was $200 million with a margin of 11 five.

This excludes a foreign exchange loss.

Both subsea and surface technologies achieved sequential improvement in adjusted EBITDA margin in the quarter.

Total company inbound orders were $1 9 billion.

Subsea inbound was one 4 billion with year to date orders now totaling $5 2 billion exceeding the level achieved in all of last year.

Project Awards inbound in the period included Toto Energy's Lop in northeast development offshore, Brazil, where.

Where we will install and <unk> and flexible pipe and a new configuration to further secure the production of the field.

This award highlights the diversity of work scope and customer opportunity in the region.

We also received a contract from shell for the Jack Dol development. The project will use our pipe in pipe technology for the tie back from the new <unk> platform to shell's existing shearwater hub supplying much needed gas to the region.

Additionally, we received an award for the Exxon Mobil gas to energy project in Guyana.

Which will be included in future inbound once the project receives <unk> and.

Government approvals.

This project will enable Guiana to shift a portion of its power generation to cleaner natural gas sourced from nearby offshore fields.

Beyond our announced awards inbound orders in the quarter reflected strong tie back activity in the Gulf of Mexico, The North Sea and West Africa.

During the quarter, we also renewed our technology alliance with Halliburton, where we have demonstrated strong collaboration since the creation of Technip FMC in 2017.

The alliance accelerates the development and commercialization of new technologies that deliver integrated production solutions that span subsea and sub surface applications.

An example of this is a digital technology Odyssey.

Odyssey subsea fiber optic solution.

Which we first introduced in 2020 and has already been deployed in key subsea developments.

The alliance continues to develop innovative and disruptive technologies that can be used in all electric subsea field development, subsea well intervention and carbon capture and storage.

Now looking ahead.

We are confident that offshore will provide significant volumes of oil and gas with attractive returns that in many cases are amongst the most compelling opportunities available to our customers.

Project Economics have improved driven by lower cost and accelerated time to first oil providing solid support for continued development activity.

This is supported by the fact that approximately 90% of estimated subsea capital expenditures through 2025 are based on break evens of less than $40 a barrel.

Our subsea opportunity list remains at a record level.

This strong project pipeline and the active dialogue with our large and expanding customer base.

Give us continued confidence that our full year subsea orders will be up as much as 40% versus the prior year.

With orders approaching $7 billion in 2022.

And if we extend the outlook into 2023.

We believe orders over the next five quarters will.

We will be at least $9 billion.

Moving to surface technologies inbound was strong at $449 million, representing a book to bill of one four.

Importantly, inbound activity in the period benefited from the acceleration of orders from Aramco are.

A significant portion of which will result in revenue in future periods.

The resulting growth in backlog also provides us with increased visibility for continued growth in our international revenue in 2023.

Investment in oil and gas resources will continue and we are confident that offshore and subsea will be critical enablers for the energy transition.

Opportunities in greenhouse gas removal hydrogen and floating offshore renewables, including wind wave and tidal energy.

Our accelerating.

We have made several announcements regarding strategic agreements and partnerships and we have already achieved notable commercial wins.

We have secured two title energy contracts in the UK through our partnership with orbital Marine power.

The multi turbine projects will be capable of delivering seven two megawatts of predictable title energy <unk>.

Positioning us as the leader in floating title energy.

And we have signed the option to lease agreement for the Scott wind and three area through our partnership May ignore offshore wind.

The project scope would include the installation of 33 floating wind turbines, which when combined can provide enough energy to power more than 600000 homes in the United Kingdom.

Our growing presence in commercial wins in these particular offshore renewable markets are creating new opportunities across an expanding list of potential partners and geographies.

We are confident that as the energy transition accelerates so too will the opportunity set for our company.

In summary.

We remain focused on meeting our commitments in 2022.

And looking beyond the current year, we continue to see the potential for strong growth in EBITDA cash flow and returns as evidenced by our stated objective to achieve more than $1 billion of subsea EBITDA.

By 2025.

We have also reaffirmed our commitment to a dividend, which we intend to initiate in the second half of 2023.

Yes.

This outlook is enabled by the fundamental changes we have made to our company and the continued strength in the markets we serve.

The next leg of growth in oil and gas will be fueled by offshore in the middle East.

The bold steps, we took five years ago to create Technip FMC have resulted in a pure play technology company that is uniquely levered to both of these markets.

Our portfolio of innovative products solutions and disruptive commercial models has further strengthened our leadership position.

And we are now taking full advantage of the market growth that lies ahead.

I will now turn the call over to al.

Thanks, Doug.

Total company inbound orders were $1 9 billion in the quarter with.

Revenue in the quarter was $1 7 billion adjust.

Adjusted EBITDA was $200 million when excluding a foreign exchange loss of $14 5 million.

Third quarter income from continuing operations was $5 million, which included after tax charges and credits then netted to an expense of $8 million.

When excluding the impact of charges and credits are adjusted income from continuing operations was $13 million or three per share.

Adjusted EBITDA was $184 million, an increase of 4% sequentially.

<unk> benefited from improved margins in backlog and increased installation activity.

Adjusted EBITDA margin was 13% up 60 basis points versus the second quarter.

In surface technologies revenue was $380 million up 5% from the second quarter.

We experienced revenue growth globally with particular strength in the middle East adjusted.

Adjusted EBITDA was $41 million at 26% increase sequentially. The increase was primarily due to higher international activity, including the progressive ramp up in middle East volume and timing of associated costs.

Adjusted EBITDA margin was 12, 8% up 210 basis points versus the second quarter.

Turning to corporate and other items in the period corporate expense was $25 million net interest expense was $31 million and tax expense was $43 million.

Cash flow from continuing operations was $212 million capital expenditures were $31 million. This resulted in free cash flow of $181 million in the third quarter.

We ended the quarter with cash and cash equivalents of $712 million.

That was $655 million, which was a reduction of $135 million from the second quarter.

Third quarter, we repurchased five 8 million shares amounting to $50 million.

We remain committed to returning cash to shareholders and we believe that our shares represent attractive.

<unk>.

Moving to our guidance for full year 2022, we continue to expect subsea revenue and adjusted EBITDA margin to be at the midpoint of the guidance range.

In surface technologies, we now expect full year revenue to be at the midpoint of the guidance range with adjusted EBITDA margin at the low end of the range.

Moving to corporate expense, we expect full year expense to be at the midpoint of the range.

Taken together 2022 full year EBITDA is expected to be between 650 and $670 million.

I want to reiterate that adjusted EBITDA guidance does not include the impact of foreign exchange.

Driven by timing of vessel re certifications.

Now looking to 2023, we are increasing our view of total company EBITDA to around $825 million.

And we will give our complete full year 2023 guidance in February .

Additionally, we foresee a material improvement in free cash flow in 2023 with our current expectation that we will convert approximately 35% of EBITDA to free cash flow.

In closing I will share with you my key takeaways from the quarter.

First free cash flow generation improved as expected in the period totaling $181 million.

Second we repurchased $50 million of stock taking advantage of the recent buyback authorization to repurchase our shares at an attractive valuation.

Operator, you May now open the line for questions.

Certainly.

As a reminder, if you'd like to ask a question. Please press star one Dave Anderson with Barclays. Your line is open.

Hey, good morning, Doug So how your analyst day last year, you laid out a number of medium term targets, including margins for 2025 lots.

A lot of change last year. So I guess my question is have the assumptions around those targets also changed in terms of say expected volumes and pricing and maybe this is already in those targets, but I'm. Just wondering if maybe we should now be thinking something higher than the 15% EBITDA margins in subsea by 2025.

Good morning, Dave. Thank you very much for the question.

Indeed, the assumptions have evolved in a very favorable way.

What is now almost one year ago.

At our analyst day in November of 2021.

At that point, there were a few things obviously the commodity price, but also.

The focus on energy security and the need to accelerate the development of energy sources, all energy sources.

But.

In the immediate term and Thats, what were really seeing in the marketplace today.

With that indeed, there is a pricing element that then evolves as a result of that so.

Sure.

When we gave the 15% guidance at the time, we were at 10, 5% margin for subsea going to 15% margin. We had revenues growing to 7 billion, we had inbound coming in at $8 billion.

As you heard in my prepared remarks, the inbound has certainly accelerated.

So it is reasonable to assume that the 15%.

Right, you, obviously, well above 15% kind of last cycle or even just a couple of years ago. So I would imagine you should definitely be able to get higher than that.

Doug kind of a different subject here, but maybe it's a simplification, but it seems like subsea projects are sort of falling into two buckets. These days on the one hand, we have these kind of larger multibillion dollar projects integrated projects with majors on the other hand, we have the smaller.

Let's come $3 43 jobs that are often with an independent.

Okay.

Hey, that's a very astute question and one we contemplate often as we're looking at what opportunities, we're going to pursue or for that matter would opportunities we do not pursue.

We.

The size and the scale does matter and you always want to kind of have a balance of the two where you have some larger longer term projects, but obviously benefiting from the supporting those with the smaller shorter cycle projects as well.

You look at really which transpired over 2022, you can see that those smaller projects are really becoming a significant portion of our inbound.

And historically I would say at almost double the historical rates for that matter and you saw it again this quarter, we only had two announced awards.

Neither of which were very large they were they were not they were large but not very large.

And we posted $1 4 billion of inbound, which tells you that that underlying market for those smaller projects as well as our subsea services business continues to grow and be very robust.

Now the kind of the prioritization that we look at when we're working through opportunities is first of all partner.

We always treat our partners.

With making sure that we have the capacity to be able to serve their needs and as you know we have a significant number of partners from the largest.

<unk> in the world and many new operators that are emerging in the market today, and making up that that group of smaller orders with 40 plus different operators that we're now working for.

The second one is IEP Ci clearly we believe the way that we can generate the greatest value for our customers is by improving their subsea project economics.

Best way to do that is to use it to do it through an integrated project or our IEP Ci model, which typically can save nine to 15 months.

The shorter time or accelerate oil first oil by buy up by approximately one year and that is a material implication obviously to the project economics.

The next is to point out.

We introduced into the marketplace a few years ago. It's now the majority of our orders.

<unk> certainly almost all of what we're doing in terms of our early engineering studies and the market is rapidly moving in the direction of two point.

<unk> for our partner.

Let's put it this way you shouldn't be surprised to hear us announcing a lot of <unk> for our partners.

Because that opportunity pipeline is very rich for us right now.

Sorry, Doug if I could sneak one more in here you talked about 40 customers earlier. This year I guess the question is when you look out over those next five quarters are those 40 customers ordering again I guess, that's what I'm kind of wondering about is is it just a one I guess theres concerns or is it just a one and done or do you need to keep backfill and this was smaller although it is going to be repeat customers I guess, that's the question.

Look most of these.

Have taken on either existing leases or developing new leases and they all have multiyear multipronged project opportunity set.

Thanks, Doug.

Okay.

Arun.

Jairam with J P. Morgan your line is open.

Yeah, Doug I wanted to start and I was wondering if you could give us your thoughts on perhaps some of the near term and longer term implications of the much needed a consolidation that.

That looks to be taking place in the subsea space and thoughts around what this means for MTI.

Sure Arun good morning, Thank you for the question.

Hum.

We.

Ed a vision seven years ago.

What the market needed to really make subsea projects, the most attractive economics, and our customers' portfolios, which we believe we've achieved today.

We put that into our initially studied it through a joint venture where we worked on the front end and then we consummated the relationship five years ago are creating.

In terms of further consolidation in the subsea space, that's really not that's not something we will be participating in.

We don't need to because of what we've already created and we talked a minute ago about subsea two <unk> and configure to order that also allows us to double the throughput capacity through our facilities.

And if we're able to double the capacity through our facilities, there's no need to consolidate or buy more of the same theres just no advantage for us to do that we said we invested in the technology and the development of the technology that allowed us to really optimize and double again.

Our capacity and then as you know on the vessel side, we're developing very important relationship.

With companies like <unk> and companies like IBM that we build a vessel ecosystem, where they can benefit from participating in our integrated projects and we can benefit from having access to their vessels.

As far as other other consolidation I think.

It clearly is a validation that the subsea market is both strong and very durable.

<unk> acknowledgment of the integrated commercial model again that we pioneered and introduced five years ago.

And then finally this these things are what is driving potential market realignment around this new reality.

Great.

And just my follow up.

Our view.

Essentially blessed the street EBITDA number for 2023 at $8 $25 million.

I think so just around that number I did wanted to see if you could give us a little bit more color around the fourth quarter.

The midpoint is slightly below the street, maybe that seasonality is there I'm wondering if you could give us some thoughts on any.

Any impacts in terms of a for Q, even though 2023 looks to be bang on where the street's at.

Sure I'll do that.

So first of all.

A strong quarter for us we had high installation activity and we also had some completion on several key projects that kind of.

Little bit of an advantage for us in the quarter.

And when you take that into consideration.

Timing of project completions as well as some of the seasonal slowdown that is kind of more normal for the subsea, yes, as we see slowdown both in installation services activity that.

Kind of what is impacting the <unk>.

Subsea business.

So that in summary, that's why full year guidance is still intact, but youll see a little bit of a shift between Q3 and Q4, we have some similar dynamics going on in surface where.

We had a good quarter.

We had.

Great. Thanks, a lot.

Okay.

Chase Mulvehill with Bank of America. Your line is open.

Yes.

Hey, good morning, or afternoon, if you're over in Europe .

I guess.

And a quick follow up on some of the discussion around kind of the unannounced orders obviously it was pretty strong this quarter.

It looks like it was kind of in the $1 billion range.

And then the last time, you kind of hit that was kind of pre COVID-19 and we did that in the back half of <unk>.

But I guess, maybe kind of a couple of questions I guess first.

Could you talk about the mix of that kind of $1 billion of orders this year between Canada.

<unk> Sps and vessel base.

Some other stuff I know that you announced the title energy stops so I'm not sure how material that was.

And then could you just talk to kind of how sustainable this $1 billion level is about announced orders.

If that's kind of the new run rate and if it's not then how should we think about the run rate of unannounced orders over the next 12 to 24 months.

Yeah.

Thanks Chase.

Always a little more difficult to forecast the unannounced awards because they are sometimes they come at us.

Very short order timeframe versus obviously, the larger awards that are going through a tender process.

More visibility many many of the smaller awards are direct awarded to our company.

Tie backs in the period of 12 months to 14 months, which is half the time. It has taken historically to do that type of work and they get a huge benefit.

So what I would say is this quarter was probably a bit stronger than I would expect in future quarters, but we had a similar quarter.

In Q2 so.

It is definitely moving in that direction and remember it's a combination of these smaller awards, but also the strength of our underlying subsea services business. So.

Certainly it is going to be stronger than in the past, but I would say that this level and maybe maybe a bit elevated to what I would model.

Going forward on a on a more average basis.

Okay perfect.

Unrelated follow up just wanted to kind of talk through some of the FX impacts.

There's obviously a few components here I mean, obviously you point to that to the FX.

And some of the cost here, but the $14 5 million.

Balance sheet translation as I understand it.

Cash.

Theres also a couple of other translation FX impacts that I, just kind of want to ask backlog. It looks like there was some negative backlog translation.

And then obviously you've got the EBITDA, which is a function of revenue and cost translation.

So maybe could you just kind of talk to what the revenue and cost and ultimately EBITDA translation impact was if you have that in the quarter and then what.

FX rates should we be focused on as we kind of look forward and think about.

Revenue in cost translation.

Yes, no. Thank you for the question on the on this topic.

So first of all the $14 5 million.

You correctly characterized.

Mostly that is.

Hedged positions on on cash or asset positions that are denominated in a currency that we cannot really hedge. So that's why the majority of that is there is also an element of some increase in cost of hedging is the volatility in the market and the higher interest rate environment. We're in it's impacting some of that.

Creating some fluctuation, but then going to your second topical backlog.

That's clearly the biggest impact for the quarter.

And this is true for both revenue and backlog when you think about subsea we do have a large portion of our revenue.

Denominated in non us dollar currencies and as the dollar moves in one direction or another that that does impact our top line as well as our earnings as you point out.

The backlog impact was 300 million a little.

A little bit north of that and but maybe to quantify the numbers that you might be looking for in the revenue and the earnings I would say that it's around 5% impact. If you look at Q2 to Q3.

And obviously going forward, we are more balanced at the at the.

At the core.

Current level, but so that's 5% of subsea revenue and an EBITDA basically.

Okay.

Could you close the loop on that and just as we look forward.

What.

Thanks.

Currency should we be focused on when we think about hopefully maybe positive translation over the next 12 months, but who knows well.

Jump off point for looking forward what are the rates at the end of this quarter.

Okay. Yeah, I was just trying to figure out which currencies you are mostly exposed to so we can track those.

Oh, Okay, Oh, well so let me go back then too.

Two subsea again.

A major currencies that we're exposed to reais in Brazil, because we have a large large portfolio in Brazil, and as well as Norwegian kroner, and some pounds, a little bit of euro, but mostly Norwegian kroner in pounds.

Okay perfect. Thanks, Al Thanks, guys I'll turn it back over.

Again, if you'd like to ask a question. Please press star one on your telephone keypad, Kim <unk> with <unk>.

Your line is open.

Yes.

Good morning, Doug Good morning.

Just maybe.

A quick question regarding <unk>.

Position that you can act.

Uh huh.

Do you see as a consequence.

Station Sun.

Intensification with your clients.

And to what extent should we expect.

Let's move on.

Two activities over the next quarters.

Given this new piece of legislation.

Good afternoon, Gil look the real impact it has on our company is on the second portion, which is which you.

Which you mentioned which is the.

Carbon capture sequestration opportunities as you know we've developed an integrated carbon transportation and storage system, we highlighted that back at our analyst day a year ago.

It has been fully qualified and.

In traditional oil and gas development. So we're there we have it as you know we've we've developed the technology, we built our partnerships, where we're working with <unk> in the Gulf of Mexico, and others in other places around the world.

But in reference to the IRA I'll highlight the relationship with <unk> and the impact it has on the 45 Q regulation, which we believe is very favorable and we will certainly help accelerate the development of the various projects that we're working on at this time so.

Okay.

Okay Nicolai.

Marc Bianchi with Cowen Your line is open.

Hi, Thanks.

I wanted to first ask about the $9 billion of awards over the next five quarters can you.

Tell us how much is.

Subsea services, how much would be unannounced and how much would be large.

Thanks, Mark I appreciate.

The question, we don't really break that down.

We have you have an idea that subsea services typically comes in in that.

One two range, we indicated that we want to grow the inbound of subsea services. The $1 5 billion by 2025 going all the way back to Dave's original question as other metrics that we laid out at that time or mouse objectives that to may be achieved earlier than.

2025, but you kind of have a range there on the subsea services.

And in terms of the unannounced awards as we talked about earlier.

I think you want to try to find kind of a midpoint between some of these peak quarters like Q2 and Q3.

Yes, Q2, and Q1 in Q3, Matt.

And.

Kind of versus where we have been historically the historical average I'd probably go to the midpoint kind of in between the two of those.

But look let me be very clear the $9 billion, we have a clear line of sight.

I'll repeat we have a clear line of sight.

The vast majority of that will be direct awarded to our company. This is the magic and this is what makes us so proud of our company.

Great. Thanks for that Doug and I guess, maybe just related to that as they think about the that order rate was above what we had in our model.

It seems to be above what is reflected in consensus.

However, the guide that you're giving for 'twenty three is essentially in line with consensus is there is that the FX that we were talking about before with Alf is there.

<unk> been there in terms of backlog conversion I, just would've thought that there'd be some upward bias to.

The outlook, if you've got such strong orders.

So mark I, just want to make sure I'm following your questioning.

Im talking about the inbound orders that doesn't really translate.

In the current year that takes some time for it to translate into revenue and EBITDA, but what it shows is obviously.

We've got the backlog coverage already pretty much for 2023. So when you think about it it really sets up 2024 and beyond.

Got it Super and then just one more if I could for Alf on the Capex here.

Any any thoughts on what's embedded in that 35% conversion for 'twenty, three and how we should be thinking about capex longer term.

Sure. So capex, obviously first.

This year, we are have experienced a little bit lower run rate than normal. So that's an important statement.

You saw us take down the capex guidance by $50 million from 230 to $1 80.

But capex in fourth quarter is still going to be around $85 million.

Their vessel re certifications that I mentioned in my prepared remarks are taking place in the fourth quarter rather than earlier in the year as we plan these activities around our operations.

Capital intensity is simply lower in our business than it has been historically.

Okay, great. Thanks, so much guys I'll turn it back.

I will now turn the call back over to Matt <unk> for closing remarks.

Thank you Jack 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 relations team. Thanks for joining us Jackie can now in the call.

We thank you for your attendance you may now disconnect.

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