Q4 2022 TechnipFMC PLC Earnings Call
Thank you for holding welcome everyone to the technique F. M C Fourthquarter 2022.
<unk> conference call all lines have been placed on mute to prevent any background noise.
The speaker's 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.
I can withdraw your question again press the star what.
Thank you I will now turn the call over to Matt Sorry, Incitement Senior Vice President Investor Relations and corporate development. Mr. <unk>. Please go ahead.
Thank you Jack good morning, and good afternoon, and welcome to take any bets Emcees Fourthquarter 2022 earnings conference call.
Our news release in financial statements issued earlier today it 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.
These forward looking statements are based on our current expectations beliefs and assumptions regarding future development 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 relied on any forward looking statements, which speak only as of the date hereof.
We undertake no obligation to publicly update or revised any of our forward looking statement. 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 40, hurt Technip, Fmc's Chair and Chief Executive Officer.
Thank you Matt.
Good morning, and good afternoon.
Thank you for participating in our fourth quarter earnings Cole.
It is clear that we are in the midst of a multi year growth cycle as evidenced by the continued growth we experienced across the company in 2022.
Inbound orders for the full year grew 20% to 8.1 billion driven.
Driven by subsea inbound of $6.7 billion.
Which increased 36% versus the prior year.
The strength of the inbound resulted in 24% growth in subsea backlog two $8.1 billion at year end.
And as we will discuss in a moment, we anticipate further growth in 2023.
For the full year total company revenue grew 5% to $6.7 billion.
Justin EBITDA improved a $670 million when excluding the impact of foreign exchange.
An increase of nearly 20% when compared to the same metric in the prior year.
These results demonstrate continued improvement in revenue and adjusted EBITDA margin in both operating segments.
And reflect our strong commitment to deliver on our financial objectives.
In 2022, we also materially improved our financial position.
We generated free cash flow from continuing operations of $194 million for the year and gross that was reduced by nearly one third.
And our analyst day in 2021, we announced our intention to begin shareholder distributions in the second half of 2023.
Given the significant valuation opportunity, we saw on our shares and the steady progress made in reducing our outstanding debt.
We accelerated the timeline by a full 12 months with the authorization of a $400 million share buyback program in July .
We immediately put the plan in action and.
Repurchased $100 million of our shares by year end.
We also remained committed to a quarterly dividend, which we intend to initiate in the second half of this year.
Looking beyond 2022.
We remain confident in the strength of this upcycle and continued to believe that international markets will lead the next leg of expansion.
International can largely be defined as offshore in the middle East.
And take any bad fancy is uniquely positioned to take full advantage of this growth.
More than 90% of our revenue is generated outside the North America lay a market and we have leading positions that are geographically levered to many of these important growth markets.
Focusing first on offshore.
Subsea opportunities list, which highlights larger projects with the potential for award over the next 24 months continues to represent a record level a potential project activity amongst and expanding customer base and all major offshore basins.
The average project size on this list has grown to nearly $750 million driven by momentum and large greenfield activity.
In addition to these more visible opportunities we continue to forecast strong tie back activity in major markets such as the Gulf of Mexico, The North Sea in West Africa, many of which are direct awarded to our company.
We have announced several projects totalling $1 billion for the first quarter, a solid start to the year.
These include Orcher B PS very first.
<unk> project Ah Direct award for the Sierra Hi development in Norway.
This award further highlights the growing list of clients, who are choosing the benefits of our integrated commercial model.
We expect to see a material increase in the value of Iep's Ci awards in 2023, leading to a record year for integrated project Awards.
And as our installed base continues to grow we are forecasting a further increase in subsea services activity.
When taken together, we expect direct awards.
C I and subsea services to represent more than 70% of our total imbalance in 2023.
While the strengthening offshore activity is likely to be our primary driver of revenue growth. We also expect significant investment to continue and land based resources, particularly in the middle East.
Here, we have a strong market position and we have expanded our footprint to further leverage our in country talent in markets, such as the United Arab Emirates, and the Kingdom of Saudi Arabia.
We have commenced work on our 10 year framework agreement with Abu Dhabi National oil company to provide wellheads trees and associated services.
We also completed the expansion of our manufacturing capabilities in Saudi Arabia.
Which will support our commitment to develop a diverse and capable local workforce as part of a ramp goes in kingdom total value add program and Saudi vision 2030.
We continue to believe the middle East represents one of the largest market opportunities. This decade.
Let me know discuss how this market view impacts our company outlook for 2023 and beyond.
<unk> will provide more details in his remarks, but the headlines can best be summarized as follows using the mid point of our guidance range.
In 2023, we expect full year inbound orders for subsea to exceed $8 billion and.
An increase of at least 2% versus the prior year.
In addition to the strong project pipeline, we see subsea services inbound increasing to $1.3 billion.
Moving to revenue, we anticipate total company results of approximately $7.5 billion, an increase of 12% versus the prior year.
We anticipate similar top line growth for both segments.
However, we expect nearly all of the growth and surface technologies to come from international markets, which represented just over half of this segment total in 2022.
Before I turn to call over to <unk> to discuss the specific changes let me first provide context for these material revisions to our prior forecast.
One of the primary topics that are analysts day in 2021 was the upside potential for subsea margins.
<unk> drivers, we outlined at that time are still in place today and.
Increased operating efficiency, including the transition to the configure to order operating model.
And inflection in backlog margin.
Increased utilization of plants and vessels.
And a stronger contribution from subsea services.
However, we find ourselves today in a very different market environment, one that reflects a clear focus on energy security.
This new environment has also led to a more collaborative approach toward resource development.
The strength of our customer relationships, particularly those of our alliance partners.
Will prove to be of even greater value as the increased volume of work leads to greater project and partner selectivity.
We have also seen greater alignment and contract terms and conditions, where customers see the value in working with the technology provider that has demonstrated time and again the ability to deliver projects on time and on budget.
The comprehensive capabilities of technique from C R unmatched and well suited for this environment.
<unk> and subsea 2.0 create differentiation, but.
But more importantly, they create value and greater certainty of outcome.
They are also supported by ongoing initiatives focused on industrialization within our company that will likely result in even greater efficiencies overtime.
In summary.
We closed 2022, having delivered on many notable achievements we.
We enter 2023 with a strong market outlook and a further step up and are targeted financial performance.
Okay.
Our revised 2025 outlook encompasses our most current view it.
It reflects the improved environment.
Value, we can bring to the marketplace and the operational momentum we see within our business.
We now expect $25 billion of subsea inbound through 2025 for our company.
And with this we expect 2025 will demonstrate significant progress on our path to much improved financial returns.
Most importantly.
2025 does not mark the endpoint, but rather a major milestone on a more ambitious journey ahead.
I will now turn the call over to L.
Thanks, Doug.
Total company inbound orders were $1.8 billion in the quarter.
Subsidy inbound was 1.5 billion, putting full year orders at $6.7 billion.
An increase of 36% versus the prior year.
Perfect Technologist inbound was $327 million in a period with full year inbound a $1.3 billion.
Total company backlog increased 6% sequentially to $9.4 billion.
Total company revenue in the quarter was 1.7 billion with adjusted EBITDA of $158 million when excluding a foreign exchange loss of $37 million.
The fourth quarter adjusted loss from continuing operations, which excluded after tax charges of $6 million.
Was $21 million or five cents per share and it included before an exchange loss.
For the quarter, we delivered results that exceeded our expectations for both segments, allowing us to achieve the full year guidance, we provided at the beginning of the year.
Cash flow from continuing operations was $566 million in capital expenditures for just over $63 million.
Resulting in free cash flow of $503 million in the quarter.
For the full year free cash flow was $194 million.
With a quarter with cash and cash equivalents of $1.1 billion.
That was $309 million, which was a reduction of $346 million from the third quarter.
Now, let me turn to shareholders distributions in the fourth quarter, we repurchased shares amounting to $50 million, bringing the full year total to $100 million.
This means that we have completed 25% of our share repurchase program and just five months.
We repurchased shares at an average price that is 25% below last night's clothes.
And for the full year, we've distributed.
Debuted just over 50% of our free cash flow to shareholders, while still improving our financial strength.
As we have demonstrated in 2022, we are fully committed to returning cash to shareholders and we continue to believe that our chairs represent attractive value.
Let me know move to guidance and his prepared remarks, Doug spoke to the breadth of the market's strength and our outlook for further ordered growth.
This is yet another tailwind that we will we expect will translate into stronger financial results for our company in 2023 and beyond.
We have provided detailed guidance for the current fiscal year in our earnings release.
I won't speak to each item at this time, however, I will provide context around a few items, including our expectations for Q1 results.
Let me begin with subsea at the midpoint of our guidance range, we anticipate revenue of $6.1 billion at a margin of 13%.
Which results in adjusted EBITDA growth of 26% for the full year.
Also assumes continued growth in subsidies services.
As a reminder, and sub see the first and fourth quarters of each year typically experience weather related seasonality that negatively impacts installation and services activity.
Conversely, the second and third quarters benefit from a seasonal uplift a vessel based activity, which drives both revenue and margin higher.
And the first quarter subsea results should continue to reflect the seasonality with both revenue and margin essentially in line with our queue for results.
Four surface technologies at the midpoint of our guidance range, we anticipate full year revenue.
137, 5 billion at a margin of 13%, resulting in adjusted EBITDA growth of nearly 30% versus the prior year.
We anticipate revenue growth will be driven almost entirely by international markets are continued ramp up in activity in Saudi Arabia, and the United Arab Emirates over the first half of the year.
Should result in international revenue growth of approximately 20%.
Our north American results will be impacted by actions taken to eliminate underperforming locations and product lines across the region, which we estimate will negatively impact totaled segment revenue growth by approximately four percentage points in 2023.
More importantly, we expect these actions will have a favorable impact on profitability.
Looking at the first quarter, we expect total segment revenue to decline by approximately 10% sequentially with detrimental EBITDA margins of approximately 30% versus the fourth quarter.
Beyond the segments, we anticipate full year capital expenditures of $250 million just over 3% of revenue.
And finally, we are guiding free cash flow for the year to a range of $225 million to $375 million. The mid point of which is more than 50% above the prior year, reflecting the improved EBITDA as well as higher conversion of EBITDA cash.
Now I want to give you an update on the intermediate term financial outlook, we provided at our analyst day.
We didn't subsea we now see the following for 2000 to 25.
Inbound orders totaling approximately $25 billion from 2023 through 2025.
Would include subsea services inbound orders of approximately one point $65 billion in 2025.
Revenue of approximately $8 billion and adjusted EBITDA margin of approximately 18%.
Additionally, we expect to convert 50% of total company EBITDA into free cash flow in 2025.
All other guidance items pertaining to our 2025 outlook and normalized framework previously provided remain unchanged.
When comparing this revised subsea outlook, two or 2022 adjusted results. This would be a 650 basis points expansion and subsidy EBITDA margin and just three years.
And result in subsidy EBITDA of approximately $1.4 billion.
Our current view of financial performance in 2075 also reflects a project mix that will continue to evolve over the next few years.
And our earnings call presentation. We have included a chart that outlines the revenue scheduled from our current backlog as a percentage of total expected revenue in both 2023 and 2025.
Four 2023, we anticipate 64% of revenue will come from our existing backlog for.
Four 2025 that number is closer to 11%.
I would also point out that much of this backlog was inbound before the inflection of the current market environment.
Take away messages here.
That are EBITDA margin in any one year reflects the layering of projects and services that are inbound over time.
As implied by the chart the 18% EBITDA margin, we anticipate for 2025 will still be negatively impacted by legacy project backlog.
Even more importantly, we are not suggesting that 18% is the highest margin. We can achieve in subsea. We remain confident that there is upside to this number beyond 2000 to 25.
In closing I will share with you my key takeaways.
First we delivered on our most important financial commitments for the year, notably the profitability targets for subsea and surface technologies as well as total company free cash flow.
Second we have initiated guidance for 2023 that at the midpoint of the range demonstrates a higher level of margin expansion and cash conversion than in prior year.
Third we have accelerated our plans to distribute cash to shareholders, we repurchased $100 million of our shares in 2022, and we intend to continue the buyback program in 2023.
Have also reaffirmed our intention to initiate a dividend in the second half of this year.
And finally, we have updated our intermediate term outlook for 2025 to reflect the impact of the current multi year cycle that is more robust than we had ambition back in 2021.
Our leverage to the key drivers of this cycle offshore in the middle East markets.
And our ability to further improve the economic returns of our company.
<unk> you mean now opened a line for questions.
Certainly.
At this time, if you'd like to ask a question. Please press start one on your telephone keypad.
Anderson with Barclays. Your line is open.
Hi, good morning, Doug.
Must be nice to have three years of visibility in your back pocket now a big change from the fall of 21 when we.
Put out those interim guides.
You talked about a little bit I was wondering if you could kind of really dig in a little bit more into kind of what drove the expansion of the subsea margin guidance 25.
Is this primarily kind of a function of the higher throughput and the leverage of your modular configured to order model.
You think you were saying about 70% of IPC words today or in there I'm assuming that is also in there and then secondarily I think we just touched on it about the backlog that I think you said, 11% of backlog in 25 or 11% of revenue in 25 is from backlog today. So is this factoring in pricing on these projects or maybe just.
Can you help me understand kind of some of the components behind that please thanks.
Sure they have good morning.
You know, it's if we reflect back on how we got here maybe to start.
Six years ago, we.
We embarked on a journey to make offshore energy development the investment of choice for our clients.
While fundamentally changing our operating model.
We are now experiencing the results of that journey and that's a combination of a few things.
First and foremost is the market adoption of subsea 2.0, we had previously said that we expected subsea 2.0 to be approximately 50 per cent of our inbound in 2022 in 2023 and.
And we now see that expanding even further in the coming years.
But keep in mind not all of that inbound is flowing through the plant today. So if we look at our subsea 2.0 deliveries, it's a bit less than 25% of what we're actually delivering today, which will obviously go towards 50% in the coming years, Uh-huh, which gives us great confidence as a result.
All of our ability to be able to shift to the modular billed as you referred to or what we refer to as the configure it to order operating model.
This model continues to demonstrate significant benefits to our operating efficiency and to our profitability.
And then in addition is the adoption of IPC I as you pointed out which by the way is not.
In many times also include subsea 2.0 mmm.
The IPC I awards continue to increase we stated that this will be the record year for <unk>.
And we also when I look at the bead work the front end engineering and design work that redoing, which sets up the future years.
The percent of feed work that we're doing on IEPS, PCI, which we call I feed is at an all time high.
Those I feed.
And projects.
Lead to a direct award to our company for IPC I that is a proprietory opportunity said that is not available to the rest of the market.
Emphasize that that's at the highest level that it's ever been so.
So it's a combination of these things and clearly the market focus on energy security that gives us great confidence but.
But when we look at the 2025 guidance that we just updated today.
Cheerio increase from where we are currently.
<unk> 650 basis points of subsea margin.
These factors that we've been working on for half a decade.
That we're now seeing the benefits from that create sustainable change and we are not beholden to further pricing improvement to achieve these the updated 2025 guidance.
Okay.
So I.
I guess, when we look at that visibility.
The $25 billion in sub sailors in the next three years I was just trying to think about this or that kind of the analogy to last cycle. It maybe something like 22007 or eight we had this much visibility on your business I guess, what I'm curious about is when you think about that order book for the next three years, how does that compared to the prior cycle in terms of say that.
Customer type the size of the projects you just talk to this this didn't exist in 2007 eight.
And obviously, there's been a huge industry kind of structure has really changed with with <unk> coming out of the market and whatnot. So can you just kind of talked about kind of.
How different that is what it looks like in the next three years.
Davis, we talk about this all the time as a matter of fact I was talking to a gentleman who runs our research engineering manufacturing and supply chain organization. Just this morning about this.
The fundamental change and by the way we've never experienced this before when you point to the prior cycles. Both in terms of the volume the $25 billion, but the visibility which is is to your question.
We have always had a very robust planning cycle as you would expect us to to ensure that the projects that we take on or the right projects. We have the right resources. So that we can continue to deliver to our clients projects.
Projects on time and on budget and I'll point out even with significant growth that we've experienced we've not seen a deterioration in our own time delivery performance and that's what makes our comfort our customers comfortable to continue to direct award is even more work but.
But we've taken that planning horizon, which was always 24 months, it's actually 48 months nowadays.
Which really fundamentally changed and I've never seen this in my career.
Our customers are booking.
Not just the current Greenfield project, but the future Greenfield project. They want our capacity. They want are 2.0, they want R PCI and they trust us to deliver and in this period of not only.
Focusing on energy security, but also supply and capacity security there now booking well in advance Greenfield projects and Thats visibility, we have not had previously.
Mmm.
Or are these smaller companies then that you want to think last cycle. We think about the last cycle is all dominated by the Ioc's is that starting to shift are you seeing Ah I think you said before the use something like 40 different customers in the first half of last year's orders are used continuing to see that kind of broadening of their customer base sorry for squeezing one more question.
Sorry, and I'll be brief indeed, we've actually seen that unique customer set now to expand to over 50, but it's the discussion I was having earlier actually applies both to some of the new clients, but also some of the most established largest clients who are also <unk>.
Focus on ensuring that they have the capacity secure our capacity for their future projects.
Okay. Thanks, Doug appreciate it.
<unk>.
With J P. Morgan your line is open.
Yeah good morning.
I love that too maybe follow up on on David's a line of questioning and really just talk about the.
The longer term outlook in 2025.
Doug is you know energy investors had been somewhat skeptical of long term guides, but I know you guys have been thoughtful over the years, but I was wondering if you could give us a sense of how the sausage was made in terms of the forecast just to give us confidence that you can achieve what looks to be a pretty.
Significant upgrade and what you told us versus November of 2021.
Sure Arun good morning.
We are.
I think you have a reputation of being extremely conservative. We also have a reputation of achieving our guidance are exceeding our guidance.
Particularly when we talk about our view of the market.
Be it in whatever capacity rel, bounder tree forecast or whatever it may be.
And we took the same approach I mean, the approach clearly hasn't changed what has changed is the visibility to the earlier to my response to the earlier question and it's quite unique a rude and.
So there's not like a big what we would call it to be found when you're doing a forecast you have named projects. You you have your subsea services you have your call offs from your Alliance partners that you know, they're going to do a certain amount of field.
[noise] field rejuvenation, which by the way is increasing significantly.
And or brownfield Tiebacks and then you have a kind of a to be found bucket. If you will we're not relying on that when we're giving this guidance. This is this is projects that you see on the subsea opportunity list or kind of more importantly for our company projects you do not see on the subsea opportunity list, which has that setup.
Proprietory projects, where we're doing those integrated feed studies, which will result in a direct awarded to our company when they achieve project F. I'd.
That's super helpful.
Follow up is just on the cash conversion update.
Where you expect it to increase to 50%.
I was wondering if you could maybe talk about what is driving that and just future plans for the free cash flow I mean, you've guided.
Provided at outlook for $1.4 billion of adjusted EBITDA in 2025 that would push the Tories about $700 million of free cash flow.
Guys will have a call at a net debt.
Net debt at the end of this year so.
Get your thoughts on just the future uses of that free cash flow.
The drivers of that stronger free cash flow conversion rate.
No. Thanks for the question and maybe let's just start with.
A very simple way for 2025, we are clearly going to grow profitability and EBITDA at a higher pay spend some of the other factors that goes into the free cash flow statement, what factors do I talk about I talk about things like corporate expands interest expands and even capex all those.
Items are not going to grow at the same same pace with our earnings.
Growth so and if you combine then that we call. It a neutral type of working capital outlook in that number that's kind of how you get 250% roughly 420 25.
Great.
Danny.
Alright.
No no.
Then if you if you if you look ahead at at where we are.
So we obviously.
Our position a lot this you've heard from the first couple of comments here.
In the call but.
Well first and foremost happy with what we have achieved in the past year, we have achieved.
Largely achieved what we set out with analysts day to be our target capital structure, which we said was $800 million of cash and 1.3 billion adapt we reduce that by over $600 million here in the past year.
And Israeli position us for the shareholder distribution acceleration that really.
We could we could accomplish through the share buyback program in July and Doug already said, we had committed for the for the for the dividend in the second half now.
When you when you look at our position is obviously going to continue to be a favorable outlook in the light of this in those forecasts, but we will also remain committed to maintaining first of all the strong balance sheet, but at the same time delivering strong shareholder contributions that's going to continue to be our focus and in the short term, we would say that.
Retaining the flexibility here with our share buyback program.
Why are we really think we have the best opportunity to return value to our shareholders.
Great. Thanks, a lot.
Scott grew up here with Citigroup Your line is open.
Yes, good morning.
Good morning, Scott.
Yeah, I wanted to stay on the 20th 25 guidance.
And if I just look at what that implies for my.
It turned on capital.
It looks to be in the mid tier which is certainly solid.
But just give me evolution of the industry the advertisement for integrated model.
Should be less of a price taker going forward.
As you step back and.
And think about the next.
New years.
Curious, how you think about what a what a normal return on your portfolio should be just kind of gives me the evolution of the business.
It's a great question, Scott and welcome to the call. Indeed made changes in line with what we are looking at a substantial improvement from where we are today and again I really want to emphasize the actions that we're taking in this long journey that we embarked on six years ago was to improve our customer.
Emerged offshore subsea project returns while at the same time, creating a unique and different operating model for our company that would drive a much improved through cycle return as well not just that peak cycle return.
So what are some of the things that we're doing we talked about subsea 2.0 and integrated projects, but if you also look at the level of capital expenditures that we're deploying.
Deploying today in our company are far less than what we would have done on a historical average that's because of the additional efficiency of subsea two point O as it flows through our plans, but it's also we're really good at partnering we work well with others. That's in the DNA of us as individuals as well as us.
A company B at our clients B at our suppliers or even being people with time, we might compete against and at other times cooperate with and that's the development of our ecosystem for our fleet. So it allows us to be able to have access to world class vessels.
Many of which are within our own fleet, but those also that are outside of our fleet and have unique capabilities and enhance the overall capabilities of our combined fleet by working with companies like <unk> and <unk> and we couldn't be more proud of that we see ourselves as we.
Continue to have the market success, we are.
We are willing and ready to to a partner with others as well as we continue to grow this market together, so being able to grow it with a much different mentality, which is one around really focusing on the returns and really focusing on sustainable returns to recycle by being.
<unk> and the investments that we make create the opportunities that off just talked about which is greater shareholder distributions.
Got it would it would be fair to say, you're you're not satisfied with it.
<unk> does that Sir.
I would just throw that under the same bucket as my closing remarks in my script, which was along.
Along the line of this is only a mid point on our journey, we have a much more ambitious much more ambitious journey ahead.
Got it prescribed <unk>.
Thank you.
Kirk.
With benchmark your line is open.
Hey, Doug how are you.
Great Kirk good to hear your voice.
It'll be on again, so uhm okay.
I got you.
You really raised the bar again and pronounced data points of 2025 and before you know people are going to be asking you for your views on 2030, So just just get ready for that [laughter].
No.
So so first.
First of all so again I'm kind of curious here when you cannot talk through what kind of drives they're driving your customer decision making process.
Reference your delivery and performance as as a key element.
<unk> you mentioned energy security.
But when you look at the factors and maybe even drive and the cost element.
How have those conversations with the customer involved and how do you, which one of those three how would you rank.
You know how your customers are valuing those three components right between delivery energy security and continuing to kind of take down the.
The cost of developing is <unk> and how has that changed I think you know over the last couple of years.
I would say the first two are obviously dependent upon each other but if I had to put them in an order I would say energy security, and then supplier security or capacity supply and capacity or securing capacity.
Somewhat interchangeable and some conversations it actually starts with.
Securing our capacity, but it's obviously fund the fundament fundamentally underscored by energy security and then it really comes down to.
Certainty in execution and confidence because you know.
Our customers are putting great trust in our company a significant amount of their capital spend with you know arguably some of the most complex and complicated work that they do to ensure that the world has a.
Reliable and affordable energy supply. So we start by just being really humbled by that.
It's phenomenal to be in this position.
And then when you go into a direct award discussion.
Which is not not the normal <unk>.
Mode of operation for many of our customers and in some cases, we've been in that situation for now almost approaching three decades.
With with individual companies.
Just an honor and we remain humble.
Our success as our clients success, our success as the project's success and that's what we stay focused on it I think as long as we do that and we can continue to deliver.
Simplification standardization and industrialization around what we do you have to be the leading technology provider you have to have the proven track record in terms of delivery and you have to have trust built upon deep intimate relationships and that's what we do and it's unique to our company and I I couldn't be more proud to be part of it.
Okay, great appreciate that color. So obviously a lot of attention well spent on the substantive part of the business. So I'm kind of curious on the surface you mentioned international day about 50% or West 90 per cent of your revenue in 2022.
And you're going to see the bulk of your growth coming from the middle East.
So maybe extrapolate that these arteries or long term projects with all these.
These customers you have had long term investment horizon.
Where do you think the international Mexican B.
2025.
Curt you're asking the international mix is a portion of the total surface technologies.
Yes, yes, yes, okay little kids going to grow and it could grow materially we don't see the north American market growing Ah much over that period certainly not in the short term. It it's hard to have a long term view of the north American market, but clearly in the short term our view is with the consensus which is <unk>.
<unk> activity is likely to decline completions activity, maybe grow but grow modestly.
So we're not expecting much growth as I mentioned in my prepared remarks, although we expect surface to grow in line with sub C. In terms of revenue growth year over year all of that growth will come from the international part of the business not from the North America land of the business.
Our surface technologies group.
Kirk.
Kirk there may be personalize, it a little bit and demonstrate where our focus is.
I spent last week in the Middle East I had the pleasure meeting with our key customer Aramco and spending time in the Kingdom and.
Observing.
Investment in the results of the investment that we've made in our increasing our manufacturing capabilities and local content in country. This is the path forward, we fully support that and we're very very excited about the opportunities for our business in the middle East.
Okay I appreciate that color, maybe maybe if I could sneak in one more on the shareholder return how do you guys think about the split between say dividend and share repurchase.
As you are kind of set in that strategy for the second half of this year.
[noise] no kind of maybe as I alluded to.
Really near term we are we are seeing still the opportunity as we said in our prepared remarks, we think our share shares are stealing.
Evaluable.
Capital allocation to pursue so definitely to share buyback program is giving us the most near term flexibility to really execute on and at the same time, we remain committed to the second half David and as we talked about but I don't see accelerating that much rather standing with the with the current setup with a share buyback program.
Yes, My quick thanks for that I think might quick question was like are you Gonna think 50% of your free cashback of that or you're going to allocate the chair return is gonna go to dividend.
To share repo or just kind of curious about how you were thinking about the next.
I think I think.
We don't have a specific decision for the year on that yet, but clearly this is a priority for us to get this right and we are continuing to manage our.
The the balancing between.
Maintaining our strong balance sheet, but you have to being very focused on generating or driving shareholder returns.
Great. Thank you.
Again, if you would like to ask a question. Please press star one on your telephone keypad, Mark Yankee with talent. Your line is open.
Hi, Thank you.
I guess.
One one thing that some people have asked is around this this order outlook that you have <unk>.
Certainly you have a lot of visibility into what customers are asking you for but are there other bottlenecks in.
In the industry that are worth monitoring.
For instance, maybe topside assets availability on on things like that that would need to happen, you know and and coincidence with.
What you're providing.
Hey, Mark Thanks for the question absolutely, it's something we focus on constantly as I mentioned I was in a conversation with our manufacturing head. This morning.
Block it would be it would be naive to say that there aren't supply chain risks there are in execution risks.
But this is what we do we do it really well, but we do it differently than we have done it historically and in the past when you saw the industry and I'm gonna speak broadly of the industry and I'm Gonna say, we were absolutely part of that when you saw projects being delivered 12 months late projects being delivered 100 per cent over the <unk>.
<unk> cost it was a result of the bespoke manufacturing mode that we were in we are the only company that.
Four seven.
Seven years ago started developing a new product architecture that we now call subsea 2.0 and is now as I said up to 50 per cent of our orders. This allows us to go to this configured order model.
It also allows us to be much more synchronized with our supply chain. So much like our customers that I talked about earlier, we treat our suppliers. The exact same way they treat us as partners in many case direct award partners in many case exclusive partners. We do the same with our supply chain. So we have that same <unk>.
<unk> with our with the supply chain and with the configure to order. They don't have to wait on an engineering drawing in the past every single part and if you're not if you don't have subsea 2.0, it's still that way today every single part comes with a set of engineering drawings can you just imagine that.
Disruption that that causes not only for your own manufacturing, but for the supply of parts.
And machine and.
Raw materials and or parts rough machine parts to your manufacturing so.
It's a trickle down effect it works extremely well, where we now have suppliers, who no no. They can trust us they know where the market leader. They know we have the capacity we have the forward planning now as I said, we extended it from 24 months to 48 months.
With orders that we can actually give them that visibility and they don't have to wait on an engineering drawing in some cases, they on their own arnelle machining and stocking parts on our behalf because it's beneficial to them from a flow and a cadence and it's obviously usually beneficial to us.
From a working capital and from an accelerated on time delivery. So this configured to order model has fundamentally changed our company we couldn't have done it without the foresight and the tenacity to develop to 2.0 product architecture, but we're just beginning to see to really reap the benefits.
But today as I said the majority of our tree deliveries are not subsea 2.0 flowing through the plant today, but that will ramp up over the coming years.
Okay, great great. Thanks, I guess the second one that has more for <unk>, but on the just on first quarter. If you could help us a little bit with free cash and then as we think about the progression of of results for the balance of the year. Just so that maybe we don't get over our skis on the rate of.
Improvement in second quarter, it'd be great to just share whatever whatever steer you are able to share about how things play up you out first quarter first quarter sure absolutely will do so so if you start with just start with the fourth quarter. We obviously had a very strong free cash flow generation in the fourth quarter as we had advertised on as we had planned.
But it's still you know older half a billion dollars.
Big cash flow quarter for US now having said that as you may know and if you had followed US we're going to follow a very similar pattern to our cash flow generation as we did in both 2021 and 2022, but in particularly in 2002, two where we start the year with the first quarter of being very weak first.
Very weak start to the free cash flow generation.
And you know just depends on in something you can probably look at last year's race.
<unk> say that it's going to be in that neighborhood, probably so.
That's just the normal seasonal profile that we have and it's largely tied into the to the achievement of milestones and customer billing and collections associated with our subsea business and so I'm gonna see some attitude that we mentioned around the subsea business, which brings me to maybe the revenue in the in the EBITDA evolution for the for the quarters sub.
Very much will be as we said in inline with fourth quarter type of Oh, a quarter because we are in a seasonal low season right now as we said.
Pier today, while we will definitely see a margin pick up any revenue pick up in the second quarter and the third quarter should also be very strong.
A little bit of a tail off in the fourth quarter, but maybe not going all the way back to first quarter levels, but so that's really what I see in the subsea I think surface just a little bit of a different story, where we have.
A little bit of a lower activity this quarter after a very strong revenue quarter here in the fourth quarter, but we will see.
Uptake both in in revenue and EBITDA.
<unk> contributed to the.
Margin contribution will improve as we go forward into quarters, and it will Doug kind of sad about it overall, it will be driven by middle east and and our ability to convert more and more orders both with with a ramp go in Saudi Arabia, and with Abnaki in Abu Dhabi, and but overall quality more gradual approach.
Coach too to how it works for surface.
Other than to say that there will be a huge step up in Q2 and then.
Keep stepping up from there, but rather limited more more gradual.
Super Thanks, so much I'll turn it back.
I will now turn the call back over to mystery science for closing remarks.
This concludes our fourth quarter conference call a replay of the call will be available on our website beginning at approximately eight PM Greenwich mean time today.
If you have any further questions. Please feel to contact the investor relations team. Thanks for joining us Jackie may now in the call.
This concludes today's call you may now disconnect.
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