Q1 2023 TechnipFMC PLC Earnings Call
Speaker 2: Thank you for holding and welcome everyone to the Techneap FMC first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After 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.
Speaker 2: If you'd like to withdraw your question again, press the star 1. Thank you. I will now turn the call over to Matt Sinesimer Senior Vice President Investor Relations and Corporate Development. Mr. Sinesimer, please go ahead.
Speaker 3: Thank you, Jack. Good morning and good afternoon, and welcome to Techneap FMC's first quarter 2023 earnings conference call. Our news release and financial statements issued earlier today can be found on our website.
Speaker 3: I'd like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs, and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially.
Speaker 3: from those expressed in or implied by these statements.
Speaker 3: No one material factors that could cause our actual results to differ from our projected results are described in our most recent 10K, 10Q and other periodic filings with the U.S. Securities in Exchange Commission.
Speaker 3: We wish to caution you not to place undue reliance on any forward-looking statements which speak only as of the date hereof.
Speaker 3: 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 Ferdyhurt, Technic FMC's Chair and Chief Executive Officer.
Speaker 4: Thank you, Matt. Good morning and good afternoon. Thank you for participating in our first quarter earnings call.
Speaker 4: I am pleased with the solid performance in the quarter as we successfully delivered on the commitments we made in February .
Speaker 4: Total company revenue in the period was 1.7 billion.
Speaker 4: million with an adjusted EBITDA margin of 9% when excluding foreign exchange impacts.
Speaker 4: Total company inbound orders in the quarter were $2.9 billion, driving sequential growth and backlog to $10.6 billion.
Speaker 4: In Sub-C, we had a very strong start to the year, with inbound orders of 2.5 billion representing a book to bill of 1.8.
Speaker 4: This included four announced awards in the period, as well as a large IEPCI project that received FID in the first quarter.
Speaker 4: IEP-CI accounted for more than 50% of orders in the period.
Speaker 4: Importantly, the combination of IEPCI, Sub-C services and all other direct awards totaled 70% of awards.
Speaker 4: This is a result of our unique commercial model, IEPCI, our demonstrated technology leadership, which includes Sub-C2.0 and our long-standing client relationships.
Speaker 4: which together provide our customers with confidence in the execution capabilities of Technique FMC. Given the high quality of the work we are pursuing today and the strength of the broader market, we are confident that Q1 is not the quarterly peak for IEPC IE inbound in 2023.
Speaker 4: We continue to expect IEPCI to post record inbound in 2023. This is enabled by a record level of eye feed activity, which often leads to a direct award for the IEPCI phase of the project.
Speaker 4: This provides further confidence in our outlook for subsea orders of more than $8 billion for the full year.
Speaker 4: Since the creation of TechnifeFMC, we have taken bold steps to fundamentally change the way we operate our business.
Speaker 4: These include the introduction of our integrated commercial model, IEPCI,
Speaker 4: the development of Subsea 2.0, and the formation of our vessel ecosystem, which together enable a differentiated approach to project execution that will allow us to successfully capitalize on this period of significant growth. Our Integrated Commercial Model
Speaker 4: Begins with eye feed.
Speaker 4: and cost savings.
Speaker 4: IAPCI then delivers the optimized architecture and solution, leading to an acceleration in time to first production.
Speaker 4: We recently delivered the very first integrated project in Brazil.
Speaker 4: Our client, Karun Energy, has emphasized that the project would not have been economically feasible without our IEPCI execution model.
Speaker 4: This differentiated outcome underscores our rationale to focus our people and assets on those opportunities which benefit from integration and technology, enabling shorter cycle times, as well as risk mitigation.
Speaker 4: We've also reduced complexity and cost with our Subsea 2.0 product portfolio.
Speaker 4: Delivery schedules for a subsea tree have been shortened more than 50% when utilizing Subsea 2.0 by leveraging our Configure to Order model.
Speaker 4: CTO allows us to industrialize our solutions while still addressing the unique requirements of individual projects.
Speaker 4: This gives us incremental manufacturing capacity without the need for additional capital expenditures.
Speaker 4: This also eliminates design engineering and redefines our sourcing strategy by utilizing pre-approved suppliers and standard configurations.
Speaker 4: Reducing supply chain risk during the manufacturing process.
Speaker 4: We have also made strategic decisions in support of our fleet through the creation of our pipe-lay vessel ecosystem.
Speaker 4: Here we have extended our capabilities through alliances with Allseas and Saipan, providing us the industry's most comprehensive suite of pipe-laced solutions.
Speaker 4: This ecosystem expands our IEPCI opportunities while providing greater capital efficiency through collaboration.
Speaker 4: IAPCI, Subsea 2.0, and the vessel ecosystem are all transformational elements that have reshaped our company.
Speaker 4: They have fundamentally changed the way we do business and provide real and sustainable differentiation for TechNate FMC.
Speaker 4: In closing, we are confident in continued market strength.
Speaker 4: We are confident in our ability to execute in this period of growth as the simplification and standardization of our integrated products and services reduce project complexity and execution risk.
Speaker 4: And our improved commercial success is a direct result of our customers' confidence in our ability to successfully deliver their projects.
Speaker 4: Our journey is not predicated on the market recovery.
Speaker 4: It reflects the changes we have made to our business that are already providing tangible benefits today through unique market visibility, improved commercial success, and enhanced operational insight. And I am confident these changes will continue.
Speaker 4: to drive improved results for our company.
Speaker 4: I will now turn the call over to Elf to discuss our financial results. Thanks Doug.
Speaker 5: Total company inbound orders were 2.9 billion in the quarter, with subsea inbound of 2.5 billion and surfs technologies of 322 million. Total company backlog increased 13% sequentially to 10.6 billion.
Speaker 5: Revenue in the quarter was 1.7 billion. Adjusted EBITDA was 155 million, excluding a foreign exchange gain of 2 million. When excluding the impact of charges and credits, our adjusted income from continuing operations was 1 million.
Speaker 5: Now turning to our sequential results.
Speaker 5: In sub-c, operating results were similar to the fourth quarter.
Speaker 5: as we suggested back in February .
We're seeing such a.
Uplift in our integrated work, where we can work with a client early on shorten the cycle time and they have a much greater certainty our project delivery relying upon our proven execution and our proven execution model. So.
Really things are looking very very bright.
Great. Thanks, so much Doug I'll turn it back.
Chase Mora with Bank of America. Your line is open.
Hey, good morning, everybody.
So I guess first.
Obviously strong orders.
We continue to kind of hear from your peers.
About the higher margins.
And strength.
The pricing side.
So could you talk a little bit about pricing momentum on recent awards in tenders.
And kind of what Youre seeing out there in the market and if youre able to kind of continue to push pricing.
Even though that you see a little bit of oil price volatility recently.
Sure Chase good morning, Ed.
As you know.
I don't really talk about pricing or pricing momentum.
Is it real yes is it is it there yes is it improving yes.
But when you are a company that has 70% of your work direct awarded to your company because of your relationships. Your technology lead your unique integrated commercial model, where we like to we talk to our customers about the project economics, and we show them, how we can improve the project economics.
Principally by accelerating time to first oil, which really drives the project returns.
In that we share a greater portion of that economic value that we create.
So again.
He is very positive very positive trend, but if you are only speaking to price then you're just playing the supply and demand cycle. We built this company to be different we built this company to be resilient and deliver through cycle returns and it has fundamentally changed the way that we operate the company and quite frankly our.
<unk> within the sector as a result of that so when we talk about things like <unk>. When we talk about subsea two <unk> when we talk about the vessel ecosystem. All of these things are in place we've been operating in this mode.
For up to seven years in some cases with subsea 2.5 to six years for the integrated model and more recently with the vessel ecosystem. These are all ways that we are demonstrating that we are not reliant upon the market.
A market recovery or the pricing momentum do we benefit from that absolutely, but it's not a singular trick we built a much more sustainable business and a much more sustainable operating model to deliver attractive through cycle returns.
Okay that makes sense I appreciate all the color there.
And questions that we get because order momentum so strong.
Not only for you but across the board.
For your competitors and across the industry.
There's always questions around the supply chain and the ability for the supply chain to deliver.
All of the orders and the continued momentum that we continue to see.
On the subsea side, so could you talk about the supply chain, a little bit and shipyard tightness.
Or anything okay.
Could delay at DSO is and if that could impact any anything on the subsea alere subsea side.
Sure. So let me first maybe address our.
The supply chain in which we engage with which is not shipyards and such but I, but I will answer that as youre right Thats part of the equation. So.
Speaking specifically to our company.
I'll be real blunted <unk> if.
If I was a company that didn't have subsea two <unk> I'd be really really worried.
You would be feeling a lot you'll be cracking already and quite frankly, it's why our customers are coming to us.
Subsea 2.0 has.
Has fundamentally not just change the way that we operate in the throughput capacity as I said in my prepared remarks, where we have incremental capacity without incremental capital expenditure. We've done the same for our supply chain. So just as we have a set of we're privileged to have a set of very special clients, who have been with us.
In some cases for almost three decades now working with us on an exclusive basis.
We have some very intimate relationships with our supply chain as well, where they now have the visibility and the certainty of it.
What type of activity and more importantly, not just the demand but also what it is that we will be demanding of them will do I mean by that if youre not selling to <unk>, which as you know is exclusive to our company. Then every single order is a bespoke order every single order starts with project or product engineering product.
Generic can take nine to 12 months at which time you place an order with the supply chain asking them to build something they've never built before.
This creates lots and lots of issues, we've seen it ourselves in prior cycles before we had subsea two <unk>. What we're seeing now is a much more resilient supply chain and our supply chain.
We're quite frankly privileged to have and is why we are not seeing the constraints that I think are being seen more broadly across the industry. You mentioned shipyards PSL, absolutely keep in mind chase doesn't affect brownfield.
So there is not that impact on the brownfield work theres not that impact on the Cc U S work, but on Greenfield projects large greenfield projects that require NFPA ASO.
That is obviously tends to be the long lead item.
So far as you know we've been working with some really phenomenal projects. Our clients are really move project year after year after year expanding their footprint.
And they've been very successful in doing so.
And we'll keep monitoring that and Thats all built into our projections and as we stated last quarter. We have a line of sight of $25 billion of inbound over the next three years.
Okay perfect.
While I have I'll turn it over.
Scott Gruber with Citigroup Your line is open.
Yes, good morning.
Good morning, Scott.
Hey.
How should we think about the cadence.
Vessel utilization improvement this cycle versus past cycles.
That unit is ramping faster given the shorter cycle time on tieback work and given the volume of project work that's out there.
Curious about your perspective on the cadence.
So utilization will permit.
Scott interesting question, when we talk about regularly and.
And the benefit of the shorter cycle time as you do more with less.
So the demand picks up but you're also able to.
To complete more projects and again, we're not a vessel company, we don't talk about Dave.
Day rate or utilization and we're in the business of delivering subsea projects. We're in the business is delivering the most economic.
Projects with the best returns, which is mainly driven by being able to deliver them on time on budget and the shorter cycle time, that's what's driving our success is what's driving the subsea industry success and that's what's driving our clients' success. So we're looking at right now is how can we maximize that how can we ensure.
Every single day every month every week, we take out of the project cycle time.
It is beneficial to our company when all you do is on boats.
You don't want short cycle projects that is counter intuitive youre on a day rate basis, you want to be slow and steady.
We're about getting things done quickly, we're about delivering delivering a very successful projects to our clients now at some point as successful as we are have been and continue to be and hope to be in the future. There is a finite capacity theres only so we.
We can only shorten the cycle time, so much on the on the vessel delivery side. This is why we created the vessel ecosystem and brought in partners like all season, the IPM, where we can continue to expand the <unk> market. They can benefit by being part of that market.
And we do that in a very capital efficient way for our company.
So that's kind of the secret sauce, and it's something we're very very proud of and it has never been done in the industry before and by the way that club is open to any and all participants we would welcome and we are open to working with anyone.
That's great I appreciate all the color I, probably didnt ask the question.
In the right manner.
From the perspective of kind of getting into the installation phase faster.
This cycle it seems.
It seems to be happening with I would imagine.
That's good for margins.
Just a follow up.
Alright on cash conversion.
It is good to hear that no change in the free cash flow.
Cash for the year I'm just curious.
Some of the obviously, the Ts and CS on.
Contracts can can change.
As as the cycle progresses.
Curious whether.
There is any material change in cash conversion.
Hi.
As you are signing today versus projects you signed earlier in the cycle or is that all fairly consistent.
Sure Scott, Let me circle back to the first question you didn't ask you didn't ask the question wrong I just answered it wrong, but obviously, it's something I'm quite passionate about but yes, I agree with the premise that you put out as well.
Look when we talk about quality of inbound that can be interpreted broadly is the commercial terms, but it's also the contractual terms in one of those very important one of those is how we are paid if you will the cash flow curve and that is very important to us and I will say in some.
This is it has it has changed in a material way and a favorable material.
Favorable favorably in a material way and.
And it's one that we continue to work on very closely with our clients. Our clients also understand that by securing certain items or prepay. If you will it also helps them secure slots. It also helps them secure long lead raw. It also helps them ensure that we are able to mitigate potential inflationary.
<unk> through the life of the project so for all of those reasons, it's actually a win win on both sides.
Got it I appreciate all the color Doug I'll turn it back.
Okay.
Arun <unk> with Jpmorgan Your line is open.
Good morning, I had some technical issues a few minutes ago.
70% of your awards.
Or direct award subsea services or Ie PCI.
Yes, I was wondering if you could help us think about.
The margin benefits as more and more of your order.
Book comes toward some of these direct award and integrated projects trying to think about that under the lens of.
You have guided kind of on this march from call. It 13% subsea margins this year up to 18% I believe in 2025.
Sure Rune and good to hear your voice glad you're okay.
So just on the just on the margin growth just to be clear. It was 650 basis points, which gets us up to 18%.
In 2025 as you indicated.
Again, you can understand the sensitivity when 70% is direct awarded when you have a client relationship exclusively for over 30 years, while I don't go onto Mike.
Hammer price and all of that we are not we don't take advantage of our clients. We work with our clients you can only develop lasting relationships.
If you treat each other with respect and that is what we've done that's how we built this company. This reputation of this company and we have just further enhance that with the integrated model now is it true that we preferred direct award yes is it true that we prefer to be engaged with the client early in the <unk>.
<unk> through our integrated front end engineering or feed yes, do we require the customer in that case to direct award us. The project of course, because we're showing them a unique integrated approach that others don't have the ability to do so.
Of course, we would expect that to result in a direct award at the end of the day as I said earlier, we are a projects company, we're not about boats or trees or anything else whereabout delivering very successful offshore projects, we had been talking about the offshore coming back for quite a while before that.
Rest of the industry kind of.
Let's say acknowledged it that's because we knew what we were doing was making the offshore economics quite attractive and all of the things in the past that made the offshore projects unattractive or will we have addressed with the <unk> model subsidy in subsea two <unk> and we've done that it is.
In a multi multiyear journey, it's been now going on a 10 year journey, we made very bold moves they are all behind us we're 100% in execution mode now and it's about delivering those successful projects to our company. So when we're looking at a 650 basis point margin expansion and as we said back in queue.
The prior quarter and again in my prepared remarks, it's not reliant upon a market recovery, we're not betting on the market coming back we're not betting on pricing coming back do we believe the market is going to remain strong absolutely, but the strategy of the company is not based on the cyclicality of the industry, we fundamentally changed.
That we are going to deliver that type of a margin uplift largely through these internal initiatives, which we are already beginning to enjoy today.
Great and I was just comparing Doug your subsea EBITDA margin guide for this year at 13% midpoint just to be clear.
Understood.
And just my follow up Doug I heard the word vessel ecosystem quite a bit on this call. So I was wondering if you could maybe elaborate on this.
Competitive advantage of the ecosystem.
For FTR.
What what is what do you think some of the tangible benefits of that ecosystem that you highlighted at your analyst day back a couple of years ago.
Yeah.
Yes, so youre right, we kind of announced it a few years back initially with all sees more recently, we have added <unk> to the club and again would welcome others any and all others by the way, we don't view it as competitors we view it as.
Collaborate collaborators are if you will to collaborate together.
Why is that everybody building additional capacity everybody building capital we've seen what that has done to other sectors of the industry. It hasnt fared well.
We chose to take a different approach and the approach. We took means we don't have to consolidate we don't have to do M&A and just consolidate to get to scale, we will work openly and collaboratively with others and we have the <unk> market and as a result of having that market, which is now.
Significant portion of the total market. So the total available market has shrunk to those who don't have IEP PCI. So roughly call that a third of the total market is now largely our hours and you see that in the and where we are in the marketplace. Today now we can continue to grow that by going out.
Building.
Multi hundreds of millions of dollars of vessels or we can use the very same vessels that exists today in the marketplace with with similar capability of the vessels that we would build in this case and work collaboratively with those companies the benefit.
It's a mutual we both mutually benefit.
Because the others in the cloud they have access to the PCI market and we continue to grow the <unk> market. It's just you don't think that way. When you are an asset only company because again all you all youre thinking about is day rate utilization day rates utilization and I have to have more I have to have bigger I have to have the most we don't think that way we think about.
How do we make subsea project economics, the most attractive investment for our customers by the way be it hydrocarbon based albeit renewable energy base.
Thanks, Doug.
Yeah.
Debbie with society in General.
Your line is open.
Yes.
Good afternoon, or good morning, Doug.
One question if I may.
Uh huh.
One of your competitors, let's say not really a competitor Alibaba.
Your partner Betty can mention the progress on <unk>.
Electric completions.
Seem to be basically quite.
Hi, Peter regarding put onshore.
Of those technologies to change.
That infrastructure, so I would like to have your take on that.
Crude oil electric completion be genuine game changer going forward.
Okay.
Oh good good afternoon to you. Thank you very much for the question.
<unk>.
So the short answer is.
It is absolutely an exciting opportunity.
We are privileged to work with Halliburton on this project.
Burton brings the market leadership in downhole completions.
And in this case, specifically, an all electric subsurface safety valves, that's important because if we electrify the subsea but.
But the Wellbore itself still requires hydraulic actuation like halliburton's competitors.
That doesn't allow us to go all electric if you will arctic or to really simplify you'd still have to run an umbilical.
Subsea hydraulic distribution, which still have to have hydraulic throughput through our tree to be able to control the subsurface safety valve and downhole.
<unk> sliding sleeves and valves downhole. So albertsons worked really hard on this they've got the.
They've got the leadership role, we obviously have the leadership role in subsea. So it's a it's a great combination when we go out and look at the all electric market I do think it's important now to put that electric the electrification of subsea if you will into context.
22 years ago, 22 years ago, Technip FMC installed the first subsea electric actuator.
Since then we've installed over 600.
So and when we launched our <unk> platform, we design that platform to be configurable to either electric over hydraulic or all electric giving our customers the choice of which way they want to go and demonstrating.
Our continued relentless innovation and technical leadership.
And we've talked about in the past exciting opportunities for Greenfield developments.
It will improve the total system cost and uptime performance and we've also talked about brownfield opportunities because it's going to dramatically increase the tieback radius up to four times around the existing host.
But more recently and quite frankly, most exciting for US is we now realize that all electric subsea will be most likely be the base case and in many cases, the only case for Cc U S.
That's new.
And this provides us an exciting market opportunity for our Seo to two point.
Fit for purpose <unk> injection tree, which is built on our.
2.0 platform and is electrified.
For all of those reasons, yes, we're very excited.
Okay.
Great and I think we did not succeed in trying to get.
The numbers on that at this.
Thanks.
Right.
Sure.
Thank you very much Doug I can think of that.
Thank you.
David Anderson with Barclays. Your line is open.
Great. Thanks, Hey, Doug sorry, I joined a little late today.
A question kind of bigger picture subsea market.
It's really over undergone massive structural change.
<unk> integration consolidation at our capacity being taken out of the market by some of your competitors.
I'm wondering if this has created a sense of urgency among your <unk>.
Customers out there about getting into the queue is this translating in either.
Higher prices for non IEP Ci work that you're going after or are you seeing or maybe it is one of the reasons why we're seeing more on the IPC side I was wondering if you could talk about that.
The market sure David.
Sure David Good morning, and we know it's a busy day. So thank you for joining the call.
So completely agree it is a matter of fact, there was a recent publication that I think really really emphasize this.
Was very well done so thank you for that and I think clearly the.
The market is is <unk>.
As strong as it has been in a very very long time.
I won't say that or I forget the exact words.
It.
The descriptor.
Our clients anxious because I don't think they would.
<unk>.
They would reflect that but.
Look are they concerned about capacity absolutely.
Are they concerned about quality capacity most definitely so there's one thing about getting capacity. There is another thing about getting quality capacity and again I'm not I'm not saying this to say anything about anyone else I'm just saying this is the fact that has.
The subsea industry in every other cycle.
Is when you run out of quality capacity, then you start having people that are using.
No.
The spoke kind of manufacturing and it leads to as in the past projects being delivered in many cases up to one year late well.
They're seeing with the <unk> model and what they're experiencing from us and a repeat order rate on PCI is exemplary.
Because we're delivering these projects ahead of schedule.
And they are seeing that there is a lot of.
There's a lot that goes on behind the scenes that is not obvious when you just think about integrating two major work packages.
Thousands and thousands of interfaces that we have either eliminated and you can't do that through a relationship you can only do that and Thats why we consummated in our relationship and created Technip FMC is it is a serious engineering technical effort to be able to do that.
And then you can give your customers the confidence that they need maybe now more than ever it's not anxiety, but they do realize it's now more than ever and to the earlier question that was asked by chase around the supply chain. It's just as important because if you're the bottleneck or your supply chain is the bottleneck it doesn't matter.
The customer is still loses and.
In the past as an industry, we would talk about variation orders, we don't talk about variation orders Yo variation orders means I'm, having a problem the customer is going to pay me more for my problem.
That's a terrible terrible model and it doesn't build trust it doesn't build confidence it does it build repeat orders. So this is really I mean it is it has structurally changed the way that our customers think and the way that we're operating.
Right.
A follow up there just looking at your orders I know you talked about the next three years I'm just kind of curious Paypal, we have coming over the transom over the next.
I don't know 12 to 18 months could you reach close to full capacity in your own business.
Two point or sort of change that definition of capacity give you more flexibility.
Thank you David.
We are learning we are realizing I guess I should say the benefits of subsea two <unk> every single day.
Just last night I was spending time with our head of research engineering manufacturing and supply chain and.
No.
We're getting more out of the were getting more out of the plants today than we thought was possible and.
Not meaning that demonstrated capacity or technical capacity I, just mean, the efficiency of subsea two <unk>, we're learning ourselves the efficiency of the configure to order the ability to be able to redeploy our engineers from doing product engineering and coming up with with relentless numbers of new.
Item codes that can go into a bid document and doing real exciting engineering like changing the architecture of the subsea environment I mean, our engineers are as excited as they've ever been.
We've talked about the supply chain before and yes on the manufacturing side, we continue to get more out of less and and we're learning as we go and we certainly are not.
We have no concern about that affecting our capacity just as importantly on the IEP Ci projects is the vessel ecosystem. So the two come together to give us that scalability that quite frankly never existed in this business before and if you don't have to point out and you're not an integrated company and you don't have access via <unk>.
Vessel ecosystem, which means you collaborate well with others.
Not going to get scalability, and then you run into the capacity constraints and concerns that you mentioned.
So you are correct capacity number is sort of changing you don't really know what the upper limits or youre, not adding obviously, you're adding roofline, but you don't really necessarily know youre squeezing more out of this I guess in other words.
I can ask the numbers kind of growing for.
For you anyway.
That's exactly right. That's why you don't see are our capex number going up but yet our growth going up right.
Alright, Thanks, guys I appreciate it thanks.
Our final question will come from the line of Kurt <unk> with benchmark. Your line is open.
Hey, good morning, Thanks for demand.
Good to hear your voice Kurt.
Excellent Doug it's great color.
So kind of curious here first on subsea right talk about 70% of your business now being IEP Ci and what kind of referenced broadly that potentially 70% of the total addressable market is a PCI.
But my question is that right. So.
Is there a limit to what.
Percentage IEP.
PCI can represent of your.
Specific business.
I'd say that in the contact that we know that our customers necessarily want to do business. The way that you would like to do that so if it gives you an opportunity now to focus on the customers that kind of share your vision.
Or you think you're going to keep some capacity available to do some of this other work that may not fit into IEP PCI kind of a longer term question, but kind of curious on how you hate evolving.
A good fair question and an interesting strategic question Kurt.
If.
Say, if it's what we do but if you're if the assumption is that we are in business to generate.
The best economic to make subsea projects, the most economical investment for our customer and to deliver the greatest project returns then by definition.
<unk> I could go and quite frankly should go to a 100%.
We know it works our customers know it works.
We announced.
Almost every quarter, we're announcing a new customer and in many many quarters repeat customers.
So it is expanding rapidly.
I don't believe there is necessarily a upper limit in terms of.
A client or a geography, we just talked about delivering the very first.
<unk> project very successfully in Brazil. So.
It's.
Some adopt more quickly than others.
But over time I quite frankly, I believe that the subsea industry not just ourselves will go integrated so in the future will have a fully integrated <unk> light competitor I mean that would be logical if thats, where the market is going.
So no I guess I don't see any reason why there would be a technical limit to.
The growth of ipi or for that matter for the adoption rate of subsea to point out to your point in the meantime are we very honest with our clients and they want us to go out and bid day rate on a vessel.
It's less attractive to us.
In certain situations in certain conditions, it's something we will pursue for the right returns and for the best economic outcome.
But in general yes, we've been very clear that we will prioritize all of our resources not just our our vessel in manufacturing, but as most valuably our subsea engineering.
Capability on those alliance partners.
That lead to direct awards <unk> or integrated feeds that lead to direct awards of PCI and the application of subsea two <unk> and often when we announce projects you'll see it's a combination of those three.
Great now.
Follow up question I have is on surface.
As you've referenced many times in the past.
The growth is coming from international.
A strong exposure in the middle East market. So.
I am curious here as to.
If you look at that surface business you look at the success you've had in the subsea business.
Do you see an opportunity.
To establish a similar level.
Intimacy with their customers that you have in subsea where that surface business can become a direct award business as well.
I'm curious of how you think about that.
Kirk Great question.
Just got back from Saudi Arabia.
And thank you for bringing up surface and thank you for bringing up the middle East are both are important to our company.
At a high level reminding everyone, 90% of our revenue comes from international we define international.
As offshore and principally the middle East drive to drive the bulk of our business that's 90%.
And.
The surface international business, Indeed benefits from direct award indeed benefits from a similar because it's more of a project base business, whereas North America is a product based business and that product has become commoditized, hence 20 plus competitor.
<unk> in the North American market internationally, there as most countries theres only two of us in some countries. There's three of US it's a very different playing field. It tends to be project it tends to be longer lead longer lead.
Orders larger orders, which is why we have backlog built up in our international business and I will tell you the activity and the relationship with our customers in the middle East is exemplary.
Yes.
And just one more on capital allocation.
In the context.
The reference that you're buying your stock to be very much undervalued and share repurchase seems to be where you're going to put the capital I think in the past.
You indicated that you would revisit your dividend policy at some point is that still on the table for this year.
Yes, that's correct. So first of all we remain very committed to shareholder distributions overall as we.
As I said in the prepared remarks, we have spent 37, 5%.
For $100 million authorized share buyback program. We achieved this based on successfully deleveraging our balance sheet last year, and we were able to accelerate.
The initiation of this program.
And clearly we believe still that our shares remain undervalued and you've seen it from this quarter's activity I believe youll see us remain active in our share buyback program.
And also of course, that's our financial results continue to strengthen we really believe it's appropriate to initiate a dividend.
To further demonstrate our commitment to our shareholders. So you'll hear more about that in the second half of this year.
Okay. Thanks for that color appreciate it.
We have one final question from per ton holiday with Kepler.
Cheryl Your line is open.
Yes. Thank you for taking my question and good afternoon, everyone.
Doug I had a question.
On Mozambique.
Back in 2019.
Taking frequency one.
No.
$1 billion plus.
Contract subsea.
Can you update.
And.
On the studies and the remaining portion of the backlog and.
And total energies with you.
The project.
This year is that.
It will be.
<unk> forward we start.
Do you have to renegotiate some terms under the contract.
Hi, Good afternoon Bertrand. Thank you for the question Indeed, a very large contract at the time of the award as you May recall was the largest IEP Ci project that was ever awarded to that point subsequently, we've actually received larger ones in and potentially more in the future so but an important project.
One that we have worked tirelessly actually on the subsea equipment portion and as I have previously.
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