Q3 2023 TechnipFMC PLC Earnings Call

October 26, 2023

Thank you for holding and welcome everyone to the technique FMC third quarter 2023 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, if you'd like to withdraw your question again press Star one.

I will now turn the call over to Matt <unk>.

On your Vice President Investor Relations and corporate development Mr.

Mr. <unk>. Please go ahead.

Thank you Jack good morning, and good afternoon, and welcome to technique Fmc's third quarter 2023 earnings Conference call. Our news release and financial statements issued earlier today can be found on our website.

I'd like to caution you with respect to any forward looking statements made during this call.

Although these forward looking statements are based on our current expectations beliefs and assumptions regarding future developments and business conditions.

They are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements.

Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K, most recent 10-Q and other periodic filings with the U S Securities and Exchange Commission.

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.

As a result of new information future events or otherwise.

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

Thank you, Matt good morning, and good afternoon.

Thank you for participating in todays earnings call.

We delivered solid results in the third quarter.

Subsea inbound orders came in strong at $1 8 billion.

And adjusted EBITDA improved sequentially for both subsea and surface technologies exceeding the guidance, we provided on our second quarter call.

This momentum is also driving our expectations for full year results higher.

Continuing with total company financial highlights in the quarter.

Revenue was $2 1 billion.

Adjusted EBITDA was $284 million with an adjusted EBITDA margin of 13, 8% when excluding foreign exchange impacts.

Total company inbound was $2 1 billion.

Total company backlog ended the period at $13 2 billion.

In subsea we received significant orders for flexible pipe in the period.

These included an award from Petrobras for the pre salt fields in Brazil.

And our largest ever flexible contract in the Gulf of Mexico for Woodside to try on project.

As both pioneer and market leader of this technology.

Flexible pipe provides us with a unique capability to design fully integrated end to end subsea systems for our clients.

We have the unique ability to integrate flexible technology into our <unk> offering.

Which greatly simplifies field architecture.

This enables a further reduction in project cycle time, improving economics, and driving greater differentiation in our integrated offering.

Beyond flexible activity, we also experienced an exceptionally high level of unannounced project awards in the quarter.

Which speaks to the ongoing strength of the market.

In subsea services inbound was robust driven by installation and life of field activities.

Given the continued strength in our inbound we are confident that subsea orders will exceed 9 billion for the full year.

And if we extend the view to include our current expectations for 2024.

We now believe the next five quarters will approach $11 billion.

With this near term update we now expect to exceed the guidance for $25 billion of subsea inbound through 2025, and we will provide an update on this extended outlook on our fourth quarter earnings call.

The durability of this cycle is driven by both an expansion in the number of active basins, which has nearly doubled versus the prior cycle as well as a growing and more diverse customer base.

Additionally, this cycle was supported by a robust and strengthening pipeline of feed activity.

In the third quarter feed studies increased nearly 40% when compared to the number of awards in the first half of the year.

Importantly, more than half of the studies awarded to our company in 2023 have the potential to be direct awarded upon project.

This provides us with extended visibility and confidence that subsea opportunities will remain resilient beyond 2025, even before we consider new frontiers that are likely to present themselves in the second half of the decade.

Subsea backlog ended the period at $12 1 billion, a nearly 60% increase year over year.

An increasing proportion of this backlog is coming from IAA PCI subsea two <unk> and other direct awards, reflecting the high quality of our order book.

Year to date, we have been awarded the industry's three largest integrated contracts.

<unk> BMC 33 project in Brazil, The Roes Bank project in the UK and Alker bps, Sara Hi project in the North Sea.

While integrated execution will certainly shortened cycle times.

Size and scope of these awards.

US with multiyear visibility as a significant portion of the project revenues extend beyond 2025.

In surface technologies international activity increased sequentially.

We continue to ramp up production in our Saudi Arabia facility as well as successfully execute on our multi year framework agreement with Abu Dhabi National oil company.

Activity in North America was moderately lower in the period, however, operating margin improve sequentially benefiting from the strategic actions previously taken to reduce our cost structure.

In closing.

Our commercial and operational success continues to drive improved financial results and <unk> will discuss how the strength in the second half.

Drive our full year results higher.

Additionally, the upward revisions to our subsea order outlook are fueled by high quality inbound driven by IAA PCI subsea services and other direct awards.

And which are now expected to represent more than 70% of segment orders in the current year.

And more importantly, these results are further strengthening the foundation for higher and more sustainable performance in the years ahead.

I will now turn the call over to <unk> to discuss our financial results.

Thanks, Doug inbound.

Inbound in the quarter was $2 1 billion of which $1 8 billion came from subsea revenue in the quarter totaled $2 1 billion.

EBITDA was $284 million when excluding foreign exchange loss of $46 million in impairment restructuring and other charges totaling $4 million.

Operationally, we delivered solid results in subsea revenue was $1 7 billion up 6% from the second quarter.

Increase was driven by mid single digit revenue growth in both projects and services.

The largest drivers of improvement were in Norway and Brazil.

Adjusted EBITDA was $258 million with a margin of 15, 1% up 70 basis points from the second quarter.

<unk> benefited primarily from higher volume and favorable activity mix.

In surface technologies revenue was $349 million. This was a modest decline versus the second quarter, primarily driven by lower revenue in North America, which decreased 8% sequentially, partially offset by higher international activity.

Adjusted EBITDA was $50 million, a 6% sequential increase.

International results benefited from improved operational performance in the Middle East.

North America results were largely unchanged versus the prior quarter. Despite the revenue decline benefiting in part from strategic actions taken in prior quarters.

EBITDA margin was 14, 3% up 100 basis points versus the second quarter.

Turning to corporate and other items in the period corporate expense was $24 million when excluding less than $1 million of charges net interest expense was $27 million and tax expense was $19 million.

And lastly, we incurred a foreign exchange loss of $46 million in the quarter.

Approximately 50% of the loss was directly related to actions taken that we believe will reduce the volatility in our foreign exchange exposure going forward.

Importantly, we believe these were one time elements of our results in the period.

Approximately 30% of FX loss was related to the current cost of hedging our euro denominated debt and liability positions.

With the remaining portion due to unfavorable movements in currencies that we are unable to economically hedge with the Argentine peso, having the biggest impact in the period.

Cash flow from operating activities was $222 million and included a 27 million payment related to the previous legal settlement with the French National Prosecutor's office.

Capital expenditures were $44 million.

This resulted in free cash flow of $178 million in the quarter.

In August we completed the sale of the Apache to pipe lay vessel for net cash proceeds of $54 million.

The sale of marks another tangible strategic step forward in our commitment to higher and more sustainable financial returns.

We ended the period with cash and cash equivalents of $691 million net debt fell almost 200 million to $650 million.

During the quarter, we repurchased two 7 million shares for $50 million and paid $22 million in dividends.

Shareholder distributions for the period were $72 million.

Moving to our guidance I will first provide an update to our segment expectations for the fourth quarter for.

For subsea, we expect the typical seasonal impacts with revenue declining approximately 10% sequentially and adjusted EBITDA margin coming in at approximately 13%.

For surface technologies, we expect revenue to increase about 5% sequentially.

Adjusted EBITDA margin to be approximately 14%.

Turning to the full year, we anticipate corporate expense to come in at the high end of the range of $100 million to $110 million.

With these updates we now anticipate a range of outcomes for total company adjusted EBITDA to approximate $915 million for the full year when excluding foreign exchange.

This represents a $35 million improvement versus the guidance, we provided on our second quarter earnings call.

Lastly, we reiterate our free cash flow guidance of $225 million to $375 million for the current year.

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

Given the strong Q3 results and improved outlook for Q4, we are increasing our guidance for full year company EBITDA to approximately $915 million when excluding foreign exchange.

Second free cash flow generation improved in the period as expected keeping us on track to achieve our full year guidance.

And third with the initiation of a dividend in the quarter and ongoing share repurchase activity, we distributed over $70 million demonstrating our commitment to return cash to our shareholders.

Operator, you May now open the line for questions.

Certainly at this time.

If you'd like to ask a question. Please press star one on your telephone keypad, we ask that you limit yourself to one question and one follow up to allow everyone an opportunity.

David Anderson.

At Barclays. Your line is open.

Great. Thanks, Good morning, Doug how are you.

Very well, David and yourself.

Doing great.

A question on maybe just to start on the order outlook over.

Over the next five quarters should be $11 billion.

What looks different about that $11 billion going forward or does anything look different in terms of.

The customer mix shifting one way or another I think you said, 70% you are expecting to be subsea two point.

With market capacity tightening I think pricing should also be firming up as well could you maybe just kind of talk about the difference going forward with what you.

You've kind of pulled in overlap.

It's simply all about time so yes.

I understand rig companies like to talk about day rates, but the reality of the project economics is the best way to influence. The overall project returns is to accelerate the time to first oil and most importantly deliver the project on time.

And this is what's driving our customers' behavior, Dave because they're sitting there and they want to align with the very best companies.

That give them the highest probability of delivering the project on schedule and Oh by the way with Technip FMC. We can typically do deliver at one year ahead of if we don't use technip FMC again, <unk> 2.0, driving that cost or that cycle time to be much.

<unk>.

So that's really what we're seeing we're seeing a flight to quality.

Sure. There are always focused on economics, and always have been and so are we.

Again as a pure play.

We truly understand the value of the offshore and we truly understand how to drive offshore project economics to an ever higher level and we do that through our <unk> 2.0 unique offerings through our company.

Which gives us our customers to confidence in our ability to be able to continue to deliver these projects on time.

That's really the secret sauce of our company.

Okay. Thanks, a lot guys I appreciate it.

Look the mine at Piper Sandler Your line is open.

Hey, good morning, Doug.

When you run out the initial hey, good morning, when you laid out that initial subsea margin target of 15% for 25 in late 'twenty one.

Which you actually just hit this quarter I don't believe there is much twenty-five backlog visibility at the time, just kind of guessing that's somewhat predicated.

And once you saw coming in the pipeline from two point al <unk>, the market warrants, which you've talked about.

Since then you've raised that margin target earlier. This year my question is.

Even though you have some backlog visibility past 'twenty, five which you show in your slide deck.

How comfortable are you with where margins can head.

But for maybe the next three to four years and just to clarify not looking for a specific margin target just kind of your confidence and visibility in that three to four year timeframe.

No problem Luke.

While it on if you go back to November of 2021 that was a very different world.

And when you look at what was happening offshore.

It was very different indeed.

So we were talking about at that point, increasing our margins up to 15%, but largely through the internal initiatives.

Largely through the internal initiatives and that's really subsea two <unk> has allowed us to change our operating model from an engineered to order to a configure to order operating model that has had profound impact on our business.

And you can't just do you can't first you have to develop the architecture, but then you have to gain.

Enough scale.

To be able to really see the benefits of the configure to order. So if you will it's a unique opportunity for our company. So when we gave the 15th.

Percent largely predicated on internal initiatives clearly the market conditions have improved since 2021, hence raising the 15% to 18%. Thank you for pointing out we tripped the 15% already this quarter.

And we continue to be extremely confident in the progression of our ability to continue to extend the margins not only because we are getting ever more benefit from the configure to order model as the <unk> and two point, though direct awards continues to increase for our company and we get the volte.

And the scale benefit.

As well.

And obviously the underlying market conditions are improving for us.

Gives us the confidence to be and it's why we've repeatedly said the 18% is a is a major milestone on a more ambitious journey. So we remain.

Extremely positive of the future.

All right got it thanks, so much Doug.

[noise] Marc Bianchi of.

Cowen Your line is open.

Hi, Thank you maybe just quickly Alf to confirm on the the EBITDA for this year, you said 915, not 95 zero correct.

Yes, Mark confirm 91, five is what the what I said, there's $35 million up from the prior guide that we had from the prior quarter.

Okay Super Thank you.

And maybe maybe mark if I can maybe add something Mark just to clarify also you know you may you May Wonder you know in the prior quarter. If you remember we we mentioned also that we think we will be doing EBITDA 35, having a 35% growth of EBITDA into 2024. So now that you take this new number of 95.

You can still apply this 35% so just to be very clear, we haven't backed off from the 35% going into 2024, but I'm happy that you clarify 95 O versus the 191, five but still the same dynamics are in place.

Okay. That's great that was actually going to be my next question.

Doug if I remember correctly, you came to MTI in early 2000, tens, which was a period when I think everybody thought that.

Subsea was kind of going to grow as far as the eye can see and it seems like maybe that's where we are shaping up today, but the market's quite a bit different you're offering is obviously very different but from a customer perspective I'd be curious to hear any reflections on.

How things compare today versus that early 2010 period.

Interesting question and actually I think a lot about this.

<unk>.

In my spare time, so look a lot has changed.

No.

When we talk about the customers.

I'd say our customers are much more collaborative.

Much more open to.

<unk> partner led solutions.

Much more open to new technologies.

And it's really what enabled us to be able to achieve the success, we've achieved with subsea two <unk>. The idea of standardization has been around since before 2010.

The ability to be able to go from engineered to order to configure to order, which is much more than just standardization was really the key when we unlock that and we're able to convince our customers that they could still have if you will optionality.

But the building blocks, we are going to be standardized not the final the final product, but the input to the final product that product was going to be standardized that really changed the way of thinking so look a lot of the credit goes to our customers.

And they and their behaviors, which have certainly changed and improved over the period of time, our customer base has also expanded quite significantly over that period of time that I mentioned in the script. We're operating in twice the number of basins that we have historically operated and so people don't really think about it.

That much but just the offshore market and when you think about offshore.

Offshore, but it was fairly limited in the areas of offshore that we're really being.

Developed and that has doubled.

And then when you start to look in the what keeps this.

Momentum going you start to look at all of these frontier basins that we're hearing about theyre not onshore their offshore.

And their offshore around the world. They are not in any one particular content enter one particular area, they're spread around the world and those are the.

Those areas are the ones that are going to contribute will be on the numbers that we're talking about today.

So it is very very different and thank you for pointing out I do want to close on you know we're a different company. We were a great company in 2010, I believe are an even greater company today and again, that's driven by the change in our operating model and our ability to be able to demonstrate to our clients and give them the confidence to direct award us the work that they do.

Because of who we are.

Great. Thank you very much.

Mark Wilson Jefferies. Your line is open.

Thank you.

Yeah excellent set of results and the outlook that Doug just a few outside point some the sale of of the Apache vessel I was just wondering if there's any more.

Of those planned and then the other question I mean do you see on the horizon.

First offshore Ccs Award coming that's all those are my two points.

Thanks Mark.

Regarding the fleet as we have said since we formed the company.

17th of January 2017, we were going to focus on a company that really had exemplary through cycle.

Returns and.

Part of that was we were going to do things differently in regards to the fleet we.

We do not need to own and operate all of the vessels that we use in our business.

The only way to do that is to be a company that others Trust and others are willing to work with.

And that's our reputation and that's how we've been able to develop our vessel ecosystem and bring in world class partners like Ocs inside them and more in the future.

And that's really what enables us to continue to look at our fleet and determined if those assets are strategic to our company or not.

And if they're not then we're able to continue to streamline.

Our.

Improve our returns by streamlining our fixed cost base.

Okay very clear.

I'm, sorry, Mark and I just was reminded of your second question.

I got excited about the first thank you on the second question I would answer that by saying indeed.

Yeah.

Curtis lead.

The benchmark company your line is open.

Hi, good morning, everybody.

Hello, Good morning, Kurt.

Great.

I didn't look at.

Hey, Doug with.

Now with the expanding inbound and backlog you have on subsea and obviously the increased visibility.

Out towards the end of the decade.

I was wondering if you can give us some insight on.

What how your.

Managing execution risk.

Internally and what you are able to provide tenure.

Client base that assure them that when they do throw that stuff you're way, yeah, youre going to be a very strong position to handle it and as you said deliberate on time.

Okay.

That's the million dollar question and I will tell you when I'm speaking to clients that is typically when they call me that is typically the call is we have this new opportunity. We're looking at this new emerging basin, we wanna be securing assets well into the future we want.

We want to work with Technip FMC gave out give me or give us the confidence that youre going to be able to deliver this that is absolutely. The discussion that's going on today first.

First and foremost do what you say you're going to do and we've demonstrated that we continue to shorten the cycle times, we continued to deliver the innovation into the industry and we continue to be the company that our clients want to partner with it they want to work with because of our behaviors and who we are as a company.

More importantly is.

To give them the additional confidence I should say is really helping them understand how this shift from engineered to order to configure to order is fundamentally changed the operating model of our company.

And we actually had an opportunity earlier this week with our board of directors to kind of walk them through how we're operating the company today.

Got it.

On a daily basis at an operating level and it's a profound change and the visibility and the.

Our ability to be taken to be able to see though and understand what are those key success factors that will ultimately deliver the kpis are if you will the project on time and tracking those key success factors is a really quite a fundamental change and I know it sounds basic.

But when Youre doing configure to order the only really metric you had I'm sorry, when youre doing engineered order excuse me the only real metric you have is the output did you or did you not deliver on time and that's too late to fix anything.

Would they now see is that we have the ability and the configure to order to be well ahead. There are so many things we can do that we could not do in the past because remember when we got our subsea order.

We spent nine months of detailed engineering before we could place a single order with the supply chain internal or external.

The situation of our competitors are in today.

Whereas we're able to work with our clients and we can look at five years ahead of time, we can look at one year ahead of time and we can start putting in place those building blocks that are going to enable the success by ensuring that the schedule by by having schedule certainty and schedule assurance for our customers. So it really is a.

Way of operating and we will work our clients through that and they see it in all of our operating locations. They are able to experience that in our operating locations.

And just continue to deliver at a very very high level.

That's great color and follow up.

Kind of curious right we've seen some recent.

Kind of tying everything together here right with respect to the order book the upcoming the insights as to the projects that are.

Our slated for even later this decade and the incremental oil that's going to bring to the market right yet OPEC The mountains suggests.

Oil demand growth out beyond 2030, obviously, you've had the IEA kind of take a different tone, but.

Through all your your experience in dealing with different cycles right at the end of the day I can't imagine a customer moving forward with.

A project that's going to deliver first oil in latter part of the decade here.

There.

Data is telling them that.

That market is not going to be there for the product, but I just kind of curious as to when you try to piece all this stuff together, how you sort through the noise.

Kurt I think you look for the high quality data you look for you listen to your clients and you look for the most realistic outcome. That's not influenced by external factors and I think it's very very clear that theres going to be a continued demand and the continued high level of.

Demand.

Just using the references that you use at the beginning we certainly believe in the data and the commentary that's being provided by OPEC.

Appreciate it Doug Thank you.

Hey, Arun Jairam.

At J P. Morgan your line is open.

Good morning, Doug I wanted to get.

Some thoughts on the flex the Polish business at F. T. I I was wondering if you can give us a sense of how much of.

Of your kind of current contribution is from flexible and as we think about it.

A couple of the large project awards that you announced this quarter.

With Petrobras and with whats on Gulf of Mexico, how that mix.

Could change and maybe the margin profile.

As well.

So other than maybe just the technology that you think you bring to the table versus two of your other peers that are in that segment.

Yeah.

Sure Arun as you pointed out there's.

Very few of us who who work in this domain.

We're the pioneer we're the market leader.

I would say we focus more on the higher end range of the flexible as you know we've always gone we're the ones who've driven diameter. We're the ones who have driven pressure rating, we're the ones, who have driven tensile strength et cetera.

And as far as.

Percentage of the business it's important.

But more so than the percentage of the business that it represents.

And it.

It depends if you prefer a <unk> base or gumbo.

But anybody who has a loyal base or a gumbo recipe has a secret ingredient.

This is our secret ingredient. This is would makes IEP Ci tasteful.

And the reality of the situation is without this.

You can only do limited.

Only limited benefit to an integrated offering. This is why has the first mover we chose to go with technique, but at the time the flexible offering from co Flex Eve was absolutely critical to our vision of an optimized subsea architecture. So it's not only the value it brings us a product line, but where the.

The only ones who have the product within an integrated company. The real benefit we get is the influence it has on our IAA PCI Awards and also on our <unk> margins.

Okay.

That's helpful maybe.

Maybe just a follow up for Ralph as you mentioned how.

The cult soft guide on 2020 fours is 35% EBITDA growth from from the 915.

I wanted to maybe ask for a little bit of a clarification on the cash return.

I believe the stated policy is to return 60% of your free cash flow back.

And one of the questions from investors is how does the F N b.

TNF settlement, how does that impact you know that.

Free cash flow calculation and cash return.

No. Thank you for the questions. So first of all.

Very clear, we do have a commitment out there that we will return at least 60% of our free cash flow to shareholders and we're going to stay true to that over the next three years. So what three further.

We're saying is that really also.

The growth rate of 35% that you see in EBITDA from 'twenty to 'twenty four we expect to apply that to distributions as well for 2024. So in short answering your question. Yes. There is an impact of roughly $170 million of payments outflow next year.

In terms of the free cash flow, but overall, we still expect to drive.

Increased contribute.

Shareholder distributions by 35% in line with our EBITDA guidance. So that also tells you something about the underlying strong fundamental cash flow that you're going to see year over year. If you exclude the impact of these 170 million of payments.

That's helpful. Thank you.

Yeah.

Scott Gruber at Citigroup Your line is open.

Yes, good morning.

When your prepared remarks, I believe you mentioned upside to service revenue. In addition to the upside that the order intake.

You guys had been targeting.

Millions of service inbound in 'twenty, five and I'm, just curious whether you guys are contemplating upside to that number as well.

Thanks Scott.

Obviously, we'll be giving a bit more detail our with our Q4 on our Q4 call, but I would tell you as you were kind enough to ask the question. We are very proud of our subsea services business, we have high expectations of our subsea business.

So you should expect to see our subsea services business continue to benefit.

Not only from the higher level of project awards, which means a higher level of installation activity, but we're also seeing customers focus more on inspection maintenance and repair.

Really wanting to ensure optimized uptime of their producing assets as well as our subsea well intervention services and that's really about it.

Ensuring the production because there may be some downhole issue that has occurred.

And our ability then to go out and help them intervene into the well in the most cost effective way. So there's multiple drivers and a significant amount of optimism around our subsea services business.

Got it.

And in the margins for that business.

We've been better.

What's the outlook for pricing and margins going forward, then I just imagine that there's more competition between installation and the maintenance and inspection just given that the.

Equipment Award volume is going up and therefore, the installation outlook is going up does that create competition.

For those.

Resources to do the inspection maintenance repair that such that you can get incremental pricing or larger.

Well first of all Scott remember this is an OEM model. So we.

We service and maintain everything that we install we are the world's largest installed base.

And we benefit from that with this business is it's only growing as you know based upon the award activity over the last couple of years, where we've had a substantial growth relative to the market that.

That has been reflected in subsequent years into our subsea services business, but it's all one OEM business are look you know I don't talk a lot about pricing we work very closely with our clients they want to ensure that we're getting.

That we are very satisfied.

With that we feel we're being treated appropriately and fairly on an economic basis and.

We're very comfortable with that yes.

Great.

Any color there. Thank you.

Sara <unk> with Bank of America. Your line is open.

Hi, good morning.

Good morning.

Doug a quick a follow up on the flexibility question earlier on it's really good to see the traction Phillip quarter can you talk to a little bit about the demand outlook. We're flexible on maybe talk to your capacity the industry's capacity to deliver on that demand and the reason I'm asking that because on the context.

Because one of your large competitors has talked about being sold out so we're going to need 25, So I'm just trying to think.

The demand looking out the capacity looking particularly at FBR.

Yes.

Just like in every part of our business, we don't focus so much on being sold out we focus on developing technology that we can ensure a shorter delivery time.

Or faster deliveries are higher throughput if you will so if we look at subsea 2.0 broadly subsea two point, though.

Reduces the time through our facility by 50% or in other words, we can put twice the capacity through our existing facility without spending additional capital when youre still doing engineered to order or one point, which as you pointed out the rest of the industry is doing including and flexible.

You're kind of constrained by the size of your facility and hence being sold out or percent utilized.

What we're doing now is expanding to two point offering to.

To point out methodology across our entire offering including flexible. So our approach is how can we.

Have a better product.

Configure to order versus engineered to order that we can have a higher cadence through our manufacturing facilities, thus addressing the market's needs.

The other aspect I would point out is clear.

Clearly, we're focusing on our partners our direct awards.

Our IEP Ci projects, because again as I pointed out earlier thats really the secret ingredient to success of an <unk> or an integrated project. So we do some prioritization, which is why when I was answering.

One of your colleagues earlier I said, we do do some prioritization and we do tend to work on the high end high quality. If you will a portion of the flexible market. There is some low there is a lower end portion of the flexible market as well.

Which we certainly can participate in but thats not where we focus that's more of the commoditized end of the of the flexible market.

Okay awesome. Thank you for that.

A quick follow up because you get this question a lot from investors. So let me just thank you.

I get asked.

Your competitor has recently formed a joint venture.

How can we think about the percent and impact of that joint venture owned the bullet on market the industry's capability to respond to what's going on and.

How does it impact FDI in particular pocket any way you can think about that.

So just to clarify you're talking about the three subsea.

Yes, I'm talking about the Hudson Bay joint venture.

Oh, I'm, sorry, I meant the <unk> subsea companies that are coming together, yes, yes, yes, absolutely yes.

Well look I think first and foremost it's clear validation of the strength of the market you would three subsea companies wouldn't be coming together.

If they didn't see the strength in the market.

Going forward. So it's just a it's just a point of validation.

But it's also a reshaping of the market right.

So we see both of these things is quite favorable to our company.

We've talked a lot about.

Bringing companies together.

Consolidation is one thing.

Creating an integrated offering we feel is the better way to go about it investing in technology or doing things that are going to improve our client's project returns, that's where they see the value and that's quite frankly, why we have seen and continue to see the level of direct awards to our company.

Which is quite unprecedented in our industry are I believe any industry. So look from our point of view.

We did our heavy lifting back in 2015, I believe it or not that long ago is when we started the journey.

We completed the merger in the 17th of January 2017, and look I'll be very candid. It took years. It took years to get everything operating at the level. It's operating at today, you know, bringing together two companies let alone three companies is it's it's not easy to do.

So we're really glad we did ours eight years ago.

I can tell you that and today, we're singularly focused on our clients and singularly focused on their success by delivering the world's very best subsea projects.

Right now that's that's good okay. Thank you I have done it back.

Our last question will come from the line of Waqar Syed.

At <unk> capital markets. Your line is open.

Thank you for taking my question.

First one Doug.

You've given guidance that over the next five quarters inbound orders and subsequent bid on $11 billion.

If you look back over the last three to four months has that view been upgraded.

Has that view relatively remained unchanged, but the confidence in that outlook has increased.

A fair question I would say, it's been upgraded and the confidence is and it has increased.

Okay now does that have any impact then on your 2025.

Outlook for.

For revenues and EBITDA.

Absolutely not.

Okay.

Clarified let me let.

Let me clarify maybe.

Maybe that was two two quick of an answer.

When you talk about the 25 billion target for 2025.

Clearly as indicated in my script, we expect that we will be we will be giving you an update on that on the Q4 guide and so if you were staying on inbound as you mentioned EBITDA again as I said earlier we're.

We're going to be giving.

We just gave a view for total company.

EBITDA for 2024, which is an increase again this quarter the second consecutive quarter that we're increasing our 2024 number which obviously shows a very strong pattern.

We will be segmenting that out on the fourth quarter call and we.

We may take the opportunity to revisit 2025, as well, but clearly it's trending in the right direction.

Okay and then.

In terms of the capital spending of $250 million so far for this year.

Is that number likely to change I noticed it early for next year is that kind of a base level to 50, that's likely to stay year over year.

Hum.

The truth is we don't know.

And I know, it's an important number because I know, it's a visible number for investors to use in their decision making.

I would encourage people to realize it.

Yes, it's really the prioritization of that spend.

And it's clearly being prioritized to upstream and it's clearly being prioritized to offshore so from our perspective, we are very confident in the continued growth of the capital expenditure and I'm going to ask <unk> to add some additional additional cost I just wanted to add the reminder.

So when you look at our capital expenditure, we have given the long range guidance long term guidance that we are going to be in the range of three and a half to four 5%. However over the past 12 months or more we have really seen that we can operate that that three and a half the lower end of that range and that continues to be the guy who's meaning three 5% of revenue.

It's true for this year is probably going to be true for next year and you just.

Keep that number for right now.

Guidance for.

For the intermediate term.

Thank you <unk> I was answering it just to be clear I was answering it from.

Our customers' capital expenditure and thank you for clarifying the internal wealth I appreciate it.

And thank you very much hit the answers.

I'll now turn the call back over.

Two Matt sang timer for parting remarks.

Thank you. 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. Thank you for joining US Jack you May now end the call.

This concludes today's conference call. We thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

[music].

Okay.

[music].

Thank you for holding and welcome everyone to the technique Fmc's third quarter 2023 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, if you'd like to withdraw your question again press Star one.

Thank you I will now turn the call over to Matt <unk> Senior Vice President Investor Relations and corporate development. Mr. Song. Please go ahead.

Thank you Jack good morning, and good afternoon, and welcome to techniques Fmc's third quarter 2023 earnings Conference call. Our news release and financial statements issued earlier today can be found on our website.

I'd like to caution you with respect to any forward looking statements made during this call.

Although these forward looking statements are based on our current expectations beliefs and assumptions regarding future developments and business conditions.

They are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements.

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.

As a result of new information future events or otherwise.

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

Thank you, Matt good morning, and good afternoon.

Thank you for participating in todays earnings call.

We delivered solid results in the third quarter.

Subsea inbound orders came in strong at $1 8 billion.

And adjusted EBITDA improved sequentially for both subsea and surface technologies exceeding the guidance, we provided on our second quarter call.

This momentum is also driving our expectations for full year results higher.

Continuing with total company financial highlights in the quarter.

Revenue was $2 1 billion.

Adjusted EBITDA was $284 million with an adjusted EBITDA margin of 13, 8% when excluding foreign exchange impacts.

Total company inbound was $2 1 billion.

Total company backlog ended the period at $13 2 billion.

In subsea we received significant orders for flexible pipe in the period.

These included an award from Petrobras for the pre salt fields in Brazil.

And our largest ever flexible contract in the Gulf of Mexico for Woodside try on project.

As both pioneer and market leader of this technology flex.

Flexible pipe provides us with a unique capability to design fully integrated end to end subsea systems for our clients.

We have the unique ability to integrate flexible technology into our <unk> offering which greatly simplifies field architecture.

This enables a further reduction in project cycle time, improving economics, and driving greater differentiation in our integrated offering.

Beyond flexible as activity. We also experienced an exceptionally high level of unannounced project awards in the quarter.

Which speaks to the ongoing strength of the market.

In subsea services inbound was robust driven by installation and life of field activities.

Given the continued strength in our inbound we are confident that subsea orders will exceed 9 billion for the full year.

And if we extend the review to include our current expectations for 2024.

We now believe the next five quarters will approach $11 billion.

With this near term update we now expect to exceed the guidance for 25 billion of subsea inbound through 2025, and we will provide an update on this extended outlook on our fourth quarter, earning call.

The durability of this cycle is driven by both an expansion in the number of active basins, which has nearly doubled versus the prior cycle as well as a growing and more diverse customer base.

Additionally, this cycle was supported by a robust and strengthening pipeline of feed activity.

In the third quarter feed studies increased nearly 40% when compared to the number of awards in the first half of the year.

Importantly, more than half of the studies awarded to our company in 2023 have the potential to be direct awarded upon project.

Subsea backlog ended the period at $12 1 billion, a nearly 60% increase year over year.

An increasing proportion of this backlog is coming from IAA PCI subsea two <unk> and other direct awards, reflecting the high quality of our order book.

Year to date, we have been awarded the industry's three largest integrated contracts.

<unk> BMC 33 project in Brazil, The Roes Bank project in the UK and Alker Bp's, Sara Hi project in the North Sea.

While integrated execution will certainly shorten cycle times.

Size and scope of these awards provide us with multiyear visibility as a significant portion of the project revenues extend beyond 2025.

In surface technologies international activity increased sequentially.

We continue to ramp up production at our Saudi Arabia facility as well as successfully execute on our multi year framework agreement with Abu Dhabi National oil company.

Activity in North America was moderately lower in the period, however, operating margin improve sequentially benefiting from the strategic actions previously taken to reduce our cost structure.

In closing.

Our commercial and operational success continues to drive improved financial results and al will discuss all the strength in the second half should drive our full year results higher.

Additionally, the upward revisions to our subsea order outlook are fueled by high quality inbound driven by IAA PCI subsea services and other direct awards.

And which are now expected to represent more than 70% of segment orders in the current year.

And more importantly, the.

These results are further strengthening the foundation for higher and more sustainable performance in the years ahead.

I will now turn the call over to <unk> to discuss our financial results.

Thanks, Doug.

Inbound in the quarter was $2 1 billion of which $1 8 billion came from subsea revenue in the quarter totaled $2 1 billion.

EBITDA was $284 million when excluding foreign exchange loss of $46 million in impairment restructuring and other charges totaling $4 million.

Operationally, we delivered solid results in subsea revenue was $1 7 billion up 6% from the second quarter.

Increase was driven by mid single digit revenue growth in both projects and services.

The largest drivers of improvement were in Norway and Brazil.

Adjusted EBITDA was $258 million with a margin of 15, 1% up 70 basis points from the second quarter.

<unk> benefited primarily from higher volume and favorable activity mix.

Adjusted EBITDA was $50 million, a 6% sequential increase.

International results benefited from improved operational performance in the Middle East.

North America results were largely unchanged versus the prior quarter. Despite the revenue decline benefiting in part from strategic actions taken in prior quarters.

EBITDA margin was 14, 3% up 100 basis points versus the second quarter.

And lastly, we incurred a foreign exchange loss of $46 million in the quarter.

Approximately 50% of the loss was directly related to actions taken that we believe will reduce the volatility in our foreign exchange exposure going forward.

Importantly, we believe these were one time elements of our results in the period.

Approximately 30% of the FX loss was related to the current cost of hedging our euro denominated debt and liability positions.

With the remaining portion due to unfavorable movements in currencies that we are unable to economically hedge with the Argentine peso, having the biggest impact in the period.

Cash flow from operating activities was $222 million and included a 27 million payment related to the previous legal settlement with the French National Prosecutor's office.

Capital expenditures were $44 million.

This resulted in free cash flow of $178 million in the quarter.

In August we completed the sale of the Apache to pipe lay vessel for net cash proceeds of $54 million.

The sale of marks another tangible strategic step forward in our commitment to higher and more sustainable financial returns.

We ended the period with cash and cash equivalents of $691 million net debt fell almost 200 million to $650 million.

During the quarter, we repurchased two 7 million shares for $50 million and paid $22 million in dividends.

Shareholder distributions for the period were $72 million.

Moving to our guidance I will first provide an update to our segment expectations for the fourth quarter for.

For subsea, we expect a typical seasonal impacts with revenue declining approximately 10% sequentially and adjusted EBITDA margin coming in at approximately 13%.

For surface technologies, we expect revenue to increase about 5% sequentially.

Adjusted EBITDA margin to be approximately 14%.

Turning to the full year, we anticipate corporate expense to come in at the high end of the range of $100 million to $110 million.

With these updates we now anticipate a range of outcomes for total company adjusted EBITDA to approximate $915 million for the full year when excluding foreign exchange.

This represents a $35 million improvement versus the guidance, we provided on our second quarter earnings call.

Lastly, we reiterate our free cash flow guidance of $225 million to $375 million for the current year.

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

Given the strong Q3 results and improved outlook for Q4, we are increasing our guidance for full year company EBITDA to approximately 550 million when excluding foreign exchange.

Second free cash flow generation improved in the period as expected keeping us on track to achieve our full year guidance.

And third with the initiation of a dividend in the quarter and ongoing share repurchase activity, we distributed over $70 million demonstrating our commitment to return cash to our shareholders.

Operator, you May now open the line for questions.

Certainly at this time.

If you'd like to ask a question. Please press star one on your telephone keypad, we ask that you limit yourself to one question and one follow up to allow everyone an opportunity.

David Anderson.

At Barclays. Your line is open.

Great. Thanks, Good morning, Doug how are you.

Very well, David and yourself do.

Doing great. So a question on maybe just to start on the order outlook.

Over the next five quarters should see $11 billion.

What looks different about that $11 billion going forward or does anything look different in terms of.

The customer mix shifting one way or another I think you said, 70% you are expecting to be subsea two point.

With market capacity tightening I think pricing should also be firming up as well could you maybe just kind of talk about the difference going forward with what you've.

You've kind of pulled in over the last year or so.

Sure Dave.

I guess at the highest level.

The way I would describe it as.

It's just a much higher quality inbound.

And there are several aspects to that.

But most importantly for our company is the direct awards.

Which is now over 70% of our business being direct awarded to us in subsea.

That's being driven by our unique IEP Ci or integrated offering are unique.

Subsea architecture with the subsea two <unk>.

And again, our very.

Every long strong.

Relationships.

There is also a bit of a mix shift in terms of the customer base.

I talked about that for a few quarters now we continue to see the customer base expanding.

And more people moving into the offshore <unk>.

Because of the high quality reserves and quite frankly, the access to those reserves.

And we have again that combination of PCI and two point.

And just stick open and collaborative way, we work with our clients are really fits fits those clients our existing clients, but also the new clients on a very favorable way. So I guess it really what gets US excited is the quality and we obviously have the opportunity to be selective given the market position.

That we have.

So we can really focus on those high end high quality inbound that will create the success for the years to come.

So.

On another subject, we're starting to hear something about it kind of rising breakeven costs for offshore rig rates of more than double over the past few years service customer moving higher just wondering if you are in your conversations with customers do you get any sense from customers that they are concerned about that is that potentially.

Driving a culture of urgency for your customers to get a project locked up costs move higher and just kind of related to that question kind of roughly percentage of an overall project what percentage do you guys typically comprise another all different but just maybe just a range would be helpful.

I am sorry, the second part what percentage of.

Your business sort of comprising one of these offshore projects I'm just curious.

The percentage of 30%.

A better handle on kind of where you fit in the scheme of things.

Sure. Thank you Dave So let me let me do the second part first because I think it will help feed into the first part.

In a brownfield development, so that's under development, where theres, an existing host facility and you're tying back.

Maybe an extended part of the reservoir or a new reservoir back to that host facility. We now because of <unk> being the only fully integrated company. We now can represent up to 70% of the cost of O'brien field development.

Normally between 60 and 70%. So we if you will we are the cost driver now I'm going to I'm going to get off of this cost part here in a second.

But we do comprise a large portion of the value of that project in terms of a greenfield development. The rule of thumb is about a third a third and a third.

As further driller has a third we would have a third.

And then whoever is building the.

The floating facility.

Where do the other third.

So a little less influence over the overall project economics in a greenfield development, but it still can be quite material and here's why.

Now falls.

Bridges to the first part of your question, it's all about time.

It's simply all about time so yes.

And this is what's driving our customers' behavior, Dave because they're sitting there and they want to align with the very best companies.

That give them the highest probability of delivering the project on schedule and Oh by the way with Technip FMC. We can typically deliberate one year ahead of if we don't use technip FMC again, <unk> driving that cost or that cycle time to be much.

<unk>. So that's really what we're seeing we're seeing a flight to quality.

Sure. There are always focused on economics, it always have been and so are we.

Again as a pure play.

Which gives us our customers to confidence in our ability to be able to continue to deliver these projects on time.

That's really the secret sauce of our company.

Hey, Thanks, a lot guys I appreciate it.

Luke Lemoine at Piper Sandler Your line is open.

Hey, good morning, Doug.

When you brought out the initial hey, good morning, when you laid out that initial subsea margin target of 15% for 'twenty five in late 'twenty one.

Which you actually just hit this quarter I don't believe there is much 25 backlog visibility at the time, just kind of guessing this somewhat predicated.

And once you saw coming in the pipeline from two point Al <unk> direct awards, which you've talked about.

Since then you've raised that margin target earlier this year, but my question is <unk>.

Even though you have some backlog visibility past 25, what you show in your slide deck.

How comfortable are you with where margins can head.

But for maybe the next three to four years and just to clarify not looking for a specific margin target just kind of your confidence and visibility in that three to four year timeframe.

No problem Luke.

I'll add on if you go back to November of 2021, it was a very different world.

And when you look at what was happening offshore.

It was very different indeed.

So we were talking about at that point, we're increasing our margins up to 15%, but largely through the internal initiatives.

And you can't just do you can't first you have to develop the architecture.

Then you have to gain.

Enough scale.

To be able to really see the benefits of the configure to order. So if you will it's a unique opportunity for our company. So when we gave the 15, 4%.

Direct awards continues to increase for our company and we get the volume and the scale benefit.

Well.

And obviously the underlying market conditions are improving for us.

Gives us the confidence to be and it's why we've repeatedly said the 18% is a is a major milestone on a more ambitious journey. So we remain extremely positive of the future.

Okay got it thanks Slashdot.

Okay.

Marc Bianchi at TD Cowen Your line is open.

Hi, Thank you maybe just quickly Alf to confirm on the EBITDA for this year, you said 915 95 zero correct.

Yes, Mark confirm 91, five is what the what I said, there's $35 million up from the prior guide that we had from the prior quarter.

Okay Super Thank you.

Maybe maybe mark if I.

Can I add something Mark just to clarify also you know you May you May Wonder you know in the prior quarter. If you remember we we mentioned also that we think we will be doing EBITDA 35, having a 35% growth of EBITDA into 2024. So now that you take this new number 95, you can still apply this 35%.

So just to be very clear, we haven't backed off from the 35% going into 2024, but I'm happy that you clarify 95 O versus the 191, five but still the same dynamics are in place.

Okay. That's great that was actually going to be my next question.

Doug if I remember correctly, you came to MTI in the early 2000, tens, which was a period when I think everybody thought that.

Subsea was kind of going to grow as far as the eye can see and it seems like maybe that's where we are shaping up today, but the market's quite a bit different you are offering is obviously very different but from a customer perspective I'd be curious to hear any reflections on.

How things compare today versus that early 2010 period.

Interesting question and actually I think a lot about this.

<unk>.

In my spare time, so look a lot has changed.

No.

When we talk about the customers.

I'd say our customers are much more collaborative.

Much more open to.

Partner led solutions.

Much more open to new technologies.

And it's really what enabled us to be able to achieve the success, we've achieved with subsea two <unk>. The idea of standardization has been around since before 2010.

The ability to be able to go from engineered order to configure to order, which is much more than just standardization was really the key when we unlock that and we're able to convince our customers that they could still have if you will optionality.

That much but just the offshore market when you think about offshore.

Offshore, but it was fairly limited in the areas of offshore that that we're really being.

Developed and that has doubled.

And then when you start to look in the what keeps this.

Momentum going you start to look at all of these frontier basins that we're hearing about theyre not onshore their offshore.

And their offshore around the world. They are not in any one particular content enter one particular area, they're spread around the world and those are the.

Those areas are the ones that are going to contribute will be on the numbers that we're talking about today.

So it is very very different and thank you for pointing out I do want to close on we're a different company. We were a great company in 2010, I believe are an even greater company today and again, that's driven by the change in our operating model and our ability to be able to demonstrate to our clients and give them the confidence to direct award us the work that they do.

Because of who we are.

Great. Thank you very much.

Mark Wilson at Jefferies. Your line is open.

Thank you.

Yeah excellent set of results and the outlook that Doug just a few outside some.

The sale of of the Apache vessel I was just wondering if there's any more.

Of those planned and then the other question do you see on the horizon.

First offshore Ccs Award coming that's all those are my two points.

Thanks Mark.

Regarding the fleet as we have said since we formed the company.

The 17th of January 2017, we're going to focus on a company that really had exemplary through cycle.

<unk> and.

And part of that was we were going to do things differently in regards to the fleet.

We do not need to own and operate all of the vessels that we use in our business.

The only way to do that is to be a company that others Trust and others are willing to work with.

And that's our reputation and that's how we've been able to develop our vessel ecosystem and bring in World class partners like Ocs in Saipem and more in the future.

And that's really what enables us to continue to look at our fleet and determined if those assets are strategic to our company or not.

And if they're not then we're able to continue to streamline.

Our.

Improve our returns by streamlining our fixed cost base.

Okay very clear.

I'm, sorry, Mark and I just was reminded of your second question.

Got excited about the first thank you all.

The second question.

I'd answer that by saying indeed.

Yes.

Curtis lead at the Benchmark company your line is open.

Hi, good morning, everybody.

Hello, Good morning, Kurt.

Great. Thanks Gerry.

<unk> eight.

Eight.

Hey, Doug.

With the expanding inbound and backlog you have on subsea and obviously the increased visibility.

Towards the end of the decade.

I was wondering if you'd give us some insight on.

What how your.

Okay managing execution risk.

Internally and what what you are able to provide tenure.

Client base that assures them that when they do throw the stuff you're way.

Youre going to be in a very strong position to handle it and as you said deliberate on time.

Okay.

That's the million dollar question and I will tell you when I'm speaking to clients that is typically when they call me that is typically the coal. It's we have this new opportunity. We're looking at this new emerging basin.

We want to be securing assets well into the future. We want we want to work with Technip FMC gave out give me or give us the confidence that youre going to be able to deliver that that is absolutely. The discussion that's going on today.

First and foremost do what you say you're going to do and we've demonstrated that we continue to shorten the cycle times, we continued to deliver the innovation.

The industry and we continue to be the company that our clients want to partner with it they want to work with because of our behaviors and who we are as a company.

More importantly is.

To give them the additional confidence I should say is really helping them understand how this shift from engineered to order to configure to order has fundamentally changed the operating model of our company.

And we actually had an opportunity earlier this week with our board of directors to kind of walk them through how we're operating the company today.

Got it.

On a daily basis at an operating level.

And it is a profound change.

And the visibility and the.

Our ability to be to.

To be able to see and understand what are those key success factors that will ultimately deliver the kpis are if you will the project on time and tracking those key success factors is there really quite a fundamental change and I know it sounds basic.

But when Youre doing configure to order the only really metric you have I'm, sorry, when youre doing engineered order excuse me the only real metric you have is the output did you or did you not deliver on time and that's too late to fix anything.

What are they now see is that we have the ability and the configure to order to be well ahead. There is so many things we can do that we could not do in the past because remember when we got our subsea order.

We spent nine months of detailed engineering before we could place a single order with the supply chain internal or external the situation of our competitors are in today.

Current way of operating and we will work our clients through that and they see it in all of our operating locations that are able to experience that in our operating locations.

And just continue to deliver at a very very high level.

That's great color and follow up.

Kind of curious right.

Seen some recent.

Tying everything together here right with respect to the order book the upcoming the insights as to the projects that are slated.

Slated for even later this decade and the incremental oil that's going to bring to the market right yet.

Pekka Mountain suggests you know continue to oil demand growth out beyond 2030, obviously that the IEA kind of take a different tone, but.

Through all your your experience in dealing with different cycles right at the end of the day I can't imagine a customer moving forward with.

A project that's going to deliver first oil latter part of the decade here.

There.

Data is telling them that.

That market is not going to be there for the product, but I'm just kind of curious as to when you try to piece all this stuff together, how you sort through the noise.

Kurt I think you look for the high quality data you look forward you listen to your clients and you look for the most realistic outcome, that's not influenced by external factors and I think it's very very clear.

There's going to be a continued demand and the continued high level of demand.

And.

Just using the references that you used at the beginning we certainly believe in the data and the commentary that's being provided by OPEC.

Appreciate it Doug Thank you.

Hey, Arun Jairam.

At Jpmorgan your line is open.

Good morning, Doug I wanted to get.

Some thoughts on the flex the Bose business at F. T. I I was wondering if you'd give us a sense of how much.

Of your kind of current contribution is from flexible and as we think about.

A couple of the large project awards that you announced this quarter.

With Petrobras.

And with what's on Gulf of Mexico, how that mix.

Could change and maybe the margin profile.

As well.

And as long as maybe just the technology that you think you bring to the table versus two of your other peers that are in that segment.

Yeah.

Sure Arun as you pointed out there is.

Very few of us who who work in this domain.

The pioneer we're the market leader I would say, we focus more on the higher end range.

Of the flexible as you know we've always gone we're the ones who've driven diameter. We're the ones who have driven pressure rating, where there once we have driven tensile strength et cetera.

And as far as <unk>.

Percentage of the business it's important.

But more so than the percentage of the business that it represents.

And.

It depends if you prefer a <unk> base or gumbo.

But anybody who has a loyal base of gumbo recipe is a secret ingredient.

This is our secret ingredient. This is would makes IEP Ci tasteful.

And the reality of the situation is without this.

You can only do limited.

The only ones who have the product within an integrated company. The real benefit we get is the influence it has on our IAA PCI Awards and also on our IEP Ci margins.

Okay.

That's helpful.

Maybe just a follow up for Ralph as you mentioned how.

The soft guide on 2020 fours is 35% EBITDA growth from the 915.

I wanted to maybe ask.

For a little bit of a clarification on the cash return I believe the stated policy is to return 60% of your free cash flow back and one of the questions from investors is how does the F N.

TNF settlement, how does that impact.

The free cash flow calculation and cash return.

No. Thank you for the questions. So first of all.

Our saying is that really also.

The growth rate of 35% that you see in EBITDA from 'twenty to 'twenty four we expect to apply that to distributions as well for 2024. So in short to answering your question. Yes. There is some impact of roughly $170 million of payments outflow next year.

Here in terms of the free cash flow.

But overall, we still expect to drive.

The increase contribute shareholder distributions by 35%.

In line with our EBITDA guidance. So that also tells you something about the underlying strong fundamental cash flow that youre going to see year over year. If you exclude the impact of these $170 million of payments.

That's helpful. Thank you.

Scott Gruber at Citigroup Your line is open.

Yes, good morning.

Doug in your prepared remarks, I believe you mentioned upside to service revenue. In addition to the upside that the order intake.

<unk> been targeting.

Service inbound in 'twenty, five and I'm, just curious whether you guys are contemplating upside to that number as well.

Thanks Scott.

Obviously, we will be giving a bit more detail with our Q4 on our Q4 call, but I would tell you as you were kind enough to ask the question. We are very proud of our subsea services business we have.

High expectations of our subsea business.

So you should expect to see our subsea services business.

<unk> to benefit.

Not only from the higher level of project awards, which means a higher level of installation activity, but we're also seeing customers focus more on inspection maintenance and repair.

Really wanting to ensure optimized uptime of their producing assets as well as our subsea well intervention services and that's really about ensuring the production because there may be some downhole issue that has occurred.

Our ability then to go out and help them intervene into the well in the most cost effective way. So there's multiple drivers and a significant amount of optimism around our subsea services business.

Got it.

And in the margins for that business.

Typically than better.

What's the outlook for pricing and margins going forward, then I just imagine that there's more competition with between installation and the maintenance and inspection just given that the.

Equipment Award volume is going up and therefore, the installation outlook is going up does that create competition.

For those.

Resources to do the inspection maintenance repair that such that you can get incremental pricing or larger.

Well first of all Scott remember this is an OEM model. So we.

We service and maintain everything that we install we are the world's largest installed base.

And we benefit from that with this business is only growing as you know based upon the award activity over the last couple of years, where we've had a substantial growth relative to the market that.

That has been reflected in subsequent years into our subsea services business, but it is all in OEM business look.

I don't talk a lot about pricing, we work very closely with our clients they want to ensure that we're getting.

That we are very satisfied.

With that we feel we're being treated appropriately and fairly.

On an economic basis and.

We're very comfortable with that yes.

Great I appreciate the color there. Thank you.

Sara <unk> with Bank of America. Your line is open.

Hi, good morning, Doug.

Good morning.

Doug a quick a follow up on the flexibility question earlier on really good to see the traction Phillip quarter can you talk to a later date on both the demand outlook, we're flexible on maybe talk to.

Possibly the industry's capacity to deliver on that demand and the reason I'm asking that does cause some context. It because one of your larger competitors have talked about being sold out. So we're going to need 25. So I'm just trying to think how is the demand looking at capacity looking particularly at the FDA.

Okay.

Yes.

Just like in every part of our business, we don't focus so much on being sold out we focus on developing technology that we can ensure a shorter delivery time or faster deliveries are higher throughput. If you will so if we look at subsea two <unk>.

Rodley subsea two point.

You're kind of constrained by the size of your facility and hence being sold out or percent utilized.

What we're doing now is expanding to two point offering.

To point out methodology across our entire offering including flexible. So our approach is how can we.

Have a better product.

Configure to order versus engineered to order that we can have a higher cadence through our manufacturing facilities, thus addressing the market's needs.

The other aspect I would point out is clear.

Clearly, we're focusing on our partners our direct awards.

Our IEP Ci projects, because again as I pointed out earlier thats really the secret ingredient to success are in IEP Ci or an integrated project. So we do some prioritization, which is why when I was answering.

Which we certainly can participate in but thats not where we focus that's more of the commoditized end of the of the flexible market.

Okay awesome. Thank you for that.

A quick follow up because you get this question a lot from investors. So let me just thank you.

I get asked.

Your competitor has recently formed the joint venture.

How can we think about deep davinci and impact of that joint venture owned be bought on market the industry's capability to respond to what's going on.

Does it impact FDI in particular Uh huh.

About that.

So just to clarify you're talking about the three subsea.

Yes, I'm talking about.

We've done that yet.

Oh, I'm, sorry, I meant the <unk> subsea companies that are coming together, yes, yes, absolutely yes.

Well look I think first and foremost it's clear validation of the strength of the market.

<unk> subsea companies wouldn't be coming together.

If they didn't see the strength in the market going forward. So it's just a it's just a point of validation.

But it's also a reshaping of the market right.

We see both of these things is quite favorable to our company.

We've talked a lot about.

Bringing companies together.

Consolidation is one thing.

Which is quite unprecedented in our industry are I believe any industry. So look from our point of view.

We did our heavy lifting back in 2015, I believe it or not that long ago.

When we started the journey.

We completed the merger in the 17th of January 2017, and look I'll be very candid it took years.

So gears to get everything operating at the level. It's operating at today, you know, bringing together two companies let alone three companies is.

It's not easy to do.

So we're really glad we did ours eight years ago I can tell you that and today, we're singularly focused on our clients and singularly focused on their success by delivering the world's very best subsea projects.

No. That's good okay. Thank you I had done it back.

Yeah.

Our last question will come from the line of Waqar Syed.

At <unk> capital markets. Your line is open.

Thank you for taking my question.

The first one.

You've given guidance that over the next five quarters inbound orders in subsea could be around $11 billion.

If you look back over the last three to four months has that view been upgraded or has that view relatively remained unchanged, but the confidence in that outlook has increased.

A fair question I would say, it's been upgraded and the confidence is and it has increased.

Okay now does that have any impact then on your 2025.

Outlook.

For revenues and EBITDA.

Absolutely not.

Yeah.

Clarified let me clarify let me clarify.

Maybe that was two two quick of an answer.

When you talk about the 25 billion target for 2025.

Clearly as indicated in my script, we expect that we will be we will be giving you an update on that on the Q4 guide and so if you were staying on inbound as you mentioned.

EBITDA again as I said earlier.

We're going to be giving.

We just gave a view for total company.

EBITDA for 2024, which is an increase again this quarter the second consecutive quarter that we're increasing our 2024 number which obviously shows a very strong pattern.

We will be segmenting that out on the fourth quarter call and we.

We may take the opportunity to revisit 2025, as well, but clearly it's trending in the right direction.

Okay and then.

In terms of the capital spending of $250 million so far for this year.

Is that number likely to change I noticed it early for next year is that kind of a base level to 50, that's likely to stay year over year.

Hum.

The truth is we don't know.

And I know, it's an important number because I know, it's a visible number for investors to use in their decision making.

I would encourage people to realize it.

Yes, it's really the prioritization of that spend.

So when you look at our capital expenditure, we have given the long range guidance long term guidance that we are going to be in the range of three and a half to four 5%. However.

In the past 12 months and more we've really seen that we can operate that that three and a half the lower end of that range and that continues to be the guy who's meaning three 5% of revenue, but it's true for this year is probably going to be true for next year and you just you know.

Keep that number for right now as a guide.

For the intermediate term.

Thank you <unk>.

Was answering it just to be clear I was answering it from.

Our customers' capital expenditure and thank you for clarifying the internal wealth I appreciate it.

Thank you very much hit the answers.

I'll now turn the call back over.

Two Matt sang timer for parting remarks.

Thank you. 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.

Do you have any further questions. Please feel free to contact the Investor Relations team. Thank you for joining US Jack you May now end the call.

This concludes today's conference call. We thank you for your participation you may now disconnect.

Q3 2023 TechnipFMC PLC Earnings Call

Request a DemoDemo

FTI

TechnipFMC

Earnings