Q3 2024 TechnipFMC PLC Earnings Call
<unk> remarks, there will be a question and answer session.
If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the star one again.
Speaker Change: Right or assistance throughout the call. Please press star zero, and finally, I would like to advise all participants that this call is being recorded. Thank you I'd now like to welcome Matt sounds high amount senior Vice President Investor Relations and corporate development, Matt over to you.
Good day and welcome to the technique FMC third quarter 2020 full earnings conference call.
Yeah.
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Matt Sounds: Thank you Paula good morning, and good afternoon, and welcome to techniques Fmc's third quarter 2024 earnings Conference call.
We would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the star one again.
Matt Sounds: Our news release and financial statements issued earlier today can be found on our website.
Speaker Change: Like to caution you with respect to any forward looking statements made during today's 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.
At her assistance throughout the call. Please press star Zero, and finally, I would like to advise all participants that this call is being recorded.
Yeah.
Speaker Change: I'd now like to welcome Matt <unk>, Senior Vice President Investor Relations and corporate development, Matt over to you.
Matt: Thank you Paula good morning, and good afternoon, and welcome to Technip Fmc's third quarter 2024 earnings Conference call. Our news release and financial statements issued earlier today can be found on our website.
Matt Sounds: Implied by these statements.
Matt Sounds: Known material factors that could cause our actual results to differ from 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.
Matt: I'd like to caution you with respect to any forward looking statements made during today's call. Although these forward looking statements are based on our current expectations.
Matt Sounds: We wish to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof.
Matt: <unk> and assumptions regarding future developments and business conditions.
Matt Sounds: 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.
Matt: 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.
Matt Sounds: I will now turn the call over to Doug Friday hurt Technip, FMC as chair and Chief Executive Officer.
Known material factors that could cause our actual results to differ from projected results are described in our most recent 10-K, most recent 10-Q.
Speaker Change: Thank you Matt.
Speaker Change: Good morning, and good afternoon.
Matt: Other periodic filings with the U S Securities and Exchange Commission.
Speaker Change: Thank you for participating in our third quarter earnings call.
Matt: We wish to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof.
Speaker Change: The Technip FMC team continues to demonstrate solid execution, which is reflected in our quarterly results.
Speaker Change: Adjusted EBITDA and margin improved sequentially for both subsea and surface technologies.
Speaker Change: These results were supported by a relentless focus on industrialization and standardization as.
Speaker Change: As well as integrated business models, all of which are allowing us to execute more efficiently.
Speaker Change: With greater certainty of outcome and repeatability of success.
Speaker Change: Revenue in the third quarter was $2 3 billion.
Speaker Change: Adjusted EBITDA was $389 million with an adjusted EBITDA margin of 16, 6%.
Speaker Change: When excluding foreign exchange impacts.
Speaker Change: Total company inbound was $2 8 billion.
Speaker Change: Driving backlog to a new record level of $14 7 billion.
Speaker Change: Subsea inbound orders were $2 5 billion a book to Bill of one two with.
With subsea backlog also reaching a new record of $13 7 billion.
Speaker Change: Subsea inbound continues to be supported by our differentiated orders.
Speaker Change: With this quarter, particularly driven by our unique <unk> offering.
Speaker Change: <unk> leadership and extensive subsea services capabilities.
Matt: A $14 7 billion.
Speaker Change: More specifically we.
Matt: Subsea inbound orders were $2 5 billion, a book to Bill of one point to.
Speaker Change: We announced awards from Petrobras for flexible pipe in subsea production systems and in IEP Ci for Bp's Cascade a project in the Gulf of Mexico.
Matt: With subsea backlog also reaching a new record of $13 7 billion.
Speaker Change: <unk> development in the Paleogene.
Matt: Subsea inbound continues to be supported by our differentiated orders.
Speaker Change: The <unk> award represents our second <unk> utilized a 20 K production system.
Matt: With this quarter, particularly driven by our unique <unk> offering technology leadership and extensive subsea services capabilities.
This marks our fourth overall award for 20 K production equipment.
Speaker Change: And we are confident that high pressure high temperature reservoirs remain an important opportunity set going forward as clients look to produce from deeper waters and reservoirs.
Matt: More specifically.
Matt: We announced awards from Petrobras for flexible pipe in subsea production systems and in IEP Ci for Bp's Cascade a project in the Gulf of Mexico.
Speaker Change: In Brazil, we were awarded scope for both subsea production systems and flexible from Petrobras.
Matt: 20, K development in the Paleogene.
Matt: The Cascadia award represents our second <unk> utilized a 20 K production system.
Speaker Change: Our nearly 70 year legacy in Brazil reflects our deep commitment to the region and highlights our continuing support of Petrobras is strategic vision.
Matt: This marks our fourth overall award for 20 K production equipment.
Speaker Change: We will draw on our extensive in country operations to deliver on these contracts.
Matt: And we are confident that high pressure high temperature reservoirs remain an important opportunity set going forward as clients look to produce from deeper waters and reservoirs.
Speaker Change: Notably the flexible Zembower further builds on our global leadership position in flexible technology for which we have been awarded nearly 250 kilometers this year.
In Brazil, we were awarded scope for both subsea production systems and flexible from Petrobras.
Speaker Change: Okay.
Speaker Change: We also believe this technology is likely to be a key enabler in new frontiers, where we see continued momentum.
Matt: Our nearly 70 year legacy in Brazil reflects our deep commitment to the region and highlights our continuing support of Petrobras is strategic vision.
Beyond announced awards.
Speaker Change: Orders also included a large IEP ci ending another strong quarter.
Matt: We will draw on our extensive in country operations to deliver on these contracts.
Speaker Change: Of inbound for subsea services.
Matt: Notably the flexible Zembower further builds on our global leadership position in flexible technology for which we have been awarded nearly 250 kilometers this year.
Speaker Change: Driven by installation and life of field opportunities on our growing installed base.
Speaker Change: Moving to surface technologies.
Speaker Change: Solid execution on key customer projects in the middle East, particularly.
Matt: Yeah.
Matt: We also believe this technology is likely to be a key enabler in new frontiers, where we see continued momentum.
Speaker Change: Particularly in the UAE and Saudi Arabia.
Speaker Change: It was a major contributor to the quarterly results.
Speaker Change: We expect to continue benefiting from our exposure to these markets driven by our clients' continued investment in long term production growth.
Matt: Beyond announced awards.
Matt: Orders also included a large IEP ci ending another strong quarter.
Matt: Of inbound for subsea services.
Speaker Change: The completion of our new state of the art facility in Saudi Arabia, and the qualification of our product portfolio are favorably impacting our company today and represent a differentiated growth opportunity protect me FMC.
Matt: Driven by installation and life of field opportunities on our growing installed base.
Speaker Change: Turning to our outlook.
Speaker Change: We remain very confident in the sustainability of the market backdrop, particularly for subsea.
Speaker Change: As a reminder, our subsea opportunities list highlights sizable projects with the potential for award over the next two years.
Speaker Change: When using this midpoint value of these subsea developments.
Speaker Change: <unk> grew sequentially to a record $25 billion.
Speaker Change: And while these projects are typically available to the broader market.
Speaker Change: The strength of our outlook is credit is predicated on our unique view into the subsea market.
Speaker Change: Much of which is not reflected on the opportunities list.
Speaker Change: Often these opportunities involve an IP study, which converts to a direct award to our company.
Speaker Change: When we think about 2025, we see an even more diversified mix of opportunities than what we expect to inbound in the current year.
Speaker Change: Said another way we.
Speaker Change: We see a more extensive list of clients.
Speaker Change: A broader range of geographies more projects that utilize our unique technologies more subsea two <unk> and more ie PCI.
And when you also factor in the continued growth we expect from subsea services it.
Speaker Change: It is clear why we remain so confident in achieving our guidance of $30 billion of orders over the three year period ending 2025.
Matt: Year.
Speaker Change: Looking beyond 2025.
Matt: Said another way.
Matt: We see a more extensive list of clients.
Speaker Change: I'd highlight the significant presence of projects on the subsea opportunities list. It serves as a strong baseline for projects likely to be sanctioned in 2026, which notably includes new frontiers.
Matt: A broader range of geographies more projects that utilize our unique technologies more subsea two <unk> and more I E PCI.
And when you also factor in the continued growth we expect from subsea services it.
Speaker Change: Additionally, the feed pipeline for subsea developments remains at a record level.
Matt: It is clear why we remain so confident in achieving our guidance of $30 billion of orders over the three year period ending 2025.
Speaker Change: Many of which are for projects advancing towards.
Speaker Change: In the latter half of the decade.
Speaker Change: It's this combination of factors that gives us increased visibility.
Matt: Looking beyond 2025.
Speaker Change: And more importantly, greater confidence in the project pipeline in 2025.
Matt: I'd highlight the significant presence of projects on the subsea opportunities list. It serves as a strong baseline for projects likely to be sanctioned in 2026, which notably includes new frontiers.
Speaker Change: 2026.
Speaker Change: And beyond.
Speaker Change: In closing.
Speaker Change: We are clearly demonstrating our ability to execute on our expanding backlog as evidenced by our year to date results and increased guidance for subsea in 2025.
Matt: Additionally, the feed pipeline for subsea developments remains at a record level.
Matt: Many of which are for projects advancing towards.
Matt: In the latter half of the decade.
Speaker Change: Importantly, our backlog has been built by a differentiated set of inbound orders.
Matt: It's this combination of factors.
Matt: It gives us increased visibility.
Matt: And more importantly, greater confidence in the project pipeline in 2025.
Speaker Change: Driven by IAA, PCI innovative technologies and subsea services.
Matt: 2026.
Speaker Change: All strengths of Technip FMC.
Matt: And beyond.
Speaker Change: That deliver value for our customers and higher and more sustainable returns for our company.
Matt: In closing.
Matt: We are clearly demonstrating our ability to execute on our expanding backlog as evidenced by our year to date results and increased guidance for subsea in 2025.
Speaker Change: These factors along with our robust market outlook support our strong capital allocation policy.
Speaker Change: Yesterday, we increased our share repurchase authorization by an additional $1 billion.
Matt: Importantly, our backlog has been built by a differentiated set of inbound orders.
Providing us with nearly $1 2 billion of current authorization.
Matt: Driven by IEP, Ci innovative technologies and subsea services.
Speaker Change: At the same time, we increased our distribution target for 2024.
Matt: All strengths of Technip FMC.
Matt: That deliver value for our customers and higher and more sustainable returns for our company.
Speaker Change: With a goal to nearly double shareholder distributions versus the prior year.
Speaker Change: And we will continue to drive Technip FMC forward with conviction in both our execution and outlook.
Speaker Change: Valley dated by the uniqueness of our business.
Speaker Change: Intimacy of our customer relationships.
Speaker Change: And strength of our backlog.
Speaker Change: I will now turn the call over to <unk> to discuss our financial results.
Thanks, Doug.
Speaker Change: Inbound in the quarter was $2 8 billion driven by $2 5 billion of subsea orders.
Speaker Change: Company backlog increased sequentially to $14 7 billion revenue in the quarter was $2 3 billion.
Speaker Change: EBITDA was $389 million, when excluding restructuring impairment and other charges totaling $4 million.
Speaker Change: And a foreign exchange loss of $3 million.
Speaker Change: Turning to the segment results in subsea revenue of $2 billion increased modestly versus the second quarter.
Speaker Change: The revenue increase was driven by higher project activity in Asia Pacific Latin America and Canada.
Speaker Change: <unk> be offset by lower activity in the Gulf of Mexico, and Norway. Following completion of significant project milestones in the second quarter.
Speaker Change: Increased project activity included higher revenue from flexible pipe in Brazil.
Speaker Change: Subsea services activity improved modestly in the period.
Speaker Change: Adjusted EBITDA was $371 million with a margin of 18, 3% up 60 basis points from the second quarter.
Speaker Change: The sequential increase was due to improved earnings mix from backlog and strong project execution in the quarter.
Speaker Change: In surface technologies revenue was $320 million.
Speaker Change: <unk> increased sequentially.
Speaker Change: The revenue improvement was primarily driven by increased project and services activity in the middle East.
Speaker Change: Partially offset by lower wellhead equipment sales in North America.
Speaker Change: Adjusted EBITDA was $49 million up 7% versus the second quarter.
Speaker Change: The improvement was due to the higher activity in the middle East and improved execution, partially offset by the lower activity in North America.
Matt: So the increase was due to improved earnings mix from backlog and strong project execution in the quarter.
Speaker Change: Adjusted EBITDA margin was 15, 3% up 80 basis points versus the second quarter.
Matt: In surface.
Matt: As technologies revenue was $320 million and modest increased sequentially.
The revenue improvement was primarily driven by increased project and services activity in the middle East.
Speaker Change: Turning to corporate and other items in the period corporate expense was $31 million net interest expense was $60 million and income tax in the quarter was a benefit of $6 million.
Matt: Partially offset by lower wellhead equipment sales in North America.
Matt: Adjusted EBITDA was $49 million up 7% versus the second quarter.
Speaker Change: Tax expense was significantly below plan due in large part to a net 61 million positive benefit from the release of evaluation allowance.
Matt: The improvement was due to the higher activity in the middle East and improved execution, partially offset by the lower activity in North America.
Speaker Change: The release of the valuation allowance, resulting from a reassessment of the carrying value of deferred tax assets driven by our improving profitability.
Matt: Adjusted EBITDA margin was 15, 3% up 80 basis points versus the second quarter.
Matt: Turning to corporate and other items in the period corporate expense was $31 million.
Speaker Change: These tax assets are now expected to benefit future periods.
Matt: Net interest expense was $16 million in income tax in the quarter was a benefit of $6 million.
Speaker Change: Cash flow from operating activities was $278 million.
Speaker Change: Capital expenditures were $53 million.
Tax expense was significantly below plan due in large part to a net 61 million positive benefit from the release of evaluation allowance.
Speaker Change: This resulted in free cash flow of $225 million.
Speaker Change: Total shareholder distributions in the quarter were $101 million.
Matt: The release of the valuation allowance resulted from a reassessment of the carrying value of deferred tax assets driven by our improving profitability.
Speaker Change: Including $80 million of share repurchases.
Speaker Change: This brings year to date distributions to $395 million, putting us on a path to nearly doubled distributions versus last year.
Matt: These tax assets are now expected to benefit future periods.
Speaker Change: As Doug mentioned in his prepared remarks, we now have nearly one 2 billion of remaining authorization following the increase to our share repurchase authorization announced yesterday.
Matt: Cash flow from operating activities was $278 million.
Matt: Capital expenditures were $53 million.
Matt: This resulted in free cash flow of $225 million.
Speaker Change: We ended the period with cash and cash equivalents of $837 million.
Matt: Total shareholder distributions in the quarter were $101 million.
Speaker Change: That declined sequentially to $129 million.
Matt: Including $80 million of share repurchases.
Matt: This brings year to date distributions to $395 million, putting us on a path to nearly doubled distributions versus last year.
Speaker Change: Moving to our guidance for.
Speaker Change: Our subsea, we expect seasonal impacts to our fourth quarter results with revenue declining low single digits sequentially and adjusted EBITDA margin of approximately 16, 5%.
Speaker Change: This implies full year adjusted EBITDA for subsea should approach $1 3 billion.
Speaker Change: For surface technologies, we expect revenue in the fourth quarter to increase low single digits sequentially.
Speaker Change: Driven by growth in our international business with incremental margins of approximately 30%.
Speaker Change: And finally, we expect corporate expense to be modestly above third quarter results.
Speaker Change: Now moving to full year guidance, we are increasing our expectations for total company adjusted EBITDA to approximately 137 billion when excluding foreign exchange.
Speaker Change: We now expect net interest expense of $65 million to $70 million down from the previous guidance range of $70 million to $80 million.
Speaker Change: And moving to tax.
Speaker Change: This year, we have had a favorable earnings mix that is allowing us to benefit from our tax positions.
Speaker Change: Reducing our expectations for tax expense, even with our improved profitability.
Speaker Change: When also including the release of evaluation allowance, we have revised our reported tax provision guidance for 2024 to a range of $170 million to $180 million.
Speaker Change: This is down from the previous guidance range of $280 million to $290 million.
Speaker Change: Going forward as we have previously communicated we are focused on achieving a normalized effective tax rate of 30%.
Speaker Change: All other guidance items remain unchanged.
Speaker Change: Let me now address our outlook for subsea in 2025, we are guiding subsea revenue to a range of eight three to $8 7 billion and.
Speaker Change: An increase from the previous outlook of approximately 8 billion.
Speaker Change: We're guiding subsidy adjusted EBITDA margin to a range of $18, 5% to 20%.
Speaker Change: Also an increase from the previous outlook of approximately 18%.
Speaker Change: The midpoint of the range implies growth in adjusted subsea EBITDA of more than 25% when compared to our updated guidance for 2024.
Speaker Change: We will provide the remainder of our 2025 financial guidance with our fourth quarter earnings.
Speaker Change: In closing our third quarter results demonstrate solid financial performance with adjusted EBITDA margin for subsea increasing to 18, 3% and surface technologies improving to 15, 3%.
Matt: The increase from the previous outlook of approximately 18%.
Speaker Change: With these strong quarterly results. We have also increased our full year expectations for total company adjusted EBITDA to $1 37 billion.
Matt: The midpoint of the range implies growth in adjusted subsea EBITDA of more than 25% when compared to our updated guidance for 2024.
Speaker Change: The continued strength in execution combined with our confidence in the market backdrop has led to a material increase in our 2025 subsea financial outlook with the upper end of our EBITDA margin guidance now at 20%.
Matt: We will provide the remainder of our 2025 financial guidance with our fourth quarter earnings.
Matt: In closing our third quarter results demonstrate solid financial performance with adjusted EBITDA margin for subsea increasing to 18, 3% and surface technologies improving to 15, 3%.
Speaker Change: Lastly, returning cash to shareholders remains a top priority.
Speaker Change: And we now expect to nearly double distributions versus the prior year.
Matt: With these strong quarterly results. We have also increased our full year expectations for total company adjusted EBITDA to $1 37 billion.
Speaker Change: Importantly, the increase of $1 billion to our existing share repurchase authorization supports our expectations for further growth in shareholder distributions.
Matt: The continued strength in execution combined with our confidence in the market backdrop has led to a material increase in our 2025 subsea financial outlook with the upper end of our EBITDA margin guidance now at 20%.
Speaker Change: Operator, you May now open the line for questions.
Speaker Change: Thank you and as noted the floor is open for questions. A reminder, in order to ask a question Press Star then the number one on your telephone keypad to raise your hand and joined the queue.
Matt: Lastly, returning cash to shareholders remains a top priority.
Speaker Change: Today in the interest of time, we do request to strict limit of two questions per person and please remember to you on mute your device when called upon to ask your questions again that he's still wanted to join the queue and your first question comes from the line of.
Matt: And we now expect to nearly double distributions versus the prior year.
Matt: Importantly, the increase of $1 billion to our existing share repurchase authorization supports our expectations for further growth in shareholder distributions.
Speaker Change: Orange I around from J P. Morgan. Please go ahead.
Speaker Change: Yes. Good morning. My first question is just on the 2020 higher subsea.
Matt: Operator, you May now open the line for questions.
Speaker Change: Thank you and as noted the floor is open for questions. I reminder, in order to ask a question Press Star then the number one on your telephone keypad you raise your hand and joined the queue.
Outlook with you raised.
Speaker Change: At the midpoint of the range at your margin guidance implies 250 basis points of margin expansion year over year.
Speaker Change: Today in the interest of time, we do request a strict limit of two questions per person and please remember to unusual device when called upon to ask your questions again that is star one to join the queue and your first question comes from the line of.
Speaker Change: And over 300 at the top end of the range I was wondering if you could discuss some of the drivers of the higher margins.
Speaker Change: In particular I was wondering if you could provide some insight.
Speaker Change: Orange I around from J P. Morgan. Please go ahead.
Speaker Change: The mix of subsea 2.0, a direct awards integrated projects in 2025, how that mix changes.
Speaker Change: And 25 versus 24.
Speaker Change: Good morning, Arun. Thank you for the question and more importantly, thank you for acknowledging the 250 basis point.
Speaker Change: Up lift in our guidance it is quite significant given the performance that we've had in already in 2024 versus 23, and clearly demonstrates the path that we're on and the success that we're having so thank you very much for that and I'll handle the second part of your question first and then I'll pass it over to <unk> to add some additional.
Speaker Change: <unk> color.
Speaker Change: Simply stated there will be more <unk> and more to <unk> in 2025 and that certainly helps with the quality of the of the performance of the conversion of that of those orders from backlog into revenue and profitability.
Speaker Change: Thank you, Doug and clearly 250 basis points. We are very pleased obviously excited about this upgrades to our financial outlook. So if you factor of course, but we remain extremely confident in our inbound order guidance that we've given the $30 billion over a three year period ending in 2025.
Speaker Change: We are with this quarter and with prior quarters, demonstrating our ability to convert at a higher quality backlog and they are resulting in stronger operating margins.
Speaker Change: Our execution has been strong and we maintain a relentless focus on industrialization all of our business, which I think is reflected in our 2024 performance where clearly we are exceeding the initial guidance. If you look commercially we have been able to continue to increase our backlog margins on the back of our unique <unk>.
Speaker Change: <unk> and the two point Dow technology that are clearly, Doug referenced as well being a favorable mix to us and we.
Speaker Change: Shorter cycle times, they were demonstrating for ourselves as well, we're demonstrating value to our clients as wireless this translating into improved financial performance for us.
Speaker Change: So all in all I think these factors really gives us the greatest confidence and that's putting forward. This revised 2025 subsea outlook at this point.
Speaker Change: Great. My follow up is you know judging by some of the commentary in earnings season, thus far from S. There'll be Baker as well as your results.
Speaker Change: Third appears to be one of the strongest parts of the other fast food chain.
Speaker Change: But that's all include obviously, a tightening market for vessels.
Speaker Change: I was wondering if you could talk about.
Speaker Change: Your thoughts on just managing through a tighter vessel market.
Speaker Change: Because this is one of the recent concerns I've heard from the buy side is how is the <unk>.
Speaker Change: These projects given the sense that the vessel market is quite tight today wondering if you could elaborate on that.
Speaker Change: No ruin a fair concern by the buy side and if we were still operating the company as we had historically or others in this space as they still are operating as they were historically there will be limitations.
Speaker Change: Doug I was wondering if you could talk about.
Speaker Change: You know your thoughts on just managing through a tighter vessel market.
Speaker Change: It is.
Speaker Change: There's no doubt about it.
Speaker Change: As you're stating the concern that you are hearing from some of your clients and our shareholders.
Speaker Change: Because this is one of the recent concerns I've heard from the buy side is how is F. T I going to execute some of these projects just given the sense that the vessel market is quite tight today wondering if you could elaborate on that.
Speaker Change: In 2019.
Speaker Change: 2019, we recognize and we recognize that business needed to be done differently.
Speaker Change: No ruin a fair concern by the buy side.
Speaker Change: And we went from building and relying on our own internal capacity by building out relationships.
Speaker Change: And if we were still operating the company as we had historically or others in this space as they still are operating as they were historically there will be limitations.
Speaker Change: And moving into what we call the vessel ecosystem.
Speaker Change: This allows us to work together with partners vessels to deliver our ie PCI projects.
Speaker Change: <unk>.
Speaker Change: There's no doubt about it.
Speaker Change: As you are stating the concern that you are hearing from some of your clients and our shareholders.
Speaker Change: As you know <unk> projects or the premium in the market today and quickly becoming the the model of choice for our clients many of which who have converted to go 100% IAA PCI, which for US is obviously flattering because it means 100% direct awards.
Speaker Change: In 2019.
Speaker Change: 2019, we recognize and we recognize the business needed to be done differently.
Speaker Change: And we went from building and relying on our own internal capacity by building out relationships.
Speaker Change: So as a result of that we can continue to grow that <unk> offering is as <unk> pointed out creating value for our customers by shortening cycle time are accelerating time to first oil by up to one year versus the conventional hardware versus installation.
Speaker Change: And moving into what we call the vessel ecosystem.
Speaker Change: This allows us to work together with partners vessels to deliver our IEP Ci projects.
As you know a PCI projects or the premium in the market today and quickly becoming the model of choice for our clients many of which you have converted to go 100% IEP Ci.
Speaker Change: Contracts being bid and tender separately.
Speaker Change: On those projects, we look at our capacity, we look at the capacity of our partners, we have conversations and we make commitments and as a result of that we can continue to grow.
Speaker Change: Which for US is obviously flattering because it means 100% direct awards.
Speaker Change: So as a result of that.
Speaker Change: I have confidence in our ability and our outlook to continue to grow the PCI market.
Speaker Change: We can continue to grow that <unk> offering is as <unk> pointed out creating value for our customers by shortening cycle time are accelerating time to first oil by up to one year versus the conventional hardware versus installation.
Speaker Change: Through our own utilization of our own assets as well as through.
Speaker Change: Through the ecosystem and our partners within the ecosystem.
Speaker Change: Great. Thanks, a lot.
Speaker Change: Contract being bid and tendered separately.
Speaker Change: Your next question is from the line of Scott Gruber from Citigroup. Please go ahead.
Yes, good morning.
Speaker Change: Good morning, Scott.
Scott Gruber: Good morning, I wanted to start off when I was looking at your some of your subsea opportunities list, we couldn't help but notice that there is.
Scott Gruber: For Petrobras projects.
Scott Gruber: That were.
Scott Gruber: Increase then in their scope.
Scott Gruber: I wanted to get some color yeah those.
Scott Gruber: <unk> is getting bigger from a well count perspective or is there more scope being added from a technology perspective, and some color on what's driving the award value potential upside that would be great.
Speaker Change: Sure Scott.
Speaker Change: A little bit of all of the above.
Speaker Change: This is the challenge of having kind of ranges and if somethings near the top end of the range by the time. The feed work is done it may very well go a higher or lower.
Scott Gruber: In this case, they obviously ticked higher I would say there was indeed, some changes to scope maybe not as much on the well count that is much more so on the infrastructure and the layout of the field.
Scott Gruber: This is driven to higher values and then some of them were just projects that are out in 2026, where we're just learning more from the feed activity that's being conducted today, but indeed those have grown in value.
Speaker Change: That's great.
Speaker Change: And just a question.
Speaker Change: What we're hearing from the offshore drillers.
Speaker Change: A lot of questions that we're getting today.
Speaker Change: Is around white spaces for the offshore drillers.
Speaker Change: And if theres any read through for STI and the.
Speaker Change: Order cadence that you guys are looking at 25, but you reiterated confidence in that $30 billion over three years I guess can you just kind of provide some color on what you're seeing in the market and kind of why it's different from the offshore drillers in the white space issue that they're having.
Speaker Change: So Scott. Thank you for bringing this up this clearly has been a somewhat recent topic within the within the community.
Scott Gruber: The short answer is no.
Scott Gruber: But let me add a little more color to that.
Scott Gruber: Just got done doing a tour around three quarters of the world Anyways.
Scott Gruber: Visiting with all of our top customers understanding what they needed from us.
Scott Gruber: As they look at their portfolio for 2025 and 2026.
Scott Gruber: Simply did not did not come up one time I mean, it is simply a non issue in regards to their expectations from us.
For their project.
Scott Gruber: To continue to move forward at I would say is an accelerated cadence.
In no way has it been a slowing or a deferral.
And look I also want to point out at the risk of.
Scott Gruber: Being a big contentious, but this was started by one or two companies.
Scott Gruber: It was never endorsed broadly by not only their drilling community, but certainly the rest of the industry. This is a company specific issue. It is not an industry issue.
Speaker Change: No. That's good color if I could just follow up real quick.
Speaker Change: Yeah. It is it is part of the issue that the offshore rigs are drilling faster I mean, we've heard about that yada, but.
Speaker Change: Is that part of kind of what bridges the gap.
Speaker Change: Can you repeat that one more time Scott.
Scott Gruber: Offshore rig efficiency seems to be improving in certain locations.
Speaker Change: God I mean is that.
Speaker Change: Part of what bridges the gap between some extra white space for a few offshore drillers versus the well count.
Speaker Change: And project Count that you execute on.
Scott Gruber: Yeah, you know against God. It is not an issue that's being raised by our clients. It is not a concern in terms of the project timing for <unk> or for the execution of existing projects and pleased to hear that.
Scott Gruber: The drilling efficiency is improving because that fits very well with our strategy, which is reducing cycle time for our client and so we certainly encourage that greater efficiency than we would all mutually benefit from that.
Speaker Change: Okay I appreciate that color Doug Thank you.
Speaker Change: And your next question is from the line of Kurt <unk> from benchmark. Your line is open.
Speaker Change: It is not a concern in terms of the project timing for F D or for the execution of existing projects and pleased to hear that.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Good morning, Kurt.
Kurt: So I'm glad you brought up the the dynamics at play where you've traveled around the globe and met with varying customers. So.
Speaker Change: The drilling efficiency is improving because that fits very well with our strategy, which is reducing cycle time for our clients. So we certainly encourage that greater efficiency than we would all mutually benefit from that.
Kurt: I want to extend upon that dynamic right. So there seems to be a disconnect between.
Kurt: Some short term concerns about.
Speaker Change: I got I appreciate the color Doug Thank you.
Kurt: Maybe oil demand.
Kurt: These are the oil supply yet.
Speaker Change: And your next question is from the line of Kurt <unk> from benchmark. Your line is open.
Kurt: Customer base that you're talking to and Youre dealing with it seems to have a more constructive outlook relative to two the investor base. So.
Speaker Change: Hey, good morning, everybody.
Speaker Change: Good morning, Kurt.
Speaker Change: So.
Kurt: I'm glad you brought up the <unk>.
Kurt: With that as a backdrop right what.
Kurt: Dynamics at play where you've traveled around the globe and met with varying customers. So.
Kurt: When you have in your conversations with with these executives and they're kind of going through their thought process on executing on their programs.
Kurt: I want to extend upon that dynamic right. So there seemed to be a disconnect between.
Kurt: What are you learning from that dynamic in terms of how they're viewing the demand prospects supply demand balances.
Kurt: Some short term concerns about.
Kurt: Maybe oil demand.
Kurt: These are the oil supply yet.
Kurt: And what's giving them the conviction and continue to push forward.
Kurt: Customer base that youre talking to and Youre dealing with it seems to have a more.
Kurt: Constructive outlook relative to the Investor base so.
Speaker Change: So Kurt and again this is a generalization, which is always difficult to do because each company.
Kurt: With that as a backdrop what.
Speaker Change: Each of our clients has its own specific portfolio its own opportunities its own risk profile et cetera.
Speaker Change: When you are having your conversations with these executives and they're kind of going through their thought process on executing on their programs.
Speaker Change: But I'm going to generalize if you'll allow me, although again you cant apply it across the board to every client.
Speaker Change: Are you learning from that dynamic in terms of how they're viewing the demand prospects supply demand balances.
Speaker Change: At a high level generalization.
Speaker Change: Various the.
Speaker Change: And what's giving them the conviction that continue to push forward.
Speaker Change: Understanding.
Speaker Change: That their highest quality reservoirs lie offshore.
Speaker Change: There is an understanding and strong belief and conviction.
Speaker Change: So Kurt and again this is a generalization, which is always difficult to do because each company.
Speaker Change: We have delivered to the industry, meaning <unk> two point, though will continue to reduce cycle time.
Each of our clients has its own specific portfolio its own opportunities its own risk profile et cetera.
Speaker Change: The combination of our quality reservoir and improved efficiency later broad level, let's call it efficiency improved efficiency or accelerated time to first oil.
Speaker Change: Very quickly.
Speaker Change: Quickly makes those project economics extremely attractive.
Speaker Change: Therefore, the primary conversation, we're having today is our.
Speaker Change: Our choice our preference is <unk> direct awards Technip FMC.
It's humbling, but that is the conversation and therefore, we're working with our clients and our partners and certainly those who are prepared to direct award <unk> 2.0, knowing that that's going to be the most favorable for the project economics going forward to ensure that they will have.
Speaker Change: We will make commitments to them.
Speaker Change: To assure them that they will have our capacity to be able to deliver on those projects at the end of the day, we want every subsea project to be extremely successful.
Speaker Change: What differentiates our company and recreate the sustainability for our company as the sustainability of offshore.
Speaker Change: We don't think of it as a cycle, we think of it as how do we continuously drive.
Speaker Change: That project Economics, Subsea project economics to towards continuous improvement. The good thing is it's embarrassing to say, but the good thing is we have a lot of runway we have a lot yet to be done on our side of the equation versus some of the other areas that our clients have access to in terms of.
Speaker Change: Just to using their capital in other reservoirs outside of subsea that are quite mature and quite highly efficient already. So I think that's what gives them the confidence and the understanding also keep in mind. These are longer cycle projects. Although we're trying to shorten them every day by day by day or weekend.
Speaker Change: <unk>.
Speaker Change: The reality of the situation is they are making a bit of a longer term bet and I think that takes out some of the short term noise that we're hearing in the macro market today.
Speaker Change: Yeah.
Speaker Change: Good context I appreciate that so.
Speaker Change: Second thing maybe to follow up here and for either you or al.
Speaker Change: On the increased share repurchase right.
Speaker Change: And obviously, you mentioned and you're going to double that the.
Speaker Change: Distribution to shareholders. This year. So how do you guys think about the.
Speaker Change: The timing.
Speaker Change: All of that dynamic or are you thinking kind of programmatic.
Speaker Change: Share repo.
Speaker Change: <unk>.
Speaker Change: And do you have a sense that given.
Speaker Change: When do you expect to generate in terms of free cash flow into 2025 that the bulk of that $1 billion a share repo will be exhausted in 2025.
Speaker Change: Yes. Thank you thanks for the question.
Speaker Change: I'll try to tackle this one.
Speaker Change: First of all.
Speaker Change: Really the business outlook the strong cash generation, we see your AD is really foundational for this.
Speaker Change: I mean, obviously, we announced this additional $1 billion authorization this quarter.
Speaker Change: And again as you said, we have merely we have announced that we nearly doubled this year.
Speaker Change: And when you kind of put that in context also of the fact that we are.
Speaker Change: We have said that we will always do.
Speaker Change: Distributor or not always but we will distribute at least 60% of our free cash flow to shareholders, but I just want to put the 1 billion maybe in context.
Speaker Change: With this year with a nearly doubling we're implying that we would be.
Speaker Change: Buying back shares with around 400 million, maybe but again our commitment that we also stated very clearly is that we will be growing this going forward. So I think when you look at that authorization and think about growth.
Speaker Change: Clearly, we look to two increases during upcoming year.
Okay appreciate that thank you.
Speaker Change: And your next question comes from the line of Waqar Sayed from <unk> capital markets. Your line is open.
Waqar Sayed: Thank you first of all congrats on a great quarter and for raising guidance.
Speaker Change: Thank you very much.
Waqar Sayed: Doug My question relates to the surface business.
Speaker Change: Some of your.
Waqar Sayed: Larger peers.
Waqar Sayed: Our guided the street to like low single digits to mid single digit state upstream spending increase in the international markets in 2025 now.
Waqar Sayed: Now for your surface business.
Waqar Sayed: Do you think that it could grow next year and the same kind of range or do you have any.
Waqar Sayed: <unk>.
Waqar Sayed: Attunity some market share gains in Saudi Arabia, because of your new manufacturing setup there.
Speaker Change: So a car. Thank you very much for acknowledging the performance in the quarter. It's a reflection of the 22000 women men, which were simply humbled and honored here to represent so thank you for that.
And also thank you for asking around the surface business. So as far as are the international portion of our surface business, which you know is our is the largest portion and very differentiated we are very differentiated in that marketplace in a very different business than the North America market.
Speaker Change: We remain optimistic and you summarized it well so I'll just try to repeat what you said.
Speaker Change: There's the overall market activity and then there is the result of our investment in the ramp up of our activity within the region, both within Saudi Arabia as well as in the United Arab Emirates. So we remain very confident in the performance of our international business for those reasons.
Speaker Change: And on the same topic as they move towards unconventional gas does that provide.
Speaker Change: Any opportunity for unit price improvement of things like that in the middle East.
Speaker Change: Indeed, more wells from our equipments perspective, a much higher specification.
Much higher specification. So indeed, it is a positive trend for.
Speaker Change: For the business that you know for the products and services that we provide in kingdom.
Speaker Change: Okay.
Speaker Change: That's all from me thank you very much.
Your next question is from the line of Mark the Yankee from TD Cowen. Please go ahead.
Speaker Change: Hey, thanks.
Speaker Change: So.
Speaker Change: It looks like 50% of the backlog is in subsea is scheduled to ship beyond.
Speaker Change: 2025, and I think you said you expect a higher proportion of direct awards. During 25. So can you help us understand how representative the 2025 margin outlook is for margins in 2026 and beyond.
It is a positive trend for.
Speaker Change: For the business.
Speaker Change: The products and services that we provide in kingdom.
Speaker Change: Okay.
Speaker Change: Great. That's all for me thank you very much.
Speaker Change: Sure Mark.
Speaker Change: Obviously, when we're looking at opportunities today is <unk>.
Speaker Change: Yeah.
Speaker Change: Your next question is from the line of Marc Bianchi from TD Cowen. Please go ahead.
Speaker Change: Indicated on one of the earlier questions, we do have options.
Marc Bianchi: Hey, thanks.
Speaker Change: And we are quite selective in supporting those projects that we believe can be the most successful and create the greatest success for our clients.
Marc Bianchi: So it.
Marc Bianchi: It looks like 50% of the backlog is in subsea is scheduled to ship beyond 2025, and I think you said you expect a higher proportion of direct awards. During 25. So can you help us understand how representative the 2025 margin outlook is for margins in 2026 and beyond.
Speaker Change: When we think about direct awards and <unk> 2.0, where.
Speaker Change: We're creating a lot of value for our clients. So they have no problem sharing that value with us on it <unk> add a little additional color.
Speaker Change: No I just wanted to maybe remind you.
Speaker Change: Sure Mark.
Speaker Change: Couple of things first as we look at what we are still taking in that in terms of quality of orders in 2024.
Speaker Change: <unk> when we're looking at opportunities today as indicated on one of the earlier questions. We do have options.
Speaker Change: It all pretty much all orders that we're taking and are accretive to our two our backlog is setting up for future.
Speaker Change: And we are quite selective in supporting those projects that we believe can be the most successful and create the greatest success for our clients and when we think about direct awards and <unk> two point, though.
Speaker Change: Growth in margins as well.
Speaker Change: I think we've talked about that we have as portion of legacy projects in our backlog. We have said that that's around 10%, 11% at the end of 2025 and clearly as we execute that that portion of the backlog keeps getting smaller. So overall just that the relative mix, it's going to help overall margins.
Speaker Change: We're creating a lot of value for our clients. So they have no problem sharing that value with us I'll, let <unk> add a little additional color.
Speaker Change: No I just wanted to maybe remind you.
Speaker Change: Couple of things first as we look at what we are still taking in that in terms of quality of orders in 2024.
Speaker Change: Going forward.
Speaker Change: It all pretty much all orders that we're taking and are accretive to our two our backlog is setting up for future growth in margins as well.
Speaker Change: Alright, okay. Thanks, Alf maybe while you've got the mic.
On cash conversion so you've got this.
Speaker Change: Tax asset that's <unk>.
Speaker Change: <unk> leasing and you've got.
Speaker Change: I think we've talked about that we have as a portion of legacy projects in our backlog. We have said that that's around 10%, 11% at the end of 2025, and clearly as we execute that that.
Speaker Change: Some better EBITDA outlook for for 25, I'm, just curious how we should be thinking about.
Speaker Change: Conversion of EBITDA to free cash in light of these updates.
Speaker Change: Portion of the backlog keeps getting smaller so overall just that the relative mix, it's going to help overall margins going forward.
Speaker Change: No.
Speaker Change: We're not going to give the 23 five free cash flow, we'd give that guidance for 25 with our fourth quarter earnings call, but I will we will of course admit that we are expecting growth in free cash flow based on first of all the earnings as you point out, but we stand by the 50% free cash flow conversion at this point and any variability.
Speaker Change: Alright, okay. Thanks, Alf maybe while you've got the mic.
Speaker Change: On cash conversion so you've got this.
Speaker Change: Tax asset that that's.
Speaker Change: Releasing and you've got.
Speaker Change: Due to tax or anything else will we will come back to that but at the fourth quarter.
Speaker Change: Some better EBITDA outlook for 25, I'm, just curious how we should be thinking about.
Speaker Change: All in February.
Speaker Change: Thank you very much.
Speaker Change: Conversion of EBITDA to free cash in light of these updates.
Speaker Change: Yeah.
Speaker Change: And our last question today will come from the line of Sarah <unk> from Bank of America. Please go ahead.
Speaker Change: No.
We're not going to give the 23 five free cash flow, we'd give that guidance for 25 with our fourth quarter earnings call, but I will we will of course admit that we are expecting growth in free cash flow based on first of all the earnings as you pointed out, but we stand by the 50% free cash flow conversion at this point and any variability.
Speaker Change: Hi, good morning, Doug.
Sarah: Doug If you don't mind, maybe I would like to start on the flexible side of things the order.
Speaker Change: The opportunity is pretty strong.
Speaker Change: And we saw that for you when we saw that a couple of your peers maybe.
Speaker Change: Due to tax or anything else will will come back to that but at the fourth quarter call in February.
Speaker Change: I'll spend a little time on the flexible market, we now think of as the big opportunity, but other than that what are the key drivers for that flexible market over the next couple of years.
Speaker Change: Thank you very much.
Yeah.
Speaker Change: And our last question today will come from the line of Sarah <unk> from Bank of America. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Thank you and important question.
Speaker Change: A very important technology for our company.
Speaker Change: Hi, good morning, Doug.
Speaker Change: This is a technology that we've been a leader in for a very long time Theres just too.
Speaker Change: Few players who participate in this space.
Speaker Change: Historically, it's been split between let's call it tier tier one ore or the high end and then the commodity.
We've almost exclusively played into the tier one side.
Speaker Change: And we've had a very significant market presence in the tier one side and that's really driven by continuous investment in R&D.
Speaker Change: Not only product technology development, but more importantly, now very much focus on the focusing on the industrialization just like with the subsea two <unk> equipment, where we've doubled the cadence through the facility that's still an opportunity on the flexible side of the business, where we're seeing some improvement, but we have additional.
Speaker Change: Opportunity, which is obviously drives much higher returns because without capital expenditure, we can increase capacity.
Speaker Change: When I think about markets outside of Brazil, and let me pause and say, Brazil is a very important market and a market that we've been the leader and will remain the leader and continue to serve Petrobras.
Speaker Change: Humbled and privileged and proud to serve Petrobras.
Speaker Change: But there's actually a significant market outside of Brazil.
Speaker Change: And that's being driven by IEP Ci.
Speaker Change: So we are we have <unk> and we are flexible pipe and therefore, one could conclude that we have a unique ability to be able to design subsea architecture like no one else has in the industry.
Speaker Change: And our ability to do that can vastly vastly simplified the architecture improve the flexibility no pun intended of the layout of the field.
Speaker Change: And all of this results in an acceleration of first oil and much much greater certainty in the project delivery.
Speaker Change: When you are welding pipes together.
Speaker Change: And deploying them real time, there is simply risk associated and there is simply a.
Speaker Change: A limit to the efficiency that one can ascertain it's just.
Speaker Change: It was just limitations.
Speaker Change: We break that we break that.
Speaker Change: That issue by being able to change the architecture. So in the past I referred to it has the secret ingredient.
Speaker Change: But this was why the combination of FMC and Technip occurred in the first place and this is why we created technip FMC because having access to the flexible pipe is clearly the differentiator so that market outside of Brazil was growing and largely attributed to our IP.
Speaker Change: <unk> offering because keep in mind on an <unk> project, where the field architect.
Speaker Change: So we're doing the design years ahead Thats what were working on right now that's why we have visibility through the end of the decade.
Speaker Change: We're working on those projects right now and obviously, our ability to be able to leverage that flexible technology and the architecture is a game changer.
Speaker Change: Right right no thats fantastic color, Doug if I can continue with that point on visibility in the overall backlog in subsea that you have.
Speaker Change: Obviously.
Speaker Change: Record backlog, but if I just.
Speaker Change: To reiterate on how you state that backlog, we'll give those numbers in the press release.
Speaker Change: Five our backlog went up by $1 billion.
Speaker Change: Lady of Brexit.
Speaker Change: It gives you a lot better backlog coverage for next year with at least the prior two years.
Speaker Change: Right. So if we just talk about everything other than that your backlog, but the implied revenue guidance in subsea.
Speaker Change: How should we think about the book and burn business. The shorter cycle businesses that you would book and delivered in 2005.
Speaker Change: How should we think about that in light of the macro uncertainty.
Speaker Change: Any risk associated with that.
Speaker Change: No.
Speaker Change: Great observation, it's one where we are obviously observing to end very proud and excited.
Speaker Change: As you are saying we're derisking.
Speaker Change: Our ability to be able to forecast here. We are today, giving 2025 guidance I don't think other companies are in a position to do that are most are not in a position to do that because of that visibility that we have in that backlog coverage. As you are referring to that we have look at the backlogs growing the book.
Speaker Change: To bills.
Speaker Change: We've been above a one dot O for a long time now so youre growing that backlog, which obviously is the first the first.
Speaker Change: No.
Speaker Change: The first variable in the equation and then it's also the quality of the backlog.
Speaker Change: And then the third is we're growing our services business. So when you kind of put those altogether, it's what gives us the greater coverage and maybe earlier coverage and greater visibility and coverage than we've had historically, but this is why we gave.
Speaker Change: We've now given you a revenue range for 2025, so we're trying to take the mystery out of.
Speaker Change: Converting backlog to revenue will just go ahead, and we'll give you. The number so that you can have the certainty and you know if we're giving the numbers, we certainly expect to be able to deliver we will deliver against those numbers as well so but good observation.
Speaker Change: No that's fantastic Okay. Thank you for the color I'll turn it back.
Speaker Change: Thank you all for your questions I will conclude the Q&A session at this time and hand back over to Matt for closing remarks.
Matt Sounds: This concludes our conference call a replay of the call will be available on our website beginning at approximately three P. M. New York time today. If you have any further questions. Please feel free to reach out to the Investor Relations team. Thank you for joining US Poly you may now in the call.
Speaker Change: Thank you. This does concludes today's conference call. Thank you all for joining US you may now disconnect.
Speaker Change: [music].
Speaker Change: [music].
Speaker Change: Good day and welcome to the technique of Fmc's third quarter 'twenty to 'twenty four earnings conference call.
Speaker Change: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Speaker Change: If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the star one again.
Speaker Change: Greater assistance throughout the call. Please press star Zero, and finally, I would like to advise all participants that this call is being recorded.
Speaker Change: I'd now like to welcome Matt.
Speaker Change: Senior Vice President Investor Relations and corporate development, Matt over to you.
Speaker Change: Yeah.
Matt: Thank you Polly.
Matt: And good afternoon, and welcome to techniques Fmc's third quarter 2024 earnings conference call.
Matt: Our news release and financial statements issued earlier today can be found on our website.
Matt: Like to caution you with respect to any forward looking statements made during today's 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.
Matt: Implied by these statements.
Matt: Known material factors that could cause our actual results to differ from 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.
Matt: We wish to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof.
We undertake no obligation to publicly update or revise any of our forward looking statements. After the date. They are made whether as a result of new information future events or otherwise.
Speaker Change: I will now turn the call over to Doug Friday Art, Technip, FMC as chair and Chief Executive Officer.
Speaker Change: Thank you Matt.
Speaker Change: Good morning, and good afternoon.
Speaker Change: Thank you for participating in our third quarter earnings call.
Speaker Change: The Technip FMC team continues to demonstrate solid execution, which is reflected in our quarterly results.
Speaker Change: Adjusted EBITDA.