Q4 2024 TechnipFMC plc Earnings Call
Hello and thank you for standing by. My name is Regina and I will be your conference operator today.
At this time, I would like to welcome everyone to the TechNip FMC 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Speaker Change: We ask that you please limit yourself to one question and one follow-up. I would now like to turn the conference over to Matt Seinsheimer, Senior Vice President of Investor Relations and Corporate Development. Please go ahead.
Matt Seinsheimer: Thank you, Regina. Good afternoon and good morning, and welcome to Techneap FMC's fourth quarter 2024 earnings conference call.
Speaker Change: Our news release and financial statements issued earlier today can be found on our website.
Speaker Change: I'd like to caution you with respect to any forward-looking statements made during this call.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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: 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 Pferdehirt, Techneap FMC's Chair and Chief Executive Officer.
Doug Pferdehirt: Thank you, Matt. Good morning and good afternoon. Thank you for participating in our fourth quarter earnings call.
Doug Pferdehirt: I am very proud to report our strong quarterly and full year results as 2024 was another year of tremendous success for the Technip FMC team.
Doug Pferdehirt: For the full year, we achieved total company inbound of $11.6 billion, driving year-over-year growth and backlog to $14.4 billion.
Doug Pferdehirt: growth in IEPCI, growth in subsea 2.0, and growth in subsea services.
Doug Pferdehirt: These strong commercial results also benefited from a significant level of direct awards.
Doug Pferdehirt: Total company revenue for the year grew 16% to $9.1 billion.
Doug Pferdehirt: Adjusted EBITDA improved to nearly $1.4 billion, an increase of 47% when compared to the prior year.
O'Year
Doug Pferdehirt: Free cash flow grew 45% to $679 million, of which we returned $486 million to shareholders, nearly double what we distributed in the prior year.
Now, highlighting our commercial achievements.
Our integrated model, IEPCI,
Doug Pferdehirt: and our configurable product architecture, Subsea 2.0, are unique to Technipa FMC and are the fundamental tools we created to drive sustainable change in subsea economics.
Doug Pferdehirt: In 2024, IEPCI orders grew nearly 25% year-over-year, reaching an all-time high.
Doug Pferdehirt: and came from a diverse set of clients across six offshore basins.
Doug Pferdehirt: Our ability to continue growing this model stems from our strengthened offering that expands the market for integrated opportunities, which was evident during the year.
Doug Pferdehirt: For example, in the fourth quarter, we were awarded an IEPCI contract from Totel Energies for the Grammergu Project, the first oil and gas development offshore Suriname.
Doug Pferdehirt: During the year, we were also awarded IEPCI projects for the Shell Sparta and BP Cascada developments.
Doug Pferdehirt: both of which will utilize our 20k high-pressure technology helping unlock the most economically attractive opportunities in the Paleogene in the U.S. Gulf.
Doug Pferdehirt: Our ability to expand the IEPCI market is not limited to traditional energy resources.
with several major milestones achieved in 2024.
including the Marrow-3 HiSEP project in Brazil.
Doug Pferdehirt: representing the first IEPCI perpetuobrass and the first to utilize subsea processing to capture CO2 directly from the well stream for injection back into the reservoir. All of this done on the seafloor.
Doug Pferdehirt: We also announced the industry's first subsea all-electric system for carbon transportation and storage for the Northern Endurance Partnership in the United Kingdom.
Doug Pferdehirt: And more importantly, we formalized a new partnership with Prismian that will combine our subsea expertise in dynamic offshore applications with Prismian's leading tabling solutions.
Together, this unique combination creates IEPCI for offshore floating wind.
Doug Pferdehirt: Inbound in 2024 was further supported by growth in our configurable product architecture, subsea 2.0.
Doug Pferdehirt: Our ability to generate significant product volume allows us to leverage the full benefits of the configure-to-order model, creating incremental manufacturing capacity without the need for additional capital expenditures.
Doug Pferdehirt: In fact, we have already demonstrated the ability to more than double manufacturing output from our existing capacity for this product portfolio.
Doug Pferdehirt: And from our client standpoint, by eliminating product engineering hours and streamlining the supply chain, we can accelerate equipment delivery by up to nine months.
Doug Pferdehirt: It is really no surprise to us that we saw continued adoption of our subsea 2.0 platform.
Doug Pferdehirt: with subseed 2.0 tree orders in 2024, significantly outpacing the more than 50% growth of our total subseed tree awards versus the prior year.
Doug Pferdehirt: The clear benefits of IEPCI and Subseq 2.0 are further enhanced by a relentless focus on execution.
standardization, and industrialization.
or SSI.
Doug Pferdehirt: As part of our SSI journey, we have made a bold decision to approach every process in Technique FMC from a fundamentally different perspective.
Doug Pferdehirt: One focused on visual management, allowing our teams to identify and solve challenges much earlier than before.
Doug Pferdehirt: Across the hundreds of projects we execute, our teams map out every step and every project deliverable is identified as green or red.
meaning it is either on track or it is not.
Doug Pferdehirt: We then focus our efforts on things that are not on track, and we use this approach for every function in the company, not just manufacturing.
Doug Pferdehirt: Adopting this methodology was a cultural shift that did not happen overnight.
Doug Pferdehirt: It required transparency and trust, and adopting a mindset throughout the organization that fosters asking for help.
Doug Pferdehirt: It is transforming how we operate by achieving seamless coordination and client-centric improvements.
Doug Pferdehirt: key drivers of a robust execution that help deliver greater value for our customers and higher and more sustainable returns for our company.
Doug Pferdehirt: During the year, Surface Technologies benefited from the proactive steps we have taken to refocus the business.
Doug Pferdehirt: We are capturing the benefits of targeted actions, including the sale of our measurement solutions business and optimization of our Americas portfolio.
Doug Pferdehirt: And we expect our actions to drive further improvements in financial performance, as evidenced by the guidance we have now provided for the coming year.
in the Middle East.
The growth re-anticipated is materializing.
Doug Pferdehirt: Driven by the ramp-up in activity in the United Arab Emirates and the Kingdom of Saudi Arabia.
This represents a differentiated growth opportunity for our company.
Doug Pferdehirt: We anticipate further growth in demand, with affordability and security of supply now also major considerations.
Doug Pferdehirt: We continue to believe that both offshore and the Middle East markets will remain the preferred investment of operators, with deep water attracting a growing share of capital flows, driven by much-improved economic returns and broad access to these resources.
Doug Pferdehirt: In offshore markets, we are seeing this today with both an expansion of new regions for development and a growing list of clients.
Doug Pferdehirt: We have secured $20.2 billion of subsea orders in the past two years and our strong market visibility gives us confidence we will exceed $10 billion of inbound in the current year.
Doug Pferdehirt: delivering on our guidance of $30 billion over the three years ending 2025.
Doug Pferdehirt: supported by a growing list of main projects that extend beyond the historical planning horizon.
Doug Pferdehirt: This gives us even greater confidence that activity will remain robust through the end of the decade.
in closing.
Doug Pferdehirt: I am very proud of what we accomplished this year and the momentum we have built to create a truly unique company in an industry that was ready for a better way forward.
Doug Pferdehirt: The success of our strategy was clearly on display this year.
Doug Pferdehirt: and we continue to lay the groundwork for further improvement ahead.
with multiple levers to drive business performance.
Doug Pferdehirt: Some of which are less visible to our external stakeholders, yet are very much within our control.
Our unique combination of direct awards, IEPCI and subsea services.
continues to represent an even greater share of our business.
Doug Pferdehirt: growing to more than 80% of total subsidy inbound in 2024.
and underpins the quality of our expanding backlog.
Doug Pferdehirt: Importantly, the actions we have taken on our transformational journey to further simplify, standardize, and industrialize the organization are changing how our company operates and gives us confidence that we will successfully execute for our customers.
Doug Pferdehirt: And finally, we are committed to sharing our growing cash flow with increasing shareholder distributions to at least 70% of free cash flow in 2025, which would result in growth in distributions of at least 30%.
2024 was indeed a major milestone for Technip FMC.
on our more ambitious journey.
I will now turn the call over to Alf.
Thanks, Doug.
Alf: Inbound in the quarter was $2.9 billion, driven by $2.7 billion of subsea orders, with total company backlog ending the period at $14.4 billion.
Revenue in the quarter was $2.4 billion.
Alf: EBITDA was $354 million when excluding $19 million primarily related to restructuring, impairment and other charges, and a foreign exchange loss of $3 million.
Alf: Turning to segment results in sub-C, revenue of $2 billion was up modestly versus the third quarter.
Alf: The increase was driven by higher activity in the U.S. Gulf and Africa, largely offset by lower activity in Latin America and Asia-Pacific following the completion of project milestones in the third quarter.
Alf: Adjusted EBITDA was $339 million with a margin of 16.5%, down 180 basis points from the third quarter.
Alf: The sequential decrease was primarily due to seasonally lower vessel-based activity and a mix of projects executed from backlog in the period.
Alf: For the full year, subsea revenue grew 22% versus the prior year. With the subsea adjusted EBITDA margin, up 340 basis points to 16.7%.
Alf: Lower activity in North America was offset by increased project activity in international markets, particularly in the Middle East.
Alf: Adjusted EBITDA was $54 million, up 9% versus the third quarter.
Alf: The improvement was due to the higher product activity in international markets, partially upset by the lower volumes in North America.
Alf: Adjusted EBITDA margin was 16.8%, up 150 basis points versus the third quarter.
Alf: For the full year, Surface Technologies revenue decreased 9% versus the prior year.
Alf: However, when excluding the impact of the sale of the measurement solutions business, which closed in the first quarter, revenue increased 1%.
and Justin Ibida-Martin increased 140 basis points to 15 percent.
Alf: According to corporate and other items in the period, corporate expense was $38 million, net interest expense was $13 million, and tax expense in the quarter was a benefit of $18 million.
Alf: Tax expense was significantly below plan due in large part to a net 54 million positive benefit from the release of valuation allowances which resulted from the company's assessment of the carrying value of its deferred tax assets.
and future projections of income.
Alf: Cash flow from operating activities was $579 million, and capital expenditures were $126 million.
This resulted in free cash flow of $453 million.
Alf: Free cash flow for the full year was $679 million, with free cash flow conversion of 50%.
Alf: Total shareholder distributions were $91 million in the quarter and $486 million for the full year.
Alf: We ended the period with cash and cash equivalents of $1.2 billion, bringing us to a net cash position of $272 million.
Alf: In January, we received an upgrade to investment grade for Moody's, with a positive outlook on the company's credit metrics following the change.
Alf: With this upgrade, we are now rated investment grade by all three rating agencies.
Moving to our financial outlook.
Alf: We have provided detailed guidance for the current fiscal year in our earnings release.
Alf: I will now provide additional color on the guidance and our first quarter outlook.
Alf: Starting with subsea, we are updating our previous guidance provided in October. We now expect revenue of $8.6 billion with adjusted EBITDA margin of 19.5% at the midpoint of the full year range.
Alf: This implies revenue growth of 10% and adjusted EBITDA growth of 28% when compared to 2024.
Alf: For the first quarter, we anticipate subsidy revenues to decline low to mid-single digits sequentially due to normal seasonality.
Alf: While adjusted EBITDA margin is expected to improve modestly from the 16.5% reported in the fourth quarter.
Alf: Moving to surface technologies, we are guiding to revenue of $1.275 billion with adjusted EBITDA margin of 15.5% at the midpoint of the full year guidance range.
Alf: This would represent mid-single-digit growth in adjusted EBITDA when compared to the prior year.
Alf: For the first quarter, we anticipate surface technology's revenue to decline approximately 10% when compared to fourth quarter results, with an adjusted EBITDA margin of approximately 14.5%.
Alf: Lastly, we anticipate total company capital expenditures of approximately $340 million for the full year, which is below our long-term guidance range of 3.5% to 4.5% of revenue.
Alf: When all of these items are taken together, we expect to drive our full year free cash flow higher.
to a range of $850 million to $1 billion.
Alf: In closing, the team delivered on what we believe to be among the key drivers of value creation in 2024, either meeting or exceeding our commitment for segment profitability, free cashflow and shareholder distributions.
Alf: And looking ahead, we anticipate further growth in each of these metrics in 2025 when compared to the prior year.
Alf: We expect to convert over 50% of adjusted EBITDA into free cash flow.
Alf: And I will reiterate that we expect this to translate into further growth in shareholder distributions in 2025, where we now plan to distribute at least 70% of free cash flow.
Alf: Said another way, we expect this to be another strong year for Technip FMC with adjusted EBITDA growth of more than 25% excluding foreign exchange.
Growth in free cash flow of more than 35%.
and growth in shareholder distributions on more than 30%.
Operator, you may now open the line for questions.
Speaker Change: At this time if you would like to ask a question press star followed by the number one on your telephone keypad. We ask that you please limit yourself to one question and one follow-up. Our first question will come from the line of Arun Jayaram with JP Morgan Securities. Please go ahead.
Arun Jayaram: Doug Alp, good morning. My first question, Doug, is I wondered if you could talk about kind of the margin journey, you know, at the midpoint of the range you're now pushing
Arun Jayaram: you know, close to 20% margins in sub C. And I wondered if you could talk about, you know, between the favorable mix,
monitor ourselves, and as we have ended...
Arun Jayaram: every call now for quite a while with the statement of major milestone on a more ambitious journey. So it is true that 20%, you know, seemed like maybe, you know, a peak margin to, you know, for this sector in the past.
Arun Jayaram: And, in fairness, it probably was, and certainly the historical data would support that.
Arun Jayaram: Technique FMC chose to take a different path. We started that journey in 2015.
and we're reaping the benefits of it today.
Arun Jayaram: And as highlighted in the script, the combination of the subsea 2.0 configured order and the IEPCI integrated model showing our customers real tangible value by reduction of cycle time.
Arun Jayaram: By doing that, we're able to extract our fair economic benefit from that.
Arun Jayaram: and that's why we're able to have the margin progression that we have experienced.
and as clearly stated,
Arun Jayaram: You know, we are not calling this a peak margin or a midpoint margin, or we're not classifying it in any way, because we continue to expect to deliver higher margins as we have higher quality backlog being executed.
Speaker Change: and this operating model, we really see the benefits of this new operating model. So, Arun, I guess I would just say it's a new way of doing business. It didn't come easily. It took a lot of hard work. But that's all behind us now, and we're focused on delivering these results and better.
Speaker Change: Subsea, a merger announcement earlier this week has attracted a lot of Bifide attention in fact FTI was mentioned a number of times on that conference call
Speaker Change: You know, Saipan did mention they're gonna honor their SURF agreement with FTI until expiration, but I was wondering if you could give us your bigger picture thoughts.
Speaker Change: on the implications of this merger in your business, and maybe, you know, we've been getting a lot of questions on if you could go through some of the specifics of your SURF agreement with SIPEM and, you know, maybe the go forward, you know, what happens on expiration, et cetera.
Speaker Change: Okay, sure. Obviously, we have a lot of really exciting things to talk about here at TechDeepFMC, but let's take a moment here. I do appreciate the opportunity to share our views.
Arun Jayaram: on the proposed merger. So look, Arun, you know, in these type of strategic transactions, there's one of two paths you can take.
Arun Jayaram: You can take the path of consolidation or you can take the path of integration. Many choose the path of consolidation. As a matter of fact, we saw this recently on the equipment side or the SPS side of the industry as well.
Arun Jayaram: What is the result of this? More of the same. You know, clearly a bigger company, but doing the same thing. It does not fundamentally alter the market dynamic. Indeed, it does impact the market structure, but it doesn't change the way that the market operates.
Speaker Change: We chose to go through a very different path, and I would say it's the less traveled path for sure, which was integration.
Speaker Change: So, we chose to put together an offering that we believe could create real sustainable change to drive improvement in subsea economics that were never able to be achieved in the past.
Speaker Change: by significantly reducing cycle time. And this was why we brought together FMC and Technique to create the new company.
Speaker Change: Much more disruptive, I would say higher risk, but the good news is we did it in 2017, so it was eight years ago. So we are well beyond all of the pain and we are enjoying the gain.
Speaker Change: Our strategy continues to be focused very much on creating client success. The way we create client success is to reduce cycle time and ensure schedule certainty.
Speaker Change: So, we're going to continue to focus on that, because this creates a sustainable new way of working, and if you will, a better way forward for the industry.
Speaker Change: Our focus is to be asset light. We're going to do more with the same or more with less, as we've identified, and I talked about in our script, in terms of the manufacturing capacity as well as the fleet capacity by shorting cycle times.
Speaker Change: The integration has proven to improve project economics. We benefit from a reduction in cycle time and therefore we can do more with less, or if you will, a reduction of capital spend.
Speaker Change: and our clients and we benefit together because of this type of a model. And therefore, the results speak for themselves. Over 80% of our business is direct awarded to our company because of this truly unique offering.
Speaker Change: Now you mentioned the relationship with other vessel operators and we have several and these are in what we call the vessel ecosystem.
The Vessel Ecosystem simply gives us optionality.
Speaker Change: We have multiple different partners. We have a very open architecture. We welcome anyone to work in our ecosystem.
Speaker Change: The benefit to us is optionality. The benefit to our partners is they gain access to an expanding and exclusive IEPCI market. If you will, it gives them an ability to address a portion of the total available market that they otherwise would not have access to.
Speaker Change: Our focus remains very much on IEPCI or the integrated projects. This is how we can deliver the greatest value versus installation-only contracts.
Speaker Change: So we're going to continue to do that and we believe it's going to create the greatest benefit for our clients. We have many people interested in working with us in the ecosystem and we would expect others to continue to or to work with us in the future.
And just to maybe summarize the impact to the company.
Speaker Change: The proposed merger does not have any impact on our ability to meet our inbound expectations for 2025, and there is no change to our view of our inbound outlook over a multi-year planning horizon.
Doug, thanks a lot. That's super helpful.
Speaker Change: Our next question will come from the line of Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
Speaker Change: Great to see the cash return target going to over 70%, which I think is period leading.
Speaker Change: My question is how do you think about managing the balance sheet now that you're in net cash?
Speaker Change: You know, we'll see how much more cash you put on the balance sheet this year. Maybe it's north of 200, which kind of could take it towards 500. But is there a level where you think you have enough cash on the balance sheet? You know, would you cap it around 500?
Speaker Change: and kind of moved to return basically all cash to shareholders. How do you think about managing the cash on the balance sheet?
Speaker Change: Hi there, Scott. Alf here. I'll take this one. So first of all, maybe some numbers. Currently, we have less than $900 million of gross debt.
Speaker Change: on our balance sheet, and our gross leverage ratio is clearly well below one times EBITDA. And as we noted, we have achieved investment-grade ratings with all three agencies, most recently with Moody's, who is now also holding a positive outlook on us.
Speaker Change: So, all of those things, you know, make us feel really good about the strength of our balance sheet, to be honest.
Speaker Change: So, then you kind of pointed out we have strong fourth quarter cash flow performance here that drives us to a net cash position of $272 at the end of the year, and looking ahead we have also strong free cash flow cost degeneration in 2025.
Speaker Change: So near-term, first of all, we think about this as, you know, in the near-term, we'll take the...
Speaker Change: down the debt as debt mature. So we have a debt maturity in June and we will take care of that one. And then we obviously are not looking to build a cash balance, okay? But we do think for our type of business, it makes sense to have a small net cash position.
Speaker Change: And obviously, when you say small net position and the strength of what we have in the free cash flow outlook, we are being very clear of committing that we will distribute at least 70%
of our free cash flow to our shareholders in 2025.
Speaker Change: That's great, great. I appreciate the color. And then turning to the subsea revenue mix, you know, in terms of the revenue contribution from subsea 2.0 projects in 2025, kind of roughly where will that stand and and how much will services contribute?
Speaker Change: Scott, I'll start and then Alf can add any additional color. So on the subsea 2.0, thank you for asking. It was a big highlight of the quarter.
Speaker Change: We've talked about the fact of the significant number of orders being over 50% of our orders coming in.
from subsea 2.0.
Speaker Change: You know, clearly, we're past the inflection point in terms of market adoption and as you correctly point out, the exciting part is as we see that convert through the backlog into revenue, or if you will, as it goes through the execution phase.
Speaker Change: Myself and the Chief Technology Officer, we were just in Malaysia and, you know, looking at some of the progress that we've been making in terms of the manufacturing cadence associated with Subsea 2.0. It's a real-time learning curve.
In other words, it's getting better and better.
But, you know...
Speaker Change: I would say in the neighborhood of about one third of our activity that's going on in manufacturing today is associated with the new Subsea 2.0 Configure-to-Order product family or product platform.
Speaker Change: We know the orders are well above that, as we've stated, so that will continue to grow, and as that continues to grow, it will make the results.
through our manual, I think, that they read.
and I'll add some additional color.
Speaker Change: I'll just maybe add a couple of comments. So first of all, it's clear that we have built our success and continue to build our success on the high quality backlog that we have achieved.
Speaker Change: As noted, it has an increasing share of IEPCI in subsea 2.0, which becomes an enabler for our business overall. And then you kind of look at our track record. We have demonstrated the ability that we can execute on this backlog, and we've been driving margin improvement.
consistently over the last several periods.
Speaker Change: and disability also is now further enhanced by what Doug said in his prepared remarks about our business industrialization and including visual management systems which allow us to have earlier identification of any potential problem and which helps us secure our execution even further.
Speaker Change: And then, but at the end of the day, it always starts with what you onboard also. So we're going to be very, very focused on the on the on the awards that we are continuing to onboard, meaning the right quality for us, and meaning the right fit for our industrialization, which actually, which would be translating into more IEPCI.
Speaker Change: More Substitute 2.0 and more services. That's where we're focused. So when you look at, whether you look at 25 or you look beyond,
Speaker Change: These are the ingredients that are going to continue to drive us. The strength of our backlog in inbound, that drives revenue growth, and the quality of our backlog that results in the expanding margins for the reasons mentioned.
Speaker Change: That's great. Do you have a rough figure for the service portion of it too? Yeah, was there a question about the service volume? Yeah, so service first of all...
Speaker Change: Yeah, that's service revenue. So if you take services overall, though, we we grow the service business roughly in line with the rest of the overall growth of subsea. And we estimate, or we're projecting that that will be around a $1.8 billion revenue business in 2025.
Speaker Change: Great, I appreciate all the color. I'll send it back. Thank you.
Speaker Change: Our next question comes from the line of David Anderson with Barclays. Please go ahead.
Good morning, Dr. Holland.
David Anderson: I just want to ask you a bigger offshore question. So we've seen some mixed views on how offshore markets are expected to play out over the next 12-18 months.
David Anderson: On the one hand, we have the offshore drillers that aren't seeing many new tenders and seem to be suggesting projects might be getting pushed out a bit.
David Anderson: On the other hand, we have service companies that are expecting 2026 to be a marked improvement in offshore development activity. I just want to know if you can kind of give us what you're seeing from your standpoint in terms of installations and backlog conversion.
David Anderson: Do you think 2026 could be a step up in that, or will it be similar, as far as you can tell, standing here today?
David Anderson: Thank you, David. And good morning. Um, I, you know, we've talked about this on a couple of the other calls in terms of, you know, some of the impact that's happening, happening to the drillers as I've.
David Anderson: you know, said before, you know, I think these things are company specific. They're not industry specific. And I stand by that. And I think that's a more widely accepted view for many at this point in time.
David Anderson: So, look, what we see is a significant amount of activity, a significant, you know, obviously we have the strength of the backlog.
David Anderson: which largely will be covering 25 and most of 26 already, to your question. But in addition to that, the amount of tendering that is going on right now is significant.
David Anderson: I've been on the road now, I think this is either three and a half or four and a half weeks and it's almost all been associated with meeting clients on very significant projects.
David Anderson: that are wanting to secure high-quality capacity. They want our IEPCI, they want our 2.0, and they are looking to get a commitment. And these are for projects that go well beyond the 2026 time frame.
David Anderson: So no, David, I don't see any, you know, if you ask me what I think of 26 versus 25, I think it's going to be, you know, a more significant year. We won't put numbers to that at this stage, but clearly 2026 is going to be a, there's no, we're not reaching a plateau on the horizon.
David Anderson: That was actually my follow-up question. It was on the tendering activity. I was just kind of curious if maybe you could throw a little color around that of kind of what you're seeing out there. You said a growing list of main projects, but...
Speaker Change: I assume there's a lot of exploration happening, maybe talking about the gas demand. Are you starting to see more on that side of the business? I know some projects were sort of pushed off to the side on the gas side, continued development. Can you maybe just add a little bit more color in terms of those conversations and where?
Speaker Change: You think we're going to start seeing more of these orders? And I don't know if you want to go there, but I mean, it's $10 billion annually. Is that a number you think you can kind of keep consistently beyond 25?
Speaker Change: So, David, let's break it down a couple of different ways.
I think the drivers continue to be the mature markets.
We're not seeing any...
Speaker Change: Any pullback in any of those, you know, be it the U.S. Gulf, be it...
Speaker Change: The North Sea, you know you're going to see some good tendering activity again this year.
Speaker Change: Brazil continues to remain quite strong. I think some of the mature basins will be coming back and will actually surprise people to the upside. I would use West Africa as an example of that, possibly parts of Asia as well.
Speaker Change: The amount of tendering activity and well actually it's more direct award activity if I'm being honest to our company is Is humbling and we will continue to to do everything we can to
Speaker Change: maintain our client's confidence there as well. Gianna, I would put in the same category.
Speaker Change: So then when you start to look at some of the emerging basins, obviously we had the award in Suriname that we just announced in the past quarter, we are seeing other potential tendering activity in Suriname, you're beginning to see tendering activity happen in Namibia.
Speaker Change: returned to Mozambique in terms of tendering activity, so actually quite strong in the emerging basins as well.
of tiebacks or brownfield activity.
Speaker Change: where the capital expenditure for the host facility, it's already been, you know, that has already been spent.
so that the returns on these projects are extremely attractive.
Speaker Change: and having the largest install base allows us to really leverage that in that area as well.
Speaker Change: You know, in terms of, you know, what does it look like beyond 2025, let me be clear, it's not a plateau. And let me be clear, there is no cliff. You know, we are talking about projects, again, well, well towards the end of the decade, and we would expect to continue to, to build a very healthy backlog.
Thank you very much, Frank.
Speaker Change: Our next question comes from the line of Mark Willison with Jeffries. Please go ahead.
Speaker Change: that I think you've ever shown before, now in double figures.
Mark Willison: Could you speak to, Doug, the reasons behind these project sizes getting larger? Is it the complexity of the projects and the equipment required or the depth?
Speaker Change: And earlier this year, I believe you spoke about being able to deliver your equipment still a year quicker than the competition. I'd just like to confirm that to be the case and whether there's anything to update on that. Those are two questions. Thank you.
Speaker Change: Good afternoon, Mark. So let's take the first one first. It's a good observation, one that we have obviously also, you know, observed. You know, obviously there's an economic element of it, but that's not what's driving it. I mean,
Speaker Change: We can talk about this for some time, the quality of the rock offshore is truly phenomenal.
Speaker Change: We kind of got away from that a little bit as an industry, and we started focusing on other opportunities, because these big projects do require a lot of upfront commitment from our clients, and they do carry the execution risk.
Speaker Change: I believe the reason you're seeing so many of these larger projects are the clients are migrating back towards the highest quality reservoir or the highest quality rock, which is why these projects are the size that they are.
Speaker Change: And they're also migrating back to the offshore and towards our offering, because we have been able to consistently demonstrate that we can deliver these very large projects.
Speaker Change: and not only on time and on budget, but in many cases, we'll get to the second part of your question at a reduced cycle time. So it's about schedule surety.
Speaker Change: That's what they're looking at. That's what they expect from us. And that's what we have been delivering to them. So this is really just the quality of the rock, which is obviously makes the returns on the projects very attractive. But they want to be confident that they're working with a company
Speaker Change: A company, not multiple companies, a company that can deliver these projects for them.
Speaker Change: with a high level of confidence. And that's why we talked about earlier, 80% direct awards, that doesn't happen if they don't have the confidence in you.
Speaker Change: In terms of cycle time in one year, absolutely Mark, but we're not done yet. We will continue as, you know, we are not done.
Speaker Change: with our journey. So as others continue in the 1.0 world, and we're in the 2.0 world, and we now have the experience, the knowledge...
Speaker Change: All of our heavy lifting is behind us. We're fully focused on execution. We would expect to continue to shorten the cycle time.
Speaker Change: And that is absolutely the relentless pursuit of everybody within our company. Every decision we make, every investment we make, we don't invest for scale. We invest to reduce cycle time.
Appreciate the comments Doug, I'll hand it over.
Speaker Change: Our next question comes from the line of Mark Bianchi with TD Cowen. Please go ahead.
Speaker Change: a bit more pronounced here, and then, you know, what I need to assume to get to the revenue for the year reflects a pretty sharp snap back, so maybe you could just sort of walk us through how you see that unfolding.
Speaker Change: Yes, thank you for the question. Yeah, certainly your observation is correct that Q1 is weaker than not only than Q4, but also weaker on average than any other quarter.
Speaker Change: So, if you look at the dynamics of that quarter, so it's really two things. You think about the uncertain outlook and a little bit of the weakness we've seen in North America, and then there's really a timing aspect to project and service activity in the rest of the world, and in particular in Middle East.
Speaker Change: So we clearly, as we go through the year, we anticipate to continue to have a stronger international markets, in particular Middle East. So you think about the revenue growth.
We will continue to improve the throughput.
production capabilities in-country in the Middle East.
Speaker Change: as we further ramp up the volume there. So those things will help expand the margins as you go through the year, not only revenue, but also margins as you go through the year.
And also, as you may have...
Speaker Change: noted from our prior year's activities, and even now in this past year, we have been rationalizing our North American footprint, and that is also helping us sustain profitability in North America.
Speaker Change: Got it, got it. Okay, thanks for that, Alf. Maybe this next one's probably for you as well. CAPEX.
guidance for the year is.
Speaker Change: Looking like I think it's about a 20% increase from what we saw in 24 and looks like revenues guided up about 9% at the midpoint so
Speaker Change: suggests a bit more capital intensity, but maybe you could sort of talk through where that CapEx is going and kind of how to think about it beyond. Yeah, yeah, so I'll make this fairly simple in one way. So first of all, there isn't anything
Speaker Change: very different going on with our business, but there is actually such that we have re-embarked
Speaker Change: a little bit more than a year ago now, we embarked on an ERP upgrade.
Speaker Change: program for our company. And this year is actually the first year where you will have some substantial capex associated with that upgrade program. And that's really driving
Speaker Change: call it the majority of the year-over-year increase. So it's really something that will be here in 2025, it will continue in 2026, but start tailing off in 2027.
Speaker Change: So it won't be with us through all the cycles, and I just want to note also that even with this, we are still maintaining capital expenditure below our long-term guidance of 3.5% to 4.5% of revenue, so we can actually accommodate that program within that same commitment that we have made for the long term.
Speaker Change: Got it. Okay, and then just on that, is there any impact to EBITDA margin in the current period and next year from this, or is it all kind of flowing through CapEx and ultimately DNA?
Speaker Change: There is a little bit of an operating expense that is contained within our corporate expense bucket of our guidance, but most of it, the biggest expenditure is actually going through CapEx.
Okay, thank you very much. I'll turn it back.
Kurt Hallett: Our next question comes from the line of Kurt Hallett with Benchmark. Please go ahead.
Good morning, everybody.
Good morning, Curt.
Speaker Change: So, Doug, thanks for all that insight and helping us see kind of what you see in the conversations with your varying customer base.
Speaker Change: I guess my question is, you know, you've seen a pretty remarkable increase in the inbound, you know, being 80% of IEPC.
EPCI and sub-C 2.0
Speaker Change: Look, I guess theoretically you can see that go to 100%, but I also have to imagine that there's probably some limit to that, but I'd like to get your insight and your perspective on where you think that percentage could ultimately land.
Sure
Speaker Change: And great question, and thank you for the observation, because again, two very important drivers to our business and our strategy.
Speaker Change: You know, we always said there are kind of three things to focus on in terms of if our strategy was going to be successful. It was the percentage of IEPCI, the percentage of subsea 2.0, and the percentage of direct awards, all of which hit new benchmarks in 2024. Let's break down the IEPCI first.
Speaker Change: to take that amount of scope and hand over that responsibility to any company.
Speaker Change: We are deeply humbled and honored that they choose to do so with Technipa FMC.
Speaker Change: Obviously, there was heavy lifting to get here, including the merger and the integration and all those things. It can take four or five years of distraction, again, well behind us as we're eight years into it, but important all the same.
Speaker Change: The IEPCI inbound, not only reaching the 50% was important, but if you look at the mix of the IEPCI awards that we had, representing almost 100% of the market for integrated projects in 2024,
We had two that were in New Frontiers.
So that was very exciting.
Speaker Change: We had two, so if you will, think about that. You have a new frontier, we've never operated here before, and we're gonna go with this IEPCI model.
Speaker Change: We had two in emerging frontiers within existing bases, for instance, the Paleogene.
We had two in mature bases.
Speaker Change: because it continues to be the model of choice in mature basins.
Speaker Change: the Mero III HiSET project for Petrobras and the Northern Endurance Partnership project, CCS project for BP. So it's really not just the growth within our traditional customers or our traditional markets, it's really becoming the model of choice. Why is that? Because of the proven success.
Speaker Change: And then, so, you know, where does it go from 50%? There's no reason that that becomes a limit.
Speaker Change: I think there will always be some level of activity, either because the customer procures the product separate from the installation of the product, this happens in Brazil, as an example with flexible pipe.
We provide flexible pipe, we also have...
Speaker Change: vessels on a long-term charter that install the flexible pipe, but they use those vessels for our flexible pipe or flexible pipe from our competitors. So they separate those two work packages.
Speaker Change: Perhaps in the future they won't do that, but that's the way they operate today. So I do think there's an upper limit, if you will, to the total market for IEPCI.
Speaker Change: Moving to subsea 2.0, again, the significance of it was our overall tree order was up 50%, which is tremendous growth year on year.
Speaker Change: But the sub-C 2.0 percentage of that was up even more.
So you can speculate on that.
Speaker Change: We're here. I think we could get into a debate. I do with my own team that it couldn't why couldn't it get to 100%?
Speaker Change: And I haven't given up on that ambition, but okay, maybe it will be a bit shy of 100%, but the sub-C 2.0 is now clearly well above the 50% mark. So, very exciting for the company.
Speaker Change: That's awesome. That's all full of color. I'll just leave it there. That's great. Thanks.
Speaker Change: Our next question comes from the line of Victoria McCulloch with RBC. Please go ahead.
Victoria Mcculloch: Good morning, thanks for your time this morning. Firstly, if I could ask, you talked about the standardization and industrializing of internal processes when you spoke in your initial comments. Could you provide some color as to how much of these actions are already reflected in the financial results you're seeing?
and there's a follow-on but maybe slightly different topic.
Victoria Mcculloch: are not all projects in Brazil with sort of an integrated strategy and the appetite that you have in the business. Can you talk about your desire to maintain active in this market to the same degree and what you're seeing as attractive bidding opportunities in the next 12 months? Thank you very much.
Speaker Change: Well, thank you, Victoria, and I want to welcome you to our call. We're excited to have you on the call.
Speaker Change: Both questions are very important, so let's cover them one at a time. In terms of some of the internal initiatives, we tried to highlight that in the script. This is our focus on Simplification, Standardization, and Industrialization, or SSI. Many companies do lean, but they do lean in manufacturing.
Speaker Change: What we're trying to emphasize is we do lean across our organization.
Speaker Change: Alf has now become a black belt in lean, he fully is indoctrinated, and the finance organization is now very much on this same journey, as well as every other function and every other business within our portfolio. And that's the big difference. Few companies take it beyond manufacturing.
Speaker Change: We're a manufacturing company, we've understood this for some time, we've seen the benefits of manufacturing, but it takes a real mindset change to take it beyond manufacturing. And not just a mindset of the people doing the work, but also the people managing the work.
Speaker Change: This has been a real journey for myself. I've had to change my behaviors. We talk about it's okay to be red. It's not okay to stay red.
Speaker Change: Most managers don't like to see problems. We enjoy problems because if we see a problem early enough, we can correct that problem before it has any impact, any impact financially or any impact on our client's schedule. So it's getting everybody in the organization
Speaker Change: to feel very comfortable to bring anything forward early, ask for help, we call it pull the help chain.
Speaker Change: continue to have the largest and most significant local content in Brazil, not just on traditional products or vessels, but in terms of new technology and technology development. We are proud to say Subsea 2.0 was developed in Brazil.
Speaker Change: We have a very close R&D relationship with Petrobras, and we will continue to do so. Today, we're developing...
a brand new generation of flexible pipe that will address
the stress corrosion cracking challenges of the industry in Brazil.
Speaker Change: We are working towards qualification, and that will have a significant impact on the type of work and the type of completions that are done in Brazil in the future, if you will, reverting back to flexible pipe from what is a rigid pipe market today.
Speaker Change: The rigid pipe market today on a standalone installation type contract.
Speaker Change: are not a priority for us, and I will explain that by saying...
Speaker Change: We believe the greatest way to create value is through IEPCI.
Speaker Change: versus the stand-alone installation contracts. That being said, we have and we are executing some of those projects for Petrobras today.
Speaker Change: You might be referring to a recent tender. There was a recent tender. We analyzed the tender. We wanted to be sure that we understood what were the challenges, and there were actually several challenges in terms of the scope that was being shifted from the company to the contractor.
We identified that.
Speaker Change: And we realized that that had to be accounted for commercially, and that's what we did.
Speaker Change: And we will always make sure we thoroughly understand any challenges or risks associated with the contract.
Speaker Change: Going forward, we are performing traditional installation work with rigid pipe for Petrobras today. We are also doing IEPCI projects for others in Brazil, in terms of subsea projects, and we're also doing IEPCI for Petrobras.
in regards to our HiSET.
Speaker Change: CCS subsea processing project that we developed the technology jointly with them. So, maybe a long answer, but a lot to say about Brazil. You may have also read that, you know, Petrobras is thinking about putting their own rigid pipe
Speaker Change: vessel, a vessel to install rigid pipe in the market. I think that's a brilliant decision by Petrobras. I think it's the right decision. If I was them, I would certainly pursue that.
Speaker Change: Thanks Doug. I look forward to an even deeper Brazil deep dive at some point. Thanks very much.
Speaker Change: Our final question will come from the line of Adi Modak with Goldman Sachs. Please go ahead.
Adi Modak: Hi, thank you. Good morning, team. Doug, I'm curious about the potential for free cash flow conversion improvement over time.
Adi Modak: 2027 could see some improvement as the ERP CapEx comes off, but is there a directional color you can provide on how you see the free cash flow conversion potential of the business over time?
Sure, Andy. Thank you very much for the question.
Adi Modak: We've demonstrated that right over the past several years and we just put out a new target.
Adi Modak: where we continue to make improvement along those objectives. I think if you look at the fundamentals of the business and the company and the way that we're operating the company, it is not an unreasonable expectation. And I'll pass it to Alf to add some additional color.
Alf: Yes, just, you know, maybe a little bit more mechanical on this.
Obviously
Alf: You will hear our commitment to driving profitability higher. So as we drive earnings higher, that obviously will be the foundation for any improvement as we drop more earnings down to the pre-cash flow line. We continue to operate our business largely on a target of being neutral in working capital on a long-term basis, even in the face of growth.
Alf: So that's another important factor for the long term. But really, then you come down to other items. We clearly don't expect to have other items in the cash flow statements, such as corporate expense, interest expense, or even capex, to be growing in any way.
Alf: way at the same rate as the EBITDA would expand. So really dropping the EBITDA down to free cash flow is an opportunity and can incrementally drive EBITDA conversion or free cash flow conversion from EBITDA.
Alf: But I'm curious how those conversations are going with the regional customers, the ones that are just a little bit more difficult for us to track, and how that plays into the order expectations for the out-years. Any color you can provide around that?
Referencing the NOCs.
Alf: I think there are smaller players that might, you know, have a few fields here and there that are farmed out. Oh. That could be potential. Understood, Ari.
Alf: No, thank you for clarifying. Understood. Um, actually this is when we talk about an expanding customer base, you know, historically our revenue has come from no more than 12, well, on an average of about 12 clients, normally not more than that for many, many years.
Alf: In any particular quarter, it's now anywhere between 30 and 40 different clients, so actually those smaller regional are independent.
Alf: companies are seeing great opportunities offshore. They may not have the subsea infrastructure within their company or competency within their company to take on such a project, but we're delivering billion-dollar-plus offshore subsea developments.
for clients who
Alf: to go all the way from the engineering, manufacturing and the final installation and commissioning of the subsea field. So that's a part of our client portfolio that we're very excited about and we have very strong relationships and it's almost exclusively direct award IEPCI 2.0.
Thank you.
Alf: I will now turn the call back over to Matt Seinsheimer for our closing remarks.
Speaker Change: Thank you. This concludes our conference call. A replay of the call will be available on our website beginning at approximately 3 p.m. New York time. If you have any further questions, please feel free to contact the Investor Relations team. Thanks. You may now end the call. Thank you.