TechnipFMC plc Ordinary Share Q2 2026 Earnings Call

Hello, everyone. Thank you for joining us and welcome to the TechnipFMC Second Quarter 2020 Earnings Conference Call. After. Today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Matthew Seinsheimer, Senior Vice President, Investor Relations and Corporate Development. Matthew, please go ahead.

Thank you. Warren. Good morning and good afternoon, and welcome to TechnipFMC second quarter 2020 Earnings conference call. Our news release and financial statements issued earlier today can be found on our website. I'd like to caution you with respect to any forward looking statements made during this call Although these forward looking statements are based on our current expectations, beliefs, and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10-K. Most recent 10-q and other periodic filings with the US Securities and Exchange Commission. We wish to caution you not to place undue reliance on any forward looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to Doug Pferdehirt TechnipFMC Chair and Chief Executive Officer.

Thank you Matt.

Good morning and good afternoon. Thank you for participating in our second quarter earnings call. I'm pleased to share with you another strong set of financial results driven by robust execution across the entire organization. Total company revenue in the period was 2.8 billion. Adjusted EBITDA was 601 million with a margin of 21.8%. When excluding foreign exchange impacts. We generated free cash flow of 488 million and distributed 440 million through dividends and share repurchase. The. Delivering on our commitment to return the majority of free cash flow to shareholders. Now moving to subsea orders. We achieved 2.5 billion of inbound in the quarter, including four announced awards. Much like greenfield Development's. Clients are now applying a portfolio approach to brownfield expansion opportunities to improve outcomes across multiple projects. These projects leverage the significant infrastructure investment already in place as clients look to prioritize their most economic opportunities. By. Keeping projects utilizing a consistent methodology and standardized solutions. TechnipFMC can help reduce cycle time across the portfolio of assets, significantly improving overall economics and helping clients advance projects more quickly. VAR Energy's recent IPC awards for the Ophelia and Gloria Nord projects in the North Sea. Is a great example of this approach. We will utilize our integrated model across multiple fields through coordinated portfolio execution to help deliver first oil within two years.

In the quarter, we were also awarded subsea production systems by Equinor for a portfolio of subsea tiebacks, leveraging our. Standardized solutions. We can deliver these projects with schedule certainty and lower costs for Ecuador. Which has plans to develop a total of 75 subsea projects on the Norwegian Continental shelf over the next nine years. Looking ahead, we will continue to benefit from a resilient and expanding offshore market. We see a strengthening order trend in the second half of the year. Providing us with confidence in achieving 10 billion of subsea inbound in 2026. Our. Subsea opportunities list. Once again stands at a record level, providing a robust pipeline of opportunities for projects that will extend beyond the end of the decade. Our. Ability is further enhanced by deeper client collaboration and. Earlier engagement that bring TechnipFMC into the project development process. Much earlier than ever before. In the quarter, we signed an integrated global collaboration agreement with a long standing partner, which builds on the principles that have made our Ipci integrated commercial model successful. Combining early engagement field optimization, and execution capabilities within a single framework. The expanded collaboration engages TechnipFMC up to a year earlier in the project development cycle.

Before critical subsea architecture and investment decisions are made. The global model will extend beyond individual projects, enabling optimization at the portfolio level, while also. Providing greater visibility into future development opportunities. In subsea. We consistently demonstrate our ability to execute at a very high level. This is brought certainty back into subsea projects. Giving our clients greater confidence in moving forward with final investment decisions. We expect this will drive further strength in capital flows to offshore markets. In. Office technologies. Our execution continues to support margin improvement in 2026. Despite lower revenue versus the prior year. Here, our strategy has been to focus on the right customers in the right geographies and with differentiated technologies where we can achieve higher returns. In the Middle East. Our surface Technologies team was recently recognized by Adnoc for our significant role as a local manufacturer and partner. Within their in-country value program. This program is central to the UAE's plan to redirect significant investment into the local economy in the years ahead. Being a recognized partner, physicians TechnipFMC well, as the program expands and reinforces our commitment to growing alongside Adnoc and the UAE's industrial ambitions. This is a visible endorsement of the investment we have made in the country and the trust they have placed in our people and local operations.

Let me close on a few points. I'm extremely pleased with our second quarter results. The strong financial performance in the period clearly demonstrates the solid momentum in our execution Thanks to the dedication of the 22,000 women and men of TechnipFMC. This gives us the confidence to raise our full year expectations for total company EBITDA. Our order outlook for subsea remains robust, and with a book to bill above one in the quarter, we see a strengthening trend in order activity in the second half of the year. We also reiterate our expectation for a step up in inbound orders in 2027 and. Attending through the end of the decade. This growth will be supported by IPC subsea 2.0 and subsea services. Much. Of which will be direct awarded to our company. And as our clients move toward more collaborative approaches to develop their offshore portfolios. We will leverage our IPC execution model and our configurable solutions to drive further efficiencies and higher capital returns for both our customers and TechnipFMC. I will now turn the call over to Alf to discuss our financial results and importantly, our strengthened financial outlook for the balance of the year. Thanks, Doug Inbound in the quarter was 2.7 billion, driven by 2.5 billion of subsea orders.

Revenue in the quarter was 2.8 billion. Adjusted EBITDA was 601 million when excluding a foreign exchange loss of 19 million. Turning to segment results in subsea revenue was 2.5 billion, a 13% increase versus the first quarter. The sequential revenue improvement was driven by increased project activity, particularly IPC projects in the North Sea and the Mediterranean, partially offset by lower activity in Africa and the U.S. Gulf. Adjusted EBITDA was 577 million, up 31% sequentially due to strong execution and higher project activity. Adjusted EBITDA. Margin improved to 23.2%. In surface technologies, revenue was 276 million, a decrease of 3% from the first quarter. The decrease was driven by reduced activity in the Middle East due to the ongoing conflict and lower activity in North America This was partially offset by strength in other international markets, which. Adjusted EBITDA was 50 million. An increase of 1% sequentially Adjusted EBITDA improved sequentially due to strength in international markets. Despite the revenue decline in the Middle East. Adjusted EBITDA margin was 18.1%, up 70 basis points from the first quarter. Turning to corporate and other items, corporate expense was 26 million. Net interest expense was 4 million and tax expense was 114 million. Cash flow from operating activities was 548 million, with capital expenditures totaling 60 million in the quarter.

This resulted in free cash flow of 488 million. We report. 420 million of stock in the second quarter when. Including 20 million of dividends. Total shareholder distributions were 440 million. Cash and cash equivalents was 992 million. We ended the quarter with a net cash position of 590 million. Moving. To third quarter guidance for Subsea. We expect revenue and adjusted EBITDA margin to be in line with the second quarter. For surface technologies, we anticipate revenue to increase mid to high single digits sequentially with an adjusted EBITDA margin of approximately 17.5%. Moving to our full year outlook Beginning with Subsea. We now expect both revenue and adjusted EBITDA margin near the top end of their respective guidance ranges. For surface technologies. We now see revenue closer to the low end of the guidance range, with adjusted EBITDA margin just above the midpoint. We continue to expect corporate expense of approximately 120 million. With these updates. We are increasing our expectation for total company adjusted EBITDA to approximately 2.19 billion for the full year, when excluding foreign exchange. And finally, we now see full year free cash flow tracking towards 1.45 billion, which is the high end of our guidance range. In summary, we delivered strong second quarter financial results with subsea margins exceeding 23%, helping drive total company adjusted EBITDA to 601 million, excluding foreign exchange and free cash flow.

Expanding to 488 million. We returned 725 million in total shareholder distributions in the first six months of the year, which equates to 95% of free cash flow. Given our long term expectations for the company's financial performance. We continue to see share repurchase as an attractive use of free cash flow. We have increased our expectations for total company EBITDA for 2026. And lastly, we remain confident that in 2027, we will grow subsea inbound revenue and adjusted EBITDA margin. Operator you may now open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star one to raise your hand To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Derek Podhaizer with Piper Sandler. Your line is open. Please go ahead.

Hey. Good morning, Doug and team., I guess maybe Doug. Let's start with your opening comments around the brownfield opportunities that you're seeing. You talked about delivery of first oil in two years, brownfield or step outs. I know previously you've talked about electrification of the brownfield, being able to step out that radius four times more than, you know, typical hydraulic. So is that is that what you're seeing now or is that still an opportunity in the future? Maybe just some more comments around the brownfield step down in potentially electrifying these operations as you move forward.

Thank you and good morning Derek., so in these particular cases, they're not necessarily enabled by the all electric solution, but what we are seeing is our customers scour their portfolios looking for marginal fields or brownfields or tiebacks all somewhat synonymous opportunities because in this case, the host facility exists, which allows them to really, through a single contract with us because of our fully integrated offering ,, be able to deliver a very short cycle project and accelerate time to first oil. What's exciting is, and where the behavior has changed is in the portfolio approach. We saw this and talked about this in prior quarters in Greenfield activity, where customers are coming to us and, and through,. Discussions. Working with us not only on a current project, but on future projects., tying in and leveraging that consistency of approach. And our unique IPC. In two. Point oh capabilities. So we're now seeing that spill into the behavior in the brownfield markets. And we gave two examples of that, both with VAR energy, which is a great example, as well as with Equinor that are looking at a portfolio approach. So multiple projects,. Under, you know, under a single portfolio approach that will allow consistency, greater certainty and schedule delivery and shorter cycle times that has a vast improvement to the client's project returns and economics.

And obviously benefits us as well. So that's very exciting. The opportunity that lies ahead is exactly what you said, growing the brownfield market. How do we grow the brownfield market is by being able to, in a efficient, short cycle and economic way., tie back from further distances from the host facility. And with the all electric solution,, we now can go and increase that radius around that host facility by, four times,, and hence reach a much greater feel, a much greater opportunity set in terms of marginal fields and tie back opportunities. In that case. We've done a lot of work with the all electric system. We have many electric systems deployed around the world, and we're really now working with our clients to ,, look for those, those greater opportunity set., but as you said, that is a future opportunity for us and one that will further grow the brownfield market.

Great. Now that's a very helpful Doug. Thank you. And then I guess,, next you've talked about collaboration with your with your customers, starting in the development life cycle a year earlier. Obviously, it helps your visibility, which, which you've already went over in your prepared remarks, but maybe operationally, could you help me expand on that comment? I mean, what's the benefit for you operationally, the benefit for the customer operationally, and how does this translate? You know, whether it's in time to first oil or, you know, overall earnings profile, the power there just maybe some more color around now moving up in the development cycle by a year with your customers.

Derek. This is in all of the above ., and, and the reason why it is, is being at that table because when we say a year earlier, we're now, you know, in the prepared remarks I referenced, you know, this is well before any traditional contractor would be invited into the discussion. Well before even decisions around which type of subsea architecture might be used. So we're going in as a trusted consultant or a trusted advisor, trusted partner. They're inviting us to the table because they see the value that we bring. They want us to be part of that conversation. And by being part of that conversation, the the objective for the client is to be able to further accelerate time to FID. So faster time, shorter cycle time to FID, and then from our point of view, it's not only securing that project and having the visibility. And in many cases, as a direct award because of that proprietary nature of our relationship. But it also means delivering a shorter cycle time project. So within the company, we have the saying that we all live by every single day, which is the relentless pursuit of reduction of cycle time.

That's the unique capability that allows us to win, while at the same time our customer wins. So this increased or engagement. Is really, really critical and is giving us a level of visibility and insight that we've never had as a company.

Okay, great. Thanks, Doug. I appreciate all the color. I'll turn it back.

Your next question comes from the line of Arun Jayaram with JP Morgan. Your line is open. Please go ahead., good morning, Doug and team., Doug, I was wondering if you could talk a little bit about the trajectory of orders that you expect this year and how you see the inflection point in orders playing out in 2027 on a year to date basis. You've booked $4.4 billion of subsidy orders. Book to Bill of just below one. I wonder if you could discuss expectations for the back half and perhaps give us some insights on your pipeline of direct awards that may not be on the subsea opportunity list.

Sure. Good morning. Arun., so clearly, clearly there's momentum, as you pointed out from the first quarter into the second quarter and further momentum expected in the second half of the year., we see a clear line of sight to the 10 billion target for 2026.. What we're seeing is a lot of smaller projects., if you recall, even in the first quarter, very few announced projects. We did have four announced projects this quarter, but it's a lot of smaller projects that what you see in 2027 is the inflection and the return of some very large greenfield opportunities, which will not only drive the total opportunity., the opportunity set as we publish. And, and we pointed out in the prepared remarks is now achieved., another record level., and increased again this quarter. Largely driven again by those greenfield type projects ., so that'll, that'll just give further strength and confidence in 2027. And what we have referred to and are fully committed to a step up of orders in 2027. So it's a bit of a mix., question in terms of the type of projects in 26 versus the type of projects in 2027, 2027 will be larger projects, more greenfield opportunities. 2026 being more of these marginal field tie back, brownfield opportunities, some greenfield opportunities as well.

But customers really, really focusing on getting these shorter cycle projects out the door as fast as they can. And that's where, you know, we have a, you know, we have the natural ability to be able to help them do that. And that's why I can confirm that our proprietary list of opportunities that result in direct awards to our companies, to our companies, some of which we obviously announced this quarter,. Is growing and is a very healthy,, set of opportunities. And one, we will continue to benefit from as the company moves forward.

Great., my follow up is wondering if you could give us any,, breadcrumbs on your surf, a 2.0 initiatives. Where are you in terms of your efforts to industrialize the other,, two thirds of a subsea or of a surf, project? The installation, the water column,, any breadcrumbs you could, you could share today.

Sure. So just for the entire audience. Arun., I'm going to maybe reference it slightly differently. You know, when we talk about Subsea 2.0. So far we've been talking about that's the industrialization of all the equipment that sits on the seabed. And that's something that happened many years ago in our company and that we're benefitting from today. So if you look at what is currently called HSBC 2.0, which is again, the equipment on the seabed, about 80% of our new orders are coming. Are now subsea 2.0. So the market has entirely embraced this new,, architecture., and it represents about 50% of our revenue. So you can obviously see the upside that we have from the further conversion of that 80% of orders into revenue. When we talk about what's left, I'm going to I'm going to ask all of you. We're going to try to deviate the naming architecture a little bit. It's really about industrializing the IPC. I. So it's really about making the IEP CI 2.0 because remember the IP, the IEPCI has three components. It has which sits on the seabed. It has all the things that are in the water column, the umbilical risers, flow lines, you know, fiber optics,.

Telecommunications, electric, all, everything that's within the water column. And then it. The installation of all of that kit. So it's really three different elements. So if you think about it that way, as we go from the subsea 2.0 seabed, configure to order architecture. And we move to a fully industrialized IP, CI 2.0, the upside is significant because those last those last two thirds, the water column and the installation have yet to be industrialized. So think about it as going from subsea 2.0 to IP, CI 2.0. And that is where we will get. And that will be another major, major change to not only our company, but to the way that the industry operates. I will tell you this, I spent most of the quarter working on this ., and we are getting some very, very exciting results., we continue to, I'm trying to give you the breadcrumbs you asked for without saying too much ., but know that it's a, it's a major focus of mine., we've made quite a bit of progress in our understanding of some of these disruptive technologies and processes that will become part of IP, CI 2.0 in the future.

Great. Thanks, Doug.

Your next question comes from the line of Victoria McCulloch with RBC Your line is open. Please go ahead.

Good morning. Thanks very much for your time. So if we could start on the subsea EBITDA margin, as we look into the second half of the year ,, I guess in the context of,, what you've delivered this quarter, can you give us a bit of an understanding, you know, how the split comes from delivery and project phasing versus fundamentally a structural step up in higher quality contracts as a proportion of the entire, you know, I revenue and EBITDA that you're seeing being delivered,, from the business right now.

It's a great question. And obviously there's, you know, a lot of market momentum out there., you know, we are in a unique position as, as we have discussed before, in terms of the relationships with our clients., but, but I will tell you this, we focus a lot more on those,, you know, as you would say, as you mentioned, those structural changes because, you know, we don't want to do this for today. We want to do this for a very long time. And we want to continue to be very successful. And again, when I say successful, it's our clients and TechnipFMC. And I think we're kind of unique in that manner., you know, we're not selling fixed assets. We're not a commodity. You know, we are a technology company. So we're looking for ways to ensure that our customers are successful while we continue to be successful. At the same