Q1 2024 Earnings Summary
- TechnipFMC is well-positioned to capitalize on increased onshore demand in Saudi Arabia, particularly in their Surface Technologies business, due to their strategic investment in a new manufacturing facility within the Kingdom and the shift in capex from offshore to onshore by Saudi Aramco, which is very favorable to the company's revenue per well.
- Advancement in all-electric subsea production systems positions TechnipFMC to unlock significant incremental tieback opportunities, potentially exceeding the previously estimated $8 billion through 2030, reinforcing their leadership in both carbon capture and storage (CCS) projects and traditional energy developments. They have secured the Northern Endurance partnership project, the first application of an all-electric production system, marking a major milestone in the CCS market.
- TechnipFMC's financial health is improving, having been upgraded to investment grade by S&P, and the company is targeting net zero net debt, supported by strong cash generation and commitment to shareholder returns through share repurchases and debt reduction.
- TechnipFMC is not ready to officially raise its free cash flow guidance due to uncertainties in working capital dynamics and remaining obligations, including additional $56 million payments to P&F in the second and third quarters, which may indicate potential cash flow pressures.
- The company may face capacity constraints in its subsea segment, requiring reliance on partnerships and joint ventures to meet demand. This reliance could impact margins or introduce execution risks as the company expands beyond its traditional capacity.
- The effective tax rate remains high at approximately 35%, and management expects it will only reduce to 30% over the next couple of years, which could continue to impact net income and cash flow in the near term.
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Order Outlook
Q: Has the order outlook changed, and are you confident in meeting targets?
A: CEO Douglas Pferdehirt reaffirmed confidence in achieving the $30 billion order target through 2025 and approaching $10 billion in 2024 orders, citing strong feed and tendering activity. -
Capital Allocation Policy
Q: What's behind the new capital allocation policy and debt reduction plans?
A: CFO Alf Melin stated they are targeting a net debt neutral position by reducing debt by over $200 million, aiming for a below 1× gross debt-to-EBITDA leverage ratio, and remain committed to share repurchases and achieving investment-grade status. -
Capacity to Deliver
Q: How are you managing capacity with increasing EPCI contracts?
A: FTI will leverage its ecosystem of partners to expand capacity, utilizing other vessel operators for iEPCI projects, and benefit from Subsea 2.0, which runs through plants at double the cadence, enhancing manufacturing efficiency. -
Quality of Backlog
Q: How do you ensure high-quality backlog and project selectivity?
A: Focus is on Subsea 2.0 configured-to-order projects and integrated iEPCI contracts, which eliminate nine months of engineering, simplify execution, and improve margins. Terms and conditions are carefully managed for inflation protections. -
All-Electric Systems Adoption
Q: When will all-electric systems see uptake in oil and gas?
A: Adoption is happening in parallel with CCS projects. All-electric systems offer significant benefits for long-distance tiebacks, especially in brownfield developments, with potential awards in the next 24 months or sooner. , -
HISEP Technology Expansion
Q: Are there opportunities to expand HISEP technology use?
A: Yes, Petrobras plans to use HISEP in multiple projects, and other clients are showing interest internationally, seeing benefits in reducing greenhouse gas intensity and debottlenecking production. -
Frontier Basin Opportunities
Q: What's the outlook for opportunities in frontier basins like Namibia?
A: FTI is applying its playbook from Guyana and Mozambique, with indications trending favorably. Subsea 2.0 and iEPCI models are well-suited for these deepwater developments. Contributions expected in the latter part of the decade. , -
Surface Business in Saudi Arabia
Q: How is the shift to onshore gas in Saudi Arabia impacting FTI?
A: The shift is favorable, increasing demand for onshore surface equipment. FTI benefits from higher revenue per unit in gas projects and additional products for unconventional gas, expanding revenue per well. -
Tax Rate Outlook
Q: How will the tax rate evolve in the coming years?
A: The effective tax rate is expected to normalize to 30% between 2025 and 2026, down from the current 35%, due to changes in earnings mix and tax opportunities. -
Potential Acquisitions
Q: Are you considering targeted acquisitions?
A: FTI will continue small, targeted acquisitions, often investing human capital through subsea engineering expertise in early start-ups, facilitating offshore transitions.
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