Q2 2024 Earnings Summary
- Raised guidance for Subsea revenue to $7.6 billion-$7.8 billion and EBITDA margins to 16.5%-17% for 2024, driven by strong operational performance, increased iEPCI revenue, and improved efficiencies leading to 370 basis points sequential margin improvement.
- Subsea 2.0 adoption is increasing, with about 50% of current orders being Subsea 2.0, and bids being worked on today are significantly higher, leading to higher sustainable through-cycle margins and operational efficiencies, positioning TechnipFMC ahead of competitors who are only benefiting from market uplift.
- Success in emerging basins like Guyana, where TechnipFMC has secured six awards, demonstrates the company's ability to build local ecosystems and develop talent, providing a blueprint for growth in other new markets such as Suriname, Namibia, Mozambique, and ensuring a durable growth cycle extending beyond 2028.
- Potential Capacity Constraints: Despite TechnipFMC's confidence in its Subsea 2.0 and iEPCI models to manage capacity, the company acknowledges that "every day is a challenge" and that capacity limits could be reached in the future ("certainly, there is some point in time"). This raises concerns about the ability to handle the growing backlog and meet project deadlines, which may impact future performance.
- Reliance on Emerging Markets with Geopolitical Risks: The company's growth heavily depends on emerging basins such as Namibia, Suriname, Mozambique, and others. These regions may have geopolitical and operational risks, and delays or issues could adversely affect projected growth and backlog realization.
- Delayed Realization of Benefits from New Technologies: While expecting margin improvements from Subsea 2.0 and iEPCI projects, currently only about 25% of production is running through Subsea 2.0 facilities. This suggests that full benefits may take longer to materialize, potentially delaying expected margin enhancements.
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2024 Subsea Guidance Raise
Q: What's driving the $300 million revenue and margin increase in 2024 Subsea?
A: Revenue is up due to strong iEPCI activity, particularly in the North Sea and Gulf of Mexico, reflecting the conversion of a higher-quality backlog and improved operational performance. Margins have improved from shorter cycle times and efficiencies, leading to an EBITDA margin guidance increase to 16.5%–17% on revenues of $7.6–$7.8 billion. -
Subsea Margin Expansion and 2.0 Utilization
Q: How does increasing Subsea 2.0 utilization propel margins higher?
A: We're in the early stages of benefiting from Subsea 2.0's configure-to-order model. Currently, 50% of orders are Subsea 2.0, with about 25% running through facilities, and future bids are increasingly 2.0. This scalable approach enhances efficiencies and supports higher, sustainable through-cycle margins than we've achieved before. -
Capacity Constraints and Supply Chain
Q: Are you facing capacity constraints as backlog grows?
A: Without our reinvention through iEPCI and Subsea 2.0, capacity would be a real issue. Our configured-to-order system allows suppliers to pre-manufacture components, reducing latency and defects. Shorter cycle times create internal capacity, avoiding the need for additional capital expenditures. -
Future Subsea Market and Demand Outlook
Q: Is customer commitment still strong for projects extending to 2030?
A: Yes, clients are making earlier and longer commitments to secure quality capacity, leading to direct awards and long-term partnerships. This reflects confidence in sustained demand and positively impacts our industry's future. -
Sustainable Margin Goals
Q: What sustainable margin levels are you targeting?
A: By securing high-quality orders and executing effectively, we're creating value that clients are willing to share. While not specifying exact figures, we're focused on achieving higher through-cycle margins than ever before, viewing current targets as milestones on a more ambitious journey. -
Subsea Growth Opportunities Beyond Current Markets
Q: How do you see Subsea evolving beyond current markets?
A: Growth includes new horizons within existing basins like the Paleogene in the Gulf of Mexico, expansion in areas like Guyana and Mozambique, and emerging basins such as Namibia, Suriname, South Africa, Tanzania, Colombia, Mexico, and the Eastern Mediterranean. This supports the durability of the cycle toward 2028 and beyond. -
Electric Subsea Systems
Q: Where does all-electric subsea fit into future opportunities?
A: All-electric systems are crucial for long-distance projects like carbon capture and storage, exemplified by the BP Northern Endurance project spanning 145 kilometers offshore. In oil and gas, they enable brownfield tiebacks up to 4× the distance of hydraulic controls, accessing previously stranded reservoirs. -
Middle East Surface Business Expansion
Q: What's your strategy for Middle East Surface business growth?
A: Opportunities are significant not just in Saudi Arabia but also in the UAE and Qatar. We have local facilities ramping up in both Saudi and the UAE, strengthening our Surface business and realizing substantial benefits from these investments. -
Adding New Customers to Subsea 2.0
Q: Are more customers migrating to Subsea 2.0?
A: Yes, we're adding new customers almost every quarter, with a large portion of current tendering being Subsea 2.0. Customers recognize the benefits, and some are adopting it exclusively, leading to direct awards and increased internal efficiencies.
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