Q3 2024 Earnings Summary
- Record Subsea backlog and increased visibility into future revenues and margins. TechnipFMC's Subsea backlog reached a new record of $13.7 billion , with 50% scheduled to ship beyond 2025. This strong backlog coverage has allowed the company to increase its 2025 Subsea revenue guidance to a range of $8.3 billion to $8.7 billion and adjusted EBITDA margin to 18.5% to 20%, implying growth in adjusted Subsea EBITDA of more than 25% compared to 2024.
- Differentiated technologies driving growth and market leadership. TechnipFMC's unique iEPCI offering and leadership in flexible pipe technology are significant differentiators that are driving growth opportunities. The company's ability to leverage flexible technology in subsea architecture is a game changer, allowing for simplified architecture, accelerated first oil, and greater certainty in project delivery. This positions TechnipFMC to capture more projects, including direct awards and higher-margin opportunities.
- Strong capital allocation and shareholder returns supported by robust cash flow generation. The company announced an increase of $1 billion to its existing share repurchase authorization, providing nearly $1.2 billion of current authorization. TechnipFMC expects to nearly double shareholder distributions versus the prior year, reflecting confidence in future cash flow growth driven by improved profitability and tax benefits.
- Tight vessel market may pose execution risks for TechnipFMC, potentially impacting their ability to execute projects, despite management's confidence in their vessel ecosystem strategy.
- Management may be underestimating industry concerns about offshore drilling activity slowdown, which could affect TechnipFMC's future order intake and project timing.
- Lack of guidance on 2025 free cash flow creates uncertainty about TechnipFMC's future cash flow conversion and financial outlook.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +14% (from $2,056.9M to $2,348.4M) | Total revenue increased by $291.5M (14% YoY), driven by overall strong project execution and enhanced revenue performance across segments, notably from growth in the Subsea segment and improved developments in key regions. |
Operating Income | +Over 100% (from $139.9M to $288.3M) | Operating Income more than doubled, reflecting significant margin expansion from effective cost management and robust Subsea segment performance, which built upon previous improvements in operational efficiencies. |
Net Income | Surge (from $9M to $274.6M) | Net Income surged dramatically as improved revenue mix, lower non-recurring charges, and better cost control turned previous period challenges into strong profitability, resulting in a leap from $9M in Q3 2023 to $274.6M in Q3 2024. |
Diluted EPS | Up from $0.21 to $0.62 | Diluted EPS nearly tripled due to the substantial increase in net income and tighter cost management, which enhanced overall profit margins compared to the prior period. |
Subsea Segment Revenue | +19% (from $1,708.3M to $2,028.1M) | Subsea segment revenue grew by $319.8M (19% YoY), fueled by higher project execution, increased iEPCI, installation, and services activities that built on prior year performance and stronger market demand in key international regions. |
Asia Pacific Revenue | +126% (from $100.6M to $228.1M) | Asia Pacific revenue more than doubled, rising by 126% YoY, primarily due to a robust rebound driven by increased regional activities and improved market conditions that reversed the lower performance from the previous period. |
North America Revenue | -13% (from $406.7M to $352.7M) | North America revenue declined by about 13% YoY, affected by reduced activity in segments such as Surface Technologies, despite some offsetting gains in Subsea, reflecting shifting regional dynamics compared to the previous quarter. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EBITDA | FY 2024 | Approximately $1.35 billion | Approximately $1.37 billion | raised |
Net Interest Expense | FY 2024 | no prior guidance | $65M to $70M, revised down from $70M to $80M | no prior guidance |
Tax Expense | FY 2024 | no prior guidance | $170M to $180M, down from $280M to $290M | no prior guidance |
Normalized Effective Tax Rate | FY 2024 | no prior guidance | 30% | no prior guidance |
Shareholder Distributions | FY 2024 | no prior guidance | Expected to nearly double compared to the prior year | no prior guidance |
Share Repurchase Authorization | FY 2024 | no prior guidance | Increased by $1 billion, bringing total remaining authorization to $1.2 billion | no prior guidance |
Subsea Revenue | Q4 2024 | no prior guidance | Expected to decline by low single digits sequentially due to seasonal impacts | no prior guidance |
Subsea Adjusted EBITDA Margin | Q4 2024 | no prior guidance | Approximately 16.5% | no prior guidance |
Surface Technologies Revenue | Q4 2024 | no prior guidance | Expected to increase by low single digits sequentially, driven by international growth | no prior guidance |
Surface Technologies Incremental Margins | Q4 2024 | no prior guidance | Approximately 30% | no prior guidance |
Corporate Expense | Q4 2024 | no prior guidance | Expected to be modestly above Q3 2024 levels | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Subsea Backlog and Revenue/Margin Guidance | In Q4 2023, Q1 and Q2 2024 calls, the backlog was noted to be expanding (e.g. over $12–$13.9 billion) with strong book-to-bill ratios and revenue/margin guidance improvements for both 2024 and 2025. | In Q3 2024, the backlog reached a record $13.7 billion with updated 2025 revenue guidance ($8.3–$8.7 billion) and improved adjusted EBITDA margins (18.5%–20%). | Consistent growth in backlog quality and an improving revenue/margin outlook indicate a sustained positive market sentiment. |
Subsea Technology Innovation | Earlier periods (Q1, Q2, Q4 2023) emphasized the role of iEPCI, Subsea 2.0, and processing technologies in reducing cycle times and improving project economics, with landmark projects and significant adoption. | Q3 2024 maintained focus on technological leadership by highlighting iEPCI 2.0 direct awards and innovations (e.g., flexible pipe technology), reinforcing its role in enhancing competitive positioning. | Steady emphasis with incremental improvements; the focus on advanced technologies continues to drive project efficiency and positive market sentiment. |
Capacity Constraints and Execution Risks | In Q1 and Q2 2024, the company discussed leveraging an expanded “vessel ecosystem” and supplier premanufacturing to mitigate capacity constraints and execution risks, while Q4 2023 did not address this topic. | In Q3 2024, concerns over a tight vessel market were acknowledged but highlighted as effectively managed through external partnerships for iEPCI projects. | Persistent concern that is being effectively managed with strategic partnerships, ensuring that execution risks remain under control despite market constraints. |
Free Cash Flow Visibility and Capital Allocation/Financial Health | Q4 2023, Q1 and Q2 2024 calls underscored robust free cash flow generation, disciplined capex, significant shareholder distributions, and steady debt reduction, supported by investment-grade upgrades. | Q3 2024 reinforced strong free cash flow conversion, improved visibility (with a 50% conversion rate expectation), enhanced shareholder returns, and solid liquidity management. | Consistent financial strength with continued positive sentiment on cash flow conversion, debt reduction, and shareholder returns, reinforcing a strong capital allocation strategy. |
Emerging Markets and Geopolitical Risks | Q1 2024 had minimal mentions (e.g. referencing activities in frontier regions like Namibia via the playbook from Guyana/Mozambique), whereas Q2 and Q4 2023 did not highlight these risks. | Q3 2024 did not mention emerging markets or geopolitical risks at all [No citation]. | Diminished emphasis; this topic is no longer a focus in the current period, suggesting a shift in priority toward internal operational strengths over external geopolitical considerations. |
Decarbonization and Carbon Capture Initiatives | Q1, Q2, and Q4 2023 discussed all-electric subsea systems, CCS projects (notably the Northern Endurance project), and related technological advancements in decarbonization, underscoring strategic initiatives for reducing emissions. | Q3 2024 did not mention decarbonization or CCS initiatives, omitting reference to all-electric systems and related projects [No citation]. | Reduced focus in Q3 2024 relative to prior periods, which may signal a temporary shift away from promoting decarbonization themes or a strategic re-prioritization in communications. |
Onshore Demand and Surface Technologies Diversification | Q1 2024 highlighted the strategic shift in Saudi Arabia toward onshore demand and optimized production economics, while Q2 2024 emphasized diversification in the Middle East with robust local investment; Q4 2023 did not focus on this topic. | Q3 2024 renewed emphasis on diversification in Surface Technologies, with significant discussion of a new facility in Saudi Arabia and increased activity in the Middle East driving modest revenue growth. | Continued and evolving focus; onshore demand and diversification in key regions like Saudi Arabia remain a strategic growth area with positive sentiment and tangible investments supporting future opportunities. |
Legacy Revenue Recognition Concerns | In Q4 2023, executives discussed legacy revenue recognition—citing some acceleration of legacy projects that impacted margin mix—while Q1 and Q2 2024 did not focus on this issue. | Q3 2024 reported that legacy projects now constitute only 10–11% of the backlog, indicating a diminished reliance on older projects. | Declining emphasis; as the backlog improves with higher-quality orders, legacy revenue concerns are becoming less significant, which is viewed positively for future margin profiles. |
-
2025 Subsea Margin Expansion
Q: What drives the 250 basis-point margin uplift in 2025?
A: The 250 basis-point margin expansion in 2025 is driven by more iEPCI and Subsea 2.0 projects, improved backlog quality, strong execution, and a relentless focus on industrialization, leading to stronger operating margins and increased backlog margins. -
Confidence in $30B Orders by 2025
Q: Is FTI confident in achieving $30B orders despite offshore drilling concerns?
A: Yes, FTI remains confident in achieving $30 billion in inbound orders over three years ending in 2025, with no impact from the offshore drillers' "white space" issue, which is considered a company-specific rather than an industry-wide concern. FTI sees continued accelerated project FIDs and strong client engagement. -
Increased Share Repurchase Program
Q: How will the $1B share repurchase be executed?
A: FTI announced an additional $1 billion share repurchase authorization, planning to distribute at least 60% of free cash flow to shareholders, with around $400 million in buybacks implied this year, and intends to grow repurchases in upcoming years. -
Enhanced Backlog Coverage for 2025
Q: How does backlog coverage impact 2025 guidance?
A: With a $1 billion increase in 2025 backlog staging and a backlog coverage better than prior years, FTI is de-risking its forecast ability, providing greater visibility and confidence in its 2025 revenue guidance due to a strong backlog and growing services business. -
Vessel Market Tightness Mitigation
Q: How will FTI manage tight vessel markets?
A: FTI mitigates vessel market tightness through its vessel ecosystem, partnering with others to access additional capacity, enabling continued growth in iEPCI projects and confident execution despite market tightness. -
Flexible Pipe Market Growth
Q: What drives growth in the flexible pipe market?
A: Growth is driven by FTI's leadership in flexible pipe technology, the use of flexible pipes in iEPCI projects outside Brazil, ability to simplify subsea architecture, improve field layout flexibility, and accelerate first oil, providing a competitive advantage. -
Surface Business Prospects in Middle East
Q: Will surface business grow in line with peers in 2025?
A: FTI remains optimistic about its surface business growth, expecting performance in line or better than peers due to market activity and investments in Saudi Arabia and UAE, including opportunities from unconventional gas requiring higher-specification equipment. -
Margins Beyond 2025
Q: Are 2025 margins indicative of future margins?
A: Yes, margins are expected to continue growing beyond 2025 due to a high-quality, accretive backlog, more direct awards in iEPCI 2.0, and a decreasing proportion of legacy projects, which will improve overall margins going forward. -
Free Cash Flow Conversion Outlook
Q: How should we view EBITDA to free cash flow conversion?
A: FTI expects growth in free cash flow based on improved earnings, maintaining a 50% free cash flow conversion, with further guidance to be provided in the next earnings call.