Yahoo Finance TechnipFMC plc (NYSE:FTI) Q1 2024 Earnings Call Transcript
TechnipFMC plc (NYSE:FTI) Q1 2024 Earnings Call Transcript April 25, 2024
TechnipFMC plc beats earnings expectations. Reported EPS is $0.22, expectations were $0.16. FTI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by and welcome to the TechnipFMC First Quarter 2024 Earnings Conference Call. I'd now like to welcome Matt Seinsheimer to begin the call. Matt, over to you.
Matt Seinsheimer: Thank you, Mandeep [ph]. Good morning, and good afternoon, and welcome to TechnipFMC's first quarter 2024 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 risk and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Non-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.
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's Chair and Chief Executive Officer.
Doug Pferdehirt: Thank you, Matt. Good morning and good afternoon. Thank you for participating in our first quarter earnings call. I am very pleased with the strong performance in the quarter, which further highlights our continuing success in delivering on our commitments. Total company revenue for the first quarter was $2 billion. Total company adjusted EBITDA was $257 million, with an adjusted EBITDA margin of 12.6%, when excluding foreign exchange impacts. Total company inbound orders in the quarter were $2.8 billion. In Subsea, we had a solid start to the year, with first quarter orders of $2.4 billion, representing a book-to-bill of $1.4. Importantly, a significant portion of our inbound was driven by new technologies, several of which were industry first for Subsea that will help unlock opportunities in both new and mature offshore basins.
In January, we announced our first IEPCI for Petrobras, this one utilizing Subsea processing for the MERO 3 HISEP development. The project represents a major industry milestone as it will be the first to use Subsea separation to capture CO2 directly from the well stream for injection back into the reservoir, all of which will occur on the seafloor. During the quarter, we were also awarded the first IEPCI to utilize a 20k production system, this being for Shell's Sparta project in the Paleo-Gene play in the US, Gulf of Mexico. The 20,000 PSI production system includes new technologies required to meet the demands of high pressure, high temperature reservoir conditions. This marks our third award for 20K production equipment as clients look to produce from deeper waters and reservoirs in the maturing basin.
The Paleo-Gene formation spans the central and western regions of the Gulf of Mexico with reservoirs located in water depths that exceed 1500 meters and generally exhibit higher pressures. The Paleo-Gene has become one of the most productive and fastest growing sources of supply in the Gulf and it is estimated that one billion barrels of discovered reserves will require the use of 20k technology for development. We expect additional projects to successfully move forward over the next 24 months, representing yet another opportunity set for our company. And finally, we announced an award from the Northern Endurance Partnership to deliver the first all-electric Subsea IEPCI, which is anticipated to be inbound in the second half of this year. The partnership, which is a joint venture between BP, Equinor and TotalEnergies, is building CO2 transportation and storage infrastructure for carbon capture projects in the UK's East Coast cluster.
Our all-electric solution will collect and feed the pressurized gas into an aquifer or permanent storage. All-electric systems drive simplification of the field design, enabling the reduction of infrastructure and installation time through the removal of hydraulic components and simplified umbilicals. The technology also enables the development of projects over long distances. With Northern Endurance, the power and controls to the Subsea equipment will extend 145 kilometers from the onshore host facility. The award of an entirely all-electric Subsea system is a significant achievement for both our company and the industry. MERO 3 high set, Sparta and Northern Endurance are all strong examples of our differentiated technology portfolio. Each of these projects provides a unique solution to an industry challenge and it is this unique combination of innovative technologies and integrated execution that is creating new market opportunities for our company.
While project selectivity remains a critical objective, it is even more important that we successfully deliver on time and on budget as promised. As demonstrated by our financial performance in the quarter, operational execution across the portfolio continues at a high level, driven in part by this focus on project selectivity and the favourable impact it is having on the quality of orders in our backlog. Having both the right backlog and strong execution gives us confidence that we can capitalize on the strong market and achieve our financial targets. Finally, we completed the sale of our Measurement Solutions business in March. In keeping with our commitment to shareholder distributions, a significant portion of the proceeds were allocated to repurchasing $150 million of shares in the first quarter.
This brings our total shareholder distributions to $520 million in less than two years and given this acceleration and share repurchases, we now expect total shareholder distributions in the current year to grow at least 70% when compared to the levels achieved in 2023. I will now turn the call over to Alf.
Alf Melin: Thanks Doug. Inbound in the quarter was $2.8 billion, driven by $2.4 billion of Subsea orders. Total company backlog increased sequentially to $13.5 billion. Revenue in the quarter was $2 billion. EBITDA was $257 million when excluding a gain on the sale of our measurement solutions business of $75 million, restructuring impairment and other charges totalling $5 million, and a foreign exchange loss of $4 million. Turning to the segment results, in Subsea, revenue of $1.7 billion was largely flat versus the fourth quarter. Higher project activity in Brazil and the Gulf of Mexico was largely offset by lower activity in the North Sea and Asia Pacific, and reduced services revenue due to typical offshore seasonality. Adjusted EBITDA was $242 million with a margin of 14%, up 90 basis points from the fourth quarter.
The sequential increase was driven by strong execution and improved earnings mix from backlog. In Surface Technologies, revenue was $307 million, down 14% sequentially. Revenue decreased due to the closing of the sale of Measurement Solutions before the end of the quarter, lower activity in North America, and portfolio optimization in Latin America. Adjusted EBITDA was $41 million, a 21% decrease from the fourth quarter, driven by lower revenue from Measurement Solutions and lower activity in North America. Adjusted EBITDA margin was 13.5%, down 120 basis points versus the fourth quarter. Turning to corporate and other items in the period, corporate expense was $27 million when excluding charges of $5 million, which were primarily transaction-related costs associated with the sale of Measurement Solutions.
Foreign exchange loss was $4 million. Net interest expense was $13 million, which benefited from higher average cash balances in the period. Tax expense in the quarter was $50 million. Cash required by operating activities was $127 million. The outflow follows the typical seasonal pattern of our business. Additionally, cash flow in the period included a payment of $56 million to the PNF. Similar payments will occur in the second and third quarters and will fulfil our remaining obligation. Capital expenditures were $52 million. This resulted in free cash flow consumption of $179 million in the quarter. As Doug highlighted, we completed the sale of the Measurement Solutions in March. Proceeds from the sale were $186 million, with the majority being used for share repurchase.
This drove a significant increase in total shareholder distributions in the first quarter to $172 million, which included $150 million for share repurchase and $22 million in dividends. We ended the period with cash and cash equivalence of $697 million. Net debt was $327 million. Now I will provide some thoughts on our outlook, starting with the second quarter. For Subsea, we expect to benefit from the typical seasonal uplift as well as improved margins in backlog with sequential revenue growth of approximately $200 million and margin expansion of approximately 250 basis points. For Surface Technologies, we expect revenue and adjusted EBITDA margin to be in line with the first quarter. This includes the impact of the sale of Measurements Solutions.
Now I will also give you an update to our full-year outlook. Given the anticipated strength of our first half results and taking into account a range of outcomes, we now expect total company adjusted EBITDA to approximate $1.29 billion when excluding foreign exchange, an increase of approximately $40 million from the guidance we provided in February. Within this total company outlook, we see the following relative to the guidance provided in February. Subsea revenue and EBITDA margin both trending toward the upper half of the guidance ranges. Both revenue and EBITDA margin for Surface Technologies as well as corporate expense remain on track for the midpoint of their respective guidance ranges. Lastly, I want to discuss our current view of our capital structure.
In March, we received an upgrade from Standard & Poor's to Investment Grade. This upgrade serves as a significant milestone for the company and reflects the tremendous efforts by the entire organization to materially deleverage the balance sheet and achieve investment grade metrics. With this update, we are also revising our target capital structure to approximately $800 million of cash and $800 million of debt, together amounting to zero net debt. This is a $500 million reduction versus our prior target and a level we can achieve over time as scheduled debt maturities come due. Importantly, we believe this capital structure provides us with the flexibility to manage our operations and fund our capital needs while also delivering on our commitment to shareholder distributions.
Operator, you may now open the line for questions.
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