TechnipFMC plc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 was a year of tremendous success with total company inbound of $11.6 billion, driving backlog to $14.4 billion. Subsea inbound orders were $10.4 billion, with iEPCI orders growing nearly 25% year-over-year, Subsea 2.0 orders significantly outpacing total Subsea 3 awards growth, and Subsea Services also growing.
• Highlighted commercial achievements include iEPCI contracts like the GranMorgu project for Total Energies, Shell Sporter and BP Cascadia developments, and the Mero 3 HISEP project in Brazil. Also announced the industry's first Subsea all electric system for carbon transportation and storage and a partnership with Prysmian for offshore floating wind.
• Focus on execution using lean principles of simplification, standardization and industrialization (SSI), which is transforming how the company operates, achieving seamless coordination and client-centric improvements.
• Surface Technologies benefited from refocusing efforts, including the sale of Measurement Solutions business and optimization of Americas portfolio, with growth anticipated in The Middle East driven by activity in The United Arab Emirates and The Kingdom of Saudi Arabia.
• Positive outlook for energy, expecting further growth in demand with affordability and security of supply as key considerations, with offshore and The Middle East markets remaining preferred, and deepwater attracting growing capital flows.

Segment Performance

• Subsea: Fourth quarter revenue was $2 billion, modestly up from the third quarter due to higher activity in the US Gulf and Africa, offset by lower activity in Latin America and Asia Pacific. Adjusted EBITDA was $339 million with a margin of 16.5%, down 180 basis points from the third quarter. Full year Subsea revenue grew 22% versus the prior year, with adjusted EBITDA margin up 340 points to 16.7%.
• Surface Technologies: Fourth quarter revenue was $319 million, essentially unchanged from the prior quarter. Lower activity in North America was offset by increased project activity in international markets, particularly in The Middle East. Adjusted EBITDA was $54 million, up 9% versus the third quarter. Full year Surface Technologies revenue decreased 9% versus the prior year, but excluding the sale of the Measurement Solutions business, revenue increased 1%. Adjusted EBITDA margin increased 140 basis points to 15%.

Guidance

• Subsea: Expect revenue of $8.6 billion with adjusted EBITDA margin of 19.5% at the midpoint of the full year range, implying 10% revenue growth and 28% adjusted EBITDA growth from 2024. First quarter Subsea revenue to decline low to mid-single digits sequentially due to seasonality, with adjusted EBITDA margin expected to improve modestly.
• Surface Technologies: Guiding to revenue of $1.275 billion with adjusted EBITDA margin of 15.5% at the midpoint of the full year guidance range, representing mid-single digit growth in adjusted EBITDA from the prior year. First quarter Surface Technologies revenue to decline approximately 10% from fourth quarter results, with adjusted EBITDA margin of approximately 14.5%.
• Total company capital expenditures expected to be approximately $340 million for the full year, below long-term guidance range. Expect full year free cash flow to range from $850 million to $1 billion. Plan to distribute at least 70% of free cash flow to shareholders in 2025, resulting in growth in distributions of at least 30%.

Risks

• Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed. Known material factors that could cause actual results to differ from projected results are described in the most recent 10K, 10Q and other periodic filings with the US Securities and Exchange Commission.

Question and Answer

Q: Arun Jayaram asked about the margin journey and where margins could move in 2026 and beyond.

A: Doug Pferdehirt responded that TechnipFMC chose a different path starting in 2015, and the combination of Subsea 2.0 and iEPCI models allows for margin progression, expecting higher margins as higher quality backlog is executed.

Q: Scott Gruber inquired about managing the balance sheet and Subsea revenue mix.

A: Alf Melin mentioned the strong balance sheet with low gross leverage ratio, near term plan to take down debt as it matures, and Subsea 2.0 orders well above manufacturing activity, with services business projected to be around $1.8 billion in revenue in 2025.

Q: David Anderson asked about offshore market installations and backlog conversion.

A: Doug Pferdehirt stated significant tendering activity for projects well beyond 2026, with mature markets like The US Gulf, North Sea, Brazil strong, and emerging basins like Suriname, Namibia, Mozambique also showing activity, expecting 2026 to be a more significant year.

Q: Mark Wilson asked about larger project sizes and cycle time.

A: Doug Pferdehirt said larger projects are due to quality of rock and clients wanting schedule surety, with TechnipFMC having a one-year cycle time advantage and continuing to shorten cycle time through relentless pursuit.

Q: Mark Bianchi inquired about Surface outlook and CapEx guidance.

A: Alf Melin explained Q1 weakness due to seasonality and timing, with growth anticipated in The Middle East and North America rationalization helping, and CapEx increase due to ERP upgrade program, still below long-term guidance.

Q: Kurt Hallead asked about the percentage of iEPCI and Subsea 2.0 in inbound.

A: Doug Pferdehirt said iEPCI was at 50% of inbound, with no limit seen, and Subsea 2.0 orders up over 50%, with no upper limit seen and ambition to increase its percentage.

Q: Victoria McCulloch asked about internal process standardization and Brazil market.

A: Doug Pferdehirt discussed SSI journey and its impact, with strong local content in Brazil and development of new flexible pipe technology, and approach to Petrobras tenders, emphasizing iEPCI for value creation.

Q: Ati Modak asked about free cash flow conversion and regional customer conversations.

A: Doug Pferdehirt and Alf Melin mentioned free cash flow conversion improvement through driving earnings higher and operating with neutral working capital, and expanding customer base including smaller regional companies with direct award iEPCI 2.0 projects