Ladies and gentlemen, thank you for standing by, and welcome to the TechnipFMC Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Matt Seinsheimer. Thank you. Please go ahead, sir.

Thank you, Lisa. Good morning and good afternoon, and welcome to TechnipFMC's second quarter 2020 earnings conference call. Our news release and financial statements issued yesterday 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 risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known 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, the French AMF and the UK Financial Conduct Authority. 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 Chairman and Chief Executive Officer.

Thank you, Matt. Good morning and good afternoon. Thank you for participating in our second quarter earnings call. On the call today are Maryann Mannen, Chief Financial Officer and Catherine MacGregor, President of Technip Energies. Before commenting on our operational and financial results, I would like to begin by recognizing the resilience of our global workforce. While the health and wellbeing of our employees, partners and customers is our top priority, these dedicated teams worked tirelessly to maintain business continuity in a safe and responsible manner. And throughout this very challenging period, they continue to advance projects and meet customer requirements, which was evident in our second quarter results. We also made solid progress in three core areas, strengthening our balance sheet, progressing our backlog scheduling, and accelerating our business transformation, all to ensure the success of TechnipFMC both through the current cycle and over the longer term. With regard to the balance sheet, we took a series of proactive steps in the quarter. We increased our liquidity by $1.2 billion, bringing total cash and liquidity to nearly $7 billion. And we secured a permanent modification to our primary debt covenant, which favorably impacts the company's total capitalization ratio. Together, these actions were taken to ensure that we have more than sufficient liquidity and can maintain full access to this liquidity in these challenging times. Turning to backlog. We experienced no cancellations, highlighting the resilience of the nearly $21 billion of backlog we have today. This significant backlog provides us with good visibility that extends over the next several years. Since the start of the COVID-19 outbreak, we have had constructive conversations with our customers. The dialogue has been very different than what we experienced in prior cycles. This has resulted in a more collaborative approach, creating new opportunities for…

Thank you, Doug. Looking at our headline numbers for the quarter, revenue totaled $3.2 billion driven by solid performance in both subsea and Technip Energies, while Surface Technologies revenue was impacted by a severe decline in activity in North America. Year-over-year revenue decreased as a result of reduced activity, operational headwinds from COVID-19 and foreign exchange impacts. Adjusted EBITDA in the quarter was $241 million. We accelerated our cost reduction program and are on track to deliver cost savings of more than $350 million by year end. And we expect a greater benefit from these savings in the second half of the year with the full impact realized in 2021. We estimate total cash costs to achieve our planned cost savings target to be approximately $75 million. Underlying corporate expense have improved over the last three consecutive quarters, giving us confidence to lower our full year guidance, which I’ll come back to in a moment. Beginning with the second quarter, foreign exchange impacts are now reported separately from corporate expense to provide greater clarity in our financial statements. Adjusted earnings per share for the quarter were $0.09 when excluding after tax charges and credits. Included in our adjusted earnings, our expenses resulting from increased liability payable to joint venture partners included an interest expense and foreign exchange losses. Together, these two items impacted EPS by $0.12 per share in the period. And if excluded, our adjusted earnings per share would have been $0.22 per diluted share. The company ended the period with cash of $4.8 billion, net cash was $303 million. We have increased visibility on our cash uses and inflows for the remainder of the year and have provided guidance around our free cash flow outlook. Turning to the segment highlights. Direct COVID-19 expenses for the company totaled $57…

Thank you. [Operator Instructions] And our first question comes from the line of Michael Alsford from Citi. Your line is open.

Thank you. Thanks for taking my question. One on Subsea, if I could please, and just really – could you talk a little bit about the margins for Subsea? I think within the guidance, you've obviously split out direct related to COVID costs out of Subsea margin, but it's still quite low quarter-on-quarter, like you guided, or like they talked about. So it could perhaps talk a little bit about, what's the driver of that weaken margin, please. Thank you.

Thank you, Michael, very much for the question. We – not only did we deliver on the Q2 results, we also provided you guidance now for the outlook for the remainder of the year, which actually has an increased delivery in the second half of the year, relative to the first half of the year, and an expectation of margins for at least 8.5%. Clearly, in the second quarter, we were challenged operationally by direct COVID expenses that were called out. But also indirectly, obviously the overall business and the flow of the business was impacted. Happy to report that through the quarter, and certainly, since we spoke in this forum most recently back at the end of the first quarter, conditions have certainly improved. At that point, we had a significant number of our total operations that were either temporarily suspended or extended – or suspended for an extended period of time. We're now back to having all of our facilities operating that being said, we're not back to a 100% operating efficiency, although, again, the resiliency of the workforce and their dedication has really delivered some phenomenal results. So we expect that to continue to improve, obviously with the caveat that we don't know exactly what will be the future impacts of – if there were to be future impacts related to the pandemic. But very proud of the work that the team has done, the progress that they've made, the ability to now have the confidence to give you the full year outlook for 2020 with margins continuing to improve in the second half.

Thanks, Doug, and I appreciate the extra visibility from the call given today. Just a quick follow-up, if I could on Qatar. You seem very well placed given the work that you're doing on the feed. I was just wondering whether you get any sense as to when that might come to be awarded. Is it like to be pushed into next year? Or do you feel that there might actually be 2020 sanctioned? Thanks.

Certainly, a very exciting opportunity. And I'm going to ask Catherine to provide more color.

Yes. Thank you very much. Thank you for the question. Certainly, extremely exciting opportunity, as you rightly said, we've been engaged in that project for a long time with a partner of choice. We've also been involved in previous projects in the past. So this is a country, an environment, customer that we know very well as well as the technology. So we absolutely delighted to be involved in the feed and preparing for the standard. As far as the timing of the sanction and the FID of the project, obviously, all the indications tend to confirm that this project is indeed of its strategic importance for QP. The signs and the communication that we are receiving from our customers make us look forward to this project to be sanctioned in the near future. Now, whether it can be this year or early next year, frankly, it's very difficult for us to say. I could not answer precisely to this question. But the key for us is that this project is indeed a very important interesting and indeed likely to be sanctioned in the near term. Thank you.

Great. Thanks, Catherine.

Our next question comes from the line of Marc Bianchi from Cowen. Your line is open.

Thank you. I guess, first question, just looking at – you mentioned some of the COVID disruptions and you called out the expense in the first quarter and the second quarter. As you lifted to the back half, can you give us any sense of, what sort of an adjustment we should be expecting?

Sure. As I mentioned on the earlier question, we're certainly have made significant progress and really, again, putting the health, safety and wellbeing of our employees first, set some industry standards and best practices that we've now shared, not only with our clients, but with our peers and competitors on ways to really try to minimize the spread of the virus, particularly, in tight quarters, as an example, on vessels, in the manufacturing plants, et cetera. And we’re really, really pleased with the progress that we've made. Obviously, the challenge remains of will there be additional implications that we are not aware of yet today that could occur in the second half. And I'll ask Maryann to provide a bit more color.

Certainly, thanks, Doug. So as we think about these COVID-19 costs that we call out directly, maybe a bit about what they are. These are extraordinary expenses, they are unplanned. We do not expect them to be recovered. These would be, as Doug mentioned, when we have facility that is closed as an example. These are not costs of inefficiencies in our plant, as Doug mentioned, meaning lower utilization, lower operating rates, the impact of delayed supply chains, those stay within our margins. And as Doug explained, we are beginning to see some return to normal. So assuming that trajectory continues and we all know we can't necessarily project that we would expect to see less than the third quarter. These are costs that we would expect to be eliminated from our operating structure, given their nature. So as we stand today, again, challenging to project, what would happen with COVID, but we would expect them to be less in the back half. And then as we continue to return to a more normal environment, we certainly wouldn't be calling them out anymore. The rest of those costs would remain as they do in our margin.

Sure. Okay, thanks for that Maryann, Doug. On the cash flow, the back half cash flow that is implied by the full year guidance is pretty strong kind of $250 million to $400 million is the implied range. I'm just wondering if there's anything unusual milestone payments or anything like that. Or if we should think about that kind of implied conversion of EBITDA out free cash flow is, what the business can really do on a recurring basis?

Now an important question, and we appreciate you asking it. Because we would like to provide some additional color in. And when we think about our company as a projects business having prepayments on awarded projects, if you will, is not unusual, right? It's part of the overall mix and part of the projections that we need to make. And Maryann will provide some additional color.

Sure. Thanks, Doug. One thing to keep in mind, just as you look at the year-to-date performance in particular, in the quarter, we had two items that happened in the quarter that I would say are certainly not necessarily operational and not repeating. And the first is, we made our second payment against previous lease that will have litigation. And that outflow happened in the second quarter. Obviously, that's not repeating in the back half of the year. And you also may have seen the discussion of a settlement of about $113 million in the Technip Energies segment, while we were successful and good news in settling that this quarter, we will not see the cash flow attributed to that settlement until the beginning of next year. The second part of your question is whether or not you can consider the back half of the year as a more normal conversion. And I would say we’re beginning to get there. As you well know, as Yamal continues to be a smaller contribution to our EBIT and, frankly, less impact on working capital, we have less working capital impact in the back half of the year, and you can begin to see greater conversion. We are obviously assuming a series of projects milestones. We stay – obviously, try to stay cash flow positive across those. You see the EBIT in the back half of the year based on our guidance, would be improving. So you can begin to look at the back half of the year as a better representation of the conversion that you should expect in a more normalized environment.

Great. Thanks so much.

And our next question comes from the line of Amy Wong from UBS. Your line is open.

Hi, good morning, good afternoon. A couple of questions from me. Firstly, on your Subsea order intake, you sound very confident that you’ll hit that target. Can you just talk about some of the conversations that you’re having with your clients? What are kind of the sticking points for them to make FID? How is pricing evolving? Just give us a bit more color on those conversations please?

Sure, Amy. And good afternoon. In my prepared remarks, I tried to highlight the fact that we have received several awards, which have not yet not yet been met all the requirements for us to include in our backlog, both in Subsea as well as in Technip Energies. So in Subsea, I talked about the project in Brazil. I talked about a project in Asia Pacific, which, by the way, is an iEPCI project utilizing Subsea 2.0 technology. And I talked about a portfolio of projects in the North Sea recently announced by Equinor. In addition for Technip Energies, we announced the Assiut project, which is over $1 billion in total value. So it’s been a strong period for us in terms of awards. We have not been able to inbound all of those yet, conditions haven’t been met, but will be met. It’s not a question of if the projects will be sanctioned, it’s just a slight timing issue. And unfortunately, a few of those fell outside of Q2, but they certainly will be in Q3. That’s what provides us the confidence. So in my prepared remarks, to be very clear, I said that we have $1.7 billion in the first half of the year. And we already have a clear line of sight on another $1.7 billion. So, I think you have to look past the Q2 order rate just because a lot of things fell into early Q3 or were awarded in Q2 but will be FID-ed in Q3. So if you add those together, we have five months to fill in the last 10% to approximate the $4 billion of the guidance that we had previously provided and, therefore, I still have confidence, Amy, that we will achieve that. In terms of the conversations and the pricing, the clients are very much focused around ensuring they can achieve the very best project economics. Therefore, the majority of the conversations that we have and a very large portion of the total awards that we receive are direct award into our company, most of which don’t actually come from that Subsea opportunity list that we publish, which is the list for the public domain that others also have access to. We have a list that – and I indicated in my script, as much as $3 billion a year on a reoccurring basis that is exclusive to our company. This is what makes us so unique and which allows us to not only be the market leader, but extend our market leadership with our new technology offerings and our new commercial models. So those conversations really aren’t around pricing, Amy. They are on the project economics. And we work together with a client in a very collaborative way to achieve those most favorable project economics. That’s the difference between our company and the others in this space.

That’s very good insight. Just a quick follow-up for Maryann. For the cost savings, could you quantify how much of the cost savings were realized in the second quarter, please?

Yes. Thanks, Amy. As you know, what we’ve indicated is, by 2021, we will have achieved all of the $350 million plus. So that run rate going into 2021 will be at least $350 million. We’re ahead of that trajectory as we get – as we’re planning to get there. So we are more than 50% complete with all of the actions that we need to take in order to achieve that through the half of this year.

Great. Thanks very much Maryann. I’ll turn it over.

You’re welcome Amy.

Our next question comes from the line of Sean Meakim from JPMorgan. Your line is open.

Doug, just to start on – or actually to continue on the Subsea margin discussion. The guidance for fiscal 2020 implies a 9% plus type number for the back half. So directionally, that’s constructive. It’s early, but investors are going to start looking to 2021. So maybe too early for guidance, but maybe not too early to think about some of the building blocks. This year, you guided to at least $4 billion of awards. That’s below 2020 revenue so maybe growing revenue next year is a bit more challenged, that’s where we end up. But I think your award commentary sounds pretty constructive here for some potential upside, maybe that’s back half 2020 or first half 2021. Services opportunities could be better if COVID disruptions recede. Book and turn, still obviously very important. How would you frame those building blocks in terms of what drives margin progress back towards a more normalized level next year?

Good morning, Sean, thank you for the question. And I think you highlighted the building blocks very well. If you look at the order inbound projection for 2020, as we just discussed, you can start to project that in 2021. We already have a lot of the potential revenue covered. We have a strong backlog. We’ve obviously just got done talking about additional awards and the additional awards in the second half of this year. So as far as the revenue line, and you’re right, it’s early to give 2021 guidance, let’s remember, we just, today, are giving H2 2020 guidance, given the disruption that the world experienced last quarter. But it’s fair to talk about. And as you said, we’re seeing a nice progression of the margins in the second half of the year based upon the guidance that we provided. And as we look into 2021, we expect to continue to improve in terms of getting back to more normalized operating efficiency. We have a strong backlog. We’ll be adding new orders, as we just discussed. So when you look at it, again, it gives us confidence that we’re going to continue to be able to go back to more normalized level of margins. Now one headwind – we have several, but the one headwind that I would point out that didn’t come up in the – in your question, is the fact that as some of this backlog rescheduling has occurred, it’s naturally pushed out the latter stages of the iEPCI projects or any Subsea project. When we – certainly, for us, it’s the benefit of having the iEPCI projects. It’s pushed out that installation campaign, in some cases, pushed it out of 2021 and into 2022. So that’s the one headwind will be basically the fleet…

That’s very helpful, Doug. I appreciate that feedback. Maybe, we could just have a similar discussion around Technip Energies, just thinking about building blocks into next year. So in this case, Yamal roll off is likely a headwind year-on-year for margins. Some big new projects still starting up. That’s likely another headwind, at least for 2021. But maybe coverage for revenue looks more secure than Subsea. So that probably helps to some degree. Just curious how confident you are in terms of being able to stay in that sweet spot but perhaps lower margins than when Yamal was a bigger part of the mix, but still staying above that underlying downstream level. So perhaps somewhere in the high single-digit type of range.

Sure. Well, Yamal is not over yet. And we do have a large portfolio of other projects that are very important to us as well. And I’ll pass it to Catherine to provide more color.

Yes, thank you very much. Because similarly to Subsea, I have to say, you also described the building blocks very well. Thank you. So we have, as you know, very, very strong backlog, USD 13.8 billion at the end of Q2, which is going to generate, indeed, a lot of revenue and strong revenue next year. In terms of mix, you’ve described it well, we’re expecting a step down in Yamal revenue, which will obviously affect the aggregate EBITDA of our results next year. On the other hand, the remaining of the portfolio has been accumulated in our backlog from a very selective approach. As you know, we’re very far in the way, and we make sure we choose, and we’re very selective in the prospect in the project we are involving. So that is reducing in a very sound gross margin side backlog ex Yamal. And that you will see that next year in our portfolio. So very much linked with the execution that we’ve demonstrated that we are demonstrating. You can expect consistent delivering EBITDA. We’ll have to normalize, for sure, for Yamal. We’ll have to take into account that Artic LNG 2 is progressing well. It’s going to continue to ramp up. It will continue to be in the early phase, which obviously is associated with a prudent margin recognition. But overall, I would say, very strong, consistent margin profile that we expect from next year with that change in mix that you’re understanding very well.

That’s very helpful. That’s Catherine.

You’re welcome.

Our next question comes from the line of Kurt Hallead from RBC. Your line is open.

Hi, good morning.

Good morning, Kurt.

Hi. My initial follow-up question is for Maryann on the free cash flow guidance that was provided for the full year. Just wanted to get some clarity on that. Does that free cash flow already embed the $100 million of expected payments that are going to go to the Yamal JV partners?

Hey, Kurt. So, that Yamal payment actually fall below free cash flow, you see that in the financing section of the cash flow. So short answer is no. That payment is not in our free cash flow expectation, because it doesn’t fall there as it unwinds. But the back half of the year does include, obviously, assumptions for project progress and inbounds and other milestones around the projects as we outlined. Hope that addresses your question.

Yes. That does help. And then Doug, you definitely aroused my curiosity with respect to your commentary around some of the strategic initiatives for the Subsea and Technip Energies, especially as it relates to the all-electric-powered Subsea system as well as your commentary about blue and green hydrogen for Technip Energies. So I know it’s going to be way too early for this to have a financial impact within the next year or two. But I’m just wondering what kind of momentum you see building for techniques, specifically for FDI and specifically within the course of the next, I don’t know, six to 12 months. And what kind of traction do you think you can get within that time period for those initiatives?

Well, Kurt. You touched on the two key ones. A lot of the other initiatives, I would say, are not obvious in terms of their momentum and certainly not obvious in terms of the returns associated in those – in some of the renewable space. And although we are participants across the renewable space, we really want to focus on where we can provide differentiation and we can have returns that are very attractive versus, if you will, some of the more commoditized parts of the renewable space. So you touched on the two key ones. And it’s very much how we see it, which is the electrification of the offshore, which is a big opportunity. I would say there is a tremendous amount of enthusiasm and momentum on the subject. And we are very, very uniquely positioned here, because there’s a lot of attributes and technologies that are required to be able to do this. It’s not simply providing the electricity, but it’s the infrastructure and the equipment and the design and the interfaces with the Subsea completions that are really, really unique. We’ve been working on this for a period of time. We’re partnering well with others in this space, and we believe this will be a very attractive opportunity for our clients as they have stated environmental ambitions that we can become a key partner for them and help them reach those ambitions. And this is an example of how we could do that. We’re looking beyond just the electrification, and we’re actually looking at the electrification through renewable energy. This is where our experience of being involved in the very first offshore floating wind farm gives us a lot of credibility in this space and a lot of experience and knowledge in this space. And as an example, not necessarily from offshore floating wind, but that could be a very unique solution and one that we’re very well positioned to be able to provide to our clients. Another potential energy source could be hydrogen, as you point out, and we’re very excited about that. I’m going to pass the microphone to Catherine and let her talk a bit about our vast experience in the area of hydrogen.

Yes, sure. And thank you – thanks, Kurt. Thank you for the question. Obviously, we are extremely excited by the momentum around hydrogen these days. We do believe that hydrogen is going to play a pivotal role in the future energy mix being such a clean energy carrier, many, many different applications. The nice thing for us is that we've been in hydrogen for pretty much 60 years. We've installed 270 plants around the world. And obviously, this was called – this is what we call gray hydrogen. But we've also – and people might not know that. We've actually built 50 blue hydrogen units also across the world. So we have a very differentiated offering with a proprietary steam reformer unit. We have capabilities with some special equipment that help reduce CO2 emissions. So we have a lot of technology references and experience. In addition, we have a technology partnership on carbon capture. So when you combine all that, you understand why we are so excited about the prospects in blue hydrogen. And of course, when you look at the projection of hydrogen demand and hydrogen projection, there will be the need. And the most exciting proposition, if you like, comes from the green hydrogen, which is pure clean hydrogen. However, the economics and the commercial equation does leave a lot of room for the blue hydrogen, which is the gray hydrogen with carbon capture, which is something that we commercially can today – can provide today. So that's a very exciting, strong position for us today. If you look at the green hydrogen, obviously, it's a little bit more emerging. We also are excited about the capability and the potential of integrating green hydrogen units at industrial scale. So for large industry, which will benefit from green hydrogen, we think that our role as an integrator, project management skill integration will be very useful in helping making the economics of this project work. So no matter what you look, where you look in hydrogen, we think Technip Energies, indeed, has a big role to play. So that's very exciting, and it's starting now, by the way. So back to you, Doug.

Thank you for that. Appreciate that color.

[Operator Instructions] Our last question comes from the line of Waqar Syed from ATB Capital Markets. Your line is open.

Thanks for taking my question. You've talked about the green hydrogen and other energy transition ideas. Would you say that within all your different ideas – and is the hydrogen aspect the most exciting that you're working on? Number one. And number two, as a percentage of revenue, what is the contribution right now from these emerging or energy transition stories?

Sure. So thank you very much, and I appreciate the question. And obviously, an exciting subject to follow up on. I'll be brief because I know we're running out of time. Actually, the electrification offshore, I would say, is as exciting about is hydrogen and could be very, very impactful. We're talking about going to zero-emission production that is quite significant. When you look at hydrogen, yes, of the renewables and of the differentiation that we have in this space, for us, it is the most exciting. And we believe or we can create the most differentiation and get very constructive returns, again, as opposed to a lot of the renewable space, which is the award numbers are large, but the returns are poor. And that's not the type of projects that we want to focus on. So we're going to keep driving and doing our part. We just joined the Hydrogen Council, and we want to be an active voice and an active advocate and really help to push the development in those areas. In terms of a percentage of the total contribution, we probably don't have enough time to get into all the dynamics of it. The question is, do you look at LNG as a very critical energy transition fuel, we certainly do. It certainly has a significant impact and the ability to be able to make it a fungible commodity through LNG. If you include LNG, it's a large percentage. If you exclude all hydrocarbon and just look at the pure renewables, it's a smaller portion of the company today, but we're pivoting strongly in this direction and securing to secure our future as well. Thank you.

Thanks. If I can, maybe just one last question. The digital technology or digitization of the – in the Technip Energies solution business. That's something that you talked about last year. Where are you in the progression in that – introducing those ideas into that business segment?

Sure. So we're looking at the digitalization of our company across the board, internal processes, external processes. We highlighted the last couple of quarters – actually introduced last quarter and highlighted a bit more this quarter Subsea Studio. This is really, really significant. It's going to just drive our differentiation wedge even greater, and we're seeing evidence of that very quickly. It's going to expand beyond the front-end engineering. It will become, if you will, the way Subsea will be develop digitally from the initial front end all the way through the life of the field of the project. So there's a lot more to come on the subject. We'll be continuing to communicate that to you and others as we go forward. In the area of Surface Technologies, we're moving to a fully digitized system for well completions. That is really, again, quite exciting and has the impact in terms of the natural benefits of things being digital, but it also has a benefit from a greenhouse gas emissions as well. And Catherine, I'll let you conclude today's call by talking a bit about the digital transformation within Technip Energies.

Thank you very much, Doug. And similarly, in Technip Energies, we are progressing very well in some of the game-changing technologies around digital, particularly on digital twin, particularly on carbon assessment tool, particularly around ultra-front end tool, which allows optimized development and you need to be deployed and designed for our customers. So we have a series of very good and game-changing solutions that we will be looking forward to talking much more in the future. Thank you very much.

I would now like to turn the call over to Matt Seinsheimer for closing remarks.

This concludes our second quarter conference call. A replay of the call will be available on our website beginning at approximately 8:00 p.m. British Summer Time today. If you have any further questions, please feel free to reach out to the Investor Relations team. Thanks for joining us. Lisa, you may end the call.

Thank you. Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.