Good day and welcome to the TechnipFMC Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] And, finally, I would like to advise all participants that this call is being recorded. Thank you. I’d now like to welcome Matt Seinsheimer, Senior Vice President, Investor Relations and Corporate Development. Matt, over to you.

Thank you, Pauly. Good morning, and good afternoon, and welcome to TechnipFMC’s third 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 today’s 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 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.

Thank you, Matt. Good morning and good afternoon. Thank you for participating in our third quarter earnings call. The TechnipFMC team continues to demonstrate solid execution, which is reflected in our quarterly results. Adjusted EBITDA and margin improved sequentially for both Subsea and Surface Technologies. These results were supported by our relentless focus on industrialization and standardization, as well as integrated business models, all of which are allowing us to execute more efficiently with greater certainty of outcome and repeatability of success. Revenue in the third quarter was $2.3 billion. Adjusted EBITDA was $389 million, with an adjusted EBITDA margin of 16.6%, when excluding foreign exchange impacts. Total company inbound was $2.8 billion, driving backlog to a new record level of $14.7 billion. Subsea inbound orders were $2.5 billion, a book-to-bill of 1.2, with Subsea backlog also reaching a new record of $13.7 billion. Subsea inbound continues to be supported by our differentiated orders, with this quarter particularly driven by our unique iEPCI offering, technology leadership, and extensive Subsea Services capabilities. More specifically, we announced awards from Petrobras for Flexible Pipe and Subsea Production Systems, and an iEPCI for bp’s Kaskida project in the Gulf of Mexico, a 20K development in the Paleogene. The Kaskida award represents our second iEPCI to utilize a 20K production system. This marks our 4th overall award for 20K production equipment, and we are confident that high pressure, high temperature reservoirs remain an important opportunity set going forward as clients look to produce from deeper waters and reservoirs. In Brazil, we were awarded scope for both Subsea production systems and flexibles from Petrobras. Our nearly 70-year legacy in Brazil reflects our deep commitment to the region and highlights our continuing support of Petrobras’ strategic vision. We will draw on our extensive in-country operations to deliver…

Thanks, Doug. Inbound in the quarter was $2.8 billion, driven by $2.5 billion of Subsea orders. Total company backlog increased sequentially to $14.7 billion. Revenue in the quarter was $2.3 billion. EBITDA was $389 million when excluding restructuring, impairment, and other charges, totaling $4 million, and a foreign exchange loss of $3 million. Turning to the segment results. In Subsea, revenue of $2 billion increased modestly versus the second quarter. The revenue increase was driven by higher project activity in Asia Pacific, Latin America and Canada, largely offset by lower activity in the Gulf of Mexico and Norway, following completion of significant project milestones in the second quarter. The increased project activity included higher revenue from flexible pipe in Brazil. Subsea Services activity improved modestly in the period. Adjusted EBITDA was $371 million, with a margin of 18.3%, up 60 basis points from the second quarter. The sequential increase was due to improved earnings mix from backlog and strong project execution in the quarter. In Surface Technologies, revenue was $320 million, and modestly increased sequentially. The revenue improvement was primarily driven by increased project and services activity in the Middle East, partially offset by lower wellhead equipment sales in North America. Adjusted EBITDA was $49 million, up 7% versus the second quarter. The improvement was due to the higher activity in the Middle East and improved execution, partially offset by the lower activity in North America. The Adjusted EBITDA margin was 15.3%, up 80 basis points versus the second quarter. Turning to Corporate and Other Items in the period, corporate expense was $31 million, net interest expense was $16 million, and income tax in the quarter was a benefit of $6 million. Tax expense was significantly below plan due in large part to a net $61 million positive benefit from…

Thank you. And as noted, the floor is open for questions. [Operator Instructions] And your first question comes from the line of Arun Jayaram from JPMorgan. Please go ahead.

Yeah, good morning. My first question is just on the 2025 Subsea outlook which you raised. At the midpoint of the range, your margin guidance implies 250 basis points of margin expansion year-over-year, and over 300 at the top end of the range. I was wondering if you could discuss some of the drivers of the higher margins. In particular, I was wondering if you could provide some insights on the mix of Subsea 2.0, direct awards, integrated projects in 2025, how that mix changes in 2025 versus 2024.

Good morning, Arun. Thank you for the question. And more importantly, thank you for acknowledging the 250 basis point uplift in our guidance. It is quite significant given the performance that we’ve had in already in 2024 versus 2023, and clearly demonstrates the path that we’re on in the success that we’re having. So thank you very much for that. I’ll handle the second part of your question first, and then I’ll pass it over to Alf to add some additional color. Simply stated, there will be more iEPCI and more 2.0 in 2025. And that certainly helps with the quality of the performance of the conversion of those orders from backlog into revenue and profitability. Alf?

Thank you, Doug. And clearly 250 basis points, we are very pleased, obviously, excited about this upgrade to our financial outlook. So a few factors, of course, we remain extremely confident in our inbound order guidance that we have given, the $30 billion over a 3-year period ending in 2025. We are, with this quarter and with prior quarters, demonstrating our ability to convert a higher quality backlog and they are resulting in stronger operating margins. Our execution has been strong and we maintain a relentless focus on industrialization of our business, which I think is reflected in our 2024 performance where clearly we are exceeding the initial guidance. If you look commercially, we have been able to continue to increase our backlog margins on the back of our unique iEPCI capabilities and the 2.0 technology that, clearly, Doug referenced as well being a favorable mix to us. And with shorter cycle times that we are demonstrating for ourselves as well, we are demonstrating value to our clients as well as this translating into improved financial performance for us. So all-in-all, I think these factors really give us the greater confidence, and thus putting forward this revised 2025 Subsea outlook at this point.

Great. My follow-up is judging by some of the commentary in earning seasons thus far from SLB, Baker as well as your results. SURF appears to be one of the strongest parts of the OFS [ph] food chain. But this will include obviously a tightening market for vessels. Doug, I was wondering if you could talk about your thoughts on just managing through a tighter vessel market, because this is one of the recent concerns I’ve heard from the buy side is how is FTI going to execute some of these projects given the sense that the vessel market is quite tight today. I was wondering if you could elaborate on that.

No, Arun, a fair concern by the buy side. And if we were still operating the company as we had historically or others in this space as they still are operating as they were historically, there will be limitations. There is no doubt about it as you are stating the concern that you are hearing from some of your clients and our shareholders. In 2019, we recognized this. And we recognized that business needed to be done differently. And we went from building and relying on our own internal capacity by building out relationships and moving into what we call the vessel ecosystem. This allows us to work together with partners’ vessels to deliver our iEPCI projects. As you know, iEPCI projects are the premium in the market today and quickly becoming the model of choice for our clients, many of which we have converted to go 100% iEPCI, which for us is obviously flattering because it means 100% direct awards. So as a result of that, we can continue to grow that iEPCI offering, as Alf pointed out, creating value for our customers by shortening cycle time or accelerating time to first oil by up to 1-year versus the conventional hardware versus installation contracts being bid and tendered separately. So on those projects, we look at our capacity, we look at the capacity of our partners. We have conversations and we make commitments. And as a result of that, we can continue to grow and have confidence in our ability and our outlook to continue to grow the iEPCI market through our own, utilization of our own assets, as well as through the ecosystem and our partners within the ecosystem.

Great. Thanks a lot, Doug.

Your next question is from the line of Scott Gruber from Citigroup. Please go ahead.

Yes, good morning.

Good morning, Scott.

Hi, good morning. I want to start off, I was looking at your Subsea Opportunities List and couldn’t help but notice that there’s four Petrobras projects that were increased in their scope. So I just want to get some color, those projects getting bigger from a well count perspective, or is there more scope being added from a technology perspective? Some color on what’s driving the award value potential upsizing would be great?

Sure, Scott. A little bit of all will be above. This is the challenge of having kind of ranges. And if something’s near the top end of the range, by the time the FEED work is done, it may very well go a higher or lower. In this case, they obviously ticked higher. I would say there was indeed some changes to scope. Maybe not as much on the well count, but as much more so on the infrastructure and the layout of the field, and this is driven to higher values. And then some of them were just projects that are out in 2026, where we’re just learning more from the FEED activity that’s being conducted today. But indeed, those have grown in value.

That’s great. And just a question on what we’re hearing from the offshore drillers. A lot of questions we’re getting today is around this white space issue for the offshore drillers. And if there’s any read through for FTI in the order cadence that you guys are looking at in 2025. You reiterated confidence in that $30 billion over 3 years. I guess, can you just kind of provide some color on what you’re seeing in the market and kind of why it’s different from the offshore drillers and the white space issue that they’re having?

So, Scott, thank you for bringing this up. This clearly has been a somewhat recent topic within the community. The short answer is no. But let me add a little more color to that. Just got done doing a tour around 3 quarters of the world anyways, visiting with all of our top customers, understanding what they needed from us, as they look at their portfolio for 2025 and 2026, it did not come up one time. I mean, it is simply a non-issue in regards to their expectations from us and for their project FID’s to continue to move forward. And I would say as an accelerated cadence, in no way has it been a slowing or a deferral. And, look, I also want to point out at the risk of being a bit contentious, but this was started by one or two companies. It was never endorsed broadly by not only the drilling community, but certainly the rest of the industry. This is a company specific issue. It is not an industry issue.

Okay. If I could just follow-up real quick, is part of the issue that the offshore rigs are drilling faster? I mean, we’ve heard about that in Guyana, but is that part of kind of what bridges the gap?

Can you repeat that one more time, Scott?

Offshore rig efficiency seems to be improving in certain locations like Guyana. Is that part of what bridges the gap between some extra kind of white space for a few offshore drillers versus the well count and project count that you execute on?

Yeah. Again, Scott, it is not an issue that is being raised by our clients. It is not a concern in terms of the project timing for FID or for the execution of existing projects. And I am pleased to hear that the drilling efficiency is improving, because that fits very well with our strategy which is reducing cycle time for our clients. So we certainly encourage that greater efficiency and we would all mutually benefit from that.

Okay. I appreciate the color, Doug. Thank you.

And your next question is from the line of Kurt Hallead from Benchmark. Your line is open.

Hey, good morning, Doug, everybody.

Good morning, Kurt.

So, Doug, I’m glad you brought up the dynamics of play where you’ve traveled around the globe and met with varying customers. So I want to extend upon that dynamic, right? So there seems to be a disconnect between some short-term concerns about maybe oil demand vis-à-vis oil supply. Yet, the customer base that you’re talking to and you’re dealing with seems to have a more constructive outlook relative to the investor base. So with that as a backdrop, right, when you’re having your conversations with these executives and they’re kind of going through their thought process on executing on their programs, what are you learning from that dynamic in terms of how they’re viewing the demand prospects, supply demand balances, and what’s giving them the conviction to continue to push forward?

So Kurt, and again, this is a generalization which is always difficult to do, because each company – each of our clients is its own specific portfolio, its own opportunities, its own risk profile, et cetera. But I’m going to generalize if you’ll allow me, although again, you can’t apply it across the board to every client. At a high level generalization, there is the understanding that their highest quality reservoirs lie offshore. There is an understanding and strong belief and conviction in what we have delivered to the industry, meaning iEPCI and 2.0, will continue to reduce cycle time. The combination of a quality reservoir and improved efficiency at a broad level, let’s call it efficiency, improved efficiency or accelerated time to first oil very quickly, very quickly makes those project economics extremely attractive. Therefore, the primary conversation we’re having today is our choice, our preference, is iEPCI 2.0 direct award to TechnipFMC. It’s humbling, but that is the conversation. And, therefore, we’re working with our clients and our partners, and certainly those who are prepared to direct award iEPCI 2.0, knowing that that’s going to be the most favorable for the project economics, going forward to ensure that they will have – we will make commitments to them to assure them that they will have our capacity to be able to deliver on those projects. At the end of the day, we want every Subsea project to be extremely successful. That’s what differentiates our company and creates the sustainability for our company is the sustainability of offshore. We don’t think of it as a cycle. We think of it as how do we continuously drive that project economics, Subsea project economics towards continuous improvement. The good thing is, it’s embarrassing to say, but the good thing is we have a lot of runway. We have a lot yet to be done on our side of the equation versus some of the other areas that our clients have access to in terms of just using their capital and other reservoirs outside of Subsea that are quite mature and quite highly efficient already. So, I think that’s what gives them the confidence and the understanding. Also, keep in mind these are longer cycle projects. Although we are trying to shorten them every day by a day, by a day, a week, and a month, the reality of this situation is they are making a bit of a longer-term bet. And, I think that takes out some of the short-term noise that we are hearing in the macro market today.

Yeah. That’s a good context and I appreciate that. So the second thing maybe to follow-up here for either you or Alf is on the increased share repurchase, right? And, obviously, you mentioned you are going to double the distribution shareholders this year. So how do you guys think about the timing of that dynamic? Or are you thinking kind of programmatic share repo opportunistic? And do you have a sense that given what you expect to generate in terms of free cash flow in the 2025 that the bulk of that $1 billion share repo will be exhausted in 2025?

Yes, thank you. Thanks for the question. I will try to tackle this one. So first of all, really the business outlook, the strong cash generation we see ahead is really foundational for this. I mean, obviously, we announced this additional $1 billion authorization this quarter. And, again, as you said, we have announced that we nearly will double this year. And when you kind of put that in context also of the fact that we have said that we will distribute at least 60% of our free cash flow to shareholders. But I just want to put the $1 billion maybe in context. This year, we are nearly doubling, we are implying that we would be buying back shares of around $400 million. But again, our commitment that we also stated very clearly is that we will be growing this going forward. So, I think when you look at that authorization and think about growth, clearly, we look to increase this during upcoming year.

Okay. I appreciate that. Thank you.

And your next question comes from the line of Waqar Syed from ATB Capital Markets. Your line is open.

Thank you. First of all, congrats on a great quarter and for raising guidance. Thank you very much. Doug, my question relates to the Surface business. Some of your larger peers have guided The Street to like low-single-digits to mid-single-digits type upstream spending increase in the international markets in 2025. Now, for your Surface business, do you think that it could grow next year in the same kind of range, or do you have any opportunities for market share gains in Saudi Arabia, because of your new manufacturing setup there?

So, Waqar, thank you very much for acknowledging the performance in the quarter. It’s a reflection of the 22,000 women/men, which were simply humbled and honored here to represent, so thank you for that. And also, thank you for asking around the Surface business. So as far as the international portion of our Surface business, which is the largest portion and very differentiated. We are very differentiated in that marketplace in a very different business than the North America market. We remain optimistic and you summarized it well, so I’ll just try to repeat what you said. There’s the overall market activity, and then there’s the result of our investment and the ramp up of our activity within the region, both within Saudi Arabia as well as in the United Arab Emirates. So we remain very confident in the performance of our international business for those reasons.

And on the same topic as they move towards unconventional gas, does that provide any opportunity for unit price improvement or things like that in the Middle East?

Indeed, more wells, and from our equipment’s perspective, a much higher specification, a much higher specification. So, indeed, it is a positive trend for the business, for the products and services that we provide in Kingdom.

Okay. Great. That’s all from me. Thank you very much.

Your next question is from the line of Marc Bianchi from TD Cowen. Please go ahead.

Hey, thanks. So, it looks like 50% of the backlog in Subsea is scheduled to ship beyond 2025, and I think you said you expect a higher proportion of direct awards during 2025. So, can you help us understand how representative the 2025 margin outlook is for margins in 2026 and beyond?

Sure, Marc. Obviously, when we are looking at opportunities today, as indicated on one of the earlier questions, we do have options, and we are quite selective in supporting those projects that we believe can be the most successful and create the greatest success for our clients. And when we think about direct awards and iEPCI 2.0, we are creating a lot of value for our clients, so they have no problem sharing that value with us. I will let, Alf, add a little additional color.

No, I just want to maybe remind you a couple of things. First, as we look at what we are still taking in as in terms of quality of orders in 2024, pretty much all orders that we are taking in are accretive to our backlog. So that is setting up for future growth in margins as well. I think, we have talked about that we have a portion of legacy projects in our backlog. We have said that is around 10%, 11% at the end of 2025. And, clearly, as we execute that portion of the backlog keeps getting smaller. So, overall, just that relative mix is going to help overall margins going forward.

Right. Okay. Thanks, Alf. Maybe, well, you’ve got the mic, on cash conversion, so you’ve got this tax asset that’s releasing and you’ve got some better EBITDA outlook for 2025. I’m just curious how we should be thinking about conversion of EBITDA out of free cash in light of these updates.

We are not going to give the 2025 free cash flow. We give that guidance for 2025 with our fourth quarter earnings call. But I will, of course, admit that we are expecting growth in free cash flow based on first all the earnings as you point out. But we stand by the 50% free cash flow conversion at this point. And any variability due to tax or anything else will come back to that at the fourth quarter call in February.

Thank you very much.

And our last question today will come from the line of Saurabh Pant from Bank of America. Please go ahead.

Hi. Good morning, Doug and Alf. Doug, if you don’t mind, maybe I would like to start on the flexible side of things, the orders, the project, the opportunities, pretty strong. And we saw that for a couple of your peers. Maybe, Doug, spend a little time on the flexible market. Petrobras is a big opportunity, but other than that, what are the key drivers for that flexible market over the next couple of years?

Good morning, and thank you. An important question and a very important technology for our company. This is a technology that we’ve been a leader in for a very long time. There are just a few players who participate in this space. Historically, it’s been split between, let’s call it, Tier 1 or the high end, and then the commodity. We’ve almost exclusively played in the Tier 1 side, and we’ve had a very significant market presence in the Tier 1 side. And that’s really driven by continuous investment in R&D, not only product technology development. But, more importantly, now very much focusing on the industrialization. Just like with this Subsea 2.0 equipment, where we’ve doubled the cadence through the facility, that’s still an opportunity on the flexible side of the business, where we’re seeing some improvement, but we have additional opportunity which obviously drives much higher returns, because without capital expenditure we can increase capacity. When I think about markets outside of Brazil, and let me pause and say, Brazil is a very important market, and a market that we’ve been the leader and will remain the leader and continue to serve Petrobras and are humbled and privileged and proud to serve Petrobras. But there’s actually a significant market outside of Brazil, and that’s being driven by iEPCI. So we have iEPCI and we have flexible pipe and, therefore, one could conclude that we have a unique ability to be able to design Subsea architecture like no one else has in the industry. And our ability to do that can vastly, vastly simplify the architecture, improve the flexibility, no pun intended, of the layout of the field, and all this results in acceleration of first oil, and much, much greater certainty in the project delivery. When you are welding pipes together and deploying them real time, there is simply risk associated, and there is simply a limit to the efficiency that one can ascertain. There’s just limitations, we break that. We break that issue by being able to change the architecture. So, in the past, I’ve referred to it as the secret ingredient, but this was why the combination of FMC and Technip occurred in the first place. And this is why we created TechnipFMC, because having access to the flexible pipe is clearly the differentiator. So that market outside of Brazil is growing and largely attributed to our iEPCI offering, because keep in mind on an iEPCI project we are the field architect. So we are doing the design years ahead, that’s what we are working on right now, that’s why we have visibility through the end of the decade, because we are working on those projects right now. And, obviously, our ability to be able to leverage that flexible technology in the architecture is a game changer.

Right. Right. That’s fantastic color, Doug. And if I can continue with that point on visibility and switching to the overall backlog in Subsea that you have, Doug, obviously record backlog, right? But, if I just zero in on how you stage that backlog, you give those numbers in the press release. 2025 backlog staging went up by $1 billion, which is very impressive, right, and if we do the numbers it gives you a lot better backlog coverage for next year versus at least the prior 2 to 3 years, right? So if we just talk about everything other than that your backlog rate for the implied revenue guidance of Subsea. How should we think about the book and turn business, the shorter cycle business that you would book and deliver in 2025? How should we think about that in light of the macro uncertainty and any risk associated with that?

No, great observation, it’s one where we are obviously observing to and very proud and excited. As you’re saying we’re de-risking our ability to be able to forecast. Here, we are today giving 2025 guidance. I don’t think other companies are in the position to do that or most are not in a position to do that, because of that visibility that we have in that backlog coverage as you’re referring to that we have. Look, the backlog is growing, the book-to-bill, where we’ve been above a 1.0 for a long time now, so you’re growing that backlog which obviously is the first variable in the equation, and then it’s also the quality of backlog. And then the third is, we’re growing our services business, so when you kind of put those altogether, it’s what gives us the greater coverage and maybe earlier coverage and greater visibility and coverage than we’ve had historically. But this is why we give – we’ve now given you a revenue range for 2025, so we’re trying to take the mystery out of converting backlog to revenue, we’ll just go ahead and we’ll give you the number, so that you can have certainty and if we’re giving the numbers we certainly expect to be able to deliver or we will deliver against those numbers as well, so, but good observation.

That’s fantastic. Okay. Thank you. Thanks for the color. I’ll turn it back.

Thank you all for your questions. I will conclude the Q&A session at this time and hand back over to Matt for closing remarks.

This concludes our conference call. A replay of the call will be available on our website beginning at approximately 3 PM New York time today. If you have any further questions, please feel free to reach out to the Investor Relations team. Thank you for joining us. Pauly, you may now end the call.

Thank you. This does conclude today’s conference call. Thank you all for joining us. You may now disconnect.