TechnipFMC plc — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Figures are in U.S. dollars. The February 2021 spin-off of Technip Energies substantially changed the company’s scope; prior-period comparisons include Technip Energies in discontinued operations and are not fully comparable.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,579.4m | $1,727.5m | $4,880.2m | $4,930.3m |
| Income (loss) from continuing operations attributable to TechnipFMC | $(40.6)m | $(64.7)m | $215.0m | $(3,477.1)m |
| Net income (loss) attributable to TechnipFMC, including discontinued operations | $(32.2)m | $(3.9)m | $169.0m | $(3,248.3)m |
| Diluted EPS, total | $(0.07) | $(0.01) | $0.37 | $(7.24) |
Q3 revenue fell 8.6% year over year, mainly because of lower Subsea activity in the Gulf of Mexico and North Sea; Surface Technologies revenue grew on stronger North American activity and iComplete adoption. Gross profit margin improved to 13.6% from 12.1%. Segment operating profit was $35.6m, versus $13.3m; GAAP income before interest and taxes was $28.6m, versus a $26.6m loss. Adjusted operating profit was $44.1m and adjusted EBITDA was $140.6m; these are non-GAAP measures.
For the first nine months, revenue decreased 1.0%. Continuing-operations income included $351.8m of income from the Technip Energies investment; excluding specified charges and credits, the company reported an adjusted operating loss of $65.5m and adjusted diluted loss per share of $0.14. The large year-over-year improvement in GAAP results also reflects $3.36bn of impairment, restructuring and other expense in the 2020 comparison period, principally goodwill impairment.
Cash flow and liquidity: Nine-month operating cash flow from continuing operations was $231.5m, down from $289.7m. Continuing-operations investing activities provided $759.8m, including $784.5m of proceeds from Technip Energies share sales; continuing-operations financing activities used $1,189.3m, primarily reflecting debt repayments. Capital expenditures were $131.2m. Cash at September 30 was $1,034.0m; total debt was $2,255.8m, producing reported net debt of $1,221.8m. The $1.0bn revolving facility had $927.1m available after letters of credit.
Compared with December 31, 2020, cash declined from $1,269.2m and net debt improved from $2,191.0m. Total debt fell from $3,460.2m. Current assets were $5,597.2m and current liabilities $3,690.9m; balance-sheet comparisons are affected by the spin-off and removal of Technip Energies’ assets and liabilities.
Segments, orders and material developments
- Subsea: Q3 revenue was $1,312.1m, down 12.6%; operating profit was $23.5m, up from $20.3m. Nine-month revenue was down 1.0% to $4,092.9m, while operating profit was $132.9m versus a prior-year loss that included substantial impairments.
- Surface Technologies: Q3 revenue rose 18.4% to $267.3m and operating profit improved to $12.1m from a $7.0m loss. Nine-month revenue was $787.3m, down 1.2%; operating profit was $33.2m versus a prior-year loss heavily affected by impairments.
- Q3 inbound orders totaled $1,365.9m; nine-month orders were $4,647.5m, up from $4,051.8m. September 30 backlog was $7,002.4m, down from $7,289.5m at year-end. Subsea accounted for $6,661.4m. The filing also reports $621.7m of non-consolidated Subsea backlog.
- The company sold portions of its Technip Energies stake during 2021 and held 17.1% at September 30. Its remaining investment was carried at $485.3m; related fair-value gains and sale discounts contributed to reported earnings. Management said it planned an orderly exit within a year and expected to use proceeds to reduce leverage.
- In September, the company repurchased $164.1m of its 6.50% senior notes due 2026, paying a $12.3m premium and recording a $16.0m Q3 loss on early debt extinguishment. It acquired a further $2.8m of notes in October.
Outlook, risks and contingencies
Management described the oil-market outlook as improving, citing stronger activity, oil prices and customer confidence. It expected 2021 Subsea inbound orders to exceed the prior-year $4bn, noting $3.9bn received in the first nine months, and said orders over the following five quarters could approach $7bn. Management anticipated stronger project activity in Brazil and expected at least 60% of projects then undergoing studies with TechnipFMC to include its iEPCI solution. For Surface Technologies, management expected international markets to remain comparatively resilient and approximately 65% of full-year 2021 segment revenue to come from international markets. Estimated 2021 capital expenditures were approximately $250m, excluding contingent spending tied to contract awards.
Risks include oil and gas demand and price volatility, COVID-19 effects, fixed-price project execution and cost risks, reliance on suppliers and partners, cybersecurity, regulation, and the ability to deliver backlog. The company maintained a $70m provision for unresolved French anti-corruption authority matters involving historical projects; the ultimate settlement could exceed the provision, and proceedings or sanctions could materially affect results or financial condition. Performance guarantees had a maximum potential undiscounted amount of $1,112.2m; management did not expect known contingencies to materially harm the company.
Other unusual items include a $36.7m impairment of the Magma Global equity-method investment in Q3, followed by the October acquisition of the remaining interest for $64m payable in installments. Management cautioned that the outlook statements are forward-looking and subject to risks and uncertainty.
Important facts for investors to verify
- How much of reported nine-month earnings depended on Technip Energies investment revaluation and share-sale accounting, and how results look excluding those effects.
- Whether Subsea order momentum converts into revenue and cash flow, given the $7.0bn backlog and project timing risks.
- Cash conversion and working-capital trends, particularly the increase in contract assets and the reduction in contract liabilities.
- Debt reduction plans, interest costs, facility availability and the intended timing and proceeds of the remaining Technip Energies stake sale.
- Outcome and potential financial exposure of the French anti-corruption investigation, including matters beyond the existing $70m provision.