TechnipFMC plc — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited consolidated financial statements prepared under U.S. GAAP. Amounts are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and results
TechnipFMC operates through Subsea, Technip Energies, and Surface Technologies. Results were affected by COVID-19 disruption, lower oil prices and customer spending, particularly in North America. The planned separation and spin-off of Technip Energies was postponed until markets sufficiently recover.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $3,335.7 | $3,335.1 | $9,624.5 | $9,682.3 |
| Gross margin | 13.8% | 18.3% | 14.6% | 18.6% |
| Net income (loss) attributable to TechnipFMC | $(3.9) | $(119.1) | $(3,248.3) | $(1.2) |
| Reported diluted EPS | $(0.01) | $(0.27) | $(7.24) | — |
| Operating cash flow | Not separately stated | Not separately stated | $102.1 | $289.4 |
| Capital expenditures | Not separately stated | Not separately stated | $250.8 | $368.4 |
Q3 adjusted diluted EPS, a non-GAAP measure, was $0.16, versus $0.12 a year earlier. Nine-month adjusted diluted EPS was $0.15 versus $0.57. The company reported a nine-month GAAP operating loss of $2,907.6 and adjusted operating profit of $455.5; adjusted EBITDA was $782.5.
Financial position and liquidity
- Cash and cash equivalents were $4,244.0 at September 30, down from $5,190.2 at December 31, 2019. Total debt was $3,860.2, producing reported net cash of $383.8, down from $714.8.
- Current assets were $11,034.1 and current liabilities were $10,017.2. The balance sheet showed total equity of $4,233.7, down from $7,688.1 at year-end.
- Nine-month cash decreased by $946.2. Operating cash flow was $102.1; investing activities used $212.4 and financing activities used $911.8.
- The company had $1,762.2 of unused capacity under its $2.5 billion revolving credit facility and reported compliance with credit-facility covenants. It also had a €500 million revolving facility with no borrowings at quarter-end.
Material changes and unusual items
- Nine-month impairment, restructuring and other expenses totaled $3,440.7, including $3,083.4 of goodwill impairment and $169.6 of long-lived asset impairment. Goodwill in Subsea and Surface Technologies was fully impaired; the charges drove the large reported loss.
- Q3 segment revenue and operating profit (loss): Subsea $1,501.8 and $20.3; Technip Energies $1,608.2 and $129.5; Surface Technologies $225.7 and $(7.0). Subsea revenue grew 11.9% year over year; Surface Technologies revenue fell 43.1%.
- Nine-month inbound orders were $5,861.0, compared with $19,974.6 in 2019. Backlog was $19,646.1, down from $24,251.1 at December 31, 2019. Management said no major backlog project cancellations occurred during the period.
- Technip Energies’ nine-month revenue included a $113.2 litigation settlement benefit. Changes in contract estimates increased operating results by approximately $165.1 in Q3 and $340.0 for the nine-month period.
Outlook, risks and contingencies
- Management expected 2020 capital expenditures of approximately $300 million, more than 30% below its prior expectation, and targeted free cash flow between cash-flow neutral and $150 million. The filing states confidence in full-year segment guidance but does not provide specific segment guidance figures here.
- Cost initiatives were expected to generate annualized savings above $350 million; management said the targeted run rate was achieved in Q3. The 2020 dividend was reduced to $0.13 per share, paid in April, completing the year’s distribution. Management intended to resume quarterly dividend payments in April 2021.
- Management described continuing pandemic-related supply-chain, productivity and logistics disruption, with some disruption expected through year-end. Lower oil prices and customer capital-spending reductions could weigh on orders, project timing and future results. Further restructuring and impairment charges were possible if conditions deteriorated.
- The Technip Energies separation remained subject to market conditions, regulatory approvals, employee consultation where applicable, and final Board approval. Its completion had been postponed.
- The unresolved French anti-corruption investigation concerning historical projects in Ghana and Equatorial Guinea had a $70.0 provision; a settlement could exceed that amount, and criminal proceedings remained possible if no resolution is reached.
- Performance and financial guarantees had maximum potential undiscounted payments of $5,616.6; management did not expect them to result in a material adverse effect. A shareholder securities claim and other ordinary-course disputes were also pending; outcomes were uncertain.
- Subsequent to quarter-end, TechnipFMC signed a memorandum with McPhy Energy and agreed to invest €15 million for a 2.29% stake, subject to the disclosed share-subscription arrangements.
Important facts for investors to verify
- Whether the stated free-cash-flow range and approximately $300 million capex outlook were achieved, and how working capital affected cash generation.
- Whether order intake and backlog stabilized or recovered, especially in Subsea and Technip Energies, and whether backlog converted on expected schedules.
- How much of the $3.1 billion goodwill impairment and other exceptional charges is nonrecurring, and whether additional impairments or restructuring costs arise.
- Progress and final terms of the proposed Technip Energies separation, including any effects on debt, liquidity, ratings and shareholder distributions.
- Resolution and potential exposure from the French anti-corruption investigation, including whether any settlement exceeds the $70 million provision.
- Whether pandemic disruption, lower customer spending, contract estimates and project execution materially affect margins and cash flow.