Technipfmc Plc quarterly report, Q2 FY2023

TechnipFMC plc — Q2 2023 Form 10-Q

Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in U.S. dollars unless noted. TechnipFMC provides subsea and surface technologies, products and services to the energy industry.

Financial and operating performance

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue	$1,972.2 million	$1,717.2 million	$3,689.6 million	$3,273.0 million
Gross margin	16.8%	13.9%	14.9%	13.0%
Net income (loss) attributable to TechnipFMC	$(87.2) million	$2.1 million	$(86.8) million	$(59.6) million
Diluted loss per share	$(0.20)	$0.00	$(0.20)	$(0.13)
Cash from operating activities	Not separately stated for the quarter	Not separately stated for the quarter	$(230.0) million	$(426.3) million

Q2 segment revenue and operating profit: Subsea $1,618.4 million and $153.4 million, respectively, versus $1,414.6 million and $97.1 million a year earlier; Surface Technologies $353.8 million and $25.7 million, versus $302.6 million and $10.0 million. Segment operating margins were 9.5% and 7.3%, respectively.
For the first half, Subsea revenue was $3,006.0 million and operating profit $220.2 million; Surface Technologies revenue was $683.6 million and operating profit $48.1 million. Both businesses improved operating profit and margins year over year.
Q2 corporate expense was $153.5 million, including a $126.5 million non-recurring legal settlement charge. Other expense also reflected a $48.3 million foreign-exchange loss, primarily related to Angolan kwanza exposure. These items contributed to the quarterly pretax loss of $53.0 million and net loss.
Income tax expense was $43.3 million in Q2 and $80.7 million for the first half despite pretax losses. Management cited losses in jurisdictions with full valuation allowances and changes in geographic profit mix and discrete items.
Cash and cash equivalents were $585.2 million at June 30, down from $1,057.1 million at year-end 2022. Total debt was $1,429.2 million, including $429.5 million classified as short-term/current and $999.7 million long-term. Debt exceeded cash by $844.0 million; the filing’s net-debt reconciliation presents this amount as $(844.0) million under its sign convention.
Current assets were $5,242.1 million and current liabilities $4,438.0 million at June 30. The company reported $1,200.0 million available under its amended revolving credit facility and was in compliance with debt covenants.
First-half investing cash outflow was $79.4 million, including $110.1 million in capital expenditures. Financing cash outflow was $141.8 million and included $100.0 million of share repurchases. Operating cash use improved from the prior-year period, mainly due to timing of project milestones, vendor payments and derivative balances.

Material changes and business activity

Revenue rose 14.8% in Q2 and 12.7% in the first half. Management attributed growth primarily to higher Subsea project and installation activity and greater Surface Technologies activity in North America and the Middle East.
Q2 gross margin increased to 16.8% from 13.9%; management cited improved Subsea backlog margins and installation and services activity, alongside increased Surface Technologies volumes and North American pricing.
First-half inbound orders were $7.3 billion, including $6.7 billion in Subsea. Q2 inbound orders were $4.45 billion. Order backlog reached $13.28 billion at June 30, up from $9.35 billion at December 31, 2022, driven mainly by Subsea.
Contract assets increased to $1,266.5 million from $981.6 million at year-end, which the company attributed to project milestone timing. Contract liabilities increased to $1,219.0 million from $1,156.4 million.
First-half share repurchases totaled $100.0 million. At June 30, $199.8 million remained under the then-current $400 million authorization.

Outlook, risks and unusual items

Management described energy demand and offshore investment trends as supportive of a multi-year growth cycle, while noting recession risks from higher interest rates and constrained credit. It expects international, offshore and Middle East activity to support growth.
The company expects full-year 2023 Subsea orders of approximately $9 billion, up 34% year over year, and Subsea Services revenue of $1.3 billion. Management expects direct awards, iEPCI and Subsea Services to represent more than 70% of 2023 inbound orders.
Management estimated 2023 capital expenditures at approximately $250 million, excluding contingent spending that may be required for contract awards. It stated that liquidity and capital spending can be managed through the cycle.
The company recorded a $126.5 million incremental charge for a French anti-corruption investigation resolution. Its share of the total CJIP fine is €179.45 million, payable in installments through July 2024; the balance-sheet provision was $195.0 million at June 30. The resolution does not involve an admission of liability or guilt. The company said U.S. and Brazilian enforcement obligations had been completed.
Other risks include fixed-price project execution and delivery, customer and supplier performance, currency exposure, commodity and energy-market conditions, legal and tax disputes, and reliance on joint ventures. Performance guarantees were $1,710.9 million at June 30; the company said it did not expect guarantees or known contingencies to materially harm its financial position or results.
A fire occurred aboard the Skandi Buzios vessel, owned by an equity-method joint venture, in June. No serious injuries were reported; the company said investigations and efforts to return the vessel to service were ongoing and recorded no impairment.
Subsequent to quarter-end, the board declared a $0.05-per-share quarterly dividend and authorized an additional $400 million in repurchases, increasing total authorization to $800 million. The filing states $200 million had been completed and $600 million remained under the expanded authorization.

Most important facts for investors to verify

How much of reported earnings pressure is attributable to the $126.5 million legal charge, foreign-exchange losses and unusually high tax expense, and how recurring are these factors?
Whether the strong Subsea order intake and $13.28 billion backlog convert to revenue and cash on schedule, given rising contract assets and first-half operating cash outflow.
Cash needs and repayment or refinancing plans for $429.5 million of current debt, including the $276.8 million of 2013 private placement notes due 2023.
Timing and cash impact of the company’s €179.45 million share of the French settlement, payable through July 2024.
Execution of the $9 billion Subsea order outlook, $1.3 billion Subsea Services revenue expectation, and approximately $250 million capital-spending estimate.
Progress toward the announced dividend and expanded share-repurchase program, alongside maintaining liquidity and leverage.