TechnipFMC plc — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unless noted, amounts are in U.S. dollars. The company reports Subsea and Surface Technologies; Technip Energies is presented as discontinued operations following its 2021 spin-off.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.733 billion | $1.579 billion | $5.006 billion | $4.880 billion |
| Gross margin | 14.9% | 13.6% | 13.6% | 13.0% |
| Income (loss) attributable to TechnipFMC | $(10.3) million | $(32.2) million | $(69.9) million | $169.0 million |
| Continuing-operations EPS attributable to TechnipFMC | $0.01 | $(0.09) | $(0.08) | $0.48 |
| Operating cash flow, continuing operations | Not stated for quarter | Not stated for quarter | $(214.3) million | $231.5 million |
- Q3 revenue grew 9.7% year over year. Subsea revenue rose 7.8% to $1.415 billion and segment operating profit increased to $105.0 million from $23.5 million. Surface Technologies revenue increased 19.0% to $318.0 million and segment operating profit rose to $19.0 million from $12.1 million.
- For the first nine months, Subsea operating profit increased to $256.1 million from $132.9 million, while Surface Technologies operating profit was $32.7 million versus $33.2 million. Company gross margin improved, with the filing attributing Subsea improvement to stronger backlog margins and installation and services activity.
- The nine-month attributable net loss included a $27.7 million loss on the Technip Energies investment, $29.8 million of debt-extinguishment losses, and $34.7 million of discontinued-operations losses. The 2021 comparison included $351.8 million of income from the Technip Energies investment, making the year-over-year net-income comparison less indicative of underlying operations.
- Cash and equivalents were $711.5 million at September 30, down from $1.327 billion at December 31, 2021. Total debt was $1.367 billion, down from $2.005 billion; the company reported net cash of $655.3 million (its non-GAAP net debt measure was $(655.3) million). Revolver availability was $804.6 million.
- Nine-month cash used in continuing operating activities was $214.3 million, primarily reflecting project milestone timing, inventory/vendor payments, derivative movements and tax-refund timing. Investing activities provided $213.3 million, including $288.5 million of proceeds from Technip Energies share sales; financing activities used $626.8 million, including debt repayments and share repurchases.
- Current assets were $4.759 billion and current liabilities $3.739 billion. Contract liabilities fell to $711.1 million from $1.013 billion at year-end, while contract assets rose to $1.024 billion.
Material changes and business activity
- Nine-month inbound orders increased to $6.237 billion from $4.648 billion. Subsea orders were $5.222 billion versus $3.926 billion; Surface Technologies orders were $1.014 billion versus $721.4 million.
- Order backlog was $8.841 billion at September 30, up from $7.658 billion at December 31, 2021. Approximately 14.2% was expected to be recognized through the remainder of 2022 and 85.8% thereafter. Subsea backlog was $7.603 billion; Surface Technologies backlog was $1.238 billion.
- The company fully divested its remaining Technip Energies ownership before June 30, 2022. It repurchased and cancelled 5.8 million ordinary shares in Q3 for $50.1 million under a $400 million authorization; $349.9 million of authorization remained at quarter-end.
- During the first nine months, the company tendered for and purchased $430.2 million of its 2026 senior notes, paying a $21.5 million premium and recording debt-extinguishment costs. Long-term debt declined materially, and interest expense was lower year over year.
Outlook, risks and contingencies
- Management described a multi-year energy-demand upcycle and expects increased oil and gas investment over the intermediate term, with strong inbound orders through at least 2025. It forecast Subsea 2022 inbound orders approaching $7 billion, up as much as 40% year over year, and at least $9 billion over the following five quarters. These are management expectations, not guaranteed results.
- The company said industry Subsea tree awards could exceed 350 in 2022. It cited opportunities in Brazil and Guyana and expected tie-back growth in the North Sea, Gulf of Mexico and West Africa. It also highlighted offshore floating renewables, hydrogen and greenhouse-gas removal as energy-transition priorities.
- 2022 capital expenditure expectations were reduced by $50 million to approximately $180 million, mainly due to vessel recertification timing; this excludes possible capital required for new contract awards. Management said liquidity should meet requirements and planned cash needs for the next 12 months.
- Management cited inflation, logistics bottlenecks, commodity and supply-route disruption related to the Russia-Ukraine conflict, and foreign-exchange exposure. Other disclosed risks include oil and gas demand and pricing, fixed-price contract execution, cost overruns, supplier and partner dependence, backlog delivery, and regulatory and geopolitical uncertainty.
- The unresolved French PNF anti-corruption investigation carries a $70 million provision; a settlement could exceed that amount, and the company cannot assure a resolution. PNF has also raised questions about historical projects in Angola. The company warned that penalties, proceedings or customer reaction could materially affect its business and financial results.
- Maximum potential undiscounted payments under financial and performance guarantees were $1.627 billion. Management said it did not expect these guarantees or known ordinary-course legal and tax matters to have a material adverse effect. The filing also reports a high effective tax rate—80.0% for Q3 and 121.0% for the nine-month period—primarily due to the geographic mix of profits.
Important facts for investors to verify
- Whether Subsea order momentum converts to revenue and margin, and whether the stated 2022 and five-quarter order expectations are achieved.
- Whether operating cash flow recovers from the nine-month outflow and how project milestones, contract assets and contract liabilities affect cash conversion.
- Progress on debt reduction, available revolver capacity, share repurchases and the company’s ability to maintain liquidity as cash balances decline.
- The ultimate outcome and potential financial exposure from the PNF investigation, including whether any settlement exceeds the $70 million provision.
- Whether inflation, logistics and foreign-exchange effects pressure product costs, contract execution and reported margins; also monitor the unusually high effective tax rate.