TechnipFMC plc — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. TechnipFMC reports Subsea and Surface Technologies. 2021 comparisons reflect continuing operations following the February 2021 Technip Energies spin-off.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $1,717.2 | $1,668.8 | $3,273.0 | $3,300.8 |
| Gross margin | 13.9% | 13.6% | 13.0% | 12.6% |
| Income (loss) attributable to TechnipFMC | $2.1 | $(167.0) | $(59.6) | $201.2 |
| Diluted earnings (loss) per share | $0.00 | $(0.37) | $(0.13) | $0.44 |
| Operating cash flow | Not separately stated | Not separately stated | $(426.3) | $95.6 |
Q2 revenue rose 2.9% year over year, while first-half revenue declined 0.8%. Subsea’s Q2 revenue increased 1.5% and segment operating margin improved to 6.9% from 5.2%; Surface Technologies revenue rose 10.2%, but its margin fell to 3.3% from 4.7%, primarily due to the Saudi Arabia facility transition. For the first half, Subsea revenue declined 2.8% but margin rose to 5.6% from 3.9%; Surface Technologies revenue increased 9.5%, with margin down to 2.4% from 4.1%.
Q2’s return to a small GAAP profit compares with a large prior-year loss, which included a $146.8 million loss on the Technip Energies investment. First-half 2022 results included a $27.7 million loss on that investment, while first-half 2021 included $323.3 million of investment income. Adjusted operating profit, a non-GAAP measure, was $92.5 million for Q2 versus $46.3 million, and $150.1 million for the first half versus $116.3 million. Adjusted diluted EPS was $0.02 for Q2 versus $(0.06), and $(0.01) for the first half versus $(0.09).
Cash, debt and liquidity
- Cash and equivalents were $684.9 million at June 30, down from $1,327.4 million at December 31, 2021. Continuing-operations operating activities used $426.3 million in the first half; management cited project and inventory payment timing, derivatives and timing of tax refunds.
- Total debt was $1,474.7 million, compared with $2,004.9 million at year-end. Debt less cash was $789.8 million, versus $677.5 million at year-end, as the cash balance declined.
- The $1.0 billion revolving credit facility had $784.6 million available, after $170.0 million of borrowings and $45.4 million of letters of credit. The company reported compliance with debt covenants.
- Investing activities provided $229.5 million in the first half, including $288.5 million of proceeds from Technip Energies share sales; capital expenditures were $63.4 million.
Orders, outlook and material developments
- Order backlog reached $9.04 billion at June 30, up from $7.66 billion at year-end; approximately 26% was expected to convert to revenue through 2022. First-half inbound orders were $4.39 billion, including $3.82 billion in Subsea orders.
- Management raised its full-year Subsea order expectation to as much as 40% growth year over year, with orders approaching $7 billion. It cited strong first-half orders and expects industry subsea tree awards to exceed 350 for 2022. These are outlook statements, not guarantees.
- Management described a multi-year energy-demand upcycle and anticipated stronger conventional offshore activity, while also pursuing offshore renewables, hydrogen and greenhouse-gas removal opportunities. It noted inflation, logistics bottlenecks and disruption to commodities and supply routes following Russia’s invasion of Ukraine.
- Estimated 2022 capital expenditures were approximately $230 million, excluding potential contingent spending tied to contract awards. Management said liquidity was expected to exceed requirements for the next 12 months.
- The company fully divested its remaining Technip Energies ownership during the first half. It repurchased $430.2 million of 2026 senior notes, paid a $21.5 million premium and recorded a $29.8 million debt-extinguishment loss. It also recorded $8.2 million of first-half impairment, restructuring and other expenses, primarily related to exiting Russia.
- After quarter-end, the board authorized a share repurchase program of up to $400 million, announced July 27, 2022.
Risks, contingencies and unusual reporting items
- The French Parquet National Financier investigation into historical projects in Equatorial Guinea and Ghana remains unresolved; the company maintains a $70 million provision. The authority is also reviewing historical Angola projects. A settlement could exceed the provision, and criminal proceedings or sanctions could materially affect the business.
- Outstanding financial and performance guarantees had maximum potential undiscounted payments of $1.24 billion. Management did not expect known guarantees or other ordinary-course legal and tax matters to materially adversely affect the company.
- Foreign-exchange hedging produced a $65.7 million accumulated loss at June 30; approximately $32.9 million was expected to be reclassified to earnings over the next 12 months as forecast transactions occur.
- First-half 2022 included a $19.4 million tax expense from discontinued operations related to a revised estimate of French tax liabilities associated with the spin-off. The company also revised the presentation of certain first-half 2021 discontinued-operations cash-flow items, concluding the prior error was not material to previously issued statements.
- Effective tax rates were unusually high: 71.7% for Q2 and 221.6% for the first half, which management attributed mainly to losses in jurisdictions with full valuation allowances and changes in geographic profit mix.
Key facts for investors to verify
- Whether the Subsea order outlook and backlog convert to revenue on schedule and at expected margins.
- Drivers of the operating cash outflow and whether working-capital timing reverses in subsequent periods.
- Progress and costs associated with the Saudi facility transition, Russia exit and inflation/logistics pressures.
- Any change in the French investigation, the $70 million provision, or potential exposure beyond that accrual.
- Debt, cash and revolver availability after note repurchases, and the use and timing of the newly authorized $400 million buyback.