TechnipFMC plc — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts are in U.S. dollars; financial figures are in millions unless stated otherwise. TechnipFMC provides subsea, onshore/offshore (reported as Technip Energies), and surface technologies products and services, primarily to the oil and gas industry.
Financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $3,158.5 | $3,434.2 | $6,288.8 | $6,347.2 |
| Gross margin | 16.4% | 20.1% | 15.0% | 18.8% |
| Income (loss) attributable to TechnipFMC | $11.7 | $97.0 | $(3,244.4) | $117.9 |
| Diluted EPS | $0.03 | $0.21 | $(7.24) | $0.26 |
| Operating cash flow | Not separately provided | Not separately provided | $(66.0) | $195.5 |
Q2 revenue declined 8.0% year over year; lower Surface Technologies activity and foreign-exchange effects on Subsea revenue were important factors. GAAP Q2 operating profit before interest and taxes was $107.4 million, versus $255.2 million, and net income attributable to TechnipFMC fell 87.9%. For the first half, the reported loss was primarily driven by $3,221.7 million of impairment charges, including $3,083.4 million of goodwill impairments. The company reported adjusted operating profit of $242.8 million and adjusted EBITDA of $461.3 million for the first half; these are non-GAAP measures.
Segments and backlog
- Subsea: Q2 revenue was $1,378.5 million, down 8.6%; segment operating loss was $75.6 million, including impairment, restructuring, and other charges. Excluding foreign-exchange effects, revenue was flat year over year.
- Technip Energies: Q2 revenue was $1,538.3 million, up 2.2%; operating profit was $231.3 million, down from $274.0 million. Results included a $113.2 million litigation settlement; lower Yamal LNG contribution and early-stage project margins weighed on profit.
- Surface Technologies: Q2 revenue was $241.7 million, down 42.5%, and segment operating loss was $13.4 million, reflecting sharp North American activity declines.
- Order backlog was $20.6 billion at June 30, down from $24.3 billion at year-end 2019. Q2 inbound orders were $1.5 billion versus $11.2 billion a year earlier, when large awards substantially boosted the comparison. Management said no backlog projects were canceled during the period; some execution schedules were affected by COVID-19.
Cash, debt, and liquidity
- Cash and equivalents were $4,809.5 million, versus $5,190.2 million at December 31, 2019. Total debt was $4,507.0 million; reported net cash, a non-GAAP measure, was $302.5 million, down from $714.8 million.
- First-half operating cash flow was negative $66.0 million; capital expenditures were $177.7 million. Cash decreased $380.7 million over the period.
- The company had $1,040.5 million of unused capacity under its $2.5 billion revolving credit facility and reported compliance with credit-facility covenants at quarter-end. It also established a €500 million revolving facility and a U.K. COVID Corporate Financing Facility commercial-paper program.
- First-half dividend payments were $59.2 million. The $0.13-per-share payment in April fulfilled the revised annual 2020 dividend; share repurchases were suspended during the first half.
Outlook, risks, and unusual items
- Management expected 2020 free cash flow to be between cash-flow neutral and $150 million, and capital expenditures of approximately $300 million, more than 30% below prior expectations. It targeted more than $350 million in annualized cost savings by year-end.
- Management expected some COVID-19-related operational disruption to continue in the second half. Pandemic effects included supply-chain and logistics constraints, reduced productivity, and lower customer spending amid oil-market weakness. Management also cited possible further impairments or restructuring if market conditions deteriorated.
- The planned Technip Energies separation was postponed until markets sufficiently recover. Completion remains subject to market conditions, regulatory approvals, employee consultations where applicable, and final Board approval.
- The company maintained a $70 million provision for an unresolved French anti-corruption investigation. A settlement could exceed the provision; the filing states that a resolution is not certain. The company also disclosed a pending shareholder securities claim seeking unspecified damages.
- Other significant items included $140.3 million of Q2 impairment, restructuring, and other charges, including $56.4 million of direct COVID-19 costs and $50.2 million of restructuring and severance charges. Contract estimates positively affected operating results by approximately $96.7 million in Q2, according to management.
Important facts for investors to verify
- Whether management achieves its free-cash-flow range, cost-savings target, and reduced capital-spending plan.
- Whether oil-market conditions and customer investment recover, and how that affects orders, backlog conversion, and project timing.
- Whether additional impairments, restructuring costs, or COVID-19 disruption arise, and whether reported results excluding charges reflect sustainable performance.
- Whether the Technip Energies separation proceeds and what its timing and financing implications would be.
- Whether the French investigation is resolved within the existing provision, and whether liquidity and covenant headroom remain adequate.