TechnipFMC plc — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed March 2, 2020. This is an annual filing, not a standalone Q4 filing. TechnipFMC is a global energy technology and services company reporting Subsea, Onshore/Offshore, and Surface Technologies. The company announced a planned separation of Onshore/Offshore and certain businesses into Technip Energies, then expected in Q2 2020, subject to approvals and market conditions.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $13.409 billion | $12.553 billion |
| Gross margin | 18.3% | 18.2% |
| Net loss attributable to TechnipFMC | $(2.415) billion | $(1.922) billion |
| Basic and diluted EPS | $(5.39) | $(4.20) |
| Operating cash flow | $848.5 million | $(185.4) million |
| Capital expenditures | $454.4 million | $368.1 million |
| Cash and cash equivalents | $5.190 billion | $5.540 billion |
| Total borrowings | $4.475 billion | $4.192 billion |
| Net cash, company-defined non-GAAP measure | $714.8 million | $1.348 billion |
| Order backlog | $24.251 billion | $14.560 billion |
Revenue increased 6.8%, while the reported net loss widened. Reported operating loss was $1.685 billion, versus $1.127 billion in 2018. Results included $2.484 billion of impairment charges, including $1.989 billion of goodwill impairment and $495.4 million of long-lived asset impairment. Adjusted operating profit, excluding specified charges and credits, was $1.054 billion (7.9% margin); adjusted EBITDA was $1.529 billion (11.4% margin). These are non-GAAP measures.
Cash from operations improved by $1.034 billion year over year. Management said 65.9% of annual operating cash flow occurred in Q4, primarily due to timing of project milestones and vendor payments. Current assets were $11.886 billion and current liabilities $10.138 billion. The $2.5 billion revolving facility had $533 million of unused capacity at year-end; the company reported compliance with its covenants.
Segments and changes versus prior year
- Subsea: Revenue rose 14% to $5.523 billion. Reported operating loss was $1.448 billion, including $1.799 billion of impairment and other charges; adjusted operating profit was $338.5 million. Integrated project awards more than doubled, and Subsea inbound orders increased more than 50%.
- Onshore/Offshore: Revenue rose 2% to $6.269 billion. Operating profit increased 16% to $959.6 million, with margin rising to 15.3% from 13.5%, helped by execution and Yamal LNG milestones. Yamal LNG revenue was a significant customer concentration: JSC Yamal LNG represented more than 10% of consolidated revenue in 2019.
- Surface Technologies: Revenue rose 2% to $1.617 billion, but reported operating loss was $656.1 million, including $704.2 million of impairment, restructuring and other charges. North American drilling and completion weakness weighed on demand; international activity supported revenue.
Total inbound orders increased to $22.693 billion from $14.291 billion. Backlog rose by 66.6% to $24.251 billion, with $11.500 billion expected to be recognized in 2020. Backlog is an estimate of unfilled confirmed orders and remains exposed to execution, timing, and cancellation risks.
Outlook, risks, contingencies and unusual items
- Management expected Subsea Services to achieve double-digit growth in 2020; total Subsea orders were expected to approach 2019 levels, depending in part on the timing of one or two major awards.
- Surface Technologies management expected North American activity to remain near Q4 2019 levels in early 2020 and gradually improve later in the year; the filing cited a projected 4%–5% increase in rig count and wells drilled. These expectations were sensitive to commodity prices and customer spending.
- Management expected about $450 million of 2020 capital expenditures. The filing cautioned that this excluded contingent spending that might be required for contract awards.
- A $423.1 million 2019 expense arose from revaluing the mandatorily redeemable financial liability associated with noncontrolling interests in Yamal-related entities; it was recorded in interest expense. Net interest expense was $451.3 million, compared with $360.9 million in 2018.
- The company announced a $301.3 million global resolution of anti-corruption investigations in 2019, including a three-year DOJ deferred prosecution agreement and reporting obligations. A separate French PNF investigation remained unresolved; the company retained a $70 million provision and warned a settlement could exceed it.
- A shareholder securities action remained pending on a Section 11 claim seeking unspecified damages. Management said other ordinary-course legal matters were not expected to materially affect consolidated results, but outcomes were uncertain.
- Key risks include volatile oil and gas prices and customer capital spending, competitive pricing, fixed-price project cost overruns and delays, supplier and joint-venture performance, foreign-exchange exposure, debt and refinancing, regulation and climate-related changes, cyber and data risks, and completion and execution risks for the proposed separation.
- The company reported that previously disclosed material weaknesses in period-end financial reporting and income-tax controls were remediated by year-end 2019. Management and the auditor concluded internal control over financial reporting was effective at December 31, 2019.
Investor verification priorities
- Review the impairment assumptions and any further impairment exposure, especially for Subsea and Surface Technologies.
- Assess the sustainability and timing of operating cash flow, given the concentration of 2019 cash generation in Q4 and project milestone timing.
- Track backlog conversion, cancellations, margins, and the timing of major Subsea awards; reconcile backlog with future revenue expectations.
- Verify the separation’s approvals, final structure, costs, timing, and allocation of liabilities and cash flows.
- Monitor the remaining PNF investigation, the $70 million provision, and compliance obligations under the anti-corruption resolutions.
- Review commercial-paper reliance, debt maturities, revolving-credit availability and covenants, and the Yamal-related redeemable liability.