TechnipFMC plc — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company provides subsea and surface technologies for energy markets and reports two segments: Subsea and Surface Technologies. Comparisons are with Q1 2021; that period included Technip Energies results before its February 2021 spin-off.
Financial results and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $1,555.8 million | $1,632.0 million |
| Gross profit margin | 11.9% | 11.7% |
| Income (loss) from continuing operations attributable to TechnipFMC | $(42.3) million | $430.3 million |
| Net income (loss) attributable to TechnipFMC | $(61.7) million | $368.2 million |
| Diluted EPS | $(0.13) | $0.81 |
| Operating cash flow | $(329.4) million | $247.8 million |
| Capital expenditures | $27.3 million | $44.2 million |
Q1 2022 included a $28.5 million loss on the Technip Energies investment, compared with a $470.1 million gain in Q1 2021. The 2022 discontinued-operations loss of $19.4 million reflected a change in estimate for the French tax group related to the spin-off. Adjusted operating profit was $57.6 million versus $70.0 million; adjusted EBITDA was $153.5 million versus $165.2 million. These are non-GAAP measures.
Segments: Subsea revenue was $1,289.1 million, down 7.0%, while operating profit rose to $54.0 million from $37.0 million. Surface Technologies revenue increased 8.6% to $266.7 million, while operating profit declined to $3.7 million from $8.2 million. Management attributed Subsea revenue weakness to lower starting backlog, and Surface Technologies’ lower profit primarily to the Saudi Arabia facility manufacturing transition.
Liquidity and debt: Cash and equivalents were $1,203.0 million, down from $1,327.4 million at year-end 2021. Total debt was $2,005.1 million; reported net debt was $(802.1) million, indicating net cash of approximately $802.1 million. The $1.0 billion revolving facility had $960.4 million available after letters of credit. The company reported compliance with debt covenants and said liquidity was sufficient for its expected needs over the next 12 months.
Material changes and operating trends
- Total revenue declined 4.7% year over year. Service revenue rose to $896.7 million, while product revenue fell to $614.1 million.
- Inbound orders increased to $2,184.9 million from $1,722.1 million. Subsea orders were $1,893.6 million, the segment’s highest quarterly level since 2019, according to management.
- Order backlog reached $8,894.1 million at March 31, 2022, up from $7,657.7 million at year-end 2021. The filing expects approximately 36% to convert to revenue through 2022 and 64% thereafter.
- Operating cash flow swung to a use of $329.4 million from a source of $247.8 million. Management cited timing of project milestones and vendor payments. The 2022 quarter also included $238.5 million in proceeds from sales of Technip Energies shares.
- The company revised the presentation of Q1 2021 cash flow items related to discontinued operations, concluding the prior-period misstatement was not material. The revision changed reported beginning cash and financing cash flow from discontinued operations, but not ending cash.
Outlook, risks, contingencies, and unusual items
- Management described a multi-year energy upcycle and expected strong inbound orders through at least 2025. It forecast 2022 Subsea inbound-order growth of up to 30% versus approximately $5 billion in 2021, with iEPCI, direct project awards, and Subsea services expected to approach 75% of the total.
- Management expected total-industry subsea tree awards to 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.
- 2022 capital expenditures were estimated at approximately $230 million, excluding contingent spending that might be needed for contract awards.
- Management cited inflation, logistics bottlenecks, commodity and supply-route disruption following Russia’s invasion of Ukraine, COVID-related impacts, oil and gas demand and pricing uncertainty, fixed-price contract exposure, and reliance on suppliers and subcontractors as risks.
- The unresolved French PNF anti-corruption investigation includes historical projects in Ghana and Equatorial Guinea and a review of projects in Angola. The company maintained a $70.0 million provision, but said a settlement could exceed it; criminal proceedings and potential material adverse effects remain possible.
- Guarantees totaled up to $1,278.6 million in maximum potential undiscounted payments, including $1,103.1 million of performance guarantees. Management did not expect known contingencies or guarantees to materially affect the company, but outcomes are uncertain.
- After quarter-end, the company fully divested its remaining Technip Energies stake. It also commenced a tender offer for up to $320 million of its 6.50% senior notes due 2026, alongside a consent solicitation proposing to remove substantially all restrictive covenants and certain events of default, subject to conditions.
Important facts for investors to verify
- Whether rising orders and backlog convert into revenue, margins, and cash flow as expected, particularly amid project timing and supplier-payment volatility.
- The drivers and sustainability of Subsea margin improvement and Surface Technologies’ Saudi facility transition costs.
- The French PNF investigation’s outcome, possible settlement amount, and adequacy of the $70 million provision.
- The effect of the Technip Energies divestment and the 2026 notes tender and proposed indenture amendments on cash, debt, and covenant protections.
- The basis and implications of the Q1 2021 cash-flow presentation revision when comparing historical cash-flow figures.