TechnipFMC plc (FTI) Earnings Call Transcript & Summary

Hello. I'm Saurabh Pant, I'm the oilfield services analyst at Bank of America. And I'm very glad to have with me Doug Pferdehirt. He's the CEO and the Chair of TechnipFMC. Doug, you've been the CEO since the 2 companies came together in 2017, and you were the CEO of FMC Technologies before that. Why don't you maybe give a couple of minutes of opening remarks, and then we'll take it from there.

Okay. Thank you very much. Thank you, and thanks to BofA for hosting this event. Certainly it was -- it made the logistics a bit easier being here in Houston. So I'm very glad to be here. Thank all of you in the audience for participating and those on the webcast who are dialing in. I hope you find your time and experience insightful. I'll be real brief in the opening comments, just really focusing on a few numbers. We'll start with 90% of TechnipFMC's business is international. So 10% of the business is in the U.S. and U.S. land, in Canada. The rest is all international. So when you're thinking about TechnipFMC as an investment, we offer a really kind of pure-play way to play the international with the primary focus and the primary contribution coming from the offshore followed by the Middle East. And we believe these are the 2 primary basins that are going to drive the activity for quite some time. The second number is 70%. Over 70% of our business in our core business, which is our offshore subsea business, over 70% is direct awarded to our company, never goes out to competitive tender. Really proud of that. We've built something very special, very unique. And we have a very, very solid and deep intimate relationships with our customers that they entrust us to deliver for them, and indeed, we do. And then finally, 50% and 50% represents the portion of Subsea 2.0, which is the latest subsea architecture of equipment that is in our inbound orders over the last couple of years. Why is that important? This is a game changer for our company. It's a game changer for the industry as well, and it has really allowed us to change internally our operating model, giving our customers greater confidence in our ability to deliver projects to them with certainty and surety that we'll deliver the projects to them on time and on schedule. So just a few numbers to start off. I imagine you want to dive into some of those or we can go in any way you'd like to go.

Yes. Doug, I guess I'll just start with the big picture offshore because a lot of projects were sanctioned last year, a lot of projects were sanctioned this year. There are a lot of projects in the pipeline, right, and you get exclusive insight into that pipeline. But again, as we look at offshore, it was not that long ago that offshore was written off. The projects would not -- were not economical even at $90, $100 oil. But now we are talking about these projects, a lot of them breakeven at less than $50 a barrel. A lot of them actually breakeven at below $40 a barrel, right? So just talk to us how the industry has come from that level, $90, $100 break even to $40, $50 breakeven now? What has changed? What has the industry changed and what has TechnipFMC changed?

Well, there's a lot there. So cut me off or redirect me at any time you want. But in the most humble way, TechnipFMC didn't exist in the last cycle. So for those who are not familiar, in 2017, the 2 companies merged. The result of that merger was the ability to be able to change the commercial model and the operating model for offshore developments. So we're now able to offer [ off ] from the early architectural phase all the way through the installation and commissioning of the entire offshore scope from the water column to the seafloor. And we always talk about trees, but it is an absolute city of pipes and cabling and equipment that exists on the seabed. It's massive. And in the past, no one had that combination or the ability to offer that integrated offering. That has fundamentally changed the offshore economics. And it's changed the offshore economics because we've been able to shorten the cycle time. So why was offshore -- why did offshore have a higher breakeven? It wasn't because it was a lesser quality reservoir. I would argue for a long time as a reservoir engineer that the offshore basins that are being developed last cycle or currently are by far the best reservoirs other than the Middle East, are by far the best reservoirs available to companies to put capital to work. So the quality was always there. It was the duration of the projects. And then on top of that, when we would get into these growth cycles, you would start to have delays in the delivery and the timing of the delivery of the project. So you already had a longer cycle business, and then if you started to deliver late on top of that, that really affected the economics. So we took that challenge on back in 2014, we took that challenge on. We saw that, and we -- I would agree, we realized that was not sustainable. So we said, what can we do with the knowledge that we have, we have this unique knowledge of existing on the seabed. I jokingly say we have the [ web to feed ]. We don't think about anything that floats on top of the water column or we start from the bottom of the ocean, and we think how do we build this infrastructure from the bottom up. And we said knowing what we know, how can we apply it differently and more consistently to not only shorten the cycle time to give our customers the confidence that as they invest and grow, we can maintain that or even improve that delivery time. And that was -- we recreated the company. I mean, quite frankly, we're not the company we were in the last cycle. We are a very different company today, very different capabilities. We're unique. No one else has the capabilities that we have. What we put together is very special. At the time, it wasn't obvious, I'm not going to say it was, and it took time for us to be able to go out and show our customers initially through basically designing on paper or doing front-end engineering studies and then converting that into projects. And now this is the way we deliver a large portion of our total projects that we deliver today are through this integrated model. And that has fundamentally changed the overall economics. We realize now as a company, we represent up to 70% of the cost of an offshore development, 7-0. So we're a big influencer. And look, this is where we live and die. We believe in subsea, we believe in deepwater, but we believe in the offshore. And we're going to make those economics as interesting for our customers as we can. They've got the quality reservoir. They have the barrels. These are phenomenal reservoirs. They just needed to have a company that took a different approach and instead of everything being piecemeal and everything having to be integrated after the fact, we come with a fully integrated approach from day 1 and it's been hugely successful. We deliver these projects, install commission on the seabed in 12 to 14 months earlier than the competition. It's just -- you plugged that into a project returns calculation, and it's a winning combination.

Done. Right. And Doug, you just said you are up to 70% of the cost of a subsea project. I think that's a brownfield comment. The number would be a little lower on the greenfield.

Correct. So on a brownfield where there's not that floating structure, we're about 70% -- 60% to 70%. And on a greenfield, it's kind of 1/3, 1/3, 1/3, because you have the capital associated with the floating structure as well.

Got it. Right. So as we think about those greenfield projects, right, 1/3, 1/3, 1/3, we do hear about cost inflation, just rates going up. On the rig side, for example, FPSO market is tight. The vessel market, you'll know more about that, right? But how should we think about in a greenfield project, the 2/3 that's not in your control? How should we think about that delaying projects, raising the breakeven because that impacts the entire value chain?

I understand the anxiety, but then there's the reality. And I would just ask you to look at Guyana and enough said. The shorter-cycle subsea project that's ever been developed, these are Phase 1. And subsequently, every project has been delivered on schedule, on time. We're blessed to have 100% market share in Guyana with ExxonMobil and Hess and certainly appreciate that. But we have to earn that every single day, and that's what we've been able to do. So it can be done that way. Companies have to work closer with their partners and suppliers. There has to be more transparency and more commitment in terms of the scheduling and the timing. And again, we couldn't be more honored to be part of the Guyana success with ExxonMobil. And that's the way they're doing business with us. And so it can be done. I think there's a lot of anxiety because we keep thinking about the path, right? And that's how we started this conversation. The future is very different than the past. Not suggesting it's easy, not suggesting there's no challenges, but it is a very different setup than it has been in the past.

Right. Okay. And then just thinking about the portfolio that you have, right, the 2 companies more -- now you do a lot more. You're a big part of the project cost. How should we think about the portfolio that FTI has today? Because I would say TechnipFMC today, a lot of people would think about trees, right? So talk about how broad your portfolio is, how does that impact your customers because you can do a lot more for your customers, and you can engage with them a lot earlier in the process of their project life cycle.

Yes. Subsea, I guess, forever has been associated with subsea trees and they're not bad. We love them very much. But on our projects, they typically represent about 10%, 15% of the total cost of the project. Again, probably the most price possession is that subsea engineering knowledge that we have. So when customers come to us, they don't come to us and say, "Can you build 10 trees?" They simply don't do that. In the past, they did. But now they come to us and they say, we've done some -- we received a license to work in wherever. We've done some seismic surveys. Can you help us design the field architecture? That's a very different position to be in. So I call that the architect, right? So we are now the offshore architect. And we will spend 12, 18 months working with our clients, designing the architecture. And if any of you have bought property and built a house, you know the architect is pretty important, right? It's one thing getting the land. It's a whole another thing going from your functional requirements to something that's actually practical and can meet your move-in date and your budget, very different, right? So you sit down, you say, "I want this many bedrooms as many bathrooms, I want this 2 car garage, whatever it may be", and then the architect has to go and ask the design based upon that footprint that you have, the land that you purchased, something that's going to work for you and your spouse's budget. And that's exactly what we do. So we're at the table way earlier than we've ever been. We do that on a proprietary basis. We're not in it just to be the architect. So if you ask us to come in and be your architect, then we ask for a commitment that you'll direct award us the project. And that's where we are. And then we work towards the project economics. So we understand with them. If they want this to work at $30 oil or $40 oil or $50 oil, we work with them to find a solution that will work. And most of everything we're doing today is working in that price band. It's a very different environment and a very different way to approach the market that's ever been done before. Then once we go from being the architect, then yes, we go into the design of the equipment, the manufacturing of the equipment, the installation of the equipment to where we have everything from the initial architectural phase all the way through the installation and commissioning all within the capabilities of our company, which makes us quite unique.

Right. So if I'm your customer, Doug, let's say, right, I'm an upstream company, I come to you for a project, your backlog has grown a lot. Your order book is really strong, right? I mean, how do I rest assured that you would be able to deliver my project on time? Because like you said, that's one of the biggest value add that you bring to the table.

Look, there's clearly a level -- we're a relationship-based company. I guess, there's fewer and fewer of them out there, but this is still a relationship-based industry. And our willingness or our focus on remaining a pure play matters to our customers. This is what we do. Quite frankly, I'm involved in every project that's ongoing. I'm not managing a big conglomerate -- of big oilfield services conglomerate. We're a very, very focused company. And because of that, they know. I was with most of our clients this weekend or a large portion of our clients this weekend, and they know we can talk about the project. We can talk about exactly where we are. Last week, I was at our manufacturing facility in Brazil, and I'm tracking projects and talking to our clients. So I think it's intimacy, relationship, whatever term you're more comfortable with, but it's very different than doing kind of a hands-off when you're managing a lot of things, and I respect those who do, but it's very -- it's just impossible to be that intimate with the project. And I had a client, a very important client text me this morning. And it was about the project. And we could have a quick text conversation and he could go into his board meeting and discuss what he needed to with his Board. So yes, I think that's a big difference of who we are. That being said, look, we have to continue to deliver. If we don't deliver that relationship, that trust will be broken. And we've got very, very long track records of delivering. And as long as we continue to deliver, I see no reason why our customer will have less confidence, as a matter of fact, every time you deliver a successful project, we are typically direct awarded the next project because your level of confidence has gone up. So there's more to it, and we can -- I hope we can get into Subsea 2.0 and configure to order because that will help you understand there's a change in the operating model. But at the highest level, I mean the conversation starts with Doug. We want to work with TechnipFMC. We want to do this project. And now we're talking about projects to the end of the decade. And we just want to know that you're going to have the ability and the resources to be able to deliver this project. The last thing we want is a bad project because it's not only bad for that customer, but it's bad for the offshore industry. And you haven't been reading about bad projects. And if you have, they've been from the past, and I can tell you we weren't associated with them. But you have not had any of that with the changes that have occurred over the last 6 years. So maybe I'll stop there but we can dive into 2.0 CTO and how the operating models. Why? That's why our customers are confident in us, but then the question is, why are we confident in ourselves? So if you don't mind, I'll just take...

No, for sure. I mean that's what leads me to the next question, right, Subsea 2.0. Where can that ultimately grow, I mean you're at 50%, I think right now that's Subsea 2.0, right? Where can that number eventually go, could all of the market be Subsea 2.0? Because that enables CTO, that improves your efficiencies, raises the confidence in the mind of the customer that you can deliver. It's all related.

Okay. So let me break it down for the audience a little bit. So Subsea 2.0, next generation of Subsea architecture, not just a tree, the entire architecture. So that's Subsea 2.0. Obviously, sounds easy. Sure, not a fancy name. We don't spend anything on marketing. But it was about 4 years of very extensive engineering effort to be able to design this architecture. What makes the architecture unique? In the past, offshore subsea has always been a bespoke business. The customer design the equipment, we manufacture the equipment, and we never manufacture the same thing twice, even for the same client. So the client would say, here's what I want. And then at that point, we would take that and we would have to do 9 months of detailed engineering to take their drawings, if you will, put them into our system, make sure that everything is actually going to work before we could start cutting the first deal before we could place the first purchase order internally or externally. Subsea 2.0 is built on a configure-to-order model versus an engineer-to-order model. So we went from bespoke to standardized but customized. And that was the big difference. It's not standardized and everybody buys the exact same thing, just like you all wouldn't want to buy the exact same car. But when you do buy a car, you go on and you have your drop-down menus. And when you receive that car, you feel that, that auto manufacturer built that car for you. They didn't build it for you. They built that configuration a thousand times, but it feels like they built it for you. So we took the same strategy. We designed -- we have what's called Subsea Studio. Our customers go in. There's a drop-down menu. There's a series of menu. But all of those pieces that you can select have been pre-engineered. So we went from 9 months of detailed engineering to 0 months. Now you can see why we can deliver 12 to 14 months early. Sounds simple. I get it. It sounds simple, but it was a massive engineering undertaking, and that was the strategy we took for our company. At a time when again, it wasn't certain that this was going to necessarily be as embraced as strongly as it's being embraced by the industry today. We first introduced it into the marketplace in November of 2017. We went commercial with it in 2018. It now represents around 50% of the inbound orders for the Subsea 2.0 equipment, and we would expect that to continue to grow. Could it grow to more than 50%? Clearly. Could it grow to 100%? There are some existing infrastructure that might benefit from making an old style tree to match that infrastructure even though Subsea 2.0 is backwards compatible. So I'm not going to say it's going to go to 100%. But right now, at the 50% of the orders that means only about half of that is flowing through the facilities because there's the time of the -- there's the delivery time of the equipment that factors into that. And we're already seeing and having a lot of confidence in our ability to continue to improve our operating performance. We measure it internally in many different ways. You measure it externally by our margins. And you can see that continuing to progress. And we've given a lot of confidence in our outlook for the growth really predicated upon more of that 2.0 configure to order going through the plant. So we're growing the company without necessarily adding a significant amount of people because all that 9 months of detailed engineering, more of those people are now working as the architect early in the project and securing those direct awards. And then the cadence of the equipment through our manufacturing facilities is 2 times. So in theory, you've doubled the theoretical capacity of your throughput without any capital investment in infrastructure. That's -- there it is. That's all the ingredients that made us so successful. Our customers see that. Some of our investors have actually come and seen that. And when you see how that works within our facilities, it just gives them a great level -- a much higher level of confidence that this is not pricing-related. This is not -- all ships rise with the tide. Oh my gosh, I got to worry about when pricing is going to drop. That's the old school. And granted, most companies are still in that old school, but we are building a company that will have sustainable through cycle returns, by changing the way that we operate and Subsea 2.0 configure-to-order is a big, big contributor.

Right. And Doug, is part of that, right, the integration, the customer intimacy, you are taking that to your partnerships, to your vessel ecosystem is the best example. I think really you're partnering with Allseas, with Saipem. You don't have to build your own boat, reduces the CapEx intensity of the entire business. But talk to us about how that vessel ecosystem came about. How early do you engage with your partners in the ecosystem when you start delivering and planning on these integrated projects?

Very good question. So we just talked a lot about the manufacturing side, but then there is the installation side that does require vessels to be able to do the installation. These are very sophisticated vessels. They're basically offshore manufacturing plants. So don't think of them as ships with a crane, they are ships, they do have a crane, they have a very sophisticated automated pipe handling and laying system that includes offshore welding, offshore inspection, x-ray inspection, it's very, very sophisticated. I was just on one of our vessels in Brazil last Friday. So very, very sophisticated. But to be honest, very expensive. And we are growing the company without growing the capital, and we're growing our position in the marketplace without adding big fixed assets to our company. That was a challenge I took on when I became CEO. Many thought it couldn't be done. I wasn't sure it could be done. It just seemed like the right thing to do because how else are you going to get sustainable through cycle returns, if you keep jacking up capital and you keep jacking up fixed assets every time there's a growth cycle. So we decided to try to do it differently. So we took that same customer experience and worked with our competitors. Now I'll be honest, when we first started talking to them, they didn't -- they said some really not nice things to me. I mean, like really not nice things. But it was okay. My dad raised me to kind of turn the other cheek, and I just say, well, you might not be interested in now, but if you're ever interested, we can talk. And we now have this partnership, which we call a vessel ecosystem where we bring our competitors' vessels onto our projects, when we need them, we have our own, but this is when we need their capability instead of building a sister ship to what is already exist in the industry, just adding capacity to the industry, we decided to do it differently. Really difficult to do when you compete, right? But we gave it a shot and it's working really, really well. So we have 2 companies that are partners with us in the vessel ecosystem today. We think that will expand going on a trip here quite soon after this to talk to another couple who want to join the vessel ecosystem. So they keep the assets, they keep them on their balance sheet, it's their capital, they have the utilization risk. So what are we offering to them? Access to those integrated projects, access to that 70% direct award that they simply don't have access to. So it's a win-win. And so far, it's worked out really well for us. And this will be a way for us to continue to grow the company without having to spend money on very large fixed assets, just a different way of thinking.

Right. Doug, let's pivot a little bit. Let's talk about orders a little bit. Your orders have been really strong. You gave $11 billion order guidance for the next 5 quarters, which implies '23, '24 should be roughly around that $9.5 billion a year order cadence. You pulled your 3-year guidance. I know an update is coming on the next quarter call, but how should people worry about peak orders for the industry? Because, again, to be fair to them, it's always been that way, right? We all go up in an up cycle and then things go down and people look at orders, that's the first indicator of how the cycle is playing out, right? So how should those people think about that, talk to about the visibility that you have right now beyond '25? What are you seeing out there in the market that gives you the confidence?

Okay. So a couple of numbers. We gave $25 billion of inbound orders over 3 years. We're now closing out year 2 of those 3 years. And we started at $8 billion for this year, then we raised it to $9 billion, then we said it would exceed $9 billion for this year. And then we gave $11 billion for the next 5 quarters, not to be cute or difficult or whatever. But we're talking orders that range from hundreds of millions of dollars to $1 billion, $1.5 billion. And if they hit in the end of December, beginning of January, it's hard to predict the exact timing. So that's why we did the $11 billion in 5 quarters. Look, why should you have confidence? I don't want to say trust me. We've never not delivered on our inbound. But okay, the past doesn't necessarily dictate the future. I understand that you all have a difficult job as investors. But we do have a heck of a track record. And on top of that, I can assure you that in the $25 billion and the over $9 billion and in the $11 billion, none of that is like there's no gap. There's no like to be found. There's no wishful thinking, which is I think what happens when you get forecast from a lot of people is there's a -- they won't tell you this, but there's a pretty large bucket of hope in there. There's no bucket of hope here. These are named projects that we most will be direct awarded to our company. Most were already doing that architectural phase, or the ones that are being tendered, we have the high confidence that we'll be able to win those awards. But the $25 billion, the over $9 billion and the $11 billion all have named projects against them. I'll spend 3 weeks at the end of the year, circling the world talking to each of our clients about each of those projects, not only to give us confidence in those numbers, but confidence in the numbers beyond that. So everything we do is by project by project, client by client. We're not just throwing out a number out there and with a bucket of hope associated with it.

Right. And this does not include any projects or any orders for the basins in the frontier regions, right, maybe East Africa? It does not include any?

Well, it's a good point. When -- the numbers that we just talked about are all in existing basins and all with a very high probability of moving forward. I sometimes get the question, well, how long can it go? The durability? What's out there towards the end of the decade? Well, all the numbers we talk about, we talk about them kind of in 3 categories. There's the -- we publish a Subsea opportunity list that you can go look at $25 billion or $24 billion of projects right now. We give you our inbound forecast. But that's all in the kind of the near term. Then in that medium term, we're now looking at not only those opportunities that the rest of the world is looking at, but a very significant set of proprietary opportunities that aren't in the public domain because these are projects that we are working on exclusively in that architectural phase, that will be direct awarded to our company. So we don't go out and publish those, so the competition knows what we're working on. Those are unique to us. And they can make up a meaningful portion of our inbound. So a lot of times, our inbound will exceed expectations from the sell side and others because of honestly, there's no access to that proprietary data set. Then there's that third horizon. Well, that third horizon is the frontier. So things like Namibia, South Africa, Colombia, Suriname, Mozambique, Tanzania, the Eastern Med, the number of basins that are -- have expanded recently offshore, let alone those that will come are significant. So indeed, the numbers we talked about don't include that. That's all really 2028 and beyond. 2028 and beyond. And okay, not all of those are going to hit. I mean, they've all proven to be, from an exploration point of view, they've all proven to be successful. I'm not suggesting that each and every one of those is going to be fully developed or developed to its fullest potential. But I'm certain several of those will. And again, that's going to drive activity 2028 and beyond and into 2030.

Right. And maybe let's talk about Subsea margins a little bit. That's a hot topic that comes up in investor discussions. So you started with 15%. You raised that to 18% earlier this year. The question is when does the next upgrade come? When does that number go from 18% or whatever? How should we think about that plus the background rate? We know you are not baking in any help from the market, you are not baking in a meaningful mix improvement. And we know 11% of the revenue in 2025 is coming from legacy backlog, right? So how should we think about the upside of that 18% number?

Sure. So -- and I'm smiling because I think you're giving us a little more credit than we deserve. You said we started at 15%. We started at 11.5%. So if you go back to the Analyst Day of 2017, when we formed the company, we were at 11.5% margins, and we said that's just not right or the value that we create. But 2017 was a different market outlook than what we have today. And we wanted to demonstrate that we were confident that we could improve the margin from 11.5% to 15% by 2025 based upon going from bespoke to the CTO approach, the 2.0. Obviously, the IPCI, the integrated offering, which didn't exist before 2017 when we formed the company. So we were just trying to show basically the value of why we did a merger. And how it was going to allow us in a relatively benign kind of market environment, how it was going to allow us to improve our margin. And so that's where we were to get to the 15%. I just want to remember where we started. Then we -- then in February of this year, we realized that the 15% was going to happen before 2025. So what we did is we gave an updated outlook, and we took the 15% to 18%. So if you will, 650 basis points improvement from 11.5% over that period of time. We have repeatedly said 2 things. One, that the majority of that is through our own internal initiatives. Again, we're not relying on hope. There's no hope here. We're not relying on hopes and prayers and pixie dust to get us there, meaning the market and the pricing and all those type of things. 70% of our business is direct awarded. Obviously, it's a better environment. It's a very good environment that we're in today. But this is about things we can do by building off of that relationships and offer the direct awards and all that to continue to grow. So we said we're not reliant upon future market improvement, another way of saying pricing, right? Because I also think it's disingenuine when people say our margin is going to go up. But what they're really saying is pricing is going to go up. They haven't changed their business, it's only going up because the market is going up, and we all know the market doesn't always go up. So as an investor, we're trying to say, no, this is the things we're going to do to develop sustainable improvement in our margins because, again, we're changing the whole way we operate the company. So we said, it's not reliant upon future pricing back in February when we updated to the 18%. The other thing we said that was really critical was we ended that the very last line in that discussion was whilst it's a major milestone, it's a major milestone on a more ambitious journey. So clearly, we believe that we'll continue to see growth beyond the 18%.

Right. I want to go to free cash flow. But before that, let's spend a little time on surface because that's a very unique business. It doesn't get a lot of airtime, but it's very different within Surface North America and international, international being majority Middle East and a lot of that is actually offshore, even though it sits in surface, right, dry tree versus subsea tree. Talk to us about that a little bit, the prospects for that business in the Middle East. And what are you seeing in that market?

Well, I was talking to one of my industry colleagues here in the audience, is just in the Middle East and I told them I'll meet up with them here again in a month or so. But look, the Middle East is very important to our surface business. Why surface and not offshore? When you hear about Middle East, people -- it's just because most of it is fixed structures, production platforms where the trees are on top, so they're dry trees, which is still technically important, but not nearly as technical as a subsea tree. When we talk about a subsea tree, we're putting these 1 mile to 2 miles on the bottom of the ocean. People don't realize that. I mean this isn't like drop a fishing line. And I mean this is 9,000, 10,000 feet on the bottom of the ocean. The conditions down there are harsh. Obviously, no one is going to go down there and do any maintenance or go down there and do any inspection. So everything is with advanced automation, robotics and controls, and it's all designed for a 25- to 35-year life. So the electronics, 25 to 35 years sit on the bottom of the ocean. Think if you own a boat, you're starting to understand, how do they do this? It's hard to keep your boat running from season to season. And only the bottom of the haul is actually exposed to the saltwater and the outboard. But that's really what we do. It's advanced metallurgy, it's advanced automation and control, robotics, et cetera. Now when you're in the Middle East, it's mainly the platform, so they're dry trees. They're still sophisticated, but they're not as sophisticated because they're dry, that's part of our surface business. It's a different manufacturing cadence, it's a different supply chain, and therefore, we operate that differently. But the Middle East international is about 60% of our surface business, and the majority of that is the Middle East. And the Middle East remains critically important to us. And I believe that the Middle East will continue to be an absolute confidence that it's going to be the other big driver in this cycle. It's going to be the Middle East and the offshore. And again, 90% of our business exposed to those 2 areas. The rest of our surface business, the other 40% is in North America. That market is highly commoditized. Whereas in the Middle East, there's 1 -- in most countries, there's only us and one other company. In some of the countries, there's us and 2 other companies, but that's it. In North America, there's 21 companies who do what we do. And everything has been outsourced to China for everybody. So it's just not -- that's not who we are. We're a technology company. That being said, the North American market remains very interesting to us because there's a big opportunity to decarbonize. So we have put offerings into the market that using -- again, think about what I said from Subsea, advanced automation and control robotics, et cetera. That's what we're now doing in the North America market to help our customers decarbonize their producing assets in North America. And that's a big market, and that's all growth opportunity for the North America business.

Right. It's quickly, Doug, we don't have a lot of time, but let's quickly spend a little time on free cash flow. So historically, legacy TechnipFMC being one company before the spin-off, free cash flow was always a knock on the company. You don't generate sustainable free cash flow. That reflects the real cash flow power of the business. Now you're a cleaner company, you're capital light, you have taken, for example, the vessel ecosystem, right, and made the company capital light. So how should we think about the free cash flow generating power of the company right now on a true cycle basis? I know you've given guidance for '25, but what should be the through-cycle free cash flow power of the company?

No. Look, I think you've already laid out the answer in your question, which we appreciate. It's a different company. It's a different earnings profile. Obviously, we've given -- we've already given 2024 guidance, which I think can show the confidence that we have and the benefit of having the robust backlog that we have, a 35% improvement in EBITDA in 2024. We've already put that out there. We've talked about keeping our capital expenditure between 3.5% and 4.5% of revenue. We don't really think of ourselves as an OFS company, but when you think about OFS companies, you know what -- you know how it goes. It goes about 4% to 8%. And we don't have to do that because of everything you just described. So we'll be in the 3.5% to 4.5%. We're very comfortable there. Right now, we're below the 3.5%. And we are committed to returning the excess cash to our shareholders. We've done our big strategic transactions. It doesn't mean there won't be more in the future. Don't get me wrong. But what we created with TechnipFMC is truly unique. And we did that back in 2016, 2017. We did the merger and the integration and all that, that took 3 years. And that was a tough 3 years, especially, it was also during a global pandemic, but we stuck with it. We stayed focused on it. So today, we're sitting here as a company that's got all that in the past. We're purely focused on our clients, purely focused on project execution, and I think the future is quite bright.

Right. So the heavy lifting has been done. It's time to reap the benefits. Okay. Doug, I think we'll stop there. Quite out of time. But thank you. Thanks a lot for the time.

Thank you.