TechnipFMC plc (FTI) Earnings Call Transcript & Summary

So over the last several years, TechnipFMC has firmly established itself as the premier offshore equipment company in the industry having reshaped the Subsea market with this integrated offering and iEPCI approach has led to commanding market share in recent years. With this impressive backlog, FTI is in tremendous visibility along with structurally higher margins through its Subsea 2.0 offering. It's my pleasure to introduce Mr. Doug Pferdehirt, Chairman and CEO of TechnipFMC. He was -- he's been CEO of FMC since 2016 -- I'm sorry, he's been CEO of FMC Technologies, excuse me, since 2016 and CEO of TechnipFMC since the merger of FMC Technologies and Technip in 2017. Thanks for joining us, Doug.

Thank you, Dave. Appreciate it.

So Doug, maybe we could start off here. Your business is really in the sweet spot. Over the years, when you see capital equipment companies, you either get orders or you get earnings growth, you very rarely get both. You're now in this sort of interesting sweet spot here. I was wondering if you could sort of talk about kind of how you're seeing those kind of different elements developing over the next several years, sort of the interplay. I mean, do you think you should see kind of earnings growth and order growth over the next several years based upon what you're seeing?

Well, thank you, Dave. First of all, thanks for having us here. Thanks to Barclays, and thanks to everyone in attendance and those attending via the Internet. So thank you very much for your interest in the company. The setup is quite unique, but it's also not temporary. There are some structural changes that have occurred that are really driving what we're experiencing today. And the resurgence of offshore is real and is sustainable. And we're doing our part to try to ensure that sustainability, and we can talk about that as we chat here this afternoon. In terms of kind of the interplay, it sets up very nicely. We continue to see strength in the market. That's leading to a growing backlog, which obviously will then convert to revenue and revenue will convert ultimately to earnings. So there's no reason, and we've said this publicly, we remain very confident in our ability to be able to continue to grow in all of those areas, which, as you point out, is not very usual. It's not usual for any company in any industry. And to be in that position, we're very honored and very focused.

So you're on track to book $30 billion in orders over the last 3 years, if you include this year, and you recently said expect sort of another $10 billion next year. I'm curious how that order book has evolved. In other words, if we go back to 2023 versus, say, 2026, what's different between, say, the customers or the type of projects or the size? Has anything sort of changed or evolved in that backlog over the last 3 years?

The last 3 years in kind of our industry isn't a long period of time. So if you let me maybe go a little last 5 years or so, what has definitely changed is we have more customers. And I think this is really important and something that's not fully appreciated is kind of the whole Subsea offshore field development was limited to 10 to 12 customers for many, many, many years. It's now grown. It's grown because of the interest in investing in the offshore, but it's also grown because of the offering that we now have brought to the industry, which is the ability to be able to work with one company all the way from the field development or architectural phase through the manufacturing phase, the installation phase and then the life of field services phase. Keep in mind, this is 3 decades we're talking about. This is typically 3 decades long. So with that capability, you now have new operators who in the past maybe didn't have the resources to be able to pursue a large offshore project like that, the talent, if you will. And they now can come and work with us, and we can take them through that entire 3-decade process as a partner. And so I would say there's an -- clearly an expanding customer base, clearly expanding geographical base. So we went from working in 3 to 4 pockets around the world to now expanding that quite rapidly. That continues to grow very nicely. And then finally, just in terms of the overall scope of work that we're performing has continued to evolve and continue to grow over time as well.

Some of that's -- curious how you see kind of orders from here changing. Is this going to be more about exploration converting into development? We heard Schlumberger talking about that on their call. I think it was in Namibia, they were talking about kind of moving into the development phase. Is it going to be more brownfield? I know you just announced a flexible order today. Can you talk to me about some of those components of kind of maybe what could change or what's going to be additive to your orders in the coming years?

So first, let me touch on the announcement or the press release this morning. So we just were awarded 2 large projects from Petrobras for flexible pipe, which is a unique technology that we have and is actually a very important part of our integrated offering. So we were excited about that. One of them being very much a technology-driven differentiation that allowed us to secure one of those 2 awards. In terms of the overall mix, it's a little bit of all of the above, Dave, to be perfectly candid. Greenfields has surprised us, right? The percent of greenfield, which was about 50% of our inbound in 2024. The greenfields has surprised us a little bit. But I think, again, what you're seeing is you're seeing the shift of capital flows going to where there's access and the best economics. And that's offshore today. Not to offend anybody, but that's offshore today. And that -- and we've demonstrated not only are the economics better, but we've now demonstrated the ability to be able to execute on a repeat basis at a very high level, which is giving our clients confidence again. So if there's one big change, it's the level of confidence that our clients have to invest offshore because they know by working with TechnipFMC that they will indeed get the project delivered on time, on budget, if not ahead of schedule. And when I say ahead of schedule, keep in mind, we're shrinking the schedule at the same time. We're accelerating the time to first oil. Brownfields continue to be a high level of investment. It's got the best returns. You've already invested in the capital infrastructure. You're really just adding wells to support that capital investment that you may have made 10, 20 years ago. So that's an area that has grown and will absolutely continue to grow. We've only seen the beginning of that investment. And there's also investment in renewables offshore that we also benefit from. So it's a little bit of all of the above that's really driving the inbound.

Doug, last year, when we visited your facility, you made an interesting comment, which really stuck to me, you said, my competition is shale. You talked about shale really being here. Can you expand upon a little bit for the audience? I thought it was a really fascinating.

Well, it always scares me when you remind me of something I said last year because it was a good chance I didn't remember it. But this one I did.

That was a good one.

No, it was actually somebody smarter than me asked me one day, who's your competitor? And I started rattling off other public companies and what differentiates us versus -- and it was -- that individual told me, that's not how you need to be thinking about this. It's just capital flow. You're just competing for the capital dollars. It was one of you. It was one of the investor I've known for a long time. And it really kind of resonated and it actually helped shape the strategy of our company, which not -- this isn't anti-U.S. shale. It's just you're fighting for the same capital dollars. So how are you going to be more attractive? You've got more attractive reservoirs. I mean the reservoirs offshore are just phenomenal. They flow naturally. They don't need fracking, et cetera, et cetera. They're just phenomenal reservoirs in terms of traditional characteristics or Darcy's law, flow through a permeable medium, looking at things like porosity and permeability, they're by far, they're good classic reservoirs. The problem again was the cost, and it wasn't so much the budgeted cost, it was the actual delivered cost of these developments. So how do you attack that? You attack that through certainty, getting much better, much more predictable in what you do, and you do it by shortening the cycle time. If you can shorten the cycle time, accelerate time in the first oil project economics improve dramatically. So by just focusing on those 2 parameters, fix our own problems, fix our own delivery as an industry, if you will, and then focus on shortening the cycle time. So if you kind of think about the 2 big changes in our organization, which is Subsea 2.0, which is our configure-to-order offering, that really focused on the do it better, do it in a more consistent way, do it in a more predictable manner. Subsea 2.0 clearly does that. Why? This is an offering that we're not building things for the first time. Traditionally, Subsea, project to project, first article, never built it before, intensive engineering would lead to potential quality escapes, which would lead to rework, which should lead to waste, et cetera, repeat, repeat, repeat. That's how the industry operated for decades. Subsea 2.0 takes that out of the equation. On the other hand, iEPCI or the integrated offering is our ability to be able to shorten the cycle time. So when you look at those 2 and the interplay between those 2, that's what really drives our confidence and our ability to really do things differently. And what I hear from our clients repeatedly is you brought certainty back into the industry. meaning not me personally, obviously, a lot of people, 22,000 women and men a hell of a lot smarter than I am. But as a company, you brought certainty back into the industry, which gives them the confidence to invest in offshore again.

So I want to dig into some of the differences between last cycle and this cycle. That's clearly one of the big ones. But Subsea 2.0 has been a big one. I was wondering, can you talk about a little bit -- so it's about 30% of the order book today -- I'm sorry, so 70% of the order book today, 30% of revenue. How do you see that kind of changing? How does the revenue component, like by '26 or whatever, how are you sort of thinking about the kind of the overall...

It's a good question. It's one we debate a lot internally. More Subsea 2.0 is good for all the reasons I just described, predictability, performance, et cetera. It's also because of the flow of Subsea 2.0. Subsea 2.0, we build, if you will, or the manufacturing flow is 2x that of Subsea 1.0 or what the rest of the industry is building today. So you get more with less. You get twice the capacity through the same roof line, if you will. So it's important from that point of view. The Subsea 2.0, when you think about it, the analogy that I like to use is the auto industry. So when I buy a car, I still fundamentally want to believe that, that automotive manufacturer is building a car just for me. You feel good about it. You had some choices. You had some drop-down menus. And they probably never built this car before. It's just for me, it's mine. They're never going to build it again. So you drive down the street, you see a dozen just like yours. Because all they built -- what they did is they took a very complex problem and they put it into configurable components. So 1 or 2 engine sizes, a couple of transmissions, this or that. And those are the drop-down menus. So we've done that with Subsea. So Subsea 2.0 allows us -- allows our customer to basically use an app, and it's a set of drop-down menus that might be 5,000, 10,000, 15,000, 20,000 psi. It might have a couple of different temperature ranges, a choke, no choke, adjustable choke, a nonadjustable choke. And -- but all of those things they're selecting have been pre-engineered. So now at the time of that order, we have 0 engineering hours. We go straight into assembly and test, shortening the delivery time, increasing the certainty. So a couple of characteristics of Subsea 2.0. Now where does it fit in the overall equation? It was introduced into the market in 2017. We had an expectation that we could penetrate about 50%, 5-0, 50% of the market. We've exceeded that. We've said it's over 50% today of our orders that were inbounding. But through the manufacturing plants, it's only about 35% -- 33%, 35%. So hence, you have that uplift of more of that backlog as it flows through the plant, the plant is going to go from making 30%, 35%, 40%, up to 50%, the level of the inbound orders. At the same time, the level of the inbound orders or the percent of the inbound from Subsea 2.0 continues to grow. This is one of the key drivers in our earnings going forward. And it's one of the reasons why we can say with confidence that we have the ability to continue to grow not only revenue because you see that because of the inbound level and the backlog, but we're also going to be able to grow our EBITDA margin or our earnings because we have that additional throughput of the Subsea 2.0 going through the plant as an example.

Why would somebody not use Subsea 2.0?

Wow, on a live mic, Dave. There's not a reason not to. There might be a preference to the past. There might be a preference to competitive tendering. You can't competitive tender Subsea 2.0. There's only one Subsea 2.0 out there, and I'm proud to say it's TechnipFMC. So if you don't want to -- if you want to tender, then you have to go to a Subsea 1.0 type scenario, which means your project is going to take longer to be delivered. There's higher risk of project overruns, both in terms of schedule and cost. But in your mind, you're saving a little bit because you did 2 bids in a buy. I wouldn't recommend it. I would say fewer and fewer customers are even considering it. And how do you see that as investors? 80%, 8-0, 80% of our business is direct awarded to our company. It never goes out to competitive tender because they want the Subsea 2.0, they want the integrated offering, iEPCI, and they see that these are really differentiated and give them better project returns. So it's a debate internally, and it's also obviously a good question you're asking. I think there will always be some 1.0. The question is, do we want to be part of that? Or do we just leave that to the competitor and really just focus on the 2.0 market. What I am proud to say is we've never had a client go who went 2.0 ever go back. We've never had one who went 2.0, ever go back to 1.0. So it's also just getting them over that initial kind of threshold. But look, it's a big -- like I said, it's well over 50% of our inbound today. It's a big portion of our business already and will continue to grow.

Subsea 1.0 was the prior cycle back when you and I both had a little bit less gray. Well, I had -- you're looking good. I had a lot -- I'm fascinated by kind of looking back at kind of '06 to kind of '14 and kind of how -- or kind of '09 to '14 and how different that market was for the subsea market versus today. I want to explore a couple of things with you on that. So I recall back in kind of the peak of the market in 2014, I think it was Total called out $85 a barrel as the incremental dollar in offshore. That's now what, $40, $45.

Yes, half. This I cut in half. As you were saying, it's the most economic barrel.

How did it get there? How did we cut that down in half? Was it -- how much it had to do with Subsea? How much had to do with other things. Can you sort of just frame that a little bit?

Well, look, I think one must accept responsibility. So let's start with -- back at that point, and I was part of it, right? This isn't -- as a Subsea industry, we did not have -- the level that we were performing and even the expectation that the client held us to was far less than it is today. And you could deliver a project 1 year late and say, I'll try better next time. Well, gosh, could you really? I mean it was just -- it was accepted. It was an accepted behavior. It was not a good behavior, but it was an accepted behavior because nobody in the industry had differentiated. Remember, this was Subsea 1.0. Everybody was doing first article on every job. There was always quality mistakes, errors. There were all these delays, all this rework. All these things were happening because you're building things for the first time. Even the same client would not order the same kit from project A to project B, even in the same geography. So you were constantly being put in this learning loop when you're learning, you're not efficient. When you're learning, you're making mistakes. So the whole industry was in that setup. What has changed is the Subsea 2.0 configure to order has given our customers still the opportunity like me when I'm buying my car to still get what I want, but it's taken out all of that risk, rework, quality escapes and engineering out of the system because I'm not building things for the first time in the Subsea 2.0 world. So first and foremost, I think as an industry, we have to acknowledge we weren't doing a good job back then. We might have had good numbers. If you go back and you look at our numbers back then, they weren't bad, but that doesn't mean we were doing a good job. And it showed up in our customers' project returns because their project returns during that period where our margins were going up, their project returns were going down. That's not a sustainable business. And guess what, it ended. And then for 10 years, the offshore was still there, but it was not -- there was no real growth coming out of the offshore. What we've now put in place and given our customers, again, that confidence in is we can increase our earnings and they can increase their returns. That's the win-win with predictability, with predictability. Remember, we talked about earlier, the reservoirs are there. It's not about going out and finding them. Now in that same period of time, there were some prolific discoveries, obviously, Guyana being on the forefront. So there was some absolute positive external factors as well. But I think we have to start with the fact that the industry's behavior -- no, the accepted behavior of the industry was not good enough. So we are held to a much higher standard today. I'm proud to be held to that standard, and we are confident we can deliver to that standard. That, coupled with some very prolific discoveries is really creating the market opportunities that we see going forward.