TechnipFMC plc

Ladies and gentlemen, thank you for standing by and welcome to the Technique FMC second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Matt Seinsheimer. Thank you. Please go ahead, sir.

Thank you, Lisa. Good morning and good afternoon, and welcome to Technip FMC's second quarter 2020 earnings conference call. Our news release and financial statements issued yesterday can be found on our website. I'd like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs, and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our most recent 10 , most recent 10 , and other periodic filings with the U.S. Securities and Exchange Commission, the French AMF, and the UK Financial Conduct Authority. We wish to caution you not to place undue reliance on any forward-looking statements which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise. I will now turn the call over to Doug Ferdihart, Technip FMC's Chairman and Chief Executive Officer.

Doug Ferdihart Thank you, Matt. Good morning and good afternoon. Thank you for participating in our second quarter earnings call. On the call today are Mary Ann Manin, Chief Financial Officer, and Katherine McGregor, President of Technip Energies. Before commenting on our operational and financial results, I would like to begin by recognizing the resilience of our global workforce. While the health and well-being of our employees, partners, and customers is our top priority, these dedicated teams work tirelessly to maintain business continuity in a safe and responsible manner. And throughout this very challenging period, they continue to advance projects and meet customer requirements, which was evident in our second quarter results. We also made solid progress in three core areas, strengthening our balance sheet, progressing our backlog scheduling, and accelerating our business transformation, all to ensure the success of TechniPath MC both through the current cycle and over the longer term. With regard to the balance sheet, we took a series of proactive steps in the quarter. We increased our liquidity by $1.2 billion bringing total cash and liquidity to nearly $7 billion. And we secured a permanent modification to our primary debt covenant, which favorably impacts the company's total capitalization ratio. Together, these actions were taken to ensure that we have more than sufficient liquidity and can maintain full access to this liquidity in these challenging times. Turning to backlogs. we experienced no cancellations, highlighting the resilience of the nearly $21 billion of backlog we have today. This significant backlog provides us with good visibility that extends over the next several years. Since the start of the COVID-19 outbreak, we have had constructive conversations with our customers. The dialogue has been very different than what we experienced in prior cycles. This has resulted in a more collaborative approach, creating new opportunities for us, enabled by our proven innovative solutions and demonstrated excellence in execution and supported by the financial strength we possess to weather the market cycle. These unique attributes also allow us to more deeply engage in the way we partner and work with our customers. Looking at the second half of the year, We continue to add new projects to our backlog. Technif FMC has been selected for the Mero II Surf EPCI project located in the Santos Basin. We will soon announce a new IEPCI project in Asia Pacific that will be using our latest 2.0 technology. And we have secured several projects that will be inbound upon final sanctioning, including subsea installation contracts recently announced by Equinor and the EPC contract for the Asut hydrocracking complex we announced earlier this month. Our strong balance sheet and liquidity position and our extensive backlog have also provided us with the flexibility to accelerate our business transformations. with global actions underway to generate annualized cost savings in excess of $350 million by year end. We first highlighted the business transformation during our fourth quarter earnings call. These initiatives were driven by changes and opportunities created from the successful introduction of new business models, innovative technologies, and digital solutions across our business. First, going forward, we will need fewer assets to deliver more comprehensive solutions. We will have fewer operating bases, service facilities, and manufacturing sites. We are optimizing our operations across geographies, and if economic returns don't make sense, we will look to exit. We will have a smaller fleet. We continue to right-size our assets to better align with our differentiated offering and the advantages of new technologies, such as Subsea 2.0 and integrated project delivery. And we continue to partner with others, providing us access to unique assets in a more capital-efficient manner. Second, we are taking targeted actions across the portfolio, particularly in surface technologies in North America We continue to transform our operations by working with our customers to further drive well-site operational efficiencies and lower greenhouse gas emissions. We are leveraging the strength of our international franchise to capitalize on the longer-term growth anticipated in the Middle East, Asia Pacific, and the North Sea. And finally, we continue to leverage digital technologies across our organizations. Looking at one of our most recent innovations, we are accelerating the development and implementation of our Subsea Studio digital platform. Subsea Studio allows us to significantly reduce the time required for front-end engineering by as much as 50%, utilizing machine learning and AI to rapidly evaluate field development scenarios, leveraging the industry's largest database of prior projects and best practices. All of these actions are fully aligned with our strategy of market leadership and business transformation. These actions will drive the most value when we align with those clients and partners that demonstrate a willingness to embrace new commercial models and new technologies. We are further streamlining all of our businesses towards simplification, standardization, and reduced cycle time. In 2019, the vast success of our subsea integrated model was driven by the strength of our partner relationships and resulted in the company's highest annual growth rate in order inbound in over a decade. And we expect to enter into another exclusive IEPCI alliance that will be announced in conjunction with the client's first integrated project award. As I've said before, those that adopt innovative solutions are more likely to succeed in the new energy landscape. And we are even more convinced of this today, given the dramatic change in the external environment and its impact on our customers. And lastly, the third pillar of our business transformation is focused on the strategic initiatives across our portfolio that will deliver new, sustainable solutions to our clients. These initiatives will allow us to leverage our core competencies in engineering, manufacturing, and project management, skills that are transferable and can be applied beyond traditional market segments. In sub-C, we have created fundamental change in the way we design, manage, and execute projects. Incorporating our sub-C 2.0 platform can greatly simplify the sub-C infrastructure while reducing greenhouse gas emissions by nearly 50%. When combined with IEPCI, it also simplifies vessel installation campaigns, providing an even greater environmental and economic benefit. Our vision for subsea includes an all-electric subsea system powered by renewable energy. This will further simplify the subsea infrastructure and reduce, if not eliminate, environmental emissions. In Technipa Energies, We have significant expertise and prospects in the area of sustainable chemistry, notably in biofuels as Neste's partner of choice for renewable diesel projects. And we have further expanded our footprint in the circular economy through our collaboration with Carbion to demonstrate their recycling technologies. We have recently extended our Genesis offerings. to provide a portfolio of advisory services across all of our markets with a particular focus on energy transition. And we see a very exciting future for hydrogen, where we already have proven technology and references for blue hydrogen and are well positioned for the emerging market for green hydrogen. In surface technologies, we offer high efficiency solutions that enable our clients to reach hydrocarbons faster with fully optimized and environmentally compact systems. Today, we have a project utilizing our integrated production system, iProduction, allowing the client to capture over 50% of the greenhouse gases that are typically released into the atmosphere during the production phase of an unconventional development. In summary, we have the expertise across all segments of the business to deliver the innovative, sustainable solutions that will enable our clients to meet their carbon reduction ambitions. Let me turn to the subsea outlook. On our first quarter call, we noted that up to 50% of the estimated $15 billion in project value captured on our subsea opportunity list could be extended beyond the 24-month window. The updated list now reflects real evidence of this trend. Based on public disclosures made by operators, we have identified eight specific projects that have been extended beyond mid-2022. Importantly, none of these projects have been canceled, and they remain longer-term opportunities for future awards. There have also been new projects added across four different basins that we believe will be awarded within the next two years. suggesting that the previously identified reduction in value for this opportunities, once thought to be as high as 50%, is actually closer to 30%. Remember, the subsea opportunity list is not a complete list of opportunities available to Technique FMC. Beyond this large project activity, our orders have been driven by subsea services, direct IEPCI awards, and small project activity, much of which is exclusive to our company. This opportunity set has generated over $3 billion of inbound in each of the last three years and is enabled by our market-leading installed base, growing list of alliance partners, and unique integrated feed capabilities. Our front-end engineering teams remain very active, and more than 60% of all integrated feed work is leveraging the benefits of Subsea Studio. We believe this will generate additional proprietary opportunities, some of which will come from our exclusive alliance partners, over the next 12 to 18 months. For 2020, we continue to believe inbound orders will approximate $4 billion. In the first half of the year, we had $1.7 billion of subsea inbound, and with five months remaining in the year, we already see a similar level of inbound for the second half of the year, coming from subsea services, small project activity, and large project awards pending public announcement. In the interim, we will continue to work closely with our customers as they adjust to the current environment. and we are excited to serve the new entrants that will likely step in to operate potentially stranded opportunities. That said, long-term success in sub-C is driven by economics, innovation, and relationships, all key attributes of Technique FMC. This makes us uniquely qualified to remain the sub-C partner of choice now more than ever. Turning to LNG. We are currently in the delivery phase of two major projects, Corral Floating LNG and Arctic LNG2, and we continue to advance through the warranty phase of Yamal LNG. Yamal has been the industry's most successful project ever, and the strength in our execution certainly played a role in the Novatec-led consortium's decision to direct award Arctic LNG2 to Technic FMC. Despite the challenges of COVID-19, we're making good progress on all of these projects. On Arctic LNG2, we continue to expect the activity to ramp as scheduled over the remainder of 2020. And on the Corral FLNG, we continue to achieve key milestones relating to module integration and instrumentation. Successful execution of these technically and logistically complex projects create strong references. leaving us well positioned to be a key player in the development of the industry's most strategic LNG projects. Market dynamics have shifted in recent months, and this will alter the broader LNG landscape in the near term. The number of economically viable projects is likely to decline, but the same can be said of the list of qualified EPC contractors, which will be challenged in this period of subdued project sanctioning. This is not the case for Technif Energies. We have demonstrated remarkable resilience through past cycles, and we don't see this as the start of an extended downturn for us. We have already been awarded two additional projects, the first being Revuma in Mozambique and the second, Energia Coastal Azul in Mexico. Both remain subject to final investment decision, and neither of these projects are included in our backlog today. While RAVUMA has been delayed until 2021, the operator for Coastal Azul continues to indicate that FID will take place this year. In addition, we are actively tendering a major project in the Middle East and performing front-end engineering work on other LNG prospects, some of which are likely to move forward due in part to their strategic importance to their host country. This potential portfolio of LNG projects will provide us with well-timed project overlap and operational continuity. And the portfolio beyond LNG remains diverse. We have built a solid track record of successful execution, delivering strategic references in areas such as downstream and petrochemicals that leave us well-positioned for future project awards. We entered this period with a solid foundation built upon the strength of our balance sheet, backlog, and execution. While client conversations remain ongoing, the increased visibility we have today gives us confidence in our full year guidance for all business segments. This is further supported by the acceleration of our business transformation initiatives to maintain, if not expand, our market leadership. I will now turn the call over to Mary Ann to discuss our financial results in more detail.