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spk03: Thank you for standing by and welcome to the Technique FMC second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the conference over to Matt Feinzheimer. Senior Vice President of Investor Relations and Corporate Development. Mr. Seinsheimer, please go ahead.
spk07: Thank you, Jack. Good morning and good afternoon, and welcome to Technip FMC's second quarter 2022 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 these states. 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. 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 chair and chief executive officer.
spk10: Thank you, Matt, and congratulations on your recent promotion and your expanded role. Thank you for participating in our second quarter earnings call. Before I comment on the strong operating results in the period, I want to first talk about yesterday's announcement regarding shareholder distributions. At our analyst day in November of 2021, we shared with you what we believe to be an appropriate capital structure for our company. Since then, we have made substantial progress towards our goal. In the second quarter, we successfully reduced gross debt by more than $500 million, and we remain confident in our ability to achieve our stated target of $1.3 billion. This targeted capital structure will ensure that we can maintain strong access to credit and allow for continued investment in our business through the cycle. Given our debt reduction to date, we now have the flexibility to begin shareholder distributions as evidenced by the announcement of an authorization to repurchase up to 400 million of our common stock. This represents 14% of the company's outstanding shares at yesterday's closing price. We firmly believe that our shares are undervalued and that the share repurchase program underscores our confidence in the long-term outlook for our company. Simply put, buying our shares is one of the most compelling investments available to us today. In addition to this opportunistic approach to shareholder distributions, We have reaffirmed our intent to initiate a quarterly dividend in the second half of 2023. Our debt reduction, share repurchase announcement, and reaffirmation of a dividend distribution are all important milestones in delivering greater shareholder value.
spk09: Turning to our financial results.
spk10: I am very pleased with the solid performance demonstrated in the quarter and the strong start to the year. Total company revenue in the period was $1.7 billion. Total company adjusted EBITDA for the quarter was $187 million, exceeding the expectations we outlined on our first quarter call. Adjusted EBITDA margin was 10.9%. Total company inbound orders were 2.2 billion, driving another quarter of sequential backlog growth to 9 billion. In sub C, quarterly inbound was 1.9 billion. Inbound for the first half of the year was 3.8 billion, a book to bill of 1.4, with IEPCI, direct awards, and sub C services representing approximately 70% of total orders. Project awards inbound in the period included ExxonMobil's yellowtail development in Guyana, where we were given full notice to proceed. The subsea production system includes 51 enhanced vertical deepwater trees, as well as 12 manifolds. We were also awarded a new flexibles contract from ExxonMobil for high-pressure, high-temperature risers for the Yellowtail development. And we received a contract from Total Energies to supply subsea production systems for the Cloak III development offshore Angola. This is the first contract under the company's new framework agreement covering subsea 2.0 trees for brownfield developments in Block 17. As previously highlighted, our high volume of feed activity and unique client partnerships supports our view that the subsea tree awards for the total industry will likely exceed 350, a level not seen since 2013. In the first half of this year, Technip FMC has already been awarded 117 trees. This is nearly double the volume we sold in all of 2021 and serves as further indication that the industry is in full growth mode. Earlier this month, we announced the award of an integrated feed or iFeed by Equinor for the BMC 33 project Offshore Brazil. The study includes an option to proceed with a direct award to our company for the IEPCI phase of the project. Upon FID, this would be one of the industry's largest integrated awards to date. This will also be the first time Equinor uses our configure-to-order production systems and further underscores our view that more than 50% of our tree orders will be subsea 2.0 over the next two years. And within our new energy ventures business, two tidal energy contracts were recently awarded in the UK. The multi-turbine projects will be capable of delivering 7.2 megawatts of predictable tidal energy through our partnership with Orbital Marine Power. This award positions us as the leader in floating tidal energy. The first half order trends clearly demonstrate the strong momentum of the subsea market. The underlying strength is also displayed in our subsea opportunity list, which increased by 20 percent from the first quarter update and now represents an opportunity set of $24 billion for the industry based on the midpoint value of these offshore developments. It is also important to note that the list does not fully reflect the underlying strength of the market. There are 12 distinct customers represented on this list, most of which have participated in subsea developments for many years. However, our first half inbound was composed of more than 40 operators across all basins, illustrating the growing diversity of our customer base. Based on our strong first half results, the growing project pipeline, and the active dialogue with our large and expanding customer base, we expect full-year subsea orders will be up as much as 40% versus the prior year, above the previous forecast of 30%, with orders now approaching $7 billion in 2022.
spk09: Moving to surface technologies.
spk10: we are pleased with the sequential improvement in our results. We saw good growth in North America sales and profitability, and we continue to move pricing higher as needed to ensure we earn an acceptable return on our investments. As previously indicated, our results outside of North America were impacted by the startup of our new manufacturing facility in Saudi Arabia. We have now completed the facility audit and most administrative milestones, leading to our first in-country orders. This sets the stage for improved financial performance as we ramp production in the second half of the year. ELF will provide more detail on our outlook for the remainder of the year. Now let me close my remarks with a simple message. We are very focused on delivering on our commitments. First, we said we would restore the balance sheet to a more appropriate capital structure. And in the quarter, we reduced gross debt by an additional $530 million to $1.5 billion. Second, we said we would initiate shareholder distributions, and we have now made sufficient progress towards our capital structure to do so. This action has been accelerated a full 12 months ahead of schedule and reflects our view that a balanced approach to debt reduction and share repurchase is warranted given the significant discount in our share price relative to peers and the long-term prospects of our company. Finally, we remain focused on meeting our financial commitments in 2022 and beyond. We are very confident that we will deliver results within the four-year guidance framework provided back in February. And looking further ahead, we remain confident that our internal initiatives, coupled with a strong market backdrop, provide us with a clear path in achieving subsea EBITDA of more than $1 billion by 2025. I will now turn the call over to Elf to discuss our financial results.
spk04: Oh, thank you, Doug. Total company inbound orders were $2.2 billion in the quarter. driven by strong subsidy inbound of $1.9 billion. Total company backlog increased 2% sequentially to $9 billion. Revenue in the quarter was $1.7 billion. Adjusted EBITDA was $187 million. Second quarter income from continuing operations was $2 million, which included after-tax charges and credits that netted to an expense of $6 million. When excluding the impact of charges and credits, Our adjusted income from continuing operations was $8 million, or $0.02 per share. These adjusted results also included a loss on early extinguishment of debt of $30 million. Now turning to segment results. In sub-C, revenue was $1.4 billion, up 10% from the first quarter. Revenue increased sequentially, primarily due to higher project activity in Africa, the North Sea, and Brazil. Subsea services revenue increased versus the first quarter due to seasonal improvement, including higher installation activity. Adjusted EBITDA was $106 million, with an adjusted EBITDA margin of 12.4%, up 240 basis points versus the first quarter. Adjusted EBITDA increased 36 percent sequentially, primarily driven by higher revenue and increased installation and service activity. In surface technologies, revenue was $303 million, up 14 percent from the first quarter. Revenue increased sequentially, primarily due to accelerated growth in North America, which benefited from the continued increase in drilling and completion activity. Adjusted EBITDA was 32 million, a 47% increase sequentially. Results benefited from higher activity and improved pricing in North America. Outside of North America, adjusted EBITDA increased modestly due to the impacts of the transition to a new manufacturing facility in Saudi Arabia. Adjusted EBITDA margin was 10.7%, up 250 basis points versus the first quarter. Turning to corporate and other items in the period, corporate expense was $22 million, net interest expense was $28 million, and tax expense was $20 million. Cash required by activities from continuing operations was $97 million. Capital expenditures were $36 million. This resulted in free cash flow consumption of $133 million in the second quarter. As discussed when we provided full year guidance, we expect free cash flow to be weighted to the second half of the year, very similar to 2021. Our subsea operations have seasonally higher activity levels in Q2 and Q3, which drive major milestone collections that occur throughout the second half of the year. with Q4 being our strongest period of cash generation. In April, we sold our remaining 4 million shares of Teknip Energies. We have now fully exited our position, realizing total proceeds of 1.2 billion since the separation. In May, we completed a tender offer for 430 million of our outstanding 6.5% senior notes due in February 2026. Cross debt in the second quarter decreased by $530 million to $1.5 billion, a reduction of more than $1 billion since the spinoff in the first quarter of 2021. We ended the quarter with cash and cash equivalents of $685 million and net debt of $790 million. Moving to guidance. we have reaffirmed our 2022 guidance as all items remain within the ranges previously provided. To help in your modeling for the remainder of the year, I will provide some additional color on the segment guidance. For sub C, we expect both revenue and adjusted EBITDA margin for the full year to be at or near the midpoint of the guidance range. The third quarter should reflect strong results similar to what we reported in Q2 for both revenue and adjusted EBITDA margin, benefiting from the continued strong activity and improved margins in backlog. For surface technologies, we expect full-year revenue to be at or modestly above the midpoint of the guidance range. Third quarter revenue, is expected to increase up to 10 percent. We also anticipate incremental EBITDA margins to approximate 30 percent for the remainder of the year. While North America was the primary driver of growth in the first half, we expect the second half of the year to be led by international markets, driven primarily by the Middle East. This will be supported by the ramp up in production at our new Saudi Arabia facility in addition to higher activity across the region. In closing, I will share with you my major takeaways from the quarter. We delivered on our plan for a significant reduction in gross debt in the quarter, demonstrating our commitment to a strong balance sheet. Importantly, this action has done more than just improve our capital structure. It has provided us the flexibility to pull forward the timing of shareholder distributions, a decision that is further supported by our confidence in the free cash flow generation we see going forward. Finally, I am confident that the improved operating performance experienced across both segments is setting us up for a solid second half and further improvement in 2023. Operator, you may now open the line
spk03: questions certainly at this time if you'd like to ask a question please press star 1 please do so only if you have not previously queued up your first question comes from Chase Morrill with Bank of America your line is open hey good morning or I guess good afternoon over over in Europe so Doug
spk11: You know, first question, just kind of thinking about the macro here, and obviously, you know, you gave us, you know, a good update on the subsea opportunity list, you know, 24 billion. But if we can look past that a little bit and just think about tieback opportunities, could you talk about, you know, tieback opportunities out there and maybe, you know, how much you think that's still left out there? I mean, obviously, we've been, you know, doing a lot of tiebacks over the past few years. So just trying to understand kind of how much of that opportunity kind of still sits out there.
spk09: Sure. Good morning, Chase.
spk10: Actually, you raise a really good point. If you look at this opportunity list, which increased 43% since this time last year and now represents $24 billion, you are correct in pointing out that the majority of these are actually large greenfield projects. Behind that, is a significant amount of tieback or brownfield activity that is still ongoing. You know, I don't know that I'd call it, you know, even middle innings. You know, we're still fairly early, and there's lots of opportunities. And you can see that in our inbound numbers in the first half, you know, where a large portion of the inbound number is actually coming from unannounced awards, or if you will, some of the smaller awards, that aren't always but are often in that category of tiebacks or brownfields. So, you know, simply stated, it remains extremely robust. There's a lot of activity. It is the shorter cycle part of subsea, and it's one that our integrated model coupled with our subsea 2.0 platform makes us the partner of choice because we can deliver those projects in 12 to 14 months, which has a huge impact on the time. buyback opportunities and a reason why we've been, if you will, doing so well in that market.
spk11: Okay, perfect. Quick follow up, and I don't know how far I'm going to get with this, but I'm going to give it a shot. But, you know, you just said, you know, for 2022 for subsidy margins, kind of pointing us towards the midpoint for the full year. But obviously, you're booking some strong backlog, presumably a better pricing, better margins. So when we look out to 2023, I'm assuming that kind of points to better margins, but I don't know if it's too early for you to give any color. I know you won't be explicit, but just kind of, you know, directionally, how should we be thinking about margins for sub-C for 2023?
spk10: Chase, I would have been surprised if you didn't ask, so certainly worth asking. I think it is a bit early to give segment guidance, if you will, but no doubt. The market is setting up very nicely, particularly for us because of the large portion of direct awards that are a result of the unique IEPCI offering, our large install base and subsea services, as well as our partners and the direct awards that we receive from our partners. So we remain very excited about the remainder of 2022 as well as 2023. But I'm going to turn it over to Elf to maybe give you a bit of color more from a total company perspective than a segment perspective.
spk04: Yes. Thank you, Doug. And certainly it's a little bit early to give specific guidance here for 2023. But what we can say is that we do expect continued revenue growth, and that is in both segments. And when we look maybe at company EBITDA, we are on track to grow up to 20% based on the progress we've seen so far. So for instance, the The second consecutive quarter of $1.9 billion of subsea inbound and the total inbound approaching $7 billion. And indeed, the subsea orders continue to be booked at average margins that are accreted to backlog. And then when you just quickly glance at surface, we certainly continue to see continued progression in our surface margins as well. So that's probably the color I can offer at this point in time. But the takeaway is that the company with DAI is expected to go up in in 2023, and we are currently saying up to 20%.
spk11: Okay, perfect. Sounds good. I'll turn it over, and congrats, Matt, on the promotion.
spk03: Thank you, Chase. Your next question comes from the line of Mark Wilson with Jefferies. Your line is open.
spk06: Hi, good morning, gentlemen. I'd like to ask about the profile of the free cash flow and cash generation from here, and specifically what is different going forward versus let's talk to the past 12 months or since separation of Technip Energies you had a net debt 1Q last year just under 1.8 billion it's just under 0.8 billion now so there's a billion dollars of deleverage and you've sold 1.2 billion of energy shares you spent about 250 million of capex so it suggests roughly cash break even over the last 12 to 18 months. And so could you just take us through the moving parts that change that profile going forward, Doug or Alf, in terms of your own self-help of your cost versus the market pricing and the pass-on cost one imagines. Everyone's talking about inflation. But yeah, these moving parts as we look forward to this cash generation. Thank you.
spk04: Yeah, no, certainly. Thank you. So first of all, admittedly, Q2 was a bit lighter than expected. We did have some net working capital outflow in the quarter. And if you look at the most, you know, specifically moving part from quarter to quarter, it is truly the timing of achieving milestones, getting the billings and the collections done, in particular for the subsea projects. This remains our biggest driver for quarter to quarter fluctuations. And similar to last year, we do expect and we do see this in our subsea profile. As I mentioned in my prepared remarks, we really have the highest activity on subsea driving through the progress that drives our contract assets and our receivables in Q2 and Q3. And they drive them towards collection in the third quarter and the fourth quarter. So we very much expect the same pattern this year. In terms of... you know, why we're confident. We obviously have visibility to all these milestones and the associated collections. So this gives us overall confidence in our guidance. And obviously, again, that's going to be the major driver for the annual cash flow. Now, if you look at it more broadly, just talked about that the EBITDA, we expect that to continue to drive forward. We continue to expect to have a favourable ratio between call it the depreciation and amortization profile versus the capex we continue to look at our capex to come in in this this this capex for the year for 230 for instance is probably we have a good chance to come in below that uh but we can we expect to continue to have that favorable ratio between depreciation amortization and capex and adding new capex so if you remember back to the analyst day we we actually said that we would have a a range of 3.5% to 4.5% of our revenue to be in CapEx. We continue to see a trend that we are at the lower end of that range, and I really don't have anything that I expect that to drive it up significantly as we look forward right now. So those are some of the dynamics, and I don't know if that helps you, but maybe Doug wants to add a few words.
spk10: Sure. Why don't I add a little bit on the cost side, Mark, to your question. We talked a lot about this at the analyst day back in November. A lot of what we have been doing in the company to, you know, IEPCI changing the commercial model, subsea 2.0 enabling configure to order or CTO as our new operating model, both give us significant cost leverage because we can get the benefits of scalability. And we're seeing that. And if you remember back in the guidance we gave in November of last year, which was subsea margins would expand to 15 percent by 2025, along with revenue growth doubling the EBIT of subsea, that had very little pricing element involved. There was activity. There was volume because our revenue was going from 5.5 to 7 billion. But we're in a very different environment today. And we're seeing the benefit of all the hard work and the innovation. And now the saturation with subsea 2.0, you know, 50% of our orders over the next two years, we expect to be subsea 2.0. That creates that ability to really start to get that cost leverage. And then on top of that, we are certainly in a very different pricing environment than we had envisioned just six months ago. So that very favorable.
spk06: That is great, Culler, and yes, there's a lot on this at the analyst day, so I appreciate the follow-on from that. Can I maybe follow up, Doug, and ask, in terms of the Subsea 2.0, is it also a case that you're only just starting to roll out, really, those types of equipment sets that you've manufactured? Just give us an idea of how many of those you've actually put in place out there in the market.
spk10: Yeah, so 2.0 orders started, you know, we commercialized at the end of 2017, 2018, you know, started to get some orders, obviously, in 19. And, you know, 20 was obviously a pretty tough year for all of us. And now we're, you know, the orders are ramping up, as indicated, we expect up to 50%. You know, so if you just add, you know, kind of, you know, the normal delivery schedule to that, you're starting to see those installations go into place. I don't have an exact count. I actually don't track the exact number of, you know, Subsea 2.0 installations, if you will, but they are there. They're going well. We've had repeat orders from all of the customers that we've delivered Subsea 2.0, and in some cases, like you saw us announce last quarter and then this quarter announced the first call-off, you know, we have customers that are now going exclusively to subsea 2.0, like Total Energy's decision to do that for their brownfield activity in Angola. So, yeah, things are definitely moving very favorably, and we're very pleased and humbled by the success of 2.0.
spk09: Excellent. Thank you for the color. I'll hand it over.
spk03: Our next question comes from the line of David Anderson with Barclays. Your line is open.
spk09: Hey, Doug. How are you? Very well. Good morning, Dave.
spk02: Good morning. So order has taken a big leg up here, as you mentioned, since 2013. So a long time since we've seen this. I was wondering if you could talk a bit about your manufacturing footprint, kind of your capacity and kind of how it sits today compared to kind of that last time we saw this. Last time the market really expand, not necessarily just the number of trees, but more kind of where it is, what's changed and kind of your expectations for operating leverage with particular configured order model, which I would think would drive quite a bit of that.
spk10: Well, David, you're spot on. And it's actually an intriguing question because in this environment, you'd think would be announcing big capital increases and adding more manufacturing capacity, adding more, you know, fixed assets. We said we were going to change the way business was done. We were going to develop our model so that we could drive higher returns and sustainable returns and attractive through cycle returns. And, you know, David, if it wasn't for 2.0 and the ability now to be able to leverage the configure and order model, we'd be in a very different situation. So we have doubled the subsidy 2.0 CTO allows us to double the throughput capacity within the same footprint. So we've actually reduced manufacturing capacity roofline, but increased our throughput capacity. That's just exactly what we want to hear and we believe our investors want to hear. And it's what sets us up, I believe, to deliver a very different results than what is typical at this point in a cycle when companies are increasing their capital budgets to accommodate the growth. In addition to that, beyond the manufacturing, you know we've changed the operating model in the industry by partnering with others and using their assets and providing them access, if you will, to our market, much of which is proprietary because of the integrated model and the direct awards that we have, allowing them access to that market where we can utilize their floating assets to support our fleet without us having to add additional capacity to be able to service this growth. So this is our approach. We're going to remain very disciplined, but still grow the company, which I think is the best of all scenarios.
spk02: Just a quick follow-up on the trees. You mentioned 50% or sub-C 2.0. Does that also mean 50% would be the CTO model? Is that how it works? Yeah, that's great. Or do you do CTO on non-sub-C 2.0? Maybe I just got that confused a little bit.
spk10: No, thank you for clarifying. And, yeah, the best way to think about it is 2.0 enables CTO, so CTO equals 2.0. Okay.
spk02: Okay, thanks. All right. So my other question was on your Surface business. Obviously, it's really good leverage to the Middle East rig count. You talked about this briefly. I just wanted to expand a little bit more on kind of what's going on in the market right now. We've heard kind of mixed things. Sounds like things are idling. But I would think with the recounts picking up that you're already starting to see a pretty big pickup in demand on that surface side and also does that new manufacturing facility in Saudi, does that cover all of your needs in country or do you still have to bring some stuff in?
spk09: Sure, Dave.
spk10: So let's start with what we believe will be the most significant growth market for us in surface, which is the Middle East. And it's not just Saudi, it's beyond Saudi and you know, be it Saudi, be it UAE, you know, Oman, Kuwait, etc. There's a significant amount of investment going on in the Middle East today. The facility that we built in Saudi will cover 100% of our needs and Aramco's needs from us. So we will be doing that if you will be fully vertigrated within the country. And a similar approach we have in the UAE. So You know, that's the most significant market for us. We are well positioned. As we indicated in the prepared remarks, we're on way now and accepting new orders. And there'll be a ramp up. It doesn't happen overnight, but there'll be a ramp up through the end of the year and be in a really strong run rate then for 2023. You know, North America remains robust as well. Not necessarily the same growth potential in our view, but one where there's certainly a limitation of capacity as we've kind of reached, you know, kind of stretched beyond the resources that are available, be it human resources or physical resources within the market. There, it's very important to us that we generate returns that are acceptable, and we are, as a result of that, requiring, you know, a higher price point and higher returns for the work that we're doing in the North American market.
spk09: Great to hear. Thanks, Doug.
spk03: Your next question comes from the line of Arun Jayaraman with JPMorgan. Your line is open.
spk08: Good morning, Doug. I wanted to see if you could talk a little bit about the pricing dynamic you're seeing within the industry. You mentioned the potential for 350 subsea tree awards this year. And one of the things we did note, just going back to Schlumberger's call, is that they noted improving pricing dynamics and the fact that their backlog was growing and that was going to be a key driver of their second half growth. So just wanted to get some thoughts on what you're seeing in terms of pricing.
spk10: Sure. Good morning, Arun. So I agree with the comments Schlumberger made. I guess the only difference is we're seeing it now. You know, it's not a second half event. It's obviously showing up in our results as we speak. You know, I'm always wanting to point out that our objective is to capture a greater portion of the economic value that we deliver to our customers. So we have very long-term relationships, many of which are exclusive to our company, some of which are over 20 years old. that have been in place for over 20 years. So what we do is we continue to innovate. We continue to differentiate. And as a result of that, if we can create greater economic value for our customers, they are more than pleased to share with us a greater portion of that economic value that we create. So there is no doubt that we are seeing the benefit of that. And the IEPCI model coupled with Subsea 2.0 you know, a unique combination that we offer into the marketplace is allowing us to get that benefit in terms of the share of the economic value. In addition to that, as I responded to an earlier question, there's also cost leverage associated with that. So if you will, we're capturing it on both ends, but at the same time, making sure that we are creating greater economic value for our customers or better project returns, We do that most, you know, the most direct way we can do that is delivering projects well ahead of what the rest of the industry is capable of doing, which we would not have been able to do without the creation of, you know, a single integrated company and the continued investment and innovation in technology and innovation as evidenced by Subsea 2.0. So that's what gives us the confidence as we continue to move forward.
spk08: Great. And my follow-up, Doug, is that we've seen a lot of fluctuations in the currency. The U.S. dollars obviously appreciate pretty significantly versus the euro. You had a very small currency impact in the quarter, but how should we think about the impact to your business just from a stronger dollar? Sure.
spk10: I'm going to have Elf comment.
spk04: Yeah. So maybe just to take it a little bit from the financial statement, the impact that we actually do have in our company from this. So let's start with the fact that a good portion of our backlog is actually denominated coming out of business units that have functional currency different than the US dollar. So that does lead not to an economic loss, but to a a translation of foreign exchange that, in this case, drives down, for instance, our backlog by over 300 million in this quarter alone. So there's a translation impact to the backlog that you see that still is 9 billion in total, but you see that impact. The other way that that comes through for the same reasons is if you continue to experience the higher U.S. dollars, those non-U.S. dollar revenues and earnings will translate into slightly lower US dollars into the financial statement. So that's the most immediate financial statement impact you will have. Otherwise, when it comes to our portfolio of hedging, et cetera, we are continuing to manage our cash flows and our balance sheet positions in such a way that we minimize the foreign exchange gains and losses. So you shouldn't see anything extraordinary there. There is a third point I will make, though. There are certain currencies that we cannot hedge, for instance, in Africa. And as the African currencies either devalue or appreciate against the dollars, you will see an impact in the foreign exchange line also, which will create some variance. But those are probably the primary impacts from the dollar strengthening.
spk08: Great. Thanks a lot.
spk03: Your next question comes from the line of Mark Bianchi with Cowen. Your line is open.
spk05: Thank you. I wanted to talk a little bit more about free cash flow. So you kept the guidance for the year, and that would seem to imply sort of $600 to $750 of free cash generation in the back half of the year. First part of the question is just wondering if sort of the lower end of that range is more appropriate now, just given how the first half developed. And then if you could put a finer point on what to expect in third quarter, that would be helpful.
spk04: Certainly. So first of all, we continue to target the midpoint of the free cash flow. So that's the point that we still have confidence in that we can be at. Now, what will cause the variation from the low to the high point is really what I kind of mentioned before. It's going to be the exact timing in the fourth quarter of how quickly we reach certain milestones and how quickly they convert to buildings and collections by year end. That's going to be the primary driver for whether you end up in the high end or the low end of the range. But we continue to see ourselves having the visibility to reach the midpoint of the guidance, and that's where we continue to guide. In terms of third quarter, because of the same dynamics I mentioned, it's always difficult to call the cash flow by quarter with precision. But I will say this, we certainly expect to be positive in the third quarter. But to also be clear, we do believe that the bulk of the cash generation is expected to be in the fourth quarter. So that's the profile we still expect for the year.
spk05: Yeah. That's helpful. And then on the buyback, you know, in the context of that cash flow progression, should we be thinking about the buyback more likely to be occurring when you're having strong periods of free cash generation or are they sort of independent from each other?
spk04: Yeah. So maybe to say it this way. So first of all, I mean, we're very pleased with our share buyback program announcement now. I mean, it describes how much we're satisfied with the progress we've already had on the leverage and balance sheet. And, you know, we really believe this is a question of timing. Also, we do believe that the current share price reflect an undervaluation of our company. And with this in mind, we're certainly going to have a balanced approach going forward where we can take advantage of, call it the undervaluation, while also being committed to having a strong balance sheet. So in that mix, certainly free cash flow, It's going to make a difference, but it doesn't mean that we sit completely on the sidelines either as long as the valuation is to where we see favorable economics to do share buyback.
spk09: Okay. Thank you very much.
spk03: Our final question comes from the line of Waqar Syed with ATP Capital Markets. Your line is open.
spk01: Thank you, Doug. Just a broader question. We've seen this outlook for offshore improved considerably. Do you think the catalyst recently has been the energy security issues, or do you think even absent that, the trend was always towards increased offshore activity as the cycle unfolded?
spk10: So, thank you for the question, and I think it's really important that we are very clear in this response. This is a trend that has been underway, and we are just seeing it unfold. So, there is not a single catalyst or a short-term effect. This is certainly something that has been underway, and the preferential investment in offshore for a variety of different reasons we believe has been building and will continue going forward.
spk01: Thank you very much. That's very helpful. And just one other question that, like, you know, supply chain inflation, you know, has been a big issue we've seen all across. Now, Your margins have held up pretty well from the guidance that you've given before. So first of all, how are you managing inflation in your backlog? And similarly, how are you managing the supply chain issues on your throughput? It seems to be that you've been relatively immune in your results with all these issues going across the world.
spk10: No, so thank you for the question, and I appreciate the fact that you've recognized that we have managed it. And to me, that's something that our shareholders expect us to do. Is it challenging? Of course it's challenging. Is it real? Yes, it's real. But with a bit of forward planning and the development of relationships, both with our customers as well as with our suppliers, one can use that. during these challenging times to make sure that, you know, it's a win-win-win, if you will. And that's exactly been our approach. You know, we have always stood by our suppliers, even in difficult times that we all went through during the pandemic, and our customers have stood beside us. We have lots of contractual and, you know, and legal issues reasons why we are able to do that. But I don't think you should underestimate that if you don't treat people right, they'll remember that, and they'll take advantage when the opportunity is. But if you just look at where we are in the market today, I alluded to in my prepared remarks, we received 117 trees in the first half of the year. We said 350 for the total year. So one could ballpark what is probably the total market and what was our position of the total market. So our suppliers understand that this is our core business. This is a business we're very focused on. This is a business that if they align with us, they know that they're aligning with the leader for today as well as for tomorrow. And with that comes certainty. preferential treatment. And, you know, I don't think that it's, you know, I don't think that it's fully appreciated. And that has helped us tremendously. And we will continue to operate that company that way, both with our customers as well as with our suppliers. So very proud of the work that our team has done in building those relationships, sustaining those relationships. And we continue to be very supportive of our supply chain And again, at the end of the day, yes, there's contractual support, but it's really done, it's just the way that we do business. It's a bit unique, but it has its benefits as is being evidenced today.
spk01: Thank you very much, Zach. Appreciate the comments.
spk03: I will now turn the call back over to Matt Seinsheimer.
spk07: Thank you. This concludes our second quarter conference call. A replay of the call will be available on our website beginning at approximately 8 p.m. British summertime today. If you have any further questions, please feel free to reach out to the investor relations team. Thanks for joining us. Jack, you may end the call.
spk03: We thank you for attending the Technique FMC second quarter earnings call. We thank you for your participation. You may now disconnect.
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