10-QPeriod: Q1 FY2018

TechnipFMC plc Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 15, 2018For Securities:FTI

Summary

TechnipFMC plc (FTI) reported a notable shift in financial performance for the first quarter of 2018 compared to the same period in 2017. Total revenue decreased by 7.8% to $3,125.2 million, largely due to the completion of certain Subsea projects in Africa and reduced activity on the Yamal LNG project. However, the company achieved a significant improvement in profitability, with net income attributable to TechnipFMC plc swinging from a loss of $18.7 million in Q1 2017 to a profit of $95.1 million in Q1 2018. This turnaround was driven by a substantial increase in gross profit margin to 19.2% (up from 12.0% in Q1 2017) and a significant reduction in merger transaction and integration costs. The company's segment performance showed mixed results. The Subsea segment experienced a revenue decline but improved operating profit margin due to cost efficiencies. The Onshore/Offshore segment saw a revenue decrease driven by project completions but a substantial increase in operating profit margin, attributed to strong project execution. The Surface Technologies segment demonstrated robust growth, with a significant increase in both revenue and operating profit, primarily driven by higher activity in North America. TechnipFMC also highlighted strong order backlog growth, particularly in the Onshore/Offshore segment, which increased by $1.1 billion, partly due to the adoption of ASC Topic 606. Despite the revenue decline, the company's improved profitability, strong backlog, and positive outlook for the oil and gas industry suggest a potential for continued recovery and operational efficiency gains.

Financial Highlights

53 data points
Beta

Revenue

$3.13B

82.9% Gross Margin

Net Income

$95.10M

3.0% Net Margin

EPS (Diluted)

$0.20

Total Assets

$28.53B

Cash & Equivalents

$6.22B

Free Cash Flow

-$254.80M

Financial Statements
Beta
Revenue$3.13B
Cost of Revenue$534.80M
Gross Profit$2.59B
R&D Expenses$41.10M
SG&A Expenses$303.10M
Operating Expenses$2.89B
Operating Income$287.90M
Net Income$95.10M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)464.30M
Shares Outstanding (Diluted)465.70M

Key Highlights

  • 1Net income attributable to TechnipFMC plc turned positive, reaching $95.1 million in Q1 2018 from a loss of $18.7 million in Q1 2017.
  • 2Total revenue decreased by 7.8% to $3,125.2 million, primarily due to project completions in Subsea and Onshore/Offshore segments.
  • 3Gross profit margin significantly improved to 19.2% from 12.0% year-over-year, reflecting cost reductions and better project execution.
  • 4Surface Technologies segment showed strong growth with revenue up 49.6% and operating profit improving significantly.
  • 5Total inbound orders more than doubled to $3,487.0 million, indicating a strong recovery in customer demand across segments.
  • 6Order backlog increased by $1,029.2 million to $14,012.0 million, with significant increases in Onshore/Offshore and Subsea segments, partly influenced by new accounting standards (ASC Topic 606).
  • 7The company is still addressing material weaknesses in internal controls over financial reporting, as disclosed in the previous annual report.

Frequently Asked Questions

The primary driver for the improved net income is a combination of factors including a substantial increase in the gross profit margin to 19.2% (up from 12.0% in Q1 2017), attributed to strong project execution and cost efficiencies from prior restructuring efforts. Additionally, merger transaction and integration costs decreased significantly, contributing to the bottom line.

Total revenue decreased by 7.8% primarily due to the natural progression and completion of large projects, particularly in the Subsea segment (Africa projects) and the Onshore/Offshore segment (Yamal LNG). However, the company saw increased activity in new Onshore/Offshore projects and growth across all Surface Technologies business lines, especially in North America. The strong increase in inbound orders and the robust order backlog suggest a positive outlook for future revenue growth as the industry recovers.

TechnipFMC adopted ASC Topic 606 effective January 1, 2018, using the modified retrospective method. This resulted in a $91.5 million reduction to retained earnings. The adoption impacted the presentation of trade receivables, contract assets, and contract liabilities, leading to reclassifications. It also caused a one-time adjustment to the order backlog in various segments. While it caused a decrease in reported revenue by $36.2 million for Q1 2018 under the new standard compared to the old, the company believes it better reflects the transfer of control and improved the comparability of financial reporting.

Yes, TechnipFMC is involved in ongoing government investigations related to alleged violations of the U.S. Foreign Corrupt Practices Act (FCPA) concerning historic projects in Brazil, Ghana, and Equatorial Guinea, as well as inquiries related to services provided by Unaoil. The company is cooperating with these investigations. Additionally, there is a pending shareholder class action lawsuit alleging securities law violations in connection with a previous restatement of financial results and a material weakness in internal controls. The company is contesting these matters, but their ultimate outcome could have a material adverse impact.