TechnipFMC plc Q1 FY2021 Earnings Call

Good morning, and good afternoon, and welcome to TechnipFMC First Quarter 2021 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-K, most recent 10-Q and other periodic filings with the U.S. Securities and Exchange Commission and the French AMF. 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 Pferdehirt, TechnipFMC’s Chairman and Chief Executive Officer.

Thank you, Matt. Our first quarter as a leading pure-play technology and services provider to both traditional and new energy industries began with solid financial results, with notable achievements that uniquely position us in the growing markets we serve. This was reflected through strong operational execution and an improving market backdrop that is poised to be even stronger for longer and continued development of real and material opportunities for TechnipFMC in the energy transition. Starting with the operational performance. We had an exceptional quarter in both operating segments. In Subsea, revenue grew sequentially in the period, driven by particularly strong execution of project backlog that offset the seasonal reduction in installation activity. In Surface Technologies, our international operations represented nearly 70% of total segment revenue, and we remain focused on delivering profitable results, supported by strong execution, both in the international and U.S. markets. In the U.S., we experienced sequential revenue growth despite the severe winter weather. Adjusted EBITDA from continuing operations totaled $165 million. Free cash flow from continuing operations totaled $137 million. We ended the quarter with net debt of $1.8 billion. And earlier this week, we announced the partial sale of our stake in Technip Energies for approximately $360 million. Inbound orders from continuing operations improved sequentially to $1.7 billion. Subsea inbound more than doubled sequentially to $1.5 billion, reflecting solid order momentum and a book-to-bill of 1.1. Integrated projects comprise nearly 40% of our Subsea order inbound in the quarter with particular strength in iEPCI orders and increased adoption of 2.0 technologies. During the quarter, we announced two separate iEPCI projects with Energean, building upon our previous experience with the Karish development and leveraging our iFEED capabilities to further extend our collaborative relationship to additional opportunities. We also received an iEPCI contract for the PETRONAS Limbayong project in Malaysia, their first deepwater development, awarded based on our Subsea 2.0 technology and integrated execution. Other project awards in the period included a contract for manifolds for the Petrobras Marlim and Voador fields offshore Brazil. The manifolds will utilize our next-generation all-electric robotic technology that replaces traditional subsea hydraulics, as well as thousands of mechanical parts, while providing real-time data and analysis on performance. The use of digital automation and control allows for a more compact unit that is smaller, less complex, and less costly with a significantly reduced carbon footprint. And the robotic software can be remotely upgraded, increasing the overall reliability and availability of the subsea systems. Turning to the market outlook. Client conversations remain constructive, suggesting a further increase in activity. Additionally, the external conditions that have driven oil and gas prices higher could provide greater price stability over the intermediate term. These include expansion in economic activity, driven by strong fiscal stimulus, COVID vaccinations, and expanded reopenings of local economies, and more constrained supply, a function of disciplined capital spend, particularly for OPEC+, whose actions appear focused on realizing a price that supports economic growth and continued energy investment. In Surface Technologies, international revenue continued to expand and represented nearly 70% of the segment in the quarter, driven by strength in the Middle East, North Sea, and Asia Pacific. These markets demand higher specification equipment, global services, and local capabilities, areas where we continue to further differentiate our offering. In the Kingdom of Saudi Arabia, we are nearing completion and start-up of a new facility that will significantly increase our local manufacturing capabilities. And in the North Sea, our extensive experience and high-pressure, high-temperature technologies provide us significant opportunities in a region where activity remains robust and well-supported by government incentives. We believe our unique capabilities will allow us to extend our leadership positions in these more resilient geographies. In Subsea, we are confident in our 2021 outlook of more than $4 billion in inbound orders. And we are well on our way to meeting this commitment just three months into the year. We expect continued benefit from our differentiated market strategy as well as favorable market fundamentals. More specifically, we believe that integrated project awards have the potential to more than double versus the prior year. And the combination of direct awards and our service-related orders could represent 50% of total inbound for the full year. We also believe that we will see order growth again in 2022, supported in part by an expanding list of opportunities on our opportunities map, where total project revenue or value grew 10% sequentially at the midpoint, despite the award of three projects during the period. In summary, we see potential for a recovery in global activity that is longer and more sustainable than what has been experienced in previous cycles, allowing for continued investment in traditional markets while providing incremental capital for the development of new energy resources. With regard to new energy resources, we believe that renewable energy will be increasingly sourced and stored offshore for both environmental and scalability reasons. The momentum has clearly shifted for offshore wind, in particular, which has attracted considerable attention in recent months. There was significant interest in the recent auction for seabed leases in the UK, with sites auctioned for more than 10 times prices paid in the previous auction. Norway is also moving forward with North Sea wind power, awarding its first development licenses for both fixed and floating wind developments. And the United States has unveiled a goal to expand offshore wind energy in the coming decade by opening new areas for development, accelerating permits and increasing public project financing. We believe that an increasing share of this investment will be made in deeper waters, where winds are stronger and more consistent. It is estimated that nearly 80% of the world’s offshore wind resource potential is in waters deeper than 60 meters. This will require floating and seabed infrastructure for energy generation, storage, and transmission, all of which can be enabled by our Deep Purple technology. During the quarter, we announced two strategic partnerships, both of which are focused on generating renewable energy from novel wind and wave resources. First, we announced a partnership with Magnora to jointly pursue offshore wind project development opportunities. Magnora holds a strategic position within the renewable energy sector as an owner in wind project development. The partnership has already commenced operations and is focused on opportunities in Scotland and Norway and will consider entering new markets in the coming months. Additionally, we announced a strategic partnership with Bombora to bring together both wind and wave power, utilizing Bombora’s mWave technology, coupled with proprietary technologies from TechnipFMC to convert wave energy into electricity. By combining both wind and wave, we believe we can generate even higher yields from floating turbines when compared to fixed projects, further lowering project development costs. Importantly, we will look to further differentiate ourselves in the marketplace by utilizing the very same playbook that led to the successful transformation of our subsea business and extended our technological differentiation, increased project economics, and improved our market positioning. And to be clear, we are playing the long game, built around our differentiated technologies and integration capabilities and focused on selecting the right partners and the right projects. Remember, the benefits of this path were not obvious at the time we initiated iEPCI. Integrated project execution was a fundamental change in the approach to subsea project delivery, and its tremendous success gives us absolute confidence that we are taking the right steps to create a sustainable and high-returns business to address the market demand for a renewable future. I will now turn the call over to Alf Melin.

Thank you, Doug. Total company revenue in the quarter was $1.6 billion, with adjusted EBITDA of $165 million. Inbound orders were $1.7 billion. Total Company backlog was largely unchanged sequentially and stood at $7.2 billion at the end of the period. Backlog for subsea was $6.9 billion, of which $3.9 billion is scheduled for execution beyond 2021. We ended the quarter with cash and cash equivalents of $753 million and net debt of $1.8 billion. During the quarter, we recognized a gain of $470 million related to our equity ownership in Technip Energies. This relates primarily to the change in the fair market value of our remaining stake, which for this initial period reflects the difference between book value at the time of separation and the market value at quarter-end. Income per share from continuing operations was $0.95 per diluted share in the quarter. When excluding the impact of the change in fair market value of Technip Energies and other charges that netted to an after-tax credit of $0.99, the adjusted loss from continuing operations per share was $0.03. With the partial spin-off of Technip Energies completed during the quarter, financial results for Technip Energies are now reported as discontinued operations in our financial statements. For the three months ended March 31, 2021, the results of discontinued operations on the income statement include the historical results of Technip Energies prior to its spin-off on February 16, 2021, and all separation-related costs incurred for the transaction. Additionally, there were no assets or liabilities classified as discontinued operations on the balance sheet at the end of the quarter. Our investment in Technip Energies is now reflected in current assets at market value as of March 31, 2021. Now, let me turn to the segment results. I will focus on our sequential performance with the first quarter compared to our fourth quarter 2020 segment results. In subsea, inbound orders were $1.5 billion in the quarter, providing us with a very strong start to the year. Revenue of $1.4 billion increased approximately 4%, benefiting from strong project execution of backlog. The geographic mix of projects mitigated the seasonal decline in activity. Subsea adjusted EBITDA margin of 9.7% improved sequentially by 100 basis points as the increased manufacturing productivity more than offset the decline in services activity. In Surface Technologies, first quarter revenue of $245 million decreased 6% sequentially, driven by the seasonal decline in customer activity and the timing of backlog conversion in international markets. Revenue in North America declined due in part to the Company’s exit from certain underperforming markets, partially offset by growth in the U.S., where we benefited from further adoption of the iComplete ecosystem. Adjusted EBITDA margin of 11% declined 80 basis points versus the fourth quarter, primarily due to lower volumes, partially offset by continued improvement in operational performance and a lower cost structure. Turning to cash flow. Cash from continuing operations was $182 million in the period. Capital expenditures were $44 million. This resulted in free cash flow of $137 million. During the quarter, Bpifrance acquired $100 million in Technip Energies shares from our retained stake as part of the share purchase agreement related to the spin-off. Bpifrance had previously provided funding to us for up to 200 million shares as a result of their revised level of investment, we refunded $100 million to Bpifrance earlier this month. Neither of these items impacts our free cash flow as the activities related to the disposition of Technip Energies shares are reported in the investment section of our cash flow statement. Turning to corporate items. Our corporate expense was $29 million in the period. Excluding charges totaling $3 million, the expense was $26 million. During the quarter, we experienced a $28 million gain on foreign exchange. We also incurred a $24 million loss on the early extinguishment of debt related to the refinancing of our debt structure at the time of the spin. Tax expense for the quarter was $25 million. Now, let me provide you with an update on our financial guidance for 2021. Our strong start to the year gives us further confidence in our outlook, and we reiterate our full year segment guidance. As a reminder, guidance is based on continuing operations and thus excludes the impact of Technip Energies, which is reported as discontinued operations. Separation-related tax items and costs were also reported in discontinued operations during the first quarter. And as a result of this change in where these expenses are recorded, we have removed the anticipated impacts from our guidance. Our full year guidance for the tax provision has been revised lower to a range of $70 million to $80 million, which now excludes separation-related tax items of approximately $40 million, while free cash flow guidance for the full year has been revised higher to a range of $120 million to $220 million, which now excludes the separation-related tax items and costs of approximately $70 million. The estimated separation-related expenses remain in line with our expectations but are now included in discontinued operations. These expenses were incurred during the first quarter, and we do not anticipate calling out any further material separation-related items in our financial statements. And finally, this week, we announced the sale of 26.8 million shares of our ownership stake in Technip Energies for proceeds of approximately $360 million to TechnipFMC. There is no tax liability associated with the sale of our shares. The share sale will reduce our ownership stake to 55.5 million shares or approximately 31% of Technip Energies’ outstanding shares. As we have previously stated, we do not intend to remain a long-term shareholder of Technip Energies, and this transaction clearly demonstrates our commitment to exit our holdings in a timely and orderly manner. I will close by highlighting the key takeaways regarding our cash-related items. We ended the first quarter with cash and cash equivalents of $753 million and net debt of $1.8 billion. Free cash flow in the period was $137 million, and we expect that our performance over the remainder of the year will meet guidance. And lastly, after adjusting for the $100 million refund to Bpifrance, net debt in the second quarter will benefit from approximately $260 million in proceeds related to the announced block sale transaction. This leaves us with increased liquidity and greater financial flexibility while demonstrating solid progress towards our commitment to return to investment-grade status. I will now turn the call back over to Doug for his closing remarks.

Thank you, Alf. In closing, our first quarter results provide us with a very strong start to the year in support of our 2021 commitments. Our strong order inbound clearly demonstrates that we continue to solidify our leadership position in conventional energy. Looking ahead, we expect robust and sustained activity across our businesses, supported by improving market fundamentals and our competitive differentiation. Our work to develop novel wind and wave energy and subsea hydrogen technologies through our Deep Purple project is progressing well. Strategic partnerships such as those with Magnora and Bombora will further advance and accelerate our efforts. We remain committed to delivering a 50% reduction in greenhouse gas emissions by 2030. To help achieve this goal, we have converted an existing vessel, the Deep Arctic, into the world’s first hybrid dive support vessel. And we will continue to leverage our core strengths to create a unique position for TechnipFMC in the development of new energy sources, as we have done successfully in our conventional business. We are also very excited to announce that we will host an Analyst Day scheduled for the 16th of November, where we will showcase our strategic priorities and initiatives that support them. Operator, you may now open the line for questions.

Your first question comes from David Anderson with Barclays.

Let me start off with a kind of a big picture question for you. With the business lines you’re in, I think you probably have more insight into global offshore production trends than just about anybody. Sorry to relive this with you, but subsea trees peaked at 550 in 2014, floating rigs at 260, and we’ve been at less than half those levels for several years now. Yet the forecast I see, for instance, shows global offshore production staying flat after 2025, and only have decline rates of about 5% in their models, and a surprising 4 million barrels of incremental new capacity coming on by 2025. I mean I get it, these are long-cycle projects that take years to complete. But, shouldn’t the huge drop in rigs and trees start manifesting in production soon? I’m really having trouble tying the two together, really like to get your opinion, how you’re thinking about kind of global offshore production over the next, let’s say, five years?

Sure. David, when you talk about increased activity, you mentioned production, but I’m looking specifically at production. I’m trying to connect your activity with the production and understand why we aren’t seeing that reflected in the numbers. When will we start to see it in the numbers, and when will the offshore production truly begin to decrease? Sure. I want to highlight that because of your question about these long-cycle projects, there is often a delay between activity and the actual increase in production. Let's break this down a bit. Our company has not only benefited from an increase in activity but also significantly improved our market position. This stems from introducing something new and innovative, both in technology with Subsea 2.0 and a unique commercial model, iEPCI, where we are the only entity providing this combination. This was demonstrated by the recent PETRONAS Limbayong award, which marked PETRONAS’ first deepwater project. They recognized the advantages of both Subsea 2.0 and iEPCI, which culminated in an iEPCI 2.0 award to our company. We are experiencing activities that the rest of the market is not, and we are very grateful for that. Additionally, as I mentioned earlier, we are seeing a higher level of front-end engineering work or iFEED studies, along with traditional FEED studies and front-end engineering and design. Last year, I emphasized a further rise in iEPCI studies. These studies typically take 9 to 18 months, depending on the project and customer readiness to move to the FID phase. We are observing these developments now, which is why I could provide guidance back in October regarding our expected inbound for this year. At that time, the market visibility was limited, but our unique set of opportunities offers us a distinct perspective on the market, allowing us to give the guidance we provided about inbound orders for this year, and we are off to a very strong start. So, David, we see this happening. It's important to view TechnipFMC through a different lens compared to the rest of the market. We have access to a substantial market, and I indicated that this year, around 50% of our inbound could be directly awarded to our company. We are confident in this outlook. It's been a long time since anyone in this industry discussed 2022 inbound orders as early as the first quarter of 2021. As I mentioned earlier, we are indeed looking at 2022 inbound. While unforeseen events can occur, barring the extension of the pandemic or any global economic crisis, we foresee 2022 as a turning point for our inbound orders and activities, which will eventually lead to increased production as these projects become operational.

Got you. It was impressive to see subsea orders this quarter. We've also received positive feedback from some of the service teams. As you start to ramp up, your iEPCI model appears well-suited for this market. Looking ahead, I commend you for your confidence in forecasts stretching to 2022. However, considering the next few years, do you believe there are sufficient opportunities in this sector? If we maintain this level and potentially overlook some larger projects, do you see the subsea business achieving double-digit year-on-year growth again? Additionally, do you think that growth could be enough to bring subsea margins back into the 13% range, similar to what we experienced before the peak in 2013 and 2014?

Yes, we provided our guidance for this year, and we started off with a very strong first quarter in our subsea margins. Subsea revenue was impressive, so as we continue to increase our level of activity, we expect our margins to also rise. Currently, our margin guidance is close to your target, so I believe the expectation you set for the next two to three years is quite realistic.

Your next question comes from Guillaume Delaby with Societe Generale.

One question for Alf. Following the disposal of at least a partial spin-off, how should we think about your working capital? How should we model? Can you provide us maybe one, two or three, I would say, guidelines, which would make sense for us?

Yes. Thank you for the question. So, when we think about working capital, obviously, first of all, we acknowledge that we had some working capital inflow in this first quarter. And it’s not unusual that we’re going to have some quarters that have some inflow and some outflow that varies. Over the period of a year, we’d like to think that it nets out to some degree. But if we specifically look at the forecast for the rest of the year, we are confident in that we will be close to working capital neutral. So, I mean, I would always start with a starting point to working capital neutral. And then, from that point, we will advise and forecast if there are unusual items that impact beyond that. So, when you look out for the full year this year, we expect to basically keep the working capital favorability we recognized so far in this first quarter, be more neutral for the rest of the year and end up with a free cash flow that is in line with our guidance.

Your next question comes from Marc Bianchi with Cowen.

So, Doug, you mentioned on the Subsea performance in the first quarter was strong, and it sounded like there was some manufacturing throughput that helped there. And certainly, as we progress from here, I would suspect that that stays at a similar level or improves, and then you get a seasonal recovery in services. So, just based on that understanding, I would think that your margins would be biased higher in the second and third quarter from where you were in the first, just curious if you have any commentary around that.

Sure, Marc. As you know, we provide annual guidance and prefer not to engage in quarterly forecasts. However, I agree that we are noticing certain efficiencies as we recover from the challenges faced in 2020, particularly regarding our supply chain. We have a solid backlog, which I've mentioned in previous quarters, and it's important to highlight because it's quite significant for our Company. Our margins and backlog are on the rise, focusing on quality rather than just quantity. This is critical as we move forward. However, it's essential to recognize that we operate in a project-based business. While improved performance and execution can accelerate milestones, those achievements don’t necessarily happen uniformly every quarter since they occur sporadically. Therefore, we shouldn't expect a linear trend in our progress. That said, our business is performing exceptionally well, and I'm very proud of the efforts put forth by our team during the challenging year of 2021, as we begin to realize the full potential of our Company as we move ahead as a standalone entity.

The next question I had was a bit longer term and related to Deep Purple. You mentioned technology there. And my understanding of Deep Purple is it’s perhaps more of a concept at this stage than actual technology development. I suspect you’d disagree with that. And I’m curious on your on sort of what tangible technology you have that’s being developed towards that project? And then also, if you could comment on the agreement with Magnora, and sort of why Magnora versus perhaps some other offshore developers that could be out there?

Sure. Those are two important questions. First, while I appreciate your perspective, I don't necessarily agree. It’s definitely a unique concept and we do have the technology to support it. It's important to recognize that we’re dealing with a substance that is quite challenging to manage due to its corrosive nature and stability issues. We’ve invested a significant amount of time in technology development over the past four years. We avoided discussing this earlier because we prefer to have tangible results before we communicate or market anything. Developing this has been crucial for us. Although it started as a concept over four years ago, we are well into what’s known as the TRL process, where we validate our products’ capabilities, including sealing surfaces and containment. This is essential for operating effectively not just with hydrogen, which presents its own challenges, but also in demanding environments like subsea. I’d like to take this opportunity to invite you to our Analyst Day in November, where we plan to showcase this technology extensively, as it will be a significant part of the event. We're making solid progress on this front and are advancing through multiple phases of the Deep Purple project. As for our partnership with Magnora, we are very happy to collaborate with them. It was important for us to establish a strong relationship where we could work closely and effectively together. Our company is built on long-lasting client relationships, often spanning 20 to 25 years, and we intend to apply the same approach as we venture into new energy areas. While we are focused on building this relationship with Magnora, we expect to collaborate with additional partners in offshore wind as well. We believe Magnora is the ideal partner at this point and are proud to be working with them, though this doesn't preclude us from pursuing other partnerships, similar to our approach in traditional business where we maintain various collaborations and relationships.

Your next question comes from Amy Wong with UBS.

A couple of questions from me. The first question is, I think one of the notable data points for this quarter is in your subsea backlog. It seems to have had a pretty decent increase of inbound converting into 2021 execution. So, is that a fair observation? And if yes, is there any kind of trend to call out in terms of the types of projects your clients are moving forward with? Maybe there’s a bit of pent-up demand that seems to mean like the inbound is converting to revenue in a slightly shorter timeframe than usual?

This is Alf here. I can take that one. Let’s say this, every quarter, there is some movement in the backlog scheduling. And in this case, you are absolutely right that there is some accelerated demand in our execution. So, we are able to capitalize on that. And that overall is driving us in terms of our look now at the full year guidance for our revenue to trend a little bit more towards the high end of the guidance range for revenue in Subsea. So, overall, that’s a positive picture.

Good afternoon, Amy. I want to add to that. Regarding your question about any changes in the client mix or project mix, it's clear that as clients focus on optimizing the use of their existing offshore infrastructure—specifically through more tiebacks and brownfield opportunities—our iEPCI and Subsea 2.0 solutions are perfectly timed. We have consistently demonstrated our ability to take a 20-month project and complete it in just 14 months on the seabed. Throughout 2020, during the pandemic, we collaborated closely with many major subsea players, all of whom were investigating how they could integrate additional resources back into their infrastructure, whether it belonged to them or another oil company. We've played a key role in those discussions and have worked with various oil companies to make that a reality, thanks to our unique capability to deliver installed commissioning on the seabed in half the time of conventional competitors. This efficiency will lead to quicker acceleration and conversion of inbound revenue and profitability as we see more of these types of projects in our backlog.

Got it. My second question relates to your announcement to host an Analyst Day in November. While that's a bit far off, I wanted to understand if FTI is reviewing its strategy regarding the potential spin-off of energy. Should we expect a significant strategic update in November, or will the focus be more on technology?

Well, Amy, let me start by saying we know you all are under high demand and hugely popular, and that is a busy time of the year, both in terms of conferences as well as in terms of potentially other people having Capital Markets Days or Analyst Days. So, we just wanted to get on your calendar early, and we certainly hope that you’ll be able to join us. In terms of the structure, sure, you should expect that we’ll be talking strategy as well as technology. We’re a company that drives change. We’re a company of innovation. I think we continue to surprise to the upside and not only surprise the upside but to deliver against what we state. So, we’re certainly excited for it. We think it will be a time well spent, and we hope that you’ll be able to join us.

Your next question comes from George O’Leary with TPH & Company.

Free cash flow guidance increase was very nice to see. I was just wondering if you could frame the low end and the high end, what drives kind of the low end or the high end of that range.

Sure. First, the guidance for free cash flow has increased. I want to be clear that this is mainly due to the separation-related expenses that we previously thought would remain in continuing operations but were actually recorded in discontinued operations in the first quarter. However, if I'm being honest, most of the variations are related to the timing of working capital. Although we believe we can maintain a neutral working capital for the rest of the year, some risks still exist. Regarding our management of other areas of free cash flow, such as capital expenditures, there may be possibilities. We are showing confidence in our revenue potential from Subsea and, to some extent, the margin potential from Surface, which could yield positive outcomes. Overall, we are optimistic about our ability to meet the full-year free cash flow forecast as we have indicated.

All right. Very helpful. And then, just a bigger picture question with respect to the renewables or energy transition side of the equation. Just curious if you could frame the pathway or glide path to that side of the business becoming a material portion of revenue? And then, maybe what’s the nearest-term opportunities are comprised of, whether it’s offshore wind, floating solar, tidal wave plus wind, all three? Just any color on the glide path and the composition?

Yes, George, that's an excellent question and one we've devoted considerable attention to. I touched on it during the prepared remarks as it is very important. We'll discuss this further in November at our Analyst Day, but let me provide a brief overview. Our new energy strategy is centered around four key pillars: offshore wind, particularly floating wind, which we believe will make up 80% of total offshore wind. We are not pursuing fixed wind as it's highly fragmented, lacks integration, and relies heavily on technology from turbine manufacturers. Chasing fixed wind just to utilize our vessels short-term doesn't align with our strategy or constitute meaningful new energy revenue. Instead, we're focused on how we can differentiate our company through technology and integrated offerings, similar to our approach in conventional energy. We believe this strategy will enable us to deliver acceptable returns for our shareholders compared to just selling a vessel at a lower rate in the fixed wind market today. This aligns with our long-term vision, as demonstrated in our traditional business during 2017, 2018, and 2019 when we remained disciplined instead of simply chasing activity. We committed to iEPCI projects, ensuring we could leverage our floating assets to deliver those projects effectively. We see similar potential in wind. For wave energy, we are committed to focusing on technology and its integration with wind, believing we can enhance output significantly—by as much as 30%—by combining them. Moreover, the capability to store and convert energy offshore will be vital, which is where our Deep Purple project comes in, enabling hydrogen production and other energy storage methods. We aim to distribute energy offshore rather than being limited to near-shore ports. This encompasses our focus on wind, wave, hydrogen, and also carbon transportation and storage. It seems unlikely that we can achieve the necessary levels of carbon sequestration solely on land, so much of this will likely occur near coastlines. We plan to introduce innovative technology that allows for the safe transport and storage of sequestered CO2 subsea. This is our approach—it revolves around these three pillars, which we intend to integrate whenever possible. It’s important to note that we currently manage 50% of the world's subsea infrastructure, which could be repurposed as distribution, storage, or injection hubs. This will require advanced technology, and we look forward to sharing details on that in the upcoming quarters. Combining all these elements creates an exciting roadmap for us. Now, regarding your inquiry about timing and potential size, the potential is vast and likely matches that of our conventional business. The key questions are when will it materialize and whether there will be an overlap in growth. As we mentioned, our conventional business is experiencing growth that we anticipate will continue through 2022 and potentially beyond. Renewables and carbon may ramp up before hydrogen, though this is somewhat unclear and will depend on local support and legislation that may influence which sector advances first. We aim to be positioned as a premier offshore company, just as we are today in subsea for conventional hydrocarbons and renewables. Regardless of which sector gains momentum first, we expect to be well-equipped to capitalize on that, while ensuring our renewable revenue aligns with sustainable profit-generating opportunities rather than merely chasing utilization for our existing assets.

Your next question comes from Michael Alsford with Citigroup.

I’ve got a couple, please. Firstly, if I could just lead off, you’ve done a great job driving greater efficiency through the business. But, I guess following separation, are there any significant areas, Doug, where you see the ability to reduce costs further across the organization?

Well, Michael, as you know, this management team is consistently focused on operational improvement, and I can't emphasize enough the strong leadership across our organization, including in engineering, manufacturing, supply chain, and across our operating segments. We prioritize simplicity and aim to eliminate complexity. As a standalone company, we have been able to reduce some of that complexity and maintain our focus. We are implementing this approach in everything we do. So, Michael, I’m not going to announce any major cost reduction initiatives, but I assure you that we are continually seeking ways to enhance the efficiency of the organization. This not only improves efficiency but also creates a better work environment for our employees by eliminating complexity and unnecessary costs.

And just a quick follow-up on the cash flow. I’m just wondering is there any specific inflows within the quarter such as unwinding provisions or so tax rebates that help drive the good free cash flow result, or is it simply just the flow of milestone payments on contracts during the quarter? Thanks.

Yes. So, you’re talking about the first quarter impact here? Exactly, yes. I was just wondering whether there’s anything specific in that quarterly working capital inflow that helped drive free cash flow higher? Yes. So, thanks for the question. Yes. There were some items in the first quarter that were beneficial. We had a settlement that went into the first quarter. We did have some other negative items as well. But overall, that settlement benefited the free cash flow for the quarter.

And just roughly how much was that?

Yes, Michael, let me just add to that. There are factors that contribute from operations, and there are always other items that affect cash flow. However, these were all included in our expected cash flow. So, nothing unusual or unexpected created the positive momentum; it was simply effective execution on the cash flow front.

Your next question comes from Waqar Syed for ATB Capital Markets.

Thanks for taking my questions. Two questions. First one, you’ve made a comment that you see a sustainable, long-term kind of growth activity offshore. And we’ve seen in the industry a lot of rationalization of employee base. And the average employee that you need for Subsea is a lot more sophisticated and trained. Do you have the right people and the right number of people to be able to efficiently manage that growth that could be a multiyear kind of up-cycle?

Thank you, Waqar. We all have biases, both unconscious and conscious. I want to be clear that I have a conscious bias, as I truly believe we have the best people. What they have consistently demonstrated, particularly over the last year, has been inspiring. While the adjustments we've made were unfortunate, we've done everything possible to protect our talent and continue providing them with development opportunities to advance their careers within our company. You bring up a valid point about the supply chain; often, there are smaller companies that are heavily dependent on one or two customers. In our case, we are a customer rather than a contractor. We work closely with our key suppliers and shifted work around just as our customers did for us. Some customers chose to move work from competitors to us, knowing they wanted to work with us and ensuring we had enough volume to navigate last year’s challenges. We're also implementing similar strategies with our suppliers. That said, any growth cycle comes with its challenges. We are going into this with our eyes wide open, and we have worked hard to ensure our workforce is not only protected but also motivated and prepared to deliver. I want to highlight that our approach to business, particularly iEPCI, is much more efficient regarding human resources and Subsea 2.0 in terms of manufacturing and personnel. We are not just entering an upturn; we are entering this phase very differently, equipped with the next generation of subsea equipment, which now makes up a significant part of our total work. This presents a very different recovery for us, for which we believe we are well-prepared, but we acknowledge there will be challenges as growth continues.

Thank you, Doug. May I ask another question? Before the separation of Technip Energies, you had certain expectations about how interactions with customers, employees, and investors would change following the split, including their behavior and its potential benefits for FTI. Now that the separation has occurred, how does the actual situation compare to your initial expectations?

Regarding customer relations, yes, you had a perspective that there might be potential for improvement. There was an expectation of possibly seeing an increase in revenue, either for Technip Energies or for your company post-separation. Are you observing any of that? Yes, it’s clear that we are honored to have deep and meaningful relationships with many of our customers. They collaborate with us in a way that differs from their interactions with others in their supply chain. This relationship is not something given lightly; it has been developed over time through performance, trust, and transparency. The pure play model enhances this intimacy because the HoldCo had two distinct models with very different contractual approaches. This shift allows for closer connections, and I believe we are benefitting from that. This belief is supported by the announcement of several new relationships over the past year, many of which are exclusive to our company, with more to come this year. Regarding our employees, we now have the opportunity to be more focused, allocate more time, and increase visibility. Previously, some larger projects required significant management attention, but we can now distribute that focus more equitably throughout the organization, which I believe is the right approach. For our shareholders, I hope we demonstrated the value of being an independent company in Q1.

And our last question comes from Bertrand Hodee with Kepler Chevreaux.

Yes. Thank you for taking my question. One on Mozambique. Back in 2019, you won a substantial contract, $1.1 billion, for the subsidiaries of Mozambique LNG. Can you give us an update obviously following the force majeure? Do you see any direct impact? And if you can share any color or especially what is left in the backlog from this contract?

Thank you for the question, Bertrand. It's important, and I want to address some inaccuracies that have been circulating. We announced this as a significant award, exceeding $1 billion. Typically, for a project of this magnitude, revenue would be recognized over approximately five years. While it's not a linear process, you can estimate the annual impact. Currently, we are in the early stages of discussions with Total, who is a serious customer and partner. We have great respect for Total and appreciate their commitment to the health and safety of their personnel and our contractors. As an offshore company, our focus is entirely offshore, with no in-country exposure. We are currently engaged in the manufacturing of subsea equipment, which is progressing well and on schedule, despite being located far from Mozambique. It's important to note that we are not involved in any onshore infrastructure. We respect Total’s position on these matters and will collaborate closely with them, as they prioritize the wellbeing of their people and contractors. Should any issues arise that affect our projected revenue or profits from this project this year, I want to be clear that it would not necessitate a revision of our guidance regarding revenue or EBITDA. While this project is significant, we have numerous other projects and are a globally diversified company. Therefore, there should be no concerns about potential impacts, but if any were to occur, it would not change our guidance for 2021.

Okay. Crystal clear, Doug. So to summarize, the only risk we can see is a delay in the offshore campaign installation in terms of schedule of the contract?

Yes, that potential exists. But again, we’ve been given no decision made at this time. We’re working closely with Total.

Your next question comes from George O’Leary with TPH & Company.

Free cash flow guidance increase was very nice to see. I was just wondering if you could frame the low end and the high end, what drives kind of the low end or the high end of that range.

Sure. First, the guidance for free cash flow has been increased. As I mentioned in my prepared remarks, this change is primarily due to the separation-related expenses, which we initially expected to be part of our ongoing operations, but they were recorded under discontinued operations in the first quarter. Overall, to be honest, most of the variations we see are related to the timing of working capital. While we are confident we can maintain neutral working capital for the rest of the year, there are still some risks involved. We may be able to manage other aspects of free cash flow, such as capital expenditures. There are various factors at play. We also believe in our revenue potential in Subsea and to some extent, the margin potential in Surface, which could contribute positively. Therefore, we are optimistic about meeting our free cash flow forecast for the full year as we have projected.