Ladies and gentlemen, thank you for standing by, and welcome to the TechnipFMC First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Matthew Seinsheimer. Thank you. Please go ahead, sir.

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

Thank you, Matt. Good morning and good afternoon. Thank you for participating in our first quarter earnings call. With me today are Maryann Mannen, Chief Financial Officer; and Catherine MacGregor, President of Technip Energies. I also note that we’ve dialed in from different locations across the globe, another side of the impact the COVID-19 continues to have on our daily lives. Two months ago, we provided our initial view of 2020. Over those two months, much about the world has changed, including the spread of COVID-19, the shifting in OPEC policy and the sharp selloff in equity markets. Most of these effects will normalize, for others will lead to real lasting change. Today, I want to share with you some of the specific actions we are taking in direct response to the market environment, and how these actions will further reshape TechnipFMC as we transition to the new energy landscape. Over the short-term, we're taking immediate actions to protect our people, reduce costs, and preserve liquidity. First amongst these is the responsibility we all have to protect the health and safety of our employees, contractors and customers we serve, and we are taking a number of specific actions in this effort. These include on-site prevention measures, such as social distancing, staggered shifts, and health screening to ensure safer work environment, and strict self isolation procedures for employees who may have been exposed to the virus that extend beyond recommended guidelines. We're also maintaining business continuity by providing our employees with the appropriate equipment and services to work remotely when possible, establishing protocols that allow for remote inspection of manufacturing processes, and leveraging our global footprint by transferring lessons learned. Collectively, these actions have allowed most of our vessels manufacturing and service locations to operate throughout this period, providing us with…

Thank you, Doug. Total company revenue was $3.1 billion in the quarter, an increase of 8% versus the prior year driven by solid growth in Technip Energies as well as modest growth in Subsea. Adjusted EBITDA was $220 million. First quarter cash flow from operations was $28 million. Adjusted loss per share was $0.11 in the quarter, when excluding after-tax charges and credits of $7.17 per diluted share. The total after-tax charges and credits of $3.2 billion largely reflect non-cash charges for goodwill impairment in the Subsea and Surface Technologies segments. These impairments were due to significant decline in the company's market capitalization since our last measurement period. We have also identified direct COVID-19 expenses totaling $9 million in the quarter. It is important to note that these expenses do not capture the disruption related to overhead absorption, utilization and other operational impacts which are not specifically called out but included in our adjusted results. Also included in our adjusted earnings are items for which we do not provide guidance, including an expense resulting from increased liability to the joint venture partners of $0.08 per diluted share, and foreign exchange losses of $0.10 per diluted share. These two items impacted EPS by $0.18 in the period. And if excluded, our adjusted earnings would have been $0.07 per diluted share. We are responding to the current environment by taking a series of actions in an effort to further reduce costs and preserve liquidity. Doug spoke earlier to the significant increase in our cost reduction target, which now totals $350 million in annualized savings, and we expect this run rate by the end of the year. I also want to reiterate our previously announced reduction to capital expenditures where we have reduced our prior guidance by $150 million to approximately $300 million…

[Operator Instructions]. And our first question comes from the line of Sean Meakim from JP Morgan. Your line is open.

So I appreciate you making the best efforts here to fill in parameters for 2020 where you have visibility over just pulling all of it. It's very helpful and I certainly appreciate the uncertainty given COVID and the shifting plans on -- for your customers on their projects. Given the outlook there's also an emphasis in the market on balance sheet strength and maximizing free cash, minimizing cash burn. You’ve reduced the dividend, you cut CapEx, you're taking cost out, but there also likely be some cash drag in 2020 that -- to effect that. Perhaps prepays are less in this year than you would have thought coming into it, particularly with the reduction in the energy's revenue guidance. So if I put all that together, how should investors be thinking about your cash balance and liquidity, where those could be when we exit this year and head into 2021?

Sean, thank you very much for the question and I think you framed it very well. I think you hit on many of the key elements and the parameters that we're dealing with as a company and more broadly that the industry is currently dealing with. And as you pointed out, we've taken very swift and decisive steps to ensure that our utmost focus is -- always has been and remains on the liquidity and the strength of our company. As you know, we have a very strong balance sheet and we have a very strong backlog. And those provide the key foundations on which for us to continue to operate. At the same time, we'll move forward with aggressive cost reduction activities and some of the other items that you noted. I'll hand it over to Maryann to add some additional details around the subject. Maryann?

Thanks Doug. Yes, thanks, Sean. So look, based on the outline of our segment performance and the views that Doug has provided and that incorporates all of that. We expect cash flow from operations to be positive but it will be below the $1 billion that we previously provided or we previously guided. Our guidance assumes then that certain inbound projects along with their corresponding milestones as you've outlined, and payments we would receive in 2020. And as we shared, we are seeing some deferrals of those project awards and therefore obviously some cash flow impact of those deferrals. A good example is one that Doug talked about, that’s the ExxonMobil's Rovuma project being delayed into 2021. But as we further develop the segment views and have greater clarity on the range of outcomes, we'll update our cash flow projection. But again, we continue to expect cash flow from operations to be positive this year but it will be below the $1 billion previously guided.

Got it. I appreciate that. Thanks for all that feedback. And then in the opening comments, I thought that the ones around digital, with Subsea Studio were interesting. It's becoming a consistent theme this earning season. These initiatives aren't new but they're getting highlighted, given the pressure your customers are facing. Could you maybe elaborate on the impact of these types of initiatives around further reducing FEED cycle times, manufacturing cycle times, ultimately, time to first oil for customers. Is there any more you can elaborate around how that can help drive project economics?

With pleasure, Sean, thank you for the question. So, we have been systematically attacking the cycle time of Subsea since the creation of TechnipFMC. It was one of the fundamental reasons for creating the company. We've done that very successfully in the execution phase. We're now able to execute projects with a 50% reduction in the normal -- in the time that it would take to do those projects and using a traditional approach. And we've done that on a consistent basis. Hence the reason we have received repeat awards in almost all cases from the clients that we have served with our new iEPCI model. At the same time, we realize that we need to attack the front end and we also need to reduce the cycle time associated with the front end. And there's actually two ways to do that, Sean. There's the digital platform, which we call Subsea Studio, which is very exciting and dramatically reduces that cycle time. And we'll begin to also include machine learning, which will allow us to even further improve the field design, the optimization, and the cycle time. In addition to that is the importance of the ability to be able to deliver technology and that new technology coupled with the Subsea Studio digital platform will dramatically decrease the cycle time of the front end. As we do that, we’ll be able to further reduce the cycle time of Subsea projects and vastly improve the project returns which will become even more critical as we move forward.

Our next question comes from the line of Michael Alsford from Citigroup. Your line is open.

So firstly, Doug, I was just hoping you could elaborate a little bit more on your comments around the Subsea business. EBITDA margin was worth about 400 basis points down quarter-on-quarter. And I'm just wondering if you could perhaps give a bit more granularity as to what was driving that decline between seasonality, I guess the backlog mix, and clearly the challenges that you're facing around the COVID-19 situation? And really the reason for the question was to try and quantify and understand how big the sequential decline would be into 2Q? Thank you.

Michael, thank you very much for the question. It needs to be clarified. It's obviously been a topic of discussion over the last 12 hours and I think it's important that we clarify. When we provided the 2020 guidance, we specifically stated that Q1 as always would be the seasonal low point for our company, which was our view at the time. And that seasonal impact really has to do with the ability or the inability for our vessels to operate in certain geographies due to the weather conditions, which always leads to the first quarter being the softest quarter. The consensus number I have to say did not take that into account, even though that, that was clearly articulated. So that's point number one. Point number two is, the COVID-19 impacts are real, and they are meaningful. And I just want to share with you a little bit of what's happening and what we are -- how we're addressing it as a company. I spoke about my prepared remarks that we’re going above and beyond recommended guidelines. What does that mean? Michael, what that means is that we will never put a price on employee health and wellbeing. So we are taking extraordinary efforts to ensure that especially in confined environments like operating on our vessels or operating offshore, we don't put other employees at risk or other -- or contractors and clients that we're working with. So we actually had a situation on a vessel where we identified symptoms of potential COVID related symptoms with an individual. We didn't just remove that individual and continue business as normal, we went above and beyond. We took the extraordinary decision to shut down operations on that vessel for 14 days to test all employees on that vessel. As a result…

Thanks, Doug. That was really helpful. And if you don't mind a quick follow-up actually on the previous question around the balance sheet and Maryann has been -- or the cash flow, sorry, on Maryann’s comments. Maryann could you maybe say whether you think you'll be free cash flow positive, i.e. after CapEx in 2020, given the lower CapEx guidance that you provided, and maybe just to sort of cover off the payments around the redeemable liability, it was $4 million I think in the quarter, $300 million is on the balance sheet. How much do you think you'll pay this year? Thank you.

Sure, Michael, thank you. So we expect to make another payment to partners in the second quarter, that will further reduce that $300 million MRL liability. And then we'll evaluate that in the back half of the year. It will not be all of that MRL in Q2 however. So, you may want to assume maybe half of that in the second quarter, if that's helpful. And we continue to expect to see full year for Yamal in a range of $400 million, $500 million in incremental revenues in total, as we have explained before, and that guidance remains. To your first question, again, still a little bit in a range of outcomes to talk about, you're absolutely right now, we have reduced CapEx, and that will certainly be contributing, as you heard, $175 million and further benefit coming from the dividend reduction. And we do expect cash flow from operations to be positive but that's in a range of outcomes. And as we continue to get the feedback from our clients and further refine our guidance, we'll be able to give you some clarity. But certainly all of the things that we're doing truly help us improve that position. But at this time, it’s a little too soon to call free cash flow.

Your next question comes from the line of Angie Sedita from Goldman Sachs. Your line is open.

So, Doug, maybe you could talk a little bit about the separation and the conditions that you would need to see to move forward again on that separation. And if you think about, could factors change around what was originally planned such as Technip Energies having a U.S. ADR. And is there a scenario where you believe it should not move forward for separation? If you could give us a little more color?

Yes, Angie. Thanks for the question. Look we still consider it to be -- we still consider the transaction to have a very strong strategic rationale. That has not changed. And we do believe that it is a way to create shareholder value. Our intent is to continue to track and complete the transaction in a timeframe that would be conducive. There's a variety of different factors that we are considering. But clearly the current market environment and the dynamics of the market would not be an appropriate time. So, it's likely to be in the near term but in the medium term we would intend to move forward. I appreciate you asking the question specifically about potential ADR listings for Technip Energies, as we would move forward as a separate company. That Angie -- that is very much a consideration and very much part of the workflow and the processes that we have ongoing that we would be communicating further as we move forward to advance our decisions. I want to make it very clear so that there's not a sense of, let's say, uncertainty in the -- how the transaction would move forward when the market conditions would prevail. We will be able to move very swiftly. We believe that we will be able to complete from announcement to the completion of the transaction in a 90 day window. That's really important because we don't want to create this period of information vacuum. So, we now have advanced all of the critical steps both internally and with the regulators to be able to -- from announcement very quickly, provide things like prospectus, Capital Markets Day, ADR listing requirements, things like that in a very swift manner, removing that uncertainty that was created through the process initially. So I appreciate you asking me that question so I could clarify that.

And then maybe we could go to Maryann on the Subsea margins. I know it's challenging to give a lot of color here. But is it fair or maybe not to think that Q2 could be the trough for the year or the installation campaigns and the push out of that, how does that play in the second half, coupled with the cost reduction program that you clearly have underway? And do we move back on track to where the original path was as we go into ‘21 or is it linger as we go into ‘21?

Yes. I'll go ahead and take that Angie, I think that's a really -- again, I think it's a key question. At this time -- and again, none of us fully understand the duration or the ultimate impact of the COVID-19. But from what we know at this time about the virus, what we know at this time about the business, et cetera, or looking forward indeed, we would expect you to be the trough. We would expect recovery in the second half. Again, it's important to know TechnipFMC in our Subsea business, we're very active. We are very busy. We had record inbound in 2019. We had $8 billion of inbound. We had a book-to-bill of 1.45 over almost 50% of that was enabled by the creation of TechnipFMC and iEPCI model. In Q1 alone we booked this year $1.2 billion, almost a 1.0 book-to-bill and two new iEPCI awards this quarter. So we continue to have a lot of activity that we have to execute and a lot of milestones that we have to deliver upon. As the COVID-19 issues mitigate, which we all hope will occur in the second quarter, we would expect that to be the trough and a more resilient second half of the year. And keep in mind whatever the ultimate results for 2020 may be, they will include the clear challenges and disruptions of vivid and a very swift shift in the market demand. It in no way reflects a normalized operating environment for our company and will not be indicative of what we may be able to fulfill delivering 2021. So again, I think it has to be looked in the context of this very unique environment, not as an indication or a rebase lining of what we're able to deliver as a company.

And our next question comes from the line of Mick Pickup from Barclays. Your line is open.

A couple of questions if I may, a bit of a follow-on first from Angie. On the slippage of projects, I can understand onshore you slowed down engineering, you slowed down procurement and your crews and your staff on site to reduced numbers. But in offshore you have vessels that are involved these days. Just wondering if the slippage of projects into ‘21 given that you already have a pretty healthy ‘21 already lined up, is starting to cause issues and whether there will be availability issues middle of next summer, if this year's workload starts to move on top of next year’s workload?

Yes, thank you, Mick. In the -- the offshore installation activity in Subsea was ramping up in the second half of 2021 and ultimately to ‘22. That being said, we're working very closely with our customers aligning schedules, still fluid. As Maryann pointed out and I want to reemphasize, our clients have not made their decision yet. We're working very closely with them in a very collaborative way. And they are only -- they are now working on and reworking their project schedules. And in some cases, we don't expect to have that final deliverable from our clients, which is if you will, the input for our plans until the middle of this upcoming month if not the end of May, is the schedule that they are on and the decisions that are being made by our clients. Now, that being said, from what we can see at this point, and we have a fair amount of visibility in terms of the vessel requirements, we're confident that we will be able to deliver upon those needs. Although, yes, it will create a bit of a stacking effect but we think it's manageable at this time.

And a follow-up from that. Can you just talked about the conversations you're having with clients? Clearly, you have some solutions, which would unlock in the Subsea going forward. Can you just talked about the early conversations you're having, whether they're coming to you and talking about things they haven't previously talked about, what sort of changes they are making?

Yes. So obviously, all the conversations that I'm having with clients right now are under the strictest confidentiality. Because they're making very serious decisions about their plans and the scheduling of their projects, and that is impact on their partners. And it has impacts on local governments and other key stakeholders. So, I'll just speak at a very, very high level, and I have to be a bit opaque here. The good news is we're having those conversations across our company. That's the benefit of having these deep, intimate client relationships that we have built up over many, many years. We're in a very unique position. They are telling us, they're speaking to us. They are not talking to others. They consider us to be a trusted partner. They're trying to work with us to mitigate the impact on our company. There will be an impact on our company but to mitigate the impact on our company versus some others. Our customers are becoming very aware that not everyone will make it through this cycle. So they are reaching out and trying to ensure that they are shifting their spend and showing up, if you will, who they believe will be the winners. I don't want to say survivors, it's more than surviving, who will be the winners when we get through this period. There could be up to a 50% reduction in available capacity in the marketplace both in terms of people and assets -- or in terms of companies and assets, excuse me, when this is all said and done. I would say that's the biggest realization in this cycle. It's not just about squeezing and hammering and trying to enforce changes of commercial terms, there's a real serious discussion at least going on with our company. I can only speak for our company and I believe at least from what our clients are saying, it is somewhat unique to the discussions they’re having with us versus others. It's really about ensuring that we're going to be there and we're going to be strong for them when this is all said and done.

Our next question comes from the line of Kurt Hallead from RBC. Your line is now open.

So Doug, as you did mention the company is in a very unique position with $22 billion in total backlog and obviously for anybody key here is look beyond 2020. So I'm hoping you could provide some insight as to kind of the margin and backlog for Subsea and Energies? And what can be done above and beyond what you've already discussed this morning to protect or maximize those margins. Any insights on that would be fantastic?

So I'll start with Subsea and then I'm going to pass it over to Catherine to talk about Technip Energies. Look, Kurt, an important question. We've emphasized a couple of times in the script and again verbally here and I wanted to just do it one last time. We have not had cancelizations from our backlog. We are talking to our customers about deferrals, which is, us all working and sharing and trying to reach the same objective, which is preservation of cash and et cetera. But they're working with us again in an open and collaborative way, which is allowing us to mitigate some of the impact that it would have on our company. And in some cases, more than some, in several cases where they're actually shifting work to us from others for reasons that I mentioned earlier when I was talking to Mick. So we consider ourselves to be privileged and humble and we'll continue to do everything we can to help and support our customers. So it hasn't affected the margin in the backlog, if you will, which is to get into your question and that margin has been improving. We went through the period where the margin in backlog was declining as we were working through some higher margin backlog from the past. It was replaced with some less favorable backlog. And it's now being more influenced by iEPCI including almost 50% of the record inbound last year of 8 billion for Subsea where almost 4 billion of that came from my iEPCI, and that's good high quality gross margin. So yes, the gross margin and backlog. Yes, the gross margin and backlog is something that's very important to us. Now it comes down to execution, the challenge we’ll have this quarter is the ability…

Yes, thank you. Thanks for the question, Kurt, and everybody. So, I think very much along the lines of what Doug was saying. On the Technip Energies side, we have, first, very, very strong backlog. We have US$13.8 billion. And if you look at what that means in terms of calendarization, that gives us very nice perspective since 65% of that roughly will be delivered in ‘21 and beyond. Now if I look at the underlying margins of this backlog, it's very similar because it’s the result of a well-advertised selective approach to prospects that we've adopted now for quite a while. The backlog is about 50% of LNG and the rest is downstream. And in the downstream portfolio, we typically engage in prospects where we have either direct customer engagement, technology, earlier engagement, prior experience, incumbency and also it's a combination of all that which helps us protect margin and more importantly the T&C under which we will deliver the project, which in the EPC world the T&Cs are quite critical. So really when I look at our backlog, I'm really comfortable. Obviously you always have to normalize for the mild winding down. But I think the rest of the project is indeed very healthy. And it is underpinned by our ability to execute, which again is something we always put forward. Technip Energies, we like to remind the market that we have been able to execute projects and it is a condition needed then to put margins and almost more importantly than the absolute numbers is the consistency of these margins over time. And at this stage, I'm very, very comfortable on where we stand. And I hand it back to you...

And our last question today will come from the line of James Evans from Exane BNP Paribas. Your line is now open.

Doug, I wanted to ask about the Subsea order outlook. You said it could be down as much as 50%. Frankly feels a little bit bullish to me given the customers seem to have bought everything to a halt. But I know you spend a lot of time with them. So maybe give us a little bit more detail, pardon me, around geographically or by theme just where you may do see some additional commitments being made by the customer base through the back nine months of this year? Thank you.

Thank you, James. Clearly we're sharing our view with you of the information that we have available to us at this time. As stated earlier, our customers are still working through their plans and final decisions have not been made with -- internally nor have they been shared with our companies. But we have had a series of decisions -- discussions. Those discussions that have led to the information that we've provided was based upon those I’d say real time discussions that we're having. Clearly if you look at the opportunity outlook map that we share with you, now the large greenfield projects, all but maybe one or two are likely to be shifted maybe even outside of the 24 month timeframe. There are a few midsized greenfield projects that we expect to continue to move forward. Again, they may have a deferral from the original timeframe, which we anticipated in 2020 to 2021. But for a variety of different reasons, which are obviously first and foremost economics but there are also other things that our clients consider in terms of lease rights, in terms of other stakeholders, including local governments, et cetera. And in some cases, and we're seeing more of it, not less of it, incentives to actually move projects forward. So when we look at South America, when we look at the North Sea, when we look at brownfield opportunities globally is what allows us to be able to give you the confidence that we have at this time. Again, based on the information that's available to us, which is not complete, I'm sharing with you as openly and transparently as possible at this time versus just saying we're pulling guidance or no guidance. We're going a bit above and beyond and I understand the risk associated with that, James. But that’s the spirit of how we've always operated and we will continue to operate. So that's our view at this time. That's kind of where we see the activity and both in terms of geographically as well as in terms of the type of projects. Bearing in mind when you put together the combination of now Subsea Studio with the integrated execution model iEPCI with Subsea 2.0 technology, you can achieve some pretty significant project economics both in terms of the acceleration of time and reduction in capital, whilst at the same time the portion of the Subsea development that we don't directly influence i.e. the drilling, those costs are likely to be even -- reduced even further than where they are today making the Subsea project economics even more attractive.

I would now like to turn the call back over to Matthew Seinsheimer for closing remarks.

Thank you. This concludes our first quarter conference call. A replay of our call will be available on our website beginning at approximately 8:00 PM British Summer Time today. If you have any further questions, please feel free to contact the Investor Relation’s team. Thank you for joining us. Lisa, you may now end the call.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.