TechnipFMC (FTI) Q3 2026 Earnings Call Transcript

Together with TotalEnergies we are helping to bring Suriname's first offshore development closer to production through early collaboration standardized engineering, and delivery certainty. In August, we delivered the first Subsea 2.0 tree for Chevron's Gorgon Stage 3 project. This is the first tree delivered under Chevron's 20 year Subsea 2.0 frame agreement with TechnipFMC. During the quarter, we were also recognized at the 2026 Petrobras Best Suppliers Awards. Receiving honors in 3 categories, flexible pipe installation, subsea wellhead systems, and ESG governance. The awards recognize both our technology and execution performance. Reinforcing the differentiated value we deliver to our clients. And the strong governance standards that underpin our-- I want to specifically highlight the flexible pipe award.

As this marks the fifth time we have received this recognition, demonstrating a proven track record of operational excellence. And most recently, we celebrated the manufacture and delivery of the 200th subsea tree for ExxonMobil in Guyana. With our Subsea 2.0 platform, enabling greater standardization across multiple projects. Together, these examples highlight the discipline that drives our execution. The collective efforts of our global team ensure that we continue to perform at a very high level. Delivering projects not only on schedule, but in many cases ahead of schedule. Giving our customers greater confidence in sanctioning offshore projects. Turning to inbound orders. We announced 3 subsea awards for the quarter.

We secured multiple contracts to supply flexible pipe systems, the first for Azul Energy in Angola, and the second for Petrobras in support of multiple presalt fields in Brazil. We are well positioned for such awards as our industry leading flexible solutions and ongoing industrialization efforts enable us to deliver greater efficiency, consistency, and predictability around project timing, and performance. We were also awarded an integrated contract from Petronas, for the Limbayong project their first deepwater project offshore Malaysia. This greenfield development will benefit from both our Subsea 2.0 configure to order platform and iEPCI execution of the entire Subsea scope. Reducing project cycle time on this fast track development.

Notably, Limbayong was 1 of 3 iEPCI projects awarded to TechnipFMC in the period. Inbound orders in the quarter totaled $2.1 billion In addition to these projects, we continue to enhance our customer relationships through collaborative partnerships. We recently finalized a strategic collaboration agreement with Petronas, that establishes TechnipFMC as Petronas' strategic deepwater development partner. Embeds our iFEE to iEPCI integrated delivery model, strengthens executive-level engagement, and creates opportunities for growth across multiple projects and countries over the coming years. The collaboration deepens our long standing relationship and extends well beyond the scope of a traditional frame agreement.

And just last week, we announced a memorandum of understanding with BP under which TechnipFMC will be the preferred strategic supplier of 20K systems for BP's Paleogene program in The U.S. Gulf. This exclusive agreement builds upon our proven 20K technologies, and the experience gained through collaboration on BP's initial paleogene developments Kaskida and Tiber. These new agreements exemplify our focus on client relationships, and reinforce our commitment to deeper collaboration. Moving to the outlook. We remain optimistic about the durability of the subsea market. We have high visibility in offshore activity, where we see a sustained resurgence driven by a record level of deepwater projects, which significantly improved economics.

And a shift in operator capital toward prolific high quality, offshore reservoirs. TThis outlook is reflected in our subsea opportunities list, which has increased for the ninth consecutive quarter and highlights an opportunity set that has grown 25% over the last 2 years to $32 billion when using the midpoint of project values. Let me now close on a few points. First, we are a technology company that has fundamentally changed the way we execute, and deliver for our customers. Our unique operating model improves project economics, while reinforcing customer trust and confidence in our delivery capabilities. Next, client recognition and new collaboration announcements further reinforce the value of customer engagement.

Deeper collaboration drives even greater success where trust and shared goals create a clear path to direct awards. These relationships become increasingly more valuable as clients adopt a portfolio approach to offshore development. Optimizing opportunities across their entire asset base rather than simply advancing individual projects. And finally, improving project economics and greater schedule certainty are attracting capital flows to offshore development. At the same time, energy security is prompting operators to diversify their investment opportunities, while consuming nations are looking to diversify their source of supply. Additionally, there is a near term requirement to replenish diminishing stockpiles. Increased exploration is likely to follow.

Expanding activity in established regions while opening new markets in countries that have never produced from offshore basins. This is all driving a robust pipeline of opportunities, And if we extend our view to include 2026-2027, we expect Subsea orders over the next 5 quarters to be at least $14.5 billion Let me be clear. The subsea order step up is here. This momentum should also lift the quality of our inbound orders. With substantially more Subsea 2.0 iEPCI, and direct awards expected in the year ahead. We also believe the step up in 2027 marks the start of a sustained wave of activity that will extend beyond the end of the decade.

I will now turn the call over to Alf to discuss our financial results and, importantly, our outlook for Subsea in 2027.

Alf T. Melin:Thanks, Douglas. Inbound in the quarter was $2.3 billion driven by $2.1 billion of Subsea orders, Revenue in the quarter was $2.9 billion Adjusted EBITDA was $636 million when excluding a foreign exchange loss of $9 million Turning to segment results. In Subsea, revenue was $2.6 billion a 5% increase versus the second quarter. The sequential revenue improvement was driven by increased project activity specifically iEPCI projects in Indonesia and Brazil. As well as increased services activity. The revenue increase was partially offset by lower project activity in Norway. Adjusted EBITDA was $612 million, up 6% sequentially. Due to strong execution and higher project and services activity. Adjusted EBITDA margin improved to 23.5% the highest quarterly margin achieved to date.

In Surface Technologies, revenue was $296 million an increase of 7% from the second quarter. The increase was driven primarily by higher activity in the Middle East, along with higher completion activity in North America. Adjusted EBITDA was $53 million an increase of 7% sequentially. Adjusted EBITDA improved due to higher activity in the Middle East and North America. Adjusted EBITDA margin was 18%, essentially in line with the second quarter. Turning to corporate and other items. Corporate expense was $29 million Net interest expense was $4 million. And tax expense was $104 million Cash flow from operating activities was $531 million with capital expenditures totaling $61 million in the quarter.

This resulted in free cash flow of $470 million We repurchased $320 million of stock in the third quarter. When including $20 million of dividends total shareholder distributions were $340 million Cash and cash equivalents was $1 billion. We ended the quarter with a net cash position of $645 million Turning to fourth quarter guidance, For Subsea, we expect seasonal impacts to our fourth quarter results. With revenue declining mid to high single digits sequentially. Adjusted EBITDA is expected to decline approximately 52 basis points to 21%. For Surface Technologies, we anticipate revenue and adjusted EBITDA margin to be in line with our third quarter results. Moving to our full year outlook.

We are making the following updates to our guidance. We are increasing Subsea revenue to a range of $9.6 to $9.8 billion. We are increasing free cash flow guidance to a range of $1.45 to $1.5 billion. And we are reducing the full year effective tax rate to a range of 25 to 27%. With this update, we are increasing our expectation for total company adjusted EBITDA to approximately $2.22 billion for the full year. Excluding foreign exchange. All other guidance items for the current year remain unchanged. Now, let me take a moment to focus on next year. As Doug commented earlier, we have high visibility in offshore activity.

Which supports our expectations to inbound of at least $14.5 billion of Subsea orders over the next 5 quarters. And importantly, this visibility puts us in a good position to provide an early view of Subsea financial guidance for next year. For 2027, we are expecting Subsea revenue to be in a range of $10 to $10.4 billion with adjusted EBITDA margin in a range of 22.5% to 24%. We will provide the remainder of our 2027 financial guidance with our fourth quarter earnings. In summary, our team continues to execute well. Both total company revenue and adjusted EBITDA margin improved sequentially.

And with today's update, we have now increased our expectations for total company adjusted EBITDA for the full year. Free cash flow for the first 9 months of the year improved to $1.2 billion We have distributed $1.1 billion to shareholders through dividends and share buybacks, representing 86% of free cash flow. Already exceeding distributions made in all of 2025. Lastly, we have provided an early view of our 2027 Subsea outlook, reiterating our expectation for growth in Subsea inbound revenue, and adjusted EBITDA margin. When using the midpoint of the 2027 guidance ranges, we expect Subsea adjusted EBITDA to increase more than 10% year over year.

This reflects continued strength in operational execution with incremental margin for Subsea approaching 50%. in the coming year. Operator, you may now open the line for questions.

Operator:We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Anderson with Barclays. Your line is now open. Please go ahead.

David Anderson:Hi. Good morning. Thank you. Douglas, I hope all my communication's okay. I am a little. I am traveling at the moment. I want to ask you about the $14.5 billion in terms of the next 5 quarters. Is the macro that we are looking at today, is that an influence in terms of the timing of those projects in terms of either the fourth quarter or next year? Just curious from your standpoint of kind of how your customers are thinking about the macro and how much that is influencing the actual? Or do you have such line of sight that to a certain extent, it is irrelevant?

Douglas J. Pferdehirt:Sure, David. And good morning, and we can hear you just fine. So the macro environment you know, as we are all dealing with is quite fluid at this point in time. In terms of its impact on our outlook or the timing of the outlook, there is no direct correlation, David. As we pointed out in the prepared remarks, it is driving some changes in customers' behavior. Where they are looking to diversify where they do their projects. And spend their capital And, also, consuming countries are looking to pursue their own reserves, where possible and where applicable and also to diversify their source of supply. And this is what is driving a lot of activity in the offshore.

We have got a tremendous amount of inbound in terms of commercial inbound at this point. Working with clients to unlock new opportunities all around the world. So the timing issue in the 14.5 billion is really just the fact of what is going to fall within the calendar year of 2026 and what could tip over into 2027. In particular, we have 2 large. 2 to 3 very large projects that we are just in the final stages of concluding. Expect those to conclude by year end, but they could tip into the new year. But I would not tie it to the macro day.

David Anderson:Thanks, Douglas. I am just curious as we are looking for you, in the past, you have I think on the prior call, you had talked about kind of more greenfield, larger greenfield projects next year. Curious on the complexity of those projects. And some have brought up on another call. Was talking about the complexity of offshore projects. And how that changes. Is that I do not wanna. You know, the iEPCI model for the most I do not wanna characterize this the wrong way, but tends to be kind of on the smaller side.

As you go into larger projects, are they getting more complex and by extension, does that mean there is more FTI per revenue per tree, however you wanna talk about it? And is that accretive to margins? Just kinda curious how to think about that trend.

Douglas J. Pferdehirt:Sure. So the complexity of a greenfield versus a brownfield is typically just around the geology. From a subsea point of view and from what we do, we are somewhat agnostic if it is a greenfield or a brownfield or you know, the location of it. I mean, it may change between a oil reservoir and a gas reservoir, the type of tree system that we use. But our 2.0 configure-to-order architecture applies across the board. So where the greenfield comes in is just less knowledge that you have about the topography of the seabed, maybe less knowledge you have around the soil conditions, and, you know, clearly, less knowledge you have about the reservoir itself.

And that is why you see greenfield projects sometimes take a little longer to move forward because customers are diligently making sure that they understand the complexity of the geology that they are dealing with in the subsurface. But from our point of view, it does not make a big difference, David. You know, with our customers moving towards a portfolio approach, both in greenfield and brownfield as we pointed out last quarter. An example of that would be Equinor, how they were approaching their additional work that they are doing in the brownfield activity on the Norwegian continental shelf.

Where they are doing groups of projects at a time where we were very successful and very appreciative of the work we are doing with Equinor. So for us, we can get the leverage in a Brown field as well as in a greenfield. And so 1 is not necessarily more interesting than the other. And, you know, both are ramping up because clearly, the shortest path to first oil was a brownfield development. Therefore, it tends to have the highest project returns at least in the near term. So those are being pursued as vigorously as now many greenfield opportunities around the world. Fantastic. Thanks, Douglas.

Operator:Your next question comes from the line of Mark Wilson with Jefferies. Your line is now open. Please go ahead.

Mark Wilson:Thank you. Good morning. Excellent results again. Congratulations on that. Alf, I would like to ask on the 1 of the last comments you just mentioned, talking about an incremental margin on subsea approaching 50% in the coming year. Could we give a bit more detail on that? Are we talking about Subsea 2.0 awards, iEPCI, and goodness me, it sounds very incremental. Some details, please.

Alf T. Melin:Yes. Thanks, Mark, for the question. So first of all, I do not think I commented on that this was, you know, beyond 2027. I think I specifically commented on 2027. But, nevertheless, it is something that we are proud over in terms of what we are able to deliver. And it always starts with the quality of our backlog. And what we have done is continuously through 2026, as you can see from our continuous races of revenue guidance, we have continued to demonstrate our ability to execute on this backlog. And we are doing so with increased throughput. And when the throughput increases, we are also able to expand margins.

So that is part of what you are seeing is really the underlying fundamentals of our quality of backlog, but our ongoing industrialization of our company. So whenever we have revenue increase year over year, we expect to have an outsized ability to expand our margins. And yes, that is through many different aspects, including increased mix of Subsea 2.0, iEPCI, as well as making sure that our service business grows at least in line with our overall business. And all of those factors combined is gives us the confidence to come out with this guidance at this point in time. And in indeed imply a 50% incremental margin into 27.

Mark Wilson:Could you talk about the capacity limits within that throughput Alf, you. I think you have 3 major producing manufacturing facilities around the world. What kind of utilization are we speaking to in that guidance? And then I will hand it over. Thank you.

Alf T. Melin:Yes. No, clearly, 1 of the things that we have focused on in our you know, model over the last. operating model over the last couple of years is to be 2 things, capital light as well as focusing on throughput rather than keep on thinking about what incremental CapEx do we need. We build our business nowadays around creating constraints and thereby driving our thinking for how you can solve problems within the existing footprint rather than automatically defaulting to capital expenditures. Sure. Are we investing in certain technologies that will enhance the automation and the throughput of our facilities? Yes. On an ongoing basis.

But that is also where we have talked about before that we have demonstrated that, for instance, a Subsea 2.0 order can go through our manufacturing plants at 2.5x what a normal 1.0 tree could do. These are the things that we continue to demonstrate to ourselves on a daily basis as well as keep on investing in for the future. And with that said, at this point in time, no real concerns for overall capability. Thank you for that. In the interest of throughput, I will hand it over.

Operator:Your next question comes from the line of Arun Jayaram with JPMorgan Securities LLC. Line is now open. Please go ahead.

Arun Jayaram:Good morning, Douglas and Alf. Appreciate taking my question. Douglas, my first question is I wanted to see if you could talk about what you are doing on accelerating cycle times. You mentioned kind of the Suriname project with Total. Was wondering if you could maybe elaborate a little bit on what is driving that. Is that just the shift to 2.0? And perhaps I would love a mini update on what you are doing in terms of industrializing the you know, the installation process? Any updates on that would be helpful.

Douglas J. Pferdehirt:Sure, Arun. Thank you for the question. So when I was talking about on the Grande Margot project in Suriname was the delivery of some of the critical equipment, including the trees ahead of schedule. This a new market. This is the first project that is ever been done in that market. We have a track record of being very successful in entering into new markets and being the pioneer to bring into those markets. Matter of fact, an impeccable track record. And this is just another example of that. So it is about doing business the right way. it is about being on the ground in Suriname. Knowing the people, knowing the support network that we have there.

Building the relationships early on. And then, yes, the shift to TotalEnergies to our Subsea 2.0 standard configurable product allowed us to have the deliveries not only on schedule but ahead of schedule, something that quite frankly is just very difficult for you know, in the past for any subsea company to do, but certainly, something that we are. We are uniquely doing today, which is delivering projects ahead of schedule on even shorter cycle times than what has typically been done in the past. So this all falls under the relentless pursuit of reduction of cycle time, Arun. And something we continue to be very focused on.

Arun Jayaram:Got it. My follow-up, Douglas, I wanted to talk a little bit about your inbound order commentary The company had previously indicated confidence in delivering $10 billion of inbound orders in calendar 2026. Is that still a good target? I know you mentioned 2 or 3 large projects that are still trying to get to the finish line. Maybe just comment on that. And I guess the question is if there is slippage in that $10 billion target, is that just driven by just the timing of these contracts or you know, or contracts that you thought you would win?

Douglas J. Pferdehirt:Sure. So, Arun, the short answer is yes. But I will give you a little more color. It is 2 to 3 projects. That awards that. We are just going through those final stages. We are not. I cannot. I could not say with confidence coming on the call that they were going to land within the calendar year. They are still more likely than not going to land in the calendar year delivering the approximately $10 billion of inbound for 2026. Just wanted to be realistic given the fact that the end of the year is fast approaching.

And if they slipped into the following year to make sure that they were being properly accounted for in our inbound guidance hence going to the $14.5 billion for the 5 quarters. Simply an issue of timing. Got it. that is clear. Thank you very much, Douglas.

Operator:Your next question comes from the line of Caitlin Donohue with Goldman Sachs. Your line is now open. Please go ahead.

Alexa Bruno:Morning, team, and thanks for taking our question. We just wanted to ask that the early 2027 color is very helpful. Could you help just frame it from a regional perspective? Where are you seeing opportunities across maybe Africa and North Sea, etcetera? And how should we think about it in that framework?

Douglas J. Pferdehirt:Yeah. So morning, Caitlin, And Team As Well. The If We Look At It Geographically, it is-- we Had Said That There Was. You Know, The Last Decade Was Really Being Driven By South America. It was gonna continue to be very strong, and the next decade would be driven by Africa. And I would say largely that is still the case. So we will see a tremendous amount of awards coming from South America, both Brazil, Suriname, obviously Guyana. So there is lots of activity going on. Also, some activity. Potential activity in some neighboring countries. Which may not hit in 2027 but could hit beyond 2027.

And then you also have, you know, kind of the whole region between you know, the Northern Part Of Guyana and Venezuela, etcetera. That could get interesting probably beyond 2027. So South America remains a critical focus for us. We wish Petrobras continued success in their exploration that they are doing in the Equatorial Margin, which is a different region than the pre salt. In Brazil and could be quite prolific as well. So lots of reasons to be continue to be excited about South America. Moving towards Africa, I mean, it is just. it is robust. it is robust in West Africa. it is robust in East Africa.

And we are going to see continued activity in North Africa as well. So those regions are all regions that we are targeting and you know, pursuing in our opportunity list as you can see that we publish. And would probably, therefore, also be reflected as, you know, inbound opportunities at the same time. Important, as I mentioned earlier, to mention the NCS or the Norwegian Continental Shelf, It continues to be quite robust by multiple operators. That continue to move projects forward as they help supply energy security for Continental Europe. And then we talked about Asia. And I think on the last couple of calls, we said keep an eye out for places like Indonesia.

And that is really coming to fruition now. We have multiple tendering activities and we are actually performing multiple projects in Indonesia at this time. And then Australia, Australia is a major LNG producer and exporter, and they will be going through multiple rounds. Including, as we mentioned in our prepared remarks, the Chevron Gorgon Stage 3 project, which is all brownfield projects to supply gas to the existing LNG infrastructure in Australia. So a long answer to say, Caitlin, it really is heating around the world. It really is not region specific. I want to throw in the Paleogene. I would be wrong not to in The U.S. Gulf.

It continues to surprise to the upside in terms of activity. And we also made a note the prepared remarks about a very important relationship and agreement that we signed with BP to be their exclusive provider for the 20Ks in the Paleogene. So really it is ramping up Geographically, it is ramping up quite broadly.

Alexa Bruno:that is very helpful. Thank you. And then just a follow-up, as we look at the projects that are entering backlog today versus work being executed, Can you give any color on how commercial terms or pricing are comparing? And then how should we think about margins thereafter?

Douglas J. Pferdehirt:No, it is an important question, Caitlin, and I will I am happy to share with you that the new work or the inbound that we are putting in the backlog is accretive to the backlog margins. This is really because of the work that we are doing to help our customers be successful, by reducing cycle time, improving their project economics, which allows us to share in a portion of that economic value that we create. So it is a true win. Sounds great. We will turn it over. Thank you very much.

Operator:Your next question comes from the line of Scott Gruber with Citigroup. Your line is now open. Please go ahead.

Scott Gruber:Yes. Good morning. Douglas, you mentioned that the step up in Subsea orders is here. I am curious whether that step up that you see into 2027 and we will ignore, you know, the timing issues around year end. But is that volume step up within the ballpark of what you would have expected at the start of the year, or has that gotten better given the macro backdrop? I am asking because earlier this week in offshore driller suggested they had not seen much of a cyclical response yet.

So I am I am wondering, you know, your perspective on that and whether the secular trend is really gonna dominate here and the macro will help know, essentially extend that trend rather than add a material cyclical. Cyclical element. To the order cadence. So just curious your thoughts on that.

Douglas J. Pferdehirt:Sure, Scott. Good morning. As I have said in the past, I am not a driller. I do not drill. So I do not wanna speak on their behalf. And I have also made it a point to emphasize as has proven to be the case, we are we are a leading indicator. When you look at the offshore and the deepwater. Our projects are typically awarded 1 to 2 years before the drillers get a tender or get an ITT. So just keep that in the back of your mind. But the more specifically answer your question, I do see this as a structural change.

I do not see this as a cyclical change. it is not being driven by any particular event. Yes. As I pointed out, due to some of the geopolitical events that are happening around the world, it is driving customers choices of where they spend their capital, and it is also driving host nations or the consumers to decide where they acquire their energy from. So I do think that there is an attribute of that embedded, but I certainly do not think that is primary driver. This is a structural change that we have been talking about for years.

It was coming. it is a result of the ability that we have been able to demonstrate through iEPCI and Subsea 2.0 to be able to help our customers improve the economics of offshore developments. And it is not just the upfront economics, it is the delivered economics. Often, the upfront economics worked on paper, but what was delivered was often overschedule and overbudget. We have a consistent track record of delivering on schedule or ahead of schedule giving our customers the benefit of accelerated time to first oil and improved project economics. So in other words, their confidence in moving their capital towards the offshore is back.

And I do not see it changing as a result of any other geological play that is out there in the world today. And it is really because the best reservoirs barring some reservoirs in The Middle East, are offshore. And those are the ones that have act. They have access to. So you have high quality reservoirs, with very solid economics, You just needed to know that you could work with companies that shared the commitment to delivering these projects on time and at the economic you know, and at an economic rate that made them that made them successful. This is why you see our customers buying behavior changing.

The fact that 80%, 80% of our business is being direct awarded to our company it is not going out to a competitive tender. The fact that our customers are booking us multiple projects at a time, not just 1, but today's project plus tomorrow's plus the next day's project because they wanna ensure that they have access to the innovation that we are driving in the subsea industry all supported and important to say by the way that we work. And we were very, very pleased to receive the award we received from Petrobras identifying us as their top ESG company that they work with. How you do business is as important as what you do. So look.

This is as we. We are calling it, you know, a sustained wave of activity. it is just it is just where capital is flowing. And the capital is flowing to the offshore for economic reasons. it is flowing to the offshore for energy security reasons. And it is flowing to the offshore because our customers have confidence that we can bring these projects to completion for them in a positive way.

Scott Gruber:I appreciate the color. Makes a ton of sense. And my follow-up is on margins for next year. Is there much benefit from the next phase of the iEPCI 2.0 initiative, you know, the CERT portion? Is there much benefit from that, you know, hitting in the in the 2027 margin guidance? Or is that still kind of more on the come?

Douglas J. Pferdehirt:Scott, I am I am I am smiling, Scott, because I thought this question was gonna come up a lot earlier in the queue. So thank you for bringing it up. And look, I am actually gonna pivot back to Mark's question earlier. When he acknowledged the phenomenal well, I think in his own words, think he said, strong performance terms of a 50% incremental margin. that is something you do not expect in the industry from the companies that you follow. And Alf explained why that was. Your follow-up is a perfect follow-up to that question. Because I will tell you, in that 50% incremental margin, we are not counting on the IEP 2 point o contribution.

So imagine that. Imagine. Just imagine that, Scott. So it is more to come. And I am not saying that we will not see some of we will not be talking more about IPCI 2.0. Obviously, we will continue to provide updates I can tell you it is moving very well. We continue to have strong success in the testing that we are doing and in the field trials that we are doing. So it is moving in the right direction. But, no, we did not embed that. And I am not saying that would necessarily be upside to 2027.

As you look at 2027 and beyond, that is a whole another wave of margin contribution that you are not that we are not experiencing today. And as importantly, and I always like to talk about a win, it is a whole another wave of cycle time reduction that our customers are not experiencing today. So they are gonna win because we are gonna continue to drive down cycle time. Simplify the complexity that remains in the non industrialized portion of the sub offering which will be addressed in our iEPCI 2.0 offering. Giving them much improved project economics and allowing us to continue to share in the value in that economic value that we create.

Scott Gruber:Well, thanks. Every once in a while, we do see 50% incrementals. We just do not see people sustain it for multiple years. So congrats on that. I will turn it back.

Operator:Thank you. Your next question comes from the line of Josh Silverstein with UBS. Your line is now open. Please go ahead.

Josh Silverstein:Thanks. Good morning, guys. Maybe just sticking on the margin front here, really strong margins of the past 2 quarters. Outside of normal seasonality, is there some sort of expected big drop off in the fourth quarter? Or is there some sort of margin headwinds or mix change? Because it seems like you are already trending to the bottom half of the 2027 guide, you know, just based on the normal seasonality.

Alf T. Melin:No. You should not read too much into this. This is normal seasonality. In the fourth quarter, we experienced a lower activity in particular in places like the North Sea. We do take our vessel portions of our vessel fleet into maintenance and dry docking. And those things affect the utilization, but it is actually timed with the fact there is lower activity going on. So that is really the main reason. Of why you are seeing this, and if there is nothing know, specifically pronounced about it more than that activity is going on in the fourth quarter.

Josh Silverstein:Got it. And then you know, you guys have, you know, specifically highlighted kind of a customer shift towards this portfolio based offshore development approach. You talked about the Petronas collaboration, the BP MOU there. Where are you seeing customers adopt this portfolio wide development versus the individual projects? And how does that change your kind of view on visibility and pricing and market share? Thanks.

Douglas J. Pferdehirt:Josh, I would I would say it. I would put it this way. I think every client is thinking about it. Not every client has a portfolio. Right? Clients have different sets of opportunities. So it may be more applicable for some clients than others. And I think every 1 of them is considering it just you know, I can say that because of the discussions that we are having with them. it is really. it is applicable anywhere where they have the visibility and the portfolio within their own scope of assets to be able to approach the market in this way. So you see it in mature basins.

Because there tends to be, you know, more assets available within those mature basins. But then you also see it occurring in emerging basins. Like the Paleogene is an emerging basin. So it. You know, there you had BP take a very proactive approach seeing it in greenfield and brownfield. Again, pointing to Equinor. On the Norwegian Continental Shelf, who is doing it with their brownfield portfolio. So it really is.

And we have clients that are doing it not just within 1 basin, because of Subsea 2.0 being a configured to order or more standardized product, we have customers who have multiple assets in multiple geographies approaching us in a portfolio approach cross geography because the core of this, you know, the Subsea 2.0 configure-to-order system is standardized. So they are able to do that. So this the technology is enabling this type of buying behavior But I also think our performance is enabling this type of buying behavior because a customer is not gonna entrust you with multiple projects in the future if they do not think you are gonna perform well on the project you are doing today.

And if we are being honest with ourselves, the industry did not have a great track record in the past. And when you are still in a in a 1.0 world and still doing work, you know, the old way and you have not transformed as TechnipFMC has, it is hard to be predictable in your performance. it is just hard. You are in a bespoke world. You have. You are doing many, many first articles. it is really, really hard to have that level of consistency. So I think it is a combination of customer's behavior you know, their asset base and their behavior, our performance, and our technology that is enabling this approach.

But you know, I will tell you, it is very favorable for both parties. And, again, we believe in a win. We do not believe we have to win at our customer's demise. And it is important for us that our customers continue to win because we want offshore to continue to be strong.

Operator:that is-- your next question comes from the line of Marc Bianchi with TD Cowen. Your line is now open. Please go ahead.

Marc Bianchi:Thank you. Douglas, appreciate the expectation for the step up here in the order If I look at the year to date orders, they have trended, I think, below certainly what we would have expected, perhaps what you were expecting Is there anything you can point to somatically that was maybe affecting some of the order conversion over the course of this year that you see changing. I know. 1 thing I have in mind is, obviously, this war going on, and maybe folks are dragging their feet a bit. But just any. Anything somatic that you would point to?

Douglas J. Pferdehirt:No, Mark. Actually, if you if you go back, I guess, probably about a year ago now, back in 2025, we said that 2026 was gonna be a bunch of smaller awards. And you know, just think about it statistically, a bunch of smaller awards harder to predict the exact timing of those awards. So, really, it is it is just been a timing issue. You see it. You see it. In our you know, again, this quarter, you know, 3 announced awards, but 2.1 billion of inbound. So lots of unannounced awards, which just means there is been a lot of smaller awards.

I think last quarter or 2 quarters ago, I pointed to the fact that 2027, we were gonna start to see some of the larger orders. Really through the end of the decade. And those are shaping up as was responding to Alexa's question earlier. So it was really just a mix of the type of opportunities that we have been chasing. The team's been working really hard. We have been very successful. it is just a bunch of smaller awards, and therefore, they tend to spread out bit more on you.

Marc Bianchi:Yeah. Okay. And then the other 1 I have is on looking at 2027 in the Subsea revenue guidance, it is about a 5% increase. And I am curious that makes perfect sense just given the backlog scheduling you have But I was wondering about the services piece of that because I think over the past couple years, you have said, you know, that is that is gonna grow in line with broader Subsea revenue, which is kinda like a double digit rate. Is services still growing at that double digit rate? In the 2027 outlook that you provided?

Alf T. Melin:So, again, I think at this point in time, you know, we will obviously be able to provide, you know, further updates as the year goes on. But I think it is a think it is a reasonable assumption to continue to look at services growing kind of in line with the growth of the overall segment. At this point in time.

Marc Bianchi:Okay. Okay. Thanks. I will turn it back.

Operator:Your next question comes from the line of Victoria McCulloch with RBC. Your line is now open. Please go ahead.

Victoria McCulloch:Hi. Thanks, Douglas. And I guess my question actually is a good follow on from that previous 1. Because when you look at, the contribution that services has made that have certainly taken. Or, I guess, got some highlighted in today's results. How does the magnitude of the contribution and the margin profiles of the services contribution compared to where you expect it to be 12 months ago?

Douglas J. Pferdehirt:Good question, Victoria. I do not know that it is much different than what we had expected. You know, we have a. it is an OEM model. As you know, and, you know, so we have a lot of visibility our services profile. It is more of a book and turn than, you know, than a backlog business, but it is still because it is an OEM model, we service our equipment. We have, you know, standard maintenance programs for that. We are able to predict it fairly well. So I do not know that there is anything necessarily unusual I-- we did see, for instance, a strong pickup in our well intervention business. In the in the third quarter.

So that is something that could be that we could potentially see more of. And as we move forward where customers are really trying to optimize their existing wellbores. And the way that 1 way they do that is with a drilling rig. The other way is to use 1 of our service vessels to be able to do that. So we are seeing an uptick there. But I would not say anything that particularly stands out, Victoria. it is a very good, very solid, very sustainable, and a strong margin contribution business for us. And 1 that we continue to invest in and grow.

Victoria McCulloch:Thanks very much. That was all for me.

Operator:Your next question comes from the line of Derek Podhaizer with Piper Sandler. Line is now open. Please go ahead.

Derek Podhaizer:Hey. Good morning, Douglas. I know you have been talking about this throughout the course of the call, but, you know, maybe if this is a nuance or something that picked up on in the release was you talked about strength extending beyond the decade with this wave of activity. And I feel like previously, you have talked about straight towards the end of the decade. Again, maybe pretty nuanced, but could you help unpack that comment for us, just a reflection of the continued momentum that you have seen over the past 3 years? Or again, has anything changed recently to extend your visibility beyond the end of the decade?

Douglas J. Pferdehirt:Thank you, Derek, good morning. Look, the biggest thing that is driving our confidence to make that and you are right. It was a pivot in terms of the terminology that we have been using. Is the portfolio approach. I mean, you know, a project today is gonna be delivered sometimes you know, sometime just prior to the end of the decade. So when you are talking a portfolio approach and where customers are buying multiple projects, in series from us. You know, another way of saying that is beyond the end of the decade. So that is what is giving us greater confidence.

And as I mentioned a couple of times on the call, we are seeing customers potentially reconsider the allocation of their capital and looking at offshore both from the ability to be able to replenish reserves the economics that are there now in the certainty that we are providing them, as mentioned earlier, as well as wanting to have maybe a more diversified distribution of their capital geographically. And we are also seeing host nations really driving to pursue their own hydrocarbon reserves for their own energy security. You see that a lot in Asia as an example. We mentioned an award from Petronas in Malaysia. We talked about Indonesia earlier on the call, etcetera.

So it is kinda. it is a combination of those things, Derek, that are just making it increasingly visible to us that this activity were either booking beyond the end of the decade already or we see a clear path to do so.

Derek Podhaizer:And I am I am gonna go all the way back to Scott's comment. You know, this is not the best we can do. We still have 2 thirds of our subsea infrastructure or the subsea project that we have not industrialized yet. that is what we are working on. that is what will be called iEPCI 2 point o. that is gonna bring a whole another wave of improvement in economics for our clients and for TechnipFMC. That. that is great and very helpful. And know you have already been asked about the iEPCI 2.0. You just mentioned it again.

I think the other you know, upcoming catalyst that you leave a little breadcrumbs for us is around your, partnerships with some of these startups that are looking to move markets from the onshore to the subsea. Just wanted to give you an opportunity if there is any updates there or are this is more of a stay tuned event.

Douglas J. Pferdehirt:No. that is clearly happening today. And, you know, there was a couple of articles recently. I do not wanna comment on them because they were in the media, but I do not know that they were necessarily a press release from the client. But they are out there in the public domain where there are independent operators that are coming to TechnipFMC in a direct award as a result of our iEPCI our Subsea 2.0 offering and their belief, again, that we will continue to drive this industrialization and innovation for the industry as we go forward. So as mentioned previously in years past, our total client mix was between 9 and 12 clients a year.

And we now service anywhere from 30 to 40 clients in any given year. And that market, they continue to expand the market as well as they bring fresh capital into the market. Great. Appreciate all the comments, Douglas. I will turn it back.

Operator:We have reached the end of the call. I will now turn the call back to Matthew for closing remarks.

Matthew Seinsheimer:Thank you, Matthew. This concludes our conference call. A replay of the call will be available on our website beginning at 3 p. M. New York Time today. If you have any further questions, please feel free to reach out to the Investor Relations team. Thank you for joining us.

Operator:Matthew, you may now end the call. This concludes today's call. Thank you for attending. You may now disconnect.

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TechnipFMC (FTI) Q3 2026 Earnings Call Transcript was originally published by The Motley Fool