investor presentation -...
TRANSCRIPT
Investor Presentation
June 2019
2
FORWARD-LOOKING STATEMENTS
In accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, McDermott cautions that statements in this presentation which are forward-looking, and
provide other than historical information, involve risks, contingencies and uncertainties that may impact actual results of operations of McDermott. These forward-looking statements include,
among other things, full year 2019 guidance, project milestones and percentage of completion and expected timetables, increased opportunities in the market and anticipated increased
customer capex spend, backlog or remaining performance obligations, bids and change orders outstanding, target projects and revenue opportunity pipeline, to the extent these may be
viewed as indicators of future revenues or profitability, our expectations about the timelines for the sales of the tank storage and pipe fabrication businesses, our assessments and beliefs
with respect to the two legacy Focus Projects of CB&I, our beliefs with respect to the combination with CB&I, integration progress and long-term prospects, including the expected award of
the Anadarko LNG project. Although we believe that the expectations reflected in those forward-looking statements are reasonable, we can give no assurance that those expectations will
prove to have been correct. Those statements are made by using various underlying assumptions and are subject to numerous risks, contingencies and uncertainties, including, among
others: difficulties related to the integration of the two companies; disruption from the combination making it more difficult to maintain relationships with customers, employees, regulators or
suppliers; the diversion of management time and attention to integration matters; adverse changes in the markets in which McDermott operates or credit markets; the inability of McDermott
to execute on contracts in backlog successfully; changes in project design or schedules; the availability of qualified personnel; changes in the terms, scope or timing of contracts; contract
cancellations; change orders and other modifications and actions by customers and other business counterparties of McDermott; changes in industry norms; and adverse outcomes in legal
or other dispute resolution proceedings. If one or more of these risks materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected. You
should not place undue reliance on forward-looking statements. For a more complete discussion of these and other risk factors, please see McDermott's filings with the U.S. Securities and
Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2018 and subsequent quarterly reports on Form 10-Q. This presentation reflects the views
of McDermott's management as of the date hereof. Except to the extent required by applicable law, McDermott undertakes no obligation to update or revise any forward-looking statement.
NON-GAAP DISCLOSURESThis presentation includes several “non-GAAP” financial measures as defined under Regulation G of the U.S. Securities Exchange Act of 1934, as amended. McDermott reports its financial
results in accordance with U.S. generally accepted accounting principles, but we believe certain non-GAAP financial measures provide useful supplemental information to investors
regarding the underlying business trends and performance of its ongoing operations and are useful for period-over-period comparisons of those operations. The non-GAAP measures in this
presentation include Backlog, Adjusted Operating Income and Margin, Adjusted Net Income, Adjusted Diluted Earnings Per Share (“EPS”), EBITDA, Adjusted EBITDA, Free Cash Flow, and
Adjusted Free Cash Flow. These non-GAAP financial measures should be considered as supplemental to, and not as a substitute for or superior to, the financial measures prepared in
accordance with GAAP.
Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures are provided in the Financial Appendix to this presentation.
3
▪ Global, fully vertically integrated onshore-
offshore EPC/EPCI provider with a market-
leading technology portfolio with $15.4Bn1
backlog
▪ Diversified capabilities, well positioned
globally with a $91.1Bn1 revenue opportunity
pipeline
▪ 32,000 employees operating in over 54
countries, with four geographic segments and
a technology segment
▪ Over a century of demonstrated performance
▪ Positioned to demonstrate significant earning
power driven by end market recovery and
anticipated increased customer capex spend
COMPANY OVERVIEW
1. As of March 31, 2019
Engineering Fabrication
Marine
Professional Office
Spoolbase Technology
4
QUARTERLY FINANCIAL HIGHLIGHTS
$6.7
$1.4
$0.3
Q1'19 Q4'18 Q1'18
Orders(in billions)
$15.4
$10.9
$3.4
Q1'19 Q4'18 Q1'18
Backlog(in billions)
$2.2 $2.1
$0.6
Q1'19 Q4'18 Q1'18
Revenue(in billions)
TRANSFORMATIVE COMBINATION HAS PROVIDED
A QUANTUM INCREASE IN ORDERS, REVENUE AND BACKLOG
5
Q1 2019 PROFILE: BACKLOG, SEGMENT, PRODUCT OFFERING
STRONG VISIBILITY WITH ~80% OF EXPECTED 2019 REVENUES IN BACKLOG AS OF END OF Q1 2019
BACKLOG
By Product Offering
LNG$4.6 30%
Power$0.9 6%
Off/Sub$5.0 33%
Downstream $4.8 31%
BACKLOG
By Segment
NCSA$8.6 56%
EARC$2.0 12%
MENA$2.8 19%
APAC$1.4 9%
TECH$0.6 4%
BACKLOG
Roll-Off by Year$6.2
$5.1
$2.2 $1.9
Remainder 2020 2021 Thereafterof 2019
$ in millions
Orders
Backlog
Revenues $611 $414 $860 $326 $2,211
$4,620 $4,779 $865 $15,377 $5,113
$2,365 $3,851 $428 $26 $6,670
Offshore & Subsea LNG Downstream Power Total
PRODUCT OFFERING PROFILE:
6
▪ New awards of $6.7 billion and book-to-bill ratio of 3.0x
▪ 41% sequential-quarter increase in backlog to $15.4 billion
▪ No material increase in cost estimates on Cameron LNG and Freeport LNG and more recently:
▪ Announced first cargo of liquefied natural gas shipped from Cameron LNG on May 31, 2019
▪ Cameron commercial discussions continue to progress
▪ Focus on operational excellence drives solid portfolio execution
▪ Continued strong market position, with $91.1 billion revenue opportunity pipeline
▪ $475 million of annualized cost synergies fully actioned
▪ Pending sales of U.S. pipe fabrication and storage tank businesses proceeding on schedule
RECENT PERFORMANCE: Q1 2019
7
TECHNOLOGY-LED EPC/EPCI COMPANY WITH DIFFERENTIATED VERTICAL INTEGRATION CAPABILITIES
UPSTREAM DOWNSTREAM
SUBSEA OFFSHORE LNG REFINING PETROCHEMICALS POWER
WE PROUDLY CREATE AND DELIVER COMPLETE, INNOVATIVE SOLUTIONS AS THE TRUSTED GLOBAL PARTNER, ENABLING OUR CUSTOMERS TO MAXIMIZE THE POTENTIAL OF NATURAL RESOURCES
8
FULLY VERTICALLY INTEGRATED CAPABILITIES
CONCEPT / PRE-FEED
(IO) FEED
TECHNOLOGY LICENSING (LUMMUS)
PROJECT MANAGEMENT
START-UP &
DEBOTTLENECK
UPGRADE &
REVAMP
TECHNICAL CONSULTING & ENGINEERING
DIGITAL TWIN
APPRAISE /
SELECTEXECUTE GREENFIELD/BROWNFIELD DECOMDEFINE
FID
ENGINEERING, HIGH VALUE CENTERS, PROCUREMENT,
MODULARIZATION, CONSTRUCTION, INSTALLATION
FU
LLY
VE
RT
ICA
LLY
IN
TE
GR
AT
ED
DECONSTRUCT
& DISPOSE
CAPABILITIES
15 TO 40 YEAR ASSET LIFETIME PULL-THROUGH OPPORTUNITIES
SERVING THE CUSTOMER THROUGHOUT THE LIFE OF THE ASSET
9
▪ Continued enthusiastic customer support of CB&I combination with $4.5 billion of new awards in
2H 2018 and $6.7 billion of new awards in Q1 2019 (book-to-bill of 3.0x)
▪ Solidifying position as a market leader in LNG with the booking of Golden Pass in February 2019
and expected booking of Anadarko LNG project by mid-year
▪ $475 million Combination Profitability Initiative (CPI) fully actioned as of March 31, 2019
▪ Proven revenue synergies with meaningful awards booked
▪ Relationship with Saudi Aramco continues to build on combined leadership position in the
Middle East – two Saudi Aramco awards announced in Q1 2019
▪ Substantial completion of the global integration of people, systems and processes
STRATEGIC RATIONALE OF THE MDR-CBICOMBINATION CONTINUES TO BE VALIDATED
10
CONTINUING TO SEE RECOVERY IN THE OFFSHORE & SUBSEA, LNG AND DOWNSTREAM MARKETS WITH HIGHEST MCDERMOTT REVENUE OPPORTUNITY PIPELINE IN COMPANY HISTORY
$3.4 $10.2$11.5
$10.9 $15.4
$7.5
$19.0 $20.7 $20.3 $17.7$14.1
$49.3 $48.1
$61.9 $58.0
Backlog Bids & COs Targets
$25.0
$78.5$80.3
$93.1$91.1
Q1 2019Q4 2018
Q3 2018Q2 2018
Q1 2018
36
18
4
34
Off/Sub LNG Power Down
1
1Our backlog is equal to our Remaining Performance Obligations (RPOs) as determined in accordance with U.S. GAAP2There is no assurance that bids outstanding or target projects will be awarded to McDermott, or that outstanding change orders ultimately will
be approved and paid by the applicable customers in the full amounts requested or at all. Target projects are those that we believe fit
McDermott’s capabilities and are anticipated to be awarded in the market in next five quarters.3Figures may not foot to total due to rounding
2
Q1 2019 $91.1Bn REVENUE OPPORTUNITY PIPELINESTRENGTH IN END-MARKETS ($ in billions)
Recent Examples of Momentum on Key Projects:
NCSA LNG Golden Pass LNG Awarded Q1’19
MENA Offshore/Subsea Saudi Aramco Marjan TP-10 Awarded Q1’19
NCSA Offshore/Subsea BP Cassia-C Awarded Q1’19
TECH Various Various Awarded Q1’19
Key product offering end-markets are recovering
2
3
11
LEGACY FOCUS PROJECTS OVERVIEW1
$ in millions
FREEPORT4 CAMERON
Cumulative POC2 93% 90%
Gross Profit Trains 1&2 – Loss / Train 3 - Profitable Loss
Accrued Loss Provision ($19) ($128)
Operational Update
• Construction Completion: Train 1 ~98.8%; Train 2 ~90.9%; Train 3
~88%; and Common ~98.4%
• Completed all construction activities for pre-treatment facility
(“PTF”) and introduced fuel gas into the PTF
• Began inventorying amine and heat medium systems
• Train 1 Propane Compressor motor solo-run completed
• Construction Completion: Phase 1 ~99.9%; Train 2 ~73.9%; and
Train 3 ~59.2%
• ~81% of Phase I Start Up Certificates Complete
• Achieved Phase 1 Mechanical Completion
• Introduced Fuel Gas into Train 1
• Submitted Phase 1 Ready for Start Up Certificate to Client
• ~68.3MM man hours without an LTI
• Ready to start up achieved on Cameron Phase 1 in early Apr’19
Other JV Members Chiyoda and Zachry Chiyoda
Revenues in Q1 20193 $172 $139
Backlog Roll-off Q2 2019 Onwards3 $252 $307
Cash Flow Use in Q1 2019 ($119) ($144)
Projected Cash Flow Use in FY 2019 ($33) ($455)
Projected Cash Flow in FY 2020 Immaterial Immaterial
Net Material Change in Estimate at
Completion in Q1 2019$0 $0
Initial Production of LNG
Train 1: Q3 2019
Train 2: Q4 2019
Train 3: Q1 2020
Phase 1: Q2 2019
Train 2: Q1 2020
Train 3: Q2 2020
1) Information on slide as of March 31, 2019. Values on slide only represent McDermott’s share of each project.
2) Represents the cumulative percentage of completion (“POC”), which includes progress achieved prior to the Combination. POC calculated in accordance with GAAP, which requires the project progress to be reset to 0% as of the date of the Combination for accounting purposes, was 75% and 65% for the Freeport and Cameron projects, respectively, as of March 31, 2019.
3) Due to each of these projects being in a loss position, with the exception of the Freeport Train 3 project, the reported gross margin for each project will be $0. As such, revenues recognized are expected to be equal to costs recognized in all future periods.
4) Includes the Freeport Trains 1 & 2 and Freeport Train 3 projects, which are being performed by two separate consortiums. As of March 31, 2019, the Freeport Train 3 project was profitable and was not in a loss position.
12
LNG PROJECT COMPARISON
GOLDEN PASS CAMERON
Other JV Members Chiyoda and Zachry Chiyoda
FEED Status Executed Did not execute
Size, mtpa ~16, three trains ~14, three trains
Previous work on site, previous knowledge of site
Yes, MDR predecessor did original import terminal
project in 2010, gained familiarity with soil conditions
and site characteristics
No
Benchmarking against other Gulf Coast LNG Projects Yes No
Labor Availability
1. Contract realistically addresses the cost of current
Gulf Coast labor market and includes lessons
learned on Cameron
2. Some provision for cost sharing with client if craft
labor escalation rate exceeds expected estimates
1. Contract was bid in 2014 before current labor cost
and availability issues were recognized
2. No relief for labor escalation that exceeds contract
terms
Risk – Construction/ProductivityConstruction risk is borne by the JV Member performing
its particular scope. MDR share is well below 50%.MDR bears 50% of risk on construction
Risk – QuantityQuantity increases covered by a fixed contingency
amount; further amounts covered by ChiyodaMDR bears 50% of risk on quantity
Schedule Approximately 5 years for Train 1 Original bid was approximately 3.5 years;
Current estimate just under 5 years for Train 1
13
Q1 2019 CAPITAL STRUCTURE, REVOLVER AND LC AVAILABILITY
▪ $178 million of revolving credit facility usage attributable to borrowings and $108 million used for the issuance of letters of credit (“LCs”)
▪ No significant debt maturities in the near term
▪ Increase in gross debt from $3.6 billion at December 31, 2018, due to borrowings under the revolving credit facility
1) Net Debt is defined as Gross Debt net of Cash, Cash Equivalents and Restricted Cash.
$178M
$108M
$714M
Revolver
Availability
LC Usage
Borrowings
$1,576M
$1,095M
$532M$297M
$44M
$572M
$308M
$13M
LC Facilities UncommittedBilaterals
Surety CashSecured
Availability Usage
UNRESTRICTED
CASH
$1B$1.7B$1.6B
LC AND SURETY AVAILABILITY
$0.8B
$0.3B
REVOLVER
AVAILABILITY
$413M
Unrestricted Cash
Availability Usage
Mar 31, 2019
($ in millions)
Cash, Cash Equivalents and Restricted Cash $739
Senior Secured Term Loan $2,237
10.625% Six-Year Senior Unsecured Notes 1,300
North Ocean 105 Loan 16
Revolving Credit Facility 178
Gross Debt $3,731
Debt Issuance Costs (130)
Total Debt $3,601
Net Debt1 $2,992
Redeemable Preferred Stock and Warrants
Proceeds $290
Issuance Costs ($18)
Warrants ($43)
Accretion and paid-in kind dividends 14
Redeemable Preferred Stock $243
Capitalization
14
▪ Focus remains on technology pull through with differentiated vertical integration capabilities
▪ The sale process for each of the pipe fabrication and tank businesses is going well and as planned
▪ The sale process has generated a high level of interest for both
▪ Provides fabricated piping systems and piping fabrication, with
capabilities in induction bending. Develops and uses proprietary
welding techniques, computer applications for material control,
production scheduling and fabrication management
▪ APP – Maintains and distributes extensive inventory of commodity
fittings and specialty piping components in stainless, alloy and carbon
steel for sale to third parties and for internal fabrication use
▪ Only integrated manufacturer and master distributor in the United
States
▪ Serves as a one-stop-shop for distribution companies
▪ Approved manufacturer for major end users
▪ One of the world’s leading designers and builders of industrial storage
facilities for oil & gas, LNG, downstream, petrochemical and water storage
and treatment end-markets
▪ Solutions include atmospheric storage, low temperature & cryogenic
storage, specialty steel plate structures, high pressure storage and water
storage
▪ Has built over 59,000 storage structures in more than 100 countries
▪ Facilities located in Houston, TX; Clive, IA; Everett, WA; Al Aujam, Saudi
Arabia; Kwinana, Australia; and Chon Buri, Thailand
U.S. PIPE FABRICATION BUSINESS TANK BUSINESS
SALE OF U.S. PIPE FABRICATION AND TANK BUSINESSES
15
FULL YEAR 2019 GUIDANCE$ in millions, except per share amounts, or as indicated
~ = approximately
1) Net Interest Expense is gross interest expense less capitalized interest and interest income.
2) The calculations of EBITDA, Adjusted Operating Income, Adjusted Operating Margin, Adjusted Net Income, Adjusted
Diluted Net Income Per Share (“EPS”), Adjusted EBITDA and Free Cash Flow, which are Non-GAAP measures, are
shown in the appendix entitled “Additional Disclosures – 2019 Guidance Reconciliations.”
3) Corporate and Other Operating Income (Expense) represents the operating income (expense) from corporate and non-
operating activities, including certain centrally managed initiatives, such as restructuring and integration costs and costs
to achieve CPI, impairments, annual mark-to-market pension adjustments, costs not attributable to a particular reporting
segment, and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities
and engineering resources.
4) Restructuring and integration costs include costs to achieve CPI. No tax benefit is expected for this charge.
5) Transaction costs associated with the ongoing process to sell the company’s non-core storage tank and U.S. pipe
fabrication businesses. No tax benefit is expected for this charge.
6) Ending Gross Debt excludes debt issuance costs and capital lease obligations.
▪ Guidance is as of April 29, 2019, and is not being updated or reaffirmed at this
time
▪ Full Year 2019 Guidance is based on current portfolio of businesses
▪ Anticipate operating performance in 2H19 to be stronger than 1H19, reflecting
the cumulative benefit of higher revenues, execution of recently booked
backlog, higher utilization and cost synergies under CPI
~$3,700
Earnings Metrics ( in millio ns, except per share amo unts o r as indicated)
Full Year 2019
Guidance
Revenues ~$10.0B
Operating Income ~$660
Operating Margin ~6.6%
Net Interest Expense1 ~$380
Income Tax Expense ~$65
Accretion of Redeemable Preferred Stock ~$15
Dividends on Redeemable Preferred Stock ~$36
Net Income ~$170
Diluted Net Income, Per Share ~$0.90
Diluted Share Count ~188
EBITDA2 ~$945
Corporate and Other Operating Income (Expense)3 ~$(520)
Adjustment
Restructuring and Integration Costs4 ~$120
Transaction Costs5 ~$20
Adjusted Earnings Metrics
Adjusted Operating Income2 ~$800
Adjusted Operating Margin2 ~8%
Adjusted Net Income2 ~$310
Adjusted Diluted EPS2 ~$1.65
Adjusted EBITDA2 ~$1.1B
Cash Flow & Other Metrics
Cash from Operating Activites ~$(310)
Capex ~$(160)
Free Cash Flow2 ~$(470)
Cash Interest / DIC Amortization Interest ~$345 / ~$40
Cash Taxes ~$65
Cash, Restricted Cash and Cash Equivalents ~$545
Gross Debt6 ~$3,700
Net Working Capital ~$(1.3)B
SUPPLEMENTAL FINANCIALS
17
Q1 2019 FINANCIAL HIGHLIGHTS
▪ Strong orders of $6.7 billion resulting in 41% sequential-quarter increase in backlog to $15.4 billion
▪ Revenue of $2.2 billion for Q1 2019 driven by LNG and Downstream projects in NCSA and Offshore and Subsea projects in MENA
▪ Cash used for operating activities in the first quarter of 2019 primarily reflected the company’s net loss and the usage of cash on the Cameron and Freeport LNG projects
1) The reconciliations of EBITDA, each adjusted measure and free cash flow, all of which are non-GAAP measures, to the most comparable GAAP measures are
provided in the pages entitled “Additional Disclosures – Reconciliations” and “Additional Disclosures – EBITDA and Free Cash Flow Reconciliations.”
2) Includes cash, cash equivalents and restricted cash.
3) Working capital = (current assets, less cash and cash equivalents, restricted cash and project-related intangibles) – (current liabilities, less current maturities of long-
term debt and project-related intangible liabilities). Effective January 1, 2019, we recorded operating lease right-of-use assets and operating lease obligations as
required by a new accounting standard. The current portion of long-term operating lease obligations of $89 million is included in our working capital as of March 31,
2019.
Orders
Backlog
Revenues
Financial Metrics (Adjusted as Indicated)1
Gross Profit (Loss) and Margin % $183 8.3% ($124) -6.0% $132 21.7%
Operating Income (Loss) and Margin % $13 0.6% ($2,499) -120.5% $65 10.7%
Net Income (Loss) Attributable to Common Stockholders
Diluted Earnings (Loss) per Share
EBITDA1
Adjusted Operating Income (Loss) and Margin %1 $86 3.9% ($241) -11.6% $79 13.0%
Adjusted Net Income (Loss) Attributable to Common Stockholders1
Adjusted Diluted Earnings (Loss) per Share1
Adjusted EBITDA1
Capex
Cash Flow from Operations
Free Cash Flow 1
Ending Cash Balance2
Working Capital3
Intangible Amortization
$6,670
15,377
2,211
($ in millions, except for per share data) Q1'19 Q4'18 Q1'18
($244)
$35
$0.37
$90
$1,433
10,910
2,073
$321
3,387
608
$3
$0.02
$164
($70)
($0.39)
$91
($15.33)
($2,467)
($2,775)
$0
$49
($1.55) $0.52
($162) $104
$24 $18
($309) $20
($285) $38
$845 $419
$384 ($2,062)
$739
($1,972)
($280)
$67
$18
($262)
$35
18
Q1 2019 SEGMENT REPORTING AND PRODUCT OFFERING
▪ Strong orders driven by the Golden Pass and Cassia-C awards in NCSA, Tortue in EARC and several offshore projects in MENA
▪ Key contributors to the operating results in Q1 2019 were various Downstream projects in NCSA, Offshore and Subsea projects in MENA and TECH
▪ Order intake across all segments in Q1 2019 drove strong backlog across portfolio of product offerings
1) The reconciliations of Adjusted Operating Income and Adjusted Operating Margin, which are non-GAAP measures, to the most
comparable GAAP measures are provided in the page entitled “Additional Disclosures – Segment Reconciliations.”
OPERATING SEGMENTS
PRODUCT OFFERING
$ in millions
Orders
Backlog
Revenues
Operating Income (Loss) and Margin % $73 5.3% $7 4.7% $66 17.4% $13 8.4% $35 23.6% $13 0.6%
Adjusted Operating Income (Loss) and Margin 73 5.3% 7 4.7% 66 17.4% 13 8.4% 35 23.6% 86 3.9%
Restructuring, integration & transaction costs
Intangible Amortization
Capex
(108)
MENAEARC APAC TECH CORP
35
73 73
Total
$6,670
15,377
-
-
NCSA
$4,307
8,581
1,380
$684
1,915
148
- -
11 3
-
($181)
- - -
4 - 17 -
2 - 4 5 -
$1,425
2,879
380
$137
1,401
155
7 $18
2,211
$117
601
148
$ in millions
Orders
Backlog
Revenues $611 $414 $860 $326 $2,211
$4,620 $4,779 $865 $15,377 $5,113
$2,365 $3,851 $428 $26 $6,670
Offshore & Subsea LNG Downstream Power Total
19
Fu
LUMMUS TECHNOLOGY
▪ 120+ Licensed Technologies; 3,000+ Patents, Patent Applications and Trademarks
▪ 40% of the world’s ethylene produced under licenses from Lummus
▪ Refining technologies focused on cleaner fuels (i.e., IMO 2020 bunker fuel standards)
▪ Generates steady and attractive returns selling licenses/catalysts and heat transfer equipment
Leading technology licensor of proprietary gas processing, refining, petrochemical and coal gasification technologies, as
well as a supplier of proprietary catalysts, equipment and related engineering services
TRACK RECORD:
~$8 billion of petrochemical & refining pull-through
success in past five years resulting from licensing
sales, including:
• Shintech – Ethane Cracker Project
• LACC – Ethane Cracker
• LACC – Monoethylene Glycol Facility
• Total Petrochemicals & Refining – Ethane Cracker Project
• Oman Oil Refineries & Petrochemical Institute – Steam
Cracker
• Occidental Chemical – Ethane Cracker Project
FUTURE OPPORTUNITY:
~$39 billion of identified potential pull-through
EPC opportunities related to the complete
Lummus Technology portfolio, including the
segment’s CLG joint venture
Future opportunities include targets in the revenue opportunity pipeline and additional prospects.
FINANCIAL APPENDIX
21
ADDITIONAL DISCLOSURES – RECONCILIATIONS
Note: Amounts have been rounded to the nearest million, except per share amounts.
Individual line items may not sum to the total as a result of rounding.
1) Goodwill impairment charge due in part to a change in our cost of capital and risk
premium assumptions included in the discount rates utilized to derive the present
value of our cash flows
2) Marine asset impairment on two vessels related to lower levels of planned future
utilization
3) Transaction costs in Q1 2019 were associated with the ongoing process to sell our
non-core storage tank and U.S. pipe fabrication businesses. Transaction costs in Q4
2018 were associated with the Combination and the private placement of
redeemable preferred stock and warrants. Transaction costs in Q1 2018 were
associated with the Combination.
4) Restructuring and integration costs, including costs to achieve our Combination
Profitability Initiative (CPI)
5) Annual non-cash mark-to-market pension plan adjustments
6) Impact of a full valuation allowance against all net deferred tax assets as a result of
the goodwill impairment, creating a three-year cumulative loss
7) Income tax effect of non-GAAP adjustments based on respective tax jurisdictions
where adjustments were incurred. No income tax effect has been taken on Non-
GAAP charges. These charges were incurred in the United States, where we do not
expect to receive income tax benefits.
8) Includes non-GAAP adjustments described above, except footnotes 5 through 7, as
these items are not included in operating income
Reconciliation of Non-GAAP to GAAP financial measures
($ in millions, except share and per share amounts) Mar 31, 2019 Dec 31, 2018 Mar 31, 2018
Net Income (Loss) Attributable to Common Stockholders $(70) $(2,775) $35
Less: Adjustments
Goodwill impairment1 - 2,168 -
Marine asset impairment2 - 58 -
Transaction costs3 4 3 3
Restructuring and integration costs4 69 29 11
Mark-to-market pension costs5 - 47 -
Tax adjustment for three-year cumulative loss6 - 190 -
Total Non-GAAP Adjustments 73 2,495 14
Tax Effect of Non-GAAP Charges7 - - -
Total Non-GAAP Adjustments (After Tax) 73 2,495 14
Non-GAAP Adjusted Net Income (Loss) $3 ($280) $49
Operating Income $13 $(2,499) $65
Non-GAAP Adjustments8 73 2,258 14
Non-GAAP Adjusted Operating Income (Loss) $86 $ (241) $ 79
Non-GAAP Adjusted Operating Margin 3.9% -11.6% 13.0%
Diluted EPS $(0.39) $(15.33) $0.37
Non-GAAP Adjustments8 0.41 13.78 0.15
Non-GAAP Adjusted Diluted Earnings (Loss) per Share $0.02 ($1.55) $0.52
Shares used in computation of earnings (loss) per share:
Basic 181 181 95
Diluted 181 181 95
Revenues $2,211 $2,073 $608
Three Months Ended
22
ADDITIONAL DISCLOSURES – SEGMENT RECONCILIATIONS
Note: Amounts have been rounded to the nearest million. Individual line items may not sum to the total as a result of rounding.
1) Non-GAAP adjustments are comprised of restructuring and integration costs of $69 million, including costs to achieve CPI, change of control, severance and litigation
costs, and transaction costs of $4 million associated with the ongoing process to sell our non-core storage tank and U.S. pipe fabrication businesses.
Reconciliation of Non-GAAP to GAAP financial measures
-
-
$2,211
13
0.6%
Non-GAAP Operating Income (Loss)
Total Non-GAAP Adjustments
23.6%
73 7
$73
$73
$380 $155
- - - -
Revenues
- 3.9%
5.3% 4.7% 17.4% 8.4%
Non-GAAP Adjusted Operating Margin
NCSA EARC MENA APAC TECH CORP Total
73
$148
73
Three months Ended Mar 31, 2019
66 13 35 (181)
-$1,380
$ in millions
- - - - -
GAAP Operating Income (Loss)
GAAP Operating Margin
Adjustments
Restructuring, integration & transaction costs 1
$148
$73
5.3% 4.7% 17.4% 8.4%
$86 $7 $66 $13 $35 ($108)
23.6%
23
ADDITIONAL DISCLOSURES – EBITDA & FREE CASH FLOW RECONCILIATIONS
1) We define EBITDA as net income plus depreciation and
amortization, interest expense, net, accretion of and dividends on
redeemable preferred stock and provision for income taxes. We
define adjusted EBITDA as EBITDA adjusted to exclude significant,
non-recurring transactions, both gains and charges, to our
operating income. We have included EBITDA and adjusted EBITDA
disclosures in this supplemental deck because EBITDA is widely
used by investors for valuation and comparing our financial
performance with the performance of other companies in our
industry and because adjusted EBITDA provides a consistent
measure of EBITDA relating to our underlying business. Our
management also uses EBITDA and adjusted EBITDA to monitor
and compare the financial performance of our operations.
2) We define free cash flow as cash flows from operations less capital
expenditures. We define adjusted free cash flow as free cash flow
adjusted to exclude significant, non-recurring cash transactions,
both gains and charges, to our cash flows from operations.
Adjusted free cash flow provides a consistent measure of free cash
flow relating to our underlying business. We believe investors
consider free cash flow and adjusted free cash flow as important
measures, because they generally represent funds available to
pursue opportunities that may enhance stockholder value, such as
making acquisitions or other investments. Our management uses
free cash flow and adjusted free cash flow for that reason.
3) EBITDA, adjusted EBITDA, free cash flow and adjusted free cash
flow do not give effect to the cash that we must use to service our
debt or pay our income taxes, and thus do not reflect the funds
actually available for capital expenditures, dividends or various
other purposes. In addition, our presentation of EBITDA, adjusted
EBITDA, free cash flow and adjusted free cash flow may not be
comparable to similarly titled measures in other companies’
reports. You should not consider EBITDA, adjusted EBITDA, free
cash flow and adjusted free cash flow in isolation from, or as a
substitute for, net income or cash flow measures prepared in
accordance with U.S. GAAP.
Reconciliation of Non-GAAP to GAAP financial measures$ in millions Mar 31, 2019 Dec 31, 2018 Mar 31, 2018
Net income (loss) attributable to common
stockholders$(70) $(2,775) $35
Add:
Depreciation & amortization 76 92 23
Interest expense, net 92 89 11
Provision for (benefit from) income taxes (21) 123 21
Accretion and dividends on redeemable preferred stock 14 4 -
EBITDA1, 3 $91 $(2,467) $90
EBITDA $91 $(2,467) $90
Adjustments:
Goodwill impairment - 2,168 -
Marine assets impairment - 58 -
Transaction costs 4 3 3
Restructuring and integration costs 69 29 11
Actuarial Mark-to-market on pension plan - 47 -
Adjusted EBITDA1, 3 $164 $(162) $104
Cash flows from operating activities (244) $(285) 38
Capital expenditures 18 24 18
Free cash flow2, 3 $(262) $(309) $20
Cash restructuring, integration and transaction costs 73 32 14
Adjusted Free cash flow2, 3 $(189) $(277) $34
Three months Ended
24
ADDITIONAL DISCLOSURES – 2019 GUIDANCE RECONCILIATIONS
Reconciliation of Forecast Non-GAAP to US GAAP financial measures (in millions, except per share amounts or as indicated)
Full Year 2019
Guidance
Revenues ~$10.0B
Operating Income ~$660
Operating Margin ~6.6%
Restructuring, integration & transaction costs ~$140
Total Adjustments ~$140
Adjusted Operating Income ~$800
Adjusted Operating Margin2 ~8%
Net Income ~$170
Total Adjustments ~$140
Tax Impact of Adjustments ~$ -
Adjusted Net Income ~$310
Diluted Share Count ~188
Adjusted Diluted EPS ~$1.65
Cash Flows from Operating Activities ~$(310)
Capital Expenditures ~$(160)
Free Cash Flow ~$(470)
Net Income Attributable to Common Stockholders ~$170
Add:
Depreciation and amortization ~$280
Interest expense, net ~$380
Provision for taxes ~$65
Accretion of Redeemable Preferred Stock ~$15
Dividends on Redeemable Preferred Stock ~$36
EBITDA ~$945
Restructuring, integration & transaction costs ~$140
Adjusted EBITDA ~$1.1B