Oceaneering International, Inc.
Q1 2022 Earnings Call Transcript

Published: 30 Apr 2022

[Operator:]

My name is Buena and I'll be your conference operator. I would like to welcome everyone to Oceaneering International Incorporated 2022 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. With that, I will now turn the call over to Mark Peterson, Oceaneering's Vice President of Corporate Development and Investor Relations. Go ahead, sir.

[Mark Peterson:]

Thank you, Buena. Good morning, everyone and welcome to Oceaneering's first quarter 2022 results conference call. Today's call is being webcast and a replay will be available on Oceaneering's website. Joining us on the call today are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; and Alan Curtis, Senior Vice President and Chief Financial Officer. Before we begin, I would just like to remind participants that statements we make during the course of this call regarding our future financial performance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our comments today are also non-GAAP -- also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

[Roderick Larson:]

Good morning and thanks for joining the call today. Our first quarter operating results reflect our continued expectation and significant preparation for increasing activity throughout the remainder of 2022. As a result, our first quarter 2022 financial results were impacted by increased costs. The macro drivers supporting this expected increase in activity remain in place and continue to be supportive of a robust ramp up in activity and pricing improvements beginning in the second quarter and continuing through the remainder of the year. This outlook, coupled with increased vessel capacity secured for the remainder of the year, gives us confidence to maintain our original EBITDA guidance of $225 million to $275 million for the full year of 2022. Today, I'll focus my comments on our performance for the first quarter of 2022, our consolidated and business segment outlook for the second quarter and full year of 2022, our balance sheet and liquidity situation and the positive macro data points driving our markets. Now for our results. For the first quarter, we reported a net loss of $19.2 million or $0.19 per share on revenue of $446 million. These results included the impact of $0.4 million of pretax adjustments associated with foreign exchange gains and $13.1 million of discrete tax adjustments, primarily due to changes in valuation allowances. Adjusted net loss was $6.4 million or $0.06 per share. Our consolidated first quarter 2022 unfolded largely as expected as we experienced higher costs in hiring and training of personnel and mobilization of equipment in preparation for a significant activity increase anticipated for the remainder of 2022. These costs mostly impacted our energy segments. Nonetheless, each of our operating segments generated positive operating income and positive EBITDA in the quarter. Our Offshore Projects Group segment experienced cost overruns on a project and schedule changes that affected the timing of project work. However, these impacts were largely offset by lower unallocated expenses and slightly improved results from our Aerospace and Defense segment. Consistent with our guidance, these factors resulted in consolidated adjusted EBITDA of $31.5 million for the first quarter of 2022, a significant decrease from the prior quarter. Now let's look at our business operations by segment for the first quarter of 2022. Subsea Robotics, or SSR, operating income was significantly lower on a modest decrease in revenue as compared to the fourth quarter 2021. Operations were impacted by seasonal factors, resulting in reduced ROV activity and increased costs associated with hiring and training and asset preparedness for anticipated 2022 work. These factors resulted in a reduced EBITDA margin of 24% for the first quarter. We anticipate the work associated with these costs to materialize over the remainder of 2022 with EBITDA margins recovering as well. The revenue split between our remotely operated vehicle, or ROV, business and our combined tooling and survey businesses as a percentage of our total SSR revenue, was 76% and 24%, respectively, compared to the 77%, 23% split in the immediate prior quarter. First quarter 2022 ROV days on hire were sequentially lower due to typically lower seasonal activity. Days on hire were 11,842 as compared to 12,747 during the fourth quarter of 2021, with decreases in both drill support and vessel-based days on hire. Our fleet use was 63% in drill support and 37% in vessel-based services versus fourth quarter 2021 fleet use of 62% and 38%, respectively. For the first quarter, we maintained our fleet count at 250 ROV systems and our fleet utilization was 53%, down slightly from 55% in the fourth quarter 2021. Average ROV revenue per day on hire was $8,196. It was essentially flat with that achieved during the fourth quarter of 2021. At the end of March, we had ROV contracts on 72 of the 131 floating rigs under contract or 55%. This was flat with the prior quarter when we had ROV contracts on 75 of the 137 floating rigs under contract. Subject to quarterly variances, we continue to expect our drill support market share to generally remain in the range of 55% to 60%. Turning to manufactured products. Our first quarter 2022 operating income declined as compared to the fourth quarter of 2021 adjusted results on a 20% decrease in segment revenue. Operating income margin decreased to 3% in the first quarter of 2022 from an adjusted 9% margin in the fourth quarter of 2021, primarily due to the inability to fully absorb fixed costs of the segment over a reduced revenue base. Our energy products businesses experienced good order intake in the first quarter, while bookings in our Mobility Solutions businesses continued to lag. Our manufactured products backlog on March 31, 2022, was $334 million compared to our December 31, 2021, backlog of $318 million. Our book-to-bill ratio was 1.2 for the trailing 12 months as compared with a book-to-bill ratio of 1.1 for the year ended December 31, 2021. The Offshore Projects Group, or OPG, first quarter 2022, operating income declined sequentially despite higher revenue. Operating income margin declined to 1% in the first quarter from 8% in the fourth quarter 2021 due to cost overruns experienced on a project and lower-than-expected vessel utilization resulting from scheduled changes that affected the timing of project work. As with our other offshore businesses, we experienced higher costs in the first quarter of 2022 in connection with hiring and equipment readiness to prepare for expected higher activity during the remainder of 2022. For Integrity Management and Digital Solutions, or IMDS, first quarter 2022 operating income was lower than the fourth quarter of 2021 on a 6% seasonal decrease in revenue. Operating income margin declined to 6% in the first quarter of 2022 from 10% in the fourth quarter of 2021, primarily due to less efficient absorption of fixed costs. Our Aerospace and Defense Technologies, or AdTech, first quarter 2022 operating income improved sequentially on slightly lower revenue. Operating income margin of 15% improved over the 13% achieved for the fourth quarter of 2021 due to favorable project mix. Unallocated expenses of $31.3 million were lower than expected as we reduced spending to better align with our revenue streams. During the first quarter, we reported a cash reduction of $100 million. We utilized $80.5 million of cash in operating activities, primarily due to an increase in working capital associated with accounts receivable and the payment of accrued employee incentive compensation. In addition, $19.3 million of cash was used for maintenance and growth capital expenditures. At the end of the quarter, we had $438 million of cash and cash equivalents, no borrowings under our revolving credit facility and the loan maturities until November of 2024. Now, I'll address our outlook for the second quarter of 2022. On a consolidated basis, we expect our second quarter 2022 results to improve significantly with adjusted EBITDA in the range of $50 million to $70 million on sequentially higher revenue. This wider-than-usual range of quarterly adjusted EBITDA guidance reflects uncertainty in the timing of certain anticipated product sales and project work as well as attained levels of offshore utilization and pricing. For our second quarter 2022 operations by segment as compared to the first quarter of 2022, for SSR, we are projecting significantly higher seasonal activity and operating profitability in our ROV survey and tooling businesses. ROV days on hire are expected to increase in both drill support and vessel-based activities, achieving utilization in the mid-60% range. SSR adjusted EBITDA margin is forecast to rebound to the high 20% to low 30% range reflecting a more normal run rate and lower preparatory costs. For manufactured products, we anticipate higher revenue. Operating profitability in the second quarter of 2022 will be highly influenced by the timing of anticipated product sales which could lead to either higher or lower operating income in the second quarter of 2022 as compared to the first quarter of 2022. We continue to see active bidding in our energy products businesses and are becoming more optimistic for increased bidding activity in our Mobility Solutions businesses. For OPG, we anticipate significantly higher revenue and operating results. We expect a robust seasonal pickup in intervention, maintenance and repair or IMR activity, primarily in the Gulf of Mexico. Operating income margins are expected to increase to the low double-digit range in the second quarter of 2022. As mentioned in my opening comments, we have secured increased vessel capacity which is expected to benefit results through the remainder of 2022. For IMBS, we expect higher revenue and operating results with operating margins improving modestly over the first quarter of 2022. For ADTech, we expect higher revenue and operating results. We expect a slight revenue mix shift to result in slight sequential decline in the operating income margins. Unallocated expenses are expected to be in the mid-$30 million range in the second quarter of 2022. Directionally, for our full year 2022 operations by segment as compared to 2021, we expect

[Operator:]

[Roderick Larson:]

Thanks, Buena. If there are no questions at this time, I'd just like to thank everybody for joining the call today and this concludes our first quarter 2022 conference call. Thank you, everyone.

[Operator:]

And this concludes today's conference call. Thank you for participating. You may now disconnect.