Oceaneering International, Inc.
Q1 2023 Earnings Call Transcript

Published: 27 Apr 2023

[Operator:]

Good morning, ladies and gentlemen. My name is Michelle, and I will be your conference operator today. Welcome to Oceaneering's First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question-and-answer period after the speakers’ remarks. With that, I will now turn the call over to Mark Peterson, Oceaneering's Vice President of Corporate Development and Investor Relations. Please go ahead, sir.

[Mark Peterson:]

Thanks, Michelle. Good morning, everyone, and welcome to Oceaneering's first quarter 2023 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 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 financial results surpassed our guidance range and consensus estimates, supporting our belief that the offshore energy recovery is continuing. We believe market conditions continue to be supportive of healthy activity levels and continuing pricing improvements in the majority of our energy businesses for the remainder of the year. As a result, for the full year of 2023, we are maintaining our original adjusted EBITDA guidance range of $260 million to $310 million, and our expectation to generate free cash flow in the range of $75 million to $125 million. Today, I'll focus my comments on our performance for the first quarter of 2023, our consolidated and business segment outlook for the second quarter and the full year of 2023, our balance sheet and liquidity situation and the positive macro data points that continue to drive our markets. For the first quarter, we reported net income of $4.1 million or $0.04 per share on revenue of $537 million. These results included the impact of $0.3 million of pretax adjustments associated with foreign exchange gains and $1.5 million of discrete tax adjustments, primarily due to changes in valuation allowances and share based compensation. Adjusted net income was $5.4 million or $0.05 per share. Our consolidated first quarter 2023 results came in higher than guided on better than expected revenue. We believe these results, combined with current bid activity levels support the continuing recovery in our offshore markets. Consolidated first quarter 2023 revenue was essentially flat as compared to the fourth quarter of 2022, with revenue increases in our manufactured products and Integrity Management and Digital Solutions, or IMDS segments, due in part to the ongoing improvement in our offshore markets, being offset by a seasonal revenue decline in our Offshore Projects Group segment, or OPG. As compared to the first quarter of 2022, consolidated first quarter 2023 revenue was up more than 20%, led by significant revenue increases in our manufactured products and Subsea Robotics or SSR segments. This is particularly encouraging since our first quarter is generally, over the last several years, represented the lowest revenue quarter of the year. For the first quarter of 2023, our consolidated adjusted EBITDA of $55 million exceeded our guidance range and consensus estimates. Now let's look at our business operations by segment for the first quarter of 2023. SSR operating income was lower despite a marginal increase in revenue as compared to the fourth quarter of 2022. Sequentially, as expected, results were lower due to the absence of accrual releases that benefited the prior quarter and higher remotely operated vehicle, or ROV and survey maintenance and mobilization costs in preparation for increased activity over the next several quarters. Consequently, EBITDA margin declined to 29% for the first quarter of 2023. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 77% and 23%, respectively, the same split as in the prior quarter. Our fleet utilization and days on hire were essentially flat with the prior quarter. Utilization of 63% was up slightly over the 62% in the prior quarter, and our days on hire were down less than 1% on fewer available working days in the quarter. Our ROV fleet use during the first quarter 2023 was 65% in drill support and 35% in vessel-based activity, the same split as in the prior quarter. Average ROV revenue per day on hire of $9,176 was 2% higher than the previous quarter. We maintained our fleet count at 250 ROV systems in the first quarter. At the end of March, we had ROV contracts on 90 of the 148 floating rigs under contract or 61%. This was an incremental improvement over the prior quarter when we had ROV contracts on 83 of the 141 floating rigs under contract or 59%. Turning to manufactured products, our first quarter 2023 operating income improved significantly, as compared with the fourth quarter of 2022, on a 13% increase in segment revenue. Operating income margin improved to 10% in the first quarter of 2023, from a 6% margin in the fourth quarter 2022, due to better cost absorption and favorable project mix within our energy businesses. As expected, our energy businesses experienced slower sequential order intake in the first quarter of 2023, although bidding activity remained strong. Our manufactured Products backlog on March 31, 2023 was $446 million, compared to our December 31, 2022 backlog of $467. Our book-to-bill ratio was 1.27 for the trailing 12 months, as compared to the book-to-bill ratio of 1.39 for the year ended December 31, 2022. OPG first quarter 2023 operating income declined as expected, on a 15% seasonal decline in revenue. Operating income margin declined to 5% in the first quarter, from 9% in the fourth quarter 2022, primarily due to lower seasonal pricing and vessel utilization in the Gulf of Mexico and higher diving-related costs in West Africa. For IMDS, first quarter 2023 operating income was lower than the fourth quarter 2022 on an 8% increase in revenue. The revenue increase resulted from expanded scopes being added to several projects. Operating income declined to 5% in the first quarter of 2023, from 9% in the fourth quarter of 2022, which included a benefit associated with efficient personnel management for the full year of 2022. Our Aerospace and Defense Technologies or ADTech, first quarter 2023 operating income declined sequentially on relatively flat revenue. Operating income margin of 9% declined from the 11% achieved for the fourth quarter of 2022 due to higher planned costs on several projects in our defense Subsea technologies business. Unallocated Expenses of $35.3 million were at the low end of our guidance range. For the first quarter of 2023, we utilized $42.9 million in cash and operating activities and an additional $18.3 million for maintenance and growth capital expenditures, resulting in negative free cash flow of $61.2 million. Consistent with the past few years, our cash balance declined during the first quarter. Cash decreased by $64 million in the first quarter of 2023 as compared to the $100 million decrease during the first quarter of 2022. At the end of the quarter, we had $505 million of cash and cash equivalents, no borrowings under our secured revolving credit facility and no loan maturities until November 2024. Now I'll address our outlook for the second quarter of 2023. On a consolidated basis, we expect our second quarter 2023 results to improve significantly with adjusted EBITDA in the range of $75 million to $85 million on a low to mid-teens percentage increase in revenue. Our second quarter 2023 operations by segment as compared to the first quarter of 2023

[Operator:]

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] There are no questions from the phone lines, gentlemen, please proceed with any closing remarks.

[Roderick Larson:]

No. Thank you very much. I'd like to wrap up by thanking everyone for joining the call. This concludes our first quarter 2023 conference call.

[Operator:]

Ladies and gentlemen, this does indeed concludes your conference call for this morning. We would like to thank you all for your participation and ask you to please disconnect your lines.

[End of Q&A:]