Oceaneering International, Inc.

Q3 2021 Earnings Conference Call


spk_0: hello my name is deb and i will be your helper it's operator i would like to welcome everyone to the ocean earrings third quarter twenty twenty one earnings culprit goal all wind have been placed on mute prevent any background noise after the speakers remark there will be a question and answer period
spk_1: with that our they'll turn the call over to mark peterson oceaneering vice president of corporate development and investor relations the floor is yours thank you dad or good morning and welcome to ocean nerves third quarter twenty twenty one results croplands call for those goal been webcast and a replay will be available on ocean or his website joining us on the call today or road larson president and chief executive officer who will be provide the are prepared comments and allen 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 performer it's 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 nineteen ninety five or comments today are also don gap also include on gap financial measures additional details
spk_2: in reconciliations to the most directly comparable gap financial measures can be found in our third quarter press release we walk in your questions after the prepared statements i will now turn the call over and rod a good morning and thanks for joining the call today your this time year most requested receiver focused on the coming year so happy to start by providing your initial thoughts on the or twenty twenty two outlook as announced yesterday where initiating twenty twenty two even kinds in range of two hundred and twenty five two hundred seventy five million dollars
spk_3: and the midpoint this would represent a sixty percent increase was compared were revised guidance for calendar year twenty twenty one adjusted even amid point two hundred and fifteen million dollars were confident in our ability to liberate the solid improvement and twenty twenty two based on the quality and efficiency gains for process enhancements continue to recover
spk_2: the of the global economy commodity prices supporting increased activity in our energy segments solid fundamentals and or aerospace and technology segment and year we back like improvement in are manufactured products segment this level of twenty twenty two performance also and underpins our expectation degenerate similar levels of free cash flow as compared to twenty twenty one now folks my comments on our performance for the third quarter of twenty twenty one our current market our outlook oceanarium consolidated into the second i'll outlook for the fourth quarter and full year of twenty twenty one and our initial consolidated twenty two hundred twenty two outlook including the previously mentioned even guns range and expectations to generate similar levels of recounts flow as compared to twenty twenty one to support growth activities while continuing to improve or net debt petition after these comments are then take some makes them closing remarks before opening the call to your questions now to our third quarter summary results are planning and preparation were instrumental in our team's ability to navigate through the challenges presented during the third quarter which included hurricanes inflation a tight labor market and a constraint global supply chain despite these challenges we produce consolidated a bit out fifty the point three million dollars a decrease from the second quarter twenty twenty one a within the guy nutrients provided at the beginning of a quarter we made additional progress with that reduction during the third quarter with three thirty two point five million dollars of open market repurchases of our twenty twenty four senior notes bringing the total repurchases to sixty three million dollars for the year during the third quarter regenerated thirty six point five million dollars of cash flow from operations and generating twenty four million dollars in free cash flow or cash balance at the end of the third quarter feel slightly the four hundred and forty million dollars primarily due to the aforementioned repurchases of our twenty twenty four senior note actual work and our energy focus businesses remain seasonally active during the third quarter however operations in the gulf of mexico or muted by hurricane i did and hi lou currents in general each of our file operating segments performed is forecast at the beginning of the third quarter now let's look at our business operations by segment for the third quarter of twenty twenty one subzero boxer ssr revenue increased slightly with good continuing offer activity levels as compared to the second quarter however operating income declined primarily from lower margins for remotely operated vehicle or of these services attributed to change is a geographic makes and a special bonus that recognize her technicians for enduring extended work rotations throughout twenty twenty one due to covert nineteen challenges as a result as bizarre just that even a margin twenty nine percent was slightly lower than compared to the same quarter the as is our revenue split with seventy nine percent from our our of a business and twenty one percent from our combined tooling and survey businesses compared to the eighty twenty split respectably and they made it prior quarter sequential are oh the days on higher increased slightly as after activity or main seasonally active with an increase in days for both real support and nestle based services days on higher were fourteen thousand and four hundred and seventy four as compared to forty thousand and five during the second quarter a three percent increase our fleet use was fifty seven percent moral support and forty three percent in vessel based services vs fifty eight and forty two percent respectively in the second quarter we maintained or fully counter two hundred fifty are of these systems and our third quarter fleet utilization was sixty three percent up slightly from sixty two percent in the second quarter average are of the revenue per day on higher of seven thousand eight hundred and fifty eight dollars was a two percent lower than the average rv revenue per day on higher of eight thousand and and fifty six dollars achieved during the second quarter at the end of september we had a fifty percent drill support market share with rb contracts on seventy seven of the one hundred and thirty three floating rates on a contract which was the same shares the prior quarter when we had our be contracts on seventy three of the one hundred and twenty six floating rigs under contract subject a quarter the variances we continue to expect or oh support market share the generally approximate sixty percent turning to manufacture products sequentially our third quarter twenty twenty one operating income and operating income margin are essentially flat with the second quarter despite marginally lower revenue third quarter twenty twenty one revenue of seventy five point four million dollars remain some optimal which continued our challenge to challenge our ability to leverage to the cost base of this business activities and our mobility solutions or non energy manufacturing remains subdued dude that are expected to see a gradual increase as economy continues to recover are manufactured products backlog on september thirtieth twenty twenty one was three hundred and thirty four million dollars improving on her second quarter backlog of three hundred and fifty million dollars or book to go ratio was one point three for the nine months ended september thirtieth twenty twenty one and was one point now for the trailing twelve months after products group wrote bg third quarter twenty twenty one operating income was relatively flat as compared to the second quarter of twenty twenty one on an eleven percent decline in revenue revenue benefited from good ongoing seasonal activity in inspection maintenance and repair or i am our work in the gulf of mexico despite some work delays caused by hurricane ita and hi lou currents the conclusion of field activities on several projects in angola was the primary driver for the sequentially lower third quarter revenue operating income march and improved from seven percent for the second quarter of twenty twenty one to eight percent in the third quarter of twenty twenty one primarily due to improve performance on the angle arise or was like well intervention project integrity management and eight different solutions or i am the as sequential operating income was higher and relatively flat revenue operating income march and improved and nine percent in the third quarter of twenty twenty one as efficiency improvements continued to show incremental benefits aerospace and defense technologies are and tech third quarter twenty twenty one operating income declined from the second quarter of twenty twenty one on a fifteen percent decrease in revenue operating income margin declined of sixteen percent as expected due to hire component of low margin and our activities unallocated expenses of thirty one point eight million dollars were slightly higher as compared to the second quarter twenty twenty one but less than expected primarily due to delayed spending on information technology infrastructure now i'll address or outlook look for the fourth quarter of twenty twenty one we are projecting a decline in are consolidated operating results and slightly higher avenue with even i'm being approximately the same as our third quarter twenty twenty one results other we do expect to see some benefit from the work that was pushed out from the third quarter of twenty twenty one as a result of hurricanes luker and we still expect to see the typical seasonal slow down and off your activities during fourth quarter probably for the fourth quarter of twenty twenty one as compared to the third quarter we expect proved operating profitability and our energy segments to be offset by lower ad tech operating results and higher unallocated expenses or fourth quarter twenty twenty one operations by segment as compared to the third quarter of twenty twenty one for ssr we are projecting relatively flat operating profit billy on a modest decrease had revenue as compared to the third quarter or of the days on higher forecast the decline due to typical seasonal factors with good survey activity continuing during the fourth quarter forecasters seems overall rv fleet the utilization to be in the high fifty percent range at this are a bit and margin is anticipated to improve as compared to the third quarter to the exclusion of one off expenditures that impacted the third quarter as of september thirtieth twenty twenty one they were approximately fifteen oceaneering are obese on board eleven of the seventeen floating drilling rigs with contract terms expiring by your and during the same period we expect to have twenty nine are of these on twenty five of the thirty seventh floating rigs to begin new contract or manufactured products we anticipate a significant increase in revenue and operating profitability as a higher level of awards seen over the first three quarters begins to flow through or manufacturing facilities operating margins are projected to prove to the mid to high single digit range as we expect to be better able to leverage our cause face award activity continues to look promising and our energy products businesses we expect continued near term headwinds and or mobility solutions businesses as our customers team focused on strengthening their balance sheet before committing to new cap projects big container forecast the book to bill ratio of between one point one and one point five for the full use of twenty twenty one pero pg we project substantially lower revenue and lower operating results good a typical fourth quarter seasonality and the reduction in contribution from field support activities and angola operating income margins are expected to decline to the load of admit single digit range primarily as a result of fix cost being spread over a lower revenue base as mentioned we expect some carry over a third quarter gulf of mexico i am are activity that was delayed due to hurricane i'd and hi luke currents it or not seen as and significantly improving fourth quarter results randy as we expect both revenue an operating results to remain relatively consistent from the third call with the third quarter of twenty twenty one brad tech we forecast relatively flat revenue and lower operating results as compared to the third quarter the full year of twenty twenty one we continue to expect operating margin to be approximately the same as the adjusted operating margin for twenty twenty unallocated expenses are expected to be in the mid thirty million dollar range due primarily to increase spending on information technology infrastructure and for the full year of twenty twenty one based on her segment level games were expecting that each of our operating segments except for manufactured products or shells sequential year over year improvement we expect to generate a custody but i'm within the narrow range of two hundred and ten to two hundred and twenty million dollars we are also nearing our games for capital expenditure to the range of forty five to fifty five million dollars or guides for cash tax payments remains in the range of forty to forty five million dollars we continue to expect twenty eight know when dollars of remaining cares act tax refunds with four point seven million dollars of this amount received in the third quarter of twenty twenty one the timing of her seat of the remaining twenty three million dollars of these payments weather in twenty twenty one or twenty twenty two remains uncertain regardless of the timing of these payments we continue to expect positive free cash flow generation for twenty twenty one to be in excess of that generated can twenty twenty now turning to our balance sheet or net that position improve during a third quarter as we repurchased an additional thirty two point five million dollars of our twenty twenty four senior note for year to date repurchase total of sixty three million dollars or cash flow from operations for thirty six point five million dollars and we had four hundred and forty million dollars cash and cash equivalents at the end of the third quarter we continue to expect recast for generating twenty twenty one will exceed that generated and twenty twenty we are well positioned to address the maturity of our twenty twenty four senior notes and we have our under honorable over which stepped down from five hundred million dollars to four hundred and fifty million dollars during the fourth quarter of twenty twenty one available to us until january twenty twenty three now looking forward to twenty twenty two continents is returning to the energy services industry and commodity prices appear supportive to continued the gradual growth in offshore oil and gas markets over the short and medium term and went has been accelerating interest and growth and half or energy transition market including offshore wind over the longer term we believe that our energy segments are positioned to benefit from the growth in both of these markets we also believe that our government focus segment and tag remains well positioned for continued steady growth in aerospace and defense markets accordingly and twenty twenty two we anticipate increased activity and improved operating performance across each of our operating segments led by games with in subzero biotics and optional projects at this time we forecast even in the range of two hundred twenty five to two hundred and seventy five million dollars and twenty twenty two serving as the catalyst for generating help levels of cash flow from operations with higher project and levels and cash flow from operations we expect to be able to invest more in growth capital expenditures and twenty twenty two with a from capital discipline focus as demonstrated over the past several years we expect to generate positive free cash flow at level similar to twenty twenty one
spk_4: will provide more specific guidance on our expectations for twenty twenty two during the year and recording process
spk_2: in summary based on are here today financial performance and expectations for the fourth quarter of twenty twenty one where narrowing or adjusted even a guidance to arrange of two hundred and ten to two hundred twenty million dollars for the full year i'm encouraged by the positive market fundamental supporting our traditional businesses and are increasing participation in emerging markets confidence is returning to the energy services industry and especially to those companies that can help their customers achieve carbon reduction goals this combined with unexpected rebound and or mobility solutions businesses and continued growth and our government businesses underpinned are general expectation for increased activity levels over the next several years our focus continues to be on generating positive free cash flow and twenty twenty one and twenty twenty two attracting and retaining top talent mitigating the effect of inflation and supply chain issues addressing are twenty twenty four that maturity maintaining financial flexibility and growing oceaneering by leveraging are technologies and capabilities into new markets
spk_0: we appreciate everyone's continued interest in oceaneering and i'll be happy to take any questions you might have if you would like to ask a question played press star one on your telephone keypad again that a star one to ask a question la paz forget the moment sick of have a kid iraq her
spk_5: if first question comes from the line of taylor darker with tinder pickering a right now in the morning thank her take my question and not met her son has done and twenty twenty the outlook at the even line for very encouraging liter how to continue out and expecting and a really my question is have specific the segment are you calling out at this are leading the way that that author also pg in when i think that rpg and just like that segment benefited from lot of disagree projects and in angola are they wonder three project angolan only thing is that there's a lot of the call out that speculated work in the gone
spk_2: that the go on an antagonist of his terrorists of what frame and that then print outlook four per opie and and twenty twenty two relative between twenty one okay taylor i think you nailed it i mean discreet projects rate and and so when we look at that i would the contracting activity right now regret for quote lol we see very tangible market signals and we just see that we see that improvement in them and then customer signal to us so i would you say stay tuned of we will be able to share some of that news more specifically arm and in the next month or so so
spk_5: that that you clear some of that up okay i understand there and then my follow us on cap allocation of improved or even our generation and twenty twenty two in it would certainly a consenting recently had the flexibility to increase are you can spend next year and and just interesting to me that sort of buckets he called out on on the ground capital span for next year her
spk_2: and largely on non oil and gas and and type opportunity so here's to be couldn't help but think about where you're seeing that the best that the opportunities to allocate a grant capital today and in how to think about cap allocation between international an offshore oil and gas oriented business versus something or other non oil and gas oriented segments sure i'm happy do that and so it's it's interesting when we look at it am i look at our kind of our new product development stream and and about maybe ten percent of our new product development is focused on things that are specific oil and gas and then the other ninety percent as things snape they may have some application and oil and gas and are also targeted for other developing markets so i think we we've got a nice balance her of the markets we serve and and the direction we're going because it specially whether that with the new product development that's that's key in the other side for oil and gas as we know that most our markets are still oversupplied so they don't require a lot of a lot of that doubling down on capital somewhere we spend on indian on the oil and gas market we're looking at ways we can help our customers reduce their carbon footprint they think about things like freedom i'm autonomy vehicles it will will create you days of of large vassals be on way
spk_6: water to support sub see activities else or liberty resident or of a vehicle that's that's one that we see money going to and then israel which is as a vehicle really specifically built to support the offshore wind market and we see some opportunities to build more for the offshore wind route clearance moral clearer inside type equipment
spk_2: and then and then on the non energy side again building out on some of the things we do our mobility solutions business is one where in we've got more eighty the type vehicles that we can build some some are also some opportunities maybe longer term and entertainment and then finally i think the one that's most exciting for us that a lot of people don't see his is the i am the as business and more data and and being able to do more predictive modeling for customers in when you think about carbon reduction obviously skates or one of the biggest things that are weighted so being able to do a more robust analysis for customers and be able to give them greater insight into their infrastructure very very strong opportunities
spk_7: are so we think they're great opportunity to to build on that business and to expand our capabilities
spk_0: i'll getting here thanks for the detailed response accent
spk_8: the next question comes the line of you make their son with piper sandler thanks get more right the morning and
spk_9: how do you think about the the most promising offshore deep water or basins next year i think we we see a lot of movement in brazil and gannon caught south america writ large as an obvious growth point
spk_8: others in in our or less clear direction way i mean it's in the gulf of mexico theoretically has nowhere to go but up and with the some some bag twenty k project starting up but not not immediately in the first half of next year anyway and then maybe the north sea in norway already are off of their said
spk_9: google bought him a little bit earlier than the rest the world so i don't know how those
spk_2: the project into twenty two seven when asked you a good thing about the key basins i'm from a from a growth perspective twenty one and to twenty two while i while i think you nailed and try to see what i could have their definitely south america is strong with all investment and guiana particularly but but you know brilliant brazil opening up a little more to that i'll seize i think and can create some opportunity their site that looks good ah he mentioned gulf of mexico i think it is very products specific that and i get big operate bhp try on his want it could be bigger in the mexican side of the gulf of mexico we don't always talk about that but there are some big projects their that our potential if they can you not think i'm gonna go up according to schedule you got you still got meter norway like he said the activities been really well sustained and that we like that one because it's generally i a consumer technology so we really like to see things happening in norway but i think one that you didn't mention so much as west africa we do see improvement in west africa in that maybe not a boom that coming coming getting some of it's strength back so that that would be good as well especially for us we got that strong presence in angola whether it's whether it's based on new work or just reinvestment in the infrastructure that's already there obviously that's been great for oceaneering so i think i commodity price would bode well for for west average
spk_10: as well and then the projects in east africa you know their their been big big projects their that i'm whether it's know the total energies worked at the a got held up a little bit by some of the political unrest in mozambique but but there's an opportunity for that stuff to pick up again as well so i'd say watch africa that could be maybe one of the swing swingtown activity places for
spk_9: for most of us in deep water great thank you and then i was gonna have is falling onto taylor's question for on capital
spk_11: the
spk_9: it looks like you're you know you should be below one times leverage
spk_2: by the end of next year the what what can you say today about the ambition to return caspian dividends or other or buybacks or your preference between the two and and how important that is as as part of that the capital strategy those near the i'd say tbd i mean we've got a lot of great i think a lot of good ideas on girls
spk_11: but i don't want to give anybody this idea that some of the growth in the emerging markets you know it's gotta be timed right
spk_0: so so we're going to have to keep an eye on that if we find it you know that some of these things aren't developing as fast as we can i don't want to put a bunch of stuff on the shelf and wait and if maybe of that creates an opportunity will go back to revisiting the dividend but for right now i mean i i think we're being pretty conservative about that anyway so i don't think we're talking about a lot a lot of that a lot of that to be question right now but but nothing's off the table where we want to be really really disciplined in in only kind of deploying what we think we can get a good return on and of that creates an opportunity something in the future will will definitely look at them
spk_12: loudon were thanks rob again if you'd like to ask a question please press star one on your telephone keypad in next question comes from samantha how with evercore i sigh and i and thanks for taking my question and political back on be i'll the and officers theme and beautifully thing
spk_2: a couple weeks that are being reactivated and for you know fairly decent contacts and us highly that you have and forty nine ah these aren't thirty seven rates during work soon as wouldn't if you could talk you may be at a star thing and technicians for those are these an able to actually to see know move you know people coming off as ranks onto another way made and he had a higher back tensions that you previously had metal container to teach you how much are the challenges and and logistics it yesterday a in terms of you know de de de ray coming back and then what what you're dealing with an labor side i think you hit on on a great a great issue is is that that is challenging so far we've been pretty effective again near you gotta write we we go back and get some of those people we were operating far more are always at one point so we had a bigger we had a bigger staff man i'm so we've been able to go back and get some of those people back but like everybody else in some of the people equate doing this kind of work aren't aren't that anxious to go back to don't work in offshore and especially when there's they saw what happened are encoded where people had expanded it is that one reasons why we pay that special bonus on last quarter so incentives have to be there for people to to kind of return to work but but we've we've always been successful in one oh the things that i think people minces as we look at some of the phenomenon that are happening if for example in in the u s
spk_12: but when we put out the call to employ more we taxing diana in if we're we're doing it in mexico which we have done in the past when we when we call for tax him in angola the in the far east both india and malaysia and indonesia when we put the out the call their it's it's the lines are long we still who we get still draw a lot of down from those areas the server international locations so i think that that's always been the seekers being able to train locals and and being able to to have great local content and they're not be particularly leverage to any one labor market so that that's been helpful
spk_2: it is a challenging yeah it's challenging but but it's again we're it's one of the places where global footprint has been really helpful
spk_12: the group and am also in the i think he gave a minister early picks is there any way to get them to a commentary around things
spk_2: me that a product that few do think you'll be able to
spk_0: you know hit the similar looking for next year i i don't know that we will ready talk about levels and like what i said about project that say just watch the news me will at least give you some collar on some some things that are common in i'm because we do we do expect they'll be some news to share and they're here to so again and you stay tuned in and will give you a least a little more anecdotal evidence that it tells you what those levels my be

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