Oceaneering International, Inc.

Welcome, everyone, to Oceaneering's 2024 First Quarter Earnings Conference Call. My name is Ludi, and I will be your conference operator. All lines have been placed on mute to prevent any background noise. There will be a question and answer period after the speaker's remarks. With that, I will now turn the call over to Hilary Prisby, Oceaneering's Senior Director of Investor Relations. Please go ahead.

Thanks, Ludi. Good morning and welcome to Oceaneering's first quarter 2024 results conference call. Today's call is being webcast and a replay will be available on Oceaneering's website. Joining us on the call are Rob Larson, President and Chief Executive Officer, who will be providing our prepared comments, Alan Curtis, Senior Vice President and Chief Financial Officer, and Mark Peterson, Vice President, Corporate Development and Investor Relations. Before we begin, I would 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.

Good morning, and thanks for joining the call today. In our earnings release yesterday, I stated that I was encouraged by our first quarter results, so let me give you a little more color. In the first quarter of 2024, we achieved our highest first quarter EBITDA since 2016. Remotely operated vehicles, or ROV, revenue per day on hire for the quarter exceeded $10,000 for the first time since the fourth quarter of 2014. And we saw continued solid order intake and bidding activity, as well as increased customer engagement with respect to our max mover counterbalance forklift. These factors all reinforce our expectations for sustained multi-year growth in our traditional markets, as well as future growth in developing markets, all of which I find encouraging as we continue to progress our strategic plan. As you probably noted in our earnings release, we have changed our results comparison to year over year instead of quarter over quarter, as we've done in recent years. We believe this more accurately highlights the foundational growth that we see across our businesses and removes the seasonal impact that comes with sequential comparisons. Today, I'll focus my comments on our performance for the first quarter of 2024, and our consolidated and business segment outlook for the second quarter and full year of 2024. Now for our results. For the first quarter, we reported net income of $15.1 million, or 15 cents per share, on revenue of $599 million. These results included the positive impact of $2.2 million in foreign exchange gains and the associated $0.8 million of tax effects, along with $0.2 million of expenses related to discrete tax adjustments. adjusted net income was 13.9 million dollars or 14 cents per share our consolidated first quarter 2024 operating income as compared to the first quarter of 2023 was up 37 percent and revenue was up 12 percent with increases in all of our business segments except for our offshore projects group opg for the first quarter of 2024 our consolidated adjusted ebitda of 61.7 million dollars exceeded our guidance range and consensus estimates on better than expected activity levels across our businesses. These results, when combined with our backlog and current levels of bidding activity, support our unchanged guidance for the year. Now let's look at our business operations by segment for the first quarter of 2024 as compared to the first quarter of 2023. SSR operating segment was 31% higher on an 11% increase in revenue and an improved operating income margin as compared to the first quarter of 2023. EBITDA margin also improved over the same period last year to 31% from 29%, largely due to improvements in ROV revenue per day on hire, utilization, and days on hire. Average ROV revenue per day on hire of $10,009 was 9% higher, utilization improved slightly to 64%, and days on hire increased 2% to 14,536. ROV fleet use during the first quarter of 2024 was 66% in drill support and 34% in vessel-based activity compared to the 65% and 35% respectively for the same period 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 78 and 22% respectively compared to 77 and 23% in the same period of 2023. At the end of March, we had ROV contracts on 88 of the 149 floating rigs under contract, or 59%. This was slightly lower than the prior year when we had ROV contracts on 90 of the 148 rigs under contract, or 61%. Turning to manufactured products compared to the first quarter of 2023, Operating income improved to $13.2 million, an increase of 17% on a 15% increase in revenue. Our backlog on March 31, 2024 was $597 million, an increase of $151 million over the first quarter of 2023. Our book-to-bill ratio was 1.3 for the trailing 12 months as compared to our book-to-bill ratio of 1.27 for the same period last year. OPG first quarter 2024 operating income and operating income margin declined as compared to the first quarter of 2023 due primarily to expenses and downtime associated with dry docks during the quarter. Excluding the dry dock impact, operating income margin would have approached the 5% achieved in the first quarter of 2023. For IMDF's first quarter 2024 operating income improved from the same quarter in the prior year on a 16% increase in revenue and a flat operating income margin of 5%. Our ad tech first quarter 2024 operating income increased by $4.3 million as compared to the first quarter of 2023 with an 8% increase in revenue and improvement in operating income margin from 13% from 9%. Unallocated expenses of $38 million were below our guidance of $40 million for the quarter, but higher than the same period last year. In the first quarter of 2024, we utilized $69.7 million of cash in operating activities and $25.5 million in capital expenditures, resulting in negative free cash flow of $95.2 million. Consistent with the past few years, our cash balance declined during the first quarter with an ending cash position of $355 million and no borrowings under our secured revolving credit facility. Now I'll address our outlook for the second quarter of 2024 as compared to the first quarter of 2024. On a consolidated basis, we expect our second quarter 2024 results to improve significantly with adjusted EBIT on the range of $80 to $90 million on a mid-teens percentage increase in revenue. Our expectations for our second quarter 2024 operations by segment are For SSR, we are projecting higher activity levels across our ROV survey and tooling businesses with higher segment operating profitability. ROV days on hire are expected to increase in both drill support and vessel-based activities, achieving utilization in the upper 60% to low 70% range. SSR EBITDA margin is forecast to be in the low 30% range. For manufactured products, we anticipate revenue to increase in the low teens percentage range with operating income margin to approximate our first quarter margin, leading to improved operating profitability in the second quarter of 2024. For OPG, we anticipate significantly higher revenue and operating results. Operating income margin is expected to be in the low to mid-teens range in the second quarter of 2024. This anticipation is based on a seasonal uptick in intervention, maintenance and repair, or IMR activity, primarily in the Gulf of Mexico and West Africa, coupled with the absence of the dry dock impacts incurred in the first quarter. For IMDS, we expect relatively flat revenue and operating profitability. For ad tech, we expect higher revenue and lower operating income with operating margin in the low teens range on a shift in project timing and mix. Unallocated expenses are expected to be in the $40 million range in the second quarter of 2024. Directionally, for our full year 2024 operations by segment as compared to 2023, we expect for SSR, we forecast improved operating results on a low to mid-teens percentage increase in revenue. SSR EBITDA margins are projected to increase to the mid-30% range in the second half of the year, leading to a margin in the low to mid-30% range for the full year. For ROVs, we expect ROV days on hire and revenue per day on hire to increase year over year. Our 2023 service mix of 63% drill support and 37% vessel-based services is expected to remain relatively the same in 2024, with higher vessel-based utilization during the seasonally higher second and third quarters. We estimate overall ROV fleet utilization to be in the high 60 to low 70% range, again with higher seasonal activity during the second and third quarters. We continue to forecast that our market share for the drill support market will remain in the 55% to 60% range for the foreseeable future. For manufactured products, we expect operating income to increase on a greater than 10% increase in revenue, with a slight improvement in margin. This expectation is based on our year-end 2023 backlog of $622 million and continuing strength of bidding activity in our energy businesses. We expect segment-book-to-bill ratio to be in the range of 1.1 to 1.3 for the year. In our mobility solutions business, we are seeing active customer interest as evidenced by recent interactions at the Logimat and MODEX industrial trade shows and subsequent engagements. In order to meet anticipated demand and lower product cost, we have selected a global contract manufacturing company for our MaxMover counterbalance forklift product and are currently implementing a production line. which we expect to be fully operational in 2025. For OPG, we continue to expect operating results to improve on a slight decrease in revenue, with lower expected international activity being largely offset by increased utilization in the Gulf of Mexico. Overall, for 2024, OPG operating income margin is expected to be in the mid-teens range for the year. For IMBS, we project slightly higher operating income results on increased revenue. We forecast year-over-year operating income margin to remain in the mid-single-digit range for the year. For ad tech, operating income results are expected to be slightly higher on higher revenue. Operating income margin is expected to be in the low teens range for the year. On a consolidated basis, our estimated organic capital expenditure total for 2024 remains between 110 and 130 million dollars. This includes approximately $50 to $60 million of maintenance capital expenditures and $60 to $70 million of growth capital expenditures. We forecast our 2024 cash income tax payments to be in the range of $80 to $90 million. Net interest expense is projected to be in the range of $24 to $28 million as we continue to benefit from investing our cash and from lower gross debt. And unallocated expenses are expected to average $40 million per quarter the remainder of 2024. In summary, our first quarter performance and refreshed outlook for the year give us confidence to maintain our 2024 adjusted EBITDA guidance range of $330 to $380 million. It is worth noting that at the midpoint of our $110 to $150 million free cash flow guidance range, we expect to generate free cash flow of $225 million somewhat ratably over the remainder of the year. As mentioned on our last call, we understand our shareholders' desire for return of excess capital, and in response, we have prepared a share repurchase strategy. For 2024 and beyond, we remain focused on our growth strategy in energy markets and increasing our participation in longer-term non-energy growth markets. We appreciate everyone's continued interest in Oceaneering. We look forward to seeing you at our investor and analyst event showcasing our robotics technology on May 9th. And if you've not already RSVP'd, please do so. Now, before I take some questions, I want to take a moment to acknowledge a significant milestone. Today is Mark's last earnings call. Since assuming the dual roles of investor relations and corporate development in 2018, a time when agility and adaptability were critical, Mark has been instrumental in shaping and sharing Oceaneering's narrative. His commitment to embodying our core values and telling our story has not only enriched our team, but has also contributed to developing and strengthening our relationships with our investors and analysts. Mark, your insights and dedication have left an indelible mark on our organization. And while we'll miss your guiding presence and keen wit, we look forward to hearing about your new adventures in retirement. Thank you for your steadfast leadership and many contributions to Oceaneering. Now, I'll be happy to take any questions you might have.