Oceaneering International, Inc.

Hello and welcome to Oceaneering's fourth quarter and full year 2025 earnings conference call. My name is Sarah 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 Frisbee, Oceaneering's Senior Director of Investor Relations.

Thanks, Sarah. Good morning and welcome to Oceaneering's fourth quarter and full year 2025 earnings conference call. Today's call is being webcast and a replay will be available on our website. With me today are Rod Larson, President and Chief Executive Officer, who will provide our prepared comments, and Mike Summerold, Senior Vice President and Chief Financial Officer. After Rod's remarks, we will open the call for questions. Before we begin, please note that statements made during 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 fourth quarter press release, which is posted on our website. I'll now turn the call over to Rod.

Good morning, and thanks for joining the call today. We closed out 2025 with strong execution across the business, making continued progress against our strategic priorities. Our performance reflected continued pricing progression in key businesses, strong operational delivery, and growing contributions from aerospace and defense technologies or ad tech. Importantly, this translated into meaningful cash generation with our cash balance increasing to $689 million at year end, further strengthening our financial flexibility. During 2025, we generated order intake of $3.7 billion, which represented a book-to-bill ratio of 1.33, up from 1.1 in 2024. Expanded adjusted EBITDA margins by 140 basis points with each operating segment realizing year-over-year improvements. Achieved 99% ROV uptime for the second consecutive year and for the seventh time in the past 10 years. Improved ROV, excuse me, improved pricing in our ROV business by 7% over the course of the year. Won the highest ever initial contract award in Oceaneering's history through our ad tech business. integrated GDI into our integrity management and digital solutions or IMVS segment, repurchased approximately 1.8 million shares for $40 million, and grew our cash balance by $191 million. As safety remains foundational to everything we do, I'm especially proud of our record low total recordable incident rate, or TRIR, of 0.22 achieved in 2025. Today I'll cover our fourth quarter and full year 2025 results, our market outlook for 2026, our consolidated guidance for 2026, and our segment outlook for the full year and first quarter of 2026. I'll start by reviewing our fourth quarter 2025 results. We delivered a solid fourth quarter in line with typical seasonality, driven by strong operational execution in several of our business segments. Compared to the fourth quarter of 2024, Consolidated revenue of $669 million was driven by substantial growth in ad tech, which partially offset lower revenue in our energy-focused businesses, resulting in a 6% decline from the same period last year. The revenue decrease in energy was primarily due to the unusually high number of international intervention and installation projects that our offshore projects group, or OPG, performed in the fourth quarter of 2024 that did not repeat in the fourth quarter of 2025. Consolidated operating income of $65.4 million also declined year-over-year, with increases in ad tech, manufactured products, and subsea robotics, or SSR, partially offsetting significantly lower results in OPG, stemming from the intervention and installation projects in the fourth quarter of 2024 that I mentioned previously. IMBS was also lower compared to last year. We reported net income of $178 million, or $1.76 per share, a 217% increase year-over-year. This improvement was largely due to a $156 million discrete tax benefit related to the release of U.S. valuation allowance. Our consolidated adjusted EBITDA of $90.5 million was at the high end of our guidance range, but as expected, declined year over year for the same reasons that revenue and operating income declined. Additionally, during the fourth quarter, we generated $221 million of cash from operating activities and invested approximately $30 million in organic capital expenditures with approximately 55% allocated to growth and 45% to maintenance. Pre-cash flow for the quarter was $191 million, benefiting from the timing of customer payments, including early receipt of payments originally due in the first quarter of 2026. As of December 31st, 2025, our cash balance was $689 million, a 38% increase compared to the end of 2024. Now let's look at our segment results for the fourth quarter of 2025 as compared to the fourth quarter of 2024. SSR operating income of $67.8 million was 7% higher on relatively flat revenue. EBITDA margins improved to 38% from 36%, largely due to improved ROV pricing and increased tooling volumes. Survey results decreased on lower activity levels in the Americas as certain projects originally planned for the fourth quarter of 2025 shifted to the first quarter of 2026. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was relatively flat at 78% and 22% respectively. Average ROV revenue per day utilized increased 7% from $10,481 in 2024 to $11,210 in 2025, with a fourth quarter exit rate of $11,550. These pricing improvements offset the impacts of lower ROV fleet utilization during the quarter, which declined to 62%. Most of the decline came from vessel support of our OPG vessels, as drill support utilization was slightly higher compared to the fourth quarter of 2024. During the quarter, 67% of ROV days utilized were for drill support, and 33% were for vessel services. As of December 31, 2025, we had 60% of the contracted floating rig market with ROV contracts on 81 of the 136 floating rigs under contract. We ended the quarter and the year with a fleet of 250 ROV systems, including 16 upgraded work class ROV systems that replaced 16 systems that were retired in 2025. Turning to manufactured products. Our fourth quarter revenue of $132 million decreased 7% year-over-year. Operating income of $20.4 million and operating income margin of 15% increased considerably due to conversion of high margin backlog in our umbilicals business and improved results in our non-energy projects. Year-end 2025 backlog was $511 million, a decrease of 15% compared to December 31, 2024. The book-to-bill ratio of 0.84 for the full year of 2025 declined compared to 0.97 in the full year of 2024, largely based on the timing of orders. It is worth noting that manufactured products' full year of 2025 revenue of $569 million and operating income of $72 million represented their highest levels since 2020, when we combined our energy and non-energy products into the same segment. OPG revenue of $131 million decreased 29% compared to the same quarter last year, while operating income decreased to $15 million and operating income margin declined to 11%. This was expected and, as noted earlier, primarily due to large international intervention and installation projects that OPG performed in the fourth quarter of 2024 that did not repeat in the fourth quarter of 2025. For IMDS, fourth quarter revenue declined due to lower activity levels in Europe and West Africa. Operating income declined by $2 million due to a combination of lower revenue and a loss associated with the resolution of a commercial dispute. Our ADTEC fourth quarter 2025 operating income increased 43% and operating income margin improved to 11% on a 29% increase in revenue as compared to the same period last year. These improvements are the result of new contracts awarded during the year and reflect our strategic initiative to increasingly leverage our offshore knowledge and capabilities to grow this segment. In addition to previously announced contract awards, ADTEC completed 2025 with two fourth quarter awards on unexercised options that are expected to generate meaningful revenue in 2026. ADTEC's current backlog establishes a strong multi-year foundation for revenue growth, extending beyond the traditional five-year planning horizon. Fourth quarter 2025 unallocated expenses of $52 million increased 26% compared to the same period last year, primarily for increased accruals for performance-based compensation. Now I'll turn my focus to our consolidated full-year 2025 results compared to 2024. For 2025, consolidated revenue increased 5% to $2.8 million, marking our fifth consecutive year of revenue growth. With the exception of IMDS, each of our operating segments achieved revenue increases. Consolidated 2025 operating income of $305 million improved by $58 million, or 24%, and adjusted EBITDA of $401 million improved by $54 million, or 16%, compared to 2024. EBITDA growth was realized for all of our operating segments. Cash flow from operations increased $116 million to $319 million primarily due to timing of customer collections in the fourth quarter. We invested $111 million in organic capital expenditures representing a 4% increase over 2024 levels. For the full year of 2025, free cash flow was $208 million compared to $96.1 million in 2024. At year end, we had total liquidity of $904 million comprised of $689 million in cash and cash equivalents and $250 million, but $215 million from our undrawn revolving credit facility. Now turning to our 2026 market outlook. We expect ad tech to be our primary growth driver in 2026 based on our current backlog and expectations for increased spending across defense and government markets. In the U.S., we anticipate a well-funded defense environment with steady activity in subsea critical infrastructure protection, unmanned subsea systems, and submarine sustainment. Internationally, geopolitical tensions and increased allied spending create additional opportunities for our AUVs, resident systems, and subsea monitoring solutions. For our energy base, energy-focused businesses, we expect 2026 results to reflect a global oil market that remains oversupplied early in the year and gradually tightens as the year progresses. Consistent with that backdrop, offshore activity levels are expected to be relatively flat in the first half of 2026, with increased activity in the second half of the year and into 2027. According to the U.S. Energy Information Administration, Brent crude oil prices are expected to average in the mid $50 to low $60 range in 2026, a level we believe supportive of deepwater activity broadly consistent with 2025. Spinergy forecasts that deepwater rig demand, which is indicative of ROV activity, will remain relatively flat in 2026. Independent research indicates that final investment decisions, or FIDs, for deepwater projects are expected to increase in 2026. FIDs and subsea tree awards are key leading indicators for offshore activity over a two to five year horizon, including installations, equipment orders, and overall offshore spending. These indicators help inform the expected timing of demand for umbilicals, subsea hardware, and other subsea products, such as our rotator valves, all of which are typically ordered three to six months following tree awards. According to Rysted Energy, 42 deepwater FIDs are expected in 2026 compared to 37 in 2025 and increasing to approximately 75 in 2027. Subsea tree awards are forecasted to increase to approximately 300 awards in 2026 compared to 190 in 2025. Tree installations are expected to increase modestly to approximately 370 installations in 2026 compared to 343 in 2025. Now I'll turn to our consolidated 2026 outlook. Based on our current backlog, anticipated order intake, and market fundamentals, we project consolidated revenue in 2026 to grow in the low to mid single-digit percentage range. Year-over-year ad tech revenue will improve significantly. SSR and IMDS revenue improvement will largely offset anticipated declines in OPG and manufactured products. Our current energy-related backlog includes a mix of multi-year contracts, including awards announced across multiple geographies and business segments, such as multi-year SSR contracts for ROV services in Angola and ROV and survey services in Brazil, and multi-year OPG contracts for inspection, maintenance, and repair, or IMR, contract in Mauritania, and for riserless light well intervention in the Caspian Sea. For the year, we anticipate generating $390 to $440 million of EBITDA with year-over-year improvements in all of our segments except for OPG. At the midpoint of this range, our 2026 EBITDA would represent a modest increase over our 2025 adjusted EBITDA. EBITDA margins are expected to improve in manufactured products and IMBS, remain stable in SSR and ad tech, and decrease in OPG. We anticipate generating positive free cash flow of $100 million to $120 million. The year-over-year reduction in free cash flow primarily reflects the early receipt of approximately $37 million in customer payments in the fourth quarter of 2025 that were originally scheduled for the first quarter of 2026. At the midpoint of our EBITDA and free cash flow ranges, our cash conversion rate for 25 and 26 combined will be almost 40%. As has been the case over the last several years, we anticipate a substantial cash draw during the first quarter related to working capital changes associated with lower customer receipts, associated with early collections in 2025 that were scheduled for 2026, and the payment of performance-based incentive compensation. For 2026, we forecast our organic capital expenditures to total between $105 and $115 million, with approximately 40% allocated to growth and 60% to maintenance. Compared to 2025, our energy-focused capital expenditures are projected to be down 12%, while ad tech spending is up to support recent contract awards. We forecast our 2026 interest expense net of interest income to be in the range of $21 to $26 million. We expect our cash 2026 tax payments to be in the range of $95 to $105 million. Directionally, in 2026, for our operations by segment, we expect continued improvements in SSR based on increased tooling volume, improved results from our survey business, and the full-year benefit of pricing improvements achieved throughout 2025. Revenue growth is expected to be in the low to mid single-digit percentage range, and EBITDA margins are expected to average in the mid 30% range for the full year. For ROVs, we project a service mix of approximately 65% drill support and 35% vessel services consistent with 2025. Our overall ROV fleet utilization is forecasted to be in the mid-60% range with higher activity levels during the second and third quarters. We expect to sustain our ROV market share in the 55% to 60% range for drill support services. Average ROV revenue per day utilized in 2026 is expected to be relatively flat compared to our 2025 exit rate. Survey results are expected to improve in 2026, supported by increased utilization of our Ocean Intervention II vessel, which we upgraded in 2025 to enable simultaneous autonomous survey operations. We have also deployed our Freedom Autonomous Underwater Vehicle, or AUV, on commercial operations in West Africa. We expect to deliver a second Freedom Vehicle to the Defense Innovation Unit in the first half of 2026. Finally, as part of our fleet transition plan, we are pleased to announce that our newest electric class ROV, Momentum, is expected to be deployed on vessel support operations in the U.S. Gulf later this year. For manufactured products, we expect meaningful improvements in operating income on slightly lower revenue driven by continued conversion of our existing umbilical backlog, high absorption levels across our three umbilical plants, increased order activity and rotator, and cost reductions in our non-energy product lines. Operating income margin is expected to average in the mid-teens for the year. For OPG, revenue is expected to decrease and operating income is expected to decrease significantly as projects shift toward traditional IMR work from installation and intervention work. We also project lower activity levels in the U.S. Gulf and West Africa, partially offset by higher activity levels in Brazil, the Caspian, and the Middle East. Overall for 2026, OPG operating income margins are expected to average in the mid-teens range for the year. IMBS operating income is forecasted to improve significantly on increased revenue with growth opportunities in digital and engineering services. Operating income margin is expected to improve to be in the mid single digit range for the year. Ad tech operating income is expected to improve on significantly higher revenue with revenue and operating income growth in all three of our government focused businesses. Operating income margins are expected to average in the low teens for the year. Our growth expectations are underpinned by 2025 contract awards that span product development, maintenance, inspection, specialized technical services, and ongoing operations in complex maritime, space, and security environments, supporting mission critical defense and space operations. For 2026, we anticipate unallocated expenses to average approximately $50 million per quarter with increases associated with wage inflation, IT costs, and foreign exchange impacts. Now I'll discuss our outlook for the first quarter of 2026 as compared to the first quarter of 2025. On a consolidated basis, we expect our consolidated revenue to decrease and even it to be in the range of $80 million to $90 million. This guidance range is driven by our expectation for lower activity levels in energy markets at the start of 2026, which we expect to improve as the year progresses. For SSR, we project revenue to increase slightly and operating income to decrease given the geographic mix of ROV activity. We anticipate the mix to be more favorable as we progress through the year. In manufactured products, we forecast operating income to increase significantly on slightly lower revenue due to continued backlog conversion and the absence of the inventory release that impacted our theme park ride business in the first quarter of 2025. We expect OPG revenue and operating income to decrease significantly on lower vessel utilization and changes in project mix in the U.S. Gulf and lower international activity. We project IMDS revenue and operating income to be relatively flat. For ad tech, we expect significantly higher revenue and increased operating income on changes in project mix. We forecast unallocated expenses to be in the range of $50 million. In closing, I want to thank our employees for their dedication throughout 2025. Through their efforts, we saw momentum in each of our segments that gives us increased visibility into the future, including strengthening contributions from ad tech, growing opportunities in digital and software services, and expanding opportunities in international projects. As we move into 2026, we remain focused on working safely and reliably, supporting our customers, and creating value for our shareholders. We appreciate everyone's continued interest in Oceaneering and will now be happy to take any questions you may have.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Keith Beckman with Pickering Energy Partners. Your line is open.

Thanks for taking my question. Good morning. Good morning. I wanted to ask kind of around, I noticed you guys talked about increased defense and government spending. That tech looks to be stronger throughout the year with some awards. What is the, what's kind of the typical lead time and process of government services type of projects from the time that they're awarded to kind of whenever they would show up for you typically? Is there a rough timeline on that or lead time?

it it's really hard it varies quite a bit i mean some things depending on like if there's services for existing products they ramp up they ramp up quickly um some of the things we're working on you know new things um that starts with you know like every other project starts with engineering studies and and then you go to prototyping and all those kinds of things so it really is it's hard to call um and i would just just to give you an idea it's a mix right now so the things we've been talking about are a mix of the two

No, it's very helpful. Makes sense. And then the other question that I had was around ad tech as well. Again, whenever you think about kind of the other segments in your business, how have those really helped supplement what ad tech does and kind of the growth we've seen in that segment? I think it's kind of like your knowledge around ROVs and maybe how that helps, but any color on that?

No, I think you're right on. And so we, you know, we work in different places, right? So one of them is more about just sort of that offshore operations, ROVs, vehicles, that kind of stuff. That's one of the groups that we talk about. You know, the other one is just, you know, our experience in maritime and working on things. You know, it started with a lot of our welder expertise and the things we were doing offshore. So in that case, we do sub-safe work. So we're doing what we call, you'll hear us talk about submarine sustainment. And that's because we're doing a lot of the mechanical hull repair, sail repair, things like that, when a submarine comes into dry dock for nuclear refueling. So we do a lot of that pressure vessel maintenance, if you will. And we're actually one of the only ones that's actively doing that other than the submarine builders. So that's a sub-safe certification, they call it, which is pretty unique. And then, and then the third part is, of course, oceaneering space systems and the space systems stuff. We do everything from, you know, the things that astronauts need to do in space. So creating tools, habitats, human interface, and not surprisingly, that's about working in low gravity environments, right? Like a diver does. So our expertise with divers and tooling kind of translated into that business. And then the other part that came with that is suits. And then finally, thermal protection systems, which is sort of a – if you think about this, this is the shrouding that goes around the rockets, a fabric shrouding that's sacrificial. It burns up basically when the rocket launches. And, of course, that business is pretty hot right now with both the return to space but also with the Golden Dome.

Awesome. That was very helpful, and I appreciate you taking my question. I'll turn it back. Thank you. No, thanks, Keith.

Your next question comes from Josh James with Daniel Energy Partners. Your line is open.

Good morning, Josh.

Good morning. Thanks for taking my questions. First one, I was just curious, could you talk about the future of IMDS and then also your digital software offerings and how you could potentially expand them sort of outside what you're doing within energy?

Yeah, and those are, you know, kind of linked at the hip. For us, it's exciting because it's one of the first times we see machine vision, machine learning, and AI coming to play. We're going out to a rig, and instead of just having people crawl all over and do spot checks with hammers and cameras and chip and paint and things looking at pressure vessels and primary containment on the surface side of the offshore platform, we actually are doing laser scanning we're being able to take that laser scanning and build a 3D model of the rig and detect corrosion at a very precise level. So you detect that corrosion so you can be able to do a much more comprehensive scan of the facility, but you can also quantify the corrosion and then start to predict how long until failure, what are the parts we need to check more regularly. So it's a huge advantage to catching things early to being a lot more, I would say, precise with how you want to go out and do your inspections thereafter. The cool part, and the thing we're really excited about, is while that really improves the topside inspection for our customers, we have had some really successful tests about taking that underwater. And so if we can inspect subsea infrastructure the same way with the laser scanning and the 3D model, we can be deploying that off an OPG vessel with an ROV, and so we expect that we'll solve the customer's problem, but it'll also create demand for ROVs and vessels.

That's helpful. Thanks. And then just one more that I wanted to ask. I want to dig into M&A a little bit. I know it obviously hasn't been as much of a focus for you in the last couple of years, but just given that we've seen on the rig side recently announced some larger deals, and I would say the current administration is pretty favorable towards moving deals. Has any of this changed your Your thoughts moving forward on M&A or, you know, should we expect Oceaneering just to sort of, you know, operate how they've been over the last couple of years and sort of sticking to your knitting and with the focus on free cash flow generation and returning it to shareholders with your capital allocation? Thanks.

I don't think it's going to change my mind on, you know, big industry consolidation, right, to try to go and put things together that if you squint really hard look like they might go together just to create a bigger company. But it does give us a little bit of confidence as we go forward. The GDI acquisition was something we love, a bolt-on of technology that gave us this laser scanning thing I just talked about. I think the more we can look at how do we move to what the oil field needs next or what the defense side needs next, picking up new technologies that are great bolt-ons that either give us broader participation in the market or up our technology game, I think those are really attractive. hey, if it's easier to do, it'll also, along with the financial wherewithal we're building with the strong balance sheet, it may encourage us to move into slightly bigger things.

Yeah, I was going to add the same thing. I think for sure the balance sheet strength and the growth in cash over the last several years, given the excellent work that's happened here, just gives us opportunity, more flexibility and opportunity to do more when the time is right. Yep.

Understood. Thanks for taking my questions. I'll turn it back.

Hey, thanks, Josh.

Again, if you have a question, it is star 1 on your telephone keypad. Your next question comes from Brandon Carnivale with Half Moon Capital. Your line is open.

Hey, guys. Congrats on my great friend. Hey, thanks. Do you see any traction on the autonomous forklift side after kind of like the big delivery I think you had exiting last year?

I would say there's a lot of interest. And different people are looking at, you know, whether they want to use it for truck loading and unloading, which is a huge opportunity for us. And we've been working on improving the capabilities for doing that. But also wherever it's just operating in places where it's not as conducive to have a driver on the forklift. So it's a lot of interest. I would say it's spread out over a lot of, what was it, get to know you kind of activities. You know, somebody who wants to pick up two or three and do a test. I think one of the things we learned is that the adoption, we're going to be really keen on, are you ready to adopt? You know, if it's a brownfield application, Are the people ready for it? Is the location ready for it to make sure that those adoptions are smooth? But yeah, the interest is high. I think we just got to see how fast these things pick up. So we're still encouraged, and the list is long. So we'll keep knocking on the doors and keep answering those calls.

Thanks, guys. Great work.

Yeah, thank you.

This concludes the question and answer session. I'll turn the call to Rob Larson for closing remarks.

Well, since there's no more questions, I'll just wrap up by thanking everybody for joining the call. This concludes our fourth quarter and full year 2025 conference call. Have a great day.

This concludes today's conference call. Thank you for joining.