OCEANEERING INTERNATIONAL, INC.
Certain statements we make in this quarterly report on Form 10-Q are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements include,
without limitation, statements regarding our expectations about:
•the impacts of the coronavirus ("COVID-19") pandemic and the Russia -Ukraine
conflict on the United States and the global economy, as well as on our
business;
•our second-quarter 2022 operating results and the contributions from our segments to those results, as well as the amount of Unallocated Expenses for the second quarter;
•tax refunds under the
•our cash tax payments and projected capital expenditures for 2022;
•free cash flow, which we define as net cash provided by operating activities less cash paid for purchases of property and equipment, in 2022 and in future periods;
•increased costs to operate our business, including the availability and market for our chartered vessels;
•future demand, order intake and business activity levels;
•the collectability of accounts receivable and realizability of contract assets at the amounts reflected on our most-recent balance sheet;
•the backlog of our Manufactured Products segment, to the extent backlog may be an indicator of future revenue or productivity;
•the adequacy of our liquidity, cash flows and capital resources;
•the condition of debt markets and our possible future debt repurchases;
•shares to be repurchased under our share repurchase plan;
•the implementation of new accounting standards and related policies, procedures and controls;
•our expectations about growth in the area of energy transition;
•seasonality; and
•industry conditions.
These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the headings "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in Part I of our annual report on Form 10-K for the year endedDecember 31, 2021 . Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to have been correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our annual report on Form 10-K for the year ended
Overview of our Results and Guidance
Our diluted earnings (loss) per share for the three-month period endedMarch 31, 2022 were$(0.19) , as compared to$(0.39) in the immediately preceding quarter and$(0.09) for the corresponding period of the prior year. The three months endedMarch 31, 2022 operating results unfolded largely as expected, with higher costs for hiring and training of personnel and mobilization of equipment, as we prepared for significant activity increases which are expected for the remainder of 2022. These additional costs negatively impacted our financial results in the first quarter of 2022, mostly within our energy segments, but each of our operating segments still generated positive operating income in the first quarter of 2022. In addition to these preparatory costs, ourOffshore Projects Group ("OPG") segment experienced cost overruns on a project and schedule changes that affected the timing of project work. The OPG shortfall was largely offset by lower Unallocated Expenses and slightly improved results from our Aerospace and Defense Technologies ("ADTech") segment. 21 -------------------------------------------------------------------------------- Table of Contents During the first quarter of 2022, we utilized$81 million of cash in operating activities, primarily due to an increase in working capital associated with accounts receivable reflecting higher project milestones and customers payments in the fourth quarter of 2021 that were not replicated in the first quarter of 2022, along with cash utilized in the first quarter of 2022 for increased operating costs as we prepare for higher expected activity levels in the remainder of 2022 and payments for accrued employee incentive payments related to attainment of specific performance goals in prior periods. In addition,$19 million of cash was used for maintenance and growth capital expenditures. These items were the largest contributors to our$100 million cash reduction during the first quarter of 2022. We believe market conditions continue to be supportive of a robust ramp-up in activity and pricing improvements, beginning in the second quarter of 2022 and continuing for the remainder of the year. In the second quarter of 2022, we expect significantly higher activity levels and operating results improvement in our Subsea Robotics and OPG segments, increased activity levels and operating results improvement in our Integrity Management & Digital Solutions ("IMDS") and ADTech segments, and higher activity levels in our Manufactured Products segment. Unallocated Expenses are expected to average in the mid-$30 million range. Results of Operations We operate in five business segments. Our segments are contained within two businesses-services and products provided primarily to the oil and gas industry, and to a lesser extent, the offshore renewables industry ("Energy Services and Products"), and services and products provided to non-energy industries (ADTech). Our four business segments within the Energy Services and Products business are Subsea Robotics, Manufactured Products, OPG and IMDS. We report our ADTech business as one segment. Our Unallocated Expenses are those not associated with a specific business segment.
Consolidated revenue and profitability information are as follows:
Three Months Ended
(dollars in thousands) Mar 31, 2022 Mar 31, 2021 Dec 31, 2021
Revenue $ 446,159 $ 437,553 $ 466,709
Gross Margin 45,480 56,657 79,163
Gross Margin % 10 % 13 % 17 %
Operating Income (Loss) (1,039) 13,783 (12,572)
Operating Income (Loss) % - % 3 % (3) %
We generate a material amount of our consolidated revenue from contracts for
services in the U.S. Gulf of Mexico in our OPG segment, which is usually more
active in the second and third quarters, as compared to the rest of the year.
The European operations of our IMDS segment are also seasonally more active in
the second and third quarters. Revenue in our Subsea Robotics segment is subject
to seasonal variations in demand, with our first quarter generally being the low
quarter of the year. The level of our Subsea Robotics seasonality depends on the
number of Remotely Operated Vehicles ("ROVs") we have engaged in vessel-based
subsea infrastructure inspection, maintenance, repair and installation, which is
more seasonal than drilling support. Revenue in each of our Manufactured
Products and ADTech segments generally has not been seasonal.
We had operating income (losses) of $(1.0) million , $14 million and $(13)
million in the three-month periods ended March 31, 2022 , March 31, 2021 and
December 31, 2021 , respectively. Included in our operating income (losses) for
the three months ended March 31, 2021 were charges of $1.3 million for other
costs we recognized as we adapted our geographic footprint and staffing levels
to the conditions of the markets we serve. Included in our operating income
(losses) for the three months ended December 31, 2021 were charges of $30
million primarily due to the net loss related to the termination of a number of
entertainment ride systems contracts with the financially embattled developer,
China Evergrande Group and its affiliated companies (collectively,
"Evergrande"). Charges included in the three months ended March 31, 2021 and
December 31, 2021 are summarized as follows:
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For the three months ended March 31, 2021
Integrity
Management & Aerospace and
Subsea Manufactured Offshore Digital Defense Unallocated
(in thousands) Robotics Products Projects Group Solutions Technologies Expenses TotalCharges for the effects of:
Other $ 395 $ 537 $ 149 $ 217 $ 10 $ - $ 1,308
Total charges $ 395 $ 537 $ 149 $ 217 $ 10 $ - $ 1,308
For the three months ended December 31, 2021
Integrity
Management & Aerospace and
Subsea Manufactured Offshore Projects Digital Defense Unallocated
(in thousands) Robotics Products Group Solutions Technologies Expenses TotalCharges for the effects of:
Provision for Evergrande losses, net $ - $ 29,549 $ - $ - $ - $ - $ 29,549
Total charges $ - $ 29,549 $ - $ - $ - $ - $ 29,549 There were no such charges of a similar nature during the three-month period
ended
Energy Services and Products
The primary focus of our Energy Services and Products business over the last
several years has been toward instituting operational efficiency programs that
leverage our asset base and capabilities for providing services and products
predominantly for offshore energy operations and subsea completions, inclusive
of our customers' capital and operating budgets. Increasingly, our efforts in
our Energy Services business have focused on assisting our customers to reduce
their carbon emissions in exploring for, developing and producing oil and
natural gas and in addressing the ongoing energy transition. We are also focused
on opportunities to develop and deploy our capabilities to grow business in
offshore wind installations (both fixed and floating) and tidal energy solutions
and to utilize our core competencies to provide engineered solutions to the
wind, hydrogen and carbon-capture-and-sequestration ("CCS") markets, as well as
expanding our asset integrity management and digital solutions for those
markets.
The table that follows sets out revenue and profitability for the business
segments within our Energy Services and Products business. In the Subsea
Robotics section of the table that follows, "ROV days available" includes all
days from the first day that an ROV is placed into service until the ROV is
retired. All days in this period are considered available days, including
periods when an ROV is undergoing maintenance or repairs. Our ROVs do not have
scheduled maintenance or repair that requires significant time when the ROVs are
not available for utilization.
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Three Months Ended
(dollars in thousands) Mar 31, 2022 Mar 31, 2021 Dec 31, 2021
Subsea Robotics
Revenue $ 127,989 $ 119,119 $ 134,315
Gross Margin 21,958 24,078 28,199
Operating Income
(Loss) 11,552 14,619 21,012
Operating Income (Loss)
% 9 % 12 % 16 %
ROV Days Available 22,500 22,469 23,021
ROV Days Utilized 11,842 11,887 12,747
ROV Utilization 53 % 53 % 55 %
Manufactured Products
Revenue 82,692 86,825 102,940
Gross Margin 11,002 10,004 36,516
Operating Income
(Loss) 2,643 2,753 (20,228)
Operating Income (Loss)
% 3 % 3 % (20) %
Backlog at End of
Period 334,000 248,000 318,000
Revenue 97,397 89,234 85,356
Gross Margin 7,737 15,111 12,846
Operating Income
(Loss) 666 8,813 6,754
Operating Income (Loss)
% 1 % 10 % 8 %
Integrity Management & Digital
Solutions
Revenue 56,570 54,048 60,469
Gross Margin 9,199 8,209 12,416
Operating Income
(Loss) 3,508 2,474 6,015
Operating Income (Loss)
% 6 % 5 % 10 %
Total Energy Services and Products
Revenue $ 364,648 $ 349,226 $ 383,080
Gross Margin 49,896 57,402 89,977
Operating Income
(Loss) 18,369 28,659 13,553
Operating Income (Loss)
% 5 % 8 % 4 %
Subsea Robotics. We believe we are the world's largest provider of work-class
ROV services and, generally, this business segment has been the largest
contributor to our Energy Services and Products business operating income. Our
Subsea Robotics segment revenue reflects the utilization percentages, fleet
sizes and average pricing in the respective periods. Our survey services
business provides survey and positioning, and geoscience services. The following
table presents revenue from ROV as a percentage of total Subsea Robotics
revenue:
Three Months Ended
Mar 31, 2022 Mar 31, 2021 Dec 31, 2021
ROV 76 % 78 % 77 %
Other 24 % 22 % 23 %
24-------------------------------------------------------------------------------- Table of Contents During the first quarter of 2022, Subsea Robotics operating income decreased on lower revenue as compared to the immediately preceding quarter, primarily due to seasonal factors resulting in reduced ROV and increased costs associated with hiring, training and asset preparedness for higher expected activity levels in the remainder of 2022. Pricing for the various Subsea Robotics services remained stable during the first quarter of 2022. Subsea Robotics operating income for the first quarter of 2022 decreased on higher revenue as compared to the corresponding period of the prior year, as a result of increased costs in 2022 associated with hiring, training and asset preparedness for higher expected activity levels in the remainder of 2022. For the three-month period endedMarch 31, 2022 , days on hire were lower when compared to the immediately preceding quarter, due to typical lower seasonal activity. Fleet utilization was to 53% in the three-month period endedMarch 31, 2022 as compared to 55% and 53% for the three-month periods endedDecember 31, 2021 andMarch 31, 2021 , respectively. We retired four of our conventional work-class ROV systems and replaced them with three upgraded conventional work-class ROV systems and one IsurusTM work-class ROV system (which is capable of operating in high-current conditions and is ideal for renewables projects and high-speed surveys) during the three months endedMarch 31, 2022 , resulting in a total of 250 ROVs in our ROV fleet as of bothMarch 31, 2022 andMarch 31, 2021 . Manufactured Products. Our Manufactured Products segment provides distribution systems such as production control umbilicals and connection systems made up of specialty subsea hardware, and provides turnkey solutions that include program management, engineering design, fabrication/assembly and installation of autonomous mobile robot technology to the commercial theme park industry and a variety of other industries. Our Manufactured Products operating results in the first quarter of 2022 were higher than those of the immediately preceding quarter, due to$30 million of charges in the fourth quarter of 2021 for the net loss related to the termination of a number of entertainment ride systems contracts with Evergrande. The net loss in 2021 related to Evergrande included a reserve of$49 million in receivables and contract assets partially offset by the reclassification of$20 million of contract assets into salable inventory. Exclusive of those charges, our Manufactured Products operating results were lower in the three-month period endedMarch 31, 2022 as compared to the corresponding period in the prior year, primarily due to the inability to fully absorb the fixed costs of the segment over a reduced revenue base. Our energy products businesses experienced good order intake while activity in our mobility solutions businesses remained weak during the first quarter of 2022. Manufactured Products operating income for the first quarter of 2022 was relatively flat as compared to the corresponding period of the prior year on lower revenue. Our Manufactured Products backlog was$334 million as ofMarch 31, 2022 compared to$318 million as ofDecember 31, 2021 . 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 endedDecember 31, 2021 .
•subsea installation and mechanical and hydraulic intervention, including
riserless light well intervention
("RLWI") services and inspection, maintenance and repair ("IMR") services,
utilizing owned and chartered vessels;
•installation and workover control systems ("IWOCS") and ROV workover control
systems ("RWOCS");
•project management and engineering; and
•drill pipe riser services and systems and wellhead load relief solutions.
Our OPG operating results were lower in the first quarter of 2022 as compared to
the immediately preceding quarter, on higher revenue, primarily due to cost
overruns on a project and lower-than-expected vessel utilization resulting from
schedule changes that affected the timing of project work. As with our other
offshore service businesses, we also experienced higher costs in the first
quarter of 2022 associated with hiring and equipment readiness in preparation
for expected increased activity in the remainder of 2022. Our OPG operating
results were lower in the three months ended March 31, 2022 compared to the
corresponding period of the prior year, primarily due to activity on the Angola
riserless light well intervention project in the first quarter of 2021 with no
comparable activity in the first quarter of 2022.
Integrity Management & Digital Solutions. Through our IMDS segment we provide
asset integrity management, corrosion management, inspection and nondestructive
testing services, principally to customers in the oil and gas,
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power generation and petrochemical industries. We perform these services on both
onshore and offshore facilities, both topside and subsea. We also provide
software, digital and connectivity solutions for the energy industry and
software and analytical solutions for the bulk cargo maritime industry.
Our IMDS operating results for the first quarter of 2022 were lower, as compared
to the immediately preceding quarter, primarily due to a seasonal decrease in
revenue combined with less efficient absorption of fixed costs. IMDS operating
results for the three-month period ended March 31, 2022 as compared to the
corresponding period of the prior year, improved primarily on higher activity
levels.
Aerospace and Defense Technologies. Our ADTech segment provides government
services and products, including engineering and related manufacturing in
defense and space exploration activities, principally to
Revenue, gross margin and operating income (loss) information for our ADTech segment are as follows:
Three Months Ended
(dollars in thousands) Mar 31, 2022 Mar 31, 2021 Dec 31, 2021
Revenue $ 81,511 $ 88,327 $ 83,629
Gross Margin 16,870 22,110 15,863
Operating Income (Loss) 11,844 16,839 10,562
Operating Income (Loss) % 15 % 19 % 13 %
Our ADTech segment operating results for the first quarter of 2022 were slightly
higher as compared to the immediately preceding quarter, on slightly lower
revenue, due to a favorable project mix. ADTech operating results for the
three-month period ended
Unallocated Expenses
Our Unallocated Expenses (i.e., those not associated with a specific business segment) within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock units, performance units and bonuses, as well as other general expenses. Our Unallocated Expenses within operating expense consist of those expenses within gross margin plus general and administrative expenses related to corporate functions.
The following table sets forth our Unallocated Expenses for the periods indicated:
Three Months Ended
(dollars in thousands) Mar 31, 2022 Mar 31,
2021
Gross margin expenses $ (21,286) $ (22,855) (26,677)
% of revenue 5 % 5 % 6 %
Operating expenses (31,252) (31,715) (36,687)
Operating expenses % of revenue 7 % 7 % 8 %
Our unallocated operating expenses for the first quarter of 2022 were lower as
compared to the immediately preceding quarter primarily due to lower accruals in
2022 for incentive-based compensation. Our Unallocated operating expenses for
the first quarter of 2022 were relatively flat as compared to the corresponding
period of the prior year.
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Other
The following table sets forth our significant financial statement items below the income (loss) from operations line.
Three Months Ended
(in thousands) Mar 31, 2022 Mar 31, 2021 Dec 31, 2021
Interest income $ 796 $ 519 $ 613
Interest expense, net of amounts capitalized (9,443) (10,407) (9,058)
Equity in income (losses) of unconsolidated
affiliates 294 534 (507) Other income (expense), net 444 (1,453) (5,547) Provision (benefit) for income taxes 10,262 12,341 11,742 In addition to interest on borrowings, interest expense, net of amounts capitalized, includes amortization of loan costs and interest rate swap gains, fees for lender commitments under our revolving credit agreement and fees for standby letters of credit and bank guarantees that banks issue on our behalf for performance bonds, bid bonds and self-insurance requirements. Foreign currency transaction gains and losses are the principal component of other income (expense), net. In the three-month periods endedMarch 31, 2022 and 2021, we incurred foreign currency transaction gains (losses) of$0.4 million and$(1.9) million , respectively. The currency gains (losses) in the 2022 and 2021 periods were primarily related to increasing (declining) exchange rates for the Angolan kwanza relative to theU.S. dollar. We could incur further foreign currency exchange losses inAngola if further currency devaluations occur. Our tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographical mix of our results. The effective tax rate for the three-month periods endedMarch 31, 2022 and 2021 was different than the federal statutory rate of 21%, primarily due to the geographical mix of revenue and earnings, changes in valuation allowances and uncertain tax positions, and other discrete items; therefore, we do not believe a discussion of the effective tax rate is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur incremental tax consequences upon the distribution of such earnings. OnMarch 27, 2020 , the CARES Act was signed into law inthe United States . In accordance with the rules and procedures under the CARES Act, we filed a 2014 refund claim to carry back ourU.S. net operating loss generated in 2019 and amended our 2013 federal income tax return impacted by the net operating loss carryback. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expected to receive combined refunds of approximately$33 million , of which we have received$10 million as ofMarch 31, 2022 . The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as ofMarch 31, 2022 . Our income tax payments for the full year of 2022 are estimated to be in the range of$40 million to$45 million , which includes taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations. These cash tax payments do not include expected refunds of approximately$23 million under the CARES Act.
Liquidity and Capital Resources
We consider our liquidity and capital resources adequate to support our operations, capital commitments and growth initiatives. As ofMarch 31, 2022 , we had working capital of$677 million , including cash and cash equivalents of$438 million . Additionally, as ofMarch 31, 2022 , we had$450 million available through our prior revolving credit facility ("Prior Revolving Credit Facility"). InApril 2022 , we entered into a new senior secured revolving credit facility (the "Revolving Credit Facility") that replaced our Prior Revolving Credit Facility. The Revolving Credit Facility provides a borrowing base of$215 million and includes a$100 million sublimit for the issuance of letters of credit. We remain committed to maintaining strong liquidity for the full year of 2022 and believe that our cash position, undrawn Revolving Credit Facility, and debt maturity profile should provide us ample resources and time to address potential opportunities to improve our returns. See Note 10-"Subsequent Event" in 27 -------------------------------------------------------------------------------- Table of Contents the Notes to Consolidated Financial Statements in this quarterly report for information on the retirement of our Prior Revolving Credit Facility and entry into a new senior secured credit facility inApril 2022 . Our nearest maturity of indebtedness is our$400 million of 2024 Notes (as defined below) due inNovember 2024 . In 2021, we repurchased$100 million in aggregate principal amount of the 2024 Senior Notes in open-market transactions. We may, from time to time, complete additional limited repurchases of the 2024 Notes, via open-market or privately negotiated repurchase transactions or otherwise, prior to their maturity date. We can provide no assurances as to the timing of any such additional repurchases or whether we will complete any such repurchases at all. We do not intend to disclose further information regarding any such repurchase transactions, except to the extent required in our subsequent periodic filings on Forms 10-K or 10-Q, or unless otherwise required by applicable law. Cash flows for the three months endedMarch 31, 2022 and 2021 are summarized as follows: Three Months Ended (in thousands) Mar 31, 2022 Mar 31, 2021
Changes in Cash:
Net Cash Used in Operating Activities $
(80,501)
Net Cash Used in Investing Activities (19,283) (5,007)
Net Cash Used in Financing Activities (2,202) (1,806)
Effect of exchange rates on cash 1,891 (737)
Net Increase (Decrease) in Cash and Cash Equivalents $ (100,095)$ (9,273) Operating activities
Our primary sources and uses of cash flows from operating activities for the
three months ended
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