[PART I – FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20Financial%20Information) This section presents the unaudited consolidated financial information, including financial statements, management's discussion, market risk, and controls [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Oceaneering International, Inc. and its subsidiaries for the periods ended June 30, 2022, including balance sheets, statements of operations, comprehensive income (loss), cash flows, and equity, along with detailed notes on accounting policies, revenue, debt, and segment information [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2022, and December 31, 2021 | (in thousands) | Jun 30, 2022 | Dec 31, 2021 | | :----------------------- | :----------- | :----------- | | **ASSETS** | | | | Cash and cash equivalents | $368,412 | $538,114 | | Accounts receivable, net | 344,533 | 262,960 | | Contract assets, net | 188,672 | 164,847 | | Inventory, net | 169,245 | 153,682 | | Total Current Assets | 1,147,764 | 1,188,003 | | Net property and equipment | 455,304 | 489,596 | | Total Assets | $1,872,423 | $1,962,859 | | **LIABILITIES AND EQUITY** | | | | Accounts payable | $129,594 | $122,327 | | Accrued liabilities | 286,582 | 290,659 | | Contract liabilities | 56,563 | 88,175 | | Total current liabilities | 472,739 | 501,161 | | Long-term debt | 701,539 | 702,067 | | Total equity | 476,728 | 511,024 | | Total Liabilities and Equity | $1,872,423 | $1,962,859 | - Total Assets decreased from **$1,962,859 thousand** at December 31, 2021, to **$1,872,423 thousand** at June 30, 2022[9](index=9&type=chunk) - Cash and cash equivalents decreased significantly from **$538,114 thousand** to **$368,412 thousand**[9](index=9&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2022 and 2021 | (in thousands, except per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $524,031 | $498,199 | $970,190 | $935,752 | | Gross margin | 76,041 | 68,397 | 121,521 | 125,054 | | Income (loss) from operations | 22,850 | 22,819 | 21,811 | 36,602 | | Net Income (Loss) | $3,720 | $6,241 | $(15,490) | $(3,124) | | Basic Earnings (loss) per share | $0.04 | $0.06 | $(0.15) | $(0.03) | | Diluted Earnings (loss) per share | $0.04 | $0.06 | $(0.15) | $(0.03) | - Revenue for the three months ended June 30, 2022, increased to **$524,031 thousand** from **$498,199 thousand** in the prior year period[11](index=11&type=chunk) - Net Income (Loss) for the three months ended June 30, 2022, decreased to **$3,720 thousand** from **$6,241 thousand** in the prior year period[11](index=11&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) This section presents the company's net income (loss) adjusted for other comprehensive income (loss) items, such as foreign currency translation adjustments | (in thousands) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $3,720 | $6,241 | $(15,490) | $(3,124) | | Foreign currency translation adjustments | (31,026) | 6,468 | (21,155) | 3,612 | | Total other comprehensive income (loss) | (31,667) | 6,099 | (21,796) | 4,297 | | Comprehensive income (loss) | $(27,947) | $12,340 | $(37,286) | $1,173 | - Comprehensive income (loss) for the three months ended June 30, 2022, was **$(27,947) thousand**, a significant decrease from **$12,340 thousand** in the prior year, primarily due to negative foreign currency translation adjustments[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021 | (in thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by (Used in) Operating Activities | $(124,482) | $48,823 | | Net Cash Provided by (Used in) Investing Activities | $(35,095) | $(12,157) | | Net Cash Provided by (Used in) Financing Activities | $(2,062) | $(32,284) | | Net Increase (Decrease) in Cash and Cash Equivalents | $(169,702) | $4,071 | | Cash and Cash Equivalents—End of Period | $368,412 | $456,087 | - Net cash used in operating activities was **$(124,482) thousand** for the six months ended June 30, 2022, a significant decrease from **$48,823 thousand** provided in the prior year period[16](index=16&type=chunk) - Cash and cash equivalents at the end of the period decreased to **$368,412 thousand** from **$456,087 thousand** year-over-year[16](index=16&type=chunk) [Consolidated Statements of Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Equity) This section details changes in the company's equity components, including common stock, retained earnings, and accumulated other comprehensive income (loss) | (in thousands) | Balance, Dec 31, 2021 | Balance, Mar 31, 2022 | Balance, Jun 30, 2022 | | :--------------- | :-------------------- | :-------------------- | :-------------------- | | Common Stock | $27,709 | $27,709 | $27,709 | | Additional Paid-in Capital | $173,608 | $148,060 | $150,539 | | Treasury Stock | $(631,811) | $(605,893) | $(605,752) | | Retained Earnings | $1,301,913 | $1,282,703 | $1,286,423 | | Accumulated Other Comprehensive Income (Loss) | $(366,458) | $(356,587) | $(388,254) | | Oceaneering Shareholders' Equity | $504,961 | $495,992 | $470,665 | | Total Equity | $511,024 | $502,055 | $476,728 | - Total equity decreased from **$511,024 thousand** at December 31, 2021, to **$476,728 thousand** at June 30, 2022[19](index=19&type=chunk) - Accumulated other comprehensive loss increased from **$(366,458) thousand** to **$(388,254) thousand**, reflecting negative other comprehensive income (loss) during the period[19](index=19&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, revenue, debt, and segment information [1. Summary of Major Accounting Policies](index=8&type=section&id=1.%20SUMMARY%20OF%20MAJOR%20ACCOUNTING%20POLICIES) This section outlines the key accounting principles and methods used in preparing the consolidated financial statements, including basis of presentation, consolidation principles, use of estimates, cash and cash equivalents, allowances for credit loss, inventory valuation, property and equipment depreciation, goodwill impairment, foreign currency translation, revenue recognition, and lease accounting - The financial statements are prepared in accordance with U.S. GAAP and reflect all necessary adjustments for fair presentation, to be read in conjunction with the annual 10-K report[22](index=22&type=chunk) - The company uses the loss-rate method for credit loss allowances, considering historical losses and economic forecasts, and determined COVID-19 and Russia-Ukraine conflict impacts on credit loss expense to be de minimis[26](index=26&type=chunk)[28](index=28&type=chunk) - Revenue is recognized over time for service contracts (dayrate, time & material) and fixed-price contracts (percentage-of-completion), and at a point in time for other product sales[41](index=41&type=chunk)[42](index=42&type=chunk)[44](index=44&type=chunk) [2. Accounting Standards Update](index=11&type=section&id=2.%20ACCOUNTING%20STANDARDS%20UPDATE) This section discusses the adoption of ASU No. 2020-04, "Reference Rate Reform (Topic 848)," which provides temporary expedients for the transition from LIBOR to alternative rates like SOFR. The company applied this guidance in connection with its new senior secured revolving credit agreement in April 2022 and does not expect a material impact - The company adopted ASU No. 2020-04 for reference rate reform, applying it to a new SOFR-referenced revolving credit agreement in April 2022[54](index=54&type=chunk) - No material impact on consolidated financial statements is expected from the ASU adoption[54](index=54&type=chunk) [3. Revenue](index=12&type=section&id=3.%20REVENUE) This note provides disaggregated revenue data by business segment, geographical region, and timing of transfer of goods or services. It also details contract balances, performance obligations, and costs to obtain or fulfill contracts Revenue by Business Segment (in thousands) | Revenue by Business Segment (in thousands) | Three Months Ended Jun 30, 2022 | Three Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2022 | Six Months Ended Jun 30, 2021 | | :----------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Subsea Robotics | $157,123 | $141,371 | $285,112 | $260,490 | | Manufactured Products | 105,456 | 79,127 | 188,148 | 165,952 | | Offshore Projects Group | 116,457 | 107,951 | 213,854 | 197,185 | | Integrity Management & Digital Solutions | 59,438 | 64,070 | 116,008 | 118,118 | | Aerospace and Defense Technologies | 85,557 | 105,680 | 167,068 | 194,007 | | Total Revenue | $524,031 | $498,199 | $970,190 | $935,752 | Revenue by Geographic Operating Areas (in thousands) | Revenue by Geographic Operating Areas (in thousands) | Three Months Ended Jun 30, 2022 | Three Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2022 | Six Months Ended Jun 30, 2021 | | :--------------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total Foreign | $270,567 | $270,238 | $520,970 | $507,139 | | United States | 253,464 | 227,961 | 449,220 | 428,613 | | Total Revenue | $524,031 | $498,199 | $970,190 | $935,752 | - As of June 30, 2022, the aggregate amount of transaction price allocated to remaining performance obligations was **$189 million**, with **$170 million** expected to be recognized in the next 12 months[61](index=61&type=chunk) [4. Income Taxes](index=14&type=section&id=4.%20INCOME%20TAXES) This section details the company's income tax provision, influenced by profitability levels and geographical mix of earnings. It also discusses the impact of the CARES Act on U.S. net operating loss refunds and the accrual for worldwide unrecognized tax liabilities - The effective tax rate differs from the U.S. federal statutory rate of **21%** due to geographical mix of revenue and earnings, changes in valuation allowances, and uncertain tax positions[69](index=69&type=chunk) - The company expects to receive approximately **$33 million** in CARES Act tax refunds, with **$10 million** received as of June 30, 2022, and the remainder classified as accounts receivable[70](index=70&type=chunk) - Accrued net total of **$12 million** for worldwide unrecognized tax liabilities as of June 30, 2022, down from **$15 million** at December 31, 2021[72](index=72&type=chunk) [5. Selected Balance Sheet Information](index=15&type=section&id=5.%20SELECTED%20BALANCE%20SHEET%20INFORMATION) This section provides a breakdown of specific balance sheet accounts, including inventory, other current assets, and accrued liabilities, highlighting changes between June 30, 2022, and December 31, 2021 | (in thousands) | Jun 30, 2022 | Dec 31, 2021 | | :--------------- | :----------- | :----------- | | **Inventory:** | | | | ROV parts and components | $73,842 | $72,572 | | Other inventory | 95,403 | 81,110 | | Total Inventory | $169,245 | $153,682 | | **Other current assets:** | | | | Prepaid expenses | $71,128 | $61,984 | | Angolan bonds | 5,774 | 6,416 | | Total Other current assets | $76,902 | $68,400 | | **Accrued liabilities:** | | | | Payroll and related costs | $124,723 | $134,538 | | Accrued job costs | 48,683 | 49,032 | | Income taxes payable | 39,382 | 35,826 | | Total Accrued liabilities | $286,582 | $290,659 | - Total inventory increased to **$169,245 thousand** at June 30, 2022, from **$153,682 thousand** at December 31, 2021[75](index=75&type=chunk) - Accrued liabilities decreased slightly to **$286,582 thousand** at June 30, 2022, from **$290,659 thousand** at December 31, 2021, primarily due to a decrease in payroll and related costs[75](index=75&type=chunk) [6. Debt](index=15&type=section&id=6.%20DEBT) This section details the company's long-term debt, including Senior Notes due 2024 and 2028, and the new senior secured revolving credit agreement entered into in April 2022. It also covers debt repurchases, interest rate swaps, and compliance with financial covenants | (in thousands) | Jun 30, 2022 | Dec 31, 2021 | | :--------------- | :----------- | :----------- | | 4.650% Senior Notes due 2024 | $400,000 | $400,000 | | 6.000% Senior Notes due 2028 | 300,000 | 300,000 | | Long-term debt | $701,539 | $702,067 | - The company entered into a new **$215 million** senior secured revolving credit agreement in April 2022, replacing the prior facility, with no outstanding borrowings as of June 30, 2022[81](index=81&type=chunk)[82](index=82&type=chunk) - The company was in compliance with all financial covenants of the Revolving Credit Agreement as of June 30, 2022[83](index=83&type=chunk) [7. Commitments and Contingencies](index=16&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) This section addresses potential liabilities from litigation, financial instruments, and risk concentration, particularly related to foreign exchange rates and Angolan kwanza balances. It also discusses the fair value of Senior Notes and Angolan bonds - The company is involved in various litigation and claims but believes the ultimate liability will not have a material adverse effect on its financial condition[87](index=87&type=chunk) - Foreign currency transaction gains related to the Angolan kwanza were **$1.2 million** for the three months ended June 30, 2022, compared to a loss of **$(0.5) million** in the prior year period[91](index=91&type=chunk) - As of June 30, 2022, the company held **$3.5 million** in kwanza cash balances and **$6.2 million** in U.S. dollar equivalent Angolan bonds to mitigate currency exposure[92](index=92&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) [8. Earnings (Loss) Per Share, Share-Based Compensation and Share Repurchase Plan](index=18&type=section&id=8.%20EARNINGS%20%28LOSS%29%20PER%20SHARE%2C%20SHARE-BASED%20COMPENSATION%20AND%20SHARE%20REPURCHASE%20PLAN) This section provides details on earnings per share calculations, share-based compensation for executives and directors, and the company's share repurchase plan, including outstanding restricted stock units and unrecognized compensation costs - Basic and diluted earnings (loss) per share are the same in periods of net loss due to the anti-dilutive effect of restricted stock units[95](index=95&type=chunk) - As of June 30, 2022, **2,602,915 shares** of restricted stock and restricted stock units were outstanding, with **$17 million** in unrecognized share-based compensation cost[98](index=98&type=chunk)[99](index=99&type=chunk) - The company has a share repurchase program approved in 2014 for up to **10 million shares**, but no shares have been repurchased under this plan since 2015[100](index=100&type=chunk)[152](index=152&type=chunk) [9. Business Segment Information](index=18&type=section&id=9.%20BUSINESS%20SEGMENT%20INFORMATION) This section describes the company's business segments: Energy Services and Products (Subsea Robotics, Manufactured Products, Offshore Projects Group, Integrity Management & Digital Solutions) and Aerospace and Defense Technologies. It provides detailed financial performance data for each segment, including revenue, operating income (loss), and depreciation and amortization - The company operates in two main businesses: Energy Services and Products (offshore energy, renewables) and Aerospace and Defense Technologies (defense, space exploration)[101](index=101&type=chunk)[103](index=103&type=chunk) Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended Jun 30, 2022 | Three Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2022 | Six Months Ended Jun 30, 2021 | | :----------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Subsea Robotics | $157,123 | $141,371 | $285,112 | $260,490 | | Manufactured Products | 105,456 | 79,127 | 188,148 | 165,952 | | Offshore Projects Group | 116,457 | 107,951 | 213,854 | 197,185 | | IMDS | 59,438 | 64,070 | 116,008 | 118,118 | | ADTech | 85,557 | 105,680 | 167,068 | 194,007 | | Total | $524,031 | $498,199 | $970,190 | $935,752 | Segment Operating Income (Loss) (in thousands) | Segment Operating Income (Loss) (in thousands) | Three Months Ended Jun 30, 2022 | Three Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2022 | Six Months Ended Jun 30, 2021 | | :--------------------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Subsea Robotics | $25,938 | $21,710 | $37,490 | $36,329 | | Manufactured Products | (1,365) | 790 | 1,278 | 3,543 | | Offshore Projects Group | 17,535 | 7,996 | 18,201 | 16,809 | | IMDS | 3,436 | 4,721 | 6,944 | 7,195 | | ADTech | 8,961 | 19,340 | 20,805 | 36,179 | | Unallocated Expenses | (31,655) | (31,738) | (62,907) | (63,453) | | Total | $22,850 | $22,819 | $21,811 | $36,602 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and future outlook. It covers consolidated results, segment-specific performance, liquidity, capital resources, and critical accounting policies, highlighting the impact of seasonal demand and operational challenges [Overview of our Results](index=22&type=section&id=Overview%20of%20our%20Results) The company's second quarter 2022 results showed significant improvement over the first quarter, driven by a resurgence in seasonal offshore demand for Subsea Robotics and OPG, despite challenges in hiring offshore personnel and negative impacts on ADTech's revenue mix - Diluted earnings per share for Q2 2022 was **$0.04**, up from **$(0.19)** in Q1 2022, but down from **$0.06** in Q2 2021[113](index=113&type=chunk) - Subsea Robotics and OPG segments achieved some of their highest revenue and operating income levels since early 2018 due to increased offshore activity[114](index=114&type=chunk) - Cash used in operating activities was **$124 million** in H1 2022, primarily due to increased accounts receivable and higher operating costs in anticipation of future activity[116](index=116&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section analyzes consolidated revenue and profitability, detailing performance across Energy Services and Products segments (Subsea Robotics, Manufactured Products, Offshore Projects Group, Integrity Management & Digital Solutions) and Aerospace and Defense Technologies, along with unallocated expenses and other financial items | (dollars in thousands) | Three Months Ended Jun 30, 2022 | Three Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2022 | Six Months Ended Jun 30, 2021 | | :--------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Revenue | $524,031 | $498,199 | $970,190 | $935,752 | | Gross Margin | 76,041 | 68,397 | 121,521 | 125,054 | | Gross Margin % | 15 % | 14 % | 13 % | 13 % | | Operating Income (Loss) | 22,850 | 22,819 | 21,811 | 36,602 | | Operating Income (Loss) % | 4 % | 5 % | 2 % | 4 % | - Subsea Robotics revenue increased to **$157,123 thousand** in Q2 2022 from **$141,371 thousand** in Q2 2021, with ROV utilization at **64%** (Q2 2022) vs **62%** (Q2 2021)[124](index=124&type=chunk) - Manufactured Products backlog was **$335 million** as of June 30, 2022, up from **$315 million** in the prior year, with a trailing 12-month book-to-bill ratio of **1.25**[124](index=124&type=chunk)[128](index=128&type=chunk) - ADTech operating income for the six months ended June 30, 2022, decreased to **$20,805 thousand** from **$36,179 thousand** in the prior year, due to decreased activity in defense subsea technologies and space systems[132](index=132&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations and fund growth, detailing working capital, available credit, cash flow activities (operating, investing, financing), and capital expenditure plans. It also addresses off-balance sheet arrangements and critical accounting policies - As of June 30, 2022, the company had **$675 million** in working capital, including **$368 million** in cash and cash equivalents, and **$215 million** available under its Revolving Credit Agreement[141](index=141&type=chunk) | (in thousands) | Six Months Ended Jun 30, 2022 | Six Months Ended Jun 30, 2021 | | :--------------- | :---------------------------- | :---------------------------- | | Net Cash Provided by (Used in) Operating Activities | $(124,482) | $48,823 | | Net Cash Used in Investing Activities | $(35,095) | $(12,157) | | Net Cash Used in Financing Activities | $(2,062) | $(32,284) | - Organic capital expenditures for 2022 are projected to be **$70 million to $80 million**, including **$30 million to $35 million** for growth[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily from interest rate changes and foreign exchange rate fluctuations, particularly concerning the Angolan kwanza. It outlines strategies for managing these risks and their impact on financial results - The company is exposed to market risks from interest rate changes and foreign exchange rate fluctuations, with significant exposure in Angola[155](index=155&type=chunk) - Foreign currency translation adjustments resulted in a net negative impact of **$(31) million** on equity for the three months ended June 30, 2022, due to a strengthening U.S. dollar[156](index=156&type=chunk) - Foreign currency transaction gains related to the Angolan kwanza were **$1.2 million** for the three months ended June 30, 2022, compared to a loss of **$(0.5) million** in the prior year period[157](index=157&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2022, based on an evaluation by management, including the principal executive and financial officers. It also states that there have been no material changes to internal control over financial reporting - Disclosure controls and procedures were effective as of June 30, 2022, providing reasonable assurance for timely and accurate reporting[161](index=161&type=chunk) - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2022[162](index=162&type=chunk) [PART II – OTHER INFORMATION](index=33&type=section&id=Part%20II%20Other%20Information) This section includes information on legal proceedings, exhibits filed with the report, and the required signatures of the company's officers [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the discussion of legal proceedings from Note 7—"Commitments and Contingencies" in the Notes to Consolidated Financial Statements, which addresses various litigation and claims the company is involved in during the ordinary course of business - Information regarding legal proceedings is incorporated by reference from Note 7—"Commitments and Contingencies"[165](index=165&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate organizational documents, credit agreements, and certifications by executive officers, along with XBRL taxonomy documents - The exhibit list includes the Restated Certificate of Incorporation, Amended and Restated Bylaws, and the Credit Agreement dated April 8, 2022[166](index=166&type=chunk) - Certifications by the principal executive and financial officers (Rule 13a-14(a)/15d-14(a) and Section 1350) are included[166](index=166&type=chunk) [Signatures](index=34&type=section&id=Signatures) This section contains the signatures of the company's authorized officers, including the President and Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Vice President and Chief Accounting Officer, certifying the filing of the report - The report is signed by Roderick A. Larson (President and CEO), Alan R. Curtis (SVP and CFO), and Witland J. LeBlanc, Jr. (VP and Chief Accounting Officer) on July 29, 2022[168](index=168&type=chunk)

Financial Data and Key Metrics Changes - The company reported adjusted EBITDA of $53.5 million for Q2 2022, reflecting a significant increase compared to Q1 2022, with a sequential revenue growth of 17% [13][16] - Cash balance declined by $70 million to $368 million, primarily due to an increase in receivables, but the company expects positive free cash flow generation for 2022, revising guidance to $25 million to $75 million [15][49] - Adjusted EBITDA guidance for the full year 2022 has been updated to a range of $210 million to $240 million [10][50] Business Segment Data and Key Metrics Changes - Subsea Robotics (SSR) segment saw significant revenue and operating income increases, with an EBITDA margin of 28%, up from the previous quarter [18][19] - The Offshore Project Group (OPG) segment also reported significant revenue and operating income growth, with operating income margin increasing from 1% in Q1 to 15% in Q2 2022 [24][25] - The Aerospace and Defense Technologies (ADTech) segment experienced a decline in operating income margin from 15% in Q1 to 10% in Q2, despite a 5% increase in revenue [27] Market Data and Key Metrics Changes - The company noted strong market dynamics supporting robust activity in offshore markets, particularly in the Gulf of Mexico, with expectations for high seasonal IMR and installation activity [30][41] - ROV days on hire increased to 14,631 in Q2 from 11,842 in Q1, with fleet utilization rising to 64% from 53% [20][21] - The company maintained a 58% market share for ROV contracts on floating rigs, an improvement from 55% in the previous quarter [22] Company Strategy and Development Direction - The company is focused on energy transition and transforming its businesses to thrive in evolving market conditions, with expectations for increased activity levels over the next several years [51] - The company aims to retain and attract top talent, ensure appropriate pricing, and deliver value-added solutions with high quality and safety [52] - The company is reducing its estimates for 2022 organic capital expenditures to align with free cash flow expectations, indicating a focus on financial prudence [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the returning offshore industry, emphasizing the importance of energy security and dependable energy sources [11][50] - The company anticipates a significant increase in revenue and operating results for OPG, with operating margins expected to remain in the mid-teens range [30][41] - Management acknowledged inflationary pressures on direct costs but is working to mitigate margin deterioration through cost improvements and contractual price increases [43] Other Important Information - The company entered into a new revolving credit facility in Q2 2022, providing substantial liquidity through April 2026 [48] - The anticipated entertainment-related product sale is now projected to conclude in the second half of 2022, potentially impacting Q4 results positively [39] Q&A Session Summary Question: Subsea Robotics margin guidance and pricing opportunities - Management clarified that the margin guidance for SSR remains in the high 20% range, with pricing adjustments being more immediate in OPG compared to ROV, which is tied to longer contracts [56][57] Question: Fourth quarter EBITDA expectations - Management explained that improvements in ADTech projects and a longer season in OPG contribute to the stronger Q4 expectations, alongside anticipated ROV pricing improvements [59][60] Question: Concerns regarding receivables and potential write-downs - Management indicated that the issues with receivables are more about timing and processing rather than credit risk, assuring that customers have the cash to pay [66][69]

Financial Data and Key Metrics Changes - For Q1 2022, the company reported a net loss of $19.2 million or $0.19 per share on revenue of $446 million, with an adjusted net loss of $6.4 million or $0.06 per share [8][9] - Consolidated adjusted EBITDA for Q1 2022 was $31.5 million, a significant decrease from the prior quarter [10] - The company maintained its original EBITDA guidance of $225 million to $275 million for the full year of 2022 [6][31] Business Segment Data and Key Metrics Changes - Subsea Robotics (SSR) operating income was significantly lower with a modest decrease in revenue, resulting in an EBITDA margin of 24% for Q1 2022 [11] - Manufactured Products segment saw a 20% decrease in revenue, with operating income margin declining to 3% from 9% in the previous quarter [14] - Offshore Projects Group (OPG) operating income margin declined to 1% in Q1 2022 from 8% in the previous quarter due to cost overruns [15] - Aerospace and Defense Technologies (AdTech) operating income margin improved to 15% from 13% in the previous quarter despite slightly lower revenue [16] Market Data and Key Metrics Changes - ROV days on hire were 11,842 in Q1 2022, down from 12,747 in Q4 2021, with fleet utilization at 53%, slightly down from 55% [12][13] - The book-to-bill ratio was 1.2 for the trailing 12 months, compared to 1.1 for the year ended December 31, 2021 [15] Company Strategy and Development Direction - The company is focused on increasing activity levels and pricing improvements, with expectations for a robust ramp-up in activity throughout 2022 [6][31] - There is a continued emphasis on expanding into new geographies and adding new customers, particularly in the IMBS segment [26] - The company is pursuing opportunities in energy transition and non-energy markets to support sustainable growth [31][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the macro drivers supporting increased activity and pricing improvements, with expectations for significant improvement in Q2 2022 [6][18] - The company anticipates higher revenue and operating results across various segments, particularly in SSR and OPG, due to seasonal activity increases [20][21] - Management acknowledged challenges such as inflation, hiring, and supply chain issues but emphasized effective management of these challenges [32] Other Important Information - The company reported a cash reduction of $100 million in Q1 2022, ending the quarter with $438 million in cash and cash equivalents [17][29] - The company replaced its credit facility with a new $215 million senior secured revolving credit facility, enhancing financial flexibility [29] Q&A Session Summary - No questions were raised during the Q&A session, and the call concluded without further inquiries [34][35]

[Part I - Financial Information](index=3&type=section&id=Part%20I%20-%20Financial%20Information) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Oceaneering International, Inc. as of March 31, 2022, and for the three-month period then ended [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets to **$1.90 billion** as of March 31, 2022, from **$1.96 billion** at year-end 2021, driven by a reduction in cash and cash equivalents, with total equity also decreasing marginally from **$511.0 million** to **$502.1 million** Consolidated Balance Sheet Data (in thousands) | (in thousands) | Mar 31, 2022 (unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,142,721 | $1,188,003 | | **Total Assets** | **$1,901,997** | **$1,962,859** | | **Total Current Liabilities** | $465,435 | $501,161 | | **Long-term debt** | $701,808 | $702,067 | | **Total Liabilities** | $1,399,942 | $1,451,835 | | **Total Equity** | **$502,055** | **$511,024** | | **Total Liabilities and Equity** | **$1,901,997** | **$1,962,859** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2022, the company reported a net loss of **$19.2 million**, or **($0.19)** per share, on revenue of **$446.2 million**, with gross margin decreasing and an operating loss of **$1.0 million** compared to an operating income in the prior year Consolidated Statements of Operations Data (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | **Revenue** | $446,159 | $437,553 | | **Gross margin** | $45,480 | $56,657 | | **Income (loss) from operations** | $(1,039) | $13,783 | | **Net Income (Loss)** | **$(19,210)** | **$(9,365)** | | **Diluted Earnings (loss) per share** | **$(0.19)** | **$(0.09)** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operating activities resulted in an **$80.5 million** net use in Q1 2022, a significant change from the prior year, primarily due to working capital changes, leading to a **$100.1 million** decrease in cash and cash equivalents Consolidated Statements of Cash Flows Data (in thousands) | (in thousands) | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | **Net Cash Provided by (Used in) Operating Activities** | $(80,501) | $(1,723) | | **Net Cash Provided by (Used in) Investing Activities** | $(19,283) | $(5,007) | | **Net Cash Provided by (Used in) Financing Activities** | $(2,202) | $(1,806) | | **Net Increase (Decrease) in Cash and Cash Equivalents** | $(100,095) | $(9,273) | | **Cash and Cash Equivalents—End of Period** | $438,019 | $442,743 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on revenue recognition, segment performance, debt structure, commitments, and a significant subsequent event regarding a new credit facility, essential for understanding the company's financial health - Total revenue for Q1 2022 was **$446.2 million**, with Energy Services and Products contributing **$364.6 million** and Aerospace and Defense Technologies contributing **$81.5 million**, and the majority of revenue (**$417.0 million**) is recognized over time[57](index=57&type=chunk) - As of March 31, 2022, the company had total long-term debt of **$701.8 million**, primarily consisting of **$400 million** in 4.650% Senior Notes due 2024 and **$300 million** in 6.000% Senior Notes due 2028[77](index=77&type=chunk) - The Energy Services and Products business generated operating income of **$18.4 million** in Q1 2022, a decrease from **$28.7 million** in Q1 2021, and the Aerospace and Defense Technologies segment's operating income also decreased to **$11.8 million** from **$16.8 million** year-over-year[105](index=105&type=chunk) - Subsequent to the quarter's end, on April 8, 2022, the company entered into a new senior secured revolving credit facility of **$215 million**, maturing in April 2026, which replaced the prior credit facility[109](index=109&type=chunk)[110](index=110&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2022 financial results, attributing the operating loss to higher preparatory costs for anticipated activity ramp-up, covering segment performance, liquidity, capital expenditure plans, and debt profile [Overview of Results and Guidance](index=23&type=section&id=Overview%20of%20Results%20and%20Guidance) Q1 2022 resulted in a diluted loss per share of **($0.19)**, impacted by higher costs for hiring, training, and equipment mobilization, though all operating segments generated positive income, with a robust ramp-up in activity and pricing expected for the remainder of 2022 - Q1 2022 diluted loss per share was **$(0.19)**, compared to **$(0.09)** in Q1 2021[117](index=117&type=chunk) - Results were negatively impacted by higher costs for hiring, training, and equipment mobilization in preparation for significant expected activity increases for the remainder of 2022[117](index=117&type=chunk) - A robust ramp-up in activity and pricing improvements are expected starting in Q2 2022, with significantly higher activity anticipated in Subsea Robotics and OPG segments[119](index=119&type=chunk) [Results of Operations by Segment](index=24&type=section&id=Results%20of%20Operations%20by%20Segment) Consolidated operating loss was **$1.0 million** in Q1 2022, with Energy Services and Products operating income falling to **$18.4 million** due to lower OPG results and higher preparatory costs, while ADTech segment's operating income also declined Operating Income (Loss) by Segment (in thousands) | Operating Income (Loss) by Segment (in thousands) | Mar 31, 2022 | Mar 31, 2021 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | | Subsea Robotics | $11,552 | $14,619 | $21,012 | | Manufactured Products | $2,643 | $2,753 | $(20,228) | | Offshore Projects Group | $666 | $8,813 | $6,754 | | Integrity Management & Digital Solutions | $3,508 | $2,474 | $6,015 | | **Total Energy Services and Products** | **$18,369** | **$28,659** | **$13,553** | | Aerospace and Defense Technologies | $11,844 | $16,839 | $10,562 | | Unallocated Expenses | $(31,252) | $(31,715) | $(36,687) | | **Total Operating Income (Loss)** | **$(1,039)** | **$13,783** | **$(12,572)** | - Subsea Robotics ROV utilization was stable at **53%** year-over-year, but operating income decreased due to increased costs for hiring, training, and asset preparedness[126](index=126&type=chunk)[128](index=128&type=chunk) - Manufactured Products backlog increased to **$334 million** from **$318 million** at the end of 2021, with a trailing 12-month book-to-bill ratio of **1.2**[131](index=131&type=chunk) - Offshore Projects Group (OPG) operating results were significantly lower due to cost overruns on a project and schedule changes affecting vessel utilization[131](index=131&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains adequate liquidity with **$438 million** in cash and a new **$215 million** revolving credit facility, despite operating activities using **$80.5 million** in cash in Q1 2022, with projected 2022 capital expenditures between **$70 million** and **$90 million** - As of March 31, 2022, the company had working capital of **$677 million**, including **$438 million** in cash and cash equivalents[145](index=145&type=chunk) - Net cash used in operating activities was **$80.5 million**, driven by increases in accounts receivable and inventory, and decreases in current liabilities reflecting timing of payments[148](index=148&type=chunk)[149](index=149&type=chunk) - In April 2022, the company replaced its prior credit facility with a new **$215 million** senior secured revolving credit facility maturing in 2026[145](index=145&type=chunk) - Projected organic capital expenditures for the full year 2022 are estimated to be in the range of **$70 million** to **$90 million**[151](index=151&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rate changes and foreign currency fluctuations, primarily related to the Angolan kwanza, which is mitigated by holding U.S. dollar-equivalent Angolan central bank bonds - The company is exposed to market risks from interest rate changes and foreign exchange rates, but does not believe these risks are material, except for its exposure in Angola[161](index=161&type=chunk) - Foreign currency transaction gains in Q1 2022 were **$0.4 million**, primarily related to the Angolan kwanza, which compares to a loss of **$(1.9) million** in Q1 2021[163](index=163&type=chunk) - To mitigate currency risk in Angola, the company holds **$6.2 million** in U.S. dollar-equivalent Angolan central bank bonds[165](index=165&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[167](index=167&type=chunk) - No changes occurred in the company's internal control over financial reporting during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, these controls[168](index=168&type=chunk) [Part II - Other Information](index=35&type=section&id=Part%20II%20-%20Other%20Information) [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, with management believing that the ultimate liability will not materially affect its consolidated financial condition, results of operations, or cash flows - The company is, from time to time, involved in litigation or subject to disputes related to its business activities, including performance-related matters and various claims[84](index=84&type=chunk)[171](index=171&type=chunk) - Management believes that the ultimate liability from these actions will not have a material adverse effect on the company's financial condition, results of operations, or cash flows[84](index=84&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-Q report, including corporate governance documents, material contracts, and officer certifications - This section lists the exhibits filed with the report, including the Restated Certificate of Incorporation, Bylaws, various compensation agreements, the new Credit Agreement dated April 8, 2022, and officer certifications[172](index=172&type=chunk) [Signatures](index=36&type=section&id=Signatures) The report is formally concluded with the signatures of the company's authorized officers, affirming the report's contents as per the requirements of the Securities Exchange Act of 1934 - The report was duly signed on April 29, 2022, by Roderick A. Larson (President and CEO), Alan R. Curtis (SVP and CFO), and Witland J. LeBlanc, Jr. (VP and Chief Accounting Officer)[175](index=175&type=chunk)[176](index=176&type=chunk)

Industry Risks - The company is subject to various risks affecting the energy industry, including global demand and prices for oil and natural gas, which can significantly impact financial performance [77] - The offshore oil and gas industry is historically cyclical, significantly affected by oil and gas price volatility, which impacts exploration and development activities [101] - Approximately 57% of the company's consolidated revenue in 2021 was attributable to international operations, exposing it to additional risks [108] - The company faces uncertainty regarding the long-term outlook for the U.S. Gulf of Mexico due to a temporary ban on leasing federal lands [101] - Economic conditions, political instability, and civil unrest in regions such as Africa and Azerbaijan are major concerns that could adversely impact future business operations [111] - The ongoing COVID-19 pandemic and volatility in oil and natural gas markets create uncertainties that could impact cash flows and financial performance [107] Operational Challenges - The company has experienced challenges related to the COVID-19 pandemic, affecting customer responses and operational adjustments [77] - The availability and increased costs of chartered vessels are impacting operational efficiency and financial outcomes [77] - The backlog of contracts is subject to unexpected adjustments and cancellations, which could materially affect future revenue and earnings [112] - The company has modified business practices to enhance safety and productivity in response to COVID-19, but increased absenteeism could harm operations [105] - The company faces potential reductions in backlog due to project cancellations or changes in customer project scopes, which could materially affect future revenue and earnings [112] - The company has implemented new protocols to enhance employee safety and may take further actions as required by government authorities [105] Regulatory and Compliance Issues - The company has established a code of ethics and corporate governance guidelines to ensure compliance and ethical conduct [81] - Climate change regulations may increase operating costs and capital expenditures, potentially reducing demand for the company's services [115] - Environmental laws and regulations may impose significant costs and liabilities, affecting operational compliance and financial condition [125] - The U.S. Government established new regulations in 2010 that could increase operational costs and impact offshore oil and gas exploration projects [122] - The company faces increased regulatory scrutiny and potential penalties due to the complexity of new data privacy regulations [154] - Future legislation could impose additional compliance burdens, affecting operational costs and profitability [155] Financial Performance and Risks - Significant changes in currency exchange rates could adversely affect the company's financial results [77] - Foreign exchange risks may affect profitability, particularly for long-term contracts, due to fluctuations in currency values [127] - Significant inflation and higher interest rates could increase costs of materials and labor, adversely affecting profit margins [129] - The phase-out of LIBOR may lead to higher interest rates on borrowings, increasing the company's cost of capital [130] - A global financial crisis could restrict the company's access to capital markets, adversely affecting growth strategies and future capital expenditures [132] - The company’s financial performance could be negatively impacted by increased compliance costs related to environmental laws and regulations [126] Human Resources and Talent Management - The company emphasizes the importance of attracting and retaining qualified personnel to maintain competitive advantage [77] - The loss of key personnel or inability to attract trained employees could disrupt operations and result in revenue loss [140] - The company has experienced limited absenteeism among employees required to be on-site, but this may increase in the future [105] Technology and Cybersecurity - Cybersecurity risks pose a threat to information technology systems, which are essential for operations and could lead to significant financial impacts if breached [147] - The company is exposed to potential cybersecurity breaches due to increased reliance on remote access to information systems [105] - The company relies on intellectual property law and confidentiality agreements to protect its proprietary information, which is critical for its competitive position [143] - Significant reliance on proprietary technology and trade secrets that are not patent-protected, increasing vulnerability to misappropriation [144] Growth and Strategic Development - The company is focused on integrating acquired businesses, which presents both opportunities and risks [83] - Future acquisitions may require additional financing, which could be unavailable on favorable terms, impacting growth strategy [136] - Development and commercialization of new technologies are critical for future growth, but involve uncertainties and risks related to costs and market acceptance [139] - The company may pursue growth through acquisitions, which involve risks such as the need for additional financing and potential integration challenges [136] Financial Reporting and Internal Controls - The company’s internal controls may not fully achieve stated objectives, leading to potential financial reporting inaccuracies [159] - The use of estimates in financial reporting could result in future adjustments to assets and liabilities, impacting financial results [160] - Internal controls may not achieve all stated goals, leading to potential adjustments in reported financial results [159]

Financial Data and Key Metrics Changes - For the full year 2021, the company achieved adjusted EBITDA of $211 million, exceeding the guidance midpoint by 14% [5][19] - The cash position increased by $86 million to $538 million by the end of 2021, with $126 million of free cash flow generated in Q4 2021 [5][19] - The net debt-to-adjusted EBITDA ratio decreased from 1.9 at the end of 2020 to 0.8 at the end of 2021 [25] Business Segment Data and Key Metrics Changes - Subsea Robotics (SSR) operating income improved sequentially despite lower revenue, with an EBITDA margin of 31% in Q4 2021, up from 29% in Q3 2021 [10][11] - Manufactured Products revenue for Q4 2021 was $103 million, a 37% increase from Q3 2021, with an adjusted operating income margin of 9% [13] - Offshore Projects Group (OPG) revenue declined by 11% in Q4 2021 due to seasonality, but operating income margin remained consistent at 8% [14] - Integrity Management and Digital Solutions (IMDS) saw an increase in operating income margin to 10% in Q4 2021 from 9% in Q3 2021 [15] - Aerospace and Defense Technologies (ADTech) experienced a decline in operating income margin to 13% due to changes in project mix [16] Market Data and Key Metrics Changes - Brent pricing forecasted to reach nearly $90 per barrel in 2022, supporting increased E&P, OpEx, and CapEx spending [29][30] - Rystad forecasts a 55% increase in tree awards in 2022, indicating growing demand in the offshore sector [29] - Offshore wind CapEx and OpEx spending projected to average around $50 billion per year in 2022 and 2023, an 85% increase from previous years [30] Company Strategy and Development Direction - The company aims to generate positive free cash flow of $75 million to $125 million in 2022, with EBITDA projected between $225 million and $275 million [6][33] - Focus on developing technologies for cleaner and safer hydrocarbon production while increasing investments in new markets, including energy transition and digital asset management [33] - The company plans to maintain capital discipline with organic capital expenditures projected between $70 million and $90 million for 2022 [34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about market fundamentals driving increased activity across all segments in 2022 [5][6] - The first quarter of 2022 is expected to be significantly lower compared to Q4 2021 due to seasonality and uncertainties regarding U.S. government appropriations [31][40] - Management highlighted the importance of maintaining competitive advantages in ROV services through reverse compatibility and efficient capital use [52] Other Important Information - The company reported a total recordable incident rate (TRIR) of 0.4 for 2021, consistent with record performance in 2020 [24] - Sustainability initiatives include hiring an environmental consulting firm to gather greenhouse gas emissions data and establishing a baseline for future emissions reductions [26][27] Q&A Session Summary Question: How realistic is the guidance given the macro environment? - Management acknowledged potential upside if oil prices remain high, but noted challenges related to equipment availability [50] Question: What is the capital intensity of maintaining competitive dominance in ROV services? - Management emphasized the ability to upgrade existing ROVs at lower costs due to high levels of equipment reuse [52] Question: What is the outlook for shareholder distributions? - Management indicated that decisions on shareholder distributions are currently TBD, focusing on growth opportunities first [62] Question: Will more discrete contract project work be needed for OPG to meet 2022 outlook? - Management stated that both speculative work and discrete opportunities are necessary for robust activity in OPG [65]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-10945 OCEANEERING INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporati ...

Financial Data and Key Metrics Changes - For Q3 2021, consolidated EBITDA was $50.3 million, a decrease from Q2 2021 but within the guidance range [9] - Cash flow from operations was $36.5 million, and free cash flow was $24 million [10] - The cash balance at the end of Q3 2021 was $448 million, slightly down due to repurchases of senior notes [10][27] - The company initiated 2022 EBITDA guidance in the range of $225 million to $275 million, representing a 16% increase from the 2021 adjusted EBITDA midpoint of $215 million [7] Business Segment Performance Changes - Subsea Robotics (SSR) revenue increased slightly, but operating income declined due to lower margins in ROV services [12] - Manufactured Products revenue was $75.4 million, with a backlog of $334 million, improving from $315 million in Q2 2021 [14] - Offshore Projects Group (OPG) revenue declined by 11%, but operating income margin improved from 7% to 8% [15] - Aerospace and Defense Technologies (ADTech) operating income declined by 15%, with an operating income margin of 16% [17] Market Data and Key Metrics Changes - The Gulf of Mexico operations were impacted by Hurricane Ida, affecting overall activity levels [11] - The company maintained a 58% drill support market share with ROV contracts on 77 of the 133 floating rigs [13] - The book-to-bill ratio was 1.3 for the first nine months of 2021, indicating a healthy order intake [14] Company Strategy and Industry Competition - The company is focusing on growth in energy transition markets, including offshore wind, while maintaining a balanced approach to capital allocation [28][36] - There is an emphasis on reducing carbon footprints in oil and gas operations, with investments in autonomous vehicles and new technologies [36] - The company expects to generate positive free cash flow similar to 2021 levels while addressing its 2024 debt maturity [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the energy services industry and anticipated growth in offshore oil and gas markets [28] - The company expects improved operating performance across segments in 2022, particularly in Subsea Robotics and offshore projects [29] - Management highlighted the importance of addressing inflation and supply chain issues while attracting and retaining talent [30] Other Important Information - Unallocated expenses for Q4 2021 are expected to be in the mid-$30 million range due to increased IT spending [25] - The company is narrowing its adjusted EBITDA guidance for the full year 2021 to a range of $210 million to $220 million [30] Q&A Session Summary Question: What is the outlook for OPG in 2022? - Management noted that improved contracting activity and customer signals are framing the outlook for OPG [33] Question: Where are the best opportunities for growth capital allocation? - Management indicated that 90% of new product development is targeted at non-oil and gas markets, with a focus on carbon reduction technologies [36] Question: What are the promising offshore deepwater basins for growth? - Management highlighted South America, particularly Brazil and Guyana, as strong growth areas, along with sustained activity in Norway and West Africa [40] Question: What is the company's approach to returning cash via dividends or buybacks? - Management stated that while growth opportunities are prioritized, they remain open to discussing dividends or buybacks in the future [42] Question: How is the company managing staffing challenges for ROVs? - Management confirmed that they have been effective in rehiring technicians and leveraging their global footprint to address staffing needs [45]

[PART I – FINANCIAL INFORMATION](index=4&type=section&id=Part%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section provides Oceaneering International, Inc.'s unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Oceaneering International, Inc., detailing balance sheets, operations, cash flows, equity, and notes on key accounting policies and segment performance [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This table presents the company's consolidated financial position, detailing assets, liabilities, and equity as of June 30, 2021, and December 31, 2020 | (in thousands) | Jun 30, 2021 | Dec 31, 2020 | Change | % Change | | :--------------------------- | :----------- | :----------- | :----- | :------- | | **ASSETS** | | | | | | Cash and cash equivalents | $456,087 | $452,016 | $4,071 | 0.90% | | Accounts receivable, net | 334,122 | 296,214 | 37,908 | 12.80% | | Contract assets, net | 247,162 | 221,997 | 25,165 | 11.34% | | Inventory, net | 129,133 | 141,241 | (12,108) | -8.57% | | Total Current Assets | 1,228,876 | 1,170,263 | 58,613 | 5.01% | | Net property and equipment | 537,909 | 591,107 | (53,198) | -9.00% | | Total Assets | $2,061,549 | $2,045,842 | $15,707 | 0.77% | | **LIABILITIES AND EQUITY** | | | | | | Accounts payable | $106,778 | $94,207 | $12,571 | 13.34% | | Accrued liabilities | 310,757 | 292,863 | 17,894 | 6.11% | | Contract liabilities | 61,988 | 50,046 | 11,942 | 23.86% | | Total current liabilities | 479,523 | 437,116 | 42,407 | 9.70% | | Long-term debt | 773,423 | 805,251 | (31,828) | -3.95% | | Total equity | 562,732 | 558,157 | 4,575 | 0.82% | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This table summarizes the company's revenues, gross margins, operating income (loss), and net income (loss) for the three and six months ended June 30, 2021 and 2020 | (in thousands, except per share data) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change (YoY) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Revenue | $498,199 | $427,216 | $70,983 | $935,752 | $963,884 | $(28,132) | | Gross margin | 68,397 | 42,537 | 25,860 | 125,054 | 89,289 | 35,765 | | Income (loss) from operations | 22,819 | (5,182) | 28,001 | 36,602 | (385,939) | 422,541 | | Net Income (Loss) | $6,241 | $(24,788) | $31,029 | $(3,124) | $(392,386) | $389,262 | | Basic Earnings (loss) per share | $0.06 | $(0.25) | $0.31 | $(0.03) | $(3.96) | $3.93 | | Diluted Earnings (loss) per share | $0.06 | $(0.25) | $0.31 | $(0.03) | $(3.96) | $3.93 | - The company reported a significant turnaround in profitability for the three months ended June 30, 2021, with **net income of $6.241 million** compared to a **net loss of $24.788 million** in the prior year period. For the six months ended June 30, 2021, the **net loss substantially narrowed to $3.124 million from $392.386 million** in the prior year, primarily due to the absence of large impairment charges seen in 2020[14](index=14&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This table presents the company's net income (loss) and other comprehensive income (loss) components for the three and six months ended June 30, 2021 and 2020 | (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Change (YoY) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change (YoY) | | :----------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Net income (loss) | $6,241 | $(24,788) | $31,029 | $(3,124) | $(392,386) | $389,262 | | Foreign currency translation adjustments | 6,468 | 10,629 | (4,161) | 3,612 | (59,696) | 63,308 | | Change in unrealized gains for available-for-sale debt securities | (369) | — | (369) | 685 | — | 685 | | Total other comprehensive income (loss) | 6,099 | 10,629 | (4,530) | 4,297 | (59,696) | 63,993 | | Comprehensive income (loss) | $12,340 | $(14,159) | $26,499 | $1,173 | $(452,082) | $453,255 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This table details the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2021 and 2020 | (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | Change (YoY) | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net Cash Provided by (Used in) Operating Activities | $48,823 | $5,368 | $43,455 | | Net Cash Provided by (Used in) Investing Activities | $(12,157) | $(35,317) | $23,160 | | Net Cash Provided by (Used in) Financing Activities | $(32,284) | $(1,947) | $(30,337) | | Net Increase (Decrease) in Cash and Cash Equivalents | $4,071 | $(40,146) | $44,217 | - **Net cash provided by operating activities significantly increased to $48.8 million** for the six months ended June 30, 2021, **from $5.4 million** in the prior year, reflecting improved operational performance. Cash used in financing activities increased due to the **repurchase of $30.5 million of 2024 Senior Notes**[19](index=19&type=chunk) [Consolidated Statements of Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Equity) This table outlines changes in the company's equity, including common stock, retained earnings, and accumulated other comprehensive income (loss), from December 31, 2020, to June 30, 2021 | (in thousands) | Balance, Dec 31, 2020 | Net Income (Loss) (Q1 2021) | Other Comprehensive Income (Loss) (Q1 2021) | Restricted Stock Unit Activity (Q1 2021) | Restricted Stock Activity (Q1 2021) | Balance, Mar 31, 2021 | Net Income (Loss) (Q2 2021) | Other Comprehensive Income (Loss) (Q2 2021) | Restricted Stock Unit Activity (Q2 2021) | Balance, Jun 30, 2021 | | :----------------------------- | :-------------------- | :-------------------------- | :------------------------------------------ | :--------------------------------------- | :----------------------------------- | :-------------------- | :-------------------------- | :------------------------------------------ | :--------------------------------------- | :-------------------- | | Common Stock | $27,709 | — | — | — | — | $27,709 | — | — | — | $27,709 | | Additional Paid-in Capital | $192,492 | — | — | $(13,642) | $(10,439) | $168,411 | — | — | $(409) | $168,002 | | Treasury Stock | $(660,021) | — | — | $14,997 | $10,439 | $(634,585) | — | — | $2,456 | $(632,129) | | Retained Earnings | $1,351,220 | $(9,365) | — | — | — | $1,341,855 | $6,241 | — | — | $1,348,096 | | Accumulated Other Comprehensive Income (Loss) | $(359,306) | — | $(1,802) | — | — | $(361,108) | — | $6,099 | — | $(355,009) | | Oceaneering Shareholders' Equity | $552,094 | $(9,365) | $(1,802) | $1,355 | — | $542,282 | $6,241 | $6,099 | $2,047 | $556,669 | | Noncontrolling Interest | $6,063 | — | — | — | — | $6,063 | — | — | — | $6,063 | | Total Equity | $558,157 | $(9,365) | $(1,802) | $1,355 | — | $548,345 | $6,241 | $6,099 | $2,047 | $562,732 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, revenue, impairments, income taxes, debt, and business segment information [1. SUMMARY OF MAJOR ACCOUNTING POLICIES](index=9&type=section&id=1.%20SUMMARY%20OF%20MAJOR%20ACCOUNTING%20POLICIES) This note outlines key accounting policies, including financial statement presentation, consolidation, estimates, prior period recasting, cash, credit loss allowances, inventory, and long-lived asset accounting - The company recast certain prior period amounts to conform to a **new organizational structure implemented in Q3 2020**, which realigned operating segments for greater cost efficiencies and synergies[26](index=26&type=chunk)[120](index=120&type=chunk) - As of June 30, 2021, the **allowance for credit losses was $1.6 million** for accounts receivable and **$0.9 million for other receivables**, with **$0.7 million and $3.1 million in accounts receivable written off** during the three and six months ended June 30, 2021, respectively[31](index=31&type=chunk) - **No write-downs or write-offs of inventory were recorded** in the three- and six-month periods ended June 30, 2021 and 2020. **No impairment indicators were identified** for property and equipment, long-lived intangible assets, and right-of-use operating lease assets for the three- and six-month periods ended June 30, 2021 or the three-month period ended June 30, 2020[34](index=34&type=chunk)[37](index=37&type=chunk) [2. ACCOUNTING STANDARDS UPDATE](index=12&type=section&id=2.%20ACCOUNTING%20STANDARDS%20UPDATE) This note discusses the adoption of ASU 2019-12 and the evaluation of ASU 2020-04, neither of which had a material impact on the financial statements - The adoption of ASU 2019-12, "Simplifying the Accounting for Income Taxes," on January 1, 2021, **did not have a material impact** on the consolidated financial statements[55](index=55&type=chunk) - The company is evaluating ASU 2020-04, "Reference Rate Reform," which provides temporary expedients for the transition from LIBOR, and **does not expect it to have a material impact** on its consolidated financial statements[56](index=56&type=chunk) [3. REVENUE](index=13&type=section&id=3.%20REVENUE) This note disaggregates revenue by business segment, geographical region, and timing, detailing contract balances and remaining performance obligations Revenue by Business Segment (in thousands) | Business Segment | Three Months Ended Jun 30, 2021 | Three Months Ended Jun 30, 2020 | Six Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2020 | | :------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Subsea Robotics | $141,371 | $119,234 | $260,490 | $259,004 | | Manufactured Products | 79,127 | 100,570 | 165,952 | 267,104 | | Offshore Projects Group | 107,951 | 73,840 | 197,185 | 148,094 | | Integrity Management & Digital Solutions | 64,070 | 53,969 | 118,118 | 118,698 | | Aerospace and Defense Technologies | 105,680 | 79,603 | 194,007 | 170,984 | | **Total Revenue** | **$498,199** | **$427,216** | **$935,752** | **$963,884** | Contract Balances (in thousands) | (in thousands) | Jun 30, 2021 | Jun 30, 2020 | | :----------------------------- | :----------- | :----------- | | Total contract assets, end of period | $247,162 | $223,405 | | Total contract liabilities, end of period | $61,988 | $51,763 | - As of June 30, 2021, the **aggregate amount of transaction price allocated to remaining performance obligations was $205 million**, with **$132 million expected to be recognized in the next 12 months and $73 million within the next 24 months**[63](index=63&type=chunk) - Costs to fulfill a contract (primarily mobilization costs) had a **closing balance of $8.6 million** as of June 30, 2021, with **amortization expense of $1.3 million for the three months and $2.3 million for the six months** ended June 30, 2021[70](index=70&type=chunk) [4. IMPAIRMENTS](index=15&type=section&id=4.%20IMPAIRMENTS) This note details goodwill and long-lived asset impairment assessments, noting no impairments in 2021 but significant charges in Q1 2020 due to market conditions - **No goodwill impairments were recorded** in the three- and six-month periods ended June 30, 2021, or the three-month period ended June 30, 2020[71](index=71&type=chunk) Goodwill Impairment (Three Months Ended March 31, 2020, as recast) | Segment/Reporting Unit | Goodwill Impairment (in thousands) | | :----------------------- | :--------------------------------- | | Subsea Robotics | $102,118 | | Manufactured Products | 11,388 | | Offshore Projects Group | 66,285 | | Integrity Management & Digital Solutions | 123,214 | | **Total goodwill impairment** | **$303,005** | - **No impairments of long-lived assets were recorded** in the three- and six-month periods ended June 30, 2021, or the three-month period ended June 30, 2020[76](index=76&type=chunk) Long-lived Asset Impairments (Three Months Ended March 31, 2020, as recast) | Segment/Reporting Unit | Long-lived Asset Impairments (in thousands) | | :----------------------- | :---------------------------------------- | | Manufactured Products | $61,074 | | Offshore Projects Group | 7,522 | | Integrity Management & Digital Solutions | 167 | | **Total long-lived asset impairments** | **$68,763** | [5. INCOME TAXES](index=17&type=section&id=5.%20INCOME%20TAXES) This note explains the income tax provision, effective tax rates, expected CARES Act refunds, and unrecognized tax liabilities, along with open tax years - The company expects to receive **approximately $33 million in combined tax refunds** under the CARES Act, of which **$5.6 million had been received** as of June 30, 2021. The remaining refunds are classified as accounts receivable[82](index=82&type=chunk)[139](index=139&type=chunk) - **Accrued net unrecognized tax liabilities were $12 million** as of June 30, 2021, a **decrease from $15 million** as of December 31, 2020[84](index=84&type=chunk) Earliest Tax Years Open to Examination by Tax Authorities | Jurisdiction | Periods | | :------------- | :------ | | United States | 2014 | | United Kingdom | 2019 | | Norway | 2016 | | Angola | 2013 | | Brazil | 2016 | | Australia | 2015 | [6. SELECTED BALANCE SHEET INFORMATION](index=18&type=section&id=6.%20SELECTED%20BALANCE%20SHEET%20INFORMATION) This note provides detailed breakdowns for inventory, other current assets, and accrued liabilities as of June 30, 2021, and December 31, 2020 | (in thousands) | Jun 30, 2021 | Dec 31, 2020 | | :----------------------------- | :----------- | :----------- | | **Inventory:** | | | | Remotely operated vehicle parts and components | $62,746 | $62,788 | | Other inventory, primarily raw materials | 66,387 | 78,453 | | Total Inventory | $129,133 | $141,241 | | **Other current assets:** | | | | Prepaid expenses | $55,458 | $48,616 | | Angolan bonds | 6,914 | 10,179 | | Total Other current assets | $62,372 | $58,795 | | **Accrued liabilities:** | | | | Payroll and related costs | $131,269 | $135,042 | | Accrued job costs | 59,893 | 47,721 | | Income taxes payable | 42,983 | 35,929 | | Current operating lease liability | 20,695 | 18,798 | | Other | 55,917 | 55,373 | | Total Accrued liabilities | $310,757 | $292,863 | [7. DEBT](index=18&type=section&id=7.%20DEBT) This note details long-term debt, including Senior Notes and the revolving credit facility, highlighting debt repurchases and covenant compliance Long-term Debt (in thousands) | (in thousands) | Jun 30, 2021 | Dec 31, 2020 | | :--------------------------- | :----------- | :----------- | | 4.650% Senior Notes due 2024 | $469,500 | $500,000 | | 6.000% Senior Notes due 2028 | 300,000 | 300,000 | | Interest rate swap settlements | 8,982 | 10,870 | | Unamortized debt issuance costs | (5,059) | (5,619) | | **Long-term debt** | **$773,423** | **$805,251** | - The company **repurchased approximately $31 million in aggregate principal amount of its 4.650% Senior Notes due 2024** in open market transactions during the three months ended June 30, 2021[92](index=92&type=chunk)[189](index=189&type=chunk) - **As of June 30, 2021, the $500 million revolving credit facility was undrawn**, and the company was **in compliance with all covenants**, including a **maximum adjusted total Capitalization Ratio of 55%**[94](index=94&type=chunk)[96](index=96&type=chunk)[186](index=186&type=chunk) [8. COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=8.%20COMMITMENTS%20AND%20CONTINGENCIES) This note addresses legal proceedings, financial instruments, risk concentration, foreign currency transaction losses, and contract delays or suspensions - The company recorded **foreign currency transaction losses of $(1.8) million and $(3.7) million** for the three- and six-month periods ended June 30, 2021, respectively, primarily due to the declining exchange rates of the Angolan kwanza and Brazilian real against the U.S. dollar[105](index=105&type=chunk)[170](index=170&type=chunk) - To mitigate currency exposure in Angola, the company holds Angolan central bank bonds, **valued at $6.9 million** as of June 30, 2021. A portion of these bonds, **totaling $4.5 million, was sold** in the six-month period ended June 30, 2021, recognizing a **gain of $0.5 million**[107](index=107&type=chunk)[108](index=108&type=chunk)[198](index=198&type=chunk) - As of June 30, 2021, the company had **$51 million in outstanding accounts receivable and contract assets for delayed projects** and **$73 million in contract assets for a suspended contract** in its Manufactured Products segment, which are believed to be realizable[110](index=110&type=chunk)[111](index=111&type=chunk) [9. EARNINGS (LOSS) PER SHARE, SHARE-BASED COMPENSATION AND SHARE REPURCHASE PLAN](index=23&type=section&id=9.%20EARNINGS%20(LOSS)%20PER%20SHARE,%20SHARE-BASED%20COMPENSATION%20AND%20SHARE%20REPURCHASE%20PLAN) This note covers EPS calculations, share-based compensation, and the share repurchase plan, noting anti-dilutive effects and unrecognized compensation costs - For periods with a net loss, the effect of outstanding restricted stock units is **anti-dilutive**, resulting in basic and diluted weighted-average shares outstanding being the same[112](index=112&type=chunk) - As of June 30, 2021, 2,493,742 shares of restricted stock and restricted stock units were outstanding, with an **estimated $17 million in unrecognized share-based compensation cost**[115](index=115&type=chunk)[116](index=116&type=chunk) - The Board approved a share repurchase program for **up to 10 million shares** in December 2014, but **no shares have been repurchased under this plan since 2015**[117](index=117&type=chunk)[118](index=118&type=chunk)[190](index=190&type=chunk) [10. BUSINESS SEGMENT INFORMATION](index=24&type=section&id=10.%20BUSINESS%20SEGMENT%20INFORMATION) This note details the company's five reportable segments: Subsea Robotics, Manufactured Products, Offshore Projects Group (OPG), Integrity Management & Digital Solutions (IMDS), and Aerospace and Defense Technologies (ADTech), following a Q3 2020 organizational realignment. It provides revenue, operating income (loss), and depreciation and amortization for each segment, highlighting the significant improvement in operating income across most energy segments compared to the prior year, which included substantial impairment charges - The company's organizational structure was **realigned in Q3 2020 into five reportable segments**: Subsea Robotics, Manufactured Products, Offshore Projects Group (OPG), Integrity Management & Digital Solutions (IMDS), and Aerospace and Defense Technologies (ADTech)[120](index=120&type=chunk)[133](index=133&type=chunk) Revenue and Operating Income (Loss) by Business Segment (in thousands) | Segment | Q2 2021 Revenue | Q2 2020 Revenue | Q2 2021 Op. Income (Loss) | Q2 2020 Op. Income (Loss) | H1 2021 Revenue | H1 2020 Revenue | H1 2021 Op. Income (Loss) | H1 2020 Op. Income (Loss) | | :------------------------------------ | :-------------- | :-------------- | :------------------------ | :------------------------ | :-------------- | :-------------- | :------------------------ | :------------------------ | | Subsea Robotics | $141,371 | $119,234 | $21,710 | $11,662 | $260,490 | $259,004 | $36,329 | $(82,421) | | Manufactured Products | 79,127 | 100,570 | 790 | 3,865 | 165,952 | 267,104 | 3,543 | (62,273) | | Offshore Projects Group | 107,951 | 73,840 | 7,996 | (4,135) | 197,185 | 148,094 | 16,809 | (83,458) | | Integrity Management & Digital Solutions | 64,070 | 53,969 | 4,721 | (1,825) | 118,118 | 118,698 | 7,195 | (123,360) | | Total Energy Services and Products | 392,519 | 347,613 | 35,217 | 9,567 | 741,745 | 792,900 | 63,876 | (351,512) | | Aerospace and Defense Technologies | 105,680 | 79,603 | 19,340 | 13,430 | 194,007 | 170,984 | 36,179 | 26,401 | | Unallocated Expenses | — | — | (31,738) | (28,179) | — | — | (63,453) | (60,828) | | **Total** | **$498,199** | **$427,216** | **$22,819** | **$(5,182)** | **$935,752** | **$963,884** | **$36,602** | **$(385,939)** | Depreciation and Amortization, including Goodwill Impairment (in thousands) | Item | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Depreciation expense | $35,000 | $38,000 | $70,000 | $81,000 | | Amortization expense (intangible assets) | 800 | 800 | 2,100 | 3,400 | | Goodwill impairment expense | — | — | — | 303,000 | | Long-lived asset write-offs | — | — | — | 7,300 | | **Total** | **$35,225** | **$38,698** | **$71,696** | **$394,894** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial performance, condition, and future outlook, including segment realignment, Q2 and H1 2021 results, guidance, liquidity, and critical accounting policies [Realignment of Reportable Segments](index=29&type=section&id=Realignment%20of%20Reportable%20Segments) This section explains the Q3 2020 organizational restructuring into five new reportable segments for improved cost efficiencies and synergies - In the third quarter of 2020, the company **changed its organizational structure to realign businesses for greater cost efficiencies and synergies, resulting in five new reportable segments**: Subsea Robotics, Manufactured Products, Offshore Projects Group (OPG), Integrity Management & Digital Solutions (IMDS), and Aerospace and Defense Technologies (ADTech)[133](index=133&type=chunk) [Overview of our Results and Guidance](index=29&type=section&id=Overview%20of%20our%20Results%20and%20Guidance) This section provides an overview of Q2 and H1 2021 operating results, cash flow, and guidance for Q3 2021 and full-year capital expenditures Diluted Earnings (Loss) Per Share | Period | 2021 | 2020 | Change | | :----------------------------- | :--- | :--- | :----- | | Three Months Ended June 30 | $0.06 | $(0.25) | $0.31 | | Six Months Ended June 30 | $(0.03) | $(3.96) | $3.93 | - **Operating results for Q2 2021 improved sequentially from Q1 2021**, driven by seasonal growth in energy businesses, operating discipline, and efficiency gains, with **all operating segments contributing operating income**[135](index=135&type=chunk)[136](index=136&type=chunk) - **Cash increased by $4.1 million** in the first half of 2021, primarily from **$49 million in operating cash flow**, despite **repurchasing $31 million of 2024 Senior Notes and $23 million in capital expenditures**[137](index=137&type=chunk) - For Q3 2021, **consolidated results are expected to decline on moderately lower revenue**, with flat activity/profitability in Subsea Robotics, Manufactured Products, and IMDS, lower activity/flat profitability in OPG, and lower activity/profitability in ADTech. **Unallocated Expenses are projected to be in the mid-$30 million range**[138](index=138&type=chunk) - **Full-year 2021 capital expenditures guidance is affirmed at $50 million to $70 million**, **comprising $35 million to $40 million for maintenance and $15 million to $30 million for growth**[141](index=141&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's consolidated and segment-specific revenue and profitability for the three and six months ended June 30, 2021 and 2020 [Consolidated Revenue and Profitability](index=31&type=section&id=Consolidated%20Revenue%20and%20Profitability) This section analyzes the company's consolidated revenue, gross margin, and operating income (loss) for Q2 and H1 2021 compared to prior periods Consolidated Revenue and Profitability (in thousands) | (dollars in thousands) | Jun 30, 2021 (Q2) | Jun 30, 2020 (Q2) | Mar 31, 2021 (Q1) | Jun 30, 2021 (H1) | Jun 30, 2020 (H1) | | :--------------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Revenue | $498,199 | $427,216 | $437,553 | $935,752 | $963,884 | | Gross Margin | 68,397 | 42,537 | 56,657 | 125,054 | 89,289 | | Gross Margin % | 14 % | 10 % | 13 % | 13 % | 9 % | | Operating Income (Loss) | 22,819 | (5,182) | 13,783 | 36,602 | (385,939) | | Operating Income (Loss) % | 5 % | (1)% | 3 % | 4 % | (40)% | - The company reported **operating income of $22.8 million** for Q2 2021, a significant improvement from an **operating loss of $5.2 million** in Q2 2020. For H1 2021, **operating income was $36.6 million**, a substantial recovery from an **operating loss of $385.9 million** in H1 2020, which **included $391.4 million in charges**[144](index=144&type=chunk)[146](index=146&type=chunk) [Energy Services and Products](index=32&type=section&id=Energy%20Services%20and%20Products) This section details the performance of the Subsea Robotics, Manufactured Products, Offshore Projects Group, and Integrity Management & Digital Solutions segments Energy Services and Products Segment Performance (in thousands) | Segment | Q2 2021 Revenue | Q2 2020 Revenue | Q2 2021 Op. Income (Loss) | Q2 2020 Op. Income (Loss) | H1 2021 Revenue | H1 2020 Revenue | H1 2021 Op. Income (Loss) | H1 2020 Op. Income (Loss) | | :------------------------------------ | :-------------- | :-------------- | :------------------------ | :------------------------ | :-------------- | :-------------- | :------------------------ | :------------------------ | | Subsea Robotics | $141,371 | $119,234 | $21,710 | $11,662 | $260,490 | $259,004 | $36,329 | $(82,421) | | Manufactured Products | 79,127 | 100,570 | 790 | 3,865 | 165,952 | 267,104 | 3,543 | (62,273) | | Offshore Projects Group | 107,951 | 73,840 | 7,996 | (4,135) | 197,185 | 148,094 | 16,809 | (83,458) | | Integrity Management & Digital Solutions | 64,070 | 53,969 | 4,721 | (1,825) | 118,118 | 118,698 | 7,195 | (123,360) | | **Total Energy Services and Products** | **$392,519** | **$347,613** | **$35,217** | **$9,567** | **$741,745** | **$792,900** | **$63,876** | **$(351,512)** | - Subsea Robotics operating income increased in Q2 2021 compared to Q1 2021 and Q2 2020, driven by higher seasonal activity, increased days on hire, and higher average revenue per day. **ROV utilization was 62% in Q2 2021, up from 59% in Q2 2020**[154](index=154&type=chunk) - **Manufactured Products backlog was $315 million as of June 30, 2021, up from $266 million** at December 31, 2020, primarily due to increased bookings in energy-related operations. The **book-to-bill ratio was 0.8** for the trailing 12 months[157](index=157&type=chunk) - Offshore Projects Group (OPG) **operating results improved significantly** in Q2 2021 and H1 2021 compared to the prior year periods, primarily due to the start-up of the Angola riserless light well intervention project and higher vessel utilization[159](index=159&type=chunk) - Integrity Management & Digital Solutions (IMDS) **operating results improved** in Q2 2021 and H1 2021, driven by higher seasonal activity, new multi-year projects, and efficiency improvements[161](index=161&type=chunk) [Aerospace and Defense Technologies](index=36&type=section&id=Aerospace%20and%20Defense%20Technologies) This section details the performance of the Aerospace and Defense Technologies (ADTech) segment, including revenue and operating income ADTech Segment Performance (in thousands) | (dollars in thousands) | Jun 30, 2021 (Q2) | Jun 30, 2020 (Q2) | Mar 31, 2021 (Q1) | Jun 30, 2021 (H1) | Jun 30, 2020 (H1) | | :--------------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Revenue | $105,680 | $79,603 | $88,327 | $194,007 | $170,984 | | Gross Margin | 24,603 | 17,313 | 22,110 | 46,713 | 34,798 | | Operating Income (Loss) | 19,340 | 13,430 | 16,839 | 36,179 | 26,401 | | Operating Income (Loss) % | 18 % | 17 % | 19 % | 19 % | 15 % | - **ADTech segment operating results increased** in Q2 2021 compared to Q1 2021 and Q2 2020, driven by higher revenue from project mix, favorable rate-based adjustments, and increased activity in defense subsea technologies and space systems[165](index=165&type=chunk) [Unallocated Expenses](index=37&type=section&id=Unallocated%20Expenses) This section discusses unallocated corporate expenses, including gross margin and operating expenses, and their changes compared to prior periods Unallocated Expenses (in thousands) | (dollars in thousands) | Jun 30, 2021 (Q2) | Jun 30, 2020 (Q2) | Mar 31, 2021 (Q1) | Jun 30, 2021 (H1) | Jun 30, 2020 (H1) | | :--------------------- | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Gross margin expenses | $(21,392) | $(18,404) | $(22,855) | $(44,247) | $(38,446) | | Operating expenses | $(31,738) | $(28,179) | $(31,715) | $(63,453) | $(60,828) | - **Unallocated Expenses for the three- and six-month periods ended June 30, 2021, were higher** compared to the corresponding prior year periods, primarily due to increased accruals for incentive-based compensation[167](index=167&type=chunk) [Other (Financial Statement Items Below Operating Income)](index=37&type=section&id=Other%20(Financial%20Statement%20Items%20Below%20Operating%20Income)) This section details financial statement items below operating income, including interest income/expense, equity in affiliates, and foreign currency transaction impacts Other Financial Statement Items (in thousands) | (in thousands) | Jun 30, 2021 (Q2) | Jun 30, 2020 (Q2) | Mar 31, 2021 (Q1) | Jun 30, 2021 (H1) | Jun 30, 2020 (H1) | | :------------------------------------ | :---------------- | :---------------- | :---------------- | :---------------- | :---------------- | | Interest income | $683 | $511 | $519 | $1,202 | $1,788 | | Interest expense, net | (9,729) | (11,611) | (10,407) | (20,136) | (24,073) | | Equity in income (losses) of unconsolidated affiliates | 378 | 674 | 534 | 912 | 1,871 | | Other income (expense), net | (1,955) | (3,660) | (1,453) | (3,408) | (10,788) | | Provision (benefit) for income taxes | 5,955 | 5,520 | 12,341 | 18,296 | (24,755) | - Other income (expense), net, primarily consists of **foreign currency transaction gains and losses, which were $(1.8) million and $(3.7) million** for the three- and six-month periods ended June 30, 2021, respectively, mainly due to the Angolan kwanza and Brazilian real[170](index=170&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's liquidity, capital resources, and cash flow activities from operations, investing, and financing [Overview](index=38&type=section&id=Overview) This section provides an overview of the company's working capital, cash position, and available credit facility, indicating adequate liquidity - As of June 30, 2021, the company had **$749 million in working capital**, including **$456 million in cash and cash equivalents**, and **$500 million available under its undrawn revolving credit facility**, indicating **adequate liquidity**[173](index=173&type=chunk)[174](index=174&type=chunk) Changes in Cash (in thousands) | (in thousands) | Six Months Ended Jun 30, 2021 | Six Months Ended Jun 30, 2020 | | :------------------------------------ | :---------------------------- | :---------------------------- | | Net Cash Provided by Operating Activities | $48,823 | $5,368 | | Net Cash Used in Investing Activities | (12,157) | (35,317) | | Net Cash Used in Financing Activities | (32,284) | (1,947) | | Net Increase (Decrease) in Cash and Cash Equivalents | $4,071 | $(40,146) | [Operating activities](index=38&type=section&id=Operating%20activities) This section details the net cash provided by operating activities, highlighting improvements driven by operational performance and working capital management - **Net cash provided by operating activities increased to $48.8 million** for the six months ended June 30, 2021, **from $5.4 million** in the prior year, driven by improved operating performance and timing of vendor payments and customer prepayments[176](index=176&type=chunk)[177](index=177&type=chunk) [Investing activities](index=39&type=section&id=Investing%20activities) This section discusses cash flows from investing activities, primarily focusing on capital expenditures and their projected full-year guidance - **Capital expenditures decreased to $23 million** in the first six months of 2021 **from $38 million** in the prior year, reflecting cost reduction efforts. **Full-year 2021 capital expenditures are projected to be $50 million to $70 million**[178](index=178&type=chunk) [Financing activities](index=39&type=section&id=Financing%20activities) This section details cash flows from financing activities, including debt repurchases and the status of the revolving credit facility - **Cash used in financing activities increased to $32 million** for the six months ended June 30, 2021, primarily due to the **repurchase of $31 million of 2024 Senior Notes**[180](index=180&type=chunk) - As of June 30, 2021, **long-term debt outstanding was $770 million**, and the **$500 million revolving credit facility remained undrawn**, with maturity extended to January 25, 2023 (**reducing to $450 million after October 25, 2021**)[181](index=181&type=chunk)[183](index=183&type=chunk) [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements or guaranteed debt not reflected on the balance sheets - The company has not guaranteed any debt not reflected on its Consolidated Balance Sheets and **does not have any off-balance sheet arrangements** as of June 30, 2021[191](index=191&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section states that there have been no material changes to the company's critical accounting policies and estimates since the last annual report - There have been **no material changes to the judgments, assumptions, and estimates underlying the company's critical accounting policies and estimates** as of June 30, 2021, compared to those disclosed in the annual report on Form 10-K for the year ended December 31, 2020[192](index=192&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily from interest rate changes and foreign exchange rate fluctuations, and mitigation strategies - The company is exposed to market risks from interest rate changes and foreign exchange rates, but these are **not considered material except for exposure in Angola**. **No market-risk-sensitive instruments are used for speculative purposes**[194](index=194&type=chunk) - **Foreign currency translation adjustments to equity were $6.5 million (positive) for Q2 2021 and $3.6 million (positive) for H1 2021**, reflecting a weakening U.S. dollar against various foreign currencies[195](index=195&type=chunk) - **Foreign currency transaction losses were $(1.8) million for Q2 2021 and $(3.7) million for H1 2021**, primarily due to the remeasurement of Angolan kwanza cash balances and Brazilian real-denominated liabilities[196](index=196&type=chunk) - To mitigate Angolan kwanza currency exposure, the company holds Angolan central bank bonds, with a **fair market value of $6.9 million** as of June 30, 2021. **Unrealized gains related to these bonds, net of tax, were $0.7 million**[198](index=198&type=chunk)[200](index=200&type=chunk) [Item 4. Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that the company's disclosure controls and procedures were effective as of June 30, 2021, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely. No material changes to internal control over financial reporting occurred during the quarter - The principal executive officer and principal financial officer concluded that the company's **disclosure controls and procedures were effective** as of June 30, 2021[201](index=201&type=chunk) - There has been **no material change in the company's internal control over financial reporting** during the three months ended June 30, 2021[202](index=202&type=chunk) [PART II – OTHER INFORMATION](index=45&type=section&id=Part%20II%20%E2%80%93%20OTHER%20INFORMATION) This section includes information on legal proceedings and a list of exhibits filed with the Form 10-Q [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 8, "Commitments and Contingencies," for information regarding legal proceedings. The company is involved in various litigation and claims in the ordinary course of business, but does not expect them to have a material adverse effect on its financial condition, results of operations, or cash flows - Information regarding legal proceedings is incorporated by reference from Note 8, "Commitments and Contingencies," which states that ultimate liability from these matters is **not expected to have a material adverse effect** on the company's consolidated financial condition, results of operations, or cash flows[101](index=101&type=chunk)[205](index=205&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL interactive data files - The exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, certifications from principal executive and financial officers (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[206](index=206&type=chunk)

Financial Data and Key Metrics Changes - Oceaneering reported a positive net income and solid financial performance for Q2 2021, with a sequential increase in activity as four out of five operating segments delivered an average revenue increase of over 19% [7] - Adjusted EBITDA for the quarter was $60.6 million, exceeding consensus estimates, and the company raised its EBITDA guidance range for 2021 to $200 million to $225 million [8][11][45] - Cash from operating activities was $50.5 million, with free cash flow generation of $37.9 million after capital expenditures of $12.6 million [12] Business Line Data and Key Metrics Changes - Subsea Robotics (SSR) segment saw adjusted operating income improve with nearly 20% higher revenue, maintaining an adjusted EBITDA margin of 31% [15] - The Offshore Projects Group (OPG) experienced a decline in adjusted operating income margin from 10% in Q1 2021 to 7% in Q2 2021, despite increased revenue due to unplanned downtime [22][23] - Integrity Management and Digital Solutions (IMDS) reported a 19% increase in revenue, with adjusted operating income margin rising to 7% from 5% in the previous quarter [24] Market Data and Key Metrics Changes - The company noted a return of confidence in the energy services industry, particularly for companies assisting with carbon reduction goals, and an expected rebound in mobility solutions and government businesses [9][46] - ROV days on hire increased to 14,005 in Q2 from 11,887 in Q1, with fleet utilization rising to 62% from 53% [17][18] Company Strategy and Development Direction - Oceaneering's strategy focuses on generating positive free cash flow, retaining talent, addressing debt maturity, and leveraging technologies into new markets [47] - The company anticipates continued growth in the energy services sector, driven by supportive commodity prices and increased demand for carbon reduction solutions [8][46] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the gradual increase in deepwater activity and contract renewals, indicating a shift towards longer contracts [50] - The company is monitoring inflation and supply chain issues but believes its contracts are well insulated from significant impacts [52][54] Other Important Information - Oceaneering's cash position increased by $13.3 million, resulting in a cash balance of $456 million at the end of Q2, with no borrowings against its $500 million revolving credit facility [13][43] - The company expects free cash flow in 2021 to exceed that generated in 2020, and it is well-positioned to address the maturity of its 2024 senior notes [44][45] Q&A Session Summary Question: Visibility for deepwater activity going into 2022 - Management noted a gradual increase in activity with longer contracts being sought, but no immediate spikes in rig counts [50] Question: Coping with inflation and supply chain issues - Management indicated that ADTech work is insulated from many changes, but labor costs may rise, which will be communicated to customers [52][54] Question: CapEx budget for next year - Management highlighted the importance of monitoring ROV upgrades and potential new contracts, indicating that growth CapEx may increase but should remain a percentage of revenue [60][62] Question: Target leverage ratio and capital allocation priorities - Management expressed a preference for a lower leverage ratio while balancing growth CapEx and maintaining financial flexibility [63][67] Question: Drivers for high and low ends of EBITDA guidance - The primary drivers include the level of IMR activity and seasonal trends in both Subsea Robotics and OPG [72] Question: Market adoption of new technologies - Management discussed the demand for Isurus systems in shallow water renewables work and the potential for retrofitting existing systems to enhance efficiency [74][76]