Oceaneering International(OII) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION 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 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 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 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] Consolidated Statements of Comprehensive Income (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 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] Consolidated Statements of Equity 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 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 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][120] - 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] - 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][37] 2. ACCOUNTING STANDARDS UPDATE 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] - 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] 3. REVENUE 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] - 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] 4. IMPAIRMENTS 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] 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] 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 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][139] - Accrued net unrecognized tax liabilities were $12 million as of June 30, 2021, a decrease from $15 million as of December 31, 2020[84] 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 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 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][189] - 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][96][186] 8. COMMITMENTS AND CONTINGENCIES 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][170] - 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][108][198] - 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][111] 9. EARNINGS (LOSS) PER SHARE, SHARE-BASED COMPENSATION AND SHARE REPURCHASE PLAN 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] - 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][116] - 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][118][190] 10. BUSINESS SEGMENT INFORMATION 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][133] 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 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 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] Overview of our Results and Guidance 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][136] - 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] - 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] - 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] Results of Operations 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 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][146] Energy Services and Products 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] - 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] - 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] - 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] Aerospace and Defense Technologies 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] Unallocated Expenses 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] Other (Financial Statement Items Below Operating Income) 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] Liquidity and Capital Resources This section assesses the company's liquidity, capital resources, and cash flow activities from operations, investing, and financing 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][174] 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 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][177] Investing activities 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] Financing activities 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] - 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][183] Off-Balance Sheet Arrangements 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] Critical Accounting Policies and Estimates 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] - 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][200] Item 4. Controls and Procedures 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] - There has been no material change in the company's internal control over financial reporting during the three months ended June 30, 2021[202] PART II – OTHER INFORMATION This section includes information on legal proceedings and a list of exhibits filed with the Form 10-Q Item 1. Legal Proceedings 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][205] Item 6. Exhibits 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]