Oceaneering International(OII) - 2022 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial information, including financial statements, management's discussion, market risk, and controls Item 1. Financial Statements 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 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] - Cash and cash equivalents decreased significantly from $538,114 thousand to $368,412 thousand[9] Consolidated Statements of Operations 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] - 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] Consolidated Statements of Comprehensive Income (Loss) 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] Consolidated Statements of Cash Flows 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] - Cash and cash equivalents at the end of the period decreased to $368,412 thousand from $456,087 thousand year-over-year[16] Consolidated Statements of Equity 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] - Accumulated other comprehensive loss increased from $(366,458) thousand to $(388,254) thousand, reflecting negative other comprehensive income (loss) during the period[19] Notes to Consolidated Financial Statements 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 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] - 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][28] - 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][42][44] 2. Accounting Standards Update 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] - No material impact on consolidated financial statements is expected from the ASU adoption[54] 3. Revenue 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] 4. Income Taxes 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] - 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] - 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] 5. Selected Balance Sheet Information 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] - 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] 6. Debt 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][82] - The company was in compliance with all financial covenants of the Revolving Credit Agreement as of June 30, 2022[83] 7. Commitments and Contingencies 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] - 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] - 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][158][159] 8. Earnings (Loss) Per Share, Share-Based Compensation and Share Repurchase Plan 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] - 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][99] - 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][152] 9. Business Segment Information 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][103] 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 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 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] - Subsea Robotics and OPG segments achieved some of their highest revenue and operating income levels since early 2018 due to increased offshore activity[114] - 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] Results of Operations 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] - 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][128] - 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] Liquidity and Capital Resources 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] | (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] 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, 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] - 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] - 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] Item 4. Controls and Procedures 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] - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2022[162] PART II – OTHER INFORMATION 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 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] Item 6. Exhibits 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] - Certifications by the principal executive and financial officers (Rule 13a-14(a)/15d-14(a) and Section 1350) are included[166] 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]