Oceaneering International(OII) - 2023 Q4 - Annual Report

Part I Business Oceaneering is a global technology company providing engineered services and robotic solutions across offshore energy, defense, and other industries - Oceaneering is a global technology company operating through five segments: Subsea Robotics, Manufactured Products, Offshore Projects Group, Integrity Management & Digital Solutions, and Aerospace and Defense Technologies[15][16] - Foreign operations generated approximately $1.4 billion, representing 58% of total revenue for 2023[15] - The company leads in underwater services, operating the world's largest fleet of 250 work-class ROVs and holding an estimated 61% market share of contracted floating drilling rigs as of year-end 2023[15][28] - Strategic focus includes developing technologies for cleaner hydrocarbon production and expanding into energy transition markets such as offshore wind, hydrogen, and carbon capture[17][26] Revenue by Business Segment (2021-2023) | Business Segment | 2023 Revenue (USD thousands) | 2022 Revenue (USD thousands) | 2021 Revenue (USD thousands) | | :--- | :--- | :--- | :--- | | Subsea Robotics | $752,521 | $621,921 | $538,515 | | Manufactured Products | $493,692 | $382,361 | $344,251 | | Offshore Projects Group | $546,366 | $489,317 | $378,121 | | Integrity Management & Digital Solutions | $255,282 | $229,884 | $241,393 | | Aerospace and Defense Technologies | $376,845 | $342,601 | $366,995 | Consolidated Backlog (as of Dec 31) | Segment | 2023 Backlog (in millions USD) | 2022 Backlog (in millions USD) | | :--- | :--- | :--- | | Subsea Robotics | $782 | $771 | | Manufactured Products | $622 | $467 | | Offshore Projects Group | $355 | $239 | | Integrity Management & Digital Solutions | $332 | $281 | | Aerospace and Defense Technologies | $236 | $189 | | Total | $2,327 | $1,947 | - The top five customers accounted for 36% of consolidated revenue in 2023, with the U.S. Government being the only customer exceeding 10% of total revenue[44] Risk Factors The company faces significant risks from the cyclical offshore energy market, climate change impacts, international operations, and cybersecurity threats - The business is highly dependent on the historically cyclical offshore oil and gas industry, sensitive to price volatility[96] - Climate change trends pose risks including decreased long-term oil and gas demand, increased competition for lower-emission products, and physical operational risks from extreme weather[98][101][108] - International operations, representing 58% of revenue, are exposed to economic downturns, political instability, currency fluctuations, and complex foreign regulations[102] - The company's backlog does not guarantee future revenue, as projects may be canceled, delayed, or have their scope altered[105][106] - Cybersecurity threats to IT and OT systems pose significant risks, potentially causing operational disruptions, data loss, and financial damage[143][144] - Increasing public and investor scrutiny on ESG matters could adversely affect business operations and access to capital[123] Cybersecurity Oceaneering integrates cybersecurity into its enterprise risk management, adhering to standards like NIST and CMMC, with no material incidents to date - Cybersecurity risk management is integrated into the company's broader framework, aligning with NIST and CMMC standards[160] - The Board's Audit Committee oversees cybersecurity risk, receiving regular updates on threats, initiatives, and compliance[168] - The company engages external cybersecurity consultants for audits, vulnerability assessments, and incident response testing[161][163] - To date, the company has not experienced any cybersecurity incidents that have materially affected or are reasonably likely to materially affect its operations[165] Properties Oceaneering maintains a global network of office, shop, and yard facilities, with key locations in Louisiana, Texas, and the U.K - The company owns or leases numerous worldwide facilities, deemed suitable and adequate for current operations[169] - Key Energy business support locations include Morgan City, Houston, Aberdeen, Stavanger, Rio de Janeiro, and Luanda[170][171] - ADTech segment's primary facilities are in Hanover, Maryland, with additional support offices in Chesapeake and Houston[172] Legal Proceedings The company is involved in various legal matters, with management expecting no material adverse effect on financial condition or results - Information on legal proceedings is incorporated by reference from Note 9—"Commitments and Contingencies" in the Notes to Consolidated Financial Statements[175] Mine Safety Disclosures This item is not applicable to the company - Not applicable[176] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Oceaneering's common stock trades on the NYSE, with no dividends since 2017 and a share repurchase program with no recent activity - The company's common stock is listed on the NYSE under the trading symbol 'OII'[179] - No quarterly dividends have been declared since 2017, with future payments contingent on Board considerations[180] - A share repurchase program for up to 10 million shares was approved in 2014, with 2.0 million shares repurchased for $100 million by December 2015, and no further repurchases since[181] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Oceaneering's 2023 financial performance improved significantly, driven by increased energy segment activity and strong liquidity, with a key debt refinancing completed Overview of Our Results Oceaneering reported a 17% revenue increase to $2.4 billion in 2023, with net income rising to $97.4 million, driven by higher activity across all energy segments Financial Performance Summary (2022 vs. 2023) | Metric | 2023 (USD thousands) | 2022 (USD thousands) | | :--- | :--- | :--- | | Revenue | $2,424,706 | $2,066,084 | | Gross Margin | $398,971 (16%) | $307,377 (15%) | | Operating Income | $181,328 (7%) | $110,863 (5%) | | Net Income | $97,403 | $25,941 | - The increase in 2023 operating and net income was primarily due to higher revenue across all segments from increased energy market activity[197] ROV Market Indicators | Indicator | 2023 | 2022 | | :--- | :--- | :--- | | Average floating rigs under contract | 147 | 137 | | ROV days on hire (in thousands) | 62 | 56 | | ROV utilization | 68% | 62% | Outlook The company anticipates improved 2024 financial results, driven by positive market fundamentals, strong backlog, and expected operating income growth across all segments - 2024 financial results are expected to improve year-over-year, with increased operating income across all segments, led by Subsea Robotics and OPG[201] - Manufactured Products backlog increased by 33% to $622 million as of December 31, 2023, supporting improved 2024 results[203] - ADTech operating results are projected to be slightly higher in 2024 due to increased revenue, with growth anticipated across all three government-focused businesses[205] Results of Operations In 2023, most Energy segments showed improved operating results, with Subsea Robotics and Manufactured Products leading growth, while IMDS saw a slight decrease Subsea Robotics Performance | Metric | 2023 (USD thousands) | 2022 (USD thousands) | | :--- | :--- | :--- | | Revenue | $752,521 | $621,921 | | Operating Income | $174,293 | $118,248 | | ROV Utilization | 68% | 62% | Manufactured Products Performance | Metric | 2023 (USD thousands) | 2022 (USD thousands) | | :--- | :--- | :--- | | Revenue | $493,692 | $382,361 | | Operating Income | $35,551 | $11,692 | | Backlog at year-end | $622,000 | $467,000 | Offshore Projects Group (OPG) Performance | Metric | 2023 (USD thousands) | 2022 (USD thousands) | | :--- | :--- | :--- | | Revenue | $546,366 | $489,317 | | Operating Income | $64,546 | $49,256 | Integrity Management & Digital Solutions (IMDS) Performance | Metric | 2023 (USD thousands) | 2022 (USD thousands) | | :--- | :--- | :--- | | Revenue | $255,282 | $229,884 | | Operating Income | $13,373 | $14,901 | Aerospace and Defense Technologies (ADTech) Performance | Metric | 2023 (USD thousands) | 2022 (USD thousands) | | :--- | :--- | :--- | | Revenue | $376,845 | $342,601 | | Operating Income | $45,003 | $44,168 | Liquidity and Capital Resources As of December 31, 2023, Oceaneering maintained strong liquidity with $462 million in cash and a $215 million undrawn credit facility, and completed a $400 million debt repurchase Cash Flow Summary | (in thousands USD) | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $209,955 | $120,883 | | Net Cash Used in Investing Activities | ($86,353) | ($76,865) | | Net Cash Used in Financing Activities | ($227,297) | ($1,862) | | Net (Decrease) Increase in Cash | ($107,179) | $30,631 | - As of December 31, 2023, the company had $573 million in working capital, including $462 million in cash and $215 million in unused revolving credit commitments[230] - In 2023, the company repurchased the entire $400 million outstanding principal of its 2024 Senior Notes, funded by cash and $200 million from new 2028 Senior Notes[232][239][245] - Capital expenditures are projected to be between $110 million and $130 million in 2024, up from $101 million in 2023[238] Critical Accounting Policies and Estimates Management identifies critical accounting policies including revenue recognition for fixed-price contracts, impairment testing of long-lived assets, and income tax accounting, all requiring significant judgment and estimates - Revenue for significant fixed-price contracts is recognized over time using the cost-to-cost input method, requiring significant estimates of total project costs[257] - The company periodically reviews long-lived assets for impairment using estimates of future performance and market conditions, with no impairments recorded in 2023 or 2022[259][261] - Income tax provisions require significant judgment in interpreting tax laws and assessing the need for valuation allowances against deferred tax assets[262][264] Contractual Obligations As of December 31, 2023, Oceaneering had total contractual obligations of approximately $1.48 billion, primarily comprising long-term debt, purchase obligations, and operating lease liabilities Contractual Obligations as of December 31, 2023 | (dollars in thousands USD) | Total | 2024 | 2025-2026 | 2027-2028 | After 2028 | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term Debt | $500,000 | $— | $— | $500,000 | $— | | Purchase Obligations | $476,142 | $462,677 | $8,579 | $4,438 | $448 | | Operating Lease Liabilities | $459,555 | $97,549 | $158,408 | $59,232 | $144,366 | | Other Long-term Obligations | $40,305 | $116 | $281 | $361 | $39,547 | | TOTAL | $1,476,002 | $560,342 | $167,268 | $564,031 | $184,361 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate changes and foreign currency fluctuations, particularly the Angolan kwanza, which devalued by 40% in 2023 - The company's primary market risks are interest rate changes and foreign currency fluctuations[268] - Significant foreign currency exposure exists with the Angolan kwanza, which devalued by 40% in 2023, with the company holding $8.1 million in kwanza cash at year-end[270][271] - The company's remaining Angolan bonds, used to mitigate currency risk, matured on September 1, 2023, yielding cash proceeds of $6.2 million[272] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the three years ended December 31, 2023, along with the independent auditor's report - The financial statements were audited by Ernst & Young LLP, which issued an unqualified opinion, affirming fair presentation in conformity with U.S. GAAP[325] - The auditor's report identified revenue recognition using the cost-to-cost method as a critical audit matter due to significant estimation requirements for project completion costs[329][331] Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, financial statement line items, including revenue disaggregation, debt, lease liabilities, and segment performance Revenue by Geographic Area (2023) | Geographic Area | 2023 Revenue (USD thousands) | | :--- | :--- | | Total Foreign | $1,394,325 | | United States | $1,030,381 | | Total | $2,424,706 | Long-Term Debt (as of Dec 31, 2023) | (in thousands USD) | Amount | | :--- | :--- | | 6.000% Senior Notes due 2028 | $500,000 | | Unamortized discount and debt issuance costs | ($22,942) | | Long-term Debt | $477,058 | - As of December 31, 2023, the company had total operating lease liabilities of $371.6 million[401] - As of December 31, 2023, the company had a valuation allowance of $664 million against its deferred tax assets, indicating a likelihood that a portion will not be realized[405] - In 2021, the company terminated contracts with China Evergrande Group, resulting in a net loss that included a $49 million reserve on receivables and contract assets[354][440] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure during the reporting period - None[275] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified auditor opinion - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[277] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[281] - Ernst & Young LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[285] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of 2023 - No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended December 31, 2023[292] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[293] Part III Directors, Executive Officers and Corporate Governance This section incorporates information on directors, executive officers, and corporate governance by reference from the company's 2024 proxy statement - Information regarding directors, corporate governance, and the audit committee is incorporated by reference from the company's 2024 proxy statement[293][294] Executive Compensation This section incorporates information regarding executive and director compensation by reference from the company's 2024 proxy statement - Information required by this item is incorporated by reference from the company's 2024 proxy statement[297] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by management and beneficial owners is incorporated by reference from the 2024 proxy statement Equity Compensation Plan Information as of December 31, 2023 | Plan Category | Securities to be issued upon exercise | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 2,285,310 | N/A | 1,862,571 | | Equity compensation plans not approved by security holders | — | N/A | — | | Total | 2,285,310 | N/A | 1,862,571 | Certain Relationships and Related Transactions, and Director Independence This section incorporates information regarding related party transactions and director independence by reference from the company's 2024 proxy statement - Information required by this item is incorporated by reference from the company's 2024 proxy statement[302] Principal Accounting Fees and Services This section incorporates information regarding fees paid to the principal accountant, Ernst & Young LLP, by reference from the company's 2024 proxy statement - Information required by this item is incorporated by reference from the company's 2024 proxy statement[303] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report, including the independent auditor's report - This item lists all financial statements, schedules, and exhibits filed with the report, including the Certificate of Incorporation, Bylaws, debt indentures, and various material contracts[305][307][308] Form 10-K Summary The company has elected not to include a summary of this report - Oceaneering has elected not to include a summary of this report[313]