Oceaneering International(OII) - 2021 Q2 - Earnings Call Transcript

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]