Oceaneering International(OII) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated adjusted EBITDA of $40.5 million for Q2 2020, exceeding consensus estimates, and produced $26.9 million of free cash flow [6][10] - The consolidated adjusted EBITDA margin was 9%, a decline of only 14 basis points compared to Q1 2020, despite a 20% decrease in revenue [7][10] - Cash and cash equivalents at the end of the quarter were $334 million [10] Business Segment Data and Key Metrics Changes - ROV adjusted EBITDA margin remained relatively unchanged at 31%, with a 12% sequential revenue decline due to a 9% decrease in ROV days on hire [10][11] - Subsea products experienced a 33% revenue decline, but adjusted operating margin remained consistent with Q1 2020 due to cost reduction efforts [14] - Advanced technologies segment improved adjusted operating results by $1.7 million sequentially, driven by strong government business performance [18] Market Data and Key Metrics Changes - The average number of working floating rigs decreased from approximately 121 in Q1 to 96 in Q2, a 21% decline [13] - The subsea products backlog decreased from $528 million at the end of Q1 to $486 million at the end of Q2 [15] - The company’s drill support market share increased from 61% to 62% despite the overall decline in the number of floating rigs [13] Company Strategy and Development Direction - The company is focused on maintaining liquidity and balance sheet strength while navigating uncertainties in the oil and gas markets due to COVID-19 [25][26] - A targeted reduction of annualized expenses in the range of $125 million to $160 million is expected by the end of 2020, with approximately $85 million of annualized cost reductions already initiated [23][24] - The company anticipates continued softness in demand for services and products within its energy businesses, but expects good performance from government businesses [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with Q2 results despite challenges, noting that operational disruptions due to COVID-19 were limited by safety protocols [6][9] - The outlook for the second half of 2020 remains uncertain, with expectations of continued impacts from COVID-19 and potential reductions in customer spending [20][21] - Management emphasized the importance of adapting to new ways of working and achieving decarbonization goals through digitization and automation [26] Other Important Information - The company is not providing segment financial guidance for Q3 and the second half of 2020 due to uncertainties [22] - Capital expenditure guidance is set between $45 million to $65 million for 2020, with expectations of positive free cash flow for the year [22][26] Q&A Session Summary Question: Can you elaborate on the cost-out program and what major buckets are left to reach your target? - Management indicated that cost reductions are evenly distributed across all segments, with some opportunities still available in regional locations and facilities [31][32] Question: What is the expected operating free cash flow number excluding working capital and tax items? - Management discussed that the free cash flow guidance includes a one-time event from the CARES Tax Act, with expectations for working capital to free up cash towards the end of the year [40][46] Question: Can you provide insights on subsea products and revenue progression in that segment? - Management expects a return to more traditional revenue streams in the back half of the year, driven by backlog execution [50] Question: How do you view the ultra-deepwater activity environment moving forward? - Management acknowledged the potential for market recovery but emphasized the uncertainty surrounding COVID-19 and commodity prices [54][56] Question: What is the current status of the Angola project work? - Management noted that mobilization challenges due to COVID-19 have delayed the project, with uncertainty about completion in 2020 [90] Question: Can you discuss the governance around the debt and any adjustments allowed in covenants? - Management confirmed that the company is in a strong liquidity position, with debt covenants allowing for flexibility [86][87] Question: What are the expectations for the energy transition and renewable projects? - Management highlighted ongoing work in offshore wind projects and the company's capabilities in marine construction as key areas for growth [117][120]