Q4 2019 Earnings Call
Oh Orange I've been placed on mute to prevent any background knowledge. After the speaker's remarks, there will be a question and answer period with that I'll now turn the call over to Mark Peterson, Oceaneerings, Vice President of corporate development and Investor Relations.
Thank you Jason Good morning, everyone and welcome to Oceaneerings fourth quarter and full year 2019 results conference call. Today's call is being webcast a replay will be available on oceaneerings website.
With me on the call today, or Rob Larson, President and Chief Executive Officer, who will be providing our prepared comments, Alan Curtis Chief Financial Officer, and Marbn Mugger, a senior Vice President.
Before we begin I would just like to remind participants that statements. We make during the course of this call regarding our future financial performance business strategy plans for future operations and industry conditions are forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act at night.
95 or comments today are also also include non-GAAP financial measures.
Personal details and reconciliations to the most directly comparable.
GAAP financial measures can be found in our fourth quarter press release, we welcome your questions. After the prepared statements.
I will now turn the call over to raw.
Good morning, and thanks for joining the call today I'm happy to know the 2019 as the first year since 2014, well we have seen improved consolidated adjusted operating results and adjusted EBITDA as compared to the prior year free cash flow also improved in 2019, the first year over year increase we have seen in this measure since 2015.
Today I'll focus our comments on our performance for the fourth quarter and the full year 29 team.
Our market outlook for 2020 are continuing commitment to capital discipline operational improvement and expectation to generate significant positive free cash flow in 2020.
And our business segment outlook for the first quarter and full year of 2020.
Now moving to our results.
In our press release for the fourth quarter, we reported a net loss from $263 million were minus $2.66 per share on revenue of $561 million.
These results included the impact of $255 million, a pre tax adjustments, primarily $240 million associated with asset impairment write downs and write offs recognized during the quarter.
Adjusted net income was $2.5 million worth three cents per share.
We were pleased our consolidated fourth quarter adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA of $48.7 million exceeded both our guidance and consensus estimates our fourth quarter results reflect higher activity levels and we were encouraged to at four or five operating segments recorded sequentially.
Improvement in adjusted operating results and adjusted EBITDA.
As a result of $26.6 million in free cash flow generated during the fourth quarter, our cash position as of December 31st 29 team increased to $374 million.
During the quarter, we recognize certain noncash charges totaling $240 million related to impairments to the carrying value of several of our vessels and certain other assets, including goodwill and intangible assets as market conditions no longer support the prior valuations for these assets.
These $240 million of charges related predominantly to our subsea projects and asset integrity segments.
The portion of the asset write downs relating to the retirement of 30 work class are obese from our fleet was relatively insignificant.
Additionally, we recognized $12 million restructuring and other costs as we continue to focus our efforts to adapt our asset base geographic footprint and staffing levels to be size and positioned appropriately for the markets we serve.
Looking at our business operations for the fourth quarter and compared as compared to third quarter. Despite seasonality. We're pleased that our adjusted consolidated operating results were relatively flat to the third quarter, improving slightly by $2.8 million and that our adjusted consolidated EBITDA of $48.7 million improved.
3.2 million from the prior quarter.
We generated $45.4 million of cash from operating activities and after deducting $18.8 million or capital expenditures, our free cash flow was $26.6 million for the quarter.
For our obese revenue increased in adjusted operating results declined from the third quarter sequentially. Our Ob days on higher declined as expected by 2%. However, 5% increase in average revenue per day on higher resulted in a 3% revenue increase for the fourth quarter.
Adjusted operating results declined due to costs incurred to prepare our fleet for an anticipated increase in activity during 2020.
These preparation costs, where the leading contributor to the decline in our RV quarterly adjusted EBITDA margin to 27% from the 31% achieved during the first nine months of 29 team.
Our fleet utilization for the fourth quarter was 58% down from 60% in the third quarter, primarily due to normal seasonality associated with global vessel market.
Our fourth quarter fleet use was 64% and drill support and 36% per vessel based activity compared to 63 and 37, respectively. During the third quarter.
At the end of December we had RV contracts on 98 of the 156 floating rigs under contract were 63%.
This compares to the RV contracts on 97 of the 159 floating rigs under contract or 61% at the end of September.
During the quarter, we were on five of the nine rigs whose contracts ended were terminated early and six of the nine rigs for which new RV contracts were awarded.
During the fourth quarter, we added four new are obese to our fleet and retired 30, ending the year with an RV fleet size of 250 vehicles.
The removal of these 30 vehicles resulted from an in depth analysis of our fleet to determine underutilized in older units that were not making a meaningful contribution to segment results.
The retired are obese provided approximately 2% of the total day's work during the fourth quarter pro forma fourth quarter utilization, reflecting these vehicles as if they had been retired effective as of the beginning of the quarter was 64%.
Now turning to subsea products, our fourth quarter adjusted operating results were essentially flat with the third quarter on higher revenue as projected higher revenue within our manufactured products business was partially offset by lower revenue from our served some rental business on typical season active seasonal activity.
Our revenue mix for the quarter was 72% in manufactured products and 28% in service in rental compared to a 50 941 split prospectively in the prior quarter.
The difference in revenue mix between are manufactured products business and service and rental business resulted in a quarterly adjusted operating margin declined to 8% for the fourth quarter from 8.8% for the third quarter of 2019.
Our subsea products backlog at December 31st 29 team was $630 million compared to our September Thirtyth 2019 backlog of 609 million.
As mentioned in our February Twentyth press release BP awarded Oceaneering, a contract during the fourth quarter to provide comprehensive riserless light well intervention services in blocks 18, and 31 offshore Angola revenue for this activity is expected to fall primarily within the second and third quarters of 2020, most of the revenue and operating reserve.
That's generated by the performance for this contract will be reported in our subsea products segment. However, the associated our Ob work will be reported in our RV segment. Our book to Bill ratio of 1.5 for the full year 2019 was slightly favorable to our guidance range, partially due to the BP service and rental contract.
Sequentially subsea projects adjusted operating results improved substantially on higher revenue.
This improvement was primarily due to better than anticipated Gulf of Mexico intervention maintenance and repair or Aimar activity and higher survey services activity from several geoscience and marine construction projects.
Looking at asset integrity adjusted EBITDA adjusted operating results improved on a modest increase increase in revenue.
Our non energy segment advanced technologies posted improved adjusted operating results on higher revenue. However, these results were disappointing as performance fell short of our guidance because the expected improvement in our entertainment business operating margins was not achieved this underperformance was chiefly due to cost overruns on certain completed project.
Postponement in project awards and customer requested delays in project progression.
During the fourth quarter, our government related businesses performed well as anticipated.
Unallocated expenses were inline with our expectations.
Now I'd like to turn my focus to our year over year results of 2019 as compared to 2018.
For the full year 2019, Oceaneering reported a net loss with $348 million or negative 3.5 $2 per share on a revenue of $2 billion to $2 billion.
Adjusted net loss was 83 million or minus 84 cents per share, reflecting the impact of $258 million of pre tax adjustments, primarily $240 million associated with asset impairments write downs and write offs recognized during the quarter. This compared to a 2018 net loss of $212 million.
Or minus $2 in 16 cents per share on revenue of 1.9 billion and adjusted net loss of $69.7 million or minus 71 cents per share.
The full year 2019 consolidated financial results were consistent with our guidance, but were achieved in a manner different than expected.
Activity levels and operating performance within our energy segments exceeded our original expectations led by our RV in subsea products segments operating performance within our advanced technology segment fell well short of expectations, primarily due to execution issues and customer driven project delays and cancellations within our entertainment business.
Compared to 2018 or 2019 consolidated revenue increased 7% to $2 billion with revenue increases in our Ob subsea products advanced technologies being partially offset by revenue decreases in subsea projects and asset integrity.
For the year consolidated adjusted operating results increased $22.4 million led by our subsea products and RV segments in 2019, each of our operating segments, except asset integrity contributed positive operating income as adjusted and all of our operating segments contributed positive EBITDA as adjusted.
Overall, we generated adjusted EBITDA of $165 million cash flow from operations was 158 million and we invested $148 million on capital expenditures, resulting in the generation of $9.9 million of free cash flow.
For the year.
In 2019, we continued to adapt to the challenges posed in our markets. As we led innovation efforts that are enabling our customers to more efficiently and safely meet their sustainability requirements.
We maintained our competitive position in the offshore energy services and products market.
We drove efficiencies and cost and performance and continued to identifying new opportunities for improvement we focused on capital in pricing discipline to position ourselves to earn a return in the current market and we maintain focus on our core values.
We're pleased with the following notable achievements accomplished during 2019.
We successfully deployed our liberty are obese system with Ecuador to provide a resident battery powered remotely operated vehicles to support subsea inspection maintenance and repair activities.
We developed and deployed interest a new work class RV capable of working in high current to service the offshore renewables market, thereby helping customers reduce vessel time.
We developed and initiated testing on freedom, a next generation hybrid RV a movie which is scheduled to have its first commercial application in 2020.
We increased RV days on higher by 12% with year over year increases in both drill support and vessel support days.
We successfully performed our first significant multiwell deepwater Riserless light well intervention campaign for BP Angola, as previously mentioned secured a contract for a new Multiwell campaign in 2020.
We secured a substantial increase in bookings within our subsea products segment highlighted by the subsea Bill Clint hardware awards for two hotels, Mozambique project and LNG sees kg DW and 92 project, allowing us to achieve a book to bill ratio of 1.5 for the year.
We took delivery of our environmentally efficient deepwater multi service Jones Act vessel Ocean evolution during the second quarter and side, good customer acceptance and activity during the second half of the year.
We achieved or modestly beat our financial goals by generating $165 million of adjusted EBITDA and positive free cash flow of $9.9 million. We also increased our balance sheet cash position by $19.4 million to $374 million.
We have made information on our SG initiatives more accessible by adding a sustainability page to our Investor Relations tab on the Oceaneering Dotcom website I'm pleased to report that since 2017, MSC S&P rating for Oceaneering has improved from triple B today.
Turning to our 2020 outlook for the markets we serve.
The offshore energy industry has undergone significant rationalization and structural change over the last five years. These changes have been challenging however is positioned the offshore industry inclusive of emerging offshore renewables wind market to compete effectively with most U.S. shale plays.
Offshore activity has been trending higher over the last few years evidencing the ability of this sector to compete and most analyst and research data points. We track suggest a continued modest improvement in the markets we serve.
Most analysts and Brent pricing forecasts are in the low $60 per barrel range for 2020 and conversations with customers suggest that the gradual recovery in offshore energy activity should continue as long as Brent pricing remained above $55 per barrel.
Analyst projections for keep for the key metrics, we track remains supportive of increasing offshore activity levels, including international and offshore spending is projected to increase by a low to mid single digit percentage in 2020.
The contracted floating rig count increased from 146 at the end of 2018 to 156 at the end of 2019, a 7% increase with many industry analysts projecting continued modest mid single digit growth over the next few years.
There were three over 300 tree awards in 2019, and many sources forecast for 2023 awards to remain above 300.
According to rise stead offshore projects with an aggregate value of over $100 billion were sanctioned in 2019, a more than 60% increase over 2018 with sanction levels expected to remain at or above levels for the next several years.
We agree with published reports that offshore production will continue to be a meaningful component of global supply representing approximately 30% of total global supply for the foreseeable future.
And finally, the government related markets. We serve are expected to remain relatively stable with continued slow growth.
So turning to our overall 2020 outlook for Oceaneering.
We expect our financial results to improve year over year due to our expectations for higher activity and operating margins in each of our segments.
Total 2020 consolidated revenue is expected to increase approximately 10% with the majority of the increase attributable to our subsea products segment.
For the year, we into we anticipate generating $180 million to $220 million of EBITDA with positive operating income and EBITDA contributions from each of our operating segments at the midpoint of this range. Our EBITDA for 2020 would represent a 21% increase from our 2019 adjusted EBITDA.
Apart from seasonality, we view pricing and margins in the current energy and government markets to be stable with increasing opportunities for improvement.
The Corona virus situation is on the mines and many people and it may have a financial impact on Oceaneerings forecast the potential direct impact oceaneering would relate primarily to our entertainment projects in China. However, we also have work being performed by our RV segment and our service in rental business in the region.
Keeping an eye on the situation for potential economic consequences related to these activities from a macro perspective, our guidance does not currently assume any impact on hydrocarbon demand from the Corona virus, but we continue to stay in close contact with our customers and our monitoring the commodity situation for potential impact to our 2020 outlook.
And now turning to our liquidity, our expectation to generate significant positive free cash flow and our capital discipline in 2020.
We believe we currently have good liquidity through our cash position of $374 million as well as our undrawn $500 million revolver available until October 2021, and thereafter $450 million available until January 2023.
Adding to this we expect to generate substantial free cash flow in 2020.
However, the timing of certain contract awards and related payments on progress milestones can have a material impact on our projected cash flows.
It is our intention to use the cash generated to strengthen our balance sheet to ensure that we are well positioned to deal with our nearest debt maturity in November 2024.
For 2020, we expect our organic capital expenditures totaled between $75 million in $105 million. This includes approximately $40 million to $50 million, a maintenance capital expenditures and $35 million to $55 million of growth capital expenditures, including approximately $5 million of carryover capex from 2019.
Okay.
We have significant significantly reduced our planned capital expenditures for 2020 as compared to 2019 and expect this reduction to be a major contributor to our ability to generate significant free cash flow in 2020.
We will be closely scrutinizing incremental maintenance and growth capital expenditures focusing on opportunities that will provide near term revenue cash flow and return.
In 2020 interest expense net of interest income is expected to be approximately $40 million and our cash tax payments are expected to be approximately $40 million cash taxes include taxes incurred in countries that imposed tax on the basis of in country revenue and bear no relationship to the profitability of such operations.
At this time, we do not foresee realizing a current year tax benefit from our projected consolidated pre tax loss. So any discussion of an estimated effective tax rate would not be meaningful I also want to point out that free cash flow in 2020 will benefit from approximately $25 million of noncash accruals for incentive based compensation.
And approximately $5 million to $10 million of working capital improvements tied to inventory reduction.
Directionally in 2020 for our operations by segment, we expect.
Improved results for our hobbies based on increased days on higher in both drill support and vessel based services minor shifts in geographic mix and generally stable pricing, we project fewer installations in D. mobilizations in 2020, which is forecast to result in lower operating costs as compared to 2019.
We expect our 2019 service mix of 65% drill support and 35% vessel.
Support to generally stay in this stay the same through 2020, as we anticipate improvements to both the number of floating rigs under contract and increased vessel utilization.
Our overall RV fleet utilization is expected to be in high 60% to low 770% range throughout the year.
We expect to generally sustain our RV market share in the 60% range for drill support.
At the end of 2019, there were approximately 27 oceaneering RMBS onboard 23 floating drilling rigs with contract terms expiring during the first six months of 2020.
During the same period, we expect to placed 31 of our ROE vs. On 26 floating rigs beginning new contracts.
Based on our anticipated levels of utilization combined with our fleet use expectations worldwide global locations, where arby's may work and cost structure, we expect our RV EBITDA margin to average approximately 30% for the full year.
With the recent rationalization and preparation of our fleet, we feel well prepared to service our customers in 2020 and beyond.
For subsea products, we expect segment performance to improve as a result of increased throughput and better absorption of fixed cost within are manufactured products business unit as well as higher activity levels and contribution from our service and rentals business unit.
We anticipate that our operating income margins will improve slightly in the average and average in the mid single digit range for the year.
Based on the expectation for substantially higher revenue recognized recent Friday's current bid activity and anticipated Award. The award dates we envision our book to Bill for 2020 to be in the range of 0.8 0.9 for the year.
For subsea projects, we expect operating results to improved slightly in 2020, primarily due to lower depreciation expense as compared to 2019.
EBITDA is forecast to decline modestly in anticipation of reduced international and Gulf of Mexico vessel activity vessel day rates remained competitive but stable and we expect to see opportunities for pricing improvements during periods of high activity.
Similar to 2019. This segment has the highest amount of speculative work contained in our guidance. The ocean evolution has experienced good customer demand since it was added to our fleet in the second quarter last year and has a good amount of project backlog through the first quarter 2020, albeit at much lower day rates than we originally expected.
We continue to complement our fleet with third party vessels, which gives us the ability to react to a changing market conditions.
For asset integrity, we forecast results to improve on relatively flat revenue as the benefits from cost control measures implemented in late 2019 in early 2020 should be realized beginning in the second quarter of 2020.
Our 2020 advanced technologies results are expected to increase on higher revenue with operating margins are expected to be in the high single digit range for the year.
We expect a modest improvement in operating results within our government related units and an operating improvement within our commercial units on improved execution and expected project awards and progression.
However, as evidenced over the past several years the impact from timing of project awards and customer delays can lead to variability in quarterly results. Additionally, we are currently monitoring the impact to ongoing and anticipated projects in China due to the Corona virus situation.
For 2020, when dissipate unallocated expenses to increase to an average of $35 million per quarter. As we expect full accrual rates for projected short and long term performance based incentive compensation expense as compared to 2019.
For our first quarter 2020 outlook.
Our first quarter 2020, EBITDA is forecasted to be in the range of 36 million to $42 million as compared to our fourth quarter of 2019, we anticipate materially lower revenue and operating results in our subsea projects segment due to seasonally lower demand and aimar activity.
A slight increase in RV operating results on a nominal decrease in revenue with EBITDA margins returning to the 30% range.
Subsea products revenue to increase in operating results the decline due to the project timing of lower margin projects within our manufactured products business and asset integrity and advanced technologies operating results are expected to be essentially flat on marginally lower revenue.
In closing our focus continues to be generating substantial positive free cash flow in 2020.
Maintaining our strong liquidity position, improving our returns by driving efficiencies and cost and performance throughout our organization engaging with our customers to develop value added solutions that increase their cash flow and remaining disciplined in our pricing decisions and capital deployment strategies.
I also want to let you know that we're continuing our efforts to define additional strategies and actions to better position our businesses for future success and expect to be able to share specifics regarding these efforts with you on our next quarterly call.
Finally, I want to thank our employees and management teams for their continued hard work and transforming our business to succeed in the foreseeable market.
We appreciate everyone's continued interest in oceaneering and will now be happy to take any questions you might have.
At this time I would like to remind participants if you would like to ask your question. Please press Star then the number one on your telephone keypad, we will pause for just a moment to compile the culinary roster.
Your first question comes from the line of Vebs Vaishnav from Scotiabank. Your line is open.
Hey, good investments.
Yes.
Missions and the good quarter.
Thank you.
I guess.
Got it Shannon couple of times this thing to see kind of thing too in.
In your guidance how much off.
EBITDA improvement if you will is coming from China.
Just trying to think about.
Yes.
It's it's challenges say right now Vebs I mean, if you look at Q1, we feel like we've we've sort of risk that right. So what you see in Q1 is what we think is going to happen just for some sort of the temporary work stoppages I would say for the remainder of the year because we have some we have some ability to scale up and scale down we believe its.
Medical within our current guidance range. So it shouldn't it shouldn't blow us out one way or the other but we're going to have to work hard on managing the the capacity associated with that work should slow down.
That's helpful.
In subsea partners, such as you talked about.
The revenue in 2020, more scabies, sometimes EPCI projects.
It is below 60% backlog almost doubled but I understand that some longer lead.
On the lead items and backlog.
Second question would be slow but.
You can help us think about how much revenue.
Yes.
But didn't have any good for subsea products.
For now for 2020.
Probably more like 20, vebs, we'd be be closer.
Okay.
That's very helpful.
And if I can sneak in one last question so.
In the Capex you have about 35 to 55 Jenna good Capex could you just help us think what is that good capex and how recurring that is as we think about 21 and beyond.
Some of it will be related to some some of the work in our STR. So units are related to putting that those assets to work for light well intervention and the other side I would say would be to think about the new vehicles that were putting on for rvs and that's pretty exciting.
We may have more demand for that as we see market uptake you think we put last year, we really reach commerciality on the Liberty I think and his service. They are both I think they're both very commercial right. Now freedom is is a as a pretty nascent technology and we'll we'll get the first commercial jobs on that this year. So we'll see.
How fast the market uptake is on freedom, but by the first do I think iteris is going to be one that would come into market fairly quickly, but again some of that is converting current assets. So it lowers the capital requirements to get that then.
I think the one other component Vebs is going to be some of the things we're working on within our global data solutions group within the digital side.
And software that they're working on we'll spend a few dollars there as well this year.
Thank you for taking questions.
Exhibit.
Your next question comes from the line of holiday from RBC Capital. Your line is open.
Hey, good morning, and thank you for all that good color and information appreciate that.
[music].
Okay.
Hey, I wanted to just kind of chicken here on.
A follow up on one of its questions on subsea products and again, just make sure I heard correctly, so prospect for subsea products revenue to be up potentially about 20% given the order intake that you've taken through 2019, just to make sure I heard that correctly.
But on the Okay. All right. Thank you for that clarity alright, and then.
As you.
As you look out on and the RV type business and the expectations for lower churn.
Why and with increasing utilization, what why the commentary about maybe stable pricing versus the possibility to start to see some some improved pricing just want to get hit your feel for the market around that if I could.
I think part of it is rig utilization.
Expected pricing, there's a there's a sort of.
I use this joke about we need we need to tell the rig market or have the rig market tell the customers that its winter before we can start selling winter coats theres. They set a lot of the expectation for for budget and budget increases because were smaller part.
I don't I don't believe with that with the ability to put some of the assets. We don't know exactly what utilization is for everybody else's assets, but I don't think we're going to be pressed for somebody to find an incremental our albeit a 156 at 156 rigs and I think when you look at the.
Backlog as we move into this next year a lot of its already.
Work that we have bid and contracted on for this year. So most of the stuff where you'd be able to move price would be more on the vessel market, which is the shorter duration type contracts Kurt.
Okay. That's helpful. And then just maybe just on the on the capital allocation I think getting made a pretty clear that you want to continue to build a.
It's a very strong balance sheet kind of going towards your 2024 kind of maturities but.
Is there there's opportunity do you think right what is the distinct opportunity to potentially start.
Taken down some debt or refinancing debt between say now in end of 2020.
I think thats something that we'll be evaluating as we go through the year.
Okay. Okay.
Okay. That's it for me. Thank you appreciate it thanks.
Your next question comes from the line of Sean Meakim from JP Morgan Your line is open.
Where John Thank you good morning.
So.
You noted.
Hi, this is incorporate any potential impact of customer decisions tied to Corona virus.
And the potential read through on oil prices of course.
Entirely reasonable.
But can we touch on how those risks specifically could have an influence on the level of call out work that you'll see in Twoq and Threeq you just how much that call out work influences. The range of your EBITDA guidance I guess Im just trying to gauge how customer decisions get made for that type of work and to what extent.
Is that portion more or less at risk of macro events stretching great second quarter I think I can give you some color there so you're spot on I mean, just like just like last quarter and quarter before the biggest part of of our guidance range really calls on that call at work and so think about the biggest part of that being projects and most of our profit.
Next we are being in the Gulf of Mexico, and some in the North Sea and we do a little bit we do a little bit in APAC and some of those areas. So what I would the way I'd kind of put that is I don't think there's a high probability of Corona virus, having a significant impact on that call out work.
It would have to be a pretty hard pushed down on commodity price, where the customers. I mean this early in the year are starting to conserve capital and then and then the other side would be that somehow we have outbreaks to interrupt rig activity in the Gulf of Mexico, I think Thats I think thats.
Less likely to happen so I don't see of being a big impact on the project work near term.
Okay. That's really helpful. I appreciate that and we just touched on this a little bit but.
Within our these.
We've been watching the offshore drillers trying to push to get more term and they've had some success, but probably not as much as they would have liked.
In that type of environment, how does that translate to the RV business.
And the cross.
Drilling versus vassals, just how you're trying to manage.
From versus price.
Within your portfolio of contracts I get it but our sense of beyond just kind of I guess static price question I understand how you're managing.
Those incremental contracts rolling off as you mentioned versus those that that youve re contracted how you're managing that churn of contracts.
What your emphasizing and what may be less important to get through the year that will be helpful.
I think you've got as Sean we're kind of in that same position generally our terms are matched up to the rigs. So we don't get a lotta, we don't give a lot opportunity to push the contract terms and so what we're looking at the same thing that was on longer term contracts, we need the ability to drive price up whether it's through triggers within the contractor.
Just overall average day rates. So we expect that we don't want to get locked in anything that static at current rates because we do think that again with utilization, there's an opportunity move there one on one of the things we continue to push on when we get these contracts is to bring more services to the rig, especially as they roll over so and we're continuing to look at getting.
These getting this work where we can bring the survey with the RMB along with the IWALKS work along with the data communications work in the tooling work and that that integrated rig services that we we've been offering I think is one of the best ways. We can we can sort of make that make that case for price because we offer the savings of less piece will be on board.
Got it and then just clarify would you characterize the vessel market is being materially different.
No no I think I think it's very similar in there Theyre walk in hand in hand, as we start to see that split between utilization, we don't see any big we don't see any big shift between how many vessels are out there versus versus the drilling rigs. So the split remains pretty consistent.
Great. Thank you.
You are.
Our next question comes from the line of Scott Gruber from Citigroup. Your line is open.
Yes, good morning.
Scott Good morning.
I hear correctly at the end of the prepared remarks that you will provide more color on additional cost restructuring benefits on the next call.
Yes, you did.
Got it and then just thinking about that in the context of the EBITDA guidance that has already been provided.
Is there much additional cost savings embedded in that guidance or is it all.
Upside from the when 80 to 220 that you put out there.
I think I think it's.
It's within guidance I think what it does one of the things one always I'd colored is I think it's definitely.
A pretty significant hedge against Corona virus sort of effects. If you think it that way. So if all the things that have happened in the last few days.
I wouldn't want to step outside of what our current guidance ranges, but there is that there's some some good savings available there.
Okay wait for the color.
Back on.
The EBITDA margin last year was basically 30%.
Even with a weaker for Q getting the startup costs I realize there's no pricing, yet, but just with an improving backdrop why not more margin uplift in 2020.
I think some of it is going to be related to ongoing efforts to.
Look at our cost structure, Scott I mean, some of its going to be the regions in which we work I mean, it is going to be truly down to mix.
Is the primary component of where the RFP activity takes place. This next year.
So I think the team feels more confident that 30% level at this point in time.
Given what they'll in their play and that.
Allude to all my earlier response, a lot of the work on these rigs mean, it's always been bid. So it's not that we're moving price that much on most of these contracts currently.
And that's a key component that I see right now is the vessel side.
That's an area would continue to try and work on price and move it up but.
I would characterize prices pretty flat right now I mean, the mortgage and to give you a feeling that the majority of the pricing for Rvs for 2020 is already is already set.
Got you said it sounds like the.
The volume benefit is going to get offset by some some mix with pricing.
Well and we do have I mean, you had to look at we have inflation, that's going to come into play we do have cost mean of employees that we have two.
To pay.
So there are.
Headwinds associated with inflation that we have.
In the mix as well.
Okay.
Okay. The color. Thank you, yes. Thank you.
Your next question comes from the line of Ian Macpherson from Simmons. Your line is open.
Hey, Thanks, good morning team.
Im not surprised that you're not really specifying.
Demand shock impact.
And your guidance broadly at this point. This is just too early I might have thought that you would have seen it already and AD Tech just given that Darex Chinese market exposure within entertainment.
Can you talk a little bit more about why that is why you havent seen in or been able to quantify any thats been back yet that just caught me a little bit by surprise. So no I think he and I might not have said it clearly enough. We do see that we've had that we've had some of the projects at least temporarily.
On the ground work.
Sorry back and so so we didn't make the adjustments I just I just said what what we did have and what has come down is already baked into the first quarter and so we'll have that we'll have to see how long that persists before we before we talk about the remainder of the year.
Okay. So probably since we spoke last quarter and better guidance for AD Tech has come in a debt and you've you feel comfortable back so in that debt with your.
Cost restructurings, and I would imagine a little bit accretion that you've gotten from the BP Angola contract as well.
Just couldn't thats the words in your mouth, but so the embedded.
As has come down a bit.
You've nailed it I mean, if I if we if we would have talk more specifically about breaking out what was going on on the first quarter. There would have been a little more AD tech in for that work and oilfield has been able to.
The kind of fill the gap. So it's bad that's what that is exactly what's going on.
Okay and then the other question I wanted to ask was just on the 30 RSV retirements are those scrap are the is that a pull parts for lower maintenance expenditures going forward or a combination of two or maybe something else pretty much scrap.
Okay.
Good that's all I have thanks, guys.
Thanks you.
Next question comes from the line of George O'leary from Tudor, Pickering, Holt and company. Your line is open.
Good morning, George.
When Jordan. Your next question comes from the line of George O'leary Mr. earlier your line is open.
Your next question comes from the line of Mike Sabella from Bank of America. Your line is open.
Hey, good morning, Thanks for taking the call the more Mike.
If we could kind of swing back to I guess sort of just more broadly the state equipment in the RV market you all took some opportunity or in some other assets.
Kind of talk to the average age of your fleet today.
Maybe versus where it was part of the retirement is this kind of a broader opportunity that we should consider.
Amongst the peer groups as well that we could potentially start seeing some attrition in the assets.
I've got to believe I mean, I'll just use the rig example in general.
We've had some of the rig companies out there talking about.
There's got to be assets out there that are going to be so expensive to put back in the business. There put back to work that it's it's not really cost effective to do so at the current pricing. So I think whether we've actually taken the fleet out or whether they're effectively out of circulation I think theres theres some of that that's already gone on.
Great and then kind of around just around the I guess it was a 0.8, 0.9% book to Bill for 2020 in subsea products.
Can you kind of talked to.
Cadence around that and how would you expect it to progress throughout the year.
Yes, I think most of its going to be more centered in the Q2 Q3 timeframe.
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Certain project awards are expected to be.
Coming out and awarded at that point in time.
I mean, we'll have our usual base at that happens throughout the year, but I mean more of the project Lumpiness. So we see is more of Q2 Q3 at this point.
Okay, great. Thank you.
Your next question comes from the line of Blake gender and up from Wolfe Research. Your line is open.
Thanks. Good morning, just one for me on the AD Tech business. It was our understanding that the company is trying to standardize rationalize it's off the shelf software offering in the segments and maybe mitigate some of the cost overruns that you saw in the bespoke side, maybe in Fourq you. So im just higher level. If you could characterize for us how much is off the show.
Well software in this business versus bespoke projects, and then maybe longer term China weakness notwithstanding.
Should we expect that maybe margins stabilize at somewhat of a higher level and how much revenue or growth opportunity would do you think you'd have to sacrifice appear to make this concern to pivot. Thanks.
So let me let me hit the the AD Tech business. That's a great question I don't think we don't talk about that a lot. The software is very standard I mean, the software generally there's there's there's a track to vehicle, we do and attract those vehicle, but within those two categories. There they're very very similar.
We have some very standard vehicles that we put out and again, we think about the change in what we do really it's more the variation in the vehicles and it is the software. So we do some we do some vehicles that are small probably eight roughly six date passenger vehicle and the need to some larger bespoke things and so it does do you.
As you would expect it gets more challenging and we start stepping out into something it's a very special form factor for customer and that that is what was challenging in the fourth quarter, but one of the things. We've done is weve, new kind of made some I would say some significant organizational changes to get better access to to the broader oceaneering for for that group.
So that when they've got a little more support as they go into some of these businesses. So what you see in the in the first quarter is our expectation that the that we've passed that hurdle and we're moving ahead and it again part of that's because of the because of the degree of completion on some of this more difficult projects.
And I'm, sorry, I lost the second half of the question. So if you remind me the China question.
Yeah, just longer term if you made this concerted push toward more off the shelf software sales if.
I don't know if it's at a margin target or.
Just trying to understand maybe what you again in terms of stability in that business versus the growth opportunity that you would potentially have to.
Step away from and walk in line on that on that margin sure. If I if I were to characterize what happens when we when we do some of the other business and I won't I will just be speak specifically to China, but I'll talk about sort of what we would calls for the mid size theme parks and some of the other businesses. They actually are good because they tend to be more off the shelf they liked.
It can take our base vehicle and then they can just enhance it with what we call. The creative part they can surrounded with their own their own body chat. He design. They can put different video and music and themes to the to the vehicles. So in one sense they become much more predictable because we're building a standard product in the other since they become.
Less predictable because you're dealing and you are dealing outside our are kind of our short range of us theme park providers and your operating and different different countries, where we have to kind of cross the hurdle of importation and regulation and all the other thing. So I would go I would say those two things offset I.
I think the it's mostly on those other side on the on the outside or standard customer range. It's that's where we get more of the timing issues probably than the execution issues.
And right and the issue in the issues Ron spoke about we're not on the standard product line that we were talking about where we it was the bespoke.
System that we had more of the old run on.
Understood that so that's helpful color and then just one follow up on the BP Angola contract I, just want to clarify that that was incremental versus the prior guidance you gave out for book to Bill and then if you could just help us quantify maybe the our or the opportunity outside of that in addition to what you booked on the sub sea side and then.
Maybe.
Any potential follow on work in the region, if discos successfully.
Well, the you're correct on the BP Angola work it was incremental to the guidance, we'd given and.
We just didn't know what time it would you add we believe it's going to be late Q4, if it's going be early Q1, we're confident in it we just.
We are uncertain as to the timing of when we would book that so it was incremental to the guidance would give for Q4.
The other question as it relate to BP and go little work.
On oral these ours it.
Yes, just you mentioned are of the work around this contract being separate obviously in that segment. Just wondering if we could help quantify maybe one versus the other.
Typically two oral these working for the duration of the contract. So it's not going to make a big blip in the in the forecast for Rvs year to your point correct Gotcha. Okay. That's that's really helpful. I appreciate the time I'll turn it back.
Thank you.
Your next question comes from the line of George O'leary from Tudor Pickering Holt Your line is open.
Try that again, sorry, I was having some technical headset issues glad you made it.
Okay.
You guys tend to have pretty good insight into the exploration side of the market via that they use the survey business. So just curious.
You saw in the back half of 2019 and how the outlook is in 2020 for that easy going to survey oriented type work that might give us some insight into how exploration activity is progressing.
It was one of the better stories, so I would say that that again, if we don't have any big disruptions from what's going on in the world right now.
That would indicate that there that the level activity, we've been forecasting for both rigs in and if ideas is on track. It also gives us a good feel that some of renewable projects are moving forward. So.
So while they are farther out we've got I think we see some good renewable projects coming up in the north sea in that and they got what would be the traditional area for north offshore wind.
Those look good that maybe they will progress in 2020 is expected.
And then the east coast, the United States is probably beyond survey work anything else would happen is probably 2021 at the earliest.
Okay. That's that's very helpful. And then just on the subsea products side of the business. So you mentioned strong year for backlog build in order flow.
You mentioned some third party data sources that discuss trees in any into spending Ben just curious what you guys are seeing on that.
From a shots on goal perspective from a bids in order flow perspective for 2020, just for your own.
From Oceaneering in particular is there an increased level of shots on goal. This year such that orders can be up year over year as the base case kind of flattish is that kind of whats implied guidance.
I think it's I think it's flattish I mean, that's kind of when we talk about the especially the book to Bill and and Allen talked about the shots on goal to your point. We're we're thinking that some of these things are going to be more mid year. So we don't unit will be it will be kind of second quarter third quarter for you see some of those bigger things come through so, but yes the level that.
Activity.
I think is is right in line with.
We feel comfortable that we're actually seeing that things that theyre talking about.
Yes, I think what you're saying is more shots on goal there just can be mid sized goals versus big epic game winning.
Yes that would that we had during 2019.
Great. Thank you I understand that analogy. Thank you guys very much.
Again, if you would like to ask questions. Please press star on the number one on your telephone keypad. Your next question comes from a line of Cole Sullivan from Wells Fargo. Your line is open.
Thank you.
You mentioned, 20% revenue growth and project and products as a pretty fair.
Expectation for 2020.
Can you help me help us think about the kind of growth on the manufacturing side of that versus service in rentals.
Particularly when we looked at the manufacturing side and for Q was particularly strong.
Was there any lumpiness, there or is that a reasonable kind of expectation that kind of model going forward as we progress over 2020 and throughput increases.
I think one of the things to think about as you remember we were thinking about the the first half in 2019, when we were under we were under absorbed there and so we had it we had a lot of underutilized capacity do you think about getting to more of a Q4 run rate for all of 2020, that's that's where a lot of that products growth comes from is just getting getting a full year of.
Of better utilization.
Alright, Thanks, and then on Rvs.
We had a little bit of a sort of average rate improvement in fourth quarter and he may have mentioned something earlier and I just missed it but.
And then some impacts on the cost side in the quarter can you quantify the cost impact there and then as we look at kind of going into the first quarter.
Could we maintain that level of rate.
That could be mix mix, driven I guess and then maybe pull back some on cost there is that is that the expectation.
Yes, the expectation is is that.
We will get back to 30% EBITDA margin.
So lot of those can be on the cost side from not having the.
Cost to prepare the assets and put them in place to begin the work that we incurred in Q4.
So thats going to be one of the big drivers in improving our EBITDA margin as far as the increase or the lift in Q4 average revenue per day on higher lot of that had do with the geography in which we operate at the assets.
Yes.
More and more in rest of Africa, or the African market as well as in the far east.
Was a nice uplift for us and fourth quarter those are two areas that.
Propelled us.
All right I'll turn it back thanks.
Thank you.
There are no further questions at this time I turn the call to the presenters for closing comments, great will sit there since there are no more questions I'd just like to wrap up by thanking everyone for joining this concludes our fourth quarter and full year 2019 conference call have a great day.
That concludes the conference call you may now disconnect.
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