Q4 2020 Oceaneering International Inc Earnings Call
Operator, I would like to welcome everyone to Oceaneering fourth quarter and full year 2020 earnings conference call.
All lines have been placed on mute to prevent any background rates of.
After the Speakers' remarks, there will be the question and answer period.
With that I will now turn the call over tumor.
Oceaneering is vice President of corporate development Investor Relations. Please go ahead Sir.
Thank you Jason Good morning, and welcome everyone to Oceaneering fourth quarter and full 2020 earnings conference call. Today's call is being webcast and replay will be available on the oceaneering website.
With me on the call today are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments and Alan Curtis senior around price.
Vice President and Chief Financial Officer.
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 of $19 95.
Our comments today are also.
Also include non-GAAP financial measures.
Additional details and reconciliations to the most.
Direct comparable GAAP financial measures can be found in our third and our fourth quarter press release, we welcome your questions. After the prepared statements I will now turn the call over to Rod.
Good morning, and thanks for joining the call today.
There's an old saying that says what doesn't kill you makes you stronger and after the events of the last year I feel oceaneering of stronger on many fronts and I'm very proud of what we accomplished in 2020.
With all of the challenges presented by the global Covid pandemic, including the crude oil demand destruction, and the resulting price collapse and the many challenges faced in protecting our workforce, while still satisfying our customer obligations.
Sure you still delivered improved consolidated adjusted operating results and adjusted EBITDA as compared to the prior year.
We also generated meaningful free cash flow with our cash balance increasing by $78 million from $374 million of December 31, 2019.
$452 million at December 31, 2020.
Today I'll focus my comments on our performance for the fourth quarter and full year of 2020, our market outlook for 2021, Oceaneering has consolidated 'twenty 'twenty, one outlook, including our expectation to generate positive free cash flow in excess of the amount of generated in 2020 and EBITDA in the range of 160.
The $210 million.
And our business segment outlook for the full year and first quarter of 2021.
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Now moving to our results.
For the fourth quarter of 2020, we reported the net loss of $25 million for 25 per share on revenue of $424 million. These.
These results include the impact of $9 $8 million of pre tax adjustments associated with asset impairments and write offs restructuring and other expenses and foreign exchange losses recognized during the quarter and $9 $6 million of discreet tax adjustments.
Adjusted net income was $1 $8 million or <unk> <unk> per share. We were pleased that our consolidated fourth quarter adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA was $47 1 million and was sequentially higher than the third quarter 2020, and exceeded both our guidance and consensus.
Estimates.
Each of our five operating segments recorded sequential improvement in adjusted operating income and adjusted EBITDA. Despite lower revenue in three out of the five segments.
Fourth quarter 2020, consolidated adjusted operating income of $9 $6 million was the best quarterly performance in 2020, and $4 million higher than the third quarter, we generated $104 million of cash from operating activities and after deducting $50 million of capital expenditures, our free cash flow was $89 million for.
For the quarter.
As a result of good operating cash flow working capital efficiencies and capital expenditure discipline, our cash position increased by $93 $2 million during the fourth quarter of 2020.
As of December 31, 2020, our cash balance stood at $452 million.
Now, let's look at our business operations by segment for the fourth quarter of 2020 sub.
Subsea robotics for SSR adjusted operating income improved sequentially on lower revenue adjust.
The adjusted fourth quarter operating results included recognition of approximately $3 million of cost structure improvements achieved throughout 2020.
Consequently, our SSR quarterly adjusted EBITDA margin of 33% was better than expected up from the 31% achieved during the third quarter of 2020 and consistent with the margin achieved during the first nine months of 2020.
The revenue split between our remotely operated vehicle or RV business and our combined the 2 million survey of businesses as a percentage of our total SSR revenue was 80% of 20%, respectively compared to 82% and 18% split in the prior quarter.
As we had anticipated <unk> days on hire declined as compared to the third quarter due to expected lower seasonal activity are for.
Utilization for the fourth quarter was 54% down from 59% in the third quarter and our days on hire declined for both drill support and vessel based services.
Average RV revenue per day on hire of $7325 was 1% higher as compared to the third quarter.
Days on hire were $12 456 in the fourth quarter as compared to 13601 in the third quarter.
We ended the quarter and the year just as we began with the fleet count of 250 <unk> systems are fourth quarter fleet use was 60% in drill support and 40% for vessel based activity as compared to 56% of 44% respectively. During the third quarter.
At the end of December we had RMB contracts from 75 of the 129 floating rigs under contract or 58% of slight market share increase from September 30 of 2020, when we had RMB contracts of 76% of the 133 floating rigs under contract for 57%.
Subject to quarterly variances, we continue to expect our drill support market share to generally approximate 60%.
Turning to manufactured products, our fourth quarter 2020, adjusted operating income improved from the third quarter of lower segment revenue.
Which was adversely affected by supplier related delays in our energy products businesses adjust.
Adjusted operating income margin increased to 9% in the fourth quarter 2020 from 5% in the third quarter of 2020, due primarily to favorable contract closeouts and supply chain savings.
The COVID-19 pandemic continue to dampen demand for our mobility solutions products during the fourth quarter of 2020.
Our manufactured products backlog on December 31, 2020 was $266 million compared to our September 30 of 2020 backlog of $318 million.
Our book to Bill ratio was <unk> for for the full year of 2020 as compared with the trailing 12 month book to Bill of one <unk> five at September 32020.
Offshore projects group or LPG fourth quarter 2020, adjusted operating income improved sequentially of lower revenue.
Revenue declined less than expected as of the Gulf of Mexico experienced higher amounts of installation work and intervention maintenance and repair activities with customers, having pushed work into the fourth quarter due to the several third quarter of 2020 of Hurricanes the.
Sequential increase in adjusted operating income was due to better activity based pricing in the Gulf of Mexico and continued cost improvement during.
During the fourth quarter engineering work continued on the Angola riser.
Light well intervention project.
For integrity management, and digital solutions, our Mds fourth quarter 2020, adjusted operating income was higher than third quarter 2020 on a marginal increase in revenue the <unk>.
Proven and adjusted operating income was largely driven by more effective use of personnel as we continue to transform how and where work is performed.
Our aerospace and defense technologies, our AD Tech fourth quarter 2020, adjusted operating income improved from the third quarter on higher revenue adjusted operating.
Operating income margin rose as a result of project mix and better than expected performance in our subsea defense technologies business.
Unallocated expenses were higher primarily due to increased incentive compensation accruals related to better fourth quarter operating and financial performance.
Now I will turn my focus to our year over year results of 2020 compared to 2019.
For the full year 2020.
Oceaneering reported the net loss of $497 million or $5 <unk> per share on revenue of $1 8 billion.
Adjusted net loss was $26 5 million or 27 per share, reflecting the impact of $481 million of pretax adjustments, primarily $344 million associated with goodwill impairment and $102 million of asset impairments write downs and write offs recognized during the year.
This compared to a 2019 net loss of $348 million for $3 52 per share on revenue of 2 billion and adjusted net loss of $82 6 million or <unk> 84 per share.
For the year activity levels and operating performance within our energy segments were lower than originally projected for 2020. The COVID-19 pandemic negatively impacted operating investments in oil and gas projects due to a decline in crude oil demand and pricing and entertainment business spending due to limited theme Park attendants.
Activity levels and performance within our <unk> segment met expectations for the year.
Compared to 2019 of our 2020 consolidated revenue declined 11% to $1 $8 billion with revenue decreases in each of our for energy segments being partially offset by the revenue increase in AD Tech.
<unk> contribution of our consolidated results continues to grow representing 19% of consolidated revenue in 2020 as compared to 16% in 2019.
Despite.
The headwinds of lower activity in our energy segment's consolidated 2020, adjusted operating results and adjusted EBITDA improved by $59 6 million and $19 $5 million, respectively led by our manufactured products and AD Tech segments in 2020, each of our operating segments with the exception of LPG contributed.
Positive adjusted operating income in all of our operating segments contributed positive adjusted EBITDA of <unk>.
Thousand 20 operating performance benefited considerably from the cost improvement measures recognized during the year.
We generated $137 million in cash flow from operations and invested $61 million and capital expenditures.
<unk> and free cash flow of $76 million, we ended the year with $452 million in cash.
In 2020, we continued to adapt to the challenges posed in our markets.
As we dealt with the significant challenges presented by the COVID-19 pandemic by establishing and implementing protocols that have allowed us to protect personnel and customers while delivering on our promises.
We implemented a constant process improvement program to enhance the performance of our businesses.
This program target of the removal of $125 million to $160 million of costs, including depreciation.
Some examples of these efforts are.
The efficiency, enabling projects, which some may describe as process improvements rationalizing facilities restructuring of our operating segments to better leverage common attributes, thereby enabling improved productivity and how and where work is performed.
Initiating supply chain savings and eliminating non productive assets.
Through the end of 2020, we've implemented improvements that put us on the high end of that range. The majority of these reductions are structural in nature and are expected to benefit our results in 2021 and beyond.
We maintained our commitment to capital discipline by reducing capital expenditures to $61 million as compared to one of $148 million in 2019, and we maintain focus on our core values.
We're.
With the notable achievements accomplished during 2020.
We achieved significant improvement in our <unk> business with adjusted operating results improving by almost $10 million as compared to 2019.
With over $250 million in contract awards during the fourth quarter of 2020, and early 2021, 45% of which is incremental business. This segment is positioned for growth in 2021.
Our subsea robotics business, a recognized leader in work class Rovs services secured more than $225 million of contracts during the fourth quarter of 2020.
Our AD Tech business medicine of regional performance targets created at the beginning of 2020 before the COVID-19 pandemic the.
Business also recorded several important incremental contract wins, including partnering with dianetics to support their design of the human lunar landing system for NASA and the contract to operate and maintain the U S. Navy submarine rescue systems worth up to $119 million, assuming annual renewals over a five year period.
We maintained our commitment and focus on safety. The team remains very focused on our lifesaving rules.
Identifying high hazard tasks and developing engineered solutions to mitigate risks our total recordable incident rate for <unk> of <unk> three for 2020 as a record low for oceaneering.
The following financial metrics improved in 2020, EBITDA of $184 million surpassed the $165 million generated in 2019.
Positive free cash flow of $76 million surpassed the $10 million generated in 2019 cash.
Cash increased to $452 million and consolidated adjusted EBITDA margin of 10% surpassed the 8% margin achieved in 2019, despite an 11% decrease in revenue.
We continue to make good progress on our sustainability efforts for environmental social and governance initiatives.
From an environmental perspective, we continue to advance our capabilities as a technology delivery company to help our customers meet their reduced emission goals.
We continued the development of clean energy technologies to assist our customers in mitigating carbon emissions. These initiatives include our liberty interest and.
And free Tomorrow.
We also continue implementing measures to reduce the amount of greenhouse gases emitted from our own operations, including facility consolidations and employee remote work options as well as increased recycling efforts.
From a social perspective, we continue to explore new ways to make positive contributions in the communities, where we operate and to increase workforce diversity within the company.
During the year, we created the diversity and inclusion council to focus on implementing new initiatives that will further diversify our global workforce.
We're leveraging employee resource groups or args, including Oceaneering Women's network and.
And our recently launched Oceaneering veterans network to foster a diverse and inclusive workplace.
From a governance perspective, we are taking action of the board level as well, we recently announced the addition of two new board members, which expands the diversity of the board, while adding new skill sets and perspectives that are crucial as the oceaneering focuses on energy transition strategies.
We also formalized our ESG reporting to our board's nominating and corporate governance Committee.
During 2020 Oceaneering filed its first sustainability of report, which is posted on our web site using the disclosure methodology outlined by the sustainability accounting standards board or SaaS.
Oceaneering continues to hold in ESG index, a rating with MSCI.
Now turning to our 2021 and outlook for the markets we serve.
Coming into the year, most analysts and research pointing to continued headwinds for the offshore oil and gas market due to the low level of projects sanctioning in 2020 and continued uncertainty surrounding COVID-19.
With the OPEC plus actions taken at the very beginning of 2021 and growing optimism associated with numerous vaccine approvals. Many analysts and energy researchers are now forecasting Brent pricing to stabilize in the $55 to $60 per barrel range for 2021 and longer term pricing to be in the 50 to $70 per barrel.
The range.
We expect RIN pricing and the 55 to $65 per barrel range will support reasonable levels of INR activity in 2021.
Similar similarly, we believe that longer term brand pricing forecast of 50 to $70 per barrel will support increased offshore projects sanctioning activity in 2021.
Analysts and research service projections for other key metrics. We track also support these expectations.
Analyst data suggests that the floating rig count has stabilized and throughout 2021 will remain close to the year end 2020 levels of approximately 130 contracted rigs.
There were 123 tree awards in 2020, and Rice day forecast of modest recovery to around 202021 and back into the 300 range in 2022.
Price that also forecast tree installations of 273 in 2021, which approaches the 2020 total of $290 million.
Also according the Reits did offshore projects with an aggregate value of approximately $46 billion were sanctioned in 2020 of 53% decrease from 2019 sanction.
Sanctioning levels are expected to increase of 2021 to around 55 billion and returned to 2019 levels of around 100 billion.
In 2022.
The <unk> forecast of global installed offshore wind capacity to increase by 11, eight gigawatts by 2021, 37% over 2020.
Our entertainment business will continue to innovate as pent up demand is expected to growth theme park attendance to pre pandemic levels by 2022.
And finally government related markets. We serve are expected to remain relatively stable with continued modest growth for the foreseeable future.
Now to our 2021 consolidated outlook for Oceaneering.
We anticipate our full year 2021 operations to yield positive free cash flow in excess of the amount generated in 2020 and the midpoint of our consolidated adjusted EBITDA range to approximate 2020 consolidated adjusted EBITDA.
Based on year end, 2020 backlog and anticipated order intake, we forecast generally flat consolidated revenue with higher revenue and AD Tech and MBS to offset substantially lower revenue from our manufactured products segment.
We forecast relatively flat revenue in our SSR and the <unk> segments.
These projections assume no significant incremental COVID-19 impacts and generally stable oil and gas prices.
For the year, we anticipate generating 160% of $210 million of adjusted EBITDA with positive operating income and adjusted EBITDA contributions from each of our operating segments apart from seasonality moving pricing and margins in the current energy markets to be stable, we forecast improved annual operating results in our SSR OTG.
<unk> and <unk> segments, and lower operating results in our manufactured products segment.
Our liquidity position at the beginning of 2021 remains robust with $452 million of cash and an undrawn $500 million revolver available until October 2021, thereafter of $450 million available until January 2023.
We expect to further strengthen this position in 2021 by generating positive free cash flow in excess of the amounts generated in 2020.
As has been the case over the past several years. It is our intent to continue to strengthen our balance sheet to ensure that we are well positioned to deal with our $500 million bond maturity in November 2024.
For 2021, we expect our organic capital expenditures to total between $50 million and $70 million. This includes approximately $35 million to $40 million of maintenance capital expenditures and 15% to $30 million of growth capital expenditures.
We continue to closely scrutinize, our maintenance and growth capital expenditures focusing on opportunities that will provide near term revenue cash flow and return.
We also continue to invest in new more efficient technologies that will help our customers in meeting their goals to produce the cleanest safest barrels to help meet their carbon neutral goals.
In 2021 interest expense net of interest income is expected to be approximately $40 million and our cash tax payments are expected to be in the range of $35 million to $40 million. This includes taxes incurred in countries that impose tax from the basis of the in country revenue and bear no relationship to the profitability of such operations.
These cash tax payments do not include the impact of approximately $28 million.
Of cares Act tax refunds expected to be received in 2021.
Directionally in 2021 for our operations by segment.
We expect for subsea robotics are forecast for improved results is based on essentially flat <unk> days on hire minor shifts in geographic mix and generally stable pricing.
<unk> for tooling based services are expected to be flat with activity levels generally following <unk> days on hire.
Survey results are projected to improve on higher geoscience activity, we forecast adjusted EBITDA margins to be consistent with those achieved in 2020.
For Rovs, we expect our 2020 service mix of 62% drill support and 38% vessel services to generally remain the same through 2021.
Our overall RV fleet utilization is expected to be in the mid to high 50% range for the year with higher seasonal activity during the second and third quarters.
We expect the generally sustained our RV market share in the 60% range for drill support.
At the end of 2020, there were approximately 20 for Oceaneering Rovs onboard 21 floating drilling rigs with contract terms expiring during the first six months of 2021.
During that same period, we expect 28 of our Rovs on 20 for floating rigs to begin new contracts.
For manufactured products, we expect segment performance the declined primarily as a result of the decreased order intake in our energy businesses during 2020.
We continue to closely monitor the impact of COVID-19 pandemic on our mobility solutions businesses and currently expect to see marginally higher activity and contribution from these businesses in 2021.
We forecast that our operating income margins will be in the low to mid single digit range for the year.
For <unk> operating results are expected to improve in 2021 on generally stable offshore activity and margins comparable to the last half of 2020.
Operating results and adjusted EBITDA forecast to improve largely due to the efficiency and cost improvement measures implemented in 2020 and improved year over year contribution from our Angola Riser list of light well intervention campaign.
Vessel day rates remain competitive, but stable and we expect to see opportunities for pricing improvements during periods of the higher activity. We also anticipate reduced charter obligations and increased flexibility on third party vessels and an overall improvement in fleet utilization.
Has been the case over the last several years in this segment has the highest amount of speculative work incorporated in our guidance.
For MBS results are forecast to improve on higher revenue with operating income margins, averaging in the high single digit range for the year.
Good order intake at the end of 2020 is expected to begin benefiting the business in the second quarter of 2021.
We will continue to focus on the effective use of personnel and transforming how and where work is performed.
For <unk> revenue is expected to be higher producing improved results with operating income margins consistent with those achieved in 2020.
Growth in this segment is expected to be broad based with revenue growth in each of our government our three government focused businesses.
For 2021, we anticipate unallocated expenses to average in the low to mid $30 million range per quarter, as we forecast higher accrual rates for projected short and long term performance based incentive compensation expense as compared to 2020.
For our first quarter 2021 outlook, we expect our first quarter of 2021, adjusted EBITDA to be in the range of $45 million to $50 million Unsequestered higher revenue.
As compared to the fourth quarter of 2020, we anticipate higher revenue and relatively flat operating results and our AD Tech segment.
Lower activity and operating results in our SSR and manufactured products segments.
The revenue and operating results in our <unk> segment and in our <unk> segment operating results are forecast to improve on substantially higher revenue as we have commenced operations on the Angola, Roger was light well intervention project.
In closing our focus continues to be generating free cash flow, maintaining our strong liquidity position.
Demonstrating meaningful progress in advancing our ESG and the energy transition efforts.
And improving our returns by driving efficiencies and consistent 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 for.
Finally.
I, thank our employees and management teams for their continued hard work in these very challenging times as I stated in my opening remarks, I am very proud of what we accomplished in 2020, and I think oceaneering of stronger on many fronts as we head into 2021.
We appreciate everyone's continued interest in oceaneering and will now be happy to take any questions you may have.
At this time of you would like to ask the question.
Our star one of them the one on your telephone keypad.
All of your question, perhaps of the pound key.
Pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Sean <unk> from Jpmorgan. Your line is open.
Good morning, Sean Thank.
Thank you good morning.
Global R&R it out.
And manufactured products will force I should say, thank you for all the detailed guidance, but theres a lot of.
Granularity that you offered for filing.
For manufacturing products.
I'd love to just get a little more detail on how you see.
Award in 'twenty, one, including one vehicles.
Trying to get a form for.
How much inbound do you need in 'twenty, one to hit that margin target or do you have enough line of sight again into that range, even if orders don't pick up maybe for the latter half of 'twenty one.
The.
I'd put it this way you Sean and thanks for the question we've got.
We've got the two biggest projects we're working on will run throughout the year. So that's that's the lion's share of what we've got in the plan and then we do expect that we'll be able to pick up some orders were not overly aggressive with what's built into the plan, but that there will be half to half of where we will need to have some incoming in the first half of the year, so, but that's across the board and Thats not just.
And of <unk>, that's in the given the.
Some of the other connected the hardware.
The in the mobility solutions as well and so we see some of that coming in all of that all of the all around the board and as you know I mean, some of those big projects for the vehicles are a longer line of sight. So that's not entirely what we got in the plan I think we've hedged that effectively.
Got it. Thank you for the I think that makes sense.
And then.
I think everyone's trying to unpack these new energy markets I understand the value chain of a little better so things like offshore wind.
Can you maybe just talk about how you perceive.
Differences in those markets compared to year of traditional LNG market in terms of competitive dynamics.
Tracking terms pricing how would you compare.
The two in terms of traditional.
End markets versus these new emerging ones that youre pursuing.
If you would of asking me that question, probably three four years ago I would have told you that it's a tough market.
For the pricing is a little bit harder to get.
The contract a little harder than some of our oilfield customers I think number one things have gotten better there I think we're starting to we're able to establish the the value of uptime in and new technology and a lot of things. So we're able to place more technology and of that market than we have in the past and then establish longer term.
Relationship. So I think they are going to be fair. They were a little hesitant about we remain interested if theres another pickup in oil and gas. So we built those relationships we've turned them into something better.
And in the meantime, and oil and gas has gotten a little more challenging. So I think it's really rebalanced quite a bit and we would say that.
Those are good those are good projects to have now.
Yes, and I think Rob one of the things I would add is just partnering with them in the development of the source vehicles and things of that nature to help them be more efficient in their operations has been.
Something we've been very proud of and the last.
The 12 to 18 months and the uptake of that.
I appreciate that thanks.
Your next question comes from the line of.
Taylor.
So mature Pickering Holt your line is open.
Alright, thanks, guys and good morning.
First question for sure with respect to the 2021 guidance obviously.
Big range at the EBITDA line 160 day to 10, and I know, we still got a ways to go before we close out 2021, but could you just help us think about that.
Kind of the probability of outcomes getting to that higher end of the guidance versus the lower end and just really trying to get a sense of how confident you feel in getting to the midpoint of that guidance of about $185 million of EBITDA next year for this year.
Sure I think we feel pretty good because.
More of the more of the news it's happened most recently is really.
Putting some confidence out there of about a more stabilized commodity price and being in that being in that range and I think more confidence about that range. So I think we feel good about let's say the midpoint and the upper end of the range.
Certainly today it is looking good.
But it's really that range is going to be most strongly driven by the stability in the level of the commodity price because I think about I always walk through sort of the timing of these if we got if we got a good near term commodity price. That's first of lot of the <unk> activity that we get those are of those are quick turn projects.
Of those barrels of already behind pipe. So if we can help of produce more through the our existing wells they don't need permits for that.
Generally speaking not like the drilling permit. So there is more of that we can do there, especially with the riser list of intervention campaign. So that that can that can happen fast and drive that range up.
And then maybe later in the year, we start to see more re contracts get picked up better utilization of the contracted rigs. So that helps on the upper end of the range and then finally get some <unk> in the door getting enough confidence over the longer term that we've been stable for a while at a better level and thats going to drive more in the manufactured products business too. So it's all of.
All of that that confidence that is by far the biggest mover for us in this in this range.
Understood that's helpful and piggybacking on Sean's questions and manufactured products. Obviously, that's the segment that that's going to have the most acute headwinds in 2021 and the.
Based on the kind of order outlook you have in your plan today.
Do you have any confidence that 2021 might represent the bottom for manufactured products at least from the operating income perspective or.
Little bit too soon the call at this point.
I think what.
Just kind of refer back to what we were talking about it certainly looks like when we look at the rice to data and others around.
Projects.
Is that the 2020 was the low point and so we see those projects like like so many are saying start to increase I think that we should see I mean, we're going to wear and attract with the FID and if they go up and that's going to be good for oceaneering as well. So that's what that's what's out there in the market right now as far as all of the customer budgeting in the expectation.
So I would kind of go with that I think it looks like.
We should start to see that and unfortunately that business rate lags a little bit so low <unk> in 2020 tends to have its effect in 2021 and improvement in 2021, we'll start to build in 'twenty, two and beyond so I think you've got it right.
Awesome well thanks for the answers.
Net.
Your next question comes from a lot of the fall from Bank of America.
Good morning.
I was wondering if you could just circle back for the <unk> Guide.
I know theres a lot of moving pieces here of the guide all of its kind of higher revenue for.
<unk> EBITDA quarter over quarter can you just kind of walk us through some of some of the moving pieces here.
Are you asking from cost come back into the system or is there anything else impacting <unk> or <unk>.
Maybe some benefit that helped out for kit.
I would just say first of all you look at some of the things that we've talked about already and Alan will help me out here, but one of the one of the things is the rise of the slight well campaign.
A good part of the Q1 story.
I'll hit on your question about cost. So we don't see any real significant cost creep back in I would point your attention to a little bit of it.
I think its temporary but a little bit of a struggle getting people through the U K right now just with the with the impact of the new strains of COVID-19 that slowed down some of that in <unk>.
Are in quarantine of little bit longer, but it's that's not significant I think most of the things we're seeing if the.
They are coming into the system there they're temporary pieces overall the like we've got we've got good control and then ill kind of in the background. We still got we're still realizing more and more of the good work. We did in the cost reductions in 2019 and 2020. So some of Thats still coming in so I don't think costs are are really a big <unk>.
And for US in Q1, Alan any other comments that you'd add.
No I think you hit the high points of my own.
Certainly as we've.
Mobilizing are out working on the rise of the slide well intervention campaign in Angola.
The other stories I think we've talked about in the past is the drill pipe riser contracts that we have working for Petrobras in Brazil.
All three systems are on contract beginning the this this.
This quarter of where we had two of them beginning of the net middle of last year, So that's incremental as well.
The costs continue to be of focus.
Focus and looking at improvement plans.
Not seeing.
Creep in that area at this point.
Understood.
And then maybe just more of a kind of a high level question.
We're hearing a lot of all the Gulf of Mexico.
So much uncertainty from a regulatory perspective.
It seems like so far the impact has been pretty minimal.
Some some of even kind of called towards the pull forward of activity just to get just to get ahead of the regulatory changes for <unk>.
Commodity price not today.
How are you guys thinking about the Gulf of Mexico kind of longer term how it plays out over time, given the kind of new development slows what do you think what do you think of it all mean for some of the more maintenance oriented services.
Well I think actually.
I like the way you said that because I think one of the trade offs. We see is if we start to see maybe a little bit of of hang up and permitting it could allow us to do more of the the maintenance work more of the iron ore because if you've got some money to spend and you've got a decent commodity price and you can't drill of new well, but could you get the most of that of the wells you've got that could that could turn.
Some change the work.
But but we actually have good participation in that kind of work so that could be good for some of the near term obviously any long term.
Issues in the Gulf of Mexico would be would be more serious for all of us, but I think thats one of the things we're watching very carefully obviously.
Understood. Thanks, everyone.
Thank you.
Your next question comes from the line of Ian Macpherson from the energy Your line is open.
Thanks, Good morning, Ron Congratulations here on.
On the results and I know, it's been a lot of heavy lifting of 2020 and receipt of some fruits.
Thank you.
Thanks for all of the detail.
When I look at Oceaneering, and the breadth of your services and technology.
And through the lens of energy transition for me it seems much broader than just offshore wind.
Obviously getting less attention than some other areas.
Ocean bottom mining premier offshore projects for.
Carbon capture and storage these are all areas.
For me see synergistic with what you already have under your tenure.
So.
How are you thinking about these different end markets for energy transition in terms of what you already have in.
Not just replacing your business, but a growing your business into new areas.
No.
It's absolutely a key focus for us and I think we're trying to trying to help people understand that some of the some some of them when we talked about our investments it's got to be focused on those types of activities not just not just greater industrialization broadly written.
Definitely not more of the same we need to make we need to turn this corner with and a lot of our customers are doing it. So that's that's really helpful. So we play of high we place a high emphasis on the places that our current customers are going because we know we've got the the sales channel there, but also just the things of plan to our strengths like you said subsea mining.
It's still win but floating offshore wind is an even bigger deal for us because of the deep water play.
Some of this repurposing potentially repurposing platforms to be to be hydrogen producing that would that would definitely help our <unk> group because that integrity management of extending the life of these assets as they are being repurposed theres a lot of great opportunities out there and it's.
It's actually pretty exciting to say, okay, we need to look at all of them. But then we also need to make some really good bets on which of them have scale, which of them happened in the soonest and which from our best best suited to our capabilities.
Yes that makes sense I would say I think it was probably helps not hurt to shed more light on.
The granularity of AD tech for the market understanding your business or your valuation and when you get to the point of having scale with all of these different.
Energy transition.
Opportunity of even if it's initially total addressable market and then at some point current revenue run rate.
That would be that would be helpful for your story as well.
Some aspiration to put more specificity on those numbers for for current business and prospective business day.
During 2021.
I think we're going to we'll probably be cautious I like the idea of of.
Understanding what the capabilities are but I think we're going to be conservative because always we don't want to oversell something that doesn't have the right scale. So I want to make sure that we arent where misleading anybody.
Bye bye getting excited about the about the ideas before they but they have meaningful financial impact, but the point well taken I think we will try to at least give glimpses of where we're going and then with all of the with all of the cautions of how long it takes to get there, but I appreciate the comment.
Great. Thanks, a lot.
Yes, thanks for you.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Question comes from the line of Blake Gendron from Wolfe Research. Your line is open.
Hey, Thanks, Good morning, and appreciate all of the guidance and the time here I wanted to circle back on two subsea robotics seems like a pretty flat outlook for the floater count baked into what you are contemplating for 2021 also of the back half.
Has in store for potential acceleration there.
You talked about I am already talked about the Gulf of Mexico do you think of it I'm just wondering as we start to get a few more floaters into.
Into the water here in the market starts to normalize whether it matters all of that much if it's an existing customer of yours or if it's the new customer I am just wondering if it's if it's existing customers that are adding more rigs as opposed to additional customers coming into the market.
What the market share implications could be for you on the on the robotic side.
Great question obviously.
It's easier if it's an existing customer, it's especially easier for already on the rig and we've been talking a lot about trying to stay on the best assets. The ones that are most likely to go to work.
Been very effective so I think that really helps us with the new customers is saying we're already here, you're reducing your mobilization costs and we've got a track record established with that rig which they can they can tell you that.
If there are they are satisfied with that relationship as well. So I can just watch kind of the rigs but.
That actually plays in our favor is because of our position on those high quality assets. So.
We fight for all of them.
So as you might expect.
That makes sense and then for my follow ups.
I think it would be.
Tough for me to go through the working capital, especially with all the moving pieces in your outlook. So maybe from a free cash conversion perspective from EBITDA, perhaps could you just walk through now that you've reoriented and Rejiggered some of your segments.
How would you characterize each in terms of high free cash conversion versus low free cash conversion of the reason I'm asking is if we see obviously growth upside and downside in each each line that could that could impact the out of the free cash flow conversion ultimately moving forward. Thanks.
Yes.
The way most people of kind of looked at it in the past Blake is going in and looking at EBITDA and you kind of how you convert that and then going at 185 of your midpoint you can look at our Capex guide.
The 50 to 70 of midpoint of 60.
Which consistent of what we did this year interest expense cash of about $40 million of net interest expense and cash taxes of the midpoint of 37, 5%. So if you look at that you get to.
A number of about $47 five you just take the midpoint of all of those and then we said all of our last call that we did expect to generate.
Working capital.
<unk> release associated with some project milestones this year as well and that gives us the confidence to kind of get better than the 2020 free cash flow and then.
One thing that's.
Our operating that's coming out and then we also have the cash tax act that rod had in his prepared remarks.
The other $27 million to $28 million that we would anticipate on top of that.
Totally understood.
We have of down for 'twenty 'twenty, one because you've given such good guidance I'm just wondering for maybe in the out years.
I don't want of lead too much but if we see A&D Tac continue to grow in excess of the cyclicality of some of your energy segments. I mean is this a materially.
Capital light business for you such that the conversion over time starts to improve.
Yes, if you look at both the <unk> and AD tech because we tend to be more.
More or less of a very light in the capital intensity.
So those are the ones that we do like the growth prospects.
And the returns of nice.
Very helpful. Thanks, Jeff.
Yes.
There are no further questions from the call back over to Mr. Robertson for closing comments.
Alright.
Well since there are no more questions I'd like to wrap up by thanking everybody for joining the call. This concludes our fourth quarter and full year 2020 conference call every day.
Thank you everybody for joining you may now disconnect.
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