Q2 2022 Oceaneering International Inc Earnings Call
$5 million for the full year.
Operating results benefited from seasonal and market influences that resulted in a 17% sequential growth in revenue as expected compared to the first quarter of 2022, our energy segment segments in aggregate led by SSR and LPG posted a 20% revenue increase and significantly improved operating results in the second quarter.
Energy segment results were slightly offset by a sequential decline in operating results by our AD Tech segment consolidated operating results increased by $23 9 million in the second quarter of 2022 as compared to the first quarter of 2022 with all of our operating segments generated positive EBITDA.
Now, let's look at our business segments operations by segment for the second quarter of 2022.
SSR revenue and operating income both increased significantly as expected with healthy levels of seasonal activity for RV survey and tooling services SSR EBITDA margin of 28% improved sequentially with the increased activity better aligning with the additional costs incurred during the first quarter. We also started to realize recent pricing improvements.
Our revenue split was 77% from our remotely operated vehicle or RV business and 23% from our combined tooling and survey businesses.
Compared to 76% and 24% split respectively in the immediate prior quarter.
As we have forecast sequential <unk> days on hire increased on standard seasonality and recovering offshore activity with an increase in days for both drill support and vessel based services days on hire were 14631 as compared to 11842 during the first quarter. Our fleet use was 57% in drill support and 40.
3% and vessel based services versus $63 and 37% respectively in the first quarter.
We maintained our fleet count at 250, <unk> systems, and our second quarter fleet utilization was 64% up significantly from 53% in the first quarter.
During the second quarter, we retired three of our conventional world class R&D systems and replace them with two upgraded conventional world class systems, and one high speed <unk> work class Rovs system.
That is currently engaged in renewables work.
Average <unk> revenue per day on hire.
<unk> $8278 was 1% higher than average RMB revenue per day on hire of $8196 achieved during the first quarter.
At the end of June we had <unk> contracts on 80 of the 137 floating rigs under contract or a 58% market share an improvement over the 55% recorded for the quarter ending March 31, 2022, when we had RV contracts on 72 of the 131 floating rigs under contract.
Turning to manufactured products. This segment produced an operating loss of $1 4 million for the second quarter of 2022 on revenue, 28% higher than the first quarter revenue.
Revenue increased primarily due to the receipt of certain umbilical materials that did not contribute to current quarter manufacturing activity sequentially operating results declined due primarily to less profitable work being executed in our mobility solutions businesses.
Our manufactured products' backlog on June 32022 remained flat at $335 million compared to our March 31, 2022 backlog of $334 million.
Our book to Bill ratio was one one for the six months ended June 32022, and was one five because the trailing 12 months.
For <unk> second quarter, 2022 revenue and operating income increased significantly compared to the first quarter of 2022, primarily as a result of increased inspection maintenance and repair or <unk> and installation work in the Gulf of Mexico.
The sequential operating income margin increased from 1% in the first quarter to 15% in the second quarter of 2022 reflected.
Increased demand and significantly improved pricing for vessel based services in the Gulf of Mexico, Although it was a very good quarter. It could have been better as we were negatively impacted by customer driven project delays and ongoing industry wide hiring challenges, particularly in the Gulf of Mexico, which have resulted in missed opportunities.
Integrity management and digital solutions, our Mds sequential operating income was essentially flat on a 5% increase in revenue higher seasonal activity contributed to this revenue increase operating income margin of 6% was the same as recorded for the first quarter of 2022.
Our AD Tech second quarter 2022, operating income declined from the first quarter of 2022 on a 5% increase in revenue.
Operating income margin of 10% declined more than expected from the 15% margin achieved in the first quarter of 2022 due to changes in revenue mix and delays in certain projects, where we incurred pre contract costs analogy.
Unallocated expenses of $31 $7 million were relatively flat compared to the first quarter of 2022.
Now I'll address our outlook for the third quarter of 2022, we are projecting a sequential increase in third quarter 2022 consolidated results on increased revenue with adjusted EBITDA in the range of $60 million to $70 million.
For our third quarter 2022 operations by segment compared to the second quarter of 2022.
<unk>, we are projecting higher revenue and operating profitability in our RV survey and tooling businesses with RV utilization increasing to the high <unk> to low 70% range SSR EBITDA margin is anticipated to improve but to remain in the high 20% range as the benefit of recent pricing improvements is increasingly reflected in our results.
For manufactured products, we anticipate higher operating income on a modest decrease in revenue, we expect operating income margin to improve to the low to mid single digit range quotation activity is robust within our energy businesses and interest is increasing and our mobility solutions businesses.
<unk>, we expect a significant increase in revenue and higher operating results with operating margins remaining in the mid teens range.
Global offshore activity is expected to remain high with the Gulf of Mexico in particular experiencing high seasonal EMR and installation activity through the third quarter.
For <unk>, we expect revenue to increase modestly with a slight improvement in operating income margin for.
For AD Tech, we forecast relatively flat operating income on a slight increase in revenue, we expect continuing project delays and higher pre contract costs through the third quarter.
Unallocated expenses are expected to be in the low to mid $30 million range.
Directionally for our full year 2022 operations by segment as compared to 2021 for SSR, We expect operating results to improve on higher revenue <unk> days on hire are projected to increase year over year with minor shifts in geographic mix.
Results for tooling based services are expected to increase with activity levels generally following <unk> days on hire.
Survey results are also expected to improve on growing your physical activity.
SSR forecasted EBITDA margin is expected to show an increasing trend through the second half of beer as an increasing percentage of work reflects recent pricing improvements. In addition to the increased levels of personnel utilization.
EBIT margin is expected to average in the high 20% range for the full year of 2022.
Okay.
For Rovs, we expect 2022 service mix to remain about the same as 2021 mix of 60% drill support and 40% vessel based services with higher vessel based percentages during the seasonally higher second and third quarters.
We estimate overall RV fleet utilization to be in the mid 60% range for the year again with higher seasonal activity during the second and third quarters.
Subject to quarterly variances, we continue to forecast that our market share for drill support market will remain in the 55% to 60% range for the foreseeable future.
As of June 32022, there were approximately 30 oceaneering Rovs onboard 25 of the 35 floating drilling rigs with contract terms expiring by year end.
The second half of 2022, we expect 46 of our Rovs on 40 of the 61 floating rigs to begin new contracts.
For manufactured product, we forecast higher operating results on a significant increase in revenue as compared to 2021, we expect the current high quotation activity in our energy businesses to result in solid bookings for 2022, and the increasing interest in our mobility solutions businesses to result, and a good pipeline of opportunities for 2012.
<unk> three <unk>.
We anticipate an entertainment related product sale mentioned in connection with our second quarter 2022, EBITDA guidance range is now projected to conclude in the second half of 2022.
Forecast that our operating income margins will be in the low to mid single digit range for the year and segment book to Bill ratio will be in the range of $1 one to one three for the full year.
For <unk>, we forecast a significant annual improvement in both revenue and operating results. Good vessel utilization is expected to continue into the fourth quarter with operators remaining active with shorter cycle RMR and installation work in the Gulf of Mexico, we feel well positioned to capitalize on these opportunities with the additional vessel charters entered into.
Earlier this year, although we expect a typical seasonal decline during the fourth quarter current projection show activity remaining significantly above the levels achieved in the fourth quarter of 2021.
We expect the higher demand levels to support pricing and operating income margins to remain in the low to mid teens for the fourth quarter of 2022.
Brian as we forecast lower operating results on higher revenue with operating income margins, averaging in the mid single digit range for the year. As this is a people intensive business, we're experiencing inflationary pressures on our direct cost which are resulting in lower margin expectations for 2022, we are working to mitigate this margin deterioration by introducing further cost improvements.
Internally and implementing contractual increases to be passed onto our customers. We currently project improved operating income margins for the second half of 2022 as compared to the first half of 2022.
So AD tech, we expect lower operating results on relatively flat revenue.
We are anticipating improved project activity during the fourth quarter with operating income margins recovering to the low to mid teens range for the full year of 2022, we expect operating income margin to average in the low double digit range.
We remain encouraged about our asset businesses and see good growth potential for this segment in 2023 and beyond.
We are reducing our estimates for 2022 organic capital expenditures to a range of $70 million to $80 million to better align with our free cash flow expectations. This includes approximately $40 million to $45 million of maintenance capital expenditures and 30% to $35 million of growth capital expenditures, we forecast, our 2022 income tax payments to be in the range of <unk>.
$40 to $45 million.
<unk> expenses are expected to average in the low to mid $30 million range for the quarter for the second half of 2022.
Now turning to our balance sheet and liquidity as previously announced we entered into a new revolving credit facility in the second quarter of 2022, which provides access to substantial liquidity through April of 2026. This new facility when combined with our cash balance gives us good flexibility to both grow our businesses and to address the maturity of our 2020.
Four notes.
Expect a meaningful reversal from cash consumption during the first half of 2022 to significant cash generation during the second half of the year and now expect to generate between 25.
$75 million of free cash flow for the full year.
Liquidity remains strong with no borrowings under our new $250 million secured revolving credit facility with no loan maturities until November 2024.
In summary, based on our expectations for the second half of 2022, we are updating our adjusted EBITDA guidance to a range of $210 million to $240 million for the full year beyond 2022, we believe that the macro indicators associated with our energy businesses will continue to be strong and we anticipate high levels of offshore energy activity over the next.
Three to five years this combined with good growth opportunities in our aerospace and defense businesses and mobility solutions businesses underpin.
Underpinning our general expectation for increased activity over the next several years, we remain focused on energy transition and the need to transform our businesses to thrive as the world evolves.
With healthy levels of free cash flow projected over the next several years, we expect to have the flexibility to make investments to transform our businesses and deal with our 2024 debt maturity.
Our key focus areas are retaining and attracting top talent to maximize access to near term opportunities ensuring that our pricing is appropriate for the current market generating significant levels of free cash flow in the second half of 2022, and most importantly, delivering value added solutions utilizing our services and products with.
High levels of quality and safety.
We appreciate everyone's continued interest in oceaneering and will now be happy to take any questions you may have.
Yes.
Thank you.
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First question comes from James Schumm from Cowen. Please go ahead.
Hey, good morning, guys.
Good morning, Jim.
So the subsea robotics margin guidance for the year was revised lower.
Assuming some wage increases are pressuring your margins there.
What's the opportunity to raise prices in the segment to offset any cost increases.
So I guess, we're still we're still projecting that high 20 average for the year, which.
Anticipate a an exit rate.
Of around 30, or plus or minus so it's not a it's not a big revision down or anything so I just wanted to clear that up but for pricing let me.
Great question, Jim and I'm glad you asked because one of the things.
We need to point out is in LPG, we can move price almost immediately it's a callout business. We did that we bid that work real time. So as soon as we start to see the market change. We can we can appreciate that on most all of our jobs in the Gulf of Mexico immediately not so much internationally, but certainly for the Gulf of Mexico, So that moves really quickly for RV.
Pricing, we're tied to two to six months and beyond pricing update several years. So that's all built into contracts. It doesn't mean, we don't go look for it doesn't mean, we don't ask for personnel surcharges and other things like that but it is harder to move and it takes longer for us to build that up we're starting to see it now we think it continues as I mentioned in the notes throughout the year.
Year, but it's just a little bit slower walk to get it to get it up there. The good side of that is and I'll just kind of point out when the market was in decline we were able to hold onto those margins for a long time because of the same phenomenon around the sort of the contracting length. So it's just it just moves at a different speeds in some of the other businesses.
Understood. Thanks for that and then just it looks like the math on the implied fourth quarter EBITDA calls for $75 million at the midpoint.
The third quarter guidance midpoint of 65, and typically the fourth quarter is a weaker quarter for you.
So why is the fourth quarter significantly stronger this year than how achievable is that.
First of all we've got we've got to add.
The AD Tech and we mentioned <unk> seen project improvement in the fourth quarter. We do think that we're going to have a longer season in LPG.
We see that we do see that walk up or RV Allen what else am I missing and the other one we alluded to here in the call notes as it related to the product sale and manufactured product set originally we're looking to conclude that here in Q2.
When you look at it it's probably going to materialize here in the back half of the year and I would say, it's probably could be Q4.
At this point, so that that would be one element that could drive Q4 higher and at the same time as Rod said you are starting to if you look at the math on <unk> pricing and when that starts to materialize and we start to get margin.
Appreciation, we'd get some in Q3 and then we're looking for a further leg up in Q4 as well.
Gotcha, Okay. Thank you very much.
Thanks Chip.
Thank you for taking my question you have any questions. Please press star followed by one.
No further questions at this time you May proceed.
I apologize.
I'm sorry, we do just have a follow up for Kieran from James.
Okay, that's fine.
Yes.
So the last one for me just.
Given your concerns regarding receivables just what's the risk of a write down here.
Alright getting paid yet.
So this is more about I think its activity base, where our customers are working.
And having issues with trying to trying to find personnel just the same as we've been sourcing and I think some of these are bills that are being sent in.
Soon as their personnel completed job to go into another one and sometimes I think these bills aren't getting approved as timely.
Just because of their activity levels. So.
Our customers that we're looking at have cash in our eyes I don't think its a collection.
Credit issue I think it's more of a.
Timing matter their ability to process some of these.
Bills as timely as we would like so I think thats more of the issue then their ability to pay so I don't think its a collection issue that would necessitate a write off.
Right.
Thank you.
At this point, there would be credit worthy issues, but I just wanted to get your thoughts on that thank you great. Great question I appreciate it.
It's a very generalized phenomenon across some of the some of the big guys in and even even some of our non oil.
Customers as well so it is very broad based it doesn't necessarily spike out any any payment risks.
Right.
Take your alone necessarily for field services, but.
Just wanted to clarify thank you great.
Great question. Thanks, Jim.
There are no further questions you may proceed.
Alright, well since there are no more questions I'd like to wrap up by thanking everyone for joining the call and this concludes our second quarter 2022 conference call have a great day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Okay.