Q3 2023 Oceaneering International Inc Earnings Call
My name is Julian.
Your conference.
Yeah.
Welcome everyone to the Oceaneering third quarter 2023 earnings conference call.
All lines have been placed on mute to prevent any back.
There will be a question and answer period. After the Speakers' remarks with that I will now turn the call over to Mark Peterson with generic Vice President of corporate development at Investor Relations.
Thank you good morning, and welcome to <unk> third quarter 2023 results Conference call today's call is being webcast and a replay will be available on <unk> website.
Joining us on the call today are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments, Alan Curtis Senior Vice President and Chief Financial Officer, and Hillary Frisbee, who is working with me in Investor Relations.
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 1095, our comments today also include non-GAAP financial measures additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release, we welcome your questions. After the prepared statements I will now turn the call over to Rod.
Hey, good morning, and thanks for joining the call today.
As is our custom at this time of year, we're happy to be providing you with our initial thoughts fiduciary is 2024 outlook as announced yesterday, we are initiating 2024 guidance for earnings before interest tax depreciation and amortization or EBITDA in the range of $330 million to $380 million at the midpoint. This would represent a 25 person.
The increase over $285 million the midpoint of our revised adjusted EBITDA guidance for 2023, we are confident in our ability to deliver this solid improvement in 2024 based on continuing expectations of growth in our traditional offshore energy businesses, driven by growing global energy needs increasing.
Backlog as evidenced by our third quarter order intake of almost $900 million.
Expectations for measurable growth in our aerospace and defense technologies or AD Tech segment and anticipated improvement in our non energy manufactured products businesses.
These fundamentals also underpin our expectation that our 2020 for free cash flow will exceed that generated in 2023.
Now I'll focus my comments on our performance for the third quarter of 2023, our current market outlook Oceaneering, It's consolidated and business segment outlook for the fourth quarter and full year of 2023, and our initial consolidated 2024 outlook, including the previously mentioned EBIT guidance range and free cash flow expectations.
After these comments I'll then make some closing remarks before opening the call to your questions.
Now to our third quarter summary results our improved third quarter results were primarily due to strong global offshore activity.
Julie: My name is Julie, and I will be your conference operator. Welcome everyone to Oceaneering's third quarter, 2023 earnings conference call. All lines that are in the film mute to prevent any bad cries.
We produced $53 $7 million of true free cash flow and $84 1 million of adjusted consolidated EBITDA, which was at the upper end of our guided range and exceeded consensus estimates for the third quarter.
Julie: There will be a question and answer period after the speakers remarks.
Offshore activity drove quarter over quarter operating improvements in our subsea robotics for SSR and offshore projects group or LPG segments. In addition, and as expected. We also saw improvement in our <unk> segment.
Mark Peterson: With that, I will now turn to call over to Mark Peterson, Oceaneering's Vice-President of Corporate Development at Investor Relations.
Mark Peterson: Thank you. Good morning, and welcome to Oceaneering's third quarter, 2023 results conference call. Today's call is being webcast, and a replay will be available on Oceaneering's website. Joining us on the call today are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments. Alan Curtis, Senior Vice President and Chief Financial Officer, and Hilary Frisbie, who is working with me in Investor Relations. 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 Security's Litigation Reform Act of 1995. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release.
Yeah.
Now, let's look at our business operations by segment for the third quarter of 2023.
Mark Peterson: We welcome your questions after the prepared statements.
Our revenue and operating income both increased as expected when compared to the second quarter with lower activity levels for rovs being offset by slight RV pricing improvements and higher survey and tooling activity SSR EBITDA margin of 31% improved over the second quarter of 2023 reflects.
The benefit of new contract pricing.
The SSR revenue split was 76% from our RV business and 24% from our combined tooling and survey businesses compared to the 70, 822% split respectively in the immediate prior quarter.
Sequential <unk> days on hire were 1% lower at 15932 days as compared to 16032 days during the second quarter with a decrease in drill support days and a slight increase in vessel based services. Our fleet use was 61% in drill support and 39% and vessel based services the same.
In the second quarter of 2023.
Mark Peterson: I will now turn the call over to Rod.
We maintained our fleet count at 250, <unk> systems in our third quarter fleet utilization was 69% a slight decline from the 70% achieved in the second quarter average RMB revenue per day on hire of $9372 was 3% higher than average <unk> revenue per day on hire of 9070.
Roderick Larson: Good morning, and thanks for joining the call today. As is our customer this time of year, we're happy to be providing you with our initial thoughts on Oceaneering's 2024 outlook. As announced yesterday, we are initiating 2024 guidance for earnings before interest, tax, depreciation, and amortization, or EBITDA, in the range of $330 to $380 million. At the midpoint, this would represent a 25% increase over $285 million. The midpoint of our revised adjusted to EBITDA guidance for 2023.
Seven.
<unk> achieved in the second quarter.
At the end of September 2023, we had 61% drill support market share with RV contracts on 89 of the 146 floating rigs under contract as compared to the 62% recorded for the quarter ended June 32023, when we had our re contracts on 91 of the 147 floating rigs.
Roderick Larson: We are confident in our ability to deliver this solid improvement in 2024 based on continuing expectations of growth in our traditional Oceara energy businesses driven by growing global energy needs. Increasing backlog is evidenced by our third quarter order intake of almost $900 million. Expectations for measurable growth in our aerospace and defense technologies or ad tech segment and anticipated improvement in our non-energy manufactured products businesses. These fundamentals also underpin our expectations that our 2024 free cash flow will exceed that generated in 2023.
Their contract.
Turning to manufactured products sequentially, our third quarter 2023 operating results and revenue declined operating income and related margin percentage of $8 $2 million and 7% respectively declined from the second quarter of 2023, due primarily to changes in product mix.
Order intake during this quarter was strong throughout our energy businesses with backlog increasing to $556 million on September 32023 from $418 million on June 32023, our book to Bill ratio was 125 for the nine months ended September 32023, and was $1 41 for the trailing.
Roderick Larson: Now, I'll focus my comments on our performance for the third quarter of 2023, our current market outlook, Oceaneering's consolidated and business segment outlook for the fourth quarter in full year of 2023, and our initial consolidated 2024 outlook, including the previously mentioned EBITDA guidance range and free cash flow expectations. After these comments, I'll then make some closing remarks before opening the call to your questions.
12 months.
Sure.
<unk> third quarter 2023, operating income increased as compared to the second quarter of 2023 on a 15% increase in revenue operating.
Roderick Larson: Now, to our third quarter summary results, our approved third quarter results were primarily due to strong global offshore activity. We produced 53.7 million dollars of free cash flow and 84.1 million dollars of adjusted consolidated EBITDA, which was at the upper end of our guided range and exceeded consensus estimates for the third quarter. Oceara activity drove quarter over quarter operating improvements in our sub-sea robotics USSR and offshore projects group or OPG segments. In addition, and as expected, we also saw improvement in our ad tech segment.
Operating income margin improved to 18% as compared to the 13% margin.
We achieved in the second quarter, reflecting increased demand for vessel based services globally changes in service mix and the successful resolution of a commercial dispute.
Sure.
Integrity management and digital solutions, our <unk> third quarter 2023, operating income declined slightly from the preceding quarter on a 5% increase in revenue operating income margin of 5% decline from the 6% recorded in the second quarter of 2023, due primarily to slight changes in geographic and service mix.
Roderick Larson: Now let's look at our business operations by segment for the third quarter of 2023. SSR revenue and operating income both increased as is expected when compared to the second quarter with lower activity levels for ROV being offset by slight ROV pricing improvements and higher survey and tooling activity. SSR evid a margin of 31% improved over the second quarter of 2023, reflecting the benefit of new contract pricing. SSR revenue split was 76% from our ROV business and 24% from our combined tooling and survey businesses compared to the 78-22% split respectively in the immediate prior quarter.
<unk> third quarter 2023, operating income increased significantly from the second quarter on a 6% increase in revenue.
Operating income margin of 14% improved from the second quarter of 2023 and benefited from margin recovery on prior quarter contract costs unallocated expenses were $42 2 million.
Now I'll address all address our outlook for the fourth quarter of 2023.
On a consolidated basis, we believe that our fourth quarter 2023, EBITDA will decline on relatively flat revenue as compared to our third quarter results.
While we anticipate a seasonal slowdown in the fourth quarter, we still expect relatively good activity in our offshore markets broadly for the fourth quarter of 2023 as compared to the third quarter, we expect slightly lower activity in each of our segments, except for manufactured products and slightly lower unallocated expenses.
Roderick Larson: Sequential ROV days on higher or 1% lower at 15,932 days as compared to 16,032 days during the second quarter. With a decrease in drill support days and a slight increase in vessel-based services, our fleet use was 61% in drill support and 39% in vessel-based services, the same as in the second quarter of 2023. We maintained our fleet count at 250 ROV systems and our third quarter of fleet utilization was 69%, a slight decline from the 70% achieved in the second quarter.
For our fourth quarter 2023 operations by segment as compared to the third quarter of 2023 for SSR, we're projecting slightly lower revenue and relatively flat operating profitability RV days on hire are forecast to decline slightly as compared with the third quarter with slightly higher drill support days being more than offset by a seasonal.
Roderick Larson: Average ROV revenue per day on higher of $9,302 was 3% higher than average ROV revenue per day on higher of $9,077 achieved in the second quarter. At the end of September 2023 we had 61% drill support market share with ROV contracts on 89 of the 146 floating rigs under contract. As compared to the 62% recorded for the quarter ended June 30, 2023 when we had our re-contracts on 91 of the 147 floating rigs under contract.
Klein and vessel based days.
We expect good survey activity to continue during the fourth quarter, our forecast assumes overall ROE fleet utilization to be in the upper 60% range.
Our fourth quarter 2023, adjusted EBITDA margin is anticipated to improve over the third quarter of 2023, while remaining in the low 30% range.
For manufactured products, we anticipate an increase in revenue and significantly lower operating profitability as compared to the third quarter with operating income margin in the low single digit range.
Our fourth quarter forecast anticipates cost that may we may incur to improve the profitability of our manufactured products portfolio.
Roderick Larson: Turning to manufactured products, sequentially our third quarter of 2023 operating results and revenue declined. Operating income and related margin percentage of $8.2 million in 7% respectively declines from the second quarter of 2023 due primarily to changes in product mix. For the intake during the quarter was strong throughout our energy businesses with backlog increasing to $556 million on September 30, 2023 from $418 million on June 30, 2023. Our booked bill ratio was 1.25 for the nine months ended September 30, 2023 and was 1.41 for the trailing 12 months.
We continue to forecast a book to bill ratio of between one two and one for the full year of 2023.
For <unk>, we expect slightly lower revenue and significantly lower operating profitability in the fourth quarter of 2023, although revenue is projected to remain close to that of the third quarter, we anticipate a shift in mix with lower vessel activity in West Africa operating income is expected to be negatively impacted by lower levels of cost absorption.
West Africa region. In addition to the absence of the commercial dispute resolution, which benefited the third quarter as a result sequentially fourth quarter 2023 operating income margin is expected to be lower averaging in the low teens range.
Roderick Larson: OPG third quarter 2023 operating income increased as compared to the second quarter of 2023 on a 15% increase in revenue. Operating income margin improved to 18% as compared to the 13% margin achieved in the second quarter reflecting increased demand for vessel-based services globally changes in service mix and a successful resolution of commercial dispute. Integrity management and digital solutions are INDS third quarter 2023 operating income declined slightly from the preceding quarter on a 5% increase in revenue.
For Ibs, we expect slightly lower revenue and operating results as compared with the third quarter of 2023.
For <unk>, we forecast slightly lower revenue and lower operating income as compared to the third quarter. We expect operating income margin to decline during the fourth quarter due to slight changes in project mix.
For the fourth quarter, we expect operating income margins to be in the low to mid teens percentage range analogy.
Unallocated expenses are expected to be in the low $40 million range.
Sure.
Roderick Larson: Operating income margin of 5% declined from the 6% recorded in the second quarter of 2023 due primarily to slight changes in geographic and service mix. Add tech third quarter 2023 operating income increased significantly from the second quarter on a 6% increase in revenue. Operating income margin of 14% improved from the second quarter of 2023 and benefited from margin recovery on prior quarter contract costs.
For the full year of 2023, we expect to generate adjusted EBITDA within the narrowed range of $275 million to $295 million.
Our guidance for organic capital expenditures is in the narrowed range of $95 million to $105 million.
Our guidance for cash income tax payments is in the range of 70% to $75 million.
Our free cash flow guidance is unchanged, we expect to generate positive free cash flow in the range between 90 and $130 million for the full year of 2023.
Roderick Larson: Unallocated expenses were 42.2 million dollars.
Roderick Larson: Now I'll address all address our outlook for the fourth quarter of 2023. On a consolidated basis we believe that our fourth quarter of 2023 heave it up a little decline on relatively flat revenue as compared to our third quarter results. While we anticipate a seasonal slowdown in the fourth quarter we still expect relatively good activity in our offshore markets. Broadly for the fourth quarter of 2023 as compared to the third quarter we expect slightly lower activity in each of our segments except for manufactured products and slightly lower unallocated expenses.
Now turning to our free cash flow and debt position.
Our cash flow from operations for the third quarter of 2023 was $79 6 million and was the primary driver in the increase in our cash and cash equivalents.
$556 million as of September 32023.
At the end of the third quarter, our net debt position stood at $144 million.
As disclosed in our recent press releases on September 22023, we initiated a series of transactions designed to address our $400 million senior notes scheduled to mature in November 2024.
Roderick Larson: For our fourth quarter 2023 operations by segment as compared to the third quarter of 2023 for SSR we are projecting slightly lower revenue and relatively flat operating profitability. RB days on higher forecast the decline slightly as compared with the third quarter with slightly higher drill support days being more than offset by seasonal decline and vessel base days. We expect good survey activity to continue during the fourth quarter. Our forecast assumes overall are we fleet utilization to be in the upper 60 percent range.
Once the final transaction is completed in early November 2023, we will have significantly extended our debt maturity to February 2028, while maintaining substantial liquidity.
Now looking forward to 2024.
Overall, we see solid fundamentals supporting each of our current businesses for the medium term.
Positive supply and demand dynamics, and resulting commodity pricing support our expectations for a strong five year outlook and our offshore energy businesses and National security priorities continue to support our expectation for growth in our government focused businesses. In addition, with increasing demand for robotic solutions, we see expanding opportunity.
Roderick Larson: SSR fourth quarter 2023 adjusted even a margin is anticipated to improve over the third quarter of 2023 while remaining in the low 30 percent range. For manufactured products we anticipate an increase in revenue and significantly lower operating profitability as compared to the third quarter with operating income margin in the low single digit range. Our fourth quarter forecast anticipates costs that we may incur to improve the profitability of our manufactured products portfolio.
As to leverage and grow our remote and automated robotics capabilities across our energy and non energy businesses.
Accordingly, looking into 2024 year over year, we are anticipating increased activity and improved operating performance across all of our operating segments led by gains from SSR Adobe G.
Roderick Larson: We continue to forecast a book to bill ratio of between 1.2 and 1.4 in the full year of 2023. For OPG we expect slightly lower revenue and significantly lower operating profitability in the fourth quarter of 2023. Although revenue is projected to remain close to that of the third quarter when dissipating shift and mix with lower vessel activity in West Africa. Operating income is expected to be negatively impacted by lower levels of cost absorption in the West Africa region in addition to the absence of the commercial dispute resolution which benefited the third quarter.
At this time, we forecast EBIT to be in the range of $330 million to $380 million in 2024, driving meaningful levels of cash flow from operations I would like to point out here that our guidance range for 2024 anticipates a continued strong U S dollar, which would negatively impact U S dollar earnings in our international businesses.
Particularly in countries like Norway, the U K and Brazil.
Roderick Larson: As a result sequentially, fourth quarter 2023 operating income margin is expected to be lower averaging in the low teens range. For INBS we expect slightly lower revenue and and operating results as compared with the third quarter of 2023. For ATTECH we forecast slightly lower revenue and lower operating income as compared to the third quarter. We expect operating income margin to decline during the fourth quarter due to slight changes in project mix. For the fourth quarter we expect operating income margins to be in the low to mid teens percentage range. Unallocated expenses are expected to be in the low $40 million range.
Currently estimate the year over year EBITDA impact to be in the range of $5 million to $10 million.
In 2024, and we expect capital expenditures to be flat to modestly higher than 2023, as we focus on growth of our various robotics platforms and opportunities generating the highest returns.
Capital discipline remains a priority and we expect to generate positive free cash flow in excess of that generated in 2023, we.
We will provide more specific guidance on our expectations for 2024 during the year end reporting process.
In summary.
Based on our year to date financial performance and expectations for the fourth quarter of 2023, we are narrowing our adjusted EBITDA guidance to a range of $275 million to $295 million for the full year.
Roderick Larson: For the full year of 2023 we expect to generate a justity but a within the narrowed range of $275 to $295 million. Our guidance for organic capital expenditures is in the narrowed range of $95 to $105 million and our guidance for cash income tax payments is in the range of $70 to $75 million. Our free cash flow guidance is unchanged. We expect to generate positive free cash flow in the range between $90 and $130 million for the full year of 2023.
Continue to see growth in all our business segments in 2024 based on the increasing global demand for energy and continued focus on national security issues.
Spanning opportunities to apply our robotics expertise into new energy and non energy markets, including for example, our freedom autonomous underwater vehicle and maximum <unk> counterbalanced forklift provide us with further confidence in our ability to achieve these growth forecasts are.
Roderick Larson: Now turning to our free cash flow and debt Our cash flow from operations for the 3rd quarter of 2023 was $79.6 million and was the primary driver in the increase in our cash and cash equivalents at $556 million as of September 30, 2023. At the end of the 3rd quarter, our net debt position stood at $144 million.
Our focus continues to be on maintaining a strong safety culture and safety performance, maintaining our financial and capital discipline generating significant positive free cash flow.
Growing through organic and inorganic means attracting and retaining top talent and increasing our pricing and margins to generate a fair return for our world class services and products.
Roderick Larson: As disclosed in our recent press releases on September 20, 2023, we initiated a series of transactions designed to address our $400 million senior notes scheduled to mature in November 2024. Once the final transaction is completed in early November 2023, we will have significantly extended our debt maturity to February 20, 20, 28 while maintaining substantial liquidity.
Optimizing each of these priorities positions us for success during the energy transition.
Our continuing commitment to maintaining substantial liquidity and a strong balance sheet and generating meaningful free cash flow supports our ability to fund future growth and shareholder return aspirations.
We appreciate everyone's continued interest in oceaneering and will now be happy to take any questions you may have.
Thank you.
Roderick Larson: Now looking forward to 2024. Overall, we see solid fundamentals supporting each of our current businesses for the medium term. Positive supply and demand dynamics and resulting commodity pricing support our expectations for a strong five year outlook in our offshore energy businesses and national security priorities continue to support our expectation for growth and our government focused businesses. In addition with increasing demand for robotic solutions, we see expanding opportunities to leverage and grow our remote and automated robotics capabilities across our energy and non-energy businesses.
And gentlemen, so do you have a question. Please press star followed by the one on your Touchtone phone. If you would like to withdraw your question. Please press the star followed by the two if you're using a speaker phone. Please lift the handset before pressing any Keith why Marvin Thanks for your first question.
Your first question comes from Kurt <unk> from benchmark. Please go ahead.
Hey, good morning, guys.
Good morning, Kurt.
We never never never a dull moment, so I'll start with an observation given.
Given your guidance level for 2024, it looks like there within 2% of where the street is I'd say, a 9% sell office.
Roderick Larson: Accordingly, looking into 2024 year-over-year, we are anticipating increased activity and improved operating performance across all of our operating segments led by gains from SSR and OPG. At this time, we forecast EBITDA to be in the range of $330 to $380 million in 2024, driving meaningful levels of cash flow from operations. I would like to point out here that our guidance range for 2024 anticipates a continued strong U.S, dollar, which would negatively impact U.S, dollar earnings in our international businesses, particularly in countries like Norway, the UK and Brazil.
Definitely overdone.
We're going now.
So onto the question. So you kind of provided an outlook.
Outlook on EBITDA for 2024 and.
You referenced.
SSR and manufactured product part of business will be.
The strongest drivers of that so I was wondering if you can maybe give us a little more context.
Around let's say SSR and what do you think in terms of.
Utilization and what kind of margin progression do you think you can get out of that going into next year.
Roderick Larson: We currently estimate the year-rear EBITDA impact to be in the range of $5 to $10 million. In 2024, we expect capital expenditures to be flat to modestly higher than 2023 as we focus on growth of our various robotics platforms and opportunities generating the highest returns. Capital discipline remains a priority and we expect to generate positive free cash flow and excessive that generated in 2023.
Sure I'll hit that a little bit Kurt I think what we're seeing is.
The on utilization, we're tracking kind of what we have line of sight.
To the rig increases mostly I mean, we think market share holds.
Improved slightly from where we are today, so depending on how many working rig adds we have next year, we think that that goes into the into the low seventies.
Roderick Larson: We will provide more specific guidance on our expectations for 2024 during the year-end reporting process. In summary, based on our year-to-day financial performance and expectations for the range of $275 to $295 million for the full year, we continue to see growth in all our business segments in 2024, based on the increasing global demands for energy and continued focus on national security issues. Expanding opportunities to apply our robotics expertise in a new energy and non-energy markets, including, for example, our freedom autonomous underwater vehicle and maximum autonomous counterbalance forklift, provide us with further confidence in our ability to achieve these growth forecasts.
During those peak months or quarters.
But but again its not its not huge unless we see we see more working floater days. So that's it for utilization, but again encouraging news. We just we look at what we hear in the market, but we also look at what we have hearing from the rig operators themselves telling us what the schedule will be so.
That's kind of where we land on utilization and pricing.
One of the things that we will just say as we continue to drive pricing I think there's been a lot of optimism out there and I think what's driving consensus is the pricing improvements probably are happening in smaller bits and chunks than maybe what was out there in the market, but it continues to be Directionally correct. So we just have to see how long it.
Roderick Larson: Our focus continues to be on maintaining a strong safety culture and safety performance, maintaining our financial and capital discipline, generating significant positive free cash flow. Growing through organic and inorganic means, attracting and retaining top talent, and increasing our pricing and margins to generate a fair return for our world-class services and products. Optimizing each of these priorities positions us for success during the energy transition are continuing commitment to maintaining substantial liquidity and a strong balance sheet and generating meaningful free cash flow supports our ability to fund future growth and share hold a return aspirations.
<unk> recognized all of those but we definitely see continued I'm walk up in margins into next year.
Our March revenue.
Yes got you.
Maybe.
Yes.
Yes, I think Curt you other question and there was about <unk> and kind of the outlook.
While we have a level of confidence there and I think we've been.
Talking through several of the.
Items that we have in our.
Out forbid right now we're seeing a lot of market interest in kind of some of these still support services contract, which which tend to be longer duration tends to be two to four years in contracts linked. So we're encouraged to see the market out there that is kind of returning to what we saw back.
Roderick Larson: We appreciate everyone's continued interest in engineering and will now be happy to take any questions you may have. Thank you ladies and gentlemen.
Julie: Should you have a question please best the star followed by the one on your touch on phone. If you'd like to withdraw your question please best the star followed by the two. If you're using a speaker phone please lift the hand set before pressing any keys.
The 2014 timeframe, where people would sign up for longer duration contracts.
For vessel and support services.
<unk> management and other other services, we can provide.
So that's the other part of why we see <unk> really starting to.
Kurt Hallead: One from Kurt Hallead from Benchmark please go ahead. Thank you morning guys. Morning Kurt. Never a dull moment so I'll start with an observation and given your guidance level for 2024 looks like they're within two percent of where the street is.
Hit on more cylinders in 'twenty four incurred I want to I want to make one comment before you ask your next question I mean, you said it kind of when you opened up that we were not that far off the consensus and that's why we did want to point out.
The FX effect and really when we think about I think our numbers are the same I think I think the consensus was pretty much right without maybe us having the full full shared benefit of what the FX effect a lot of our growth next year is coming from international markets and that that kind of with the strong dollar we think that theres going to be.
Roderick Larson: I'd say a nine percent cell office is definitely overdone but you know what do I know. So on to the question so you kind of provided an outlook a initial outlook on on EBITDA for 2024 and the reference you know the SSR and manufacturer product part of the business will be you know the strongest drivers of that. So I was wondering if you need maybe give us a little more context around but say SSR and what do you think in terms of you know utilization and what kind of margin progression do you think he Kurt I think what we're seeing is the on on utilization we're we're tracking kind of what we we have line of sight to the rig increases mostly I mean we think market share holds to maybe improve slightly from where we are today so depending on how many working rig ads we have next year we think that that goes into the into the low 70s you know during those peak month or peak quarters but but again it's not it's not huge unless we see we see more working floater days so that's that's it for utilization but but again encouraging news we just we look at what we hear in the market but we also look at what we have you know hearing from the rig operators themselves telling us what the schedule will be so that that's kind of where we land on utilization on pricing you know one of the things we'll just say is we continue to drive pricing I think you know there's been a lot of optimism out there and you know I think what's driving consensus is is the pricing improvements probably are are happening you know in in smaller bits and chunks than then maybe what was out there in the market but it continues to be directionally correct so we just have to see how long it takes to recognize all of those but we definitely see continued I'm walk up in margins into next year or March and then maybe my guess yeah I think coach other question in there was about OPG and kind of the outlook is why we have a level of confidence there and I think we've been talking through several of the items that we have in Out for bed right now, we're seeing a lot of market interest in some of these bill support services contract which tend to be longer duration, tend to be two to four years in contract links.
Some pressure on currency in Norway on currency in the UK and Brazil. So if you true that up I bet, we're darn close to the same number.
Okay, great I appreciate that color.
My question is on.
I believe your industrial robotics business is embedded in the manufactured products right. So just wondering if could give us an update on the.
The market penetration you have whether that's on the autonomous.
Autonomous forklifts or.
On your autonomous people know versus how you see that business evolving and what kind of market penetration you have been able to get.
Market penetration is going up we're getting we're getting new customers. So we've added a couple of customers with some pretty strong interest I think everything just short of the Po, but that could change to date. So that the number of customers is improving but also the order from from our one biggest customer.
Got we got four more orders that there are significant so.
That looks really good and really strong and again, we're getting a lot of recognition for that the other thing I would just call out manufactured products as well.
We had our annual planning meeting last week, and we pushed really hard on margins and manufactured products. So we've built in some some costs for we don't know what those changes will be but we built in some costs were taken some action that we think will drive margin improvement in the manufactured products business.
And I think to your mobile robotics I mean.
I have seen or not seen.
Recent announcements came from set up as well about solidifying our arrangement on the people movers, we've been describing to the market.
So I think that's something that.
Does it really impact 'twenty four as much but.
Longer term, we're encouraged with what we continue to build out in mobile robotics.
That's great color. Thanks, guys appreciate it.
Thanks Kurt.
Ladies and gentlemen.
Should you have a question. Please press the star followed by the one.
Roderick Larson: So we're encouraged to see the market out there that is kind of returning to what we saw back in the 2014 timeframe where people would sign up for longer duration contracts for vessel and support services. This project management and other services we can provide. So that's the other part of why we see OPG really starting to hit on more cylinders in 24.
So it looks like since there.
And your next question comes from James Shuck from TD Cowen. Please go ahead.
Just just snuck in there good morning, guys how are you.
Glad you asked that.
Yes.
Just maybe.
Update on the.
The SSR the Aro <unk>.
Any rate outlook I mean in the past we talked about exiting at.
Roderick Larson: I want to make one comment before you ask your next question. You said it kind of when you opened up that we're not that far off of consensus and that's why we did want to point out the effects effect. And really when we think about, I think our numbers are the same. I think the consensus was pretty much right without maybe us having the full shared benefit of what the effects effect.
Exiting this year at 10000, and then I think in 24, the exit rate of 11000.
Is that still in play.
I think I think it is challenged I don't know that the numbers have gone away, but I think it's just taken longer to build so so whether that takes another quarter or two to get to those numbers I think we're still pushing hard and some of it depends on how some of the other markets develop we've got the.
Roderick Larson: A lot of our growth next year is coming from international markets and that kind of with the strong dollar, we think that if there's going to be some pressure on currency in Norway, currency in the UK and Brazil. So if you drew that up, I bet we're darn close to the same number. Okay, great. Appreciate that color.
Strong markets and I will just say the strong markets like West Africa and gum. We're on track I think where it's where it's harder in some of the.
In Norway.
Roderick Larson: Second question then is on I believe your industrial robotics business is embedded in manufactured products, right? But I just wanted to give us an update on the market penetration you have, whether that's on the autonomous forklifts or on your autonomous people move versus how you see that business evolving and what kind of market penetration you've been able to get. Market penetration is going up, you know, we're getting we're getting new customers.
A fairly stable market, but those are lower RV rates. So they are they are on the other side of the average in Brazil, which is growing is probably one of our opportunities, especially with non Petrobras customers to try to get to something that looks more like the global average.
Okay, Great and then.
In the past you guys have had an issue in AD tech with government funding shifting around when we have these dislocations.
Roderick Larson: So we've added a couple of customers with some pretty strong interest. I think everything just short of the PO, but that could change today. So that the number of customers is improving, but also the order from from our one biggest customer. We got we got four more orders that there are significant. So that looks really good and really strong. And again, we're getting a lot of recognition for that.
Government spending and now we're talking about is there going to be a continuing resolution or just so I just wanted to see if you're having any issues currently and if you expect any negative impact to AD tech.
Gil go forward the next few months and quarters.
We've scrubbed that pretty well and what I would say is it's not like we had in the past where I mean, one of the biggest problems is continuing resolution means that new projects arent arent being accepted most of what we're working on right now is existing products. So that bodes pretty well there are a couple of things that we think may be would be sensitive to it.
Roderick Larson: The other thing I would just call out manufactured products is is, you know, we had our annual planning meeting last week and we pushed really hard on margins in manufactured products. So we've built in some costs for, you know, we don't know what those changes will be, but we built in some costs for taking some action that we think will drive margin improvement in the manufactured products business. Yeah. And I think your mobile robotics, I mean, you may have seen or not seen the recent announcement that came from ZF as well about solidifying our arrangement on the people movers we've been describing to the market.
Delay, but they are smaller projects. So we've got most of that built in the mix.
Okay, Great. That's it for me thanks, guys.
Your next question comes from David Smith from Pickering Energy Partners. Please go ahead.
Good morning, David Good morning.
Roderick Larson: So I think that's something that doesn't really impact 24 as much, but, you know, longer term, where we're encouraged with what we continue to build out in mobile robotics. That's great color. Thanks. So I appreciate it. Thanks for it.
Good morning.
Very impressive order intake for manufactured products I was wondering if you could give any color there.
There are some big lumpy orders.
And maybe just.
A quick update on what percentage of the backlog for that segment segment.
Julie: Ladies and gentlemen, as a reminder, should you have a question? Please pass the star followed by the one. It looks like censored.
Non energy.
Okay.
Yes, I think part of it part of the order intake has certainly been widespread theres not really a single order.
Which we alluded to in the past some of the.
Lumpiness it can come in and these have been a pretty good fluid stream of mid size orders I would say across various plant sites.
James Schumm: And your next question comes from James Schumm, from PD Cohen.
James Schumm: Please go ahead. Just, just smuck in there. Good morning guys. How are you? Good glad you dialed that.
And while we haven't disclosed.
The orders in the non energy side, David I mean, rod as Scott alluded to we did see some nice orders in the third quarter to add to the backlog in the.
Roderick Larson: Just maybe update on the SSR or the ROV D-Rade Outlook coming in the past. We talked about exiting, exiting this year at 10,000 and then I think in 24, the exit rate of 11,000. Is that still in play? I think it's challenged. I don't know that the numbers have gone away, but I think it's just taken longer to build. So whether that takes another quarter or two to get to those numbers, I think we're still pushing hard.
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Mobile robotics platform. So we've more than doubled the base order at this point in time.
That will certainly build a nice platform for manufacturing next year.
On these autonomous mobile forklifts.
<unk> order adoption is certainly picking up across the board within.
That business unit.
That's good color and I appreciate it.
Roderick Larson: And some of it depends on how some of the other markets develop. You know, we've got the strong markets and I'll just say the strong markets like West Africa and GOM, we're on track. I think where it's harder is some of the in Norway is a fairly stable market that those are lower ROV rates. So they're on the other, the underside of the average in Brazil, which is growing in probably one of our opportunities, especially with non-petri-bross customers, to try to get to something that looks more like the global average.
I guess kind of related with one of them.
Roderick Larson: Okay, great.
David one of the things that I'd like to just add it is idle.
Look at that backlog and what's important to me is.
We do still anticipate some additional awards.
In the manufactured products, but when you get it across all of the plant sites and I've lived in this business.
It's more meaningful than just getting one Big award because we talk about absorption all the time that these plants and by being able to feed every plant that work. It is.
Roderick Larson: And then in the past, you guys have had an issue in ad tech with government funding shifting around when we have these dislocations with government spending and now we're talking about, is there going to be a continuing resolution? So I just wanted to see if you're having any issues currently and if you expect any negative impact to ad tech as we go forward the next few months and quarters. We've scrubbed that pretty well.
Something that we're all.
Looking at so it's well spread through the organization.
Yeah.
I appreciate that color.
Didn't want to make sure it is.
Quick question on the memory the DPR.
System Award.
That would be coming through.
Okay Gee correct.
Correct.
Perfect.
Okay.
Melissa it's kind of the extension to the existing contract with an option for Petrobras to add an additional system, which at this point, we don't believe they're going to take.
Roderick Larson: And what I would say is it's not like we had in the past where, I mean, one of the biggest problems is continuing resolution means that new projects aren't being accepted. Most of what we're working on right now is existing products. So that votes pretty well. There are a couple of things that we think maybe would be sensitive to the lay, but they're smaller projects. So it's, we've got most of that built in the mix.
But it's an option that they do hold through December of this year.
Roderick Larson: Okay, great.
Sure.
But it's been good work for Us in fact, Brazil has been a strong growth area for us.
Throughout many of our businesses this year.
James Schumm: That's it for me. Thanks, Gus.
Yes, absolutely.
David Smith: Your next question comes from David Smith from Pickering Energy Partners. Please go ahead. Order David.
And last one if I may just for calibration.
Could you please elaborate on the one block.
Roderick Larson: Good morning. Very impressive order intake for many manufactured products. I was wondering if you could give any color there. There are some big, bumpy orders and maybe just a quick update on what percentage of the backlog for that segment is non-energy. Yeah, I think part of the order intake is certainly been widespread. There's not really a single order, which we alluded to in the past of some of the lumpiness that can come in.
Commercial dispute resolution.
The RPC.
Margins.
Third quarter.
I don't think we put a number out there on that but it's really.
An element of what we had in Q1 Q2, where we had taken some level of reserves.
And were able to successfully negotiated.
With the customer in the third quarter, so within the year the parts right.
So the margins for the year, what I would say reflective of our true operations.
Had a little bit of that.
I will say lumpiness of working through this with the customer within the quarter.
Roderick Larson: These have been a pretty good fluent stream of mid-size orders, I would say, across various plant sites. And while we haven't disclosed the orders in the non-energy side, David, I mean, just kind of learned to we did see some nice orders in the third quarter to add to the backlog in the mobile robotics platform. So we've more than doubled the base order at this point in time that will certainly build a nice platform for manufacturing next year on these autonomous mobile foreclists.
It makes perfect sense I appreciate that I will turn it back thank you.
Roderick Larson: So order adoption is certainly picking up across the board within that business. Schumm. That's good color and appreciated. I just kind of related. David, one of the things I'd like to just add is, you know, as I look at that backlog and what's important to me is, you know, we do still anticipate some additional awards in the manufacturer products, but when you get it across all the plant sites and I've lived in this business, it's more meaningful than just getting one big award because, you know, we talk about absorption all the time with these plants and by being able to feed every plant that work, it is something that we're always looking at.
Thanks, David there are no pardon.
And there are no further questions at this time I will turn the call back over to Rod Larson for final comments.
Alright, well since there are no more questions I'll, just wrap up by thanking everybody for joining the call and this concludes our third quarter 2023 conference call. Thank you.
Ladies and gentlemen, this concludes the conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
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Roderick Larson: So it's well spread through the organization. I appreciate that color. They want to make sure just to refresh memory memory. The DPR system award, in fact, that would be coming through OVG, correct? Correct. Perfect. It's kind of the extension to the existing contract with an option for Petrobras to add an additional system, which at this point we don't believe they're going to take, but it's an option they do hold through December of this year.
Roderick Larson: But it's been good work for us. In fact, you know, Brazil has been a strong growth area for us throughout many of our businesses this year. Yeah, absolutely. And last one, if I may, just for calibration. Can you please elaborate on the impact that the commercial dispute resolution had for the OVG margins and quarter? I don't think we put a number out there on that, but it's really an element of what we have in Q122, where we've taken some level of reserves.
Roderick Larson: And we're able to successfully negotiate it with the customer in the third quarter. So within the year, the pots, right? So the margins for the year are what I would say reflective of our true operations. We just had a little bit of that. I'll say lumpiness of working through this with the customer within the quarter. Makes perfect sense. I appreciate that. We'll turn it back. Thank you.
Julie: And there are no pardon me and there are no further questions at this time.
Roderick Larson: I will turn their call back over to but Larsen for final comments. All right. Well, since there are no more questions, I just wrap up by thanking everybody for joining the call.
Julie: And this concludes our third quarter 2023 conference call. Thank you.
Julie: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines. Thank you.