Q2 2025 Oceaneering International Inc Earnings Call
Welcome to Ocean earrings, second quarter, 2025 earnings conference. Call my name is Rob and I'll be your conference operator. All lines have been placed on mute to prevent any background noise. There will be a question and answer period after the speaker's remarks with that. I will now turn the call over to Hillary frisbee ocean earrings senior director of investor relations.
Thanks Rob.
Good morning and welcome to Ocean nearing. Second quarter 2025 earnings conference. Call today's call is being webcast and a replay will be available on Ocean hearings website.
Rod Larson: Joining us on the call. Are Rod Larson president and chief executive officer who will be providing our prepared comments and Alan. Curtis senior vice president and Chief Financial Officer.
After rods remarks, we'll open up the call for questions.
Rod Larson: Before we begin, We Begin. I'd like to remind participants that state with statements we make during 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 1995.
Rod Larson: Our comments today also include non-gaap Financial measures.
Rod Larson: Additional details and reconciliations to the most directly comparable. Gaap Financial measures can be found in our second quarter press release, which is posted on our website.
Rod Larson: I'll now turn the call over to Rod. Hey, good morning everybody. And thanks for joining the call today.
Rod Larson: I continue to be incredibly proud of our team's consistent delivery against our guidance. When we provided our adjusted Eva guidance, during the first quarter earnings call, we projected a quarterly year-over-year increase of 16%.
Rod Larson: We delivered a 20% increase in Consolidated adjusted evidence. This marks 8 straight quarters of meeting or exceeding, our adjusted Eva guidance range and 12 quarters out of the last 13. This kind of consistency speaks volumes about the strength of our execution and the resilience of our business.
Rod Larson: In the second quarter of 2025. All of our operating segments contributed to beating the midpoint of our guidance by delivering quarterly year-over-year improvements in Revenue, operating income, and operating income margin.
Rod Larson: In particular Aerospace and defense Technologies or adtech improved. Its results as work. Commenced on several recent contract Awards,
Rod Larson: our offshore projects group or OPG successfully completed higher margin. Well intervention and well stimulation projects in international locations.
Rod Larson: Which drove a significant increase in their operating income and an expansion of their operating income margin.
Rod Larson: Manufactured products results improved as we progressed higher margin backlog to our manufacturing plants and not to be missed. Our average remotely operated vehicle or ROV Revenue per day inflected earlier than expected to 11,265.
Rod Larson: today, I'll Focus my comments on our second quarter results and overviews of our segment performance and our Consolidated and business segments outlook for the third quarter and full year of 2025,
Rod Larson: I'll start with our Consolidated results from the second quarter of 2025.
Rod Larson: As we report yesterday, we generated net income of 54.4 million or 54 cents per share.
Rod Larson: Consolidated Revenue increased to 698 million of 4% increase over the second quarter of 2024.
Rod Larson: We also achieved notable growth in operating income and evida for the second quarter of 2025 Consolidated, operating income Rose by 31% to 79.2 million.
Rod Larson: Consolidated adjusted, but our grow grew. 20%
Rod Larson: To 103 million.
Rod Larson: We generated 77.2 million of cash and operating activities and utilized. 30.3 million in capital expenditures. Resulting in free cash flow of 46.9 million.
Rod Larson: For the fourth consecutive quarter, we repurchased approximately 10 million dollars worth of shares of our common stock.
Rod Larson: Our ending cash position was 434 million with no borrowings under our secured revolving credit facility.
Rod Larson: 2024.
Rod Larson: Sub-Zero robotics or SSR earnings improved despite concerns over offshore activity. Levels in whitespace, on an increase, in average, ROV Revenue per day, utilized to 11,265, demonstrating our ability to realize pricing improvements in new contracts,
Rod Larson: We anticipate these higher rates will carry through the second half of 2025, despite a portion of our utilization shifting to lower price regions.
Rod Larson: Due to the increased Revenue per day, utilized SSR, produced operating income of 64.5 million and Improvement of 4%.
Rod Larson: Revenue increased approximately 2% and even a margin expansion slightly to 35%
Rod Larson: RV Fleet utilization for the quarter was solid at 67%.
Rod Larson: Complete use of 63% in drill support and 37% investable based activity.
Rod Larson: With similar to the same period last year.
Rod Larson: Revenue split between our RV business and our combined tooling and Survey businesses as a percentage of our total SSR Revenue was 79% and 21% respectively.
Rod Larson: As of June 30th 2025, we had 60% of the contracted floating rate Market.
Rod Larson: With ROV contracts on 81 of the 136 floating rigs under contract.
Rod Larson: We maintained our Fleet count of 250 Ro systems.
Rod Larson: As we look forward to the second half of 2025 and into 2026, we anticipate continuing continuing activity that is supportive of our ROV utilization and pricing assumptions.
Rod Larson: This includes more decommissioning opportunities in Europe which will help offset marginally lower rigs for an activity. As a reminder, decommissioning work has the advantage of more personnel and tooling Revenue per day.
Rod Larson: The strong first half performance are of our ROV, tooling business is expected to continue.
Rod Larson: While we're pursuing new opportunities in our survey Geo science business. We make cold stack 1 of our survey vessels in the future should these opportunities fail to materialize.
Rod Larson: Manufactured products generated operating income of 18.8 million, marking a 31%, rise over the second quarter of 2024 Revenue, grew by 4%, to 145 million, and operating income margin, expanded by 262 basis points. Driven by the conversion of backlog in our energy manufacturing plans,
Rod Larson: During the quarter, we took a further 2.5 million inventory. Reserve related to our former theme park. Ride business.
Rod Larson: Our confidence. In our second half forecast is underpinned. By the continued manufacturing throughput of backlog. At the improved pricing that we have discussed over the past, several quarters.
Rod Larson: Our full year 2025 book to Bill guidance of 0.9 to 1.0 remains unchanged. Despite muted bookings in the first half of 2025.
Rod Larson: We've consistently anticipated that our order intake will be concentrated in the second half of the year and we've already secured order commitments totaling approximately 100 million dollars in the first weeks of the quarter.
Rod Larson: We expect to finalize those contracts in the coming weeks.
Rod Larson: Our other product lines. Also supported these results and are contributing to our forecast, in particular Greylock our industry-leading, high temperature, high-pressure connector, business continues to evolve by penetrating new markets and, and customers with new products,
Rod Larson: We've also seen more activity for rotator, our topside and subk valve business, which corresponds to sub seed tree Awards.
Rod Larson: OPG reported significantly improved operating income of 21.7 million.
Rod Larson: Revenue increase by 4% and operating income margin expanded to 15%.
Rod Larson: In the second quarter, we secured several longer term contracts, including a vessel Services contract, and the US Gulf, and an inspection maintenance and repair, or IMR contract for BP and mortan.
These contracts provide us with visibility into opg's vessel, utilization and activity levels for the remainder of 2025 and into future years.
Rod Larson: We project vessel utilization and activity levels will be solid and the third quarter of 2025 based on current backlog, and quotation activity given current Brent oil prices. We are still encouraged by the macro environment for the fourth quarter, but do not expect activity. To reach the same level as the fourth quarter of 2024. In the second half of 2025, we expect opg's results will be impacted by changes in Geographic and service. Mix as we anticipate activity, will shift away from higher margin, intervention projects toward lower margin, IMR, work in the US Coast.
Rod Larson: Projects to demonstrate our new capabilities.
Adtech operating income increased by 125% to 16.3 million on a 13% increase in Revenue.
Rod Larson: With operating income margin expanding to 15% as compared to the second quarter of 2024.
Rod Larson: Our ocean ring Technologies are OTC business line benefited from the continued ramp up of the large contract announced in the first quarter our marine services division. MSD also contributed positively to add text performance in the second quarter with high high activity levels in submarine, repairs and dry deck shelter overalls,
Looking into the second half of the year. We anticipate further Revenue increases in OTC. From Recently, announced defense contract and from seasonal increases in offshore operations.
MSD results are also forecasted to improve due to additional volume of submarine and dry deck shelter, repair work.
Rod Larson: Revenue from the major defense contract is projected to steadily ramped up quarter over quarter during the design and Engineering phase. This phase is expected to be completed in early 2027 when we will commence production and see if further ramp up in Revenue.
Rod Larson: Additionally, we anticipate that the recently passed reconciliation bill or the big beautiful. Bill will positively impact. All 3 of our adtech business lines over the next 5 years. It increases funding for unmanned underwater vehicles or UVS such as our freedom vehicle that we sold to the defense Innovation unit last year.
The Navy's continued focus on acquiring services. In addition to technology creates opportunities to leverage, our commercial services expertise to support the Navy and delivering a full range of capabilities to their Fleet.
Submarine, construction and maintenance programs are projected to accelerate creating additional opportunities for MSD.
Rod Larson: And finally, the Space Program budget was better than expected. Since passage of this legislation, we have seen renewed opportunities related to Thermal Protection Systems and with foreign space agencies,
Rod Larson: unallocated expenses of 46.7 million for slightly higher than our guidance for the quarter.
Turning our Outlook to the third quarter of 2025 as compared with the third quarter of 2024, we forecast increases in Consolidated, revenue, and ibida Consolidated, Eva is expected to be in the range of 100 to 110 million.
Rod Larson: Compared to the third quarter of 2024 our projections. For the third quarter of 2025, by segments are for SSR, we anticipate higher revenue, and operating results with ebit of margin expected to be in the mid to Upper 30% range.
Rod Larson: For manufactured products we expect significantly improved operating results, driven by increased Revenue.
For OPG, we projected decline in operating results on relatively flat Revenue.
Brian BS. We forecast significantly improved operating results on relatively flat Revenue.
Speaker Change: Brad tech. We anticipate significant increase in both revenue and operating results.
Speaker Change: And finally, we project unallocated expenses to be between 45 and 50 million.
For the full year 2025 on a Consolidated basis. We project Revenue to grow in the mid single digit percentage range, and
Speaker Change: Adjusted, even to be in the range of 390 to 420 million.
Speaker Change: you will note that we've narrowed our guidance range by typing both the lower and the higher ends based on our strong first half performance and the second half Outlook
Speaker Change: directionally for our full year 2025 operations by segment as compared to 2024
Speaker Change: Breakfasts are we forecast improved, operating results on a mid single-digit percentage increase in Revenue.
Our revised guidance on Revenue growth is based on our projection for lower than expected contributions from our survey business.
Speaker Change: SSR. Eva margin is projected to average in the mid 30% range for the full year.
Speaker Change: We estimate that our overall ROV Fleet utilization will be in the mid to high 60% range for the full year. We are confident that we will sustain our RV market share for drill support services and the 55 to 60% range.
For manufactured products. We project significantly improved operating income on better operating margins and increased Revenue as previously stated. We anticipate the book to Bill ratio will be in the range of 0.9 to 1.0 for the full year.
Speaker Change: For OPG. We expect year-over-year operating results to improve on flat to slightly increase Revenue. Overall for 2025 OPG, operating income margin is expected to be in the mid teens percentage range.
Speaker Change: For MDS, we forecast a significant increase in operating results, on increased Revenue with operating income margin expected to be in the mid single digit percentage range for the full year.
Speaker Change: For adtech.
Speaker Change: Forecasted to improve significantly on increased Revenue. Operating income margin is expected to be in the low teens percentage range for the full year.
Speaker Change: In summary we remain positive about both our energy and Aerospace and defense markets that we serve and we're confident in the value. We deliver to our customers.
Speaker Change: We foresee continued growth Beyond, 2025 driven by improved visibility into an increasing number of contracted floating rates in the second half of 2026. Sustained progression in ROV Revenue per day, utilized, anticipated higher levels of fids expectations for support of oil prices. Our ability to perform and offer more life of field services, increased demand and Geographic expansion for our adtech business and increased market demand for our mobile robotics Technologies.
We appreciate everyone's continued interest in Ocean engineering, and I'll be happy to take any questions you may have.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, if you would like to withdraw your question, simply press star 1 again
Your first question comes from the line of Eddie. Kim from Barkley's your line is open.
Speaker Change: Hey, good morning. Um, so we've heard about offshore rig whites space, uh, from the offshore Drillers for several quarters. Now more recently, some of the larger Diversified some, uh, uh, service companies have started to mention this as well. Um, but this doesn't seem readily apparent in any any part of your business at this point. Um, the place that would show up uh, is of course, your roves business. Uh, but pricing there. Continues to increase almost quarter after quarter. So so all that to say are, are you seeing any kind of impact um, to your business, uh, due to due to the offshore rig white space? Any if you haven't, do you expect to see it maybe later this year or or do you think your business will, uh, emerge relatively, uh, uh, uh, unscathed from this? No great question Eddie and I think, you know, I think your question and questions we get all the time is, like, people are looking for that other shoe to fall, right? When, what when is it going to happen? I would say, you know, we do, we do see some of that. We we were, we were
Expecting to get closer to the that, you know, exit in the year with a 70% overall utilization for row. So we've seen some of it um, as we talked about, you know, the getting to our pricing points sooner than we expected is offset some of that. Um, so you know, we see some of that, um, maybe some of the offset is, is the increase in some of the abandoned activity, particularly in in Europe. So there's there's some puts and takes in there that have leveled us off. But really, I mean, the thing to watch and, and the SSR,
Speaker Change: Our business is going to be survey.
Speaker Change: And we we set up to to Run 2 vessels. We've we've been running 1, we were hoping to get to 2 um but we might we might not get to 2 in the in the geoscience part of survey. But other than that I mean RVs. We've trimmed the sails a little bit, but it's kind of been within the range of expectations.
Got it, got it. Thank you. Um, my follow-up is just just on orders and your your manufactured product segment, which is mostly comprised of subsea. Umbilicals, uh, orders have been trending below 1 times booked to build now for several for several quarters, uh, and it looks like full year orders this year will likely be down versus last year. Could could you just give us your latest thoughts, uh, on the umbilicals business? And how you see that trending? Um, maybe this year at into next year? Should we expect kind of the flattish trajectory um, uh, in as we move to next year or, or do you expect a rebound just, uh, just any thoughts on the umbilicals business? Well, yeah. Let let me start with, you know, orders year-over-year. We think are more 24 to 25 or more flat-ish. We don't really expect them to be down and, and it is we, we knew early in the year that we were going to be back half loaded on orders and it's so far. I mean, it's it's it's pretty early in the back half, but, um, the first few weeks have been really good, we I mentioned earlier, 100 million.
Speaker Change: There's good things going on, below the water line, too.
Speaker Change: Got it. Great. Thanks for that caller. I'll turn it back.
Speaker Change: Thanks Eddie.
Your next question comes from the line of David Smith from Pickering Energy Partners, your line is open.
David Smith: Hey, good morning. Uh, congratulations on the solid Q2 results.
Speaker Change: Thanks David.
Just following up on Eddie's question, wanted to ask if that slightly lower full year, or of the utilization Outlook related more to, to vessel support, or or rig support. And, and if you characterize that, as a, a change in visibility, for underlying activity, or, or something else,
Speaker Change: I I it's it's both I mean if we see it on both sides so it's not just 1 or the other. So it's a little bit of both and and I would just say it's it is increased Clarity in you know, seeing what everybody's plans are going to be, especially in the fourth quarter. I mean that that stuff is becoming more apparent now. So we're just being I think, conservative than not to not overestimate. What could, what could come to be in the fourth quarter?
Speaker Change: Perfect. And then related, um, around the RV pricing. That's left is is this mostly a function of, of contract rollover maybe a little bit of that or are we seeing, um, is it too early to ask if we're seeing any benefits show up from maybe, you know, some some Performance Based
Speaker Change: I I would say it's it's mostly the contracts. Um we know it's it's not the the big there's not a big FX effect and there's not a big um a big effect of the performance-based pricing yet. I mean, those are things that are are true to later. So I would just say those are those are still still in the mix, but, um, but it's mostly just just that that continued to roll over of contracts.
Perfect. Appreciate it. If I could sneak 1 more and, um, yeah, free free cash flow was kind of modest in the first half so there's obviously a large ramp and flight for for the second half to meet this whole year guide. Can can you walk us through your visibility on that step up? Kind of what are the the biggest contributors? You know, how much of that Improvement is
already in motion or or still dependent on execution?
Yeah, I'll take this 1, uh, David. You know, a lot of it is, is kind of how we we've seen the last 4 or 5 years. Play out, where, you know, q1 is a pretty big cash drawer for us. We rebound generate positive cash in Q2, but really, it's been more of a Q3 Q4 story for us. The last, I'll say 4 to 5 Years and we're seeing that again this year. Um, we do have line of sight to a, a good amount of it because it's sitting in receivables. Um, so I think it's, uh, going and getting paid for the work. We've performed and bringing that cash in and Q3 Q4, um, time frame.
Very much, appreciate it. I'll turn it back over.
Speaker Change: To our next question, comes from a line of Josh, Jane from Daniel Energy Partners. Your line is open.
Josh Jane: Thanks, good morning. Uh, first 1 I had was on the OPG business. Um, to me it sounds like there's more visibility today. Um and work is getting booked more out into the future than there has been previously. And so it first of all, is that accurate? And if so, maybe you could just discuss that Dynamic today. Um, even in what's been a pretty volatile Market.
I think, I think Josh, you're right and and it's
Josh Jane: it's it's a little bit of function of when I've always talked about these these bigger chunks of business. Um when we start to book like like the BP Mauritania, those big International contracts, really help our visibility a lot and that creates that stable base call out in the Gulf of Mexico. You know, for the most part they're still call out work but we're able to secure more given days.
Okay, and then second question, I just wanted to go back to uh, commenting made surrounding the um potential impact from the big, beautiful bill. Um, you already had some pretty strong momentum around the business lines that, um, could benefit from this. Maybe you could just dive in a little bit more to, um, how you're thinking about that in positioning the company for, um, what sounds like could be even more sizable growth over the next couple.
Years just in details around that would be helpful. Thanks sure. I think, you know, the OTC side with the with the vehicle business is is a big thing because that's always been.
Josh Jane: It had bilateral support. Um, you know, a lot of things that us has great uh, defensive Supremacy around what happens underwater and they're very, very keen to maintain that and and we we provide obviously a lot of services there, that's our, that's our wheelhouse. So I think that's, that's a big part of it, but
Speaker Change: Affects the other 2 businesses. I mean space was on the roads. They were they were really worried for a while especially when doji was in and and so a lot of the space business appear to be going the other way.
Speaker Change: But now we see things, like, Artemis, that, you know, go into the moon. Those things actually be in refunded. Um, just the phone started, ringing immediately with people who wanted to kick off projects again. So, we think space definitely is is a good 1. We talked about thermal, um,
Protection Systems. Which is good because that, that covers the full gamut anything with a booster underneath it, but, but human space flight which is 1 of the things that got got. Uh, I I think reol is great for us because we do suit work, we do human interface work and that that's a big 1 for us to to see come back. So, that's great. And then I'd also go to to MSD, I mean, it sounds like, you know, Fleet Readiness being able to keep our our, uh, especially our submarines in our case ready to go. They will, they will probably put as much money into, uh, submarine maintenance and repair.
Speaker Change: And new build as as the industry can take. So you know we are already thinking about how do we gear up to have more capacity just sort of that market?
Speaker Change: Great thanks. I'll turn it back.
Speaker Change: and that concludes our
Speaker Change: I will now turn.
Speaker Change: Closing remarks.
Speaker Change: Well since there are no more questions, I'll just wrap up by thanking everybody for joining this. Concludes our second quarter 2025 conference call.
Have a great day.
Speaker Change: Thank you for joining. You may now disconnect