Oceaneering International, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise. Oceaneering provides engineered services and products primarily to offshore energy, and also serves defense, aerospace and other markets.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $498.2 | $427.2 | $935.8 | $963.9 |
| Gross margin | $68.4 (14%) | $42.5 (10%) | $125.1 (13%) | $89.3 (9%) |
| Operating income (loss) | $22.8 (5%) | $(5.2) ((1)%) | $36.6 (4%) | $(385.9) ((40)%) |
| Net income (loss) | $6.2 | $(24.8) | $(3.1) | $(392.4) |
| Diluted EPS | $0.06 | $(0.25) | $(0.03) | $(3.96) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $48.8 | $5.4 |
Q2 revenue increased about 17% year over year and operating results improved; first-half revenue declined about 3%. First-half 2020 results included $303.0 million of goodwill impairment, $68.8 million of long-lived asset impairment and other charges, which substantially affect comparisons. First-half 2021 capital expenditures were $23.3 million, implying cash flow after property and equipment purchases of about $25.5 million.
Segments: Q2 revenue and operating income were Subsea Robotics $141.4 million and $21.7 million; Manufactured Products $79.1 million and $0.8 million; Offshore Projects Group $108.0 million and $8.0 million; Integrity Management & Digital Solutions $64.1 million and $4.7 million; and Aerospace and Defense Technologies $105.7 million and $19.3 million. Segment results were positive, while corporate unallocated expenses were $31.7 million.
Balance sheet, debt and liquidity
- At June 30, 2021, cash and cash equivalents were $456.1 million; working capital was $749 million.
- Long-term debt carrying value was $773.4 million (approximately $769.5 million principal: $469.5 million of 4.65% notes due 2024 and $300 million of 6.00% notes due 2028). The company repurchased about $31 million principal of 2024 notes at par during the quarter.
- The $500 million revolving credit facility was undrawn; commitments were scheduled to step down to $450 million after October 25, 2021. The company reported compliance with its covenants.
- Cash increased $4.1 million in the first half. Operating cash inflow of $48.8 million was offset principally by $32.3 million used in financing, including the note repurchase, and $12.2 million used in investing.
- Accounts receivable were $334.1 million and contract assets were $247.2 million, compared with $296.2 million and $222.0 million, respectively, at year-end 2020.
Changes, outlook and risks
- Management attributed sequential improvement to seasonally higher energy activity, operating discipline and efficiency gains. ROV utilization was 62% in Q2, versus 59% a year earlier; first-half utilization was 57%, versus 62%.
- Manufactured Products backlog was $315 million at quarter-end, up from $266 million at December 31, 2020; trailing-12-month book-to-bill was 0.8. Management noted continued weakness in mobility-solutions activity.
- Management expected Q3 2021 consolidated results to decline on moderately lower revenue versus Q2. It anticipated relatively flat activity and operating profitability in Subsea Robotics, Manufactured Products and IMDS; lower activity with relatively flat profitability in OPG; and lower activity and profitability in ADTech. Unallocated expenses were expected in the mid-$30 million range.
- 2021 capital expenditure guidance was reaffirmed at $50–$70 million, including $35–$40 million maintenance and $15–$30 million growth spending. Estimated 2021 cash tax payments were $40–$45 million; management expected approximately $28 million of CARES Act refunds in 2021 or 2022.
- Approximately $33 million of CARES Act tax refunds were expected in total; $5.6 million had been received by June 30, with the remainder recorded as receivable.
- COVID-related project delays in Manufactured Products affected about $51 million of receivables and contract assets; the company said it believed these were realizable and projects would resume. Separately, a customer suspended a substantially complete Manufactured Products contract; about $73 million of contract assets remained outstanding, with payment timing under discussion. Management believed these assets were realizable and the project would resume.
- Other risks include contract cost estimate changes (a $1.5 million projected loss was recognized on a Subsea Robotics contract), foreign-exchange exposure and limits on repatriating Angolan currency. The filing also describes ordinary-course litigation and ongoing tax audits; management said other claims were not expected to materially affect the company, while noting outcomes are uncertain.
Investor verification points
- Track collection and recoverability of the $73 million suspended-contract assets and the approximately $51 million tied to delayed projects.
- Compare subsequent results with Q3 segment expectations, especially OPG downtime, ADTech activity and corporate expenses.
- Monitor Manufactured Products bookings, backlog conversion and its weak mobility-solutions activity.
- Verify receipt of the remaining CARES Act refunds and actual cash taxes and capital spending against guidance.
- Assess liquidity and refinancing plans ahead of the November 2024 note maturity, along with facility availability and covenant compliance.
- Evaluate operating cash generation and working-capital movements, particularly the increase in receivables and contract assets.