Oceaneering International, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparative figures are for Q1 2013 unless otherwise noted. Amounts are in U.S. dollars. The company provides engineered services and products primarily to the offshore oil and gas industry, with a focus on deepwater operations.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $840.2 million | $718.6 million | +16.9% |
| Gross margin | $189.5 million (22.6%) | $160.4 million (22.3%) | +18.2% |
| Operating income | $132.9 million (15.8%) | $108.3 million (15.1%) | +22.7% |
| Net income | $91.2 million | $74.8 million | +21.9% |
| Diluted EPS | $0.84 | $0.69 | +21.7% |
| Operating cash flow | $82.4 million | $120.8 million | −31.8% |
| Capital expenditures | $104.0 million | $94.2 million | +10.5% |
Operating cash flow was below net income, reflecting working-capital outflows, including a $16.2 million use of cash from receivables and a $40.2 million use from current liabilities. Investing activities used $101.4 million; cash and cash equivalents rose to $106.3 million from $91.4 million at year-end, supported in part by borrowings and cash generation.
At March 31, 2014, working capital was $761 million. Long-term debt was $90 million, drawn on a $300 million revolving facility, leaving $210 million available. The company reported no off-balance-sheet arrangements. The quarterly dividend declared was $0.22 per share; in April the board raised the dividend to $0.27 per share, beginning with the June 2014 payment.
Material changes and segment trends
- Oilfield revenue increased 20.3% to $778.2 million, with operating income rising to $165.9 million from $132.6 million. The company attributed growth primarily to higher demand and activity in its operating segments.
- ROV revenue grew to $255.8 million; utilization was 86%, versus 83% a year earlier. The fleet totaled 314 vehicles after 14 additions and four retirements during the quarter.
- Subsea Products revenue rose to $260.0 million and operating income to $54.5 million; quarter-end backlog was $894 million, down from $906 million at year-end 2013.
- Subsea Projects revenue rose to $138.2 million, supported by vessel and installation activity. Asset Integrity revenue increased to $124.2 million, with operating income of $14.1 million.
- Advanced Technologies revenue declined to $62.0 million from $71.6 million, and operating income fell to $3.0 million from $8.7 million, reflecting reduced theme-park work and U.S. Navy submarine maintenance and engineering activity.
Outlook, risks and contingencies
- Management forecast 2014 diluted EPS of $3.90–$4.10, versus $3.42 in 2013, and Q2 2014 diluted EPS of $0.97–$1.01. It expected higher 2014 operating income than 2013 across Oilfield segments, while Advanced Technologies income was expected to approximate 2013.
- Management planned approximately $450 million of 2014 capital expenditures, including about $225 million for ROVs and $120 million for Subsea Products. It expected to add 30–35 ROVs during 2014 and projected approximately 85% ROV fleet utilization for the year.
- The company depends substantially on offshore oil and gas activity and customer deepwater capital spending. Management noted seasonality in Gulf of Mexico Subsea Projects, European Asset Integrity, and ROV activity.
- OGX, a Brazilian customer undergoing restructuring, owed approximately $3.8 million for pre-restructuring operations; the balance remained unpaid as of April 30, 2014 and was fully reserved. Collection remained uncertain.
- Foreign currency movements may affect earnings and equity. Management said interest-rate and foreign-exchange exposures were not material and reported no outstanding hedges. Various legal claims were pending, most covered by insurance; management did not expect them to materially affect results, cash flow, or financial position.
- The company expected to deliver a new multiservice subsea support vessel by the end of Q1 2016. Credit-facility covenants include interest-coverage and debt-to-capitalization requirements. Management considered liquidity adequate and expected 2014 operating cash flow to exceed capital expenditures and dividends.
Investor facts to verify
- Whether operating cash flow and receivables collection improve after the quarter’s working-capital outflows.
- Progress against the $3.90–$4.10 full-year EPS outlook, segment margin expectations, and ROV additions and utilization targets.
- Subsea Products backlog conversion and the timing and profitability of Subsea Projects activity.
- OGX recovery prospects, planned capital spending and vessel commitments, and the impact of offshore demand, seasonality, and currency movements.