Oceaneering International, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context and results
Oceaneering provides engineered services and products primarily to the offshore energy industry, and also serves government, defense, aerospace and commercial markets. Management reported that COVID-19 disruptions, lower oil and gas demand, market volatility and customer spending reductions weighed on operations.
Key financial metrics
- Q2 revenue: $427.2 million, down 13.8% from $495.8 million a year earlier. Gross margin was $42.5 million (10% of revenue), compared with $42.0 million (8%).
- Q2 operating loss and net loss: Operating loss was $5.2 million versus $9.6 million; net loss was $24.8 million versus $35.2 million. Diluted loss per share was $0.25 versus $0.36.
- First-half revenue and earnings: Revenue was $963.9 million, down 2.6% year over year. Net loss was $392.4 million versus $60.0 million, and diluted loss per share was $3.96 versus $0.61. The 2020 loss included substantial first-quarter impairment and other charges.
- Cash flow: First-half operating cash flow was $5.4 million, down from $72.7 million. Capital expenditures were $37.9 million, making first-half free cash flow approximately negative $32.5 million using the company’s definition of operating cash flow less capital expenditures. Cash declined $40.1 million to $333.5 million.
- Liquidity and debt: Working capital was $679 million. Long-term debt was $806.0 million on the balance sheet; principal outstanding was $800 million, comprising $500 million of 4.65% notes due 2024 and $300 million of 6.00% notes due 2028. The $500 million revolving facility was undrawn, and the company reported compliance with its covenants.
- Balance-sheet changes: Total assets fell to $2.13 billion from $2.74 billion at year-end 2019, while equity declined to $625.4 million from $1.08 billion. Goodwill fell to $74.9 million from $405.1 million, principally reflecting impairment.
Changes versus comparable periods
- Q2 revenue decreased across the principal energy service lines, including ROVs, Subsea Projects and Asset Integrity. Subsea Products revenue also declined year over year, while its Q2 operating income improved to $9.1 million from $7.4 million.
- Q2 ROV utilization was 59%, compared with 62% a year earlier; first-half utilization was 62%, compared with 57%.
- Q2 Advanced Technologies revenue was $93.4 million versus $100.2 million, but operating income increased to $9.7 million from $7.2 million, supported by government-business margins and improved AGV execution.
- Subsea Products backlog was $486 million at June 30, versus $630 million at December 31, 2019; management attributed the reduction to low bookings amid customer uncertainty. Trailing-12-month book-to-bill was 0.8.
Outlook, risks and unusual items
- The company withdrew its 2020 financial guidance and is not providing third-quarter or second-half operating results or EBITDA guidance because of continuing uncertainty.
- Management expects 2020 capital expenditures of $45 million to $65 million and unallocated expenses in the high-$20-million range per quarter for the rest of 2020. It expects positive free cash flow for full-year 2020, citing cost reductions, lower capital spending and taxes, expected tax refunds, and working-capital cash generation.
- Management estimated 2020 net income tax payments of $30 million to $35 million and CARES Act refunds of $16 million to $34 million. The first-half results included a $42 million discrete tax benefit, primarily related to the Act.
- First-quarter charges totaled approximately $386 million, including $303.0 million of goodwill impairment, $68.8 million of long-lived asset impairments, $7.3 million of asset write-offs and other expenses. Management cited the energy downturn, pandemic-related demand destruction and customer cost discipline as impairment drivers.
- Key uncertainties include the pandemic’s duration and operational effects, oil and gas prices and customer spending, project delays or cancellations, supply-chain disruption, and foreign-exchange exposure, particularly in Angola and Brazil. Cash conversion from Angola is subject to central-bank controls.
- The company described ordinary-course litigation and disputes and stated that it did not expect them, in aggregate, to materially affect its financial condition or results, while noting outcomes remain uncertain. It reported no off-balance-sheet arrangements and effective disclosure controls.
Important facts for investors to verify
- Whether management’s expectation of positive full-year free cash flow is supported by actual operating cash generation, working-capital movements and capital spending.
- Whether the undrawn revolver remains available and covenant-compliant as market conditions and earnings evolve.
- How Subsea Products backlog, bookings and book-to-bill develop, and whether delays or cancellations reduce future revenue conversion.
- Whether further asset or goodwill impairments, customer credit losses, or contract-cost revisions arise under continued industry stress.
- The timing and receipt of CARES Act tax refunds, and the extent of foreign-currency and Angolan cash-repatriation exposure.