Oceaneering International, Inc. — Q3 2012 Form 10-Q
Business context and reporting period. Global provider of engineered services and products, primarily for offshore oil and gas and deepwater markets. This unaudited quarterly report covers the three and nine months ended September 30, 2012; comparisons are with the corresponding 2011 periods unless stated otherwise.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $734.2 million | $602.2 million | $2,001.7 million | $1,618.5 million |
| Gross profit | $170.9 million | $153.1 million | $455.3 million | $378.0 million |
| Operating income | $123.8 million | $109.6 million | $309.8 million | $252.4 million |
| Net income | $84.4 million | $78.6 million | $208.4 million | $177.3 million |
| Diluted EPS | $0.78 | $0.72 | $1.92 | $1.63 |
| Operating cash flow | Not separately reported | Not separately reported | $290.5 million | $146.2 million |
- Q3 revenue rose about 22% and net income about 7% year over year. Nine-month revenue increased about 24% and net income about 18%.
- Q3 gross margin was 23% versus 25%; operating margin was 17% versus 18%. Nine-month gross margin was 23% in both periods, while operating margin declined to 15% from 16%.
- Nine-month operating cash flow improved by $144.3 million. Working-capital movements included a $97.2 million use of cash from receivables and a $71.7 million use from inventory, partly offset by a $109.2 million increase in current liabilities.
- Cash was $103.6 million at September 30, 2012. Working capital was $561 million, with $180 million of available capacity on the revolving credit facility. Long-term debt was $120 million, unchanged from year-end 2011; the facility provides $300 million of total revolving capacity and expires in January 2017.
- Nine-month capital expenditures were $226 million, including $149 million for ROVs. Investing activities used $222.0 million and financing activities used $71.0 million. Cash dividends totaled $55.1 million; treasury-stock purchases totaled $19.4 million.
Material changes and segment results
- ROV revenue grew 12% in Q3; utilization was 81% versus 80% a year earlier. Nine-month operating income rose to $187.8 million from $165.6 million.
- Subsea Products Q3 revenue was slightly lower year over year, but operating income increased to $50.8 million from $41.5 million as profitability improved. Backlog was $619 million, up from $403 million a year earlier and $382 million at December 31, 2011.
- Subsea Projects revenue rose substantially, primarily reflecting the BP field-services contract offshore Angola and acquired AGR FO operations. Q3 operating margin was 17%, down from 42% in Q3 2011, which included an $18 million gain on sale of the Ocean Legend.
- Asset Integrity revenue and operating income increased, including contributions from the AGR FO acquisition completed in December 2011. Advanced Technologies revenue rose, but Q3 margins declined due to cost pass-through work with little margin.
- Oceaneering acquired Metacor for $9 million in January 2012. The AGR FO and Mechanica acquisitions were completed in December 2011 and contributed to year-over-year segment growth.
Outlook, risks and unusual items
- Management forecast 2012 diluted EPS of $2.60–$2.65 and Q4 diluted EPS of $0.68–$0.73. It projected 2013 diluted EPS of $3.00–$3.25 and expected to place 30–35 new ROVs into service in 2013.
- Management expected 2012 operating income to exceed 2011 in each operating segment, supported by international demand and a moderate recovery in U.S. Gulf of Mexico activity. Q4 ROV and Subsea Products operating income was expected to be comparable to Q3; other oil and gas segments were expected to decline seasonally.
- Estimated 2012 capital expenditures were $275–$300 million. Management expected operating cash flow to exceed 2012 capital expenditures and considered liquidity adequate.
- The business is substantially exposed to oil and gas customer spending, particularly deepwater exploration and development. Other stated considerations include seasonality, foreign-exchange movements, floating interest rates and execution of growth plans. The company reported no outstanding hedges and said market risks were not material.
- In October 2012, the company collected $25 million on a past-due Angola customer receivable; the remaining balance, net of the previously recorded discount, was approximately $3 million. The September 30 balance-sheet amount classified as receivable was $28 million.
- Various legal claims were pending, most covered by insurance; management did not expect any ultimate liability to materially affect results, cash flow or financial position. The filing also notes tax audits and $5.1 million of accrued unrecognized tax benefits.
Important facts for investors to verify
- Whether the 2012 and 2013 EPS outlook and ROV deployment plans were achieved, and how actual results compared with management’s forecasts.
- Subsea Products backlog conversion, ROV utilization and pricing, and sustainability of Subsea Projects and Asset Integrity growth.
- Cash conversion and working-capital trends, especially receivables, inventory and the effect of current-liability movements on operating cash flow.
- Collection status of the remaining Angola receivable and any changes in the customer’s credit risk.
- Capital spending, credit-facility availability and compliance with debt covenants as investment plans proceed.