Oceaneering International, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet comparisons are to December 31, 2011. The unaudited filing covers a global provider of engineered services and products, primarily for offshore oil and gas, with additional Advanced Technologies operations. Unless stated otherwise, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Revenue | $594.9 million | $470.4 million | +26% |
| Gross margin | $123.3 million; 21% | $98.8 million; 21% | +25% in dollars |
| Operating income | $76.0 million; 13% | $61.1 million; 13% | +24% in dollars |
| Net income | $51.5 million | $42.1 million | +22% |
| Diluted EPS | $0.47 | $0.39 | +$0.08 |
| Cash from operations | $146.4 million | $48.9 million | +$97.6 million |
| Capital expenditures | $83.4 million purchases of property and equipment; management reports $93 million including acquisition spending | $53.9 million purchases of property and equipment; management reports $109 million including acquisition spending | — |
Operating cash flow benefited from working-capital movements, including a $31.9 million cash source from receivables and a $19.8 million source from current liabilities, versus cash uses from both categories in Q1 2011. Investing activities used $92.3 million, including $83.4 million in property and equipment purchases and $9.3 million for acquisitions. Financing activities used $32.8 million, including $21.0 million of net debt payments and $16.2 million of dividends.
At March 31, cash was $127.5 million, working capital was $447 million, and long-term debt was $100 million, down from $120 million at year-end. The company had $200 million available under its $300 million five-year revolving facility, due January 2017. Current assets were $973.1 million and current liabilities were $526.0 million.
Consolidated revenue rose across all reported segments year over year. Oil and Gas revenue increased to $532.2 million from $417.6 million, and segment operating income rose to $100.5 million from $84.0 million. ROV utilization improved to 79% from 71%. Subsea Products backlog was $402 million at March 31, 2012, versus $382 million at December 31, 2011.
Material changes and notable items
- Revenue and earnings increased year over year, supported by higher demand in ROVs, tooling, Subsea Projects, and international Asset Integrity work. Consolidated gross and operating margins held at 21% and 13%, respectively; both were below Q4 2011 levels of 23% and 14%.
- Recent acquisitions affect period comparability. AGR Field Operations, acquired in December 2011, contributed a full quarter of operations, particularly in Subsea Projects and Asset Integrity; management cited seasonality, integration costs, and operational inefficiencies as limiting its Asset Integrity profit contribution. Metacor, acquired for $9 million in January 2012, was included in Asset Integrity. The prior-year quarter included NCA acquisition-related spending.
- The company declared $0.15 per share in Q1 dividends. In April, the board raised the quarterly dividend to $0.18 per share, beginning with the June 2012 payment. No share repurchases were made in Q1.
- Foreign currency transaction losses contributed to $1.5 million of net other expense, compared with $0.1 million of net expense in Q1 2011. Translation adjustments added $11.8 million to other comprehensive income.
Outlook, risks, and contingencies
- Management forecast 2012 diluted EPS of $2.45–$2.65, versus $2.16 in 2011, and Q2 2012 diluted EPS of $0.64–$0.68. It expected 2012 operating income to exceed 2011 in each operating segment.
- Management anticipated 20–25 ROV additions during 2012, including five added in Q1, and four to six retirements, including two in Q1. Planned 2012 capital expenditures, excluding acquisitions, were $200–$225 million, including about $125 million for ROVs. Management expected operating cash flow to exceed capital expenditures.
- Outlook depends substantially on customer deepwater exploration and development spending. Management anticipated international demand growth and a moderate U.S. Gulf of Mexico recovery. The company noted seasonal variation, including generally weaker Q1 ROV activity and greater Subsea Projects activity from April through October.
- A customer in Angola owed $40 million, all overdue, at March 31, 2012. The company had reduced the receivable’s carrying value by $3 million in 2011 to reflect estimated collection timing, with $22 million classified as non-current. Management believed the balance would ultimately be collected; the amount and timing remain important uncertainties.
- Other exposures include foreign-exchange and floating-rate interest risk, international tax audits and judgments, and various legal claims, most of which are insured. Management said it did not expect litigation to materially affect results, cash flow, or financial position. Vessel charter minimum payments include $30 million through February 2014 for Ocean Intervention III and $94 million through February 2015 for Bourbon Oceanteam 101.
- The company reported no off-balance-sheet arrangements or guarantees of debt not on its balance sheet. It stated that disclosure controls were effective at March 31, 2012, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether projected EPS, segment improvement, and capital spending targets were achieved, and whether ROV utilization and fleet additions supported the forecast.
- Collection status, timing, and any further valuation changes for the overdue $40 million Angola receivable.
- AGR FO integration progress and whether Asset Integrity margins recover from Q1 seasonality, execution issues, and integration costs.
- Cash conversion and working-capital trends, particularly whether Q1 operating cash flow strength persists beyond favorable receivable and liability movements.
- Subsea Products backlog conversion, vessel charter obligations, and borrowing availability under the revolving facility.