Oceaneering International, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports unaudited quarterly results, including the quarter ended December 31, 2018. Oceaneering provides engineered services and products, primarily to offshore oil and gas customers, with additional defense, aerospace, renewables and commercial businesses. Approximately 78% of 2018 revenue came from energy-related services and products; foreign operations contributed about 50%.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $1.909 billion | $1.922 billion |
| Gross margin | $129.2 million (about 6.8%) | $194.6 million (about 10.1%) |
| Operating income (loss) | $(145.5) million (about -7.6%) | $10.7 million (about 0.6%) |
| Net income (loss) | $(212.3) million; diluted loss per share $(2.16) | $166.4 million; diluted earnings per share $1.68 |
| Cash from operating activities | $36.6 million | $136.5 million |
| Capital expenditures, including acquisitions | $178.0 million | $105.0 million |
- Year-end cash was $354.3 million; working capital was $750.1 million and the working-capital ratio was 2.52.
- Long-term debt carrying value was $786.6 million; principal amount of senior notes was $800 million. The company had $500 million available under its revolving credit facility and reported compliance with its covenants.
- Operating cash flow fell substantially, including an $86.7 million cash use from accounts receivable. Cash and cash equivalents declined by $76.1 million during the year.
- No dividend was declared for 2018. The board had suspended quarterly dividends after the third quarter of 2017 and management did not anticipate reinstatement absent a significant improvement in market outlook and projected free cash flow.
Material changes versus 2017
- Revenue was nearly flat, but gross margin declined by $65.4 million and operating results worsened by $156.1 million, from operating income to operating loss. Management attributed the decline mainly to lower pricing and weaker profit contribution in energy segments.
- Subsea Projects recorded an $76.4 million goodwill impairment, primarily reflecting the prolonged downturn in survey and vessel activity. Its operating loss was $86.0 million, compared with $10.3 million operating income in 2017.
- Subsea Products revenue fell $110.5 million and operating income fell $39.9 million. ROV revenue was essentially flat, but operating income fell to $1.6 million from $22.4 million. Advanced Technologies revenue rose to $416.6 million from $373.6 million, with operating income increasing to $33.9 million.
- The net loss comparison was heavily affected by tax: 2017 included a $184.2 million income tax benefit, primarily reflecting the Tax Act; 2018 had a $26.5 million tax provision despite a pretax loss.
- ROV utilization improved to 51% from 46%, while the work-class fleet declined to 275 units from 279. Total backlog increased to $1.465 billion from $1.380 billion, though backlog is subject to cancellation and is not a guarantee of future revenue or profit.
Quarterly results, outlook and risks
- Fourth-quarter 2018 revenue was $495.1 million, operating loss was $97.1 million, and net loss was $64.1 million. In fourth-quarter 2017, revenue was $484.2 million, operating loss was $9.1 million, and net income was $173.6 million; the latter included a substantial Tax Act benefit.
- Management expected 2019 operating results to improve year over year, supported by higher activity and generally stable pricing. It expected improvement in all segments except Asset Integrity, with the largest profit increases in Subsea Products and Advanced Technologies. ROV utilization was projected in the mid-50% range; Subsea Products operating margin was expected in the mid-single digits.
- Management forecast 2019 capital expenditures of $105 million to $125 million, excluding acquisitions, and expected to place the new Ocean Evolution vessel into service in the second quarter of 2019. It estimated 2019 income tax payments of about $25 million and did not expect a current-year tax benefit from the projected consolidated pretax loss.
- Key risks include continued oil-and-gas market cyclicality, offshore spending and pricing pressure; contract cancellations and uncertain backlog conversion; customer concentration; foreign exchange and political risks, particularly in Angola; availability of specialized steel tubing; offshore operating and environmental hazards; and acquisition, cybersecurity and regulatory risks.
- Angola-related currency transaction losses were $18 million in 2018 overall; the filing separately attributes $19 million to kwanza remeasurement. The company repatriated $74 million from Angola during 2018 and ended the year with approximately $9.3 million equivalent in kwanza cash.
- The filing reports a $9.3 million pretax gain on the sale of its ASV Global investment and $7.6 million of equipment and intangible-asset write-offs. The auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether forecast activity and stable pricing translated into improved 2019 segment profitability, particularly in Subsea Products and Advanced Technologies.
- Whether the Subsea Projects impairment adequately reflects continuing survey and vessel-market conditions, and whether further impairments or asset write-offs arise.
- Cash conversion, receivable collections, capital spending and free cash flow, including funding for the Ocean Evolution and other growth projects.
- Debt-service capacity, revolving-credit availability and covenant headroom, alongside the company’s decision on dividend reinstatement.
- Backlog quality and conversion, including cancellations, customer concentration and the remaining performance obligations disclosed under revenue-accounting rules.
- Exposure to Angola currency restrictions and repatriation, as well as tax uncertainties, including valuation allowances and uncertain tax positions.