Oceaneering International, Inc. — Q3 2017 Form 10-Q
Business context and period. The filing covers the quarter and nine months ended September 30, 2017. Oceaneering provides engineered services and products, primarily to the offshore oil and gas industry, through its Oilfield segments and its Advanced Technologies business.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $476.1 million | $549.3 million | $1,437.3 million | $1,783.2 million |
| Gross margin | $54.9 million (12%) | $35.4 million (6%) | $153.3 million (11%) | $228.2 million (13%) |
| Operating income (loss) | $10.5 million | $(11.9) million | $19.8 million | $74.6 million |
| Net income (loss) | $(1.8) million | $(11.8) million | $(7.2) million | $35.6 million |
| Diluted EPS | $(0.02) | $(0.12) | $(0.07) | $0.36 |
- Q3 revenue declined about 13% year over year; nine-month revenue declined about 19%. Q3 operating results improved from a loss to a profit, while year-to-date operating income fell substantially.
- Operating cash flow was $144.0 million for the first nine months, versus $261.7 million a year earlier. Capital expenditures were $59.9 million; net cash used in investing activities was $78.8 million and in financing activities was $46.0 million.
- Cash and cash equivalents were $472.4 million at September 30, 2017, and working capital was $771 million. Long-term debt was $795.8 million on the balance sheet; principal debt was approximately $800 million. The company had $500 million available on its revolving credit facility and reported compliance with its covenants.
- No consolidated operating cash-flow margin or consolidated EBITDA figure is stated in the filing text.
Segment results and material changes
- Oilfield revenue was $389.4 million in Q3, down from $466.6 million; operating income increased to $27.0 million from $2.0 million, with the prior-year quarter affected by substantial ROV inventory and fixed-asset write-offs.
- ROV utilization was 50%, versus 52% a year earlier. Subsea Products revenue fell to $143.6 million from $157.3 million; backlog was $284 million, down from $457 million a year earlier. Subsea Projects revenue fell to $80.1 million from $110.8 million.
- Advanced Technologies revenue increased to $86.7 million from $82.7 million, and operating income rose to $6.6 million from $4.4 million. Management attributed improvement to execution on theme park and other commercial projects.
- Dividends paid per share were $0.15 in Q3 2017, compared with $0.27 in Q3 2016. The board did not declare a Q4 2017 dividend.
Outlook, risks and unusual items
- Management expected Q4 2017 results to be considerably below Q3, citing seasonality and weaker offshore activity, particularly in ROV and Subsea Projects. It expected 2017 operating income to remain marginally positive, but full-year diluted EPS below 2016’s $0.25.
- Management projected 2018 earnings significantly below 2017 as offshore spending and activity remained weak, with some improvement in offshore activity anticipated in the second half of 2018. It expected each operating segment to generate positive EBITDA and cash flow sufficient to service debt and fund anticipated maintenance and organic-growth capital spending.
- Management cited lower deepwater demand, customer spending cuts, pricing pressure, vessel oversupply, seasonality, and higher interest expense as risks. It expected a loss from its Medusa Spar LLC investment. The dividend would not be reinstated absent significant improvement in market outlook and projected free cash flow.
- Nine-month 2017 results included $4.5 million of additional tax expense from discrete items, including a tax reserve for prior-year foreign filings and tax effects of share-based compensation. The company acquired a 60% interest in Dalgidj LLC for approximately $12.4 million, with additional payments due after quarter-end.
- Oceaneering reported approximately $26 million equivalent of Angolan kwanza cash, subject to central-bank conversion controls, and held $70 million equivalent of Angolan central-bank bonds to mitigate currency exposure. The board-compensation derivative case was closed by the court for failure to prosecute or comply with an order.
Key facts for investors to verify
- Whether Q4 and full-year operating results tracked management’s downward outlook, including seasonal and offshore-activity assumptions.
- Subsea Products order intake, backlog conversion, and margin trajectory; ROV utilization and day rates; and vessel demand and pricing.
- Operating cash flow, liquidity, debt covenant headroom, and the funding and timing of the Ocean Evolution vessel and other capital spending.
- Dividend policy and the timing or conditions for any reinstatement.
- Realizability and liquidity of Angolan kwanza balances and bonds, and the final purchase consideration and operating contribution from Dalgidj.