Oceaneering International, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Oceaneering provides engineered services, products and robotic solutions to offshore energy, aerospace and defense, and other industries. Results are unaudited.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $599.1 million | $537.0 million | Up 12% |
| Gross margin | $92.4 million; 15% | $77.6 million; 14% | Up 19% |
| Operating income | $36.7 million; 6% | $26.8 million; 5% | Up 37% |
| Net income | $15.1 million | $4.1 million | Up $11.1 million |
| Diluted EPS | $0.15 | $0.04 | Up $0.11 |
| Operating cash flow | $(69.7) million | $(42.9) million | Cash use increased |
| Capital expenditures | $25.5 million | $18.3 million | Up $7.2 million |
Cash and equivalents were $354.7 million at quarter-end, down from $461.6 million at December 31, 2023. Working capital was $534 million. Debt was $500 million principal amount of 6.0% senior notes due in 2028 (carrying value $478.2 million). The company had no revolver borrowings and reported $215 million available under its revolving credit facility; it was in compliance with its covenants.
Operating cash use reflected working-capital movements, including the timing of vendor payments and incentive compensation payouts. Cash decreased by $106.9 million during the quarter, including $23.2 million used in investing activities and $7.5 million used in financing activities. The company reported no off-balance-sheet arrangements.
Changes and segment performance
- Compared with Q1 2023, revenue increased in every segment. Energy revenue rose 12% to $501.1 million; Aerospace and Defense Technologies (ADTech) revenue rose 8% to $98.0 million.
- Subsea Robotics revenue increased to $186.9 million, with operating income of $44.2 million versus $33.7 million. ROV utilization was 64%, versus 63% a year earlier.
- Manufactured Products revenue increased to $129.5 million and operating income to $13.2 million. Backlog was $597 million, down from $622 million at year-end but up from $446 million a year earlier; trailing-12-month book-to-bill was 1.30.
- Offshore Projects Group (OPG) revenue rose to $115.1 million, but operating income declined to $0.8 million from $5.5 million, primarily due to drydock expenses and project mix.
- Integrity Management & Digital Solutions revenue and operating income improved year over year. ADTech operating income increased to $12.8 million from $8.5 million, reflecting increased activity and margins in defense subsea technologies.
- Sequentially, Q1 revenue and operating results were lower than Q4 2023, primarily due to seasonal activity declines in Subsea Robotics and OPG and OPG drydock expenses. Q4 EPS also benefited from a partial release of deferred-tax-asset valuation allowances.
Outlook, risks and unusual items
- Management expects 2024 organic capital expenditures of $110 million to $130 million, excluding acquisitions, funded from available cash. Estimated 2024 income tax payments are $80 million to $90 million.
- Management described liquidity as adequate to support operations, capital commitments and strategic growth initiatives. It may pursue transactions to manage the 2028 notes before maturity, but gave no assurance that it will do so.
- Management cited seasonal activity, vessel charter costs and availability, customer payment and contract-asset collectability, order intake, backlog conversion, foreign exchange, and industry conditions among factors that could affect results. ROV and OPG activity is generally seasonally lower in Q1.
- Foreign-currency translation reduced equity by $16.0 million in Q1. Foreign-currency transaction gains were $2.2 million. Management said interest-rate and foreign-exchange market risks were not material as of quarter-end.
- The company has ongoing tax audits and appeals and reported $27 million of worldwide unrecognized tax liabilities. Ordinary-course litigation and claims are not expected by management to materially affect the company, though outcomes are uncertain.
- A previously suspended Manufactured Products contract had $1.3 million of contract assets and $6.3 million of prepaid-storage contract liabilities at quarter-end. The company is discussing remaining payments with the customer and cannot assure their timing.
- Remaining performance obligations disclosed were $492 million, with $303 million expected to be recognized over the next 12 months. The disclosed amount excludes certain short-duration and invoice-aligned contracts.
Important facts for investors to verify
- Whether working-capital outflows and the quarterly cash decline reverse as customer milestones are billed and collected and accrued obligations are paid.
- Whether OPG profitability recovers after first-quarter drydock costs and seasonal weakness, and how charter-vessel costs affect margins.
- Whether Manufactured Products backlog converts to revenue as expected, including the pace of new orders and the 1.30 book-to-bill ratio.
- Progress on collecting the suspended-contract receivables and resolving the associated prepaid-storage obligations.
- Execution of the $110 million to $130 million capital-spending plan and the impact of estimated $80 million to $90 million tax payments on liquidity.
- Developments in tax audits, litigation, foreign-exchange exposure, and compliance with revolving-credit covenants.