Oceaneering International, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The filing was signed May 15, 2020. Oceaneering provides engineered services and products, primarily to the offshore energy industry, as well as services to government, aerospace, and commercial customers.
Financial results and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $536.7 million | $493.9 million |
| Gross margin | $46.8 million; 9% of revenue | $27.6 million; 6% of revenue |
| Operating income (loss) | $(380.8) million; (71)% | $(21.7) million; (4)% |
| Net income (loss) | $(367.6) million | $(24.8) million |
| Diluted loss per share | $(3.71) | $(0.25) |
| Cash from operating activities | $(32.2) million | $19.1 million |
| Capital expenditures | $27.2 million | $30.0 million |
At March 31, 2020, cash and cash equivalents were $307.5 million, working capital was $666 million, and total current liabilities were $485.7 million. Long-term debt was $806.4 million on the balance sheet, representing $800 million principal on senior notes, plus related accounting adjustments. The $500 million revolving facility was undrawn; the company reported covenant compliance and access to the full facility.
Operating cash flow included substantial noncash impairment add-backs, but cash decreased $66.2 million during the quarter to $307.5 million. The reported operating cash outflow reflected, among other factors, a $102.8 million cash reduction from current liabilities. Shareholders’ equity fell to $630.6 million from $1.07 billion at year-end 2019.
Changes versus comparable periods
- Revenue rose about 9% year over year, but reported operating and net losses widened sharply, primarily due to impairments.
- The company recorded $303.0 million of goodwill impairment and $68.8 million of long-lived asset impairment, alongside $7.3 million of intangible-asset write-offs and other charges. The impairments reflected the energy downturn, COVID-19 impacts, weaker demand and market assumptions. Goodwill declined to $74.0 million from $405.1 million at December 31, 2019.
- Revenue increased in ROVs and Subsea Products, while Subsea Projects and Advanced Technologies revenue declined year over year. ROV utilization improved to 65% from 53%.
- Subsea Products backlog was $528 million, down from $630 million at year-end; first-quarter book-to-bill was 0.5, while the trailing-12-month ratio was 1.1.
- Foreign-currency translation reduced comprehensive income by $70.3 million. Other income included $7.1 million of net foreign-currency transaction losses.
Outlook, commentary and risks
- Management withdrew 2020 financial guidance and is not providing second-quarter or full-year operating-results or EBITDA guidance because of uncertainty from COVID-19, lower oil demand and prices, and reduced customer spending.
- Management maintained quarterly unallocated-expense guidance in the high-$20 million range and lowered 2020 capital-expenditure guidance to $45–$65 million, including $15–$25 million maintenance and $30–$40 million growth spending.
- Management continued to expect positive free cash flow for 2020, citing cost reductions, lower capital spending and cash taxes, expected CARES Act refunds, and anticipated working-capital cash. It estimated net 2020 income-tax payments of approximately $15 million.
- The company expects CARES Act-related refunds of approximately $16 million for 2014 and $18 million for 2013; the related receivables were recorded at quarter-end. It also recognized a $33.8 million CARES Act tax benefit and a $42.2 million total benefit from discrete tax items.
- Management said operations had largely continued worldwide, while noting disruptions, personnel quarantines, supplier and customer performance-delay notices, and possible project delays, cancellations, or backlog reductions. The duration and financial effects of the pandemic and oil-market disruption were not predictable.
- Further risks include weaker offshore activity and pricing, customer payment delays or defaults, currency devaluations, operational and supply-chain interruptions, and potential disputes related to delayed performance. The company reported no off-balance-sheet arrangements; ordinary-course litigation was not expected to have a material adverse effect, though outcomes remain uncertain.
Investor verification priorities
- Track cash generation and liquidity against management’s positive-free-cash-flow expectation, including working-capital movements and use of the revolving facility.
- Verify whether projected tax refunds are received and whether the expected 2020 tax payments and CARES Act benefits develop as described.
- Monitor Subsea Products backlog, order intake and book-to-bill, as well as any COVID-19-related cancellations or delays.
- Assess whether further impairments or operational restructuring charges arise, given the substantial first-quarter write-downs and the sensitivity of valuations to future demand and commodity-price assumptions.
- Review debt, covenant headroom and financing access as market conditions evolve; the filing says the facility was available and covenants were met at March 31, 2020.