Oceaneering International, Inc. — Q2 2016 Form 10-Q
Business context and reporting period. This quarterly report covers the three and six months ended June 30, 2016. Oceaneering provides engineered services and products, principally to the offshore oil and gas industry, with additional Advanced Technologies operations. Management attributed weaker results to reduced customer spending amid low and uncertain commodity prices.
Financial performance
| Metric | Q2 2016 | Q2 2015 | First half 2016 | First half 2015 |
|---|---|---|---|---|
| Revenue | $625.5 million | $810.3 million | $1,233.9 million | $1,597.1 million |
| Gross margin | $95.2 million (15%) | $167.5 million (21%) | $192.7 million (16%) | $331.0 million (21%) |
| Operating income | $38.4 million (6%) | $107.9 million (13%) | $86.5 million (7%) | $214.6 million (13%) |
| Net income | $22.3 million | $65.5 million | $47.4 million | $135.0 million |
| Diluted EPS | $0.23 | $0.66 | $0.48 | $1.36 |
| Operating cash flow | Not stated for the quarter | Not stated for the quarter | $145.7 million | $200.5 million |
Q2 revenue declined about 23% year over year and net income about 66%; first-half revenue and net income fell about 23% and 65%, respectively. Q2 operating income was also below Q1 2016 ($48.1 million). The quarterly dividend remained $0.27 per share.
Segments. Q2 Oilfield revenue was $543.1 million versus $724.3 million a year earlier; segment operating income was $52.6 million versus $138.8 million. ROV utilization fell to 55% from 71%, and ROV operating margin to 13% from 28%. Subsea Products revenue was $190.9 million; operating income was $25.1 million, with backlog of $503 million versus $703 million a year earlier. Subsea Projects operating income declined to $10.2 million from $30.6 million. Asset Integrity recorded an $0.8 million operating loss, including a $3.3 million bad-debt expense. Advanced Technologies operating income was $5.5 million, down from $6.3 million.
Cash, debt and liquidity
- Cash and cash equivalents were $393.2 million at June 30, up from $385.2 million at year-end 2015. Working capital was $918 million.
- Operating cash flow for the first half was $145.7 million. Investing activities used $77.2 million, including $52.9 million of property and equipment purchases and $30.2 million of other investments, primarily Angolan bonds. Financing activities used $56.0 million, principally for dividends.
- Capital expenditures were $52.9 million in the first half, compared with $94.8 million excluding the prior-year acquisition-related cash outflow; total reported investing cash use in first-half 2015 also included the C&C acquisition. Management estimated 2016 capital expenditures of $100–$150 million.
- Long-term debt had a carrying value of $802.3 million, including $500 million of 4.650% notes due 2024 and a $300 million term loan. The $500 million revolving facility was undrawn; management reported $500 million of available capacity. The company was compliant with its 55% maximum total capitalization covenant.
Outlook, risks and notable items
- Management expected 2016 diluted EPS to be significantly below 2015’s $2.34, but provided no specific third-quarter or full-year EPS guidance because of limited visibility. It forecast lower third-quarter operating income than Q2, mainly due to lower Subsea Products volume and margins.
- Management expected continued reduced deepwater demand and substantial 2016 declines across Oilfield segments. It anticipated lower second-half ROV income, Subsea Products margins below 10% and considerably lower Subsea Products income than in the first half. Asset Integrity was expected to produce a small amount of second-half operating income; Advanced Technologies was expected to improve.
- Angola currency controls and kwanza depreciation are material risks. The company reported approximately $34 million of cash equivalent in kwanza, had purchased $50 million equivalent of Angolan central-bank bonds to mitigate exposure, and recorded foreign-currency transaction losses. Management cited $7.1 million of such losses for the first half; the filing separately identifies $8.2 million of kwanza-related losses for the same period.
- The BP field-support contract released the Bourbon Oceanteam 101 at the end of May 2016; reimbursed demobilization costs were noted. The Olympic Intervention IV charter expired in July, after which the company expected to pay prevailing spot rates only for days used. The Ocean Evolution vessel was scheduled for delivery in Q2 2017.
- A shareholder derivative suit concerning nonemployee director compensation remained pending on a motion to dismiss. The company stated it did not expect this or other disclosed claims to materially affect its financial position, results or cash flows.
Important facts for investors to verify
- Whether weak offshore activity, reduced utilization and lower pricing persist, and how they affect segment margins and backlog.
- Cash generation, working-capital movements, and the company’s ability to fund planned capital spending and dividends during the downturn.
- Angola cash convertibility, currency losses and the terms, valuation and collectability of the central-bank bonds.
- Debt covenant headroom, facility availability, and the timing and cost of vessel charters and the Ocean Evolution project.
- The reconciliation and presentation of first-half foreign-exchange losses, including the difference between total losses and the separately disclosed kwanza-related amount.