Oceaneering International, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Oceaneering provides subsea robotics, offshore project services, manufactured products, integrity and digital solutions, and aerospace and defense technologies.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $597.9 million | $524.0 million | $1,134.9 million | $970.2 million |
| Gross margin | $101.1 million (17%) | $76.0 million (15%) | $178.6 million (16%) | $121.5 million (13%) |
| Operating income | $49.2 million (8%) | $22.9 million (4%) | $75.9 million (7%) | $21.8 million (2%) |
| Net income (loss) | $19.0 million | $3.7 million | $23.1 million | $(15.5) million |
| Diluted EPS | $0.19 | $0.04 | $0.23 | $(0.15) |
Second-quarter revenue increased 14% year over year, and operating income more than doubled. Management attributed improved results to higher activity and utilization across segments, particularly Subsea Robotics and Offshore Projects Group (OPG), partly offset by entertainment-project losses and OPG project delays. For the first half, revenue rose 17%; net income improved from a loss to a profit.
Cash flow, liquidity and debt
- Operating cash flow was negative $22.5 million in the first half, versus negative $124.5 million a year earlier. Working-capital use included $103.4 million from receivables and contract assets and $24.5 million from inventory.
- Capital expenditures were $40.7 million; cash declined by $64.7 million to $504.0 million. Management cited operating cash use and maintenance and growth capital spending as the largest contributors.
- Working capital was $760 million at June 30. The company had $700 million of debt principal outstanding (reported carrying value $700.4 million) and no revolver borrowings; the full $215 million revolving facility was available. It reported compliance with credit covenants.
- The nearest debt maturity is $400 million of 4.65% senior notes due November 2024; $300 million of 6.00% notes mature in 2028. The revolving facility’s maximum net leverage covenant tightens over its term; the reported ratio was 3.50x at June 30.
Segments and material changes
- Subsea Robotics: Q2 revenue was $186.5 million and operating income $42.2 million. ROV utilization improved to 70%, from 64% in Q2 2022 and 63% in Q1 2023.
- Manufactured Products: Q2 revenue was $124.9 million and operating income $10.6 million, compared with an operating loss a year earlier. Backlog was $418 million, below $467 million at year-end 2022 but above $335 million a year earlier.
- OPG: Q2 revenue was $130.5 million and operating income $17.1 million. Results improved substantially from Q1 2023, while some planned Gulf of Mexico installation work shifted to Q3.
- Integrity Management & Digital Solutions: Q2 revenue was $63.2 million and operating income $3.8 million.
- Aerospace and Defense Technologies: Q2 revenue was $92.8 million and operating income $11.4 million. First-half operating income declined year over year, reflecting higher costs on defense subsea projects in Q1.
Outlook, risks and unusual items
- No consolidated earnings or revenue guidance was provided in the supplied filing text. Management expects 2023 organic capital expenditures of $90–$110 million, including $45–$50 million maintenance and $45–$60 million growth spending; estimated 2023 income tax payments are $65–$70 million, excluding the CARES Act refund.
- Remaining performance obligations were $368 million; the company expected to recognize $288 million over the next 12 months. Manufactured Products backlog and book-to-bill are management indicators, not guaranteed future revenue.
- New deepwater vessel charters added future operating lease obligations of $23 million in 2023, $138 million across 2024–2025, and $53 million across 2026–2027.
- Foreign-exchange losses, principally tied to Angola, contributed to other expense: $5.8 million of net other expense in Q2 and $5.8 million in the first half. The Angolan kwanza was devalued 39% against the U.S. dollar in the first half; cash conversion is controlled by Angola’s central bank, and no Angolan cash was repatriated in 2023.
- The company received $23 million of CARES Act tax refunds, including $1.7 million of interest recorded as a tax benefit. It also recognized projected losses of $2.9 million on entertainment contracts in Manufactured Products during both Q2 and the first half.
- Approximately $20 million of contract assets related to a suspended Manufactured Products customer contract remained outstanding. Management expects collection at book value but cannot assure timing. Ongoing tax audits and appeals, ordinary-course litigation, charter costs, project execution, capital-market access and lender availability are additional matters to monitor.
Important facts for investors to verify
- Whether working-capital absorption reverses and operating cash flow improves as customer milestones and receivables are collected.
- Progress toward refinancing or repaying the $400 million notes due in November 2024, and continued compliance with leverage and interest-coverage covenants.
- Whether Manufactured Products backlog converts to profitable revenue, given entertainment-contract losses and the lower backlog versus year-end.
- Collection timing for the suspended-contract assets and the impact of Angolan currency restrictions and exchange-rate movements.
- Actual vessel-charter commitments, capital spending, tax payments and project costs relative to management’s stated expectations.