Oceaneering International, Inc. — FY 2020 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2020; it is not a standalone fourth-quarter filing. Oceaneering provides engineered services and products, primarily to offshore oil and gas customers, and also serves defense, aerospace, renewables and other markets. The company realigned its reportable segments during 2020 and recast comparative segment data. Energy Services and Products generated 81% of revenue; foreign operations generated 53%.
Key financial results
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $1.828 billion | $2.048 billion |
| Gross margin | $163.9 million; 9% | $98.2 million; 5% |
| Operating loss | $446.1 million; (24%) | $290.7 million; (14%) |
| Net loss / diluted loss per share | $496.8 million / $5.01 | $348.4 million / $3.52 |
| Cash from operations | $136.6 million | $157.6 million |
| Capital expenditures | $60.7 million | $147.7 million |
| Cash and cash equivalents at year-end | $452.0 million | $373.7 million |
Revenue fell 11%. Cash from operations less capital expenditures was approximately $76.0 million, versus $9.9 million in 2019. The company reported a $78.4 million increase in cash during 2020. Gross margin improved despite lower revenue, while reported operating and net losses widened.
Segment performance and material changes
- Subsea Robotics: Revenue declined 15% to $493.3 million; ROV utilization was 59%, versus 58%. Operating loss was $65.8 million, including $121.5 million of charges.
- Manufactured Products: Revenue declined 4% to $477.4 million; operating loss was $88.3 million, including $115.6 million of charges. Backlog fell 51% to $266 million.
- Offshore Projects Group: Revenue declined 24% to $289.1 million. Operating loss improved to $105.7 million from $170.0 million, substantially reflecting lower impairment-related charges.
- Integrity Management & Digital Solutions: Revenue declined 15% to $226.9 million; operating loss was $121.7 million, including $128.2 million of charges.
- Aerospace and Defense Technologies: Revenue rose 7% to $341.1 million; operating income rose to $56.0 million from $42.6 million.
Reported FY 2020 charges totaled approximately $466.7 million, primarily goodwill impairment ($343.9 million) and long-lived asset impairment ($70.4 million), as well as write-offs, inventory write-downs and other costs. The charges reflected adverse market conditions, lower expected demand and pricing, and asset valuations. The filing reports goodwill of $35.0 million at year-end, down from $405.1 million.
Liquidity, debt and capital
Year-end working capital was $733.1 million, with a working-capital ratio of 2.68. The $500 million revolving credit facility was undrawn; the filing states $500 million was available at year-end. Long-term debt was $805.3 million, comprising $500 million of 4.650% notes due 2024 and $300 million of 6.000% notes due 2028, with accounting adjustments. The company reported compliance with credit-agreement covenants. It paid no dividend in 2020 and had not repurchased shares under its authorization since 2015.
Outlook, risks and unusual items
- Management expected 2021 operating results to approximate 2020, with generally flat consolidated revenue. Higher ADTech and IMDS revenue was expected to substantially offset lower Manufactured Products revenue; Subsea Robotics and OPG revenue was expected to be relatively flat, assuming no significant incremental COVID-19 impacts and generally stable oil and gas prices.
- Management forecast positive operating-income contributions from each operating segment, improvement in Subsea Robotics, OPG, IMDS and ADTech, and lower results in Manufactured Products. Expected 2021 capital expenditures were $50–$70 million; estimated interest expense, net of interest income, was approximately $40 million.
- COVID-19, lower oil and gas demand and price volatility disrupted activity and delayed projects. Certain delayed Manufactured Products projects had approximately $51 million of receivables and contract assets outstanding; management believed they were realizable and projects would resume.
- Tax-related items include a $315 million increase in valuation allowance on deferred tax assets. The filing expected approximately $28 million of CARES Act refunds in 2021; tax payments were estimated at $35–$40 million.
- Key risks include offshore oil and gas cyclicality, COVID-19 and project cancellations, foreign exchange and operating risks, environmental and regulatory changes, customer collections, and access to letters of credit. Angola currency devaluation and restrictions on converting or repatriating funds are particular exposures.
Most important facts for investors to verify
- Whether 2021 demand, pricing and project activity support management’s outlook, particularly the expected recovery in IMDS and continued weakness in Manufactured Products.
- How much of the $1.521 billion reported backlog converts to revenue and profit, given cancellation rights and the filing’s stated uncertainty; separately note remaining performance obligations of $217 million, which exclude certain short-term or bill-as-performed contracts.
- Whether the $51 million of delayed-project receivables and contract assets are collected and the projects resume.
- Whether cash generation remains sufficient to fund operations and service $800 million of note principal, with the nearest note maturity in November 2024.
- The assumptions behind significant goodwill and long-lived asset impairments, deferred-tax-asset valuation allowances, and contract cost-to-complete estimates; these were areas of substantial estimation, and auditors identified long-lived asset valuation and cost-to-cost revenue recognition as critical audit matters.