Oceaneering International, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. The company provides engineered services and products, primarily to the offshore oil and gas industry, with additional Advanced Technologies operations. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $672.5 | $545.8 | $1,267.4 | $1,016.3 |
| Gross margin | $161.2 (24%) | $126.1 (23%) | $284.5 (22%) | $224.9 (22%) |
| Operating income | $110.0 (16%) | $81.7 (15%) | $186.0 (15%) | $142.7 (14%) |
| Net income | $72.6 | $56.7 | $124.0 | $98.8 |
| Diluted EPS | $0.67 | $0.52 | $1.14 | $0.91 |
For Q2, revenue increased about 23% and net income about 28% year over year. Six-month revenue rose about 25% and net income about 26%. The six-month effective tax rate was 31.5%.
- Segment highlights: Oil and Gas revenue was $604.7 million in Q2, up from $489.4 million. Subsea Projects revenue rose to $90.4 million from $34.7 million, led by the BP Angola field-support contract reaching expected activity levels and contributions from the acquired AGR operations. Asset Integrity revenue also benefited from AGR and higher service sales.
- ROV revenue was $208.8 million; utilization was 81%, versus 76% a year earlier. Subsea Products revenue was $191.8 million, while its backlog increased to $621 million from $405 million at June 2011, largely on second-quarter umbilical orders.
- Advanced Technologies revenue was $67.9 million, with improved results from entertainment projects and U.S. Navy work.
- Other expense, net was $3.2 million in Q2 and $4.7 million for the first half, principally reflecting foreign-currency transaction losses. Interest expense also increased versus 2011 because the company had no debt in the prior-year periods.
Cash flow, balance sheet and capital
- First-half operating cash flow was $186.4 million, compared with $85.5 million in 2011. Working capital absorbed cash through a $42.6 million increase in receivables and a $35.0 million increase in inventory; higher current liabilities provided $56.1 million.
- Investing cash outflow was $160.4 million, including $151.6 million for property and equipment and $9.3 million for acquisitions. Management reported first-half capital expenditures of approximately $161 million, including the Metacor acquisition. Financing cash outflow was $46.5 million, including $35.7 million of dividends and $19.4 million of share repurchases. Cash declined $20.6 million to $85.6 million.
- At June 30, working capital was $478 million. Long-term debt was $125 million under a $300 million revolving facility, leaving $175 million available. The facility expires in January 2017 and includes customary financial covenants.
- Total assets were $2.52 billion and shareholders’ equity was $1.62 billion. The board raised the quarterly dividend from $0.15 to $0.18 per share in April. The company repurchased 400,000 shares for $19 million in the first half; 8.9 million shares remained authorized for repurchase.
Outlook, risks and notable items
- Management forecast 2012 diluted EPS of $2.55–$2.65, versus $2.16 in 2011, and Q3 EPS of $0.75–$0.80. It expected full-year operating income to exceed 2011 levels in each operating segment, with second-half improvement led principally by ROV and Subsea Products.
- Planned 2012 capital expenditures, excluding acquisitions, were $275–$300 million, including approximately $175 million for ROVs and $90 million for Subsea Products capabilities. Management expected operating cash flow to exceed capital expenditures for the year. The company planned 25–30 ROV additions in 2012; 18 had been added in the first half, bringing the fleet to 280.
- Demand depends significantly on customers’ deepwater exploration and development spending. Management cited seasonality in Subsea Projects, Asset Integrity and ROV activity; foreign-exchange exposure; and the possibility that actual results may differ from forecasts. It stated that market risks from interest rates and currencies were not believed to be material, and that it had no outstanding hedges.
- A customer in Angola owed $30 million at June 30, all overdue, for work completed in 2010. The company believed the amount would ultimately be collected; $22 million was classified as a non-current asset after a prior present-value reduction.
- Management said pending claims, most covered by insurance, were not expected to materially affect results, cash flow or financial position. The filing also reported foreign-currency translation losses of $13.4 million in first-half 2012, compared with a $28.6 million gain in first-half 2011.
Important facts for investors to verify
- Whether the $30 million overdue Angola receivable is collected as expected and whether its carrying value remains recoverable.
- Whether the $621 million Subsea Products backlog converts to revenue and profit on expected timing and terms.
- Whether the company achieves its 2012 EPS guidance, segment outlook and capital-spending plans, particularly as offshore activity and seasonal demand change.
- How AGR integration, first-quarter Asset Integrity execution issues, currency movements and the revolving facility’s covenants affect operating results and liquidity.