Oceaneering International, Inc. — Q1 2013 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2013. Oceaneering provides engineered services and products, primarily to the offshore oil and gas industry, with a focus on deepwater; it also serves defense and aerospace markets. Oil and Gas generated about 90% of revenue.
Financial performance
Amounts are in millions of dollars except per-share data. Comparisons are with the three months ended March 31, 2012.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Revenue | $718.6 | $594.9 |
| Gross profit / margin | $160.4 / 22% | $123.3 / 21% |
| Operating income / margin | $108.3 / 15% | $76.0 / 13% |
| Net income | $74.8 | $51.5 |
| Diluted EPS | $0.69 | $0.47 |
| Cash from operations | $120.8 | $146.4 |
| Capital expenditures | $94.2 | $83.4 |
Revenue increased about 21%, operating income about 43%, and net income about 45%. Operating cash flow declined about 18%, reflecting, among other items, inventory growth and a decrease in current liabilities. Cash and cash equivalents were $128.0 million at quarter-end, versus $120.5 million at year-end 2012. Working capital was $593 million.
Total assets were $2.772 billion and shareholders’ equity was $1.834 billion at March 31, 2013. Long-term debt was $90 million, down from $94 million at year-end. The company had $210 million available under its $300 million revolving credit facility. The filing reports no off-balance-sheet arrangements or guaranteed debt not on the balance sheet.
Segments and material changes
- ROVs: Revenue was $229.6 million, up from $194.0 million; operating income was $65.8 million versus $56.9 million. Utilization increased to 83% from 79%. The fleet totaled 294 vehicles.
- Subsea Products: Revenue rose to $214.0 million from $172.1 million and operating income to $42.8 million from $29.5 million. Period-end backlog was $776 million, compared with $402 million a year earlier and $681 million at December 31, 2012.
- Subsea Projects: Revenue increased to $88.5 million from $72.7 million and operating income to $11.6 million from $7.6 million, primarily due to activity under the Angola field-support contract. Results were lower than the preceding quarter, partly due to Gulf of Mexico seasonality.
- Asset Integrity: Revenue increased to $114.8 million from $93.5 million and operating income to $12.3 million from $6.5 million, reflecting higher demand and improved execution; the prior-year quarter included acquisition integration costs, inefficiencies, and poor project execution.
- Advanced Technologies: Revenue increased to $71.6 million from $62.7 million and operating income to $8.7 million from $3.5 million, driven by theme-park work, Navy submarine maintenance, and improved operational efficiency.
Foreign-currency translation reduced other comprehensive income by $38.5 million, versus a positive $11.8 million in Q1 2012. The company reported $1.4 million of other income, principally foreign-currency transaction gains, compared with $1.5 million of other expense in the prior-year quarter. The effective tax rate was 31.5% in both periods.
Outlook, risks, and contingencies
- Management forecast 2013 diluted EPS of $3.10 to $3.30, compared with $2.66 for 2012, and Q2 2013 diluted EPS of $0.81 to $0.86. It expected operating income to increase in 2013 across each operating business segment.
- Management expected 30 to 35 new ROVs to enter service during 2013, including six added in Q1, and projected 2013 capital expenditures of $300 million to $325 million. About $175 million was planned for ROV fleet upgrades and additions and $100 million for Subsea Products capabilities.
- Segment expectations included higher 2013 operating income for ROVs, Subsea Products, Subsea Projects, Asset Integrity, and Advanced Technologies. Management expected full-year ROV utilization of about 83% and operating margin of about 30%; Asset Integrity margin was projected at 11% to 12%. Subsea Products margin was expected below 2012’s 21%, partly due to a greater weighting of umbilical sales.
- Management said operating cash flow was expected to exceed 2013 capital expenditures and considered liquidity adequate. The company’s business is exposed to customer deepwater spending, industry volatility, and seasonal patterns; it also faces foreign-exchange and floating-interest-rate exposure. Management did not consider market risks material and had no outstanding hedges.
- Various claims and actions were pending, most covered by insurance; management did not expect any ultimate liability to materially affect results, cash flow, or financial position. The company had accrued $6.6 million for unrecognized tax benefits, and tax audits were open in several jurisdictions.
- The quarterly dividend was $0.18 per share in Q1. In April 2013, the board raised it to $0.22 per share, beginning with the June 2013 payment.
Key facts for investors to verify
- Whether deepwater customer spending, segment demand, and Subsea Products’ $776 million backlog convert into expected revenue and earnings.
- Delivery and utilization of planned ROV additions, and whether the $300 million to $325 million capital-spending plan is achieved while operating cash flow remains sufficient.
- Progress against 2013 EPS guidance and the assumptions behind segment margin and utilization forecasts.
- Working-capital trends, particularly inventory growth and the effect of collections and payroll timing on operating cash flow.
- Foreign-currency impacts, tax exposures and audits, and the outcome of pending legal claims.