Oceaneering International, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Oceaneering provides engineered services and products, primarily for offshore energy, and serves aerospace, defense and other markets. Segment comparisons reflect the company’s 2020 realignment, with prior-year amounts recast.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $437.6 million | $536.7 million |
| Gross margin | $56.7 million (13%) | $46.8 million (9%) |
| Operating income (loss) | $13.8 million (3%) | $(380.8) million |
| Net income (loss) | $(9.4) million | $(367.6) million |
| Diluted loss per share | $(0.09) | $(3.71) |
| Cash from operating activities | $(1.7) million | $(32.2) million |
| Capital expenditures | $10.7 million | $27.2 million |
- Revenue declined about 18% year over year. Gross margin improved despite lower revenue; the company attributed performance to operating improvement and efficiency efforts.
- The company reported an income tax provision of $12.3 million despite pretax income of $3.0 million, contributing to the net loss. Management said the tax rate reflected geographic earnings mix, uncertain tax positions and discrete items.
- Cash and cash equivalents were $442.7 million at March 31, 2021, versus $452.0 million at year-end 2020. Working capital was $745 million.
- Long-term debt was $804.9 million on the balance sheet, including $800 million principal of senior notes: $500 million at 4.65% due 2024 and $300 million at 6.00% due 2028. The $500 million revolving facility was undrawn; the company reported compliance with its covenants.
- Assets totaled $2.00 billion and total equity was $548.3 million at quarter-end. Cash declined $9.3 million during the quarter.
Material changes and segment results
- Q1 2020 results included $303.0 million of goodwill impairments and $68.8 million of long-lived asset impairments, as well as other charges. No goodwill or long-lived asset impairments were recorded in Q1 2021. The large year-over-year improvement in operating income therefore is not a like-for-like measure of underlying improvement.
- Subsea Robotics revenue was $119.1 million; ROV utilization fell to 53% from 65% a year earlier. Segment operating income was $14.6 million, but management said underlying income declined year over year due to fewer ROV days on hire.
- Manufactured Products revenue was $86.8 million, down from $166.5 million. Backlog fell to $248 million from $419 million a year earlier and $266 million at year-end; trailing-12-month book-to-bill was 0.6. Management cited weaker bookings and delayed customer investment.
- Offshore Projects Group revenue increased to $89.2 million from $74.3 million; operating income was $8.8 million. Management cited activity starting on the Angola riserless light well intervention project.
- Integrity Management & Digital Solutions revenue was $54.0 million and operating income was $2.5 million. Management said underlying results were lower year over year because Q1 2020 had higher pre-pandemic activity.
- Aerospace and Defense Technologies revenue was $88.3 million and operating income was $16.8 million; operating income improved modestly year over year.
Outlook, risks and unusual items
- Management expected consolidated Q2 2021 results to improve sequentially on higher revenue. It anticipated higher activity and operating results in Subsea Robotics and OPG; higher activity but relatively flat results in IMDS and ADTech; and lower activity and results in Manufactured Products. Unallocated expenses were expected in the low-to-mid $30 million range.
- 2021 capital expenditure guidance was reaffirmed at $50–$70 million, including $35–$40 million of maintenance and $15–$30 million of growth spending. Expected full-year cash taxes were $40–$45 million, excluding approximately $28 million of CARES Act refunds expected in 2021.
- The company expected approximately $33 million in combined CARES Act tax refunds and had received $5.6 million by March 31; the remaining amount was recorded as a receivable. Refund timing and collection remain relevant to cash flow.
- COVID-19 and energy-market conditions continued to affect demand, customer investment and project timing. About $51 million of receivables and contract assets related to delayed Manufactured Products projects remained outstanding; management believed they were realizable and projects would resume.
- Other risks include foreign-exchange exposure, particularly in Angola and Brazil; kwanza cash conversion is subject to Angolan central-bank controls. The company recorded $1.9 million of foreign-currency transaction losses in Q1.
- Ordinary-course litigation and disputes were disclosed; management did not expect them to materially affect consolidated results, while noting outcomes are uncertain. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether Q2 revenue and segment activity improved as management expected, especially in Subsea Robotics and OPG.
- Manufactured Products bookings, backlog conversion and the status and collectability of the approximately $51 million tied to delayed projects.
- Receipt and timing of the remaining CARES Act tax refunds, and cash taxes relative to guidance.
- Operating cash generation, capital spending and liquidity against the $50–$70 million full-year capex plan.
- Debt maturities, revolving-facility availability and continued compliance with credit agreement covenants.