Oceaneering International, Inc. — Q3 2021 Form 10-Q
Business context and period: Oceaneering provides engineered services and products, principally to offshore energy customers, and also serves aerospace, defense and other markets. This report covers the quarter and nine months ended September 30, 2021; comparisons are with the prior-year periods unless noted.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $466.8 million | $439.7 million | $1,402.6 million | $1,403.6 million |
| Gross margin | $59.8 million; 13% | $29.7 million; 7% | $184.9 million; 13% | $118.9 million; 8% |
| Operating income (loss) | $15.8 million; 3% | $(60.6) million; (14)% | $52.4 million; 4% | $(446.6) million; (32)% |
| Net income (loss) | $(7.4) million | $(79.4) million | $(10.5) million | $(471.8) million |
| Diluted EPS | $(0.07) | $(0.80) | $(0.11) | $(4.76) |
| Operating cash flow | — | — | $85.3 million | $32.4 million |
Q3 revenue rose 6% year over year but declined from $498.2 million in Q2 2021; operating income fell from $22.8 million sequentially. The quarterly net loss despite operating income primarily reflects a $13.6 million income tax provision on $6.2 million of pretax income. Nine-month revenue was essentially flat year over year, while operating results improved substantially; the prior-year comparison includes large impairment charges.
Nine-month investing cash outflow was $22.9 million, including $35.8 million of capital expenditure. Operating cash flow less property-and-equipment purchases was approximately $49.5 million. Financing cash outflow was $64.7 million, primarily for debt repurchases. Cash declined $4.3 million over the nine months, to $447.7 million.
At September 30, working capital was $734 million. Long-term debt carrying value was $740.0 million; stated principal outstanding was approximately $737 million. The company had no revolver borrowings and reported $500 million of availability at quarter-end; the facility was to reduce to $450 million after October 25, 2021. It repurchased approximately $63 million principal of its 4.650% notes due 2024 during the nine months. The company said it was in covenant compliance.
Material changes and segment performance
- All operating segments generated operating income in Q3 2021. Subsea Robotics revenue was $143.7 million, up year over year, with utilization of 63% versus 59%. Offshore Projects Group revenue rose to $95.6 million, supported by Angola work, despite weather and current-related delays in the Gulf of Mexico.
- Manufactured Products revenue declined to $75.4 million from $110.4 million; operating income was $0.8 million. Its backlog was $334 million, up from $266 million at year-end 2020.
- Integrity Management & Digital Solutions revenue increased to $62.8 million, while Aerospace and Defense Technologies revenue increased to $89.4 million. The latter reported $14.3 million of operating income.
- Compared with the first nine months of 2020, the improvement in operating results principally reflects the absence of prior-year impairment charges, including $343.9 million of goodwill impairment and $68.8 million of long-lived asset impairments. There were no impairments recorded in the first nine months of 2021.
Outlook, commentary and risks
- Management expected Q4 2021 results to be similar to Q3, with slightly higher consolidated revenue. It forecast significantly higher Manufactured Products revenue and profitability; relatively flat activity and profitability in Subsea Robotics and IMDS; lower seasonal OPG activity and profitability; and relatively flat ADTech revenue with lower profitability. Unallocated expenses were expected in the mid-$30 million range.
- Full-year 2021 capital expenditure guidance was narrowed to $45–$55 million, including $20–$30 million maintenance and $15–$35 million growth spending. Management expected 2022 capital expenditure to be higher as it refocused on growth. Estimated 2021 cash taxes were $40–$45 million.
- Management cited hurricanes, inflation, tighter labor markets and constrained global supply chains as operating challenges. Hurricane Ida and high loop currents affected Gulf of Mexico work. COVID-19, energy-market conditions, seasonality, customer spending and foreign-exchange movements remain relevant risks.
- Customer collection and project risks include a financially challenged China-based customer with $11 million of receivables and $38 million of contract assets; recoverability could be affected by project changes, cancellations or bankruptcy. Separately, a customer suspended a substantially complete Manufactured Products contract: $73 million of contract assets remained at quarter-end, of which $37 million was subsequently billed. Management expected the project to resume but gave no assurance on payment timing.
- The company recognized a projected $2.1 million loss on a Subsea Robotics contract. It also had $221 million of remaining performance obligations, of which $119 million was expected to be recognized over the next 12 months. Approximately $23 million of CARES Act tax refunds remained expected in 2021 or 2022; timing is uncertain.
- Management stated that ordinary-course litigation was not expected to have a material adverse effect, while noting outcomes cannot be assured. Angola currency convertibility and exposure, as well as tax audits and uncertain tax positions, are additional contingencies to monitor.
Important facts for investors to verify
- Whether operating cash flow and segment profitability remain durable after accounting for working-capital movements, seasonality and incentive costs.
- Collection of the identified customer receivables and contract assets, including the suspended contract balances.
- Manufactured Products backlog conversion, new bookings and the expected improvement in Q4 results.
- Debt-repurchase activity, revolver availability and the company’s ability to manage the 2024 notes maturity.
- Receipt and timing of remaining tax refunds, and the effect of cash taxes and planned capital expenditure on liquidity.