Oceaneering International, Inc. (OII)

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Oceaneering International (OII)

Q4 2012 Earnings Call

February 14, 2013 11:00 am ET


Jack Jurkoshek - Director of Investor Relations

M. Kevin McEvoy - Chief Executive Officer, President and Director

Marvin J. Migura - Executive Vice President

W. Cardon Gerner - Chief Financial Officer, Chief Accounting Officer and Senior Vice President


Ian Macpherson - Simmons & Company International, Research Division

Ole H. Slorer - Morgan Stanley, Research Division

James Knowlton Wicklund - Crédit Suisse AG, Research Division

Justin Sander - RBC Capital Markets, LLC, Research Division

Michael W. Urban - Deutsche Bank AG, Research Division

Brad Handler - Jefferies & Company, Inc., Research Division

Edward Muztafago - Societe Generale Cross Asset Research

Jonathan Donnel - Howard Weil Incorporated, Research Division

Thomas Curran - Wells Fargo Securities, LLC, Research Division

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division



Good afternoon, ladies and gentlemen. My name is Allan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Oceaneering 2012 Q4 Earnings Call. [Operator Instructions]

I'd now like to turn the call over to Mr. Jack Jurkoshek, Director of Investor Relations. Please go ahead, sir.

Jack Jurkoshek

Good morning, everybody. We'd like to thank you for joining us on our 2012 fourth quarter and year end earnings conference call. As usual, a webcast of this event is being made available through to the StreetEvents Network service by Thomson Reuters.

Joining me today are Kevin McEvoy, our President and Chief Executive Officer, who will be leading the call; Marvin Migura, our Executive Vice President; and Cardon Gerner, our Senior Vice President and Chief Financial Officer.

Just as a reminder, remarks we make during the course of this call regarding our earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

And I'm now going to turn the call over to Kevin.

M. Kevin McEvoy

Good morning, and thanks for joining the call. Before I get into my customary review of our fourth quarter results, I would like to address 3 key points in our earnings release. First, 2012 was a record earnings year for Oceaneering. Earnings per share increased 23% over 2011. Second, we are expecting an even better 2013 and confirm our previously announced EPS guidance range for the year of $3 to $3.25. Our longer-term outlook remains very positive. And third, we are initiating first quarter 2013 EPS guidance of $0.55 to $0.60. I would like to remind the investment community of the seasonality of our business, especially in the Gulf of Mexico and the North Sea. Usually, we are in 18% or 19% of our net income in the first quarter and about 45% in the first half of the year. Our first quarter guidance is consistent with our historical quarterly earnings distribution.

Additionally, I would like to address our fourth quarter operating margins for ROVs and Asset Integrity. ROV margin of 27% was lower than it has been for several years due to unanticipated expenses we incurred during the quarter. These were largely higher than normal ROV umbilical repair and maintenance expenses and a U.K. pension plan expense adjustment based on revised actuarial assumptions. This pension adjustment also affected our Asset Integrity results. Absent these expenses, our ROV margin would have been 28% for the quarter and 30% for the year.

We continue to anticipate a 30% annual margin for ROVs in 2013. As has historically been the case, we do expect some quarterly variations. Asset Integrity margin was unusually low due to costs we incurred associated with closing an unprofitable operation in Sweden, acquired with our December 2011 acquisition and the U.K. pension plan expense adjustment. Without these expenses, our Asset Integrity margin would have been 11% for the year. We continue to anticipate our Asset Integrity operating margin in 2013 will be in the range of 11% to 12% as it has been for several years prior to 2012.

I'd now like to review our operations for the fourth quarter. Earnings per share of $0.74 for the fourth quarter 2012 was 37% above that of the fourth quarter 2011 on income improvements from all of our operating business segments led by Subsea Products and Subsea Projects. Subsea Products' operating income rose year-over-year by more than $17 million or 47% on increased demand for tooling and higher throughput at our umbilical plants. Operating margin of 22% for the quarter was 3% higher than in 2011. This was attributable to a favorable product mix, to more tooling and an improvement in umbilical margin due to increased volume and a favorable mix change to higher-margin thermoplastic hose product. Year-over-year, fourth quarter Subsea Projects' operating income increased by over $15 million or 16% due to the services contract offshore Angola, which commenced in February of 2012, and some improvement in Gulf of Mexico deepwater activity.

Year-over-year, ROV operating income increased on a 10% increase in days on hire, notably in the Gulf of Mexico. During the quarter, we put 9 vehicles into service and retired 5. Our fleet mix usage during the quarter was 75% in drill support and 25% on vessel-based work. This compares to a fleet mix usage of 79% and 21% a year ago and 73% and 27% last quarter.

Our overall fourth quarter EPS result was slightly above our guidance range on better-than-forecast results for our deepwater vessel operations and a higher margin on Subsea Products sales. Our deepwater business in the Gulf of Mexico benefited from unexpected work and lower-than-forecast drydock expenses. The unexpected work included a job for 2 vessels to provide ROV support on a drilling operation. This was required to address a problem with the connection between a lower marine riser package and the BOP. We expect to see an increase in call-out business for our vessels, ROVs and tooling, as deepwater drilling in the Gulf of Mexico continues to be closely scrutinized. Subsea Products margin was higher as our sales mix had more tooling and IWOCS services than we had forecast.

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