Oceaneering International, Inc. (OII)

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Oceaneering International (OII)

Q1 2013 Earnings Call

April 24, 2013 11:00 am ET


Jack Jurkoshek - Director of Investor Relations

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

Marvin J. Migura - Principal Financial Officer and Executive Vice President


Igor Levi - Morgan Stanley, Research Division

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

Ian Macpherson - Simmons & Company International, Research Division

Jonathan Donnel - Howard Weil Incorporated, Research Division

Justin Sander - RBC Capital Markets, LLC, Research Division

Thomas Curran - Wells Fargo Securities, LLC, Research Division

Jonathan Sisto - Crédit Suisse AG, Research Division

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Edward Muztafago - Societe Generale Cross Asset Research



Good morning, My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2013 Q1 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Jack Jurkoshek. Sir, please go ahead.

Jack Jurkoshek

Good morning, everybody, and we'd like to thank you for joining us on our 2013 First Quarter Earnings Conference Call. As usual, a webcast of this event is being made available through 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 the 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. I'm happy to be here with you today. Our record first quarter EPS of $0.69 was above our guidance range of $0.55 to $0.60 and was up 47% compared to the first quarter of 2012. Year-over-year, all of our operating business segments achieved higher income led by Remotely Operated Vehicles and Subsea Products. We are well positioned to participate in the growth of deepwater and subsea completion activity currently underway, and our outlook for 2013 remains very positive. Given this outlook and our first quarter earnings performance, we are raising our annual 2013 EPS guidance. Our new guidance range is $3.10 to $3.30. 2013 is expected to be another record earnings year. We continue to anticipate global demand growth for our services and products to support deepwater drilling, field development and inspection maintenance and repair or IMR activities.

Based on our historical seasonal quarterly earnings distribution, you might think that given our exemplary first quarter performance, we should be raising our EPS guidance range even more. There are 2 reasons we are not. First, our above-guidance first quarter performance was, to a large extent, attributable to an acceleration of the timing of forecasted work in our Asset Integrity and Advanced Technologies business segments. And second, our earnings forecast, as is customary for this time of the year, includes a significant amount of unbooked or speculative work. As always, our guidance range is consistent with our internal forecast. We simply have no basis to be more aggressive as our view of the 2013 has not changed much since our last quarter. Of course, we will revisit our earnings guidance after our second quarter results have been recorded and as second half of 2013 is underway.

At the top of our guidance range, we are contemplating a growth in earnings of over 50% in just 2 years. And as you may recall, 2011 was also a record earnings year. Yesterday, we announced a 22% increase in our regular quarterly cash dividend to $0.22 from $0.18 per share. This underscores our confidence in Oceaneering's financial strength and future business prospects.

I'd now like to review our first quarter oilfield segment results. Year-over-year, ROV operating income improved 16% on the strength of higher demand to provide drill support and vessel-based services, particularly in the Gulf of Mexico and offshore Africa. Our ROV days on hire increased 13% to the approximately 21,700 days. We also benefited from a 5% increase in average revenue per day on hire, which was driven by an escalation in vessel-based work. Sequentially, operating income improved on an increase in days on hire and an improvement in margin. The margin improvement was as expected due to unanticipated fourth quarter 2012 expenses related to our U.K. pension plan adjustment and vehicle umbilical repair and maintenance cost. Our fleet utilization rate during the quarter was 83%, up from 79%, both sequentially and year-over-year. We expect that our fleet utilization for 2013 will remain about the same as that of the first quarter worth 83%. Operating margin during the quarter was 29%, the same as 1 year ago, and up from 27% last quarter. We continue to anticipate a 30% annual margin for ROVs in 2013. During the quarter, we put 6 new ROVs into service and retired 1. At the end of March, we had 294 systems available for operation, up from 270 1 year ago. 3 of the new ROVs went to work onboard vessels and 3 went into drill support service. Our fleet mix during the quarter was 74% drill support and 26% on vessel-based work. This compares to a mix last quarter of 75-25 and a 78-22 percent split in the first quarter of 2012. We were experiencing a trend of growing demand to perform vessel-based work. Year-over-year, over half of our increase in days on hire was attributable to this activity. We still anticipate adding 30 to 35 vehicles to our ROV fleet in 2013, 24 to 29 during the remaining 3 quarters.

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