Oceaneering International, Inc. (OII)

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Oceaneering International (OII)

Q2 2013 Earnings Call

July 25, 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


Edward Muztafago - Societe Generale Cross Asset Research

Ian Macpherson - Simmons & Company International, Research Division

Ryan Fitzgibbon - Global Hunter Securities, LLC, Research Division

Michael W. Urban - Deutsche Bank AG, Research Division

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Waqar Syed - Macquarie Research

Jonathan Donnel - Howard Weil Incorporated, Research Division

Thomas Curran - Wells Fargo Securities, LLC, Research Division

Brad Handler - Crédit Suisse AG, Research Division

Michael R. Marino - Stephens Inc., Research Division



Good morning. My name is Tatum, and I will be your conference operator today. At this time, I like to welcome everyone to the Oceaneering Q2 2013 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Jurkoshek, you may begin your conference.

Jack Jurkoshek

Thank you, Tatum. Good morning, everybody. We'd like to -- I'd like to thank you for joining us on our 2013 second 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, the 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 call -- turn the call over to Kevin.

M. Kevin McEvoy

Good morning, and thanks for joining the call. I'm very pleased to be here with you today. Our record quarterly EPS of $0.91 was above our guidance range of $0.81 to $0.86 and was up 32% over the first quarter of this year and up 36% compared to the second quarter of 2012. Our above guidance performance was attributable to sales in subsea hardware, demand for asset integrity services offshore Norway and early completion of a theme park project. Year-over-year, and sequentially, quarterly EPS increased as all our business segments achieved higher operating income led by Subsea Products and Subsea Projects. We achieved record quarterly operating income from ROVs, Subsea Products, Asset Integrity and Advanced Technologies.

Our outlook for the second half of this year remains very positive and, essentially, unchanged from last quarter. We continue to believe we will achieve record results for the year, and our new 2013 EPS guidance range is $3.20 to $3.35. Our previous guidance was $3.10 to $3.30. Compared to 2012, we continue to forecast income growth for all of our operating segments in 2013. Relative to the first half of 2013, we expect to generate higher operating income during the second half, led by ROV and Subsea Projects.

ROV profits are expected to be up on an increase in days on hire as we place approximately 20 new vehicles into service and a slightly higher operating margin as we benefit from additional days worked and a favorable change in geographic mix to more work off Africa and in the Gulf of Mexico. For Subsea Projects, we are forecasting higher contributions from our Gulf of Mexico and Angolan operations. Due to project timing, we anticipate that Advanced Technologies will have considerably less results during the second half of 2013 relative to the first half.

For 2013, we anticipate generating at least $710 million of EBITDA. Our balance sheet and projected cash flow could provide us ample resources to continue to invest in Oceaneering's growth, and we intend to do so. We are increasing our 2013 CapEx range estimate, excluding acquisitions, to $325 million to $350 million. Of this amount, approximately $200 million is anticipated to be spent on adding systems to our ROV fleet and vehicle upgrades. About $100 million is for enhancing our Subsea Products capabilities. Our focus in 2013 continues to be on earnings growth and investment opportunities, both organically and through acquisitions.

I'd now like to review our second quarter segment results. Year-over-year, second quarter Subsea Products operating income improved nearly 70% on a 35% increase in revenue due to higher demand for all of our major product lines. Operating margin improved 5%, principally due to indirect support costs being spread over a larger revenue base and a slightly favorable change in product mix due to increased Subsea Hardware sales. Sequentially, operating income rose 45% on a 21% increase of revenue on the strength of higher demand for tooling and subsea hardware. Operating margin consequently increased 4%.

For the second half of 2013, we continue to forecast Subsea Products operating margin will be lower than the 22% of the first half. This is due to an anticipated change in sales mix featuring a higher percentage of umbilical revenue. Our Subsea Products backlog at quarter end was a record $902 million compared to $621 million at the end of June 2012 and $776 million at the end of March of this year. Year-over-year, and sequentially, the backlog increases were predominantly attributable to umbilical awards. During the quarter, we announced 2 large umbilical contracts, 1 for offshore Egypt and 1 for the U.S. Gulf of Mexico.

Now turning to Subsea Projects. Segment operating income was 50% higher year-over-year on an improvement in international operations, which included a subsea well stimulation service project completed in the second quarter offshore Ghana utilizing a customer-provided vessel and an escalation of work on our field support vessel services contract offshore Angola. The increase in work offshore Angola included provision of another chartered vessel, the Maersk Attender, for half the quarter, the supply of 2 crew boats, 2 tugs and a cargo barge to support the operations in the chartered vessels and a full quarter contribution of the Ocean Intervention III, which commenced work in the middle of April 2012. The charter term on the Maersk Attender runs through September of this year, followed by 2 45-day renewal options, subject to our customer's work program. The charters on the crew boats, tugs and cargo barge are also short-term and will continue to be supplied on an as-needed basis at the discretion of our customer.

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