Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Oceaneering International Inc (OII, Financial) delivered $98.1 million in adjusted EBITDA, aligning with guidance and consensus estimates.
- The company generated a healthy free cash flow of $67 million during the third quarter.
- SSR EBITDA margins expanded to 36%, showcasing improved pricing and execution performance.
- Oceaneering repurchased 422,229 shares for approximately $10 million, indicating confidence in the company's value.
- The company reported a 23% increase in operating income compared to the third quarter of 2023, driven by strong performance in SSR and manufactured product segments.
Negative Points
- Oceaneering's offshore projects group (OPG) experienced a decline in revenue, operating income, and operating income margin due to changes in project mix and vessel downtime.
- Integrity management and digital solutions (IMDS) saw a decline in operating income and margin due to a one-time non-cash charge from the divestiture of the Maritime Intelligence division.
- Aerospace and defense technologies (ADTECH) reported flat revenue with decreased operating income and margins due to increased project proposal costs.
- The company faced challenges from two large hurricanes impacting offshore operations and onshore facilities, resulting in an approximate $3 million loss.
- Manufactured products segment is expected to see lower operating income and margins in the fourth quarter due to lower plan absorption related to holiday schedules and delivery of lower-margin products.
Q & A Highlights
Q: How does Oceaneering International Inc. view the impact of potential white space in offshore drilling on their operations?
A: Roderick Larson, President and CEO, stated that they are not seeing significant white space and expect strong performance due to pricing improvements, cost control, and efficiency. SSR is expected to deliver notable year-over-year improvements, with vessels staying strong and better performance anticipated in tooling and survey operations.
Q: Can you provide insight into the expected pricing improvements for SSR in 2025?
A: Roderick Larson explained that pricing improvements will depend on regional contract rollovers, making it difficult to specify a percentage. However, they anticipate price increases in better pricing regions as contracts roll over.
Q: How is the outsourcing process for automated forklifts progressing, and what impact does it have on margins?
A: Roderick Larson noted that the transition to an outsourced facility is going well, but margins are currently impacted by redundant costs during the startup phase. As volume increases and more vehicles are sold, margins are expected to improve.
Q: What is the outlook for the defense industry, particularly regarding autonomous underwater vehicles (AUVs)?
A: Roderick Larson mentioned a Q2 2025 delivery for a vehicle to the US Navy and expressed optimism about the defense market's potential, citing increased interest in drones and autonomy as force multipliers. He also highlighted opportunities in the AUKUS submarine build program.
Q: How should we think about capital expenditures (CapEx) for 2025 and beyond?
A: Roderick Larson emphasized a focus on growth and innovation, with CapEx directed towards next-generation, differentiated, and potentially disruptive technologies. The aim is to enhance competitiveness and efficiency rather than expanding existing capacities.
Q: What factors contributed to the SSR margin improvement in Q3 2024?
A: Roderick Larson attributed the improvement to efficiency gains and cost control, with better utilization leading to fewer operational issues. Alan Curtis added that efficiency gains in ROV operations were significant contributors.
Q: How does Oceaneering plan to approach share repurchases and capital allocation?
A: Roderick Larson indicated a goal to manage or eliminate dilution through employee stock plans, with a balanced approach between programmatic and opportunistic repurchases. The focus remains on organic growth and prudent capital allocation.
Q: Are there further opportunities for efficiency gains in SSR, such as through remote piloting?
A: Roderick Larson confirmed ongoing opportunities for efficiency improvements, with advancements in satellite coverage and 5G enabling more remote operations. The company continues to explore ways to enhance operational efficiency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
