Oceaneering Third Quarter 2026 Earnings Results - OCEANEERING INTERNATIONAL INC

Welcome to Oceaneering's third quarter 2026 earnings conference call. My name is Ellen and I will be your conference operator. All lines have been placed on mute to prevent any background noise. There will be a question and answer period after the speaker's remarks. With that, I will now turn the call over to Hilary Frisbee, Oceuneering's Senior Director of Investor Relations. Thanks, Ellen. Good morning, and welcome to Oceaneering's Third Quarter 2026 Results Conference Call. Today's call is being webcast, and a replay will be available on our website. With me today are Rod Larson, President and Chief Executive Officer, who will provide our prepared comments, and Mike Sumrall, Senior Vice President and chief financial officer. After Rod's remarks, we will open the call up to your questions. Before we begin, please note that statements made on this call about our future financial performance, 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. Our remarks also include non-GAAP financial measures. additional details and reconciliations to the most directly comparable gap financial measures are included in our third quarter press release which is available on our website with that i'll turn the call over to ron good morning everybody and thanks for joining the call today um as hillary mentioned i'm going to be handling all of our prepared remarks today so mike is saving his voice for all of your math questions so so be ready um our third quarter performance demonstrates the earnings potential of our portfolio with favorable price pricing, activity, and project mix align. Consolidated Adjustment EBITDA was $119 million in line with our guidance and our highest quarterly level since the fourth quarter of 2015. These results reflect solid performance in Subsea Robotics , Resilience in the Offshore Projects Group , and Improvement in Integrity Management and Digital Solutions . Highlights from the quarter include SSR Delivered increased revenue, operating income, and even a margin, with the latter reaching its highest level since we resegmented our businesses in 2020. We also won approximately $180 million of ROV and survey contracts across multiple regions, with contract terms extending into 2031. OBG saw steady demand for its higher-revenue services, with a favorable mix of installation projects contributing to third-quarter performance. Manufactured products secured awards of approximately 160 million dollars during the quarter supporting our expectation for stronger order intake in the second half of the year and aerospace and defense technologies or ad tech secured follow-on contracts for two strategically important u.s navy programs dry deck shelters and submarine rescue systems the dry deck shelter contract a program we have supported for over 20 years has a total potential value of 154 million dollars over five years while the submarine rescue system contract has a potential value of 67 million dollars over 18 months today i'll focus my comments on our third quarter 2026 results our outlook for the fourth quarter of 2026 and our initial guidance for 2027 starting with our consolidated results for the third quarter of twenty twenty six compared to the third-quarter of twenty 25. we delivered revenue of 785 million dollars a six percent increase with growth across every operating segment operating income of 92 million dollars of seven percent increase and adjusted even up of 119 million dollars also a seven percent improvement net income attributable to motioneering was 52.6 million dollars or 52 cents per share a decrease of 26 percent the decrease was primarily attributable to a one-time loss related to the refinancing of our long-term debt completed during the third quarter adjusted evita increased seven percent to 119 million dollars turning to our cash flow and liquidity we generated 163 million dollars of cash from operating activities. Capital expenditures were $21.1 million with approximately 31% allocated to growth and 69% allocated to maintenance. This investment was less than anticipated, largely due to timing, with most of the deferred spending now expected in the fourth quarter. Pre-cash flow was $142 million, reflecting strong third quarter results, as well as lower cash taxes and deferred capital expenditures. We expect both cash taxes and the capital expenditures to increase in the fourth quarter resulting in more moderate free cash flow generation to close the year during the quarter we also repurchased shares of approximately five million dollars with a focus on mitigating dilution associated with employee equity grants and we ended the quarter from the cash balance of 735 million dollars total liquidity of more than one billion dollars and no borrowings under our evolving credit facility Now, let's look at our business operations by segment for the third quarter of 2026, also compared to the third-quarter of 2025. SSR delivered revenue of $233 million and operating income of $75.4 million, both higher year-over-year. These results benefited from improved ROV pricing, with average revenue per day utilized increasing to $11,781 from $11254, as well as higher survey activity. SSR even a margin improved to 39%, primarily driven by ROV pricing improvements in Europe, West Africa, and Norway. Increased survey activity and a one-time contractual cost recovery related to U.S. Gulf operations also contributed to higher margins. ROV fleet Equalization remains stable at 65% as higher activity levels in Europe, Guyana, and West Africa largely offset lower activity in the U.S. Gulf. For the quarter, the revenue split between our ROV business and our combined tooling and survey businesses has a percentage of our total SSR revenue of 75% and 25% compared to 77% and 23% in the third quarter of 2025. ROV days utilized syndrome support for 62%, while vessel-based services were 38%, compared to 63% and 37%, respectively, in the prior year quarter. As of September 30, 2026, we had ROV contracts on 80 of the 136 floating rigs under contract for 59% market share. We maintained our fleet count of 250 ROV systems. Manufactured products generated operating income of $25.1 million, relatively flat with the prior year quarter, while operating income margin decreased slightly to 15% on an 8% increase in revenue. These results were impacted by the final resolution of a legacy mobility solutions contract, including recognition of the previously unresolved contract value. The decline in operating income margin was primarily due to lower Greylock products activity and profitability, following a particularly profitable order in the prior year quarter. Our backlog as of September 30, 2026, was $435 million and was largely sustained by order intake during the quarter of $160 million. Our vote-to-bill ratio was 0.77 for the trailing 12-month period. Based on these recent bookings, together with our sales funnel, we remain confident in our ability to achieve a full-year vote-To-bills ratio of 0.9 to 1.0. OPG revenue, operating income, and operating income margin were relatively flat. Results benefited from international installation projects that concluded during the quarter, which more than offset lower activity in West Africa and a less favorable project mix in the U.S. Gulf. IMDS revenue increased 7% while operating income and operating margin were flat, reflecting increased activity in the middle east europe and the u.s gulf which was which was partially offset by lower activity in west africa the changing project mix and increased costs for the middle east ad tech revenue increased seven percent to 135 billion dollars as our previously announced large-scale program reached its full staffing levels for its current phase operating income decreased by 11 to 14.7 million dollars and operating income margin decreased to 11 due to increases in pass-through activities during the quarter and increases in certain arrangements. Unallocated expenses of $50 million were consistent with our guidance for the quarter. Turning to our outlook for the fourth quarter of 2026 compared to the fourth quarter of 2025, we expect consolidated revenue to increase year-over-year and consolidated EBITDA to be in the range of $85 to $95 million. by segment for ssr we expect revenue to increase supported by higher rov revenue per day utilized and increased survey activity operating income is expected to decrease due to changes in rov geographic mix additional mobilization costs as rigs relocate from the u.s gulf to other regions and a greater mix of lower margins survey activity for manufactured products we anticipate higher revenue and operating income for opg we expect revenue to remain relatively flat and operating income to decrease due to changes in project mix including the completion of an international intervention project that benefited the prior year quarter and in shift to lower margin work in the u.s gulf for imds we anticipate higher revenue and an operating income for ad tech we expect both revenue and the operating income to be higher We project unallocated expenses to be in the $50 million range. Now we'll discuss our initial outlook for 2027. Looking ahead to 2027, the outlook for global deepwater markets remains constructive, with industry forecasts pointing to higher spending and activity. Floating rig activity is expected to strengthen over the course of the year, as rigs complete transit to new regions and begin drilling programs. these trends provide a favorable backdrop as we establish in our initial 2027 guidance the u.s defense environment also remains supportive particularly across subsea programs however the continuing resolution and uncertain timing of appropriations process could affect the timing of program activity within adtech these industry conditions support our expectations for improved performance in 2027. as we announced yesterday we are initiating consolidated even a guidance in the range of 430 to 480 million dollars with free cash flow expected to exceed our anticipated 2026 level at the segment level compared to the full year of 2026 for ssr we expect that higher rob utilization levels and similar pricing levels together with improved results and survey and tooling will generate increases in revenue and operating income and stable even of margins For manufactured products, revenue, operating income, and operating margin are projected to be relatively flat. For OPG, we expect revenue to decrease, operating-income to be flat, and operating-margin to improve due to changes in project mix and similar utilization levels in the U.S. Gulf. For NDS, we expected increased revenue, significantly increased operating income and improved operating margin. For ad tech, we expects significantly higher revenue and operating income and improved operating margin and we expect a slight increase in unallocated expenses we also plan to continue share repurchases in 2027 with approximately 5 million shares remaining under our existing repurchase authorization as we move through the planning cycle and our customers finalize their 2027 budgets we expect to gain greater visibility into activity levels and the timing of opportunities across our businesses we will provide more detailed guidance for 2027 during the year-end reporting process in summary we remain focused on executing through the remainder of 2026 while positioning the business for opportunities we see developing in 2027 our priorities remain discipline execution cash generation and maintaining financial flexibility to support our longer-term objectives thanks for your continued interest in and Oceaneering will now be happy to take your questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question for optimum sound quality, and if muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Eddie Kim with Barclays. Your line is open. Please go ahead. Hi, good morning. Just want to touch on the preliminary 2027 EBITDA guidance of $430 to $480 million, which spans a fairly wide range there. Just curious, which two or three are the largest operational assumptions separating the low end from the high end there, and which segments account for most of that $50 million spread? um i think i think it's the normal the normal characters eddie i mean we've got as always ssr has got some of that based on like we've the rig moves this year and we've got some those things that are a little bit timing based um i think that's that's a that's part of it someone will be ad tech like we said because we we talked about some of these programs when do the programs kick off um how does appropriations work out in some of the continuing resolutions so they figured it's all if it gets results sooner that brings things forward in the year and it gives us more opportunity in the air if it pushes back a little bit it brings us to the lower end of the range and then finally obg um obg's got room to pick up more international um opportunities and i think actually probably if i think about obg it drives us to a higher end of reach if we can put more things in that bucket which we hope hope to resolve some of that between now and when we report next time. I think OBG could bring more goodness to the mix as well. So I think those are the typical ones. I don't expect a big change in manufactured products because that's long lead time stuff. And I wouldn't expect a whole lot of change in IMS just because of the relative scale. Got it. Understood. I just wanted to touch on, I mean, the low end of that range, $430 million, doesn't represent that big of an increase over 2026, which is surprising just in light of the strong growth you're expecting to see in ad tech next year. It almost implies sort of a flattish trajectory in the energy segments, which is almost counter to kind of the constructive outlook of the offshore inflection that's expected next year, so just, I mean, does the low end of that guidance imply spending slowing down? Is that based on customer conversations you're having or an assumption that oil prices are going to be substantially less next year than they are now? Just any more color on kind of that low end of the guidance would be great. I think it's mostly timing, Eddie. I mean, I think everybody thinks that things are constructive. They expect some of these pickups throughout the year, next year. We just have to make sure that we're not overstating when starts i think that's always the trick here is a lot of times we get the story right but we get the timing wrong and so we're a little bit cautious on you know how fast how fast some of these things will come to fruition when they start spending um it's more it's more about that i think we really we truly believe that um the thesis is right the you know the expectation for the macros is right um we're just being a little bit cautious because like i said rigs will be moving um some of the other projects for obg are are being contemplated but they haven't been hard scheduled so some of that stuff some of that stuff is what we're i think it's more the timing mike would you imagine yeah i think we're it's early days too right i mean this is this is only october i think as we start to wrap up the year talk to our customers they wrap they um solidify their capex budgets and we start to see what's happening with um with the rig movements i think that could change they're right it's just it's a little early got it understood appreciate all that color i'll turn it back your next question comes from the line of keith beckman with pickering energy partners your line is open please go ahead hey good morning thanks for taking my question um thank you you know obviously we had hey how's it going um with the refinancing that was completed kind of during the summer and maybe the significant you know net cash decision you guys have here right i mean how are you guys thinking about uh capital deployment heading into 2027 and maybe more specifically within ad tech i mean what are what's maybe an example of kind of a business that could make sense from an m a perspective versus something that doesn't if you guys went that route and then maybe how are you weighing that against uh buybacks so thank you sure i appreciate that question um I mean, you led into that. I think capital deployment, we expect to continue to make, you know, investments in our core energy businesses. There may be even some opportunity to bolt on some technology, some things that we can be a little disruptive with in the energy side on that side of the business. But on the ad tech side, it is a lot of focus around, are there some inorganic opportunities, some acquisitions that make sense? I would say that things that make sense are things that are, you know, normally valued, right? Things like machining capacity or workforce capacity that we can bring to bear on the sub-safe programs we work on, the new submarine build, things like that, that we could say we can use our certifications to bring them up to government specs faster. and so that these are things that you would pay sort of normal amounts for and and then be able to add value through our competencies so i think those things make sense i think when when we're working on some of the more highly technical vehicle type programs um we could be looking at some of our partners some of people that you know work as subcontractors for us or bring a unique piece of technology to the mix whether that's you know for electronics or or a different type of sensor technology or something like that i think those are those are things that are kind of niche maybe or a little bit bigger than nishi they make sense what what doesn't make sense is us i mean we've got an established brand i don't think we need to go buy one of the big you know super over what i consider overvalued um flashy names just to try to buy credibility with the customer and i don't think we need to go into that ridiculous multiple range um to try to to try to get a foot in the door we're already there we've got one of the strongest operational reputations in the business um they know we've been here i mean some people forget that we've been in that government business we're a 60 year old company we've been we've in the government side more than 40 years so it's not like we're new to the game um we don't need to we don t need to buy presents so to speak okay perfect that's really helpful and then my second question is uh maybe maybe any more color we can get around kind of the ongoing continuing resolution going on right with the government spending so i'm just trying to get a sense on the potential range of outcomes for 2027 like what could be more of the low end versus the high end and i guess more specifically like those awards still be there right it's more of a function of timing rather than actually things going away is the right way to think about it right just kind of when things start sorry i'll turn it over yeah that's exactly it's really the sensitivity is more on new project starts right continuing resolution means if you if you're doing it you get to continue doing it um so i think a lot of those things we've got a pretty good support from nearly all the work we're doing some of the newer things we've won could get slowed down on the other hand i will say while there's always this risk i mean right now i i feel better about what we're hearing coming off the hill and what we are hearing about potential resolution for you know a defense spending bill for example it seems like even for a for an election year people are really keen to get a defense bill in place you know probably not surprised at giving the geopolitical climate but um i i'm not i'm not as worried about the defense portion of that i think i think there really is a lot of a lot a lot of cooperation going on. So I remain quite optimistic that while it's an unknown out there and we do think it's appropriate to call caution to it or call attention to it, I do feel like we've probably got better information coming back to us than we have in past years. Awesome. I really appreciate it. Then I will turn it back. Thanks, guys. Your next question comes from the line of Colby Sasso with Daniel Energy Partners. Your line is open. Please go ahead. Hi. Thank you for taking my question. Just when thinking about 27, could you talk about where you see the most growth from a geographical standpoint next year? Sure. um i think you yeah i think it's uh a lot of it is is uh brazil of course we we still see growing um we see guyana growing we also see rest of africa i mean when we see opportunities in the rest of Africa i think those are good um you know one of the things we we call out is is uh is the gulf of mexico it's just the gulph mexico already is is slowed down we got to see how much um resilience the gulp gulf mexico has and and that's one that we'd be keeping around mike what else would you call him oh i think i think what rest of africa is a good one mosambique seeing a lot of activity um pouring back in again um all across west africa and it's a challenging place to work but we've done work there for years and years and and got some work lined up there as well yeah i mean i don't know that everybody realizes but mozambique could could have as much drilling activity as guyana um within within a year or two so And just another follow-up, how are you thinking about inflation across your supply chain, and is this dragging on margins at all today? And if so, how long will this take to ultimately push through to your customer base, and could it potentially be a tailwind for margins in 27? I can't call that out as a huge factor, Colby. I mean, most of it, where we see the biggest part of it. it's uh it's been you know manufactured products obviously and especially with some of the bigger components to go into uh go into an umbilical those things are almost always price adjusted or cost adjusted into the price so uh those those we recover on the same product i mean the same in the same bid so that's that's not such a big one it would be the biggest impact of it if it weren't um and then the rest of it is is within it's got within our reach i mean we we're able to mitigate a lot of it for example what shows up in r m in the in the rv business um we can mitigate that just by being more efficient you know being being more careful about where we're buying things um how we're sending morale the world i think that's that's the the mitigations have been pretty effective um you know labor rates are always probably the thing that we're most sensitive to and so i would say that the customers are pretty good about recovering labor rates because they value their crews if they they like the people work for them they they are very well i i think they're they're very well aware of what's going on in the labor market because they have to deal with it to some degree as well and so uh getting adjustments for labor rates has been has been pretty effective so far so i i can't i can hang a lot of things off on that although the more efficient we get the smarter we get operating the business all of those things can can help us um give the cost reductions to make us more competitive yeah the escalation costs in our contracts really help on the labor side plus the more we do from a remote operating perspective um i think also reduces our our footprint and our costs so i think we just haven't had a major issue about anything that i can tell from from inflation right now so i don't not overly concerned about it that's all for me i'll turn it back Thanks, Colleen. As a reminder, if you would like to ask a question, please press star 1 to raise your hand. Your next question comes from the line of James West with Milius Research. Your line is open. Please go ahead. Hey, good morning, Rod, Mike. Good morning, James. I'm curious. So, Rod, you talked about Guyana growing, other Africa growing. Mozambique was highlighted as well. What are you seeing outside of Brazil, Africa, maybe a little bit of Gulf of Mexico? What about Mediterranean, offshore North Africa? What are you guys seeing in those regions of the world, just as gas, heavy areas where gas is just becoming a much more important product these days? Just curious your thoughts there. So, I think, you know, the Eastern Med definitely is still a lot of opportunity, kind of tempered a little bit by activity or by that geopolitical situation over there. But there's still a whole lot of interest. I mean, you've got E&I working over there, Chevron Projects, others. So,I think that's one that's got a lot upside potential, to your point. One of our really good products was offshore Egypt. so you know we had a we had a great installation project there this year and I think we see opportunity for more of that kind of work so yeah that the meds the med's an interesting one we don't call it out because it's a little more I would I would call it a little more sporadic but but wow it could be meaningful for sure yeah and then and then Norway's always an interesting one you know Norway Norway is persistent and so as Equinor starts to find things we see the other thing we see from norway is the potential for a lot of subsea tiebacks you know they've talked about improving seismic resolution through ai and that can light up some spots of existing fields that make really good opportunities for subsea tybacks we love those because we can do a full installation project there and provide the umbilical and and a lot engineering so i think the more we see tiebacks in the near future which again if we we If we have a continued strong commodity price, tiebacks are one of those things that's easiest to get on the budget. So that could affect Norway for sure, but if that becomes sort of of greater interest, it definitely could affect the independence of the Gulf of America. Okay, got it. Very helpful. Cool. And then maybe a follow-up question, not necessarily related to that, but how are you thinking about capital allocation on your oil and gas business versus your military business, which has been growing? Because there's kind of upside capital cycles happening in both areas right now, and so you've got to, I would think, kind of balance where you see the best returns, but I'm kind of curious how you're thinking about that. you know i i think there's still opportunities you know when we when we talk about you know mike mentioned earlier in one of the questions about um more remote work you know being able to do more remote word being able to do work differently actually you know things that we can do that that improve the efficiency of both work we do in the customers work i mean there's there's a chance to be a little disruptive with technology and so i think investments in the energy side are going to make sense. We're going to find things that make a lot of economic sense, both from, you know, their value standalone, but also from the value they bring to protecting our core, right? Things that we enhance RV operations with that make us, you know, make us even stronger within those pieces of the business really make sense, right. Subsea inspection, let me use that one as an example. You know, doing more and more digital twin modeling you know building a digital twin from rov video and then using that for to divide up or to devise a risk-based inspection program for subsea assets as we try to keep subsea acids going longer tying back more things to existing infrastructure stuff like that keeping keeping tops running longer i mean all of these things require more you know inspection while in service and the more that we can do with technology and of course there's a lot of really cool technology out there that could be levered here um i think that's the kind of stuff that really does warrant continued investment inside the energy business got it thanks for investing thanks guys yeah thanks james there are no further questions at this time i will now turn the call back to rod larson for closing remarks well since there are more questions i'll just wrap up by thanking everybody for joining the call. This concludes our third quarter 2026 conference phone. 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