Oceaneering International, Inc. (OII) Earnings Call Transcript & Summary

Good morning. Welcome to Oceaneering International, Inc.'s 2020 Annual Shareholders Meeting. I would like to now turn over the meeting to John Huff, Oceaneering's Chairman. Mr. Huff, please begin the meeting.

Thank you. The 2020 Annual Meeting of the Shareholders of Oceaneering International will please come to order. My name is John Huff. I'm the Chairman of the Board of Oceaneering, and we welcome you to this meeting. I'd like to begin by saying this is our first virtual meeting, and we're going to have a good time. As required by the rules of conduct for this meeting, please refrain from using any recording devices during this meeting. During the webcast, you may hear forward-looking statements about our expectations or predictions for the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties, Oceaneering's actual performance and results may differ materially from what's said here today. Please refer to Oceaneering's 2019 annual report Form 10-K filed with the SEC on February 27, 2020, for detailed discussions about principal risks and uncertainties that could cause such differences between our subsequent SEC filing in today's updates. We have in attendance today, all of the members of the Oceaneering Board of Directors, including the nominees for election of directors. Also in attendance are all of the company's executive officers as well as representatives of Ernst & Young, the company's independent auditors. Our Corporate Secretary, David Lawrence, is acting as Secretary of the meeting. Before we turn to the formal business meeting, I'd like to tell you an interesting story. In the mid-1990s, I was in Mobile's office in Nigeria, and the country manager was showing me his latest newest toy. It was a telephone that had a 24-hour a day connection to Houston, London and New York City. Now that in itself certainly doesn't seem very exciting in today's world. But in actuality, the day before I had seen this new invention, I had booked a call from Nigeria back to our home office in Houston. And the -- and I had to get up at 4:00 in the morning to book that call. And the call was arranged for 8:00 that night. So you can imagine the inefficiencies in communicating between continents in early-mid 1990s. Anyway, the point of the story is very important to us, and that is that innovation is here, it's real. Innovation in deepwater is here, it's real. There is no question in my mind that we will have access to more and different types of hydrocarbons. Things are going to change, but they're going to be better. And I'm saying to our employees right now, this is not the end. This is the beginning of something very, very special. So anyway, the point is that I can remember many times, we thought that the Gulf of Mexico was gone. Other markets were gone, things happened. But this is a changeable business, and it's an exciting business, and it's all about innovation. And you folks have done a wonderful job with that, and you can be proud of your actions. Thank you very much. All right. We will proceed now with the formal business of the meeting. The Board of Directors set the close of business on March 20, 2020, as a record date for determining the shareholders entitled the notice of and to vote at this meeting. As of the record date, there were approximately 99 million shares of the company's common stock outstanding. Each of these shares is entitled to 1 vote on each matter that comes before this meeting. Available on the meeting website are an agenda that outlines the order of business for this meeting; the rules of conduct for this meeting; copies of the proxy materials, including the notice of the meeting and proxy statement; and for shareholders on this call, a certified list of our shareholders as of the record date. In addition, there is available, for inspection by our shareholders, a record in their proxies, in our corporate offices. The affidavit of our transfer agent, Computershare Trust Company, verifying that the proxy statement and the company annual report were mailed to all shareholders of record, as of the record date for this meeting. Broadridge Financial Solutions has been appointed as Inspector of Elections for this meeting, and its representatives have taken and subscribed to the customary oath of office, which will be filed with the permanent records of this meeting. I am informed that all persons who are present with proxies have filed such boxes with the Inspector of Elections. The Inspector of Elections has also informed me that there are, at present, in person or by proxy, holders of more than majority of the outstanding shares of common stock of Oceaneering entitled to vote at this meeting, which constitutes a quorum under the company's bylaws. We will turn now to the proposals that this meeting has been called to consider and act upon, and vote on those proposals. The only matters brought before our shareholders today are those set forth in the notice of annual meeting and the proxy statement of this meeting. The option to vote electronically during this meeting is available via the outside website. For those shareholders who desire to vote their shares electronically during this meeting or wish to change a previous vote, please follow the voting prompts on the meeting website. The proxies and votes will be tallied, and the Inspector of Elections will then report on all the matters submitted to the shareholders. The first order of business is the election of 3 Class I Directors to serve until the 2023 annual meeting of shareholders or until their respective successors are elected and qualified. The candidates for Director who have been nominated for election of Class I Directors in accordance with the company's bylaws are William B. Berry, T. Jay Collins and Jon Erik Reinhardsen. The second proposal to come before the meeting is a proposal to approve the 2020 incentive plan of Oceaneering International. The third proposal to come before the meeting is a proposal to approve, on an advisory basis, the compensation of Oceaneering's named executive officers. The fourth and final proposal to come before this meeting is the ratification of the appointment of Ernst & Young as independent auditors of Oceaneering for the current year. Each of these proposals is discussed in the proxy statement that was sent to all shareholders of record, as of the record date. The polls are open. If you have already submitted a proxy and do not wish to change your vote, it is not necessary for you to vote using the meeting website. If you intend to vote via the meeting website, please do so now. Following the prompts, if you're a participant in the Oceaneering common stock fund, our 401(k) plan, and you timely submitted your voting instructions, your instructions are being voted by the trustee of the plan. The option to vote via the meeting website will remain available for the next few minutes, 5 minutes, whereupon the polls will be deemed closed. Immediately upon completion of the voting, I'll request the Inspector of Election to decide upon validity and the effect of the proxies and votes and the qualification of the voters and to count the number of shares voted for each of the proposals. While this process is being completed, there will be a time for a few comments by Rod Larson, Oceaneering's CEO.

Thanks, John. Good morning, and welcome to Oceaneering's first ever virtual meeting of shareholders. I'm pleased to be here with you today to comment on today's unprecedented meeting format, Oceaneering's 2019 results and our outlook for 2020. Each year, the management team and Board of Directors look forward to seeing a meeting with our shareholders to discuss our operations, highlighting many of the technologies being developed by our talented employees and celebrating the many personnel who make safety integral to each of our businesses. But this year is not like the others. A global pandemic has us adopting dramatically different ways of working based on the guidance received from the World Health Organization, Centers for Disease Control and Prevention, International SOS and our Corporate Medical Adviser. Our goal is to minimize exposure and prevent infection while ensuring the continued support of our customers' operation. Accordingly, with that same commitment to safety, we moved to a virtual format for this year's annual meeting for everyone's protection. Now to our most recent results. 2019 was a year of positive inflection for Oceaneering. For the first year since 2014, we saw increases in revenue and solid adjusted operating results and adjusted EBITDA. 2019 was also the first year since 2015, in which we generated a year-over-year improvement in free cash flow. It was encouraging to see higher activity levels and stabilizing pricing in our energy-focused businesses, confirming the competitiveness of the global offshore energy markets. Despite the prolonged downturn in these offshore energy markets over the last 5 years, Oceaneering has maintained its competitive position by leading innovative efforts to perform offshore tasks more efficiently and at lower cost, while enhancing the safety of our employees and customers. It is also important to emphasize that many of these innovations help to reduce greenhouse gas emissions, enabling our customers to advance their own sustainability goals. I'm proud to say that the Oceaneering brand is as strong and relevant as ever to our customers' mission-critical needs. Several notable accomplishments in 2019 highlight our brand: including enhancing our remotely operated vehicle, or ROV technology, as evidenced by commercially deploying our Liberty resident battery-powered ROV system offshore Norway; developing and deploying our new Isurus work class ROV for use in high current conditions; and continuing the development and testing of our next-generation hybrid ROV AUV, named Freedom; securing a new significant multi-well deepwater riserless light well intervention campaign for BP and Angola for 2020, following the successful multi-well campaign performed in 2019; taking delivery of our environmentally efficient Jones Act-compliant deepwater multiservice vessel, MSV Ocean Evolution, which experienced good customer acceptance and activity during the second half of the year; securing a substantial increase in bookings and a 1.5 book-to-bill ratio in our Subsea Products segment, highlighted by umbilical and hardware awards for Total's Mozambique project and ONGC's KG-DWN 98/2 project; enhancing our environmental, social and governance disclosures by adding a sustainability section to our website; and last, but not least, beating our financial goals by generating $165 million of EBITDA and $9.9 million of positive free cash flow, and increasing our balance sheet cash by $19.4 million to $374 million at December 31, 2019. We began 2020 with the expectation of marginal growth and improving business fundamentals across all of our segments. However, the ongoing COVID-19 pandemic has contributed to deteriorating fundamentals for our customers, serving the energy markets and those in the theme park business. The deterioration in these markets has brought about swift changes to our customer spending plans that will negatively affect our businesses while these conditions persist. Market data continues to evolve very quickly, but virtually all industry macro data points to a contracting market in 2020, including projected sanctioning activity for the new offer developments to be down by as much as 80% as compared to 2019. Subsea tree awards may drop to 2016 levels, revisiting a 2-decade low. And operators' capital expenditures are likely to be down 20% to 30% from 2019 levels. In any environment, especially this current complex market, our top priority is to preserve our liquidity and balance sheet. We are currently taking focus -- we are currently focused on taking the steps necessary to reduce the cost of running our businesses, while enhancing the value we provide to our customers. As discussed during our fourth quarter 2019 earnings call, we are already well advanced in defining a number of strategies and actions necessary to better position our businesses on the path to profitability. We are pleased with the progress being made on these initiatives, and we look forward to providing more specifics regarding these efforts on our first quarter 2020 earnings call. Our management and employees have not lost their passion to innovate, so I'm confident in our ability to compete successfully in this new environment. Now before I close, I want to recognize a special long-time Oceaneer, who will retire at the end of May, Marvin Migura. However, before he goes, I'd like to thank him for his friendship, guidance and support, and present him with his 25-year service award. While at Oceaneering Marvin has previously served as our Chief Financial Officer, our Executive Vice President overseeing all of Oceaneering's support functions and, most recently, as a strategic adviser. I know each of my predecessors, and Marvin's successor, Alan Curtis, all benefited from his industry knowledge and innate ability to focus on the critical issues at hand to deliver value for our shareholders. We will miss his thoughtfulness, humor, knack for punctuation pronouns and quantifiers and extremely valuable business advice, not to mention his encyclopedic knowledge of country music lyrics. Marvin, I look forward to raising a glass in the not-too-distant future to properly celebrate. But until then, best wishes for your retirement. On closing, although energy market fundamentals might suggest otherwise, I would argue that this can be a positive time for Oceaneering. While there will undoubtedly be many changes, I am confident in our ability to adapt and succeed in this new market environment. I'm honored to be leading this company, and I look forward to a successful 2020. Finally, I want to thank our shareholders for their confidence, our directors for their guidance, but most of all, I thank our employees for their attention to safety, their dedicated service and their inspired creativity in making Oceaneering the great company it is today and will continue to be in the future. And finally, I look forward to seeing all of you in person at next year's meeting. Thank you.

Thank you, Rod. Very well done. And Marvin, thank you, from me, and those that came before me and all of the things that you did for Oceaneering, they were wonderful. I will now call on the Inspector to summarize the report on this voting.

Thank you, Mr. Chairman. I have tabulated the votes and can deliver a preliminary report as follows: Each of the candidates for election as the Class I Director has been duly elected to a new term of the Board. In addition, each of the other proposals presented to a vote at this meeting has received the affirmative vote of the holders of more than the number of shares required to adopt those proposals, in accordance with the company's bylaws. Accordingly, each of those proposals has been duly adopted.

I request that the final report of Inspector of Elections be filed with the records of this meeting. Final results will also be included in the current report on Form 8-K that will be filed with the SEC following the meeting. You have now heard the results of the voting, and this does completes the formal business to be conducted by the meeting. The 2020 Annual Meeting of Shareholders is now adjourned. Thank you for your meeting and for your interest in Oceaneering.

Thank you, ladies and gentlemen. This does conclude today's meeting. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.