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

The 2021 Annual Meeting of the Shareholders of Oceaneering International will please come to order. My name is John Huff. I'm Chairman of the Board of Oceaneering and Chairman of this meeting. I would like to begin by welcoming you to this virtual meeting of shareholders, and thank you for your attendance. As required by the rules of conduct for this meeting, please refrain from using any recording devices during the meeting. During the webcast, you may hear forward-looking statements about our expectation 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 is said year-to-date. Please refer to Oceaneering's 2020 annual report on Form 10-K filed with the SEC February 26, 2021, for detailed discussions of the principal risks and uncertainties that could cause such differences between our subsequent SEC filing in today's updates. We have in attendance today, all members of the company's Board of Directors, including each of the nominees for the election of the 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 for this meeting. Before we turn to the formal business of the meeting, I had a few words to say. This will be my last meeting, and I appreciate all of the opportunities that we've faced together and it's been a wonderful, wonderful experience for me. I'll have just a few concluding comments at the end of the meeting. We will now proceed with the formal business of the meeting. The Board of Directors set the close of business on March 17, 2021, as the record date for determining the shareholders entitled to notice of and to vote at this meeting. As of the record date, there are approximately 99 million shares of the company's common stock outstanding, each of these shares is entitled to one vote on each matter that properly comes before this meeting or provided to all shareholders of record as of the record date. 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 our proxy material, including the Notice of the Meeting and proxy statement for shareholders on this call, a certified list of our shareholder, our series of our shareholders as of this record date. In addition, there is available, for inspection by our shareholders of record and their proxies, in our corporate offices. The affidavit of Broadridge verifying that the proxy statement and the company's 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 Election for the meeting and its representatives have taken and subscribed to the customary oath of office, which will be filled with the permanent records -- filed, excuse me, will be filed with the permanent records of this meeting. I am informed that all persons who are present with proxies have filed such proxies with the Inspector of Elections and that they are present in person or by proxies holder or more than a 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 voting on these proposals. The only matters properly before our shareholders today are those set forth in the notice of annual meeting and proxy statement for this meeting. The option to vote electronically during this meeting is available via the meeting 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 of the matters submitted to the shareholders. The first order of business is the election of 4 Class II Directors who have been nominated for election as Class II Directors in accordance with the company's bylaws. Karen Beachy, Deanna Goodwin, Kavitha Velusamy, and Steven Webster. The second proposal to come before the meeting is a proposal to approve on an advisory basis the compensation of Oceaneering's named executive officers. Third and final proposal to come before the meeting is the ratification of the appointment of Ernst & Young, LLP 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 by following the prompts. [Voting] If you participate in the Oceaneering common stock fund, our 401(k) plan, and you timely submitted your voting instructions, your instructions are being voted by the trustees of the plan. Option to vote via the meeting website will remain available for the next 5 minutes, whereupon the polls will be deemed closed. Immediately upon the completion of the voting, I'll request the Inspector of Elections to decide upon the validity and effect of the proxies and votes and the qualification of the voters and the counted number of shares voted for each of the proposals. While that process is being completed, there will be a few comments for Rod Larson, Oceaneering's CEO.

Thank you, John. Good morning, and welcome to Oceaneering's 2021 Annual Meeting of Shareholders. I'm pleased to be here with you today to comment on Oceaneering's 2020 results and our outlook for 2021 and beyond. Each year, the management team and Board of Directors look forward to seeing and meeting with our shareholders to discuss our operations and achievements and celebrate the many personnel who make safety and innovation integral to serving our customers. And in keeping with our commitment to everyone's safety, we have chosen to maintain the virtual format for this year's annual meeting as an ongoing precaution resulting from the COVID-19 pandemic. So let's review 2020. At the beginning of the year, we were looking forward to higher levels of activity and improved operating results. It seemed that market fundamentals were finally improving, and our customers are planning additional scopes of work. Then came a global pandemic and an oil price collapse. As a result, market tailwinds did not materialize. And as Texas wind farms found out in mid-February of this year, you can't generate power if the wind doesn't blow. However, despite the challenging market conditions, our financial performance improved as compared to 2019. These improvements include delivering improved consolidated adjusted operating results and EBITDA compared to 2019 as each of our segments, with the exception of the Offshore Projects Group, contributed positive adjusted operating income, and all of our segments contributed positive adjusted EBITDA despite lower activity in our energy segments. These improvements were led by our Manufactured Products and AdTech segments. And we generated $137 million in cash flow from operations and invested $61 million on capital expenditures during the year. This resulted in delivering meaningful free cash flow during the year with our cash balance increasing by $78 million from $374 million at December 31, 2019, to $452 million at December 31, 2020. We also had a number of notable achievements in our operating segments, including achieving significant operational improvement in our IMDS business and winning over $250 million of contract awards during the fourth quarter of 2020 and early 2021. Securing contracts during the fourth quarter of 2020 in our Subsea Robotics business, a recognized leader in world-class ROV services, with projected revenues totaling more than $225 million. And meeting the performance targets of our AdTech business that we established at the beginning of 2020. This business also recorded several important incremental contract wins, including a contract to operate and maintain the U.S. Navy submarine rescue systems with potential revenue of up to $119 million, assuming annual renewals over a 5-year period. One thing, however, did remain the same in 2020, and that was our commitment and focus on safety, with our team continuing to identify high-hazard tasks and developing engineered solutions to mitigate risks. I'm pleased to report that Oceaneering's TRIR, or total recordable incident rate, for 2020 was the lowest in our history. We also made meaningful progress on our sustainability efforts through various environmental, social and governance, or ESG, initiatives. During 2020, we established our first sustainability report using the Sustainability Accounting Standards Board, or SASB, framework. From an environmental perspective, we continue to advance our capabilities as a technology delivery company by developing clean energy technologies to assist our customers in mitigating greenhouse gas emissions and meeting their reduced emission goals. We also continued implementing measures to reduce the amount of greenhouse gases emitted from our own operations, including facility consolidations, employee remote work options and increased recycling efforts. From a social perspective, we continued to explore new ways to make positive contributions in the communities where we operate and to increase workforce diversity within our company. And from a governance perspective, we have taken action at the Board level as well. We announced the addition of 2 new Board members earlier this year and formalized oversight of our ESG efforts and reporting at the Board level. By now, many, if not most of you are probably thinking, so what about all that stuff that happened between the beginning and the end of the year? A commodity price crash, a local viral outbreak that exploded into a global pandemic and the disruption and dislocation of almost every part of our personal and professional lives. Yes, all those things happened, it was an unprecedented year, but in positive ways, too. Oceaneers rose to the challenge, and I'd like to recognize the efforts of an amazing, resilient, dedicated and courageous team. Let's start with our employees and their leaders who are asked to adopt the remote work model almost overnight, along with all the changes to come with working from home, and the IT staff that helped ensure the connectivity to make that shift possible, not just in the U.S. but around the world. And our shop personnel, who had the courage to be among the first to return to work, developing new protocols to keep each other safe while delivering products to our customers to meet their critical schedules. And most of all, our team in the field, who endured extended hitches, coupled with quarantine periods away from their family, navigating their own new ways of working once they reach the job sites. The continuity of service was remarkable, as recognized by our customers as best-in-class. But that's not all. While we were delivering on our customer commitments, we've made some commitments to ourselves and to our shareholders as well. We completed the reorganization of our business segments. We actively pursued cost and efficiency improvements and reduced our facility footprint, launched a sales excellence program and have continued to innovate our product and service offerings. Which leads me to 2021 and beyond. Despite continued pandemic and market challenges in '21, we expect to grow EBITDA and generate more cash as compared to 2020. Energy transition and greater regulation are part of our future. Where we are today is the result of the vision of Oceaneering's founders and the ongoing commitment to Oceaneers to a safer, cleaner and more prosperous future. We have demonstrated to ourselves and others, not just this past year but throughout our history, that we will look to the future and adapt. Oceaneering started as a diving company and became a world leader in subsea robotics and in technology delivery in many fields. We will evolve into a better version of ourselves and continue to deliver the services and products that our customers need to ensure their future success while delivering long-term value to our shareholders. This is who we are, and it's articulated in our core values, mission and vision, and demonstrated every day in our culture. And I can't think of a more appropriate time than to recognize and thank one of our longest-serving Oceaneers, our Chairman, John Huff, for his leadership and dedication of the culture that he fostered since August of 1986. John, I know Jay has prepared some remarks as well, but on behalf of the leadership team and Oceaneers past and present, including myself, thank you for your vision, your support and your leadership. And as always, 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 they're inspired creativity in making Oceaneering the great company it is today and will continue to be in the future. And perhaps most importantly, I look forward to seeing each of you in person at next year's meeting. Now I'd like to turn the mic over to Jay Collins, our incoming Chairman, for his remarks.

Rod, thank you very much, and I would like to make some personal comments since this is John's last meeting as Chairman. Many of you know that John Huff and I met when we were 18 years old. Both of us showed up in Houston at Rice University. We both had football scholarships at Rice and both wanted to be engineers, and we both played the same position. And John is slightly bigger than me and probably faster most people were, but I was certainly glad that he was on my team. After a couple of years, John, fortunately, met Karen and moved to Georgia Tech, played ball there and became a Georgia Tech engineer. But while he was at Rice, we both played for a great coach called Red Bale, the end coach. We felt like we were the Green Berets. He trained us very hard. He made sure that we knew what to do and how to do it. And after a game, we graded every play, we got a mimeograph piece of paper with all of our grades on it. Everyone could see on every play, you either did what you were supposed to do or you didn't. He held us accountable for every single play. So fast forward 30 years, and I joined Oceaneering, and what did I find? I found one of the mantras of the company that John had installed was outhustle the competition. What was one of the core values, personal accountability, do what you say you were going to do, achieve the results that you are accountable for and do it every day. I felt right at home. I also discovered that Oceaneering had an impressive legacy. Some amazing people had virtually created the commercial offshore diving industry and later the ROV business. What amazing company that did incredible jobs, a lot of #1s were done by Oceaneering. But in 1986, Oceaneering were doing about $100 million of revenue and losing $10 million a year. John brought discipline and a focus on profitability and an idea of entrepreneurship, expand the job, what else can we do, how can we achieve more profits and return to our shareholders. At that time, the company really felt it could do anything. Dick Frisbie was offered to build the United States -- the space station for the United States government. Unfortunately, we did not get that contract. But by any measure, Oceaneering has been a huge success from a value of maybe $10 million when John joined to almost $10 billion, this is under John's watch as CEO and Chairman. This company has been a huge success. Of course, we're in a different world today, and our excellent management team is rebuilding our revenue base with existing customers and adding new customers outside the oil and gas industry. But most importantly, those core values are strong, very strong, and the reputation of Oceaneering has never been better. These attributes that John created have allowed us to attract an excellent management team. John, thank you for your leadership, your passion and your insight over these 35 years. Thank you for going forward. What a tremendous personal run it has been for you, I could not have asked for a better teammate. Both John and Karen, thank you for everything. Thank you very much.

Wow. Thank you, Jay and Rod. That was remarkable. I can only just say thank you. I do have a few comments about our people. Early in my tenure as Chairman, Tyler -- I brought our oldest grandson, Tyler, to an Annual Shareholders' Meeting. When the meeting started, I realized he was on the second floor landing looking down at the gathering. Quickly, 3 ladies sensed the need for action, they got up the stairs, retrieved Tyler and got a relieved smile from me. So what does that say? People react to needs, people sense danger and people execute what's needed. I will be forever glad and happy that I picked Oceaneering for my 35-year career. The second instance was around my visit to our operations. Oceaneering was very centric to dialing during this time. And to reassure our employees, I charged that our progress in changing the company from a purely diving operation to a technology business would go at a pace that we all could adjust to. And when Oceaneers make a commitment to something that they're going to do and be accountable for doing it and achieving those results, it works. And I think that the financial performance of the company over the last many years is testament to that continuity of the company. So keeping your word and honoring your commitment to the -- is a cornerstone for developing trust and long-standing relationships. Oceaneering has these relationships with their employees and their customers. And finally, as Baba would say, thanks for the memory's guys and ladies. Okay. I'll now follow up on the Inspector to summarize the report on the voting.

Mr. Chairman, I have tabulated the votes and can deliver a preliminary report as follows: Each of the candidates for election of a Class II Director has been duly elected to a new term on 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. And according to each of those proposals, they have been duly adopted.

I request that the final report of the inspection of election be filed with the records of this meeting. The final results will also be included in the current report on Form 8-K that will be filed with the SEC following this meeting. You now have heard the results of the voting, and this completes the formal business to be conducted by the meeting. Questions received during the meeting will be responded to on the Investor Relations section of our website or by our Investor Relations department. The 2021 Annual Meeting of Shareholders is now adjourned. Rod Larson will now lead a brief Q&A period to respond to any questions that may have been submitted via the meeting website.

I would ask now, if any messages have -- or any questions have been received? It is reported that no questions were received. So thank you very much for attending the Annual Meeting of Shareholders and for your interest in Oceaneering. We are adjourned.

Okay. That's it. Thanks.