Hello. My name is Deb and I will be your conference operator. I would like to welcome everyone to Oceaneering's Third Quarter 2021 Earnings Conference Call. With that, I will now turn the call over to Mark Peterson, Oceaneering's Vice President of Corporate Development and Investor Relations. The floor is yours.

Thank you, Deb. Good morning, and welcome to Oceaneering's Third Quarter 2021 Results Conference Call. Today's call is being webcast, and a replay will be available on Oceaneering's website. Joining us on the call today are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; and Alan Curtis, Senior Vice President and Chief Financial Officer. Before we begin, I would just like to remind participants that statements we make during the course of this call regarding 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 comments today are also non-GAAP and include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

Good morning, and thanks for joining the call today. At this time of the year, most of the questions we receive are focused on the coming year. So we're happy to start by providing you our initial thoughts on Oceaneering's 2022 outlook. As announced yesterday, we're initiating 2022 EBITDA guidance in the range of $225 million to $275 million. At the midpoint, this would represent a 16% increase as compared to our revised guidance for calendar year 2021 adjusted EBITDA midpoint of $215 million. We're confident in our ability to deliver this solid improvement in 2022 based on the quality and efficiency gains from process enhancements, continued recovery of the global economy, commodity prices supporting increased activity in our energy segments, solid fundamentals in our Aerospace and Defense Technologies segment, and year-over-year backlog improvement in our Manufactured Products segment. This level of 2022 performance also underpins our expectation to generate similar levels of free cash flow as compared to 2021. Now I'll focus my comments on our performance for the third quarter of 2021, our current market outlook, Oceaneering's consolidated and business segment outlook for the fourth quarter and full year of 2021, and our initial consolidated 2022 outlook, including the previously mentioned EBITDA guidance range and expectations to generate similar levels of free cash flow as compared to 2021 to support growth activities while continuing to improve our net debt position. After these comments, I'll then make some closing remarks before opening the call to your questions. Now to our third quarter summary results. Our planning and preparation were instrumental in our team's ability to navigate through the challenges presented during the third quarter, which included hurricanes, inflation, a tightening labor market, and a constrained global supply chain. Despite these challenges, we produced consolidated EBITDA of $50.3 million, a decrease from the second quarter of 2021, but within the guidance range provided at the beginning of the quarter. We made additional progress with debt reduction during the third quarter with $32.5 million of open market repurchases of our 2024 senior notes, bringing the total repurchases to $63 million for the year. During the third quarter, we generated $36.5 million of cash flow from operations and generated $24 million in free cash flow. Our cash balance at the end of the third quarter fell slightly to $448 million, primarily due to the aforementioned repurchases of our 2024 senior notes. Offshore work in our energy-focused businesses remained seasonally active during the third quarter. However, our operations in the Gulf of Mexico were muted by Hurricane Ida and high loop currents. In general, each of our five operating segments performed as forecast at the beginning of the third quarter. Now let's look at our business operations by segment for the third quarter of 2021. Subsea Robotics or SSR revenue increased slightly with good continuing offshore activity levels as compared to the second quarter. However, operating income declined primarily from lower margins for remotely operated vehicle or ROV services, attributed to changes in geographic mix and the special bonus that recognized our technicians for enduring extended work rotations throughout 2021 due to COVID-19 challenges. As a result, SSR adjusted EBITDA margin of 29% was slightly lower than compared to the second quarter. The SSR revenue split was 79% from our ROV business and 21% from our combined tooling and survey businesses compared to the 80-20 split, respectively, in the immediate prior quarter. Sequential ROV days on hire increased slightly as offshore activity remained seasonally active. With an increase in days for both drill support and vessel-based services, days on hire were 14,474 as compared to 14,005 during the second quarter, a 3% increase. Our fleet use was 57% in drill support and 43% in vessel-based services versus 58% and 42%, respectively, in the second quarter. We maintained our fleet count at 250 ROV systems, and our third quarter fleet utilization was 63%, up slightly from 62% in the second quarter. Average ROV revenue per day on hire of $7,858 was 2% lower than the average ROV revenue per day on hire of $8,056 achieved during the second quarter. At the end of September, we had a 58% drill support market share with ROV contracts on 77 of the 133 floating rigs under contract, which was the same share as the prior quarter when we had ROV contracts on 73 of the 126 floating rigs under contract. Subject to quarterly variances, we continue to expect our drill support market share to generally approximate 60%. Turning to manufactured products. Sequentially, our third quarter 2021 operating income and operating income margin were essentially flat with the second quarter despite marginally lower revenue. Third quarter 2021 revenue of $75.4 million remains suboptimal, which continued to challenge our ability to leverage the cost base of this business. Activities in our mobility solutions or non-energy manufacturing remain subdued, but are expected to see a gradual increase as the economy continues to recover. Our manufactured products backlog on September 30, 2021 was $334 million, improving on our second quarter backlog of $315 million. Our book-to-bill ratio was 1.3 for the nine months ended September 30, 2021, and was 1.0 for the trailing 12 months. Offshore Projects Group or OPG third quarter 2021 operating income was relatively flat as compared to the second quarter of 2021 on an 11% decline in revenue. Revenue benefited from good ongoing seasonal activity and inspection, maintenance, and repair or IMR work in the Gulf of Mexico, despite some work delays caused by Hurricane Ida and high loop currents. The conclusion of field activities on several projects in Angola was the primary driver for the sequentially lower third quarter revenue. Operating income margin improved from 7% for the second quarter of 2021 to 8% in the third quarter of 2021, primarily due to improved performance on the Angola riserless light well intervention project. Integrity Management and Digital Solutions, or IMDS, sequential operating income was higher on relatively flat revenue. Operating income margin improved to 9% in the third quarter of 2021 as efficiency improvements continue to show incremental benefits. Aerospace and Defense Technologies or ADTech third quarter 2021 operating income declined from the second quarter of 2021 on a 15% decrease in revenue. Operating income margin declined to 16% as expected due to a higher component of low-margin manpower activities. Unallocated expenses of $31.8 million were slightly higher as compared to the second quarter of 2021, but less than expected, primarily due to delayed spending on information technology infrastructure. Now I'll address our outlook for the fourth quarter of 2021. We are projecting a decline in our consolidated operating results on slightly higher revenue with EBITDA being approximately the same as our third quarter 2021 results. Although we do expect to see some benefit from the work that was pushed out from the third quarter of 2021 as a result of hurricanes and loop currents, we still expect to see the typical seasonal slowdown in offshore activities during the fourth quarter. Broadly for the fourth quarter of 2021 as compared to the third quarter, we expect improved operating profitability in our energy segments to be offset by lower ADTech operating results and higher unallocated expenses. For our fourth quarter 2021 operations by segment as compared to the third quarter of 2021, for SSR, we are projecting relatively flat operating profitability on a modest decrease in revenue as compared to the third quarter. ROV days on hire are forecast to decline due to typical seasonal factors with good survey activity continuing during the fourth quarter. Our forecast assumes overall ROV fleet utilization to be in the high 50% range. SSR EBITDA margin is anticipated to improve as compared to the third quarter due to the exclusion of one-off expenditures that impacted the third quarter. As of September 30, 2021, there were approximately 15 Oceaneering ROVs on board 11 of the 17 floating drilling rigs with contract terms expiring by year-end. During the same period, we expect to have 29 ROVs on 25 of the 37 floating rigs to begin new contracts. For manufactured products, we anticipate a significant increase in revenue and operating profitability as the higher level of awards seen over the first three quarters begins to flow through our manufacturing facilities. Operating margins are projected to improve to the mid- to high-single-digit range as we expect to be better able to leverage our cost base. Award activity continues to look promising in our energy products businesses. We expect continued near-term headwinds in our Mobility Solutions businesses as our customers seem focused on strengthening their balance sheets before committing to new CapEx projects. We continue to forecast a book-to-bill ratio of between 1.1 and 1.5 for the full year of 2021. For OPG, we project substantially lower revenue and lower operating results due to typical fourth quarter seasonality and the reduction in contribution from field support activities in Angola. Operating income margins are expected to decline to the low to mid-single-digit range, primarily as a result of fixed costs being spread over a lower revenue base. As mentioned, we expect some carryover of third quarter Gulf of Mexico IMR activity that was delayed due to Hurricane Ida and high loop currents, but do not see this as significantly improving fourth quarter results. For IMDS, we expect both revenue and operating results to remain relatively consistent from the third with the third quarter of 2021. For ADTech, we forecast relatively flat revenue and lower operating results as compared to the third quarter. For the full year of 2021, we continue to expect operating margin to be approximately the same as the adjusted operating margin for 2020. Unallocated expenses are expected to be in the mid-$30 million range due primarily to increased spending on information technology infrastructure. And for the full year of 2021, based on our segment level guidance, we are expecting that each of our operating segments, except for manufactured products will show sequential year-over-year improvement. We expect to generate adjusted EBITDA within the narrowed range of $210 million to $220 million. We are also narrowing our guidance for capital expenditure to the range of $45 million to $55 million. Our guidance for cash tax payments remains in the range of $40 million to $45 million. We continue to expect $28 million of remaining CARES Act tax refunds, with $4.7 million of this amount received in the third quarter of 2021. The timing of receipt of the remaining $23 million of these payments, whether in 2021 or 2022, remains uncertain. Regardless of the timing of these payments, we continue to expect positive free cash flow generation for 2021 to be in excess of that generated in 2020. Now turning to our balance sheet. Our net debt position improved during the third quarter as we repurchased an additional $32.5 million of our 2024 senior notes for a year-to-date repurchase total of $63 million. Our cash flow from operations was $36.5 million, and we had $448 million of cash and cash equivalents at the end of the third quarter. We continue to expect free cash flow generated in 2021 will exceed that generated in 2020. We are well positioned to address the maturity of our 2024 senior notes. And we have our undrawn revolver, which steps down from $500 million to $450 million during the fourth quarter of 2021 available to us until January 2023. Now looking forward to 2022. Confidence is returning to the energy services industry and commodity prices appear supportive to continued gradual growth in offshore oil and gas markets over the short and medium term. We anticipate accelerating interest and growth in offshore energy transition markets, including offshore wind over the longer term. We believe that our energy segments are positioned to benefit from the growth in both of these markets. We also believe that our government-focused segment ADTech remains well positioned for continued steady growth in aerospace and defense markets. Accordingly, in 2022, we anticipate increased activity and improved operating performance across each of our operating segments, led by gains within Subsea Robotics and offshore projects. At this time, we forecast EBITDA in the range of $225 million to $275 million in 2022, serving as the catalyst for generating healthy levels of cash flow from operations. With higher projected levels of cash flow from operations, we expect to be able to invest more in growth capital expenditures in 2022. With a firm capital discipline focus, as demonstrated over the past several years, we expect to generate positive free cash flow at levels similar to 2021. We'll provide more specific guidance on our expectations for 2022 during the year-end reporting process. In summary, based on our year-to-date financial performance and expectations for the fourth quarter of 2021, we're narrowing our adjusted EBITDA guidance to a range of $210 million to $220 million for the full year. I'm encouraged by the positive market fundamentals supporting our traditional businesses and our increasing participation in emerging markets. Confidence is returning to the energy services industry and especially to those companies that can help their customers achieve carbon reduction goals. This, combined with an expected rebound in our Mobility Solutions businesses and continued growth in our government businesses underpin our general expectation for increased activity levels over the next several years. Our focus continues to be on generating positive free cash flow in 2021 and 2022, attracting and retaining top talent, mitigating the effects of inflation and supply chain issues, addressing our 2024 debt maturity, maintaining financial flexibility, and growing Oceaneering by leveraging our technologies and capabilities into new markets. We appreciate everyone's continued interest in Oceaneering, and now we'll be happy to take any questions you might have.

Your first question comes from Taylor Zurcher with Tudor, Pickering.

My first one is just on the 2022 outlook at the EBITDA line, very encouraging, at least relative to what I was expecting. And really my question is specific to the segment. You called out SSR leading the way, but also OPG. And when I think about OPG, it just feels like that segment benefited from a lot of discrete projects in Angola or I should say, one discrete project in Angola and obviously, there's a lot of call-out type speculative work in the Gulf of Mexico that goes on in that segment. So just curious what's framing the improved outlook for OPG in 2022 relative to 2021?

Taylor, I think you nailed it. I mean, discrete projects, right? And so when we look at the contracting activity right now, request for quote, what we see very tangible market signals. And we see that improvement in the customer signal to us. So I would just say stay tuned. Hopefully, we'll be able to share some of that news more specifically in the next month or so. So that should clear some of that out.

Okay. Understood there. And then a follow-up just on capital allocation with the improved EBITDA generation in 2020. Two, it certainly makes some sense or you certainly have the flexibility to increase your growth spend next year. And it's just interesting to me that the sort of buckets you called out on the growth capital spend for next year, which were largely all non-oil and gas type opportunities. So curious if you could just help us think about where you're seeing the best opportunities to allocate growth capital today? And how we should think about capital allocation between your traditional offshore oil and gas-oriented businesses versus some of your other non-oil and gas oriented segments?

Certainly. I can help with that. It's noteworthy when analyzing our new product development strategy. Approximately 10% of this focus is specifically on oil and gas, while the remaining 90% includes products that may have some relevance to oil and gas but are also aimed at other emerging markets. We believe this provides a healthy balance across the markets we serve and aligns with our strategic direction, especially regarding new product development, which is critical. In the oil and gas sector, we recognize that many of our markets remain oversupplied, reducing the need for significant capital investment. Therefore, our emphasis is on helping customers lower their carbon footprint. This involves innovations like autonomous vehicles that minimize the number of large vessels required for subsea operations. Additionally, our Liberty resident ROV vehicle is another area of investment. We're also focusing on developing vehicles tailored for the offshore wind market, particularly for route clearance. On the non-energy side, we are enhancing our Mobility Solutions business with more automated guided vehicles and exploring potential longer-term opportunities in entertainment. Furthermore, one of our most promising areas, which is often overlooked, is the IMDS business, which focuses on data analytics and predictive modeling for our clients. By focusing on carbon reduction, particularly by minimizing emissions, we have significant potential to provide deeper insights into our customers' infrastructures. Overall, we see substantial opportunities for growth and expansion in this area.

Your next question comes from the line of Ian MacPherson with Piper Sandler.

How are you viewing the most promising offshore deepwater basins for next year? It seems there is significant activity in Brazil and South America as a key growth area. Other regions are less certain in terms of direction. The Gulf of Mexico theoretically has potential for growth, with some large projects beginning, but not in the first half of next year. The North Sea and Norway appear to have already passed their cyclical lows, possibly ahead of other areas. I'm curious about your perspective on the important basins in terms of growth from 2021 into 2022.

Well, Ian, you made an excellent point. I’m considering what else to add. South America is performing well, especially with investments in Guyana. Brazil becoming more accessible to international oil companies could also open up new opportunities. It looks promising. You mentioned the Gulf of Mexico; I believe it's very project-specific, but there's a notable project, BHP Trion, which could expand on the Mexican side of the Gulf of Mexico. We don't often discuss it, but there are significant projects there that have potential, assuming everything goes according to plan. As for Norway, as you mentioned, activity remains robust, and we appreciate that because it tends to embrace new technology, so it’s encouraging to see progress there. An area that wasn't highlighted much is West Africa. We're seeing some improvement there, perhaps not a full boom, but a recovery of strength, which is positive for us given our strong presence in Angola. This growth might stem from new projects or reinvestment in existing infrastructure, benefiting Oceaneering. High commodity prices should be favorable for West Africa as well. Additionally, there are substantial projects in East Africa, like Total Energy's endeavor that faced delays due to political factors in Mozambique. However, there are opportunities for these projects to regain momentum. So, I’d advise keeping an eye on Africa, as it could emerge as a potential hotspot for activity in deepwater operations.

Great. I wanted to follow up on Taylor's question regarding capital. It seems you will likely be below 1x leverage by the end of next year. What can you share about your plans to return cash through dividends or buybacks, and if there is a preference between the two? Also, how significant is this in your overall capital strategy at Oceaneering?

Yes. I think we have a lot of promising ideas for growth, but I want to be cautious about sharing specifics. Some of the growth in emerging markets needs to be timed appropriately, so we will monitor that closely. If we notice that progress is slower than expected, I don't want to stockpile options without action. If that leads to an opportunity, we can reconsider the dividend, but for now, we are taking a conservative approach to that. I don't believe there is much to discuss regarding that at the moment, but we are keeping our options open. We aim to be disciplined and deploy resources only when we are confident in achieving a good return. If this creates an opportunity for future initiatives, we will certainly explore it.

Your next question comes from Samantha Hu with Evercore ISI.

I want to revisit the ROV and offshore segment. It appears that a few rigs are being reactivated with some solid contracts, and you mentioned you have 49 ROVs deployed on 37 rigs. Could you elaborate on the staffing of technicians for those ROVs? Are you able to transfer technicians from one rig to another, or rehire those you previously employed? Additionally, could you address the challenges and logistics you face regarding rates and labor issues?

You've raised an important point about the challenges we face. So far, we've managed quite effectively. We are bringing back some former employees who had previously left. At one time, we operated a larger number of ROVs, which required a bigger workforce. However, some of the individuals who left the industry are hesitant to return to offshore work, especially after the experiences of extended shifts during COVID. This concern was part of why we offered a special bonus last quarter to encourage people to come back. Incentives play a crucial role in motivating workers to return. It's important to note that while some challenges exist, we also have opportunities. When we call for ROV technicians in locations like Guyana or Mexico, or when we've needed personnel in Angola and parts of Asia like India, Malaysia, and Indonesia, we see a strong interest and a pool of talent willing to work. Our global presence allows us to train local workers and draw from diverse labor markets, which has proven advantageous. So, while there are difficulties, our international reach has been beneficial in overcoming them.

Okay. Great. I just wanted to ask if there might be any commentary available on the bookings for manufactured products next year. Do you believe you will be able to achieve a similar booking range as this year?

I don't know that we're ready to talk about levels. Kind of like what I said about projects, I'd say, just watch the news, maybe we'll at least give you some color on some things that are coming in because we do expect there'll be some news to share in the near future. So again, stay tuned, and we'll give you at least a little more anecdotal evidence that tells you what those levels might be.

Gentlemen, we have no questions in queue. Do you have any final closing remarks?

No, I would just say that since there are no more questions, I'll just wrap up by thanking everybody for joining the call. And this concludes our third quarter 2021 conference call. Thank you, Deb.

Thank you for participating in today's conference. You may now disconnect your lines.