Welcome, everyone, to Oceaneering's 2024 First Quarter Earnings Conference Call. My name is Ludie, and I will be your conference operator. With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations. Please go ahead.

Thanks, Ludie. Good morning and welcome to Oceaneering's first quarter 2024 results conference call. Today's call is being webcast, and a replay will be available on Oceaneering's website. Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; Alan Curtis, Senior Vice President and Chief Financial Officer; and Mark Peterson, Vice President, Corporate Development and Investor Relations. Before we begin, I would 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 also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

Hi. Good morning, and thanks for joining the call today. In our earnings release yesterday, I stated that I was encouraged by our first quarter results. In the first quarter of 2024, we achieved our highest first quarter EBITDA since 2016. Remotely Operated Vehicles, or ROV, revenue per day on hire for the quarter exceeded $10,000 for the first time since the fourth quarter of 2014. We saw continued solid order intake and bidding activity, as well as increased customer engagement regarding our MaxMover counterbalance forklift. These factors all reinforce our expectations for sustained multi-year growth in our traditional markets, as well as future growth in developing markets, all of which I find encouraging as we continue to progress with our strategic plan. As you probably noted in our earnings release, we have changed our results comparison to year-over-year instead of quarter-over-quarter as we've done in recent years. We believe this more accurately highlights the foundational growth that we see across our businesses and removes the seasonal impact that comes with sequential comparisons. Today, I'll focus my comments on our performance for the first quarter of 2024 and our consolidated and business segment outlook for the second quarter and full year of 2024. Now, for our results. For the first quarter, we reported net income of $15.1 million or $0.15 per share on revenue of $599 million. These results included the positive impact of $2.2 million in foreign exchange gains and the associated $0.8 million of tax effects, along with $0.2 million of expenses related to discrete tax adjustments. Adjusted net income was $13.9 million or $0.14 per share. Our consolidated first quarter 2024 operating income, as compared to first quarter 2023, was up 37%. And revenue was up 12%, with increases in all of our business segments, except for the Offshore Projects Group, or OPG. For the first quarter of 2024, our consolidated adjusted EBITDA of $61.7 million exceeded our guidance range and consensus estimates on better-than-expected activity levels across our businesses. These results, when combined with our backlog and current levels of bidding activity, support our unchanged guidance for the year. Now, let's look at our business operations by segment for the first quarter of 2024 as compared to the first quarter of 2023. SSR operating income was 31% higher on an 11% increase in revenue and an improved operating income margin as compared to the first quarter of 2023. EBITDA margin also improved over the same period last year to 31% from 29%, largely due to improvements in ROV revenue per day on hire, utilization and days on hire. Average ROV revenue per day on hire of $10,009 was 9% higher. Utilization improved slightly to 64%, and days on hire increased 2%. ROV fleet use during the first quarter of 2024 was 66% in drill support and 34% in vessel-based activity compared to the 65% and 35%, respectively, for the same period of 2023. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 78% and 22%, respectively, compared to 77% and 23% in the same period of 2023. At the end of March, we had ROV contracts on 88 of the 149 floating rigs under contract, or 59%. This was slightly lower than the prior year when we had ROV contracts on 90 of the 148 rigs under contract, or 61%. Turning to Manufactured Products, compared to the first quarter of 2023, operating income improved to $13.2 million, an increase of 17% on a 15% increase in revenue. Our backlog on March 31, 2024, was $597 million, an increase of $151 million over the first quarter of 2023. Our book-to-bill ratio was 1.3 for the trailing 12 months as compared to our book-to-bill ratio of 1.27 for the same period last year. OPG first quarter 2024 operating income and operating income margin declined as compared to the first quarter of 2023, due primarily to expenses and downtime associated with dry docks during the quarter. Excluding the dry dock impact, operating income margin would have approached the 5% achieved in the first quarter of 2023. For IMDS, first quarter 2024 operating income improved from the same quarter in the prior year on a 16% increase in revenue and a flat operating income margin of 5%. Our ADTech first quarter 2024 operating income increased by $4.3 million as compared to the first quarter of 2023 with an 8% increase in revenue and improvement in operating income margin from 13% to 9%. Unallocated expenses of $38 million were below our guidance of $40 million for the quarter, but higher than the same period last year. In the first quarter of 2024, we utilized $69.7 million of cash in operating activities and $25.5 million in capital expenditures, resulting in negative free cash flow of $95.2 million. Consistent with the past few years, our cash balance declined during the first quarter with an ending cash position of $355 million and no borrowings under our secured revolving credit facility. Now, I'll address our outlook for the second quarter of 2024 as compared to the first quarter of 2024. On a consolidated basis, we expect our second quarter 2024 results to improve significantly with adjusted EBITDA in the range of $80 million to $90 million on a mid-teens percentage increase in revenue. Our expectations for our second quarter 2024 operations by segment are: for SSR, we are projecting higher activity levels across our ROV, survey and tooling businesses with higher segment operating profitability. ROV days on hire are expected to increase in both drill support and vessel-based activities, achieving utilization in the upper 60% to low 70% range. SSR EBITDA margin is forecast to be in the low 30% range. For Manufactured Products, we anticipate revenue to increase in the low-teens percentage range with operating income margin to approximate our first quarter margin, leading to improved operating profitability in the second quarter of 2024. For OPG, we anticipate significantly higher revenue and operating results. Operating income margin is expected to be in the low-to-mid teens range in the second quarter of 2024. This anticipation is based on a seasonal uptick in intervention, maintenance and repair, or IMR, activity, primarily in the Gulf of Mexico and West Africa, coupled with the absence of the dry dock impacts incurred in the first quarter. For IMDS, we expect relatively flat revenue and operating profitability. For ADTech, we expect higher revenue and lower operating income with operating margin in the low-teens range on a shift in project timing and mix. Unallocated expenses are expected to be in the $40 million range in the second quarter of 2024. Directionally, for our full year 2024 operations by segment as compared to 2023, we expect: for SSR, we forecast improved operating results on a low-to-mid teens percentage increase in revenue. SSR EBITDA margins are projected to increase to the mid-30% range in the second half of the year, leading to a margin in the low-to-mid 30% range for the full year. For ROVs, we expect ROV days on hire and revenue per day on hire to increase year-over-year. Our 2023 service mix of 63% drill support and 37% vessel-based services is expected to remain relatively the same in 2024 with higher vessel-based utilization during the seasonally higher second and third quarters. We estimate overall ROV fleet utilization to be in the high-60% to low-70% range, again, with higher seasonal activity during the second and third quarters. We continue to forecast that our market share for the drill support market will remain in the 55% to 60% range for the foreseeable future. For Manufactured Products, we expect operating income to increase on a greater than 10% increase in revenue with a slight improvement in margin. This expectation is based on our year-end 2023 backlog of $622 million and continuing strength of bidding activity in our energy businesses. We expect segment book-to-bill ratio to be in the range of 1.1 to 1.3 for the year. In our mobility solutions business, we are seeing active customer interest, as evidenced by recent interactions at the LogiMAT and MODEX industrial trade shows and subsequent engagements. In order to meet anticipated demand and lower product cost, we have selected a global contract manufacturing company for our MaxMover counterbalance forklift product and are currently implementing a production line, which we expect to be fully operational in 2025. For OPG, we continue to expect operating results to improve on a slight decrease in revenue with lower expected international activity being largely offset by increased utilization in the Gulf of Mexico. Overall, for 2024, OPG operating income margin is expected to be in the mid-teens range for the year. For IMDS, we project slightly higher operating income results on increased revenue. We forecast year-over-year operating income margin to remain in the mid-single-digit range for the year. For ADTech, operating income results are expected to be slightly higher on higher revenue. Operating income margin is expected to be in the low-teens range for the year. On a consolidated basis, our estimated organic capital expenditure total for 2024 remains between $110 million and $130 million. This includes approximately $50 million to $60 million of maintenance capital expenditures and $60 million to $70 million of growth capital expenditures. We forecast our 2024 cash income tax payments to be in the range of $80 million to $90 million. Net interest expense is projected to be in the range of $24 million to $28 million as we continue to benefit from investing our cash and from lower gross debt. And unallocated expenses are expected to average $40 million per quarter for the remainder of 2024. In summary, our first quarter performance and refreshed outlook for the year give us confidence to maintain our 2024 adjusted EBITDA guidance range of $330 million to $380 million. It is worth noting that at the midpoint of our $110 million to $150 million free cash flow guidance range, we expect to generate free cash flow of $225 million somewhat ratably over the remainder of the year. As mentioned on our last call, we understand our shareholders' desire for the return of excess capital, and in response, we have prepared a share repurchase strategy. For 2024 and beyond, we remain focused on our growth strategy in energy markets and increasing our participation in longer-term non-energy growth markets. We appreciate everyone's continued interest in Oceaneering. We look forward to seeing you at our investor and analyst event, showcasing our robotics technology on May 9. And if you've not already RSVPed, please do so. Now, before I take some questions, I want to take a moment to acknowledge a significant milestone. Today is Mark's last earnings call. Since assuming the dual roles of Investor Relations and Corporate Development in 2018, a time when agility and adaptability were critical, Mark has been instrumental in shaping and sharing Oceaneering's narrative. His commitment to embodying our core values and telling our story has not only enriched our team but has also contributed to developing and strengthening our relationships with our investors and analysts. Mark, your insights and dedication have left an indelible mark on our organization. And while we'll miss your guiding presence and keen wit, we look forward to hearing about your new adventures in retirement. Thank you for your steadfast leadership and many contributions to Oceaneering. Now, I'll be happy to take any questions you might have.

Your first question comes from the line of Kurt Hallead from Benchmark.

Mark, try not to be too bored in retirement, all right?

Yes, sir.

All right. So, congratulations on that. So, I appreciate all the information and insight and everything else. My curiosity still revolves around the mobile robotics. I know that you had a number of different increases in order intake over the course of 2023. I just want to get an update as to what that order book looks like through the first quarter, and then maybe just also touch on some of the benefits you expect to get from outsourcing the manufacturing for that business.

We currently don’t have any major new orders to announce, but there has been a consistent stream of customers interested in our technology, which is encouraging. Our first customer made substantial initial orders, but for the next few customers, we anticipate they will start with trial orders, allowing them to test a few units before placing larger orders. We are preparing for this progression. As for our current order book, while some of the contract manufacturing will occur in our facility, other parts will be handled by our contract manufacturer. This is why we are setting up that production line. We expect them to produce items at scale, benefiting from their effective sourcing and established vendor relationships, which will help reduce costs for the individual components and streamline assembly. This arrangement allows us to allocate our current capacity towards research and development for future versions and additional equipment, using our space for pilot and prototype builds while another party manages the mass production. This approach supports our speed and efficiency.

Okay. Appreciate that color. Maybe just staying on that topic again, just wanted to get a general sense of whether or not you've taken another look at what the total addressable market for the specific robotics businesses that you're looking at?

We pegged that market. We've talked about 5%, growing to 8%, I think, is over the next few years. I don't know that we've seen a big change in what we think the total market is. But I do feel like we're getting more confidence that the addressable market, meaning the portion that we think people are willing to convert to an autonomous forklift versus a driver forklift, continues to grow. So kind of watch this space. This is one of the leading-edge products. And the types of customers we're seeing and the places where these might go are actually growing as we see that interest develop over these two trade shows we were at, but also people who have contacted us directly. So I think that's the biggest part is how much can we actually convert to an autonomous product.

I think we're still seeing market research suggesting that 15% to 25% CAGR rate in this space, which is certainly a growth market.

Your next question comes from the line of Bill Austin from Daniel Energy Partners.

I wanted to follow up on what Kurt mentioned earlier regarding Manufactured Products and the pricing improvements. You previously indicated that it would take some time for these enhancements to impact the backlog. You also mentioned the possibility of margin improvements in the second half of this year. Can you provide an update on whether pricing has continued to improve for the items you're booking now? Additionally, how should we view the margin potential over the next few years as better pricing filters through the business?

I'll discuss the changes, and then Alan can expand on the margin changes. We do notice improvements in the backlog, particularly in its quality and pricing. The situation is influenced by our plants being mostly booked. The volumes we observe come from areas like Grayloc or Rotator and other manufacturing sites, which have good margins but lower volumes. We need to see more of these smaller gaps filled in those businesses because these opportunistic projects significantly contribute to margin growth, and we definitely see that progress. Additionally, we frequently mention what's happening, especially in the manufacturing plants. However, we still haven't fully separated the mobile robotics business, which sometimes obscures insights into what's occurring in the energy products sector. If we did break it out, you'd notice that we are observing a consistent improvement. Alan, I'll pass it to you now.

Yes, I think it captures a lot of it, Rod. One of the things we see, Bill, is that having visibility in the backlog is great. We have a slight nuance with the accounting for steel tubes, which are long lead materials. In Q4, we had somewhat lower margins in this business segment because we recorded revenues with basically no margin on those installed materials. This time, we benefited from those as we moved them through the production phase and added more value, resulting in higher margins that we expect to continue. In the latter half of this year, I anticipate strong revenues from a margin perspective, but we will likely be adding more steel tubes for some new projects starting around that time. This may slightly reduce margins, but it's a positive sign for 2025 since we will be making more progress through the factory by then. However, if we increase production, it could provide some benefit, and that's what we're currently considering.

Okay. And then, one more on subsea robotics. You conducted a demonstration for the U.S. Navy and the Defense Innovation Unit in Norway. Could you discuss that further? You completed Phase 1, and when do you expect to start Phase 2? Also, do you have any insight into what the potential revenue opportunity might be for this in the future?

We are currently in Phase 2, which focuses on expanding the product's capabilities. This phase is taking place this quarter, but predicting outcomes is challenging since details about scalability haven't been discussed yet, although it appears promising. The extent of their interest will clarify our understanding once they make decisions. Their silence isn't intentional; it largely hinges on what we can achieve together. The more capabilities we provide, the broader the demand and applications will be. It's an area we will monitor closely. Thanks for your interest in this topic. It's quite exciting. While we frequently mention the MaxMover and the forklift in terrestrial operations, there are extensive applications for Freedom in the subsea domain that could extend beyond our traditional energy work and into significant defense projects as well.

We have a follow-up question from Kurt Hallead at Benchmark.

You mentioned that there have been discussions or plans about returning cash to shareholders and a share repurchase program. Can you share any additional details about that?

Yes. While I don't have a specific algorithm to share, what we are focusing on is cash generation. We've received feedback regarding the cash burn in the first quarter, but I hope that people aren't overly concerned about it because we typically experience cash burn during that time. In some of the past few years, we noticed that we didn't see recovery until the fourth quarter, where after a significant drop in the first quarter, we had to wait to determine if we would meet our targets. This time, we don't anticipate it being as heavily weighted toward the end of the year; we expect more consistent performance. This consistency allows us to work comfortably with the Board to establish a repurchase amount. Naturally, I will compare the available cash to the share price to ensure it's a wise use of capital, while also considering our organic investment opportunities. We are approaching this with some flexibility, as there is a genuine interest in pursuing it. Management supports the initiative, and the Board is on board as well, but we want to ensure that we are making informed decisions. We are being mindful about timing and pricing when it comes to repurchasing shares.

Okay. Appreciate that. And then a follow-up on the ROV side of the business. You guys referenced the increase in pricing for the quarter. Typically, the ROV pricing does track pretty closely to the deepwater rig rates. And I think the last time, rig rates were $400,000, $500,000. I think your ROV rate was $12,000 plus. So just want to get a general sense from you guys on what kind of continued momentum you would expect to see in terms of ROV pricing?

I think we're still observing some progress. We've mentioned that they need to navigate through the system. This year, we've negotiated some rate changes, which are still being implemented. Regarding the higher numbers, we need to adjust the leading edge to align with the average. The leading-edge rates have been above $12,000, even now, depending on our global operations. I believe we are on track to return to previous rig rates. As rig rates rebound, I anticipate ROV rates will also return to their previous averages, which we've noted may align with Q4 of 2014. We are definitely moving in that direction, although there’s still some progress to be made. I expect the averages to keep rising throughout this year, which is positive news. Additionally, I want to highlight the difference in our business fluctuations in terms of low to high points rather than just percentages, as rig rates have decreased significantly more than ROV rates. Therefore, when we see rig rates double, for instance, ROV rates won't necessarily double from their lowest point, but we do expect to approach or even surpass the ROV rates we’ve experienced in the past.

And there are no further questions at this time. I would like to turn it back to Rod Larson for closing remarks.

Thank you, and my apologies for the interruption in the middle of the broadcast. Thank you very much for everyone who stuck with us and dealt with maybe a little bit of repetition. But since there are no more questions, I'm going to thank Mark one more time. Mark, it's been a great run. Thanks for all your help. And just thank you all for joining the call. This concludes our fourth quarter 2024 conference call. Have a great day.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.