Welcome to Oceaneering’s Third Quarter 2024 Earnings Conference Call. My name is David, and I’ll 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 speakers’ remarks. With that, I’ll now turn the call over to Hilary Frisbie, Oceaneering Senior Director of Investor Relations.

Thanks, David. Good morning, and welcome to Oceaneering’s third 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; and Alan Curtis, Senior President and Chief Financial Officer. 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 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. First off, thank you to the many Oceaneers who delivered $98.1 million in adjusted EBITDA despite two large hurricanes in the Gulf of Mexico that impacted our offshore operations and three of our onshore facilities in Louisiana and Florida, as well as absorbing an approximate $3 million loss as we fine-tuned our business portfolio and sold our Maritime Intelligence business. I believe this speaks to both the resiliency of our Oceaneers and portfolio of businesses. That being said, I’d like to highlight some of our achievements from the third quarter of 2024. As I just mentioned, we delivered $98.1 million in adjusted EBITDA, which was in line with our guidance and consensus estimates. We generated healthy free cash flow of $67 million. Subsea Robotics, SSR, EBITDA margins continue to expand to 36%. And yes, we did a share repurchase. Now I’ll focus my comments on our performance for the third quarter of 2024, our consolidated and business segment outlook for the fourth quarter and full year of 2024, and our initial consolidated 2025 outlook. Now for our third quarter 2024 results. For the third quarter, we reported net income of $41.2 million, or $0.40 per share, on revenue of $680 million. Adjusted net income was $37.2 million, or $0.36 per share. These adjusted results included the impact of $400,000 in foreign exchange gains, a $600,000 tax effect on adjustments associated with foreign exchange gains, and $4.2 million related to discrete tax adjustments. Our consolidated third quarter 2024 operating income compared to the third quarter 2023 was up 23% on a 7% increase in revenue. Our improved third quarter results were primarily due to strong performance in our SSR and Manufactured Products segments. For the third quarter of 2024, our consolidated adjusted EBITDA of $98.1 million was in line with our guidance range and consensus estimates. We generated $67 million in free cash flow and are pleased to report that we repurchased 422,229 shares for approximately $10 million during the third quarter of 2024. Our ending cash balance was $452 million. Now let’s look at our business operations by segment for the third quarter of 2024 as compared to the third quarter of 2023. SSR operating income was 37% higher on a 9% increase in revenue with operating income margins expanding 623 basis points compared to the third quarter of 2023. EBITDA margin also improved in the same period last year to 36% from 31% due to improved ROV pricing and execution, performance improvements in our tooling and survey groups, and ongoing cost control measures. Average ROV revenue per day utilized of $10,576 was 13% higher and fleet utilization of 69% and days utilized of 15,796 were both essentially flat compared to the third quarter of 2023. ROV fleet use during the third quarter of 2024 was 66% in drill support and 34% in vessel-based activity compared to 61% and 39%, respectively, in 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 77% and 23% compared to 76% and 24%, respectively, in the third quarter of 2023. At the end of September, we had 59% of the contracted floating rig market and ROV contracts on 85 of the 145 floating rigs under contract. Turning to manufactured products, compared to the third quarter of 2023, operating income was $11.3 million, an increase of 37% on a 17% increase in revenue. Order intake during the quarter was solid, and our backlog on September 30, 2024, was $671 million, an increase of $115 million over the third quarter of 2023. Our book-to-bill ratio was 1.21 for the trailing 12 months. Our Offshore Projects Group, or OPG third quarter 2024 revenue, operating income, and operating income margin declined as compared to the third quarter of 2023. The declines were due to changes in project mix, which was more focused on lower-margin inspection, maintenance, and repair, or IMR services than in the same quarter in the prior year, as well as vessel crane repair costs and the associated vessel downtime. Integrity Management and Digital Solutions, or IMDS, third quarter 2024 operating income and operating income margin both declined as compared to the same quarter in the prior year on an 11% increase in revenue. The decline was due to the one-time noncash charge associated with the divestiture of our Maritime Intelligence division in September of 2024. Notwithstanding this one-time charge, operating results in the core IMDS businesses improved in the third quarter of 2024 as compared to the third quarter of 2023. Aerospace and Defense Technologies or ADTech, third quarter 2024 revenue was essentially flat as compared to the third quarter of 2023, while operating income and operating income margins decreased due to increased project proposal costs associated with anticipated work in 2025 and changes in project mix. Unallocated expenses of $38.9 million were in line with our guidance for the quarter and lower than the same period last year. Now I will address our outlook for the fourth quarter of 2024 as compared to the third quarter of 2024. On a consolidated basis, we expect our fourth quarter 2024 revenue to increase led by increases in manufactured products and OPG with adjusted EBITDA similar to that achieved in the third quarter of 2024. Our expectations for our fourth quarter 2024 operations by segment are, SSR, we are projecting slightly lower revenue and operating profitability. As compared to the third quarter 2024, we forecast a decline in ROV days utilized and drill support activities, which we anticipate will be partially offset by an increase in vessel support activities. Overall, ROV fleet utilization is expected to be in the upper 60% range. SSR fourth quarter adjusted EBITDA margin is forecast to remain in the mid-30% range. For manufactured, we anticipate revenue to increase due to deliveries of our MaxMover counterbalance forklifts. Operating income and operating income margin are expected to be down significantly due to lower plant absorption related to holiday schedules and the delivery of MaxMovers at margins currently lower than those achieved in our energy businesses. For LPG, we anticipate increased revenue and significantly higher operating results, with operating income margin in the low 20% range. This forecast is based on an improved project mix to include more installation and intervention services with multiple projects in West Africa commencing in the fourth quarter and the return to service of the vessel that underwent crane repairs. For IMDS, following the divestiture of the Maritime Intelligence division, we expect operating profitability to improve on lower revenue. For ADTech, we expect lower revenue and significantly lower operating income with operating income margin in the low-teens percentage range. This outlook is based on delays in the timing of project schedules and awards and unallocated expenses are expected to be in the $40 million range for the fourth quarter of 2024. For the full year of 2024, as reported yesterday, we expect to generate adjusted EBITDA within the revised range of $340 million to $350 million. Our free cash flow guidance for the year remains unchanged in the range of $110 million to $150 million. Now looking forward, I’d like to provide you with our initial thoughts on Oceaneering’s 2025 outlook. As announced yesterday, we are initiating 2025 EBITDA guidance in the range of $400 million to $430 million at the midpoint of $415 million. This would represent a 20% increase over the midpoint of our revised adjusted EBITDA guidance for 2024. We are confident in our ability to deliver this improvement in 2025 based on increased revenue and improved operating income across all of our operating segments, led by notable gains in SSR, manufactured products, and not to be missed, ADTech. For SSR, we project similar utilization levels in ROV, but improved revenue and further margin expansion on continued pricing momentum and efficiency gains in ROV and improved performance from survey and tooling. For manufactured products, we forecast increased throughput and conversion of higher margin manufactured products backlog and better performance in our non-energy products businesses. For OPG, we expect increased international activity, higher margin intervention and installation projects, and no major vessel dry docks. For IMDS, operating income is expected to be significantly higher due to improved commercial terms and not incurring a loss associated with the previously mentioned sale of the Maritime Intelligence business. For ADTech, we forecast significant growth in revenue and operating income on low to mid-teens margins. Our outlook is based on revised program schedules and commencement of new program awards. Unallocated expenses are expected to increase modestly in the range of $40 million to $45 million per quarter with year-over-year increases due to the planned implementation of a new ERP and other information technology costs. This level of performance in 2025 also underpins our expectation that our 2025 free cash flow will exceed that generated in 2024. In 2025, we expect capital expenditures to be modestly higher than 2024 as we focus on growth in our various robotics platforms and new ERP and other opportunities generating the highest returns. I’d like to highlight that year-over-year, in 2025, we are projecting a significantly stronger first quarter. This is based on our expectations that we will maintain ROV pricing and margin improvements achieved throughout 2024. Our OPG results will improve significantly with the absence of drydock in 2025, yielding lower drydock costs and improved vessel availability, and OPG work that commenced in the fourth quarter of 2024 will continue in the first quarter of 2025. We will provide more specific guidance on our expectations for 2025 during the year-end reporting process. In summary, we believe we are well-positioned to deliver on our customers’ needs in the foreseeable future. We continue to maintain and grow our market share in our core businesses, and we are entering new markets by leveraging our robotics capabilities, all of which are made possible by the relentless efforts of talented Oceaneers around the globe. We appreciate everyone’s continued interest in Oceaneering, and we’ll now be happy to answer any questions you may have.

We’ll take our first question from Kurt Hallead with Benchmark. Please go ahead. Your line is open.

Hey, good morning, everybody.

Good morning, Kurt.

Hey, so just I’m glad you guys put some markers out there for 2025, given that there’s been a lot of discussion around offshore drilling, white space utilization, and so on. So obviously, you’ve incorporated that. So the question would be how much white space have you incorporated? How does that white space potentially impact you? And my – I guess, the real gist of the question is, my understanding is that you have a very significant share in the 7G drillship market, but it seems like a lot of this potential downtime might be for 60 rigs. So kind of a broad question, but really want to get a little bit more context around how you’re thinking about it.

No, I think you got it, Kurt. I mean we’re not seeing significant white space. We did talk a little bit about utilization and maybe some of the peak utilization we’re open for doesn’t necessarily happen in the first part of the year. So – but even with that, I mean, with the pricing improvements with the other things that are going on that are going the right way with cost control and efficiency in ROVs around it still bodes for a really strong year. I mean, SSR still delivers some of the best improvements year-over-year of any of our divisions. So I think that’s the short story. Vessels stay strong. A better year for OPG means a better year for SSR, and we’ve also gotten more juice in both the tooling and the survey side.

Got it. And then typically, there is a correlation and a little bit of a lag effect between the move in the day rate for the rig and then your pricing, you did indicate you expect to get better pricing and maintain the pricing that you got through 2024. So is there a way you give us a general sense of what kind of percentage pricing improvement year-on-year, you guys are factoring into your EBITDA guidance for SSR?

I don’t know that I could get that specific, Kurt, because it really depends on the region. I mean, we’ve rolled some contracts in some of the better regions, some of the better pricing regions. So as they roll, we’ll move those prices up, but it’s hard for me to really pin a number on what that would be on the whole because it’s going to depend on the utilization of those days in those regions.

Got you. And then my follow-up would be on the manufactured product side. You guys are obviously starting to deliver on the automated forklifts and so on. And just want to get an update on how that outsourcing process has been going. It seems like it’s going to be a little bit of a drag here on margins in the near term, but how do you see that outsourcing agreement evolving and improving margins going forward?

So I’ll say this, the execution has been good, meaning this handover between we’ve been building these things in Orlando, and we’ve moved that to our outsourced facility, our outsourced manufacturer. I think the handoff has been great. We’ve moved some inventory across. We’ve done some things like that. We’ve built the first article. I think what – the problem with the margins is until we get them fully switched, we’re kind of paying for both sides, right? So there’s some redundant costs in the start-up. But as those things resolve and Alan, I think has mentioned this before, as we start to build volume in that business, we get more vehicles out. So not only are you selling vehicles, but you’re also going to see more of those razor and blades parts when we get more of those razor blade sales on spare parts and services and other things based on installed base. That’s when we expect this thing to really come to fruition.

And I may have missed it. You mentioned it during the early part of your commentary, but what was your order intake for the automated forklift during the quarter?

Yes. It wasn’t in there, Kurt, I don’t think we’ve got that ready for public consumption anyways.

Kurt, I can just say there were no large material orders for MaxMovers during the quarter.

Okay. All right. That’s great. Thank you.

We’ll take our next question from Sean Mitchell with Daniel Energy Partners. Please go ahead.

Good morning, guys. Thanks for taking the question. Earlier this month, you guys put out a release highlighting you were awarded a multimillion dollar contract by the U.S. Department of Defense to build an autonomous underwater vehicle and establish an onshore remote operations center for the U.S. Navy. If you gain further traction here, how do you envision the total addressable market in the defense industry with something like AUVs? And then I think you noted the unit was being built in Morgan City, when will that be delivered?

So I’ll start with the last question. We’re set for Q2 2025 delivery of the vehicle. Yes. So that’s exciting. I could be tongue-in-cheek, and I can tell you I could say – I could tell you, but I’d have to kill you on the defense side. But we really don’t know. I mean it depends on what the use cases are for the government. I mean we’re, I would say, pretty bullish on it in the sense that you see all these articles that are out there right now, talking about the use of drones, more use of drones, and more use of autonomy by the military and how they think that’s a real force multiplier. So we’re keen on it. I think what will really tell is when they get this first article in their hands and they start working with it and putting it through its paces and seeing how many of the things they want to do are achieved. I think that’s good. I would also just point out that we’ve got another pretty large opportunity looming, and it’s maybe a few years out, but I don’t know if you heard about AUKUS, but it’s the Australian, UK, U.S. submarine build program where they want to transfer some of our abilities to build nuclear submarines to both our partners in the UK and Australia. And then that’s really going to expand or put a lot of pressure on the manufacturing base. For us, that’s a huge opportunity because we do some of that work now, but we’ve also been working really hard with the OEMs to help them expand their capabilities. So that’s another big one to watch.

Got it. Thank you. Maybe one follow-up. Just when you think about uses of CapEx going forward for the company in 2025 and beyond relative to the approximately $120 million you’ll spend this year. How should we think about not only the dollar amount, but the makeup? Do you push harder in autonomy than maybe you already have? Or how do we – how should we be thinking about CapEx?

Yes, let’s start with the basics. I mean, one thing to note is that as we spend more money, a greater percentage is going to growth. And when we think about growth, I don’t think about more of the same, right? I’m not thinking about doing more of the things we finally got decent absorption on things like umbilical plants and some of our other hardware out in the field. But I think we do. We lean more on next-generation things that are going to be differentiated, things that will make us more competitive, maybe even a little bit disruptive. It’s definitely where we want to spend money.

Got it. Thanks for taking my questions, guys.

Thanks, Sean.

We’ll take our next question from David Smith with Pickering Energy Partners. Please go ahead. Your line is open.

Hey, good morning. I just wanted to kind of – I thought the SSR margin improvement was really impressive, given the limited increase in ROV day rates. So I wanted to ask if it’s fair to assume the average daily or the OpEx came down in Q3 also or if that segment margin really benefited more from the tooling and survey business.

I think a lot of it is the efficiency side in cost. I mean the other thing I can say is I kind of harped on this a little bit, but I’ll say it again, there is something good that happens when our utilization gets up in that, I want to say that maybe the 65% to maybe if we even hit 80% the machine just runs better. I mean you see fewer COPQ events or problems. The team is sort of in a rhythm, it does really run best. Its efficiency is best when we’re humming and we just got everything moving along. So I think that lack of COPQ operating efficiency, more days without mobilizations, all those things really do turn into lower OpEx and better operating efficiency out in the field.

Yes. I’ll add, Rod, that as we were preparing the notes, Martin McDonald, our Senior Vice President of Subsea Robotics emphasized the efficiency gains that they were making in ROV so he wanted to make certain that it was clearly evident that it was not just tooling and survey.

And when they have more data to work with, you can just imagine they’re doing more predictive maintenance. They’re looking at modeling failures and getting ahead of these things and understanding when the maintenance needs to be done based on the current operating profile. The turnaround on vehicles, even how long it takes for them when they get an ROV into the shop until they can get it serviced and then back out in the field. All of those things, they’re pushing on every button. I like – I’ve been using this analogy a lot internally, but I tell them everything is an F1 race. Every time we come into the pits, we figure out how to take seconds off the next lap no matter whether that’s the driver, time in pits, whatever, and they’ve really taken it to heart.

I appreciate that. So it sounds like the ROV margin improvement we’ve been seeing is really about the pricing improvement and efficiency gains. I did want to ask if you’re seeing tailwinds or if you envision further tailwinds on initiatives like remote piloting, right, to save costs or maybe performance contract benefits.

Yes. And we do. I mean there’s always more to get, and I think it’s like peeling the onion. You do find new things when the farther you go. So it doesn’t seem like we run out of opportunities. The other thing, I mean the remote piloting, what we’re seeing is the more satellite coverage we get, the more 5G around the world, we get, the more opportunity there is. Right now, we can set up the operating centers anywhere in the world. That’s not a problem. The issue is really whether or not we can have 5G to the rig so that we can get that low latency we need or five-year equivalent to operate an ROV remotely because the lag time will be just too hard to operate the ROV in those places where we can’t get that sort of communication bandwidth.

I appreciate the color. If I could slip one more and just circling back to Sean’s question. If the defense AUV business grows, wanted to make sure that if we should be thinking about that as kind of a manufacturing sale that goes through ADTech as opposed to growing the ROV count in Subsea Robotics?

Yes, it would be more on that side. We do – but the other side I would just point out is a lot of the work that we do for the government with a government-owned company operated, so they call it a GoCo where we would actually sell the equipment to the government, they would own it. But – and a lot of times we would operate some of that, much like we operate the submarine rescue equipment package. We build some of that, but now we’re actually maintaining and operating that equipment on behalf of the government. So I think there’s some opportunity on both sides.

Perfect. Thank you very much.

You bet.

We have a follow-up question from Kurt Hallead with Benchmark. Please go ahead.

Hi guys. So you guys referenced you started the share repurchase program. Just wanted to get an update from you guys on how you are thinking about that dynamic? Are you considering the possibility to be more programmatic about it? Or are you still looking at it as being opportunistic? That’s part of it. Second part was, I think in the last time that you guys provided us with a few points on capital allocation. You didn’t specifically commit to a percentage of the cash flow that’s going to go to the shareholder distribution. So I was just wondering if you kind of have reconsidered that and can you give us some updates on that?

I’d put it this way, Kurt. I mean, we were looking at current and future dilution. So we are at least saying that should be a goal to try to manage or eliminate dilution through our employee stock plan. So I think that’s one way I’d look at sort of the sizing. I think it’s going to be somewhere between programmatic and opportunistic. I think we don’t want it to be every nine years. Meaning the last time we did this was 2015 and we’ll wait another nine years; that’s certainly not the case. But I think we’re going to be cautious because you mentioned the whole capital allocation thing. We do have a significant number of opportunities that we think are really on the growth side of the business.

No, I think that’s spot on, Rod. It’s clear we do have a little bit more in the pipeline today than we’ve seen in the last five years that are kind of going to fit into that propeller chart that we have in our investor deck that focuses on opportunities in the IMDS space, things that are in the aerospace and defense side of the business, and other mobile robotics. So I think we’re clearly defined as to what we’re looking for.

Excellent. All right. Thanks.

Thanks, Kurt.

And there are no further questions on the line at this time. I’ll return the program to Rod Larson for any additional or closing comments.

Well, since there are no more questions, I’m going to just wrap by thanking everyone for joining the call. This concludes our third quarter 2024 conference call. Have a great day, everybody.

This does conclude today’s program. Thank you for your participation, and you may now disconnect.