Welcome to Oceaneering's first quarter 2025 earnings conference call. My name is Julianne, and I will 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 speaker's remarks. With that, I will now turn the call over to Hilary Frisby, Oceaneering's Senior Director of Investor Relations.

Thanks, Julianne. Good morning, and welcome to Oceaneering's first quarter 2025 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 Vice President and Chief Financial Officer. Before we begin, I would like to remind participants that statements we make during 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 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.

Good morning, and thanks for joining the call today as we announced in our earnings release yesterday we outperformed expectations in the first quarter with strong results across our energy services and products in particular subsea robotics or ssr demonstrated resilient utilization of remotely operated vehicles or rovs and offshore projects group or opg achieved robust vessel activity particularly in the gulf of mexico and west africa in addition we were proud to announce that our aerospace and Defense Technologies or Ad Tech segment was awarded the largest initial contract value in the company history, which is foundational to delivering significant year-over-year operating income growth in 2025 in this segment. Looking ahead to the rest of the year, we remain confident in our outlook even with recent market uncertainties. Our confidence comes from our first quarter 2025 order intake of approximately $1.2 billion. Our current backlog that has improved from the same time last year, the diversity of the geographies and end markets we serve, the optionality afforded by our strong balance sheet, and the commitment of Oceaneers worldwide, including our seasoned leadership team that has led the company through previous market uncertainties. Today I'll focus my comments on our performance for the first quarter of 2025 and our consolidated and business segment outlook for the second quarter and full year of 2025. Now for the first quarter results. For the first quarter, we reported net income of $50.4 million or 49 cents per share, a 233% year-over-year increase. Consolidated revenue of $675 million improved by 13% compared to our first quarter of 2024 with year-over-year revenue increases. Compared to the first quarter of 2024, first quarter 2025 consolidated operating income of $73.5 million doubled, and our consolidated adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, of $96.7 million improved 57%. These results were largely driven by SSR and OPG. In SSR year-over-year, we realized an 8% increase in average ROV revenue per day utilized, which, coupled with a 4% increase in days utilized, drove a 25% increase in the segment's EBITDA. In OPG, we had a favorable service mix, improved vessel activity levels, and lower dry dock costs, which contributed to OPG's revenue increase of 43% and operating income increase by orders of magnitude. Now let's look at our business operations by segment for the first quarter of 2025 as compared to the first quarter of 2024. SSR operating income of $59.6 million was 35% higher on a 10% increase in revenue. EBITDA margin also improved year over year to 35% from 31%, reflecting ROV pricing progression and improved execution in our ROV and tooling businesses. Average ROV revenue per day utilized increased $188, and days utilized increased to $15,093. ROV fleet use during the quarter was 62% in drill support and 38% in vessel-based activity, compared to 66% and 34% respectively. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 79% and 21% respectively. As of March 31, 2025, we had 60% of the contracted floating rig market, with ROV contracts on 79 of the 131 floating rigs under contract. We maintained our fleet count of 250. Turning to manufactured products, our first quarter 2025 revenue increased 4% year-over-year. Operating income of $8.7 million declined significantly and operating income margin of 6% declined primarily due to a $10.4 million inventory reserve related to our theme park ride business. Excluding this reserve, the operating income margin would have been approximately 14%. Our backlog on March 31, 2025 was $543 million, a decrease of $54 million from the first quarter. OPG achieved significant year-over-year improvements in revenue, operating income, and operating income margin. First quarter 2025 operating income of $35.7 million and an operating income margin of 22% benefited from the continuation of international projects that commenced in the fourth quarter of 2024 and are expected to conclude in the second quarter of 2025. improved vessel activity. For Integrity Management and Digital Solutions, or IMDS, both revenue and operating income were flat compared to the same period in 2024. AdTech operating income and operating income margin both declined slightly as compared to the first quarter of 2024 on relatively flat revenue. The declines were due to readiness costs to enable our role as a prime contractor on the recently announced large contract award. Unallocated expenses of $44.6 million were in line with our guidance. In the first quarter of 2025, we utilized $80.7 million of cash in operating activities and $26.1 million in capital expenditures, resulting in negative free cash flow of $106.8 million. In addition, we repurchased approximately $10 million worth of shares of our common stock. Consistent with prior years, our cash balance declined during the first quarter with an ending cash position of $382 million and no borrowings under our secured revolving credit facility. Now I'll address our outlook for the second quarter of 2025. On a consolidated basis, as compared to the second quarter of 2024, we expect our second quarter 2025 revenue and EBITDA to increase, with EBITDA expected to be in the range of $95 to $105 million. As compared to the second quarter of 2024, our expectations for the second quarter of 2025 results by segment are, for SSR, we project increased revenue and operating results. EBITDA margin is projected to be in the mid-30% range. For manufactured products, we expect relatively flat revenue and improved operating results. For OPG, we project relatively flat revenue and significantly higher operating results. For IMDS, we forecast relatively flat revenue and improved operating results. For ADTEC, we anticipate increased revenue and significantly improved operating results. And we project unallocated expenses to be in the $45 million range. Directionally, for our full year 2025 operations by segment as compared to 2024, we expect for SSR, we continue to forecast improved operating results on a high single-digit increase in revenue. SSR EBITDA margins are projected to average in the mid-30% range for the full year. For ROVs, we estimate that our overall ROV fleet utilization will be in the high 60 to low 70% range, with a slightly higher percentage of vessel-based activities than in recent We expect to sustain our ROV market share for drill support services in the 55 to 60%. For manufactured products, we project significantly improved operating income on better operating margins and increased revenue based on our current backlog of $543 million and improvements in our non-energy product lines. We expect our book-to-bill ratio will be in the range of 0.9 to 1.0 for the full year. Just to point out, at the midpoint of our book-to-build guidance and with our guidance for revenue growth, we are predicting a year-over-year increase. As demonstrated by OPG's strong first quarter performance, we continue to expect year-over-year operating results to improve on flat to slightly increased revenue with improved vessel utilization in the Gulf of Mexico and West Africa and increased activity in Brazil and Asia Pacific. Overall, for 2025, OPG operating income margin is expected to be in the mid-teens range. For IMDS, we forecast significantly improved operating results on increased revenue, with operating income margin to be in the mid to high single-digit range for the full year. These improved results reflect the positive impact of our acquisition of Global Design Innovation, or GDI, as well as the absence of losses from the divestiture of the Maritime Intelligence division. For ad tech, operating results are expected to improve significantly on increased revenue, which is largely attributable to the previously announced Department of Defense contract award. Operating income margin is expected to be in the low teens range for the year. Returning to our 2025 market outlook. In our fourth quarter 2024 earnings release, we revised the bottom end of our full year 2025 EBITDA guidance in acknowledgement that we may be impacted by different geopolitical uncertainties, including tariffs and regulatory changes. Since then, further announcements related to tariffs, retaliatory tariffs, and OPEC Plus production have continued to generate concerns across the energy sector. We believe that our prior and affirmed guidance appropriately accounts for these risks, but we will continue to evaluate the potential impacts of these. Oceaneering remains well positioned to take advantage of market dynamics, even in uncertain times. We have a strong backlog across our energy and government businesses and recognize the aforementioned $1.2 billion order intake in the first quarter of 2025. While Brent crude prices have been revised downward to the range of $60 to $70 per barrel in 2025, we believe these levels remain supportive of sustainable levels of offshore operating and, in summary, our strong first quarter 2025 performance, along with the strength and diversity of our backlog give us the confidence to reiterate our prior full year 2025 guidance including EBITDA in the range of 380 to 430 million dollars. We appreciate everyone's continued interest in Oceaneering and will now be happy to take any questions you may have.

Thank you if you would like to ask a question please press star followed by the number one on your telephone keypad. We'll pause for just a moment and file the Q&A roster. Our first question will come from David Smith from Pickering Energy Partners. Please go ahead your line is open.

Hey, good morning, and thank you for taking my question. Morning, David. I wanted to ask about GDI, which I think you acquired about six months ago, but you've been working with them for longer. Can you talk about how you see the opportunities to grow that business and what kind of pull that could have on demand for your ROVs over time?

Yeah, so great question, David, and thanks. I think, you know, we've been talking about this opportunity, particular for IMDS, and it's why we put this emphasis on, you know, integrity management, but also data solutions. This data-driven approach has really helped us do more sort of AI machine learning assessment of offshore platforms, meaning, hey, we can go out there, we can gather data, and we can do predictive modeling to help them, number one, avoid any sort of equipment failure, But number two, also maintain a more robust inspection campaign with fewer personnel hours. So that's kind of the gist of GDI. And we think a lot of the customers are really excited about that opportunity to know more with fewer people on the platform. So that's a great combination. The exciting part for us, and one of the reasons we really like GDI, is there is also an opportunity to do the same thing underwater. It's a laser scanning video approach that we can deploy on ROVs, and we can do the same sort of analysis on subsea infrastructure with ROVs. So we're in the testing phase of that, and we're confident that it will be a robust solution and therefore drive, you know, what currently doesn't exist, this underwater inspection with this sort of technology, and that'll create more dive hours.

That's great, Collar. Appreciate that. you and sorry if i missed it but did you provide the mix of rov support in the first quarter yes we were 62 percent drill support 38 percent vessel based great thank you and the flight shift there related to i think i heard you say earlier um for for the full year outlook expecting a higher mix of vessel activity uh compared to to recent years just wanted to ask if there was anything in particular uh driving that if it's yeah partnerships or or just um it'd be an

opportunistic i i think it's it's sort of all of the above david i mean we've got some of the some of the larger construction vessels we're on are active i mean we see them they've got this this great opportunity they're they're going back and forth right now between energy and and wind especially international wind and those vessels go all over the world so they're they're able to stay busy i mean they they really do go where the work is so um being on those those types of vessels has been really helpful and then of course the the increase in activity for opg drives vessel demand for us um and and a lot of tooling demand that's the other thing when when we're operating on our vessels generally we've got you know greater not just the rvs but that's great caller i appreciate

it turn it back thanks our next question will come from eddie kim from barclays please go ahead your line is open.

Hi, good morning. You reiterated full year EBITDA guidance despite the volatility in commodity prices over the past month. Sounds like you're fairly confident in activity levels in the second half of the year. Could you just talk about your confidence level on kind of second half activity holding up just based on customer conversations you've been having it? And separately, I mean, to the extent that customers were to pull back on spending, if oil prices declined, you know, below $60, which segments would we see that impact first in your financials?

I think, well, first of all, let me address the confidence. I mean, you know, we see the orders come in and the backlog build. Remember, the backlog build, obviously, we had a great component from ad tech, but we also see it in all the business. We see adding days for OPG. We see, you know, shoring up some of the spec work for in the SSR business and IMDS as well. So so it's it's it's that it's that build in that pipeline, actually. You know, our pipeline looks strong. We see we see an increased pipeline year over year. And that pipeline, I would call out that not only is it is it growing, but there's also some great diversification in there. And there's some OPEX related work in there. So those are the things that kind of, to me, you know, that OPEX-related work is the stuff that happens through cycle more often than not. I mean, it's the things that to keep up production they have to keep doing and to also deal with anything that comes up. So I think those are the things. I spent some time with customers. We've been going to all the conferences where we get to sit with our peers and our customers. I think that as of right now, they're not worried about long-term effects so much. So they're keeping work going. they're talking not just about their forecast, but I mean, I've got a lot of great feedback on our executions. So I feel like our customer relationships are strong and so that we'll be able to stay, you know, stay active through this year. I think if we start to see a longer cycle, something that looks, you know, we'll hear more about that, but it doesn't seem like that's going to affect, you know, anything outside of our guidance. The other thing you knew that you ask what what happens first i think you look at previous cycles um we see things like high cost like drilling rigs or or the ssr stuff might might come off um might come off first opg sometimes comes off but on the other hand you know and i've said this probably enough times to be annoying but but the cheapest barrels are behind pipe and so when we think about lightwell intervention you You know, some of the IMR work we do, I mean, that work is high return. Generally, the customers get good payback on a lot of the work we do with OBG. So if you're going to start cutting your budget, it's probably not the easiest thing to cut. I think you want to maintain those current assets. So I'd say that while they do see some of that volatility for call-out work, generally the market doesn't drop off. And then, of course, long pipeline on some of the other work. the imbs contracts are longer uh the the the backlog in the manufactured products it doesn't apply here so i i think that's kind of the order of time dependency on on decision for any additional questions please press star followed by one on your telephone keypad our next question comes from colby sasso hey eddie did we lose you or do you have another question sorry about that i um my

phone was put on mute the first time. Yeah, just my follow-up actually is on ROV's average revenue per day, which looked like it held flat sequentially for the first time in about six quarters.

Just given market conditions, I mean, should we expect this ROV's day rate to remain kind of fairly steady through the end of the year, or would you expect it to exceed 11 000 at some point this year yeah eddie uh this is alan we're still projecting that we'll be able to get some level of pricing uh our guidance last time was it would be a little bit more muted than what we saw uh our ability to move price in 2024 uh the team is projecting you know probably that five to ten percent increase um so we do expect it okay great thanks for that uh i'll turn it back

Thanks, Amy.

As a reminder, for any additional questions, please press star, followed by the number one on your telephone keypad. Our next question comes from Colby Sasso from Daniel Energy Partners. Please go ahead. Your line is open.

Hi. Thanks for having me on. We continue to see a lack of incremental contracts on the rig side, yet utilization of your assets and drill support continues to be strong. Even if the rig count falls throughout 25, how are you looking at the opportunities to grow the ROV business in 26 and beyond?

Yeah, Colby, I think it really depends on, you know, we see this shift in vessel activity. And so as the vessel activity remains strong or even increases in some case in intensity, that would be the biggest offset. But again, I think, unfortunately, those things don't operate independently. So if you see a protracted negative sentiment and everybody pull back, I think if they start dropping rigs and, you know, wind absorbs as much, and I'm talking about international wind, obviously the U.S. wind is challenged, but if they absorb what they can on the vessel side, beyond that, I think it's a challenging market. We don't see that happening in 25. I don't, you know, as I mentioned before, our customer conversations, you know, we talk to customers who say, you know, one person throws out that it has to be sub 50 before they reduce their active rig count. I mean, anecdotally, it just doesn't look like, especially thinking about, remember we operate for the big operators. They got long-term plans in deep water. So unless this looks like a protracted downturn, generally these 10-year projects, 20-year projects with longer life cycles than that, they don't bend easily for what looks like a short-term drop in commodity price.

So I think overall, we're starting to see more of that. yeah i might add one one additional thing here colby is um you know we had the question earlier from david smith about gdi and i think it's also one of those of how do we start to feed more days into rov and gdi is an excellent example of why we invest in that business so being able to go out and do more work with rovs not only just getting the pictures and the data set but take your vessel with OPG back out and go for you provide tooling as well so it's

not just about thank you so much for the color I'll turn it back thanks we have no further questions in queue I'd like to turn the call over to Rod Larson for any closing remarks awesome well thank you since there are no more questions I'll just wrap up by thanking everyone for joining the call this concludes our first quarter 2025 conference call thanks everybody ladies and gentlemen this concludes today's conference call thank you for your participation

You may not.