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Oceaneering International (OII)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET


Jack Jurkoshek - Director of Investor Relations

M. Kevin McEvoy - Chief Executive Officer, President and Director

Marvin J. Migura - Executive Vice President


Jonathan Donnel - Howard Weil Incorporated, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

Kurt Hallead - RBC Capital Markets, LLC, Research Division

Edward Muztafago - Societe Generale Cross Asset Research

James D. Crandell - Dahlman Rose & Company, LLC, Research Division

Tom Curran - Wells Fargo Securities, LLC, Research Division

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

Darren Gacicia - Guggenheim Securities, LLC, Research Division

John D. Lawrence - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Joshua W. Jayne - Simmons & Company International, Research Division

Alan D. Laws - BMO Capital Markets U.S.



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Good morning. My name is Sarah, and I'll be your conference operator today. At this time, I would like to welcome everyone to the 2012 Second Quarter Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Jack Jurkoshek. You may begin your conference.

Jack Jurkoshek

Good morning, everybody. I would like to thank you for joining us on our 2012 second quarter earnings conference call. As usual, a webcast of this event is being made available through the StreetEvents Network service by Thomson Reuters.

Joining me today are Kevin McEvoy, our President and Chief Executive Officer, who will be leading the call; Marvin Migura, our Executive Vice President; and Cardon Gerner, our Senior Vice President and Chief Financial Officer.

Just as a reminder, remarks we make during the course of the call regarding our earnings guidance, 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.

And I'm now going to turn the call over to Kevin.

M. Kevin McEvoy

Good morning, and thanks for joining the call. I'm happy to be here with you today to review our Q2 results and second half outlook.

Our record second quarter EPS of $0.67 was up 43% over the first quarter of this year, and up 29% compared to the second quarter of 2011. As expected, operating income margin improved sequentially in each of our operating segments. We achieved best-ever quarterly ROV and Asset Integrity in operating income. Year-over-year and sequentially, all of our business segments achieved higher operating income led by ROVs, Subsea Projects and Asset Integrity.

We are well-positioned to participate in the next growth stage of deepwater and subsea completion activity, and our outlook for 2012 remains very positive. We continue to believe we will achieve record results for the year and are narrowing our 2012 EPS guidance range to $2.55 to $2.65. Our previous guidance was $2.45 to $2.65. So the new guidance is up slightly at the midpoint. Compared to the first half, we anticipate achieving higher operating income during the second half of 2012, principally due to the ROV and Subsea Products businesses.

ROV profits are expected to be up on an increasing days on hire in most operating areas, notably in the Gulf of Mexico and off Africa, and a slightly higher operating margin as we benefit from the additional days work and a favorable change in geographic mix. For Subsea Products, we are forecasting profit improvements for each of our major product lines during the second half of the year, led by higher demand for our Subsea Hardware. For the year, we continue to forecast higher operating income for all of our segments relative to 2011.

During the quarter, we purchased 400,000 shares of our common stock at a cost of about $19.4 million. And as announced in April, we increased our regular quarterly cash dividend to $0.18 from $0.15 a share. These actions underscore our confidence in Oceaneering's financial strength and future business prospects.

For 2012, we anticipate generating at least $565 million of EBITDA. Our balance sheet and projected cash flow provide us ample resources to invest in Oceaneering's growth, and we intend to do so.

We are raising our 2012 CapEx range estimate, excluding acquisitions, by $75 million, $50 million of which is for additional ROVs. Our total year estimate is now $275 million to $300 million. Of this amount, $175 million is anticipated to be spent on adding systems to our ROV fleet and vehicle upgrades, and $90 million is for enhancing our Subsea Products' capabilities. Our focus in 2012 continues to be on earnings growth and investment opportunities, both organically and through acquisitions.

I'd now like to review our second quarter oilfield segment results. Year-over-year and sequentially, ROV operating income increased on higher demand for both drilling and vessel-based support services. The 13% year-over-year improvement in ROV days on hire was on the strength of higher demand in the Gulf of Mexico and off Africa. Sequentially, the 7% increase in days on hire was primarily due to increased demand in the Gulf of Mexico.

Our fleet utilization rate during the quarter was 81%, up from 76% in the second quarter of 2011 and up from 79% in the first quarter of 2012. We continue to expect that our fleet utilization for the year will be 80% or more compared to 77% in 2011.

Operating margin during the quarter was 31%, the same as the year ago and up from 29% last quarter. We continue to anticipate our ROV operating margin for this year will be slightly higher than the 30% we achieved in 2011.

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