Oceaneering International (OII) Q3 2026 earnings call transcript

With that, I will now turn the call over to Hilary Frisbee, Oceanerings Senior Director of Investor Relations. Thanks Ellen. Good morning and welcome to Oceanerings 3rd quarter, 2026 results conference call. Today's call is being webcast and a replay will be available on our website. We will be today our Rott Larson, President and she's Executive Officer and who will provide our prepared comments and like someone, Senior Vice President and Chief Financial Officer.

After Rott's remarks, we will open the call up to your questions. Before we begin, please note that statements made on this call about our future financial performance, business strategy, plans for future operations, and industry conditions are forward-looking statements made pursuant to the same total provisions of the Pride of Security Litigation Reform Act of 1995. Our remarks also include non-GAP financial measures.

Additional details and reconciliations to the most directly comparable GAP financial measures are included in our third quarter price release, which is available on our website.

With that, I'll turn the call over to Rott. Good morning, everybody, and thanks for joining the call today. As Hilary mentioned, I'm going to be handling all of our prepared remarks today, so Mike is saving his voice for all of your math questions, so be ready. Our third quarter performance demonstrates the earnings potential of our portfolio in favorable pricing activity and project makes a lot.

Consolidated adjustment, even though it was $119 million in line with our guidance and our highest quarterly level since the fourth quarter of 2015. These results reflect solid performance and sub-cerobotics for SSR, resilience in the offshore projects group for OBG, and improvement in integrity management and digital solutions by India's. Highlights from the quarter include SSR delivered increased revenue, operating income, and even a margin with the latter reaching its highest level since we re-segmented our businesses in 2020.

We also want approximately $180 million of RMB of survey contracts across multiple regions with contract terms extending into 2031.

OBG saw steady demand for its higher revenue services with a favorable mix of installation projects contributing to third quarter performance.

Manufactured products secured awards of approximately $160 million during the quarter supporting our expectation for stronger order intake in the second half of the year. And aerospace and defense technologies are at tech. Secured follow-on contracts for two strategically important U. S. Navy programs. Dritic shelters and submarine rescue systems. The Dritic shelter contract and program we have supported for over 20 years has a total potential value of $154 million over five years. All the submarine rescue system contract has a potential value of $67 million over 18 months.

Today I'll focus my comments on our third quarter 26 results, our outlook for the fourth quarter of 2026, and our initial guidance for 2027. Starting with our consolidated results for the third quarter of 2026 compared to the third quarter of 2025. We delivered revenue of $785 million, a six percent increase with growth across every operating site. Operating income of $92 million, a seven percent increase.

And adjusted even at the $119 million, also a seven percent improvement. That income attributable to oceanering was $52.6 million, or $52 cents per share, a decrease of 26%. The decrease was primarily attributable to a one-time loss related to the refinancing of our long-term debt completed during the third quarter. Adjusted even at a increase of 7% to $119 million.

Turning to our cash flow and liquidity. We generated $163 million of cash from operating activities. Capital expenditures were $21.1 million, so the approximately 31% allocated to growth, and 69% allocated to maintenance. This investment was less than anticipated, largely due to timing, with most of the three now expected to do the fourth quarter.

Pre-cash flow was $142 million reflecting strong third quarter results, as well as loaded cash taxes and deferred capital expenditures. We expect both cash taxes and capital expenditures to increase in the fourth quarter, resulting in more moderate pre-cash flow generation to close the year. During the quarter, we also repurposed shares of approximately $5 million, with a focus on mitigating dilution associated with employee equity rates.

And we ended the quarter of the cash balance of $735 million, total liquidity of more than $1 billion, and no barbies under our evolving credit solution.

Now let's look at our business operations by segment for the third quarter of 2026, also compared to the third quarter of 2025.

SSR delivered revenue of $233 million in operating income of $75.4 million, both higher year over year. These results benefited from improved RV pricing, with average revenue per day utilized, increasing to $11,781 from $11,254, as well as higher survey activity. SSR even a margin improved to 39%, primarily driven by an army of pricing improvements in Europe, West Africa, and Norway.

Increased survey activity and a one-time contractual cost recovery related to U. S. Gulf operations also contributed to higher margins. RV fleet causation remained stable at 65%, as higher activity levels in Europe, Guyana, and West Africa largely offset lower activity in U. S. Gulf.

For the quarter, the revenue split between our RV business and our combined tooling and survey businesses has a percentage of our total SSR revenue, both 75% and 25% compared to 77% and 23% in the third quarter of 2025. ROV days, U. S. and rows of over 62%, while vessel-based services were 38%, compared to 63% and 37% respectively in the prior year quarter.

As of September 30, 2026, we had RV contracts on 80 of the 136 floating rates under contract or 59% market share. We maintained our fleet count of 250 ROV systems.

Manufactured products generated operating income of $25.1 million, relatively flat with the prior year quarter, while operating income margin decreased slightly to 15% on an 8% increase in revenue. These results were impacted by the final resolution of a legacy mobility solutions contract, including recognition of the previously unresolved contract value. The decline in operating income margin was primarily due to lower graylock products, activity, and profitability following a particularly profitable order in the prior year quarter.

Our backlog as of September 30, 2026 was $435 million and was largely sustained by order intake during the quarter of 160 million. Our vote to bill ratio was 0.77 for the trailing 12-month period. Based on these recent bookings together with our sales funnel, we remain confident in our ability to achieve a full year vote to bill ratio of 0.9 to 1.0.

OPG revenue, operating income, and operating income margin were relatively flat. Results benefited from international installation projects they concluded during the quarter, which more than upset lower activity in West Africa and a less favorable project mix in the U. S. Gulf.

My MDS revenue increased 7% while operating income and operating income margin were relatively flat, reflecting increased activity in the Middle East, Europe, and the U. S. Gulf, which was partially offset by lower activity in West Africa, the changing project mix, and increased costs for the Middle East. Add to that revenue increased 7% to $135 billion, as our previously announced large-scale program reached its full staffing levels for its current phase.

Operating income decreased by 11% to $14.7 million in operating income margin decreased to 11% due to increases in pass or activities during the quarter, and increases in certain agreements.

Unallocated expenses of $50 million were consistent with our guidance from the quarter. Turning to our outlook for the fourth quarter of 2026 compared to the fourth quarter of 2025. We expect consolidated revenue to increase year to year and consolidated even up to be in the range of $85 to $95 billion.

By segment, for SSR, we expect revenue to increase, supported by higher ROV revenue per day utilized, and increased survey activity. Operating income is expected to decrease due to changes in ROV geographic mix, additional mobilization costs as rates relocate from the U. S. Gulf to other regions, and a greater mix of lower margins survey activity.

For manufactured products, we anticipate higher revenue and operating income. For OBG, we expect revenue to remain relatively flat in operating income to decrease due to changes in project mix, including the completion of an international intervention project that benefited the priority of quarter and a shift to lower margin work in the U. S. Gulf.

For IMDS, we anticipate higher revenue and operating income. For ad tech, we expect both revenue and operating income to be high. We project unallocated expenses to be in the $50 million reach.

Now we'll discuss our initial outlook for 2027. Looking ahead to 2027, the outlook for global and deep water markets remains constructed with industry forecasts pointing to higher spending and activity. Blowning reactivities expected to strengthen over the course of the year as rates complete transit to new regions and begin drilling programs. These trends provide a favorable backdrop as we establish our initial 2027 guidance.

The U. S. defense environment also remains supportive, particularly across subsea programs. However, the continuing resolution and uncertain timing of appropriations process could affect the timing of program activity within ad tech. These industry conditions support our expectations for improved performance in 2027. As we announced yesterday, we are initiating consolidated even a guidance in the range of $430 to $480 million with free cash flow expected to exceed our anticipated 2026 level. At the segment level, compared to the full year of 2026, for SSR, we expect that higher ROV utilization levels and similar pricing levels, together with improved results of surveyant tooling, while generating increases in revenue and operating income that stable even a margins.

For manufactured products, revenue, operating income, and operating margin are projected to be relatively flat. For OPG, we expect revenue to decrease operating income to be flat and operating margin to improve due to changes in project mix and similar utilization levels in the U. S. goals. For NDS, we expect increased revenue to significantly increase operating income and improved operating margin. For ad tech, we expect significantly higher revenue and operating income and improved operating margin to expect a slight increase in unallocated expenses.

We also plan to continue share repurgences in 2027, with approximately 5 million shares remaining under our existing repurgence authorization.

As we move through the planning cycle and our customers finalize their 2027 budgets, we expect to gain greater visibility and activity levels and the timing of opportunities across our businesses. We will provide more detailed guidance for 2027 during the year-end reporting process.

In summary, we remain focused on executing through the remainder of 2026, while positioning the business for opportunities we see developing in 2027. Our priorities remain. Disability execution, cash generation, and maintaining financial flexibility to support our longer-term objectives. Thanks for your continued interest in ocean air, and you will now be happy to take your questions.

I think it's the normal characters, Eddie. I mean, we've got, as always, SSRs got some of that based on, like, we've got the rate moves this year and we've got some of those things that are a little bit time-based. I think that's a part of it. Someone will be at tech, like we said, because we talked about some of these programs.

When do the programs kick off? How does appropriations work out in some of the continuing resolutions? So, if it gets resolved sooner, that brings things forward in the air, and it gives us more opportunity in the air, then pushes back a little bit, it brings us to the lower end of the range. And then finally, OBG. OBG's got room to pick up more international opportunities. And I think, actually, probably, if I think about OBG, it drives us to the higher end of the range. And we can put more things in that bucket, which we hope to resolve some of that between now and when we report next time. I think OBG could bring more goodness to the mix as well.

So, those are the typical ones. I don't expect a big change in manufactured rocks, because that's long, late-time stuff. And I wouldn't expect a whole lot of change in IMDS just because of the relative scale. I understand. I just wanted to touch on, I mean, the low end of that range, 430 million, doesn't represent that big of an increase over 2026, which is surprising, just in light of the strong growth, you're expecting to see an ad tech next year. It almost implies sort of a flatish trajectory in the energy segments, which is almost counter to kind of the constructive outlook and the offshore inflection that's expected next year. So, just, I mean, does the low end of that guidance imply spending slowing down?

Is that based on customer conversations you're having or an assumption that oil prices are going to be substantially less next year than they are now, just any more color on kind of that low end of the guidance would be great. I think it's mostly timing, Eddie. I mean, you know, I think everybody thinks that things are constructive. They expect some of these pickups throughout the year next year.

We just have to make sure that, you know, we're not overstating when it starts, right? I think that's always the trick here is a lot of times we get the story, right? But we get the timing wrong. And so we're a little bit cautious on, you know, how fast, how fast some of these things will come to fruition when they start spending.

It's more, it's more about that. I think we really, we truly believe that the thesis is right. You know, the expectation for the macros is right. We're just being a little bit cautious because, like I said, breaks will be moving. Some of the other projects for OBG are being contemplated, but they haven't been hard scheduled. So some of that stuff, some of that stuff is what we're, I think it's more of the timing.

Mike, would you bet? Yeah. It's early days too. Right.

I mean, this is this is only October. I think as we start to wrap up the year, talk to our customers, they wrap, they solidify their CAPX budgets. And we start to see what's happening with the great movements. I think that could change there. It's just, it's a little early.

Understood. Appreciate all that color. I'll turn it back.

Sure. I appreciate that question. I mean, you led, you led into that. I think capital deployment, we expect to continue to make, you know, investments in our, in our core energy businesses. There may be even some opportunity to bolt on some technology, some things that we could be a little disruptive with in the energy side on that, on that side of the business. But, but on the ad tech side, it is, it is a lot of focus around. Are there some inorganic opportunity smack positions that make sense?

I would say that things that make sense are things that are, you know, normally, normally valued, right? Things like machining capacity or workforce capacity that we can bring to bear on the sub-safe programs we work on, the new submarine build, things like that, that we could say we can, we can use our certifications, bring them up to government specs faster.

And so that these are things that you would pay sort of normal amounts for and then be able to add value through our competencies. So I think those things make sense. I think when we work on some of the more highly technical vehicle type programs, we could be looking at some of our partners, some of the people that, you know, work as subcontractors for us or bring a unique piece of technology to the mix, whether that's, you know, for electronics or a different type of sensor technology or something like that. I think those are, those are things that are kind of nichey maybe or a little bit bigger than nichey, they make sense.

What, what doesn't make sense is us, I mean, we've got an established brand. I don't think we need to go buy one of the big, you know, super over, what I consider overvalued flashy names, just to try to buy credibility with the customer. And I don't think we need to go into that ridiculous multiple range to try to, to try to get a foot in the door. We're already there. We've got one of the strongest operational reputations in the business.

They know we've been here. I mean, some people forget that we've been in that government business. We're a 60-year-old company. We've been, we've been in the government side more than 40 years. So it's not like we're new to the game. We don't need to, we don't need to buy presence, so to speak.

Right. Just kind of when things start, start all times over. Yeah, that's exactly it. It's really the sensitivities more on new projects. Right. Continuing resolution means if you, if you're doing it, you get to continue doing it. So I think a lot of those things, we've got a pretty good support from nearly all the work we're doing. Some of the newer things we've won could get slowed down. On the other hand, I will say, while there's always this risk, I mean, right now I feel better about what we're hearing coming off the hill and what we're hearing about potential resolution for, you know, a defense spending bill, for example, it seems like even for an election year, people are really keen to get a defense bill in place, you know, probably not surprising giving the two political climate.

But I'm not as worried about the defense portion of that. I think there really is a lot of cooperation going on. So I remain quite optimistic that while it's an unknown out there and we really do think it's appropriate to call caution to it, or call attention to it, I do feel like we've probably got better information coming back to us than we have in past years.

Thanks, Gus.

Sure. I think it's a lot of it is Brazil. Of course, we still see growing. We see Guyana growing. We also see rest of Africa. I mean, we see opportunities in the rest of Africa. I think those are good. You know, one of the things we call out is the Gulf of Mexico. It's just the Gulf of Mexico already is slowed down. We got to see how much resilience the Gulf of Mexico has.

And that's one that we would be keeping around.

Mike, what else would you call them?

Oh, I think what rest of Africa is a good one. Most would be seeing a lot of activity pouring back in. Again, all across West Africa. It's challenging place to work, but we've done work there for years and years and got some work lined up there as well. Yeah, I mean, I don't know that everybody realizes, but Mozambique could have as much curling activity as Guyana within a year or two.

I can't call that out as a huge factor. I mean, most of it, we'll receive the biggest part of it. It's been manufactured products, obviously, and especially with some of the bigger components to go into an umbilical. Those things are almost always price adjustment or cost adjusted into the price. So those we are covered on the same product. I mean, the same in the same bit. So that's not such a big one. It would be the biggest impact of it, if it weren't.

And then the rest of it is within our reach. I mean, we were able to mitigate a lot of it, for example, which shows up in R&M and the R&V business. We can mitigate that just by being more efficient, being more careful about where we're buying things, how we're sending around the world. I think that's the mitigations have been pretty effective.

It'll laborate are always probably the thing that we're most sensitive to. And so I would say that the customers are pretty good about recovering laborates because they value their degrees. If they like the people that work for them, they are very well. I think they're very well aware of what's going on in the labor market because they have to deal with it to some degree as well.

And so getting adjustments for laborates has been pretty effective so far. So I can't hang a lot of things up on that. Although the more efficient we get, the smarter we get at operating the business, all of those things can help us get to cost reductions to make us more competitive.

Yeah, the escalation costs in our contract really along the labor side. Plus the more we do from a remote operating perspective, I think also reduces our footprint and our costs.

I think we just haven't had a major issue of the whole thing that I can tell from inflation right now. So I don't, I'm overly concerned about it.

That's all from me. I'll turn it back. Thanks.

So I think, you know, the Eastern Man definitely is still a lot of opportunity kind of tempered a little bit by activity or by that, you have a political situation over there, but there's still a lot of, a lot of interest. I mean, you've got E and I working over there on the Chevron projects others. So I think, I think that's one that's got a lot of upside potential to your point.

We, one of our really good products was offshore Egypt. So, you know, we had a, we had a great installation project there this year. And I think we see opportunity for more of that kind of work. So yeah, the, the, the meds, the meds an interesting one. We don't call it out because it's a little more. I would, I would call it a little more sporadic, but, but it could be meaningful for sure.

Yeah.

And then, and then Norway is always an interesting one, you know, Norway, Norway is persistent. And so as that, when we're starts to find things. We see all the other thing we see from Norway is the potential for a lot of subsea tiebacks. You know, they've talked about improving seismic resolution through AI and that can light up some spots of existing fields that make really good opportunities for subsea tiebacks. We love those because we can do a full installation project there and provide the umbilical and a lot of engineering. So I think the more we see tiebacks in the near future, which again, if we have a continued strong commodity price, tiebacks are one of those things that's easiest to get on the, on the budget.

So that could, that could affect Norway for sure. But if that, that becomes sort of a greater interest, it definitely could affect the independence of the Gulf of American.

You know, I think there's still opportunities. You know, when we, when we talk about, you know, Mike, Mike mentioned earlier in, in one of the questions about more remote work, you know, being able to do more remote work, being able to do work differently. Actually, you know, things that we could do that, that improve the efficiency of both work we do in the customer's work. I mean, there's, there's a chance to be a little disruptive with technology. And so I think investments in the energy side are, are going to make sense. We're going to find things that, that make a lot of economic sense, both from, you know, their value stand alone, but also from the value they bring to protecting our work, right?

Things that we, things that we enhance are the operations with that, that make us, you know, make us even stronger within those, those pieces of the business are really makes sense.

Subsinspection. Let me use that one as an exam. You know, doing more and more digital twin modeling and building a digital twin from ROV video and then using that for, to divide up your, to devise a risk based inspection program for subsea assets as we try to keep subsea assets going longer, tying back more things to existing infrastructure, stuff like that, keeping, keeping TLP's running longer. I mean, all of these things require more, you know, inspection while in service.

And the more that we can do with technology. And of course, there's a lot of really cool technology out there that can be levered here. I think that's the kind of stuff that really does warrant continued investment inside the energy business.

Got it.

Thanks.

Yeah. Thanks, James.

Well, since there are no more questions, I'll just wrap up by thanking everybody for joining the call. This concludes our third quarter, 2026 conference call.

Thank you for attending. You may now disconnect.