UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
| For the quarterly period ended | March 31, 2024 | |||||||
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the transition period from to | |||||
Commission File Number: 1-10945
____________________________________________
OCEANEERING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 95-2628227 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| 5875 North Sam Houston Parkway West, Suite 400 | ||||||||
Houston, | Texas | 77086 | ||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(713) 329-4500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed from last report)
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Common stock, par value $0.25 per share | OII | New York Stock Exchange | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | þ | Accelerated filer | ¨ | ||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ | ||||||||
| Emerging growth company | ¨ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes þ No
Number of shares of Common Stock outstanding as of April 19, 2024: 101,389,229
Oceaneering International, Inc.
Form 10-Q
Table of Contents
| Part I | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Part II | |||||||||||
| Item 1. | |||||||||||
| Item 6. | |||||||||||
1
PART I – FINANCIAL INFORMATION
Item 1.Financial Statements
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| Mar 31, 2024 | Dec 31, 2023 | |||||||||||||
| (in thousands, except share data) | ||||||||||||||
| (unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current Assets: | ||||||||||||||
| Cash and cash equivalents | $ | 354,697 | $ | 461,566 | ||||||||||
| Accounts receivable, net | 384,095 | 331,326 | ||||||||||||
| Contract assets, net | 193,255 | 234,505 | ||||||||||||
| Inventory, net | 216,914 | 209,798 | ||||||||||||
| Other current assets | 88,531 | 68,464 | ||||||||||||
| Total Current Assets | 1,237,492 | 1,305,659 | ||||||||||||
| Property and equipment, at cost | 2,257,886 | 2,285,896 | ||||||||||||
| Less accumulated depreciation | 1,835,797 | 1,861,603 | ||||||||||||
| Net property and equipment | 422,089 | 424,293 | ||||||||||||
| Other Assets: | ||||||||||||||
| Goodwill | 33,991 | 34,214 | ||||||||||||
| Other noncurrent assets | 136,359 | 137,286 | ||||||||||||
| Right-of-use operating lease assets | 398,946 | 337,554 | ||||||||||||
| Total other assets | 569,296 | 509,054 | ||||||||||||
| Total Assets | $ | 2,228,877 | $ | 2,239,006 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current Liabilities: | ||||||||||||||
| Accounts payable | $ | 152,607 | $ | 156,064 | ||||||||||
| Accrued liabilities | 400,621 | 411,781 | ||||||||||||
| Contract liabilities | 150,150 | 164,631 | ||||||||||||
| Total current liabilities | 703,378 | 732,476 | ||||||||||||
| Long-term debt | 478,173 | 477,058 | ||||||||||||
| Long-term operating lease liabilities | 325,890 | 293,482 | ||||||||||||
| Other long-term liabilities | 92,293 | 101,907 | ||||||||||||
| Commitments and contingencies | ||||||||||||||
| Equity: | ||||||||||||||
Common stock, par value $0.25 per share; 360,000,000 shares authorized; 110,834,088 shares issued | 27,709 | 27,709 | ||||||||||||
| Additional paid-in capital | 94,270 | 131,774 | ||||||||||||
Treasury stock; 9,447,084 and 10,030,200 shares, at cost | (540,988) | (574,380) | ||||||||||||
| Retained earnings | 1,440,392 | 1,425,257 | ||||||||||||
| Accumulated other comprehensive loss | (398,303) | (382,340) | ||||||||||||
| Oceaneering shareholders' equity | 623,080 | 628,020 | ||||||||||||
| Noncontrolling interest | 6,063 | 6,063 | ||||||||||||
| Total equity | 629,143 | 634,083 | ||||||||||||
| Total Liabilities and Equity | $ | 2,228,877 | $ | 2,239,006 | ||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
2
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended March 31, | ||||||||||||||||||||
(in thousands, except per share data) | 2024 | 2023 | ||||||||||||||||||
| Revenue | $ | 599,092 | $ | 536,987 | ||||||||||||||||
| Cost of services and products | 506,708 | 459,422 | ||||||||||||||||||
| Gross margin | 92,384 | 77,565 | ||||||||||||||||||
| Selling, general and administrative expense | 55,691 | 50,815 | ||||||||||||||||||
| Income (loss) from operations | 36,693 | 26,750 | ||||||||||||||||||
| Interest income | 3,040 | 4,466 | ||||||||||||||||||
| Interest expense | (9,204) | (9,283) | ||||||||||||||||||
| Equity in income (losses) of unconsolidated affiliates | 169 | 639 | ||||||||||||||||||
| Other income (expense), net | 1,480 | 78 | ||||||||||||||||||
| Income (loss) before income taxes | 32,178 | 22,650 | ||||||||||||||||||
| Provision (benefit) for income taxes | 17,043 | 18,590 | ||||||||||||||||||
| Net Income (Loss) | $ | 15,135 | $ | 4,060 | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||||||
| Basic | 101,025 | 100,441 | ||||||||||||||||||
| Diluted | 102,250 | 102,029 | ||||||||||||||||||
| Earnings (loss) per share | ||||||||||||||||||||
| Basic | $ | 0.15 | $ | 0.04 | ||||||||||||||||
| Diluted | $ | 0.15 | $ | 0.04 | ||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
3
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| (in thousands) | 2024 | 2023 | |||||||||||||||
| Net income (loss) | $ | 15,135 | $ | 4,060 | |||||||||||||
| Other Comprehensive Income (Loss): | |||||||||||||||||
| Foreign currency translation adjustments | (15,963) | (1,946) | |||||||||||||||
Change in unrealized gains for available-for-sale debt securities (1) | — | — | |||||||||||||||
| Total other comprehensive income (loss) | (15,963) | (1,946) | |||||||||||||||
| Comprehensive income (loss) | $ | (828) | $ | 2,114 | |||||||||||||
(1) | We had no available-for-sale debt securities for the three months ended March 31, 2024. There was no income tax expense or benefit associated with the three months ended March 31, 2023 due to an offsetting valuation allowance. | ||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
4
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended March 31, | ||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||
| Net income (loss) | $ | 15,135 | $ | 4,060 | ||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 27,058 | 27,821 | ||||||||||||
| Deferred income tax provision (benefit) | (1,497) | (501) | ||||||||||||
| Net loss (gain) on sales of property and equipment | (11) | — | ||||||||||||
| Noncash compensation | 3,233 | 3,325 | ||||||||||||
| Noncash impact of lease accounting | 957 | (3,012) | ||||||||||||
| Excluding the effects of acquisitions, increase (decrease) in cash from: | ||||||||||||||
| Accounts receivable and contract assets | (11,519) | (46,880) | ||||||||||||
| Inventory | (7,116) | (13,235) | ||||||||||||
| Other operating assets | (22,259) | (13,217) | ||||||||||||
| Currency translation effect on working capital, excluding cash | (5,361) | (1,246) | ||||||||||||
| Current liabilities | (58,994) | 6,247 | ||||||||||||
| Other operating liabilities | (9,343) | (6,281) | ||||||||||||
| Total adjustments to net income (loss) | (84,852) | (46,979) | ||||||||||||
| Net Cash Provided by (Used in) Operating Activities | (69,717) | (42,919) | ||||||||||||
| Cash Flows from Investing Activities: | ||||||||||||||
| Purchases of property and equipment | (25,518) | (18,308) | ||||||||||||
| Distributions of capital from unconsolidated affiliates | 1,413 | 1,272 | ||||||||||||
| Other investing activities | 900 | 1,346 | ||||||||||||
| Net Cash Provided by (Used in) Investing Activities | (23,205) | (15,690) | ||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||
| Employer tax withholding on settlement of shares | (7,344) | (4,936) | ||||||||||||
| Other financing activities | (112) | — | ||||||||||||
| Net Cash Provided by (Used in) Financing Activities | (7,456) | (4,936) | ||||||||||||
| Effect of exchange rates on cash | (6,491) | (223) | ||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | (106,869) | (63,768) | ||||||||||||
| Cash and Cash Equivalents—Beginning of Period | 461,566 | 568,745 | ||||||||||||
| Cash and Cash Equivalents—End of Period | $ | 354,697 | $ | 504,977 | ||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
5
OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Oceaneering Shareholders' Equity | Non-controlling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | 27,709 | $ | 131,774 | $ | (574,380) | $ | 1,425,257 | $ | (382,340) | $ | 628,020 | $ | 6,063 | $ | 634,083 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 15,135 | — | 15,135 | — | 15,135 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (15,963) | (15,963) | — | (15,963) | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit activity | — | (37,504) | 33,392 | — | — | (4,112) | — | (4,112) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | 27,709 | $ | 94,270 | $ | (540,988) | $ | 1,440,392 | $ | (398,303) | $ | 623,080 | $ | 6,063 | $ | 629,143 | ||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Oceaneering Shareholders' Equity | Non-controlling Interest | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | 27,709 | $ | 155,858 | $ | (605,553) | $ | 1,327,854 | $ | (386,127) | $ | 519,741 | $ | 6,063 | $ | 525,804 | ||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 4,060 | — | 4,060 | — | 4,060 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (1,946) | (1,946) | — | (1,946) | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock unit activity | — | (26,963) | 25,351 | — | — | (1,612) | — | (1,612) | ||||||||||||||||||||||||||||||||||||||||||
| Restricted stock activity | — | (3,884) | 3,884 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | 27,709 | $ | 125,011 | $ | (576,318) | $ | 1,331,914 | $ | (388,073) | $ | 520,243 | $ | 6,063 | $ | 526,306 | ||||||||||||||||||||||||||||||||||
The accompanying Notes are an integral part of these Consolidated Financial Statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Oceaneering International, Inc. (“Oceaneering,” “we” or “us”) has prepared these unaudited consolidated financial statements pursuant to instructions for quarterly reports on Form 10-Q, which we are required to file with the United States Securities and Exchange Commission (the “SEC”). These financial statements do not include all information and footnotes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These financial statements reflect all adjustments that we believe are necessary to present fairly our financial position as of March 31, 2024 and our results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, all such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2023. The results for interim periods are not necessarily indicative of annual results.
Principles of Consolidation. The consolidated financial statements include the accounts of Oceaneering and our more than 50% owned and controlled subsidiaries. We also consolidate entities that are determined to be variable interest entities if we determine that we are the primary beneficiary; otherwise, we account for those entities using the equity method of accounting. We use the equity method to account for our investments in unconsolidated affiliated companies of which we own an equity interest of between 20% and 50% and as to which we have significant influence, but not control, over operations. We use the cost method for all other long-term investments. Investments in entities that we do not consolidate are reflected on our balance sheet in other noncurrent assets. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires that our management make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.
Reclassifications. Certain amounts from prior periods have been reclassified to conform with the current period presentation.
Cash and Cash Equivalents. Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less from the date of investment.
Allowance for Credit Losses—Financial Assets Measured at Amortized Costs. We identify our allowance for credit losses based on future expected losses when accounts receivable, contract assets or held-to-maturity loan receivables are created rather than when losses are probable.
We use the loss-rate method in developing the allowance for credit losses, which involves identifying pools of assets with similar risk characteristics, reviewing historical losses within the last three years and consideration of reasonable supportable forecasts of economic indicators. Changes in estimates, developing trends and other new information could have material effects on future evaluations.
We monitor the credit quality of our accounts receivable and other financing receivable amounts by frequent customer interaction, following economic and industry trends and reviewing specific customer data. Our other receivable amounts include contract assets and held-to-maturity loans receivable, which we believe to have a low risk of loss.
We consider macroeconomic conditions when assessing our credit risk exposure, including any impacts from the conflicts in Russia and Ukraine and in the Middle East, volatility in the financial services industry and the oil and natural gas markets, and the effects thereof on our customers and various counterparties. We have determined the impacts to our credit loss expense are de minimis for the three-month periods ended March 31, 2024 and 2023.
As of March 31, 2024, our allowance for credit losses was $2.2 million for accounts receivable and $0.8 million for other receivables. As of December 31, 2023, our allowance for credit losses was $2.2 million for accounts receivable and $0.6 million for other receivables. Our allowance for credit losses for the three months ended March 31, 2024 was relatively flat when compared to the same period in the prior year.
7
Financial assets are written off when deemed uncollectible and there is no reasonable expectation of recovering the contractual cash flows. During the three-month period ended March 31, 2024, we wrote off $0.1 million in financial assets and during the three-month period ended March 31, 2023, we did not write off any financial assets.
Accounts receivable are considered to be past-due after the end of the contractual terms agreed to with the customer. There were no material past-due amounts that we consider uncollectible for our financial assets as of March 31, 2024. We generally do not require collateral from our customers.
Inventory. Inventory is valued at the lower of cost or net realizable value. We determine cost using the weighted-average method. We periodically review the value of items in inventory and record write-downs or write-offs of inventory based on our assessment of market conditions. Write-downs and write-offs are charged to cost of services and products. We did not record any write-downs or write-offs of inventory in the three-month periods ended March 31, 2024 and 2023.
Property and Equipment, Long-Lived Intangible Assets and Right-of-Use Operating Lease Assets. We provide for depreciation of property and equipment on the straight-line method over estimated useful lives. We charge the costs of repair and maintenance of property and equipment to operations as incurred, and we capitalize the costs of improvements that extend asset lives or functionality. Upon the disposition of property and equipment, the related cost and accumulated depreciation accounts are relieved and any resulting gain or loss is recognized in income.
We capitalize interest on assets where the construction period is anticipated to be more than three months. We did not capitalize interest in the three-month periods ended March 31, 2024 and 2023. We do not allocate general administrative costs to capital projects.
Long-lived intangible assets, primarily acquired in connection with business combinations, include trade names, intellectual property and customer relationships and are being amortized over their respective estimated useful lives.
Our management periodically, and upon the occurrence of a triggering event, reviews the realizability of our property and equipment, long-lived intangible assets and right-of-use operating lease assets to determine whether any events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. For long-lived assets to be held and used, we base our evaluation on impairment indicators such as the nature of the assets, the future economic benefits of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we determine whether an impairment has occurred using an undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, we recognize a loss for the difference between the carrying amount and the fair value of the asset. We did not identify indicators of impairment for property and equipment, long-lived intangible assets or right-of-use operating lease assets for the three-month periods ended March 31, 2024 and 2023.
For assets held for sale or disposal, the fair value of the asset is measured using fair market value less estimated costs to sell. Assets are classified as held for sale when we have a plan for disposal of certain assets and those assets meet the held for sale criteria.
For additional information regarding right-of-use operating lease assets, see “Leases” below.
Goodwill. Our goodwill is evaluated for impairment annually and whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
In our annual evaluation of goodwill, we perform a qualitative or quantitative impairment test. Under the qualitative approach, if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform the quantitative analysis to determine the fair value for the reporting unit. We then compare the fair value of the reporting unit with its carrying amount and recognize an impairment loss for the amount by which the carrying amount exceeds the fair value of the reporting unit. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. We also consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if
8
applicable. We did not identify indicators of impairment for goodwill for the three-month periods ended March 31, 2024 and 2023.
Revenue Recognition. All our revenue is realized through contracts with customers. We recognize our revenue according to the contract type. On a daily basis, we recognize service revenue over time for contracts that provide for specific time, material and equipment charges, which we bill periodically, ranging from weekly to monthly. We use the input method to recognize revenue, because each day of service provided represents value to the customer. The performance obligations in these contracts are satisfied, and revenue is recognized, as the work is performed. When appropriate, we apply the practical expedient to recognize revenue for the amount invoiced when the invoice corresponds directly to the value of our performance to date.
We account for significant fixed-price contracts, primarily within our Manufactured Products segment, and to a lesser extent in our Offshore Projects Group (“OPG”) and Aerospace and Defense Technologies (“ADTech”) segments, by recognizing revenue over time using the cost-to-cost input method. A performance obligation is satisfied as we create a product on behalf of the customer over the life of the contract. The remainder of our revenue is recognized at the point in time when control transfers to the customer, thus satisfying the performance obligation.
We have elected to recognize the cost for freight and shipping as an expense when incurred. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by us from customers, are excluded from revenue.
In our service-based business lines, we principally charge on a dayrate basis for services provided. In our product-based business lines, predominantly in our Manufactured Products segment, we recognize revenue and profit using the percentage-of-completion method and exclude uninstalled materials and significant inefficiencies from the measure of progress.
We apply judgment in the determination and allocation of transaction price to performance obligations, and the subsequent recognition of revenue, based on the facts and circumstances of each contract. We routinely review estimates related to our contracts and, when required, reflect revisions to profitability in earnings immediately. If an element of variable consideration has the potential for a significant future reversal of revenue, we will constrain that variable consideration to a level intended to remove the potential future reversal. If a current estimate of total contract cost indicates an ultimate loss on a contract, we recognize the projected loss in full when we determine it. We did not have any material adjustments to transaction prices during the three months ended March 31, 2024 and 2023. There could be significant adjustments to overall contract costs in the future, due to changes in facts and circumstances.
In general, our payment terms consist of those services billed regularly as provided and those products delivered at a point in time, which are invoiced after the performance obligation is satisfied. Our product and service contracts with milestone payments due at agreed progress points during the contract are invoiced when those milestones are reached, which may differ from the timing of revenue recognition. Our payment terms generally do not provide financing of contracts to customers, nor do we receive financing from customers as a result of these terms.
See Note 3—“Revenue” for more information on our revenue from contracts with customers.
Leases. We determine whether a contract is or contains a lease at inception, whether as a lessee or a lessor. We take into consideration the elements of an identified asset, right to control and the receipt of economic benefit in making those determinations.
As a lessor, we lease certain types of equipment along with the provision of services and utilize the expedient allowing us to combine the lease and non-lease components into a combined component that is accounted for (1) under the accounting standard “Leases” (“ASC 842”), when the lease component is predominant, and (2) under the accounting standard “Revenue from Contracts with Customers” (“ASC 606”), when the service component is predominant. In general, when we have a service component, it is typically the predominant element and leads to accounting under ASC 606.
As a lessor, we lease certain types of equipment, often providing services at the same time. These leases can be priced on a dayrate or lump-sum basis for periods ranging from a few days to multi-year contracts. These leases are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our
9
customer's discretion. These leases generally do not contain options to purchase, material restrictions or covenants that impact our accounting for leases.
As a lessee, we lease land, buildings, vessels and equipment for the operation of our business and to support some of our service line revenue streams. These generally carry lease terms that range from days for operational and support equipment to 15 years for land and buildings. These leases are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our discretion. When the exercise of those options is reasonably certain, we include them in the lease assessment. Our leases do not contain material restrictions or covenants that impact our accounting for them, nor do we provide residual value guarantees.
As a lessee, we utilize the practical expedients to not recognize leases with an initial lease term of 12 months or less on the balance sheet and to combine lease and non-lease components together and account for the combined component as a lease for all asset classes, except real estate.
Right-of-use operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement or modification date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, based on the information available at commencement or modification date in determining the present value of future payments. In determining the incremental borrowing rate, we considered our external credit ratings, bond yields for us and our identified peers, the risk-free rate in geographic regions where we operate, and the impact associated with providing collateral over a similar term as the lease for an amount equal to the future lease payments. Our right-of-use operating lease assets also include any lease prepayments made and exclude lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
Foreign Currency Translation. The functional currency for most of our foreign subsidiaries is the applicable local currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect as of the balance sheet date, and the resulting translation adjustments are recognized, net of tax, in accumulated other comprehensive income (loss) as a component of shareholders' equity. All foreign currency transaction gains and losses are recognized currently in the Consolidated Statements of Operations. We recorded $2.2 million and $0.3 million of foreign currency transaction gains (losses) in the three-month periods ended March 31, 2024 and 2023, respectively, resulting from foreign currency fluctuations in multiple countries. Those amounts are included as a component of other income (expense), net in our Consolidated Statement of Operations.
2. ACCOUNTING STANDARDS UPDATE
Recently Issued Accounting Standards. In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“Topic 280”), which requires enhanced disclosures about significant segment expenses. Under Topic 280, companies are required to disclose, on an annual and interim basis, any significant segment expense that is regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss. The title and position of the CODM must be disclosed plus an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Topic 280 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and must be applied retrospectively to all prior periods presented in the financial statements. We anticipate that Topic 280 will impact only our disclosures and therefore do not expect that Topic 280 will have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“Topic 740”), which applies to all entities subject to income taxes. Topic 740 requires disaggregated information about a reporting entity’s effective tax rate reconciliation, including percentages and amounts, as well as information on income taxes paid, net of refunds disaggregated by federal, state, local and foreign and by jurisdiction if the amount is 5% or more of total income tax payments, net of refunds. Topic 740 is effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. We anticipate that Topic 740 will impact only our disclosures and therefore, do not expect that Topic 740 will have a material impact on our consolidated financial statements.
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3. REVENUE
Revenue by Category
The following tables presents revenue disaggregated by business segment, geographical region, and timing of transfer of goods or services:
| Three Months Ended | ||||||||||||||||||||
| (in thousands) | Mar 31, 2024 | Mar 31, 2023 | ||||||||||||||||||
| Business Segment: | ||||||||||||||||||||
| Energy | ||||||||||||||||||||
| Subsea Robotics | $ | 186,932 | $ | 169,161 | ||||||||||||||||
| Manufactured Products | 129,453 | 112,939 | ||||||||||||||||||
| Offshore Projects Group | 115,054 | 104,307 | ||||||||||||||||||
| Integrity Management & Digital Solutions | 69,690 | 60,083 | ||||||||||||||||||
| Total Energy | 501,129 | 446,490 | ||||||||||||||||||
| Aerospace and Defense Technologies | 97,963 | 90,497 | ||||||||||||||||||
| Total | $ | 599,092 | $ | 536,987 | ||||||||||||||||
| Geographic Operating Areas: | ||||||||||||||||||||
| Foreign: | ||||||||||||||||||||
| Africa | $ | 87,239 | $ | 83,728 | ||||||||||||||||
| Norway | 57,724 | 44,940 | ||||||||||||||||||
| Brazil | 57,052 | 40,615 | ||||||||||||||||||
| United Kingdom | 50,199 | 40,365 | ||||||||||||||||||
| Asia and Australia | 49,384 | 52,894 | ||||||||||||||||||
| Other | 34,887 | 25,173 | ||||||||||||||||||
| Total Foreign | 336,485 | 287,715 | ||||||||||||||||||
| United States | 262,607 | 249,272 | ||||||||||||||||||
| Total | $ | 599,092 | $ | 536,987 | ||||||||||||||||
| Timing of Transfer of Goods or Services: | ||||||||||||||||||||
| Revenue recognized over time | $ | 551,850 | $ | 495,484 | ||||||||||||||||
| Revenue recognized at a point in time | 47,242 | 41,503 | ||||||||||||||||||
| Total | $ | 599,092 | $ | 536,987 | ||||||||||||||||
Contract Balances
Our contracts with milestone payments have, in the aggregate, a significant impact on the contract asset and the contract liability balances. Milestones are contractually agreed with customers and relate to significant events across the contract lives. Some milestones are achieved before revenue is recognized, resulting in a contract liability, while other milestones are achieved after revenue is recognized, resulting in a contract asset.
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The following table provides information about contract assets and contract liabilities from contracts with customers.
| Three months ended | ||||||||||||||
| (in thousands) | Mar 31, 2024 | Mar 31, 2023 | ||||||||||||
| Total contract assets, beginning of period | $ | 234,505 | $ | 184,847 | ||||||||||
| Revenue accrued | 528,958 | 499,501 | ||||||||||||
| Amounts billed | (570,208) | (473,933) | ||||||||||||
| Total contract assets, end of period | $ | 193,255 | $ | 210,415 | ||||||||||
| Total contract liabilities, beginning of period | $ | 164,631 | $ | 112,950 | ||||||||||
| Deferrals of milestone payments | 54,636 | 49,513 | ||||||||||||
| Recognition of revenue for goods and services | (69,117) | (39,766) | ||||||||||||
| Total contract liabilities, end of period | $ | 150,150 | $ | 122,697 | ||||||||||
Performance Obligations
As of March 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations that were unsatisfied (or partially unsatisfied) was $492 million. In arriving at this value, we have used two expedients available to us and are not disclosing amounts in relation to performance obligations: (1) that are part of contracts with an original expected duration of one year or less; or (2) on contracts where we recognize revenue in line with the billing. Of this amount, we expect to recognize revenue of $303 million over the next 12 months, $183 million within the next 24 months, $5.2 million within the next 36 months, and we expect to recognize substantially all of the remaining balance of $1.0 million within the next 48 months.
In our Manufactured Products and ADTech segments, we have long-term contracts that extend beyond one year, and these make up the majority of the performance obligations balance reported as of March 31, 2024. We also have shorter-term product contracts with an expected original duration of one year or less that have been excluded.
Where appropriate, we have made estimates within the transaction price of elements of variable consideration within the contracts and constrained those amounts to a level where we consider it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The amount of revenue recognized in the three months ended March 31, 2024 and 2023 that was associated with performance obligations completed or partially completed in prior periods was not significant.
As of March 31, 2024, there were no significant outstanding liability balances for refunds or returns due to the nature of our contracts and the services and products we provide. Our warranties are limited to assurance warranties that are of a standard length and are not considered to be material rights. The majority of our contracts consist of a single performance obligation. When there are multiple obligations, we look for observable evidence of stand-alone selling prices on which to base the allocation. This involves judgment as to the appropriateness of the observable evidence relating to the facts and circumstances of the contract. If we do not have observable evidence, we estimate stand-alone selling prices by taking a cost-plus-margin approach, using typical margins from the type of product or service, customer and regional geography involved.
Costs to Obtain or Fulfill a Contract
In line with the available practical expedient, we capitalize incremental costs to obtain a contract that would not have been incurred if the contract had not been obtained when those amounts are significant and the contract is expected at inception to exceed one year in duration. Our costs to obtain a contract primarily consist of bid and proposal costs, which are generally expensed in the period incurred. There were no balances or amortization of costs to obtain a contract in the current reporting periods.
Costs to fulfill a contract primarily consist of certain mobilization costs incurred to provide services or products to our customers. These costs are deferred and amortized over the period of contract performance. The closing balance of costs to fulfill a contract was $6.8 million and $7.8 million as of March 31, 2024 and December 31, 2023,
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respectively. For the three-month periods ended March 31, 2024 and 2023, we recorded amortization expense of $1.0 million and $1.2 million, respectively. No impairment costs were recognized.
4. INCOME TAXES
Our tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographical mix of our results. The effective tax rate for the three-month periods ended March 31, 2024 and 2023 was different than the U.S. federal statutory rate of 21%, primarily due to the geographical mix of revenue and earnings, changes in valuation allowances and uncertain tax positions, and other discrete items. We do not believe a comparison of the effective tax rate for the three-month periods ended March 31, 2024 and 2023 is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur material tax consequences upon the distribution of such earnings.
We conduct our international operations in jurisdictions that have varying laws and regulations regarding income and other taxes, some of which are subject to different interpretations. We recognize benefit for an uncertain tax position if it is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the uncertain tax position is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement.
We have accrued a net total of $27 million in other long-term liabilities on our consolidated balance sheet for worldwide unrecognized tax liabilities as of March 31, 2024 and December 31, 2023. We account for any applicable interest and penalties related to uncertain tax positions as a component of our provision for income taxes in our consolidated financial statements. Changes in our management's judgment related to those liabilities would affect our effective income tax rate in the periods of change.
Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to complete and settle. The following table lists the earliest tax years open to examination by tax authorities where we have significant operations:
| Jurisdiction | Periods | |||||||
| United States | 2014 | |||||||
| United Kingdom | 2021 | |||||||
| Norway | 2019 | |||||||
| Angola | 2015 | |||||||
| Brazil | 2018 | |||||||
| Australia | 2019 | |||||||
We have ongoing tax audits and judicial tax appeals in various jurisdictions. The outcome of these audits and judicial tax appeals may have an impact on uncertain tax positions for income tax returns subsequently filed in those jurisdictions.
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5. SELECTED BALANCE SHEET INFORMATION
The following is information regarding selected balance sheet accounts:
| (in thousands) | Mar 31, 2024 | Dec 31, 2023 | |||||||||||||||
| Inventory: | |||||||||||||||||
| Manufactured Products | $ | 105,712 | $ | 104,364 | |||||||||||||
| Subsea Robotics | 92,620 | 87,356 | |||||||||||||||
| Other inventory | 18,582 | 18,078 | |||||||||||||||
| Total | $ | 216,914 | $ | 209,798 | |||||||||||||
| Accrued liabilities: | |||||||||||||||||
| Payroll and related costs | $ | 137,671 | $ | 154,507 | |||||||||||||
| Current operating lease liability | 108,014 | 78,117 | |||||||||||||||
| Accrued job costs | 46,085 | 56,112 | |||||||||||||||
| Income taxes payable | 53,186 | 55,990 | |||||||||||||||
| Accrued interest | 4,917 | 12,667 | |||||||||||||||
| Other | 50,748 | 54,388 | |||||||||||||||
| Total | $ | 400,621 | $ | 411,781 | |||||||||||||
6. DEBT
Long-term debt consisted of the following:
| (in thousands) | Mar 31, 2024 | Dec 31, 2023 | |||||||||||||||
| 6.000% Senior Notes due 2028 | $ | 500,000 | $ | 500,000 | |||||||||||||
| Unamortized discount and debt issuance costs | (21,827) | (22,942) | |||||||||||||||
| Long-term debt | $ | 478,173 | $ | 477,058 | |||||||||||||
2028 Senior Notes. In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000% Senior Notes due 2028 (the “Existing 2028 Senior Notes”) and on October 2, 2023, we completed a private placement of $200 million aggregate principal amount of additional 2028 Senior Notes (the “New 2028 Senior Notes” and, together with the Existing 2028 Senior Notes, the “2028 Senior Notes”). The New 2028 Senior Notes constituted an additional issuance of the Existing 2028 Senior Notes and form a single series with such notes. We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028. The indentures governing our 2028 Senior Notes generally limit our ability to incur secured debt for borrowed money (such as borrowings under our revolving credit facility) to 15% of our Consolidated Net Tangible Assets (as defined in such indentures), and contain various other covenants and events of default. We may redeem some or all of the 2028 Senior Notes at specified redemption prices. In the three months ended March 31, 2024 and 2023, we did not repurchase or redeem any of the 2028 Senior Notes.
Revolving Credit Agreement. On April 8, 2022, we entered into a new senior secured revolving credit agreement with a group of banks (as amended by an Agreement and Amendment No. 1 to Credit Agreement, dated September 20, 2023, the “Revolving Credit Agreement”). The commitments under the Revolving Credit Agreement are scheduled to mature on April 8, 2027, or alternatively, if our Liquidity (as defined in the Revolving Credit Agreement) is less than $175 million on August 16, 2024, then on such date (which is 91 days prior to the maturity date of the 4.650% Senior Notes due 2024 (“2024 Senior Notes”) that were no longer outstanding as of November 2, 2023). The Revolving Credit Agreement includes a $215 million revolving credit facility (the “Revolving Credit Facility”) with a $100 million sublimit for the issuance of letters of credit. Our obligations under the Revolving Credit Agreement are guaranteed by certain of our wholly owned subsidiaries and are secured by first priority liens on certain of our assets and those of the guarantors, including, among other things, intellectual property, inventory, accounts receivable, equipment and equity interests in subsidiaries. As of March 31, 2024, we had no borrowings outstanding under the Revolving Credit Facility and no letters of credit outstanding under the Revolving Credit Agreement.
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On March 19, 2023, following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority (“FINMA”), Credit Suisse Group AG (“Credit Suisse”) and UBS Group AG (“UBS”) entered into a merger agreement with UBS as the surviving entity. As a result, UBS became a lender under the Revolving Credit Facility. In connection with the amendment of our Revolving Credit Facility in September 2023, Citibank, N.A. replaced UBS as a lender thereunder and assumed the underlying Credit Suisse commitments under the Revolving Credit Agreement.
We may borrow under the Revolving Credit Facility at either (1) a base rate, determined as the greatest of (A) the prime rate of Wells Fargo Bank, National Association, (B) the federal funds effective rate plus half of 1% and (C) Adjusted Term Secured Overnight Financing Rate (“SOFR”) (as defined in the Revolving Credit Agreement for a one-month tenor plus 1%, in each case plus the applicable margin, which varies from 1.25% to 2.25% depending on our Consolidated Net Leverage Ratio (as defined in the Revolving Credit Agreement), or (2) Adjusted Term SOFR plus the applicable margin, which varies from 2.25% to 3.25% depending on our Consolidated Net Leverage Ratio. We will also pay a facility fee based on the amount of the underlying commitment that is being utilized, which fee varies from 0.300% to 0.375%, depending on utilization of the Revolving Credit Facility less.
The Revolving Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted Consolidated Net Leverage Ratio was initially 4.00 to 1.00 and subsequently decreased to 3.25 to 1.00. As of March 31, 2024 and December 31, 2023, the maximum permitted Consolidated Net Leverage Ratio was 3.25 to 1.00 and will not change during the remaining term of the Revolving Credit Facility. The minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) is 3.00 to 1.00 throughout the term of the Revolving Credit Facility. Availability under the Revolving Credit Facility may be limited by these financial covenants and the requirement that any borrowing under the Revolving Credit Facility not require the granting of any liens to secure any senior notes issued by us. The indentures governing the 2028 Senior Notes generally limit our ability to incur secured debt for borrowed money (such as borrowings under the Revolving Credit Facility) to 15% of our Consolidated Net Tangible Assets (as defined in such indentures). As of March 31, 2024, the full $215 million was available to borrow under the Revolving Credit Facility. In addition, the Revolving Credit Agreement contains various covenants that we believe are customary for agreements of this nature, including, but not limited to, restrictions on our ability and the ability of each of our subsidiaries to incur debt, grant liens, make certain investments, make distributions, merge or consolidate, sell assets and enter into certain restrictive agreements. As of March 31, 2024, we were in compliance with all of the covenants set forth in the Revolving Credit Agreement.
Debt Issuance Costs, Discounts and Interest. We incurred $7.1 million of issuance costs related to the 2028 Senior Notes and $4.0 million of loan costs related to the Revolving Credit Agreement. These costs, net of accumulated amortization, are included as a reduction of long-term debt in our Consolidated Balance Sheets, as they pertain to the 2028 Senior Notes, and in other noncurrent assets, as they pertain to the Revolving Credit Agreement. We are amortizing these costs to interest expense through the respective maturity dates for the 2028 Senior Notes and the Revolving Credit Agreement using the straight-line method, which approximates the effective interest rate method. In the three-month periods ended March 31, 2024 and 2023, we amortized $0.5 million and $0.3 million, respectively, to interest expense.
We recorded a discount of $20 million related to the 2028 Senior Notes issued in October 2023. This cost, net of accumulated amortization, is included as a reduction of long-term debt in our Consolidated Balance Sheets and is being amortized to interest expense through the maturity date of the 2028 Senior Notes using the straight-line method, which approximates the effective interest rate method. In the three month period ended March 31, 2024, we amortized $1.0 million to interest expense.
7. COMMITMENTS AND CONTINGENCIES
Litigation. In the ordinary course of business, we are, from time to time, involved in litigation or subject to disputes, governmental investigations or claims related to our business activities, including, among other things:
•performance- or warranty-related matters under our customer and supplier contracts and other business arrangements; and
•workers’ compensation claims, Jones Act claims, occupational hazard claims, premises liability claims and other claims.
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Although we cannot predict the ultimate outcome of these matters, we believe that our ultimate liability, if any, that may result from these other actions and claims will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, because of the inherent uncertainty of litigation and other dispute resolution proceedings and, in some cases, the availability and amount of potentially available insurance, we can provide no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material effect on our consolidated financial condition, results of operations or cash flows for the fiscal period in which that resolution occurs.
Financial Instruments and Risk Concentration. In the normal course of business, we manage risks associated with foreign exchange rates and interest rates through a variety of strategies, including the use of hedging transactions. As a matter of policy, we do not use derivative instruments unless we have an underlying exposure. Other financial instruments that potentially subject us to concentrations of credit risk are principally cash and cash equivalents and accounts receivable.
The carrying values of cash and cash equivalents approximate their fair values due to the short-term maturity of the underlying instruments. Accounts receivable are generated from a broad group of customers, primarily from the energy industry and the U.S. government, which are major sources of our revenue. Due to their short-term nature, carrying values of our accounts receivable and accounts payable approximate fair market values.
We estimated the aggregate fair market value of the 2028 Senior Notes to be $491 million as of March 31, 2024, based on quoted prices. Since the market for the 2028 Senior Notes is not an active market, the fair value of the 2028 Senior Notes is classified within Level 2 in the fair value hierarchy under U.S. GAAP (inputs other than quoted prices in active markets for similar assets and liabilities that are observable or can be corroborated by observable market data for substantially the full terms for the assets or liabilities).
In the three-month period ended June 30, 2021, we were notified by a customer in our Manufactured Products segment that it was suspending a contract that was substantially complete. Specific to this contract, we billed and received $6.0 million of accounts receivable in the first quarter of 2024. As of March 31, 2024, we had outstanding contract assets of approximately $1.3 million for the contract and contract liabilities of $6.3 million prepaid for storage of components. As of December 31, 2023, we had outstanding contract assets of approximately $1.3 million for the contract and contract liabilities of $3.4 million prepaid for storage of components. We are in discussions with the customer concerning the timing of remaining payments. We continue to believe that we will realize these contract assets at their book values, although we can provide no assurance as to the timing of receipt of the remaining payments.
8. EARNINGS (LOSS) PER SHARE, SHARE-BASED COMPENSATION AND SHARE REPURCHASE PLAN
Earnings (Loss) per Share. For each period presented, the only difference between our calculated weighted-average basic and diluted number of shares outstanding is the effect of outstanding restricted stock units. In periods where we have a net loss, the effect of our outstanding restricted stock units is anti-dilutive, and therefore does not increase our diluted shares outstanding.
For each period presented, our net income (loss) allocable to both common shareholders and diluted common shareholders is the same as our net income (loss) in our consolidated statements of operations.
Share-Based Compensation. Annually, our Compensation Committee grants restricted units of our common stock to certain of our key executives and employees and restricted common stock to our nonemployee directors. The restricted stock units granted to our key executives and key employees generally vest in full on the third anniversary of the award date, conditional on continued employment through such vesting date. The remainder of the grants made to employees can vest pro rata over three years, provided the individual meets certain age and years-of-service requirements. For the grants of restricted stock units to each of the participant employees, the participant will be issued one share of our common stock for each of the participant's vested restricted stock units at the earlier of three years or, if the participant vested earlier after meeting the age and service requirements, following termination of employment or service. The grants of restricted stock to our nonemployee directors generally vest in full on the first anniversary of the award date, conditional upon continued service as a director, except for the 2023 grant to one director who retired from our board of directors as of the date of our annual meeting of shareholders in May 2023, which vested on that date. Each grantee of shares of restricted stock is deemed to be the record owner
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of those shares during the restriction period, with the right to vote and receive any dividends on those shares. The restricted stock units outstanding have no voting or dividend rights.
For each of the restricted stock units granted in 2022 through March 31, 2024, at the earlier of three years after grant or at termination of employment or service, the grantee will be issued one share of our common stock for each unit vested. As of March 31, 2024 and December 31, 2023, respective totals of 2,002,168 and 2,285,310 shares of restricted stock and restricted stock units were outstanding.
We estimate that share-based compensation cost not yet recognized related to shares of restricted stock or restricted stock units, based on their grant-date fair values, was $21 million as of March 31, 2024. This expense is being recognized on a graded-vesting basis over three years for awards attributable to individuals meeting certain age and years-of-service requirements, and on a straight-line basis over the applicable vesting period of one or three years for the other awards.
Share Repurchase Plan. In December 2014, our Board of Directors approved a share repurchase program under which we may repurchase up to 10 million shares of our common stock on a discretionary basis. Under the program, which has no expiration date, we had repurchased 2.0 million shares for $100 million through December 31, 2015. We have not repurchased any shares under this plan since 2015 and are not obligated to make any future repurchases. We account for the shares we hold in treasury under the cost method, at average cost.
9. BUSINESS SEGMENT INFORMATION
We are a global technology company delivering engineered services and products and robotic solutions to the offshore energy, defense, aerospace, manufacturing and entertainment industries.
Our Energy business leverages our asset base and capabilities for providing services and products for offshore energy operations, inclusive of the offshore renewable energy market. Our Energy segments are:
•Subsea Robotics—Our Subsea Robotics segment provides the following:
◦Remotely operated vehicles (“ROVs”) for drill support and vessel-based services, including subsea hardware installation, construction, pipeline inspection, survey and facilities inspection, maintenance and repair;
◦ROV tooling; and
◦survey services, including hydrographic survey and positioning services and autonomous underwater vehicles for geoscience.
•Manufactured Products—Our Manufactured Products segment provides the following:
◦distribution and connection systems including production control umbilicals and field development hardware and pipeline connection and repair systems to the energy industry; and
◦autonomous mobile robotic technology and entertainment systems to a variety of industries.
•Offshore Projects Group—Our OPG segment provides the following:
◦subsea installation and intervention, including riserless light well intervention services, inspection, maintenance and repair (“IMR”) services, principally in the U.S. Gulf of Mexico and offshore Angola, utilizing owned and charter vessels;
◦installation and workover control systems and ROV workover control systems;
◦diving services;
◦project management and engineering; and
◦drill pipe riser services and systems and wellhead load relief solutions.
•Integrity Management & Digital Solutions—Our Integrity Management & Digital Solutions (“IMDS”) segment provides the following:
◦asset integrity management services;
◦software and analytical solutions for the bulk cargo maritime industry; and
◦software, digital and connectivity solutions for the energy industry.
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Our Aerospace and Defense Technologies segment provides services and products, including engineering and related manufacturing in defense and space exploration activities, principally to U.S. Government agencies and their prime contractors.
Unallocated Expenses are those not associated with a specific business segment. These consist of expenses related to our incentive and deferred compensation plans, including restricted stock and bonuses, as well as other general expenses, including corporate administrative expenses.
There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from
those used in our consolidated financial statements for the year ended December 31, 2023.
The table that follows presents revenue, income (loss) from operations and depreciation and amortization expense, by business segment:
| Three Months Ended | ||||||||||||||
| (in thousands) | Mar 31, 2024 | Mar 31, 2023 | ||||||||||||
| Revenue | ||||||||||||||
| Energy | ||||||||||||||
| Subsea Robotics | $ | 186,932 | $ | 169,161 | ||||||||||
| Manufactured Products | 129,453 | 112,939 | ||||||||||||
| Offshore Projects Group | 115,054 | 104,307 | ||||||||||||
| Integrity Management & Digital Solutions | 69,690 | 60,083 | ||||||||||||
| Total Energy | 501,129 | 446,490 | ||||||||||||
| Aerospace and Defense Technologies | 97,963 | 90,497 | ||||||||||||
| Total | $ | 599,092 | $ | 536,987 | ||||||||||
| Income (Loss) from Operations | ||||||||||||||
| Energy | ||||||||||||||
| Subsea Robotics | $ | 44,237 | $ | 33,654 | ||||||||||
| Manufactured Products | 13,190 | 11,280 | ||||||||||||
| Offshore Projects Group | 844 | 5,514 | ||||||||||||
| Integrity Management & Digital Solutions | 3,615 | 3,082 | ||||||||||||
| Total Energy | 61,886 | 53,530 | ||||||||||||
| Aerospace and Defense Technologies | 12,808 | 8,496 | ||||||||||||
| Unallocated Expenses | (38,001) | (35,276) | ||||||||||||
| Total | $ | 36,693 | $ | 26,750 | ||||||||||
| Depreciation and Amortization | ||||||||||||||
| Energy | ||||||||||||||
| Subsea Robotics | $ | 12,810 | $ | 14,940 | ||||||||||
| Manufactured Products | 3,175 | 3,044 | ||||||||||||
| Offshore Projects Group | 6,435 | 7,128 | ||||||||||||
| Integrity Management & Digital Solutions | 1,259 | 858 | ||||||||||||
| Total Energy | 23,679 | 25,970 | ||||||||||||
| Aerospace and Defense Technologies | 603 | 653 | ||||||||||||
| Unallocated Expenses | 2,776 | 1,198 | ||||||||||||
| Total | $ | 27,058 | $ | 27,821 | ||||||||||
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We determine Income (Loss) from Operations for each business segment before interest income or expense, other income (expense) and provision for income taxes. We do not consider an allocation of these items to be practical.
Depreciation and Amortization
Depreciation expense on property and equipment, reflected in Depreciation and Amortization, was $23 million and $26 million in the three-month periods ended March 31, 2024 and 2023, respectively.
Amortization expense on long-lived intangible assets, debt issuance costs and debt discount reflected in Depreciation and Amortization, was $3.7 million and $1.7 million in the three-month periods ended March 31, 2024 and 2023, respectively.
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain statements we make in this quarterly report on Form 10-Q are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our expectations about:
•increased costs to operate our business, including the availability and market for our chartered vessels;
•future demand, order intake and business activity levels;
•the collectability of accounts receivable and realizability of contract assets at the amounts reflected on our most-recent balance sheet;
•the backlog of our Manufactured Products segment, to the extent backlog may be an indicator of future revenue or productivity;
•tax refunds and the expected timing thereof;
•our tax payments and projected capital expenditures for 2024;
•the adequacy of our liquidity, cash flows and capital resources to support our operations and internally generated growth initiatives;
•transactions we may engage in to manage our outstanding debt prior to maturity;
•shares that may be repurchased under our share repurchase plan;
•seasonality; and
•industry conditions.
These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the headings “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” in Part I of our annual report on Form 10-K for the year ended December 31, 2023. Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to have been correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.
The following discussion should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in our annual report on Form 10-K for the year ended December 31, 2023.
Overview of our Results
Our diluted earnings (loss) per share for the three-month period ended March 31, 2024 were $0.15, as compared to $0.43 in the immediately preceding quarter and $0.04 for the corresponding period of the prior year. Our operating results for the three months ended March 31, 2024, reflected better-than-expected activity levels across our businesses. Consolidated first quarter 2024 revenue and operating results were lower as compared to the fourth quarter of 2023, primarily due to lower seasonal activity in our Subsea Robotics and Offshore Projects Group (“OPG”) segments along with drydock expenses incurred during the first quarter of 2024 in our OPG segment. Our fourth quarter 2023 diluted earnings (loss) per share also benefited from the partial release of valuation allowances for the deferred tax assets that we believe are more likely than not to be realized. Consolidated first quarter 2024 operating results improved by 37% on a 12% increase in revenue as compared to the first quarter of 2023, with higher revenue in all of our business segments and improved operating income in each segment except for our OPG segment.
Consistent with recent years, our cash balance declined during the first quarter of 2024. We utilized $70 million of cash in operating activities along with $13 million of cash for maintenance capital expenditures and $13 million for growth capital expenditures in the first quarter of 2024. These items were the largest contributors to our $107 million cash reduction during the first quarter of 2024.
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Change in Periods Presented
Previously, we have presented our results of operations for the most recent quarter on a sequential comparative basis in our Management’s Discussion and Analysis of Financial Condition and Results of Operations. However, given the seasonal nature of our business, we believe that a comparison to the corresponding quarter for the preceding fiscal year is more appropriate and, as such, we believe it provides a more useful comparison for our shareholders. Accordingly, we have changed the form of presentation herein to compare the results of operations for the most recent quarter to the corresponding quarter for the preceding fiscal year. In accordance with the requirements of Form 10-Q, for this quarter we have provided both comparisons below.
Results of Operations
We operate in five business segments. Our segments are contained within two businesses—services and products provided primarily to the oil and gas industry, and to a lesser extent, the mobility solutions and offshore renewables industries, among others (“Energy”), and services and products provided to non-energy industries (Aerospace and Defense Technologies (“ADTech”)). Our four business segments within the Energy business are Subsea Robotics, Manufactured Products, OPG and Integrity Management & Digital Solutions (“IMDS”). We report our ADTech business as one segment. Our Unallocated Expenses are those not associated with a specific business segment.
Consolidated revenue and profitability information are as follows:
| Three Months Ended | |||||||||||||||||||||||
| (dollars in thousands) | Mar 31, 2024 | Mar 31, 2023 | Dec 31, 2023 | ||||||||||||||||||||
| Revenue | $ | 599,092 | $ | 536,987 | $ | 654,629 | |||||||||||||||||
| Gross Margin | 92,384 | 77,565 | 105,629 | ||||||||||||||||||||
| Gross Margin % | 15 | % | 14 | % | 16 | % | |||||||||||||||||
| Operating Income (Loss) | 36,693 | 26,750 | 47,450 | ||||||||||||||||||||
| Operating Income (Loss) % | 6 | % | 5 | % | 7 | % | |||||||||||||||||
We generate a material amount of our consolidated revenue from contracts for services in the United States (“U.S.”) Gulf of Mexico in our OPG segment, which is usually more active in the second and third quarters, as compared to the rest of the year. Revenue in our Subsea Robotics segment is subject to seasonal variations in demand, with our first quarter generally being the low quarter of the year. The level of our Subsea Robotics seasonality depends on the number of remotely operated vehicles (“ROV”s) we have engaged in vessel-based subsea infrastructure inspection, maintenance, repair and installation, which is more seasonal than drilling support. Revenue in each of our Manufactured Products, IMDS and ADTech segments generally has not been seasonal.
Energy
The primary focus of our Energy business is toward maintaining the positive momentum from our operational efficiency programs that leverage our asset base and capabilities for providing services and products for offshore energy operations and subsea completions. These efforts continue to benefit us during the current upstream spending cycle that is consistent with the ongoing increase in global demand for energy. We also are focused on deploying our capabilities to grow business in mobile robotics, offshore wind installations, nuclear, and other clean energy solutions.
The table that follows sets out revenue and profitability for the business segments within our Energy business. In the Subsea Robotics section of the table that follows, “ROV days available” includes all days from the first day that a ROV is placed into service until the ROV is retired. All days in this period are considered available days, including periods when a ROV is undergoing maintenance or repairs. Our ROVs do not have scheduled maintenance or repair that requires significant time during which the ROVs are not available for utilization.
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| Three Months Ended | |||||||||||||||||||||||
(dollars in thousands) | Mar 31, 2024 | Mar 31, 2023 | Dec 31, 2023 | ||||||||||||||||||||
| Subsea Robotics | |||||||||||||||||||||||
| Revenue | $ | 186,932 | $ | 169,161 | $ | 199,505 | |||||||||||||||||
| Gross Margin | 56,776 | 44,631 | 64,085 | ||||||||||||||||||||
| Operating Income (Loss) | 44,237 | 33,654 | 50,594 | ||||||||||||||||||||
| Operating Income (Loss) % | 24 | % | 20 | % | 25 | % | |||||||||||||||||
| ROV Days Available | 22,750 | 22,500 | 23,000 | ||||||||||||||||||||
| ROV Days Utilized | 14,536 | 14,228 | 15,682 | ||||||||||||||||||||
| ROV Utilization | 64 | % | 63 | % | 68 | % | |||||||||||||||||
| Manufactured Products | |||||||||||||||||||||||
| Revenue | 129,453 | 112,939 | 132,994 | ||||||||||||||||||||
| Gross Margin | 22,461 | 19,754 | 13,923 | ||||||||||||||||||||
| Operating Income (Loss) | 13,190 | 11,280 | 5,435 | ||||||||||||||||||||
| Operating Income (Loss) % | 10 | % | 10 | % | 4 | % | |||||||||||||||||
| Backlog at End of Period | 597,000 | 446,000 | 622,000 | ||||||||||||||||||||
| Offshore Projects Group | |||||||||||||||||||||||
| Revenue | 115,054 | 104,307 | 161,239 | ||||||||||||||||||||
| Gross Margin | 8,968 | 13,024 | 26,269 | ||||||||||||||||||||
| Operating Income (Loss) | 844 | 5,514 | 15,155 | ||||||||||||||||||||
| Operating Income (Loss) % | 1 | % | 5 | % | 9 | % | |||||||||||||||||
| Integrity Management & Digital Solutions | |||||||||||||||||||||||
| Revenue | 69,690 | 60,083 | 65,977 | ||||||||||||||||||||
| Gross Margin | 9,896 | 8,849 | 9,914 | ||||||||||||||||||||
| Operating Income (Loss) | 3,615 | 3,082 | 3,205 | ||||||||||||||||||||
| Operating Income (Loss) % | 5 | % | 5 | % | 5 | % | |||||||||||||||||
| Total Energy | |||||||||||||||||||||||
| Revenue | $ | 501,129 | $ | 446,490 | $ | 559,715 | |||||||||||||||||
| Gross Margin | 98,101 | 86,258 | 114,191 | ||||||||||||||||||||
| Operating Income (Loss) | 61,886 | 53,530 | 74,389 | ||||||||||||||||||||
| Operating Income (Loss) % | 12 | % | 12 | % | 13 | % | |||||||||||||||||
Subsea Robotics. We believe we are the world's largest provider of ROV services and, generally, this business segment has been the largest contributor to our Energy business operating income. Our Subsea Robotics segment revenue reflects the utilization percentages, fleet sizes and average pricing in the respective periods. Our survey services business provides survey and positioning, and geoscience services. The following table presents revenue from ROV services as a percentage of total Subsea Robotics revenue:
| Three Months Ended | |||||||||||||||||||||||
| Mar 31, 2024 | Mar 31, 2023 | Dec 31, 2023 | |||||||||||||||||||||
| ROV | 78 | % | 77 | % | 76 | % | |||||||||||||||||
| Other | 22 | % | 23 | % | 24 | % | |||||||||||||||||
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During the first quarter of 2024, Subsea Robotics operating income and revenue decreased as compared to the immediately preceding quarter, primarily due to seasonal factors impacting our survey business and decreased ROV days on hire more than offsetting the improvements achieved in our average ROV revenue per day on hire.
During the first quarter of 2024, Subsea Robotics operating income increased on higher revenue as compared to the corresponding period of the prior year, primarily as a result of higher average revenue per day in 2024 along with an increase in days on hire and slight improvement in fleet utilization.
Fleet utilization was 64% in the three-month period ended March 31, 2024 as compared to 68% and 63% for the three-month periods ended December 31, 2023 and March 31, 2023, respectively. For the three-month period ended March 31, 2024, decreased available working days and lower seasonal activity resulted in a decrease in ROV days on hire when compared to the immediately preceding quarter, while increased available working days resulted in an increase in ROV days on hire when compared to the corresponding period in the prior year. Our ROV fleet use during the first quarter of 2024 was 66% in drill support and 34% in vessel-based activity, as compared to 63% in drill support and 37% in vessel-based activity in the fourth quarter of 2023 and 65% in drill support and 35% in vessel-based activity in the first quarter of 2023. For each of the periods presented, we had a fleet of 250 work-class ROVs.
Manufactured Products. Our Manufactured Products segment provides distribution systems such as production control umbilicals and connection systems made up of specialty subsea hardware, along with clamp connectors and subsea and topside control valves. We also provide turnkey solutions that include program management, engineering design, fabrication/assembly and installation of autonomous mobile robotic technology to industrial, manufacturing, healthcare, warehousing and commercial theme park markets.
Our Manufactured Products operating results in the first quarter of 2024 improved on lower revenue as compared to the immediately preceding quarter, primarily due to timing of the project mix and strong order intake in 2022 and 2023 leading to increased activity in 2024.
Our Manufactured Products operating results in the first quarter of 2024 improved on higher revenue as compared to the corresponding period in the prior year primarily due to strong order intake in 2022 and 2023 leading to increased activity in 2024.
Our Manufactured Products backlog was $597 million as of March 31, 2024 compared to $622 million and $446 million as of December 31, 2023 and March 31, 2023, respectively. Our book-to-bill ratio was 1.30 for the trailing 12 months ended March 31, 2024, as compared to 1.31 for the year ended December 31, 2023 and 1.27 for the trailing 12 months ended March 31, 2023.
Offshore Projects Group. Our OPG segment provides a broad portfolio of integrated subsea project capabilities and solutions as follows:
•subsea installation and intervention, including riserless light well intervention (“RLWI”) services, inspection, maintenance and repair (“IMR”) services, principally in the U.S. Gulf of Mexico and offshore Angola, utilizing owned and chartered vessels;
•installation and workover control systems (“IWOCS”) and ROV workover control systems (“RWOCS”);
•diving services;
•decommissioning services;
•project management and engineering; and
•drill pipe riser services and systems and wellhead load relief solutions.
Our OPG operating results declined significantly in the first quarter of 2024 as compared to the immediately preceding quarter, on decreased revenue primarily due to drydock expenses incurred during the first quarter of 2024 and lower seasonal activity.
Our OPG operating results declined in the first quarter of 2024 as compared to the corresponding period of the prior year, despite higher revenue resulting from increased activity levels in the U.S. and Africa. In the first quarter 2024,
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operating results decreased as compared to the corresponding period of the prior year primarily due to drydock expenses incurred during the first quarter of 2024 along with changes in the project mix.
Integrity Management & Digital Solutions. Our IMDS segment provides asset integrity management, corrosion management, inspection and nondestructive testing services, principally to customers in the oil and gas, power generation and petrochemical industries. We perform these services on both onshore and offshore facilities, both topside and subsea. We also provide software, digital and connectivity solutions for the energy industry and software and analytical solutions for the bulk cargo maritime industry.
Our IMDS operating results for the first quarter of 2024 were slightly improved on increased revenue, as compared to the immediately preceding quarter, primarily due to higher demand in our integrity management business.
Our IMDS operating results for the first quarter of 2024 were higher on increased revenue, as compared to the corresponding period of the prior year. In the first quarter of 2024, our integrity management business had increased revenue and operating results while our maritime and energy businesses were relatively flat when compared to the first quarter of 2023.
Aerospace and Defense Technologies. Our ADTech segment provides government services and products, including engineering and related manufacturing in defense and space exploration activities, principally to U.S. government agencies and their prime contractors. Many of the services and products utilized in ADTech are applied technologies based on our core competencies and knowledge derived from decades of working in the offshore markets and solving complex problems in harsh environments.
Revenue, gross margin and operating income (loss) information for our ADTech segment are as follows:
| Three Months Ended | |||||||||||||||||||||||
| (dollars in thousands) | Mar 31, 2024 | Mar 31, 2023 | Dec 31, 2023 | ||||||||||||||||||||
| Revenue | $ | 97,963 | $ | 90,497 | $ | 94,914 | |||||||||||||||||
| Gross Margin | 18,803 | 15,100 | 17,350 | ||||||||||||||||||||
| Operating Income (Loss) | 12,808 | 8,496 | 11,010 | ||||||||||||||||||||
| Operating Income (Loss) % | 13 | % | 9 | % | 12 | % | |||||||||||||||||
Our ADTech segment operating results and revenue for the first quarter of 2024 improved as compared to the immediately preceding quarter, primarily due to increased activity and margins in our defense subsea technologies business.
Our ADTech segment operating results and revenue for the first quarter of 2024 improved as compared to the corresponding period of the prior year primarily due to increased activity and margins in our defense subsea technologies business.
Unallocated Expenses
Our Unallocated Expenses (i.e., those not associated with a specific business segment) within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock units, performance units and bonuses, as well as other general expenses. Our Unallocated Expenses within operating expenses consist of those expenses within gross margin plus general and administrative expenses related to corporate functions.
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The following table sets forth our Unallocated Expenses for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||
(dollars in thousands) | Mar 31, 2024 | Mar 31, 2023 | Dec 31, 2023 | ||||||||||||||||||||
| Gross margin expenses | $ | (24,520) | $ | (23,793) | (25,912) | ||||||||||||||||||
| % of revenue | 4 | % | 4 | % | 4 | % | |||||||||||||||||
| Operating expenses | (38,001) | (35,276) | (37,949) | ||||||||||||||||||||
| Operating expenses % of revenue | 6 | % | 7 | % | 6 | % | |||||||||||||||||
Our unallocated operating expenses for the first quarter of 2024 were relatively flat as compared to the immediately preceding quarter.
Our unallocated operating expenses for the first quarter of 2024 were higher as compared to the corresponding period of the prior year primarily due to higher information technology costs.
Other
The following table sets forth our significant financial statement items below the income (loss) from operations line:
| Three Months Ended | |||||||||||||||||||||||
| (in thousands) | Mar 31, 2024 | Mar 31, 2023 | Dec 31, 2023 | ||||||||||||||||||||
| Interest income | $ | 3,040 | $ | 4,466 | $ | 3,081 | |||||||||||||||||
| Interest expense | (9,204) | (9,283) | (7,921) | ||||||||||||||||||||
| Equity in income (losses) of unconsolidated affiliates | 169 | 639 | 445 | ||||||||||||||||||||
| Other income (expense), net | 1,480 | 78 | 3,564 | ||||||||||||||||||||
| Provision (benefit) for income taxes | 17,043 | 18,590 | 2,090 | ||||||||||||||||||||
Interest income for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 decreased primarily due to lower cash balances.
In addition to interest on borrowings, interest expense includes amortization of loan costs and interest rate swap settlements, fees for lender commitments under our senior secured revolving credit agreement and fees for standby letters of credit and bank guarantees that banks issue on our behalf for performance bonds, bid bonds and self-insurance requirements. Interest expense for the three months ended March 31, 2024 as compared to the immediately preceding quarter was higher primarily due to the $2.7 million write-off of the interest rate swap settlement gains associated with the retirement of our 4.650% Senior Notes due 2024 in the fourth quarter of 2023.
Foreign currency transaction gains and losses are the principal component of other income (expense), net. In the three-month periods ended March 31, 2024 and 2023, we incurred foreign currency transaction gains (losses) of $2.2 million and $0.3 million, respectively, primarily resulting from foreign currency fluctuations in multiple countries. We could incur further foreign currency exchange gains (losses) in countries where we operate due to foreign currency exchange fluctuations.
Our tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographical mix of our results. The effective tax rate for the three-month periods ended March 31, 2024 and 2023 was different than the U.S. federal statutory rate of 21%, primarily due to the geographical mix of revenue and earnings, changes in valuation allowances and uncertain tax positions, and other discrete items. We do not believe a comparison of the effective tax rate for the three-month periods ended March 31, 2024 and 2023 is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur material tax consequences upon the distribution of such earnings.
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During the twelve-month period ended December 31, 2023, we received refunds of $23 million under the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), including interest of $1.7 million which was recorded as a tax benefit.
Our income tax payments for the full year of 2024 are estimated to be in the range of $80 million to $90 million, which includes taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations.
Liquidity and Capital Resources
We consider our liquidity and capital resources adequate to support our operations, capital commitments and strategic growth initiatives. Our ability to generate substantial cash flow over the last several years has allowed us to reduce our long-term debt while maintaining a strong liquidity position. As of March 31, 2024, we had working capital of $534 million, including cash and cash equivalents of $355 million. Additionally, as of March 31, 2024, we had $215 million of unused commitments through our senior secured revolving credit agreement that we entered into in April 2022 (as amended by an Agreement and Amendment No. 1 to Credit Agreement, dated September 20, 2023, the “Revolving Credit Agreement”). Availability under the $215 million revolving credit facility (“Revolving Credit Facility”) may be limited by certain financial covenants and the requirement that any borrowing under the Revolving Credit Facility not require the granting of any liens to secure any senior notes issued by us. The indentures governing the 2028 Senior Notes generally limit our ability to incur secured debt for borrowed money (such as borrowings under the Revolving Credit Facility) to 15% of our Consolidated Net Tangible Assets (as defined in such indentures).
Our nearest maturity of indebtedness is $500 million of our 2028 Senior Notes. From time to time, we may engage in certain transactions in order to manage our outstanding debt prior to maturity, including by engaging in repurchases via open-market or privately negotiated transactions, redemptions, exchanges, tender offers or otherwise. We can provide no assurances as to the timing of any such repurchases or whether we will complete any such repurchases at all. We do not intend to disclose further information regarding any such repurchase transactions, except to the extent required in our subsequent periodic filings on Forms 10-K or 10-Q, or unless otherwise required by applicable law.
Cash flows for the three months ended March 31, 2024 and 2023 are summarized as follows:
| Three Months Ended | |||||||||||||||||
| (in thousands) | Mar 31, 2024 | Mar 31, 2023 | |||||||||||||||
| Changes in Cash: | |||||||||||||||||
| Net Cash Used in Operating Activities | $ | (69,717) | $ | (42,919) | |||||||||||||
| Net Cash Used in Investing Activities | (23,205) | (15,690) | |||||||||||||||
| Net Cash Used in Financing Activities | (7,456) | (4,936) | |||||||||||||||
| Effect of exchange rates on cash | (6,491) | (223) | |||||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | $ | (106,869) | $ | (63,768) | |||||||||||||
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Operating activities
Our primary sources and uses of cash flows from operating activities for the three months ended March 31, 2024 and 2023 are as follows:
| Three Months Ended | ||||||||||||||||||||
| (in thousands) | Mar 31, 2024 | Mar 31, 2023 | ||||||||||||||||||
| Cash Flows from Operating Activities: | ||||||||||||||||||||
| Net income (loss) | $ | 15,135 | $ | 4,060 | ||||||||||||||||
| Non-cash items, net | 29,740 | 27,633 | ||||||||||||||||||
| Accounts receivable and contract assets | (11,519) | (46,880) | ||||||||||||||||||
| Inventory | (7,116) | (13,235) | ||||||||||||||||||
| Current liabilities | (58,994) | 6,247 | ||||||||||||||||||
| Other changes | (36,963) | (20,744) | ||||||||||||||||||
| Net Cash Provided by (Used in) Operating Activities | $ | (69,717) | $ | (42,919) | ||||||||||||||||
The decrease in cash related to accounts receivable and contract assets in the three months ended March 31, 2024 reflects the timing of project milestones and customer payments. The decrease in cash related to inventory in the three months ended March 31, 2024 was primarily due to higher activity and related increases in our Subsea Robotics and Manufactured Products inventory. The decrease in cash related to current liabilities in the three months ended March 31, 2024 reflects the timing of vendor payments and payout of incentive compensation accruals.
Investing activities
Our capital expenditures of $26 million were higher during the first three months of 2024, as compared to $18 million in the first three months of 2023, primarily due to increased capital expenditures in 2024 in our Subsea Robotics segment for ROV upgrades and replacements and in our Manufactured Products segment related to our autonomous mobile robotic technology business.
In 2024, we expect our organic capital expenditures to total between $110 million to $130 million, exclusive of business acquisitions, which we expect to fund using our available cash.
We have several deepwater vessels under a mix of short-term charters where we can see firm workload and spot charters as market opportunities arise. During the second quarter of 2023, we entered into three new long-term charters for deepwater vessels, two of which began in the third and fourth quarters of 2023 and the other that began in the first quarter of 2024. Additionally, we have three long-term charters that began in 2022. With the current market conditions, we may add additional chartered vessels throughout the year to align with our strategy that balances vessel cost, availability and capability to capture work. We expect to do this through the continued utilization of a mix of short-term, spot and long-term charters.
Financing activities
In the three months ended March 31, 2024 and 2023, we used $7.5 million and $4.9 million, respectively, of cash in financing activities primarily due to payment of tax withholding related to vesting of stock awards.
As of March 31, 2024, we had long-term debt in the principal amount of $500 million outstanding consisting of our 2028 Senior Notes. We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year, and the 2028 Senior Notes are scheduled to mature on February 1, 2028. In the three months ended March 31, 2024 and 2023, we did not repurchase or redeem any of the 2028 Senior Notes. For more on the 2028 Senior Notes, see Note 6—”Debt” in the Notes to Consolidated Financial Statements included in this quarterly report.
As of March 31, 2024, we had $215 million of unused commitments under our Revolving Credit Facility. As of March 31, 2024, we were in compliance with all of the financial covenants set for in the Revolving Credit Agreement. For more on our Revolving Credit Facility (including the financial covenants thereunder), see Note 6—”Debt” in the Notes to Consolidated Financial Statements included in this quarterly report.
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Share Repurchase Program. In December 2014, our Board of Directors approved a plan to repurchase up to 10 million shares of our common stock on a discretionary basis. Under this program, in 2015, we repurchased 2.0 million shares of our common stock for $100 million. We have not repurchased any shares under this plan since December 2015. We account for the shares we hold in treasury under the cost method, at average cost. The timing and amount of any future repurchases will be determined by our management. We expect that any additional shares repurchased under the plan will be held as treasury stock for possible future use. The plan does not obligate us to repurchase any particular number of shares.
Off-Balance Sheet Arrangements
We have not guaranteed any debt not reflected on our Consolidated Balance Sheets as of March 31, 2024, and we do not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission's rules.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. These principles require us to make various estimates, judgments and assumptions that affect the reported amounts in our financial statements and accompanying notes. We disclose our significant accounting policies in Notes to Consolidated Financial Statements—Note 1—“Summary of Significant Accounting Policies” in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2023, in Part II. Item 7. “Financial Statements and Supplementary Data—Note 1—Summary of Significant Accounting Policies.”
For information about our critical accounting policies and estimates, see Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our annual report on Form 10-K for the year ended December 31, 2023. As of March 31, 2024, there have been no material changes to the judgments, assumptions and estimates upon which our critical accounting policies and estimates are based.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks arising from transactions we enter into in the normal course of business. These risks relate to interest rate changes and fluctuations in foreign exchange rates. As of March 31, 2024, we do not believe these risks are material. However, with the expansion of our international operations, we could be exposed to additional market risks from fluctuations in foreign currency exchange rates in the future. We have not entered into any market-risk-sensitive instruments for speculative or trading purposes. When we have a significant amount of borrowings, we typically manage our exposure to interest rate changes using a combination of fixed- and floating-rate debt. See Note 6—“Debt” in the Notes to Consolidated Financial Statements included in this quarterly report for a description of our revolving credit agreement and interest rates on our borrowings. We believe significant interest rate changes would not have a material near-term impact on our future earnings or cash flows.
Because we operate in various regions in the world, we conduct a portion of our business in currencies other than the U.S. dollar. The functional currency for most of our international operations is the applicable local currency. A stronger U.S. dollar against the United Kingdom pound sterling, the Norwegian kroner and the Brazilian real could result in lower operating income. We manage our exposure to changes in foreign exchange rates by primarily denominating our contracts and providing for collections from our customers in U.S. dollars or freely convertible currency and endeavoring to match our contract costs with the denominated contractual currency. We use the exchange rates in effect as of the balance sheet date to translate assets and liabilities when the functional currency is the local currency, resulting in translation adjustments that we reflect as accumulated other comprehensive income or loss in the equity section of our Consolidated Balance Sheets. We recorded net adjustments to our equity accounts of $(16.0) million and $(1.9) million in the three-month periods ended March 31, 2024 and 2023, respectively. Negative adjustments reflect the net impact of the strengthening of the U.S. dollar against various foreign currencies for locations where the functional currency is not the U.S. dollar. Conversely, positive adjustments reflect the effect of a weakening U.S. dollar.
Foreign currency gains (losses) were $2.2 million and $0.3 million in the three-month periods ended March 31, 2024 and 2023, respectively. We recorded foreign currency transaction gains (losses) as a component of other income (expense), net in our Consolidated Statements of Operations in those respective periods.
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Item 4. Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2024 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.Legal Proceedings
For information regarding legal proceedings, see the discussion under the caption “Litigation” in Note 7—“Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in this report, which discussion we incorporate by reference into this Item.
Item 6. Exhibits
| Index to Exhibits | |||||||||||||||||||||||||||||||||||
| Registration or File Number | Form of Report | Report Date | Exhibit Number | ||||||||||||||||||||||||||||||||
| * | 3.01 | 1-10945 | 10-K | Dec. 2000 | 3.01 | ||||||||||||||||||||||||||||||
| * | 3.02 | 1-10945 | 8-K | May 2008 | 3.1 | ||||||||||||||||||||||||||||||
| * | 3.03 | 1-10945 | 8-K | May 2014 | 3.1 | ||||||||||||||||||||||||||||||
| * | 3.04 | 1-10945 | 8-K | Nov. 2022 | 3.01 | ||||||||||||||||||||||||||||||
10.01† | |||||||||||||||||||||||||||||||||||
| 31.01 | |||||||||||||||||||||||||||||||||||
| 31.02 | |||||||||||||||||||||||||||||||||||
| 32.01 | |||||||||||||||||||||||||||||||||||
| 32.02 | |||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||||||||||||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||||||||||||||||||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||||||||||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||||||||||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||||||||||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||||||||||||||||||||||||||
| * | Exhibit previously filed with the Securities and Exchange Commission, as indicated, and incorporated herein by reference. | ||||||||||||||||||||||||||||||||||
| † | Management contract or compensatory plan or arrangement. | ||||||||||||||||||||||||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| April 26, 2024 | /S/ RODERICK A. LARSON | |||||||
Date | Roderick A. Larson | |||||||
President and Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
| April 26, 2024 | /S/ ALAN R. CURTIS | |||||||
Date | Alan R. Curtis | |||||||
Senior Vice President and Chief Financial Officer | ||||||||
(Principal Financial Officer) | ||||||||
| April 26, 2024 | /S/ CATHERINE E. DUNN | |||||||
Date | Catherine E. Dunn | |||||||
Vice President and Chief Accounting Officer | ||||||||
(Principal Accounting Officer) | ||||||||
32