Oceaneering International, Inc. Q2 FY2025 earnings call

Team has consistently delivered against guidance. In the second quarter of 2025, all operating segments exceeded the midpoint of guidance, with ADTech improving due to work on recent contract awards. OPG successfully completed higher-margin well intervention and stimulation products in international locations, driving significant operating income increase and margin expansion. Manufactured Products improved by converting higher-margin backlog through manufacturing plants. The average Remotely Operated Vehicles (ROV) revenue per day inflected earlier than expected to $11,265. Discussed third quarter and full year 2025 outlooks, including consolidated revenue and EBITDA projections by segment, and full year guidance on revenue growth and adjusted EBITDA range.

In the second quarter of 2025, Subsea Robotics (SSR) saw earnings improve despite offshore activity concerns. SSR produced operating income of $64.5 million, a 4% improvement, with revenue increasing approximately 2% and EBITDA margin slightly expanding to 35%. The revenue split within SSR was 79% for the ROV business and 21% for the combined Tooling and Survey businesses. Manufactured Products had operating income of $18.8 million, a 31% year-over-year increase, with revenue growing 4% and operating income margin expanding by 262 basis points. The Offshore Projects Group (OPG) reported significantly improved operating income of $21.7 million, with revenue up 4% and operating income margin reaching 15%. Integrity Management and Digital Solutions (IMDS) saw improved operating income and margin with relatively flat revenue. Aerospace and Defense Technologies (ADTech) had operating income increase 125% to $16.3 million, with revenue up 13% and operating income margin expanding 15% compared to the second quarter of 2024.

For the third quarter of 2025, consolidated revenue and EBITDA are expected to increase, with consolidated EBITDA anticipated to be in the range of $100 million to $110 million. For the full year 2025, revenue is projected to grow in the mid-single-digit percentage range, and adjusted EBITDA is expected to be between $390 million and $420 million. SSR is forecasted to have higher revenue and operating results with EBITDA margin in the mid to upper 30% range. Manufactured Products is expected to have significantly improved operating results driven by increased revenue. OPG is projected to have a decline in operating results on relatively flat revenue. IMDS is forecasted to have significantly improved operating results on relatively flat revenue. ADTech is anticipated to have significant increases in both revenue and operating results.

Q: So we've heard about offshore rig white space from the offshore drillers for several quarters now. More recently, some of the larger diversified service companies have started to mention this as well, but this doesn't seem readily apparent in part of your business at this point. The place that would show up is, of course, your ROVs business, but pricing there continues to increase almost quarter after quarter. So all that to say, are you seeing any kind of impact to your business due to offshore rig white space? And if you haven't, do you expect to see it maybe later this year or do you think your business will emerge relatively unscathed from this?

A: No. Great question, Eddie. And I think your question and questions we get all the time is like people are looking for that other shoe to fall, right? When is it going to happen? I would say we do see some of that. We were expecting to get closer to that exiting the year with a 70% overall utilization for ROV. So we've seen some of it, as we talked about, getting to our pricing point sooner than we expected is offset some of that. So we see some of that. Maybe some of the offset is the increase in some of the abandonment activity, particularly in Europe. So there's some puts and takes in there that have leveled us off. But really, I mean, the thing to watch in the SSR business is going to be Survey. We set up to run 2 vessels. We've been running 1. We were hoping to get to 2, but we might not get to 2 in the Geoscience part of Survey. But other than that, I mean, ROVs, we've trimmed the sales a little bit, but it's kind of been within the range of expectations.

Q: Just following up on Eddie's question. I wanted to ask if that slightly lower full year ROV utilization outlook relates more to vessel support or rig support. And if you characterize that was a change in visibility for underlying activity or something else?

A: It's both. I mean we see it on both sides. So it's not just one or the other. So it's a little bit of both. And I would just say it is increased clarity and seeing what everybody's plans are going to be, especially in the fourth quarter. I mean that stuff is becoming more apparent now. So we're just being, I think, conservative to not overestimate what could come to be in the fourth quarter.

Q: Related around the ROV pricing outlook, is this mostly a function of contract rollover, maybe a little bit of FX? Or are we seeing -- is it too early to ask if we're seeing any benefit show up from maybe some performance-based deals?

A: I would say it's mostly the contracts. We don't -- it's not -- there's not a big FX effect, and there's not a big effect of the performance- based pricing yet. I mean those are things that are trued up later. So I would just say those are still in the mix, but it's mostly just that continued rollover of contracts.

Q: Free cash flow was kind of modest in the first half. So there's obviously a large ramp implied for the second half to meet the full year guide. Can you walk us through your visibility on that step up? Kind of what are the biggest contributors? How much of that improvement is already in motion or still dependent on execution?

A: Yes, I'll take this one, David. A lot of it is kind of how we've seen the last 4 or 5 years play out where Q1 is a pretty big cash draw for us. We rebound, generate positive cash in Q2. But really, it's been more of a Q3, Q4 story for us the last, I'll say, 4 to 5 years, and we're seeing that again this year. We do have line of sight to a good amount of it because it's sitting in receivables. So I think it's going and getting paid for the work we've performed and bringing that cash in, in Q3, Q4 time frame.

Q: First one I had was on the OPG business. To me, it sounds like there's more visibility today and work is getting booked more out into the future than there has been previously. And so first of all, is that accurate? And if so, maybe you could just discuss that dynamic today even in what's been a pretty volatile market.

A: I think, Josh, you're right. And it's a little bit of function of when -- I've always talked about these bigger chunks of business when we start to book like the BP Mauritania, those big international contracts really help our visibility a lot, and that creates that stable base. Call out the Gulf of Mexico, for the most part, there's still call-out work, but we're able to secure more given days.

Q: Second question, I just wanted to go back to comments you made surrounding the potential impact from the Big Beautiful Bill. You already had some pretty strong momentum around the business lines that could benefit from this. Maybe you could just dive in a little bit more to how you're thinking about that and positioning the company for what sounds like could be even more sizable growth over the next couple of years. Just some details around that would be helpful.

A: Sure. I think the OTECH side with the vehicle business is a big thing because that's always been -- it had bilateral support, a lot of things that U.S. has great defense supremacy around what happens under water, and they're very, very keen to maintain that. And we provide, obviously, a lot of services there. That's our wheelhouse. So I think that's a big part of it. But probably even more exciting is the way it affects the other 2 businesses. I mean, space was on the roads. They were really worried for a while, especially when Doji was in. And so a lot of the space business appear to be going the other way. But now we see things like Artemis going to the moon, those things actually being refunded. Just the phone started ringing immediately with people who wanted to kick off projects again. So we think space definitely is a good one. We talk about Thermal Protection Systems, which is good because that covers the full gamut, anything with a booster underneath it. But human space flight, which is one of the things that got, I think, rebolstered is great for us because we do suit work, we do human interface work, and that's a big one for us to see come back. So that's great. And then I'd also go to MSD. I mean, it sounds like fleet readiness, being able to keep our -- especially our submarines in our case ready to go. They will probably put as much money into submarine maintenance and repair and new build as the industry can take. So we are already thinking about how do we gear up to have more capacity to serve that market