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Text: Joining us on the call today are Rod Larson, president and chief executive officer, who will be providing our prepared comments; and Alan Curtis, senior vice president and chief financial officer.
Our comments today also include non-GAAP financial measures.
We're pleased to be sharing our positive net income results and solid financial performance for the second quarter of 2021.
These results reflect a marked sequential increase in activity as four out of five of our operating segments delivered a revenue increase on average of more than 19%.
As announced yesterday, we are raising our EBITDA guidance range to 200 to $225 million for 2021.
And to avoid any doubt or confusion, we are not changing our free cash flow guidance.
The confidence in increasing our guidance range stems from our strong first-half 2021 financial performance, the increase in demand, energy demand as a result of the increasing number of COVID vaccinations allowing for an easing of restrictions.
The OPEC Plus production discipline yielding supportive commodity prices and the positive trend in the global economic recovery.
Confidence is returning to the energy services industry and especially to those companies that can help their customers with carbon reduction goals.
This, combined with an expected rebound in our mobility solutions businesses and continued growth in our government businesses underpin our general expectation for increased activity levels over the next several years.
Now I'll focus my comments on our performance for the second quarter of 2021, our current market outlook, Oceaneering's consolidated and business segment outlook for the third quarter of 2021, and Oceaneering's improved consolidated 2021 outlook, including a higher adjusted EBITDA guidance range, continued expectation to generate free cash flow in excess of 2020, and reducing our net debt position.
Now to our second-quarter summary results.
We were very pleased with our adjusted operating results.
For the quarter, we generated adjusted earnings before interest, taxes, depreciation, and amortization or adjusted EBITDA of $60.6 million, exceeding consensus estimates.
During the second quarter, we generated $50.5 million in cash from operating activities and used 12.6 million for maintenance and growth in capital expenditures resulting in free cash flow generation of $37.9 million.
In addition, during the quarter, we retired $30.5 million of our 2024 senior notes through open market repurchases.
In total, our cash position increased by $13.3 million, resulting in a cash balance of $456 million at the end of the second quarter.
Liquidity remains strong with no borrowings against our $500 million revolving credit facility and no loan maturities until November of 2024.
The positive operating results were attributable to a seasonally influenced 14% sequential growth in revenue, complemented by continued operating discipline and incremental efficiency gains.
As expected, compared to the first quarter of 2021, our energy segments in aggregate posted double-digit revenue growth and improved adjusted operating results in the second quarter.
Our Aerospace and Defense Technologies or ADTech segment delivered sequential growth and solid adjusted operating results.
Sequentially, consolidated adjusted operating results increased by $9.1 million with all of our operating segments generating positive adjusted operating results and EBITDA.
Now let's look at our business operations by segment for the second quarter of 2021.
Subsea Robotics or SSR, adjusted operating income improved on nearly 20% higher revenue.
Our SSR quarterly adjusted EBITDA margin of 31% was consistent with recent quarters as pricing remains stable.
Operating activity in our SSR segment resulted in sequentially higher ROV days and related tooling activity and higher survey activity.
The SSR revenue split was 80% from our remotely operated vehicles or ROV business and 20% from our combined tooling and survey businesses, compared to the 78-22 split, respectively, in the immediate prior quarter.
As we forecast sequential ROV days on hire increased on standard seasonality and recovering offshore activity.
With an increase in days for both drill support and vessel-based services, days on hire were 14,005, as compared to 11,887 during the first quarter.
Our fleet use was 58% in drill support and 42% in vessel-based services versus 64% and 36%, respectively, in the first quarter.
We maintained our fleet count at 250 ROV systems, and our second-quarter fleet utilization was 62%, up significantly from 53% in the first quarter.
During the second quarter, we retired five of our conventional world-class ROV systems and replace them with three upgraded conventional world-class systems and two Isurus world-class RV systems that are currently engaged in renewables work.
Average ROV revenue per day on hire of 8,056 was 2% higher than average ROV revenue per day on hire of $7,874 achieved during the first quarter.
At the end of June, we had ROV contracts on 73 of the 126 floating rigs under contract or 58% market share, which was flat with the quarter ending March 31st, 2021, when we had ROV contracts on 78 of the 105 floating rigs under contract.
Subject to quarterly variances, we continue to expect our drill support market share to generally approximate 60%.
Turning to manufactured products.
Sequentially, our second-quarter 2021 adjusted operating income line on lower segment revenue.
Adjusted operating income margin decreased to 1% in the second quarter from 4% in the first quarter of 2021 as lower revenue increased the ability to leverage our cost base.
Activity in our mobility solutions or nonenergy business remained muted during the second quarter of 2021.
Our manufactured products backlog on June 30th, 2021, was $315 million improving on our first-quarter backlog of $248 million.
Our book-to-bill ratio was 1.3 for the six months ended June 30th, 2021, and was 0.8 for the trailing 12 months.
Offshore projects group or OPG's second-quarter 2021 adjusted operating income declined as compared to the first quarter of 2021 despite a meaningful increase in revenue.
Revenue benefited from ongoing field activities in several projects in Angola and a seasonal increase in intervention, maintenance, and repair or IMR work in the Gulf of Mexico.
The sequential decline in adjusted operating income margin from 10% in the first quarter of 2021 to 7% in the second quarter of 2021 and was primarily due to unplanned downtime and related costs associated with the Angola riserless light well intervention project, which was partially offset by higher IMR activities in the Gulf of Mexico.
Integrity management and digital solutions or IMDS, sequential adjusted operating income was higher on a 19% increase in revenue, higher seasonal activity and the start-up of several new multiyear projects contributed to the revenue increase, continuing efficiency improvements, including utilization of field personnel resulted in adjusted operating income margin increasing to 7% in the second quarter of 2021 from 5% in the first quarter of 2021.
Our ADTech second-quarter 2021 adjusted operating income improved from the first quarter of 2021 on a 20% increase in revenue.
Adjusted operating income margin of 18% was better than forecast due to project mix and favorable rate base adjustments.
Adjusted unallocated expenses of $30.3 million was slightly lower sequentially due to lower expense accruals related to incentive-based compensation forfeitures.
Now I'll address our outlook for the third quarter of 2021.
We are projecting a decline in our consolidated adjusted operating results on moderately lower revenues with adjusted EBITDA in the range of 50 million to $55 million.
We expect commodity prices to support good activity levels in our energy segments, particularly for short-cycle work.
For the third quarter of 2021 as compared to the second quarter, we expect relatively flat adjusted operating profitability in our energy segments to be more than offset by lower than -- by lower ADTech adjusted operating results and higher unallocated expenses.
For our third-quarter 2021 operations by segment as compared to the second quarter of 2021, for SSR, we are projecting relatively flat activity and adjusted operating profitability in our ROV, survey and tooling businesses with similar ROV utilization as compared to the second quarter.
SSR adjusted EBITDA margin is anticipated to remain consistent with the prior several quarters.
For manufactured products, we anticipate relatively flat revenue and adjusted operating profitability.
Board activity continues to look encouraging in our energy products businesses.
However, activity continues to lag in our mobility solutions businesses.
For OPG, we forecast lower revenue and relatively flat adjusted operating results.
We expect the Gulf of Mexico IMR activity to remain at a relatively high seasonal level through the third quarter.
The riserless well intervention project and field support contract in Angola are expected to continue for a portion of the third quarter.
Our expectations for relatively flat adjusted operating results takes into account the above-described levels of activity and improved uptime as compared to the second quarter.
For IMDS, we expect both revenue and adjusted operating results to remain relatively consistent for the second quarter -- with the second quarter of 2021.
For ADTech, we forecast lower revenue and lower adjusted operating results due to a change in project mix as compared to the second quarter.
Unallocated expenses are expected to be in the mid-$30 million range due primarily to increased information technology infrastructure costs and normalized accruals for incentive-based compensation.
Directionally, for our full-year 2021 operations by segment as compared to 2020, for SSR, we expect adjusted operating results to improve on slightly higher revenue.
Our ROV days on hire are projected to remain relatively flat year-over-year with minor shifts in geographic mix.
Results for tooling-based services are expected to be flat with activity level generally following ROV days on hire.
Survey results are expected to improve on growing international activity.
SSR forecasted adjusted EBITDA margin is expected to remain relatively consistent with what we achieved in 2020.
For ROVs, we expect our 2021 service mix to remain about the same as the 2020 mix of 62% drill support and 38% vessel-based services with higher vessel-based percentages during the seasonally higher second and third quarters.
We estimate overall ROV fleet utilization to be in the mid- to high 50% range, again, with higher seasonal activity during the second and third quarters.
We continue to forecast that our market share for the drill support market will remain around 60% for the foreseeable future.
As of June 30th, 2021, there were approximately 28 Oceaneering ROVs onboard 37 drilling rigs with contract terms expiring by year-end.
During the same period, we expect 33 of our ROEs on 40 floating rigs to begin new contracts.
For manufactured products, we forecast lower operating results due to the long cycle nature of this business and reduced customer capital commitments during 2020.
Operating results in 2020 benefited from contracts awarded in 2019 that allowed for beneficial cost absorption through the year.
In 2021, we expected the improved order intake seen during the first half of the year will drive increased activity in the fourth quarter.
Our nonenergy mobility solutions businesses continue to see reduced activity and order intake, however, is building that we will see order intake improvement in 2022.
We forecast that our operating income margins will be in the low to mid-single-digit range for the year the segment book-to-bill ratio will be in the range of 1.1 to 1.5 for the full year.
OPG, we forecast a meaningful annual improvement in adjusted operating results on higher revenue.
Good vessel utilization is expected to continue through the third quarter with operators remaining active with IMR work in the Gulf of Mexico.
However, we also expect a typical seasonal decline in activity during the fourth quarter.
Our expectations for utilization are driven by the commodity pricing which remains supportive to short-cycle call-out work, which is the majority of the work performed in this segment.
Utilization of our vessels, both owned and chartered has improved to the point that may lead us to entering the spot charters on an as-needed basis this year.
For IMDS, we forecast improved operating results on higher revenue.
We expect second-half 2021 revenue to continue to benefit from incremental multiyear contracts that began during the first half of 2021.
We forecast that our adjusted operating income margin will continue to improve through the end of the year as we continue to drive more efficiency in this business.
Adjusted operating margins are expected to average in the high single-digit range for the year.
For ADTech, we expect to improve adjusted operating results on increased revenue with an annual adjusted operating margin approximately the same as that achieved in 2020.
We continue to see good growth opportunities in all three of our primary ADTech business lines, defense subsea technologies, vessel modification and repair services, and space systems.
Our estimated organic capital expenditure total for 2021 remains between 50 and $70 million.
This includes approximately 35 to $40 million of maintenance capital expenditures and 15 to $30 million of capital expenditures.
We forecast our 2021 income tax payments to be in the range of 40 to $45 million.
We continue to expect $28 million in Cares Act tax refunds.
However, the timing of receipt of these payments, whether in 2021 or 2022 is uncertain.
Unallocated expenses are expected to average in the mid-$30 million range per quarter for the second half of 2021.
Now turning to our balance sheet.
Our net debt position improved during the second quarter as we repurchased $30.5 million of our 2024 senior notes, and we're able to build our cash balance by $13.3 million.
We had $456 million of cash and cash equivalents at the end of the second quarter.
We continue to expect free cash flow generated in 2021 will be in the excess of that generated in 2020.
We are well positioned to address the maturity of our 2024 senior notes and will continue to be opportunistic and proactive as to how and when we will address the remainder of this pending maturity.
And as a reminder, we continue to have our $500 million undrawn revolver available to us until November of 2021 and $450 million available until January 2023.
In summary, based on our first-half financial performance and expectations for the second half of 2021, we are raising our adjusted EBITDA guidance to a range of 200 to $225 million for the full year.
This confidence, despite ongoing uncertainties associated with COVID-19 stems from our strong first-half 2021 performance, positive client interactions support of oil price expectations, and growing backlog.
This, combined with an expected rebound in our mobility solutions businesses and continued growth in our government businesses underpin our general expectation for increased activity levels over the next several years.
Our focus continues to be on generating positive free cash flow in 2021, retaining and attracting top talent, addressing our 2024 debt maturity, maintaining financial flexibility, and growing our businesses by leveraging our technologies and capabilities into new markets.
We appreciate everyone's continued interest in Oceaneering, and we'll now be happy to take any questions you might have.

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on a consolidated basis, we expect a sequential decline in q3 2021 results.

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