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Welcome to Oceaneering International, Inc.'s First Quarter 2025 Earnings Conference Call. My name is Julianne, and I will be your conference operator. All lines have been placed on mute to prevent any background noise. There will be a question and answer period after the speakers' remarks. With that, I will now turn the call over to Hilary Frisbie, Oceaneering International, Inc.'s Senior Director of Investor Relations.

Thanks, Julianne. Good morning, and welcome to Oceaneering International, Inc.'s first quarter 2025 results conference call. Today's call is being webcast, and a replay will be available on Oceaneering International, Inc.'s website. Joining us on the call are Roderick Larson, President and Chief Executive Officer, who will be providing our prepared comments, and Alan Curtis, Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind participants that statements we make during this call regarding our future financial performance, business strategy, plans for future operations, and industry are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our first quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Roderick Larson.

Good morning, and thanks for joining the call today. As we announced in our earnings release yesterday, we outperformed expectations in the first quarter with strong results across our energy services and products. In particular, Subsea Robotics (SSR) demonstrated resilient utilization of remotely operated vehicles (ROVs), and Offshore Projects Group (OPG) achieved robust vessel activity, particularly in the Gulf of Mexico and West Africa. In addition, we were proud to announce that our Aerospace and Defense Technologies (AdTech) segment was awarded the largest initial contract value in the company's history, which is foundational to delivering significant year-over-year operating income growth in 2025. Looking ahead to the rest of the year, we remain confident in our outlook even with recent market uncertainties. Our confidence comes from our first quarter 2025 order intake of approximately $1.2 billion, our current backlog that has improved from the same time last year, the diversity of the geographies and end markets we serve, the optionality afforded by our strong balance sheet, and the commitment of Oceaneers worldwide, including our seasoned leadership team. Today, I'll focus my comments on our performance for the first quarter of 2025 and our consolidated and business segment outlook for the second quarter and full year of 2025. Now for the first quarter results. For the first quarter, we reported net income of $50.4 million, or $0.49 per share, a 233% year-over-year increase. Consolidated revenue of $675 million improved by 13% compared to our first quarter of 2024, with year-over-year revenue increases in all of our energy businesses. Compared to the first quarter of 2024, first quarter 2025 consolidated operating and our consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $96.7 million improved 57%. These results were largely driven by SSR and OPG. In SSR, year-over-year, we realized an 8% increase in average ROV revenue per day utilized, which coupled with a 4% increase in days utilized drove a 25% increase in the segment's EBITDA. In OPG, we had a favorable service mix, improved vessel activity levels, and lower drydock costs, which contributed to OPG's revenue increase of 43% and operating income increase by orders of magnitude. Now let's look at our business operations by segment for the first quarter of 2025 as compared to the first quarter of 2024. SSR operating income of $59.6 million was 35% higher on a 10% increase in revenue. EBITDA margin also improved year-over-year to 35% from 31%, reflecting ROV pricing progression and improved execution in our ROV and Tooling businesses. Average ROV revenue per day utilized increased to $10,788, fleet utilization improved to 67%, and days utilized increased to 15,093. ROV fleet used during the quarter was 62% in drill support and 38% in vessel-based activity, compared to 66% and 34% respectively in the first quarter of 2024. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 79% and 21% respectively. As of March 31, 2025, we had 60% of the contracted floating rig market with ROV contracts on 79 of the 131 floating rigs under contract. We maintained our fleet count of 250 ROV systems. Turning to manufactured products, our first quarter 2025 revenue increased 4% year-over-year. Operating income of $8.7 million declined significantly, and operating income margin of 6% declined primarily due to a $10.4 million inventory reserve related to our theme park ride business. Excluding this reserve, the operating income margin would have been approximately 14%. Our backlog on March 31, 2025, was $543 million, a decrease of $54 million from the first quarter of 2024. OPG achieved significant year-over-year improvements in revenue, operating income, and operating income margin. First quarter 2025 operating income of $35.7 million and operating income margin of 22% benefited from the continuation of international projects that commenced in the fourth quarter of 2024 and are expected to conclude in the second quarter of 2025. We improved vessel activity in the Gulf of Mexico and from the absence of drydock costs and the associated loss of vessel days that impacted the first quarter of 2024. Integrity Management and Digital Solutions (IMDS), both revenue and operating income were flat compared to the same period in 2024. AdTech operating income and operating income margin both declined slightly as compared to the first quarter of 2024 on relatively flat revenue. The declines were due to readiness costs to enable our role as a prime contractor on the recently announced large contract award. Unallocated expenses of $44.6 million were in line with our guidance for the quarter. In the first quarter of 2025, we utilized $80.7 million of cash in operating activities and $26.1 million in capital expenditures, resulting in negative free cash flow of $106.8 million. In addition, we repurchased approximately $10 million worth of shares of our common stock. Consistent with prior years, our cash balance declined during the first quarter with an ending cash position of $382 million and no borrowings under our secured revolving credit facility. Now I'll address our outlook for the second quarter of 2025. On a consolidated basis, as compared to the second quarter of 2024, we expect our second quarter 2025 revenue and EBITDA to increase, with EBITDA expected to be in the range of $95 million to $105 million. As compared to the second quarter of 2024, our expectations for the second quarter of 2025 results by segment are: SSR, we project increased revenue and operating results. EBITDA margin is projected to be in the mid-thirty percent range. For manufactured products, we expect relatively flat revenue and improved operating results. For OPG, we project relatively flat revenue and significantly higher operating results. For IMDS, we forecast relatively flat revenue and improved operating results. For AdTech, we anticipate increased revenue and significantly improved operating results. And we project unallocated expenses to be in the $45 million range. Directionally, for our full year 2025 operations by segment as compared to 2024, we expect SSR, we continue to forecast improved operating results on a high single-digit increase in revenue. SSR EBITDA margins are projected to average in the mid-thirty percent range for the full year. For ROVs, we estimate that our overall ROV utilization will be in the high sixty percent to low seventy percent range with a slightly higher percentage of vessel-based activities than in recent years. We expect to sustain our ROV market share for drill support services in the 55% to 60% range. For manufactured products, we project significantly improved operating income on better operating margins and increased revenue based on our current backlog of $543 million and improvements in our non-energy product lines. We expect our book-to-bill ratio will be in the range of 0.9 to 1.0 for the full year. Just to point out, at the midpoint of our book-to-bill guidance, and with our guidance for revenue growth, we are predicting a year-over-year increase in order intake. As demonstrated by OPG's strong first quarter performance, we continue to expect year-over-year operating results to improve on flat to slightly increased revenue with improved vessel utilization in the Gulf of Mexico and West Africa and increased activity in Brazil and Asia Pacific. Overall, for 2025, OPG operating income margin is expected to be in the mid-teens range. For IMDS, we forecast significantly improved operating results on increased revenue with operating income margin to be in the mid to high single-digit range for the full year. These improved results reflect the positive impact of our acquisition of Global Design Innovation (GDI), as well as the absence of losses from the divested Maritime Intelligence division in 2024. For AdTech, operating results are expected to improve significantly on increased revenue, which is largely attributable to the previously announced Department of Defense contract award. Operating income margin is expected to be in the low teens range for the year. Returning to our 2025 market outlook, in our fourth quarter 2024 earnings release, we revised the bottom end of our full year 2025 EBITDA guidance in acknowledgment that we may be impacted by different geopolitical uncertainties, including tariffs and regulatory changes. Since then, further announcements related to tariffs, retaliatory tariffs, and OPEC+ production have continued to generate concerns across the energy sector. We believe that our prior and affirmed guidance appropriately accounts for these risks, and we will continue to evaluate the potential impacts of these and other factors. Oceaneering International, Inc. remains well-positioned to take advantage of market dynamics even in uncertain times. With a strong backlog across our energy and government businesses, and recognized the aforementioned $1.2 billion order intake in the first quarter of 2025. While Brent crude prices have been revised downward to the range of $60 to $70 per barrel in 2025, we believe these levels remain supportive of sustainable levels of offshore operating and capital spending. In summary, our strong first quarter 2025 performance, along with the strength and diversity of our backlog, give us the confidence to reiterate our prior full year 2025 guidance, including EBITDA in the range of $380 million to $430 million. We appreciate everyone's continued interest in Oceaneering International, Inc., and we'll now be happy to take any questions you may have.

Thank you. Our first question will come from David Smith from Pickering Energy Partners. Please go ahead. Your line is open.

Hey. Good morning, and thank you for taking my question.

Morning, David.

Wanted to ask about GDI, which I think you acquired about six months ago, but you have been working with them for longer. Can you talk about how you see the opportunities to grow that business and what kind of pull that could have on demand for your ROVs over time?

Yeah. So great question, David, and thanks. I think you know, we've been talking about opportunity, particularly for IMDS, and it's why we put this emphasis on integrity management, also data solutions. This data-driven approach has really helped us do more sort of AI machine learning assessment of offshore platforms. Meaning, hey, we can go out there, we can gather data, and we can do predictive modeling to help them, number one, avoid any sort of equipment failure, but number two, also maintain a more robust inspection campaign with fewer personnel hours. So that's kind of the gist of GDI. And we think a lot of the customers are really excited about that opportunity to know more with fewer people on the platform. So that's a great combination. The exciting part for us and one of the reasons we really like GDI is there is also an opportunity to do the same thing underwater. It's a laser scanning video approach that we can deploy on ROVs. We can do the same sort of analysis on subsea infrastructure with ROVs. So we're in the testing phase of that, and we're confident that it will be a robust solution and therefore drive what currently doesn't exist, this underwater inspection with the store technology, and that'll create more dive hours for ROVs.

That's great color. Appreciate that. And sorry if I missed it, but did you provide the mix of ROV support in the first quarter?

Yes. We were 62% drill support, 38% vessel-based.

That's great. Thank you. And the blank shift there. Related to I think I heard you say earlier for the full year outlook expecting a higher mix of vessel activity compared to recent years. Just wanted to ask if there was anything in particular driving that, if it's partnerships or just being opportunistic.

I think it's sort of all of the above, David. I mean, we've got some of the larger construction vessels we're on are active. I mean, we see them. They've got this great opportunity. They're going back and forth right now between energy and wind, especially international wind. And those vessels go all over the world. So they're able to stay busy. I mean, they really do go where the work is. So being on those types of vessels has been really helpful. And then, of course, the increase in activity for OPG drives vessel demand for us and a lot of tooling demand. That's the other thing. When we're operating on our vessels, generally, we've got, you know, a greater not just the ROVs, but the tooling as well.

That's great color. I appreciate it. Turn it back. Thanks.

Our next question will come from Eddie Kim from Barclays. Please go ahead. Your line is open.

Hi. Good morning.

Hey.

You reiterated full year EBITDA guidance despite the volatility in commodity prices over the past month. Sounds like you're fairly confident in activity levels in the second half of the year. Could you just talk about your confidence level on kind of second half activity holding up based on customer conversations you've been having? And separately, I mean, to the extent that customers were to pull back on spending if oil prices declined below $60, which segments would we see that impact first in your financials?

Well, first of all, let me address the confidence. I mean, you know, we see the orders come in and the backlog build. Remember, the backlog build obviously, we had a great component from AdTech, but we also see it in all the business. We see adding days for OPG. We see, you know, shoring up some of the spec work in the SSR business. And IMDS as well. So it's that build in that pipeline, actually. You know, our pipeline looks strong. We see an increased pipeline year over year. And that pipeline, I would call out that it not only is it growing, but there's also some great diversification in there. And there's some OpEx related work in there. So those are the things that kind of to me, you know, that OpEx related work is the stuff that happens through cycle more often than not. I mean, it's the things that keep up production they have to keep doing. And to also deal with anything that comes up. So I think those are the things. I spent some time with customers. We've been going to all the conferences where we get to sit with our peers and our customers. I think that as of right now, they're not worried about long-term effects so much. So they're keeping work going. They're talking not just about their forecast, but, I mean, I've got a lot of great feedback on our execution. So I feel like our customer relationships are strong, and so it will be able to stay active through this year. I think we start to see a longer cycle, something that looks, you know, we'll hear more about that, but it doesn't seem like that's going to affect anything outside of our guidance for 2025. The other thing you knew that you asked what happens first. I think you look at previous cycles. We see things like high cost, like drilling rigs or the SSR stuff might come off first. OPG sometimes comes off. But on the other hand, you know, and I've said this probably enough times to be annoying, but the cheapest barrels are behind pipe. So when we think about light well intervention, you know, some of the IMR work we do, I mean, that work is high return. Generally, the customers get good payback on a lot of the work we do with OPG. So if you're going to start cutting your budget, it's probably not the easiest thing to cut. I think you want to maintain those current assets. So I'd say that while they do see some of that volatility for call at work, generally, the markets don't drop off early. And then, of course, long pipeline on some of the other work. The IMDS contracts are longer. The backlog in the manufactured products is longer, and AdTech doesn't apply here. So I think that's kind of the order of time dependency on decisions.

Hey, Eddie. Did we lose you or do you have another question?

Sorry about that. My phone was put on mute for a second. Yeah. Just my follow-up actually is on ROVs average revenue per day, which looked like it held flat sequentially for the first time in about six quarters. Just given market conditions, I mean, should we expect this ROV's day rate to remain kind of fairly steady through the end of the year? Or would you expect it to exceed $11,000 at some point this year?

Yeah. Eddie, this is Alan. We're still projecting that we would be able to get some level of pricing. Our guidance last time was would be a little bit more muted than what we saw our ability to move price in 2024. The team is projecting, you know, probably in that 5% to 10% exit rate increase. So we do expect to touch on $11,000 per day, though.

Okay. Great. Thanks for that. I'll turn it back.

Thanks, Eddie.

Our next question comes from Colby Sasso from Daniel Energy Partners. Please go ahead. Your line is open.

Hi. Thanks for having me on. We continue to see a lack of incremental contracts on the rig side, yet utilization of your asset control support continues to be strong. Even if the rig count falls throughout 2025, how are you looking at the opportunities to grow the ROV business in 2026 and beyond?

Yeah. Colby, I think it really depends on, you know, we see this shift in vessel activity. And so as the vessel activity remains strong or even increases in some cases, that would be the biggest offset. But again, I think, unfortunately, those things don't operate independently. So if you see a protracted negative sentiment and everybody pulls back, I think if they start dropping rigs, and, you know, wind absorbs as much and I'm talking about international wind. Obviously, the US wind is challenged, but if they absorb what they can on the vessel side, beyond that, I think it's a challenging market. We don't see that happening in 2025. I don't know, as I mentioned before, our customer conversations, you know, we talk to customers who say, you know, one person throws out that it has to be $50 before they reduce their active rig count. I mean, anecdotally, it just doesn't look like, especially thinking about remember, we operate for the big operators. They got long-term plans in deep water. So unless this looks like a protracted downturn, generally, these ten-year projects, twenty-year projects with longer life cycles than that, they don't bend easily for what looks like a short-term drop in commodity price. So I think overall, starting to we're starting to see more of that. Yeah. I might add one additional thing here, Colby, is we had the question earlier from David Smith about GDI, and I think it's also one of those of how do we start to feed more days into ROV, and GDI is the next example of why we invest in that business. So being able to go out and do more work with ROVs, not only just getting the pictures and the dataset, but also if you see anomalies, then you need to take your vessel with OPG back out and go for more work, which, you know, we always say we're a solution provider here at Oceaneering International, Inc. And, you know, so we provide tooling as well. So it's not just about the ROV, but it's also what we do with the ROV. And how we operate it with the vessels, with the tooling suites that we offer as well. So I think we offer a more holistic solution to many of our customers.

Thank you so much for the color. I'll turn it back.

Thanks, Colby.

We have no further questions in queue. I'd like to turn the call over to Roderick Larson for any closing remarks.

Awesome. Well, thank you. Since there are no more questions, I'll just wrap up by thanking everyone for joining the call. This concludes our first quarter 2025 conference call. Everybody.