Good morning. My name is Denise and I will be your conference operator today. At this time, I would like to welcome everyone to the Oceaneering Third Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. Suzanne Spera, Director of Investor Relations, you may begin your conference..

Thank you, Denise. Good morning and welcome to the Oceaneering third quarter 2017 results conference call. Today's call is being webcast and a replay will be available on Oceaneering's website.

Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; Alan Curtis, Chief Financial Officer; and Marvin Migura, Senior Vice President.

Before we begin, I would just like to remind participants that statements we make during the course of this call regarding our future financial performance, business strategy, plans for future operations and industry conditions 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 third quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod..

Good morning, and thanks for joining the call today. Before I begin my prepared remarks, I would like to address the two elephants in the room. So first, I would like to reiterate our number one priority for cash used remains growing the Company and that's through organic investments and bolt-on acquisitions.

As many of you probably noticed, our press release yesterday did not mention the board declaring a dividend for the current quarter because they did not.

With an outlook for diminishing cash flow from operations in the fourth quarter and for the full-year of 2018, we feel it's prudent at this time to focus our resources on growth and positioning the Company for the future.

While we will continue to review our dividend position on a quarterly basis, we don't anticipate our board reinstating a quarterly cash dividend until we see a significant improvement in the market outlook and project a free cash flow. Second point, regarding our 2018 projected cash flow.

In the press release statement that indicated, we expected to generate sufficient cash flows to service our debt and fund our anticipated maintenance and organic growth capital expenditures. We did not mean to imply that 2018 EBITDA or cash flow will equal the total of debt servicing CapEx.

We were simply reiterating that we will continue to generate positive cash flow and invest in our future, and perhaps we should have written more than sufficient cash flows. Now back to my originally prepared remarks. As we reported in our press release, we incur a loss of $0.02 per share in the third quarter.

However, these results included three items that did not been considered in our outlook. Specifically $1.5 million for prior year non-income related taxes, $1.3 million for foreign exchange losses, and $2.4 million for discrete income tax expense items.

Therefore, adjusted operating results during the quarter reflected EPS of $0.02 and $65 million in EBITDA and we were relatively in line with our expectations.

Sequentially, adjusted operating income improved 28% mainly due to increased profit contributions from Subsea Projects and Subsea Products, and reduced Unallocated Expenses, offset primarily by lower profits being realized by ROVs.

Our tax provision, as adjusted, was higher than the statutory percentage of pre-tax income due to the geographic mix of tax jurisdictions in which we generated our earnings and losses.

We believe these results are commendable in light of an offshore oilfield services and products market landscape that remains extremely challenging due to continued pricing degradation and the sluggish rate of Subsea Project approval and progression. We are pleased that for another quarter each of our operating segments remained profitable.

On a consolidated basis for the first nine months of 2017, we have generated $179 million of adjusted EBITDA and $84 million of free cash flow.

Furthermore, we believe our cash flow and liquidity positioned us well to manage our business and provide optionality to expand the range of services and products we offer through the continuing industry downturn.

At the end of the third quarter, we had $472 million in cash and an undrawn $500 million revolving credit facility, which does not expire until October 2021. Over $350 million of the cash on our balance sheet as of September 30, 2017 was in the United States.

I'd now like to review our business operations by segment for the third quarter compared to the second quarter. ROV operating income declined more than expected due to lower average revenue per day on hire and an increase in average daily operating costs.

Average ROV revenue per day on hire trend at 3% lower due to legacy contracts ending and a shift in geographic mix. Our cost increased due incurring additional costs associated with demobilizing ROVs, maintaining personnel due to delays in vessel startups and higher repair and maintenance expense.

Consequently, ROV adjusted EBITDA margin declined to 33%, from 38% for the second quarter. Days on hire increased 4% to approximately 12,700 days as our fleet utilization improve to 50% from 48%. We continue to bid work at currently prevalent market rates in attempt to maintain or grow market share in utilization.

Our fleet use mix during the quarter was unchanged from the immediately preceding quarter at 61% in drill support and 39% vessel-based activity. At the end of September, we had ROVs on 83, or 55% of the 151 floating rigs under contract. This compares to having ROVs on 53% of the rigs contracted at the end of June and the end of March 2017.

At the end of September 2017 our fleet size remained at 279 vehicles. Now turning my comments the Subsea Products, our third quarter operating income improved as expected on an 18% decline in quarterly revenues.

Operating margin improved due to a higher percentage of segment revenue being generated by our service in the rental business unit and excellent execution by our umbilical business unit. Our Subsea Products backlog at September 30, 2017 was $284 million compared to our June 30, 2017 backlog of $328 million.

The backlog decline was largely attributable to lower umbilical order intake and production associated with Shell Appomattox. Our book-to-bill ratio year-to-date was 0.69 and the past 12 months has been 0.72, no change from the prior quarter.

For Subsea Projects revenue and operating income increased, principally driven by seasonal improvements in U.S. Gulf of Mexico deepwater vessel work. Asset Integrity operating income was down slightly as projected.

For our non-oilfield segment, Advanced Technologies, revenue and operating income declined as expected primarily due to lower levels of work for the U.S. Navy. Unallocated Expenses were lower during the third quarter compared to the prior quarter due to lower corporate expenses.

Organic capital expenditures for the quarter totaled approximately $19 million most of which was invested in our ROV and Subsea Product segments. Additionally, we made an $11 million equity investment to expand our presence in the Caspian Region. We also paid $15 million in cash dividends.

Now let me address outlook for the fourth quarter of 2017 by segment. We believe our fourth quarter results will be considerably lower than our adjusted third quarter results due to seasonality and the reduced level of activity.

Most of the decline is expected to be in our ROV and Subsea Project segments with modestly lower operating income from our other Oilfield segments as we proceed very few in near-term catalyst to support an improvement in our Oilfield markets.

For our non-Oilfield segment Advanced Technologies we're projecting a modest quarterly improvement and slightly higher Unallocated Expenses. Sequentially for our ROV segment we are expecting reduced operating income due to fewer working days largely on decrease demand to provide vessel based services and lower average revenue per day.

Lower demand is partially attributable to seasonality. We also expect a decline in our average daily operating costs compared to the prior quarter.

Our ROV segment results are largely determined by the number of floating rigs actually working during the remainder of the year and on the level of vessel based inspection maintenance and repair or IMR activity undertaken.

Consequently, we are adjusting our guidance for our ROV fleet utilization for the full-year of 2017, the high 40% range and ROV EBITDA to the mid-30% range. We expect to maintain or slightly increase our ROV market share for drill support.

At the end of September, there were approximately 20 floating drilling rigs that have contract terms expiring during the fourth quarter and we have 14 ROVs and 12 of them were 60%. Of the 20 floaters, four are rolling to new contracts. There are 18 additional floating rigs set to begin new contracts during this same period.

Of the total 22 floaters receiving new contracts, we have 20 ROVs on 18 of them or 82%. While this is encouraging, we anticipate fewer drill support days in the fourth quarter as many of these rigs are expected to incur some idle time between contracts or wells drilled.

Although we endeavor to maintain our drill support market share and place more ROVs on vessels, we need a sizeable increase in our customers' offshore spending levels for there to be a discernible increase in ROV fleet utilization and profitability.

For Subsea Products or outlook is for margins that we can further enter the mid single-digit range due to legacy umbilical contracts with better pricing having been completed and recent contracts at more competitive pricing being executed.

For Subsea Projects, we expect lower operating income due to the seasonal decrease in deep water vessel work in the U.S. Gulf of Mexico.

I continued low vessel price environment, current global oversupply vessels and a lower profit contribution from our Angola operations, due to the release of the Ocean Intervention III by BP during the third quarter of this year. Our two-year term contract for the Island Pride offshore India is scheduled to end in early November.

Our customer has several option periods available to them, however, they have not exercise their right to use them. The future IMR vessel requirements for this work, in this field is out to tender and we are bidding for the work. For Asset Integrity, we expect our results in the fourth quarter of 2017 to be lower due to seasonal decreases.

For our non-oilfield segment, the advance technologies, we expect a slight improvement due to increased activity on theme park projects. While our fourth quarter outlook has been revised downward, we continue to believe that we will be marginally profitable at the operating income line on a consolidated basis for the full-year of 2017.

Turning to our CapEx expectations, we are narrowing our estimated organic capital expenditure total for this year to a range of $90 million to $110 million and lowering our expected amount of maintenance CapEx to approximately $40 million to $50 million.

Regarding our Jones Act vessel, the Ocean Evolution, we expected to be delivered at the end of December 2017 and placed in the service first quarter of 2018.

From a macro perspective, offshore activity showing some signs of life, project FIDs and Subsea awards have begun to trend positively, offshore operators working with the service and product providers have made considerable progress towards lowering development costs and improving field economics and mid stable oil prices, and the contracted floating rig count has been somewhat resilient with no change from December thirty first 2016 and down only about 7% year-on-year.

For project FIDs year-to-date, 21 offshore projects have already been sanctioned, compared to 16 for all of 2016 and there are hints that more projects are to come in the fourth quarter of 2017. Almost half of the sanction projects are smaller tiebacks, leveraging existing infrastructure with only a few requiring significant CapEx investments.

Operators are looking to invest in a smaller less CapEx intensive developments to capture first oil earlier and minimize risk with short cycle projects.

We're encouraged by these FIDs in this change in operator focus as it bodes well for our integrated service and product offerings, typically the lag time between FID and umbilical order placement for us is about six months to a year usually influenced by the size of the project.

Regarding Subsea Trees, which is a leading indicator for project development, current research estimates indicate that the number of tree orders is expected to rebound from about 90 trees in 2016 to 156 in 2017, which represents a year-over-year increase of 73%, a further increase in Subsea Tree demand is projected for 2018.

Subsea Tree installations continue with a challenging outlook, down about 2% in 2017 from 294 tree installations in 2016 and projected to decline another 16% in 2018 compared to 2017 estimates.

In summary, we are encouraged the projects have been reworked and cost reduced, driving breakeven points down, thereby enabling project sanctions to begin moving forward. However, we expect the recovery is likely to be slow and laborious.

Looking forward to 2018, based on the current and expected number of floating rigs working and expectations for further reductions in oil and gas industry capital and operating expenditures, as after activities get pushed into 2019, we believe our 2018 earnings will be significantly lower than 2017.

However, during 2018 we expect that each of our operating segments will contribute positive EBITDA. On a consolidated basis, we should generate more than sufficient cash flows to service our debt and fund our anticipated maintenance and organic growth capital expenditures.

For 2018, we expect our organic maintenance and growth CapEx to range from $80 million to $120 million.

While we are anticipating an increase in offshore activity levels during the second half of 2018, we do not expect this shift in momentum to be adequate to offset the near-term market weakness or to present an opportunity to meaningfully improve pricing. However, we do anticipate being busier in 2018 than we have been in 2017.

However, due to lower pricing, we are expecting a decline in our profitability. In closing, although the offshore oilfield services market has been challenging for the last two years and 2018 is going to be even more difficult. We remain confident in our ability to manage our business through this cycle.

While Oceaneering's core business of offering offshore services and products is driven by the offshore macro oil dynamics, I would be remiss not to mention our Advanced Technology segment. This serves our non-oilfield customers.

During the current low level of offshore activity, we are pleased to have a non-cyclical business unit in our portfolio as we can leverage existing resources to provide services and products to an entirely different customer base.

This approach to service well as the Advanced Technology segment contribution to our overall earnings has become substantial. Moving forward, our focus continues to be looking for opportunities that may emerge to grow our Company with more focus on our customers operating expenditure in the production phase of the offshore oilfield life cycle.

Defending or growing our market share in each of the markets we participate in, engaging more directly with our customers to develop value-added solutions that increase their cash flow, driving efficiencies throughout our organization, and controlling our costs and maintaining an organization commensurate with the existing level of business, and finally, maintaining a strong balance sheet.

Longer term, given the lower levels of investment over the past few years coupled with ongoing reservoir depletion, we believe that the oil and gas industry will again need to meaningfully invest in deepwater projects to meet projected demand.

And we appreciate everyone's continued interest in Oceaneering and will now be happy to take any questions you might have..

[Operator Instructions] Your first question comes from Ian Macpherson with Simmons. Your line is open..

Hi. Thanks. Good morning..

Good morning, Ian..

Rod, I'm sorry to kick off with a question that I know you simply don't want to answer and don't intend to, but I mean you've opened a Pandora's Box with 2018 outlook. The stock prices only gotten worse since the call started, so I want to give you an EBITDA range for 2018 and ask you to blush it or not.

And I would say right now, the bogey seems to be between 150 and 200 for 2018 EBITDA.

Any comment on that?.

Ian, I mean you got it right. I think we've given as much guidance as we can give right now for 2018, so it kind of stands with what we said about the funding levels..

All right. Well, I tried on that, so let me have another one..

I appreciate it..

So for ROVs this quarter, revenue per day comes down, but the cost per day comes down as well, so when we look at the 33% EBITDA for Q3, are we expecting it to stabilize in that area on a leading-edge basis? And is that a possible range to think about for the next couple of quarters after Q4?.

I think when we look at it, we looked at it in the totality of the year and we guided towards the mid-30% range Ian. And I think that would suggest, we would still be in the lower 30% range in Q4..

Got it. I will pass it on and get back in queue. Thanks..

Thanks..

Your next question comes from Waqar Syed with Goldman Sachs. Your line is open..

Thank you for taking my question. With respect to your macro guidance of CapEx being lower in offshore and OpEx being low as well. What's the source, is it third-party, is it your own kind of analysis and discussions with the E&Ps.

And so what's your confidence level in that macro assumption?.

It largely comes from what our customers are publishing it's not a private conversation regard so we're following those headlines..

Okay.

And on the ROV side we've already if you compared the day rates to back in 2014 we down about 25% or so roughly and in general that's kind of a deflation you see in Subsea you think that day rates have a lot more room to go down further?.

Waqar, I think one of the - and it's not really that much different than what we've seen in the - over the past few quarters it is largely depending on where the work drops off and where the work moves forward. So if we see more of the activity shift to sort of the lower dollar environments.

There is chance for more pressure there, but if we get back to activity in some of those higher priced environments it could be more stable or even some little blips up and in regard to that. So I would say it really depends on where those activities happen..

But in your guidance what are you assuming? It shifts to the low-priced regions and the higher priced regions are you implying more like Norway in the Gulf of Mexico?.

Yes and that's what you're seeing, and we mentioned in the call notes. The other thing that happens here that's not readily apparent, but it shows up a little bit and utilization is when we were working on a five-year contract where we were just on the rig, collecting day rate and the rig was moving from well the well the well.

Then we had good utilization because there weren't these breaks between either contract or wells. And now we're starting to see we're working harder to bid more jobs and there is some gap between you know even what a single rig is doing.

So we're fighting sort of inefficiency that's in the drilling system right now that's affecting us as well, but one of the things that's working for us Waqar and I hope you noticed that and everybody noticed it is because of that that sort of disruption long-term contracts were winning more than our fair share of the new contracts that are being let..

Yes, and okay I'll get back in the queue maybe ask questions. Thank you..

Thank you..

Your next question comes from Stephen Gengaro with Loop Capital. Your line is open..

Thanks. Good morning. As we sort of think about the progression of the business segments next year.

We'd you be willing to give us a sense for the areas that you think are going to drop the most year-over-year versus the least next year?.

I would say our manufactured products is probably the one area we see a steeper decline and that's going to be really as you've seen the backlog trend down in umbilical business..

Okay. Thank you.

And then you said some of the call I may have missed is about being busier with lower margins? That I hear that right are you suggesting revenues is less harm next year than the margin profile?.

That's correct..

Okay. Thank you..

Yes, we actually see that it's just going to be harder one the work that we're doing..

Great. Thank you..

Your next question comes from Chase Mulvehill with Wolfe Research. Your line is open..

Good morning, Chase..

Good morning. So I'm not going to try to push on 18 EBITDA, but I don't know if maybe you could talk to your outlook for margins in 2018 for kind of the ROV in the products business.

Maybe some color you know there on the margins side?.

I don't think we're prepared to have that level discussion yet, we're still in the planning tables..

Okay. Understood.

I guess if we look at 3Q and we kind of back out DNA and back out SG&A and call that kind of cash cost for the ROV business and look at cash cost per own higher day and it looks like it was up about $300 dollars per own higher day? Was there anything that kind of drove that we know one-off was there kind of higher maintenance expense in 3Q that might come back down in 4Q or anything like that?.

Yes, if you are in Rod's comments you talked about we had some demobilization cost as well as higher R&M costs within the quarter. So we do not anticipate, and we did see a little bit of a mix shift coming into the fourth quarter probably as well. As we probably expect the vessel utilization dip down as it typically does during the fourth quarter.

So we do see cash cost coming down per day in Q4..

Okay, all right. Last one and I'll kind of jump back in. In the press release, you talk about looking at opportunities to grow the company and noted that you favor more exposure to the customers, operating spinning as opposed to kind of get CapEx.

So could you kind of elaborate on that and if you want to be asked - when you looking at acquisitions, is it asset light acquisitions, asset heavy?.

Right now its asset light, I mean I give you some examples. We continue to invest in well intervention in kind of following up on our Blue Ocean acquisition. We believe that's one of those places we can do well. We're pushing hard on our Asset Integrity business as well that's an ongoing OpEx type business.

But the Caspian business that we talked about that is more exposure to the offshore IMR market. So we like that, that offers us more OpEx exposure and some geographic push as well.

So those are the kinds of things that we're looking at and we also continue to look at some of our - some of the non-oilfield things that where we can leverage your expertise of automation in the outside the oilfield business. So it's a mixture of those kinds of things..

Okay, actually I have a couple more.

When you said you expect to be busier in 2018, do we take that to mean that revenues could be flat?.

Directionally, that's what we're talking. Yes, it really does look like there is going to be activity out there. We talked about some of the softness and price and there is it continues to be very competitive, especially when things are still being - the bids are being let at shorter term, shorter pieces.

So you're out there fighting the battle more often than we were in the past. And I think we see it more of a pickup in the second half of the year as well..

Got it, okay. Already I'll - turn it back over, thank you..

Your next question comes from Sean Meakim with JPMorgan. Your line is open..

Good morning, Sean..

Good morning.

So just think about the ROV business, what - as I think on the third quarter and what portion of that incremental utilization were due to the Gulf of Mexico seasonality? Just thinking about as I'm - to come apart out, what was kind of the core change due to some of the uplift on the ball?.

Don't have it, broken down at that level right now Sean. I mean one of the things we've mentioned in and it does give us some sensitivity, the seasonality of IMR market, which is a Gulf of Mexico and we do have some of that and so that is in any time the vessels come off.

We've spoken to you about vessel day rates can be a little bit strong while they're working. So there's some of that softness, but there's also mix in there. So it's hard to nail it down as Alan said..

Okay, that's fair. Maybe just touch on the ROVs, the vessel based supply agreements with - here in Maersk.

Are those fully implemented at this point, just any indications of how accretive of those agreements are to the overall business?.

We do have the assets on board. All of the assets. We did still have a few to place on the Maersk vessels. And as you probably saw last quarter, I think Maersk announced they were delaying a few of those into 2018. So we still have a few assets to place on board their vessels when they come out.

And as far as the how creative they are, it's going to be following sort of that project business and how active those vessels are going to be doing on installations and other subsequent work?.

Okay, got it.

Fair enough and then just - one last just on the product side, taking about on umbilical, how should we think about the fourth quarter, the budget exhaustion for some customers year on product sales, just kind of how that - how you think about the seasonal impact in the fourth quarter with that part of the products business?.

There is not much seasonal impact I would say. It's in backlog. They're can be producing within the fourth quarter from umbilical's. Some rental part is the one that - is more of the - when the phone call comes, we're able to react rapidly and get a little bit more revenue if that happens.

But umbilical's, we were typically - we had been backlog September 30 we're prosecuting that work during the fourth quarter. We don't have a lot of the book and ship kind of business in the verticals..

Okay. Fair enough. Thanks a lot..

Your next question comes from Jim Wicklund with Credit Suisse. Your line is open..

Rod, I didn't buy you nearly enough drinks in Jackson Hall..

That must have been Jim..

That must have been, and I understand now what Kevin was grinning ear to ear the entire time.

Can you give us some guidance on 2018 on depreciation on the new Jones Act vessel and can you talk a little bit about what you expected to be working on?.

I don't think we get into the depreciation aspect, Jim, but we do have a line of sight for work for the vessel when it comes out. We talked last call about - we have contract to do some work or Shell Appomattox field when the vessel goes into work in the first quarter.

So certainly excited about having a first-grade customer to put it to work on a on a top-notch feel like Appomattox..

Give you something to think about those, Jim, we are down to - we don't have a lot of our own vessels we're operating. So if we can keep our own vessels working on the work that we get, in this case you know to think about the depreciation versus being out there higher and above, it's still a good thing for us.

We operate in our own boat if we keep it busy..

Can you tell us over how many years a vessel like that would be depreciated?.

Yes. Typically 20 to 25 years..

Okay. Because we know how much it costs, we're doing the best we can on a model. The next question is the one that like the first question, Ian's question. You probably can't answer, but you can maybe give us some guidance. The board set the dividend. You guys have talked about the dividend a lot in the last couple of years.

Can you tell us what we should maybe think about in terms of dividends going forward? What the board's thinking or what the ideas, what the recommendation is to the board for management?.

I mean, we recommend, Jim, I mean it is largely based on continue and generate the free cash flow to pay the dividend in a way that it doesn't interfere with, with that ability. And I say use resources whether that's cash on hand or cash that we're generating.

We want to have sufficient resources to take advantage of opportunities for growth and there is other things that we put has number one.

And so when you get in a situation like this where you've got diminished cash flow because of the pricing and really pricing more than activity if you look at the entirety of the year, you want to be able to have that opportunity. And we think that especially in the near-term, there's going to be opportunities.

So when we start to see that shift maybe there's fewer opportunities, cash flow comes back then we start allocating more money to our number two which is the dividend..

Okay. Go ahead..

Jim, kind of looking at your depreciation question a little bit higher level for total Oceaneering, I think looking at 2017 to 2018, I think we would model it very similar..

Perfect. That's very helpful. I appreciate that. And the last one if I could. Acquisitions are out there, you're looking from - they've all gotten cheaper, your stocks gotten cheaper.

If you had to choose today between buying back stock or making an acquisition, do you have a preference?.

I could give you the easy answer depends on the acquisition. But we like things that make us grow. I mean that's the biggest thing..

Okay. Very much appreciated..

Thanks Jim..

Your next question comes from Vaibhav Vaishnav with Cowen & Co. Your line is open..

Hey. Good morning, Vaibhav..

Hey. Think about the offshore macro from fourth quarter and progression into 2018.

Would you agree or what would you say if it has already bottomed or it still going down or how do you think about 2018 from the fourth quarter level for offshore?.

Vaibhav, there is seasonal, there is some shift with for us where the activity is, but I think we see - we've seen sort of that that resolution of the business as well as we can determine it as being flat from Q4 into the first part of the next year..

Okay.

So if I think about your fourth quarter guidance and then think about the flat - it being flattish going forward outside the seasonality factor, what would be I am missing?.

I'm not sure - I understand the question Vaibhav, could you give me another try?.

And basically if thinking about whatever I think about the fourth quarter EBITDA if I just think that should be at I should think about that being annualized to get to 2018? What are the bigger pieces of picked of the pie that I'm missing what was doing that?.

I think we have to think about that question little bit more that I don't have. I mean if there is a significant piece that shifts are you talking towards the end of the year like we've said that knows….

What I'm thinking is does it get better of what from here on.

So let's say if think about it just for an assumption let's say if I think about ROV EBITDA is $30 million for a fourth quarter? Should I think about that being annualized $120 million for 2018 if I do that where am I missing something or what could be the surprises to the up side or down side while thinking that?.

This is more, and I think the - thing you're missing if you annualize any particular quarter for Oceaneering is the seasonality there happens in the second and third quarter.

So I wouldn't ever try to take one quarter promotion and then annualize is because you could be substantially off we know we said on the call in the press releases we'd be expect fourth quarter to be lower. And then the first quarter as usually weakest point of activity level in the year and then second and third quarter or better.

So I would not annualize any of our quarters, if I was trying to test something for sanity..

Got it. How test seasonality that is the biggest thing I need to think about. That's fair.

You mentioned about Island Pride and Ocean Evolution can you elaborate on what is going on with Island Pride and Ocean Evolution and what kind of work respectively we could think about for 2018?.

As we understand it our customers looking for a not full time or a lower cost alternative less both capability in India. And so they're re-biding for basically a different kind of scope of work.

So that's the change there and when we're trying to adjust so that we can continue to participate we think we've got a good relationship there so hopefully will be successful. With the Evolution, the Evolution is installation for Appomattox so that is working that is and we've already started some that work or with the vessels we have today.

So that work is there and ongoing, so we know that it's not like something we're looking to materialize and so when the bodes available and we've got all the testing done we're looking for to put it to work..

Okay. And last question on M&A it has been a couple of times.

Just want to think about like what the sweet spot for you guys when you think about the deal like I think the last one was about 200 million is that the sweet spot or how do you guys think about the size of M&A?.

I mean going that high, it's got to be something that's pretty material it something different. We really like getting maybe slightly lower to that and having something that's a nice bolt-on acquisition that fits well with the other things we do, but give us the ability to offer more comprehensive package say on the backlog boat on a drilling rig.

So those are things that we can really provide a value-added service for a customer. That's probably I mean some of the things that we look at are more in that say $50 million to $75 million range..

Okay. That's very helpful. Thank you for taking my questions..

Your next question comes from Brad Handler with Jefferies. Your line is open..

Thanks guys..

Good morning. Brad..

Good morning.

Could you speak please I am not sure if you how you have done this in the past actually, but could you once the Evolution comes into play in the Gulf? How many vessels do you expect to be marketing in the Gulf?.

As many as we can and the reason I'd say that is because a big part of what we do in the Gulf is project management we supply the ROVs, we supply some of the ancillary services, but we're not boat constrained meaning, we are happy to go. We've got great relationships with a lot of the vessel providers in the Gulf of Mexico.

So we'll start hire when necessary. If we get to a level of activity, sometimes we have a little more robust agreement to take more days from them. But we are always looking for the next job and it's not dependent on whether or not we have a boat at the dock..

So we don't need to - we should not think any more in terms of the alliance on charter until ex-date or another vessel and just it doesn't need to work that way and it's sounds like it is a - or it doesn't work that way anymore for the time period?.

We're working with some of the other guys. We've got some of the other vessel provider's boats active all the time. We're continually rotating through finding the best boat for the job and being able pick them up.

So we've got - I would consider the best of boat worlds, I think we've got some capacity of our own that keeps our cost down on to the big side, and then we've got access to a lot of other stuff at a spot price. So I think that's working pretty well even in a challenging environment..

And Brad just from the alliance, we do have under charter through March of 2018..

Okay.

Is there anything else under charter still?.

Until we finish with reliance, we do have the vessel there under charter so. And that's a back to back, so soon as we end that the charter agreement ends as well..

Okay, gotcha.

Okay, and can you comment on I guess sort of within the guidance framework for 2018? Can you comment on unallocated expenses for 2018?.

At this point in time, we would see them by sort of in that mid $20 million range per quarter. There's been pretty good, very similar to this year, they're unchanged..

Okay. And then I guess in terms of Ad Tech business, maybe sort of the same question, I mean I guess I'm just chipping away at some other things.

Do you have any insight yet from the Navy? When does that get set and how reliably in advance if I get that?.

I don't think we're really prepared to go segment by segment on our 2018 outlook at this point in time..

Understand, okay. Thank you. I'll turn it back..

[Operator Instructions] Your next question comes from Brian Clarke with Royal Bank of Canada. Your line is open..

Hi. Actually, it's Kurt Hallead here. Good morning. Hey, okay so I completely respect your dynamic on leaving guidance very generic. And obviously the investment base is kind of speaking with their wallets right now.

I think what I gather is the biggest concern or one of the biggest concerns relates to the dividend as was referenced a little bit earlier, you guys indicated that it's the number two priority? You have an opportunity here in a forum here to kind of as we concern, what would be your best - what are your best words here to help investors from continuing to jump out the windows here?.

What I'm going to - I hope I can say it maybe in a different or a stronger way. But a lot of this really is to focus our resources on the future and to have those funds available. We really believe that at a time like now being able to follow the market and dynamic here.

There's an opportunity to invest the new technologies and pickup companies that maybe available that wouldn't be in another time, and to have that extra capital available to work on growth opportunities is very important to us right now.

So we want to have that - we want to have that flexibility and leverage and I believe that that's hopefully what people can redirect their attention to is that it is definitely meant to be forward focused. It's not a duck and cover, it's not hunt or down, our some key variability to push ahead..

Okay, and then just in that context right, there are ways to make that happen and it doesn't right, I wouldn't necessarily mean you would have to completely eliminate the dividend to look for opportunities to invest.

You've already reduced the dividend, coming into 2017, so is that - would there be a flaw and maybe my logic and if I were sitting in your chair and say okay, dividend is a number two priority, growth is the number one priority, but it's not completely all or nothing..

No, I mean I wouldn't argue, that is definitely what I would call optionality as you can go one way or the other. We could split it again in the middle. We just kind of felt like it was one of those things.

And again, it's one of those things that you decide is it this quarter or next quarter, but it was just that how much do you want to have at hand to be able to move forward..

The decision was fully discussed with all those alternatives at our board level with management and we've decided to not declare and even they decided to not declare a dividend at this time. And I think that we don't [indiscernible] for doing that until cash flows significantly improve..

Okay. And then if I just may - just get a general sense here, right, I mean I have a book, it's a semantics book of every company's terminology, and I do kind of say that tongue in cheek.

But in general sense of what significantly - what is the definition of significantly in the Oceaneering dictionary? If you would bracket it on a percentage basis, what would significantly mean in terms of percentage?.

I will tell you that in Oceaneering definition, significant is larger than substantial. But I mean I think what we've said is it's not 2018, it's not during 2018. And I mean, we're going to wait to look to see what an improved activity rate in 2018 second half brings those for 2019.

We didn't stop the dividend and we didn't start the dividend with the intention of ever stopping it, and we're not stopping it with the intention of never starting it..

I appreciate the color on dividend. Clearly what my frame of reference was in terms of your earnings being down significantly, and just trying to kind of figure out what the dictionary - Oceaneering dictionary is for significantly. But again, I'll….

I'm going to reiterate something we said because I think it's what everybody is asking for, but I think you've already got the information is when people went to purely that the historical maintenance CapEx plus the debt service and set a floor, we try to guide and say we shouldn't have said only enough, we should have said more than enough.

And so we're trying to without pushing your crystal ball harder than I think is a good idea trying to say that is too low. And so we don't expect it to be that dire. So hopefully I'm helping you tune substantial at least a little better significant..

And I do appreciate that color and the ways trying to help you make sure you get your message that you want to get out as well. So appreciate it. Thank you..

We appreciate all that help..

Your next question comes from Ian Macpherson with Simmons. Your line is open..

Welcome back Ian..

Thanks to the follow-up. You mentioned the friction with utilization and ROVs just getting interrupted by the spottiness of shorter term rig contracts, but you also I thought - the best silver lining data point you've given was your hit rate on recent awards for new contracts around 80% share on the recent contracts.

I think there been probably seven or eight, what I would call long-term rig contract awards in the second half of this year around the world.

As you're well above market share, hit rate also pertained to those longer term deepwater rig contracts that have been awarded or can you comment on your share on those?.

I'd have to go one by one, but I can say with some level of confidence at 80% we're doing good. We're fighting our way through. So it wouldn't be upside down on that..

Got it. And lastly, your CapEx guidance for next year it's about twice what your expected maintenance CapEx is for this year. So I'm assuming just clarify you are embedding some anticipated growth CapEx that's comparable in scale to your maintenance CapEx for next year..

Yes, you got it.

And that's you know this is more of the color that I hope comes out is that we've got such a great position and so many of the markets we're and so many of the businesses were in that it's we don't want to give up our brand, we don't want to give up that expectation that when you're Oceaneering, you have the latest, the greatest in the best.

And so you've broken apart I think very accurately that well we're continuing to maintain the operating fleet we are continuing to improve what's coming next..

All right. Thanks..

Your next question comes from Joe Gibney with Capital One. Your line is open..

Good morning, Joe..

Good morning, guys. Good morning. Just one question from you on working capital just circling back to the high-level cash flow you provided here.

I understand it's open ended and certainly work away through that, but are you able to provide any color on working capital within that cash flow view I mean should we be anticipating any material changes in working capital on that.

This is also can be sort of material and how are trying to put the assumption pieces together here so any thoughts on that relative to discussion of year in 2018 would be helpful?.

No for 2018, I think - we indicated I think our activity levels going to be up a little bit revenue by some of flattish range, we are see those buy one of the larger components of that and I would say that - I don't see a material change in that at this point in time and inventory wise did not get a little bit of uptick there.

We are able to pull our inventory and utilize during the years. So I'm not expecting a big change either way in working capital at this point in time..

Okay. That's helpful. Could you clarify again on the vessel charter roll us apologize if I missed it so has the Pride charter been re-up that with it's due in November correct are you - is this bidding process that you're undergoing with your customer..

I mean no the pride is what we would call a back to back meaning that we have an agreement that the charter will end when our contract with the customer ends and, so we can stay on board and we intend it will stand the board will work with the vessel owner.

So that we can try to find other work for that vessel is available I don't think it's going to apply given what the customers ask for to what they're asking for in India. So we may have to look for a more suitable vessel for that type of work, but we won't give up on finding work for that the good part is we won't pay for it if it's not working..

Understood. Okay. That's helpful. Okay guys I appreciate it. I'll turn it back..

Your next question comes from Coleman Sullivan with Wells Fargo. Your line is open..

Hi, good morning..

Good morning..

I had a quick one. Most of have been covered.

On the services rental side in the products business it was up in 3Q would seem to decline somewhat 4Q on seasonality? How do you guys see that directionally in 2018 versus 2017 and I would guess that the trend would be more back half loaded like the general comments would imply?.

Yes, I think that the best guidance we gave you kind of one-way Subsea Product segment is we see that the side of the business is probably going to be down in 2018 with lack of backlog entering the year. And that's the number of awards that we've received this year both the build this is not been that good.

So we envision that will be prior the more challenged the business units within the Subsea Product segment. In the contracts being let that are coming out and we do expect it to book more of those but when they do they will come at a thinner margin..

Okay..

And then I would add and then the others the other part of products is the service in rental business and that that business is seasonal, so I think you're kind of on your directionally correct that that's going to have the greatest impact in Q2 and Q3 and that's what we would do that some of the light well intervention work and we do see a lot of interest in that will have to see how that materialize is next year..

All right.

On ROV rates I think this is generally the case but seems like we've gotten to the point where you're not seeing a lot more I guess pricing pressure so to speak it's more of what we're seeing is more of a mix between vessel based mix and geographic mix is that pretty fair and how the recent contracts were you guys have gotten some strong placement on the rig spawn back to service? How those kind of compared at least over the last couple quarters on the pricing side?.

It is - you hit the nail on the head and the best way I can demonstrate it, we saw a blip up in Q3 and we try to keep - we didn't take all the credit for that because we try to let people know it is mix. So that uptick in three worked our favor. We see the down kicking going forward that works against us.

I think a lot of it is going to be that geographic mix. Another factor that's coming into play, we're starting to see it more as we're operating more integrated solutions. We're operating - we're offering more than more than the ROV.

Those are places where we can provide a value that then is again it provides a better return to Oceaneering overall as well..

All right, I'll turn it back next..

Your next question comes from David Smith with Heikkinen Energy. Your line open..

Good morning Dave..

Hi, good morning..

So I understand you don't want to give 2018 segment guidance, so this is just a theoretical question, but is it reasonable to think that products could mean mid to high single-digit margins.

Going forward into 2018, based on the mix of service and rentals increasing?.

I think you hit the nail on the head. A lot of it is going to be based on the mix service, because good service around like I said by quarter-by-quarter as we see more of that activity come up that's going to have a significant positive influence on the rates as well and Alan's looking to produce.

Crystal ball page I think here, I think it's can be lower..

Okay and just I was wondering there's any ability or a contemplation have taken out maybe some fixed cost from that the manufacturing side of that business?.

That definitely one thing is we talked about beginning of this year, we came into 2017 was right sizing the business and that means it was all areas of opportunity where we need to grow business without resources same time we need to look at areas where our business is telling all.

We would also take courting actions and, so we will be having the right size on business there. Especially I would say, certain of our they're not our umbilical factories who talked about in the past. That have not had the utilization that we needed. I think we will manage through that..

Appreciate that and one more if I may.

Just wondering if you could give us any update on the Blue Ocean acquisition? How that's going so far and whether 2018 CapEx includes potential investment - additional investment, non-equipment?.

No, absolutely so it's going well. I mean fully integrated. We've had some experience with equipment now. We've got great customer feedback on the work we've done. So we feel very positive about it and a positive enough, I would say that we are continuing to invest.

So we want to grow that business and get even more out of it - and not just more of the same, but continue to push the technology further to be able to unlock more potential for the customers. That is included in 2018 kind of CapEx guidance, yes..

Great, thank you very much..

Your last question comes from Vaibhav Vaishnav with Cowen & Company. Your line is open..

Thanks for putting me back on..

Hi, Vebs.

I think I heard you guys said 2018 revenues would be flat 2017? Did I hear that correct?.

That's our initial kind of - somewhere in the flattish range..

Got it and can you say how much cash taxes have you paid in this year so far?.

I'll have to get back with you on that one Vebs. I don't have that one….

All right, that's all from me. Thank you so much..

Okay, thanks Vebs..

There are no further questions queued up at this time. I'll turn the call back over to Rod for closing remarks..

All right. Well, since there are no more questions, I'd just like to wrap up, I thank everyone for joining and this concludes our third quarter 2017 conference call. Have a great day..

This concludes today's conference call. You may now disconnect..