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Edited Transcript of OII earnings conference call or presentation 25-Jul-19 3:00pm GMT

Q2 2019 Oceaneering International Inc Earnings Call

HOUSTON Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Oceaneering International Inc earnings conference call or presentation Thursday, July 25, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan R. Curtis

Oceaneering International, Inc. - Senior VP & CFO

* Mark E. Peterson

Oceaneering International, Inc. - VP of Corporate Development & IR

* Roderick A. Larson

Oceaneering International, Inc. - President, CEO & Director

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Conference Call Participants

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* Coleman Wayne Sullivan

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Eduardo B. Royes

Jefferies LLC, Research Division - Equity Analyst

* George Michael O'Leary

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research

* Ian MacPherson

Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service

* Sean Christopher Meakim

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Vaibhav D. Vaishnav

Scotia Howard Weil, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Denise, and I will be your conference operator. At this time, I'd like to welcome everyone to Oceaneering's Second Quarter 2019 Conference Call. (Operator Instructions) With that, I will now turn the call over to Mark Peterson, Oceaneering's Vice President of Corporate Development and Investor Relations. Please begin.

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Mark E. Peterson, Oceaneering International, Inc. - VP of Corporate Development & IR [2]

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Thank you, Denise. Good morning, and welcome to Oceaneering's Second Quarter 2019 Results Conference Call. Today's call will be webcast and a replay will be available on Oceaneering's website.

Joining us today 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 second quarter press release. We welcome your questions after the prepared statements.

I will now turn the call over to Rod.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [3]

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Good morning, and thanks for joining the call today. Today, I'll review details of our second quarter 2019 results and provide guidance commentary for the third quarter and the second half of the year. I'll then make some closing remarks before opening the call to your questions.

Our second quarter can be summarized in the following 5 points: ROV utilization improved to 62%; Subsea Products backlog grew by $132 million; Subsea Projects results were marred by operational issues and the lack of a robust call-out market; Advanced Technologies did not win a significant U.S. Navy project as forecasted and production timing associated with certain theme park projects was delayed; and certain unallocated expenses were deferred into the second half of the year. Overall, our quarterly operating results improved by $12.1 million. Earnings before interest, taxes, depreciation and amortization, or EBITDA, of $40.3 million met our expectations and was in line with consensus estimates. During the quarter, we generated $12.7 million of free cash flow. For the second quarter, we reported a net loss of $35.2 million or $0.36 per share on a revenue of $496 million, and we had $356 million of cash and cash equivalents at quarter end.

Now let's look at our business operations by segment for the second quarter compared to the first quarter and our prior guidance. ROV operating income improved as expected, increasing by $7.3 million. This improvement resulted from higher seasonal activity for vessel-based services and an increase in the number of working floating rigs for which we provide drill support services. Sequentially, revenue grew 20%, principally on a 19% increase in ROV days on hire.

Fleet utilization improved to 62% from 53%, mostly attributable to increased international activity. Our fleet use during the quarter was 63% in drill support and 37% for vessel-based activity compared to 69% and 31%, respectively, for the prior quarter. Our average ROV revenue per day on hire of approximately $7,800 was essentially flat with that of the prior quarter. ROV EBITDA margin of 30% represented a 23 basis point improvement from the 29% margin reported for the first quarter of 2019.

During the second quarter, we put 2 new higher-spec systems into service aboard our new vessel, Ocean Evolution, and retired 1 system, increasing our fleet size to 276 vehicles at the end of June 2019. Our drill support market share at the end of June was 63% with ROVs on 101 of the 161 floating rigs under contract. This compares to 61% of the 159 floating rigs contracted at the end of March.

For our ROV segment, much depends upon the number of floating rigs actually working. While the contracted floating rig count over the past 3 months is up 1% from 159 rigs to 161, the number of working floating rigs over the same time period increased 18%, from 106 rigs to 125, which is a very positive sign of activity within our drill support market.

In the Subsea Products, during the second quarter, we realized an operating profit improvement of $7.9 million on a $10 million or 8% increase in revenue as compared to the first quarter. Our operating results were better than expected due to a significant increase in revenue within our manufactured products business and more specifically, within our umbilicals business unit due to the ramp-up of activity related to projects awarded in late 2018 and in the first part of 2019. Our service and rental business returned an exceptional operating margin on lower revenue due to efficient operations and an effective completion of a substantial product -- project.

Our Subsea Products backlog at June 30, 2019, was $596 million compared to our March 31, 2019, backlog of $464 million. This includes the recently announced award for umbilicals, hardware and aftermarket services related to the Mozambique LNG project. Our book-to-bill ratio for the trailing 12 months was 1.65. Sequentially, Subsea Projects quarterly operating results were lower than forecast as our anticipated increase in call-out work did not materialize and certain out of the ordinary operational issues on a couple of projects caused cost overruns.

We continue to believe that pricing for diving and deepwater vessel services in our U.S. Gulf of Mexico and international markets has generally stabilized, but the predictability of activity levels continues to be a challenge. We are pleased to report that the Ocean Evolution was put to work on her first project in June. Operating results for Asset Integrity decreased quarter-over-quarter on relatively flat revenue as pricing for inspection services remained very competitive.

Now I'll address our outlook. For the third quarter of 2019, we're expecting a slight improvement in our overall operating results on moderately higher revenue. For our segments, we expect: for Advanced Technologies, a substantial increase in revenue and operating margins to improve to the low double-digit range; for ROV, a slight decline in our operating contribution on flat activity levels due to a change in operating mix; for Subsea Products, a modest decline in profitability on higher revenue due to a greater proportion of segment revenue coming from manufacturing activities; for Subsea Projects and Asset Integrity, relatively flat results; and for unallocated expenses to be in the mid-$30 million range.

As most of you know, Hurricane Barry passed through Louisiana last week and certain offshore work was suspended and facilities were evacuated ahead of the storm. At this time, we project the impact of Barry to be minimal to our operations. Our facility suffered very minor damage, and our operations are back to normal.

Relative to the first half of the year, for the second half, we expect to improve our consolidated operating results on an increased revenue with positive EBITDA contributions from each of our operating segments. We anticipate our second half results to be led by meaningful improvements in Advanced Technologies and Subsea Products. We expect relatively flat results from ROV and Asset Integrity and a decline in Subsea Projects as compared to the first half of 2019.

For the second half of the year, we project unallocated expenses to be within our prior guidance of the mid-$30 million range per quarter. For Advanced Technologies, operating profit during the second half is expected to significantly increase -- improve on increased revenue due to increased throughput and deliveries in our commercial theme park business and increased activity from backlog in our government-related businesses. We expect operating margins to improve to the low double-digit range for the second half of the year.

For Subsea Products, projected revenue -- projected higher revenue should result in improved operating profit primarily from increased levels of manufactured products throughput and better cost absorption. We expect operating margins for the second half of the year to average in the mid-single-digit range. Considering the significantly higher projected revenue run rate and additional anticipated order intake during the second half of the year, our book-to-bill ratio for the full year should be in the range of 1.25 to 1.4.

For ROVs, we expect similar operating results in the second half of the year as compared to the first half of the year on similar revenue. We expect to maintain our fleet use ratio around 65% and 35% for drill support and vessel-based activities, respectively. We estimate overall ROV fleet utilization to be in the high 50% to lower 60% range, and our ROV EBITDA range to remain -- margin to remain consistent with that of our first half.

We forecast that our market share for the drill support market will remain in the 60% range. We are encouraged by the increase in working floating drilling rigs seen during the first half of the year and note that based on discussions with our customers, we expect to achieve our highest quarterly number of drill support days for the year during the fourth quarter.

For Asset Integrity, we anticipate our results to be similar to the first half of 2019 on slightly higher revenue.

For our Subsea Projects segment, we expect results to decline as compared to the first half of the year due to a combination of lower expected project call-out work and a typical seasonal decline in activity during the fourth quarter.

For our CapEx expectations, our estimated organic capital expenditure total for this year is now projected to be approximately $125 million, including $50 million of maintenance capital expenditures.

And now turning to our guidance. For the first half of 2019, we generated $70.7 million of adjusted EBITDA. Based on our first half results and our expectations for the remainder of the year, we narrowed our EBITDA guidance by lowering the top end of our range from $180 million to $170 million, due primarily to project call-out work not materializing to the degree necessary to achieve the high end of our prior guidance. We now expect our 2019 adjusted EBITDA to be between $150 million and $170 million.

In the first quarter, based on excellent results, we raised the bottom end of our guidance. In light of the second quarter's performance and to reflect the most likely market scenario for our Subsea Projects segment for the balance of 2019, we lowered the top end of the guidance range. We simply adjusted the range to what we thought was the most likely case.

Since the beginning of 2019, we have often stated that it would take a robust increase in vessel call-out activity for us to achieve the high end of our guidance range. While overall offshore activity levels have increased as evidenced by our ROV utilization and Subsea Products backlog, this has still not translated into the increase in our vessel activity that it would take for us to achieve the upper end of our prior guidance.

Last quarter, we still thought that the increase in the offshore markets could translate into a much improved vessel-based Subsea Projects business. But now that summer is upon us and the vessel projects market remains subdued and very competitive, we no longer believe that the upper end of our prior guidance remains a plausible scenario.

In conclusion, I would like to emphasize, as stated in our earnings release, our confidence in our guidance for the second half of 2019 is based on our existing backlog and expected order intake in Subsea Products and Advanced Technologies as well as our anticipation of the increase in the number of working floating drilling rigs. We are affirming our expectation to generate positive free cash flow for the full year of 2019.

And I'm now happy to take any questions you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Sean Meakim with JPMorgan.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [2]

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I appreciate all the detail around the quarter and the forward guidance. I was hoping maybe just to kind of restate or kind of -- to put all the pieces together. So to get to that -- the implied guidance, you've given some of the unallocated expenses there moving towards the back half of the year. We're looking at an implied segment level run rate of something like $50 million a quarter in the back half. How do we marry that with the [sooner than expected] expected flat to down performance for the energy segments in the third quarter and then some of the seasonality parts we see in the fourth quarter? It sounds like from what you said, the weighting is pretty heavy on the fourth quarter to get to that guide with really -- relying on products revenue ramp, some incremental drill support activity in ROVs and then significantly better results in AdTech. Would you mind kind of helping us just kind of see how those moving parts all fit together to get to that guide in the back half?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [3]

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Sure, Sean. I think you've got -- you pretty much kind of decoded that is that third quarter is mostly AdTech. It's the AdTech improvement. And then in the fourth quarter, we do see the product side kicking in with the others being sort of flat to down. So it really is all about the AdTech and the products piece, which -- and it's part -- that's part of why we have the confidence we do is that those are largely based on manufacturing backlog.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [4]

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And so I guess what would be your confidence level, given there's -- for the annual year, so much with being weighted on the fourth quarter it seems?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [5]

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I still feel good about it because like I said, it's in backlog. I mean there's -- a lot of that's already there. We've got what we see for the ROVs, for example, when we -- you think about what's going on in ROVs, particularly for the fourth quarter, fourth quarter up. I think that's largely within our line of sight. So it does feel good.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [6]

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Okay. I appreciate it. And then can you just talk about some of downside surprises in the quarter. It seems like projects, think of it more challenged and perhaps a bit more competition in the market than maybe what you had thought there. Can you talk about just some of the pieces there relative to what you would've thought not too long ago? And then similarly, in AdTech, just thinking about the Navy contract, can we maybe get more clarity on what happened there?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [7]

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Absolutely. Well, let me start with projects. One thing I want to clarify is because we get a little -- sometimes we get a little -- we mix together vessel-based activity largely with what we do in projects in the Gulf of Mexico. If you look at -- for example, we're talking about a pretty decent vessel-based market on our ROV side, a lot of that is based on the international work that is more construction and large vessel. When we talk about our IMR work in the Gulf of Mexico, that's more call-out work for inspection, maintenance and repair, smaller vessels, different type of work, call-out work, shorter term, harder to see the contracts.

And so while so many other indicators are really good for overall activity in offshore that have improved, we would have expected that base -- with that base of sort of the visible work, that call-out work should have risen kind of with the same tide. We didn't see the same. So it's not so much competition, it's just in the IMR space, less of that work got done in the summer than we would have expected given the activity everywhere else. So that's really what happened to us on the project side.

On the Navy side, if I could qualify that, a lot of our government work in AdTech is based on ongoing contracts, whether it's repair on Navy vessels or what -- or some of the other R&D work we do, that work is pretty steady state. We see ups and downs as activity within the ongoing contracts go up or down. And that's why that part has been pretty stable. We stepped out a little bit. There was a very unique project that we and several others bid on. It's not sort of the normal range of work, but it was a significant-sized project. And the best I can tell you is because it's unique and because it had its own set of challenges, I think we saw that project a little differently than the ones who won it. So I would just have to say that while it was something that we would've hoped to win, it was something that wasn't sort of normal course of business, so it was a little challenging.

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [8]

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And we had expected to win it.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [9]

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Yes.

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [10]

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And I think we lost on price.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [11]

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Yes.

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Sean Christopher Meakim, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [12]

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Right. Right. Fair enough. One last one, if I could. Just with the Mozambique contract you announced not too long ago obviously it was a really nice win. Just could you give us a sense of what the world looks like in terms of big projects that are on your radar, kind of visibility and kind of where they are in the baking process?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [13]

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Sure. So before we could announce Mozambique, we did talk a little bit about a couple of LOIs we had. And so while the Mozambique -- we know what that LOI was, we still got the other outstanding LOI that we were working against and we announced some of the win there. We still expect an announcement there. That's one of these large, large projects. Beyond that, I mean there are few out there. There are few bigger projects, but I don't think that they're that big. I like the FIDs. I think there's lots of activity in the FID space where we see -- we have visibility to more projects coming, but I don't know that I'd go as far as to say there's a lot more of the size of these 2 that we've been talking about.

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Operator [14]

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Your next question comes from George O'Leary with Tudor, Pickering, Holt.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [15]

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As you look across just the broad base of businesses, in areas like Asset Integrity and Subsea Projects, are there any incremental opportunities to take costs out of the system? And if so -- I'm just thinking about a business, in particular, like Asset Integrity, where you noted that competitive pressures are still there. If so kind of what steps can you guys take to reduce cost in that business in particular and anywhere else that I might not be thinking about?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [16]

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I think based on where the work comes up, George, I mean we always look at rightsizing where we're at and broadly. So you got to say, if you're spread too thin, if you see one particular area becoming a part where you can cut your cost without diminishing your capacity, I think that's what we're constantly looking at. And that business is -- I mean you called it out. I think Asset Integrity is the one that we have to be careful with. And Projects is one that we always monitor how we can mitigate our cost, whether it's through how we utilize vessels, how we utilize spot charters and things like that to be able to be there. But I will say, in particular, and I want to be clear about this because we're talking a lot about projects, in particular, it's tough when these call-out jobs don't materialize. But historically, they have also been one of our greatest opportunities to make good returns when the activity comes to be. And so that's been -- historically, it is always a challenge to decide how much of that cost can you take out without diminishing the capacity to be opportunistic when those things appear.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [17]

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Okay. That's very helpful. And then on the ROV side, utilization jump quarter-on-quarter was impressive. We expected it to be up, but the magnitude was impressive. And I think you said you even expected Q4 utilization to be more resilient than it typically is seasonally. I'm curious what -- correct me if I'm wrong, but also just curious what geographies are generally driving the uptick in utilization? And what geographies you expect drive the majority or plurality of that utilization in the back half of the year?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [18]

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So I guess when you look at Q4, and this is kind of utilization across the year, Q2 and Q3 were strongly driven by, like I said, sort of that international vessel-based activity, especially on the construction side. Q4 is based on our -- this walk that we've shown or we've talked about of increase in working contracted floaters. So that's driving some of that -- some -- or the majority of that fourth quarter resiliency, as you will. And it's not -- I mean I would say that it's not unusual. We saw similar activity profile last year. The good part is we're building on a bigger base. So while the profile of how the activity is going, it's similar. We are seeing just overall an increase in baseload activity.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [19]

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That's helpful. And then just to make sure I don't leave it out. From a geographic standpoint, any regions that standout that are adding to that baseload in a more pronounced fashion than others?

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [20]

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I would say Norway certainly an area that's been holding strong for us. And with the uptick in rig count here in the Gulf of Mexico has been good. Even in West Africa, we're seeing an increase. So it's not any one single geographic region that's really outperforming the others. I think we're starting to see an incremental increase throughout most of the global regions.

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Operator [21]

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Your next question comes from Ian MacPherson with Simmons.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [22]

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Rod, you mentioned -- I'm sorry that I missed a key detail here in the earlier question-and-answer about a key contract that did not go your way that you missed on price. Was that -- which segment did that occur in?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [23]

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That was AdTech in our government business. We had...

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [24]

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That was the Navy contract. That's what I was curious about.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [25]

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(inaudible) you got it.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [26]

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So -- right. So as we look towards the improvement in AdTech in the second half and hopefully, sustain momentum beyond that, I wanted to just make sure that the loss of that contract was not significantly diminishing to your backlog, such that it doesn't cramp your ability to grow at a continuing level beyond the next quarter or 2. And it sounds like that contract was described as not a normal course of business and that your normal course of contracting with the Navy is intact. Is that correct?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [27]

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Yes. And Ian, let me make sure I hit both parts of AdTech here because I think it's important when we talk about second half. So first of all, on the government side, a lot of this is based on our manpower and our capability to do work on vessels. And so when we didn't get this one large contract, it also allows us to push harder on our existing load of work and redeploy that manpower and execute more against the other backlog. So I think that does actually -- some of that shifts over to the other contracts. And then the other side, the other big part of our AdTech push in the second half is the delivery of projects in our entertainment business. So -- and that's -- from a size standpoint, that's more meaningful than the shift in the government work.

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [28]

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Yes. And just for clarity, that one project was never in our backlog. It was -- we had the expectation we would win it, and we were unsuccessful.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [29]

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Understood. A follow-up for me. I know that -- you mentioned that products should enjoy continuing upward momentum in the umbilicals manufacturing sequentially throughout the year. How do you shape-up the outlook for your service and rental business in the fourth quarter? I know that you had excellent results in Q2. The mix is bringing your products guidance a little bit lower sequentially, but that's more mix related. But how do you think the -- structurally the business for your higher-margin rentals and services is developing beyond just the recent quarter?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [30]

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Yes. If I can give you some color, I think this will help qualify it. So service and rentals, yes, we had -- and part of that is, I think we talked a lot about light well intervention. In the first half of the year, we had a significant light well intervention job that did complete. And as it finished, delivered as we used, hoarded extraordinary results. Right now, we don't have a large light well intervention type job in the mix. So that's not in the fourth quarter results. What is there is the normal baseline work we have of service and rental tooling. And I think we've been -- and I think we've got a pretty reasonable approach to that because we don't have any of these big singular events. So I think that -- the load that we have put in is in the mix in both the margin and the revenue side is attainable.

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Operator [31]

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Your next question comes from Vaibhav Vaishnav with Scotia Howard Weil.

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [32]

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I guess just on Subsea Products, the orders last year, like in 2018, were up 20% year-over-year. We have some time lag for the manufacturing process. Is it fair to think, given the time lag that product revenues could be up 20% in 2019?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [33]

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Vebs, you always give us good math questions. We got Alan, he's giving you the numbers. But you are absolutely correct on the activity level, and it looks like that 20% is pretty close.

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [34]

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Got it. Got it. That's helpful. And so given what we now today, just assuming offshore activity very modest improving, any segments that have risk of being down year-over-year in 2020?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [35]

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We're not -- we haven't given any...

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Vaibhav D. Vaishnav, Scotia Howard Weil, Research Division - Analyst [36]

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Just conceptually.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [37]

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Let me -- I would just say, Vebs, I mean if you look at what's going on in the market from where we sit today, we don't think there's anything extraordinary going on in, say, the back half of this year that you would worry about being a random event. I'll just say that, I think.

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [38]

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Yes. We'll give you more color on 2020 on our Q3 call.

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Operator [39]

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(Operator Instructions) Your next question comes from Cole Sullivan with Wells Fargo.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [40]

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Several of mine have been touched on already, but -- and the conversion rate of the kind of heavy first half orders, how do we think about that? Is it kind of more relates to 2020 with the umbilical awards? Is it -- how do we think about the contribution in 2020 at this point as those start ramping up pretty heavily?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [41]

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Yes. I think it certainly benefits our large factories for the umbilical manufacturing. I think when you look at the Anadarko, Mozambique award, I think we noted that those deliveries extend out into middle of 2021. So it gives us some nice line of sight to kind of a steady manufacturing plan through the factory as we hopefully announce another conversion of an LOI to an award at some point, that would give us a similar kind of line of sight to another factory. So that certainly bodes well for obviously the product side of the business as we look at our backlog. I think what we've got to look at then is as Rod was talking earlier about, all the other additional FIDs. We don't see as many epic awards like those today in the pipeline, but you do see a healthy cadence of FIDs that are looking to come forward.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [42]

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Okay. And then over to the second half of the year, we have a nice ramp there and revenues and products. And you guys have kind of guided to low single-digit margins there. How do we think about the mix kind of changing there with manufacturing ramping up as well as the Riser Award in Brazil kind of coming onstream in 4Q from what I recall?

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [43]

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That's built into our mid-single-digit guidance.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [44]

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Both of those.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [45]

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Okay. As far as pacing goes, should we expect any kind of change quarter-over-quarter? Is it fairly level?

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [46]

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I would say it's going to be more in Q4.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [47]

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Stronger in Q4.

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [48]

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As we get into...

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [49]

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[I think we factored] the umbilical. And then that speaks, Cole, with the guidance. So when we were in the know, we talked a little bit about being that flat to down in Q3, but then finished in the second half in products stronger than first half.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [50]

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All right. And then one last quick one. Did you guys give the mix of service and rentals in manufacturing in the second quarter?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [51]

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We did not.

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Alan R. Curtis, Oceaneering International, Inc. - Senior VP & CFO [52]

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We will in the Q.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [53]

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We will in the Q.

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Operator [54]

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Your next question comes from Eduardo Royes with Jefferies.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [55]

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Question on the CapEx. It looks like you guys took that up by, if I heard correctly, towards the higher end of the range. Just wondering if there's any more sort of discrete spend in there? Or if you had to have some catch-up maintenance spend? Just curious for that and any way you can help us start thinking about kind of the nonrepeatable items obviously as we start thinking about 2020?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [56]

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Yes. Great question. Yes. We took it up to the higher end there at 125 for the year. And you'll notice we also took up the maintenance from that $40 million to $50 million to $50 million. Most of it is with the increased activity in the ROV segment. We are seeing some increased cost to serve that market. So when you -- that was the main reason for taking up the guidance there to the high end of the range. We will say it as the good cholesterol. So when I start looking at what's the nonrepeatable going into next year, we've talked a lot about, we have the drill pipe riser contract that we're building the assets this year as well as we had the final payments in cost associated with the Ocean Evolution coming out this year. So those are 2 pretty significant items that impacted our CapEx spend in 2019 that are probably not recurring in 2020.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [57]

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I guess along those lines, is all the Ocean Evolution payments -- is all of that behind us now? Was that in the second quarter? Or do you still have some payments on the Evolution coming?

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [58]

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That was behind us now. We completed it in Q2 and put it into service.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [59]

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Okay. And then my follow-up as it relates to projects. Just a question. Obviously, the call-out market ended up being weaker than I think you guys thought even 3 months ago, but you also cited, I think, some cost overruns or some issues there. And I guess I'm just wondering, it doesn't sound like the cost overruns or whatever the execution issues were particularly big because you guys haven't -- it doesn't look like there's much of an obvious uplift, I guess, in the margins in the third quarter. And I guess I would've thought maybe that would get a little bit better if nothing else from not having those issues? So just help me think about that, please.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [60]

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I think the way you can say that is that there were -- we had other things going on in the quarter that would've stood out as being more exceptional had we not had the extraordinary operational issues. So that's -- those canceled each other out, which was kind of the disappointing Q2 not being able to deliver on those. But then again, we still see this on -- less of the call-out market than we would have liked to see in Q3 as well. So -- and like I said, I'll reiterate that is that with so many of the indicators with ROVs and FID in the product space, it's just -- hopefully, we can see this start to impact the IMR market as well going forward.

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Eduardo B. Royes, Jefferies LLC, Research Division - Equity Analyst [61]

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I think it's pretty safe to assume, right, that you guys aren't baking in much of any improvement in the IMR side in the Gulf of Mexico at this point in time. I guess not to try to get excited about the bottom line as it remains very tough to see, right? So there is -- the expectations are pretty low right now, I guess, is the point. There could be some upside.

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [62]

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Exactly. Like we said, that is a big part, the biggest part of our takedown of the guidance range. So at this point, we call -- we think it's going to be. So I don't think we're hanging on to anything that would produce any future risk in the guidance.

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Operator [63]

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

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Roderick A. Larson, Oceaneering International, Inc. - President, CEO & Director [64]

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All right. Well, since there are no more questions, I'd just like to wrap up by thanking everybody for joining the call. And this concludes our second quarter 2019 conference call. Have a great day.

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Operator [65]

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