Oceaneering International - Earnings Call - Q3 2025

Executive Summary

• Strong beat and sequential improvement: Revenue $742.9M and adjusted EBITDA $111.1M exceeded guidance and “consensus estimates,” with YoY growth of 9% and adj. EBITDA up 13% (also above the Q2 guide of $100–$110M). Management cited higher‑margin backlog conversion in Manufactured Products, favorable OPG project mix, and higher ROV revenue/day in SSR as key drivers.
• Estimates context: Q3 beat across EPS ($0.55* vs $0.43*), revenue ($742.9M* vs $712.5M*), and EBITDA ($112.6M* vs $102.9M*); sequentially higher vs Q2 on all three measures*. Values retrieved from S&P Global.
• Guidance: Q4 2025 consolidated EBITDA guided to $80–$90M; unallocated expenses ~ $45M. FY26 initial EBITDA guide introduced at $390–$440M with FCF “consistent with 2025” and continued buybacks.
• Mix shifts ahead: Management expects Q4 2025 declines in OPG on absence of 2024 international projects, but improvements in SSR, ADTech, and MP margins on lower revenue; sets 2026 growth led by ADTech, with energy businesses stable and SSR margins mid-to-upper 30s.

What Went Well and What Went Wrong

• What Went Well

  • Delivered above guidance and consensus: “generated adjusted EBITDA in excess of our guidance range and consensus estimates,” reflecting strong segment execution.
  • Manufactured Products margin inflection: OI $24.7M (+119% YoY) on 9% revenue growth; backlog $568M; book-to-bill 0.82 TTM; pricing improvements in Grayloc/Rotator.
  • Commercial momentum: Total inbound orders $854M across SSR, ADTech, and MP; SSR ROV revenue/day up 6% to $11,254; ADTech revenue +27% with OI +36%.

• What Went Wrong

  • SSR utilization softened: ROV fleet utilization 65% (down from 69% YoY); SSR revenue essentially flat YoY.
  • OPG outlook for Q4: Management guides significant YoY decreases in OPG revenue and OI due to absence of last year’s international projects and lower U.S. Gulf vessel activity.
  • Higher corporate costs: Unallocated expenses rose 19% YoY to $46.3M in Q3; Q4 expected near $45M.

Transcript

Operator (participant)

Welcome to Oceaneering International's third quarter 2025 earnings conference call. My name is Tina, and I will be your conference operator. All lines have been placed on mute to prevent any background noise. There will be a question and answer session after the speakers' remarks. With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations.

Hilary Frisbie (Senior Director of Investor Relations)

Thanks, Tina. Good morning and welcome to Oceaneering International's third quarter 2025 earnings conference call. Today's call is being webcast, and a replay will be available on Oceaneering International's website. Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments, Alan Curtis, Senior Vice President and Chief Financial Officer, and Mike Sumrold, Senior Vice President, Finance. After Rod's remarks, we will open the call up for questions. Before we begin, I would like to remind participants that statements we make during this call regarding our future financial performance, business strategy, plans for future operations, and industry 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, which is posted on our website. I'll now turn the call over to Rod.

Rod Larson (President and CEO)

Thanks for joining the call today. In the third quarter, we surpassed the high end of our guidance range, generating a consolidated adjusted EBITDA of $111 million, marking our highest quarterly performance since the fourth quarter of 2015. These results were largely driven by the ongoing conversion of higher quality backlog in manufactured products, continued high activity levels, and a favorable project mix in our Offshore Projects Group, or OPG. Progression in Aerospace and Defense Technologies, or AdTech, as they onboard personnel and subcontractors to support large-scale programs and sustained remotely operated vehicle, or ROV, pricing and performance. Today, I'll focus my comments on our results for the third quarter of 2025, our outlook for the fourth quarter of 2025, our consolidated EBITDA and free cash flow guidance for the full year of 2025, and our initial full year 2026 guidance.

Starting with our third quarter 2025 consolidated results as compared to the third quarter of 2024, we generated revenue of $743 million, representing a 9% increase, and operating income rose 21% to $86.5 million. We made meaningful progress in free cash flow, generating $77 million after utilizing $24.2 million for investments in the business. We continued to return capital to shareholders, repurchasing approximately $10 million worth of our common stock shares, resulting in an ending cash position of $506 million. Now let's look at our results by business segment for the third quarter of 2025, also compared to the third quarter of 2024. Subsea Robotics, or SSR, revenue and operating income were essentially flat, as was the EBITDA margin of 36%. ROV revenue per day utilized increased to $11,254 from $10,576, offsetting the effects of lower but still solid ROV fleet utilization of 65%.

Fleet use of 63% in drill support and 37% in vessel-based activity was similar to the same period last year. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 77% and 23% respectively, consistent with last year. As of September 30, 2025, we had 60% of the contracted floating rig market, with ROV contracts on 78 of the 131 floating rigs under contract. We maintained our fleet count of 250 ROV systems. During the quarter, we sold a vessel which was underutilized in the survey market. We believe this will yield positive results in our survey business by reducing costs and focusing our efforts on delivering increased efficiencies through the enhanced simultaneous operations capabilities of the Ocean Intervention II.

Manufactured products operating income of $24.7 million and operating income margin of 16% doubled on a 9% increase in revenue. These results were driven by the continued execution of higher margin backlog through our umbilical manufacturing plants, as well as pricing improvements in our Grayloc and Rotator product lines. Order intake during the quarter of $208 million was solid, and our backlog on September 30, 2025, was $568 million. Our book-to-bill ratio was 0.82 for the trailing 12-month period. OPG operating income increased 17% to $23.7 million on a 16% increase in revenue, with the operating income margin flat at 14%. These results reflect healthy vessel utilization in the U.S. Gulf and a favorable mix of intervention and installation projects for the quarter. For Integrity Management and Digital Solutions, or IMDS, operating income and operating income margin improved on a slight decline in revenue.

These results reflect the absence of a one-time non-cash charge associated with the divestiture of our Marine Maritime Intelligence Division in the third quarter of 2024. AdTech operating income significantly increased by 36% to $16.6 million on a 27% increase in revenue, with operating income margin improving slightly to 13%, driven largely by increasing activity levels associated with contract wins in our defense business. Unallocated expenses of $46.3 million were in line with our guidance for the quarter. Turning to our outlook for the fourth quarter of 2025 as compared to the fourth quarter of 2024, we expect revenue to be lower as improvements in AdTech and SSR will only partially offset the reduction in international OPG projects. Consolidated EBITDA is projected to be in the range of $80 million-$90 million.

By segment for SSR, we anticipate increased revenue and operating income, with the EBITDA margin expected to be in the mid to upper 30% range. Our expectation for improved results is based on continued progression of ROV revenue per day utilized and improved utilization in our survey group, with projects starting in the fourth quarter in the U.S. Gulf, Europe, and West Africa. For manufactured products, we expect significantly improved operating income on lower revenue, with continued conversion of higher margin backlog and cost reductions associated with our non-energy products. For OPG, we project revenue and operating income to decrease significantly due to the absence of large-scale international intervention and installation projects that favorably impacted the fourth quarter of 2024, lower vessel activity levels in the U.S. Gulf, and the project timing.

With respect to our leased vessel fleet, we have one charter in the international market that is expiring during the quarter that we do not intend to renew due to our expectation for seasonally lower activity and allowing us to better match lease costs to future projects. For IMDS, we forecast revenue to decrease and operating income to decrease significantly due to lower activity. For AdTech, we anticipate significant increases in both revenue and operating income on higher activity levels in our defense business. We project unallocated expenses to be in the $45 million range. For the full year of 2025, based on our fourth quarter EBITDA guidance combined with our year-to-date EBITDA results, we expect to generate adjusted EBITDA in the range of $391 to $401 million.

Our strong free cash flow generation in the third quarter gives us confidence to maintain our full-year guidance range of $110 million-$130 million. Now looking forward, I'd like to provide you with our initial outlook for 2026. As we announced yesterday, we are initiating consolidated EBITDA guidance in the range of $390 to $440 million, driving similar levels of free cash flow as we expect to generate in 2025. This is based on our expectations for significant growth in AdTech and stable activity levels across our energy-focused businesses. In particular, for SSR, we forecast similar ROV utilization levels as 2025 at improved pricing levels, together with increased volume from survey, will generate slight increases in revenue and operating income and stable EBITDA margins.

For manufactured products, we project significantly improved operating income and improved operating margins on decreased revenue due to the continued conversion of higher margin backlog, as well as improved performance and cost reductions from our non-energy product lines. For OPG, we expect revenue and operating income to decrease on changes in project mix. While significant opportunities exist, customer schedules have not yet finalized. For IMDS, we forecast increased revenue and operating income. For AdTech, revenue and operating income are expected to increase significantly, and operating income margins are expected to be similar to 2025 levels as we execute large-scale projects that have been ramping up throughout the year. Our 2026 forecast is based on the expectation that the government shutdown will be resolved in 2025. We plan to continue share repurchases in 2026, with approximately 5.8 million shares remaining under our existing repurchase authorization.

We'll provide more detailed guidance for 2026 during the year-end reporting process. In summary, we continue to see growth opportunities in each of the markets we serve beyond 2025, driven by supportive long-term commodity prices, improving visibility into an increasing number of contracted floating rigs in the second half of 2026 and beyond, stability in ROV revenue per day utilized, our ability to optimize our revenue mix between our customers' CapEx and OpEx spend, growth in global defense spending, and increased market demand for our mobile robotics technologies. Before we take questions, I want to take a moment to acknowledge an important milestone. As we previously announced, Alan plans to retire from his role as CFO on January 1. During his 30 years with Oceaneering International and 10 years as CFO, Alan has been more than a financial steward.

He's been a trusted advisor, a steady hand, and a thoughtful leader. His ability to challenge assumptions while remaining open to the perspectives of our employees, customers, investors, and other stakeholders has helped us to shape our strategy in meaningful ways. More than that, Alan is a true Oceaneer, embodying our culture of innovation, collaboration, and a relentless commitment to excellence. His steady presence has shaped not only our financial direction but also the way we lead and work together. Alan, on behalf of all Oceaneers and our board of directors, thank you for all you've done for our team and for Oceaneering International. We look forward to your continued contributions as you transition to an advisory role. I'm also happy to introduce Mike Sumrold, our Senior Vice President of Finance, who joined the call today.

Mike brings deep industry experience, and we look forward to his contributions to Oceaneering International's continued growth. We'll now be happy to take any questions you may have.

Operator (participant)

To ask a question at this time, simply press star followed by the number one on your telephone keypad. Again, that is star one to ask a question. Our first question comes from the line of Josh Jane with Daniel Energy Partners. Please go ahead.

Josh Jayne (Managing Director)

Thanks. Good morning. First one from me, just when I think about the business moving forward toward the Ocean Intervention II, I think it was in August. It was helpful to see the scale and capabilities of the vessel. One of my takeaways from the upgrades was how you'll ultimately be able to perform simultaneous autonomous survey operations. Maybe you could speak to that a little bit more, the advantages that's going to provide and how we should think about that, those capabilities and the business moving forward.

Rod Larson (President and CEO)

Sure. I think, Josh, you saw some of that in the tour, but the main takeaway is being able to do more with less. You decrease the surface expression, you decrease fuel usage, you decrease personnel on board. Much more efficient, not just from a cost standpoint, but also from a time standpoint, being able to do more. The other thing that isn't necessarily intuitively obvious, because we're doing these things simultaneously and we're gathering this data, you're actually cross-checking data. You're getting data from two different sources at the same time. You get a better idea early about your data quality. I think all in all, it just provides the customer a more robust solution and getting that data into their hands sooner.

Josh Jayne (Managing Director)

Okay. Thanks. This quarter, you announced a significant subsea robotics contract with Petrobras. I think it was $180 million. Could you speak to that market in 2026, how you expect it to hold up versus other geographies? Do you expect your market share in Brazil to increase moving forward for your other energy business lines?

Rod Larson (President and CEO)

Sure. I would just say, first of all, I was down there just about a month ago and got to meet with, you know, customers, including Petrobras. The market's really robust. I mean, they've got some pretty significant plans. They've got Pelotos, which is coming up. They just got an approval, I think some of you might have seen in the news, they just got approval to drill up north near the mouth of the Amazon, which kind of puts them in that Atlantic margin along with Suriname and Guyana. I mean, very exciting stuff up there. It is ever forward in Brazil. They're looking really hard at what they have ahead of them. These are as big opportunities as we've probably ever seen in Brazil. I think market share continues to increase.

My conversations certainly led me to believe, like I would say even more in the past, but coming back recently, their interest in technology is really big. I mean, they are first adopters of a lot of the most interesting things we do. We've got things like a riser inspection that will actually fly and do riser inspections. We've done mooring line inspections on some of the things. Both those things drive them to exploration places, but also, with an aging infrastructure, the ability to continue to work in places and exploit those investments they've already made in the existing field. I just think Brazil is a very exciting market and we're well positioned there.

Josh Jayne (Managing Director)

Okay. Thanks. Maybe just one more, quick one, just on the AdTech business, which continues to grow, from a number of the awards you announced and you highlighted in your 2026 guidance. It sounds like there's confidence it'll be an increasing portion of your business going forward. Could you just speak to how that business is expected to compete for capital moving forward and where you ultimately see it as a percentage of your business, you know, over the next three to five years? I'll turn it back. Thanks.

Rod Larson (President and CEO)

Sure. I think what the nicest thing about it is that business grows, it's really low capital intensity, and that's one of the most exciting things about scaling up that business. It's a lot of engineering know-how. It's a lot of products we build. It actually allows us to sweat the footprint we already have. Currently, I've talked a lot about this, you know, that people ask about, we've got this defense business and we've got this energy business. They're really hard to separate. We do a lot of robotics. We do a lot of vehicle work, and all of those things happen throughout Oceaneering International, right? Some of the things those customers want are really well aligned with our IMDS business, for example. Some of them are really well aligned with the SSR business, obviously, with vehicles.

I think that's the exciting part, we are able to scale that up significantly without a lot of capital. The other thing that we're starting to see more and more, as you see NATO spending increase, you see some of the other areas of the world bearing more of the cost and more of the responsibility for defense, we're seeing more international opportunities come up as well. That's everything from things we've seen in Taiwan, things that we've seen with AUKUS, the Australian, U.K., and U.S. submarine build. It's growing on all fronts. The big beautiful build really put a lot of money back in the coffers for this work to go forward.

Alan Curtis (SVP and CFO)

Yeah. I'll just add one quick comment. We had management meetings last week, and just to see the whole team rallying around this growth aspect of AdTech and all of the people from the energy side of the business, it was just nice to see 80 people sit there and rally around, how can we get there faster? Yep.

Josh Jayne (Managing Director)

Thanks. I'll turn it back.

Operator (participant)

Our next question comes from the line of Scott Gruber with Citigroup. Please go ahead.

Scott Gruber (Director of Oilfield Services and Equipment Research)

Yes, good morning.

Rod Larson (President and CEO)

Hey, morning, Scott.

Scott Gruber (Director of Oilfield Services and Equipment Research)

Morning. I wanted to get some more color on one of the segments in 4Q of manufactured products. It's been a big source of growth this year. You mentioned the continued strength on a year-over-year basis in 4Q on operating income, but on lower revenues. It looks like it's implying a maybe double-digit decline on revenues. What do you think that means for margins, and what's driving the revenue decline? Maybe unpack that one for us a bit more.

Alan Curtis (SVP and CFO)

Yeah. Give me one second here, Scott. I'm looking at, I don't know if we're implying double-digit decline in revenue. I think it's really the quality of earnings is where we see the increase in the operating income and EBITDA for the segment. A lot of the backlog we've been talking about for the last two years where we received the improved pricing, a lot of that's starting to flow through as you witnessed this year. There's a good part of that still in backlog that we expect to execute in 2026. At the same time, we've taken some, I'll say, operational excellence focus in this area as well and continue to look at how we can improve our cost structure across the board. I think we're expecting to realize some additional benefit in 2026 there.

Rod Larson (President and CEO)

Yeah. Scott, maybe just while they're doing the calculations, we're running the plants. The plants are booked. We've got a great runway for both what we did in 2025 but through 2026 as well. I think Alan's mentioned it before, having good backlog in all three of the umbilical plants. We've got good throughputs at Grayloc and Rotator. Rotator is having some of their best quarters ever. I don't think the revenue thing is to imply that we're not going to have a large book of work. I think it's really just a matter of how that timing happens. I would say the sales funnel looks good. We're booking into 2027. It's just a matter of when those larger projects hit. I'm really, I mean, manufactured products is a good story for next year.

Scott Gruber (Director of Oilfield Services and Equipment Research)

Yeah. I'm just a bit surprised that the revenue would be, you know, declining sequentially here in the fourth quarter relative to last year. Moving on to AdTech, you know, obviously another great source of growth for you guys. Can you just give us, you know, some additional color on the kind of cadence of AdTech growth that's embedded in the 2026 EBITDA guide?

Alan Curtis (SVP and CFO)

Yeah. I would kind of start with, you know, we've been talking through, we are adding additional contractors, subcontractors, and personnel for the large-scale project that we announced in Q1. The team continues to onboard those subcontractors. Looking at how we exit 2025, I think is a good beginning to how we think we'll start 2026. We expect to still continue to ramp up some of the revenue throughout the remainder of 2026 as well. We expect good progression year over year, really with the new program that we have been awarded.

Rod Larson (President and CEO)

That's just that program because it ramps through 2027, but we've got some other things coming on as well. New opportunities, yet to be determined. There's just a lot of excitement at AdTech. I think we talked on the previous, to Josh as well. It's firing on all three cylinders, actually, in that business. It's hard to really quantify until we get those other pieces booked. We just talked about that one big project. Alan hit it well. It'll ramp through 2026 and into 2027.

Scott Gruber (Director of Oilfield Services and Equipment Research)

Got it. No, I appreciate all the color. I'll turn it back. Thank you.

Rod Larson (President and CEO)

Thanks, Scott.

Operator (participant)

I'm with no further questions in queue. I will now turn the call back to Rod Larson for closing remarks.

Rod Larson (President and CEO)

Since there are no more questions, I'd like to wrap up by thanking everyone for joining the call. This concludes our third quarter 2025 conference call. Have a great day.

Operator (participant)

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.