Good morning. My name is James, and I will be your conference operator today. At this time, I would like to welcome everyone to Oceaneering's 2017 First Quarter Earnings Results 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. I would now like to turn the call over to Suzanne Spera, Director of Investor Relations. Thank you.

Thanks, James. Good morning, and welcome to the Oceaneering First 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 Kevin McEvoy, Chief Executive Officer, who will be providing our prepared comments; Rod Larson, President; 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 first quarter press release. We welcome your questions after the prepared statements. I would now like to turn the call over to Kevin.

Good morning, and thanks for joining the call today. Since our guidance for the full year of 2017 has been to be marginally profitable at the consolidated operating income line, we were pleased our first quarter operating results came very close to breakeven. For the first quarter, our reported loss per share of $0.08 included the impacts of $2.1 million discrete tax expense and $2.2 million of pre-tax foreign currency exchange losses. Excluding these items, adjusted net loss per share was $0.04 or slightly better than our expectations. On an adjusted basis, operating results were $10.9 million lower than that of the immediately preceding quarter due to higher unallocated expenses, seasonality, and lower activity levels in Subsea Projects. The primary cause of our net discrete tax expense was the result of a new accounting standard associated with the share-based compensation. Again, we are pleased that each of our operating segments generated positive results, and overall, maintained positive earnings before interest, taxes, depreciation and amortization, or EBITDA, and free cash flow. These results were made possible by the continued focus of our employees to deliver cost-effective quality services and products on time and with a safety mindset. Now, let's look at our business operations for the first quarter of 2017 compared to the fourth quarter of 2016 on an adjusted basis. ROV operating income was down $2.7 million on 13% lower revenue resulting from 10% fewer days on hire and a 4% reduction in revenue per day on hire. Our fleet utilization for the quarter was 46%. As we have said on our past conference calls, lower operating margins can be partially attributable to depreciation becoming a higher percentage of revenue during periods of low utilization and pricing. During the first quarter, ROV depreciation and amortization equated to 31% of revenue…

James, we're ready for our questions.

And your first question comes from the line of Blake Hutchinson from Howard Weil. Go ahead, please. Your line is open.

Good morning.

Morning. Hi, Blake.

Morning.

I guess, just the first question, a fairly positive 2Q guide and maintenance of the full year guide, but wanted to circle back to kind of earlier, your thoughts around perhaps attaining a 50% utilization level within the ROV segment itself, again, trying to assess the power of kind of the vessel-based seasonal recovery in 2Q, 3Q. Is that still an attainable goal for the year or should we think about that more as an attainable goal around these more positive seasonal quarters?

I think it would certainly be very plausible for the seasonal quarters two and three to achieve that. There still is lack of visibility of spending levels at this time from major operators, but I think it is possible to achieve that for the year. But certainly, we feel a lot more comfortable saying that for quarters two and three than for the entire year at this point.

Got it. Thanks. And then as we consider the attendant margins during the seasonally stronger period in the ROV segment, is there any frictional costs we should consider? Or should there be fairly strong flowthrough, we're just kind of reactivating units that are more or less, for lack of a better term, already on location?

I would not expect any increased costs in order to put ROVs to work that are not currently working. I wouldn't see that. However, I also certainly don't see any uptick in margins or whatever during that period. It's just going to be utilization.

Got it. Thanks. And then just a quick follow-on to that. Was the Anadarko umbilical award counted in 1Q order and backlog or that will flow through Q2?

That actually was included in our first quarter.

Okay. Thanks for that. I'll turn it back. Appreciate the time.

Your next question comes from the line of David Smith from Heikkinen Energy Advisors. Your line is open.

Hi. Good morning. And just wanted to make sure I caught the answer on that last question. The full value of the umbilical award with Anadarko was included in first quarter backlog?

Yes, that's correct. We had it in Subsea Products manufactured backlog.

Appreciate it. Wanted to ask about ROV cost. If we back out depreciation, it looks like OpEx on a per ROV day basis actually declined over 7% sequentially. Just wonder if you could talk about what steps you've taken that delivered that cost improvement, and what kind of room you think might be left for further reductions.

I think when we look at the EBITDA margins, we were pleased to see the increase this last quarter going largely up from 35% to 37% on EBITDA basis. A lot of that's due to the cost reduction activities that we took in the back half of last year, predominantly in the fourth quarter. So I don't envision that we'll be having a lot more of that good juice coming through in the next few quarters.

I mean, now...

We look to maintain that margin going forward.

It's all about execution and recurring maintenance costs, and maximizing use of spares and whatnot that we already have.

Okay.

And the spot day rate for the vessel work that's going to be on callout's is going to affect our margins.

Yeah.

Appreciate that color. And just real fast, sorry, I missed it if you gave it. I didn't catch the ROV mix between drill support and vessel-based.

It was 69%, 31%.

Thank you very much.

Your next question comes from the line of Joe Gibney from Capital One. Go ahead, please. Your line is open.

Thanks. Good morning. Just a question on Products. You referenced an uptick in service and rental business. Just curious sort of what you were alluding to there. I know signs of life in that business, IWOCS side, kind of require a little bit more stabilization, Gulf of Mexico contracted floater count. Was just kind of curious what you were alluding to there. Is there some other geo mix that's beginning to pick up and you're seeing a pick-up in the rental business somewhere else? Just curious if you could give a little more color on that comment.

Yes. When you look at our Subsea Products, there's two different areas in the service and rental that we're going to participate with – in Q2 and Q3, more from the seasonal activity. A lot of the tooling is also associated with the uptick in the ROV utilization that we're anticipating in those quarters. So we should see some benefit there, as well as with our large work package systems where we do hydrate remediation, well stimulation-type work, we're expecting to see an uptick in that business as well.

Okay. Helpful. And then just a couple vessel-based questions on Projects. So just wanted to confirm, you did reference the OI III likely being released at the end of July. Just want to confirm that was the case. And then you referenced the new build, the Evolution coming in the latter part of the year. Just wondering if you could get a little bit more granular about that. Is it going to be able to participate in better seasonal work months in the Gulf of Mexico in 3Q or are we looking at more year-end kind of timeframe for that?

First of all, on the Ocean Intervention III, that is the current release date as contracted. So the end of July, that will come off contract with BP and more than likely will be released, but we'll provide more information on that when we get to that point. As far as the Ocean Evolution, it is still in the final stages of completion at the shipyard. We are expecting, hoping, but this is kind of a week-by-week thing at this point, there's no big issues with it. It's just taking much longer than either we or the shipyard would like at this point, but we're looking for delivery in the latter half of the year, and remains to be seen whether it will be out in time to take advantage of seasonal work.

Okay. Appreciate it. Kevin, kind regards to you. Thanks.

Thank you.

There are no further questions at this time. I turn the call back over to the presenters.

Okay. Since there are no more questions, I'd like to wrap up by thanking everyone for joining the call. This concludes our first quarter 2017 conference call. Thanks.

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