Good morning. My name is Christa and I will be your conference operator today. At this time, I would like to welcome everyone to the Oceaneering Second 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. Thank you. Suzanne Spera, Director of Investor Relations, you may begin your conference.

Thank you, Christa. Good morning and welcome to the Oceaneering Second 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 second quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

Thank you, Suzanne. Good morning and thanks for joining the call today. For the second quarter, we are pleased that our overall operating results were in line with our expectations and our reported earnings per share of $0.02 and $62 million in earnings before interest, taxes, depreciation and amortization or EBITDA were ahead of consensus. Sequentially, quarterly operating income increased by $9.5 million on improved profit contributions from all of our business segments except for Subsea Products, which was slightly lower. We were pleased that each of our operating segments remained profitable. On a consolidated basis, for the first half of 2017, we've generated $112 million of EBITDA and $61 million of free cash flow. We believe our cash flow and liquidity position us well to manage our business and provide optionality through the continuing industry downturn. At the end of the quarter, we had $482 million in cash and an undrawn $500 million revolving credit facility. Based on these strengths, the board maintained our dividend and declared a $0.15 per share dividend to be paid during the third quarter of 2017. I'd now like to review our business operations by segment for the second quarter compared to the first quarter. ROV revenue and operating income increased $9.4 million and $4.5 million respectively on higher activity for vessel-based services. Our fleet mix during the quarter was 61% in drill support and 39% for vessel-based activity compared to 69% and 31% for the prior quarter. Due to change in mix, partially driven by seasonality, our second quarter ROV operating margin of 10% improved from 6% in the immediately preceding quarter on increased days on hire and revenue per day on hire. And our ROV EBITDA margin of 38% improved slightly from 37% for the first quarter. But let me be clear,…

Thank you. Your first question comes from the line of Jim Wicklund from Credit Suisse. Your line is open. James Wicklund - Credit Suisse Securities (USA) LLC: Good morning, guys.

Good morning, Jim.

Good morning. James Wicklund - Credit Suisse Securities (USA) LLC: I think you guys are doing a great job coming through what has continued to be a difficult market. So congratulations on your effort. You take delivery of your new vessel, Jones Act vessel, the end of this year. There has been a lot of talk about ending some exemptions for non-Jones Act vessels in the Gulf of Mexico. I realize that the market's oversupplied in general. Can you talk a little bit about what's the capabilities of the boat? Have you discussed about how much it's going to finally cost you, and then more importantly, what kind of market you're going to bring it into early next year with those capabilities?

So let me start with the boat. It is a highly capable boat. It's going to be one of the largest and most capable IMR vessels from a cranage standpoint, deck space and personnel on board. The other thing we love about it is it's probably a very unique combination of a very sleek, modern, Norwegian hull design with the Jones Act flag, an American flag, which is fairly unique in the Gulf of Mexico. So we think it's highly efficient, a great workhorse. So we're excited to get it out. And the next question about sort of the market. We have some work that requires a vessel like that. So we're excited to get it out. The cost-wise, the delays haven't really been any cost escalation. It's been more along the lines of just getting things done. Again, it was a unique design for a first-time build for a shipbuilder. So it hasn't really been any runaways there. Just a matter of time of getting it out. James Wicklund - Credit Suisse Securities (USA) LLC: Okay. Thanks, guys, on that. And the follow-up, if I could, the improvement or potential improvement in stabilization would be great in the deepwater rig market. And you went through the details of which contracts are rolling in and your market share which is still strong. Is there a particular market that you're seeing potential or bidding strength in? Or are you looking at this holistically on an overly broad global basis? Is there a regional hope that's better or now are you better positioned regionally or can you talk about that a little bit?

I think just generally, we're going to go get them all. And to that sense, when you say regionally were you better, that is the point. I think our global footprint is really what's got people happy that we maintain that global footprint. And so as they work with us, it's still going to be Oceaneering everywhere we're at. So I think it's probably not the most precise answer I'd give you. But it really is our strategy is to be really aggressive on market share. James Wicklund - Credit Suisse Securities (USA) LLC: Okay. Thanks, guys. Appreciate it.

Your next question comes from the line of Vaibhav Vaishnav from Cowen. Your line is open. Vaibhav Vaishnav - Cowen & Co. LLC: Hey, good morning. And thanks for taking the question. I wanted to touch upon the Subsea Product orders. So they declined somewhat, at around $100 million this quarter. How should we think about going forward? Can we sustain $100 million or is there like some kind of growth that we can expect going forward in the second half?

No, Vebs. This is Alan. When we look at our backlog; yes, we did burn through quite a bit with some orders that were going through our manufactured Subsea Products businesses. And we do have an expectation that in the back half of this year, we'll see an uptick in orders with the FIDs that occurred in the first half of this year. There is a natural progression that people have to go out to bid and then go through the vetting process. So we're expecting the back half of the year should be better on the order intake side. Vaibhav Vaishnav - Cowen & Co. LLC: Okay. And that's the reason why we think Subsea Products would be higher or is it more because of the rentals?

No. As Rod indicated in his notes, at the back half of the year, we're seeing that the – we'll be influenced by the service and rental business. And where we have that confidence is that we have a lot of that in backlog at this point in time. We had announced the Shell Appomattox job previously. So it's not that we're really looking for work to come in. We already have it in backlog in that service and rental sector. Vaibhav Vaishnav - Cowen & Co. LLC: Okay. In the press release, there was a comment about the M&A. Sounds like you guys are focused on increasing exposure to customers' OpEx budgets. Could you provide some more color around like what your thoughts are there?

Yeah, I'd be happy to. A lot of that goes along with what you've already seen us doing. The part of remaining strong especially like in our Projects business is that we want to make sure that to move the boats, just to keep that activity going, we have to have some really robust integrated solutions to deliver value for our customers. And we talk about that OpEx especially in the IMR space. It's more things like the Blue Ocean Technologies, being able to do the well interventions and being able to provide a more comprehensive service on the back of that boat for our customers. So that's where we're looking to make that a more rich and robust solution for them. Vaibhav Vaishnav - Cowen & Co. LLC: Okay. And I guess the last question. In the press release, there was a comment around beyond 2027 (sic) [2017], investment in deepwater would increase. Was that more of a general comment or was that more to do with in 2018, you guys expect the earnings to improve year-over-year?

No. That's a macro comment that was described. It's not an indicator of 2018 activity. Vaibhav Vaishnav - Cowen & Co. LLC: All right. That's all for me. Thank you.

Your next question comes from Waqar Syed from Goldman Sachs. Your line is open. Waqar Syed - Goldman Sachs & Co. LLC: Thank you. So I just wanted to ask you about the vessel-based work and demand for ROVs. How do you see that trending going forward? And then, secondly, how does structurally your business model changes with – at least for the next couple of years, we're going to see smaller tie-on type projects that are going to get FIDed more than the bigger projects? Thank you.

Sure, Waqar. Thank you. Let me start with the vessel-based ROVs. There are some comments out there about what would be effective to Heerema and to Mærsk contracts, for example. Those have started out strong. We think that they really started to show up in Q2, which is great. We've still got deployments yet to do for Mærsk in particular. So most of our deployment on the newbuild Mærsk vessels is still ahead of us. So we see continued upside there. The other nice thing about the Mærsk and the Heerema vessels, they're tending to work – particularly in the Heerema side, they're tending to work or projected work on construction projects which have less seasonality than, say, a big part of our work here in the Gulf of Mexico on vessel-based work. So when those boats are running around the world, they don't have the same seasonality pressures. So that vessel-based percentage looks good into the future. Waqar Syed - Goldman Sachs & Co. LLC: Now, typically, your revenue per day is a little higher on the construction work. Should we assume that as that mix shift happens towards vessel-based work, we could see some pickup in revenue per day or is that being offset by declines on the drill support side and revenue per day?

It's going to be offset by both the declines in the drill support. As Rod indicated in his notes, we're still seeing pricing that's going to be challenged a little bit and on the drill rig support. And at the same time, geographically, we expect to see some mix shift going forward in the back half of the year and more going to lower cost regions from higher cost. So we're anticipating that average day rate or days on hire to go down in the back half but still hold the margins that Rod indicated. Waqar Syed - Goldman Sachs & Co. LLC: Yeah. And then the question regarding these smaller projects, timed jobs. What should we expect for lead time for your project – projects or FIDs and then how does it affect the umbilical market in particular?

Certainly, those projects have a shorter lead time. They can come to market faster. Part of that's just due to the capacity that's out there, so some of the underutilized capacity in the manufacturing side not just for us but for some of the OEMs. So I think they can come online more quickly post FID. So that's good. The other thing is that the size of installations are sort of manageable. We can do more of that from our larger IMR vessels. So we can do more installation work in those. We can play a bigger part, approaching almost a turnkey on a project like that. So that's positive for us from a plant standpoint on umbilical solutions. Again, you can put these through the plant. When you got capacity, you can get them in and out. So that's quicker turnaround. The only downside is that they're smaller projects. So it takes a lot of them to make a meal. But overall I would say that that's a good thing for Oceaneering. Waqar Syed - Goldman Sachs & Co. LLC: Thank you very much.

Your next question comes from the line of Stephen Gengaro from Loop Capital Markets. Your line is open.

Thank you. Good morning.

Good morning.

Two things from me. The first, just quickly and I'm not sure how much color you're willing to add to this. But when we think about your expectations going forward when you talk about Subsea Projects, I believe what you said was third quarter is a little better, but the second half's much worse. Is that just the timing of the Angola work coming off and any desire to give us a sense for size or help us kind of quantify that at all?

I can't really give you the size. You're right on the timing. The Q3 to Q4 is largely an Angola change. But it's also the seasonality change as well and then continued pressure with an oversupply of vessels in that IMR space. So it's really hard to do anymore than that until we understand more of the magnitude of the seasonality effect.

Okay, that's fair. And then as we think about just overall, you guys have obviously done a very good job on the balance sheet, generating free cash, keeping costs in line. Where do you stand on sort of the cost cutting side? Are you largely to the point where you're done or is there more to do if we kind of persist at these levels for a while?

I think barring any step-change in activity levels, we're where we want to be. We're looking more now along the lines rather than just pure cost cutting in, say, personnel and facilities; we're looking at refinement, better processes, being more efficient. We still have maybe a little bit of consolidation left to go. But it isn't going to be anything large from a reduction in force kind of idea unless we see a major change in activity levels.

Okay, great. Thank you.

Your next question comes from the line of Blake Hutchinson from Howard Weil. Your line is open.

Hi. Good morning.

Good morning, Blake.

Good morning.

Just a couple of points of clarification. First of all, is Evolution kind of pushing back towards the end of the year in no way diminishes its participation in the Appomattox contract, the initial contract?

We will have a little bit of timing. There were some things that we were hoping to do with that boat right when it came out. But most of that can be done with other vessels that we can either spot-hire or the Ocean Alliance. So we're not really pinched. But we certainly would have liked to been out there showing off the boat. But it looks like we might not make the very beginning of the start date.

Okay. But once you have it, it should at least provide you a little bit of work to start its campaign.

Yeah, definitely. Absolutely.

Okay, great. And then, again, I guess this goes hand in hand. Your visibility improvement with regard to the service and rental portion of the products segment, that's a comment for the full second half, not just a 3Q comment.

Correct.

Okay. That was it for me. Thanks, guys.

Thanks, Blake.

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

Thanks. Good morning.

Good morning.

I guess I would just love a little bit more color on kind of the ROV pricing trends within the respective activities. You've sort of anchored some of the commentary around where the costs are different. But on an apples-to-apples basis, can you perhaps give us some perspective on how much ROV rates have declined, whether it's sequentially 1Q to 2Q or if it has to be year-over-year to capture because it's a slow-moving dynamic, I understand?

Well, let me start with, like you said, I think to really feel for it, you got to try to take out the mix. And the mix, I'll separate – just say the mix on the drill support. It's still a fairly significant geographical mix. It influences the way it looks when we show average day rates per quarter. But if you start to look at year-over-year, that's where you see it better. A lot of that apples-to-apples, as you said it, has happened year-over-year. And I've shared with some of the peoples we've talked over the past quarter. It does feel like we're leveling out. But I wouldn't say it's an inflection point. So approaching asymptotic, whatever term you want to use. It's flattened out when you start to look at, say, Q1 to Q2, Q2 to Q3. But again, now we're going into a change because we're doing more short-term hires, shorter contracts, which is going to give us more market effect. Rather than just re-trading contracts we've had, we're going to have to go out and beat the market. And it is our intention, just like I responded to Jim earlier, that we're going to maintain our market share. So we won't try to hurt the market, but we're going to continue to capture the work. So there is still a little pressure down on price on an apples-to-apples basis. We have to look at that compared to sort of that geographical mix which we talked about. And then it'll be harder to separate out because we do have a higher percentage of vessel work. But again, if I said vessel work, vessel work prices face the same pressure, same downward pressure that the drill support does too. So while they are generally a higher day rate, day-to-day comparison to the drill support market; there are so many moving pieces that we're just trying to make sure that everybody understands we will continue to have geographical mix changes. We will continue to have some shift. We see it largely going to more vessels rather than back and forth. But hopefully, there'll be a time when drill support starts to creep up again and it starts to go the other way. But underlying pricing is still pressured.

Okay, I understand. So I guess looking at a couple of quarters ahead, if it winds up being again trying to parse out if it's apples-to-apples. But if it winds up being a little bit lower, if the curve goes from being somewhat asymptotic, as you put it, to taking another write-down in part because of the contract rollouts as well but just even the apples-to-apples pricing; that won't surprise you, I guess, is your point. And maybe there you found bottom if activity picks up in 2018.

Yeah. And I think what we were trying to say as well is if you see some of the notes, we talked about utilization approximating 50%. So certainly, that's a little bit higher than where we're at today. So we see that there could be an increase in days that will help offset some of the pricing pressures as well. And some of it's also the average revenue per day may look a little bit lower in the back half of the year. And it's really, as Rob said, it's the pricing but also the geographic mix shift as we go from areas that have a higher average revenue per day to working in locations that may have lower pricing per day on a like-for-like type scenario. But the margins from an EBITDA perspective, we do still expect to be in that mid to high 30% range because they're lower cost environments at the same time.

Yeah, that makes sense. Okay, an unrelated follow-up for me. And I want to try to anticipate your reaction as I ask this. But I'm curious really about essentially where D&A is headed in 2018 just as I try to think about it. So maybe that's reaching out to next year but maybe in a way that's approachable. So we've got the Evolution starting -

We're not providing any guidance on 2018 at this point in time.

But that's just – even from a D&A perspective, maybe just conceptually, I'm just trying to follow. So you got the Evolution starting up, but you've gotten a lot of underspend relative to your current depreciation. Should D&A stay flat? Should it actually tick up? Just something or some thought process around that. I don't have a good feel for kind of how your scheduled deprecation for vehicles, anticipated retirements, all of those dynamics. And I'm sure you do. Can you comment on it even directionally at all?

No, it's still too early at this point in time.

Okay, good enough. Thank you, guys. I'll turn it back.

Thanks.

Your next question comes from the line of Wills Manley with RBC Capital Markets. Your line is now open.

Hey, thank you. This is Wills Manley in for Kurt today. You already answered my first question just on the margin impact from the geographic ROV switch. If you could also though walk me through kind of which regions you're thinking are those that are lower cost that you're going to be transitioning to.

I think if I just gave you sort of the easy way for you to look at it, think about those places that have kind of big presence in a lot of activity, North Sea, Gulf of Mexico, think about those and also where, unfortunately, there is a lot of competitors. So that's why, you think about those places, day rates tend to be a little bit lower and costs tend to be lower too because we've got a little more weight, a little more critical mass. And then the other ones you can think about, the far-flung places on the globe. So that'd be the easiest way to answer.

Got it. And then so when activity does pick back up again, do you expect that trend to reverse?

I think it depends where the activity picks up. It's going to be dependent on where the vessels are working and where the rigs are working. And then we'll -

Yeah. Generally speaking, the balance in geographical cost and competitiveness, I don't think, will change very much. Those places will still – they'll still have the most competitors. We'll still probably have the large presence there. So I don't think from a cash cost or just general cost standpoint or a competitiveness standpoint, they tend to stay the same. There is not a big shift. Unless there is a huge change in activity level that increases the interest or the shortage of supply, it'll be relatively the same.

Okay, great. That's helpful. Thanks.

Now we have no further questions at this time, sir.

All right. Thank you. Well, since there are no more questions, I'd like wrap up by thanking everyone for joining the call. And this concludes our second quarter 2017 conference call. Have a great day.

And this concludes today's conference call. You may now disconnect.