My name is Jason, and I will be your conference operator. I would like to welcome everyone to Oceaneering’s Fourth Quarter and Full Year 2020 Earnings 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 go ahead, sir.

Thank you, Jason. Good morning, and welcome to everyone to Oceaneering’s fourth quarter and full 2020 earnings conference call. Today’s call is being webcast, and a replay will be available on Oceaneering’s website. With me on the call today are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; and Alan Curtis, Senior Vice President and Chief Financial Officer. 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 are also includes non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

Good morning, and thanks for joining the call today. There’s an old saying that says, what doesn’t kill you, makes you stronger. And after the events of last year, I feel Oceaneering is stronger on many fronts. And I’m very proud of what we accomplished in 2020. With all the challenges presented by the global COVID pandemic, including the crude oil demand destruction and resulting price collapse, and the many challenges faced in protecting our workforce, while still satisfying our customer obligations, Oceaneering still delivered improved consolidated adjusted operating results, and adjusted EBITDA as compared to the prior year. We also generated meaningful free cash flow with our cash balance increasing by $78 million from $374 million at December 31, 2019 to $452 million at December 31, 2020. Today I’ll focus my comments on our performance for the fourth quarter and full year 2020, our market outlook for 2021, Oceaneering’s consolidated 2021 outlook, including our expectation to generate positive free cash flow in excess of the amount generated in 2020, and EBITDA in the range of $160 million to $210 million and our business segment outlook for the full year and first quarter of 2021. Now moving to our results. For the fourth quarter of 2020, we reported a net loss of $25 million or $0.25 per share on revenue of $424 million. These results include the impact of $9.8 million for pretax adjustments associated with asset impairments and write-offs, restructuring and other expenses and foreign exchange losses recognized during the quarter and $9.6 million of discreet tax adjustments. Adjusted net income was $1.8 million or $0.02 per share. We were pleased that our consolidated fourth quarter adjusted earnings before interest taxes, depreciation and amortization or adjusted EBITDA was $47.1 million and was sequentially higher than the third quarter 2020,…

[Operator Instructions] Your first question comes from the line of Sean Meakim from JPMorgan. Your line is open.

Thank you, good morning. Maybe just to start out in manufacturing products, but first I should say thank you for all the detailed guidance. So there’s a lot of granularity that you offered. To starting in manufactured product, I’d love to just get a little more detail on how you see awards in 2021, including umbilicals. Listen, I’m trying to get a sense for how much inbound do you need in 2021 to hit that margin target? Or do you have enough line of sight to get into that range, even if orders don’t pick up, maybe for oil at latter half of 2021?

I put it this way, Sean, and thanks for the question. We’ve got the two biggest projects. We’re working on, we will run throughout the year. So that’s the lion’s share of what we’ve got in the plan. And then we do expect that we’ll be able to pick up some orders. We’re not overly aggressive with what’s built in the plan, but that there will be – have to have or will need to have some incoming in the first half of the year. But that’s across the board. That’s not just an umbilicals that’s in the even the some of the other connected hardware in the mobility solutions as well. And so we see some of that coming in all around the board. And as you know, I mean, some of those big projects in umbilicals are longer line of sight, so that’s not entirely what we got in the plan. I think we’ve edged out effectively.

Got it. Thank you for that. I think that makes sense. And then I think everyone’s trying to unpack these new energy markets and understand the value chains over the better. So things like offshore wind, could you maybe just talk about how you perceive differences in those markets compared to your traditional energy markets. Look, in terms of competitive dynamics, contracting terms, pricing, just how would you compare the two in terms of traditional end markets versus these new emerging ones that you’re pursuing?

If you would’ve asked me that question, probably, three, four years ago, I would have told you that it’s a tough market. The pricing is a little bit harder to get. They contract a little harder than some of our oil field customers. I think number one, things have gotten better there. I think we’re starting to – we’re able to establish the value of uptime and new technology and a lot of things. So we’re able to place more technology into that market than we have in the past, and then establish longer-term relationships. So I think they were alert and to be fair, they were a little hesitant about, we will remain interested if there’s another pickup in oil and gas. So we built those relationships. We’ve turned them into something better. And in the meantime, oil and gas has gotten a little more challenging. So I think it’s really rebalanced quite a bit. And we would say that those are good projects to have now.

Yes. And I think, Rod, one other things I would add is just partnering with them in the development of the SSR vehicles and things of that nature to help them be more efficient in their operations. It’s been something we’ve been very proud of in the last 12 to 18 months and the uptake of that.

I appreciate that. Thanks.

Your next question comes from the line of Taylor Zurcher from Tudor, Pickering & Holt. Your line is open.

Thanks guys, and good morning. First question is just with respect to the 2021 guidance obviously a big range at the EBITDA line $160 million to $210 million. And I know we still got a ways to go before we close out 2021, but could you just help us think about kind of the probability of outcomes getting to that higher end of the guidance versus the lower end. And just really trying to get a sense of how confident you feel and get into the midpoint of that guidance about $185 million of EBITDA next year or this year?

Sure. I think we feel pretty good because more of the news that’s happened most recently is really putting some confidence out there about a more stabilized commodity price and being in that range and I think more confidence about that range. So I think we feel good about say the midpoint and the upper end of the range that it certainly today, it is looking good. But it’s really, that range is going to be most strongly driven by the stability and the level of the commodity price. Because I think about, I would walk you through sort of the timing of these. If we’ve got a good near term commodity price, that’s first a lot of the IMR activity that we get those are quick turn projects. Those barrels are already behind pikes. So if we can help them produce more through their existing wells, they don’t need permits for that. Generally speaking, not like a drilling permit. So there’s more that we can do there, especially with a riserless intervention campaign. So that can happen fast drive that range up. Then maybe later in the year, we start to see more re-contracts get picked up, better utilization of the contracted rigs. So that helps on the upper end of the range. And then finally, you’ll get some FIDs in the door, getting enough confidence over the longer term that we’ve been stable for awhile at a better level. And that’s going to drive more in the manufactured products business too. So it’s all about that confidence that is by far the biggest number for us in this range.

Understood. And that’s helpful. And taking backing on one of Sean’s questions, in manufactured products, obviously that’s the segment that’s going to have the most acute headwinds in 2021. But based on the kind of order outlook you have in your plan today, do you have any confidence that at 2021 might represent the bottom for manufactured products, at least from an operating income perspective? Or is that a little bit too soon to call at this point?

No, I think what – I just kind of refer back to what we were talking about. It certainly looks like when we look at the raise to data and others around project FIDs that 2020 was a low point. And so if we see those projects FIDs like so many are saying, start to increase, I think that we should see, I mean, we’re going to – we’re attract with FIDs and if they go up, then that’s going to be a good pro sharing as well. So that’s what’s out there in the market right now, as far as all the customer budgeting and the expectation. So I would kind of go with that. I think it looks like we should start to see that. And unfortunately, that business rate lags a little bit. So low FIDs in 2020 tend to have its effect in 2021, and improvement in 2021 will start to build in 2022 and beyond. So I think you’ve got it right.

Awesome. Well, thanks for the answers.

Your next question comes from the line of Mike Sabella from Bank of America. Your line is open.

I was wondering, if you could just circle back to the 1Q guide. I know there’s a lot of moving pieces here. The guide calls kind of higher revenue, flattish EBITDA quarter-over-quarter. Can you just kind of walk us through some of the moving pieces here? Are you seeing some costs come back into the system? Or is there anything else impacting 1Q? Or maybe some benefits that helped out 4Q?

I would just say, first of all, you look at some of the things that we talked about already. And Alan will help me out here. But one of the things is the riserless campaign is a good part of the Q1 story. I’ll hit on your question about costs. We don’t see any real significant costs creep back in. I would point your attention to a little bit of – and I think it’s temporary, but a little bit of struggle getting people through the UK right now. Just with the impact of the new strains of COVID-19 that slowed down some of that. And it means people are in quarantine a little bit longer, but that’s not significant. I think most of the things we’re seeing, if they’re coming into the system, they’re temporary pieces. Overall, like we’ve got good control. And then, kind of in the background, we’ve still got – we’re still realizing more and more of the good work we did in the cost reductions in 2019 and 2020. So some of that still coming in. So I don’t think costs are really a big concern for us in Q1. Alan, any other comments that you’d add?

No. I think you hit the high points and main. OPG, certainly, as we’ve mobilized and are outworking on the riserless light well intervention campaign in Angola. One of the other stories I think we’ve talked about in the past is the drill pipe riser contracts that we had working for Petrobras in Brazil. All three systems are on contract beginning this quarter where we had two of them beginning of the middle of last year. So that’s an incremental as well. So the cost continued to be a focus and looking at improvement plans, but we’re not seeing predict in that area at this point.

Understood. And then maybe just more of a kind of a high level question, there’s – we’re hearing a lot about the Gulf of Mexico so much uncertainty from regulatory perspective. It seems like so far the impact has been pretty minimal, some of these even kind of called towards a pull forward of activity just to get ahead of the regulatory changes and more commodity prices are today. Well, how are you guys thinking about the Gulf of Mexico kind of longer term? How it plays out over time and even if, kind of new development slows, what do you think it all means for some of the more maintenance or anything in services?

Well, I think actually, and that’s – I liked the way you said that, because I think one of the trade-offs we see is, if we start to see maybe a little bit of a hang up in permitting, it could allow us to do more of the maintenance work. More of the IMR, because, if you’ve got some money to spend, you’ve got a decent commodity price and you can drill a new well, but can you get the most out of the wells you’ve got. That could turn some either change the work. But we actually have good participation in that kind of work. So that could be good for some in the near-term. Obviously any long-term issues in the Gulf of Mexico would be more serious for all of us. But I think that’s one of the things that we’re watching very carefully obviously.

Understood. Thanks, everyone.

Yes. Thank you.

Your next question comes from the line of Ian Macpherson from Simmons Energy. Your line is open.

Thanks. Good morning, Rod. Congratulations here on the results. And I know it’s been a lot of heavy lifting in 2020, and we’re seeing some fruits.

Thank you.

Yes. Thanks for all of the detail. When I look at Oceaneering in the breadth of your services and technology, and through the lens of energy transition, to me, it seems much broader than just offshore wind. Obviously, getting less attention than some other areas, but ocean bottom mining [indiscernible] offshore projects for carbon capture and storage. These are all areas that to me seem synergistic with what you already have under your tent. So how are you thinking about these different in markets for energy transition in terms of what you already have and not just replacing your business, but growing your business into new areas?

No. It’s absolutely a key focus for us. And I think we’re trying to help people understand that some of that – when we talk about our investments, it’s got to be focused on those types of activities. Not just greener industrialization, broadly written definitely not more of the same. We need to make – we need to turn this corner with – and a lot of our customers are doing it. So that’s really helpful. So we play a high – we place a high emphasis on the places that our current customers are going, because we know we’ve got the sales channel there. But also just the things that play into our strengths. Like you said, Subsea mining, it’s still wind with floating offshore, wind is an even bigger deal for us because it’s a deep water play. Some of this repurposing – potentially repurposing platforms to be hydrogen producing that would definitely help our IMDS group because that integrity management of extending the life of these assets as they’re being repurposed. There’s a lot of great opportunities out there. And it’s actually pretty exciting to say, okay, we need to look at all of them, but then we also need to make some really good bets on which one have scale, which will happen in the soonest and which best suited our capabilities.

Yes. That makes sense. I would say, I think it’s probably helped not hurt to shed more light on the granularity of ADTech for the market understanding your business or your evaluation. And when you get to the point of having scale with all these different energy transition opportunities, even if it’s initially total addressable market, and then at some point current revenue run rate, I imagine that would be helpful for your story as well. Do you have some aspiration to put more specificity on those numbers for current business and prospective business maybe during 2021?

I think we’re going to – we’ll probably be cautious. I like the idea of understanding what the capabilities are. But I think we’re going to be conservative as always that we don’t want to oversell something that doesn’t have the right scale. So I want to make sure that we’re misleading anybody by getting excited about the ideas before they have meaningful financial impact. But the point will take. I think we will try to at least give glimpses of where we’re going and then with all the cautions of how long it takes to get there. But I appreciate the comment.

Great. Thanks Rod.

Thanks, Ian.

[Operator Instructions] Your next question comes from the line of Blake Gendron from Wolfe Research. Your line is open.

Thanks, good morning. And appreciate all the guidance and the time to hear. I wanted to circle back on to Subsea Robotics. It seems like a pretty flat outlook for the floater account baked into what you’re contemplating for 2021. We’ll see what the back half has in store for potential acceleration there. You talked about already talking about the Gulf of Mexico. I’m just wondering, as we start to get a few more floaters into the water here and the market starts to normalize, whether it matters all that much, if it’s an existing customer of yours or if it’s a new customer. I’m just wondering if it’s existing customers that are adding more rigs, as opposed to additional customers coming into the market what the market share implications could be for you on the robotic side.

Great question. Obviously, it’s easier if it’s an existing customer, it’s especially easier for already on the rig. And we’ve been talking a lot about trying to stay on the best assets, the ones that are most likely to go to work and we’ve been very effective. So I think that really helps us with the new customers is, they were already here, reduces your mobilization costs and we’ve got a track record established with that rig, which they can tell you that if they’re satisfied with that relationship as well. So just watch kind of the rigs, but that actually plays in our favor because of our position on those high quality assets. So we fight for all of them, as you might expect.

That makes sense. And then for my follow-up, I think it would be tough for me to go through the working capital, especially with all the moving pieces in your outlook. So maybe from a free cash conversion perspective from EBITDA perhaps, could you just walk through now that you’ve reoriented and re-jiggered some of your segments. How would you characterize each in terms of high free cash conversion versus low free cash conversion? The reason I’m asking is if we see obviously growth upside and downside in each line that could impact the free cash flow conversion, ultimately moving forward. Thanks.

Yes. I think, the way most people have kind of looked at it in the past Blake is going in and looking at EBITDA and kind of how you convert and then going at $185 million as your midpoint. If you look at our CapEx guide, $50 million to $70 million, a midpoint of $60 million, which is consistent, what we did this year. Interest expense cash about $40 million of net interest expense, and then cash taxes midpoint of $37.5 million. So if you look at that, you get to a number of about $47.5 million if you just take the midpoint of all of those. And then we said on our last call that we did expect to generate working capital release associated with some project milestones this year as well. And then that gives us the confidence to kind of give better than the 2023 cash flow. And then one thing that’s our operating that’s coming out. And then we also have the CARES Tax Act that Rod had in his prepared remarks. It’s another $27 million, $28 million that we would anticipate on top of that.

Totally understood. So, we have a down for 2021 because you’ve given such good guidance. I’m just wondering for maybe the out years. I mean, I don’t want to lead too much, but if we see ADTech continue to grow in excess of the cyclicality of some of your energy segments, I mean, is this a materially capitalized business for you such that the conversion over time starts to improve?

Yes. If you look at both IMDS and ADTech, those do tend to be more or less very light in capital intensity. So those are ones that – we do like the growth prospects and the returns are nice.

Very helpful. Thanks, guys.

There are no further questions. I’ll now turn the call back over to Mr. Rod Larson for closing comments.

Well, since there are no more questions, I’d like to wrap up by thanking everybody for joining the call. This concludes our fourth quarter and full year 2020 conference call. Have a great day.

Thank you everybody for joining. You may now disconnect.