Oceaneering International, Inc. (OII) Q4 2021 Earnings Report, Transcript and Summary

My name is Erica and I will be your conference operator. I would like to welcome everyone to Oceaneering’s Fourth Quarter and Full Year 2021 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.

Thanks, Erica. Good morning and welcome everyone to Oceaneering’s fourth quarter and full year 2021 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 remarks 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 – also include 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 Rob.

Good morning and thanks for joining the call today. Let me start by saying I am pleased with our achievements in 2021 as our $211 million of adjusted EBITDA slightly exceeded the top end of the adjusted EBITDA guidance range provided at the beginning of the year, exceeding the guidance midpoint by 14%. Except for manufactured products which is tied to longer cycle market drivers, all of our operating segments delivered improved sequential operating results in 2021. We delivered robust free cash flow in 2021, which supported our ability to repurchase $100 million of our 2024 senior notes and increased our cash position by $86 million during the year to $538 million on December 31, 2021. I am encouraged by the support of market fundamentals that emerged last year and expect this drive – this to drive increased activity across all our segments in 2022. Today, I will focus my comments on our performance for the fourth quarter and full year of 2021, our market outlook for 2022, Oceaneering’s consolidated 2022 outlook, including our expectation to generate positive free cash flow of between $75 million and $125 million and EBITDA in the range of $225 million to $275 million, and our segment outlook for the first quarter and full year of 2022. Now moving to our results. For the fourth quarter of 2021, our consolidated adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA was $46.7 million. Fourth quarter 2021 consolidated adjusted operating income of $17 million was $1.2 million higher than in the third quarter on the strength of increased throughput and margins in our manufactured products segment, which more than offset the decline in our ADTech segment and higher unallocated expenses. Unallocated expenses increased due to a material increase in medical and information technology costs recognized during the quarter and additional incentive compensation accruals tied to our strong free cash flow and annual results. We generated $140 million of cash from operating activities. And after deducting $14.4 million of capital expenditures, our free cash flow was $126 million for the quarter. We made additional progress with debt reduction during the fourth quarter with $37 million of open market repurchases of our 2024 senior notes, bringing total repurchases to $100 million for the year. Good operating cash flow, working capital efficiencies and capital expenditure discipline allowed us to increase our cash position by $90.4 million during the fourth quarter of 2021. As of December 31, 2021, our cash balance stood at $538 million. We made the decision during the fourth quarter to terminate a number of entertainment ride systems contracts with the financially embattled developer and its affiliated companies. As a result, we recorded a net loss of $30 million in connection with these ever grand contracts in our fourth quarter financial results. In conjunction with these terminations, we reclassified $20 million of contract assets into saleable inventory. Now, let’s look at our business operations by segment for the fourth quarter of 2021. Subsea Robotics, or SSR, operating income improved sequentially despite lower revenue. The performance was led by improved pricing in our ROV and tooling businesses. SSR EBITDA margin of 31% during the fourth quarter improved as compared to the 29% achieved during the third quarter of 2021 and was consistent with the average margin achieved during the first 9 months of 2021. The SSR revenue split was 77% from our remotely operated vehicle or ROV business and 23% from our combined tooling and survey businesses compared to the 79-21 split, respectively in the immediate prior quarter. As anticipated, ROV days on hire declined as compared to the third quarter due primarily to typical lower seasonal vessel activity. Fleet utilization declined to 55% in the fourth quarter 2021 from 63% in the third quarter 2021 and our days on hire declined for both drill support and vessel-based services. Our fleet use during the quarter was 62% drill support and 38% in vessel-based services compared to 57% and 43% respectively during the third quarter. Fourth quarter 2021 average ROV revenue per day on hire of $8,162 was 4% higher than in the third quarter of 2021. Days on hire were 12,747 in the fourth quarter or 12% lower as compared to 14,474 in the third quarter. We ended the quarter and the year just as we began with a fleet count of 250 ROV systems. At the end of December, we had ROV contracts on 75 of the 137 floating rigs under contract or 55% on a slight decrease from September 30, 2021 when we had ROV contracts on 77 of the 133 floating rigs under contract or 58%. Turning to manufactured products, our fourth quarter 2021 revenue of $103 million was 37% higher than in the third quarter of 2021. Adjusted operating income and adjusted operating income margin of 9% were substantially higher sequentially primarily due to better absorption of fixed costs and a favorable project mix. Bidding activity across our energy products businesses was active, but continues to lag in our mobility solutions businesses. Our manufactured products backlog on December 31, 2021 was $318 million compared to our September 30, 2021 backlog of $334 million. The backlog decline in the fourth quarter of 2021 reflects a $38 million reduction associated with the ever grand contract terminations. Our book-to-bill ratio was 1.1 for the full year of 2021 as compared with the trailing 12-month book-to-bill of 1.0 on September 30, 2021. Offshore Projects Group, or OPG, fourth quarter 2021 operating income declined sequentially on lower revenue. Revenue declined 11% due to seasonality in the Gulf of Mexico and the third quarter completion of the Angola Riserless Light Well intervention project. Fourth quarter 2021 operating income margin of 8% remained consistent with the third quarter 2021 as improved margins from intervention, maintenance and repair or IMR activity positively offset the fixed cost margin effect of lower revenue. For Integrity Management and Digital Solutions, or IMDS, fourth quarter 2021 operating income increased sequentially on slightly lower revenue. Operating income margin improved to 10% in the fourth quarter of 2021 from 9% in the third quarter of 2021 as the business continues to benefit from operational improvements we implemented since the beginning of 2020. Our Aerospace and Defense Technologies or ADTech fourth quarter 2021 operating income declined from the third quarter of 2021 on a 6% decline – decrease in revenue. Operating income margin declined as expected to 13% due to changes in project mix. Fourth quarter 2021 unallocated expenses of $36.7 million were sequentially higher due to a combination of increased accruals for incentive-based compensation higher than expected healthcare costs and increased information technology costs. Now, I will turn my focus to our year-over-year results of 2021 compared to 2020. For the year, consolidated adjusted operating income improved on a slight revenue increase as compared to 2020, adjusted operating income in our energy segments improved by $57.3 million and operating income margin improved by 376 basis points over 2020 results to 9%. The improved results were a result of a shift in the mix of revenue and a continued focus on operational excellence programs. Our ADTech segment continued to be a steady performer delivering another record year of operating income and margins consistent with 2020. Compared to 2020, our 2021 consolidated revenue increased 2% to $1.9 billion with revenue increases in our SSR, OPG, IMBS and ADTech segments being partially offset by a decline in our manufactured products revenue. Consolidated 2021 adjusted operating income and adjusted EBITDA improved by $51.4 million and $26.3 million respectively led by our OPG and SSR segments. Overall, we generated adjusted EBITDA of $211 million, a 14% increase over 2020. We generated $225 million in cash flow from operations and invested $50.2 million in capital expenditures. Significant free cash flow of $175 million allowed us to repurchase $100 million of our 2024 senior notes, while also increasing our cash balance by 86% – $86 million, excuse me, to $538 million. We are pleased with the following notable achievements accomplished during 2021. Each of our five operating segments achieved positive adjusted operating income and positive adjusted EBITDA during each quarter in 2021. Our OPG business achieved the most significant improvement of our five operating segments growing revenue by 31% in 2021. Adjusted operating income improved by almost $37 million and operating income margin improved to 8% as compared to an adjusted operating loss margin of 2% in 2020. Our Subsea Robotics business, a recognized leader in world class ROV services, continued to achieve best-in-class drill support performance, with a 99% plus uptime achieved during the year. We continue to advance our new technologies, adding 3 new ISRS vehicles during the year to serve the renewables market and advancing the technical readiness of freedom, our hybrid ROV and autonomous underwater vehicle AV, which we expect to be fully commercialized in 2022. We continue to see significant improvement in our IMBS business with adjusted operating income improving by more than $12 million as compared to 2020. Recognition of the quality of the IMBS brand was evidenced by more than $80 million in contract awards during the fourth quarter of 2021, bringing the 2021 total to $308 million as referenced in our recent press release and we continue to see growth in this segment for 2022. Our ADTech business grew its revenue by 8%, while maintaining its operating income margin over 16%, leading to a new record annual operating income and EBITDA performance. Our ability to generate substantial free cash over the past several years has allowed us to mitigate the risk relating to our 2024 debt maturity and we maintained our commitment and focus on safety. The team remained very focused on our life-saving roles, identifying high hazard tasks and developing engineered solutions to mitigate risks. Our total recordable incident rate, or TRIR, of 0.4 for 2021 remained comparable to the record performance achieved in 2020. The following annual financial metrics sequentially improved in 2021. Revenue of $1.9 billion was modestly higher than the $1.8 billion achieved in 2020. Adjusted EBITDA of $211 million exceeded the top end of the guidance range from the beginning of the year and was 14% higher than the $184 million generated in 2020. Positive free cash flow of $175 million significantly surpassed the $76 million generated in 2020. We maintained our commitment to capital discipline by reducing capital expenditures for a second year to $50 million as compared to $61 million in 2020. Cash increased by $86 million to $538 million. Outstanding debt decreased to $700 million, following $100 million of open market repurchases of our 2024 senior notes. Net debt-to-adjusted EBITDA ratio decreased from 1.9 on December 31, 2020, to 0.8 on December 31, 2021. Consolidated adjusted EBITDA margin of 11% improved from the 10% margin achieved in 2020. We continue to make good progress on our sustainability efforts for environmental, social and governance initiatives. From an environmental perspective, we hired an environmental consulting firm and instituted a project to gather greenhouse gas emissions data for our global office facilities, manufacturing facilities and vessels. This project started in 2021, will allow us to establish a baseline that will be used to identify gaps and develop targets for future emissions reductions. We continue to develop and evolve technologies such as remote piloting and autonomous mobile robots to assist our customers in mitigating carbon emissions. This includes offshore environments for clean production of hydrocarbons and energy transition projects, and onshore environments for manufacturing, hospital and entertainment facilities. We also added a reducing CO2 emission tab to the sustainability portion of our website to highlight the technologies we are using and developing to reduce environmental impacts. From a governance perspective, we formalized our management and Board oversight structures relating to sustainability. We renamed our Board’s Nominating and Governance Committee to the nominating Corporate Governance and Sustainability or NCGS Committee and created an executive-led Sustainability Committee to guide and oversee the company’s ESG priorities. The Sustainability Committee reports to the NCGS committee on a quarterly basis. During the last year, the Board’s composition has evolved with greater gender and ethnic representation and average tenure has decreased. During 2021, Oceaneering filed its second annual sustainability report, which is posted on our website using the disclosure methodology outlined by the Sustainability Accounting Standards Board. In 2022, we plan to file our first task force on climate-related financial disclosures report and to publish a new investor presentation outlining our general long-term strategies to pivot the company into new markets. Oceaneering continues to hold an ESG index A rating with MSCI. Now turning to our 2022 outlook for the markets we serve. Brent pricing of about $70 per barrel, sustained a modest level of offshore project sanctioning and good IMR activity in 2021. The forecast of nearly $90 per barrel in 2022 and anticipated higher prices in the out years, should support increased levels of E&P, OpEx and CapEx spending in 2022. Analysts and research service projections for other key metrics we track also support expectations for increased activity in 2022. Research source data indicates floating rig day rates are increasing, which we view as an indication of increasing demand. There were approximately 200 tree awards in 2021 and Rystad forecasts a 55% plus increase in 2022 to around 320, and remaining near 300 into 2023. Rystad had also forecasts 317 tree installations in 2022 to be essentially flat to 2021. Analysts also project substantial growth in offshore renewables markets over the next decade. Rystad estimates that offshore wind CapEx and OpEx spending will average around $50 billion per year in 2022 and 2023, an 85% increase from the average annual spend between 2016 and 2020. Rystad also sees continued double-digit growth through the end of the decade with spending projected to increase to $126 billion by 2030. And finally, notwithstanding the current government continuing resolution the government-related markets we serve are expected to remain relatively stable with continued modest growth for the foreseeable future. Now to our 2022 consolidated outlook for Oceaneering. As a result of our first quarter seasonality in our energy businesses, uncertainties regarding U.S. government appropriations due to the continuing resolution and anticipated expenses needed to prepare for higher activity in 2022 and we expect our first quarter 2022 financial results to be significantly lower as compared to the fourth quarter of 2021. However, based on the year-end 2021 backlog, projected start dates of new contracts, anticipated 2022 order intake and supportive market fundamentals, we project a greater than commensurate ramp-up in the second quarter activity and financial results, which are expected to be sustained throughout the remainder of the year. We are projecting our 2022 consolidated revenue to grow more than 10% with increased revenue in each of our operating segments, led by manufactured products. We expect sequential improvement in our 2022 financial results based on our expectations for higher operating income and higher margins in each of our energy segments, led by SSR and OPG and higher operating income and stable margins in our ADTech segment. For the year, we anticipate generating $225 million to $275 million of EBITDA with increased contributions from each of our segments. At the midpoint of this range, our EBITDA for 2022 would represent an 18% increase over 2021 adjusted EBITDA. We anticipate our full year 2022 to yield positive free cash flow of $75 million to $125 million. These expectations assume the continuing trend of supportive commodity prices and no significant incremental COVID-19 impacts. We remain committed to generating cash, which allows us to continue developing and delivering technologies that help our customers produce hydrocarbons in a cleaner, safer manner, while increasing our investments into new markets, including energy transition, digital asset management, Aerospace and Defense Solutions and mobility solutions. For 2022, we forecast our organic capital expenditures to total between $70 million and $90 million. This includes approximately $40 million to $45 million of maintenance capital expenditures and $30 million to $45 million of growth capital expenditures. We anticipate commodity prices to support growth and free cash generation for traditional customers of our energy businesses during the 2022 to underpin these investments. In 2022, interest expense net of interest income is expected to be approximately $38 million, and our cash tax payments are expected to be in the range of $40 million to $45 million. This includes taxes incurred in countries that impose tax on the basis of in-country revenue and bear no relationship to the profitability of such operations. Directionally, in 2022 for our operations by segment, our expectation for improved results for Subsea Robotics is based on increased revenue – increased ROV days on hire minor shifts in geographic mix and stable to improving pricing. Results for tooling based services are expected to improve with activity levels generally following ROV days on hire. Survey results are projected to improve on higher survey and positioning activity, and we expect revenue growth in the high single-digit range and EBITDA margins to average in the low 30% range for the full year. For ROVs, we expect our 2021 service mix of 60% drill support and 40% vessel services to generally remain the same through 2022. Our overall ROV fleet utilization is expected to be in the mid-60% range for the year with higher seasonal activity during the third – excuse me, the second and third quarters. We expect to generally sustain our ROV market share in the 55% to 60% range for drill support services. At the end of 2021, there were approximately 23 Oceaneering ROVs on board 20 floating drilling rigs with contract terms expiring during the first 6 months of 2022. During the same period, we expect 39 of our ROVs on 33 floating rigs to begin new contracts. For manufactured products, we project the segment performance to improve on a significant increase in revenue primarily as a result of increased order intake in our energy businesses during 2021. We are seeing increasing interest in our Mobility Solutions businesses and currently expect to see marginally higher activity from these businesses in 2022 and see an opportunity to build backlog for a more meaningful contribution in 2023. We forecast our operating income margins to be in the mid-single-digit range for the year. For OPG, operating results are expected to improve in 2022 on a marginal increase in revenue. This expectation is based on better anticipated pricing, improved vessel utilization and increased diving activities more than offsetting the lower revenue from riserless light well intervention activities. Overall, for 2022, we forecast operating income margins to average in this high single to low double-digit range. Vessel day rates are increasing, and we anticipate some challenges with vessel availability in the Gulf of Mexico and finding vessels at affordable rates in other geographic areas. However, while we anticipate higher direct costs from labor and third parties, we expect these increased costs to be offset by better pricing. As per usual, this segment has the highest amount of speculative work incorporated in our guidance, and energy commodity prices will need to remain supportive for us to achieve our plan. For IMBS results are forecast to improve on higher revenue, continuing the trends seen over the last several years. We believe customers continue to see the value in our service offerings and see good global opportunities for our renewals and business expansion particularly in the UK and West Africa. Operating income margin is projected to remain in the high single-digit range for the year. For ADTech, revenue is expected to be higher producing improved operating results. We anticipate growth in all three of our government-focused businesses. Operating income margins are expected to average in the mid-teens range for the year. For 2022, we anticipate unallocated expenses to average in the mid-$30 million range per quarter as we foresee higher information technology expense and higher costs due to inflation as compared to 2021. For our first quarter 2022 outlook, sequentially, as previously noted, we forecast our first quarter 2022 EBITDA to be significantly lower on lower revenue. As compared to the fourth quarter of 2021, we anticipate higher cost for hiring and training of personnel, mobilization of equipment and inflation as we prepare for a significant increase in activity forecast for the remainder of 2022. We lower revenue and operating results in our Energy segment and relatively flat revenue and lower operating results in our ADTech segment. In closing, our focus is to continue generating meaningful free cash flow, growing our service and product offerings, continuing to advance our ESG initiatives and improving our returns by driving efficiencies and consistent performance throughout our organization, engaging with our customers to develop value-added solutions that increase their cash flow and remaining disciplined in our pricing decisions and our capital deployment strategies. And most importantly, remaining dedicated to the safety and well-being of our employees and our customers. Thank you to our employees and management teams for navigating through all the global uncertainties to deliver a successful 2021. And I also want to thank our shareholders who have shown faith in our ability to grow and transform the company. I haven’t been able to say this for a while, but I’m excited to see the growth opportunities across all of our businesses over the next several years. The operating efficiency that we put into place over the last several years position us to benefit from this growth while increasing our profitability. We appreciate everyone’s continued interest in Oceaneering, and we will now be happy to answer any questions you might have.

[Operator Instructions] Your first question comes from Ian MacPherson with Piper Sandler.

Thanks. Good morning, Rod.

Hi, good morning.

Of course, we’re wondering when we listen to all of your earnings calls this quarter, how realistic your guidance is given the melt up in the macro and thinking about more about upside sensitivities, given that backdrop than we are downside and recognizing you have a lot of later cycle exposure within your very diverse business mix. I wonder if you could talk about what parts of your guidance maybe don’t truly reflect the possibility of enduring $100 oil this year in terms of spot market activity in terms of prospects for additional beefy riserless all WI campaigns and aren’t in your backlog today that could materialize or even if it’s on the defense side.

So yes, let me jump on that a little bit. And I think, let me make sure I got your question right. If say $100 oil doesn’t persist and we go back to more of a $70 market or even slightly lower this year, does that challenge sort of where our range is today? Is that accurate?

No, the opposite. I was asking the opposite.

Okay. So if we – so is there more upside if we stay in your $100.

Yes.

What I would – I guess it depends on why? Will it create some near-term opportunities in the government side potentially? But continuing the resolution, we got to see how that offsets what might happen. But there is certainly anything related to defense is going to be, I think, be more important now than it maybe was a few weeks ago. So I think that’s something that we haven’t seen yet, but we will keep an eye on. As far as the $100 oil, we aren’t really sensitive to say the area that’s being affected right now. So, you think about North Sea, Gulf of Mexico, I think those things could persist. But again, they are going to be moderated slightly by the availability of the big equipment. So, if you start to see people are going to put more rigs up, they are going to be – we have got the vessels to do the work. Right now, we are competing with vessels with offshore wind. So, the upside on oil is a little bit challenged with just the capacity to go out there and get it. But I think all of those things are leaning towards the high side as the commodity price is good.

That makes sense. And then it’s good to see the free cash flow visibility that you have for this year. And I am curious, just given how well you have been able to protect and augment your share in ROV services through cycles. We know that there is potentially more competition in that area heading your way by at least one significant player. And I wonder if you could speak to what the capital intensity of maintaining your competitive dominance in that business looks like to you and a recovering market with higher activity levels over the next 2 years or 3 years?

So – and I think that’s a great question because it’s something we don’t talk about a lot. But remember, our ability to maintain competitive has always been sort of on our reverse compatibility. So, as we develop new things in the ROVs, very few of them really generate a brand-new vehicle. You think about a very, very high percentage of recycle and reuse of the capital, meaning the over-boarding equipment, the cabins we use, the fish itself still has a high degree – high percentage of reuse. So, you are not building, for example, a lot of new flotation, you are not building a lot of the frames are reusable. So, we are able to upgrade and remote at a much lower cost than somebody that’s building something from scratch to go out there and compete with us. And we go faster. And when you think about supply chain challenges, that’s a big thing when you are not trying to source everything. So, I think we still maintain that advantage. We certainly maintain the geographical footprint advantage and we are leveraging that with our customers. Risk is high, especially as rig rates go up taking a risk on somebody that hasn’t been out there doing it and haven’t been established in the region. That’s a really – that’s a good place to lean on the people that keep your rigs up and running, like we mentioned earlier, 99%-plus of the time.

That makes sense. I mean I think it’s been a very common and practical symptom of the last down cycle in recovery that the sector broadly has under-spent CapEx by necessity. And I guess what I was trying to tease out from you was maybe some confidence that you have not been that we should not necessarily expect a glaring catch-up surprise with CapEx when we get beyond 2022 for that reason. It sounds like the answer to that is no.

Ian, this is Alan. In fact, that’s – you see a little bit of that tick up here in ‘22 going from a $50 million CapEx in ‘21. The guidance range here somewhere around $80 million in the midpoint range is bringing back a little bit of that maintenance CapEx, some of that readiness to serve that we are looking at. I mean we have maintained our assets throughout the whole cycle, more than 90% of our ROV fleet work during CY ‘21. So, our equipment is pretty much ready to serve today. We are having to bring back a few more assets online here in the first quarter, just to be able to see the ramp up in Q2, Q3 that we perceive. So, it’s not a significant amount at this point in time. I think it’s where we actually are retrofitting and getting into these Isurus type vehicles, where we are seeing increased demand in the offshore wind markets. And even then, as Rod said, to retrofit an existing ROV to make it an Isurus, we are reusing and repurposing the existing over-boarding equipment, so the large, the winch, the control vans, things of that nature. So – all said, it’s not a significant cash at all to do that.

That’s great. Thanks Alan. And I appreciate your insights.

Thanks Ian.

[Operator Instructions] Your next question comes from Taylor Zurcher with Tudor Pickering Holt.

Good morning Taylor.

Hi. Good morning. Hi Rod and Alan. Thanks for taking my question. First one on free cash flow and capital allocation, so Q4 free cash flow is super strong, the 2022 outlook is pointing to continued healthy free cash flow. And I hear already at net leverage below 1x and then that’s headed lower over the course of 2022. So clearly, 2022, you are going to be spending some more growth capital, which makes a lot of sense, at least relative to the capital programs in the prior years. And so I guess my question is, with leverage where it’s at and the free cash flow profile, remaining pretty healthy. How are you thinking about the potential for shareholder distributions, whether it’s buybacks or dividends at some point down the line on one hand. And on the other hand, balancing that sort of pursuit with continued growth capital pursuits. Is there a net debt or gross debt target you are looking for before you make that decision or is it just kind of a TBD type thing right now?

Taylor, I would say right now, it’s more of a TBD. I mean we are certainly encouraged seeing the metric go down below one at this point in time. And if you factor in our guidance range generate at the midpoint about $100 million of cash, you are effectively getting real close to a neutral position on cash at that point in time by year end. So, I think it affords us a lot of flexibility. I think we really want to pursue some of these additional growth opportunities more this year. We don’t want to get out over our skis though. We want to make certain Q1 tends to be a little bit more of a cash draw the last several years for us, we rebuild the next two quarters in Q2, Q3 and Q4 tends to be when we generate more of our cash. So, right now we are going to continue to monitor the outlook for CY ‘22. We feel very optimistic on the opportunities here. But I think it’s going to be more focused on some elements of growth, both in new energy kind of areas as well as mobile robotics and maybe ADTech and IMDS. I mean if you look at our growth propeller chart, those are the elements where if we have the ability to spend some extra cash, we are going to pursue those first and foremost this year.

Yes, makes sense. And just a quick follow-up there, at least off the top of my head, it’s been a little while since you have done M&A. And as I think about capital allocation, I am just curious where inorganic growth sits in sort of the ranking list today, whether it’s in the energy end market, the new energy end market or non-energy end market?

I think what you want – you will likely see is, it’s a lot like what Alan just said. It’s where we can find probably bolt-on things that fit to help us drive those things that are on what we call our propeller chart that really put us on to growth vectors that are – I would – a lot stronger than what we see in traditional oil and gas. And I say traditional oil and gas because some of those really are – they are still within the oil and gas business, but they tend to serve more of that leading edge of the cleaner safer barrels and lower carbon emissions associated with servicing those reservoirs that are already in place. So, I would just watch that space. We talk a lot about it, about how we move that direction and kind of see growth. I don’t – it’s really hard to say there may be some cases where we find some – we look at things, but we want things that drive us in that direction that we are moving with turning the whole company towards what’s coming next for energy.

Got it. And one last question for me is on OPG for 2022. So, it sounds like the 2022 outlook is largely the same one you provided last quarter. And you have given us three sort of drivers for the improved performance or expected to improve fulfillment for 2022, which are increased diving activities, better pricing, improved vessel utilization. So, my question is, I mean do we need to see some more discrete contract project work to be awarded to Oceaneering in the coming months and quarters for you to hit that 2022 outlook, or just given the three factors that I just mentioned and that you mentioned, are those good enough for you to see healthy growth in that business year-on-year?|

I think it’s a mixture of both, right, because we get just general call-out speculative work drives the Gulf of Mexico. So, that’s the side maybe to the first three you mentioned, that will drive a healthy, robust activity there. And then for international work, it’s going to be more about discrete opportunities, because they require more planning. A lot of times, there is not a vessel sitting in Fushan, waiting to go do this work. We got to bring something into West Africa or somewhere in the Asia Pacific region. So, they are a little bit more discrete opportunities that sort of – you can still build a body of work around them, but you need that first one to go and get in the area and start building off of. You need an anchor project to get there.

And those take time. So, I mean it’s one of those of you who have to see some of that really left by Q2, if you want to see an impact from the current year. But still to be a good building story for ‘23.

Understood. Thanks for the answers.

Thanks Taylor.

[Operator Instructions] The next question comes from Marc Bianchi with Cowen.

Good morning Marc.

Hey. This is actually Jim Sam.

Hi Jim.

Sorry. So, I was wondering if you could give some more color on ADTech. Results have been drifting lower over the past few quarters. And I believe you are expecting lower results in the first quarter, but the full year outlook is pretty strong. So just curious, what kind of backlog do you have in this business? And what gives you the confidence that margins will rebound?

Well, first of all, I think part of what was happening in ADTech is a little bit of mix when you kind of see the end of the year, towards later in the end of the year and in the first quarter, it’s a lot around continuing resolution. And even though – and then I will get to this next. A lot of our projects are funded. They are ongoing. There are things that we have been doing for a number of years, in some cases that they just renew the contract and we move forward. And so while there is not what we would call the same backlog that we have in other areas, there are things that funding gets renewed year-over-year. So, they are a continuing thing. But also, even in those contracts, while you are in continuing resolution, the customers are a little cautious. They slowdown a little bit. They kind of wonder how long they have to make their allowance last, so to speak. So, they do slowdown a little bit. So, you think about a little bit of a tentative spend and a little bit of mix change, and that’s why we think we see what we do right now. I think that will become clear. Even if we remain under continuing resolution, they will know what they want to do, and I expect that actually could create a little bit of resurgence, just some amount of understanding of what it’s going to be. And then the other part is we know from those contracts that continue on, like I mentioned before, that they are going to be there in the back half of the year and work will be done. And the mix does improve later in the year.

Yes. I think that’s the primary thing is you have a lot more of the lower-margin touch labor kind of work that’s still proceeding even under this continued resolution. The expectation that as that resolves itself, that we will start to see some of the higher value-added type projects brought in where we do more complex engineering type activities.

Okay. Great. Understood. And then just last one for me. In the first quarter, is there a particular segment that might be weakest sequentially versus the fourth quarter?

I think we are just going to not give any kind of specific guidance on segments at this point, Jim. I mean there is as we said, most of them are going to be lower quarter-on-quarter and there is really some elements that we just looked at the year and looked at where things could fall. And at this point in time, we are more focused on just getting our readiness to serve as we call it, to really meet the demand in Q2 and Q3. So, we are just not going to give guidance on segments at this point.

I would just add to this, Jim, I think you have probably been hearing this in the offshore world. We are seeing a little more seasonality this year than we have seen in the past. And we expect that’s because there was some caution about budgets were sort of meat it out over the entire year. And so that sort of leveraged a lot of the assets to go out and work in the weather window when we didn’t do that before. Some of that was COVID and work continuity, just meant that we spread the work out more than we have in past years. And this year, we just I think some of that is caught up, and we just see more of that normal seasonality. And that’s – so you can kind of – I guess you can kind of translate that into the businesses a little bit more – a little more color than Alan gave you, but kind of get an understanding of what we see happening. And again, it’s also why we think that Q2, Q3 are going to shift back to the busy quarters like we have had in the past.

Okay, great. Thank you very much.

At this time, there are no further questions. I will now turn the call to the speakers for any closing remarks.

Well, thanks, Erica. Well, since there are no further questions, I will just wrap up by thanking everybody for joining the call. And this concludes our fourth quarter and full year 2021 conference call. Thanks, everybody. Have a great day.

Thank you for participating. You may disconnect at this time.