Oceaneering International, Inc. (OII) Q4 2022 Earnings Report, Transcript and Summary

Good morning. My name is Joanna, and I will be your conference operator. Welcome, everyone to Oceaneering's Fourth Quarter and Full-Year 2022 Earnings Conference Call. [Operator Instructions] There will be a question-and-answer period after the speakers’ remarks. With that, I will now turn the call over to Mark Peterson, Oceaneering's Vice President of Development and Investor Relations. Please go ahead.

Thank you, Joanna. Good morning, and welcome, everyone, to Oceaneering's fourth quarter and full-year 2022 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; Alan Curtis, Senior Vice President and Chief Financial Officer; and Wit LeBlanc, Vice President and Chief Accounting Officer. Before we begin, I would 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 fourth quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

Hey, good morning, and thanks for joining the call today. 2022 marked our fourth consecutive year of improved adjusted EBITDA performance. In our offshore energy markets, the year unfolded generally as we expected, with seasonally lower activity levels and increased preparation costs during the first-half of the year, progressing into higher activity levels and increased margins during the second-half of the year. Our consolidated adjusted EBITDA of $233 million was above the midpoint of our guidance range and year-over-year adjusted EBITDA growth was led by significant improvements in our Subsea Robotics or SSR and Offshore Projects Group, OPG segment results. We delivered $121 million of cash flow from operations, spent $81 million on capital expenditures and increased our cash position by $30.6 million to $569 million on December 31, 2022. We are encouraged by our strong order intake during the second-half of 2022, improving pricing and expanding sales pipeline. We expect these positive fundamentals to drive improved financial performance in 2023. Today, I will focus my comments on our performance for the fourth quarter and full-year of 2022, our market outlook for 2023, Oceaneering's consolidated 2023 outlook, including our expectation to generate positive free cash flow in the range of $75 million to $125 million and EBITDA in the range of $260 million to $310 million and our segment outlook for the first quarter and full year of 2023. Now moving to our results. For the fourth quarter of 2022, we reported net income of $23.1 million or $0.23 per share. These results include the impact of $0.2 million of pretax adjustments associated with foreign exchange losses and negative $16.6 million of discrete tax adjustments primarily due to changes in valuation allowances and certain adjustments to prior year taxes. Adjusted net income was $6.4 million or $0.06 per share. Consolidated revenue of $536 million was 4% lower than in the third quarter, with revenue increases in our manufactured products and Aerospace and Defense Technologies or AdTech segments, being more than offset by revenue decreases in our other operating segments, particularly OPG. Fourth quarter 2022 consolidated operating income of $42.2 million was 10% lower than in the third quarter on a typical seasonal decline in activity in our offshore segments. Our consolidated adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA of $70 million was above the midpoint of our implied guidance range provided at the beginning of the fourth quarter and was slightly higher than consensus estimates. And for clarity, the potential product sale in our entertainment business did not occur. Although we experienced typical seasonality, it is worth noting that the combined revenue and adjusted EBITDA levels in our SSR and OPG segments during the fourth quarter of 2022 were significantly greater than the corresponding quarter in 2021. We see this as a positive indicator for prospects in our energy businesses in 2023. Our fourth quarter 2022 results also included accrual releases resulting from more efficient personnel and inventory management initiatives that occurred throughout the year and primarily benefited our SSR and Integrity Management and Digital Solutions segments. We generated $159 million of cash from operating activities and after deducting $25.9 million of capital expenditures, our free cash flow was a strong $134 million for the quarter. Good operating cash flow, working capital efficiencies and capital expenditure discipline allowed us to increase our cash position by $141 million during the fourth quarter of 2022. As of December 31, 2022, our cash balance stood at $569 million. Now let's look at our business operations by segment for the fourth quarter of 2022. SSR operating income improved sequentially, despite marginally lower revenue. Activity levels in our remotely operated vehicle, ROV, tooling and survey businesses were generally consistent with expectations. As mentioned, SSR's results included accrual adjustments resulting from personnel and inventory efficiencies recognized in the fourth quarter. These reserves and accruals remain throughout the year and the adjustments resulted from reconciliations performed in the fourth quarter. As a result, SSR EBITDA margin of 35% during the fourth quarter was above the 31% achieved during the third quarter of 2022. Without the benefit of these releases, SSR's fourth quarter 2022 EBITDA margin would have been relatively consistent with the margin achieved in the prior quarter. The SSR revenue split was 77% from our ROV business and 23% from our combined tooling and survey businesses, the same as in the immediate prior quarter. Fourth quarter 2022 ROV days on hire were 14,350 or 7% lower, as compared to 15,408 in the third quarter with all the decline coming from vessel-based days as a result of seasonality. Our fleet use during the quarter was 65% in drill support and 35% in vessel-based services, compared to 60% and 40%, respectively, during the third quarter. Fleet utilization declined to 62% in the fourth quarter from 67% in the third quarter of 2022. Fourth quarter 2022 average ROV revenue per day on hire of $8,967 was 6% higher than in the third quarter of 2022. We ended the quarter and the year just as we began with a fleet count of 250 ROV systems. During the fourth quarter, we retired three systems and added three systems to our fleet. At the end of December, we had ROV contracts on 83 of the 141 floating rigs under contract or 59%, the same percentage as on September 30, 2022, when we had ROV contracts on 82 of the 140 floating rigs under contract. Turning to Manufactured Products. Our fourth quarter revenue of $100 million was 7% higher than in the third quarter of 2022. Operating income of $6.1 million and operating income margin of 6% were higher sequentially due to a favorable project mix. Bidding activity was robust in our energy-focused businesses during the fourth quarter, and we are excited to see increasing interest in our Mobility Solutions businesses as evidenced by our recently announced contracts for 85 MaxMover autonomous counterbalance forklifts to be delivered in 2023 and 2024. Our manufactured products backlog on December 31, 2022, was $467 million, a strong increase over our September 30, 2022 backlog of $365 million. Our book-to-bill ratio was 1.39 for the full-year of 2022, as compared with the trailing 12-month book-to-bill of 1.08 on September 30, 2022. OPG fourth quarter 2022 operating income declined on lower revenue. Revenue was 20% lower primarily due to seasonality in the Gulf of Mexico or GoM. Fourth quarter 2022 operating income margin of 9% declined from 13% achieved in the third quarter of 2022. This decline was due to lower-than-anticipated vessel utilization resulting from project schedules shifting into mid-2023 and higher-than-expected vessel demobilization expenses. For IMDS, fourth quarter 2022 operating income improved sequentially on 5% lower revenue. Operating income margin for the fourth quarter improved to 9% from 5% in the third quarter of 2022. The margin improvement was largely due to contract repricing and the benefit associated with efficient personnel management in the year. Our Ad Tech fourth quarter operating income declined from the third quarter of 2022 on a 7% increase in revenue. AdTech operating income margin declined as expected to 11% due to changes in project mix. Fourth quarter 2022 unallocated expenses of $33.6 million were sequentially higher due to a combination of increased accruals for long-term performance-based compensation and increased information technology costs. Now I'll turn my focus to our year-over-year results for 2022, compared to 2021. For the year, consolidated operating income improved sequentially on higher revenue, as compared to 2021, consolidated adjusted operating income. 2022's improved results were primarily due to positive energy markets that spurred increased offshore activity in our SSR and OPG segments, which realized improved pricing and increased utilization in the second half of the year. Impacts from the U.S. government's continuing resolution in the early part of 2022, resulted in lower revenue and lower operating income from our AdTech segment. Compared to 2021, our 2022 consolidated revenue increased 11% to $2.1 billion, with revenue growth in our OPG, SSR and Manufactured Products segments being partially offset by revenue declines in our IMDS and AdTech segments. Consolidated 2022 adjusted operating income of $111 million and adjusted EBITDA of $233 million improved by $38.8 million and $22 million, respectively, with significant gains in our SSR and OPG segments being partially offset by declines in our AdTech, IMDS and Manufactured Products segments. We generated $121 million in cash provided from operations and invested $81 million in capital expenditures. For the full year of 2022, we generated $39.8 million of free cash flow and increased our cash balance by $30.6 million to $569 million. We are pleased with notable achievements accomplished during 2022, including the following: each of our five operating segments achieved positive operating income and positive adjusted EBITDA. Our SSR and OPG segments achieved meaningful year-over-year improvement with a combined revenue increase of 21% and a combined EBITDA improvement of $38.5 million, as compared to 2021. Our SSR business continued to achieve outstanding drill support ROV performance with 99% uptime achieved during the year. We also achieved a commercial technical readiness level on Freedom, our hybrid ROV or an autonomous underwater vehicle, or AUV. Our Oceaneering mobile robotics business launched its MaxMover autonomous counterbalance forklift product during the year and we have seen strong industrial interest since its introduction to the market as evidenced by significant contracts with a major manufacturer to supply 85 forklifts to be delivered in 2023 and 2024. Our AdTech segment secured several meaningful contracts during the year despite a decline in revenue caused by the federal government's continuing resolution. Our Defense Subsea Technologies business was awarded a multiyear contract by the U.S. Navy to provide subsea systems to support the modified Virginia-class submarine platform and our Space Systems business as part of the team led by Collins Aerospace, on a multiyear contract to develop next-generation extra vehicular space suits. From a safety standpoint, Oceaneering team remains focused on life-saving rules, identifying high hazard tasks and developing engineered solutions to mitigate risks which led to a total recordable incident rate, or TRIR, of 0.28 for the year, setting a new record low rate for Oceaneering. While many of our annual financial metrics improved sequentially in 2022, I would like to highlight just a few of them. Consolidated backlog grew by 15% from $1.7 billion on December 31, 2021, to $1.9 billion on December 31, 2022. Net income from a GAAP perspective was positive for the first time since 2017. Cash increased by $30.6 million to $569 million. Our ability to increase our cash position over the last several years now gives us a significant flexibility on how we deal with our $400 million debt maturity in November 2024. Net debt to adjusted EBITDA ratio of 0.6 times on December 31, 2022, improved from 0.8 times by December 31, 2021, and remains very favorable. Our enterprise value grew to $1.9 billion at the end of 2022, as compared to $1.3 billion at the end of 2021 on the strength of our increasing share price. Sustainability remains a core focus with additional progress being made on our environmental, social and governance initiatives. From an environmental standpoint, in 2022, we filed our first climate change report informed by the task force on climate-related financial disclosures. We also filed our annual sustainability report using the disclosure methodology outlined by the Sustainability Accounting Standards Board. Both reports are posted on our website. We continue to develop and evolve technologies using our digital and core robotics expertise to create efficiencies for our customers while mitigating carbon emissions. From a social perspective, we created an employee experience department reporting directly to our Chief Human Resources Officer, to put additional emphasis on connecting with our employees, supporting their development and expanding their access to various career opportunities. Our express desire to develop and promote future leadership from within the company showed good results in 2022, with one promotion to the executive leadership team and two promotions into segment leadership positions. Also, the addition of our new Chief Legal Officer, diversifies the perspectives and processes for productivity of our executive leadership team. From a governance perspective, we have taken steps to prepare for the proposed Securities and Exchange Commission, emissions and cybersecurity reporting requirements and believe we are well positioned to comply should those rules be adopted. Oceaneering also continues to hold an ESG Index A rating with the MSCI. Now turning to our 2023 outlook for the markets we serve. We expect the 2023 forecasted average Brent price of nearly $85 per barrel to sustain high healthy levels of offshore operating and capital spending throughout the year. Analysts and research service projections for other key metrics we track support expectations for increased activity in 2023. Research source data indicates floating rig day rates continue to increase around a tightening floater market, which we view as an indication of increasing demand. There were nearly 250 tree awards in 2022, and Rystad forecasts a greater than 45% increase in 2023 to nearly 360 and remaining over 300 into 2024. Rystad had also forecast tree installations to be essentially flat year-over-year with 339 installations forecast for 2023. Analysts also project substantial growth in offshore renewables markets over the next decade. Rystad estimates that offshore wind CapEx and OpEx spending will increase approximately 20% year-over-year. Rystad also sees continuing double-digit growth through the end of the decade with spending projected to be around $130 billion by 2030. And finally, we expect the government-related markets we serve to remain relatively stable with continued modest growth for the foreseeable future. Now to our 2023 consolidated outlook for Oceaneering. With all the positive signs we are seeing in our energy, aerospace and defense and mobility solutions markets, we are optimistic about our prospects for 2023. Global energy demand continues to grow, and all forms of energy remain critically important to satisfying these needs. Given years of underinvestment in traditional energy sources, increased emphasis on energy security, demand dynamics and relative advantages of offshore production, including larger resource bases and lower carbon footprint. We see a strong up cycle unfolding in our traditional offshore energy markets. We are encouraged by the significant opportunities we see to deploy our core robotics expertise into a variety of markets, including traditional and renewable energy, aerospace and defense, mobility solutions, industrial and manufacturing. Based on year-end 2022 backlog, the expected meaningful increase in backlog conversion, anticipated 2023 order intake and current market fundamentals, we are projecting our 2023 consolidated revenue to grow by more than 10% with increased revenue in each of our operating segments, led by manufactured products and SSR. We expect sequential improvement in our 2023 financial results based on our expectations for higher operating income and higher margins in our SSR, OPG and Manufactured Products segments, slightly higher operating income and stable margins in our AdTech segment and relatively stable operating income and margins for our IMDS segment. For the year, we anticipate generating $260 million to $310 million of EBITDA with incremental improvement over 2022, coming primarily from our SSR and OPG segments. At the midpoint of this range, our 2023 EBITDA would represent a 23% increase over 2022 adjusted EBITDA. We anticipate our full-year 2023 to yield positive free cash flow of $75 million to $125 million. Based on the current market conditions, we expect good opportunities for improved pricing and margins in our energy-focused businesses and stable pricing and margins in our government-focused businesses. For 2023, we forecast our organic capital expenditures to total between $90 million and $110 million. This includes approximately $45 million to $50 million of maintenance capital expenditures and $45 million to $60 million of growth capital expenditures. We anticipate commodity prices will support growth and free cash generation in our energy businesses during 2023 to underpin these investments. Considering our meaningful cash balance and rising interest rates, we forecast our 2023 interest expense net of interest income to decline to approximately $28 million. We expect our 2023 cash tax payments to be in the range of $60 million to $65 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 2023 for our operations by segment. Our expectation for improved results for SSR is based on increased ROV days on hire, minor favorable shift in geographic mix and continued pricing improvements. Results for tooling-based services are expected to improve with activity levels generally following ROV days on hire. Survey results are projected to improve as well with both geophysical and survey and positioning businesses seeing increased international activity. We expect revenue growth in the low double-digit range and increased EBITDA margins to average in the low to mid-30% range for the full-year. For ROVs, we expect our 2022 service mix of 61% drill support and 39% vessel services to remain generally the same through 2023. Our overall ROV fleet utilization is expected to be in the mid to high-60% range for the year, with higher seasonal activity during 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 2022, there were approximately 18 Oceaneering ROVs on board, 14 of the 25 floating drilling rigs with contract terms expiring during the first six months of 2023. During the same period, we expect 44 of our ROEs on 34 of the 52 floating rigs to begin new contracts. For Manufactured Products, we project segment performance to improve on a significant increase in revenue, primarily based on 2022 order intake in our energy businesses. Bidding activity in our energy businesses remains robust, and we expect this to continue during 2023. We forecast Manufactured Products operating income margins to average in the mid-single-digit range for the year with revenue, with project mix within our umbilical business shifting to more traditional manufacturing activities. Additionally, we are seeing growing interest in our Mobility Solutions business, as highlighted by our recently announced contracts to deliver 85 MaxMover autonomous counterbalance forklift systems in 2023 and 2024, increasing activity from our mobility solutions businesses in 2023. So OPG, operating results are forecast to improve in 2023 on a moderate increase in revenue. These projections are based on improved vessel utilization in the Gulf of Mexico and increased international activity and installation, intervention and diving, most notably in the second and third quarters. In general, we expect to maintain a consistent level of chartered vessels and may look to augment this capability with additional vessels, depending on the market conditions and specific projects. Vessel day rates are expected to remain at relatively high levels through 2023. However, we expect these costs to be offset by supportive demand-based pricing. Overall, for 2023, we expect OPG operating income margins to average in the mid-teens range. As per usual, this segment has the highest amount of speculative work incorporated in our guidance. For IMDS, operating results are forecast to be relatively flat in 2023 on slightly higher revenue. We see good global opportunities for contract renewals and growth, especially in areas where we can leverage digital and robotic capabilities. Operating income margin is expected to remain in the mid-single-digit range for the year. For AdTech, our 2023 revenue and operating results are expected to be higher than those in 2022. We anticipate growth in all three of our government-focused businesses, which secured several key contract awards during the second half of 2022. Operating income margins are expected to average in the low teens range for the year. For 2023, we anticipate unallocated expenses to average in the mid to high $30 million range per quarter. For our first quarter 2023 outlook, given the higher cost of performing offshore work over the past several years, customers are increasingly planning their work to avoid periods of higher weather risk. As a result, we anticipate a first quarter seasonal impact, particularly in our OPG business. Considering this and anticipated project timing leading to higher levels of utilization in the second and third quarters, we are forecasting our first quarter 2023 adjusted EBITDA to be in the range of $40 million to $50 million. At the respect to midpoint, our first quarter guidance represents a 43% increase over the comparable period in 2022 and is expected to represent a percentage of our annual EBITDA similar to the prior year. Sequentially, we project higher revenue and operating results in our Manufactured Products segment. Lower revenue and operating results and our SSR, IMDS and AdTech segments and lower revenue and significantly lower operating results in our OPG segment. Despite the seasonality impacts expected during the first quarter, market signals continue to point to robust offshore activity, both in the Gulf of Mexico and internationally over the rest of 2023. And we remain confident in achieving full-year 2023 EBITDA around the midpoint of our guided range. In closing, our focus is to generate meaningful free cash flow and ensuring we have sufficient liquidity to address our 2024 debt maturity, while continuing to pursue strategic growth. To be a good steward of company resources and progressing our ESG initiatives, to improve our returns by increasing the utilization of our assets, maintaining flexible and efficient vessel fleet management, driving efficiencies and consistent performance throughout our organization, engaging with our customers to develop value-added solutions that increase their cash flow and improving pricing and margins commensurate with the value we bring to those customers and most importantly, to remain dedicated to safety and well-being of our employees and our customers. Achieving success requires a team effort and none of our accomplishments would have been possible without our dedicated and passionate employees and management teams. I want to personally thank our employees for driving the successes we are seeing in Oceaneering. I also want to thank our shareholders who have shown increasing confidence in our ability to grow and transform our company. I'm extremely excited about the positive market signs for our businesses, including the opportunity for increasing our prices and margins in our traditional businesses and the growing prospects we see to leverage our robotics experience in new markets. We appreciate everyone's continued interest in Oceaneering, and we'll now be happy to take any questions you may have.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question comes from Kurt Hallead at Benchmark. Please go ahead.

Hey, good morning, guys.

Good morning, Kurt.

Hey, it’s a great recap. I think some of the ROV dynamics are kind of starting to gain some momentum. As you mentioned, offshore rig rates tend to be a really good leading indicator for the ROV rates. And it seems like what you said, we have 44 ROVs that are set to reprice I guess, sometime here in 2023. So I guess, a kind of a leading question here. The last time also rig rates were over $400,000 a day. ROV rates were somewhere between $10,000 to $12,000 a day. That'd be up about 25%, 30% from what you did in the fourth quarter. So are you getting any pushback at all? Do you see an opportunity to kind of get similar pricing mid-cycle? Just kind of get a sense of how you see things and whether they -- the dynamics between the rig rates and ROV rates have changed at all.

Yes. So there's always pushback. I mean -- but I will say this. As we reprice, we are seeing -- we've seen some very -- and I'll be careful, I'd say some very isolated incidents where we are starting to see that 2014 pricing. So I think that's directionally correct. I think that over time, as we reprice, we'll be able to see some of those rates and those things that generally happen in the markets that are most difficult to serve where we do a great job. So depending on where they come, I think we can start bumping up against those rates, again, it's just going to be getting a greater percentage of the fleet repriced.

Okay. That's fair enough. I guess, the second element of my question is kind of on the Manufactured Product side. Initially here, just trying to get a sense on what you think is within your control as a company, to kind of drive margins above and beyond kind of that single-digit kind of range that you referenced. And are there things that you can absolutely do here in 2023 that could provide some upside to that?

I'll start a little bit, and then I'll let Alan jump in because that's his home. That's where he came from before this job. But I would say pricing is still the major opportunity here because while there are some efficiencies gained, we still have a large amount of commodity price built into the construction of the umbilical products, in general, thinking about steel tube and copper. So we're just going to have to keep driving price, we see that the capacity is starting to get more constrained at the umbilical plants. So we're going to have to -- we're going to have to be confident that if we want to get the customers the delivery times they want and keep those slots open for them so that they can get their projects done, there will be a willingness to pay for that. Alan, anything on the cost side or that you'd add?

No. I think I would add is -- I would look at it as margin improvement will be probably more seen in ‘24 and ‘25. In ‘23, we have a little bit of a mix shift in some of the products and services that we're offering that we expect revenue on this year versus last year. So we had some higher-margin work that actually went through last year, revenues we recognized and then some of the work that we're doing this year was priced in a little bit more competitive environment. And then as we look at the plants filling up, we think there's room to move price here that will benefit ‘24 and ‘25. So we do expect margin progression, but being a long-cycle business, it may take a little bit longer to flow through.

Then, and the good news there is that most everything is booked through 2023. So when Alan says that what we're booking now is the work we're talking about for 2024.

Okay. That's great. And then lastly, can you give us an update on how you're going to generate another year of positive free cash flow and you got some debt coming due here in a couple of years. So what's your plan for use of cash or excess cash, I should say?

Well, I think, Kurt, when we look at it is we gave guidance range here of $75 million to $125 million on free cash flow. And we -- what we do is we looked at over the last three years, and it tends to be a little bit lumpy with us. I mean I looked at 2021, we generated 82% free cash flow conversion. Last year is certainly a lower year in ‘22 than we were driving towards coming in at $40 million. But over a cycle, over a period of years, we've been averaging somewhere in the 35% to 36% range. And that's where we've set the target for this year. Do we expect we can possibly overdrive that? Yes. That's what we're looking to do. We had some inventory that we procured here at the end of 2022 for work that we had already secured going into 2023. So some of it was the supply chain concerns over will we get the materials in time or not. So we did order the materials. They came in a little bit faster than we anticipated, which pulled down a little bit of the ‘22 story. We think that could be a positive uplift here in ‘23 as well. So we're excited about what we can drive on free cash flow this year. We do expect -- while we gave the range, we're targeting $100 million plus. So I know that was a note several people put out, but our eyes are still set at the same level they were last time we talked.

And I'm going to talk a -- Kurt, let me hit the other side of that a little bit because the other one is what are you going to spend the money on and what are your capital deployment? And I can't help but bang the drum when I get a chance here is that we've got some really exciting things on the upside. We've got the freedom that's coming out now, and that's going to be going commercial and our ability to expand that fleet with demand. The MaxMovers, 85 MaxMovers, this is a pretty exciting product. I don't know that everybody quite understand, it's way more than a counterbalanced forklift. If I think about the difference between a regular car and a Tesla, this is a much bigger difference than a regular counterbalance forklift in an autonomous forklift. And the customers are excited. They're pinched for personnel to drive forklifts, and it's -- they are looking for a way to automate their plants. So big machines. We're excited. 85 is a good number to start, but we're excited that to be even bigger numbers in the future. So where we will deploy capital is going to be on sort of what I would call the front end of the business. Those new opportunities that we think are in high-growth markets. So they're going to go fast. And I don't want somebody to think that we're going to miss opportunities for those kinds of things when they come available.

Yes. And I think maybe we haven't really been able to speak much about these. We were always kind of alluding to the growth element here. As Rod said, these aren't your traditional forklift. These go for, let's just call it, $200,000 to $275,000 per unit, depending on how it's fitted out and all the accessories. So that might help give a little bit of context to the value of these.

Okay, great. Appreciate it. Thank you.

Thanks, Kurt.

Thank you. Next question comes from Eddie Kim at Barclays. Please go ahead.

Hi, good morning. Just following up on Kurt's question on ROV. So day rates have clearly moved higher, and it sounds like they're going to continue to move higher this year. But your total ROV fleet count as it makes pretty flat at 250 systems for the past three years now. And I know there have been a few additions and retirements every quarter, but the net number has stayed very consistent. So my question is, is there a certain day rate or utilization threshold at which you would consider net additions to your ROV fleet? Or is the plan to just take disciplined here and really just being a harvest mode on the fleet you have currently?

Man, we're going to be pretty disciplined. Here's the way I would put it, I think when we get the 70% to 75%, that's when you start to say, you really can't squeeze more out of the existing fleet. So you really have to look at what additional opportunities are out there that you would consider doing a fleet expansion for. I would tell you that the things that I would get excited about are more ISRS where we know that we're building a differentiated product that's disruptive. Maybe that's a chance for us to put something more in the market. But I'm just not excited about more of the same. I think we're going to be very careful about understanding how we would deploy any additional assets.

Yes. So Eddie, I want to clear on one word when you use the word harvest on the assets. I want to be clear; we have been investing in the fleet throughout the downturn. We've invested -- we start to look at that CapEx. We're able to go in and upgrade existing systems throughout their life. And that's what we've been doing. So it's not like the ROV that came out in 2018 is a 2018 ROV, it has technology today. So we're -- that's one of the benefits of maintaining a standardized fleet is we're always upgrading them to the current technology.

We did a full refurbishment of 91 of the major ROV assets last year, 18 of those were the fish. So when you think about a body of restoration that brings it up to the -- just like a brand new ROV. Two good things about that is our cost of capital to basically create a new ROV out of an old one is much lower than somebody buying a new asset. And at the same time, it's a great ESG story because there's a lot of recycled and reasonable parts there that we're able to use to put a new asset in the field.

Got it. Got it. That all makes sense. And I appreciate all the color there. So very constructive commentary on offshore spending this year. Most are also expecting offshore FIDs this year to mark a 10-year high. which I would think would disproportionately benefit your umbilicals business. I don't think I heard a book-to-bill guide for this year, and I'm sorry if I missed it, but -- could we see book-to-bill exceed the 1.4 times given last year?

I think it's certainly north of 1. I don't have the number in front of me, Eddie, there are several, I'll say, larger scale projects that we are anticipating that if they come through in the year, I think it is attainable at the similar level. I don't know if those orders will hit Q4, Q1 of next year, but it's our expectation that we could certainly get to that level if those projects materialize in the time frame we expect.

Got it. And could you just remind us kind of the typical timing between project FID and when you would typically book the order for the umbilical awards you win. And what's the typical timing on revenue conversion on those works as well?

Yes. Typically, what you're going to see is once FID is achieved, first thing they're probably going to orders trees, then we're going to be shortly thereafter. So if you're looking at FID middle of the year, I would think by Q4, you're going to see an award maybe late Q3, later in the year, FID, it might bleed over into a Q4 or Q1 award the next year. So there's typically a three-to-four-month kind of lag in my eyes. And then once you get the award, first thing we're going to do is we've already been working with these for design elements. We'll know how many steel tubes to buy and things of that nature. We'll put long-cycle materials on order because that tends to be the pacing item today. And so it could be six to nine months on delivery for some of those materials. So the sooner they can get their FIDs achieved or some customers may want to preorder the steel tubes to shorten their cycle time, might not be a bad play for them.

Got it. Got it, understood. That’s all very helpful. Thanks so much I’ll turn it back.

Yes. And Eddie, that's why when our comments earlier, that's why I start seeing the pricing move now, but it's a '24,'25 margin comment earlier in the call here. Yes.

Yes. Yes, that makes sense. Thank you.

Thanks, Eddie.

Thank you, both.

Thank you. [Operator Instructions] At this time, there are no further questions. You may proceed.

Yes. Since there are no more questions, I'd like to wrap by thanking everybody for joining the call. This concludes our fourth quarter and full-year 2022 conference call. Have a great day.

Ladies gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.