Oceaneering International, Inc. Aktie

Hello. Welcome to Oceaneering's First Quarter 2026 Earnings Conference Call. My name is Sarah, and I will be your conference operator. [Operator Instructions] With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations. Please go ahead.

Thanks, Sarah. Good morning, and welcome to Oceaneering's First Quarter 2026 Results Conference Call. Today's call is being webcast, and a replay will be available on our website. With me today are Rod Larson, President and Chief Executive Officer; and Mike Sumruld, Senior Vice President and Chief Financial Officer. Rod and Mike will provide our prepared remarks, and then we'll take your questions.

Before we begin, please note that statements made on this call about 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 remarks also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures are included in our first quarter press release, which is available on our website.

I'll now turn the call over to Rod.

Good morning, and thanks for joining the call today. I'm pleased with our first quarter results, which reinforce our confidence in the year ahead. We generated consolidated revenue and adjusted EBITDA consistent with our guidance and drove strong commercial momentum, capturing new awards and extensions across the portfolio.

At the segment level, Aerospace and Defense Technologies or ad tech posted significant year-over-year revenue growth as expected, indicating steady demand across our defense portfolio. Despite softer energy center activity, subsea robotics or SSR and manufactured products, both delivered year-over-year increases in revenue, demonstrating the resilience of our portfolio.

Overall, this positions us well to deliver on our full year guidance. Importantly, we further solidified our outlook with a strong first quarter order intake of approximately $1 billion, 1 of the healthiest intake since 2020, which resulted in a constructive first quarter book-to-bill ratio. SSR awards totaled approximately $300 million, including projects extending to 2031, which improves our visibility into utilization levels across the next several years.

In addition, we secured multiple survey contracts for the Ocean Intervention 2 that will keep the vessel highly utilized for the next 3 quarters and showcase its range of capabilities, including simultaneous operations. Ad Tech added approximately $175 million in new contract awards, exercised options and increases to existing contract values.

We also progressed on the technology front. As we shared on our last earnings call, we formally introduced Momentum, our next-generation electric work-class ROV, which delivers improvements in supervised autonomy, endurance and reliability. We expect to mobilize it on one of our U.S. Gulf vessels during the second quarter.

We continue to develop our autonomous systems portfolio, including our Freedom platform. One commercial unit is currently operating in West Africa and we are moving towards testing and customer demonstration of a specialized Freedom vehicle for the Defense Innovation Unit or DIU, which reinforces our position as a provider of dual-use technology in the energy and growing defense markets.

In ad tech, we delivered the U.S. Navy submarine rescue diving and recompression system following a multiyear complex rebuild and recertification of this globally deployable mission-critical capabilities. Beyond our subsea markets, I am very proud of the support we provided to NASA's Artemis program and the safety of its astronauts, applying decades of deep sea harsh environment experience to the unique demands of space.

The successful launch and return of ARTEMIS I showcased this work, incorporating our advanced products and technologies. We value NASA's trust in us. Alongside these milestones, we are always navigating an evolving geopolitical environment. Let me address the impact of Middle East conflict on ocean nearing before Mike gets into our detailed financial results. First and foremost, the safety of Oceaneering is our top priority and all in the region are accounted for and safe.

We have enacted established protocols are in frequent contact with our teams in the region and are taking necessary precautions to safeguard our people and property. Operationally, we've experienced intermittent disruption during this period, though the consolidated financial impact has thus far been modest. Integrity Management and Digital Solutions, or IMDS, has the greatest exposure in the region and has therefore been the most effective. We are coordinating closely with our customers and partners to manage these impacts and are monitoring conditions closely.

So with that context, I'll turn the call over to Mike to summarize our first quarter results, and then I'll be back to provide our outlook for the second quarter and full year of 2026.

Mike?

Thanks, Rod, and good morning. Let me share our first quarter 2026 consolidated financial results. Overall, results were in line with the guidance we provided last quarter. As expected, we saw lower activity in our energy portfolio and significant improvement for AdTech. Compared to the first quarter of 2025, revenue was $692 million, representing a 3% improvement with year-over-year revenue increases in SSR, manufactured products and ad tech. Operating income was $57.8 million, down 21% and Net income was $36 million or $0.36 per share, down 28% and adjusted EBITDA was $83.7 million, down 13%.

The consolidated year-over-year comparisons are materially impacted by the record first quarter that our offshore project Group, or OPG delivered last year. Turning to our cash flow and liquidity. We utilized $59.1 million of cash for operating activities, largely for payment of performance-based incentive compensation and increased customer receivables.

We invested $17.4 million in organic capital expenditures with approximately 54% allocated to growth and 46% allocated to maintenance. This resulted in negative free cash flow of $76.5 million, an improvement of $30 million compared to the first quarter of 2025. We ended the quarter with a cash balance of $607 million and $215 million available under our secured revolving credit facility, resulting in total liquidity of $822 million.

Since we're discussing liquidity, let me address our share repurchase activity. We remain committed to an opportunistic and disciplined approach. Given the heightened market volatility tied to the Middle East conflict and the resulting swing in our share price, we chose not to repurchase shares in the first quarter. We will evaluate share repurchases as the year progresses as returning capital to our shareholders continues to be an important component of our capital deployment strategy.

Now let's look at our business operations by segment for the first quarter of 2026 as compared to the first quarter of 2025. The SSR operating income of $55.5 million was down 7% on higher revenue. Average ROV revenue per day utilized increased from $10,788 and to $12,401 driven by improved pricing and discrete first quarter items that boosted ROV revenue are not expected to repeat. Specifically, we mobilized ROV systems for upcoming projects, which contributed revenue without associated ROV days utilized.

We also completed a discrete cost reimbursement scope of work that contributed revenue with minimal margin. Looking ahead, we expect full year 2026 average ROV revenue per day utilized to exceed 2025, but we do not expect to maintain the first quarter rate. SSR EBITDA margin declined to 32%, driven primarily by lower ROV utilization, which decreased to 61% and as activity softened in both drill support and vessel services.

We also saw our geographic mix shift somewhat to lower profitability regions as expected. We incurred cost to prepare the Oceaneering Intervention 2 for operations and continue to invest in the Freedom vehicle ahead of upcoming defense customer trials. We expect SSR margins to rebound in the second quarter as utilization increases in ROV and survey. For the quarter, the revenue split between ROV business and our combined tooling and survey businesses, as a percentage of our total SSR revenue was unchanged from the first quarter of 2025 at 79% and 21%, respectively.

Our OV days utilized in favor of drill support was 67%, while vessel-based services were 33% compared to 62% and 38%, respectively, in the first quarter of 2025. As of March 31, 2026, we had ROV contracts on 83 of the 143 floating rigs under contract or 58% market share. We maintained our fleet count of 250 ROV systems. Turning to manufactured products. Revenue increased 6%. Operating income was $26.1 million or 18% of revenue, which is up 37%, excluding the $10.4 million theme park ride inventory reserve taken in the first quarter of 2025.

Revenue results benefited from the receipt of steel tubes, but at no margin, while operating income improved on continued execution of higher-margin backlog and strong performance from our rotator valves business. Our backlog was $492 million on March 31, 2026, down $51 million from the first quarter of 2025. Our book-to-bill ratio of 0.91 was similar to the same period last year. We've seen backlog decline over the past 2 quarters, largely due to the timing of awards. While this segment is a lumpy project-based business, where backlog can change meaningfully from quarter-to-quarter, we have not seen a change in underlying demand.

Our sales pipeline is healthy with a robust level of tendering activity and substantial opportunity value, and we expect to rebuild backlog in the coming quarters as projects move to award. OPG's results decreased as activity returned to more typical seasonal levels compared to a record first quarter last year, which included higher vessel utilization and a better service mix in the U.S. Gulf and international locations. Revenue was $135 million and operating income was $18 million resulting in a 14% margin.

Favorable project mix partially offset the lower activity supported by installation work and continued execution on an international intervention project. [ IMDS' ] revenue, operating income and margin decreased due to lower activity in West Africa and Australia, the latter of which was the result of our decision to exit a low-margin contract. We entered 2026 expecting growth in the Middle East based on several recent contract awards and initially realized some of these benefits as the year started. However, the Middle East conflict and associated activity declined led to regional results that were essentially flat compared to the first quarter last year. Ad Tech revenue increased to $131 million, reflecting higher volumes in our Oceaneering Technologies, or OTC and Marine Services division, or MSD, business lines.

In OTECH, growth was primarily tied to the large contract awarded in 2025, which is progressing on schedule. MSD results improved due to increased volume in submarine, maintenance and repair work and an increase in dry deck shelter overhauls. Operating income and margin decreased primarily due to a net $5.5 million accrual related to the expected resolution of a previously disclosed contract dispute. While the agreement remains subject to final approval, we expect that it will resolve the matter, reduce uncertainty and enable the team to focus on program execution and continued customer support.

We anticipate settling our obligation over the life of the associated multiyear contract. Our unallocated expenses of $49.3 million were consistent with our expectations for the quarter and increased year-over-year due to a combination of wage inflation, foreign exchange impacts and increased IT costs. Let me turn the call back to Rod to discuss our outlook for the second quarter of 2026.

Thanks, Mike.

We expect to build on our first quarter results with sequential improvement. The quarter is shaping up as planned to support our guidance, even though we expected our consolidated results to be down year-over-year. On a consolidated basis, we expect our revenue to increase and EBITDA to be in the range of $100 million to $110 million.

Comparing our second quarter 2026 to 2025 by segment, for SSR, we expect increased revenue and flat operating income due to changes in geographic mix and increased survey activity. As previously communicated, we anticipate an improving geographic mix and higher utilization in the second half of 2026. For manufactured products, we expect revenue and operating income to both increase by a mid-single-digit percentage. For OPG, we expect flat revenue and decreased operating income with modestly lower vessel utilization in the U.S. and West Africa and a project mix shift to lower-margin inspection, maintenance and repair, or IMR work.

For MDS, we expect revenue and operating income to decrease due to lower activity in West Africa and Australia. Middle East activity remains uncertain and will depend on how regional conditions evolve. For Ad Tech, we expect significantly higher revenue and higher operating income. We project unallocated expenses to be approximately $50 million as wage inflation, foreign exchange impacts and increased IT costs are expected to persist.

Returning to our 2026 outlook. Our full year plan is progressing as expected despite the uncertainty in the Middle East. We anticipate an acceleration in energy market activity in the second half of the year, with the potential to add incremental work in our OpEx-oriented work streams earlier. Against that backdrop, we are reaffirming our consolidated guidance ranges of low to mid-single-digit revenue growth and EBITDA of $390 million to $440 million.

Comparing our full year 2026 to 2025 by operating segment. For SSR, we continue to forecast low to mid-single-digit percentage revenue growth. Average ROV revenue per day utilized is expected to increase slightly compared to our 2025 average. We anticipate that our ROE fleet utilization will be in the mid-60% range with higher activity levels during the second and third quarters that we will maintain our drill support market share in the 55% to 60% range.

Tooling and survey results are expected to increase with improved utilization of the Ocean Intervention II based on recent contract wins. For the year, SSR EBITDA margins are forecasted to be in the mid-30% range. For manufactured products, we expect higher operating income on slightly lower revenue with operating income margins to range in the mid-teens. We expect high absorption in our umbilicals plants and a strong year from rotator products, which recently won its largest ever contract.

Based on our current sales funnel, which indicates that backlog will build in the second and third quarters, We forecast the book-to-bill ratio will be in the range of 0.9 to 1.0 for the full year. For LPG, we expect lower revenue and significantly lower operating income with margins to range in the mid-teens. This reflects our forecast for lower margin IMR work in the U.S. Gulf and lower activity in West Africa, which we expect will be partially offset by ongoing intervention work in the Caspian and an upcoming installation project in North Africa.

For MDS, despite the recent drop in Middle East activity, we continue to forecast revenue growth, supported by demand for our digital and engineering services. Operating income is still expected to increase, but by less than we previously anticipated, with margins in the mid-single-digit range. For AdTech, operating income is expected to increase on significantly higher revenue with margins in the low teens. Demand for our OTEC and MSD services should increase and recent government actions have provided funding consistency across our larger programs, giving us increased confidence in our outlook for 2026 and beyond.

In summary, while conditions remain fluid, our expectations for the second quarter and full year of 2026 are unchanged. We are confident in our ability to deliver, supported by our first quarter order intake and our sales funnel for the rest of the year. The visibility provided by our consolidated backlog, the breadth of the geographies and end markets we serve, the flexibility provided by our healthy balance sheet and the commitment of Oceaneers worldwide.

We appreciate everyone's continued interest in Oceaneering, and we'll now be happy to take your questions.

[Operator Instructions] Your first question comes from Eddie Kim with Barclays.

The SSR awards of $300 million you booked in the quarter was a big number. Just curious how much of it was secured before or after the Iran conflict. And just broadly, as the Iran conflict and the resulting increase in oil prices we've seen, has that sort of increased customer inbounds for more ROVs and other parts of your business?

I'd characterize it this way, I think you'd be hard-pressed to try to see an inflection point or anything in the orders. I think everything was kind of underway anyway. So not a big thing. I will call out this, but 1 of the things that's interesting about the order is that when you think about it is just a near-term or long-term effect on oil prices, we had an increase in longer-term contracts. So we averaged above 1 year for the contracts that were awarded, and we had some out to 5 years. So I think the longer term says that there's more than just a blip going on here. .

Got it. Got it.

And just sticking on SSR, your ROVs full year utilization you maintained at sort of the mid-60s even though first quarter was a little bit low. -- at 61%. Obviously, you expect utilization to increase the remainder of the year. What gives you that confidence? Is it just more rigs -- offshore rigs going to work in the back part of the year or something else?

Yes. Yes, and definitely, the back half helps, but also just -- I mean, the biggest part is the seasonality, right? We do get busier on vessels, especially in the second and third quarter. So we've got that going on plus some of these contracts that I just talked about will pick up in the fourth quarter. So we'll have some mobilizations in there as well.

Understood. And if I could just squeeze 1 more in, if I could. The ad tech contract dispute impact in the first quarter, it seems like on EBITDA, maybe it was a couple of million dollars and then how much -- what do you say is the be Iran war impact. Is that another couple of million? And is that going to linger into second quarter, which I assume is embedded in your second quarter guide, but just curious on both fronts...

I don't think Iran affected the results on that. What I would say is I think it did help us clear up the funding. We mentioned that we got the funding came through and people back and made sure that the programs continue. It was more about just making sure the funding was in place than it was about any activity directly related to Iran. .

Yes. And the overall impact on our EBITDA was a net $5.5 million just when you're building out your model versus 2.

Your next question comes from Keith Bachman with Pickering Energy Partners. .

I just kind of -- I wanted to dig into the ROV pricing discussion a little bit more. Obviously, it looks -- it was up in 1Q pretty significantly. You guys talked about some items that may not be repeatable. Is the -- is the 4Q 25% exit rate on revenue, kind of the right way to think about things going forward given some of the earlier impacts that you guys have mentioned or just anything on pricing on that front?

I think revenue per day, yes, it is. I mean, we're still expecting to average higher year-over-year. So I think it's still a good starting point. We -- like we said, there were some one-offs that topped up revenue but didn't have much of an effect on EBITDA. Some of those things fall back and then we kind of go back to a more normal continuous improvement of the day rate.

Awesome. That's really helpful. And then the second question I wanted to ask was just around -- you guys have brought up this, I think, a few times before, but I just wanted to get a sense of kind of talk about lower profitability depending on working in certain regions. Could you kind of outline maybe higher profitability versus lower profitability regions a little bit for me?

Yes, sure, sure. What we've referenced before in the Q4 call and here is the geographic mix for SSR. And typically, what we see, although not bad, and we've seen improvement over the last year, The margins in the North Sea and Brazil tend to trail the Gulf of America or Gulf of Mexico, your choice and West Africa. And we just see that mix shift towards those lower-margin locations in the first part of this year. I think we're seeing that come to fruition. But do based on line of sight, I think that, that shift is going to move back towards really, Gulf of America as we move into the latter part of the year. .

And then the second thing to watch is just the mix of work because the IMR work tends to be less differentiated, which means it's not as high margin as, say, the well remediation type work, the light well intervention or construction. So those are the things. As we get more of that work, we start to see the margins go up.

Yes, which you could potentially see with everything going on to hope, but I think it's a possibility that you might see more of that intervention work.

Awesome. That's really helpful. I appreciate it. If I could slide 1 more and if you guys all fine. I wanted to ask around the -- you guys have brought up no share repurchase activity this quarter. Is there a chance that there could be a change of how you guys are thinking about deploying capital given maybe energy security risks create opportunities that could be there, maybe not in the immediate term. But I'm just trying to get thoughts on capital deployment, maybe if CapEx and returns there could be a better way to utilize capital. Just your thoughts on that right now, given we're in a much different situation than we were to start the year.

You're thinking about it the right way. I mean, we definitely -- we've always said organic growth, potential inorganic growth that we think is really good and then return to shareholders. And so -- as those things become more attractive, you see -- 1 of the things I would tell you, as we work -- do this work with ad tech, we're prime on projects now. We're starting to see people that we work with that we think we look really good as potentially being part of Oceaneering those things -- the more work we do, the more we see those opportunities.

So yes, if we have an opportunity to deploy capital that way, we would definitely redirect.

Yes. And I think it's fair to say that we feel like we've got the capital necessary to return some to the shareholders. We just need to be cautious about when we're choosing to do so and find those opportunistic moments. And it was just such a challenge in the first quarter, Keith, to do that. It was just swinging too much either direction, in our opinion.

Your next question comes from Josh Jane with Daniel Energy Partners.

First question from me. It sounds like you're anticipating some incremental spending on OpEx items later in '26 and into '27. Maybe just some incremental color would be great and just maybe weave in some of the sense of urgency from customers just given what's happened over the last 8 weeks.

Yes. I mean 2 really kind of -- it's 2 different stories. So if I start with -- we talked a little bit earlier about the increased oil price puts more money in the customers' pockets also improves the economics on well intervention and workovers and well remediation. And we've already seen customers starting to ask about, hey, is there going to be vessel availability during the season, right, so Q2, Q3. So I think some of that could come in. I mean, those things are pretty quick to turn around, so we could pull some of that into Q2, but definitely could fall into this year. .

The other side is we see some resolution of the conflict in the Middle East. All those facilities that are close to the action are going to have to be looked at before they start up. So we think that there could actually be a little bit of a way of coming here on the Middle East IMBS activity because that would definitely have a scramble to put resources there to check these things out so they can start up the plants and the refineries there.

So I think those are the 2 fronts we're watching carefully.

Yes. And on the latter, the couple of contracts that we won earlier this year, at the end of last year that started up before the activity declined due to what happened I think that just bodes well for us moving into the latter part of this year as well if that additional activity shows up.

Exactly. It was a great time for us to improve our footprint there.

Understood. And then just my second one. You mentioned the Ocean Intervention too. I think that was the vessel that I board last summer. And from the commentary, it sounds like the opportunities are accelerating for simultaneous operations. Could you just talk a bit more in detail on the scope of work and how eager customers are to book an asset like this today versus where you were maybe 6 to 9 months ago?

Yes, absolutely. I think for us, the exciting part is it's given us a chance to flex a little bit on the autonomous side or the remote operations that when we talk about SIMOPs, we're talking about operating the the ASP, the autonomous surface vessel that we bought. So that we're doing surveys with that along with doing the towed sonars and things off of the OI and some of the other things that we deploy from the Ocean Intervention too. .

So it's this ability to almost do the work at 2 boats at once using lower cost, more efficient technology and the customers are really getting excited about it. Especially when we go into remote areas where there's not as many assets available I think that tends to be pretty exciting. So we did some trial work here in the Gulf and then we hope to get outside the Gulf and user as well.

This concludes the question-and-answer session. I'll turn the call to Rod Larson for closing remarks.

Well, since there are no more questions, I'll just wrap up by thanking everybody for joining the call. This concludes our first quarter 2026 conference call. Have a great day. .

This concludes today's conference call. Thank you for joining. You may now disconnect.

Hello, and welcome to Oceaneering's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Sarah, and I will be your conference operator. [Operator Instructions]

With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations.

Thanks, Sarah. Good morning, and welcome to Oceaneering's Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being webcast, and a replay will be available on our website. With me today are Rod Larson, President and Chief Executive Officer, who will provide our prepared comments; and Mike Sumruld, Senior Vice President and Chief Financial Officer. After Rob's remarks, we will open the call for questions.

Before we begin, please note that statements made during 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, which is posted on our website.

I'll now turn the call over to Rod.

Good morning, and thanks for joining the call today. We closed out 2025 with strong execution across the business, making continued progress against our strategic priorities. Our performance reflected continued pricing progression in key businesses strong operational delivery and growing contributions from Aerospace and Defense Technologies or ADTech. Importantly, this translated into meaningful cash generation with our cash balance increasing to $689 million at year-end, further strengthening our financial flexibility.

During 2025, we generated order intake of $3.7 billion, which represented a book-to-bill ratio of 1.33, up from 1.1 in 2024. Expanded adjusted EBITDA margins by 140 basis points with each operating segment realizing year-over-year improvements. Achieved 99% ROV uptime for the second consecutive year and for the seventh time in the past 10 years. Improved ROV -- improved pricing in our ROV business by 7% over the course of the year, one of the highest-ever initial contract award in Oceaneering's history through our ADTech business, integrated GDi into our Integrity Management and Digital Solutions or IMDS segment, repurchased approximately 1.8 million shares for $40 million and grew our cash balance by $191 million.

As safety remains foundational to everything we do, I'm especially proud of our record low total recordable incident rate, or TRIR, of 0.22 achieved in 2025. Today, I'll cover our fourth quarter and full year 2025 results, our market outlook for 2026, our consolidated guidance for 2026 and our segment outlook for the full year and first quarter of 2026.

I'll start by reviewing our fourth quarter 2025 results. We delivered a solid fourth quarter in line with typical seasonality, driven by strong operational execution in several of our business segments. Compared to the fourth quarter of 2024. Consolidated revenue of $669 million was driven by substantial growth in ADTech, which partially offset lower revenue in our energy-focused businesses, resulting in a 6% decline from the same period last year. The revenue decrease in energy was primarily due to the unusually high number of international intervention and installation projects that our Offshore Projects Group, or OPG, performed in the fourth quarter of 2024 that did not repeat in the fourth quarter of 2025.

Consolidated operating income of $65.4 million also declined year-over-year with increases in ADTech manufactured products and Subsea Robotics or SSR, partially offsetting significantly lower results in OPG stemming from the intervention and installation projects in the fourth quarter of 2024 that I mentioned previously. IMBS was also lower compared to last year. We reported net income of $178 million or $1.76 per share, a 217% increase year-over-year. This improvement was largely due to a $156 million discrete tax benefit related to the release of U.S. valuation allowances.

Our consolidated adjusted EBITDA of $90.5 million was at the high end of our guidance range, but as expected to decline year-over-year for the same reasons that revenue and operating income declined. Additionally, during the fourth quarter, we generated $221 million of cash from operating activities and invested approximately $30 million in organic capital expenditures with approximately 55% allocated to growth and 45% to maintenance.

Free cash flow for the quarter was $191 million, benefiting from the timing of customer payments, including early receipt of payments originally due in the first quarter of 2026. As of December 31, 2025, our cash balance was $689 million, a 38% increase compared to the end of 2024.

Now let's look at our segment results for the fourth quarter of 2025 as compared to the fourth quarter of 2024. SSR operating income of $67.8 million was 7% higher on relatively flat revenue. EBITDA margins improved to 38% from 36% largely due to improved ROV pricing and increased tooling volumes. Survey results decreased on lower activity levels in the Americas as certain projects originally planned for the fourth quarter of 2025 shifted to the first quarter of 2026. The revenue split between our ROV business and our combined Tooling and Survey businesses as a percentage of our total SSR revenue was relatively flat at 78% and 22%, respectively.

Average ROV revenue per day utilized increased 7% from $10,481 in 2024 to $11,210 in 2025, with a fourth quarter exit rate of $11,550. These pricing improvements offset the impacts of lower ROV fleet utilization during the quarter, which declined to 62%. Most of the decline came from vessel support of our OPG vessels as drill support utilization was slightly higher compared to the fourth quarter of 2024. During the quarter, 67% of ROV days utilized for drill support and 33% were for vessel services.

As of December 31, 2025, we had 60% of the contracted floating rig market with ROV contracts on 81 of the 136 floating rigs under contract. We ended the quarter with the year of we ended the quarter and the year with a fleet of 250 ROV systems, including 16 upgraded world-class ROV systems that replace 16 systems that were retired in 2025.

Turning to Manufactured Products. Our fourth quarter revenue of $132 million decreased 7% year-over-year. Operating income of $20.4 million and operating income margin of 15% and increased considerably due to conversion of high-margin backlog in our [indiscernible] business and improved results in our nonenergy projects. Year-end 2025 backlog was $511 million, a decrease of 15% compared to December 31, 2024. The book-to-bill ratio of 0.84 for the full year of 2025 declined compared to 0.97 in the full year of 2024, largely based on the timing of orders.

It is worth noting that Manufactured Products full year 2025 revenue of $569 million and operating income of $72 million represented their highest level since 2020, when we combine our energy and nonenergy products into the same segment.

OPG revenue of $131 million decreased 29% compared to the same quarter last year, while operating income decreased to $15 million and operating income margin declined to 11%. This was expected and as noted earlier, primarily due to large international intervention and installation projects that OPG performed in the fourth quarter of 2024 that did not repeat in the fourth quarter of 2025.

For IMDS, fourth quarter revenue declined due to lower activity levels in Europe and West Africa. Operating income declined by $2 million due to a combination of lower revenue and a loss associated with the resolution of a commercial dispute.

Our ADTech fourth quarter 2025 operating income increased 43% and operating income margin improved to 11% on a 29% increase in revenue as compared to the same period last year. These improvements are the result of new contracts awarded during the year and reflect our strategic initiative to increasingly leverage our offshore knowledge and capabilities to grow this segment. In addition to previously announced contract awards, ADTech completed 2025 with 2 fourth quarter awards on unexercised options that are expected to generate meaningful revenue in 2026. ADTech's current backlog established a strong multiyear foundation for revenue growth, extending beyond the traditional 5-year planning horizon.

Fourth quarter 2025 unallocated expenses of $52 million increased 26% compared to the same period last year, primarily for increased accruals for performance-based compensation.

Now I'll turn my focus to our consolidated full year 2025 results compared to 2024. For 2025 consolidated revenue increased 5% to $2.8 billion, marking our fifth consecutive year of revenue growth. With the exception of IMDS, each of our operating segments achieved revenue increases. Consolidated 2025 operating income of $305 million improved by $58 million or 24%, and adjusted EBITDA of $401 million improved by $54 million or 16% compared to 2024. EBITDA growth was realized for all of our operating segments.

Cash flow from operations increased $116 million to $319 million, primarily due to timing of customer collections in the fourth quarter. We invested 101 -- excuse me, we invested $111 million in organic capital expenditures, representing a 4% increase over 2024 levels. For the full year of 2025, free cash flow was $208 million compared to $96.1 million in 2024. At year-end, we had total liquidity of $904 million comprised of $689 million in cash and cash equivalents and $215 million declared from our undrawn revolving credit facility.

Now turning to our 2026 market outlook. We expect ADTech to be our primary growth driver in 2026 based on our current backlog and expectations for increased spending across defense and government markets. In the U.S., we anticipate a well-funded defense environment with steady activity and subsea critical infrastructure protection, unmanned subsea systems and submarine sustainment. Internationally, geopolitical tensions and increased allied spending create additional opportunities for our AUVs, resident systems and subsea monitoring solutions.

For our energy base -- energy-focused businesses, we expect 2026 results to reflect a global oil market that remains oversupplied early in the year and gradually tightens as the year progresses. Consistent with that backdrop, offshore activity levels are expected to be relatively flat in the first half of 2026 with increased activity in the second half of the year and into 2027. According to the U.S. Energy Information Administration, Brent crude oil prices are expected to average in the mid-$50 to low $60 range in 2026, a level we believe is supportive of deepwater activity broadly consistent with 2025.

[ Synergy ] forecasts the deepwater rig demand, which is indicative of ROV activity will remain relatively flat in 2026. Independent research indicates that final investment decisions, or FIDs, for deepwater projects are expected to increase in 2026. The FIDs and subsea tree awards are key leading indicators for offshore activity over a 2- to 5-year horizon, including installations, equipment orders and overall offshore spending. These indicators help inform the expected timing of demand for umbilicals, subsea hardware and other subsea products, such as our rotator valves, all of which are typically ordered 3 to 6 months following tree awards.

According to [ Rystad Energy ], 42 deepwater FIDs are expected in 2026 compared to 37 in 2025 and increasing to approximately 75 in 2027. Subsea tree awards are forecasted to increase to approximately 300 awards in 2026 compared to 190 in 2025. Tree installations are expected to increase modestly to approximately 370 installations in 2026 compared to 343 in 2025.

Now I'll turn to our consolidated 2026 outlook. Based on our current backlog, anticipated order intake and market fundamentals we project consolidated revenue in 2026 to grow in the low to mid-single-digit percentage range. Year-over-year ADTech revenue will improve significantly. SSR and IMDS revenue improvement will largely offset anticipated declines in OPG and manufactured products. Our current energy-related backlog includes a mix of multiyear contracts, including awards announced across multiple geographies and business segments such as multiyear SSR contracts for ROV services in Angola and ROV and survey services in Brazil, and multiyear OPG contracts for Inspection, Maintenance and Repair, or IMR, contract in [ Mauritania ] and for [ Riserleight ] well intervention in the Caspian Sea.

For the year, we anticipate generating $390 million to $440 million of EBITDA with year-over-year improvements in all of our segments, except for OPG. At the midpoint of this range, our 2026 EBITDA would represent a modest increase over our 2025 adjusted EBITDA. EBITDA margins are expected to improve in Manufactured Products and IMDS remain stable in SSR and ad tech and decrease for PG.

We anticipate generating positive free cash flow of $100 million to $120 million. The year-over-year reduction in free cash flow primarily reflects the early receipt of approximately $37 million in customer payments in the fourth quarter of 2025 that were originally scheduled for the first quarter of 2026. At the midpoint of our EBITDA and free cash flow ranges, our cash conversion rate for '25 and '26, combined will be almost 40%. As has been the case over the last several years, we anticipate a substantial cash draw during the first quarter related to working capital changes associated with lower customer receipts associated with early collections in 2025 that were scheduled for 2026 and the payment of performance-based incentive compensation.

For 2026, we forecast our organic capital expenditures to total between $105 million and $115 million with approximately 40% allocated to growth and 60% to maintenance. Compared to 2025, our energy-focused capital expenditures are projected to be down 12%, while ADTech spending is up to support recent contract awards. We forecast our 2026 interest expense net of interest income to be in the range of $21 million to $26 million. We expect our cash 2026 tax payments to be in the range of $95 million to $105 million.

Directionally, in 2026, for our operations by segment. We expect continued improvements in SSR based on increased Tooling volume, improved results from our Survey business and the full year benefit of pricing improvements achieved throughout 2025. Revenue growth is expected to be in the low to mid-single-digit percentage range and EBITDA margins are expected to average in the mid-30% range for the full year.

For ROVs, we project a service mix of approximately 65% drill support and 35% vessel services consistent with 2025. Our overall ROV fleet utilization is forecasted to be in the mid-60% range with higher activity levels during the second and third quarters. We expect to sustain our ROV market share in the 55% to 60% range for drill support services. Average ROV revenue per day utilized in 2026 is expected to be relatively flat compared to our 2025 exit rate. Survey results are expected to improve in 2026, supported by increased utilization of our Ocean Intervention 2 vessel, which we upgraded in 2025 to enable simultaneous autonomous survey operations.

We have also deployed our Freedom autonomous underwater vehicle, or AV on commercial operations in West Africa. We expect to deliver a second commercial second Freedom vehicle to the defense innovation unit in the first half of 2026.

Finally, as part of our fleet transition plan, we are pleased to announce that our newest electric world-class ROV momentum is expected to be deployed on vessel support operations in the U.S. Gulf later this year. For Manufactured Products, we expect meaningful improvements in operating income on slightly lower revenue, driven by continued conversion of our existing umbilical backlog, high absorption levels across our 3 umbilical plants increased order activity in rotator and cost reductions in our nonenergy product lines. Operating income margin is expected to average in the mid-teens for the year.

For OPG, revenue is expected to decrease in operating income is expected to decrease significantly as projects shift toward traditional IMR work from installation and intervention work. We also project lower activity levels in the U.S. Gulf and West Africa, partially offset by higher activity levels in Brazil, the Caspian and the Middle East. Overall, for 2026, OPG operating income margins are expected to average in the mid-teens range for the year.

IMDS operating income is forecasted to improve significantly on increased revenue with growth opportunities in digital and engineering services. Operating income margin is expected to improve to be in the mid-single-digit range for the year. ADTech operating income is expected to improve on significantly higher revenue, with revenue and operating income growth in all 3 of our government-focused businesses. Operating income margins are expected to average in the low teens for the year.

Our growth expectations are underpinned by 2025 contract awards that span product development, maintenance, inspection, specialized technical services and ongoing operations in complex maritime space and security environments, supporting mission-critical defense and space operations.

For 2026, we anticipate unallocated expenses to average approximately $50 million per quarter with increases associated with the wage inflation, IT costs and foreign exchange impacts.

Now I'll discuss our outlook for the first quarter of 2026 as compared to the first quarter of 2025. On a consolidated basis, we expect our consolidated revenue to decrease and EBITDA to be in the range of $80 million to $90 million. This guidance range is driven by our expectation for lower activity levels in energy markets at the start of 2026, which we expect to improve as the year progresses.

For SSR, we project revenue to increase slightly in operating income to decrease given the geographic mix of ROV activity. We anticipate the mix to be more favorable as we progress through the year. In Manufactured Products, we forecast operating income to increase significantly on slightly lower revenue due to continued backlog conversion and the absence of the inventory release that impacted our theme park ride business in the first quarter of 2025.

We expect OPG revenue and operating income to decrease significantly on lower vessel utilization and changes in project mix in the U.S. Gulf and lower international activity. We project IMDS revenue and operating income to be relatively flat. For ADTech, we expect significantly higher revenue and increased operating income on changes in project mix. We forecast unallocated expenses to be in the range of $50 million.

In closing, I want to thank our employees for their dedication throughout 2025. Through their efforts, we saw momentum in each of our segments that gives us increased visibility into the future, including strengthening contributions from ADTech growing opportunities in digital and software services and expanding opportunities in international projects.

As we move into 2026, we remain focused on working safely and reliably, supporting our customers and creating value for our shareholders. We appreciate everyone's continued interest in Oceaneering, and we'll now be happy to take any questions you may have.

[Operator Instructions] Your first question comes from Keith Backman with Pickering Energy Partners.

I wanted to ask kind of around, I noticed you guys have talked about increased defense and government spending, ADTech looks to be stronger throughout the year with some awards. What is the what's kind of the typical lead time and process of government services type of projects from the time that they're awarded to kind whenever they would show up for you typically. Is there a rough time line on that or lead time?

It's really hard. It varies quite a bit. I mean, some things depending on like if there are services for existing products, they ramp up quickly. Some of the things where we're working on new things that starts with -- like every other project starts with engineering studies and then you go to prototyping and all those kinds of things. So it really is -- it's hard to call. And I would -- just to give you an idea, it's a mix right now. Some of the things we've been talking about are a mix of the two.

No, that's very helpful. Makes sense. And then the other question that I had was around ADTech as well again. Whenever you think about kind of the other segments in your business, how have those really helped supplement what ADTech does and kind of the growth we've seen in that segment. I think it's kind of like your knowledge on ROVs and maybe how that helps, but any color on that?

No, I think you're right on. And so we work in different places, right? So one of them is more about just sort of that offshore operations, ROVs, vehicles, that kind of stuff. That's one of the groups that we talk about. The other one is just our experience in maritime and working on things. It started with a lot of our welder expertise and the things we were doing offshore. So in that case, we do sub-safe work. So we're doing what we call -- you'll hear us talk about submarine sustainment. And that's because we're doing a lot of the mechanical haul repairs, sale repair, things like that. When a submarine comes in a dry dock for nuclear refueling. So we do a lot of that pressure vessel maintenance, if you will.

And we're actually one of the only ones that's actively doing that other than the submarine builders. So that's a sub-safe certification they call, which is pretty unique. And then the third part is, of course, Oceaneering space systems. And the space systems stuff, we do everything from the things that astronauts need to do in space. So creating tools, habitats, human interface, and not surprisingly, that's about working in low gravity environments, right, like a diver does. So our expertise with divers and tooling kind of translate into that business.

And then the other part that came with that is suits and then finally, thermal protection systems, which is sort of a -- if you think about this, this is the shrouding that goes around the rockets a fabric routing that's sacrificial. It burns up basically when the rocket launches, and of course, that business is pretty hot right now with both the return to space but also with the Golden Dome.

Your next question comes from Josh Jayne with Daniel Energy Partners.

First one, I was just curious, could you talk about the future of IMDS, and then also your digital software offerings and how you could potentially expand them sort of outside what you're doing within energy?

Yes. And those are kind of linked at the hip. It -- for us, it's exciting because it's 1 of the first times we see sort of machine vision, machine learning and AI coming to play. So we're going out to a rig and instead of just having people crawl all over into spot checks with hammers and cameras and chip and paint and things looking at pressure vessels and primary containment on the surface side of the offshore platform. We actually are doing laser scanning. We're being able to take that laser scanning and build a 3D model of the rig and detect corrosion at a very precise level. So you detect that corrosion, so you can be able to do a much more comprehensive scan of the facility, but you can also quantify the corrosion and then start to predict how long till failure, what are the parts we need to check more regularly.

So it's a huge advantage to catching things early to being a lot more, I would say, precise with how you want to go out and do your inspections thereafter. The cool part and the thing we're really excited about is while that really improves the topside inspection for our customers, we have had some really successful tests about taking that underwater. And so if we can inspect subsea infrastructure the same way with the laser scanning and the 3D model we can be deploying that off in OPG vessel with an ROV. And so we expect that we'll solve the customer's problem, but it will also create demand for ROVs investments.

That's helpful. And then just one more that I wanted to ask. I want to dig into M&A a little bit. I know it obviously hasn't been as much of a focus for you in the last couple of years. But just given that we've seen some on the rig side, recently announced some larger deals. And I would say the current administration is pretty favorable towards moving deals to. Has any of this changed your thoughts moving forward on M&A? Or should we expect Oceaneering just to sort of operate how they've been over the last couple of years and sort of sticking to your knitting and with the focus on free cash flow generation, and returning it to shareholders with your capital allocation?

I don't think it's going to change my mind on big industry consolidation, right, to try to go and put things together that if you squint really hard, look like they might go together. Just to create a bigger company. But it does -- I mean, it does give us a little bit of confidence as we go forward. The GDi acquisition was something we love, a bolt-on of technology that gave us this laser scanning thing I just talked about.

I think the more we can look at how do we move to what the oilfield needs next or what the defense side needs next picking up new technologies that are great bolt-ons that either give us broader participation in the market or up our technology game, I think those are really attractive. And hey, if they -- if it's easier to do, it will also, along with the financial wherewithal we're building with a strong balance sheet may encourage us to move into slightly bigger things.

Yes. I was going to add the same thing. I think for sure, the balance sheet strength and the growth in cash over the last several years, given the excellent work that's happened here just gives us opportunity, more flexibility and opportunity to do more when the time is right.

[Operator Instructions] Your next question comes from [ Brandon Carnevale with Half Moon Capital ].

Congrats on a great trend. So curious if or if you're seeing any traction on the autonomous forklift side after kind of the big delivery I think you had kind of exiting last year.

There's -- I would say there is a lot of interest and different people are looking at whether they want to use it for truck loading and unloading, which is a huge opportunity for us, and we've been working on improving the capabilities for doing that. But also wherever it's just operating in places where it's not as conducive to have a driver on the forklift. So it's a lot of interest, I would say, it's spread out over a lot of what was a get-to-know-you kind of activity, somebody who wants to pick up 2 or 3 and do a test.

I think one of the things we learned is that the adoption, we're going to be really keen on are you ready to adopt. If it's a brownfield application are the people ready for it is the location ready for it to make sure that those adoptions are smooth. But yes, the interest is high. I think we just got to see how fast these things pick up. So we're still encouraged and the list is long. So we'll keep knocking on the doors and keep answering those calls.

This concludes the question-and-answer session. I'll turn the call to Rod Larson for closing remarks.

Well, since there's no more questions, I'll just wrap up by thanking everybody for joining the call. This concludes our fourth quarter and full year 2025 conference call. Have a great day.

This concludes today's. Thank you for joining. You may now disconnect.

Welcome to the Oceaneering's Third Quarter 2025 Earnings Conference Call. My name is Tina, and I will be your conference operator. [Operator Instructions]

With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations.

Thanks, Tina. Good morning, and welcome to Oceaneering's Third Quarter 2025 Earnings Conference Call. Today's call is being webcast, and a replay will be available on Oceaneering's website.

Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; Alan Curtis, Senior Vice President and Chief Financial Officer; and Mike Sumruld, Senior Vice President of Finance. After Rod's remarks, we will open the call up for questions.

Before we begin, I would like to remind participants that statements we make during 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 third quarter press release, which is posted on our website.

I'll now turn the call over to Rod.

Thanks for joining the call today. In the third quarter, we surpassed the high end of our guidance range, generating consolidated adjusted EBITDA of $111 million marking our highest quarterly performance since the fourth quarter of 2015. These results were largely driven by the ongoing conversion of higher-quality backlog in manufactured products, continued high activity levels and a favorable project mix in our Offshore Projects Group, or OPG. Progression in Aerospace and Defense Technologies or ADTech as they onboard personnel and subcontractors to support large-scale programs and sustained remotely operated vehicle, or ROV pricing and performance.

Today, I'll focus my comments on our results for the third quarter of 2025, our outlook for the fourth quarter of 2025. Our consolidated EBITDA and free cash flow guidance for the full year of 2025 and our initial full year 2026 guidance. Starting with our third quarter 2025 consolidated results as compared to the third quarter of 2024. We generated revenue of $743 million, representing a 9% increase and operating income rose 21% to $86.5 million. We made meaningful progress in free cash flow generating $77 million after utilizing $24.2 million for investments in the business. We continue to return capital to shareholders, repurchasing approximately $10 million worth of our common stock shares, resulting in an ending cash position of $506 million.

Now let's look at our results by business segment for the third quarter of 2025 also compared to the third quarter of 2024. Subsea Robotics, or SSR revenue and operating income were essentially flat as was the EBITDA margin of 36%. ROV revenue per day utilized increased to $11,254 from $10,576 offsetting the effects of lower but still solid ROV fleet utilization of 65%. Fleet use of 63% in drill support and 37% in vessel-based activity was similar to the same period last year. The revenue split between our ROE business and our combined tooling and survey businesses as a percentage of our total SSR revenue was 77% and 23%, respectively, consistent with last year.

As of September 30, 2025, we had 60% of the contracted floating rig market with ROV contracts on 78 of the 131 floating rigs under contract. We maintained our fleet count of 250 ROV systems. During the quarter, we sold a vessel which was underutilized in the survey market. We believe this will yield positive results in our survey business by reducing costs and focusing our efforts on delivering increased efficiencies through the enhanced simultaneous operations capabilities of the Ocean Intervention II.

Manufactured Products operating income of $24.7 million and operating income margin of 16% doubled on a 9% increase in revenue. These results were driven by the continued execution of higher-margin backlog through our umbilical manufacturing plants as well as pricing improvements in our Grayloc and Rotator product lines. Order intake during the quarter of $208 million was solid, and our backlog on September 30, 2025, was $568 million. Our book-to-bill ratio was 0.82 for the trailing 12-month period.

OPG operating income increased 17% to $23.7 million on a 16% increase in revenue, with the operating income margin flat at 14%. These results reflect healthy vessel utilization in the U.S. Gulf and a favorable mix of intervention and installation projects for the quarter.

For Integrity Management and Digital Solutions, or IMDS, operating income and operating income margin improved on a slight decline in revenue. These results reflect the absence of a onetime noncash charge associated with the divestiture of our Marine -- Maritime Intelligence division in the third quarter of 2024.

ADTech operating income significantly increased by 36% to $16.6 million on a 27% increase in revenue with operating income margin improving slightly to 13%, driven largely by increasing activity levels associated with contract wins in our defense business. Unallocated expenses of $46.3 million were in line with our guidance for the quarter.

Turning to our outlook for the fourth quarter of 2025 as compared to the fourth quarter of 2024. We expect revenue to be lower as improvements in ADTech and SSR will only partially offset the reduction in international OPG projects. Consolidated EBITDA is projected to be in the range of $80 million to $90 million. By segment, for SSR, we anticipate increased revenue and operating income with the EBITDA margin expected to be in the mid- to upper 30% range. Our expectation for improved results is based on continued progression of ROV revenue per day utilized and improved utilization in our survey group with projects starting in the fourth quarter in the U.S. Gulf, Europe and West Africa.

For Manufactured products, we expect significantly improved operating income on lower revenue with continued conversion of higher-margin backlog and cost reductions associated with our nonenergy products.

For OPG, we project revenue and operating income to decrease significantly due to the absence of large-scale international intervention and installation projects that favorably impacted the fourth quarter of 2024, lower vessel activity levels in the U.S. Gulf and the project timing. With respect to our leased vessel fleet, we have one charter in the international market that is expiring during the quarter that we do not intend to renew due to our expectation for seasonally lower activity and allowing us to better match lease costs to future projects.

For IMDS, we forecast revenue to decrease in operating income to decrease significantly due to lower activity. For ADTech, we anticipate significant increases in both revenue and operating income on higher activity levels in our Defense business. We project unallocated expenses to be in the $45 million range.

For the full year of 2025, based on our fourth quarter EBITDA guidance, combined with our year-to-date EBITDA results, we expect to generate adjusted EBITDA in the range of $391 million to $401 million. Our strong free cash flow generation in the third quarter gives us confidence to maintain our full year guidance range of $110 million to $130 million.

Now looking forward, I'd like to provide you with our initial outlook for 2026. As we announced yesterday, we are initiating consolidated EBITDA guidance in the range of $390 million to $440 million, driving similar levels of free cash flow as we expect to generate in 2025. This is based on our expectations for significant growth in ADTech and stable activity levels across our energy-focused businesses. In particular, for SSR, we forecast similar ROV utilization levels since 2025 at improved pricing levels together with increased volume from survey will generate slight increases in revenue and operating income and stable EBITDA margins.

For Manufactured products, we project significantly improved operating income and improved operating margins on decreased revenue due to the continued conversion of higher-margin backlog as well as improved performance and cost reductions from our nonenergy product lines. For OPG, we expect revenue and operating income to decrease on changes in project mix, while significant opportunities exist, customer schedules have not yet finalized.

For IMDS, we forecast increased revenue and operating income. And for ADTech, revenue and operating income are expected to increase significantly and operating income margins are expected to be similar to 2025 levels as we execute large-scale projects that have been ramping up throughout the year.

Our 2026 forecast is based on the expectation that the government shutdown will be resolved in 2025. We plan to continue share repurchases in 2026 with approximately 5.8 million shares remaining under our existing repurchase authorization. We will provide more detailed guidance for 2026 during the year-end reporting process.

In summary, we continue to see growth opportunities in each of the markets we serve beyond 2025, driven by supportive long-term commodity prices improving visibility into an increasing number of contracted floating rigs in the second half of 2026 and beyond. Stability in ROV revenue per day utilized, our ability to optimize our revenue mix between our customers' CapEx and OpEx spend, growth in global defense spending and increased market demand for our mobile robotics technologies.

Now before we take questions, I want to take a moment to acknowledge an important milestone. As we previously announced, Alan plans to retire from his role as CFO on January 1. During his 30 years with Oceaneering and 10 years as CFO, Alan has been more than a financial steward. He's been a trusted adviser, a steady hand and a thoughtful leader. His ability to challenge assumptions while remaining open to the perspectives of our employees, customers, investors and other stakeholders has helped us to shape our strategy in meaningful ways. More than that, Alan is a true Oceaneer, embodying our culture of innovation, collaboration and a relentless commitment to excellence. His steady presence to shape not only our financial direction but also the way we lead and work together. Alan, on behalf of all Oceaneers' and our Board of Directors, thank you for all you've done for our team and for Oceaneering. We look forward to your continued contributions as you transition to an advisory role.

I'm also happy to introduce Mike Sumruld, our Senior Vice President of Finance, who joined the call today. Mike brings deep industry experience, and we look forward to his contributions to Oceaneering's continued growth. And we'll now be happy to take any questions you may have.

[Operator Instructions] Our first question comes from the line of Josh Jayne with Daniel Energy Partners.

First one for me, just when I think about the business moving forward toward the Ocean Intervention II, I think it was in August, and it was helpful to see the scale and capabilities of the vessel. One of my takeaways from the upgrades was how you'll ultimately be able to perform simultaneous autonomous survey operations. Maybe you could speak to that a little bit more, the advantages that's going to provide and how we should think about that -- those capabilities and the business moving forward?

Sure. I think, Josh, I mean, you saw some of that in the tour, but the main takeaway is being able to do more with less. So you decrease the service expression, you decrease fuel usage, you decrease personnel on board. So much more efficient, not just from a cost standpoint, but also from a time standpoint, being able to do more.

The other thing that isn't necessarily intuitively obvious because we're doing these things simultaneously and we're gathering this data, you're actually cross-checking data. So you're getting data from 2 different sources at the same time, you get a better idea early about your data quality. So I think all in all, it just provides the customer a more robust solution and getting that data into their hands sooner.

Okay. And then also this quarter, you announced a significant Subsea Robotics contract with Petrobras. I think it was $180 million. Could you speak to that market in 2026. How you expect it to hold up versus other geographies? And do you expect your market share in Brazil to increase moving forward for your other energy business lines?

Sure. I would just say, first of all, I was down there just about a month ago and got to meet with customers, including Petrobras. And the market is really robust. I mean they've got some pretty significant plans. They've got -- they've got Pelotos, which is coming up. They've got the -- we just got an approval, I think some of you might have seen in the news. They just got approval to drill up north near the mouth of the Amazon, which kind of puts them in that at Atlantic margin along with Suriname and Guyana. So I mean, very exciting stuff up there. So it is ever forward in Brazil. They're looking really hard at what they have ahead of them. And these are as big opportunities we've probably ever seen in Brazil.

I think market share continues to increase. My conversations certainly led me to believe like I would say, even more in the past, but coming back recently, their interest in technology is really big. And they are first adopters of a lot of the most interesting things we do. We've got things like we've got a riser inspection that will actually fly and do riser inspections. And we've done mooring line inspections and some of the things. So both -- I think both those things that drive them to exploration places, but also with an aging infrastructure, the ability to continue to work in places and exploit those investments they've already made in the existing fields. So I just think Brazil is a very exciting market, and we're well positioned there.

Okay. And then maybe just one more quick one. Just on the ADTech business, which continues to grow from a number of the awards you announced and you highlighted in your '26 guidance. It sounds like there's confidence it will be an increasing portion of your business going forward. Can you just speak to how that business is expected to compete for capital moving forward and where you ultimately see it as a percentage of your business over the next 3 to 5 years? And then I'll turn it back.

Sure. I think the nicest thing about it is that business grows, it's really low capital intensity. And so that's one of the most exciting things about scaling up that business. It's a lot of engineering know-how. It's a lot of products we build. It actually allows us to sweat the footprint we already have currently. I've talked a lot about this that people ask about we've got this defense business and we've got this energy business. They're really hard to separate. We do a lot of robotics. We do a lot of vehicle work. And all of those things happen throughout Oceaneering, right?

So some of the things those customers want are really well aligned with our IMDS business, for example. Some of them are really well aligned with the SSR business, obviously, with vehicles. But I think that's the exciting part is we are able to scale that up significantly without a lot of capital.

The other thing that we're starting to see more and more, as you see NATO spending increase, you see some of the other areas of the world, bearing more of the cost and more of the responsibility for defense. We're seeing more international opportunities come up as well. And that's everything from things we've seen in Taiwan, things that we've seen in -- with August, the Australian, U.K. and U.S. submarine build. So it's growing on all fronts. The big beautiful bill really put a lot of money back in the coffers for this work to go forward.

Yes. I'll just add one quick comment. It was -- we had management meetings last week and just to see the whole team rallying around this growth aspect of ADTech and all of the people from the energy side of the business. It was just nice to see 80 people sit there and rally around how can we get there faster.

Our next question comes from the line of Scott Gruber with Citigroup.

I wanted to get some more color on one of the segments in 4Q of Manufactured product, that's been a big source of growth this year. You mentioned the continued strength on a year-over-year basis in 4Q on operating income, but on lower revenues. It looks like it's implying maybe a double-digit decline on revenues. What do you think that means for margins? And kind of what's driving the revenue decline? So maybe I'll pack that for us a bit more.

Yes. Give me one second here, Scott. I'm looking at -- I don't know if we're implying double-digit decline in revenue. And I think it's really the quality of earnings is where we see the increase in the operating income and EBITDA for the segment. So a lot of the backlog we've been talking about for the last 2 years where we received the improved pricing, a lot of that is starting to flow through as you witnessed this year. There's a good part of that still in backlog that we expect to execute in '26. And at the same time, we've taken some I'll say, operational excellence focus in this area as well and continue to look at how we can improve our cost structure across the board. And I think we're expecting to realize some additional benefit in '26 there.

Yes, Scott, maybe just while they're doing the calculations, I mean, we're running the plants. The plants are booked. We -- I mean, we've got a great -- we've got a great runway for both what we did in '25, but through '26 as well as I think Alan has mentioned it before, having good backlog in all 3 of the umbilical plants. We've got good throughput at Grayloc and Rotator. Rotators having some of their best quarters ever. So I don't think there's a -- the revenue thing is not to imply that we're not going to have a large book of work. I think it's really just a matter of how that timing happens. I would say the sales funnel looks good. So we're booking into '27. So it's just a matter of when those larger projects hit, but I'm not I'm really -- I mean, Manufactured products is a good story for next year.

Yes. Yes, yes. I was just a bit surprised that the revenue would be declining sequentially here in the fourth quarter relative to last year. So moving on to ADTech, obviously, another great source of growth for you guys. Can you just give us some additional color on the kind of cadence of ADTech growth that's embedded in the '26 EBITDA guide?

Yes. I would kind of start with -- we've been talking through, we are adding additional contractors, subcontractors and personnel for the large-scale project that we announced in Q1. The team continues to onboard those subcontractors and looking at how we exit '25. I think, is a good beginning to how we think we'll start '26, but we expect to still continue to ramp up some of the revenue throughout the remainder of '26 as well. So we expect good progression year-over-year really with the new program that we have been awarded.

And that's just that program because it ramps through '27, but we've got some other things coming on as well, new opportunities yet to be determined. So there's just a lot, lot of excitement in ADTech. I think we talked on the previous -- to Josh as well. There's -- it's firing on all 3 cylinders actually in that business. So it's hard to really quantify until we get those other pieces booked. But we just talked about that one big project. Alan hit it well. It will ramp through '26 and into '27.

And with no further questions in queue. I will now turn the call back to Rod Larson for closing remarks.

Well, since there are no more questions, I'd like to wrap up by thanking everyone for joining the call. This concludes our third quarter 2025 conference call. Have a great day.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Welcome to Oceaneering's Second Quarter 2025 Earnings Conference Call. My name is Rob, and I will be your conference operator. [Operator Instructions]

With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations.

Thanks, Rob. Good morning, and welcome to Oceaneering's Second Quarter 2025 Earnings Conference Call. Today's call is being webcast, and a replay will be available on Oceaneering's website. Joining us on the call are Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; and Alan Curtis, Senior Vice President and Chief Financial Officer. After Rod's remarks, we'll open up the call for questions.

Before we begin, I'd like to remind participants that statements we make during this call regarding our future financial performance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our second quarter press release, which is posted on our website.

I'll now turn the call over to Rod.

Hey, good morning, everybody, and thanks for joining the call today. I continue to be incredibly proud of our team's consistent delivery against our guidance. When we provided our adjusted EBITDA guidance during the first quarter earnings call, we projected a quarterly year-over-year increase of 16%. We delivered a 20% increase in consolidated adjusted EBITDA. This marks 8 straight quarters of meeting or exceeding our adjusted EBITDA guidance range and 12 quarters out of the last 13. This kind of consistency speaks volumes about the strength of our execution and the resilience of our business.

In the second quarter of 2025, all of our operating segments contributed to beating the midpoint of our guidance by delivering quarterly year-over-year improvements in revenue, operating income and operating income margin. In particular, Aerospace and Defense Technologies or ADTech, improved its results as work commenced on several recent contract awards. Our Offshore Projects Group, or OPG, successfully completed higher-margin well intervention and well stimulation products in international locations, which drove a significant increase in their operating income and an expansion of their operating income margin. Manufactured Products results improved as we progressed higher-margin backlog through our manufacturing plants and not to be missed, our average Remotely Operated Vehicles or ROV revenue per day inflected earlier than expected to $11,265.

Today, I'll focus my comments on our second quarter results and overviews of our segment performance and our consolidated and business segment outlook for the third quarter and full year of 2025. I'll start with our consolidated results from the second quarter of 2025. As we reported yesterday, we generated net income of $54.4 million or $0.54 per share. Consolidated revenue increased to $698 million, a 4% increase over the second quarter of 2024. We also achieved notable growth in operating income and EBITDA. For the second quarter of 2025, consolidated operating income rose by 31% to $79.2 million. Consolidated adjusted EBITDA grew 20% to $103 million. We generated $77.2 million of cash in operating activities and utilized $30.3 million in capital expenditures, resulting in free cash flow of $46.9 million. For the fourth consecutive quarter, we repurchased approximately $10 million worth of shares of our common stock. Our ending cash position was $434 million with no borrowings under our secured revolving credit facility.

Now let's look at our results by business segment for the second quarter of 2025 as compared to the second quarter of 2024. Subsea Robotics or SSR earnings improved despite concerns over offshore activity levels in white space on an increase in average ROV revenue per day utilized to $11,265, demonstrating our ability to realize pricing improvements in new contracts. We anticipate these higher rates will carry through the second half from 2025 despite a portion of our utilization shifting to lower-priced regions. Due to the increased revenue per day utilized, SSR produced operating income of $64.5 million, an improvement of 4%. Revenue increased approximately 2% and EBITDA margin expanding slightly to 35%.

ROV fleet utilization for the quarter was solid at 67%. Fleet use of 63% in drill support and 37% in vessel-based activity was similar to the same period last year. Revenue split between our ROV business and our combined Tooling and Survey businesses as a percentage of our total SSR revenue was 79% and 21%, respectively. As of June 30, 2025, we had 60% of the contracted floating rig market with ROV contracts on 81 of the 136 floating rigs under contract. We maintained our fleet count of 250 ROV systems.

As we look forward to the second half of 2025 and into 2026, we anticipate continued tendering activity that is supportive of our ROV utilization and pricing assumptions. This includes more decommissioning opportunities in Europe, which will help offset marginally lower rig support activity. As a reminder, decommissioning work has the advantage of more personnel and tooling revenue per day. The strong first half performance of our ROV Tooling business is expected to continue. While we're pursuing new opportunities in our Survey Geoscience business, we may cold stack one of our survey vessels in the future should these opportunities fail to materialize.

Manufactured Products generated operating income of $18.8 million, marking a 31% rise over the second quarter of 2024. Revenue grew by 4% to $145 million and operating income margin expanded by 262 basis points driven by the conversion of backlog in our energy manufacturing plans. During the quarter, we took a further $2.5 million inventory reserve related to our former theme park ride business. Our confidence in our second half forecast is underpinned by the continued manufacturing throughput of backlog at the improved pricing that we've discussed over the past several quarters. Our full year 2025 book-to-bill guidance of 0.9 to 1.0 remains unchanged despite muted bookings in the first half of 2025. We've consistently anticipated that our order intake will be concentrated in the second half of the year, and we've already secured order commitments totaling approximately $100 million in the first weeks of the quarter. We expect to finalize those contacts in the coming weeks.

Our other product lines also supported these results and are contributing to our forecast. In particular, Grayloc, our industry-leading high temperature, high-pressure connector business, continues to evolve by penetrating new markets and end customers with new products. We've also seen more activity for rotator, our topside and subsea valve business, which corresponds to subsea tree awards.

OPG reported significantly improved operating income of $21.7 million. Revenue increased by 4% and operating income margin expanded to 15%. In the second quarter, we secured several longer-term contracts, including a vessel services contract in the U.S. Gulf and an Inspection, Maintenance and Repair, or IMR contract for BP Mauritania. These contracts provide us with visibility into OPG's vessel utilization and activity levels for the remainder of 2025 and into future years. We project vessel utilization and activity levels will be solid in the third quarter of 2025 based on current backlog and quotation activity. Given current Brent Oil prices, we are still encouraged by the macro environment for the fourth quarter, we do not expect activity to reach the same level as the fourth quarter of 2024. In the second half of 2025, we expect OPG's results will be impacted by changes in geographic and service mix as we anticipate activity will shift away from higher-margin intervention projects toward lower-margin IMR work in the U.S. Gulf.

For Integrity Management and Digital Solutions or IMDS, operating income and operating income margin improved on relatively flat revenue. We continue to integrate Global Design Innovation or GDi, into our Integrity Management business and to identify pilot projects to demonstrate our new capabilities. ADTech operating income increased by 125% to $16.3 million on a 13% increase in revenue. With operating income margin expanding 15% as compared to the second quarter of 2024. Our Oceaneering Technologies, or OTECH business line benefited from the continued ramp-up of the large contract announced in the first quarter. Our Marine Services Division, MSD also contributed positively to ADTech's performance in the second quarter with high activity levels in submarine repairs and dry dock shelter overhauls.

Looking into the second half of the year, we anticipate further revenue increases in OTECH from recently announced defense contract and from seasonal increases in offshore operations. MSD results are also forecasted to improve due to additional volume of submarine and dry dock shelter repair work. Revenue from the major defense contract is projected to steadily ramp up quarter-over-quarter during the design and engineering phase. This phase is expected to be completed in early 2027 when we will commence production and see a further ramp-up in revenue.

Additionally, we anticipate that the recently passed reconciliation bill or the Big Beautiful Bill will positively impact all 3 of our ADTech business lines over the next 5 years. It increases funding for Unmanned Underwater Vehicles or UUVs, such as our Freedom vehicle that we sold to the Defense Innovation Unit last year. The Navy's continued focus on acquiring services in addition to technology and creates opportunities to leverage our commercial service expertise to support the Navy and delivering a full range of capabilities to their fleet. Submarine construction and maintenance programs are projected to accelerate creating additional opportunities for MSD. And finally, the space program budget was better than expected. Since passage of this legislation, we have seen renewed opportunities related to thermal protection systems and with foreign space agencies. Unallocated expenses of $46.7 million were slightly higher than our guidance for the quarter.

Turning our outlook to the third quarter of 2025 as compared with the third quarter of 2024. We forecast increases in consolidated revenue and EBITDA. Consolidated EBITDA is expected to be in the range of $100 million to $110 million. Compared to the third quarter of 2024, our projections for the third quarter of 2025 by segment are: for SSR, we anticipate higher revenue and operating results, with EBITDA margin expected to be in the mid to upper 30% range. For Manufactured Products, we expect significantly improved operating results driven by increased revenue. For OPG, we project a decline in operating results on relatively flat revenue. For IMDS, we forecast significantly improved operating results on relatively flat revenue. For ADTech, we anticipate significant increases in both revenue and operating results. And finally, we project unallocated expenses to be between $45 million and $50 million.

For the full year 2025 on a consolidated basis, we project revenue to grow in the mid-single-digit percentage range and adjusted EBITDA to be in the range of $390 million to $420 million. You will note that we've narrowed our guidance range by tightening both the lower and the higher ends based on our strong first half performance and the second half outlook. Directionally, for our full year 2025 operations by segment as compared to 2024, for SSR, we forecast improved operating results on a mid-single-digit percentage increase in revenue. Our revised guidance on revenue growth is based on our projection for lower-than-expected conditions from our Survey business. SSR EBITDA margin is projected to average in the mid-30% range for the full year. We estimate that our overall ROV fleet utilization will be in the mid- to high 60% range for the full year. We are confident that we will sustain our ROV market share for drill support services in the 55% to 60% range.

For Manufactured Products, we project significantly improved operating income on better operating margins and increased revenue. As previously stated, we anticipate the book-to-bill ratio will be in the range of 0.9 to 1.0 for the full year. For OPG, we expect year-over-year operating results to improve on flat to slightly increased revenue. Overall, for 2025, OPG operating income margin is expected to be in the mid-teens percentage range. For IMDS, we forecast a significant increase in operating results on increased revenue with operating income margin expected to be in the mid-single-digit percentage range for the full year. For ADTech, operating results are forecasted to improve significantly on increased revenue. Operating income margin is expected to be in the low teens percentage range for the full year.

In summary, we remain positive about both our Energy and Aerospace and Defense markets that we serve, and we're confident in the value we deliver to our customers. We foresee continued growth beyond 2025, driven by improved visibility into an increasing number of contracted floating rigs in the second half of 2026, sustained progression in ROE revenue per day utilized, anticipated higher levels of FIDs, expectations for supportive oil prices, our ability to perform and offer more life-of-field services, increased demand and geographic expansion for our ADTech business and increased market demand for our Mobile Robotics Technologies.

We appreciate everyone's continued interest in Oceaneering, and I'll be happy to take any questions you may have.

[Operator Instructions] Your first question comes from the line of Eddie Kim from Barclays.

So we've heard about offshore rig white space from the offshore drillers for several quarters now. More recently, some of the larger diversified service companies have started to mention this as well, but this doesn't seem readily apparent in part of your business at this point. The place that would show up is, of course, your ROVs business, but pricing there continues to increase almost quarter after quarter.

So all that to say, are you seeing any kind of impact to your business due to offshore rig white space? And if you haven't, do you expect to see it maybe later this year or do you think your business will emerge relatively unscathed from this?

No. Great question, Eddie. And I think your question and questions we get all the time is like people are looking for that other shoe to fall, right? When is it going to happen? I would say we do see some of that. We were expecting to get closer to that exiting the year with a 70% overall utilization for ROV. So we've seen some of it, as we talked about, getting to our pricing point sooner than we expected is offset some of that. So we see some of that.

Maybe some of the offset is the increase in some of the abandonment activity, particularly in Europe. So there's some puts and takes in there that have leveled us off. But really, I mean, the thing to watch in the SSR business is going to be Survey. We set up to run 2 vessels. We've been running 1. We were hoping to get to 2, but we might not get to 2 in the Geoscience part of Survey.

But other than that, I mean, ROVs, we've trimmed the sales a little bit, but it's kind of been within the range of expectations.

Got it. Got it. My follow-up is just on orders in your Manufactured Products segment, which is mostly comprised of subsea umbilicals. Orders have been trending below 1x book-to-bill now for several quarters. And it looks like full year orders this year will likely be down versus last year. Could you just give us your latest thoughts on the umbilicals business and how you see that trending maybe this year and into next year? Should we expect kind of flattish trajectory as we move to next year? Or do you expect to rebound? Just any thoughts on the umbilicals business?

Well, yes. Let me start with orders year-over-year, we think are more '24 to '25 are more flattish. We don't really expect them to be down. And it is, we knew early in the year that we were going to be back half loaded on orders. And it's -- so far, I mean, it's pretty early in the back half, but the first few weeks have been really good. I mentioned earlier, $100 million already in the first few weeks. And we have -- the rest of the things that we expect to come in are still out there in the pipeline. So that part is good.

'25 to '26, I would just say, you're hearing a lot of good things from us and others in that Subsea business about FIDs, about subsea tree orders. So we see good things happening in umbilicals. We think that there's going to be a pretty good book. So a little bit TBD, a little early to call the year-over-year, but I do think that there's good signals for '26.

The other thing I'd call out, and we don't talk about it a lot because in total revenue dollars, it's not as big as umbilicals but in margins, it's a great business in that Grayloc business which continues to grow and continues to be a bigger component of the overall business. That's also looking strong. So there's good things going on below the water line, too.

Your next question comes from the line of David Smith from Pickering Energy Partners.

Congratulations on the solid Q2 results.

Thanks, David.

Just following up on Eddie's question. I wanted to ask if that slightly lower full year ROV utilization outlook relates more to vessel support or rig support. And if you characterize that was a change in visibility for underlying activity or something else?

It's both. I mean we see it on both sides. So it's not just one or the other. So it's a little bit of both. And I would just say it is increased clarity and seeing what everybody's plans are going to be, especially in the fourth quarter. I mean that stuff is becoming more apparent now. So we're just being, I think, conservative to not overestimate what could come to be in the fourth quarter.

Perfect. And then related around the ROV pricing outlook, is this mostly a function of contract rollover, maybe a little bit of FX? Or are we seeing -- is it too early to ask if we're seeing any benefit show up from maybe some performance-based deals?

I would say it's mostly the contracts. We don't -- it's not -- there's not a big FX effect, and there's not a big effect of the performance-based pricing yet. I mean those are things that are trued up later. So I would just say those are still in the mix, but it's mostly just that continued rollover of contracts.

Perfect. Appreciate it. If I could sneak one more in. Free cash flow was kind of modest in the first half. So there's obviously a large ramp implied for the second half to meet the full year guide. Can you walk us through your visibility on that step up? Kind of what are the biggest contributors? How much of that improvement is already in motion or still dependent on execution?

Yes, I'll take this one, David. A lot of it is kind of how we've seen the last 4 or 5 years play out where Q1 is a pretty big cash draw for us. We rebound, generate positive cash in Q2. But really, it's been more of a Q3, Q4 story for us the last, I'll say, 4 to 5 years, and we're seeing that again this year. We do have line of sight to a good amount of it because it's sitting in receivables. So I think it's going and getting paid for the work we've performed and bringing that cash in, in Q3, Q4 time frame.

Your next question comes from the line of Josh Jayne from Daniel Energy Partners.

First one I had was on the OPG business. To me, it sounds like there's more visibility today and work is getting booked more out into the future than there has been previously. And so first of all, is that accurate? And if so, maybe you could just discuss that dynamic today even in what's been a pretty volatile market.

I think, Josh, you're right. And it's a little bit of function of when -- I've always talked about these bigger chunks of business when we start to book like the BP Mauritania, those big international contracts really help our visibility a lot, and that creates that stable base. Call out the Gulf of Mexico, for the most part, there's still call-out work, but we're able to secure more given days.

Okay. And then second question, I just wanted to go back to comments you made surrounding the potential impact from the Big Beautiful Bill. You already had some pretty strong momentum around the business lines that could benefit from this. Maybe you could just dive in a little bit more to how you're thinking about that and positioning the company for what sounds like could be even more sizable growth over the next couple of years. Just some details around that would be helpful.

Sure. I think the OTECH side with the vehicle business is a big thing because that's always been -- it had bilateral support, a lot of things that U.S. has great defense supremacy around what happens under water, and they're very, very keen to maintain that. And we provide, obviously, a lot of services there. That's our wheelhouse. So I think that's a big part of it. But probably even more exciting is the way it affects the other 2 businesses. I mean, space was on the roads. They were really worried for a while, especially when Doji was in. And so a lot of the space business appear to be going the other way. But now we see things like Artemis going to the moon, those things actually being refunded. Just the phone started ringing immediately with people who wanted to kick off projects again. So we think space definitely is a good one.

We talk about Thermal Protection Systems, which is good because that covers the full gamut, anything with a booster underneath it. But human space flight, which is one of the things that got, I think, rebolstered is great for us because we do suit work, we do human interface work, and that's a big one for us to see come back. So that's great.

And then I'd also go to MSD. I mean, it sounds like fleet readiness, being able to keep our -- especially our submarines in our case ready to go. They will probably put as much money into submarine maintenance and repair and new build as the industry can take. So we are already thinking about how do we gear up to have more capacity to serve that market.

And that concludes our question-and-answer period. I will now turn the call back over to Rod Larson for some final closing remarks.

Well, since there are no more questions, I'll just wrap up by thanking everybody for joining. This concludes our second quarter 2025 conference call. Have a great day.

Thank you for joining. You may now disconnect.