Oceaneering (NYSE: OII) reported Q3 EPS of ($0.30), $0.08 worse than the analyst estimate of ($0.22). Revenue for the quarter came in at $498 million versus the consensus estimate of $526.48 million.

Roderick A. Larson, President and Chief Executive Officer of Oceaneering, stated, "Our consolidated third quarter 2019 operating results met our expectations and our adjusted EBITDA exceeded the consensus estimate. Overall, we were encouraged by the better-than-expected contribution from our energy segments.

"Our operating results for the third quarter 2019 improved by $4.4 million over the prior quarter, largely due to increased contributions from Subsea Products and Remotely Operated Vehicle (ROV) segments, which were partially offset by a less-than-expected contribution from our Advanced Technologies segment.

"Each of our operating segments, except for Asset Integrity, generated positive EBITDA, and on a consolidated basis we generated adjusted EBITDA of $45.4 million. Our cash position of $340 million at September 30, 2019 declined $15.5 million from June 30, 2019, as we increased capital expenditure spending associated with projected higher ROV activity, and with purchases of equipment to support our drill pipe riser contract in Brazil.

"Operationally, for the third quarter 2019, ROV days on hire declined by 2%, translating to a lower fleet utilization of 60%, as compared to 62% in the second quarter. Average ROV revenue per day on hire was slightly lower, declining 4% sequentially, as a result of changes in geographic mix. However, this decline was offset by a decrease in costs. ROV operating results for the quarter included the effect of a $2.8 million gain associated with the sale of ROV accessory equipment integrated into a customer's rigs. Excluding the impact of this gain, EBITDA margin was consistent with second quarter EBITDA margin.

"Our fleet use mix during the quarter was 63% in drill support and 37% in vessel-based activity, the same as the second quarter. At the end of September, we had ROV contracts on 97 of the 159 floating rigs under contract, or 61%. At June 30, 2019, we had ROV contracts on 101 of the 161 floating rigs under contract, or 63%. At the end of September 2019, our fleet count remained at 276 vehicles.

"Subsea Product's operating income during the third quarter 2019 was better than expected, on a 9% increase in quarterly revenue. The improved operating results were primarily due to greater activity and better-than-expected profitability within our service and rental business. Our Subsea Products backlog at September 30, 2019 was $609 million, compared to our June 30, 2019 backlog of $596 million. The backlog improvement was largely attributable to an increase in order intake for our manufactured products business. Our book-to-bill ratio, year to date, was 1.7 and for the past twelve months was 1.5.

"Sequentially, Subsea Projects third quarter revenue and operating results were relatively flat with the second quarter. Call-out work during the third quarter was consistent with that of the second quarter. Asset Integrity operating results decreased on slightly lower revenue as compared to the second quarter, as pricing for inspection services continues to remain very competitive.

"For our non-energy segment, Advanced Technologies, third quarter 2019 operating results were much lower than forecast. This was primarily due to the combination of delays and cost overruns on certain projects within our commercial businesses, which resulted in lower revenue and lower operating margins than projected. Unallocated Expenses for the third quarter 2019 were lower than the second quarter 2019 due primarily to lower accruals for incentive-based compensation.

"Looking forward, we believe our fourth quarter 2019 EBITDA will be slightly lower than our adjusted third quarter results, with the onset of seasonally lower offshore activity within our energy segments being slightly offset by improved contribution from our non-energy segment. Sequentially for our energy segments, we expect lower operating results from ROV, Subsea Products, and Subsea Projects segments and a marginal improvement in our Asset Integrity segment. For Advanced Technologies, we are projecting improved performance from our commercial businesses that will result in a meaningful revenue increase and an operating margin in the low double-digit range. Unallocated Expenses are forecast to be in the low- to mid-$30 million range.

"For the full year of 2019, we affirm the $160 million midpoint of our previously provided EBITDA guidance. We are increasing our capital expenditures guidance for the year to $150 million, primarily driven by increased spending within our ROV segment to support projected higher levels of activity anticipated for 2020. However, we continue to expect positive free cash flow generation for the year as we anticipate generating cash from positive working capital changes in the fourth quarter.

"We continue to believe that the long-term fundamentals for the offshore energy industry are improving and that our energy segments are positioned to benefit from this recovery. We know that this recovery is gradual so we remain focused on continuing to adapt our business structure to the current market to improve returns. We are also implementing a stricter capital discipline approach, which we expect to help us ensure that we generate meaningful free cash flow in the future.

"Accordingly, looking into 2020, we are anticipating increased activity and improved operating performance across all of our segments, led by gains from ROV and Subsea Products. At this time, we anticipate generating $180 million to $220 million of EBITDA in 2020 with positive operating income from each of our operating segments. Unallocated Expenses are expected to be approximately $140 million and we project capital expenditures to be in the range of $70 million to $100 million. As a result, we expect to generate a significant increase in free cash flow in 2020 relative to 2019. In this dynamic market we will necessarily continue to review our forecast as we develop a definitive operating plan for 2020, and we will update our guidance range during the year-end reporting process."

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