Certain statements we make in this quarterly report on Form 10-Q are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our expectations about: •the impacts of the coronavirus ("COVID-19") pandemic on theU.S. and the global economy, as well as on our business; •our second quarter 2021 operating results and the contributions from our segments to those results, as well as the amount of Unallocated Expenses for the second quarter; •tax refunds under theU.S. Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") and other tax refunds; •our cash tax payments and projected capital expenditures for 2021; •free cash flow, which we define as net cash provided by operating activities less cash paid for purchases of property and equipment, in 2021 and in future periods; •future demand, order intake and business activity levels; •the backlog of our Manufactured Products segment, to the extent backlog may be an indicator of future revenue or productivity; •the adequacy of our liquidity, cash flows and capital resources; •shares to be repurchased under our share repurchase plan; •the implementation of new accounting standards and related policies, procedures and controls; •seasonality; and •industry conditions. These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the headings "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in Part I of our annual report on Form 10-K for the year endedDecember 31, 2020 . Although we believe that the expectations reflected in such forward-looking statements are reasonable, because of the inherent limitations in the forecasting process, as well as the relatively volatile nature of the industries in which we operate, we can give no assurance that those expectations will prove to have been correct. Accordingly, evaluation of our future prospects must be made with caution when relying on forward-looking information.
The following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our annual report on Form 10-K for the year ended
Realignment of Reportable Segments As described in Note 10-"Business Segment Information" in the Notes to Consolidated Financial Statements included in this report, in the third quarter of 2020, we changed our organizational structure as part of the transformation to realign our businesses to achieve greater cost efficiencies and to bring together business units that frequently work together and promote increased synergies in bidding, project management and the use of offshore technicians. As a result, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Therefore, for the three months endedMarch 31, 2021 and 2020, we are reporting our financial results consistent with our newly realigned operating segments and have recast certain prior period amounts to conform to the way we internally manage our businesses and monitor segment performance. Our new structure aligns our company around five reportable segments: (1) Subsea Robotics; (2) Manufactured Products; (3)Offshore Projects Group ("OPG"); (4) Integrity Management & Digital Solutions ("IMDS"); and (5) Aerospace and Defense Technologies ("ADTech").
Overview of our Results and Guidance
Our diluted earnings (loss) per share for the three-month period endedMarch 31, 2021 were$(0.09) , as compared to$(0.25) in the immediately preceding quarter and$(3.71) for the corresponding period of the prior year. We have continued to improve our operating performance by driving operational efficiency, led by focusing on safety, quality 23 -------------------------------------------------------------------------------- Table of Content s and value-based solutions for our customers. Each of our operating segments reported positive adjusted operating income in the first quarter of 2021. During the first quarter of 2021, we utilized$1.7 million of cash in operating activities, as the payment of accrued employee incentive payments related to attainment of specific performance goals in prior periods was mostly offset by good operating performance. In addition,$11 million of cash was used for maintenance and growth capital expenditures. These two items were the largest contributors to our$9.3 million cash reduction during the first quarter of 2021. Looking forward, we believe our consolidated second quarter 2021 results will improve sequentially on higher revenue. We anticipate higher activity levels and operating results in our Subsea Robotics and OPG segments, higher activity levels and relatively flat operating results in our IMDS and ADTech segments and lower activity levels and lower operating results in our Manufactured Products segment. Unallocated Expenses are expected to average in the low- to mid-$30 million range. OnMarch 27, 2020 , the CARES Act was signed into law inthe United States . In accordance with the recently established rules and procedures under the CARES Act, we filed a 2014 refund claim to carry back ourU.S. net operating loss generated in 2019 and amended our 2012 and 2013 federal income tax returns impacted by the net operating loss carryback. Prior to the enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expect to receive combined refunds of approximately$33 million , of which we have received$5.6 million as ofMarch 31, 2021 . The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as ofMarch 31, 2021 . Our cash tax payments for the full year of 2021 are estimated to be in the range of$40 million to$45 million , primarily due to taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations. These cash tax payments do not include the impact of approximately$28 million of CARES Act tax refunds expected to be received in 2021. We affirm our guidance range of$50 million to$70 million for capital expenditures for the full year of 2021. We remain committed to maintaining strong liquidity for the full year of 2021 and believe that our cash position, undrawn revolving credit facility, and debt maturity profile should provide us ample resources and time to address potential opportunities to improve our returns.
Results of Operations
We operate in five business segments. The segments are contained within two businesses - services and products provided primarily to the oil and gas industry, and to a lesser extent, the offshore renewables and mobility solutions industries ("Energy Services and Products") and services and products provided to non-energy industries ("Aerospace and Defense Technologies"). Our Unallocated Expenses are those not associated with a specific business segment.
Consolidated revenue and profitability information are as follows:
Three Months
Ended
(dollars in thousands) Mar 31, 2021 Mar 31, 2020 Dec 31, 2020 Revenue$ 437,553 $ 536,668 $ 424,262 Gross Margin 56,657 46,752 45,001 Gross Margin % 13 % 9 % 11 % Operating Income (Loss) 13,783 (380,757) 480 Operating Income (Loss) % 3 % (71) % - % We generate a material amount of our consolidated revenue from contracts for services in theU.S. Gulf of Mexico in our OPG segment, which is usually more active in the second and third quarters, as compared to the rest of the year. The European operations of our IMDS segment are also seasonally more active in the second and third quarters. Revenue in our Subsea Robotics segment is subject to seasonal variations in demand, with our first quarter generally being the low quarter of the year. The level of our Subsea Robotics seasonality depends on the number of Remotely Operated Vehicles ("ROVs") we have engaged in vessel-based subsea infrastructure 24 -------------------------------------------------------------------------------- Table of Content s inspection, maintenance, repair and installation, which is more seasonal than drilling support. Revenue in each of our Manufactured Products and ADTech segments generally has not been seasonal. We had operating income (losses) of$14 million ,$(381) million and$0.5 million in the three-month periods endedMarch 31, 2021 ,March 31, 2020 andDecember 31, 2020 , respectively. Included in our operating income (losses) for the three months endedMarch 31, 2021 ,March 31, 2020 andDecember 31, 2020 were charges of$1.3 million ,$386 million and$9.1 million , respectively, primarily due to market conditions requiring impairment of certain of our assets along with other costs we recognized as we adapted our geographic footprint and staffing levels to the conditions of the markets we serve. Charges included in the three months endedMarch 31, 2021 ,March 31, 2020 andDecember 31, 2020 are summarized as follows: For the three months ended March 31, 2021 Integrity Management & Aerospace and Subsea Manufactured Offshore Digital Defense Unallocated (in thousands) Robotics ProductsProjects Group Solutions Technologies Expenses Total
Charges for the effects of:
Other$ 395 $ 537$ 149 $ 217 $ 10 $ -$ 1,308 Total charges$ 395 $ 537$ 149 $ 217 $ 10 $ -$ 1,308 For the three months ended March 31, 2020 Integrity Offshore Management & Aerospace and Subsea Manufactured Projects Digital Defense Unallocated (in thousands) Robotics Products Group Solutions Technologies Expenses Total
Charges for the effects of:
Long-lived assets impairments $ -$ 61,074 $ 7,522 $ 167 $ - $ -$ 68,763 Long-lived assets write-offs 7,328 - - - - - 7,328Goodwill impairment 102,118 11,388 66,285 123,214 - - 303,005 Other 919 1,984 1,216 2,231 - 280 6,630 Total charges$ 110,365 $ 74,446 $ 75,023 $ 125,612 $ - $ 280$ 385,726 For the three months ended December 31, 2020 Integrity Offshore Management & Aerospace and Manufactured Projects Digital Defense Unallocated (in thousands) Subsea Robotics Products Group Solutions Technologies Expenses Total
Charges for the effects of:
Long-lived assets impairments $ - $ -$ 1,304 $ 378 $ - $ -$ 1,682 Long-lived assets write-offs - - 9,401 170 - - 9,571 Other 221 (3,489) 643 422 27 - (2,176) Total charges$ 221 $ (3,489) $ 11,348 $ 970 $ 27 $ -$ 9,077 Energy Services and Products The primary focus of our Energy Services and Products business over the last several years has been toward leveraging our asset base and capabilities for providing services and products predominantly for offshore energy 25
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Table of Content s operations and subsea completions, inclusive of our customers' operating expenses and the offshore renewable energy market.
The table that follows sets out the revenue and profitability for the business segments within our Energy Services and Products business. In theSubsea Robotics section of the table that follows, "ROV days available" includes all days from the first day that an ROV is placed into service until the ROV is retired. All days in this period are considered available days, including periods when an ROV is undergoing maintenance or repairs. Our ROVs do not have scheduled maintenance or repair that requires significant time when the ROVs are not available for utilization. Three Months Ended (dollars in thousands) Mar 31, 2021 Mar 31, 2020 * Dec 31, 2020 Subsea Robotics Revenue$ 119,119 $ 139,770 $ 114,711 Gross Margin 24,078 19,473 24,777 Operating Income (Loss) 14,619 (94,083) 14,477 Operating Income (Loss) % 12 % (67) % 13 % ROV Days Available 22,469 22,750 22,999 ROV Days Utilized 11,887 14,853 12,456 ROV Utilization 53 % 65 % 54 % Manufactured Products Revenue 86,825 166,534 99,899 Gross Margin 10,004 17,949 20,092 Operating Income (Loss) 2,753 (66,138) 12,218 Operating Income (Loss) % 3 % (40) % 12 % Backlog at End of Period 248,000 419,000 266,000Offshore Projects Group Revenue 89,234 74,254 67,821 Gross Margin 15,111 2,095 (2,367) Operating Income (Loss) 8,813 (79,323) (9,940) Operating Income (Loss) % 10 % (107) % (15) %
Integrity Management & Digital
Solutions Revenue 54,048 64,729 54,307 Gross Margin 8,209 9,792 7,396 Operating Income (Loss) 2,474 (121,535) 892 Operating Income (Loss) % 5 % (188) % 2 %
Total Energy Services and Products
Revenue$ 349,226 $ 445,287 $ 336,738 Gross Margin 57,402 49,309 49,898 Operating Income (Loss) 28,659 (361,079) 17,647 Operating Income (Loss) % 8 % (81) % 5 %
* Recast to reflect segment changes.
In general, our Energy Services and Products business focuses on supplying services and products to the oil and gas industry, and to a lesser extent, the offshore renewables and mobility solutions industries. The adverse impacts of the COVID-19 pandemic and the associated supply and demand imbalance along with lower crude oil prices 26 -------------------------------------------------------------------------------- Table of Content s have resulted in lower levels of activity and profitability. As we expect a recovery will take time to restore profitability and generate satisfactory returns, we have been reviewing our cost structure and aggressively implementing cost improvement initiatives. Subsea Robotics. We believe we are the world's largest provider of ROV services and, generally, this business segment has been the largest contributor to our Energy Services and Products business operating income. Our Subsea Robotics segment revenue reflects the utilization percentages, fleet sizes and average pricing in the respective periods. Our survey services business provides survey and positioning, and geoscience services. The following table presents revenue from ROV as a percentage of total Subsea Robotics revenue: Three Months Ended Mar 31, 2021 Mar 31, 2020 * Dec 31, 2020 ROV 78 % 80 % 80 % Other 22 % 20 % 20 %
* Recast to reflect segment changes.
During the first quarter of 2021, Subsea Robotics operating income was flat on slightly higher revenue as compared to the immediately preceding quarter, primarily due to higher ROV drill support days and survey activity. Pricing for the various Subsea Robotics services remained stable during the first quarter of 2021. Subsea Robotics operating income for the first quarter of 2021 increased as compared to the corresponding period of the prior year, due to charges of$110 million in the first quarter of 2020 for goodwill impairment, write-offs of certain equipment, and other expenses. Exclusive of those charges,Subsea Robotics operating income for the first quarter of 2021 decreased as compared to the corresponding period of the prior year as a result of fewer ROV days on hire. Fleet utilization decreased to 53% in the three-month period endedMarch 31, 2021 from 54% and 65% for the three-month periods endedDecember 31, 2020 andMarch 31, 2020 , respectively. We added three new ROVs to our fleet during the three months endedMarch 31, 2021 and retired three, resulting in a total of 250 ROVs in our ROV fleet as of bothMarch 31, 2021 andMarch 31, 2020 . Manufactured Products. Our Manufactured Products segment provides distribution systems such as production control umbilicals and connection systems made up of specialty subsea hardware, and provides turnkey solutions that include program management, engineering design, fabrication/assembly and installation to the commercial theme park industry and mobile robotics solutions, including automated guided vehicle ("AGV") technology to a variety of industries. Our Manufactured Products operating results in the first quarter of 2021 were lower than those of the immediately preceding quarter, on lower revenue. First quarter of 2021 operating results did not benefit from favorable contract close-outs and negotiated supply chain savings that occurred in the fourth quarter of 2020. Activity in our mobility solutions businesses remained weak during the first quarter of 2021. Manufactured Products operating income for the first quarter of 2021 increased as compared to the corresponding period of the prior year, due to charges of$74 million in the first quarter of 2020 for long-lived asset and goodwill impairments, and other expenses. Exclusive of those charges, Manufactured Products operating income decreased as compared to the corresponding period of the prior year as a result of increased activity in subsea umbilical and hardware throughput in the first quarter of 2020 that did not occur in the first quarter of 2021. Our Manufactured Products backlog was$248 million as ofMarch 31, 2021 compared to$266 million as ofDecember 31, 2020 . The backlog decrease was attributable to reduced levels of bookings in 2021 in both our energy-related and non-energy related operations. Many of our energy-related Manufactured Products customers have delayed investment decisions due to low oil demand and pricing through much of 2020, while many of our non-energy-related customers have delayed investment decisions due to uncertainties regarding COVID-19 and the related potential operating risks. Our book-to-bill ratio was 0.6 for the trailing 12 months, as compared with a book-to-bill ratio of 0.4 for the year endedDecember 31, 2020 .
27 -------------------------------------------------------------------------------- Table of Content s and ROV workover control systems ("RWOCS"), project management and engineering, and seabed preparation, route clearance and trenching services. Our OPG operating results improved in the first quarter of 2021 as compared to the immediately preceding quarter, due to fourth quarter charges of$11 million for asset impairments and write-offs and other expenses. Exclusive of those charges, our OPG operating results increased in the first quarter of 2021 as compared to the immediately preceding quarter, on higher revenue, primarily due to the start-up of field activities on the riserless light well intervention project inAngola . Our OPG operating results improved in the three months endedMarch 31, 2021 compared to the corresponding period of the prior year, due to first quarter 2020 charges of$75 million for goodwill and asset impairments and other expenses. Exclusive of those charges, our OPG operating results were higher in the three-month period endedMarch 31, 2021 as compared to the corresponding period of the prior year, primarily due to the year-over-year contribution from ourAngola riserless light well intervention campaign discussed above. Integrity Management & Digital Solutions. Through our IMDS segment we provide asset integrity management, corrosion management, inspection and nondestructive testing services, principally to customers in the oil and gas, power generation, and petrochemical industries. We perform these services on both onshore and offshore facilities, both topside and subsea. We also provide software, digital and connectivity solution for the energy industry and software and analytical solutions for the bulk cargo maritime industry. Our IMDS operating results for the first quarter of 2021 improved, as compared to the immediately preceding quarter, on flat revenue, primarily due to improved execution. IMDS operating results for the three-month period endedMarch 31, 2021 as compared to the corresponding period of the prior year, improved primarily due to charges in the first quarter of 2020 of$126 million for goodwill and asset impairments and other expenses. Exclusive of those charges, operating results for the three-month period endedMarch 31, 2021 were lower as compared to the corresponding period of the prior year, due to higher pre-COVID activity levels in the first quarter of 2020.
Aerospace and Defense Technologies. Our ADTech segment provides government
services and products, including engineering and related manufacturing in
defense and space exploration activities, principally to
Revenue, gross margin and operating income (loss) information for our ADTech segment are as follows: Three Months Ended (dollars in thousands) Mar 31, 2021 Mar 31, 2020 * Dec 31, 2020 Revenue$ 88,327 $ 91,381 $ 87,524 Gross Margin 22,110 17,485 20,328 Operating Income (Loss) 16,839 12,971 16,525 Operating Income (Loss) % 19 % 14 % 19 %
* Recast to reflect segment changes.
Our ADTech segment operating results for the first quarter of 2021 were marginally higher as compared to the immediately preceding quarter, on flat revenue. ADTech operating results for the three-month period endedMarch 31, 2021 were slightly higher when compared to the corresponding period of the prior year, on slightly lower revenue due to increased activity in both defense subsea technologies and space systems. Unallocated Expenses Our Unallocated Expenses (i.e., those not associated with a specific business segment) within gross margin consist of expenses related to our incentive and deferred compensation plans, including restricted stock units, performance units and bonuses, as well as other general expenses. Our Unallocated Expenses within operating expense consist of those expenses within gross margin plus general and administrative expenses related to corporate functions. 28
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Table of Content s The following table sets forth our Unallocated Expenses for the periods indicated:
Three Months
Ended
(dollars in thousands) Mar 31, 2021 Mar 31,
2020
Gross margin expenses$ (22,855) $
(20,042) (25,225)
% of revenue 5 % 4 % 6 % Operating expenses (31,715)
(32,649) (33,692)
Operating expenses % of revenue 7 % 6 % 8 % Our Unallocated operating expenses for the first quarter of 2021 were lower as compared to the immediately preceding quarter due to lower expenses for information technology-related projects resulting from timing delays. Our Unallocated operating expenses for the first quarter of 2021 were relatively flat as compared to the corresponding period of the prior year.
Other
The following table sets forth our significant financial statement items below the income (loss) from operations line.
Three Months Ended (in thousands) Mar 31, 2021 Mar 31, 2020 Dec 31, 2020 Interest income$ 519 $ 1,277 $ 881
Interest expense, net of amounts capitalized (10,407) (12,462)
(10,577)
Equity in income (losses) of unconsolidated
affiliates 534 1,197 266 Other income (expense), net (1,453) (7,128) (645) Provision (benefit) for income taxes 12,341 (30,275) 15,405 In addition to interest on borrowings, interest expense, net of amounts capitalized, includes amortization of loan costs and hedge accounting adjustments, fees for lender commitments under our revolving credit agreement and fees for standby letters of credit and bank guarantees that banks issue on our behalf for performance bonds, bid bonds and self-insurance requirements. Foreign currency transaction gains and losses are the principal component of other income (expense), net. In the three-month periods endedMarch 31, 2021 and 2020, we incurred foreign currency transaction gains (losses) of$(1.9) million and$(7.1) million , respectively. The currency losses in the 2021 and 2020 periods were primarily related to declining exchange rates for the Angolan kwanza and the Brazilian real relative to theU.S. dollar. We could incur further foreign currency exchange losses inAngola andBrazil if further currency devaluations occur. Our tax provision is based on (1) our earnings for the period and other factors affecting the tax provision and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. Factors that affect our tax rate include our profitability levels in general and the geographical mix of our results. The effective tax rate for the three-month periods endedMarch 31, 2021 and 2020 was different than the federal statutory rate of 21%, primarily due to the geographical mix of operating revenue and results, changes in uncertain tax positions and other discrete items. Therefore, we do not believe a discussion of the annual effective tax rate is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur incremental tax consequences upon the distribution of such earnings. OnMarch 27, 2020 , the CARES Act was signed into law inthe United States . In accordance with the recently established rules and procedures under the CARES Act, we filed a 2014 refund claim to carry back ourU.S. net operating loss generated in 2019 and amended our 2012 and 2013 federal income tax returns impacted by the net operating loss carryback. Prior to enactment of the CARES Act, such net operating losses could only be carried forward. As a result, we expect to receive combined refunds of approximately$33 million , of which we have received$5.6 million as ofMarch 31, 2021 . The remaining refunds are classified as accounts receivable, net, in our consolidated balance sheet as ofMarch 31, 2021 . 29 -------------------------------------------------------------------------------- Table of Content s Liquidity and Capital Resources We consider our liquidity, cash flows and capital resources adequate to support our operations, capital commitments and growth initiatives. As ofMarch 31, 2021 , we had working capital of$745 million , including$443 million of cash and cash equivalents. Additionally, we had$500 million available through our revolving credit facility under a credit agreement further described below. Amendment No. 4 to the Credit Agreement (as defined below) provides for a$500 million revolving credit facility untilOctober 25, 2021 and thereafter$450 million untilJanuary 25, 2023 with a group of banks. Our revolving credit facility provided under the Credit Agreement was undrawn as ofMarch 31, 2021 , and remains undrawn as of the date of this report, and our nearest maturity of indebtedness is our$500 million of 2024 Notes (as defined below) due inNovember 2024 . Given that the 2024 Notes are currently trading at market discount to principal amount, we may, from time to time, complete limited repurchases of the 2024 Notes, via open-market or privately negotiated repurchase transactions or otherwise, prior to their maturity date. We can provide no assurances as to the timing of any such repurchases or whether we will complete any such repurchases at all. We do not intend to disclose further information regarding any such repurchase transactions, except to the extent required in our subsequent periodic filings on Forms 10-K or 10-Q, or unless otherwise required by applicable law. Cash flows for the three months endedMarch 31, 2021 and 2020 are summarized as follows: Three Months Ended (in thousands) Mar 31, 2021 Mar 31, 2020
Changes in Cash:
Net Cash Used in Operating Activities$ (1,723) $ (32,150) Net Cash Used in Investing Activities (5,007) (26,706) Net Cash Used in Financing Activities (1,806) (1,668) Effect of exchange rates on cash (737) (5,671) Net Increase (Decrease) in Cash and Cash Equivalents$ (9,273) $ (66,195) Operating activities
Our primary sources and uses of cash flows from operating activities for the
three months ended
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