UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q

☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended			June 30, 2023

OR

¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from                      to

Commission File Number: 1-10945

____________________________________________

OCEANEERING INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware						95-2628227
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
5875 North Sam Houston Parkway West, Suite 400
Houston,			Texas			77086
(Address of principal executive offices)						(Zip Code)

(713) 329-4500

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed from last report)

____________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common stock, par value $0.25 per share			OII			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   þ Yes   ¨  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    þ  Yes   ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			þ			Accelerated filer			¨
Non-accelerated filer			¨			Smaller reporting company			¨
						Emerging growth company			¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes   þ No

Number of shares of Common Stock outstanding as of July 21, 2023: 100,779,554 

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Oceaneering International, Inc.

Form 10-Q

Table of Contents

 

Part I						Financial Information
Item 1.						Financial Statements
									Consolidated Balance Sheets
									Consolidated Statements of Operations
									Consolidated Statements of Comprehensive Income (Loss)
									Consolidated Statements of Cash Flows
									Consolidated Statements of Equity
									Notes to Consolidated Financial Statements
Item 2.						Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.						Quantitative and Qualitative Disclosures About Market Risk
Item 4.						Controls and Procedures
Part II						Other Information
Item 1.						Legal Proceedings
Item 1A.						Risk Factors
Item 5.						Other Information
Item 6.						Exhibits
Signatures

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PART I – FINANCIAL INFORMATION

 

Item 1.Financial Statements

OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

						Jun 30, 2023						Dec 31, 2022
(in thousands, except share data)
						(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents						$	504,019					$	568,745
Accounts receivable, net						369,841						296,554
Contract assets, net						215,006						184,847
Inventory, net						208,827						184,375
Other current assets						77,628						62,539
Total Current Assets						1,375,321						1,297,060
Property and equipment, at cost						2,446,047						2,435,840
Less accumulated depreciation						2,019,993						1,997,391
Net property and equipment						426,054						438,449
Other Assets:
Goodwill						34,062						34,339
Other noncurrent assets						102,218						122,224
Right-of-use operating lease assets						227,213						139,611
Total other assets						363,493						296,174
Total Assets						$	2,164,868					$	2,031,683
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable						$	151,062					$	148,018
Accrued liabilities						344,961						307,446
Contract liabilities						119,021						112,950
Total current liabilities						615,044						568,414
Long-term debt						700,404						700,973
Long-term operating lease liabilities						212,538						151,842
Other long-term liabilities						85,400						84,650
Commitments and contingencies
Equity:
Common stock, par value $0.25 per share; 360,000,000 shares authorized; 110,834,088 shares issued						27,709						27,709
Additional paid-in capital						127,552						155,858
Treasury stock; 10,054,534 and 10,574,563 shares, at cost						(575,773)						(605,553)
Retained earnings						1,350,916						1,327,854
Accumulated other comprehensive loss						(384,985)						(386,127)
Oceaneering shareholders' equity						545,419						519,741
Noncontrolling interest						6,063						6,063
Total equity						551,482						525,804
Total Liabilities and Equity						$	2,164,868					$	2,031,683

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

									Three Months Ended June 30,												Six Months Ended June 30,
(in thousands, except per share data)									2023						2022						2023						2022
Revenue									$	597,910					$	524,031					$	1,134,897					$	970,190
Cost of services and products									496,830						447,990						956,252						848,669
			Gross margin						101,080						76,041						178,645						121,521
Selling, general and administrative expense									51,881						53,191						102,696						99,710
			Income (loss) from operations						49,199						22,850						75,949						21,811
Interest income									4,154						767						8,620						1,563
Interest expense									(9,517)						(9,619)						(18,800)						(19,062)
Equity in income (losses) of unconsolidated affiliates									479						318						1,118						612
Other income (expense), net									(5,846)						583						(5,768)						1,027
			Income (loss) before income taxes						38,469						14,899						61,119						5,951
Provision (benefit) for income taxes									19,467						11,179						38,057						21,441
			Net Income (Loss)						$	19,002					$	3,720					$	23,062					$	(15,490)
Weighted-average shares outstanding
Basic									100,776						100,256						100,610						100,110
Diluted									102,004						101,430						102,017						100,110
Earnings (loss) per share
Basic									$	0.19					$	0.04					$	0.23					$	(0.15)
Diluted									$	0.19					$	0.04					$	0.23					$	(0.15)

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

									Three Months Ended June 30,												Six Months Ended June 30,
(in thousands)									2023						2022						2023						2022
Net income (loss)									$	19,002					$	3,720					$	23,062					$	(15,490)
Other Comprehensive Income (Loss):
			Foreign currency translation adjustments						3,123						(31,026)						1,177						(21,155)
			Change in unrealized gains for available-for-sale debt securities (1)						(35)						(641)						(35)						(641)
Total other comprehensive income (loss)									3,088						(31,667)						1,142						(21,796)
			Comprehensive income (loss)						$	22,090					$	(27,947)					$	24,204					$	(37,286)
(1)			There is no income tax expense or benefit associated with the three and six months ended June 30, 2023 and 2022, due to an offsetting valuation allowance.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

						Six Months Ended June 30,
(in thousands)						2023						2022
Cash Flows from Operating Activities:
Net income (loss)						$	23,062					$	(15,490)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization						53,867						62,879
Deferred income tax provision (benefit)						(871)						140
Net loss (gain) on sales of property and equipment						74						(2,828)
Noncash compensation						6,814						5,051
Noncash impact of lease accounting						(3,282)						(983)
Excluding the effects of acquisitions, increase (decrease) in cash from:
Accounts receivable and contract assets						(103,446)						(105,397)
Inventory						(24,452)						(15,562)
Other operating assets						2,306						(6,576)
Currency translation effect on working capital, excluding cash						(996)						(3,657)
Current liabilities						22,390						(28,422)
Other operating liabilities						2,066						(13,637)
Total adjustments to net income (loss)						(45,530)						(108,992)
Net Cash Provided by (Used in) Operating Activities						(22,468)						(124,482)
Cash Flows from Investing Activities:
Purchases of property and equipment						(40,736)						(35,814)
Distributions of capital from unconsolidated affiliates						2,520						134
Proceeds from sale of property and equipment						4						3,585
Other investing activities						1,346						(3,000)
Net Cash Provided by (Used in) Investing Activities						(36,866)						(35,095)
Cash Flows from Financing Activities:
Other financing activities						(5,340)						(2,062)
Net Cash Provided by (Used in) Financing Activities						(5,340)						(2,062)
Effect of exchange rates on cash						(52)						(8,063)
Net Increase (Decrease) in Cash and Cash Equivalents						(64,726)						(169,702)
Cash and Cash Equivalents—Beginning of Period						568,745						538,114
Cash and Cash Equivalents—End of Period						$	504,019					$	368,412

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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OCEANEERING INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)

						Common Stock						Additional Paid-in Capital						Treasury Stock						Retained Earnings						Accumulated Other Comprehensive Income (Loss)												Oceaneering Shareholders' Equity						Non-controlling Interest						Total Equity
(in thousands)
Balance, December 31, 2022						$	27,709					$	155,858					$	(605,553)					$	1,327,854					$	(386,127)											$	519,741					$	6,063					$	525,804
Net income (loss)						—						—						—						4,060						—												4,060						—						4,060
Other comprehensive income (loss)						—						—						—						—						(1,946)												(1,946)						—						(1,946)
Restricted stock unit activity						—						(26,963)						25,351						—						—												(1,612)						—						(1,612)
Restricted stock activity						—						(3,884)						3,884						—						—												—						—						—
Balance, March 31, 2023						27,709						125,011						(576,318)						1,331,914						(388,073)												520,243						6,063						526,306
Net income (loss)						—						—						—						19,002						—												19,002						—						19,002
Other comprehensive income (loss)						—						—						—						—						3,088												3,088						—						3,088
Restricted stock unit activity						—						2,807						279						—						—												3,086						—						3,086
Restricted stock activity						—						(266)						266						—						—												—						—						—
Balance, June 30, 2023						$	27,709					$	127,552					$	(575,773)					$	1,350,916					$	(384,985)											$	545,419					$	6,063					$	551,482
						Common Stock						Additional Paid-in Capital						Treasury Stock						Retained Earnings						Accumulated Other Comprehensive Income (Loss)												Oceaneering Shareholders' Equity						Non-controlling Interest						Total Equity
(in thousands)
Balance, December 31, 2021						$	27,709					$	173,608					$	(631,811)					$	1,301,913					$	(366,458)											$	504,961					$	6,063					$	511,024
Net income (loss)						—						—						—						(19,210)						—												(19,210)						—						(19,210)
Other comprehensive income (loss)						—						—						—						—						9,871												9,871						—						9,871
Restricted stock unit activity						—						(19,082)						19,452						—						—												370						—						370
Restricted stock activity						—						(6,466)						6,466						—						—												—						—						—
Balance, March 31, 2022						27,709						148,060						(605,893)						1,282,703						(356,587)												495,992						6,063						502,055
Net income (loss)						—						—						—						3,720						—												3,720						—						3,720
Other comprehensive income (loss)						—						—						—						—						(31,667)												(31,667)						—						(31,667)
Restricted stock unit activity						—						2,479						141						—						—												2,620						—						2,620
Balance, June 30, 2022						$	27,709					$	150,539					$	(605,752)					$	1,286,423					$	(388,254)											$	470,665					$	6,063					$	476,728

The accompanying Notes are an integral part of these Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF MAJOR ACCOUNTING POLICIES

Basis of Presentation. Oceaneering International, Inc. (“Oceaneering,” “we” “our” or “us”) has prepared these unaudited consolidated financial statements pursuant to instructions for quarterly reports on Form 10-Q, which we are required to file with the United States Securities and Exchange Commission (the “SEC”). These financial statements do not include all information and footnotes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). These financial statements reflect all adjustments that we believe are necessary to present fairly our financial position as of June 30, 2023, and our results of operations and cash flows for the periods presented. Except as otherwise disclosed herein, all such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2022. The results for interim periods are not necessarily indicative of annual results.

Principles of Consolidation. The consolidated financial statements include the accounts of Oceaneering and our 50% or more owned and controlled subsidiaries. We also consolidate entities that are determined to be variable interest entities if we determine that we are the primary beneficiary; otherwise, we account for those entities using the equity method of accounting. We use the equity method to account for our investments in unconsolidated affiliated companies of which we own an equity interest of between 20% and 50% and as to which we have significant influence, but not control, over operations. We use the cost method for all other long-term investments. Investments in entities that we do not consolidate are reflected on our balance sheet in other noncurrent assets. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires that our management make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates.

Reclassifications. Certain amounts from prior periods have been reclassified to conform with the current period presentation.

Cash and Cash Equivalents. Cash and cash equivalents include demand deposits and highly liquid investments with original maturities of three months or less from the date of investment.

Allowances for Credit Loss—Financial Assets Measured at Amortized Costs. We identify our allowance for credit losses based on future expected losses when accounts receivable, contract assets or held-to-maturity loan receivables are created rather than when losses are probable.

We use the loss-rate method in developing the allowance for credit losses, which involves identifying pools of assets with similar risk characteristics, reviewing historical losses within the last three years and consideration of reasonable supportable forecasts of economic indicators. Changes in estimates, developing trends and other new information could have material effects on future evaluations.

We monitor the credit quality of our accounts receivable and other financing receivable amounts by frequent customer interaction, following economic and industry trends and reviewing specific customer data. Our other receivable amounts include contract assets and held-to-maturity loans receivable, which we consider to have a low risk of loss.

We consider macroeconomic conditions when assessing our credit risk exposure, including any impacts from the COVID-19 pandemic and new variants thereof, the Russia-Ukraine conflict and volatility in the financial services industry and the oil and natural gas markets and the effect thereof on our customers and various counterparties. We have determined the impacts to our credit loss expense are de minimis for the three- and six-month periods ended June 30, 2023 and 2022.

As of June 30, 2023, our allowance for credit losses was $2.2 million for accounts receivable and $0.3 million for other receivables. As of December 31, 2022, our allowance for credit losses was $2.0 million for accounts receivable and $0.3 million for other receivables. Our allowance for credit losses increased in the six months ended

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June 30, 2023, as compared to the same period in the prior year primarily due to corresponding increases in revenue and accounts receivable.

Financial assets are written off when deemed uncollectible and there is no reasonable expectation of recovering the contractual cash flows. During the three- and six-month periods ended June 30, 2023, we did not write off any financial assets.

Accounts receivable are considered to be past due after the end of the contractual terms agreed to with the customer. There were no material past due amounts that we consider uncollectible for our financial assets as of June 30, 2023. We generally do not require collateral from our customers.

Inventory. Inventory is valued at the lower of cost or net realizable value. We determine cost using the weighted-average method. We periodically review the value of items in inventory and record write-downs or write-offs of inventory based on our assessment of market conditions. Write-downs and write-offs are charged to cost of services and products. We did not record any write-downs or write-offs of inventory in the three- and six-month periods ended June 30, 2023 and 2022.

Property and Equipment, Long-Lived Intangible Assets and Right-of-Use Operating Lease Assets. We provide for depreciation of property and equipment on the straight-line method over estimated useful lives. We charge the costs of repair and maintenance of property and equipment to operations as incurred, and we capitalize the costs of improvements that extend asset lives or functionality. Upon the disposition of property and equipment, the related cost and accumulated depreciation accounts are relieved, and any resulting gain or loss is recognized as income.

We capitalize interest on assets where the construction period is anticipated to be more than three months. We did not capitalize interest in the three- and six-month periods ended June 30, 2023 and 2022. We do not allocate general administrative costs to capital projects.

Long-lived intangible assets, primarily acquired in connection with business combinations, include trade names, intellectual property and customer relationships and are being amortized over their respective estimated useful lives.

Our management periodically, and upon the occurrence of a triggering event, reviews the realizability of our property and equipment, long-lived intangible assets and right-of-use operating lease assets to determine whether any events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. For long-lived assets to be held and used, we base our evaluation on impairment indicators such as the nature of the assets, the future economic benefits of the assets, any historical or future profitability measurements and other external market conditions or factors that may be present. If such impairment indicators are present or other factors exist that indicate that the carrying amount of an asset may not be recoverable, we determine whether an impairment has occurred through the use of an undiscounted cash flows analysis of the asset at the lowest level for which identifiable cash flows exist. If an impairment has occurred, we recognize a loss for the difference between the carrying amount and the fair value of the asset. We did not identify indicators of impairment for property and equipment, long-lived intangible assets or right-of-use operating lease assets for the three- and six-month periods ended June 30, 2023 and 2022.

For assets held for sale or disposal, the fair value of the asset is measured using fair market value less estimated costs to sell. Assets are classified as held for sale when we have a plan for disposal of certain assets and those assets meet the held for sale criteria.

For additional information regarding right-of-use operating lease assets, see “Leases” below.

Goodwill. Our goodwill is evaluated for impairment annually and whenever we identify certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

In our annual evaluation of goodwill, we perform a qualitative or quantitative impairment test. Under the qualitative approach, if we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform the quantitative analysis to determine the fair value for the reporting unit. We then compare the fair value of the reporting unit with its carrying amount and recognize an impairment loss for the amount by which the carrying amount exceeds the fair value of the reporting unit. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. We also consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if

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applicable. We did not identify indicators of impairment for goodwill for the three- and six-month periods ended June 30, 2023 and 2022.

Revenue Recognition. All our revenue is realized through contracts with customers. We recognize our revenue according to the contract type. On a daily basis, we recognize service revenue over time for contracts that provide for specific time, material and equipment charges, which we bill periodically, ranging from weekly to monthly. We use the input method to recognize revenue, because each day of service provided represents value to the customer. The performance obligations in these contracts are satisfied, and revenue is recognized, as the work is performed. When appropriate, we apply the practical expedient to recognize revenue for the amount invoiced when the invoice corresponds directly to the value of our performance to date.

We account for significant fixed-price contracts, mainly relating to our Manufactured Products segment, and to a lesser extent in our Offshore Projects Group (“OPG”) and Aerospace and Defense Technologies (“ADTech”) segments, by recognizing revenue over time using the cost-to-cost input method. A performance obligation is satisfied as we create a product on behalf of the customer over the life of the contract. The remainder of our revenue is recognized at the point in time when control transfers to the customer, thus satisfying the performance obligation.

We have elected to recognize the cost for freight and shipping as an expense when incurred. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by us from customers, are excluded from revenue.

In our service-based business lines, we principally charge on a dayrate basis for services provided. In our product-based business lines, predominantly in our Manufactured Products segment, we recognize revenue and profit using the percentage-of-completion method and exclude uninstalled materials and significant inefficiencies from the measure of progress.

We apply judgment in the determination and allocation of transaction price to performance obligations, and the subsequent recognition of revenue, based on the facts and circumstances of each contract. We routinely review estimates related to our contracts and, when required, reflect revisions to profitability in earnings immediately. If an element of variable consideration has the potential for a significant future reversal of revenue, we will constrain that variable consideration to a level intended to remove the potential future reversal. If a current estimate of total contract cost indicates an ultimate loss on a contract, we recognize the projected loss in full when we determine it. During the three- and six-month periods ended June 30, 2023, we recognized projected losses of $2.9 million for entertainment business contracts in our Manufactured Products segment. During the three- and six-month periods ended June 30, 2022, we recognized projected losses of $2.5 million for contracts in our Manufactured Products segment. There could be significant adjustments to overall contract costs in the future, due to changes in facts and circumstances.

In general, our payment terms consist of those services billed regularly as provided and those products delivered at a point in time, which are invoiced after the performance obligation is satisfied. Our product and service contracts with milestone payments due at agreed progress points during the contract are invoiced when those milestones are reached, which may differ from the timing of revenue recognition. Our payment terms generally do not provide financing of contracts to customers, nor do we receive financing from customers as a result of these terms.

See Note 3—“Revenue” for more information on our revenue from contracts with customers.

Leases. We determine whether a contract is or contains a lease at inception, whether as a lessee or a lessor. We take into consideration the elements of an identified asset, right to control and the receipt of economic benefit in making those determinations.

As a lessor, we lease certain types of equipment along with the provision of services and utilize the expedient allowing us to combine the lease and non-lease components into a combined component that is accounted for (1) under “Leases” (“ASC 842”), when the lease component is predominant, and (2) under the accounting standard “Revenue from Contracts with Customers” (“ASC 606”), when the service component is predominant. In general, when we have a service component, it is typically the predominant element and leads to accounting under ASC 606.

As a lessor, we lease certain types of equipment, often providing services at the same time. These leases can be priced on a dayrate or lump-sum basis for periods ranging from a few days to multi-year contracts. These leases are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our

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customer's discretion. These leases generally do not contain options to purchase, material restrictions or covenants that impact our accounting for leases.

As a lessee, we lease land, buildings, vessels and equipment for the operation of our business and to support some of our service line revenue streams. These generally carry lease terms that range from days for operational and support equipment to 15 years for land and buildings. These leases are negotiated on commercial terms at market rates and many carry standard options to extend or terminate at our discretion. When the exercise of those options is reasonably certain, we include them in the lease assessment. Our leases do not contain material restrictions or covenants that impact our accounting for them, nor do we provide residual value guarantees.

As a lessee, we utilize the practical expedients to not recognize leases with an initial lease term of 12 months or less on the balance sheet and to combine lease and non-lease components together and account for the combined component as a lease for all asset classes, except real estate.

Right-of-use operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement or modification date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, based on the information available at commencement or modification date in determining the present value of future payments. In determining the incremental borrowing rate, we considered our external credit ratings, bond yields for us and our identified peers, the risk-free rate in geographic regions where we operate, and the impact associated with providing collateral over a similar term as the lease for an amount equal to the future lease payments. Our right-of-use operating lease assets also include any lease prepayments made and exclude lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Foreign Currency Translation. The functional currency for most of our foreign subsidiaries is the applicable local currency. Results of operations for foreign subsidiaries with functional currencies other than the U.S. dollar are translated into U.S. dollars using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated into U.S. dollars using the exchange rates in effect as of the balance sheet date, and the resulting translation adjustments are recognized, net of tax, in accumulated other comprehensive income (loss) as a component of shareholders' equity. All foreign currency transaction gains and losses are recognized currently in the Consolidated Statements of Operations. We recorded $(4.9) million and $(4.6) million of foreign currency transaction gains (losses) in the three- and six-month periods ended June 30, 2023, respectively. We recorded $0.9 million and $1.3 million of foreign currency transaction gains (losses) in the three- and six-month periods ended June 30, 2022, respectively. Those amounts are included as a component of other income (expense), net in our Consolidated Statement of Operations.

2.    ACCOUNTING STANDARDS UPDATE

There are no new accounting standards issued in the six months ended June 30, 2023, that would have a material impact on our consolidated financial statements.

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3.    REVENUE

Revenue by Category

The following tables present revenue disaggregated by business segment, geographical region, and timing of transfer of goods or services.

												Three Months Ended												Six Months Ended
(in thousands)												Jun 30, 2023						Jun 30, 2022						Jun 30, 2023						Jun 30, 2022
Business Segment:
			Energy
						Subsea Robotics						$	186,512					$	157,123					$	355,673					$	285,112
						Manufactured Products						124,882						105,456						237,821						188,148
						Offshore Projects Group						130,547						116,457						234,854						213,854
						Integrity Management & Digital Solutions						63,166						59,438						123,249						116,008
			Total Energy									505,107						438,474						951,597						803,122
			Aerospace and Defense Technologies									92,803						85,557						183,300						167,068
						Total						$	597,910					$	524,031					$	1,134,897					$	970,190
Geographic Operating Areas:
			Foreign:
						Africa						$	78,247					$	67,910					$	161,975					$	131,319
						Asia and Australia						57,690						49,544						110,584						99,105
						United Kingdom						54,268						46,131						94,633						84,888
						Norway						48,508						47,911						93,448						93,188
						Brazil						47,993						37,951						88,608						68,302
						Other						43,848						21,120						69,021						44,168
			Total Foreign									330,554						270,567						618,269						520,970
			United States									267,356						253,464						516,628						449,220
Total												$	597,910					$	524,031					$	1,134,897					$	970,190
Timing of Transfer of Goods or Services:
			Revenue recognized over time									$	557,968					$	484,722					$	1,053,452					$	901,725
			Revenue recognized at a point in time									39,942						39,309						81,445						68,465
Total												$	597,910					$	524,031					$	1,134,897					$	970,190

Contract Balances

Our contracts with milestone payments have, in the aggregate, a significant impact on the contract asset and the contract liability balances. Milestones are contractually agreed with customers and relate to significant events across the contract lives. Some milestones are achieved before revenue is recognized, resulting in a contract liability, while other milestones are achieved after revenue is recognized, resulting in a contract asset.

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The following table provides information about contract assets and contract liabilities from contracts with customers.

						Six months ended
(in thousands)						Jun 30, 2023						Jun 30, 2022
Total contract assets, beginning of period						$	184,847					$	164,847
Revenue accrued						1,077,338						915,969
Amounts billed						(1,047,179)						(892,144)
Total contract assets, end of period						$	215,006					$	188,672
Total contract liabilities, beginning of period						$	112,950					$	88,175
Deferrals of milestone payments						65,465						24,084
Recognition of revenue for goods and services						(59,394)						(55,696)
Total contract liabilities, end of period						$	119,021					$	56,563

Performance Obligations

As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations that were unsatisfied (or partially unsatisfied) was $368 million. In arriving at this value, we have used two expedients available to us and are not disclosing amounts in relation to performance obligations: (1) that are part of contracts with an original expected duration of one year or less; or (2) on contracts where we recognize revenue in line with the billing. Of this amount, we expect to recognize revenue of $288 million over the next 12 months, $76 million within the next 24 months and we expect to recognize substantially all of the remaining balance of $3.3 million within the next 36 months.

In our Manufactured Products and ADTech segments, we have long-term contracts that extend beyond one year, and these make up the majority of the performance obligations balance reported as of June 30, 2023. We also have shorter-term product contracts with an expected original duration of one year or less that have been excluded.

Where appropriate, we have made estimates within the transaction price of elements of variable consideration within the contracts and constrained those amounts to a level where we consider it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The amount of revenue recognized in the three- and six-month periods ended June 30, 2023 and 2022, that was associated with performance obligations completed or partially completed in prior periods was not significant.

As of June 30, 2023, there were no significant outstanding liability balances for refunds or returns due to the nature of our contracts and the services and products we provide. Our warranties are limited to assurance warranties that are of a standard length and are not considered to be material rights. The majority of our contracts consist of a single performance obligation. When there are multiple obligations, we look for observable evidence of stand-alone selling prices on which to base the allocation. This involves judgment as to the appropriateness of the observable evidence relating to the facts and circumstances of the contract. If we do not have observable evidence, we estimate stand-alone selling prices by taking a cost-plus-margin approach, using typical margins from the type of product or service, customer and regional geography involved.

Costs to Obtain or Fulfill a Contract

In line with the available practical expedient, we capitalize incremental costs to obtain a contract that would not have been incurred if the contract had not been obtained when those amounts are significant and the contract is expected at inception to exceed one year in duration. Our costs to obtain a contract primarily consist of bid and proposal costs, which are generally expensed in the period when incurred. There were no balances or amortization of costs to obtain a contract in the current reporting periods.

Costs to fulfill a contract primarily consist of certain mobilization costs incurred to provide services or products to our customers. These costs are deferred and amortized over the period of contract performance. The closing balance of costs to fulfill a contract was $7.4 million and $10 million as of June 30, 2023, and December 31, 2022, respectively. For the three- and six-month periods ended June 30, 2023, we recorded amortization expense of $1.6 million and $2.8 million, respectively. For the three- and six-month periods ended June 30, 2022, we recorded amortization expense of $1.3 million and $3.1 million, respectively. No impairment costs were recognized.

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4.    INCOME TAXES

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- and six-month periods ended June 30, 2023 and 2022, was different than the U.S. federal statutory rate of 21%, primarily due to the geographical mix of revenue and earnings, changes in valuation allowances and uncertain tax positions, and other discrete items. We do not believe a comparison of the effective tax rate for the three- and six-month periods ended June 30, 2023 and 2022, is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur material tax consequences upon the distribution of such earnings.

During the three-month period ended June 30, 2023, we received refunds of $23 million, including interest of $1.7 million which was recorded as a tax benefit, under the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The outstanding refund of $20 million was classified as other noncurrent assets on our balance sheet as of December 31, 2022.

We conduct our international operations in jurisdictions that have varying laws and regulations regarding income and other taxes, some of which are subject to different interpretations. We recognize benefit for an uncertain tax position if it is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the uncertain tax position is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement.

We have accrued a net total of $16 million and $11 million in other long-term liabilities on our consolidated balance sheet for worldwide unrecognized tax liabilities as of June 30, 2023, and December 31, 2022, respectively. We account for any applicable interest and penalties related to uncertain tax positions as a component of our provision for income taxes in our consolidated financial statements. Changes in our management's judgment related to those liabilities would affect our effective income tax rate in the periods of change.

Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to complete and settle. The following table lists the earliest tax years open to examination by tax authorities where we have significant operations:

Jurisdiction						Periods
United States						2014
United Kingdom						2020
Norway						2018
Angola						2015
Brazil						2018
Australia						2018

We have ongoing tax audits and judicial tax appeals in various jurisdictions. The outcome of these audits and judicial tax appeals may have an impact on uncertain tax positions for income tax returns subsequently filed in those jurisdictions.

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5.    SELECTED BALANCE SHEET INFORMATION

The following is information regarding selected balance sheet accounts:

 

(in thousands)									Jun 30, 2023						Dec 31, 2022
Inventory:
			Manufactured Products						$	98,613					$	91,896
			Subsea Robotics						91,639						81,701
			Other inventory						18,575						10,778
			Total						$	208,827					$	184,375
Other current assets:
			Prepaid expenses						$	71,259					$	56,170
			Angolan bonds						6,369						6,369
			Total						$	77,628					$	62,539
Accrued liabilities:
			Payroll and related costs						$	130,852					$	122,380
			Accrued job costs						62,658						57,310
			Income taxes payable						44,320						44,966
			Current operating lease liability						46,119						19,580
			Accrued interest						9,819						10,180
			Other						51,193						53,030
			Total						$	344,961					$	307,446

6.    DEBT

The following table presents information about long-term debt: 

			(in thousands)						Jun 30, 2023						Dec 31, 2022
4.650% Senior Notes due 2024									$	400,000					$	400,000
6.000% Senior Notes due 2028									300,000						300,000
Interest rate swap settlements									3,248						4,371
Unamortized debt issuance costs									(2,844)						(3,398)
Long-term debt									$	700,404					$	700,973

In November 2014, we completed the public offering of $500 million aggregate principal amount of 4.650% Senior Notes due 2024 (the “2024 Senior Notes”). We pay interest on the 2024 Senior Notes on May 15 and November 15 of each year. The 2024 Senior Notes are scheduled to mature on November 15, 2024.

In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000% Senior Notes due 2028 (the “2028 Senior Notes”). We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028. We used the net proceeds from the 2028 Senior Notes to repay our term loan indebtedness described further below.

We may redeem some or all of the 2024 Senior Notes and 2028 Senior Notes (collectively, the “Senior Notes”) at specified redemption prices. In the three- and six-month periods ended June 30, 2023 and 2022, we did not repurchase any of the Senior Notes.

On April 8, 2022, we entered into a senior secured revolving credit agreement with a group of banks (the “Revolving Credit Agreement”) that will mature in April 2026, or 91 days prior to the maturity date of the 2024 Senior Notes if either we have not prepaid such notes by such date or our Liquidity (as defined in the Revolving Credit Agreement) is less than $175 million on such date. The Revolving Credit Agreement includes a $215 million revolving credit facility (the “Revolving Credit Facility”) with a $100 million sublimit for the issuance of letters of credit. Our

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obligations under the Revolving Credit Agreement are guaranteed by certain of our wholly owned subsidiaries and are secured by first priority liens on certain of our assets and those of the guarantors, including, among other things, intellectual property, inventory, accounts receivable, equipment and equity interests in subsidiaries. As of June 30, 2023, we had no borrowings outstanding under the Revolving Credit Facility and no letters of credit outstanding under the Revolving Credit Agreement.

We may borrow under the Revolving Credit Facility at either (1) a base rate, determined as the greatest of (A) the prime rate of Wells Fargo Bank, National Association, (B) the federal funds effective rate plus 1⁄2 of 1% and (C) Adjusted Term SOFR (as defined in the Revolving Credit Agreement for a one-month tenor plus 1%, in each case plus the applicable margin, which varies from 1.25% to 2.25% depending on our Consolidated Net Leverage Ratio (as defined in the Revolving Credit Agreement), or (2) Adjusted Term SOFR plus the applicable margin, which varies from 2.25% to 3.25% depending on our Consolidated Net Leverage Ratio. We will also pay a facility fee based on the amount of the underlying commitment that is being utilized, which fee varies from 0.300% to 0.375%, with the higher rate owed when we use the Revolving Credit Facility less.

The Revolving Credit Agreement includes financial covenants that are tested on a quarterly basis, based on the rolling four-quarter period that ends on the last day of each fiscal quarter. The maximum permitted Consolidated Net Leverage Ratio was initially 4.00 to 1.00 and will decrease to 3.25 to 1.00 during the term of the Revolving Credit Facility. As of June 30, 2023, the Consolidated Net Leverage Ratio was 3.50 to 1.00. The minimum Consolidated Interest Coverage Ratio (as defined in the Revolving Credit Agreement) is 3.00 to 1.00 throughout the term of the Revolving Credit Facility. Availability under the Revolving Credit Facility may be limited by these financial covenants and the requirement that any borrowing under the Revolving Credit Facility not require the granting of any liens to secure the 2024 Notes or the 2028 Notes. The indentures governing the 2024 Notes and the 2028 Notes generally limit our ability to incur secured debt for borrowed money (such as borrowings under the Revolving Credit Facility) to 15% of our Consolidated Net Tangible Assets (as defined in such indentures). As of June 30, 2023, the full $215 million was available to borrow under the Revolving Credit Facility. In addition, the Revolving Credit Agreement contains various covenants that we believe are customary for agreements of this nature, including, but not limited to, restrictions on our ability and the ability of each of our subsidiaries to incur debt, grant liens, make certain investments, make distributions, merge or consolidate, sell assets and enter into certain restrictive agreements. As of June 30, 2023, we were in compliance with all of the covenants set forth in the Revolving Credit Agreement.

We had two interest rate swaps in place relating to a total of $200 million of the 2024 Senior Notes for the period to November 2024. The agreements swapped the fixed interest rate of 4.65% on $100 million of the 2024 Senior Notes to the floating rate of one-month LIBOR plus 2.426% and on another $100 million to one-month LIBOR plus 2.823%. In March 2020, we settled both interest rate swaps with the counterparty for cash proceeds of $13 million. The settlement resulted in a $13 million increase to our long-term debt balance that will be amortized to interest expense prospectively through the maturity date for the 2024 Senior Notes using the effective interest method. As a result, we amortized $0.5 million and $1.1 million to interest expense for the three- and six-month periods ended June 30, 2023, respectively, and $0.5 million and $1.1 million to interest expense for the three- and six-month periods ended June 30, 2022, respectively.

We incurred $6.9 million and $4.2 million of issuance costs related to the 2024 Senior Notes and the 2028 Senior Notes, respectively, and $3.9 million of loan costs related to the Revolving Credit Agreement. These costs, net of accumulated amortization, are included as a reduction of long-term debt on our Consolidated Balance Sheets, as they pertain to the Senior Notes, and in other noncurrent assets, as they pertain to the Revolving Credit Agreement. We are amortizing these costs to interest expense through the respective maturity dates for the Senior Notes and the Revolving Credit Agreement using the straight-line method, which approximates the effective interest rate method. As a result, we amortized $0.6 million and $1.1 million to interest expense for the three- and six-month periods ended June 30, 2023, respectively, and $0.7 million and $1.0 million to interest expense for the three- and six-month periods ended June 30, 2022, respectively.

7.    COMMITMENTS AND CONTINGENCIES

Litigation. In the ordinary course of business, we are, from time to time, involved in litigation or subject to disputes, governmental investigations or claims related to our business activities, including, among other things:

•performance- or warranty-related matters under our customer and supplier contracts and other business arrangements; and

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•workers’ compensation claims, Jones Act claims, occupational hazard claims, premises liability claims and other claims.

Although we cannot predict the ultimate outcome of these matters, we believe that our ultimate liability, if any, that may result from these other actions and claims will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, because of the inherent uncertainty of litigation and other dispute resolution proceedings and, in some cases, the availability and amount of potentially available insurance, we can provide no assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material effect on our consolidated financial condition, results of operations or cash flows for the fiscal period in which that resolution occurs.

Financial Instruments and Risk Concentration. In the normal course of business, we manage risks associated with foreign exchange rates and interest rates through a variety of strategies, including the use of hedging transactions. As a matter of policy, we do not use derivative instruments unless we have an underlying exposure. Other financial instruments that potentially subject us to concentrations of credit risk are principally cash and cash equivalents and accounts receivable.

The carrying values of cash and cash equivalents approximate their fair values due to the short-term maturity of the underlying instruments. Accounts receivable are generated from a broad group of customers, primarily from the energy industry and the U.S. government, which are major sources of our revenue. Due to their short-term nature, carrying values of our accounts receivable and accounts payable approximate fair market values.

We estimated the aggregate fair market value of the Senior Notes to be $675 million as of June 30, 2023, based on quoted prices. Since the market for the Senior Notes is not an active market, the fair value of the Senior Notes is classified within Level 2 in the fair value hierarchy under U.S. GAAP (inputs other than quoted prices in active markets for similar assets and liabilities that are observable or can be corroborated by observable market data for substantially the full terms for the assets or liabilities).

Foreign currency gains (losses) related to the Angolan kwanza of $(6.5) million and $1.2 million in the three-month periods ended June 30, 2023 and 2022, respectively, and $(6.0) million and $2.1 million in the six-month periods ended June 30, 2023 and 2022, respectively, were primarily related to increasing (declining) exchange rates for the Angolan kwanza relative to the U.S. dollar. We recorded foreign currency transaction gains (losses) related to the Angolan kwanza as a component of other income (expense), net in our Consolidated Statements of Operations.

Any conversion of cash balances from kwanza to U.S. dollars is controlled by the central bank in Angola. As of June 30, 2023, and December 31, 2022, we had the equivalent of approximately $4.4 million and $5.6 million, respectively, of kwanza cash balances in Angola reflected on our Consolidated Balance Sheets.

To mitigate our currency exposure risk in Angola, we have used kwanza to purchase equivalent Angolan central bank (Banco Nacional de Angola) bonds. The bonds are denominated as U.S. dollar equivalents, so that, upon payment of semi-annual interest and principal upon maturity, payment is made in kwanza, equivalent to the respective U.S. dollars at the then-current exchange rate. As of June 30, 2023, and December 31, 2022, we had $6.2 million, respectively, of U.S. dollar equivalent Angolan bonds. These bonds mature in September 2023 and are classified as available-for-sale securities; accordingly, they are recorded at fair market value in other current assets in our Consolidated Balance Sheets. We did not sell any of our remaining Angolan bonds in the three- and six-month periods ended June 30, 2023 and 2022.

We estimated the fair market value of the Angolan bonds to be $6.4 million as of June 30, 2023, and December 31, 2022, using quoted market prices. Since the market for the Angolan bonds is not an active market, the fair value of the Angolan bonds is classified within Level 2 in the fair value hierarchy under U.S. GAAP. As of June 30, 2023, and December 31, 2022, we had $0.1 million in unrealized gains, net of tax, related to these bonds as a component of accumulated other comprehensive loss in our Consolidated Balance Sheets.

In the three-month period ended June 30, 2021, we were notified by a customer in our Manufactured Products segment that it was suspending a contract that was substantially complete. Specific to this contract, we billed and received $11 million of accounts receivable during the first six months of 2023. As of June 30, 2023, we had outstanding contract assets of approximately $20 million for the contract and no contract liabilities. As of December 31, 2022, we had outstanding contract assets of approximately $19 million for the contract and contract liabilities of $0.6 million prepaid for storage of components. We are in discussions with the customer concerning the

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timing of remaining payments. We continue to believe that we will realize these contract assets at their book values, although we can provide no assurance as to the timing of receipt of the remaining payments.

8.    EARNINGS (LOSS) PER SHARE, SHARE-BASED COMPENSATION AND SHARE REPURCHASE PLAN

Earnings (Loss) per Share. For each period presented, the only difference between our calculated weighted-average basic and diluted number of shares outstanding is the effect of outstanding restricted stock units. In periods where we have a net loss, the effect of our outstanding restricted stock units is anti-dilutive, and therefore does not increase our diluted shares outstanding.

For each period presented, our net income (loss) allocable to both common shareholders and diluted common shareholders is the same as our net income (loss) in our consolidated statements of operations.

Share-Based Compensation. Annually, the Compensation Committee grants restricted units of our common stock to certain of our key executives and employees and restricted common stock to our nonemployee directors. The restricted stock units granted to our key executives and key employees generally vest in full on the third anniversary of the award date, conditional on continued employment through such vesting date. The restricted stock unit grants can vest pro rata over three years, provided the individual meets certain age and years-of-service requirements. The grants of restricted stock to our nonemployee directors generally vest in full on the first anniversary of the award date, conditional upon continued service as a director, except for the 2023 grant to one director who retired from our board of directors as of the date of our annual meeting of shareholders in May 2023, which restricted stock grant vested on that date. Each grantee of shares of restricted stock is deemed to be the record owner of those shares during the restriction period, with the right to vote and receive any dividends on those shares. The restricted stock units outstanding have no voting or dividend rights.

For each of the restricted stock units granted in 2021 through June 30, 2023, at the earlier of three years after grant or at termination of employment or service, the grantee will be issued one share of our common stock for each unit vested. As of June 30, 2023, and December 31, 2022, respective totals of 2,386,799 and 2,535,807 shares of restricted stock and restricted stock units were outstanding.

We estimate that share-based compensation cost not yet recognized related to shares of restricted stock or restricted stock units, based on their grant-date fair values, was $17 million as of June 30, 2023. This expense is being recognized on a graded-vesting basis over three years for awards attributable to individuals meeting certain age and years-of-service requirements, and on a straight-line basis over the applicable vesting period of one or three years for the other awards.

Share Repurchase Plan. In December 2014, our Board of Directors approved a share repurchase program under which we may repurchase up to 10 million shares of our common stock on a discretionary basis. Under the program, which has no expiration date, we had repurchased 2.0 million shares for $100 million through December 31, 2015. We have not repurchased any shares under this plan since 2015 and are not obligated to make any future repurchases. We account for the shares we hold in treasury under the cost method, at average cost.

9.    BUSINESS SEGMENT INFORMATION

We are a global technology company delivering engineered services and products and robotic solutions to the offshore energy, defense, aerospace, manufacturing and entertainment industries.

Our Energy business leverages our asset base and capabilities for providing services and products for offshore energy operations, inclusive of the offshore renewable energy market. Our Energy segments are:

•Subsea Robotics—Our Subsea Robotics segment provides the following:

◦Remotely Operated Vehicles (“ROVs”) for drill support and vessel-based services, including subsea hardware installation, construction, pipeline inspection, survey and facilities inspection, maintenance and repair;

◦ROV tooling; and

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◦survey services, including hydrographic survey and positioning services and autonomous underwater vehicles for geoscience.

•Manufactured Products—Our Manufactured Products segment provides the following:

◦distribution and connection systems including production control umbilicals and field development hardware and pipeline connection and repair systems to the energy industry; and

◦autonomous mobile robotic technology and entertainment systems to a variety of industries.

•Offshore Projects Group—Our OPG segment provides the following:

◦subsea installation and intervention, including riserless light well intervention services, inspection, maintenance and repair (“IMR”) services, principally in the U.S. Gulf of Mexico and offshore Angola, utilizing owned and charter vessels;

◦installation and workover control systems and ROV workover control systems;

◦diving services;

◦project management and engineering; and

◦drill pipe riser services and systems and wellhead load relief solutions.

•Integrity Management & Digital Solutions—Our Integrity Management & Digital Solutions (“IMDS”) segment provides the following:

◦asset integrity management services;

◦software and analytical solutions for the maritime industry; and

◦software, digital and connectivity solutions for the energy industry.

Our Aerospace and Defense Technologies segment provides services and products, including engineering and related manufacturing in defense and space exploration activities, principally to U.S. Government agencies and their prime contractors.

Unallocated Expenses are those not associated with a specific business segment. These consist of expenses related to our incentive and deferred compensation plans, including restricted stock and bonuses, as well as other general expenses, including corporate administrative expenses.

There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from

those used in our consolidated financial statements for the year ended December 31, 2022.

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The following table presents revenue, income (loss) from operations and depreciation and amortization expense, by business segment:

						Three Months Ended																		Six Months Ended
(in thousands)						Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
Revenue
Energy
Subsea Robotics						$	186,512					$	157,123					$	169,161					$	355,673					$	285,112
Manufactured Products						124,882						105,456						112,939						237,821						188,148
Offshore Projects Group						130,547						116,457						104,307						234,854						213,854
Integrity Management & Digital Solutions						63,166						59,438						60,083						123,249						116,008
Total Energy						505,107						438,474						446,490						951,597						803,122
Aerospace and Defense Technologies						92,803						85,557						90,497						183,300						167,068
Total						$	597,910					$	524,031					$	536,987					$	1,134,897					$	970,190
Income (Loss) from Operations
Energy
Subsea Robotics						$	42,227					$	25,938					$	33,654					$	75,881					$	37,490
Manufactured Products						10,607						(1,365)						11,280						21,887						1,278
Offshore Projects Group						17,132						17,535						5,514						22,646						18,201
Integrity Management & Digital Solutions						3,844						3,436						3,082						6,926						6,944
Total Energy						73,810						45,544						53,530						127,340						63,913
Aerospace and Defense Technologies						11,357						8,961						8,496						19,853						20,805
Unallocated Expenses						(35,968)						(31,655)						(35,276)						(71,244)						(62,907)
Total						$	49,199					$	22,850					$	26,750					$	75,949					$	21,811
Depreciation and Amortization
Energy
Subsea Robotics						$	13,356					$	17,531					$	14,940					$	28,296					$	36,532
Manufactured Products						3,013						3,020						3,044						6,057						6,092
Offshore Projects Group						6,976						7,107						7,128						14,104						14,404
Integrity Management & Digital Solutions						939						1,034						858						1,797						2,064
Total Energy						24,284						28,692						25,970						50,254						59,092
Aerospace and Defense Technologies						632						821						653						1,285						1,477
Unallocated Expenses						1,130						1,347						1,198						2,328						2,310
Total						$	26,046					$	30,860					$	27,821					$	53,867					$	62,879

We determine Income (Loss) from Operations for each business segment before interest income or expense, other income (expense) and provision for income taxes. We do not consider an allocation of these items to be practical.

Depreciation and Amortization

Depreciation expense on property and equipment, reflected in Depreciation and Amortization, was $24 million, $29 million and $26 million in the three-month periods ended June 30, 2023 and 2022, and March 31, 2023, respectively, and $50 million and $59 million in the six-month periods ended June 30, 2023 and 2022, respectively.

Amortization expense on long-lived intangible assets, reflected in Depreciation and Amortization, was $1.8 million, $1.9 million and $1.7 million in the three-month periods ended June 30, 2023 and 2022, and March 31, 2023, respectively, and $3.5 million and $3.5 million in the six-month periods ended June 30, 2023 and 2022, respectively.

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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

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:

•increased costs to operate our business, including the availability and market for our chartered vessels;

•future demand, order intake and business activity levels, including for firm workload and spot charters;

•the collectability of accounts receivable and realizability of contract assets at the amounts reflected on our most-recent balance sheet;

•the backlog of our Manufactured Products segment, to the extent backlog may be an indicator of future revenue or productivity;

•tax refunds and the expected timing thereof;

•our cash tax payments and projected capital expenditures for 2023;

•the adequacy of our liquidity, cash flows and capital resources to support our operations and internally generated growth initiatives;

•the condition of debt markets, our possible future debt repurchases and future disclosures regarding the same;

•shares that may be repurchased under our share repurchase plan;

•our expectations about the balance between energy transition and energy security;

•seasonality; and

•industry conditions.

These forward-looking statements are subject to various risks, uncertainties and assumptions, including those we have referred to under the heading “Risk Factors” in Item 1A of this report and 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 ended December 31, 2022. 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 December 31, 2022.

Overview of our Results

Our diluted earnings (loss) per share for the three- and six-month periods ended June 30, 2023, were $0.19 and $0.23, respectively, as compared to $0.04 in the immediately preceding quarter and $0.04 and $(0.15), respectively, for the corresponding periods of the prior year. Our second quarter 2023 results increased significantly as compared to the first quarter of 2023, despite being partially offset by negative impacts from higher project costs in our entertainment business and project delays in our Offshore Projects Group (“OPG”) segment. During the second quarter of 2023, all of our operating segments generated higher revenue as compared to the immediately preceding quarter and, with the exception of our Manufactured Products segment, each of our operating segments reported operating income growth, led by the increases in our OPG and Subsea Robotics segments.

In the six-month period ended June 30, 2023, we utilized $22 million of cash in operating activities along with $25 million of cash for maintenance capital expenditures and $16 million for growth capital expenditures. These items were the largest contributors to our $65 million cash reduction during the first six months of 2023.

Results of Operations

We operate in five business segments. Our segments are contained within two businesses—services and products provided primarily to the oil and gas industry, and to a lesser extent, the mobility solutions and offshore renewables

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industries, among others (“Energy”), and services and products provided to non-energy industries (Aerospace and Defense Technologies (“ADTech”)). Our four business segments within the Energy business are Subsea Robotics, Manufactured Products, OPG and Integrity Management & Digital Solutions (“IMDS”). We report our ADTech business as one segment. Our Unallocated Expenses are those not associated with a specific business segment.

Consolidated revenue and profitability information are as follows:

									Three Months Ended																		Six Months Ended
(dollars in thousands)									Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
Revenue									$	597,910					$	524,031					$	536,987					$	1,134,897					$	970,190
Gross Margin									101,080						76,041						77,565						178,645						121,521
Gross Margin %									17		%				15		%				14		%				16		%				13		%
Operating Income (Loss)									49,199						22,850						26,750						75,949						21,811
Operating Income (Loss) %									8		%				4		%				5		%				7		%				2		%

We generate a material amount of our consolidated revenue from contracts for services in the U.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 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.

Energy

The primary focus of our Energy business over the last several years has been toward instituting operational efficiency programs that leverage our asset base and capabilities for providing services and products for offshore energy operations and subsea completions, as well as the offshore renewables energy market.

The table that follows sets out revenue and profitability for the business segments within our Energy business. In the Subsea Robotics section of the table that follows, “ROV days available” includes all days from the first day that a remotely operated vehicle (“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 during which the ROVs are not available for utilization.

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									Three Months Ended																		Six Months Ended
(dollars in thousands)									Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
Subsea Robotics
			Revenue						$	186,512					$	157,123					$	169,161					$	355,673					$	285,112
			Gross Margin						53,204						37,004						44,631						97,835						58,962
			Operating Income (Loss)						42,227						25,938						33,654						75,881						37,490
			Operating Income (Loss) %						23		%				17		%				20		%				21		%				13		%
			ROV Days Available						22,750						22,750						22,500						45,250						45,250
			ROV Days Utilized						16,032						14,631						14,228						30,260						26,473
			ROV Utilization						70		%				64		%				63		%				67		%				59		%
Manufactured Products
			Revenue						124,882						105,456						112,939						237,821						188,148
			Gross Margin						19,020						7,918						19,754						38,774						18,920
			Operating Income (Loss)						10,607						(1,365)						11,280						21,887						1,278
			Operating Income (Loss) %						8		%				(1)		%				10		%				9		%				1		%
			Backlog at End of Period						418,000						335,000						446,000						418,000						335,000
Offshore Projects Group
			Revenue						130,547						116,457						104,307						234,854						213,854
			Gross Margin						24,602						25,441						13,024						37,626						33,178
			Operating Income (Loss)						17,132						17,535						5,514						22,646						18,201
			Operating Income (Loss) %						13		%				15		%				5		%				10		%				9		%
Integrity Management & Digital Solutions
			Revenue						63,166						59,438						60,083						123,249						116,008
			Gross Margin						10,264						9,222						8,849						19,113						18,421
			Operating Income (Loss)						3,844						3,436						3,082						6,926						6,944
			Operating Income (Loss) %						6		%				6		%				5		%				6		%				6		%
Total Energy
			Revenue						$	505,107					$	438,474					$	446,490					$	951,597					$	803,122
			Gross Margin						107,090						79,585						86,258						193,348						129,481
			Operating Income (Loss)						73,810						45,544						53,530						127,340						63,913
			Operating Income (Loss) %						15		%				10		%				12		%				13		%				8		%

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 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																		Six Months Ended
									Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
ROV									78		%				77		%				77		%				78		%				77		%
Other									22		%				23		%				23		%				22		%				23		%

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During the second quarter of 2023, Subsea Robotics operating income increased significantly on higher revenue as compared to the immediately preceding quarter, primarily due to healthy demand for ROV and tooling services being slightly offset by some project delays and related vessel preparation costs in our survey business. Subsea Robotics operating income for the three- and six-month periods ended June 30, 2023, increased as compared to the corresponding periods of the prior year on higher revenue, as a result of increased days on hire and higher average revenue per day in the first half of 2023.

For the three-month period ended June 30, 2023, days on hire were higher when compared to the immediately preceding quarter due to increases for both drill support and vessel-based services. Fleet utilization was 70% in the three-month period ended June 30, 2023, as compared to 64% for the corresponding period of the prior year and 63% for the immediately preceding quarter. Fleet utilization increased to 67% for the six-month period ended June 30, 2023, from 59% for the six-month period ended June 30, 2022. We retired three of our conventional work-class ROV systems and replaced them with three upgraded conventional work-class ROV systems during the six months ended June 30, 2023, resulting in a total of 250 ROVs in our ROV fleet as of both June 30, 2023 and 2022.

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 of autonomous mobile robotic technology to industrial, manufacturing, healthcare, warehousing and commercial theme park markets.

Our Manufactured Products operating results in the second quarter of 2023 were slightly lower on higher revenue as compared to the immediately preceding quarter. For the three-month period ended June 30, 2023, revenue increased as compared to the immediately preceding quarter primarily due to the receipt of certain umbilical materials in the second quarter of 2023 that did not contribute to operating results in the same period. Operating results declined modestly as compared to the immediately preceding quarter due to project losses in our entertainment business offsetting the positive energy-related manufacturing performance. Manufactured Products operating results increased for the three- and six-month periods ended June 30, 2023, on higher revenue as compared to the corresponding periods of the prior year primarily due to strong order intake in the second half of 2022 leading to increased utilization in 2023.

Our Manufactured Products backlog was $418 million as of June 30, 2023, compared to $467 million as of December 31, 2022, and $335 million as of June 30, 2022. Our book-to-bill ratio was 1.19 for the trailing 12 months ended June 30, 2023, as compared to 1.39 for the year ended December 31, 2022, and 1.25 for the trailing 12 months ended June 30, 2022.

Offshore Projects Group. Our OPG segment provides a broad portfolio of integrated subsea project capabilities and solutions as follows:

•subsea installation and intervention, including riserless light well intervention (“RLWI”) services, inspection, maintenance and repair (“IMR”) services, principally in the U.S. Gulf of Mexico and offshore Angola, utilizing owned and chartered vessels;

•installation and workover control systems (“IWOCS”) and ROV workover control systems (“RWOCS”);

•diving services;

•project management and engineering; and

•drill pipe riser services and systems and wellhead load relief solutions.

Our OPG revenue and operating results were significantly higher in the second quarter of 2023 as compared to the immediately preceding quarter, primarily due to greater activity and utilization across all geographic regions partially offset by certain planned installation work in the Gulf of Mexico shifting into the third quarter of 2023. Our OPG operating results were relatively flat on higher revenue in the three months ended June 30, 2023, compared to the corresponding period of the prior year, primarily due to increased activity and utilization in the U.K. and Asia-Pacific regions in the second quarter of 2023. Our OPG revenue and operating results improved in the six months ended June 30, 2023, as compared to the corresponding period of the prior year, primarily due to higher levels of activity and utilization across all geographic regions in the first half of 2023.

Integrity Management & Digital Solutions. Our IMDS segment provides 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 onshore and offshore facilities, both topside

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and subsea. We also provide software, digital and connectivity solutions for the energy industry and software and analytical solutions for the maritime industry.

Our IMDS operating results for the second quarter of 2023 were higher on increased revenue, as compared to the immediately preceding quarter primarily due to an increase in scope on several international projects. IMDS operating results for the three-month period ended June 30, 2023, as compared to the corresponding period of the prior year, were higher primarily on increased activity levels. IMDS operating results for the six-month period ended June 30, 2023, were relatively flat on increased revenue, as compared to the corresponding period of the prior year primarily due to increased activity in the U.K. and Asia-Pacific regions partially offset by lower activity in the Gulf of Mexico.

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 U.S. government agencies and their prime contractors.

Revenue, gross margin and operating income (loss) information for our ADTech segment are as follows:

									Three Months Ended																		Six Months Ended
(dollars in thousands)									Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
Revenue									$	92,803					$	85,557					$	90,497					$	183,300					$	167,068
Gross Margin									17,675						15,744						15,100						32,775						32,614
Operating Income (Loss)									11,357						8,961						8,496						19,853						20,805
Operating Income (Loss) %									12		%				10		%				9		%				11		%				12		%

Our ADTech segment operating results for the second quarter of 2023 increased as compared to the immediately preceding quarter on higher revenue. These improved results were due to higher costs on several projects in our defense subsea business in the first quarter of 2023 that were not replicated in the second quarter of 2023. ADTech operating results for the three-month period ended June 30, 2023, were higher when compared to the corresponding period of the prior year, on increased revenue primarily due to delays in certain projects in the second quarter of 2022 where we incurred pre-contract costs. Our ADTech operating results for the six-month period ended June 30, 2023, decreased on higher levels of revenue when compared to the corresponding period of the prior year, primarily due to higher project costs on several projects in our defense subsea business in the first quarter of 2023.

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.

The following table sets forth our Unallocated Expenses for the periods indicated:

									Three Months Ended																		Six Months Ended
(dollars in thousands)									Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
Gross margin expenses									$	(23,685)					$	(19,288)					(23,793)						$	(47,478)					$	(40,574)
% of revenue									4		%				4		%				4		%				4		%				4		%
Operating expenses									(35,968)						(31,655)						(35,276)						(71,244)						(62,907)
Operating expenses % of revenue									6		%				6		%				7		%				6		%				6		%

Our unallocated operating expenses for the second quarter of 2023 remained relatively flat as compared to the immediately preceding quarter. Our Unallocated operating expenses for the three- and six-month periods ended June 30, 2023, were higher as compared to the corresponding periods of the prior year primarily due to increased accruals in 2023 for incentive-based compensation.

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Other

The following table sets forth our significant financial statement items below the income (loss) from operations line.

									Three Months Ended																		Six Months Ended
(in thousands)									Jun 30, 2023						Jun 30, 2022						Mar 31, 2023						Jun 30, 2023						Jun 30, 2022
Interest income									$	4,154					$	767					$	4,466					$	8,620					$	1,563
Interest expense									(9,517)						(9,619)						(9,283)						(18,800)						(19,062)
Equity in income (losses) of unconsolidated affiliates									479						318						639						1,118						612
Other income (expense), net									(5,846)						583						78						(5,768)						1,027
Provision (benefit) for income taxes									19,467						11,179						18,590						38,057						21,441

Interest income for the three- and six-month periods ended June 30, 2023, as compared to the three- and six-month periods ended June 30, 2022, increased primarily due to higher interest rates and increased average amounts of cash invested.

In addition to interest on borrowings, interest expense includes amortization of loan costs and interest rate swap settlements, fees for lender commitments under our senior secured 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 ended June 30, 2023 and 2022, we incurred foreign currency transaction gains (losses) of $(4.9) million and $0.9 million, respectively. In the six-month periods ended June 30, 2023 and 2022, we incurred foreign currency transaction gains (losses) of $(4.6) million and $1.3 million, respectively. The currency gains (losses) in the 2023 and 2022 periods were primarily related to increasing (declining) exchange rates for the Angolan kwanza relative to the U.S. dollar. We could incur further foreign currency transaction gains (losses) due to foreign currency exchange fluctuations.

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- and six-month periods ended June 30, 2023 and 2022, was different than the U.S. federal statutory rate of 21%, primarily due to the geographical mix of revenue and earnings, changes in valuation allowances and uncertain tax positions, and other discrete items. We do not believe a comparison of the effective tax rate for the three- and six-month periods ended June 30, 2023 and 2022, is meaningful. We continue to make an assertion to indefinitely reinvest the unrepatriated earnings of any foreign subsidiary that would incur material tax consequences upon the distribution of such earnings.

During the three-month period ended June 30, 2023, we received refunds of $23 million, including interest of $1.7 million which was recorded as a tax benefit, under the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The outstanding refund of $20 million was classified as other noncurrent assets on our balance sheet as of December 31, 2022.

Our income tax payments, excluding the aforementioned CARES Act refund we received in the second quarter of 2023, for the full year of 2023 are estimated to be in the range of $65 million to $70 million, which includes taxes incurred in countries that impose tax on the basis of in-country revenue, without regard to the profitability of such operations.

Liquidity and Capital Resources

We consider our liquidity and capital resources adequate to support our operations, capital commitments and strategic growth initiatives. Our ability to generate substantial cash flow over the last several years has allowed us to grow our cash balance to address the pending maturity of the 2024 Senior Notes (as defined below). As of June 30, 2023, we had working capital of $760 million, including cash and cash equivalents of $504 million. Additionally, as of June 30, 2023, we had $215 million of unused commitments through our senior secured revolving credit agreement (the “Revolving Credit Agreement”) that we entered into in April 2022, which is further described below. Availability under the Revolving Credit Facility may be limited by certain financial covenants and the requirement that any

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borrowing under the Revolving Credit Facility not require the granting of any liens to secure the 2024 Notes or the 2028 Notes (as defined below). The indentures governing the 2024 Notes and the 2028 Notes generally limit our ability to incur secured debt for borrowed money (such as borrowings under the Revolving Credit Facility) to 15% of our Consolidated Net Tangible Assets (as defined in such indentures).

On March 19, 2023, following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority (“FINMA”), Credit Suisse Group AG (“Credit Suisse”) and UBS Group AG (“UBS”) entered into a merger agreement with UBS as the surviving entity. As a result, UBS is now a lender under our Revolving Credit Facility and, as of the date hereof, has not informed us of any development that would affect the underlying Credit Suisse commitments under the Revolving Credit Agreement.

Our nearest maturity of indebtedness is our $400 million aggregate principal amount of the 4.650% Senior Notes due in November 2024 (the “2024 Senior Notes”). In 2021, we repurchased $100 million in aggregate principal amount of the 2024 Senior Notes in open-market transactions. We may, from time to time, complete additional 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 additional 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.

We have several deepwater vessels under a mix of short-term charters where we can see firm workload and spot charters as market opportunities arise, along with four long-term charters that began in 2022. During the second quarter of 2023, we entered into two new long-term charters for deepwater vessels that will begin in the third quarter of 2023 and the first quarter of 2024. We also entered into a contract that will begin in the fourth quarter of 2023 to extend the charter for one of the deepwater vessels we currently utilize. These contracts increased our future contractual obligations for operating lease liabilities by $23 million in 2023, $138 million in the years 2024 and 2025 combined and $53 million in the years 2026 and 2027 combined. There have been no other material changes in our contractual obligations from those disclosed in Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations”, of our annual report on Form 10-K for the year ended December 31, 2022. With the current market conditions, we may add additional chartered vessels throughout the year to align with our strategy that balances vessel cost, availability and capability to capture work. We expect to do this through the continued utilization of a mix of short-term, spot and long-term charters.

Cash flows for the six months ended June 30, 2023 and 2022, are summarized as follows:

									Six Months Ended
			(in thousands)						Jun 30, 2023						Jun 30, 2022
Changes in Cash:
			Net Cash Provided by (Used in) Operating Activities						$	(22,468)					$	(124,482)
			Net Cash Used in Investing Activities						(36,866)						(35,095)
			Net Cash Used in Financing Activities						(5,340)						(2,062)
			Effect of exchange rates on cash						(52)						(8,063)
			Net Increase (Decrease) in Cash and Cash Equivalents						$	(64,726)					$	(169,702)

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Operating activities

Our primary sources and uses of cash flows from operating activities for the six months ended June 30, 2023 and 2022, are as follows:

												Six Months Ended
			(in thousands)									Jun 30, 2023						Jun 30, 2022
Cash Flows from Operating Activities:
			Net income (loss)									$	23,062					$	(15,490)
			Non-cash items, net									56,602						64,259
			Accounts receivable and contract assets									(103,446)						(105,397)
			Inventory									(24,452)						(15,562)
			Current liabilities									22,390						(28,422)
			Other changes									3,376						(23,870)
			Net Cash Provided by (Used in) Operating Activities									$	(22,468)					$	(124,482)

The decrease in cash related to accounts receivable and contract assets in the six months ended June 30, 2023, reflects the timing of project milestones and customer payments. The decrease in cash related to inventory in the six months ended June 30, 2023, was primarily due to higher activity and related increases in our Manufactured Products and Subsea Robotics inventory. The increase in cash related to current liabilities in the six months ended June 30, 2023, reflects the timing of vendor payments.

Investing activities

Our capital expenditures of $41 million were higher during the first six months of 2023, as compared to $36 million in the first six months of 2022, primarily due to increased capital expenditures in our Subsea Robotics segment.

For 2023, we expect our organic capital expenditures to total between $90 million to $110 million. This includes approximately $45 million to $50 million of maintenance capital expenditures and $45 million to $60 million of growth capital expenditures.

Financing activities

In the six months ended June 30, 2023 and 2022, we used $5.3 million and $2.1 million, respectively, of cash in financing activities primarily due to payment of tax withholding related to vesting of stock awards.

As of June 30, 2023, we had long-term debt in the principal amount of $700 million outstanding and $215 million of unused commitments under our Revolving Credit Agreement. As of June 30, 2023, we were in compliance with all the covenants set forth in the credit agreement governing the Revolving Credit Agreement.

In November 2014, we completed the public offering of $500 million aggregate principal amount of the 2024 Senior Notes. We pay interest on the 2024 Senior Notes on May 15 and November 15 of each year. The 2024 Senior Notes are scheduled to mature on November 15, 2024.

In February 2018, we completed the public offering of $300 million aggregate principal amount of 6.000% Senior Notes due 2028 (the “2028 Senior Notes”). We pay interest on the 2028 Senior Notes on February 1 and August 1 of each year. The 2028 Senior Notes are scheduled to mature on February 1, 2028.

We may redeem some or all of the 2024 Senior Notes and 2028 Senior Notes at specified redemption prices. In 2021, we repurchased $100 million in aggregate principal amount of the 2024 Senior Notes in open-market transactions.

In December 2014, our Board of Directors approved a plan to repurchase up to 10 million shares of our common stock. In 2015, we repurchased 2.0 million shares under this plan. We have not repurchased any shares under this plan since December 2015. We account for the shares we hold in treasury under the cost method, at average cost. The timing and amount of any future repurchases will be determined by our management. We expect that any

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additional shares repurchased under the plan will be held as treasury stock for possible future use. The plan does not obligate us to repurchase any particular number of shares.

Off-Balance Sheet Arrangements

We have not guaranteed any debt not reflected on our Consolidated Balance Sheets as of June 30, 2023, and we do not have any off-balance sheet arrangements, as defined by Securities and Exchange Commission's rules.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. These principles require us to make various estimates, judgments and assumptions that affect the reported amounts in our financial statements and accompanying notes. We disclose our significant accounting policies in Notes to Consolidated Financial Statements—Note 1—“Summary of Major Accounting Policies” in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2022, in Part II. Item 7. “Financial Statements and Supplementary Data—Note 1—Summary of Major Accounting Policies.”

For information about our critical accounting policies and estimates, see Part II. Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our annual report on Form 10-K for the year ended December 31, 2022. As of June 30, 2023, there have been no material changes to the judgments, assumptions and estimates upon which our critical accounting policies and estimates are based.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks arising from transactions we enter into in the normal course of business. These risks relate to interest rate changes and fluctuations in foreign exchange rates. Except for our exposure in Angola, we do not believe these risks are material. We have not entered into any market-risk-sensitive instruments for speculative or trading purposes. When we have a significant amount of borrowings, we typically manage our exposure to interest rate changes through the use of a combination of fixed- and floating-rate debt. See Note 6—“Debt” in the Notes to Consolidated Financial Statements included in this quarterly report for a description of our Revolving Credit Agreement and interest rates on our borrowings. We believe significant interest rate changes would not have a material near-term impact on our future earnings or cash flows.

Because we operate in various regions in the world, we conduct a portion of our business in currencies other than the U.S. dollar. The functional currency for most of our international operations is the applicable local currency. A stronger U.S. dollar against the United Kingdom pound sterling, the Norwegian kroner and the Brazilian real could result in lower operating income. We manage our exposure to changes in foreign exchange rates by primarily denominating our contracts and providing for collections from our customers in U.S. dollars or freely convertible currency and endeavoring to match our contract costs with the denominated contractual currency. We use the exchange rates in effect as of the balance sheet date to translate assets and liabilities when the functional currency is the local currency, resulting in translation adjustments that we reflect as accumulated other comprehensive income or loss in the equity section of our Consolidated Balance Sheets. We recorded net adjustments to our equity accounts of $3.1 million and $(31) million in the three-month periods ended June 30, 2023 and 2022, respectively, and $1.2 million and $(21) million in the six-month periods ended June 30, 2023 and 2022, respectively. Negative adjustments reflect the net impact of the strengthening of the U.S. dollar against various foreign currencies for locations where the functional currency is not the U.S. dollar. Conversely, positive adjustments reflect the effect of a weakening U.S. dollar.

We recorded foreign currency transaction gains (losses) of $(4.9) million and $0.9 million in the three-month periods ended June 30, 2023 and 2022, respectively, and $(4.6) million and $1.3 million in the six-month periods ended June 30, 2023 and 2022, respectively. We recorded foreign currency transaction gains (losses) related to the Angolan kwanza as a component of other income (expense), net in our Consolidated Statements of Operations in those respective periods. Foreign currency transaction gains (losses) related to the Angolan kwanza of $(6.5) million and $1.2 million in three-month periods ended June 30, 2023 and 2022, respectively, and $(6.0) million and $2.1 million in the six-month periods ended June 30, 2023 and 2022, respectively, were primarily due to the remeasurement of our Angolan kwanza cash balances to U.S. dollars.

The Angolan kwanza was devalued against the U.S. dollar by 39% in the six-month period ended June 30, 2023. Any conversion of cash balances from kwanza to U.S. dollars is controlled by the central bank in Angola. During 2023, we have not repatriated any cash from Angola. As of June 30, 2023, and December 31, 2022, we had the equivalent of approximately $4.4 million and $5.6 million, respectively, of kwanza cash balances in Angola reflected on our Consolidated Balance Sheets.

To mitigate our currency exposure risk in Angola, we have used kwanza to purchase equivalent Angolan central bank (Banco Nacional de Angola) bonds. The bonds are denominated as U.S. dollar equivalents, so that, upon payment of semi-annual interest and principal upon maturity, payment is made in kwanza, equivalent to the respective U.S. dollars at the then-current exchange rate. As of June 30, 2023, and December 31, 2022, we had $6.2 million, respectively, of Angolan bonds on our Consolidated Balance Sheets. The bonds mature in September 2023 and are classified as available-for-sale securities; accordingly, they are recorded in other current assets on our Consolidated Balance Sheets. We did not sell any of our Angolan bonds in the three- and six-month periods ended June 30, 2023.

We estimated the fair market value of the Angolan bonds to be $6.4 million as of June 30, 2023, and December 31, 2022, respectively, using quoted market prices. Since the market for the Angolan bonds is not an active market, the fair value of the Angolan bonds is classified within Level 2 in the fair value hierarchy under U.S. GAAP. As of June 30, 2023, and December 31, 2022, we had $0.1 million in unrealized gains, net of tax, related to these bonds as a component of accumulated other comprehensive loss on our Consolidated Balance Sheets.

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Item 4.        Controls and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2023, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

There has been no change in our internal control over financial reporting that occurred during the three months ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

 

Item 1.Legal Proceedings

For information regarding legal proceedings, see the discussion under the caption “Litigation” in Note 7—“Commitments and Contingencies” in the Notes to Consolidated Financial Statements included in this report, which discussion we incorporate by reference into this Item.

Item 1A.    Risk Factors

With the exception of the following, there have been no other material changes in our risk factors from those

disclosed in Part I, Item 1A, of our annual report on Form 10-K for the year ended December 31, 2022.

Difficulty in obtaining sufficient capital could adversely impact our business and financial condition.

A financial crisis or economic recession could have an adverse impact on our business and our financial condition. In particular, the cost of capital could increase substantially and the availability of funds from the capital markets could diminish significantly. Since the global recession in 2008, credit and capital markets have, from time to time, experienced unusual volatility. Our ability to access the capital markets in the future could be restricted or available on terms we do not consider favorable. Furthermore, if investors or financial institutions shift funding away from companies in the energy industry, our access to capital or the market for our securities could be negatively impacted. Limited access to the capital markets could adversely impact our ability to take advantage of business opportunities or react to changing economic and business conditions and could adversely impact our ability to continue our growth strategy. Ultimately, we could be required to reduce our future capital expenditures substantially. Such a reduction could have a material adverse effect on our business and our consolidated financial condition, results of operations and cash flows. A financial crisis or economic recession could also affect our suppliers and our customers, causing them to fail to meet their obligations to us, which could have a material adverse effect on our revenue, income from operations and cash flows.

If one or more of the lenders under our revolving credit facility were to become unable or unwilling to perform their obligations under that facility, our borrowing capacity could be reduced. Our inability to borrow under our revolving credit facility could limit our ability to fund our future operations and growth.

In addition, we maintain our cash balances and short-term investments primarily in accounts held by major banks and financial institutions located principally in North America, Europe, Africa and Asia, and some of those accounts hold deposits that exceed available insurance. It is possible that one or more of the financial institutions in which we hold our cash and investments could become subject to bankruptcy, receivership or similar proceedings. As a result, we could be at risk of not being able to access material amounts of our cash, which could result in a temporary liquidity crisis that could impede our ability to fund operations.

Item 5.    Other Information

During the three-month period ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6.     Exhibits

Index to Exhibits

Registration or File Number

Form of Report

Report Date

Exhibit Number

*

3.01

Restated Certificate of Incorporation

1-10945

10-K

Dec. 2000

3.01

*

3.02

Certificate of Amendment to Restated Certificate of Incorporation

1-10945

8-K

May 2008

3.1

*

3.03

Certificate of Amendment to Restated Certificate of Incorporation

1-10945

8-K

May 2014

3.1

*

3.04

Amended and Restated Bylaws

1-10945

8-K

Nov. 2022

3.01

31.01

Rule 13a – 14(a)/15d – 14(a) certification of principal executive officer

31.02

Rule 13a – 14(a)/15d – 14(a) certification of principal financial officer

32.01

Section 1350 certification of principal executive officer

32.02

Section 1350 certification of principal financial officer

101.INS

Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Exhibit previously filed with the Securities and Exchange Commission, as indicated, and incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

July 28, 2023						/S/    RODERICK A. LARSON
Date						Roderick A. Larson
						President and Chief Executive Officer
						(Principal Executive Officer)
July 28, 2023						/S/    ALAN R. CURTIS
Date						Alan R. Curtis
						Senior Vice President and Chief Financial Officer
						(Principal Financial Officer)
July 28, 2023						/S/    WITLAND J. LEBLANC, JR.
Date						Witland J. LeBlanc, Jr.
						Vice President and Chief Accounting Officer
						(Principal Accounting Officer)

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