Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oceaneering International 2014 Q4 and Annual Earnings Conference Call. [Operator Instructions] Thank you. Mr. Jack Jurkoshek, you may begin your conference.

Good morning, everybody, and thanks for joining us. As usual, a webcast of this event is being made available through the StreetEvents Network service by Thomson Reuters. Joining me today are Kevin McEvoy, our President and Chief Executive Officer, who will be leading the call this morning; Marvin Migura, our Executive Vice President; and Cardon Gerner, our Senior Vice President and Chief Financial Officer. Just as a reminder, remarks we make during the course of the call regarding our earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. And I'm now going to turn the call over to Kevin.

Good morning, and thanks for joining the call. I'd like to start out by addressing 4 key points in our earnings release. First, 2014 was a record earnings year for Oceaneering. Earnings per share increased for the fifth consecutive year, up 17% over 2013, and we realized the highest annual operating income margin in our history. Second, heading into 2015, we are faced with a slowdown in deepwater activity. This is attributable to the significant decline in the price of Brent crude oil since our last earnings release and the growing prospect that this depressed oil price environment could be prolonged. This has led to announced plans by our customers to reduce their 2015 exploration and development expenditures, which have adversely impacted our earnings prospects. While work on most deepwater projects already approved and underway is likely to continue, the urgency to start new projects is in question until the commodity price environment stabilizes and improves. Therefore, we are resetting our 2015 EPS guidance to a range of $3.10 to $3.50. While all oilfield services and product companies face the same uncertainties, we are attempting to frame our outlook to be within a realm of probabilities under a variety of scenarios. We are not pretending to have a better crystal ball than others. We are simply sharing our view of our business prospects at this time. Within this framework, we are initiating first quarter 2015 EPS guidance of $0.58 to $0.62. Third, despite the current uncertainties surrounding deepwater activity, our long-term -- our longer-term outlook remains positive. Deepwater is expected to continue to play a critical role in global oil supply growth despite its large capital commitments, technical challenges and the current commodity price environment. An industry research report published late last month indicated that about 1/3 of future incremental…

[Operator Instructions] Your first question comes the line of Byron Pope. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Very helpful color on the 2015 outlook, so I just have one question as it relates to the ROV business. You mentioned lower demand for both drill support and work-class ROVs. And you've got pretty good geographic coverage across deepwater tiers for both types of ROVs. I'm just wondering, are there any particular 1 or 2 geographies that are likely to drive the year-over-year lower demand? Or is it just more broad-based, given where we are with Brent prices?

Well, first of all, the ROVs are kind of the same. It's just where they are working is different, but the ROVs are the same. We're expecting across the board that there will be pressure on pricing and that, as rigs go idle, that's going to create decrease in demand. But Norway is probably going to be an area that we'll see lower demand, particularly on the vessel side.

Yes. I think the Gulf of Mexico continues to look to be the bright spot. And Africa, from a drill rig support base, is going to -- is declining. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And if I think back to the '09 downcycle and the resiliency of your ROV business relative to most other oil service businesses, is the pricing dynamic or the competitive dynamics somehow different this time around? Because I look back then, and you really didn't give up all that much in terms of your revenue per days worked.

No. I don't think the pricing dynamics are any different. I think the rig utilization dynamics are significantly different. I think, in '09, it was a blip. And it was a V-shape and we -- deepwater wasn't impacted. And right now, deepwater is being impacted. Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay. And then last question for me. I just wanted to -- Kevin, maybe if you could -- I know you touched on this a little bit in your prepared remarks. But could you speak to some of the medium- to longer-term opportunities you see as a result of bringing C & C Technologies in-house? And just thinking about what they do versus what you already provide in terms of products and service opportunities.

Well, I think -- I mean, this provides a new branch, if you will, for us to expand services that they provide. We're particularly interested in the deepwater AUV part of their business. They're primarily Gulf of Mexico-centric, and we obviously provide a geographic platform there where we can expand that and help to grow that business. Obviously, it'll be -- we'll see what happens in 2015 in terms of demand for that. But longer term, we're very happy with that business and like the ability to really jumpstart an AUV presence in the marketplace.

And there are synergies between our projects business, our vessel base user survey, our vessel's use survey. And often times, ROV bids require a survey capability. So we saw unique attributes to C&C, and we were very pleased that we were able to come to an agreement to acquire them.

Your next question comes from the line of Stephen Gengaro. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: As we look at 2015 from here, as you look at the ROV side, and you touched on this a little bit, and also on the Subsea Projects side, how much of visibility do you have right now? How much is under contract that you're very confident? And how much is sort of out there that you're -- that's a little looser as far as your expectations are concerned?

Well, as far as the projects group, we have some long-term contracts in Angola and we have the Shell 1-year -- or 2-year contract that we alluded to in the remarks there. Outside of that, it is project work. Some -- we have some visibility on that in the shorter term but not so much past first quarter, let's say. And on the ROV side, I mean, it really is all about the rig utilization and how much vessel work is going to be done in areas, particularly Norway. That all seems to have pulled back quite heavily, and it's still unclear what they plan to do in the coming year, but we're expecting it to be less and...

I think we quantified the rig exposure that we had, 55 ROVs on 82 floating rigs that have contract end days in 2015. And I mean, I think, other than that, the ROV drill support, barring any other cancellations, is pretty firm.

Yes. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Okay. No, that's helpful color. And then as we think about the uses of cash, it may be hard to comment on, but when you think about the desire to continue this trend of raising your dividend versus share repurchase, how should we think about that?

Well, as we said in the remarks, we evaluate that the second quarter of each year, and we'll announce that accordingly.

I think just further answer to that is we expect that the continuation of dividends is way more stable than our episodic purchases of treasury stock. And we'll always continue to put growth first, dividends second and acquisition of treasury shares third or fourth, depending if we want to view the growth in organic and acquisitions.

Your next question comes from the line of Kirk Hallead.

I appreciate the color and the info. In a tough market backdrop, obviously, always difficult to predict the magnitudes and everything else. But I'm just curious, when you do kind of -- when you went through your own internal assessments and you looked at the different segments, I was wondering if you could give us some insights as to what segments would be hit. If you give us a descending order, which ones are going to be hit the most down through the ones that will be hit the least?

Well, I think we indicated in the remarks that it's going to be principally ROV and then followed by products.

Okay. And then the others are not going to be impacted as about -- impacted about the same, from when we talk about projects, for example?

It would be projects would be third, Asset Integrity would be fourth, and AdTech is countercyclical and going up. And within the products segment, we said umbilicals was the easiest to predict because of visibility of backlog, and we made it longer term, and we said it's going to be flat. So -- and the short-cycle, high-margin business of providing solutions by providing tooling is kind of the least visible.

Okay. If I missed some of that earlier, I apologize for having to rehash it. The other dynamic, I was wondering because you gave some information, good information here on aggregate decline and overall margin. And I just, again, kind of wonder, from a revenue standpoint, are you expecting aggregate revenues to decline by more than 10% or less than 10%?

Kurt, I haven't looked at the revenue at the $310 million, at the $350 million. I would say, at the top end, it would be less, and I haven't really looked at the $310 million. I don't have the $310 million number with me as far as revenue. I think we're looking at so much speculation as to the level of activity that it's -- we just ran a various -- on a variety of scenarios and kept coming up with numbers that fell between that range. We're not saying the midpoint's any more predictable than either end of them.

Your next question comes from the line of Jim Wicklund. James Knowlton Wicklund - Crédit Suisse AG, Research Division: Excellent acquisition of C&C. Very good company. The Chance family strikes again. You found something that's your value, so I congratulate you on that. That's a good deal. You guys have said a couple of times -- Marvin, you were talking about it's different this time. Pricing's the same, but the dynamic with the rigs are different. And before that, you mentioned weakness in '15 and '16. Instead of asking you what your revenue is going to be in the third quarter for ROVs, can you tell us how long you think this cycle will take to readjust and come back? Is this a 1-year period of push to the right, a 2-year period push to the right? And I know you guys don't know, but nobody's better -- in a better position to speculate, how long does it take for all the things that have to happen, all the step changes and everything, to actually start deepwater back on an upward track again?

Jim, is this a pool that we're betting on or what? James Knowlton Wicklund - Crédit Suisse AG, Research Division: Yes, yes, if we're going to -- exactly. At my Christmas luncheon, we're going to all participate.

Jim, tell me the exact oil price scenario, and I'll think about the other. James Knowlton Wicklund - Crédit Suisse AG, Research Division: Well, let's say if we don't go above $75 for 2 years.

I don't know. We take it -- I mean, if you look at a lot of -- I mean, this is a variety, is it a U, a V or a W or a whatever. And we're not taking any position on that because it really depends upon what segment and what sector you're in. And I mean, we think that deepwater has more potential for coming back or not going as low as land and for stabilizing sooner. I mean, before the oil price collapse, we had the problem of oversupply in the drilling market. And that was starting to hurt utilization, and then the oil price dropped. So it really is a matter of oil price visibility. I think, if it comes back to $75, I mean, it would be -- we [indiscernible]. You'd hope to see some recovery in '16.

I mean, I think that one consistent thing that we get from talking to the major oil companies that are our customers is that they are not going to stop in deepwater. I think what may be a bit different this time from previous down cycles is that there seems to be a fair realization amongst the major oil companies that they need to structurally change the way they're doing their business. And so they're going to be working through that. I would say that, even if the price magically spiked backed up to $80 tonight, we're still going to go through the same travail with the large operators in particular because of the way they're doing your business. It's not very cost effective, and that's what they're going to be working on. And so... James Knowlton Wicklund - Crédit Suisse AG, Research Division: And that's my biggest concern, Kevin. And I see that it's going to happen. I'm just trying to figure out how long that duration of those oil companies taking will be. That's all. And then if you all don't have a handle, I understand. But that was really the crux of my question.

Well, I mean, I think that they are obviously going to continue to proceed with projects that are already underway. I've got to believe that they have got enough inventory out there to prioritize which ones are the lowest cost in today's environment, and they will work towards those. There may be delays and whatever else, but they'll do that. And in the meantime, they will continue to work on changing the way they're doing their business in order to reduce costs. And we're in pretty detailed conversations with several different operators in that regard, as they are with lots of other companies, not just us, to try and make these changes. So I don't think that they're going to go back to business as usual with this oil price. As we all know, they were kind of getting beat up for a long time way before the oil price went down on their increasing costs and with the static oil price. And so they need to address that issue, and I think they are starting to do that right now.

And lastly, Jim, just because we were bold enough or foolish enough to give 2015 guidance, we are not taking a position on our '16 earnings, okay? James Knowlton Wicklund - Crédit Suisse AG, Research Division: And I think that's prudent, Marvin. But I also have to tell you, you're the only guys with the cajones so far to put out '15 numbers at all, so congratulations.

Your next question comes from the line of Jon Donnel.

Just another question here regarding the guidance and just kind of the seasonal progression that's kind of embedded within it. I mean, it looks like, just from the first quarter numbers compared to the full year, that you're kind of baking in the same 18% to 20%-ish earnings achieved during first quarter, implying that there's going to be the typical seasonal build-up. But it seems that, just given the size of the drilling market and the number of rigs rolling off contract, et cetera, that it ought to maybe dampen that seasonal increase a little bit here through the middle of the year. I guess, could you help us sort of reconcile those 2 phenomenon and kind of how you see the earnings progressing throughout the year to get to the annual number compared to the first quarter? And will that be very different than we are used to seeing in the past?

Well, right now, Jon, we may be just creatures of habit, and there's very little visibility as to quarters. So I mean, we know -- we think we've got a handle on what's going to happen in Q1 and what we think our guidance is, as you noted, traditionally based as far as seasonality. Does the dampening of the market and rigs rolling off contract during the year impair our earnings progression to be something that is not traditional? We haven't really been able to focus on that enough to -- with any certainty. Right now, we're looking at more of a traditional layout.

I would add to that, too, though the -- we can tell you that the earnings contribution from C&C is highly seasonal. It was at the end of the [indiscernible] the second and third quarter.

Okay. But let's not overweigh that because we know that we said, the first year, we're going to own them. They're going to generate -- we expect to generate $20 million to $30 million of EBITDA over the 12 months after April 1. And if you take that after depreciation and taxes, let's just make sure that we're not overweighting the contribution from C&C, especially in year 1 with integration costs.

Your next question comes from the line of Chase Mulvehill.

I guess, back on kind of the buybacks and leverage, if I remember correctly, back in December, you guys talked -- you put out a release talking about the buybacks and the desire to kind of more optimize your capital structure, potentially taking your net debt-to-EBITDA up to 1 to -- or 1.5x. Is that still in the cards? Are you guys still wanting to optimize your capital structure? Or are we now thinking a different way?

Well, I think we are probably going to be a little more conservative about that in the shorter term. I think, longer term, we're still committed to that principle that we laid out. But obviously, in the uncertainty that we have right now, we're going to be a little more conservative about what our leverage is going to be until things stabilize a bit.

Okay. All right. That make sense. And on the Subsea Products, revenues have basically doubled since 2010. Can you just walk us through the main drivers of what drove the doubling of revenue and then kind of the outlook of those businesses in a $60 oil price environment?

Is that in 2 sentences or less? I mean, I think, over that time period, we had some reasonable growth in the contribution from our umbilicals business over that time period. We had some good growth in the demand for a lot of our subsea work systems out of the tooling group over that period of time. We also had some significant projects in our Grayloc subsidiary that made some meaningful contributions. Going forward...

IWOCS, too.

And IWOCS has been a good contributor as well. So moving forward, all of those things, I mean, the Grayloc business doesn't have the set of large projects that contributed over that time frame. It's still going to be a great business, but it won't be as high as it was. We already know what we see for the umbilical business for 2015. And I think, there, it really is a question of how much of a gap, if any, is there in the offshore development cycle. If people don't make orders for some period of time, it's going to affect everybody in the manufacturing sector. They'll have a gap in their factories. But 2015, we have reasonable visibility of that. Lastly, on the subsea work systems side, I mean, that is a function of callout demand from our customers. And you could expect that if there's anything they can defer, they might be deferring it. And so it's pretty cloudy in terms of what might come there. And in general, even when times are good, we don't really have clear visibility. It's just the market momentum and an expectation that we are going against as opposed to orders in the end or anything like that.

Your next question comes from the line of Ed Muztafago.

Certainly appreciate you not wanting to get too deep into the segments, given the uncertainty that we're facing this year. I was wondering maybe if we could just talk about projects a little bit in terms of the sequential improvement in 2Q and just the fact that you've got C&C. You have the Island Pride and then, of course, the Shell vessel charter that's already started. Do we see the most dramatic rebound in the projects business, at least sequentially in 2Q, and then a more dramatic falloff? Or can you help us think about that a little bit?

Well, I think, while we have those positive things there, we also have a number of other vessels in our fleet and vessels coming here from the North Sea trying to get work that's originating over there. So I think the competition is going to be even more heightened here in the Gulf than it was in 2014. So do those all balance out? I don't know. I mean, we'll have to see because, again, other than what we had stated as being a long term, everything else is callout and it's...

And we have the 803 in Angola going off contract in April. So there's too many moving pieces to be able to give you much color as to whether or not, sequentially, Q2 over Q1, projects rebounds. I mean, they -- it's normally most affected by the seasonality. So I mean, you start with thinking that logical approach, but there's just too many moving pieces, and I don't think C&C is going to move the needle in Q2.

Okay. Well, I can appreciate that, and I'll certainly stand on Jim's comment about the brass [ph] to give out guidance. Can you maybe help us think about just sort of the ROV pricing a little bit more? And I guess really thinking along the lines of the fact that you do have 10 ROVs coming in that I believe are sort of a higher-revenue, higher-margin ROV, but -- and presumably, what's going off contract would be some lower-revenue, lower-margin stuff. If we think about sort of the -- kind of an imputed day rate or pricing for ROVs, net-net, those suggest they might cancel out a little bit, but then there's the pricing dynamic. And I know you've kind of said in the past that you're always a little reticent to really push ROV pricing, but that might suggest that, to the downside, it's also less sensitive. Can you just kind of help us think through all those moving pieces?

Ed, first of all, I mean, I don't think 10 ROVs coming into a fleet of over 300 is going to have much impact. And the other thing I want to say is what impacts our ROV average day rate a lot is the mix between drill support and vessel base, with vessel base having a larger crew and having a larger day rate because of the higher crew component. And so that mix, with the low visibility on vessel utilization, is probably the biggest thing that we have to concern ourselves with about average day rate or a.k.a. pricing.

Okay. Fair enough. That's very helpful. And then just in terms of the sort of relative price compression or ability to sort of give away pricing on the different product lines, would ROV be, for the most part, the least affected or the least decline in pricing?

I mean, historically, in that business, we have fared very well in these down cycles. I think it's hard to tell how aggressive the oil companies are going to be in what, in our view, is a pretty small part of the overall cost issue that they have. So I mean, they're all asking for discounts. They're all asking for discounts on the order of, not just to us and not necessarily in the ROV business but just generally across the board, they're talking in terms of 30% to 35% reduction in cost on the basis that, "Hey, guys, we just lost 50% of our revenue. Help us out here." And so these are very difficult conversations. But back to the point, I -- at this point, it's hard to see that the ROV business will be -- I mean, it certainly is not going to be immune. I mean, we're thinking that it won't be dramatic or drastic or anything like that, but it could be affected a little more than it has been historically.

And instead of, as we said and as Kevin said in the opening comments, instead of just looking for ways to give them lower pricing, we're looking for ways to eliminate cost. And so if we can do the same job without the [indiscernible] during a completion on a drilling rig instead of having additional crew cost and additional crew pricing in there, they could see a lower-cost solution. And so we're working on ways to achieve some of their goals without giving all of them what they're asking for out of pricing.

Your next question comes from the line of Brad Handler.

I guess I was hoping you could share a little bit more color about your work with -- in Angola. Is it your sense as they -- as you said that the Bourbon 803 is going to be let go at the end of April, I guess, is it your sense that your customer has found an ability to do the work over the long term with 2 vessels versus 3? Has there been some change in the pace of work to be done there?

I think they're slowing down. I think they're cutting costs because they have to across the board, and slowing down is one way to cut costs.

Right.

Right, right. So maybe that's not optimal from their standpoint, but it does cut costs for now.

Correct.

Okay. What -- maybe let's switch back to the Gulf of Mexico, where you're obviously a little bit more optimistic about project work. And maybe it's -- you can string some of your contracts or some of the visibility you do have together. Is it a behavior? Is there some behavioral change? Is this -- actually, is this a good way to manage the economics for some of your oil company customers in terms of having -- in terms of, are they doing more work from a flowing well perspective or something? I don't know. Just do you see anything in the demand profile there that, I guess, is a little more encouraging? But what can we draw from some of your -- from some of the visibility on it?

Well, I think -- I mean, the Gulf of Mexico right now has got more project activity ongoing. And so it's going to be a stronger market compared to some other places, particularly, let's say, the North Sea. But in terms of any fundamental shift in what they're using vessels for today versus yesterday, no, I don't see that all. I do see the -- or heavy expectation that, if they can defer some work, like abandonment type of activity or inspections that don't have to be done but they were doing them before because they wanted to or whatever, then those things are going to get deferred. So there is no fundamental shift in how things are being done in the Gulf of Mexico. It's just that there's more activity there that is going on, and that's a good thing.

Maybe with regards to the alliance and Shell. So presumably, Shell has been doing callout work for a long, long time. Were you able to persuade them that a dedicated vessel achieves a lot of efficiencies? Is that sort of the business development dynamic?

Yes. Yes, absolutely. Now we were working on that for quite a long time. But anyway, so...

And Brad, a good observation on that is that the contract is not incremental because they were doing a lot of project work on a callout basis, and we are a very good preferred vendor of theirs, and they are a preferred customers of ours. So the fact that we locked up the alliance doesn't mean that we took utilization risk out of the overall fleet because we took Shell off the customer list for the callout work.

Right, right, right. And if you try to roll -- should we try to roll forward this concept a bit? In other words, are there savings that you're offering that you might expect to be able to aggregate work and concentrate it in one of them?

I mean, it really is about visibility of demand on the operator's side. I mean, if they see the demand, then they have a clear choice whether to take a vessel for a longer period of time or to work the stock market. And I think, generally, that is directly related to how much subsidy infrastructure that operator has in the geographic area that we're talking about. And it is -- not everybody has or most other companies don't have that kind of infrastructure there. So they're not going to see that demand.

[Operator Instructions] Your next question comes from the line of Darren Gacicia.

I wanted to ask, it's -- people have been kind of poking around, trying to get around projects. It's always a little bit kind of the least visible to sort of understand. I guess the only sensitivity question I wanted to ask is, if you took one vessel off, what's the revenue impact of kind of one vessel going down in any given quarter on that quarter's revenue? Just if I wanted to make my own assumptions, how would I want to calibrate that?

I don't think we...

Don't want to go there.

Give that out. I mean, it's just too hard to make anything meaningful out of that anyway, in my opinion. I mean, it's a callout. Being the callout business, it's up and down all the time, and that's granularity that I think would be...

And making out that the vessel you're talking about is the Bourbon 803, it was on charter, and it going off would not be relevant to what would happen in the Gulf of Mexico.

Okay. Switching gears a little bit and just trying to aggregate some of the comments I've heard to make sure that I'm looking at it the right way, I understand completely what you were saying with regard to mix changing the pricing somewhat and that vessels get higher pricing with more men versus ROVs on drillships/drilling rigs. If I'm looking at it from a utilization standpoint, usually vessel utilization is lower. So if your mix is shifting more towards drillships and then the drilling side just because the vessel activity is falling off a little bit faster, is what I'm gathering is what you've been telling me, like is it safe to assume that maybe sort of higher 70s-type utilization could be a fair assumption because the drilling tends to be a little bit more consistent? Even if drilling's going down as well, if the overall mix is going towards drilling, of what's working, the utilization will be higher.

What I think you're missing is that you're assuming that the ROVs that aren't working on the vessels are suddenly finding jobs on rigs. And I mean, I think utilization is impacted by both, and the change in mix of the day's work isn't very relevant to overall demand if there's no vessel activity for 30% of our ROVs.

Got it. So if I look over past cycles, that utilization in net is kind of falling into that -- can fall easily into the kind of mid-low 70s, and that may be a fair assumption here.

We're not commenting on utilization right now. We're just saying it's going to be lower. We're not quantifying it because we really don't know what the callout work on the vessels is going to be, and we don't know what the rollover rate and the idle time between contracts is. There's too many unknowns to predict.

Too many variables.

Yes.

When do you think your clients are going to have a little bit more visibility on their portfolios? Is that something that kind of comes in March and sort of after the budgets have been filed? Or what's the timing of usually kind of having a little bit better clarity for the year ahead on that?

Well, usually by the second quarter we start getting a little more visibility of what's out there. But I don't think, in this case, from an operator standpoint, I don't think it has so much to do with whatever their budget is. It has to do with what do they need to get done, and they're not going to spend any money they don't need to get done. And a lot of what we do is problem solving, and so they're never predicting what their problems are going to be. They might have a budget for -- set aside for that. But obviously, they don't spend it unless they need to. So that's where the difficulty comes in, in terms of utilization.

Yes, and I think a lot of oil companies have announced that they're going to remain flexible during the year and not commit the budgets until they have better visibility. So that's another unknown.

And there are no further questions in queue at this time. I turn the call back to our presenters.

Okay. Since there are no more questions, I'd like to wrap up by thanking everyone for joining the call. We're very pleased with our record results for 2014, including our 11th consecutive year of record ROV operating income. 2014 marked our 50th year in business and my 35th year with the company. I am grateful for the opportunity to have been part of the firm's evolution and growth and look forward to leading Oceaneering to another year of substantial earnings performance in 2015. This concludes our fourth quarter and year-end 2014 conference call. Have a great day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.