Oceaneering International Inc (OII) 2013 Q4 法說會逐字稿

Good morning or afternoon. My name is Jake and I'll be your conference operator today. At this time, I'd like to welcome everyone to the 2013 annual Q4 earnings conference call.

(Operator Instructions)

Mr. Jack Jurkoshek, you may begin your conference.

Good morning, everybody. We'd like to thank you for joining us on our 2013 fourth quarter and year-end earnings conference call. 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 who will be leading the call; 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 this call regarding our earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the Safe Harbor Provision 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. Before I get into my customary review of the quarterly results, I would like to address four key points in our earnings release.

First, 2013 was a record earnings year for Oceaneering. Earnings per share increased for the fourth consecutive year and 29% over 2012. Second, we are expecting an even better 2014 and reaffirm our previously announced EPS guidance range for the year of $3.90 to $4.10.

We are aware of recent 2014 market reports raising concerns about softening demand for older and less technically capable floating drilling rigs, a slow down in the overall rate of growth and E&P capital spending by our customers, deepwater field development project deferrals and cost overruns on field development projects currently underway. At this time, we believe our guidance range already accounts for these concerns and reflects the potential impact to our 2014 results for the deepwater services and products that we offer.

The softening of rig demand in 2014 would, to the greatest extent, impact of our ROV operations. During 2013, ROVs generated 41% of our operating income and approximately 75% of our days on hire were in drill support.

At year end, we had vehicles on 160 floating drilling rigs, or 57% of contracted fleet. Of the 160 rigs, 103 were high-specification rigs, which we define as dynamically positioned fifth- and sixth-generation semis and drillships and 57 were lower specification rigs. So our drill support ROVs were split 64% on high spec rigs and 36% on lower spec rigs.

Of the 57 lower spec rigs, 17 had contracts expiring during 2014 with an average contracted period of 175 days. So basically, our ROV contract exposure to this class of rigs is 8.5 rig years out of a total of 160 rig years, or 5%, before you consider new rigs coming into the fleet.

We still expect to add 30 to 35 new vehicles to our ROV fleet in 2014 and currently have firm contracts in hand for 28 of these. Consequently, within the framework of our overall Company plan for 2014, our business exposure to softening demand for lower spec floating drilling rigs is not significant enough to warrant a change to our EPS guidance range at this time.

Third, our long-term outlook remains very positive as deepwater should continue to be one of the best secular growth prospects in the industry. Industry reports and forecasts that the largest source of future incremental oil supply by 2020 will come from subsea development and that our customers will have increased their deepwater investments to make this happen. According to a study by Douglas-Westwood released just last month, global CapEx on deepwater oil and gas projects will more than double over the next five years.

And finally, we are initiating first quarter 2014 EPS guidance at $0.75 to $0.80, which is consistent with our historical seasonal quarterly earnings pattern. At the midpoint of our 2014 guidance ranges, first-quarter EPS would be 19% of our EPS for the year.

I'd now like to review our operations for the fourth quarter. EPS of $0.86 for the fourth quarter of 2013 was 16% above that of the fourth quarter of 2012 on income improvements from all of our oilfield business operations led by ROVs and subsea products. ROV operating income improved 18% on a 13% increase on days on hire primarily in the Gulf of Mexico and an improvement in operating margin. During the quarter, we put nine vehicles into service and retired seven.

Our fleet mix usage during the quarter was 75% in drill support and 25% on vessel-based work, the same as in the fourth quarter of 2012, it was 73% and 27% last quarter. ROV operating income margin for the quarter 28% and would have been higher if not for the $3.3 million charge related to our OGX receivables. In the fourth quarter of 2012, ROV operating margin was 27%.

Subsea Products operating income rose 20% to a record high on increased demand for subsea hardware and higher throughput at our umbilical plants. Operating margin at 22% for the quarter was the same as in the fourth quarter of 2012.

Subsea Projects operating income increased by 24% due to increased deepwater vessel service activity, after the integrity operating income improved 29% on higher service sales in most of the major geographic areas we serve, particularly Africa. Advanced Technologies operating results declined as we had anticipated. This was attributable to projects having been pulled forward into earlier quarters of the year and delays and new awards and current year funding the US Government for the services we provide to the US Navy.

Our overall fourth quarter EPS results were slightly above our guidance range on better than anticipated results and our Subsea Projects and Subsea Products operations. With regard to Subsea Projects, in Angola, our customer expanded their use of the Maersk Attender in various smaller support vessels.

In the Gulf of Mexico, certain diving work lasted longer than we had expected. One particular job was on a [PLP] that involved [tending] and hull packing installations. Another was on floating semi production platform to perform hull piping and sea chest repairs. Subsea Products margin was higher than we expected as our revenue mix had more tooling and less umbilicals than we had anticipated.

Moving on to review our total year 2013 operations, we achieved record earnings of $372 million and EPS of $3.42. This was largely attributable to our global focus of deepwater and subsea completion activity, the business expansion strategy we had in place and our solid operational execution. Overall, operating income margins was the second highest in our history.

For 2013, each of our operating segments obtained higher income. Four of five segments achieved record operating income. Although not a record, Subsea Projects operating income increased 48%.

ROV operating income rose for the 10th consecutive year, an accomplishment we are very proud of. This was attributable to higher global demand to provide both drill support and vessel-based services and the expansion of our fleet.

In addition to higher demand in US Gulf of Mexico and offshore Africa, we also experience significant activity increases offshore India, Canada and Australia. We increased our days on hire by more than 9,000 to over 91,000 days. Our fleet utilization rate rose to 85% from 80% in 2012.

During the year, we grew our fleet to 304 vehicles, up from 289 at the beginning of the year. We added 26 vehicles, retired 10 older systems and transferred 1 system to Advanced Technologies for non-oilfield use.

In 2013, 14 new drilling -- floating drilling rigs were placed in service and we had new ROVs on 10 of them. At year end, we estimate that we will -- that we continue to be the largest ROV owner with 35% of the industry's work class vehicles for the fleet side about 75% bigger than the next largest ROV fleet. We remain the primary provider of ROV drill support service with an estimated market share of 57%, almost three times that of the second largest supplier.

Subsea Products operating income increased on higher demand for each of our major product lines led by subsea hardware. The higher demand for subsea hardware included flying leads, junction plates and umbilical termination assemblies for offshore field development and plant connector systems for process piping notably for the construction of a new offshore gas facility.

Operating margin increased slightly to 22% from 21% in 2012. Umbilical revenue as a percent of our total product revenue in 2013 grew to 29% from 28% in 2012.

Our year end Subsea Products backlog was an all-time high at $906 million, up 33% from $681 million at the end of 2012. This backlog growth was primarily attributable to four umbilical contracts which added about $170 million to our backlog.

These umbilicals are for use in the Gulf of Mexico, West of Shetland and offshore Egypt. Product manufacturing on these contracts will ramp up during 2014 and we anticipate completion in the third quarter of 2015.

Regarding Subsea Projects, operating income grew in 2013 primarily on increased deepwater vessel activity. Asset integrity, operating income improved on higher service sales in most of the major geographic areas we serve, particularly Africa and Australia. Advanced Technology's profits were up on higher activity and improved execution on theme park projects and vessel maintenance work for the US Navy.

Our 2013 capital expenditures were $394 million, of which $226 million was spent on expanding and upgrading our ROV fleet. We invested $103 million in our Subsea Products business, mainly to increase the capabilities of our umbilical plants in the US and Scotland and expand our rental and service tooling hardware offerings. We also paid $91 million of common stock dividends and paid our revolver down $94 million during 2013.

At $746 million, our 2013 EBITDA was also a record high. At year end, our balance sheet reflected $91 million of cash, no debt and $2 billion of equity.

In summary, we believe our annual 2013 earnings performance and cash generation were excellent. We committed -- we are committed to our customers' success and our results reflect their recognition of our ability to provide value.

The price of Oceaneering stock rose 47% during 2013. We believe this was in recognition of our financial performance and our future business prospects. Our share price percentage increase was greater than the oil service sector index, or OSX, which by comparison rose 28%.

Now, let's talk about our 2014 EPS outlook. We are reaffirming our 2014 EPS guidance with a range of $3.90 to $4.10 based on an average of approximately 109 million diluted shares and an estimated tax rate of 31.3%, comparable to the 31.5% of 2013.

The detailed business segment outlooks that I reviewed on our last earnings call in late October 2013 are fundamentally unchanged. We continue to expect each of our oil field business segments will achieve higher income in 2014. We are anticipating sustained global demand growth for our services and products to support deepwater drilling, field development and inspection maintenance and repair activities.

In 2014, we expect 29 new floating drilling rigs to be placed into service. ROV contracts have been led on 19 of these and we have won 16.

During 2014, we anticipate generating at least $850 million of EBITDA. Our balance sheet and projected cash flow provide us with ample resources to invest in Oceaneering's growth.

Our organic CapEx estimate for 2014 is around $450 million. Of this amount, we expect approximately $225 million to be spent on adding systems to our ROV fleet and vehicle upgrades.

About $120 million is to enhance our Subsea Products capabilities, particularly to expand our IWOCS and tooling rental and service hardware offerings. And about [$65 million] is for Subsea Projects, largely to fund the construction progress payments for a new subsea support vessel scheduled to be delivered by the end of the first quarter of 2016. Our focus in 2014, as it was in 2013, will be on earnings growth and investment opportunities.

Moving to our first-quarter 2014 outlook. As I stated early, our EPS guidance range is $0.75 to $0.80. This is consistent with the fact that our first-quarter earnings are customarily lower than the fourth quarter of the previous year. Our first-quarter 2014 guidance at the midpoint is up compared to the first quarter of 2013, as we expect all of our oil field segments to achieve higher operating income led by Subsea Products.

Compared to the fourth quarter of 2013, our first-quarter guidance is lower based on anticipated reductions in operating income from Subsea Products due to project timing, from Subsea Projects due to the release of the Maersk Attender in Angola, which occurred earlier this month, and normal seasonality in the Gulf of Mexico. At the request of our customer, we are going to replace the Maersk Attender in the second quarter with another vessel, the Bourbon Evolution 803, for a term through the end of August 2014 with multiple extension options.

On a macro basis, we remain convinced that our strategy to focus on providing services and products to facilitate deepwater exploration and production remains sound. We believe the oil and gas industry will increase its investment in deepwater as it remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development costs. Therefore, we anticipate that demand for our deepwater services and products will continue to rise and believe our business prospects for the next several years remain promising.

At the end of 2013, 109 of the 155 existing high-spec drillships and fifth- and sixth-generation semis were contracted to operators other than Petrobras in Brazil. We had ROV contracts on 87 of these for a market share of 80%.

At year end, there were a total of 102 new floating rigs on order, 73 of these rigs are not contracted to work for Petrobras in Brazil and we expect all of them will go to work for other operators. Of these 73 rigs, 21 ROV contracts have been let and we have won 18 of them leaving 52 ROV contracted opportunities left to be pursued outside of Petrobras in Brazil.

So the visibility of growth for this market remains promising. And looking forward, we see no reason why we will not continue to be the dominant provider of ROV services on these rigs. As the use of floating rigs grows, we believe it is inevitable that discoveries will eventually drive orders for subsea hardware to levels not previously experienced, and demand for ROVs to support vessel-based activities should follow.

Quest Offshore's latest subsea hardware forecast for period of 2013 to 2017 includes an increase in tree orders of about 65% over the previous five years. For 2013, there were 553 subsea tree orders, an all-time high, eclipsing the previous record of 426 trees in 2006 by 20%. In 2014, tree orders are projected to decline somewhat due to lower orders by Petrobras, but tree installations are forecast to continue increasing to an all-time high of about 410, up 25% over 2013.

Tree installations drive demand for a substantial amount of ancillary subsea production hardware that we manufacture. For example, umbilical orders in 2014 are forecast to rise to about 1750 kilometers, up 35% from the estimated 1300-kilometer level in 2013. Quest is forecasting a 37% increase in umbilical orders for the five-year period 2013 to 2017 compared to the previous five years.

Based on their subsea tree order forecast, Quest Offshore is projecting average annual subsea tree installations over the five-year period 2013 through 2017 will increase by 115, or about 50% from previous five years. The number of subsea completions in service compared to 2012 is projected to increase by 35% by the end of 2017. We believe that projected rise in tree installations and the growing number of subsea completions in service will act as catalyst for further growth in our Subsea Products and Subsea Projects operations and profits.

Furthermore, industry and regulatory emphasis on safe and reliable operations is providing additional opportunities for us to demonstrate our capabilities. With our existing assets, we are well positioned to supply a wide range of the services and products required to safely support the deepwater efforts of our customers.

We believe Oceaneering's business prospects for the long term remain promising. Our commanding competitive position, technology leadership and strong balance sheet and cash flow enable us to continue to grow the Company and we intend to do so.

In conclusion, our results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well over both the short and long term. We like our position in the oilfield services market and are leveraged to the growth of deepwater and subsea completion activity that is currently underway.

The longer term market outlook for our deepwater and subsea service and product offerings remains promising. Industry and regulatory emphasis on reliable equipment and redundant safety features at deepwater operations elevates the importance of the utility and reliability of our ROV services and related product line offerings, and reinforces the benefit of our valued sell.

We achieved another record year of EPS performance in 2013, and expect that 2014 will be even better. We believe this distinguishes Oceaneering from many other oilfield service companies.

Oceaneering is flourishing. I recognize and thank our over 12,000 employees who are making this happen through their commitment to safety, quality and creativity, all within the framework of our core values.

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

(Operator Instructions)

Kurt Hallead, RBC Capital Markets.

That was a great opening commentary and summary to address all the issues that have been dogging Oceaneering stock here recently, so kudos to you guys for addressing that upfront.

In that context, you guys referenced factoring in a lot of these issues into the guide points for 2014. I know that a number of questions that I've been getting over the last few weeks, is what is the exposure in terms of rig for Oceaneering, rig down time. And if you could maybe give us some indications as to maybe how many rigs you expect to go down, you mentioned 17 coming up for contract renewal, come in a lower spec dynamic.

If you give some prior parameters around how you're risk assessing 2014? Then I think that could probably be helpful as well.

Well, I think our comment that we're looking at 8.5 rig years out of a total of 160 puts it into perspective. I don't think we necessarily know any more than anyone else as to whether these 17 well continue on or not. But we believe that the uncertainty that might exist here is within the limits of what we've allowed for our guidance.

And I would surmise predicated on the commentary about subsea tree installations going into next year, another primary concern that some investors have voiced was the revenue mix shift going to products and projects and is, quote-unquote, being less visible. But I don't predicate it on the data set you provided. It doesn't look like there's any really less visibility and product and project opportunities than there is for ROV. Can you comment on that?

Kurt, I think the visibility is that the analyst community doesn't follow and there's not a well-publicized source of tree installation like there is on rig contracts. We feel the same way as you indicated that with the growing subsea installation base and the increase and the rate of installations, it plays well to our -- one of our strengths in Products and Projects, and we don't see that much softening.

No one is talking about a decrease in the number of drilling rigs, they're only talking about a perhaps temporary slowdown in the growth rate. So I think it may not be as visible, but we feel it still is real.

Okay. And you guys referenced 30 to 35 ROVs, is that a gross number or a net number for the year?

That's a gross number. We -- as we've stated previously, we're just going to report on retirements as they occur quarterly.

Okay.

We also said about 4% to 5% per year of the fleet, so that's similar between 12 and 15 would be a normal year. But we'll see as we go.

Okay. And then use of cash for free cash flow, thought process between share repurchase, dividend increases, what's the mindset there?

Well we haven't really changed our position there. Our first priority is organic growth, second is acquisitions. And we've stated many times that those are more difficult to come up with.

Of course, the dividend payments are there, and we have not -- we do have an authorization for a continued share repurchase but we do that on an episodic basis.

And we address our dividend increased annually, basically in the spring.

All right. Thank you so much, appreciate it.

Jim Wicklund, Credit Suisse.

You beat me, good job. A question if we can talk about Quest tree orders and installations. And according to Quest 40% of trees that are going to be installed over the next several years are all in Brazil. I know you guys don't do much rig work in Brazil, but can you talk about how much tree installation business you have in Brazil?

We don't have any tree installation in Brazil. We don't do that there. That really is more of an indication of umbilical orders in our Brazilian market as far as trees there.

Oh, okay. And can you talk about -- you talk about mix in umbilical revenues, margins went up, which is good, congratulations. As these umbilical orders go through and finish in sometime second half of 2015, can you walk us through what the mix should do to Products' margins this year? So we can understand the [progression]?

Well Jim, we've given the answer. We said that the margin for Products is going to be between 19% and 21%.

Okay.

And that assumes the mix that we foresee. So that's the answer.

Okay and last question, if I could. You guys said on the third-quarter conference call you were going to try to raise prices to offset inflationary pressures to try and keep 30% operating margins. Do you still think you can get pricing?

Well, that relates to the ROV business, obviously. And that is -- there's not a new thing that we said at the third quarter. We've been saying that forever and it's something that we're constantly trying to do.

Costs are continually growing up and we are doing our best to try and raise revenue in order to maintain the margin. And it is not an easy thing to do.

It never is.

But that's our strategy, that's our objective.

Okay, let me put it this way. Do you think the market with the net addition of rigs is strong enough to be able to raise prices in ROVs over the next year or two?

Well we're really pretty decoupled from the rig pricing with our ROV since we work directly for the operators, but --

I'm thinking about the net rig additions.

Sorry?

Land part.

Sorry. Say that again, Jim.

Well I'm saying that you're talking about the net addition of rigs so I'm thinking that demand for ROVs is going to go up. And I'm wondering how much pricing potential you might have over the next two years as demand for ROVs and more rigs go out and demand for what you have increase.

Well we compete on every one of these contracts. Visibility is so good on these that there is no supply/demand imbalance that comes up, everybody knows these are coming. So it is a contract by contract negotiation to try and maintain levels.

And of course, operators on the other side are trying to hold the line, if not decrease. And so that's a dynamic that we live with every day. We are -- while we are decoupled from rig pricing, per se, it would be a tougher environment to be trying to get increases if rig rates are going down, there's no question about that.

Okay. Thank you very much.

Jeff Spittel, Clarkson Capital Market.

If we think about the Products business, if I heard you correctly, I think you said your revenue mix in terms of umbilicals in 2013 was relatively stable year on year yet the margins were up a couple hundred basis points. That would lead me to infer that the margins were moving higher on IWOCS and tooling. If that is an accurate assessment, can you help us understand A, if that's sustainable and B, how that plays into the guidance with a mix shift going on in the Products business in 2014?

Well obviously all of this stuff plays into how we figure out what our guidance is going to be. And I think within the non-umbilical part of our Product business, we have some pieces that are more profitable than others. And I think we just enjoyed a mix of the more profitable elements of that and then that explains that.

But it is short visibility to a large extent and so it makes it more challenging to try and predict. But we have taken all of this in our judgment into account and given the guidance ranges that we have for that segment. Right, and I think very satisfying to have a 100 basis point improvement in our product margins. Because we always use to guide to the high teens and two years in a row we came in at the low 20s. And so as we get more umbilical input and you got your cost covered, you do get a slight uptick in contribution there. And so as you -- also as you indicated with the higher margins growing almost proportionately with umbilical throughput it least through 2013, that's what gave us the confidence to instead of say high teens last quarter, we said 19 to 21.

That makes sense, appreciate it. And maybe if we think about if some of the operators might be inclined to defer some capital spending on development projects, would you foresee them shifting some of their spending maybe a little bit more to less capital intensive stuff, i.e. deepwater intervention work this year?

I don't think that's the way it goes. Deepwater intervention work happens as it occurs and needs to be done. And so it's not something you necessarily plan from that context.

But your guess is as good as mine on what they're going to do with their money. I think maybe they will be more particular about what they pull the trigger on to go forward with perhaps then they have been up to now, I don't know. But I still believe with all of the drilling and the prospects that are there, there's going to be plenty of opportunity for development that we can participate in.

Yes, I think it's too early to tell how the CapEx is going to [come out].

But that Douglas-Westwood report that we cited, I thought was very interesting because it was issued in January. And they had an earlier report out, but they increased their deepwater CapEx in beginning of 2014 for this five-year look when they had an opportunity to hold it flat or take it down with everybody -- the speculation.

We understand that the IOCs and the NOCs are going to cut back, or reportedly are going to cut back on CapEx but it doesn't seem to be occurring or projected to occur in deepwater, and that's encouraging.

Yes, can't all come from the shale plays, that makes sense. Thanks, guys.

Ian Macpherson, Simmons.

The one thing that stood out a little bit was the --in the fourth quarter your ROV fleet size and your revenues were flat, sequentially. I wonder how -- if that's had any bearing on the growth trajectory that you envision for ROVs in 2014 or if you expect some -- maybe if you could remind us of the cadence of that expansion that you're thinking about for this year?

Well I'll start. I think we indicated we're going to add 30 to 35 ROVs gross and retire a few. And we added, how many Jack?

For the year?

For the year 26. So I think the growth trajectory for 2014 it's really timing of when rigs go to work, when projects start. But we added 26 gross in 2013 and we are saying in light of all of the market conditions, 30 to 35 in 2014.

Yes and reiterate we had firm contracts in hand for 28 of those right now.

Right.

Pretty solid outlook, I'd say.

So the flat revenue between third and fourth quarter didn't go ahead and affect as much or doesn't affect our growth trajectory.

Okay. The build up in the fleet this year, while it's dependent on the timing of rigs, is it more smooth or do you think it might be more lumpy from quarter to quarter?

I don't know. It's just --

Find out when we report our quarterly.

You'll know when we -- just shortly after we do. I think directionally it's more smooth.

Okay. Would you be willing yet to share more of your CapEx plans for the -- your new installation vessel beyond the $65 million that you're planning to spend this year?

No. We think -- Ian, we don't want to for market reasons. It is -- we talked about the progress payments so you would have a sense of what our CapEx is going to be. But when you look in the grand scheme of things of the $3 billion balance sheet and $450 million of projected CapEx, no one with one particular boat is going to cost, it's not going to change economics that much.

I know. I'm just curious if this is a $160 million asset or a $400 million asset?

Okay. Let me answer that. Without any other comment, it is not a $400 million asset. We're not building a construction boat here.

Got you. Okay, thanks.

(Operator Instructions)

Jon Donnel, Howard Weil.

I had a question regarding the Products backlog. You mentioned the four large umbilical awards, but I think those had happened during the first half of the year.

Could you give us more color about the orders that you saw during the second half of the year and specifically 4Q, which I think came in well over $300 million and whether or not there were any umbilical awards in there or if this $250 million plus per quarter base level of orders is sustainable here in your mind absent any larger umbilical awards?

We did have one large umbilical award in Q4 that we didn't specifically announce.

Press release on.

And I think that's because umbilical awards tend to be large and they're pretty episodic. You can't really plan on a run rate on that part of our Products business, it happens when it happens.

Sure. That's why I was wondering if that $250 million range per quarter is the base level we should expect from more of the hardware and IWOCS and tooling offerings in that segment.

I think you need to remember as you're well aware, that most of our other product offerings are much more short cycle than umbilicals. And now that we've got the umbilical backlog, it would be very normal and we talked about them being episodic or lumpy, it would be not alarming to see us burn some of this backlog and we're not going to be so focused on the book-to-bill because it is episodic.

So I wouldn't get too much involved in the book-to-bill or order rate. I think what we're going to look for is can we deliver that 19% to 21% and can Products continue to be our fastest growing segment?

Okay. And then on the Project side, wondering if you could give us a little more details around the incremental margins during fourth quarter. Revenues, it sound like you have a couple of extensions on projects in the Gulf of Mexico and some additional deepwater work. But it looks like the cost picked up even in excess of that.

Wonder if you could describe what was some of the drivers of that? And should we be projecting similar occurrences here as you have some of the vessel turnover in Angola through the first half of the year?

I think what we said last quarter is that we expect to show a slight improvement in operating margin and --

For the year.

For the year. For the year. And it comes from a range of things. It is that the additional Normand Flower in the Gulf of Mexico and the decrease in dry dock and expenses is all for 2014. And Projects is really hard to look at on a quarter-by-quarter basis, especially after you go through the two summer quarters. We do expect a lower margin in Q4 and then again a lower one in Q1.

But on an annual basis, we talked about the 100 basis improvement in Products. We've got 100 basis improvement in projects and asset integrity and on down the line. S

o we did pretty good, and I think Projects is now at a pretty steady run rate. But a lot depends upon the timing of the projects and the call off in the project market and particularly the seasonality aspect that Marvin alluded to in the fourth and the first quarters.

Okay, I was wondering, we didn't really see the top line seasonality in 4Q. So I was wondering if there was specific costs that went in, there was more maybe one time in nature or how we should think of that as we had the transfer of the vessels? But I understand how the larger perspective is going for the year.

No, no I just -- I don't have a clear answer on why revenues went up and operating income margin came down. It really had to do probably more with mix within the Project segment of the jobs and the shifting of the vessels and that. So it wasn't enough for me to do an analysis on that.

Okay, fair enough. I appreciate you guys taking my questions. Thanks.

There are no more phone questions at this time.

Okay, since there are no more questions, I'd like too wrap up by thanking everyone for joining the call. We're very pleased with our results for 2013 including our 10th consecutive record ROV operating income performance.

2014 marks our 50th year in business and I look forward to leading Oceaneering to another record performance. We're anticipating a good first quarter start for 2014 with EPS between $0.75 and $0.80.

This concludes our fourth quarter and year-end 2013 conference call. Have a great day.

This concludes today's conference call. You may now disconnect.