HOUSTON, July 25, 2017 (GLOBE NEWSWIRE) -- McDermott International, Inc. (NYSE:MDR) today announced financial and operational results for the second quarter ended June 30, 2017.
Adjusted Operating Income, Adjusted Margin and Adjusted Net Income include the following adjustments to Operating Income computed in accordance with U.S. generally accepted accounting principles (“GAAP”):
- $6.4 million and $2.5 million of restructuring charges during the first and second quarters of 2016, respectively.
- $32.3 million of impairment charges during the first quarter of 2016.
The calculations of total and per share Adjusted Net Income and Adjusted Operating Income and margins are shown in the appendix entitled “Reconciliation of Non-GAAP to GAAP Financial Measures.” The appendix also includes additional information related to the adjustments mentioned above.
2 The calculations of Adjusted Net Income and Adjusted Diluted EPS reflect the tax effects of Non-GAAP adjustments during the period. The Non-GAAP adjusting items are primarily attributable to tax jurisdictions in which we currently do not pay taxes and, therefore, no tax impact is applied to those items. For the Non-GAAP adjusting items in jurisdictions where taxes are paid, the tax impacts on those adjustments are computed, individually, using the statutory tax rate in effect in each applicable taxable jurisdiction.
“Strong project execution and higher activity led McDermott to another successful quarter, with increased profitability and free cash flow generation. During the quarter, the One McDermott Way drove a number of significant achievements, including: de-risking execution of the mooring and hook-up of the Ichthys Explorer Central Processing Facility, the world’s largest semi-submersible facility; continued fabrication of jackets for Saudi Aramco in our Batam fabrication facility; relocation of the DLV 2000 and Amazon to the Middle East, where they are demonstrating their versatility by working on shallow-water projects; as well as the successful completion of the topside hook-up on the RasGas Flow Assurance project ahead of schedule. Efficient execution, coupled with constant focus on safety through our Taking the Lead initiative led us to surpass 50-million man-hours Lost Time Incident free as a company,” said David Dickson, President and Chief Executive Officer of McDermott. “Building off successful pre-FEED and FEED work, the BP Angelin award to design, fabricate and install a jacket, platform and pipeline is our first pre-FEED and FEED to EPCIC award and is a direct result of our strategic focus on engineering as a differentiator. Also during the quarter, we closed on an $810 million credit facility, with a five-year term demonstrating the confidence shown by our lenders, and providing us with a more flexible capital structure while allowing for continued growth. As the extended low oil price environment continues to drive uncertainty of award timing, our revenue pipeline of around $20 billion remains robust, and we continue to remain focused on disciplined bidding, efficient project execution and liquidity.”
Second Quarter 2017 Operating Results
Second quarter 2017 earnings attributable to McDermott stockholders, computed in accordance with U.S. generally accepted accounting principles (“GAAP”), were $36.4 million, or $0.13 per fully diluted share, compared to $20.7 million, or $0.07 per fully diluted share, for the prior-year second quarter. We generated second quarter 2017 net income of $36.4 million, or $0.13 per fully diluted share, for which there were no adjustments from GAAP, compared to an adjusted net income of $22.8 million, or $0.08 per adjusted fully diluted share, excluding restructuring charges of $2.5 million, in the prior-year second quarter. During second quarter 2017, we expensed approximately $4.2 million in debt issuance costs associated with the repayment of the outstanding term loan under our previous credit agreement.
We reported second quarter 2017 revenues of $788.7 million, an increase of $82.1 million, compared to revenues of $706.6 million for the prior-year second quarter. The key projects driving revenue for the second quarter of 2017 were the Saudi Aramco LTA II, ONGC Vashishta and Saudi Aramco Marjan power system replacement projects. The increase from the prior-year second quarter was primarily due to increased fabrication and marine activity across the portfolio of projects.
Our operating income for the second quarter of 2017 was $87.2 million, or an operating margin of 11.1%, compared to $57.0 million, or an operating margin of 8.1%, for the second quarter of 2016. Our operating income for the second quarter of 2017 was $87.2 million, or an operating margin of 11.1%, for which there were no adjustments from GAAP, compared to adjusted operating income of $59.5 million, or an adjusted operating margin of 8.4%, for the second quarter of 2016, excluding the restructuring charges mentioned above. Operating income for the second quarter of 2017 was primarily driven by engineering, fabrication and marine activity on Saudi Aramco LTA II, fabrication and marine activity on Saudi Aramco Marjan power system replacement and progress on Inpex Ichthys.
Cash provided by operating activities in the second quarter of 2017 was $41.7 million, an increase compared to the $16.5 million of cash provided in the second quarter of 2016. The increase was primarily driven by higher operating results and a lower than anticipated working capital build with national oil companies through our efficient working capital management.
First Half 2017 Operating Results
First half 2017 earnings attributable to McDermott stockholders, computed in accordance with U.S. generally accepted accounting principles (“GAAP”), were $58.3 million, or $0.21 per fully diluted share, compared to earnings of $18.5 million, or $0.07 per fully diluted share, for the prior-year first half. We generated first half 2017 net income of $58.3 million, or $0.21 per fully diluted share, for which there were no adjustments from GAAP, compared to an adjusted net income of $59.1 million, or $0.21 per adjusted fully diluted share, excluding restructuring charges of $8.9 million and impairment charges of $32.3 million, in the prior-year first half.
We reported first half 2017 revenues of $1,308.1 million, a decrease of $127.6 million, compared to revenues of $1,435.7 million for the prior-year first half. The key projects driving revenue for the first half of 2017 were the Saudi Aramco LTA II, ONGC Vashishta and Inpex Ichthys projects. The decrease from the prior-year first half was primarily due to decreased activity on the Ichthys project, as the project progresses through the installation phase.
Our operating income for the first half of 2017 was $143.2 million, or an operating margin of 10.9%, compared to $93.0 million, or an operating margin of 6.5%, for the first half of 2016. Our operating income for the first half of 2017 was $143.2 million, or an operating margin of 10.9%, for which there were no adjustments from GAAP, compared to adjusted operating income of $134.1 million, or an adjusted operating margin of 9.3%, for the first half of 2016, excluding the restructuring charges and impairment mentioned above. Operating income for the first half of 2017 was primarily driven by engineering, fabrication and marine activity on the Saudi Aramco LTA II project, fabrication activity and marine activity on the Saudi Aramco Marjan power system replacement project, progress on the Inpex Ichthys project and marine activity on ONGC Vashishta project.
Cash provided by operating activities in the first half of 2017 was $90.2 million, an increase compared to the $75.8 million of cash provided in the first half of 2016. The increase was primarily driven by higher operating results and a lower than anticipated working capital build with national oil companies through our efficient working capital management.
Operational Review
There is no assurance that bids outstanding will be awarded to McDermott or that outstanding change orders ultimately will be approved and paid by the applicable customers in the full amounts requested or at all.
2 Target projects are those that McDermott has identified as anticipated to be awarded by customers in the next five quarters through competitive bidding processes and capable of being performed by McDermott. There is no assurance that target projects will be awarded to McDermott.
3 Corporate and Other includes corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market (“MTM”) pension actuarial gains and losses, costs not attributable to a particular reportable segment and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources.
As of June 30, 2017, the Company’s backlog was $3.3 billion, compared to $3.9 billion at March 31, 2017. Of the June 30, 2017 backlog, approximately 85% was related to offshore operations and approximately 15% was related to subsea operations. Order intake in the second quarter of 2017 totaled $188 million, resulting in a book-to-bill ratio of 0.2x. At June 30, 2017, the Company had bids and change orders outstanding and identified target projects of approximately $1.4 billion and $15.4 billion, respectively, in its pipeline that we expect will be awarded in the market through September 30, 2018. In total, the Company’s potential revenue pipeline, including backlog, was $20.1 billion as of June 30, 2017.
In the Americas, Europe and Africa (“AEA”) Area, during the second quarter of 2017, detail design and fabrication of the compression platform for the Pemex Abkatun-A2 project, the largest facility McDermott has constructed for Pemex, continued progressing on schedule. Procured equipment has begun to arrive, with major lifts of the mezzanine and top deck sections remaining on schedule and jacket fabrication commencing. During the quarter, we were awarded the BP Angelin project for a drilling platform located in Trinidad and Tobago, after successfully performing the pre-front end engineering design (pre-FEED) and front-end engineering design (FEED). The jacket and topside fabrication has commenced in our Altamira yard and is progressing on schedule. This award validates McDermott’s engineering as a differentiator strategy, as the project went from pre-FEED to FEED and then to full EPCIC, while also demonstrating a key relationship as the super majors begin to increase spending. The Hess Penn State project, a subsea tieback contract in 1,500 feet of water in the Gulf of Mexico, continued to make significant progress. Fabrication of the rigid pipeline stalks was completed in our Gulfport spoolbase, with installation expected in the third quarter of 2017. Engineering for the Atlanta Project in Brazil was completed with all flexible lines, umbilicals and structures ready to be installed. Upgrades to our Altamira fabrication yard are essentially complete. We believe these upgrades position us well to deliver larger jackets and decks we anticipate customers will require in this growth market as the energy reform continues to achieve demonstrated success.
In the Middle East (“MEA”) Area, fabrication activity continued to operate well above our standard levels while area marine assets continued to operate at historic high levels, leading to continued increased profitability, while maintaining high standards of quality performance and safety. The DLV 2000 and the Amazon joined the area fleet and are now active on existing, shallow-water campaigns. Fabrication on the Saudi Aramco LTA II project is progressing on schedule. Additionally, the three Saudi Aramco projects awarded in 2016 are progressing on schedule. Engineering and procurement activities associated with the Safaniya Phase 5 and 4 Jackets and 3 Observation Platforms projects are progressing well and in-line with the planned schedules. Moreover, significant progress has been achieved on the KJO Hout project in relation to both the pipeline related activities and hook up and pre-commissioning work, with the project expected to be substantially complete in the second half of 2017. The Area’s exceptional QHSES performance was maintained through the second quarter, resulting in excess of 61 million man hours Lost Time Incident (“LTI”) free.
In the Asia (“ASA”) Area, during the second quarter of 2017, McDermott successfully completed the mooring and hook-up of the world’s largest semi-submersible facility ever built, the Ichthys Explorer Central Processing Facility (CPF) off the coast of Australia. The LV 108 is now utilizing its vertical lay system to install the flexible risers and umbilicals. The remediation work for the failure identified in a supplier-provided subsea-pipe connector component was substantially complete with diving intervention by July 7, 2017, and the remaining residual work expected to be completed in the second half of 2017. The diving intervention on Ichthys was the deepest saturation dive ever performed off the coast of Australia and was performed without incident. Engineering, procurement and fabrication for the Woodside Greater Western Flank Phase 2 pipeline project continues, with the project progressing on schedule. In India, the ONGC Vashishta project continues to achieve significant progress, with completion of the remaining deepwater pipeline sections utilizing the NO 105. Our consortium partner, Larsen & Toubro, is finalizing the construction of the onshore pipeline sections and installation of the onshore umbilical. In Batam, we completed the Yamal LNG project on time, with successful load out and sail away of the last three modules in April 2017. Also in Batam, the fabrication of 14 jackets for Saudi Aramco progressed well with the last 3 jackets completed early in the third quarter and loaded out for delivery to Ras Tanura, Saudi Arabia. In Brunei, the Brunei Shell Petroleum offshore pipeline installation is nearing a successful completion with both pipelines laid by the DB 30.
In the second quarter of 2017 for Corporate and Other, costs were mainly attributable to selling, general, and administrative expenses of $23.5 million and unallocated direct operating expenses of $27.5 million. Unallocated direct operating expenses were primarily driven by the ramp-down of activity in the Batam fabrication yard, upgrade time for the Amazon and drydock time for the DB 27.
2017 Guidance
Our forecasted net income attributable to McDermott does not include any amount representing 2017 year-end pension actuarial gain or loss, because we have no basis to estimate pension actuarial gain or loss amounts for the forecast period and cannot estimate such amount without unreasonable effort.
2 Net Interest Expense is gross interest expense less capitalized interest and interest income.
3 Ending Gross Debt excludes debt issuance costs.
4 The calculations of EBITDA, Free Cash Flow and Adjusted Free Cash Flow, which are Non-GAAP measures, are shown in the appendix entitled “Reconciliation of Forecast Non-GAAP Financial Measures to GAAP Financial Measures.”
5 Corporate and Other includes corporate expenses, certain centrally managed initiatives (such as restructuring charges), impairments, year-end mark-to-market (“MTM”) pension actuarial gains and losses, costs not attributable to a particular reportable segment, and unallocated direct operating expenses associated with the underutilization of vessels, fabrication facilities and engineering resources.
We are adjusting our guidance for Cash Interest / DIC Amortization Interest, Ending Cash, Restricted Cash and Cash Equivalents and Ending Gross Debt. These measures have been updated to reflect the impact of our Amended and Restated Credit Agreement signed in the second quarter, including the repayment of our previously outstanding term loan, which had an outstanding principal amount of approximately $217 million, and the related changes to our interest and debt issuance costs.
Anticipated corporate costs forecasted under Corporate and Other includes $115 million of unallocated direct operating expenses resulting from the expected underutilization of some of our marine and fabrication assets during 2017.
The actual cost to replace the supplier-provided subsea-pipe connector components on Ichthys was less than our December 31, 2016 estimated costs and the remediation plan is substantially complete, with residual work planned for the second half of 2017.
Other Financial Information
Weighted average common shares outstanding on a fully diluted basis were approximately 285.0 million and 284.9 million for the quarters ended June 30, 2017 and 2016, respectively, and 284.1 million and 283.1 million for the six months ended June 30, 2017 and 2016, respectively. Additional weighted average shares of 898.8 thousand and 40.9 million related to the Tangible Equity Units (“TEUs”), as well as other potentially dilutive shares, were included in the quarterly dilution calculation for the quarters ended June 30, 2017 and 2016, respectively, and 19.3 million and 40.9 million for the six months ended June 30, 2017 and 2016, respectively.
About the Company
McDermott is a leading provider of integrated engineering, procurement, construction and installation (“EPCI”), front-end engineering and design (“FEED”) and module fabrication services for upstream field developments worldwide. McDermott delivers fixed and floating production facilities, pipelines, installations and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects to help oil companies safely produce and transport hydrocarbons. Our customers include national and major energy companies. Operating in approximately 20 countries across the world, our locally focused and globally integrated resources include approximately 12,400 employees, a diversified fleet of specialty marine construction vessels, fabrication facilities and engineering offices. We are renowned for our extensive knowledge and experience, technological advancements, performance records, superior safety and commitment to deliver. McDermott has served the energy industry since 1923, and shares of its common stock are listed on the New York Stock Exchange.
To learn more, please visit our website at www.mcdermott.com
