Oceaneering International Inc

NYSE:OII

Earnings Call Transcript 2020-Q3

[Operator]

My name is Lindsay and I will be your conference operator. I would like to welcome everyone to Oceaneering's Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period.

With that, I will now turn the call over to Mark Peterson Oceaneering's Vice President of Corporate Development and Investor Relations.

[Mark Peterson, Vice President, Corporate Development & IR]

Thanks, Lindsay, and good morning, and welcome, everyone, to Oceaneering Third Quarter 2020 Results Conference Call. Today's call is being webcast and a replay will be available on Oceaneering's website. With me on the call today are Rod Larsen, President and Chief Executive Officer who will be providing our prepared comments; and Alan Curtis, Senior Vice President and Chief Financial Officer. Before we begin, I would just like to remind participants that statements we make during the course of this call regarding our future financial performance, 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.

Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter press release. We welcome your questions after the prepared statements. I will now turn the call over to Rod.

[Roderick Larson, President & Chief Executive Officer]

Good morning. Thanks, Mark, and thanks, everyone, for joining the call today. Today I'll review the details for our third quarter results and I'll provide you with outlook commentary and guidance for the fourth quarter of 2020 and for the full year of 2021. And after my closing remarks, we'll open the call for questions.

So to start with, I'm pleased to report that our third quarter 2020 results reflect the benefit of previously disclosed cost improvement initiatives and the recently announced realignment of our segments. Despite continuing energy and entertainment market headwinds, we generated free cash flow and both adjusted Earnings Before Interest Taxes, Depreciation and Amortization or EBITDA, and adjusted operating income improved, as compared to the second quarter of 2020. I'm proud of how our employees have stepped up to the challenges brought on by the global pandemic, offering model changes and cost improvement initiatives. All the while continuing to deliver quality services and products to our customers safely and with minimal logistical delays.

Now looking at our third quarter 2020 financial results. Our adjusted operating results exceeded our initial expectations and consolidated adjusted EBITDA of $45.1 million exceeded public consensus. Overall, we were encouraged by the performance of our energy businesses and the stable contribution from our aerospace and defense technology segment or ad tech. Compared to our adjusted second quarter 2020 results, consolidated adjusted operating income for the third quarter 2020 improved by $5.1 million. As efficiency gains from our cost on efforts are meaningfully enhancing our bottom line results. Each operating segment reported positive adjusted operating income and adjusted EBITDA. Sequentially, the adjusted operating results for each of our segments, except subsea robotics improved as compared to our second quarter 2020. Our cash position of $359 million at September 30, 2020 increased by $25.3 million from June 30, 2020 as we generated $19 million of free cash flow, largely driven by positive contributions from operations and working capital and ongoing capital conservation.

Now let's look at our business operations by segment for the third quarter of 2020. Subsea robotics adjusted operating income declined by $1.3 million dollars on flat revenue as compared to the second quarter 2020. primarily due to lower contributions from our tooling and survey businesses. Due to this lower contribution, subsea robotics adjusted EBITDA margin declined [Audio Gap] the third quarter 2020, as compared to 32% in the second quarter 2020.

For the third quarter 2020, the revenue split between our remotely operated or RV business and our combined tooling and survey businesses as a percentage of our subsea robotics revenue was 83% and 17% respectively, the same as the prior quarter. Our third quarter RV performance was comparable with the second quarter 2020. As of September 30, 2020, our RV fleet count was 250 systems, the same as June 30, 2020. Our fleet utilization during third quarter 2020 was 59%, the same as the prior quarter. Based on hire were 13,601 in the third quarter as compared to 13,501 in the second quarter. Average ROV revenue per day on hire was marginally lower, declining 1% sequentially, primarily due to the changes in geographic mix.

Our ROV fleet use mix during the quarter was 56% in drill support and 44% in vessel-based activity as compared to 64% and 36% respectively in the prior quarter. The average number of working floating rigs during the third quarter 2020 was 85 as compared to 96 during the prior quarter, which led to fewer days on hire for drill support services. However, this decrease was offset by an increase in days on hire for vessel-based services.

During the quarter, our drill sport market share decreased to 57% with ROV contracts on 76 of the 133 floating rigs under contract at the end of September. This compares to a 62% drills support market share with ROV contracts on 86 of the 139 floating rigs contract at the end of June. Subject to quarterly variances, we continue to expect our drill support market share to generally remain in the 60% range.

Turning to manufactured products. Sequentially third quarter 2020 adjusted operating income improved slightly on a 10% increase in revenue. Much of the revenue increase was attributed to percentage of completion revenue recognition, uncertain lower margin project components in our umbilical manufacturing business. During the third quarter COVID-19 had limited impact on our energy manufacturing business, but continued to adversely affect manufacturing timing in our non-energy entertainment business. Overall for year to date 2020, reduced order intake and our energy-related manufacturing business is primarily attributable to significant decrease in final investment decisions undertaken by our oil and gas customers due to low oil demand and pricing. Our manufactured products backlog at September 30, 2020 was $318 million, compared to our recast June 30, 2020 backlog of $380 million. During the third quarter, ore intake was $49 million. Our book-to-bill ratio year-to-date was .4 and for the past 12 months, was .5.

Sequentially, optional projects group adjusted operating results improved on flat revenues. Call out work during the third quarter was relatively consistent with the second quarter 2020 with improved results benefiting from the cost outs and operating synergies implemented in connection with our new operating model. The impacts of COVID-19 continue to delay the angle of light well intervention project, but we're optimistic that this work will begin to move forward either late in the fourth quarter 2020 or early in the first quarter of 2021.

For integrity management and digital solutions, adjusted operating results improved sequentially on flat revenue. These results were largely due to improved execution as second quarter adjusted results were impacted by non-recurring costs on certain completed projects. Our aerospace and defense technology segment reported slightly higher sequential adjusted operating results for the third quarter of 2020 on slightly higher revenue.

Ad tech represented approximately 19% of our consolidated revenue for the third quarter and we appreciate the relative stability of these businesses considering the challenges currently faced in our energy businesses. As previously announced, we were awarded two meaningful contracts during the quarter: one in our space systems business where we will be teaming with Dynetics in support of developing a human lunar landing system for NASA; and one in our defense subsea technologies business where we will be operating and maintaining the U.S. Navy's submarine rescue systems for up to five years, assuming annual contract renewals

Unallocated expenses for the third quarter 2020 we're lower than the second quarter 2020, due primarily to lower accruals for incentive-based compensation. Capital expenditures for the third quarter 2020 total $8 million as we continue to exercise strict capital discipline. For the nine months ended September 30, 2020, we generated $32.4 million in cash flow from operating activities and spent $45.8 million on capital expenditures, resulting in a net use of cash of $13.5 million. At the end of the third quarter we have $359 million in cash and an undrawn $500 million unsecured revolving credit facility, providing us with strong liquidity.

Now I'll address the outlook for the fourth quarter of 2020. With the onset of lower seasonal offshore assets activity and customer budget exhaustion negatively affecting our energy businesses, we believe our fourth quarter 2020 results will decline sequentially. We are expecting lower operating results in each of our segments except manufactured products. Unallocated expenses are expected to approximate $30 million. During the fourth quarter, we expect to generate positive free cash flow which will benefit from positive changes in working capital and CARES Act tax refunds.

By segment. For our subsea robotic segment, we are expecting lower revenue and operating results due to fewer utilization days in connection with reduced seasonal demand for vessel-based ROV services, tooling services and survey services. We believe that the working count for floating drilling rigs has largely stabilized over the past few months and we will not see a marked decline in working count during the fourth quarter. We are forecasting our overall ROV fleet utilization for the quarter will decline to the low 50% range and we project EBITDA margins will decline to the high 20% range.

For manufactured products, we expect higher revenue and operating results due to increase throughput on certain percentage of completion projects in our umbilical manufacturing business. We project operating margins to remain in the mid-single digit range. Order intake is expected to remain at subdued levels in our energy manufacturing products and entertainment businesses.

For offshore projects group, we expect a decline in revenue and operating results primarily attributable to lower anticipated levels from call-out work being performed in the U.S. Gulf of Mexico. For integrity management and digital solutions we expect modestly lower revenue and operating results during the fourth quarter.

For aerospace and defense technologies, we expect operating income to be flat to slightly down on higher revenue. The revenue increase is primarily attributable to the startup of several new projects across our ad tech businesses, with the implied lower operating margins resulting from startup costs and change in project mix.

For the full year of 2020, we expect to generate adjusted EBITDA in the range of $165 million to $175 million. We are narrowing our guidance range for capital expenditures to $50 million to $60 million. We affirm guidance on cash tax payments in the range of $30 million to $35 million and our expectation of CARES Act and other tax refunds in the range of $16 million to $34 million. We continue to expect generating positive free cash flow for the full year of 2020.

We announced a plan at the end of first quarter 2020 to reduce annualized expenses in the range of $125 million to $160 million by the end of 2020, inclusive of $35 million to $40 million of reduced depreciation expense. We estimate that since launching this plan, approximately $100 million of annualized cost reductions have been initiated exclusive of depreciation, with additional savings expected to be achieved through the fourth quarter of 2020. The continued estimate that the cash costs associated to these actions to approximate $15 million for 2020.

And now looking ahead to 2021. We anticipate the oil sector will face continuing headwinds in 2021 due to uncertainties around demand recovery and the resulting softness in energy commodity prices. Despite this backdrop, we currently expect our consolidated activity levels and EBITDA performance in 2021 will closely resemble 2020. We also expect to generate significant free cash flow in 2021, which will also benefit from a working capital release associated with final project milestones in our manufactured product segment. We will continue to review our forecast as we develop a definitive operating plan for 2021. And we will update our expectations during the yearend reporting process.

And in conclusion, this has been a challenging year for all of us. Oceaneering has responded to these challenges by instituting significant structural cost reductions and reorganizing our business segments to capture operating synergies and operate profitably in a lower activity market. Thanks to the hard work of our dedicated team, these actions are showing quantifiable results as evidenced by our expectation to meet or exceed 2019's adjusted EBITDA performance in 2020 and maintaining or improving this performance in 2021 despite continuing energy market headwinds.

We remain focused on generating free cash flow. Preserving and improving our liquidity and balance sheet remains a high priority. The firm capital discipline policy we adapted in 2020 is delivering results which we expect will provide meaningful free cash flow in the future and gives us the flexibility to address a revolving credit facility maturity in January 2023 and our $500 million senior notes maturity in November 2024.

We appreciate everyone's continued interest in Oceaneering, and will now be happy to take any questions you may have.

[Operator]

[Operator Instructions] Our first question comes from the line of Ian MacPherson with Simmons Energy. Your line is open. Please go ahead.

[Roderick Larson, President & Chief Executive Officer]

Good morning, Ian.

[Ian MacPherson, Simmons]

Hey, Rod, good morning. Thanks for the overview. Always very helpful and well-organized. What really strikes me is the call for flattish results next year, particularly robotics. You're witnessing a down sloping year from Q1 to Q4 of 2020 and the rig contracting forensics have been obviously very anemic. So you see this business much more clearly than the outsiders like I do. So what gives you comfort on that? And then also on products as well, you've had 0.5 book-to-bill year-to-date. So how do you see that stabilizing the next year as well? I think those are the two biggest pieces I'd like to get maybe some more pain on the palate, if you can provide it. Thank you.

[Roderick Larson, President & Chief Executive Officer]

I'm really glad you asked, Ian, because, we've talked ourselves about trying to give at least a little better understanding. When we talk about the consolidated results, the puzzle pieces are going to be different. So, what we see for robotics -- and I'll talk a little bit about those. But I want everybody to think about, the strength in our ad tech division that we've talked about, and some of the other parts of our business that are flying a little bit separate from energy. That's part of that. That's part of the puzzle, it helps us in 2021. But specifically to robotics, we know it's not a mirror image where you say, first quarter looks good, like it did in 2020 and we modeled through the others. It's really is about, a stepping off point that's a very believable walk from Q3 to Q4 into 2021. So we don't see any huge spring backs in working rigs, but we do think that you can close the gap between contract and working rigs, we can get a couple more contracts and we'll see some lift. And that comes directly from our customers and their competence to build budgets around offshore activity. So we've reviewed with all of that just in the past few weeks and we feel comfortable with that. But I don't want anybody to think we baked in some big V-shaped recovery because that's not what's in there. Same for manufactured products. We think that we can keep collecting some orders and doing some things but again, we don't expect a huge bring back and FID [ph] in 2021. So it's some good work that we're finishing in the first half of the year and then collecting some of the smaller bits and pieces, tie backs and things like that for the back half of the year that we can get into the plants. It's nothing dramatic, so it's nothing that would run, I would say in contrast with what other people are saying.

[Alan Curtis, Senior Vice President & Chief Financial Officer]

Yes, and right. I'm going to add just a quick comment. It's also between one [ph] benefits from the full year of the cost improvement initiatives that we've executed on during 2020. So that also factors into the overall decision with our guidance.

[Roderick Larson, President & Chief Executive Officer]

Exactly. Thanks, Alan.

[Ian MacPherson, Simmons]

Yes, thank you both on those. And then on ad tech, is that is that more of a likely grower for you in 2021 based on the recent contract wins and what you expect to garner?

[Roderick Larson, President & Chief Executive Officer]

We see those a couple of wins in the bucket already and some other opportunities. So we do think that, well gain, not dramatic growth, but steady delivery and less susceptible to some of the I think concerns everybody has about the offshore market.

[Ian MacPherson, Simmons]

Very good. Thanks, Rod.

[Roderick Larson, President & Chief Executive Officer]

Thanks, Ian.

[Operator]

Our next question comes from the line of Sean Meakim with JP Morgan. Your line is open.

[Roderick Larson, President & Chief Executive Officer]

Good morning, Sean.

[Sean Meakim, JP Morgan]

Thank you. Good morning. So to start, yes, kudos for your willingness to provide the expectations for next year. Most have not been willing or able for obvious reasons. So just to build on that discussion. So we talk about the confidence around free cash flow in the next year and working capital being a big piece of it. So if we could, maybe some Alan, and Rod, I'd love to hear your thoughts, too. It would be nice to hear your expectations for free cash for maybe operating cash flow and how that translates into free cash 2020 and 2021 X working capital and where one-time items like the CARES Act. So if you strip those pieces out, which no doubt you'll take the cash wherever you can get it at this point in the cycle, where do we stand on operating cash flow, normalized basis for 2021? Does that make sense?

[Alan Curtis, Senior Vice President & Chief Financial Officer]

Yes, let me start here and Rod can add some color for you if he wants. For the guidance that we were giving with saying significant free cash flow next year, that does not include any money coming in from the CARES Act side. So, that expectation is built in that we will have most of that received this year in 2020. Could it bleed over into 2021? Yes, but that's not a component that we're using to drive significant free cash flow in 2021. The prevailing items that will help us with driving significant free cash flow or one [ph], the expectation we can keep our EBITDA in the same ballpark that we're at this year. That's a primary contributor as well as the release from receivables, I'll say, as working capital, with milestone related events on the two projects that we have in the umbilical business right now. So the timing of those payments, it's been a little bit of a cash negative for us this year, it turns to a positive next year. That's going to be the prevailing other item that will help us drive free cash flow.

[Roderick Larson, President & Chief Executive Officer]

And the only thing I'd do is I like to throw out simple math, right? If you say that we identify these hundred million dollars of cost out over the period of 2020 and just figure it was all straight line started at the beginning, got to a lot and you only realize part of this year, simple math would tell you, we probably didn't even get half of those that contributed results this year. Think about a full year of those results for next year. So it's a year-over-year of those net cost stuff that has a lot more impact in next year than it did this year.

[Sean Meakim, JP Morgan]

Right. Okay. Fair enough. I appreciate that. And could you maybe just walk through the decision-making around the CapEx guide for this year? There's only one quarter left. A little curious, I thought maybe that we just narrowed around the midpoint but didn't necessarily take it down. And just thoughts around where you'll end up the -- I understand the $30 million number for unallocated for fourth year unless you have any seasonality to that. What's the proper run rate for unallocated and thoughts around CapEx as we stand here for next year?

[Alan Curtis, Senior Vice President & Chief Financial Officer]

Yes, I would look at first off the unallocated, I think $30 million is probably a reasonable run rate until we get a definitive plan in place looking at 2021. When I look at the CapEx guide, certainly we have looked at growth versus maintenance CapEx. We see that we've had some growth CapEx in 2020 as we had the drill pipe riser contract that we were completing. We could go a little bit lower, obviously, if you just took off the growth CapEx that we had in 2020 from where we are at this point in time. I would say though, we do still see reason for investment in our digital solutions within our integrity management digital solutions, we see opportunity there, we see opportunity with some of the [indiscernible] type vehicles within the ROV space, as well as what we're doing with our freedom vehicle. So there will continue to be some element of growth cut backs required as we move forward.

[Sean Meakim, JP Morgan]

All right, fair enough. I appreciate that.

[Operator]

Our next question comes from the line of Taylor Zurcher with Tudor, Pickering & Holt. Your line is now open.

[Taylor Zurcher, Tudor, Pickering, Holt]

Hey, good morning, and thanks for all the color on Q4 and 2021 as well. The first question is on the cost-out [ph] program that you've clearly made quite a bit of progress there year-to-date, I think including DDNA [ph], you're right in the middle that original $125 million to $160 million cost-out target range you provided earlier this year. Do you have a target as to where you expect to be exiting the year on that cost out program? As we continue to move forward, it just seems that you're finding incremental ways to drive that target a bit higher, at least the savings a bit faster than you previously anticipated. So any thoughts on where that total annualized cost-out number could end up as we enter 2021?

[Roderick Larson, President & Chief Executive Officer]

I think we're going to get a big part of the remaining 2020 in Q4. We just got a lot of work going on and you hit it right. Whenever you do work like this, it's sort of that peeling the onion model. As you find things and you take care of them, number one, you find other things; but number two, you also get better at it and you see it better. So I think the possibilities increase as you go. It's sort of a logarithmic decline. Obviously, you take care of the big things first, but you see that tail runs for a long time. And though I would say that I think we'll get most of 2020 and this in 2020 -- make sure I get that clear this year. And then we're going to be still looking for things in 2021. So it's a gift that keeps giving if you got a team stood up and you and you keep driving that sort of mentality inside the company.

[Taylor Zurcher, Tudor, Pickering, Holt]

Understood. And then for 2021, it doesn't sound like you're forecasting really much in the way of a V-shaped recovery at all in subsea robotics. I think in one of the previous questions that you said you had just caught up with a number of your customers. I was wondering if you could just characterize the tone of those conversations? Or is it a bit mixed where some are getting back to work and others are still down for COVID or whatever other reasons they may be down? But what's the general tone you're hearing from your customers right now with respect to your offshore activity and spending plans over the next 12 months?

[Roderick Larson, President & Chief Executive Officer]

So I would say kind of just general tone, very little being chewed off as COVID. They all are global operators. They go through a lot of tough things going on in the world. Generally, not all at the same time, like right now, but they know how to operate tough conditions. So they're back to work largely. As far as they see that there's underinvestment going on so far this year, there's a fair amount of economic recovery happening around the world, so they believe that that underinvestment and recovery could support prices and certainly at a point that supports continued offshore work. But they're also being very focused on where they work. Not a lot of not a lot of rank wildcat type exploration, they're going to they're going to chase leveraged oil as they speak. If things close the infrastructure that allow them to get maximum benefit from the infrastructure that's already installed. And so they're very focused, but they believe that it's a good time to make investment. And for us, we like that, because that kind of work, single [indiscernible], things like that, near field time X; that's good work for Oceaneering. So we're encouraged by what they're saying.

[Taylor Zurcher, Tudor, Pickering, Holt]

Got it. Well, congrats in the quarter and thanks for the responses.

[Roderick Larson, President & Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from the line of Mike Sabella with Bank of America. Your line is now open.

[Mike Sabella, Bank of America]

Hey, good morning, everyone. I was kind of wondering if we could talk for a little bit about sort of the outlook for maintenance spending at the customer base next year? A lot of what we hear from your guides, there are still a bit of hesitancy to kind of step into these big long cycle projects. It seems that, maintaining production with as little capital as possible is key. Can you just talk to us about how you think maintenance spending kind of as a whole trends over the next year? Commodity, prices kind of remain, or inbound near current levels?

[Roderick Larson, President & Chief Executive Officer]

So let me divide maintenance spending into a couple of things. Production maintenance versus just integrity management. I think integrity management is something that's very key, because number one, just the license to operate, with everything that's going on [indiscernible], you just can't afford mistakes. You can't afford a loss from mechanical integrity. So they will continue to invest. That will be something that they want to do smarter and at a better cost point because it's not revenue generating necessarily. It's cost avoidance. So they will work really hard to look for good solutions. That's not a bad thing for us because we believe we can be part of that. I would call it upscaling and getting better at that. So I see that as a fairly positive trend in that integrity management part. And then in the production management, where we're trying to, again, the cheapest barrels are already behind five -- they're already connected to the flow lines. So we want to make sure that we can do all we can with light well intervention with flow remediation and some of the other work that we do with that subsea kit. And I think that's going to be strong, especially if we see some price support and how to make the most for your budget. Those are good spends generally and like you said, you don't have to commit to long cycle projects. So I think you hit it, I think those are going to be fairly decent spots coming up for the next year.

[Mike Sabella, Bank of America]

And then, when we kind of think of capital allocation from here for Oceaneering to be also continue to build cash, is there anything we can do at this point that maybe help improve the capital efficiency, the efficiency in the capital structure, is there any way to kind of put that pile of cash to work during the return over the near term?

[Roderick Larson, President & Chief Executive Officer]

I'll let Alan answer a little bit, but I'll just jump in with, we were looking at a lot of things. I mean, obviously, you look at what's going on if the debt starts trading at a discount, and what things can you do out there in the market? So yeah, and it'll look like we've said pretty obviously, you know, that is a lot of that cash is sitting there with the expectation it's going to be used to retire a significant portion of our of our 24 debt maturities. So it's still a goal. It's still something we're watching. So I think that's where that's where we're looking right now.

[Mike Sabella, Bank of America]

Spot on, I mean good clarity.

[Operator]

Our next question comes from the line of Kurt Hallead with RBC. Your line is now open.

[Kurt Hallead, RBC]

Good morning. Appreciate you guys going out on the limb and taking a stab at '20, '21 kudos.

[Alan Curtis, Senior Vice President & Chief Financial Officer]

Thank you.

[Kurt Hallead, RBC]

Hey, just I know, you guys kind of gave us a high level dynamics. And that's the most important

element as we can look out into 2021. But you know, always got a big question around, when you're looking at your different segments, which ones. You know, when you're thinking about flat on a year on your basis for overall EBITDA, you're mentioned some positive tailwind for AdTech looks like you gave some positive tailwind for manufactured products. So kind of taking that information, AdTech in manufactured products could be up on a year on your basis and segment EBITDA, and the other ones could be maybe flat to slightly down is that kind of a good way to at least start to think about the individual pieces for next year.

[Alan Curtis, Senior Vice President & Chief Financial Officer]

Kurt, I think we're going to have to wait for the details on where it goes. But you caught the AdTech flavor, certainly correctly from Rod, we do see that year on year that could be an element that's outside of the energy sector with the racing contract awards, it could be beneficial. Manufactured products, I think what I was hearing was more of, we have contracts that kind of we'll be working through their backlog, the first half the year in the back half the years probably going to be more challenged. So I don't think we were trying to guide anyone up on manufacturer products for next year. I think it's more of the time, when some of that revenue could come through.

You know, if you look at the other parts of the business, within the offshore projects group, we would have anticipated executing on the live well intervention project in 2020. It looks like more of that is probably moving into 21. So, that that could be a little bit of a tell wind, as we go into the next year. So there's going to be various moving pieces. And we still need to work through the details to give you better clarity.

[Kurt Hallead, RBC]

Okay, that's fine. I appreciate that. So in the context of the incremental free cash flow expected in 2021, you were kind of address the prior question to a certain extent, but as you think it through and you build cash on the balance sheet, can you give us some insight as to you looking at this as a potential refi opportunity for the debt? Or are you actually looking at the prospect of reducing some of that debt load as you work through 2021?

[Alan Curtis, Senior Vice President & Chief Financial Officer]

I think all the above, I think it is going to be the flexibility and optionality that the cash will provide us, you know, we will look at the markets and what they may bring to us, and what would be right to do at the time. So, we actively review that.

[Kurt Hallead, RBC]

Okay. And finally, in the context you guys have exposure to the renewable energy segment, I think you guys are very well aware of how much attention that has gotten from investors lately, unfortunately, at the expense of oilfield service and other traditional energy plays, but you do have exposure to the offshore wind market through a cost. Just wondering if you might be able to give us an updated maybe some of your updated thoughts on how you see your exposure to the renewable market evolving.

[Alan Curtis, Senior Vice President & Chief Financial Officer]

I think we were still very excited about it. I mean, I think we like you said we've got exposure, we're already doing a lot of work. A lot of people I don't think most people realize that while we haven't caused in the route clearance that came with it. Our biggest participation is still in the traditional businesses the survey and the RV. And some of the work and we're doing with toolings. So that stuff is there. And it's alive and well, and we build more and more relationships with the other installers and companies that service that business. So we're excited about it. I think we're all kind of hoping that it grows like is it is expected. But it's always been a little bit further out than we thought. So it's got to be big and it's in hopefully it happens sooner now, with some of the emphasis that's been put on energy transition.

[Kurt Hallead, RBC]

So can you give us some -- as to maybe what the revenue exposure currently is, you know for maybe that renewal piece of the business?

[Alan Curtis, Senior Vice President & Chief Financial Officer]

We haven't broken it out, because it's why I try not to oversell this a little bit good, it's still a fairly small part of our business, because it only affects us in certain places, right? I mean, it's a it's a it's a it's actually a decent portion of our North Sea business but overall across the globe, isn't large [ph]. And we've been pretty good at capturing some of the work happening here in the East Coast, United States. But that's been just not a ton of activity yet.

[Kurt Hallead, RBC]

Okay, great. Appreciate that color. Thank you.

[Operator]

Next question comes from Blake Gendron with Wolf Research, Your line is now open.

[Blake Gendron, Wolfe Research]

Yeah, thanks. Good morning, I wanted to circle back on the AdTech business and just try to give us split for government revenue versus commercial. I think the old tech business was about two thirds government. And then within that government piece, how much of that is space versus other aerospace and defense spending? On the contractor side just to put a fine point on it, there seems to be some worry about just US government spending rolling over in 2022 and beyond. That's obviously another 2021 problem. We'll see what happens with the election. But I guess to get a better feel for how much is space exposure versus broader AMD would be helpful.

[Roderick Larson, President & Chief Executive Officer]

So let me I'm going to let Alan talk to split. So then I'll talk about contracting.

[Alan Curtis, Senior Vice President & Chief Financial Officer]

Okay. So, effectively 100%, of the aerospace and defense is government related. I mean, there are a few small commercial applications made for space, but it's, it's a small component. So I think it's best to think of it as 100% is government related. We have not broken out the space component by itself, but it tends to be a smaller component of the overall AdTech segment itself. So the lion's share of what we see in that is more than a traditional defense technologies that we provide.

[Roderick Larson, President & Chief Executive Officer]

And as far as contracting goes, a lot of the work we do is rollover contract. That's it's been continuing work that's making it has grown, but it's not new work. And so when we look at a change of administration or things that could go wrong, a lot of what we do, or most of what we do, would be under continuing resolution. So we don't see a lot of risk to that work. As far as new work coming up, I think the work that's going on at NASA seems to have really good bipartisan support, especially return to the moon and the things that we talked about today.

So, I just met with a group of colleagues yesterday, and we're very close to support for the space program, because it's what they live and breathe every day. And they felt comfortable with that as well. So I don't think there's a lot of risk in that government business. But, it's, there could always be some knee jerk reactions, but it would have to dig deep because it would have to disrupt the work that's already going on.

[Blake Gendron, Wolfe Research]

That's, that's totally fair. And I don't want to focus too much on the smaller parts of your business. But integrity and digital solutions is one of the more exciting. I think directionally some of the changes you made internally and maybe become a little bit more commercially intense there. So I appreciate the growth capital potentially could go to that segment. And I appreciate the rundown on the prior question. As to the various opportunities, I guess, I'm just wondering what opportunities would you consider incremental for that segment? And then if you were to pursue these opportunities, would you anticipate any modest margin friction until you got critical scale in those applications? Or are you going to focus on being more commercially intense in the services that you provide currently?

[Roderick Larson, President & Chief Executive Officer]

Hey, so great question. I'm excited to answer that. It is a great focus area for us and it's something that I've been passionate about for a while, because I think especially the integrity management piece has been very hands on mechanical work for long time, and all of our customers say, I want to be able to inspect the pipeline and pressure vessel without having to open it up and put a man inside and things like this. So, they're directly they really want to go this way. And when we talk about what can we do, some of this predictive analytics. So that is, big data processing, some of it as embedded sensors, some of this used in drones and crawlers to get men out of the way.

So there's this opportunity number one to gather more data safely. And we feel like we're well positioned to do that, because we've got subject matter expertise, we've had the guys hanging from ropes underneath the platforms. So we know what inspection gets done and how it gets done today. But we've also got the robotic side that this is something we did once before we took divers out of the water and replaced them with machines, we believe we can take men off the ropes and replace them with machines. So there's that data gathering part that that I think is really good.

And generally speaking, that whole business has been lower capital intensity, but we do see the need to invest in some of the robotics and some of the software to drive this vision ahead. And software have some, like you said some frictional effects, you invest early, developing robotics, you develop, you invest early, but they're very scaled. And so while you go through some of that it's not huge capital investment like building vessels. And the scalability of the investment is much, much better, once you get the product developed. So I think it's a great space to watch, if you will, because there's market poll for it. And I think that the bang for the buck is pretty high there.

[Blake Gendron, Wolfe Research]

Understood. And if I could just squeeze one more [indiscernible] world in which you had zero debt, and you're looking to do some M&A, which segments in particular, would you look to do either because you see attractive opportunities or because you think of the space that from a technological perspective could benefit from the bolt ons of various disparate technologies from different end markets.

[Roderick Larson, President & Chief Executive Officer]

I think I think there's bolt ons in most of our businesses. And I would say, though, that when we talk about what I just mentioned with robotics, and specialty robotics, I think there's a lot of ways to leverage our knowledge about how to deploy, how to maintain how to service, how to navigate and operate and train people to run robotics, that we could always take a unique robotic application and put it in our arsenal, and be able to deploy that quickly whereas somebody who, who had a really great idea, but doesn't know how to get it out in the market and get it operating. Those partnerships could be really powerful for us. So I think there's that again software development, maybe adding capabilities for marine logistics, those are opportunities for us.

So it's pretty broad across the business. If we look for large scale, large bolt ons for scale, those are a little more challenging, because we just have to say, how healthy are those businesses? And is it something that's going to be accretive in the near term even if it is maybe longer term.

[Blake Gendron, Wolfe Research]

That's very interesting. Thanks, guys.

[Operator]

[Operator Instructions] Our next question comes from the line of David Smith with Heikkinen Energy Advisors. Your line is now open.

[David Smith, Heikkinen Energy Advisors]

Good morning and thank you. Reiterate what everyone else has said about the 21 guidance. Very helpful and appreciate it. I did want to ask with the segment realignment, we got a better view at some of the product and service lines. And I was a little surprised that how negative the mobility solutions margins were in the first half. And I understand there's uncertainty around the COVID outlook and when that business picks back up, but I wanted to ask about your approach to eliminate losses from that segment and whether it's possible to get those margins up to breakeven without theme parks getting back to normal?

[Roderick Larson, President & Chief Executive Officer]

That's an interesting, it's a little bit of a really two sided coin. Most of our business in mobility solutions is has been the entertainment business. That's been the big part of it. And of course, entertainment, even talk about any business that's been challenged. The theme parks have been extremely challenged the first half of the year. So they slammed on the brakes on almost everything they were doing. And a lot of our work was actually was in China for the first half of this year. So that was very challenged about getting back to China and were actually there in a small way right now. But that's the biggest challenge there. So we did. We shifted down a lot. We made some pretty significant cost cuts in that business where we could without losing capability. So that was a big reaction there.

If you look at the other half though, the other half of the business is one that is smaller and it's in we've been more project based to date, we've been working on more standardized project products, but you think about reducing the number of people in a plant by adding mobility solutions to a manufacturing plant, keen interest in that, because now, after a global pandemic, a lot of the customers are saying, anytime that we could reduce the interaction of people to make sure these plants can keep up and running in a situation like we've experienced this year. Definitely renewed interest in order to manufacturing plant, we've done some work for hospitals as well, the interest in that product is definitely going up.

So trying to feel those interests to make sure which ones are real, and which ones are looky-loo, so to speak, you know, that just are curious about what that would mean, it's been kind of the challenge there is to make sure that we aren't chasing things that won't ever develop. But it's a two sided business. And we knew that exactly, I think we believe that some people had maybe higher expectations or higher understanding those businesses and we be expected, we get some questions when that was, when you can when you can get a little more visibility to that going forward.

[David Smith, Heikkinen Energy Advisors]

Appreciate the color and the other one following question, it looks like your vessel base, or the activity was higher in Q3 than it at any point since 2015. Just wondering if you could give any color around that pickup and whether anything in your 21 outlook includes higher vessel basic [ph] or the activity compared to the 20.

[Roderick Larson, President & Chief Executive Officer]

I would just say that relationships keep getting better with the vessel operators. And you know, for a while, it's a little bit challenging sometimes for us because we were vessel operators in a big way and the sauce is a competitor. And so it was a little bit difficult to reconcile your friend or enemy. But now that number one, we're doing more of our vessel operations on spot higher in short term charter as well. I think we're starting to resolve those relationships. And we just picked up a significant contract with a vessel operator. So the relationships are getting better. Our placement on board, vessels owned by others is getting better. And I think that's just a sign of how we're building that part of the market for customers.

[David Smith, Heikkinen Energy Advisors]

I appreciate it.

[Operator]

There are no further questions in queue at this time. I'll now hand the call over to Mr. Roderick Larson for closing comments.

[Roderick Larson, President & Chief Executive Officer]

Well, thanks, everybody for all the great questions and since there are no more I'd wrap up by thanking everybody for joining the call. And this concludes our third quarter 2020 conference call.

[Operator]

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