Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix and represent our current expectations or forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:
● statements regarding our business strategy and any other business plans, forecasts or objectives, any or all of which are subject to change;
● statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, capital expenditures or other financial items;
● statements regarding our backlog and commercial contracts and rates thereunder;
● statements regarding our ability to enter into and/or perform commercial contracts, including the scope, timing and outcome of those contracts;
● statements regarding the spot market, the continuation of our current backlog, our spending and cost reduction plans and our ability to manage changes, and the ongoing COVID-19 pandemic and oil price volatility and their respective effects and results on the foregoing as well as our protocols and plans;
● statements regarding the acquisition, construction, completion, upgrades to or maintenance of vessels, systems or equipment and any anticipated costs or downtime related thereto;
● statements regarding any financing transactions or arrangements, or our ability to enter into such transactions or arrangements;
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● statements regarding potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions;
● statements regarding our trade receivables and their collectability;
● statements regarding potential developments, industry trends, performance or industry ranking;
● statements regarding global, market or investor sentiment with respect to fossil fuels;
● statements regarding our existing activities in, and future expansion into, the offshore renewable energy market;
● statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business;
● statements regarding our ability to retain our senior management and other key employees;
● statements regarding the underlying assumptions related to any projection or forward-looking statement; and
● any other statements that relate to non-historical or future information.
Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include:
● the results and effects of the ongoing COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto;
● the impact of domestic and global economic conditions and the future impact of such conditions on the offshore energy industry and the demand for our services;
● the general impact of oil and gas price volatility and the cyclical nature of the oil and gas market;
● the impact of any potential cancellation, deferral or modification of our work or contracts by our customers;
● the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure;
● the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets;
● unexpected future capital expenditures, including the amount and nature thereof;
● the effectiveness and timing of completion of our vessel and/or system upgrades and major maintenance items;
● unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets;
● the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments;
● the results of our continuing efforts to control costs and improve performance;
● the success of our risk management activities;
● the effects of competition;
● the availability of capital (including any financing) to fund our business strategy and/or operations;
● the impact of current and future laws and governmental regulations and how they will be interpreted or enforced;
● the future impact of U.K.’s exit from the European Union (the “EU”), known as Brexit, and related trade agreements between the U.K. and the EU on our business, operations and financial condition;
● the effect of adverse weather conditions and/or other risks associated with marine operations;
● the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;
● the effectiveness of our future hedging activities;
● the potential impact of a loss of one or more key employees; and
● the impact of general, market, industry or business conditions.
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Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
We caution you not to place undue reliance on the forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise these forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ. All forward-looking statements, express or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We urge you to carefully review and consider the disclosures made in this Quarterly Report and our reports filed with the SEC and incorporated by reference in our 2020 Form 10-K that attempt to advise interested parties of the risks and factors that may affect our business.
EXECUTIVE SUMMARY
Our Business
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. The services we offer to the oil and gas market cover the lifecycle of an offshore oil or gas field, and the services we offer to the renewable energy market are currently focused on offshore wind farm projects and cable burial operations. Our well intervention fleet includes seven purpose-built well intervention vessels, six IRSs, three SILs and the ROAM. Our robotics equipment includes 42 work-class ROVs, four trenchers and one ROVDrill. We charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations. Our well intervention and robotics operations are geographically dispersed throughout the world. Our Production Facilities segment includes the HP I , the HFRS and our ownership of oil and gas properties.
Economic Outlook and Industry Influences
Demand for our services is primarily influenced by the condition of the oil and gas and the renewable energy markets, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects. The performance of our business is also largely affected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and several other factors, including:
● worldwide economic activity and general economic and business conditions, including access to global capital and capital markets;
● the global supply and demand for oil and natural gas;
● political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in oil-producing regions;
● actions taken by OPEC and/or OPEC+ ;
● the availability and discovery rate of new oil and natural gas reserves in offshore areas;
● the exploration and production of onshore shale oil and natural gas;
● the cost of offshore exploration for and production and transportation of oil and natural gas;
● the level of excess production capacity;
● the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations;
● the environmental and social sustainability of the oil and gas sector and the perception thereof, including within the investing community;
● the sale and expiration dates of offshore leases globally;
● governmental restrictions on oil and gas leases;
● technological advances affecting energy exploration, production, transportation and consumption;
● potential acceleration of the development of alternative fuels;
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● shifts in end-customer preferences toward fuel efficiency and the use of natural gas or renewable energy alternatives;
● weather conditions, natural disasters, and epidemic and pandemic diseases, including the ongoing COVID-19 pandemic;
● laws, regulations and policies directly related to the industries in which we provide services, and their interpretation and enforcement;
● environmental and other governmental regulations; and
● domestic and international tax laws, regulations and policies.
Crude oil prices historically have been volatile, which volatility has been exacerbated recently due to the ongoing COVID-19 pandemic as well as actions taken by OPEC+ nations. Prices have since recovered to pre-COVID-19 levels, but their stability and recovery remain uncertain. The decline in oil prices in 2020 and the volatility and uncertainty in prices have caused oil and gas operators to drastically reduce spending (on both operational activities and capital projects), which has decreased the demand and rates for services provided by offshore oil and gas services providers. Historically, drilling rigs have been the asset class used for offshore well intervention work, and our customers have used drilling rigs on existing long-term contracts to perform well intervention work instead of new drilling activities. Rig day rates are also a pricing indicator for our services. Rig overhang, combined with lower volumes of work and lower day rates quoted by drilling rig contractors, affects the utilization and/or rates we can achieve for our assets and services. Furthermore, additional volatile and uncertain macroeconomic conditions in some regions and countries around the world, such as West Africa, Brazil, China and the U.K. following Brexit, may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further volatility into our operations and/or financial results.
The ongoing COVID-19 pandemic has resulted in a new period of market weakness. While the full impact of the COVID-19 pandemic, including the duration of the decrease in economic activity and the resulting impact on the demand and price of oil, remains unknown, we expect that the impact of COVID-19 on the industry will continue to be felt through 2021 and possibly longer. We believe the uncertainty and other conditions of the current environment will make it more difficult for us to secure long-term contracts for our vessels and systems, as operators have been less willing to commit to future spending. These developments have also impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce. The COVID-19 pandemic and its effects on our industry and the global economy impacted our 2020 and 2021 operating results to date. Most if not all of our oil and gas customers have cut their spending, which has reduced the demand and rates for the services offered to our oil and gas customers. We warm-stacked two of our vessels in 2020 as a result of decreased demand and government lock-downs, and the Seawell in the North Sea remains stacked to date. The COVID-19 pandemic continues to pose challenges with, and increase costs related to, our supply chain, logistics and human capital resources, including minimizing the direct impact of COVID-19 on our offshore workforce and challenges with offshore crew changes due to travel restrictions and quarantine measures.
Despite this current period of market weakness and volatility, over the longer term we expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells. As oil and gas companies re-assess and focus their budgetary spend allocations, we expect that it may be weighted towards production enhancement activities rather than exploration projects as enhancement is less expensive per incremental barrel of oil than new exploration. Moreover, as the subsea tree base expands and ages, the demand for P&A services should persist. Our well intervention and robotics operations are intended to service the lifecycle of an oil and gas field as well as to provide P&A services at the end of the life of a field as required by governmental regulations. We believe that we have a competitive advantage in performing well intervention services efficiently and we believe that fundamentals for our business remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services. This belief is based on multiple factors, including: (1) the need to extend the life of subsea wells is significant to the commercial viability of the wells as P&A costs are considered; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling as well as extending and enhancing the commercial life of subsea wells; and (3) in past cycles, well intervention and workover have been some of the first activities to recover, and in a prolonged market downturn are important to the commercial viability of deepwater wells.
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Demand for our services in the renewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the production and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water, and government subsidies for renewable energy projects.
Backlog
We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. In addition to serving the oil and gas market, our robotics assets are contracted for the development of offshore renewable energy projects (wind farms). We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. As of March 31, 2021, our consolidated backlog that is supported by written agreements or contracts totaled $358 million, of which $239 million is expected to be performed over the remainder of 2021. The substantial majority of our backlog is associated with our Well Intervention segment. As of March 31, 2021, our well intervention backlog was $162 million, all of which is expected to be performed over the remainder of 2021. Our contract with BP to provide well intervention services with our Q5000 semi-submersible vessel, our agreements with Petrobras to provide well intervention services offshore Brazil with the Siem Helix 1 and Siem Helix 2 chartered vessels, and our fixed fee agreement for the HP I represent approximately 57% of our total backlog as of March 31, 2021. Backlog is not necessarily a reliable indicator of revenues derived from these contracts as services may be added or subtracted; contracts may be renegotiated, deferred, canceled and in many cases modified while in progress; and reduced rates, fines and penalties may be imposed by our customers. Furthermore, our contracts are in certain cases cancelable without penalty. If there are cancellation fees, the amount of those fees can be substantially less than the rates we would have generated had we performed the contract.
RESULTS OF OPERATIONS
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations.
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures.
We measure our operating performance based on EBITDA and free cash flow. EBITDA and free cash flow are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA and free cash flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measures of EBITDA and free cash flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. Other companies may calculate their measures of EBITDA, Adjusted EBITDA and free cash flow differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA and free cash flow should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP.
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We define EBITDA as earnings before income taxes, net interest expense, gain or loss on extinguishment of long-term debt, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets and non-cash gains and losses on equity investments are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the general provision for current expected credit losses, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments, which are excluded from EBITDA as a component of net other income or expense. We define free cash flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. In the following reconciliation, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
Three Months Ended
March 31,
2021
2020
Net loss
$
(3,050)
$
(13,928)
Adjustments:
Income tax provision (benefit)
116
(21,093)
Net interest expense
6,053
5,746
Other (income) expense, net
(1,617)
10,427
Depreciation and amortization
34,566
31,598
Goodwill impairment
—
6,689
EBITDA
36,068
19,439
Adjustments:
General provision for current expected credit losses
100
586
Realized losses from foreign exchange contracts not designated as hedging instruments
—
(682)
Adjusted EBITDA
$
36,168
$
19,343
The reconciliation of our cash flows from operating activities to free cash flow is as follows (in thousands):
Three Months Ended
March 31,
2021
2020
Cash flows from operating activities
$
39,869
$
(17,222)
Less: Capital expenditures, net of proceeds from sale of assets
(1,329)
(12,389)
Free cash flow
$
38,540
$
(29,611)
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Comparison of Three Months Ended March 31, 2021 and 2020
The following table details various financial and operational highlights for the periods presented (dollars in thousands):
Three Months Ended
Increase/
March 31,
(Decrease)
2021
2020
Amount
Percent
Net revenues —
Well Intervention
$
133,768
$
140,652
$
(6,884)
(5)
%
Robotics
22,156
35,258
(13,102)
(37)
%
Production Facilities
16,447
15,541
906
6
%
Intercompany eliminations
(8,956)
(10,430)
1,474
$
163,415
$
181,021
$
(17,606)
(10)
%
Gross profit (loss) —
Well Intervention
$
8,726
$
(1,256)
$
9,982
795
%
Robotics
(933)
(467)
(466)
100
%
Production Facilities
7,213
4,207
3,006
71
%
Corporate, eliminations and other
(382)
(474)
92
$
14,624
$
2,010
$
12,614
628
%
Gross margin —
Well Intervention
7
%
(1)
%
Robotics
(4)
%
(1)
%
Production Facilities
44
%
27
%
Total company
9
%
1
%
Number of vessels or robotics assets (1) / Utilization (2)
Well Intervention vessels
7 / 70
%
7 / 72
%
Robotics assets (3)
47 / 24
%
49 / 34
%
Chartered robotics vessels
3 / 90
%
6 / 89
%
(1) Represents the number of vessels or robotics assets as of the end of the period, including spot vessels and those under long-term charter, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of service.
(2) Represents the average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period. The average utilization rates of chartered robotics vessels during the three-month periods ended March 31, 2021 and 2020 included three and 272 spot vessel days, respectively, at near full utilization.
(3) Consists of ROVs, trenchers and ROVDrill.
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):
Three Months Ended
March 31,
Increase/
2021
2020
(Decrease)
Well Intervention
$
2,587
$
3,304
$
(717)
Robotics
6,369
7,126
(757)
$
8,956
$
10,430
$
(1,474)
Net Revenues. Our consolidated net revenues for the three-month period ended March 31, 2021 decreased by 10% as compared to the same period in 2020, reflecting lower revenues from our Well Intervention and Robotics segments, offset in part by higher revenues from our Production Facilities segment.
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Our Well Intervention revenues decreased by 5% for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting lower vessel utilization in the North Sea and West Africa during the quarter, offset in part by higher utilization in the Gulf of Mexico. Utilization in the Gulf of Mexico during the first quarter 2020 was lower due to our scheduled regulatory certification inspections for the Q4000 and the Q5000 .
Robotics revenues decreased by 37% for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting a reduction in vessel days as well as decreased utilization of ROVs and ROVDrill, offset in part by an increase in trenching activities. Our results included 165 vessel days and 72 trenching days during the three-month period ended March 31, 2021 as compared to 405 vessel days and 42 trenching days during the same period in 2020.
Our Production Facilities revenues increased by 6% for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas production revenues.
Gross Profit (Loss). Our consolidated gross profit increased by $12.6 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher gross profit in our Well Intervention and Production Facilities segments, offset in part by higher gross loss in our Robotics segment.
The gross profit related to our Well Intervention segment increased by $10.0 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher revenues on the Q5000 and cost reduction efforts associated with lower utilization in the North Sea and West Africa during idle periods.
The gross loss related to our Robotics segment increased by $0.5 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting lower revenues, offset in part by lower operating costs.
The gross profit related to our Production Facilities segment increased by $3.0 million for the three-month period ended March 31, 2021 as compared to the same period in 2020, primarily reflecting higher oil and gas production revenues and a reduction in direct costs.
Goodwill Impairment. The $6.7 million charge in the three-month period ended March 31, 2020 reflects the impairment of the entire goodwill balance, which related to our acquisition of a controlling interest in STL (Note 10).
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $15.2 million for the three-month period ended March 31, 2021 as compared to $16.3 million for the same period in 2020, primarily reflecting lower credit loss reserves and lower employee compensation costs.
Net Interest Expense. Our net interest expense totaled $6.1 million for the three-month period ended March 31, 2021 as compared to $5.7 million for the same period in 2020, primarily reflecting the cessation of interest capitalization with the completion of the Q7000 in the first quarter 2020. Net interest expense for the three-month period ended March 31, 2020 excluded $1.2 million in capitalized interest associated with the Q7000 (Note 5).
Other Income (Expense), Net. Net other income was $1.6 million for the three-month period ended March 31, 2021 as compared to net other expense of $10.4 million for the same period in 2020, primarily reflecting foreign currency transaction gains due to the strengthening of the British pound.
Income Tax Provision (Benefit). Income tax provision was $0.1 million for the three-month period ended March 31, 2021 as compared to an income tax benefit of $21.1 million for the same period in 2020. The effective tax rates for the three-month periods ended March 31, 2021 and 2020 were (4.0)% and 60.2%, respectively. The decrease in the effective tax rate was primarily attributable to the absence of tax benefits derived from the CARES Act recorded in the same period last year, which included the carrying back of certain net operating losses to prior periods with higher income tax rates, as well as the result of the consolidation of certain U.S. branch operations with the Helix U.S. consolidated tax group and the earnings mix between our higher and lower tax rate jurisdictions (Note 6).
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LIQUIDITY AND CAPITAL RESOURCES
Overview
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
March 31,
December 31,
2021
2020
Net working capital (1)
$
270,504
$
246,338
Long-term debt (1)
299,560
258,912
Liquidity (2)
376,992
451,532
(1) Current maturities of our long-term debt of $36.5 million and $90.7 million, respectively, are included in net working capital and excluded from long-term debt. Long-term debt as of March 31, 2021 is net of unamortized debt issuance costs. Long-term debt as of December 31, 2020 is net of unamortized debt discounts and debt issuance costs. See Note 5 for information relating to our long-term debt, including the impact of our adoption of ASU No. 2020-06.
(2) Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under the Revolving Credit Facility. Our liquidity at March 31, 2021 included cash and cash equivalents of $204.8 million and $172.2 million of available borrowing capacity under the Revolving Credit Facility (Note 5). Our liquidity at March 31, 2021 excluded $65.6 million of restricted cash securing a project related letter of credit (short-term), the restriction from which is expected to be released upon completion of the project. Our liquidity at December 31, 2020 included cash and cash equivalents of $291.3 million and $160.2 million of available borrowing capacity under the Revolving Credit Facility.
The carrying amounts of our long-term debt are as follows (in thousands):
March 31,
December 31,
2021
2020
Term Loan (matures December 2021)
$
28,732
$
29,559
Nordea Q5000 Loan (matured January 2021) (1)
—
53,532
MARAD Debt (matures February 2027)
49,749
53,361
2022 Notes (mature May 2022) (2)
34,794
33,477
2023 Notes (mature September 2023) (2)
29,555
26,922
2026 Notes (mature February 2026) (2)
193,208
152,712
Total debt (3)
336,038
349,563
Less current maturities
(36,478)
(90,651)
Long-term debt
$
299,560
$
258,912
(1) The Nordea Q5000 Loan was fully repaid upon maturity in January 2021 (Note 5).
(2) As a result of the adoption of ASU No. 2020-06 beginning January 1, 2021, there is no longer any debt discount associated with the 2022 Notes, the 2023 Notes and the 2026 Notes (Note 1) .
(3) Amounts include current maturities and are net of any unamortized debt discounts and debt issuance costs .
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
Three Months Ended
March 31,
2021
2020
Cash provided by (used in):
Operating activities
$
39,869
$
(17,222)
Investing activities
(1,329)
(12,389)
Financing activities
(59,885)
(18,391)
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Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt.
The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted our revenues and we expect these events to continue to impact our results into the near future. Our operating cash flows are impacted to the extent we cannot replace those revenues or reduce costs. Despite these challenges, we remain focused on maintaining a strong balance sheet and adequate liquidity. We have reduced, deferred or cancelled certain planned capital expenditures and reduced our overall cost structure commensurate with our level of activities. In 2020, we extended our debt maturity profile with refinancing a portion of our 2022 Notes and 2023 Notes in favor of the 2026 Notes. Notwithstanding, we have at the same time continued to de-lever our balance sheet with the repayment of our Nordea Q5000 Loan in January 2021. We have reduced operating costs through various measures including warm stacking our vessels when idle. These costs should return with increases in activity. We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.
The ongoing COVID-19 pandemic and its impact on the energy and financial markets have contributed to rising yields on our existing debt as well as volatility in our stock price, both of which increase our cost of capital. The yield on the 2026 Notes is significantly higher than that of the 2022 Notes and 2023 Notes. The COVID-19 pandemic has also contributed to limited access to certain capital markets.
An ongoing period of weak, or continued decreases in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt, and our failure to comply with these covenants and other restrictions could lead to an event of default. Current global and market conditions have increased the potential for that difficulty and are expected to negatively impact the terms on which we secure a replacement of, or our lenders’ willingness to continue to participate in, our credit facility, which expires December 2021. Decreases in our revenues and EBITDA, including as may be attributable to the fallout from the ongoing COVID-19 pandemic, may also limit our ability to fully access the Revolving Credit Facility. At March 31, 2021, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $172.2 million, net of $2.8 million of letters of credit issued under that facility. We currently do not anticipate borrowing under the Revolving Credit Facility other than for the issuance of letters of credit.
Operating Cash Flows
Net cash flows provided by operating activities were $39.9 million for the three-month period ended March 31, 2021 as compared to net cash flows used by operating activities of $17.2 million for the same period in 2020. The $57.1 million increase in operating cash flows primarily reflects lower operating loss and decreases in working capital.
Investing Activities
Capital expenditures represent cash paid principally for the acquisition, construction, completion, upgrade, modification and refurbishment of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. Capital expenditures also include interest on property and equipment under development. Significant (uses) sources of cash associated with investing activities are as follows (in thousands):
Three Months Ended
March 31,
2021
2020
Capital expenditures:
Well Intervention
$
(1,259)
$
(12,263)
Robotics
—
(44)
Production Facilities
(70)
—
Other
—
(82)
Net cash used in investing activities
$
(1,329)
$
(12,389)
Our capital expenditures during the three-month period ended March 31, 2020 primarily included payments associated with the construction and completion of the Q7000 , which commenced operations in January 2020.
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Financing Activities
Cash flows from financing activities consist primarily of proceeds and repayments related to our long-term debt. Net cash outflows from financing activities of $59.9 million for the three-month period ended March 31, 2021 primarily reflect the repayment of $58.2 million of scheduled maturities related to our indebtedness, including the final maturity of $53.6 million of our Nordea Q5000 Loan (Note 5). Net cash outflows from financing activities of $18.4 million for the three-month period ended March 31, 2020 primarily reflect the repayment of $13.4 million of our indebtedness (Note 5).
Free Cash Flow
Free cash flow increased by $68.2 million for the three-month period ended March 31, 2021 as compared to the same period in 2020. The increase was primarily attributable to the increase in operating cash flows and the decrease in capital expenditures.
Free cash flow is a non-GAAP financial measure. See “RESULTS OF OPERATIONS” above for the definition and calculation of free cash flow.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations as of March 31, 2021 and the scheduled years in which the obligations are contractually due (in thousands):
Less Than
More Than
Total (1)
1 Year
1-3 Years
3-5 Years
5 Years
Term Loan
$
28,875
$
28,875
$
—
$
—
$
—
MARAD debt
52,676
7,746
16,672
18,377
9,881
2022 Notes (2)
35,000
—
35,000
—
—
2023 Notes (3)
30,000
—
30,000
—
—
2026 Notes (4)
200,000
—
—
200,000
—
Interest related to debt (5)
80,319
20,126
32,621
27,285
287
Property and equipment
6,184
6,078
106
—
—
Operating leases (6)
242,043
97,752
134,611
5,796
3,884
Total cash obligations
$
675,097
$
160,577
$
249,010
$
251,458
$
14,052
(1) Excludes unsecured letters of credit outstanding at March 31, 2021 totaling $2.8 million. These letters of credit may be issued to support various obligations, such as contractual obligations, contract bidding and insurance activities.
(2) Notes mature in May 2022. See Note 5 for additional information.
(3) Notes mature in September 2023. See Note 5 for additional information.
(4) Notes mature in February 2026. See Note 5 for additional information.
(5) Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at March 31, 2021 for variable rate debt.
(6) Operating leases include vessel charters and facility and equipment leases. At March 31, 2021, our commitment related to long-term vessel charters totaled approximately $215.8 million, of which $86.9 million was related to the non-lease (services) components that are not included in operating lease liabilities in the condensed consolidated balance sheet as of March 31, 2021.
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CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our discussion and analysis of our financial condition and results of operations, as reflected in the condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.
For information regarding our critical accounting estimates and policies, please read our “Critical Accounting Estimates and Policies” as disclosed in our 2020 Form 10-K.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.