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, corporate initiatives 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, future operations 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, visibility and future utilization, our spending and cost management efforts and our ability to manage changes, and the COVID-19 pandemic and oil price volatility and their respective effects and results on the foregoing as well as our protocols and plans;
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● statements regarding energy transition and energy security;
● statements regarding our ability to identify, effect and integrate acquisitions, joint ventures or other transactions;
● 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;
● 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 our ESG initiatives and the successes thereon or regarding our environmental efforts, including greenhouse gas emissions targets;
● 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 human capital resources, including our ability to retain our senior management and other key employees;
● statements regarding our share repurchase authorization or program;
● 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 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 results and effects of the COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto;
● the potential effects of regional tensions that have escalated or may escalate, including into conflicts or wars, and their impact on the global economy, oil and gas market, our operations, international trade, or our ability to do business with certain parties or in certain regions, and any governmental sanctions resulting therefrom;
● the results of corporate initiatives such as alliances, partnerships, joint ventures, mergers, acquisitions, divestitures and restructurings, or the determination not to pursue or effect such initiatives;
● the results of acquired properties;
● the impact of inflation and our ability to recoup rising costs in the rates we charge to our customers;
● the impact of our ability to secure and realize backlog, including 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;
● the performance of contracts by suppliers, customers and partners;
● unexpected future operations expenditures, including the amount and nature thereof;
● the effectiveness and timing of our vessel and/or system upgrades, regulatory certification and inspection as well as major maintenance items;
● operating hazards, including unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets;
● the effect of adverse weather conditions and/or other risks associated with marine operations;
● the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments;
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● the results of our continuing efforts to control costs and improve performance;
● the success of our risk management activities, including with respect to our cybersecurity initiatives;
● the effects of competition;
● the availability of capital (including any financing) to fund our business strategy and/or operations;
● the effectiveness of our ESG initiatives and disclosures;
● the impact of current and future laws and governmental regulations and how they will be interpreted or enforced, including related to fossil fuel production and litigation and similar claims in which we may be involved;
● the future impact of international activity and trade agreements on our business, operations and financial condition;
● the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;
● the effectiveness of any future hedging activities;
● the potential impact of a negative event related to our human capital resources, including a loss of one or more key employees;
● the impact of general, market, industry or business conditions; and
● the factors generally described in Item 1A. Risk Factors in our 2022 Form 10-K.
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 2022 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 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 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 2022 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, robotics and full-field decommissioning operations. Our services are centered on a three-legged business model well positioned for a global energy transition by maximizing production of remaining oil and gas reserves, supporting renewable energy developments and decommissioning end-of-life oil and gas fields. Our well intervention fleet includes seven purpose-built well intervention vessels and 12 intervention systems. Our robotics equipment includes 39 work-class ROVs, seven trenchers and the IROV boulder grab. We charter robotics support vessels on long-term, short-term, flexible and spot bases to facilitate our ROV and trenching operations. Our Production Facilities segment includes the HP I , the HFRS and our ownership of oil and gas properties including the recently acquired interest in the Thunder Hawk Field. On July 1, 2022, we completed our acquisition of Alliance and formed a new reporting segment in the third quarter 2022 comprised of the Helix Alliance business. Our new Shallow Water Abandonment segment includes nine liftboats, six OSVs, three DSVs, one heavy lift derrick barge, one crew boat, 15 marketable P&A systems (with the ability to scale up to 20 systems) and six coiled tubing systems.
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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 and, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects. The performance of our business is 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 various other factors.
Oil prices reached ten-year highs during the middle of 2022 and have since experienced moderate declines and volatility. Global demand for oil continues to recover as supply has been disrupted by regional conflicts. We expect oil prices will remain robust for the near term, which should lead to higher customer spending for the industry. However, despite the current strong commodity price environment, there remain headwinds to commodity price stability, including those regional conflicts, high inflation and in particular governments’ and central banks’ efforts to control inflation, which may taper economic growth, COVID-related uncertainties, various governmental and customer ESG initiatives and continued shifting of resource allocation to renewable energy, and most recently wavering market confidence in light of turmoil within the banking industry. We expect these factors will continue to contribute to commodity price volatility with the potential to temper customer spending for oil and gas projects.
We maximize production of remaining oil and gas reserves for our customers primarily in our Well Intervention segment. Historically, drilling rigs have been the asset class used for offshore well intervention work, and rig day rates are a pricing indicator for our services. Our customers have used drilling rigs on existing long-term contracts (rig overhang) to perform well intervention work instead of new drilling activities. Current volumes of work, rig utilization rates, the day rates quoted by drilling rig contractors and existing rig overhang affect the utilization and/or rates we can achieve for our assets and services.
Over the near-term, with the current high commodity price environment we expect oil and gas companies to invest in new long-cycle exploration projects in addition to maintaining and/or increasing production from their remaining reserves. As historically production enhancement through well intervention is less expensive per incremental barrel of oil than exploration, we expect oil and gas companies to continue to focus on optimizing production of their existing subsea wells. We expect the fundamentals for our business will remain favorable over the longer term as the need to prolong well life in oil and gas production is the primary driver of demand for our production enhancement services. This expectation is based on multiple factors, including (1) maintaining the optimal production of a well through enhancement is fundamental to maximizing the overall economics of well production; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling; and (3) extending the production of offshore wells not only maximizes a well’s production economics but also enables the financial benefit of delaying P&A costs, which can be substantial.
We support the energy transition to renewables through our services in offshore wind farm developments, primarily including subsea cable trenching and burial as well as seabed clearance and preparation services. 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. We expect growth in our renewables services as the energy market transitions to continued renewable energy developments.
Once end-of-life oil and gas wells have depleted their production, we decommission wells and infrastructure in our Well Intervention and Shallow Water Abandonment segments. As the subsea tree base expands and ages and customers shift resources to renewable energy, the demand for P&A services should persist. Our operations service the life cycle of an oil and gas field and provide P&A services at the end of the life of a field as required by governmental regulations, and we believe that we have a competitive advantage in performing these services efficiently.
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We are subject to the effects of changing prices. Inflation rates have been relatively low and stable over the previous three decades; however, inflation rates have risen significantly since 2021 due in part to supply chain disruptions and the effects of the COVID-19 pandemic. Although we may be able to mitigate our exposure to price increases through the rates we charge, we bear the costs of operating and maintaining our assets, including labor and material costs as well as recertification and dry dock costs. While the cost outlook is not certain, we believe that we can manage these inflationary pressures by introducing appropriate sales price adjustments and by actively pursuing internal cost management efforts. However, competitive market pressures may affect our ability to recoup these price increases through the rates we charge, which may result in reductions in our operating margins and cash flows in the future. The recent high inflation rates seen in various major economies have caused concerns for central banks’ tightening of monetary policies. These concerns have contributed to stock market volatility as well as higher interest rates, which, combined with ongoing regional conflicts and unrest and potential COVID-related disruptions throughout the globe, could provide a strained macroeconomic outlook and in turn affect energy markets.
The COVID-19 pandemic resulted in unprecedented market dynamics and challenges to us, including contributing significantly to oil and gas price volatility and increased costs related to our supply chain, logistics and human capital resources. While the peak of the COVID-19 pandemic has largely subsided, we could experience a resurgence of the COVID-19 or new pandemic that could significantly impact economic activity, our customers’ willingness to commit to future spending, access to and use of capital, supply chains, inflation and human capital resources.
Backlog
We define backlog as firm commitments represented by signed contracts. As of March 31, 2023, our consolidated backlog totaled approximately $920 million, of which $554 million is expected to be performed over the remainder of 2023. Our various contracts with Shell globally, our contracts with Trident and Petrobras in Brazil, our contracts with Repsol globally and our agreement for the HP I in the Gulf of Mexico represented approximately 64% of our total backlog as of March 31, 2023. Backlog is not necessarily a reliable indicator of revenues derived from our contracts as services are often added but may sometimes be 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 amounts reflected in backlog.
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 evaluate our operating performance and financial condition based on EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt 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, Adjusted EBITDA, Free Cash Flow and Net Debt 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, Free Cash Flow and Net Debt differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt 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 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, acquisition and integration costs, the change in fair value of contingent consideration and the general provision (release) for current expected credit losses, if any. We define Free Cash Flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. Net Debt is calculated as long-term debt including current maturities of long-term debt less cash and cash equivalents and restricted cash. In the following reconciliations, 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,
2023
2022
Net loss
$
(5,165)
$
(42,031)
Adjustments:
Income tax provision (benefit)
(2,018)
2,140
Net interest expense
4,187
5,174
Other (income) expense, net
(3,444)
3,881
Depreciation and amortization
37,537
33,488
EBITDA
31,097
2,652
Adjustments:
Gain on disposition of assets, net
(367)
—
Acquisition and integration costs
231
—
Change in fair value of contingent consideration
3,992
—
General provision (release) for current expected credit losses
141
(126)
Adjusted EBITDA
$
35,094
$
2,526
The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):
Three Months Ended
March 31,
2023
2022
Cash flows from operating activities
$
(5,392)
$
(17,413)
Less: Capital expenditures, net of proceeds from sale of assets
(6,300)
(623)
Free Cash Flow
$
(11,692)
$
(18,036)
The reconciliation of our long-term debt to Net Debt is as follows (in thousands):
March 31,
December 31,
2023
2022
Long-term debt including current maturities
$
260,460
$
264,075
Less: Cash and cash equivalents and restricted cash
(169,182)
(189,111)
Net Debt
$
91,278
$
74,964
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Comparison of Three Months Ended March 31, 2023 and 2022
We have four reportable business segments: Well Intervention, Robotics, Shallow Water Abandonment 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. The following table details various financial and operational highlights for the periods presented (dollars in thousands):
Three Months Ended
Increase/
March 31,
(Decrease)
2023
2022
Amount
Percent
Net revenues —
Well Intervention
$
142,438
$
106,367
$
36,071
34
%
Robotics
49,222
37,351
11,871
32
%
Shallow Water Abandonment
49,381
—
49,381
100
%
Production Facilities
20,905
18,294
2,611
14
%
Intercompany eliminations
(11,862)
(11,887)
25
$
250,084
$
150,125
$
99,959
67
%
Gross profit (loss) —
Well Intervention
$
(4,362)
$
(28,446)
$
24,084
85
%
Robotics
7,007
3,520
3,487
99
%
Shallow Water Abandonment
7,498
—
7,498
100
%
Production Facilities
5,783
6,609
(826)
(12)
%
Corporate, eliminations and other
(742)
(292)
(450)
$
15,184
$
(18,609)
$
33,793
182
%
Gross margin —
Well Intervention
(3)
%
(27)
%
Robotics
14
%
9
%
Shallow Water Abandonment
15
%
—
%
Production Facilities
28
%
36
%
Total company
6
%
(12)
%
Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)
Well Intervention vessels
7 / 80
%
7 / 67
%
Robotics assets (3)
46 / 56
%
45 / 35
%
Chartered Robotics vessels
5 / 91
%
5 / 90
%
Shallow Water Abandonment vessels (4)
20 / 58
%
— / —
%
Shallow Water Abandonment systems (5)
21 / 68
%
— / —
%
(1) Represents the number of vessels, Robotics assets or marketable Shallow Water Abandonment systems as of the end of the period, including spot vessels and those under term charters, and excluding acquired vessels prior to their in-service dates, vessels managed on behalf of third parties 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, Robotics assets or marketable Shallow Water Abandonment systems generated revenues by the total number of calendar days in the applicable period. Utilization rates of chartered Robotics vessels during the three-month periods ended March 31, 2023 and 2022 included 13 spot vessel days at 81% utilization and 136 spot vessel days at near full utilization, respectively.
(3) Consists of ROVs, trenchers and the IROV boulder grab.
(4) Consists of liftboats, OSVs, DSVs, a heavy lift derrick barge and a crew boat.
(5) Consists of marketable P&A and coiled tubing systems.
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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/
2023
2022
(Decrease)
Well Intervention
$
4,469
$
3,850
$
619
Robotics
7,393
8,037
(644)
$
11,862
$
11,887
$
(25)
Net Revenues. Our consolidated net revenues for the three-month period ended March 31, 2023 increased by 67% as compared to the same period in 2022, reflecting higher revenues across our business segments.
Our Well Intervention revenues increased by 34% for the three-month period ended March 31, 2023 as compared to the same period in 2022, primarily reflecting higher utilization in the North Sea and higher rates in the Gulf of Mexico and Brazil, offset in part by lower revenue on the Q7000 . Revenues in the North Sea improved with strong winter season activity, generating 81% utilization during the first quarter 2023 as compared to the first quarter 2022, which generated 13% utilization. Revenues in the Gulf of Mexico benefitted from an improved day rate environment year over year, and revenues in Brazil increased primarily due to higher rates as both the Siem Helix 1 and the Siem Helix 2 commenced long-term contracts with improved rates at the end of 2022. During the first quarter 2023, the Q7000 had 53 days of dry dock during which it generated no revenue and 37 days of paid transit and mobilization to Asia Pacific for which all revenues have been deferred.
Our Robotics revenues increased by 32% for the three-month period ended March 31, 2023 as compared to the same period in 2022, primarily reflecting higher ROV and trenching activities, offset in part by fewer vessel days year over year. ROV and trencher utilization increased to 56% in the first quarter 2023 from 35% during the first quarter 2022 and included 66 days of integrated vessel trenching in both periods as well as 90 days of stand-alone trencher activities during the first quarter 2023. While chartered vessel utilization remained relatively flat at 91% during the first quarter 2023 as compared to 90% during the first quarter 2022, chartered vessel days decreased to 295 days as compared to 323 days primarily due to fewer spot vessel days during the first quarter 2023 performing seabed clearance work in the North Sea.
Our Shallow Water Abandonment revenues for the three-month period ended March 31, 2023 reflected revenues generated by Helix Alliance as a result of the Alliance acquisition on July 1, 2022 (Note 3) with 58% utilization across 20 vessels and 1,277 days of utilization across marketable P&A and coiled tubing systems during the quarter.
Our Production Facilities revenues for the three-month period ended March 31, 2023 increased by 14% as compared to the same period in 2022, primarily reflecting higher oil and gas production with the contribution from our interest in the Thunder Hawk Field acquired during the third quarter 2022 and improved rates on our HP I production contract.
Gross Profit (Loss). Our consolidated gross profit was $15.2 million for the three-month period ended March 31, 2023 as compared to consolidated gross loss of $18.6 million for the same period in 2022, primarily reflecting increased profitability in our Well Intervention and Robotics segments as well as the addition of Shallow Water Abandonment segment.
Our Well Intervention gross loss for the three-month period ended March 31, 2023 was $4.4 million as compared to a gross loss of $28.4 million for the same period in 2022, primarily reflecting higher segment revenues.
Our Robotics gross profit increased by $3.5 million for the three-month period ended March 31, 2023 as compared to the same period in 2022, primarily reflecting higher revenues due to increased ROV and trenching activities.
Our Shallow Water Abandonment gross profit for the three-month period ended March 31, 2023 reflected results from Helix Alliance.
Our Production Facilities gross profit decreased by $0.8 million for the three-month period ended March 31, 2023 as compared to the same period in 2022, primarily reflecting higher oil and gas operating costs following the Thunder Hawk Field acquisition as compared to the same period in 2022.
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Acquisition and Integration Costs. Our acquisition and integration costs were $0.2 million for the three-month period ended March 31, 2023, reflecting Alliance acquisition related costs incurred during the first quarter 2023.
Change in Fair Value of Contingent Consideration. The $4.0 million change in fair value of contingent consideration for the three-month period ended March 31, 2023 reflected an increase in the estimated earn-out consideration payable to the seller in the Alliance transaction in 2024 primarily due to an improved outlook for Helix Alliance’s 2023 results (Notes 3 and 17).
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $19.6 million for the three-month period ended March 31, 2023 as compared to $14.4 million for the same period in 2022, primarily reflecting higher employee compensation costs.
Net Interest Expense. Our net interest expense totaled $4.2 million for the three-month period ended March 31, 2023 as compared to $5.2 million for the same period in 2022, primarily reflecting the increase in interest income and the repayment of certain indebtedness (Note 6).
Other Income (Expense), Net. Net other income was $3.4 million for the three-month period ended March 31, 2023 as compared to net other expense of $3.9 million for the same period in 2022 primarily due to foreign currency transaction gains (losses) reflecting the strengthening (weakening) of the British pound.
Income Tax Provision (Benefit). Income tax benefit was $2.0 million for the three-month period ended March 31, 2023 as compared to an income tax provision of $2.1 million for the same period in 2022. The effective tax rates for the three-month periods ended March 31, 2023 and 2022 were 28.1% and (5.4)%, respectively. These variances were primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as losses for which no financial statement benefits have been recognized (Note 7).
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition and Liquidity
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
March 31,
December 31,
2023
2022
Net working capital
$
161,323
$
162,634
Long-term debt
222,008
225,875
Liquidity
246,722
284,729
Net Working Capital
Net working capital is equal to current assets minus current liabilities and includes current maturities of long-term debt. Net working capital measures short-term liquidity and is important for predicting cash flow and debt requirements.
Long-Term Debt
Long-term debt in the table above is net of unamortized debt issuance costs and excludes current maturities of $38.5 million at March 31, 2023 and $38.2 million at December 31, 2022. See Note 6 for information relating to our long-term debt.
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Liquidity
We define liquidity as cash and cash equivalents, excluding restricted cash, plus available capacity under our credit facility. Our liquidity at March 31, 2023 included $166.7 million of cash and cash equivalents and $80.0 million of available borrowing capacity under the Amended ABL Facility (Note 6) and excluded $2.5 million of restricted cash. Our liquidity at December 31, 2022 included $186.6 million of cash and cash equivalents and $98.1 million of available borrowing capacity under the Amended ABL Facility and excluded $2.5 million of restricted cash. As of March 31, 2023, we had approximately $27.8 million in Nigerian Naira, which is subject to currency exchange controls established by the Central Bank of Nigeria. Those exchange controls have to date restricted our ability to convert our Nigerian Naira into U.S. dollars.
During 2022, we saw an improvement in the markets we serve as evidenced by increases in our revenues and gross profit. We expect continued improvements in our operating performance, increases in our cash position and high availability on the Amended ABL Facility. We believe that our cash on hand, internally generated cash flows and availability under the Amended ABL Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.
A period of weak industry activity may make it difficult to comply with the covenants and other restrictions in our debt agreements. Our failure to comply with the covenants and other restrictions could lead to an event of default. Decreases in our borrowing base may limit our ability to fully access the Amended ABL Facility. We currently do not anticipate borrowing under the Amended ABL Facility other than for the issuance of letters of credit.
On February 20, 2023, we announced that our Board authorized a new share repurchase program under which we are authorized to repurchase up to $200 million issued and outstanding shares of our common stock. The 2023 Repurchase Program has no set expiration date. Repurchases under the 2023 Repurchase Program are expected to be made through open market purchases in compliance with Rule 10b-18 under the Exchange Act, privately negotiated transactions or plans, instructions or contracts established under Rule 10b5-1 under the Exchange Act. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The 2023 Repurchase Program does not obligate us to acquire any particular amount of common stock and may be modified or superseded at any time at our discretion. The purchase of shares by us under the 2023 Repurchase Program is at our discretion and subject to prevailing financial and market conditions. Any repurchased shares are expected to be cancelled. During the three-month period ended March 31, 2023, we repurchased a total of 660,000 shares of our common stock for approximately $5.0 million pursuant to the 2023 Repurchase Program.
Cash Flows
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
Three Months Ended
March 31,
2023
2022
Cash provided by (used in):
Operating activities
$
(5,392)
$
(17,413)
Investing activities
(6,300)
(623)
Financing activities
(9,424)
(5,408)
Operating Activities
The decrease in our operating cash outflows for the three-month period ended March 31, 2023 as compared to the same period in 2022 primarily reflects higher earnings, offset in part by higher regulatory recertification costs for our vessels and systems and higher working capital outflows. Regulatory recertification spend on our vessels and systems amounted to $17.2 million and $5.5 million, respectively, during the comparable year over year periods.
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Investing Activities
Cash flows used in investing activities for the three-month periods ended March 31, 2023 and 2022 reflect higher capital expenditures as a result of increased activity levels.
Financing Activities
Net cash outflows from financing activities for the three-month period ended March 31, 2023 primarily reflect the $5.0 million repurchase of our common stock under the 2023 Repurchase Program and the principal repayment of $4.1 million related to the MARAD Debt. Net cash outflows from financing activities for the three-month period ended March 31, 2022 primarily reflect the principal repayment of $3.9 million related to the MARAD Debt (Note 6).
Material Cash Requirements
Our material cash requirements include our obligations to repay our long-term debt, satisfy other contractual cash commitments and fund other obligations, including the payment of the Alliance earn-out consideration to the seller in the Alliance transaction.
Long-term debt and other contractual commitments
The following table summarizes the principal amount of our long-term debt and related debt service costs as well as other contractual commitments, which include commitments for property and equipment and operating lease obligations, as of March 31, 2023 and the portions of those amounts that are short-term (due in less than one year) and long-term (due in one year or greater) based on their stated maturities (in thousands). Our property and equipment commitments include contractually committed amounts to purchase and service certain property and equipment (inclusive of commitments related to regulatory recertification and dry dock as discussed below) but do not include expected capital spending that is not contractually committed as of March 31, 2023. Our 2023 Notes and 2026 Notes have certain early redemption and conversion features that could affect the timing and amount of any cash requirements. Although upon conversion these notes are able to be settled in either cash or shares, we intend to settle their principal amounts in cash (Note 6).
Total
Short-Term
Long-Term
MARAD debt
$
36,797
$
8,539
$
28,258
2023 Notes
30,000
30,000
—
2026 Notes
200,000
—
200,000
Interest related to debt
45,058
16,207
28,851
Property and equipment
13,631
13,631
—
Operating leases (1)
395,212
126,475
268,737
Earn-out consideration (2)
46,746
—
46,746
Total cash obligations
$
767,444
$
194,852
$
572,592
(1) Operating leases include vessel charters and facility and equipment leases. At March 31, 2023, our commitment related to long-term vessel charters totaled approximately $361.2 million, of which $147.7 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, 2023.
(2) As part of the Alliance acquisition, we are required to make the earn-out payment to the seller in the Alliance transaction in 2024 in the event the Helix Alliance business achieves certain financial metrics in 2022 and 2023 (Note 3). Amount reflects the estimated fair value of the earn-out as of March 31, 2023 although the final earn-out payable is not capped.
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Other material cash requirements
Other material cash requirements include the following:
Decommissioning. We have decommissioning obligations associated with our oil and gas properties (Note 13). Those obligations, which are presented on a discounted basis on the condensed consolidated balance sheets, approximate $45.0 million (undiscounted) for Thunder Hawk Field oil and gas properties and $33.5 million (undiscounted) for Droshky oil and gas properties as of March 31, 2023, none of which is expected to be paid during the next 12 months. We are entitled to receive $30.0 million (undiscounted) from Marathon Oil as certain decommissioning obligations associated with Droshky oil and gas properties are fulfilled.
Regulatory recertification and dry dock. Our Well Intervention vessels and systems are subject to certain regulatory recertification requirements that must be satisfied in order for the vessels and systems to operate. Recertification may require dry dock and other compliance costs on a periodic basis, usually every 30 months. Although the amount and timing of these costs may vary and are dependent on the timing of the certification renewal period, they generally range between $3.0 million to $15.0 million per vessel and $0.5 million to $5.0 million per system.
We expect the sources of funds to satisfy our material cash requirements to primarily come from our ongoing operations and existing cash on hand, but may also come from availability under the Amended ABL Facility and access to capital markets.
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 have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates involve a significant level of estimation uncertainty and may change over time 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, see our “Critical Accounting Estimates” as disclosed in our 2022 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.