What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-26 compared with 2023-10-25 · 109 added, 214 removed, 177 unchanged (65% of the section changed)

6 unchanged sentences

● 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 projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, cash flows, future operations expenditures or other financial items;

● statements regarding our backlog and commercial contracts and rates thereunder;

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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 our ability to identify, effect and integrate acquisitions, joint ventures or other transactions and any subsequently identified legacy issues with respect thereto;

● statements regarding the acquisition, construction, completion, upgrades to or maintenance and/or regulatory certification 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 potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions;

● statements regarding our sustainability initiatives and the successes thereon or regarding our environmental efforts, including with respect to greenhouse gas emissions;

● 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 existing activities in, and future expansion into, the offshore renewable energy market;

● statements regarding potential developments, industry trends, performance or industry ranking;

● statements regarding our human capital resources, including our ability to retain our senior management and other key employees;

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● the impact of domestic and global economic and market 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 general impact of oil and natural gas price volatility and the cyclical nature of the oil and gas market;

● 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, and any earn-outs payable in connection therewith, or the determination not to pursue or effect such initiatives;

● the results of acquired properties and/or equipment;

● the results of corporate initiatives such as alliances, partnerships, joint ventures, mergers, acquisitions, divestitures and restructurings, and any amounts payable in connection therewith, or the determination not to pursue or effect such initiatives;

● the operating results of acquired properties and/or equipment;

● the impact of inflation and our ability to recoup rising costs in the rates we charge to our customers;

2 unchanged sentences

● 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;

● the performance of contracts by customers, suppliers and other counterparties;

● the results of our continuing efforts to control costs and improve performance;

4 unchanged sentences

● the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;

● the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments;

● the success of our risk management activities, including with respect to our cybersecurity initiatives;

● the effectiveness of our risk management activities and processes, including with respect to our cybersecurity initiatives and disclosures;

● 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 effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments;

● the impact of our stock price on our financing activities such as repurchases of our common stock under share repurchase programs;

● the effectiveness of our sustainability 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, decommissioning, and litigation and similar claims in which we may be involved;

14 unchanged sentences

EXECUTIVE SUMMARY

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 existing oil and gas reserves, decommissioning end-of-life oil and gas fields and supporting renewable energy developments.

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 decommissioning operations.

Our services are key in supporting a global energy transition by maximizing production of existing oil and gas reserves, decommissioning end-of-life oil and gas fields and supporting renewable energy developments.

Our well intervention fleet includes seven purpose-built well intervention vessels and 12 subsea intervention systems.

Our robotics equipment includes 39 work-class ROVs, seven trenchers and the IROV boulder grab.

Our robotics equipment includes 39 work-class ROVs, six trenchers and two IROV boulder grabs.

We charter robotics support vessels on long-term, short-term, flexible and spot bases to facilitate our ROV and trenching operations.

Our Shallow Water Abandonment segment includes nine liftboats, six OSVs, three DSVs, one heavy lift derrick barge, one crew boat, 20 P&A systems and six coiled tubing systems.

Our Shallow Water Abandonment segment includes nine liftboats, six OSVs, three DSVs, one heavy lift derrick barge, one crew boat, 20 P&A systems and six CT systems.

Our Production Facilities segment includes the HP I , the HFRS and our ownership of mature oil and gas properties.

Economic Outlook and Industry Influences

Industry Influences and Market Environment

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 have been volatile but remained robust during 2023.

Global demand for oil continues to experience growth whereas supply has been negatively impacted by regional conflicts and production cuts by members of the Organization of Petroleum Exporting Countries (“OPEC) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”).

We expect the current market conditions will maintain continued customer spending for the industry.

Despite the current commodity price environment, there remain headwinds to commodity price stability, including those regional conflicts, further OPEC+ decisions, high inflation and in particular governments’ and central banks’ efforts to control inflation such as raising interest rates, which may taper economic growth, and various governmental and customer ESG initiatives and continued shifting of resource allocation to renewable energy.

Demand for decommissioning, which has been an area of growth for us in recent years, is affected by commodity prices as well as governmental regulations and political forces globally.

Oil prices continue to be volatile but have generally remained robust since 2020.

Global demand for oil continues to experience growth, and we expect the current market conditions will maintain continued customer spending for the industry.

Despite the current commodity price environment, factors that could threaten the current commodity price environment persist, including regional conflicts, unrest in the Middle East, decisions from members of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”), various governmental and customer sustainability initiatives and continued shifting of resource allocation to renewable energy.

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 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.

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 through the rates we charge and by actively pursuing internal cost management efforts.

However, competitive market pressures may affect our ability to recoup these price increases through our rates, which may result in reductions in our operating margins and cash flows.

The recent high inflation rates seen in various major economies have resulted in central banks’ tightening of monetary policies.

These concerns have contributed to stock market volatility as well as higher interest rates, which could provide a strained macroeconomic outlook and in turn affect energy markets.

We maximize production of existing oil and gas reserves for our customers primarily in our Well Intervention segment.

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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, we are seeing oil and gas companies investing in new long-cycle exploration projects in addition to maintaining and/or increasing production from their existing reserves.

We are seeing oil and gas companies continue to invest in long-cycle exploration projects in addition to maintaining and/or increasing production from their existing 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.

We support the energy transition to renewable energy 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 generation and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water and other regions, and government subsidies for renewable energy projects.

We expect growth in our renewables services as the energy market transitions to continued renewable energy developments.

We expect growth in our renewables services as the energy market transitions to continued offshore 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 and decommissioning 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.

We define backlog as firm commitments represented by signed contracts.

As of September 30, 2023, our consolidated backlog totaled approximately $790 million, of which $242 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 57% of our total backlog as of September 30, 2023.

Our operations service the life cycle of an oil and gas field and provide P&A and decommissioning 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 these services efficiently.

The demand for P&A services should grow over the mid- to long-term as the subsea tree base expands, as government regulations continue to place stronger emphasis on decommissioning aged wells worldwide (including subsea trees as well as mature dry tree wells in the shallow waters of the Gulf of Mexico), as customers look to reduce their decommissioning obligations and as customers shift resources to renewable energy.

In 2024, despite a backdrop of a somewhat uncertain macro environment globally, we expect to experience another strong year of performance driven by increasing demand for our decommissioning services internationally and continued growth in the offshore renewables trenching market.

The demand for shallow water decommissioning services in the Gulf of Mexico is expected to soften in the near term but should grow over the mid- to long-term.

Our backlog is represented by signed contracts.

As of March 31, 2024, our consolidated backlog totaled approximately $997 million, of which $663 million is expected to be performed over the remainder of 2024.

Our various contracts with Shell globally, our contracts with Trident Energy and Petrobras in Brazil, our contracts with ExxonMobil globally, and our agreement for the HP I in the Gulf of Mexico represented approximately 65% of our total backlog as of March 31, 2024.

Backlog is not necessarily a reliable indicator of revenues derived from our contracts as services are often added but may sometimes be subtracted;

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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.

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.

We define EBITDA as earnings before income taxes, net interest expense, net other income or expense, and depreciation and amortization expense.

Non-cash impairment losses on goodwill and other long-lived assets are also added back if applicable.

To arrive at our measure of Adjusted EBITDA, we exclude gains or losses on disposition of assets, acquisition and integration costs, gains or losses related to convertible senior notes, 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 asset sales and insurance recoveries (related to property and equipment), if any.

Net Debt is calculated as long-term debt including current maturities of long-term debt less cash and cash equivalents.

In the following reconciliations, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Income tax provision

Income tax benefit

Net interest expense

Other expense, net

Other (income) expense, net

Depreciation and amortization

Gain on equity investment

Gain on disposition of assets, net

(Gain) loss on disposition of assets, net

Acquisition and integration costs

Change in fair value of contingent consideration

General provision for current expected credit losses

General provision (release) for current expected credit losses

Losses related to convertible senior notes

Adjusted EBITDA

The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

Capital expenditures, net of proceeds from sale of assets

Capital expenditures, net of proceeds from asset sales and insurance recoveries

Free Cash Flow

The reconciliation of our long-term debt to Net Debt is as follows (in thousands):

September 30,

Long-term debt including current maturities

Cash and cash equivalents and restricted cash

Comparison of Three Months Ended September 30, 2023 and 2022

Cash and cash equivalents

Comparison of Three Months Ended March 31, 2024 and 2023

We have four reportable business segments:

3 unchanged sentences

Three Months Ended

September 30,

Net revenues —

21 unchanged sentences

(2) Represents the average utilization rate, which is calculated by dividing the total number of days the vessels, Robotics assets or 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 September 30, 2023 and 2022 included 92 and 100 spot vessel days, respectively, at near full utilization.

(3) Consists of ROVs, trenchers and the IROV boulder grab.

Utilization rates of chartered Robotics vessels during the three-month periods ended March 31, 2024 and 2023 included 91 spot vessel days at full utilization and 13 spot vessel days at 81% utilization, respectively.

(3) Consists of ROVs, trenchers and IROV boulder grabs.

(4) Consists of liftboats, OSVs, DSVs, a heavy lift derrick barge and a crew boat.

(5) Consists of P&A systems and coiled tubing systems.

(5) Consists of P&A and CT systems.

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments.

1 unchanged sentence

Three Months Ended

September 30,

Well Intervention

1 unchanged sentence

Net Revenues.

Our consolidated net revenues for the three-month period ended September 30, 2023 increased by 45% as compared to the same period in 2022, reflecting higher revenues across our business segments.

Our Well Intervention revenues increased by 57% for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher revenues on the Q7000 and higher rates in the North Sea and Brazil.

During the third quarter 2023, the Q7000 operated throughout the quarter, achieving 88% utilization at higher rates as compared to being 59% utilized during the third quarter 2022 following scheduled regulatory maintenance.

Revenues in the North Sea improved with higher day rates and a stronger British pound as compared to the third quarter 2022.

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.

Our Robotics revenues increased by 35% for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher chartered vessel and ROV activities and rates.

Although chartered vessel utilization declined slightly, vessel days increased to 506 days during the third quarter 2023 as compared to 376 days during the third quarter 2022.

ROV and trencher utilization increased to 67% in the third quarter 2023 from 66% during the third quarter 2022 and included 276 days of integrated vessel trenching in the third quarter 2023 as compared to 176 days in the third quarter 2022.

Our Shallow Water Abandonment revenues increased by 29% for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher vessel and system utilization and rates in the third quarter 2023.

Overall vessel utilization was 89% during the third quarter 2023 as compared to 80% during the third quarter 2022.

P&A systems and coiled tubing systems achieved 1,531 days of utilization, or 74%, during the third quarter 2023 as compared to 1,077 days of utilization, or 59%, during the third quarter 2022.

Our Production Facilities revenues increased by 33% for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher oil and gas production, offset in part by lower oil and gas prices during the third quarter 2023 as compared to the third quarter 2022.

Gross Profit (Loss).

Our consolidated gross profit increased by $41.3 million for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting increased segment profitability as well as the addition of Shallow Water Abandonment segment.

Our Well Intervention gross profit increased by $17.9 million for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher segment revenues.

Our Robotics gross profit increased by $9.2 million for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher revenues due to increased activities.

Our Shallow Water Abandonment gross profit increased by $11.9 million for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting better operating results from Helix Alliance.

Our Production Facilities gross profit increased by $2.5 million for the three-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher revenues.

Change in Fair Value of Contingent Consideration.

The change in fair value of contingent consideration reflected increases in the estimated Alliance acquisition earn-out consideration primarily due to an improvement in Helix Alliance’s results (Notes 3 and 17).

Selling, General and Administrative Expenses.

Our selling, general and administrative expenses were $27.8 million for the three-month period ended September 30, 2023 as compared to $23.6 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 September 30, 2023 as compared to $4.6 million for the same period in 2022, primarily reflecting the increase in interest income and the repayment of certain indebtedness (Note 6).

Other Expense, Net.

Net other expense was $8.3 million for the three-month period ended September 30, 2023 as compared to $20.3 million for the same period in 2022, primarily reflecting a reduction in foreign currency losses related to the depreciation of the British pound primarily on U.S.

dollar denominated intercompany debt in our U.K.

Income Tax Provision.

Income tax provision was $8.3 million for the three-month period ended September 30, 2023 as compared to $6.5 million for the same period in 2022.

The effective tax rates for the three-month periods ended September 30, 2023 and 2022 were 34.9% and (53.0)%, respectively.

These variances were primarily attributable to non-deductible expenses, non-creditable foreign income taxes and losses for which no financial statement benefits have been recognized (Note 7).

Comparison of Nine Months Ended September 30, 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):

Nine Months Ended

September 30,

Net revenues —

Well Intervention

Shallow Water Abandonment

Production Facilities

Intercompany eliminations

Gross profit (loss) —

Well Intervention

Shallow Water Abandonment

Production Facilities

Corporate, eliminations and other

Gross margin —

Well Intervention

Shallow Water Abandonment

Production Facilities

Total company

Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)

Well Intervention vessels

Robotics assets (3)

Chartered Robotics vessels

Shallow Water Abandonment vessels (4)

Shallow Water Abandonment systems (5)

(1) Represents the number of vessels, Robotics assets or 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.

Utilization rates of chartered Robotics vessels during the nine-month periods ended September 30, 2023 and 2022 included 218 and 352 spot vessel days, respectively, at near full utilization.

(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 P&A systems and coiled tubing systems.

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments.

Intercompany segment revenues are as follows (in thousands):

Nine Months Ended

September 30,

Well Intervention

Shallow Water Abandonment

Net Revenues.

Our consolidated net revenues for the nine-month period ended September 30, 2023 increased by 63% as compared to the same period in 2022, reflecting higher revenues across our business segments.

Our Well Intervention revenues increased by 46% for the nine-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher revenues in the North Sea and Brazil and on the Q7000 , offset in part by lower revenues in the Gulf of Mexico.

Revenues in the North Sea improved with stronger utilization and rates as compared to the nine-month period ended September 30, 2022.

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.

Higher revenues on the Q7000 were primarily attributable to the vessel achieving higher utilization and rates during the third quarter 2023 as compared to the same period in 2022.

Revenues in the Gulf of Mexico decreased primarily due to lower utilization on the Q4000 and the Q5000 as both vessels had their scheduled regulatory dry dock in 2023.

This revenue decrease was partially offset by improved day rates on the Q4000 .

Our Robotics revenues increased by 36% for the nine-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher utilization and rates on vessels, ROVs and trenchers.

Chartered vessel days and utilization increased to 1,236 days and 95%, respectively, during the nine-month period ended September 30, 2023 as compared to 1,069 days and 94%, respectively, during the nine-month period ended September 30, 2022.

ROV and trencher utilization increased to 60% in the nine-month period ended September 30, 2023 from 52% during the nine-month period ended September 30, 2022 and included 536 days of integrated vessel trenching in 2023 as compared to 323 days in 2022.

Also included in the nine-month period ended September 30, 2023 were 148 days of stand-alone trencher activities on the i-Plough trencher and 83 days of utilization on the IROV boulder grab, both of which were acquired in the second half of 2022.

Our Shallow Water Abandonment revenues for the nine-month period ended September 30, 2023 reflected nine months of revenue generated by Helix Alliance with 75% utilization across 20 vessels and 4,362 days of utilization across 26 P&A systems and coiled tubing systems.

Our Shallow Water Abandonment revenues for the nine-month period ended September 30, 2022 reflected three months of revenue generated by Helix Alliance since July 1, 2022 (Note 3) with 80% utilization across 21 vessels and 1,077 days of utilization across P&A systems and coiled tubing systems.

Our Production Facilities revenues for the nine-month period ended September 30, 2023 increased by 26% 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, offset in part by lower oil and gas prices during the nine-month period ended September 30, 2023 as compared to the same period in 2022.

Our consolidated net revenues for the three-month period ended March 31, 2024 increased by 18% as compared to the same period in 2023, reflecting higher revenues in our Well Intervention, Robotics and Production Facilities business segments, offset in part by lower revenues in our Shallow Water Abandonment segment.

Our Well Intervention revenues increased by 52% for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher revenues on the Q7000 and the Q5000 and higher rates and utilization on the Seawell , offset in part by lower utilization on the Well Enhancer .

The Q7000 had full utilization during the first quarter 2024 whereas the vessel was transiting from West Africa to Asia Pacific and undergoing regulatory and project related dockings during the first quarter 2023, and utilization increased on the Q5000 during the first quarter 2024 as the vessel underwent a regulatory docking during the first quarter 2023.

The Seawell benefitted from being on contract during the entire first quarter 2024 in the western Mediterranean as compared to having had lower seasonal utilization and rates in the North Sea during the first quarter 2023.

The Well Enhancer in the North Sea had lower utilization as compared to the prior year period as the vessel underwent a 54-day scheduled dry dock during the first quarter 2024.

Our Robotics revenues increased by 2% for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher chartered vessel days and trenching and ROV activities during the first quarter 2024.

Chartered vessel days increased to 333 days during the first quarter 2024 as compared to 295 days during the first quarter 2023, although chartered vessel days in the first quarter 2024 included approximately 64 days of standby utilization at reduced rates.

ROV and trencher utilization increased to 58% in the first quarter 2024 from 56% during the first quarter 2023 and included 85 days of integrated vessel trenching in the first quarter 2024 as compared to 66 days in the first quarter 2023.

Our Shallow Water Abandonment revenues decreased by 46% for the three-month period ended March 31, 2024 as compared to the same period in 2023.

The decrease in revenues is due to lower activity levels that are reflective of the variable nature of operator spending as well as higher customer concentrations in the Gulf of Mexico shelf market, resulting in lower vessel and system utilization during the first quarter 2024 as compared to the first quarter 2023.

Overall vessel utilization was 41% during the first quarter 2024 as compared to 58% during the first quarter 2023.

P&A systems and CT systems achieved 626 days of utilization, or 26% on 26 systems, during the first quarter 2024 as compared to 1,277 days of utilization, or 68% on 21 systems, during the first quarter 2023.

Our Production Facilities revenues increased by 16% for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher oil and gas production as the Thunder Hawk wells were shut in for planned maintenance during the first quarter 2023.

Gross Profit (Loss).

Our consolidated gross profit increased by $131.8 million for the nine-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting increased segment profitability as well as the addition of Shallow Water Abandonment segment since July 1, 2022.

Our Well Intervention gross profit for the nine-month period ended September 30, 2023 was $22.3 million as compared to a gross loss of $45.9 million for the same period in 2022, primarily reflecting higher segment revenues.

Our Robotics gross profit increased by $20.6 million for the nine-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher revenues due to increased activities.

Our Shallow Water Abandonment gross profit increased by $40.3 million for the nine-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting nine months of operating results from Helix Alliance in 2023 as compared to three months of operating results in 2022.

Our Production Facilities gross profit increased by $3.7 million for the nine-month period ended September 30, 2023 as compared to the same period in 2022, primarily reflecting higher revenues.

Acquisition and Integration Costs.

Our acquisition and integration costs decreased by $1.8 million for the nine-month period ended September 30, 2023 as compared to the same period in 2022, reflecting lower spend towards the late stage of the Alliance integration process.

Our consolidated gross profit increased by $4.4 million for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting increased profits from our Well Intervention and Robotics business segments, offset in part by losses from our Shallow Water Abandonment and Production Facilities segments.

Our Well Intervention segment had a gross profit of $23.1 million for the three-month period ended March 31, 2024 as compared to a gross loss of $4.4 million for the same period in 2023, primarily reflecting higher segment revenues.

Our Robotics gross profit increased by $1.2 million for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher revenues due to increased activities.

Our Shallow Water Abandonment segment had a gross loss of $9.8 million for the three-month period ended March 31, 2024 as compared to a gross profit of $7.5 million for the same period in 2023, primarily reflecting lower segment revenues.

Our Production Facilities segment had a gross loss of $1.3 million for the three-month period ended March 31, 2024 as compared to a gross profit of $5.8 million for the same period in 2023, primarily reflecting well workover costs of approximately $8.6 million related to the Thunder Hawk wells during the first quarter 2024.

Change in Fair Value of Contingent Consideration.

The change in fair value of contingent consideration in the first quarter 2023 reflected an improvement in Helix Alliance’s results during the first quarter.

We entered into an agreement and set the final earn-out during the fourth quarter 2023, which was paid on April 3, 2024.

Selling, General and Administrative Expenses.

Our selling, general and administrative expenses were $71.5 million for the nine-month period ended September 30, 2023 as compared to $54.0 million for the same period in 2022, primarily reflecting higher employee compensation costs and the addition of Helix Alliance.

Equity in Earnings of Investment.

Equity in earnings of investment was $8.3 million for the nine-month period ended September 30, 2022 primarily reflecting gains recognized as a result of the sale of the “Independence Hub” platform.

Our selling, general and administrative expenses were $21.0 million for the three-month period ended March 31, 2024 as compared to $19.6 million for the same period in 2023, primarily reflecting an increase in professional fees, third party services and office-related costs.

Net Interest Expense.

Our net interest expense totaled $12.6 million for the nine-month period ended September 30, 2023 as compared to $14.6 million for the same period in 2022, primarily reflecting the increase in interest income and the repayment of certain indebtedness (Note 6).

Other Expense, Net.

Net other expense was $10.6 million for the nine-month period ended September 30, 2023, primarily reflecting foreign currency losses related to the devaluation of the Nigerian naira on our naira cash holdings, offset in part by foreign currency gains related to U.S.

dollar denominated intercompany debt in our U.K.

Net other expense was $37.6 million for the nine-month period ended September 30, 2022, primarily reflecting foreign currency losses related to U.S.

Our net interest expense totaled $5.5 million for the three-month period ended March 31, 2024 as compared to $4.2 million for the same period in 2023, primarily reflecting interest expense on our 2029 Notes, offset in part by higher interest income on our invested cash reserves (Note 5).

Losses Related to Convertible Senior Notes.

The $20.9 million loss for the three-month period ended March 31, 2024 was associated with the retirement of our 2026 Notes (Note 5).

Other Income (Expense), Net.

Net other expense was $2.2 million for the three-month period ended March 31, 2024 as compared to net other income of $3.4 million for the same period in 2023, primarily reflecting foreign currency losses related to the depreciation of the British pound primarily on U.S.

dollar denominated intercompany debt in our U.K.

Income Tax Provision.

Income tax provision was $9.6 million for the nine-month period ended September 30, 2023 as compared to $10.1 million for the same period in 2022.

The effective tax rates for the nine-month periods ended September 30, 2023 and 2022 were 35.5% and (12.5)%, 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).

Income Tax Benefit.

Income tax benefit was $1.7 million for the three-month period ended March 31, 2024 as compared to $2.0 million for the same period in 2023.

The effective tax rates for the three-month periods ended March 31, 2024 and 2023 were 6.1% and 28.1%, respectively.

The decrease in effective tax rates was primarily attributable to the non-deductibility of certain losses associated with the 2026 Notes Redemptions, which was characterized as a discrete event and reported in the current quarter (Note 6).

LIQUIDITY AND CAPITAL RESOURCES

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The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):

September 30,

Net working capital

Long-term debt

Long-term debt (excluding current maturities)

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 is equal to current assets minus current liabilities and includes cash and cash equivalents, current maturities of long-term debt and current operating lease liabilities.

Net working capital measures short-term liquidity and is important for predicting cash flow and debt requirements.

Net working capital at March 31, 2024 and December 31, 2023 includes $85.0 million of Alliance earn-out consideration that was paid in cash on April 3, 2024.

Long-Term Debt

Long-term debt in the table above is net of unamortized debt issuance costs and excludes current maturities of $8.7 million at September 30, 2023 and $38.2 million at December 31, 2022.

Long-term debt in the table above includes our MARAD Debt, the 2023 Notes, the 2026 Notes and the 2029 Notes and excludes current maturities of $9.0 million at March 31, 2024 and $48.3 million at December 31, 2023, and is net of unamortized debt discount and debt issuance costs.

See Note 5 for information relating to our long-term debt.

We define liquidity as cash and cash equivalents, excluding restricted cash, plus available capacity under our credit facility.

Our liquidity at September 30, 2023 included $168.4 million of cash and cash equivalents and $110.2 million of available borrowing capacity under the Amended ABL Facility (Note 6).

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 September 30, 2023, we had approximately $15.9 million in Nigerian naira, which has been subject to currency exchange controls established by the Central Bank of Nigeria.

Those exchange controls have to date limited our ability to convert our Nigerian naira into U.S.

Beginning 2022 and continuing through 2023, we have seen an improvement in the markets we serve, following the slowdown triggered by the COVID-19 pandemic, 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.

We define liquidity as cash and cash equivalents plus available capacity under our credit facility.

Our liquidity at March 31, 2024 included $323.8 million of cash and cash equivalents and $95.6 million of available borrowing capacity under the Amended ABL Facility (Note 5).

In March 2024, we settled the remaining $40.2 million aggregate principal amount of the 2026 Notes for $60.5 million in cash (excluding costs), offset in part by $4.4 million from the settlement of the remaining 2026 Capped Calls.

Our liquidity at December 31, 2023 included $332.2 million of cash and cash equivalents and $99.3 million of available borrowing capacity under the Amended ABL Facility.

In December 2023, we used $229.7 million of the cash proceeds from the 2029 Notes, as well as 1.5 million shares of our common stock, to repurchase $159.8 million aggregate principal amount of the 2026 Notes, offset in part by $15.6 million from the associated 2026 Capped Calls.

On April 3, 2024, we paid $85.0 million of earn-out consideration in cash to the seller in the Alliance transaction.

In the current market environment, following the settlement of the Alliance earn-out we expect strong ongoing operating performance and cash flows, continued availability on the Amended ABL Facility and reductions in Net Debt (See “Results of Operations — Non-GAAP Financial Measures” for the definition of Net Debt).

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 and other obligations 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.

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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 nine-month period ended September 30, 2023, we repurchased a total of 1,584,045 shares of our common stock for approximately $12.0 million pursuant to the 2023 Repurchase Program.

During the three-month period ended March 31, 2024, we repurchased a total of 462,585 shares of our common stock for approximately $5.0 million pursuant to the 2023 Repurchase Program.

The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):

Nine Months Ended

September 30,

Three Months Ended

Cash provided by (used in):

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Operating Activities

The increase in our operating cash flows for the nine-month period ended September 30, 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.

The increase in our operating cash flows for the three-month period ended March 31, 2024 as compared to the same period in 2023 primarily reflects lower operating losses, higher working capital inflows and lower regulatory recertification costs for our vessels and systems.

Regulatory recertification spend on our vessels and systems amounted to $9.6 million and $17.2 million, respectively, during the comparable year over year periods.

Investing Activities

Cash flows used in investing activities for the nine-month periods ended September 30, 2023 and 2022 reflect higher capital expenditures as a result of increased activity levels as well as $6.0 million cash payment for the purchase of P&A equipment (Note 2).

Cash flows used in investing activities for the nine-month periods ended September 30, 2022 also included $112.6 million in net cash paid to acquire Alliance (Note 3).

Cash flows used in investing activities for the three-month periods ended March 31, 2024 and 2023 reflect lower capital expenditures during the first quarter 2024.

Financing Activities

Net cash outflows from financing activities for the nine-month period ended September 30, 2023 primarily reflect the $12.0 million repurchase of our common stock under the 2023 Repurchase Program, the principal repayment of $8.3 million related to the MARAD Debt and $30.4 million related to the 2023 Notes (Note 6).

Net cash outflows from financing activities for the nine-month period ended September 30, 2022 primarily reflect the principal repayment of $7.9 million related to the MARAD Debt and $35 million related to the 2022 Notes.

Net cash outflows from financing activities for the three-month period ended March 31, 2024 primarily reflect cash outflows of $60.7 million related to the 2026 Notes, $4.2 million in repurchases of our common stock under the 2023 Repurchase Program and the principal repayment of $4.3 million related to the MARAD Debt, offset in part by $4.4 million from the proportionate settlement of the 2026 Capped Calls.

Net cash outflows from financing activities for the three-month period ended March 31, 2023 primarily reflect $5.0 million in repurchases of our common stock under the 2023 Repurchase Program and the repayment of $4.1 million related to the MARAD Debt.

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.

Our material cash requirements include our obligations to repay our long-term debt, satisfy other contractual cash commitments and fund other obligations.

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, operating lease obligations and contingent earn-out consideration, as of September 30, 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 September 30, 2023.

We acquired Helix Alliance in July 2022 for total consideration that included cash plus an earn-out to the extent Helix Alliance’s financial results exceed certain thresholds in 2022 and 2023 (Note 3).

We reported $74.1 million of contingent earn-out consideration in “Accrued liabilities” in the accompanying condensed consolidated balance sheet as of September 30, 2023 (Note 4), which was the estimated fair value of the expected future earn-out payment.

The earn-out is based on Helix Alliance’s financial performance through the end of 2023 and is expected to be paid in cash in the first half of 2024, and the final amount could change based on the ultimate financial performance of Helix Alliance.

Our 2026 Notes have certain early redemption and conversion features that could affect the timing and amount of any cash requirements.

On September 29, 2023, we announced that the 2026 Notes are convertible at the option of the holders from October 1, 2023 through December 31, 2023 as a result of the closing price of our common stock exceeding 130% of the conversion price for at least 20 days of the last 30 consecutive trading days in the quarter ended September 30, 2023.

Should the closing share price conditions continue to be met in a future quarter for the 2026 Notes, the 2026 Notes will be convertible at their holders’ option during the immediately following quarter.

We have the right to satisfy our conversion obligation by delivering cash, shares of our common stock or any combination thereof (Note 6).

The following table summarizes (in thousands) 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, operating lease obligations and Alliance earn-out consideration, as of March 31, 2024 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.

We acquired Helix Alliance in July 2022 for total consideration that included cash plus an earn-out to the extent Helix Alliance’s financial results exceeded certain thresholds in 2022 and 2023.

During the fourth quarter 2023, we finalized the calculation and agreed with the seller in the Alliance transaction on an $85.0 million earn-out that was paid in cash on April 3, 2024.

Accordingly, we reported $85.0 million of Alliance earn-out consideration in “Accrued liabilities” in the condensed consolidated balance sheets (Note 3).

Interest related to debt

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(1) Operating leases include vessel charters and facility and equipment leases.

At September 30, 2023, our commitment related to long-term vessel charters totaled approximately $341.6 million, of which $139.1 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 September 30, 2023.

At March 31, 2024, our commitment related to long-term vessel charters totaled approximately $990.9 million, of which $533.3 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, 2024.

Other material cash requirements

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We have decommissioning obligations associated with our oil and gas properties (Note 12).

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 September 30, 2023, none of which is expected to be paid during the next 12 months.

Those obligations, which are presented on a discounted basis on the condensed consolidated balance sheets, approximate $80.9 million (undiscounted) for Thunder Hawk Field oil and gas properties and $37.1 million (undiscounted) for Droshky oil and gas properties as of March 31, 2024, 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.

Our 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.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis