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, cash flows, future operations expenditures or other financial items;
● statements regarding our backlog and commercial contracts and rates thereunder;
● statements regarding our ability to enter into, renew 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, oil price volatility and its effects and results on the foregoing as well as our protocols and plans;
● statements regarding energy transition and energy security;
● 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 our trade receivables and their collectability;
● 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 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;
● 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.
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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 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 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 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;
● 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 customers, suppliers and other counterparties;
● the results of our continuing efforts to control costs and improve performance;
● 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 impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;
● 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 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;
● the future impact of international activity and trade agreements on our business, operations and financial condition;
● 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 2023 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 2023 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.
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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 2023 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 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, 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 CT systems. Our Production Facilities segment includes the HP I , the HFRS and our ownership of mature oil and gas properties.
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. 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 maximize production of existing 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.
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.
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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 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. 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.
Outlook
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.
Backlog
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; 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.
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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.
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.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
Three Months Ended
March 31,
2024
2023
Net loss
$
(26,287)
$
(5,165)
Adjustments:
Income tax benefit
(1,698)
(2,018)
Net interest expense
5,477
4,187
Other (income) expense, net
2,216
(3,444)
Depreciation and amortization
46,353
37,537
EBITDA
26,061
31,097
Adjustments:
(Gain) loss on disposition of assets, net
150
(367)
Acquisition and integration costs
—
231
Change in fair value of contingent consideration
—
3,992
General provision (release) for current expected credit losses
(143)
141
Losses related to convertible senior notes
20,922
—
Adjusted EBITDA
$
46,990
$
35,094
The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):
Three Months Ended
March 31,
2024
2023
Cash flows from operating activities
$
64,484
$
(5,392)
Less: Capital expenditures, net of proceeds from asset sales and insurance recoveries
(3,242)
(6,300)
Free Cash Flow
$
61,242
$
(11,692)
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The reconciliation of our long-term debt to Net Debt is as follows (in thousands):
March 31,
December 31,
2024
2023
Long-term debt including current maturities
$
318,164
$
361,722
Less: Cash and cash equivalents
(323,849)
(332,191)
Net Debt
$
(5,685)
$
29,531
Comparison of Three Months Ended March 31, 2024 and 2023
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)
2024
2023
Amount
Percent
Net revenues —
Well Intervention
$
216,459
$
142,438
$
74,021
52
%
Robotics
50,309
49,222
1,087
2
%
Shallow Water Abandonment
26,853
49,381
(22,528)
(46)
%
Production Facilities
24,152
20,905
3,247
16
%
Intercompany eliminations
(21,562)
(11,862)
(9,700)
$
296,211
$
250,084
$
46,127
18
%
Gross profit (loss) —
Well Intervention
$
23,144
$
(4,362)
$
27,506
631
%
Robotics
8,183
7,007
1,176
17
%
Shallow Water Abandonment
(9,763)
7,498
(17,261)
(230)
%
Production Facilities
(1,306)
5,783
(7,089)
(123)
%
Corporate, eliminations and other
(704)
(742)
38
$
19,554
$
15,184
$
4,370
29
%
Gross margin —
Well Intervention
11
%
(3)
%
Robotics
16
%
14
%
Shallow Water Abandonment
(36)
%
15
%
Production Facilities
(5)
%
28
%
Total company
7
%
6
%
Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)
Well Intervention vessels
7 / 90
%
7 / 80
%
Robotics assets (3)
47 / 58
%
46 / 56
%
Chartered Robotics vessels
6 / 74
%
5 / 91
%
Shallow Water Abandonment vessels (4)
20 / 41
%
20 / 58
%
Shallow Water Abandonment systems (5)
26 / 26
%
21 / 68
%
(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.
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(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 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 and CT systems.
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/
2024
2023
(Decrease)
Well Intervention
$
11,252
$
4,469
$
6,783
Robotics
10,228
7,393
2,835
Shallow Water Abandonment
82
—
82
$
21,562
$
11,862
$
9,700
Net Revenues. 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.
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Gross Profit (Loss). 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 $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 $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. entities.
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).
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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,
2024
2023
Net working capital
$
257,728
$
249,223
Long-term debt (excluding current maturities)
309,199
313,430
Liquidity
419,401
431,471
Net Working Capital
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 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.
Liquidity
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. 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.
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.
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Cash Flows
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
Three Months Ended
March 31,
2024
2023
Cash provided by (used in):
Operating activities
$
64,484
$
(5,392)
Investing activities
(3,242)
(6,300)
Financing activities
(69,304)
(9,424)
Operating Activities
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 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 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.
Long-term debt and other contractual commitments
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. 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, 2024.
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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).
Total
Short-Term
Long-Term
MARAD debt
$
28,258
$
8,965
$
19,293
2029 Notes
300,000
—
300,000
Interest related to debt
147,722
31,104
116,618
Property and equipment
17,924
17,924
—
Operating leases (1)
1,005,264
135,257
870,007
Earn-out consideration
85,000
85,000
—
Total cash obligations
$
1,584,168
$
278,250
$
1,305,918
(1) Operating leases include vessel charters and facility and equipment leases. 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
Other material cash requirements include the following:
Decommissioning. 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 $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 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 $0.2 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 2023 Form 10-K.
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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.