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 mergers, 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.
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;
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● the potential effects of regional tensions that have escalated or may escalate, including into conflicts or wars, and their impact on the global economy, the 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 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 albeit at slower rates, and we expect the current market conditions will maintain continued customer spending for the industry. However, 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+”), the global economy and the demand for oil and gas in China in particular, 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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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 our well intervention vessels have a competitive advantage in performing these services efficiently and with our suite of shallow water assets and capabilities, we are the only provider of full-field decommissioning services in the Gulf of Mexico shelf. 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.
We support the energy transition to renewable energy primarily in our Robotics segment 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.
Backlog
Our backlog is represented by signed contracts. As of September 30, 2024, our consolidated backlog totaled approximately $1.6 billion, of which $261 million is expected to be performed over the remainder of 2024. Our various contracts with Shell and ExxonMobil globally, our contracts with Trident Energy and Petrobras in Brazil, and our contracts with Talos in the Gulf of Mexico represented approximately 86% of our total backlog as of September 30, 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.
Outlook
For the remainder of 2024 going into 2025, we expect to continue our strong performance driven by increasing demand for our decommissioning services internationally and continued growth in the offshore renewables trenching market. We expect the demand for shallow water decommissioning services in the Gulf of Mexico to remain soft in the near term but should grow over the mid- to long-term.
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
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Net income
$
29,514
$
15,560
$
35,516
$
17,495
Adjustments:
Income tax provision
9,520
8,337
22,547
9,631
Net interest expense
5,689
4,152
17,057
12,567
Other expense, net
49
8,257
2,647
10,553
Depreciation and amortization
42,904
43,249
132,728
120,013
EBITDA
87,676
79,555
210,495
170,259
Adjustments:
(Gain) loss on disposition of assets, net
(100)
—
50
(367)
Acquisition and integration costs
—
—
—
540
Change in fair value of contingent consideration
—
16,499
—
31,319
General provision for current expected credit losses
45
331
39
1,020
Losses related to convertible senior notes
—
—
20,922
—
Adjusted EBITDA
$
87,621
$
96,385
$
231,506
$
202,771
The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):
Nine Months Ended
September 30,
2024
2023
Cash flows from operating activities
$
108,051
$
57,720
Less: Capital expenditures, net of proceeds from asset sales and insurance recoveries
(10,317)
(15,800)
Free Cash Flow
$
97,734
$
41,920
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The reconciliation of our long-term debt to Net Debt is as follows (in thousands):
September 30,
December 31,
2024
2023
Long-term debt including current maturities
$
314,673
$
361,722
Less: Cash and cash equivalents
(324,120)
(332,191)
Net Debt
$
(9,447)
$
29,531
Comparison of Three Months Ended September 30, 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/
September 30,
(Decrease)
2024
2023
Amount
Percent
Net revenues —
Well Intervention
$
182,667
$
225,367
$
(42,700)
(19)
%
Robotics
84,526
75,646
8,880
12
%
Shallow Water Abandonment
71,595
87,272
(15,677)
(18)
%
Production Facilities
20,695
24,469
(3,774)
(15)
%
Intercompany eliminations
(17,064)
(17,084)
20
$
342,419
$
395,670
$
(53,251)
(13)
%
Gross profit (loss) —
Well Intervention
$
20,110
$
19,704
$
406
2
%
Robotics
26,683
22,707
3,976
18
%
Shallow Water Abandonment
10,810
29,235
(18,425)
(63)
%
Production Facilities
8,531
9,385
(854)
(9)
%
Corporate, eliminations and other
(469)
(486)
17
$
65,665
$
80,545
$
(14,880)
(18)
%
Gross margin —
Well Intervention
11
%
9
%
Robotics
32
%
30
%
Shallow Water Abandonment
15
%
33
%
Production Facilities
41
%
38
%
Total company
19
%
20
%
Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)
Well Intervention vessels
7 / 97
%
7 / 92
%
Robotics assets (3)
47 / 77
%
46 / 67
%
Chartered Robotics vessels
6 / 96
%
6 / 97
%
Shallow Water Abandonment vessels (4)
20 / 76
%
20 / 89
%
Shallow Water Abandonment systems (5)
26 / 25
%
26 / 74
%
(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 September 30, 2024 and 2023 each included 92 spot vessel days at near full utilization.
(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
September 30,
Increase/
2024
2023
(Decrease)
Well Intervention
$
8,054
$
6,832
$
1,222
Robotics
8,972
10,252
(1,280)
Shallow Water Abandonment
38
—
38
$
17,064
$
17,084
$
(20)
Net Revenues. Our consolidated net revenues for the three-month period ended September 30, 2024 decreased by 13% as compared to the same period in 2023, reflecting lower revenues in our Well Intervention, Shallow Water Abandonment and Production Facilities business segments, offset in part by higher revenues in our Robotics segment.
Our Well Intervention revenues decreased by 19% for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting a higher number of transit and mobilization days, during which period revenues and costs were deferred and not recognized. The Q4000 incurred approximately 67 days of paid mobilization and transit to West Africa and the Q7000 incurred approximately 38 days of paid mobilization and transit between contracts offshore Australia during the third quarter 2024, whereas both vessels had no transit and mobilization days during the third quarter 2023.
Our Robotics revenues increased by 12% for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher vessel, trenching and ROV activities during the third quarter 2024. Chartered vessel activity increased to 532 days during the third quarter 2024 as compared to 506 days during the third quarter 2023. Integrated vessel trenching decreased to 249 days during the third quarter 2024 as compared to 276 days during the third quarter 2023, and the third quarter 2024 included 92 days utilization on the i-Plough trencher on a third-party vessel and 92 days utilization on the IROV boulder grab whereas the i-Plough and IROV were idle during the third quarter 2023. Overall ROV and trencher utilization increased to 77% in the third quarter 2024 from 67% during the third quarter 2023.
Our Shallow Water Abandonment revenues decreased by 18% for the three-month period ended September 30, 2024 as compared to the same period in 2023. The decrease in revenues was due to lower activity levels and an overall softer Gulf of Mexico shelf market in 2024 coupled with the impact of two hurricanes affecting our operations in September 2024, resulting in lower vessel and system utilization during the third quarter 2024 as compared to the third quarter 2023, offset in part by higher pass-through revenues on the P&A systems. Overall vessel utilization was 76% during the third quarter 2024 as compared to 89% during the third quarter 2023. P&A systems and CT systems utilization declined to 607 days of utilization, or 25%, during the third quarter 2024 as compared to 1,531 days of utilization, or 74%, during the third quarter 2023.
Our Production Facilities revenues decreased by 15% for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting lower oil and gas production and prices during the third quarter 2024. Oil and gas production declined during the third quarter 2024 due to an ongoing unplanned shut-in of the Thunder Hawk wells.
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Gross Profit (Loss). Our consolidated gross profit decreased by $14.9 million for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting a reduction in profit from our Shallow Water Abandonment business segment, offset in part by an increase in profit from our Robotics segment.
Our Well Intervention segment gross profit remained relatively flat despite lower revenues for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting lower revenues, offset by lower costs due in part to the deferral of transit and mobilization costs during the third quarter 2024.
Our Robotics gross profit increased by $4.0 million for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher revenues during the third quarter 2024.
Our Shallow Water Abandonment gross profit decreased by $18.4 million for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting lower revenues, in addition to higher costs due to an increase in lower margin pass-through activities during the third quarter 2024.
Our Production Facilities gross profit decreased by $0.9 million for the three-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting lower revenues, offset in part by lower production costs.
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration in the third quarter 2023 reflects an improvement in Helix Alliance’s results during the 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 $21.1 million for the three-month period ended September 30, 2024 as compared to $27.8 million for the same period in 2023, primarily reflecting lower employee compensation costs.
Net Interest Expense. Our net interest expense totaled $5.7 million for the three-month period ended September 30, 2024 as compared to $4.2 million for the same period in 2023, primarily reflecting higher debt levels and rates on our 2029 Notes in 2024 as compared to our 2026 Notes in 2023, offset in part by higher interest income on our invested cash reserves (Note 5).
Other Expense, Net. Net other expense was minimal for the three-month period ended September 30, 2024 as compared to $8.3 million for the same period in 2023. Net other expense during the third quarter 2024 primarily reflects a $2.4 million increase in the value of incentive credits granted to the seller of P&A equipment acquired in 2023 (Note 3), offset by foreign currency gains due to the strengthening of the British pound. Net other expense during the third quarter 2023 primarily reflects foreign currency losses related to U.S. dollar denominated intercompany debt in our U.K. entities.
Income Tax Provision. Income tax provision was $9.5 million for the three-month period ended September 30, 2024 as compared to $8.3 million for the same period in 2023. The effective tax rates for the three-month periods ended September 30, 2024 and 2023 were 24.4% and 34.9%, respectively. The increase in income tax expense was primarily attributable to higher net income (Note 6).
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Comparison of Nine Months Ended September 30, 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):
Nine Months Ended
Increase/
September 30,
(Decrease)
2024
2023
Amount
Percent
Net revenues —
Well Intervention
$
623,805
$
522,026
$
101,779
19
%
Robotics
216,084
194,918
21,166
11
%
Shallow Water Abandonment
149,289
212,959
(63,670)
(30)
%
Production Facilities
70,247
68,502
1,745
3
%
Intercompany eliminations
(55,998)
(43,834)
(12,164)
$
1,003,427
$
954,571
$
48,856
5
%
Gross profit (loss) —
Well Intervention
$
76,869
$
22,316
$
54,553
244
%
Robotics
65,754
49,238
16,516
34
%
Shallow Water Abandonment
2,701
57,725
(55,024)
(95)
%
Production Facilities
17,116
23,822
(6,706)
(28)
%
Corporate, eliminations and other
(1,735)
(2,023)
288
$
160,705
$
151,078
$
9,627
6
%
Gross margin —
Well Intervention
12
%
4
%
Robotics
30
%
25
%
Shallow Water Abandonment
2
%
27
%
Production Facilities
24
%
35
%
Total company
16
%
16
%
Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)
Well Intervention vessels
7 / 94
%
7 / 85
%
Robotics assets (3)
47 / 70
%
46 / 60
%
Chartered Robotics vessels
6 / 90
%
6 / 95
%
Shallow Water Abandonment vessels (4)
20 / 59
%
20 / 75
%
Shallow Water Abandonment systems (5)
26 / 26
%
26 / 74
%
(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.
(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 nine-month periods ended September 30, 2024 and 2023 included 274 and 218 spot vessel days, respectively, at near full utilization.
(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.
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Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):
Nine Months Ended
September 30,
Increase/
2024
2023
(Decrease)
Well Intervention
$
26,224
$
18,174
$
8,050
Robotics
29,548
25,634
3,914
Shallow Water Abandonment
226
26
200
$
55,998
$
43,834
$
12,164
Net Revenues. Our consolidated net revenues for the nine-month period ended September 30, 2024 increased by 5% 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 19% for the nine-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher revenues across our well intervention fleet except for the Well Enhancer . Utilization increased on the Q4000 and the Q5000 during the nine-month period ended September 30, 2024 as both vessels underwent their regulatory dry docks in 2023. The Q7000 had higher utilization during the nine-month period ended September 30, 2024 as compared to 2023. The Seawell ‘s contract in the western Mediterranean, which completed in June 2024, has provided higher rates and utilization during the nine-month period ended September 30, 2024 as compared to the nine-month period ended September 30, 2023. The Well Enhancer in the North Sea had lower utilization as compared to the prior year period as the vessel underwent a scheduled dry dock during the first quarter 2024.
Our Robotics revenues increased by 11% for the nine-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher chartered vessel days and trenching and ROV activities. Chartered vessel activity increased to 1,393 days during the nine-month period ended September 30, 2024 as compared to 1,236 days during the nine-month period ended September 30, 2023, although chartered vessel days in the first quarter 2024 included approximately 64 days of standby utilization at reduced rates. Overall ROV and trencher utilization increased to 70% in the nine-month period ended September 30, 2024 from 60% during the nine-month period ended September 30, 2023 and included 566 days of integrated vessel trenching in 2024 as compared to 536 days in 2023.
Our Shallow Water Abandonment revenues decreased by 30% for the nine-month period ended September 30, 2024 as compared to the same period in 2023. The decrease in revenues was due to lower activity levels and an overall softer Gulf of Mexico shelf market in 2024, resulting in lower vessel and system utilization during the nine-month period ended September 30, 2024 as compared to the nine-month period ended September 30, 2023. Overall vessel utilization was 59% during the nine-month period ended September 30, 2024 as compared to 75% during the same period in 2023. P&A systems and CT systems achieved 1,865 days of utilization, or 26%, during the nine-month period ended September 30, 2024 as compared to 4,362 days of utilization, or 74%, during the nine-month period ended September 30, 2023.
Our Production Facilities revenues increased by 3% for the nine-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher oil and gas production and lower number of shut-in days.
Gross Profit (Loss). Our consolidated gross profit increased by $9.6 million for the nine-month period ended September 30, 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 gross profit increased by $54.6 million for the nine-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher segment revenues and increased activity levels.
Our Robotics gross profit increased by $16.5 million for the nine-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting higher revenues and higher profit margin projects during the nine-month period ended September 30, 2024.
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Our Shallow Water Abandonment gross profit decreased by $55.0 million for the nine-month period ended September 30, 2024 as compared to the same period in 2023, primarily reflecting lower segment revenues.
Our Production Facilities gross profit decreased by $6.7 million for the nine-month period ended September 30, 2024 as compared to 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, offset in part by higher segment revenues.
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration in the nine-month period ended September 30, 2023 reflects an improvement in Helix Alliance’s results during the first half 2023. 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 $64.1 million for the nine-month period ended September 30, 2024 as compared to $71.5 million for the same period in 2023, primarily reflecting lower employee compensation costs.
Net Interest Expense. Our net interest expense totaled $17.1 million for the nine-month period ended September 30, 2024 as compared to $12.6 million for the same period in 2023, primarily reflecting higher debt levels and rates on our 2029 Notes in 2024 as compared to our 2026 Notes in 2023, 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 nine-month period ended September 30, 2024 was associated with the retirement of our 2026 Notes (Note 5).
Other Expense, Net. Net other expense was $2.6 million for the nine-month period ended September 30, 2024 as compared to $10.6 million for the same period in 2023. Net other expense during the nine-month period ended September 30, 2024 primarily reflects a $2.4 million increase in the value of incentive credits granted to the seller of P&A equipment acquired in 2023 (Note 3). Net other expense during the nine-month period ended September 30, 2023 primarily reflects foreign currency losses related to the devaluation of the Nigerian naira on our naira cash holdings, offset in part by foreign currency gains related U.S. dollar denominated intercompany debt in our U.K. entities.
Income Tax Provision. Income tax provision was $22.5 million for the nine-month period ended September 30, 2024 as compared to $9.6 million for the same period in 2023. The effective tax rates for the nine-month periods ended September 30, 2024 and 2023 were 38.8% and 35.5%, respectively. The increase 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 first quarter 2024 (Note 6).
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):
September 30,
December 31,
2024
2023
Net working capital
$
390,718
$
249,223
Long-term debt (excluding current maturities)
305,487
313,430
Liquidity
398,833
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 December 31, 2023 included $85.0 million of Alliance earn-out consideration that was paid in cash on April 3, 2024.
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Long-Term Debt
Long-term debt in the table above includes our MARAD Debt, the 2026 Notes and the 2029 Notes and excludes current maturities of $9.2 million at September 30, 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 September 30, 2024 included $324.1 million of cash and cash equivalents and $74.7 million of available borrowing capacity under the Amended ABL Facility (Note 5). 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. The reduction in availability on the Amended ABL Facility was attributable to higher letter of credit usage due to the Nigeria project on the Q4000 .
In the current market environment, we expect strong ongoing operating performance and cash flows. 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 expected capital spending, service our debt and other obligations, and execute our share repurchase program over at least the next 12 months. We currently do not anticipate borrowing under the Amended ABL Facility other than for the issuance of letters of credit. We expect lower levels of availability on the Amended ABL Facility while the Q4000 performs work in Nigeria due to fewer eligible receivables and higher letter of credit usage.
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.
Cash Flows
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
Nine Months Ended
September 30,
2024
2023
Cash provided by (used in):
Operating activities
$
108,051
$
57,720
Investing activities
(10,317)
(15,800)
Financing activities
(105,574)
(51,375)
Operating Activities
The increase in our operating cash flows for the nine-month period ended September 30, 2024 as compared to the same period in 2023 primarily reflects higher operating income, lower regulatory recertification costs for our vessels and systems and lower working capital outflows. Operating cash outflows during the nine-month period ended September 30, 2024 included $58.3 million of the $85.0 million earn-out payment on April 3, 2024, representing the amount in the excess of the $26.7 million initial fair value of earn-out consideration at the Alliance acquisition date. Regulatory recertification spend on our vessels and systems were $29.2 million and $59.2 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, 2024 decreased as compared to the same period in 2023 primarily due to lower capital expenditures.
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Financing Activities
Net cash outflows from financing activities for the nine-month period ended September 30, 2024 primarily reflect the final retirement of our 2026 Notes and the earn-out payment. Cash outflows in 2024 included $60.7 million related to the 2026 Notes, $26.7 million of the $85.0 million earn-out payment, $10.2 million in repurchases of our common stock under the 2023 Repurchase Program and the principal repayment of $8.7 million related to the MARAD Debt, offset in part by $4.4 million of cash inflows from the proportionate settlement of the 2026 Capped Calls.
Net cash outflows from financing activities for the nine-month period ended September 30, 2023 primarily reflect $12.0 million in repurchases 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 5).
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 and operating lease obligations, as of September 30, 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 September 30, 2024.
Total
Short-Term
Long-Term
MARAD debt
$
23,831
$
9,186
$
14,645
2029 Notes
300,000
—
300,000
Interest related to debt
132,472
31,195
101,277
Property and equipment
18,815
18,815
—
Operating leases (1)
869,807
145,774
724,033
Total cash obligations
$
1,344,925
$
204,970
$
1,139,955
(1) Operating leases include vessel charters and facility and equipment leases. At September 30, 2024, our commitment related to long-term vessel charters totaled approximately $844.4 million, of which $424.1 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, 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 September 30, 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.
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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.
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.