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spk00: Good day and welcome to the second quarter 2023 Diamond Offshore Drilling Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Brodowski, Senior Director, Investor Relations. Please go ahead.
spk14: Thank you, Abigail. Good morning or afternoon to everyone, and thank you for joining us. With me on the call today are Bernie Wolford, President and Chief Executive Officer, and Dominic Savarino, Senior Vice President and Chief Financial Officer. Before we begin our remarks, I remind you that information reported on this call speaks only as of today, and therefore time-sensitive information may no longer be accurate at the time of any replay of this call. Some of the information referenced on our call today is included in a slide presentation that you can find in the Investor Relations section of our website under Calendar of Events. In addition, certain statements made during this call may be forward-looking in nature. These statements are based on our current expectations and include known and unknown risks and uncertainties, many of which we are unable to predict or control. These risks and uncertainties may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements. These risks and uncertainties include the risk factors disclosed in our 10-K and 10-Q filings of the SEC. Further, we expressly disclaim any obligation to update or revise any forward-looking statements. Refer to the disclosure regarding forward-looking statements incorporated in our press release issued yesterday evening and please note that the contents of our call today are covered by that disclosure. In addition, please note that we will be referencing non-GAAP figures on our call today. You can find a reconciliation to GAAP financials in our press release issued yesterday. And now I will turn the call over to Bernie.
spk02: Thanks, Kevin. Good day to everyone, and thank you for your interest in Diamond Offshore as we present our results for the second quarter of 2023. Today I will cover the financial and operating highlights for the second quarter, our operational outlook for the remainder of 2023, and our view on the market, including near-term fleet opportunities. I'll then turn it over to Dominic to provide a review of our second quarter financials, as well as guidance for the upcoming quarters and full year. Let me start by thanking the entire Diamond team for delivering strong safety, operational, and financial results while securing significant new backlog across multiple geographies and asset classes. During the quarter, we secured term work for the Black Hawk, added a two-well contract for the Patriot, extended the endeavor by two wells, and our customers exercised options for the Great White and the Black Rhino. These wins, which total more than $229 million in additional backlog, are a testament to our team's performance and provide increased visibility to our 2024 revenue stream. As we enter the second half of the year, tightening rig supply, improving day rates across multiple asset classes, and changing operator procurement behavior are among the signs indicating the strength and potential duration of this upcycle. Our results for the quarter reflect growth in both revenue and adjusted EBITDA. Total revenue and adjusted EBITDA for the quarter were $282 million and $36 million, respectively. The revenue and EBITDA growth were driven primarily by the Great White and Endeavor operating for the entire quarter and recognition of substantially all the early termination fee for the Patriot in the second quarter. Dominic will provide further details on these results in his remarks. I'm pleased to report that our rig crews and operations support team delivered revenue efficiency of 96% across our fleet during the quarter. This efficiency number is notable, having now completed two wells with the Great White since its successful reactivation and contract startup in late March. Looking at second quarter operational highlights across the regions, in the UK, we received a well-based performance bonus on the Endeavor for its first well following its shipyard period, highlighting the team's project delivery capability and strong execution. Also, the Patriot concluded its multi-year program with Apache during which the rig achieved the highest customer satisfaction scores in the fleet. I'd like to thank the Apache organization for its long-term relationship as we look forward to commencing the Patriot's next program with Repsol, which is anticipated to commence by the end of September. Turning to West Africa, the Blackhawk successfully concluded its year-long campaign in Senegal for Woodside Energy. The rig delivered a 30% reduction in drilling time as compared to plan while delivering solid HSE performance. The Black Hawk's performance has set the stage for the Black Rhino to potentially earn future bonuses as it completes these wells. Following the campaign in Senegal, the Black Hawk arrived in Las Palmas on July 19th to undergo a five-year special periodic survey, or SPS, and certain regulatory and customer required upgrades, including the installation of a managed pressure drilling system, or MPD. On completion of the shipyard scope, we will mobilize to the U.S. Gulf of Mexico for our next customer with contract commencement anticipated in November. Also in West Africa, further options on the Black Rhino were exercised. We expect the rig will conclude Woodside Energy's Senegal program late in the second quarter of 2024. During the quarter, we proactively made the decision to procure an MPD system for the Black Rhino, which we expect to install following the conclusion of its current contract. This decision reflects our continued commitment to provide best-in-class drill ships for work at the top end of the market. With this upgrade, all of our black ships will be equipped with identical MPD systems and therefore ideally positioned to maintain high utilization while earning leading-edge day rates. Turning our attention to the operational outlook for the remainder of 2023, the APEX recently completed its shipyard scope in Singapore and is in transit to its next well location in Australia, where we expect contract commencement with Woodside before the end of August. The APEX is firmly committed to a number of clients through the first quarter of 2025 with the potential for options that extend well into the third quarter. The ONIX remains stacked and has yet to secure an opportunity that meets our reactivation investment criteria. We will remain disciplined in our approach to securing a contract for the ONIX, assuring that we can recover our reactivation costs and deliver meaningful cash flow and EBITDA in its next contract. In Brazil, the Courage is scheduled to mobilize to a shipyard in September following the conclusion of its current contract. While there, it will undergo a five-year SPS and certain regulatory and customer-related upgrades before starting its four-year campaign with Petrobras late in the fourth quarter of 2023. In the North Sea, we look forward to the Patriot going back on contract in late September with However, the opportunity following this work that we discussed on our previous call did not materialize due to the operator's decision to postpone that campaign. At the conclusion of 2023, six out of 10 of our actively marketed own rigs will have completed their five-year SPSs in the last 18 months. Looking forward, we have only two rigs with surveys due in 2024. the Black Rhino and Black Hornet. As a result, next year we will spend significantly less time in the yard and more time earning higher day rates. During the quarter, we boasted our sustainability reporting to better measure and assess our operational footprint. We recently published our 22 sustainability report, highlighting our ESG progress in accordance with recognized industry standards and paving the way for improved ESG transparency for our many stakeholders. Turning to the market outlook, the continuing pivot to offshore basins as a source of incremental supply is driving improvements in the market with increasing momentum. Recent activity continues to support our view that we're in a longer duration up cycle, supported by persistent strong commodity pricing, continued FID growth, significant subsea infrastructure commitments, and positive day rate trends not seen since 2013. In particular, subsea tree awards have historically been a key indicator of future activity. In 2022, 348 subsea trees were awarded, the most since 2013 when the offshore floating rig count was about twice what it is today. This positive trend is staged to continue with analysts estimating more than 350 subsea trees being ordered in 2023. The large number of these orders indicate a long tail of future deepwater drilling activity. Since our last call, the demand picture continues to improve as operators are contracting rigs for more term and with longer lead times, several with 2025 and 2026 start dates. These longer terms and lead times correlate with up cycle behaviors by our clients and may signal their concern as to rig availability for programs two or more years out. Average duration and lead times for floater contracts signed are approaching one year, which is on par with 2022 and at a level not seen since 2013. Very recently, additional multi-rig, multi-year tenders have been released for West Africa and Brazil. We anticipate that in the near term, offshore drillers will announce a number of drill ship contract awards for long-term jobs with effective day rates in the low to mid $400,000 range. These for work with longer durations and mobilization provisions supportive of reactivation investments. Following these awards, we anticipate only a handful of competitive seventh generation stranded rigs will remain uncontracted. Beyond these contract awards, increasingly visible demand coupled with a tightening rig supply picture, will likely put further upward pressure on day rates, resulting in contract awards that are likely to cross the $500,000 per day mark. Turning our attention to upcoming prospects for our fleet, the increasing demand for top tier drill ships is frankly exciting as we evaluate our opportunities for our drill ships up for repricing in 2024. The Black Rhino is currently working offshore Senegal with availability commencing in the third quarter of 24. We are currently pursuing multiple opportunities for the rig across the Golden Triangle. Thanks to the constrained supply of ready-to-work rigs, the high specification of the Black Rhino, and our recent NPD commitment, we have a great pipeline of opportunities to pursue. Following that will be the Black Line, currently working for BP in the U.S. Gulf of Mexico, with availability commencing in the fourth quarter of 24. Similarly, this high-specification MPD-equipped rig is well-positioned for multiple opportunities. In the North Sea, we continue to pursue short-term programs for the Patriot this year and early next, and more importantly, two longer-term P&A opportunities in the UK North Sea commencements in 2024 and 2025. Demand for DP harsh environment semis outside the North Sea region has resulted in an exodus of rigs while pushing rates for the most capable semis into the mid $400,000 per day range. These fixtures support our positive outlook for the Ocean Great White with availability as early as the second quarter of 2024 or subject to options exercised as late as early 2025. Growing demand for high specification semis in Norway, coupled with demand in Canada, West Africa, and Australia have positive implications for the balance of our harsh environment semi-submersible fleet as this segment of the market begins to tighten. Wrapping up, excluding our cold stacked rigs, we now have almost 70% of 2024 marketed capacity contracted. If we include priced options, that number grows to 80%. As this market continues to gain momentum, we lack the prospects for our fleet and the opportunity for significant EBITDA improvement beginning in Q4 2023. I will now turn the call over to Dominic before returning with some concluding remarks.
spk04: Thanks, Bernie, and good morning or afternoon to everyone. In my prepared remarks this morning, I'll provide a recap of our results for the second quarter discuss our outlook for the third and fourth quarters of 2023, including an update to our full year guidance for 2023, as well as a preview of some key data points for 2024. And as Kevin alluded to in his opening remarks, we have a presentation on our website that includes some of the financial information I will refer to today. For the second quarter, we reported net income of $239 million, or $2.29 per diluted share. The reported income consists of a net loss before tax of $4 million and a recorded tax benefit of $243 million. Similar to the first quarter, the tax benefit recorded in the second quarter is based on the computation and application of the company's annual effective tax rate in accordance with U.S. GAAP accounting standards adjusted for discrete items. As I mentioned last quarter, Taxes will continue to fluctuate quarter to quarter as our projected earnings before tax move from a net loss position to a net profit position over the course of the year. But despite these fluctuations, the total cash outlay for income tax this year, net of tax refunds, is expected to be below $5 million. Excluding reimbursable revenue, revenue for the second quarter was $265 million up from $214 million in the prior quarter, primarily as a result of the Endeavor and Great White being on contract for the full quarter, partially offset by the Apex spending the quarter in the shipyard conducting its SPS and upgrades. Our revenue exceeded prior guidance of $240 to $250 million, largely due to the accelerated recognition of the majority of the termination fee for the Patriot. The results for the second quarter included a reported adjusted EBITDA of $36 million as compared to adjusted EBITDA of $22 million reported in the first quarter. The $36 million of adjusted EBITDA was also above our guidance for the quarter of $20 to $25 million, again, due to the timing of the recognition of the Patriot termination fee. Contract drilling expense increased to $213 million for the quarter compared to $173 million for the prior quarter, primarily as a result of higher costs associated with the apex being in the shipyard for the full quarter and higher charter expenses for our two managed rigs due to being on contract for the full quarter and at higher day rates. We generated approximately $20 million in operating cash for the quarter with negative free cash flow of $9 million after considering capital expenditures of $29 million. In contrast, our first quarter negative free cash flow of $41 million was largely a result of working capital swings in the other direction. Now, I would like to shift to a discussion of our third and fourth quarter outlook. Looking ahead to the third quarter, We expect contract drilling revenue, excluding reimbursables, of $205 to $215 million. The reduction in revenue compared to the second quarter is largely activity driven, with the Blackhawk, Courage, and Patriot being off contract as they prepare for their next contracts. Combined with these rigs transitioning to new contracts and the timing of the Patriot termination fee, we have four non-recurring discrete events that impact our projected third quarter results relative to our prior expectations. First, the apex spending more days in the shipyard than anticipated, resulting in additional costs, less revenue earning days in the quarter, as well as the shift of higher revenue earning days from 2023 into 2024. Next, the expectation that the Courage will complete its current contract and begin its new contract preparation activities earlier in the quarter than originally anticipated. In addition, non-productive time for the two managed rigs, resulting in the loss of a portion of our managed rig margin. And finally, just over two weeks of non-productive time for the Black Lion that concluded in July. As a result, our EBITDA for the third quarter is anticipated to be just above break-even. All of these discrete events have transpired or will transpire during the third quarter, such that there should be no material impact from these events on the fourth quarter of this year or any carryover into 2024. As you can see, we have significant amount of transition taking place with rigs departing the shipyard and commencing higher day rate contracts. Namely, the Apex departed the shipyard in July and transitions to its higher day rate contract later this month. and the Blackhawk and Courage will be returning to work in mid to late fourth quarter, respectively. These new contracts provide the basis for our fleet's future higher average day rates that will result in substantial quarter over quarter increases in EBITDA beginning in the fourth quarter and accelerating into 2024. Looking at the fourth quarter more specifically, we are anticipating quarterly EBITDA in line with prior expectations of $50 to $60 million on revenue of $260 to $270 million. This ramp up in the fourth quarter is driven by the Blackhawk and Courage beginning their higher day rate contracts in the quarter and the Patriot being on contract again for the majority of the quarter. It is worth noting that this level of quarterly EBITDA contribution would be our highest reported quarterly EBITDA since mid-2018. When combined with our actual results for the first half of 2023, Our estimated full-year revenue is expected to be $950 to $960 million at the low end of our prior guidance range, with EBITDA for the full year 2023 expected to be $105 to $120 million. Our full-year CapEx guidance remains the same at $120 to $135 million, albeit most likely in the upper half of the range. Turning now to some commentary on our 2024 outlook. The increasing day rates we have secured, coupled with the investments we have made in our fleet, has positioned us to deliver strong and consistent financial performance in 2024. The average day rate in our 2024 backlog is $321,000 per day. This compares favorably with the $285,000 per day average day rate earned year-to-date in 2023. A large contributor to the overall increase in average day rate is the Blackhawk contract we recently secured. The increase in day rate combined with the operating cost reduction from working in the Gulf of Mexico will result in rig level EBITDA for the Blackhawk of approximately $100 million in 2024 as compared to less than $10 million in EBITDA in 2023. The combination of overall contract coverage and higher average day rate across the fleet gives us great visibility into what is expected to be significant growth in EBITDA and cash flow generation in 2024, with upside potential from two drill ships and three semi-submersibles with recontracting opportunities in 2024. Further, with only two planned out-of-service periods for SPSs in 2024, as compared to our five shipyard stays during 2023, We expect only 100 days out of service in 2024 versus almost 450 days out of service in 2023. This operational continuity gives us the foundation for stronger and more consistent financial performance in 2024. This concludes my prepared remarks. I will now hand it back to Bernie for some closing comments before we move into Q&A.
spk17: Thank you, Dominic.
spk02: As the Apex Blackhawk and Courage roll to higher day rates in the back half of 2023 and with significantly less shipyard days in 2024, we look forward to improving financial results in Q4 and a further leg up in financial performance as we roll into 2024. We appreciate your interest in Diamond Offshore and will now open the call for questions.
spk00: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question. Our first question comes from Eddie Kim with Barclays. Your line is open.
spk07: Hi, good morning.
spk06: So just taking a look at your fleet, which is very well contracted at this point, There's not too much white space over the next, call it, you know, six to 12 months. And I believe you mentioned that 70% of your marketed capacity next year is contracted. So just in that context, curious if you would be open to purchasing a stranded new build from the shipyard or maybe purchasing an existing rig in the fleet. Just any color on thoughts to potentially adding rig availability in this rising day rate environment would be great.
spk02: Thanks for your question, Eddie. I mean, we have certainly looked at that both from short-term and long-term perspectives. And we obviously have an interest in growing the fleet. You know, there are a lot of considerations involved in considering, you know, acquiring one of those rigs. Obviously, there's the cost and whether that's financed through bond, equity, or otherwise. There's the working capital implications. there's simply a matter of focus for the company. I would consider a plan A for the company to stay the course with our current assets. As we transition to 2025, 100% of our rig fleet will have moved to current market rates, and our EBITDA and cash flow potential at that stage is pretty incredible. We will continue to look at these stranded assets as potential plays, but that would be a secondary option for us, Eddie.
spk05: Okay. Okay, got it.
spk06: Thank you. My follow-up is on the ocean. Great White and the RIGS opportunities going forward. We've seen the slew of contract announcements in the harsh environment semi-market. You just laid out a strong market outlook for this asset class, especially with the exodus of rigs out of Norway. Another rig has seven priced option wells after its contract ends in April. Any sense from the customer if they intend to exercise all of the options on this rig? And just general thoughts on if you see opportunities for this rig to move you know, back to Australia even or work in Norway or parts of the Eastern Med. Just any thoughts on the future opportunities for this rig?
spk02: Sure, Eddie. So, as you mentioned, the rig has seven remaining priced options at 60 days anticipated well durations each. Those options get exercised as we finish a well. The next option becomes eligible for exercise by the client. We anticipate the client will exercise most, if not all, of these options. We don't have any assurance at this stage. We feel very confident about the next four and reasonably confident about the full seven. With regard to opportunities, obviously, we would look to the west of Shetland's area and the UK North Sea sector. But more recently, we fielded inquiries for potential opportunities in West Africa as well as Canada. And so we would definitely compare those opportunities to those closer to home in the North Sea today and target the RIG for the highest EBITDA potential that would be available to us.
spk06: Okay. Got it. Great. Thanks for that caller, Bernie. I'll turn it back.
spk01: One moment for our next question.
spk09: next question comes from frederick steen with clarkson securities your line is open hey bernie and team i hope you are all well and thanks for taking my question um or i have two questions actually uh so let's start with the first one um going back to your general market commentary here in the prepared uh remarks i think at least according to kind of our own analysis and how we're just seeing a fixture showing up it's definitely as you say a trend of longer duration work for uh floaters so so um i would ask for a bit more color if you're able to give on how your discussions with clients have kind of developed since we last spoke on the q1 call are you you know how's the frequency of opportunities are you getting incoming calls what's the furthest out in time a client is looking for a rig etc so any kind of additional color you can can get on that i think would be helpful as i believe longer lead times and longer contract is what's going to be needed for multiple expansionary pricing wise on equities. Thanks.
spk02: Thank you, Frederick. Well, you'll be aware of at least one and potentially two longer term contracts that are out in the market today with commencements in 2026. In addition to that, we've had private conversations with a number of clients that are looking at longer term contracts as we roll into late 2025 and 2026 to further their programs for the long term. So there are a number of conversations where the clients are already thinking about their rollovers that occur within that timeframe and their plans for contracting going forward. You know, we're currently tracking 53 discrete opportunities, and by discrete I mean where there's an RFI or discussion with an operator, of which 29 of those are drill ships and 24 are for semis. We count approximately 46 units between now and the end of 2024 with four or more months of availability of these, 26 are drill ships and 20 are semis. So clearly between the number of opportunities we're tracking and the availability out there, there's some additional scope for rigs to be delivered from stranded assets or cold stack. There is an obvious trend for stranded assets and cold stacked rigs to target the longest term opportunities, take available the mobilization payments or other financial incentives that may be available there to defray some of the reactivation or purchase costs and then subsequently take a slightly lower market day rate, lower than market day rate for the term of the contract as they recover their initial investment. So I think you will definitely see some of that going forward and that will be more targeted towards these longer term contracts. Then as we get closer to 2025, you'll see a number of contracts that are currently long term roll over and you'll see another leg up in pricing and scarcity of supply as those roll over to replacement long-term contracts.
spk09: Thank you. Super helpful. And just a quick follow-up on that one. Are you to a larger degree now seeing that EMPs are willing to contract capacity beyond their own visibility on their drilling programs just to make sure that they have capacity?
spk02: Yes would be a general answer to that. I would further comment on that yes by saying that visibility for an operator, I don't want to confuse the term. I mean, they have well-defined development prospects out there that may or may not be fully FID'd, but they have clear visibility. They know how many rigs they're going to need to execute those programs. and they have a strategy that is aligned with executing those programs over the next multiple years. And so, although they are prepared to commit for work that they don't have a specific well identified for out into the longer timeframe, they certainly know which fields, what money, what returns those rigs would be linked with.
spk09: Okay. Perfect. Switching gears a bit, just want to touch quickly on your cap stack as well. Several of your peers have been out in the market and I think some of them have been out in the market also before the Q1 call and Avalaris yesterday tapping their second lead notes. So I was wondering, compared to where we were in Q1, have you made any new thoughts about what you think an optimized balance sheet would look like? Are you happy with what you have today or are you working on trying to streamline it a bit maybe with RCF conventional bonds? Any color you can give and what you think is an appropriate leverage level for you guys as well would be good to have in a deal.
spk04: Thanks. Yeah, sure, Fredrik. Thanks for the question. Obviously, the market is there for for offshore drilling to issue new papers, so that's certainly something that we continue to look at. As I mentioned in our call last quarter, we certainly are looking at that possibility. We have the luxury of time. We don't have any maturities until 26 and 27, so it is not something that is urgent for us, but certainly moving into a regular way financing structure would be attractive. The restrictions and the covenants and limits that we have on our post-emergence RCF would certainly be a benefit to remove those. So we continue to be active and looking at it, talking with advisors, doing what we need to do to prepare for something along those lines. We're going to be opportunistic about it, and to the extent that we can extend our time to maturity as well as reduce our cost of capital, it is something that we would definitely be interested in undertaking.
spk09: Just in the event that you do read your balance sheet at some point, I guess that is going to be a trigger as well for you. Potential shareholder returns, right, given your change in financial performance next year and onwards.
spk04: Yeah, that certainly could be a trigger as well. Having sustained positive free cash flow will certainly contribute to that as our rigs roll off, particularly our two black ship opportunities next year, and we recontract those at at what we would consider to be leading edge day rates. It certainly gives us that longer term perspective and the visibility into sustained positive free cash flow. So the combination of those two would be triggers that would put us in a position to be able to return money to shareholders. Certainly, the board has not authorized that at this point, but once we emerge through 2024 and into early 2025, we expect to have those conversations.
spk09: Thank you so much for taking, I guess, way too many of my questions, but I really appreciate it. Thank you.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. One moment for our next question. Our next question comes from David Smith with Pickering Energy Partners. Your line is open.
spk15: Hey, good morning. Thank you for taking my question. Morning, Dave. Hey, sorry if I missed it, but did y'all discuss the three and a half year tender that Petrobras issued for a mortgage semi and whether you expect to compete in that?
spk02: We didn't discuss it during our prepared remarks, Dave. Certainly, it's an opportunity for Diamond that we'll be looking at. an area where we have an existing operation and a lot of operational experience. And clearly, we have the assets that would fit that specification.
spk15: Appreciate it. And I'm curious if you're seeing any other opportunities with any kind of term duration for moored semis outside of the North Sea or Australia.
spk02: Yeah, in West Africa, And the MAD in particular, we're seeing a number of opportunities for moored assets that are on the fairly near-term horizon today.
spk15: Good deal. I appreciate it. And most of my other questions have been answered, but I'll go a little bigger picture. So, we've had several deepwater rigs added to the market, the marketed fleet in the past year, you know, whether reactivations or stranded new-build purchases. It looks like there's probably a few more soon. And it doesn't take a lot of extrapolation to look out two or three years and see pretty limited potential incremental supply on the deepwater side. So what I was going to ask is, is the held for sale decision on the Ocean Monarch a final decision? Or is there any potential that that could be reconsidered just given the dwindling number of, you know, stacked and stranded new builds that could be added to the market?
spk02: Well, there's no SEC or accounting rule that would prevent us from changing our mind as far as that goes for a held for sale asset from a strict perspective. You know, as we look at our fleet, certainly the Onyx is a higher priority rig than the Monarch, given the activation cost differential between the two. And so the Monarch remains held for sale today, and we continue to look at opportunities that would bring more revenue to the company than simply scrapping that rig. You know, it's all a matter of deciding where we want to deploy our capital and how soon we recover the capital. Right now, we don't see opportunities that would justify bringing the Monarch back to the market. Makes sense. I appreciate it. Thank you, Dave.
spk00: Thank you. That concludes the question and answer session. At this time, I would like to turn it back to Bernie Wolford, CEO, for closing remarks.
spk02: Thanks all for your interest in Diamond Offshore today. Look forward to speaking to you between now and the next quarter or at the next quarterly call. Have a good day.
spk00: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Thank you. Thank you. Bye. Good day and welcome to the second quarter 2023 Diamond Offshore Drilling Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Brodowski, Senior Director, Investor Relations. Please go ahead.
spk14: Thank you, Abigail. Good morning or afternoon to everyone, and thank you for joining us. With me on the call today are Bernie Wolford, President and Chief Executive Officer, and Dominic Savarino, Senior Vice President and Chief Financial Officer. Before we begin our remarks, I remind you that information reported on this call speaks only as of today, and therefore time sensitive information may no longer be accurate at the time of any replay of this call. Some of the information referenced on our call today is included in a slide presentation that you can find in the investor relations section of our website under calendar of events. In addition, certain statements made during this call may be forward looking in nature. These statements are based on our current expectations and include known and unknown risks and uncertainties, many of which we are unable to predict or control. These risks and uncertainties may cause our actual results or performance to differ materially from any future results or performance expressed or implied by these statements. These risks and uncertainties include the risk factors disclosed in our 10-K and 10-Q filings with the SEC. Further, we expressly disclaim any obligation to update or revise any forward-looking statements. Refer to the disclosure regarding forward-looking statements incorporated in our press release issued yesterday evening, and please note that the contents of our call today are covered by that disclosure. In addition, please note that we will be referencing non-GAAP figures on our call today. You can find a reconciliation to GAAP financials in our press release issued yesterday. And now, I will turn the call over to Bernie.
spk02: Thanks, Kevin. Good day to everyone, and thank you for your interest in Diamond Offshore. as we present our results for the second quarter of 2023. Today, I will cover the financial and operating highlights for the second quarter, our operational outlook for the remainder of 2023, and our view on the market, including near-term fleet opportunities. I will then turn it over to Dominic to provide a review of our second quarter financials, as well as guidance for the upcoming quarters and full year. Let me start by thanking the entire Diamond team for delivering strong safety, operational, and financial results while securing significant new backlog across multiple geographies and asset classes. During the quarter, we secured term work for the Black Hawk, added a two-well contract for the Patriot, extended the endeavor by two wells, and our customers exercised options for the Great White and the Black Rhino. These wins, which total more than $229 million in additional backlog, are a testament to our team's performance and provide increased visibility to our 2024 revenue stream. As we enter the second half of the year, tightening rig supply, improving day rates across multiple asset classes, and changing operator procurement behavior are among the signs indicating the strength and potential duration of this upcycle. Our results for the quarter reflect growth in both revenue and adjusted EBITDA. Total revenue and adjusted EBITDA for the quarter were $282 million and $36 million, respectively. The revenue and EBITDA growth were driven primarily by the great white and Endeavor operating for the entire quarter and recognition of substantially all the early termination fee for the Patriot in the second quarter. Dominic will provide further details on these results in his remarks. I'm pleased to report that our rig crews and operations support team delivered revenue efficiency of 96% across our fleet during the quarter. This efficiency number is notable, having now completed two wells with the Great White since its successful reactivation and contract startup in late March. Looking at second quarter operational highlights across the regions, in the UK, we received a well-based performance bonus on the Endeavor for its first well following its shipyard period, highlighting the team's project delivery capability and strong execution. Also, the Patriot concluded its multi-year program with Apache, during which the rig achieved the highest customer satisfaction scores in the fleet. I'd like to thank the Apache organization for its long-term relationship as we look forward to commencing the Patriots' next program with Repsol, which is anticipated to commence by the end of September. Turning to West Africa, the Blackhawk successfully concluded its year-long campaign in Senegal for Woodside Energy. The rig delivered a 30% reduction in drilling time as compared to planned, while delivering solid HSE performance. The Black Hawk's performance has set the stage for the Black Rhino to potentially earn future bonuses as it completes these wells. Following the campaign in Senegal, the Black Hawk arrived in Las Palmas on July 19th to undergo a five-year special periodic survey, or SPS, and certain regulatory and customer-required upgrades, including the installation of a managed pressure drilling system, or MPD. On completion of the shipyard scope, we will mobilize to the U.S. Gulf of Mexico for our next customer with contract commencement anticipated in November. Also in West Africa, further options on the Black Rhino were exercised. We expect the rig will conclude Woodside Energy's Senegal program late in the second quarter of 2024. During the quarter, we proactively made the decision to procure an MPD system for the Black Rhino which we expect to install following the conclusion of its current contract. This decision reflects our continued commitment to provide best-in-class drill ships for work at the top end of the market. With this upgrade, all of our black ships will be equipped with identical MPD systems and therefore are ideally positioned to maintain high utilization while earning leading-edge day rates. Turning our attention to the operational outlook for the remainder of 2023, the APEX recently completed its shipyard scope in Singapore and is in transit to its next well location in Australia, where we expect contract commencement with Woodside before the end of August. The APEX is firmly committed to a number of clients through the first quarter of 2025, with the potential for options that extend well into the third quarter. The ONIX remains stacked and is yet to secure an opportunity that meets our reactivation investment criteria. We will remain disciplined in our approach to securing a contract for the ONIX, assuring that we can recover our reactivation costs and deliver meaningful cash flow and EBITDA in its next contract. In Brazil, the Courage is scheduled to mobilize to a shipyard in September following the conclusion of its current contract. While there, it will undergo a five-year SPS and certain regulatory and customer related upgrades before starting its four-year campaign with Petrobras late in the fourth quarter of 2023. In the North Sea, we look forward to the Patriot going back on contract in late September with Repsol. However, the opportunity following this work that we discussed on our previous call did not materialize due to the operator's decision to postpone that campaign. At the conclusion of 2023, six out of 10 of our actively marketed own rigs will have completed their five-year SPSs in the last 18 months. Looking forward, we have only two rigs with surveys due in 2024, the Black Rhino and Black Hornet. As a result, next year we will spend significantly less time in the yard and more time earning higher day rates. During the quarter, we boasted our sustainability reporting to better measure and assess our operational footprint. We recently published our 22 sustainability report, highlighting our ESG progress in accordance with recognized industry standards and paving the way for improved ESG transparency for our many stakeholders. Turning to the market outlook, the continuing pivot to offshore basins as a source of incremental supply is driving improvements in the market with increasing momentum. Recent activity continues to support our view that we're in a longer duration up cycle, supported by persistent strong commodity pricing, continued FID growth, significant subsea infrastructure commitments, and positive day rate trends not seen since 2013. In particular, subsea tree awards have historically been a key indicator of future activity. In 2022, 348 subsea trees were awarded, the most since 2013 when the offshore floating rig count was about twice what it is today. This positive trend is staged to continue with analysts estimating more than 350 subsea trees being ordered in 2023. The large number of these orders indicate a long tail of future deepwater drilling activity. Since our last call, the demand picture continues to improve as operators are contracting rigs for more term and with longer lead times, several with 2025 and 2026 start dates. These longer terms and lead times correlate with up cycle behaviors by our clients and may signal their concern as to rig availability for programs two or more years out. Average duration and lead times for floater contracts signed are approaching one year, which is on par with 2022 and at a level not seen since 2013. Very recently, additional multi-rig, multi-year tenders have been released for West Africa and Brazil. We anticipate that in the near term, offshore drillers will announce a number of drill ship contract awards for long-term jobs with effective day rates in the low to mid $400,000 range. These for work with longer durations and mobilization provisions supportive of reactivation investments. Following these awards, we anticipate only a handful of competitive seventh generation stranded rigs will remain uncontracted. Beyond these contract awards, increasingly visible demand coupled with a tightening rig supply picture will likely put further upward pressure on day rates, resulting in contract awards that are likely to cross the $500,000 per day mark. Turning our attention to upcoming prospects for our fleet, the increasing demand for top tier drill ships is frankly exciting as we evaluate our opportunities for our drill ships up for repricing in 2024. The Black Rhino is currently working offshore Senegal with availability commencing in the third quarter of 2024. We are currently pursuing multiple opportunities for the rig across the Golden Triangle. Thanks to the constrained supply of ready-to-work rigs, the high specification of the Black Rhino, and our recent NPD commitment, we have a great pipeline of opportunities to pursue. Following that will be the Black Line, currently working for BP in the U.S. Gulf of Mexico, with availability commencing in the fourth quarter of 24. Similarly, this high specification MPD-equipped rig is well positioned for multiple opportunities. In the North Sea, we continue to pursue short-term programs for the Patriot this year and early next, and more importantly, two longer-term P&A opportunities in the UK North Sea with commencements in 2024 and 2025. Demand for DP harsh environment semis outside the North Sea region has resulted in an exodus of rigs while pushing rates for the most capable semis into the mid $400,000 per day range. These fixtures support our positive outlook for the Ocean Great White with availability as early as the second quarter of 2024 or subject to options exercised as late as early 2025. Growing demand for high specification semis in Norway coupled with demand in Canada, West Africa, and Australia, have positive implications for the balance of our harsh environment semi-submersible fleet as this segment of the market begins to tighten. Wrapping up, excluding our cold stacked rigs, we now have almost 70% of 2024 marketed capacity contracted. If we include priced options, that number grows to 80%. As this market continues to gain momentum, we lack the prospects for our fleet and the opportunity for significant EBITDA improvement beginning in Q4 2023. I will now turn the call over to Dominic before returning with some concluding remarks.
spk04: Thanks, Bernie, and good morning or afternoon to everyone. In my prepared remarks this morning, I'll provide a recap of our results for the second quarter, discuss our outlook for the third and fourth quarters of 2023, including an update to our full year guidance for 2023, as well as a preview of some key data points for 2024. And as Kevin alluded to in his opening remarks, we have a presentation on our website that includes some of the financial information I will refer to today. For the second quarter, we reported net income of $239 million, or $2.29 per diluted share. The reported income consists of a net loss before tax of $4 million and a recorded tax benefit of $243 million. Similar to the first quarter, the tax benefit recorded in the second quarter is based on the computation and application of the company's annual effective tax rate in accordance with U.S. GAAP accounting standards adjusted for discrete items. As I mentioned last quarter, Taxes will continue to fluctuate quarter to quarter as our projected earnings before tax move from a net loss position to a net profit position over the course of the year. But despite these fluctuations, the total cash outlay for income tax this year, net of tax refunds, is expected to be below $5 million. Excluding reimbursable revenue, revenue for the second quarter was $265 million, up from $214 million in the prior quarter, primarily as a result of the Endeavor and Great White being on contract for the full quarter, partially offset by the Apex spending the quarter in the shipyard conducting its SPS and upgrades. Our revenue exceeded prior guidance of $240 to $250 million, largely due to the accelerated recognition of the majority of the termination fee for the Patriot. The results for the second quarter included a reported adjusted EBITDA of $36 million as compared to adjusted EBITDA of $22 million reported in the first quarter. The $36 million of adjusted EBITDA was also above our guidance for the quarter of $20 to $25 million, again, due to the timing of the recognition of the Patriot termination fee. Contract drilling expense increased to $213 million for the quarter compared to $173 million for the prior quarter, primarily as a result of higher costs associated with the apex being in the shipyard for the full quarter and higher charter expenses for our two managed rigs due to being on contract for the full quarter and at higher day rates. We generated approximately $20 million in operating cash for the quarter, with negative free cash flow of $9 million after considering capital expenditures of $29 million. In contrast, our first quarter negative free cash flow of $41 million was largely a result of working capital swings in the other direction. Now, I would like to shift to a discussion of our third and fourth quarter outlook. Looking ahead to the third quarter, We expect contract drilling revenue, excluding reimbursables, of $205 to $215 million. The reduction in revenue compared to the second quarter is largely activity-driven, with the Blackhawk, Courage, and Patriot being off contract as they prepare for their next contracts. Combined with these rigs transitioning to new contracts and the timing of the Patriot termination fee, we have four non-recurring discrete events that impact our projected third quarter results relative to our prior expectations. First, the apex spending more days in the shipyard than anticipated, resulting in additional costs, less revenue earning days in the quarter, as well as the shift of higher revenue earning days from 2023 into 2024. Next, the expectation that the Courage will complete its current contract and begin its new contract preparation activities earlier in the quarter than originally anticipated. In addition, non-productive time for the two managed rigs, resulting in the loss of a portion of our managed rig margin. And finally, just over two weeks of non-productive time for the Black Lion that concluded in July. As a result, our EBITDA for the third quarter is anticipated to be just above break-even. All of these discrete events have transpired or will transpire during the third quarter, such that there should be no material impact from these events on the fourth quarter of this year or any carryover into 2024. As you can see, we have significant amount of transition taking place with rigs departing the shipyard and commencing higher day rate contracts. Namely, the Apex departed the shipyard in July and transitions to its higher day rate contract later this month. and the Blackhawk and Courage will be returning to work in mid to late fourth quarter, respectively. These new contracts provide the basis for our fleet's future higher average day rates that will result in substantial quarter-over-quarter increases in EBITDA beginning in the fourth quarter and accelerating into 2024. Looking at the fourth quarter more specifically, we are anticipating quarterly EBITDA in line with prior expectations of $50 to $60 million on revenue of $260 to $270 million. This ramp up in the fourth quarter is driven by the Blackhawk and Courage beginning their higher day rate contracts in the quarter and the Patriot being on contract again for the majority of the quarter. It is worth noting that this level of quarterly EBITDA contribution would be our highest reported quarterly EBITDA since mid-2018. When combined with our actual results for the first half of 2023, Our estimated full year revenue is expected to be $950 to $960 million at the low end of our prior guidance range, with EBITDA for the full year 2023 expected to be $105 to $120 million. Our full year CapEx guidance remains the same at $120 to $135 million, albeit most likely in the upper half of the range. Turning now to some commentary on our 2024 outlook. The increasing day rates we have secured, coupled with the investments we have made in our fleet, has positioned us to deliver strong and consistent financial performance in 2024. The average day rate in our 2024 backlog is $321,000 per day. This compares favorably with the $285,000 per day average day rate earned year-to-date in 2023. A large contributor to the overall increase in average day rate is the Blackhawk contract we recently secured. The increase in day rate combined with the operating cost reduction from working in the Gulf of Mexico will result in rig level EBITDA for the Blackhawk of approximately $100 million in 2024 as compared to less than $10 million in EBITDA in 2023. The combination of overall contract coverage and higher average day rate across the fleet gives us great visibility into what is expected to be significant growth in EBITDA and cash flow generation in 2024, with upside potential from two drill ships and three semi-submersibles with recontracting opportunities in 2024. Further, with only two planned out-of-service periods for SPSs in 2024, as compared to our five shipyard stays during 2023, We expect only 100 days out of service in 2024 versus almost 450 days out of service in 2023. This operational continuity gives us the foundation for stronger and more consistent financial performance in 2024. This concludes my prepared remarks. I will now hand it back to Bernie for some closing comments before we move into Q&A.
spk17: Thank you, Dominic.
spk02: As the Apex Blackhawk and Courage roll to higher day rates in the back half of 2023 and with significantly less shipyard days in 2024, we look forward to improving financial results in Q4 and a further leg up in financial performance as we roll into 2024. We appreciate your interest in Diamond Offshore and will now open the call for questions.
spk00: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our next or first question. Our first question comes from Eddie Kim with Barclays. Your line is open.
spk07: Hi, good morning.
spk06: So just taking a look at your fleet, which is very well contracted at this point, There's not too much white space over the next, call it, six to 12 months. And I believe you mentioned that 70% of your marketed capacity next year is contracted. So just in that context, curious if you would be open to purchasing a stranded new build from the shipyard or maybe purchasing an existing rig in the fleet. Just any color on thoughts to potentially adding rig availability in this rising day rate environment would be great.
spk02: Thanks for your question, Eddie. I mean, we have certainly looked at that both from short-term and long-term perspectives, and we obviously have an interest in growing the fleet. You know, there are a lot of considerations involved in considering, you know, acquiring one of those rigs. Obviously, there's the cost, and whether that's financed through bond, equity, or otherwise. There's the working capital implications, and There's simply a matter of focus for the company. I would consider a plan A for the company to stay the course with our current assets. As we transition to 2025, 100% of our rig fleet will have moved to current market rates, and our EBITDA and cash flow potential at that stage is pretty incredible. We will continue to look at these stranded assets as potential plays, but that would be a secondary option for us, Eddie.
spk05: Okay. Okay, got it.
spk06: Thank you. My follow-up is on the ocean, Great White and the RIGS opportunities going forward. We've seen the flu of contract announcements in the harsh environment semi-market. You just laid out a strong market outlook for this asset class, especially with the exodus of rigs out of Norway. Another rig has seven priced option wells after its contract ends in April. Any sense from the customer if they intend to exercise all of the options on this rig? And just general thoughts on if you see opportunities for this rig to move you know, back to Australia even or work in Norway or parts of the Eastern Med. Just any thoughts on the future opportunities for this rig?
spk02: Sure, Eddie. So, as you mentioned, the rig has seven remaining priced options at 60 days anticipated well durations each. Those options get exercised as we finish a well. The next option becomes eligible for exercise by the client. We anticipate the client will exercise most, if not all, of these options. We don't have any assurance of that at this stage. We feel very confident about the next four and reasonably confident about the full seven. Okay. With regard, you know, to opportunities, obviously we would look to the west of Shetland's area and the UK North Sea sector. But more recently, we fielded inquiries for potential opportunities in West Africa as well as Canada. And so we would definitely compare those opportunities to those closer to home in the North Sea today and target the RIG for the highest EBITDA potential that would be available to us.
spk06: Okay. Got it. Great. Thanks for that call there, Bernie. I'll turn it back.
spk01: One moment for our next question.
spk09: next question comes from frederick steen with clarkson securities your line is open hey bernie and team i hope you are all well and thanks for taking my question um or i have two questions actually uh so let's start with the first one um going back to your general market commentary here in the prepared remarks. I think at least according to our own analysis and how we're just seeing fixtures showing up, it's definitely, as you say, a trend of longer duration work for floaters. So I would ask for a bit more color if you're able to give on how your discussions with clients have kind of developed since we last spoke on the q1 call are you you know how's the frequency of opportunities are you getting incoming calls what's the furthest out in time a client is looking for a rig etc so any kind of additional color you can can get on that i think would be helpful as i believe longer lead times and longer contract is what's going to be needed for multiple expansionary pricing wise on equities. Thanks.
spk02: Thank you, Frederick. Well, you'll be aware of at least one and potentially two longer term contracts that are out in the market today with commencements in 2026. In addition to that, we've had private conversations with a number of clients that are looking at longer term contracts as we roll into late 2025 and 2026 to further their programs for the long term. So there are a number of conversations where the clients are already thinking about their rollovers that occur within that timeframe and their plans for contracting going forward. You know, we're currently tracking 53 discrete opportunities, and by discrete I mean where there's an RFI or discussion with an operator, of which 29 of those are drill ships and 24 are for semis. We count approximately 46 units between now and the end of 2024 with four or more months of availability of these, 26 are drill ships and 20 are semis. So clearly between the number of opportunities we're tracking and the availability out there, there's some additional scope for rigs to be delivered from stranded assets or cold stack. There is an obvious trend for stranded assets and cold stacked rigs to target the longest term opportunities, take available the mobilization payments or other financial incentives that may be available there to defray some of the reactivation or purchase costs and then subsequently take a slightly lower market day rate, lower than market day rate for the term of the contract as they recover their initial investment. So I think you will definitely see some of that going forward and that will be more targeted towards these longer term contracts. Then as we get closer to 2025, you'll see a number of contracts that are currently long term roll over and you'll see another leg up in pricing and scarcity of supply as those roll over to replacement long-term contracts.
spk09: Thank you. Super helpful. And just a quick follow-up on that one. Are you to a larger degree now seeing that EMPs are willing to contract capacity beyond their own visibility on their drilling programs just to make sure that they have capacity?
spk02: Yes would be a general answer to that. I would further comment on that yes by saying that visibility for an operator, I don't want to confuse the term. I mean, they have well-defined development prospects out there that may or may not be fully FID'd, but they have clear visibility. They know how many rigs they're going to need to execute those programs. and they have a strategy that is aligned with executing those programs over the next multiple years. And so, although they are prepared to commit for work that they don't have a specific well identified for out into the longer timeframe, they certainly know which fields, what money, what returns those rigs would be linked with.
spk09: Okay. Perfect. Switching gears a bit, just want to touch quickly on your cap stack as well. Several of your peers have been out in the market and I think some of them have been out in the market also before the Q1 call and Avalaris yesterday tapping their second lead notes. So I was wondering, compared to where we were in Q1, have you made any new thoughts about what you think an optimized balance sheet would look like? Are you happy with what you have today or are you working on trying to streamline it a bit maybe with RCF conventional bonds? Any color you can give and what you think is an appropriate leverage level for you guys as well would be good to have an idea of.
spk04: Thanks. Yeah, sure, Frederick. Thanks for the question. Obviously, the market is there for offshore drilling to issue new papers, so that's certainly something that we continue to look at. As I mentioned in our call last quarter, we certainly are looking at that possibility. We have the luxury of time. We don't have any maturities until 26 and 27, so it is not something that is urgent for us, but But certainly moving into a regular way financing structure would be attractive. The restrictions and the covenants and limits that we have on our post-emergence RCF would certainly be a benefit to remove those. So we continue to be active and looking at it, talking with advisors, doing what we need to do to prepare for something along those lines. We're going to be opportunistic about it, and to the extent that we can extend our time to maturity as well as reduce our cost of capital, it is something that we would definitely be interested in undertaking.
spk09: Just in the event that you do redo your balance sheet at some point, I guess that is going to be a trigger as well for… potential shareholder returns, right, given your change in financial performance next year and onwards?
spk04: Yeah, that certainly could be a trigger as well. Having sustained positive free cash flow will certainly contribute to that as our rigs roll off, particularly our two black ship opportunities next year, and we recontract those at at what we would consider to be leading-edge day rates. It certainly gives us that longer-term perspective and the visibility into sustained positive free cash flow. So the combination of those two would be triggers that would put us in a position to be able to return money to shareholders. Certainly, the board has not authorized that at this point, but once we emerge through 2024 and into early 2025, we expect to have those conversations.
spk09: Thank you so much for taking, I guess, way too many of my questions, but I really appreciate it. Thank you.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. One moment for our next question. Our next question comes from David Smith with Pickering Energy Partners. Your line is open.
spk15: Hey, good morning. Thank you for taking my question. Morning, Dave. Hey, sorry if I missed it, but did you all discuss the three and a half year tender that Petrobras issued for a mortgage semi and whether you expect to compete in that?
spk02: We didn't discuss it during our prepared remarks, Dave. Certainly, it's an opportunity for Diamond that we'll be looking at. an area where we have an existing operation and a lot of operational experience. And clearly, we have the assets that would fit that specification.
spk15: Appreciate it. And I'm curious if you're seeing any other opportunities with any kind of term duration for moored semis outside of the North Sea or Australia.
spk02: Yeah, in West Africa, and the MED in particular, we're seeing a number of opportunities for moored assets that are on the fairly near-term horizon today.
spk15: Good deal. I appreciate it. And most of my other questions have been answered, but I'll go a little bigger picture. So we've had several deepwater rigs added to the market, the marketed fleet in the past year, you know, whether reactivations or stranded new-build purchases. It looks like there's probably a few more soon. And it doesn't take a lot of extrapolation to look out two or three years and see pretty limited potential incremental supply on the deepwater side. So what I was going to ask is, is the held for sale decision on the Ocean Monarch a final decision? Or is there any potential that that could be reconsidered just given the dwindling number of, you know, stacked and stranded new builds that could be added to the market?
spk02: Well, there's no SEC or accounting rule that would prevent us from changing our mind as far as that goes for a held for sale asset from a strict perspective. You know, as we look at our fleet, certainly the Onyx is a higher priority rig than the Monarch, given the activation cost differential between the two. And so the Monarch remains held for sale today, and we continue to look at opportunities that would bring more revenue to the company than simply scrapping that rig. You know, it's all a matter of deciding where we want to deploy our capital and how soon we recover the capital. Right now, we don't see opportunities that would justify bringing the Monarch back to the market. Makes sense. I appreciate it. Thank you, Dave.
spk00: Thank you. That concludes the question and answer session. At this time, I would like to turn it back to Bernie Wolford, CEO, for closing remarks.
spk02: Thanks all for your interest in Diamond Offshore today. Look forward to speaking to you between now and the next quarter or at the next quarterly call. Have a good day.
spk00: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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