Helix Energy Solutions Group, Inc.

Greetings and welcome to the first quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, April 23, 2020. I would now like to turn the conference over to Eric Staffelt, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Good morning, everyone, and thanks for joining us today on our conference call for our first quarter 2020 earnings release. Participating on this call for Helix today are Owen Kraps, our CEO, Scotty Sparks, our COO, Ken Nykerk, our general counsel, and myself. Hopefully you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through our investors page on our website at www.helixesg.com. The press release can be accessed under the press releases tab, and the slide presentation can be accessed by clicking on today's webcast icon. Before we begin our prepared remarks, Ken Nykerk will make a statement regarding forward-looking information. Ken?

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation, other than statements of historical fact, are forward-looking statements and are made under the safe tribal provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in slide two in our most recently filed annual report on Form 10-K and in our other filings with the SEC. Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial These reconciliations, along with this presentation, the earnings press release, our annual report, and a replay of this broadcast are available under the For the Investor section of our website at www.helixesg.com. Owen?

Thanks. Good morning. I hope everyone out there and their families are doing well and staying safe. This morning we'll review our Q1 performance, our operations in this challenging environment, and provide our near-term outlook. Moving to presentation slides five through eight, which provide a high level summary of our results. The first quarter historically has been a financially weaker quarter for us with the seasonal slowdown of activity in the North Sea. In an effort to maximize our earnings for this year, we made the decision to front load Q1 with five vessel dry dock recertification projects negatively impacting our results with a minimum of 73 days of loss availability. In addition, we commenced operations on the Q7000 in West Africa, a new vessel operating in a new region. Revenues in Q1 were reported at $181 million, with a net loss of $12 million and EBITDA of $19 million. The increase in revenues from Q4 was driven by the addition of the Q7000 to our fleet working in West Africa, partially offset by reduced revenues and utilization in the well-intervention Gulf of Mexico and UK regions. The addition of the Q7000 on an integrated project increased our cost basis. Combined with lower revenues in the UK and Gulf of Mexico, this reduced our gross profit to $2 million. We had several discrete items that impacted our results, including a $6.7 million charge for goodwill write-off and a $14.1 million tax benefit related to the CARES Act and other tax restructuring efforts. Our results in the first quarter were better than anticipated. The startup operations on the Q7000 were outstanding, with little downtime on the vessel, and the execution of our business units was exceptional. Robotics and production facilities continue to deliver. However, this has been completely overshadowed by recent market events. The impact of COVID-19 on the oil market is unprecedented. While the impact's been relatively minimal to our first quarter results, the impact of COVID-19 that it'll have on the remainder of 2020 and beyond will be significant. The instability and unpredictability of our current markets results in us withdrawing our guidance for 2020. While we're not yet in a position to provide guidance at this point, with this call and associated presentation, we will lay out the key data points as we see them that are currently influencing our business. On to slide eight, returning to our presentation, From a balance sheet perspective, our cash balance at the end of the quarter was $159 million, with an additional $52 million in restricted cash associated with the short-term LC. As expected, our cash flows were negatively impacted by the heavy load of vessel recertification costs during the quarter. Our net debt at the end of the quarter increased to $183 million. I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Thanks, Owen, and good morning, everyone. Moving on to slide 10. These are certainly different and challenging times. However, we have risen to the occasion, and the first quarter was better than expected in a period considering the effects of the virus globally, the slower winter seasonal period, and we completed planned regulatory certification and other maintenance on five of our seven of our well intervention vessels. The virus has caused numerous logistical challenges. However, we've managed to keep the fleet active, currently working in six countries on four continents, and currently operational on 12 vessels, five well intervention vessels, six ROV support vessels, and the HP1 with strong operational performance regarding safety and uptime. In February, in swift response to the virus, we introduced strict measures and set protocols on all our vessels. Our offshore crews, alliance partners, and suppliers have been fantastic and rose to the challenge. Offshore personnel psychosovate for 14 days, complete health documents before travel, and are screened prior to joining the vessels. In the UK, the US, and Brazil, we've recently been able to test personnel for the virus prior to allowing access to the vessels, although test kits can still be hard to come by. Once on board the vessel, life is now somewhat different than before. Common areas such as gyms, lounges, and cinemas are currently closed. Face covering are always worn when not in cabins. Social spacing and PPEs are there too. Meal times are restricted in the number attending and to allow social distancing and no buffet services are available. Our teams have undertaken to extend 11th of shift patterns to reduce travel and if at any time any person shows any symptoms related to the virus, they are immediately quarantined and removed from the vessel. We also have deep cleaning crews on the vessels continuously cleansing work and accommodation areas. Over to slide 11. In the first quarter, we achieved revenues of $181 million, resulting in a gross profit of 1%, resulting in a profit of $2 million. Considering the effects of the virus, the seasonal winter period, and our planned regulatory maintenance period, we attained good levels of utilization. The well intervention fleet achieved utilization of 72% globally, and the robotics chartered fleet achieved utilization of 89% globally. In the Gulf of Mexico, the Q5000 completed its scheduled five-year inspection. and the Q4000 completed its scheduled annual inspection. Both vessels worked for two clients on numerous wells. The North Sea business had both vessels complete expected seasonal warm stack and schedule maintenance periods and worked for four customers on four wells. The Q7000 had a very successful project in Nigeria, performing well with very little downtime, completing work on five wells for the clients. Highlight an exceptional startup for a new vessel and subsea system. The vessel is now in transit to a warm lay-up period. Performance in Brazil was usually strong again. Both vessels performed very well, achieving high utilization of 99% with excellent uptime. The robotics chartered fleet was very active, working between ROV support and renewable works, completing 405 days of utilization across eight vessels, with four of the vessels working outside the oil and gas market. Again, we are really proud of our Helix teams and partners. Our offshore teams are following our requirements and kept the fleet performing, and our onshore staff have done a great job working remotely, supporting all of our businesses. We are still very active globally, however, this is a challenging time, and we have commenced cost reduction programs, and as the market evolves, we will right-size to it accordingly. Slide 12 provides a detailed review of our operations for our well intervention business in the Gulf of Mexico. The Q5000 had 51% utilization after completing its scheduled five-year inspection program, and then performed Two further ultra-deep water intervention works for two clients, working on a well-enhancement project for one client and performing abandonment work for another client. The Helix SlumJ jointly-owned 15K IRS system is currently mobilised for the Q5000, and we are now commencing work for BP and contracted for the remainder of the year. The Q5000 now has a fully integrated SlumJ spread on the vessel, and we look to continue working closely with SlumJ, piloting initiatives to multi-skill our staff to reduce headcount and ultimate costs. The Q4000 performed well with 68% utilization in ultra-deep water, completing a multi-well program for one client, and then completed its planned regulatory inspections. The vessel then went straight back to work, undertaking production enhancement work on two wells. Moving to slide 13, a North Sea well intervention business performed well, coming out of the seasonal warm stack and maintenance periods, working in the harsher winter conditions on both vessels. The well enhancer achieved 63% utilization, working for one client, working for one client on one well, completing scheduled maintenance during its seasonal stack period. The vessel then recommenced work for a major client. The sea well achieved 34% utilization, performing scheduled maintenance during the seasonal warm stack period, commencing multi-well abandonment work for two clients. The Q7000 mobilized with Schlumberger Services equipment arrived in Nigeria in early January, and after clearing customs and completing regulatory inspections and final client testing, The vessel went on hire January 23rd and completed production enhancement work on four wells in the quarter. The vessel completed the project, so it's in five wells in mid-April and is currently in transit to a warm layout berth. Moving to slide 14. In Brazil, our operations for Petrobras continue to go extremely well and again produce another quarter of operational excellence with continued strong performance regarding safety, uptime and efficiency. We're currently ranked the number one rig contractor for Petrobras. In the first quarter, the SIEM Helix 1 achieved 98% utilization working on four wells, one well-being production enhancement works and working on three wells performing abandonments. The SIEM Helix 2 achieved 99% utilization working on four wells, performing production enhancement scopes on two wells, and abandonment works on two wells. The vessel also completed scheduled shipyard maintenance during the quarter. Moving on to slide 15 for our robotics review. Robotics continues to go on and is looking to have a solid year. We have continued to diversify our robotics business internationally with numerous works that are not oil and gas related. In the first quarter, the vessel charter fleet utilization was 89%, including 272 days from spot vessels. Free vessels were utilized mostly in renewable energy projects in the North Sea. The Grand Canyon II and the MV Pride worked in the APAC region, and the Ross Candies operated in the Gulf of Mexico. In the APEC region, the Grand Canyon II had 100% utilization performing works on ROV support projects. The MV Pride is currently working in Australia undertaking an interesting 70 to 80 day salvage project. The Ross Candies had 53 days utilization working ROV support for free clients in the Gulf of Mexico. In the North Sea, the Grand Canyon III had 46% utilization working 42 days in renewable trenching. We also continued work from two smaller spot-charted vessels, the Glomar Wave and the Christington, throughout the quarter working on the long-term wind farm site clearance and survey project. It's exciting to share how we're expanding our renewable service offering globally and contracting other services other than just trenching. We've now also been awarded our first renewable trenching project in the USA, mobilising the T-1200 trenching unit to a client-provided vessel this week in the UK to transit to the US East Coast. We've also just signed a contract adding significant trenching backlog, adding further work in 2022 and 2023 in Europe. Over to slide 16. I'll leave this slide detailed on the vessels, RV, and trenching utilization for your restaurants. I'll now turn over the call to Eric for a discussion on our balance sheet and our 2020 outlook.

Thanks, Scotty. Slide 18 outlines the debt instruments and their principal maturity profile. In the first quarter, we extended the maturity of our Q5,000 loan until January of 2021. The extension was completed to align the debt maturity with our expected cash flow generation in the second half of 2020. Moving to slide 19, this slide provides an update on key balance sheet metrics including long-term debt and net debt levels as of the first quarter. Our net debt in Q1 increased to $183 million from $143 million in Q4. The increase in net debt During Q1, it was driven by the incurred recertification cost of our fleet, approximately $18 million, and capital expenditures during the quarter, approximately $12 million. We reduced our long-term debt by $13 million. Our cash position at the end of Q1 was $159 million, excluding $52 million of restricted cash. Our quarter-end net debt to book capitalization was 10%. Moving to slide 21 for our discussion on our 2020 outlook. Our industry, our market is in unprecedented territory. In late March, we withdrew our guidance for 2020 with the clear expectation of being cash flow positive in 2020. The lack of stability that led to that decision to withdraw guidance remains today, even to a greater extent. Our expectations have not changed, although we will not provide guidance today as we had hoped. Therefore, we are focusing on providing the details of our business as we know them today that serve as our foundation to our current expectations. Our contracted backlog for the balance of 2020 is approximately 400 million. Although subject to change, we expect the majority, if not all of this contracted work to be completed in 2020. Providing more color by segment and region, first with our well intervention segment. The UK North Sea, we expect this region to be a one vessel region for the balance of 2020. The well enhancer has contracted work into Q3 with spot opportunities. The sea well completed contract work in Q2 and will be stacked until work resumes with discussions providing upside ongoing. Q7000 has successfully completed its first campaign in West Africa. The add-on work has been suspended and the vessel will be warm stacked until work resumes, whether in West Africa or another region. In the Gulf of Mexico, the Q5000 commenced operations for BP and is expected to remain on higher for the balance of 2020. Q4000 has contracted work into Q3 with a likely challenging spot market thereafter. In Brazil, the CM Helix 1 and CM Helix 2 are on higher for the balance of 2020. Moving to our robotics segment on slide 22, robotics has thus far been more resilient in this market than well intervention. Work in the renewables wind farm sector continues, mostly under trade by current events. Project awards have continued during this time, providing much needed signs of continued work. Robotics is certainly expected to be impacted by the slowdown in oil and gas work, but the continued reductions in costs and the activity levels in the renewables market are mitigating a significant portion of the impact to date. The Grand Canyon II is on contract through April and is expected to have good utilization the remainder of 2020. The Grand Canyon III is currently working with contracted trenching operations May through September. The Las Candes is expected to have good utilization through charter exploration in early Q3. Our wind farm survey and site clearance project using two VROs is expected to continue into Q4. Moving to production facilities, the HP-1 is on contract to balance for the balance of 2020 with no expected change. As we have previously stated, we will aggressively move to reduce our cost commensurate with the levels of work activity by assets and overheads. Continuing Site 23, we have lowered our capex forecast to approximately $38 million for the year, comprising primarily of the recertification cost of our vessels, the majority of which has already been spent in Q1. Reviewing our balance sheet, our funded debt is expected to decrease by $33 million in the remainder of 2020 as a result of scheduled principal payments. With the recent completion of the Q7,000 campaign, we expect our restricted cash to be released in the near future. We also anticipate tax refunds in the amount of $16 million in the next eight to 18 months as a result of the tax changes from the CARES Act. I'll skip slide 25 and leave it for your reference. At this time, I'll turn the call back to Owen for quick comments.

Thanks, Eric. Well, first, I'd like to applaud and thank all HELIX personnel that may be listening in. As the virus continued to spread globally, our initial focus was on safely maintaining operability. We established protocols and evolved to utilization of testing to keep 13 vessels in six countries on four continents operable. We've avoided infections on most of our vessels and have caused and contained outbreaks on two vessels without a loss of any meaningful productive time. Our operations team have done an outstanding job. Our offshore personnel have demonstrated a flexibility, patience, and resolve to keep operations up. Our office personnel have adopted to be very efficient working from home. And our IT department has enabled us to make what seems to be a seamless transition. So my thanks to everyone involved. We have purposely planned greater than historic levels of maintenance periods on our vessels during this past quarter. So from the outset, our expectations were for a slow quarter. In spite of this and everything that's transpired in such a short period, our people have produced a quarter that exceeded our expectations. Having said that, I realize that there are three issues that investors are primarily interested in, outlook, cash flow, and debt. Our fireside chat a few weeks ago, we said that we expected to be free cash flow positive in 2020 and 2021, and that we would give more detail at our earnings call. Given the changing environment, we continue to speak with our clients, continue reviewing our contract provisions, and continue stress testing of our financial models, all of which have reinforced our previous assumptions. Let me just say, we are not really focused on trying to zero in exactly on what we think our guidance could be this year. Our focus has really been on running various sensitivities of worst cases to assess our needs and what our future looks like. So that's another reason why the guidance is not out right now, is we're really focused on the downside. We continue to believe that we've beat free cash flow positives for 2020 and 2021. At the beginning of this week, we thought we would be in a position to announce that guidance for 2020 based on primarily our contracted backlog with minimal additions from anything from the spot market. While we considered that max storage might be reached, that did actually start to occur, and we're starting to see the results of what that might look like this last Monday. So as everyone knows, the landscape landscape continues to evolve all the time and what no one knows is what will happen now. We can share some of the broader assumptions that we were and are considering in our modeling. Under outlook, we were considering that max storage would be filled in the near term. We considered that the impact from COVID-19 on shutdowns and therefore demand could extend through the end of 2020. Reopening efforts might produce a sharp but relatively modest uptick in demand on initiation, but would be hampered by a virus infection rate-induced start-stop cycles, lagging consumer confidence and capacity to spend. This would especially be true if a deep recession occurs. Thereafter, we think demand might build at a slow rate until an effective therapeutic or vaccine is available. Shut-ins could be forced they will be forced on the industry. These shut-ins might not be uniform, but may disproportionately impact shale, small independent producers without a downstream refining capacity. As demand rises, shut-ins could be restored, but with a loss of capacity due to bankruptcies, access to capital, lack of capital spending, reservoir damage, and decline. Structural damage to supply should not be underestimated, limiting the ability to restore supply to previous pre-crisis levels. Offsetting this, though, is that demand may also not recover to pre-crisis levels. Shut-in production will compete with stored oil, depressing oil prices until demand exceeds production and storage is reduced to a rational level. Oil prices gradually increase, but perhaps not to a level that promotes new development. This process could take place over 12 to 18 months and likely only begins with reopening in earnest. Our best guess would be early 2022 with producers starting to spend ahead of this in anticipation. We would expect offshore, especially in regions with ready access to markets or having an oil quality and high demand would be less affected. In fact, some of our clients are giving signals that they intend to proceed with intervention work as usual. But we'll have to see how that unfolds. As far as free cash flow is concerned, using these conditions, which are not, again, this is our sensitivity testing. Using these conditions, we've stress tested the models. We've looked at each region, as the impact will not be completely uniform. Our conclusion is that we need to be prepared for a sharp decline in work volume in the second half of 2020 that continues through most of 2021. Our work is like the field work falling under the producer's OpEx budgets. Most of our work involves keeping the well flowing and remediation. While reduced commerciality may advance the timing of required P&A work, we believe that much of this might be allowed to be deferred. Some operators may seek to take advantage of low cost to abandon But at this point, we don't see a tremendous boom in abandonment work occurring. We've had several projects planned for the second half of 2020 deferred into 2021. And we're receiving requests for rate discounts. But we've had very little in the way of contract terminations. Our rates never fully recovered from the downturn in 2016. This time around, there's less margin for EBITDA destruction from discounting, but we have taken it into consideration. We've spoken with our major long-term contract holders, and so far, we believe they're secure. We were hoping to issue revised guidance today. However, the industry entering territory that's never been seen before. and instead of running the risk of providing more precise but inaccurate guidance, we'll continue to observe the market and our clients' reactions and assess the validity of our assumptions. Applying what's been outlined here and barring further degradation to our outlook, we still believe we should be able to manage to a 2020 EBITDA result that is free cash flow positive. We also believe that 2021 will likely be our trough year But we should nevertheless be able to manage and be able to remain free cash flow positive through 2021. With regard to our debt, we have $423 million of funded debt obligations. We plan to pay down $33 million during the last three quarters in 2020 and have another $91 million in 2021. We anticipate being able to maintain a strong PZAT cash position on the balance sheet at year end 2020 and 2021. With an outlook of remaining free cash flow positive through this period, we should be able to meet our debt obligations out of cash on hand and cash flows. We're not completely dependent on refinancing or rolling of debt. This does not mean that we'll simply sit back and wait, though. We are and will be seeking possible solutions for restructuring of our debt that provides investors with confidence in our ability to meet our obligations. Our strategy remains the same as it has been, which is to use our cash and cash flows to reduce debt. We no longer have significant CapEx obligations as we did going into the last downturn. We were anticipating the time when we would be strongly free cash flow positive and could return value to shareholders. That's still our ultimate goal. But we're going to have to be patient for a while, probably a few years out, as our previous goal of getting to net debt zero is now more like debt free. There's no way to sugarcoat what's happening, so I've tried only to be as realistic as possible. However, there is a silver lining. I expect emerging on the other side of this will be a much leaner oilfield service market with diminished capacity for supply. Services should be in high demand and rate and utilization recovery may well be faster than what we've been seeing. Helix would be in a good position to be a significant beneficiary of this. We may in fact be further along in realization of our earnings potential at that time than we would have been under the circumstances of the past couple of years continuing as we've had to deal with supply overhang in the OFS sector. Bottom line is that we expect that we'll be able to manage this environment in a way that generates free cash flow based on our contracted work with minimal reliance on the spot market. And we have a plan to address our debt maturities in a way that doesn't rely on major market recovery or other aspirational factors. We believe we're in a position to weather this latest storm and are committed to do whatever it takes to emerge on the other side. So with that, I'll turn it back to Eric.

Thanks, Ellen. Operator, at this time, we'll take any questions.

Certainly. If you'd like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment, please, for our first question. And our first question comes from the line of Ian McPherson. Please proceed with your question.

Thanks. Good morning. Good morning, Owen and Scotty and Eric. Thank you for the blunt commentary. You know, I think coming into the year, Scotty, you had mentioned that you were expecting to have, I think you said, 60% of your activity oriented towards intervention. It might have been a little bit more than that. I don't know if that's changed much. I hear you, Owen, that you expect P&A obligations to be deferred in this environment. But my question is, is there a window of opportunity now to transact for assets in this oil price environment in the way that you did with Marathon-Ondrowski? Or is the commodity price too unaccommodative to continue that part of the business strategy right now.

I think that remains to be seen, Ian. Prior to Monday, we were actually getting calls of interest. So if you had asked me on Friday, I would have said it's becoming very interesting, the possibilities there. On Monday, of course, everything blew up and everything went on pause and We're probably in a period right now of everyone just sort of trying to see where everything settles. But yeah, when commodity prices drop to a point where the expected liabilities of abandonment are high and we have a lower cost of abandonment, there creates an arbitrage there for us to realize value. So I think we are entering a period where we'll be very open to taking calls and talking with producers about what's possible.

Yeah, I mean, it just strikes me that the opportunity to shore up utilization is one of the biggest levers you have right now in terms of preserving an EBITDA floor. And, you know, I think my follow-up question would be maybe you could just update us on what you're – Flexibility on vessel costs as you have to tap dance between ready active vessels and warm stacks or if you go maybe a little bit cooler than warm. What is the range of variability on variable costs as you pivot or think about longer term states of readiness? Maybe on a per vessel basis would be the easiest for us to digest.

I'll take that one in. Currently, our plan is that we warm stack in the Q7000, lukewarm stack in the seawall until work comes back. We're in discussions with clients for both of those vessels to have work later in the year. We have to wait and see if that comes together. But the range of stack costs from warm to sort of cold is anything from the low 20s down to about 4,000 a day.

Okay.

It's far less than our usual operating costs.

Ian, I'll just add, our sensitivity is sort of based on the possibility of stacking three vessels. Now, whether or not they remain in stack or they come out for work is yet to be determined. So, for instance, with Sewell, we're starting off with a warm stack here because we are talking with producers about work further on this year, although we're not considering that that work would just be considered upside to our current expectations. So we'll remain in cold stack, and if the work falls away, then it would revert to cold stack. So it's not possible for us to give you a number of days on specific vessels as to what will happen until the market unfolds a little more.

Understood. Thanks, Tom. But the three vessels that you're looking at would be the Sewell and the 7000, and what's the third one?

Possibly the Q4000, but that's very uncertain at this point because the Gulf of Mexico, we sort of see the Gulf of Mexico remaining a little more active.

I'll add to that as well. We're in discussions with clients. The Q4000 has work into August. We're in discussions with four clients who work after that. In the North Sea, we're in discussions for other works for the two vessels. This morning alone, we were awarded a 30-day project for one of the vessels that has further add-on work to the robotics company as well. So it's not like the market's dead. We're in discussions for all these vessels. We're just taking a look at it.

Good. Thank you guys for the answers. Appreciate it.

Our next question comes from the line of Mike Sabella. Please proceed with your question.

Good morning.

Hey, good morning, everybody. I was kind of hoping we could talk for, you know, you touched a little bit on capital allocation. You know, we can all look out there at the price of your debt today. Could you just walk us through sort of the options you have with respect to maybe thinking about bringing some of that in early? Is there any limitations that you have in your credit facility that would stop you from doing so?

We don't have any limitations under the credit facilities that I'm aware of, Eric. Let me just tell you, our CapEx for this year, we have lowered from 50 down to 38. Most of that was already spent in the first quarter because of the high maintenance period, so we have a relatively small tranche left for the rest of this year. Next year, our expectations are that it's going to be somewhere between 15 and 20, so you'll see another reduction in CAPEX at that point. So we are reducing, we have reduced the CAPEX expectations, and I'm not understanding the move forward. We do have some flexibility on moving dry docks around, which would affect CAPEX, but we only have one maintenance period for next year that I'm aware of.

And then specifically around potentially bringing some of the debt in early?

Okay. From that standpoint, you know, like we currently have here within the, like Owen mentioned, $33 million still scheduled to pay off this year, $91 scheduled for next year. So we are being aggressive on paying that down. You know, I think other than that, I do think that there are certain requirements within our credit facility that as far as maintaining liquidity and things of that nature, if we were going to try to accelerate any of the debt that's out there in 22 or 23. So I think there would be certain requirements we would have to meet.

I'm sorry. I thought you were talking about CapEx, not capital allocation. My apologies.

Yeah, no worries. I probably asked the question poorly. And then if we just go and start thinking about the robotics segment, are we confident that we can maintain positive EBITDA in this segment through the cycle? And as we kind of think about fixed costs in this business, how should we be thinking about EBITDA on the segment level?

So robotics, like we said, we're expecting quite a solid year. I think there's a lot of moving parts with the robotics side of the business, but we've expanded our offerings in the renewables side The trenching season looks pretty good in the North Sea. The GC2 is on higher all year in APEC. We've picked up some other spot work. Like we said, the MV Pride is currently working in Australia. So we should expect that our EVA there is somewhat in line with next year, but it's also down to some of the cost reductions, in line with last year, sorry, down to some of the cost reductions we've had and up in our renewable services.

I think also remember in previous earnings, we mentioned that this year was expected to be an off year for Trenching Forest with a recovery in 21.

That's perfect. Thanks, guys.

As a reminder, to register a phone question, it is the 1 followed by the 4. And our next question comes from the line of Michael Massey. Please proceed with your question.

Hello, yes. My question is in regards to gross margin. I know this for Q1 it was at 1.1%, but historically we have a 14.5% gross margin. I just want to know if you guys could speak to why the margin was reduced so much this first quarter.

Yeah, I think if you look at our historical performance, if you go back five years, our gross margin fluctuates by quarter. Usually the first and fourth quarter, which are the quarters that we have challenged utilization, our margins are lower, and I think that was the case here in the first quarter. The vessels, the Q4000 and Q5000, which worked in the fourth quarter, had, I think, about 70-plus days of idle time as they did their dry dock recertification costs. So idle asset utilization definitely hurts us in those standpoints. And that, with the addition of the Q7 to our cost basis, really drove our gross margin down in the first quarter.

All right, great. Thanks.

Our next question comes from the line of Sri Natsin. Please proceed with your question.

Hi. Quick question. Can you clarify the $52 million of cash that's in restricted cash? When do those restrictions come off and in what conditions?

So that was a restrictive cash that we had to put in place for an LC related to our work in West Africa on the Q7. That work is completed and the vessel has left the region. So we expect that LC to be released here in the near term.

Thank you.

And there are no further questions at this time. I'll turn the call back to you for your closing remarks.

Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our second quarter 2020 call in July. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.