Helix Energy Solutions Group, Inc.

Greetings and welcome to the Helix Energy Solutions second quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session, and at that time, if you have a question, you can press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, you can press star zero. And as a reminder, this conference has been recorded Thursday, July 23, 2020. I'd now like to turn it over to Mr. Eric Staffel, Executive Vice President and CFO. Please go ahead.

Good morning, everyone, and thanks for joining us today on our conference call for our second quarter 2020 earnings release. Participating on this call for Helix today are Owen Kratz, 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 Release tab, and a 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 harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projection of 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 measures. 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?

Good morning, everyone. We hope everyone out there and their families are doing well and staying safe. This morning we'll review our Q2 performance, our operations in this challenging environment, and provide our outlook for the coming quarters. Moving to the presentation, slides five to seven provide a high-level summary of our results. Our results in the second quarter reflected the expected improvement from the seasonal increase in activity levels. Our revenues in EBITDA increased as we benefited from increased utilization in the Gulf of Mexico well intervention segment and the seasonal increase in activity in the North Sea that benefits our well intervention and robotics segments. As for robotics, increased renewables activity from trenching and the continued site clearance project were the catalyst for quarterly improvements in that segment. Revenues in Q2 were reported $199 million, with a net income of $5 million and EBITDA of $48 million. Our gross profit increased to $30 million from $2 million the previous quarter. Our quarter was negatively impacted by the depressed OFS market, largely resulting from COVID-19. We warm-stacked the Sewell and Q7,000, significantly reducing their costs. In addition, we have incurred incremental costs for additional logistics and safety requirements to continue operations in this environment. This depressed market and operational challenges will continue until the pandemic is behind us, but our team is addressing them head on. For our year-to-date results, our revenues were $380 million. with a net loss of $6 million compared to $369 million of revenues and net income of $18 million in 2019. We generated EBITDA of $67 million in the first half of 2020 compared to $81 million in the first half of 2019. On to slide eight. From a balance sheet perspective, our cash balance at the end of the quarter was $178 million with an additional $42 million in temporarily restricted cash associated with the short-term LC. We generated $23 million of operating cash flow and spent $5 million on CapEx. Our net debt at the end of the quarter decreased by $17 million to $166 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. We continue to operate in a different and challenging environment, yet our teams and partners, both offshore and onshore, continue to respond well to the logistical challenges presented to us by COVID-19. In the second quarter, we had 15 vessels working and today currently have 12 vessels on hire. All vessels have proactive control measures in place designed to keep our vessels operating, including pre-testing globally all offshore staff prior to joining our vessels. We acquired what we feel is a sufficient surplus of PPE for our offshore teams, instructing that all wear masks at all times on the vessels, and enhanced regular deep cleaning is continuously undertaken. The second quarter was one of our best in relation to safety statistics and operational uptime performance. Our fleet operated at 99% uptime efficiency. It's extremely pleasing to know that our staff can produce such solid operational performance in these testing times, and I'm grateful and proud of them. We have, in response to reduced intervention activity in the North Sea and West Africa, warm-stacked two vessels with considerably reduced operating costs off those vessels. Further, we are undertaking targeted cost-cutting measures across all businesses and reduced SD&A spending. Over to slide 11. In the second quarter, we increased our results with revenues of 199 million, resulting in a gross profit margin of 15%, producing a profit of 30 million. compared to 181 million revenue and 2 million gross profits in the first quarter. Considering the effects of the virus causing warm stacking of the two vessels, we attained reasonably strong levels of utilization. The well intervention fleet achieved utilization of 72% globally, and the robotics chartered fleet achieved utilization of 95% globally. In the Gulf of Mexico, at the start of the quarter, the Q5000 commenced its annual commitment to BP and completed a very successful well with the 15k subsea system with no commercial downtime. In the North Sea the sea well completed work and was then warm stacked in leaf in Scotland and the well enhancer had a good quarter including successful cold tubing operations on two wells. The Q7000 completed its first projects in Nigeria with great success performing very well with very little downtime completing work on five wells for the client. The vessel has been warm stacked in the Canary Islands and is possible to commence planned work in Nigeria later in Q4 or Q1 next year. Performance in Brazil, as expected, was strong again. Both vessels performed very well to our usual standards, achieving high utilization of 99% with excellent uptime. The robotics chartered vessel fleet was very active, working between ROV support, trenching, renewable works, and salvage operations, completing 499 days of utilization across seven vessels. with five of the vessels working outside of the oil and gas market. Slide 12 provides a more detailed review of our operations for our well intervention business in the Gulf of Mexico. The Q5000 had 87% utilization working for two clients. The vessel completed a one well ultra deep water abandonment campaign for one client, and then the vessel undertook scheduled deep water testing and preparation of the jointly owned Helix Lumberjay 15K subsea system. After successfully completing testing of the system, the vessel commenced its yearly campaign for BP, performing very well with zero commercial downtime on the first well. The vessel now has an integrated Seloma J spread and team, and our two teams are working very well together. The client is very happy with this innovative approach, and the vessel is on contract to BP for the remainder of the year. The Q4000 performed well with 98% utilization, completing work in ultra-deep water for two clients. A two-well production enhancement project was completed for the first customer and a production enhancement program on one well followed by a one-well abandonment that was completed for the next client. Talking of ultra-deep water working, today the Q4000 is on hire and currently working at our deepest ever depth of 9,583 feet. The vessel is currently contracted through August and has identified opportunities into Q4. Moving to slide 13. Our north seawall intervention business has been most affected by reduced work requirements due to COVID-19, leading to the warm stacking of the seawall. The well enhancer, however, has work contracted into September and several other potential work scopes identified in the fourth quarter. The well enhancer achieved 87% utilisation, working for four clients in the quarter, including completing two successful cold tubing interventions on two wells. The seawall achieved 21% utilization, completing abandonment programs on four wells for two clients. We then significantly reduced the vessel operating costs, putting the vessel into warm stack in Leith in Scotland, reducing the crews of minimal manning allowance. The Q7000 completed its first project in Nigeria with exceptional performance, completing work on five wells with little commercial downtime and completing one of our longest ever continuous durations with a subsea system. On completion, the vessel transited to Tenerife in the Canary Islands, where it remains in warm stack mode, again significantly reducing our daily operating cost of the vessel. We are hopeful the vessel will be back to work in Nigeria on identified work scopes in Q4 or Q1. Over to slide 14. In Brazil, our operations for Petrobras continue to go extremely well, again producing another quarter of operational excellence with continued strong performance regarding safety, uptime and efficiency. Both vessels achieved 99% utilization and we continue to be ranked number one rig contractor for Petrobras. The Seam Helix 1 completed work on four wells conducting production enhancement work on one well and abandonment work on three wells. Seam Helix 2 completed production enhancement work on three wells in the quarter. Moving on to slide 15 for our robotics review. Robotics continues to have a very good year and is expecting a good second half of the year with five vessels working non-oil and gas projects. We continue to expand our renewable energy services by product line and geographically, securing renewable energy works in Europe, East Coast, USA, and Taiwan. In the second quarter, the vessel charter fleet utilization was 95%, including 342 days from spot chartered vessels. Four vessels were utilized mostly in renewable energy projects in the North Sea. The Grand Canyon II and the MV Pride worked in the APEC 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 and is currently working on a renewable energy project in Taiwan and will be contracted for a Q3 with expected good utilization for the remainder of the year. The MV Pride completed 56 days working in Australia undertaking an interest in salvage projects. In the Gulf of Mexico, the Ross Candies had 91 days utilization working ROV support for five clients. In the North Sea, the Grand Canyon Free had 72% utilization, working mostly in renewable trenching. We continue to work with the Glomar Wave and the Christiansen throughout the quarter, working on a long-term wind farm site clearance and survey project. Due to the increasing number of boulders found at the site, we've added a third vessel, the World Peridot, to the project. The T-1200 Trenching Unit continued work on a client-provided vessel on the US East Coast conducting renewable trenching works. Over to slide 16. I'll leave this slide detailing the vessels' RV entrenching utilization for your reference. Before I turn the call to Eric, I would again like to thank our Helix teams and partners for their exceptional work this quarter. I'm really proud of our offshore teams. They're doing a great job and following our requirements to keep the fleet performing extremely well. And our onshore staff continue to do a great job, most working remotely, supporting all of our businesses.

Thanks, Scotty. Moving into slide 18, it outlines our debt instruments and their principal maturity profile. I'll leave this for your reference and move to slide 19. This slide provides an update on key balance sheet metrics, including long-term debt and net debt levels. Our net debt in Q2 decreased to $166 million from $183 million in Q1. The decrease in net debt during Q2 was driven by $23 million of operating cash flow $5 million of CapEx during the quarter. We reduced our long-term debt by $10 million. Our cash position at the end of Q2 was $178 million, excluding $42 million of restricted cash. Our quarter end net debt to book capitalization was 9%. Moving to slide 21 for a discussion on our 2020 outlook. Our industry continues to be challenged by COVID-19, and operations and logistics continue to be significantly impacted. As you may recall, in late March, we withdrew our guidance for 2020 with a clear expectation of being cash flow positive in 2020. The uncertainty that led to that decision to withdraw guidance remains today, but we now have been operating in this environment for almost five months. We believe we have a better understanding and appreciation for operating in this time, the market and customer environment, along with operational challenges. So at this time, we feel we have sufficient visibility to issue revised 2020 guidance in a good faith attempt to provide investors information that is appropriately caveated as best we can against the backdrop of the current environment. We're setting our revised guidance for 2020 as follows, with revenues in the range of $655 million to $740 million, EBITDA in a range of $115 million to $145 million, and free cash flow of 40 million to 80 million. The range we have provided is wide, but we feel it appropriately balances the risks we face. Our guidance is based primarily on contracted work. Our backlog for the balance of 2020 is approximately 263 million. Although subject to change, especially in this environment, we currently expect the majority of this contracted work to be completed in 2020. Providing more color by segment and region on slide 22 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 September with opportunities into Q4. The sea well remains warm stacked, available for work. The Q7000 is warm stacked with earliest opportunities for work in late Q4. In the Gulf of Mexico, the Q5000 is working for BP and expected to remain on higher for the balance of 2020. Q4,000 has contracted work through August with opportunities into Q4. In Brazil, CM Helix 1 and CM Helix 2 are on higher for the balance of 2020. Moving to our robotics segment, slide 23, robotics continues to be more resilient in this market than well-invention. Work in the renewables wind farm sector has continued mostly undeterred by current events. Projects have continued during this time, providing much-needed signs of sustained work. Robotics is being impacted by the slowdown in oil and gas work, but ongoing reductions in costs and activity levels in the renewables markets are mitigating a significant portion of that impact to date. The Grand Canyon II is on contract through Q3 and is expected to have good utilization for the remainder of 2020. Grand Canyon III is currently trenching in the North Sea through September with good prospects thereafter. Ross Candy's charter commitment expires in early August. The vessel is then expected to operate on a pay-as-you-go basis over the near term. Our wind farm survey and site clearance project using two VOs is expected to continue into Q4. We also expect to mobilize a VOO in August for an expected 60-day North Sea decommissioning project. Moving to production facilities, the HP-1 is on contract for the balance of 2020 with no expected change. As we have previously stated, we intend to continue aggressively reducing our costs commensurate with levels of activity by assets and overhead. Moving to slide 24, our CAPEX forecast remains at $38 million for the year, comprised primarily of the recertification costs of our vessels, the majority of which already spent in the first quarter. Reviewing our balance sheet, our funded debt is scheduled to decrease by $23 million the remainder of 2020 as a result of scheduled principal payments. Our restricted cash position of $42 million was released on July 17th, although it may be required again if we return to work in West Africa. We anticipate tax refunds in the amount of $16 to $20 million in the next 6 to 12 months as a result of the tax changes from the CARES Act. I'll skip slide 286 and leave it for your reference. And at this time, I'll turn the call back to Owen for closing comments.

Thanks, Eric. It's been and continues to be a wildly vacillating year of circumstance like no other year. Utilization on our assets is down across the board, as could be expected, but not down as much as we had anticipated. We were actually surprised by new projects approved and awarded that were not unseen, or were not foreseen, sorry. Rates declined as expected. The surprise for us was that the pressure on rates did not stem from competitors and drill rigs, but rather from the commercial assessment as to what cost the projects could carry in this uncertain commodity price environment. Of course, there are the usual effects of supply chain putting pressure on rates just because the they could as well. Our rates probably declined more than we had anticipated as we perhaps overreacted to concerns about utilization, but that just means that there may be a chance that they'll recover with commodity pricing a little quicker should the competitive situation remain as rational as it currently is. The protocols and responses to COVID-19 certainly added cost to operating. But those aren't as high as one might expect, as we've been able to offset that with reductions in crew change costs and logistics. Early on in March, we implemented protocols that have proven fairly effective. We've always taken the safety of our personnel very seriously. In fact, we've been told several producers have actually adopted our protocols for their entire contracted fleet. We've had a couple of work suspensions while we addressed contaminations, but we had no zero revenue days due to the coronavirus. Production from our Drosky field was halted in late April because the host platform that accepts our production was shut down. While we don't require the profitability of the production to support the economics of the Drosky deal, the added profitability would have improved our Q2 results. The field is now producing again with one of its two remaining wells. This delay means that we'll probably not see decommissioning work being done in 2020 on that field, but more likely will slide into 2021. The negatives on the year have been partially offset by operational cost reductions. Some of these are temporary and will vary with work volume, such as vessel stacking, but some are structural and should be sustainable. In addition to operational and overhead cost reductions, our operating group has done a great job with the result being a significant reduction in the downtime on our assets. In this environment, that's truly commendable. Our robotics group has done a great job outperforming our expectations, resulting in a relatively strong year. Expansion into the renewables market as well as international markets has so far resulted in a stronger year than we anticipated, and this does seem to be sustainable. Many companies, including Helix, withdrew guidance as all this uncertainty started to unfold. And like most, we couldn't state with confidence what was likely in store for the year. Historically, we have provided annual guidance, and we feel that if we can provide honest guidance, we believe that we should. We know investors are always looking for transparency and insight into our potential ranges of outcomes. and we always strive to provide that transparency wherever possible. There are still challenges ahead in 2020, but we now have improved confidence in how 2020 is going and our ability to meet the challenges we see. We have decided to issue revised 2020 annual guidance with a range of $115 million to $145 million of EBITDA. For 2021, it's way too early and too many variables to say what kind of year it'll be. Our best guess is that it will continue to be challenging with a strong recovery not likely to occur, in our view, until 2022. On the positive side, we've seen meaningful work that was contemplated for 2020 now deferred into 2021. New projects are also being assessed by our clients. The outlined commodity strip and analyst projections seem favorable for intervention work. The commodity price seems sufficient to warrant intervention given its relative low cost per barrel. Wells are being neglected as work is deferred and that work will have to occur at some point. There's currently a lot of discussion about some major decommissioning work that'll be coming as well. We'll continue our efforts to expand our work in the renewables market and hope our international expansion continues to add potential. We also see the market conditions becoming favorable for additional Drosky type deals sometime in the near future. Uncertainties for 2021 will be similar to 2020 with commodity price hold steady. Will there be a significant reaction to a potential COVID-19 resurgent that again impacts demand recovery? Will there be a vaccine or therapeutics for 2021? And will upstream balance sheets cheap distress drive a reduction in all cash spending. We feel better about 2020 and even if we don't have clarity yet on 2021, based on our ability to react thus far, we do feel more confident in our market position and ability to cope with the uncertainties. We still expect to be free cash flow positive for 2020 and 2021 with sufficient cash on hand plus forecasted to be able to meet our debt obligations. We will, however, continue to look for opportunities to strengthen our balance sheet in ways that provide greater flexibility on how we might use our cash and free cash flow. I'll turn the call back over to Eric now.

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

If you'd like to register a question, you can press the 1 followed by the 4 on your telephone, and you'll hear a three-tone prompt to acknowledge your request. If your question gets answered, you can press 1-3 to withdraw. Again, that's 1 for the queue up. And our first question is from the line of Ian McPherson. Please go ahead.

Thanks. Good morning, everyone. Great to see that despite the chaos, that the year is shaping up a little bit better than we might have feared recently. So thank you for that outlook. And, of course, understand COVID. that there's prevalent uncertainty still, but I was wondering if you could talk a little bit about the bookends of the guidance range. It doesn't sound like there's a lot in store with regard to your expectations for the CWEL, which I assume remains warm-stacked throughout your scenarios, and the Q7000 work more likely late in the year or next year. So is the guidance sensitivity more around the second half or mainly the fourth quarter filling up for Q4000 and well enhancer? Or are there other factors that we should consider as well?

No, I think that's the right way to think about it, Ian. I think we're fairly clear on our expectations for the seawell. The Q7000 is a bit of a known, but as we expect that the opportunities there will be towards the end of the year or early next year. You could say the variables will be, of course, filling in some of the work on the spot vessels and, of course, any additional curveballs that our COVID-19 environment can throw us.

I just might add, I think Eric said it in his narrative, that the guidance is based on our visibility of contracted work. I think we'd strongly guide towards the middle of the range. The upside of the range is based on potential work that we see, but there's uncertainty as to whether or not it gets contracted or moved into 2021. And then the downside of the range is based on basically unforeseeable events. We haven't suffered any zero revenue days from COVID-19, but that doesn't mean there won't be any, so we put a cushion in.

understood thank you both i know there's still um again uh plenty of uncertainty and instability in the market overall but i know that a priority it will be to um uh renew the the long-term backlog on the q5000 starting next year as well as extensions in brazil has the world settled down enough that you've been able to resume those negotiations or is that still on the shelf for the time being

I'll start, but let Scotty comment further on this. I don't think that our outlook on our contract renewals has changed that much. Both clients are very happy with the vessels. They've been a commercial success for all parties. We haven't seen any indications that there won't be a renewal going forward. But having said that, I think the uncertainties of next year You know, you can deal with the operating groups, but then they take their mandates from the corporate. And until the corporate groups decide on what their budgets and their perspective of 2021 is going to be, it's just too early to say what kind of rate might be achieved or what kind of duration.

Yeah, I agree with that, Owen. What I can say is that we've had a very good start to the BP campaign this year, and they're very happy with the vessel, and we're still currently ranked number one in Brazil. So Petrobras are very happy with both vessels. They have a lot of work scheduled in there, and the vessels are very efficient for them down there. So we keep doing a good job for these clients, and hopefully that will lead to some discussions later in the year.

Thanks, gentlemen. I appreciate it. Good luck. Thank you.

The next question is from the line of George O'Leary. Please go ahead.

Morning, guys. Good morning. The robotics business certainly had an impressive quarter. I wondered if you could provide some color around the salvage project in particular and how much that benefited results. Was there anything in there that

materially helped the profitability of the business and just kind of any incremental color on the nature of that work would be helpful given the magnitude of the of the beat at least versus our expectations okay so i'll take that one the the salvage project in australia was a very interesting job it was actually recovering containers that were washed overboard in a storm from a container vessel um it lasted approximately 80 days so you have to take that as a one-off you know we we About every few years we get the odd salvage job, but it was a spot vessel, so it was normal sort of oil and gas type margins on that one. Most of the uptick really for the robotics side is coming from renewables and changing our product service and geographic expansion into renewables. We've had three vessels work on this site clearance project that's continuing, and we expect that to continue into the fourth quarter. We've expanded renewables offerings into Taiwan, and we currently have a trencher on the client-provided vessels on the east coast of the USA. So the renewables side of the business is helping prop up against the downside of less ROV days on the oil and gas side of the market.

Just one add there, Scotty. The ROV business is really transforming itself. It's something like 40-plus percent of our revenues in the robotics is now derived from the renewables market, and we see that growing.

Yes, and we continue to lock up backlog on the renewables trenching side. We have work contracted out now to 2024 on renewables trenching, and we haven't seen any erosion in rates on the renewables side of the trenching.

That's very helpful color that actually answers the next question I was going to ask. So move on to a different topic. Just, oh, and you mentioned the competitive situation has been more rational than you might have anticipated. I wondered if you could provide a little more color there and just talk about the competitive landscape more, more broadly, and maybe in anything that you think might be driving that more rational behavior.

Well, our main competition, we really don't have that many direct competitors in what we do. We're the only ones that provide heavy intervention vessels. The others in the market are all light intervention vessels from the direct competitors. Most of our competition comes from the drill rigs. Of course, that's why we went into this business was to offer a better option to drill rigs for this kind of work. In the last downturn, that was the anomaly. Typically in a downturn, rig operators will stack and then cut up rigs. In the last downturn, what we saw was a tremendous crashing of the rates in order to try and hold on to market share and keep assets active. This time around, though, we're seeing a sort of a return to the historic rationale When the rigs are finished with their work and don't have contracting opportunities, it looks like they're being stacked rather than just working for subcash operationally. That's been beneficial. But then, like I said in my comments, it still hasn't avoided the, we're probably pricing a little more aggressively than what we need to from looking at the rig market. But we have been conscious about trying to provide impetus for the producers to make decisions to go ahead with work for this year by pricing at a level that makes their projects extremely attractive commercially.

That was very helpful, Culler. Thank you, guys. I'll turn it back over.

The next question is from Mike Sabella. Please go ahead.

Hey, good morning, everyone. Good morning. Good morning. I was kind of wondering if you could dive in a little bit on the cost side of robotics. You know, you all manage this big ramp in revenues quarter over quarter with, you know, relatively small increase in comparable costs. I know there's been some kind of chunky one-time costs that have rolled off. Can you talk about how, you know, if that impacted the cost side of the business at all over, you know, kind of quarter over quarter?

Yeah, so I'll start that, Mike, and then Scotty can fill in. I think from the robotics side, you know, we did have some additional cost flow through the first quarter associated with the hedges that we had on the Grand Canyon III, and those rolled off. So I think our overall, you know, fixed cost was reduced. I think also, I think what you see also in the quarter over quarter, the improved utilization on our chartered vessel fleet, especially the long-term charters. That goes a long way. The cost is always there. When we're able to increase utilization on that, that does a significant driver of improvements that we see quarter to quarter.

Year over year, we've dropped off long-term charters and now moving more to a spot scenario. You can see we had seven vessels working for the robotics side. And those vessels are far cheaper than the longer term charters that we had.

Yeah, that's great. Thanks, guys. And then just kind of one follow up. You know, when we think of, you know, wells that were shut in that are now being brought back on production, is there work for Helix? Do those create revenue opportunities or it's just more kind of getting back to a normal operating environment?

I'll take that one. I think it could lead to work. Obviously, it depends on the status of the well as it comes back on. If the wells have been left for a long time, they have the potential to wax up and that could lead to an intervention. You have the potential for failure inside the wells of some of the mechanical components. As these wells that have been shut in come back online, there is the potential for more work. We've got a lot of discussions in all regions for work next year. Like Owen said earlier, a lot of the work's been deferred for next year, but there's a lot of talk of new work next year and talk of decommissioning activities as well because these wells have been shut in so long. That being said, that work's not contracted up yet, but there's a lot of healthy discussions going on for next year.

Perfect. Thanks a lot, guys.

The next question is from the line of James Shum. Please go ahead.

Hey, good morning, guys, and congrats on a great quarter. I just wanted to go back to the prior commentary on well intervention pricing. Can you sort of talk a little bit about how vessel pricing behaved in the second quarter relative to the first quarter and then what do you expect the percentage change would be roughly in the third quarter? Just trying to get a sense of how that's moving around.

I'll I'll just start off by saying that would take us a little while to dig in and try and find out. We haven't really looked at that. Just off the top of my head, my gut feel is that, well, first quarter was heavily impacted. Let me preface it all by saying, first of all, that utilization drives our margin a lot more than day rate does. In the first quarter, utilization was way down primarily because we put a lot of vessel maintenance periods into the first quarter. So to compare them quarter by quarter rate-wise is very difficult for us to do. I think in the second quarter we had a few projects that were probably at legacy rates, but then we started to fill in utilization by giving perhaps lower than market required rates. So on a blended basis going forward, I think for the rest of this year, we'll probably continue to price aggressively. in order to fill utilization because that drives our margin more than the rate does. But then for next year, I sort of see an opportunity to rationalize the rates a little bit based on what we've seen this year.

Okay.

I know that doesn't give you a percentage. It's just I think we'd have to get back to you on that.

Okay. Yep, I totally understand. And then on robotics, you had total vessel days that were close to 500 in the second quarter. Assuming zero contribution from the Ross Candies, I get something close to 400 days of utilization in the third quarter based on your 2020 outlook. Does that sound reasonable or am I missing something? And then, you know, what's the normal likelihood of picking up additional Q3 work given that we're, you know, near the end of July?

I'll take that one. We do have planned work for the Ross Candies in Q3. We have some contracted work for it already. But the Ross Candies contract now will be as a pay-as-you-go type contract. We've also mentioned that we plan to take a spot vessel in the North Sea for 60 days. I think days over days are going to be somewhat similar to Q2. We're expecting the site clearance project to continue through Q3. The Grand Canyon 2 will be on fire for the whole Q, and the Grand Canyon 3 will be on fire the whole time. So it's going to be very similar.

Okay, great. Thanks for that. I appreciate it, guys.

Thank you.

And as a reminder, if you'd like to queue up for a question, you can press 1-4. The next question is from Craig Gilbert. Please go ahead.

Thanks for taking my question. I just had a few on the cash flow forecast. Can you let me know if the CARES Act recovery of $16 to $20 million is captured within that forecast of $40 to $80 million?

I would say on the higher end, a portion of it is. You know, I think we disclosed that we expect that in the next six to 12 months. So there is variability. I think on the higher end of our free cash flow range would assume a certain amount of recovery there. But it's really, I think it's something that we expect. The timing is just a little bit uncertain.

Okay. That makes sense. And then just taking it down from EBITDA, you know, less CapEx, I would have gotten a little bit higher free cash flow. Is there anything going on with working capital? Is there a usage that's, I guess, depressing free cash flow? Because I would have thought at the midpoint EBITDA of about $130 million, less the $38 million. And then, you know, interest is fairly small. And, you know, the EBITDA is net of the $20 million range. you know, mobilization costs. I would have thought it was a little bit higher. Is there anything at play there that, you know, that I might be missing?

No, I think, you know, first of all, I think there's no specific, you could say, buildup in uses of working capital. I think that what we have layered in into our models and our estimates is obviously a conservative outlook on working capital based on the current environment. I think our assumption here is that there could be some extension there as far as collections, but there is nothing that is specifically targeted in our assumptions other than conservatism.

Okay. Okay. And then just the last question is, you know, renewables within robotics seem to do very well. And I recall that the expectation was 2021 was going to be a better year on that front than 2020. Was there anything that was pulled forward or is that previous expectation still hold that 2021 should be even better?

We do have more trenching work booked in 2021, yes. But be mindful that a lot of the renewables work this year is coming from the site clearance project, and we don't have one of those booked next year. We're in discussions, and that is a product line that we will be offering now. It's been very successful. The client's very happy, so we're in discussions with others, and we will be bidding more of that type of work, but the trenching side is very good.

Okay. Thanks very much. Appreciate it.

The next question is a follow-up from James Shem. Please go ahead.

Hey, Dave. Thanks for letting me back in. I think in the prepared remarks, you guys mentioned some additional costs for COVID-19 and stacking costs. I just wanted to know if there might be a 3Q benefit from the absence of these costs, and if so, can you quantify it?

I think in general, Jim, you know, we have incurred additional costs in the COVID environment, and I think we expect that to continue for the time being, and it's included in our forecast. Also, I think we've disclosed roughly, you know, the cost of stacking the vessels and The sea well, I think it's less than $20,000 a day, and Q7 in the mid-$20,000 a day cost. Those, I think, are assumptions that would continue going forward.

Right. Okay. I just didn't know if there was any, like, one-time mobilization costs into the stacking period or something that would not recur in the third quarter, but it sounds like not really meaning.

Not really, no. Right. No.

Okay. All right. Thanks again, guys. Appreciate it.

There are no other questions in the queue. Would you like to reprompt or go to closing remarks?

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

That does conclude the conference call for today. We thank you for your participation and you can now disconnect your lines.