Helix Energy Solutions Group, Inc.

Greetings and welcome to the third quarter Helix Energy Solutions 2023 earnings conference call. During the presentation, all participants will be in the 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 on Tuesday, October 24th, 2023. I would now like to turn the conference over to Mr. Brent Arriaga, Chief Accounting Officer. Please go ahead.

Good morning, everyone, and thanks for joining us today on our conference call for our third quarter 2023 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, Eric Staffeld, our CFO, Ken Nykerk, our general counsel, and myself. Hopefully you've had an opportunity to review our earnings 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 the For the Investor 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 and assumptions as of today. Such forward-looking statements may include projections and estimates of future events, business or industry trends, or business or financial results. All statements in this conference call or in the associated presentation are statements are forward-looking statements and are made under the safe public 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 risks, uncertainties, assumptions, and factors, including those set forth in slide two, most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q, and then our other filings with the SEC. You should not place undue reliance on forth-looking statements, and we do not undertake any duty to update any forth-looking statement. We disclaim any written or oral statements made by any third party regarding the subject matter of this conference call. 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.elixesg.com. Please remember that information on this conference call speaks only as of today, October 24, 2023, and therefore you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. Owen?

Good morning. This morning we'll review our Q3 highlights in financial performance. will provide insight into our operations and the key drivers to our results and outlook for the balance of 2023. Lastly, we'll provide insight into the continued development of offshore energy market, our focus on the opportunities within our energy transition model and opportunities beyond 2023. Moving to the presentation slides six through nine, provide a high-level summary of our results and key highlights for the third quarter of 2023. The underlying macro drivers of the offshore energy service market continue to be constructive and supportive of a sustainable long-term investment cycle. Offshore services, both in the U.S. and internationally, continue to be very active, with traditional oil and gas competing with renewables for assets, creating high levels of demand for services. In addition, our continued geographic expansion of our offshore renewable services into the U.S. and Asia Pacific markets has diversified our operations and broadened our reach, in addition to maintaining high utilization and enhancing the current rate environment for our other services. The fundamentals for decommissioning remain positive, with favorable regulatory push and high commodity prices. With a positive market backdrop on top of strong seasonal activity, our third quarter results improved upon the solid performance delivered in Q2. Our third quarter reflects our best quarter since 2014 and are illustrative of our earnings power of our focus in geographically diversified business model. Highlights for the quarter include the Q7,000 work Third quarter on decommissioning operations in New Zealand. Strong well intervention utilization in the North Sea and Brazil. The Q4000 completed dry dock in July, returning to operations for the remainder of the quarter. Robotics achieved strong seasonal utilization and operating results with high trenching and vessel activities. Helix Alliance improved seasonal results with continued high levels of execution. We maintained strong cash generation and positive free cash flow, and we acquired five additional P&A systems for our shallow water abandonment segment. Revenues for the quarter were $396 million, an increase of $87 million from our second quarter results. We generated net income of $16 million compared to net income of $7 million in the previous quarter. Adjusted EBITDA for Q3 increased to more than $96 million compared to $71 million in the second quarter. During the third quarter, we generated operating cash flow of $32 million, including $18 million spent on dry dock and recertification costs. We spent $8 million on CapEx, including an initial $6 million in cash for the additional five CNA spreads. Our resulting free cash flow during the quarter was $23 million. Our results were impacted by the regulatory certification and maintenance of the Q4000, which were completed at the end of July. Our year-to-date revenues were $955 million, an increase of $370 million from this time in 2022. We generated net income of $17 million compared to a net loss of $90 million at this time in 2022. Year-to-date and adjusted EBITDA increased almost threefold from 2022, increasing by $131 million to $203 million. For the year-to-date, our free cash flow was $42 million compared to a negative $4 million in 2022. These results represent significant improvements year-over-year and provide a glimpse into our earnings and cash generation potential. The significant improvements were achieved despite the high number of regulatory maintenance days in 2023 that have tempered our results, but provide an opportunity for either further improvement in 2024. I'd like to thank all of our employees for their efforts this quarter and in 2023. Executing safe and efficient operations for our customers has always been our hallmark. and we're committed to remaining an established leader in the offshore industry. On to slide nine, managing our balance sheet continues to be a top strategic priority. During the quarter, we retired the final $30 million of 2023 convertible senior notes outstanding. We maintained strong liquidity of $279 million and reduced our net debt to $59 million at quarter end. I'll now turn the call over to Scotty for an in-depth discussion of our operations.

Thanks, Evan, and good morning. Moving on to slide 11. The teams offshore and onshore outperformed again, producing another very well executed quarter, being our best performing quarter since 2014. In the third quarter of 2023, we continue to operate globally with minimal operational disruption, with operations in Europe, Asia, New Zealand, Brazil, the Gulf of Mexico, and off the US East Coast. We continue to operate at high standards with strong uptime efficiency for the quarter. During the third quarter, we generated gross profit of $81 million and a gross profit margin of 20%, up from a gross profit of $55 million in the second quarter of 2023 and a significantly improved year over year. For the first nine months of 2023, we generated a gross profit of $151 million and a gross profit margin of 16%, very much improved compared to a gross profit of $19 million for the first nine months of 2022. 2023 has been a strong year for Helix, and visibility across all sectors in 2024 and beyond is looking very positive, certainly more positive than in recent times. We have grown interest in some of our spot assets internationally, and our client base is increasing, and there's strong tender activity away from our usual areas of operations. We continue to contract at better rates with more favorable terms. Slide 12 provides a more detailed review of our well-intervention business in the Gulf of Mexico. The Q5000 had excellent utilization of 96% in the third quarter. The vessel performed very well, conducting production enhancements and abandonment works on four wells in ultra-deep water, working under a multi-year campaign for Shell. In the latter part of the quarter, the vessel commenced a four-well campaign for another customer. The Q4000 had utilization of 68% in the third quarter, completing the scheduled regulatory dry dock in July. The vessel then undertook a hydrate coring project for one customer, and commenced the free well production enhancement campaign for one client in ultra deep water. Positively, we expect both vessels will have high utilization for the remainder of 2023. We have work awarded in 2024 for both vessels with good visibility for potential further activity and increased rates compared to 2023. Both Q vessels continue to operate on the integrated Helix SLB subsea service alliance package. Moving to slide 13, Our North Sea well intervention business continues to respond well to the increased demand in the region, having an even stronger third quarter than the second quarter, achieving 98% combined utilization in the UK. The well enhancer commenced the quarter working in the west of Shetland region before relocating to the central North Sea later in the quarter. The vessel performed very well on production enhancement works on four wells for three customers and then completed decommission operation on one well for another customer. The seawell also had a very good quarter, working for two customers performing decommissioning works on numerous wells. Demand for our services continues to improve, and our business is in much improved conditions in terms of rates, contracting terms, and utilization. The seawell is fully contracted well into the summer of 2024 and will shortly leave for the planned winter campaign project in the Mediterranean. The well enhancer is contracted for the remainder of 2023 and has contracted and awarded work in 2024 with further increased rates. The Q7000 was 88% utilized, conducting the decommissioning contract in New Zealand throughout the quarter. On completions of work in New Zealand, the vessel is scheduled to carry out the paid transit to Australia to undertake several intervention scopes for free clients commencing in the fourth quarter. The Q7000 is then contracted for 12 months plus options to undertake well-abandoned work in Shell in Brazil, including the paid transit to Brazil. The work is estimated to commence mid-2024. The Q7,000 is contracted well into 2025. We have good visibility on work globally following on in 2025. Moving to slide 14. In Brazil, we had good combined utilization of 97% in the third quarter. The CM Helix 1 had a strong quarter and was 99% utilized in Q3, undertaking work on the two-year decommissioning project for Trident Energy, performing work on six wells in the quarter. The CM Helix 2 had 96% utilization, completing decommissioning activity on free whales with petrobras. Both SH vessels are contracted into the end of 2024, and there is increased demand and tender activity for the SH vessels post-2024 globally, including in Brazil. In 2024, we look forward to bringing the Q7000 to Brazil and then commencing the shell decommissioning contracts. Slide 15 provides detail of our one intervention fleet utilization. Moving on to slide 16 for a robotics review, Robotics continued their good performance and had another strong quarter, improving their results over the strong second quarter, and again being the best performing quarter in terms of revenue in EBITDA since 2015. The business performed at high standards with strong utilization on six vessels globally during the quarter, primarily working between trenching, ROV support, and site survey work on oil and gas and renewables-related projects. In the APAC region, the Grand Canyon II had 100% utilization in Q3, the vessel continued to perform well on a long-term decommissioning project in Thailand. The T1401 trenching system on board the CN Topaz continued work on a renewables trenching project in Taiwan, undertaking 92 days of trenching utilization for the quarter. The T1401 trenching spread on the CN Topaz has now been contracted by the customer until November of 2024. In the North Sea, the Grand Canyon Free was utilized 100% in the quarter, performing two renewable trenching projects for one customer and an oil and gas trenching project for another customer. The Verizon enabler had 100% utilization in Q3, completing renewables trenching works for two customers. We have now extended the vessel chart until the end of 2025 due to the amount of trenching activity expected by some of our established clients in the coming years. Also in the North Sea, the Glomar Wave completed 60 days of operations in the quarter, undertaking ordnance removal and site survey operations. In the USA, the Sheila Borderline, a Jones Act compliant vessel, was utilized 85% in Q3. The vessel performed works in the Gulf of Mexico to support a seismic node installation project. Helix Robotics is performing well and have a good backlog and visibility globally. We're expecting strong performance in 2023 and in 2024. Our service and geographical expansion in the renewables sector continues, highlighted by the recent contract extensions of the T1401 and CNTOPEZ until late 2024. Slide 17 details our robotics vessels and our entrenchment utilization. Slide 18 provides an overview of our shallow water decommissioning business, Helix Alliance. Helix Alliance had an excellent third quarter, producing a record-performing quarter to date with strong utilization across all three divisions. The offshore division had nine liftboats operating in Q3, with a combined utilization of 85% performing decommissioning services. Our shore also supplied six OSVs and had one crew boat with increased combined utilization of 91%. The Energy Services Division had increased operations of 1,272 days or 84% utilization for the P&A systems deployed during the quarter conducting decommissioning services. The division had operations of 259 days or 47% utilization in the quarter for the six core tubing systems. Due to our success in the shallow water well decommissioning market, in September we completed the acquisition of five further P&A spreads for the Energy Services Division, hiring the requisite manpower and increasing our total P&A spreads to 20 units. In Q3, the Diving and Heavy Lift Division had increased combined utilization of 93% across the three diving vessels. The heavy lift barge, the Hedron, had utilization of 100% undertaking platform removal and other decommissioning activities. In the first quarter, Helix Alliance commenced our most sizable decommissioning contract since the Helix Alliance acquisition. The contract is to decommission 39 wells, remove and dispose of 15 pipelines, and remove and dispose of seven platform structures. The work will utilize all services that Helix Alliance offers, highlighting that Helix Alliance is the permanent contracting company offering full-field shallow water decommissioning in one package. Helix Alliance had a good quarter. However, the work we undertake in shallow water is seasonal, and we will likely see a drop-off in activity across all divisions as we enter the winter period. Slide 19 provides detail for the Helix Alliance Vestland System's recent utilization. Before I hand over to Brent, I would again like to thank our global Helix employees and partners. You all helped to achieve an excellent quarter producing strong results, our best in a very long time. So thank you all. Stay safe and keep up the good work. We expect to finish 2023 strongly and are looking forward to what should be another very solid year for all of our businesses in 2024. I'll now turn the call over to Brent. Thanks, Scotty.

Moving to slide 21, it outlines our debt instruments and maturity profile as of September 30. We had total funded debt of $233 million at quarter end During Q3, we repaid the remaining $30 million of our 2023 converts entirely in cash, as well as the semiannual installments of our MARAB debt. We have no more scheduled maturities of our long-term debt maturing during the remainder of the year, but as mentioned, managing our balance sheet continues to be a top strategic priority. Moving on, slide 22 provides an update on key balance sheet metrics, including cash, long-term debt, liquidity, and net debt levels. With cash of $168 million, our net debt position at quarter end was $59 million. At quarter end, we had full $120 million of gross capacity under our ABL facility and no borrowings outstanding. After LCs, our net remaining availability under the ABL was $110 million, with resulting liquidity of $279 million. Given the cash repayments of our 2023 converts and installment of the MARAD debt during the quarter, And we repurchased 174,000 shares of Helix common stock for approximately 1.9 million. I will now turn the call over to Eric for a discussion on our outlook for 2023 and beyond.

Thanks, Brent. Our team performed well, delivering strong results in the third quarter. It is our most active and best quarter of the year, and the market continues to be constructive for the remainder of 23 and into 2024. Our results to three quarters have delivered the year-over-year improvements we expected. Entering the winter months, we expect seasonal impacts to our operations in the North Sea, Gulf of Mexico, and APAC regions. Given these expected impacts, we are tightening our guidance as follows. Revenue in the $1.2 to $1.3 billion range. EBITDA, $263 to $278 million, a $15 million increase from the midpoint. Pre-cash flow of $100 to $140 million. capex of 75 to 85 million. These ranges include some key assumptions and estimates. Any significant variation from these assumptions and estimates could cause our results to fall outside of the ranges provided. Our fourth quarter results will be impacted by the seasonal weather in the northern hemisphere. Robotic segment will be impacted in the North Sea and APAC regions with a decrease in trenching activities. Our shallow water abandonment will be impacting the Gulf of Mexico with a decrease in heavy lift and diving activities. We nevertheless expect the fourth quarter to generate solid, seasonally-adjusted results. Providing our key assumptions by segment and region, starting on slide 25. First, our well intervention segment. The Gulf of Mexico is expected to continue to be a strong market for the balance of 23, with the expected strong utilization on both the Q4000 and Q5000, and benefiting from market rates. In the UK and North Sea, both vessels have contracted work through Q4 and into 2024. Activity levels for vessels in this market continues to be robust. During the fourth quarter, the seawall is scheduled to undertake a two to three week transit for a project in the Western Mediterranean. The Q7000 is currently completing work in New Zealand on the TUI project. The vessel is expected to transit to Australia for contracted work with three operators. In Brazil, the CM Helix 2 is contracted into mid-December of 24 with Petrobras, and the CM Helix 1 is contracted performing well abandonment work for Trident into Q4 of 24. Moving to robotics segment, slide 26. The robotics segment continues to benefit from a tight market where currently both oil and gas market and the renewables markets are extremely active competing for assets and services. In the APAC region, the Grand Canyon II is contracted to perform decommissioning and ROV support work in Thailand. Expected good utilization for the balance of 23 in that region. In addition, one of the recently acquired T14 100 trenchers is contracted and working into mid Q4 2024 on the CM Topaz. In the North Sea, the Grand Canyon III is contracted to perform trenching work with expected good utilization in the fourth quarter. The Horizon Enabler with its flexible charter has trenching projects into December. The GLOBALAR wave is pursuing multiple short-term scopes. In the West, the Shalia Borlan is working on the Gulf of Mexico, performing ROV operations. With opportunities in the Gulf of Mexico, the vessel is expected to have good utilization in Q4. For production facilities, the HP-1 is on contract for the balance of 23 with no expected change. We have expected variability with projection as the Droschke field continues to deplete. The Thunderhawk field is expected to be offline in Q4 pending repairs. Continuing on slide 27 for the shallow water abandonment segment, the shelf decommissioning market continues to be very active. We've entered the period of time where we expect seasonal variability in activity. We expect the marine offshore division utilization to scale back seasonally on the lift boats, OSVs, and crew boats. The energy services division should have good utilization on 12 to 14 P&A spreads and two to three cold tubing units during the remainder of 23. There is seasonality in the diving and heavy lift division that will impact the fourth quarter. Moving on to slide 28, our CAPEX forecast for 23 has been heavily impacted by the dry docks and maintenance periods on our Q vessels earlier in the year. In Q3, we spent an initial $6 million of cash to acquire five P&A systems. Our cash spent in Q3 was approximately $26 million. With a heavy regulatory year in our recent acquisition, our CapEx forecast range for 23 is now $75 to $85 million. The majority of our CapEx forecast continues to be maintenance and project related, which primarily falls into our operating cash flow. Reviewing our balance sheet, our funded debt was $233 million at September 30th, with the final payoff of the $30 million 2023 convertible senior notes in September, and the semi-annual installs unmarried debt. I'll skip the remaining slides and leave those to Owen. This time, I'll turn this call back to Owen for further discussion of our outlook and for closing comments.

Thanks, Eric. Well, things are good, and we expect even better returns going forward. We continue to outperform our expectations, resulting in an additional increase to our 2023 guidance to an EBITDA range of $263 to $278 million. We're in the budgeting process for 2024, so we don't have specific guidance to share at this time. But with what we see so far, it could be upwards of 10% growth for 2024 over 2023 from our current assets. This includes legacy below market rates previously contracted that start to roll off by the end of 2024, which would indicate even further growth opportunities in 2025 over 2024. We've already pointed out that 2024 will have approximately 200 fewer scheduled maintenance days than 2023. Assuming market rates and that we're able to manage costs and execute on our maintenance programs, This could turn into approximately 25 to 30 million in EBITDA. We have four major assets currently impacted by legacy rates. The SH-1 is on a two-year contract to the end of 2024 with a small escalator in rates for 2024 over 23, offsetting higher costs. By 2025, we expect the vessel to be able to achieve market rates, which could be a 50 to 60% increase to the current rates. The SH2 is on a two-year extension of a four-year contract that has a flat rate until the end of 2024. At that time, we expect the vessel to be available at market rates, which could be approximately 40% higher. The Q5000 has a partial year commitment contract that ends at the end of 2024. There's a year-over-year escalator for 2024 over 23, but we'll not see market rates until 25. The Q7000 is contracted to work in the APAC into mid-2024 before transitioning to Brazil for 12 to 18 months. The rate and cost differences between APAC work and the Brazil work should generate 20,000 to 30,000 a day increase in EBITDA contribution starting in 2025 before reaching market rates in 2026. When I refer to market rates, I'm referencing current market rates as we don't know what the market rates will be in 25 or 26, other than to say that current market rates are not yet back up to 2014 levels. Rig rates continue to increase and supply is expected to remain tight. At this time, we don't have sufficient assets to meet the expected demand. We don't anticipate adding any new helix purchased or new build vessels, but instead could look to partner Mike Wilberg , City of Boulder, would select vessel owners provide helix systems and expertise to cover demand as an alternative to adding excess capacity to market. Mike Wilberg , City of Boulder, will be assessing our spread deployment strategy with consideration given to maintaining our presence and relationships in all the regions where we were. Mike Wilberg , City of Boulder, To this end, we added two additional intervention systems and two trenches at the end of 2022. In the renewables market, we forecasted growth rates for the work in the market that would allow us to grow our trenching and site clearance business within those two areas without a need to expand into other segments of the offshore wind market where adequate returns could be a challenge. Last year's acquisition of Alliance and the extension of our decommissioning business once again into the Gulf of Mexico shelf has been a good success. This business has seen EBITDA contribution more than triple since our acquisition and in 2023 is on track to generate roughly double the initial guidance given at the time of the acquisition as demand has increased faster than we expected. A recent study indicates over 14,000 wells to be abandoned in the Gulf of Mexico and thousands of structures and pipelines with 90% of wells being in shelf waters. The recent Fieldwood and Cox bankruptcies have kickstarted an intense desire to see this work done from both successor owners, who will assume the liability, as well as regulatory bodies pushing for a solution. A full field abandonment process begins with assessment and making the old structures safe to work on. Then the focus turns to the P&A of the wells. Following this, the pipelines are abandoned and the platforms removed, with the last phase being debris clearance of the ocean floor. After a flurry of well P&A work in 2023, we can expect a potential slowdown in well work and a ramp up in pipeline and platform removal. This may be the trend until the more recent Cox bankruptcy work begins, at which time all phases of the work should be active. Helix is the preeminent shelf contractor that owns all the main asset classes needed to perform all aspects of full field abandonment work. We expect the work to continue for years to come based on the work that exists. We believe the business line Felix has developed for the end-of-life oil and gas and the development of offshore wind has positioned the company well with a strong balance sheet for the generation of double-digit free cash flow yield going forward. I believe this gives you a good perspective on why I'm saying things are good, but we expect them to get even better. Eric?

Thank you. If you would like to register a question, please press the 1-4 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. Once again, to register a question, please press the 1-4 on your telephone. One moment, please, for the first question. Our first question comes from James Shum with TD Cowan. Please proceed.

Hey, good morning, guys. Can you just help me understand the free cash flow guide for this year? I mean, you have EBITDA going up nicely versus the prior guide, and I think you got free cash flow down $30 million or so at the midpoint. You know, it looks like CapEx is up, I don't know, six or seven million. So, you know, you called out working capital in the press release. But is that it? Or like, why would you not be able to reverse the working capital build in the fourth quarter? You know, that's kind of typical for OFS. So just just help me understand what's going on with the free cash flow, please.

Yeah, you're right, Jim. I think the primary driver for the adjustment to the free cash flow is the working capital increases. You're right about obviously the increase to EBITDA. That comes with also an increase to our revenue by over $50 million just quarter over quarter. Overall, this is primarily a timing issue. I think from what we are forecasting in the fourth quarter, I think we see some flow back in the fourth quarter as we're projecting strong free cash flow between $60 to $100 million in the fourth quarter alone. I think there's a good chance that will happen in the early first quarter as well. Once again, the seasonal impact, activity levels remain strong. It's October, November before we see the seasonal dip in December. And so it is primarily working capital. And once again, it's primarily just a timing issue. There is the impact of the slight increase to CapEx that was outlined, but those are the two main drivers.

Thanks, Eric. And just to confirm, you have no collection issues or anything like that. It's just timing. And so this should reverse by the first quarter, if not in the fourth quarter. Is that fair?

I think that's fair. I think overall, Jim, once again, activity levels for us as a whole this year over last year, revenues are up by over $400 million. And so I think the impact of the working capital on our cash flow generation has been obviously quite strong. I also think that we've had a little bit of shift in our schedules that has impacted the working capital as well. At this time, we don't expect or see significant collection issues.

Okay. And then the last one for me, can you just give an update on the 2026 converts? What's the strategy or what's the most likely outcome there?

You know, I think from that standpoint, Jim, you know, we have been advised and expect that the converts that we have is an instrument that we could hold to maturity. You know, once again, managing our balance sheet has always been our top priority. And then from that standpoint, we continue to weigh our options on how to manage this. Several years back, our focus was primarily on cash generation. Now as the market has improved, we're looking at our options from the debt standpoint. Obviously, we haven't been shy about talking about wanting to a more traditional debt instrument rather than convert. So really, really all options are on the table and focus really top priority is managing our balance sheet.

Okay. Thanks a lot, Eric. Appreciate it.

Our next question comes from Luke Lemoyne with Piper Sandler. Please proceed.

Hey, good morning. I just want to kind of clarify a couple of your comments on the initial 24 outlook. When you set up at least 10%, Were you referring to EBITDA for 24? Yes. Okay. And is that inclusive or exclusive of the 25 to 30 million of dry docks that you had in 23?

That would be primarily based on the 25 to 30 million of enhanced EBITDA from lower maintenance capex.

Okay, got it. So just up that amount with those absent plus rate growth on top of that, right?

Right. That does not include anything other than continued operations from our current assets. It doesn't include any acquisitions, production, or other impacts that may also increase it. So that's why we said greater than 10%. Okay.

All right, perfect. Thanks, Owen.

As a reminder, to register a question, please press the 1-4 on your telephone. Our next question comes from Craig Lewis with BTIG. Please proceed.

Yeah, hi. Thank you, and good morning, everybody, and thanks for taking my question. You know, I was hoping that you could talk a little bit more about the shallow water abandonment market. I guess one question was the handful of assets you purchased. I guess it was like $6 million. Were those acquired from existing, I guess, competitors, or was that new equipment that was ordered and you took delivery of?

No, we're not looking to add capacity to the market. That was an acquisition from an existing competitor company. It was very attractive because it also came with quite a number of offshore workers, and people are the biggest bottleneck to your ability to cover greater market share in this market. So adding the people was actually more important than adding the equipment.

Out of the 65 original employees that that division had, we managed to hire 62 of those people direct. So it's a really good win for us.

And then just as we try to piece together the fragmentation of the shallow water market and realizing it's also geographic specific, do you see as this market unfolds, and obviously you guys are in a pretty great position from a balance sheet and liquidity and cash, Could there be opportunities to do more such similar? I mean, you did mention potential for or that the guidance was exclusive of any acquisitions. Is this an area where the company could continue to look to grow over the next one to two years?

Yeah, I think we'll keep a close eye on the market and talk to all of our major clients. One of the advantages that we have is that we already have the systems and policies in place that qualify us to work for the majors, which are the recipients of the liability, as it were, from the Fieldwood and Cox bankruptcy. So depending on their demand and if it gets to the point where we're exceeding our capacity to supply, then there are opportunities that we could look at.

Okay, super helpful. And then just one more for me, realizing that When we talk realizing that sometimes well intervention assets have to compete against offshore drilling rigs, a big theme across the drilling space has been white space and idle time as rigs look to get back to work. It's interesting because when we listen to you, it doesn't seem like the well intervention assets are facing much white space I guess my question is, are we starting to see drilling rigs kind of look to take some of the short-term well intervention work or is the white space that we're seeing in offshore drilling really transient and rigs aren't looking to compete against your well intervention assets?

So I'll take that. I think that there are certain rigs are entering the weather intervention and also the decommissioning market. There's been a couple of contracts awarded in the deep water Gulf of Mexico, a couple awarded in Australia. But we are expecting high utilization for all of our assets in 23 and as we go into 24. You also have to look at it. You know, we don't really compete with rigs in the North Sea, for instance. Our vessels are very specific to the type of work that happens in the North Sea, being diver-enhanced and older wells in the North Sea. So there is a few contracts that have been awarded, but I wouldn't say it's greatly impacting us, and we're expecting good utilization through it.

Super helpful. Thanks for the time, everyone.

Thank you.

Our next question comes from Don Chris. With Johnson Rice, please proceed.

Good morning, gentlemen. I wanted to ask one quick question about the convertible debt. I mean, obviously, all options are on the table, but would you expect any of the current note holders to convert given where it's trading today? It seems at least to us that it doesn't really seem like anybody's going to convert at this stage given where they're trading today.

Yeah, good morning, Don. I think the advice that we've gotten from the experts in this area is to generally not expect any of the holders to convert because the notes trade at a premium to our stock price. And so that's the advice that we've been given. And I think that you can see from the trading value of the converts that they are trading at a slight premium to our stock price. And therefore, we would not expect there to be a conversion.

Okay, and I wanted to ask one question on the alliance payout. It seems like it impacted your EPS, but not your EBITDA this quarter. Can you remind us when that actually goes out the door, when that cash goes out the door to the ex-management team?

So yeah, the measurement period, Don, goes through the fourth quarter of 23, so it includes the upcoming quarter as well, at which point we'll true it up. As of the third quarter, trued it up to a fair market value estimate of $74 million. The payment is expected to happen in the start of the second quarter of 2024.

Well, I think we're all in agreement that Alliance has significantly outperformed, so we don't mind paying a little bit more to them. So I appreciate the time today. Thanks.

Yeah, and to your point there, once again, it is $74 million through the third quarter. We expect, obviously, we'll adjust it upwards as they continue to outperform here in the fourth quarter.

Thank you.

Gentlemen, there are no further questions at this time.

Okay, thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our fourth quarter call 2023 in February. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.