This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk05: Thank you for standing by. My name is John, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the second quarter 2024 Felix Energy Solutions Group, Inc. earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Thank you. I would now like to turn the call over to Brent Arriaga, Chief Accounting Officer. Please go ahead.
spk06: Good morning, everyone, and thank you for joining us today on our conference call for our second quarter 2024 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, Eric Staffelt, our CFO, 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 the For the Investor page on our website at www.helixesg.com. The press release can be accessed under Press Release 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.
spk02: 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, business or financial results. 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 projections and forward-looking statements due to a number and variety of risks, uncertainties, assumptions, and factors, including those set forth in slide two of our presentation and our most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q, and on our other filings with the SEC. You should not place undue reliance on forward-looking statements, and we do not undertake any duty to update any forward-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 slides of our presentation provide reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report on Form 10-K, and a replay of this broadcast will be available under the For the Investor section of our website at www.helixesg.com. Please remember that information on this conference call speaks only as of today, July 25th, 2024, and therefore you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. Scotty?
spk04: Thanks, Ken, and good morning, everyone. Thank you for joining our call today. We hope everybody is doing well and those in Houston are recovering from the storm. We thank our Houston staff for their efforts during the recent week-long power outages. This morning we will review our second quarter highlights, financial performance and operations. We'll provide our view of our current market and update our guidance for 2024. The teams offshore and onshore outperformed again, safely producing another well executed quarter. Moving on to the presentation, slides six and seven provide a high level summary of our results and key highlights for the quarter. Our second quarter results improved both significantly and year over year. Revenues for the quarter were $365 million with a gross profit of $75 million and net income of $32 million. Compared to $296 million in revenue, $20 million in gross profit and a net loss of $26 million in Q1 of 2024. And $309 million in revenue and $55 million of gross profit and a net income of $7 million in Q2 of 2023. Adjusted EBITDA was $97 million for the quarter and we had negative operating cash flow of 12 million resulting in negative free cash flow of 16 million. Both results include 58 million of the 85 million Alliance Earn Out paid out in cash during the quarter. Excluding the impact of the earn outs, our operating cash flow would have been 46 million and our free cash flow would have been 42 million in Q2. Likewise, our year-to-date results show significant improvements over 2023. We generated revenues of $661 million, gross profits of $95 million, and a net income of $6 million, with adjusted EBITDA of $144 million. Our year-to-date net income includes $21 million in pre-tax losses related to the redemption of our remaining 2026 convertibles during the first quarter. Our cash and liquidity remains strong, with cash and cash equivalents of $275 million and liquidity of $370 million at quarter end. Highlights for the quarter include strong results in well intervention across all regions, strong results in robotics, including some well-executed trenching projects, the successful initial deployment of the riseless open water abandonment module in Australia from operations from the Q7000, and strong results from production facilities. Slide nine provides a more detailed review of our segment results and segment utilization. In the second quarter of 2024, we continued to operate globally with minimal operational disruption, with operations in Europe, Asia Pacific, Brazil, Africa, the Gulf of Mexico, and the US East Coast. Our overall second quarter results were in line with expectations, driven by strong performance from our core well intervention markets and robotics groups. Our shallow water abandonment results were impacted by a later start to the season due to the weather and time of operative spending. Moving to slide 10. Slide 10 provides further detail of our well intervention segment. We achieved strong utilization in the Gulf of Mexico, the North Sea and Europe, Brazil and Australia, performing very well with solid overall uptime efficiency of 98.9% for the quarter. The Q7000 performed extremely well with 100% utilization working in Australia with the successful deployment of the Rome. The vessel is expected to continue working in Australia for the second half of this year and then commenced transit to Brazil for the share of the commissioning campaign. We had solid utilization for both Q units in the Gulf of Mexico with the Q4000 now due to complete works in Q3 and then scheduled to commence paid transit to Nigeria for the ESO minimum six month well campaign due to commence in the fourth quarter. Moving to slide 11. Slide 11 provides further detail of our robotics business. Robotics had an exceptional quarter The business performed at high standards, operating six vessels during the quarter, working between trenching, ROV support, site survey and clearance work on renewables and oil and gas projects globally. All six vessels worked on renewables-related projects within the quarter. All vessels had strong utilization, with three vessels working on renewable trenching projects, two of those vessels trenching in Europe and one trenching in Taiwan. We are now well into the trenching season globally, and expect high utilization for the rest of the year across the fleet, which we anticipate will lead to robotics having another strong year. Slide 12 provides detail of our shallow water abandonment business. In Q2, the shallow water team had a later start to the season than expected due to unexpected weather conditions in the shallow water Gulf of Mexico, as well as the general near-term softening in the shelf abandonment markets. This resulted in less than expected utilization for the dive boats, the heavy lift barge and puno sprits. Also in Q2, we recommenced work back on the larger four-field decommissioning project after the winter break, with the project scheduled to utilise the epic hedron heavy lift barge, along with some of the dive vessels, support vessels and puno sprits. In summary, other than the slow start to shallow water operations, we are pleased with 2024, with year-over-year improvements in our overall results. Our business segments are positioned to benefit from the expected increase in activity during Q3 and into Q4. As we look forward to 2025, we expect to benefit from some of our larger well intervention assets coming off legacy contracts and pricing at market rates. We believe we are well positioned to benefit from market improvements and our customers' continued belief in the value we deliver. I would like to thank our employees for their efforts and high level of execution, delivering safe and efficient operations for our customers has established us as a leader in our industry. I will now turn the call over to Brent.
spk06: Thanks, Scotty. Moving to slide 14, it outlines our debt instruments and key balance sheet metrics as of June 30. Funded debt at quarter end was $328 million. At quarter end, we had cash of $275 million in availability under the ABL credit facility of $95 million, with the resulting liquidity of $370 million. We have net debt of $44 million at quarter end, During Q2, we settled the earn-out related to the Alliance acquisition, paying cash of $85 million, with $58 million of that flowing through our operating cash flow. I'll now turn the call over to Eric for discussion on our outlook for 2024 and beyond.
spk03: Thanks, Brent. Based on our second quarter and year-to-date performance and our expectations of the strength of the offshore energy market, we're updating our guidance of certain key financial metrics from our forecast. Revenue, our revenue guidance is $1.25 to $1.4 billion. EBITDA, $270 million to $330 million. We have maintained our EBITDA guidance with the improvements in our legacy business units offsetting our lower near-term outlook in the shallow water segment. The concentration of our remaining variability exists during the fourth quarter with the uncertainty in the winter season. Free cash flow, we're increasing our guidance to 90 to 125 million. This includes 58 million impact from the earn out made in early April. Excluding the impact of the earn out, our Q2 free cash flow would have been 42 million. And accordingly, our 2024 free cash flow guidance range would have been 148 to 183, benefiting from working capital inflows. We are reducing our CAPEX forecast to 60 to 80 million. Lower guidance is based on pushing approved amounts into 2025. Our spend continues to be a mix of regulatory maintenance on our vessels and the fleet renewal of robotics. Moving to slide 17, the Well Enhancer completed its scheduled dry dock in Q1, and the HP1 completed its dry dock in Q2. The Q7000 will have a maintenance period during its mobilization in Brazil. possibly spanning parts of Q4 and Q1 2025. Our full year CapEx forecast continues to be weighted towards regulatory maintenance, which primarily falls into the operating cash flow. Reviewing our balance sheet, our funded debt stands at 328 million. Our next significant maturity is not until 2029. We are still targeting 20 to 30 million of share worth purchases in our 2024 program, with five million completed in Q2, and 10 million year to date. Our quarterly financial performance in 2024 is expected to follow similar cadence as our 23 results, with the second and third quarters likely being our most active quarters and first and fourth quarters impacted by winter weather. Overall, with anticipated impacts of the Q4,000 transit in Q3 and the Q7,000 transit in Q4, We expect the second half of 2024 to be on par or slightly stronger than the first half. Our year-to-date free cash flow is a positive 45 million and would have been significantly higher if not impacted by the 58 million Allianz earn-out payment in April. Providing some key assumptions by segment and regions for the balance of the year starting on slide 18. First, our well intervention segment. The Gulf of Mexico continues to be strong market, supporting improving rates and expected strong utilization on the Q4000 and Q5000. The Q5000 has contracted work in every quarter this year with limited white space to fill its schedule. The Q4000 is contracted to work into Q3, the Gulf of Mexico. The vessel is scheduled for an estimated 60-day transit and mobilization to West Africa for a minimum six-month contract in Nigeria. with paid moat and demote. In the UK North Sea, we expect good utilization for most of the year. The well enhancer or seawell have contracted work through Q3. We are anticipating a return to seasonally adjusted utilization in the winter months in the North Sea. The possibility of winter season utilization provides support for the upper range of our guidance. The Q7000 is currently working in Australia with projects scheduled for three different operators. The projects are expected to continue into late Q3, followed by a scheduled transit to Brazil and mobilization for its contracted work in Brazil expected to commence early 2025. In Brazil, the CM Helix 2 is contracted into mid-December of 2024 with Petrobras. The CM Helix 1 is contracted performing well abandonment work for Trident into Q4 of 2025. We expect to benefit from the Trident contract extension at market rates in 2025. Moving to robotics, the robotics segment continues to benefit from the tight market, both oil and gas market and renewables market, extremely active, competing for assets. APAC region has both the Grand Canyon II and CM Topaz supporting renewables projects in Taiwan, scheduled to last into the second half of 2024. CM Topaz and the T1401 trencher are contracted and expected to remain in Taiwan through mid-Q4 of 2024. In the North Sea, the Grand Canyon III is performing trenching projects and expected to have strong utilization into Q4. The North Sea enabler has contracted trenching operations in Q3 and Q4. The Blue Mar Wave is forecasted to have good seasonal utilization performing site clearance operations. In the U.S., the Shalia Borland is in the U.S. East Coast providing wind farm support. Moving to production facilities, the HP1 is on contract for the balance of 24 with no expected changes. We have expected variability with production as the Droschke field continues to lead. Continuing to shallow water abandonment, we continue to anticipate this to be a seasonal business with higher Q2 and Q3 activity, and we're currently seeing more than expected variability in operator spending. Shelf decommissioning is a call-off business, but given customers' needs and continues reversion of properties through bankruptcies. Long term, we still believe in the solid foundation for this market. At this time, I will turn the call back to Owen for a discussion on our outlook beyond 2024 and for closing comments. Owen?
spk00: Thanks, Eric. Good morning, all. We've provided you a lot of insight into our outlook for 2024. Our team has performed well, delivering solid financial performance in most of our segments. As we begin the third quarter, we do have some noise impacting our outlook for the second half of 24. First, we're expecting to incur more than 150 days of transit and mobilization as we deploy the Q4,000 to Nigeria and the Q7,000 to Brazil. Even though these projects have paid mobilizations, accounting treatment requires us to defer the mobilization fee and costs during the mobilization periods and recognize it over the life of the project. This is expected to shift approximately 20 million of EBITDA into 2025. Second, the soft shallow water decommissioning market in the Gulf of Mexico. That segment is underperformed to date this year, but as mentioned with customers' needs and reversion of shelf properties, we still believe in the foundation for the market long term. Based on the strength of the overall global OFS market, we're not altering our existing guidance other than sharpening our projected free cash flow and capital spend. Looking ahead for the balance of 24 and into 25, we're near the point for the legacy rates that were secured during the downturn to begin to roll off and be replaced with current market rates. As previously announced, We're in advanced discussions with multiple customers with expectations of market rate contracts on several of our well intervention assets, which would achieve meaningful growth to our EBITDA for 2025 and secure utilization for multiple years ahead. More specifically, in Brazil, we expect to see a 40% increase in rates year over year going into 2025 with utilization out into 2028. The Q7000 is expected to work in Australia through Q3 and then transit to Brazil beginning early Q4. Once it begins its Brazil operations, we expect to generate an EBITDA contribution per utilized day, some $50,000 to $70,000 a day greater than what we expect to achieve in 2024, subject to the actual timing of the transit from Australia to Brazil. Go-forward rates have escalators for the term through 2026 with options beyond. In addition, with legacy contracts rolling off in the Gulf of Mexico, we expect an approximate 20% rate increase on the Q5000 starting in 2025. The Q4000 is scheduled to transit to Nigeria starting early August with the contract there beginning in late September, early October. The term of the work is six months with mutual options to extend. There's further demand for work in West Africa, and depending on the demand in the Gulf of Mexico and rates achievable, we'll make the area of deployment decision next year or otherwise may seek added capacity. These are examples of the tailwinds we're seeing. It's too early to be precise, but based on what we know now, we would expect well intervention on its own to add in the range of 60 to 100 million of EBITDA for 2025 over 2024. In our robotics business, we're seeing a robust market in general with supply tightening further. Trenching the cables in the wind farms is currently the most significant driver in our profitability. There's good visibility on the pipeline of projects out through 2028 with year-over-year growth in the market each year. We've already contracted some work as far out as 2027 and are in discussions about awards for 2028. For 2025, we expect continued strong performance from our robotics group with the potential to deploy our last available trencher, which was idle during all of 2024. We've already secured a second vessel for site clearance starting in 2025, and based on the work that we're seeing coming and the pace of our awards, we'll likely look to add a third boulder grab for site clearance work in the wind farm market. Adding UXO has enhanced our offering to the market for site preparation. Overall, we continue to be excited about the robotics segment, leveraging our expertise within the larger renewables market and the potential for further growth there. The status of the shallow-water Gulf of Mexico abandoned market is hard to forecast at this time. The work is certainly there to support a strong market for a long time to come. Following the bankruptcies of Fieldwood, the market got off to a rapid start. Excuse me. Producers have pulled back in 2024 to reassess the pace of the work going forward. The Cox bankruptcy is added significantly to the work that needs to be done, but delays over settling the bankruptcy has delayed the majority of the start into 2025. As a result, 2024 will be an off year compared to 2023 and likely more in line with our original guidance for that business given at the time of the acquisition. Work on both Fieldwood and Cox properties are expected to come to market in 2025. We would not expect the frantic pace of 2023 to be repeated by any one producer, but a greater number of producers are likely to put work to the market, each at a slower pace. Compared to the first half of 2024, we do expect to see a rebound in demand on a more sustainable basis, even if it's not at the 2023 level. The EBITDA contribution from our production facilities may drop in 2025, consistent with the decline in the production rates from our two fields. We do remain in constant dialogue with producers about adding additional wells to our production backlog as more fields approach the end of their life. This is purely an opportunistic alternative for producers as a means of dealing with their abandonment liabilities. And as such, we don't model the potential upside into our forecast. On a final note, if the market behaves as we think and our assumptions based on current information hold, Helix should end 2024 with approximately $300 million in cash on the balance sheet. And beginning in 2025, our free cash flow generation could be well over $200 million for the year. This provides meaningful dry powder. Barring a major event, We'll consider deploying cash to A, bolt on type of acquisitions in our existing business units where we see it to be accretive and sustainable, and B, continue to repurchase our shares under our approved share repurchase plan. As always, we'll remain open to and explore all opportunities to further value creation for our shareholders. We're looking forward to a strong 2025. Eric?
spk03: Thanks, Owen. Operator, at this time, we'll take questions.
spk05: Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We'll pause for a moment to compile the Q&A roster. Thank you. The first question comes from the line of Sheriff Al Maghrabi from BDIG. Please go ahead.
spk08: Thanks for taking my questions. Starting with well intervention, given some drilling rigs are dealing with white space in their schedules, are you seeing some rig operators start to bid on well intervention contracts? And is that something that's more prevalent in some basins versus others?
spk04: I'll take that. Good morning. We are seeing some longer-term contracts for rigs and operators using their white space to undertake some well interventions. But as we've said on the call, we're expecting high utilization for the coming years, better rates, better market rates as we come off these legacy contracts. And we're seeing high utilization. You also have to remember in the North Sea, we're not really competing against drilling white space. It's all different diver-based operations.
spk08: Thanks. And on the robotics side, posted its strongest quarterly revenue in about 10 years. Some of that is due to seasonality. Can you remind us of the typical seasonal cycle for robotics and is that changing as you start to do more offshore related work?
spk04: So with robotics, it can be seasonal. This year we have a very good backlog of trenching works going into 2025 and through the winter season. But it's basically where we're working in wind farms that are generally in shallow water that can lead to seasonality and winter breaks on the trenching side of the business. Much of the ROVs are on longer-term contracts and continue through the winter works. So it's mainly the trenching side that can be affected through seasonality. But this winter, going up into the fourth quarter, we expect a very strong season. And we have a very good pipeline of work for trenching. The trenching business, it used to be short contracts. We're now looking at some contracts that are, you know, numbers of years and looking well out to the future. We have a very good pipeline of opportunities for the trenching business.
spk08: Okay, I appreciate that color. Thanks for taking my questions.
spk04: You're welcome.
spk05: The next question comes from the line of Josh Jane from Daniel Energy Partners. Please go ahead.
spk07: Thanks. Good morning. First question that I wanted to ask, just when I look at the last couple of weeks, notable offshore drillers have announced contracts that show not only continued day rate improvement, but also in some cases, some willingness on the part of operators to turn out assets into 2027 and 2028, even with today's day rates. You've talked on the last couple of calls about how we'll see higher rates for well intervention, and Owen just alluded to it as well with the $60 to $100 million increase in EBITDA. I'm just curious, could you talk about if discussions for further work have accelerated here in the last three to six months for your fleet with respect to term for operators and how comfortable they are going forward contracting your fleet out sort of beyond 26 and 27? Maybe you could just expand on that a little bit. It would be helpful.
spk04: Yeah, good morning. As Owen said, we're in some good negotiations with solid clients for some of the larger well intervention assets. Those assets are at much higher rates. Those negotiations are at much better rates. And they are longer term contracts. Some of those contracts are two to three years in duration with, like I say, very good clients of ours and good negotiations. We would expect to be announcing before the end of the year where those assets are going to end up.
spk07: Okay. And just to touch on the shallow water abandonment business, you've been pretty transparent over the course of this year that this is going to be weak. And yet there seems to be a significant amount of long-term runway in this business in 25, 26, beyond from what we've heard. So could you just talk us through how you're managing that business today, assuming there's going to be a turnaround coming in the next couple of years?
spk00: Yeah, right now it's a balancing act of you know, the biggest bottleneck in that segment are people. And so far we knew that this was going to be a soft year with a potential rebound in 2025. So we've been trying to, well, we've been incurring additional costs in order to maintain our capacity to be able to respond to that rebound. You know, the market this year has probably been softer than we anticipated, and we're trying to assess the actual pace of the work that's going to be coming next year and adjusting our resources to be appropriate. But what that means is that it's probably an inordinate high negative impact for 24 as we maintain that capacity going into 25. But we should reap the benefits of that in 25 and beyond.
spk07: Okay, thanks. And then just one last follow-up, if I may. You highlighted the potential for some of the variants in your EBITDA guidance for the rest of 24. It could be surrounding the seasonality of the well enhancer in the C well, and normally there is seasonality. But in the last two years, so in Q4 of 22 and 23, you've been close to 100% utilized on those assets. I just want to understand, maybe going back to those years, why the utilization in Q4 of those years was So strong, was it all weather driven or what the opportunity is and if the business has potentially structurally changed a little bit where you could see less seasonality going forward for those assets. That's all I have. Thanks.
spk04: I think at the moment we're being conservative and referring back that business unit has always had seasonal downturns in the winter because of the weather. Clients don't want to pay for us to go out and work on their wells and sit on weather. Last year, we had a very good contract where one of the vessels went to the Mediterranean, so it was working through good weather periods in the Mediterranean for the whole season. This year, we do see opportunity. That's why we're saying there could be some upside. We're in discussion with clients that are looking at work for this winter. And as we go into next year, one of the vessels will have a dry dock as well. But there's opportunity out there. It's not signed up yet, so we're just being a little bit conservative as we look at the historical view of how the well intervention in the winter months in the UK works.
spk00: I'd like to just add another factor of the variability in Q4 has to do with, you know, I believe Eric mentioned we have something like over 140 days of transit time, and then the cost and the revenue of that is deferred and amortized over the term of the contract. So the impact to the fourth quarter depends largely on the timing of how many days fall in 24 versus 25. And there's no way for us to assess what that is right now until we see when the mobilization actually begins. And that depends on how long the current contracted work continues.
spk07: Understood. Thanks, guys. I'll turn it back.
spk05: As there are no further questions at this time, I would like to turn the call over back to Mr. Eric Staffel, Chief Financial Officer, for closing remarks.
spk03: Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our third quarter 2024 call in October. Thank you.
spk05: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Disclaimer