Valaris Limited

Good day and welcome to the Volaris Second Quarter 2025 Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Nick Georgis, Vice President, Treasurer, and Investor Relations. Please go ahead.

Welcome, everyone, to the Volaris Second Quarter 2025 Conference Call. With me today are President and CEO Anton Dibovitz, Senior Vice President and CFO Chris Weber, Senior Vice President and CCO Matt Line, and other members of our Executive Management Team. We issued our press release, which is available on our website at volaris.com. Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations. Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements. During this call, we refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations. Last week, we issued our most recent fleet status report, which provides details on our rig fleet, including new contract awards. Now, I'll turn the call over to Anton Dibovitz, President and CEO.

Thanks, Nick, and good morning and afternoon, everyone. During today's call, I'll begin with a review of our performance for the quarter and highlight some of our recent contract awards. I'll then provide an update on the offshore drilling market and conclude by outlining how our strategic focus on delivering outstanding operational performance, executing our commercial strategy, and maintaining disciplined cost and fleet management is driving long-term value for shareholders. I'll hand the call over to Matt, who will provide a more detailed perspective on our recent contracting success and the broader floater and jack-up markets. After that, Chris will walk through our financial results and guidance, and I'll finish with some closing remarks. To begin, I want to highlight a few key points. I am very proud of the entire Valeris team for delivering another quarter of strong operational and financial performance with revenue efficiency of 96% contributing to meaningful EBITDA and free cash flow for the quarter. Second, we are successfully executing our commercial strategy by securing attractive long-term contracts for a high specification fleet. Since reporting first quarter results, we've added more than a billion dollars in new contract backlog, increasing our total backlog to approximately $4.7 billion. Third, as expected, the pipeline of floater opportunities that we have discussed in recent quarters are converting into contracts. We anticipate additional awards across the industry in the coming months, and Valeris is well positioned to capitalize on these opportunities and deliver long-term value for our shareholders. Safe and efficient operations are at the heart of everything we do. They keep our people safe and build trust with our customers. We delivered fleet-wide revenue efficiency of 96% in the second quarter, continuing our track record of providing safe and efficient operations to our customers. This solid operational performance contributed to strong financial results, including adjusted EBITDA of $201 million and adjusted free cash flow of $63 million. As always, delivering safe operations is our top priority, and I'm pleased to report that we completed the first half of the year without a single lost time incident, a testament to our safety culture and commitment to eliminating workplace injuries. We also had several rigs achieve notable safety milestones, with Velaris DS10 reaching two years without a recordable incident, while Velaris 107, 118, and 248 each marked one year recordable free. On prior conference calls, we've discussed our focus on bookending the white space across our drill ship fleet by securing attractive long-term contracts for our high spec seventh generation assets. We've made great progress on this objective this year, having now contracted three of our four drill ships with near term availability, as well as extending the DS16, which was previously scheduled to roll off contract mid next year to the end of 2028. Since reporting first quarter results, we've added $860 million in drill ship backlog, with average day rates above $400,000. These awards have helped us to increase our contract backlog to $4.7 billion, the highest it has been this decade, and reflect the strength of our customer relationships, our operational track record, and the value customers place on our high specification fleet. Turning now to the broader offshore drilling market. The long-term fundamentals for offshore activity remain strong, and we continue to believe that offshore production will play a vital role in helping to meet global energy needs. Offshore production, particularly deepwater, offers large, accessible resource potential, compelling project economics, and comparatively lower carbon emissions. Consequently, we are seeing our customers prioritize long-cycle offshore developments over shorter-cycle activity such as U.S. land, and we anticipate meaningful growth in deepwater project sanctioning of both greenfield developments and exploration projects in 2026 and 2027. The majority of these projects are expected to be economically viable well below current commodity prices. According to Restat, over 75% of deep-order spending expected to be sanctioned in the next three years is tied to programs with break-even prices below $50 per barrel, compared to a five-year forward price above $65 per barrel. This supports our view that the floater opportunities we've been tracking will continue converting to contracts and, as expected, the pace of this contracting has picked up in recent months. Based on our ongoing conversations with customers, we anticipate additional awards across the industry in the coming months. And there remains a healthy pipeline of more than 30 floater opportunities with planned start dates in 2026 or 2027 and durations of at least one year. We continue to see a clear customer preference for the most technically capable assets, which aligns well with our high specification drill ship fleet. as 12 of our 13 ships are seventh generation units, the highest concentration in the industry. On average, seventh generation drill ships have achieved day rates that are approximately 25% higher and marketed utilization that is nearly 10 percentage points better than sixth generation units over the past 12 months. We expect this differentiation to continue, particularly for longer-term development programs, as the combination of technical specifications such as dual derricks with high hook load capacity, high capacity thrusters, and two blowout preventers offer efficiencies that are amplified over multi-well programs. As a result, while we still anticipate overall drill ship utilization to trough in the first half of 2026, we expect seventh-generation drill ships will lead the recovery and exit 2026 with utilization levels above 90%. Moving to jackups, shallow water demand remains resilient with global utilization of 90%, driven primarily by national oil companies prioritizing energy security and infrastructure funding. We have robust contract coverage on our jack-up fleet with more than 70% of available days for our active rigs already contracted in 2026 and 60% contracted in 2027. Our versatile jack-up fleet continues to be a strong contributor to our financial performance and we expect year-over-year growth in EBITDA from this segment in 2025, driven by more operating days and higher average day rates. Against this positive backdrop, at Volaris, we remain focused on delivering outstanding operational performance, executing our commercial strategy, and prudently managing our fleet and costs. As I mentioned earlier, the team has performed excellently over the first half of the year, and we remain laser-focused on operating safely and efficiently for our customers. We're well-positioned to continue executing our commercial strategy by winning attractive floater contracts supported by a global scale and high-spec fleet. With three of our four seventh-generation drill ships with near-term availability now contracted, our focus is on securing work for the DS-12, and we are actively engaged in discussions with multiple customers for opportunities starting in 2026. we're also starting to see some customers consider short term programs in the first half of 2026 which aligns well with our strategy of first securing attractive long term contracts and then targeting potential gap fill opportunities. In terms of our broader fleet strategy spanning both floaters and jackups we remain focused on maintaining a high quality and efficient fleet. we will continue to actively manage our rigs in response to evolving market conditions, including tightly controlling costs between contracts and quickly reducing expenses during extended idle periods. Prudent fleet management also extends to our decisions to retire rigs when their expected economic benefit no longer justifies their associated costs. Earlier this year, we completed the sale for recycling of three benign environment semi-submersibles, reflecting the challenged global market for this asset class. And we continue to closely monitor market conditions and opportunities for our two remaining semis. We also regularly evaluate divestitures and will sell rigs when we can secure attractive prices, as demonstrated by the announced sale of Jacob Valeris 247 for $108 million in cash. Before handing over to Matt, I'd like to briefly recap a few key points about the market and our strategy. As we anticipated, the floater pipeline is converting into contracts, and we expect more awards across the industry in the months ahead. Customers continue to prioritize long cycle offshore projects, and we believe offshore production will remain essential to meet global energy demand and an increasingly important part of their portfolios. We are laser focused on operational excellence and commercial execution. Given our high quality fleet and operational performance, we're well positioned to secure additional contracts which, combined with our prudent approach to fleet management, will further support our earnings and cash flow. With that, I'll now hand the call over to Matt.