Helix Energy Solutions Group Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 25, 2023

There are 11 speakers on the call.

Operator

Greetings, and welcome to the First Quarter Helix Energy Solutions 2023 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and Answer As a reminder, this conference is being recorded Tuesday, April 25, 2023. I would now like to turn the conference over to Mr. Brent Arriaga, Chief Accounting Officer.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and thanks for joining us today on our conference call for our Q1 2023 earnings release. Participating on this call for Helix today are Owen Kretz, our CEO Scotty Sparks, our COO Eric Staffeld, our CFO Ken Neikirk, our General Counsel and myself. Hopefully, you have 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.

Speaker 1

Before we begin our prepared remarks, Ken Neikerk will make a statement regarding forward looking information. Ken?

Speaker 2

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 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, Our quarterly reports on Form 10 Q and in 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 In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non GAAP measures to comparable GAAP financial measures.

Speaker 2

These reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available under the Forward Investor section of 2023, and therefore, you are advised that any content that information may no longer be accurate as of yesterday's call. Owen?

Speaker 3

Good morning, everyone. We hope everyone out there is doing well. This morning, we'll be reviewing our Q1 results, performance and operations. We'll provide an outlook for the market and review our current guidance for 2023. Moving to the presentation, Slide 6 through 9 provide a high level summary of our results and key highlights for the Q1 2023.

Speaker 3

Our first quarter results were largely as expected with the backdrop of a strong global offshore energy market driving improved financial results that were negatively impacted by scheduled vessel recertification, maintenance and project mobilization. Highlights for the quarter include strong winter utilization on the Well Enhancer and Seawell in the UK, Full quarter of well intervention work at improved rates on both the Centimeters Helix 1 and 2, strong winter seasonal utilization and financial Performance in robotics. Helix Alliance generated a solid seasonal adjusted contribution. Executing our first iPlow project for the U. S.

Speaker 3

East Coast Wind Farm project completion of regulatory certification Then maintenance on the Seawell, Well Enhancer Q7000 and Q5000. And on the sales front, we secured our 1st Asia Pacific Wind farm trenching project offshore Taiwan and added an additional decommissioning project in Australia for the Q7000. Revenues for the quarter were $253,000,000 a decrease of $38,000,000 from our 4th quarter results. We generated a net loss of $5,000,000 compared to net income of $3,000,000 in the previous quarter. Adjusted EBITDA for the quarter was 35,000,000 During the quarter, our operating cash flow was negative $5,000,000 including $17,000,000 of dry dock and recertification costs.

Speaker 3

We spent $7,000,000 on CapEx resulting in a negative $12,000,000 in free cash flow. Our quarter results were significantly In addition, the Q7000 Spent 37 days mobilizing to the Asia Pacific region with revenues and costs deferred until project commencement.

Speaker 4

I'd like

Speaker 3

to thank our employees for their efforts with a solid start to 2023. Executing safe and efficient operations for our customers Has always been our hallmark and our goal is to remain an established leader in the offshore industry. On to Slide 9, From a balance sheet perspective, our cash balance at the end of the quarter was $167,000,000 At quarter end, we were in a net debt position of 91,000,000 In February, we were pleased to announce our share repurchase program. During the Q1, we repurchased 660,000 shares of our stock For approximately $5,000,000 As we can continue executing the program, We will balance the need to manage our and fund our operations, capital spend including the Alliance earn out, maturing debt And strategic investment opportunities along with the share repurchase program. We plan to generally align this program with our cash flow Generation and then initially target deploying 25% of our free cash flow, noting the seasonality of our business.

Speaker 3

I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Speaker 4

Thanks, Owen, and good morning, everyone. Firstly, would like to thank our teams offshore and onshore for another well executed quarter. There's been a huge positive shift in the market compared to 1 year ago. The teams have reacted well securing high utilization as well as contracting some longer term projects with improved rates and conditions. We continue to hold strong and sound relationships with our employees, partners and clients.

Speaker 4

Market conditions are much improved. Going forward, we have much stronger backlog than we have seen in recent years and very good visibility for the next few years. All of our businesses are well positioned for 2023 and beyond. In the Q1 of 2023, we continued to operate globally with minimal operational disruption with operations in Europe, West Africa, Asia, Brazil, The Gulf of Mexico and off the U. S.

Speaker 4

East Coast. We continued to operate at high standards with strong uptime efficiency for the quarter. Moving on to Slide 11. During the Q1, we produced revenues of $250,000,000 resulting in a gross profit margin of 6%, Generating a gross profit of $15,000,000 producing EBITDA for the quarter of $35,000,000 a significant improvement against $150,000,000 of revenue $3,000,000 of EBITDA in the Q1 of 2022. During the Q1, the well intervention fleet achieved utilization of 80% globally, Down quarter over quarter due to the paid transit of the Q7000 to the APAC region and the scheduled regulatory maintenance of the Q7000, Q5000, Seawell and Well Enhancer.

Speaker 4

We achieved 79% utilization in the Gulf of Mexico, 97 In Brazil, strong winter month utilization of 81% in the North Sea and 41% utilization for the Q7000 on its paid transit to the APAC region. The Robotics division chartered vessel fleet achieved high utilization of 91% in the quarter, operating 5 vessels, Working 295 vessel days between ROV support, trenching, renewable works globally and working on multiple renewables projects in Europe, Asia and the U. S. The Helix Alliance fleet achieved 86% utilization for the lift boats, 39% for the OSVs and the crew boats, The Energy Service division achieved 77% utilization of the P and A systems, 1039 operational days Working for numerous clients in the Gulf of Mexico and 44% utilization on the coiled tubing systems of 2 38 days. Due to the seasonal conditions, the freediving support assets achieved 31% utilization, and the heavy lift barge was mostly seasonally warm stacked as expected, Conducting a short project achieving 14% utilization.

Speaker 4

Slide 12 provides a detailed review of our well intervention business in the Gulf of Mexico. The Q5000 had utilization of 59% with all available working days contracted prior to undertaking its scheduled regulatory inspection In the Q1, the vessel performed well conducting production enhancement work on 4 wells in ultra deepwater, working under a multiyear campaign for Shell. The Q4000 had increased utilization of 100% in the quarter. The vessel completed a 2 well production enhancement scope for 1 customer, Followed by a single well enhancement scope for another customer and then ended the quarter completing a 2 well abandonment campaign for another client in ultra deepwater. Positively going forward, absent the Q4000 drydock in Q2, we expect both vessels with high utilization have contracted or awarded work into the Q4 and already have work awarded in 2024 with good visibility of potential further activity with steadily increasing rates.

Speaker 4

Both key vessels continue to operate under the integrated Helix SLB Subsea Services Alliance package. In February, managed out of the Gulf of Mexico office, one of our newly acquired 10 ks Subsea IRS systems commenced mobilization for an 18 month contract in Australia. Moving to Slide 13. Our North Sea Well Intervention business had a very strong Q1 considering the seasonal winter months With solid utilization for both vessels in the U. K, a huge improvement achieved an 81% utilization compared to 13% in Q1 of 2022.

Speaker 4

The Q7000 was under paid transit to APAC region and completed drydock in late March. Subsequently, the vessel Its mobilization to New Zealand via Australia. It will enhance it performed very well and achieved 87% utilization in Q1. The vessel performed production enhancement works on 3 wells for 2 customers and then completed abandonment operations for 5 wells for 3 customers. The Seawell had a good quarter with 76% utilization.

Speaker 4

The vessel performed decommissioning works on numerous wells for several customers, Also utilizing our diamond services. Utilization for both vessels was impacted by approximately 1 month of combined planned maintenance during Q1. The North Sea market continues to improve. Our business is seeing much improved utilization and achieving higher rates. The Seawell is fully contracted for the year and has recently contracted a 180 day decommissioning project in the Mediterranean, Keeping the vessel contracted until the end of Q1 of 2024.

Speaker 4

And the Wild Enhancer is contracted for all of 2023 also. Both vessels have already been awarded multiple scopes for 2024 with further increased rates. As mentioned, the Q7000 completed its paid transit Malaysia to undertake drydock that commenced in early February. Upon completion, the vessel commenced its paid transit to New Zealand to commence the contract with well abandonment campaign. The vessel is then scheduled to carry out paid transit to Australia to undertake work in the second half of twenty twenty three for a seven well abandonment campaign for Cooper Energy And then contracted further works for 2 clients possibly pushing the schedule into Q1 of 2024.

Speaker 4

The Q7000 is then contracted 12 months plus options estimated to commence subject to the schedule in Australia at the end of Q1 or early Q2 of 2020 For abandonment work with Shell in Brazil, including the paid transit to Brazil. So the Q7000 is now contracted well into 2025, We already have visibility and work following on in 2025. Moving on to Slide 14. In Brazil, we had good utilization 97% in the Q1. The Siem Helix 1 was 94% utilized in Q1, undertaking work on the 2 year decommissioning project for Trident, Performing work on 5 wells in the quarter.

Speaker 4

The Siem Helix 2 had a strong quarter with 100% utilization, As expected, 2020 is shaping up to be a far better year for us in Brazil compared to 2022, with both vessels being back to well intervention rates, And we are pleased to have 3 vessels contracted in the Brazil region in 2024 with the addition of the Q7000 contract shell contract. Slide 15 provides detail of our Well Intervention fleet utilization. Moving on to Slide 16 for our Robotics review. Robotics continued their strong performance and had another good quarter, performing at high standards with strong utilization, operating 5 vessels globally during the quarter, Robotics continued to expand its service lines and geographical expansion in the renewables market. In Q1, adding 2 chartered vessels to the fleet And recently contracted in 2 of the recently acquired trenching units off the U.

Speaker 4

S. East Coast and in Taiwan. In the APAC region, the In March, one of the newly acquired T-fourteen hundred Trenching Systems completed paid shipping to Singapore and commenced mobilization on the Siem Topaz, project chartered vessel for a sizable estimated 200 day renewables trenching project in Taiwan. In the North Sea, Grand Canyon 3 was utilized 76% in the quarter, performing oil and gas trenching projects for 2 clients, followed by an oil and gas ROV support scope. The vessel commenced the renewable trenching project at the end of the quarter for another customer.

Speaker 4

The Horizon Enabler had 13 days of spot vessel utilization completing renewables trenching works for 1 customer. Both the trenching vessels in the North Sea have a strong backlog for 20 Due to our continued expansion in renewables, in February in the North We chartered a smaller vessel, the Global Glomar Wave, to undertake site clearance, order and ordinance removal and site survey operations. The vessel agreement is a 3 year charter with committed days each year. The vessel is currently working on an estimated 180 day ordinance removal project. In the USA, the Chita Bordelon, the Jones Act compliant vessel was utilized 98% in Q1.

Speaker 4

The vessel performed works in the Gulf of Mexico To support the seismic load installation project that should continue into Q3. On the U. S. East Coast, the recently acquired iPlow trenching system was mobilized on a client provided vessel and commenced work undertaking site clearance preparation for wind farm support, Again, expanding the services that we offer in the renewables sector. Helix Robotics is performing well, and we have a good backlog and visibility Globally, in tightening markets both in oil and gas and global renewables markets, and we're expecting strong performance in 2023 and beyond and are enjoying our service and geographical expansion in the renewables sector.

Speaker 4

Slide 17 details our robotics vessels RV and trenching utilization. Slide 18 provides an overview of our shallow water decommissioning and construction support service business, Helix Alliance, reported as our Shallow Water Evelement segment. Shallow water work tends to be seasonally affected in the winter months due to the winter weather conditions, leading to lower utilization And seasonal stacking for some of our assets in the quarter. The Offshore division had 9 liftboats operating in Q1 with a combined utilization of 86%, Performing decommissioning services such as well abandonment and pipeline abandonment. Offshore also supplied 6 OSVs and 1 crew boat with a combined utilization of 39%.

Speaker 4

In Q1, the Energy Services division had 10 39 days of operations or 77% utilization For the 15 marketable P and A systems deployed to conducting decommissioning services, the division had 238 days of operations or 44% utilization for the 6 The Diving and Heavy Lift division, due to the seasonal conditions, had expected low utilization of 31% Across the 3 diving vessels, from the heavy lift barge was as expected, seasonally warm spec for most of the quarter undertaken one short lift project for 1 customer. Slide 19 provides detail for the Helix Alliance vessel and systems recent utilization. Before I hand over the call to Brent, I would again like to thank our Helix employees and partners for producing the results in a good quarter, again with strong operational efficiency. 2023 has really shaken up well for Helix. We have added some new assets and added 2 chartered vessels that have led to service line and geographical expansion.

Speaker 4

We are hiring new employees globally. The market is much improved for all of our businesses, leading to strong utilization for our vessels that should lead us to produce a strong year. For the next few years, we expect to be in a strong position with some well won long term contracts, contracts with high utilization for our spot assets, Improving rates in generally better terms and conditions. I'll now turn the call over to Brent. Thanks,

Speaker 1

Scotty. Moving to Slide 21, It outlines our debt instruments and their maturity profile as of March 31. Our total funded debt decreased to $267,000,000 at quarter end It's in the annual MARAD payment. The 2023 converts with remaining principal of $30,000,000 mature in Q3 this year. Moving on, Slide 22 provides an update on key balance sheet metrics, including cash, liquidity, long term debt and net debt levels at year end.

Speaker 1

With cash of $167,000,000 our net debt position was $91,000,000 At year end, under our ABL facility, we had no borrowings outstanding $80,000,000 of availability with resulting liquidity of $247,000,000 I will now turn the call over to Eric for a discussion on our outlook for 2023 and beyond.

Speaker 5

Thanks, Brent. As you've heard this morning, we've had a solid start to 2023 and the offshore market continues to show its strength. We're maintaining our guidance for 2023, revenue of $1,000,000,000 to $1,200,000,000 EBITDA $210,000,000 to 250,000,000 Free cash flow generation of $110,000,000 to $150,000,000 with the capital spend expected to be $50,000,000 to $70,000,000 Based on our Q1 results and on the strength of the market, we are currently trending towards the higher end of our guidance range. These ranges include some key assumptions and estimates. Any significant variation from these key assumptions and estimates could cause our results to fall outside the ranges provided.

Speaker 5

Our quarterly results are likely to continue to be impacted by the seasonal weather, North Sea and Gulf of Mexico Shelf, Primarily the Q4. In addition, the timing of our vessel maintenance periods and project mobilizations will cause variances between quarters. Overall, we expect the second half of twenty twenty three to be stronger than the first half, with the third quarter likely being our strongest quarter. Providing key assumptions by segment and region starting on Slide 25, first with our Well Intervention segment. The Gulf of Mexico is expected to continue to be a very strong market with improving rates and expected strong utilization on the Q4000 and Q5000.

Speaker 5

Q4000 is currently in drydock and expected to last approximately 75 days. In the UK North Sea, both vessels have Contracted work into Q4 with the Seawell having worked into Q1 of 2024. Both vessels completed short maintenance periods in Q1. Activity levels in the North Sea Well Intervention market continue to be robust. The Q7000 is currently in Australian waters mobilizing for its TUI New Zealand project.

Speaker 5

The project is scheduled to start mid Q2. The vessel has contracted work in the APAC region into late Q4 for early Q1 of 2024. In Brazil, the Siem Helix II is contracted into mid December Of 2024 with Petrobras and the CMUH-one is contracted performing well within their work for Trident into Q4 of 2024. Moving to the Robotics segment, Slide 26. The Robotics segment continues to benefit from the tight market where both oil and gas market and the renewables Into the second half of twenty twenty three, we've expected good utilization for the balance of 23 in that region.

Speaker 5

In addition, one of the recently acquired T1400 Trenchers is being mobilized for contracted project in Q2, Q3. The North Sea, the Grand Canyon 3 is contracted to perform trenching with Work with expected strong utilization for 2023. The Horizon Enabler with its flexible charter Has trenching projects in Q2 and Q3. The Glomar wave recently chartered for site clearance and UXO removal It is forecasted to have good utilization. In the U.

Speaker 5

S, Shalia Bordlan is working in the Gulf of Mexico performing ROV survey work With opportunities in the Gulf of Mexico and the U. S. East Coast, the vessel is expected to have strong utilization for 2023. And the recently acquired I Plow completed a site clearance project off the East Coast of the U. S.

Speaker 5

For production facilities, the HP-one is on contract With no expected change, we have expected variability with production as the Droshky field continues to deplete. Maintenance work was completed on the ThunderHawk production facility in mid April with the field coming online late April. The shelf to commit continuing our 527 for our shallow water abandonment segment, the shelf decommissioning market continues to be active. We expect the Marine Offshore division to maintain good utilization of 8 to 9 lift boats with some variable seasonality on the OSV and crew boats. The Energy Services division should have strong utilization for 12 to 15 P and A spreads And 1 to 3 coiled tubing units during 2023.

Speaker 5

There is seasonality in the Diamond and Heavy Lift division, where the Epic Hedren is currently idle with limited near term opportunities, we do expect an active season during Q2 and Q3. Moving to Slide 28. Our CapEx forecast for 2023 is heavily impacted by the drydocks and maintenance periods on our Q vessels. The Q7000 and Q5000 completed their maintenance period and the Q4000 is currently on the blocks. With the heavy regulatory year and inclusion of Helix Alliance, our CapEx range for 2023 continues to be in the $50,000,000 to $70,000,000 range With a significant amount expected to come out of the year, our cash spend in Q1 was approximately $24,000,000 The Majority of our CapEx forecast continues to be maintenance and project related, which primarily falls into our operating cash flows.

Speaker 5

Reviewing our balance sheet, our funded debt of $267,000,000 at March 31 is expected to decrease by $4,000,000 during the balance of $23,000,000 was scheduled principal payments. I'll skip the remaining slides and leave them for your reference. At this time, I'll turn the call back to Owen for further discussion of our outlook and for closing comments.

Speaker 3

Owen? Thanks, Eric. As you've heard, 2023 has started well. Helix is currently exceeding our initial twenty Our initial guidance for the year was $210,000,000 to $250,000,000 EBITDA. And while it may be too soon to update the guidance due to the normal gives and takes of the remainder of the year, we can say that we're Currently trending towards the upper end of the guidance.

Speaker 3

Q1 is typically a bit messy. It's impacted by how much of the prior year's clients' budgeted work How early the New Year's budgeted work begins and how much maintenance work on our assets is scheduled. Of course, offshore work is always impacted due to the seasonality of the weather. This is also why we historically Scheduled dry docks and related CapEx expenditures for Q1. The negative impact to our quarterly free cash flow is just a timing The year over year comparison of Q1 results demonstrates that demand is strong and increasing Even while we incurred a meaningful amount of scheduled maintenance during the quarter and the Q7000 was in transit from West Africa to Asia Pacific region.

Speaker 3

Results were positively impacted by having our 2 vessels in Brazil back on multiyear contracts doing well intervention work at better rates. These and other rates were agreed prior to the surge in demand. The contracts do have escalating rates built in and future pricing of options means We expect to see continued improving results over the next few years. Rates for our Intervention Services Continues to improve as rig rates continue to increase. We're seeing strong demand for our services to maximize existing production.

Speaker 3

Decommissioning work in general also continues to be strong, especially in the Gulf of Mexico Shelf As a result of increasing number of mature fields reaching the end of production and the strong desire to see oil fields abandoned in an environmentally safe manner. On the renewables front, we see steadily increasing demand. This industry has been led by the UK, Norway and the EU, But on a global basis, many regions are now launching lease sales for future development. The time lag from lease sale to actual work Can be as long as 5 to 7 years, which indicates that this should be a growing market for many years to come. We expect contributions from our To our returns from this market to grow with the market over time.

Speaker 3

Overall, we expect to be free strongly free cash flow positive for the Our current course is to 1st, build cash to be able to cash settle our remaining debt on maturity. 2nd, continue to execute the share repurchase plan as announced and in line with our free cash flow generation. And third, assess our options for growth beyond the operating leverage of our current assets. A key to growth We believe there will be select potentials for growth within the three buckets of our business model. 1st, maximizing remaining reserves 2nd, decommissioning and then 3rd, offshore wind support.

Speaker 3

All three are poised for sustainable growth in the years ahead. We look forward to continuing to execute on what is shaping up to be a strong 2023. We believe we've positioned ourselves well to capture the current market, be opportunistic about future growth and continue to deliver value to our shareholders.

Speaker 5

Thanks, Ellen. Operator, at this time, we're ready to take any questions.

Operator

You will hear a 3 tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, Our first question comes from the line of Greg Lewis, please go ahead.

Speaker 6

Yes. Hey, good morning, everybody. Guys, hey, thanks for the updated detailed guidance. I typically wouldn't ask this question because you kind of addressed it, but just given some of the weakness in the stock today. Eric and Owen, you made some comments about kind of trending towards the high end of the guidance realizing we haven't changed it.

Speaker 6

Could you maybe give us a little bit of color around why we're kind of expecting now trending towards the higher end of the range? Just Was it incremental workbook, the better pricing, maybe getting a better handle on costs? Any kind of color you can give us around that?

Speaker 5

Yeah. I'll go ahead and start off. I think there's a few drivers which we tried to highlight in our slides. I think first, I think we've been able to secure additional work. I think we had 2 big contract wins here in the 1st quarter with the signing of the trenching project in Taiwan and of course being able to fill in a gap on the Q7000 In the Australian market, and I think so those are definitely improvements.

Speaker 5

I think overall, though, what gives us confidence and why we feel that we're Trending towards the upper range is the continued strength of the market. We're still seeing rates improving, Obviously, not at the pace of last year, but we're still seeing a steady improvement there. I think we're in conversations where our customers Are making plans for 2024 already. And to a certain extent, Our assets or utilization is filling out quite extensively in 'twenty three. I think so all those things are really helping us trend towards the upper end of the range.

Speaker 5

I don't know, Owen, if you have anything to add?

Speaker 3

No, just simplification. At the time of giving guidance, it's all a function of utilization and rates and both right now with what we're booking in the second, third and fourth quarter Utilization wise and rate wise are exceeding the assumptions that we made in our initial guidance.

Speaker 6

Great. And then around pricing, clearly, last year was a nice monster move higher. Things definitely seem to be trending in the right direction. You did mention that we are starting to Look at, we actually are taking some work, some contracted work into 2024. Any kind of loose rough estimates you can give us around how the pricing dynamic is evolving in 2024 versus where we are today?

Speaker 4

I'll take that. So first of all, in Brazil, the contracts for the 2 vessels are fixed. So there's not much we can do in Brazil. But North Sea, we have been awarded work and the price has been increased, increasing sort of 15% to 20% year over year. In the Gulf of Mexico, we're still increasing pricing.

Speaker 4

Every tender that goes out, there's a bit of an increase on the pricing and we're securing work. So Gulf of Mexico and North Sea Well Intervention markets, we're definitely seeing a year over year increase. In robotics, The trenching market is very robust, thanks to the renewables expansion. And so we're increasing pricing there, supply and demand issues mainly, but In the robotics and the pivotables market, vessels are just being taken up because it's expanding globally And we're seeing that our services are required and increasing pricing.

Speaker 6

Yes. And then I did want to just kind of touch on The Horizon Enabler, which is on that flexible contract. It seems like the renewables, I guess, we'll just All the call it, the offshore renewables market is continuing to improve. Obviously, your vessels are keeping busy. Is there any thoughts about maybe or I'll ask it this way.

Speaker 6

Is management worried about vessel availability on the chartering inside to do work as kind of we look out over the next 12 months?

Speaker 4

No. I would say that we're quite well covered for the assets that we have, and we have options going into 'twenty four. Remember, last year, we took the charters on the Grand Canyon vessels out for 5 years. So we have solid pricing And cost base for the Grand Canyon charters. We have an option on the Sheeda Bordelon going into 2024, 2025.

Speaker 4

We have an option on the Horizon Enabler going into 20 We're quite well set. We will be on the look for further vessels as the U. S. Market increases.

Speaker 5

And that was kind of what

Speaker 6

I was getting at, not your availability. I'm saying like as you look at the potential, the projects that are out there and work You want to go when? It almost looks to me like you're going to have to go out to the charter end market to bring in another vessel or

Speaker 3

I'll jump in here. I would say the market is very, very tight on the wind side and the oil Yes, our vessels are just tight in all the classes. We feel like we're comfortably set, but we worry about Vessel access both having too many and too few depending on where we are in the cycle. Right now, I think we're comfortable. It's going to be hard to add additional tonnage at reasonable rates.

Speaker 3

So it depends on where the rates go in the market How much you could capture the growth opportunity? Right now, I would say that we're probably sitting asset light Compared to what we could work, but I think sitting asset right like in a tight and rate improving market is the right position to be sitting in.

Speaker 5

And that's the reason why we

Speaker 4

just took the Sea and Topaz for the Asia trenching and also the glomile wave on the 3 year contract to support our site clearance market. We've been gingerly coming into the Cyclerance market and we've seen that expand and that's why we've gone all in on a 3 year deal for the Glenmore Wave.

Speaker 6

Perfect. Okay. Hey, thank you very much for the time.

Speaker 4

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of David Smith. Please go ahead.

Speaker 7

Hey, good morning. Thank you for taking my question.

Speaker 3

Good morning.

Speaker 7

So net debt near $90,000,000 at the midpoint of your free cash flow outlook, you would Being net debt negative by year end despite returning 25% of free cash flow through repurchases. So I wanted to ask how much flexibility there might be on that 25% free cash flow return framework And maybe how you see the trade off between targeting net debt neutrality versus buying back your stock that Yes. Looks to be approaching a low teens free cash flow yield.

Speaker 5

So yes, I think Obviously, on the numbers that you cited, I think you're directly correct. I think it's important that as we initiated Our share repurchase program, we set an initial target of 25%. Obviously, that is something that we're going to monitor and manage. Obviously, there will be an opportunity to increase that. I think part of that is as we start generating our outlook for 2024 And our cash position for 2024.

Speaker 5

So it's an initial target that we put out there, David, and we'll continue to look at it As you could say, our outlook and visibility continues to grow. And so there I think there is room for, you could say, Upwards revisions to that going forward. In general, I still think we'll obviously, we tried to outline The parameters that are important to us from a cash generation, cash management, we do have the maturity debt that We feel we need to be in a position to cash settle. We do have the earn out associated with Alliance, which will be due In early 2024. And so we have these competing needs for our cash that we're balancing, but we feel good about The position that we're in and the direction that we're going with our cash.

Speaker 5

And once again, I think we'll have the opportunity to Revisit our positions as we go

Speaker 7

forward. I appreciate the color. And if I could ask A slightly long follow-up, maybe a little bit bigger picture question. But if I remember correctly, the original thesis the heavy well intervention vessels is you could do the P and A and intervention work more efficiently than a rig. You could build the vessel At a discount to the rig and price it at a discount to the rig.

Speaker 7

I think you've demonstrated the efficiency improvement. Certainly, during the downturn, it looked like you were Pricing in the Q4 and Q5 at or better than where market rates troughed for deepwater rigs. So I wanted to ask with deepwater rig rates back into the 400 day per day plus range, Should we think about the opportunity for the heavy well intervention vessel pricing to migrate back to that historical discount To the B Port of Rigs or might there be an opportunity to close that historical discount just given the demonstrated efficiency advantages 1st is the

Speaker 3

regs. I'll take that. I think historically, you'll find that during Strong demand cycles, we are able to close that discount. In fact, for a brief period back in 2013, we were actually pricing at a premium to rigs Because of our efficiency. So that's been but there's 2 components of the rate increases going forward that I'm looking at.

Speaker 3

One is in response to where the rig rates go and I believe the rig rates are going to go higher and therefore all of our spot rates I can move higher. But then on top of that, we entered into these multi year contracts and some MSAs giving pricing Prior to 2022, which are at substantially lower than current market rate. So as those as the escalators in those contracts kick in each year and then as those contracts roll over and we're able to price back The spot market, then there's a substantial potential for rate increase for some of our main assets.

Speaker 4

I'll just add to that. I think you're picking up on the heavy intervention rigs, but you should also think of the North Sea and the light intervention Where our rates are substantially higher than rig rates purely because of our efficiencies. Rigs in the North Sea are generally moored, and they're probably at about 50% or 60% of the current rates we charter in the North Sea because of the pure efficiencies of not having to put our anchors and other services.

Speaker 7

I appreciate that extra color.

Speaker 4

Thank you.

Operator

Thank you. Our next Question comes from the line of James Shum. Please go ahead.

Speaker 8

Hey, good morning, everybody. Good morning. Good morning. The midpoint of the robotics revenue guidance calls for an increase of about 9% or so this year. Can we expect a similar EBIT or EBITDA uplift in 2023?

Speaker 5

I think overall, Jim, I think that our I think that our probably our EBIT would, off the top of my head, more than likely be flat at best. I don't think you estimate to assume dollar for dollar increase there.

Speaker 8

Eric, that's because less trenching work, is that what's driving that?

Speaker 5

No, we had some I think there were some, obviously, increased costs that are flowing through our structure as we've added More charters. I think there was we naturally expected it to be a little bit more challenging with a few of the contracts That we were able to execute in 'twenty two above improvements over our Fixed pricing and so we're able to get excellent margins. And so some of that was a combination of better weather and better execution From our operations. And so as we planned and forecasted our 'twenty three, we assume that Area would more than likely be flat. We wouldn't necessarily expect to see improvements in those areas.

Speaker 8

Okay, understood. Thank you. From an earnings perspective, can we expect a sequential benefit For the Q7000 in 2Q? And if so, can you quantify that? I know there's a lot of moving pieces with Moab and demov and the accounting for that.

Speaker 8

So I don't know if you could provide any help there.

Speaker 5

So yes, the Q7 is going to, in general, have a lot of noise in our quarterly results. Here in the Q1, no revenue, but we still had some Cost flow through the P and L, our depreciation, some of our R and M. Here in the second quarter, we expect The revenue we're going to be recognizing our daily rate plus the amortization of the deferred revenue And deferred costs. And so overall, it's going to appear with a very high day rate and a very high cost In our daily numbers. Overall, obviously, we expect improvements to the overall Q7000 P and L performance quarter over quarter.

Speaker 5

And we expect to be in a position, obviously, Of generating positive cash here as it goes to work.

Speaker 8

Okay. Thanks a lot. Appreciate it.

Operator

Thank you. Our next question comes from the line of Don Crist. Please go ahead.

Speaker 9

Good morning, gentlemen. How are you all today?

Speaker 3

Good. Thanks.

Speaker 9

I wanted to ask a bigger picture question. We recently saw one of the drilling contractors Sign a contract for P and A work and that at least indicated to me that the market is really tight and Should remain tight for many years to come. And I just wanted to ask about when you're having customer conversations out there, Are they getting a little bit more desperate today on work for 2024 and 2025 and more willing to sign contracts farther out Then we were, call it, 9 or 12 months ago today. How are those customer conversations going?

Speaker 3

I think you're right. I think the customers are starting to worry about availability. They are looking for longer We're worried about giving today's pricing in an environment where the rates are continuing to move up. Going into this year, we were willing to give rates for 2 years, but not beyond that because we didn't know where the market was going. As a result, we've got some Contracts that are priced below the current market for the next couple of years.

Speaker 3

So we're sort of in that same boat. We're a bit leery about giving contract pricing too far out in this robust market. But you are right, There are a number of producers that are looking for multiyear commitment on long term contracts and just long term priced MSAs.

Speaker 9

So does that lend you to do more kind of variable rate or quarterly repricing contracts Going forward, is that what we should see on any new contracts?

Speaker 3

It takes 2 forms. 1, we can just set higher rates In the contract, each as the years progress or you can pick a rate and tie it to an index. Those are the 2 main mechanisms.

Speaker 9

Okay. I appreciate the color. It looks like there's several years

Operator

Question comes from the line of Samantha Ho. Please go ahead.

Speaker 10

Hey, guys. Just a real quick one for me. I was wondering if you could Maybe address the cost side of the equation a bit more. Maybe just even on the SG and A line, but also in terms of just what you're seeing on like labor and material and all that good stuff?

Speaker 7

Okay.

Speaker 4

Yes. So obviously, the labor market is very tight at the moment. We at the start of this year, we implemented some good Salary increases for all of our employees, both onshore and offshore. So our costs have increased, but that's also in line with pushing our rates up as well. So Supply chain is also tightening.

Speaker 4

Those rates have gone up. So we are definitely seeing an increase in cost, but we're countering that with an increase in rates.

Speaker 5

And then I think on the SG and A side, obviously, I think there has been an impact, obviously, from the, you could say, Inflation, it's been seen out there. In addition to that, from our standpoint, we're going to see the full year impact of the acquisition of Alliance in our numbers. So overall, from a dollar standpoint, we do expect an increase. I think overall, we do focus on SG G and A, that's less than 10% of our revenues. I think this quarter was just under 8%, and I expect it to be in that 8% to 9% A range going forward.

Speaker 10

Okay. That was it for me. Thanks.

Operator

At this time, there are no further phone questions. I'll turn it back to you, speakers, to continue the presentation or give any closing remarks.

Speaker 5

Okay. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you

Operator

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

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Earnings Conference Call
Helix Energy Solutions Group Q1 2023
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