Helix Energy Solutions Group, Inc. (NYSE:HLX) Q4 2024 Earnings Conference Call February 25, 2025 10:00 AM ET

Company Participants

Brent Arriaga - Vice President, Finance and Accounting
Owen Kratz - Chief Executive Officer
Scott Sparks - Chief Operating Officer
Erik Staffeldt - Chief Financial Officer
Ken Neikirk - General Counsel

Conference Call Participants

Jim Rollyson - Raymond James
Gregory Lewis - BTIG
Josh Jayne - Daniel Energy Partners

Lila

My name is Lila, and I will be your conference operator today. At this time, I would like to welcome everyone to the Helix Energy Solutions Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers' 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, press star one again.

Thank you. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Brent Arriaga, Vice President, Finance and Accounting.

Please go ahead, sir.

Brent Arriaga

Good morning, everyone, and thanks for joining us today on our conference call where we will be reviewing our fourth quarter and full year 2024 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, Erik Staffeldt, our CFO, Ken Neikirk, our general counsel, Daniel Stewart, our vice president, commercial, 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 Investor Relations page on our website at www.helixesg.com. The press release and slides can be accessed under the news and events tab. Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward-looking information. Ken.

Ken Neikirk

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations and assumptions as of today. Forward-looking statements may include projections and estimates of future events, business or industry trends, business or financial results. Statements in this conference call and 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 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 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 Investors section of our website www.helixesg.com. Please remember that information on this conference call speaks only as of today, February 25, 2025, and therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call.

Scotty.

Scotty Sparks

Thanks, Ken. Good morning, everyone. Thank you for joining our call today, and we hope everybody is doing well.

This morning, we will review our fourth quarter and full year 2024 results. Financial performance and operations, will provide our view of the current market and provide guidance for 2025. Before starting our review, I would like to thank the Helix team for their efforts during 2024.

The team's offshore and onshore outperformed again, producing another very well-executed quarter. Closing the year out very well. With our efforts in 2024, we establish a solid foundation to deliver improved results in 2025 and beyond.

Moving on to the presentation. Slides five, six, and seven provide a high-level summary of our results and key highlights for the fourth quarter and full year. Revenues for the quarter were $355 million, with a gross profit of $59 million resulting in net income of $20 million. Adjusted EBITDA was $72 million for the quarter, and we had positive operating cash flows of $78 million, resulting in strong free cash flow of $65 million.

Our cash and liquidity remain strong with cash and cash equivalents of $368 million and liquidity of $430 million. Highlights for the quarter include commencement of operations on the Q4000 in Nigeria, a six-month contract plus options, continued strong results in robotics with high trenching utilization, completed operations with the Q7000 in Northwest Australia, commenced paid transit and mobilization to Brazil for a 400-day contract options with Shell. The same Helix one transitions to the Trident contract extension at higher rates. And the Helix Producer one contract was renewed to June of 2026.

Slide seven provides detail of our full year 2024 results and highlights. Our full year revenues were $1.36% billion, with a gross profit of $220 million, with a resulting net income of $56 million. Adjusted EBITDA for the year was $303 million, a greater than 10% improvement over last year.

And we had positive operating cash flows of $186 million resulting in positive free cash flow of $163 million. Excluding the alliance earn-up paid and included in our operating cash flows during the year, our free cash flow would have exceeded $220 million. These key financial metrics are all improved over our 2023 results.

Recapping some of the key highlights for 2024, strong results and significant improvement in well intervention year over year, as we safely completed the transits and commenced operations on the Q4000 in Nigeria, concluded successful operations with the Q7000 in Australia, including the successful initial deployment of the Rome. Had a strong near full year utilization on the Q5000 in the US Gulf. Strong robotics results have increased trenching activity and significant improvements year over year.

On the sales front, we completed we entered into a one-year contract extension for the SH1 with Trident that commenced in Q4 of 2024. Executed two new three-year contracts with Petrobras, one that commenced last month for the SH2, and the others to commence in the second half of 2025 for the SH1. We also executed a contract for two years plus options in the US Gulf for the Q5000 with a minimum commitment of 175 days each year.

Slide nine provides a more detailed review of our segment results and segment utilization. In the fourth quarter, we continued to operate globally, with minimal operational disruption with operations in Europe, Asia Pacific, Brazil, Africa, the US Gulf, and the US East Coast. Our strong fourth quarter results were driven by our core well intervention markets globally.

Moving to slide ten. Slide ten provides further detail of our well intervention segment. In Q4, we achieved strong utilization in Africa, the US Gulf, Brazil, and Australia.

Performing very well with solid uptime efficiency. As expected, our North Sea vessels, the Well Enhancer and Seawell, were impacted by the winter season slowdown, resulting in lower utilization and both vessels being warm stacked mid-quarter. The Q7000 performed extremely well with 99% utilization working in Australia.

The vessel then commenced paid transit to Brazil for the Shell 400-day plus options decommission. We had solid utilization for both US-based units with the Q4000 completing the paid transit to Nigeria, commencing operations for the SO minimum six-month oil campaign. And the Q5000 worked the entire quarter for Shell in the US Gulf. Again, we are very pleased with the recently announced long-term contract for both the C and PUDEX vessels for Petrobras Q7000 per Shell in Brazil and the Q5000 per Shell in the US Gulf Coast as these provide us with strong contract coverage for multiple years.

Slide eleven provides further detail for our robotics business. Robotics had a very strong quarter business performed at high standards, operating six vessels during the quarter, working between trenching, ROV support, and site survey work on renewables and oil and gas-related projects globally. Five of the vessels worked on renewables-related projects within the quarter.

All vessels had strong utilization with three vessels working on trenching projects. The GC3 and the North Sea Enabler Trenching in Europe and the Centopez trench in Taiwan prior to being demobilized in Singapore in December. The Shire Leader along worked on various renewable-related projects on the US East Coast.

And the GC2 had strong utilization working in oil and gas ROV support in Malaysia. Our renewables and trenching outlook remains very robust with numerous contracted works in 2025, 2026, and 2027. The long-term outlook for the global renewables market is very strong.

We recently announced one of our largest renewables trenching contracts to date, for over 300 days trenching, commenced in late 2026 on the Horned Sea Free Wind Farm in the UK. Robotics is performing very well, had a very strong 2024, and we expect them to have a very strong year in 2025. Slide twelve provides detail of our shallow water abandonment business.

Q4 activity levels reflect the expected seasonal slowdown in utilization and the overall activity levels were reflective of a weak 2024 US Gulf Coast shelf market. In summary, we had another very strong quarter and a very well-executed 2024 with one of our best years regarding safety statistics, NPT, year-over-year improved financial metrics, and numerous long-term improved contracts secured for a good portion of our assets. We're excited as we enter into 2025 as we're expecting further contract awards, high utilization for most of our assets, and once again further improved financial performance.

I would like to thank our employees for their efforts, securing a strong backlog delivering us a high level of execution. And I'll turn the call over to Brent.

Brent Arriaga

Thanks, Scotty. Moving to Slide fourteen, it outlines our debt instruments and key balance sheet metrics as of December 31. At year-end, we had cash of $368 million and availability under the ABL of $67 million with resulting liquidity of $430 million. Our funded debt was $324 million, and we had negative net debt of $53 million at year-end.

Our balance sheet is strong and is expected to strengthen further as we anticipate generating significant free cash and have minimal debt obligations between now and 2029. I'll now turn the call over to Erik for a discussion on our outlook for 2025.

Erik Staffeldt

Thanks, Brent. We entered 2025 with several macro headline challenges. Active geopolitical environment.

Softer rig market in 2025 with white space, and uncertainty in the U.S. Wind farm market with announced moratorium. We are aware of these challenges and the uncertainties they create. Despite these challenges, our outlook remains very positive.

The offshore market remains constructive and active, oil and gas spending remains healthy despite being at lower levels. The global renewables market is robust with increasing activity in Europe and Asia Pacific. The long-term outlook for both markets remains very positive. Our positive outlook is supported by the term contract signed in 2024 for several of our key well intervention assets.

The offshore market has improved significantly over the past three years, and although lagging the market, we're now seeing the benefits as our legacy contracts have rolled off. With an improved outlook for 2025, based on the strength of our contracted work and the pipeline of bids and projects, we're providing guidance of certain key financial metrics for our 2025 forecast. Revenue of $1.36% billion to $1.5% billion revenue increasing slightly over 2024 with expected improved margins.

EBITDA is $320 million to $380 million. Dollars increases driven by the term contracts at market rates. Free cash flow $175 million to $225 million strong free cash flow generation with variability driven by capital spend of $70 to $90 million.

This includes $30 million approved for 2024 that shifted to the right into 2025. Our 2025 spending plans are primarily a mix of regulatory maintenance on our vessels, intervention system, and fleet renewal of our robotics ROVs. 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.

Our quarterly results will continue to be impacted by seasonal weather in the North Sea and the U.S. Gulf Shelf. Primarily in the first quarter but to some extent, the fourth quarter as well. In addition, the timing of our vessel maintenance periods and project mobilizations will cause variances between quarters.

Our quarterly financial performance in 2025 is expected to follow the same cadence as our results in 2023 and 2024, with the second and third quarter being our most active quarters and the first and fourth quarters impacted by winter weather. With seasonal quarterly impacts and capital spending expected to be front-loaded, the timing of our free cash flow generation is likely skewed to the latter part of the year. Providing our key assumptions by segments and region starting on slide seventeen, first, our well intervention segment.

The US Gulf Coast continues to be a good market. The Q5000 has contracted work in every quarter with limited white space to fill in the schedule. Q4000 is contracted to work into Q2 in West Africa, and then is expected to return to US Gulf in the second half of 2025.

Expect both vessels to have good utilization this year. The UK North Sea well in the rental market is expected to be weaker in 2025 than last year. News releases last quarter both from regulators and customers highlight various challenges in the UK sector.

The increased taxes announced late in the year and subsequent announcements by producers had delayed planning for 2025 and created uncertainty in the market. We are therefore forecasting utilization in the North Sea this year to decrease compared to 2024. The Well Enhancer or Seawell should have good utilization in the second and third quarter.

But an overall slow start to 2025. The Seawell completed its regulatory docking during Q1, as in 2024, we anticipate a seasonal utilization in the fourth quarter winter months in the North Sea. The Q7000 is currently in Brazil completing its regulatory docking and project mobilization for Shell.

The vessel is expected to commence the firm 400-day project in late March. The CM2 commenced its new contract with Petrobras in early January. This is a three-year contract at market rates.

The CMP Helix one is contracted performing well abandonment for Trident with work extending into the second half of 2025 followed by a three-year contract with Petrobras. The vessel is expected to have an approximate thirty-day off-hire period between contracts. Moving to our robotics segment.

The market continues to be very positive. We recently announced a significant trenching contract in the North Sea. Bidding activity has been and continues to be extremely active.

We are benefiting from the high levels of activity in both oil and gas market and the renewables market. In the APAC region, the Grand Canyon two completed its dry dock in Q1 has multiple contracts and high utilization expected for the balance of 2025. With the completion of its project in the fourth quarter, the Centimeters Topaz was demobilized and returned.

The T1400 one trencher is expected to work on client-provided vessel and remain in Taiwan through 2025. The North Sea, the Grand Canyon three is expected to have an active trenching season with overall strong utilization. Horizon Enabler has contracted trenching projects in Q3 and Q4.

The Glowmar Wave is forecasted to have good utilization performing site clearance operations. The TRIM flight clearance vessel is expected to begin operations in March and have good utilization through Q3. And the T1400-2 trencher is forecasted for first work in the Mediterranean.

In the US, the Shalea is completing a dry docking Q1, after which she's expected to have good utilization with the combination of work in the US Gulf Coast and US East Coast. Moving to production facilities, the HP one is on contract for the balance of 2025, recently extended to June 2026 with no currently expected change. We have expected variability with production as Droshky field continues to deplete and Thunderhawk field is still shut in.

Continuing to shallow water abandonment. Our shallow water abandonment segment will have seasonal variability with greater impacts during Q1 and Q4. We are reducing our cost structure commensurate with the current market but are retaining the ability to scale up if the market improves.

We expect the market to be largely better absent any regulatory developments. We expect the marine offshore business to maintain good utilization on five to seven lift boats, with some variable seasonality on the OSVs and crew boats. The energy service should have good utilization for six to nine P and A spreads and one to two cold tubing units.

There is seasonality in the diving and heavy lift where the EPOKE joint is currently idle with limited winter opportunities. We do expect an active season during Q2 and Q3. Moving to slide eighteen, our CapEx forecast for 2025 is heavily impacted by dry docks and maintenance periods on our vessels and systems, the Seawell completed its drydock in Q1.

The Q7 is currently undergoing a thirty to forty-five day docking period followed by the project mobilization. The Q5000 has a thirty-plus days docking scheduled in the second quarter. Our CapEx range currently is $70 million to $90 million, which includes amounts of approximately $30 million originally forecasted in 2024 that were moved into 2025.

Once again, the majority of our CapEx continues to be maintenance and project-related, which primarily falls into our operating cash flow. Reviewing our balance sheet, our funded debt of $324 million is expected to decrease by $9 million in 2025 with scheduled principal payments on our Merit debt. We expect to continue our share repurchase program with a target repurchases of at least 25% of free cash flow.

At this time, I'll turn the call back to Owen for a discussion on our capital allocation framework, our outlook for 2025 and beyond, for closing comments. Owen.

Owen Kratz

Thanks, Erik. Good morning. 2024 was a strong year for Helix delivering the results that were expected.

We feel very good about where we are and confident as we look forward. There's a lot of wind at our back. We're also aware of our market headline challenges, and we believe we can address them to mitigate the impact and potentially generate upside.

The broader industry is starting to recognize the coming value of the late-life market niches for oil and gas and Helix's prominent position. Starting with Pepsi intervention, which entails maximizing remaining reserves and abandonment. Intervention will be key to extending the life of fields. And there will be more and more abandonment as the fields mature.

Intervention is also the lowest cost way to produce incremental barrels. We do expect a slower year for the UK section, but the North Sea, but we also recognize the extent of opportunity both in extending the life of the fields and we expect abandonment to increase. There are approximately 2,250 wells in the North Sea, and the industry average for P and A of wells is plus or minus fifty per year.

We expect this work to increase for 2026 and beyond. And the rest of the world, we do not have the capacity to meet all the demand we're seeing. And there are up and coming regions of the world we've not yet grown into.

We currently do not have plans to add capacity in well intervention and instead plan to take advantage of a tight market to achieve higher margins. We're well positioned for any potential softening of the market as the majority of our major assets are on multiyear contracts. And that's strong current demand and global flexibility to penetrate new regions for our services.

Turning to robotics, we see demand continuing to grow, visibility for growth, growing trenching demand has us tendering for work as far out as 2029. Expect that we'll need an additional trencher and are currently assessing our options for the effective way to add capacity. We've been very successful at establishing our credibility in site clearance work for the wind farms, both in Boulder clearance and UXO work.

We have plans to add an additional site clearance spread for 2025. And are looking to add other adjacent services going forward. Part of our maintenance CapEx spending is on refurbishment of our world-class ROV fleet of vehicles.

We have two more years to complete the upgrade of the entire fleet, which should extend the life of the fleet for years to come. Our robotics segment overall is forecasted to be relatively flat in 2025, with meaningful growth expected thereafter. Shallow water abandonment in the Gulf of Mexico is expected to experience a soft market again in 2025, as the recipients of boomerang properties from bankruptcies continued to analyze and plan for their abandonment work.

We erroneously maintain the cost basis for a larger market that did not materialize in 2024. With our cost structure now rightsized for the current market, we expect to see meaningful improvement in profitability for 2025 while maintaining operational leverage for further growth beyond. Our production facility segment is pretty much status quo.

The HP one contract continues. The Drozky field continues to produce beyond its expected life. The Thunderhawk field remains shut in until we can schedule an intervention.

With our current contract commitments, we don't have the availability in. We've not included anything for production out of Thunderhawk for 2025, but it remains as upside for 2026. Turning to our capital allocation framework.

The markets have been robust the past few years with capital discipline shown by the industry players. This has resulted in asset valuations that are currently high. While we expect to generate strong free cash flow and increase our war chest of cash, we've kept our powder dry.

We will be watching the markets for attractive opportunities to deploy capital. Until we see that opportunity, we plan to restrict capital allocation for assets to our current niches. Where we can see full cycle accretion and bolstering of our market positions.

In line with this strategy, we intend to become more active with our approved share repurchase plan. We still have more than $150 million of approved approval under the plan. Starting this year, it's our intention to allocate a minimum of 25% of free cash flow to repurchase of our shares.

We're confident in the future and at the current share price, we see a great opportunity to return value to our shareholders. If M and A materializes then expect 25% of free cash flow. And if not, then more than 25%.

We're confident in the future for Helix with inherent growth operating leverage as well as opportunity in the capacity to service them going forward. Erik.

Erik Staffeldt

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