Q1 2023 Helix Energy Solutions Group Inc. Earnings Call
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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 session.
At that time, if you have a question. Please press the one followed by the four on your telephone keypad.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Tuesday April 25th 2023.
I would now like to turn the conference over to Mr. Brent Aerie AGA Chief Accounting Officer. Please go ahead.
Good morning, everyone and thanks for joining us today on our conference call for our first quarter 2023 earnings release participating on this call for helix today are Owen Kratz, our CEO Scotty Sparks our C O O.
Eric I felt our CFO , Ken Neikirk, our general counsel and myself.
Well you've had an opportunity to review our earnings press release and the related slide presentation released last night.
You did not have a copy of these materials both can be accessed through the for the investor page on our website at Www Dot helix ESG Dot com.
Press release can be accessed under the press releases tab and the slide presentation can be accessed by clicking on todays webcast icon.
Before we begin our prepared remarks cannot Kirk will make a statement regarding forward looking information.
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.
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 and our most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q, and our other filings with the SEC you should not place undue reliance on our forward look.
These statements and we do not undertake any duty to update any forward looking statements. We disclaim any written or oral statements made by any third party regarding the subject matter of this conference call.
Also during this call certain non-GAAP financial disclosures may be made in accordance with SEC rules. The final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations along with this presentation earnings press release, our annual report and a replay of this broadcast are available or the investors section.
If our website www Dot hill, its ESG dot com.
Please remember that information on this conference call speaks only as of today April 25th 2023, and therefore, you're advised that any time sensitive information may no longer be accurate as of yet.
This call.
Good morning, everyone. We hope everyone out there is doing well. This morning, we'll be reviewing our Q1 results performance and operations will provide an outlook for the market and will review our current guidance for 2023 moving to the presentation slides six through nine.
At a high level summary of our results and key highlights for the first quarter 2023.
First quarter results were largely as expected with the backdrop of a strong global offshore energy market driving improved financial results were negatively impacted by scheduled vessel recertification maintenance and project localization.
Highlights for the quarter include strong winter utilization on the well enhancer and the seawell and the U K.
Full quarter of well intervention work at improved rates on both the Siem helix, one and two <unk>.
Strong winter seasonal utilization and financial performance in robotics.
Helix Alliance.
Generated a solid seasonal adjusted contribution.
Executing our first I plowed project for the U S East Coast Wind Farm project <unk>.
Completion of regulatory certification and maintenance on the Seawell, well enhancer Q 7000 in Q 5000.
And on the sales front, we secured our first Asia Pacific.
Wind farm Trenching project offshore, Taiwan and added an additional decommissioning project in Australia for the Q 7000.
Revenues for the quarter were $253 million, a decrease of $38 million from our fourth quarter results. We generated a net loss of $5 million compared to net income of $3 million in the previous quarter.
Adjusted EBITDA for the quarter was $35 million.
During the quarter, our operating cash flow was negative $5 million, including $17 million of dry dock recertification cost. We spent 7 million on capex, resulting in a negative $12 million in free cash flow.
Our quarter results were significantly impacted by the regulatory.
Certification and maintenance on four of our well intervention assets. In addition, the Q 7000 spent 37 days mobilizing to the Asia Pacific region.
With revenues and costs deferred until a project commencement.
I'd like to thank our employees for their efforts with the solid start to 2020 through 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.
Onto slide nine from a balance sheet perspective, our cash balance at the end of the quarter was 167 million at quarter end, we were in a net debt position of $91 million.
In February we were pleased to announce our share repurchase program. During the first quarter, we repurchased 660000 shares of our stock for approximately $5 million.
As we can.
Executing the program.
We will balance the need to manage our and fund our operations capital spending, 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 initially target deploying 25% of our free cash flow, noting the seasonality of our business I'll now turn the call over to Scotty for an in depth discussion of our operating results.
Thanks, Ed and good morning, everyone. Firstly, I would like to thank our teams offshore and onshore for level well executed quarter theres been a huge positive shift in the market compared to one year ago. The teams have reacted well secure and high utilization as well as contracting some longer term projects with increased rates and conditions.
We continue to hold strong and sound relationships with our employees partners and clients.
Conditions in much improved going forward, we have a much stronger backlog than we've 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 first quarter of 2023, we continue to operate globally with minimal operational disruption of operations in Europe , West Africa Asia, Brazil, the Gulf of Mexico, and up the Usd's coast to continue to operate at high standards with strong uptime efficiency for the quarter.
Moving onto slide 11 during the first quarter, we produced revenues of $250 million, resulting in a gross profit margin of 6% generating a gross profit of $15 million produced an EBIT for the quarter of $35 million, a significant improvement against $150 million of revenue and $3 million of EBIT during the first quarter of 2000.
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During the first quarter, the well intervention fleet achieved utilization of 80% globally down quarter over quarter due to the tight transits at the Keystone to the APAC region and the scheduled regulatory maintenance at the key seven key 5000, seawell and well enhancer.
We achieved 79% utilization in the Gulf of Mexico, 97% in Brazil, strong winter lump utilization of 81% in the North sea and 41% utilization for the <unk> seven.
Transit to the APAC region.
The Robotics Division chartered vessel fleet achieved utilization of 91% in the quarter operating five vessels were 295 vessel days between RV supports trenching renewable works globally and looking at multiple renewables projects in Europe , Asia and U S East coast.
The helix Airlines fleet achieved 86% utilization for the <unk> 30.
39% for the RSV and the creativity and the energy service Division achieved 77% utilization of the PNA systems, while thousands and 1039 operational days working for numerous clients in the Gulf of Mexico.
And 44% utilization on the coach even systems of 238 days.
Due to the seasonal conditions to free diving support assets achieved 31% utilization.
Let's pause was mostly seasonally warm stacked as expected conducting the shops projects achieving 14% utilization.
Slide 12 provides a detailed review of our well intervention business in the Gulf of Mexico.
The key 5000 had utilization of 59% with all available working days contracted prior to undertaken at schedule with regulatory inspection in the first quarter. The vessel performed well conducting production enhancement work on four wells in ultra deepwater work in under a multiyear campaign for shell.
The key for <unk> had increased utilization of 100% in the quarter. The vessel completed at Seawell production enhancement Skype for one customer followed by a singular enhancing the Skype for another customer and then ended the quarter completing a two well abandonment campaign for another clients and ultra deepwater.
Positively going forward absent the key 4000 dry dock in Q2, we expect divestments without high utilization with 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.
<unk> vessels continue to operate under the integrated helix <unk> Subsea services Alliance package.
In February let me just out of the Gulf of Mexico Office, one of our newly acquired 10-K subsidy IRS systems commenced mobilization for lighting those contracts in Australia.
Moving to slide 13.
Obviously, your well intervention business had a very strong first quarter, considering the seasonal winter months with solid utilization for both vessels in the UK, a huge improvements achieved 91% utilization compared to 13% in Q1 of 2022.
The key 7000 was underpaid transit to the APAC region and completed Drydock in late March subsequently the vessel continued its mobilization to New Zealand fire Australia.
It will enhance it performed very well and achieved 87% utilization in Q1. The vessel performed production enhancement some free wells for two customers and then completed development operations for five wells to free customers.
The seawell had a good quarter with 76% utilization divestment perform decommissioning work on numerous wells for several customers.
Utilizing our diving services.
Utilization for both vessels was impacted by approximately one month of combined planned maintenance during Q1.
The loss in market continues to improve our business has seen much improved utilization and achieving higher rates this year.
He was fully contracted for the year and has recently contracted a 180 day decommissioning projects in the Mediterranean keeping the vessel contracted until the end of Q1 of 2024.
And the well enhancer is contracted for all of 2023, okay.
Both vessels have all been already been awarded multiple scopes for 2024 with February increased rates.
As mentioned the Keystone <unk> hasn't completed its patrons to Malaysia to undertake dry dock that commenced in early February .
Upon completion the vessel commenced its patrons in New Zealand to commence the contracted well abandonment campaign.
The vessels, then scheduled to Carryout pay transit to Australia to undertake work in the second half of 2020 free for seven well abandonment campaign for Cooper Energy and then contracted further works achieved clients, possibly pushing the schedule into Q1 of 2024.
The key 7000 has been contracted for 12 months plus options estimated to commence subject to the schedule in Australia at the end of Q1 already Q2 of 2024 for abandonment work with shell in Brazil, including the pipe transit to Brazil. So the key 7000 is now contracted well into 2025, and we already have visibility on work for.
All in all in 2025.
Moving onto slide 14.
In Brazil, we had good utilization of 97% in the first quarter.
The Siem helix, one was 94% utilizing <unk> undertaken work on the two year decommissioning projects that <unk> performing work on five wells in the quarter.
The Siem helix two you had a strong quarter with 100% utilization completion production enhancement work on one well and decommissioning activity in full wells with Petrobras as.
As expected 2020 free is shaping up to be a far better year for us in Brazil, compared to 2022 with both vessels being back to weather it well intervention rates and we are pleased to have free vessels contracted in the Brazilian region. In 2024 with the addition of the <unk> 7000 contract shell contract.
Slide 15 provides detail of our well intervention fleet utilization.
Moving onto slide 16 for our Robotics review.
But its continued their strong performance and had another good quarter performing at high standards with strong utilization operating five vessels globally. During the quarter, primarily work in between Trenching RV support site survey work in oil and gas and renewables related projects.
Robotics continues to expand its service lines and geographical expansion in the renewables market and key one adding two chartered vessels to the fleet and recently contracted until the recently acquired Trenton units off the U S East coast and in Taiwan.
In the APAC region, the Grand Canyon, two at 100% utilization in Q1, the vessel performed well on a long term decommissioning project in Thailand.
In March one of the newly acquired <unk>.
<unk> thousand 800, trenching systems completed tight ship into Singapore and commenced mobilization on the same type of.
Project chartered vessel size, the estimated 200 day renewables trenching projects in Taiwan.
And then they'll see the Grand Canyon free was utilized 76% in the quarter performing oil and gas trenching projects with two clients followed by an oil and gas RV support Skype the vessel commenced renewable trenching project at the end of the quarter for another customer.
The horizon <unk> had 13 days of spot vessel utilization completion renewables trenching works the one customer.
Both retrenching vessels in the North Sea have a strong backlog for 2022 trenching season, with a mix of renewable and oil and gas trenching works.
Due to our continued expansion in renewables in February in the North Sea, we charted a smaller vessel the global Glen My wife to undertake site clearance older. An ordinance removal insight survey operations divested agreement is a free chartered we've committed days each year.
The vessel is currently working on an estimated 180 day odorless removal project.
In the USA the sheet of board alone. The Jones Act compliant vessel was utilized 98% in Q1. The vessel performed works in the Gulf of Mexico to support the seismic load installation project that should continue into Q3.
On the Usd's coast. The recently acquired <unk> <unk> system was mobilized on the client provided vessel and convinced work undertaken site clearance penetration for wind farm support again, expanding the services that we offer in the renewable sector.
Calix robotics is performing well and we have a good backlog and visibility globally and tightening market side for new oil and gas and global renewables markets.
Expected strong performance in 2023, and beyond and are enjoying our service and geographical expansion in the renewable sector.
Slide 17 details our robotics vessels already entrenched in utilization.
Slide 18 provides an overview of our shallow water decommissioning and construction support service business Helix Alliance reported as our shallow water development segments.
Yes.
Shallow water <unk> tends to be seasonally affected in the winter months due to the winter weather conditions, leading to low utilization and seasonal stocking for some of our assets in the quarter.
The offshore division had nine despite softer exiting Q1 with the combined utilization of 86% the form of decommissioning services, such as well as elements and pipeline development.
<unk> supplied 600, Isps in luxury boats with a combined utilization of 39%.
In Q1, the energy services Division had 1039 days of operations was 77% utilization for the 50 <unk> PNA systems deployed conducting decommissioning services division at 338 days of operations or 44% utilization for six <unk> systems.
The Diovan and heavy lift division due to the seasonal conditions had expected low utilization of 31% across the free diving vessels and the heavy lift barge was as expected seasonally more specs than most of the quarter undertaken one shortlist project for one customer.
Slide 19 provides detail for the helix investment systems recently utilization.
Before I hand over the call to Brent I would again like to thank our helix employees and partners for producing the results on a good quarter again with strong operational efficiency.
2020 free is really shaping up well for helix, we have added some new assets and added two chartered vessels that have led to service side and geographical expansion, where youre hiring new employees globally.
The market is much improved for all of our businesses eight into 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 long term contracts contracts at high utilization for our spot assets improving rates and generally better center conditions I'll now turn the call over to Brent.
Thanks, Scotty moving to slide 21 outlines our debt instruments and their maturity profile as of March 31.
Our total funded debt decreased to 267 million at quarter end with semiannual Merit pay.
Payments.
2023 converts with remaining principal 30 million 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.
With cash of $167 million, our net debt position was 91 million at.
At year end under our ABL facility, we had no borrowings outstanding and $80 million of availability.
With the resulting liquidity at $247 million.
I will now turn the call over to Erik for a discussion on our outlook for 2023 and beyond.
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 'twenty three revenue of 1 billion to $1 2 billion.
At $210 million to $250 million free cash flow generation of $110 million to $150 million with the capital spend expected to be $50 million to $70 million.
Based on our first quarter 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 estimates any significant variation from these key assumptions and estimates could cause our results to fall outside the ranges provided.
Our quarterly results are likely to continue to be impacted by the seasonal weather North sea and Gulf of Mexico shelf.
Primarily the fourth quarter. In addition, the timing of our vessel maintenance periods and project mobilizations will cause variances between quarters. Overall, we expect the second half of 2023 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.
Gulf of Mexico is expected to continue to be very strong market with improving rates and expected strong utilization on the Q4 thousand in Q five.
Q4 is currently in dry dock and expected to last approximately 75 days.
In the UK North sea, both vessels have contracted work into Q4 with the Seawell, having work into Q1 of 2020 for.
Both vessels completed short maintenance periods in Q1 activity levels in the North sea well intervention market continued to be robust.
The Q 7000 is currently in Australian waters mobilizing for its two week New Zealand project.
<unk> is scheduled to start in mid Q2 vessel has contracted work and the APAC region into late Q4 or early Q1 of 2024.
In Brazil, the Siem helix two has contracted into mid December of 2024, with Petrobras and the CMT, which one is contracted performing well abandonment 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 in the renewables market are actively competing for assets in the APAC region. The Grand Canyon II contracted to perform decommissioning and our ROE support work in Thailand into the second half.
23, we've expected good utilization for the balance of 'twenty three in that region in.
In addition, one of the recently acquired <unk> hundred Crunchers is being mobilized for contracted project in Q2 Q3.
The North sea, the Grand Canyon, III as contract form trenching with working.
Work with expected strong utilization for 2023 horizon enabler with its flexible charter has trenching projects in Q2 and Q3.
The glow more wave recently chartered for site clearance and <unk> removal is forecasted to have good utilization in the U S. <unk> is working in the Gulf of Mexico portfolio ROE 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 <unk> completed a site clearance project.
The east coast of the U S.
When production facilities. The HP one is on contract for the balance of 'twenty three with no expected change.
Expected variability with production as the Droshky field continues to deplete maintenance work was completed almost under Hawk.
<unk> production facility in mid April .
With the field coming online late April .
The shelf can commit continuing our $5 27 for our shallow water abandonment segment. The shelf decommissioning market continues to be active we expect marine offshore division to maintain good utilization of 8% to nine lift boats with some.
Variable seasonality.
On the OSV and crew boats.
The energy services Division should have strong utilization for 12 to 15, PMA spreads and 1% to three cold.
Clos tubing units during 2023.
There is seasonality in the diamond and having lift division, where the <unk> 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 'twenty three is heavily impacted by the dry docks and maintenance periods on our key vessels. The Q 7000 in Q 5000 completed their maintenance period. In Q4 thousand is currently on the blocks with a heavy regulatory year and inclusion of Helix Alliance our capex.
Range for 'twenty three continues to be in the $50 million to $70 million range with a significant amount expected.
Sure our cash spend in Q1 was approximately $24 million.
The majority of our Capex forecast continues to be maintenance and project related which primarily falls into our operating cash flows.
A review of our balance sheet, our funded debt of 267 million at March 31, and is expected to decrease by $34 million during the balance of 'twenty three was scheduled principal payments.
I'll skip the remaining slides and leave them for your reference this time I will turn the call back to OLED for further discussion of our outlook for closing comments.
Third.
As you've heard 2023 and started well.
<unk> is currently exceeding our initial 2023 expectations. Our initial guidance for the year was $210 million to $250 million EBIT draw 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 are currently trending towards the upper end of the guidance.
Q1 is typically a bit messy.
Impacted by how much of the prior year as clients budgeted work tourism in the new year, how early been new year's budgeting work began on this and how much maintenance work on our assets and schedule of course offshore work is always impacted due to the seasonality of the whether 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 issue, resulting from the front end loading of this capex.
The year over year comparison of Q1 results demonstrates the demand is strong and increasing even while we incurred a meaningful amount of scheduled maintenance during the quarter and the Q 7000 was in transit from West Africa to Asia Pacific Region.
<unk> were positively impacted by having our two gross wells 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.
Rigs for our intervention services continues to improve rig rates continue to increase.
We're seeing strong demand for our services to maximize existing production.
Commissioning work in general also concern.
<unk> strong, especially in the Gulf of Mexico shelf as a result of increasing the number of mature fields, reaching millions of production and a strong desire to see oilfields abandoned in an environmentally safe manner.
On the renewables front, we see steadily increasing demand.
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 five to seven years, which indicates that this should be a growing market for many years to come we expect contributions from our.
Through our returns from this market to grow with the market over time.
Overall, we expect to be free strongly free cash flow positive for the <unk>.
<unk> future our current quarters was to first build cash to be able to cash settle our remaining debt maturity.
Second continued 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 in a cyclical industry, while generating a strong return on capital is timing.
We plan to be patient and selective as we explore opportunities. We believe there will be select potentials for growth within the three buckets of our business model.
First maximizing remaining rig.
Reserves.
<unk> decommissioning and then third offshore wind support 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 have positioned ourselves well to capture the current market be opportunistic about future growth and continue to deliver value to our shareholders.
Thanks, Ellen operator at this time.
Ready to take any questions.
Perfect. Thank.
Thank you I would like to register a question. Please press the one hour by these four on your telephone keypad.
You will hear a three toone prompt to acknowledge Eric.
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Yeah.
Our first question comes from the line of Greg Lewis. Please go ahead.
Yeah, Hey, good morning, everybody.
Guys, Hey, thanks for that.
The updated detailed guidance.
I typically wouldn't ask this question because you kind of address that.
But just given some of the weakness in the stock today.
Eric when you made some comments about you know kind of trending towards the high end of the guidance. Realizing we haven't changed it 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 was it incremental work booked at better pricing may be getting a better handle on costs any kind of color you can give us around that.
Yes, I think there is I'll start I'll go ahead to start off I think there's a few drivers, which we tried to highlight in our slides I think first of all I think we've been able to secure additional work I think we had two big contract wins here in the first quarter with the signing of the Trenching project in Taiwan and of course being able to.
Fill in the gap on the Q 7000.
In the Australia market and I think so those are definitely improvement I think overall, though what gives us confidence in 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.
Our steady improvement there I think we're in conversations where our customers are making plans for 2024 already.
And to a certain extent, where our assets are utilization is filling out.
<unk> extensively in 'twenty three I think so all of those things are really helping us trend towards the upper end of the range I don't know Owen if you will have anything to add.
Now to simplification.
At the time of giving guidance, it's all a function of utilization rates in 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've made in our initial guidance.
Alright, great and then.
And then.
<unk> pricing clearly late last year, which was.
A nice monster move higher things.
Things definitely seem to be trending in the right direction.
You did mention that we are starting to look at.
Not even look at we actually are taking some work some contracted work into 'twenty four and any kind of loose rough estimate you can give us around how the pricing dynamic is evolving in 'twenty four versus where we are today.
I'll take that.
First of all in Brazil, the contracts for the two vessels are fixed.
What you can do in Brazil, North Sea.
We have been awarded work and the price has been increased.
Greece, instead of 15% to 20% year over year.
In the Gulf of Mexico, we're still increasing prices every tender that goes up is a bit of an increase on the pricing and we're securing works Gulf of Mexico.
North Seawell intervention markets, we're definitely seeing a year over year increase in robotics. The trenching market is very robust thanks to the renewables expansion.
We're increasing price and net supply and demand issues mainly.
And the robotics and the favorable market vessels has just been taken up because it is.
Expanding globally and we're seeing that our services are required an increase in pricing.
Yes, and then I did want to just kind of touch on that.
The horizon enabler, which is on that flexible contract.
It seems like that.
Knowable I guess, we'll just broadly call it.
The offshore.
Renewables market is continuing to improve.
Obviously your vessels are keeping busy.
Is there any thoughts about maybe.
I'll ask it this way.
Is management worried about vessel availability.
On the chartering inside to do work as kind of we look out over the next 12 months.
No Alex site.
Well covered for the assets that we have and we have options going into 2004.
Remember last year, we took the charges on the Grand Canyon vessels. After five years, so we have solid pricing.
And cost base for the Grand Canyon charters, we have an option on the sheet avoid long gun into 'twenty four 'twenty five we have an option on the horizon the neighbor got into 25%.
Offset.
We will be on the look for further vessels as the U S market increases.
And that was kind of what 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 win it almost looks to me like youre going to add.
Have to go out to the charter end marketing to bring in another vessel or til.
I'll jump in here.
I would say the market is very very tight on the women's side and the oil and gas solid vessels are just tied to and all of the classes we.
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 reasonable rates. So it depends on where the rates go when the market as to 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 serving asset light and a target and the rate improving market is the right position to reset again.
And that's why we just typically see in <unk> for the Asia tension and also to claim a wave on the three year contract to support our site clearance market.
We've been gingerly coming into the site credential market and we've seen that expand and that's why we've gone all in on a three year deal for the decline low life.
Perfect. Okay. Thank you very much for the time.
Okay. Thank you.
Thank you. Our next question comes from the line of David.
Please go ahead.
Yeah.
Hey, good morning, and thank you for taking my questions.
Good morning.
So net debt nearly $90 million at the midpoint of your free cash flow outlook, you would be net debt negative by year end.
Returning 25% of free cash flow through repurchases. So I wanted to ask how much flexibility there might be on that 25%.
Yes.
Free cash flow return framework.
How you see the trade off between targeting.
Net neutrality versus buying back your stock that looks.
It looks to be approaching the low teens free cash flow yield.
So yes, I think obviously on the numbers that you cited I think you're Directionally correct I think it's important that as we.
<unk> initiated our share.
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 'twenty, four and our cash position for 2000 and for so.
The initial target that we put out there David and we will continue to look at it as 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 from obviously, we tried to outline the parameters that are important to us from a cash generation cash management.
We do have the the maturing debt.
We feel we need to be in a position to to cash settle we do have the earn out associated with alliance, which will be due in early.
In early 2024, and so we have these these competing needs for our cash that we're balancing but we feel good about that.
The position that we're in and the direction that we're doing with our cash and once again I think we will have the opportunity to.
Revisit our positions as we go forward.
I appreciate the color.
If I could ask Scott slight.
Slightly longer follow up maybe a little bit bigger picture question, but if I remember correctly. The original thesis for the Honeywell intervention vessels as you could do that with BMO and intervention work more efficiently than a rig you can build the vessel at a discount for that rig and price it at a discount to the rig.
Thank you demonstrated the efficiency improvement certainly during the downturn it looked like your price in the Q4 and Q five at or better.
Then what market rates for deepwater rigs. So I wanted to ask with deepwater rig rates back into the 400 per day plus range should we think about the opportunity for the heavy well intervention vessel pricing to migrate back to that historical discount could it be.
Quarter rigs or might there be an opportunity to close that.
Historical discount just given the demonstrated efficiency advantages versus the regs.
I'll take that.
I think historically you will find that out 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.
Dosing, but theres two components of the rate increases going forward.
I'm looking at 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 <unk>.
Spot rates are to move higher but then on top of that.
We entered into these multi year contracts in some MSA is giving pricing prior to 2022.
Which are substantially lower than current market rates.
Yes.
Escalators in those contracts kick in each year.
Those contracts rollover, and we're able to price back to the spot market. When there is a substantial potential for rate increase for our for some of some of our main assets.
I'll just I'll.
I think you're picking up on the heavy intervention rigs, but you should also think of the north Sea and the license mentioned, where our rates are substantially higher than rig rates purely because of our efficiencies.
<unk> in the North Sea are generally more in there.
Probably at about $50 or 60% of the current rates with charter.
Now I'll turn to north sea because of the pure efficiencies, if not having to put out anchors and other services.
I appreciate that extra color.
Thank you.
Thank you. Our next question comes from the line of James Johnson. Please go ahead.
Hey, good morning, everybody.
Morning.
Good morning, the midpoint.
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.
I think overall and I think that our.
Things that are probably our EBIT.
Yeah.
Off the top of my head more than likely be flat.
At best.
Thank you Alex.
Soon.
Yeah.
Dollar for dollar.
Increase there.
Okay.
Because Eric that's because less trenching work because thats what is that what's driving that.
No we had.
There were some obviously increase.
The facts are flowing through our structure as we've added more chargers.
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 were 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 didn't necessarily expect to see improvements in those areas.
Okay understood. Thank you.
Hum.
Earnings perspective can we expect a sequential benefit for the Q 7000 in <unk>.
And if so can you quantify that I know theres, a lot of moving pieces with move and Demoed the knee.
And the accounting for that so I don't know if you could provide any help there.
So yes, the Q seven is going to in general.
Have a lot of.
Noise.
In our quarterly results here in the first quarter.
No revenue, but we still had some cost flow through the P&L, our depreciation of some of our labs here in the second quarter, we expect it to start working.
In the May timeframe.
And then from that standpoint, as we recognize the revenue and we're going to be recognizing a daily rate plus the <unk>.
Amortization of the deferred revenue and deferred cost and so overall, it's going to appear with a very high day rates and the very high cost.
In our daily numbers overall, obviously, we expect improvements.
Two the overall Q 7000, P&L performance quarter over quarter, and we expect to be in a position obviously of generating positive cash here how does it goes to work.
Okay. Thanks, a lot I appreciate it.
Thank you.
Our next question comes from the line of John <unk>. Please go ahead.
Good morning, gentlemen, how are you all today.
Okay.
Yes.
I wanted to ask.
Bigger picture question, we recently saw one of the drilling contractors sign a contract for P&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 youre, having customer conversations out there are they getting a little bit more desperate today on work for 24, and 25 and more willing to sign contracts farther out than we were call. It.
Nine or 12 months ago today, how are those customer conversations going.
I think you are right I think the customers are starting to worry about availability. They are looking for longer term commitments at today's pricing.
The corollary to that is the contractors are little low.
Worried about giving today is pricing in an environment, where the rates are continuing to move up.
Going into this year, we were willing to give rates for two years, but not beyond that because we didn't know where the market was growing as a result, we've got some contracts that are priced below the current market for the next couple of years.
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 multi year commitment on long term contracts and to its long term priced msos.
So does that lends you to do more kind of variable rate or quarterly repricing contracts going forward is that what we should see on any new contracts.
It takes two forms one we can push that.
Higher rates in the contract.
The years for growth or you can pick a raise in tied to an index.
Those are the two main mechanisms.
Okay I appreciate the color it looks like there is several years several good news coming up I appreciate the color. Thanks.
Hi.
Thank you.
A reminder, it is the one followed by the four on your telephone Keypad to register your question.
Our next question comes from the line of Samantha Hoh. Please go ahead.
Hey, guys just real quick one for me I was wondering if you could maybe address the cost side of the equation.
And maybe just even on the SG&A line.
In terms of what you are seeing.
Labor and materials.
Yes.
Okay, Yes.
The labor market is very tight at the moment.
This year, we implemented some goods.
Other increases for all of our employees, both onshore and offshore.
Our costs have increased their sales are in line with pushing our rates up as well.
Supply chain is also excitement those rights have gone up so we are definitely seeing an increase in cost per with cancer and that level of increase in rates.
And then I think on the SG&A side, obviously I think there has been an impact obviously from the you could say.
Inflation, that'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 we do focus on.
SG&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.
Okay that was great. Thanks.
At this time there are no further questions I'll turn it back to you speakers to continue the presentation again any closing remarks.
Okay. Thanks for joining us today, we very much appreciate your interest and participation and look forward to having you on our second quarter 2023 call in July Thank you.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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Yes.
Yes.
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