Hornbeck Offshore Services, Inc 10-Q for FY2024 Q1
Hornbeck Offshore Services, Inc. (HOS)
About this 10-Q
Hornbeck Offshore Services, Inc filed this 10-Q on April 26, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $296.21M
- up 18.4% from $250.08M a year earlier
- Net loss
- $26.29M
- compared with a net loss of $5.17M a year earlier
- Diluted EPS
- -$0.17
- compared with -$0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form
For the quarterly period ended
or
For the transition period from__________ to__________
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) | | (Zip Code) |
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(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of April 22, 2024,
TABLE OF CONTENTS
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| | Condensed Consolidated Balance Sheets – March 31, 2024 (Unaudited) and December 31, 2023 | 3 |
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| | Notes to Condensed Consolidated Financial Statements (Unaudited) | 7 |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
| | (Unaudited) | | | | |
ASSETS |
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Current assets: |
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Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net of allowance for credit losses of $ | |
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Other current assets | |
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Total current assets | |
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Property and equipment | |
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Less accumulated depreciation | |
| ( | |
| ( |
Property and equipment, net | |
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Operating lease right-of-use assets | |
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Deferred recertification and dry dock costs, net | | | | | | |
Other assets, net | |
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Total assets | | $ | | | $ | |
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LIABILITIES AND SHAREHOLDERS' EQUITY | |
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Current liabilities: | |
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Accounts payable | | $ | | | $ | |
Accrued liabilities | |
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Current maturities of long-term debt | |
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Current operating lease liabilities | |
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Total current liabilities | |
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Long-term debt | |
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Operating lease liabilities | |
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Deferred tax liabilities | |
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Other non-current liabilities | |
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Total liabilities | |
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Commitments and contingencies | | | | | | |
Shareholders’ equity: | |
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Common stock, | |
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Retained earnings | |
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Accumulated other comprehensive loss | |
| ( | |
| ( |
Total shareholders’ equity | |
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Total liabilities and shareholders’ equity | | $ | | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Net revenues | | $ | | | $ | |
Cost of sales | |
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Gross profit | |
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Gain (loss) on disposition of assets, net | |
| ( | |
| |
Acquisition and integration costs | | | — | | | ( |
Change in fair value of contingent consideration | | | — | | | ( |
Selling, general and administrative expenses | |
| ( | |
| ( |
Loss from operations | |
| ( | |
| ( |
Net interest expense | |
| ( | |
| ( |
Losses related to convertible senior notes | |
| ( | |
| — |
Other income (expense), net | |
| ( | |
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Royalty income and other | |
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Loss before income taxes | |
| ( | |
| ( |
Income tax benefit | |
| ( | |
| ( |
Net loss | | $ | ( | | $ | ( |
| | | | | | |
Loss per share of common stock: | |
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Basic | | $ | ( | | $ | ( |
Diluted | | $ | ( | | $ | ( |
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Weighted average common shares outstanding: | |
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Basic | |
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Diluted | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(in thousands)
| | Three Months Ended | ||||
| | March 31, | ||||
| | 2024 |
| 2023 | ||
Net loss | | $ | ( |
| $ | ( |
Other comprehensive income (loss), net of tax: | |
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Foreign currency translation gain (loss) | |
| ( |
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Other comprehensive income (loss), net of tax | |
| ( |
| | |
Comprehensive income (loss) | | $ | ( |
| $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
(in thousands)
| | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | Other | | Total | ||
| | Common Stock | | Retained | | Comprehensive | | Shareholders’ | ||||||
|
| Shares |
| Amount |
| Earnings |
| Loss |
| Equity | ||||
Balance, December 31, 2023 |
| | | $ | | | $ | | | $ | ( | | $ | |
Net loss |
| — | |
| — | |
| ( | |
| — | |
| ( |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| ( | |
| ( |
Settlement of convertible debt conversion |
| — | |
| ( | |
| — | |
| — | |
| ( |
Repurchases of common stock |
| ( | |
| ( | |
| — | |
| — | |
| ( |
Termination of capped calls |
| — | |
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| — | |
| — | |
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Activity in company stock plans, net and other |
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| ( | |
| — | |
| — | |
| ( |
Share-based compensation |
| — | |
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| — | |
| — | |
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Balance, March 31, 2024 |
| | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | |
Balance, December 31, 2022 |
| | | $ | | | $ | | | $ | ( | | $ | |
Net loss |
| — | |
| — | |
| ( | |
| — | |
| ( |
Foreign currency translation adjustments |
| — | |
| — | |
| — | |
| | |
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Repurchases of common stock | | ( | | | ( | | | — | | | — | | | ( |
Activity in company stock plans, net and other |
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| ( | |
| — | |
| — | |
| ( |
Share-based compensation |
| — | |
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| — | |
| — | |
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Balance, March 31, 2023 |
| | | $ | | | $ | | | $ | ( | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
| | Three Months Ended | | ||||
| | March 31, | | ||||
|
| 2024 |
| 2023 |
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Cash flows from operating activities: |
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Net loss | | $ | ( | | $ | ( | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |
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Depreciation and amortization | |
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Amortization of debt discount | |
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| — | |
Amortization of debt issuance costs | |
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Share-based compensation | |
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Deferred income taxes | |
| ( | |
| ( | |
(Gain) loss on disposition of assets, net | |
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| ( | |
Losses related to convertible senior notes | |
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| — | |
Unrealized foreign currency (gain) loss | |
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| ( | |
Change in fair value of contingent consideration | | | — | | | | |
Changes in operating assets and liabilities: | |
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Accounts receivable, net | |
| | |
| ( | |
Income tax receivable, net of income tax payable | | | ( | | | ( | |
Other current assets | | | | | | ( | |
Accounts payable and accrued liabilities | |
| ( | |
| ( | |
Deferred recertification and dry dock costs, net | | | ( | | | ( | |
Other, net | |
| ( | |
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Net cash provided by (used in) operating activities | |
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| ( | |
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Cash flows from investing activities: | |
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Capital expenditures | |
| ( | |
| ( | |
Proceeds from sale of assets | | | — | | | | |
Proceeds from insurance recoveries | |
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| — | |
Net cash used in investing activities | |
| ( | |
| ( | |
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Cash flows from financing activities: | |
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Payments related to convertible senior notes | |
| ( | |
| — | |
Repayment of MARAD Debt | |
| ( | |
| ( | |
Proceeds from settlement of capped calls | |
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| — | |
Debt issuance costs | |
| ( | |
| — | |
Repurchases of common stock | | | ( | | | ( | |
Payments related to tax withholding for share-based compensation | |
| ( | |
| ( | |
Proceeds from issuance of ESPP shares | |
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Net cash used in financing activities | |
| ( | |
| ( | |
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| ( | |
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Net decrease in cash and cash equivalents | |
| ( | |
| ( | |
Cash and cash equivalents: | |
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Balance, beginning of year | |
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Balance, end of period | | $ | | | $ | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 — Basis of Presentation and New Accounting Standards
The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements in U.S. dollars have been prepared in accordance with instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive loss, statements of shareholders’ equity and statements of cash flows, as applicable. The operating results for the three-month period ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. Our balance sheet as of December 31, 2023 included herein has been derived from the audited balance sheet as of December 31, 2023 included in our 2023 Annual Report on Form 10-K (our “2023 Form 10-K”). These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in our 2023 Form 10-K.
Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.
New accounting standards
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Improvements to Reportable Segment Disclosures,” which requires entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”) and included within each reported measure of segment profit or loss as well as an amount for other segment items by reportable segment and a description of its composition. ASU No. 2023-07 requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods as well. Among other things, this ASU also requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. ASU No. 2023-07 will be effective on a retrospective basis for annual periods beginning January 1, 2024 and for interim periods beginning January 1, 2025. This ASU is not expected to have a material impact on our consolidated financial statements other than increased disclosure requirements.
In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures,” which requires entities to disclose, on an annual basis, specific categories in a tabular rate reconciliation using both percentages and reporting currency amounts and to provide additional information for reconciling items that meet a quantitative threshold. This ASU also requires that entities disclose on an annual basis: a) income taxes paid (net) disaggregated by federal, state and foreign taxes, b) income taxes paid (net) by individual jurisdiction, c) income (or loss) from continuing operations before income tax expense (or benefit) between domestic and foreign, and d) income tax expense (or benefit) from continuing operations by federal, state and foreign. Certain previous disclosure requirements on unrecognized tax benefits and cumulative amount of temporary differences are eliminated. ASU No. 2023-09 will be effective for us for annual periods beginning January 1, 2025. This ASU is not expected to have a material impact on our consolidated financial statements other than increased disclosure requirements.
We do not expect other recently issued accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.
7
Note 2 — Company Overview
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention, robotics and decommissioning operations. Our services are key in supporting a global energy transition:
| ● | Production maximization — our assets and methodologies are specifically designed to efficiently enhance and extend the lives of existing oil and gas reserves; we also offer an alternative to take over end-of-life reserves in preparation for their abandonment; |
| ● | Decommissioning — we are a full-field abandonment contractor and believe that regulatory push for plug and abandonment (“P&A”) and transition to renewable energy will facilitate the continued growth of the abandonment market; and |
| ● | Renewables — we are an established global leader in jet trenching and provide specialty support services to renewable energy developments such as offshore wind farms, including boulder removal and unexploded ordnance clearance. |
We provide a range of services to the oil and gas and renewable energy markets primarily in the Gulf of Mexico (deepwater and shelf), U.S. East Coast, Brazil, North Sea, Asia Pacific and West Africa regions. Our North Sea operations and our Gulf of Mexico shelf operations are usually subject to seasonal changes in demand, which generally peaks in the summer months and declines in the winter months. Our services are segregated into
Our Well Intervention segment provides services enabling our customers to safely access subsea offshore wells for the purpose of performing production enhancement or decommissioning operations, thereby mitigating the need to drill new wells by extending the useful lives of existing wells and preserving the environment by preventing uncontrolled releases of oil and natural gas. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and
Our Robotics segment provides trenching, seabed clearance, offshore construction and inspection, repair and maintenance (“IRM”) services to both the oil and gas and the renewable energy markets globally, thereby assisting the delivery of renewable energy and supporting the responsible transition away from a carbon-based economy. Additionally, our robotics services are used in and complement our well intervention services. Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers, IROV boulder grabs and robotics support vessels under term charters as well as spot vessels as needed. We offer our ROVs, trenchers and IROV boulder grabs on a stand-alone basis or on an integrated basis with chartered robotics support vessels.
Our Shallow Water Abandonment segment provides services in support of the upstream and midstream industries predominantly in the Gulf of Mexico shelf, including offshore oilfield decommissioning and reclamation, project management, engineered solutions, intervention, maintenance, repair, heavy lift and commercial diving services. Our Shallow Water Abandonment segment includes Helix Alliance that was acquired in July 2022, which offers a diversified fleet of marine assets including liftboats, offshore supply vessels (“OSVs”), dive support vessels (“DSVs”), a heavy lift derrick barge, a crew boat, P&A systems and coiled tubing (“CT”) systems.
Our Production Facilities segment includes the Helix Producer I (the “HP I”), a ship-shaped dynamically positioned floating production vessel, the Helix Fast Response System (the “HFRS”), which combines the HP 1, the Q4000 and the Q5000 with certain well control equipment that can be deployed to respond to a well control incident, and our ownership of mature oil and gas properties. All of our current Production Facilities activities are located in the Gulf of Mexico.
8
Note 3 — Details of Certain Accounts
Other current assets consist of the following (in thousands):
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Prepaids | | $ | |
| $ | |
Income tax receivable | | | | | | — |
Contract assets (Note 8) | | | | | | |
Deferred costs (Note 8) | |
| |
| | |
Other | |
| |
| | |
Total other current assets | | $ | |
| $ | |
Other assets, net consist of the following (in thousands):
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Prepaid charter (1) | | $ | |
| $ | |
Deferred costs (Note 8) | | | |
| | |
Other receivable (2) | |
| |
| | |
Intangible assets with finite lives, net | |
| |
| | |
Other | |
| |
| | |
Total other assets, net | | $ | |
| $ | |
| (1) | Represents prepayments to the owner of the Siem Helix 1 and the Siem Helix 2 to offset certain payment obligations associated with the vessels at the end of their respective charter term. |
| (2) | Represents the present value of the agreed-upon amounts that we are entitled to receive from Marathon Oil Corporation (“Marathon Oil”) for remaining P&A work to be performed by us on Droshky oil and gas properties we acquired from Marathon Oil in 2019. |
Accrued liabilities consist of the following (in thousands):
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Accrued payroll and related benefits | | $ | |
| $ | |
Accrued interest | | | | | | |
Income tax payable | |
| — |
| | |
Deferred revenue (Note 8) | |
| |
| | |
Earn-out consideration (1) | |
| |
| | |
Other (2) | |
| |
| | |
Total accrued liabilities | | $ | |
| $ | |
| (1) | Represents the final amount of the earn-out consideration associated with the acquisition of the Alliance group of companies (collectively “Alliance”) on July 1, 2022, which was paid to the seller of Alliance in cash on April 3, 2024. |
| (2) | Amounts as of March 31, 2024 and December 31, 2023 included $ |
9
Other non-current liabilities consist of the following (in thousands):
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Asset retirement obligations (Note 12) | | $ | |
| $ | |
Other (1) | |
| |
| | |
Total other non-current liabilities | | $ | |
| $ | |
| (1) | Amount as of December 31, 2023 included $ |
Note 4 — Leases
We charter vessels and lease facilities and equipment under non-cancelable contracts that expire on various dates through 2031.
The following table details the components of our lease cost (in thousands):
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Operating lease cost | | $ | |
| $ | |
Variable lease cost | |
| |
| | |
Short-term lease cost | |
| |
| | |
Sublease income | |
| ( |
| | ( |
Net lease cost | | $ | |
| $ | |
Maturities of our operating lease liabilities as of March 31, 2024 are as follows (in thousands):
|
| | |
| Facilities and |
| | | |
|
| Vessels |
| Equipment |
| Total | |||
Less than one year | | $ | | | $ | |
| $ | |
One to two years | |
| | |
| |
| | |
Two to three years | |
| | |
| |
| | |
Three to four years | |
| | |
| |
| | |
Four to five years | |
| | |
| |
| | |
Over five years | |
| | |
| |
| | |
Total lease payments | | $ | | | $ | |
| $ | |
Less: imputed interest | |
| ( | |
| ( |
| | ( |
Total operating lease liabilities | | $ | | | $ | |
| $ | |
| | | | | | | | | |
Current operating lease liabilities | | $ | | | $ | |
| $ | |
Non-current operating lease liabilities | |
| | |
| |
| | |
Total operating lease liabilities | | $ | | | $ | |
| $ | |
10
Maturities of our operating lease liabilities as of December 31, 2023 are as follows (in thousands):
|
| | |
| Facilities and |
| | | |
|
| Vessels |
| Equipment |
| Total | |||
Less than one year | | $ | | | $ | |
| $ | |
One to two years | |
| | |
| |
| | |
Two to three years | |
| | |
| |
| | |
Three to four years | |
| | |
| |
| | |
Four to five years | |
| | |
| |
| | |
Over five years | |
| — | |
| |
| | |
Total lease payments | | $ | | | $ | |
| $ | |
Less: imputed interest | |
| ( | |
| ( |
| | ( |
Total operating lease liabilities | | $ | | | $ | |
| $ | |
| | | | | | | | | |
Current operating lease liabilities | | $ | | | $ | |
| $ | |
Non-current operating lease liabilities | |
| | |
| |
| | |
Total operating lease liabilities | | $ | | | $ | |
| $ | |
The following table presents the weighted average remaining lease term and discount rate:
| | March 31, | | December 31, | ||
|
| 2024 | | 2023 | ||
Weighted average remaining lease term |
| years | | years | ||
Weighted average discount rate |
| | % | | | % |
The following table presents other information related to our operating leases (in thousands):
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Cash paid for operating lease liabilities | | $ | |
| $ | |
Right-of-use assets obtained in exchange for new operating lease liabilities (1) | |
| |
| | |
| (1) | Our operating lease additions during the three-month period ended March 31, 2024 are primarily related to the charter extensions for the Siem Helix 1, the Siem Helix 2, the Grand Canyon II and the Shelia Bordelon (Note 13). Our operating lease additions during the three-month period ended March 31, 2023 are primarily related to the vessel charter for the Glomar Wave. |
11
Note 5 — Long-Term Debt
Scheduled maturities of our long-term debt outstanding as of March 31, 2024 are as follows (in thousands):
| | MARAD | | 2029 | | | | ||
|
| Debt |
| Notes |
| Total | |||
Less than one year | | $ | | | $ | — |
| $ | |
One to two years | |
| | |
| — |
| | |
Two to three years | |
| | |
| — |
| | |
Three to four years | |
| — | |
| — |
| | — |
Four to five years | |
| — | |
| — |
| | — |
Over five years | |
| — | |
| |
| | |
Gross debt | |
| | |
| |
| | |
Unamortized debt discount (1) | | | — | | | ( | | | ( |
Unamortized debt issuance costs (1) | |
| ( | |
| ( |
| | ( |
Total debt | |
| | |
| |
| | |
Less current maturities | |
| ( | |
| — |
| | ( |
Long-term debt | | $ | | | $ | |
| $ | |
| (1) | Debt discount and debt issuance costs are amortized to interest expense over the term of the applicable debt agreement. |
Below is a summary of our indebtedness:
Credit Agreement
On September 30, 2021 we entered into an asset-based credit agreement with Bank of America, N.A. (“Bank of America”), Wells Fargo Bank, N.A. and Zions Bancorporation and subsequently we entered into amendments to the credit agreement on July 1, 2022, June 23, 2023 and November 15, 2023 (collectively, the “Amended ABL Facility”). The Amended ABL Facility provides a $
Commitments under the Amended ABL Facility are comprised of separate U.S. and U.K. revolving credit facility commitments of $
We and certain of our U.S. and U.K. subsidiaries are the current borrowers under the Amended ABL Facility, whose obligations under the Amended ABL Facility are guaranteed by those borrowers and certain other U.S. and U.K. subsidiaries, excluding Cal Dive I – Title XI, Inc. (“CDI Title XI”), Helix Offshore Services Limited and certain other enumerated subsidiaries. Other subsidiaries may be added as guarantors of the facility in the future. The Amended ABL Facility is secured by all accounts receivable and designated deposit accounts of the U.S. borrowers and guarantors, and by substantially all of the assets of the U.K. borrowers and guarantors.
U.S. borrowings under the Amended ABL Facility bear interest at the Term SOFR rate (also known as CME Term SOFR as administered by CME Group, Inc.) plus a margin of
12
The Amended ABL Facility includes certain limitations on our ability to incur additional indebtedness, grant liens on assets, pay dividends and make distributions on equity interests, dispose of assets, make investments, repay certain indebtedness, engage in mergers, and other matters, in each case subject to certain exceptions. The Amended ABL Facility contains customary default provisions which, if triggered, could result in acceleration of all amounts then outstanding. The Amended ABL Facility requires us to satisfy and maintain a fixed charge coverage ratio of not less than
The Amended ABL Facility also (i) limits the amount of permitted debt for the deferred purchase price of property not to exceed $
MARAD Debt
In 2005, Helix’s subsidiary CDI – Title XI issued its U.S. Government Guaranteed Ship Financing Bonds, Q4000 Series, to refinance the construction financing originally granted in 2002 of the Q4000 vessel (the “MARAD Debt”). The MARAD Debt is guaranteed by the U.S. government pursuant to Title XI of the Merchant Marine Act of 1936, administered by the Maritime Administration (“MARAD”). The obligation of CDI Title XI to reimburse MARAD in the event CDI Title XI fails to repay the MARAD Debt is collateralized by the Q4000 and is guaranteed
Senior Notes Due 2029 (“2029 Notes”)
On December 1, 2023, we issued $
The 2029 Notes bear interest at a coupon interest rate of
Prior to March 1, 2026, we may, at our option, redeem the 2029 Notes, in whole or in part, at a price equal to
| | Redemption |
Year |
| Price |
2026 | | |
2027 | | |
2028 and thereafter | |
Upon the occurrence of a Change of Control Triggering Event, as defined in the indenture governing the 2029 Notes, we may be required to make an offer to repurchase all of the notes then outstanding at a price equal to
13
The indenture governing the 2029 Notes contains customary terms and covenants, including limitations on additional indebtedness, restricted payments, liens, asset sales, transactions with affiliates, mergers and consolidations, designation of unrestricted subsidiaries, and dividend and other restrictions affecting restricted subsidiaries.
The 2029 Notes are guaranteed on a senior unsecured basis by the subsidiaries that guarantee the Amended ABL Facility, as well as certain future subsidiaries that may guarantee certain of our indebtedness, including the Amended ABL Facility. The 2029 Notes are junior in right of payment to all our existing and future secured indebtedness and obligations and rank equally in right of payment with all our existing and future senior unsecured indebtedness. The 2029 Notes rank senior in right of payment to any of our future subordinated indebtedness and are fully and unconditionally guaranteed by the guarantors described above on a senior basis.
2026 Notes
During December 2023 and the first quarter 2024, we retired the 2026 Notes through various transactions using proceeds from the 2029 Notes as well as the issuance of our common stock.
In December 2023, we entered into privately negotiated agreements with certain holders of the 2026 Notes to repurchase $
In December 2023, $
In January 2024, we issued a notice for the redemption of the remaining $
The 2026 Notes had a coupon interest rate of
2026 Capped Calls
In connection with the 2026 Notes offering, we had entered into capped call transactions (the “2026 Capped Calls”) with three separate counterparties to hedge the dilution risk of the 2026 Notes. Concurrently with the 2026 Notes Repurchases in December 2023, we terminated a proportionate amount of the 2026 Capped Calls and received $
14
Other
In accordance with the Amended ABL Facility, the MARAD Debt and the 2029 Notes, we are required to comply with certain covenants, including minimum liquidity and a springing fixed charge coverage ratio (applicable under certain conditions that are currently not applicable) with respect to the Amended ABL Facility and the maintenance of net worth, working capital and debt-to-equity requirements with respect to the MARAD Debt. As of March 31, 2024, we were in compliance with these covenants.
The Convertible Senior Notes due 2023 (the “2023 Notes”) matured on September 15, 2023. Upon maturity of the 2023 Notes, we paid $
The following table details the components of our net interest expense (in thousands):
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Interest expense | | $ | |
| $ | |
Interest income | |
| ( |
| | ( |
Net interest expense | | $ | |
| $ | |
Note 6 — Income Taxes
We operate in multiple jurisdictions with complex tax laws subject to interpretation and judgment. We believe that our application of such laws and the tax impact thereof are reasonable and fairly presented in our condensed consolidated financial statements.
For the three-month periods ended March 31, 2024 and 2023, we recognized income tax benefit of $
Note 7 — Share Repurchase Programs
In February 2023, our Board of Directors (our “Board”) authorized a share repurchase program to repurchase issued and outstanding shares of our common stock up to $
The 2023 Repurchase Program has no set expiration date. Repurchases under the 2023 Repurchase Program have been made through open market purchases in compliance with Rule 10b-18 under the Exchange Act, but may also be made through privately negotiated transactions or plans, instructions or contracts established under Rule 10b5-1 under the Exchange Act. The manner, timing and amount of any purchase will be determined by management at its discretion based on an evaluation of market conditions, stock price, liquidity and other factors. The 2023 Repurchase Program does not obligate us to acquire any particular amount of common stock and may be modified or superseded at any time at our discretion. Any repurchased shares are cancelled.
15
Note 8 — Revenue from Contracts with Customers
Disaggregation of Revenue
Our service contracts generally contain provisions for specific time, material and equipment charges that are billed in accordance with the terms of such contracts (dayrate contracts) but we occasionally contract on a lump sum basis (lump sum contracts). We record revenues net of taxes collected from customers and remitted to governmental authorities.
Our revenues are primarily derived from short-term and long-term service contracts with customers. Contracts are classified as long-term if all or part of the contract is to be performed over a period extending beyond 12 months from the effective date of the contract. Long-term contracts may include multi-year agreements whereby the commitment for services in any one year may be short in duration.
| | Well | | | | Shallow Water | | Production | | Intercompany | | Total | ||||||
|
| Intervention |
| Robotics |
| Abandonment |
| Facilities |
| Eliminations |
| Revenue | ||||||
Three months ended March 31, 2024 | | | | |
|
| |
|
| |
|
| |
|
| |||
Short-term | | $ | | | $ | | | $ | | | $ | — | | $ | ( | | $ | |
Long-term | |
| | |
| | |
| | |
| | |
| ( | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023 | | | | |
|
| |
|
| |
|
| |
|
| |||
Short-term | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | |
Long-term | |
| | |
| | |
| — | |
| | |
| ( | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
We provide services to our customers in the following markets that are key to our energy transition strategy: Production maximization, Decommissioning and Renewables.
| | Well | | | | Shallow Water | | Production | | Intercompany | | Total | ||||||
|
| Intervention |
| Robotics |
| Abandonment |
| Facilities |
| Eliminations |
| Revenue | ||||||
Three months ended March 31, 2024 | | | | |
|
| |
|
| |
|
| |
|
| |||
Production maximization | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Decommissioning | |
| | |
| | |
| | |
| — | |
| ( | |
| |
Renewables | |
| | |
| | |
| — | |
| — | |
| ( | |
| |
Other | |
| | |
| | |
| — | |
| — | |
| ( | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023 | | | | |
|
| |
|
| |
|
| |
|
| |||
Production maximization | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Decommissioning | |
| | |
| | |
| | |
| — | |
| ( | |
| |
Renewables | |
| | |
| | |
| — | |
| — | |
| ( | |
| |
Other | |
| | |
| | |
| — | |
| — | |
| ( | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
Contract Balances
Contract assets are rights to consideration in exchange for services that we have provided to a customer when those rights are conditioned on our future performance. Contract assets generally consist of (i) demobilization fees recognized ratably over the contract term but invoiced upon completion of the demobilization activities and (ii) revenue recognized in excess of the amount billed to the customer for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract assets are reflected in “Other current assets” in the accompanying condensed consolidated balance sheets (Note 3). Contract assets were $
16
Contract liabilities are obligations to provide future services to a customer for which we have already received, or have the unconditional right to receive, the consideration for those services from the customer. Contract liabilities may consist of (i) advance payments received from customers, including upfront mobilization fees allocated to a single performance obligation and recognized ratably over the contract term and/or (ii) amounts billed to the customer in excess of revenue recognized for lump sum contracts when the cost-to-cost method of revenue recognition is utilized. Contract liabilities are reflected as “Deferred revenue,” a component of “Accrued liabilities” in the accompanying condensed consolidated balance sheets (Note 3). Contract liabilities totaled $
We report the net contract asset or contract liability position on a contract-by-contract basis at the end of each reporting period.
Performance Obligations
As of March 31, 2024, $
For the three-month periods ended March 31, 2024 and 2023, revenues recognized from performance obligations satisfied (or partially satisfied) in previous periods were immaterial.
Contract Fulfillment Costs
Contract fulfillment costs consist of costs incurred in fulfilling a contract with a customer. Our contract fulfillment costs primarily relate to costs incurred for mobilization of personnel and equipment at the beginning of a contract and costs incurred for demobilization at the end of a contract. Mobilization costs are deferred and amortized ratably over the contract term (including anticipated contract extensions) based on the pattern of the provision of services to which the contract fulfillment costs relate. Demobilization costs are recognized when incurred at the end of the contract. Deferred contract costs are reflected as “Deferred costs,” a component of “Other current assets” and “Other assets, net” in the accompanying condensed consolidated balance sheets (Note 3). Our deferred contract costs totaled $
For additional information regarding revenue recognition, see Notes 2 and 11 to our 2023 Form 10-K.
Note 9 — Earnings Per Share
We have shares of restricted stock issued and outstanding that are currently unvested. Because holders of shares of unvested restricted stock are entitled to the same liquidation and dividend rights as the holders of our unrestricted common stock, we are required to compute earnings per share (“EPS”) under the two-class method in periods in which we have earnings. Under the two-class method, net income for each period is allocated based on the participation rights of both common shareholders and the holders of any participating securities as if earnings for the respective periods had been distributed. For periods in which we have a net loss we do not use the two-class method as holders of our restricted shares are not obligated to share in such losses.
17
Basic EPS is computed by dividing net income allocated to common shareholders or net loss by the weighted average shares of our common stock outstanding. Diluted EPS is computed in a similar manner after considering the potential dilutive effect of share-based awards and convertible senior notes and taking the more dilutive of the two-class method and the treasury stock method or if-converted method, as applicable. The dilutive effect of share-based awards is computed using the treasury stock method, as applicable, which includes the incremental shares that would be hypothetically vested in excess of the number of shares assumed to be hypothetically repurchased with the assumed proceeds. The effect of convertible senior notes is computed for the periods in which they are outstanding using the if-converted method, if dilutive, which assumes conversion of the convertible senior notes into shares of our common stock at the beginning of the period, giving income recognition for the add-back of related interest expense (net of tax).
| | Three Months Ended | | Three Months Ended | ||||||
| | March 31, 2024 | | March 31, 2023 | ||||||
|
| Income |
| Shares |
| Income |
| Shares | ||
Basic and Diluted: |
| |
|
|
|
| |
|
|
|
Net loss | | $ | ( | | |
| $ | ( |
|
|
Net loss available to common shareholders | | $ | ( | | | | $ | ( |
| |
| | | | | | | | | | |
Loss per share | | ( | | | | ( | | | ||
We had net losses for the three-month periods ended March 31, 2024 and 2023. Accordingly, our diluted EPS calculation for these periods excluded the dilutive effect of share-based awards because they were deemed to be anti-dilutive, meaning their inclusion would have reduced the reported net loss per share in the applicable periods.
| | Three Months Ended | ||
| | March 31, | ||
|
| 2024 |
| 2023 |
Diluted shares (as reported) |
| |
| |
Share-based awards |
| |
| |
Total |
| |
| |
The following potentially dilutive shares related to the 2023 Notes and the 2026 Notes were excluded from the diluted EPS calculation as they were anti-dilutive (in thousands):
| | Three Months Ended | ||
| | March 31, | ||
|
| 2024 |
| 2023 |
2023 Notes |
| — |
| |
2026 Notes |
| |
| |
We have outstanding restricted stock units (“RSUs”) (Note 10) that can be settled in either cash or shares of our common stock or a combination thereof, which are not included in the computation of diluted EPS as cash settlement is assumed.
18
Note 10 — Employee Benefit Plans
Long-Term Incentive Plan
As of March 31, 2024, there were approximately
| | | | | | Grant Date | | | |
| | | | | | Fair Value | | | |
Date of Grant |
| Award Type |
| Shares/Units |
| Per Share/Unit |
| Vesting Period/Vesting Date | |
| RSU |
| | | $ | |
| ||
| PSU |
| | | $ | |
| ||
| Restricted stock |
| | | $ | |
| ||
| (1) | Reflects grants to our executive officers. |
| (2) | Reflects grants to certain independent members of our Board who have elected to take their quarterly fees in stock in lieu of cash. |
Restricted stock awards are based solely on service conditions and are accounted for as equity awards. Compensation cost for restricted stock is the product of the grant date fair value of each share and the number of shares granted and is recognized over the applicable vesting period on a straight-line basis. Forfeitures are recognized as they occur.
Our performance share units (“PSUs”) granted beginning in January 2021 may be settled in either cash or shares of our common stock upon vesting at the discretion of the Compensation Committee of our Board and have been accounted for as equity awards. Those PSUs consist of
For PSUs with a service and a market condition that are accounted for as equity awards, compensation cost is measured based on the grant date estimated fair value determined using a Monte Carlo simulation model and subsequently recognized over the vesting period on a straight-line basis. For PSUs with a service and a performance condition that are accounted for as equity awards, compensation cost is initially measured based on the grant date fair value. Cumulative compensation cost is subsequently adjusted at the end of each reporting period to reflect the current estimation of achieving the performance condition. For the three-month periods ended March 31, 2024 and 2023, $
Our currently outstanding RSUs may be settled in either cash or shares of our common stock upon vesting at the discretion of the Compensation Committee and have been accounted for as liability awards. Liability RSUs are measured at their estimated fair value based on the closing share price of our common stock as of each balance sheet date, and subsequent changes in the fair value of the awards are recognized in earnings for the portion of the award for which the requisite service period has elapsed. Cumulative compensation cost for vested liability RSUs equals the actual payout value upon vesting. For the three-month periods ended March 31, 2024 and 2023, $
19
In 2024 and 2023, we granted fixed-value cash awards of $
Defined Contribution Plans
We sponsor a defined contribution 401(k) retirement plan (the “401(k) Plan”) in the U.S. We also contribute to various other defined contribution plans globally. For the three-month periods ended March 31, 2024 and 2023, we made contributions to our defined contribution plans totaling $
Employee Stock Purchase Plan (“ESPP”)
As of March 31, 2024,
For more information regarding our employee benefit plans, including the 2005 Incentive Plan, the defined contribution plans and the ESPP, see Note 13 to our 2023 Form 10-K.
Note 11 — Business Segment Information
We have
We evaluate our performance based on operating income of each reportable segment.
| | Three Months Ended | ||||
| | March 31, | ||||
| | 2024 |
| 2023 | ||
Net revenues — | | |
|
| |
|
Well Intervention | | $ | | | $ | |
Robotics | |
| | |
| |
Shallow Water Abandonment | | | | | | |
Production Facilities | |
| | |
| |
Intercompany eliminations | |
| ( | |
| ( |
Total | | $ | | | $ | |
| | | | | | |
Income (loss) from operations — | |
|
| |
|
|
Well Intervention | | $ | | | $ | ( |
Robotics | |
| | |
| |
Shallow Water Abandonment | | | ( | | | |
Production Facilities | |
| ( | |
| |
Segment operating income (loss) | |
| | |
| |
Change in fair value of contingent consideration | | | — | | | ( |
Corporate, eliminations and other | |
| ( | |
| ( |
Total | | $ | ( | | $ | ( |
Net interest expense | | | ( | | | ( |
Losses related to convertible senior notes | | | ( | | | — |
Other non-operating income (expense), net | | | ( | | | |
Loss before income taxes | | $ | ( | | $ | ( |
20
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments.
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Well Intervention | | $ | | | $ | |
Robotics | |
| | |
| |
Shallow Water Abandonment | |
| | |
| — |
Total | | $ | | | $ | |
Segment assets are comprised of all assets attributable to each reportable segment. Corporate and other includes all assets not directly identifiable with our business segments, most notably the majority of our cash and cash equivalents.
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Well Intervention | | $ | | | $ | |
Robotics | |
| | |
| |
Shallow Water Abandonment | | | | | | |
Production Facilities | |
| | |
| |
Corporate and other | |
| | |
| |
Total | | $ | | | $ | |
Note 12 — Asset Retirement Obligations
Our asset retirement obligations (“AROs”) relate to mature offshore oil and gas properties (Droshky and Thunder Hawk Field) that we acquired with the intention to perform decommissioning work at the end of their life cycles. AROs are recorded initially at fair value and consist of estimated costs for subsea infrastructure decommissioning and P&A activities associated with our oil and gas properties. The estimated costs are discounted to present value using a credit-adjusted risk-free discount rate. After its initial recognition, an ARO liability is increased for the passage of time as accretion expense, which is a component of our depreciation and amortization expense. An ARO liability may also change based on revisions in estimated costs and/or timing to settle the obligations.
|
| 2024 |
| 2023 | ||
AROs at January 1, | | $ | | | $ | |
Accretion expense | |
| | |
| |
AROs at March 31, | | $ | | | $ | |
Note 13 — Commitments and Contingencies and Other Matters
Commitments
Our Well Intervention segment has long-term charter agreements with Siem Offshore AS for the Siem Helix 1 and Siem Helix 2 vessels, whose terms expire in December 2030 and December 2031, respectively. Our Robotics segment has vessel charters for the Grand Canyon II, the Grand Canyon III, the Shelia Bordelon, the North Sea Enabler and the Glomar Wave. Our time charter agreement for the Grand Canyon II expires in December 2030. Our time charter agreement for the Grand Canyon III expires in May 2028. Our time charter agreement for the Shelia Bordelon in the Gulf of Mexico expires in June 2026. Our time charter agreement for the North Sea Enabler expires in December 2025. We have a charter agreement for the Glomar Wave in the North Sea that expires in 2025.
Contingencies and Claims
From time to time, we may incur losses related to our contracts for matters such as costs in excess of contract consideration or claims related to disputes with customers and any obligations thereunder. While we believe we maintain appropriate accruals for such matters, the actual cost to us may be more or less than the amounts reserved.
21
We are involved in various legal proceedings in the normal couse of business, including claims under the General Maritime Laws of the United States and the Merchant Marine Act of 1920 (commonly referred to as the Jones Act), contract-related disputes, employee-related disputes and subsequently identified legacy issues related to Alliance. We recognize losses for lawsuits when the probability of an unfavorable outcome is probable and we can reasonably estimate the amount of the loss. For insured claims, we recognize such losses to the extent they exceed applicable insurance coverage. Although we can give no assurance about the outcome of litigation, claims or other proceedings, we do not currently believe that any loss resulting from litigation, claims or other proceedings, to the extent not otherwise covered by insurance, will have a material adverse impact on our consolidated financial statements.
Note 14 — Statement of Cash Flow Information
We define cash and cash equivalents as cash and all highly liquid financial instruments with original maturities of three months or less.
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Interest paid | | $ | | | $ | |
Income taxes paid (1) | |
| | |
| |
| (1) | Exclusive of any income tax refunds. |
Our capital additions include the acquisition of property and equipment for which payment has not been made. These non-cash capital additions were $
Note 15 — Allowance for Credit Losses
We estimate current expected credit losses on our accounts receivable at each reporting date based on our credit loss history, adjusted for current factors including global economic and business conditions, offshore energy industry and market conditions, customer mix, contract payment terms and past due accounts receivable.
|
| 2024 |
| 2023 | ||
Balance at January 1, | | $ | | | $ | |
Additions (1) | |
| | |
| |
Balance at March 31, | | $ | | | $ | |
| (1) | Additions reflect reserves for expected credit losses during the respective periods. |
Note 16 — Fair Value Measurements
Our financial instruments include cash and cash equivalents, receivables, accounts payable and long-term debt. The carrying amount of cash and cash equivalents, trade and other current receivables as well as accounts payable approximates fair value due to the short-term nature of these instruments.
The principal amount and estimated fair value of our long-term debt are as follows (in thousands):
| | March 31, 2024 | | December 31, 2023 | ||||||||
| | Principal | | Fair | | Principal | | Fair | ||||
|
| Amount (1) |
| Value (2) |
| Amount (1) |
| Value (2) | ||||
2026 Notes (fully redeemed March 2024) | | $ | — | | $ | — | | $ | | | $ | |
MARAD Debt (matures February 2027) | | | | | | | | | | | | |
2029 Notes (mature March 2029) | | | | | | | | | | | | |
Total debt | | $ | | | $ | | | $ | | | $ | |
| (1) | Principal amount includes current maturities and excludes any related unamortized debt discount and debt issuance costs. See Note 5 for additional disclosures on our long-term debt. |
22
| (2) | The estimated fair value was determined using Level 2 fair value inputs under the market approach, which was determined using quotes in inactive markets. |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix and represent our current expectations or forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:
| ● | statements regarding our business strategy, corporate initiatives and any other business plans, forecasts or objectives, any or all of which are subject to change; |
| ● | statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, cash flows, future operations expenditures or other financial items; |
| ● | statements regarding our backlog and commercial contracts and rates thereunder; |
| ● | statements regarding our ability to enter into, renew and/or perform commercial contracts, including the scope, timing and outcome of those contracts; |
| ● | statements regarding the spot market, the continuation of our current backlog, visibility and future utilization, our spending and cost management efforts and our ability to manage changes, oil price volatility and its effects and results on the foregoing as well as our protocols and plans; |
| ● | statements regarding energy transition and energy security; |
| ● | statements regarding our ability to identify, effect and integrate acquisitions, joint ventures or other transactions and any subsequently identified legacy issues with respect thereto; |
| ● | statements regarding the acquisition, construction, completion, upgrades to or maintenance and/or regulatory certification of vessels, systems or equipment and any anticipated costs or downtime related thereto; |
| ● | statements regarding any financing transactions or arrangements, or our ability to enter into such transactions or arrangements; |
| ● | statements regarding our trade receivables and their collectability; |
| ● | statements regarding potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions; |
| ● | statements regarding our sustainability initiatives and the successes thereon or regarding our environmental efforts, including with respect to greenhouse gas emissions; |
| ● | statements regarding global, market or investor sentiment with respect to fossil fuels; |
| ● | statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business; |
| ● | statements regarding our existing activities in, and future expansion into, the offshore renewable energy market; |
| ● | statements regarding potential developments, industry trends, performance or industry ranking; |
| ● | statements regarding our human capital resources, including our ability to retain our senior management and other key employees; |
| ● | statements regarding our share repurchase authorization or program; |
| ● | statements regarding the underlying assumptions related to any projection or forward-looking statement; and |
| ● | any other statements that relate to non-historical or future information. |
23
Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include:
| ● | the impact of domestic and global economic and market conditions and the future impact of such conditions on the offshore energy industry and the demand for our services; |
| ● | the general impact of oil and natural gas price volatility and the cyclical nature of the oil and gas market; |
| ● | the potential effects of regional tensions that have escalated or may escalate, including into conflicts or wars, and their impact on the global economy, oil and gas market, our operations, international trade, or our ability to do business with certain parties or in certain regions, and any governmental sanctions resulting therefrom; |
| ● | the results of corporate initiatives such as alliances, partnerships, joint ventures, mergers, acquisitions, divestitures and restructurings, and any amounts payable in connection therewith, or the determination not to pursue or effect such initiatives; |
| ● | the operating results of acquired properties and/or equipment; |
| ● | the impact of inflation and our ability to recoup rising costs in the rates we charge to our customers; |
| ● | the impact of our ability to secure and realize backlog, including any potential cancellation, deferral or modification of our work or contracts by our customers; |
| ● | the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure; |
| ● | the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets; |
| ● | the performance of contracts by customers, suppliers and other counterparties; |
| ● | the results of our continuing efforts to control costs and improve performance; |
| ● | unexpected future operations expenditures, including the amount and nature thereof; |
| ● | the effectiveness and timing of our vessel and/or system upgrades, regulatory certification and inspection as well as major maintenance items; |
| ● | operating hazards, including unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets; |
| ● | the effect of adverse weather conditions and/or other risks associated with marine operations; |
| ● | the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations; |
| ● | the effectiveness of our risk management activities and processes, including with respect to our cybersecurity initiatives and disclosures; |
| ● | the effects of competition; |
| ● | the availability of capital (including any financing) to fund our business strategy and/or operations; |
| ● | the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments; |
| ● | the impact of our stock price on our financing activities such as repurchases of our common stock under share repurchase programs; |
| ● | the effectiveness of our sustainability initiatives and disclosures; |
| ● | the impact of current and future laws and governmental regulations and how they will be interpreted or enforced, including related to fossil fuel production, decommissioning, and litigation and similar claims in which we may be involved; |
| ● | the future impact of international activity and trade agreements on our business, operations and financial condition; |
| ● | the effectiveness of any future hedging activities; |
| ● | the potential impact of a negative event related to our human capital resources, including a loss of one or more key employees; |
| ● | the impact of general, market, industry or business conditions; and |
| ● | the factors generally described in Item 1A. Risk Factors in our 2023 Form 10-K. |
Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Form 10-K. Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
24
We caution you not to place undue reliance on forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ. All forward-looking statements, express or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We urge you to carefully review and consider the disclosures made in this Quarterly Report and our reports filed with the SEC and incorporated by reference in our 2023 Form 10-K that attempt to advise interested parties of the risks and factors that may affect our business.
EXECUTIVE SUMMARY
Our Business
We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention, robotics and decommissioning operations. Our services are key in supporting a global energy transition by maximizing production of existing oil and gas reserves, decommissioning end-of-life oil and gas fields and supporting renewable energy developments. Our well intervention fleet includes seven purpose-built well intervention vessels and 12 subsea intervention systems. Our robotics equipment includes 39 work-class ROVs, six trenchers and two IROV boulder grabs. We charter robotics support vessels on long-term, short-term, flexible and spot bases to facilitate our ROV and trenching operations. Our Shallow Water Abandonment segment includes nine liftboats, six OSVs, three DSVs, one heavy lift derrick barge, one crew boat, 20 P&A systems and six CT systems. Our Production Facilities segment includes the HP I, the HFRS and our ownership of mature oil and gas properties.
Industry Influences and Market Environment
Demand for our services is primarily influenced by the condition of the oil and gas and the renewable energy markets and, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects. The performance of our business is largely affected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and various other factors. Demand for decommissioning, which has been an area of growth for us in recent years, is affected by commodity prices as well as governmental regulations and political forces globally.
Oil prices continue to be volatile but have generally remained robust since 2020. Global demand for oil continues to experience growth, and we expect the current market conditions will maintain continued customer spending for the industry. Despite the current commodity price environment, factors that could threaten the current commodity price environment persist, including regional conflicts, unrest in the Middle East, decisions from members of the Organization of Petroleum Exporting Countries (“OPEC”) and other non-OPEC producer nations (collectively with OPEC members, “OPEC+”), various governmental and customer sustainability initiatives and continued shifting of resource allocation to renewable energy. We expect these factors will continue to contribute to commodity price volatility with the potential to temper customer spending for oil and gas projects.
We maximize production of existing oil and gas reserves for our customers primarily in our Well Intervention segment. Historically, drilling rigs have been the asset class used for offshore well intervention work, and rig day rates are a pricing indicator for our services. Our customers have used drilling rigs on existing long-term contracts (rig overhang) to perform well intervention work instead of new drilling activities. Current volumes of work, rig utilization rates, the day rates quoted by drilling rig contractors and existing rig overhang affect the utilization and/or rates we can achieve for our assets and services.
We are seeing oil and gas companies continue to invest in long-cycle exploration projects in addition to maintaining and/or increasing production from their existing reserves. As historically production enhancement through well intervention is less expensive per incremental barrel of oil than exploration, we expect oil and gas companies to continue to focus on optimizing production of their existing subsea wells.
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We support the energy transition to renewable energy through our services in offshore wind farm developments, primarily including subsea cable trenching and burial as well as seabed clearance and preparation services. Demand for our services in the renewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the generation and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water and other regions, and government subsidies for renewable energy projects. We expect growth in our renewables services as the energy market transitions to continued offshore renewable energy developments.
Once end-of-life oil and gas wells have depleted their production, we decommission wells and infrastructure in our Well Intervention and Shallow Water Abandonment segments. Our operations service the life cycle of an oil and gas field and provide P&A and decommissioning services at the end of the life of a field as required by governmental regulations. We believe that we have a competitive advantage in performing these services efficiently. The demand for P&A services should grow over the mid- to long-term as the subsea tree base expands, as government regulations continue to place stronger emphasis on decommissioning aged wells worldwide (including subsea trees as well as mature dry tree wells in the shallow waters of the Gulf of Mexico), as customers look to reduce their decommissioning obligations and as customers shift resources to renewable energy.
Outlook
In 2024, despite a backdrop of a somewhat uncertain macro environment globally, we expect to experience another strong year of performance driven by increasing demand for our decommissioning services internationally and continued growth in the offshore renewables trenching market. The demand for shallow water decommissioning services in the Gulf of Mexico is expected to soften in the near term but should grow over the mid- to long-term.
Backlog
Our backlog is represented by signed contracts. As of March 31, 2024, our consolidated backlog totaled approximately $997 million, of which $663 million is expected to be performed over the remainder of 2024. Our various contracts with Shell globally, our contracts with Trident Energy and Petrobras in Brazil, our contracts with ExxonMobil globally, and our agreement for the HP I in the Gulf of Mexico represented approximately 65% of our total backlog as of March 31, 2024. Backlog is not necessarily a reliable indicator of revenues derived from our contracts as services are often added but may sometimes be subtracted; contracts may be renegotiated, deferred, canceled and in many cases modified while in progress; and reduced rates, fines and penalties may be imposed by our customers. Furthermore, our contracts are in certain cases cancelable without penalty. If there are cancellation fees, the amount of those fees can be substantially less than amounts reflected in backlog.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures.
26
We evaluate our operating performance and financial condition based on EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measures of EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. Other companies may calculate their measures of EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other data prepared in accordance with GAAP.
We define EBITDA as earnings before income taxes, net interest expense, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude gains or losses on disposition of assets, acquisition and integration costs, gains or losses related to convertible senior notes, the change in fair value of contingent consideration and the general provision (release) for current expected credit losses, if any. We define Free Cash Flow as cash flows from operating activities less capital expenditures, net of proceeds from asset sales and insurance recoveries (related to property and equipment), if any. Net Debt is calculated as long-term debt including current maturities of long-term debt less cash and cash equivalents. In the following reconciliations, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Net loss | | $ | (26,287) | | $ | (5,165) |
Adjustments: | |
|
| |
|
|
Income tax benefit | |
| (1,698) | |
| (2,018) |
Net interest expense | |
| 5,477 | |
| 4,187 |
Other (income) expense, net | |
| 2,216 | |
| (3,444) |
Depreciation and amortization | |
| 46,353 | |
| 37,537 |
EBITDA | |
| 26,061 | |
| 31,097 |
Adjustments: | |
|
| |
|
|
(Gain) loss on disposition of assets, net | |
| 150 | |
| (367) |
Acquisition and integration costs | | | — | | | 231 |
Change in fair value of contingent consideration | | | — | | | 3,992 |
General provision (release) for current expected credit losses | |
| (143) | |
| 141 |
Losses related to convertible senior notes | |
| 20,922 | |
| — |
Adjusted EBITDA | | $ | 46,990 | | $ | 35,094 |
The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Cash flows from operating activities | | $ | 64,484 | | $ | (5,392) |
Less: Capital expenditures, net of proceeds from asset sales and insurance recoveries | |
| (3,242) | |
| (6,300) |
Free Cash Flow | | $ | 61,242 | | $ | (11,692) |
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The reconciliation of our long-term debt to Net Debt is as follows (in thousands):
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Long-term debt including current maturities | | $ | 318,164 | | $ | 361,722 |
Less: Cash and cash equivalents | |
| (323,849) | |
| (332,191) |
Net Debt | | $ | (5,685) | | $ | 29,531 |
Comparison of Three Months Ended March 31, 2024 and 2023
We have four reportable business segments: Well Intervention, Robotics, Shallow Water Abandonment and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations. The following table details various financial and operational highlights for the periods presented (dollars in thousands):
| | Three Months Ended | | Increase/ |
| |||||||
| | March 31, | | (Decrease) |
| |||||||
|
| 2024 |
| 2023 |
| Amount |
| Percent |
| |||
Net revenues — |
| |
|
| |
|
| |
|
|
| |
Well Intervention | | $ | 216,459 | | $ | 142,438 | | $ | 74,021 |
| 52 | % |
Robotics | |
| 50,309 | |
| 49,222 | |
| 1,087 |
| 2 | % |
Shallow Water Abandonment | | | 26,853 | | | 49,381 | | | (22,528) | | (46) | % |
Production Facilities | |
| 24,152 | |
| 20,905 | |
| 3,247 |
| 16 | % |
Intercompany eliminations | |
| (21,562) | |
| (11,862) | |
| (9,700) |
|
| |
| | $ | 296,211 | | $ | 250,084 | | $ | 46,127 |
| 18 | % |
| | | | | | | | | | | | |
Gross profit (loss) — | |
|
| |
|
| |
|
|
|
| |
Well Intervention | | $ | 23,144 | | $ | (4,362) | | $ | 27,506 |
| 631 | % |
Robotics | |
| 8,183 | |
| 7,007 | |
| 1,176 |
| 17 | % |
Shallow Water Abandonment | | | (9,763) | | | 7,498 | | | (17,261) | | (230) | % |
Production Facilities | |
| (1,306) | |
| 5,783 | |
| (7,089) |
| (123) | % |
Corporate, eliminations and other | |
| (704) | |
| (742) | |
| 38 |
|
| |
| | $ | 19,554 | | $ | 15,184 | | $ | 4,370 |
| 29 | % |
| | | | | | | | | | | | |
Gross margin — | |
|
| |
|
| |
|
|
|
| |
Well Intervention | |
| 11 | % |
| (3) | % |
|
|
| | |
Robotics | |
| 16 | % |
| 14 | % |
|
|
|
| |
Shallow Water Abandonment | |
| (36) | % |
| 15 | % |
|
|
|
| |
Production Facilities | |
| (5) | % |
| 28 | % |
|
|
|
| |
Total company | |
| 7 | % |
| 6 | % |
|
|
|
| |
| | | | | | | | | | | | |
Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2) | |
|
| |
|
| |
|
|
|
| |
Well Intervention vessels | |
| 7 / 90 | % |
| 7 / 80 | % |
|
|
|
| |
Robotics assets (3) | |
| 47 / 58 | % |
| 46 / 56 | % |
|
|
|
| |
Chartered Robotics vessels | |
| 6 / 74 | % |
| 5 / 91 | % |
|
|
|
| |
Shallow Water Abandonment vessels (4) | |
| 20 / 41 | % |
| 20 / 58 | % |
|
|
|
| |
Shallow Water Abandonment systems (5) | |
| 26 / 26 | % |
| 21 / 68 | % |
|
|
|
| |
| (1) | Represents the number of vessels, Robotics assets or Shallow Water Abandonment systems as of the end of the period, including spot vessels and those under term charters, and excluding acquired vessels prior to their in-service dates, vessels managed on behalf of third parties and vessels or assets disposed of and/or taken out of service. |
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| (2) | Represents the average utilization rate, which is calculated by dividing the total number of days the vessels, Robotics assets or Shallow Water Abandonment systems generated revenues by the total number of calendar days in the applicable period. Utilization rates of chartered Robotics vessels during the three-month periods ended March 31, 2024 and 2023 included 91 spot vessel days at full utilization and 13 spot vessel days at 81% utilization, respectively. |
| (3) | Consists of ROVs, trenchers and IROV boulder grabs. |
| (4) | Consists of liftboats, OSVs, DSVs, a heavy lift derrick barge and a crew boat. |
| (5) | Consists of P&A and CT systems. |
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):
| | Three Months Ended | | | | ||||
| | March 31, | | Increase/ | |||||
|
| 2024 |
| 2023 |
| (Decrease) | |||
Well Intervention | | $ | 11,252 | | $ | 4,469 | | $ | 6,783 |
Robotics | |
| 10,228 | |
| 7,393 | |
| 2,835 |
Shallow Water Abandonment | |
| 82 | |
| — | |
| 82 |
| | $ | 21,562 | | $ | 11,862 | | $ | 9,700 |
Net Revenues. Our consolidated net revenues for the three-month period ended March 31, 2024 increased by 18% as compared to the same period in 2023, reflecting higher revenues in our Well Intervention, Robotics and Production Facilities business segments, offset in part by lower revenues in our Shallow Water Abandonment segment.
Our Well Intervention revenues increased by 52% for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher revenues on the Q7000 and the Q5000 and higher rates and utilization on the Seawell, offset in part by lower utilization on the Well Enhancer. The Q7000 had full utilization during the first quarter 2024 whereas the vessel was transiting from West Africa to Asia Pacific and undergoing regulatory and project related dockings during the first quarter 2023, and utilization increased on the Q5000 during the first quarter 2024 as the vessel underwent a regulatory docking during the first quarter 2023. The Seawell benefitted from being on contract during the entire first quarter 2024 in the western Mediterranean as compared to having had lower seasonal utilization and rates in the North Sea during the first quarter 2023. The Well Enhancer in the North Sea had lower utilization as compared to the prior year period as the vessel underwent a 54-day scheduled dry dock during the first quarter 2024.
Our Robotics revenues increased by 2% for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher chartered vessel days and trenching and ROV activities during the first quarter 2024. Chartered vessel days increased to 333 days during the first quarter 2024 as compared to 295 days during the first quarter 2023, although chartered vessel days in the first quarter 2024 included approximately 64 days of standby utilization at reduced rates. ROV and trencher utilization increased to 58% in the first quarter 2024 from 56% during the first quarter 2023 and included 85 days of integrated vessel trenching in the first quarter 2024 as compared to 66 days in the first quarter 2023.
Our Shallow Water Abandonment revenues decreased by 46% for the three-month period ended March 31, 2024 as compared to the same period in 2023. The decrease in revenues is due to lower activity levels that are reflective of the variable nature of operator spending as well as higher customer concentrations in the Gulf of Mexico shelf market, resulting in lower vessel and system utilization during the first quarter 2024 as compared to the first quarter 2023. Overall vessel utilization was 41% during the first quarter 2024 as compared to 58% during the first quarter 2023. P&A systems and CT systems achieved 626 days of utilization, or 26% on 26 systems, during the first quarter 2024 as compared to 1,277 days of utilization, or 68% on 21 systems, during the first quarter 2023.
Our Production Facilities revenues increased by 16% for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher oil and gas production as the Thunder Hawk wells were shut in for planned maintenance during the first quarter 2023.
29
Gross Profit (Loss). Our consolidated gross profit increased by $4.4 million for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting increased profits from our Well Intervention and Robotics business segments, offset in part by losses from our Shallow Water Abandonment and Production Facilities segments.
Our Well Intervention segment had a gross profit of $23.1 million for the three-month period ended March 31, 2024 as compared to a gross loss of $4.4 million for the same period in 2023, primarily reflecting higher segment revenues.
Our Robotics gross profit increased by $1.2 million for the three-month period ended March 31, 2024 as compared to the same period in 2023, primarily reflecting higher revenues due to increased activities.
Our Shallow Water Abandonment segment had a gross loss of $9.8 million for the three-month period ended March 31, 2024 as compared to a gross profit of $7.5 million for the same period in 2023, primarily reflecting lower segment revenues.
Our Production Facilities segment had a gross loss of $1.3 million for the three-month period ended March 31, 2024 as compared to a gross profit of $5.8 million for the same period in 2023, primarily reflecting well workover costs of approximately $8.6 million related to the Thunder Hawk wells during the first quarter 2024.
Change in Fair Value of Contingent Consideration. The change in fair value of contingent consideration in the first quarter 2023 reflected an improvement in Helix Alliance’s results during the first quarter. We entered into an agreement and set the final earn-out during the fourth quarter 2023, which was paid on April 3, 2024.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $21.0 million for the three-month period ended March 31, 2024 as compared to $19.6 million for the same period in 2023, primarily reflecting an increase in professional fees, third party services and office-related costs.
Net Interest Expense. Our net interest expense totaled $5.5 million for the three-month period ended March 31, 2024 as compared to $4.2 million for the same period in 2023, primarily reflecting interest expense on our 2029 Notes, offset in part by higher interest income on our invested cash reserves (Note 5).
Losses Related to Convertible Senior Notes. The $20.9 million loss for the three-month period ended March 31, 2024 was associated with the retirement of our 2026 Notes (Note 5).
Other Income (Expense), Net. Net other expense was $2.2 million for the three-month period ended March 31, 2024 as compared to net other income of $3.4 million for the same period in 2023, primarily reflecting foreign currency losses related to the depreciation of the British pound primarily on U.S. dollar denominated intercompany debt in our U.K. entities.
Income Tax Benefit. Income tax benefit was $1.7 million for the three-month period ended March 31, 2024 as compared to $2.0 million for the same period in 2023. The effective tax rates for the three-month periods ended March 31, 2024 and 2023 were 6.1% and 28.1%, respectively. The decrease in effective tax rates was primarily attributable to the non-deductibility of certain losses associated with the 2026 Notes Redemptions, which was characterized as a discrete event and reported in the current quarter (Note 6).
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LIQUIDITY AND CAPITAL RESOURCES
Financial Condition and Liquidity
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Net working capital | | $ | 257,728 | | $ | 249,223 |
Long-term debt (excluding current maturities) | |
| 309,199 | |
| 313,430 |
Liquidity | |
| 419,401 | |
| 431,471 |
Net Working Capital
Net working capital is equal to current assets minus current liabilities and includes cash and cash equivalents, current maturities of long-term debt and current operating lease liabilities. Net working capital measures short-term liquidity and is important for predicting cash flow and debt requirements. Net working capital at March 31, 2024 and December 31, 2023 includes $85.0 million of Alliance earn-out consideration that was paid in cash on April 3, 2024.
Long-Term Debt
Long-term debt in the table above includes our MARAD Debt, the 2023 Notes, the 2026 Notes and the 2029 Notes and excludes current maturities of $9.0 million at March 31, 2024 and $48.3 million at December 31, 2023, and is net of unamortized debt discount and debt issuance costs. See Note 5 for information relating to our long-term debt.
Liquidity
We define liquidity as cash and cash equivalents plus available capacity under our credit facility. Our liquidity at March 31, 2024 included $323.8 million of cash and cash equivalents and $95.6 million of available borrowing capacity under the Amended ABL Facility (Note 5). In March 2024, we settled the remaining $40.2 million aggregate principal amount of the 2026 Notes for $60.5 million in cash (excluding costs), offset in part by $4.4 million from the settlement of the remaining 2026 Capped Calls. Our liquidity at December 31, 2023 included $332.2 million of cash and cash equivalents and $99.3 million of available borrowing capacity under the Amended ABL Facility. In December 2023, we used $229.7 million of the cash proceeds from the 2029 Notes, as well as 1.5 million shares of our common stock, to repurchase $159.8 million aggregate principal amount of the 2026 Notes, offset in part by $15.6 million from the associated 2026 Capped Calls. On April 3, 2024, we paid $85.0 million of earn-out consideration in cash to the seller in the Alliance transaction.
In the current market environment, following the settlement of the Alliance earn-out we expect strong ongoing operating performance and cash flows, continued availability on the Amended ABL Facility and reductions in Net Debt (See “Results of Operations — Non-GAAP Financial Measures” for the definition of Net Debt). We believe that our cash on hand, internally generated cash flows and availability under the Amended ABL Facility will be sufficient to fund our operations and service our debt and other obligations over at least the next 12 months.
A period of weak industry activity may make it difficult to comply with the covenants and other restrictions in our debt agreements. Our failure to comply with the covenants and other restrictions could lead to an event of default. Decreases in our borrowing base may limit our ability to fully access the Amended ABL Facility. We currently do not anticipate borrowing under the Amended ABL Facility other than for the issuance of letters of credit.
During the three-month period ended March 31, 2024, we repurchased a total of 462,585 shares of our common stock for approximately $5.0 million pursuant to the 2023 Repurchase Program.
31
Cash Flows
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
| | Three Months Ended | ||||
| | March 31, | ||||
|
| 2024 |
| 2023 | ||
Cash provided by (used in): |
| |
|
| | |
Operating activities | | $ | 64,484 | | $ | (5,392) |
Investing activities | |
| (3,242) | |
| (6,300) |
Financing activities | |
| (69,304) | |
| (9,424) |
Operating Activities
The increase in our operating cash flows for the three-month period ended March 31, 2024 as compared to the same period in 2023 primarily reflects lower operating losses, higher working capital inflows and lower regulatory recertification costs for our vessels and systems. Regulatory recertification spend on our vessels and systems amounted to $9.6 million and $17.2 million, respectively, during the comparable year over year periods.
Investing Activities
Cash flows used in investing activities for the three-month periods ended March 31, 2024 and 2023 reflect lower capital expenditures during the first quarter 2024.
Financing Activities
Net cash outflows from financing activities for the three-month period ended March 31, 2024 primarily reflect cash outflows of $60.7 million related to the 2026 Notes, $4.2 million in repurchases of our common stock under the 2023 Repurchase Program and the principal repayment of $4.3 million related to the MARAD Debt, offset in part by $4.4 million from the proportionate settlement of the 2026 Capped Calls. Net cash outflows from financing activities for the three-month period ended March 31, 2023 primarily reflect $5.0 million in repurchases of our common stock under the 2023 Repurchase Program and the repayment of $4.1 million related to the MARAD Debt.
Material Cash Requirements
Our material cash requirements include our obligations to repay our long-term debt, satisfy other contractual cash commitments and fund other obligations.
Long-term debt and other contractual commitments
The following table summarizes (in thousands) the principal amount of our long-term debt and related debt service costs as well as other contractual commitments, which include commitments for property and equipment, operating lease obligations and Alliance earn-out consideration, as of March 31, 2024 and the portions of those amounts that are short-term (due in less than one year) and long-term (due in one year or greater) based on their stated maturities. Our property and equipment commitments include contractually committed amounts to purchase and service certain property and equipment (inclusive of commitments related to regulatory recertification and dry dock as discussed below) but do not include expected capital spending that is not contractually committed as of March 31, 2024.
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We acquired Helix Alliance in July 2022 for total consideration that included cash plus an earn-out to the extent Helix Alliance’s financial results exceeded certain thresholds in 2022 and 2023. During the fourth quarter 2023, we finalized the calculation and agreed with the seller in the Alliance transaction on an $85.0 million earn-out that was paid in cash on April 3, 2024. Accordingly, we reported $85.0 million of Alliance earn-out consideration in “Accrued liabilities” in the condensed consolidated balance sheets (Note 3).
|
| Total |
| Short-Term |
| Long-Term | |||
MARAD debt | | $ | 28,258 | | $ | 8,965 | | $ | 19,293 |
2029 Notes | |
| 300,000 | |
| — | |
| 300,000 |
Interest related to debt | |
| 147,722 | |
| 31,104 | |
| 116,618 |
Property and equipment | |
| 17,924 | |
| 17,924 | |
| — |
Operating leases (1) | |
| 1,005,264 | |
| 135,257 | |
| 870,007 |
Earn-out consideration | |
| 85,000 | |
| 85,000 | |
| — |
Total cash obligations | | $ | 1,584,168 | | $ | 278,250 | | $ | 1,305,918 |
| (1) | Operating leases include vessel charters and facility and equipment leases. At March 31, 2024, our commitment related to long-term vessel charters totaled approximately $990.9 million, of which $533.3 million was related to the non-lease (services) components that are not included in operating lease liabilities in the condensed consolidated balance sheet as of March 31, 2024. |
Other material cash requirements
Other material cash requirements include the following:
Decommissioning. We have decommissioning obligations associated with our oil and gas properties (Note 12). Those obligations, which are presented on a discounted basis on the condensed consolidated balance sheets, approximate $80.9 million (undiscounted) for Thunder Hawk Field oil and gas properties and $37.1 million (undiscounted) for Droshky oil and gas properties as of March 31, 2024, none of which is expected to be paid during the next 12 months. We are entitled to receive $30.0 million (undiscounted) from Marathon Oil as certain decommissioning obligations associated with Droshky oil and gas properties are fulfilled.
Regulatory recertification and dry dock. Our vessels and systems are subject to certain regulatory recertification requirements that must be satisfied in order for the vessels and systems to operate. Recertification may require dry dock and other compliance costs on a periodic basis, usually every 30 months. Although the amount and timing of these costs may vary and are dependent on the timing of the certification renewal period, they generally range between $0.2 million to $15.0 million per vessel and $0.5 million to $5.0 million per system.
We expect the sources of funds to satisfy our material cash requirements to primarily come from our ongoing operations and existing cash on hand, but may also come from availability under the Amended ABL Facility and access to capital markets.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our discussion and analysis of our financial condition and results of operations, as reflected in the condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates involve a significant level of estimation uncertainty and may change over time as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. For information regarding our critical accounting estimates, see our “Critical Accounting Estimates” as disclosed in our 2023 Form 10-K.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a multi-national organization, we are subject to market risks associated with foreign currency exchange rates, interest rates and commodity prices.
Foreign Currency Exchange Rate Risk. Because we operate in various regions around the world, we conduct a portion of our business in currencies other than the U.S. dollar. As such, our earnings are impacted by movements in foreign currency exchange rates when (i) transactions are denominated in currencies other than the functional currency of the relevant Helix entity or (ii) the functional currency of our subsidiaries is not the U.S. dollar. In order to mitigate the effects of exchange rate risk in areas outside the U.S., we endeavor to pay a portion of our expenses in local currencies to partially offset revenues that are denominated in the same local currencies. In addition, a substantial portion of our contracts are denominated, and provide for collections from our customers, in U.S. dollars.
Assets and liabilities of our subsidiaries that do not have the U.S. dollar as their functional currency are translated using the exchange rates in effect at the balance sheet date, and changes in the exchange rates can result in translation adjustments that are reflected in “Accumulated other comprehensive loss” in the shareholders’ equity section of our condensed consolidated balance sheets. For the three-month period ended March 31, 2024, we recorded foreign currency translation losses of $6.7 million to accumulated other comprehensive loss. Deferred taxes have not been provided on foreign currency translation adjustments as any outside stock basis differences would be realized in a tax-free manner.
When currencies other than the functional currency are to be paid or received, the resulting transaction gain or loss associated with changes in the applicable foreign currency exchange rate is recognized in the condensed consolidated statements of operations as a component of “Other income (expense), net.” Foreign currency gains or losses from the remeasurement of monetary assets and liabilities as well as unsettled foreign currency transactions, including intercompany transactions that are not of a long-term investment nature, are also recognized as a component of “Other income (expense), net.” For the three-month period ended March 31, 2024, we recorded net foreign currency losses of $2.2 million, primarily reflecting foreign currency losses related to U.S. dollar denominated intercompany debt in our U.K. entities.
Interest Rate Risk. In order to minimize the risk of changes to our cash flow due to changing interest rates, we generally borrow at fixed rates, but may borrow at variable rates from time to time. For fixed rate debt, changes in interest rates may not affect our interest expense, but could result in changes in the fair value of the debt instrument prior to maturity and we may be at risk upon refinancing maturing debt. For variable rate debt, changes in interest rates could affect our future interest expense and cash flows. We currently have no amounts outstanding under our ABL Facility or other debt subject to floating rates.
Commodity Price Risk. We are exposed to market price risks related to oil and natural gas with respect to offshore oil and gas production in our Production Facilities business. Prices are volatile and unpredictable and are dependent on many factors beyond our control. See Item 1A. Risk Factors in our 2023 Form 10-K for a list of factors affecting oil and gas prices.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of March 31, 2024. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024 to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (ii) accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the three-month period ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings
See Part I, Item 1, Note 13 — Commitments and Contingencies and Other Matters to the Condensed Consolidated Financial Statements, which is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes during the period ended March 31, 2024 in our “Risk Factors” as discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
| | | | | | | (c) | | (d) | |
| | | | | | | Total number | | Approximate dollar | |
| | | | | | | of shares | | value of shares | |
| | (a) | | (b) | | purchased as | | that may yet be | ||
| | Total number | | Average | | part of publicly | | purchased under the | ||
| | of shares | | price paid | | announced plans | | plans or programs (3) | ||
Period |
| purchased (1) |
| per share |
| or programs (2) |
| (in thousands) | ||
January 1 to January 31, 2024 |
| 68,074 | | $ | 10.04 |
| — |
| $ | 188,012 |
February 1 to February 29, 2024 |
| — | |
| — |
| — |
| | 188,012 |
March 1 to March 31, 2024 |
| 784,789 | |
| 10.63 |
| 462,585 |
| | 182,980 |
|
| 852,863 | | $ | 10.58 |
| 462,585 | | | |
| (1) | Includes shares repurchased in open-market transactions pursuant to the 2023 Repurchase Program and shares forfeited in satisfaction of tax obligations upon vesting of share-based awards under our existing long-term incentive plans. |
| (2) | Represents shares repurchased under the 2023 Repurchase Program. |
| (3) | See Note 7 to this Quarterly Report on Form 10-Q and Note 10 to our 2023 Annual Report on Form 10-K for additional information regarding our share repurchase programs. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(c) During the
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Item 6. Exhibits
Exhibit Number |
| Description |
| Filed or Furnished Herewith or Incorporated by Reference from the Following Documents (Registration or File Number) |
3.1 | | | Exhibit 3.1 to the Current Report on Form 8-K filed on March 1, 2006 (000-22739) | |
3.2 | | Second Amended and Restated By-Laws of Helix Energy Solutions Group, Inc., as amended. | | Exhibit 3.1 to the Current Report on Form 8-K filed on September 28, 2006 (001-32936) |
31.1 | | | Filed herewith | |
31.2 | | | Filed herewith | |
32.1 | | | Furnished herewith | |
101.INS | | XBRL Instance Document. | | The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | | Filed herewith |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | HELIX ENERGY SOLUTIONS GROUP, INC. |
| | | (Registrant) |
| | | |
Date: April 26, 2024 | | By: | /s/ Owen Kratz |
| | | Owen Kratz |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: April 26, 2024 | | By: | /s/ Erik Staffeldt |
| | | Erik Staffeldt |
| | | Executive Vice President and |
| | | Chief Financial Officer |
| | | (Principal Financial Officer) |
37
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Owen Kratz, the President and Chief Executive Officer of Helix Energy Solutions Group, Inc., certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Helix Energy Solutions Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 26, 2024
| /s/ Owen Kratz |
| Owen Kratz |
| President and Chief Executive Officer |
EXHBIT 31.2
SECTION 302 CERTIFICATION
I, Erik Staffeldt, the Executive Vice President and Chief Financial Officer of Helix Energy Solutions Group, Inc., certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Helix Energy Solutions Group, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 26, 2024
| /s/ Erik Staffeldt |
| Erik Staffeldt |
| Executive Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350
(As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report of Helix Energy Solutions Group, Inc. (“Helix”) on Form 10-Q for the quarterly period ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Owen Kratz, as President and Chief Executive Officer, and Erik Staffeldt, as Executive Vice President and Chief Financial Officer, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Helix. |
Date: April 26, 2024
| /s/ Owen Kratz |
| Owen Kratz |
| President and Chief Executive Officer |
Date: April 26, 2024
| /s/ Erik Staffeldt |
| Erik Staffeldt |
| Executive Vice President and Chief Financial Officer |