Greetings and welcome to the First Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, April 23, 2020. I would now like to turn the conference over to Erik Staffeldt, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Good morning, everyone. And thanks for joining us today on our conference call for our first quarter 2020 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO; Scotty Sparks, our COO; Ken Neikirk, our General Counsel; and myself. Hopefully, you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through our Investors page on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today's webcast icon. Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward-looking information. Ken?

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call, or in the associated presentation, other than statements of historical facts, are forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in Slide 2 and our most recently filed annual report on Form 10-K and in our other filings with the SEC. Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available under the For the Investors section of our website at www.helixesg.com. Owen?

Thanks. Good morning. I hope everyone out there and their families are doing well and staying safe. This morning we'll review our Q1 performance, our operations in this challenging environment and provide our near-term outlook. Moving to presentation Slides 5 through 8, which provide a high level summary of our results. The first quarter historically has been a financially weaker quarter for us with the seasonal slowdown of activity in the North Sea. In an effort to maximize our earnings for this year, we made the decision to front load Q1 with five vessel dry dock recertification projects negatively impacting our results with a minimum of 73 days of lost availability. In addition, we commenced operations on the Q7000 in West Africa, a new vessel operating in a new region, excuse me. Revenues in Q1 were reported at $181 million with a net loss of $12 million and EBITDA of $19 million. The increase in revenues from Q4 was driven by the addition of the Q7000 to our fleet working in West Africa, partially offset by reduced revenues and utilization in the well intervention Gulf of Mexico and UK regions. The addition of the Q7000 on an integrated project increased our cost basis combined with lower revenues in the UK and Gulf of Mexico. This reduced our gross profit to $2 million. We had several discrete items that impacted our results, including a $6.7 million charge for goodwill write-off and a $14.1 million tax benefit related to the CARES Act and other tax restructuring efforts. Our results in the first quarter were better than anticipated. The start up operations on the Q7000 were outstanding with a little downtime on the vessel and the execution of our business units was exceptional. Robotics and production facilities continued to deliver. However, this has been a complete – this has been completely overshadowed by recent market events. The impact of COVID-19 on the oil market is unprecedented. While the impact has been relatively minimal to our first quarter results, the impact of COVID-19 that it'll have on the remainder of 2020 and beyond will be significant. The instability and unpredictability of our current markets resulted and that's withdrawing our guidance for 2020. While we're not yet in a position to provide guidance at this point with this call and associated presentation, we will lay out the key data points as we see them that are currently influencing our business. Onto Slide 8, returning to our presentation. From a balance sheet perspective, our cash balance at the end of the quarter was $159 million with an additional $52 million in restricted cash associated with the short-term LC. As expected, our cash flows were negatively impacted by the heavy load of vessel recertification costs during the quarter. Our net debt at the end of the quarter increased to $183 million. I'll now turn the call over to Scotty for an in depth discussion about operating results.

Thanks, Owen and good morning everyone. Moving onto Slide 10. These are certainly different and challenging times. However, we have risen to the occasion, and the first quarter was better-than-expected in the periods considering the effects of the virus globally was slow with the seasonal period, and we completed planned regulatory certification and other maintenance on five of our seven of our Well Intervention vessels. The viruses caused numerous logistical challenges. However, we have managed to keep the fleet active, currently working in six countries on four continents and currently operational on 12 vessels. Five Well Intervention vessels, six ROV support vessels and the HP1 with strong operational performance regarding safety and uptime. In February, in swift response to the virus, we introduced strict measures and set protocols on all our vessels. Our offshore crews alliance partners and suppliers have been fantastic and rose to the challenge. Offshore personnel site isolated for 14 days, complete health documents before travel and the screen prior to joining the vessels. In the UK, the U.S. and Brazil, we have recently been able to test personnel for the virus prior to allowing access to the vessels, although test kits can still be hard to come by. Once onboard the vessel, life is now somewhat different than before, common areas such as gyms, lounges and cinemas are currently closed. Face covering are always worn when not in cabins. Social spacing and PPEs are adhered to. Mealtimes are restricted in number attending and should allow social distancing and no buffet services are available. Our teams have undertaken to extend the length of shift patterns to reduce travel. And if at any time, any person shows any symptoms related to the virus, they immediately quarantine and remove from the vessel. We also have deep cleaning crews on…

Thanks, Scotty. Slide 18 outlines our debt instruments and their principal maturity profile. During the first quarter, we extended the maturity of our Q5000 loan until January of 2021. The extension was completed to align with debt maturity with our expected cash flow generation in the second half of 2020. Moving to Slide 19. This slide provides an update on key balance sheet metrics, including long-term debt and net debt levels as of the first quarter. Our net debt in Q1 increased to $183 million from $143 million in Q4. The increase in net debt during Q1 was driven by the incurred recertification cost of our fleet approximately $18 million and capital expenditures during the quarter, approximately $12 million. We reduced our long-term debt by $13 million. Our cash position at the end of Q1 was $159 million, excluding $52 million of restricted cash. Our quarter end net-debt-to-book capitalization was 10%. Moving to Slide 21 for our discussion on our 2020 outlook. Our industry, our market is an unprecedented territory. In late March, we withdrew our guidance for 2020 with a clear expectation of being cash flow positive in 2020. The lack of stability that led to that decision to withdraw guidance remains today even to a greater extent. Our expectations have not changed, although we will not provide guidance today as we had hoped. Therefore, we were focusing on providing the details of our businesses we know them today that serve as our foundation to our current expectations. Our contracted backlog for the balance of 2020 is approximately $400 million. Although subject to change, we expect the majority if not all of this contracted work to be completed in 2020. Providing more color by segment and region. First with our Well Intervention segment, the UK, North Sea, we expect…

Thanks, Erik. Well, first I’d like to applaud and thank all Helix personnel that may be listening in. As the virus continued to spread globally, our initial focus was on safely maintaining operability. We established protocols and evolved to utilization of testing to keep 13 vessels in six countries on four continents operable. We’ve avoided infections on most of our vessels and have caught and contained outbreaks on two vessels without a loss of any meaningful productive time. Our operations teams have done an outstanding job. Our offshore personnel have demonstrated flexibility, patient and resolve to keep operations up. Our office personnel have adopted to be very efficient working from home and our IT department has enabled us to make what seems to be a seamless transition. So my thanks to everyone involved. We have previously – we have purposely planned greater than historic levels of maintenance periods on our vessels during this past quarter. So from the outset, our expectations were for a slow quarter. In spite of this and everything that transpired in such a short period, our people have produced a quarter that exceeded our expectations. Having said that, I realize that there are three issues that investors are primarily interested in: outlook, cash flow and debt. Our fireside chat a few weeks ago, we said that we expected to be free cash flow positive in 2020 and 2021 and that we would give more detail at our earnings call. Given the changing environment, we continue to speak with our clients, continue reviewing our contract provisions and continued stress testing of our financial models, all of which have reinforced our previous assumptions. And let me just say, we are not really focused on trying to zero in exactly on what we think our guidance could be this…

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

[Operator Instructions] And our first question comes from the line of Ian McPherson [Piper Sandler & Co.]. Please proceed with your question.

Good morning, Owen, and Scott, thank you for the line of commentary. I think coming into the year, Scott, you had mentioned that we would – you were expecting to have. I think you said 60% of your activity oriented towards intervention, might be a little bit more than that. I don’t know if that’s changed much. I hear you owe in that you expect P&A obligations to be deferred in this environment. But my question is, is there a window of opportunity now to transact for assets in this oil price environment and whether you did with Marathon on rusky? Or is the commodity price to unaccommodate this to continue that part of the business strategy right now?

I think that remains to be seen, Ian. Prior to Monday, we were actually getting calls of interest. So if you had asked me on Friday, I would have said it’s becoming very interesting, the possibilities there. On Monday, of course, everything blew up and everything went on pause and we’re probably in a period right now of everyone just sort of trying to see where everything settles. But yes, when commodity prices drop to a point where the expected liabilities of abandonment are high and we have a lower cost of abandonment that creates an arbitrage there for us to realize value. So I think we are entering a period where we’ll be very open to taking calls and talking with producers about what’s possible.

Yes. I mean, it just strikes me that the opportunity to show up utilization is one of the biggest levers you have right now in terms of preserving an EBITDA for. And I think, my follow-up question would be, if you – maybe you could just update us on what your flexibility on vessel cost is as you have to tap dance between ready, active vessels and warm stacks or if you go, maybe a little bit cooler than warm. What is the range of variability on variable costs as you pivot or think about longer-term states of readiness, maybe on a per vessel basis would be the easiest for us to digest.

I’ll take that one in. So currently, our plan is that where we warm stacking the Q7000 lukewarm stack in the Seawall until work comes back. We’re in discussions with clients for both of those vessels to have work later in the year. That – we have to wait and see if that comes together. But the range of stack costs from warm to sort of cold is anything from the low 20s down to about 4,000 a day.

Okay.

Far less than our usual operating costs.

Ian, I’ll just add, our sensitivity is sort of based on the possibility of stacking three vessels. Now whether or not they remain in stack or they come out for work is yet to be determined. So, for instance, to see while we’re starting off with a warm stack here because we are talking with producers about work further on this year, although we’re not considering that work would just be considered upside to our current expectations. So we’ll remain in cold stack. And if the work falls away, then it would revert to cold stack. So it’s not possible for us to give you a number of days on specific vessels as to what will happen until the market unfolds a little more.

Understood, thanks Owen. But the three vessels that you’re looking at would be the Seawall and the 7000? And what’s the third one?

Possibly the Q4000, but that’s very uncertain at this point because the Gulf of Mexico, we sort of see the Gulf of Mexico remaining a little more active.

Just – I’ll add to that as well, we’re in discussions with clients. The Q4000 and has worked into August. We’re in discussions with four clients who work after that. In the North Sea, we’re in discussions to – for other works for the two vessels this morning alone, we were awarded a 30-day project for one of the vessels that has further add-on work to the robotics company as well. So it’s not like the Markets Day. We’re in discussions for all these vessels. We’re just taking a look at it.

Good. Thank you guys for the answers, I appreciate it.

Our next question comes from the line of Mike Sabella [Bank of America Merrill Lynch]. Please proceed with your question.

Good morning, everybody. Just kind of hoping we could talk for – you touched a little bit on capital allocation. We can all look out there at the price of your debt today. Could you just walk us through sort of the options you have with respect to may be thinking about bringing some of that in early? Is there any limitations that you have in your credit facility that would stop me from doing so.

We don't have any limitations under the credit facilities I'm aware of, Erik? Well, let me tell you our CapEx for this year, we have lowered from $50 million down to…

$38 million.

$38 million. Most of that was already spent in the first quarter because of the high maintenance period. So we have a relatively small tranche left for the rest of this year. Next year, our expectations are that it's going to be somewhere between $15 million and $20 million. So you'll see another reduction in CapEx at that point. And so we are reducing – we have reduced the CapEx expectations, and I'm not understanding the move forward. We do have some flexibility on moving dry docks around, which would affect CapEx, but we only have one maintenance period for next year that I'm aware of.

And then specifically around potentially bringing some of the debt in early?

Okay from that standpoint, like we currently have here within – like Owen mentioned at $33 million is still scheduled to pay off this year, $91 million scheduled for next year. So we are being aggressive on paying that down. I think other than that, I do think that there are certain requirements within our credit facility as far as maintaining liquidity and things of that nature. If we were going to try to accelerate any of the debt that's out there in 2022 or 2023. So there I think there would be certain requirements we would have to meet.

I'm sorry. I thought you were talking about CapEx, not capital allocation, Mike, my apologies.

Yes. No worries. I probably asked the question poorly. And then if we just go and start thinking about the Robotics segment, I mean, are we positive? Are you confident that we can maintain positive EBITDA in the segment through the cycle? And as we kind of think about fixed cost in this business, how should we be thinking about EBITDA on the segment level?

So Robotics, like we said, we're expecting quite a solid year. I think there's a lot of moving parts with the robotics side of the business, but we've expanded our offerings in the renewables side. The trenching season looks pretty good in the North Sea. The GC II is on higher level here in APAC. We've picked up some other spot work, like we said, the MV Pride is currently working in Australia. So we should expect that our EBITDA is somewhat in line with next year, but it's also down to some of the cost reductions in line with last year, sorry, down to some of the cost reductions we've had in – up in our renewable services.

I think also remember in previous earnings, we mentioned that this year was expected to be an off year for trenching for us with a recovery in 2021.

That’s perfect. Thanks guys.

[Operator Instructions] And our next question comes from the line of Michael Massey. Please proceed with your question.

Hello. Yes. My question is in regards to gross margin. I noticed for Q1, it was 1.1%, but historically, we have a 14.5% gross margin. I just want to know if you guys could speak to why the margin was reduced so much in this first quarter.

Yes. I think if you look at our historical performance, if you go back five years, our gross margin fluctuates by quarter. Usually, the first and fourth quarter, which are the quarters that we have challenged utilization, our margins are lower. And I think that was the case here in the first quarter. We – the vessels, the Q4000 and Q5000, which worked in the fourth quarter had, I think, about 70-plus days of idle time as they did their dry dock recertification costs. So I know asset utilization definitely hurts us in that – in those standpoints. And that with the addition of the Q7000 to our cost basis, really drove our gross margin down in the first quarter.

All right. Great. Thanks.

Our next question comes from the line of Sri Nason. Please proceed with your question.

Hi. Quick question, can you clarify the $52 million of cash that's in restricted cash? And when do those restrictions come off and what conditions?

So that was restricted cash that we had to put in place for an LC related to our work in West Africa on the Q7000. That work is completed and the vessel has left the region. So we expect that LC to be released here in the near term.

Thank you.

And there are no further questions at this time. I'll turn the call back to you for your closing remarks.

Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our second quarter 2020 call in July. Thank you.

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