Greetings and welcome to the Helix Energy Solutions Second Quarter 2020 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. [Operator Instructions] And as a reminder, this conference is being recorded, Thursday, July 23, 2020. I would now like to turn it over to Mr. Erik Staffeldt, Executive Vice President and CFO. Please go ahead.

Good morning, everyone. And thanks for joining us today on our conference call for our second 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 Web site 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. And 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 Web site at www.helixesg.com. Owen?

Good morning everyone. We hope everyone out there and their families are doing well and staying safe. This morning we'll review our Q2 performance our operations in this challenging environment and provide our outlook for the coming quarters. Moving to the presentation, Slide 5 to 7 provides a high level summary of our results. Our results in the second quarter reflected the expected improvement from the seasonal increase in activity levels. Our revenues and EBITDA increases were benefited from increased utilization in the Gulf of Mexico well intervention segment and the seasonal increase in activity in the North Sea. The benefits are well intervention and robotic segments. As for robotics, increased renewables activity from trenching and the continued site clearance project, where the catalysts for quarterly improvements in that segment. Revenues in Q2 were reported 199 million with a net income of 5 million and EBITDA of 48 million. Our gross profit increased to 30 million from 2 million the previous quarter. Our quarter was negatively impacted by the depressed OFS market largely resulting from COVID-19. We warm stacked the Seawall and the Q7000 significantly reducing their costs. In addition, we've incurred incremental costs for additional logistics and safety requirements to continue operations in this environment. This depressed market and operational challenges will continue until the pandemic is behind us but our team is addressing them head on. For a year-to-date results, our revenues were 380 million, with a net loss of 6 million compared to 369 million of revenues and net income of 18 million in 2019. We generated EBITDA of 67 million in the first half of 2020, compared to 81 million in the first half of 2019. On to Slide 8, from a balance sheet perspective, our cash balance at the end of the quarter was 178 million with an additional 42 million in temporarily restricted cash associated with short-term LC. We generated 23 million of operating cash flow and spent 5 million on CapEx, our net debt at the end of the quarter decreased by 17 million to 166 million. I'll now turn the call over to Scotty for an in depth discussion of our operating results.

Thanks, Owen, and good morning, everyone. Moving on to Slide 10. We continue to operate in a different and challenging environment, teams and partners both offshore and onshore continue to respond well to the logistical challenges presented to us by COVID-19. In the second quarter, we had 15 vessels working and so they currently have 12 vessels on hire, four vessels have corrective control measures in place designed to keep our vessels operating, including pre-testing globally all offshore staff prior to joining our vessels. We acquired what we feel is a sufficient surplus of PPE for our offshore teams. Instruction that all wear mask at all times on the vessels and enhanced regular decree and is continuously undertaken. The second quarter was one of our best simulations of safety statistics and operational uptime performance. Our fleet operated at 99% uptime efficiency, extremely pleased to know that our staff can produce such solid operational performance in these testing times. And I'm grateful and proud of them. We have in response to reduced intervention activity in the North Sea in West Africa warm-stacked two vessels we've considerably reduced operating costs of those vessels. Further, we're undertaking targeted cost cutting measures across all businesses and reduced SG&A spending. Over to Slide 11. In the second quarter, we increased our results with revenues of 199 million, resulting in a gross profit margin of 15%, producing a profit of 30 million compared to 181 million revenue and 2 million gross profits in the first quarter. Considering the effects of the virus causing warm-stacking of the two vessels, we attainted reasonably strong levels of utilization. The Well Intervention fleet achieved utilization of 72% globally and the Robotics charter fleet achieved utilization of 95% globally. In the Gulf of Mexico at the start of the quarter, the…

Thanks, Scotty. Moving to Slide 18, it outlines our debt instruments and their principal maturity profile. I'll leave this for your reference and move to Slide 19. This Slide provides an update on key balance sheet metrics including long-term debt and net debt levels [Technical Difficulty]. Our net debt in Q2 decreased to 166 million from 183 million in Q1. The decrease in net debt during Q2 was driven by 23 million of operating cash flow, 5 million of CapEx during the quarter. We reduced our long-term debt by 10 million. Our cash position at the end of Q2 was 178 million, excluding 42 million of restricted cash. Our quarter end net debt to book capitalization was 9%. Moving to Slide 21, for a discussion on our 2020 outlook, our industry continues to be challenged by COVID-19 and operations and logistics continued to be significantly impacted. As you may recall in late March, we withdrew our guidance for 2020 with a clear expectation of being cash flow positive in 2020. The uncertainty that led to that decision to withdraw guidance remains today, but we now have been operating in this environment for almost five months. We believe we have a better understanding and appreciation for operating in this time, the market and customer environment along with operational challenges. So at this time, we feel we have some sufficient visibility to issue, revise 2020 guidance, in a good faith attempt to provide investors information that is appropriately caveated as best we can against the backdrop of the current environment. We're setting our revised guidance for 2020 as follows with revenues in the range of 655 million to 740 million, EBITDA in a range of 115 million to 145 million and free cash flow of 40 million to 80 million. The range…

Thanks, Eric. It's been and continues to be a wildly vacillating year of circumstance like no other year. Utilization on our assets is down across the board as could be expected, but not down as much as we have anticipated, where we were actually surprised by new projects approved and awarded that were not foreseen. Rates declined as expected. The surprise for us was that the pressure on rates did not stem from competitors and drill rigs, but rather from the commercial assessment as to what costs the projects could carry in this uncertain commodity price environment. Of course, they're the usual effects of supply chain putting pressure on rates just because they could as well. Our rates probably declined more than we had anticipated as we perhaps overreacted to concerns about utilization. But that just means that there may be a chance that they'll recover with commodity pricing a little quicker should the competitive situation remain as rational as it currently is. The protocols and responses to COVID-19 certainly added cost to operating for those aren't as high as one might expect as we've been able to offset that, with reductions in crude change costs and logistics. Early on in March, we implemented protocols that have proven fairly effective. We've always taken the safety of our personnel very seriously. In fact, we've been told several producers have surely adopted our protocols for their entire contracted fleet. We've had a couple of work suspensions while we address contaminations, but we had no zero revenue days due to the Coronavirus. Production from our Droshky field was halted in late April because the host platform that accepts our production was shut down. While we don't require the profitability of the production to support the economics of the Droshky deal, the added profitability…

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

[Operator Instructions] And our first question is from the line of Ian MacPherson. Please go ahead.

Great to see that despite the chaos that the year is shaping up a little bit better than we might have feared recently. So thank you for that outlook. And, of course, understand that there's prevalent uncertainty still, but I was wondering if you could talk a little bit about the bookends of the guidance range. It doesn't sound like there's a lot in-store with regard to your expectations for the Seawall, which I assume remains warm-stacked and throughout your scenarios and the Q7000 work more likely late in the year or next year. So is the guidance sensitivity more around the second half or mainly the fourth quarter filling up for Q4000 and Well Enhancer? Or are there other factors that we should consider as well?

No. I think that's the right way to think about it Ian. And I think we're fairly clear on the expectations for the Seawall. The Q7000 is a bit of unknown but as we expect that the opportunities there will be towards the end of the year or early next year. You could say the variables will be, of course, filling in some of the work on the spot vessels. And, of course, any additional curveballs that our COVID-19 environment can throw us.

Just might add, I think Erik said it in his narrative that the guidance is based on our visibility of contracted work. I think we'd strongly guide towards middle of the range, the upside of the range is based on potential work that we see, but there's uncertainty as to whether or not it gets contracted or moved into 2021. And then the downside of the range is based on basically unforeseeable events. We haven't suffered any zero revenue days from COVID-19. But that doesn't mean there won't be any so we put a cushion in.

Understood. Thank you both. I know there's still again, plenty of uncertainty and instability in the market overall. But I know that the priority will be to renew the long-term backlog on the Q5000 starting next year as well as extensions in Brazil. Has the world settled down enough that you've been able to resume those negotiations or is that still on the shelf for the time being?

I'll start let Scotty comment further on this. I don't think that our outlook on our contract renewals has changed that much. Both clients are very happy with the vessels. They've been commercial success for all parties. We haven't seen any indications that there won't be a renewal going forward. But having said that, I think the uncertainties of next year you can deal with the operating groups but then they take their mandates from the corporate and until the corporate groups decide on what their budgets and their perspective of 2021 is going to be, it's just too early to say what kind of rate might be achieved or what kind of duration.

I agree with that Ian. Translating is that we've had a very good start for the BP campaign this year, and they're very happy with the vessel. And we're still currently ranked number one in Brazil. So Petrobras is very happy with both vessels. They have a lot of work scheduled in there and the vessels are very efficient for them down there. So we keep doing a good job for these clients. And hopefully that will lead to some discussions later in the year.

The next question is from line of George O'Leary. Please go ahead.

The Robotics business certainly had an impressive quarter, wondered if you could provide some color around the salvage project in particular and how much that benefited results. Was there anything in there that materially helped the profitability of the business and just kind of any incremental color on the nature of that work would be helpful given the magnitude of the beat, at least versus our expectations?

So I'll take that one. The salvage projects in Australia was a very interesting job, it was actually recovering containers that were washed overboard in a storm from a container vessel, it lasted approximately 80 days. So you have to take that as a one off, we have about every few years, we get the odd salvage job. And but it was a spot vessel. So it was normal sort of oil and gas type margins on that one. And most of the uptick really for the Robotic side is coming from renewables and changing our product service and geographic expansion into renewables. We've had three vessels work on this site clearance projects, that's continuing and we expect that to continue into the fourth quarter. We've expanded renewables offerings into Taiwan. And we currently have a trencher on their client provided vessels on the East Coast of the USA. So, the renewable side of the business is helping prop up against the downside of less ROV days for on the oil and gas side of the market.

Just want to add to Scotty, the renewal, the ROV business is really transforming itself. Something like 40 plus percent of our revenues in the robotics is now derived from the renewables market. And we see that growing.

Yes. We continue to lock our backlog on the renewables trenching side. We have work contracts now to 2024 renewables trenching. And we haven't seen any erosion and rates on the renewable side of the trenching.

So that's very helpful color that actually answers the next question I was going to ask. So move on to a different topic. Owen you mentioned competitive situation has been more rational than you might have anticipated. Wondered if you could provide a little more color there and just talk about the competitive landscape more broadly, and maybe anything that you think might be driving that more rational behavior.

Well, our main competition there, we really don't have that many direct competitors in what we do. We're the only ones that provide heavy intervention of vessels, the others in the market or light intervention vessels on from the direct competitors. Most of our competition comes from the drill rigs. Of course, that's why we went into this business, was all for a better option to drill rigs for this kind of work. In the last downturn, that was the anomaly. Typically in a downturn, rig operators will stack and then cut up rigs in the last downturn. What we saw was with tremendous crashing of the rates in order to try and hold on to market share and keep assets active. This time around, though, we're seeing sort of a return to the historic rationale, when the rigs are finished with their work and don't have contracting opportunities. It looks like they're being stacked rather than just working for sub cash operationally. That's been beneficial. But then, like I said in my comments, it still hasn't avoided the -- we're probably pricing a little more aggressively than what we need to from looking at the rig market. But we have been conscious about trying to provide impetus for the producers to make decisions to go ahead with work for this year by pricing at a level that makes their projects extremely attractive commercially.

The next question is from line of Mike Sabella. Please go ahead.

I was kind of wondering if you could dive in a little bit on the cost side of Robotics. You all manages big ramp and revenues quarter-over-quarter with relatively small increase in comparable costs. I know there's been some kind of chunky one time costs that have rolled off. Can you talk about how if that impacted the cost side of the business at all kind of quarter-over-quarter?

Yes. So I'll start that Mike. And then, Scotty can fill in. I think from the Robotic side, we did have some additional cost flow through the first quarter associated with the hedges that we had on the Grand Canyon III and those rolled off. So I think our overall, fixed cost was reduced. I think what you see also in the quarter-over-quarter, the improved utilization on our chartered vessel fleet, especially the long-term charters, that goes a long way, the cost is always there, when we're able to increase utilization on that does a significant driver of improvements that we see quarter-to-quarter.

And year-over-year, we've dropped off long-term charters and now maybe more to spot scenario. You can see we had seven vessels working for the Robotic side. And those vessels are far cheaper than the longer term charters that we had.

Yes. That's great. Thanks, guys. And then just one follow-up, we think of wells that were shut in that are now being brought back on production, is there is there work for Helix, does those create revenue opportunities or it's just more kind of getting back to a normal operating environment?

I'll take that one. I think it could lead to work. Obviously, it depends on the status of the well as it comes back on, if the wells have been left for a long time, they have the potential to wax up. And that could lead to an intervention; you have the potential for failure inside the world of some of the mechanical components. So as these wells that have been shutting come back online, there is the potential for more work. We've got a lot of discussions in all regions for work next year. Like Owen said earlier, a lot of the work has been deferred for next year, but there's a lot of talk of new work next year and talk of decommissioning activities as well because these wells have been shut in so long. That being said, that works not contracts as of yet but there's a lot of healthy discussions going on for next year.

The next question is from line of James Schumm. Please go ahead.

I just wanted to go back to the prior commentary on well intervention pricing. And can you sort of talk a little bit about how vessel pricing behaved in the second quarter relative to the first quarter? And then what do you expect the percentage change would be roughly in the third quarter? Just trying to get a sense of how that's moving around.

But I'll just start off by saying that would take us a little while to dig in and try and find out. We haven't really looked at that. Just off the top of my head. My gut feel is that, first quarter was heavily impacted. Let me preface it all by saying, first of all, that utilization drives our margin a lot more than day rate does. In the first quarter, utilization was weighed down primarily because we put a lot of vessel maintenance periods into the first quarter. So to compare them, quarter-by-quarter rate wise is very difficult for us to do. I think in the second quarter, we had a few projects that were probably at legacy rates. But then we started to fill in utilization by giving perhaps lower than market required rates. So on a blended basis going forward; I think for the rest of this year, we'll probably continue to price aggressively in order to fill utilization because that drives our margin more than the rate does. But then for next year, I sort of see an opportunity to rationalize the rates a little bit based on what we've seen this year. I know that doesn't give you a percentage. It's just I think we'd have to get back to you on that.

Okay. I totally understand. And then on Robotics, you had total vessel days that were close to 500 in the second quarter. I'm assuming zero contribution from the Ross Candies; I get something close to 400 days of utilization in the third quarter based on your 2020 outlook. Does that sound reasonable or am I missing something? And then, what's the normal likelihood of picking up additional Q3 work given that we're near the end of July?

I'll take that one. We do have planned work for the Ross Candies in Q3. We have some contracts at work for it already. But the Ross Candies contract now will be as a pay as you go type contract. We've also mentioned that we plan to take a spot vessel in the North Sea for 60 days. I think days over days, they are going to be somewhat similar to Q2. We are expecting the [indiscernible] project to continue into Q3. The Grand Canyon II will be on fire for the whole Q. And the Grand Canyon III will be on fire the whole time. So that's going to be very similar.

[Operator Instructions] The next question is from the line of Craig Gilbert [ph]. Please go ahead.

I just had a few on the cash flow forecast. Can you can you let me know if the CARES Act recovery of 16 million to 20 million is captured within that forecast of 40 million to 80 million?

I would say on the higher end a portion of it is, I think we've disclosed that we expect that in the next six to 12 months. So there is variability, I think on the higher end of our frequent flow range would assume certain amount of recovery there. But it's really; I think it's something that we expect the timings just a little bit uncertain.

Okay. That makes sense. And then, just taking it down from EBITDA less CapEx, I would have gotten a little bit higher free cash flow. Is there anything going on with working capital? Is there a usage? That's, I guess, depressing free cash flow, because I would have thought at the midpoint EBITDA of about 130 million less to 38 million. And then, interest is fairly small, and the EBITDA is net of that 20 million mobilization cost, so I would have thought it was a little bit higher? Is there anything play there that, that I might be missing?

No. First of all, I think there's no specific you can say build up in uses of working capital. I think that what we have layered into our models and our estimates is obviously a conservative outlook on working capital based on the current environment. And I think our assumption here is that there could be some extension there as far as collections, but there is nothing that is specifically targeted in our assumptions other than conservatism.

Okay. Okay. And then just the last question is, renewables within Robotics seem to do very well. And I recall that the expectation was 2021 was going to be a better year on that front in 2020. Was there anything that was pulled forward? Or is it still -- is that previous expectations still hold that 2021 should be even better?

We do have more trenching works in 2021. Yes. But be mindful that a lot of the renewables work this year is coming from the site clearance project. And we don't have one of those book next year, when discussion is a product line that we will be offering now. It's been very successful, the client is very happy. So we're in discussions with others and we will be bidding more of that type of work, but the trenching side is very good.

The next question is a follow up from James Schumm. Please go ahead.

I think in the prepared remarks, you guys mentioned some additional costs for COVID-19 and stacking. And just wanted to know if there might be a 3Q benefit from the absence of these costs, and if so, can you quantify it?

I think in general Jim, we have incurred additional costs in the COVID environment and I think we expect that to continue for the time being and it's included in our forecast. Also, I think we we've disclosed roughly, the cost of stacking the vessels, the Seawall, I think it's been 20,000 a day and Q7 in the mid 20,000 a day cost those I think our assumptions would continue going forward.

Right. Okay. I just didn't know if there was any, like one-time mobilization costs into the stacking period or something that would not recur in the third quarter, but it sounds like not really meaningful.

Not really. No.

There are no other questions in the queue. Would you like to reprompt or go to closing remarks?

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

That does conclude the conference call for today. We thank you for your participation and you can now disconnect your lines.