Valaris Limited Q3 FY2024 earnings call

• Delivered excellent operating performance and financial results, generating $111 million of free cash flow in the third quarter.
• Maintained conviction in the strength and duration of the offshore drilling upcycle, with a robust pipeline of future opportunities in 2026 and beyond.
• Achieved fleet-wide revenue efficiency of 98% for the third consecutive quarter, with the VALARIS DS-7 rig achieving 100% revenue efficiency in Q3.
• Recognized for safety leadership with the Center for Offshore Safety's Safety Leadership Award and had several rigs celebrate safety milestones.
• Secured new contracts and extensions with approximately $257 million of associated contract backlog, primarily for the jackup fleet.
• Market fundamentals for offshore drilling remain supportive, with global demand for hydrocarbons increasing and deepwater production expected to play an important role; longer-dated Brent crude prices remain relatively stable at around $70 per barrel, supporting investment in long-cycle offshore projects.

In the third quarter, adjusted EBITDA increased to $150 million, up from $139 million in the second quarter. Revenue was $643 million. Free cash flow for the period was $111 million. Fleet-wide revenue efficiency was 98% for the third consecutive quarter. The company generated $193 million of cash flow from operations, with $111 million of free cash flow, and repurchased $100 million of shares in the third quarter.

• Fourth quarter total revenues expected in the range of $570 million to $590 million, down from $643 million in the third quarter.
• Adjusted EBITDA expected to be $135 million to $155 million in the fourth quarter.
• Full-year 2024 EBITDA expected at the midpoint of approximately $490 million.
• Ended the third quarter with cash and cash equivalents of $392 million and $375 million revolving credit facility fully available, providing total liquidity of $767 million.
• Repurchased $100 million of shares in the third quarter at an average price of $57 per share, with $300 million remaining capacity under share repurchase authorization.

• Deferred customer demand, with some demand pushed into 2026, driven by factors like availability of production equipment, delayed FPSOs, protracted regulatory approvals, and customer capital discipline.
• Potential for whitespace extending beyond next year if bottlenecks in shipyards for FPSOs last longer than expected.

Q: Eddie Kim asked about expectations on the trajectory of day rates and whether deferred demand is in deepwater and shallow water, and color on FPSO shipyard bottlenecks.

A: Anton Dibowitz said day rates are expected to be solid, with variety depending on asset quality and market; deferred demand is more of a deepwater phenomenon; Chris Weber noted yards are busy, FPSOs take longer, but it's transitory.

Q: David Smith asked about the ability to reduce costs during idle periods of warm stacked rigs and evaluation process for preservation stacking.

A: Chris Weber and Matt Lyne explained reducing manning, maintenance, and fuel costs during warm stack; Anton Dibowitz discussed criteria for preservation stacking based on line of sight to opportunities.

Q: Fredrik Stene asked about Valaris' place in M&A, updated thinking on sideline assets.

A: Anton Dibowitz said Valaris is well-positioned with scale, will consider accretive M&A; sideline assets will come back when right opportunities exist, with potential delay due to prioritizing active fleet utilization.

Q: Kurt Hallead asked about strategy with idle assets and market prospects.

A: Anton Dibowitz stated confidence in market fundamentals, will manage fleet prudently with bridge programs to long-term opportunities.

Q: Unidentified Analyst asked about oil price impact on offshore projects and rig upgrades during lull.

A: Anton Dibowitz said $70/barrel oil supports 90% of offshore projects; during lull, rigs can be upgraded during ramp-up periods.