[Valaris Second Quarter 2025 Results](index=1&type=section&id=Valaris%20Reports%20Second%20Quarter%202025%20Results) [Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) Valaris reported a strong Q2 2025 with $114 million net income, $201 million Adjusted EBITDA, and a $4.7 billion contract backlog Q2 2025 Key Financial Metrics (in millions) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Net Income (Loss) | $114 | ($39) | | Adjusted EBITDA | $201 | $181 | | Revenues (excl. reimbursable) | $572 | $578 | | Cash from Operating Activities | $120 | - | | Adjusted Free Cash Flow | $63 | - | - Secured over **$1.0 billion** in new contract backlog since the April fleet status report, increasing total backlog to approximately **$4.7 billion**[2](index=2&type=chunk)[7](index=7&type=chunk) - Achieved a revenue efficiency of **96%** and maintained a strong safety record with no Lost Time Incidents (LTI) in the first half of 2025[2](index=2&type=chunk)[7](index=7&type=chunk) - Agreed to sell jackup VALARIS 247 for approximately **$108 million** in cash proceeds[7](index=7&type=chunk) - Q2 2025 Adjusted EBITDA of **$201 million** significantly exceeded the guidance of **$140 to $160 million**, partly due to a **$24 million** benefit from a favorable arbitration outcome[12](index=12&type=chunk) [Financial Performance Analysis](index=2&type=section&id=Financial%20Performance%20Analysis) [Segment Performance Review](index=2&type=section&id=Segment%20Performance%20Review) Q2 2025 saw Jackups and ARO Drilling revenue growth, while Floaters declined, reflecting varied segment operational dynamics [Floaters Segment](index=2&type=section&id=Floaters) Floaters segment revenue decreased 10% to $320 million in Q2 2025, with expenses down 14% due to contract completion and arbitration Floaters Segment Financials (Q2 vs Q1 2025, in millions) | Metric (excl. reimbursables) | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Revenues | $320 | $356 | -10% | | Contract Drilling Expense | $176 | $204 | -14% | - The decrease in contract drilling expense was primarily driven by a **$17 million** accrual reversal following a favorable arbitration outcome[14](index=14&type=chunk) [Jackups Segment](index=2&type=section&id=Jackups) Jackups segment revenue grew 14% to $212 million in Q2 2025, driven by VALARIS 144 operations and higher day rates Jackups Segment Financials (Q2 vs Q1 2025, in millions) | Metric (excl. reimbursables) | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Revenues | $212 | $186 | +14% | | Contract Drilling Expense | $124 | $117 | +6% | [ARO Drilling Segment](index=3&type=section&id=ARO%20Drilling) ARO Drilling revenue rose to $140 million in Q2 2025 due to contract extensions, leading to increased drilling expenses ARO Drilling Financials (Q2 vs Q1 2025, in millions) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Revenues | $140 | $135 | | Contract Drilling Expense | $96 | $86 | [Other Segment](index=3&type=section&id=Other) The 'Other' segment revenue increased to $41 million in Q2 2025, driven by higher bareboat charter revenue from ARO-leased rigs Other Segment Financials (Q2 vs Q1 2025, in millions) | Metric (excl. reimbursables) | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Revenues | $41 | $36 | | Contract Drilling Expense | $17 | $16 | [Consolidated Financial Statements](index=6&type=section&id=Consolidated%20Financial%20Statements) Q2 2025 consolidated financials show $114.2 million net income on $615.2 million operating revenues, with $4.5 billion total assets [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Valaris reported Q2 2025 operating revenues of $615.2 million, achieving $114.2 million net income and $1.61 diluted EPS Q2 2025 Statement of Operations Highlights (in millions, except EPS) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Total Operating Revenues | $615.2 | $620.7 | | Operating Income | $164.1 | $143.0 | | Net Income (Loss) | $114.2 | ($39.2) | | Diluted EPS | $1.61 | ($0.53) | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, Valaris's balance sheet shows $4.50 billion total assets, $503.4 million cash, and $2.33 billion total equity Balance Sheet Highlights (as of June 30, 2025, in millions) | Metric | Jun 30, 2025 | Mar 31, 2025 | | :--- | :--- | :--- | | Cash and cash equivalents | $503.4 | $441.4 | | Total Current Assets | $1,227.4 | $1,157.8 | | Total Assets | $4,503.3 | $4,386.8 | | Total Liabilities | $2,170.0 | $2,175.3 | | Total Equity | $2,333.3 | $2,211.5 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In Q2 2025, Valaris generated $120.0 million net cash from operations, with cash and cash equivalents increasing to $516.2 million Q2 2025 Cash Flow Summary (in millions) | Metric | Q2 2025 | | :--- | :--- | | Net cash provided by operating activities | $120.0 | | Net cash used in investing activities | ($57.4) | | Net cash used in financing activities | ($0.1) | | Increase in Cash and Cash Equivalents | $62.5 | | Cash and Cash Equivalents, End of Period | $516.2 | [Operating Statistics](index=10&type=section&id=Operating%20Statistics) [Contract Backlog](index=12&type=section&id=Contract%20Backlog) As of July 24, 2025, Valaris's total contract backlog increased to $4.71 billion, primarily driven by the Floaters segment's $2.74 billion Contract Backlog by Segment (as of July 24, 2025, in millions) | Segment | Backlog | | :--- | :--- | | Floaters | $2,744.2 | | Jackups | $1,353.8 | | Other (Leased/Managed) | $616.4 | | **Valaris Total** | **$4,714.4** | [Key Operating Metrics](index=13&type=section&id=Key%20Operating%20Metrics) In Q2 2025, Valaris maintained 96% revenue efficiency, with 61% total fleet utilization and $181,000 average daily revenue Q2 2025 Utilization Rates (%) | Fleet Type | Total Fleet Utilization | Active Fleet Utilization | | :--- | :--- | :--- | | Floaters | 60% | 78% | | Jackups | 61% | 92% | | **Valaris Total** | **61%** | **86%** | Q2 2025 Average Daily Revenue ($) | Segment | Average Daily Revenue | | :--- | :--- | | Floaters | $377,000 | | Jackups | $142,000 | | **Valaris Total** | **$181,000** | - Overall revenue efficiency for the combined Floaters and Jackups fleet was **96%** in Q2 2025, consistent with the prior quarter[46](index=46&type=chunk) [Fleet Status](index=18&type=section&id=Fleet%20Status) As of June 30, 2025, Valaris's fleet comprised 49 rigs, including 30 active, reflecting a decrease due to three semisubmersible sales Number of Rigs by Status (as of June 30, 2025) | Status | Floaters | Jackups | Total | | :--- | :--- | :--- | :--- | | Active Fleet | 12 | 18 | 30 | | Stacked Fleet | 3 | 9 | 12 | | Leased Rigs | 0 | 7 | 7 | | **Total Rigs** | **15** | **34** | **49** | - The total number of rigs decreased from **52** to **49** during the quarter, reflecting the sale of **three semisubmersibles** (VALARIS DPS-3, DPS-5, and DPS-6) that were previously classified as held for sale[48](index=48&type=chunk) [ARO Drilling Joint Venture Details](index=19&type=section&id=ARO%20Drilling%20Joint%20Venture%20Details) [ARO Financials and Operations](index=19&type=section&id=ARO%20Financials%20and%20Operations) ARO Drilling reported Q2 2025 revenues of $139.9 million, a net loss of $8.6 million, and a $2.35 billion contract backlog ARO Drilling Q2 2025 Financials (in millions) | Metric | Q2 2025 | Q1 2025 | | :--- | :--- | :--- | | Revenues | $139.9 | $134.7 | | Net Loss | ($8.6) | ($1.0) | | Adjusted EBITDA | $36.9 | $42.8 | ARO Drilling Q2 2025 Operating Metrics | Metric | Q2 2025 | | :--- | :--- | | Total Utilization | 85% | | Revenue Efficiency | 90% | | Average Daily Revenue | $113,000 | - ARO Drilling's total contract backlog was **$2.35 billion** as of July 24, 2025, with **$1.38 billion** attributed to leased rigs[52](index=52&type=chunk) [Non-GAAP Financial Measures and Reconciliations](index=21&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) [Definitions and Reconciliations](index=21&type=section&id=Definitions%20and%20Reconciliations) Valaris reconciles Q2 2025 net income to $200.7 million Adjusted EBITDA and operating cash to $62.6 million Adjusted Free Cash Flow - Adjusted EBITDA is defined as net income before interest, taxes, depreciation, amortization, impairment, and equity in earnings/losses of ARO[55](index=55&type=chunk) - Adjusted Free Cash Flow is defined as net cash from operating activities less capital expenditures, plus proceeds from asset dispositions[58](index=58&type=chunk) Q2 2025 Reconciliation Summary (in millions) | Measure | GAAP Value | Non-GAAP Value | | :--- | :--- | :--- | | Net Income to Adjusted EBITDA | $114.2 | $200.7 | | Net Cash from Ops to Adj. FCF | $120.0 | $62.6 |

Company Overview - Valaris Limited (VAL) is anticipated to report a year-over-year decline in earnings due to lower revenues for the quarter ended June 2025, with a consensus outlook indicating a significant impact on its near-term stock price [1][2] - The upcoming earnings report is scheduled for release on July 31, and the stock may experience upward movement if the reported figures exceed expectations, while a miss could lead to a decline [2] Earnings Estimates - The Zacks Consensus Estimate projects quarterly earnings of $1.16 per share, reflecting a year-over-year decrease of 42.9%, with revenues expected to be $578.14 million, down 5.2% from the previous year [3] - The consensus EPS estimate has remained unchanged over the last 30 days, indicating stability in analyst assessments during this period [4] Earnings Surprise Prediction - The Most Accurate Estimate for Valaris is higher than the Zacks Consensus Estimate, resulting in an Earnings ESP of +6.03%, suggesting a bullish outlook from analysts [11] - Valaris holds a Zacks Rank of 3, indicating a neutral position, but the combination of a positive Earnings ESP suggests a likelihood of beating the consensus EPS estimate [11] Historical Performance - In the last reported quarter, Valaris was expected to post earnings of $1.1 per share but instead reported a loss of -$0.53, resulting in a surprise of -148.18% [12] - Over the past four quarters, Valaris has beaten consensus EPS estimates twice, indicating some potential for positive performance [13] Industry Context - In comparison, Nabors Industries (NBR), another player in the Oil and Gas - Drilling industry, is expected to report a loss of $2.05 per share for the same quarter, reflecting a year-over-year change of +52.2% [17] - Nabors has an Earnings ESP of -2.6% and a Zacks Rank of 5 (Strong Sell), making it challenging to predict a beat on the consensus EPS estimate [18]

Valaris Overview - Valaris has the largest offshore drilling fleet with 49 rigs, including 15 high-spec floaters and 34 jackups[4] - The company's contract backlog stands at $4.2 billion as of April 30, 2025[4] - Valaris anticipates FY 2025 EBITDA in the range of $500 million to $560 million[4] - Valaris' drillship fleet is comprised of 92% 7th generation assets (12 out of 13)[4] - Valaris has maintained a revenue efficiency of 96%+ for four consecutive years[4] Fleet Positioning and Demand - The Golden Triangle is expected to account for 70% of benign environment floater demand through 2029[5] - Jackup fleet is primarily positioned in the North Sea (57%) and Middle East (19% excluding Saudi Arabia)[13] - Benign environment floater demand in 2026-2028 is expected to be ~10% higher on average compared to 2024-2025[34] Financial Performance and Strategy - $325 million has been returned to shareholders since the start of the share repurchase program in 2023[45]

Core Insights - The article emphasizes the importance of thorough research and analysis in the financial sector, highlighting the author's passion for understanding businesses and investment strategies [1]. Company Analysis - The author expresses a beneficial long position in the shares of VAL, indicating confidence in the company's future performance [2]. Industry Perspective - The article reflects a broader view on the financial industry, suggesting that past performance should not be solely relied upon for future investment decisions [3].

Company Overview - Valaris Ltd (NYSE: VAL) is a prominent provider of offshore drilling services globally, operating a fleet that includes drillships, semi-submersibles, and jackups [1] Market Presence - The company maintains a strong operational presence in key regions such as the Gulf of Mexico, off the coast of Brazil, and in the UK North Sea [1]

Group 1 - The focus has shifted from the airline industry to offshore drilling, specifically examining Valaris Limited (NYSE: VAL) [1] - Nabeel Bukhari possesses a law degree with a specialization in company and corporate law, along with self-taught financial analysis skills, providing a unique perspective on business dynamics [1] - Bukhari's insights have been published in respected platforms such as InvestorPlace and GuruFocus, and featured in notable publications like Forbes, Yahoo Finance, and MSN [1]

Contract Award - Valaris Limited has secured a contract for its ultra-deepwater Valaris DS-15 drillship for work offshore West Africa, with a total contract value of $135 million and an estimated duration of 250 days [1][2] - The contract involves drilling five wells for an undisclosed operator, expected to begin in the third quarter of 2026, and includes priced options for up to five additional wells with an estimated duration of 80 to 100 days [2] Rig Upgrades and Capabilities - As part of the contract, the Valaris DS-15 drillship will undergo upgrades to add an improved managed pressure drilling system, enhancing its operational capabilities [3] - The Valaris DS-15 drillship features a GustoMSC P10,000 design and can drill to a maximum depth of 40,000 feet, positioning the company well for future opportunities in the offshore West Africa region [3] Company Ranking and Comparisons - Valaris currently holds a Zacks Rank 4 (Sell), indicating a less favorable outlook compared to other energy sector stocks [4] - In contrast, Archrock, EQT Corporation, and Galp Energia have better rankings, with Archrock at Zacks Rank 1 (Strong Buy) and EQT and Galp at Rank 2 (Buy) [4]

Company Overview - Valaris has the largest offshore drilling fleet, comprising 15 high-spec floaters and 34 jackups[4] - The company boasts a revenue efficiency of 96%+ for four consecutive years[4] - As of April 30, 2025, Valaris' contract backlog stands at $4.2 billion[4] - FY 2025 EBITDA guidance is projected to be between $500 million and $560 million[4] Fleet and Market Positioning - Approximately 70% of benign environment floater demand through 2029 is expected to come from the Golden Triangle[5] - Valaris has ~$2.2 billion of floater backlog with ultra-deepwater customers in key basins[7] - The company's jackup fleet is primarily positioned in the North Sea, Middle East, and attractive niche markets[12] - Valaris has ~$1.9 billion of jackup backlog with leading IOCs, NOCs, and independent operators[14] Operational Excellence and Safety - Valaris significantly outperformed the offshore peer group average on key safety metrics in 2024[17] - The company has maintained a revenue efficiency of at least 96% for each of the past four years[19] Market Outlook and Strategy - Deepwater production is expected to grow by ~23% from 2024 to 2030[23] - Subsea tree installations are expected to be more than 40% higher in 2026-2027 compared to 2024-2025[29] - Benign environment floater demand in 2026-2027 is expected to be ~14% higher on average compared to 2024-2025[31] Financial Strategy - The company has returned $325 million to shareholders since the start of the share repurchase program in 2023[43]

Financial Performance - Total operating revenues for Q1 2025 were $620.7 million, a 18.2% increase from $525.0 million in Q1 2024[16] - Operating income for Q1 2025 was $143.0 million, compared to $29.3 million in Q1 2024, representing a significant improvement[16] - Net loss attributable to Valaris for Q1 2025 was $37.9 million, compared to a net income of $25.5 million in Q1 2024[16] - Basic and diluted earnings per share for Q1 2025 were both $(0.53), down from $0.35 in Q1 2024[16] - Net cash provided by operating activities for Q1 2025 was $155.9 million, a significant increase from $26.3 million in Q1 2024[21] - The company reported capital expenditures of $100.2 million for the three months ended March 31, 2025, compared to $151.3 million in the same period of 2024, reflecting a decrease of 33.8%[85][86] - The net gain on the sale of property for the three months ended March 31, 2025, was $27.1 million, compared to a loss of $0.1 million in the same period of 2024[91] Assets and Liabilities - Cash and cash equivalents increased to $441.4 million as of March 31, 2025, up from $368.2 million at the end of 2024[19] - Total assets decreased slightly to $4,386.8 million as of March 31, 2025, from $4,419.8 million at the end of 2024[19] - Total liabilities remained stable at $2,175.3 million as of March 31, 2025, compared to $2,175.5 million at the end of 2024[19] - Current contract assets increased to $1.5 million as of March 31, 2025, up from $1.3 million on December 31, 2024[35] - Noncurrent contract assets rose to $5.6 million as of March 31, 2025, compared to $5.5 million at the end of 2024[35] - Current contract liabilities (deferred revenue) decreased to $78.0 million from $87.2 million[35] - Noncurrent contract liabilities (deferred revenue) declined to $61.2 million from $71.4 million[35] Tax and Deferred Income - The company reported a deferred income tax expense of $169.8 million for Q1 2025, compared to $2.0 million in Q1 2024[21] - The consolidated effective tax rate for the three months ended March 31, 2025, was 15.1%, excluding the impact of discrete tax items[70] - During the three months ended March 31, 2025, the company recognized $168.8 million of deferred tax expense due to a valuation allowance on deferred tax assets[69] - The company recorded a tax benefit of approximately $65.0 million in 2024 related to the reversal of uncertain tax position liabilities from Luxembourg tax assessments[72] Operational Highlights - The geographic distribution of drilling rigs as of March 31, 2025, included 18 floaters and 27 jackups, totaling 52 for Valaris, with an additional 9 rigs for ARO[87] - The company owns 49 rigs, including 34 jackup rigs and 13 drillships, and has a 50% equity interest in ARO, which owns an additional nine rigs[95] - Total backlog as of April 30, 2025, was $4,237.6 million, up from $3,608.5 million on February 18, 2025, with floaters contributing $2,170.9 million[102] - The global marketed jackup fleet utilization was 90% as of March 31, 2025, down from 94% in early 2024, leading to downward pressure on day rates[106] - ARO's backlog increased by approximately $1.2 billion due to five-year contract extensions for several rigs[102] Market Conditions - Inflationary pressures have increased personnel costs and prices of goods and services, with expectations of continued cost rises in the near term[99] - Brent crude oil prices have declined into the $60-$70 range per barrel, impacting demand and pricing for offshore drilling services[96] - The company anticipates contract commencements for its floater fleet in mid-2026 and beyond, despite current market uncertainties[103] Shareholder Returns and Financing - The company issued $700.0 million of Second Lien Notes in April 2023, with an additional $400.0 million issued in August 2023, maturing on April 30, 2030[59] - As of March 31, 2025, the company had approximately $275.0 million available for share repurchases under the authorized program of up to $600.0 million[66][67] - The board of directors has authorized a share repurchase program of up to $600.0 million, with approximately $275.0 million available for repurchases as of March 31, 2025[175] Legal and Compliance - The company accrued $25.0 million in 2024 related to patent litigation efforts, which is included in accrued liabilities as of March 31, 2025[79] - The arbitration hearings regarding the patent litigation concluded in March 2025, with a decision expected in the second quarter of 2025[78] - The company has filed certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002[31.1][31.2] - The report includes certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer and Chief Financial Officer[32.1][32.2]

Financial Data and Key Metrics Changes - Total revenues for Q1 2025 were $621 million, up from $584 million in the prior quarter, reflecting a strong operational performance [32] - Adjusted EBITDA increased to $181 million in Q1 2025 from $142 million in the previous quarter, primarily due to more operating days and higher average daily revenue for the floater fleet [32][33] - Adjusted free cash flow for the quarter was $74 million, with cash and cash equivalents at $454 million, providing total liquidity of approximately $830 million [34] Business Line Data and Key Metrics Changes - The company added over $1 billion in new contract backlog since the last conference call, including significant contracts for drillships offshore West Africa and shallow water markets [6][10] - The total backlog increased to more than $4.2 billion, a nearly 20% increase from the previous backlog of $3.6 billion [19] - Fleet-wide revenue efficiency was reported at 96% during Q1 2025, indicating strong operational performance [7] Market Data and Key Metrics Changes - The global jackup fleet utilization stood at 90% at the end of Q1 2025, down from 94% in early 2024, indicating some downward pressure on day rates in certain regions [26] - Offshore Africa remains the most active area for future floater opportunities, with approximately 10 long-term programs expected to start in 2026 or 2027 [22] - The company is tracking around 25 floater opportunities, primarily related to drillships, with expected start dates in 2026 and 2027 [21][51] Company Strategy and Development Direction - The company is focused on delivering outstanding operational performance, executing its commercial strategy, and prudently managing its fleet and costs [14][18] - There is an emphasis on securing long-term contracts for high specification assets, particularly seventh-generation drillships, which are expected to be favored by customers for complex drilling solutions [14][15] - The company plans to continue managing costs for rigs expected to experience idle time and is willing to retire rigs when their economic benefit no longer justifies their costs [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted that while macroeconomic uncertainty has increased, offshore production is expected to remain a vital component of meeting global energy needs [12][18] - The company anticipates that most projects being evaluated by customers for near to medium-term commencement are expected to be economic well below current commodity prices [13] - Management remains optimistic about securing additional contracts due to the high quality of its fleet and operational performance [14][18] Other Important Information - The company received the 2024 Best Safety Performance Award for jackup rigs, highlighting its commitment to safe operations [7] - The company reported a net loss of $39 million in Q1 2025, adjusted for discrete expenses, net income was $128 million [34] Q&A Session Summary Question: Regarding the 25 floater opportunities tracked for 2026 and 2027, what percentage require seventh-generation drillships? - Management indicated that the overwhelming majority of the 25 opportunities are drillship-related, with customers likely preferring seventh-generation assets due to their efficiency and capabilities [51] Question: Are customers showing interest in performance bonus structures in contracts? - Management confirmed that performance incentives are part of current contracts and are generally targeted at drilling wells ahead of the customer's AFE or reducing the number of days [52] Question: Can you comment on the pricing levels for the five-year extensions on jackups in Saudi Arabia? - Management stated that while specific day rates cannot be disclosed, the rates for the extensions are above historic levels and are considered solid contracts [73] Question: Is there a Brent price level at which offshore FIDs could start to get pushed back? - Management noted that they have not seen any programs getting pushed back based on current Brent prices, as the economics for offshore projects remain compelling [78]