Valaris(US:VAL)2024-08-01 14:58PART I - FINANCIAL INFORMATION Part I details the company's Q2 2024 financial statements, management's analysis of operations and liquidity, market risks, and internal controls Item 1. Financial Statements The company reported a significant turnaround with a net income of $150.8 million for Q2 2024, driven by a 47% revenue increase Condensed Consolidated Statements of Operations Valaris reported Q2 2024 operating revenues of $610.1 million, a 47% increase from Q2 2023, resulting in a net income of $149.6 million Condensed Consolidated Statements of Operations (in millions, except per share amounts) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | 2024 | 2023 | 2024 | 2023 | | Operating Revenues | $610.1 | $415.2 | $1,135.1 | $845.3 | | Operating Income (Loss) | $108.9 | $(9.9) | $138.2 | $(1.4) | | Net Income (Loss) Attributable to Valaris | $149.6 | $(29.4) | $175.1 | $17.3 | | Diluted Earnings (Loss) Per Share | $2.03 | $(0.39) | $2.38 | $0.23 | Condensed Consolidated Balance Sheets Total assets increased to $4.42 billion as of June 30, 2024, while total liabilities decreased to $2.23 billion Condensed Consolidated Balance Sheet Highlights (in millions) | | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,224.6 | $1,272.2 | | Cash and cash equivalents | $398.3 | $620.5 | | Property and equipment, net | $1,809.4 | $1,633.8 | | Total Assets | $4,415.6 | $4,322.2 | | Total Current Liabilities | $707.6 | $744.3 | | Long-Term Debt | $1,081.0 | $1,079.3 | | Total Liabilities | $2,228.2 | $2,325.2 | | Total Valaris shareholders' equity | $2,176.8 | $1,987.6 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased to $37.8 million for H1 2024, while investing activities increased to $261.4 million Condensed Consolidated Statements of Cash Flows (in millions) | | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2024 | 2023 | | Net cash provided by operating activities | $37.8 | $122.6 | | Net cash used in investing activities | $(261.4) | $(98.2) | | Net cash provided by (used in) financing activities | $(1.8) | $32.4 | | Increase (Decrease) in Cash | $(225.4) | $56.8 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, revenue recognition, and segment information, highlighting the ARO joint venture and a significant tax benefit - The company's ARO joint venture with Saudi Aramco owns nine jackup rigs and leases an additional nine from Valaris, with ARO committed to purchasing 20 newbuild jackups over a 10-year period3839 - In April 2024, the company received a favorable decision from Luxembourg tax authorities, reversing a previously recorded liability of approximately $65.0 million and recognizing it as a tax benefit in Q2 202474 - For Q2 2024, BP, Equinor, and Petrobras were major customers, each accounting for 10% or more of total consolidated revenues100 - The company has a potential obligation to fund the ARO newbuild program up to a maximum of $1.1 billion if ARO cannot secure third-party financing77185 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management presents a positive outlook for the offshore drilling sector, citing rising demand and an increased contract drilling backlog of $4.3 billion as of July 29, 2024 Executive Summary & Business Environment The offshore drilling industry is experiencing an upcycle with increased global utilization, leading to a contract backlog growth to $4.3 billion in July 2024 Contract Backlog (in millions) | Segment | July 29, 2024 | February 15, 2024 | | :--- | :--- | :--- | | Floaters | $2,630.4 | $2,531.7 | | Jackups | $1,292.9 | $1,167.4 | | Other | $384.2 | $222.3 | | Total Valaris | $4,307.5 | $3,921.4 | | ARO | $1,833.3 | $2,138.1 | - Global utilization for the industry's marketed fleet has increased to 86% for floaters and 93% for jackups as of June 30, 2024116118 - In July 2024, ARO received suspension notices for drilling contracts for VALARIS 147 and VALARIS 148, impacting $35.3 million of Valaris's backlog and $112.6 million of ARO's backlog114120 Results of Operations Q2 2024 revenue increased by 16% sequentially to $610.1 million, with net income surging due to a significant discrete tax benefit Q2 2024 vs Q1 2024 Results (in millions) | | Q2 2024 | Q1 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $610.1 | $525.0 | $85.1 | 16% | | Operating Income | $108.9 | $29.3 | $79.6 | 272% | | Net Income (Valaris) | $149.6 | $25.5 | $124.1 | 487% | H1 2024 vs H1 2023 Results (in millions) | | H1 2024 | H1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenues | $1,135.1 | $845.3 | $289.8 | 34% | | Operating Income (Loss) | $138.2 | $(1.4) | $139.6 | NM | | Net Income (Valaris) | $175.1 | $17.3 | $157.8 | 912% | - Floater revenue increased 18% sequentially in Q2 2024, primarily due to more operating days and higher average daily revenues as rigs commenced new contracts143 - Jackup revenue increased 22% sequentially in Q2 2024, driven by more operating days and higher average daily revenue145 Liquidity and Capital Resources Valaris maintains a solid liquidity position with $398.3 million in cash and no debt principal payments due until 2030 - As of June 30, 2024, the company had $398.3 million in cash and $375.0 million available under its credit facility, with no debt principal due until 2030168 - 2024 capital expenditures are expected to be approximately $450.0 million to $480.0 million, primarily for maintenance, upgrades, and rig reactivations177 - The company has a potential obligation to contribute up to $1.1 billion to the ARO newbuild program if third-party financing is not secured185 - Approximately $400.0 million remains available for share repurchases under the authorized program as of June 30, 2024182 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, with interest rate risk stemming from its variable-rate credit facility and ARO Notes Receivable - The company is exposed to interest rate risk on its undrawn $375.0 million variable-rate credit facility and its Notes Receivable from ARO191 - A hypothetical 1% decrease in the SOFR rate would reduce annual interest income from the ARO notes by approximately $3.5 million192 - The company has unhedged exposure to foreign currency risk from operations in various international locations194 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of June 30, 2024199 - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2024200 PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company is subject to pending notices of assessment in Brazil related to offshore fluid spills, with a $0.4 million accrued liability - The company is contesting notices of assessment for fluid spills in Brazil (2008-2019) and has a related liability of $0.4 million recorded as of June 30, 2024202 - Other legal proceedings are not expected to have a material adverse effect on financial results203 Item 1A. Risk Factors This section refers investors to the comprehensive discussion of risk factors in the company's Annual Report on Form 10-K for 2023, with no new material changes - The report refers readers to the risk factors detailed in the company's 2023 Form 10-K, indicating no material updates in this filing204 [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) The company did not repurchase any common shares in Q2 2024, with approximately $400.0 million remaining available under its share repurchase program - No share repurchases were made during the three months ended June 30, 2024205 - Approximately $400.0 million remains available for purchase under the company's share repurchase program205 Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during Q2 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading plan in Q2 2024206 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and a new Restricted Stock Unit Award Agreement - The filing includes required CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and a new Non-Employee Director RSU Agreement (Exhibit 10.1)208