Valaris(VAL) - 2025 Q2 - Quarterly Report

Forward-Looking Statements Summary of Forward-Looking Statements and Risks The report outlines forward-looking statements on performance and details risks that could alter actual results - Forward-looking statements cover expected financial performance, utilization, day rates, revenues, operating expenses, cash flows, contract backlog, capital expenditures, and the offshore drilling market outlook[9] - Key risks include delays or cancellations of drilling contracts, changes in worldwide rig supply and demand, general economic and business conditions (recessions, inflation), and requirements for significant capital expenditures[10] - Additional risks involve cybersecurity incidents, liquidity adequacy, compliance with debt agreements, rig repair/upgrade delays, and impacts from public health crises, political conditions, and climate change concerns[11][13] PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements and accompanying explanatory notes Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total operating revenues | $615.2 | $610.1 | | Total operating expenses | $450.0 | $500.9 | | Operating income | $164.1 | $108.9 | | Net income attributable to Valaris | $115.1 | $149.6 | | Basic EPS | $1.62 | $2.07 | | Diluted EPS | $1.61 | $2.03 | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total operating revenues | $1,235.9 | $1,135.1 | | Total operating expenses | $930.3 | $999.0 | | Operating income | $307.1 | $138.2 | | Net income attributable to Valaris | $77.2 | $175.1 | | Basic EPS | $1.09 | $2.42 | | Diluted EPS | $1.08 | $2.38 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $114.2 | $150.8 | | Net other comprehensive income (loss) | $1.6 | $(0.8) | | Comprehensive income attributable to Valaris | $116.7 | $148.8 | Condensed Consolidated Statements of Comprehensive Income (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $75.0 | $176.3 | | Net other comprehensive income (loss) | $2.7 | $(0.9) | | Comprehensive income attributable to Valaris | $79.9 | $174.2 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (as of June 30, 2025 and December 31, 2024) | Metric (in millions) | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Total current assets | $1,227.4 | $1,078.7 | | Property and equipment, net | $2,021.6 | $1,932.9 | | Total assets | $4,503.3 | $4,419.8 | | Total current liabilities | $678.7 | $679.5 | | Long-term debt | $1,084.3 | $1,082.7 | | Total liabilities | $2,170.0 | $2,175.5 | | Total shareholders' equity | $2,333.3 | $2,244.3 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $275.9 | $37.8 | | Net cash used in investing activities | $(139.8) | $(261.4) | | Net cash used in financing activities | $(0.4) | $(1.8) | | Increase (decrease) in cash and cash equivalents and restricted cash | $135.7 | $(225.4) | | Cash and cash equivalents and restricted cash, end of period | $516.2 | $410.3 | Notes to Condensed Consolidated Financial Statements Note 1 - Unaudited Condensed Consolidated Financial Statements The unaudited financial statements are prepared per GAAP and SEC rules and include all necessary adjustments - The financial statements are unaudited but include all necessary adjustments for fair presentation, prepared in accordance with GAAP and SEC rules[22] - ASU No 2024-03 (Expense Disaggregation Disclosures) is effective for annual periods after December 15, 2026, requiring additional expense category disclosures[25] - ASU No 2023-09 (Improvements to Income Tax Disclosures) is effective for fiscal years beginning after December 15, 2024, expanding income tax disclosures but not impacting recognition or measurement[26] Note 2 - Revenue from Contracts with Customers The company recognizes revenue from drilling contracts over time as a single performance obligation - Drilling services are a single performance obligation satisfied over time, with total revenue estimated based on fixed and variable consideration[29] Contract Assets and Liabilities (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Current contract assets | $2.6 | $1.3 | | Noncurrent contract assets | $4.5 | $5.5 | | Current contract liabilities | $73.7 | $87.2 | | Noncurrent contract liabilities | $68.1 | $71.4 | Amortization of Contract Liabilities and Deferred Costs (in millions) | Category | 2025 (Remaining) | 2026 | 2027 | 2028 and Thereafter | Total | | :--- | :--------------- | :--- | :--- | :------------------ | :---- | | Contract liabilities | $28.2 | $42.1 | $59.6 | $11.9 | $141.8 | | Deferred costs | $22.1 | $28.6 | $5.3 | $— | $56.0 | Note 3 - Equity Method Investment in ARO This note details the company's 50/50 unconsolidated joint venture with Saudi Aramco, ARO - ARO is a 50/50 unconsolidated joint venture with Saudi Aramco, owning nine jackup rigs and leasing seven from Valaris as of June 30, 2025[39] Equity in Earnings (Losses) of ARO (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | 50% interest in ARO net loss | $(4.3) | $(3.4) | $(4.8) | $(4.2) | | Amortization of basis differences | $3.2 | $3.1 | $6.3 | $6.3 | | Equity in earnings (losses) of ARO | $(1.1) | $(0.3) | $1.5 | $2.1 | Notes Receivable from ARO (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Principal amount | $376.6 | $376.6 | | Discount | $(68.1) | $(80.4) | | Carrying value | $308.5 | $296.2 | Note 4 - Fair Value Measurements This note provides the carrying values and estimated fair values of the company's financial instruments Carrying Values and Estimated Fair Values of Financial Instruments (in millions) | Instrument | June 30, 2025 Carrying Value | June 30, 2025 Estimated Fair Value | Dec 31, 2024 Carrying Value | Dec 31, 2024 Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | | 2030 Second Lien Notes | $1,084.3 | $1,130.1 | $1,082.7 | $1,112.7 | | Notes Receivable from ARO | $308.5 | $379.4 | $296.2 | $378.3 | - Fair value of 2030 Second Lien Notes is determined using Level 1 inputs (quoted market prices), while Notes Receivable from ARO uses Level 2 inputs (income approach with comparable yield and country-specific risk premium)[50] Note 5 - Property and Equipment This note details the composition of property and equipment and outlines recent asset divestitures Property and Equipment (in millions) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Drilling rigs and equipment | $1,829.3 | $1,660.9 | | Work-in-progress | $583.6 | $607.6 | | Total property and equipment, at cost | $2,461.6 | $2,309.4 | - Agreement to sell VALARIS 247 for approximately $108.0 million, with an expected pre-tax gain of $87.0 million upon completion in H2 2025[52] - Three semisubmersible rigs (VALARIS DPS-3, DPS-5, DPS-6) were retired and sold for recycling for $10.0 million, resulting in a $7.8 million impairment loss in Q1 2025[53][54] - VALARIS 75 was sold for approximately $24.0 million, generating a pre-tax gain of $23.0 million[55] Note 6 - Pension and Other Post-retirement Benefits This note outlines the components of net periodic pension and retiree medical (income) loss Net Periodic Pension and Retiree Medical (Income) Loss (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Interest cost | $7.8 | $7.4 | $15.4 | $14.8 | | Expected return on plan assets | $(7.3) | $(7.9) | $(14.5) | $(15.8) | | Amortization of net gain | $(0.2) | $(0.2) | $(0.4) | $(0.4) | | Net periodic pension and retiree medical (income) loss | $0.3 | $(0.7) | $0.5 | $(1.4) | Note 7 - Earnings Per Share This note provides a reconciliation of weighted-average shares used in basic and diluted EPS computations Weighted-Average Shares Outstanding for EPS (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic | 71.1 | 72.4 | 71.1 | 72.4 | | Effect of stock equivalents | 0.2 | 1.3 | 0.2 | 1.3 | | Diluted | 71.3 | 73.7 | 71.3 | 73.7 | - Anti-dilutive share awards totaled 255,000 and 274,000 for the three and six months ended June 30, 2025, respectively[60] - 5,470,900 warrants outstanding as of June 30, 2025, exercisable at $131.88 per share and expiring April 29, 2028, were anti-dilutive for all periods presented[62] Note 8 - Debt This note describes the company's debt structure, including its 2030 Second Lien Notes and 2028 Credit Agreement - The company issued $1.1 billion aggregate principal amount of 2030 Second Lien Notes, maturing April 30, 2030, with an 8.375% interest rate[63] - A senior secured revolving credit agreement (2028 Credit Agreement) provides for up to $375.0 million in borrowings, with a $150.0 million sublimit for letters of credit, maturing April 3, 2028[65] - As of June 30, 2025, the company was in material compliance with all debt covenants and had no outstanding amounts under the 2028 Credit Agreement[64][68] Note 9 - Shareholders' Equity This note details changes in shareholders' equity and the status of the share repurchase program Shareholders' Equity Activity (Six Months Ended June 30, 2025, in millions) | Metric | Dec 31, 2024 | Mar 31, 2025 | June 30, 2025 | | :--- | :----------- | :----------- | :------------ | | Additional Paid-in Capital | $1,113.3 | $1,118.6 | $1,124.6 | | Retained Earnings | $1,398.9 | $1,361.0 | $1,476.1 | | Accumulated Other Comprehensive Income | $34.2 | $35.3 | $36.9 | | Total Valaris Shareholders' Equity | $2,238.5 | $2,250.9 | $2,329.7 | - The company has a $600.0 million share repurchase program, with approximately $275.0 million available as of June 30, 2025[70][71] - No share repurchases were made during the three and six months ended June 30, 2025 and 2024[71] Note 10 - Income Taxes This note details the company's income tax provision calculation and discusses recent tax matters - In Q1 2025, the company changed its income tax provision calculation to apply the estimated annual effective tax rate, moving away from the discrete effective tax rate method[72] - A $168.8 million deferred tax expense was recognized in Q1 2025 due to a valuation allowance on deferred tax assets, linked to the retirement of semisubmersible rigs[73] - The consolidated effective tax rate for the three and six months ended June 30, 2025, excluding discrete items, was 15.2%[74] - A $65.0 million tax benefit was recognized in Q2 2024 due to a favorable decision from Luxembourg tax authorities rescinding prior assessments[77] - A settlement with Australian tax authorities in Q4 2024 for A$4.0 million resulted in the release of approximately $18.0 million of uncertain tax position liability, and A$42.0 million ($26.0 million) in refunds received in Q1 2025[79] - An unfavorable Malaysian tax assessment of approximately $28.0 million for 2012-2017 is being contested, with payments made under a seven-month plan as of June 30, 2025[78] Note 11 - Contingencies This note details various contingencies, including ARO funding obligations and legal matters - Valaris has a potential obligation to fund ARO for newbuild jackup rigs, with its commitment reduced to $1.1 billion after the delivery of Kingdom 2[81][82] - Outstanding letters of credit totaled $30.0 million as of June 30, 2025, with $11.2 million in collateral deposits[83] - In patent litigation, Valaris was awarded $7.4 million for legal fees and is liable for $7.9 million in damages to Transocean Ltd[84] - A Brazil administrative proceeding seeking $110.0 million in damages was dismissed against Valaris in July 2025[86][87] Note 12 - Segment Information This note provides disaggregated financial and operational information for the company's four segments - Valaris operates in four segments: Floaters (drillships, semisubmersibles), Jackups, ARO (joint venture), and Other (management services, ARO lease arrangements)[89] Operating Income by Segment (Three Months Ended June 30, 2025, in millions) | Segment | Operating Revenues | Operating Expenses | Operating Income | | :--- | :--- | :--- | :--- | | Floaters | $326.9 | $183.0 | $129.3 | | Jackups | $238.0 | $148.6 | $74.8 | | ARO | $139.9 | $96.4 | $8.2 | | Other | $50.3 | $26.9 | $20.6 | | Consolidated Total | $615.2 | $395.7 | $164.1 | Geographic Distribution of Drilling Rigs (as of June 30, 2025) | Region | Floaters | Jackups | Other | Total Valaris | ARO | | :--- | :--- | :--- | :--- | :--- | :-- | | Europe | 6 | 11 | — | 17 | — | | Middle East & Africa | 1 | 7 | 7 | 15 | 9 | | North & South America | 6 | 5 | — | 11 | — | | Asia & Pacific Rim | 2 | 4 | — | 6 | — | | Total | 15 | 27 | 7 | 49 | 9 | Note 13 - Supplemental Financial Information This note provides supplemental details for various balance sheet and income statement line items Accounts Receivable, Net (in millions) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Trade | $489.2 | $502.4 | | Income tax receivables | $51.5 | $76.2 | | Other | $30.0 | $9.2 | | Allowance for doubtful accounts | $(16.5) | $(16.6) | | Total | $554.2 | $571.2 | Accrued Liabilities and Other (in millions) | Category | June 30, 2025 | Dec 31, 2024 | | :--- | :------------ | :----------- | | Income and other taxes payable | $90.8 | $57.2 | | Personnel costs | $81.1 | $89.2 | | Current contract liabilities (deferred revenues) | $73.7 | $87.2 | | Lease liabilities | $34.6 | $28.0 | | Accrued claims | $22.2 | $39.5 | | Accrued interest | $15.4 | $15.3 | | Other | $28.6 | $34.6 | | Total | $346.4 | $351.0 | - Customer concentration: Petrobras (13%), BP (12%), Azule Energy (9%), and Equinor (7%) contributed significantly to total revenues for the six months ended June 30, 2025[101] - Geographic concentration: Brazil ($318.2M), United Kingdom ($198.5M), Gulf of America ($191.9M), Australia ($163.2M), and Angola ($110.1M) were key revenue-generating regions for the six months ended June 30, 2025[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operating results, backlog, business environment, and market risks Executive Summary Valaris is a leading offshore driller facing macroeconomic uncertainties and inflationary pressures - Valaris is a leading provider of offshore contract drilling services, owning the world's largest fleet with 49 rigs and a 50% equity interest in ARO (9 additional rigs) as of July 31, 2025[103] - Offshore drilling demand is influenced by macroeconomic uncertainty, increased trade tariffs, and OPEC+ oil production decisions, leading to a decline in Brent crude oil prices to approximately $68 per barrel in Q2[104] - Inflationary pressures continue to increase personnel costs and prices for goods/services, with costs expected to rise further due to potential tariffs[107] Backlog The company's contract drilling backlog increased significantly due to new multi-year floater contracts Contract Backlog (in millions) | Segment | July 24, 2025 | February 18, 2025 | | :--- | :------------ | :---------------- | | Floaters | $2,744.2 | $2,024.0 | | Jackups | $1,353.8 | $1,313.0 | | Other | $616.4 | $271.5 | | Total | $4,714.4 | $3,608.5 | | ARO (100%) | $2,349.3 | $1,422.9 | - Floater backlog increased by approximately $1.2 billion due to multi-year contracts for VALARIS DS-16, DS-18, DS-10, and DS-15[110] - Other backlog increased by approximately $407.0 million due to five-year contract extensions for five rigs leased to ARO (VALARIS 116, 140, 141, 146, 250)[110] Business Environment Floater and jackup utilization moderated due to a slowdown in contracting and contract suspensions - Floater utilization declined to 86% of the global marketed fleet by June 30, 2025, from a peak of 128 rigs in April 2024 to 119[111] - Six benign environment floaters have been retired since the beginning of 2025, including three Valaris rigs[112] - Global jackup utilization moderated to 90% at June 30, 2025, down from 94% in early 2024, primarily due to Saudi Aramco suspending contracts for 37 rigs[113][114] - Approximately 28% of the current global jackup fleet is over 40 years old, with only 11 newbuild jackups remaining at shipyards[115] Results of Operations This section analyzes operating results, detailing changes in revenues and expenses and their key drivers Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 Operating income increased 15% QoQ, driven by lower operating expenses from a legal accrual reversal Condensed Consolidated Results of Operations (QoQ, in millions) | Metric | Q2 2025 | Q1 2025 | Change | % Change | | :--- | :------ | :------ | :----- | :------- | | Total operating revenues | $615.2 | $620.7 | $(5.5) | (1)% | | Total operating expenses | $450.0 | $480.3 | $(30.3) | (6)% | | Operating income | $164.1 | $143.0 | $21.1 | 15% | | Net income (loss) attributable to Valaris | $115.1 | $(37.9) | $153.0 | NM | - Revenues decreased by $5.5 million, primarily due to $27.9 million lower revenues for VALARIS DS-12 (contract completion) and a $7.3 million termination fee in the preceding quarter, partially offset by $18.2 million from VALARIS 144 (new contract) and a $10.3 million net increase in average daily revenues for the remaining fleet[120] - Contract drilling expense decreased by $18.8 million, driven by a $17.1 million partial reversal of a legal matter accrual, $6.3 million lower amortized mobilization costs, and $4.3 million decrease in expenses for retired semis and warm-stacked VALARIS DS-12[121] - General and administrative expense decreased by $5.6 million, primarily due to a $7.4 million cost recovery award for a legal matter[123] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Operating income surged 122% YoY, driven by a 9% revenue increase and a 7% decrease in operating expenses Condensed Consolidated Results of Operations (YoY, in millions) | Metric | H1 2025 | H1 2024 | Change | % Change | | :--- | :------ | :------ | :----- | :------- | | Total operating revenues | $1,235.9 | $1,135.1 | $100.8 | 9% | | Total operating expenses | $930.3 | $999.0 | $(68.7) | (7)% | | Operating income | $307.1 | $138.2 | $168.9 | 122% | | Net income attributable to Valaris | $77.2 | $175.1 | $(97.9) | (56)% | - Revenues increased by $100.8 million, driven by $69.9 million from VALARIS DS-7 (reactivation), $35.8 million from VALARIS 247 (return to work), and $115.4 million from higher average daily revenues, partially offset by $142.5 million from fewer operating days[127] - Contract drilling expense decreased by $86.2 million, primarily due to $24.0 million lower costs for retired semis, $17.8 million decrease for VALARIS DS-7 (reactivation costs in prior year), $13.5 million lower costs for warm-stacked rigs, and a $17.1 million partial reversal of a legal matter accrual[128] - General and administrative expenses decreased by $15.8 million, mainly due to a $7.4 million cost recovery award and lower professional fees/long-term incentive compensation[130] Rig Counts, Utilization and Average Daily Revenue This section provides key operational metrics, showing a smaller fleet but high utilization and higher day rates Total and Active Offshore Drilling Rigs | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :------------ | :------------- | :------------ | | Total Fleet - Valaris | 49 | 52 | 53 | | ARO | 9 | 9 | 9 | | Active Fleet - Valaris | 37 | 37 | 40 | | ARO | 9 | 9 | 9 | - Valaris's total floater fleet decreased from 18 to 15 rigs due to the sale of VALARIS DPS-3, DPS-5, and DPS-6 in Q2 2025[133][135] Rig Utilization and Average Daily Revenue (Six Months Ended June 30) | Metric | H1 2025 | H1 2024 | | :--- | :------ | :------ | | Rig Utilization - Active Fleet (Total Valaris) | 89% | 86% | | Rig Utilization - Active Fleet (ARO) | 86% | 86% | | Average Daily Revenue (Floaters) | $381,000 | $327,000 | | Average Daily Revenue (Jackups) | $135,000 | $114,000 | | Average Daily Revenue (Other) | $47,000 | $41,000 | | Average Daily Revenue (Total Valaris) | $181,000 | $160,000 | | Average Daily Revenue (ARO) | $110,000 | $102,000 | Operating Income by Segment This section analyzes operating income by segment, detailing revenue and expense drivers for each Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 (Segment) Jackups' operating income increased significantly, while Floaters' income slightly decreased Operating Income by Segment (QoQ, in millions) | Segment | Q2 2025 Operating Income | Q1 2025 Operating Income | Change | | :--- | :--- | :--- | :----- | | Floaters | $129.3 | $130.6 | $(1.3) | | Jackups | $74.8 | $57.8 | $17.0 | | ARO | $8.2 | $13.3 | $(5.1) | | Other | $20.6 | $17.1 | $3.5 | | Consolidated Total | $164.1 | $143.0 | $21.1 | - Floater revenues decreased by $36.3 million (10%) due to VALARIS DS-12 contract completion and lower amortization of mobilization/upgrade revenues for VALARIS DS-17[143] - Jackup revenues increased by $26.1 million (14%), driven by $18.2 million from VALARIS 144's new contract and $10.3 million from higher average daily rates, partially offset by a $7.3 million termination fee in the prior quarter[147] - ARO revenue increased by $5.2 million (4%) due to higher average daily revenues from new contract extensions, partially offset by fewer operating days for scheduled repairs[150] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 (Segment) Floaters' and Jackups' operating income increased significantly YoY due to lower costs and higher revenues Operating Income by Segment (YoY, in millions) | Segment | H1 2025 Operating Income | H1 2024 Operating Income | Change | | :--- | :--- | :--- | :----- | | Floaters | $259.9 | $170.2 | $89.7 | | Jackups | $132.6 | $59.7 | $72.9 | | ARO | $21.5 | $20.1 | $1.4 | | Other | $37.7 | $43.1 | $(5.4) | | Consolidated Total | $307.1 | $138.2 | $168.9 | - Floater revenues decreased by $4.5 million (1%) due to fewer operating days for retired/warm-stacked rigs, partially offset by $69.9 million from VALARIS DS-7's reactivation and $75.5 million from higher average daily revenues[155] - Jackup revenues increased by $91.8 million (30%), driven by $35.8 million from VALARIS 247's return to work, $31.2 million from higher average daily revenues, and $17.5 million from more operating days[158] - ARO revenue increased by $12.1 million (5%), primarily from Kingdom 2 and VALARIS 108, higher average daily revenues, and more operating days, partially offset by $45.6 million from contract terminations[160] Other Income (Expense) This section analyzes changes in non-operating income and expenses, including interest and asset sales Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025 (Other Income) Other income decreased significantly due to gains from asset sales recognized in the prior quarter Other Income (Expense), Net (QoQ, in millions) | Metric | Q2 2025 | Q1 2025 | | :--- | :------ | :------ | | Interest income | $15.1 | $14.4 | | Interest expense, net | $(24.8) | $(24.3) | | Net gain (loss) on sale of property | $0.8 | $27.1 | | Net foreign currency exchange gains (losses) | $(9.1) | $(5.2) | | Other, net | $(18.4) | $11.3 | - Net gains on sale of property in the preceding quarter included $23.0 million from VALARIS 75 and $4.0 million from an office in Angola[165] - Net foreign currency exchange losses increased from $5.2 million in Q1 2025 to $9.1 million in Q2 2025, driven by unfavorable movements in euros and Australian dollars[166] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 (Other Income) Other income decreased significantly YoY due to lower interest income and unfavorable currency movements Other Income (Expense), Net (YoY, in millions) | Metric | H1 2025 | H1 2024 | | :--- | :------ | :------ | | Interest income | $29.5 | $52.0 | | Interest expense, net | $(49.1) | $(40.3) | | Net gain (loss) on sale of property | $27.9 | $(0.1) | | Net foreign currency exchange gains (losses) | $(14.3) | $7.9 | | Other, net | $(7.1) | $21.0 | - Interest income decreased by $22.5 million (43%), mainly due to a $19.5 million decrease in interest from ARO Notes Receivable (prior year non-cash interest income and lower interest rates) and $3.0 million lower interest on cash equivalents[167] - Interest expense increased by $8.8 million (22%), primarily due to lower capitalized interest for VALARIS DS-13 and DS-14[168] - Net foreign currency exchange shifted from $7.9 million gain in H1 2024 to $14.3 million loss in H1 2025, driven by unfavorable movements in euros, Brazilian real, and British pounds[170] Liquidity and Capital Resources The company maintains a strong liquidity position with significant cash, available credit, and no near-term debt maturities Liquidity Valaris expects to fund liquidity needs from cash, operations, and its revolving credit facility - Short-term liquidity needs are expected to be met by cash and cash equivalents and cash flows from operations[171] - Long-term liquidity needs will be funded by cash, operations, Notes Receivable from ARO, and ARO earnings distributions, with potential future debt/equity issuances[171] - Cash and cash equivalents were $503.4 million as of June 30, 2025, with $375.0 million available under the 2028 Credit Agreement[172] Financing The company's financing structure includes $1.1 billion in notes and a $375.0 million credit agreement - The company has $1.1 billion in 2030 Second Lien Notes, maturing April 30, 2030, with an 8.375% interest rate[173] - The 2028 Credit Agreement provides for up to $375.0 million in borrowings, including a $150.0 million sublimit for letters of credit[174] Cash Flows and Capital Expenditures Operating cash flow increased significantly, while capital expenditures were focused on maintenance and upgrades Cash Flows and Capital Expenditures (Six Months Ended June 30, in millions) | Metric | 2025 | 2024 | | :--- | :----- | :----- | | Net cash provided by operating activities | $275.9 | $37.8 | | Capital expenditures | $(167.4) | $(261.5) | - Operating cash flow for H1 2025 was $275.9 million, primarily from $307.1 million operating income and $26.0 million Australian tax refunds[175] - Expected capital expenditures for 2025 are $375.0 million to $415.0 million, mainly for maintenance and upgrades[178] Investment in ARO and Notes Receivable from ARO The company expects future cash from ARO through note maturities and potential earnings distributions - Cash is expected from ARO through the maturity of Notes Receivable and distribution of earnings[180] - ARO's earnings distributions are at the discretion of its board and influenced by liquidity and capital requirements; no cash distributions have been made since formation[181] Notes Receivable from ARO Maturity Schedule (as of June 30, 2025, in millions) | Maturity Date | Principal Amount | | :--- | :--- | | October 2027 | $213.6 | | October 2028 | $163.0 | | Total | $376.6 | Share Repurchase Program The company has $275.0 million remaining under its share repurchase program, with no recent activity - The board authorized a share repurchase program of up to $600.0 million[184] - Approximately $275.0 million remained available for share repurchases as of June 30, 2025[184] - No share repurchases were made during the three and six months ended June 30, 2025 and 2024[184] Other Commitments Valaris has outstanding letters of credit and a potential funding obligation for ARO's newbuild rigs - Contingently liable for $30.0 million under outstanding letters of credit, with $11.2 million in collateral deposits as of June 30, 2025[185] - Potential obligation to fund ARO for newbuild jackup rigs, with commitment reduced to $1.1 billion after Kingdom 2 delivery[186][187] - ARO ordered Kingdom 3 for approximately $300.0 million, with a 25% down payment made from cash on hand[187] Tax Assessments The company is contesting a Malaysian tax assessment and recently settled assessments in Australia - Contesting a Malaysian tax assessment of approximately $28.0 million for 2012-2017; all payments under a seven-month plan completed as of June 30, 2025[188] - Settled Australian tax assessments for A$4.0 million in December 2024, releasing $18.0 million of uncertain tax liability and receiving A$42.0 million ($26.0 million) in refunds in Q1 2025[189] Divestitures Valaris continues to monetize non-core assets to enhance shareholder value and liquidity - Agreement to sell VALARIS 247 for approximately $108.0 million, with an expected pre-tax gain of $87.0 million[191] - Sold VALARIS 75 for $24.0 million, resulting in a pre-tax gain of approximately $23.0 million[192] - Three semisubmersible rigs (VALARIS DPS-3, DPS-5, DPS-6) were sold for recycling for total cash proceeds of $10.0 million[193] Market Risk The company is exposed to interest rate risk and foreign currency risk from its global operations Interest Rate Risk Valaris is exposed to interest rate risk on its fixed-rate notes and variable-rate credit agreement - Exposed to interest rate risk on fixed-interest rate 2030 Second Lien Notes and variable-rate borrowings under the 2028 Credit Agreement[195][196] - Notes Receivable from ARO bear interest based on the one-year term SOFR rate plus 2.10%, with the 2025 rate already determined[197] - A hypothetical 1% decrease to SOFR would decrease 2025 interest income by $3.8 million[197] Foreign Currency Risk The company is exposed to foreign currency risk as some revenues and expenses are in other currencies - Functional currency is the U.S dollar, but exposed to foreign currency exchange risk due to revenues and expenses in other currencies[198] - The company does not currently hedge its foreign currency risk[198] Critical Accounting Policies The company's critical accounting policies require significant judgment and estimates - Critical accounting policies, requiring significant judgment and estimates, include property and equipment, income taxes, and pension and other post-retirement benefits[200] New Accounting Pronouncements Information on new accounting pronouncements is provided in Note 1 of the financial statements - Information on new accounting pronouncements is provided in Note 1 to the condensed consolidated financial statements[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item incorporates by reference the market risk disclosures from the MD&A section - Market risk disclosures are incorporated from 'Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk'[202] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025 - Disclosure controls and procedures were effective as of June 30, 2025[204] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[205] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section details ongoing legal proceedings, which are not expected to have a material adverse effect Environmental Matters The company is contesting assessments for drilling fluid spills in Brazil and has recorded a small liability - Subject to pending notices of assessment for drilling fluid spills in Brazil (2008-2019), with a $0.5 million liability as of June 30, 2025[208] Other Matters The company is involved in various other routine lawsuits and investigations incidental to its business Item 1A. Risk Factors This item refers readers to the comprehensive risk factor discussion in the annual report on Form 10-K - Significant risk factors are detailed in the annual report on Form 10-K for the year ended December 31, 2024[211] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reiterates the status of the company's share repurchase program - The company has a $600.0 million share repurchase program, with approximately $275.0 million remaining available as of June 30, 2025[212] - No share repurchases were made during the three months ended June 30, 2025[212] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[213] Item 6. Exhibits This item lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Includes certifications (Sarbanes-Oxley Sections 302 and 906) and XBRL Instance Document, Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[214] Signatures This section contains the required signatures confirming the report's submission on behalf of Valaris Limited - The report is signed by Christopher T Weber, Senior Vice President and Chief Financial Officer, and Melissa Barron, Controller, on July 31, 2025[220]