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Helix Energy Solutions(HLX) - 2022 Q4 - Annual Report

Part I Business Helix is an international offshore energy services company specializing in well intervention, robotics, and decommissioning services globally - Helix operates a three-legged business model focused on maximizing production of existing oil and gas reserves, supporting renewable energy developments, and decommissioning end-of-life fields15 - The company's services are divided into four reportable business segments: Well Intervention, Robotics, Production Facilities, and the new Shallow Water Abandonment segment, which was formed in Q3 2022 after the acquisition of Alliance19 Major Customer Revenue Concentration | Year | Customer | Percentage of Consolidated Revenue | | :--- | :--- | :--- | | 2022 | Shell | 15% | | 2021 | Petrobras | 23% | | 2021 | Shell | 17% | | 2020 | Petrobras | 28% | | 2020 | BP | 17% | Our Operations Helix's operations offer comprehensive offshore energy services, including well intervention, robotics, and decommissioning - The Well Intervention segment includes seven purpose-built vessels (Q4000, Q5000, Q7000, Seawell, Well Enhancer, Siem Helix 1, Siem Helix 2) and 12 intervention systems2024 - The Robotics segment's assets as of December 31, 2022, included 41 work class ROVs, seven trenchers, and the IROV boulder grab. In 2022, 43% of this segment's revenue came from offshore renewable energy contracts3031 - The Shallow Water Abandonment segment was added in July 2022 through the acquisition of Alliance, providing decommissioning services in the Gulf of Mexico shelf with assets including liftboats, OSVs, DSVs, and a heavy lift derrick barge2232 - The Production Facilities segment operates the Helix Producer I (HP I) floating production vessel and the Helix Fast Response System (HFRS) for well control incidents in the Gulf of Mexico233334 Human Capital Resources Helix employed 2,280 people as of December 31, 2022, emphasizing safety, diversity, and workforce retention - As of December 31, 2022, the company had 2,280 employees, with 447 covered by collective bargaining agreements47 - The global voluntary turnover rate was 12.5% in 2022 (excluding Alliance acquisition employees), and 57% of the workforce has been with Helix for five years or longer51 - The company's Board of Directors added two new gender and ethnically diverse members in September 2022 as part of its board refreshment process54 Government and Environmental Regulation Helix's global operations are subject to extensive international and national regulations, including environmental laws and cabotage rules - Operations are subject to extensive regulation in the Gulf of Mexico, U.S. East Coast, Brazil, North Sea, Asia Pacific, and West Africa, including oversight from bodies like the U.S. Coast Guard, EPA, BOEM, and BSEE5658 - The company is subject to local content requirements and cabotage rules, such as the Jones Act in the U.S., which restricts maritime cargo transportation to U.S.-built, owned, and crewed vessels6263 - Key environmental regulations include the Oil Pollution Act (OPA), which imposes strict liability for oil spills, and MARPOL, which sets standards for pollution prevention from ships6869 Risk Factors The company faces significant market, operational, financial, and regulatory risks, including volatile commodity prices and debt - The business is highly dependent on the cyclical oil and gas market and is adversely affected by low oil and gas prices, which reduce customer capital expenditures108 - As of December 31, 2022, the company had a service backlog of $847 million, but there is a risk it may not be fully realized due to potential contract cancellations or modifications116 - As of December 31, 2022, the company had consolidated indebtedness of $264 million, which could impair financial condition and limit operational flexibility140 - The company is subject to the Jones Act due to its acquisition of 21 U.S. flagged vessels. Failure to maintain U.S. citizen status, including non-U.S. citizens owning 25% or more of common stock, could adversely affect operations155 Unresolved Staff Comments There are no unresolved staff comments - None172 Properties As of December 31, 2022, Helix's fleet comprised 27 owned and six chartered vessels, plus robotics assets and leased facilities Owned and Chartered Assets as of Dec 31, 2022 | Asset Type | Owned | Chartered | Total/Key Details | | :--- | :--- | :--- | :--- | | Vessels | 27 | 6 | Includes Q4000, Q5000, Q7000, Siem Helix 1&2 | | Intervention Systems | 8 IRSs, 3 SILs, 1 ROAM | - | 12 total systems | | P&A / Coiled Tubing | 15 P&A, 6 Coiled Tubing | - | 21 total systems | | Robotics Assets | 41 ROVs, 7 Trenchers, 1 IROV | - | 49 total assets | - The company's corporate headquarters are located in Houston, Texas. Most facilities are leased, with primary locations in Texas, Louisiana, Scotland, Singapore, and Brazil179 Legal Proceedings The company faces lawsuits from offshore employees seeking overtime, impacted by a recent adverse Supreme Court ruling - The company is involved in several collective action lawsuits from offshore employees seeking overtime compensation463 - The U.S. Supreme Court issued an adverse ruling against the company in Q1 2023 related to one of these lawsuits, which is expected to affect similar pending cases463 Mine Safety Disclosures This item is not applicable to the company - None181 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Helix common stock trades on NYSE as HLX, with no cash dividends planned and a new $200 million share repurchase program - The company's common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol 'HLX'187 - The company does not currently pay cash dividends and intends to reinvest earnings for future growth, acquisitions, or share repurchases188 - On February 20, 2023, the Board authorized a new share repurchase program for up to $200 million of common stock, revoking a previous authorization195249 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2022, Helix's revenue increased 29% to $873.1 million, reporting a net loss of $87.8 million despite improved Adjusted EBITDA Financial Performance Summary (2022 vs 2021) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net Revenues | $873.1M | $674.7M | +29% | | Gross Profit | $50.6M | $15.4M | +229% | | Net Loss | ($87.8M) | ($61.7M) | Increased Loss | | Adjusted EBITDA | $121.0M | $96.3M | +26% | | Backlog (Year-End) | $847M | $348M | +143% | - The acquisition of Alliance on July 1, 2022, created the new Shallow Water Abandonment segment, which contributed $124.8 million in revenue in the second half of 2022215224 - Robotics segment revenue grew 40% to $191.9 million in 2022, driven by higher vessel, trenching, and ROV activities, with gross margin improving from 10% to 20%224225228 Results of Operations In 2022, consolidated net revenues increased 29% to $873.1 million, driven by new segments and Robotics growth, resulting in a net loss Revenues by Segment (in thousands) | Segment | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Well Intervention | $524,241 | $516,564 | 1% | | Robotics | $191,921 | $137,295 | 40% | | Shallow Water Abandonment | $124,810 | $— | 100% | | Production Facilities | $82,315 | $69,348 | 19% | | Total | $873,100 | $674,728 | 29% | Gross Profit (Loss) by Segment (in thousands) | Segment | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Well Intervention | $(40,107) | $(21,262) | 89% (Wider Loss) | | Robotics | $37,507 | $13,441 | 179% | | Shallow Water Abandonment | $23,919 | $— | 100% | | Production Facilities | $30,666 | $25,024 | 23% | | Total | $50,616 | $15,393 | 229% | - The company incurred $2.7 million in acquisition and integration costs and a $16.1 million non-cash charge for the change in fair value of contingent consideration related to the Alliance acquisition234235 Liquidity and Capital Resources As of December 31, 2022, Helix's liquidity was $284.7 million, with cash flow from operations decreasing to $51.1 million Liquidity and Debt Summary (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Net working capital | $162,634 | $251,255 | | Long-term debt | $225,875 | $262,137 | | Liquidity (Cash + ABL Availability) | $284,729 | $304,660 | Cash Flow Summary (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating Activities | $51,108 | $140,117 | | Investing Activities | $(138,289) | $(8,271) | | Financing Activities | $(44,844) | $(95,997) | - Material cash requirements as of Dec 31, 2022, total $783.8 million, including debt, interest, operating leases, and an estimated $42.8 million earn-out consideration for the Alliance acquisition payable in 2024256 Quantitative and Qualitative Disclosures About Market Risk Helix is exposed to market risks including foreign currency, interest rates, and commodity prices, with a $23.4 million foreign currency loss in 2022 - The company is exposed to foreign currency risk, primarily from the British pound. It recorded a foreign currency transaction loss of $23.4 million in 2022, compared to a $1.5 million loss in 2021271272 - As of the report date, the company has no outstanding debt subject to floating interest rates, thus having no immediate exposure to interest rate risk on existing debt273 - The company is exposed to volatile oil and natural gas prices through its ownership of production properties in the Production Facilities segment274 Financial Statements and Supplementary Data This section presents Helix's audited consolidated financial statements, including KPMG's unqualified opinion and critical audit matters Report of Independent Registered Public Accounting Firm KPMG issued an unqualified opinion on Helix's financial statements, highlighting critical audit matters on property impairment and acquisition fair value - The auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements275 - A critical audit matter was the evaluation of property and equipment for impairment triggering events, requiring subjective judgment regarding the impact of low utilization and day rates281 - A second critical audit matter was the fair value measurement of the contingent consideration and property and equipment from the Alliance acquisition, involving complex assumptions about gross profit, replacement cost, and economic obsolescence284 Consolidated Financial Statements The consolidated financial statements show total assets of $2.39 billion, a net loss of $87.8 million, and $51.1 million cash from operations Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $460,589 | $529,538 | | Property and equipment, net | $1,641,615 | $1,657,645 | | Total Assets | $2,389,338 | $2,326,028 | | Total Current Liabilities | $297,955 | $278,283 | | Long-term debt | $225,875 | $262,137 | | Total Liabilities | $872,629 | $678,559 | | Total Shareholders' Equity | $1,516,709 | $1,647,469 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Revenues | $873,100 | $674,728 | $733,555 | | Gross Profit | $50,616 | $15,393 | $79,909 | | Income (loss) from operations | $(44,855) | $(48,687) | $13,025 | | Net income (loss) | $(87,784) | $(61,684) | $20,084 | Notes to Consolidated Financial Statements The notes detail the $145.7 million Alliance acquisition, $264.1 million long-term debt, and $846.7 million backlog - On July 1, 2022, the company acquired Alliance for a preliminary purchase price of $145.7 million, including $119.0 million in cash and $26.7 million in contingent consideration364365 - Total long-term debt as of Dec 31, 2022, was $264.1 million, consisting of the 2023 Notes ($30M), 2026 Notes ($200M), and MARAD Debt ($40.9M), net of issuance costs380 - As of Dec 31, 2022, unsatisfied performance obligations (backlog) totaled $846.7 million, with $532.6 million expected to be recognized as revenue in 2023423 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - None471 Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that disclosure controls and procedures were effective as of December 31, 2022472 - The assessment of internal controls excluded the Alliance business, acquired on July 1, 2022, in accordance with SEC guidance for recent acquisitions473 - There were no material changes in internal control over financial reporting during the fourth quarter of 2022478 Other Information There is no other information to report - None479 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders482 - The company's Code of Business Conduct and Ethics is available on its website at www.helixesg.com[483](index=483&type=chunk) Executive Compensation Information on executive compensation is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders485 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders486 Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders487 Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Shareholders488 Part IV Exhibits and Financial Statement Schedules This section lists the financial statements and exhibits filed with the Form 10-K, with all financial statement schedules omitted - This section includes a list of all financial statements filed with the report490494 - All financial statement schedules are omitted because the required information is not applicable or is included elsewhere in the filing491 Form 10-K Summary No Form 10-K summary is provided - None507