SEC Filing | Helix Energy Solutions Group, Inc.

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hlx-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to__________

Commission File Number: 001-32936

https://cdn.kscope.io/0712a473d5b835b868255dcd9b172470-hlx-20200630_g1.jpg

HELIX ENERGY SOLUTIONS GROUP, INC.

(Exact name of registrant as specified in its charter)

Minnesota

95-3409686

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3505 West Sam Houston Parkway North

Suite 400

Houston

Texas

77043

(Address of principal executive offices)

(Zip Code)

(281) 618–0400

(Registrant's telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

HLX

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No

As of July 17, 2020, 150,059,233 shares of common stock were outstanding.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	PAGE

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets – June 30, 2020 (Unaudited) and December 31, 2019	3

	Condensed Consolidated Statements of Operations (Unaudited) – Three and six months ended June 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three and six months ended June 30, 2020 and 2019	5

	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Three months ended June 30, 2020 and 2019	6

	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) – Six months ended June 30, 2020 and 2019	7

	Condensed Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44

Item 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	45

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6.	Exhibits	47

	Signatures	48

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


	June 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	178,367	$	208,431
Restricted cash	42,127		54,130
Accounts receivable, net of allowance for credit losses of $3,209 and $0, respectively	165,941		125,457

Other current assets	91,818		50,450
Total current assets	478,253		438,468
Property and equipment	2,879,522		2,922,274
Less accumulated depreciation	(1,100,105)		(1,049,637)
Property and equipment, net	1,779,417		1,872,637


Operating lease right-of-use assets	174,803		201,118
Other assets, net	52,196		84,508
Total assets	$	2,484,669	$	2,596,731

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	71,402	$	69,055
Accrued liabilities	80,268		62,389

Current maturities of long-term debt	82,028		99,731
Current operating lease liabilities	53,023		53,785
Total current liabilities	286,721		284,960
Long-term debt	304,834		306,122
Operating lease liabilities	124,983		151,827
Deferred tax liabilities	103,773		112,132
Other non-current liabilities	6,286		38,644
Total liabilities	826,597		893,685
Redeemable noncontrolling interests	3,372		3,455
Shareholders’ equity:
Common stock, no par, 240,000 shares authorized, 150,040 and 148,888 shares issued, respectively	1,318,531		1,318,961
Retained earnings	436,107		445,370
Accumulated other comprehensive loss	(99,938)		(64,740)
Total shareholders’ equity	1,654,700		1,699,591
Total liabilities, redeemable noncontrolling interests and shareholders’ equity	$	2,484,669	$	2,596,731

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

Net revenues	$	199,147	$	201,728	$	380,168	$	368,551
Cost of sales	169,571		161,794		348,582		312,363
Gross profit	29,576		39,934		31,586		56,188
Gain on disposition of assets, net	473		—		473		—
Goodwill impairment	—		—		(6,689)		—
Selling, general and administrative expenses	(15,855)		(16,862)		(32,203)		(32,847)
Income (loss) from operations	14,194		23,072		(6,833)		23,341
Equity in losses of investment	(2)		(29)		(22)		(69)
Net interest expense	(7,063)		(2,205)		(12,809)		(4,303)
Loss on extinguishment of long-term debt	—		(18)		—		(18)
Other expense, net	(2,069)		(1,311)		(12,496)		(145)
Royalty income and other	119		190		2,318		2,535
Income (loss) before income taxes	5,179		19,699		(29,842)		21,341
Income tax provision (benefit)	(271)		2,876		(21,364)		3,200
Net income (loss)	5,450		16,823		(8,478)		18,141
Net loss attributable to redeemable noncontrolling interests	—		(31)		(1,990)		(31)
Net income (loss) attributable to common shareholders	$	5,450	$	16,854	$	(6,488)	$	18,172

Earnings (loss) per share of common stock:
Basic	$	0.04	$	0.11	$	(0.06)	$	0.12
Diluted	$	0.04	$	0.11	$	(0.06)	$	0.12

Weighted average common shares outstanding:
Basic	148,971		147,521		148,917		147,471
Diluted	149,691		148,101		148,917		147,931

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

Net income (loss)	$	5,450	$	16,823	$	(8,478)	$	18,141
Other comprehensive income (loss), net of tax:
Net unrealized gain (loss) on hedges arising during the period	1		(278)		(95)		(427)
Reclassifications into earnings	25		1,975		452		3,821
Income taxes on hedges	(6)		(340)		(72)		(682)
Net change in hedges, net of tax	20		1,357		285		2,712





Foreign currency translation loss	(1,896)		(3,065)		(35,483)		(263)
Other comprehensive income (loss), net of tax	(1,876)		(1,708)		(35,198)		2,449
Comprehensive income (loss)	3,574		15,115		(43,676)		20,590
Less comprehensive loss attributable to redeemable noncontrolling interests:
Net loss	—		(31)		(1,990)		(31)
Foreign currency translation loss	(20)		—		(248)		—
Comprehensive loss attributable to redeemable noncontrolling interests	(20)		(31)		(2,238)		(31)
Comprehensive income (loss) attributable to common shareholders	$	3,594	$	15,146	$	(41,438)	$	20,621

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Redeemable Noncontrolling Interests
	Shares	Amount

Balance, March 31, 2020	149,962	$	1,316,401	$	430,726	$	(98,062)	$	1,649,065	$	3,323
Net income	—	—		5,450		—		5,450		—
Foreign currency translation adjustments	—	—		—		(1,896)		(1,896)		(20)
Unrealized gain on hedges, net of tax	—	—		—		20		20		—

Accretion of redeemable noncontrolling interests	—	—		(69)		—		(69)		69
Activity in company stock plans, net and other	78	217		—		—		217		—
Share-based compensation	—	1,913		—		—		1,913		—
Balance, June 30, 2020	150,040	$	1,318,531	$	436,107	$	(99,938)	$	1,654,700	$	3,372


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Redeemable Noncontrolling Interests
	Shares	Amount

Balance, March 31, 2019	148,785	$	1,310,738	$	388,912	$	(69,807)	$	1,629,843	$	—
Net income (loss)	—	—		16,854		—		16,854		(31)
Foreign currency translation adjustments	—	—		—		(3,065)		(3,065)		—
Unrealized gain on hedges, net of tax	—	—		—		1,357		1,357		—
Issuance of redeemable noncontrolling interests	—	—		—		—		—		3,396
Accretion of redeemable noncontrolling interests	—	—		(18)		—		(18)		18
Activity in company stock plans, net and other	(26)	(320)		—		—		(320)		—
Share-based compensation	—	3,745		—		—		3,745		—
Balance, June 30, 2019	148,759	$	1,314,163	$	405,748	$	(71,515)	$	1,648,396	$	3,383

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Redeemable Noncontrolling Interests
	Shares	Amount

Balance, December 31, 2019	148,888	$	1,318,961	$	445,370	$	(64,740)	$	1,699,591	$	3,455
Net loss	—	—		(6,488)		—		(6,488)		(1,990)
Expected credit losses recognized in retained earnings upon adoption of ASU 2016-13	—	—		(620)		—		(620)		—
Foreign currency translation adjustments	—	—		—		(35,483)		(35,483)		(248)
Unrealized gain on hedges, net of tax	—	—		—		285		285		—

Accretion of redeemable noncontrolling interests	—	—		(2,155)		—		(2,155)		2,155
Activity in company stock plans, net and other	1,152	(4,513)		—		—		(4,513)		—
Share-based compensation	—	4,083		—		—		4,083		—
Balance, June 30, 2020	150,040	$	1,318,531	$	436,107	$	(99,938)	$	1,654,700	$	3,372


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Redeemable Noncontrolling Interests
	Shares	Amount

Balance, December 31, 2018	148,203	$	1,308,709	$	383,034	$	(73,964)	$	1,617,779	$	—
Net income (loss)	—	—		18,172		—		18,172		(31)
Reclassification of deferred gain from sale and leaseback transaction to retained earnings	—	—		4,560		—		4,560		—
Foreign currency translation adjustments	—	—		—		(263)		(263)		—
Unrealized gain on hedges, net of tax	—	—		—		2,712		2,712		—
Issuance of redeemable noncontrolling interests	—	—		—		—		—		3,396
Accretion of redeemable noncontrolling interests	—	—		(18)		—		(18)		18
Activity in company stock plans, net and other	556	(979)		—		—		(979)		—
Share-based compensation	—	6,433		—		—		6,433		—
Balance, June 30, 2019	148,759	$	1,314,163	$	405,748	$	(71,515)	$	1,648,396	$	3,383

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net income (loss)	$	(8,478)	$	18,141
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	65,567		56,512
Goodwill impairment	6,689		—
Amortization of debt discounts	3,316		3,070
Amortization of debt issuance costs	1,619		1,896
Share-based compensation	4,245		6,501
Deferred income taxes	(7,098)		845
Equity in losses of investment	22		69
Gain on disposition of assets, net	(473)		—
Loss on extinguishment of long-term debt	—		18
Unrealized gain on derivative contracts, net	(601)		(1,740)
Unrealized foreign currency loss	10,433		(568)
Changes in operating assets and liabilities:
Accounts receivable, net	(44,698)		(30,656)
Income tax receivable	(19,078)		(3,122)
Other current assets	(23,751)		(2,957)

Accounts payable and accrued liabilities	35,219		665
Other, net	(16,891)		(16,113)
Net cash provided by operating activities	6,042		32,561

Cash flows from investing activities:
Capital expenditures	(17,579)		(27,458)
STL acquisition, net	—		(4,081)

Proceeds from sale of assets	498		2,525

Net cash used in investing activities	(17,081)		(29,014)

Cash flows from financing activities:




Proceeds from term loan	—		35,000
Repayment of term loans	(1,750)		(33,692)
Repayment of Nordea Q5000 Loan	(17,858)		(17,857)
Repayment of MARAD Debt	(3,556)		(3,387)
Debt issuance costs	(310)		(1,485)

Payments related to tax withholding for share-based compensation	(5,150)		(1,329)
Proceeds from issuance of ESPP shares	475		281
Net cash used in financing activities	(28,149)		(22,469)

Effect of exchange rate changes on cash and cash equivalents and restricted cash	(2,879)		605
Net decrease in cash and cash equivalents and restricted cash	(42,067)		(18,317)
Cash and cash equivalents and restricted cash:
Balance, beginning of year	262,561		279,459
Balance, end of period	$	220,494	$	261,142

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HELIX ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation and New Accounting Standards

The accompanying condensed consolidated financial statements include the accounts of Helix Energy Solutions Group, Inc. and its subsidiaries (collectively, “Helix”). Unless the context indicates otherwise, the terms “we,” “us” and “our” in this report refer collectively to Helix and its subsidiaries. All material intercompany accounts and transactions have been eliminated. These unaudited condensed consolidated financial statements have been prepared pursuant to instructions for the Quarterly Report on Form 10-Q required to be filed with the Securities and Exchange Commission (the “SEC”) and do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP in U.S. dollars and are consistent in all material respects with those applied in our 2019 Annual Report on Form 10-K (our “2019 Form 10-K”) with the exception of the impact of adopting the new credit loss accounting standard in 2020 (see below). The preparation of these financial statements requires us to make estimates and judgments that affect the amounts reported in the financial statements and the related disclosures. Actual results may differ from our estimates. We have made all adjustments, which, unless otherwise disclosed, are of normal recurring nature, that we believe are necessary for a fair presentation of the condensed consolidated balance sheets, statements of operations, statements of comprehensive income and statements of cash flows, as applicable. The operating results for the three- and six-month periods ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Our balance sheet as of December 31, 2019 included herein has been derived from the audited balance sheet as of December 31, 2019 included in our 2019 Form 10-K. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in our 2019 Form 10-K.

Certain reclassifications were made to previously reported amounts in the consolidated financial statements and notes thereto to make them consistent with the current presentation format.

COVID-19

In March 2020, the World Health Organization classified the outbreak of COVID-19 as a pandemic. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity, as governments around the world imposed regulations in efforts to control the spread of COVID-19 such as shelter-in-place orders, quarantines, executive orders and similar restrictions. As a result, the global economy has been marked by significant slowdown and uncertainty, which led to a precipitous decline in oil prices in response to demand concerns and global storage considerations. The decline in oil prices has resulted in a significantly weaker outlook for oil and gas producers, many of which are cutting their capital and operating budgets. Our financial statements for the three- and six-month periods ended June 30, 2020 reflect the impact of these events and current market conditions, which include the recognition of goodwill impairment losses (Note 6) and tax benefits resulting from the U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Note 8), reduced utilization on our vessels due to customers deferring work as well as costs related to our crew changes. The continued spread of, or failure to contain, COVID-19 or continued oil price volatility could result in further adverse impact on our results of operations, cash flows and financial position, including further asset impairments.

New accounting standards adopted

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” which was updated by subsequent amendments. This ASU replaces the current incurred loss model for measurement of credit losses on financial assets (including trade receivables) with a forward-looking expected loss model based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance became effective for us as of January 1, 2020 and resulted in the recognition of $0.6 million (net of deferred taxes of $0.2 million) of allowances for expected credit losses related to our accounts receivable through a cumulative effect offset to retained earnings. The new credit loss standard is expected to accelerate recognition of credit losses on our accounts receivable. See Note 17 for additional information regarding allowance for credit losses on our accounts receivable.

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New accounting standards issued but not yet effective

We do not expect any other new accounting standards to have a material impact on our financial position, results of operations or cash flows when they become effective.

Note 2 — Company Overview

We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations. We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. Our services also include subsea cable burial and seabed clearing services for the offshore renewable energy sector. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our services are segregated into three reportable business segments: Well Intervention, Robotics and Production Facilities (Note 13).

Our Well Intervention segment includes our vessels and/or equipment used to perform well intervention services primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and two chartered monohull vessels, the Siem Helix 1 and the Siem Helix 2. Our well intervention equipment includes intervention riser systems (“IRSs”) and subsea intervention lubricators (“SILs”), some of which we provide on a stand-alone basis.

Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and a ROVDrill, which are designed to complement well intervention services and offshore construction to both the oil and gas and the renewable energy markets. Our Robotics segment also includes two robotics support vessels under long-term charter, the Grand Canyon II and the Grand Canyon III, as well as spot vessels as needed, including the Ross Candies, which is under a flexible charter agreement through August 2020.

Our Production Facilities segment includes the Helix Producer I (the “HP I”), a ship-shaped dynamically positioned floating production vessel, the Helix Fast Response System (the “HFRS”), our ownership interest in Independence Hub, LLC (“Independence Hub”) (Note 4), and our ownership of oil and gas properties. All of our current production facilities activities are located in the Gulf of Mexico.

On May 29, 2019, we acquired a 70% controlling interest in Subsea Technologies Group Limited (“STL”), a subsea engineering firm based in Aberdeen, Scotland, for $5.1 million. The holders of the remaining 30% noncontrolling interest have the right to put their shares to us in June 2024. These redeemable noncontrolling interests were recognized as temporary equity at their estimated fair value of $3.4 million at the acquisition date. In March 2020, we recorded an impairment loss to write off the goodwill associated with the STL acquisition (Note 6). STL is included in our Well Intervention segment (Note 13) and its revenue and earnings are immaterial to our consolidated results.

Note 3 — Details of Certain Accounts

Other current assets consist of the following (in thousands):


	June 30, 2020		December 31, 2019

Contract assets (Note 10)	$	443	$	740
Prepaids	11,001		12,635
Deferred costs (Note 10)	25,774		28,340
Income tax receivable	18,927		1,261
Other receivable ⁽¹⁾	28,541		—
Other	7,132		7,474
Total other current assets	$	91,818	$	50,450

(1)Agreed-upon amounts to be paid by Marathon Oil Corporation (“Marathon Oil”) as the required plug and abandonment (“P&A”) work is completed (Note 14).

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Other assets, net consist of the following (in thousands):


	June 30, 2020		December 31, 2019

Prepaids	$	611	$	777
Deferred recertification and dry dock costs, net	27,020		16,065
Deferred costs (Note 10)	6,289		14,531
Charter deposit ⁽¹⁾	12,544		12,544
Other receivable ⁽²⁾	—		27,264
Goodwill (Note 6)	—		7,157
Intangible assets with finite lives, net	3,645		3,847
Other	2,087		2,323
Total other assets, net	$	52,196	$	84,508

(1)