Valaris PLC (VAL), a leader in offshore drilling services, reported a solid financial performance in its Third Quarter 2024 Earnings Call, underscoring a strong market presence and future growth potential. CEO Anton Dibowitz and CFO Chris Weber shared that the company generated $111 million in free cash flow and achieved an adjusted EBITDA of $150 million, an increase from the previous quarter. Valaris also announced the repurchase of $100 million of shares, reflecting its commitment to shareholder returns. The company secured new contracts totaling approximately $257 million, indicating a stable offshore drilling market, despite some delays in customer demand.
Key Takeaways
Valaris generated $111 million in free cash flow and reported an adjusted EBITDA of $150 million.The company repurchased $100 million of shares, maintaining a high revenue efficiency across its fleet.New contracts worth around $257 million were secured, including significant deals with BP (NYSE:) and extensions for existing rigs.The global jack-up market shows stability, with a 93% utilization rate and firm day rates.Long-term demand is anticipated in various regions, with a strong pipeline of opportunities and active discussions for rig contracts.
Company Outlook
Valaris anticipates providing full-year 2025 guidance in the fourth quarter as market visibility improves.The company expects to conclude ongoing tenders and convert approximately 30 long-term floater opportunities into contracts.Robust backlog and active discussions indicate a strong market position, with potential for up to 4 additional rigs needed in Nigeria by the end of 2026.
Bearish Highlights
Customer demand has been deferred into 2026, primarily due to equipment availability and regulatory delays.Third-quarter revenue projections are between $570 million and $590 million due to reduced utilization.Warm-stacked rigs are being managed to minimize idle costs, with operational expenses aimed at approximately $60,000 per day.
Bullish Highlights
The offshore drilling market remains robust, especially in deepwater, supported by major investments from TotalEnergies (EPA:) and Exxon (NYSE:).Valaris is focusing on securing long-term contracts and is optimistic about the market conditions for 2026 and beyond.The company’s strategy includes prioritizing high utilization of the active fleet and managing costs prudently during market lulls.
Misses
The company has extended the activation timeline for high-spec rigs sidelined, such as the DS-11, DS-13, and DS-14, due to market headwinds.
Q&A Highlights
Day rates have been stable in the high 400s, with fluctuations expected based on market conditions and asset quality.Delays in production equipment, notably FPSOs, have contributed to the deferral of customer demand.Valaris is not actively pursuing M&A to scale its fleet, focusing instead on value-accretive investments.The company is considering rig upgrades during downtime to enhance efficiency and reduce emissions.Dibowitz emphasized that 90% of offshore projects remain profitable at a $70 per barrel oil price, with production costs ranging from $20 to $40, making large developments economically compelling.
Valaris’ strong performance in the third quarter of 2024 and its strategic approach to fleet management and shareholder returns paint a positive picture for the company’s future. With a stable market, solid financials, and a commitment to strategic growth, Valaris is positioned to capitalize on the anticipated demand in the offshore drilling sector.
InvestingPro Insights
Valaris PLC’s (VAL) strong financial performance in Q3 2024 is further supported by key metrics from InvestingPro. The company’s revenue growth of 30.45% over the last twelve months as of Q3 2024 aligns with the robust market conditions described in the earnings call. This growth is even more impressive when looking at the quarterly revenue growth of 41.31% in Q3 2024, indicating accelerating momentum.
The company’s profitability is particularly noteworthy, with an adjusted P/E ratio of 3.6, significantly lower than many industry peers. This low P/E ratio suggests that Valaris may be undervalued relative to its earnings potential, which could be attractive for value investors considering the company’s positive outlook and strong market position in offshore drilling.
InvestingPro Tips highlight additional strengths:
1. Valaris boasts a high return on assets at 27.23%, indicating efficient use of its assets to generate profits. This aligns with management’s focus on high utilization of the active fleet and prudent cost management.
2. The company’s EBITDA growth of 210.57% over the last twelve months as of Q3 2024 is remarkable, reflecting the strong operational performance mentioned in the earnings call.
These insights from InvestingPro complement the company’s narrative of solid financial performance and strategic positioning in the offshore drilling market. Investors seeking a deeper understanding of Valaris’ financial health and market position can access additional tips and metrics through InvestingPro, which offers a total of 14 tips for VAL.
Full transcript – Valspar Corp (VAL) Q3 2024:
Operator: Good day, and welcome to the Valaris Third Quarter 2024 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nick Georgas, Vice President Treasurer and Investor Relations. Please go ahead.
Nick Georgas: Welcome, everyone, to the Valaris third quarter 2024 conference call. With me today are President and CEO, Anton Dibowitz; Senior Vice President and CFO, Chris Weber; Senior Vice President and CCO, Matt Lyne and other members of our executive management team. We issued our press release, which is available on our website at valaris.com. Any comments we make today about expectations are forward-looking statements and are subject to risks and uncertainties. Many factors could cause actual results to differ materially from our expectations. Please refer to our press release and SEC filings on our website that define forward-looking statements and list risk factors and other events that could impact future results. Also, please note that the company undertakes no duty to update forward-looking statements. During this call, we will refer to GAAP and non-GAAP financial measures. Please see the press release on our website for additional information and required reconciliations. Earlier this week, we issued our most recent Fleet Status Report, which provides details on contracts across our rig fleet. An updated investor presentation will be available on our website after the call. Now, I’ll turn the call over to Anton Dibowitz, President and CEO.
Anton Dibowitz: Thanks, Nick and good morning and afternoon to everyone. During today’s call, I will begin with an overview of our performance during the quarter and provide an update on the offshore drilling market.
We are strategically stacking rigs that do not have near-term contracts, such as Valaris DS-12, to reduce operating costs and preserve the value of these assets for future opportunities. Additionally, we are actively marketing our stacked rigs to identify potential opportunities that could create value for our shareholders. In the jackup market, we continue to see strong demand for high-specification assets, particularly in the Middle East and Southeast Asia. Our modern jackup fleet is well positioned to capitalize on this demand, and we have secured several new contracts recently, including a three-year contract extension for Valaris JU-87 in the Middle East. Looking ahead, we remain optimistic about the continued strength of the offshore drilling market, driven by the long-term fundamentals of increasing global energy demand and the attractiveness of deepwater production. While near-term challenges persist, we believe Valaris is well positioned to navigate through these headwinds and capitalize on the opportunities that lie ahead. I will now turn the call over to Matt to provide more details on our recent contract awards and our outlook for the floater and jackup markets. Matt?” We continue to see opportunities for our floaters in Mexico, including several tenders that we are actively participating in. In the Middle East, we see strong demand for our jack-up rigs, particularly in Saudi Arabia and the UAE. The recent increase in oil prices has led to an uptick in activity in the region, with several tenders expected to be awarded in the coming months. Overall, we remain optimistic about the outlook for the offshore drilling market, with a solid pipeline of opportunities that we believe will support our growth in the years to come. Thank you, and I will now turn the call back over to Anton for closing remarks. Overall, we are pleased with our financial performance in the third quarter, and we continue to focus on managing costs and driving operational efficiency. Looking ahead to the fourth quarter, we expect revenue to be in the range of $630 million to $650 million, and adjusted EBITDA to be in the range of $145 million to $155 million. We anticipate that our strong contract backlog and ongoing efforts to secure new contracts will support our financial performance in the coming quarters. We remain committed to enhancing shareholder value through disciplined capital allocation and operational excellence. Thank you for your continued support, and we look forward to updating you on our progress in the future. I will now turn the call back over to the operator for questions. Thank you.” Anton Dibowitz: Thanks for the question, Eddie. The deferred demand we mentioned is primarily in the deepwater segment, although we are also seeing some impact in shallow water work as well. The delays in customer demand are indeed related to the availability of production equipment and the bottlenecks in the shipyards for FPSOs. It’s difficult to predict exactly when these bottlenecks will lift, but we are closely monitoring the situation and working with our customers to navigate through these challenges. We believe that the whitespace we are seeing is temporary and expect the market to normalize as these issues are resolved. Thank you for your questions. Anton Dibowitz: Thanks for the question, Fredrik. As a policy, we don’t comment on market rumors or speculation. Our focus remains on executing our strategy and delivering value to our stakeholders. We believe we have a strong competitive position in the market and are well-positioned for the future. As Anton Dibowitz mentioned, their priority is to keep their active fleet highly utilized. They are currently focusing on prudent cash and fleet management by warm stacking some of their assets during the current lull in the market. This allows them to minimize costs and wait for the right opportunities to bring these assets back into the market when the timing is optimal.
They believe that the pipeline of opportunities post-2025 looks promising, and they are strategically managing their fleet to be ready for when those opportunities arise. They are not in a rush to bring their idle assets back into the market if it means compromising on rates, and they are willing to wait for better opportunities in the future.
Overall, their strategy is to maintain flexibility, manage costs, and be prepared to capitalize on the market when the timing is right. They are confident in the long-term prospects of the offshore drilling market and are positioning themselves accordingly.
As we wrap up this call, we want to thank all of our stakeholders for their continued support and interest in Valaris. We are confident in the long-term opportunities for our assets and are committed to managing our business through the current market cycle. We look forward to updating you on our progress in the future. Thank you.
Operator: This concludes the conference call. Thank you for participating. You may now disconnect.
Have a wonderful remainder of your day.
Operator: The meeting has come to an end. We appreciate your participation in today’s session. You are now free to disconnect.
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