Sign in

You're signed outSign in or to get full access.

DO

DIAMOND OFFSHORE DRILLING, INC. (DO)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $244.96M, down sequentially from $281.56M in Q2, with adjusted EBITDA of $27.69M; the quarter included a $6.53M loss on debt extinguishment and a sharp tax swing to $125.44M expense, driving a GAAP net loss of $145.02M and diluted EPS of $(1.42) .
  • Management announced $240M of new contracts, backlog of ~$1.6B, and highlighted improving UK demand and higher dayrates as rigs transition to new work; Ocean BlackHawk completed upgrades and mobilized to the Gulf of Mexico for a Q4 start .
  • Contract drilling expense fell $31.0M QoQ to $181.95M on lower operating costs and deferred shipyard-related costs, supporting operating income of $0.86M despite lower revenue; revenue efficiency remained robust at ~95% .
  • Management expects “further normalization” of tax expense in Q4 with no meaningful impact to full-year cash taxes, and emphasized stronger balance sheet and liquidity post-refinancing ($550M 8.5% second lien notes due 2030; amended $300M revolver) .

What Went Well and What Went Wrong

What Went Well

  • $240M in new awards, including a 35‑well UK P&A campaign for Ocean Patriot (~3 years firm plus options), and exercised options for Ocean GreatWhite extending contracted term to August 2024 .
  • Fleet execution remained high despite shipyard movements: revenue efficiency ~95%, Ocean Apex returned to work post-SPS, Ocean BlackHawk upgrades completed and mobilized for U.S. GOM start; seventh performance bonus earned in Senegal .
  • Strengthened capital structure and liquidity via $550M 8.5% senior secured second lien notes due 2030 and amended $300M revolver; CEO underscored “positive indicators of a strong and lasting upcycle” and “notable day‑rate improvement” .

What Went Wrong

  • Sequential revenue decline ($281.56M → $244.96M) and adjusted EBITDA compression ($36.21M → $27.69M) driven by Ocean BlackHawk in shipyard and Ocean Patriot between contracts; operating income fell to $0.86M .
  • A $6.53M loss on debt extinguishment and reversal/normalization of prior quarter’s unusually high tax benefit (Q2 tax benefit $243.13M → Q3 tax expense $125.44M) yielded a GAAP net loss of $145.02M .
  • Utilization stepped down to 57% from 70% in Q2 (fleet transitions/shipyards), modestly lowering revenue efficiency to 94.9% from 95.8% .

Financial Results

Metric ($USD Thousands unless noted)Q1 2023Q2 2023Q3 2023
Total Revenues$232,021 $281,563 $244,958
Contract Drilling Revenues$214,383 $264,990 $224,929
Revenues Related to Reimbursables$17,638 $16,573 $20,029
Operating Income (Loss)$(4,960) $10,240 $863
Adjusted EBITDA$21,733 $36,213 $27,693
Net Income (Loss)$7,229 $238,783 $(145,016)
Diluted EPS ($)$0.07 $2.29 $(1.42)

Revenue Breakdown by Quarter

Revenue Breakdown ($USD Thousands)Q1 2023Q2 2023Q3 2023
Contract Drilling$214,383 $264,990 $224,929
Reimbursables$17,638 $16,573 $20,029

Operational KPIs

KPIQ1 2023Q2 2023Q3 2023
Average Dayrate ($ Thousands/day)$272 $299 $307
Utilization (%)63% 70% 57%
Revenue Efficiency (%)95.9% 95.8% 94.9%

Drivers and context:

  • Q3 sequential decline was primarily due to Ocean BlackHawk completing its Senegal contract and being in shipyard for upgrades/prep all quarter, and Ocean Patriot being between contracts; partially offset by Ocean Apex returning to work after its Q2 shipyard/SPS .
  • Contract drilling expense fell $31.0M QoQ on lower operating costs and deferred shipyard costs tied to the BlackHawk upgrade and prep for U.S. GOM commencement .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Tax expense trajectoryQ4 2023Q2 press release noted unusually high tax benefit to normalize by year end Expects further normalization of tax expense in Q4 with no meaningful impact to full-year cash tax expectations Maintained/Confirmed
Ocean BlackHawk contract startQ4 2023Shipyard upgrades and prep in Q3; expected Q4 U.S. GOM start Mobilized; commenced U.S. GOM contract in early Nov 2023 (firm to Nov 2024) Maintained timeline
Ocean Courage next contractDec 2023–Dec 2027Next multi‑year contract expected to commence in Dec 2023 Moved to Guanabara Bay to prepare; commencement late Q4 confirmed Maintained timeline
UK activity (Ocean GreatWhite)Through Aug 2024Options outstanding; first option exercised (Q2) Second/third options exercised, extending contracted term to Aug 2024 Raised duration
BacklogCurrent~$1.6B (Q2) ~$1.6B with notable day‑rate improvement Maintained level; improved pricing
Contract awards2023$212M in Q1; $229M added in Q2 $240M new awards highlighted in Q3 Increased awards QoQ

Notes: No formal quantitative guidance for revenue, margins, OpEx, OI&E, or tax rate ranges were provided in the Q3 press release beyond directional comments on tax normalization and operational timelines .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Offshore upcycle demand and dayratesQ1: “Continuation of the broad based upcycle” with improved dayrates; rigs reactivated/returned to work . Q2: “Momentum continues to build,” term work secured at higher dayrates; backlog ~$1.6B .CEO: “Positive indicators of a strong and lasting upcycle… growing rig demand, increased investment… shrinking rig availability,” and “notable day‑rate improvement” .Strengthening
UK sector demandQ1: Ocean GreatWhite reactivated; firm period commenced; options outstanding . Q2: Option exercised; extensions; activity building .UK demand “particularly encouraging”; GreatWhite options exercised extending to Aug 2024; Ocean Patriot secured multi‑year P&A campaign .Improving
Tax expense normalizationQ1: Tax benefit $25.65M; commentary on ETR computation/discrete items . Q2: Unusually high tax benefit $243.13M to normalize by year‑end .Q3: Tax expense $125.44M; expects further normalization in Q4 with minimal cash tax impact .Normalizing
Fleet transitions/shipyard and mobilizationsQ1: GreatWhite reactivated; Endeavor returned post‑survey . Q2: Apex in shipyard; BlackHawk mobilizing to Las Palmas .BlackHawk upgrades completed; mobilized to U.S. GOM; Apex back to work; Courage preparing for next multi‑year Brazil contract .Transitioning to longer‑term contracts
Revenue efficiencyQ1: ~96% . Q2: ~95.8% (≥96% fifth consecutive quarter) .~94.9% amid heavy shipyard/mobilizations; still strong .Slightly lower, still robust

Management Commentary

  • “As we enter the fourth quarter, we see a continuation of positive indicators of a strong and lasting upcycle, including growing rig demand, increased investment in offshore upstream projects, and shrinking rig availability… We now have $1.6 billion of backlog with notable day‑rate improvement, as we transition to new contracts.” — Bernie Wolford, Jr., President & CEO .
  • “Our balance sheet is now stronger with an improved liquidity position, more financial and operational flexibility, and with debt maturities extended to 2030.” — on refinancing .
  • “Operationally, the Company’s rigs continued to perform well, achieving revenue efficiency of approximately 95% across the fleet during the quarter… [Ocean BlackHawk] completed upgrades and contract preparation work… and has now mobilized to the Gulf of Mexico.” .
  • Prior quarters reinforced the upcycle: “These wins… provide increased visibility to our 2024 revenue stream… We now have $1.6 billion of backlog with notable average day‑rate improvement…” (Q2) ; “As we move through 2023 and into 2024, our EBITDA and cash flow from operations should continue to improve quarter over quarter…” (Q1) .

Q&A Highlights

  • The Q3 2023 earnings call (Nov 7, 2023) focused on contract pipeline, backlog durability, shipyard schedules, and day‑rate progression across UK and U.S. GOM, consistent with press release themes; transcript available via MarketScreener/GuruFocus .
  • Management reiterated operational readiness (BlackHawk mobilization, Courage preparation) and confidence in UK activity (GreatWhite options, Patriot P&A), clarifying timelines and expected revenue visibility into 2024–2027 .
  • Clarifications around tax normalization and debt extinguishment underscored non‑operational drivers of the Q3 loss and expected minimal impact to cash taxes, addressing investor concerns on quality of earnings .

Estimates Context

  • S&P Global (SPGI) consensus estimates for Q3 2023 EPS and revenue were unavailable through our SPGI integration for DO at the time of this analysis; as a result, formal beat/miss vs SPGI consensus cannot be determined. Values retrieved from S&P Global were unavailable due to a CIQ mapping issue.
  • External preview sources indicated comparable revenue expectations, but per guidance we anchor estimate comparisons on S&P Global; therefore, we do not present non‑SPGI estimates here (context only).

Key Takeaways for Investors

  • Sequential softness was operationally driven: Ocean BlackHawk in shipyard and Ocean Patriot between contracts; as rigs commence/continue work (BlackHawk U.S. GOM; Courage Brazil; GreatWhite UK), revenue and EBITDA visibility should improve into Q4 and 2024–2027 .
  • Contracting momentum accelerated with $240M new awards and UK P&A campaign for Patriot, while backlog remains ~$1.6B and dayrates improve; this supports the upcycle narrative despite Q3 transitions .
  • The Q3 GAAP loss was largely non‑operational (tax normalization and debt extinguishment); management expects tax to normalize in Q4 with minimal cash tax impact, reducing volatility in reported earnings quality .
  • KPIs remained solid: revenue efficiency ~95% even with heavy mobilizations, indicating operational execution and potential upside as utilization recovers with contract starts .
  • Balance sheet flexibility increased post‑refinancing (2023 notes due 2030, amended revolver), positioning DO to navigate shipyards and capture higher dayrates on redeployments .
  • Near‑term trading lens: watch Q4 execution catalysts (BlackHawk U.S. GOM ramp, Courage Brazil start, UK options activity) and any further contract awards/option exercises, which are likely stock drivers in this upcycle .
  • Medium‑term thesis: multi‑year contracts (Brazil/UK) plus improving dayrates and shrinking rig availability underpin EBITDA and cash flow trajectory; monitor utilization recovery and tax normalization as earnings quality inflects .