DIAMOND OFFSHORE DRILLING, INC. (DO)·Q4 2023 Earnings Summary

Executive Summary

• Q4 2023 revenue increased sequentially to $297.6M, operating income improved to $44.9M, and Adjusted EBITDA rose sharply to $72.3M; diluted EPS was a loss of $(1.42). Management attributed the upside in EBITDA versus prior guidance to higher revenue and deferral of approximately $8M of pre-contract costs for the Courage and BlackHawk rigs .
• Backlog additions remained solid: $245M added in Q4, and $362M of awards year-to-date 2024; backlog was ~$1.4B as of January 1, 2024, with 91% of 2024 available days committed (firm or priced options), supporting revenue visibility into 2024-2025 .
• Fleet execution was robust despite extensive shipyard and start-up activity: revenue efficiency ~95% in Q4; Ocean BlackHawk and Ocean Courage commenced new contracts in Q4; a performance bonus was earned in Senegal .
• 2024 guidance provided (excluding reimbursables and GreatWhite incident impact): FY revenue $940–$960M; Q1 2024 revenue $260–$270M, EBITDA $45–$55M, CapEx $38–$43M; management expects decreased shipyard days and improving dayrates to support EBITDA and cash flow growth .

What Went Well and What Went Wrong

What Went Well

• Strong sequential improvement: Q4 total revenues rose to $297.6M (from $245.0M in Q3) and Adjusted EBITDA to $72.3M (from $27.7M in Q3), driven by new contract commencements for Ocean BlackHawk, Ocean Patriot, and Ocean Apex .
• Operational excellence: revenue efficiency ~95% across the fleet amid high shipyard/start-up intensity; incremental performance bonus earned in Senegal; management emphasized 2023 as “transformational,” citing $485M in new awards and capital structure improvements .
• Backlog and contract coverage: $245M backlog added in Q4, $362M YTD 2024 awards, ~$1.4B backlog at January 1; 91% of 2024 available days committed (firm or priced options), positioning for higher average dayrates on transition to new contracts .

What Went Wrong

• Tax normalization drove a large non-cash expense: Q4 income tax expense was $174.3M versus $125.4M in Q3, reflecting reversal of earlier 2023 benefits and continued normalization, pressuring GAAP net income (Q4 net loss $(145.7)M) .
• Managed rig costs and annual BOP service bonus raised contract drilling expense to $188.8M; G&A increased to $19.2M on incentive compensation accruals .
• Ocean Courage contract preparation created revenue deferral and lower contribution in the quarter; Ocean Apex shipyard costs absent in Q4 but prior quarter had project costs; overall mix effects continued to complicate sequential comparability .

Financial Results

Income Statement and EPS vs prior periods

Notes: Q4 2023 Adjusted EBITDA exceeded prior guidance ($50–$60M) due to revenue upside and ~$8M deferral of pre-contract costs on Courage and BlackHawk .

Revenue breakdown

Fleet KPIs

Estimate Comparison

• S&P Global consensus estimates for Q4 2023 (EPS and revenue) were unavailable via our data tool; beat/miss analysis versus Street consensus cannot be determined.

Guidance Changes

Notes: Guidance excludes estimated impact of the Ocean GreatWhite equipment incident; management flagged lower Q1 vs Q4 due to Patriot off-contract for part of Q1 and amortization of pre-contract costs for Courage and BlackHawk .

Earnings Call Themes & Trends

Management Commentary

• “2023 was a transformational year for Diamond Offshore… secured $485 million dollars in new contract awards throughout the year… completed eight contract start-ups, including four contract commencements in the fourth quarter” — Bernie Wolford, Jr., CEO .
• “The recent $362 million in contract awards are in addition to our reported backlog of $1.4 billion as of January 1… notable average dayrate improvement as we transition to new contracts.” — Bernie Wolford, Jr., CEO .
• Q4 EBITDA beat: “Adjusted EBITDA of $72 million, well in excess of our guidance… with the… deferral of approximately $8 million of precontract commencement cost… contributing to the favorable results.” — Management commentary (Q4 2023 call) .
• 2024 setup: “These factors… position us to deliver growth in both EBITDA and cash flow while making significant progress in de-leveraging our balance sheet.” — Management (Q4 2023 call) .

Q&A Highlights

• Guidance detail and sequential bridge: Management clarified Q1 2024 revenue/EBITDA will be lower than Q4 due to Ocean Patriot being off contract and amortization of pre-contract costs for Courage and BlackHawk; provided specific ranges for revenue, EBITDA, and CapEx .
• Backlog coverage and dayrate trajectory: Management emphasized 91% of 2024 available days committed and visibility to >$1.6B firm work, supporting higher average dayrates as contracts transition .
• GreatWhite incident impact: Commentary indicated FY and Q1 guidance excluded effects; insurance mechanisms discussed broadly (loss-of-hire and hull & machinery referenced in subsequent updates), but Q4 call anchored to excluding impacts in guidance .

Estimates Context

• Street consensus (S&P Global) for Q4 2023 EPS and revenue was unavailable via our SPGI tool mapping for DO; as a result, beat/miss calculations versus consensus cannot be provided in this recap.
• Implication: Given the internal guidance beat on EBITDA ($72.3M actual vs $50–$60M guided), models likely required upward revisions to near-term EBITDA and cash flow, while GAAP EPS remained impacted by non-cash tax normalization .

Key Takeaways for Investors

• Sequential strength: Q4 showed meaningful operational and financial improvement (revenues, operating income, Adjusted EBITDA) as key rigs commenced contracts; non-cash tax normalization obscures GAAP EPS, but cash metrics improved .
• 2024 visibility: ~$1.4B starting backlog, $362M YTD contract awards, and 91% day coverage support 2024 revenue ($940–$960M ex-reimbursables) and EBITDA ($225–$245M) trajectories, excluding GreatWhite impact .
• Operational execution: Sustained ~95% revenue efficiency despite shipyard/start-up cadence suggests disciplined operations; average dayrate momentum continues ($316k in Q4 vs $307k in Q3, $299k in Q2) .
• Balance sheet and refinancing: The $550M second lien issuance and amended revolver extend maturities and enhance liquidity; management focus on deleveraging into 2024 .
• Near-term trading lens: Watch for confirmation of dayrate uplifts as new contracts ramp, insurance recoveries tied to GreatWhite, and Q1 realization versus guidance; EBITDA upside versus guidance can catalyze sentiment .
• Medium-term thesis: Contract coverage, improving dayrates, and declining shipyard days should drive EBITDA/cash flow growth and deleveraging; macro offshore cycle indicators (Brazil/GoM/West Africa activity) remain supportive .

Sources:

• Q4 2023 8-K press release and exhibits (financials, KPIs, fleet): .
• Prior quarters (Q3 and Q2 2023) 8-K press releases and exhibits: .
• Q4 2022 baseline: .
• Q4 2023 earnings call transcript and guidance: .