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VL

Valaris Ltd (VAL)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered stronger topline and EBITDA on 96% revenue efficiency, but GAAP EPS missed due to a discrete tax expense from retiring three semis; revenue $620.7M, Adjusted EBITDA $181.3M, diluted EPS $(0.53) .
  • Revenue and EBITDA beat Wall Street consensus, while EPS missed; revenue $620.7M vs $584.7M estimate*, EBITDA $181.1M vs $155.1M estimate*, EPS $(0.53) vs $1.24 estimate* — the EPS miss was driven by $167M discrete tax tied to a valuation allowance after rig retirements .
  • Backlog grew by ~20% since February to >$4.2B, aided by multi-year drillship awards (DS-10 two-year for ~$352M; DS-15 five-well ~$135M including upgrades) and jackup renewals at ARO; management narrowed FY25 Adjusted EBITDA guidance to $500–$560M (midpoint unchanged) and reiterated revenue of $2.15–$2.25B .
  • Near-term Q2 guide implies a sequential revenue step-down ($570–$590M) and EBITDA $140–$160M as DS-12 idles and survey/out-of-service timing, partially offset by Angola start-ups; tone remained confident on 2026–2027 contracting for 7th-gen drillships and resilient jackup demand .

What Went Well and What Went Wrong

  • What Went Well

    • Strong operations: 96% revenue efficiency; Adjusted EBITDA rose to $181M on higher floater days and dayrates, with $156M CFO and $74M Adj. FCF generated .
    • Commercial wins: ~$1.0B of new backlog since February, DS-10 two-year ($352M) and DS-15 five-well ($135M incl. upgrades) expand West Africa footprint and long-cycle visibility; five ARO jackup bareboat extensions to 2030 .
    • Management confidence and positioning: Majority of tracked long-term floater opportunities favor 7th-gen rigs; Valaris highlights fleet spec (dual derricks, dual BOPs, MPD capability) as competitive edge .

  • What Went Wrong

    • EPS miss wholly tax-driven: $167M discrete tax expense from valuation allowance tied to retiring DPS-3/DPS-5/DPS-6; GAAP net loss $(39)M despite strong operations .
    • Jackup headwinds: Segment Adjusted EBITDA fell Q/Q ($70.5M vs $75.5M) on repairs (VALARIS 249) and survey timing; benign environment utilization softness weighed on rate progression in certain regions .
    • Visible white space and idle periods: DS-12 moved to Las Palmas post-Egypt contract; several floaters complete contracts later in 2025, with management focused on cost control during idle periods .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total Operating Revenues ($USD Millions)$643.1 $584.4 $620.7
Revenues excl. Reimbursables ($USD Millions)$599.9 $548.0 $577.8
Adjusted EBITDA ($USD Millions)$150.4 $142.4 $181.3
Diluted EPS ($USD)$0.88 $1.88 $(0.53)
Adjusted EBITDA Margin (%)23.4% (150.4/643.1) 24.4% (142.4/584.4) 29.2% (181.3/620.7)
Revenue Efficiency (%)98% 96% 96%

Segment Revenues and Adjusted EBITDA (excl. reimbursables)

SegmentQ4 2024 Revenues ($MM)Q1 2025 Revenues ($MM)Q4 2024 Adj. EBITDA ($MM)Q1 2025 Adj. EBITDA ($MM)
Floaters$327.7 $356.0 $116.7 $152.6
Jackups$187.8 $185.9 $75.5 $70.5
ARO (100%)$136.3 $134.7 $47.3 $42.8
Other$32.5 $35.9 $15.0 $19.9
Consolidated Total$548.0 $577.8 $142.4 $181.3

Operating KPIs

KPIQ3 2024Q4 2024Q1 2025
Average Daily Revenue – Valaris Total ($)$171,000 $167,000 $182,000
Utilization – Total Fleet (%)61% 58% 57%
Utilization – Active Fleet (%)86% 85% 85%
Operating Days – Total3,495 3,275 3,132
Revenue Efficiency – Total (%)98% 96% 96%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenues ($USD)Q2 2025N/A$570–$590M New/updated (sequential decline drivers)
Contract Drilling Expense ($USD)Q2 2025N/A$395–$410M New/updated (lower with DS-12 idle/capitalized costs)
G&A Expense ($USD)Q2 2025N/A≈$28M New/updated
Adjusted EBITDA ($USD)Q2 2025N/A$140–$160M New/updated
CapEx ($USD)Q2 2025N/A$100–$110M; +$10M proceeds from semis sale New/updated
Adjusted EBITDA ($USD)FY 2025$480–$580M (midpoint $530M) $500–$560M (midpoint $530M) Narrowed range (midpoint maintained)
Total Revenues ($USD)FY 2025N/A$2.15–$2.25B; ~99% contracted at midpoint Maintained/clarified coverage
Contract Drilling Expense ($USD)FY 2025N/A$1.5–$1.6B Maintained/clarified
G&A Expense ($USD)FY 2025N/A$110–$115M Maintained/clarified
CapEx ($USD)FY 2025Prior lower level (unspecified) $375–$415M (increase due to ARO shipyard days pulled forward) Raised
Upfront Customer Payments ($USD)FY 2025N/A$75M expected to offset upgrades New detail
DividendsN/AN/ANot discussedN/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24 and Q4’24)Current Period (Q1’25)Trend
Macro: tariffs, OPEC+ cutsQ4: Disciplined fleet mgmt; focus on cost during idle; no tariff detail Tariffs and OPEC+ unwind add uncertainty; mitigation efforts; guidance reflects potential tariff impact Elevated macro uncertainty; proactive mitigation
7th-gen drillships spec advantageQ3: Reactivation/longer-term outlook for high-spec assets Overwhelming preference for 7th-gen on long-term programs (dual derricks, dual BOPs, MPD) Strengthening preference
Fleet management/retirementsQ4: Announced retirement of DPS-3/DPS-5/DPS-6 Sold retired semis; reduced costs during idle (DS-12 Las Palmas) Active pruning/cost control
Regional: West Africa/Brazil/EgyptQ3: DS-7 contributing; Brazil stable DS-10 two-year West Africa; DS-15 five-well upgrade; Brazil Buzios multi-year tender; Egypt reforms Multi-year visibility improving
ARO JV / Saudi ArabiaQ4: ARO swings; third-party suspensions trimmed backlog Five ARO bareboat extensions; rates above historic; coverage to 2030 Stabilizing/improving coverage
Safety/techQ3: COS Safety Leadership Award (Restricted Zone Analysis) IADC North Sea Best Safety; rigs hitting recordable-free milestones Sustained operational excellence

Management Commentary

  • “We delivered fleet-wide revenue efficiency of 96% during the first quarter… adjusted EBITDA of $181 million… and we generated $74 million of adjusted free cash flow.” — Anton Dibowitz .
  • “Since our last conference call… we’ve added more than $1 billion in new contract backlog, including work for drillships offshore West Africa and across all major shallow-water markets.” — Anton Dibowitz .
  • “We expect customers will continue to favor 7th generation drillships for longer-term development programs… 12 of our 13 drillships rank amongst the most technically capable assets in the global fleet.” — Anton Dibowitz .
  • “Adjusted EBITDA exceeded our guidance primarily due to strong operating performance and fewer out of service days than anticipated… tax provision included $167 million of discrete tax expense…” — Chris Weber .
  • “We are reiterating our EBITDA guidance with a narrowed range… $500 million to $560 million… total revenues are expected to be $2.15 billion to $2.25 billion.” — Chris Weber .

Q&A Highlights

  • 7th-gen preference and pricing: Majority of >25 tracked floater opportunities are drillships; operators prefer 7th-gen for efficiency (hook load, dual BOPs, MPD) with natural premium for long-term programs .
  • Incentive structures: Open to performance bonus schemes in multi-well developments; complexity requires careful balance; not expected to become the norm industry-wide .
  • Rig upgrades: Customers often require upgrades before start; Valaris seeks reimbursement; significant upgrade requirements are not the norm given fleet spec .
  • Demand vs rate softness: Subsea tieback demand not directly rate-driven; white space in 2025 being worked through; term rates for long contracts still “start with a 4” .
  • ARO Saudi extensions: Five-year extensions with rates above historic levels; fixtures add 25 years of backlog; ARO remains integral to Aramco .
  • Offshore FIDs resilience: No observed pushbacks; most near- to medium-term deepwater programs break even well below current prices (Rystad data cited by management) .

Estimates Context

Consensus vs Actual (S&P Global)

MetricQ3 2024Q4 2024Q1 2025
Revenue Estimate ($USD)$620.1M*$577.6M*$584.7M*
Revenue Actual ($USD)$643.1 $584.4 $620.7
Adjusted EBITDA Estimate ($USD)$133.9M*$140.1M*$155.1M*
Adjusted EBITDA Actual ($USD)$150.4 $142.4 $181.3
Diluted EPS Estimate ($USD)$1.073*$1.017*$1.238*
Diluted EPS Actual ($USD)$0.88 $1.88 $(0.53)

Values retrieved from S&P Global.*

Implications:

  • Q1 2025 revenue and EBITDA materially beat; EPS miss driven by discrete tax ($167M) tied to rig retirements—non-operational in nature, with adjusted net income $128M excluding discrete tax .
  • Prior quarters: Q4 2024 beat on EPS and slight revenue beat; Q3 2024 beat revenue/EBITDA but missed EPS, reflecting mix and tax/non-operational items .

Key Takeaways for Investors

  • Near-term setup: Expect softer Q2 sequentially (idle DS-12, survey/out-of-service timing) before re-acceleration into 2H/2026 on multi-year floater awards; trading tactically on Q2 guide could see consolidation despite strong backlog and EBITDA trajectory .
  • Structural thesis intact: 7th-gen drillship scarcity and spec advantages underpin 2026–2027 multi-year awards across West Africa, Brazil, and Africa ex-North; Valaris’ fleet (12/13 top-spec drillships) positions it for premium contracts .
  • Contracting momentum: DS-10 ($352M, 2-year) and DS-15 ($135M, five-well incl. MPD upgrade) plus jackup extensions strengthen backlog to >$4.2B; continued announcements likely as operators award 2026 starts 9+ months ahead .
  • Cash generation: Strong CFO/Adj. FCF in Q1 ($156M/$73.5M) with FY25 EBITDA narrowed to $500–$560M and $75M of expected customer payments; monitor CapEx uplift ($375–$415M) and tariff impacts (management mitigation described) .
  • EPS optics: GAAP EPS volatility from discrete tax/non-cash items can obscure underlying strength; focus on Adjusted EBITDA, backlog, and utilization/dayrate KPIs .
  • ARO stability: Five bareboat charter extensions to 2030 improve JV visibility; rates above historical levels; reduces Saudi-driven variability risk .
  • Risk watchlist: 2025 white space for several floaters; macro tariffs and OPEC+ unwind; management committed to cost reduction during idle and patient contracting for right programs .