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VL

Valaris Ltd (VAL)·Q2 2025 Earnings Summary

Executive Summary

  • Valaris delivered a clean beat: revenue $615.2M vs $582.2M consensus*, diluted EPS $1.61 vs $1.20 consensus*, and Adjusted EBITDA $200.7M vs $155.8M consensus*, aided by 96% revenue efficiency and a $24M arbitration benefit .
  • Management raised full‑year 2025 Adjusted EBITDA guidance to $565–$605M (from $500–$560M prior) and maintained CapEx at $375M; Q3 is guided down sequentially on expected floater idle time (revenue $555–$575M; Adj. EBITDA $120–$140M) .
  • Backlog climbed to ~$4.71B as of July 24 (from ~$4.24B on Apr. 30) on multi‑year drillship awards (DS‑16/18 with Oxy) and a West Africa contract for DS‑15; three of four near‑term drillships are now covered .
  • Mix dynamics: jackups strengthened (higher activity/dayrates), while floaters dipped QoQ on DS‑12 idle and lower amortized revenue; ARO posted a net loss ($8.6M) .
  • Potential catalysts: further 2026–27 floater awards (30+ opportunities in pipeline), Petrobras tenders, and possible capital returns after the $108M VALARIS 247 sale closing later this year .

What Went Well and What Went Wrong

What Went Well

  • 96% revenue efficiency drove strong profitability; Adj. EBITDA $200.7M exceeded company guidance ($140–$160M), helped by a favorable arbitration ($24M total; $17M in contract drilling, $7M in G&A) .
  • Backlog momentum: +$1B added since Q1; total $4.7B, including multi‑year DS‑16/18 awards with Oxy ($760M) and DS‑15 West Africa (effective day rate uplift via upfront‑funded MPD upgrade) .
  • Jackups strengthened: revenue ex‑reimbursables +14% QoQ to $212.0M and segment Adj. EBITDA +27% QoQ to $89.4M, aided by VALARIS 144 and higher dayrates .
  • Management tone: “pipeline of floater opportunities…converting into contracts,” and “well positioned” to capitalize given 7th‑gen drillship quality .

What Went Wrong

  • Floaters softened QoQ: revenue ex‑reimbursables fell to $319.7M (from $356.0M) as DS‑12 completed work without immediate follow‑on; lower amortized revenue on DS‑17 .
  • ARO posted a net loss of $8.6M (100% basis) on higher repair/maintenance and bareboat costs; ARO Adj. EBITDA declined to $36.9M .
  • Outlook implies a near‑term pause: Q3 revenue down to $555–$575M and Adj. EBITDA to $120–$140M on expected idle time for DS‑15 and DS‑18 and fewer days for VALARIS 247 ahead of its sale .

Financial Results

Headline Financials (Actuals vs prior quarters)

MetricQ4 2024Q1 2025Q2 2025
Total Operating Revenues ($M)$584.4 $620.7 $615.2
Revenues ex Reimbursables ($M)$548.0 $577.8 $572.3
Net Income (Loss) ($M)$130.6 $(39.2) $114.2
Diluted EPS ($)$1.88 $(0.53) $1.61
Adjusted EBITDA ($M)$142.4 $181.3 $200.7
Revenue Efficiency (%)98% 96% 96%
Cash from Operations ($M)$124.6 $155.9 $120.0
Adjusted Free Cash Flow ($M)$15.5$73.5$62.6
Capital Expenditures ($M)$111.7 $100.2 $67.2

Q2 2025 Actuals vs S&P Global Consensus

MetricQ2 2025 ActualQ2 2025 Cons. Est.Beat/Miss
Revenues ($M)$615.2 $582.2*Beat
Diluted EPS ($)$1.61 $1.20*Beat
Adjusted EBITDA ($M)$200.7 $155.8*Beat

*Values retrieved from S&P Global.

Segment Breakdown (ex‑reimbursables and Adj. EBITDA)

SegmentQ1 2025 Revenues ex‑Reimb. ($M)Q2 2025 Revenues ex‑Reimb. ($M)Q1 2025 Adj. EBITDA ($M)Q2 2025 Adj. EBITDA ($M)
Floaters$356.0 $319.7 $152.6 $143.9
Jackups$185.9 $212.0 $70.5 $89.4
Other (Leased & Managed)$35.9 $40.6 $19.9 $23.4
ARO (100% basis, not consolidated)$134.7 $139.9 $42.8 $36.9

KPIs and Operating Metrics

KPIQ1 2025Q2 2025
Average Daily Revenue – Drillships$418,000 $410,000
Average Daily Revenue – Jackups (Total)$128,000 $142,000
Utilization – Total Fleet (Valaris Total)64% 68%
Utilization – Active Fleet (Valaris Total)88% 89%
Revenue Efficiency – Total96% 96%
Contract Backlog – Total ($M)$4,237.6 (Apr 30) $4,714.4 (Jul 24)
Cash & Cash Equivalents ($M)$441.4 (Mar 31) $503.4 (Jun 30)
Long‑Term Debt ($M)$1,083.5 (Mar 31) $1,084.3 (Jun 30)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenues ($B)FY 2025$2.15–$2.25B $2.25–$2.30B Raised
Adjusted EBITDA ($M)FY 2025$500–$560M $565–$605M Raised
Contract Drilling Expense ($M)FY 2025$1,500–$1,600M $1,576M Tightened
G&A Expense ($M)FY 2025$110–$115M $100–$105M Lowered
CapEx ($M)FY 2025$375–$415M $375M Maintained (midpoint)
Upfront Customer Payments ($M)FY 2025~$75M ~$70M Slightly lower
Revenues ($M)Q3 2025—$555–$575M New quarterly guide
Contract Drilling Expense ($M)Q3 2025—$400–$415M New quarterly guide
G&A Expense ($M)Q3 2025—~$28M New quarterly guide
Adjusted EBITDA ($M)Q3 2025—$120–$140M New quarterly guide
CapEx ($M)Q3 2025—$100–$110M New quarterly guide

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Current Period (Q2 2025)Trend
Floater opportunity pipelineTracking ~25 long‑term (’26–’27) floater programs; emphasis on 7th‑gen differentiation Pipeline ~30+ opportunities; awards accelerating; 7th‑gen expected to lead recovery, exit ’26 >90% utilization Improving
DayratesTerm contracts “starting with a 4”; some white space in 2025 Leading-edge dayrates in low 400s; near‑term pressure into ’26 trough; longer‑term constructive Mixed near‑term; constructive LT
Brazil/PetrobrasExpected tenders (Búzios; another later in year) Multiple tenders (Búzios; Mero & Tupi); IOC activity (Equinor, Shell) supportive Positive
West AfricaDS‑10 multi‑year contract; additional long‑term opportunities in ’26–’27 Multi‑year DS‑16/18 with Oxy; DS‑15 West Africa with MPD; more awards expected Positive
ARO / Saudi5 jackups extended 5 years into 2030; resilient jackup demand ARO net loss in Q2 on costs; rig count mid‑50s; Valaris leases mostly rolling into 2030 Operationally mixed; contract coverage solid
Capital returnsNot strictly linear; evaluating through year Flexibility likely to improve after $108M VALARIS 247 sale; committed to returns Increasing flexibility
ArbitrationAccrual in Q4; legal matters discussed Favorable outcome; $24M Q2 benefit; appeals possible but high bar Resolved in near term (benefit)

Management Commentary

  • “We…delivered another quarter of strong operational and financial performance, with revenue efficiency of 96% contributing to meaningful EBITDA and free cash flow for the quarter.” — CEO Anton Dibowitz .
  • “Since reporting our first quarter results, we have secured new contracts…increasing our total backlog to approximately $4.7 billion…these awards demonstrate the quality of our fleet… and our commercial strategy.” — CEO .
  • “Adjusted EBITDA…exceeded our guidance…Approximately half of the beat was due to strong operating results…[and] the other half was due to the favorable arbitration outcome.” — CFO Chris Weber .
  • “We’ve now secured work for three of our four drillships with near‑term availability at average rates above $400,000 per day.” — CCO Matt Lyne .

Q&A Highlights

  • Short‑term gap work: Management will not keep rigs hot during idle; may pursue “gap‑fill” work only if it butts up to long‑term programs; no unusual CapEx expected for new contracts .
  • Dayrate outlook: Near‑term pressure into 2026 trough, but 7th‑gen drillships expected to lead recovery and exit 2026 at >90% utilization; recent fixtures for three near‑term drillships “north of 400” .
  • Petrobras tenders: Multiple awards expected; aim to keep rig count flat; IOCs (Equinor, Shell) add demand .
  • Arbitration: Favorable outcome; appeal window exists but limited to procedural grounds; high bar .
  • Customer mindset & Saudi: Customers remain confident despite macro volatility; Saudi rig count mid‑50s; ARO coverage largely into 2030 .
  • Capital returns: Committed; flexibility should improve after VALARIS 247 sale proceeds (> $100M) .

Estimates Context

  • Q2 results were above consensus across key metrics: revenue $615.2M vs $582.2M*, EPS $1.61 vs $1.20*, Adj. EBITDA $200.7M vs $155.8M* .
  • Given the full‑year EBITDA raise to $565–$605M (midpoint +$55M), and backlog strength, Street models may lift FY EBITDA and outer‑year floater utilization, while near‑term Q3 estimates will likely be revised down in line with management’s sequential guide .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat with clean operational execution and 96% revenue efficiency; half the Adj. EBITDA beat came from core ops, half from a $24M arbitration tailwind .
  • Guidance raised (FY25 Adj. EBITDA $565–$605M) despite near‑term floater idle; Q3 is a pause before expected 2026–27 floater awards ramp .
  • Contracting momentum and mix improve earnings visibility: backlog ~$4.71B, three of four near‑term drillships now covered; further awards anticipated (West Africa, Brazil, U.S. Gulf) .
  • Jackups are a bright spot (higher days/dayrates), offsetting floater softness; ARO remains a strategic anchor despite Q2 net loss .
  • Watch leading‑edge drillship dayrates (low 400s near‑term) and Petrobras/IOC tender cadence; 7th‑gen differentiation should sustain a premium into tightening markets .
  • Liquidity is solid (~$900M including revolver); potential buyback flexibility improves with ~$108M rig sale proceeds later this year .
  • Risks: timing of floater awards, semisub market in Australia, near‑term dayrate pressure into 2026 trough, and residual legal/tax items noted in prior periods .