Vantage Drilling International Ltd. ($VTDRF)

Good day, and thank you for standing by. Welcome to the Vantage Drilling International Limited Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rafael Blattner, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone, and welcome to the Vantage Drilling International Limited First Quarter 2026 Earnings Conference Call. On the call with me today is Ihab Toma, our CEO. This morning, we released our earnings announcement for the quarter ended March 31, 2026. The earnings release is available on our website at vantagedrilling.com. Please note that any comments we make today about our expectations of future events and projections are forward-looking statements pursuant to the Private Securities Litigation Reform Act. We have based forward-looking statements on management's current expectations and assumptions and not on historical facts. Examples of these statements include, but are not limited to, our expectations regarding future results, including expectations regarding our liquidity position, future costs and expenses related to upgrades and out-of-service work as well as contract preparation costs and expenses. Forward-looking statements in today's call are subject to a number of risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from the projections made today. Vantage does not undertake to update any such statement or risk factor that could cause actual results to differ materially from our expectations. We refer you to our earnings release and financials available on our website. We have prerecorded our prepared remarks and are participating on the call remotely to manage the question-and-answer session segment of the call. In the event there are issues with sound quality or of a similar nature, please accept our apologies in advance, and thank you for your understanding. Now let me turn the call over to our CEO, Mr. Ihab Toma.

Thank you, Rafael, and welcome, everyone. I am pleased to report a successful first quarter of 2026 with continued strong operational performance and the receipt of the binding notification of award for the Platinum Explorer. As previously announced, Vantage received a binding notification of award from ONGC for the drillship Platinum Explorer. The award follows ONGC's tender for a deepwater drillship to support a 3-year firm drilling campaign in India with a 1-year option. The firm term is expected to generate approximately $261.3 million in contract value, further enhancing the company's backlog and visibility of future earnings. Now I would like to take you through our progress in relation to our 3 corporate goals of: one, maintaining our stellar safety and operational performance; two, the contracting of our entire fleet; and three, achieving excellent stakeholder returns. I will begin with our first corporate goal and our #1 differentiator, our stellar safety and operational performance. For the first quarter of 2026, QHSE performance demonstrated the resilience of our operational and safety culture with the organization maintaining solid overall performance, despite experiencing 2 recordable incidents, including 1 lost time incident during February. Importantly, both March and April returned to 0 recordable and lost time incidents, reflecting the strength of our response and operational discipline. Following the February events, the business maintained strong focus on reinforcing preventative controls across the fleet and support functions, while continuing a targeted safety campaign focused on hand safety and crush point hazards. These initiatives continue to reinforce our expectation that hazards are identified early, interventions are made when required and work is only carried out when it is safe to do so. Our safety leadership programs also continued to receive strong external recognition during the quarter. The behavioral assessment tool has now won 2 health safety and environment awards from the International Association of Drilling Contractors and was shortlisted for the International SOS Global Duty of Care Awards for Safety Innovation. This recognition reflects the strength and maturity of our proactive safety culture as well as the high level of workforce engagement we continue to see across the fleet. Switching to operations. I am pleased to report that revenue efficiency for the managed fleet during the first quarter was 98.5%. I will now walk you through our fleet status, which is directly aligned with our second corporate goal of contracting the entire fleet. Starting with our owned drillship, as previously mentioned, we received a notification of award from ONGC for the Platinum Explorer for a 3-year firm term in India plus a 1-year option. We anticipate the rig will commence operations during the third quarter of 2026, in line with tender and contractual requirements. Turning to the Tungsten Explorer, the rig concluded drilling operations in the Republic of Congo in late March and subsequently mobilized to Angola, where it commenced a 2 firm well program with options for additional work with TotalEnergies. The firm duration is estimated at approximately 90 days, while the optional work could extend the campaign by up to an additional 120 days. For the managed jack-ups, the Topaz Driller continues operations for CPOC in the Malaysia, Thailand joint development area. The contract currently has approximately 4 months remaining in its firm term with up to 9 months of options available for exercise. The initial option decision date is scheduled for the end of this month. In parallel, the rig continues to be actively marketed for programs commencing in the fourth quarter of 2026 and beyond. The Soehanah remains warm stacked in Johor Bahru following the conclusion of its operations for MedcoEnergi in Indonesia during the third quarter of 2025. The rig has now secured work in Southeast Asia with operations expected to commence early in the third quarter of 2026. Contract preparation and reactivation activities are already underway to support this time line. In terms of contract backlog, our backlog totaled $430.8 million at the end of the first quarter. This includes $261.3 million related to the Platinum Explorer contract with ONGC with the remaining backlog primarily attributable to the Tungsten Explorer's 10-year management agreement with TEVA, the joint venture between TotalEnergies and Vantage. Turning to the market trends. The ongoing conflict in the Strait of Hormuz continues to influence oil price sentiment and dominate headlines, while current and near-term rig demand has remained broadly consistent with levels observed prior to the conflict. This reflects the long cycle nature of offshore developments, where investment decisions are increasingly driven by energy security, energy independence, reserves replacement and reducing reliance on imported energy supplies rather than short-term commodity price movements. These trends are expected to contribute to a broader structural shift in macro behavior with countries increasingly prioritizing supply security and domestic energy investment, supporting the long-term fundamentals of the offshore drilling industry. India, for example, had already started demonstrating this approach before the recent conflict through the early procurement of offshore drilling rigs to support domestic energy development and reduce reliance on imported energy supplies. The deepwater segment continues to show strong momentum with robust demand for rigs sustained throughout the quarter. April 2026 recorded the highest level of contract awards since before the last market downturn more than a decade ago. While a large portion of this activity was driven by Petrobras extending the duration of its contracted fleet, additional awards were also secured across other markets. At the same time, new tenders continue to enter the market, supporting demand alongside opportunities already under evaluation. As a result, deepwater utilization for 2027 is expected to remain above 90%. The jack-up segment also remains constructive despite some regional challenges. Demand has remained resilient even with operational constraints affecting rigs in the Strait of Hormuz. Activity in West Africa continues to improve, supported by recent contract awards and a growing pipeline of opportunities. In Southeast Asia, several ongoing tenders are nearing conclusion with additional awards expected in the near term. Overall, the market outlook remains positive through the remainder of 2026 and into 2027, with utilization expected to continue improving. Moving now to our third corporate goal of achieving excellent stakeholder returns. Regarding our liquidity position, we ended the first quarter with a total cash balance of $65.3 million, including $4.0 million of restricted cash and $11.3 million of cash prefunded by our managed services clients. The decrease in cash during the quarter was primarily driven by cash consumed in operations and the $17.9 million security deposit placed with ONGC in connection with the binding notification of award for the Platinum Explorer. In closing, we remain focused on maintaining exceptional safety and operational performance and continue to pursue further management opportunities to further deliver strong returns for our stakeholders. With that, I would like to turn the call back over to Rafael to take us through the numbers.

Thank you, Ihab, and welcome, everyone. I will now provide an overview of our financial performance for the quarter ending March 31, 2026. The company ended the quarter with approximately $65.3 million in cash, reduced from $97 million at year-end 2025. Excluding cash prefunded by our managed services customers, VDI's cash balance was $54 million compared to $86.2 million at year-end. The decline in cash during the year of $32.2 million, excluding managed services pre-funding, was primarily driven by the $17.9 million long-term security deposit provided to ONGC as a performance guarantee for the upcoming Platinum Explorer campaign, $12.7 million used in operations, $1.5 million related to the settlement of legacy maintenance and equipment certification costs for the Tungsten Explorer and $700,000 of capital expenditures. These outlays were partially offset by the settlement of the $2.4 million Soehanah warranty obligation with ADES through the sale of jack-up fleet spares, resulting in a net cash inflow to Vantage of approximately $600,000. Working capital was $81.4 million at March 31, 2026, compared to $96.3 million at year-end 2025. The decrease was driven primarily by the $32.2 million reduction in cash, partially offset by a $6.5 million decrease in accounts payable. The change also reflected a $5.7 million increase in accounts receivable, mainly due to higher management services and prefunded receivables, a $4.5 million increase in other assets, primarily due to the long-term deposit becoming short term as it is now expected to be recovered within 12 months, together with higher refunded other assets and a $600,000 increase in prefunded cash. Working capital for Vantage, excluding the impact of prefunded managed rigs operations, decreased by $14.9 million at March 31, 2026, primarily due to the $32.2 million decrease in cash discussed above. This was partially offset by a $12.6 million decline in accounts payable, mainly attributable to lower costs on the Platinum Explorer following the major maintenance activities incurred in the prior year period as well as the settlement of accrued liabilities related to the Soehanah warranty obligation to ADES and out-of-service maintenance activities on the Tungsten Explorer, as discussed earlier, under changes in cash. The decrease in working capital was further offset by a $2.8 million increase in other assets, primarily reflecting the CPOC performance guarantee becoming current as recovery is expected in the first quarter of 2027 and a $1.9 million increase in accounts receivable, driven by higher management fees from the Tungsten Explorer. Revenues for the first quarter of 2026 were $47.2 million compared to $31.9 million in the first quarter of 2025. The year-over-year increase was primarily driven by the higher operating day rate of the Tungsten Explorer, which is reported on a gross basis, meaning the full customer revenue is reflected in Vantage's consolidated revenue as well as management fees earned following the sale of the Tungsten Explorer. These increases were partially offset by lower revenue from the Soehanah, which is currently warm stacked and the conclusion of the ADES support services agreements for the jack-ups in Qatar. As mentioned by Ihab in his prepared remarks, revenue efficiency for the managed fleet in the first quarter was 98.5%. Operating costs for the first quarter of 2026 were $44 million, compared to $29.4 million in the first quarter of 2025. The year-over-year increase was primarily driven by pass-through costs related to the Tungsten Explorer, which is reported on a gross basis, meaning the full operating costs are reflected in Vantage's consolidated operating costs as well as the bareboat charter expense payable to the joint venture. These increases were partially offset by lower costs on the Platinum Explorer, reflecting major maintenance projects incurred in the prior year period, reduced costs on the Soehanah as the rig is currently warm stacked. General and administrative expenses for the first quarter decreased by $4 million primarily due to lower noncash share-based compensation expense as the prior year period included a cumulative adjustment recognized upon satisfaction of the IPO condition as well as lower professional fees. Moving to other income and expenses. Equity investment losses from unconsolidated affiliates were $2.1 million for the quarter. This reflects our share of joint venture expenses, primarily driven by higher nonrecurring major maintenance costs. Interest income for the first quarter increased by $700,000 compared to the prior year period, primarily due to interest earned on the shareholder loan to the joint venture and cash held in interest-bearing accounts. The income tax benefit for the first quarter was $5.3 million, a decrease of $7.8 million compared to the prior year period. The change was primarily driven by the pretax loss recorded during the first quarter and the application of our annual effective tax rate. Under this approach, we estimate the full year tax rate based on projected annual income as we expect to be profitable for the full year, applying that rate to a first quarter pretax loss results in a tax benefit for the period. This is an accounting outcome and does not reflect a change in our tax profile or cash tax position. Comparability with the prior year period is limited as the prior period used the discrete tax method rather than the annual effective tax rate approach. Accordingly, the net result attributed to shareholders for the first quarter was approximately $400,000. Please note we will post our March 31, 2026 quarterly report to our website later today. And with that, I will now turn the call back over to the operator to begin the Q&A.

[Operator Instructions] And this concludes today's program. Thank you for participating. You may now disconnect.