Q3 2019 Earnings Call
Thank you show good morning, everyone and welcome to decide what does earnings conference call for the period ended September Thirtyth.
29 thing Jason Stanley Todd what is VP of Investor Relations.
Now I'd like to thank you for your time, an interesting tidewater.
With me this morning on the call, our President and CEO Quintin Kneen, our Chief Accounting Officer, Sam Rubio, and our General Counsel and corporate Secretary Daniel Hudson. After a cover a few formalities I'll turn the call over the Clinton for his prepared remarks, we'll then open up the coal for you to ask questions.
During today's call we may make certain comments that are forward looking and not statements of historical fact, there are risks uncertainties and other factors that may cause the company's actual future performance to me materially different from that stated or implied for any comment that we make their during today's conference call.
Please refer to our most recent Form 10-Q for additional details on these factors.
Document is available on our website or through the FCC it as he see dot Gov.
Information presented on this call speaks only as of today November 12, 2019, and therefore, you're advised at any time sensitive information may no longer be accurate or the timing of any replay.
Also during the call we will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in last evening's press release.
With that I'll turn the call over to coincide.
Thank you Jason Good morning, everyone and welcome to the third quarter 2019, Tidewater earnings Conference call I'm excited to be leading this call today a lot has happened since we last spoke and we have more positive change in progress what I believe will make you as excited as I am.
Tidewater is determined to lead the offshore industry through the remainder of the recovery, we have the industry's leading balance sheet, which we are taking steps to enhance even further we have led the industry, thus far and consolidation and we are preparing our infrastructure extra capital structures consolidate the industry even further.
We will use the improving industry fundamentals to get day rates back to where they need to be to properly compensate our capital providers and we will continue to lead the industry in recycling capital discipline.
As previously announced we recently streamlined our corporate management team.
In addition to the publicly announced management changes. We also made significant reductions in staff at our corporate office at the end of October .
These organizational changes will result in the five managing directors responsible for the company's primary operating segments to report directly to the CEO and we're instilling or corporate culture with a functional groups that remain a corporate are chartered to find ways to support and enhance the productivity of the five leading managing directors.
One of our primary goals is to reduce bureaucracy in order to increase the speed of decision, making and empower people closest to the vessel to make decisions and take ownership.
To that end since the merger in November of last year. We have also been redesigning and implementing the state of the our shore base information management system I'm, a strong believer in leveraging technology to create standardization and scalability and to reduce what we refer to internally as minutes trivia and clutter.
This dedication to creating efficiency was technology extends across both financial information and ship base management systems.
These transformational changes are in response to changes in the industry Tidewater had been successful in the past focusing on utilization and a price taking philosophy that generated sufficient cash flows to keep the business running.
Over the past five years, the industry has shrunk Tidewater business has shrunk and the profit margins generated by a basic price taken philosophy have shrunk considerably.
To respond to industry conditions today, we needed to change the business and the financial incentive to empower those closest to the vessel will push day rates back to where they need to be to support our capital investment and to incentivize those leaders to grow a cash flow positive business.
The process of significant cultural transformation doesn't happen with small incremental changes you have to break it before you can fix it you have to take big bold steps to redefine the culture and that's what we have done.
As a result, it requires key agents within the company to where multiple hatch for a limited time, it's nothing that these individuals have done before including myself.
Along those lines, it's probably appropriate to mentioned that it is not my intention to go without the CFO , Although I do like the lower energy costs that result, the recruiting process for CFO is underway and I anticipate that we will conclude the search by early in the first quarter of 2020 .
Having said all this I have some prepared remarks on how we're approaching our operations today and on current market conditions I will go through these and then discuss the quarterly numbers before opening up for questions.
Get into the highest return on possible on the portfolio of vessels. We operate today is a key priority for Tidewater.
We have always been everywhere geographically and this has been a positive attributes for tidewater for decades, I have no problem being anywhere were paid well to be but that's not happening in today's market and sell them in the case in some geographic markets.
Vessels are real assets that have frictional cost of relocation of summer under long term contracts or require us to keep them in a location, where if we would otherwise move more quickly out of so the process or reallocating the portfolio will take some time, but swapping assets with other large players or selling off regions as an alternative to working ourselves out of a position in a less.
Desirable market.
Each region of the World has attributes that need to be considered areas, such as Brazil, and Australia can be a lowering due to the headline day rates in those regions, but often being.
What was headline favorites are often well above the world averages, but the ultimate cash returns in those regions are often less than desirable.
Other areas such as southeast Asia have historically been very appealing, but the oversupply of vessels has enhanced protectionism restrictions in the region and has diminished the appeal at least for now.
So much like many of our customers we are focusing on the regions and activities that we believe will provide the best opportunities and returns on capital.
We are likewise, taking a disciplined approach to our decisions regarding the dry document vessels in service and what to do with the vessels and lab.
One of the challenges facing owners in our industry. Tidewater included is the number of dry docks required to be completed and 29 team and 2020 .
For example, we have 158 vessels in service during the third quarter.
Vessels require major dry dock every five years, which equates to 32 vessels per year on average the average drydock costs is approaching 1.2 million, which equates to 38 million per year of reinvestment in the fleet on average or $9.5 million per quarter.
This year, we are estimated to spend over 60 million on dry docks not all this will be paid in 2019, but 44 million has been paid year to date and 15 million was paid in the third quarter.
As a reference cash spent on dry docks for the full year of 2018 was 26 million for a fleet of 142 active vessels.
The lumpiness of the dry dock cycle was due to the due to the delivery dates of the vessels and 2009 in 2014 were big years for vessel deliveries. Consequently, 2019 is a big year for five and 10 year old vessels going through their first and section.
Special service.
Key to us a tidewater are doing the dry docks in the most cost efficient manner and only doing dry docks at the vessels economic outlook justifies the investment.
We have 60 vessels in layup and managing that idle fleet cost us approximately $400 per day per vessel or 8.8 million per year.
I can tell you was near certainty that these vessels are not all going back to work in our intentions to Whittle down this fleet and lay up to the dozen or so vessels that were certainly return to service.
Our intention for the vessels, we do not keep us to sell them out of the industry or send them to the recycling yard.
The cost to reactivate these vessels as approximately $90 million. So it's not just the $400 per day, but the continued escalating costs are reactivation as the vessels continue to Asian deteriorate and every here the remaining economic life decreases the false hope presented by the low cost option of keeping vessels on any of that or not.
I don't think viable tends to lower owners into keeping vessels longer than they should.
Focusing on our balance sheet and all those assets that are working and tightening up the global fleet will provide us more long term benefit than paying 8.8 million per year for vessels that are unable to work today, an unlikely to ever worked in the future.
The other very real pack for owners to consider is at the human capital market frozen that's how much more quickly than the capital holders of those idle vessels.
The Mariners in this industry in 2015 that were let go have moved all other sought out higher pay onshore or another shipping sectors around the world. Today. There is a shortage of mariners in the offshore industry the industry reduced wages significantly during the downturn, which is one of the many levers we used to get through a downturn, but the global market from.
Mariners extends well beyond the oil and gas industry.
Wage pressure in today's offshore vessel market is a force all owners will need to deal with in the future.
As a result, the global fleet and lay up will not result in incremental cash flows a capital providers because merrier wages will have to increase significantly in order to prove the incremental reforms.
In 2009 to 2012 of prior expansion period in the industry Mariner rates in some regions like the us Gulf of Mexico Rose, 30% to attract mariners back into the industry and remember you don't just adjust the wages for the one vessel of your or reactivating you were adjusting them for the entire regions Mariner group.
So it's not just at the industry is unlikely to get back to the drilling levels required to employ the vessels and lay up today, it's that even if we were to do so the return to capital providers won't be there because it will be absorbed by increased mariner wage rates.
Similar to what has been experienced in the past, adding active vessels for the fleet holds down vessel day rates increases Mariner wages and perpetually pushes out the return on capital.
Two providers.
The best option for capital holders to get out of this predicament is through consolidation there are too many management teams protecting too many vessels that have too much debt by creating a truly scalable infrastructure tidewater can saldate. The industry, we can remove excess gionee and we can rationalize the global fleet.
So my message is that Tidewater will now be shy and taken of low towards to the fleet in layup and my message to owners and capital holders outside the Tidewater is that consolidation and fleet rationalization is the best way to maximize your investment.
We have no required capex, we have no vessels under construction every investment we make is our decision based on today's economics.
We continue to work on optimizing our balance sheet and are focused on keeping our low net debt position, which is truly noteworthy and unique in our industry.
You may have seen that we launched a bond consent solicitation to modify certain terms of our existing 350 million face value, 8% 2020 two senior secured bonds.
We are asking for about 16 topical modifications, including using the ability to operate internationally, improving administrative efficiency and lowering the required financial coverage ratio.
We've also launched a separate tender offer condition on the successful consent for 125 million of the issue for a tender premium of up to 8.5%.
This is the first of several steps to reset our debt capital structure. So that is positioned to be strategic refinance and in addition to providing meaningful improved operational flexibility. The notes modifications allow for our revolving credit facility and the ability to refinance the other outstanding debt.
In addition to seeking modifications to the indenture, we intend to file to S. Three shelf registration statements over the next few weeks. The first S. Three will be to register as some of the warrants that are outstanding from the restructuring and the 2018 merger.
The second Asthree will be a customary universal shelf registration statement registering various forms of debt and equity securities and providing us with the increased flexibility to opportunistically and efficiently access the capital markets.
The steps, we're taking or planning to take with respect to the 2022 notes and the registration statements are being done to provide the flexibility to facilitate an optimal capital structure and industry consolidation.
As it pertains to the industry as a whole over the next two quarters, we are entering into the softer quarters of the year.
The fourth quarter will be a step down from the third quarter and a first quarter will be a step down from the fourth the best thing I can say about this is that it tells me that the world is getting back to normal slowly, but getting back to more normal offshore work pattern that reflects the preference of doing work in the warmer times for the year.
We saw limited seasonality in the depth of the downturn as operators were only doing required offshore maintenance, which is consistent throughout the year, but a lower level of activity.
The North sea and Mediterranean see markets performed well in the third quarter active utilization approaching 93% in early November one customer chartered over 10 vessels, which will help tightened up the market there through the remainder of 2019.
I remain optimistic about the north sea market as I look into 2020 , we did see average day rates decline in north sea from the second quarter, but that was due to the contract roll off I mentioned on our second quarter call.
Activities in the Middle East and Asia Pacific. We're also continuing to improve this is the one region, where we saw average day rates increase from the second quarter due to an increase in deepwater vessels operating in the region. During the third quarter I continue to see improvement in this market as we go into 2020 , it's not generally a high day region, but our team there has been successful and getting long.
On term contracts for deepwater vessels and good and in getting our customers prepay for dry dockings, which is an important consideration for us and the decision to reactivate the vessel.
The West Africa region had significant drydocked activity during the third quarter as well as a second quarter, which has kept profitability down in that region for the past six months, we anticipate operating margins return into what we would expect for the region in the low fortys during the fourth quarter activity increases in the region. During the first half of 2019 were significant but we anticipate.
At a low in activity increases until the second quarter of 2020 when new drilling programs are set to commence.
The Americas region was another region that has significant drydocking activity in the second and third quarters. Nonetheless active utilization stayed in the mid Eightys, which is very good base on the number of dry docks.
In that region over the past six months activity in the southern Caribbean a subset of the Americas region is expected to improve significantly in the fourth quarter, even though we typically see a slight downturn in the fourth quarter due to regional seasonality.
So with all that as a backdrop, let me walk through the third quarter and talk about how I see the business over the next few quarters revenue for the quarter was $120 million down 6 million from the second quarter. Two big factors drove the decrease we have those very lucrative five year contracts that were cut in 2014 that rolled off in the second quarter and we had five.
Fewer vessels operating during the quarter the five fewer vessel operating during the quarter reflects the fact that market conditions for older tonnage is still weak as our older tonnage rolls off contracts. They are going until layout. We are simultaneously reactivating higher specification vessels, which begins to offset the decline but market conditions today are only.
Good enough to reactivate a select group of vessels in layup.
As it pertains to the fourth quarter, we see a similar number of net vessels going into lab as I look into the first half of 2020 assay tightening in the West Africa, and Middle East markets that will allow several of the vessel that have gone into lay up in the second half of 2019 to be reactivated. We're also pushing day rates, particularly on the larger vessels and my expectation is at the.
Good day rate trend will begin to increase again as we go through the first half of 2020 .
Vessel operating costs of 81 million was essentially flat in the third quarter, although the number of vessels dropped by five vessels are approximately 3%.
This is due to the simultaneous mobilization and lay up of vessels vessels, just coming out of reactivation and vessels going into lay up higher than average per day costs.
My expectation is that we will see opex per active day level off over the next two quarters as I mentioned above included in the 81 million is approximately 2.2 million or 8.8 million per year of costs related to managing the fleet and layout.
So I was a result gross margin for the quarter at the vessel level was 39 million or 32%.
General and administrative expense was $30 million in the third quarter, but that reflects a number of big ticket items that are nonrecurring that include 6.3 million of severance related costs due to the staffing changes we affected before the ended the quarter, including the wages and benefits of those individuals for the full quarter. It's also included 650000 professionals.
Service fees related to the implementation of Asap system.
We did another substantial reduction in force at the corporate office in October so those wages and salaries are also in the third quarter numbers and a portion thereof, along with our severance will be in the fourth quarter numbers as well.
We set our year end annual run rate objective at 87 million or 21.8 million per quarter and the changes enacted in the second half of 2019 make me extremely comfortable that this objective will be met.
Type orders goal is to lead the offshore industry out of the current oversupply situation and reshape the sector. So that an acceptable return on capital becomes the norm.
Our vision for Tidewater is to be the company with a highest return on capital in the offshore vessel industry.
We have the industry's leading global footprint and our new information systems give us a truly scalable infrastructure platform.
Our financial strength local scale and low cost infrastructure positions us to consolidate the industry and incrementally grow our consolidated return on capital.
Tidewater has the industry's strongest balance sheet, we are dedicated to keeping it doing so requires us development to develop a business that is free cash flow positive and requires that any potential consolidation be done principally on stock for stock basis that these stocks are appropriately relatively valued.
We closed the quarter were $363 million of cash we have 430 million of debt the bulk of which matures three years from now in August 2022, but we are easily able to service the debt and can readily refinance the debt given our cash on hand.
As a result of our gross cash and debt position, we have been incurring a negative carry of over 6% per year on the balance.
For this reason and the other reasons indicated earlier, we launched the consent and tender.
Importantly, our path to acceptable free cash flow generation isn't predicated on a recovery in the drilling market.
Based on designing our shortbus infrastructure to be efficient and fully scalable it's based on focusing our vessels in the puce regions possible, while driving the highest margin on those vessels, it's about tightly managing the required investment in those vessels, it's about rationalizing the fleet in layup.
And last but certainly not least it's about keeping the net debt low and keeping working capital investment at a minimum.
We are transforming tidewater to be the highest return on capital offshore vessel company in the world.
That transformation require substantial changes to the organizational structure, which are largely complete it requires a cultural transformation to reduce bureaucracy improve decisiveness and enhance accountability, which is underway and enabled by the new organizational structure and our new information system.
Requires the optimization of the investment in physical location of the assets, which will occur over time, which is in process and that requires to write capital structure, which we are addressing through the indenture modifications and the S. Three registration statements and all of this can be significantly enhanced through sensible consolidation of the industry.
And with that Cheryl would you. Please open the call up for questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then number one on your touched on.
We are using your speakerphone. Please pick up your handset first before pursuing any numbers. Once again, if you would like to ask a question. Please press Star then one on your touch on top.
First question comes from span from Clarksons. Your line is now open.
Good day and Clinton.
I have a couple of questions.
Okay Thats lead with me.
Today.
So previously you had guided on DNA written rate target.
87 million per year.
In light of the recent announcements around organizational changes going on that that you see potentially flow included in that target.
Well, thank you let dealer.
So it's around that.
I believe that the target that we set for ourselves will easily be beats and I look forward to updating you in Q1 on where I think we can push that number long term.
Okay.
Thats positive thank you.
And in.
This quarter through you had some extraordinary.
Cost related to.
Yes.
We as Arnie organization changes.
Do you expect.
Hi.
The level of those costs.
Remain the same and the fourth quarter or higher or lower.
They will be lower in the fourth quarter, but they will be there they will be noticeable.
Obviously take you've half a section 16 officers that we publicly announced back in September as well as a higher cost, but the reorganization and the reduction in force that we Didnt October also took a significant number of people and there'll be some investing of shares and some severance related to that most of that similar to this time will be noncash.
Okay. Thank you.
You reported that you had no reactivated side larger high specification vessels in this quarter. So.
So I just wondered.
What's the average reactivation cost per vessel and in case, you hadn't contracts in hand.
So could you say something about average duration on the EBITDA margin for the contracts.
Also with settlements.
I'll tell you to the reactivation costs has fluctuated between just under 1 million to over 3 million per copy on those vessels. So.
It's hard to generalize right now because of love it has to depend on the quality of the build of the vessel as well as how long it was in layup. So I will tell you that the range in there has been on average about.
One and half to two and a half million, but we have seen at over 3 million and we have seen under 1 million.
The vessels that remain in layup today.
Are the ones that are more expensive to reactivate. So for example, the next large vessels that we expect to reactivate will be closer to that $3 million range.
To the high threes, almost $4 million range. So.
When I talk about the reactivation of vessels and the global fleet and lay of not just hours, that's a very significant cost to overcome.
So you only want to do it when you have.
Vessel that you know you can continue to work over the next five to 10 years and a lot of vessels just don't meet that criteria today. So.
The the margins have been very good and most of the boats have been reactive in fact, all those have been reactivated under long term contracts.
Okay. Thank you and one last question for me.
Soda whiskey market. This is showing some modest signs of recovery with.
Broad based taking rates, especially for larger vessels.
In the inter quarter average day rates, if you will fleet. The decrease partly explained by the downward repricing of legacy contracts as you mentioned.
Good day, the Mark to market estimates as Roland can you contracts that we posted good going forward in the foremost increased average day rates or could we still see some quarters with significant to take the legacy contracts being weak downwards.
No I don't see what we saw from Q2 to Q3 in the step down we had some very nice lucrative contracts that rolled off during Q2 at the end of Q2 and as a result, I don't expect to see that again, no. It's always difficult as you roll into Q4 in Q1, because you just don't exactly where the spot market is going to go and see.
I'm regions of the World is the softer peer to the year.
In my prepared remarks, I was talking about the trend increasing and I genuinely believe that I mean, everything that we're pricing out today, especially for tonnage Thats, a 1000 square meter deck or even tonnages at 850 square meter decking above is pricing up nicely above where it is today so in the two to $3000. It.
They range higher okay. So so that a role on effect when that occurs we will be will be nice I don't think we're going to see printed in the in the quarterly Pn Els until the first quarter second quarter of 2020.
Yes.
That's understood. Thank you very much.
Thanks.
You too.
Our next question comes from Patrick Fitzgerald from Baird. Your line is now open.
Okay.
How are you.
Good thank you.
So I just view.
Vitamins first on.
Yes.
Drydocked 60 million this year.
I believe next year as a kind of a higher higher amount.
Could you update us on what that's going to be looking like.
So we're under a long review on dry docks for 2020 I don't believe it will be higher than what we're seeing in 2019, but it will be high relative to I think the average would be so as a result can give you a number today don't leave is going to be as high as what we experienced in 2009.
Team.
What we're doing as we go through our budgeting process for 2020 scrutinizing heavily those drydock investments and what we're trying to do is make sure that every one of those investments is justified.
I'll be able to give you a little more clarity when we do the Q4 call. So someone somewhere between what you said is the average of 38 million and and 60 this year.
That's correct okay.
And are you seeing competitors Miss dry docks are push them out.
Potentially.
Moving less supply and the markets, where you operate or are they basically coming up with.
Ways to to hit those dry docks.
Kind of creatively.
Well they are.
For the most part finding ways to hit their stride aucs, but there is definitely have been perhaps less than 10, but there have been situations where vessels that are approaching their five year survey have actually gone into lay up because they didnt feel that they.
Could either justify those dry dock or couldn't find the money for the dry dock.
Unfortunately.
Little bit of the tone of the prepared remarks, I mean, what I see happening as capital holders and capital providers still trying to hold out and.
It was I don't disagree on on the younger vessels, but the older vessels in particular people need to throw the talent on but no. The hasn't had a measurable effect in 2019 of decreasing the supply of modern tonnage.
Okay.
And then.
Any sense of what.
You've done a really great job generating cash from.
Selling some assets that you're not going to be able to use our scrapping them can you keep up that pace or is that going to be a little bit slower next year do you think.
Two things.
With relates to that my intention is to get more aggressive in selling the vessel. So of the 60 that we have getting rid of another 45.
The early as we can then 2020 would be important to me.
Prices on the tonnage that remained our as lower just because it's easier to sell the better tonnage and so that tonnage is already left okay. So.
And I do expect that there'll be some of the tonnage disproportionate number that will go into scrap as we go into 2020, so I still expect to have a significant number.
That number could easily be 30 million it'd be difficult to make that number 50 million.
Okay.
No. Thanks, that's helpful.
And then.
Just in terms of the.
Consent solicitation and tender.
You know you need 50%.
Two.
Consent correct, but.
You don't need to consent to participate in that and the tender.
But you do need more than 50%.
Two consent to do that tender.
So.
Yes is that am I understanding that correctly.
Your understand that correctly, but I will say that precisely 50.1 is what I need if you will certainly above 50%. So once the tender is.
Once the consensus.
Confirmed the tender will be activated.
Okay.
And then.
Your.
You highlighted some of the keys that you want.
Through this process.
Great and it internationally easier ability to refinance at that.
I haven't seen all the documents.
Yet at this point, but is there could you provide any more color on like what exactly.
The current indentured doesn't allow you to do that would be nice to be able to do.
Sure I'll give you some general comments, but we can also forward you a summary of effect because just because there are 16 modifications that would be difficult from yes accurate RASM all today.
And then we have your emailed us until do that and of course anyone on the call that wants it will definitely will doesn't do that as well.
Other than your certain things that are overly restrictive for example, we can't Reflag a Jones Act vessel. The Jones Act. Okay. Now theres reasons that creditors that wants to do that because it's actually easy to mortgage a vessel in the us but what happens is the smaller vessels that we have in the U.S. that would ideally be working in Mexico or.
In the southern Caribbean or even in Africa.
That will require me to either not be able to work there because our flag state requirements in those local jurisdictions were to keep them crude with us Mariners, which is an expensive proposition. So decreases my in my opportunity set because of the competing with local vessels in those situations. So that's that's one example of it yeah Theres a few more examples related to.
How we operate internationally from a cash consolidation standpoint, what we'd like to do is make sure that we can easily manage the best manage the cash flows and not have to maintain any type of bureaucratic infrastructure in certain areas of the world. So thats another element that.
You'll see in those 16.
Modifications, yes, one of the bigger ones that most people will focus on is the reduction in that the required.
EBITDA to interest ratio.
It's.
Obviously, we we printed 80 and a half million of EBITDA.
This quarter.
Interest.
On an annual basis, probably approaching $32 million. So we're easily over two times today, which is the maximum the that ratio gets up to but what I don't want to be forced to do is work boats just to create EBITDA. There's a there's a phenomenon in our industry, which is.
I can actually be cash flow neutral on a vessel, but create EBITDA because what ends up happening as you all spend as much on the reactivation of the vessel as I will earn in EBITDA creates EBITDA for me, but it doesn't create cash flow and I don't want to be put into those positions. So one of the reasons for getting some flexibility on that ratio is.
To make all those sensible decisions and with hold capacity from the market when it's appropriate to do so.
But was let me essentially the list that way you can take a look at it.
If you have any questions can give us color, yes, sorry, just one just one more.
Do you have a specific number of cash.
On the balance sheet that you you want to keep.
So that you wouldn't want to upsize. This tender if you get good support.
For it.
Well I think we'll get I do believe that will have very good support for the tender and.
Hi, Bill.
Taking out the bonds.
Went away and a half to me is a good balance for both the bondholders and equity holders today.
I expect that will leave about $200 million a cash on the balance sheet. As a result, this transaction, which is still a bit of a negative carry but to me as I mentioned earlier in the prepared remarks. This is the first step up two or three step process of lighting the capital structure. So we're taking all the bonds out today is not practical.
I think that well, let's take as much as I can if I can upsize that I may.
But then you would look to us to do some other activities like putting in the revolver that were not allowed to do as well as taking out the volumes before the maturity of coal to 2021 timeframe.
Okay. Thank you very much.
Thank you.
Our next question comes from stuff in detail from Atlanta. Your line is now open.
Thank you Hi, cooking quick question in the second quote to call you guided for average vessels being I think 11 down to this quarter and then another six in the fourth quarter now that turned out to be a bit less with.
Only five vessels left so could you could you elaborate a bit on on what changed there was that better employment prospects of vessels you expected to go idle what was what was behind that.
Yes. It was a combination of no or factors. One is some of the vessels that we were expecting would roll off or actually getting extended on their existing contracts. So as a result, they didn't roll off in.
The third quarter or they rolled off much later in the third quarter. So as a result, it doesn't impact the average number as much as we anticipated we are able to keep more both working and we put a couple of more boats to work than I was anticipating that higher day rates. So that's I mean was encouraging as well.
Okay, and then on the on the vessel margin that that you guided in the call to last quarter quotes or something like 34 that came in its had lower and you also mentioned that you expect this two to ramp up again and in the fourth quarter. If this is this still on track hoist this more difficult to cheap right now the improvement.
Into the fourth quarter.
So the improvements.
A couple of things are happening that brought that down one is.
When we are reactivating those vessels that we were just talking about it just cost a little bit more money when you're initially reactivating those vessels and so that burned up some of the margin that we are anticipating being saved in Q3, we do it because we think it obviously for going make more money on the reactivating the vessels and keeping the vessels working as we go through the Q4 Q1 timeframe.
I do still expect the general and on the trend of the older vessels in our fleet to drop out so the vessels that I anticipated dropping out.
In Q3 and in Q4, a portion of them I was expected to actually get reactivated and in the first half of 2020 .
The way that it's working out of some of those older books are being extended on their contracts the ones that are truly.
On their last contract if you will maybe they don't.
Fall out of service in Q3, they fall out of acute service in Q4 Q1, but when they fall off a service they're going to go into layer. So some of those are just the inevitable.
What im hoping for is those vessels that continue to get extended.
Our.
Or extended to a period of time when we can also reactivate some of the newer tonnage so that the overall trap and drop an active vessel count isn't a significant but as I look to Q4 I'm still seeing about another net five.
And that to me.
Feels right, obviously, we're a month into the quarter.
Good.
Q4 is always a softer quarter anyway. So it's hard to extend anything that actually matures in this quarter. So my anticipation is that we will be down five.
Okay, and then and then final question, we have some London.
We have the vessels operating right now if I understand it correctly. Some some of those will roll off contract and then go events and they are still being scrapped then you mentioned 12 to 15 of the vessels currently stacked.
Our vessels you want to keep so its then let's say, though roughly 117 number of vessels.
Fleet size going forward that you that you see right now.
Well I do have a rule not doing math on the conference call, but I think that you've got it right, which is essentially animal will will take out 45 from their existing fleet and that will result in an overall vessel count in the 170 range.
Okay. Thanks.
Once again, if you have a question. Please press Star then one on your Touchtone phone again, if you ever question. Please press Star then one on your Touchtone phone.
Okay.
And speakers at this time I show no further questions in queue.
Well. Thank you very much. Thank you everyone for participating on the call today and we look.
For two updating you in the Q1 2020 timeframe. Thank you.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.
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