Q1 2020 Earnings Call
Good morning, welcome to the earnings conference call for the first quarter 2020. My name is spread there will be your operator for today at this time all participants are going to listen only mode. Later, we will conduct a question answer session during which you can delstar. One other question. Please note. This conference is being recorded.
I'll turn it over which you would use instantly Sir you may begin.
Thank you Brenda and good morning, everyone and welcome to card Waters earnings Conference call for the quarter ended March 31st 2020.
Jason Stanley Vice President Investor Relations for toward War.
Thank you for your time.
Today, knowing many of you are doing so from home.
Joining the call. This morning by President and CEO, Quintin Kneen, our Chief Accounting Officer, Sam Rubio.
And our general counsel and corporate Secretary Daniel Hudson.
During today's call, we will make certain statements that are forward looking.
Turning to our plans and expectations. There are risks uncertainties and other factors that may cause the company's actual future performance to be materially different from that stated or implied by any comment that we might make during today's conference call.
Please refer to our most recent 10-Q for additional details on these factors. This 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 March 12, 2020. So you were advised that at any time sensitive information may no longer be accurate becomes any replay.
Also during the cold 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.
And now with that I'll turn the call over to Clinton.
Thank you Jason Good morning, everyone and welcome to the first quarter 2020, Tidewater earnings Conference call.
Allow me to start off by addressing the ongoing cope with 19 pandemic and Todd waters response at both the employee and operational level. I'll then discuss some of the macro observations were seen as a result with a pandemic before sharing I'll leave this outlook for Twentytwenty, our consolidated quarterly results and then we're viewing our operating segments in more detail.
Last we spoke on our fourth quarter 2019 call I emphasize the safety and well being up our employees has always been our highest priority and noted that due to the nature of our business, we have well established protocols on safety and emergency communications.
That's up here it does make circumstances have progressed to the current state I'm proud to share that the entire team at Tidewater has demonstrated both the most professionalism and dedication to the passive have both the board our fleet and those office employees sheltered onshore.
Social doesn't seem from a working on the rollout of new health and safety protocols have become the norm as we collectively strive to ensure every one of our employees and their families and the classic customers they engage with remain healthy.
I think everyone for their efforts and working together to do their poor to eliminate further transmission of the virus.
Beyond our employees, we have experienced a number of direct operational impacts from the pandemic.
Travel restrictions both internationally and at home have made crew changes, where even allowed at all much more challenging we've seen in an increase in temporary accommodation costs due to the requirement for crews to be quarantine for typically 14 days when embarking on disembarking vessels as the global logistics infrastructure appeal.
String of the other displaced workforce, our ability to access technicians imports to support dry dockings has also been severely limited.
As we look to the wider market impact. It's helpful set up the backdrop of you always be industry and we've spoken about this in the passive it's hard to find an industry that has more structural challenges than the always be industry. Its customers are more consolidated and its suppliers are more consolidated.
It's got no real barriers to entry and even as a person barriers to exit.
No real substrate market for the vessels are substantial degree of operating leverage its capital intensive sharply cyclical and its fragment as into several hundred owners around the world.
[noise]. So for those of you were still on the call that doesn't mean, a well managed it must be company can't generate free cash flow even in the current market environment and the good news is a tidewater, we're still planning and expected to generate free cash flow and Twentytwenty, a big part of the call today will evolve walking through our path to free cash flow.
Generation in 2020 and beyond even given the sudden change in the outlook for the industry.
Before I lay out the Tidewater response to decrease activity I want to expand on the backdrop I just referred to because it provides the reasoning for the steps we're taking here at Tidewater.
The schurz path to not being able to generate free cash flow is not addressing the capital invested and the shore based footprint to the current state of the market.
Fleet size does not determine your ability to generate free cash flow a 150 vessel company 100 telephone company and the 10 vessel company can all generate free cash flow, but to accomplish this the smaller fleet the higher your average specifications to be.
Relative to the global actively you can make money with a high spec Ted vessel fleet. If you keep your shore base costs in line and you don't try and Carrie idle capacity a higher specification both were working they'll generate sufficient margins higher specification books don't always get a higher day rates, but they get more work they don't get price, but they get volume and operating costs.
The same you're simply increasing your active utilization. It's the same with all 100 or 150 vessel fleet as you get larger the need to be much higher inspect decreases you can make it up in fleet count, but you can't carry idle shore based capacity were idle vessels you can lose money quickly holding onto the believe the cash flow dream associated with.
Keeping in idle fleet and shore based personnel through these periods this investment that will pay off.
But first onerous believe this because it has worked in the past, but we feel is a custom to downturns that revert back to a long term growth trend line that is not what is happening today, the industry's shrinking and that's okay, but in the past seem like it's not shrinking as demonstrated by keeping fleet and shore based costs and is the path to the poorhouse death.
Holders or their true equity holders in many vessel companies and they need to make the tough decisions that named equity holders have been unwilling to make the process of shrinking requires making decisions on the fleet to keep the people to keep the customers to keep and the geographic spread.
Determining the fleet to keep this fairly easy modern large fuel efficient tonnage with the regionally a required bells and whistles is second nature to most operators.
Turning to the people to keep us about looking for those hardworking ingenious multi had wearing resourceful individuals who aren't afraid of change.
The tough part is this industry is actually pull up this type of individual.
That's what makes shrinking hard for many companies.
Determining the customers keep is based on who treat you best when you're in a structurally week sub sector as I outlined above you work with those customers, who don't abuse that natural power that exist. In these situations. These customers are out there that's times like this that reinforce who to work with and who to avoid.
Determining the geography is to focus on was based on the equipment and customers you decide on predicated generally on where you are currently but trying to be everywhere is the key to failure leveraging a scalable shore base is key to maximizing margins technology is the key is scalability.
The best outcome for the industry is to quickly get to a smaller so super regional consolidators that dominate a particular geography, and who leverage off of a small shore based footprint.
Historically Tidewater has been the player that has a large average fleet that was everywhere geographically and focused on utilization.
It's a strategy that need money in a market that was always reporting to upward sloping mean trend line in demand I'm, not saying that earns its cost of capital, but it was a strategy that didn't lose money.
Over the past 18 months Tidewater has been moving to a scalable and more focused infrastructure.
Over that type here you have heard is talking about leveraging technology and reshaping the geographic focus, but it's a cultural change process as well as a change in business strategy and a change management process.
Shrinking involves factors have increased the cash burn in the short run.
Factors that generate cash in the short run and done right. We'll set you up to be free cash flow positive in the long run.
Shrinking involve severance cost for personnel costs from shuttering offices on the cost of de mobilizing vessels.
Currently inefficient processes fully crewed vessels without revenue were burning fuel, but there are offsetting benefits such as the working capital the nation proceeds from asset disposals, and the temporary benefit from delayed dry docks.
As mentioned in the backdrop the oldest be industry has its challenges, but it has a base load of non drilling related work that keeps a substantial number of both working.
The vessel industry isn't going away, but companies must demonstrate flexibility in their operations to meet the changing demand of the market, where they will go away.
It's a fools errand to try and predict where vessel demand will stabilize while the market is in turmoil, but it's necessary to make some preliminary assessments.
Well I've been on this and for the past six years so.
Why something out right. So we anticipate global vessel activity to be down 20% to 25% over the next year. That's another 400 to 500 vessels in excess of demand rough estimates chasing that number to perfection is another fools errand, but that's the order of magnitude we're seeing.
And you may recall from our previous calls many of these vessels just went through their dry docking. So they will fight to compete with other vessels working in the market. This leads to a quick pullback in prevailing day rates what makes the current circumstances, even more problematic than the previous unpleasantness that began in 2014 is that there are very few non cancelable counter.
Our next this time and no noncancelable contracts at high day rates blast pullback was buffered by some five year noncancelable contracts that were cut in the summer of 2014 when rates were at their peak you may recall that we had a handful such contracts that just rolled off last year.
There is no protected buffer that there's no coffer damn as we would say this time.
So we've got to lighten the ship Dsix only way, we're going to sail through the storm you can't sale through the storm dragging a fleet of anchors.
During these times, you've talked stuff overboard that perhaps you wish you didnt have to toss. My objective is that by this time next year, we're down to a shot coda primer.
The vessels in the later fleet that we're targeting for recycling or on the way. The scrap chart. The marginal specification vessels that we were trying to sell the sector secondary markets, they're going to scrap there's quite frankly not enough economical lay up capacity in the world to put all these vessels in layup those yours are still full paying premium prices for lay up capacity while.
The interior vessels are less expensive more quick locations that doesn't make sense someone will do it but none of us.
We will become even more aggressive in high grading the fleet through scrapping than we happened in the past and we're already more aggressive than anyone else out there.
This goes back to what I was discussing earlier get the fleet average specification up and stop carrying idle vessels. This was done by scrapping and divesting lower specification tonnage.
Prices for scrap steel are also going lower as the world Doesnt mean, much steel today, but holding out for higher scrap prices is another mystic ship owners make you end up paying more lip costs in your gain higher scrap prices. So it's a race to the recycling in order to lower the cost of layup and provide some cash from the idle steel.
We anticipate generated 39 million of cash from vessels disposals, and Twentytwenty, we generated $10.5 million in the first quarter, we still anticipate generated 39 million of cash in 2020 from vessel disposals, but more vessels will likely be sold to reach that amount.
You will notice that we wrote down the value of the available for sale fleet by 10 million in the first quarter to reflect this new reality and as we go through the second quarter, we will be making the determination of which vessel we've moved into the asset held for sale category.
On our fourth quarter 2019 call, we announced backlog of 440 million for work in 2020 since that time the effects of the demand reduction that oil price driven capex reductions has resulted in approximately 63 million and reduce backlog from early contract terminations and 8 billion and reduced backlog.
From delays of getting vessels back on higher because of vessels are shipyards to their shut down to virus containment related delays.
So summed up and deducting the first quarter revenue of 116 million that leaves backlog for the remainder of Twentytwenty at 253 million.
Our primary backlog risk comes from most vessels doing drilling support work as stated previously production support is expected to remain relatively stable, although shut ins of offshore production platforms may cause additional cancellation should the oversupply of oil worsen.
The vessel spot market has all but disappear for the year. So we anticipate a significantly smaller part of our revenue for the remainder Twentytwenty will come from this market than we would typically see.
All told we anticipate a revenue loss of approximately 100 million in Twentytwenty 63 million and cancellations 8 million and Drydocked delays at slip into 21, and the elimination of 29 million of spot market.
With that revenue losses, approximately 45 million of operating profit. In addition, we are looking at approximately 13 million of cost associated with de activating those vessels coming off hire an additional labor costs.
On the frictional cost side that is the costs associated with shrinking the shore base and the pandemic driven inefficiencies. We are estimating those costs decreased 7 million for the remainder of Twentytwenty.
That's 65 million lesson cash than we anticipated at the beginning of year.
Offsetting that we will be spending 20 million lesson dry docks and I anticipate approximately $30 million, an additional working capital liquidation.
Accordingly, we see the net impact on 2020 has a deep freeze and free cash flow of $15 million.
At a very summary level for the full year Twentytwenty, we're anticipating revenue of approximately 395 million with a 160 million recognize in the first quarter 253 million in backlog and 36 million anticipated to be booked based on options and existing contracts. The revenue as it is at a gross margin of 35%. So one.
Hundred $38 million from core operations.
From that the $30 million frictional costs of vessels going into layup and the 7 billion pandemic inefficiencies and you're down to 118 million.
Take 81 million offer general and administrative expenses and you're down to 37 million dry docks at 33 million gets you down to 4 million.
Then we have the proceeds from asset disposals of 40 million working capital liquidation of $30 million and taxes and other of a negative 9 million all summed up that's 65 million of free cash flow very high level and that's down from the 80 million, we anticipated as at the beginning in the year.
We also have 18 million of net interest expense and 10 million a principal payments for those of you think you should include those numbers and determining free cash flow.
Cadence.
So what do we have to do different to meet these estimates we have to stop doing dry docks, we have to quickly lay up and grew idle vessels. We have to collect what does do from us from large multinationals and national oil companies and we have to sell vessels.
All achievable.
Of course, there are risks to these estimates so let me walk you through what I see as the bigger risk.
As you May expect our customers are requesting rate reductions where possible, which is the same process. We went through during the previous downturn. This time, there's very little movement to me if any.
Our customers appear to understand that these cost savings cannot come from their supply chain. This time, but downward pressure on prices continues regardless, we have factored all of this into our 100 million dollar estimated decrease in 2020 revenue along with the absence of any real spot market and vessel cancellations.
Operational expenses are slightly higher due to the previously mentioned logistical challenge we have had to make associated with the quarantine periods for Mariners.
When vessels complete contracts and come up higher we are moving swiftly as possible to lift the vessel and de crewed minimizing any ongoing costs in the absence of revenue generation. We believe we have a good understanding of these cost today, but within the global shipping industry not just the always be industry. There are approximately 150000 mariners around the world we're awaiting.
In accrued change.
And on that note I believe the international Chamber of shipping is doing an excellent job working with authorities on this issue.
There may be other costs that we do not anticipate but we have factored in $20 million additional frictional costs that we're comfortable with this estimate based on everything we know today.
Stopping drydocking activity as a typical lever shipping companies pool during times like these and the O. SP industry. We all did this into 2015 to 2017 time period and as we have discussed on previous calls that resulted in an enormous wave of dry docks and deferred maintenance from 2018 until now to build cycle amplified. This.
Here, we are again.
We can delay dry docks, and we will but we can't stop dry docks, we will look to catch up in later years, but the savings and Twentytwenty are achievable. We spent 25 million of our 53 million dollar 2020, Drydocking budget in the first quarter, which was all according to plan. The brakes are on all dry dock spend now puts a bit like the brakes on a boat it doesnt.
Top as quickly as you would expect from a road vehicle, we've got vessels and yards that are in pieces that is the boats are in pieces literally on the yards are in pieces figuratively as they can't get people were technicians on location to complete the work due to virus related travel restrictions.
We anticipate another 8 million of Drydock costs in the second quarter. As this work comes to an end and no drydocked spend in the third and fourth quarters.
Accordingly, we anticipate a 20 million dollar savings from 20 to 28 in 2020 from the deferral of dry dock spending and again, we feel comfortable with this estimate.
We have been building working capital over the past six months and I anticipate that we will significantly liquidate this balance as we go through the remainder of Twentytwenty. The substantial majority of our accounts receivables and of our long dated accounts receivables are with Super majors and national oil companies, it's frustrating when industries with the wherewithal to pay do not pay timely.
But we're currently not concerned about the collectability of the outstanding balance and we feel comfortable and our estimation of achieving 30 million of liquidation and twentytwenty.
Part of the liquidation is correcting for the build over the past six months and the remainder will be the natural decrease that comes from a decrease in activity.
We have 39 million forecasted for proceeds from vessels disposals, we sold nine vessels were $9.5 million in the first quarter. We received another 1 million in deposits were vessels under contract to be sold year to date, we have 20 million sold or under contract to be sold.
We may end up selling more vessels and twentytwenty than we originally envisioned that we shrink at high rates typically even further but we still feel comfortable with $39 million estimate for twentytwenty.
The generation of free cash flow remains our key focus and is the key determinant in our cash incentive program.
As we look out further to 2021, we need to lighten the ship.
We won't have to working capital liquidation benefit in 2021, and we will have to resume some level of drydocking activity.
In addition to the three actions I just noted as key to 2020 free cash flow generation, we must focus on concentrates the shore based footprint the fleet mix and the customer base.
Ill now move on to the results for the quarter as we mentioned in the press release each of our four regions had higher average day rates lower overall operating costs of the higher operating margins as compared to the previous quarter. This was achieved with our lowest unit cost level ever a normalized 20 million per quarter or 81 million annually.
In the first quarter of 20 to 20, Tidewater generated revenue of $116 million, 5% or 6 million decrease from the same period in the prior year.
This was largely driven by operating an average of 15 fewer active vessels are result of the previous plan on reducing refocusing and as a result high grading the Tidewater fleet with the current pullback. This will accelerate as a result of delays in getting vessels on higher in mid March as the pandemic intensified active vessel utilization decreased to 79% in there.
First quarter down from 81% in the prior quarter.
Our general and administrative expense of 21.4 million included 1 million related to the impairment of a receivable in Nigeria from a small intermediary, but even including this noncash item, we had a 21% decrease year over year, resulting from decreased head count and lower stock compensation costs. The result is a normalized run rate.
$81 million, a year, which is down $64 million from the merger pro forma run rate of 145 million.
Net cash flows used by operating activities for the quarters was 27.5 million and free cash flow was negative 15.2 million the negative cash flow numbers for the quarter were due to the planned dry dock spend of 25 million in the build in working capital, which incidentally wasn't planned, but which we anticipate to reverse over the remainder of the year.
Obviously, our first quarter Drydocked program was done to prepare the business for what we believe will be a better market with improving demand is increasing day rates, which we did begin to see in the first quarter as I mentioned previously we have a few vessels stuck in dry docks around the world that we will be completed in the second quarter.
Looking onto our results at a more regional level, our Americas segment saw vessel revenue decreased 10% or 3.4 million. During the quarter ended March 31, 2020 as compared to the quarter ended March 31 2019.
This decrease is primarily the result of four fewer active vessels and the reduction in active utilization from 87%, 86%. However, average day rates increased by 4% partially offsetting these declines vessel operating loss for the America's second for the quarter ended March 31st 2020 was 1.2 million, which was 100000 more than the operating loss for the year ago.
Quarter.
The decrease in revenue was nearly offset by the decrease in operating costs.
In the Middle East Asia Pacific revenue increased 21% or 4.4 million during the quarter ended March 30, Onest 2020, as compared to the quarter ended March 31st 2019 active utilization for the most recent quarter increased from 76% to 78% average day rates increased 9% average vessels in the segment increased by.
For the Middle East Asia Pacific segment reported an operating loss of 900000 for the quarter ended March 31st compared to an operating loss of $1.2 million for the year ago quarter.
Activity remains high with Saudi Aramco, continuing to increase its demand for vessels in a region, where availability as tight as is true access due to virus related travel restrictions.
For Europe, and Mediterranean, our vessel revenues increased 3% or 900000 during the quarter ended March 31, 2020, as compared to the year ago quarter.
Average day rates for the same period increased 14% because of increasing demand for vessels in the region active utilization also increased three percentage points during the quarter.
Compared to the year ago quarter.
The vessel fleet decreased by four active vessels, which partially offset these improvements the segment reported an operating profit of $1.5 million for the quarter ended March 30, onest compared to an operating loss of $3.3 million for the year ago quarter.
For the North Sea in particular, we saw the spot market largely evaporate in the past 45 days with drilling cancellations in a flood of more than 30, psps going idle, which is lower in the day rate at the occasional spot market higher vessels without a high probability of moving onto additional work are being put in layup, we have laid up.
Two vessels recently and are likely to send more to lay up at the spot market continues to remain weak in the typically strong summer season.
In West Africa, where vessel revenues decreased 27% or 9.6 million during the quarter ended March 31st 2020 as compared to the quarter ended March 31st 2019, The West Africa average fleet decreased by 10 vessels during the comparative periods active utilization for the segment decreased from 77% during the.
First quarter, 2019% to 60% during the first quarter 2020 vessel operating profit decreased to an operating loss of 4.9 million for the quarter, primarily due to a decrease in active vessels, coupled with higher operating costs from higher than anticipated downturns.
Despite the expectation for them and improving quarter, we dry dock cropping up in the regions. We were impacted by the untimely combination of pilot excuse me virus related challenges and the oil price collapse.
And so while it's difficult to see passes turmoil there isn't a likelihood of a steep recovery in the future. It's not reverting to an upward sloping demand trend line, it's a downward sloping one but is still reverting upwards from here.
And on that note Brendan.
Let's open it up for questions. Please.
Thank you, Sir well not because the question and answer session. If you have a question. Please press star one and your telephone keypad, if you'd like to be removed from the Q. Please first outside with the Heskey.
The speakerphone, please pick up your headset first before dialing.
Once again, if you ask a question. Please press star one of your telephone keypad.
And from Clarksons Plateau, we have Turner Holm. Please go ahead.
Hey, good day gentlemen.
Overall, our keeping safe and quite and thanks for the detailed cash flow outlook in your prepared remarks, it's certainly helpful.
Yes.
First I just wanted to clarify something there.
Then on major drilling company as you know that filed proactively furniture chapter 11 and on the back of that I guess, there's been some some investors speculation that that other oil services companies may follow suit.
I assume I'm correct in saying that you all are not considering that.
Strategy is that correct.
Oh, absolutely not I mean, I get again, we're so we've got a very manageable debt load and we're looking to be for cash flow positive.
Certainly nothing adding any plan is that I have today.
Yes, I wouldn't expect said, but I thought I'd, just make the point and secondly.
You just got some of the structural issues with the industry Clinton.
And.
To that regard to consolidations been off discussed.
Topic, and you know and this and this environment I guess there have been some key lenders to the industry that had been.
Beginning this debt equity and kids.
So I was wondering if you all are seeing opportunities to takeover bank controlled vessels or or in some way participate.
Deceleration out necessarily stretching the balance sheet.
Oh, absolutely I mean any type of.
Legitimate cooperation whether it's managing vessels for other people pulling vessels outright consolidation nonrecourse debt structures, where you've got the bodes well for balance sheet.
Get a little bit of the upside with the call option on both all of that is out there being discussed and I would say that.
Over the past four weeks the activities and those discussions have heated up so my hope is that we'll see more of that.
If we hit outright consolidation because of the debt loads that are out there, perhaps there's some other cooperative arrangement that some.
Course legitimate allows us.
Act as a team and and defending the industry.
Sure.
And then and then so.
Last I guess.
I Wonder how you think the cycle is going to play out and the medium and longer term.
You mentioned that.
The cycle as soon as or faster fall compared to what we saw post 2014.
Due to the contract terms.
But then I guess I wonder if you if you might also expect faster recovery at some point out in the future.
Just given the lack of newbuilds and high scrapping or scrapping in place.
Just curious on how you think the cycle plays out.
My final remark in the prepared remarks was it was trying to hit that which is.
There is going to be a reversion to the mean, even if the dollar slowing trend line and were well below that mainline spec. Okay. So I do expect this business to pop up I don't know when it's going to be Theres, a couple of areas that I'm concerned about from a long term recovery standpoint.
And quite frankly, the content of Africa, and we've really seen a quick pullback by.
Majors and Super majors in that area.
And im not sure that there.
They have the ability to go back quite frankly.
And I'm worried about.
It depends I make takes hold in the Continental Africa, how long it takes to clear. So so there are large regions of arm of the world that I worry about coming back.
Slower and West Africa is one of them, but I don't worry about for example, what you're talking about the quick snap back I expect that in North Sea.
Fully expected. It's the most were active market out there is an open market, it's a free market they clear faster than anything they naturally clear faster than any market.
So I do expect to see that in the North sea assay that the corrections there, but there are certain areas, principally west Africa that I'm worried about.
Asia has long been oversupplied, we've talked about this beginning in 2014 downturn.
I don't think it gets any worse, but I don't think an accelerating faster.
Okay, and I guess I had one more follow up maybe Raleigh.
And that's just how you see the activities are developing through the year and you mentioned something on the order of 20 to 25 percentage you. How do you kind of think through those scenarios ensure there's a lot of.
You know.
Sort of sensitivity on the upside and downside.
And presumably that said that 20, 25% the basis for your on.
Your your cash flow bridge that that you built is is that is that tweets weve hyper said is that something like.
Hi, how do you think about that relative to rig count. So we can kind of track it through the year and get a sense of where you all might land and financial perspective, I guess, that's the question.
I appreciate I appreciate the reason for the question and as I mentioned it is a bit of a fools errand by trying to try to grab that knife has its falling it's very difficult.
But what I'm basing that on is what I'm seeing around the world what I'm seeing in vessel cancellations and generally what I'm seeing activity levels, where we were anticipated spot market that didnt happen.
So it.
I think that.
We're going through periods like this I think it's important to prepare for those types of downturns and what I wanted to lay out for everyone. On the call is even with the downturn of that and magnitude. This company is prepared to weather the storm.
Quite frankly.
Optimism that you were alluding to there is a little bit of that and me as well and I'm looking forward to seeing some of that materialized. As we go through the year may or may not be that bad, but if it is that bad.
We're prepared.
Hi, Thank you very much spend I appreciate it.
Thanks, Charles Thats it.
From Baird, we have Patrick Fitzgerald. Please go ahead.
Hi, Thank you for taking all the question Glenn So all the detail.
[music].
I wanted to ask about.
Your 30, not 33 million Drydock in 2020.
And what that means for active vessels.
In your question is does that mean on decreasing the amount of active vessels as we go through the year.
Yes.
Yes, absolutely it to us so but a lot of those vessels have been contracts have been canceled so they're just going into layup and they are a lot of those not a lot of those but there will be some that go into the scrap yard definitely the the vessels that we had in layup. Prior to this pullback are more likely to go to the scrap yard to make room.
For these vessels that are coming off hire.
Order of magnitude is hard to say right now.
But.
Easily be 20 to 25 vessels to be more.
Okay.
And.
So in order to get those if they go on to lay up.
To get those back out you would have to spend.
29 that are expected to spend this year.
Is that correct thats right.
That's right a bench.
Eventually have to spend that money.
You can work with classify these to give extensions by a month.
But again, it's a it's a cost of the business and if you're going to keep up if you can bring that vessel active or keep it active you're going to end up spending that money. So dramatic dry docks is a delay provided that youre going back to the same fleet count you were at.
Actively okay.
And then are you seeing other operators did the same thing.
Quite frankly happened so focused on my own business I haven't heard Watson with other operators, who and where the past 30 days.
But I can only imagined that everyone's doing the same thing.
Okay.
So the 395 million then revenue.
Could you is there any way to breakout how much of that as production versus.
Drilling.
Services.
The drilling pieces getting much less but it's unfortunately, it's not because the vessels the chartered don't actually get charged for a specific task sometimes they do frequently they are doing both so really it's to demand piece that kind of incrementally impacts a group of vessels and so if you have four vessels that are doing both drilling support and production maybe.
Goes down to three vessels or something like that.
But as I look at the 395 million and you look at the the amount that I'd indicated was the spot market work that work is still more drilling related and feel comfortable with it because those rigs are still drilling, but there, but it's at risk.
Okay.
And then.
So so these asset asset disposition 39 million for the year.
10 million roughly in the in the first quarter.
I mean, these or is this all scrap our son's on.
Going into other.
Industries.
No we actually look too.
I would prefer course to sell them out of the industry into some other function and and there's not a lot as I indicated there's not a real big secondary market for these vessels, but there is some.
Very often they get used for us and the non oil and gas offshore related cargo transportation off very often they can be used as shuttle vessels.
So you see some of them using small as usan inland barge work. So yes, there's there's an opportunity to sell these into those markets and that's what we do when we're selling these vessels. So in fact that disproportionate number in the first quarter were actually sales as opposed to scrapping, but scrapping programs I think we'll be accelerated as we go into the second.
Yeah.
Okay. So if your 39 million how many how many.
Vessels is that if you don't mind me asking.
Yes.
39 million was originally.
So how many were in the vessel held for sale categories 46. So.
39 equates to 46.
Okay and so.
So as that is there a huge stratton price and sales versus.
Scrapped.
So it's.
But a lot in the Grand scheme of things, but scrapping you can probably net two to 400000 and the sale. It's probably 900000 to 1.3 million had depended on the vessel specification size of the vessel all that.
Order magnitude between those two activities.
Okay, Great last and to me I just wanted to ask about the Troms offshore.
Subsidiary.
There are six vessels.
There is that correct.
There is less correct and then what's the status of those.
Those vessels are they working.
So those are very capable north sea vessels I couldn't tell you if they're all working today historically the theres two that are probably going to be idled here quickly, but those the kind of votes that go back to work.
I don't worry as much about the the more sophisticated Norwegian or north sea tonnage because when I was talking earlier about the.
What.
Yes. This is a commoditized industry don't get me wrong, but nothing's perfectly can monetize and so when it comes to higher spec vessels in larger vessels. Those the once you get the work and as I said before sometimes they don't get the price you want but they get the work so they don't get price, where they get volume. So I think two of those were all higher right now but overall.
Plus by those losses.
But you think the those vessels cover the 65 lineup that backs at that subsidiary.
Oh, yes.
Yes.
Oh I'm sorry. Your question. It wasn't just about the subsidiary it was about the the gig Norwegian debt on those vessels, yes, that's yes, that's the long dated.
Yes, I'm not worried about that at all.
Okay. Thank you.
Thanks.
From a body in company, we have fiber body. Please go ahead.
Hi, Quinn how are you.
But how about yourself.
Okay, great great can.
Tough time keep up the good work, there's a lot of detailed information you had in that you know at the end of year question did the review in terms of fleet include adjustments related to 16, taking 46 out for active 42 not.
And if you've obviously done a lot of work because you updated kind of information.
That and also the cost part of the equation.
Thank you have kind of.
Embedded in your estimates you haven't isnt huge granularity.
You will you do more in terms of and I guess, because what drydockings are how things have changed because it's so did obviously, we evaluated what that fleet looks like and how much you can keep in how much not although it's also dynamic too so in that it's probably hard to do exactly today. The de anticipate updating as you did at the end of the.
Year that fleet moved view, so thats an important component.
And costs.
Absolutely. So so yes, we certainly have made some assumptions as we've gone through the process.
Trying to guide where the business is going to go when it comes down to the level of granularity as to which particular vessels are going to be going into.
Just going right to the scrap yard and some going into lay up we're still in the process of evaluating that and we'll we'll make that determination and we'll make it this quarter as we go through a little bit more of the reverberations from the downturn.
But suffices to say that we're going to be very judicious and managing the capital as we go through the remainder of the year.
And then when you ran through the number. So you did say that SGN, a salt will still to be around $81 million in deduction, which is kind of what it was kind of pre is that kind of a current estimate or other other details to do that was a little bit surprised that number didn't change them.
Yes, definitely brought down from what I think we said on the last call, which was about 83 million and.
Right now we're still evaluating what is the right shore base footprint. So I think theres a room there to naturally.
Obviously, we're running a little lower rate.
The other than we had budgeted there's a couple of things.
I guess that are all much Ado was one of those I've got to get a CFO.
Actually right and that that comes with its own cost of that number is going to be added to the equation.
But what I talked earlier about evaluating the shore based footprints.
Theres definitely.
The reasons to believe that that number should be able to go down.
There is a lower limit quite frankly, it just because not all of that as personnel really what we're talking about.
Closing down offices.
And what we're experiencing even in the offices that were in the process of shutting down like in Southeast Asia is.
You are still you're still hook for six months, where the costs as you run out leases anew run out personnel and Severances and things like that so so part of it is just waiting to see exactly what the plan is and then exactly how much it's going to cost us to give out of those activities, but yeah. So when I think about DNA.
I think about it on the active.
Dave cost.
Cost of debt so.
The the numbers that we have historically one that are at about 14 51450 per active today, okay. As the active fleet count comes down that number should come down as well however that that range that 14 50, but that's that's it.
That's within that's that's a useful.
Useful number within a relevant range, if we step out of that range then there yet some fixed cost elements of the have to deal with.
But thats the way I think about DNA costs and as we go through the business and reset the business Thats the number I think about.
Let's say you obviously have a task in front of units as you say on a per vessel active fleet basins that that's coming down so that will you've got plenty uplift there im sure you recognize.
And of course.
The other thing is.
How disappointed will you be if in the next six to nine months you have been down something to consolidate yes.
Because all of these things you're doing in terms of fleet size downsizing you others costs, all those things become so much easier and I guess I saw did hobby Gulf come up today and say it renewed two vessels, but they are actively looking for consolidation in this course, you've got one back doing something you've got.
For bone, so how disappointed because there's really seem to name just there were plenty more options that were available kind of don't coming into the year given the market really was improving and giving where things are today would seem as if the idea of consolidation being a key element for advancing and success become or the more instrument.
Okay.
Well, 100% agree with you I mean consolidation is the answer to this problem okay.
In my issue is getting the capital providers to understand that they're not getting poor returns okay because.
Unfortunately, there is still not enough vessel companies that have clean their balance sheets.
As I mentioned, what I will talk more term earlier.
There's a lot more dialogue going on now than there has been in the past six month. So I'm actually just pointed now that we haven't gotten any more consolidation done either to authorize somebody else in the industry.
Yes, I welcome Harvey Gulf and others to consolidate industry with us I mean thats fantastic.
But yes, so I strongly believe that consolidations answers the best thing for the capital providers. The best thing for the industry. It allows us to rationalize the fleet.
Yes, my only cautions I, just don't want to due to the decision and disadvantaged by car equity holders.
Clearly the benefits of consolidation today, probably worth more money than kind of we clearly what they were.
Three months apps.
No absolutely it's.
Anytime the margins get thinner the of the benefit from reducing SG ne is all that much more disproportion.
Yes.
Thanks.
Thank you Sir thanks Bye.
From South part we have seeking please go ahead.
Good morning, gentlemen.
Good morning check it how are you sir.
Okay.
Thank you.
I've got a question about competitors and I know this was I know you touched upon this a little bit before you said I've been so busy working on my own team Mike will.
Focus on the competitors, but it's still going to ask.
Have you.
Can you can you show any.
To give any color.
About the behavior of others out there.
Is there a way to kind of compartmentalized.
How they respond.
To this challenge and outlook last time on the prior calls.
Shown amazement.
To the ability of others or the willingness to find cash and finance these.
Dry dockings.
Yes.
Either Sps or lay ups.
Okay.
Do you see that continuing or.
Have people come to the end of the route.
No honestly.
I still see continuing unfortunately.
Some of the narrative in my prepared remarks was really talking to those competitors like stopped doing this scrap the lower end tonnage, you're killing yourselves and your killing the industry along with it right. That's that's my concern.
A recent case in point and of course has been really focus on our business. The tidewater business, but certainly always kind of got feelers out on other competitors, what frustrates me more than anything as or not not the largest player but a medium sized player in Norway that just got bailed out is now putting boats to work at cash flow.
We are just below that and that's it is I mean.
Why would you why would a back.
Refinance a company just so that it can put words boats to work at breakeven that kind of activity happens out there. Unfortunately as because vessel owners still thing that this industry hasn't changed in this industry is changing so what I was trying to get to in my prepared remarks was just that.
Thank you.
Thanks, Jackie toxin.
And once again, if you do have a question. Please tell star one from nationwide. We had Christian did also please go ahead.
Hi, guys. Thanks.
All right and.
Details on fund as well a couple of quick questions in terms of.
[music].
Covenant compliance with that.
Are you envision any issues there in the near future.
No in fact.
We did have been sunset in tender in Q4, and we really widened out the covenants.
Which was quite fortuitous, we did it because we ended up having to pay 100 need to buyback the bottom side. So I tried to get as much as possible in exchange for that premium.
No actually not worried about the bonds at this point.
Okay, and then that is doing.
Alex.
When you sign but.
Any initial thoughts on brand you guys got start thinking about.
Right.
Any any ideas.
Always thinking about the bonds, because we know we want to take them out the issue with the bonds does that they have a significant make whole even now even to the day before maturity theres, a minimum $1 million prepayment or dependency if you will.
So it's frustrating as Walter but Theyre take back paper in the bankruptcy, there's a lot of privileges around that debt.
So.
It's good paper and as a result.
We'll have widened as long as I can because I don't want to pay the high make whole to call them.
But we'll see what happens.
Okay.
In terms of that markets.
You mentioned over the last call that you were planning to exit how are those exits proceeding.
So so those are.
Yes, right so.
With.
Pulling out of Brazil is always a multiyear process. Unfortunately.
And in Southeast Asia will will be closing the office June Thirtyth Anvil generally so take all the shore based facility and management Thats going on there and move it into the Middle East region. So we'll manage it out of that office.
Brazil as a slow process, we have to wander ourselves out of the contracts looking for other opportunities I was hopeful at the beginning of the year because the market was improving in Brazil as well as other places that there might be a way to exit Brazil.
Sale process, but unfortunately, that's off the table.
Okay.
[music].
Okay.
Just a quick one in terms of the backlog.
Can you provide some visibility in terms of.
What is.
Sure.
Services versus drilling.
Or is not you don't have the granularity.
Unfortunately, when we can track the vessels very seldom are the contracted for a specific activity, sometimes we can discern that by knowing where the vessels working and so forth, but the reality is at this point production departments in drilling departments are sharing vessels and trying to be as efficient as that can be and so we don't.
I have a good guide for that unfortunately.
Okay.
Thank you.
Thank you.
And we have no further questions at this time, we'll now turn it back to quit need for closing remarks.
Thank you Brandon I'd like to close today's call by summarizing the Tidewater has become an agile organization as applying continuous improvement principles to optimize its operational processes and general administrative expenses.
We have created a technology platform that enables tidewater to advance efficiency for our shore base and fleet operations as a recent example in April we achieved a five day financial close with our global teams teleworking.
This is remarkable achievement those suitable for Tidewater 18 months ago. This was possible because of our dedicated staff efficient processes.
Technology, and most importantly, a new resilient tidewater culture that embraces change.
This is why I am confident the Tidewater will overcome obstacles presented to US Tidewater has an experienced team that has proven themselves in past downturns will overcome the unprecedented challenges before us and who will once again prove themselves us we emerge from this downturn strong and well positioned to capture the recovering market.
Thank you and we look forward to updating you again in August Goodbye.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.