Q1 2021 Tidewater Inc Earnings Call
Yes.
Welcome to the Tidewater reports results for three months ending March 31 2021.
My name is John and I'll be your operator for today's call at this time all participants are in a listen only mode.
We'll conduct a question on Africa.
During the question and answer.
And then one on your tone on tone.
Please note the conference is being recorded.
I will turn the call over to Jason Stanley Vice President of ESG and Investor Relations.
You may begin.
Yeah.
Thank you John and good morning, everyone and welcome to Tidewater earnings Conference call for the three months ended March 31 2021.
I am joined on the call. This morning by our President and CEO Quintin Kneen, our Chief Financial Officer, Sam Rubio.
General Counsel and corporate Secretary, Daniel Hudson, and our Vice President of sales and marketing peers Middleton.
During today's call, we will make certain statements that are forward looking referring 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 make during today's conference call.
Please refer to the most recent 10-Q for additional details on these factors.
These documents are available on the website at CDW dot com or through the SEC at SEC Dot Gov.
Information presented on this call speaks only as of today may seven 2021.
You are advised that any time sensitive information may no longer be accurate at the time of any replay.
Also during the call we will present, both GAAP and non-GAAP financial measures.
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 Quinn.
Thank you Jason Good morning, everyone and welcome to the first quarter of 2021 Tidewater earnings Conference call, joining me and presenting our prepared remarks as usual as Pierce Middleton, but also joining me today are Sam Rubio, our newly appointed Chief Financial Officer.
I will open the call some general commentary on the quarter Pierce, who will cover the markets and the various geographies in which we operate and then Sam will wrap up the prepared remarks with an overview of income statement Opex G&A the balance sheet.
And then of course, we will we'll open it up for questions.
So first quarter is often a relatively quiet quarter. This first quarter was relatively quiet.
First quarter is the softest calendar quarter of the year, but I was pleased with the cash generation in the quarter you may recall from last quarter that the P&L performance was much stronger than we anticipated, but the cash flow generation lagged behind.
As often is the case cash flow has caught up to those earnings in the first quarter.
Cash flow from operations for the quarter was $5 7 million free cash flow was $19 2 million bolstered by working capital inflows and proceeds from vessel sales.
We laid out in the press release for you to pick the cash flow measures you like whether it's cash flow from operations free cash flow levered free cash flow, whether or not you want to include asset sales, but whatever measure you pick it as a positive cash flow measure.
Free cash flow for the trailing 12 months was $87 1 million that includes $39 $8 million on asset sales, which we anticipate winding down over the next 12 months.
Quarterly revenue was slightly higher than what we expected, but operating costs were also slightly higher overall margins were about 2% below where we thought they would be for the first quarter. We came in just under 26% and we were aiming for just over 27%.
For the year, we're still anticipating margins of 30% on my expectation is that we will make up the shortfall in the second and third quarters.
We use the cash generated in the quarter to pay off $26 4 million on outstanding debt net debt is down to $23 1 million.
We've made significant investments since 2018 to ensure tidewater has the lowest cost of operating our vessels, while still delivering safe best in class services.
We've designed a scalable infrastructure that can swiftly adjust to market changes and remain free cash flow positive and that design was put to the ultimate test over the past 12 months.
Importantly, the scalable infrastructure will allow for disproportionate profitability as the business grows.
This business has a significant degree of operating leverage once the votes are operating incremental day rate margin dropped 100% to operating profit.
Operating leverage has cut against us in the past six years, but it goes up on the same scale as it has gone down.
We have designed a sustainable business that will be free cash flow positive in the worst of times and significantly cash flow positive and the best of times.
We sold six vessels in the quarter for $11 million, we sold two more subsequent to the quarter and we have 18 vessels left in the assets held for sale category.
Based on a recovery in the market that we see beginning to unfold in the second half of 2021, I don't anticipate reducing the vessel fleet any further than what we currently have in assets held for sale.
After this what is sold I anticipate everything we own should be working by the end of 2022.
I am very much looking forward to getting out of the laid up vessel business vessels in lay up cost us $5 4 million in the first quarter annualized thats $21 $6 million on a cost per year that we can add to the bottom line by getting all of these vessels out of layup and in addition, there will be the operating profit from these <unk>.
Currently idle vessels.
Our G&A costs continue to come down and Thats now nine consecutive quarters of G&A run rate cost reductions.
Annualized G&A expense for the first quarter was $64 million down another $4 million from the last quarter.
Mentioned G&A, because I actually anticipate it will begin to rise a bit as we go through the remainder of 2021, I think I've said that on the last few quarterly calls and it keeps going down, but we have begun to fill some open positions and I anticipate travel expenses coming back as we get into the latter half of 'twenty one.
Quite frankly, it's going down now just based on culture and the momentum of earlier cost saving initiatives.
Our big cost focus in 2021 is optimizing the cost of Drydocks and minimizing the cost of vessels in lay up $21 6 million dollar figure I mentioned a moment ago.
I still anticipate dry docks for 2021 to be approximately $20 million to second quarter as the heavy drydock quarter. This year, we anticipate approximately $9 million of Drydock spend in the second quarter.
And our first reassessment of the recovery in the market after the pandemic broke out.
It was on this call the first quarter call last year at that time, I indicated that we thought business would be down 25% and that it would take 18 months for the industry to rebalance.
<unk> was down 28% year over year and I now anticipate it will be the first quarter of 2022 before we get back to where we were from a supply and demand perspective in the first quarter of 2020.
Essentially putting us back two years the worse of course is definitely behind us.
Pandemic, driven inefficiencies, which we estimate cost US 5% of revenue are still impacting us that's factored into our full year margin guidance of 30%.
Each wave of the pandemic has created different challenges, although they can all be generalizes increased costs associated with moving people around the world.
The latest challenge results from the fact that approximately 8% of our Mariners come from India, which is currently experiencing the most devastating impacts of the pandemic.
Earlier in the pandemic it was impacting the Philippines on other key source of quality Mariners about 26% of our Mariners come from the Philippines, We continue.
To respond to the circumstances presented but that 5% of revenue costs look to be with us for the remainder of 2021.
We recently published our first sustainability report, which provides a comprehensive update on a wide range of environmental social and governance or ESG initiatives.
Provides a look into the programs in place of Tidewater and our key sustainability challenges and opportunities.
Our safety culture is one of the best in the business our team logged over 17 million hours in 2020 with no loss time instance, achieving a company record a real testament to the focus and dedication of our team. Despite the added challenges brought about by the pandemic.
We also made significant strides on our efforts to reduce greenhouse gases and other emissions through data analysis operational efficiencies and leveraging technology, including hybrid and shore based power systems. In 2020, we established a baseline for our fleet emissions, which will enable us to assess our progress as we continue to take actions to reduce our cash.
<unk> footprint per vessel.
We were excited to take an opportunity to provide some insight into our unique company culture and many of the actions we have been taking per years and decades in some cases to positively contribute to the communities, we live and work and all around the world I invite you to read the report and learn more about what we're doing.
That's a quick overview on the quarter I will now hand, the call over to Pierre for an update on the vessel market in the various geographies in which we operate.
Thank you Quintin and good morning, everyone.
Before I talk about each of the regions I just wanted to make a quick comment around ESG and reiterate <unk> comments as our call. This is something that has always been part of title just DNA and it's great with our recently published sustainability report, we're now able to more clearly showcase to our stakeholders, our historical as well as our future commitment.
To ESG.
As we look at the first quarter of 2021, we still face strong headwinds in the market guidance began in all regions.
As Quintin has just mentioned Q1 is always tends to be a relatively quiet quarter, but on a global basis active utilization across the whole fleet was only down 1% at 78% compared to the first quarter of 2020.
Deep water fleet, specifically, we continue to see a rise in active utilization of 6% compared to the first quarter of 2020.
Average rates, while slightly down from $10267 per day in Q1, 2020 was still a leading industry average of $909993 per day in Q1 2021.
Globally, we have one more average active vessel working in the first quarter of 2021 and in the fourth quarter of 2020 on the average stacked fleet continued to reduce to 54 vessels in quarter, one compared to 60 vessels in Q4 2020, a trend that we expect to continue throughout the year.
Our Middle East Asia Pacific Region continued to see solid demand relative to the rest of the world with total utilization and average day rates both up from the first quarter 2020.
Active utilization for the quarter jumped to 84% compared to 78% in Q1 2020.
Our average rates in the region also increased to $8506 per day compared to $7863 per day in Q1 2020.
Vessel revenue for the quarter was down $400000 compared to Q1 2020.
Going forward, we still expect to see a pickup in demand going into Q2 and Q3 of this year.
Although we may see one or two projects moving slightly to the right due to COVID-19 related delays in the region.
To West Africa, where vessel revenues increased by 666000 during the quarter compared to Q4 2020 average day rates for the region.
$711 per day, an increase of $200 per day from the previous quarter.
As we said throughout last year West Africa bore the brunt of the downturn in 2020, but we have started to see a small incremental return of demand in Q1, which we expect to grow as we move through the year with the expectation that we will slowly start to reactivate some of our ships in the region to meet the slowly rising demand.
In the Europe Mediterranean region, Q1, historically tends to be the softest quarter, but we had two more active vessels working in the area compared to Q4, 2020, which was driven by the med as we see an uptick in activity in that area.
Vessel average rates slightly decreased from $12368 per day in Q4 of 2020 to 11960 per day in Q1 2021 and.
In active utilization also increased from 91% in Q4, 2020% to 81% in Q1 2021 contributing to the $1 million decrease in revenues for the quarter.
While the winter months, so historically closet to the European market, we're starting to see a much stronger market in the north sea develops through the next two quarters.
Similarly in the Med and addition to reactivating another vessel work in Egypt, we have in an industry first for the area moved one of our hybrid battery osp's to work in the Mediterranean reinforcing our commitment as the world's largest and truly international operating those fees to focus on reducing emissions on a global base.
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Lastly, in the Americas region active utilization was up 2% compared to Q1 2021 and average day rates for the quarter was up slightly from U S. Dollars 11854 per day in Q1, 2022 U S. Dollars 700, 865 in Q1 2021.
However, the active fleet was down seven vessels compared to Q1, 2020, which contribute to the $5 6 million decrease in revenues for the quarter compared to Q1 2020.
The region still faces challenges in 2021, but as mentioned on the last call. We start to see a pickup in tendering activity in both Mexico, and the Caribbean areas, which point towards an improved second half of the year.
Thank you and overdose on.
Thank you Pierce and good morning, everyone.
We'd like to take you through our financial results and also discuss some key components that make up these results and that we believe will be factors in the future.
My discussion will focus primarily on quarter to quarter results from the fourth quarter of 2020 compared to the first quarter of 2021.
As noted on our earnings release filed yesterday, we reported a net loss for.
For the quarter of $35 3 million or <unk> 87 per share.
Our revenue for the first quarter of 2021 was $83 5 million.
This is $8 4 million or 9% less than the fourth quarter of 2020.
Active utilization at 78% was slightly higher than the previous quarter.
Was offset by the decrease in the average day rates, mainly in the Americas region.
The decrease is a lagging result of higher value contracts that ended in December and replace with lower value shorter term contracts.
In addition, the fourth and first quarters of any year are subject to milestones analogy as we have less activity in the north sea.
While we benefited from some of the on forecasted additional contracts that resulted in higher revenue in the fourth quarter of 2020.
We are still experiencing ongoing impacts from the pandemic.
That said the worst of the pandemic is behind us and as <unk> mentioned, we expect our activity in our areas to increase throughout 2021, especially in the latter half of the year.
Vessel operating cost for the quarter was $61 million a decrease of $2 4 million from Q4, due mainly to lower mariner salaries and travel costs as a result of fewer mariners or mix of mariners needed for the vessel activity in the period.
We also incurred lower supplies and consumables and lower vessel insurance offset somewhat by higher R&M costs.
G&A costs for the quarter was $16 million, a decrease of $1 million from Q4.
Due mainly to lower salaries and benefits and lower professional fees.
As Quintin mentioned earlier this is the ninth consecutive quarter that we have reduced G&A costs.
It is also worth noting that our quick response at the beginning of the pandemic and the rapid development of our team's abilities to ramp up our reduced vessel activity has allowed us.
To have timely responses to changes in charter activity.
In short we have been able to reduce both operating and G&A costs in real time with losses and revenue.
In the fourth quarter of 2020, we did record a 6 million asset impairment charge with no such expense recorded in the first quarter of 2021.
As a result, the increase in our operating loss was less than $1 million in spite of the large revenue decrease.
G&A cost reductions and control have been one of our primary focuses since the 2018 merger our annualized G&A expense for the first quarter was $64 million.
We incurred $73 million in 2020.
Our benchmark the combined 2014, G&A for Tidewater and golf, Mark Standalone was $253 million.
On our prior call we targeted 2021 on G&A cost to be $70 million, we now anticipate our costs for 2021 to be $68 million.
In the quarter, we had $2 7 million of deferred drydock costs compared to $3 8 million in Q4.
Q2 will be the heaviest drydock quarter for the year, which we anticipate it to be approximately $9 million and.
And we anticipate the full year 2021 cost to be $20 million.
We also incurred $1 2 million in capital expenditures in the quarter.
We still anticipate the full year spend to be $8 million.
Free cash flow is a key focus for us and once again, we achieved free cash flow of $19 2 million in the first quarter continuing a trend of achievement that has spanned a pandemic.
The strong free cash flow was achieved by generating $5 7 million in cash from operating activities and vessel sales proceeds of $11 million.
Since the beginning of the pandemic starting April one 2020, we have generated over $87 million of free cash flow.
On the last call, we discussed that a good customer of ours in Mexico has been paint has not been paying timely our balance with Pemex was approximately $26 million at the end of 2020.
Their payment patterns have improved in 2021, as we received more than $7 million in Q1.
Even better we received another $9 million just a few days ago.
We still have some work to do with Pemex, but these collections play a big role in achieving our free cash flow goals.
Our dialog with them is open and constant and based on what on that we remain optimistic that we will get this balance normalized over the next few months.
In Q4, 2019, we began reclassifying vessels on our balance sheet from property and equipment to assets held for sale.
And at that time, we reclassified 46 vessels.
Most of these vessels have been stacked for a considerable time.
In 2020, we added another 30 vessels to assets held for sale and we sold 53, leaving a balance of 23 at year end.
During the first quarter, we sold three more vessels plus another three from active from the active fleet for $11 million.
We have since sold two more vessels in April for $3 million and we currently have 18 vessels left and expect to sell them. This year.
During 2020, we repaid just under $100 million of debt and eliminated the EBITDA to interest covenant in our indenture and tranche loan for the remainder of 2021.
We continued that effort in 2021 by repurchasing another $11 8 million of the bonds in the open market and paying down $14 6 million of our tranche debt.
Net debt at the end of Q1 was $23 1 million, which is a decrease of $14 4 million from the end of Q4 2020.
We continue to evaluate our options in the bank and debt capital markets with regards to refinancing the bond maturity in 2022.
But we have we already have more cash today than than the bond maturity balance and we fully intend to continue to be free cash flow positive.
Such we are confident in our ability to manage our debt maturities.
I now would like to focus on our performance in the regions.
Our Americas segment reported an operating loss of $1 7 million for the quarter compared to operating income of $1 5 million in Q4 2020.
The area reported revenue of $26 2 million in Q1 compared to $32 1 million in Q4.
The area operated to less active vessels in the quarter active utilization for the quarter was 88% compared to 86% in the prior prior quarter. However day rates decreased 13 from 13 602 per day in Q4.
To $11 65 per day in Q1.
Our Middle East Asia Pacific area reported an operating loss of $1 9 million for the quarter compared to a loss of three three.
$3 5 million in Q4 of 2020.
The air reported revenue of $24 4 million in Q1 compared to $25 million in Q4 and operated to less active vessels in the quarter.
Active utilization debt increased to 84% in Q1 compared to 75% in Q4, However day rates declined from nine two per day in Q4 to eight five or six per day in Q1.
Our Europe and Med region reported an operating loss of $8 million in Q1 compared to a loss of $4 6 million in Q4.
<unk> reported revenue of $14 7 million in Q1 compared to $15 8 million in Q4.
The area operated two more active vessels in the quarter. However, active utilization was 81% in Q1 compared to 91% in Q4 and day rates decreased from $12 $3 68 per day in Q4 to 11900, <unk> 60 per day in Q1.
Our West Africa region reported an operating loss of $6 8 million in Q1 compared.
Compared to a loss of $8 5 million in Q4.
Revenue for Q1 was $15 6 million compared to $14 9 million in Q4.
The area operated three more active vessels in Q1.
Active utilization decreased to 60% in Q1 from 63% in Q4 however.
However day rates debt increased to 8711 per day in Q1 compared to $8 $5 10 per day in Q4.
Since the beginning of the pandemic, our Middle East Asia Pacific Region has posted results comparable to pre pandemic operations employing a similar number of vessels.
The Americas results have also been in range of pre pandemic results showing only slight reductions overall.
The areas most affected by the pandemic, where our West Africa, and Europe and med regions.
But these regions have experienced significant both these regions have experienced significant reductions in vessels employed total revenues and operating profit.
In the first quarter, we experienced a small increase.
And activity in West Africa, Europe, and Med results in Q1, 'twenty, one were lower than the prior quarter, but this reduction was also caused by the winter season in the North Sea.
We expect both of these areas of results to improve throughout the remainder of the year.
I will now turn the call back over to Glenn.
Thank you Sam and on that note John we will open it up for any questions.
Thank you well now begin the question and answer.
If you do have a question on that.
One on your Touchtone phone.
If you receive or Nick.
Please proceed.
Speakerphone, you may need to pick up the handset first before net numbers.
Once again, if you have a question cards on one on your Touchtone phone.
And at this time, we have no questions. Thank you.
Alright.
Well, John very good and thank you everyone for listening we will update you again in August.
Thank you ladies and gentlemen that concludes today's call. Thank you for participating you may now disconnect.