Q2 2021 Tidewater Inc Earnings Call
Good morning, and welcome to the Tidewater reports results for the 3 months ending 630% of what do you want my name is branded the there'll be your operator for today at this time all participants are in a listen only mode. Later, we will conduct the question and answer Titan, Inc, which you made on star 1 if you ask the question.
Please note this cap rates the being recorded and I will now turn it over to Mr. West Gotcher, Vice President of Finance and Investor Relations you may begin Sir.
Thank you Brandon Good morning, everyone and welcome to Tidewater earnings Conference call for the 3 months ended June 32021.
I'm joined on the call. This morning by our President and CEO of Quintin Kneen, Our Chief Financial Officer, Sam Rubio, and our General Counsel and corporate Secretary, Daniel Hudson, and our Vice President of it and sales and marketing Pierce Middleton.
During today's call, we'll make certain statements that are forward looking and referring to our plans and expectations there of risks and 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 our most recent form.
From 10-Q for additional details on these factors. This document is available on the web our web site at Tw dot com or through the SEC at SEC Gov.
Information presented on the scope on this call speaks only as of today August 10.2021.
And therefore, you're advised that any time sensitive information may no longer be accurate at the time of any replay.
Also during the call, we'll present, both GAAP and non-GAAP financial measures.
A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release, and now with that I'll turn the call over to Clinton.
Thank you West good morning, everyone and welcome to the second quarter 2021, Tidewater earnings Conference call.
Joining me and presenting our prepared remarks as usual our appears Middleton and Sam will review I will open the call with some general commentary on the quarter Pierce, who will cover the markets in the various geographies in which we operate and then Sam will wrap up the prepared remarks with an overview of the income statement Opex G&A and the balance sheet and the.
And of course, we'll open it up for questions.
The second quarter is on the seasonal basis of relatively strong quarter with the third quarter being the strongest in the year.
This year's second quarter, followed that pattern peers on Sam will provide the details with globally average day rate was up utilization was up gross margin was up operating profit was up the increases are never of Swift as we would prefer but the sequential quarter improvement is a good sign that activities are past the pandemic low.
Industry wide, what we saw in 2020, where activity levels coming down dramatically in the third quarter with a substantial number of vessels going off higher as a result of this incremental oversupply of day rates around the world reset downward and as pre pandemic contracts rolled off new contracts rolled on with lower day rates in the first quarter.
Now as activity levels are picking up again, we are beginning to claw back of the day rate that we lost in 2020.
The cash flow for the quarter was again strong you may recall that accounts receivable bounced up in the fourth quarter of 2020, just as activity levels were coming down which is not typical.
That was due to payment delays from the payment, which as of June 30th are trending towards normal levels in the second quarter. We had strong cash flows from that normalization. We also picked up $18.6 million on vessel and other asset proceeds.
Sales as we continued to high grade the fleet.
Feel free to pick the metric that best suits your perspective be of cash flow from operations free cash flow free cash flow before vessel disposals. It's all there in the press release. They are all positive and we have designed the business architecture and incentives to keep it that way.
Net debt is down to $4.5 million, we do have the maturity of the 2022 bonds in August of next year. The principal outstanding on the bonds as of $135 million and we're currently sitting on the $151 million of cash.
Currently the prepayment penalty on the bonds is $10 million. So we're going to be mindful of that as we evaluate refinancing opportunities over the next several months.
The the prepayment of policy goes down approximately $825000 per month.
Free cash flow for the trailing 12 months was $84 million down from the $87.1 million as of last quarter. The slight decline reflects the decrease in activity as the full impact of the pandemic is now in the trailing 12 month figures offset by a liquidation of working capital related to the decrease in activity.
The quarterly revenue rounds out to $90 million operating costs were slightly higher than we were anticipating largely due to direct costs related to the pandemic and vessels reactivated during the quarter and as a result margins were 1%.
Each point below where we thought they would be for the second quarter, but they still reflected of pick up of more than 3 percentage points during the quarter.
We came in at 29% this quarter, but we're still anticipating margins of 30% for the full year. My expectation is that the third and fourth quarters will average just above 30%, but that anticipates a reduction in direct pandemic costs that have proven to be more stubborn than we envisioned at the beginning of the year.
We used the cash generated in the quarter to pay off another $11.4 million of the outstanding debt combined with the building cash net debt is down another $21.1 million to $4.5 million.
We spoke about on the last quarter call about this business of significant degree of operating leverage once the boats are operating incremental day rate margins and revenue from Incrementals day's work should drop of 100% of operating profit. This quarter's incremental operating profit was 95%.
Operating leverage has cut against us of the past 6 years and particularly the last year that we dealt with the pandemic, but incremental margins. This year were a positive 95%.
It goes up on the same scale as its gone down we've spent an enormous amount of effort the signing a culture in the business model that will be cash flow positive in the worst of times and significantly cash flow positive in the best of times and I look forward to continuing to deliver these positive incremental margins on an increasing the revenue base as we proceed through the recovery.
We.
Those of 7 vessels on some other assets in the second quarter for $18.6 million and we have 14 vessels left in the asset held for sale category. We did sell 1.260 foot U S. Flagged vessels that had been in lay up and was facing in approximately $3 million reactivation, but which was not classified and the asset held for sales category.
I would classify that sale loss on opportunistic 1.
We sold that vessel 4 of $4 million book gain at any point in time, we're willing to sell any vessel. If the present value is in excess of our bull market recovery scenario, which was the case in the sale.
Based on the recovery in the market that we see beginning to unfold in the second half of 2021, we don't anticipate reducing the vessel fleet any further than what we currently have in assets held for sale. After this lot of sold we still anticipate everything we own being gainfully employed by the end of 2022.
I am very much looking forward to getting out of managing the fleet of late the vessels. In addition to the active fleet of vessels in lay up gives us the ability to take advantage of improving market conditions. It's an investment in those vessels that do not merit reactivation at this time, but based on our internal forecast of the recovery they should be reactivated in due course and ultimately.
More than justify this investment those vessels that don't meet these criteria are classified as assets held for sale.
As of our perception of the recovery on the cost of reactivation change vessels will move in and out of the assets held for sale category. During the second quarter. We moved 1 vessel out of the asset held for sale the category into the active category.
The vessels in lay up cost us $3.8 million in the second quarter, which is down 30% from the first quarter cost, but it's still on the annualized cost of $15 million per year.
We're moving this burdened by gainfully employed or disposing of these assets will add that $15 million to cash flow. In addition to the operating profit from those vessels that go back to work.
As part of this ongoing work the hybrid the fleet. We're also focused on enhancing the connectivity and data capture and analysis capabilities of our active vessels, providing our operations team with valuable insight that allows us to operate more efficiently reducing fuel usage and our scope..1 emissions, we have demonstrated that the shore power systems of <unk>.
<unk> been very effective at reducing the emissions while in port. So we are installing several more on vessels operating in imports of offer the necessary infrastructure to support this technology.
This operational data and these positive results are enabling closer collaboration with our customers as we work to identify the most effective methods for reducing our joint carbon footprint.
That also provides customers with the justification to increase day rates to support those continued investments.
Our G&A costs went up for the first time in 10 quarters, our annualized G&A expense for the second quarter was $67 million, we mentioned on the last quarter call of the G&A would begin to rise a bit as we go through the remainder of 2021.
As we have begun to fill some open positions and we anticipate travel expenses coming back as we get further along into the pandemic recovery.
Our big cost focus in 2021 is optimizing the cost of the Drydocks and minimizing the cost of vessels in lay up as I mentioned earlier, we reduced the annual run rate of vessels in lay up by 30% during the second quarter from $21 million down to $15 million. It is a combination of reactivating the vessels disposing of the vessels.
And reducing the cost per day of the vessels in lay up the cost per day of vessels in lay up went down 16% and the reduction in the number of vessels on the delay the fleet makes up the remainder of to get to the overall dollar reduction of 30%.
We now anticipate drydock costs for 2021 to be approximately $24 million as we are planning to reactivate more vessels than we originally thought we would at the beginning of the year.
This is a good development, but it brings with it additional costs. In addition, the second quarter Drydock costs came in at approximately $4 million, which was less than the $9 million, we were anticipating to spend the drive ex savings in the second quarter is in the cost efficiency as just a cost of the has been delayed into the third quarter. So the third quarter will now be our heavy drydock quarter.
For the year as we reactivate more vessels than we originally budgeted and perform more formed drydocks that were originally slated for the second quarter.
Now anticipating approximately $13 million of drydock costs in the third quarter.
Global utilization and day rates are increasing reactivation of are also increasing the active vessel count prior to the 2020 of pandemic. The best quarterly record we had since the 2014 oil price collapse was the second quarter of 2019 in that quarter, we had revenue of $124 million from 163 were.
In vessels with the active utilization of 79% and the average day rate of $10442. This year second quarter. We had 118 vessels working average utilization of 78% and the average day rate of 10435, we're definitely off the pandemic lows, but to get back to the highest revenue.
We had prior to the pandemic, we need to put all of the remaining vessels back to work and push day rates up another $200 per day, which I feel confident will happen as we go through the next 18 months when we get there the high grading of the fleet that we have been doing over the past 30 months should demonstrate through revenue and earnings generation capability of the fleet.
Similar revenue with 10% fewer vessels results on a higher overall profitability.
I continue to anticipate it will be the first quarter of 2022 before we get back to where we were at from a supply and demand perspective, when the pandemic hit and then of year to push day rates and market share. If the market continues at its current pace of recovery, we should see quarterly revenue number by the end of 2022 comparable with that previous.
The record quarter in 2019.
Pandemic, driven inefficiencies, which we estimate costs US 5% of revenue are still impacting us. This is factored into our full year margin guidance of 30% each wave of the pandemic has created different challenges, although they can all be generalized as increased costs associated with safely moving people around the world.
The latest challenges the delta variant and its impact on the Middle East last quarter. It was Mariners from India. We continue to respond to the circumstances presented but thats, 5% of revenue cost still looks like it to be.
With us for the remainder of 2021.
That's a quick overview of the quarter I will now hand, the call over to peers for an update on the vessel market in the various geographies in which we operate.
Thank you Quintin and good morning, everyone.
While the supply demand balance globally remains challenging primarily due to the overhang of potential vessel supply.
All starting to see some green shoots of recovery in the majority of the regions in which we operate.
We continue to see both increased levels of tendering on inquiries from our clients.
The key for our larger PSV fleet, which appears to bode well going into <unk>.
The next year.
As we move into the second half of the evidence of 2022, the primary sites of the industry to achieve the long term and sustainable recovery is discipline.
Just from Tidewater, but also from all the stakeholders in our industry.
The industry is asking the inflection point that will require discipline from the vessel reactivation commercial and operational perspective to support an economically viable market environments side.
Tidewater recognized its place in leading the interest rates the judiciously reactivate vessels and the response economically attractive opportunities incrementals of the current supply demand balance discipline I intend on responding to improving market fundamentals will allow us to continue to maintain on working fleet and the continued to maintain and take care of all of dedicated.
It's not on this so it has enjoyed many challenges throughout the pandemic.
We believe the the disciplined approach to responding to market signals will ultimately lead to a long term and sustainable recovery for the whole industry.
Sam will talk in greater detail on some of the numbers, but as we look at the second quarter of 2021 compared to the same period last year. We do believe we continue to see positive trends pointing towards the recovery in rates and utilization levels, although not perhaps as quickly as we would all like.
On a global basis actually the utilization across the whole fleet was up 4%, 78% compared to the second quarter of 2020, and the average stacked fleet down from 64 ships in Q2.2020 to 44 ships in Q2.2021.
Average rates, while slightly down from 10007 months of $99 per day in Q2.2020, we're still an impressive $10435 per day in Q2, 2021, which was all set of $500 per day increase from last quarter.
Globally, we had 118 active vessels working in the second quarter of 2021 with the total fleets of the 162 ships against 202 vessels in Q2.2020, reflecting on aggressive policy over the last year to rightsize the fleet to be best in class for the market going forward.
Our Middle East Asia Pacific Region continued to deliver consistent results in Q2.2021 with active utilization for the quarter jumping, 13% from 76% in Q2.2020 to 18, 9% from Q2.2021.
Average rates in the region also increased to $8593 per day compared to 8000 of $9 per day in Q2.2020.
Going forward, we still expect to see a continued pickup in demand going into Q3 and Q4 of this year as we start to see a number of new tenders being released from some of our longtime in established clients in the region.
The West Africa, well average day rates of the region were $8521 per day, the decrease of $200 per day from the previous quarter.
Covid utilization did increased 7% from last year's quarter from 55 percentage of 62%.
The West Africa continues to struggle with day rates, but we are beginning to see more positive utilization levels, which in turn should allow us the salt pushing charter rate levels as we move into next year.
And the Euro from Mediterranean region, Q2, 2021, so on improvement in average rates compared to Q2.2020 from $12689 per day the third.
<unk> thousand of $5 per day.
Active utilization creep up above 90% from 89% for the same period last year.
We also had the police the stacked fleet from 17 ships in Q2.2022 8 ships in Q2.2021.
I've mentioned on the law school, we continued to see solid improvements in the region. Both from the North Sea on the met as activity improves and in addition by year end. We would have added another hybrid battery powered vessels of our fleet in the Mediterranean as it continues to offer on our customers around the world different power on the engine options to support all of our commitments towards the low.
Carbon the future.
Lastly, in the Americas region.
Active utilization was down 12% compared to Q2.2020, but average day rates for the quarter were up slightly from $12865 per day in Q2.2020 to $13162 per day in Q2.2021 the.
The stacked fleet type of was reduced from 17 vessels in Q2.2020 to 13 ships in Q2.2021the.
The region still faces challenges in 'twenty to 'twenty, 1, but we have started to see of significant tightening of the Jones Act market for larger boats and expect that tightening to help improve utilization and charter rates as we move towards the end of the year and into the first half of 2022.
Thank you and over to Sam.
Thank you Paris and good morning, everyone.
We'd like to take you through our financial results and also discuss some key points that make up these results.
My discussion will focus primarily on the quarter to quarter results over the second quarter of 2021 compared to the first quarter of 2021.
As noted on our press release filed yesterday, we reported a net loss for the quarter of $29.5 million or <unk> 72 per share.
Our revenue for the quarter of 2021 was $90 million. This was $6.4 million or 8% more than in the first quarter of 2021.
Active utilization at 78% was slightly higher than the previous quarter average day rates also increased 4% from Q1 to 10.10435 per day. In addition, our active vessel count for the quarter increased by 2 to 118.
Gross margin percentage for Q2 also increased to 29% compared to 26% in Q1.
We continue to feel the ongoing impacts of the COVID-19 pandemic and each of our operating areas. However, the increase in overall commercial activity is a positive sign to what we feel will be enacted the second half of the year.
Vessel operating cost for the quarter was $64 million, an increase of $3.2 million from Q1.
The increase is due mainly the higher mariner salaries and travel cost and higher supplies and consumables, resulting from the reactivation of 7 vessels in the quarter.
In addition, we also incurred over 600000 of Mariner severance costs related to our Brazil area as we continue to wind down our activity in Brazil. Several vessels came off hire and Theyre not returned to service.
On the second quarter of 2021, we recorded a 1 million credit to our net due from affiliates of accounts receivable balance. This is related to our Angola joint venture as part of the current expected credit loss evaluation.
In addition in Q2.2021, no vessel impairment charges were recorded.
We sold 7 vessels and other assets in the second quarter for proceeds of $18.6 million and recorded a net loss of 932000 on the sales for.
For the year, we have sold 13 vessels and.
In other assets for proceeds of $29.6 million and reported a net loss of $2.9 million on the sale of these assets are.
Our operating loss of $20.2 million improved by $6.1 million from Q1, due mainly to the increase in revenue the affiliated credit loss and the decrease in loss on sale of assets.
This is offset somewhat by the increase in operating expenses as we realize the effect of reactivation on our vessels and ongoing COVID-19 related expenses.
G&A costs for the quarter was $16.8 million an increase of $700 from Q1.
Due to higher professional fees higher salaries and benefits as we fill some corporate positions that were vacant in previous quarters.
G&A cost control continues to be a primary focus our annualized G&A expense for the first quarter was $64 million. This has increased to $67 million in Q2.
On our prior call, we targeted 2021 on G&A cost to be $68 million, which is still our target.
In the quarter, we had $4 million of deferred drydock costs compared to $2.7 million in Q1 Q.
Q2 was supposed to be of heavy drydock quarter. However, some projects slipped into Q3.
Which we now anticipate will be the heaviest drydock quarter for the year.
We anticipate Q3 dry dock cost to be $13 million and full year 2021 cost to be $24 million.
The full year estimate has increased by $4 million from our previous estimate due mainly to the accelerated reactivation of vessels and our West Africa, Europe and Mediterranean regions.
In the quarter, we also incurred 700000 in capital expenditures, we anticipate the full year 2021 spend to be $7 million.
Free cash flow continues to be a key focus for us and once again, we achieved free cash flow of $26 million in the second quarter, continuing a positive trend of achievement.
The strong free cash flow.
The achieved primarily by generating $4.9 million on cash from operating activities and asset sales proceeds of $18.6 million.
Since the beginning of the pandemic starting April 1.2020, we have generated over $113 million of free cash flow.
On previous calls we talked about collection challenges related to a good customer of ours in Mexico our.
Our balance of Pemex was approximately $26 million at the end of 2020, we are pleased to report that their payment patterns of approved in 2021.
At the end of Q1, there AAR balance was $24 million and has since decreased to $15 million as of June 30th Yes.
The outstanding balance is still a bit high compared to their normal amount. However, we will continue to pay close attention to these balances and work to collect and reduce them as these collections play a big role in achieving our free cash flow goals.
Our dialogue with them continues to remain open and conscious debt and based on that we remain optimistic that we will get this balance of normalized over the next few months.
In Q4 of 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 from 2020, we added another 30 vessels to assets held for sale and we sold 53, leaving the balance of 23 of year end.
During the first quarter of 2021, we sold 3 more vessels plus another 3 from the active fleet for approximately $11 million in the second quarter, we sold 5 vessels and 2 more from the active fleet for $18.1 million.
Also on the second quarter, we reactivated 1 vessel from our asset tell from sales back to act of.
Leaving us with 14 vessels with a book value of $17 million remaining in this category.
As mentioned in our previous call in 2020, we repaid just under $100 million of debt and eliminate at EBITDA to interest covenant in our indenture in Trump's loan for the remainder of 2021.
We continue this effort in the first quarter of 'twenty, 1 by repurchasing. Another 11.8 million of the bonds in the open market and paying down $14.6 million of our tranche of debt in the second quarter 2021, we paid down another $11.4 million of our tranche of debt, leaving us with the net debt balance of $4.5 million.
A decrease of $21.1 million from the end of Q1 'twenty 1.
We continue to evaluate our options in the bank and debt capital markets with regards to refinancing the bond maturity in 2022.
Our current balance at June 30th is $135 million, but we already have more cash today than than the bond maturity balance and we fully intend to continue to be free cash flow positive as such we are confident in our ability to manage our debt maturities.
And now I would like to focus on the performance in the regions.
Our Americas region reported an operating loss of $4.9 million for the quarter of compared to an operating loss of $1.7 million in Q1 'twenty 1.
The area of reported revenue of $23.5 million in Q2 compared to $26.2.
$2 million in Q1, the area of reported 3 lab less active vessels in the quarter active utilization for the quarter was 76% compared to 88% in the prior quarter. This was offset somewhat by day rates increasing from 11865 per day in Q1 to 13162 per <unk>.
Day in Q2.
As mentioned previously the region incurred over 600000 Mariner severance costs as we continue to wind down on the activity in Brazil.
Our Middle East Asia Pacific area of reported operating income of 266000 for the quarter compared to an operating loss of $1.9 million in Q1.
The area of reported revenue of $25.6 million in Q2 compared to $24.4 million in Q1 and operate at 1 less active vessel active.
Active utilization debt increased to 89% in Q2 compared to 84% in Q1 day.
Day rates increased marginally from 85% of 6 per day in Q1 to $85.93 per day in Q2.
In addition, G&A cautionary on also decreased due to an adjustment made to bad debt expense.
Our Europe and Mediterranean region reported an operating loss of $2 million in Q2 compared to the loss of $8 million in Q1.
The area of generated the largest increase in earnings for the company in the quarter as it reported significant improvement in its results.
We saw revenue increased by 52% to $22.5 million in Q2 compared to $14.7 million in Q1 of.
The area of operated for more active vessels in the quarter and active utilization increased to 91% in Q2 compared to 81% in Q1.
And we also saw day rates increased 9% from the 11960 per day from Q1 to 13005 per day in Q2.
The West Africa region reported an operating loss of $5.4 million in Q2 compared to the loss of $6.8 million in Q1.
Revenue for Q2 was $16.9 million compared to $15.6 million in Q1.
The area operate at 2 more active vessels in Q2 active utilization increased to 62% in Q2.
From 60% in Q1, however day rates decreased by 2% from 8711 per day in Q1, the 8541 per day in Q2.
In summary, we did see improvements in each of the regions with the exception of the Americas. Several vessels came off contract in the early part of the second quarter and the not returned to work, particularly in Brazil, and the Caribbean areas.
In Brazil, we continue to wind down of our operations, which also impacted the region's results. We did we did see significant improvements in the Europe, and Mediterranean region, which was anticipated and positive improvements in West Africa, and Middle East and Asia Pacific regions.
As mentioned previously we continue to remain impacted by the current Covid challenges. However, we are encouraged with the positive commercial science, we are beginning to see in each of our areas.
And we believe the activity will continue to strengthen as we progress through the year.
With that I will now turn the call back to Glenn.
Thank you Sam Brandon, Let's let's just go ahead and open it up for questions.
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And on the line from Evercore ISI, we of Andrej Schmidt of Cowen. Please go ahead.
Hey, good morning, guys.
Hey, good morning.
So this is more of a high level question I. Appreciate all the color you provided on the call on many things of that.
I guess qualitatively and quantitatively what are you seeing from your customers in terms of activity levels and conversations thats, giving you confidence in the outlook for 2022.
Just saying that just given that budgets are looking to be solidified towards the back half of the year. So just curious to understand what.
What's informing your view that the.
The ended the year on into next year might be.
On a little bit better or significantly better.
Certainly I'll start off and then I'll, let the peers follow up with some more details but.
Really I havent seen this much tendering activity in about 18 months.
Tendering activity does not always mean that it's going to end up being.
The new work sometimes are tendering for.
For the for vessels that are already in the market and trying to re price, okay, but I would say that the pickup that you saw in the numbers in the second quarter.
For the North Sea is of good demonstration of the pickup that we're seeing in Africa as we go through the second half of 'twenty 1 into 'twenty 2.
The U S.
And to see.
A bit more improvement, but theres, probably about a quarter behind that in Africa.
Appears once you provide some more direct color with some of the context of.
Yes of course, south of the nice I think specifically in the coach obviously.
I think we've spoken very open about how the how much has suffered as the region over the last.
The 12 to 18 months, we're seeing a significant pickup in.
Tender inquiries from our customers are coming true.
It's a fairly long term charter opportunities not just on net.
Current contracts. So the just staying retention of that should new new new contracts as well on the new areas.
Which is driving the market and specifically as I sort of mentioned on the larger platform of supply vessel sizes, while we're seeing a lot of activity.
And the merge Africa, so it's from.
The silence.
Going into the Caribbean Guiana, Suriname next year as low we're sad to say of pickup there as well so.
Overall, despite positive signs from what our guys are saying on the crowds on the on the level of level of activity.
Great. Thank you for that.
Another question in terms of efficiency gains in your fleet.
But in the number of <unk>.
Investments in time enough of these past couple of years into.
Your system infrastructure on too.
Get completed operating at a high level.
What inning do you feel like Youre in in terms of getting to that target statement and what's in the pipeline or for the kinds of initiatives you can further implement too.
Continue increasing the efficiency gains that we've seen this past year on that.
It's good question so I was.
Yes.
I'll throw out the sixth inning, and then I'll tell you why I think it's the 6 I think so.
The most effort over the past few years has really been in the shore base infrastructure system. So just making sure that we are as efficient as we can be in the scalable as we can be on the G&A footprint perspective, but we're just beginning to touch the vessels themselves and on the vessels themselves. It's a little bit different is not just the operating.
Efficiency, but it's the fuel efficiency it's the.
It's the fidelity and the transparency of data coming from the performance of the vessels that allows us to go back to our customers and say Hey, you.
You want to reduce the scope 1 emissions. This is the data we're seeing from this type of vessel. This is how you're operating the vessel. This is what you can do to improve upon that so that you can improve your scope.
Missions of our scope 1 emissions as well so as a result, I think that well.
We're probably in the sixth inning I would say that the majority of the work on the shore base is done we're probably 20% into what I think we can do on the vessel side.
Great. Thank you for that.
In terms of of what Youre seeing on the asset divestiture market.
It's great to see.
The older vessels getting sold in that net profit sorry the.
The cash flows.
Hoping you guys can you describe what youre seeing in the A&D market and is there any concern that some of the vessels that are being sourced.
Go back to work and what's what's historically been deemed in the already oversupplied market.
Yeah.
The 1 vessel that we.
Opportunistically sold in the second quarter.
She was good vessel.
But she was facing of $3 million of reactivation. So we're waiting for market conditions to come around to 2 for the vote to be reactivated and IC reactivation cost for vessels that are in lay up of particularly those that didn't work during the pre pandemic period.
Post 2014, and Havent been working.
Yeah.
We've gotten rid of most of those vessels because the reactivation costs on those vessels is approaching $5 million or more per vessel. So the.
On the reactivation of vessels as always of threat in this industry.
But the costs are getting so high for those vessels of Werent working during the pre pandemic period that I don't believe in a lot of them will get reactivated but the.
Again, we'll see how that plays out we're definitely focusing on our fleet on the more on the higher end vessels. So the larger vessels more modern vessels, which we believe will command the higher day rate overall be more fuel efficient and less costly going forward.
Understood.
Just 2 more questions if I may.
So it's more pertaining to the financials.
<unk>.
As we look to the <unk>.
<unk> not seen retired the repeat next year, what is the right amount of capital or cash that you think the business needs and the way to operate.
On.
Do you feel like you have everything in place to do that is there a channel you have to you.
Tap the debt capital markets in order to get to that kind of run rate level of.
Of cash on the balance sheet.
Well the frictional amount of cash that we need in order to run the business is about $30 million or so.
The the base level, we need for working capital and general purposes.
We've been doing.
With our existing cash balance is just having a backup of liquidity and so we'll continue to have backup liquidity sources, whether thats going to be in the form of over of volume debt capacity of just cash on the balance sheet.
It all depends on what the capital markets are open for historically the bonds haven't let us have.
The revolver with its own collateral so we've been using cash on the balance sheet as our liquidity source as we retire the bonds, we may refinance into something else or we may go into the revolving debt capacity for liquidity purposes, but.
Absolute question is how much cash do we need to run the business name, but $30 million or so thats correct right and then.
I'd want a minimum of about $70 million worth of liquidity, just just in case kind of.
Understood and then just the last question if I may have missed this pertains to the taxes.
How should I think about cash taxes going forward.
The company is there anything that I should be aware of there.
No I mean.
I would see the day I would say that theyre going to remain relatively flat I mean, we kind.
Our cash taxes of about 12 to 13 million of year and I don't see that changing.
Okay, great. Thank you so much I'll turn it back to the line.
And once again, if you do have the question.
Star 1 on your phone keypad to get the goodbye for any further questions.
Yeah.
Okay. It looks like no further questions at the moment I will now turn it back to Clinton for closing remarks.
Well. Thank you Brandon everyone. We appreciate your participation on the call today, we will update you again in November Goodbye.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for joining you may now disconnect.