Q3 2022 Tidewater Inc Earnings Call
Yeah.
Good morning.
My name is Colby and I will be your conference operator today.
At this time I would like to welcome everyone to the Tidewater Q3, 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session if.
If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press star followed by the number one.
I will now turn the call over to West Gotcher.
Thank you Colby good morning, everyone and welcome to Tidewater earnings Conference call for the three and nine months ended September 32022.
And on the call. This morning by our President and CEO Quintin Kneen, our Chief Financial Officer, Sam Rubio, and our vice President of sales and marketing peers Middleton.
During today's call, we will make certain statements that are forward looking and referring to our plans and expectations. There are risks and uncertainties and other factors that may cause the company's actual 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 10-K and 10-Q for additional details on these factors.
These documents are available on our website at CDW dot com or through the SEC at SEC Gov infill.
Information presented on this call speaks only as of today November 4th 2022.
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 financial measures can be found on our website at <unk> com and as included in yesterday's press release, and now with that I'll turn the call over to Clinton.
Thank you Wes good morning, everyone and welcome to the third quarter 2020 to Tidewater earnings Conference call.
I am pleased to say that as the offshore vessel market continued its momentum during the third quarter, we saw a meaningful improvement in our profitability and free cash flow generation.
So most talked about indicator of the strength in our business average day rate increased by nearly $1100 per day in the quarter on slightly higher active utilization of 83, 7%, which is up about one two percentage points.
You may recall that we have previously discussed it fleet wide average day rate increase over an entire year. During a typical up cycle was about $500 per day.
We passed that benchmark in the second quarter with average day rate up nearly 19 $500 and year to date, we are now up $3000 per day.
This additional step up in average day rate in the third quarter is emblematic of the tightening of the supply and demand of the offshore vessel market, we have been discussing.
It was set up by the significant vessel attrition over the past several years and actuated by the increase over the past year and global offshore activity.
The increase in global activity began in the third quarter of last year and was based on steadily increasing oil prices as global economic activity increased subsequent to the easing of pandemic restrictions and has further increased over the past six months as conflicts in Ukraine moved the focus of decision makers.
To energy security.
During the third quarter, we entered into a 54, new contracts covering 38 vessels for those vessels that we entered into multiple contracts during the quarter. Each follow on contract was signed at a materially higher day rate than the first contract.
The average duration of the OSP contracts, we entered into during the third quarter was approximately four months, which is indicative of our chartering strategy of going short from a contract duration perspective.
I want us to continue to realize further upward pricing momentum in today's market.
For the third quarter revenue increased meaningfully up 17% compared to the second quarter total revenue increased to $191 8 million in the third quarter compared to $163 4 million in the second quarter.
Looking at this on a per active vessel basis revenue was up approximately 11, 5% sequentially that average day rate was up about eight 5% sequentially with the increase in active utilization driving the remainder of the increase in per vessel revenue.
Vessel level cash margin expanded to four percentage points to 41% well in excess of 30% target we've talked about in recent quarters and up nearly 12 percentage points from the third quarter of last year.
Our Europe Mediterranean Fleet led the way with 11% sequential improvement in day rates in the UK in Mediterranean.
The third quarter is usually one of our seasonally strong quarters in this segment, particularly in the North sea given the favorable weather conditions.
Vessel level cash margin improved considerably during the quarter up 15 percentage points sequentially to nearly 55% more than twice the margin realized in the third quarter of 2021.
Utilization also increased meaningfully in this market up to 95% from 88% in the prior quarter.
We've talked about our decision to play the spot market a bit in this region, which proved to be a good strategy this quarter drilling and development activity in the North Sea remained robust where all time high day rates were realized for anchor handler vessels during the quarter.
We are pleased with our results during the quarter and remain bullish on this segment as we look to 2023.
West Africa continued to show strong momentum during the quarter day rates improved 7% sequentially to about 11500 per day now up about 34% from the same period in 2021 vessel level cash margin was essentially flat during the quarter as active utilization ticked down to 79%.
From 83%.
This drop in utilization was due to a handful of vessels caught between contracts with short interim periods of frictional unemployment.
We expect utilization to rebound from this and this will provide additional cash margin increases in 2023.
Nearly half of the fleet acquired from <unk> is located in West Africa in Opex in this region continues to be higher than the usual due to the acquired cost structure, but we remain confident in realizing the consolidated opex synergies, we've discussed of $25 million per year, which when realized will provide increased operate.
Margins in this region and in Asia Pacific as we progressed through 2023.
Turning to our Middle East region during the third quarter average day rate improved by 3% to about $9800 per day.
First vessel cash margin was over 30% well in excess of anything we've seen in recent years, although the third quarter day rate progression was modest on a year over year basis day rates in the region are up nearly 20%, which is a fairly substantial move in the vessel market of this nature, which is characterized by a more fragmented owner group and lower.
Specification vessels.
Looking forward the principal customers in this region have recently announced aggressive growth plans for the coming years, which will have a positive implications not only for the middle east, but for the other regions competing for similar tonnage such as Asia Pacific.
This growth will continue to drive day rates in this region, but will also provide for day rate improvement in other regions as vessels are induced to relocate reducing supply in those regions.
Turning to the Americas segment average day brings improved about 2% sequentially utilization decreased by approximately seven percentage points. There were a variety of factors that drove the reduction in utilization. We added one vessel back to the active fleet as we worked to reactivate ahead of work commencing in 2023, we had a few vessels that came off contract.
Tract late in the quarter that are commencing new contracts beginning in November . Additionally, we had a handful of vessels come off work to undergo dry dock and mobilized to other regions within the Americas. We expect this frictional unemployment to moderate as well in the fourth quarter and for utilization to continue an upward trajectory through the remainder of the year and into 2023.
Lastly, I would like to turn to our Asia Pacific segment day rates were up around 35% during the quarter driven primarily by a number of our larger PSV is rolling on to new contracts and resetting day rates in the region to new benchmark levels.
We are now seeing day rates in line, where we have successfully been able to push rates to on larger piece fees in other regions.
Our G&A costs during the quarter totaled $27 3 million, which includes approximately $4 3 million in professional fees and other transaction related expenses associated with the <unk> acquisition, along with $6 million of spill related G&A expense. Excluding these items legacy Tidewater G&A is $16 9 million per key.
<unk> compared to a pre acquisition G&A run rate for legacy Tidewater of $17 million.
The quarterly Spo, Jay G&A run rate of $6 million compares to its pre acquisition run rate of $875 million. So on an annual basis, both G&A is down $11 million compared to our G&A synergy target of 20 million, we remain confident in our ability to realize the $20 million of G&A.
Synergies related to the acquisition and expect to capture the remaining benefit by the end of the first quarter of 2023.
Free cash flow for the quarter was $21 9 million compared to a cash outflow of $14 9 million in the second quarter, representing a $36 $8 million improvement sequentially.
Over the prior few quarters, we have invested in working capital as the business grew and we had some customers that weren't paying timely.
<unk>, we've been able to remedy some of the slow paying customer issues and the investment in working capital is now moderating in fact, although revenue grew 17% sequentially. Our accounts receivable balance ended the quarter below the second quarter balance.
We do expect to continue to make necessary investments in working capital as the business continues to grow. However, we believe the investment will be proportional to revenue growth and then we've now reached a point where the business is positioned to generate meaningful free cash flow on a quarterly basis.
We remain confident that market conditions will result in our entire fleet working by the end of 2022, a combination of reactivation and disposing of non core vessels. We ended the quarter with eight vessels remaining in the held for sale category, which includes one <unk> vessel added as part of the acquisition. We also have six.
Vessels classified and stacked.
We will evaluate the possibility of reactivating any of the remaining stacked vessels. However, we expect to sell or otherwise dispose of all of the remaining stacked and held for sale vessels during the fourth quarter.
Vessel layup costs were $1 1 million in the third quarter slightly above the second quarter costs associated with COVID-19 continue to fall they amounted to about $150000 in the third quarter, we expect vessel lab costs and COVID-19 cost essentially to fall to zero in 2023, as the remaining stacked and assets.
For sale vessels are disposed.
In summary, we are very pleased with our third quarter results.
Although we do expect some typical seasonal variation in the fourth quarter and in the first we believe that the fundamental factors that are driving profitability in our business robust offshore activity and an increasingly tight vessel supply market. We will continue to drive increases in profitability throughout 2023.
And with that let me turn the call over to peers for an overview of the global markets and the company's performance within.
Thank you Quintin and good morning, everyone.
Over the last two quarters, we've talked about some of the supply and demand issues. We are seeing that are affecting the global OSV market today, and why with a modern larger fleet of PSV in the HTS as we feel we are well placed to take advantage of discontinuing upturn in the market.
And whilst these larger vessel classes, where we have been able to really drive day rates.
Just over the last 12 months, we are now starting to see some of the effects of the supply demand pressures in the larger class of vessels beginning to push rates in a smaller vessel classes as well pay increase to the old adage that a rising tide lifts all boats.
Specifically on the OSP side, we have continued to see the increase in demand in shortness in supply impact rates positively on the upside with Clarksons research reporting global one year time charter rates for the largest psv's at circa $23400 per day levels compared to $22000 per day last quarter.
And one year time charter rates for large Acs is averaging $32500 per day compared to $31000 per day last quarter.
All positive indicators that the market as a whole is pushing rates in the right direction quarter by quarter.
This quarter you will note that we've changed some of the matrices of how we are tracking and reporting on our vessel sources. So that we're more aligned as to how the industry facts. The Osce global fleet by square meters for PSV and brake horsepower and countless with the intent that we can deliver a clearer picture of both internally and externally.
As to how and where we are driving the OSV market.
Working through our various regions and starting with Europe .
As Quintin mentioned this region had a very strong quarter and we continue to see the north sea rig operators increasingly focused on securing capacity of half semi subs in the medium term with floater demand in the region and projected declined to 31 units by end 2024 up from 24 currently and.
And that we will continue to see strong demand in the region in the medium to long term.
We mentioned last quarter about record high spot rates of 173750 pounds per day for larger HTS is which in turn helped our own large 16000, BHP TUSK source of HTS averaged $74231 per day for the quarter.
And for our largest 900 square meter plus sources PSV, we averaged a composite fleet rate of $16239 per day for the quarter compared to $15496 per day in Q2.
And $12238 per day in Q3 2021.
All in all some very impressive rate movement over the last 12 months.
Moving to Africa activity continue to pace across the whole region with an uptick in rig activity during the quarter boding well for a significant increase in the floating rig counts in the region by end 2023.
Across the whole continent, we have a good cross section of vessel classes and has seen rate rises across all classes of rfps over the last 12 months, including the smaller vessel classes.
Even for our Solus four to 8000 BHP source of anchor handler, we've pushed up becomes at fleet rate of 25%.
From an $8500 per day in Q3, 2021 up to $10595 per day in Q3 2022.
Driven impart by leading edge day rates in the quarter for this class of vessel in excess of $15000 per day.
Similarly for a sub 900 square meter class a PSC, we have pushed up constant day rates by 23% for this class of Oc from $10303. A day in Q3 2021 up to $12721 per day in Q3 2022.
With our leading edge day rates during the third quarter being in excess of $25000 per day.
In the Middle East, which includes India. The market continues to tighten with several large OSV tend to spend in the market some of which are now calling for commitments with commencement in 2024 and beyond.
Which indicates customer's concerns about lack of OSB supply going forward.
Tried to fix contracts forward, which as the clintons earlier point should translate into rising rates in the region on a go forward basis.
Since Q3 2021, we've seen rate rises in the region across all asset classes.
With a large 900 square meter plus Chaucer PSC jumping, 85% from $13011 per day in Q3 2021 to $24061 per day in Q3, 2022 and on the anchor handler side eight to 16000 BHP costs rising 90.
<unk> $8938 per day in Q3, 2021 to $10666 per day in Q3 2022.
The region has always been and will remain a highly competitive marketplace, but it is testament to our team in the region that they have remained disciplined in making sure. They continue to push rates across all vessel classes and such a fractured region.
In the Americas, we saw continued high demand in Brazil in Q3, driven by Petrobras for both HTS as NPS fees as in <unk>.
Indicator of the underlying strength in the market during the quarter Petrobras closer reversal for that 145, Tom volatile full year HTS requirement with the lowest debt coming in at roughly $35000 per day levels, which equated to a 76% year on year increase from similar rate levels in 2012.
One.
While most of our Americas faces Psc's the team push rates in Q3 2022 across all classes of RSV over the prior 12 months moving our 16000, BHP HTS Clos and $17750 per day in Q3, 2021 up to fleet constant rate.
<unk> of $20175 per day in Q3 2022.
With leading edge day rates achieved in the high $30000 a day range.
Likewise on the smaller sub 900 square meter class at <unk>.
The team drove comps at fleet day rates up 27% from 11930.
$32 per day in Q3, 2021 up to $15197 per day in Q3, 2022, with leading edge day rates for the quarter again in excess of $25000 per day.
Lastly in Asia Pacific as Quintin mentioned, we not feel were seeing the region starting to catch up in terms of day rate movements compared to our other regions, but we probably won't start seeing significant movements in the region until Q1 of 2023. When traditionally you start to see the pick up of projects really kicked off in the region posted.
On the student season.
For our large 900 square meter plus Chaucer PSC the team increased rate, 77% in Q3 2022 to 25000.
$72 per day levels from 14126 per day in Q3, 2021, with leading edge day rates in excess of $30000 per day for the region.
Similarly for our smallest loss of 4% to 8000, BHP HTS composite fee day rates rose, 26% from $5346 per day in Q3, 2021 up to $6759 per day in Q3, 2022 with leading edge.
Day rates in excess of $10000 per day for the region.
Overall as mentioned by Clinton, we are very pleased with how the market has continued to move in the right direction in Q3, and our team's continued outperformance of the market and we fully expect that positive momentum to continue into subsequent quarters throughout 2023.
And with that I'll hand, it over to Sam Thank you.
Thank you Paris and good morning, everyone.
I would now like to take you through our financial results and discuss some key points that make up these results.
My discussion will focus primarily on quarter to quarter results comparing the current quarter to the second quarter of 2022.
As noted in our press release filed yesterday, we reported net income of $5 4 million or <unk> 10 per diluted share.
From an operation operational perspective, we continue to generate meaningful revenue.
Quarter over quarter.
Revenue for the third quarter of 2022 was $191 8 million.
This is a $28 million or approximately 17% increase from the second quarter of 2022.
Compared to the same quarter last year that increase is close to a $100 million.
This is the result of the Spo acquisition significant organic day rate and utilization increases each quarter throughout the company.
The sequential revenue uplift benefited from the higher day rate and a full quarter effect of the SPL vessels.
Utilization also increased sequentially with active utilization of 83, 7% compared to 82, 5% in Q2 as.
As mentioned Dayrates improved eight 5% to $13 six <unk> per day in the third quarter from 12, $5 44 per day in the second quarter.
Overall gross margin for the quarter increased nicely to 41% from 38% in Q2.
Vessel operating cost for the quarter was $113 million, an increase of $12 8 million from Q2, principally driven by the addition of the SPL vessels and increased activity as we had several vessels mobilizing in and out of new contracts.
Legacy SPL vessels contributed $10 4 million to the increase in operating costs.
Operating cost per marketed day in Q3 was approximately 6700 today.
I would expect it this is an increase from Q2 as we absorbed the full effect of the SPL fleet.
However, we expect to see costs decrease going forward as we continue realizing identified synergies associated with the SPL fleet.
As a reminder, our targeted operating expense synergy amount is $25 million, which once realized will reduce our cost per day substantially.
In the quarter, we sold one vessel for net proceeds of 315000 and recorded a net gain of 268.
Although vessel on this vessel.
We also charge $1 2 million.
The impairment expense related to inventory obsolescence.
We review the inventory and perform physical counts each year in Q3.
We generated operating income of $19 1 million for the quarter, an improvement of $17 2 million from Q2, driven by higher revenue, resulting from higher day rates slightly higher utilization and capacity additions as before SPL fleet operated at the entire quarter.
G&A expense for the quarter was $27 3 million slightly down from Q2, the third quarter included $4 3 million of transaction expenses.
Associated with the <unk> acquisition compared to $7 3 million in Q2.
G&A expense in the third quarter included $6 million associated with the legacy SVR entities, which is already well below our run rates of about $8 $8 million per quarter.
On an annual basis. This would equate to a decrease in G&A costs of approximately $11 million, which was slightly over half and in line with our synergy target of $20 million.
We continue to achieve synergy success and anticipate realizing the remainder of the G&A synergies by the end of Q1 2023.
We expect G&A expense to continue to decrease in Q4, bringing our full year cost close to a 100 million, which.
Which includes professional fees and other transaction costs related to the <unk> acquisition.
Our goal is to achieve an annual run rate of approximately $85 million once integration is complete.
In the quarter, we incurred $12 8 million of deferred drydock costs compared to $18 5 million in Q2.
Q2 has been our heavy drydock quarter for the year.
The regularly scheduled Drydock and vessel reactivation, which also include a few vessels associated with SPL fleet.
In the quarter, we incurred 476, dry dock days, which negatively impacted utilization by 3%.
We expect to incur approximately $13 million of Drydock costs in Q4, bringing the total to about $57 million for the full year 2022.
In the quarter, we also incurred $6 3 million in capital expenditures, we expect capex for the full year 2022 to be about $15 million.
We continued executing vessel modifications related to new contract requirements and technology initiatives and additional.
In addition, additional projects such as battery packs have been at it which has increased our overall capex for the year.
Free cash flow was $21 $9 million this quarter, which is an increase of $38 6 million from Q2.
Are you primarily to increased accounts receivable collections.
As anticipated our working capital investment that normalize leading to a decrease in accounts receivable, even with the increase in revenue during the quarter.
We believe that working capital will increase modestly as revenue continues to increase we have reached a point, where we should begin to generate strong free cash flows quarter over quarter.
In Q4, 2019, we began reclassifying vessels on our balance sheet from property and equipment to assets held for sale. We have since 186 vessels through this program.
At the end of Q3 2022, we had eight vessels held for sale at a value of $6 8 million.
During the third quarter, we sold one vessel for proceeds of 315000.
During the quarter, we agreed to the final working capital adjustment on the <unk> acquisition and received a payment of $8 8 million.
I would now like to focus on the performance of the regions. Our Americas region reported operating income of $3 million for the quarter compared to operating income of $5 9 million in Q2 of 2022.
The region reported revenue of $39 2 million in Q3 compared to $37 million in Q2.
Our region operate at 31 average vessels in the quarter, which was an increase of two <unk>.
<unk>.
Active utilization for the quarter was 80%, which was down from 87% in the prior quarter. However day rates increased to 16901 from $14 from $16 560 million per day in Q2.
The decrease in operating income was due to higher operating costs, primarily attributable to increases in crew costs related to reactivation of vessels and our crew mix as vessel bulk buys back to United States from the Caribbean.
For the third quarter, the Asia Pacific Region reported an operating profit of $3 3 million compared to an operating loss of 900000 in Q2 the.
The increase in operating income was driven by the increase in revenue.
The region reported revenue of $23 $9 million of the third quarter compared to $16 4 million in the prior quarter as a result of a full quarter effect of the additional SPL vessels.
The region operate at 15 average vessels down three vessels compared to Q2 revenue increases were influenced by the addition of the SPL vessels in this region.
Active utilization also increased to 91, 4% in the quarter compared to 74% in Q2 in.
In addition day rates have improved by 35% to $85 30 per day in Q3 compared to 13748 per day in Q2 as.
As we continue to push day rates when contracts expire.
Higher revenues were partially offset by increases in operating costs and general administrative costs as mentioned previously the Asia Pacific region will be one of the beneficiaries of a targeted synergies moving forward.
For the third quarter in the Middle East region reported an operating profit of 605000 compared to an operating loss of 307000.
In Q2.
The region reported revenue of $31 3 million.
In the third quarter compared to $28 4 million in the prior quarter.
The region operate at 42 vessels, which was one less vessel one vessel higher than Q2.
SPL added seven vessels to the segment in April active utilization increased by approximately two percentage points to 83% in the quarter compared to 81% in Q2 as this was one of the heavy Q2 drydock regions.
Day rates improved to 9781 per day in Q3 compared to 9490 per day in Q2.
The improvement in operating income was due primarily to the increase in revenue driven by higher day rates and a full quarter of the SPL vessel operations.
Our Europe and Mediterranean region reported operating income of $13 1 million in Q3 compared to operating income of $4 3 million in Q2, we saw revenue increase at $39 7 million compared to $32 5 million in Q2.
The region operated 26 vessels in the quarter, which was an increase of one vessel from Q2 active utilization increased considerably over 95% compared to 88% in Q2.
We also saw a significant uptick in average day rates of 17436 per day compared to 15776 per day in <unk>.
As a reference point day rates in Q1 were 12144, which emphasizes this significant day rate growth in this segment in 2022.
Day rates have increased 46% since the beginning of the year and the quarter. The day rate increase was positively impacted by higher day rates realized from our anchor handling handling towing supply ship, we operate we operate in the region.
The improvement in operating income for the quarter was mainly driven by the increase in revenue, resulting from higher day rates.
Q3 is typically the strongest quarter in the year. So we may see some drop off in Q4, and Q1 2023 due to the normal seasonality in that period.
Our West Africa region reported operating income of $12 3 million in Q3 compared to operating income of $9 3 million in Q2.
The market has continued to improve as we have seen revenue increase steadily for seven straight quarters.
Revenue for Q3 was $56 3 million compared to $47 4 million in Q2.
The region operate at eight more vessels on average in Q3, resulting from the spo additions active utilization decreased slightly from 79% in.
In Q3 to 83% in Q2.
However day rates increased to 11467 per day in Q3 from $10 $7 41 per day in Q2, the increase in operating income from Q2 resulted from higher revenue.
Resulting from an increase in day rates, along with the effect of a full quarter effect of the spo vessel additions.
In summary, we are pleased to see the increase in revenue quarter over quarter in all of our regions driven by newly acquired SPL vessels reactor.
Reactivation of a previously stacked or under utilized legacy tidewater vessels and higher day rates.
And we are encouraged to see continued positive signs in market activity.
We anticipate both lay up cost and COVID-19 related cost to continue to decrease through the remainder of 2022.
We expect lay out past virtually cease by the end of 2022 and anticipate modest cost moving forward related related to COVID-19 related issues.
We remain very encouraged with the leading indicators, we see for the remainder of 2020 and into 2023 with that I'll turn it back over to Clinton.
Thank you Sam in closing I want to mention some of what we see for the remainder of 2022 and into 2023 on last quarter's call I expressed our confidence that the back half of 2022 would provide a meaningful uplift.
On the heels of a strong third quarter and what we're seeing in the fourth quarter. Our view on the remainder of 2022 is incrementally more positive.
For the remainder of 2022, our revenue backlog stands at $171 million contract cover is fairly evenly split across all of our vessel classes with our largest <unk> have the most exposure to a continually improving market.
As we move into 2023 revenue backlog stands at $475 million up from $400 million last quarter.
Commercial momentum continues as our customers plan for what by all accounts appears to be another leg up in offshore activity in 2023 with.
We plan on remaining committed to our chartering strategy of staying short to take advantage of continued attractive supply and demand fundamentals.
This will allow for continued day rate improvement and drive earnings and cash flow generation that will ultimately accrue to our shareholders.
And with that Colby, we will open it up for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll pause just for a moment to compile the Q&A roster.
Okay.
Your first question comes from the line of Frederic <unk> from Clarksons Securities. Your line is open.
Okay.
Hey, guys hope, you're well and congratulations on what IBM.
A very strong quarter.
Performance wise on cash flow wise.
So thank you I wanted to.
Yeah.
I wanted to dive a bit into the contracting strategy here.
Are you.
Are you, saying that you want to.
Potentially chase or not really.
But to keep shorter terms on your contract too.
The property able to play the Dayrates improvement that we're seeing now across most markets on a leading edge basis.
So I was wondering just trying to put that into perspective versus your comments around what you've typically seen.
Of improvement across the full fleet.
For a year in previous up cycles.
Much faster, we've seen that move now in the second quarter and third quarter.
Are you able to give.
Given that short term chartering strategy our U.
Are you able to give them.
Some guidance on how fast.
We would be able to see that they are it moves move forward as well.
Okay.
I'm going to give you my perspective, and then I am going to lean over and ask appears for his perspective, as well and hopefully those sync up.
Obviously, we have a variable is your outlook on what we see in all vessel classes as we look really look into 'twenty, three and beyond and so we're continuing to charter sure, particularly on the larger vessels and thats been very successful for us throughout 2022, and I imagine thats going to continue.
Into 2023 as peers illustrated the tightness in the larger vessel market is naturally bringing up rates and the category just under that so just under the 900 square meter deck PSV category in particular, and so we're certainly watching that category closely too and we may actually.
You can lean back out of that.
Chartering long in that subgroup as well just to take advantage of what we see is market momentum there.
Yes.
We have a fleet of 200 vessels not every vessels the greatest vessel right, but we certainly do have a fleet that I think is disproportionately in substantially better than what we have five to seven years ago, but as you look to the lower end of our fleet some smaller tugs and some older conventional drive PSV is.
I'll lean into contracting a little bit longer there just because.
I think those are.
A little bit more difficult to put to work. So so let me let me hand, it over to Pierce because he has got some real detailed knowledge on that.
That industry.
Yes.
And just to reiterate I think.
We have on the older less lower spec vessels, we've obviously gone slightly longer as Quintin mentioned, but the majority of our fleet now has a much higher spec b notes.
Lean into shorter contracts, our customers have pushed back.
Ultimately that's been.
Come around to saying.
Understand assurance strategy as well as the market is improving.
And that's something which we've been able to push globally.
Everyone I think thats something we continue to focus on things we go into 2023.
We believe there is a lot more there's a lot more room and rate rises frankly.
<unk> an opportunity for us to continue to push that in the best way J notice to to stay as short as possible.
Contracts.
As much optionality on our side.
At the moment, which we don't have that opportunity for the last five years really so.
That's something which we're going to continue to focus on doing at some.
Some initial pushback from a customer base, but.
They seem to be coming around to the to our strategy, whether or not they agree with it is as if not massive but.
Suddenly accepting it.
Okay.
That's super helpful.
Final follow up on the day rate side here I think.
There is typically some seasonality during the fourth and first quarter and I think <unk> comment on that.
As well, but.
And in terms of.
But you still seem.
The very positive on the way forward so.
Any.
Particular way, we should think about how that.
Potential seasonal.
Call. It weakness is going to impact that average day rates over the next two quarters is it still going to.
Move materially upwards.
Right.
I think you're specifically talking about the north sea.
Kansas, but we continue to see a very tight market for HTS is as we go into 2023 so.
There will be some.
Seasonal impact I'm sure.
The North sea tends to go.
Slow down a little bit, but we're fully expecting to see a very tight market as you go into Q1 with.
With rate rises.
I mean last year, we saw rates.
<unk>.
We expect to see that continue to see that as we go into into 2023 as well.
Okay.
Okay. Thank you so much.
Back into the queue. Thanks.
Okay.
Your next question comes from the line of James West from Evercore ISI. Your line is open.
Hey, good morning, guys.
Hey, good morning, James.
So couldnt curious.
And your client conversations, particularly focus on the middle East right now we've seen somewhat of an unprecedented.
Amount of of <unk>.
Announcements of increased productive capacity, both for oil and for gas a lot of which is going to come from come off shore and we're watching rigs getting snatched off the market left and right to support this.
The same thing is happening in the vessel market.
I'm curious to hear kind of what you guys are seeing in that region.
Sense of urgency that they're showing in the rig market is.
While rolling over into the vessel market as.
As well and kind of what opportunities that's provided for Tyler.
Well I'll tell you what appears with just come back from that so I'm going to hand, it over to him.
Sure.
Yes.
Yes.
So we're seeing a significant amount of tenders coming out.
Driven by ramp code, which we've mentioned I think in the previous.
While we are seeing.
A lot of activity in terms of what Aramco bolsa in Qatar as well.
On the back of this is also being <unk>.
As you see in India, which was Undrawn middle East region as well. So yes, there is a lot of.
A lot of activity in terms of demand to support all the rig activity.
Whether or not they're going to find all the vessels they seem to want is going to be.
Different.
Discussion, but that's only going to allow us to push the rates, which we mentioned as well. So yes. There is a lot of activity on the vessels.
Potential demand, they're asking for a lot I'm not sure if I can get hold of everything that they are asking for so I would say a pause we see that as a very positive thing for ourselves, but certainly an area. We're focused on at the moment as well.
Okay, that's great to hear and then I'm hearing a lot from fundamentally CERN and Ocs that performance is becoming.
Not only for rigs and services the vessels as well as becoming more and more important in the middle East I guess historically has not been.
<unk> been known for that but given the scarcity of assets given the seriousness of what they want to do.
Does that lend Tidewater has a much better much better asset quality and a lot of the local providers is that Lindsay you. It puts you in a much more much better position.
Then some of the competition.
Absolutely.
We've talked about that market being a fragmented owner group and generally lower specification vessels at least compared to the north Sea and Brazil.
And what happened during the downturn there was a lot of those vessels Scott even more nickel lessons in the average vessel got neglected.
So the down for repair and other equipment failures on those types of vessels has been very high.
So we worked with Saudi Aramco and others.
The region to develop what we call the best spec for operating and.
We feel like we.
We're in a great position, because we've been able to continually invest in our vessels, we have been able to continually invest in the technology on the vessels too. So yes, it definitely helps us out substantially.
Okay got it that's all for me guys.
Thanks.
<unk>.
Your next question comes from the line of Frederic <unk> from Clarksons Securities. Your line is open.
Hey, guys.
Just wanted to touch briefly on M&A.
Well I think.
We have progressed well with the <unk> acquisition, and we are starting to see those cost synergies come out.
Yes.
In payroll revenue.
Yes.
Youre still having some older vessels that you mentioned that Youre churning out.
<unk>.
What do you think.
And with the current end market.
The environment I think I think all of these in general are starting to get a bit more traction both in the equity markets on the also on the secondhand side are there still things to be done there and what the CEO role within the M&A here.
Well there definitely is more to be done and I think that we are in a great position we have.
I believe at this point in the cycle, we are under Levered.
So we've got a great.
<unk> equity.
Currency, we've got some.
Our balance sheet that we could use to put to work. We're obviously very focused on return on investment and so we're looking for the appropriate pricing on these vessels, but yes.
Still a lot to be done to clean up the industry and we're very excited.
Cited to be able to participate and we.
We do have the ongoing integration with <unk> that we talked about on the call, but none of that is at the point.
Now, where it's a distraction from us doing our next deal so looking forward to being able to execute as we go through the remainder of 2022 and into 'twenty three.
Alright. Thank you so much that's all for me.
Thank you.
Yeah.
There are no further questions at this time I will now turn the call back over to Quintin for closing remarks.
Well. Thank you Colby, we will update you again in March Thank you Goodbye.
This concludes today's conference call you may now disconnect.