Q2 2023 Tidewater Inc Earnings Call
Okay.
Thank you for standing by my name is Ian and I'll be your conference operator today.
At this time I would like to welcome everyone to the Tidewater, Inc. Q2, 2023 earnings call.
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Thank you.
I would like to hand, the call over to west.
Okay, Vice President of Finance and Investor Relations you May begin your conference.
Thank you Ann good morning, everyone and welcome to Tidewater as Q2 2023 earnings Conference call.
I'm joined on the call. This morning by our President and CEO Quintin Kneen.
Our Chief Financial Officer, Sam Rubio, and our Chief commercial officer peers Middleton.
During today's call, we'll 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 are making during todays 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 T. W Dot com or through the SEC C. A S E C dot Gov information.
<unk> presented on this call speaks only as of today August eight 2023.
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.
Reconciliation of GAAP to non-GAAP financial measures can be found on our website at T. D. W. Dotcom as included in yesterday's press release, and now with that I'll turn the call over to Quintin.
Thank you Wes and good morning, everyone and welcome to the second quarter 2023, Tidewater earnings Conference call.
Before I turn the call over to Pearson Sam to discuss the quarterly results I wanted to briefly review our integration of the 37 highest specification P. S fees from sole settle.
Discuss the results of our recent warrant exploration and related to that reiterate our philosophy on capital allocation.
We announced the completion of this whole staff vessel acquisition on July 5th shortly after the end of the second quarter.
We believe this fleet will prove to be an accretive addition to the Tidewater fleet and will generate meaningful value for our shareholders over the coming years as the offshore up cycle continues.
This acquisition is different from the last two and then it is largely an asset acquisition. So we have had to prepare the shore based staff and staff up ahead of the closing to ensure that vessel operations for police to accept the transfer of the vessels into the existing tidewater operational and administrative infrastructure.
Positive aspects of this type of acquisition.
We get to.
We have full control over the amount of incremental shore based resources, we assume and we get to avoid the layoffs downsizing and redundancies, but the negative aspect is that we have to start preparing much earlier to assume the assets and the margin of error is much lower as you are moving assets from an existing operational framework and over a few day period.
<unk> converted in importing the systems to the Tidewater infrastructure.
I am pleased to report that we have already transitioned five vessels in the first 35 days.
We feel our transition processes are working and are planning to stay at the remaining vessels transferred over by the fourth quarter.
Integrations are critical to maintaining our scalable global infrastructure and our LOE per vessel overhead expense and accordingly, we take all of our integrations very seriously.
The last two acquisitions saw our G&A expense spike in the first full quarter of the acquisition and then work down as we integrated the business. This one you see a ramp up beginning ahead of the closing and then working up to a new steady state over about six months.
We became what might be termed an inadvertent equity issue or about a week ago as warrants from the 2017 restructuring expired in the money.
We received proceeds of $111 million and issued one 9 million new shares.
All of the shares issued were actual common shares no Jones Act warrants.
We have ample U S ownership now so we no longer have any need to maintain Jones Act warrants.
There is a remnant of Jones Act warrants outstanding and we're glad to convert them into actual common shares for anyone listening who still holds Jones Act warrants.
On a philosophical basis I am pleased that the priest struck with pre restructuring Tidewater equity holders were able to obtain incremental value from these warrants.
But we would not otherwise willingly be issuing shares so as a result, we now have an additional $111 million to allocate in the best interest of our shareholders.
As it relates to capital allocation, our first allocation would be to accretive value acquisitions similar to the last 30 days, we've done that support our existing global position in large that P. S fees and other OS fees that are somewhat less commoditized like large anchor handlers, while their offshore energy related assets are always being.
As well, but they would need to fit they wouldn't it make sense from the perspective of fifth price diversification et cetera.
Strategically we are underrepresented in the far West Hemisphere, which is essentially the U S and Brazil. So candidates in these geographies are probably slightly favored.
But with all that said, we can make a tremendous amount of money with a 223 vessels. We now have we absolutely don't need to do any more acquisitions, but with the right vessels at the right price, we can certainly create more value.
Absent value accretive M&A, we would see the best ways to return money to shareholders.
Thankfully, we're making more money on our cash and we have in recent memory, but I'm still not looking to hold onto the cash and the associated negative carry.
Our current secured bond precludes any returns of capital till November 17th of this year about three months from now.
Also any returns of capital would need to be measured until we have a debt capital structure that is appropriate for a cyclical business.
To me that is a combination of long dated staggered maturity unsecured bond debt and an ample revolver.
Our recent unsecured financing is a step in that direction.
My belief is that we can make further strides in that direction over the next few quarters and quite frankly, another appropriate acquisition gives us the scale to reset the debt capital structure Accordingly.
Yeah.
Lastly on capital matters, we will be filing an updated form S. Three this week our previous Universal shelf has expired. This is a standard procedure for a well known seasoned issuer like Tidewater and prepares us for any of the potential acquisition opportunities, we alluded to a moment ago.
The second quarter was another positive period in the offshore vessel market most important indicator of strength in our business average day rate continued its upward momentum during the second quarter with the average day rate upwards for $200 per day sequentially, nearly a 10% movement.
The average day rate is now up approximately $5500 per day since the recovery began around the end of 2021 every region in every vessel class experienced a modest decline significant day rate increases during the second quarter with the exception of our 8% to 16000, BHP class anchor handlers, which were essentially flat sequentially.
Actually.
For the second quarter revenue increased about 11% to $215 million compared to $193 million in the first quarter.
Average day rate was up about 10% sequentially vessel level cash margin expanded four full percentage points to why that 44%.
Leading edge day rates continued to improve during the second quarter up 11% over the first quarter.
During the second quarter, we entered into term contracts on 26 vessels. The average day rate for contracts associated with a subset of vessels was right at 23500 per day with an average duration of about six five months. This compares to a leading edge day rate.
Approximately $21000 per day with an average duration of seven five months in the first quarter.
And the 11% increase in leading edge day rates as meaningful further at the leading edge.
Composite average day rate of 23500 is 46% above the average day rate for the second quarter and this growth potential continues to be a driving factor for our confidence in our revenue and gross margin guidance for the year and our optimistic outlook for 2024.
As we've discussed frequently day rate improvement as the primary driver of increasing profitability of our business, particularly as we look at the intermediate to long term offshore cycle unfolding.
As such we remain focused on a variety of tactics to continue to drive global average day rates.
We were successful in our tactics to continue to push day rates globally. This strategy did have a short term utilization impact we consciously chose to forego certain immediate contracts to pursue higher day rate opportunities and in some cases, we incurred frictional unemployment really related to relocating vessels and waiting on customers.
Projects to commence the combined opportunity cost to revenue for this strategy was approximately $8 million from lost utilization during the second quarter.
We are confident that this chartering strategy is right for the intermediate and long term profitability of the business as we not only achieved higher day rates in the short term, but continue to push the baseline day rates for certain vessels that will prove beneficial as we progress through the remainder of 'twenty through 'twenty, three and into 2024 and beyond.
The improvement in day rates, we realized from this strategy gives us the confidence to reiterate our 2023 annual guidance of $1 billion of revenue and $500 million of operating margin, even with the impact to utilization in the second quarter we.
We anticipate Q3 revenue to increase by approximately $80 million compared to the second quarter and for revenue to increase an additional $30 million in the fourth quarter. Both figures are inclusive of the newly acquired <unk>.
To provide some additional context to our guidance for the third quarter. We currently have 87% of the fleet capacity contracted and with that we have 100% backlog coverage relative to our revenue guidance embedded in that backlog coverage. We are assuming 84% utilization that's a nice step up in utilization.
The downside risk is where we lose revenue from a vessel that is contracted and expected to work at 84% utilization, but for unaddressed unanticipated reasons.
<unk> being off hire for repair the utilization is less than 84%.
In summary, we are very pleased with the continued momentum across our regions and vessel classes during the second quarter and we remain highly constructive on the outlook for 2024 and beyond.
And with that let me turn the call over to peers for an overview of the global markets and the company's performance with it.
Thank you Quintin and good morning, everyone.
Before I focus on our areas performance I want to talk a little about what we at Tidewater is seeing happening in the industry. It gives us the necessary confidence in the long term outlook for our industry.
Our teams regionally all continued to see positive investment momentum in their respective offshore markets driven by resilient long cycle offshore developments production capacity expansions to return and global exploration and appraisal and the recognition of GAAP is a critical fuel source for energy security and it.
Part of the energy transition.
Offshore markets remains strong and the supply demand outlook is very positive.
<unk> vessel and rig demand has been bolstered by supported energy prices with operators seeking to reinvest profits into increasing oil and gas outputs.
Overall $68 billion of offshore oil and gas projects Capex has been sanctioned in 2023 year to date.
Outside research projecting 119 billion for the full year.
High level since 2013.
Furthermore, other research resources, so costly E&P vessels spending is expected to increase by 32%. This year with spending estimated to increase at a compound annual growth rate of 10% out to 2027.
As evidenced in some of this new found long term confidence in the market <unk> has announced the revival of the huge offshore project <unk> in the U S Gulf, which they abandoned in 2014.
Planning to revise the project targeting.
In 2025, and first oil in 2028.
<unk> estimates to hold more than 4 billion barrels of oil.
Rig rates continued to firm with Clarksons research reporting that that rig rate index is now up by 74% compared to the beginning of 2021.
Driven primarily by the floater sector with one recent fixture agreed at $484000 per day in June for harsh environment semi heading to Australia.
A further sign of tightness in the Haas floater sector amidst reduced supply and strong competition a harsh units globally.
<unk> various multiple industry outlet school costs that the floater market will hit 100% utilization next year, and then into 2025 and the Jackup market will be at 98% utilization by 2025.
All very positive indicators for the long term health of the OSV space.
Tobacco various recent onsite research reports and leading global offshore rig provider recently disclosed that they now intend to exercise the purchase options that two floaters currently sitting at a yard in South Korea.
As the company said, it's these are not strong customer interest in that rigs based on that current market outlook and then the expectation is that most if not all of the supply of stacked newbuild drillships in the global fleet will be needed to meet growing growth future demand.
Lastly on the demand side Q2 reports from three leading EPC contractors began a significant milestone that combined backlog now surpasses. The 2013 year end record reported backlog, which also bodes well for the long term demand as the industry, but many of these projects generally have a three to five years.
Timeframe before completion.
Yes.
In addition, as we've said many times on these calls vessel supply is set to remain constrained for some time.
According to leading industry research, 43% of the remaining laid up overseas opinion layout to more than five years with reactivation, becoming increasingly time and cost intensive and theres very little sign of any kind of new building activity on the horizon due to the challenges securing finance high newbuild pricing.
And uncertainty surrounding design and technology and day rates still not returning to a level to support long term Newbuild economics.
So overall, we remain very positive for the long term health of the market.
We start to see some significant movement from our customers when it comes to discussing contract terms and in particular termination clauses with some customers now willing to accept no cancellations convenience clauses in return for longer term contracts again very positive momentum we believe for the industry.
Moving on to our own fleet and as mentioned by <unk>. We continued to see the increase in demand in shortness in supply impact rates positively on the upside.
And even though in Q2, we saw a slight tick down in utilization compared to Q1. The team still managed to push our fleet composite dayrates up either $4800 per day compared to the prior quarter.
Working through our various regions and starting with Europe coming out of Q1, whilst the U K market was slightly sluggish in Q2, we continued to see strong demand in both Norway and the met the Psc's, which offset any sluggishness in the UK.
The team improved our concept fleet rates compared to Q1 2023 from $15669 per day to $18999 per day jumped a $3321 per day across the whole region.
Whilst the U K P. S V market was a little slow we did have some of our medium sized PSC roll off older contracts into newer contracts, we saw a significant uptick in rates in Q2 of $5532 per day compared to Q1 in this class of vessel.
And the Med, we also saw leading edge day rates for our larger class of vessels reach in excess of $32000 per day.
On the HTS side, we mobilized back into the region one of our larger HTS is after <unk> finished project work in Africa.
The intention to have two large HTS in the region to take advantage of the traditionally strong summer season in the North Sea.
And rates have remained robust in the U S dollars $30 to $40000 per day range and the expectation still remains that demand will pick up in Q3.
Moving to Africa, we again continue to see rising demand across the whole continent.
With particular focus in Angola, Namibia Congo in Senegal, and have recently seen total committed to tender to 210 year floating rig requirements to support that ongoing plans in the region.
In Q2, 2023 to comps that fleet rate improved by $1422 per day from $13047 per day in Q1, 2023 up to $14469 per day with most of the day rates improvements in the quarter again coming from a.
Larger 16000, BHP class anchor handlers, and plus 900 square meter class of PSC.
We also had a number of large and medium psb's rolling up some legacy below market contracts and into new contracts with leading edge day rates in excess of $34000 per day levels.
In the first half year. We also made the decision to mobilize several of our smaller four to 8000 BHP toss of HTS is out of the region and the middle East to support our operations in Saudi Arabia.
To be able to achieve much better utilization and margin for this class of vessels going forward.
During the quarter. This relocation of vessels had a negative impact to our overall utilization numbers.
Leave it is the right time to take some short term pain for long term gain.
To be clear, we still remain very positive for the Africa region going forward and whilst our main focus will primarily be in growing our large PSV in Acs needs in the region to continue to be the big boat supplier of first choice on the continent.
We did also commit to building for new Arctic Cat's provide crude chancer services to one of our customers in the region against non canceled for convenience contracts.
In the Middle East, Saudi Arabia remains the dominant country in the region has went up as well as one of our key areas of focus of the fleet.
And as I just mentioned, we made the decision in Q2 to mobilize a number of our smaller Acs is in smaller PSC. Some other areas to take advantage of not just the improving day rates in the country to these class vessels, but as importantly, the consistent utilization youre able to achieve in the kingdom compared to other regions.
Jackup rig demand in the Middle East remains robust and currently stands at a record 148 units with demand in the middle East projected to grow by an additional 8% for the rest of 2023.
And what is our most challenging region competition wise the team did a fantastic job pushing rates an increase to our total comps of fleet rate of $770 per day $9679 per day in Q1 2023 to $10449 per day in Q2 2023.
In the Americas as mentioned last quarter, we saw a lot of demand in Brazil in Q1 from Petrobras. The NFC reported to have awarded up to 20, new PSC contracts.
And then Q2 market sources reported the rates being offered for this tender will all in excess of $40000 per day levels for larger PSP.
In addition, Petrobras is expect to come out with a long term tender for large Acs shortly which is expected to stock off additional supply from outside of the country on the contract starts in Q1 and Q2 2024.
Alpha in the region, Guyana, and Suriname continued to see a strong first half of the year and we also start to see the big boat market pick up steam in the U S Gulf of Mexico during the quarter.
In Q2 2023.
Our Americas fleet continued to perform strongly but we didn't have a huge uptick in rates as we saw in some other areas as we didn't have a large rollover new contracts in the quarter as we continued working on contracts in the previous quarter.
However, the team was still able to push the comps of fleet rates by $475 per day from $19794 per day in Q1, 2023 up to $20269 per day in Q2 2023.
The majority of the update coming in the large PSV chaos, while we also manage to achieve leading edge day rates in excess of $40000 per day.
Lastly, in Asia Pacific, Malaysia, Taiwan, and Australia continued to be the key drivers of demand in the region in Q2, 2023, and we expect those countries to drive demand through the rest of the year and into 2024.
We did move one of our smaller Acs in the middle East for the same reasons as previously mentioned with a focus for the region going forward staying on the bigger boat market, where we are best able to support our customers by being the supplier of choice for large HTS isn't large PSV.
And key to 2023, the Asia Pacific team continued to sustain impressive rates across the region and even managed to increase at constant rates in the region by $668 per day from $23582 per day in Q1, 2023 up to $24000 250 per day.
In Q2 2023.
All in all a very impressive performance for the quarter in the first half of the year.
Overall as mentioned by Clinton, we are very pleased with how the market has continued to move in the right direction throughout the year and that we expect that positive momentum to continue into subsequent quarters and beyond with all signs thing that we do not see any significant slowdown in demand in any of the regions in which we operate.
Eight.
And with that I'll hand over to Sam Thank you.
Thank you Paris and good morning, everyone.
At this time as in prior quarters I would like to take you through our financial results I will focus primarily on a quarter to quarter results of the second quarter of 2023.
Compared to the first quarter of 2023 as noted in our press release filed yesterday, we reported net income of $22 6 million for the second quarter or <unk> 43 per share on revenue of $250 million.
Compared to $10 7 million of net income or <unk> 21 per share in the first quarter on a $193 $1 million in revenue.
Active utilization decreased slightly from 86% in Q1 to 79, 4% in the current quarter.
The decrease is due primarily to higher drydock days and higher mobilization days as we mobilize nine vessels to different regions in the quarter.
Average day rates increased by nine 7% from 14006 four per day in the first quarter to $16 42 per day in the second quarter.
Which was the main driver for the increase in revenue.
Vessel margin in Q2 was $92 1 million compared to $75 7 million in Q1 and vessel margin percentage increased to 43, 8% from 39, 6% in Q1.
Adjusted EBITDA was $72 million in Q2 compared to $59 1 million in Q1.
Vessel operating cost for the quarter were $118 3 million compared to $115 5 million in Q1.
In the quarter, we saw an increase in crew salaries and travel expenses and vessel supply expenses related to reactivation of a couple of vessels. In addition, as mentioned previously we mobilized nine vessels into different regions and incurred additional drydock days in the quarter that added to the increase in operating cost mainly due to the fuel consumed.
Our vessel operating cost per day was relatively flat quarter over quarter at about $71 50 per day.
We estimate that fuel costs related to more mobilizations and a couple of one time charges in the quarter affected our operating costs by about $250 per day.
As we look to the remainder of the year based on our most recent forecast and with the addition of the newly acquired 37 <unk> vessels. We estimate total 2023 revenues to be approximately 131, <unk> 3 billion and vessel operating margin to be approximately $500 million.
In the quarter, we sold three older noncore vessels, one from our assets held for sale and two from the active fleet for net proceeds of $2 9 million.
And recorded a net gain of $1 4 million on the sale of these vessels.
We generated operating income of $38 9 million for the second quarter of 2023 compared to $24 5 million in Q1 the.
The increase is due primarily to the higher revenue.
G&A costs for the quarter was 26 million $2 5 million higher than Q1 G&A for the second quarter included $2 4 million in bad debt expense related to a customer's receivable balance that was determined to be uncollectible.
In addition, we also incurred $1 2 million and transaction expenses related to the sole stacked vessel acquisition.
We expect our total G&A costs for 2023 to be approximately approximately $97 million, which includes $6 2 million of transaction costs related to the <unk> acquisition and a $2 4 million bad debt expense mentioned previously.
Excluding these items, we anticipate our annual normal G&A run rate to be about $89 million, which includes additional cost added as part of the source that transaction.
In the quarter, we incurred $21 4 million in deferred drydock cost compared to $31 1 million in Q1.
In the quarter, we incurred 823, dry dock days, which affected utilization by 5%.
With the addition of the <unk> vessels, we now estimate our dry dock costs for the full year 2023 to be about $87 million, which includes $8 million related to this whole stack vessels.
In Q2, we also incurred $6 4 million in capital expenditures related to upgrades and vessel modifications and.
In addition, we incurred $2 5 million related to Downpayments on four new <unk>.
For the full year 2023, we expect to incur approximately $28 million in capital expenditures and 5 million of which has been reimbursed by our customers.
We generated $11 3 million of free cash flow this quarter as.
As cash flow as cash flow in Q2 was affected primarily by higher dry dock and Capex expenditures, we also paid approximately $10 million in taxes.
Working capital increased by almost $23 million for the quarter and even though we do expect our investment in working capital to grow with the addition of <unk> vessels and as revenue increases we will continue to manage his investment as tightly as possible.
As anticipated we did see a significant spend in capex and write offs. This quarter. However, we expect the cash flow performance to significantly improve in Q3 with additional improvements in Q4 as the business continues to accelerate.
In Q4 of 2019, we began reclassifying vessels on our balance sheet from property and equipment to assets held for sale. We have since run 88 vessels through this program at the end of Q2 2023, we had two vessels remaining in assets held for sale at a value of about $600000.
During the second quarter as mentioned previously we sold one vessel from the assets held for sale for proceeds of $500000.
On July five we completed the acquisition of the 37 platform supply vessels for full stack for $580 million.
We financed the acquisition through a combination of net proceeds from a $250 million five year 10, and three eighths fixed rate unsecured Nordic bond, a new 325 million three years, so far linked floating rate amortizing.
Secured senior bank term together with $18 5 million of cash.
More details of the financing are available in our recently filed Form 10-Q.
Yeah.
We're very pleased with the acquisition and we appreciate the support we received from the credit markets. We look forward to integrating the 37 vessels into our operational management and anticipate completion by the fourth quarter.
I would now like to focus on the performance of the regions. Our Americas region reported operating profit of $6 2 million for the quarter compared to operating profit of $8 million in Q1 2023.
Vessel operating margin increased from 47% in Q1 to 41, 2%.
The region reported revenue of $50 4 million in Q2 compared to $47 7 million in Q1.
The region operated 32 active vessels in the quarter, an increase of one vessel from Q1.
Active utilization for the quarter was 85, 4% slightly higher than 85, 2% in Q1 day rates increased two 4% to 20.
269 from 19794 per day in Q1.
The decline in operating income was due primarily to increased reactivation expenses and the $2 4 million bad debt charge taken in the quarter.
For the second quarter, the Asia Pacific Region reported an operating profit of $7 million compared to an operating profit of $5 6 million in Q1.
Operating margin increased from 43, 3% in Q1 to 47%.
The radio reported revenue of $22 6 million in the second quarter compared to $22 million in the prior quarter. The region operate at 14 active vessels, which was up one vessel on average compared to Q1.
Active utilization decreased to 72, 4% in the quarter compared to 77, 8% in Q1 I ever day rates increased by two 8% from $23 $5 82 per day in Q1 compared to $24 $2 50 per day in Q2.
The higher operating income is due to the increase in revenue coupled with decreases in operating and G&A expenses.
For the second quarter in the Middle East region reported an operating loss of $1 7 million compared to an operating loss of 344000 in Q1.
Vessel operating margin decreased from 25% to 22, 7% the region reported revenue of $31 9 million in the second quarter compared to $30 8 million in the prior quarter.
The region operate at 44 vessels and increase of one vessel from Q1.
Active utilization decreased from 82, 5% from the first quarter to 76% in Q2, due mainly to higher mobilization days.
Day rates increased from 9679 per day in Q1 to $10 $4 49 per day in Q2.
The region incurred over 500 mobilization days in the quarter, which impacted utilization substantially.
As for vessels were transferred into the region.
The decrease in operating income was due primarily to the increase in operating expenses in particular higher fuel expense, resulting from the mobilizations into the area.
Our Europe and Mediterranean region reported operating profit of $8 3 million in Q2, a nice increase from Q1, where the region reported operating profit of $2 million.
Vessel operating margin increased from 36, 7% to 45, 8% revenue increased 26% to $39 3 million in Q2 compared to $31 3 million in Q1.
The region operated 26 vessels in the quarter one less in Q1.
Active utilization increased to 85, 7% compared to 83, 4% in Q1.
The increase in utilization was primarily due to lower dry dock days than in Q1, and the increase in activity as the seasonality impact is reduced.
In addition day rates jumped 21, 2% to 18990 per day compared to 15669 per day in Q1.
The increase in operating income for the quarter was mainly driven by the increase in revenue offset by higher operating costs due to higher R&M and higher supplies and consumable expenses.
Our West Africa region reported operating profit of $25 5 million in Q2 compared to operating profit of $17 2 million in Q1.
Operating margin increased from 46, 4% to 53, 6%.
Market in this area remains strong.
Revenue for Q1 was $66 2 million compared to $59 5 million in Q1.
The region operate at 65 vessels on average in Q2 to one less than in Q1 active utilization increased to 77, 8% in Q2 from 76, 6% in Q1 and day rates continue to increase as we saw a 10, 9% increase to $14469 per day in Q2.
The increase in operating income from Q1 resulted mainly from the higher revenue.
Coupled with a decrease in vessel operating expenses.
In summary.
We are pleased with our Q2 results in the quarter, we repositioned nine vessels to different regions and had a high number of anticipated drydock days that affected our overall results. However, this will have a positive impact on our results in the future.
We're encouraged to see continued increases in revenue throughout the year driven by higher day rates during 2022, where you reactivate at many of our previously stacked legacy Tidewater vessels acquired 49 vessels with swap what this wire transaction.
And in July 2023, we completed the purchase of 37 <unk> vessels, all of which will now put us in a stronger position take advantage of the continued upturn in the industry. We remain encouraged by the leading indicators, we see for the remainder of 2023 and beyond.
With that I'll turn it over back over to Glenn.
Thank you Sam.
Ian why don't we open it up for questions.
Thank you at this time I would like to remind everyone in order to ask a question you can press star followed by the number one on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Yeah.
Our first question is from the line of Jim Rollyson with Raymond James Your line is opened.
And gentlemen.
Good morning.
Clinton clearly a nice sequential move in terms of fleet average day rates and obviously the incremental contract average leading edge rates.
On the duration front, you mentioned I think six five months was the average duration of the incremental vessels signed in the quarter can you remind us what the kind of fleet average is today in terms of duration inclusive of sole stat.
So about one year.
For the legacy Tidewater fleet.
And when you.
Obviously, you guys have talked about incremental tightening in the market based on activity and spend.
Are you getting from your customers or are they starting to get concerned about that trend and I mean, obviously as their spending plans changed for the better.
I have to imagine they look at all of the same trends that we look at it.
And start to get concerned about vessel availability. So just kind of curious how those conversations go and are they trying to you or your actual duration went down by a month or this quarter versus what you booked last quarter. So I'm curious if they are trying to book up longer duration contracts and just kind of how that conversation is going.
And yes in fact.
Appears in Brazil, I'm going to hand, it over to him in a second but I would say that.
The period of sticker.
Sticker shock that we went through in 'twenty two is behind US and now everyone realizes that rates are moving up and they're worried about scarcity scarcity scarcity issue for them.
So those that are more active in drilling campaigns are more concerned about scarcity. So we're starting to see them trying to book longer periods of time.
We're still going short but.
But the person in our organization closest to it as Pierre So let me asking the cobbled.
Yes, Thanks, Christian Hi, Hi, Jim yet.
I think.
Strategically we sort of had a.
Plan to sort of go short to allow us to roll the number of.
Poor legacy contracts, we had.
And part of that is also I think I, just mentioned and a lot of the contract.
Was in place in terms of these.
Cancellation clauses for convenience.
Oil companies were able to to push on us during the downturn and we're spending a lot of time.
Pushing back on those.
Getting people to commit is that going to commit to a one year or two year or three year contracts and they commit to that so.
So that process, we've had some positive momentum.
During the course of this year the PTO sign to accept those sites in terms of contracts again so.
It doesn't happen overnight, but that certainly starting to happen and were starting to have some successes with a number of.
Some of our customers who are recognizing that.
If they want a three year contracts then they need to to support that was an actual con.
Contract that commenced to that which they were starting to start to see because they need to have they all worried about discussed your vessels. So yes. It takes time, but we're definitely seeing movement in that direction.
Our customer base.
Yes that makes sense and sounds good for from your end and Quintin on the relocation of our vessels out of certain markets into the middle East obviously, there's some near term kind of cost impacts and utilization impacts just maybe a little color on.
How much further does that still drag some in <unk> and then how long before you think that that starts to benefit you.
From the steady utilization and hopefully better rates kind of perspective.
Yes.
An underlying theme in that situation in the quarter and really the first six months is the fact that.
The last boats to go to work are usually year logos. These capable boats small size.
Lower specification boats and those boats are great for the middle East.
But when you move into the Middle East you got to go through a whole southeast Asian process right. So you got a bunch of costs that go upfront. So so it's good to put those boats back to work and we did that in the first half of the year most of that hit in Q2, I think we have a small remainder in Q3.
But it's not.
Well nothing.
Nothing significant certainly all contemplated in the guidance that we laid out.
But no I think that that reactivation surge in that.
Got a resetting of the chest stable globally is largely behind us at this point.
Great I'll turn it over for someone else. Thank you.
Thanks, Jim.
Your next question comes from the line of Greg Lewis with <unk>. Your line is open.
Yes, hi, Thank you and good morning, everybody and thanks for taking my questions.
Absolutely.
I was hoping to get a little bit more color around the comment around the contracted fleet.
And roughly 87% of the fleet is contracted.
I guess the questions around that are is.
Is this a function of vessels rolling off contracts, and then going back on longer contracts or is it hey, there's going to be this natural piece of our fleet, that's going to just simply be trading in spot.
And if you could could you provide us a little color around where those spot vessels are and how those markets are doing.
Yes.
You've kind of laid out right in the sense of most of those are going to be rolling through the spot market as we go through the next several quarters.
Let me give it over to appears to give you an idea of where the spot market is most active around the world.
Yes. Thank you. Thank you hi, Greg.
Yes, so we have.
You sort of Clinton said, you guess it.
Right.
<unk> of soft in that.
Availability on and obviously, the north sea, we always have a certain level.
Spot exposure the way that setup.
I will take them a larger anchor handlers as we go into the second half of the year.
So there are some that we are also seeing.
That market is holding up very well.
It's still very positive.
The good news I think would be self type transactions.
And I'll just share on the PSC side in that market, but actually our competitors seem to be holding holding rates as well. So that's churning nervousness certain level in the north sea, which is.
Boston and then we're seeing a number of contracts rolling off.
In.
In Q3 and Q4 in Africa.
But again very positive momentum in that piece as well as a few contracts down there.
And then otherwise.
We're pretty busy.
Everywhere else in the world, so not a huge amount of a little bit of spot exposure in Asia as well, but otherwise everything else is working so mainly out of the north Sea is why we see much genetics exposure on the spot side.
Okay, Great and then just I did want to talk a little bit about the source of that fleet.
You mentioned the five vessels that were integrated in.
I guess.
<unk>.
As we think about the remainder of that fleet being integrated in.
Is there any way to kind of think about it on a vessel basis, what is that cost right. I mean, you kind of touched on it is it basically to integrate each vessel into the fleet has a couple of hundred Grand and then as we think about those vessels that are still going to be put into the fleet. Realizing there is a heavy concentration in the north.
Say, but there are some vessels from the source that fleet that are in Brazil, and West Africa.
Is that kind of.
Is it kind of we expect these vessels to stay put or you mentioned you're in Brazil are you already down there trying to figure out if we can boost our position down there.
Just kind of curious as we think about that just given the ebbs and flows in.
The recent.
Decision last quarter to reposition vessels to the middle East.
Okay.
Greg Hi, Greg This is Sam.
Al.
Kick it off and then maybe a clinton can come.
Comment on this but as far as it relates to the cost of integrating this votes I would say that it's going to add maybe 25 to $35000 of both just because of all the documents change and everything that we got to do but it's really more of a <unk>.
Timing and anything else that will take us a day than a half to two.
To switch over systems and stuff like that so the impact is minimal as far as the timing and the cost.
Yes.
Layer on top of that Sam that as a result, you've increased your G&A guidance for the year from the Standalone Tidewater fleet about that's correct.
<unk> and G&A to go up about 5000 for a full year.
No I mean, I'm, sorry, a $5 million for the full year, which should be about $2 5 million for the second half of this year and thats the incrementals of shore base facilities, but the actual movement of the vessels over is really just sort of intensive planning exercise, but it's not an intense call. So not intense cost that's correct.
Okay.
And then just what's the outlook for those vessels.
Just given when we acquired them where they were located.
Too early to tell or should we be thinking about.
Yes.
Yes.
Strength.
Yes.
Yeah.
So right now most of them are under contract, which is kind of a good news bad news on that fleet, because I would really like to roll them over a little bit faster than I can.
But.
So I think over the next year youre going to see them working in the areas where they're currently at.
Yeah, the biggest sluggish in the North sea, but we've got a handful in Brazil have payroll in Australia in just one or two in West Africa.
<unk>.
Certainly you know the thing that I'm optimistic about with ethylene is where they're at today theyre rolling onto new contracts that are a bit better than we actually anticipated so from a from a pivot.
From a merger analysis standpoint, I'm really pleased with that.
Now where I am working on more concern the lightens up more in the UK sector over the next couple of years and if it does that then rolling them down into the Mediterranean, which has been recently very strong as well as West Africa is where I anticipate them to go.
I don't expect pulling out of Brazil at this point, although Bruce.
Brazil has always.
Troubling area for an international operator.
And.
I think there's real opportunity in Brazil for Brazilian owned tonnage. This is non Brazilian.
Flagged tonnage this was foreign tonnage.
Okay.
Okay, great. Thank you.
Thank you.
Your next question comes from the line of Fredrik Stene with <unk> Securities. Your line is open.
Hopefully you guys can you hear me.
Okay and thanks for taking my question.
I actually wanted to revert to some of the themes that Greg touched upon in relation to them.
Contracted capacity.
You've given us the numbers for the third quarter are you able to give us some color on what's happening in the fourth quarter and also in 2024.
I'd be interested in both what you've booked up our revenue.
Going forward of it but also what's left in terms of free capacity to play the market.
Thanks.
Sure so so.
Naturally what happens as you look at it each quarter as we have a little bit more room, a little bit more white space as is commonly been called.
To fill and so we're about 85% fill for the fourth of fourth quarter.
And so we will work over this quarter or two to fill in that white space to get it up to the same level that we're talking about in Q3, which was a 100%.
Yes.
And then as you go out into <unk>.
I'll reserve on 24 until until we do the 24 overview, but.
Similar step down as you go through the quarters.
Okay, Thanks and.
In terms of.
Just how you commented on on the order.
You're stretching it now in Q2 that you're holding on to the <unk>.
Positive to secure longer term Burke.
The longer rates are you feeling on a general basis that you've come to a point, where it's the right time to start.
To go from that short strategy, you've talked about the two <unk>.
<unk> strategy to a large degree or.
The correct timing for some of the sub segments of your assets anything that.
Kenneth can help us.
Cash flow visibility.
I truly believe in OSB.
Misunderstand me, but.
Your attitude towards that has changed and helpful. Thanks Bill.
My attitude really Hasnt changed there are still very optimistic and the acceleration of day rates globally.
We really see nothing holding it back in and Theres no incremental supply of any magnitude coming in from anywhere and activity levels are continuing to increase so generally I'm still going short now we've been going short for so long that we're actually completing a lot of our coverage. So we may add some longer term contracts just to.
You know balance out the book if you will.
So because there's always a meaningful piece of all long term contracts. If you can get the right terms. If you can get the right price escalations and so forth, but if I had my druthers either.
German on the spot market.
Let me hand, it over to Pearson, He's got to live with it so I'll ask Kevin to comment as well.
Well I mean I think.
I think I missed that I mentioned earlier, we are still focused on a relatively short term strategy.
I think as Quentin just said if we can.
We're spending a little bit of time getting the customers to actually commit to that term of contract and I've said that to commit to a proper what I consider a proper noncancelable three year contract with a five year contract.
On the right students.
As Clinton and that certainly something we'd look.
To put into the fleet, but I don't see us in the <unk>.
Short to medium term.
Planning to change our strategy I think we're very positive.
Long term future of this market.
Theres more upside opportunity as we as we go forward.
<unk> side.
Yes, yes.
Yeah, and I follow up on one or more items I'm sorry.
Ill follow up with just one more item on that which is.
Obviously, we are playing the spot.
Spot market is nothing has really changed.
To the extent that we layer on additional costs are covered like Pierce was indicating its because were getting contract terms that we feel are sustainable over a three or four or five year period.
Okay.
Okay.
Perfect.
As a final follow up on that.
I think.
And some of the other.
Or sort of sub segments like the rig space, what we see now over the last few months is that the.
The lead time to contract our tests.
Standard for these long term contracts and of course, there are different dynamics in these two markets in terms of your discussions with <unk>.
Your clients are they not only willing to give a term or off for term contracts, but.
How has the.
How far out in time are they trying to plan for their OSV needs and how has that changed maybe.
Over the last 12 months.
Hey, Pierce you wanted to say well, yes, yes of course.
I mean, it always amazes me.
You think customers would be slightly better organized.
<unk>.
When it comes to looking to book that PNC has an anchor handlers.
I am still say the majority of the customers are leaving it quite late still.
They may have a long lead time on a rig that we won't sourcing tenders some of three months.
With the exception of perhaps in something like a Petrobras some of the NMFC had a longer.
The Tom but on the on the Ioc's.
That lead times tend to be.
Three months three to six months frequently come as and in some cases with that <unk>.
Have some of them didn't even come as exciting.
Expecting assets to be available in a month's time and we have to.
Often the not disappoint them.
We're not going to happen anytime it into the rigs.
Yes, I would say project.
Maybe that will change over the next few months, but that doesn't mean anything to commit to longer term.
Better contract terms when they do come out so that that is changing.
Alright. Thank you all for the color Super helpful.
All for me.
Good day thanks.
Thank you Fredrik.
There are no further questions at this time I would like to hand, the call back over to Quintin Kneen for closing remarks.
Well, thank you and thank.
Thank you everyone and we will update you again in November Goodbye.
This concludes today's conference call you may now disconnect.
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