Full Year 2023 Tidewater Inc Earnings Call
Operator: Thank you for standing by, and welcome to the Tidewater Inc. Q4 and full year 2023 earnings conference call. I would now like to welcome West Gotcher, Vice President of Finance and Investor Relations, to begin the call. West Overton.
Thank you for standing by and welcome to the Tidewater, Inc, Q4, and full year 2023 earnings conference call.
I would now like to welcome West Gotcher, Vice President of Finance and Bester relations to begin the call west over to you.
West Gotcher: Thank you, Mandeep. Good morning, everyone, and welcome to Tidewater's fourth quarter and full year 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, Piers Middleton.
Thank you Marty good morning, everyone and welcome to Tidewater <unk> fourth quarter and full year 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 appears Middleton.
West Gotcher: During today's call, we will make certain statements that are forward-looking and refer to our plans and expectations. However, 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 today's conference call. Please refer to our most recent Form 10-K for additional details on these factors. These documents are available on our website at www.tdw.com or through the SEC at www.sec.gov. Information presented on this call speaks only as of today, March 1st, 2024. Therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay.
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 for additional details on these factors.
Documents are available on our website at T. W Dot com.
Through the SEC at SEC Gov.
Information presented on this call speaks only as of today March one 2024.
Therefore, you're advised that any time sensitive information may no longer be accurate at the time of any replay.
Quintin V. Kneen: 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 in our earnings press releases located on our website at TDW.com. [inaudible] Thank you, Wes. Good morning, everyone, and welcome to the fourth quarter 2023 Tidewater Earnings Conference call. Before I start with my prepared remarks on the business, I'd like to mention that we've reorganized the call a bit. I'll begin today's call, but before turning the call over to Piers and Sam for their prepared remarks, I'll hand the call back to Wes for some perspective on vessel supply and our forward-looking guidance. I'd like to start the call today by highlighting some of the achievements Tidewater achieved during 2023 and how that drives our outlook for 2024. The past year was, by all measures, a successful year marked by consistent growth and robust financial results.
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 in our earnings press release is located on our website at T. D. W. Dot com and now with that I'll turn the call over to Quintin.
Thank you Wes good morning, everyone and welcome to the fourth quarter 2023, Tidewater earnings Conference call.
Before I start with my prepared remarks on the business I'd like to mention that we've reorganized the call a bit I'll begin today's call, but before turning the call over to Pearson Sam for their prepared remarks, I will hand, the call back to the west for some perspective on vessel supply and our forward looking guidance.
I'd like to start the call today by highlighting some of the achievements Tidewater realized during 2023 and how that drives our outlook for 2024.
Last year was by all measures a successful year marked by consistent growth and robust financial results.
Quintin V. Kneen: We generated over $1 billion in revenue for the year. Revenue and gross margin improved each quarter throughout the year. We acquired 37 PSVs, solidifying Tidewater as the clear global OSV leader and the leading provider of hybrid OSVs. Printed and leading-edge day rates increased each quarter of the year. We generated $111 million of free cash flow during the year, over 80% of which was generated in the second half of the year.
We generated over 1 billion in revenue for the year.
Revenue and gross margin improved each quarter throughout the year, we acquired 37 P. S fees solidifying tidewater as the clear global OSV leader and the leading provider of hybrid OSB use.
Printed in leading edge day rates increase each quarter of the year.
We generated $111 million of free cash flow during the year over 80% of which was generated in the second half of the year and we initiated a share repurchase program during the fourth quarter repurchasing $35 million worth of shares.
Quintin V. Kneen: And we initiated a share repurchase program during the fourth quarter, repurchasing $35 million worth of shares. We are pleased with the many successes we realized in 2023, and we believe we will have even greater success in 2024. As strong as 2023 was from a financial and operational perspective, we are still not back to a place where the underlying economics on vessels justify new construction. As a result, given the continued lack of new building orders on a global basis, we believe continued tightness in the global OSV supply will allow for continued day rate increases throughout 2024 and into 2025. Leading edge day rates improved nearly 40% during 2023, ending the year at 29,511. We anticipate that we will continue to see day rate momentum in all of our vessel classes, driven by healthy demand across a variety of end markets and persistent tightness in vessel supply, with realized day rates improving each quarter of the year and the average day rate to improve by approximately $4,000 per day on a year-over-year basis.
We are pleased with the many successes we realized during 2023 and we believe we will have even greater success in 2024.
As strong as 2023 was from a financial and operational perspective, we are still not back to a place where the underlying economics on vessels justifying new buildings.
As a result, given the continued lack of new building orders on a global basis. We believe continued tightness in the global OSV supply will allow for continued day rate increases throughout 2024 and into 2025.
Leading edge day rates improved nearly 40% during 2023 ending the year at 29500.
We anticipate that we will continue to see day rate momentum in all of our vessel classes driven by healthy demand across a variety of end markets and persists through tightness in vessel supply.
With realized day rates, improving each quarter of the year and for the average day rate to improve by approximately $4000 per day on a year over year basis.
As the financial performance of the business continues to improve we expect to continue to generate substantial free cash flow throughout the year, we repurchased $35 million worth of shares during the fourth quarter of 2023, representing the maximum amount of repurchases permissible under our existing debt agreements and about.
Quintin V. Kneen: As the financial performance of the business continues to improve, we expect to continue to generate substantial free cash flow throughout the year. We repurchased $35 million worth of shares during the fourth quarter of 2023, representing the maximum amount of repurchases permissible under our existing debt agreements and about 60% of our free cash flow generated during the fourth quarter. Given the constructive outlook for the year and our view on the intrinsic value of the business, the Board of Directors has authorized the company to repurchase up to an additional $48.6 million of the company's common stock. The new authorization represents the maximum permissible amount of share repurchases under our existing debt agreements.
60% of our free cash flow generated during the fourth quarter.
Given the constructive outlook for the year in our view on the intrinsic value of the business. The board of directors has authorized the company to repurchase up to an additional $48 $6 million of the company's common stock.
The new authorization represents the maximum permissible amount of share repurchases under our existing debt agreements.
Quintin V. Kneen: As previously communicated, we will update the repurchase program quarterly based on the utilization of the program and the amount permitted. More broadly, as we think about capital allocation throughout 2024, the share repurchase program will be an important feature of how we allocate our capital. Acquisitions remain a capital allocation priority as we do believe there are viable candidates that can be acquired on an accretive basis that will allow us to leverage our shore-based infrastructure and to take advantage of the economies of scale that the Tidewater platform provides. We will continue to weigh the relative merits of any given acquisition against the value of the share repurchases and pursue the most attractive alternatives.
As previously communicated we will update the repurchase program quarterly based on the utilization of the program and the amount permitted.
More broadly as we think about capital allocation throughout 2020 for the share repurchase program will be an important feature of how we allocate our capital.
Acquisitions remain a capital allocation priority is we do believe there are viable candidates that can be acquired on an accretive basis that will allow us to leverage our shore base infrastructure to take advantage of the economies of scale at the Tidewater platform provides.
We will continue to weigh the relative merits of given any given acquisition against the value of the share repurchases and pursue the most accretive alternative.
Quintin V. Kneen: We remain mindful of our balance sheet, and we want to maintain a clear line of sight to a net cash position within six quarters. Ultimately, our goal is to establish a long-term debt capital structure more appropriate for a cyclical business, and we will act opportunistically to do so as we progress through the year. In summary, we are very pleased with the performance of the business and with our achievements throughout 2023, and we are excited for the opportunities that lie ahead for us in 2024. Our primary objectives for the coming year are geared towards increasing cash flow generation through day rate and utilization expansion and opportunisticallydeploying this cash into the highest value alternatives to drive even higher shareholder returns.
We remain mindful of our balance sheet, and we want to maintain a clear line of sight to a net cash position within.
Six quarters.
Ultimately our goal is to establish a long term debt capital structure more appropriate for a cyclical business and we will act opportunistically to do so as we progress through the year.
In summary, we are very pleased with the performance of the business and with our achievements throughout 2023.
We're excited for the opportunities that lie ahead for us in 2024 or.
Our primary objectives for the coming year are geared towards increasing cash flow generation through day rate and utilization expansion and two operative.
Excuse me up physically deployed this cash into the highest value alternatives to drive even higher shareholder returns.
Quintin V. Kneen: We remain highly confident that the global shortage of vessels, combined with increasing demand from drilling, subsea construction, floating infrastructure, existing production, and offshore wind activities, all combined provide a compelling backdrop to accomplish our financial and operational objectives for 2025. And with that, let me give the call back to Wes for more color on our view of future vessel supply and more commentary on our financial outlook for 2024. Thank you, Quintin.
We remain highly confident that the global shortage of vessels combined with increasing demand from drilling subsea construction floating infrastructure existing production and offshore wind activities. All combined provide a compelling backdrop to accomplish our financial and operational objectives for 2024.
And with that let me give the call back over to Wes for more color on our view of future vessel supply and more commentary on our financial outlook for 2024. Thank you Clinton as we've observed over the past few years.
West Gotcher: As we've observed over the past few years, the recovery in our industry and our business has been largely driven by the limitations of vessel supply. Demand is certainly more constructive than it was during the deaths of the pandemic. Vessel supply has historically been the primary driver of the financial health of our business. As we survey the landscape of future vessel additions, there are multiple factors that give us confidence in our outlook, not only for 2024 but for the intermediate to long-term. First,
And in our industry and our business has been largely driven by the limitations of vessel supply.
Demand is certainly more constructive than it was during the depths of the pandemic.
Vessel supply has historically been the primary driver of the financial health of our business.
As we survey the landscape of future vessel additions there are multiple factors that provide us confidence in our outlook not only for 2024 for the intermediate to long term first.
West Gotcher: The current order book remains at an all-time low, with a minor number of vessels added during 2020, clearly a supportive indicator of limited near-term supply. Second, shipyard capacity remains a fraction of what it once was during the recent peak of shipbuilding capacity in the mid-2000s, with many remaining shipyards out of capacity until at least 2020. This is a particularly relevant data point, the build time to complete an OSV. It's estimated to be between two and three years.
Current order book remains at an all time low with a minor number of vessels added during 2023.
Clearly supportive indicator of limited near term supply additions.
Second shipyard capacity remains a fraction of what it once was during the recent peak of shipbuilding capacity in the mid two thousands with many remaining shipyards out of capacity until at least 2026. This is a particularly relevant data point is the bill times complete in OSB is estimated to be between two and three years.
West Gotcher: The combination of limited shipyard capacity and the lead time to construct a new vessel provides for a significant runway of time before a material number of new vessels could be delivered and hit the water to alter the supply pattern. Additionally, as we look out over the longer term, the aging of the existing fleet of vessels and associated attrition will begin to become a real factor impacting global vessel size. We anticipate that between now and 2035, nearly 1,300 active OSVs, or about 40% of OSVs currently on the water, will age beyond 25, an age at which many vessels have historically reached the end of their economic lives. It is quite possible that some of these vessels will work beyond 25 years. Vessels ultimately do have a finite life.
Combination of limited shipyard capacity and the lead time to construct the new vessel provides a significant runway of time before a material number of newbuild vessels to deliver and hit the water to alter the supply picture.
Additionally, as we look out over the longer term and the aging of the existing fleet of vessels and associated attrition will begin to become a real factor impacting global vessel supply.
We anticipate that between now and 2035, nearly 1300 active OS fees or about 40% of OSB is currently on the water.
Well age beyond 25 years and agent, which many vessels have historically reached the end of their economic lives. It is quite possible that some of these vessels will work beyond 25 years. The vessels ultimately do you have a finite life.
Vessel build quality and maintenance programs over the course of the vessel's life are the primary factors of the ability to extend the useful life of the vessel beyond 25 years.
West Gotcher: Vessel build quality and maintenance programs over the course of a vessel's life are the primary factors of the ability to extend the useful life of a vessel beyond 25 years, given some of the headwinds related to new bills. However, we're confident in the intermediate to long-term supply outlook, providing a tailwind for vessels. Looking forward to 2024, we reiterate our full-year guidance of $1.4 to $1.45 billion of revenue and a 52% gross margin. Our backlog currently sits at about $1.1 billion, with 75% of available vessel days contracted for the year, with our largest classes of PSVs and anchor handlers having the most exposure to contract repricing opportunities throughout the year. We anticipate revenue to increase modestly in the first quarter and to increase each quarter throughout the year, with a meaningful move up in both the second and third quarters, similar to what we saw in 2020. Gross margin is likewise expected to improve every quarter of the year, starting at 45% in Q1 and finishing at 56% in Q4, for an annual average gross margin of 52%. With that, I'll turn the call over to Piers for an overview of the commercial landscape. Thank you, West, and good morning, everyone.
Some of the headwinds related to new builds we're confident in the intermediate to long term supply outlook, providing a tailwind for vessel owners.
Looking forward in 2024, we reiterate our full year guidance of one $4 billion to $145 billion of revenue and a 52% gross margin.
Our backlog currently sits at about $1 1 billion with 75% of available vessel days contracted for the year with our largest classes of PSB is an anchor handlers, having most exposure to contract repricing opportunities throughout the year.
We anticipate revenue to increase modestly in the first quarter and decrease each quarter throughout the year with a meaningful move up in both the second and third quarter similar to what we saw in 2023.
Gross margin is likewise expected to improve every quarter of the year, starting at 45% in Q1, and finishing at 56% in Q4 for an annual average gross margin of 52%.
With that I'll turn the call over to peers for an overview of the commercial landscape.
Thank you Wes and good morning, everyone.
Before I talk about the market and put some acquainted and west comments into a wider global context I wanted to mention that we will be releasing our fourth sustainability report next week.
As reported a global team effort and I would like to take this opportunity to thank everyone within the Tidewater team for their hard work and commitment to helping to put this report together as we continue to showcase to all our stakeholders, our historical as well as our future commitment to sustainability. Please look at the report.
Piers Middleton: Before I talk about the market and put some of Quintin and West's comments into a wider global context, I wanted to mention that we'll be releasing our fourth sustainability report next week. This report is a global team effort, and I would like to take this opportunity to thank everyone within the Tidewater team for their hard work and commitment helping to put this report together, as we continue to showcase to all our stakeholders our historical as well as our future commitment to sustainability. Please look out.
As West is just illustrated limitation on vessel supply has been one of the key determinants, allowing us to drive rate, so dramatically outwards compared to previous industry up cycles over the past few years.
Culminating an all composite Q4, 2023, leading edge day rates, new term contracts ending the year at a very healthy $29511 per day.
But hand in hand with limited supply. We also saw increased demand across all regions and all industry sectors in which we operate and with no sign of any abatement in demand expected through 2020 for the future looks very bright.
Piers Middleton: As West has just illustrated, limitation on vessel supply has been one of the key determinants allowing us to drive rates so dramatically upwards compared to previous industry up-cycles over the past few years, culminating in our CompassFit Q4 2023 Leading Edge Day Rates new term contract, ending the year at a very healthy $29,511 per day. But hand in hand with limited supply, we also saw increased demand across all regions and all industry sectors in which we operate. And with no sign of any abatement in demand expected through 2024, the future looks very bright. In the rig market alone, utilization is expected to hit 96% globally during 2024, and the active rig count is predicted to increase by a further 6% during the year.
And the rig market alone.
<unk> is expected to hit 96% globally during 2024 and the active rig count is predicted to increase by a further 6% during the year.
Over the last few months, we've already seen some clear signs that we can expect 2024 to <unk> to continue to be a strong market for the OSV space.
On the rig side, we saw continued upward momentum on day rates with notably the first drillship day rate over $500000 per day being secured in West Africa threshold term commitment was still a good indicator of where the rig market is expected to go over the next few years in.
In addition, Petrobras open the last public PSV tender in January and for the foreign flag 4500 deadweight class of vessels, which are similar to our 900 square meter class vessels offer levels went from $41222 per day up to 64982.
Piers Middleton: Over the last few months, we've already seen some clear signs that we can expect 2024 to continue to be a strong market for the OSV space. On the rig side, we saw continued upward momentum on day rates, with notably the first drill ship day rate over $500,000 per day being secured in West Africa for a short-term commitment, but still a good indicator of where the rig market is expected to go over the next few years. In addition, Petrobras opened its last public PSV tender in January for the foreign flag 4500 deadweight class of vessels, which are similar to our 900 square meter class of vessels.
<unk> per day with the majority of the boats offered starting with a five.
Ken a very solid early indicator of where the market is expecting day rates for osp's move during the year.
Rather than go through specific regions, which Sam will cover in greater detail I wanted to focus on how surplus of vessels really helped to deliver the $4500 per day improvement that we managed to achieve between Q4 2022 in Q4 2023.
During 2023, we stuck to our short term chartering strategy, allowing us to push day rates and to keep rolling our vessels vessels as quickly as possible onto new contracts and onto higher day rates as well as staying focused on improving contract terms, while new contracts.
Piers Middleton: Offer levels went from $41,222 per day up to $64,982 per day, with the majority of the boats offered starting with a 5. Again, a very solid early indicator of where the market is expecting day rates for OSVs to move during the year. Rather than go through specific regions, which Sam will cover in greater detail, I wanted to focus on how CERT Plus of vessels really helped to deliver the $4,500 per day improvement that we managed to achieve between Q4 2022 and Q4 2023. During 2023, we stuck to our short-term charting strategy, allowing us to push day rates and keep rolling our vessels as quickly as possible onto new contracts and onto higher day rates, as well as staying focused on improving contract terms in our new contracts.
While all vessel classes contributed towards the increases our two largest classes of boats. So the highest rate increases as the year progressed.
900 square meter class PSV jumped from $18500 per day in Q4 2022 to $23000 per day in Q4 of 2023.
And our largest 16000 BHP HTS clauss jumped 6400 $80 per day during the same timeframe with both sources and high demand to support the surge in both the drilling and subsea construction markets.
Whilst our two largest special classes. So the biggest increases in rates. During 2023, we have really started to see some positive impact on day rates on the rest of our fleet.
And particularly on the slightly smaller 800 square meter class of vessels, where we saw leading edge day rates in Q4 getting above $40000 per day levels in certain regions, which is almost in line with leading edge day rates. We've achieved so the biggest sister vessels.
Piers Middleton: While all vessel classes contributed towards the increases, our two largest classes of boats saw the highest rate increases as the year progressed. For example, our plus 900 square meter class of PSV jumped from $18,500 per day in Q4 2022 to $23,000 per day in Q4 2023. And our largest 16,000 BHP AHTS class jumped $6,480 per day during the same timeframe, with both classes in high demand to support the surge in both the drilling and subsidy construction market.
The 2024 and beyond we will of course remain focused and disciplined on continuing to push rates and improving the contract terms that we entered into with our customers to make them more <unk> for both parties are more in line with the realities of the marketplace. We are in today.
Overall as mentioned by Clinton, we're very pleased with how the market continued to move in the right direction. During 2023 and are very positive about how the market will develop during 2024, and then to a sustained period of growth for the OSV space into the foreseeable future.
And with that I'll hand over to Sam Thank you.
Piers Middleton: Whilst our two largest special classes saw the biggest increases in rates during 2023, we have really started to see some positive impact on day rates from the rest of our fleet, and particularly on the slightly smaller 800-square-meter class of vessels where we saw leading-edge day rates in Q4 getting above $40,000 per day levels in certain regions, which is almost in line with the leading-edge day rates we've achieved for the biggest list of us. In 2024 and beyond, we will, of course, remain focused and disciplined on continuing to push rates and improving the contract terms that we enter into with our customers to make them more equitable for both parties and more in line with the realities of the marketplace we are in today. Overall, as mentioned by Quintin, we're very pleased with how the market continued to move in the right direction during 2023 and are very positive about how the market will develop during 2024 and into a sustained period of growth for the OSV space into the foreseeable future. And with that, I'll hand it over to Sam.
Thank you Paris and good morning, everyone.
At this time I would like to take you through our financial results and discuss some key points that make up these results.
I will begin by highlighting the full year activity and then turn to the quarterly consolidated and segment results.
For the year, we generated revenue of 1 billion compared to $648 million in 2022.
An increase of 56%.
The increase in day rates. The addition of the sole set vessels in July and a full year effect of this wire fleet were the main drivers to the revenue increase.
Gross margin for the year was $449 1 million compared to $248 3 million in 2022 and.
On slide 23, our net income was $97 2 million compared to a net loss of $21 7 million in 2022.
Operationally average day rates improved more than $4000 per day for the full year and gross margin increased by six percentage points year over year.
Adjusted EBITDA was $386 7 million for 2023 compared to $166 7 million in 2022, an increase of approximately 132%.
Samuel R. Rubio: Thank you. Thank you. Thank you.
Samuel R. Rubio: Thank you, Piers, and good morning, everyone. At this time, I would like to take you through our financial results and discuss some key points that make up these results. I will begin by highlighting the full year's activity and then turn to the quarterly consolidated and segment results. For the year, we generated revenue of $1 billion compared to $648 million in 2022, an increase of 56%. The increase in day rates, the addition of the Solsat vessels in July, and a full-year effect of the Swire fleet were the main drivers of the revenue increase. Gross margin for the year was $449.1 million, compared to $248.3 million in 2022. In 2023, our net income was $97.2 million, compared to a net loss of $21.7 million in 2022.
We also generated $111 3 million of free cash flow, an increase of $60 8 million or 120% from 2022.
We ended the year with a $35 million buyback of 590499 shares of our common stock at an average price of $59 in 2009.
2023 was a breakout year and we're pleased to report to success we achieved.
I would now like to turn our attention to the quarter as in the past my discussion will focus on the sequential quarterly results for the fourth quarter. We reported net income of $37 7 million or <unk> 70 per diluted share compared to net income or <unk> 26, net income $26 2 million or <unk> 49 per diluted.
Sure for the third quarter.
Our revenue for the fourth quarter was $302 7 million up $3 4 million for the third quarter revenue of $2 $99 3 million.
The increase resulted primarily from an increase in average day rates. In addition, we also had the full quarter effect of the <unk> acquisition that contributed five additional days of revenue.
Samuel R. Rubio: Operationally, average day rates improved by more than $4,000 per day for the full year, and gross margin increased by 6 percentage points year over year. Adjusted EBITDA was $386.7 million for 2023 compared to $166.7 million in 2022, an increase of approximately 132 percent. We also generated $111.3 million of free cash flow, an increase of $60.8 million, or 120% from 2022. We ended the year with a $35 million buyback of 590,499 shares of our common stock at an average price of $59.29.
Average day rates increased 1% from 17865 per day in the third quarter to $18 66 per day in the fourth quarter.
Active utilization increased marginally to 82, 4% compared to 82, 1% in Q3.
Gross margin percentage for Q4 increased to 47, 2% up from 44, 7% in Q3 due in part by the increase in revenue coupled with a decrease in operating costs.
Of note Q4, 'twenty three gross margin was nearly 10 percentage points higher than Q4 2022.
Operating costs for the quarter were $159 9 million a decrease of $5 8 million from Q3, principally driven by lower repair cost and lower fuel costs as we mobilized fuel fewer vessels in the quarter.
Samuel R. Rubio: 2023 was a breakout year, and we're pleased to report the success we achieved. I would now like to turn our attention to the quarter, and as in the past, my discussion will focus on the sequential quarterly results. For the fourth quarter, we reported net income of $37.7 million, or $0.70 per diluted share, compared to net income of $26.2 million, or $0.49 per diluted share, for the third quarter.
In addition costs associated with the sole set acquisition integration decreased as we quickly transitioned the vessels and to Tidewater management.
As a result, our vessel operating cost per day declined three 1% to seven $8 94 per day in.
In Q4 compared to 8148 per day in Q3.
We sold four vessels during the fourth quarter for net proceeds of $5 9 million and recorded a net gain of $4 2 million on the sale of these vessels.
Samuel R. Rubio: Our revenue for the fourth quarter was $302.7 million, up $3.4 million from the third quarter revenue of $299.3 million. The increase resulted primarily from an increase in average day rates. In addition, we also had the full quarter effect of the Solsthead acquisition that contributed five additional days of revenue. Average day rates increased 1% from $17,865 per day in the third quarter to $18,066 per day in the fourth quarter.
We generated operating income of $63 1 million for the quarter compared to $55 7 million in Q3. The increase is due to several positive factors, including higher revenue the decline in operating costs and an increase in gain on sale of assets offset slightly by higher G&A expense.
G&A expense for the quarter was $24 7 million $3 7 million higher than Q3, resulting mainly from personnel cost adjustments.
For the year, our total G&A costs was $95 3 million, which is $6 $6 million less than 2022, primarily due to higher transaction costs incurred related to this wire acquisition.
Samuel R. Rubio: Active utilization increased marginally to 82.4% compared to 82.1% in Q3. Gross margin percentage for Q4 increased to 47.2%, up from 44.7% in Q3, due in part to an increase in revenue, coupled with a decrease in operating costs. Of note, Q4'23 gross margin was nearly 10 percentage points higher than Q4'2022. Operating costs for the quarter were $159.9 million, a decrease of $5.8 million from Q3, principally driven by lower repair costs and lower fuel costs as we mobilized fewer vessels in the quarter. In addition, costs associated with the Solstead acquisition integration decreased as we quickly transitioned the vessels into tidewater management.
For 2024, we are projecting our G&A cost to be $104 million of which $13 6 million is related to noncash stock compensation.
In the quarter, we incurred $24 1 million of deferred drydock costs slightly higher than our projected amount due in part to delay drydocks and timing of projects.
In the quarter, we incurred 1056, dry dock days, which affected utilization by 5%.
Full year, we incurred $3 386, Drydock days effect effective utilization by four 6% and incurred costs of 97 4 million.
Right.
For 2024 is expected to be approximately $127 million.
Samuel R. Rubio: As a result, our vessel operating costs per day declined 3.1% to $7,894 per day in Q4 compared to $8,148 per day in Q3. We sold four vessels during the fourth quarter for net proceeds of $5.9 million, and we recorded a net gain of $4.2 million on the sale of these vessels. We generated operating income of $63.1 million for the quarter compared to $55.7 million in Q3. The increase is due to several positive factors, including higher revenue, a decline in operating costs, and an increase in gain on the sale of assets, offset slightly by higher G&A. G&A expense for the quarter was $24.7 million, $3.7 million higher than Q3, resulting mainly from personnel cost adjustments.
In Q4, we also incurred about $8 4 million in capital expenditures related to Newbuild vessels vessel modification and upgrades for.
For the full year, we incurred $31 6 million in capital expenditures and we expect to incur approximately $21 million in 2024.
We generated $61 million of free cash flow this quarter, which more than doubled to Q3 amount driven by strong cash flow from operating activities. In 2024, we do expect to continue to invest in working capital as revenue continues to grow. However, we will continue to manage this as tightly as possible.
During the fourth quarter, we sold the last remaining vessel from assets held for sale effectively ending the program.
Okay.
I would now like to focus on the performance of the regions. Our Americas region reported operating profit of $16 2 million for the quarter compared to $12 6 million in Q3.
Samuel R. Rubio: For the year, our total G&A cost was $95.3 million, which is $6.6 million less than in 2022, primarily due to higher transaction costs incurred related to the SWIR acquisition. For 2024, we are projecting our GNA costs to be $104 million, of which $13.6 million is related to non-cash stock compensation. In the quarter, we incurred $24.1 million of deferred dry dock costs, slightly higher than our projected amount due in part to delayed dry docks and timing of projects. In the quarter, we incurred 1,056 stride-out days, which affected utilization by 5%.
The region reported revenue of $68 4 million in Q4 compared to $70 7 million in Q3.
The region operated 37 average vessels in both quarters day rates increased four 4% to $24 $5 24 per day in Q4 from 23495 per day in Q3.
However, active utilization for the quarter was down to 81% from 86, 3% in prior quarter.
The improvement in operating profit was due primarily to a decrease in operating costs, resulting from reduced crew costs, lower repair and maintenance costs and lower <unk> integration costs.
For the fourth quarter, the Asia Pacific Region reported an operating profit of $11 3 million compared to $14 6 million in Q3.
<unk> reported revenue of $38 6 million in the fourth quarter compared to $39 million in the prior quarter. The region operated 19 average vessels, which was up one vessel compared to Q3.
Samuel R. Rubio: For the full year, we incurred 3,386 dry dock days which affected utilization by 4.6% and incurred a cost of $97.4 million. Dry dock cost for 2024 is expected to be approximately $127 million. In Q4, we also incurred about $8.4 million in capital expenditures related to new vessels, vessel modification, and IT upgrades. For the full year, we incurred $31.6 million in capital expenditures, and we expect to incur approximately $21 million in 2024. We generated $61 million of free cash flow this quarter, which more than doubled the Q3 amount, driven by strong cash flow from operating activities. In 2024, we do expect to continue to invest in working capital as revenue continues to grow. However, we will continue to manage this as tightly as possible.
Day rates declined slightly to $25 $3 78 per day in Q4 compared to 25867 per day in Q3, and active utilization decreased to 86, 6% in the quarter compared to 91, 3% in Q3.
The decrease in operating profit was due in part to a softer spot spot market, which decreased revenue slightly.
And higher operating costs due to the mix of vessels working in Australia, which has a higher cost structure.
For the fourth quarter, the Middle East reported an operating profit of $2 1 million compared to an operating loss of $1 1 million in Q3.
Revenue increased almost 10% in the region to $38 1 million in the fourth quarter compared to $34 $1 million in prior quarter.
The region operate at 45 vessels in both quarters day rates increased marginally to 10855 per day in Q4 compared to $10 $5 44 per day in Q3.
Higher active utilization increased substantially to 85, 6% in Q4 from 79, 8% in Q3.
As we had less vessels mobilizing in the quarter.
Samuel R. Rubio: During the fourth quarter, we sold the last remaining vessel from assets held for sale, effectively ending the program. I would now like to focus on the performance of the regions. Our Americas region reported operating profit of $16.2 million for the quarter, compared to $12.6 million in Q3. The region reported revenue of $68.4 million in Q4 compared to $70.7 million in Q3. The region operated 37 average vessels in both quarters. Day rates increased 4.4% to 24,524 per day in Q4, from 23,495 per day in Q3. However, active utilization for the quarter was down to 81% from 86.3% in the prior quarter. The improvement in operating profit was due primarily to a decrease in operating costs resulting from reduced crew costs, lower repair and maintenance costs, and lower solsthat integration costs. For the fourth quarter, the Asia-Pacific region reported an operating profit of $11.3 million compared to $14.6 million in Q3.
The increase in operating income was due primarily to higher revenue coupled with lower operating cost mainly fuel expense associated with the lower upper mobilization days.
Our Europe and mentoring region operate reported operating profit of $13 8 million in Q4 compared to $9 6 million in Q3.
Revenue increased to $80 7 million compared to $78 9 million in Q3, driven mainly by the full quarter effect of the Sol side vessels.
The region operate at 51 vessels in the quarter, which was an increase of one vessel from Q3.
We saw a small decline in dayrates to $19 61 per day compared to 19105 per day in Q3, and active utilization increased marginally to 89%.
Compared to 88, 8% in Q3.
The increase in operating profit for the quarter was mainly driven by higher revenue coupled with lower operating costs as we saw integration costs decrease as we transition most of the sole set vessels into our system by the end of November.
Our West Africa region reported operating profit of $27 4 million in Q4 compared to $28 4 million in Q3.
Samuel R. Rubio: The region reported revenue of $38.6 million in the fourth quarter compared to $39 million in the prior quarter. The region operated 19 average vessels, which was up one vessel compared to Q3. Day rates declined slightly to $25,378 per day in Q4 compared to $25,867 per day in Q3. And active utilization decreased to 86.6% in the quarter compared to 91.3% in Q3. The decrease in operating profit was due in part to a softer spot market, which decreased revenue slightly, and higher operating costs due to the mix of vessels working in Australia, which has a higher cost structure. For the fourth quarter, the Middle East reported an operating profit of $2.1 million compared to an operating loss of $1.1 million in Q3.
The market in this area continues to remain strong as revenue continues to maintain its upward trend.
Revenue for Q4 was $74 6 million compared to $73 7 million in Q3.
The region operate at 67 vessels down two vessels from Q3 <unk>.
Day rates increased by 4% to $16 $3 56 per day in Q4 from 15772 per day in Q3 and active utilization also increased to 74, 8% in Q4 from 73, 9% in Q3.
The decrease in operating profit from Q3 resulted mainly from higher dry dock amortization costs.
In summary, we were pleased with our Q4 results Q4 results have typically been below Q3, but this quarter growth pace seasonality.
Finally, I do want to thank our teams for the successful integration of the <unk> vessels into our business and systems. This was a lot of hard work, but we have we have a talented and dedicated group of individuals.
And the last two years, we have successfully integrated two significant acquisitions as we continue to grow our business. We're pleased to see continued increases in revenue driven by our acquisitions and the higher demand.
Samuel R. Rubio: Revenue increased almost 10% in the region to $38.1 million in the fourth quarter compared to $34.1 million in the prior quarter. The region operated 45 vessels in both quarters. Day rates increased marginally to 10,855 per day in Q4, compared to 10,544 per day in Q3. However, higher active utilization increased substantially to 85.6% in Q4 and 79.8% in Q3, as we had fewer vessels mobilizing in the quarter. The increase in operating income was due primarily to higher revenue coupled with lower operating costs, mainly fuel expense associated with the lower mobilization days. Our Europe and Mediterranean region reported an operating profit of $13.8 million in Q4, compared to $9.6 million in Q3.
We're excited about what we see developing for 2024 and beyond with that I'll turn it back over to quit.
Thank you Sam.
24 will be a year dedicated to solid execution.
We led the industry in reducing capacity during the downturn by disposing of more than 220 older vessels we.
We have led the industry by doing major acquisitions as the industry has begun to recover.
And we will lead the industry in setting the standard for capital discipline.
And with that Monte we will open it up for questions.
The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.
We will now take a moment to compile a roster.
Okay.
Our first question comes from the line of Fredrik Stene with Clarksons <unk> Securities. Please go ahead.
Okay, Great and then on team.
Samuel R. Rubio: Revenue increased to $80.7 million, compared to $78.9 million in Q3, driven mainly by the full quarter effect of the Solstad Vespa. The region operated 51 vessels in a quarter, which was an increase of one vessel from Q3, and saw a small decline in day rates to 19,061 per day compared to 19,105 per day in Q3. And active utilization increased marginally to 89%, compared to 88.8% in Q3. The increase in operating profit for the quarter was mainly driven by higher revenue coupled with lower operating costs, as we saw integration costs decrease as we transitioned most of the Solstat vessels into our system by the end of November. Our West Africa region reported an operating profit of $27.4 million in Q4 compared to $28.4 million in Q3.
Hope all is well and thank you for taking my question.
Two questions actually.
First.
We are today reiterating guidance for the year and I think that.
At least in their recent report you say that.
The gross margin.
First it was the highest in 15 years now this fourth quarter do you expect it to be around.
<unk>, 6% in a year's time or the fourth quarter ending the year around that that number. So I was thinking or are you able to give.
Some more color on how you see that.
Developing through the year should we think about things in a linear earliest so about you end up with 52%.
For the year as a whole oriented will there be some seasonality or other factors that would comment to play to kind of skew towards.
Some period more than others.
That's the first one.
Okay well. Thank you for your question good to have you on the call today.
Samuel R. Rubio: The market in this area continues to remain strong as revenue continues to maintain its upward trend. Revenue for Q4 was $74.6 million compared to $73.7 million in Q3. The region operated 67 vessels, down 2 vessels from Q3. Day rates increased by 4% to $16,356 per day in Q4, from $15,772 per day in Q3, and active utilization also increased to 74.8% in Q4, from 73.9% in Q3. The decrease in operating profit from Q3 resulted mainly from higher dry dock amortization costs.
I'll take the first stab at it but west is a a lot of work on loan the forecasting so I'll turn it over to him for additional color.
There will be the typical growth through the year.
What we've seen in the last couple of years and in fact, I think we saw it in Q4 as well is that the growth in the business is outstripping the typical seasonality.
Q4 is usually Q1 is usually a little bit lighter than you guys.
The stronger Q2, and a really strong Q3 is generally at the seasonality that we've experienced throughout the cycles.
The industry has re emerged.
From the downturn.
The growth in <unk>.
The races without stripping that seasonality I think we will see some of that so so I do expect that we're going to see Q1 above Q4 and I.
Samuel R. Rubio: In summary, we were pleased with our Q4 results. Q4 results have typically been below Q3, but this quarter, growth, and pace of growth were all up. Finally, I do want to thank our teams for the successful integration of the Solstack vessels into our business and systems. This was a lot of hard work, but we have a talented and dedicated group of individuals.
We do expect that we're going to see significant step ups in Q2 and Q3.
And then I think Q4 will be similar to what we saw this year, which is up with maybe just a slide over as opposed to a significant movement so growth throughout the year.
Obviously, our margins will be improving throughout the year as those day rates improve so the day rate improvements that we're going to see that's driving those revenue increases, especially in Q2 and Q3 are going to drive the margin improvement for the year, but but yes, certainly certainly.
Samuel R. Rubio: In the last two years, we have successfully integrated two significant acquisitions as we continue to grow our business. We're pleased to see continued increases in revenue driven by our acquisitions and higher demand. We're excited about what we see developing for 2024 and beyond. With that, I'll turn it back over to Quintin. Thank you, Sam. 2024 will be a year dedicated to solid execution. We led the industry in reducing capacity during the downturn by disposing of more than 220 older vests.
Averaging 52% for the year.
Yes.
Yes, thank you very much.
Second.
You have been.
Sustained leading the way in terms of.
M&A.
Two major transactions in the last couple of years.
You say that you would.
Quintin V. Kneen: We have led the industry by doing major acquisitions as the industry has begun to recover, and we will lead the industry in setting the standard for capital. And with that, Monteith, we will open it up for questions. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.
<unk> capital returns.
Against.
Potential.
Acquisitions also in the future are there any.
Hi.
Minimum sizes for transactions.
Specific regions that you would like to target the EPC work again.
More M&A.
And we're particularly with regard to grow thanks.
Well, we certainly focused.
Operator: We'll now take a moment to compile our raw data. Our first question comes from the line of Fredrik Stene with Clarkson Securities. Please go ahead. J. Quintin and team, thank you for taking my questions, or two questions, actually. First,
On fleet are.
Probably more than 15 to 20.
And our analysis just because.
That helps move the needle.
With a fleet of 220 vessels.
I'm not against doing.
Five and six vessel acquisitions, but we just get more bang for our Buck with bolt was a larger transactions.
Quintin V. Kneen: You are today reiterating guidance for the year, and I think that, at least in the written report, you say that the gross margin, first, was the highest in 15 years, now this fourth quarter, but that you expect it to be around 56% in a year's time or the fourth quarter, ending the year around that number. So I was thinking, are you able to give some more color on how you see that developing through the year? Should we think about it, you know, linearly, so that you end up with 52% for the year as a whole, or will there be some seasonality or other factors that would come into play to kind of skew it? Some periods are more pleasant than others.
<unk> focused recently in the U S Gulf of Mexico, and in Brazil, but I'm not averse to.
So picking up vessels anywhere around the world, but those are the two areas, where our fuel that were a little light and if I could find the good opportunity in those geographies I would probably prioritize those.
Very helpful. Thank you so much I'll rejoin the queue. Thanks and good luck. Thank you.
Our next question comes from the line of Conor Jansen with Raymond James. Please go ahead.
Hey, guys. Thanks for taking my call today.
Certainly.
So another solid quarter of growth in the leading edge day rates up another $900 are there any particular classes of vessels or regions driving the leading edge growth or something you expect to be particularly strong in 2024.
Quintin V. Kneen: Thanks. Okay. Well, thank you for your question. It's good to have you on the call today.
Quintin V. Kneen: I'll take the first stab at it, but Wes has done a lot of work on the forecasting, so I'll turn it over to him for additional color. But there will be typical growth through the year. What we've seen in the last couple of years, and in fact, I think we saw it in Q4 as well, is that growth in the business is outstripping the typical seasonality. You know, Q4 is usually light, Q1 is usually a little bit lighter, and then you've got a stronger Q2 and a really strong Q3.
Hi.
<unk> pay has behaved.
I think as we sort of said.
We are very positive for 2024.
I think we will still continue to see the biggest loss of ships. The larger PSV is an anchor handlers driving.
The growth in terms of areas and regions.
Everyone looks.
Pretty positive I mean, obviously with the vessels that.
Quintin V. Kneen: That's generally the seasonality that we've experienced throughout the cycles. However, as the industry has reemerged from the downturn, the growth in day rates has been outstripping that seasonality, and I think we'll see some of that. So I do expect that we're going to see Q1 above Q4. And I do expect that we're going to see significant step-ups in Q2 and Q3. And then I think Q4 will be similar to what we saw this year, which is, you know, up, but maybe just a slide over as opposed to a significant movement up. So, growth throughout the year.
Those class of vessels tend to work is Africa and the Americas.
Turning to business driving driving areas, but also down in Asia Pac as well looks looks very positive as well. So we don't see any slowdown anyway, but we expect the larger class of vessels to really continue to drive the market with the other other ships following behind.
Okay.
Got it great and then just lastly is there any update on the down for a paradigm this quarter versus <unk> is that still elevated or is this kind of returning back to the historical levels.
Quintin V. Kneen: Obviously, you know, margins will be improving throughout the year as those day rates improve. So the day rate improvements that we're going to see that are driving those revenue increases, and especially in Q2 and Q3, are going to drive the margin improvement for the year. But certainly, certainly averaging 52% for the year.
Hi, This is Sam so the DAU for repair days in Q4 compared to Q3.
Okay.
They were still.
Pretty much equal or maybe a little lower than Q3.
But you didn't you didn't see the.
Fredrik Stene: Thank you very much. You have been, as you say, leading the way in terms of M&A. Jess Richards, elected caucus of the George Washington administration, the way capital returns again, pensioner acquisitions also in the future, are there any, Spices, there are minimum spices for concoction, https://www.kenhub.com and anywhere particularly you would like to grow. Well, we certainly focus on tweets that are... probably more than 15 to 20 in our analysis, just because that just helps move the needle with a fleet of 2 I'm not against doing five and six vessel acquisitions, but we just get more bang for our buck with a larger transaction. I've been focused recently on the U.S., the Gulf of Mexico, and Brazil, but I'm not averse to picking up vessels anywhere around the world. But those are the two areas where I feel that we're a little light, and if I could find a good opportunity in those geographies, I would probably prioritize those. Very helpful. Thank you so much. I'll rejoin the queue now. Have a good night!
The impact dollar wise I mean, they were smaller repairs, but I mean, the days, where we're still.
Slightly elevated from from the Q3 about.
Okay.
Got it thanks, guys I'll turn it back.
Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.
Hey, good morning.
Congratulations on a phenomenal phenomenal year. Thank you for taking my question.
Certainly Jason.
So one of the themes for the offshore rig market has been extending contract lead times.
Curious what youre seeing on that front right. So if an operator assigns a drillship to start working on April 25.
Are they looking to sign vessel support two or is that something that will just worry about later.
Yes, Hi, David payers again.
Some of them.
I mean, we're seeing obviously.
Our operators are customers looking to fix that for the rigs I would say I think I've mentioned this on the last call. We tend to still see de Levered, a little bit late for us, which works on vantage in many ways because it tightens up the market because we can go slightly shorter but know with certainly a few.
Operator: Thank you. Our next question comes from a line of Connor Jensen with Raymond James; please go ahead. Hey guys, thanks for taking my call today. Certainly. So another solid quarter of growth in the leading edge day rates of another $900. Are there any particular classes of vessels or regions driving the leading edge growth or something you expect to be particularly strong in 2024? Hi Conor, it's Piers here.
Some of the move forward thinking customers, who are starting to realize that.
A lack of supply on the larger.
Platform supply vessels in particular.
Piers Middleton: I mean, I think, as we sort of said, we're, you know, very positive about 2024. I think we'll still continue to see the bigger classes of ships, the larger PSVs, and anchor handlers driving the growth. In terms of areas and regions, everywhere looks pretty positive.
So coming to talk to us a little bit, but no generally they haven't the majority haven't really quarter on still so that works on vantage. So we're able to come in and pushed the rates but no.
<unk>.
The focus tends to be on the rigs on the boats in the middle of it.
Piers Middleton: I mean, obviously, where the vessels that... Both classes of vessels tend to work as Africa and the Americas tend to be the sort of driving areas, but also down in Asia Pac as well looks very positive as well. So we don't see any slowdown anywhere, but we expect the larger class of vessels to really continue to drive the market, with the other ships following behind. Got it, great. Then just lastly, is there any update on the downtime for repair time this quarter versus 3Q? Is that still elevated, or is this kind of returning back to the historical level? Hi, this is Sam. So the downfall repair days in Q4 compared to Q3, They, um... They were still standing.
Appreciate that and sorry, if I missed it but regarding the leading edge rate is that kind of the same framework given on prior quarters.
Average rate of new contracts signed represent again about the fleet mix and any color on average duration.
Okay.
Yes, that's correct and the average duration on last quarter was nine months.
On contracts.
On the new contracts signed.
Perfect I'll circle back in the queue. Thank you.
Our next question comes from the line of Fredrik Stene with Clarksons <unk> Securities. Please go ahead.
Yes.
Hello again.
One thing I wanted to circle.
Circle back on.
You mentioned in your prepared remarks about.
Samuel R. Rubio: Pretty much equal, maybe a little lower than Q3, but you didn't, you didn't see the impact, dollar-wise. I mean, they were small repairs, but the days were still slightly elevated from the Q3 impact. Got it. Thanks, guys. I'll turn it back. Our next question comes from David Smith with Pickering Energy Partners. Please go ahead. Hey, good morning.
I think as with us.
About the fleet.
Being older and older.
Fair amounts.
Actually I think that quantified.
Are called limits.
Over the next 10 Hcr's.
Are you currently in what I would consider a very strong market already.
Operator: Congratulations on a phenomenal, phenomenal year. Thank you for taking my question. Certainly, so one of the themes for the offshore rig market has been extending contract lead times. I'm curious what you're seeing on that front, right? So if an operator signs a drill ship to start working on April 25, are they looking to find vessel support too? Or is that something they'll just worry about later? Yeah, hi David. It's Piers again.
Seeing that operators are changing there.
Requirement or are they having less stringent requirement today in terms of age cruise flagged again, depending on region compared to what they have before just because they're in a situation where we're securing vessels.
Hard at least periodically or are they still falling.
Preferences that they might have had historically.
Strictly.
Thanks.
Hi, Fredric as payers again.
There is definitely some relaxation towards.
Piers Middleton: I mean, obviously, our operators or our customers are looking to fix out for the rigs. I would say, I think I might have mentioned this on the last call, we tend to still see they leave a little bit late for us, which works to our advantage in many ways because it tightens up the market because we can go slightly shorter. But no, there's certainly a few of the more forward-thinking customers who are starting to realize that there's a lack of supply on the larger platform supply vessels in particular. So, they're coming to talk to us a little bit, but no, generally, the majority haven't really caught on yet, so that works to our advantage, so we're able to come in and push the rates.
H.
But with that comes the expectation of our customers is they want to work with a tier one operator, who can.
Operate safely and has a.
Some control of the supply chain and maintenance and all that side and there is not a huge amount of our competitors, perhaps you have that sort of.
Strength that we have so it comes as a sort of two fold discussion that they now they have no choice, but to relax a little bit on some of the age requirements, but with that comes a lot of other.
Expectations from the customer base that they expect to be supported by a tier one operator like tidewater so.
Piers Middleton: But no, the focus tends to be on the rigs rather than on the boats. I still appreciate that. And sorry, sorry if I missed it. But regarding the leading edge rate, is that kind of the same framework given in prior quarters, right? That's the average rate of new contracts signed representative of the fleet mix, and any color on average duration? Yes, that's correct, and the average duration of last quarter was nine months on contracts, on new contracts.
Yes, there is some.
Relaxation.
I really have no choice on that and some customers have.
A more relaxed and others.
Yes.
Just a quick follow up on that.
Super helpful.
Four.
Let's say that you and.
Some competitors have.
Right, sorry, even within a range.
But the vessel.
Amit on the old side compared to what an operator wins prefer our U S.
Piers Middleton: Perfect. I'll circle back in the queue. Thank you. Our next question comes from the line of Fredrik Stene with Clarkson Securities. Please go ahead.
With the Tidewater system backing that been able to actually get.
Fredrik Stene: Hello again. One thing I wanted to circle back on. You mentioned in your prepared remarks, or I think it was you about the fleet, being older and older, and fair amounts actually hitting that 25-year COVID limit over the next 10-ish years. Are you currently in what I would consider a very strong market already?
Okay.
Get the preference for the contract and also maybe a premium on that contract versus <unk>.
Less trustworthy.
The owner would get from a stimulant vessel just because you are part of the system that is a part of.
I sincerely hope so yes.
Piers Middleton: I see that operators are, you know, changing their requirements. Are they having less stringent requirements today in terms of age, crews, flags, again, depending on the region, compared to what they had before, just because they're in a situation where we're securing vessels at least periodically, or are they still following, you know, preferences that they might have had historically? No. Hi Fredrik, it's Piers again. There's definitely some relaxation towards age.
You pay for a quality, operator, like Tidewater and we charge appropriately.
Super. Thank you so much again for taking a round two of.
Questions I wish you all a good weekend when that time comes.
Thanks.
Yes.
Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.
Hey, I had that same question, but I'll ask one more thanks for letting me background. So I really appreciate the commentary about the constraints for certain vessel supply and.
Piers Middleton: But with that comes, you know, the expectation of our customers is they want to work with a tier one operator who can operate safely and has a, you know, some control of its supply chain and maintenance and all that side. And there's not a huge amount of our competitors, perhaps, who have that sort of, strength that we have so it comes as a sort of two-fold discussion that they know they have no choice but to relax a little bit on some of their age requirements but with that comes a lot of other expectations from the customer base that they expect to be supported by a tier one operator like Tidewater so yeah there is some relaxation and but they don't really have much choice on that and some customers have a more relaxed than others but yeah, Just a quick follow-up on that, that's super helpful, Piers, for Let's say that you and, some competitor have a Vestal that's a bit on the old side compared to what an operator would prefer, with the Tidewater system backing that bid able to actually get You know get the preference for the contract and also maybe a premium on that contract versus what the less trustworthy Less loaner we would get on a stimular vessel just because you are part of the system that you're part of, I sincerely hope so, yes. You know, you pay for a quality operator like Tidewater, so we charge appropriately. Super. Thank you so much again for taking round two, for questions. I wish you all a good weekend. Our next question comes from a line of David Smith with Pickering Energy Partners. Please go ahead.
Just thinking about other angles to address growing demand when when we were looking through the list of laid up vessels across the industry. One thing that struck me was a large number of vessels that it looked like they were owned by entities that we can't tell our active vessel managers and maybe that data is wrong or I'm missing something but I'm curious if you've seen any.
Notable on the vessel M&A front.
We have laid up vessels being acquired by active managers looking to grow their fleets.
Hi, it's because again no we haven't.
Most of the.
Viable acquisitions that.
In one chip type of deals were done probably.
And so the 2022.
People picking up vessels viewers.
Is that what's stacked and laid out today has been therefore.
Five plus years and is basically obsolete.
Coming back into the marketplace.
One or two I'm sure will make them make their way back but the majority of what you see start to laid out. This has been there for a long long time, and it's going to be very very difficult to bring those ships back out into the marketplace.
Perfect.
That's all from me thank you.
Our next question comes from the line of Don Crist with Johnson Rice. Please go ahead.
Operator: Hey, I had that same question, but I'll ask one more. Thanks for letting me come back. So, I really appreciate the commentary about the constraints on new vessel supply and just thinking about other angles to address, you know, growing demand. When we were looking through the list of, you know, laid-up vessels across the industry, one thing that struck me was a large number of vessels that looked like they were owned by entities that, you know, we can't tell are active vessel managers. And maybe that data is wrong or I'm missing something, but I' Hi, it's Piers again.
Good morning, gentlemen, just one balance sheet question for me a lot of the topics have been covered but as we look at free cash flow allocation should we say.
Our model some debt repayment in that or would you rather just build cash and kind of leave that debt on the balance sheet.
As you search for M&A and other kind of uses for that free cash flow.
Hi, Don when the free the debt as I guess amortized.
On the balance sheet, but as far as free cash flow their free cash flow we reported.
Unlevered.
But yes, we do have some amortization running through the debt.
For 2024.
Piers Middleton: No, we haven't really I mean, most of the viable acquisitions and one ship type of deals were done probably in sort of 2022 by people picking up vessels. But our view is that what's stacked and laid up today has been there for 5 plus years and is basically obsolete and won't be coming back into the marketplace. One or two, I'm sure, will make their way back, but the majority of what you see stacked and laid up has been there for a long, long time, and it's going to be very, very difficult to bring those ships back into the marketplace.
But in general I don't see a need to delever. So it's certainly not a priority.
About the capital allocation waterfall.
I, certainly would like to find value accretive acquisitions.
And we will continue to look for solid opportunities.
But.
Right now I'm real comfortable with the leverage of the business, especially where we're at in the cycle.
The only thing I would probably change on the debt capital slide would be.
<unk> a little bit longer.
My hope is that the capital markets in the U S will be.
Piers Middleton: Perfect. That's all for me, thank you. Our next question comes from the line of Don Crist with Johnson Rice. Please go ahead. Morning, gentlemen.
The constructive during 'twenty 'twenty, four and we'll be able to do some of that.
But we do have the same stated some principal amortization, but that's a requirement under the debt agreements and certainly not anything that we would electric.
Operator: Just one balance sheet question for me. A lot of other topics have been covered. But as we look at free cash flow allocation, should we think about or model some debt repayment in that, or would you rather just build cash and kind of leave that debt on the balance sheet as you search for M&A and other uses for that free cash? Hi, Don.
Okay.
And as far as size of M&A are you.
I guess, you're not really limited is too.
Quintin V. Kneen: The debt is, I guess, amortized on the balance sheet, but as far as free cash flow, you know, the free cash flow we've reported is, I'm Levered. But yeah, we do have some amortizations running through the debt for 2020. But in general, I don't see a need to deliver. So, you know, it's certainly not a priority.
A certain dollar amount but.
Is there a size that you would target would you.
Target five boats in the Americas, or something like that or would it be a much bigger deal than that.
We generally prefer bigger deals.
But.
Quintin V. Kneen: As I think about the capital allocation waterfall, I certainly would like to find value in creative acquisitions, and we'll continue to look for solid opportunities. But right now, I'm really comfortable with the leverage of the business, especially where we're at in the cycle. The only thing I would probably change on the debt capital side would be just maturing out the debt a little bit longer, and my hope is that the capital markets in the U.S. will be constructive during 2024, and we'll be able to do some of that. But we do have, as Sam stated, some principal amortization, but that's a requirement under the debt agreements and certainly not anything that we would elect to do.
If we can't find bigger deals we are doing smaller deals is certainly acceptable very often with the same amount of work to do 10 bodes us between 40 votes of midstream.
Sure.
Comparable quality of fleet, but a larger number of vessels I would definitely do that.
Facts and circumstances will pick David I'm not against it but I have been focused on larger fleets over the past few years.
I appreciate all color I'll turn it back thanks.
There are no further questions at this time. This concludes today's call you may now disconnect.
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Yes.
Yes.
Okay.
Quintin V. Kneen: Okay. And as far as the size of the M&A, I guess you're not really limited as to, you know, a certain dollar amount, but is there a size that you would target? Would you, you know, target five boats in the Americas or something like that? Or would it be a much bigger deal than that? We generally prefer bigger deals, but, you know, if we can't find bigger deals, doing smaller deals is certainly acceptable. Very often, it's the same amount of work to do 10 boats as it is to do 40 boats, and if you can get, you know, a comparable quality of fleet but a larger number of vessels, I would definitely do that. But facts and circumstances will dictate it. I'm not against it, but I have been... focused on larger fleets over the past few years.
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Okay.
Okay.
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Okay.
Donald Peter Crist: I appreciate it all the color. I'll turn it back. Thank you. There are no further questions at this time. This concludes today's call. You may now disconnect. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?
Yes.
Thank you.