Q2 2024 Tidewater Inc Earnings Call

Thank you for standing by. My name is Mandeep and I'll be your operator today. At this time, I'd like to welcome everyone to the Tidewater Q2 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Operator: At this time, I'd like to welcome everyone to the Tidewater Q2 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there'll be a question-and-answer session. We'd like to ask the question during this time; simply press star followed by the number one on their telephone key path. If you'd like to withdraw your question, press star one again. Thank you.

West Gotcher: I would now like to turn the call over to West Gotcher, Senior Vice President of Strategy, Corporate Development, and Investor Relations. You may begin.

Operator: I would now like to turn the call over to West Gotcher, Senior Vice President of Strategy, Corporate Development, and Investor Relations.

West Gotcher: Thank you, Monday. Good morning, everyone, and welcome to Tidewater's second quarter 2024 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.

Unnamed Speaker: During today's call, we'll make certain statements that are forward-looking, referring to our plans and expectations. Also, during the call, we'll present both GAAP and non-GAAP financial results. And now, with that, I'll turn the call over to Quint.

West Gotcher: During today's call, we'll make certain statements that are forward-looking, 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 today's conference call. Please refer to our most recent Form 10-K and Form 10-Q for additional details on these factors. These documents are available on our website at TVW.com or through the SEC at SEC.gov.

Speaker Change: During today's call, we'll make certain statements that are forward-looking, referring to our plans and expectations.

Speaker Change: 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.

West Gotcher: Information presented on this call speaks only as of today, August 7, 2024. Therefore, your advice at any time-sensitive information may no longer be accurate at the time of any replay.

West Gotcher: Also, during the call, we'll present both GAP and non-GAP financial measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release located on our website at tvw.com.

Speaker Change: Also during the call, we'll present both GAAP and non-GAAP financial measures.

Speaker Change: A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release located on our website at www.tdw.com. And now with that, I'll turn the call over to Quintin.

West Gotcher: And now, with that, I'll turn the call over to Quintin. Thank you, Wes.

Quintin Kneen: Good morning, everyone, and welcome to the second quarter of 2024, or Todd Water, our earnings conference call. Second quarter revenue nicely exceeded our expectations, driven by stronger than anticipated day rates, with printed day rates exceeding our forecast by nearly $800 per day. The second quarter marked the highest ever printed day rate for Todd Water and the highest gross margin percentage in 15 years. This is a notable milestone that highlights our efforts to hydrate the fleet through the disposition of older, smaller vessels, and through the acquisition of younger, higher specification vessels over the last few years.

Quintin: Thank you, Wes. Good morning, everyone, and welcome to the second quarter of 2020 Fuller Tidewater Earnings Conference Call.

Quintin Kneen: Second quarter revenue nicely exceeded our expectations, driven by stronger than anticipated day rates, with printed day rates exceeding our forecast by nearly $800 per day. We believe the fleet is better positioned to realize the benefits of a healthy, structurally sustainable offshore cycle and to deliver even higher day rates, better margins, and significantly greater cash flow than at any point in the 68-year history of Tidewater. Over the past month, we have seen shifts in forward output that we want to discuss with you today because, as a result of that shift, we are bringing our full year revenue guidance down by $25 million, or just under 2%.

Quintin: This is a notable milestone that highlights our efforts to high-grade the fleet through the disposition of older, smaller vessels, and through the acquisition of younger, higher specification vessels over the last few years.

Quintin Kneen: We believe the fleet is better positioned to realize the benefits of a healthy, structurally sustainable offshore cycle and to deliver even higher day rates, better margins, and significantly greater cash flow than at any point in the 68-year history of Todd Water. The second quarter is typically characterized by favorable weather conditions and is often the quarter during which global activity begins to pick up. And this is exactly what we saw this quarter. Day rate improvements were brought based with each of our vessel classes and each of our geographic segments posting sequential day rate improvements. The continued day rate strength across each of our vessel classes and geographic segments speaks not only to the robust vessel demand, but to the persistent tightness and vessel supply in each of the regions in which we operate.

Quintin: The second quarter is typically characterized by favorable weather conditions and is often the quarter during which global activity begins to pick up.

Quintin: The continued daybreak strength across each of our vessel classes and geographic segments speaks not only to the robust vessel demand, but to the persistent tightness in vessel supply in each of the regions in which we operate, and when taken together, a global tightness in vessel supply.

Quintin Kneen: And when taken together, a global tightness and vessel supply. This global tightness and vessel supply is the primary driver of the Dave Ray performance we continue to realize. Newville vessel activity remains muted, and demand for vessels who looks to improve over the coming years, which is indicative of a continued favorable supply-demand fundamentals over the intermediate to long term. We've talked about this in the past, but it seems appropriate to mention again that we re-forecast our business every week. Sam and I have been doing this for over 10 years. We're offering a rib for doing this, but the industry moves quickly, and keeping a weathered eye on the movement and the supply and demand balance by both class and by geography is important to maximize in the company's return on investment by optimizing the geographic distribution of the fleet.

Quintin: New built vessel activity remains muted and demand for vessels looks to improve over the coming years, which is indicative of a continued favorable supply-demand fundamentals over the intermediate to long term.

Quintin: We've talked about this in the past, but it seems appropriate to mention again that we re-forecast our business every week. Sam and I have been doing this for over 10 years.

Sam: We often get ribbed for doing this, but the industry moves quickly, and keeping a weathered eye on the movement in the supply and demand balance by both class and by geography is important to maximizing the company's return on investment by optimizing the geographic distribution of the fleet.

Quintin Kneen: Over the past month, we have seen shifting in the forward outlook that we want to discuss with you today because, as a result of that shifting, we are bringing our full year revenue guidance down by 25 million dollars. We're just under two percent. We now see the third quarter is slightly improved in the second quarter, and the larger step up performance that we were originally anticipated to begin in the third quarter to now begin in the fourth quarter.

Sam: Over the past month we have seen shifting in the forward output that we want to discuss with you today because as a result of that shifting we are bringing our full year revenue guidance down by 25 million dollars or just under 2%.

West Gotcher: West will walk you through the updated guidance.

Piers Middleton: Piers will give you insight into what is driving the shift in offshore activity from the third quarter to the fourth, as well as how we execute on our geographic diversification strength and activity in a region suddenly shifts.

Wes: West will walk you through the updated guidance. Piers will give you insight into what is driving the shift in offshore activity from the third quarter to the fourth, as well as how we execute on our geographic diversification strength when activity in a region suddenly shifts.

Sam Rubio: Sam will give you insights on how we see our operating costs going down over the next two quarters.

West Gotcher: In addition to the above, West is going to speak to you about our capital return philosophy and our thoughts on improving our debt capital structure.

Quintin Kneen: West is going to speak to you about our capital return philosophy and our thoughts on improving our debt capital structure, and Piers is going to speak to you about the overall strength of the market. And lastly, Sam is going to walk you through the consolidated numbers. All of these factors, the improvement in our debt capital structure, the overall strength of the market, combined with the added benefit from geographic diversification and the reduction in both operating and dry dock costs as we move into next year, are setting us up for an even stronger year of free cash flow generation in 2025.

Piers Middleton: Piers is going to speak to you about the overall strength in the market, and lastly, Sam is going to walk you through the consolidated numbers. All of these factors, the improvement in our debt capital structure, the overall strength of the market, combined with the added benefit from geographic diversification and the reduction in both operating and dry dot costs as we move into next year, are setting us up for an even stronger year of free cash flow generation in 2025.

Speaker Change: combined with the added benefit from geographic diversification and the reduction in both operating and dry dock costs as we move into next year are setting us up for an even stronger year of free cash flow generation in 2025.

Quintin Kneen: Subsequence of last quarter's earnings release, we repurchased about 17 million of shares in the open market. That brings our year-to-date share repurchases to about 33 million, and since the inception of the buyback program in the fourth quarter of 2023, we have repurchased nearly 68 million of shares in the open market. In addition to the open market repurchases, we use 28.5 million of cash in the first quarter to buy shares related to the tax obligation on equity compensation from employees. In lieu of those employees issuing those shares into the open market, so over the past recorders we've used 96 million of cash to reduce the share count by about 1.3 million shares.

Speaker Change: That brings our year-to-date share repurchases to about $33 million. And since the inception of the Buy Back program in the fourth quarter of 2023, we have repurchased nearly $68 million of shares in the open market.

Speaker Change: In addition to the open market repurchases, we used $28.5 million of cash in the first quarter to buy shares related to the tax obligation.

Speaker Change: on equity compensation from employees in lieu of those employees issuing those shares into the open market. So over the past three quarters, we've used 96 million of cash to reduce the share count by about 1.3 million shares.

Quintin Kneen: West will provide some more detail on our views on return on capital and his prepared remarks, but we remain committed to using the cash flow generated from the business to pursue a capital allocation strategy that maximizes the return to our shareholders. We continue to pursue acquisitions, but thus far, deals that are clearly value accrued to our shareholders have not materialized. There are several opportunities to acquire fleets that are strategically relevant to our existing fleet position, but the return on investment is currently higher from the repurchase of our own share. Our focus for acquisitions remains on fleets located in North and South America, but we remain opportunistic in all geographies.

Speaker Change: West will provide some more detail on our views on return on capital in his prepared remarks, but we remain committed to using the cash flow generated from the business to pursue capital allocation strategy that maximizes the return to our shareholders.

West: Our focus for acquisitions remains on fleets located in North and South America, but we remain opportunistic in all geographies.

Quintin Kneen: In summary, we are very pleased with the performance of the business during the second quarter. Each of the various elements of demand for our business are poised to continue to build: drilling, subsidy projects, floating production and infrastructure, and support of existing production are all expected to grow materially over the next few years, and each of these activities requires offshore vessel support. We plan to continue to take advantage of a supply constrained vessel market and a rising demand environment to continue to push day-race and drive earnings and pre-catchable growth, and we are well-positioned to do so.

Quintin Kneen: In summary, we are very pleased with the performance of the business during the second quarter. Each of the various elements of demand for our business are poised to continue to build. Drilling, subsidy projects, floating production infrastructure, and support of existing production are all expected to grow materially over the next few years, and each of these activities requires offshore vessel support. We plan to continue to take advantage of a supply-constrained vessel market in a rising demand environment to continue to push day rates and drive earnings and pre-cash flow growth, and we are well-positioned to do so. And with that, I will turn the call over to Wes, Piers, and Sam for additional commentary and our financial outlook. Thank you, Quintin.

West: Each of the various elements of demand for our business are poised to continue to build. Drilling, subsea projects, floating production infrastructure, and support of existing production are all expected to grow materially over the next few years, and each of these activities requires offshore vessel support.

West Gotcher: And with that, let me turn the call over to West Pearson Sam for additional commentary and our financial outlook. Thank you, Quintin. Following Quintin's comments on returning capital, we are pleased to announce that our board of directors has authorized an additional $13.9 million of share repurchase capacity. The new authorization brings our total capacity under the program to $47.7 million. The authorized share repurchase program and remaining capacity represents the maximum amount permissible under our existing debt agreements. To date, we have discussed that share repurchases have provided for flexibility as we evaluate competing capital allocation opportunities and that our return of capital philosophy has been discussed in the context of competing capital allocation opportunities.

West Gotcher: Following Quintin's comments on return of capital, we are pleased to announce that our Board of Directors has authorized an additional $13.9 million of share repurchase capacity. The new authorization brings our total capacity under the program to 47.7 million, and that our return of capital philosophy has been discussed in the context of competing capital allocation. We believe that the pace of our current capital returns over the past three quarters is sustainable on a long-term basis while maintaining the optionality and financial wherewithal to pursue additional opportunities.

West: The new authorization brings our total capacity under the program to $47.7 million.

Speaker Change: To date, we've discussed that share repurchases have provided for flexibility as we evaluate competing capital allocation opportunities, and that our return to capital philosophy has been discussed in the context of competing capital allocation opportunities.

West Gotcher: Both of these concepts are still relevant.

West Gotcher: However, given the near-term outlook and the structural factors influencing the longer-term fundamentals of our business, we believe that the pace of our current capital returns over the past three quarters is sustainable on a long-term basis while maintaining the optionality and financial wear with all to pursue additional opportunities.

Speaker Change: We believe that the pace of our current capital returns over the past three quarters is sustainable on a long-term basis, while maintaining the optionality and financial wherewithal to pursue additional opportunities.

West Gotcher: Turning to our debt capital structure, we continue to evaluate the best path to achieve our goals of establishing a long-term, unsecured debt capital structure, along with a sizable revolving credit facility. Achieving this goal not only establishes a more appropriate debt capital structure for a cyclical business, but provides for added capabilities as it relates to M&A or other capital allocation opportunities. We continue to monitor the debt capital markets and bank markets, which remain constructive. However, we are approaching any debt capital structure augmentation opportunistically, as we have no near-term maturities. We feel comfortable with our current leverage position, and we feel as though we have the ability to act on any capital allocation opportunity that may present itself.

West Gotcher: Turning to our debt capital structure, we continue to evaluate the best path to achieve our goals of establishing a long-term unsecured debt capital structure along with a sizable revolving credit facility. Achieving this goal not only establishes a more appropriate debt capital structure for a cyclical business, but it also provides an opportunity for investors to invest in us. We continue to monitor the debt capital markets and bank markets, which remain constructive. However, we are approaching any debt capital structure augmentation opportunistically as we have no near-term maturities, we feel comfortable with our current leverage position, and we feel as though we have the ability to act on any capital allocation opportunity that may present itself. For example, during the second quarter, we entered into 21 contracts for a composite leading-edge term contract at a rate of $28,754. Day rates are not uniform across vessel classes, nor are they uniform within a given vessel class.

Speaker Change: However, we are approaching any debt capital structure augmentation opportunistically as we have no near-term maturities, we feel comfortable with our current leverage position, and we feel as though we have the ability to act on any capital allocation opportunity that may present itself.

West Gotcher: During the second quarter, we enter into 21 contracts for a composite leading-edge term contract day rate of $28,754. The average this quarter declined six percent sequentially because we had a number of our smallest vessels come off of long-term contracts early in the Middle East. Day rates are not uniform across vessel classes, nor are they uniform within a given vessel class. In this quarter, we had a relatively large number of contracts with the smallest vessels within our smallest vessel classes enter into new contracts, bringing down the quarterly composite average day rate. It's worth noting that our large medium classes of PSBs and large medium classes of anchor handlers all have high single to low-double-digit. Unfortunately, the average duration of new contracts entered into during the second quarter was just under five months.

Speaker Change: Day rates are not uniform across vessel classes, nor are they uniform within a given vessel class.

Unnamed Speaker: In this quarter, we had a relatively large number of contracts with the smallest vessels within our smallest vessel classes and earned new contracts. It's worth noting that our large and medium classes of PSBs and large and medium classes of anchor handlers all had high single-digit rate improvements. The average duration of new contracts entered into during the second quarter was just under five months. This is the shortest average duration of new contracts since we began providing this service.

Speaker Change: In this quarter, we had a relatively large number of contracts with the smallest vessels within our smallest vessel classes enter into new contracts, bringing down the quarterly composite average day rate.

Speaker Change: It's worth noting that our large and medium classes of PSBs and large and medium classes of anchor handlers all have high single to low double-digit rate improvements sequentially.

Speaker Change: The average duration of new contracts entered into during the second quarter was just under five months, the shortest average new contract duration since we began providing this figure.

West Gotcher: The shortest average new contract duration since we began providing this figure.

Piers Middleton: Looking to the remainder of 2024, we are updating our full-year revenue guidance to $1.39 to $1.41 billion with a 51% gross margin. As a number of drilling campaigns slated to commence in the third quarter have now moved into the fourth quarter along with increased dry dog days in the third quarter compared to our previous expectations. We do expect a nice counter-seasonal step-up into the fourth quarter, in line with our prior expectations, as delayed projects commence and as our dry-dog days decline materially.

West Gotcher: Looking to the remainder of 2024, we are updating our full year revenue guidance to $1.39 to $1.41 billion and a 51% gross margin. We now anticipate that third quarter revenue will look similar to the second quarter, as a number of drilling campaigns slated to commence in the third quarter have now moved into the fourth quarter, along with increased dry dog days in the third quarter compared to our previous expectations. We do expect a nice counter-seasonal step up into the fourth quarter and line with our prior expectations. It's delay projects commence, and this our dry dog days to climb materially.

Speaker Change: Looking to the remainder of 2024, we are updating our full-year revenue guidance to $1.39 to $1.41 billion in a 51% gross margin.

Speaker Change: We now anticipate that third quarter revenue will look similar to the second quarter, as the number of drilling campaigns slated to commence in the third quarter have now moved into the fourth quarter, along with increased dry dog days in the third quarter compared to our previous expectations.

West Gotcher: Given the revised Q3 revenue guidance, we now expect gross margins to be up about one percentage point the third quarter and now expect a fourth quarter gross margin exit rate of about 58%, an increase from prior expectations.

Piers Middleton: We now expect gross margins to be up about 1 percentage point in the third quarter and now expect a fourth quarter gross margin exit rate of about 58 percent, an increase from prior expectations. Our contracted backlog currently sits at about $568 million of revenue for the remainder of 2020. We currently have $317 million of revenue contracted for the third quarter, with 77% of available days. Additionally, we have $251 million of revenue backlog for the fourth quarter, with 68% of available days contracted.

West Gotcher: Our contracted backlog currently sits at about $568 million of revenue for the remainder of 2024. We currently have $317 million of revenue contracted for the third quarter, which was 77% of available days contracted further. We have 251 million dollars of revenue backlog for the fourth quarter; was 68% of available days contracted. Approximately 75% of our remaining uncontracted days in the fourth quarter are associated with our large PSVs and largest classes of anchor handlers, with particular exposure in our Africa and European Mediterranean segments, areas that typically command the highest day rates and where we see projects commencing in the fourth quarter.

Speaker Change: We currently have $317 million of revenue contracted for the third quarter, with 77% of available days contracted.

Piers Middleton: Approximately 75% of our remaining uncontracted days in the fourth quarter are associated with our large PSVs and largest classes of anchor handlers, with particular exposure in our Africa and Europe and Mediterranean segments. With that, I'll turn the call over to Piers for an overview of the commercial landscape.

West Gotcher: The risk to our backlog revenue is unanticipated downtime due to unplanned maintenance or dry docks.

Piers Middleton: With that, I'll turn the call over to peers for an overview of the commercial landscape. Thank you, West, and good morning everyone on this call. My objective is to give more nuance around our charging strategy and why we're still very optimistic about the overall outlook for the OSV market and our place within it. We feel that there's the only high specification OSV company with a truly global in-region footprint. We remain very well positioned in the various geographies we're located in as demand continues to improve, and as vessel supply additions remain muted. Two things to bear in mind as we focus on the rest of the year are one to remember that not all our regions are created equal, although none are less important for it.

Piers Middleton: Thank you West and good morning everyone. On this call, my objective is to give more nuance around our chartering strategy and why we're still very optimistic about the overall outlook for the OSV market and our place within it. We feel that as the only high-specification OSV company with a truly global, in-region footprint, we remain very well-positioned in the various programs. As demand continues to improve and as vessel supply additions remain mutual.

Speaker Change: Thank you, Wes, and good morning, everyone. On this call, my objective is to give more nuance around our chartering strategy and why we're still very optimistic about the overall outlook for the OSC market and our place within it.

Piers Middleton: And two, with a short-term charging strategy geared more towards drilling and construction projects, we have some short-term risks related to delays and project commencement. In Q2, our average charter length and new contracts remain just under five months, which was lower than previous quarters and lower than we had planned for at the beginning of the year. Our expectation was that now we would have signed up to support a number of drilling campaigns, primarily in Africa, the Mediterranean, and the Caribbean, which would have all started early. Q3 and gone through in 2025. In reality, what has happened is that all these projects got pushed to the right and are now expected to start late in Q3 or the expectation of them going through later to 2025.

Piers Middleton: In reality, what has happened is that all these projects got pushed to the right and are now expected to start late in Q3 and Q4, with the expectation of them going through later to 2025. On top of that, all those projects will be supported by our two larger PSV classes, which, as Wes mentioned earlier, are our highest earners in the fleet.

Speaker Change: In reality, what has happened is that all these projects got pushed to the right and are now expected to start late in Q3 and Q4, with the expectation of them going through later to 2025.

Piers Middleton: On top of that, all those projects will be supported by our two larger PSV classes, which West mentioned earlier are our highest earners in the fleet. So projects pushing to the right in one geography is bearable. But when you have multiple projects and multiple regions pushing to the right, the ability to leverage our regional diversification is more limited, which is what we're seeing happening in Q3. The good news, and this is key, is that we aren't seeing any cancellation of projects outside of the previously announced cancellations in Saudi Arabia, and we aren't seeing any decline in day rates across any classes of our vessels.

Speaker Change: On top of that, all those projects will be supported by our two larger PSV classes.

Piers Middleton: So projects pushing to the right in one geography is bearable, but when you have multiple projects in multiple regions pushing to the right, the ability to leverage our regional diversification is more limited, which is what we're seeing happening in Q3. The good news, and this is key, is that we aren't seeing any cancellation of projects outside of the previously announced cancellations in Saudi Arabia, and we aren't seeing any decline in day rates across any classes of our vessels. In fact, we are seeing the opposite, with both ourselves and our regional competitors prepared to take some short-term utilisation pain while still pushing rates.

Speaker Change: which, as West mentioned earlier, are our highest earners in the fleet. So projects pushing to the right in one geography is bearable, but when you have multiple projects in multiple regions pushing to the right, the ability to leverage our regional diversification is more limited, which is what we're seeing happening in Q3.

Speaker Change: is that we aren't seeing any cancellation of projects outside of the previously announced cancellations in Saudi Arabia. And we aren't seeing any decline in day rates across any classes of our vessels.

Piers Middleton: In fact, we are seeing the opposite with both ourselves and our regional competitors prepared to take some short time utilization pain while still pushing rates. As an update to the ongoing situation in the Kingdom, as it pertains to our own fleet, we had been in discussions on five of our vessels operating in country, and last week were informed that all five would be off-pired immediately. Within the week, our local commercial team has found work for all five vessels at higher day rates to customers in the wider Middle East region. We will suffer some idle time in Q3 as these vessels reposition, but our outlook for 2024 for the performance of this region is intact, and for any idle time will be offset by higher than previously expected day rates in Q4.

Speaker Change: In fact, we are seeing the opposite, with both ourselves and our regional competitors prepared to take some short-term utilisation pain while still pushing rates.

Piers Middleton: As an update to the ongoing situation in the Kingdom, as it pertains to our own fleet, we had been in discussions on five of our vessels operating in-country, and last week, we were informed that all five would be op-pired immediately. However, within the week, our local commercial team found work for all five vessels at higher day rates to customers in the wider Middle East region. We will suffer some idle time in Q3 as these vessels reposition, but our outlook for 2024 for the performance of this region is intact, and any idle time will be offset by higher than previously expected day rates in Q4.

Speaker Change: Within the week, our local commercial team has found work for all five vessels at higher day rates to customers in the wider Middle East region.

Piers Middleton: A very impressive effort from our team in the Middle East, which also shows why it's so important to have a strong local presence to be able to react quickly to all situations. When situations like this occur, there is more value in waiting for the word to commence than to reposition both specifically. Looking out over the rest of the year, and into 2025, we remain confident in the long term demand of our customer base in each region, and that our fleet makes an each-geography is appropriate, and if a customer needs additional vessels, then it is only right and proper that our customer should pay to move them to a different region and to pay to move them back at the end of the project.

Piers Middleton: A very impressive effort from our team in the Middle East, which also shows why it's so important to have a strong local presence to be able to react quickly to all situations. Looking out over the rest of the year and into 2025, we remain confident in the long-term demand of our customer base in each region and that our fleet mix in each geography is appropriate. And if a customer needs additional vessels, then it is only right and proper that our customers should pay to move them to a different region.

Speaker Change: A very impressive effort from our team in the Middle East, which also shows why it's so important to have a strong local presence to be able to react quickly to all situations.

Speaker Change: When situations like this occur, there is more value in waiting for the work to commence than to reposition boats effectively.

Speaker Change: Looking out over the rest of the year and into 2025, we remain confident in the long-term demand of our customer base in each region and that our fleet mix in each geography is appropriate.

Speaker Change: And if a customer needs additional vessels...

Speaker Change: And it is only right and proper that our customers should pay to move them to a different region and to pay to move them back at the end of the project.

Piers Middleton: In fact, in Q3, we will see several of our larger vessels moving to different regions to support the SNP projects I mentioned earlier, so that they can be in place to support drilling programs in late Q3 early Q4. A short-term charting strategy does hold some risks, with boots on the ground in each of the regions we operate, and therefore better granular detail than our customer project needs. We feel very confident that the short-term delays we have forecasted in Q3 are mainly due to delayed project commencement. Overall, we are very pleased with how the markets continue to move in the right direction in 2024, and that we expect that positive momentum to continue into the rest of the year and into 2025, with all signs being that we see continued improvements in demand in all the regions in which we operate.

Speaker Change: A short-term charting strategy does hold some risks, but with boots on the ground in each of the regions we operate, and therefore better granular detail on our customer project needs, we feel very confident that the short-term delays we are forecasting in Q3 is mainly due to delayed project commencement.

Piers Middleton: Overall, we're very pleased with how the market has continued to move in the right direction in 2024 and that we expect that positive momentum to continue into the rest of the year and into 2025, with all signs suggesting that we see continued improvement in demand in all the regions in which we operate. And with that, I'll hand over to Fran. Thank you.

Sam Rubio: And with that, I will hand over to Sam.

Sam Rubio: Thank you.

Speaker Change: And with that, I'll hand over to Fran. Thank you.

Sam Rubio: Thank you, Pierce, and good morning, everyone. At this time, I would like to take you through our financial results, and in previous calls, my discussion will focus primarily on the quarter-to-quarter results of the second quarter of 2024, compared to the first quarter of 2024. and we'll also discuss some of the operational aspects that affect the second quarter and how we see the rest of the year playing out from an operating cost standpoint.

Fran: Thank you, Piers, and good morning, everyone. At this time, I would like to take you through our financial results. And as in previous calls, my discussion will focus primarily on the quarterly results of the second quarter of 2024 compared to the first quarter of 2024. I will also discuss some of the operational aspects that affected the second quarter and how we see the rest of the year playing out from an operating cost standpoint.

Fran: And as in previous calls, my discussion will focus primarily on the quarter-to-quarter results of the second quarter of 2024 compared to the first quarter of 2024.

Fran: Average day rates increased by 8% from $19,563 per day in the first quarter to $21,130 per day in the second quarter, which was the main driver for the increase in revenue. However, offsetting the increase in day rates was a decrease in utilization from 82.3% in the first quarter to 80.7% in Q2.

Fran: I will also discuss some of the operational aspects that affected the second quarter and how we see the rest of the year playing out from an operating cost standpoint.

Sam Rubio: In addition, this quarter I will move away from the detailed regional results discussion and summarize them at a higher level. As noted in our press release, filed yesterday, we reported net income in the second quarter of 2024, a 50.4 million, or 94 cents per share. In Q2, we generated revenue of $339.2 million compared to $321.2 million in the first quarter of 2024, an increase of 5.6%. Average day rates increased by 8% from $19.563 per day in the first quarter to $21.130 per day in the second quarter, which was the main driver for the increase in revenue.

Fran: In addition, this quarter I will move away from the detailed regional results discussion and summarize them at a higher level.

Fran: As noted in our press release filed yesterday, we reported net income in the second quarter of 2024 of $50.4 million, or $0.94 per share.

Fran: Average day rates increased by 8% from 19,563 per day in the first quarter to 21,130 per day in the second quarter.

Sam Rubio: Offsetting the increase in day rates was a decrease in utilization from 82.3% in the first quarter to 80.7% in Q2. This was due to higher dry dock and idle days. Our gross margin percentage for Q2 increased modestly to 47.7% from 47.6% in Q1. Gross margin in Q2 was 161.9 million compared to 152.5 million in Q1; adjusted EBITDA was 139.7 million in Q2 compared to 139 million in Q1. That's a lot for the quarter; we're 176.5 million compared to 167.6 million in Q1. The increase is due to a variety of items, including higher R&M costs related to several high-cost breakdowns; higher crew costs as we moved a couple of vessels into Australia, where crew cost runs higher than our other regions; fuel costs related to just under 2% percentage point of utilization loss due to idle days as compared to the first quarter, as vessels were either in between contracts, waiting on customer inspections, or vessels on the spot market.

Fran: which was the main driver for the increase in revenue. Offsetting the increase in day rates was a decrease in utilization from 82.3% in the first quarter to 80.7% in Q2. This was due to higher dry dock and idle days.

Fran: Our gross margin percentage for Q2 increased modestly to 47.7% from 47.6% in Q1.

Fran: This was due to higher dry dock and idle days. Vessel operating costs for the quarter were $176.5 million compared to $167.6 million in Q1. The increase is due to a variety of items, including higher R&M costs related to several high-cost breakdowns or vessels on SPOTMART. In addition, we incurred a loss of one percent of utilization due to additional time in dry dock. In the quarter, there were a couple of unique items that occurred that we do not normally consider routine operations.

Fran: Vessel operating costs for the quarter were $176.5 million compared to $167.6 million in Q1.

Fran: The increase is due to a variety of items, including higher R&M costs related to several high-cost breakdowns.

Fran: Fuel costs related to just under two percentage point of utilization loss due to idle days as compared to the first quarter, as vessels were either in between contracts, waiting on customer inspections, or vessels on spot market.

Sam Rubio: In addition, we incurred a loss of 1% of utilization due to an additional time in dry dock.

Sam Rubio: In the quarter, there were a couple of unique items that occurred that we do not normally consider routine operating costs. These items include 1.1 million dry dock or capitalized mobilization costs due to a contract termination in the Middle East that peers just refer to. And in 1.7 million customs due to settlement in West Africa. In Q3, we don't anticipate either of these items; therefore, we anticipate our operating cost to decrease by about 2.8 million. Dry dock activity is still having in Q3, but in Q4, we do see utilization increasing and cost decreasing as a result of a much lighter dry dock schedule.

Fran: In the quarter, there were a couple of unique items that occurred that we do not normally consider routine operating costs.

Fran: These items include $1.1 million in write-off or capitalized mobilization costs due to a contract termination in the Middle East that Piers just referred to, and the 1.7 million Customs Duty Settlement in West Africa. Dry dock activity is still heavy in Q3, but in Q4, we do see utilization increasing and costs decreasing as a result of a much lighter dry dock schedule back out of Australia, which will significantly decrease operating costs. I would now like to provide additional information that has impacted both our balance sheet and income statement for the quarter.

Fran: These items include $1.1 million write-off of capitalized mobilization costs due to a contract termination in the Middle East that Piers just referred to.

Fran: and the 1.7 million customs duty settlement in West Africa.

Sam Rubio: Furthermore, we anticipate an increase in utilization as a result of fewer idle days, as projects that peers mentioned would have started in Q3 will have commenced. We anticipate a further reduction in operating costs of about 12 million. The decrease in idle and dry dock days will translate to lower R&M and fuel costs. In addition, we will be moving a couple of vessels back out of Australia, which will significantly decrease operating costs as well. as well.

Fran: We anticipate a further reduction in operating costs of about $12 million.

Speaker Change: The decrease in idle and dry dock days will translate to lower R&M and fuel costs. In addition, we will be moving a couple of vessels back out of Australia, which will significantly decrease operating costs as well.

Sam Rubio: I would not like to provide additional information that has impacted both our balance sheet and income statement in the quarter. In the quarter, we sold one vessel from our active fleet for net proceeds of 2.3 million and recorded in that gain of 2.2 million. DNA cost for the second quarter was 26.3 million, 1 million higher than Q1 due primarily to higher professional fees and some bad debt recoveries that we benefited from in Q1. For the year, we expect our DNA cost to be about 107 million, which includes approximately 14 million and non-cash stock compensation. In the second quarter, we incurred 40.1 million and deferred right out costs compared to 40 million in Q1.

Fran: In the quarter, we sold one vessel from our active fleet for net proceeds of $2.3 million and recorded a net gain of $3.2 million. G&A costs for the second quarter were $26.3 million, $1 million higher than Q1, due primarily to higher professional fees and some bad debt recoveries that we benefited from in Q1. For the year, we expect our DNA costs to be about $107 million, which includes approximately $14 million of non-cash stock compensation.

Speaker Change: G&A cost for the second quarter was $26.3 million, $1 million higher than Q1 due primarily to higher professional fees and some bad debt recoveries that we benefited from in Q1.

Speaker Change: For the year, we expect our G&A costs to be about $107 million, which includes approximately $14 million of non-cash stock compensation.

Sam Rubio: We anticipate for the third quarter right out cost of about 39 million and about 14 million for the fourth quarter. Right out cost for the full year 2024 is expected to be about 133 million. Right out days affected utilization by nearly 7 percentage points during the second quarter, and as we move into a lighter right out period, utilization will naturally improve. In Q2, we also incurred 6.4 million in capital expenditures related to vessel modification, ballast water treatment installations, IT, and DPS system upgrades. For the full year 2024, we expect to incur approximately 26 million in capital expenditures.

Speaker Change: We anticipate for the third quarter dry dock costs of about $39 million and about $14 million for the fourth quarter.

Fran: Buyout costs for the full year 2024 are expected to be about $133 million. For the full year 2024, we expect to incur approximately $26 million in capital. Through June 30th, we have made $25 million in principal payments on our Senior Secured Term Loan and $1.5 million on our Supplier Facility Agreement. Additionally, we spent $29.4 million to repurchase shares under our announced share buyback authorization. Year to date, through June 30th, we have used about $33 million of cash to reduce the number of shares in the market, and that has reduced the number by approximately 348,000 shares. Also, in the first quarter, we spent $28.5 million in cash to pay taxes on behalf of employees.

Speaker Change: For the full year 2024, we expect to incur approximately $26 million in capital expenditures.

Sam Rubio: We generated 87.6 million of free cash flow this quarter, which is 18.2 million more than Q1. The free cash flow increase was primarily accountable to cash generated from operations and strong customer collections in the quarter. Through June 30th, we have made 25 million in principal payments on our senior secured term loan and 1.5 million on our supplier facility agreement. We spent 29.4 million to repurchase shares under our announced share buyback authorization. Year today through June 30th, we have used about 33 million of cash to reduce the number of shares in the market, and that has reduced the count by approximately 348,000 shares.

Speaker Change: We generated $87.6 million of free cash flow this quarter, which is $18.2 million more than Q1.

Speaker Change: Through June 30th, we have made $25 million in principal payments on our Senior Secured Term Loan and $1.5 million on our Supplier Facility Agreement.

Sam Rubio: Also in the first quarter, we spent 28.5 million in cash to pay taxes on behalf of employees and in lieu of issuing shares of stock related to best in stock compensation.

Sam Rubio: We conduct our business through five segments. I refer to the tables in the press release and segment footnote and results of operation discussions in the form tentative for details of our region's results. To summarize the results, our regions' day rates improved by 8% in the quarter, led by the Americas and Asia-Pacific regions, which were both over 9%. Reminis were higher in all regions except the Middle East, which slightly declined. Gross margins increased from 47.6% to 47.7%. We expect margins increased 1% in the third quarter and for a significant improvement in the fourth quarter due to the previously discussed reduction in operating costs and improvement in utilization.

Fran: We conduct our business through five segments. I refer to the tables in the press release and the segment footnote and results of operation discussions in the form 10-2 for details of our region's results. To summarize the results, our region's day rates improved by 8%, in the quarter led by the Americas and Asia-Pacific regions, which were both over 9%. Gross margins increased from 47.6% to 47.7%.

Speaker Change: in the quarter, led by the Americas and Asia-Pacific regions, which were both over 9%.

Speaker Change: Revenues were higher in all regions except Middle East, which slightly declined.

Speaker Change: Gross margins increased from 47.6% to 47.7%. We expect margins to increase 1% in the third quarter and for a significant improvement in the fourth quarter due to the previously discussed reduction in operating costs and improvement in utilization.

Quintin Kneen: We expect margins to increase 1% in the third quarter and for a significant improvement in the fourth quarter due to the previously discussed reduction in operating costs and improvement in utilization. In summary, we are very pleased with our Q2 results. We do recognize the changes that will affect Q3. However, as anticipated previously, we are expecting Q4 to be a strong quarter. We remain encouraged by the main drivers that affect our results. With that, I will turn it back over to Quintin.

Sam Rubio: In summary, we are very pleased with our Q2 results. We do recognize and change that will affect Q3; however, as anticipated previously, we are expecting Q4 to be a strong quarter. We remain encouraged by the main drivers that affect our results, that continued strength and day rates across each of our vessel classes, strong demand and tightness in the vessel's supply, will enable us to continue to generate strong free cash loads and profitability.

Speaker Change: We do recognize the changes that will affect Q3. However, as anticipated previously, we are expecting Q4 to be a strong quarter.

Speaker Change: The continued strength in day rates across each of our vessel classes, strong demand and tightness in the vessel supply will enable us to continue to generate strong free cash flows and profitability.

Quintin Kneen: With that, I will turn it back over to Quintin.

Quintin Kneen: Thank you, Sam. Monty, if you would please open it up for questions,

Operator: Thank you, Sam. Monty, if you would please open it up for questions. Thank you.

Operator: Thank you. We will now begin the question and answer session. If you dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. Again, press star 1 to join the queue.

Operator: We will now begin the question and answer session. If you doubt and would like to ask a question, please press star one in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question or listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue.

Gregory Lewis: Our first question comes from the line of Jim Rolson with Raymond James. Please go ahead. Hey, good morning everyone.

Speaker Change: Our first question comes from the line of Jim Rolson with Raymond James. Please go ahead.

Jim Rolson: Hey, good morning, everyone.

Quintin Kneen: Quintin, obviously a little disappointing when things get pushed to the right versus what was planned, but out of your control, obviously, and it sounds to me like that hasn't really changed, so timing will push into four queue startup and you're obviously kind of suggesting a pretty nice pop-in in results starting in four queue, but correct me if I'm wrong, it doesn't sound like that has changed anything about how you're feeling about the outlet for 25 and even beyond, and in response to that, I'm also curious just what you think the risks are to the startup in four queue; could that get pushed, that kind of stuff.

Jim Rolson: Quintin, you know obviously a little disappointing when things get pushed to the right versus versus what was planned but out of your control obviously and it sounds to me like

Speaker Change: suggesting a pretty nice pop in results starting in 4Q but correct me if I'm wrong it doesn't sound like

Speaker Change: That has changed anything about how you're feeling about the outlet for 25 and even beyond. And in response to that, I'm also curious just what you think the risks are to, you know, the startup in 4Q. Could that get pushed? That kind of stuff. But it sounds like just big picture things are still tracking just with a little bit of delay here.

Quintin Kneen: But it sounds like just big picture things are still tracking just a little bit of delay here. That's absolutely correct, and it's similar to what you may have heard on other conference calls throughout early season, but things are certainly shifting to the right, and it's more about logistics and supply chain than it is about economic decisions related to offshore activity, and I think that's fairly certain and well understood inside the industry. And so what we're seeing is a little bit more difficulty coordinating and getting started, but once it's getting, once it gets started, I don't see it's going to slow down. I don't even see when it's going to slow down; 25 or 26 still looking just as optimistic as I always have.

Speaker Change: That's absolutely correct.

Speaker Change: And so what we're seeing is a little bit more difficulty coordinating and getting started. But once it gets started, I don't see it's going to slow down. I don't even see when it's going to slow down in 2025 or 2026. I still look just as optimistic as I always have.

Unnamed Speaker: I've got you. And then on the leading-edge rates, you know, obviously, the composite number was kind of mixed and skewered lower, but correct me if I'm wrong, if I look across the different categories and look at the rate of increase in leading-edge this quarter versus like the past couple of quarter increases, you know, you were kind of... 4th quarter, 1st quarter, you were up 3-4% collectively, and this quarter that number was Correct me if I'm wrong there, and also just on the Middle East... Maybe a little bit of context on how much of that's been recontracted just so we can think about that mixed impact going forward.

Gregory Lewis: Got you.

West Gotcher: And then on the leading edge rates, obviously, the composite number was kind of mixed; you'd lower, but correct me if I'm wrong, if I look across the different categories and look at the rate of increase in leading edge, this quarter versus like the past couple of quarter increases, you were kind of fourth quarter, first quarter, you were up three, four percent collectively, and this quarter that number was probably double that in the high single to low double digits, and correct me if I'm wrong there. And also just on the Middle East, maybe a little bit of context of how much of that has been re-contracted, just so we can think about that mixed impact going forward.

Speaker Change: kind of mixed skewed lower but correct me if I'm wrong if I look across the different categories and look at the rate of increase in leading edge this quarter versus like the past couple of quarter increases you were kind of

West Gotcher: No, absolutely, I'm going to give it over to West because he studies this more deeply than anybody, and then Pierce could probably comment a little bit more on the Middle East contract role. Yeah, thanks, Quentin. Good morning, Jim. So, as it relates to the first part of your question on the leading edge day rates for the larger class and medium classes of the PSVs and anchor handlers, that's a fair characterization. The continued momentum and those rates, I think, was quite good. Again, kind of high single digit to low teens, which is a pace that I think we're pretty pleased with broadly.

Quintin Kneen: No, absolutely not. I'm going to give it over to West because he studies this more deeply than anybody, and then Piers could probably comment a little bit more on the Middle East contract role.

Wes: No, absolutely. I'm going to give it over to West, because he studies this more deeply than anybody, and then Piers could probably comment a little bit more on the Middle East contract role.

West Gotcher: Yeah, thanks, Quintin. Good morning, Jim.

Wes: Thanks, Quintin. Good morning, Jim. So as it relates to the first part of your question on the leading-edge data rates for the larger class and medium classes of the

West Gotcher: So, as it relates to the first part of your question on the leading-edge day rates for the larger class and medium classes of the PSVs and anchor handlers, that's a fair characterization. The continued momentum in those rates, I think, was quite good. Again, kind of high single-digit to low teens, which is a pace that I think we're pretty pleased with, broadly. So, the pace of improvement for those vessels, I think, is perhaps in line with, if not a little bit ahead of, what we had expected.

Speaker Change: PSBs and anchor handlers. That's a fair characterization. The, you know, continued momentum in those rates, I think, was quite good. Again, you know, kind of high single-digit to low teens.

Speaker Change: which is, you know, a pace that I think we're pretty pleased with, broadly. So, the pace of improvement for those vessels, I think, is...

West Gotcher: So the pace of improvement for those vessels, I think, is perhaps in line, if not a little bit ahead of what we expected. And so to the second part of your question, there was a mix element here, and as I mentioned in my prepared remarks, we had some of the smallest vessels in our smallest vessel class happen to re-contract in the same period. Okay? And so when you look at that, it was nearly 30% of the contracts were in the smaller end of our smaller vessel classes. And that's just the vagaries of having a wide variety of vessel types in our fleet.

Speaker Change: you know, perhaps in line, if not a little bit ahead of what we had expected.

West Gotcher: And so, to the second part of your question, there was a mixed element here. And as I mentioned in my prepared remarks, we had some of the smallest vessels in our smallest vessel class happen to recontract during the same period. Okay?

Speaker Change: And so, to the second part of your question, there was a mixed element here, and as I mentioned in my prepared remarks...

Speaker Change: We had some of the smallest vessels in our smallest vessel class happen to recontract in the same period.

West Gotcher: And so, when you look at that, nearly 30% of the contracts were in the smaller end of our smaller vessel classes. And that's just the vagaries of having a wide variety of vessel types in our fleet. So, that's just kind of the way things worked out this quarter. But if you look at where the larger vessels are that are being driven by the drilling activity, by FPSO activity, and so forth, there's continued momentum there that we feel very comfortable with.

Speaker Change: Okay, and so when you look at that it was, you know, nearly 30% of the contracts were in these

Speaker Change: The smaller end of our smaller vessel classes, and that's just the vagaries of having a wide variety.

West Gotcher: So that's just kind of the way things work this quarter. But if you look at where the larger vessels are that are being driven by the drilling activity, by FPSO activity, and so forth, there's continued momentum there that we feel very comfortable with.

Gregory Lewis: I will turn it back to what some real fast questions. I appreciate the answers.

Gregory Lewis: Thanks, Jim.

Gregory Lewis: Our next question comes from a line of Greg Lewis with BTIG. Please go ahead. Hi everybody. Thanks again. Good morning, and thanks for taking my questions. Thank you for the guidance and the commentary to kind of get us there. But I was hoping I realized we got to get through Q3 before we start thinking about Q4. But I mean, you did mention that kind of, I guess, 58% gross margin exit rate in Q4. As I think about that, in terms of sequencing, I'm assuming that's more of a December exit than, say, a Q4 exit, and then just to kind of help us understand that a little bit.

Operator: Our next question comes from a line from Greg Lewis with BTIG. Please go ahead.

Jim Rolson: Thanks, Jim.

Speaker Change: Our next question comes from the line of Greg Lewis with BTIG. Please go ahead.

Greg Lewis: Hey, everybody. Thanks, and good morning, and thanks for taking my questions.

Greg Lewis: Thank you for the guidance and the commentary to kind of get us there. But I was hoping, you know, I realize we got to get through Q3 before we start thinking about Q4. But, I mean, you did mention that kind of...

Gregory Lewis: You know, that kind of, I guess, 58% gross margin exit rate in Q4, you know, as I think about that, I'm assuming that's more of like a December exit than, say, a Q4 exit, and then just, you know, to kind of help us understand that a little bit. And then, you know, Quintin, I mean, it's definitely exciting. Any, you know, but of course, any kind of commentary around, you know, what those gross margins look like in, you know, in that 58% range versus maybe where you've seen them in previous cycles and kind of as, yeah, just kind of curious about your views around, you know, give us a little bit of a history lesson there.

Greg Lewis: you know in terms of sequencing I'm assuming that's more of like a December exit than say a Q4 exit and then just

Greg Lewis: You know, to kind of help us understand that a little bit. And then, you know, I guess Quintin, I mean, it's definitely...

Gregory Lewis: And then, you know, I guess, Quintin, I mean, it's definitely, it's bullish times in the PSV market. But of course, any kind of commentary around what those gross margins look like and that 58% range versus maybe where you've seen them in previous cycles and kind of curious on your views around. Give us a little bit of a history lesson there. Thanks. Okay.

Quintin: Bullish times in the PSV market.

Speaker Change: But of course, any kind of commentary around, you know, what those gross margins look like in.

Quintin: and that 58% range versus maybe where you've seen them in previous cycles and kind of curious on your views around, give us a little bit of a history lesson there.

Quintin Kneen: Thanks. Okay.

Quintin Kneen: Well, we're going to, we're going to answer this in the team format, Greg and Greg, because it talks to you again. So it is an interesting time because there is the other element that I would add to the discussion in the context of how the gross margin is going to be accelerating over the second half of 24 is that this is a very heavy tri-dock here. So, you know, we've been spending; I think we spent over $80 million in the first two quarters on tri-docks. I think, again, another 30 some odd million in Q3. And then once those boats that are in drydock free up and go back onto their contracts, that naturally just increases revenue in the fourth quarter.

Speaker Change: Thanks. Okay. Well, we're going to answer this in a team format, Greg, and Greg, thank you very much. Thank you.

Quintin Kneen: Well, we're going to answer this in a team format, Greg, and Greg, good to talk to you again. So, this is an interesting time, because the other element that I would add to the discussion in context of how the gross margin is going to be accelerating over the second half of 24 is that this is a very heavy dry dock. So, you know, we've been spending, I think we spent over $80 million in the first two quarters on dry docks. I think we got another $30, some odd million in Q3.

Greg Lewis: It's good to talk to you again.

Speaker Change: So it is an interesting time because there is the other element that I would add to the discussion in context of how the gross margin is going to be accelerating over the second half of 2024 is that this is a very heavy dry dock year.

Speaker Change: So, you know, we've been spending, I think we've spent over $80 million in the first two quarters on Tridox. I think we've got another $30 million.

Quintin Kneen: And then once those boats that are in dry dock free up and go back onto their contracts, that naturally just increases revenue in the fourth quarter. So, we have this benefit that's naturally going to pop up in Q4, which is all these boats that have been in dry dock are finally free, they're clean, they're ready to go, they're up and running, and they're moving on to these new contracts that Piers had alluded to and West had also talked about.

Speaker Change: Some odd million in Q3.

Greg Lewis: And then once those boats that are in dry dock free up and go back onto their contracts, that naturally just increases revenue in the fourth quarter.

Quintin Kneen: So we had this benefit that's naturally going to pop in Q4, which at all these boats that have been drydock are finally free, they're clean, they're ready to go, they're up and running, and they're moving on to these new contracts that that pure similar to and Western also talked about. And then, in combination with that, you know, we've had, you know, a relatively high level of fuel expense related to moving those vessels into drydock, pulling them out. So supplies and consumables and repair and maintenance have been relatively high. And then we had a couple of unusual items that Sam talked about in Q2.

Speaker Change: So we have this benefit that's naturally going to pop in Q4, which is all these boats that have been in dry dock are finally free, they're clean, they're ready to go, they're up and running, and they're moving on to these new contracts that Piers had alluded to and West had also talked about.

Quintin Kneen: And then in combination with that, we've had, you know, a relatively high level of fuel expense related to moving those vessels into dry dock, pulling them out, so supplies and consumables and repair and maintenance have been relatively high. And then we had a couple of unusual items that Sam talked about in Q2, you know, a couple of New York. Thank you.

Speaker Change: and then in combination with that.

Speaker Change: And then we had a couple of unusual items that Sam talked about in Q2, a couple, you know. And then we had a couple of unusual items that Sam talked about in Q2, a couple, you

Quintin Kneen: Yeah, a couple, you know, a settlement of a customs case in West Africa and then, you know, another element related to the write-off of the Amazon. Yeah, right. Oh yeah, you know, I'm going to talk about that one in a second. So we had a right off of some crew, mope costs and in the Middle East. So we have costs coming down substantially. We got the boats freed up to go to work, and then we have the work coming in in Q4, and that's what's driving that pop in margin. Now, it's really to be like the margins of, you know, where they go, you know, when they're, you know, where they peak. If I listen, I hope we don't see a peak, quite frankly.

Speaker Change: of New York.

Speaker Change: So, we have costs coming down substantially, we have the boats freed up to go to work, and then we have the work coming in in Q4. And that's what's driving that pop in margin.

Speaker Change: When they're, you know, where they peak, I hope we don't see a peak, quite frankly, I hope it keeps on going, but it's very natural for me to see a business of this type that's earning its cost of capital, getting a 70% margin, you know,

Quintin Kneen: I hope it keeps on going, but it's very natural for me to see a business of this type that's earning this cost of capital, getting a 70% margin, you know, over time. And great, before I leave it, there's something that I don't know if it came out as well on the prepared remarks. I just want to talk about it and use your time. You know, the really nice thing about Tidewater and the footprint that we have was illustrated a lot by, you know, what happened in the Middle East or in the second quarter. And we saw a little bit of even rolling into the third quarter.

Quintin Kneen: And Greg, before I leave, there's something that I don't know if it came out as well in the prepared remarks, but I just want to talk about it and use your time. The really nice thing about Tidewater and the footprint that we have was illustrated a lot by what happened in the Middle East during the second quarter, and we saw a little bit of it even rolling into the third quarter.

Speaker Change: over time.

Speaker Change: And Greg, before I leave it, there's something that I don't know if it came out as well on the prepared remarks. I just want to talk about it and use your time. The really nice thing about Tidewater and the footprint that we have was illustrated a lot by what happened in the Middle East during the second quarter, and we saw a little bit even rolling into the third quarter.

Quintin Kneen: And, you know, you saw your rep code that they were going to reduce activity levels; they ended up, you know, giving vessels back to us. And when they give those vessels back to us, then we have to write off in the mode costs associated with when we move those votes into it. That's what Sam was talking about: that one penalty. But then the team was able to get all the votes back on work really quickly. And so to me, it's just a really exciting time as things shift a little bit, but it's, you know, it goes to, you know, just managing a little bit of the geographic diversification to optimize the outcome.

Quintin Kneen: You know, when the Arab code decided they were going to reduce activity levels, they ended up, you know, giving vessels back. And when they give those vessels back to us, then we have to write off the mold costs associated with when we move those boats into them, and that's what Sam was talking about, that one penalty. But then the team was able to get all the boats back on work really quickly. And so, to me, it's just a really exciting time as things shift a little bit, but it goes to, you know, managing a little bit of the geographic diversification to optimize the outcome. And this is just another good example of it. And I think as we roll to Q4, you'll see a little bit more of that as Piers repositions those boats to take advantage of newer contracts.

Speaker Change: And when they give those vessels back to us, then we have to write off the mold costs associated with when we move those boats into it, and that's what Sam was talking about, that penalty.

Speaker Change: But then the team was able to get all the boats back on work really quickly. And so, to me, it's just a really exciting time as things shift a little bit, but it's, you know, it goes to, you know, just...

Quintin Kneen: And this is just another good example of it. And I think as we wrote before, you'll see a little bit more of that as Pierce repositions those votes to take advantage of newer times.

Gregory Lewis: So I know, hey, that was super helpful, everybody.

Gregory Lewis: All right, Noah, hey, that was super helpful, everybody. Thank you for the time and have a great rest of the summer. Thank you.

Operator: Thank you for the time, and have a great rest of the summer. Thank you. Thanks, Greg.

Speaker Change: That was super helpful, everybody. Thank you for the time and have a great rest of summer. Thank you. Thanks, Greg.

Fredrik Stene: Our next question comes from the line of Fredrickstein with Clarkson Securities. Please go ahead. Equincent and team hope you are all well. I want to follow up a bit on one of the previous questions and the commentary that you gave around the leading edge rate this quarter. As you say yourself, all rates across regions and assets are up. You amplify that with some leading edge rate examples for the larger vessels as well. And you told us that you have signed 21 contracts. So it's just wondering in terms of, you know, contracting volume. And did you have more vessels, larger vessels, to sign this quarter that could have brought that average up again?

Operator: Our next question comes from the line of Fredrik Stene with Clarkson Securities. Please go ahead.

Fredrik Stene: Hey Quintin and team, hope you are all well. I want to follow up a bit on one of the previous questions and the commentary that you gave around the leading edge rate this quarter, as you say yourself, all rates across.

Speaker Change: Hey Quintin and team, hope you are all well.

Speaker Change: Regions and asset classes are up. You exemplify that with some leading interest rate examples for the larger vessels as well. And you told us that you have signed 21 contracts.

Speaker Change: Did you have more vessels, larger vessels, to sign this quarter that could have brought that average?

Fredrik Stene: Or was this just arbitrarily a quarter where you only have 21 vessels to re-contract? And that's why we got this higher volume of the lower vessels. So any additional commentary on that would be super helpful. Yeah.

West Gotcher: Hey, Fredrick. It's Wes. Good morning. You know, it's kind of alluded to it. To some degree, again, the vagaries of having 213, you know, discrete assets that we contracted for various links of time at different points in time. And so, you know, in any given quarter, you can have a mix that shifts one direction or the other. We didn't mention, you know, as we talked about in the Middle East, we had, you know, a number of vessels come off of the long-term contracts early. That is a bit unusual. And so you have a higher preponderance of vessels re-contract and perhaps normally would have, right?

Speaker Change: Yeah, hey Fredrik, it's Wes, good morning. You know, as I kind of alluded to, it's

Speaker Change: To some degree, again, the vagaries of having 213 discrete assets that we contracted for various lengths of time at different points in time.

West Gotcher: If they would have gone to the end of their contract lives. So, you know, I don't know that there's a rule of thumb could, you know, could there have been a few more boats that a larger boats to your question that could have contracted but for the project delays? Yeah, perhaps. But, you know, I think it's just important to remember that with 213 boats, seven different vessel classes that we talk about, and quite a few boats, boats spread across those classes. You can just have periods in which the mix, if you will, is a little bit different than the distribution of the fleet.

Frederick: 213 votes.

Speaker Change: seven different vessel classes that we talked about and quite a few votes spread across those classes.

West Gotcher: So, I don't know that there's a, you know, a rule of thumb here that we can give to you other than to say that from time to time, you can have these variations in what's contracting during a given time period. I absolutely agree with that. It's more about, you know, one thing is that you have a higher number of smaller vessels coming or being reconstructed, but also it's, you know, you have a negative effect on the other side if there was, you know, again by chance, just a quaker where we had a few available larger vessels to reconstruct, which would also have, you know, a skewer effect on that average number.

Speaker Change: I absolutely agree. One thing is that you have a higher number of smaller vessels coming.

West Gotcher: or being recontracted, but also if, you know, you have a negative effect on the other side, if there was, by chance, just a quarter where you had fewer available larger vessels to recontract, which would also have, you know, a skewing effect on that average number. Absolutely. Absolutely. If you have to recontract half of the fleet two times each year, it's a lot of recontracting to do. So, any thoughts on that?

West Gotcher: Absolutely. Yeah.

Fredrik Stene: Okay, just on, you also mentioned a five-month average contract length. You think, you know, on average, you'll go much slower than that going forward. I guess, for you guys, it's all about managing, you know, having some baseline coverage and also being able to play the market. But if you have to reconstruct, you know, half of the fleet to tie each vessel two times each year, it's a lot of reconstructing to do. So, any thoughts on that?

Speaker Change: You also mentioned a five-month average contract length. Do you think on average you'll go much slower than that going forward? I guess for you guys, it's all about managing, having some baseline coverage and also being able to play the market.

Piers Middleton: Well, I think I'll let Piers talk to this and see if he can give you a sense for what he feels about the momentum and day rates and so forth. Yeah. I'm high, Fredrik. This was a, you know, lower than we would normally expect. I mean, I think previous courses would be in a nine months or also as well as been going as a general composite sort of across the whole fleet; we're still at 18 months. But, you know, we're starting to see some slightly longer-term contracts. I mean, drilling is generally short term anyway, and construction as well.

West Gotcher: Well, I think I'm going to let Piers talk about this as he's doing this on a day-to-day basis, so he can give you a sense of what he feels about the momentum and day rates and so forth.

Piers Middleton: Hi Fredrik, it was a little bit lower than we would normally expect. I mean, I think previous courses we've been on nine months or so is where we've been going as a general concept across the whole fleet. We're still at 18 months, but now we're starting to see some slightly longer-term contracts. I mean, drilling is generally short term anyway, and construction as well. So I think this was actually to jump on a bit of West points from earlier. You just have quarters which are just a little bit different.

Susan: And Susan.

Speaker Change: lower than we would normally expect and I think previous courses would been at nine months or so as where we've been going as a general concept across the whole fleet was still at 18 months. But we're starting to see

Piers Middleton: So, I think this was actually to jump on a bit of West points from earlier. You just have courses sometimes, which are just, you know, a little bit different. And I think, you know, that was the case with Q2. We ended up with some smaller vessels, re-contracting, and some of the contracts are just a little bit shorter than we would normally see. But I don't think overall our strategy is going to change. We're still very positive about the long term for this market. So, you know, that gives us opportunities to continue to drive rates. But yeah, we'll see how we go through the next few courses.

Piers Middleton: And I think that was the case with Q2. We ended up with some smaller vessels recontracting, and some of the contracts were just a little bit shorter than we'd normally see. But I don't think our overall strategy is going to change. We're still very positive about the long term for this market. So that gives us opportunities to continue to drive rates. But yeah, we'll see how we do through the next few courses. But at the moment, I think we're just happy where we are at the moment, and we're still very positive about the market going forward into 2025 and 2026.

Speaker Change: you know a little bit different and I think you know that was the case with Q2 we end up with some smaller vessels um recontracting and some of the contracts are just a little bit shorter than we'd normally normally see but I don't think overall our strategy is is going to change we're still very positive about

Speaker Change: You know the long term for this market, so you know that gives us opportunities to continue to drive rates But yeah, we'll see how we we go through the next few courses, but at the moment I think we're just just happy where we are at the moment, and we're still very positive for the market Going going forward into 25 and 26

Piers Middleton: But at the moment, I think we're just happy where we are at the moment, and we're still very positive for the market going forward.

Fredrik Stene: It's 25 and 26.

Fredrik Stene: This is Superl4 and I'm the final one for me, which relates to day rates going forward. I think you're right in the report that you, you know, you'll remain optimistic about the outlook for 2025. That the current supply and the amount factors should allow you to maintain the pace of the rate increases that you have achieved over the past year. And I think for your, you know, the average rate to report to this quarter that around 21,000 dollars per day; second quarter last year was 16. So you've seen like a five thousand dollars per day improvement over the last year. If you look at second quarter specifically.

Piers Middleton: Super helpful, and the final one for me, which relates to day rates going forward. I think you're right in the report that you obviously remain optimistic about the outlook for 2025 and that the current supply and demand factors should allow you to maintain the pace of daily rate increases that you have achieved over the past year. I think For the average rate you reported this quarter, that's around $21,000 per day. The second quarter last year was $16,000, so you've seen a $5,000 per day improvement over the last year if you look at the second quarter Are you saying that we should expect average reach to be around in the second quarter 2025?

Speaker Change: should allow you to maintain the pace of daily rate increases that you have achieved over the past year.

Fredrik Stene: Are you, you know, saying that we in 20, the second quarter 2025 should expect average rate to be around 26,000 dollars. All right, Frederick, you're getting a little ahead there. I mean, I think it's not, you know, that $3,500 to $4,500 range per year. I think that's what we can push it. And that's about where we've been at the last year and a half or so. I don't want to get everyone too excited. But yeah, I do believe that that momentum that we're talking about, it is there and we continue to capitalize on it. And I've looked forward to delivering on it.

Piers Middleton: And that's about where we've been for the last year and a half or so. I don't want to get everyone too excited, but yeah, I do believe that the momentum that we're talking about is there, and we can...

Fredrik Stene: And I'll, that, thanks, wait, I framed the question like that on purpose, but I guess, you know, I, I guess they're on 4K per day.

Speaker Change: Thanks, Wim. I framed the question like that on purpose. I guess around 4K per day is also acceptable. All right. Thank you so much, guys. That's all from me.

Fredrik Stene: It's also, yeah, that's all for me.

David Smith: Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead. Hey, good morning. Thank you for taking my questions.

Operator: Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.

Speaker Change: Our next question comes from a line of David Smith with Pickering Energy Partners. Please go ahead.

David Smith: Hey, most of my questions had been asked, but I wanted to make sure I understood the comments about higher expected Q3 dry dock days. If, if that was just shifting Q4 schedule to Q3, if, if it's a little bit higher expected downtime for vessel and if this impacts your average utilization expectations for 24. Hey, Dave, how are you? This is Sam. So the Q3 expectation and dry dock, it's a mixture. We had some push into Q3 that were supposed to be done in Q2 just because of the contracts, the way they were, you know, kind of being worked.

David Smith: Hey, good morning. Thank you for taking my questions.

Speaker Change: Okay, we're good.

David Smith: Hey, most of my questions had been asked, but I wanted to make sure I understood the comments about higher expected Q3 dry dock dates. If that was just shifting Q4 schedules to Q3, if...

Speaker Change: if it's a little bit higher expected downtime for vessel and if this impacts your average utilization expectation for 24.

David Smith: Hey Dave, how are you? This is Sam.

Speaker Change: Hey Dave, how are you? This is Sam. So the Q3 expectation of dry dock, it's a mixture. We had some push into Q3 that were supposed to be done in Q2.

Samuel Rubio: So the Q3 expectation and dry dock, it's a mixture. We had some push into Q3 that was supposed to be done in Q2, just because of the contracts, the way they were, you know, kind of being worked out. But then you had some in Q4 getting pushed into Q3 just because, again, some of the contracts, the way they're shifting, give us the opportunity to get those dry docks done. So, it is a combination of pushing in and pushing out.

Sam Rubio: But then you had some in Q4 getting pushed into Q3 just because, again, some of the contracts, the way they're shifting, it gives us the opportunity to get those dry docks done sooner. So, so it is a combination of pushing in and pushing out. The, you know, the overall Q3 amount of days is, you know, probably around 300 extra days in the quarter than what we originally anticipated.

Speaker Change: just because of the contracts, the way they were, you know, kind of being worked. But then you had some in Q4 getting pushed into Q3 just because, again, some of the contracts, the way they're shifting, it gives us the opportunity to get those dry docks done sooner.

Speaker Change: So it is a combination of pushing in and pushing out, you know the overall Q3

Samuel Rubio: The overall Q3... I'm out of days, you know. Probably around 300 extra days in the quarter than what we originally emphasized.

Speaker Change: Amount of days is, you know.

Speaker Change: Probably around 300 extra days in the quarter than what we originally anticipated.

Sam Rubio: Okay, but not, not really have a higher expectation of dry dock days for the year. It's not bugs. There will be our expectation of dry dock days in the year. Yes. Again, some of it was because of some of the delays that we have seen in the dry docks, but again, just because of the timing, the way they're getting pushed.

David Smith: Okay, but I do not really have a higher expectation of dry dock days for the year, it sounds like.

Speaker Change: Okay, but not really have a higher expectation of dry dock days for the year, it sounds like.

Samuel Rubio: There will be higher expectations of dry dock days in the year, yes. Again, some of it is because of some of the delays that we have seen in the dry docks. But again, just because of the timing, the way they're getting put.

Speaker Change: There will be higher expectation of dry dock days in the year, yes. Again, some of it was because of some of the delays that we have seen in the dry docks, but again just because of the timing, the way they're getting pushed, yeah.

Sam Rubio: Yeah, I appreciate it. And then I want to make sure I understood correctly the Q3 revenue is expected roughly flat from Q2 because I think that would require a roughly 18% revenue increase in Q4 to hit the new guidance midpoint of 1.4 billion. That's right. We expect Q3 revenue to be roughly flat, as we said, you know, in the prepare remarks of a nice step up in Q4 and that Q4 expectation, you know, kind of qualitatively around our revenue is not dissimilar to what we anticipated previously. And I think if you think about it conceptually, you know, the projects that we anticipated to start in Q3 that would have run into Q4 are now starting like Q3 early Q4, which allowed for that revenue to be realized in that period.

Samuel Rubio: I appreciate it. And then, I wanted to make sure I understood correctly that Q3 revenue is expected roughly flat from Q2 because I think that would require a roughly 18% revenue increase in Q4 to hit the new guidance midpoint of $1.4 billion.

Speaker Change: I appreciate it. And then I wanted to make sure I understood correctly that Q3 revenue is expected roughly flat from Q2 because I think that would require a roughly 18% revenue increase in Q4 to hit the new guidance midpoint of 1.4 billion.

Samuel Rubio: That's right. We expect Q3 revenue to be roughly flat. As we said in the prepared remarks, a nice step up in Q4. And that Q4 expectation, kind of qualitatively around our revenue, is not dissimilar to what we anticipated previously. And I think if you think about it conceptually, you know, the projects that we anticipated to start in Q3 that would have run into Q4 are now starting late Q3, early Q4, which should allow for that revenue to be realized in that period. All right.

Speaker Change: That's right, we expect...

Speaker Change: Q3 revenue to be roughly flat as we said, you know in the pair remarks a nice step up in q4

Speaker Change: And that Q4 expectation, you know, kind of qualitatively around our revenue is not dissimilar to what we anticipated previously. And I think if you think about it conceptually, you know,

Speaker Change: The projects that we anticipated to start in Q3 that would have run into Q4 are now starting late Q3, early Q4, which should allow for that revenue to be realized in that period.

David Smith: All right, I appreciate it.

David Smith: All right, I'll appreciate it. I'll sign it back. Thanks, Dave.

David Smith: I'll find it back. Thanks, Dave.

Speaker Change: All right, I appreciate it. I'll be right back.

Josh Jayne: Our next question comes from a line of Josh Jane with Daniel Energy Partners. Please go ahead. Thanks. Good morning. Good morning, Josh.

Operator: Our next question comes from a line of Josh Jane with Daniel Energy Partners. Please go ahead.

Dave: Thanks, Dave.

Speaker Change: Our next question comes from a line of Josh Jane with Daniel Energy Partners. Please go ahead.

Josh Jane: So, the first question that I wanted to ask is just about the margin improvement, not only as we think about Q4, but going into 2025. A lot of the items that you mentioned that are going to positively impact Q4, notably the dry docks coming down, utilization higher, etc. Maybe rates will go up a little bit. Those things are going to be in play in 2025 as well. So, just as we think about going into next year and the 57%, 58% vessel operating margin, that should sort of be a baseline as we move into 2025. Is that a good way to think about things first?

Josh Jane: Thanks. Good morning.

Josh Jayne: So this is the first question that I wanted to ask, is just about the margin improvement, not only as we think about Q4 but going into 2025. A lot of the items that you mentioned that are going to positively impact Q4, so notably the dry dots coming down, utilization higher, etc. Maybe rates go up a little bit that those things are going to be in play in 2025 as well. So just as we think about going into next year. And the 57-58% vessel operating margin that should sort of be a baseline as we move into 2025.

Speaker Change: Good morning.

Josh Jane: Hi Josh. So the first question that I wanted to ask is just about the margin improvement, not only as we think about Q4 but going into 2025. A lot of the items that you mentioned that are going to positively impact Q4, so notably the dry docks coming down, utilization higher, etc. Maybe rates go up a little bit.

Speaker Change: Those things are going to be in play in 2025 as well. So just as we think about going into next year and the 57-58% vessel operating margin, that should sort of be a baseline as we move into 2025. Is that a good way to think about things first?

Quintin Kneen: Is that a good way to think about things first? Well, we haven't given full guidance on the 25th, but we will do that on the next call. But directly, you're correct. So here's a couple of things that we have said that dovetail into what you were saying. Which is, you know, as they reach continue to improve, I don't see them pulling back in 25, so that spread and that margin that we're building on should continue to grow. The other thing that's really unique about moving from 24 to 25 is 24 is our heaviest dry dot year in the five year cycle, and 25 is going to be our lightest.

Speaker Change: Well, we haven't given full guidance on the 25 yet, but we will do that on the next call. But, Drexler, you're correct. So here's a couple things that we have said that I...

Speaker Change: to dovetail into what you were saying, which is, as dairies continue to improve, I don't see them pulling back in 25, so that spread and that margin that we're building on should continue to grow.

Quintin Kneen: The other thing that's really unique about moving from 24 into 25 is that 24 is our heaviest dry dock year in the five-year cycle, and 25 is going to be our lightest. So the vessels that have been off higher in the first half of the year, the first nine months of the year, and the money that we've been spending on repairing the vessels and fixing them up, we won't see nearly that amount as we go into the second half.

Speaker Change: The other thing that's really unique about moving from 24 to 25 is 24 is our heaviest dry dock year in a five-year cycle and 25 is going to be our lightest.

Quintin Kneen: So the vessels that have been, you know, off higher in the first half of the year, first nine months of the year and the money that we've been spending on repairing the vessels and fixing them up. We won't see nearly that amount as we go into 25. So there's going to be more vessel uptime. There's going to be fewer costs, and that should be very indicative of what we're expecting to see in Q4.

Speaker Change: So, the vessels that have been off higher in the first half of the year, first nine months of the year, and the money that we've been spending on repairing the vessels and fixing them up.

Quintin Kneen: So there's going to be more vessel uptime, there's going to be fewer costs, and that should be very indicative of what we're expecting to see in Q4. So let me leave it that way, and then I'll give you a full rundown when we do the next quarterly call.

Speaker Change: We won't see nearly that amount as we go into 2025. So there's going to be more vessel uptime, there's going to be fewer costs, and that should be very indicative of what we're expecting to see in Q4.

Quintin Kneen: So let me leave it that way, and then I'll give you a full rundown when we do the next quarter call.

Speaker Change: Let me leave it that way, and then I'll give you a full rundown when we do the next quarter column.

Josh Jane: understood. And you alluded to it earlier, some of the contracting delays that we've seen and, you know, things being pushed to the right in the offshore drilling world. Could you, just, maybe you could talk about the reasons for the delays? Again, you talked that it was, and you spoke that it wasn't necessarily cost driving it. I was hoping you could go into a little more detail there and what you're seeing with respect to why the delays are happening. And then also a follow-on to that is if you could just frame your expectations for offshore rig activity maybe over the next 12, 24 months and, you know, looking forward, it would be great. Thank you

Piers Middleton: Understood, and you alluded to it earlier: some of the contracting delays that we've seen and, you know, things being pushed to the right in the offshore drilling world. Could you just maybe you could talk about the reasons for the delays again. You talked that what you spoke that it wasn't necessarily cost driving it. I was hoping you could go into a little more detail there and what you're seeing with respect to why the delays are happening. And then also a follow-on to that is if you could just frame your expectations for offshore rig activity, maybe over the next 12 to 24 months and, you know, looking forward would be great.

Speaker Change: understood and you alluded to it earlier some of the contracting delays that we've seen and you know things being pushed to the right in offshore drilling world could you just

Piers Middleton: Thank you. Yeah

Speaker Change: maybe you could talk about the the reasons for the delays again you talked at what you spoke that it wasn't necessarily cost driving it I was hoping you could go into a little more detail there and what you're seeing

Speaker Change: with respect to why the delays are happening. And then also, a follow-on to that is if you could just frame your expectations for offshore rig activity maybe over the next 12-24 months, and looking forward would be great. Thank you.

Piers Middleton: Thank you. All right. Well, I'm going to kick that one over to Pierce since he's dealing with them on a regular basis to talk to you a little bit about anecdotally what he feels is pushing things to the right. And he may have a sense also of the root market build as we go through the next couple of years. So let me, let me kick it over to him and then follow up. Thank you. Yeah, I mean, for a project point of view, we saw a number of projects just getting pushed to the right because I think it's Quentin alluded to in his comments earlier.

Piers: Alright, well, I'm going to kick that one over to Piers, since he's dealing with them on a regular basis, to talk to you a little bit about, anecdotally, what he feels is pushing things to the right. And he may have a sense...

Piers: Also, of the rig market build as we go through the next couple of years. So, let me kick it over to him and then I'll follow up.

Piers Middleton: Thank you. For a project point of view, we saw a number of projects just getting pushed to the right because I think as Quintin alluded to in his comments earlier, that's logistics and supply chain, project planning perhaps from our customers was not as speedy as perhaps they had envisioned and I think one or two customers, I don't really want to be specific on areas, but one or two customers couldn't get hold of drill pipe, for instance, so they end up saying, oh, we're going to have to delay the project or things like that, or we couldn't get hold of a rig and it's just planning more than anything else and just everything got pushed to the right.

Piers: Thank you. For a project point of view, we saw

Piers: A number of projects just getting pushed to the right because I think as Quintin alluded to in his comments earlier, that's logistics and supply chain. Project planning perhaps from our customers was not as

Piers Middleton: That's a logistics and supply chain project planning; perhaps from our customers was not as speediest, perhaps they had envisioned. And I think one or two customers on it really want to be specific on areas, but one or two customers couldn't get hold of drill pipe prints, and so they end up, you know, saying we're going to have to do a project or we, you know, things like that, we couldn't get hold of a rig. And it's just planning more than anything else, and just everything got pushed to the right. I think there was also, in a couple of areas, there was a lack of maybe some personnel sort of issues to get organised in time, and the project just got split.

Speaker Change: speedy as perhaps they had envisioned and I think one or two customers, I don't really want to be specific on areas, but one or two customers

Speaker Change: couldn't get ahold of drill pipe for instance, so they end up...

Speaker Change: you know saying oh we're going to have to delay the project or we you know things like that or we couldn't get hold of a rig and it's just um planning more than anything else and just everything got pushed to the right. I think there was also in a couple of areas um there was a lack of um maybe

Piers Middleton: I think there were also in a couple of areas, maybe a lack of maybe some personnel sort of issues to get organized in time, and the project just got slipped 60 to 90 days. So, we didn't see any cancellations, so nothing to worry about, but Q4 definitely looks very positive on that. I think in terms of just the rig activity, when we look out to sort of obviously, we follow it very carefully in each of the regions we're in, there's a little bit of movement at the moment, and it's not absolute.

Speaker Change: Some personnel issues to get organized in time, and the project just got slipped.

Piers Middleton: at 60 to 90 days. So we didn't see any cancellations, so nothing to worry about, but Q4 definitely looks very positive on that.

Piers Middleton: I think in terms of just the rigged activity, what we look out to follow very carefully in each of the regions we're in, there's a little bit of movement at the moment, and it's not absolute. It's not absolute in each of the regions we're operating in, but I would say our customers, the IACs, now have gotten themselves better organised, and I think they've got pretty good visibility for 25 and 26 in all the regions, and I think we'll see a big uptick in activity and everywhere we operate in all sort of main areas. So we're very positive; I think 24 was shuffling around more than anything else, and a planning ended up being a bit more planning than was expected.

Speaker Change: When we look out to sort of, obviously we follow it very carefully in each of the regions we're in, there's a little bit of movement at the moment and it's not absolute, it's not absolute in each of the regions we're operating in, but I would say our customers of the IOCs now have got themselves better organized.

Piers Middleton: It's not absolute in each of the regions we operate in, but I would say our customers of the IAC now have got themselves better organized, and I think they've got pretty good visibility for 25 and 26 in all the regions. And I think, you know, we'll see a big uptick in sort of activity everywhere we operate, you know, in all the sort of main areas. So, you know, we're very positive.

Speaker Change: and I think they've got pretty good visibility for 25 and 26.

Speaker Change: in all the regions. And I think, you know, we'll see a big uptick in sort of activity in everywhere we operate, you know, in all the sort of main areas. So, you know, we're very positive. I think 24 was

Piers Middleton: I think 24 was shuffling around more than anything else, and the planning ended up being a bit more planning than was expected. So, you know, visibility wise, we're pretty positive as we go into 25 and 26 with the rig in all the regions we're in.

Speaker Change: shuffling around more than anything else, and the planning ends up being a bit more planning than was expected. So visibility-wise, we're pretty positive as we go into 2025 and 2026 with the rig in all the regions we're in.

Piers Middleton: So, the visibility wise, we're pretty positive as we go into 25 and 26 with the rigged, in all the regions we're in.

Josh Jayne: Great, thanks. I'll turn it back.

Speaker Change: Great, thanks. I'll turn it back.

Donald Crist: Our next question comes from a line of Don Chris with Johnson Race. Please go ahead. Morning, gentlemen. I wanted to ask about the M&A market. You know, in past calls, you said that you were actively looking at a number of deals that were potentially out there in the market, but given higher utilization across the industry, it seems to me that the bid aspect is widening, not narrowing. Any comments around that? You know, there's, I don't want to say too much, because that situation that you illustrated still remains right, but obviously we're looking to make sure that any deal we do raises value to our shareholders.

Operator: Our next question comes from the line of Dawn Criss with Johnson Rice. Please go ahead.

Speaker Change: Our next question comes from the line of Dawn Criss with Johnson Rice. Please go ahead.

Donald Crist: Morning, gentlemen. In past calls, you said that y'all were actively looking at a number of deals that were potentially out there in the market, but

Dawn Criss: Morning, gentlemen. Quintin, I wanted to ask about the M&A market. In past calls, you said that y'all were actively looking at a number of deals that were potentially out there in the market.

Speaker Change: Given higher utilization across the industry, it seems to me that the bid-ask spread is widening, not narrowing. Any comments around that?

Quintin Kneen: You know, there are some that fit nicely into our age profile because everybody has been optimistic about the market, and they have been trying to demand more than I think that they're worth at the current time. And so we're just staying disciplined. And I think in the long run, things will get done. But I don't want to... The last thing I want to do is overpay for a bunch of assets. And so we're just... I would suffice it to say that we're being very price disciplined, but we're continuing to be very active in the...

Quintin: You know there's there's

Speaker Change: Thank you. Bye.

Quintin: I don't want to say too much because that situation that you illustrated still remains, right? But obviously we're looking to make sure that any deal we do creates value to our shareholders.

Quintin Kneen: And for us, we can make a tremendous amount of money with the 200 plus vessels that we have, the day rates that we're talking about, the margin expansion, but there's a tremendous amount of value that's going to be created as we roll through 25 and 26, just with the existing fleet. So when I look at potential acquisitions, I'm focused on particular geography or particular both class or ideally both, and then they fit nicely into our fleet, and fit nicely into our age profile. Because everybody has been optimistic about the market, and they have been trying to demand more than I think that they're worth at the current time.

Speaker Change: And for us, you know, we can make a tremendous amount of money with the 200 plus vessels that we have. You know, the day rates that we're talking about, the margin expansion, there's a tremendous amount of value that's going to be created as we roll through 25 and 26, just with the existing fleet. So when I look at...

Speaker Change: potential acquisitions focused on a particular geography or a particular boat class or ideally both and they fit nicely into our fleet and nicely into our age profile

Speaker Change: Because everybody has been optimistic about the market and, you know, they have been...

Speaker Change: I'm trying to demand more than I think that they're worth at the current time. And so, you know, we're just staying disciplined. And, you know, I think in the long run things will get done. But I don't want to... The last thing I want to do is overpay for a bunch of assets.

Quintin Kneen: And so, we're just saying discipline, and I think in the long run things will get done, but I don't want to, the last thing I want to do is overpay for a bunch of assets. And so we're just, I would suffice to say the words being very price-disciplined, but we're continuing to be very active in the market.

Speaker Change: And so, I would suffice it to say that we're being very price-disciplined, but we continue to be very active in the market.

Quintin Kneen: Okay, I appreciate that color, and just one more for me. You know, it seems like you're going to generate significant free cash flow over the next 12 to 18 months. And just your thoughts around what you would deploy that capital into, would it be, you know, share repurchases, or would you just kind of build cash, or maybe pay down debt, et cetera, just your thoughts around, you know, use this for that free cash. Well, we're not going to build cash. We'll certainly keep cash as necessary for liquidity and so forth. I don't think that we are overleveled at this point in the cycle.

Donald Crist: Okay, I appreciate that color. And just one more for me, you know, it seems like you're going to generate significant free cash flow over the next 12 to 18 months. And just your thoughts around what you would deploy that capital into? Would it be, you know, share repurchases? Or would you just kind of build cash or maybe pay down debt, etc.? Just your thoughts around, you know, uses for that free cash flow.

Quintin Kneen: So, you know, as a result, that cash is either going to get deployed into value-creative acquisitions that we were just talking about, if I can get them done, if we can get them done, or we are to turn that money into shareholders.

Quintin Kneen: So, you know, as a result, that cash is either going to get deployed into value, creative acquisitions that we were just talking about if I can get them done, if we can get them done, or we were sharing that money to shareholders. I appreciate the color.

Donald Crist: Thank you.

Magnus Andersen: I'll turn it back. Our next question comes from a line of Magnus Andersen with fairly securities. Please go ahead. Hey guys, thanks for taking my question. So a follow-up on the leading edge rate that you talked about earlier. If you adjust for the lower spec, Middle East vessels to the leading edge rate to a representative distribution, what would that level be? Or could you provide some information regarding the increase to leading edge rate for the lower spec classes?

Operator: Our next question comes from a line from Magnus Anderson with Fernley Securities. Please go ahead. Hey guys, thanks for taking my question.

Speaker Change: Our next question comes from a line of Magnus Anderson with Fernley Securities. Please go ahead.

Donald Crist: Hey guys, thanks for taking my question.

Magnus Anderson: Hey guys, thanks for taking my question. So, a follow-up on the leading-edge rate that you talked about earlier. If you adjust for the lower spec Middle East vessels to the leading-edge rate to a representative distribution, what would that level be? Or could you provide some information regarding the increase to leading-edge rate for the lower spec classes?

Magnus Anderson: I'm not sure I understand the first part of the question, but I think what's relevant is it relates to those vessels that re-contracted in the Middle East, as we noted in the press release. Even in that scenario where vessels came off early, we were able to get them recontracted quickly at meaningfully higher day rates. It just so happened that given the distribution and given the nature of these assets, they brought down that leading edge day rate, on a composite basis, all right, but there are elements in that situation that we believe are constructive.

West Gotcher: I'm not sure I understand the first part of the question, but I think what's relevant is, it relates to those vessels that re-contracted in the Middle East, as we noted in the press release? You know, the rates that we realized by re-contracting the vessels quickly were, on average, 29% higher. Now, it was off a much lower base, right? Because again, these are the smallest vessels in, you know, the lowest, one of our lowest day rate regions. But I think what's important is that even in that scenario where vessels came off early, we were able to get them re-contracted quickly.

Speaker Change: day rate regions. But I think what's important is that

West Gotcher: Meaningfully, higher day rates; it just so happened that, given the distribution and given the nature of these assets, that they brought down that leading edge day rate on a composite basis. But there are elements to that situation that we believe are constructive. Again, a significant improvement in day rates for vessels that were, you know, terminated, right, and quickly re-contracted. So, I think that speaks to the strength of the market in general. I think that speaks to our regional diversification, our ability to have the on-the-ground capabilities to get those vessels re-contracted quickly. There's some, I think some positive elements there, but again, just given the nature, as we talked about, not all rates are uniform, even within vessel classes; that just happened to weigh down the leading edge day rate for the quarter.

Magnus Anderson: Again, a significant improvement in day rates for vessels that were terminated, right, and quickly recontracted. So, I think that speaks to the strength of the market in general. I think that speaks to our regional diversification, our ability to have the on-the-ground capabilities to get those vessels recontracted quickly. I think there are some positive elements there, but again, just given the nature, as we talked about, not all rates are uniform, even within vessel classes, that just happened to weigh down the leading-edge day rate for the quarter.

Speaker Change: Just given the nature, as we talked about, not all rates are uniform, even within vessel classes. That just happened to weigh down the leading edge direct for the quarter.

Magnus Andersen: Okay, thank you for the color.

Operator: That's all. That concludes our Q&A session.

Speaker Change: Okay, thank you for the call. That's all.

Operator: That concludes our Q&A session. I will now turn the call back over to Quintin Kneen for closing remarks.

Quintin Kneen: I will now turn the call back over to Quinton Neen for closing remarks. Well, thank you, everyone, and we will update you again in November. Goodbye.

Speaker Change: That concludes our Q&A session. I will now turn the call back over to Quintin Kneen for closing remarks.

Quintin Kneen: Well, thank you, everyone, and we will update you again in November.

Operator: This concludes today's call. You may now disconnect.

Operator: This concludes today's call. You may now disconnect.

Speaker Change: This concludes today's call. You may now disconnect.