Q3 2024 Tidewater Inc Earnings Call
Novi: Thank you for standing by. My name is Novi and I will be your conference operator today.
Novi: At this time, I would like to welcome everyone to the Tidewater Q3 2024 Earnings Conference Call.
Novi: All lines have been placed on you to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.
Novi: We also ask that you please limit your questions to one question, one follow-up. Thank you. 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, Novi. Good morning, everyone, and welcome to Tidewater's third quarter 2024 earnings conference call.
West Gotcher: I'm joined on the call this morning by our President and CEO, Quintin Kneen, our Chief Financial Officer, Sam Rubio.
West Gotcher: and our Chief Commercial Officer, Piers Middleton. During today's call, we'll make certain statements that are forward-looking and referring to our plans and expectations.
West Gotcher: 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: 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 www.tdw.com or through the SEC at www.sec.gov.
West Gotcher: Information presented on this call speaks only as of today, November 8, 2024.
West Gotcher: Therefore, you are advised that 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 GAAP and non-GAAP financial measures.
Speaker Change: A reconciliation of gaps and non-gap financial measures can be found in our earnings release located on our website at TDW.com. And now with that, I'll turn the call over to Quintin.
Quintin Kneen: Thank you, Wes. Good morning, everyone, and welcome to the third quarter 2024 Tidewater Earnings Conference Call.
Quintin Kneen: The quarter revenue came in as expected as day rates continued to improve nicely, exceeding our expectations by over $600 per day. Gross margin came in at 47.2% and we generated free cash flow of $67 million.
Quintin Kneen: Here today, we have generated nearly $224 million of free cash flow, $174 million more than the same period last year.
Quintin Kneen: The substantial improvement in pre-cash flow generation is the result of high grading our fleet through focusing on newer, higher specification vessels and our contracting strategy to relentlessly drive global day rates higher.
Quintin Kneen: We believe that long-term fundamentals support continued free cash flow progression, and we expect our free cash flow generation to improve over the coming quarters.
Quintin Kneen: The third quarter is typically characterized as the most active quarter of a year, as customers take advantage of favorable weather conditions to execute their plans ahead of the seasonally less favorable fourth and first quarters.
Quintin Kneen: We saw this dynamic play out this year, with average day rates improving over 5% and leading edge day rates moving up nicely, particularly in our high-specification PSVs and smaller anchor handlers.
Quintin Kneen: Utilization came down slightly as additional time between jobs, principally in our West Africa and Europe and Mediterranean segments, along with higher than anticipated dry dock days globally, both increased from the second quarter.
Quintin Kneen: On last quarter's call, we discussed our weekly re-forecasting process in the context of the rapid pace at which the industry outlook can change and the need to frequently evaluate our outlook as the factors driving our business evolve.
Quintin Kneen: We've seen that play out in the past three months as activity in certain of our regions softened unexpectedly due to a lack of incremental projects, projects ending early, and regulatory delays causing more idle time for some of our vessels, principally in the Americas and Asia-Pacific.
Quintin Kneen: The North Sea, particularly in the UK sector, is anticipated to be weaker due to a combination of typical winter seasonality and adjustments to their regulatory and tax programs, both of which are putting pressure on day rates and utilization.
Quintin Kneen: to prepare for what is expected to be a better market as we progress into the second half of 2025. And these incremental investments will result in incremental dry dock days as compared to our previous expectation.
Quintin Kneen: More broadly, as we evaluate the landscape for 2025, the outlook on the timing and pace of growth in offshore vessel activity is less clear than it's been in a few years.
Quintin Kneen: We continue to see conviction in long cycle projects by our customers. However, continued near term activity growth appears to be somewhat subdued.
Quintin Kneen: We've seen our customers take a measured approach to executing incremental growth projects.
Quintin Kneen: Importantly, projects aren't being canceled, but the decision to procure vessels and other assets has been stalled as operators evaluate the outcome of recent successes and contend with lead time issues for critical offshore infrastructure and equipment.
Quintin Kneen: We've not seen a pullback in day rates, as evidenced by both the increase in average day rates for the quarter, along with the increase in the quarter's leading edge day rates. However, lower activity levels adversely impact our ability to continue to push day rates as aggressively as we have over the past two years.
Quintin Kneen: Over the last two years, we've been able to push day rates up over $4,000 per day each year, which incidentally is fantastic. And those increases have had a big impact on earnings.
Quintin Kneen: I'm confident we can still push day rates up, but whether it's $1,500 per day, which historically has been the benchmark during industry upturns, or the $4,000 a day we've seen recently, is what we are grappling with.
Quintin Kneen: So we're holding off on guidance for 2025 until we get some better visibility, which we anticipate we will have for you on next quarter's call.
Quintin Kneen: We've talked at length about our contracting strategy over the past few years, the merits of taking a short approach to contract duration in order to push day rates and contractual terms.
Quintin Kneen: We've seen the benefit of this strategy with realized average day rates now almost double what they were at the beginning of 2022, which has had a substantial impact on the earnings and cash flow of the business.
Quintin Kneen: This strategy trades contract coverage and higher utilization for the opportunity to push rates.
Quintin Kneen: Although the near-term expectation and the growth of offshore activity is less certain, we still believe that going short is the right strategy, though it may cause some lower utilization in the near term.
Quintin Kneen: In our view, market day rates still do not justify the economics required for new-build vessels and that the day rates will ultimately need to move to a point where new-build vessels are economically viable.
Quintin Kneen: We see vessel attrition continuing to further constrain vessel supply over the coming years, and given the very low number of new vessels on order, we expect that the balance of supply and demand will remain firmly in our favor for at least the next three years.
Quintin Kneen: As such, we anticipate that as we move through 2025 and into 2026, leading-edge day rates will continue to increase from where we are today, and we will be well-positioned to take advantage of that imbalance as the growth in activity level accelerates.
Quintin Kneen: Subsequent to last quarter's earnings release, we repurchased about 15 million of shares in the open market.
Quintin Kneen: That brings our year-to-date share repurchases to about $48 million. And since the inception of the Buy Back Program in the fourth quarter of 2023, we have repurchased nearly $83 million of shares in the open market.
Quintin Kneen: In addition to the open market repurchases, we used $28.5 million of cash in the first quarter to buy shares from employees so that they could pay their tax obligation on the equity compensation.
Quintin Kneen: in lieu of those employees issuing shares into the open market, which incidentally, we will do again in the first quarter of 2025. So over the past four quarters, we've used $111 million of cash to reduce the share count by over 1.4 million shares.
Quintin Kneen: We still believe that acquisitions done at a price that reflects a sharing of the cyclical and market risk is a solid way to make significant investments to the long-term value of the shares.
Quintin Kneen: And we're still generally focused on acquisition opportunities in North and South America. But the aforementioned lack of near-term visibility has increased the bid-ask spread, at least for now.
Quintin Kneen: So for now, we'll remain focused on repurchasing our own share. Because our confidence in cash flows over the next two quarters will remain strong, we are inclined to increase the rate of share repurchases.
Quintin Kneen: We are confident that the business will continue to generate substantial pre-cash flow that will allow us to take advantage of these near-term uncertainties and provide opportunities to continue our past successes in enhancing shareholder value.
Speaker Change: And with that, let me turn the call back over to Wes for additional commentary and our financial outlook.
Wes: Thank you, Quintin. Over the past four quarters, Tidewater has generated $285 million of free cash flow.
Wes Gotcher: Over the same time frame, we've used $111 million of cash to reduce the outstanding share count and used $103 million of cash on the required amortization of our outstanding debt for a total of $214 million of free cash flow allocated directly to equity-enhancing uses.
Wes Gotcher: We are pleased to announce that our Board of Directors has authorized an additional $10.1 million of share repurchase capacity.
Wes Gotcher: The new authorization brings our total unused share repurchase capacity to $42.8 million.
Wes Gotcher: The Authorized Share Repurchase Program, or remaining unused capacity, represents the maximum amount of permissible debt under our existing debt agreements.
Wes Gotcher: We anticipate our share repurchase capacity to increase by close to $100 million in the first quarter of 2025 under our existing debt agreements.
Wes Gotcher: We expect that free cash flow will increase over the next two quarters, and we remain committed to allocating our free cash flow to enhance shareholder value.
Wes Gotcher: We continue to evaluate the best path to achieve our goal of establishing a long-term, unsecured debt capital structure along with a sizable revolving credit facility.
Wes Gotcher: We remain opportunistic on pursuing a potential refinancing as we have no near-term maturities and no immediate need to access the debt capital markets.
Wes Gotcher: During the third quarter, we initiated a consent solicitation process to amend certain terms of our unsecured bond issued in the Nordic bond market as the debt capital markets appeared favorable to annuitants.
Wes Gotcher: The amendments proposed were, in our view, credit-enhancing to existing bondholders.
Wes Gotcher: We subsequently cancelled the consent process as the cost to achieve the amendments was unattractive.
Wes Gotcher: Given our free cash flow outlook and debt maturity profile, we are comfortable to continue to evaluate the most economically viable path to establish a long-term debt capital structure.
Wes Gotcher: Over the past few years, we have provided quarterly composite leading-edge day rates, along with the average duration of new contracts.
Wes Gotcher: We believe that it is now more instructive to provide quarterly leading-edge day rate information by vessel class to provide a subset of data that presents a more representative view of how day rates progressed across each of our vessel classes within the fleet during the quarter.
Wes Gotcher: Leading-edge day rates by vessel class can be found in our investor presentation on our website that was posted yesterday alongside our earnings press release.
A few worthwhile data points to note.
Wes Gotcher: Day rates in our two largest classes of PSVs moved up nicely during the quarter, with the greater than 900 square meter class of PSVs up 6% sequentially to over $37,000 per day, and our medium class of PSVs saw strong momentum sequentially with rates up 26% to over $35,000 per day.
Wes Gotcher: In our smaller classes of anchor handlers, we saw double-digit increases sequentially with our 8,000 to 12,000 BHP anchor handlers up 16% and our 4,000 to 8,000 BHP anchor handlers up 37%.
Wes Gotcher: Looking to the remainder of 2024, we are updating our full-year revenue guidance to $1.33 to $1.35 billion in a 48% gross margin.
Wes Gotcher: We now anticipate fourth quarter revenue to be essentially flat with the third quarter and gross margins to improve one percentage point sequentially.
Wes Gotcher: is principally related to the decrease in revenue associated with lower utilization, increased idle time, and higher than anticipated dry dock days, and to a lesser extent, an increase in repair and maintenance expenses and an increase in fuels expense associated with additional idle days.
Wes Gotcher: Dry dog days are expected to decline by about half in the fourth quarter versus the third quarter.
Wes Gotcher: We look forward to providing our updated thoughts on 2025 guidance next quarter as visibility improves for the pace and timing of growth of offshore activity.
Wes Gotcher: Our contracted backlog currently sits at about $332 million of revenue for the fourth quarter, with 79% of available days contracted.
Wes Gotcher: The risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and for dry dock days.
Wes Gotcher: With that, I'll turn the call over to Piers for an overview of the commercial landscape.
Piers Middleton: Thank you West and good morning everyone. This quarter I will try and put some context around where 2024 sits in the pantheon of previous up cycles and then also frame out a little of what we are seeing in each of our regions as we go into 2025 and 2026.
Piers Middleton: First off, our overall long-term outlook for the offshore space remains strong and for 2024 the OSV market has managed to achieve record-breaking day rates in most of the basins and vessel classes in which tidewater is active.
Piers Middleton: The fundamentals for the OSV market remain strong. The sector remains supply-side constrained, with little prospect of capacity expansion from the FAC fleet or from the negligible order book.
Piers Middleton: Despite a small number of new build orders over the summer, the majority of which aren't expected to start delivering until 2027, the PSV and AHTS order book is still under 3% of the OSV fleet.
Piers Middleton: and why we have seen some demand ease back recently in some of our regional markets.
Piers Middleton: With the constrained supply story, we are still very well placed to weather any short-term headwinds and make further progress through 2025 and into 2026 as expected demand growth picks up again both in exploration and subsea construction projects.
Piers Middleton: Turning to our regions, and starting with Europe, uncertainty over the UK tax regime and the government's decision to increase and extend the energy profits levy is creating some uncertainty over future drilling programs, and is expected to weigh on demand in 2025.
Piers Middleton: Although we are expecting an uptick in decommissioning and wind farm support projects, which will help offset some of this uncertainty in the UK in 2025 and 2026.
Piers Middleton: In Norway we see stronger drilling demand kicking off in 2025 through to 2027 driven primarily by the Norwegian government tax incentive scheme that was introduced in 2020.
Piers Middleton: And in the Mediterranean, projects that were delayed from Q3 have now started in Q4 and should carry through into the second half of 2025. And in addition, there are a number of construction projects in the region that are expected to suck up PSVs out of the UK in the first half of 2025.
Piers Middleton: In Africa, we're expecting a strong fourth quarter, helped by a number of exploration projects that were pushed from Q3, which have now started in and around the Orange Basin in Q4, with some of that drilling work expected to continue through into the first half of 2025.
Piers Middleton: Visibility in the region in the second half of the year is more opaque, as many of our customers plan to pause drilling campaigns as they assess next steps before starting field development of these projects, which are expected to kick off in 2026 and 2027.
Piers Middleton: which, if it plays out as the government wishes, would see an uptick in vessel demand from both the IOCs and EPC contractors in the second half of 2025 and through into 2026.
Piers Middleton: In the Middle East, vessel demand and day rates continue to strengthen in 24, driven mainly by the EPC contractors operating in the Kingdom, as well as additional incremental demand in Qatar and Abu Dhabi.
Piers Middleton: While this is a very fragmented market, which makes it much harder to drive rates aggressively, we are starting to see supply constraints in certain vessel classes.
Piers Middleton: And if demand continues at its current pace, we could see some very positive momentum in day rates as we get into the latter part of 2025 and through to 2027.
Piers Middleton: In the Americas, Brazil and Mexico demand appears set to remain positive for 2025. However, there is still some uncertainty in Mexico vis-à-vis what the new government's long-term intentions are with PMEX and how to increase production in the long term.
Piers Middleton: And as such, we probably won't have much visibility around actual long-term plans for Mexico until after Q1 next year.
Piers Middleton: But both Brazil and Mexico are expected to increase in-country investment in oil and gas in the longer term out beyond 2030.
Piers Middleton: As mentioned on many previous calls, Brazil's long-term demand horizon remains very robust with no signs of any slowdown from either Petrobras or the IOCs currently working in-country.
Piers Middleton: The U.S. GOM and Caribbean had a softer than expected 2024, and we expect that may continue into the first half of 2025, but we are seeing some indications of demand for additional drilling in the second half of 2025 and into 2026, as well as an uptick in the renewables market on the East Coast during the same period.
Piers Middleton: Lastly, in Asia-Pacific, Q3 and Q4 have been affected by the ongoing discussions in Malaysia between Petronas and the local governments of East Malaysia regarding the respective sovereign rights over the natural resources of Sabah and Sarawak.
Piers Middleton: We are now hearing that both sides are hoping to resolve these issues in early 2025.
Piers Middleton: which would mean that we can expect exploration and production, some of which has been paused to start back up again during Q1 of 2025, which in turn would then have a significant impact on the supply-demand balance in the region for both AHTSs and PSCs.
Piers Middleton: and mean that we should see this region retighten as we move through to the latter half of 2025.
Piers Middleton: We also see several large EPCI and wind projects starting in the year in both Australia and Taiwan respectively, which will be supportive for our large HGSs and large PSVs in the region for the second half of 2025.
Piers Middleton: Overall, we're very pleased with how the market has continued to move in the right direction during 2024 and we remain very optimistic on the long-term fundamentals for our business, still being very much in the ship owners favor for some time to come.
Thank you.
Piers Middleton: 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 second quarter.
Piers Middleton: primarily on the quarter-to-quarter results of the third quarter of 2024 compared to the second quarter of 2024.
Piers Middleton: And we'll also discuss some of the operational aspects that affected the third quarter and how we see the rest of the year playing out.
Piers Middleton: As noted in our first release filed yesterday we reported net income in the third quarter of 2024 of 46.4 million or 87 cents per share.
Piers Middleton: In Q3, we generated revenue of $340.4 million compared to $339.2 million in the second quarter of 2024.
an increase of 1.2 million.
Piers Middleton: Average day rates increased by 5.4% from $21,130 per day in the second quarter to $22,275 per day in the third quarter, which was the main driver for the increase in revenue.
Piers Middleton: Offsetting the increase in day rates was a decline in active utilization from 80.7% in the second quarter to 76.2% in Q3.
Piers Middleton: The utilization decrease was a result of an increase principally in idle days and a slight increase in dry dock and repair days.
Piers Middleton: Gross margin in Q3 was $160.8 million compared to $161.9 million in Q2. Adjusted EBITDA was $142.6 million in Q3 compared to $139.7 million in Q2.
Speaker Change: Missile operating costs for the quarter were $178.7 million. On our call last quarter we expected our operating costs to decrease by $2.8 million in Q3, however our costs went up by $2.2 million.
Speaker Change: The main drivers included higher than anticipated repair costs on several vessels totaling $2.6 million. We also had higher fuel costs related to the 448 additional idle days as well as for mobilizing a vessel from Southeast Asia to Africa.
Speaker Change: In addition, we had approximately 200 higher dry dock days, 150 of which were related to longer durations, and 50 of which were related to timing differences between quarters.
Speaker Change: The total fuel cost for both idle and dry dock days was about $1 million.
Speaker Change: Also in the quarter, we incurred penalties due to delays in returning to work on vessels.
Speaker Change: that incurred higher drive-out days, and we also increased our accrual related to labor claims in Brazil, which combined totaled 1.4 million.
Speaker Change: In comparison to our Q2 actual results, as mentioned previously, our operating costs increased by $2.2 million. The main drivers included slightly higher R&M costs of $800,000 and higher crew costs of $1.5 million due primarily to one vessel.
Working in Australia, we're operating costs are higher.
Speaker Change: Supplies and consumables were higher by 1.7 million due mainly to higher fuel costs related to the 704 more idle days and 83 more dry dock days.
Speaker Change: The increases were offset by lower other vessel expenses of $2 million. The largest components were a mobilization expense write-off and a customs assessment that did not occur in Q3.
Speaker Change: In Q4, we are not anticipating the high levels of repair costs that we saw in Q3, and we see utilization increasing slightly as vessels return to work after the busy dry dock schedule.
Speaker Change: In turn, we expect a significant decrease in fuel costs and penalties.
Speaker Change: As a result, we expect Q4 revenue to remain flat and operating costs to be lower by about $4 million.
Speaker Change: Operating cost reductions will include 1 million in R&M costs, 1.8 million in fuel and other vessel supply costs, and about 1.2 million in other costs such as crew costs, penalties, and other miscellaneous costs.
Speaker Change: G&A cost for the third quarter was $28.5 million, $2.1 million higher than Q2, primarily due to an increase in professional fees and personnel costs.
Speaker Change: For the year, we expect our DNA cost to be $109 million, which includes approximately $13 million of non-cash stock compensation.
Speaker Change: In the third quarter, we incurred $35.5 million in deferred dry dock costs compared to $40.1 million in Q2.
Speaker Change: We anticipate $18 million of dry dock costs in the fourth quarter. Dry dock costs for the full year 2024 is expected to be $134 million.
Speaker Change: Dry dock days affected utilization by nearly seven percentage points during the quarter. Year-to-date dry dock days have affected utilization by about six percentage points.
Speaker Change: In Q3, we incurred $5.7 million in capital expenditures related to vessel modifications, ballast water treatment installations, and IT and DP system upgrades. For the full year 2024, we expect to incur approximately $27 million in capital expenditures.
Speaker Change: We generated $67 million of free cash flow this quarter compared to $87.6 million in Q2.
Speaker Change: Year-to-date, we have generated $223.9 million of free cash flow. The free cash flow decrease quarter-over-quarter was primarily attributable to a significant increase in working capital due mainly to the investment in accounts receivable.
Speaker Change: Through September 30th, we have made $87.5 million in principal payments on our senior secured term loan and $1.5 million on supplier facility agreement.
Speaker Change: We are comfortable with our current debt maturity profile. We have no immediate need to refinance our debt, but remain opportunistic in pursuing a potential refinance that would improve our overall debt capital structure.
Speaker Change: Here today through September 30th we have used about 46.6 million in cash to reduce the number of our shares in the market by approximately 520,000.
Speaker Change: As mentioned on our first call, first quarter call, we also spent $28.5 million in cash to pay taxes on behalf of employees.
Speaker Change: In lieu of employees selling approximately 321,000 shares of stock in the open market to pay those taxes.
Speaker Change: 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 10Q for details of our regional results.
Speaker Change: To summarize the sequential results of our regions, day rates improved by 5.4% during the quarter, led by the Asia-Pacific region, which improved by 23%.
Speaker Change: and our West Africa region, which improved by 10%. Revenues were higher in all regions except America's, which declined by 12%, primarily due to lower utilization.
Speaker Change: Gross margins decreased slightly from 47.7% in Q2 to 47.2% in Q3. The Americas regions experienced a decline of about five gross margin percentage points due primarily to more idle and repair days.
Speaker Change: In our APAC region, despite the increase in average day rates, we had a gross margin decline of about 3 percentage points due to higher idle and dry dock days.
Speaker Change: Similarly, our European and Mediterranean regions saw a gross margin decline of two percentage points due to higher idle days and dry dock days.
Speaker Change: However, with the increase in day rates we saw improvements in gross margin in our West Africa and Middle East regions of 4 and 3 percentage points, respectfully.
Speaker Change: We expect consolidated gross margin increase slightly in Q4 as an increase in utilization, combined with a decrease in operating costs, should improve our overall results.
Speaker Change: In summary, despite a Q4 decline compared to our previous expectation, 2024 execution has been strong.
Speaker Change: Although visibility into 2025 may not be as clear as we would like it to be, generating strong free cash flows and profitability will continue to be a priority as we move into 2025 and beyond.
Speaker Change: In the near term, we continue to invest and improve our existing fleet and look to capitalize on future M&A opportunities should they present themselves. Absent accretive M&A options, we continue to view share repurchases as an attractive investment and return of our capital option for our shareholders.
Speaker Change: We remain optimistic in the long-term fundamentals of the industry and opportunities this will provide Tidewater.
Speaker Change: With that, I will turn it back over to Quintin. All right. Thank you, Sam. Novi, why don't we go ahead and open it up for questions?
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. And please limit your questions to one question, one follow-up. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Jim Rollison with Raymond James.
Morning, Jim.
Jim, your line might be on mute.
Quintin Kneen: Morning Quintin, sorry about that. I know you're not prepared to do guidance yet but maybe from a high level if we kind of talk about the puts and takes, right? You've got, sounds to me like
Speaker Change: Rachel should still migrate higher next year. Uncertain of magnitude at this point. We'll probably get more clarity next quarter.
Utilization Benefits
Speaker Change: from dry docking reduction next year relative to this year, which you I think said 6% year to date was the impact.
Speaker Change: And then offsetting that, you'll probably have some of this choppiness that you and Piers went through. Maybe just a little kind of color or high level how you're thinking about the puts and takes. I would think your costs should generally come down with the lack of dry docking.
Speaker Change: Just, you know, kind of trying to get to the different pieces and how you're thinking about them as we go into guidance in a quarter.
Speaker Change: Thank you. Obviously, there's less clarity than we appreciate having at this point as we look into 2025.
Speaker Change: I'm going to give it over to Wes and Piers who have been studying this really hard as we've gone through the last couple of months. But in general, I think that you're right. The only thing that I would highlight to you is that I do expect it to be a lower dry dock year next year than this year. That won't show up in op costs, but it will certainly show up in improved cash flow.
Hey, good morning. It's West.
Wes Gotcher: You characterized appropriately there's some puts and takes and so forth and obviously as we discussed the visibility is lower But as we pointed out in the prepared remarks, we do anticipate That day rates should increase next year the order of magnitude of which is uncertain
However, we do expect that to push forward.
Wes Gotcher: You know, we're not in a position to directly quantify as we discuss what the outlook is, but I think it would be fair to say
Wes Gotcher: that given the increase in day rate and a year in which dry docks are down, that we would anticipate 2025 to look better than 2024 on an all-in basis.
The End
Speaker Change: got it and then just as a follow-up and then I can get back in the queue
Speaker Change: I'm curious, Quintin, with this kind of pause in activity that we're seeing and obviously the RID guys have been talking about this through earning season as well.
Speaker Change: Does it set up the potential opportunity on the M&A front where maybe guys had just purely up into the right Expectations and that was reflected in their asking price and now with this bit of consolidation Going on in activity They're actually more willing to be reasonable on asking price and and you can actually get some potential M&A done Are you seeing that or is it still too early for that?
Speaker Change: early for that. I mean I am with you that that of the uncertainty that gets highlighted when times like this occur in our industry should reinforce in the minds of potential sellers, hey this is a volatile industry and you need to get out when you can and think about that as a risk factor for continuing to continue to invest in the business. It's certainly a risk that we feel very comfortable managing.
Speaker Change: However, people are never as reasonable as you and I are having the discussion now would indicate. And so, I think it takes a little bit more time for them to come down. And so, we're just going to be patient. I feel very confident in repurchasing our shares at these levels, and so we'll be patient.
Speaker Change: You'll probably see us do more of that than the M&A side, but I'm still actively engaged in M&A discussions around the world.
Got it. Thank you. Appreciate the help.
Speaker Change: Your next question comes from the line of David Smith with Pickering Energy Partners.
Hey, good morning. Thank you for taking my question.
Morning.
Speaker Change: For the Q4 guidance, I just want to make sure I understood. Did you say utilization is expected to be up but revenue is expected flat? If so, implication is average stay rate would be down. So just wanted to ask if you could provide some color on that. I'm guessing it's mixed.
West Gotcher: That's correct, Dave. It's West. That is the correct inference from the guidance language we provided on Q4. As we discussed in the prepared remarks, I think a combination of some of the pressures that we're seeing in the UK specter of the North Sea specifically.
West Gotcher: as well as the regional highlights that we had in Americas and Asia-Pacific. And some of the project delays and idle time and so forth with vessels in that region are contributing to those moving pieces within the Q4 guidance components.
I appreciate it. And the follow-up question, if I may.
Speaker Change: Seeing some sloppy rates for the large PSBs in the North Sea, can you talk about the factors that might act as friction, you know, against exporting those rates to the Mediterranean, West Africa, or beyond, you know, recognizing there might be other, you know, that there are other vessel contractors in the North Sea with operations in other countries?
Hi David, it's Piers here.
Sloppy rates in the North Sea.
Obviously it's a very spot market.
Speaker Change: I think what's important to remember about the North Sea is that it's a very
Speaker Change: you know all the vessels whilst we talk about you know our 900 square meter vessels.
Speaker Change: You can export some vessels, but actually, when you're doing a drilling program, for instance, down in the Mediterranean, where we've got some of our vessels, we've taken, as we've talked about previously, taken some vessels from the North Sea down to
Speaker Change: work in the Orange Basin this quarter, you need to have vessels with big mud capacity. And a lot of the vessels in the North Sea are limited. They're just big deck space vessels and they tend to do, you know, they're quite North Sea specific. So that is one of the sort of
Speaker Change: Factors that you need to think about we've got some as I sort of mentioned some vessels going down to the med
Speaker Change: and I think it's you know you depending on the vessels you can be slightly specific around where those vessels can end up. I'm sure there'll be some movement around the regions but there is a limiting factor on some of the vessels in terms of the actual specifications once you get into the details of it.
I appreciate that color. I'll circle back. Thank you.
Thanks, Dave. Thanks, Dave.
Speaker Change: Your next question comes from the line of Greg Lewis with BTIG.
Speaker Change: in the fourth quarter. Kind of if you could kind of bucket them, you know, I guess how much of that do we think roughly was planned?
Speaker Change: how much of it was kind of pulled forward because that's all.
Speaker Change: you know, vessels were going off fire and we just figured we would do it. And how much of it was.
Speaker Change: I want to say a year ago, we had that kind of bunch of that unplanned dry docking, I believe it was in West Africa. If you kind of walk through some of that, just so we understand, you know, what, you know, gets maybe give us.
Speaker Change: You know, let us think through how we want to think about dry docking in 25
Yeah, Greg, this is Sam.
Speaker Change: The dry docking that occurred in Q3, obviously there was like 200 excess days. 150 of that was just longer duration related.
Speaker Change: And then 50 of it was timing. So you might have had, I think we had like one or two boats pulled into Q3 that should have happened in Q4. And then we had some just started a little later in Q2 that actually came into Q3. So that extra 50 days is a combination of that.
[inaudible]
Speaker Change: Okay, so kind of what we dealt with a year ago when like vessels were running hard and there was like unplanned issues with the boats, that seems like that's kind of resolved.
Speaker Change: Yeah, to some degree, right? I mean there is still some, you know, some down for repair days that we have to deal with. We did see some of that in Q3, but you know, once they go into the dry docks, you know, hopefully that kind of smooths the repair costs going forward.
Speaker Change: Oh, Greg, one thing I was just going to allocate, add to that rather, was that we were running at about 4% DFR down for repair last year, and we want to get it down to about 2%.
We're probably right now at about 3%.
Speaker Change: So I think there's still, you know, room to improve there, but it's, yeah, it's not getting worse.
Speaker Change: Okay, great. And then, you know, we don't need to go through all the basins, and I think you kind of alluded to some of the pricing issues, and, you know, some of the pricing headwinds we're seeing in some of the markets. You know, I guess
Speaker Change: You know, everyone looks at the North Sea data, you know, where it's where we have issues getting more data, which which are bigger mark, which are equally important. Hybrid mark is important, but I guess.
Speaker Change: Could you talk a little bit about, you know, the large and I guess we classify as large and small PSVs in West Africa, as well as.
Speaker Change: in Southeast Asia, and really what we're seeing around the pricing environment and then really just as we kind of look at, you know, those are largely term markets.
Speaker Change: What does the outlook look like for contract resets in maybe those two markets?
Speaker Change: You know, I guess maybe in Q4 and Q1 or whatever you have kind of in front of you, you can kind of talk to just so we can kind of gauge, you know, what type of pricing resets that we can kind of, or pricing renewals we can kind of think about.
Hi Greg, it's Piers. There's something, Q3...
Speaker Change: trying not to go around all the basins, as you said, but I think in general, you know, held up very well on the race for the vessels, as West alluded to on his remarks as well.
and going forward actually into Q4 as well.
Speaker Change: you know we saw as I think we've spoken about in the past how some contracts push from Q3 into Q4 in places like the MED and Africa and places like that so so Q4 is also holding up pretty well on those larger class of vessels. I think as you look out to 25 and we sort of again talked a little bit about this in our remarks but
Speaker Change: There is a little bit of some lack of visibility on some of the decisions being made.
Speaker Change: the drilling piece, which has been very public and people have talked about. When we look at projects going forward, we tend to know about those much.
Speaker Change: earlier, so there's normally a six to twelve month lead time on some of that. What we're seeing is obviously these construction projects which tend to come to the market a little bit later and they tend to require, well they don't tend to, they require large deck PSEs as well.
Speaker Change: We're seeing more and more of those requirements coming out in places like Australia.
Speaker Change: Asia Pack more broadly, in Africa a little bit as well, and then also in the Caribbean as well, and the Meds. So, you know, we're optimistic we'll be able to sort of hold rates on the larger vessels as we sort of see the year progress. But we haven't had
Speaker Change: We don't have all those tenders coming through yet at the moment in terms of the visibility that we'd normally have at this point in the year. So, as we said, I think our comments were very optimistic on long term. We just don't have the clear, clear line of sight on some of it.
Speaker Change: Yeah, and so really when we kind of took guidance down, you know, you clearly called out drilling, but it almost maybe sounds like the delays maybe on the construction side were maybe more of a bigger issue around some of the weakness or some of the guide down for the year than maybe the drilling.
Is that kind of what you're trying to communicate?
Speaker Change: I think we don't really see that on the construction side. I mean, it's still there, but they just come to the market much later. That's the concern, so we're waiting to see that.
Super helpful, thank you, have a good weekend.
You too, Chris.
Speaker Change: Your next question comes from the line of John Crist with Johnson Rice.
Morning, guys.
Speaker Change: Can you remind us your percentage of work coming from FBSOs and more sticky work from that side versus drilling and I think you touched on it on your last answer, but it sounds like the project delays were much more focused around the delivery schedule of FBSOs versus the startup of new drilling campaigns. Is that the correct way of thinking?
Piers Middleton: Hi, it's Piers again. So, you know, I think on the drilling side, we're normally exploration is sort of 30% of the book, which maybe next year is going to be a little bit...
Piers Middleton: supporting projects doing pipeline installation as well but it's not so much necessarily the delay on some of the FPSOs is it's just as a
Piers Middleton: There's just the tenders come out much later and sort of from our Subsea Construction guys from the Subsea Sands and the Saipans and the Aussies, all those guys come to market much later in terms of how they come out. But
Piers Middleton: You know, I think drilling and exploration is going to be, as we've said, a little bit more white space than perhaps we've seen in the past, but the subsea construction stuff should pick up on that as we go forward into 2025.
on utilization.
Piers Middleton: Can can we really use that the third quarter is kind of a bottom and utilization and I'm thinking about it more from the aspect of maybe this weakness pulls forward some of the retirements that are happening in the industry and and Maybe that you know with the lack of new construction out there
Piers Middleton: and your comment in the press release around, you know, no new construction going forward. Are those discussions have gone away that maybe the third quarter utilization might be a bottom and we should see that tick up just from, you know, vessel retirements, not necessarily with y'all, but from the industry?
West Gotcher: Hey Don, excuse me, hey Don, it's West. I think that's, I think that's a reasonable approach. You know, we talked about utilization picking up a little bit in Q4.
West Gotcher: You know, thinking about that as a baseline, moving into 2025, dry docks will come down.
West Gotcher: And so, when you think about 2025 in its totality, I think as the market, our expectation is that the market continues to improve and recover to some degree in the back half with a lower dry dock year, the utilization should be improved relative to the Q3 levels.
Speaker Change: Okay. And just to clarify, you're not seeing anybody out there other than that tender that was put out in by Petrobras for new vessels. You don't see anybody out there proposing to build new rigs or new vessels today.
Speaker Change: No, not at the moment, just as you said, the Petrobras tenders, we haven't seen anything asking to build new PSDs.
Oh, my goodness!
I appreciate all the color. I'll turn it back. Thanks.
Thanks, Don.
Speaker Change: Your next question comes from the line of James West with Evercore ISI.
Hey, good morning, guys.
Hey, good morning.
Speaker Change: So, Quintin, I wanted to just clear up two things on the third quarter. One, on the utilization, it was a bit below what we were expecting. How much of that...
Speaker Change: Do you do you believe was kind of unplanned in your mind? Versus kind of planned that we just maybe we just missed and then secondarily with the day rate Increases that we've seen the last two quarters, which have been very oppressive
Is that pure day rate increase or...
Speaker Change: Are we seeing the impact of perhaps dry docks or downtimes from...
Speaker Change: higher day rate vessels. So just kind of thinking through kind of how we should think about average day rates. You know, moving forward, hopefully it's the latter, that the actual day rate increase is not utilization driven.
Speaker Change: Yeah, you know what, I'm going to give this over to Sam. Sam's been studying this real hard in the last few months. Yeah, hey James, on the utilization, you know, the drop that we had from Q2 to Q3, there was several factors. Obviously, idle time had...
Sam Rubio: Something to play with with that, but you know we had dry dock days that were like 85 days higher than than q2
Sam Rubio: And then we also had, as I mentioned, DFR days. We had some, you know, some engine problems in some of our boats, etc., that added like another 80, 81 days.
Sam Rubio: In the quarter, we also moved one of our boats from Southeast Asia to Africa, which added like another 70 days of idle time. So, you know, when you add all that up, that affected utilization by, you know, a couple of percentage points from.
Sam Rubio: actually went down like almost four percentage points from Q2 to Q3.
Speaker Change: And James, let me add one more thing. I think part of your question related to the product mix and whether or not the product mix, the downtime had an impact on day rates. And I think that there is, that isn't,
Speaker Change: It's not a significant impact, but the UK sector is typically, and the North Sea sector broadly, is a high day rate region.
Speaker Change: When that region goes through a bit of a pullback, those high day rate boats hit the spot market as Pierce was indicating, and that spot market tends to come down pretty quickly.
Speaker Change: as a result that has an impact on day rates. And I think Piers and his global team are working to reallocate those vessels into other large boat regions that have not been impacted, like the UK sector. So I think that product mix and where they're at geographically has an impact when things like...
What we're talking about in Q3 occur.
Speaker Change: Okay, okay, that's helpful. I think you guys should leave the UK sector just in general for now. Given the profit taxes, everybody else is fleeing the region, so there's no reason to be there. But maybe a longer-term question as we go into 2025. I recognize that the
Speaker Change: Customer base is is hesitant to make decisions just just right now on their plans There may be their shorter-term plans, but a lot of the plans
Speaker Change: are also long-term deepwater projects too, which I would assume you have.
Speaker Change: much better visibility on that versus short-term maybe construction or even wind farm or shallow water plans. What are they telling you about when those decisions will be made? I mean, is this a, hey, we're going through a budget process right now. We'll let you know in a
Speaker Change: You know a month or so or is it we're gonna let you know and as we start the next year Okay, what's the what's the timing impact on when you'll have when that visibility starts to clear up?
Hi, James, it's Piers.
Speaker Change: you know the noise around uh you know election cycles and things like that obviously has maybe delayed some of the decision-making processes from the higher-ups in our our customer base.
Speaker Change: But there's been no pullback in terms of, you know, for instance
Speaker Change: All of who were supporting and saying that we'd like to get development first oil in there 26, 27, which is a pretty, you know, that's pretty aggressive.
Speaker Change: move from those companies so still very positive sort of indicators saying in the Caribbean as well there's a slight
Speaker Change: We've spoken about some pauses in drilling in this year on some projects. Again, we're expecting people to come back, maybe a few exploration wells next year in that region and then starting to...
Speaker Change: more FPSOs into that region in sort of 26 and 27 so we're not seeing
any real indicators of anybody sort of...
Speaker Change: pulling back or cancelling anything. So we're very positive that those projects will continue and then obviously Brazil
You know it's
Speaker Change: it's a, Petrobras moves at its own pace, but they're certainly not slowing down on their side. So yeah, I think by the end of this year, we'll start to hear more publicly from the higher ups and the IOCs, certainly as to their sort of longer term plans and from that side.
Speaker Change: You got it. Okay. Thanks, sir. Thanks, guys. Thank you. Thank you.
Speaker Change: Your next question comes from the line of Frederick Steen with Clarkson Securities.
Speaker Change: Thank you Quintin and team, hope you are all well and thanks for all the callers.
Speaker Change: Given on 2025 so far, even if it's difficult to go into detail at this moment.
Speaker Change: My question actually relates to capital allocation and even more so on the M&A side.
that you guys have talked about.
Speaker Change: you know that you're willing to do a creative M&A transactions if the right transaction presents itself and you obviously have a great track record of doing so in almost any type of market. But you're also one of the
of the game.
Speaker Change: If you are a listed player, your equity price or stock price will track.
Speaker Change: sentiment at any given time. So I was wondering if, you know, has that enabled or disabled any type of M&A transactions? Or if you were to have discussions with, you know, players that are not lifted, are they also, you know, do they also understand that?
Speaker Change: In a way private prices or price of private companies also fluctuate with with sentiment Interested to hear anything you have to say on the matter. Thanks
Speaker Change: Hey Frederick, thanks for your question. You know, we've been, most of these M&A transactions that we have done, and this is probably not, you know, surprising anyone, they take
Speaker Change: more than a year to get done. I mean, a lot of these transactions germinate and...
and Kevin Farris.
sophisticated, some of them private equity,
Speaker Change: You know one of the only listed companies out there. They're marking to us. So, you know, they're feeling the pain as well So I think it I think it should Work its way through but it doesn't work its way through as quickly as you might think
and people's thinking and so forth.
Speaker Change: And of course, sometimes people feel like the market gets dislocated and therefore maybe it exaggerates the downsizing.
Speaker Change: And so they don't want a price at that particular point, so you have to find a price in between the prices. It still has to make sense for Tidewater to want to return it from...
Speaker Change: from a long-term value perspective. So I would tell you that it complicates the deal process. A stable price helps the deal process. A volatile price doesn't, but most of the people we're dealing with are very sophisticated and they need time to adjust to it, but they will.
[inaudible]
That's very helpful, just one quick question.
Speaker Change: Not really a follow-up but a different question. Are you able to at this point say something about the amount of contracted backlog and contracted days that you have so far for 2025, kind of similar to what you did for the fourth quarter in the prepared remarks?
West Gotcher: Hey Frederick, it's West. We're prepared to give a 2025 backlog. Right now our backlog for 2025 is about 855 million dollars.
West Gotcher: but providing incremental detail around that I'm not sure we're prepared to put out there at this point but that is our 25 backlog as we sit here today.
Speaker Change: That's super. Thank you for good answers. Have a good day.
[inaudible]
Speaker Change: Your next question comes from the line of John Crist with Johnson Rice.
John Crist: Thanks for letting me back in guys. I just wanted to ask one question on on the debt covenant that you tried to get changed is is the new plan going forward just to hold cash on the balance sheet and take those out at first call January 2026 or you know any thoughts around using cash that you know you can't find an M&A use for today to pay off the term loans or anything else that you could kind of extinguish that kind of 10% debt?
Speaker Change: I'd much rather just repurchase shares, honestly. So, you know, if I could get a deal done, I would do that. And, you know, similar to the answers to some earlier questions, you know, there's process takes longer than anybody would prefer.
Speaker Change: But, absent that, I don't feel the need to deliver at all. So, I would return that to shareholders in the most constructive way. And, of course, the path that we found over the last year is repurchasing shares.
Speaker Change: I will now turn the call back over to Quintin Kneen for closing remarks.
Quintin Kneen: Okay, well, those are no closing remarks from me. Thank you, Novi. We look forward to updating everybody again in February.