Q1 2025 Tidewater Inc Earnings Call
Janice: Thank you for standing by. My name is Janice and I will be your conference operator today. At this time I would like to welcome everyone to the Tidewater Q125 earnings call.
Janice: All lines have been placed on YouTube to prevent any background noise [inaudible]
Janice: After this because remarks, there will be a question and answer session
Janice: If you would like to ask questions during this time, simply press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to withdraw your question, press R1 again. Thank you. I would now like to turn the call over to West Gotcher, Senior Vice President of Strategy Corporate Development and Investor Relations, please go ahead.
West Gotcher: Thank you, Janice. Good morning everyone and welcome to Tidewater's first quarter, 2025 earnings conference call.
West Gotcher: I'm joined on the call this morning by our President and CEO , Quintin Knee, our chief financial officer, Sam Rubio, and our chief commercial officer, Piers Middleton
West Gotcher: During today's call, we'll make certain statements that are forward looking and referring to our plans and expectations. The 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're making during today's conference call.
West Gotcher: Please refer to our most recent Form 10K and Form 10Q for additional details on these factors.
West Gotcher: These documents are available on our website at tv.com or through the SEC at SEC.gov.
West Gotcher: Information presented on this call speaks only as of today, May 6, 2025. Therefore, you're advised that any time sensitive information may no longer be accurate at the time of any replay. Also, during the call, we'll present both GAP and non-GAAP financial measures.
West Gotcher: A reconciliation of gaps in on- GAAP financial measures can be found in our earnings release located on our website at tvw.com And now with that, I'll turn the call over to Quintin
Quintin Kneen: Thank you, West. Good morning, everyone, and welcome to Tidewater's first quarter, or 2025 earnings conference called.
Quintin Kneen: As usual, I'd like to discuss some highlights of the first quarter, providing an update on the execution of our share report just program and our views on capital allocation.
Quintin Kneen: Discussed the state of the offshore vessel market in the midst of the tariff and macroeconomic uncertainty and lastly provide an update on the state of the supply.
Speaker Change: West will then provide some commentary on our capital structure and financial outlook. Piers will give an overview of the global market, and Sam will discuss our consolidated financial
Speaker Change: First quarter revenue and gross margin nicely exceeded our expectations. Revenue came in at
Speaker Change: due to both a higher average day rate and better utilization.
Speaker Change: Gross Margin came in at over 50% for the second consecutive quarter. Day rates outperformed our expectations by more than $500 per day, setting a new quarterly day rate record at 22,303.
Speaker Change: We experience slower than anticipated down-for-repair days, which has the benefit of increasing utilization, lowering repair and maintenance expenses, and reducing fuel expenses related to off-higher time.
Speaker Change: The sequential day rating utilization improvements in the quarter were an encouraging start to the year.
Speaker Change: especially given that the quarter was disadvantaged by being our largest tri-dock quarter of the year.
and the fact that from a calendar year seasonality perspective.
Speaker Change: The first quarter is typically characterized as the slowest quarter of the year.
Speaker Change: Additionally, during the first quarter, we generated about 95 million dollars of free cash flow. The second highest quarterly free cash flow figure since the offshore recovery began.
Speaker Change: Down slightly from the fourth quarter, even though during the first quarter we incurred more than 30 million dollars of additional tri-doc and capital expenditures than we did in the fourth quarter.
As we've discussed in prior calls, our-
Speaker Change: View on Sherry Purchase Program as a nice mechanism to return capital shareholders, but also as a mechanism to take advantage of inefficiencies we see in the market, particularly to the extent that compelling M&A opportunities are not viable or actionable.
Speaker Change: During the first quarter and the beginning of the second quarter amidst broader market volatility, we leaned heavily into the share repurchase program, fully utilizing the $90 million of share repurchase activity available to us under our existing debt agreements.
Speaker Change: Repurchasing 2.3 million shares on the open market at an average price of $39.31 per cent.
Speaker Change: In addition, we further reduced the outstanding shared count by 180,000 shares.
Speaker Change: In exchange for paying 7.5 million of employee taxes on the Vestinum Equity Compensation at an average price of $4155 per share, bringing the total use of cash to reduce the outstanding share count to nearly $100 million for $2.5 million shares.
Speaker Change: Given our long-term outlook for the offshore activity and our associated view on the intrinsic value of our shares, we view the recent buyback activity as particularly opportunistic.
Speaker Change: M&A remains a cornerstone of our growth strategy. However, the broader market volatility and shifting sentiment on offshore activity continues to challenge the yield dynamics.
Speaker Change: The strength and durability of any acquired cash flows and the resulting consolidate capital structure are important to our view of a transaction although our focus remains on levered overall returns in near term pre cash flow generation and to the extent that we find targets that satisfy these conditions.
We remain interested in aggressively pursuing them.
Speaker Change: We will evaluate a deal using stock, cash, or combination of both, although using shares would need to satisfy our long-term view of our shares intrinsic value. We will possibly additional balance the leverage for the right acquisition provided the ability to quickly deliver back to a reasonable level as we have done in our prior transactions.
Speaker Change: Shipping gears a bit, I'd like to discuss recent macroeconomic events and how they influence our business on the markets.
Speaker Change: We are all watching in real time how the recently announced US-led tear regime will ultimately shape trading patterns globally. It's subsequent impact on the global economy and the resulting impact on global energy needs, which is ultimately what drives our customers' investment plans.
Speaker Change: The good news is that we, along with the broader industry, are familiar with how to navigate situations like this The benefit of maintaining a relatively low leverage profile and a highly scalable, global operating footprint is that it provides some flexibility to react quickly to optimize the business
Speaker Change: Reacting quickly requires optimizing the fleet by relocating with holding or exposing the vessel capacity.
Speaker Change: The investments we've made in our scalable survey infrastructure ensure that we run the business as efficiently as possible. Our geographic diversification ensures that we are able to redistribute the fleet to focus on those geographic areas that look to be relatively more attractive.
Speaker Change: A recount these factors not to suggest that these are required today or that activity is structurally declining and in fact it's quite the opposite [inaudible]
Speaker Change: Today, we've learned of no cancelled or delayed projects and continue to see signs of strength for the intermediates long-term plans for our customers, be a long-term contract for our offshore drilling units, perhaps some of the tangible evidence of continued conviction by our customers.
Speaker Change: I simply mentioned it as a reminder that through the cycles of the past decades we have fundamentally changed how we run the business, focused on efficiency, recast flow generation, financial and operational flexibility and geographic diversification.
Speaker Change: Breason contract awards for all four drilling and tendering activity for our vessels, provide for cautious optimism that as we progress into 2026 offshore activity, we'll return to a point that demand will outpace the supply of vessels and provide us the opportunity to resume our aggressive push on day rates.
Speaker Change: We anticipate that we will continue to see more rig and vessel tenders as we progress through the summer and into the fall, further supporting the intermediate term outpour.
Speaker Change: Encouragingly, the pipeline of subsidy projects and FBSO's deliveries from each rule bus and provides for an alternative source of day man in addition to the anticipated incremental drilling activity.
Speaker Change: The vessel supply outlook remains essentially unchanged from the prior quarter, although the general feeling for potential new builds has waned. As a reminder, as shade under 3% of the global supplies onward, most of which were placed back in the latter half of 2024.
Speaker Change: Our view is that new bill discussions have largely ceased. The modest number of new bills on order. I now expect to deliver until late 2026 at the earliest, likely into 2027. And I'd like to play won't sufficiently replace vessels that are expected to attrition during that same time frame.
Speaker Change: resulting in a continued decrease in net vessel supply and support of our expectation that the man will outplace supply in the intermediate term.
Speaker Change: We watch new build activity very closely and will continue to do so, but remain of the view that current shipyard capacity, prevailing global day race and contract terms, the state of the financial markets and vessel technology considerations make any large scale new building programs unlikely.
Speaker Change: In summary, we're pleased with a nice start to the year and expect 2025 to play out largely as anticipated with optimism on longer-term offshore activity continuing to support the fundamentals for our business.
Speaker Change: And with that, let me turn the call back over to us for additional commentary and our financial outlet. Thank you, Quintin.
Speaker Change: During the first quarter of 2025 and subsequently through the middle of April , we deployed just north of $97 million to reduce the outstanding share count by approximately $2.5 million shares in the average price of $39.47.
Speaker Change: including both open market repurchases and an exchange for paying employee taxes on the Busting of Equity Compensation.
Speaker Change: As we've discussed in prior earnings calls, our two outstanding Nordic bonds contain the operative language providing for capacity for distributions to shareholders, namely Sherry Purchases.
We completed our latest share repurchase authorization of $90 million
Speaker Change: Given the terms of the indentures, specifically the limitation on shareholder distributions to 50% of trailing for order net income, as of today we have no incremental allowance provided and therefore have no incremental allowance under the bonds or board share repurchase authorization to announce.
Speaker Change: Our future allowance under the bonds will be determined by the trailing four-quarter net income measure or through a refinancing of our existing bonds into a new debt structure that could contain different shareholder return provisions.
Speaker Change: On that note, we continue to actively monitor the debt capital markets and bank markets to successfully achieve our goal of establishing a long-term, insecure debt capital structure along with the size of a revolving credit facility.
Speaker Change: We remain opportunistic on pursuing a potential refinancing as we have no near term materities, and no immediate need to access the debt to capital markets.
Speaker Change: The May call on our unsecured Nordic bonds, which we previously described as one of the primary considerations around the timing of refinancing, will step down to the first call price in July of 2025.
Speaker Change: As we approach July , we are mindful of the economic impact of reaching the first call date.
Speaker Change: Further, while we still view a debt capital structure reset as an important step on the continued evolution of the business, it is equally important that to the extent we do access the markets to establish a long-term debt capital structure, that it's an economically and structurally attractive solution for a long-term vision.
Speaker Change: As such, with no impending maturities and relatively low leverage, we will remain opportunistic in our approach to a debt capital structure reset.
Speaker Change: Turning to our leading edge day rates 5 vessel class, which were posted in our Investor Materials yesterday.
Speaker Change: For our largest class of PSVs and anchor handlers, we saw some limited downward pressure on our leading edge day rights, as the majority of contracts entered into during the first quarter for these classes of vessels were done in North Sea.
Speaker Change: The first quarter typically characterizes the quarter as the least favorable quarter of the year due to seasonality, which is especially pronounced in North Sea.
Speaker Change: We did see sequential improvement in our mid-size and small-classes of PSVs and it entered in the contracts throughout the rest of our operating regions.
Speaker Change: Looking to 2025, we are reiterating our full-year revenue guidance of 1.32 to 1.38 billion in a full-year gross margin range of 48% to 50%
Speaker Change: We anticipate second quarter revenue to be about the same as we did last quarter, but given the revenue outperformance in the first quarter, we anticipate revenue decline about 5% sequentially.
We anticipated Q2 gross margin of 44%.
Speaker Change: The sequential decline is due to the fall throng lower revenue as well as higher costs associated with fuel expense related to idle days and vessels down for repair as well as the repair maintenance expense associated with vessels down for repair.
Speaker Change: As we've progressed into the back after the year, we anticipate a material uplift and utilization of the third quarter and further modest strengthening into the fourth quarter
Speaker Change: We expect margins to improve in the back half of the year due to the fall through from higher levels of revenue and through a reduction in operating expenses as dry docs decline and a normalization of expenses associated with vessels down for repair.
Speaker Change: The midpoint of our revenue guidance range is approximately 88% supported by first quarter revenue plus firm backlog and options for the remainder of the year.
Speaker Change: Approximately 70% of available days are captured in firm back logon options, with our larger class of the vessels retaining slightly more availability to pursue incremental work as compared to our smaller vessel classes.
Speaker Change: The bigger risk to our backlog revenue is unanticipated downtime due to on-plan maintenance and incremental time spent on dry dogs.
Speaker Change: With that, I'll turn the call over to Piers for an overview of the commercial landscape.
Thank you, West, and good morning, everyone.
Speaker Change: The outlook for offshore markets has become increasingly uncertain amid the fast-changing macroeconomic environment in response to recent developments.
Speaker Change: However, day rates in the broader offshore market generally remain a strong position versus long-term averages And in particular, OSV markets remain above historical averages Although we are starting to see a further exacerbation of diverging trends between some of the regions in which we operate
Speaker Change: In short, the Brazilian OSD market has strengthened significantly in recent months and the Middle East, Africa, and Southeast Asia have seen steady improvements.
Speaker Change: However, the UK North Sea and Mexico markets continue to face demand side challenges.
Speaker Change: Overall, the outlook for the OSD market has become more complex amidst the increasingly uncertain economic backdrop in volatile energy prices.
Quintin Kneen: but the long-term fundamentals we've spoken about on previous calls remain in the both owners' favor going forward. And as Quintin mentioned earlier, we've not seen any of our customers counselling or deferring any projects.
Quintin Kneen: In the Americas, we saw varying degrees of puts and takes during the quarter. On the negative side, P-Mex still appears to be in disarray with little clear guidance from the Mexican government on their long-term plans for P-Mex.
Quintin Kneen: which is mended in the short term. We don't expect to see any additional demand coming from Pnex the remainder of the year.
Quintin Kneen: On the other hand, the opposite is true in Brazil, where Pet Russ has just released another long-term tender for after 18 large OSCs, split between foreign and Brazilian flag
Quintin Kneen: With the expectation of the number of Piers fees working in both the UK and Norwegian North Sea will be bid into Brazil, which in turn should help tighten supply in the North Sea going forward.
Quintin Kneen: Also in the plus column for additional OSV demand, we've seen several recent amounts and compelling related to future development projects in Suriname, Guiana, expecting to kick off during 2026.
Quintin Kneen: Piers in the North Sea have yet to see improvements in 2025, with PSV rates from any flat, which is not unexpected as Q1 is generally the slowest quarter in the North Sea. And whilst rates are flat, they're still above where rates were in the last obstacle of 2010 to 2014.
Quintin Kneen: As mentioned earlier, we do also expect to see some PSEs leaving the North Sea market for Brazil during 2025 and 2026 and as such this will tighten the supply demand balance further into the boat on this favour over the upcoming quarters
Piers Middleton: Piers Middleton, West Gotcher, Quintin Kneen, Piers Middleton, Quintin Kneen, Piers Middleton,
Speaker Change: In Africa we have a strong Q1 as we continue supporting drilling campaigns in the orange basin and kicked off projects in Congo and the Ivory Coast [inaudible]
Speaker Change: In the short term for the remainder of 2025, we still have several tender awards outstanding for the second half of the year related to additional drilling campaigns in the Orange Basin.
Speaker Change: which we expect to have clarity on by around mid-year. Longer term in Angola, both Sonny Ball and Capcom will come out with multiple vessel tenders to support ongoing reduction activities from mid-2026 onwards and the Angolan government continues to push the IOCs to increase production in country.
Speaker Change: As mentioned on previous calls, we may see some short-term headwinds in the region, but longer term we expect to see an increase in demand in the region, not only from the continuing development of the Orange Basin, but also from an expected uptake in tendering activity in Nigeria, with a number of projects slated to kick off in the second half of 2026.
Speaker Change: In the Middle East, the market remains very tight with limited vessel availability and increasing demand.
Speaker Change: The region reformed very well in Q1, and while new tendering activity was relatively muted due to the EAD celebrations falling during Q1, we've already started to see tendering activity pick up again during Q2, both from the NOCs and subsidy contractors.
Speaker Change: Overall, our outlook for the reader remains very positive for the remainder of the year and into 2026 [inaudible]
Speaker Change: Lastly, in Asia Pacific, the region performed well in Q1 and looking at over the rest of the year and beyond, there are numerous outstanding long-term tenders in Australia, Malaysia and Indonesia, which bowed well to the long-term large PSV demand story in the region.
Speaker Change: In addition, there is significant substance reconstruction activity expected in Australia on the second half of 2025, which will require large HTS's and large PSV's support during Q3 and Q4.
Speaker Change: For the remainder of 2025, the team will remain vigilant to any potential issues that might arise from the current potential economic headlands. But if present, the business seems set fair for the remainder of the year. We will remain focused and disciplined on continuing to maintain and improve tidewater's position in the market.
Speaker Change: Overall, as mentioned by Quintin, we're pleased with how our global team, both on and offshore, continue to perform with the highest level of dedication and professionalism, and we look forward to what the rest of 2025 brings. And with that, I'll hand it over to Sam, thank you.
Sam Rubio: Thank you, Piers, and good morning, everyone. At this time, I would like to take you through our financial results. My discussion will focus primarily on quarter to quarter results of the first quarter of 2025.
Speaker Change: Compared to the fourth quarter of 2024, including an operational aspects that affected the first quarter.
Sam Rubio: As noted in our press release, filed yesterday we reported an income of 42.7 million for the quarter or 83 cents per share.
Sam Rubio: We generate a revenue of $334.4 million compared to $345.1 million in the fourth quarter. It total decrease of $12 million or about 3%.
Sam Rubio: First quarter average day rates of 22303 per day were marginally higher versus the fourth quarter.
Sam Rubio: We also saw a slight increase in activitization from 77.7% in the fourth quarter to 78.4% in the first quarter, female each of the decrease in idle, dried-off and repair days.
Sam Rubio: Gross Margin in the first quarter was 167 million compared to 174 million in the fourth quarter.
Sam Rubio: Gross margin percentage came in at 50.1% compared to 50.4% in Q4, which marks two consecutive quarters with margins over 50%.
Sam Rubio: We did expect Gross Martin to fall slightly from Q4 levels, however the decline was less and anticipated, primarily due to higher than expected revenue, combined with the reduction in operating costs.
Sam Rubio: Adjusted EBITDA was $154.2 million in the first portal compared to $138.4 million in the fourth portal. As a reminder, in 2.4 we recorded a 14.3 million FX loss.
Sam Rubio: that negatively impacted our adjusted EBITDA. In the first quarter, we experienced the partial reversal of this FX loss and reported a 7.6 million FX gain as a result of the weakening US dollar in the latter portion of Q1.
Sam Rubio: That's a lot for any costs. For the first quarter, we're approximately 165 million compared to 170.4 million
Sam Rubio: During Q1, we were able to reduce crew on some of our idle vessels to a minimum demanding level and additionally we had a couple of vessels operating in Southeast Asia instead of Australia. We're marrying a cost is lower.
Sam Rubio: The combination of which contributed 2.7 million to the decrease in cruise salaries and travel costs.
Sam Rubio: R&M expense was also down approximately 4.8 million compared to Q4, you mainly to lower unplanned repair days and cost, with largest decreases related to our APEC in Europe , and Mediterranean regions.
Sam Rubio: Also, we had 266 of your idle days, 52 of your dry dock days, and 13 of your mobilization days which also helped reduce our supplies and consumable expense for the quarter by about $900,000.
Sam Rubio: Offsetting these decreases were entrance, verbal charter, and other miscellaneous costs that came in higher than the prior quarter.
Sam Rubio: DNA cost for the quarter was 29.1 million, 1.6 million lower than the fourth quarter due primarily to a decrease in professional fees.
Sam Rubio: We are still projecting GNA cost to be about $119 million for 2025 which includes $15 million in a non-cash stock-based compensation.
Sam Rubio: As a reminder, we conduct our business through five segments. I refer to the tables in the press release and the segment that now from results of operations, discussions and thank you for details of our regional results.
Sam Rubio: In the first quarter, consolidated average day rates were up slightly versus the fourth quarter. However, results varied by segment, with our America's day rates improving by 8% and our Middle East day rates improving by almost 5%.
Sam Rubio: We saw marginal increases in day rates in our Africa and APEC regions in our Europe and Mediterranean region, which is the most affected by seasonality decreased about 4%.
Sam Rubio: Total revenues were down compared to the fourth quarter with revenues up in the Middle East, redeemed by 6% while revenues in all other redeems between compared to two-four.
Sam Rubio: Regally, gross margin increased in the A-PAC and Middle East regions, but decreased in our other three regions.
Sam Rubio: The increase in the Middle East region was due to increases in average day rates in utilization, as well as a minor decrease in operating expenses.
Sam Rubio: The increase in the A-back region was primarily due to a 14% decrease in operating expenses versus the forced quarter.
Sam Rubio: In Africa, we saw a gross margin decrease of about 1% at the point, primarily due to a slight decrease in utilization due to higher stack days, related to our improvements.
The mine was slightly higher, vessel operating costs [inaudible]
Sam Rubio: Our Europe and Mediterranean region also saw a gross margin decrease of about one percentage point due to marginally low utilization resulting primarily for more dry out days
Sam Rubio: In our America's region, we saw a decrease in gross margin due primarily to low utilization from our idle and repair days partially offset like your dried-out dates.
Sam Rubio: We generated 94.7 million in free cash flow this quarter compared to 107 million in Q4. The free cash flow decreased quarter of the quarter, which primarily occurred a little to higher dry-off and capex costs and lower proceeds from asset sales, offset by improved cash flows from network and catalog activities.
Sam Rubio: Spies, despite the improved working capital, I do want to mention that we have not received payment for several quarters from our primary customer in Mexico.
Sam Rubio: Their outstanding receivable balance as of March 31st was 35.1 million.
Sam Rubio: Historically, we have not had any right off-student collectability of their receivables and do not expect any in the future, however, we will continue to monitor these receivables.
Sam Rubio: Here in the first quarter, we made 12.5 million principal payments on our senior secured term loan. We also incurred 43.3 million in deferred drive-out costs, compared to 17.7 million in the board quarter.
Sam Rubio: We had 950 drive-out days that affected utilization by about 5 percentage points during the first quarter.
Sam Rubio: For the year, we're still projecting right out cost to be about $113 million.
Sam Rubio: We incurred 10.3 million capital expenditures in Q1 related to various CAPEX projects, including VALAS Water Treatment Installation, DP Upgrades, Fuel System Upgrades, and various IT upgrades, both onshore and vessel related. For the year, we sell the CAPEX expenditures of 37 million.
Sam Rubio: In the quarter, we sold two vessels for proceeds of $3.8 million, and a Q4 also sold two vessels for proceeds of $4.5 million.
Sam Rubio: As mentioned previously, we have no immediate need to refinance our existing debt, as we have no near term of turties. However, as noted earlier, as we get closer to the expiration of call premiums and as market conditions become favorable into debt and capital markets, we will be offered public news so we can weigh the cost benefit of a potential refinancing.
Sam Rubio: Here at Q1 2025, we use 39.3 million in cash to repurchase approximately 910,000 shares in the market.
Sam Rubio: In April , we spent approximately 51 million of share repurchases to bring our total 2025 repurchases to about 90 million which further reduced our shares [inaudible]
Sam Rubio: Outstanding by approximately 2.3 million shares Also similar to the first quarter of 2024 we held back approximately 180,000 shares to pay roughly 7.5 million in taxes related to investing of employee share-based awards.
Sam Rubio: As we all know, the industry is navigating global economic uncertainty related to challenged commodity prices as well as recent tariff announcements. There is some lack of clarity as to how these factors will ultimately play out.
Sam Rubio: Currently, we do not anticipate direct tariff exposure to drive a meaningful increase in our costs as we have access to local forcing for most of our equipment, materials and supply needs in our international locations.
Sam Rubio: However, we may indirectly expose, may be indirectly exposed to tariffs in the form of increased costs from our U.S. base suppliers. We're subject to tariffs.
Sam Rubio: At this point, we have not observed any supplier price increase in this regard. However, most vendors still appear to be assessing the situation.
Sam Rubio: and the impact terrorists may have on them. We are in ongoing discussions with the suppliers to understand the potential impact of the terror regimes, and we'll work with them to mitigate
Sam Rubio: Q1 that, in summary, Q1 is typically the slowest quarter of the year due to the seasonality that normally occurs. However, this quarter proved to be different as our financial results.
We will above our initial expectations.
Sam Rubio: The industry, the long-term fundamental remains strong despite uncertain global economic environment Despite this uncertainty we expect to achieve our financial guidance and expect to continue to generate strong free cash flows and profitability in each subsequent quarter of the year [inaudible]
Sam Rubio: In the near term, we will continue to invest in our fleet, pursue a crack of M&A opportunities, manage or cost structure efficiently, and execute operationally at a high level.
Sam Rubio: The first border also demonstrated our commitment to pursue shared repurchases as an attractive investment opt-in and return of capital avenue for our shareholders.
We remain optimistic about our current position.
Quintin Kneen: about the strong arm-term fundamentals of industry and about the opportunity to rely ahead for Tidewater. With that, I'll turn this call back over to Quintin.
Quintin Kneen: Thank you, Sam. Janice, we will go ahead and open it up for questions.
Speaker Change: Thank you. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Team Rollyson with Raymond James, C.S. Go ahead.
Jim Rolison: Hey, good morning, Quintin and everyone else. Nice job on, I guess a good start to the year and a normally easily slow period.
Quintin Kneen: Quintin, you reference this a little bit, but kind of listening through this earning season so far.
to some of the offshore drilling contractors and sub-sea contractors.
Quintin Kneen: You know, everyone's kind of echoed the same thing as far as not seeing any changes to plans and and maybe further to that the view that activity picks up when we start getting into the back half of 26 and 27.
Quintin Kneen: is being kind of reiterated and maybe buoyed by recent contract awards.
Speaker Change: I'm curious if you guys are seeing that translate into conversations yet or if it's still too soon just because it seems like we're building towards a you know better at least second half 26 and 27 assuming the macro doesn't materially get worse from here but curious kind of what you guys are hearing and seeing.
Speaker Change: Jim, thanks. Actually, I'm going to give this one over to Piers because he's closer to the conversations with the customers related to those particular drilling contracts.
Speaker Change: Hi, Jim. Good question. I think as we haven't seen any changes from our customers in terms of their outlook and views, expectations hasn't changed, but we've still got, as we sort of mentioned, a couple of...
Speaker Change: outstanding tenders which were still in active discussions on for the second half of 25.
We're saying...
Speaker Change: The same amount of sort of pre-tender type discussions with our customers hasn't slowed down either. We sort of take up in Q1 on those which are more than looking for vessels going out for 26 and 27 and seeing what the market looks like. Thanks so much.
Speaker Change: as where we sit today, those conversations haven't slowed down and still look very positive but
Speaker Change: Obviously there's always a hint of caution with anything in this business as we look forward but no the moment we're not seeing anything in the teams on the ground that haven't seen any slow down in those conversations yet.
Speaker Change: God, I appreciate that color, Piers, and maybe as a follow-up, probably back to you, but you mentioned it.
Speaker Change: in a couple of regions, one being North Sea expectations of assets moving out of there. Curious if you guys expect to participate in that or just benefit from the tightening market. And the other one might be, you know, couple quarters ago you had brought up.
Speaker Change: Some of the challenges in the Asian market related to Malaysia and kind of the softness for a period of time and it sounds like things are tightening back up and if I recall correctly, you know that tightening back up was the difference between you guys being able to continue pushing price or not. I'm curious how that's shaping up for you. Thanks.
Speaker Change: Yeah, so the first time in Brazil, I think we'll benefit from that. I'm not going to say whether not we're going to be taking part actively in anything with Petra Russell, it's an ongoing discussion here, but
Speaker Change: I've already heard of a number of vessels which are going to be moving to Brazil, so I'd expect that to continue and that will help to tighten both.
the UK or at least...
Speaker Change: And in age of Pacific, Malaysia is back online. They obviously had EED as well in Q1, similar to the Middle East, so we didn't see much activity out of Petronas but
Speaker Change: They have started to come back and bring vessels back on, so things tend to move a little bit slower when you're dealing with the NOCs and perhaps the IOCs, so I expect that sort of full impact of that sucking up their supply is more of a Q3, Q4 type of story for Malaysia in particular, but Malaysia is the biggest market in that region in terms of...
Speaker Change: Your next question comes from the line of Greg Lewis with BDIG please go ahead. Yeah, I thank you and good morning and thanks for taking my questions. Quintin, good quarter. I did have a couple questions around.
Greg Lewis: The Forward Margin Guidance for Q2. As I kind of look at the fleet, it looks like we spacked a couple of vessels, a handful plus and across like West Africa largely. Is there an associate, I guess two questions around that. Is there an associated spacking cost?
Greg Lewis: That's going to hit margins in Q2. And any kind of color on those types of vessels are they kind of core vessels that are just, you know, dealing through some...
Greg Lewis: Spotty Worker, they may be older vessels that may be your stack and may be your never coming back.
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respectively, crewed transport vessels, I mean, these are, you know,
Greg Lewis: 30-foot long top. These are not what we would refer to as our core vessels. They're core for that region because we do have a legacy position with a couple of customers primarily in Angola where we have kind of a full logistics offering, including crew transfer, which these alley cats provide, but these are not our core PSVs or anchor handlers that principally comprise the business and really drive a lot of the revenue and margin profile. Thank you very much.
Greg Lewis: There is one small anchor handler that is stacked, I believe it's one of the lower classes so when you look at that, those vessels are not a major contributor to the financial outlook or financial profile of the business.
Greg Lewis: Okay, and so the NN like when we think about the stock spacking cost of those, it sounds like it would be negligible.
Greg Lewis: Yes, absolutely. You know, good news, bad news in our business, the stacking cost for almost any type of vessel, or generally quite low, certainly as compared to a drilling unit, but for a now you counted this nature of a very small crude transfer vessel, it's a diminimous cost.
Greg Lewis: Okay, great. And then on Piership, you mentioned the Brazil tender for next year. You know, I realize you have, it looks like maybe a little over a handful of vessels in Brazil. I don't believe any of those are work. I believe they're all kind of with the IOCs, not Petra Bros. You know, that being said, we've seen some kind of pretty.
Greg Lewis: You know, Brazil's kind of been that the saving, you know, has been one of the stronger basins in terms of day rate momentum that that was seen really over the last 12 months. Any kind of thoughts around, you know, that that 18 vessel tenders, is that going to be incremental both? I mean, I know it's a mix of local and international players that are, you know, going to be awarded in any kind of color you can give around that being incremental and kind of where [inaudible]
Greg Lewis: You know, maybe not, we don't know where the pricing is going to be on those lots as they come in next year, but but any kind of, you know, view on, you know, what the pricing market is in Brazil just because that is going to impact [inaudible]
You know, you're non-Petra bros vessels in that basin.
Yeah, so I'm in the...
Greg Lewis: The good news is that some of those 18 ships are incremental to what Petrus currently have.
Greg Lewis: sort of just working through and many, but there's definitely going to be...
Greg Lewis: and a number of vessels which are in addition to what Petras already has. I think in terms of rates, I think we talked about it on the last call about where the new building rates come in at the five fifties.
Greg Lewis: I think obviously this is for existing vessels and stuff but I think that's a pretty good guide as to where rates can start pushing towards for Brazil and that we're in a very, as we've said many times, this is a finally balanced, fly-to-mom balance at the moment and...
You know, I think...
Greg Lewis: that opportunity in Brazil with Petrus is really going to help tighten up the market a little bit in the North Sea, which is as we've said has always been a little bit slower than everywhere else at the moment. So I think it's a very good story going forward over a longer term as to what Petrus is doing.
Speaker Change: Here next question comes from the line of Fredrik Stene with Clarkson Securities, please go ahead.
Frederick Zinn: Quintin Kneen, I hope you're well and the congratulations on a strong quarter.
Speaker Change: So, I wanted to touch a bit more on the guidance commentary that you gave. You're reiterating guidance for the year, $1.32 to $1.38 billion revenue, 48 to 50% cost margin.
Speaker Change: But, you know, compared to I think their guidance for the first quarter during the fourth quarter call that quarter also exceeded your own expectations.
So, I guess I was hoping for-
Speaker Change: some color on, you know, how the second quarter, third quarter, fourth quarter outlook to still be able to...
Speaker Change: Keep the guidance has changed from how you looked those respective corpus before, right? It's the first workout performance away for you to make up for what now is potentially
Speaker Change: You know, the herald the weakness in those other three quarters, or are they still the same as before and we have a higher chance maybe to end up slightly in the, you know, upper end of the of the guides. So any color that you can.
Give us the helpers understand how those...
Speaker Change: Piers have developed since we lost from a call like this would be super helpful, thank you.
Speaker Change: Hey, Fredrik, it's West. Good morning and thanks for the question. So you're right, we did outperforming Q1, which was obviously well received and we're pleased with.
Speaker Change: But we laid out that we have about 88% of our backlog covered by contracts right now.
Speaker Change: So that gives us a degree of confidence and as we said both in the press release and I believe here this morning we haven't seen anything to the contrary that would make us think any of the projects that we are expecting or pursuing have been canceled or delayed but
Speaker Change: We still have some open revenue days and some uncontracted days within our fleet and in the backlog that we have to secure in order to ultimately hit the midpoint of our full-year revenue range.
I think-
Speaker Change: From all the facts that we know today that I just laid out, that gave us the comfort to reiterate Godence. Is there still uncertainty there or are there still open days?
Speaker Change: and kind of go get. Yeah, there is. And so, you know, the Q1 revenue out performance gave us a little bit more confidence, but there's still some uncertainty there, just naturally through some of the exposure we have that we have, we had to contemplate when reiterating that guidance.
Yep.
Quintin Kneen: Yeah, Fredrik, and this is Quintin, and let me tell you something else that I think about when we talk about the guidance One of the reasons that we did well in Q1 is that our down for repair days was less than anticipated
And that doesn't always hit on a pro-rata basis.
Quintin Kneen: So some of that you may see, you kind of roll and sprinkle it into Q2, Q3, Q4 with the hope that we do actually continue to outperform on the DFR attempt for repair basis.
Quintin Kneen: But, you know, it's one of those where we've struggled with it for the last couple of years and I'm not ready to kind of set a new benchmark a little bit lower on DFR and so the DFR outperformer so we saw in Q1 theoretically as expected to hit us somewhere in Q2 3 and 4.
Speaker Change: That's a very good color. Thank you. And as I follow up on all of this, how are you? I don't expect you to guide on 2026, but how do you feel?
Quintin Kneen: The backlog for 2026 has progressed compared to where we were during the fourth quarter call.
Speaker Change: I think we discussed this on last course called we typically haven't given the next year's backlog and I think we'll likely keep that stance. You know, as Piers mentioned, there are...
Speaker Change: We certainly have backlog in 26 and I suspect that's continued to improve. And as Piers mentioned, you know, the pretendering discussions.
Um, um, [inaudible]
Speaker Change: continue in a very positive way and you know we've talked about the average length of our contract over.
Speaker Change: Time, and you know, that's roughly six quarters or so, and that's still persists. So we certainly have covered down to 26, obviously not to the same degree as 25 given our short contracting strategy, but I would say, given what we see in the drilling market, the production market, the subsidy market, that our outlook still remains fairly constructive, and as we said, some cautious optimism about what the intermediate term outlook looks like.
David Smith: Your next question comes from the line of David Smith with Piers Middleton Energy Partners. Please go ahead.
David Smith: Hey, good morning. Congratulations on the strong border and thank you for taking my questions.
Thank you, Dave.
Speaker Change: I wanted to follow up on Greg's stacking question and hopefully this is just hypothetical and to see if that way, but...
Speaker Change: Can you please walk us through the decision-making framework that you use when deciding whether to stack a vessel versus keeping it warm or chasing spot work, like are there specific rate thresholds, disability metrics, maybe region-specific factors?
Speaker Change: It's all of those, and these particular vessels, they don't really have an operating sphere outside of West Africa and really not even that far outside on the long go.
Speaker Change: So the relationship with the existing customer, their cab gocker Chevron is going to dictate how many they need and what we can get for those particular vessels at a given time.
Speaker Change: So we have to manage the fleet somewhat tightly. We've had some new deliveries into that market in the last six to eight months and so as a result, these vessels, you don't get put into layup. And my sense is that these vessels will probably likely be sold.
But it is an economic consideration.
Speaker Change: So we think about it on the availability of opportunities out there and what we expect utilization to be and again these are higher maintenance vessels so they generally have lower utilization and and also what we can get with them in the open market outside of in this case.
Thank you.
Speaker Change: I appreciate that and just wanted to confirm that I heard guidance correctly for Q2 revenue down 5% surplensually at 44% margins.
That's correct, Dave.
with at the, I think the full year guidance midpoint would.
Speaker Change: We kind of went to a second half gross margin that's maybe 15 to 16 percent better than the first half.
Speaker Change: And I just wanted to ask if that is primarily the benefit of better utilization or is there also some visibility for contract rollover contributing to better pricing in the second half?
Speaker Change: Yeah, David, it's generally driven by better utilization, but as we also said, as dry docs decline, and as we think the FRD is kind of normalized to some degree, there's a little bit of off-ex improvement, but the primary driver is the utilization.
Good morning guys. Thanks for letting me in.
Speaker Change: Piers, on the tendering side, can you kind of walk us through the kind of timeline normally seen on these tenders and what I'm kind of driving at is if you have a tender that has a call it a July first start up for 2026 when is that generally signed and kind of put on the books. [inaudible]
Speaker Change: Is that kind of a six month out process or is it shorter or longer than that?
Um, um,
Speaker Change: It really depends on the end customer. We tend to, you know, the subsidy contractors tend to come to the market a quarter ahead of what when they need vessels.
Speaker Change: Works goes where it's still bidding for, but when you're looking at something like Patrick
Speaker Change: We worked better with it. On that 18-ship tender that have come out now, that will probably be, it will take them three to six months to get organized on that so probably end of this year you'll hear.
from them for vessels working in mid.
2026, so it really depends on...
Speaker Change: The time of work in customers north sea tends to be a little bit shorter term because this is a little bit more of a...
transparent and spot type of market there.
Speaker Change: So areas like Africa and some of the tenders were doing there because it's a more complicated
Speaker Change: Region, and it takes time. The tenders which were working on at the moment are some of the longer-term ones. Yeah, then you're in there. Sometimes it will take a year from when the tender comes out to when the vessels actually start. And so there's similar in line with patchwork. I said, there's no...
Speaker Change: There's no exact rule of thumb on the thread. I can't give you every custom is different. We all love them for it so that's what we have to play with. [inaudible]
Speaker Change: But okay, I appreciate that color but it's kind of safe to say that you should know two to three quarters ahead of what your utilization generally speaking would be. Thank you very much.
Yeah, in general.
Okay, and then I guess one for West on
Speaker Change: or Quintin. Just on capital allocation and the balance sheet, obviously you are very focused on M&A and have been for a long time, but the...
The...
Speaker Change: Bonds that you currently have outstanding are kind of a hindrance to some flexibility you might have on the on the buyback side. What kind of priority would you put on kind of debt refinancing versus kind of leaving that out and not having the flexibility on on share buybacks as we kind of move forward.
Speaker Change: So, you know, use the proceeds, obviously, important for us, you know, I don't see the need to deliver at this point.
Speaker Change: So it really just becomes an economic and opportunistic consideration to reset in the capital structure. Obviously if we were not able to find suitable acquisitions, which would be my first preference.
Speaker Change: and we started inadvertently building cash. We would certainly consider the fact we have all this negative carry and whether or not it's worth the cost of refinancing the debt because there's a relatively large cost today for that.
Speaker Change: But I would say that it's purely economic with the idea of maximizing equity, shareholder value. My preference is to redeploy it into value, creative acquisitions as opposed to new bills or anything like that.
Thank you.
Speaker Change: Thank you all who now turn the call back over to Quintin Kneen CEO for closing remarks. Please go ahead.
Speaker Change: Well, Janice, everyone, thank you very much and we will update you again in August . Bye.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.