Q2 2025 Tidewater Inc Earnings Call
Thank you for standing by. My name is Jeanne and I will be your conference operator today.
At this time, I would like to welcome everyone. To the Tidewater second quarter 2025 earnings call
All lines have been placed on mute to prevent any background noise.
The 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 a draw, your question, press star 1 again. Thank you.
I would now like to turn the call over to West Gotcher, the Senior Vice President of Strategy, Corporate Development, and Investor Relations. Please go ahead.
Thank you, Jeanne. Good morning, everyone and welcome to Tidewater second quarter 2025 earnings conference call.
I'm joined on the call this morning by our president and CEO Clinton named our Chief Financial Officer, Sam Rubio, and our chief operating officer appears Middleton. 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 meet materially different from that stated or implied by any comment that we're making during today's conference call.
Please refer to our most recent form, 10K and form 10 Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov information presented on this call. Speaks only as of today, August 5th, 2025.
Therefore your advised that any time-sensitive information, May no longer be accurate at the time of any replay.
Also, during to the call Will present both gaap and non-gaap financial measures. A Reconciliation of gaap to non-gaap financial measures can be found on our earnings release located on our website at tdw.com. And now with that, I'll turn the call over to Quinton.
Thank you, West, good morning, everyone, and welcome to the tide Waters. Second quarter 2025 earnings conference call.
Before we give you my prepared remarks, I'd like to First congratulate peers Middleton on his recent appointment to Chief Operating Officer Pierce has over 30 years of experience in the industry and has been instrumental in the success. That Tidewater has enjoyed over the past 4 years and he will now be responsible for all of Tidewater Special Operations, in addition, to the chief commercial officer responsibilities, he has held for the past 4 years.
I'll start off today's prepared remarks by providing some highlights of the second quarter discuss, our recent balance sheet refinancing updates. You on our share repurchase program and our current view on Capital, allocation discuss the offshore vessel market. And lastly, provide an update on the state of vessel Supply.
West will then provide some additional detail on our financial Outlook and our new capital structure and share repurchase program. Pierce will give an overview of the global market and Sam will discuss our Consolidated Financial results.
Second quarter, revenue and gross margin nicely. Exceeded, our expectations Revenue came in at 3 4 1. 4 9,
Gross margin came in at over 50% for the third consecutive quarter day rates. Outperformed our expectations by more than 1300 per day. Stating a new quarterly day rate record at 23,166.
The primary factor driving the increase in average day rate was the benefit of our Fleet rolling on to higher Leading Edge, day rate contracts, bolstered by foreign exchange rates that largely strengthened against the dollar during the quarter.
Additionally, our uptime performance continued, to outperform our expectations, as our vessels, continue to benefit from the substantial Dry Dock and maintenance investment. We've made over the past few years.
As a result of the higher than expected printed day rate for the quarter along with improved uptime. Performance of our vessels. Our gross margin of 50.1% came in well above our expectation of 44%, providing on last quarter's call.
Continued uptime outperformance in the quarter, helped Drive, the gross margin beat because not only do we benefit from the incremental, Revenue associated with the vessel working. But we also avoid the expense of the repaired itself and we have the fuel expense associated with the operation of the vessel while it is off higher.
During the second quarter we generated 98 million of free cash flow. The second highest quarterly free cash flow figure since the offshore recovery began a slightly from last quarter, bringing the first half of 2025, total free cash flow to over 192 million.
In early July, we closed on a 650 million us unsecured bond, that refinanced. The vast majority of our previously outstanding debt instruments, namely our 2 Nordic bonds and our long-term facility. Sorry our Terminal 1 facility.
We are very pleased to have consummated. This refinancing achieving our long discussed goal of establishing a long-term unsecured debt, capital structure more appropriate for the cyclical business in which we operate.
Involving credit facility that provides us with a significant amount of financial flexibility importantly. Given liquidity, enhancement of a revolving credit facility. We are now in a position to operate the business with less cash on the balance sheet. As we now have an alternative source of liquidity besides cash on hand.
Wes will provide more details next. But another important feature of our new debt capital structure, is that it allows for a substantially increased capacity for shareholder returns.
Our confidence in the long term cash flow generation capability of the business is such that we are pleased to announce that our board of directors has approved a $500 million, share repurchase program, which equates to over 20% of the companies closing market capitalization as of yesterday.
I'd like to discuss our share of repurchase philosophy a bit further, given the new capacity, we have available to us and the size of the new program.
Over the past year and a half or so, under our prior debt documents, we were somewhat constrained in our capacity to repurchase shares. As such, we approached this year by executing the program on a quarter-by-quarter basis, updating our share repurchase capacity on a quarterly basis and, for the most part, rapidly executing on our available capacity each quarter. This was done to ensure we maximize the share repurchase capacity available to us, particularly during those times when we saw a more pronounced dislocation in the stock price.
Because we have previously executed our program in fully each quarter. I I don't want to leave you with the impression that we will execute all of the $500 million this quarter. We see this new program as a long-term repurchase program, given our new cash on hand. I'm sure given our current cash on hand and our future quarterly cash flow generation. We can easily execute on this program over the next year or so and maintain a net debt if a dollar ratio well below 1 times,
We won't be utilizing our revolving credit facility to repurchase shares and our Capital allocation philosophy. Still prioritizes Acquisitions over repurchases. When such Acquisitions add more value to our Equity holders,
just to wrap up on the prior repurchase program. As previously announced during the second quarter, we fully utilize the remaining capacity under our prior share repurchase program. Repurchasing 1.4 million shares at an average price of $66.80 per share totaling 50.8 million dollars of shares. Repurchased in the second quarter.
as it relates to Capital, allocation priorities, we remain committed to pursuing m&a opportunities and this is still the preferred direction for us to allocate capital
As excited as we are to announce a new share repurchase program. We are optimistic that we can constantly more m&a transactions.
Fortunately, the longer term cash flow output for the business is such that we can likely execute on both Acquisitions and share repurchases. But the right value of creative Acquisitions can provide benefits in excess of whether share repurchase a loan can achieve. And we believe there are such opportunities in the market today.
We remain open to a transaction using stock cash or a combination of books. Although our view of the intrinsic value of our shares will influence how we employ stock as consideration,
We will contemplate additional balance sheet, leverage for the right acquisition provided that we have confidence that the near-term cash flows provide the ability to quickly deliver back to below. 1 times net debt to ibida, very similar and consistent with what we have done in our prior acquisitions.
Shifting gears a bit. I'd like to discuss our view on the current offshore vessel market and how we see the market evolving over the coming months and quarters.
Western peers will provide more commentary shortly, but I think it's worth providing some context on our view of the Market Outlook today.
Coming into 2025, uncertainty around offshore activity. Particularly, in the first half of the year was the prevailing theme with drilling activity poised to Rebound in the back half of the year.
Recent macroeconomic and geopolitical events seem to be extending that period of uncertainty. Including for offshore vessels, we are in the fortunate position of benefiting from operations in almost every geographical location around the world. And from a wide variety of offshore end markets, including production subk, offshore, construction and Drilling. And we remain confident in the fundamentals across each of these surface lines. That said the near-term, specifically the next quarter or 2 appears softer than we originally expected. Offsetting the fact that the last 2 quarters were much stronger than we originally expected.
We remain unaware of any project cancellations and customer conversations, remain constructive. But nonetheless, we seem to be in a period that can be characterized as lacking any sense of urgency related to commencing committed Capital expenditures.
When vessel Supply is as tight as it is. Marginal improvements in drilling, have an outsized impact on our ability to push up. David's cross all of our service lines. The current level of subsidy and production activity is strong, but it isn't quite sufficient to put the same strain on existing vessel Supply. That is needed to meaningfully, push up Day Day rates, but it has been enough to hold Leading Edge day rates at their current levels.
To continue the expansion of subk and production related work provides a higher Baseline demand, which reduces the number of vessels available to satisfy the increase in drilling activity. We see shaping up nicely in 2026 which should then provide that much more of a strain on vessel Supply as drilling activity, picks up and therefore increase our ability to once again aggressively push day rates higher.
The Vessel Supply Outlook remains essentially unchanged from the prior quarters and, and really, over the past year, nothing has changed and our understanding of new build conversations globally points to very limited activity. We're not aware of any new build announcements during 2025 the number of new Builds on order representing less than 3% of the global Fleet are expected to deliver in late 2026 at the earliest likely end of 2027 into 2028. We remain at the view that new build capacity, won't sufficiently replace vessels expected to attrition from the global Fleet. During the same time frame, as such, we still view vessel Supply limitations, as a Tailwind over the coming years as sub.
See a production Market is structurally grow, and is drilling activity increases.
We watch new build activity, very closely, and we will continue to do so, but believe that current Shipyard capacity. Prevailing Global day rate and contractual terms. The state of the vessel financing markets as well as vessel technological obsolescence considerations, make any large-scale new building programs unlikely.
In summary we are pleased with the strong first half of the year and remain competent in our full year, expectations.
We are now better positioned than we ever have been since the official recovery began with our new debt capital structure and is added flexibility to capitalize, on value, accretive Acquisitions and fury purchases. We remain confident in a robust free cash flow Outlook and we look forward to deploying this cash in the most value of creative manner for our shareholders.
And with that let me turn the call back over to the West for additional commentary and our financial Outlook. Thank you Quentin expanding on a recent debt refinancing subsequent to the quarter end in early July we closed on our inaugural us high yield Bond issuance issuing a 5-year 650 million unsecured bond with a coupon of 9.125%.
The net proceeds of the issuance went to the Redemption of our 2 previously outstanding, Nordic secured and unsecured bonds, as well as the previously outstanding Term Loan facility.
Alongside the new unsecured Bond issuance, we entered into a 250 million revolving credit facility with a Syndicate of 9 Banks. The completed refinancing marks an important Milestone on the continued evolution of Tidewater
The new Bond represents the first issue into the US high high yield markets in the 65 year, plus history of the company and establishes a debt capital structure that is well suited for our business.
Extending maturities out 5 years and providing substantial financial flexibility via the new revolving credit facility.
ProForm for the refinancing, Tidewater had liquidity, north of 600 million dollars at the end of Q2.
Further given the new liquidity enhancement via the revolving credit facility, we are now comfortable to reduce the amount of cash held on the balance sheet is that was previously, our only source of liquidity.
Importantly, the new bonds and revolving credit facility provide substantial flexibility as it relates to M&A and shareholder distributions.
From an m&a perspective, we are Unlimited in our ability to incur additional and secured debt or assumed debt related with an m&a. Transaction up to certain credit metrics all of which were well below today.
From shareholder return perspective, our new debt instruments. Similarly provide for unlimited ability to return Capital so long as we meet certain leverage metrics.
Under the bonds.
We are Unlimited in our ability to return Capital shareholders provided that our net leverage ratio defined as net debt divided by Evita proformer for a given, return of capital is less than 1.25 times.
Similarly, our revolving credit facility allows for unlimited returns to shareholders provided our net leverage ratio does not exceed 1 time.
Under the revolving credit facility metric to the extent that we exceed 1 times. Net leverage, we still retain the flexibility to continue returns to shareholders. Provided that free cash flow generation is an excess of cumulative returns to shareholders.
Remain firmly rooted in our view of maintaining a leverage profile that when combined with our cash flow, Outlook provides us with the path to return to net that zero within about 6 quarters.
Our, leverage philosophy matches up nicely with the shareholder return covenants and our new debt capital structure. As we feel comfortable that the latitude provided is consistent with our approach to managing our leverage profile, and provide substantial capacity for to to pursue shareholder returns.
As such, we are excited to announce the $500 million share repurchase program.
Given our current leverage profile, current cash on balance sheet and our outlook for cash flows. We believe this program is consistent with our philosophical approach to leverage and within the limitations set forth in our new debt instruments.
As Quinn discussed, while our philosophy around cherry purchases and capital allocation remains consistent, our approach to our share repurchase program will evolve given the new long-term capital structure and more permissive debt instruments.
We will remain opportunistic and look to take advantage of inefficiencies, we see in the market, but the pacing of the program could take a different shape than what we've exhibited in the past, particularly to the extent and m&a, transaction becomes actionable, that requires a component of cash consideration.
Having said that we remain confident that the longer term cash flow outlook for the business support supports both m&a and returning Capital to shareholders.
Turning to our Leading Edge day rates, I will reference the data that was posted in our investor materials yesterday.
Across the fleet, our weighted average Leading Edge day rate was consistent from the first quarter into the second quarter.
For our largest class of psvs, we saw a nice pickup in day rates from the previous quarter, due to strengthen, the Mediterranean, the Caribbean and the US offset by lower day, rate regions, such as the UK and Mexico.
Similarly, in our medium-sized class of psvs, we saw particular strength, in Brazil, Australia, and the Caribbean offset by lower day, rate regions in the UK in the Middle East.
For our largest classes of ahts vessels. Strengthened the Caribbean helped, push day rates.
we entered into 15 term contracts during the second quarter with an average duration of 9 months, as we look to a strengthening Market as we progress in 2026,
Looking to fold your 2025. We we are reiterating our Revenue. Guidance of 1.32 billion to 1.38 billion and a full year, gross margin range of 48 to 50%.
We now anticipate Q3 revenues at The Climb by about 4% sequentially.
Although we do expect utilization to improve sequentially, we anticipate some near-term softness. Expected utilization improvements are in line with our previous expectations. In addition, we see a modest softening in day rates in the North Sea and in West Africa, ahead of drilling activity demand improvements in 2026.
We anticipate a Q3 gross margin of 45%.
The sequential decline is due to the fall through on Lower Revenue as well as higher costs associated with fuel expense related, to idle days and repair and maintenance expense associated with vessels down for repair.
As we progress into the end of the year, we anticipate utilization to group sequentially from the third quarter into the fourth quarter, due to dry dock days, declining by about half, representing about 3 percentage points of utilization improvement.
We expect margins to improve in the fourth quarter, due to the revenue associated, with the reduction in Dry, Dock days, and Associated reduction, in fuel and repair, and maintenance repair and maintenance expense, spend during dry docks.
The midpoint of our revenue guidance range is approximately 93% supported by first-half revenue, plus firm backlog and options for the remainder of the year.
Our firm backlog and options represent 585 million of revenue for the remainder of 2025.
Approximately 73% of available days for the remainder of the year are captured and firm. Backlogging options with our larger classes of vessels retaining slightly more availability to pursue incremental work as compared to our smaller vessel classes.
The bigger risk to our backlog Revenue, our anticipated downtime due to unplanned maintenance and incremental time spent on dry docks with that. I'll turn the call over to pierce.
Thank you won. Good morning, everyone.
It's Clinton and west of alluded to. And as we've mentioned on the last couple of calls, the short to medium-term outlook for the offshore space remains challenging, and while we've seen demand ease back slightly during 2025, we still feel that with the favorable Supply story with 1 of the youngest fleets. In the industry, we're still well faced to whether any short-term headwinds and make further progress in the second half of 2026 and 2027. I have expected demand comes back online for expiration and subsequent construction projects.
Orange Basin, which over the last few quarters has supported a significant number of our larger phds in Africa.
We're still going to be supporting the remaining drilling campaigns in Namibia for the rest of the year. However, not the same level of PSC intensity as in the past, 6 quarters.
However, helping to offset some of the expected slowdown in Namibia. We won work in the Caribbean and have mobilized, a couple of larger, PCS to support drilling campaigns and Gana and Suriname.
As well as also winning work in mosambi for a couple of more of our large psvs at the tail end of the year to support subsidy construction projects, which are expected to push through well into 2026.
In the short term for the remainder of 2025, in Africa, we still have several ongoing discussions with customers both for drilling support work as well as to support a few construction projects slated to start in Q4.
Longer term, as mentioned on previous calls, we still see strong demand for the region from the second half of 2026 onwards, driven by a continued uptick in drilling, subsidy construction, and long-term production support.
Moving on to the Americas, we saw a very solid quarter for the region and by leveraging our Global footprint and best-in-class operations, we want a number of new contracts in the Caribbean, which allowed us to move vessels out of the North Sea and Africa, which helps us relieve some of the short-term pressure. We're currently experiencing and those 2 particular regions.
Looking ahead, we still see no slowdowns and long-term prospects for the wider region. The Caribbean seems set fair with both Gan and Son continuing to develop their Mason offshore businesses. In Brazil, although we've seen some Petros FID slip into 2026, the long-term prospects remain very bright, with both Shell and B BW Energy sanctioning significant projects in Q2.
In Europe, we had a strong Q2 driven by a strong, North Sea stock market, and good utilization in the med during the first half of the year.
Rates have held up well in the UK and are still above historical averages.
But looking out for the remains of the year, we do see a Slowdown in demand which we expect pressure rates on the downside for the remainder of the year.
On the plus side for the UK Rose Bank, looks likely to go ahead and expect some incremental PSV demand to support this project.
In the med and Norway. The long-term Outlook remains positive however, a number of expensive projects late to start in 2026. In the med, could be affected by the ongoing, conflicts in the Eastern Med. And as such will be watching closely how this continues to evolve.
Any specific issues were largely flat in the quarter, but the good news is that with the resolution of the ongoing tribulations between Patronus and Eastern Malaysia firmly behind us, we have started to see demand picking up again in Malaysia. Additionally, some of the locally owned vessels that were putting downward pressure on rates are returning to work.
I sent a few portions away, but expectations are the by year end things be back to business as usual in Malaysia.
In Australia, there are still several incremental longer-term PSV tenders to support production. We still see awards, but they're all expected to start in Q4.
As well as a number of construction support Scopes, which are yet to be awarded.
Looking at longer term. We see a very positive demand story unfolding in the latter part of 2026 as a number of long-term. Expiration development projects are expected to kick off in Indonesia, Myanmar and Malaysia.
Lastly finishing off with the Middle East, the market remains very tight with limited availability of tanning in the region.
We expect the region to remain Supply constrained with the epci contractors continuing to utilize any available vessels to support their operations in Qatar and Saudi Arabia and that the opportunity will be there to continue to push rates as our vessels become available.
As we've mentioned on previous course, this is a highly fragmented market, and as such rate increases tend to take longer to push through.
Than in other areas of the world.
Longer term, we don't see any slowdown in the region and the supply, demand balance still staying the ship owners favor, some time to come.
With that, I'll hand over to Sam. Thank you.
Thank you, pierce, and good morning everyone. At this time, I would like to take you through our financial results,
As in prior calls, my discussion will focus primarily on sequential quarterly comparisons.
Which includes the second quarter of 2025 compared to the first quarter of 2025, also, including operational aspects, that affected the second quarter.
As noted in our press release filed yesterday, we reported net income. A 72.9 million for the quarter or a $1.46 per share.
Been in the first quarter and the increase of 8 million, or 2%.
Second quarter, average day rates of 23,166 or 4%, higher versus the first quarter.
We saw a slight decrease in active utilization from 78.4% in the first quarter to 76.4% in the second quarter, you mainly to the increase in idle and Dry Dock days as several docking. Scheduled in q1 were pushed to Q2.
Gross margin in the second quarter was 171 million compared to 167 million in the first quarter, gross margin percentage in the second quarter remained steady at 50.1%. And now marks, 3 consecutive quarters with margins over 50%.
The margin our outperformance, versus our expectation was primarily due to higher than expected day rates and utilization combined with lower than expected. Operating costs.
Primarily related to lower rnm costs due to overall, fewer repair days and lower salaries, and travel costs due to reduced Manning on some idle vessels.
Adjusted, I was $163 million in the second quarter compared to $154.2 million in the first quarter.
As a reminder, in Q4 24, we reported at a 14.3 million FX loss and negative negatively impacted our adjusted Ava.
In the first quarter of 2025, we experienced a partial reversal of this FX loss and recorded at 7.6 million FX gain. And in Q2, we experienced an additional FX gain of 11.7 million, as a result of the continued weakened US dollar.
As it relates to tax expense during the quarter, we reversed evaluation allowance related to us net operating losses. We generated during earlier periods.
We made this reversal due to our increased confidence in the sustainability of our global profitability.
the reversal results in, in 1 time non-cash, increase the net income of 27 million
Operating costs for the second quarter were 170.5 million compared to 166.4 million in q1.
The increase in costs, did you primarily to an increase in salaries and travel and r&m costs? As we had 1 more day of operation in the quarter?
Together with FX impacts due to the weakening US dollar.
The combination of which contributed 4.3 million to the increase.
In the quarter, we also had 192 higher, idle days.
245 higher dry-dock days and 59 more mobilization days contributed to an increase of $700,000 in fuel costs for the quarter.
Upsetting these increases were insurance and other operating costs that came in lower than prior quarter.
GNA expense for the second quarter was 31.2 Million 2.1 million higher than the first quarter. Do you primarily to an increase in Personnel costs, as well as an increase in professional fees?
We are projecting GNA expense to be about $120 million for 2025, which includes $15 million of non-cash, stock-based compensation.
As a reminder, we conduct our business through 5 operating segments, I refer to the tables in the press release and the segment, but note and results of operations because discussions in our form, 10 Q for details of our segment results.
In the second quarter of Consolidated, average day rates were up versus the first quarter. However, results varied by segments, with our Europe and Mediterranean day rates improving by 14%, and our Americas day rates improving by almost 3%.
We saw a marginal increases in day rates in our APAC and Middle East regions offset by a day rate, decrease in Africa of about 5% quarter of a quarter, total revenues were up compared to the first quarter with revenues up in our Americas, and Europe and Mediterranean regions by 28 and 27% respectively quarter of a reporter.
Our revenues and all other regions decreased compared to q1 with the largest decrease in our Africa region of 22%.
Regionally, overall gross margin increased in the Americas region by 14 percentage points and in the Europe and Mediterranean region by 10 percentage points. However, it decreased in our other three regions.
The increase in the Americas region was viewed to increase average day rates and utilization, as well as the minor decrease in operating expenses.
The increase in the Europe and Mediterranean region was primarily due to an 8 percentage Point increase in utilization and a 14% increase. In average, day rates due to typical calendar seasonality, and a stronger than expected, North Sea spot Market.
Higher average day rates and slightly lower operating costs.
Our middle east region was also saw a gross margin decrease of about 8 percentage points.
Due to a decline in utilization combined, with an increase in operating expenses due to higher fuel costs.
The primary reason for the lower utilization was higher Dry, Dock days and higher repair. And idle days in our Africa region we saw a 12 percentage points decrease in gross margin.
You primarily to lower day rates, lower utilization and higher rnm and fuel costs resulting from higher dry dock repair and idle days.
We generate at 97.5 million in free. Cash flow. This quarter compared to 94.7 million in q1, the free cash flow, increase quarter of, the quarter was primary attributable to a stronger results from operation lower Dry Dock and capex costs and higher proceeds for mass at sales, partially offset by a use of working capital.
Last quarter. I mentioned that we had not received payment for several quarters from our primary customer in Mexico. We still have not received payment from them and our outstanding, our balance at the end of June represents approximately 14% of our total credit are
As mentioned previously, this customer had periods of non-payment in the past but historically, we have not had any write-offs due to the collectibility of their receivables.
We continue to monitor and assess this closely.
During the second quarter, we met 12.5 million in principal payments on our senior secured Term Loan in addition to approximately 1.5 million in other debt repayments related to the financing of recently constructed smaller crew transport vessels.
We also encourage 23.7 million in deferred Dry. Dock costs compared to 43.3 million in the first quarter.
In the quarter we had 1,195 Dry Dock days that affected utilization by about 6 percentage points for the year we are projecting Dry. Dock costs to be about 107 million which is down about 6 million from our prior call. The decrease is due to the net effect of changes in timing of various 25 and 26 projects in addition, the savings generated from a already completed 2025 dry docks.
In Q2, we incurred $5.2 million in capital expenditures.
Related to various projects, including ballast, water treatment, installations DP system upgrades, and it upgrades both onshore and vessel related.
For the year, we Still project Capital expenditures of 37 million.
during Q2, we spent 51 million on share repurchases to bring our total 2025 repurchases to about 90 million the t2 repurchases reduce our shares outstanding by approximately 1.4 million shares,
As Quinton West mentioned earlier, we successfully refinanced, our previous debt instruments, the longer ten year, secure, unsecured structure and we were also successful in entering into a 250 million revolving credit facility.
They also announced our newly authorized 500 million share repurchase program.
Overall, we believe this new debt capital structure increases Financial flexibility for Tidewater, and we are also excited about the opportunity for additional shareholder returns moving forward.
On the tariff front, we have not seen a meaningful increase in our costs, and we do not anticipate direct or indirect tariff exposure that will drive a meaningful increase in our costs.
We acknowledge that many vendors are still evaluating tariff announcements; as such, the impact that these tariffs have on our cost structure is subject to change moving forward.
In summary, Q2 was exceptionally strong from an operations and execution standpoint.
We delivered both strong financial results and free cash flow as well as returning significant amount of cash to shareholders in the form of share repurchases.
We also successfully refinanced, our previous debt to a more suitable and flexible structure that aligns with our objectives and needs.
Well, there is some amount of near-term uncertainty in the industry related to the timing of incremental vessel, demand industry, long-term fundamentals remained, very strong.
Despite this uncertainty we we expect to achieve our full year Financial guidance and expect to continue to generate strong free, cash flows and profitability, each subsequent quarter of the year.
We remain optimistic about our current position and about the opportunities that lie ahead for tight water with that. I'll turn it back over to Clinton.
Thank you, Sam.
Jeanie, would you please open the call up for questions?
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,
Comes from the line of Jim rolison with Raymond James. Please go ahead.
Hey, good morning everyone. Congrats on a nice quarter, and congrats on your promotion.
Um Quinton maybe since you brought it up. And I think I've heard it 3 or 4 times throughout the call, you brought up m&a and and obviously the flexibility that your new facility and and financing and you know non need to keep all the cash on the balance sheet provides you would love just to hear an update of kind of what you're seeing out there. And if you think there's actually anything actionable in the Fairly near-term out there, since you've been kind of evaluating opportunities for quite some time since your last transaction.
Hey Jim thanks. Um so I would characterize the discussions over the past several months as becoming more constructive.
You know, there, you know, if if you take us back to the last summer, everybody was, you know, very excited about the out, in the near term Outlook. And, and I think prices for secondhand equipment. And for companies got a little bit ahead of where, I thought they should be.
And I believe that people over the last several months have come to terms with what they see as the pace of the offshore cycle and probably uh just the a growing awareness of the uncertainty or volatility that's inherent in our business. And so that's that's just brought people back to the table. So I am encouraged. It's it's always hard to know and I I joke with Wes that we've probably been
And then, you know, due diligence for 6 years straight and, you know, we get 3 or 4 transactions done, but so we're still active in in the market and we look forward to getting things done. But we've got some very
We've got some some significant price hurdles, you know, right now just repurchasing our own shares is significant value. So I need to make sure that anything that we do uh, outside of that creates just as much or more value for our shareholders.
Yep, that makes sense and consistent with kind of how you thought about this in the past and and then maybe as a follow-up, you know, as we've gone through last quarterly earning season and so far this season, it seems like all the talk, uh, around or the thesis around, you know, back half of 26 and the 27 and 28, uh, drilling demand. And, and the deep water side at least, is that all seems to still be in place based on what contracts have been let. What some of the Drillers that have reported so far are still talking about and it and it seems kind of consistent with your comments, but I'd love to hear, you know, to whatever extent you have visibility going into to next year. Maybe it's second half and into to the years after, um, just from a demand perspective. And you know, you mentioned finally kind of balanced Supply demand for the for vessels right now where you're not able to push rates but you're, you know, still able to sustain rates just kind of kind of put the pieces of the puzzle together to see if we get back to a
Market sometime next year, or into 27, where you are actually able to push rates again.
Well, that's certainly our house view but I'll tell you what, I'm going to hand it over to pierce because he's got more uh visibility with the customers. Uh and he can give you a little bit more color on what he's seeing developing in in 2026.
Um, thanks, Jim, for the congratulations. Um, yeah, I mean, I think, you know, I just wanted to set our house to use. It definitely is for with seeing the drill is starting to pick up contracts and everything quite public, but what they're picking up in 2026.
And we're certainly seeing that in, in the timbering activity that we're starting to. Now, see we always tend to be slightly behind where the Drillers are, but I would say we're we're seeing an uptick in
Those tenders and Pretenders coming out for those regions to support the drilling activity. And, you know, as we've sort of said in the past, I mean that the thing about our businesses, we're not just a, a drilling derivative, of course, you know, we've got learning on to that subsidy construction and we're starting to see, um, those contracts coming into play now, which, you know, maybe we thought would come a little bit earlier but my Q4 and into 2026 as well. So, you know, we've got a very positive outlook in, in terms of the second half of 26 that we've got big of an uptick on some of the production stuff we're supporting development, drilling already. We see other projects coming up in, not just in the Caribbean but kind of southern Africa as well and Indonesia, like I mentioned,
So yeah, it it's it's looking to be a, a much more positive story. Since we're going to go into the second half of 26 and think we'll have all sort of 3 production, subsidy construction and drilling all um working at the same time. And once we have that demand story in place that's you know with a limited Supply will give us a chance to to really start pushing rates again like we did in 23 and 24 is is the intention.
Thanks Jim. Thanks Jim.
Your next question comes from line of Frederik Steen with Clarkson Securities. Please go ahead.
Hey, Quinton. Hope you are all well. It's nice to see a very strong quarter.
Absolutely.
So I I think kind of the the themes that I wanted to touch upon is is um, you know, you you you you
previous questions that start the uh, Pawn as as as well, but Quinton in your prepared remarks around the
The m&a story. And and and what you said now that you they could have been 3 or 4 transactions that that might might, uh, have been realized that at some point, but there's always bits and pieces that, you know, doesn't work out that at a specific time, but I think kind of the, the way you phrase yourself uh, and, and also remembering some of the comments you've given before around them and a
Makes me feel like you, you might be a bit more optimistic about, you know, getting things done now, uh, than before. And, and if that's the case, is it, because the
The market itself, while there's still volatility out there, seems like people have been able to assess that volatility.
you know, better than what they've been doing before that that there's um, a calmness I made to all these volatility that that could make transaction happen on the last
Hey, good afternoon, Frederick I that's exactly what I would say. I would say that people are getting comfortable with the uncertainty levels that are out there and, uh, you know, maybe you're they were a little bit too, uh, irrationally, bullish, and, and the pace of the recovery now. There they're starting to feel the, uh, the, the 26 year. Fill up for the Drillers are starting to see what the vessel Supply is going to be required. They're not seeing any vessels Supply coming in. And so, everybody's getting real comfortable with the, the recovery that they see playing out and the pace of it. And so, as a result, I think it's settled people into some expectations that allow for these conversations to be more constructive. Um, and so my hope is yeah I I would say on balance a quarter over quarter I'm more bullish about the opportunity to get some things done, but it's always difficult to say because there's, you know, everyone has different price expectations.
You know? And and we have a again we just have a firm expectation of value creation and and we've got an opportunity to repurchase shares if we need to. And so, we'll deploy Capital to the most constructive way. But, you know, there there's always a benefit in, in acquiring vessels, that will reduce the ages of Fleet that enhances a particular region for, uh, for strategic reasons, for our competitive, and balance reasons, as well as access reasons. So so no, I'm I'm, I'm generally more bullish now than I was even over the past 9 months, um, hopeful that we can get some things done, but at the same time, you know, we'll we'll take it as it comes.
Perfect. Uh, thank you very much. And on the, um, you know, the outlook for the, are you, you guys gave quite um, comprehensive commentary. Now, uh, on, you know, how you view the rest of the year, and you've uh, reiterated guidance. Uh, but clearly, you know, Q1 was stronger than initially expected due to us.
Stronger than initially expected. Um, Delta from, you know, when we had this call here in May, on the first quarter.
What has brought you to the out for the second half?
Is that worse now? Maybe, you know, if I try to read a bit between the lines, it's um, optimize might be pushed a bit out in time. Any particular color on that would be helpful? And as a side question to that.
I think for, you know, 2024, you initially guided $424 million during the third quarter conference call in '23. Last year, you waited the guidance one extra quarter because of all this volatility.
Do you think you'll be in a position to to guide for 26, uh, during the third quarter call? Or is it still
You know, same type of of outlook for for next year, that there. It's too early to tell this time around as well.
Hey Frederick, good afternoon. It's West. I, I try and parse your question there. I think in the last piece referring to, um, The Lang, our guidance from, um, our kind of regular scheduled programming of of doing so in Q3 of last year, uh, into Q4 results. So, the beginning of the year,
In a position to confirm that yet, we in terms of what we'll do, uh, for this coming year. You know, I think in a perfect world that would be our preference to get, uh, guidance out sooner rather than later. But similar to last year, I think we'll have to evaluate the market factors in play to understand our level of confidence in doing so. So we'll play that out, um, over the coming months and quarter or so, to see what the the world looks like heading into 2026 and we'll make that determination when we get there, is it? I'm going to restate your first question to make sure that we understand it and that's
Our second half expectations from the Q1 call to the Q2 call, is that correct?
Yeah. How have those changed?
Sure. So I think it is fair to say that our second half expectations have come down as compared to um our second half expectations on at the end during the q1 call, our commentary in the prepared, remarks, uh, specifically, uh, referred to our previous utilization improvements in the back, half of the year. I think, if you recall, um, and on the last, uh, earnings call, and we provide a guidance, we expected a more meaningful Step Up in utilization, uh, into Q3 and Q4 that we've backed off a little bit on. We do expect utilization to improve in the back half.
But not as substantially as we did in last quarter's call. So when we looked at the full year guidance, given the outperformance in the first half and still a fairly, you know, constructive back half. We were comfortable to reiterate the full year but again did want to differentiate a little bit that expectations have come down a little bit for the back half, uh, particularly as it relates to the, um, uh, step up and utilization that we had originally expected.
All right. That's that's very clear. And you say to my question much more simply than I managed to do. So thank you. All right, you want to make sure we answered it correctly.
Thanks, Roger. I appreciate it. All right, thank you so much. Have a good day. Bye.
Your next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.
Hey, good morning, thank you for taking my question.
Hey, Dave. You
I think you mentioned Q3 utilization was expected to take higher. Can you give a a rough range of that Improvement?
Sorry for the second quarter.
Into the third, right? For the third quarter guidance, I thought your expectation was for utilization to take higher, and it was just looking. Yeah, that's correct.
Yep.
Yeah, to to quantify, that'd be a few percentage points if utilization improvement from into the third quarter from the second.
Okay. And appreciate that because
with a
Yeah, even a, a small uptick and utilization, just doing back at the envelope math, right? If, if I heard the, the guidance for Q3 Revenue down, 4%,
kind of suggests average rates in Q3 that are, you know, down
1200 or or more. Um, and it sounds like you're, you're pretty well contracted for the quarter. So, I was just hoping to get some color on that lower rate Outlook, you know, if it's more driven by mix, uh, if if you're seeing unfavorable contract rollovers or, or maybe there's, you know, some healthy conservatism in big time.
Hey, Dave, I I'll draw my comments back to um, uh, as it relates to today rates, that that is the correct implication, or inference that you're making and we referred to, uh, the day rates. And the north seamless Africa is softening a bit.
Push the date rates. So when you put all those together your inference is correct that with a slight utilization Improvement, that does imply a printed day rate uh, reduction into the third quarter.
I appreciate that. And if I could make a quick follow-up, um, just wanted to make sure if I if I'm understanding the the full year, guidance correctly and and the Q3 then the the midpoint for the full year kind of suggests Q4 vessel margin that steps up about 30 million, you know, compared to the Q3 Outlook which would be a a pretty strong uplift, you know, compared to fourth quarter from from prior years. And I I know you touched on it in the the prepared remarks. But could you give just a little more color on that visibility for the the activity drivers and Q4?
So, maybe I'll speak to the first part and then let peers discuss again his view on the macro and, and, and the activity landscape. But again, your inference is correct that in order to achieve the midpoint of guidance, um, for the full year, given our Q3 the specificity we provided around Q3 that would imply a fairly, um, meaningful step up in the Q4. So, again, that that is the right read. Uh, and but I'll, I'll let peers talk about some of the activity drivers that he sees in the Q4.
Yeah, thanks West. Hi David. Um yes, I mean I you know D3 is is going to be a little bit uh, larger than perhaps expected but I think as I mentioned Q4, we are
Already starting to see a number of vendors for um, some drilling activity.
In Africa, but also subsidy construction is starting to kick in as well. So, some of our, you know, we've seen this sort of pairing off of some of our big PSCs, which have been very successful in Namibia, supporting drilling campaigns. So there's a...
So, that's driving our more positive response to go towards the end of the year, primarily for Africa, Mozambique.
Um, we go the specifically on that side, but then we're also seeing an uptick in a difficult as well. There's a slight slow down in Q3, but in Q4,
and we've seen a number of projects in Australia, which, I mean, we're expecting to, to pick up. So, you know, it's just sometimes you get these small short blips and our, our business, and waiting for new contracts to come along, and we're starting to see those tenders coming through. And so, I think we've mentioned on previous calls, subsidy construction tends to
Um, and I'm much shorter. I'm dropping training in terms of they come out and then they award in a much quicker time frame. The oil companies tend to have sort of 6 to 12 months type of window, where it's the construction tenders tend to be sometimes 30 to 90 days of notice. So that's what we're dealing with. That's, you know, we're seeing that now for some construction piece picking up in Q4.
Hey, hey Dave. If I could add one more data point, it appears as commentary more on the fleet side, just to remind you, we do expect dry dock days to form half in Q4, which equates to about 3 percentage points of utilization.
So that's perfect. I really appreciate all the callers, and you know, congrats on the great Q2 performance and the debt refinancing.
Thanks, Steve. Thanks.
Your next question comes from the line of Josh.
Partners, please go ahead.
Thanks, good morning. Uh, first, I know you talked about some utilization softness in West Africa over the near term. But could you talk about your multi-year outlook there? It seems to be one of the regions where you listen to driller optimism over, you know, 2026, 2027, and beyond. How do you see this playing out versus some of the other regions where you have opportunities to deploy assets over the next couple of years?
Yeah, I'll take that. So we're also very optimistic for Africa. I mean, there's always.
As we go into the 6 major. I mean, I think the way we look at our business, when you go through that process, we've obviously been very busy, as I mentioned, in the last 6 quarters or so supporting drilling in Namibia. You know, that is expected to slow down a little bit over the next...
Next year, perhaps, and then the expectation is that as you go into the second half of 2026, you know, those projects um.
We're now doing Insurance in terms of that development phase of 2 to 3 years. So once those stick in and we're seeing that in southern Africa as well, we're supporting some campaigns there. So that's going to
Drive demand for the bigger PSVs. Um, and then we're also seeing.
Yes, I was coming in with supporting projects in fongo Ivy Coast at the moment. So there's some new production on that site. So I think there's um, there's a there's probably going to be probably there is going to be a pause on the, on the drilling for the next. Uh, uh few quarters. And that's what we're I think talking about and I think as you go into 2026, you'll start seeing additional exploration, and then development as well on top of that as well. So, you're going to layer in another
Layer of demand from that side. And then I think the other thing, which I think we may have mentioned on the last call, is that we're not particularly active there. But Nigeria seems to be very um,
Oriented, we've seen a couple of awards, so there's discussion ongoing for the Drillers on that as well. So, you know, D is going to suck up a certain amount of supply as well as vessels. So, you know, maybe we'll work down, maybe we work, but that's going to certainly.
You know, we stock up supply from our competitors as well. So, I think Africa, longer term, has a very positive story. It's just that the next few quarters are probably going to be a little bit faster than we've seen in the past, but there's a lot of work coming up. I'm sorry, we have a very positive long-term outlook for the region.
Thanks for that and then just as my follow-up. Um, how did you, how did you all arrive at the 500 million dollar number for the share reproach repurchase program. I think there was a comment in the opening remarks that um, it was something that was
You felt comfortable that you would be able to execute within a year on, or I'm just curious how you arrived at the $500 million number. Thanks.
So hey, it's it's Quinton. Um, I don't want to commit to just a year because there may be some things that uh, come into play over the next year. That, you know, either accelerated or extended 1 way or the other. But when I look at the cash that we have on hand, and I think about the excess amount that exists today on, on the balance sheet, since we have our new revolver, we're allowed. We're going to allow ourselves to reduce that balance to a reasonable level. We're generating about a hundred million dollars of free cash flow, uh, a quarter and then so you know, when the next year or so it's certainly very conceivable that we could uh take advantage of all of that entire 500 million dollar amount and that's how we set it. Now, I'd like to do Acquisitions. And so I'd like to use
Cash for acquisition. So that may delay us fully utilizing that program within the year. But that's, that's how we got there.
Thank you very much. I'll turn it back.
Take care.
There are no further questions at this time. I will now turn the call back over to Quentin remarks.
Genie, thank you. And thank you everyone for listening. We will update you again in November. Goodbye.