Tidewater Inc. (TDW) Q1 2014 Earnings Report, Transcript and Summary

Welcome to the Fiscal Year 2014 First Quarter Earnings Conference Call. My name is Adrienne, and I will be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. I'll now turn the call over to Joe Bennett. Joe Bennett, you may begin.

Thank you, Adrienne. Good morning, everyone, and welcome to Tidewater's first quarter fiscal 2014 earnings results conference call for the period ended June 30, 2013. I'm Joe Bennett, Tidewater's Executive Vice President and Chief Investor Relations Officer. With me this morning on the call are our President and CEO, Jeff Platt; Jeff Gorski, our Executive Vice President and Chief Operating Officer; Quinn Fanning, our Executive Vice President and CFO; and Bruce Lundstrom, our Executive Vice President, General Counsel and Secretary. We'll follow our usual conference call format. After the formalities, I'll turn the call over to Jeff for his initial comments, to be followed by Quinn's review of the financial details for the quarter. Jeff will then provide some wrap-up comments before we open the call for your questions. During today's conference call, Jeff, Quinn, I and other Tidewater management may make certain comments that are forward-looking statements and not statements of historical fact. I know that you understand that there are risks, uncertainties and other factors that may cause the company's actual future performance to be materially different from that stated or implied by any comment that we may make during today's conference call. Additional information concerning the factors that could cause actual results to differ materially from those stated or implied by the forward-looking statements may be found in the Risk Factors section of Tidewater's most recent Form 10-K. With that, I'll turn the call over to Jeff.

Thank you, Joe, and good morning to everyone. Earlier this morning, we reported fully diluted earnings per share for our first quarter of fiscal 2014 of $0.61, inclusive of several nonrecurring items that were highlighted in our press release, and for which Quinn will provide you with some additional information in a moment. Operationally, we performed in line with the guidance provided on our last earnings call. Vessel revenues, which included about 1 month's contribution from the 5 vessel Troms fleet, were nearly $332 million for the June quarter. Importantly, our revenue performance is consistent with our long-held view that our business is in an upturn that will be manifested in increasingly quarterly revenue gains. Based on our latest assessment of the market, we remain confident in that outlook. Our vessel revenue trend reflects the improving health of the global offshore industry, with recent increases in both sides of the global offshore drilling rig fleet and higher utilization rates. Recent announcements of awards for construction of new offshore drilling rigs, both deepwater floaters and jackups, reinforce our positive outlook for these key drivers of our business. Vessel operating costs were higher in the June quarter than in the March quarter, reflecting fleet growth and a heavy drydock schedule, but were also in line with our prior guidance. I'll remind you that higher R&M costs also penalizes on the revenue line, as vessels do not normally earn revenue as they undergo repairs. Thus, when R&M costs decline in our third and fourth fiscal quarters as we expect, our quarterly revenue performance should be helped. This revenue repair and maintenance seesaw effect will continue to be an operational fact of life for us, especially since we now have only 32 older vessels left in our active fleet and over 230 new, large, sophisticated vessels that command higher day rates. Beyond the numbers, the June quarter was strategically important for Tidewater. The Troms Offshore Supply transaction was completed on an expedited basis and I'm very pleased with our integration initiatives to date. Through the Troms acquisition, I believe Tidewater has established a scalable platform that will also -- that will allow us to participate in an expanding Norwegian offshore market, upgrades our cold climate competencies and allows us to better service our global client base in all major markets. We also completed our exit from the ship repair and ship construction business in the June quarter. While the Quality Shipyard's transactions were not particularly consequential from a financial perspective, we realized small gains on the 2 sale transactions and we'll be able to modestly reduce our go-forward fixed costs through their dispositions. Most importantly, our exit from a noncore business will allow our team to focus on: one, optimizing what we expect to be a multiyear up cycle in our core OSV business; and two, developing a business model to deliver differentiated services to our clients. Let me mention 3 additional points before turning the call over to Quinn. First, after completing fiscal 2013 with no lost time accidents, we unfortunately experienced 2 lost time accidents early in this new fiscal year. While these incidents demonstrate that even experienced hands occasionally lose focus and divert their attention from the snake that we daily carry in our hands, I am happy to report that the 2 individuals involved are on the mend with 1 already back to work. We are using these incidents as a clarion call for the rest of the team, and we'll strive to reestablish the 0 LTA rate we have twice achieved in the recent fiscal years and is always our company's safety goal. Second, our vessel fleet utilization rate remains high and day rates continue to increase, although not quite at the pace experienced in the March quarter. Third, we continue to have very positive negotiations with our Angolan joint venture partner, Sonangol, about a new venture agreement -- arrangement. And we hope to have further news to report on this development in the near future. It would be inappropriate to further comment at this time on our negotiations. However, I remain optimistic that we will soon reach a resolution that is positive for both Sonangol and Tidewater, and that we will participate as partners in an expected upswing in activity in Angola over the next year or so. Now let me turn the call over to Quinn to discuss our financial results for the quarter and to provide you some commentary about the next few quarters. Quinn?

Thank you, Jeff. Good morning, everyone. First, I'll call your attention to a second earnings press release that we put out this morning in order to correct a typo in one of the tables included in our original press release. We also expect to file our quarterly report on Form 10-Q through the EDGAR filing service sometime before the close of business today. Also note that we included select operating statistics for our newer vessels, including utilization, average day rates and vessel count by asset class in this morning's press release. And at least for the near to an immediate term, we expect to provide this information on our quarterly filings as well. Finally, note that in this quarter, we have stripped vessel operating lease costs, which some associate with financing costs, out of vessel operating costs, and we will instead separately present these costs under the heading vessel operating leases on the face of our income statement on a go-forward basis. This should make our results, including vessel operating costs and vessel operating margins, easier to compare to our peer OSV companies. With those housekeeping items out of the way, as Jeff noted in his introductory remarks, we reported diluted earnings per common share of $0.61 in the June quarter versus diluted earnings per common share of $0.95 for the March quarter. As noted in our press release, net earnings reflect approximately $4.6 million or $0.07 per share after-tax and nonrecurring costs, including transaction expenses associated with the Troms Offshore transaction and our recent settlement of a previously disclosed assessment by the Customs Department of Equatorial Guinea. To help you tie back to my prior guidance, financial results of Troms Offshore are included from the June 4 date of acquisition through June 30. Note that Tidewater's results for the quarter include approximately $3.4 million of Troms vessel revenue; approximately $1.9 million of vessel operating expense; $4.4 million of G&A, including the previously referenced $3.7 million of transaction expenses; and a bit less than $1 million of depreciation expense. The total EPS impact of Troms in the June quarter was approximately negative $0.06, which includes the previously referenced $0.05 per share in nonrecurring costs. EPS adjusted for Troms results with the EG settlement was $0.69. We continue to expect that our recent investments in the Norwegian sector, and more generally in cold climate areas of operation, will be accretive to Tidewater's consolidated earnings on a perspective basis. As Jeff noted, reported vessel revenue for the June quarter at $332 million, when downwardly adjusted for approximately $3 million in Troms vessel revenue, was still at the high end of the vessel revenue guidance range of $320 million to $330 million that I provided in May. Reported vessel operating expense at $196 million, when downwardly adjusted for about $2 million in Troms vessel OpEx and about $4 million in vessel operating leases, was also within my guidance range of $195 million to $200 million, largely reflecting, as Jeff noted, fleet growth and an unexpectedly high quarter of -- excuse me, and an unexpectedly high quarter for drydocks. Vessel level operating margin at approximately 41% was down about 3 percentage points quarter-over-quarter, but was consistent with our expectations and within the upper half of my prior guidance range. As vessel deliveries and vessels in drydock are frequently key drivers of quarterly financial results, I'll note a couple of items for you in order to provide some initial contexts. First, incremental vessel revenue from 8 vessels, including the 5 vessel Troms fleet that were delivered in the June quarter and 6 vessels that were delivered in the March quarter, totaled about $8.5 million in the June quarter. Demand for new equipment continued to be very good across most geo markets, and the vast majority of our off-hire time has generally been driven by shipyard-related downtime for vessel repairs and/or vessel modifications and generally nonspeculative mobilizations. Otherwise, gaps between our vessel charters have generally been limited. Second, lost revenue associated with vessels in drydock was up quarter-over-quarter by almost $8 million, which, due to unscheduled downtime, had [indiscernible] exceeded our relatively high expectations at the time of our last earnings conference call. Consistent with our outlook in May, we anticipate another heavy drydocking quarter this September quarter, after which at least scheduled shipyard time should begin to moderate. I'll return to this topic in a moment. With these 2 points in mind, I'll note a couple of operating statistics for the June quarter. Average active vessels, at 268 vessels, were up 3 vessels quarter-over-quarter. Utilization of the active fleet in the June quarter was a respectable 80%, but was off approximately 3 percentage points quarter-over-quarter, again reflecting scheduled and unscheduled shipyard time and perhaps some modest drag associated with newly delivered vessels getting to their first job. Average day rates for the active fleet at approximately $17,000 a day were up about 4% quarter-over-quarter. Looking now at our 2 key asset classes. For the deepwater class of vessels, which accounted for approximately 55% of consolidated first quarter vessel revenue, average active vessel count was up 2 vessels quarter-over-quarter to 82 vessels and totaled 86 vessels at quarter end. Utilization of the active deepwater vessels at approximately 85% was basically flat quarter-to-quarter, but remained at a very solid performance level given our heavy drydock schedule and new vessel deliveries in the quarter. Looking forward, we are planning to add a couple of vessels to this class of equipment in each of the next few quarters, but I would expect utilization in the September quarter to generally remain in the mid-80s and then move up a couple of percentage points in the second half of the year as scheduled shipyard time begins to fall off. For the towing-supply and supply class of equipment, which was approximately 38% of consolidated first quarter vessel revenue, the average active fleet count was down one vessel quarter-over-quarter to 119 vessels. Utilization of active towing-supply and supply vessels was off about 4 percentage points quarter-over-quarter to approximately 80%. Beyond the June quarter, the towing-supply/supply fleet count may decrease by a vessel or 2 as the year progresses, but active vessel utilization is expected to move back in the mid-80s for the balance of the fiscal year. Turning to vessel operating costs. Vessel OpEx for the June quarter was approximately $196 million, or up about $15 million when compared to the March quarter's OpEx, excluding vessel operating leases of approximately $181 million. Although majority of the quarter-over-quarter increase in repair and maintenance expense consistent with fleet growth -- is consistent with fleet growth, and as a result, crew costs were also up quarter-over-quarter. Other cost categories were generally in line with expectations with offsetting quarter-over-quarter increases and decreases. Overall vessel-level cash operating margin for the June quarter was $135 million, or approximately 41% of vessel revenue. Looking at our geographic reporting segments. For the Sub-Saharan Africa/Europe segment, which accounted for about 47% of consolidated first quarter vessel revenue, vessel revenue was up about 1.5% quarter-over-quarter, largely reflecting offsetting impacts of the 1-month contribution from Troms Offshore and the heavy drydocking schedule. Average active vessels were up 3 vessels quarter-over-quarter, and average day rates were up about 5%. Utilization, however, was off about 5.5 percentage points quarter-over-quarter to 77%, which again largely reflects a particularly high drydocking quarter in the region. Our expectation is that this trend will reverse over the course of the next quarter and utilization will pick up at least a couple of percentage points. For the Americas segment, which accounted for approximately 27% of consolidated first quarter vessel revenue, vessel revenue was up about 9%. Like Sub-Saharan Africa/Europe, average active vessels were up only one vessel, but average day rates were up about 6% quarter-over-quarter, reflecting the beginning of new charters in both U.S. Gulf of Mexico and in Brazil. Our internal forecast adjusted average vessel -- average fleet size, utilization and average day rates are all expected to move in a positive direction over the course of the next couple of quarters. In the MENA segment, which accounts for about 12% of first quarter consolidated vessel revenue, vessel revenue is off about 4% quarter-over-quarter. Average active vessel count was off 2 vessels quarter-over-quarter. However, active vessel utilization was down about 7 percentage points due to ships in drydock and the monsoon season slowdown. Utilization in MENA should rebound as the year progresses. In the Asia/Pacific region, which accounted for about 13% of first quarter consolidated vessel revenue, vessel revenue was also off about 4%, reflecting both reduction in average active vessels and lower average day rates as a number of large vessels completed contracts in Australia where day rates tend to be high to compensate for the relatively high crew costs. Vessel margins in the June quarter for all but Sub-Saharan Africa/Europe segment, which had a disproportionate share of ships in drydock during the quarter, were at 45% or better. Sub-Saharan Africa/Europe vessel operating margin was about 35% in the first quarter, but we should see a rebound in the coming quarters as the number of ships in drydock start to trend lower. Below the vessel operating margin, G&A expense for the June quarter was about $50 million. As previously noted, G&A for the quarter includes about $4.6 million in nonrecurring costs, again, related to the Troms transaction and our custom settlement in Equatorial Guinea. Also included in G&A is approximately $1 million in costs associated with revaluing of equity-based incentives at a maturely higher stock price than what -- than the price was at the beginning of the June quarter. Adjusting for these items, G&A was actually down modestly quarter-over-quarter. Finally, note that gains on dispositions net include a $4 million gain related to our sale of the remaining assets of our ship repair and ship construction business. Offsetting this gain was approximately $3.9 million in asset impairments that were made in connection with our regular review of the stacked fleet. As of June 30, we had 41 stacked vessels with an average net book value of approximately $522,000. Turning to our outlook. We continue to expect that the newer vessels within both the deepwater and the towing-supply and supply classes of equipment will continue to experience high utilization, positively or negatively impacted by the timing of drydocks. Future quarters should also benefit from a full quarter's contribution of Troms Offshore. Otherwise, we expect that average deepwater day rates will continue to trend positive as vessels roll to charters reflecting current marketing conditions and as we take delivery of additional large deepwater PSVs over the coming quarters. However, we have not yet seen significant rate traction in the towing-supply and supply class of equipment despite a reasonably strong jackup market. Our internal forecast, which I think is reasonably conservative, assumes a further mid-single-digit percentage improvement in average day rates for our deepwater vessels over the remainder of our fiscal 2014 and relatively flat average day rates within the towing-supply and supply class of equipment. As a perspective fleet count, we expect to take delivery of 7 additional vessels in the remainder of fiscal 2014, 5 of which are deepwater PSVs. Also worth noting, perhaps as another indication of the relative strength of the general OSV market, is the desire on our customers' part to contract new vessels before their delivery dates. Currently, 5 of the 7 vessels, including 3 deepwater PSVs and 2 specialty vessels, are contracted for term work upon their deliveries. Interestingly, 3 separate geo markets are impacted by these term contracts, so I don't think this is a one market phenomena. Equally important, we hope to get many of the vessels that have been undergoing repairs and/or regulatory drydocks back on the payroll beginning in the September quarter and continuing in the second half of the fiscal year. In this context, internal estimates currently peg September quarter's vessel revenue somewhere between $350 million and $360 million. Based also on what we know today, OpEx for the September quarter, excluding approximately $4 million in vessel operating leases, will probably fall within the range of $200 million to $205 million, reflecting one, incremental OpEx related to a full quarter's result to Troms; two, new vessel deliveries; and three, still elevated repairs and maintenance expense, which again should begin to taper off in the December quarter. Based on the vessel revenue and OpEx guidance ranges provided, vessel operating margin for the September quarter should be somewhere between 42% and 45%. Beyond the September quarter, vessel revenue and vessel operating margins are expected to move up nicely as fiscal 2014 progresses given our positive fundamental outlook, expected fleet additions and an expectation that drydocking activity will be lower in the second half of the year than it was in the first half of the year, although it's likely that the timing of drydocks will result in quarter-to-quarter volatility if we ultimately average $340 million or $345 million in quarterly vessel revenue in the first half of the fiscal year. A reasonable expectation for average quarterly vessel revenue in the second half of the fiscal year would be plus or minus 10% higher than the first half of the year. Similarly, if vessel operating margins average plus or minus 42% in the first half of the year, a reasonable expectation for vessel operating margin in the second half of the year would be in the mid-40s or better. In terms of our expectations for relative performance by region, we expect a nice rebound in the Sub-Saharan Africa/Europe region beginning in our second fiscal quarter as it works its way through a heavy drydocking schedule and continues to see rate progressions across certain asset classes. Trends are also positive in the Americas region, with the U.S. Gulf of Mexico and Brazil both expecting to increase average fleet count, utilization and average day rates in the next couple of quarters, generally by adding larger equipment to the region, pursuant to recently executed multiyear term contracts. Other than a near-term increase in utilization, the MENA region is expected to be relatively stable over the next couple of quarters. Revenue and vessel operating margin in Asia/Pac, however, are expected to trend lower with modestly lower average vessel count and less exposure to the high day rate Australian market, given the start dates for new projects that we expect to be supporting in that market. Go-forward general and administrative expense should be in the area of $45 million to $47 million per quarter, reflecting additional shore-based support added in connection with the Troms transaction. As an effective tax rate assumption for fiscal 2014, we are assuming a 24% for the fiscal year, excluding any discrete items. As always, the geographic mix of pre-tax earnings and margin trends can cause the tax rate to be volatile on a quarter-to-quarter basis. In sum, after an operationally solid but somewhat noisy June quarter, the September quarter's also expected to be, at least from our perspective, a solid quarter in terms of operating results. As we move into the second half of the fiscal year, the December and March quarter should reflect higher vessel revenue and better margins as a result of the lower repair and maintenance expense and less lost revenue due to ships in drydock. To summarize Tidewater's current financial profile, cash flow from operations for the September quarter -- excuse me, for the June quarter was a depressed $3 million, largely reflecting a large what we expect temporary investment in working capital, which in turn has been driven by changes in Angolan banking laws that are impacting customer remittance procedures for us and for other service companies. We expect that these advertently high working capital levels will reverse in coming quarters as we adjust our procedures and contracting arrangements with our customers in order to comply with new regulatory requirements. To be clear, our customers are paying us. Our near-term challenge is repatriating dollar-denominated liquidity that is currently maintained by our JV in local banks. CapEx, including the Troms purchase, net of assumed debt of approximately $160 million and proceeds from asset dispositions for the June quarter were approximately $284 million and approximately $2 million, respectively. In addition to the Troms acquisition, new vessel commitments made up in June quarter totaled $100 million for 2 large deepwater PSVs to be built in the United States. In total, unfunded vessel commitments at June 30 approximated $650 million, including 31 vessel construction projects and 1 vessel purchase commitment. Total debt at June 30 was approximately $1.475 billion and cash at June 30 was approximately $65 million. As a result, net debt at year end was -- excuse me, net debt at June 30 was approximately $1.4 billion, and net debt to net book capital at June 30 was approximately 35%. As to financing initiatives, I'll note that we remain very comfortable with our overall financial leverage, but we also continue to evaluate refinancing alternatives in regards to some of the debt that was assumed from the Troms transaction. Total liquidity at June 30 was approximately $385 million, including availability under our new $900 million 5-year bank credit facility. As to funding needs, CapEx in the September quarter is expected to be about $100 million based upon commitments as of June 30, 2013. And with that, I'll turn the call back over to Jeff.

Thanks, Quinn. I think it's important to put our recent results at Quinn's near-term guidance in context. We firmly believe the offshore industry cycle is in the early stage of a multiyear growth phase, largely driven by the need for oil and gas companies to find and develop new hydrocarbon reserves and to grow production in order to meet future global energy demand. These efforts are supported by current oil and gas prices that provide our clients with both the necessary cash flow to invest and the incentives to spend on more offshore work. We have seen solid growth in recent years, specifically in international E&P spending, and fully expect that trend to continue. The quest for energy is expanding offshore into more international areas and more challenging areas, which bodes well for our company with our global geographic spread of operations. The offshore industry has a significant order book of newbuilding drilling rigs that currently totals about 215 rigs. We believe it is reasonable to estimate that approximately 170 of these new rigs should be employed by the end of 2015, some 30 months from now. If all of these new rigs are additive to the working fleet, the offshore drilling segment will experience about a 20% expansion from today's record levels. More than likely, not all will be additive due to the retirement of some older rigs mostly attributable to technological obsolescence. At the same time, the demands of our customers for more capable offshore drilling rigs that can work in more challenging operating environments will increase the need for larger, more reliable and technologically sophisticated support vessels such as the ones we have been adding to our fleet during the past few years. Meeting the future needs of our customers is critical as we plan our business. The trends driving the new rig construction market have also been at work in the vessel industry and represent the core philosophy behind our fleet revitalization and expansion efforts. Our recent acquisition of the Troms fleet in the North Sea is an example of our response to these trends. As I noted at the top of the call, integration efforts have gone smoothly to date and the early performance of the Troms fleet and Troms team has met our expectations. But the true value of our move is reflected by the growing need for vessels in the North Sea, and in particular, in the Norwegian sector, both of which are enjoying strong activity and pricing gains. Furthermore, we look forward to expanding into other cold water regions such as Canada, where Troms is now working, and the Arctic region, where our clients are targeting future exploration and development activity. Meeting our customers' needs also forms the foundation for the new business opportunities we are exploring. We look forward to sharing with you some of these initiatives in the foreseeable future. As the global offshore drilling rig fleet expands, investors have been understandably focused on the growth of the deepwater drilling share of the market. That is an important business driver, and one for which Tidewater is well positioned with our new, large, deepwater vessel fleet that stands at 86 active vessels at June 30, with an additional 2,300 construction at quarter end. But I would remind you that the shallow water rig fleet accounts for approximately 64% of the current working offshore rig count. The health of the jackup rig market is an important driver for the performance of our towing-supply vessel segment. At the present time, jackups represent more than half of the newbuild rigs on order, and jackups account for over 60% of the new offshore rigs to be delivered over the next 30 months, offering significant future work opportunities for our towing-supply fleet. Currently, the global jackup rig fleet utilization rate is in the mid-80% range, a recent high point, and signs point to that rate increasing. High utilization for the existing global jackup rig fleet, coupled with its ongoing expansion, means that our 100-plus new towing-supply vessels may be on the cusp of further pricing improvement, which would contribute to our future overall financial performance. Let me emphasize that we're fully committed to operating a support vessel fleet in the future that can handle the demands in all geographic markets and all water depths in which our clients wish to work. We continue to evaluate other opportunities to grow the company as part of our dedication to building a stronger and more profitable company that can take advantage of whatever future offshore opportunities the market presents. Tidewater has a strong balance sheet with ready liquidity, providing us significant financial flexibility. That flexibility will allow us to capitalize on attractively valued opportunities that might materialize in order to grow our earnings faster. We possess meaningful earnings power and are focused on participating in those rapidly growing offshore market segments that will enable us to create greater value for our shareholders. We're now ready to take your questions.

[Operator Instructions] And we have Jeff Spittel from Clarkson Capital Markets online with a question.

Maybe if we could start off, Quinn, and I appreciate the commentary about being a heavy drydocking schedule for the second quarter as well. But I think initially, you'd spoken about maybe a 10% to 15% year-over-year uptick in '14 versus '13 for R&M expense. Is that still a pretty reasonable expectation in your opinion?

My sense will be at the high end of that range or even a bit north of that as a result of some unscheduled repairs that we experienced in the current quarter. I'm not sure I could put a fine point in terms of what the year-over-year cost will look like in retrospect, but I think it's plus 15% or better at this point.

Okay, that's just fine. And one of your more Gulf of Mexico-centered competitors had talked a little bit about the newbuild order book for deepwater PSVs in the Gulf of Mexico starting to catch up with the incremental demand drivers. Are you seeing any evidence that things are getting a little frothier in any of international markets and maybe that order book is starting to catch up with the anticipated uptick in demand?

Jeff, we're really not seeing that. Again, with the rigs on order and as they're being delivered, we're still seeing good opportunities really in most, if not all, of the geographic markets we serve.

And we have Todd Scholl from Wunderlich Securities online with a question.

You guys kind of touched on my question at the end of your prepared remarks. Basically, my question is related to the shallow water market, particularly in the towing-supply class. It seems like that's an area where you haven't seen a significant amount of investment in recent years, but yet the demand drivers are there. I think that there's going to be something like 4 jackups delivered each month for like the next 18 months. So is it possible, do you guys think, that you could exit this year at around 90% utilization for that class? And can you maybe give us an idea of how optimistic you are in day rates for that particular class?

Todd, we've had high utilization in that segment for a while, as we have had in deepwater, too. And our largest competitor also reports their segments and they've had high utilization in the jackup support market -- tow-supply and supply. And you're right, when you look at the rig order book, it's very much weighted over the next year, 1.5 years, lots of jackups will be delivered. So when you put that all together, we're optimistic. And I can tell you, we're trying very hard to move the day rates there. When you talk about utilization, as you get into the mid-80s and really try to get up to the 90%, I mean, that gets to be almost full utilization when you look at regulatory drydock as you have to have and you do have some movement of vessels maybe from one market to the next. So getting up to 90%, we could spike up there. But again, you get into the mid-80s to touching on 90%, that's pretty much full utilization in any vessel class when you look at it on an international basis, not just one market.

Picking up on your first point, I'd also note, and I think we agree with your, at least my understanding of your assessment, that the delivery schedule on vessels that would support the new jackups is kind of 1:1 at this point. And then, if you think about some of our investor presentations, a 3.5 or so vessel-to-rig working rig ratio is one where we see reasonable equilibrium in the industry. And so one would think that if only one vessel is delivered for every jackup that's delivered, you would see some firming up of that supply-demand dynamic, assuming that every jackup that gets delivered is merely replacing one that's getting retired.

Okay, great. And then I just had one other question with regard to your acquisition of Troms and really, your thoughts on the North Sea going forward. Is that an area where we could see you make incremental investments in addition to the acquisition? I mean, is the plan to kind of stay in the path there with those vessels right now? Or should we expect, in addition to what you acquired in the Troms order book, should we expect you to add vessels to that region as well?

Well, Todd, just before we did the Troms acquisition, we've made some vessel pickups of equipment that was built for the North Sea built in Europe, so it's very high-end equipment. Again, it's got the ability to work in the cold water environment. So that's a market that, in general, we like. We look at that as a growth area. Our clients are looking at it as a growth area. When you look at the investments being made by some of the very major IOCs, the Arctic region, cold water region is very much a part of where they're investing for the future. So again, maybe not the North Sea just in and of itself, although that is a big market, that whole cold water environment extends well beyond the North Sea and it's one that we certainly intend to have a good market share in.

Fundamental backdrop, in the Norwegian sector in particular, is pretty positive if you look at the recent discoveries on the NCS and development plans have already been announced. I think the large PSV requirements in the Norwegian sector in the mid-70s today and some of the brokers and others that follow that sector, I think generally expect that the, at least PSV requirements, that market would go from the mid-70s up to a size of 100 or 105 over the next couple of years. So the demand is there.

And we have Jeff Tillery from Tudor, Pickering online with a question. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: We're seeing and hearing you talk about the bullish jackup demand dynamics and you guys trying to push rates. To the extent that you're successful, where should we think about seeing the improved -- improvement in the towing-supply rates first within your fleet? And then you talked about not having much improvement in overall towing-supply rates baked into the internal forecast. Just can you tell us what's going on in the leading edge for you guys? Are we seeing a little bit of improvement there or no?

We're seeing a little bit, but again the numbers speak for themselves. Again, we had, I think, a bit of an uptick in the rates earlier in the calendar year. Certainly, this year -- this quarter was pretty much flat to the prior quarters. So -- and I'll tell you we're trying to push it, we do. As far as a location, in general, the contracting length on tow-supply/supply is shorter than the deepwater, but I wouldn't look for any region necessary to be a breakout region. So I can't really point you in that direction. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: That's helpful in and of itself. As you look at that implied tightening in the market just given the kind of newbuild OSV, delivery schedule relative to rigs, and as we think about the rest of the year, do we think about an acceleration in your capital program as you look out in the next year?

We've been pretty aggressive over the last several years reinvesting in the fleet, if that's what you're referring to. And I think we will continue to pursue that as opportunities make themselves available. We certainly have the financial position. When a ship or ships make sense to us, we have the ability to move on it. And other times, we don't. So I don't think you're going to see a shift one way or another. We'll continue to add the assets that we think we need for the market today and into the future. Jeff Tillery - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: And them my last question, just a detail on the guidance. The SG&A guidance that you gave, is that just for the September quarter? Or was that for the rest of the year as well?

That range should work on a quarterly basis for the balance of the fiscal year. And really, the only adjustment from prior G&A guidance is reflecting the incremental shore-based support we picked up at Troms.

And we have Matthias Detjen from Morgan Stanley online with a question.

And pretty much all my questions have been asked, but I have -- just had one question about the Gulf of Mexico. So we've been seeing a lot of tightness there in the market and people have been saying that the deepwater market is improving. I was wondering, going forward, how do you see that market? Do you see that market improving further? Do you expect day rates? Or how do you expect day rates and utilization to develop there?

Again, when you look at the rig deliveries in the deepwater segment, certainly, the Gulf of Mexico has another 15 to 20 deepwater rigs, to the extent that they come in as scheduled. Of course, a lot of those rigs are under construction. And there's also a number of OSVs, I think. Our last look, there's probably in the mid-70s on deepwater PSVs under construction. U.S. flag, they're pretty much targeted for this market. So over the short term, the next year and 1.5 years, I think things are in balance to the extent that those rigs are delivered and come into the market as expected. I think there's a reasonable balance, but there is, again, the order book of U.S. flagged equipment that certainly would be delivered. If there's any delays in the rigs, as you look out another 12 to 18 months, the crystal ball gets a little cloudier, I would say.

And we have Matt Conlan from Wells Fargo online with a question.

I have a couple of unrelated questions. First, just a little housekeeping ahead. Two of the Troms' vessels, I understand, have been operating in Canada. Are they going to be counted in the Americas fleet, being in the Western Hemisphere?

Actually I think it will continue to be reported on our Norwegian segment, reported in the Sub-Saharan Africa/Europe.

Okay, that's helpful. And then I wanted to just get your read on Brazil. Are you -- what are kind of the future demand markers you're seeing there? And would you expect moving vessels in or out of that market on net over the next 12 months?

Well, Matt, we were successful in a large tender that was actually done a year ago, and we're now in the process of delivering those ships. So our actual operating fleet in Brazil is very much on an upswing. But again, that's the delivery onto a contract. The tender was, I think, well over a year ago when the tender went out. So for us, we will -- that market will improve because those ships, with a total of 10, will begin getting on contracts. We've actually, I think, got one on now into the new contract. Over the next couple of weeks, we expect to get on some others. Brazil's deepwater, certainly, they talk about the subsalt, so lots of activity, but it's a tough market. If the rates support it, we would add additional equipment to it. If the rates soften and Petrobras pulls back a little bit, then we won't. But over the next couple of months, our activity level in Brazil will increase fairly significantly because of that tender a year ago.

When do you expect to have all 10 vessels operating there?

I don't know when the final couple are, but we have one on now. We have, I think, a handful that should get on over the next 1.5 months, something like that. And then the last one, Jeff, do you know when it will launch?

Yes, yes, so the one vessel that's on board. We have 6 that are currently going through various inspections and temporary importations. So that's another 6 over the next 3 weeks or so. And then we have another 2 that are delivered, the second one to work with tender, which will be before the end of the calendar year.

Hey, Matt, just revisiting your first question. To the extent that was surprising or odd response. Normally, when we transfer a vessel from one area to another or one region or another, it would shift segments. The 2 vessels that are in Canada are essentially under the management and oversight of the Norway-based management team. So I would say it's -- we'll continually report it, as I indicated, in the Sub-Saharan Africa/Europe segment, but that is an aberration relative to what we normally do.

And we have Mark Brown from Citigroup online with a question.

Just wanted to check on the status of Sonangol negotiations. It sounded to me a little bit more positive, your commentary. I don't want to read into anything, but I don't know if you can talk a little bit about the status of those negotiations. And possibly, just in the Angolan market, has your fleet count remained fairly stable over the past few quarters? And have your day rates and utilization also remained stable during the past few quarters?

To answer your question on the market in Angola, it's been fairly steady at a pretty good activity level. And then looking forward just a little bit, there are some bigger projects, I think, that will be kicking off after the first of the year as Angola gets into their pre-salt activity. So there's some increase in activity levels in Angola that we see starting after the first of the year and ramping up next year from already fairly high levels. I'll let my comments stand on Angola. We don't like to negotiate in public. We have to had some meetings as we have had over the last several years that I think have been positive. And I remain pretty optimistic that we're going to get a longer-term JV agreement put in place. And as soon as we do, we will certainly come to the market and let everybody know.

All right. Had another question, just on Troms Offshore. Just curious what the status is of the vessel under construction. You mentioned 5 vessels you had contributions from in the past quarter. And also, the seventh, potentially, the option, if that's something that you plan to exercise.

The vessel under construction, I believe, is due to be delivered in January or February of 2014. That's a PSV 07 design being delivered out of one of our barge yards. We haven't made a decision with regards to the option vessel at this point.

And we have no further questions at this time.

Great. Adrienne, thank you very much for hosting this, and we appreciate everybody's involvement in our call today. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating, and you may now disconnect.