Jeff Platt - CEO s: Quinn Fanning - CFO Joe Bennett - IR Bruce Lundstrom - General Counsel

Gregory Lewis - Credit Suisse Turner Holm - Clarksons Platou Securities Douglas Dethy - DC Capital Mark Brown - Seaport Global Securities

Welcome to the Fiscal 2017 Third Quarter Earnings Conference Call. My name is John, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note the conference is being recorded. I will now turn the call over to Joe Bennett.

Thank you, John. Good morning, everyone and welcome to Tidewater's third quarter fiscal 2017 earnings results conference call for the period ended December 31, 2016. I'm Joe Bennett, Tidewater's Executive Vice President and Chief Investor Relations Officer, and would like to thank you for your interest in Tidewater. 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 & Secretary. We will follow our usual conference call format. Following our opening formalities, I'll turn the call over to Jeff for his initial comments, to be followed by Quinn's financial review. Jeff will then provide some final wrap-up comments and we will then open the call for your questions. During today's conference call, we may make certain comments that are forward-looking 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 statement 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 now.

Thank you, Joe, and good morning to everyone. Yesterday after the markets closed, we reported a net loss for our third quarter of fiscal 2017 ended December 31, 2016, of $297.7 million, or $6.32 per common share, inclusive of two items highlighted in our quarterly earnings press release and after-tax, non-cash asset impairment charge of $5.38 per share, and a $0.06 per share after-tax foreign exchange gain. Excluding these items, the per-share loss for the quarter was $1. In a minute, Quinn will provide you with the details about the details about the various factors that impacted the quarter's results. What I’d like to do in my comments this morning is first provide you with an update on our negotiations with our lenders and note holders. And second, briefly review our operational performance in the context of where our industry is in the business cycle. After Quinn discusses the financial details of the quarter and our near term outlook, I’ll return to discuss how we see our industry cycle potentially unfolding. As you saw in our earnings press release, we provided an update on our negotiations with our lenders and note holders, including a range of potential outcomes for existing shareholders if we are successful in restructuring the company’s various debt arrangements. On January 26, we announced the receipt of the most recent limited waiver from our lenders that extended the waiver of the unqualified audit opinion requirement and the minimum interest coverage ratio requirement until March 3, 2017. We believe our discussions with the bank lenders and note holders have been constructive to date. Our focus remains on reducing leverage so as to best position the company both during the current ongoing industry downturn and for an eventual industry recovery whenever that recovery may occur. As I’m sure you…

-: As Jeff noted, general and administrative expense for the December quarter includes professional services costs related to our ongoing debt negotiations of approximately $5 million. Excluding that negotiation related advisor fees G&A is down approximately 10% sequentially and down approximately 27% relative to the December quarter of fiscal 2016. Also note that before discrete items, tax expense for the December quarter was approximately $3 million. And as was the case in prior quarters, primarily reflects revenue base taxes in a number of international jurisdictions in which we operate. Discrete items, which collectively reduced tax expense in the December quarter by approximately $6 million, included a downward revaluation of accrued foreign tax liabilities due to foreign exchange movements and reduction in our accrual for certain tax positions. After the discrete items I noted, the income tax benefit recognized in the December quarter was approximately $3 million. Vessel revenue for the December quarter at approximately $125 million, was down approximately $14 million or approximately 10% quarter over quarter. Approximately $8.5 million - excuse me, approximately $8.5 million of the quarter over quarter change reflects our stacking of previously active vessels that we expect to be underutilized in the coming quarters. Overall vessel utilization at approximately 41% was down approximately 1.5 percentage points quarter over quarter and approximately 17% percentage points year over year. The company has continued to stacked underutilized vessels in order to reduce operating expenses and in order to try and maintain utilization of our active assholes at 70% or higher. Utilization of the active fleet in the third quarter was approximately 74% or up approximately 4.5 percentage points quarter over quarter. Average day rates at approximately $12,500 were down approximately $900 or approximately 7% quarter over quarter, which was slightly better than our expectations for the December quarter.…

Thanks Quinn. Ever since this downturn began over two years ago, we have warned about the potential duration and the extent of damage to the offshore industry that a long downturn might create. Early on, we stated that we and our customers would need to learn to live in a world of lower oil prices. That would mean less cash flow available for our customers and changed priorities in their spending patterns. These changes brought a dramatic reordering of our customers’ inventory of exploration and development projects. Unfortunately, offshore projects represent many of the more expensive projects in our clients' portfolios and those became victims of reduced spending decisions. Initially, the downturn was cushioned by the existence of long term drilling rig and vessel contracts, but as we warned, there was already an oversupply of drilling rigs and OSVs, with many more under construction. Fortunately, we were approaching the end of our fleet renewal program that had seen us add over 160 new vessels to our fleet over the 10 prior years, bringing the average age of our vessel fleet down to under nine years. Our new, young fleet, coupled with the broadest geographic footprint the industry, positioned us well we thought for weathering the extent of the downturn we initially envisioned. As oil prices continued declining through 2016 and into early 2016, reaching a low in the mid-20s a barrel last February, the pain inflicted on our industry increased and any hope that the downturn being short lived, largely evaporated. This past year was the second consecutive year of significant cuts in global E&P spending by our customers, also marked by continued staff layoffs and postponement and cancelation of offshore projects. While it may be difficult to do so in today's environment, it's important to keep in perspective that…

Thank you. [Operator instructions]. And our first question is from Gregory Lewis from Credit Suisse.

Yes. Thank you. Good morning gentlemen. Quinn, realizing it's a little bit delicate, you kind of talked a little bit about impairments, but as - it's interesting. As we look at the book value of the fleet right now, it's around $3 billion. Going back and looking at CapEx back to, say, 2009 or the last eight years, it’s actually been $3.1 billion. So I guess what we are trying to get at is, at this point, is there opportunities, or not opportunities. Should we be thinking about the fleet being appropriately marked to where the market is giving the $500 million of write downs that was seen over the last couple quarters? Or are there still going to be opportunities for write-downs? And what I'm trying to get at is, you talk about the quality of the fleet. Is the fleet where it needs to be, or are there assets in there that just don't - that aren't really next-generation assets that have been purchased in the last eight years?

It’s an interesting question, Greg. Obviously you highlighted the net PP&E that’s carried on the balance sheet, about $3 billion. That supports obviously about $1.7 billion of shareholders equity on a book basis, but I think I'd underscore the fact that the asset impairment process is not equivalent to a marking the balance sheet to market. The asset impairment process that we review as we've gone through on a couple of occasions in the past, maybe not in the last couple of quarters, but it's really a two pronged approach which looks at the stack fleet on a vessel by vessel basis and in most cases for something over $1 million of net book value. We reach out to a ship broker and ask him for a valuation and we adjust the carrying values to the extent that it exceeds the appraised value, which is our best indication of fair market value. But the process that we use for our active fleet is different however and that's not necessarily an asset by asset review process. We look at groups of vessels that are similar specification and use and we project out estimated cash flows for the remaining useful life of the assets. And to the extent the undiscounted cash flow support the carrying value, we do not touch the book values. However, we have “step one failure” like this actually. We go out and appraise the individual vessels on a vessel by vessel basis and then appropriately adjust the carrying values where there's a deficiency vis-à-vis fair market value. So obviously to the extent that you have a group of assets that do not fail a step one test, there's no need to go out and get a step two appraisal and as a result, as we highlight in the disclosures that you'll see when we file the Q, was a number of assets that did not incur impairments during the quarter, and as a result those continue to be carried at historical costs. And so that's kind of the accounting side of the question. So no, I would not suggest that $3 million of net PP&E is what we could sell it for next week.

Yes, okay. Understood.

But we have a rigorous process and we've followed it consistently. Your second question is whether or not we're exposed to future impairments and I guess it's tough to say never, the old never say never. We’ll go through the process at least semi-annually in regards to the stacked fleet and at least annually in regards to the active fleet and more recently or more frequently if in fact circumstances change, but I guess that’s the best answer I could give you is unlike in previous downturns, our stacked fleet is relatively recent vintage equipment. Not all of it, but much of it is and as a result, we expect that if there's an industry downturn, there's a lot of runway on that iron for future cash flow generating capacity. But as I'm sure you've heard from many other companies, an active capital asset today is an asset and an inactive one is generally a liability and that’s generally how we look at it as well.

Sure. And then just a bigger picture question. Clearly you're outlining the continued challenges that the market is facing. I don't think that surprising anybody. But as we - you mentioned your geographic exposure, and as you think about the major regions you are in, clearly the Americas region in the West Africa are sort of really the crux of the company. As we go to other areas like Asia/Pacific or the Middle East, just as the company thinks about further trying to focus on costs, is there anything - does it make sense to be everywhere Tidewater is, or is there the potential that we could see Tidewater maybe scale back its global footprint over the next one to two years just as we continue to manage through the downturn?

Well, we've already done that to some extent. Obviously Australia is a market that we largely withdrew from given the relatively inelastic cost of labor there. We were not ready - able to adjust the cost structure to reflect currently available day rates in that market. Obviously a lot of projects also came to their natural conclusion with Gorgon, et cetera, et cetera largely being completed at least in terms of the element that we are participating in. but we have scaled back other operations. I’m not sure I'd agree with your thesis that other than the Americas and West Africa, those are not good businesses, I’d point to our Middle East operation as well, very competitive because so many vessels are chasing what jobs do exist. That's a business we've grown significantly particularly in Saudi Arabia over the last six or seven years and it's one that continues to generate positive results for us. But we look at opportunities to consolidate areas. We have consolidated some of our regional headquarters in order to eliminate redundant management structures. So we’ve pulled a heck of a lot of cost out, but it's a day to day review where we look for additional opportunities. But at least where we sit today, I'm not sure that there is a large swath of the globe where we’re allowed to participate in oil and gas operations that we have a near term expectation at least to withdraw from. That doesn't mean that we won't try and squeeze cost where it’s possible to do so.

Okay, guys. Thank you very much for the time.

[Operator instructions]. Our next question is from Turner Holm from Clarksons Platou.

Good morning gentlemen. Hey guys. Actually just to pick up on the theme of consolidation, we saw some big moves from some of your Nordic competitors this week. Just curious on your perspective on that and if you think that consolidation could eventually lead to some greater pricing discipline maybe in the market?

Turner, you'd like to think so but again ours is a pretty fragmented business. So it takes a good bit of consolidation. I think initially the consolidation will result in some reduced redundancies as far as costing. I think that would be some of the benefits. Ideally you have more stable people that are running the show so to speak and that there would be some pricing discipline, but it's a pretty fragmented industry and it's an uphill climb.

Sure. Understand. Okay. Well, I guess the other thing I wanted to touch on was just the slowdown in stacking that you guys mentioned in your prepared remarks and just touch on what’s driving that. Does it in any way reflect the change in terms of hindering activity that you are seeing from oil companies? Are you seeing any customers maybe looking at it to take advantage of the downturn and lockups and long-term vessel capacity at historically low rates?

Yes. Turner, we’re seeing some of that. I mean and we’re seeing some people that have announced some term contracts quite frankly at rates that are head scratchers. If you think that you can maintain a cost and dry dockings at some of the day rates that we see others that have signed up, that doesn't appear to make sense to us in a lot of cases. But overall we have seen a slowdown in our stacking and it's a direct result of us having opportunities that we want to participate in.

I understand. To pick up on something you just said there, Jeff. I think it's interesting that you mentioned the rates in relation to the ongoing maintenance costs to the vessels. Do you think that there comes a point in the downturn where rates just have to go up so that the companies in the sector are able to maintain their vessels?

Turner, ultimately when you come up against the dry docking and you have to spend let’s just say for a larger vessel, $1 million, $1.5 million, you can't turn a blind eye to that. That is an investment that needs to be made to maintain the vessel in class. So ultimately I think as those walls get hit by operators and we're facing that every day ourselves, the ability to turn a blind eye to that I think hits you square in the face when it's time to write the check for the maintenance on those boats. So I think you're right that some of that will be I think a benefit to the industry as a whole that the rates have to go up. You just cannot continue to operate for extended periods of time, multi years at below or right at vessel breakeven margins and not take into account the investment that you have to do in the yard. Just can't do that.

I appreciate it, guys. Thanks so much. Sure.

Your question regarding stacking activity. At least [indiscernible] certainly crew a vessel that does not have consistent order visibility on consistent work at rates that make sense to us. As I highlighted, we've taken 30 vessels of the active fleet on the African coast. Some have moved to other regions and others have gone to the stacked fleet. But the objective in that is trying to get to what we consider the economic utilization of the active fleet which is about 70%. And I think if you look at our regions which we report and I think it's true if you even go one level below that to the interest areas, they’re generally generating 70% type utilization. What we do market and man and that's really where you're seeing the overall utilization falling into the low 40s, but the active fleet generally, the worst quarter we've had was in the mid-60s, maybe high 60s in terms of utilization and some regions were in the high 80s even across the board where 70% plus utilization of the active fleet. So that's really what you're seeing is the movement of vessels in and out of the stacked - excuse me, in and out of the stacked fleet in order to preserve 70% or better utilization of the active fleet. And to the extent that the market picks up, we'll reactivate vessels provided we can maintain 70% plus utilization.

Appreciate it, Quinn. Thank you.

Our next question is from Douglas Dethy from DC Capital.

Good morning. Thank you for the call. I just wanted to make sure I understood. Did you say you think you are fairly balanced at this point in time between cash from operations and interest expense, and then you've got kind of modest CapEx going forward? And then the second part of that is, how do you think about or evaluate your debt capacity at this stage, at this point?

It's a great question. I guess what I was trying to highlight was the fact that the majority of our losses over three and nine months periods directly relate to the amount of depreciation and asset impairments that we've recognized. Cash from operations for the nine months ended December 31 was, as I highlighted, negative $40 million. About half of that resulted from movements in working capital balances and as you point out, the remainder of the deficiency, at least in the recently completed quarter is the delta between EBITDA and the tax benefit that was recognized and interest expense during the quarter. So at least the way we look at it before you get to capital structure servicing, we're not burning cash from an operations perspective absent quarter to quarter movements in working capital. Your question regarding debt capacity is a complex one. Obviously with $600 million plus worth of cash, we could probably service a significant amount of debt for an extended period of time. But that's not the same as operation supporting the capital structure and obviously we're somewhat living on short term labor extensions with our existing debt holders, which adds an incremental layer of complexity to the discussion. So it's not a direct answer to your question, but I guess the amount of that you can service is somewhat a function of how you're servicing it i.e. from cash reserves or operations, the former being a short intermediate term solution potentially, but at the end of the day operations needs to support the capital structure in our view.

And based on current operations, how much debt could you support, I guess?

Well, for breaking even on an operating basis, not a lot.

Right. But that's I guess at current conditions obviously, so. Okay. Thank you.

Our next question is from Mark Brown from Seaport Global.

Hey guys. How are you guys doing? I just wanted to ask a couple of quick ones. First, on the Americas region, I don't know if you can give any more granularity within the Americas region in terms of the country by country outlook. I know you mentioned Mexico was part of the issue with the Pemex suspensions, but I am actually more interested on the deepwater side.

Mark, we don't like to go into country by country, but I'll turn this over to Jeff Gorski and he can give you a little bit of high level. But again going country by country is something we don't like to do. But quite frankly Mexico has been a little bit of the bright spot in the Americans. But to your question on deepwater, that's not what's driving I think some of the return activity. With that Jeff, do you want to make a comment or two?

Yes. First of all on Mexico, I think everybody knows about the deepwater lease sale, but there's a lot of seismic before we start turning to the right in terms of deepwater, of those specific blocks that Mexico is putting up the offering. Probably from the broader perspective and they've seen the press releases specifically with regard to ExxonMobil and their activity in Guyana, there seems to be a bit of interest in terms of that geography which is serviced out of our Trinidad and Caribbean operation. So there seems to be a little bit of interest there and some recent success and is there a possibility of a future world class deepwater basin? That remains to be seen, but obviously we have seen ExxonMobil with some recent success down in Brazil. You know the story with Petrobras and the things that they're doing to try to work their challenges and whatnot. So we remain active down there, but by no stretch of the imagination any type of an upcycle on them as well offering investment to the international operators for pre-salt. And though we haven't seen any increase in activity yet, maybe something down in the future when in fact that if we do see additional dollars coming in that investment area. Gulf of Mexico, the rig count remains flattish. Don't see anything in terms of new activity brewing there with regard to deepwater. So that's kind of the Americas if you're talking deepwater specific.

Okay. That's helpful. I was also wondering - I think you mentioned this in the prepared remarks, but I just missed it. If you could give an update on Sonatide and your collection efforts and how that’s been going over the past three months.

Sure. I did touch on it. Sonatide as of December 31, we have a net due from affiliate of about $155 million as I highlighted. The reduction in those balances that we observed in the June and September quarter somewhat reversed in the March - excuse me, in the December quarter as we made a large commission payment that was due to Sonatide as a result of prior collections. And then as I also highlighted, USD US dollar liquidity in Angola is very tight and that has had a negative impact on collections in the December quarter. I guess if you look back over a longer period of time, we’re essentially flat in terms of the net due from Sonatide over the fiscal year to date. I think I highlighted the fact that we're up about $4 million over a nine month period. I would like to think over the next couple of quarters that balance will be stable, if not modestly fall, the net balance I mean. But Angola is a challenging market for us today, both operationally and financially. Clearly Angola, like many of the oil leveraged developing economies, has been hurt very badly by the fall in oil prices and they've also had some production and other challenges to deal with. But it's a market that we have operated successfully in in past years and we would expect to operate there successfully in the future. But obviously higher oil prices and a better liquidity profile in terms of access to US dollars would be a significant positive in Angola and that's really not the case today. But it's something I think we've done a reasonable job at managing over a period of time. If you look back over a year and a half or two years, the net due from Sonatide is down quite substantially. At least from our perspective is at a manageable level today.

All right. Well, thank you very much.

And we have no further questions at this time and I will now turn the call back over to Joe Bennett for final remarks.

John, thank you very much for hosting us today. We certainly appreciate everyone, the participants on the call and on the internet today that listened to our webcast and for your interest in our company. Have a great day. Thank you.

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