Welcome to Tidewater's 2018 Second Quarter Earnings Conference Call. My name is Paulette, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Jason Stanley. You may begin.

Thank you, Paulette. Good morning, everyone, and welcome to Tidewater's earnings conference call for the period ended June 30, 2018. I'm Jason Stanley, Tidewater's Director, Investor Relations, and I'd like to thank you for your time and interest in Tidewater. With me this morning on the call are our President and CEO, John Rynd; Quinn Fanning, our Chief Financial Officer; Jeff Gorski, our Chief Operating Officer; and Bruce Lundstrom, our General Counsel and Secretary. Following a few formalities, I'll turn the call over to John for his initial comments, to be followed by Quinn's financial review. John will then provide some final wrap-up comments, and we'll 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. 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 make during today's conference call. Please refer to our most recent Form 10-Q for additional details on these risk factors. This document is available on our website. Also during the call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in last evening's press release. Finally, while we're continuing to plan for the integration of GulfMark, our comments related to the transaction will be limited to our prepared remarks. If there are updates related to the deal, we'll announce them broadly. With that, I will turn the call over to John.

Thank you, Jason. Good morning, everyone, and thank you for joining the Tidewater call. For the second quarter of 2018, we reported a net loss of $10.9 million or $0.44 per common share on revenues of approximately $106 million. EBITDA for the quarter ended June 30 was $16.2 million, which includes $3.2 million of stock-based compensation expense, $6.8 million of foreign exchange loss, $1.5 million of professional service cost related to our proposed combination with GulfMark and $4.9 million of dividend income related to our Angola joint venture. In a few minutes, Quinn will discuss our financial results in more detail. Strong execution by our team in the June quarter as reflected by industry-leading safety and similar metrics and positive quarter-to-quarter trends in active and overall utilization, vessel revenues and vessel operating margin, all contributed to better results relative to the March quarter. As I stated on our last earnings call and as demonstrated by our results in the June quarter, we continue to feel we may be in the early stages of market recovery. Commodity prices and service pricing remain constructive, which we believe will provide a helpful backdrop as key customers kick off their annual budgeting process this fall and begin to determine the 2019 offshore spending plans. In recent months, the working offshore rig count has generally been trending in a positive direction and recent contract awards, tendering activity and customer dialogue all point to higher demand for offshore capital equipment, including rigs, OSVs and FPSOs The overall OSV market, however, remains highly fragmented and it continues to be burdened, at least on paper, by excess capacity. With few exceptions, OSVs owners' balance sheets are stressed, industry-wide costs are too high and access to capital is very limited. At Tidewater, our progress in rightsizing our business and…

Thank you, John. Good morning, everyone. As was highlighted in our earnings press release and 10-Q, concurrent with the completion of our financial restructuring, the company adopted fresh-start accounting and will continue to report its financial position and results of operations through July 31, 2017, as predecessor activities. We will report our financial position and results of operations subsequent to July 31, 2017, as successor activities. I'll also call your attention to the financial tables included in last evening's press release. Financial results, balance sheet data and select operating statistics are presented covering 5 quarters or equivalent periods straddling both predecessor and successor activities. Similarly, operating and financial detail is presented by asset class and based on our 4 geography-based reporting segments. We have also included consolidated EBITDA as a non-GAAP performance and liquidity measure as well as reconciliations to the most directly comparable GAAP financial measures. Now turning to our financial results for the quarter. As John noted, operating results improved quarter-over-quarter, primarily due to better utilization of the active fleet, which at 81%, was up approximately 11% quarter-over-quarter. The improvement in active utilization was most pronounced in the Americas segment driven by new work in Eastern Canada and in the Europe/Mediterranean Sea segment driven by the seasonal pickup in activity in the North Sea. Better active vessel utilization in the Middle East, the Med and West Africa also reflects vessels returning to work following scheduled dry-dockings during the March quarter. Average day rates at approximately $10,000 per day were basically flat quarter-over-quarter with some of the positive trends in the leading-edge day rates offset by lower term rates in select markets, most notably in Mexico and Saudi Arabia, and to a lesser extent, along the African coast. With that context, we reported a net loss for the 3…

Thanks, Quinn. As I mentioned, we are encouraged by signs of a market recovery, with improving commodity prices, which are reflected in new contract awards and increased optimism that we are hearing from our customers. While these are positive indicators, we continue to look to 2019 and beyond for significant improvements in demand and further rationalization of the global OSV fleet to support higher utilization and average day rates. We have taken several steps, including reducing cost and most recently announcing our plans to combine with GulfMark in order to better position the combined company for industry recovery that seemed to be slowly getting some traction, while ensuring that we have the right balance sheet and the right global operating footprint, such that we can both weather the inevitable down markets of the energy service industry and also prosper during the equally inevitable stronger markets. Our near-term objectives continue to be focused on maintaining our strengths, a competitive fleet, a global operating footprint, a competitive cost structure and a financial profile that is characterized by low leverage and a strong liquidity position. I'm confident that the combination with GulfMark will build on these strengths and our teams will be working together over the coming months to formalize plans to integrate the companies to quickly and fully realize the expected synergies and to create significant long-term value for our respective shareholders. Thank you for joining us on the call today. And Paulette, we can now open the line for questions.

[Operator Instructions] And our first question comes from Turner Holm from Clarksons Platou.

So John, you talked about in your prepared remarks how day rates have historically been driven by the prompt availability of vessels. And as I look at the quarter's numbers, active utilization jumping up to 81%, which is, I guess, the highest it's been since 2014. Do you think that you're getting close to being able to pull that lever on higher day rates? Is that 80% kind of a fair measure of what your prompt availability is? Is that a fair proxy for the industry? How do you kind of look at it from that perspective?

Yes. I think, yes and no. I think it depends on what market we're in. They're all different. So it's not -- globally, you cannot have 1 answer. So I think we do see some tightness in certain of our geo markets. Others still have excess capacity, like we mentioned in prepared remarks, in the Middle East with the influx of the Asian tonnage, and the Asian market is awfully oversupplied. So we think we do have some potential pricing power in certain of our markets as this utilization and prompt availability gets to where it needs to be.

I think another dynamic that you can see, Turner, is financial distress amongst a lot of our competitors provides a semi-perverse incentive for them to take term rates that may even be below spot rates, despite the fact that we think the market is trending in the right direction. So obviously, if the consensus U.S. rates are going up, there is limited incentive unless it's a customer relationship-driven issue to lock in rates that they're going to be better tomorrow. But that's what we are seeing today, and I think one of the factors that drives that is that some of our competitors are more focused on debt service than they are on value creation.

I see. Okay. You also touched on something I thought was interesting in prepared remarks, that you think that the underlying asset value in Tidewater is probably higher than what it's on the book. Is there some way you can frame that? You mentioned about different classes of vessels and where they are on your books and if you compare that to an asset transaction that's out there? Or is there any way you can kind of give us context for where you think your secondhand market value of the asset is compared to where it's in the books?

Well, again, I think the secondhand vessel market is moving in the right direction, both in regards to depth and pricing. I did try and provide at least a couple of examples that I thought you and people like you could translate into where we carry vessels relative to the current market value. As an example, like I mentioned the relatively new deepwater PSVs. And I think most people, whether it's 3,800 or 4,000 deadweight ton, I think most people would say that, that is kind of the most desirous equipment, particularly in a market that is expected to trend up in terms of drilling activity, but we're obviously carrying that at $9.5 million. And my sense is that secondhand vessel values, while still significantly below new construction pricing, is probably in the high-teens to low 20s. So probably 2x of what we're carrying those vessels at on average. Obviously, a lot gets lost in the average, but I would point you to the examples I provide in my prepared remarks to give you a sense of where we carry a ship versus where it's valued at. And obviously, we occasionally decide to scrap or sell into a non-class market, one of our stacked vessels. But if you look at the average carrying value of our kind of Chevy Tahoe-type AHTS vessels at a couple million dollars clearly in the secondhand vessel market for a vessel that can support jackups should be 2 or 3x that. So hopefully that's a sensible -- it's a significant premium. Sorry, Paulette, go ahead.

And our next question comes from Ceki Medina from Southpaw Asset.

A few questions on my end. One, do you see a difference between the U.K. and the Norwegian markets?

You want to? Go ahead.

Yes, so we do. I think it's -- the Norwegian market's a little tighter band of providers of the equipment, and the U.K. sector tends to garner the most capacity. So I think it's -- it tends to be a little more oversupplied. Of course, you've got 1 key customer in Norway, who has changed their contracting strategy from historically a term contract method to go in on spot. So yes, and it's also that Norway is a little higher cost than the U.K.

Got it. Okay. And you were -- Quinn was just talking about the value of the vessels. Can you give some color of any activity you are seeing in the A&D market for vessels? Do you see more transactions? Do see more interest? Any buyer or seller type of color would be great.

Yes, I can give you individual examples in terms of who is buying other than what you see in the public. Obviously, Standard did a couple of transactions, and we've spent onesies and twosies elsewhere, but we're active participants generally from a disposition perspective, so the trends in the secondhand vessel market are obviously relevant to us. But we certainly hear the chat around bayou and around the North Sea in terms of where people are prepared to transact. I think we saw high-teen deepwater PSV transaction that we have some specific familiarity with, and we're aware of the fact that for that vessel to be operational, there's probably a couple million dollar incremental investment. So that is a data point, but I believe has a deepwater PSV in the U.S. market with 2 handle on it. I think the transaction that Hornbeck got done a couple months ago was somewhat aberrant and kudos to Todd Hornbeck because I think the value that they got for what they paid was a very good transaction, but I don't think that's where the market is today.

Our next question comes from Joe Gibney from Capital One.

Had a -- just a question, regionally. I appreciate all the forward regional view and color you provided. Was just trying to maybe sum that up a little bit on a quarter-over-quarter basis thinking of the worldwide fleet. So Americas went down a little bit with the Mexico term rates. You referenced Eur/Med, flat to up; Africa, flat; Asia Pac, flat to down. Is sort of the net of that, that average utilization is slightly higher quarter-over-quarter, rates slightly lower and vessel revenue is generally flat. I'm just trying to ascertain sort of where you're triangulating for your quarter-over-quarter view on a worldwide basis?

It's an excellent question and the reason we didn't give a consolidated view on revenue or otherwise. There's still a couple of moving pieces and tried to -- John tried to point out. I should say that there are markets wherever we see a trend and we would point to Saudi and Mexico, not necessarily from a demand perspective or from a utilization perspective, but from a rate perspective as trending negatively. So that will be a negative quarter-to-quarter and all things being equal. That would've taken consolidated vessel revenue down a couple million dollars bucks per market. On the other hand, you've got positive momentum it seems in rates in the North Sea and at least we see a relatively good market from a supply-demand dynamic perspective along the African coast. But I guess I would say, the quarter-over-quarter on a consolidated basis would be flat to down, but very modestly. So with the ability to be flat to modestly up depending upon rates in the North Sea, utilization and rates along the African coast and there's a couple of specific projects that we're involved with that could get extended based on customers' drilling results. So I guess, our perspective is, this is what we know today, the kind of known/unknowns that we know today give us a modest bias to a negative quarter-over-quarter revenue trend. But we can certainly point to 3 or 4 items that could result in it being flat to modestly up. It's not going to be dramatically up or dramatically down is our view because we do have pretty good visibility on our contract cover through the end of year, and we also have pretty decent visibility on projects that we're kind of around the water cooler on.

Okay, understood. And maybe just a little more color and thoughts around Mexico. Some of the moving dynamics there as it pertains to thinking about the Americas, I mean seasonally Gulf Mexico, maybe tightening up a little bit as we get into 3Q, but maybe help us understand some of the moving pieces on Mexico and what maybe is required to get that market moving outside or tendering pickup on the deepwater side that we're all certainly waiting for, just curious on some perspective there. I appreciate it.

Well, I think you know that, Joe. We need the IOC to get active. It's really going to be the changer down there. Pemex retendered for a big chunk of their fleet and given the condition around the world in the OSV market, those rates were down, hence our guidance on the lower revenue side for Mexico. But I think, again, strong commodity price backdrop also helps Pemex and their budgeting process as well as we see the IOCs move in and start to grow the deepwater wells. I think it's that kind of both that -- combination of both that's going to help get that a little more healthy.

And the political situation in Mexico has actually changed over the last couple months, which is probably a good news, bad news story in some regards that Pemex has probably got a stronger hand with a more leftist government. But at least to say the right things in terms of the long-term commitment to deepwater drilling and IOC participation, but that has materialized and we hope it will, but actually, other than the retendering exercise and the impact on pricing, it's good to see that Pemex seems to have budget authorization through year-end. And certainly with a leftist government, Pemex is probably going to be in a better position than they would have with the rightist government, at least from the cheap seat view that we have.

And we are showing no further questions. I will now turn the call back to Jason Stanley for closing remarks.

Thank you, Paulette. Thanks, again, everybody for your time and interest in Tidewater. This will conclude today's earnings conference call for second quarter. Thank you.

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