Good morning, and welcome to the TDW Reports Results for 12 Months Ending 12/31/20. At this time – my name is Brandon and I'll be your operator for today's call. [Operator Instructions] Please note, this conference is being recorded. And I will now turn it over to Jason Stanley, Vice President, ESG and Investor Relations. You may go ahead, sir.

Thank you, Brandon. Good morning, everyone, and welcome to Tidewater's earnings conference call for the three and twelve months ended December 31, 2020. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Accounting Officer, Sam Rubio; and our General Counsel and Corporate Secretary, Daniel Hudson; and our Vice President of Sales and Marketing, Piers Middleton. During today's call, we will make certain statements that are forward-looking, referring to our plans and expectations. 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. Please refer to our most recent 10-K for additional details on these factors. This document is available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, March 5, 2021. And so, you are advised that any time-sensitive information may no longer be accurate at the time of any replay. Also, during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in last evening's press release. And now with that, I'll turn the call over to Quintin.

Thank you, Jason. Good morning, everyone, and welcome to the fourth quarter 2020 Tidewater earnings conference call. I'm pleased to say that this has been another solid quarter for Tidewater. It's hard to overstate the challenges we faced in 2020. But the worst of the pandemic-driven downturn seems to be behind us. Revenue surprised us to the upside in the fourth quarter. On the last call, we guided to $385 million for the year or $81 million for the fourth quarter. And we came in at $397 million for the year or $92 million for the fourth quarter. Historically, and many of you already know this, the fourth quarter is normally a tick-down from the third quarter. It's due to weather in the North Sea but also due to calendar year budget exhaustion. And incidentally, the first quarter is the weakest calendar quarter, likewise, due to weather in the North Sea but in addition to that, some clients tend to charter on a calendar year basis at the beginning of the year. So, you get a bit of charter higher gap in the first of the year. So, the revenue surprise in the fourth quarter also resulted in the fourth quarter revenue being higher than the third quarter revenue, which is why I say it seems that the worst of the pandemic downturn is behind us. Also noteworthy in the fourth quarter was the incremental gross margins on the excess revenue. Revenue was up $11 million from guidance and gross margin was up $10 million. That's a 90% incremental gross margin, which demonstrates extremely high operating leverage of our business. In this case, it's driven by higher-than-anticipated day rates and improved active utilization. Our G&A costs continue to come down. That's now eighth consecutive quarters of G&A run rate cost…

Thank you, Quintin, and good morning, everybody. Before I talk about each of the regions, I just want to make a couple of observations about 2020 and what we hope will happen in 2021. Firstly, it goes without saying that 2020 was an extremely tough year. But we saw an unprecedented drop in demand for our services. But as our results showed, our teams around the world still managed to deliver value in very trying circumstances, not just by winning work but being disciplined in how we won that work. Those vessel owners that took work that did not cover their debts are, in our view, accepting a fate that is equivalent to death by a thousand paper cuts. And we'll just continue to extend out any hope of the market recovery. Whilst we are cautiously more optimistic for the outlook in 2021 and beyond, and, frankly, it couldn't be much worse, this is still a very fragmented and challenged industry with too many players hanging on by their fingernails. And even if we start to see some incremental improvement in rates and utilization, we do not expect it to be the panacea that some are hoping for to heal their terminal balance sheets. We believe, of course, that we're closer to that panacea than most. As we've commented on in previous earnings calls during 2020, our West Africa and Europe and Mediterranean fleets faced the strongest headwinds throughout the year. But still, on a global basis, active utilization across the whole fleet was only down 4%, 77% compared to the fourth quarter of 2019. And for the deepwater fleet specifically, we actually saw a 5% increase in utilization, which was reflected in our average day rates across the fleet being up approximately 8% to $10,750 compared to the last…

Thank you, Piers. Our objective, as we've stated many times before, is to generate more cash by operating in fewer vessels at higher day rates and to operate them at a lower operating cost per vessel and at a lower G&A cost per vessel. We're doing this while carefully mining the capital expenditure and working capital investments. These objectives are simply stated but achieving them requires innovative technology, agile change management and strong financial discipline. The company is free cash flow positive. And our objectives and compensation plans are all geared to keeping it going that way. And with that, Brandon, we will open it up for questions.

Thank you. [Operator Instructions] And from Baird, we have Patrick Fitzgerald. Please go ahead.

Hi, guys. What did you give in terms of gross margin guidance?

Hey, Patrick. How are you? 30%.

Okay. And you're not giving any revenue guidance, right?

Well, I would encourage you to see 2021 as a reversal of 2020. So, my expectation is that we're going to be just about level with where we were at last year. But as Piers indicated, and as I had some comments on, I'm a little bullish on the second half of the year.

Right. Okay. So, kind of a broader question, day rates, obviously, it's a nice better fourth quarter than you expected initially. Obviously, the price of oil here is significantly higher than it was a few months ago. I mean what – I guess what – in big picture, what needs to happen to see a material increase in day rates?

So of course, it's always down to supply and demand balance, right, okay? So, what you've got now is industry – the industry as a whole recovering from the pandemic. So, what happens in years like 2020, we found the same thing happened in 2015, is everybody pulls back on any type of maintenance that isn't just absolutely necessary. So, it's not just the drilling activity pulls back, which a lot of people talk to and talk about. But as said, the maintenance level of activity pulls back substantially. And if you think about the demand equation for our business, right now, it's running about 70% of the boat activity is related to just regular maintenance of ongoing platform production or activities and about 30% of it is drilling activity. To the extent that drilling comes back, that would certainly tighten up demand much faster and, therefore, push day rates and push that supply and demand and balance into something that is more in the boat owner's favor. But the two things that I'm really counting on as I look out to the rest of 2020 and into 2022 is not really a pickup in drilling activity but a resurgence of the maintenance activity that has been delayed and then just the continued attrition of vessels. We haven't built a vessel in this industry in over six years. And everybody's been real thin in profit margin. So, vessels haven't been reinvested in. So, we're starting to see vessels drop out of the supply chain nicely. And I anticipate the attrition and supply and the resurgence in demand, mostly from maintenance activity, are what's going to put us in balance by, call it, the end of 2021.

Right. Do you have like an effective utilization figure that you look at across the industry? Where are we at in terms of that?

I'll tell you, it's hard to tell because so many of the vessels that are on the rolls today, so many of the vessels that are in the denominator of total vessels in the world, are not really suitable for work, okay? Let me give you a message in a second. Let me tell you why I think a lot of the information out there is unreliable. There's a lot of vessels out there on the sidelines that have been idled since 2015. They haven't been maintained. And they're not really coming back to work, okay? So, they're in the denominator of a lot of the vessel counts and ratios that you see in our industry. What I see today is utilization levels in that mid-70s range, so call it, 70% to 75%, okay? Now the better companies in the better regions like, for ourselves, we can push that easily into the high 80s and low 90s, right? It all depends on your vessel class but also depends on your particular dominance in the various regions. And that's what you look for. You look for ways in a vessel class or within a particular geographic region to get a little – to get a bit more than the industry average. Now if your question is also leading to, okay, at what point do you really begin to get day rate increases, like when can you push price, I'd tell you that's probably closer to the 85%. And it's not just 85% in the localized region. It's 85% in the localized and adjacent regions because you always have the ability of other vessels kind of saunter into your work area and keep rates down.

Right. But it's ultimately an increase in demand for just the number of PSVs is what you are…

Yes.

Okay. All right. Thank you.

Yes.

[Operator Instructions] Okay. It looks like no further questions at the moment. Quintin, we'll turn it back to you for closing remarks.

Thank you, Brandon. Thank you, everyone. And we will update you again in May. Goodbye.

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