Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Q1 2022 Earnings Call. Today's conference is being recorded. [Operator Instructions] And at this time, I would like to turn the conference over to West Gotcher, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Audra. Good morning, everyone, and welcome to Tidewater's earnings conference call for the 3 months ended March 31, 2022. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial Officer, Sam Rubio; our General Counsel and Corporate Secretary, Daniel Hudson; and our Vice President of Sales and Marketing, Piers Middleton. During today's call, we'll make certain statements that are forward-looking and referring to our plans and expectations. There are risks and uncertainties and other factors that may cause the company's actual 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-K and Form 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the at sec.gov. Information presented on this call speaks only as of today, May 10, 2022. Therefore, you're 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 yesterday's press release. And now with that, I'll turn the call over to Quintin.

Thank you, West. Good morning, Everyone, and welcome to the First Quarter 2022 Tidewater Earnings Conference Call. I'm pleased to say that the first quarter was another solid quarter in a series of solid quarters. Momentum in the business continues to build, and we are starting to see the benefits of a tightening supply and demand balance we've been talking about over the last few quarters. In addition to a solid quarter, we closed on the acquisition of the 50-vessel fleet of Swire Pacific Offshore. Now that the transaction is completed, we are beginning to optimize the G&A and operating costs of that business so that we realize the synergy objectives we laid out, and we are beginning to leverage our larger footprint to improve the earnings performance of the combined business. Revenue was up slightly in the first quarter compared to the fourth quarter, which is a nice outcome as the first quarter is typically the softest quarter in the year due to weather in the North Sea. Revenue was just over $105 million for the quarter, up about 1% from the fourth quarter. Gross margin also improved during the quarter, up 3 percentage points to 35% and Vessel level cash margin expanded nearly 5 percentage points to 34%, nicely in excess of the 30% target we've talked about in recent quarters. Geographically, there are supply and demand dynamics in 2 of our regions that I would like to cover in a bit more detail, although the trend is positive everywhere. The West Africa region was the region most impacted by the COVID pandemic, but it continues to rebound quickly. Revenue grew at a sizable pace, up nearly 14% sequentially with vessel margins up to 41% from 32% in the prior quarter. Revenue in the West Africa is up…

Thank you, Quintin, and good morning, everyone. Before I talk about the market and put some of Quintin's comments about our improving regional performance into a wider global context. I wanted to mention that we'll be releasing our second sustainability report later this month and reiterate that at our core, ESG is something that has always been and always will be an extremely important part of Tidewater's DNA. And it's great that with our second sustainability report, we have an opportunity to continue to showcase to our stakeholders a historical as well as our future commitment to ESG. Please look out to the report when it is released later this month. On previous calls, during 2021, we've been very vocal about certain key tenets for the business as we saw the market slowly rebalancing. Two of those tenants revolved around discipline on how and what we bid for and the flight to quality of our [indiscernible]. In our view, we are now slowly seeing the benefits of remaining focused on these 2 themes during 2021 and into 2022. With the acquisition of Swire, over 63% of our OSV fleet are now PSVs, with 79% of those in the larger 700 square meter plus or 7,500 square foot plus deck size. To put that into a global context, this class of vessel where we believe the supply-demand balance is almost in parity with a current active fleet of circa 770 vessels, and with only an additional 108 vessels still stacked of which 68% have already been stacked for over 5 years and/or are over 20 years old. And in our view, we'll find it difficult, if not impossible, to come back into the market. Especially as we're seeing limited drydocking space globally and significant long lead times for major equipment items,…

Thank you, Piers, and good morning, everyone. I would like you to take you through our financial results and discuss some key points that make up these results. My discussion will focus primarily on quarter-to-quarter results of the first quarter of 2022 compared to the fourth quarter of 2021. As noted on our press release filed yesterday, we reported a net loss of $12.2 million or $0.29 per share. From an operational perspective, we showed modest revenue improvement quarter-over-quarter. Our revenue for the first quarter of 2022 was $105.7 million. This is $554,000 or approximately 1% increase from the fourth quarter of 2021. Utilization and day rates were up slightly in the first quarter with active utilization of 82.5% compared to 82.4% in the previous quarter. We also saw average day rates increased about 1% to 10,687 per day in the first quarter from 10,583 per day in the fourth quarter. Overall, gross margin for Q1 increased nicely to 35%, up from 32% in Q4. Vessel operating costs for the quarter was $68.5 million, a decrease of $2.7 million from Q4. The decline in operating costs consisted of reduction in COVID-related costs, down about $400,000, stacking costs down about $400,000 and vessel reactivation expenses down about $300,000. The remaining reduction is primarily the result of lower repair and maintenance spend. We sold 5 vessels during the first quarter for net proceeds of $4.6 million and recorded a net gain of $300,000 on the sale of these vessels. Our operating loss of $7.3 million for the quarter decreased by $19.7 million from Q4 due to the absence of the $13.5 million asset impairment and $1.4 million affiliate credit loss incurred in the fourth quarter, along with modestly higher revenue and lower vessel operating expenses. We did not record any credit losses…

Thanks, Sam. In closing, allow me to highlight a few things. First, while the first half of this year will be a net investment of cash our free cash flow will improve substantially in the second half of '22, and the year 2022 will be a marked improvement over 2021. This will be driven by a variety of factors, especially as dry dock and reactivation expense drops considerably in the second half of as working capital timing has worked through and has the impact of increasing utilization and day rates begin to materialize and work through to the cash flow statement. Second, we will be diligently working to realize the synergies associated with the Swire acquisition that we laid out; and third, leveraging our fleet in such a way as to drive day rates for the combined fleet as the market continues to tighten. We have substantial operating leverage in a rising environment, and we will harness this to the benefit of our shareholders. And with that, Audra, we will open it up for questions.

[Operator Instructions] And we do have a question from Patrick Fitzgerald at Baird.

Sorry if I missed this. Did you give a number, you gave updated drydocking CapEx? What did you expect full year for proceeds from asset sales? And then on working capital, you said it'd be used as revenue increases. Any sense of how big of a use that will be.

So the proceeds from vessel sales will be about $13 million. As far as the -- yes. So the DSO right now is at 83 days. So we normally -- typically, we see the DSO at about 75 days.

Okay. So you guys are seeing a lot of improvement in the market. I mean, could you just kind of give us an update? Because in the past, you said that production represented production support represented like over half of your revenue and then drilling support represented over half of your army, the other half, obviously, we're seeing a some uptick in drilling activity, it's all going to be going to be next quarter. Seems like to me, but it's certainly more constructive than it has been in the past. Could you just kind of update us on how you see this impacting your utilization as -- because I wouldn't expect from a production standpoint that you're -- that any more vessels are needed, but the market kind of tightens on the drilling side. So if you could talk about that, that would be helpful.

Sure. Patrick, it's Quintin. So let me illustrate a couple of things that are happening out there. Certainly, what you're seeing in the drilling market we are seeing as well. And with the Swire acquisition and they're more weighted toward anchor handlers, I anticipate that you're going to see us more leverage to drilling activity as we go through '23 and into '24. So before, I think we've said something like 60-40, I can see that moving up to 70% of -- there's a class of the anchor handlers that we're getting from Swire that are dual use that will work as anchor handlers, but also supply vessels in those regions where it's just not economical to have 2 types of vessels. So hard to know exactly how that's going to shake out. But it's definitely leaning more towards drilling as the drilling market improves and as we've acquired the anchor handlers from Swire. But on the PSVs, let me explain to you another phenomenon that's going on, which is around the world today, especially outside of the Soviet Union, everyone is trying to figure out how to pump more from existing production. And that means more vessels because there's going to be well stimulation activity. There's going to be other enhancements to production, offshore production platforms and things like that, and that is all vessel intensive. And so what we're seeing right now in the bidding stage is certainly on the drilling side, we're definitely seeing that. We're participating in that, but we're seeing a lot more infill development. So I expect that to go on throughout '22 and into early '23, '24 that time frame. And then I'll layer on top of that, one thing that we should keep in mind is that the world is getting that much more oriented towards offshore wind. And so they take a combination of fossil, both PSVs and anchor handlers, and we're starting to see that level of activity increase. It's relatively small today, but I anticipate it's going to be increasing nicely in really in the U.S. market over the next couple of years.

In the past, there was each floater needed, it was like in the boom years, like 5 OSVs, I believe, depending where they were. And then that kind of tightened down as people are trying to cut costs to like 2 or 3, I believe, could you talk about kind of the sentiment out there in that regard?

Yes. So as you think about the demand equation, for companies like Tidewater. Obviously, there's the production piece, which not related and not really count related. But on the drilling side, it has a lot to do with where the drilling occurs, right? So to the extent that the North Sea gets real active and starts moving westward in its drilling activities in North and West. Then you're definitely going to see that rig count per -- I'm sorry, the vessel count per rig increase. Okay. So the farther they are offshore, the more remote locations that are in the world, the higher the rig count is going to be. So as you see developments continue in Senegal as you see the things develop in Mozambique. Those are going to be a lot more vessel per rig intensive because there's not an existing infrastructure there. Now the other phenomenon that occurs. And we saw this reverse in 2015 and '16, and I think you're going to -- and we're already starting to see signs of it pick up as we go through the remainder of '22 and I think in through '25, is that people start to get worried about not having a vessel. So vessel scarcity kicks in. And so instead of releasing a vessel because well, there's 3 at the dock and you could pick one up any day you want it, people start holding on to boats. And in that process, the boat count just naturally inflates a little bit. So the option value of holding on to a boat is so low relative to the spread of an offshore field that people will begin to do that. We're already starting to see indications of that in West Africa.

Great. All right. And then I just wanted to get kind of an update on, obviously, you're going to integrate this transaction, which is -- which you've done a great job in your past acquisitions and getting a lot of cost out of the entity. But looking across the space, you're still kind of the most capable of doing M&A. So how do you see that kind of process unfolding?

Well, certainly, the integration effort with Swire is going to take some time, but that's not slowing us down from anything that we would do strategically. I feel confident by the beginning of the fourth quarter that, that will all be well in hand. And it will play out, as Sam indicated over 18 months because that's how long it takes it to roll out. But nothing is going to stop us from further consolidation except for the opportunities presenting themselves and of course, the appropriate valuation.

And that does conclude the question-and-answer session. I'll turn the conference back over to management for any closing remarks.

Thank you, everyone, and we look forward to updating you again in August. Goodbye.

That does conclude today's conference. Thank you for your participation. You may now disconnect.