Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Inc. Q2 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions] I would like to hand the call over to West Gotcher, Vice President of Finance and Investor Relations. You may begin your conference.

Thank you, Ian. Good morning, everyone, and welcome to Tidewater's Q2 2023 Earnings Conference Call. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial Officer, Sam Rubio; and our Chief Commercial Officer, 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 are making during today's conference call. Please refer to our most recent Form 10-K and 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, August 8, 2023. 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 financial measures can be found on our website at tdw.com and 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 Second Quarter 2023 Tidewater Earnings Conference Call. Before I turn the call over to Piers and Sam to discuss the quarterly results, I wanted to briefly review our integration of the 37 high specification PSVs from Solstad Offshore, discuss the results of our recent warrant expiration, and related to that, reiterate our philosophy on capital allocation. We announced the completion of the Solstad vessel acquisition on July 5, shortly after the end of the second quarter. We believe this fleet will prove to be an accretive addition to the Tidewater fleet and will generate meaningful value for our shareholders over the coming years as the offshore up cycle continues. This acquisition is different from the last 2 in that it is largely an asset acquisition. So we have had to prepare the shore-based staff and staff up ahead of the closing to ensure the vessel operations were poised to accept the transfer of the vessels into the existing Tidewater operational and administrative infrastructure. The positive aspect of this type of acquisition is that we get to have full control of the amount of incremental shore-based resources we assume, and we get to avoid the layoffs, downsizing and redundancies. But the negative aspect is that we have to start preparing much earlier to assume the assets and the margin of error is much lower, as you are moving assets from an existing operational framework and over a few day period, convert and importing the systems to the Tidewater infrastructure. I'm pleased to report that we have already transitioned 5 vessels in the first 35 days. We feel our transition processes are working, and our plan is to have the remaining vessels transferred over by the fourth quarter. Integrations are critical to…

Thank you, Quintin, and good morning, everyone. Before I focus on our area's performance, I want to talk a little about what we at Tidewater are seeing happening in the industry that gives us the necessary confidence in the long-term outlook for our industry. Our teams regionally all continue to see positive investment momentum in their respective offshore markets, driven by resilient long-cycle offshore developments, production capacity expansions, the return of global exploration and appraisal and the recognition of GAAP as a critical fuel source for energy security and as a part of the energy transition. Offshore markets remain strong, and the supply-demand outlook is very positive. Offshore vessel and rig demand is being bolstered by supportive energy prices, with operators seeking to reinvest profits into increasing oil and gas output. Overall, $68 billion of offshore oil and gas projects CapEx has been sanctioned in 2023 year-to-date, with outside research projecting $119 billion for the full year, the highest level since 2013. And furthermore, other research resources forecasted E&P vessel spending is expected to increase by 32% this year, with spending estimated to increase with a compound annual growth rate of 10% out to 2027. As evidence of some of this newfound long-term confidence in the market, BP has announced the revival of the huge offshore project, Kaskida, in the U.S. Gulf, which they abandoned in 2014, and they are now planning to revive the project, targeting FID in 2025 and First Oil in 2028. The reservoir is estimated to hold more than 4 billion barrels of oil. Rig rates continue to firm, with Clarksons Research reporting that their rig rate index is now up by 74% compared to the beginning of 2021, driven primarily by the floater sector, with 1 recent fixture agreed at $484,000 per day in June…

Thank you, Piers, and good morning, everyone. At this time, as in prior quarters, I would like to take you through our financial results, and I will focus primarily on the quarter-to-quarter results of the second quarter of 2023 compared to the first quarter of 2023. As noted in our press release filed yesterday, we reported net income of $22.6 million for the second quarter or $0.43 per share on revenue of $250 million compared to $10.7 million of net income or $0.21 per share in the first quarter on $193.1 million in revenue. Active utilization decreased slightly from 80.6% in Q1 to 79.4% in the current quarter. The decrease is due primarily to higher drydock days and higher mobilization days as we mobilize 9 vessels to different regions in the quarter. Average day rates increased by 9.7% from $14,624 per day in the first quarter to $16,042 per day in the second quarter, which was the main driver for the increase in revenue. Vessel margin in Q2 was $92.1 million compared to $75.7 million in Q1, and vessel margin percentage increased to 43.8% from 39.6% in Q1. Adjusted EBITDA was $72 million in Q2 compared to $59.1 million in Q1. Vessel operating costs for the quarter were $118.3 million compared to $115.5 million in Q1. In the quarter, we saw an increase in crew salaries and travel expenses and vessel supply expenses related to reactivation of a couple of vessels. In addition, as mentioned previously, we mobilized 9 vessels into different regions and incurred additional drydock days in the quarter that added to the increase in operating costs, mainly due to the fuel consumed. Our vessel operating cost per day was relatively flat quarter-over-quarter at about $71.50 per day. We estimate that fuel costs related to mobilizations and a…

Well, thank you, Sam. Ian, why don't we open it up for questions?

Thank you. [Operator Instructions] Our first question is from the line of Jim Rollyson with Raymond James.

Quintin, clearly, a nice sequential move in terms of fleet average day rates and obviously, the incremental contract average leading-edge rates. On the duration front, you mentioned, I think, 6.5 months was the average duration of the incremental vessels signed in the quarter. Can you remind us what the kind of fleet average is today in terms of duration, inclusive of Solstad?

About 1 year. For the legacy Tidewater fleet, yes.

And when you are -- obviously, you guys have talked about incremental tightening in the market based on activity and spend. Are you getting from your customers? Are they starting to get concerned about that trend? I mean, obviously, as their spending plans change for the better, I have to imagine they look at all the same trends that we look at and start to get concerned about vessel availability. So just kind of curious how those conversations go. And are they trying to -- your actual duration went down by a month this quarter versus what you booked last quarter. So curious if they're trying to book up longer-duration contracts and just kind of how that conversation is going.

Yes. In fact -- Piers is here is in Brazil. I'm going to hand it over to him in a second. But I would say that period of sticker shock that we went through in '22 is behind us. And now everyone realizes that rates are moving up, and they're worried about scarcity. It's scarcity. It's a scarcity issue for them. And so those that are more active and drilling campaigns are more concerned about scarcity. So we're starting to see them trying to book longer periods of time. We're still going short, but the person in our organization closest to it is Piers. So let me ask him to comment.

Yes. Thanks, Quintin. Hi, Jim. Yes, we -- I mean I think strategically, we sort of had a plan to sort of go short to allow us to roll a number of the poor legacy contracts we had. And part of that is also, I think I just mentioned a lot of the contract term that was in place in terms of these cancellation clauses for convenience that oil companies were able to push on us during the downturn. We're spending a lot of time pushing back on those and getting people to commit -- if they're going to commit to a 1-year or a 2-year or a 3-year contract, then they commit to the full term. So that process, we've had some positive momentum during the course of this year that people are starting to accept those types of terms of contract again. So it doesn't happen overnight, but that's certainly starting to happen, and we're starting to have some successes with a number of our customers who are recognizing that if they want a 3-year contract, then they need to support that with an actual contract that commits to that, which we're starting to start to see because they need to have -- they are worried about the scarcity of vessels. So yes, it takes time, but we're definitely seeing movement in that direction from our customer base.

Yes. That makes sense and sounds good from your end. And Quintin, on the relocation of vessels out of certain markets into the Middle East, obviously, there's some near-term kind of cost impacts and utilization impacts. Just maybe a little color on how much further does that still drag some in 3Q. And then how long before you think that starts to benefit you from the steady utilization and hopefully better rates kind of perspective?

Yes. So an underlying theme in that situation in the quarter and really the first 6 months is the fact that the last boats to go to work are usually your lowest -- these capable boats, like a small size and lower-specification boats. And those boats are great for the Middle East. But when you move them into the Middle East, you've got to go through a whole Saudization process, right? So you've got a bunch of costs that go upfront. So it's good to put those boats back to work, and we did that in the first half of the year, most of that hit in Q2. I think we have a small remainder in Q3, but not -- nothing significant. Certainly all contemplated in the guidance that we laid out. But no, I think that reactivation surge and that resetting of the chest table globally is largely behind us at this point.

Great. I will turn it over for someone else. Thanks.

Your next question comes from the line of Greg Lewis with BTIG.

I was hoping to get a little bit more color around the comment around the contracted fleet. You mentioned roughly 87% of the fleet is contracted. I guess the questions around that are -- is this a function of vessels rolling off contracts, and then going back on longer contracts? Or is it, hey, there's going to be this natural piece of our fleet that's going to just simply be trading in spot. And if you could, could you provide us a little color around where those spot vessels are and how those markets are doing?

Yes. No, I think you've got it laid out right in the sense that most of those are going to be rolling through the spot market as we go through the next several quarters. Let me give it over to Piers to give you an idea of where the spot market is most active around the world.

Yes. Thank you, Quintin. Hi, Greg. Yes. No, so we have -- I mean, you sort of -- as Quintin said, you guessed it right, there's an element of spot in that availability. I mean obviously, the North Sea, you always have a certain level of spot exposure, the way that's set up, particularly on the larger anchor handlers as we go into the second half of the year. So there's some there. We're also seeing -- that market is holding up very well. It's still very positive. The good news, I think, with the Solstad transaction is we have largest share on the PSV side in that market, but actually our competitors seem to be holding rates as well. So that's turning over to a certain level in the North Sea, which is -- is spot. And then we're seeing a number of contracts rolling off in Q3 and Q4 in Africa. But again, very positive momentum in that piece as well. So there's a few contracts down there. And then otherwise, we're pretty busy everywhere else in the world. So not a huge amount of -- a little bit of spot exposure in Asia as well, but otherwise, everything else is working. So mainly out of the North Sea is where we see most of that exposure on the spot side.

Okay. Great. And then just -- I did want to talk a little bit about the Solstad fleet. You mentioned the 5 vessels that were integrated in. I guess -- and as we think about the remainder of that fleet being integrated in, is there any way to kind of think about it on a vessel basis? What is that cost, right? I mean, you kind of touched on it. Is it basically to integrate each vessel into the fleet is a couple of hundred grand? And then as we think about those vessels that are still going to be put in the fleet, realizing there's a heavy concentration in the North Sea, but there are some vessels from the Solstad fleet that are in Brazil and West Africa. Is it kind of -- is it kind of we expect these vessels to stay put? Or you mentioned you're in Brazil, are you already down there trying to figure out if we can boost our position down there? Just kind of curious as we think about that, just given the ebbs and flows -- and the recent -- the decision last quarter to reposition vessels to the Middle East.

Greg. Hi, Greg. This is Sam. I'll kick it off, and then maybe Quintin can comment on this. But as far as it relates to the cost of integrating these boats, I would say that it's going to add maybe $25,000 to $35,000 a boat just because of all the documents change and everything that we got to do. But it's really more of a timing than anything else. It will take us 1 day, 1.5 days to switch over systems and stuff like that. So the impact is minimal, as far as the timing and the cost.

Now I'd layer on top of that, Sam, that as a result, you've increased your G&A guidance for the year from the stand-alone Tidewater fleet, about...

That's correct. We're anticipating G&A to go up about [ $5,000 ] for a full year. So...

$5 million.

I mean, I'm sorry, $5 million for the full year, which should be about $2.5 million for the second half this year.

And that's the incremental shore-based facilities. But the actual movement of the vessels over is really just a -- it's an intensive planning exercise, but it's not an intense cost.

Not an intense cost. That's correct.

And then just what the outlooks for those vessels, just given when we acquired them where they were located, I mean, is it too early to tell? Or should we be thinking about [indiscernible]?

It's -- so right now, most of them are under contract, which is kind of the good news, bad news on that fleet, because I would really like to roll them over a little bit faster than I can. But the -- so I think over the next year, you're going to see them working in the areas where they're currently at. So the biggest slug is in the North Sea, but we've got a handful in Brazil, a handful in Australia and just 1 or 2 in West Africa. And certainly, the thing that I'm optimistic about with that fleet is where they're at today, they're rolling on to new contracts that are better than we actually anticipated. So from a merger analysis standpoint, I'm really pleased with that. Now where I'm working -- I'm more concerned that it lightens up more in the U.K. sector over the next couple of years. And if it does that, then rolling them down into the Mediterranean, which has been recently very strong as well as West Africa, is where I anticipate them to go. I don't expect pulling out of Brazil at this point, although Brazil is always a troubling area for an international operator. And I think there's a real opportunity in Brazil for a Brazilian on tonnage. This is not Brazilian flag tonnage, this is foreign tonnage.

Your next question comes from the line of Fredrik Stene with Clarksons Securities.

Hopefully, you guys can hear me. I actually wanted to revert a bit to some of the themes that Greg touched upon in relation to contracted capacity. You've given us the numbers for the third quarter. Are you able to give us some color on what's happening in the fourth quarter and also in 2024? And I'd be interested in both what you booked of revenue going forward, but also what's left in terms of free capacity to play the markets.

Sure. So naturally, what happens as you look out each quarter is we have a little bit more room, a little bit more white space, as it's commonly been called, to fill. And so we're about 85% filled for the fourth quarter. And so we'll work over this quarter to fill in that white space, to get it up to the same level that we're talking about in Q3, which is 100%. And then as you go out into -- I'll reserve on '24 until we do the '24 overview. But it's a similar step down as you go through the quarters.

Okay. And in terms of just how you commented on your strategy now in Q2 that you're holding on a bit on capacity to secure kind of longer-term work -- with longer rates, are you feeling on a general basis that you've come to a point where it's the right time to start to go from that short strategy, as you've talked about, to a long strategy to a large degree? Or is it the correct timing for some of the subsegments of your assets? Anything that kind of can help us get cash flow visibility or comp. I truly believe there has been a misunderstanding, but if your attitude towards that has changed, it would be helpful.

No. My attitude really hasn't changed. I'm still very optimistic in the acceleration of day rates globally. And I really see nothing holding it back. There's no incremental supply of any magnitude coming in from anywhere, and activity levels are continuing to increase. So generally, I'm still going short. Now we've been going short for so long that we're actually depleting a lot of our coverage. So we may add some longer-term contracts just to balance out the book, if you will. So -- because there's always a meaningful piece of long-term contracts. If you can get the right terms, if you can get the right price escalations and so forth. But if I had my druthers, I'd I just jam it on the spot market. But let me hand it over to Piers, and he's got to live with it. So I'll ask him to comment as well.

I mean, I think -- I mean, I think I sort of mentioned earlier, we are still focused on a relatively short-term strategy. But I think as Quintin just said, if we can -- we're spending a little bit of time getting the customers to actually commit to the term of contract. And if they're there to commit to a proper, what I consider a proper non-cancelable 3-year contract or 5-year contract on the right sort of terms, as Quintin said, then that's certainly something we'd look to put into the fleet. But I don't see us in the short- to medium-term planning to change our strategy. I think we're very positive for the long-term future of this market. So there's more upside opportunity as we go forward from our side.

Yes. And I follow up with 1 more -- 1 more item -- I follow up with just 1 more item on that, which is, obviously, we're playing the spot market nothing's really changed. To the extent that we'd layer on additional contract covered like Piers was indicating, it's because we're getting contract terms that we feel are sustainable over a 3- or 4- or 5-year period.

Perfect. And just a final follow-up on that. I think in some of the other -- also subsegments like the rig space, what we see now over the last few months is that the lead time to contract start has expanded for these long-term contracts. And of course, there are different dynamics in these 2 markets. But in terms of your discussions with -- with your clients, are they not only willing to give term or offer term contract, but how has the -- how far out in time are they trying to plan for their OSV needs? And how has that changed maybe over the last 12 months?

Hey Piers, do you want to take that one?

Yes, yes, of course. And it always amazes me, you think customers would be slightly better organized when it comes to looking to book the PSVs and anchor handlers. But I would still say the majority of the customers are leaving it quite late still. They're still -- they may have a long lead time on a rig, but we're not still seeing tenders that are sort of 3 months out, with the exception of perhaps someone like Petrobras, some of the NOCs have a longer lead time on the IOCs. Their lead times tend to be 2 months -- 3 to 6 months before they come out. And in some cases, we have some of them who even come out expecting -- expecting assets to be available in a month's time, and we have to more often than not disappoint them. So we're not -- we haven't really target into the rigs, yes, I would say, Fredrik. But no, maybe that will change over the next few months. But they're definitely looking to commit to longer-term and better contract terms when they do come out. So that bit is changing.

All right. Thank you all for the color. Super helpful. That's all for me, and I wish you a good day.

There are no further questions at this time. I would like to hand the call back over to Quintin Kneen for closing remarks.

Thank you, Ian. Thank you, everyone, and we will update you again in November. Goodbye.

This concludes today's conference call. You may now disconnect.