Tidewater Inc.

Welcome to the earnings conference call first quarter 2019. 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. During the question and answer session, if you do have a question, press star then 1 on your touchtone phone. Please note that this conference is being recorded. And now I'll turn the call over to Jason Stanley.

Thanks, John. Good morning, everyone, and welcome to Tidewater's earnings conference call for the period ended March 31st, 2019. I'm Jason Stanley, Tidewater's Director of Investor Relations. 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 Rind, Quintin Kneen, our Chief Financial Officer, Geoff Gorski, our Chief Operating Officer, and Daniel Hudson, our Assistant General Counsel. For today's call agenda, I'll cover a few formalities and then turn the call over to John for his prepared remarks followed by Quintin's review of our financial results for the period. We'll then open up the call for 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 10Q for additional details on these risk factors. This document's available on our website or through the SEC at sec.gov. The information presented on this call speaks only as of today, May 7th, 2019, and therefore you're advised that at any time sensitive information may no longer be accurate at the time of any replay. Also during the call, we will present both GAAP and non-GAAP financial measures. The reconciliation of gaps and non-gap measures is included in last evening's press release. With that, we'll turn the call over to John.

Thank you, Jason. Good morning from Houston, everyone, and welcome to the Tidewater Call. March 31st, 2019 marked the first full quarter with Tidewater and Gulfmark operating as a combined company. The benefits of a larger fleet operating across an existing and increasingly efficient global footprint are immediately evident. with revenues up 33% or $30 million from the quarter ended March 31st, 2018. First quarter revenues were also up 11% or $11.9 million from the quarter ended December 31st, 2018. Our worldwide active fleet utilization was up by approximately 15% compared to the same period year over year. For the first quarter, active utilization rate remained high during a typically seasonally slow quarter at 80%, only slightly down from 82% level reported for the fourth quarter of 2018. The repositioning of several vessels in preparation for contracts that have now begun and several dry dockings that have now commenced also brought down the active utilization somewhat for the quarter. Taking a look at our operating results by segment, first quarter revenues were up for all regions year over year, and revenue was also higher for almost all regions quarter to quarter sequentially. Most notably, our North Sea and Mediterranean segment reported a revenue increase of almost 200% when compared to the first quarter of 2018 and an increase of approximately 40% from the fourth quarter, reflecting the larger fleet and substantial market share growth resulting from the Gulfmark merger. Due to the initial effects of improving day rates, first quarter vessel operating margin was up 40% from the fourth quarter of 2018 and 92% year over year. Our West Africa segment revenue for the first quarter was higher by approximately $2 million compared to the first quarter of 2018, and vessel operating margin was up by 76% over the same period. The reporting segment was not directly influenced by the Gulfmark transaction, but it is encouraging to see an underlying improving trend in the region year over year regardless. While revenue and active utilization dipped slightly during the quarter as compared to the fourth quarter, This was due to several vessels relocating to commence new contracts. New contracts commenced in Nigeria and Senegal, among other locations, and contracts for our entire fleet operating in Angola were renewed. Vessel revenues increased 35% or $9 million in our Americas segment for the quarter as compared to first quarter of 2018 and increased 11% or $3.5 million quarter over quarter sequentially. This increase was driven by the addition of 12 vessels to our active fleet during the period as a result of the Gulf Mark business combination. While our fleet size grew, our average tonnage specification and associated contract day rate mix changed, resulting in a trend of lower average rates for the quarter than those reported during the first quarter of 2018. Our Middle East Asian Pacific business segment experienced revenue growth year over year of 11% or 2 million. Vessel operating margin was also up by 44% over the same period and 32% from quarter over quarter sequentially. Average day rates trended down for the quarter, but three additional Gulfmark vessels were introduced to the segment on new contracts, resulting in net revenue improvement. Looking forward, we're expecting to see continued stability or upward trends in all our reparting segments, with a notable improvement in the North Sea utilization and day rates. While it is typical to experience an increase in OSB demand in the region heading into the summer season, the sector has already experienced stronger demand far earlier in the season than we have seen in several years. Toward the end of the first quarter, spot rates rose to the highest level since 2014, and both spot and term rates continued to rise as a result of increased drilling activity and, despite several reactivations, a tightening of vessel availability due to a number of vessels departing the region to support other projects. From the beginning of the year through the end of May, market sources estimate that at least 12 vessels are expected to be parting North Sea for work in West Africa and Russia. While additional vessels are expected to enter or return the market in time for the summer season, the consensus is that there may be a net reduction in supply this season. This also assumes that OSV operators remain Discipline and do not reactivate excess tonnage on a purely speculative basis. This is potentially a significantly different scenario from last season, where a total of 34 vessels were reactivated or returned to the market, greatly limiting rate increases that would have otherwise developed. With our post-merger position as one of the top two OSV operators in the North Sea, we are well positioned to significantly benefit from the upside anticipated this season. In certain regions, the demand for OSVs outfitted with battery upgrades to reduce emissions and power requirements under certain operating conditions have increased, and the North Sea in particular is leading this demand. I'm pleased to mention that we've recently entered into multi-year long-term contract extension, including battery upgrades for two of our vessels operating in Norway for Equinor. I'll also highlight that we continue to experience an overall improvement in West Africa. Activity in Nigeria continues to improve, and available OSV supply is expected to tighten. With Nigeria's increase in demand, the country is absorbing available supply along the West African coast. Several OSV operators in the region also lack sufficient liquidity to complete special surveys, so this is expected to drive some additional attrition, in the near term at least, and further tighten supply. In our American segment, we expect stability with some moderate rate and utilization improvements as a result of both seasonally higher activity and OSV availability tightening in the Gulf of Mexico. As we mentioned during our previous earnings call, and as several industry analysts and our peers have recently mentioned, a significant amount of tonnage must complete regulatory dry dockings this year, and the Gulf of Mexico has one of the largest populations of vessels coming due. We anticipate this may drive vessel attrition through the year as OSB owners elect to stack vessels in lieu of investing the capital to complete the surveys. Mexico is expected to remain stable through the next quarter or so. With our strong local presence in country for over 50 years and the number two market position, we're well positioned to address the potential upside we may encounter towards the latter part of 2019 or early 2020. Our customers continue to report record cash flow levels, and despite some volatility, commodity prices have remained well above break-even levels required to support further offshore developments. Shale continues to be the primary competitor for our customers' capital budgets, but as offshore costs have steadily reduced, investing in offshore exploration and development for access to typically far larger and longer producing fields is modestly increasing once again. FIDs are expected to continue to increase from record lows over the past several years, and as reported by a number of our drilling contractor peers, drilling demand is increasing through 2019 for both jackups and floaters. These are all positive factors that will further drive demand for OSB services. However, the steepness of the recovery curve for the OSB sector will be highly dependent on whether owners begin favoring building backlog over vessel reactivations. During our last call, I mentioned that we have made the commitment to reactivate 10 vessels, with this decision being underpinned by sound financial drivers. Five of these vessels have completed the reactivation process and are now on contract. The remaining vessels will complete their reactivation work over the next few months to meet contract commencement timing. Following the reactivation already completed or that are in process, we continue to maintain a sizable fleet of 26 Tier 1 vessels. in line for reactivation in our stacked fleet. The vessels are increasingly included in discussions with our customers as new opportunities present themselves that support the necessary economics to justify reactivations. With regards to the remaining portion of our stacked fleet, our team has made considerable progress towards meeting our ambitious stated goal of selling or recycling 40 additional uncompetitive, older, lower specification vessels from our stacked fleet by the end of the year. Sixteen vessels were sold in the first quarter, and year to date we have sold a total of 28 uncompetitive stacked vessels, with the majority of these vessels going to recycling. As we work to divest uncompetitive assets, we continue to evaluate asset acquisition opportunities with the objective of further high-grading the Tidewater fleet to ensure best suitability for our customers' needs and the greatest potential for return on investment for our shareholders. The activities we've taken to upgrade our fleet have also included targeted investments in software and technology, with the objective of improving efficiency and maintaining uptime. To date, over 50 vessels in our fleet have been outfitted with fuel management systems, providing our operations teams and customers with clear and reliable data on fuel consumption, which is a key metric that can be used to plan for more efficient operations and potentially reducing emissions. Before I hand the call over to Quintin to cover our financial results for the quarter and to provide some updates on our merger synergy progress, I will reiterate the strength of our position in the sector and our dedication to maintaining this position as the market continues its steady trajectory upwards. Our high-quality fleet, global footprint, substantial cash balance, and the strongest balance sheet in the sector continue to position Tidewater to act swiftly to meet customer demands and to maximize shareholder returns in an improving market. Quintin?