Tidewater Inc.

Welcome to Earnings Conference Call, Third Quarter 2020. My name is Sylvia, 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 have a question, please press star then 1 on your touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Jason Stanley, Vice President of Investor Relations and ESG. Mr. Stanley, you may begin.

Thank you, Sylvia. Good morning, everyone, and welcome to Tidewater's earnings conference call for the quarter ended September 30th, 2020. I'm joined in the call this morning by our President and CEO, Quentin Mean, our Chief Accounting 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, 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 make during today's conference call. Please refer to our most recent 10Q for additional details on these factors. This document is available on our website or through the SEC at sec.gov. Information presented on this call speaks only as of today, November 6th, 2020, and so 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 and non-GAAP measures is included in last evening's press release. And now with that, I'll turn the call over to Quinton.

Thank you, Jason. Good morning again, everyone, and welcome to the third quarter 2020 Tidewater earnings conference call. I'm pleased to say that this has been a solid quarter at Tidewater. Against the ongoing challenges of the pandemic, we continue to successfully execute on the strategy we outlined on the first quarter earnings call. Before we dive into the consolidated quarterly results, review our operating segments, and open the call up for questions, I'd first like to discuss some noteworthy developments at Tidewater since we last spoke. The first is the appointment of two new board members, Lois Zabrocki, President and CEO of International Seaways and also recently appointed Commodore of the Connecticut Maritime Association, and Darren Anderson, President and CEO of Ranger Energy Services. Both new directors bring broad industry and a diversity of insight to our board's governance and decision-making processes, and we're excited to have them aboard. Also joining me on the call today is Pierce Middleton. Pierce joined Tidewater in the third quarter and is leading up global sales and marketing. I'm excited to have Pierce on board as we fill out the management team and position Tidewater for the future of offshore energy services. In addition to sales and marketing, PEERS will be assisting in the strategic evaluation of hydrocarbon and renewable investment opportunities as we position Tidewater to benefit from the offshore energy activities over the next 20 years. You may have picked up in the press the announcement of our acquisition of 11 crew boats from Hermitage Offshore Services earlier in the fourth quarter. These vessels will strengthen our position in Angola and West Africa and expand our market share with a total of 27 active vessels in the region. Given their relatively new condition, they will also reduce the average age of our active crew boat fleet. This acquisition forms part of our ongoing fleet rationalization program and opportunistic approach to M&A. As we continue to divest our oldest, least efficient, and least profitable vessels, We create space in the fleet for a higher quality, newer, and more efficient vessels to maintain the right scale of our operations. Given the location of our West Africa shore base, we believe Tidewater will be able to manage these vessels in a manner that will be easily accretive to our fleet profitability. Six of the vessels are already under contract. We continue to focus on reducing our net debt commitments and further improving our peer-leading leverage ratio. This quarter, Tidewater is once again cash flow positive with $30 million of free cash flow. And for the nine-month period thus far in 2020, we are free cash flow positive even before including the cash generated from asset divestments. And we are proud to be on track to be free cash flow positive for the full year 2020. During the third quarter, we repurchased $28 million face value of our 2022 notes for 95% of PAR. On Tuesday, we launched a tender for another $50 million, and we simultaneously launched a consent for the modification of certain terms within the indenture, principally the financial components. We look forward to continuing to reduce this debt and improving our net debt position through our dedication to remaining free cash flow positive. The debt repurchases in the third quarter and the current tender are part of our ongoing program to position the company to refinance or just simply repay the bonds when they mature in 2022. We stated last quarter that our revised estimated revenue for 2020 was 390 million, and that estimated cash operating margin would be 35%. We now anticipate full-year revenue to be approximately 385 million, which is down 5 million from what we estimated as full-year revenue on the last call. We still anticipate cash operating margins of 35%, which would result in cash from core operations of 135 million for the year. Further, we budgeted $20 million for frictional costs associated with the pandemic, and we still see that as the annual impact of the crisis. This is the increased cost of travel and salaries, the cost of quarantining mariners, the cost of fuel to transit vessels coming off fire to their layup locations, and the incremental cost of having those vessels in layup. In particular, for the fourth quarter, we anticipate higher fuel costs related to vessels transiting to their layup position, excess salaries until we can decrew the vessels, which is what we've experienced in the second and third quarters, and then an increase in the lump sum costs of mariner severance as the vessels are decreed. All in, we see these extra costs in 2020 to be $20 million. This $20 million of pandemic costs gets us down to cash flow of $115 million. General and administrative expenses have remained a focus for Tidewater. We've been successful in reducing costs wherever possible, both onshore and offshore, and I'm pleased to say that GMA is once again down this quarter to $17 million, with full year now anticipated to be $72 million. This is another $5 million improvement from the $77 million we forecasted on the earlier call, and that gets us to $43 million of cash flow for the year. Our G&A costs continue to come down. That's now seven consecutive quarters of G&A run rate cost reductions. Our annualized G&A expense for the third quarter is under $70 million. As a couple of data points, the combined 2014 annual G&A for Tidewater and Gulfmark standalone was $253 million. And the immediate run rate post-merger was $145 million, with a post-integration objective of $100 million. We will continue to seek techniques and processes to remain the low-cost leader in terms of shore-based operations. However, when we fill the open CFO position, we will see a noticeable increase in G&A costs for that role and its associated support expenses. Vessel disposals are now looking to be $38 million, less drive-off expenditures of a revised $35 million for the year, which nets us another $3 million. And as I mentioned earlier, we purchased the 11 Hermitage vessels for $5 million. So net vessel investments for the year will be $2 million. We are anticipating a liquidation of working capital net of taxes and other costs of $21 million. So all totaled, we are anticipating $43 million of cash flow from vessel operations, less $2 million of net vessel investments, and $21 million of cash from working capital and other for a total of $62 million in free cash flow for the year. All very achievable. The one area that I'm bothered about from a timing of cash receipts perspective is the continued generation of cash from the liquidation of working capital. We have one customer, the National Oil Company of Mexico, which is delaying payments to many of its vendors, including Tidewater. It's disappointing and frustrating that we have to endure this from a triple B rated enterprise, but I am not at this time worried about the ultimate collectability of the amounts due. Delivering on our free cash flow objective for 2020 will require similar quarterly results in the fourth quarter as we achieved in the second and third quarters, and the formula is the same. We must continue to minimize drive-back expense. We must quickly lay up and decrew idle vessels. We must timely collect what is due from us from large multinationals and national oil companies. Importantly, we have to dispose of older, lower specification vessels, all executed well thus far in 2020 and all achievable in the fourth quarter as well. Our vessel disposal program continues to progress with 47 vessels sold year to date. As previously mentioned, we now expect proceeds of $38 million in 2020, and this is somewhat dependent on the ability of the recycling yards to continue to manage their increasing backlog of tonnage from all over the shipping sector. The sale and disposal of our older tonnage, much of it stacked and unlikely to return makes a material impact to stacking costs, and further highlights the benefits of rationalizing the fleet during this downturn. All of this leaving us ready to enter a recovered market with a truly optimized and cash-generative fleet. And now, it's my pleasure to turn the call over to Piers for an overview of the markets in our key operating areas.