Tidewater Inc.

During the Q&A session, if you have a question, please press star 1 on your touchtone phone. 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 12 months ended December 31, 2020. I'm joined on the call this morning with our President and CEO, Quentin Neen, 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 10K for additional details on these factors. This document's available on our website at tdw.com or through the SEC at sec.gov. Information presented on the call today speaks only as of today, March 5th, 2021, 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 to 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, 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. 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 hire 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 the 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 eight consecutive quarters of G&A run rate cost reductions. Our annualized G&A expense for the fourth quarter was $68 million. Just a reminder, the combined 2014 G&A for Tidewater and Gulfmark standalone was $253 million. We've been beating on G&A since the 2018 merger, and we're not going to take our eyes off this ball, but in a moment, I'm going to bring out some other elements of the business that we are more focused on in 2021. When we last spoke on the third quarter call, I walked you through our free cash flow guidance for the full year 2020, and I indicated free cash flow for the year would be $62 million. We came in at $53 million, even though our operational performance was noticeably better than what we guided. The reason, as many of you may have already jumped to, is that more cash got hung up in working capital than we hoped. I hinted to this on the last call, but a good customer of ours in Mexico has not been paying timely. Our balance with PMAX is approximately $18 million higher than ideal. I'm not worried about the ultimate collectability of the accounts due, but it is annoying, and it did throw us off our free cash flow generation goal for 2020. Our dialogue with them is open and constant, and based on that dialogue, we remain optimistic that we will get this balance normalized over the next five months. We did receive a $5 million payment for them about 10 days ago. Last quarter, we completed another bond consent and tender. We repurchased $50 million of bonds at 100.5% of par and eliminated the EBITDA covenant Q2 through to 2022, and we also loosened up the covenant definitions. I have absolutely no concerns about our financial covenants. We continue to evaluate the best options in the bank and debt capital markets with regards to refinancing the bond maturity in 2022, but we already have more cash today than the bond maturity balance, and we fully intend to continue to be free cash flow positive. I'm not worried about the covenants, and I'm not worried about the maturity. Before I turn it over to Pierce to cover our consolidated quarterly results, I'd first like to point out two ongoing transformations at Tidewater. We mentioned in the press release last night, and it was also covered in a press release by one of our vendors in Marsat, but I wanted to give you some more color on what's been going on behind the scenes here at Tidewater so you can better understand how our shore-based operating platform has become so scalable, so stable, and extremely cost efficient. and also how good this team is at transforming business processes. In the first 18 months after the 2018 merger, we had 12 different functional organizations that went through a complete overhaul. We now have a common ERP system throughout our organization, but more importantly, the global processes are all the same, and the process is paperless. It doesn't matter if you're in Dubai or Aberdeen or New Orleans. It's all the same. When all the processes are the same across your global organization and the process is paperless, you have maximum scalability and you have maximum redundancy. You can literally do everything from anywhere. That's what allows you to safely reduce shore-based expenses, and it's what's allowing you to add additional vessels without adding headcount. This team has created a digital enterprise in the shipping space. During the pandemic, we continued our technological push by connecting our digital enterprise to the vessels. At the time of the merger, 70% of the vessels lacked advanced BSAT technology. Our alliance with Inmarsat helped us change that. This last mile connectivity was challenging in the physical logistical sense. You've got to roll it out to the vessels, and by the end of 2020, we got there. Now we have a global shipping enterprise with standardized, consistent global practices, and we have an IT backbone connecting all of the vessels. This allows the IoT, the Internet of Things. This is where it really gets exciting. We can begin leveraging the localized technology on the vessels and getting real-time data monitoring, and we learn from canvassing the data of the global fleet, the so-called big data benefit. We benefit from global efficiency, but our customers benefit as well. Together, we can use the data to better manage carbon emissions, for example, but moreover, across the board, improvements in operating efficiency. We're beginning to raise the bar, and by doing so, reducing the commoditization of our service offering. The other transformation we are embracing is working with our customers to lower the carbon emissions from our vessels. Many of you may find it surprising to know that the OSV industry has been working on improving its fuel operating efficiency and consequently reducing its carbon impact for our vessels for quite a long time. Quite frankly, for us, it's been motivated largely by the self-interest of becoming the low-cost provider. As you may recall, fuel is provided by our customers, and therefore fuel efficiency is a key component in their vessel selection process. But it has also been motivated by customers in areas such as Norway, which have been focused on carbon, noxious, and noise emissions since the early 2000s. Our fleet has been operating on very low or ultra-low sulfur fuel for much of the past decade, well ahead of the IMO 2020 regulation making this a requirement. Particularly for tidewater, during our last new build program, our fleet became one of the largest in the world to integrate the Siemens Blue Drive Intelligent Propulsion Management System, resulting in a significant reduction in fuel usage and greenhouse gas emissions, while at the same time cutting maintenance costs. By investing in this technology, these vessels were also prepared for the future upgrades to utilize alternative energy sources such as battery power. To date, several of our vessels have been converted to utilize hybrid propulsion, including the ability to operate on shore power when in port, all paid for by the customer through upfront lump sum payments or separately negotiated day rate increases. I'm pleased to report that these upgrades, completed in partnership with our customers, have proven quite successful in reducing emissions, Throughout 2020, these technologies achieved emissions reductions of approximately 18% overall and over 60% while in port. We are continuing to adjust our operations to take full advantage of this technology and we expect that we will see even better results over time. We've talked about the integration of batteries as a hybrid power source, but I want to be clear that this does not mean that we feel this is the only long-term or perhaps even the best long-term solution available. Our team is constantly evaluating other potential and emerging fuel options and enhancing technologies that can further improve the operational efficiency and the performance of our vessels. To achieve these emission reduction goals, these upgrades require material capital investments. And while we are one of the few OSD companies with the financial strength to undertake these investments, we resist doing so without our customers also demonstrating their commitment by paying up front for these conversions or paying higher day rates for this technology. As part of our broader mission of offering high-quality, profitable services to our customers, while at the same time setting ourselves on a lower emissions path, we continue to hydrate our fleet through disposing of vessels that don't align with these goals and evaluating assets for acquisition that would further this mission. I'm excited about these two transformations, and I look forward to keeping you updated on our progress. Now, after the pandemic broke on the first quarter call last year, I began to give you some very granular guidance on how I saw the business rolling through the turmoil. And my objective was to get you comfortable that we would remain pre-cash flow positive through that difficult period and talk with you more in depth about where those cash flows were coming from and why. For 2021, allow me to step back again and be more general. For 2021, I see it unfolding a bit like a reversal of the past 12 months. I spoke earlier in the call that I was pleasantly surprised not only that the fourth quarter was better than we guided, but that it was better than the third quarter. I see tendering activity in the second half of 2021 as quite robust. Tendering activity doesn't equate to demand, but it is a good indication that supply and demand will be tightening up over the next 12 months. Generally, I see us getting back to where we were in the first quarter of 2020 by the first quarter of 22. Last year, I broke out for you the inefficiencies of the pandemic, essentially trying to capture the cost of the pandemic. We still have those efficiencies today due to pandemic protocols and restrictions, but it's become more a part of our routine. For reference, these inefficiencies cost us approximately 5% of revenue. But all in for 2021, I'm anticipating gross margin percentages of approximately 30%. We anticipate G&A to be right at the $70 million mark for the year. Dry dock, we anticipate to be approximately $20 million for the year. On top of that, we anticipate $8 million of miscellaneous capital expenditures for vessel upgrades such as hybrid batteries and then some more IT development. We have $34 million on the balance sheet in our assets held for sale category, which we intend to dispose of during the year, but of course it all depends on market conditions. And then I'm anticipating a bit of correction in working capital, as I mentioned earlier in the call. The improvement is not going to be linear, and I do anticipate that it will be weighted to the second half of the year. And with that, let me turn the call over to Piers for an overview of the company's performance by region.