Tidewater Inc.

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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one once again. And at this time, I would like to turn the conference over to Wes Gocher, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Audra. Good morning, everyone. Welcome to Tidewater's earnings conference call for the three months ended March 31, 2022. I'm joined on the call this morning by our President and CEO, Quentin Neen, 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 SEC 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 Clinton.

Thank you, Wes. 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 the 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 three percentage points to 35%. Vessel level cash margin expanded nearly five 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 two 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 West Africa is up 69% year over year. Vessel margin in West Africa in the first quarter of 2021 was 12%. So vessel margin is up 29 percentage points year over year. This market is recovering nicely. Active vessels increased to 42 from 39 in the prior quarter. We're adding approximately 25 vessels to this region through the acquisition of this wire fleet, essentially doubling our fleet count in the region. The addition of these vessels gives us the opportunity to leverage the momentum of this rapidly improving market with a considerably larger fleet. Utilization in the Americas dropped from 80% in the fourth quarter to 76% as a result of dry docks and vessels down for repair in Mexico and Brazil. Although utilization dropped, revenue still increased about 2% sequentially as day rates improved by about $900 per day. The Americas and especially the Caribbean, is one of the strongest markets we see today. Our day rates in this part of the Americas was up over $1,700 per day during the war. We believe the continued success in offshore development in the Trinidad, Suriname, Guyana region will continue to drive vessel demand in the region, and given the tightness in vessel supply, will continue to drive up day rates. Pierce and his team have been doing a great job moving rates up, and he has some anecdotal day rate movements in that geography that will help illustrate that market's tightness. During the first quarter in the North Sea, weather inhibits some offshore activities. The North Sea is comprised of four discrete sectors and we're active in the two larger sectors, the Norwegian sector and the UK sector. Although utilization was down for the entire region, utilization was up in the UK sector during the first quarter. This counter seasonal movement speaks to the strength and demand we are seeing in this region. Day rates increased nearly 2% across the region. It's worth noting the continued growth in the Egypt subsector as well during the quarter, where revenue was up about 45% during the quarter, along with a day rate increase of about $740 per day. We believe the Europe and Mediterranean region will continue to exhibit meaningful growth as we go through the remainder of 2022. Our G&A costs during the first quarter included 2.2 million in professional fees and integration costs related to the SWIRE acquisition. Excluding these costs, G&A came in right at 16 million for the quarter. Sam will cover this in more detail, but with the addition of the SWIRE fleet, we do anticipate G&A expense increasing for a couple of quarters until the synergies begin to take hold. After everything settles, we anticipate about 2.5 million of additional quarterly G&A due to the additional personnel and various other G&A costs. that come along with 50 additional vessels and a new regional office in Singapore. Free cash flow for the quarter was negative 10.4 million. As we mentioned on the last call, we anticipated free cash flow in the first half of 2022 to be weighed down by a significant dry dock expense and vessel reactivations during the quarter, of which we spent 13.6 million during the first quarter. We also had a working capital bill during the first quarter. Sam will also cover this in more detail as well. but the growth in DSO should normalize by the end of the third quarter. We remain confident that market conditions will result in our entire fleet working by the end of 2022, a combination of reactivations and disposing of non-core vessels. We made additional progress during the first quarter in disposing vessels available for sale, selling five vessels for total proceeds of $4.6 million. We end the quarter with only 12 vessels remaining in the health for sale category. Vessels and layup costs of 1.4 million in the first quarter down 23% quarter over quarter and down 75% year over year. Costs associated with COVID-19 also continue to fall down 21% quarter over quarter and down 44% year over year. As a reminder, we announced an at the money stock issuance plan back in the fall, the ATM plan. No shares have been issued under that plan since it was put in place. Our intended use for the plan is simply the repurchase of Jones Act warrants, which includes the legacy warrants as well as the $8.1 million warrants we issued to Swire as consideration for the acquisition. Our intention with the ATM plan is to create a market for those warrants by issuing new equity shares under the ATM plan in exchange for those warrants. No new net shares are intended to be issued. Before I turn the call over to Pierce, I'd like to briefly touch on the progression of the market during the first quarter and what that implies for the remainder of 2022. In short, the market is tight. We've reached near equilibrium in supply and demand balance for the larger PSVs. There still remains some slack in the smaller PSV market, but that sector of the market is also tightening. During the first quarter, we fixed chargers for 16 vessels commencing work beginning after the first quarter. These 16 vessels are of various sizes, and the charter terms were for various durations, but the average day rate improvements for these 16 vessels as compared to their prior contracts is just over 20%, with our largest PSVs achieving an average day rate improvement of nearly 30%. We remain confident that the second half of 2022 will represent a meaningful uplift in vessel demand, with 2023 representing yet another leg up. Consistent with price level increases throughout the economy, we are experiencing cost inflation, and we will continue to keep this in mind as we set day rates around the world. With that, let me turn it over to Piers for an overview of the market and the company's performance within it.