Tidewater Inc.

Thank you for standing by. At this time, I would like to welcome everyone to the Tidewater Inc. Q4 2022 earnings call. 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Vice President of Finance and Investor Relations, you may begin your conference.

Thank you, Cheryl. Good morning, everyone. Welcome to Tidewater's full year and Q4 2022 earnings conference call. I'm joined on the call this morning by our President and CEO, Quentin Neen, our Chief Financial Officer, Sam Rubio, 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 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, February 28, 2023. Therefore, you're advised 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 as included in yesterday's press release. And now with that, I'll turn the call over to Quinton.

Thank you, Wes. Good morning, everyone, and welcome to the fourth quarter 2022 Tidewater Earnings Conference call. I'd like to start today's call by reflecting on the difference a year can make in our industry and the improvements in our business during the course of 2022. 2022 marked the long-awaited inflection point in the offshore vessel market. Our revenue increased nearly 75% compared to 2021. driven by a major acquisition, but also a significant rise in average day rates. Average day rates improved over $2,400 per day for the full year, a pace of improvement we have not seen during the past 20 years. And we expect that 2023 will reflect a full year improvement of over $3,000 per day. On a quarterly basis throughout 2023, we expect average day rates to be increasing quarter over quarter, And although it's too early to comment on the full year day rate increases for 2024, we see nothing stopping the day rate acceleration. To put this in perspective, historical upcycle year-over-year day rate improvements were approximately $1,500 per day. Vessel operating margins increased by over 10 percentage points year-over-year. Our adjusted EBITDA nearly quadrupled as compared to 2021. We generated positive net income in the third and fourth quarters of 2022. We closed and integrated a major acquisition over the past year. By all measures, 2022 was a seminal year for Tidewater, and we are very pleased to report on the successes of 2022. I'm going to let Pierce and Sam give you more details on the performance of the individual regions, as today I wanted to spend some time on a handful of non-routine topics. I want to take a moment to explain the process we go through when we provide forward guidance, which many of you will notice we resumed this quarter. I want to describe our current capital allocation philosophy, which is going to become an important topic as we continue to generate increasing levels of free cash flow. And then related to capital allocation, a bit more on consolidation in the industry. And then I wanted to finish up with some comments on the Jones Act warrants and merger acquisitions, merger integrations. Some of you are new to the Tidewater story, so I wanted to take a moment to discuss an internal process that is critical to how we run our business and how Sam and I have been running companies in this industry over the past 12 to 15 years. We re-forecast our business every week. Years ago, we developed a system to capture, on a weekly basis, changes in day rates expected over the next 12 months, new contracts that have been added, changes to forecasted utilization levels, unplanned expenses, general price level increases, and literally everything in between. Every week, we review and evaluate these changes to the outlook over the next 12 months. I've been told many times that this sounds extreme, mostly by people inside the company associated with this activity, but outside the company as well. But for us, it's an important tool to assist us in developing our chartering strategy. Day rates in this industry have historically been quite volatile. And to us, that volatility takes a high sampling frequency. Pierce has mentioned on past calls, and you will hear it again today, how we are chartering short. And our confidence in taking and maintaining this position comes from closely monitoring the movement in day rates around the world. Sam is going to speak to you about some mobilization costs we incurred during the fourth quarter and our confidence in relocating vessels from one region to another is based on the relative day rate development we see in the regions in which we operate. But another benefit of this detailed weekly forecasting process is that over time and through refinement, we have developed a relatively high degree of confidence in our ability to forecast the business. The guidance Sam is going to provide you later in the call is based off of these reports. It's the same reports we provide to our board. The guidance is neither deliberately conservative nor optimistic. It's our current handed assessment for the year. We provide calendar year guidance with a range, and we tighten up that range as we proceed through the year. We will update you every quarter, and we feel confident that the information we are providing is the best possible outlook for our business at the time it is given. As you reflect on the outlook for 2023, you will quickly conclude that the business is poised to generate a substantial amount of free cash flow over the next several years. And as mentioned in the press release, we are already virtually unlevered. So it's appropriate to discuss our capital allocation philosophy. It's also fairly easy to see that the amount of cash that will be generated over the next several years, if our outlook is correct, is of such a magnitude that value accreted mergers, acquisitions, dividends, share repurchases, all will be considered in the ultimate allocation of capital. First and foremost, we will not be putting any new vessels on the water. Our fleet has been reactivated. We have no material reactivation costs remaining. Mergers and acquisitions can be used to increase our overall long-term return on capital. A key attribute we look for in mergers and acquisitions is the ability to increase our span of control over vessels currently on the water. provided those vessels maximize the duration of our fleet's earning potential and or contribute to the individual profitability of each vessel through economies of scale. Increasing our span of control over vessels only makes sense when the price per vessel is accretive to our equity holders. I'm not interested in adding vessels to the fleet just to add vessels to the fleet. This company can make a tremendous amount of money with the vessels it already has. It can make disproportionately more money with more vessels if they are the right vessels purchased at the right price. And when we find consolidating opportunities like that, we certainly pursue them. But they're the exception. Even as fragmented as our industry is, I do not expect that we could deploy all of the cash we are forecasted to generate over the next several years in such value accretive acquisitions, which means that in addition, we will return money to shareholders through dividends and share repurchases. Now, with all that said, we also need to ensure we are properly structured from a debt capital perspective. As reflected by our net debt position of $9.6 million, we are under leveraged at this point in the cycle, so we should also use leverage to an appropriate degree to maximize value to our equity holders. Leveraging the business means having even more cash to allocate, and we need to move the leverage over time, as the capital markets permit, to long duration debt compatible with our industry's volatility. And last but not least, we have a restriction in our current bond issue, the $175 million issue that matures in November of 2026, that restricts the timing and amount of cash that we can return to shareholders. This is a restriction that can be dealt with, but it's appropriate to mention. You will recall that we issued 8.1 million Jones Act warrants in the Swire Pacific offshore acquisition. All of those warrants have now been converted into common shares. This was done during the second half of 2022. None of those warrants remain. Because an overwhelming majority of the common shares issued in the two-warrant exchange transactions were issued to U.S. citizens, we now have room for foreign owners to hold Tidewater common equity. So if you happen to be holding the relatively small amount of creditor warrants that were issued in 2017, please contact us to convert those into common shares. Remember that those warrants will not receive a cash dividend when and if the common shares do. As it relates to consolidation, I think it's accurate to say that we have been in nonstop due diligence over the past five or so years. It's been an enjoyable experience getting such a comprehensive understanding of our competitors around the world. But I just want to caution everyone that in this non-stop due diligence over the past five years or so, we've only closed two major deals. We're disappointed in our acquisition strategy and additional consolidation may or may not happen. As I think about the potential for future consolidation, the one perspective that I would suggest to you that has changed from those first two deals we did is that our willingness to use equity is very low. Due to the outlook for cash generation and the unlevered state of the company, I am more focused on those opportunities for the right vessels at the right price that can be purchased for cash. Again, those deals are the exception and not the rule. I'm also pleased to relay that the most recent acquisition of Swire Pacific Offshore was fully brought into the Tidewater infrastructure on January 1st. Integrations are always tough. We had over 50 separate projects running throughout the eight-month integration period to affect this integration. It was a Herculean effort by a very talented group of people, and I'm happy to relay that the newly integrated business went through the first monthly closed process without a hitch. We are on track with the realization of our synergies, and as you may recall from the Gulfmark integration, this is when we began to accelerate the the realization of synergies because we've reduced the redundant systems and certain processes are eliminated. We anticipate that full realization of the synergies will occur by the end of the third quarter. Free cash flow for the quarter was $53.3 million compared to free cash flow of $22.2 million in the third quarter, representing a $31.1 million improvement sequentially. I'm quite pleased with the free cash flow generation in the quarter and the sequential improvement realized. The sequential improvement is principally a function of our efforts to reverse the working capital investment incurred during the first three quarters of 2022. Further, the absolute level of free cash flow generation is indicative of the inherent operating leverage of this business. We have now reached the point where our total fleet operating costs have leveled off, and we are in a position to generate meaningful incremental free cash flow as utilization and day rates increase. We do expect to continue to make proportional investments in working capital as the business continues to grow, and we will continue to manage working capital as tightly as we do any other capital expenditure. We originally anticipated by the end of 2022 that we would have sold or reactivated all of our remaining stacked and assets held for sale. We didn't quite get all of them dealt with. As of now, we have a total of eight vessels remaining. We are in various stages of negotiating the sale of four of the remaining eight vessels and are working to resolve the remaining four over the first half of 2023. And with that, let me turn the call over to Piers for an overview of the global markets and the company's performance within.