Tidewater Inc.

for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Inc. Q2 2023 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 to enter the question queue. Once again, that is star followed by the number one. If you would like to withdraw your question, again, press star one. Thank you. I would like to hand the call over to Wes Gaucher, Vice President of Finance and Investor Relations. You may begin your conference.

Thank you, Ian. Good morning, everyone, and welcome to Tidewater's Q2 2023 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 chief commercial officer, 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 are making during today's conference call. Please refer to our most recent Form 10-K and 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, August 8, 2023. 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 financial measures can be found on our website at tdw.com and is 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 second quarter 2023 Tidewater Earnings Conference Call. Before I turn the call over to Pierce and Sam to discuss the quarterly results, I wanted to briefly review our integration of the 37 high specification PSVs from SOLSTAT offshore, discuss the results of our recent warrant expiration, and related to that, reiterate our philosophy on capital allocation. We announced the completion of the SOLSTAT vessel acquisition on July 5th, shortly after the end of the second quarter. We believe this fleet will prove to be an accretive addition to the tidewater fleet and will generate meaningful value for our shareholders over the coming years as the offshore upcycle continues. This acquisition is different from the last two in that it is largely an asset acquisition. So we have had to prepare the shore base staff and staff up ahead of the closing to ensure the vessel operations were poised to accept the transfer of the vessels into the existing tidewater operational and administrative infrastructure. The positive aspect of this type of acquisition is that we get to have full control over the amount of incremental store-based resources we assume, and we get to avoid the layoffs, downsizing, and redundancies. But the negative aspect is that we have to start preparing much earlier to assume the assets, and the margin of error is much lower. As you are moving assets from an existing operational framework and over a few-day period, converting and importing the systems to the tidewater infrastructure. I'm pleased to report that we have already transitioned five vessels in the first 35 days. We feel our transition processes are working, and our plan is to have the remaining vessels transferred over by the fourth quarter. Integrations are critical to maintaining our scalable global infrastructure and our low per vessel overhead expense, and accordingly, we take all of our integrations very seriously. The last two acquisitions saw our G&A expense spike in the first full quarter of the acquisition and then work down as we integrated the business. This one you see a ramp up beginning ahead of the closing and then working up to a new steady state over about six months. We became what might be termed an inadvertent equity issuer about a week ago as warrants from the 2017 restructuring expired in the money. We received proceeds of $111 million and issued 1.9 million new shares. All of the shares issued were actual common shares, no Jones Act warrants. We have ample U.S. ownership now, so we no longer have any need to maintain Jones Act warrants. Incidentally, there is a remnant of Jones Act warrants outstanding, and we're glad to convert them into actual common shares for anyone listening who still holds Jones Act warrants. On a philosophical basis, I'm pleased that the pre-restructuring Tidewater equity holders were able to obtain incremental value from these warrants, but we would not otherwise willingly be issuing shares. So as a result, we now have an additional $111 million to allocate in the best interest of our shareholders. As it relates to capital allocation, our first allocation would be to accretive value acquisitions, similar to the last three that we've done. that support our existing global position in large tech PSVs and other OSVs that are somewhat less commoditized, like the large anchor handlers. Other offshore energy-related assets are always being considered as well, but they would need to fit, they would need to make sense from the perspective of fit, price, diversification, et cetera. Strategically, we are underrepresented in the far west hemisphere, which is essentially the U.S. and Brazil, so candidates in these geographies are probably slightly favored. But with all that said, we can make a tremendous amount of money with the 223 vessels we now have. We absolutely don't need to do any more acquisitions, but with the right vessels at the right price, we can certainly create more value. Absent value accretive M&A, we would seek the best ways to return money to shareholders. Frankly, we're making more money on our cash than we have in recent memory, but I'm still not looking to hold on to the cash and the associated negative carry. Our current secured bond precludes any returns of capital until November 17th of this year, about three months from now. Also, any returns of capital would need to be measured until we have a debt capital structure that is appropriate for a cyclical business. To me, that is a combination of long-dated staggered maturity and secured bond debt and an ample revolver. Our recent unsecured financing is a step in that direction. My belief is that we can make further strides in that direction over the next few quarters Quite frankly, another appropriate acquisition could give us the scale to reset the debt capital structure accordingly. Lastly, on capital matters, we will be filing an updated Form S3 this week. Our previous universal shelf has expired. This is a standard procedure for a well-known seasoned issuer like Tidewater and prepares us for any of the potential acquisition opportunities we alluded to a moment ago. The second quarter was another positive period in the offshore vessel market. The most important indicator of strength in our business, average day rate, continued its upward momentum during the second quarter, with the average day rate up $1,400 per day sequentially, nearly a 10% movement. The average day rate is now up approximately $5,500 per day since the recovery began around the end of 2021. Every region and every vessel class experienced modest to quite significant day rate increases during the second quarter, with the exception of our 8,000 to 16,000 BHP class anchor handlers, which were essentially flat sequentially. For the second quarter, revenue increased about 11% to $215 million compared to $193 million in the first quarter. Average day rate was up about 10% sequentially. Vessel level cash margin expanded four full percentage points to right at 44%. Leading edge day rates continued to improve during the second quarter, up 11% over the first quarter. During the second quarter, we entered into term contracts on 26 vessels. The average day rate for contracts associated with this subset of vessels was right at $23,500 per day, with an average duration of about six and a half months. This compares to leading edge day rate of approximately $21,000 per day, with an average duration of seven and a half months in the first quarter. An 11% increase in leading-edge day rates is meaningful. Further, the leading-edge composite average day rate of $23,500 is 46% above the average day rate for the second quarter. And this growth potential continues to be a driving factor for our confidence in the revenue and gross margin guidance for the year and our optimistic outlook for 2024. As we've discussed frequently, day rate improvement is the primary driver of increasing profitability of our business, particularly as we look at the intermediate to long-term offshore cycle unfolding. As such, we remain focused on a variety of tactics to continue to drive global average day rates. We were successful in our tactics to continue to push day rates globally. The strategy did have a short-term utilization impact. We consciously chose to forego certain immediate contracts to pursue higher day rate opportunities. And in some cases, we encourage frictional unemployment related to relocating vessels and waiting on customers for projects to commence. The combined opportunity cost to revenue for this strategy was approximately $8 million from lost utilization during the second quarter. We are confident that this chartering strategy is ripe for the intermediate and long-term profitability of the business. as we not only achieved higher day rates in the short term, but continued to push the baseline day rates for certain vessels that will prove beneficial as we progress through the remainder of 2023 and into 2024 and beyond. The improvement in day rates we realized from this strategy gives us the confidence to reiterate our 2023 annual guidance of $1 billion of revenue and $500 million of operating margin, even with the impact utilization in the second quarter. We anticipate Q3 revenue to increase by approximately $80 million compared to the second quarter, and for revenue to increase an additional $30 million in the fourth quarter. Both figures are inclusive of the newly acquired Solstead PSPs. To provide some additional context to our guidance, for the third quarter, we currently have 87% of the fleet capacity contracted, and with that, we have 100% backlog coverage relative to our revenue guidance. Embedded in that backlog coverage, we are assuming 84% utilization. That's a nice step up in utilization. The downside risk is where we lose revenue from a vessel that is contracted and expected to work at 84% utilization, but for unanticipated reasons, usually being off hire for repair, the utilization is less than 84%. In summary, we are very pleased with the continued momentum across our regions in vessel classes during the second quarter. and we remain highly constructive on the outlook for 2024 and beyond. And with that, let me turn the call over to Piers for an overview of the global markets and the company's performance within.