Tidewater Inc.

Good morning and welcome everyone to the Tidewater Second Quarter 2026 conference call. My name is Dara and I will be your conference moderator for today. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to West Gotcher, Senior Vice President of Strategy, Corporate Development, and Investor Relations.

Please go ahead. Thank you, Dara. Good morning, everyone, and welcome to Tidewater's second quarter 2026 earnings conference call. I'm joined on the call this morning by our President and CEO, Quintin Kneen, our Chief Financial Officer, Sam Rubio, and our Chief Operating 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, uncertainties, and other factors that may cause the company's actual performance to be materially different from that stated or implied by any comments that we're making 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, August 4, 2026. Thank you, Wes.

Good morning, everyone, and welcome to Tidewater's second quarter 2026 earnings conference call. I'll begin today with the quarter's highlights, provide an update on the Wilson's transaction, discuss our current views on capital allocation, and share our outlook for the business.

Wes will then walk through our financial outlook and current guidance considerations.

Piers will cover the global market and operations, and Sam will review the consolidated financial results. Collectively, we will also update you on the impacts of Operation Epic Fury. We are pleased to report that second quarter revenue and gross margin exceeded our expectations. Revenue was $342.3 million, supported by both higher day rates and stronger utilization.

Gross margin was just under 47%, nearly three percentage points above our prior expectations.

Excluding 6.8 million of expenses related to Operation Epic Fury, gross margin would have been approximately 49%. Day rate momentum was particularly strong in the European and Mediterranean segment. Utilization benefited primarily from the timing of dry docks on seven vessels shifting from the second quarter to later in the year. Operational uptime was also better than expected, which further supported utilization. But most noteworthy, our weighted average leading edge day rate increased approximately 7.5% sequentially, a clear indication of the relatively tight supply and demand balance in the market today. Turning to Operation Epic Fury, while the intensity of the conflict eased during the quarter, we continue to incur costs above pre-conflict levels, totaling approximately $6.8 million in the second quarter. We did not experience any vessel off-hire associated with the conflict. In fact, our utilization and day rates in the Middle East were the strongest they have been in quite some time. In our guidance, we continue to include only costs for the current quarter, and we are assuming approximately $4 million of costs in the third quarter. We are actively working these costs down as we identify alternative ways to manage through the conflict. We remain encouraged that our activity in the region has been largely unaffected and that the outlet for the region remains robust, particularly once the conflict is resolved. Free cash flow improved meaningfully in the second quarter, nearly doubling from the first quarter to 64 million. That improvement was driven by stronger operational performance and the movement of dry docks on seven vessels to later in the year. Even taking those deferred dry life into account, we expect free cash flow for the legacy tidewater business to continue to accelerate in the back half of the year. We also expect to generate incremental free cash flow from the Wilson's vessels once the acquisition closes. On that note, we now expect to close the Wilson's acquisition around September 1st. As discussed in our recent disclosures, we have completed all necessary regulatory steps and obtained the change of control waivers related to assume the Wilson's debt. We are now working with the banks to finalize documentation for the debt transfer. In parallel, we have continued to deploy Tidewater personnel to work alongside the Wilson's team on pre-closing integration planning, which should allow us to move quickly once the acquisition closes. We believe the ability to effect a smooth and swift integration is a core competency of our organization, and we see every reason to expect the Wilson's integration to be as successful as the integrations we have completed in the past.

Our balance sheet remains very strong with net debt essentially at zero at the end of the second quarter. We expect net leverage to increase to approximately 0.8 times by the end of the third quarter as a result of the Wilson's acquisition.

Liquidity was also strong at more than $850 million at quarter end. We intend to fund the equity portion of the acquisition price with cash after assuming the Wilson's debt, and we remain very comfortable with both the strength of our balance sheet and our liquidity profile. Our $500 million share repurchase authorization remains outstanding. To date, we have held off on repurchases while we complete the Wilson's debt transfer. Although we will deploy a substantial amount of cash to fund the Wilson's acquisition, We still expect to be in a strong cash position after closing and will evaluate the most accretive use of the remaining excess cash for shareholders. Our philosophy on the buyback program has not changed. We remain opportunistic and will consider repurchasing shares when M&A opportunities are not immediately actionable. We do not view carrying excess cash on the balance sheet as an optimal long-term capital allocation strategy.

particularly given the liquidity position we have with the revolving credit facility added last summer.

We expect free cash flow from the business to continue to grow through the remainder of this year and into 2027. The M&A landscape remains active.

A healthy operating environment and an improving outlook are important factors in establishing a productive dialogue with potential targets.

We remain interested in acquiring the right vessels of the prices that create immediate value for our shareholders. At the same time, we're not interested in acquiring vessels that are premium to our view of their current value simply for the sake of adding scale. We are in the advantageous position of being the largest global OSP provider, and we continue to believe that in the absence of value of creative acquisitions, the best way to increase shareholder value is to run the business efficiently, maximize free cash flow, and repurchase shares when appropriate. With the balance sheet liquidity and expected cash flows all in a healthy position, we will continue to apply the same capital allocation framework we have followed, weighing the relative merits of a given M&A opportunity against the return opportunity from repurchasing our own shares. Looking ahead, the near-term outcome of the conflict in the Middle East remains uncertain.

Market volatility can be challenging to navigate, but we believe there are important underlying reasons to remain optimistic about the offshore activity outlook.

For some of our customers, broader strategic considerations such as proximity to hydrocarbon resources and the ability to provide strategic reserves that can help mitigate future supply disruptions are more frequently mentioned in planning discussions. These factors are more difficult to quantify, but they can also be more durable because they are driven less by near-term economics and more by long-term energy security considerations.

This backdrop points to a more robust view of the long-term offshore activity environment than we had last year, and we see that momentum continuing to build.

Tendering and pretendering activity have increased significantly in recent months. Importantly, this increase in activity is evident across all of our vessel support services. Industry commentary around a strong rig tendering cycle supports this level of activity, and we are seeing similar momentum across all of our subsea support and production support offerings. Our conviction in the next leg up of the cycle is growing, particularly given the strategic resource and energy security elements of the outlook.

Most of the activity uplift we have seen today reflects projects and opportunities that were already taking shape before the conflict in the Middle East began.

Discussions regarding future projects in response to the conflict have begun and remain in the early stages, but the tone is urgent and serious. Offshore projects are inherently long lead time investments, and the desire to accelerate these projects is what gives us increased confidence in the duration of the current cycle. Turning briefly to vessel supply, there has been little movement over the past quarter, and frankly, very little over the past two years. To our knowledge, there have been no meaningful new build order activity in recent months. A handful of new build vessels are expected to deliver towards the end of the year, with a few more in early 2027. The laid-up fleet remains essentially unchanged, and we do not anticipate meaningful reactivation given the laid-up fleet's age profile and specification mix. We believe much of the laid-up fleet is effectively scrapped in place, as evidenced by the limited number of reactivations we saw from that fleet in 2023 and 2024. We continue to believe the state of vessel supplies will support increasing day rates as demand again begins to approach parity with available tonnage. and we expect day rates to accelerate further from what we saw in the second quarter. We continue to see a realistic path to a year-over-year increase in average day rates of 3,000 to 4,000 per day in both 2027 and 2028. In summary, we are pleased with our second quarter performance. While we will continue to navigate near-term volatility related to the conflict in the Middle East, We are increasingly encouraged by the activity we see ahead. We look forward to completing the Wilson's acquisition and to bringing the Wilson's organization and fleet onto the Tidewater platform. As always, we will remain disciplined in allocating capital to the opportunities that we believe can create the greatest value for our shareholders. And with that, let me turn the call back over to West.

Thank you, Quint. As Quint mentioned, we did not repurchase any shares during the second quarter ahead of the Wilson's acquisition Closing and funding. We anticipate to fund approximately $270 million of cash consideration for the equity component of the Wilson's acquisition, assuming a closing date of around September 1, 2026. We plan to use cash on hand and do not anticipate utilizing our revolving credit facility to fund the cash consideration portion of the purchase price. At the end of the second quarter, we retained our $500 million share repurchase authorization. Our philosophy guiding capital allocation remain consistent such that we will approach share repurchases on an opportunistic rather than a programmatic basis, weighing the market value of our shares with our internal view of the intrinsic value of the business. We will contrast this against the relative return profile and other qualitative considerations that an M&A target may present. We retain the option of evaluating M&A and share repurchases concurrently. Given that the offshore vessel market has stabilized at a healthy level, Along with a constructive outlook for offshore activity broadly, the M&A landscape remains favorable. However, we will remain disciplined on pursuing M&A opportunities that we view as value-accretive and consistent with our view of intrinsic value. As a reminder, under the bonds, we are limited in our ability to return capital to shareholders, provided our net debt to EBITDA is less than 1.25 times pro forma for any share repurchase. Under our revolving credit facility, we are also unlimited in our ability to repurchase shares, provided that net debt to EBITDA does not exceed one times. However, to the extent that we exceed one times net leverage, we still retain the flexibility to continue returns to shareholders, provided the free cash flow generation is in excess of cumulative returns to shareholders. We expect to be a 0.8 times net leverage performer for the Wilson's acquisition and expect that our Cash flow generation should continue to improve throughout the back half of 2026, reducing our net leverage level. Turning to our leading edge day rates, I will reference the data that was posted in our investor materials yesterday. Across the fleet, our weighted average leading edge day rate accelerated from the inflection we observed in the first quarter of 7.5% sequentially. During the quarter, we entered into 25 turn contracts with an average duration of approximately 12 months. Turning to our financial outlook, we are modestly revising our full-year 2026 revenue guidance to $1.42 to $1.47 billion, and a full-year gross margin range of 49% to 50%. The reduction in our revenue guidance is attributable to the expected closing of the Wilson's transaction approximately two months later than previously anticipated, offset in part by higher-than-anticipated year-to-date legacy tidewater revenue. Our guidance now assumes that we close the Wilson's acquisition around September 1, 2026. The updated gross margin guidance similarly assumes the loss of two months of high margin revenue from Wilson's due to the timing of the closing of the acquisition. Additionally, we expect to incur more conflict-related costs in the third quarter than was contemplated in last quarter's guidance, which assumed the conflict concluded by the end of the second quarter. We now expect third quarter revenue to be up about 3%, inclusive of one month of revenue from Wilson's. We expect legacy tidewater revenue to decline about 2% due to dry docks moving from the second quarter into the third quarter, consuming about one percentage point of utilization, along with higher than anticipated down for repair time that will consume another one percentage point of utilization. We expect a third quarter gross margin of about 46%, So we now anticipate conflict-related costs of approximately $4 million, along with higher fuel expense due to the dried ox that moved in the third quarter and higher R&M expense than previously anticipated. Our expected conflict-related costs in the third quarter are nearly half of those incurred in the second quarter. We remain in a position to rebuild any direct conflict-related costs incurred to date or in the future. In summary, we are pleased to be able to reiterate a strong full-year financial outlook given the continued volatility in the market. Our expectation remains that there is potential for uplift to our full-year guidance, depending on the strength of the offshore activity picking up towards the end of the year. Looking to the remainder of 2026, first half 2026 revenue plus firm backlog and options for the legacy Tidewater fleet, along with the Wilson's backlog for the September through December 2026 period, represents $1.3 billion of revenue for the full year, representing approximately 91% of the midpoint of our updated 2026 revenue guidance. Approximately 69% of remaining available days for 2026 are captured in firm backlogging options, inclusive of the Wilson fleet. Our full-year revenue guidance assumes utilization of approximately 80%, inclusive of the Wilson fleet, leaving us with approximately 11% of capacity to be chartered if the market tightens quicker than we are anticipating. Our small and mid-sized anchor handlers and medium classes of PSVs retain the most opportunity for incremental work, followed by our smaller and largest class of PSVs. Contract cover is higher in the third quarter, with more opportunity available in the last quarter of the year. The bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on dry docks. With that, I'll turn the call over to Piers for an overview of the commercial landscape.

Thank you, West, and good morning, everyone. First off, our overall long-term outlook for the offshore space remains positive, and this continued optimism in the long-term strength of the market has helped our teams be successful at either maintaining or pushing both utilization and day rates in most of the basins and vessel classes in which tidewater is active. and what has been a challenging first half of the year for some of our regions due to Operation Epic Fury. And as Quintin mentioned earlier, we now feel very well placed going into the second half of the year and into 2027 to be able to push rates and utilization significantly higher as we build momentum in the upcoming quarters and years ahead. The fundamentals for the OSV market remain strong. The sector remains supply side constrained with little prospect of capacity expansion from the SAC fleet or from the negligible order book. and from a demand perspective, we're starting to see a decent uptick in requirements in all the sectors in which we support our customers, as well as in the majority of basins in which we currently operate. Working through our various regions and starting with Europe, the North Sea AHTS spot market continued to strengthen through the quarter, with large AHTS spot rates averaging over £160,000 per day, the highest average levels on record. with some fixtures concluded well above £200,000 per day during the quarter. The PSV market was slightly more subdued during the quarter. However, day rates continue to remain above 2025 levels after the strong start in Q1 with both PSV spot and term activity holding steady throughout the second quarter. In the Med, we saw strong utilization and day rates in the quarter. with the MED region really helping to drive overall revenue and margin for the Europe region as a whole. We do expect a small lull in activity in the MED region at the beginning of Q3 as we wait on a number of drilling and EPCI programs to kick off in September. But once these all begin, we expect Q4 and into 2027 to be very strong for the region. In Africa, Even with the expected drop in utilization in the quarter, the team was still able to maintain healthy day rates across the region in expectation of the pickup in demand that we see coming in the second half of Q3 and into Q4. Increased demand will primarily come from drilling campaigns restarting at the end of Q3 in Namibia, as well as a number of production renewal contracts in Angola that are expected to commence in Q4. In addition, there are still several OSV tenders out in Nigeria from all of the IOCs operating in country that we expect will create incremental global demand for the larger PSV classes, as well as the medium-sized HTS classes, with all the tenders expected to commence by end of 2026. Looking further out, strong upstream driving forces appear set to continue to support OSV demand in West Africa. For instance, Azul Energy's $5.1 billion Greater Padge project off Angola reached FID in late June, and its 95,000 barrel per day FBSO is scheduled to be delivered and installed late 2028. And in Nigeria, Renaissance Africa Energy has recently announced a major offshore oil discovery in OML74. All in all, we feel very positive for the long-term health of the region. In the Middle East, Even with the very challenging backdrop of Operation Epic Fury affecting the quarter, the team still managed to improve both utilization and day rate across the fleet. And although increased operating costs brought down margins, we've not yet seen any slowdown in demand in the countries in which we operate. We in fact saw a little uplift in short term requirements as our customers have struggled to find OSV supply to fill gaps in their projects. However, we have seen a pause on some of the longer term tenders that we were expecting awards on in the Q quarter. but still expect these longer-term charters to still be awarded. However, the NOCs are waiting for a little more clarity before committing on some of those longer-term awards. Overall, sentiment is still positive in the region, but we're obviously watching closely what may or may not happen in relation to the Iran conflicts in the coming months. In the Americas, as mentioned on our last call, we remain excited with the long-term outlook in Brazil. Although the market is facing some short-term headwinds related to Petrobras' OSV long-term tendering activity, as Brazil is in an election year and this is slowing down some decision making. However, the expectation from the market is that once the elections are finished in Q4, we will start to see a pickup in tenders again at the end of the year. Day rates remain healthy in the country. and for our medium-sized class PSVs are still in excess of $42,000 per day levels, supported by increased activity from the IOCs and EPCI contractors operating in the country. Demand in the Gulf of America has been flat most of the year, and we expect that flatness to continue into 2027. But this has been offset by the increase in demand in the Caribbean. And as such, we'll be moving some of our Jones Act vessels to support customers in Suriname and Guyana at the end of the year. We will still maintain a presence in the Gulf, but until we see a significant pickup in demand again, we will use our global operating platform to look for margin-enhancing work elsewhere in the world. Lastly, in Asia Pacific, day rates and utilization were modestly down compared to Q1. However, we continue to see an upturn in pre-tendering and tendering activity, driven in part by long-term energy security concerns in Asia Pacific. with particular focus coming from Malaysia, Indonesia and Australia, which all bodes well for the longer term health of the region going beyond 2027. In the short term, we have several of our larger PSVs commencing work end Q3, early Q4 in the region, which should mean a solid upturn in utilization towards the end of the year and an improvement in day rates as we move into 2027. Overall, we are very pleased with how the market continues to move in the right direction and fully expect that positive momentum to continue into next year and beyond. And with that, I'll hand over to Sam. Thank you.

Thank you, Piers, and good morning, everyone. I would now like to take you through our Q2 financial results. My discussion will focus on the sequential quarterly comparisons between the second quarter and the first quarter of 2026. including key operational factors that affected our second quarter performance. Q2 results exceeded our expectations, driven by higher day rates, higher utilization due to stronger demand, and timing of dry docks, partially offset by temporary conflict-related operating costs. As noted in our press release filed yesterday, we reported net income of $21.7 million, or 43 cents per share. Revenue was $342.3 million compared to $326.2 million in the first quarter. The increase was driven by one additional day in the quarter, average day rates that were approximately 3% higher than the first quarter, and active utilization improving to 81.4% compared to 80.6%. Gross margin was $160.5 million in the second quarter compared to $159.3 million in the first quarter. First margin percentage was 46.9%, nicely above our Q2 expectation and as expected below our Q1 margin of 48.8%. The percentage decline was primarily due to higher vessel operating costs. Operating costs for the second quarter were $181.8 million compared to $166.9 million in Q1. An increase was expected due to higher R&M work that was pushed from Q1 and higher crew wages and supplies and consumables impacted by the Iran conflict. In Q2, we incurred approximately $6.8 million of additional costs due to the continuing impact of Operation Epic Fury. And here today, through June 30th, we have incurred approximately $9.2 million. Costs directly impacted were insurance costs. and higher crew wages, primarily war bonus pay. Indirectly, we continue to see elevated fuel and travel cost increases due to increased commodity price. We will work to minimize these costs. However, we do expect to incur additional costs as the long-term conflict continues. Fuel expense has been heavily impacted since the beginning of the conflict. In Q2, we saw a sequential increase in fuel expense of over 50%. We took steps to contractually limit the amount of war-related pay owed to our mariners working in conflict-affected areas. This effort led to lower than expected crew costs beginning in the second half of Q2 and for the remainder of the year. In total, we are forecasting another $4 million of war-related costs in Q3. We estimate a similar amount of direct costs related to crew wages and insurance costs. In addition, we expect similar increased fuel and travel expenses due to higher global commodity prices. These fuel and travel estimates are based on our forecasted activity and current commodity prices. Elevated costs related to the conflict likely continue in the near term, though it is uncertain how long this disruption may last. We are contractually permitted to invoice customers for reimbursement at direct conflict-related cost, which includes war insurance and war-related crew wages, which total approximately $5 million through Q2. Currently, we have been invoiced close to $1.5 million and have collected less than $100,000. We have not included any assumed reimbursements in our guidance. However, we will continue submitting invoices for reimbursement for all contractually allowed amounts. Adjusted EBITDA for Q2 was $133.8 million compared to $129.3 million in the first quarter. Total G&A cost was $34.8 million in the second quarter, which includes $2.7 million of transaction costs related to the Wilson's acquisition. G&A cost in Q1 was $33.6 million, which included $2 million of transaction costs, excluding the transaction costs G&A increased by about $500,000 due primarily to higher personnel costs. For 2026, excluding M&A transaction costs, we expect Tidewater four-year G&A costs to be about $126 million, which includes approximately $14 million of non-cash stock compensation. In addition, we expect to incur approximately $7 million in additional G&A costs in the second half of 2026 related to the Wilson's acquisition. In the second quarter, we incurred 750 dry dock days and 23.3 million in dry dock costs compared to 949 dry dock days and 36.4 million in costs in Q1. Dry dock days in Q2 impacted utilization by about 4 percentage points compared to 5 percentage points in Q1. Our full-year 2026 dry dock cost expectation remains at approximately $122 million. Typically, the bulk of our dry dock costs occur in the first half of the year. However, the timing of some projects in 2026 has shifted to the right, resulting in higher costs and days in the second half of the year. Additionally, we expect to incur approximately $7 million of additional dry dock costs in the second half of the year related to the Wilson's acquisition. The Q2 will incur $14.9 million in capital expenditures, mainly vessel modifications and upgrades. For the full year 2026, we expect to incur approximately $52 million in capital expenditures. This amount includes a planned $15 million major upgrade to one of our Norwegian vessels. We also expect to incur about $4 million in additional capex spend in the second half of the year related to Wilson's acquisition. generated $64.4 million of free cash flow in Q2 compared to $34.4 million in Q1. Sequential increase was mainly attributable to lower dry dock spend, higher proceeds from the sale of two vessels, and lower cash consumed by working capital. As a reminder, the following debt refinancing we completed a year ago, we only have small principal payments each quarter, about $6 million per year. that are related to the financing of constructed smaller crew transport vessels. We have no principal payments due until 2030 on our new unsecured notes. Following the anticipated closing of the Wilson's acquisition, our debt maturity and repayment profile will change to accommodate the newly assumed Wilson's debt. We conduct our business through five operating segments. Please refer to the press release and the thank you for details of our segment results. In Q2, we saw a decrease in consolidated gross margin of close to 2 percentage points compared to Q1. Originally, gross margin increased by 8 percentage points in Europe and Mediterranean, offset by 3 percentage point declines in the Middle East and Americas, 4 percentage points in APAC, and about 9 percentage points in Africa. While margins were down compared to Q2, Compared to Q1, they exceeded our expectations, particularly in the Middle East, despite challenging circumstances related to the conflict. The gross margin increase in our Europe and Mediterranean region was primarily due to an eight percentage point improvement in utilization, driven by fewer idle days and dry dock days. The improvement in utilization together with an 11% increase in day rates delivered strong results in Q2. Total operating expenses, increased 11%, largely due to the addition of two vessels to the region. Coast margin decreased about three percentage points in the Middle East region. While day rates and utilization both improved, those gains were more than offset by higher costs related to the Iran conflict. Our forecast contemplates war-related costs to continue into Q3. The decrease in the American's gross margin was primarily due to a decrease in revenue resulting from a 2% decline in day rates and having fewer vessels in the region. Revenue fell about 8%. The total operating costs declined about 4%. Gross margin in the APAC region was 4 percentage points lower than Q1. Day rates declined modestly by about 1% and utilization was down about 3 percentage points. However, revenue was up 3% due to more vessels operating in the regions compared to Q1. Operating costs rose 12% versus previous quarter primarily due to the increase in vessels and the mix of vessels operating in Australia. Gross margin in our Africa segment decreased by about 9 percentage points due primarily to a $9 million revenue decline caused mainly by an 8 percentage point decrease in active utilization. while day rates remained flat. Utilization was affected by higher idle days. In addition, operating costs increased due to higher R&M costs and higher fuel costs due to the higher idle days. With respect to the Wilson's acquisitions, we now expect the transaction to close around September 1st, 2026. We are confident in our ability to integrate Wilson's in a smooth and efficient manner, consistent with previous acquisitions. We remain strong believers in the importance of the Brazilian market and are excited about the opportunities there. From a capital allocation perspective, our priorities remain maintaining balancing strength, investing in the fleet, completing and integrating the Wilson's acquisition, and evaluating opportunities to return capital to shareholders or pursue additional strategic growth. While we have not repurchased shares this year, our $500 million share repurchase authorization remains available. We will continue to evaluate all avenues for capital deployment and execute on the opportunities we believe provide the greatest long-term value for our shareholders. In summary, we outperformed expectations despite the headwinds from the conflict in the Middle East. Industry fundamentals remain strong, our balance sheet is in excellent condition, and we remain optimistic about the opportunities to lie ahead for Tidewater. With that, I'll turn it back over to Quintin.

Thank you, Sam. Dara, we'll go ahead and open it up for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star 1 to raise your hand, and to withdraw your question, Press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Jim Rolison with Raymond James. Your line is open. Please go ahead.

Hey, good morning, Quintin and everyone. Glad to see the great results and hear the commentary Quintin, I guess I'd like to ask you, you know, over the last couple of quarters, you've been pretty bullish. You kind of reiterated the day rate growth potential, I guess, for the next couple of years. And I'm curious, as you sit here today with your recent travels, project tracking, conversations and tendering, you know, are you thinking the market is kind of on track with what you thought before? Or do you, you know, are things getting better? Do you have more visibility? Just kind of understanding the rate of change just like in the last 90 days or so.

Hey, Jim. Yeah, you know, I will tell you that I'm probably more bullish now than I've been in the last six to nine months. The amount of tendering activity and pre-tendering activity is quite strong around the world. I was in Asia about five weeks ago, and the talk in Indonesia and Myanmar and Malaysia, it's all much stronger than I've seen in a while. So I'm getting really confident about this next leg up in the cycle. But let me turn it over to Piers, too, because he actually has more contact with the customers than I do. He may have some other color he'd like to add.

Thanks, Quintin. Hi, Jim. Morning. Yeah, no, I mean, I think Quintin hit the nail on the head. We're seeing a stronger improvement. It's probably slightly, you know, we were seeing that at the beginning of the year. So there's been a slight improvement. I think obviously Asia-Pac, as Quintin mentioned, is very positive. We're also seeing a little bit more work in the Med and also down in Namibia and Angola and a very strong uptick in Nigeria. I mean, like all things, Jim, as you follow this, us for a long time you know things can sometimes move a little bit to the right so we might see a few projects moving to the right but no I mean there seems to be I would say better than we expected from the beginning of the year but maybe a couple of projects in places like Nigeria West African things never start on time so maybe we see a push to you know a little bit to the right but no I think overall it's very positive and Brazil yeah we're expecting and Brazil to come back pretty strongly in the beginning of next year once we get through the elections and Petrobras really starts re-tendering as well, probably at the end of this year or beginning of Q1. So overall, we're pretty optimistic.

Appreciate that, Keller, from both of you. And for my follow-up, I don't know who the best is, but maybe Quintin, just on the cost side of things with kind of the added cost from the conflict and fuel prices and all that. How do you think that, like, what's the playbook going forward to either recapture that in rates over time or, you know, you mentioned doing some things to try and improve the cost situation in the Middle East. Just kind of what's the playbook on costs as we go through this, you know, offsetting day rate growth environment we're talking about?

Yeah, well, you know, there's a lot of game day decisions. just because this is all relatively new and everybody's trying to figure out the best way to do it. Piers and the team have been really good at working with the labor force and the mariners in the area. And in the beginning, there were significant premiums put into place to track and maintain the personnel.

We've been able to modify that a little bit to bring down those levels.

Insurance is something that our team here works on with our insurance agents to try to keep that a little bit

More manageable than it otherwise could be. Everyone was very excited at the beginning of the process. So managing the crew is very important. The fuel costs themselves are just going to be a product of the environment. My hope is that all settles down. But for us, we're learning as we go through this conflict. And I think that our suppliers and our employees are as well. So we're finding new ways to bring that down. And then, of course, Sam talked to a little bit. We're going to begin to build back to our customers. But Saudi Aramco is a strong customer, an important customer, and also a difficult customer. So there's a lot of paperwork involved, and it takes a long time to get that rebuild in place. But my hope is that we'll see all of that come to fruition as we go through the next several months.

Your next question comes from Frederik Steen from Clarkson Securities. Your line is open. Please go ahead.

Hey, Quintin and team. Congratulations on a strong quarter. I wanted to touch a bit on the M&A side. You have been pretty adamant that From a capital allocation perspective at least that's been your preferred path and I would have to say that your CV of acquisitions is starting to be quite long. Now you're soon closing in on the Wilson acquisition and you did comment a bit on this in the prepared remarks but my questions relate to two things. One, now When that's out of the way, do you see more or less opportunities in the M&A space now compared to, for example, 12 months ago? And maybe a bit more specific, do you think it's fair to see you guys doing anything more over the next one to two years since you require, I guess, a certain size of your of your targets, but as you said, you're not chasing scale just to chase scale. Thanks.

Hey, Frederick, thank you. So the M&A landscape is evolving, but there continues to be some really attractive opportunities out there. I will say that for us, when we think about M&A,

We're looking for some strategic element to it.

Brazil got us into that market with Brazilian tonnage, and I'm really excited about that. And the Soul Stand deal that we did really empowered us from the larger vessel standpoint as well as the hybrid vessel standpoint. And, of course, we got back into Asia with the Swire acquisition. So it's getting things at the right price, but there's also got to be a good strategic rationale for it as well. Price is, of course, very important to us. But yeah, no, I fully expect to see other opportunities develop. They, you know, they take time to work out and they take time to close and so forth. But yeah, my hope is that we'll be able to continue to demonstrate value of creative growth through acquisition in the next year or so. But again, you know, the other thing I'll say, Frederick, is I'm not going to consolidate this entry all by myself. So I do need other people out there doing something. And there hasn't been too much of that. But everything you hear about, we're not going to be able to participate in or do. But we're certainly looking for those things that, again, have a strategic element, have a good demonstrated strong history of cash flow generation.

Thank you. And as a follow up to that, I think you previously, and this was before Wilson, you mentioned the Americas and South America, Brazil maybe in particular as areas of interest where you felt like you could become larger and now at Wilson you're definitely doing that in Brazil and from this strategic angle that you're talking about does this mean that you're now maybe particularly focused on trying to get something done in the Americas or are you still open to every region as long as Transaction has the right characteristics and benefits for U.S. Yeah.

So, Frederick, I think I mentioned this on the last call, or maybe the call before last, but I was looking in the U.S. for a long while. I just couldn't find anything that I thought was at the right value point for us. So I'm less interested in the U.S. today, but always interested in the good opportunity. I think the opportunities that are developing throughout West Africa and into Asia are probably more attractive today.

That's super helpful. I appreciate the caller. I'll hand it over. Thank you.

Thank you. Your next question comes from Josh Jane with Daniel Energy Partners. Your line is open. Please go ahead.

Thanks. Good morning. Thanks for taking my questions. First, you entered into the 25 contracts for the term of 12 months. Just given your day rate expectations, is it fair to say that the mindset is still to largely have a lot of the fleet available to reprice in 27, given this backdrop. Or could you just talk about how you're thinking about, as we exit this year, how much of the fleet you'd like to have contracted?

Well, I'll tell you, West and Piers have a well-developed strategy, and they follow that real closely. So let me give it over to them and let them speak to it.

Yeah, hi, Josh. Yeah, I mean, I think I'll let Wes sort of pine afterwards, but we're still going to, you know, we believe in this market, it's probably clear from our comments, so we're going to keep a decent amount of ships. Generally, the larger vessels, the larger PSVs, which means drilling and the large anchor handlers, that's always been the big driver for us in terms of being able to drive day rates. But I think once we start really, as Quintin mentioned, getting to that, really driving that $3,000 to $4,000 a day uplift on the rates as we go through the gears next year, then we may start looking to, as we get into 28, go a little bit longer and things like that. But I think in the short term, we're looking to keep a decent amount of availability in the fleet to take advantage of what we see coming in 27 and 28. So we're not going to change that strategy of looking for the shorter term contracts and turning vessels over because we need to improve contract terms and we still need to obviously push day rate as well on that side. So that's what we're sort of focusing on as we go into 27. I don't know, Wes, do you have any other thoughts on top of that?

One item and something we've talked about in the past, which is not all of our vessels are the biggest and best vessels in the world. And so there are a subset of vessels that we are happy to put on longer-term contracts. They just won't necessarily exhibit the same type of relative demand and day rate amplitude that some of our other vessels will. And I think there's a component of that in this quarter's Thank you for joining us. As Piers mentioned, I think our general philosophy is to continue to go relatively short because we do believe in the market and continue to push those day rates in contract terms.

Understood. Thanks for that. And then the second one for me is on the Middle East. You highlighted some of the short-term cost recoveries you're hoping for, but I just wanted to take a step back and think longer term. So as someone who's been running in that region for quite some time, could you just give us a more and many more. Thank you.

Yeah, Josh, so I actually think the show more strength in the future than it's shown in the recent past. The conflict certainly has the inherent result of actually improving activity levels as you move jackups in and out and around and relocate things. So in post the conflict, I expect to see a bump in activity, but I also expect to see further developments and activities in that region as people reposition assets and redeploy other hydrocarbon basins throughout that region. So from my perspective, the customers have not shied away from any thinking about what they're going to do in the future. And everybody is just excited to get the conflict resolved so they can get back to work. But Piers, you've probably had more recent conversations with them. If there's anything you'd like to add, go ahead.

No, I think, yeah, it's still, sentiment is still pretty strong. I think this is very much short term. I think there's going to be, as Quintin mentioned, when we come out of this conflict, there's going to be a short-term bump as people sort of get projects back up and running, a little bit like we saw sort of post-COVID in some ways, where you suddenly saw a big kick of people just catching up with what they've had to pause a little bit. But no, longer term, we're still seeing Tendering activity from all the NOCs we work for in the region. The EPCI guys are, you know, maybe there's a bit of projects pushing to the right, but, you know, there's still FIDs in place. There's no slowdown. And then there's, you know, continued talk about, you know, putting more dollars into the region as well, you know, with the, obviously, UAE leaving OPEC and things like that. That's going to cause, for us, we feel a big sort of uptick in terms of future demand as well. So no, we're seeing it's going to be positive in the region. I mean, as we've mentioned on previous calls, it's always a tough region just because it's highly fragmented in terms of competition, et cetera, et cetera. But I think from our investment in the region, we're not seeing any slowdown or any expected slowdown from our big customers that we work with there.

Thanks, I'll turn it back.

Your next question comes from Keith Beckman with Pickering Energy Partners. Your line is open. Please go ahead.

Hey, good morning, and thanks for taking my question. I just wanted to step back and ask a long, long-term question around the vessel, the OSV How long do you think you can realistically keep, you know, not have to retire these assets kind of from a macro perspective and then maybe, you know, backing up to what day rates do you, where do you think day rates would need to go to incentivize new builds, you know, maybe a decade down the road once a lot of these vessels start aging out potentially? Just any thoughts around all that?

Sure. So before the downturn in 2014-15, we were routinely operating vessels into the high 20s, early 30-year range. And there's no reason why vessels can't operate that long. There certainly was in that same timeframe, so 11 to 14, a bit of a transformation. in the sense that vessels got larger. They all stepped up to be about 1,000 square meter deck or 300 foot length overall. Everybody went to diesel, electric, and a lot of them went to DP2 and so forth. But there's no technological transformation that's happening today. So what we saw during the worst part of the downturn, so it was 16 to 18 in that time frame, were people putting up age restrictions as a way just to call the number of vessels that were being tendered in every situation. And so I fully expect all of that to go away. And right now, it's already started. So I expect to see the fleet eight still to run for another five or six years. before people need to rebuild. And now, what is the price that it takes? Well, in today's market, today's cost structure, it's in the low 30s that would justify building today. And we may get there in a couple of years. I think that takes a couple of strong years to achieve. And maybe by the time we get to 29, that can make some sense. But no, the fleet has a lot of duration left in it, in our perspective.

I really appreciate it. I'll turn it back, guys.

Take care. Your next question comes from Greg Lewis with BTIG. Your line is open. Please go ahead.

Hey, thank you. And good morning. And thanks for taking my questions. And sorry, I might have missed this. But, you know, I realized in the Q&A there was a little bit of talk around, you know, term structure in the market. You know, Wes, are you guys providing any color around what contracted capacity is in either Q3 or the second half of this year?

We did, Greg. We had that in our prepared marks, and I'll update you. Let me just grab that for you. We have about 69%. of the remaining available days for 2026 are captured in our backlog and options, which includes the Wilson split. So you can look at the remainder of that, if you will, as to what capacity you have. And just to be clear, what's contemplated in our financial guidance is 80% utilization. So I think you can use those two data points to determine that answer.

And then just as we think about, you know, you mentioned the one-year deals and Piers, you kind of alluded to the fact that, you know, there are some term contracts out there that have kind of yet to come to fruition. If we were to kind of think about what 27 already looks like, is it kind of a rough estimate, maybe 20 to 30% of the fleet is already contracted for 27? Yeah, probably about right.

I think it's a little bit more than that. Yeah, we're sort of, as sort of West alluded to, there's certain, obviously some of our smaller vessel classes we've gone a little bit longer term, but we try to keep the bigger ships available so we can really push into 2027.

Okay, so super helpful. And then there was that transaction, the DOF transaction, you know, it was just a few PSVs. I think it sold in the last couple of weeks. Was that something that the company was looking at? Was there anything interesting about those PSVs that were sold? I believe it was a private deal. Any thoughts around the price of those? I mean, I think they were all kind of in that 15-year-old range just simply because there is no real new tonnage. But is that just not You know, Quintin, I know you always talk about the potential to kind of really establish a position in a new market. Is the read through there that these kind of smaller one off acquisitions just really don't really get us anywhere?

I think that's right. The amount of work it takes to do a three vessel transaction is about the same as it takes 20 transactions. So we've been focused on larger deals. and as I was indicating earlier, if there's a real strategic reason for a particular vessel location or vessel type to be acquired, I'm definitely, you know, very interested in those types of opportunities. But, you know, I made a joking comment earlier that I just can't consolidate this industry all by myself. So I'm glad for some people to start helping me do it. And so that's great. But no, not bad vessels. They just weren't for us.

And then just really following up on that, just given the fact that there has been some technological advances in the offshore, as we think about and realizing that the economics for large-scale new builds maybe aren't there, Are there starting to come in requests from customers about potentially, you know, having to take some vessels into the dry dock for like upgrades to kind of do some of this work that's kind of coming down the pipeline or at this point, you know, just the requirements of, you know, that conventional PSD, you know, the work can be done with the fleet that's there.

Well, we are doing some of that. And in fact, we're doing some of it in the North Sea right now. But Piers may have a better perspective on whether customers are asking for it. There were certainly a couple of opportunities where we're making large investments in vessels, but we're generally pushing them out of the PSP space and into a more specialized space.

I mean, Greg, I think Quintin touched on the previous comments, I think, to Keith. I mean, there's not been a big technological advance in terms of vessel designs, really. I mean, the only thing that's come in, I suppose, is putting batteries on the back of ships, and we've obviously got the largest hybrid fleet. We're seeing a few customers sort of asking about that, but, you know, to be honest it really comes down to what they're prepared to pay and you know cost money to go and retrofit batteries onto you know our vessels and there's a cost to that and you know that needs to be borne by the customer so yeah some of the tenders they certainly come out and you know we've seen some in Brazil and some in the Middle East are asking about that and yeah yeah we'll just have to see if that sort of bears out but there's nothing in terms of the sort of Do you want to put methanol or ammonia or these things? And that sort of discussion has really gone away in the last couple of years. It's just not being financially viable, really, in terms of how our business is set up today.

All right. Super helpful. Thank you very much.

Thanks, Rick. There are no further questions at this time. I will now turn the call back to President and CEO Quintin Kneen for closing remarks.

Well, thank you everyone, and we will update you again in November. Goodbye.

This concludes today's call. Thank you for attending. You may now disconnect.