TDW - Earnings call transcript Q2 2019

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Operator

Welcome to the Earnings Conference Call Second Quarter 2019. My name is Adrianne and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. [Operator Instructions] Please note, this conference call is being recorded.

call Matt the turn now over Mancheski. to I’ll Mancheski, you begin. may Matt

Matt Mancheski

I’m and Good period Tidewater’s XXXX. I’d Vice like Adrianne. your Corporate you, you and Relations welcome of ended Mancheski, Investor President morning, XX, to the Thank Development. for interest everyone, to in and Tidewater’s call earnings June for thank Matt time conference Tidewater.

Kneen, Officer; Gorski, morning the General and Bruce Rynd; Quintin President our our call CEO, Jeff Officer; Operating our With our are on Counsel. Financial me and this Lundstrom, Chief Chief John

For formalities of today’s prepared call John a for call remarks agenda, I’ll financial his our and over cover few period. for review the then the turn Quintin’s results followed by to

comments, John’s the open Following closing we’ll then questions. up call for

materially make implied to our Form be stated we and additional comment XX-Q make are company’s cause There may refer – risk that for actual today’s uncertainties details most risks factors. fact. historical may call. during that to performance call not of – recent these other comments any forward-looking there or Please are are any the future by the conference and and on certain today’s During different from that that statements factors conference we

advised at or be at This only longer on you’re of at this XXXX, any document as XX, no through call time-sensitive time may accurate of our is that available sec.gov. any on therefore website and speaks SEC information the Information presented the today replay. August

last release. will to measures financial The GAAP measures. call, press non-GAAP the non-GAAP we in included reconciliation during both present and GAAP Also is of evening’s

turn the call John? I’ll With over to that, John.

John Rynd

call. to welcome and everyone, morning, Tidewater the earnings Good

strengthening the combination last continued The broadly, North the the a that GulfMark the both more end by showed growth enhanced quarter. as segments Sea of second to demonstrated company. testament completed was strategic and during acquisition, market vessels combined the margin the The deepwater were of the rationale year quarter through towards

in time for in good on year. to same the allowed and scale increased the quarter cost offshore, both resulting relative last expansion prior margin addition, In control both

Sea and of While in the rates for anticipated than levels, at North believe continued are and a slower trend this which that albeit since is the to seasonal normalized utilization, market impacts the right moderated earlier levels time the of activity year, than desired. more strengthened we has direction pace moving

following slightly the average over Revenue the This day per quarter the $XXX is points. day rates percentage where up the to increased average consecutive consistently of second in was after utilization having of declined rate worldwide due about prior day have and XXXX. since increase X.X active quarter, downturn onset

drag to amounts days otherwise to of decline XXX to active approximately utilization is is largely of service quarter, and active in X.X utilization first days the dockings. first due an quarter. increases the the percentage out ahead This to slightly quarter, XXX difference active relative but of having resulting in XXX points The the additional that drydocks for over days attributable of first reactivations, utilization

as a industry XXX approximate the and where have approximately be currently OSVs the survey whole, XXX continue in will for due XXXX active In due come obligations for another will significant highlight estimate ourselves We we to in drydock XXXX. special and that or

meet to demand. immune we as not are and our will drydocking position We global experience downtime our this costs customers’ and continue to to impact elevated fleet

represents quarters, and our estimate. reactivated, currently our may days to and are best anticipate be in the customers’ move vessel between respectively. due current based we and needs third anticipated stacked fourth vessels XXX of quarters estimates These to drydocks that on service Excluding out X,XXX that

a invest contract schedule, result as cash vessels drydock full coverage, only payout active we our to reactivate margins a or disciplined near-term and will capital of the are against maintain return may provide outlays this on being spite our Overall, in committed investment. elevated with in vessels dockings. in However, we whose reasonable with projected

be However, our to cash of the shareholders. overall on cash will these long-term strategic and meaningful returns positioning assets

returns example, reactivation discussion PSVs they deepwater the to of of previously we in margin. two investment. deepwater operating that warranted the an projected firm are but currently out drydock, term vessels PSV, a separate to contracts over multi-year and average a have to which recently with an be portion will the were are significant vessel be As earned third reactivate These authorized addition in stacked, a prefund above-market customer whereby the against the

vessels excess of of visible as that vessels elect in disciplined and contract will drydock contract, these this are remaining a term XX% for to projected our to the may realized. ultimately our adequate, further our investing for coverage we serve and year XX%, vessels those of To we best stacked part customers until approach have illustrate, in shareholders, have is that

opposed as no fleet focus a from of our return will in high-grading continued large aggressively meet fleet disposing Our objective maximize longer prime a service to overall us moving and vessels objectives. on that as vessels active cash result responsibly operating generation and the

or a our to down strategically As will important continue we coverage trend markets. active result, it throughout vessel to reposition contract lower year, the vessels winds vessel the remainder that is specification as count as more down of likely

fact XXXX. our vessels that XX specification stakeholders. acquired vessels higher we vessels fleet acquired Further, almost and by excellent of for two quarter evidenced management many specification the are continue disposable since the best like simultaneously This the XXXX the vessels sold vessels yield the GulfMark it fourth approaching will we to in lower our we as start outcomes is that disciplined worth is noting of

primary larger or fleet commercial we more of the we which is the with We markets, where from believe benefit a countries lower number count with scale most active can options smaller in margin absolute than a operate. vessel in valuable either that firmly our active

Cost to day resulting offset active our resulted costs. segments, margin attributable stack that adjustment resulted expansion one-time Americas with rates, and partially a improved favorable associated utilization control. operating percentage from by dollar in operating insurance lower from reductions stack highlight drydockings briefly to and in reserves and cost declines To the had region vessels reductions is of disposal largely good both terms, that

the first was with quarter, and change flat Slightly quarter. drydock day East rates, of was reflective Pac progression. when vessel higher, active equivalent material prior slightly small mix off-hire were quarter by the revenue than rate with in though in in the about operating improvements which with For more the accounting Middle region, Asia available costs average for day the elevated offset

from the saw million, North an first As previously noted, increase the improvement revenue benefits operating results the significant Sea million in from XX% profit XX% the operating yielded embedded strong European Mediterranean in from Sea The of The region $X.X quarter business. seasonally of scale in for a profit or economies leverage vessel operating is and the vessel $X.X quarter. market. the rate Tidewater’s testament conversion to prior

immediately in came the the weakest four fit This due Africa quarter, as as operating Lastly, survey. higher the a during came relative ensure the stacking was attributable is vessels points special maintenance vessel almost this the revenue to declining decreased costs of with vessels costs region operating and operationally for justify customers, survey as investment margin contract for visible we West off and or percentage without that downtime, special our quarter to increased. first as well to XX opportunities associated are

drop XX high we XXXX, of to second-half the quarter, another project another percentage by and and vessel count in as in X two quarter in the improve which in by the anticipate schedule. third the drydock we active points active up quarter six of the quarter, average we seek X utilization, the be vessels points we vessels the fourth to anticipate spite As fourth to third percentage in

expect vessel Mexico range and quarter, the in in the downwards drop quarter margin off over North effects the to the level to and Sea range. Further, quarter to Overall, to in seasonality the realize reprice decline the low-XX% of third legacy we XX% day Sea. rebounding project to as the North average the we before in rates third contracts the just X% fourth tapers we

cost-efficient administrative operational in is and press of will of implementation additional begin industry on to final rate that drive throughout As to mentioned clearly general The objective the we’re run remain focus the is integration stages in synergies most track operator complete, our system meet our the our our in infrastructure. and and objective. in being release, shore-based

administrative XXXX objective and for rest Our million. we do expense general $XX achieve. the is that run that envision best we is exit assured The rate not can

and We of to continue we look cost in efficiency ways progress. on updating business, our to our forward you and will savings gaining find

hand Quintin? Quintin. call With I’ll that, over to the

Quintin Kneen

and different. John, perspective some reiterating what would you, financial from by thought the us open I I and John’s comments of reinforcing makes everyone. Thank greetings,

million but $XXX easily rock-solid First – cash balance on matures from of bulk debt closed do three debt, of hand. with We of $XXX We and connection in which refinance conjunction the we’re to with a million have debt have the in now sheet. cash. our all, the in can August easily the XXXX, service of years quarter able we

quarters, well plans and we’re much have but tighter performing debt the loan get six performing are covenants above debt. We the alter to over no further and of have those above tightest the we next along. over our until We covenants today, required the is position levels tender the the recovery those do get today covenants

CapEx. required no have We

we is have Every our decision investment concern about no fleet have order shrinking make and based We on in return no to vessels economics, construction. the today’s on capital. under grow we

flow year-to-date, been flow being positive free on have anticipate cash annual we and basis. We an positive free cash

pleased with business. In that, core addition continued of we all quarterly the improvement to are the

pleased. not We’re we’re but satisfied,

These Tidewater remain the these up per work levels. down each are of substantially. and still all right down go but was and are metrics again expenses we satisfied Operating was quarter-over-quarter was Operating the in day as and we to rate direction, are going G&A expense continuing day every pre-merger were we down. not below metrics forward. expenses quarter were overall. Revenue improve and all to average active standalone up

we year. quarterly ERP our update quick as of addressing million Tidewater’s to is of on on the the an companies’ progress per we and to summary integration and on the the run capital wrong always, our an investment rate up, of results year, that $XX two update you My today, of the objective systems. which remainder the Working you give go through was as G&A will target be direction, a give but is of integration

in benefit removing John over were of quarter. margins operating XXX%, expense were $X.X that were improvement nice operating in Revenue mentioned the of was insurance Overall, of the operating the incremental portion XXX%. down. accrual after even margins a incremental reversal a Overall, the the consolidated of But first million. up, Americas expenses the item, improvement operations was

X% in up the day West average Middle one in in a average XX% over Quarter-over-quarter, just which Europe average Africa. were day down Overall, X% the up rates were rates Americas, X%, movement the X% and rates for East, overall in day is quarter. significant in

mentioned, our the the in vessels. begins supply long-term John demand rates, as in trend of average day a attrition of an to benefit what second to quarterly increase from from be And principally we improvement is the industry the and imbalance, believe as start

incremental as operating active utilization, additional fleet XXX% margin in to At basis. is operating objective an quarter, vessel vessels second an of our active of annual and equates XX% million average X% day the which we increase XXX rate in experienced a on margins, $XX with

at as five-year quarter, many summer we were contracts contract average significant the As XXXX. roll the market average on result, pricing last the contracts stall in contracts, These existing look on we’re second had were rates, quarter. a see albeit rates. third the rate rate and in decrease progression, These not will rollovers five were pre the day slight the of about as we current as further Their expecting in off contracts cut all downward quarter. pre on do we the day third of contracts downturn them in we proceed downturn rates and pressure to a or

quarter performance, not schedule XXXX market down also X slightly drydock metric as would waiting getting techniques ways metric reduce use for Active to for do this on the percentage globally, and in we as dropped by of is due repairs. getting add will point downtime the the to stronger and to heavy improve optimize over see drydock to long-term, and second area XX%, worse. continue we see any continuing utilization that employing I and technologies we look well to this to the

which down million. items, of the ongoing severance-related of $XXX,XXX first $XX.X had second for quarter the for of quarter an G&A quarterly rate comparable in slightly million, the figure quarter $XX.X which results from the in run is

of design headcount rate $XX.X a Our get by is quarterly the us million were the lower executing to are objective, a service lowering rate the our objective to level the plan fees, Getting and result run the G&A from weighted quarter. results the on and actively of professional to towards of quarter. will we fourth plan’s to fourth but run end get to end

are we experiencing that on, a focused below noteworthy are was expense G&A a prior quarterly already point it’s at the merger. metric we not Although company out the to to what level

additional revenue in and was quarter higher million, from active approximately an Driving day in for $XXX.X quarter, the the up in X% million prior average revenue increase the day quarter. by calendar rates $X.X was increase vessels quarter. aforementioned Consolidated the utilization and the the the working offset fewer in lower of

of on enforcing their on investment meet portion become vessels the as in the vessels capital vessels generally quarter will mandatory or return in the the for business reach drydocking objective. are fleet overall vessels vessels are we older the with a Fewer technical lower industry working recycling. candidates these These These not specifications. investment, our the outside sale reflects discipline

returns do when anticipate economically economic the get shrinking indicated, active capital. Overall, to through reactivated XXXX, we further we have we to the justified. vessels higher of we when we overall, John layup. have long-term on of the remainder in are order but go conditions specification improving anticipate layup not as the in But specification fleet vessels XXXX, higher be vessels right slightly of are the and for in being some first-half into the shrinking of Meanwhile, averse increasing fleet as these will reactivation we as we

vessels due Active insurance of is million, of result mentioned was the decrease five-year vessel on having operating down with of quarter quarter. costs the for and reversal the during the $X.X approval average to that $X.X previously the million active remainder

$X $X,XXX, day from XXXX. of quarterly the decrease remainder we in remains and day quarter the costs decrease active of The and fourth the operating cost was for per $XX cost our per active to with quarter per be per a a day fleet, for from vessel of line first anticipate vessel day operating of expectations the The where XXXX. active active

platform. The June, in We key came of The are will integration the the see migrating legacy for areas the and Norwegian case Tidewater be regions. since online objective. merger, test migration hit operations are User have migration a SAP milestone system a onto other no remaining in day that we ERP in brought October. process in the we the and June. region the Tidewater testing, been was beginning activities of The impediments to acceptance, online but training achieving new for final which ongoing, preparation

scalability further and last of system new and and piece won’t consolidation ERP last efficiency efficiency but go will as we The the merger major beyond. the be is integration, XXXX it improvement in scalability. the The through to enable shore-based system improvements

partially XXXX, remainder related professional mostly the around have the to the of will cost second-half go costs of as to we service merger-related through year. related We additional but severance,

make up the to quarters. amounts the fees date. past we you as we the these quarter will the integration fourth go-live approach as third These three in in continue related increase aware professional and will as costs We pick to of have

any The quarter’s be balance $XX and matters. the The cash the call was payments to few and up of higher We a than other from saw will amounts, the last quarter these mentioned quarters anticipated collectibility than the down these capital were build second that on bit we a about year sharper third from prior anticipated, timing $XXX not at the I and million, I’m of the clients. receivable we end quarter. use of million the of cash concerned due be anticipate in XXXX. and expecting cleared working we was we of accounts drydock a to that use of in fourth

$X in amount the of first-half full-year. the the flow cash for million, was free anticipate flow positive we XXXX, positive being and free of For the cash company

and second flow the the of For million, company the amounts the negative by builds XXXX, free of quarter cash receivables. $X.X driven was in

from time. vessels we We include vessel inventory do in cash excess are as this We proceeds position and our of flow. these over see determination free liquidating disposals

For obsolete layup The have XXXX, million a of on first-half combined book sheet. from disposal remaining XX the of the we have million, balance is the $XX.X of and proceeds the vessels of $XXX amount in vessels. that value line included in and equipment property

of vessels total Since million. quarter-end, additional we proceeds three for have sold $X.X

And that, for I comments. turn over to with his call will the back final John

John Rynd

Quintin. you, Thank

the costs, people, protracted operational We’re right This this reducing remain optimistic includes leading. downturn in to beyond. that performance ensuring through processes and thrive and that industry vessels the we’re investing while responsibly

we and rates of profitability. at the maintain continue This its of basis active two will the by us viability begun past quarters. not has market day will needed discipline Additionally, will that and supply itself economic evidencing share the other the facilitate market in expense recovery chase on participants to

recovery, predict of we are each markets optimism we we best to While the we improvements. of the reasons our for see on the cannot position capitalize in pace believe believe that the – fundamental and in

Adrianne, please Q&A. for call open the

Operator

you. Thank

Turner first begin will from Holm the Clarksons We comes Instructions] from [Operator And session. our now Capital. question-and-answer question

is line open. Your

Turner Holm

is Platou. Hey, Clarksons Turner Holm there, morning. Good guys. from This

John Rynd

morning. Good

Turner Holm

you out in is – basically rates that it it drill comment a maybe thinking Sea. Hey, to you’re Is seeing? maybe activity-related, that? is down And you the we’re just leading-edge mentioned. your of perhaps that of day kind about or markets some and day that rates just of rates Can your particular you’re quarter. remarks for sort for into leading-edge guidance the some I for wanted see how little what of optimism to flattening the all But is third in the slightly that John, last flush in day North seasonal hearing of markets, flat reason you prepared bit the

John Rynd

Turner, one, is we as I And slight really a participate average on in in I think it’s market solid legacy every a the rates day data rate things, of more term the a in where leading-edge coming combination day rates, of right reduction are. higher driver is of reflective now. those not contracts result quarter in think, third footing of off our

you winter of we And Again, watch, up guided rate every fourth know, since we’ll slightly seasonality, the as like quarter see we as some North improvement major some the back you West Sea, – the in appears Africa around some the we day strength. progress market. the the is said to is into Brazil North is months, Med strength, be world, gaining Sea The holding solid. gaining strength Mexico gaining

So really holding supply the up Mexico of the driven been has of again, outside by Gulf of Gulf Mexico migrating U.S. nicely.

as of in our we reasons the world, optimism there’s key look again, markets. around for all So

Turner Holm

have Thanks vessels as down some maybe understand just down recently Guyana Sure. in four you there, Tullow. sort being for that. if all that you place took vessels attractive add a contracts or discovery relatively of to in some all quarters? market earlier this week maxi the wondering some encouraging I in by and see way I’m the next

John Rynd

I Suriname Exxon Apache, vessel for have area. are into October, have a vessels Guyana five-year Actually, moving think the for to you then and to Yes., Guyana moving in attention paying a be contract. to our we

discovery. great So you news on market obviously, Tullow that’s very to as and the mentioned, we’re staying also close a

to an of obviously So area lot a get I us and going think, from that’s others. tension

Turner Holm

positive baked that report year? that some due or And cash quite There the you. for possibly anything one just regards there monetizing flat in to this I receivable the talk Is quarter. the was Quintin it value there to know outlook for year from yes into free And affiliate balance. the some flow earlier possibly John. extracting from balance? about was Thanks, is no, with

Quintin Kneen

Yes.

go still of on but venture. receivable joint and that out partner with a particular of with of XXXX, expect systematic the we’ll holds I we receivable. the that looking amount and don’t long-term of through them that extracting remainder We’re as working significant our working collection for that with we be are value

balance. long-term to have do as what some but So significant But liquidation payment that. that more be have more go be that of that is – from and we receivable we’ll hope gains systematic of particular forward of that able the a formalize of it year receivable we last I and won’t a

Turner Holm

Okay. for you I appreciate my question. guys taking

Operator

The from question [Operator next Fitzgerald Instructions] is Patrick from Baird.

open. is line Your

Patrick Fitzgerald

of the age – said What’s the average divestitures? fleet maybe after now but all guys. it, Hi, what’s your the

John Rynd

fleet right me, years. is stack excuse inclusive the – active XX fleet about And X.X is years. of average average the total The age the at of the fleet

Patrick Fitzgerald

you an Okay. like could Is that there provide? tons average, guys deadweight

John Rynd

have that do to We’d offline.

Patrick Fitzgerald

Okay.

John Rynd

But at that with can we we of follow-up we’ll – don’t tip Yes, our you. fingers. have

Patrick Fitzgerald

Okay.

remain year does the do for it’s the what’s said, elevated going to So deferred to then XXXX and of like XXXX. be for What it expect You XXXX? be and expected? it look in the drydocking you remainder what

John Rynd

for requirements a We go the definitely is the My go the on in be XXXX based total of based XX% XXXX. XX%, and that of made. and be maybe all will decrease approximately balance fleet XXXX will a number that as into but seeing in on cycle. lumpiness similar we XXXX special before surveys, expect on five-year for investments expectation through a million, to the as we’re a But and $XX the those review year age obviously, expect There, we will well. they’re

Patrick Fitzgerald

Okay.

both a about, framework? drydocking maintenance other to just but For CapEx? there of be is way, annualized vessel your what to on So think this end and know of year that there’s an in kind I it a if theoretical, – in maintenance terms a kind kind fleet, the of put CapEx of at it’s will of like it way basis

Quintin Kneen

running average million are vessel. it now, the five-year way per special think about $X.X you would right So I encourage to about the is surveys

to $XX it the depends the on survey. of that going million fleet, XX% to over $X.X expect be for line range. hit in million every level depends active to they like, you’re age year, to the in we’re million, period so be But well. vessel going then going that noting the million but same And – every That’s just vessels in hit to $XX the number maybe when we example, as current and on about that the $XX that year the it of into run overall, straight it’s a XXXX

Patrick Fitzgerald

right. All Okay.

your pretty per you which is which sheet, What that, in number – have so, pretty, competitors position seen schedule, your maybe guys’s are of large that And same balance assuming impacting given of vessel. the much true? handle a isn’t – have obviously better you they kind lumpy maybe to some

Quintin Kneen

is And and we Well, John money I’m a fragmented actually industry, market. hitting it wall. I think that survive it this true. people they’re mentioned can the whatever But getting in his will surprised more not drydocks. to do in prepared where for seen I’m companies sure is the highly remarks, they haven’t these

obviously, and these some are above flow although cash extent, still cash flow on institutions So, lot operations, of to financial operating they’re just leaning a break-even.

and as because So XXXX acceleration investment vessel their going XXXX, of attrition to we’re remainder is go required. see our anticipation and we of through the

Patrick Fitzgerald

their Okay. projections? you be you into assuming of And to money the they’re So day rate continue are your rate just up there day expectations? operate your baking – to with Are come to could to upside that vessels? kind your going

Quintin Kneen

we’re Well, factor. of because attrition bit that vessel a all anticipating comments, in of our of

per boat basis. the form But it positive it be form comes increase on and a sometimes, And comes sometimes utilization should overall, of of it rate. in in to day the revenue the just line

Patrick Fitzgerald

I And wanted West to about ask then Okay. Africa.

but spots, was in you’re declined African in – was, terms said of and only in revenue guess, that floaters. seeing in your comments bright deepwater. sequentially You West I the believe, quarter The I some

side gives optimism are So announced of be kind you on more floater what there? or that seeing you the contracts there, will

John Rynd

strongest go two Angola more Nigeria, jack-up-driven. back-half jack-up-driven. It’s Angola we more think now two see more right Nigeria, Angola and Nigeria. Nigeria looking in being is Angola, you to that’ll that’ll then parts And areas again, floater-driven. where the to if That’s I and it’s floater-driven, and the the really. growth be is year be XXXX, poise through is this It’s two areas. of

Patrick Fitzgerald

deepwater lot in space. And slower Thanks. on floater of the your hear seems space question. it more the should vessels that Covering had And, drilling kind kind in read of the like from this what’s the Is one related the I through more Okay. taking improvement kind there be older encouraging the away sell results a of recovery were vessels sequentially. this? vessels, side. we and guess, then to towing where smaller just down side supply jack-up just that you’ve on results industry chosen about or quarter, you Yet, to

John Rynd

Yes.

construction we those a vessels are If I when vessels. all – to put opportunity think on not jack-up contract look or how deepwater nomenclature deepwater supporting have a our that. track one pipeline you at just a a the this just work depict with we vessels, of floaters. thing we’ll an take contract, to or do it contract That’s an internal

supply was quarter-over-quarter. towing down The

Africa East just you West at if was the West of and Jack-up right rig the in both Middle and is East. in that the and in Middle Nigeria. Some to it’s been to now, out look growth it’s But specifically of Africa, coming counted

Patrick Fitzgerald

anyway is down? And there it Okay. frame to

John Rynd

PSV deepwater that’s and had Sea we market, strongest And market. our a the is where North

Patrick Fitzgerald

Yes, sorry.

to ballpark like – floaters you from revenue versus there just down, get anyway would So just break is much even jack-ups, how be a helpful?

Quintin Kneen

Patrick, diversified and between drilling the construction revenue track offhand. activities between we split well don’t it Tidewater then of in terms and production support pretty floaters. activities, It’s stream jack-ups

Patrick Fitzgerald

Thank fair Okay. very much. enough. All right, you

John Rynd

Thank you, Patrick.

Operator

final the for turn remarks. Mancheski And session. I’ll call Matt to the over this concludes back question-and-answer

Matt Mancheski

the that you Tidewater We interest for continued participation forward you, the everyone call. your participated for in company. Okay. thank in stock, your to look and Adrianne, you Thank in and thank

Operator

concludes and This participating. ladies gentlemen. you Thank conference. today’s Thank you, for

now disconnect. You may

Tidewater (TDW) 13 Aug 192019 Q2 Earnings call transcript