Welcome to earnings conference call, third quarter 2020. My name is Sylvia, and I'll be operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Jason Stanley, Vice President of Investor Relations and ESG. Mr. Stanley, you may begin.

Thank you, Sylvia. Good morning, everyone, and welcome to Tidewater's earnings conference call for the quarter ended September 30, 2020. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Accounting Officer, Sam Rubio; our General Counsel and Corporate Secretary, Daniel Hudson; and our Vice President of Sales and Marketing, Piers Middleton. During today's call, we'll make certain statements that are forward-looking, referring to our plans and expectations. There are risks, uncertainties and other factors that may cause the company's actual future performance to be materially different from that stated or implied by any comment that we make during today's conference call. Please refer to our most recent 10-Q for additional details on these factors. This document is available on our website or through the SEC at sec.gov. Information presented on this call speaks only as of today, November 6, 2020, and so you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in last evening's press release. And now with that, I'll turn the call over to Quintin.

Thank you, Jason. Good morning, again, everyone, and welcome to the third quarter 2020 Tidewater earnings conference call. I'm pleased to say that this has been a solid quarter at Tidewater. Against the ongoing challenges of the pandemic, we continued to successfully execute on the strategy we outlined on the first quarter earnings call. Before we dive into the consolidated quarterly results, review our operating segments and open the call up for questions, I'd first like to discuss some noteworthy developments at Tidewater since we last spoke. The first is the appointment of 2 new board members: Lois Zabrocky, President and CEO of International Seaways and also recently appointed Commodore of the Connecticut Maritime Association; and Darron Anderson, President and CEO of Ranger Energy Services. Both new directors bring broad industry experience and diversity of insights to our Board's governance and decision-making processes, and we're excited to have them aboard. Also joining me on the call today is Piers Middleton. Piers joined Tidewater in the third quarter and is leading up global sales and marketing. I'm excited to have Piers on board as we fill out the management team and position Tidewater for the future of offshore energy services. In addition to sales and marketing, Piers will be assisting in the strategic evaluation of hydrocarbon and renewable investment opportunities as we position Tidewater to benefit from the offshore energy activities over the next 20 years. You may have picked up in the press, the announcement of our acquisition of 11 crew boats from Hermitage Offshore Services earlier in the fourth quarter. These vessels will strengthen our position in Angola and West Africa and expand our market share with a total of 27 active vessels in the region. Given their relatively new condition, they will also reduce the average age of…

Thank you, Quintin. Good morning, everyone. As we mentioned in our earnings release in the third quarter and 9 months ended, we generated revenue of $86.5 million and $305.2 million, respectively, which is a decrease of 17% for the same 9-month period in 2019. Whilst it is, of course, always disappointing to not be knocking it out of the park every quarter, we believe it is an amazing testament to our teams around the world who have managed to keep the majority of the fleet working and earning against not just the serious headwinds caused by the pandemic and subsequent fall off of short-term vessel demand, but also against our increasingly aggressive competitors fighting to survive. As mentioned in our previous earnings call, our West Africa and Europe, Mediterranean fleets continued to bear the brunt of the decrease in activity. Globally, we had 45 fewer average active vessels in the third quarter of 2020 than in the third quarter of 2019. In addition, whilst active utilization slightly decreased from 80% in the same period in 2019 compared to 78% in the third quarter of 2020, we managed to increase utilization by 4% compared to the second quarter. Looking at our results at the regional level. Despite the industry downturn, our average day rates across the fleet stayed pretty static compared to the last quarter at $10,500 per day and still up approximately 5% against the same quarter last year. This was still driven by the previous tailwinds of increasing day rates from contracts entered into before the crisis began, but also by careful management of the active versus stack fleet, helping our regional teams maintain some commercial discipline when bidding for any new work. Winning work at any cost, in our view, is not a successful long-term strategy. In the…

Thank you, Piers. It's great to have you here. Our objective is to generate more cash by operating fewer vessels at higher day rates, operate them at a lower operating cost per vessel and at a lower G&A cost per vessel. We're doing this while carefully minding the capital expenditure and working capital investments. The company is free cash flow positive, and our objective and compensation are all geared to keeping it that way. And with that, Sylvia, we will open it up for questions.

[Operator Instructions] And our first question comes from Patrick Fitzgerald from Baird.

With respect to the consent solicitation and then the tender and asset sale offer. It seems geared to do something with the Troms Offshore credit agreement, and I'm just wondering what is the -- what would be the reasoning for taking that out?

So right now -- and allow me to say, I'll have to defer to the tender documents in their entirety, but I'll give you a quick summary, but please use those as the defining documents. Right now, we have the ability to repay $35 million under the Troms indebtedness, okay? Those -- the covenants in the Troms indebtedness mirror what is in the bonds. Right? So if we go from modifications in the bonds, we also have to go for modifications in the Troms debt. Otherwise, we don't really lower the covenant requirements or anything like that because we have 2 sets that mirror each other, and they both have to be individually modified. So in order to approach the Troms lenders with those modifications, we need some flexibility in order to repay the Troms debt, similar to what's being repaid on the bonds.

Okay. But the rates on the Troms debt is lower than the secured notes and they're due later, right?

It's not our objective to pay off lower coupon longer-dated debt with that modification. What our objective is, is to get the ability to negotiate with the Troms lenders to modify the covenants the same way that we're modifying them in the bonds.

Okay. And the concern there would be, you just don't know what 2021 is going to look like and if it's bad enough, then you want that covenant flexibility in terms of, I guess, the interest coverage ratio as that steps up?

That's right. Obviously, the second wave is hitting us now. As we look into '21, we've got a good feel for what the base load is, but the reality is there's a lot of uncertainty in the world today. And so to get the modifications under the bond is one thing, but it's also very important to get the same covenant modifications with the Troms debt.

Got you. In terms of M&A, obviously, you've got a good deal on some of those vessels recently, but is there anything bigger on the horizon, either in your expectation, either for you guys or for others in the industry?

Well, for us, for sure. I can't speak to others in the industry, and there's not enough balance sheet capacity to do consolidation outside of Tidewater, but we look at opportunities all the time. We continue to seek opportunities. What I look for in consolidation is leveraging our existing economies of scale. And I'm not looking to enter any more regions, right? But I am looking for newer tonnage that we can bring into the fleet and average the fleet down in age and up in overall quality. At the same time, leverage and establish short base footprint. This industry is highly fragmented. So it's not an industry where you can globally dictate prices, right? It's -- just there's not -- there's too much fragmentation in order to do that. But you can get concentrated positions in certain areas and do better. And so we look for ways to concentrate our existing locations. When we talk about the Hermitage vessels, that was a really nice complement to an existing footprint in Angola. So we're able to add 11 vessels. We won't add any headcount. We can strengthen our position there and help be defensive as the market is generally oversupplied. And we'll look to do the same in other areas. We're not trying to emphasize Brazil at this point. And generally, we've been pulling out of some specific regions in Southeast Asia, although we're still very focused on Thailand.

Okay. Yes. And I'm not going to ask you about guidance for '21 in terms of cash revenue and cash margins, but in terms of vessel sales and dry dock, what do you -- what does that look like for '21?

So let me give you just some indications, but we are not completely through the budgeting process for '21. And there's just a lot of uncertainty in '21. I expect the dry docks, so that I can keep them in the $15 million to $20 million range in '21. And the reason I feel I can do that, that's lower than I would say the run rate average would be for dry docks of a fleet of our size. But the reason I think we can do that is that we did so many dry docks in '18 and '19, right, that we were kind of living off the iron, as we would say. We've got enough boats that have enough paper, legitimacy to work seaworthy papers such that we can substitute vessels and work those vessels as opposed to doing dry docks on otherwise capable vessels. So we can minimize dry dock to those levels in '21. Continue to see us shedding lower specification vessels. And quite frankly, the specification bar continues to go up as the industry contracts. So as the industry contracts, vessels that were on the margin, say, 6 months ago, are now in the sale category. So you saw us move vessels into that sale category in -- kind of in the earlier part of 2020. And we'll make another assessment on that as we go into the Q1 period and probably we'll relay it when we relay everything else about '21 on the Q1 -- on the call we do in Q1 with Q4 earnings. So in general, I would expect a lower level of asset sales in '21 just because we're burning through that marginal capacity, but my expectation is that we'll be in the $15 million to $20 million range as well.

Okay. Last one for me.

Yes. Go ahead.

Just what's the -- how much from Mexico would it be? Would they have to pay you to get back to a kind of normalized payables -- I mean, receivable situation?

$14 billion. So they're behind, what I would say, is $14 million.

[Operator Instructions] And we have no further questions.

Well, Sylvia, thank you and everyone, we look forward to update you again in February. Goodbye.

Thank you. Ladies and gentleman, this concludes today's conference. Thank you for participating. You may now disconnect.