Good morning, and welcome to the Tidewater Reports Results for the 3 Months Ending 6/30/21. My name is Brandon, and I'll be your operator for today. [Operator Instructions] Please note this conference is being recorded. And I will now turn it over to Mr. West Gotcher, Vice President of Finance and Investor Relations. You may begin, sir.

Thank you, Brandon. Good morning, everyone, and welcome to Tidewater's earnings conference call for the 3 months ended June 30, 2021. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial 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 and 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 Form 10-Q for additional details on these factors. This document is 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 10, 2021, therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in yesterday's press release. And now with that, I'll turn the call over to Quintin.

Thank you, West. Good morning, everyone, and welcome to the Second Quarter 2021 Tidewater Earnings Conference Call. Joining me in presenting our prepared remarks, as usual, are Piers Middleton and Sam Rubio. I will open the call with some general commentary on the quarter. Piers will cover the markets in the various geographies in which we operate and then Sam will wrap up the prepared remarks with an overview of the income statement, OpEx, G&A and the balance sheet. And then, of course, we'll open it up for questions. The second quarter is on a seasonal basis, a relatively strong quarter, with the third quarter being the strongest in the year. This year's second quarter followed that pattern. Piers and Sam will provide the details, but globally, average day rate was up, utilization was up, gross margin was up, operating profit was up, the increases are never as swift as we would prefer, but the sequential quarter improvement is a good sign that activities are past the pandemic low. Industry-wide, what we saw in 2020 were activity levels coming down dramatically in the third quarter with a substantial number of vessels going off higher. As a result of this incremental oversupply, day rates around the world reset downward and as pre-pandemic contracts rolled off, new contracts rolled on with lower day rates in the first quarter. Now as activity levels are picking up again, we are beginning to claw back the day rate that we lost in 2020. Cash flow for the quarter was again strong. You may recall that accounts receivable bounced up in the fourth quarter of 2020 just as activity levels were coming down, which is not typical. That was due to payment delays from Pemex, which as of June 30, are trending towards normal levels. In…

Thank you, Quintin, and good morning, everyone. While the supply-demand balance globally remains challenging, primarily due to the overhang of potential vessel supply, we are starting to see some green shoots of recovery in the majority of the regions in which we operate. We continue to see both increased levels of tendering and inquiry from our clients, particularly for our larger PSV fleet, which appears to bode well going into next year. As we move into the second half of the year into 2022, the primary factor for the industry to achieve a long-term and sustainable recovery is discipline, not just from Tidewater, but also from all the stakeholders in our industry. The industry is at an inflection point that will require discipline from a vessel reactivation, commercial and operational perspective to support an economically viable market environment. Tidewater recognizes its place in leading the industry to judiciously reactivate vessels in response to economically attractive opportunities incremental to the current supply-demand balance. Discipline, anchored and responding to improving market fundamentals will allow us to continue to maintain our working fleet and to continue to maintain and take care of our dedicated team of mariners that has enjoyed many challenges throughout the pandemic. We believe that a disciplined approach to responding to market signals will ultimately lead to a long-term and sustainable recovery for the whole industry. Sam will talk in greater detail on some of the numbers. But as we look at the second quarter of 2021 compared to the same period last year, we do believe we continue to see positive trends pointing towards a recovery in rate and utilization levels, although not perhaps as quickly as we would all like. On a global basis, active utilization across the whole fleet was up 4% to 78% compared to the…

Thank you, Piers, and good morning, everyone. I would like to take you through our financial results and also discuss some key points that make up these results. My discussion will focus primarily on the quarter-to-quarter results over the second quarter of 2021 compared to the first quarter of 2021. As noted on our press release filed yesterday, we reported a net loss for the quarter of $29.5 million or $0.72 per share. Our revenue for the quarter of 2021 was $90 million, this is $6.4 million or 8% more than in the first quarter of 2021. Active utilization at 78% was slightly higher than the previous quarter. Average day rates also increased 4% from Q1 to $10,435 per day. In addition, our active vessel count for the quarter increased by 2 to 118. Gross margin percentage for Q2 also increased to 29% compared to 26% in Q1. We continue to feel the ongoing impacts of the COVID-19 pandemic in each of our operating areas, however, the increase in overall commercial activity is a positive sign to what we feel will be an active second half of the year. Vessel operating cost for the quarter was $64 million, an increase of $3.2 million from Q1. The increase is due mainly to higher mariner salary and travel costs and higher supplies and consumables resulting from the reactivation of 7 vessels in the quarter. In addition, we also incurred over $600,000 of mariner severance costs related to our Brazil area as we continue to wind down our activity in Brazil, several vessels came off higher and did not return to service. In the second quarter of 2021, we recorded a $1 million credit to our net due from affiliates accounts receivable balance. This is related to our Angola joint venture as part…

Thank you, Sam. Brandon, let's just go ahead and open it up for questions.

[Operator Instructions] And on the line from Evercore ISI, we have Andres Menocal.

So this is more of a high-level question. I appreciate all the color you provided on the call. Many thanks for that. I guess, qualitatively and quantitatively, what are you seeing from your customers in terms of activity levels and conversations that's given you confidence in the outlook for 2022? Just saying that just given that budgets are looking to be solidified towards the back half of the year. So just curious to understand what's informing your view that the end of the year into next year might be a little bit better or significantly better?

Certainly, I'll start off, and then I'll let Piers follow up with some more details. But really, I haven't seen this much tendering activity in about 18 months, tendering activity does not always mean that it's going to end up being new work. Sometimes they're tendering for vessels that are already in the market and trying to reprice, okay? But I would say that the pickup that you saw in the numbers in the second quarter for the North Sea is a good demonstration of the pickup that we're seeing in Africa as we go through the second half of '21 and into '22. The U.S., I'm starting to see a bit more improvement, but it's probably about a quarter behind that in Africa. Piers, why don't you provide some more direct color with some of the contracts that you have.

Yes, of course. I think specifically in Africa, which obviously is -- I think we've spoken very openly about how much it suffered as a region over the last 12 to 18 months. We're seeing a significant pickup in tender inquiries from our customers, which are coming through, as to fairly long-term charter opportunities, not just on current contracts that as being retended, but actually new contracts as well in new areas, which is driving the market. And specifically, as I sort of mentioned on the larger platform supply vessel size as well, we're seeing a lot of activity in the Med Africa from our side. And I think going into the Caribbean, Guyana, Suriname next year as well, we're starting to see a pickup there as well. So overall, there's very positive signs from what our guys are seeing on the ground and the level of activity.

Great. Another question in terms of efficiency gains in your fleet, I know you've put a number of investments and time and after these past couple of years into your systems and infrastructure and on to get the fleet operating at a higher level. What innings do you feel like you're in, in terms of getting to that target statement? And what's in the pipeline for the kind of initiatives you can further implement to continue increasing those efficiency gains that we've seen this past 1.5 years?

That's a good question. So I would -- I'll throw out the sixth inning, and then I'll tell you why I think it's a sixth inning. So the most effort over the past few years has really been in the shore-based infrastructure system. So just making sure that we are as efficient as we can be and as scalable as we can be on a G&A footprint perspective. But we're just beginning to touch the vessels themselves. And on the vessels themselves, it's a little bit different. It's not just the operational efficiency, but it's the fuel efficiency, it's the fidelity and the transparency of data coming from the performance of the vessels that allows us to go back to our customers and say, "hey, you want to reduce Scope 1 emissions. This is the data we're seeing from this type of vessel. This is how you're operating the vessel, this is what you can do to improve upon that so that you can improve your Scope 1 emissions, our scope 1 emissions as well." So as a result, I think that we're probably in the sixth inning, I'd say that the majority of the work on the shore base is done, we're probably 20% into what I think we can do on the vessel side.

Great. In terms of what you're seeing in the asset and divestiture market, it's great to see older vessels getting sold and that net profit -- or sorry, the cash flows helping you guys. Can you describe what you're seeing in the A&D market? And is there any concern that some of the vessels that are being disposed could go back to work in what's historically been deemed in an already oversupplied market?

It's -- the 1 vessel that we opportunistically sold in the second quarter, she was a good vessel, but she was facing a $3 million reactivation. And so we were waiting for market conditions to come around to -- for that boat to be reactivated. And I see reactivation costs for vessels that are in layup, particularly those that didn't work during the pre-pandemic period, post-2014, they haven't working. We've gotten rid of most of those vessels because the reactivation costs on those vessels is approaching $5 million or more per vessel. So the reactivation of vessels is always a threat in this industry. But the costs are getting so high for those vessels that weren't working during the pre-pandemic period that I don't believe a lot of them will get reactivated. But again, we'll see how that plays out. We're definitely focusing our fleet on the more -- on the higher-end vessels. So the larger vessels, more modern vessels, which we believe will come in at a higher day rate overall, be more fuel efficient and less costly going forward.

Understood. Just 2 more questions, if I may, just more pertain to the financials. As we look to the 2022 notes being retired and repaid next year. What is the right amount of capital or cash that you think the business needs in order to operate? And do you feel like you have everything you need in place in order to do that? Is there a chance that you have to tap into capital markets to -- in order to get to that kind of run rate level of cash on the balance sheet?

Well, the frictional amount of cash that we need in order to run the business is about $30 million, okay? So that's the base level we need for working capital and general purposes. What we've been doing with our existing cash balance is just having a backup of liquidity. And so we'll continue to have backup liquidity sources, whether that's going to be in the form of revolving debt capacity or just cash on the balance sheet, it all depends on what the capital markets are open for. Historically, the bonds haven't let us have a revolver with its own collateral. So we've been using cash on the balance sheet as our liquidity source as we retire bonds, and we may refinance into something else or we may go into a revolving debt capacity for liquidity purposes. But absolute question is how much cash do we need to run the business, Sam, about $30 million or so?

That's correct. Right.

And then I'd want a minimum of about $70 million worth of liquidity just in case.

Understood. And then just the last question, if I may, and this just pertains to taxes. How should I think about cash taxes going forward for the company? Is there anything that I should be aware of there?

No. I mean, I would say that they're going to remain relatively flat. I mean we -- currently, our cash tax is about $12 million to $13 million a year, and I don't see that changing.

[Operator Instructions] Okay. Looks like no further questions at the moment. I will now turn it back to Quintin for closing remarks.

Well, thank you, Brandon. Everyone, I appreciate your participation in the call today. We will update you again in November. Goodbye.

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