Good morning. My name is Colby and I will be your conference operator today. At this time I would like to welcome everyone to the Tidewater Q3 2022 Earnings Conference Call. [Operator Instructions] I will now turn the call over to West Gotcher.

Thank you, Colby. Good morning, everyone, and welcome to Tidewater's earnings conference call for the 3 and 9 months ended September 30, 2022. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial Officer, Sam Rubio; and our Vice President of Sales and Marketing, Piers Middleton. During today's call, we'll make certain statements that are forward-looking and referring to our plans and expectations. There are risks and uncertainties and other factors that may cause the company's actual performance to be materially different from that stated or implied by any comment that we make during today's conference call. Please refer to our most recent Form 10-K and 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. Information presented on this call speaks only as of today, November 4, 2022. Therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures can be found on our website at tdw.com and is included in yesterday's press release. And now with that, I'll turn the call over to Quintin.

Thank you, West. Good morning, everyone, and welcome to the third quarter 2022 Tidewater Earnings Conference Call. I'm pleased to say that as the offshore vessel market continued its momentum during the third quarter, we saw a meaningful improvement in our profitability and free cash flow generation. The most talked about indicator of the strength in our business, average day rate increased by nearly $1,100 per day in the quarter on slightly higher active utilization of 83.7%, which is up about 1.2 percentage points. You may recall that we have previously discussed that fleet-wide average day rate increase over the entire year during a typical up cycle was about $1,500 per day. We passed that benchmark in the second quarter with average day rate up nearly $1,900. And year-to-date, we are now up $3,000 per day. This additional step up in average day rate in the third quarter is emblematic of the tightening of the supply and demand of the offshore vessel market we have been discussing. It was set up by the significant vessel attrition over the past several years and actuated by the increase over the past year in global offshore activity. The increase in global activity began in the third quarter of last year and was based on steadily increasing oil price as global economic activity increased subsequent to the easing of pandemic restrictions and has further increased over the past 6 months as conflict in Ukraine move the focus of decision-makers to energy security. During the third quarter, we entered into 54 new contracts covering 38 vessels. For those vessels that we entered into multiple contracts during the quarter, each follow-on contract was signed at a materially higher day rate than the first contract. The average duration of the OSV contracts we entered into during the…

Thank you, Quintin, and good morning, everyone. Over the last 2 quarters, we have talked about some of the supply and demand issues we're seeing that are affecting the global OSV market today. And why with our modern larger fleet of PSVs and HTSs we feel we are well placed to take advantage of this continuing upturn in the market. And whilst these larger vessel classes where we've been able to really drive day rates the most over the last 12 months, we are now starting to see some of the effects of the supply-demand pressures in the larger class of vessels beginning to push rates in our smaller vessel classes as well, paying truth to the old adage that a rising tide lifts all boats. Specifically, on the OSP side, we have continued to see the increase in demand and shortness and supply impact rates positively on the upside, with Clarksons Research reporting global 1-year time charter rates for the largest PSVs at circa $23,400 per day levels compared to $22,000 per day last quarter and 1 year time charter rates for large HTSs averaging $32,500 per day compared to $31,000 per day last quarter. All positive indicators that the market as a whole is pushing rates in the right direction quarter-by-quarter. This quarter, you will note that we have changed some of the matrices of how we are tracking and reporting on our vessel classes so that we are more aligned as to how the industry tracks the OSV global fleet by square meters for PSVs and brake horsepower for anchor handlers with the intent that we can deliver a clearer picture both internally and externally as to how and where we are driving the OSV market. Working through our various regions and starting with Europe. As Quintin…

Thank you, Piers, and good morning, everyone. I would now like to take you through our financial results and discuss some key points that make up these results. My discussion will focus primarily on quarter-to-quarter results comparing the current quarter to the second quarter of 2022. As noted in our press release filed yesterday, we reported net income of $5.4 million or $0.10 per diluted share. From an operational perspective, we continue to generate meaningful revenue quarter-over-quarter. Our revenue for the third quarter of 2022 was $191.8 million. This is a $28 million or approximately 17% increase from the second quarter of 2022. Compared to the same quarter last year, that increase is close to $100 million. This is the result of the SPO acquisition, significant organic day rate and utilization increases each quarter throughout the company. The sequential revenue uplift benefited from the higher day rate and a full quarter effect of the SPO vessels. Utilization also increased sequentially with active utilization of 83.7% compared to 82.5% in Q2. As mentioned, day rates improved 8.5% to $13,606 per day in the third quarter from $12,544 per day in the second quarter. Overall, gross margin for the quarter increased nicely to 41%, up from 38% in Q2. Vessel operating costs for the quarter was $113 million, an increase of $12.8 million from Q2, principally driven by the addition of the SPO vessels and increased activity as we had several vessels mobilizing in and out of new contracts. Legacy SPO vessels contributed $10.4 million to the increase in operating costs. Vessel operating cost per marketed day in Q3 was approximately $6,700 per day. As expected, this is an increase from Q2 as we absorb the full effect of the SPO fleet. However, we expect to see cost decrease going forward as…

Thank you, Sam. In closing, I want to mention some of what we see for the remainder of 2022 and into 2023. On last quarter's call, I expressed our confidence that the back half of 2022 would provide a meaningful uplift. On the heels of a strong third quarter and what we're seeing in the fourth quarter, our view on the remainder of 2022 is incrementally more positive. For the remainder of 2022, our revenue backlog stands at $171 million. Contract cover is fairly evenly split across all of our vessel classes with our largest PSVs, having the most exposure to a continually improving market. As we move into 2023, revenue backlog stands at $475 million up from $400 million last quarter. Commercial momentum continues as our customers plan for what, by all accounts, appears to be another leg up in offshore activity in 2023. We plan on remaining committed to our chartering strategy of staying sure to take advantage of continued attractive supply and demand fundamentals. This will allow for continued day rate improvement and drive earnings and cash flow generation that will ultimately accrue to our shareholders. And with that, Colby, we will open it up for questions.

[Operator Instructions] Your first question comes from the line of Fredrik Stene from Clarkson Securities.

Congratulations on -- a very strong quarter, just -- on both performance wise and cash flow wise. So I wanted to dive kind of a bit into the contracting strategy around you saying that you want to potentially chase or not really chase but keep shorter terms on your contracts to be properly able to play day rate improvement that we're seeing now across most markets on a leading edge basis. So I was wondering, just trying to put that into perspective versus your comments around what you've typically seen of improvement across the full fleet for a year in previous upcycles and how much faster we've seen that move now in the second quarter and the third quarter? Are you able to -- given that short-term chartering strategy, are you able to give some guidance on how fast we would be able to see that the day rate move forward as well?

Well, I'm going to give you my perspective, and then I'm going to lean over and ask Piers for his perspective as well, and hopefully, they'll sync up. Obviously, we have a very bullish outlook on what we see in all the vessel classes as we look -- really look into '23 and beyond. And so we're continuing to charter short -- particularly on the larger vessels, and that's been very successful for us throughout 2022. And I imagine that's going to continue into 2023. As Piers illustrated, the tightness in the larger vessel market is naturally bringing up rates in the category just under that. So just under the 900 square meter deck PSV category in particular. And so we're certainly watching that category closely, too. And again, we may actually can lean back out of that into the chartering long and that subgroup as well just to take advantage of what we see as market momentum there. We have a fleet of 200 vessels, not every vessel is the greatest vessel, right? But we certainly do have a fleet that I think is disproportionately and substantially better than what we had 5 and 7 years ago. But as you look to the lower end of our fleet, some smaller tugs and some older conventional dry PSVs, I'll lean into contracting a little bit longer there just because I think those are a little bit more difficult to put to work. So let me hand it over to Piers because he's got some real detailed knowledge on that industry.

Yes. Just sort of to reiterate, I think we have on the older, less lower-spec vessels, we've obviously gone slightly longer, as Quintin mentioned. But the majority of our fleet now is at a much higher spec. We've been able to lean into shorter contracts. Our customers have pushed back. But ultimately, they've been -- they've come around to saying, they understand the shorter-term strategy as well as the market is improving. And that's something which we've been able to push globally everywhere. And I think that's something we'll continue to focus on doing as we go into 2023. We believe there's a lot more room in rate rises, frankly, and it's an opportunity for us to continue to push that. And the best way of doing that is to stay as short as possible, keep the contracts as much optionality on our side at the moment, which we've not had that opportunity for the last 5 years, really. So that's something which we're going to continue to focus on doing. And it's some initial push back from our customer base. But they seem to be coming around to our strategy, whether or not they agree with it is a different matter, but they're certainly accepting it.

That's super helpful. And just a final follow-up on the day rate side here. I think there's typically some seasonality during the fourth and first quarter. And I think you could comment on that as well? But in terms of -- but you still be very positive on the way forward. So any particular way we should think about how that potential seasonal, call it, weakness is going to impact average day rates over the next 2 quarters? Is it still going to move materially upwards?

I don't specifically talking about really the North Sea and anchor handlers, but we continue to see a very tight market for HTSs as we go into 2023. So there will be some seasonal impact, I'm sure the North Sea tends to go -- slow down a little bit, but we're fully expecting to see a very tight market as you go into Q1 with rate rises. I mean, last year, we saw record rates for anchor handlers. We expect to see that -- continue to see that as we go into 2023 as well.

Your next question comes from the line of James West from Evercore ISI.

So quite curious in your client conversations, particularly focused on the Middle East right now, you've seen somewhat of an unprecedented amount of announcements of increased productive capacity, both for oil and for gas, a lot of which is going to come from offshore. And we're watching rigs getting snatched off the market left and right to support this, and I suspect the same thing is happening in the vessel market. And so I'm curious to hear kind of what you guys are seeing in that region if the sense of urgency that they're showing in the rig market is rolling over into the vessel market as well and kind of what opportunities that's providing for Tidewater?

Well, I'll tell you what Piers just come back from that. So I'm going to hand it over to him.

Sure. Yes. So we're -- yes. So we're seeing a significant amount of tenders coming out in -- driven by Aramco, which we've mentioned, I think, in the previous call as well, we are seeing a lot of activity in terms of what Aramco is also in Qatar as well coming on the back of this. There's also been LNGC in India, which falls under our Middle East region as well. So yes, there's a lot of a lot of activity in terms of demand to support all the rig activity. I mean, whether or not they're going to be able to find all the vessels that they seem to want is going to be a different discussion, but that's only going to allow us to push the rates, which we mentioned as well. So yes, there's a lot of activity on the vessel side as well a lot of potential demand there and they're asking for a lot. I'm not sure if they're going to able to get hold of everything that they're asking for. So that's a -- we see that as a very positive thing for ourselves, but it's certainly an area we're focused on at the moment as well.

Okay. That's great to hear. And then I'm hearing a lot from the Middle Eastern NOCs that performance is becoming not only for rigs and services, but vessels as well is becoming more and more important. And the Middle East, I guess, historically has not been known for that. But given the scarcity of assets, given the seriousness of what they want to do, does that lend -- I mean, Tidewater has a much better asset quality than a lot of the local providers? Does that lend you -- put you in a much better position than some of the competition?

Absolutely. We talked about that market being a fragmented owner group and generally lower specification vessels, at least compared to the North Sea and Brazil. And what happened during the downturn is a lot of those vessels got even more neglected than the average vessel got neglected. And so the down for repair and other equipment failures on those types of vessels has been very high. So we work with Saudi Aramco and others in the region to develop what we call the best spec for operating. And we feel like we're in a great position because we've been able to continually invest in our vessels. We've been able to continually invest in the technology on the vessels too. So yes, it definitely helps us out substantially.

Your next question comes from the line of Fredrik Stene from Clarkson Securities.

Just wanted to touch briefly on M&A as well. I think you've progressed well with the SPO acquisition, we're starting to see those cost synergies come out in play already, but you're still having some older vessels that you mentioned that you're churning out. And what do you think with the current end market environment. I think SPO general are starting to get a bit more traction both in the equity markets and also on the second hand side. Are there still things to be done here? And what is your role within the M&A here?

Well, there definitely is more to be done. And I think that we are in a great position. We have a -- in fact, I believe at this point in the cycle where I'm delivered, okay? And so we've got great equity currency. We've got some -- a balance sheet that we could use to put to work. We're obviously very focused on return on investment. And so we're looking for the appropriate pricing on these vessels. But yes, there's still a lot to be done to clean up the industry. And we're very excited to be able to participate in it. We do have the ongoing integration with SPO that we talked about on the call, but none of that is at the point now where it's a distraction from us doing our next deal. So looking forward to being able to execute as we go through the remainder of 2022 and into '23.

There are no further questions at this time. I will now turn the call back over to Quintin for closing remarks.

Well, thank you, Colby. We will update you again in March. So thank you. Goodbye.

This concludes today's conference call. You may now disconnect.