Thank you for standing by, and welcome to the Tidewater Inc. Q4 and Full Year 2023 Earnings Conference Call. I would now like to welcome West Gotcher, Vice President of Finance and Investor Relations to begin the call. West, over to you.

Thank you, Mandeep. Good morning, everyone, and welcome to Tidewater's Fourth Quarter and Full Year 2023 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 Commercial 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 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 are making during today's conference call. Please refer to our most recent Form 10-K 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, March 1, 2024. 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 in our earnings press releases located on our website at tdw.com. And now with that, I'll turn the call over to Quintin.

Thank you, Wes. Good morning, everyone, and welcome to the Fourth Quarter 2023 Tidewater earnings conference call. Before I start with my prepared remarks on the business, I'd like to mention that we've reorganized the call a bit. I'll begin today's call, but before turning the call over to Piers and Sam for their prepared remarks, I'll hand the call back to West for some perspective on vessel supply and our forward-looking guidance. I'd like to start the call today by highlighting some of the achievements Tidewater realized during 2023 and how that drives our outlook for 2024. The past year was by all measures a successful year marked by consistent growth and robust financial results. We generated over $1 billion in revenue for the year. Revenue and gross margin improved each quarter throughout the year. We acquired 37 PSVs, solidifying Tidewater as the clear global OSV leader and the leading provider of hybrid OSVs. Printed and leading edge day rates increased each quarter of the year. We generated $111 million of free cash flow during the year, over 80% of which was generated in the second half of the year, and we initiated a share repurchase program during the fourth quarter repurchasing $35 million worth of shares. We are pleased with the many successes we realized during 2023, and we believe we will have even greater success in 2024. As strong as 2023 was from a financial and operational perspective, we are still not back to a place where the underlying economics on vessels justify new buildings. As a result, given the continued lack of newbuilding orders on a global basis, we believe continued tightness in the global OSV supply will allow for continued day rate increases throughout 2024 and into 2025. Leading edge day rates improved nearly 40%…

Thank you, Quintin. As we've observed over the past few years, the recovery in our industry and our business has been largely driven by the limitations of vessel supply. Demand is certainly more constructive than it was during the depths of the pandemic, but vessel supply has historically been the primary driver of the financial health of our business. As we survey the landscape of future vessel additions, there are multiple factors that provide us confidence in our outlook not only for 2024, but for the intermediate to long term. First, the current order book remains at an all-time low with a minor number of vessels added during 2023. This is clearly a supportive indicator of limited near-term supply additions. Second, shipyard capacity remains a fraction of what it once was during the recent peak of shipbuilding capacity in the mid-2000s, with many remaining shipyards out of capacity until at least 2026. This is a particularly relevant data point as the build time to complete an OSV is estimated to be between two years and three years. The combination of limited shipyard capacity and the lead time to construct a new vessel provides for a significant runway of time before a material number of newbuild vessels could deliver and hit the water to alter the supply picture. Additionally, as we look out over the longer term, the aging of the existing fleet of vessels and associated attrition will begin to become a real factor impacting global vessel supply. We anticipate that between now and 2035, nearly 1,300 active OSVs, or about 40% of OSVs currently on the water will age beyond 25 years, an age at which many vessels have historically reached the end of their economic lives. It is quite possible that some of these vessels will work beyond…

Thank you, West, and good morning, everyone. Before I talk about the market and put some of Quintin and West's comments into a wider global context, I wanted to mention that we will be releasing our fourth Sustainability Report next week. This report is a global team effort and I would like to take this opportunity to thank everyone within the Tidewater team for their hard work and commitment helping to put this report together as we continue to showcase to all our stakeholders our historical as well as our future commitment to sustainability. Please look out for the report. As West has just illustrated, limitation on vessel supply has been one of the key determinants allowing us to drive rates so dramatically upwards compared to previous industry upcycles over the past few years, culminating in our composite Q4, 2023 leading edge day rates for new term contracts, ending the year at a very healthy $29,511 per day. But hand in hand with limited supply, we also saw increased demand across all regions and all industry sectors in which we operate, and with no sign of any abatement in demand expected through 2024, the future looks very bright. In the rig market alone, utilization is expected to hit 96% globally during 2024 and the active rig count is predicted to increase by a further 6% during the year. Over the last few months, we've already seen some clear signs that we can expect 2024 to continue to be a strong market for the OSV space. On the rig side, we saw continued upward momentum on day rates, with notably the first drillship day rate over $500,000 per day being secured in West Africa for a short-term commitment, but still a good indicator of where the rig market is expected to…

Thank you, Piers, and good morning, everyone. At this time I would like to take you through our financial results and discuss some key points that make up these results. I will begin by highlighting the full year activity and then turn to the quarterly consolidated and segment results. For the year, we generated revenue of $1 billion compared to $648 million in 2022, an increase of 56%. The increase in day rates, the addition of the Solstad vessels in July and a full year effect of the Swire fleet were the main drivers to the revenue increase. Gross margin for the year was $449.1 million compared to $248.3 million in 2022. In 2023, our net income was $97.2 million compared to a net loss of $21.7 million in 2022. Operationally, average day rates improved more than $4,000 per day for the full year and gross margin increased by 6 percentage points year-over-year. Adjusted EBITDA was $386.7 million for 2023 compared to $166.7 million in 2022, an increase of approximately 132%. We also generated $111.3 million of free cash flow, an increase of $60.8 million or 120% from 2022. We ended the year with a $35 million buyback of 590,499 shares of our common stock at an average price of $59.29. 2023 was a breakout year and we are pleased to report to success we achieved. I would now like to turn our attention to the quarter. As in the past, my discussion will focus on the sequential quarterly results. For the fourth quarter, we reported net income of $37.7 million or $0.70 per diluted share compared to net income of $26.2 million or $0.49 per diluted share for the third quarter. Our revenue for the fourth quarter was $302.7 million, up $3.4 million from the third quarter revenue of…

Thank you, Sam. 2024 will be a year dedicated to solid execution. We led the industry in reducing capacity during the downturn by disposing of more than 220 older vessels. We have led the industry by doing major acquisitions as the industry has begun to recover. And we will lead the industry in setting the standard for capital discipline. And with that, Mandeep, we will open it up for questions.

The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Fredrik Stene with Clarksons Securities. Please go ahead.

Hey, Quintin and team, thank you. Hope all is well, and thank you for taking my question or two questions, actually. First, you are today reiterating guidance for the year, and I think that at least in the written report, you say that the gross margin, first, it was the highest in 15 years, now this fourth quarter, but that you expect it to be around 56% in a year's time or the fourth quarter ending the year around that number. So I was thinking, are you able to give some more color on how you see that developing through the year? Should we think about it linearly so that you end up with 52% for the year as a whole, or will there be some seasonality or other factors that would come into play to kind of skew it towards some period more than others? Thanks. That's the first one.

Okay. Well, thank you for your question. Good to have you on the call today. I'll take the first stab at it, but Wes has done a lot of work on the forecasting, so I'll turn it over to him for additional color. But there will be the typical growth through the year. What we've seen in the last couple of years, and in fact, I think we saw it in Q4 as well, is that the growth in the business is outstripping the typical seasonality. Q4 is usually light, Q1 is usually a little bit lighter, and then you got a stronger Q2 and a really strong Q3. That's generally the seasonality that we've experienced throughout the cycles. As the industry has reemerged from the downturn, the growth in day rates has been outstripping that seasonality, and I think we'll see some of that. So I do expect that we're going to see Q1 above Q4. And I do expect that we're going to see significant step-ups in Q2 and Q3. And then I think Q4 will be similar to what we saw this year, which is up, but maybe just a slide over as opposed to a significant movement up. So growth throughout the year. Obviously, margins will be improving throughout the year as those day rates improve. So the day rate improvements that we're going to see, that's driving those revenue increases, especially in Q2 and Q3, are going to drive the margin improvement for the year. But yes, certainly averaging 52% for the year.

Yes. Thank you very much. Second, you have been, as you say, leading the way in terms of M&A, two major transactions in the last couple of years. You say that you would weigh capital returns against potential acquisitions also in the future. Are there any sizes or minimum sizes for transactions or specific regions that you would like to target if you were to do more M&A, anywhere particularly you would like to grow? Thanks.

Well, we certainly focused on fleets that are probably more than 15 to 20 in our analysis, just because that just helps move the needle with a fleet of 220 vessels. I'm not against doing five and six vessel acquisitions, but we just get more bang for our buck with the larger transactions. I've been focused recently in the US, Gulf of Mexico and in Brazil, but I'm not averse to picking up vessels anywhere around the world. But those are the two areas where I feel that we're a little light. And if I could find a good opportunity in those geographies, I would probably prioritize those.

Very helpful. Thank you so much. I'll rejoin the queue. Thanks. Have a good day.

Thank you.

Our next question comes from a line of Connor Jensen with Raymond James. Please go ahead.

Hey, guys. Thanks for taking my call today.

Certainly.

So, another solid quarter of growth in the leading edge day rates, up another $900. Are there any particular classes of vessels or regions driving the leading edge growth or something you expect to be particularly strong in 2024?

Hi, Connor, it's Piers here. I mean, I think, as we sort of said, we're very positive for 2024. I think we'll still continue to see the bigger class of ships, the larger PSVs and anchor handlers driving the growth. And in terms of areas and regions, everywhere looks pretty positive. I mean, obviously, where the vessels that -- those class of vessels tend to work is Africa and the Americas tend to be the sort of driving areas. But also down in Asia Pac as well, looks very positive as well. So we don't see any slowdown anywhere, but we expect the larger class of vessels to really continue to drive the market with the other ships following behind.

Got it. Great. Then just lastly, is there any update on the down for repair time this quarter versus 3Q? Is that still elevated, or is this kind of returning back to the historical levels?

Hi, this is Sam. So the down for repair days in Q4 compared to Q3, they were still pretty much equal, maybe a little lower than Q3, but you didn't see the impact dollar-wise. I mean, they were smaller repairs, but the days were still slightly elevated from the Q3 about.

Got it. Thanks, guys. I'll turn it back.

Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.

Hey, good morning. Congratulations on a phenomenal year, and thank you for taking my question.

Certainly, David.

So one of the themes for the offshore rig market has been extending contract lead times. I'm curious what you're seeing on that front, right? So if an operator signs a drillship to start working in April '25, are they looking to sign vessel support, too, or is that something they'll just worry about later?

Yes. Hi, David, it's Piers again. So I'm going to -- I mean, we're seeing, obviously, our operators or our customers looking to fix that for the rigs. I would say, I think I might have mentioned this on the last call. We tend to still see they leave it a little bit late for us, which works to our advantage in many ways because it tightens up the market because we can go slightly shorter. But no, there are certainly a few of, some of the more forward-thinking customers who are starting to realize that there's a lack of supply on the larger platform, supply vessels in particular. So they're coming to talk to us a little bit. But no, generally they haven't -- the majority haven't really caught on still. So that works to our advantage. So we're able to come in and push the rates. But no, the focus tends to be on the rigs rather than on the boats still a little bit.

Appreciate that. And sorry if I missed it, but regarding the leading edge rate. Is that kind of the same framework given on prior quarters, right? That's the average rate of new contracts signed, representative of the fleet mix. And any color on average duration.

Yes, that's correct. And average duration last quarter was nine months on contracts -- on the new contract signed.

Perfect. I'll circle back in the queue. Thank you.

Our next question comes from the line of Fredrik Stene with Clarksons Securities. Please go ahead.

Hello again. One thing I wanted to circle back on. You mentioned in your prepared remarks about, or I think it was you, about the fleet being older and older and a fair amount actually hitting that 25-year-old limit over the next 10-ish years. Are you currently, in what I would consider a very strong market already, seeing that operators are changing their requirement, or are they having less stringent requirement today in terms of age, crews, flags, again depending on region compared to what they have before just because they're in a situation where securing vessels is hard, at least periodically, or are they still following preferences that they might have had historically strictly? Thanks.

Hi, Fredrik, it's Piers again. There is definitely some relaxation towards age, but with that comes the expectation of our customers is they want to work with a Tier 1 operator who can operate safely and has some control of its supply chain and maintenance and all that side. And there's not a huge amount of our competitors, perhaps, who have that sort of strength that we have. So it comes as a sort of twofold discussion that they have no choice but to relax a little bit on some of their age requirements. But with that comes a lot of other expectations from the customer base that they expect to be supported by a Tier 1 operator like Tidewater. So yes, there is some relaxation, but they don't really have much choice on that, and some customers are more relaxed than others. But yes.

Just a quick follow-up on that. No, that's super helpful, Piers. For -- let's say that you and some competitor have but a rig -- sorry, not a rig, but a vessel that's a bit on the old side compared to what an operator would prefer. Are you, with the Tidewater system backing that bid, able to actually get the preference for the contract and also maybe a premium on that contract versus what the less trustworthy vessel owner would get on a similar vessel just because you are part of the system that you're part of?

I sincerely hope so. Yes, you pay for a quality operator like Tidewater, so we charge appropriately.

Super. Thank you so much again for taking round two of the questions. I wish you all a good weekend when that time comes. Thanks.

You too. Thanks.

Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.

Hey, I had that same question, but I'll ask one more. Thanks for letting me back in. So I really appreciate the commentary about the constraints for new vessel supply and just thinking about other angles to address growing demand. When we were looking through the list of laid-up vessels across the industry, one thing that struck me was a large number of vessels that looked like they were owned by entities that we can't tell are active vessel managers. And maybe that data is wrong or I'm missing something, but I'm curious if you've seen anything notable on the vessel M&A front with laid-up vessels being acquired by active managers looking to grow their fleets.

Hi, it's Piers again. No, we haven't really. I mean, most of the viable acquisitions and one-ship type of deals were done probably in sort of 2022 by people picking up vessels. Our view is that what's stacked and laid up today has been there for five-plus years and is basically obsolete and won't be coming back into the marketplace. One or two, I'm sure, will make their way back, but the majority of what you see stacked and laid up has been there for a long, long time, and it's going to be very, very difficult to bring those ships back out into the marketplace.

Perfect. That's all for me. Thank you.

Our next question comes from the line of Don Crist with Johnson Rice. Please go ahead.

Morning, gentlemen. Just one balance sheet question for me. A lot of other topics have been covered. But as we look at free cash flow allocation, should we think or model some debt repayment in that or would you rather just build cash and kind of leave that debt on the balance sheet as you search for M&A and other kind of uses for that free cash flow?

Hi, Don. The debt is, I guess, amortized on the balance sheet, but as far as free cash flow, their free cash flow, we report is unlevered. But yes, we do have some amortizations running through the debt for 2024.

But in general, I don't see a need to delever. It's certainly not a priority. As I think about the capital allocation waterfall, I certainly would like to find value accretive acquisitions, and we'll continue to look for solid opportunities. But right now, I'm real comfortable with the leverage of the business, especially where we're at in the cycle. The only thing I would probably change on the debt capital side would be just terming out the debt a little bit longer. And my hope is that the capital markets in the US will be constructive during 2024 and we'll be able to do some of that. But we do have, as Sam stated, some principal amortization, but that's a requirement under the debt agreements and certainly not anything that we would elect to do.

Okay. And as far as size of M&A, are you -- I guess you're not really limited as to a certain dollar amount, but is there a size that you would target? Would you target five boats in the Americas or something like that, or would it be a much bigger deal than that?

We generally prefer bigger deals, but if we can't find bigger deals, doing smaller deals is certainly acceptable. Very often it's the same amount of work to do 10 boats as it is to do 40 boats. And if you can get a comparable quality of fleet but a larger number of vessels, I would definitely do that, but facts and circumstances will dictate it. I'm not against it, but I have been focused on larger fleets over the past few years.

I appreciate all the color. I'll turn it back. Thanks.

There are no further questions at this time. This concludes today's call. You may now disconnect.