Thank you for standing by. My name is Dee, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tidewater First Quarter 2024 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to West Gotcher, Senior Vice President for Strategy, Corporate Development and Investor Relations. Please go ahead.

Thank you, Dee. Good morning, everyone, and welcome to Tidewater's First Quarter 2024 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 and Form 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, May 03, 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, West. Good morning, everyone. Welcome to the First Quarter 2024 Tidewater Earnings Conference Call. First quarter revenue and gross margin meaningfully exceeded our expectations. Both day rate and utilization outperformed our expectations. We are certainly pleased with the performance as the first quarter of a given calendar year is typically the slowest from an activity perspective. Given the typical seasonal factors impacting a few of our operating regions, we take advantage of this period to front-load the drydock schedule, which serves to prepare our fleet for a busier work season later in the year. This first quarter not only exceeded our expectations, but it exceeded the fourth quarter and the fourth quarter exceeded the third quarter. This sequential improvement through the typical slow period is the strength of the cycle overwhelming the calendar year seasonality. The seasonality is still there, but the increased average day rate from contracts rolling on to higher rates more than offsets the effect. Day rate momentum during the first quarter was broad-based with each of our vessel classes posting strong sequential growth. Particularly in our large class of anchor handlers, day rate momentum for this class of vessel was consistent across multiple regions with a composite rate for this class up about 27%. Large anchor handlers are primarily used to support the mobilization and movement of drilling rigs and typically benefit the most busy year, more seasonable, favorable periods in the second and third quarters. The first quarter also results -- first quarter results also indicate that the supply of large anchor handlers is persistently tight and that the continued rolling of all vessels onto new leading-edge contracts will continue to drive up the printed quarterly average day rate. During the quarter, we repurchased $3.5 million of shares on the open market and…

Thank you, Quintin. To provide some additional context on our share repurchase program. We are pleased to announce that our Board of Directors has authorized an additional $18.1 million of share repurchase capacity. This incremental authorization, combined with our remaining authorization from the last announced authorization provides for $50.7 million of authorized share repurchase capacity. The outstanding and authorized share repurchase program represents the maximum amount permissible under our existing debt agreements. To date, our capital allocation philosophy has been governed by our free cash flow generation or beyond the intrinsic value of our shares relative to where our shares trade on the market, our current debt capital structure and competing capital allocation opportunities. . Our current debt capital structure is reaching a point at which we believe there is an opportunity for us to evaluate steps to establish a long-term debt capital structure, more appropriate for a cyclical business and to allow for additional shareholder return capacity. Irrespective of the complexion and flexibility of our capital structure, the guiding principles of our capital allocation philosophy will remain consistent. We will remain rigorous in evaluating the relative merits of each opportunity we look at to pursue the most value accretive uses of our capital. In addition, we will remain mindful of our balance sheet maintaining a clear line of sight to a net cash position in about 6 quarters for any capital allocation decision we make. During the first quarter, leading-edge day rate momentum continued to improve nicely to $30,641 per day. We entered into 19 term contracts during the quarter with an average duration of about 9 months. We anticipate that we will continue to see continued improvement in leading-edge day rates as we progress through the year given the persistent tightness in vessel supply and increasing chartering activity…

Thank you, West, and good morning, everyone. This quarter, I will talk a little about what we are seeing in each of our regions as we look out for the rest of the year and into 2025. Overall, the outlook for the OSV market remains strong, with the ongoing upturn in project investment expected to continue to drive additional incremental demand out beyond 2026. While the limitations in the supply of any additional OSVs to the global fleet will further exacerbate the tightness in the OSV space, so far, this tight supply-demand balance has been reflected positively in our rates for Q1 2024 by pushing our fleet composite day rate up by almost $1,497 per day compared to Q4 2023. And furthermore, based on our outlook for the market, we see no need to move away from our current short-term chartering strategy that we've been very vocal about over the last few years. And again, this has been reflected in Q1 with our average charter length for new contracts remaining in the 9-month period, which was the same as we saw in Q4 2023. Working through our various regions and starting with Europe. The North Sea spot PSV market has been a little slow to pick up in the first few months of the year, which is not unusual for Q1. However, that was offset by stronger demand on the term side of the business, both in the U.K. and Norwegian sectors for PSVs, with charters coming to the market early in the year to make sure they have the necessary cover over the busy summer periods and through Q3 and Q4. On the large anchor handlers, we saw rates reported hitting above GBP 120,000 per day mark during Q1 and with indications for the number of projects that were…

Thank you, Piers, and good morning, everyone. At this time, I'd like to take you through our financial results. My discussion will focus primarily on quarter-to-quarter results of the first quarter of 2024 compared to the fourth quarter of 2023. As noted in our press release filed yesterday, we reported net income of $47 million for the quarter or $0.89 per share. In the first quarter of 2024, we generated revenue of $321.2 million compared to $302.7 million in the fourth quarter of 2023, an increase of 6.1%. Active utilization was essentially unchanged at 82.3% in the current quarter and 82.4% in Q4. Average day rates increased by 8.3% from $18,066 per day in the fourth quarter to $19,563 per day in the first quarter, which was the main driver for the increase in revenue. Our gross margin percentage for Q1 increased to 47.5% from 47.2% in Q4. Gross margin in Q1 was $152.5 million compared to $142.8 million in Q4. Adjusted EBITDA was $139 million in Q1 compared to $131.3 million in Q4. The positive result as the first quarter is traditionally the weakest quarter in our fiscal year due mainly to the seasonal weakness. The seasonality is still there, but the increased average day rate more than offset its effect. Vessel operating costs for the quarter were $167.6 million compared to $158.6 million in Q4. The increase is primarily due to higher crew costs as we transferred several vessels into our Australia region, which is higher operating cost environment. In addition, we incurred higher drydock and mobilization days that increased fuel consumption and we also incurred higher-than-normal crew training costs in the period. The increase in operating costs increased our vessel operating cost per marketed day to $8,480 in the first quarter compared to $7,894 per day in…

All right. Well, thank you, Sam. And Dee, let's go ahead and open it up for questions.

[Operator Instructions] And your first question comes from the line of Jim Rollyson from Raymond James.

Impressive results given the normal seasonal factors you've highlighted. Quintin, on the -- when you look at your leading-edge contract rates, obviously, they keep moving up last 2 quarters, kind of the rate of improvement has slowed, which, I guess, seasonally is probably pretty typical. But the way things are kind of setting up to pick up over the balance of the year, especially during the busy season, I'm curious your view on how we should think about the kind of rate of change of leading-edge rates given what activity is doing, just the seasonality impact, et cetera?

Jim, thank you. It is somewhat muted as you go through Q4 and Q1 because those are just the weakest periods of the year globally. And so it doesn't surprise me that the rate of acceleration has leveled off a little bit as we went through these last 2 quarters. It's always hard to know. But generally, and we saw this last year and the year before, I anticipate that we'll see a ramp up in Q2 and Q3. There probably is a limit to what that number goes to over time. It's certainly grown substantially over the past 8 to 10 quarters. But I would look for more meaningful increases as we go through Q2 and Q3. What we've been seeing at this pace the last couple of years is we started at about $3,000 a year improvement in overall day rates then it's been moving up to $4,000, now it's kind of on pace for $5,000, right? So it has been accelerating about $1,000 a year on average over the last 2 to 3 years. And it wouldn't surprise me to see that in '24 and into '25 as well.

Got it. That's helpful. And as a follow-up, Piers, you kind of went through what's going on geographically. And we obviously hear similar things in some of the different regions. I'm curious as you look out over the next 2 or 3 years, where do you anticipate the biggest growth regions to come from at this point?

I think it's not much different from what we sort of say, I think all the areas are looking very positive. I think Asia Pacific looks like it will be strong going forward. We tend to see the NOCs in that region have been a little bit slower to pick up, but they're starting to talk about that. So I think that's one area. Obviously, Brazil has continued to be -- has been strong and Petrobras continues to putting out the numbers looking out to 2030. So that looks like it will continue to be a strong area as well. I think it's all positive. So those are the sort of 2 standard areas. And Africa continues to look very positive as well down in Southern Africa in particular as well. There's a lot of work going on down there as well. So there's no bad spots at the moment is how I would leave it.

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

I want to touch upon 2 themes, starting with capital allocation and the capital structure. You've talked about getting a more streamlined debt structure. And in my head, that would typically entail that you're grouping all your current facilities together maybe for a larger, more long-dated bonds. Is that something that kind of has changed or your own thinking around how an ultimate cap structure would look like has changed since last time?

Fredrik, thanks for the question. Good to hear from you. I'm going to kick it over to West because he's been doing a lot of strategy thinking for us from a debt capital structure perspective. But one of the things that we're certainly focused on is creating a debt capital structure that's consistent with the needs of cyclical business. So West, why don't you update him on the current thinking on that?

Yes. Sure. Fredrik, appreciate the question. So I guess the way we're thinking about it today is certainly, the debt capital structure today has been kind of pieced together here over the past years through refinancings and the acquisition. And what we'd like to get to is a more appropriate debt capital structure for the cyclical business that we're in. So we're in a position today where we feel we have the, I guess, flexibility to be opportunistic in evaluating ways to shape the capital structure going forward based on what we can observe in the market, the debt capital markets, both here in the U.S. as well as in your home market appear to be relatively constructive. We aren't facing any near-term maturities or anything of that nature. So we want to be thoughtful and judicious about how we approach that, but we do believe that we are approaching that time where it makes sense to give some real thought to it. So the ultimate case and complexion of that debt capital structure of our debt capital structure, I still think remains to be seen. But it is an environment which we feel is supportive to our efforts to begin to evaluate that.

That's very helpful color. And on the back of that, I think if you alluded to in your prepared remarks, one of the ultimate goals here is to have more flexibility around how you spend the cash that you are generating and is going to generate at least on my numbers. But I see that you didn't, during Q1, fully utilize the share repurchase agreement. You accelerated a bit now in the second quarter. But I was wondering if you think now that the share price has actually approached $100 per share that that's one of the regions where you would think that you would switch to dividends, for example, instead of doing share buybacks. So is -- have you ever done any thinking around how you would allocate capital between dividends and share repurchases under the baskets that you're allowed to use currently?

Yes. Well, I don't want to give anybody any indications of what we think our intrinsic value is, but it's certainly higher than where we're currently trading today. And obviously, we're very optimistic about the outlook based on just the EBITDA growth and the cash flow generation of the business. But you're right, yes, there's a point when the value that you see from repurchasing shares is limited, but I also see the potential for acquisitions. So right now, I've been more focused on repurchases because those have been more value than acquisitions. However, acquisitions may become more attractive as we go through the next several quarters. So we'll maintain a focus on all of those things. So I would say that I had my druthers. I would still focus on value-added acquisitions. But there's going to be so much cash coming off of this business in the next couple of years that share repurchases, acquisitions and dividends will all play a role.

Super. And final one, a quick one from me. First quarter was very good. And I think ahead of everybody's expectations, which means that the step-up in kind of the second quarter is going to be a bit less maybe than what you previously anticipated. But on the back of this strong first quarter performance, do you think that there's a chance that you could go above and beyond your guidance or that will now tilted at least to the high end of that guidance range?

Fredrik, it's West again. Look, there are certainly variables within the year, as you're particularly aware of in North Sea with anchor handlers and so forth. But look, we spend a lot of time on our internal forecasting. I think we've recounted that in prior calls and kind of the robust approach, bottoms-up approach that we take to that. So at this juncture, what we communicated on today's call is what we feel comfortable committing to and articulating to the market.

Our next question comes from the line of David Smith from Pickering Energy Partners.

Sorry if I missed the details in the prepared remarks, but I wanted to make sure I heard the guidance correctly for relatively flat vessel margin or minimal vessel margin improvement in the second quarter, but then a 700 basis point step up to margin in the third quarter. And if I did hear that correctly, is that largely due to the timing of contract rollovers? Is it more downtime and costs that disproportionately impact Q2 versus Q3? Just any color behind that the ramp in the second and third quarter, please.

Yes. So Dave, it's West. Appreciate the question. I think you -- yes, to answer your question directly, that is how we characterize the margin progression from a Q2 and Q3 perspective. There are a variety of items that, I guess, impact that. Certainly, the rolling of contracts is definitely impactful. We did talk about some drydocks coming forward into Q2, which we tried to do as early in the year as we can to prepare for the busier seasons. A couple of vessels that are mobilizing and a little bit of unplanned maintenance. So I think a combination of some of those items alleviating and the continued rolling of contracts as you get into Q3, when you look at those combined, that has a pretty material impact from a margin perspective.

Our next question comes from the line of Josh Jayne from Daniel Energy.

Maybe first, you talked about the Gulf being sort of a little bit soft in Q1, not necessarily Tidewater specific. But just on the conference calls of the drillers so far, it seems over the next 18 to 24 months, Gulf of Mexico should be a pocket of strength just with respect to rig activity and going forward. Would you agree with that also? And how you're thinking that -- how are you thinking about that market over the next 18 to 24 months?

Yes. I think there's -- that's probably as the drillers are saying it, they're probably right. We're certainly seeing that -- I think there was a slowdown in Q1, which we'll probably see knocking through into Q2 as well a little bit. I think there's an organization piece with some of the drillers that we're seeing to get the rigs in the right place. So we're certainly not negative about the Gulf. Sometimes you see this in certain regions, you'll get a sort of slight slowdown as people reposition rigs into areas. So yes, we we're positive going forward. I think it's just a -- maybe a couple of quarters where it slowed down a little bit, and there's not been quite as much activity as perhaps people have expected. I mean it's not, as we said, affecting us so much as we sort of saw that coming a little bit. So we fixed a little bit longer in this area than we have done normally. But we don't expect the Gulf to be slowing down long term. It's more of a short-term issue.

And then the other thing you mentioned on the short-term chartering strategy, I would assume that's not a broad brush when you talk about 9-month terms and things of that nature across the entire fleet. Could you talk about if there are opportunities within certain rages for longer-term contracts and how those conversations are ultimately going with your customers and how you view those, et cetera?

Yes. I mean our customers still coming out for long-term tenders, and we're not precluding that, I think we've said before, part of the short-term strategy is not only about driving rates, but it's also driving contract terms, which we feel are incredibly important in getting our customers to make more ex-bill contracts. But no, we're definitely seeing in certain regions, our customers wanting longer-term durations. We're just choosing to go a little bit shorter term because we still feel there's a lot of runway in this market globally, and we want to keep our optionality on our side of the fence rather than in our customer side of the fence, which you tend to do in a lower market.

Our next question comes from the line of Sherif Elmaghrabi from BTIG.

I apologize if my questions have been asked. In the press release, you called out the Q1 drydock was 6% drag on utilization. How should we think about the case of drydocks for the rest of the year?

Sherif, the line was a bit dropped, but it's about a drydock question. Is that correct?

Yes. And the cadence for the rest of the year, how that affects utilization?

Yes. So utilization for the rest of the year, I think we mentioned on the call that we're going to be pretty heavy in the first half of the year. And then it will drop off the second half of the year. So you'll see instead of the normal 6%, that will go down to 4%, hopefully in the -- depending on the timing of some of these drydocks, right, to 4% overall utilization.

Okay. And then I'll go a bit more esoteric here. Is there an effect on the supply book from emissions regulations. For example, Europe's rolled out -- rolled the maritime trade emissions trading scheme. And I'm wondering if that's a consideration when you're looking for new work, what are the costs associated with emissions can be a little extra reduced rates in the North Sea, for example, or if operators are getting a little anxious about securing tonnage?

No, I mean it's primarily European issue going into '25 and beyond and is for vessels over a certain tonnage size over 5,000 tonnes. So most of our vessels don't hit that size. So it doesn't affect us. But I would say if we're talking esoteric, I mean, I think generally, our customer base wants to have the most fuel-efficient vessels. And I was looking all the time at how they can cut emissions. That's why we have obviously 16 hybrid vessels in the fleet, more than anybody else has. So we're obviously looking at that as well as a business on a global basis. But no, we're not seeing a pushback from -- we're not expecting to see anything material from a government perspective globally.

Our next question comes from the line of Don Crist from Johnson Rice.

I just wanted to ask about the pace of new FPSOs coming out and what your kind of balance is today between drilling rigs and kind of production vessels and how that could skew demand as we kind of move forward throughout the year?

Yes. I mean as probably heard, we're positive on the amount of FPSOs coming out. I think as we look forward, and I may get the numbers wrong here, but I think Rystad's come out with numbers of expecting 40 plus 48-odd FPSOs coming out in the next 5-plus years, which is obviously positive. In terms of how our current fleet is, I mean, normally, we -- so I think we say we're around 60% -- 40% to 60% production and 40% drilling type work. I'd say that's a little bit more skewed towards supporting drilling at the moment from our side. And then we've obviously got some subsea construction in there as well. But I don't know, maybe Quintin has some added color on that as well.

Yes. It certainly varies over the time. And we don't always have a clean break between the two because when someone is chartering a vessel, they're not always just focused on drilling, there could be some production support elements in it over its contract life. But it will vary throughout the cycle. It's moving into the higher allocation towards drilling right now. So Piers was indicating 60-40. So the 60% production, 40% other, which is generally drilling rigs, FPSOs, offshore construction, other elements like that. And a year ago, that was probably 70-30. Okay. In the depths of the pandemic, it was probably 80-20. So it definitely weighs higher at this point in the cycle and it wouldn't surprise me if it stays at that level. It doesn't normally go over 60-40. So I mean we should be at about the maximum level of allocation at this point.

And just from a market demand standpoint, FPSOs generally speaking, require about the same type of vessels as the bigger offshore drilling rigs, right?

Yes. It depends on the regions. But yes, generally, I mean you're looking at some PSVs and some -- depending on where you are, some anchor handlers to support the FPSOs as well sometimes.

There are no more questions. I will now turn the conference back over to Quintin Kneen for closing remarks.

Thank you, Dee and thank you, everyone, for participating in the call today. We look forward to updating you again in August. Goodbye.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.