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Edited Transcript of TDW earnings conference call or presentation 13-Aug-19 3:00pm GMT

Q2 2019 Tidewater Inc Earnings Call

NEW ORLEANS Aug 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Tidewater Inc earnings conference call or presentation Tuesday, August 13, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John T. Rynd

Tidewater Inc. - President, CEO & Director

* Matthew A. Mancheski

Tidewater Inc. - VP of IR & Corporate Development

* Quintin V. Kneen

Tidewater Inc. - Executive VP & CFO

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Conference Call Participants

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* Patrick John Fitzgerald

Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst

* Turner Holm

Clarksons Platou Securities AS, Research Division - Director

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Presentation

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Operator [1]

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Welcome to the Earnings Conference Call Second Quarter 2019. My name is Adrienne, and I'll be your operator for today's call. (Operator Instructions) Please note, this conference call is being recorded.

 

I'll now turn the call over to Matt Mancheski. Matt Mancheski, you may begin.

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Matthew A. Mancheski, Tidewater Inc. - VP of IR & Corporate Development [2]

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Thank you, Adrienne. Good morning, everyone, and welcome to Tidewater's earnings conference call for the period ended June 30, 2019. I'm Matt Mancheski, Tidewater's Vice President of Investor Relations and Corporate Development. I'd like to thank you for your time and interest in Tidewater. With me this morning on the call are our President and CEO, John Rynd; Quintin Kneen, our Chief Financial Officer; Jeff Gorski, our Chief Operating Officer; and Bruce Lundstrom, our General Counsel.

 

For today's call agenda, I'll cover a few formalities and then turn the call over to John for his prepared remarks followed by Quintin's review of our financial results for the period. Following John's closing comments, we will then open up the call for questions.

 

During today's conference call, we may make certain comments that are forward-looking and not statements of historical fact. These are -- 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 risk 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, August 13, 2019, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of any replay.

 

Also during the call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our last evening's press release.

 

With that, I'll turn the call over to John. John?

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John T. Rynd, Tidewater Inc. - President, CEO & Director [3]

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Good morning, everyone, and welcome to the Tidewater earnings call. The second quarter was a testament to the strategic rationale the GulfMark combination completed towards the end of last year as demonstrated by the margin growth of the combined company. The North Sea market and deepwater vessels more broadly, both segments that were enhanced through the acquisition, showed continued strengthening during the quarter. In addition, the increased scale allowed for good cost control both on and offshore, resulting in margin expansion relative to both prior quarter in the same time last year. While the seasonal North Sea market strengthened earlier than anticipated and has since moderated to more normalized levels for this time of the year, we believe the continued trend of activity levels, which impacts rates and utilization, are moving in the right direction albeit at a pace that is slower than desired.

 

Revenue was up slightly over the prior quarter due to average day rate increase of $636 per day and active utilization following by 1.3 percentage points. This is the second consecutive quarter where worldwide average day rates have increased after having consistently declined since the onset of the downturn in 2014. The utilization decline is largely attributable to having 784 active days out of service due to drydocks and reactivations, an increase of 394 days over the first quarter. This difference of 394 days amounts to approximately 2.6 percentage points in active utilization drag relative to the first quarter, resulting in active utilization that is otherwise slightly ahead of the first quarter but for the additional dockings.

 

We continue to highlight the significant drydock obligations for ourselves and the industry as a whole where we estimate that approximately 450 currently active OSVs have or will come due in 2019 for a special survey and another approximate 425 will be due in 2020. We are not immune to this impact and will continue to experience elevated drydocking costs and downtime as we position our fleet to meet our customers' global demand.

 

Excluding vessels that are currently stacked and anticipated to be reactivated, we anticipate 1,025 and 300 vessel days out of service due to drydocks in the third and fourth quarters, respectively. These estimates may move between quarters based on our customers' needs that represents our current best estimate. However, in spite of the elevated drydock schedule, we are committed to being disciplined with our capital and will only reactivate or maintain active vessels against contract coverage whose projected margins provide a full payout with a reasonable return on our investment.

 

Overall, this may result in near-term cash outlays as we invest in vessels dockings. However, the overall cash-on-cash returns and long-term strategic positioning of these assets will be meaningful to our shareholders. As an example, we have recently authorized the reactivation of 2 deepwater PSVs against multiyear contracts and are currently in discussion with a separate customer to reactivate a third deepwater PSV whereby they prefund a significant portion of the drydock, which will be earned out over the firm term in addition to an above-market average vessel operating margin. These are vessels that were previously projected to be stacked, but the returns warranted the investment.

 

To further illustrate, as part of our disciplined approach to investing in vessels that will best serve our customers and ultimately our shareholders, in excess of 85% of these vessels that we have projected for drydock this year have a term contract, and for the remaining 15%, we may elect to have those vessels stacked until adequate, visible contract coverage is realized.

 

Our continued focus on high-grading the fleet and maximize overall cash generation as opposed to operating a large fleet as a prime objective will result in us aggressively moving vessels from active service and responsively disposing of vessels that no longer meet our return objectives. As a result, it is likely that our active vessel count will continue to trend down throughout the remainder of the year as lower-specification vessel contract coverage winds down or as we reposition vessels to more strategically important markets.

 

Further, it is worth noting that our disciplined fleet management is best evidenced by the fact that we are approaching almost 80 vessels sold since the start of 2018. This disposal of lower-specification vessel as we simultaneously require higher-specification vessels like many of the GulfMark vessels and the 2 vessels we acquired in the fourth quarter of 2018 will continue to yield excellent outcomes for our stakeholders. We firmly believe that a smaller active fleet with the most commercial options in our primary markets where we can benefit from scale is more valuable than either a larger active vessel count with lower margin or the absolute number of countries in which we operate.

 

To briefly highlight our operating segments, the Americas region had margin expansion in both dollar and percentage terms resulting from improved day rates offset by active utilization declines that is largely attributed to drydockings and good operating cost control. Cost reductions partially resulted from a onetime favorable adjustment to insurance reserves and reductions associated with disposal of stacked vessels that resulted in lower stack costs.

 

For the Middle East and Asia Pac region, revenue was flat with the prior quarter, with operating costs slightly higher, though about equivalent with the first quarter when accounting for the extra day available in the quarter. Slightly elevated drydock off-hire was offset by small improvements in average day rates, which were more reflective of vessel mix than material change in rate progression.

 

As previously noted, the results for the European Mediterranean Sea region saw significant benefits from the seasonally strong North Sea market. The $6.5 million or 23% increase in revenue from the first quarter yielded an improvement in vessel operating profit of $6.1 million from the prior quarter. The 95% vessel operating profit conversion rate is a testament to the operating leverage and economies of scale embedded in Tidewater's business.

 

Lastly, the West African region was the weakest relative to first quarter, with vessel operating margins declining almost 10 percentage points as revenue decreased and operating costs increased. This is attributable to higher maintenance costs and associated downtime as we ensure vessels are operationally fit for our customers as well as stacking of 4 vessels during the quarter that came off contract or came due for a special survey without immediately visible opportunities to justify the investment in the special survey.

 

As we project the second half of 2019, we anticipate the average active vessel count to drop by 11 vessels in the third quarter and another 6 vessels in the fourth quarter as we seek to improve active utilization, which we anticipate to be up by 2 percentage points in third quarter and another 2 percentage points in the fourth quarter in spite of the high drydock schedule.

 

Further, we project the average day rates to decline just over 1% in the third quarter as the North Sea seasonality tapers off and we realize the effects of legacy contracts to reprice downwards in Mexico and the North Sea. Overall, we expect vessel-level margin to drop to the low 34% range in the third quarter before rebounding in the fourth quarter to the 37% range.

 

As mentioned in our press release, our objective of being the most cost-efficient operator in the industry is clearly in focus and remain on track to meet our general and administrative run rate objective. The operational integration is complete, and we are in the final stages of system implementation that will begin to drive additional synergies throughout our shore-based infrastructure.

 

Our 2019 exit run rate objective for general and administrative expense is $87 million, but rest assured that we do not envision that is the best we can achieve. We will continue to find ways of gaining efficiency and cost savings in our business, and we look forward to updating you on our progress.

 

With that, I'll hand the call over to Quintin. Quintin?

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Quintin V. Kneen, Tidewater Inc. - Executive VP & CFO [4]

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Thank you, John, and greetings, everyone. I thought I would open by reinforcing from a financial perspective some of John's comments and reiterating what makes us different.

 

First of all, we have a rock-solid balance sheet. We closed the quarter with $383 million of cash. We do have $435 million of debt, the bulk of which matures 3 years from now in August 2022, but we are easily able to service the debt and can easily refinance the debt in connection -- in conjunction with our cash on hand. We have no plans to alter our loan debt position until the recovery is much further along.

 

We do have covenants and those covenants get tighter over the next 6 quarters, but we are performing well above the required levels today and we are performing today above the tightest those covenants get over the tender of the debt. We have no required CapEx. We have no vessels under construction. Every investment we make is our decision based on today's economics, and we have no concern about shrinking the fleet in order to grow return on capital.

 

We have been free cash flow positive year-to-date, and we anticipate being free cash flow positive on an annual basis. In addition to all of that, we are pleased with the continued quarterly improvement of the core business. We're not satisfied, but we're pleased.

 

Revenue was up again quarter-over-quarter, and average day rate was up substantially. Operating expenses were down overall. Operating expense per active day was down. G&A expenses were down and remain below the Tidewater stand-alone pre-merger levels. These metrics are all going in the right direction, but we are still not satisfied and we are continuing to work to improve all of these metrics each and every quarter as we go forward.

 

Working capital investment was up, which is the wrong direction, but we will be addressing that as we go through the remainder of the year.

 

My objective today as always is to give you a quick summary of Tidewater's quarterly results and to give you an update on our progress on our G&A target run rate of $87 million per year and an update on the integration of the 2 companies' ERP systems.

 

Overall, a nice improvement in operations over the first quarter. Revenue was up. Operating expenses were down. Overall, incremental operating margins were 144%. A portion of the operating expense improvement was the reversal of the insurance accrual John mentioned in the Americas of $1.1 million. But even after removing the benefit of that item, consolidated incremental margins were 116%.

 

Quarter-over-quarter average day rates were up 8% in the Americas, 1% in the Middle East, 19% in Europe and down 2% in West Africa. Overall average day rates were up just over 6%, which is a significant overall movement in average day rates for 1 quarter. And as John mentioned, as our second quarterly increase in average day rates, the start of what we believe to be a long-term trend as the industry begins to benefit from an improvement in the supply and demand imbalance principally from the attrition of vessels.

 

At 100% incremental operating margins, which is our objective, and an active fleet of 162 vessels with 79% active utilization, as we experienced in the second quarter, a 6% increase in average day rate equates to $30 million of additional vessel operating margin on an annual basis.

 

As we look to the third quarter, we had higher significant contract rollovers in the second quarter. These contracts were on predownturn rates as many of them were 5-year contracts cut in the summer of 2014. Their roll-off will stall the average day rate progression, and as a result, we're expecting a decrease, albeit slight, in the average day rate in the third quarter. These contracts were the last on predownturn rates, and we do not foresee further downward pricing pressure on existing contracts as we see all current contracts at or about market rates. But I would also add that we see the market getting stronger globally and we do not see any area getting worse.

 

Active utilization dropped slightly in the second quarter, down 1 percentage point to 79%. The heavy drydock schedule for 2019 is weighing on this metric, and we will continue to look for ways to improve this metric by continuing to optimize drydock performance as well as over the long term, employing the use of technologies and techniques to reduce downtime due to repairs.

 

G&A for the quarter had $460,000 of severance-related items, which results in an ongoing quarterly run rate for the second quarter of $23.2 million, which is down slightly from the comparable figure in the first quarter of $23.4 million. Our objective is to get to a full year run rate of $21.8 million by the end of the fourth quarter. Getting to the lower G&A level will result from lowering headcount and professional service fees, and we are actively executing on a plan designed to get us to our run rate objective, but the plan's results were weighted towards the end of the fourth quarter. Although not a metric we are focused on, it's noteworthy to point out that we are already at the quarterly G&A expense level below what the company was experiencing prior to the merger.

 

Consolidated revenue for the quarter was $125.9 million, up approximately $3.7 million from the prior quarter. Driving the increase in revenue was the aforementioned increase in day rates and the additional day in the calendar quarter, offset by 1% lower active utilization and an average of 5 fewer vessels working in the quarter. Fewer vessels working in the quarter reflects the capital discipline we are enforcing on the business. As vessels in the fleet reach their mandatory drydock investment, a portion of these vessels will not meet our return on investment objective. These are generally the older vessels with lower overall tech specifications. These vessels become candidates for sale outside the industry or recycling. Meanwhile, we do have higher-specification vessels in lay-up, and these vessels are being reactivated when economically justified.

 

Overall, as John indicated, we anticipate the active fleet shrinking further as we go through the remainder of 2019 but increasing slightly as we get into the first half of 2020 when we anticipate economic conditions will be right for the reactivation of some of the higher-specification vessels we have in lay-up. But overall, we are not averse to shrinking the fleet in order to improving long-term returns on capital.

 

Active vessel operating cost for the quarter was down $1.8 million, with $1.1 million of that decrease due to the reversal of insurance accrual mentioned previously, and the remainder is the result of having on average 5 fewer vessels active during the quarter. The quarterly active vessel operating cost per day was $5,423, a decrease of $13 per active day from the first quarter and a decrease of $9 per active day from the fourth quarter of 2018. The cost per active day remains in line with our expectations for the fleet and where we anticipate vessel operating cost to be for the remainder of 2019.

 

We are migrating legacy Tidewater areas onto the SAP platform. The ERP system integration activities have been in process since the day of the merger, but we hit a key milestone in June. The Tidewater Norwegian operations came online in June, which was a test case for the migration of the other regions. The remaining regions will be brought online beginning in October. User acceptance, testing, training and final preparation for the migration are ongoing, and we see no impediments to achieving that objective. The ERP system consolidation is the last major piece of the merger integration but won't be the last improvement in efficiency and scalability. The new system will enable further improvements to shore-based efficiency and scalability as we go through 2020 and beyond.

 

We will have additional merger-related costs throughout the second half of 2019 partially related to severance but mostly related to professional service costs as we go through the remainder of the year. We will continue to make you aware of these costs as we have in the past 3 quarters. These amounts will pick up in the third and fourth quarter as professional fees related to the integration increase as we approach the go-live date.

 

The cash balance at the end of the year was $383 million, down $15 million from the prior quarter. We mentioned on last quarter's call that we anticipated the second quarter to be a use of cash due to the timing of drydock payments and other working capital matters. The use was a bit higher than we anticipated, and we saw a sharper build in accounts receivable than we were expecting from a few clients. I'm not concerned about the collectibility of any of these amounts, and I anticipate these will be cleared up in the third and fourth quarters of 2019.

 

Through the first half of 2019, the company was free cash flow positive in the amount of $2 million, and we anticipate being free cash flow positive for the full year. For the second quarter of 2019, the company was free cash flow negative in the amount of $6.7 million driven by the bills and receivables. We do include proceeds from vessels disposals in our determination of free cash flow. We see these vessels as excess inventory, and we are liquidating this position over time. For the first half of 2019, we have proceeds of $20.6 million from the disposal of obsolete vessels. The 60 vessels remaining in lay-up have a combined book value of $126 million, and that amount is included in the property and equipment line on the balance sheet. Since quarter end, we have sold 3 additional vessels for total proceeds of $4.4 million.

 

And with that, I'll return the call back over to John for his final comments.

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John T. Rynd, Tidewater Inc. - President, CEO & Director [5]

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Thank you, Quintin. We are optimistic that we are investing in the right people, processes and vessels to thrive through this protracted downturn and beyond. This includes responsibly reducing costs while ensuring that operational performance remains industry-leading. Additionally, we will maintain active supply on the basis of its economic viability and will not chase market share at the expense of profitability. This discipline by us and other market participants will continue to facilitate the needed recovery in day rates that has begun evidencing itself the past 2 quarters. While we cannot predict the pace of the recovery, we see reasons for optimism in each of our markets and we believe that we are in the best position to capitalize on the fundamental improvements.

 

Adrienne, please open the call for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Turner Holm from Clarksons Platou.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [2]

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This is Turner Holm from Clarksons Platou. John, I just wanted to drill into your last comment of your prepared remarks that you see reason for optimism in some of the -- basically all the markets that you mentioned. And what we're hearing is maybe some flattening of leading-edge day rates in particular markets, perhaps seasonal in the North Sea. But the guidance is for maybe flat to slightly down day rates for the third quarter. Can you kind of just flesh that out a little bit, how you're thinking about that? Is it activity-related? Or is it sort of being at day rates that you're seeing?

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John T. Rynd, Tidewater Inc. - President, CEO & Director [3]

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It's a combination of things, started out a good one. Every market we participate in is on solid footing right now. And really, the driver of our slight reduction in average day rate in the third quarter is more as a result of coming off those legacy term contracts and higher day rates not reflective of where leading-edge day rates are. And as you know, we guided the fourth quarter day rate back up slightly as we see improvement in every major market. Again, some of it's seasonality, like you said, the North Sea, we'll watch the North Sea as we progress into the winter months. West Africa appears to be some -- gaining some strength. Around the world, Brazil is gaining strength. Mexico is gaining strength. The Med is holding solid. So again, the Gulf of Mexico, really driven by supply migrating outside of the U.S. Gulf of Mexico, has been holding up nicely. So again, as we look around the world, there's reasons for optimism in all of our key markets.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [4]

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And I understand you all took some contracts down in Guyana recently or have some vessels in the way down there relatively encouraging, discovery earlier this week by Tullow. I'm wondering if you all see that as being a sort of attractive market and maybe a place to add some maxi vessels in the next couple of quarters.

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John T. Rynd, Tidewater Inc. - President, CEO & Director [5]

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Yes. I think you have to be paying attention to the Guyana area. Actually, our vessels are moving to Suriname for Apache. And then in October, we have a vessel moving into Exxon Guyana for a 5-year contract. So that's a market we're staying very close to. And also as you mentioned, great news on the Tullow discovery. So I think obviously an area that's going to get a lot of attention from us and others.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [6]

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And Quintin, just one for you. There was some talk earlier in the year about possibly extracting some value from the due from affiliate receivable balance. I noticed it was tight and quite flat this quarter. Is there anything to report there with regards to possibly monetizing that balance? And yes or no, is that baked into the free cash flow positive outlook for the year?

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Quintin V. Kneen, Tidewater Inc. - Executive VP & CFO [7]

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We're still looking and working with our partner what the long term holds for that joint venture. I don't expect that we'll be extracting significant amount of value out of that particular receivable as we go through the remainder of 2019. But we are working with them on a systematic collection of that receivable. So -- but I hope that what we'll be able to do is formalize that receivable more of a long-term note as we go forward and have more of a systematic payment and liquidation of that. But it won't be some of the significant gains that we had last year from that particular receivable balance.

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Operator [8]

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(Operator Instructions) The next question is from Patrick Fitzgerald from Baird.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [9]

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What's the -- maybe you said it, but what's the average age of your fleet now after all the divestitures?

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John T. Rynd, Tidewater Inc. - President, CEO & Director [10]

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The average age of the active fleet is about 9.8 years. And the total fleet, inclusive of the stacked fleet, is right at 10 years.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [11]

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Okay. Is there an average like deadweight tons that you guys could provide?

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John T. Rynd, Tidewater Inc. - President, CEO & Director [12]

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We'd have to do that off-line. We'll follow up with you when we can. We don't have that at the tip of our fingers.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [13]

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Okay. So what's the deferred drydocking expected? You said it's going to be -- remain elevated for 2019 and '20. What do you expect it to be for the remainder of the year? And then what does it look like in '20?

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Quintin V. Kneen, Tidewater Inc. - Executive VP & CFO [14]

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We expect the total balance for the year to approximately be $62 million, and we expect a similar number in 2020 as well. Obviously, all of those investments will go through a review before they're made. But based on the age of the fleet and based on the requirements for special surveys, we are definitely seeing a lumpiness in 2019 and 2020. My expectation is as we go into 2021, that will decrease maybe 20% to 30%, but that will be on a 5-year cycle.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [15]

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Okay. So if there's a way -- I know it's kind of theoretical, but is there a way to think about like maintenance CapEx for your fleet, what it will be at the end of this year in terms of both vessel drydocking and other maintenance CapEx kind of on an annualized basis just to kind of put that into framework?

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Quintin V. Kneen, Tidewater Inc. - Executive VP & CFO [16]

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So the way I would encourage you to think about it is right now, the 5-year special surveys are running about on average $1.2 million per vessel. And so it depends on the age of the vessel when they hit that survey. But overall, if you expect 20% of the vessels every year to hit that $1.2 million, then you're going to run into a number that -- it depends on the active fleet, but it's going to be in the $36 million to $40 million range. That's straight-lining it over every period, noting that -- like for example, in the current year, we're going to be just about $60 million and maybe the same level into 2020 as well.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [17]

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Okay. All right. And so given your guys' balance sheet, you obviously are in a much better position to handle that, which is pretty large number per vessel. What -- have you seen that impacting some of your competitors assuming they have kind of the same lumpy schedule, which maybe isn't true?

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Quintin V. Kneen, Tidewater Inc. - Executive VP & CFO [18]

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Well, I think it is true, and John mentioned it in his prepared remarks. I'm actually surprised that we haven't seen more companies hitting the wall. I'm not sure where they're getting the money for these drydocks. But it is highly fragmented and people will do whatever they can to survive in this market. So obviously, they're leaning on financial institutions and to some extent cash from operations, although a lot of these are still operating just above cash flow breakeven. So our anticipation as we go through the remainder of 2019 and 2020 is we're going to see acceleration in vessel attrition because of the investment required.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [19]

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Okay. And are you baking that into your day rate projections? Are you just assuming they're going to come up with the money to continue to operate their vessels? So there could be upside to your kind of -- your day rate expectations.

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Quintin V. Kneen, Tidewater Inc. - Executive VP & CFO [20]

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Well, in all of our comments, we're anticipating a bit of vessel attrition because of that factor. And sometimes it comes in the form of just increased utilization, and sometimes it comes in the form of day rate. But overall, it should be positive to our revenue line on a per boat basis.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [21]

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Okay. And then I wanted to ask about West Africa. You said you're seeing some bright spots, I guess, in your comments, but that was in terms of floaters. The only revenue decline sequentially in the quarter was, I believe, in West African deepwater. So are you seeing kind of more contracts that will be announced on the floater side there? Or what gives you optimism there?

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John T. Rynd, Tidewater Inc. - President, CEO & Director [22]

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I think it's 2 parts really, and it's 2 areas. It's Angola and Nigeria. Angola is looking -- poised to grow in the back half of this year and through 2020, and that will be more floater-driven. And then if you go to Nigeria, that will be more jack-up-driven. That's where we see the 2 strongest areas right now is Angola and Nigeria, again, Angola being floater-driven, Nigeria more jack-up-driven.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [23]

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Okay. And then just one more question. Covering the industry on the drilling side, you hear a lot about improvement in the jack-up space and kind of slower recovery in the floater space. Yet it seems like your results this quarter, you had more encouraging results on the deepwater side, and I guess some towing supply vessels were down sequentially. Is that just where you've chosen to kind of sell vessels related to kind of the smaller, older vessels? Or what's the read-through there that we should be taking away from this?

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John T. Rynd, Tidewater Inc. - President, CEO & Director [24]

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Yes. I think one thing, when you take a look at just -- let's just stick with deepwater vessels, not all of our deepwater vessels are supporting floaters. If we have an opportunity to put it to work on a jack-up contract or a pipe-lay contract or a construction contract, we'll do that. That's just an internal nomenclature how we track those vessels.

 

The towing supply was down quarter-over-quarter. Some of that was just in and out of -- in both West Africa and the Middle East. But if you look at the jack-up rig count growth is right now it's been in the Middle East and it's coming to West Africa, specifically to Nigeria. And the North Sea obviously -- and the North Sea is a deepwater PSV market, and that's where we had our strongest market.

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Patrick John Fitzgerald, Robert W. Baird & Co. Incorporated, Research Division - High Yield Desk Analyst [25]

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Yes. Sorry. So just -- is there any way to break down like how much revenue you get from floaters versus jack-ups? Just even a ballpark would be helpful.

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Matthew A. Mancheski, Tidewater Inc. - VP of IR & Corporate Development [26]

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Patrick, we don't track it offhand. It's pretty well diversified in terms of Tidewater's revenue stream between construction activities, production support and then the drilling activity split between jack-ups and floaters.

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Operator [27]

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And this concludes the question-and-answer session. I'll turn the call back over to Matt Mancheski for final remarks.

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Matthew A. Mancheski, Tidewater Inc. - VP of IR & Corporate Development [28]

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Okay. Thank you, Adrienne, and thank you for everyone that participated in the call. We look forward to your continued participation in Tidewater stock, and thank you for your interest in the company.

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Operator [29]

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Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.