Q4 2023 Tidewater Inc Earnings Call
Participants
West Gotcher; Vice President of Finance & Investor Relations; Tidewater Inc
Quintin Kneen; President and Chief Executive Officer; Tidewater Inc
Piers Middleton; Vice President, Sales & Marketing; Tidewater Inc
Sam Rubio; Executive Vice President & Chief Financial Officer; Tidewater Inc
Fredrik Stene; Analyst; Clarksons Securities AS
Conor Jansen; Analyst; Raymond James
Presentation
Operator
Thank you for standing by, and welcome to the Tidewater Inc. Q4 and full-year 2023 earnings conference call.
I would now like to turn the call over to West Gotcher, Vice President of Finance and Investor Relations to begin the call. West, over to you.
West Gotcher
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.
Quintin Kneen
Thank you, West, and 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 2020 for 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 LSV 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 justifying newbuildings 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 improve nearly 40% during 2023, ending the year at 29,511.
We anticipate that we will continue to see day rate momentum in all of our vessel classes, driven by healthy demand across a variety of end markets and persist from tightness in vessel supply with realized day rates improving each quarter of the year and for the average day rate to improve by approximately $4,000 per day on a year-over-year basis as the financial performance of the business continues to improve. We expect to continue to generate substantial free cash flow throughout the year. We repurchased 35 million worth of shares during the fourth quarter of 2023, representing the maximum amount of repurchases permissible under our existing debt agreements and about 60% of our free cash flow generated during the fourth quarter.
Given the constructive outlook for the year and our view on the intrinsic value of the business, the Board of Directors has authorized the Company to repurchase up to an additional $48.6 million of the Company's common stock. The new authorization represents the maximum permissible amount of share repurchases under our existing debt agreements. As previously communicated, we will update the repurchase program quarterly based on the utilization of the program and the amount permitted more broadly as we think about capital allocation throughout 2024, the share repurchase program will be an important feature of how we allocate our capital acquisitions remain a capital allocation priority as we do believe there are viable candidates that can be acquired on an accretive basis that will allow us to leverage our shore-based infrastructure and to take advantage of the economies of scale that the Tidewater platform provides.
We will continue to weigh the relative merits of given any given acquisition against the value of the share repurchases and pursue the most accretive alternative. We remain mindful of our balance sheet and we want to maintain a clear line of sight to a net cash position within the next six quarters. Ultimately, our goal is to establish a long-term debt capital structure more appropriate for a cyclical business, and we will act opportunistically to do so as we progress through the year.
In summary, we are very pleased with the performance of the business and with our achievements throughout 2023, we are excited for the opportunities that lie ahead for us in 2024. Our primary objectives for the coming year are geared towards increasing cash flow generation through day rate and utilization expansion into operators choosing opportunistically deployed this cash into the highest value alternative to drive even higher shareholder returns. We remain highly confident that the global shortage of vessels combined with increasing demand from drilling, subsea construction, floating infrastructure, existing production and offshore wind activities. All combined provide a compelling backdrop to accomplish our financial and operational objectives for 2024.
And with that, let me give the call back over to West for more color on our view of future vessel supply and more commentary on our financial outlook for 2024.
West Gotcher
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 and demand is certainly more constructive than it was during the depths of the pandemic. The vessel supply has historically been the primary driver of the financial health of our business as we surveyed the landscape of fee per vessel additions 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 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 two thousands with many remaining shipyard data capacity until at least 2026. This is a particularly relevant data pointed to build time to complete and LSV. is estimated to be between two and three years, the combination of limited shipyard capacity and the lead time to construct a new vessel provides a significant runway of time before a material number of newbuild vessels can 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 distribution, we'll 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 for age beyond 25 years of age, of which many vessels have historically reached the end of their economic lives. It is quite possible that some of these vessels will work beyond 25 years.
The vessels ultimately do have a finite life vessel built quality and maintenance programs over the course of the vessel's life are the primary factors of the ability to extend the useful life of the vessel beyond 25 years, given some of the headwinds related to newbuilds, we are confident in the intermediate to long-term supply outlook, providing a tailwind for vessel owners.
Looking forward in 2024, we reiterate our full-year guidance of $1.4 billion to $1.45 billion of revenue and a 52% gross margin. Our backlog currently sits at about $1.1 billion with 75% available vessel days contracted for the year with our largest classes of PSVs and anchor handlers having most exposure to contract repricing opportunities throughout the year,. We anticipate revenue to increase modestly in the first quarter and decrease each quarter throughout the year with a meaningful move up in both the second and third quarter, similar to what we saw in 2023. Gross margin is likewise expected to improve every quarter of the year, starting at 45% in Q1 and finishing at 56% in Q4 for an annual average gross margin of 52%.
With that, I'll turn the call over to Piers for an overview of the commercial landscape.
Piers Middleton
Thank you, West, and good morning, everyone. Before I talk about the market and put some liquids in the West comments into a wider global context. I wanted to mention that we will be releasing our fourth sustainability report next week. This reported a global team effort, and I'd like to take this opportunity to thank everyone within the Tidewater team for their hard work and commitment helped them 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 at 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 previous industry up-cycles over the past few years, culminating in our conversation, Q4 2023 leading edge day rates. 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 projected 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 extend to continue to be a strong market for the OC space.
On the rig side, we saw continued upward momentum on day rates with notably the first drillship dayrate over $500,000 per day being secured in West Africa for a short-term commitment was still a good indicator of where the rig market is expected to go over the next few years. In addition, Petrobras opened their last public PSV tender in January and for the foreign flag, 45 hundred deadweight class of vessels, which are similar to our 900 square meter class of vessels offer levels went from $41,222 per day, up to $64,982 per day, with the majority of the votes offered starting with a five, again, a very solid early indicator on where the market is expecting dayrates for OCs to move during the year rather than go through specific regions, which Sam will cover in greater detail.
I wanted to focus on how certain class of vessels really helped to deliver the $4,500 per day improvement that we managed to achieve between Q4 2022 in Q4 2023. During 2023, we stuck to our short-term chartering strategy, allowing us to push day rates and to keep rolling our vessels vessels as quickly as possible onto new contracts and onto higher day rates as well as staying focused on improving contract terms for new contracts. While the vessel classes contributed towards the increases our two largest classes of boats, so the highest rate increases as the year progressed.
Our plus 900 square meter class of PSV jumped from $18,500 per day in Q4 2022 to $23,000 per day in Q4 2023, and our largest 16,000 BHPHTS. class climbed 64 hundred and $80 per day during the same timeframe, with both classes in high demand to support the surge in both the drilling and subsea construction markets whilst our two largest special process saw the biggest increases in rates during 2023, we have really started to see some positive impact on dayrates on the rest of our fleet and particularly on the slightly smaller 800 square meter class of vessels where we saw leading-edge day rates in Q4, getting above $40,000 per day levels in certain regions, which is almost in line with leading-edge day rates we've achieved for the biggest sister vessels 2024 and beyond.
We will, of course, remain focused and disciplined on continuing to push rates and improving the contract terms that we entered into with our customers to make them more equitable for both parties and more in line with the realities of the marketplace we are in today overall, as mentioned by Quentin, we're very pleased with how the market continued to move in the right direction during 2023 on a very positive about how the market will develop during 2024 and then to a sustained period of growth for the OSV space into the foreseeable future.
And with that, I'll hand it over to Sam. Thank you.
Sam Rubio
Thank you, Pierce, 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 EUR648 million in 2022, an increase of 56% increase in dayrates. The addition of the sole sat 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 slide 23, 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 six 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 the 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 $0.7 per diluted share compared to net income or 26 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 for the third quarter revenue of two 99.3 million. The increase resulted primarily from an increase in average day rates. In addition, we also had the full quarter effect of the sulfate acquisition that contributed five additional days of revenue. Average day rates increased 1% from 17,008 65 per day in the third quarter to 18,066 per day. In the fourth quarter, active utilization increased marginally to 82.4% compared to 82.1% in Q3.
Gross margin percentage for Q4 increased to 47.2%, up from 44.7% in Q3 due in part by the increase in revenue, coupled with a decrease in operating costs of note, Q4 23 gross margin was nearly 10 percentage points higher than Q4 2022. Operating costs for the quarter were 159.9 million a decrease of $5.8 million from Q3, principally driven by lower repair costs and lower fuel costs as we mobilized few fewer vessels in the quarter and additional costs associated with the Sol said, acquisition integration decreased as we quickly transitioned the vessels into Tidewater management.
As a result, our vessel operating cost per day declined 3.1% to 7,008 94 per day in Q4 compared to 8,001 48 per day in Q3. We sold four vessels during the fourth quarter for net proceeds of 5.9 million and recorded a net gain of $4.2 million. On the sale of these vessels, we generated operating income of $63.1 million for the quarter compared to 55.7 million in Q3. The increase is due to several positive factors, including higher revenue, the decline in operating costs and an increase in gain on sale of assets offset slightly by higher G&A expense.
G&a expense for the quarter was 24.7 million, $3.7 million higher than Q3, resulting mainly from personnel cost adjustments for the year, our total G&A costs was $95.3 million, which is $6.6 million less than 2022, primarily due to higher transaction costs incurred related to the Swire acquisition. For 2024, we are projecting our G&A cost to be 104 million, of which $13.6 million related to non-cash stock compensation. In the quarter, we incurred $24.1 million of deferred drydock costs, slightly higher than our projected amount due in part to delayed drydocks and timing of projects. In the quarter, we incurred 1,056 drydock days, which affected utilization by 5%.
For the full year, we incurred 3,386 drydock days effect affected utilization by 4.6% and incurred a cost of 97.4 million. Bipap cost for 2024 is expected to be approximately $127 million in Q4. We also incurred about $8.4 million in capital expenditures related to new-build vessels, vessel modification and IT upgrades. For the full year, we incurred 31.6 million of capital expenditures, and we expect to incur approximately EUR21 million in 2024. We generated $61 million of free cash flow this quarter, which more than double the Q3 amount driven by strong cash flow from operating activities in 2024. We do expect to continue to invest in working capital as revenue continues to grow. However, we will continue to manage this as tightly as possible. During the fourth quarter, we sold the last remaining vessel from assets held for sale effectively ending the program.
I would now like to focus on the performance of the regions. Our Americas region reported operating profit of 16.2 million for the quarter compared to 12.6 million in Q3. The region reported revenue of 68.4 million in Q4 compared to 70.7 million in Q. three, the region operated at 37 average vessels in both quarters. Day rates increased 4.4% to 24,005 24 per day in Q4 from 23,000 for 95 per day in Q3. However, active utilization for the quarter was down to 81% from 86.3% in prior quarter. The improvement in operating profit was due primarily to a decrease in operating costs resulting from reduced crew costs, lower repair and maintenance costs and lower skill set integration costs for the fourth quarter the Asia Pacific region reported an operating profit of $11.3 million compared to 14.6 million in Q. three region reported revenue of $38.6 million in the fourth quarter compared to 39 million in the prior quarter.
Region operated 19 average vessels, which was up one vessel compared to Q. three day rates declined slightly to 25,003 78 per day in Q4 compared to 25,008 67 per day in Q3, and active utilization decreased to 86.6% in the quarter compared to 91.3% in Q3. The decrease in operating profit was due in part to a softer spot spot market, which decreased revenue slightly and higher operating costs due to the mix of vessels working in Australia, which has a higher cost structure.
For the fourth quarter, the Middle East reported an operating profit of 2.1 million compared to an operating loss of 1.1 million in Q three. Revenue increased almost 10% in the region to 38.1 million in the fourth quarter compared to $34.1 million in prior quarter. The region operate at 45 vessels in both quarters. Dayrates increased marginally to 10,000, a 55 per day in Q4 compared to 10,005 44 per day in Q3. Higher active utilization increased substantially to 85.6% in Q4 from 79.8% in Q3 as we had less vessels mobilizing in the quarter. The increase in operating income was due primarily to higher revenue, coupled with lower operating costs, mainly fuel expense associated with the lower offer mobilization days.
Our Europe and Mediterranean region operate reported operating profit of 13.8 million in Q4 compared to EUR9.6 million in Q3 revenue increased to 80.7 million compared to 78.9 million in Q3, driven mainly by the full quarter effect of the sell side vessels. The region operated at 51 vessels in the quarter, which was an increase of one vessel from Q3. We saw a small decline in day rates to 10th, 19,061 per day compared to 19,001 or five per day in Q3.
And active utilization increased marginally to 89% compared to 88.8% in Q. three increase in operating profit for the quarter was mainly driven by higher revenue, coupled with lower operating costs as we saw integration costs decrease as we transition most of the sole set vessels into our system by the end of November, our West Africa region reported operating profit of 27.4 million in Q4 compared to $28.4 million in Q3. The market in this area continues to remain strong as revenue continues to maintain its upward trend.
Revenue for Q4 was 74.6 million compared to $73.7 million in Q3, the region operated at 67 vessels, down two vessels from Q3. Dayrates increased by 4% to 16,003 phases 56 per day in Q4 from 15,007 72 per day in two three and active utilization also increased to 74.8% in Q4 from 73.9% in Q3. The decrease in operating profit from Q3 resulted mainly from higher dry-dock amortization costs.
In summary, we were pleased with our Q4 results. Q4 results have typically been below Q3, but this quarter growth outpaced seasonality.
Finally, I do want to thank our teams for the successful integration of the software vessels into our business and systems. This was a lot of hard work, but we have we have a talented and dedicated group of individuals in the last two years, we have successfully integrated two significant acquisitions as we continue to grow our business. We are pleased to see continued increases in revenue driven by our acquisitions and a higher demand. We are excited about what we see developing for 2024 and beyond.
With that, I'll turn it back over to Quinn.
Quintin Kneen
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.
Question and Answer Session
Operator
(Operator Instructions) Fredrik Stene, Clarksons Securities.
Fredrik Stene
Coal segment and team, I think overhaul as 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 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 in linear earlier, so earliest so that you end up with 52% for the year as a whole? Or is will there be some seasonality or other factors that would come into play to kind of skew it towards some period more than others?
Piers Middleton
First, okay, well, thank you for your questions and good to have you on the call today. I'll take the first stab at it, but the West has done a lot of work on the forecast. I'll turn it over to Dan for additional color, but there will be the typical growth through the year and what we've seen over the last couple of years. And in fact, I think we saw in Q4 as well is that the growth in the business is outstripping. The typical seasonality to four is usually late. Q1 is usually a little bit lighter than you got it, but a stronger Q2 and a really strong Q. threes as 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.
I think we'll see some of that. So so I do expect that we're going to see Q1 above Q4 and you expect that we're going to see significant step-ups in Q2 and Q. three. And then I think Q4 will be similar to what we saw this year, which is up but maybe just a slight over as opposed to a significant movement up. So growth throughout the year. And 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 and especially in Q2 and three are going to drive the margin improvement for the year. But yes, certainly certainly averaging 52% for the year.
Fredrik Stene
Second, you have been, as you say, leading the way in terms of M&A to major transactions in the last couple of years, you say that you wouldn't weigh capital returns against a potential acquisitions also in the future. Are there any sites or minimum sizes for transactions or specific regions that you would like to target if you were to do and more M&A anywhere, particularly we'd like to grow.
Operator
Well, with that, we're certainly focused on fleet sales are probably more than 15 to 20 in our analysis just because that helps move the needle even 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 those 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 late. And if I could find a good opportunity in those geographies. I would probably prioritize those.
Piers Middleton
Very helpful.
Fredrik Stene
Thank you so much. I'll rejoin the queue. Thanks, guys.
Operator
Conor Jansen, Raymond James. Please go ahead.
Conor Jansen
Hey, guys, thanks for taking my call today, certainly. And so another solid quarter of growth in leading-edge dayrates, 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?
Operator
Hi, Tom.
Quintin Kneen
Cornish has behaved and I mean, I think Susan said, we were very positive for 2024. And I think we'll still continue to see the biggest class of ships, the larger PSVs and anchor handlers driving the growth in terms of areas and regions from everywhere looks on pretty positive. I mean, obviously, where the vessels that are those class of vessels tend to work is Africa and the Americas, some turns business to driving driving areas, but also down in Asia-Pac as well looks very positive as well from. So we don't see any slowdown anywhere, but then we expect the larger class of vessels to really continue to drive the market with the other are the ships following behind.
Conor Jansen
Got it.
Piers Middleton
Great.
West Gotcher
And 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 level?
Piers Middleton
Hi, this is Sam. So the down for repair days in Q4 compared to Q3?
On the day-to-day, um, I think we're still pretty much equal, maybe a little lower than Q3, but you didn't you didn't see the the impact dollar-wise, I mean, they were small repairs, but I mean the days worse, we're still slightly elevated from from the Q3 about.
Got it.
Operator
Thanks, guys.
West Gotcher
I'll turn it back.
Sam Rubio
Our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.
West Gotcher
Hey, good morning.
Conor Jansen
Congratulations on a phenomenal phenomenal year, and thank you for taking my questions, certainly. So one of the themes for the offshore rig market has been extending contract lead time. I'm curious what you're seeing on that front.
Right.
Conor Jansen
So if an operator science a drillship to start working in April 25. What are they looking into signs that will support two or if that's something they'll just worry about later?
Quintin Kneen
Yes, hi, David. This is again something to I mean, we're seeing obviously, our operators are customers looking to fix that for the rigs. I would say. I think I've mentioned this on the last call, we tend to still see they leave 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 now with us only a few on book 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 that coming to talk to us a little bit. But no, generally, I haven't the majority haven't really caught on still. So that works to our advantage. So we're able to to come in and push the rates. But no, it's on the rig. The focus tends to be on the rigs rather than on the boats and a little bit.
Conor Jansen
I appreciate that. And sorry, sorry if I missed it, but regarding the leading edge rate, is that kind of the same framework given on prior quarters or that you have the average rate of new contracts signed representative of the fleet mix and any color on average duration?
Quintin Kneen
Yes, that's correct.
And those average duration on last quarter's nine months on contracts from the new contracts signed.
Piers Middleton
Perfect.
Conor Jansen
I'll circle back in the queue.
Thank you.
Sam Rubio
Our next question comes from the line of Frederic Steen with Clarksons Securities. Please go ahead.
Fredrik Stene
Well, hello again. One thing I wanted to circle and circle back on. You mentioned in your prepared remarks about or I think because you have about the fleet being older and older and fair amounts hitting 25, your code limits over the next 10 years. Are you currently in what I would consider a very strong market already seeing that operators are changing there. Requirements are are they having less stringent requirements today in terms of age, cruise flags, again, depending on region compared to what they have before just because they're in a situation where we're securing vessels and how hard at these periodically? Or are they still falling preferences that they might have historically a strict?
Piers Middleton
Thanks.
Quintin Kneen
Hi, Frederic. As peers, again on first, definitely some relaxation towards some age on. But with that comes in and the expectation of our customers is they want to work with a Tier one operator who can operate safely and has a some control of that supply chain and maintenance and all that side. And there's not a huge amount of our competitors. Perhaps you have that sort of on a strength that we have. So it comes as a sort of two-fold discussion that they know they have no choice with relax a little bit on some of their age requirements but with that comes a lot of other on expectations from the customer base that they expect to be supported by a Tier one operator like Tidewater. So yes, there is some relaxation, but they don't really have much choice on that. And some customers have a more relaxed now that's per ton.
Yes.
Piers Middleton
Just a quick follow-up on that, and that's super helpful.
Fredrik Stene
For, let's say that you and some competitors have a rate sorry, not the rain, but the metal that's I think, on the oil side compared to what an operator would have prefer are you at with the Tidewater system backing that bid able to actually if don't get the preference for the contract and also maybe a premium on that contract versus what less trustworthy, a vessel owner, we would get on a similar vessel just because you are part of the system at your partner.
Quintin Kneen
I sincerely hope so.
Yes, some of you pay for a quality operator like Tidewater. So we charge appropriately.
Operator
Super.
Fredrik Stene
Thank you so much again for taking a round two of the questions and wish you all a good weekend. When that time comes.
Piers Middleton
Thanks.
Sam Rubio
And our next question comes from the line of David Smith with Pickering Energy Partners. Please go ahead.
Operator
Yes.
Conor Jansen
I think I had the same question, but I'll ask one more. Thanks for letting me back. And 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 to the list, you have laid-up vessels across the industry. One thing that struck me was a large number of vessels looked like they were owned by entities that, yes, we can't tell are active vessel managers.
And then 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 looked into greater.
Quintin Kneen
It's because, again, no, we haven't really, I mean to most of the viable acquisitions and one ship type of deals we've done probably into the 2022 on by people picking up vessels. Blob view is that what's stacked laid up today has been there for it's five plus years. And is basically obsolete and won't be coming back into the marketplace one or two, I'm sure we'll make it make their way back. But the majority of what you see stacked laid out. This has been there for a long, long time and it's going to be very, very difficult to So bring those ships back out into the marketplace.
Piers Middleton
Perfect.
Conor Jansen
That's all for me.
Thank you.
Sam Rubio
Our next question comes from the line of Don Crist with Johnson Rice. Please go ahead.
Operator
Morning, gentlemen. Just one balance sheet question for me. A lot of the 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 use for that?
No.
Piers Middleton
And Dan, to the free debt is, I guess, amortized in on the balance sheet. But as far as free cash flow and our free cash flow, we report is unlevered on that, yes, that we do ask our amortization running through the debt for 2024.
Operator
But in general, I don't see a need to delever. So it's certainly not our priority.
As I think about the capital allocation waterfall, I certainly would like to find value accretive acquisitions either in the same way, 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. And the only thing I would probably change on the debt capital side would be just terming out the debt a little bit longer and I'm 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 like to do.
Piers Middleton
Okay.
Operator
And as far as size of M&A are you I guess you'd not really limited as to, you know, 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 would generally prefer bigger deals, but if we can't find bigger deals, you're doing smaller deals is certainly acceptable. Very often. It's the same kind of work to do 10 boats as opposed to do 40 boats and that can get you to have a comparable quality of fleet. But a larger number of vessels. I would definitely do that on both a facts and circumstances will dictate it. I'm not against it, but I have been focused on larger fleets over the past few years.
Piers Middleton
I appreciate the color. I'll turn it back.
Thanks.
Sam Rubio
There are no further questions at this time. This concludes today's call. You may now.
Operator
Yes, yes, yes.
