Joseph M. Bennett - Chief Investor Relations Officer & Executive VP Jeffrey M. Platt - President, Chief Executive Officer & Director Quinn P. Fanning - Chief Financial Officer & Executive Vice President.

George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc. Matthias Detjen - Morgan Stanley & Co. LLC Turner Holm - Clarksons Platou Securities AS Gregory Lewis - Credit Suisse Securities (USA) LLC (Broker) Coleman W. Sullivan - Wells Fargo Securities LLC.

Welcome to the Fiscal 2016 First Quarter Earnings Conference Call. My name is Christine and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Joe Bennett.

You may begin..

Thank you, Christine. Good morning, everyone, and welcome to Tidewater's first quarter fiscal 2016 earnings results conference call for the period ended June 30, 2015. I'm Joe Bennett, Tidewater's Executive Vice President and Chief Investor Relations Officer, and I want to thank you for your interest in Tidewater.

With me this morning on the call are our President and CEO, Jeff Platt; Jeff Gorski, our Executive Vice President and Chief Operating Officer; Quinn Fanning, our Executive Vice President and CFO; and Bruce Lundstrom, our Executive Vice President, General Counsel and Secretary. We will follow our usual conference call format.

Following these formalities, I'll turn the call over to Jeff for his initial comments to be followed by Quinn's financial review. Jeff will then provide some final wrap-up comments and we will then open the call for your questions.

During today's conference call, we may make certain comments that are forward-looking and not statements of historical fact.

I know that you understand that there are risks, 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 may make during today's conference call.

Additional information concerning the factors that could cause actual results to differ materially from those stated or implied by the forward-looking statements may be found in the Risk Factors section of Tidewater's most recent Form 10-K. With that, I'll turn the call over to Jeff..

Thank you, Joe, and good morning to everyone. Yesterday, after the markets closed, we reported a net loss for our first quarter of fiscal 2016 ended June 30, 2015 of $15.1 million or $0.32 per share inclusive of several below-the-line items outlined in our press release, which Quinn will explain further in a few minutes.

In our preceding March quarter, we report a net loss of $9.1 million, or $0.19 per share, that was also inclusive of several items that were outlined in our press release and discussed in full detail during our last quarterly earnings call.

These special items certainly add to the noise in the quarter and can mask the underlying operating results of the company. Let me focus on the key take-away from the quarter's results, which is that our operating results in almost every category were on the positive side of our previously provided guidance.

That is a solid achievement in such a difficult market. But last quarter's performance doesn't allow us to relax as the market remains extremely challenging. The $298 million of vessel revenues generated in the quarter was at the upper end of our previous guidance while vessel operating expenses and G&A costs were below the low end of guidance.

When you examine the line items that comprise our vessel operating costs, you'll see that sequentially each component was lower in the current quarter.

This performance demonstrates that our focus on managing the things that are within our control, including prompt and proactive reductions in costs can help mitigate the effects of falling revenue and produce reasonable financial results. We are working to ensure the cost reductions are both meaningful and sustainable.

To reiterate the point, cost control is an increasingly important discipline as we are operating in an even more challenging offshore market than existed earlier this year. Moreover, the indications from our customers in response to the sharp decline in oil prices are that they are assuming this environment will persist for an extended period.

And as a result, they continue to reduce their near- to intermediate-term capital spending. No one knows how long the current difficult market will last, but our feeling is that it will extend through calendar year 2015 and 2016 as well.

Historically, our business has been cyclical, and the good news is that the current market should, at some point, turn around. Until then, we will remain committed to focusing on things within our control and executing operationally in order to preserve our earnings and strong balance sheet and, importantly, our future earnings power.

Quinn will go into more detail in just a moment, but let me briefly comment on some of the noise in the quarter.

Our bottom line was impacted by knock-on effects from several of our cost-cutting actions initiated during the March quarter and completed in the June quarter, including asset impairment charges associated with stacking additional vessels, and to a lesser extent, taking a charge in the quarter for potentially unrecoverable costs associated with our canceled new vessel construction contracts, primarily shipyard supervision and capitalized interests associated with the canceled vessels.

We were also hurt by foreign exchange losses, a risk that we try to minimize. However, we operate with the largest global footprint in the industry, and foreign exchange impacts, whether gains or losses, are something that cannot be totally eliminated.

These items are normally not as significant to our bottom-line performance as they were this quarter, and unfortunately, they cloud the solid operating results and the cost control performance we achieved during the quarter.

If adjusted for these two items, our net earnings would have been a positive $8.4 million, or a positive $0.18 per common share. Our safety performance during the quarter continued our historically solid record with no lost time accidents and a total recordable incident rate, TRIR, of 0.09 per 200,000 man hours worked.

That is an improvement from the solid 0.14 TRIR we reported for all of fiscal 2015. Our outstanding safety record represents not just our dedication to a strong safety culture but reflects well on all our employees worldwide who operate daily in extremely challenging conditions.

Safety is something we will not compromise despite today's difficult market conditions as we understand that a moment's lapse in attention to the task at hand could become catastrophic. Once again, I want to thank our 8,000 employees around the world for their dedication to making Tidewater the safest company operating offshore.

We also will not compromise the robust compliance program we have developed in recent years as we believe these initiatives are an important competitive advantage, as our customers, along with their partners and local governments, are very focused on how their service providers conduct their business.

Compliance has become an increasingly important consideration for the international energy service industry, and we believe Tidewater's program is an industry leader. To appreciate how challenging the offshore market is, you need only compare our vessel revenue decline between the March and June quarters.

The revenue decline of 6% is the result of a roughly 3% sequential decline in our average vessel day rate, combined with a utilization decline of 2.6 percentage points. A portion of the utilization decline was attributable to our market-based decision to stack an additional 23 vessels in the quarter.

After selling six vessels from our stacked fleet during the quarter, we ended June with a total of 38 stack vessels globally. The decision to stack additional vessels was followed by our ordinary course quarter-end review of the stacked fleet for possible asset impairments.

The result of the stacked vessel review contributed about $12 million of the $14 million after-tax asset impairment charge taken in the quarter. Cost-cutting initiatives inclusive of the impact of stacking vessels resulted in a 7.6% decline from the previous quarter in our vessel operating cost.

The 38 stacked vessels include vessels from essentially all asset classes in our fleet. The age of our stacked vessels at June 30 range from less than one year old to more than 30 years old. 26 of the 38 vessels stacked at June 30 are considered new vessels, meaning that they entered service since fiscal 2000.

The fact that we and other OSV operators are stacking relatively new equipment highlights the difficult market conditions the industry is currently facing, but this is what is needed to be done.For reference, our new vessel fleet averaged 250 vessels in the June quarter, so we've stacked about 10% of the new fleet.

With regard to the current overcapacity in the OSV industry that is resulting in industry-wide vessel stackings, we are seeing more tangible evidence of vessel construction cancellations globally, as you would expect during these difficult times.

As we have mentioned in prior calls, we have our own doubts that the entire estimated OSV construction backlog of 400-plus vessels will be built and delivered, although quantifying an exact number of vessel cancellations remains very difficult.

Let me remind you that when we are deciding to stack a vessel or agreeing to alter contractual terms, our guiding principle remains to balance profitability, cash flow and revenue market share objectives, something that is a challenging juggling act.

Our global operating footprint, however, provides us with the flexibility to shift vessels from relatively weaker markets to relatively stronger markets, and thereby optimize vessel utilization and day rates.

This juggling act, as difficult as it is, will continue until our customers gain sufficient confidence that market trends have stabilized and global activity growth resumes. Lastly, before I turn the call over to Quinn, I think it's important that you also focus on our progress for improving our cash flow and liquidity.

The quarter's results demonstrate that as we wind down our over-decade-long investment in our fleet in a reasonable operating environment, we should be able to generate meaningful free cash flow.

As a result of the new-build vessel cancelations we announced during the last earnings call, we reduced this quarter's net capital investment to $62.5 million. We continue working on further steps to reduce our capital investment needs without sacrificing the ability to deliver our trademark quality service to our customers.

In the quarter, we also made solid progress in reducing the working capital of Sonatide, our joint venture company in Angola. Tidewater collected over $100 million in cash, which was about $33 million above the quarter's revenues in Angola. Overall, our net working capital position in Angola was reduced by $41 million during the June quarter.

As a result of these various steps, we built our cash balance at quarter's end to $103 million. We also had our $600 million revolver fully available so we believe we have a strong liquidity position to withstand this difficult market and to be able to capitalize on any investment opportunities that might emerge.

Also note that at the end of July, we declared a $0.25 per share dividend payable in September. Now, let me turn the call over to Quinn to review the details of the quarter and expand on some of my earlier points. He will also address our new term outlook.

Quinn?.

Thank you, Jeff. Good morning, everyone. As Jeff mentioned, we issued our earnings press release after the market closed yesterday. We filed our quarterly report on Form 10-Q through the EDGAR filing service yesterday as well. Turning to financial results, as Jeff noted, we reported a loss per diluted common share of $0.32 for the June quarter.

Results for the June quarter included non-cash asset impairments totaling $0.30 per share after tax and foreign exchange losses totaling $0.20 per share after tax. Adjusting for these two items, earnings per share was $0.18 for the June quarter.

And while adjusted EPS was positive in the June quarter, it was up plus 60% quarter-over-quarter and was up approximately 80% relative to the June quarter of fiscal 2015.

In addition to the referenced asset impairment charges and foreign exchange losses, our press release also highlighted approximately $10 million of tax expense for the June quarter despite the quarter's pre-tax losses.

While I wouldn't characterize tax expense as an unusual or special item, the unusual relationship between pre-tax earnings and tax expense contributed to a noisy quarter and was driven as much by non-operating items as well as by operating items.

Reported tax expense from the June quarter highlights the potential impact both, positive and negative, that revenue-based taxation that is common to a number of the foreign jurisdictions in which we operate can have on our effective tax rate in net earnings.

In past quarters, when pre-tax margins were expanding, taxation and so-called deemed profit regimes have the impact of reducing our effective tax rate and improving net earnings. In the just completed June quarter, the opposite was true.

Revenue-based taxes are obviously impacted by lower revenue, but they are otherwise generally more sensitive to lower pre-tax margins inclusive of the effective non-cash asset impairment charges and our foreign exchange losses. Turning to the key drivers of operating results, I think the story of the June quarter is more positive.

As Jeff noted, vessel revenue for the June quarter at approximately $298 million was down approximately 6% quarter-over-quarter but came in at the high end of the guidance that I provided in May. Relative to the June quarter of fiscal 2015, vessel revenue was down approximately 22%.

The average active vessel count at 245 vessels was down 13 vessels quarter-over-quarter reflecting the delivery of two new-build deepwater PSVs and our stacking of 23 previously active vessels during the June quarter.

Active vessel utilization at 76.5% was essentially flat quarter-over-quarter and average day rates at approximately $17,400 were up approximately 3% quarter-over-quarter. Vessel operating costs at approximately $179 million were down approximately 8% quarter-over-quarter and came in below the low end of the guidance range that was provided in May.

Vessel operating costs were down approximately 17% relative to the June quarter of fiscal 2017. As Jeff mentioned in his opening remarks, given the current operating environment, we remain very focused on reducing costs. As appropriate, we've reduced staff and where possible we have instituted wage reductions.

As I mentioned in our last call, we are also selectively deferring regulatory dry dockings and major repairs. And again, we are generally choosing to stack underutilized vessels.

Nonetheless, repair and maintenance expense will likely remain volatile quarter-to-quarter based on the timing and nature of the dry docks that are undertaking during any particular quarter. Vessel-level cash operating margin, at approximately 40%, was at the high end of the range of 36% to 40% that I provided in May.

Again, with cost-cutting efforts to date somewhat mitigating the fall in revenue. Total general and administrative expense in the June quarter of approximately $44 million was down a bit more than $1 million quarter-over-quarter.

As we have discussed on previous calls, G&A continues to benefit from cost-reduction efforts including lower professional services fees. Below the operating income line, Jeff and I have already highlighted non-cash asset impairment charges and foreign exchange losses that were recognized in the quarter.

The majority of the impairment charges that were recognized in the quarter related to stacked vessels. Further note that the review process that we utilized to evaluate the recoverability of carrying values is more likely to result in the impairment of individual stacked vessels than it is for vessels in the overall active fleet.

In general terms, the review of the stacked fleet is a vessel-by-vessel fair value analysis that is frequently supported by third-party appraisals or broker's estimates, whereas the review of the active fleet is driven by projected cash flows of asset groups based on various assumptions, including average day rates, expected utilization, and the underlying vessels' estimated remaining useful lives.

As a result, we are more exposed to asset impairments when we are stacking previously active vessels.

In regards to the foreign exchange losses, I'll just call your attention to the press release and the 10-Q, both of which highlight that a portion of the losses are tied to our Angolan operations and are included in the equity and net losses of unconsolidated companies line of our income statement.

In regards to fleet profile and performance, as I mentioned earlier, Tidewater's active fleet averaged 245 vessels in the June quarter. Active deepwater vessels averaged 94 vessels in the June quarter and were up two vessels quarter over quarter.

Active towing supply vessels averaged 104 vessels in the June quarter and were down 7 vessels quarter over quarter. Active other vessels, which includes crew boats and offshore tugs, were down six vessels quarter over quarter.

Utilization of the active fleet, 76%, was flat quarter over quarter and average day rates at approximately 17,400 hours were down approximately 500 hours or about 3% quarter over quarter. Utilization of active deepwater vessels in the June quarter was approximately 75%, or down approximately 7 percentage points quarter-over-quarter.

Utilization of active towing supply vessels was approximately 79%, or up approximately 6 percentage points quarter over quarter. Average day rates for deepwater vessels at approximately $27,100 hours were down approximately $800 or approximately 3% quarter over quarter.

Average day rates for towing supply vessels at approximately $14,200 were down approximately $300 or approximately 2% quarter over quarter. Looking at our four geographic reporting segments.

For the Sub-Saharan African Europe segment which accounted for approximately 37% of consolidated first quarter vessel revenue, vessel revenue was up approximately 13% quarter over quarter. Average active vessel count in the Sub-Saharan African Europe segment at 111 vessels was up 5 vessels quarter-over-quarter.

The average active Sub-Saharan Africa fleet at 104 vessels was up five vessels quarter-over-quarter. The average active North Sea fleet at seven vessels was flat quarter-over-quarter.

Active vessel utilization across the Sub-Saharan Africa and Europe segment at 74% was up approximately 2 percentage points quarter-over-quarter and average day rates at approximately $14,600 were up approximately $1,300 or about 8% quarter-over-quarter.

Within the Sub-Saharan Africa and Europe segment, active utilization in Sub-Saharan Africa was up approximately 2 percentage points quarter-over-quarter to approximately 74%. Active utilization of the North Sea fleet was down approximately 2.5 percentage points quarter-over-quarter to 68%.

Average day rates in Sub-Saharan Africa at approximately $14,700 were up approximately 8% and average day rates in the North Sea at approximately $14,600 were up more than 10%. For the Americas segment, which accounted for approximately 38% of consolidated first quarter vessel revenue, vessel revenue was down approximately 2.5% quarter-over-quarter.

The average active fleet in the Americas segment at 66 vessels was down five vessels quarter-over-quarter. Utilization of active vessels in the Americas segment at approximately 83% was down approximately 1 percentage quarter-over-quarter but remains relatively strong and stable in the June quarter.

Average day rates within the Americas segment at approximately $22,700 in the June quarter were up approximately 4% quarter-over-quarter and largely reflects a mix benefit resulting from a combination of higher specification vessels returning to work following the regulatory dry docks in the March quarter and the recent stacking and/or sale of a couple of smaller lower spec vessels.

In the MENA segment, which accounted for approximately 16% of first quarter consolidated vessel revenue, vessel revenue was up approximately 4% quarter-over-quarter. The active fleet MENA at 45 vessels was flat quarter-over-quarter.

Utilization of active vessels in MENA at approximately 80% was up approximately 6 percentage points quarter-over-quarter, reflecting an uptick in activity levels during the traditional construction season. Average day rates in MENA at approximately $14,600 in the June quarter were down approximately $500 quarter-over-quarter.

In the Asia-Pac region, which accounted for approximately 9% of first quarter consolidated vessel revenue, vessel revenue was down approximately 5.5% quarter-over-quarter. The active vessel count in Asia-Pac at 23 vessels was down three vessels quarter-over-quarter.

Utilization of active vessels in Asia-Pac at approximately 67%, however, was up approximately 3.5 percentage points quarter-over-quarter. Average day rates in Asia-Pac at approximately $19,000 were down 6% quarter-over-quarter. Like the MENA segment, the Asia-Pac segment also benefited from an uptick in construction work in the region.

Recent awards in Southeast Asia also give us some confidence that utilization will continue to at least modestly improve over the next couple of quarters, even if average day rates in the region will likely continue to fall given our reduced operating footprint in Australia.

Looking at relative profitability, vessel level cash operating margin in the June quarter was 46% for the Americas region and was 43% for the MENA region. Vessel-level cash operating margin was 37% for the Asia-Pac region, and was 33% for Sub-Saharan Africa and Europe.

Within the Sub-Saharan Africa and Europe region, gross margin in the Sub-Saharan Africa area were approximately 36% with the overall reporting segments' lower margins reflecting a particularly challenging North Sea market. As most on the call appreciate, Tidewater's exposure to the North Sea market remains relatively modest.

Turning to our outlook, as Jeff has discussed, we expect that the offshore market in general and the OSV market in particular will continue to be challenging in the near to immediate term.

In the current environment, our quarter-to-quarter visibility in regards to average active vessel count and utilization of active vessels is also more limited given the seemingly daily trade-offs that we are evaluating in regards to what vessels we stack and what vessels that we continue to operate.

Whether or not we dry dock a relatively new vessel that may have more uncertain commercial prospects over the next couple of quarters than it did 12 months ago may also result in a choice between current period operating expense and future period vessel revenue. That is just the market that we're current in today.

In any event, despite the fact that overall end-user demand and industry-wide available revenue has been difficult to accurately forecast, our current expectation is that Tidewater's vessel revenue, average active vessel count, and average day rates will likely continue to drift lower but not precipitously fall over the next couple of quarters.

Internal estimates currently peg average quarterly revenue in fiscal 2016 around $275 million per quarter, which obviously implies that based on our currently operated fleet, projected average quarterly vessel revenue for the remaining quarters of fiscal 2016 will be lower than actual revenue reported in the June quarter.

Appreciate, however, that this is the best estimate based on many moving pieces. On a more positive note, thus far, we have been able to keep the utilization of our active fleet in the high 70s or low 80s. We've also been recently successful in reducing cost in order to mitigate the effects of lower revenue.

Going forward, our focus will continue to be on keeping the active fleet's utilization at levels that support reasonable economics. Mid-70s or better, in our view, and continuing to reduce operating cost, at least in part, by stacking vessels that we believe will be underutilized.

Our current expectation is that we can sustain vessel level cash operating margins for the remaining quarters of the fiscal year in the 36% to 40% area.

General and administrative expenses inclusive of $1 million to $1.5 million of G&A related to our subsea services operation should be in the range of $43 million to $44 million in the September quarter, and in each of the remaining quarters of fiscal 2016.

Combined vessel lease and interest expense should remain in the plus or minus $20 million area in the September quarter, or basically flat relative to the June quarter.

As to an effective tax rate assumption, as highlighted in my comments regarding June quarter, our effective tax rate and tax expense is very difficult to forecast due to lower projected pre-tax margins, and our exposure to jurisdictions that tax on the basis of deemed profits.

Nonetheless, based on our current internal operating forecasts, we estimate tax expense in the remaining quarters of fiscal 2016 will be in the range of $5 million to $10 million per quarter. Like our operating forecast, this number is obviously subject to change.

Turning to financing and investment issues, cash flow from operations for the three months ended June 30 was approximately $93 million as compared to $81 million in the March quarter. At June 30, our net due from affiliate related to our Angolan operations was approximately $193 million, or down approximately $41 million quarter-over-quarter.

As Jeff mentioned, Tidewater's Angola-related cash collections during the June quarter were approximately $101 million or approximately $33 million higher than the revenue recognized in regards to our Angolan operations for the June quarter.

As to non-operating uses of cash, CapEx in the June quarter was approximately $93 million, $24 million of which was funded by the return by shipyards of milestone payments previously paid by Tidewater, pursuant to vessel construction contracts that were recently canceled.

I'll also note that we have an ongoing dialogue with the shipyards in which we still have vessels under construction, which may result in changes to our vessel construction program and future CapEx.

As of June 30, 2015, we have 16 ships under construction with a total estimated cost of approximately $490 million, $267 million of which has been invested as of June 30 and approximately $223 million of which was unfunded as of June 30.

Based on commitments at June 30, CapEx for the remainder of fiscal 2016 is estimated at approximately $155 million. Total debt at June 30 was approximately $1.5 billion, cash at June 30 was approximately $103 million, and net debt to net book capital at 6/30 was approximately 37%.

As Jeff mentioned, total liquidity is substantial at 630 – $703 million including approximately $600 million availability under bank credit facility, which is available to Tidewater until fiscal 2020. And with that, I'll the turn the call back over to Jeff..

Thanks, Quinn. At the time of our last earnings call, we were experiencing rising crude-oil prices and it led some to speculate openly that the industry may have seen the bottom in oil prices for this cycle. We cautioned at that time this view might prove to be too optimistic.

More recently, crude-oil prices pulled back, experiencing the greatest monthly decline since the financial crisis of 2008 and the optimism expressed by market observers in March has somewhat faded. In our view, the optimism expressed in March was premature.

Once again, we would caution about becoming too pessimistic regarding the near-term direction for oil prices. Nonetheless, the current pessimism has the potential to magnify and/or extend the current challenging markets.

Our industry outlook remains that we are in for an extended period of low commodity prices, reduced offshore activity and continued downward pressure on our vessel day rates. This view is consistent with that expressed by other offshore companies.

This outlook unfortunately has been reinforced by the statements of the major international oil and gas companies in the recent earnings calls. Almost across the board, their results demonstrated a substantial impact low commodity prices have had and continue to have on their upstream earnings.

Many of these oil companies have also announced additional capital spending reductions and further layoffs of employees and contractors. Those actions reflect the mindsets of their management that they must preserve cash as they need to take further steps in order to become more cost-efficient.

Meaning they need to work harder and smarter, and that translates into continued downward pressure on our revenues. Their mindset is captured in the phrase, lower for longer, and it is guiding their actions. In response, we will continue to tighten our belt and look for ways to increase our efficiency and prove our value to our clients.

Our cost-cutting initiatives have already impacted our vessel operating costs and G&A costs down 17.5% and 13.9% respectively from the same quarter last year. Tidewater's global head count is down approximately 1,000 employees or 11% from last year's June level.

Our ability to generate a 40% vessel operating margin in the June quarter speaks to our successful efforts so far at controlling those costs that we can control. We will not become complacent about our cost structure or our operating philosophy.

We continue to work closely with our clients and respond to their requests for day rate reductions and improved efficiencies. But as we have said before, we're inclined to make concessions if we are rewarded with tangible benefits, trading things for things and not things for promises.

When we refer to things for things in the context of reducing day rates on existing contracts, we value putting additional vessels to work, and we value extending the term of existing vessel charters, provided the agreed rates result in reasonable vessel level cash operating margin.

Improving payment terms and reducing our investment working capital is also something we have sought to accomplish in day rate renegotiations. As I mentioned earlier, in the current operating environment, our goal is to balance profitability, cash flow and revenue market share objectives.

Whatever the operating environment, we will continue to make sure that we deliver the highest level of service quality possible. That means we will not alter our focus on safety and compliance. Those two qualities are core values of Tidewater and we believe our performance in these areas provides us with a competitive advantage.

Staying close to our customers also remains vitally important. We need to make sure that while we are providing outstanding service to our clients, we are working with them in ways that will increase efficiencies and reduce overall operating cost in a sustainable way.

Our high-quality diverse fleet, subsea services, and our global boots on the ground operating structure provide Tidewater the ability to offer a wide range of capabilities and options to help our clients meet their needs in whatever water depths or geographic locations their activities may take them.

We want and need our customers to be successful as customer success leads to success for Tidewater. This offshore industry downturn is shaping up to be perhaps one of the toughest we've experienced in our history.

Our management team has experienced the ups and downs of the offshore industry and we have substantial institutional knowledge of how to best manage through difficult times.

One thing we have learned over the years is that a conservative financial posture is a requirement if you're a long-term player and wish to survive the inevitable down cycles in the energy services business.

Downturns also have the potential to create opportunities to expand operations and enhance future growth dynamics, provided you operate with low leverage, maintain adequate liquidity and remain prudent in regards to capital commitments.

Although we cannot cite any specific opportunities that may develop for Tidewater, our strong balance sheet and solid liquidity position should allow us to seize whatever opportunities that will emerge. Our response to any opportunity, however, will be dictated by our commitment to creating shareholder value which remains management's key objectives.

With that, we're ready for your questions..

Thank you. And our first question is from George O'Leary of TPH & Company. Please go ahead..

Good morning, guys..

Good morning, George..

So far in this downturn, we haven't really seen anyone pushed to scrap the vessels. And historically, you guys have actually been a good behaver on that front and had been – proactively scrapped vessels as you've not seen an opportunity for them to continue to work.

What do you think it takes to get some players with older assets to start scrapping and helping this market heal?.

Well, George, a couple of things. First, we've kind of gone through that. And our fleet, for the most part, is all newer vessels. We have a handful of older vessels left, but – so that really doesn't apply much to us.

Secondly, in the past – I've talked about this – in the total OSV space, there's probably 600, 700 older vessels that are greater than 25 years old. Quite frankly, I think a lot of those have already left. So I think additional scrapping, while it may occur, is not going to be really the answer to bring the supply-demand dynamics back in place.

And people that are still operating older vessels, quite frankly, in this environment when they come up on regulatory dry-dockings, making that business case, I can just tell you that becomes increasingly difficult. So, that's about all I can say..

That's helpful color. And then you mentioned in your commentary that you are seeing some vessel construction cancelations.

Just curious if there's any color on the types of vessels that are being – vessel construction that's being canceled and maybe any regional breakdown if that's predominantly a lot of these vessels that are coming out of the Asian markets, if it's Brazilian vessels, Gulf of Mexico. Just any more color you can provide on those cancelations..

Oh, yeah, I think it's a little bit everywhere. But just remember that a majority of the new builds are coming out of the Far East. So I think we're seeing and hearing things about cancellations at shipyards, trying to get some numbers on that. I'm hesitant to really say a whole lot more than that.

I can just tell you that there is a lot of projects, I believe, in China, that will not end up in delivery to an operating company. So that was speculative builds, new builds, and, again, I think it kind of runs of the gamut of all vessel classes at the end of the day..

That's helpful color. And maybe if I could sneak just one more in. You mentioned potentially some opportunities emerging on the back of this downturn.

Would those necessarily have to be in OSV space or are there some kind of ancillary markets that you guys are potentially looking at, something akin to kind of moving into ROVs that happened a few years back?.

Yes and yes, and maybe no and no at the end of the day. How does that sound? I can't tell you what the game plans are for Tidewater. But we're certainly looking at the business we're in because I think there will some opportunities there and some other businesses that we're stepping out into along with some other things.

So, one can never say what will present itself and I really think the magnitude of this downturn, there's going to be some potential out there across the board..

Sounds realistic. Thanks for that color, guys..

Thank you. Our next question is from Matthias Detjen of Morgan Stanley. Please go ahead..

Thank you very much for taking my question. So I had a question on the stacked vessel sales. If you could give us a few more details there, whether it's some of the newer vessels or the older vessels. And maybe if you could like – so like tell us who the buyers might be for these kind of vessels..

Well, I guess a number of things I'd clarify is we have stacked both older and newer previously active vessels. As Jeff mentioned, the range in age of vessels that we have stacked has been from less than a year, so essentially, brand-new equipment that's been delivered, to something over 30 years.

We have not sold any vessels that are recent vintage, at least nothing that comes to mind from my perspective. But when we do sell vessels, back to the last question, there's been, I'd say, over the years 15% to 20%, maybe even 25% at times that we have scrapped vessels. The vast majority of everything else has been sold into non-class markets.

Again, Nigerian security support, Caribbean cargo trade, fishing, shrimping, anything you can imagine, we have sold vessels into it..

But it really doesn't come back to compete against us..

Yeah, and it's in the oil and gas market, that's at the very low end that we are really not competing for.

I guess the only thing that if you go back to kind of our historical definition of new versus old vessels, with 2000 being a convenient breakpoint for us, I don't recall if we've done anything last quarter, but we have sold "new vessels" when it's been crew boats or other small vessels that typically didn't have the 25-year estimated useful life typical OSV would have..

Okay. That's interesting..

– (41:35) vessels, but at least thus far, most of what we have sold has been the older stuff that is really never expected to come back into the operating fleet again. But brand-new stuff that we have stacked is more considered kind of available for work, marketed, but we have de-manned it in order to reduce costs..

Okay. That's very thorough, thank you. And with regards to the Brazil market, I was wondering if you had experienced any difficulties there due to sort of like Petrobras internal issues and sort of like the stricter enforcement of cabotage laws. We've heard some stuff like that in the market here.

Have you with Tidewater experienced any issues there?.

Matthias, we've been in Brazil a long time. So our experience with Brazil goes back a long time. And there are always issues regardless of how the market is. Even in the very up market, Brazil can be a difficult place to operate. But yes, there have been some issues that we have had in getting new vessels on some contracts.

But we have a team on the ground that works that, and again I can't say that it's a whole lot worse than it has been recently. But Brazil is and will be a tough place to operate..

Okay. That's very clear. Thank you very much..

Thank you..

Thank you. Our next question is from Turner Holm of Clarksons Platou. Please go ahead..

Hey, guys. Thanks for taking my call. Just a quick follow-up on Brazil.

One of your competitors mentioned in an SEC filing last week that they see Petrobras moving towards an all-Brazilian-flagged fleet on – do you agree with that statement or do you guys see it differently?.

Turner, Brazil has been moving to an all-Brazil fleet for 20-some years. Again, I'm not going to take opposition with any public statements that are out there. I think at the end of the day, an all-Brazilian fleet doesn't necessarily meet the market's needs or Petrobras' needs..

Okay. I appreciate that.

And then just on the new-build program, you talked about taking a closer look at some of those vessels, and just curious how you think about maybe which vessels that you go forward with and which vessels maybe you look at canceling if that seems appropriate? And any color you can provide in terms of your new-build vessels kind of maybe how many you might be able to cancel if you chose to do?.

No, Turner, I don't think we're going to go down that path. I mean, we are looking at all of our construction projects, and I've stated in the past that when we placed orders at yards, we liked that equipment, that's the reason we placed the orders that they have. We think functionality and they do have a place in our fleet on a go-forward basis.

When other people don't live up to their side of the contract, certainly, in this environment we have to look at every contract, and we'll continue to do so..

Okay. Thank you, gentlemen. Appreciate it..

Thank you..

Thank you. Our next question is from Greg Lewis of Credit Suisse. Please go ahead..

Yes. Thank you, and good morning..

Good morning, Greg..

Good morning, Greg..

Hey, Jeff, in your prepared remarks you kind of mentioned things for things, and you kind of walked through some scenarios.

I guess it's like a two-part question, are we starting to see trends – are we starting to see contracts and renegotiations where there are actually things for things happening? Or is it still sort of in the initial phases? And then just following up on that, you mentioned the potential of taking new equipment as well as part of a lower day rate price for the contract.

Is that also something that's happening? Because I would think that would seem pretty encouraging..

Greg, I'll answer the first part. I think we are fairly well along in our opinion of reviewing contract positions with the majority of our clients, okay? That's been ongoing, gosh, since the first of the year. So, I think we're fairly well along with that.

It's not to say that there won't be more coming down the path, but trading some things for things, we've – I think we've kind of worked our way through quite a bit of that. And I didn't quite understand the second part of your question.

Could you reiterate that again, please?.

Sure. Yeah. I mean, there's obviously the things for things, part of that is blend and extending.

And then also you mentioned potentially – we're going to lower the contract on this – we're going to lower the rate on this existing contract, but we're – as a result of that, we're going to actually take another boat from – you're going to be able to put another boat on to that customer..

Yeah. We have seen that. And it may be with that customer in a very different geography around the world. Again, our global footprint, I think, gives us the ability to have that discussion where most of our regional players are talking about one specific area. So, we – the entire world, for us, is at play here.

So, if a client in one market wants to renegotiate an existing contract and they have another contract starting around the world, we try, if we can, to tie that together for any concession. So, we try to do that and have been, I'd say, moderately successful but there hasn't been a lot of the incremental.

But certainly, trading things for things additional term on a given contract, we have had success with that..

Okay. Great. And then just one from me, I mean, Jeff, I mean, clearly, it's not news to anybody that this is a tough market. I mean, you guys mentioned one of the toughest in the industry. As we go back and look historically at Tidewater's dividend, it's been – I mean, just pulling up charts, it's been around for decades.

It's always kind of gradually risen from time to time. Right now, as we think about it or as you think about the potential where the market is going, opportunities that could emerge, clearly there's a lot of liquidity in the company today, but clearly, cash for an opportunity would be good.

I mean, at a certain point in this market, should we be thinking about or is – I guess is the board or is management thinking about potentially revisiting what the dividend looks like just for the future?.

Well, Greg, obviously, we're thinking about lots of things and certainly, the dividend and the capital structure of the company is part and parcel of that. So, if we weren't doing that, believe me, the board will be saying, management is not doing its job.

And I think everybody out there in the space, whether they currently pay a dividend or don't, needs to be and everyone is looking at that. So, yes, we are looking at it. I would remind that the dividend that we do pay is – it's – we have about 47 million shares.

It's about $47 million on an annual basis, and that is not trivial money by any extent, but at the end of the day, that's not going to be the make or break on a big – if you look at some sort of acquisition or investment in some industry. Will we continue it? It's certainly a discussion that we and the board will have and will continue to do so..

Okay, guys. Hey, thank you very much for the time..

Yes, Greg, the other thing I'd say is, as you point out, we – we're not new to the dividend-paying game. And obviously, we meet with the board on a regular basis and we announced just this month that we're paying a dividend in September.

And obviously, a couple of weeks ago, whenever that press release came out, the market wasn't materially better than it is today or materially worse for that matter.

So I would point to our track record, point to the fact that in the grand scheme of things, that $11 million or $11.5 million a quarter is not what's driving our capital structure liquidity issues. And more than anything, I would look at what we do rather than what we or others say..

Okay, guys. Hey, thank you very much..

Thank you. And our next question is from Cole Sullivan of Wells Fargo. Please go ahead..

Hi. Good morning..

Good morning, Cole..

Morning. The question I had was on the guidance for Quinn. On the revenue guidance, if I recalled correctly, I think it was $275 million average over the next three quarters. And it sounded like there were – it implied lower, obviously, from the June quarter.

But how would that cadence kind of progress through the year? It sounded like you would kind of maybe start on the higher end and end on the lower end.

Is that the right way to think about that?.

I think what well, number one, I'd clarify is we do our forecast on a quarterly basis, and we update it regularly.

The $275 million number that I referenced is what based on our current forecast for the remainder of the fiscal year – obviously, that would be a one plus three quarters, one quarter actual, three quarters projected – would imply, if our forecast proves to be right, an average of $275 million in vessel revenue per quarter.

Obviously, we've just printed a quarter at $298 million. That would imply that the remaining three quarters would be something less than what we've already reported in order to get down to that $275 million current expectation when we look at the year in retrospect sometime in April or May of next year.

I think trying to get into how we see the pattern developing is really the reason and how difficult that is today is the reason that we've tried to frame this as a multi-quarter expectation based on a current forecast.

What vessels are ultimately going to be dry docked, when they're going to be dry-docked, and how the customer projects move forward, stall, don't move forward, and so on and so forth is really what we're trying to give you is that – we're giving you the best estimate we have. Others have chosen not to provide guidance.

Ours may prove to be incorrect, but we're giving it the old college try..

Okay..

The other thing that I would emphasize is that we have developed a degree of confidence internally that if revenue comes in slightly worse than expected, we will respond appropriately with reduction in costs.

So, if I was to rank where I feel better about our guidance than worse, the specific number of vessel revenue, the timing of that vessel revenue is very difficult to get comfortable with today.

However, I feel relatively good that if revenue comes in lower than expected, we will do the appropriate and necessary and that we'll be able to sustain that 36% to 40% gross margin number that I used.

So, again, how do utilization and the stacking process plays out, really tough to call because of the job-by-job, quarter-by-quarter deal, but we are comfortable that we'll do the necessary if revenue comes up short.

And again, if we beat these numbers at the end of the day because there's more work, fewer vessels go to stack, it's obviously going to come with additional operating costs because we're not going to be putting boats to work with our crews. So....

Sure..

Again, tough to forecast in the current environment. Others have chosen not to. We're pretty open kimono in our approach. And if we have an update, we'll provide it. But this is as we see it today..

Okay. And thanks for clarifying. And just real quick on that.

And did you say that that average included the first quarter?.

Yes..

Okay. And then secondly on the operating margin, you guys give 36% to 40%.

Is that the annual average or is that sort of a quarterly expectation over the next three quarters?.

It's a quarterly expectation, but the annual average would likewise fall in that range. I think we reported 39.9% in the quarter just completed..

Okay. All right. I appreciate it, and I'll turn it back..

Thank you..

Thanks, Cole..

Thank you. And we have no further questions at this time..

Well, I think we'll wrap it up then, Christine. Thanks for hosting the call today for us. And I appreciate everyone's interest in Tidewater and have a great day..

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