Good morning. My name is Chantel, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Q2 2022 Earnings Conference Call. As a reminder, today's conference call is being recorded. [Operator Instructions].

West Gotcher, Vice President of Finance and Investor Relations, you may begin your conference. .

Thank you, Chantel. Good morning, everyone, and welcome to Tidewater's earnings conference call for the 3 and 6 months ended June 30, 2022.

I'm joined on the call this morning by our President and CEO, Quintin Kneen, our Chief Financial Officer, Sam Rubio; our General Counsel and Corporate Secretary, Daniel Hudson; and our Vice President of Sales and Marketing, 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 make during today's conference call.

Please refer to our most recent Form 10-K and 10-Q for additional details on these factors. These documents are available on our website at tdw.com or through the SEC at sec.gov. .

Information presented on this call speaks only as of today, August 5, 2022. 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 on our website at tdw.com and is included in yesterday's press release. .

And now with that, I'll turn the call over to Quintin. .

Thank you, West. Good morning, everyone, and welcome to the Second Quarter 2022 Tidewater Earnings Conference Call. I'm pleased to say that the second quarter continued a pace of rapid improvement in the offshore vessel market and more importantly, marked an inflection point in the market that we have been anticipating for some time now..

We've talked about momentum building in the business. The second quarter marked the tipping point in vessel supply and demand dynamics, and it marked a significant step-up in our operational and financial results. I'll provide more color on some of our regions and vessel classes.

But in short, the most important indicator in the strength of our business, day rate, increased by nearly $1,900 per day sequentially. With 172 working vessels, that's a big move for 1 quarter. You may recall that we've discussed an increase over an entire year during a typical up cycle, up about $1,500 per day.

This sequential quarterly uplift is the most indicative signal as to the step change we're experiencing in the market today. .

During the second quarter, we closed on the acquisition of Swire Pacific Offshore, which you may hear us referred to as SPO.

I'm pleased to say that the integration of the acquisition is going well with some early successes realized, and that the SPO fleet contributed $43.2 million of revenue during the second quarter post-closing of the transaction, and that it generated vessel-level cash margins in line with our consolidated vessel level cash margin of 38%. .

For the quarter, the legacy SPO G&A totaled approximately $3.9 million, which would be $5.2 million on a full quarter run rate. Total G&A burden for legacy SPO in 2021 was about $35 million.

We are confident that we will achieve our targeted goal of $20 million in G&A synergies over the next 9 months and more broadly will achieve total target synergies inclusive of both G&A and OpEx synergies of approximately $45 million over the next 12 months.

I want to thank both the legacy SPO employees and our legacy Tidewater employees for all of the effort thus far in ensuring this acquisition and integration is a success. .

Turning back to the second quarter. Revenue increased meaningfully in the second quarter, up 55% compared to this first quarter. Total revenue increased to $163.4 million in the second quarter compared to $105.7 million in the first quarter. And of course, that included the contribution from the acquired SPO vessels beginning in late April. .

Looking at this on a normalized basis, revenue per active vessel was up approximately 18% sequentially, while average day rate was up about 17% sequentially, with the increase in revenue almost fully attributed to the move in day rates. .

Vessel level cash margin expanded over 4 percentage points to 38.2%, nicely in excess of the 30% target we've talked about in recent quarters and up nearly 11 percentage points from the second quarter of last year. .

Looking across the world in our various regions, we experienced broad-based momentum in all of our operating regions. My intention is to stay with a per vessel view of the business to eliminate any distortions from the absolute impact of the SPO acquisition, but Sam will give more detail on the absolute changes in his commentary. .

Our fleet in Europe, Mediterranean led the way with a 30% sequential improvement in day rates with significant improvements across the U.K., Norway and Egypt. The second quarter is usually one of the seasonally strong quarters in this segment, particularly in the North Sea, given the nicer weather in the spring and early summer. .

Vessel level cash margin improved considerably during the quarter, up 14 percentage points sequentially to nearly 41% and up nearly 20 percentage points since recent lows at the end of 2021. Utilization slipped modestly sequentially, which is more a reflection on our decision to stay in the spot market rather than any weakness in the market itself.

The spot market has more frictional unemployment, and you try to more than offset that with quicker day rate increases. We've opted to enter the spot market a bit more aggressively than in prior periods given the relative strength of the market, which can be seen in the day rate achieved and the associated margin expansion.

Additionally, we had 1 more vessel on average working during the quarter. .

West Africa continued to show strong momentum during the quarter. As you may recall, we essentially doubled the size of our OSV fleet in Africa via the SPO acquisition. Day rates improved 21% sequentially to about $10,700 per day, well in excess of anything we've seen in recent memory.

Vessel level operating margin modestly improved to 42% sequentially as this region was the largest recipient of the new SPO vessels and their existing cost structure.

Given the scale of operations from legacy SPO fleet in West Africa, much of the OpEx synergy achievements we have targeted will ultimately accrue to this region and help support continued margin expansion. .

Average active utilization continued to move up, up nearly 4 percentage points to 83% in the second quarter. The legacy SPO fleet was consistently highly utilized, speaking to the quality of the vessels in that fleet, and we expect to continue to drive utilization and margin expansion with the expected OpEx synergies in the region. .

Turning to our Middle East region. I first want to point out that this segment has historically been titled Middle East and Asia Pacific and was inclusive of a limited number of vessels we have operated in Asia Pacific prior to the acquisition of SPO.

Given the sizable presence in the acquisition brings to Tidewater in Asia Pacific, we made the decision to split the Middle East into its own segment and established Asia Pacific as a new distinct segment due to the relative scale of the 2 regional businesses and to provide additional disclosure on the 2 sizable discrete markets. .

Turning to the quarter, perhaps one of the most interesting signals as it relates to global tightness in the supply vessel market is the pricing improvements we saw in the Middle East this quarter.

Historically, the Middle East market has proven a consistent market in which to work a large number of low to medium specification vessels, but generally somewhat challenging to realize day rate increases given the relative oversupply of this specification of vessels.

However, during the second quarter, average day rate improved by 16% to about $9,500 per day, a meaningfully higher day rate average compared to what we've seen in the past several years. Vessel cash margin approached 30%, up almost 4% and well in excess of anything we've seen in recent memory. .

Turning to the Americas segment. Average day rate improved about 7% sequentially, although there was some regional mix that obscures the improvements during the quarter and some of the more interesting markets within that segment.

The Caribbean portion of the Americas continued to show significant momentum with average day rate up about 25% sequentially.

The average day rates in Mexico, which at times shares some similar characteristics with the Middle East market in that it is a relatively small vessel market with a dominant data-owned customer, saw nearly double-digit percentage increase. .

The U.S. Gulf of Mexico was roughly flat due to the limited number of vessels we have in the area while the average day rate improvement for the Americas segment was somewhat modest on a relative basis, the operating leverage inherent in all of our businesses began to manifest itself in this segment during the second quarter.

Utilization improved by nearly 11 percentage points. In addition to the day rate increase, we increased revenue by about $9 million sequentially, $6.5 million of which dropped to vessel cash margin, which was up 9 percentage points sequentially to 43%, nearly double from the year ago quarter. .

Lastly, I'd like to turn to our new Asia Pacific segment. About 30% of the legacy SPO fleet was comprised of vessels in the Asia Pacific geography, principally working in Southeast Asia and Australia. At the end of the quarter, 17 vessels were active in the Asia Pacific region. .

The financial results are somewhat difficult to compare this time on a sequential basis given the sizable increase in the vessels and the mix of the vessels in this broad region.

However, we are pleased to enhance our presence in this region and believe that the momentum we're seeing in all of our other regions is similarly building in this region, and this region has a long-term opportunity, not just in traditional hydrocarbon activity, but in the rapidly advancing offshore wind market. .

Our G&A costs during the quarter totaled $27.8 million, which includes $7.3 million in professional fees and other transaction-related expenses associated with the SPO acquisition, along with the $3.9 million of SPO-related G&A expense I referred to earlier.

Excluding fees and expenses associated with the transaction, G&A came in right about $20.5 million for the quarter. This compares to a pre-acquisition normalized G&A of $17 million in the first quarter.

We continue to expect G&A burden associated with the added vessels on the new regional office in Singapore via the SPO acquisition to level out next year at about $2.5 million per quarter. .

Cash flow for the quarter was -- free cash flow for the quarter was a negative $14.9 million.

As we mentioned on the prior 2 calls, we anticipated free cash flow in the first half of 2022 to be weighed down by a significant dry dock expense and vessel reactivations during the first half, of which we spent approximately $33 million during the first half of '22, including the newly acquired vessels, we expect to spend about $21 million in dry dock expense in the second half of 2022.

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We experienced a continuation of working capital build during the second quarter, part of which was the natural working capital build you'd expect in a quarter with a significant revenue growth and a sizable acquisition. But we also continue to have customers delay payments contributing to about $15 million of the working capital build.

We anticipate collections picking up in the third quarter. And as we indicated on last quarter's call, we expect DSO to normalize by the end of the year. .

We remain confident that market conditions will result in our entire fleet working by the end of 2022, a combination of reactivations and disposing of non-core vessels. We made additional progress during the second quarter in disposing vessels available for sale, disposing of 4 vessels for total proceeds of $3.5 million.

We ended the quarter with 9 vessels remaining in the held-for-sale category, which includes 1 SPO vessel added as part of the acquisition. .

Vessel lay off costs were $700,000 in the second quarter, down by about half quarter-over-quarter, and costs associated with COVID-19 also continued to fall down to $800,000 in the second quarter. .

In summary, we are very pleased with the second quarter results. We believe that the remainder of 2022 will continue to be strong with another leg up in demand moving into 2023 in what has become an increasingly supply vessel constrained environment. .

With that, let me turn the call over to Piers for an overview of the global market and the company's performance within it. .

Thank you, Quintin, and good morning, everyone. Last quarter, we talked about some of the supply issues we are seeing that are affecting the global OSV market today and why with our modern larger fleet of PSVs and AHTSs, we are well placed to take advantage of this continuing upturn in the market.

These larger vessel classes are where we believe the supply-demand balance is almost in parity.

And of those vessels that are still stacked, they have been for over 5 years and/or over 20 years old, and in our view, we'll find it difficult, if not impossible, to come back into the market, especially as we're still seeing limited dry docking space globally and significant long lead times for major equipment items, which we believe will further exacerbate the already tight supply-demand balance in these larger vessel classes.

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This quarter, I would like to focus more on the demand side globally and how that is affecting, obviously, day rates for the first half of 2022. Overall, the market remains very positive. In total, we see full year projected CapEx commitments for 2022 of $86 billion, which is up around 20% on the full year average, which bodes well for future years. .

Rig demand continues to improve with utilization levels across the floaters and jack-ups, almost touching 85% levels and term day rates for ultra-deepwater units almost at $450,000 per day, all of which drive the basic fundamentals of the OSV space and parlays nicely into our own fleet. .

Specifically on the OSV side, we've started to see the increase in demand and shortness and supply impact rates positively on the upside, with Clarksons Research reporting global 1-year time charter rates for the largest PSVs at $22,000 per day levels compared to $15,000 per day levels in 2021 and 1-year time charter rates for large AHTSs averaging circa $31,000 per day compared to $23,000 per day in 2021, all very positive indicators that the market is pushing rates in the right direction.

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Working through our various regions and starting with Europe, we've seen a very strong rebound in the North Sea and Mediterranean markets with a significant uptick in demand. and even previously mothballed projects like Jack door and the North Sea being greenlit by Shell in the U.K. government, which again bodes well for the future of the region. .

The large AHTS market in the North Sea hit record high spot rates of GBP 173,750 per day during June as supply for larger AHTSs remain tight. Our own recently reactivated large AHTS was able to also take advantage of this tightness in the North Sea market. .

In the European market, which includes the Med, where the majority of the fleet of PSVs, we were able to push rates for new contracts awarded in Q2 2022 across all sizes of assets in the region by nearly 40% compared to Q1 2022 to an average new leading day rate in excess of $17,000 per day across all vessel classes, which compares favorably to the Clarksons global OSV rate index, which saw only an 18% rise in the first half of 2022.

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Moving to Africa, which is now our biggest region with the acquisition of Swire, we again are seeing rising demand across the whole continent, but with particular focus in Angola, Congo and Senegal, and with the added expectation of significant increase in the floating rig count in the region by the end of 2023. .

Across the whole continent, we have a good cross-section of vessel classes from our largest 16,000 BHP plus anchor handlers to our smallest crew boats. So the region is a good indicator of where we see rates going globally for all of our vessel classes.

The good news is that for new contracts awarded in Q2 across the whole fleet, we were able to again push rates by circa 84% compared to Q1, with average new leading day rates in excess of $21,000 per day. .

In the Middle East, Aramco remains the dominant player in the region as well as 1 of our key customers, but we're also seeing an uptick in tendering activity in Qatar as the region races to bring more production on stream.

Aramco has been very public about bringing significantly more jackups into the Kingdom and in turn, came out for a large 20-plus OSV tender in Q2 to support this uptick in activity, all of which will not only tighten supply on the smaller vessel classes but will create an opportunity to continue to push rates and margin in the area.

Most of our fleet in the region are on the smaller AHTS and PSV classes, but we were still able to push rates to new contracts across the fleet nearly 60% compared to last quarter. .

In the Americas, we saw continued high demand in Brazil in Q2, driven by Petrobras and expect this to continue throughout the year.

And whilst we currently have a small footprint in the country, their requirement for larger volatile AHTSs and larger 900 square meter deck space PSV sucks up supply elsewhere in the globe, helping to tighten the larger vessel class market globally. .

In Mexico, we're starting to see Pemex starting to ramp up and expect them to be a few quarters away from really getting going. In the U.S., Guyana and Suriname, we continue to see very strong demand for rigs and vessels both in the first half of the year and going forward.

Most of our Americas fleet is PSVs, and we were able to push rates in Q2 for new contracts across the whole fleet by almost 50% compared to Q1 2022 to a blended average new leading day rate of nearly USD 18,000 per day.

Please bear in mind that as we mentioned in our last quarterly call that we have seen and continue to see charter rates for our large class of vessels in this region in the mid-30s to mid-40s range. .

Lastly, in Asia Pacific, Malaysia is one of the key drivers of demand in the region.

However, we have started to see the whole region starting to play catch up in the latter half of Q2 with gas projects being sanctioned in Australia, new licensing rounds in Indonesia and an uptick in new wind farm projects expected to come online in Taiwan, where we have a significant presence off the Swire acquisition. .

Similar to Africa, we have a good cross-section of the fleet operating in the region from a large 16,000 BHP class of AHTSs and 900 square meter deck space PSVs, all the way down to the smaller 4,000 to 8,000 BHP class of AHTSs.

The market is probably a quarter or 2 behind other areas, but we are starting to see rate increases coming through on the larger vessel classes close to other regions. We expect Asia Pacific to be in line rate wise with the rest of the world by end 2022. .

Overall, as mentioned by Quintin, we are very pleased with how the market has continued to move in the right direction in Q2 and we expect that positive momentum to continue into subsequent quarters.

Lastly, we are really starting to see solid rate improvements across the whole fleet with new contracts in Q2 averaging nearly 50% more than in Q1 2022 or equivalent to a blended average rate of about $17,000 per day across the whole fleet. .

With that, I'll hand over to Sam. Thank you. .

Thank you, Piers, and good morning, everyone. Now I would like to take you through our financial results and discuss some key points that make up these results. My discussion will focus primarily on quarter-to-quarter results comparing the second quarter of 2022 to the first quarter of 2022. .

As noted on our press release filed yesterday, we reported a net loss of $25.6 million or $0.61 per share. From an operational perspective, we showed meaningful revenue improvement quarter-over-quarter. Our revenue for the second quarter of 2022 was $163.4 million. This is $58 million or approximately 55% increase from the first quarter of 2022.

The sequential revenue uplift benefited from the addition of the SPO vessels from April 22 of this year, which contributed $43.2 million of revenue during the quarter. .

Utilization was roughly flat sequentially with active utilization of 82.5%. However, day rates improved 17% to $12,544 per day in the second quarter from $10,687 per day in the first quarter. Overall, gross margin for Q2 increased nicely to 38%, up from 35% in Q1. .

Vessel operating cost for the quarter was $100.3 million, an increase of $31.7 million from Q1, principally driven by the addition of the SPO vessels. SPO vessel operating costs totaled $26.7 million for the remainder of the quarter post closing of the transaction. Vessel operating cost per market a day in Q2 was approximately $6,300 per day.

That may increase somewhat in Q3 until we begin realizing our synergies beginning in the second half of this year and accelerating through the first half of next year, at which time we would anticipate our operating cost per market a day to decrease to close to $6,000 per day. .

We sold 4 vessels during the second quarter for net proceeds of $3.5 million and recorded a combined net loss of $1.3 million on the sale of these vessels. We generated operating income of $1.8 million for the quarter, an improvement of $9.2 million, driven by higher revenue and improved margin performance, mainly driven by the day rate increases.

Included in operating income is a $1.3 million loss associated with asset dispositions. .

G&A costs for the quarter was $27.8 million, up about $9.6 million from Q1. G&A for the second quarter included $7.3 million of transaction expenses associated with the SPO acquisition.

Q2 G&A cost was also burdened by about $3.9 million associated with the legacy SPO cost, which implies a full quarter run rate of $5.2 million, which is already well below our expectations of about $2.8 million per month.

We have achieved some early synergy success and anticipate to realize the remainder of the G&A synergies over the next 9 months or so. We expect our overall G&A run rate on a marketed day basis to eventually level out at around $1,300 per day once all transaction costs have been incurred and synergies have been realized. .

In the quarter, we incurred $18.5 million of deferred drydock costs compared to $12.6 million in Q1. As expected, Q2 was a heavy drydock quarter due to regularly scheduled dry docks and vessel reactivations, which also included a few vessels associated with the SPO fleet. .

In the quarter, 20 dry docks were in process, and we incurred 733 dry dock days compared to 547 in the first quarter. which negatively impacted our overall utilization by about 5 percentage points. We expect to incur approximately $23 million through the remainder of the year, bringing the total to about $54 million for the full year 2022. .

In the quarter, we also incurred about $4.2 million in CapEx. We expect CapEx for 2022 to be about $13 million, including $2 million on SPO vessels as we execute vessel modifications related to new contract requirements and technology initiatives.

Free cash flow was negative $14.9 million this quarter, due primarily to the heavy dry dock spend and the build in working capital. .

As it relates to working capital, we had an actual buildup of AR driven by the sequential uplift in revenue. However, we did have some customers delay payments that contributed to about $15 million to the buildup in AR, pushing our DSO up beyond what we typically target.

We anticipate DSO to normalize by the end of the year when in combination with lower drydock spend and continued financial improvement should yield a meaningful improvement in free cash flow in Q3 and Q4. Also included in the $14.9 million were $4.2 million of legacy SPO tax payments. .

As we've discussed in the past, we maintain an ongoing dialogue with Pemex as it pertains to our outstanding AR. At the beginning of the quarter, we had about $13 million of AR outstanding with Pemex. During the quarter, Pemex commenced a unique bond offering, focusing on reducing its trade accounts payable up to its vendors. .

We exchanged $8.6 million of past due AR for a June 2029 8.75% bond priced at par. We expect to monetize this bond sometime in the second half of 2022, at which point we realized associated HR exchange -- AR exchange. .

In Q4 2019, we began reclassifying vessels on our balance sheet from property and equipment to assets held for sale. We have since run 86 vessels through this program. At the end of Q1 '22, we had 12 vessels held for sale at a value of $8.6 million.

During the second quarter, we sold 4 vessels for proceeds of $3.5 million and added 1 SPO vessel to the asset held for sale list, leaving our vessels held for sale at 9 with a value of $6.9 million. .

In June, we amended the share purchase agreement in Swire to modify a provision that inadvertently created a derivative out of the Jones at warrants, and we recognized a loss on a mark-to-market adjustment related to the warrants. The charge is a onetime noncash charge totaling $14.2 million. .

I would now like to focus the performance of the region. Our Americas region operated -- reported operating income of $5.9 million for the quarter compared to operating loss of $82,000 in Q1. The region reported revenue of $37.5 million in Q2 compared to $28.4 million in Q1.

The region operated at 29 vessels in the quarter, which was an increase of 2 from Q1, 1 of which was a result of the SPO acquisition. .

Active utilization for the quarter was 87%, which was up 76 -- up from 76% in the prior quarter. Additionally, day rates increased to $16,569 from $15,501 per day in Q1.

The increase in operating income was due to an increase in revenue attributable to the increase in day rates, the increase in utilization and the increase in operating vessels in the region. .

Turning to our new segment, Asia Pacific. I want to remind everyone that we've split our Asia Pacific region from the Middle East region into its own stand-alone segment and is no longer combined with the Middle East.

For the second quarter, the Asia Pacific region reported an operating loss of $899,000 compared to operating income of $2.2 million in Q1. The region reported revenue of $16.4 million in the second quarter compared to $4.9 million in the prior quarter as a result of the additions of the SPO vessels in April.

The region operated at 18 average vessels, which was up 13 vessels on average compared to Q1. .

Revenue and average vessels increased were principally influenced by the addition of the 16 SPO vessels in the region. Active utilization decreased by approximately 29 percentage points to 70% in the quarter compared to 99% in Q1 as we had a handful of vessels come off hire as contracts expired.

99% utilization is highly usual, and it's simply that these vessels were all on term contracts. .

Having said that, day rates improved to $13,748 per day in Q2 compared to $10,975 per day in Q1. Operating income was impacted by the additions of the SPO vessels, which brought along the legacy cost structure and combined with the expiration of the contracts.

We anticipate the Asia Pacific region to be one of the beneficiaries of our targeted synergies moving forward. .

Turning to our Middle East region. Similar to the Asia Pacific segment, Middle East is now its own stand-alone segment, no longer combined with Asia Pacific. The sequential comparisons I provide will pertain to the revised segment reporting.

For the second quarter, the Middle East region reported an operating loss of $307,000 compared to an operating loss of $1.9 million in Q1. The region reported $28.4 million in the second quarter as compared to $20.2 million in the prior quarter. .

The region operated at 41 vessels, which was up 8 vessels compared to Q1. The increase in average active vessels is attributable to a relocation of vessels from our West Africa and Europe regions to the Middle East, along with the effect of the addition of 7 vessels attributable to the SPO acquisitions. .

Active utilization decreased by approximately 3 percentage points to 81% in the quarter compared to 84% in Q1 as this was one of the heavy dry dock regions. However, day rates improved meaningfully to $9,490 per day in Q2 compared to $8,160 per day in Q1.

The improvement in operating income was due primarily to the increase in day rates and the addition of the SPO vessels, partially offset by lower utilization. .

Our Europe and Mediterranean region reported operating income of $4.3 million in Q2 compared to an operating loss of $2.4 million in Q1. We saw revenue increase to $32.5 million compared to $23.9 million in Q1. The region operated at 25 vessels in the quarter, which was an increase of 1 vessel from Q1 as we added 1 SPO vessel. .

Active utilization decreased slightly to 88.1% compared to 91.3% in Q1. We did see an uptick in day rates to $15,776 per day compared to $12,124 per day in Q1. The improvement in operating income for the quarter was mainly driven by the increase in revenue driven by the increase in day rates. .

Our West Africa region reported operating income of $9.3 million in Q2 compared to operating income of $3.2 million in Q1. The market in this area has continued to improve as we've seen revenues increase steadily for 6 straight quarters. .

Revenue for Q2 was $47.4 million compared to $26.4 million in Q1. The region operated at 17 more vessels on average in Q2, and active utilization increased to 82.9% in Q2 compared to 79.1% in Q1. Day rates increased significantly to $10,721 per day in Q2 from $8,834 per day in Q1.

The increase in operating income from Q1 resulted from an increase in revenue, resulting from an increase in day rates and higher utilization, along with the effect of the addition of 25 vessels from the acquired SPO fleet. .

In summary, we are encouraged to see increase in revenue driven by the newly acquired SPO vessels and higher day rates, and we are encouraged to see the continued positive signs in market activity. We anticipate both layup costs and COVID-related costs continue to decrease through the remainder of 2022.

We expect layup cost to cease by the end of '22 and anticipate modest costs moving forward related to COVID-related issues. We are pleased with the Q2 results and are encouraged with the leading indicators we see for the remainder of 2022 and 2023. .

With that, I'll turn it back over to Quintin. .

Thank you, Sam. In closing, I would like to remark on what we see for the remainder of 2022 and into 2023. On last quarter's call, I expressed our confidence that the back half of 2022 would bring a meaningful uplift compared to the first half of the year.

On the heels of a strong second quarter, our confidence in the second half of 2022 has not changed. We remain confident in the continued progression of day rates and utilization improvements throughout the remainder of the year..

For the remainder of 2022, our revenue backlog stands at $327 million, representing fleet contracted coverage of approximately 77%. Contract coverage is fairly evenly led across all of our vessel classes with our largest class of PSVs having the most exposure to the spot market opportunities. .

As we move into 2023, revenue backlog stands right at $400 million, representing fleet contracted coverage of approximately 52%.

Our largest class of PSVs have current contract coverage in 2023 of about 50%, representing a considerable opportunity to continue to deliver our largest class of vessels in a market environment currently experiencing substantial rate improvements. .

To put the strength of our day rate increase in perspective, during the second quarter, 24 of our vessels entered new contracts of various durations that will ultimately provide a nearly 50% aggregate uplift in day rates as compared to the previous aggregate contracted day rates.

This compares to the 16 vessels that entered into new contracts during the first quarter that realized just over 20% of pricing improvement. .

While there are some mix issues, it's worth noting that for our largest class of PSVs, pricing on new contracts entered into during the second quarter was in excess of 80% uplift as compared to their prior contracts. Candidly, the market is moving faster than we anticipated. .

And with that, Chantel, we will open it up for questions. .

[Operator Instructions] Our first question comes from Hans Lund with Clarksons. .

Just first question from my side, just to clarify, you said that the average day rate for the entire fleet was around $17,000 per day, while it says around $12,500 in the report.

Can you just clarify those numbers?.

Yes. I think they are rollover contracts. So, the contracts had rolled over during the quarter. We're just over $17,000, but they're all-in rate for all... .

Okay. Perfect. Speaking of day rates, we've talked about this in the past.

I mean, even this solid quarter has -- where can we kind of -- or do you have a view of where you expect to see the average day rates ending up at the end 2022?.

Well, we don't have a public view that we're going to express on that at this point. But clearly, we're excited about the ramp-up that we're seeing. And we definitely have exposure to turn over our large class of our vessels, especially the larger vessels as we move into end of '22 and into '23. .

Okay. And regarding your balance sheet with, in my opinion, [indiscernible] leverage and sound cash position.

Has your view changed on potentially adding more gearing to your balance sheet? How should you kind of up your cash position going forward are it paying out dividends more relevant now than it was before? Are you looking at investment opportunities? Can you comment around that, please?.

Yes. Yes. Sure. Listen, I've made no comments about -- I believe businesses are made to build cash and return that cash to shareholders. As it relates to our -- I agree, we are underlevered for a capital-intensive company.

However, we are a capital-intensive company coming out of a severe contraction in our industry and we are still preserving what you might call dry powder for additional accretive acquisitions, but also just making sure that we have the right liquidity until this industry is firmly established in more of a kind of mid- to up cycle. .

So appreciate that we're underleveraged. Look for reasons to deploy that capital into constructive acquisitions to the extent that that's appropriate for us strategically, have no issue returning money to shareholders and I'm excited about the opportunity to do that when the time is right. .

Our next question comes from Patrick John Fitzgerald with Baird. .

I wanted to ask about how much will reactivations from competitors impact the kind of supply side for OSVs in going forward.

I get that the spot market is tight right now, it sounds like, but is there a lot of spare capacity that can be reactivated relatively cheap that's going to put a hindrance on how much day rates can go up in the future?.

Well, I'll give a start to answering the question, then I'm going to hand over to Piers to see if he's got any on-the-ground tactical perspective. But the economics are such that a vessel that's been laid up.

As long as the vessels that remain in layup today, have been laid up, it'd mean that I think that this is very unlikely that any high-end vessel gets reactivated. .

We're definitely seeing reactivations on the low end, and that market was generally more oversupplied than the high-end boats when Piers was referencing a lot of tenders in the Middle East front. And those are generally low to medium stacked vessels. .

And as so we're starting to see those large tenders from Saudi Aramco and others absorbing vessels out of Asia, which have been in layup since they delivered. And so that certainly will impact the market. on those low-end vessels.

But even though it will impact the market, we're still seeing some reasonable day rate increases even on those low-end boats. .

And so -- but let me get it over to Piers and see if he wants to add anything. .

Yes. Thanks, Quintin Kneen. No, I mean I think just to reiterate on the larger sizes of our PSVs, this was 700 square meter plus size, we see very single digits of vessels that possibly could come back into the market. And that's similar to the large [indiscernible] as well for the sort of 16,000 BHP class as well. .

And then really just to Quintin's point, yes, there is potential of some of the smaller classes coming back, but a lot of those vessels when you really go into the numbers, which I don't hear those vessels have been stacked for 5 years. There's very long lead items to get parts and maintenance and things like that.

So maybe some of them will come back. But it's going to take time just with the supply crunch we're seeing in the market for just getting spares and reactivations in place anyway. So there's not too much of a concern on the lower end vessels either and certainly not really 1 on the large classes. .

Okay. So following the offshore rig industry, see a lot of contracts that have been signed recently, but these are rigs that are not actually working yet. So I would expect the demand side to continue to improve. So I mean, is that your expectation as well? Yes.

And then I guess, just kind of your thoughts on, I mean if that's kind of the backdrop, where could we see day rates in '23?.

Yes. So I agree with you on the demand side. Just to encapsulate what I see happening on the demand side over the last couple of years, what we saw in 2019 was an increase in oil price, which got -- which prompted people to catch up on maintenance. Oil price starts moving up, people want to start producing more.

And so their first reaction is to go out to their existing production facilities and fix things that perhaps have been broken for a while and find ways to enhance production and to get more barrels out of each of the individual units. And so we saw that beginning at the end of 2019.

We saw it ramp up in -- sorry, we saw it fall off considerably in the pandemic. And then we started to see the same dynamic come back at the end of '21 and into the beginning of '22. .

And so what we've really seen so far in our demand for vessels has been catching up on deferred maintenance and looking for ways to enhance production. The rigs that are now going back to work as well as the offshore wind farms that are being constructed are adding another layer of demand, and we're going to see that come in '23. .

I don't want to speculate where rates are going to go in '23. I will tell you that in prior peak cycles, average day rates for the Tidewater fleet at the time was right about $20,000 a day, okay? The fleet at that time was not as high graded as the fleet is today.

We've done a lot of acquisitions with -- obviously, through buying vessels, but we also did the GulfMark deal, we did the SPO deal. And at the same time, we've been just carving up the lower end of the boats and scrapping them or selling them into markets that we don't operate in. .

So the fleet today is a much better and higher spec fleet on average than the Tidewater fleet was at the end of the last cycles, right, call it, the 2006, 2008, kind of '12 to '14, that time frame, okay? And so I would suspect that we would see day rates in excess of those peak day rates in this coming cycle. .

I don't see anything, to your earlier question, that I believe in the next 3 years, we'll add considerable supply to the market. There's not enough boats to reactivate. There's not enough people to crew the boats. There's not enough parts to reactivate the boats. The new build economics still are not there to justify a new build. .

So over the next 3 years, I see this to be a vessel-constrained market, which will continue to push up day rates. And then there's the inflation element. That's a little bit of on both the cost side and the revenue side. But the inflation element is real, and we have to push that through on pricing as well.

So those are some ways to triangulate where I think it's going to go. .

But at this point, we are continuing to watch the market, continuing to push rate as aggressively as we can. And we'll look forward to updating you in the next several quarters as to where it goes. .

Great.

And then you provided a lot of numbers, but just kind of just for clarification, what's like a good run rate G&A per quarter once synergies are realized?.

Yes. Probably, Patrick, I would see about $20,000 per day -- day quarter. . .

$20 million per quarter. .

I'm sorry, $20 million. .

Yes. .

We have reached the end of the question-and-answer session. I will now turn the call back over to Quintin Kneen, CEO, for closing remarks. .

All right. Well, thank you, Chantel, and we look forward to updating everybody again in November. Goodbye. .

This concludes today's conference call. You may now disconnect..