Welcome to the Earnings Conference Call Second Quarter 2020. My name is Sylvia 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 Jason Stanley. Mr. Stanley, you may begin.

Thank you, Sylvia. Good morning, everyone and welcome to Tidewater’s earnings conference call for the quarter ended June 30, 2020. I am joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Accounting Officer, Sam Rubio; and our General Counsel and Corporate Secretary, Daniel Hudson. During today’s call we will make certain statements that are forward-looking referring to our plans and expectations. 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. Please refer to our most recent 10-Q for additional details on these factors. This document is available on our website or through the SEC at sec.gov. Information presented on this call speaks only as of today, July 31, 2020 and so 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 measures is included in last evening’s press release. And now, with that, I will turn the call over to Quintin.

Thank you, Jason. Good morning, everyone and welcome to the second quarter 2020 Tidewater earnings conference call. Allow me to start off by making a few remarks on the ongoing pandemic's impact on the shipping industry. I’ll then discuss how we are doing on executing the plan we outlined on the first quarter call and provide some updates to our outlook for the remainder of 2020. Finally, I will cover our consolidated quarterly results, highlight some noteworthy items in our operating segments, and then we will open the call up for questions. On our two most recent earnings calls, I mentioned the critical role the international travel infrastructure plays in moving our mariners around the world as they embark and disembark our vessels. There are over 50,000 ships around the world of all different types, and today an estimated 200,000-plus mariners are stranded on vessels and in need of repatriation. I am taking a moment on today’s call to highlight their plight, as they appear to have been forgotten by the governments rushing to address the more obvious concerns brought on by the pandemic. Shipping moves 80% of global commerce and as an essential part of keeping the global economic recovery going. So my call to action is this, please join us in supporting the formal recognition of these individuals as key workers. This would exempt mariners from travel restrictions and enable them to travel to and from ships. Groups like the International Chamber of Shipping, the International Maritime Organization, the International Labor Organization, and the International Transport Workers Federation are all championing this issue. To the extent that you can help us, I urge you to do so. When we last spoke, I outlined our revised outlook for 2020 and our performance in the second quarter was consistent with that revised outlook. We stated last quarter that our revised estimated revenue for 2020 was $395 million and the estimated cash operating margin would be 35%. We now anticipate full-year revenue to be approximately $390 million, which is down $5 million from what we estimated as the full-year revenue on the last call. We still anticipate cash operating margins of 35%, which would result in cash from core operations of $136 million for the year. Further, we budgeted $20 million for frictional costs associated with the pandemic, and we still see this as the annual impact of the crisis. This is the increased cost of travel and salaries, the cost of quarantine mariners, the cost of fuel to transit vessels coming off hire to their lay-up locations, and the incremental cost of those vessels being in lay-up. This $20 million of cost gets us down to cash flow of $117 million. General and administrative expense is now anticipated to be $77 million for the year, a $4 million improvement from $81 million we forecasted on the earlier call and that gets us to $40 million of cash flow. Vessel disposals of $40 million less dry-dock expenditures of $36 million gets us another positive $4 million. We are still anticipating a liquidation of working capital, net of taxes and other costs of $21 million for the year. So our current 2020 outlook compared to the outlook on the last call has cash operating margin down approximately $2 million, dry-dock expenditures are up $3 million, and general and administrative expenses are down $4 million, down $1 million overall to $64 million of free cash flow for the year and consistent with what we laid out on the first quarter call. In light of the decrease in offshore vessel activity in our revised forecast of the slope of the recovery in the industry, we reassessed the fleet and certain receivables owed to us from our joint ventures in Africa. This reassessment resulted in impairments and other charges that totaled $111.5 million for the quarter. The vessel impairments of $55.5 million reflect two components. The first relates to moving 22 additional vessels into the asset held for sale category where the revised forecasted day rates and utilization resulted in a present value from continuing to operate those vessels that was lower than their current disposal value. So we moved them into the asset held-for-sale category and marked them to their anticipated net realizable value. Further, in addition to the adjustment in book value for those 22 vessels, the second component is a similar mark-to-market adjustment on the 24 vessels that were already classified as assets held for sale. So we currently have a total of 46 vessels in this category, valued at $29 million, and our intention is to dispose of these vessels over the next 12 months. Although all regions of the world have been impacted by the downturn in the oil market and the pandemic, the onshore oil and gas industry of Africa has been impacted disproportionately. Our activity levels in West Africa are down over 80% and our operations in East Africa, for the time being, have been completely shut down. Other areas of the continent were negatively impacted although more in line with the roughly 25% global average decline we noted on the first quarter call. Since 2014, we have had a significant receivable due from our joint venture in Angola. The balance was in excess of $400 million in 2014 and 2015 and although the balance has been substantially reduced during the intervening years, the current pullback in activity has resulted in us reassessing the collectability of the remaining balance. As a result of that assessment, we recognized an impairment of $42 million. Related but separate, as a result of the decrease in immediate opportunities to expand our Angolan joint venture with our existing partner, we and our partner mutually agreed to dividend out substantially all of the cash held by the joint venture. That resulted in the receipt by Tidewater of $17.1 million of cash in the quarter and dividend income of the same amount. Also on the continent of Africa, as a result of the steep decline in the business and the outlook in Nigeria, we recognized an impairment on the $12 million owed to Tidewater by our joint venture there and we established a liability for a $2 million loan guarantee Tidewater provided to the joint venture back in 2013. Delivering on our free cash flow objective for 2020 will require similar quarterly results in the third and fourth quarters as we achieved in the second quarter. And the formula is the same. We must continue to minimize dry-dock expense. We must quickly lay-up and de-crew idle vessels. We must timely collect what is due from us from large multinationals and national oil companies, and importantly, we have to dispose of older lower specification vessels. All executed well in the second quarter and all are achievable in the second half of 2020 as well. Right now, we have $40 million forecasted for proceeds from vessel disposals and we remain on track with 25 vessels sold for $21 million in the first half of 2020. The generation of free cash flow remains our key focus and is the key determinant of our cash incentive compensation. In the second quarter, we generated revenue of $102.3 million, which is a decrease of 19% from the same quarter in the prior year. This was principally driven by decreases in vessel activity in our West Africa segment, which had fewer active vessels in the second quarter, and our Europe Mediterranean segment, which had 14 fewer active vessels. Both segments were significantly affected by the decrease in demand caused by the pandemic and the general oversupply of oil. Overall, we had 26 fewer average active vessels in the second quarter of 2020 than in the second quarter of 2019. In addition, active utilization decreased from 79% in the same period in 2019 compared to 75% in the second quarter of 2020, which is the result of vessels going off-hire and into lay-up. Consolidated vessel operating costs for the quarters ended June 30, 2020 and 2019 were $64.8 million and $80.4 million respectively. The decrease year-over-year is driven by the decrease in the number of active vessels, but also a 5% decrease in operating cost per active day. Our general and administrative expense for the quarters ended June 30, 2020 and 2019 were $17.6 million and $23.7 million respectively, which is down 23% year-over-year. The significant restructuring of our executive management and corporate administrative functions in 2019 and ongoing cost measures resulted in this 12% decrease in G&A expense per active day, down from $1.587 million in the prior year to $1.401 million in the second quarter of this year. Depreciation expense for the quarter ended June 30, 2020 and 2019 were $28.1 million and $25 million respectively. The decrease in depreciation is due to the sale in 2019 of over 40 vessels and the reclassification of the aforementioned 46 vessels to assets held for sale. Looking at our results at the segment level, despite the industry downturn, our average day rates across the company improved to approximately $10,800 for the quarter, up approximately 3% from the same quarter last year. This was driven by a tailwind of increasing day rates from contracts entered into before the crisis began and complemented by a mix shift as lower day rate vessels were retired through our disposal program or went off hire early in the downturn. Naturally, the contract protections you get for lower specification, lower day rate vessels are less, and as a result, they tend to come off hire first in the pullback. Our Americas segment saw revenue decreases of 3% or $1.2 million during the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. The decrease is primarily the result of five fewer active vessels operating in the region year-over-year driven by lower demand. Vessel operating profit for the Americas segment for the second quarter was $5.4 million, excuse me, $4.5 million, $1.6 million higher than the prior year quarter. The higher operating profit was due to a $3.5 million decrease in operating expenses, resulting from fewer dry-docks and better vessel uptime in the second quarter of this year. Our Middle East Asia-Pacific region had been impacted as negatively as a major operator in the area did not cut back production like they do in other areas of the world, and consequently, planned vessel activity increases commenced in this region, whereas in other regions, there was a sharp pullback. Vessel revenues increased 17% or $3.5 million during the quarter ended June 30, 2020 as compared to the quarter ended June 30, 2019. Activity utilization for the quarter increased to 76% from 75% on average, the day rate increased almost 10% and average active vessels in the segment increased by 2%. The Middle East Asia-Pacific segment reported an operating profit of $600,000 for the quarter compared to an operating loss of $2.1 million for the same quarter of the prior year. For our Europe and Mediterranean region, our vessel revenues decreased 41% or $14.4 million compared to the year-ago quarter. The lower revenue was driven by 14 fewer active vessels and lower average day rates, which were down 2%. However, active utilization increased 2 percentage points during the quarter. The segment reported an operating loss of $1.8 million for the quarter ended June 30, 2020 compared to an operating profit of $2.8 million for the prior year quarter due to decreased revenue, partially offset by $7.9 million of decreased operating costs, which was primarily due to lower personnel and lower repair and maintenance costs associated with the drop in active vessels. Finally, in West Africa, vessel revenues in the segment decreased 32% or $10.6 million during the quarter compared to the same quarter of the prior year. The active vessel count was lower in active utilization decreased from 76% during the second quarter of 2019 to 55% during the second quarter of this year. Average day rates increased 13% due to the vessel mix of remaining contracts, similar to what I mentioned earlier. The decrease in revenue was almost entirely the result of lower demand caused by the downturn as a significant number of vessels in Nigeria went off hire during the quarter. Vessel operating profit for the segment decreased from $3.1 million for the quarter ended June 30, 2019 to an operating loss of $4 million in the current quarter due to the decrease in active utilization. Although the magnitude of the business is shrinking, free cash flow generation is increasing. As indicated by the press release, our average day rate was up on a consolidated basis when compared to both the previous quarter and the year-ago quarter. Each of our four regions had higher average day rates than the previous quarter. Operating costs per active day are down 10% from the previous quarter and down 4% from the year-ago quarter. Of course, because of those facts, on a consolidated basis, we had higher operating margin percentages compared to the previous quarter and the year-ago quarter. G&A cost per active vessel day is down on a sequential quarterly and year-over-year basis and down substantially on an absolute dollar basis. We are generating more cash by operating fewer vessels at higher day rates of lower operating costs per vessel and at a lower G&A cost per vessel. We are doing this while carefully managing capital expenditure and working capital investments. The company is free cash flow positive and our objectives and compensation are all geared to keeping it that way. And with that Sylvia, we will open it up for questions.

Thank you. And our first question comes from Turner Holm from Clarksons Platou.

Hey, good morning, gentlemen, Quintin and Jason and the rest of the team, congratulations on what I think was a pretty decent performance given the incredibly challenging quarter and maintaining cash flow positivity. I think it’s commendable, so congratulations on that.

Thank you.

I wanted to get a feel for the underlying performance of the business, Quintin, and there was one thing that stood out to me in the numbers and that was just the deepwater Americas segment. I thought that was up about $5 million sequentially in terms of revenue. Was there any termination fees now or is that just reflecting the underlying performance of the business?

No, but certainly call it out, Turner, if there were. That is just increasing activities in the Southern Caribbean. So that area has been relatively positive and a bright spot around the world, which includes Trinidad, Suriname, Guyana. We had some boats going on hire in that region and they were scheduled to go hire as planned.

Okay, great. I appreciate that color. I also wanted to touch on the business plan that you outlined in your prepared remarks, particularly on revenue. I was wondering if you might provide us a little additional color on how you all think through the revenue performance for the rest of the year. Are you just assuming the contracts that are already booked will roll off on the spot rates and that there is some spot utilization level? Any color around the flex and upside or downside risk to that revenue number? Also, I'd like to hear your broader thoughts on how the business feels like it is stabilizing or maybe not stabilizing.

No, good and fair question. So one thing I didn’t mention in the prepared remarks is that the backlog for the second half of the year is approximately $150 million. We start with that backlog as a base when we look at our revenue forecast for the remainder of 2020. Then we make some assumptions about contracts with options that we believe will be executed, and then just some general spot activity. I am not really expecting any spot activity in the third quarter since we are in this transition phase where everyone, E&P companies and the like, all of our customers are reassessing their plans. But I do have some budgeted spot exposure in the fourth quarter. Normally, the fourth quarter is a bit of a tick down because it's usually driven by the North Sea market due to the weather-based calendar and seasonality, but those operations are already down significantly. I don't see as much of a pullback in the North Sea in Q4 as we normally would and am expecting a little bit more increase in some of the better areas around the world.

Okay. So you guys feel like this is a pretty conservative view of how the world looks over the next six months?

Yes, definitely.

Great. And then just on the cash flow piece, I know it’s quite early to think about next year given the fluidity of the situation we are all living through. But in terms of cash flow, the vessel disposal piece is pretty meaningful and I just wondered if you think the fleet is at the $40 million level that you are thinking about for this year. Is that something that could continue for another year at that level or is that a bit lower or a lot lower?

Well, as implied by some of the numbers I threw out there, I am expecting about $19 million in the remainder of 2020 from asset sales, and then I am looking for another $10 million in the second half of 2020. But if we get to the point, what I am anticipating we will see is a bottom in the Q4, Q1 timeframe. I do see indications that people are rethinking their plans for 2021 and the pullback that people did in the second quarter and really into the early part of the third quarter are being revisited. So my anticipation is that we are going to see a bottom and activity in the first quarter of next year, then slowly increasing throughout 2021. I think we are not going to be back to where we were before this crisis by the end of 2021, but we will be close. That’s my expectation based on activity levels and projections today. My belief is that we will be through the asset disposal program, and I won’t need to dispose of any additional vessels in the second half of 2021. Now if that doesn’t come to fruition, we will update our guidance on 2021 when we do the Q4 call. But as I think about 2021, if it were not to stabilize, we can pull back. I would add additional vessels naturally into the asset held for sale category because that tends to indicate to me that these vessels, the lower but marginal vessels, aren’t going to be profitable.

Sure. I get that and thanks for that color. One more question from my side is really just turning to the balance sheet and your latest thoughts there. I guess the cash number has increased a little bit from the previous report, which is good. Then in terms of compliance with the covenants, I know the bond is still three years out in terms of maturity, but these things usually get addressed well ahead of their maturities. Can you just remind us of your latest thoughts about the balance sheet and the recent increase?

Right, well, thanks. I am definitely not worried about covenant compliance. When we modified the indenture in the fourth quarter of 2019, we stretched out the financial covenants and so I am not worried at all about financial covenants. When it comes to refinancing or refunding that, we will have to see. The reality is, we have enough cash on the balance sheet today to pay off the bonds. My intention is to continue to generate cash, but there is a significant make-whole on those bonds. Paying them off early may not be economic. So we will have to deal with that as we go through 2021, but I am sitting with the cash on the balance sheet and a commensurate amount of debt outstanding. I am not going to be passed by it, even if it goes current.

Okay. Well, I think that’s all from me Quintin, and again, I think it’s fair to say that you guys did a really good job in a tough quarter. It’s not usually my style to say that, but in this case, I think it’s warranted given the level of difficulty you all must have been dealing with. So yes, congratulations on a commendable performance, and thanks for answering the questions.

Absolutely. Thanks, Turner.

Our following question comes from Patrick Fitzgerald from Baird.

Yes. Hi, guys. So the $150 million in backlog for the remainder of the year, what is kind of the cancelability of that if we see another plunge in prices? Let’s hope not, but to the extent that happens, are these plans or firm contracts?

Well, there are no take-or-pay contracts in that mix. They all have cancellation provisions. Most of the activity declines have 30 to 90-day cancellation provisions. That’s why when things got canceled in the beginning of Q2, we started to see them come off hire in Q3; but it’s certainly our best guess at what the revenue will be – best estimate of what the revenue will be for the second half of 2020.

Okay. And then the North Sea, I mean obviously, you guys had a good quarter given the circumstances, but the North Sea was a little bit more challenging, it looked like. Could you provide a little bit more color on what happened there? Were a few major contracts canceled or any color on that would be helpful?

Okay. So normally you see an uptick in the second quarter and the third quarter in the North Sea market. If you usually – the summer work season and as a result, Q3 and Q2 are stronger than Q4 and Q1, with Q1 usually being the weakest. So, no, it’s not planned to have that type of downturn in the North Sea market. However, that is the most volatile market in the world. The North Sea market collapses faster and recovers faster than any of the other markets. So it did – we also had a significant number of high dollar contracts in that area, principally in the UK sector and to some extent, the Mediterranean as well. We had a few boats that were anticipated to go on hire in the Mediterranean that did not. The Norwegian sector held on – initially held on through Q2 uncertainties, but there was some weakness in Q3. However, those vessels that operate in that market are some of the most capable in the world. When they go off hire, they don’t go off hire for too long. They generally get redeployed into other areas of the world that are looking for those higher specification vessels or willing to take them at a discount, which generally happens in this point of the cycle. So, yes, it was a downturn in Q2 in the North Sea sector that wasn’t anticipated when we budgeted the year. It’s a volatile sector and I’m used to that type of volatility through downturns. My anticipation is that those vessels will be redeployed in due course; those are not the vessels that I would say move into the asset held for sale category because they are the vessels that will generally be in demand around the world.

Okay, alright. Thanks. You had 138 active vessels in the quarter, how do you see that number working out in the near future? And is there any metrics you can provide on what’s remaining like average age? I would imagine it has come down significantly, maybe deadweight ton capacity; anything that highlights what’s remaining in the fleet?

So obviously with the pullback in revenue that we are anticipating for the second half of 2020, that 138 will continue to go down. Where it lands at the end of Q4 is really difficult to say at this point. There are still a lot of factors to influence that outcome. But I can see that number down 15 to 20 vessels in the next six months for sure. As it relates to the average age of the vessels, the average age of the active fleet today is just under 10 and the average age of assets in the held for sale category is just under 13. So that gives you some metrics on that. On our deadweight ton or linked basis, I am sure Jason can get that for you. I don’t think of it in those terms, it’s not as relevant to me. I will tell you that disproportionately, they are going to be the younger larger assets that are in the active fleet and generally, it is going to be the smaller and older tonnage that is in the assets held for sale category.

Okay. Could you remind us what your options are with the restricted cash after the amendment? Do you have to make a par offer or can it be below par?

Well, the indenture has a bunch of permutations and calculations that we have to go through. There is a – I know there’s a portion of it that gets offset by CapEx and some other IPs. So, eventually once you hit those elements, you have to go out at a par offer, I believe.

Okay. So would it be around the $20 million that you have in restricted cash now? You would have to go out with a par offer eventually?

No, there is a threshold that you have to reach before you’re required to do that. I think that’s – I think it’s $25 million. I’d have to check the indenture; I am not sure.

Okay. No, thank you. I appreciate you answering all the questions.

Of course.

Your next question comes from Peter Ehret from ERF.

Hey, good morning. I reiterate the comments about good survival skills and much appreciated. So, question about just where these ships that you are losing, where are they going? Is that just to the scrap market or is that latent capacity for somebody else?

No. It’s disproportionately going to the scrap market. To the extent that we are getting out of our vessel class, we have generally gotten out of the crew boat class of vessels in the United States. If I sell those into other areas in the United States, I will do that just because it doesn’t impact the strata of demand for my core set of vessels. So if it’s settling into an area that we don’t operate in or a vessel class that we don’t operate, I will sell it into a continuing operation. But generally, it’s going into alternative markets or the scrap market.

Okay. One other thought about consolidation in your industry. Can you talk about that? What is going on with competitors? Are we on the precipice of some formal restructuring processes? What might your participation or even leadership in that look like?

Yes. I’m a big fan of consolidation in the industry. I think it is an important part of rationalizing the global fleet. I see consolidation as a step into focusing as well. Companies like Tidewater have been everywhere and my intention is to pull back in areas that I’ve previously mentioned. I didn’t mention on this call, but pulling back out of Brazil or Southeast Asia. You heard my comments earlier on Nigeria. I certainly believe the vessel companies need to focus in a particular areas, maybe one, maybe two, maybe three, depending on the size of the fleet. I’m looking to participate in that and lead through it in any way that I can. The difficulty today is that aside from us, most companies out there have a toxic level of debt and the debt holders are not willing to let go of reasonable prices. When I think about my outlook over the next couple of years, I certainly believe that we’re going to see an increase in demand as we go through the next 18 months. I want to ensure that, step one, we get there, and that’s why I am very focused on managing the cost structure and the vessels that are operating so that we continue to be free cash flow positive. Step two is that I don’t want to dilute myself before I get to the upside. I don’t want to do anything that alters my ability to ensure my equity holders reap the benefits of going through all this pain. Looking for the right deal is key, but unfortunately, much of that consolidation that I think would naturally otherwise occur is being held up by capital providers that are not willing to take the right price for their assets.

Okay. Have you seen more assets migrating to banks? It kind of sounds like we are on the verge of some formal restructuring processes, but not quite there yet. Is that fair?

I do believe that I’ll take you back to the fourth quarter of last year. I think everyone was looking at an upbeat projection of increasing utilizations and day rates. At that time, banks and capital providers were of the opinion that they just had to hold on a bit longer to get par returns. There is a pullback in the spring that I think pushed a lot of people over the edge, which, to your point, and maybe the discussions are intensifying among certain capital providers. I haven’t seen it happen yet, but I hear more dialogue about it happening. So, like you said, we may be on the precipice of this, and I look forward to taking advantage of those opportunities. However, from an action standpoint, I haven't seen it happen yet.

Okay. Alright, good. Thank you.

Thank you.

We have no further questions at this time.

Okay. Thank you, Sylvia. Thank you everybody else for attending the call this morning. We hope you have a safe rest of your day and a good weekend.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.