Tidewater Inc Q3 FY2024 Earnings Call

Thank you for standing by. My name is Novi, and I'll be your operator today. At this time, I'd like to welcome everyone to the Tidewater Q3 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to West Gotcher, Senior Vice President of Strategy, Corporate Development and Investor Relations. You may begin.

Thank you, Novi. Good morning everyone and welcome to Tidewater's third quarter 2024 earnings conference call. I'm joined on the call this morning by our President and CEO, Quintin Kneen; our Chief Financial Officer, Sam Rubio; and our Chief Commercial Officer, Piers Middleton. During today's call, we'll make certain statements that are forward-looking and referring to our plans and expectations. There are risks and uncertainties and other factors that may cause the company's actual performance to be materially different from that stated or implied by any comment that we are making during today's conference call. Please refer to our most recent Form 10-K and Form 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, November 8th, 2024. Therefore, you're advised that any time-sensitive information may no longer be accurate at the time of any replay. Also, during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release located on our website at tdw.com. And now with that, I'll turn the call over to Quintin.

Thank you, West. Good morning, everyone, and welcome to the third quarter 2024 Tidewater earnings conference call. Third quarter revenue came in as expected as day rates continue to improve nicely, exceeding our expectations by over $600 per day. Gross margin came in at 47.2%, and we generated free cash flow of $67 million. Year-to-date, we have generated nearly $224 million of free cash flow, $174 million more than the same period last year. The substantial improvement in free cash flow generation is the result of high grading our fleet through focusing on newer, higher specification vessels and our contracting strategy to relentlessly drive global day rates higher. We believe that long-term fundamentals support continued free cash flow progression, and we expect our free cash flow generation to improve over the coming quarters. The third quarter is typically characterized as the most active quarter of the year as customers take advantage of favorable weather conditions to execute their plans ahead of a seasonally less favorable fourth and first quarters. We saw this dynamic play out this year with average day rates improving over 5% and leading-edge day rates moving up nicely, particularly in our high-specification PSVs and smaller anchor handlers. Utilization came down slightly as additional time between jobs, principally in our West Africa and Europe and Mediterranean segments, along with higher-than-anticipated drydock days globally, both increased from the second quarter. On last quarter's call, we discussed our weekly reforecasting process in the context of the rapid pace at which the industry outlook can change and the need to frequently evaluate our outlook as the factors driving our business evolve. We've seen that play out in the past three months as activity in certain of our regions softened unexpectedly due to a lack of incremental projects, projects ending early and regulatory delays causing more idle time for some of our vessels, principally in the Americas and Asia-Pacific. The North Sea, particularly in the U.K. sector, is anticipated to be weaker due to a combination of typical winter seasonality and adjustments to their regulatory and tax programs, both of which are putting pressure on day rates and utilization. We are also planning to make more investments during the fourth quarter in our fleet than we had originally planned to prepare for what is expected to be a better market as we progress into the second half of 2025, and these incremental investments will result in incremental drydock days as compared to our previous expectations. More broadly, as we evaluate the landscape for 2025, the outlook on the timing and pace of growth in offshore vessel activity is less clear than it has been in a few years. We continue to see conviction in long-cycle projects by our customers. However, continued near-term activity growth appears to be somewhat subdued. We've seen our customers take a measured approach to executing incremental growth projects. Importantly, projects aren't being canceled, but the decision to procure vessels and other assets has been stalled as operators evaluate the outcome of recent successes and contend with lead time issues for critical offshore infrastructure and equipment. We've not seen a pullback in day rates as evidenced by both the increase in average day rates for the quarter along with the increase in the quarter's leading-edge day rates. However, lower activity levels adversely impact our ability to continue to push day rates as aggressively as we have over the past two years. Over the last two years, we've been able to push day rates up over $4,000 per day each year, which incidentally has been fantastic. And those increases have had a big impact on earnings. I'm confident we can still push day rates up. But whether it's $1,500 per day, which historically has been the benchmark during industry upturns, or the $4,000 a day we've seen recently is what we are grappling with. So, we're holding off on guidance for 2025 until we get some better visibility, which we anticipate we will have for you on next quarter's call. We've talked at length about our contracting strategy over the past few years, the merits of taking a short approach to contract duration in order to push day rates and contractual terms. We've seen the benefit of this strategy with realized average day rates now almost double what they were at the beginning of 2022, which has had a substantial impact on the earnings and cash flow of the business. This strategy trades contract coverage and higher utilization for the opportunity to push rates. Although the near-term expectation and the growth of offshore activity is less certain, we still believe that going short is the right strategy, though it may cause some lower utilization in the near term. In our view, market day rates still do not justify the economics required for newbuild vessels and that the day rates will ultimately need to move to a point where the new build vessels are economically viable. We see vessel attrition continuing to further constrain vessel supply over the coming years. And given the very low number of new vessels on order, we expect that the balance of supply and demand will remain firmly in our favor for at least the next three years. As such, we anticipate that as we move through 2025 and into 2026, leading-edge day rates will continue to increase from where we are today, and we will be well positioned to take advantage of that imbalance as the growth in activity levels accelerates. Subsequent to last quarter's earnings release, we repurchased about $15 million of shares in the open market. That brings our year-to-date share repurchases to about $48 million. And since the inception of the buyback program in the fourth quarter of 2023, we have repurchased nearly $83 million of shares in the open market. In addition to the open market repurchases, we used $28.5 million of cash in the first quarter to buy shares from employees so that they could pay their tax obligation on the equity compensation, in lieu of those employees issuing shares into the open market, which incidentally, we will do again in the first quarter of 2025. So, over the past four quarters, we've used $111 million of cash to reduce the share count by over 1.4 million shares. We still believe that acquisitions done at a price that reflects a sharing of the cyclical and market risk is a solid way to make significant investments in the long-term value of the shares, and we're still generally focused on acquisition opportunities in North and South America. But the aforementioned lack of near-term visibility has increased the bid/ask spread, at least for now. So for now, we'll remain focused on repurchasing our own shares because our confidence in cash flows over the next two quarters remains strong; we are inclined to increase the rate of share repurchases. In summary, we are confident that the long-term fundamentals for this business remain favorable and that our ability to capture the benefits of the imbalance of vessel supply and demand is intact. We are confident that the business will continue to generate substantial free cash flow that will allow us to take advantage of these near-term uncertainties and provide opportunities to continue our past successes in enhancing shareholder value. And with that, let me turn the call back over to West for additional commentary and our financial outlook.

Thank you, Quintin. Over the past four quarters, Tidewater has generated $285 million of free cash flow. Over the same timeframe, we've used $111 million of cash to reduce the outstanding share count and used $103 million of cash on the required amortization of our outstanding debt for a total of $214 million of free cash flow allocated directly to equity-enhancing uses. We are pleased to announce that our Board of Directors has authorized an additional $10.1 million of share repurchase capacity. The new authorization brings our total unused share repurchase capacity to $42.8 million. The authorized share repurchase program and remaining unused capacity represents the maximum amount of permissible debt under our existing debt agreements. We anticipate our share repurchase capacity to increase by close to $100 million in the first quarter of 2025 under our existing debt agreements. We expect that free cash flow will increase over the next few quarters, and we remain committed to allocating our free cash flow to enhance shareholder value. We continue to evaluate the best path to achieve our goal of establishing a long-term unsecured debt capital structure along with a sizable revolving credit facility. We remain opportunistic on pursuing a potential refinancing as we have no near-term maturities and no immediate need to access the debt capital markets. During the third quarter, we initiated a consent solicitation process to amend certain terms of our unsecured bond issued in the Nordic bond market as the debt capital markets appear favorable to a new issuance. The amendments proposed were, in our view, credit enhancing to existing bondholders. We subsequently canceled the consent process as the cost to achieve the amendments was unattractive. Given our free cash flow outlook and debt maturity profile, we are comfortable to continue to evaluate the most economically viable path to establish a long-term debt capital structure. Over the past few years, we have provided quarterly composite leading-edge day rates along with the average duration of new contracts. We believe that it is now more instructive to provide quarterly leading-edge day rate information by vessel class to provide a subset of data that presents a more representative view of how day rates progressed across each of our vessel classes within the fleet during the quarter. Leading-edge day rates by vessel class can be found in our investor presentation on our website that was posted yesterday alongside our earnings press release. A few worthwhile data points to note. Day rates in our two largest classes of PSVs moved up nicely during the quarter with the greater than 900 square meter class of PSVs up 6% sequentially to over $37,000 per day, and our medium class of PSVs saw strong momentum sequentially with rates up 26% to over $35,000 per day. In our smaller classes of anchor handlers, we saw double-digit increases sequentially with our 8,000 to 12,000 BHV anchor handlers up 16% and our 400 to 8,000 BHB anchor handlers up 37%. Looking to the remainder of 2024, we are updating our full-year revenue guidance to $1.33 billion to $1.35 billion and a 48% gross margin. We now anticipate fourth quarter revenue to be essentially flat with the third quarter and gross margins to improve 1 percentage point sequentially. The decline in Q4 margin expectations from the prior quarter is principally related to the decrease in revenue associated with lower utilization, increased idle time and higher-than-anticipated drydock days, and to a lesser extent, an increase in repair and maintenance expenses and an increase in fuels expense associated with additional idle days. Drydock days are expected to decline by about half in the fourth quarter versus the third quarter. We look forward to providing our updated thoughts on 2025 guidance next quarter as visibility improves for the pace and timing of the growth of offshore activity. Our contracted backlog currently sits at about $332 million of revenue for the fourth quarter with 79% of available days contracted. The risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and for drydock days. With that, I'll turn the call over to Piers for an overview of the commercial landscape.

Thank you, West, and good morning, everyone. This quarter, I will try and put some context around where 2024 sits in the pantheon of previous up cycles and then also frame out a little of what we are seeing in each of our regions as we go into 2025 and 2026. First off, our overall long-term outlook for the offshore space remains strong. And for 2024, the OSV market has managed to achieve record-breaking day rates in most of the basins and vessel classes in which Tidewater is active. The fundamentals for the OSV market remain strong. The sector remains supply side constrained with little prospect of capacity expansion from the stacked fleet or from the negligible order book. Despite a small number of newbuild orders over the summer, the majority of which aren't expected to start delivering until 2027, the PSV and AHTS order book is still under 3% of the OSV fleet. And while we have seen some demand ease back recently in some of our regional markets, with a constrained supply story, we are still very well placed to weather any short-term headwinds and make further progress through 2025 and into 2026 as expected demand growth picks up again, both in exploration and subsea construction projects. Turning to our regions and starting with Europe. Uncertainty over the U.K. tax regime and the government's decision to increase and extend the energy profits levy is creating some uncertainty over future drilling programs and is expected to weigh on demand in 2025. Although we are expecting an uptick in decommissioning and wind farm support projects, which will help offset some of this uncertainty in the U.K. in 2025 and 2026. In Norway, we see stronger drilling demand kicking off in 2025 through to 2027, driven primarily by the Norwegian government tax incentive scheme that was introduced in 2020. And in the Mediterranean, projects that were delayed from Q3 have now started in Q4 and should carry through into the second half of 2025. In addition, there are a number of construction projects in the region that are expected to draw PSVs out of the U.K. in the first half of 2025. In Africa, we're expecting a strong fourth quarter, helped by a number of exploration projects that were pushed from Q3, which have now started in and around the Orange Basin in Q4, with some of that drilling work expected to continue through into the first half of 2025. Visibility in the region in the second half of the year is more opaque as many of our customers plan to pause drilling campaigns as they assess next steps before starting field development of these projects, which are expected to kick off in 2026 and 2027. However, offsetting some of that pause in drilling in the second half of 2025, we are seeing pressure from the Angolan government on the IOCs to increase production in-country, which if it plays out as the government wishes, would see an uptick in vessel demand from both the IOCs and EPC contractors in the second half of 2025 and through into 2026. In the Middle East, vessel demand and day rates continue to strengthen in 2024, driven mainly by the EPC contractors operating in the Kingdom as well as additional incremental demand in Qatar and Abu Dhabi. While this is a very fragmented market, which makes it much harder to drive rates aggressively, we are starting to see supply constraints in certain vessel classes. And if demand continues at its current pace, we could see some very positive momentum in day rates as we get into the latter part of 2025 and through to 2027. In the Americas, Brazil and Mexico demand appears set to remain positive for 2025. However, there is still some uncertainty in Mexico vis-à-vis what the new government's long-term intentions are with Pemex and how to increase production in the long-term. And as such, we probably won't have much visibility around actual long-term plans for Mexico until after Q1 next year. But both Brazil and Mexico are expected to increase in-country investment in oil and gas in the longer term out beyond 2030. As mentioned on many previous calls, Brazil's long-term demand horizon remains very robust with no signs of any slowdown from either Petrobras or the IOCs currently working in the country. The U.S. GOM and Caribbean had a softer-than-expected 2024, and we expect that may continue into the first half of 2025. But we are seeing some indications of demand for additional drilling in the second half of 2025 and into 2026 as well as an uptick in the renewables market on the East Coast during the same period. Lastly, in Asia-Pacific, Q3 and Q4 have been affected by the ongoing discussions in Malaysia between PETRONAS and the local governments of East Malaysia regarding the respective sovereign rights over the natural resources of Sabah and Sarawak. We are now hearing that both sides are hoping to resolve these issues in early 2025, which would mean that we can expect exploration and production, some of which has been paused to start back up again during Q1 of 2025, which in turn would then have a significant impact on the supply/demand balance in the region for both AHTSs and PSVs and mean that we should see this region retighten as we move through to the latter half of 2025. We also see several large EPCI and wind projects starting in the year in both Australia and Taiwan, respectively, which will be supportive for our large AHTSs and large PSVs in the region for the second half of 2025. Overall, we're very pleased with how the market has continued to move in the right direction during 2024, and we remain very optimistic on the long-term fundamentals for our business still being very much in the shipowners' favor for some time to come.

Thank you, Piers, and good morning, everyone. At this time, I would like to take you through our financial results and, as in previous calls, my discussion will focus primarily on the third quarter of 2024 compared to the second quarter of 2024. I will also discuss some of the operational aspects that affected the third quarter and how we see the rest of the year playing out. As noted in our press release filed yesterday, we reported net income in the third quarter of 2024 of $46.4 million or $0.87 per share. In Q3, we generated revenue of $340.4 million compared to $339.2 million in the second quarter of 2024, an increase of $1.2 million. Average day rates increased by 5.4% from $21,130 per day in the second quarter to $22,275 per day in the third quarter, which was the main driver for the increase in revenue. Offsetting the increase in day rates was a decline in active utilization from 80.7% in the second quarter to 76.2% in Q3. The utilization decrease was a result of an increase principally in idle days and a slight increase in drydock and repair days. Gross margin in Q3 was $160.8 million compared to $161.9 million in Q2. Adjusted EBITDA was $142.6 million in Q3 compared to $139.7 million in Q2. Vessel operating costs for the quarter were $178.7 million. On our call last quarter, we expected our operating costs to decrease by $2.8 million from Q3. However, our costs went up by $2.2 million. The main drivers included higher-than-anticipated repair costs on several vessels totaling $2.6 million. We also had higher fuel costs related to the 448 additional idle days as well as for mobilizing a vessel from Southeast Asia to Africa. In addition, we had approximately 200 higher drydock days, 150 of which were related to longer durations and 50 of which were related to timing differences between quarters. The total fuel cost for both idle and drydock days was about $1 million. Also in the quarter, we incurred penalties due to delays in returning to work on vessels that incurred higher drydock days, and we also increased our accrual related to labor claims in Brazil, which combined totaled $1.4 million. In comparison to our Q2 actual results, as mentioned previously, our operating costs increased by $2.2 million. The main drivers included slightly higher R&M costs of $800,000 and higher crew costs of $1.5 million due primarily to one vessel working in Australia where operating costs are higher. Supplies and consumables were higher by $1.7 million due mainly to higher fuel costs related to the 704 more idle days and 83 more drydock days. The increases were offset by lower other vessel expenses of $2 million. The largest components were a mobilization expense write-off and a customs assessment that did not occur in Q3. In Q4, we are not anticipating the high levels of repair costs that we saw in Q3, and we see utilization increasing slightly as vessels return to work after the busy drydock schedule. In turn, we expect a significant decrease in fuel costs and penalties. As a result, we expect Q4 revenue to remain flat and operating costs to be lower by about $4 million. Operating cost reductions will include $1 million in R&M costs, $1.8 million in fuel and other vessel supply costs, and about $1.2 million in other costs such as crew costs, penalties, and other miscellaneous costs. G&A costs for the third quarter was $28.5 million, $2.1 million higher than Q2, primarily due to an increase in professional fees and personnel costs. For the year, we expect our G&A cost to be $109 million, which includes approximately $13 million of non-cash stock compensation. In the third quarter, we incurred $35.5 million in deferred drydock costs compared to $40.1 million in Q2. We anticipate $18 million of drydock costs in the fourth quarter. Drydock costs for the full year 2024 is expected to be $134 million. Drydock days affected utilization by nearly 7 percentage points during the quarter. Year-to-date, drydock days have affected utilization by about 6 percentage points. In Q3, we incurred $5.7 million in capital expenditures related to vessel modifications, ballast water treatment installations, and IT and DP system upgrades. For the full year 2024, we expect to incur approximately $27 million in capital expenditures. We generated $67 million of free cash flow this quarter compared to $87.6 million in Q2. Year-to-date, we have generated $223.9 million of free cash flow. The free cash flow decrease quarter-over-quarter was primarily attributable to a significant increase in working capital, due mainly to the investment in accounts receivable. Through September 30, we have made $87.5 million in principal payments on our senior secured term loan and $1.5 million on a supplier facility agreement. We are comfortable with our current debt maturity profile. We have no immediate need to refinance our debt, but remain opportunistic in pursuing a potential refinance that would improve our overall debt capital structure. Year-to-date through September 30th, we have used about $46.6 million in cash to reduce the number of our shares in the market by approximately 520,000. As mentioned on our first quarter call, we also spent $28.5 million in cash to pay taxes on behalf of employees in lieu of employees selling approximately 321,000 shares of stock in the open market to pay those taxes. We conduct our business through five segments. I refer to the tables in the press release and the segment footnote and results of operation discussions in the 10-Q for details of our regional results. To summarize the sequential results of our regions, day rates improved by 5.4% during the quarter, led by the Asia-Pacific region, which improved by 23%, and our West Africa region, which improved by 10%. Revenues were higher in all regions except the Americas, which declined by 12%, primarily due to lower utilization. Gross margins increased slightly from 47.7% in Q2 to 47.2% in Q3. The Americas regions experienced a decline of about five gross margin percentage points due primarily to more idle and repair days. In our APAC region, despite the increase in average day rates, we had a gross margin decline of about 3 percentage points due to higher idle and drydock days. Similarly, our Europe and Mediterranean regions saw a gross margin decline of 2 percentage points due to higher idle days and drydock days. However, with the increase in day rates, we saw improvements in gross margin in our West Africa and Middle East regions of 4 and 3 percentage points, respectively. We expect consolidated gross margin to increase slightly in Q4 as an increase in utilization, combined with a decrease in operating costs should improve our overall results. In summary, despite a Q4 decline compared to our previous expectation, 2024 execution has been strong. Although visibility into 2025 may not be as clear as we would like it to be, generating strong free cash flows and profitability will continue to be a priority as we move into 2025 and beyond. In the near-term, we continue to invest and improve our existing fleet and look to capitalize on future M&A opportunities should they present themselves. Absent accretive M&A options, we continue to view share repurchases as an attractive investment and return of our capital option for our shareholders. We remain optimistic about the long-term fundamentals of the industry and the opportunities this will provide Tidewater.

All right. Thank you, Sam. Novi, why don't we go ahead and open it up for questions.

Your first question comes from the line of Jim Rollyson with Raymond James.

Morning Jim.

Jim, your line might be on mute.

Morning Quentin, sorry about that.

Hey Jim.

I understand that you're not ready to provide guidance yet, but could you share your high-level thoughts on the various factors at play? It seems that rates are likely to rise next year, though the exact extent is still uncertain. We should have more clarity next quarter. There will be utilization benefits from reduced drydocking next year compared to this year, with a year-to-date impact of around 6%. However, you may also face some volatility that you and your peers have experienced. Could you give us some insight into how you're considering these factors as we approach guidance next quarter? I expect your costs to generally decrease without the need for drydocking. I'm trying to understand the different components and your perspective on them.

Thank you. Obviously, there's less clarity than we appreciate having at this point as we look into 2025. I'm going to give it over to West and Piers who have been studying this really hard as we've gone through the last couple of months. But in general, I think that you're right. The only thing that I would highlight to you is that I do expect it to be a lower drydock year next year than this year. That won't show up in operating costs, but it will certainly show up in improved cash flow.

Jim, hey good morning, it's West. You characterized it appropriately; there's some puts and takes and so forth. And obviously, as we discussed, the visibility is lower. But as we pointed out in the prepared remarks, we do anticipate that day rates should increase next year, the order of magnitude of which is uncertain. However, we do expect that to push forward. So, we're not in a position to directly quantify as we discuss what the outlook is. But I think it would be fair to say that given the increase in day rates and a year in which drydocks are down, that we would anticipate 2025 to look better than 2024 on an all-in basis.

Got it. And then just as a follow-up, and then I can get back in the queue. I'm curious, Quentin, with this kind of pause in activity that we're seeing and obviously, the rig guys have been talking about this through earnings season as well. Does it set up the potential opportunity on the M&A front where maybe guys had just purely up to the right expectations and that was reflected in their asking price. And now with this bit of consolidation going on in activity, they're actually more willing to be reasonable on asking price and you can actually get some potential M&A done. Are you seeing that? Or is it still too early for that?

It's too early to say. I agree that the uncertainty highlighted during times like this in our industry should remind potential sellers that it's a volatile market, and they need to consider exiting when possible, viewing it as a risk in continuing to invest in the business. We feel comfortable managing that risk, but people often don't behave as reasonably as we do in this discussion. I think it will take some time for them to recognize this, so we will be patient. I am confident in repurchasing our shares at these levels. You will likely see us focus more on that rather than on M&A, although I am still actively involved in global M&A discussions.

Got it. Thank you. Appreciate the help.

Your next question comes from the line of David Smith with Pickering Energy Partners.

Hey good morning. Thank you for taking my questions.

Good morning.

For the Q4 guidance, I just want to make sure I understood. Did you say utilization is expected to be up, but revenue is expected flat? If so, the implication is average day rate would be down. So, I just wanted to ask if you could provide some color on that; I'm guessing that's mix?

That's correct, Dave, it's West. That is the correct inference from the guidance language we provided on Q4. As we discussed in the prepared remarks, I think a combination of some of the pressures that we're seeing in the U.K. sector, the North Sea specifically as well as the regional highlights that we had in Americas and Asia-Pacific, and some of the project delays and idle time and so forth with vessels in that region are contributing to those moving pieces within the Q4 guidance components.

I appreciate it. For the follow-up question, can you discuss the factors that might prevent the export of the current rates for large PSVs in the North Sea to regions like the Mediterranean, West Africa, or beyond, considering there are other vessel contractors in the North Sea operating in different countries?

Hi David, it's Piers here. There are indeed poor rates in the North Sea, and it's primarily a spot market business. It's important to note that while we reference our 900 square meter vessels, there are specific requirements for these vessels, such as firefighting and mud capacity that are tailored to certain regions. You can transport some vessels, but for a drilling program in the Mediterranean, for example, we have relocated some vessels from the North Sea to work in the Orange Basin this quarter, where large mud capacity is essential. Many vessels in the North Sea are limited in this capacity; they are mainly large deck-based vessels suited for specific North Sea operations. This factor is crucial to consider. As I mentioned, some vessels are heading to the Mediterranean, and depending on their specifications, there may be limited options for their deployment. While there will likely be some regional movement, certain vessels have restrictions based on their detailed specifications.

Yes, appreciate the color. I'll circle back. Thank you.

Thanks Dave.

Thanks Dave.

Your next question comes from the line of Greg Lewis with BTIG.

Thank you for taking my questions. I would like to get more details on the drydockings we experienced in the fourth quarter. Could you categorize how much of that was planned, how much was moved up because vessels were going off hire, and how much was related to unplanned drydocking we encountered around a year ago, particularly in West Africa? It would be helpful to understand this better to consider our approach to drydocking in 2025.

Yes. Greg, this is Sam. The drydocking that took place in Q3 included about 200 excess days. Of that, 150 days were due to longer durations, and 50 days were related to timing. We had one or two vessels that were scheduled to drydock in Q4 but were pulled into Q3. Additionally, some vessels that started a little later in Q2 actually came into drydock in Q3. So, that extra 50 days is a mix of these factors.

Okay. So, kind of what we dealt with a year ago when like vessels were running hard and there was like unplanned issues with the boats, that seems like that's kind of resolved?

Yes, to some degree, right? I mean, there is still some down for repair days that we have to deal with. We did see some of that in Q3. But once they go into the drydocks, hopefully, that kind of smooths the repair costs going forward.

Yes, I wanted to add that we were operating at about 4% downtime for repair last year, and we aim to reduce it to around 2%. Currently, we're at about 3%. There's still potential for improvement, but at least it's not getting worse.

Okay, great. We don't need to discuss all the basins, but I know you mentioned some pricing challenges we're facing in certain markets. Everyone is paying attention to the North Sea data, where we're having trouble obtaining more information, which is just as crucial. Every market matters. Can you talk a bit about the large and small PSVs in West Africa and Southeast Asia, and the current pricing environment there? As we look at these primarily term markets, what does the outlook look like for price contract resets in those two regions? Specifically, what do you anticipate for Q4 and Q1, so we can understand the potential pricing renewals we might expect?

Yes, hi Greg, it's Piers. In Q3, we have generally seen strong vessel rates, as mentioned by West. Looking ahead into Q4, we noted that some contracts have been pushed from Q3 into Q4 in regions like the Mediterranean and Africa, so Q4 is also looking promising for the larger class of vessels. When considering 2025, there's some uncertainty regarding decision-making. The drilling aspect is well-known, but we typically become aware of upcoming projects much earlier, which usually have a six to twelve-month lead time. Currently, we're observing an increase in the demand for large deck PSVs in markets such as Australia, Asia-Pacific, Africa, the Caribbean, and the Mediterranean. We're hopeful about maintaining rates for the larger vessels as the year progresses, but we still lack the usual visibility on tenders at this stage. As mentioned in our comments, we remain optimistic about the long-term outlook despite not having a clear view on some elements.

Yes. And so really, when we kind of took guidance down, you clearly called out drilling, but it almost maybe sounds like the delays maybe on the construction side were maybe more of the bigger issue around some of the weakness or some of the guide down for the year than maybe the drilling. Is that kind of what you're trying to communicate?

I think we don't really see that on the construction side. I mean it's still there, but they just come to the market much later. That's concern. we're waiting to see that.

Your next question comes from the line of Don Crist with Johnson Rice.

Good morning. Could you remind us of the percentage of work coming from FPSOs compared to more stable work on that side versus drilling? I believe you mentioned this in your last response, but it seems that the project delays were more related to the delivery schedule of FPSOs rather than the initiation of new drilling campaigns. Is that correct?

Hi Don, it's Piers again. On the drilling side, exploration typically makes up about 30% of our work, but that might be a bit smaller next year. In terms of subsea construction, our support extends beyond FPSOs to pipelines and other contracts. We are also involved in pipeline installation projects in Australia. The delays aren’t solely linked to FPSOs; they are more about the timing of the tenders. Contracts from subsea construction teams like those from Subsea 7 and others tend to come out much later. However, we anticipate that drilling and exploration will present more opportunities than in the past, and subsea construction should ramp up as we move into 2025.

Okay. Thanks for that clarification. And on utilization, can we really use the third quarter as kind of a bottom in utilization? And I'm thinking about it more from the aspect of maybe this weakness pulls forward some of the retirements that are happening in the industry and maybe that, with the lack of new construction out there? And your comment in the press release around no new construction going forward and those discussions have gone away that maybe the third quarter utilization might be a bottom and we should see that tick up just from vessel retirements, not necessarily with you all, but from the industry?

Hey Don, it's West. I think that's a reasonable approach. We discussed the utilization increasing slightly in Q4. Looking ahead to 2025, drydocks are expected to decrease. Therefore, considering the overall picture for 2025, we anticipate that the market will continue to improve to some extent in the latter half of the year. With a reduced drydock year, utilization should be better compared to Q3 levels.

Okay. And just to clarify, you're not seeing anybody out there other than that tender that was put out in by Petrobras for new vessels. You don't see anybody out there proposing to build new rigs or new vessels today?

No, not at the moment. Just as you said, the Petrobras tenders, we haven't seen anything asking to build new PSVs.

All right. Appreciate all the color. I'll turn it back.

I will now turn the call back over to Quintin Kneen for closing remarks.

Okay. Well, listen, no closing remarks from me. Thank you, Novi. We look forward to updating everybody again in February.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.