Tidewater Inc Q3 FY2025 Earnings Call

Thank you for being with us. My name is Liz, and I will be your conference operator today. I would like to welcome everyone to the Tidewater Third Quarter 2025 Earnings Call. I will now hand over the call to West Gotcher, Senior Vice President of Strategy, Corporate Development and Investor Relations. Please proceed.

Thank you, Liz. Good morning, everyone, and welcome to Tidewater's Third Quarter 2025 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 Operating 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, uncertainties, and other factors that may cause the company's actual performance to be materially different from that stated or implied by any comments that we're 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 11, 2025. 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 Tidewater Third Quarter 2025 Earnings Conference Call. I'll start as usual by providing some highlights of the third quarter, updating you on our current view on capital allocation and then discussing the offshore vessel market and our outlook on vessel supply and demand. West will then provide some additional detail on our financial outlook and give you our 2026 guidance. Piers will give you an overview of the global market and global operations, and then Sam will wrap it up with our consolidated financial results. Third quarter revenue and gross margin nicely exceeded our expectations. Revenue came in at $341.1 million due primarily to a higher-than-expected average day rate and slightly better-than-anticipated utilization. Gross margin came in at 48% for the quarter, about 200 basis points better than our guidance. The primary factor driving the increase in average day rate was the benefit of our fleet rolling on to higher day rate contracts. Additionally, fleet utilization continued to benefit from the substantial drydock and maintenance investment we've made over the past few years, driving meaningful uptime performance compared to our expectations. During the third quarter, we generated $83 million of free cash flow, bringing the first 9 months of 2025 total free cash flow to nearly $275 million. Free cash flow generation we continue to demonstrate alongside balance sheet and liquidity enhancements we completed during the third quarter provides us with a substantial degree of confidence in our ability to deploy a significant amount of capital over time to drive shareholder value. Based on the estimate for 2026 that West is going to cover shortly, absent any cash used in M&A or share repurchases, we will be ending 2026 with close to $800 million in cash, which, while we like the pace of cash flow generation, we would find unacceptable from an allocation of capital perspective. We currently retain our $500 million share repurchase authorization, representing approximately 18% of shares outstanding as of yesterday's close. As discussed on last quarter's earnings call, we see this share repurchase authorization as a long-term program that we will lean into based on competing capital allocation opportunities we have before us. In this regard, we did not repurchase any shares during the past quarter due to these competing priorities. Our current leverage position is such that we feel comfortable in potentially using a substantial amount of cash in an M&A transaction and are comfortable adding leverage to the business provided that we have confidence that the near-term cash flows provide the ability to quickly delever back to below 1x net debt to EBITDA, very similar and consistent with what we have done in our prior acquisitions. Importantly, given our current balance sheet, future cash flow generation and liquidity position, M&A and buybacks are not necessarily an either/or proposition. However, how certain M&A discussions progress and whether or not they ultimately come together can shift our cadence and immediate tactics in executing share repurchases. But I don't want to leave you with the impression that we are limited in the long run on our ability to execute on both. Much of the commentary for offshore activity during 2025 has been on the pace and amplitude of the recovery from a relatively muted period of tendering for near-term offshore drill projects. We believe there are a number of factors that have precipitated this white space dynamic, not the least of which have been macro uncertainties, OPEC production and a relatively tepid commodity price environment and supply chain bottlenecks for critical offshore infrastructure. By all accounts, including observations by the drilling contractors, recent public commentary and conversations with our customers, it appears that the next few quarters represent a shoulder period of drilling activity ahead of an uptick towards the end of 2026, with increasing conviction on the state of drilling activity into 2027 and beyond. We believe this to be a reasonable expectation given our conversations, but also more broadly evaluating expected total global hydrocarbon demand projections and what appears to be a hydrocarbon supply curve that will be in a slight surplus in 2026, moving to a meaningful deficit thereafter. This should result in capital expenditures to bring on new production ahead of the shortfall, providing further confidence to the uptick in drilling activity that appears to be developing as evidenced by the recent tendering activity for offshore drilling units. In the intervening period, Tidewater is in the advantageous position compared to many in the offshore sector and that we are the beneficiary of a wide variety of offshore activities, all of which remain robust. Production support is a critical piece of our business, comprising roughly 50% of what we do today. This base level of demand remains steady and is supported by current commodity prices. The continued proliferation and deployment of incremental FPSO units is providing additional vessel demand. FPSO support has always been a component of our business, but the volume of units that are delivering and expected to deliver over the coming years is fairly unique in the history of the offshore industry. In addition, many of these FPSOs are being deployed into frontier areas that have limited shipping infrastructure and are in challenging weather and wave conditions, which should ultimately disproportionately benefit our larger vessel classes. On the EPCI and Offshore Construction segment of our business, our observation has been that backlog for these projects usually have a few years of lead time before converting into vessel demand. We've seen that backlog begin to convert into a meaningful increase in demand. And based on customer conversations, that demand is set to further strengthen in 2026 and in 2027. These demand drivers are important components of our business and help mitigate some of the near-term softness we see in the drilling market. In the longer term, the structural growth in these markets will continue to put added strain on vessel supply. And when drilling activity growth does resume in earnest, vessel supply will be that much more constrained by the growth in these other sectors, providing even more leverage to vessel owners than what we saw in the 2022 to 2024 period. As important as these factors are, particularly in straining vessel supply and a drilling recovery, in the near term, these factors don't adequately offset the absence of additional drilling activity to provide us the ability to aggressively push up day rates. However, we do expect this nondrilling demand to help us retain our utilization and day rates next year. To the extent drilling activity comes in a bit stronger than what we are guiding today, we would expect some additional benefit to our 2026 financial performance. We continue to believe that tight vessel supply will remain a tailwind for the sector and that the structural limitations that impact new build investment decisions will limit any significant new build vessel programs for the foreseeable future. In summary, we are pleased with the cash flow that our business is generating. We are optimistic about the long-term outlook for the offshore vessel industry and remain exceptionally well positioned to drive earnings and free cash flow generation over the coming years. Additionally, we are in the fortunate position of having a significant amount of capital to deploy, and we remain committed to deploying this capital to its highest and best use for our shareholders. And with that, let me turn the call back over to West for additional commentary and our financial outlook.

Thank you, Quintin. At the end of the third quarter, we had $500 million of share repurchase authorization outstanding. Our share repurchase capacity is a function of the refinancing that we completed during the third quarter of 2025. Under the bonds, we are unlimited in our ability to return capital to shareholders, provided our net debt to EBITDA is less than 1.25x pro forma for any share repurchase. Under the new revolving credit facility, we are also unlimited in our ability to repurchase shares provided that net debt to EBITDA does not exceed 1x. Under the revolving credit facility metric, to the extent that we exceed 1x net leverage, we still retain the flexibility to continue returns to shareholders, provided the free cash flow generation is in excess of cumulative returns to shareholders. Our net debt-to-EBITDA ratio at the end of the third quarter was 0.4x. Specific discussions of these limitations can be found in the respective agreements filed with the SEC. Our philosophical approach to leverage remains consistent. Whether it be for M&A or share repurchases, our litmus test is that so long as we can return to net debt 0 in about 6 quarters, we are comfortable to proceed with a given outlay of capital. From time to time, we may exceed this threshold only for M&A, depending on the visibility and durability of the acquired cash flows, but this is our general approach. This approach is important to keep in mind as we navigate the opportunities before us and also informs how we evaluate a combination of M&A and share repurchases. Our intention is not to use leverage for leverage's sake, but rather to efficiently deploy capital while maintaining the strength of our balance sheet. We remain opportunistic on share repurchases, and we'll look to execute share repurchase transactions when suitable M&A targets are not available. Turning to our leading-edge day rates, I will reference the data that was posted in our investor materials yesterday. Broadly, our weighted average leading-edge day rate for the fleet was down marginally in the third quarter compared to the second quarter, primarily a function of our midsized PSVs in West Africa and larger PSVs in the North Sea. Rates for these vessels were resilient elsewhere around the world. We did see a nice uplift in our largest class of anchor handlers with contracts in Africa and the Mediterranean and a bit of a movement up in our smallest PSVs. During the quarter, we entered into 34 term contracts with an average duration of 7 months as we look to a strengthening market as we progress into the back half of 2026. Turning to our financial outlook for the remainder of 2025, we are narrowing our full year revenue guidance to $1.33 billion to $1.35 billion and a full year gross margin range of 49% to 50%. We've narrowed our range for the remainder of the year with the revenue outperformance in the third quarter bringing up the low end of the range, and we've lowered the high end of the range due to a few projects ending earlier than anticipated in the Americas and as we expect a bit more idle time in West Africa as we close out the year. We now expect utilization to be roughly flat sequentially as the benefit we expected from lower drydocks is now offset by the lighter-than-anticipated activity I just mentioned. The midpoint of our revenue guidance range is approximately 99% supported by year-to-date revenue plus firm backlog and options for the remainder of the year. Turning to the 2026 outlook, we are initiating a full year 2026 revenue range of $1.32 billion to $1.37 billion and a full year 2026 gross margin range of 48% to 50%. We anticipate a relatively consistent quarterly cadence of revenue generation and margin profile throughout the year. Our expectation is for a relatively even year with the potential for uplift depending on the strength of drilling activity picking up towards the end of the year. Our firm backlog and options represent $316 million of revenue for the remainder of 2025. Approximately 78% of available days for the remainder of the year are captured in firm backlog and options with our larger and midsized classes of vessels retaining slightly more availability to pursue incremental work as compared to our smaller vessel classes. Looking to 2026, our firm backlog and options represent $925 million of revenue for the full year, representing approximately 69% of the midpoint of our 2026 revenue guidance. Approximately 57% of available days for 2026 are captured in firm backlog and options. Our full year revenue guidance assumes utilization of approximately 80%, providing us with 11% of capacity to be chartered if the market tightens quicker than we are anticipating. Our largest class of PSVs retains the most opportunity for incremental work, followed by our midsized anchor handlers and small and midsized PSVs. Contract cover is higher in the earlier part of the year with more opportunity available later in the year. The bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on drydocks. With that, I'll turn the call over to Piers for an overview of the commercial landscape.

Thank you, West, and good morning, everyone. First off, as both Quintin and West have mentioned, our overall long-term outlook for the offshore space remains very positive for the OSV market. And while we have some short-term headwinds to navigate through, our and the industry's expectations are that as we get to this time next year, we will start to see that expected uptick in drilling demand that everyone has been so vocal about, which layered on to the record EPCI backlog should bode well for OSV day rates in the latter half of 2026 and into 2027. OSV supply growth is expected to remain very moderate, supporting market dynamics overall with the OSV order book of 134 units according to Clarksons Research, still representing roughly 3% of the current fleet, reflecting limited capacity for supply growth. Newbuilding activity in the OSV space continues to be subdued, and we see no signs of significant new supply entering the market in the foreseeable future. Turning to our regions and starting with Europe. We saw continued pressure on day rates, mainly in the U.K. However, utilization across the whole region compared favorably to previous quarters as our teams worked hard to keep the boats working in the U.K., Med and Norway. Uncertainty over the U.K. energy profits levy remains. However, market chatter suggests that the U.K. government may soften its approach to the next budget on the 26th of November, which, if this happens, will be an unexpected shot in the arm for the region as we go into 2026. The longer-term outlook for both Norway and the Med remains positive with our teams now working on several multi-boat tenders all to start during 2026. Any awards, however, are not expected until the early part of next year, with much of the work kicking off in the latter half of Q2 2026. In Africa, we continue to see pressure on day rates, which as we mentioned last quarter, was in part because of the slowdown in drilling in Namibia, where we have been very active over the last 6 or 7 quarters, supporting operations with our largest 900 square meter class of PSV. With the anticipated slowdown in drilling, the team has been focused on winning work elsewhere in the world, and we can expect to see a few vessel movements out of Africa over the next few quarters as we mitigate against some of the expected softness in the first half of 2026. Longer term, we still remain very bullish for the region with recent announcements of Total lifting force majeure in Mozambique, Shell announcing they are returning to Angola after a 20-year absence to restart deepwater exploration with all the Orange Basins to still be developed, we remain very confident that the region will bounce back very quickly once all these pieces fall into place. In the Middle East, vessel demand and day rates continue to strengthen in the quarter, driven mainly by the EPCI contractors operating in the Kingdom as well as additional incremental demand in Qatar and Abu Dhabi. As we have mentioned previously, this is a very fragmented market, which makes it much harder to drive rates aggressively. However, we continue to see supply constraints in certain vessel classes. And as demand has been increasing, the team has been doing a great job pushing day rates during 2025. And with no significant slowdown in demand in sight, we expect day rate momentum to continue into 2026 and beyond, especially with the recent news that Saudi Aramco plans to start reactivating some of the rigs that they had suspended last year. In the Americas, we had a solid quarter with day rate and utilization improvement primarily coming from our operations in the Caribbean and Brazil. The Gulf of America and Mexico both continuing to be flat demand. Brazil or Petrobras specifically, is likely to face some short-term headwinds in 2026 as the NOC is rethinking its offshore logistics model and financial strategy as Brazil enters into an election year in 2026. Longer term, we don't expect any slowdown in drilling or production demand in Brazil. However, we may see some Petrobras specific projects moving to the right as the politics around the election push start times close to the end of 2026 or even the beginning of 2027. Lastly, in Asia Pacific, Q3 saw a solid jump in both day rates and utilization as projects in both Australia and Asia continued on from Q2. We have seen some pressure unnecessarily in our view in Australia on day rates with competitors. But more broadly in the region, day rates for our larger class of vessels have held up well. And looking out into 2026, we see some positive signs of various drilling projects coming back to the region from Q2 onwards after a bit of a hiatus during the majority of 2025 caused by various political machinations in certain areas. Overall, we're very pleased with how Q3 has turned out and how our teams are focused on delivering strong results even with the short-term white space headwinds to contend. So even with the short-term headwind, 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. And with that, I'll hand it over to Sam.

Thank you, Piers, and good morning, everyone. I would like to go over our financial results today. My discussion will mainly focus on comparing the third quarter of 2025 to the second quarter, including operational factors that impacted the third quarter. As mentioned in our press release from yesterday, we reported a net loss of $806,000 for this quarter, or $0.02 per share. This net loss included a $27.1 million charge related to the early extinguishment of our debt, which will be elaborated on later. In the third quarter, we achieved revenue of $341.1 million compared to $340.4 million in the second quarter, which was nearly flat quarter-over-quarter but approximately 4% higher than we expected. Average day rates for the third quarter were $22,798, a 2% decrease compared to the second quarter. We observed a nice rise in active utilization from 76.4% in the second quarter to 78.5% in the third quarter, primarily due to a reduction in idle days and drydock periods, as we anticipated a lighter drydock load in the second half of the year compared to the first half. Gross margin for the third quarter was $163.7 million, down from $171 million in the second quarter. The gross margin percentage in the third quarter was 48%, above our Q3 expectation but below the Q2 margin of 50%. This margin outperformance relative to our expectations was mainly a result of higher day rates and utilization, along with reduced operating costs. Lower operating costs stemmed primarily from lower crew salaries and travel expenses, as well as reduced supplies and consumables due to fewer idle and repair days, although this was partially offset by increased repair and maintenance expenses. The decline in margin compared to Q2 was attributed to a rise in operating costs. Operating costs for the third quarter were $177.4 million compared to $170.5 million in Q2, mainly due to higher salaries, travel expenses, repair and maintenance, and consumables, with ongoing foreign exchange impacts. Adjusted EBITDA for the third quarter was $137.9 million, compared to $163 million in the second quarter, reflecting the lower gross margin and a sequential decline in foreign exchange gains. General and administrative expenses for the third quarter were $35.3 million, which is $4 million higher than in Q2 due to increased professional fees. We estimate G&A expenses to be approximately $126 million for 2025, inclusive of around $14.4 million in noncash stock-based compensation. For 2026, we project about $122 million in G&A costs, with about $13.4 million from noncash stock-based compensation. Our operations span five segments. I encourage you to refer to the tables in the press release and the segment footnotes for detailed results. In the third quarter, overall revenues slightly decreased sequentially, but segment results varied, with revenues in APAC, the Middle East, and the Americas increasing. These gains were partly offset by decreases in revenue from Europe, the Mediterranean, and Africa. Gross margins improved in four out of five regions compared to the previous quarter, except for Europe and the Mediterranean, which saw a decrease of about 12 percentage points. The increase in the Middle East region was driven by rising average day rates and utilization, while operating expenses remained roughly flat compared to Q2. The Americas region experienced growth from higher average day rates and utilization, although this was offset by a 2% rise in operating expenses. The enhanced utilization was largely due to fewer drydock idle and mobilization days. In the APAC region, utilization increased by 7 points, along with a 5% rise in average day rates, although this was countered by higher operating costs primarily due to the relocation of some Southeast Asia vessels to Australia. The overall increase in utilization was mainly a result of reduced idle and repair days. Africa's gross margin percentage showed a slight increase over the previous quarter, while the drop in the Europe and Mediterranean region was due to an 11% decline in day rates and a 6 percentage point decrease in utilization, as well as rising operating costs driven by higher repair and maintenance and fuel expenses linked to lower utilization. The decline in utilization resulted from more drydock and repair days and a weaker spot market compared to the robust Q2. We generated $82.7 million in free cash flow this quarter, down from $97.5 million in Q2, chiefly due to lower cash flow from operating activities and reduced cash proceeds from asset sales. For some time, I have mentioned the delayed payment from our primary customer in Mexico. Although we did not receive payment before the end of the third quarter, we subsequently received $7.4 million after the quarter's conclusion and expect further payments before the year ends. Our accounts receivable balance at the end of September, prior to this payment, represented approximately 17% of our total accounts receivable and other receivables. We will keep a close watch on this situation. As we noted in our previous call, we successfully refinanced our three previous secured and unsecured debt instruments into a single longer-tenured unsecured structure and also entered a senior secured 5-year credit agreement providing a $250 million revolving credit facility, which is a $225 million increase over the previous facility. As part of the refinancing, we recognized a charge of $27.1 million, or about $0.55 per share, due to the early extinguishment of the prior debt instruments. With the new debt structure, we will have only minor debt repayments related to financing recently constructed smaller crude transport vessels and no payments due on our new unsecured notes until 2030. We incurred $17.6 million in deferred drydock costs in Q3, compared to $23.7 million in the second quarter. In this quarter, we had 943 drydock days impacting utilization by approximately 5 percentage points. For the year, we project drydock costs to total about $105 million, a decrease of about $2 million from our prior estimate, due to timing changes in our 2025 projects, some of which have been pushed to 2026. Additionally, we anticipate savings from projects completed for the remainder of this year. For 2026, we expect drydock costs to reach $124 million, which includes $21 million for engine overhauls and $7 million for carryover projects from 2025. We expect drydock days to affect utilization by 6 percentage points. In Q3, we spent $5.1 million on capital expenditures for ballast water treatment installations, DP system upgrades, and various IT enhancements. We also exercised an option to purchase a vessel that we had been operating under a bareboat lease for several years. This purchase option was significantly below market value, allowing us to maintain a high-quality, young vessel in our owned fleet. This purchase is reflected in the financing section of the cash flow statement. For the full year, we anticipate capital expenditures to be around $30 million, down $7 million from our previous forecast, with savings resulting from the timing of projects that will now be completed during drydocks pushed to next year. For 2026, we project capital expenditures of approximately $36 million, which includes the $7 million carryover from 2025. Additionally, we plan to purchase two other vessels under a leasing arrangement in 2026 for about $24 million. In conclusion, Q3 has been another strong quarter for us operationally. We achieved solid financial results and free cash flow, maintaining an excellent balance sheet. We are well-positioned to continue driving earnings and generating significant free cash flow going forward. The long-term fundamentals of the industry remain robust, and we are optimistic about the opportunities ahead for Tidewater.

Thank you, Sam. Liz, would you please open it up for questions.

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

Quintin, based on your comments about the current market outlook for 2026, I would like to hear your thoughts on the production support segment, which appears to be steady to growing, especially with regard to FPSOs in the coming years. The construction market seems stable to strong, but it’s the rig market that has created a gap in pricing ability. As we see the rig market beginning to recover while the production support market continues to expand, do we need to return to the rig levels we experienced at the peak in 2024 to restore your pricing power, or could that recovery happen sooner because you have absorbed some capacity in the production market since then?

Jim, thank you for your question. I believe you captured it well. Given the rising activity in FPSOs, EPCI, and the broader Subsea sector, I anticipate we will achieve our goals sooner than expected. Additionally, vessel attrition over the past two years will also aid in speeding up this process. I genuinely hope to see drilling activity return to its levels from '24, as that would enable us to push day rates back up to the $3,000 to $4,000 daily range, which is essential for us to cover our cost of capital. We’ll need a couple of years of that to make it happen.

Right. Okay. That's helpful, and that's what I figured. And then if I read between the lines and some of your comments, you talked about capital, where capital flows between buybacks, between M&A potential. And obviously, this quarter, you guys built a lot of cash and didn't buy back anything and you didn't really buy anything. But I'm assuming kind of the way you operate that the lack of share repurchases in this quarter maybe suggests that you're at least looking at some M&A opportunities that you're kind of holding some dry powder for. Not that I expect you to tell me who you're buying, when that's happening or anything like that, but I'm just curious, is that an accurate read that at least you're pursuing some things that could happen and maybe that's why you didn't do any share repurchases this quarter?

Jim, a very thoughtful and great question. Allow me to say that we had material nonpublic information during the quarter, but I just have to leave it at that.

Okay. Appreciate that color and good job, and look forward to how things play out as we go into '26.

Your next question comes from the line of Fredrik Stene with Clarksons Securities.

And appreciate all the detailed commentary as always. I wanted to dive a bit into the guidance for 2026, and I must say that I was a bit surprised that you gave it during the third quarter since you gave it at the fourth quarter for last year, but clearly positive to see that you have confidence enough in next year to guide at this point. With that as a preface, I wanted to ask if you could help me with a bit of granularity when it comes to which regions would be of course more exposed to open capacity, which regions are well covered, et cetera, when we think about this 69% midpoint revenue number that you gave, West, and the 57% of available days that were booked. Is there any sort of regional discrepancies going into next year, some regions to watch closer when we try to assess whether or not you'll hit that guidance or even outperform?

Listen, thanks for the question. I'm going to give a quick response, but then I'm going to hand it over to West and Piers because they've got more detail on that. But as it relates to the guidance timing, we just think it's appropriate at this point in the year to give people guidance. And if we can give people guidance at this point in the year that is somewhat firm, we're going to do it. This year, we have a little more confidence than we had last year. And I think that we could characterize this year's guidance as kind of a base case. We're hopeful to see that upside in the latter part of '26, but we are very confident that we could deliver a year in '26 that was at least as good as '25. And so we wanted to get that information out. But as to the regional breakup, let me pass it over to Piers because he's got more detailed knowledge.

Yes, looking ahead, Africa has slightly more exposure in the second half of '26, which is typical for most years. Asia also has more immediate exposure as we approach '26. We are currently working on several initiatives, so this could evolve. However, the main focus remains on Africa and Asia for the year. Overall, we have solid coverage elsewhere as we enter 2026.

All right. And just as a follow-up to that one. You're talking about 69% from firm revenues and options. Are you able to give a split there or at least give some color on whether or not it's sensible that most of those options will be exercised given whatever price that are priced at?

I don't have the split on firm and options available right now. However, I can say that we do have options from a while back, and we are very confident that they will be exercised when they come due.

I have a quick question that doesn't relate directly to the market. In your 10-Q, you mention the Venezuela case where you could be owed around $80 million. From what I understand, there might be a verdict by year-end. Should we be paying attention to this? Is there a chance you'll be able to collect that money if it goes your way? Any insights would be appreciated, as additional cash would obviously be beneficial.

Fredrik, it's Quintin. The timing on these types of cases is so difficult. I mean this has been going on for 12 years now. So yes, we do feel that we're getting really close. But trying to call it, whether it's the end of this year or the first half of next year, I would tell you, is really difficult. I would say that most people are thinking it's going to settle.

Your next question comes from the line of Josh Jayne with Daniel Energy Partners.

Quintin, you alluded to it a little bit in the answer to the last question, but I'm going to go ahead with that anyway about confidence level. So as we sat here a year ago, there was a lot of questions about domestic energy policy in Saudi, and we just changed presidents and offshore white space. All of those went on to, I think, impact offshore activity over the course of '25. Do you get a sense that customers have a better sense of the playbook today and are more confident in the next 12 months, maybe more so than you were a year ago? Maybe just elaborate on that a little bit more would be great.

I do just because we've had a year of dealing with this volatility and uncertainty, and we're getting a sense for which regions it impacts and what it doesn't. But also, we've gotten a real good view on OPEC and how they're releasing excess barrels into the market and how they're managing price expectations as they do that. So yes, I think that operators broadly have a better sense for where they want to go and how deep they want to go in particular regions. But let me look it over to Piers and Piers, you may have some other commentary to like add.

Yes, Josh, when we talk to our customers right now, they appear to have a clearer perspective on the direction things are heading. This can be observed in their conversations, especially from the drillers regarding the second half of '26. We're noticing an increase in tender discussions across all our regions. There is certainly a positive vibe as we look towards the latter half of '26. You brought up Aramco, and they've already announced plans to reactivate rigs that were suspended last year, which is a strong indicator. We're also seeing heightened activity in areas like the Mediterranean and the Caribbean. Overall, the discussions we're having are very encouraging. Customers seem to have plans in place and are beginning to act on them, which is a good sign for us.

And then you talked about the 34 contracts that were signed over the course of the quarter for an average term of 7 months, the general consensus view has been we do see some uptick in rig activity in the second half of 2026. And just when I think about the timing, is that intentional on your part? Or is the duration of those contracts? Or is that just sort of where the market is today, what customers are willing to sign? Maybe just speak to that a little bit more.

It's really reflective of the current market conditions. We've experienced some expected softness, which I mentioned on the last call, and we've been focusing on utilization. Some of the contracts we've signed will carry us into the second half of 2026. We're very aware of the need to maintain utilization while ensuring we don't overcommit to long-term contracts, as we anticipate an uplift in the market in the latter half of 2026 and into 2027. We want to avoid locking in contracts that may not be beneficial at the moment. The contracts we're signing now are intended to provide coverage and support as we move into that period, which is central to our commercial strategy.

And then maybe if I could just squeeze one more in. I'd love to get your thoughts on just the newbuild fleet today. You highlighted the number of vessels, but then also just the ongoing attrition that happened over the last 2 years. Could you just frame that against the attrition that you're expecting over the next 12 to 24 months and your expectation if the number of vessels that are on order today all ultimately get built?

What we've observed over the past couple of years is that there have been a few orders from various regions, primarily from new entrants into the industry rather than traditional industrial participants. Notably, there are some new builds being ordered in Brazil, which seem sensible considering the rates they have been awarded. Currently, roughly 3% of the fleet, which includes both PSVs and anchor handlers, has been ordered. This is significant regarding net new build additions or incremental supply. In an industry where assets typically have a lifespan of 20 to 25 years, we would expect to lose approximately 4% to 5% of the fleet annually due to attrition. While shipbuilding doesn't always occur evenly over time, over several years, many vessels will reach that 20- to 25-year mark and should exit the fleet. If the economic conditions are such that maintaining older vessels becomes costly, it is possible for attrition to occur. We currently see fewer new builds on order compared to what attrition would suggest is necessary for net new supply as these vessels start to come in. While I don't anticipate any issues with delivery for those currently under construction, especially if they have financing, the timing remains a question. Since it has been a while since many vessels were built, shipyards may need to regain operational efficiency. However, I believe it is reasonable to expect that these vessels will be completed. The key concern is whether this will lead to an increase in the fleet size given the attrition we're facing. If it doesn’t, we may remain in a strong position overall.

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

Quintin, I know you mentioned the available public information regarding potential mergers and acquisitions. Beyond that, could you provide more insight as we consider potential opportunities? The company has a diversified fleet, and it's interesting to note that some people prefer anchor handlers over PSVs. As we look at the offshore landscape evolving over the next five years, do we have a preference for specific types of assets? Or do we believe that asset prices are appealing, and if it’s on the water, we’re interested in acquiring it?

I want to mention that, similar to what I've said before, we are really focused on the Americas. Right now, South America seems more appealing to us than North America. We definitely prefer large PSVs, as well as medium and large anchor handlers, but not the extra-large ones. At this moment, I’m not looking to expand too far beyond that, although I do find the Subsea market interesting. However, entering that market requires significant scale, so we need to consider carefully before pushing beyond the usual PSVs and anchor handlers. Nevertheless, it is a possibility based on our core strengths in managing vessels, crews, and customer relationships.

I appreciate that in a market like West Africa, which is a key basin, there are more medium-sized vessels than large ones in your fleet. However, can you provide any insight into why the pricing for larger vessels remains stronger compared to medium and small vessels? Is it due to the type of work, the scarcity of vessels, or something else? Any commentary on this would be helpful.

Piers here. Regarding the larger PSVs, I believe it’s a mix of factors. These vessels are always a primary choice for our customers, and size is crucial if they can secure them. While there is some scarcity, we do have a large fleet of these vessels globally. However, for EPCI contracts or drilling programs, there’s a clear demand for the largest PSVs possible to maximize space. This gives us a significant advantage with our fleet. You mentioned Africa, and there are periods of slowed activity, but we can still reposition our larger PSVs to various regions as there’s enough work available. This flexibility allows us to respond to demands for drilling and construction projects, and people are willing to pay for vessel mobilization. So, it's a combination of several factors that keeps our rates relatively high, with potential for further increases as we look ahead to the next half of the year.

Thank you for the guidance for next year; it’s encouraging to see. I have a couple of questions regarding it. First, reflecting on about a year and a half ago, we faced some maintenance issues that impacted utilization. As we look ahead to next year's utilization, are we factoring in some buffer for unexpected downtimes? Additionally, it seems that many, myself included, anticipate a stronger performance in the second half of next year compared to the first half. Do you have any insights on how revenue expectations might differ between these two halves?

I'll start with the first part, Greg. In the prepared remarks, we mentioned that we expect the quarterly revenue to be fairly even next year. It is not necessarily a back half weighted outlook. However, if drilling comes back stronger than we currently anticipate, it may influence the back half to be higher than our guidance. But as of now, we indicated that the quarterly progression will be fairly even. Regarding downtime for repairs, as we have noted, the last three quarters have shown better uptime performance than what we observed about a year and a half ago. Three quarters give us a better basis for establishing a trend and demonstrating the benefits of our investments and efforts with our vessels. For next year, we did not delve into specifics, but we feel more confident in the operational capabilities of the vessels at this time.

That completes our Q&A session. I will now turn back over to President and CEO and Director for closing remarks.

Liz, thank you. Thank you, everyone, and we look forward to updating you again in February. Goodbye.

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