Tidewater Inc (TDW) Q3 2026 Earnings Call Transcript

Good morning, and welcome, everyone, to the Tidewater Third Quarter 2026 conference call. My name is Dara, and I will be your conference moderator for today. After today's prepared remarks, we will host a question and answer session. If you'd like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Wes Gocher, Senior Vice President of Strategy, Corporate Development, and Investor Relations. Please go ahead.

Thank you, Dara. Good morning, everyone, and welcome to Tidewater's third quarter 2026 earnings conference call. I'm joined on the call this morning by our President and CEO, Quentin Neen, 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. It 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 10, 2026. Therefore, we are 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 Quentin.

Thank you, West. Good morning, everyone, and welcome to the Tidewater Third Quarter 2026 Earnings Conference Call. Before I get into the details, the headline this quarter is momentum. Our leading-edge day rate has now risen for the third straight quarter, and we expect that to drive meaningful revenue and gross margin growth in 2027. We also beat expectations on revenue, closed Wilson Sons, and grew pre-cash flow more than 40%. So I'll cover the quarter, capital allocation, and our outlook. Wes will take you through guidance. Pierce will cover the market and our operations, and Sam will cover the financials. Let's start with the quarter. The headline is day rates. Our weighted average leading-edge day rate rose for the third straight quarter, up more than 12% sequentially to just over $27,000 per day, an increase of more than $3,000 per day. Day rates moved higher across nearly all of our vessel classes. Revenue was $360.4 million ahead of expectations, and that includes one month of revenue from Wilson Sons. Gross margin was just under 47%, nearly a full point above our prior guidance, and approximately 48%, excluding Epic Fury-related costs. Year-to-date, that leading-edge day rate is up right at $4,900 per day. That's a substantial move in just a few quarters, and it supports our view that vessel supply and demand are increasingly tightening in the vessel owner's favor. We expect that to continue as we enter 2027. As a reminder, the average duration of our contracts, including Wilson Sons, is approximately six quarters. That's roughly how long it takes for the bulk of the fleet to roll onto new contracts. As vessels across our fleet roll off older contracts and on to current market rates, those higher rates flow into our results, and that sets us up for growth in 2027 and 2028. Here's where that growth comes from. Production, subsea, and drilling, the three largest activities we support, all look poised to keep growing through 2027. The timing varies. Production support typically moves in a fairly linear path. Subsea activity continues to be robust, though, as we've noted before, the visibility and duration of that work are harder to estimate. Drilling is in a healthy place, and based on public commentary and our discussions with customers, we expect it to grow nicely as we get into the back half of 2027. In total, every part of our business looks set to grow next year, which should drive attractive revenue, gross margin, and cash flow growth year over year. It was also a very strong quarter for cash generation. Free cash flow rose more than 40% to $91 million. One month of Wilson's helped slightly, but the main drivers were better collections and lower capex. We expect free cash flow to improve again in the fourth quarter with a full quarter of Wilson's sons and a continued benefit from working capital. Turning to Wilson Sons, we closed the acquisition on September 1st, and we're now a little over two months into integrating the businesses onto the Tidewater platform. As I've said before, acquiring and integrating offshore vessel businesses is one of our four competencies. The work began in earnest as soon as we signed the deal. As with our last three major acquisitions, it's going well, and we expect to have Wilson's onboarded to the Tidewater platform by the beginning of 2027. I want to thank both the Tidewater and Wilson Sons teams for their commitment to this important work. We look forward to completing the integration in a timely way. A quick update on Operation Epic Fury. Our direct costs, wages, and insurance fell more than 40% in the quarter, and we expect total conflict-related costs to ease to about $5 million in the fourth quarter, down from $5.6 million this quarter.

A few minutes on capital allocation.

As we've said previously, our first priority was closing Wilson Sons and transferring the existing debt before we turn to our next capital deployment. I'm pleased to say we've done both. With that behind us, we felt comfortable restarting our share repurchase program. Since closing, we've repurchased $25 million of shares on the open market, including purchases so far in the fourth quarter. That leaves us with approximately $475 million of capacity under our most recent $500 million authorization. We've talked at length about our preference. Value accretive M&A is our preferred path for deploying capital, and we see share repurchases as an attractive way to return capital to shareholders on an opportunistic basis. We can pursue both at the same time. What drives the timing of one versus the other is how actionable M&A transaction is and how its returns compared to the returns we see from repurchasing our own shares. The market today is healthy, and the outlook for offshore vessels is robust, as recent secondhand prices for OSVs reflect. We're interested in acquiring the right vessels at prices that create immediate value for our shareholders, but we will stay disciplined. We won't buy vessels or fleets at a premium to what we view as their intrinsic value. Meanwhile, we expect the business to keep generating substantial cash flow through the rest of 26 and into 2027. We'll keep evaluating M&A, but in the absence of M&A, running the business efficiently, maximizing cash flow, and repurchasing shares when it makes sense is a strong formula for creating shareholder value. Our balance sheet is in great shape, and our liquidity is strong. At the end of the quarter, including Wilson Sons, net leverage was under 0.9 times, and liquidity was approximately $650 million, including our $250 million revolver. Given our cash flow outlook for the fourth quarter and end of 2027, we expect leverage to decline rapidly. That gives us real flexibility to put significant amount of cash to work in productive, value-enhancing ways without stretching the balance sheet. We don't think holding cash well beyond our working capital needs is the best way to steward capital, so we're pleased to have put cash to work in the Wilson Sons acquisitions, and we'll keep putting excess cash and future free cash flow to work in value-accretive ways. Turning to the outlook, let me start with the opportunity. In a world that is less energy secure and more reliant on local sources of energy, nations and regions want to control their own destiny. That's what the geopolitical tension and conflict are driving, a shift away from an interconnected global economy towards one that is more regional and nationalistic. That does bring some challenges as states become more protectionist, but the opportunities are real. The disruption of energy supply out of the Middle East will have lasting effects on where energy is sourced and secured, regardless of how the current conflict ends. The world will keep working out how to adjust. Over time, the ingenuity of individuals, companies, and nations will find a workable solution, but it will almost certainly look different than it did before the conflict. All of this has implications for offshore activity and for our business. We continue to see very robust pre-tendering activity, and we expect that to continue into next year. Our customers are busy with existing projects, and we see that in our vessel demand. They're also acting with discipline and not necessarily rushing to take advantage of higher oil prices. We view that as healthy. Offshore projects have long lead times, and continued capital discipline should lead to a more durable offshore cycle. On balance, we're opportunistic about how the evolving global economic order plays out for us, and we're managing the business with discipline to maximize earnings and cash flow from our assets. Earning to vessel supply, the picture remains favorable. A small handful of new-build PSVs have been sold out of the traditional PSV market into other industries, and another small set have been outfitted with cranes. Either way, those vessels are no longer competing in our traditional PSV market. Two new builds did deliver in September, the first of the vessels ordered in the middle of 2024, and we've seen limited impact on commercial negotiations. Meanwhile, secondhand prices for existing PSVs have risen considerably in recent months as prospective owners commit capital based on an improved day rate outlook over the coming years. That's a constructive market signal. We don't believe current new bill activity threatens the favorable supply picture, and we expect incremental new bill activity to stay subdued as we move into 2027. To sum it up, it was a strong quarter. Our leading-edge day rate rose for the third straight quarter, up more than 12% to just over $27,000 per day. Revenue was $360.4 million, and gross margin was just under 47%, both ahead of expectations. Free cash flow grew more than 40% to $91 million, and we ended the quarter with net leverage of 0.9 times and about $650 million worth of liquidity. We closed Wilson Sons, and the integration is on track. And since closing, we've already repurchased 25 million of shares. And with contracts continuing to reprice and every part of our business expected to grow, we're entering 2027 with momentum we haven't seen since 2023. We'll stay disciplined in how we allocate capital as we pursue the opportunities ahead. And with that, let me turn the call back over to West.

Thank you, Clinton. Expanding on the earlier comments on the share repurchase activity, subsequent to the closing of the Wilson's transaction and into mid-October, we repurchased approximately 300,000 shares at an average price of $83.14. Since the end of 2023, we've now deployed $277 million into share reductions, representing nearly 5.1 million shares at an average price of $54.60 per share. These totals are inclusive of the payment of taxes on employee stock awards in lieu of net share settlements. Over the same time period, we've deployed approximately 27% of our unlevered free cash flow into reducing the outstanding share count. Given the recent purchases under the $500 million share repurchase authorization, we retain approximately $475 million of share repurchase capacity under the current authorization. Our philosophy regarding share repurchases will remain consistent. Pursuing share repurchases on an opportunistic basis given competing capital allocation opportunities. We judge this based on the prevailing price of our shares against our view of the intrinsic value of our shares, which is now inclusive of the recent Wilson's acquisition. As a reminder, under the bonds, we are unlimited in our ability to return capital to shareholders, provided our net debt diva does less than 1.25 times pro forma for any share repurchase. Under our revolving credit facility, we're also unlimited in our ability to repurchase shares. Provided that net debt to EBITDA does not exceed one times. However, to the extent we exceed one times 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. At the end of the third quarter, our trailing net leverage stood at under 0.9 times, which is reflective of the Wilson set we assumed, along with the cash we deployed for the purchase price. We expect that our free cash flow should continue to improve into the fourth quarter and that we'll continue to generate substantial free cash flow as we progress through 2027. Turning to our leading edge day rates, I will reference the data that was posted in our investor materials last night. Across the fleet, our weighted average leading edge day rate further accelerated from the uplift we observed in the second quarter, up 12.5% sequentially, following the 7.5% sequential improvement in the second quarter. The $3,033 sequential day rate uplift is one of the largest absolute dollar movements in this measure we've seen over the past three years. We saw particularly large movements in leading-edge day rates in our large and mid-sized PSVs. Encouragingly, we entered into new contracts for the large and mid-sized PSVs across four of our five geographic reporting segments, lending a fairly robust geographic sample to this measure. Further, our large and midsize PSVs comprised 25 contracts during this time frame. During the quarter, across the entirety of the fleet, we entered into 29 term contracts with an average duration of approximately 11 months. Turning to our financial outlook, we are revising our full-year 2026 revenue guidance to $1.43 billion to $1.44 billion, and a full-year gross margin range of 47.5 percent to 48.5 percent. The narrowing of the revenue guidance range is attributable to added visibility to the final quarter of 2026. Looking to the fourth quarter, we now expect revenue to increase approximately 11% from the third quarter, primarily driven by the full quarter benefit of the Wilson Sons acquisition. We do see modest contribution from the legacy Tidewater fleet sequentially in the fourth quarter. However, in total, we do expect revenue to be impacted by higher than anticipated down for repair time, capacity reduction, and slightly lower than anticipated contract extension day rates in our America segment, collectively impacting fourth quarter revenue by approximately 3%. The updated 2026 full-year gross margin guidance includes approximately 140 basis points of cost burden associated with Operation Epic Fury across the year. We expect a fourth-quarter gross margin of about 48%, as we now anticipate conflict-related costs of approximately $5 million, the combined impact of down for repair revenue loss and R&M expense of approximately $9 million, capacity reduction impact of approximately $2 million, and the lower-than-anticipated day rates and contract extensions in the Americas to impact gross margin by approximately $4 million. Turning to 2027, we are initiating a 2027 revenue guidance range of $1.70 to $1.75 billion and 2027 gross margin guidance of 51 to 53 percent. We would expect revenue to be roughly flattened in the first quarter, with a nice pickup in the second quarter and improvement as we progress through the remainder of the year. We typically look to front-load dry docks early in the year, which weighs on vessel uptime. Similarly, we would expect margins to be roughly flat in the first quarter from the fourth, with each quarter thereafter benefiting from the operating leverage in the business as the sequential revenue increases drop down to gross margin. Our 2027 gross margin guidance assumes very modest impacts associated with Operation Epicuree. In summary, though there have been some unforeseen challenges to navigate this year, we're pleased that our full-year guidance, normalized for the impacts of Operation Epic Fury, is essentially in line with our original updated full-year guidance post the announcement of the Wilson Sons acquisition. Looking to the remainder of 2026, the first nine months of 2026, plus October revenue, along with firm backlog and options for the combined Tidewater and Wilson's fleet, Represents $1.42 billion of revenue for the full year, covering approximately 99% of the midpoint of our updated 2026 revenue guidance. Approximately 78% of remaining available days for 2026 are captured in firm backlog and options inclusive of the Wilson's fleet. Our full-year revenue guidance assumes utilization of approximately 80% inclusive of the Wilson's fleet, leaving us with approximately 11% of capacity available for opportunities in the fourth quarter. Our small, mid-sized, and large anchor handlers and medium-class of PSVs retain the most opportunity for incremental work, followed by our mid-sized class of PSVs. Looking ahead to 2027, our combined fleet backlog represents $1.1 billion of revenue, representing approximately 64% of the midpoint of our 2027 revenue guidance range. Approximately 54% of available days for 2027 are captured in firm backlogging options. Our 2027 full-year revenue guidance assumes active utilization of approximately 82%, leaving us with approximately 9% of capacity to be chartered if vessel demand exceeds our current forecast. Our small and mid-sized anchor handlers and PSV fleet retain the most capacity for incremental work as we progress through the year. As always, the bigger risk to our backlog revenue is unanticipated downtime due to unplanned maintenance and incremental time spent on dry docks. With that, I'll turn the call over to Pierce for an overview of the commercial landscape.

Thank you, West, and good morning, everyone. Before I talk about each of our region's performance, I will give a quick update on our perspective of the overall market and touch on a couple of themes we have focused on throughout the year and will continue to focus on to build a long-term sustainable business supporting all of our stakeholders. Offshore markets have remained resilient in 2026 in the face of geopolitical uncertainty and appear set on a positive growth trajectory as we move into 2027. The OSB market fundamentals remain favourable, with firm underlying demand and tight supply maintaining healthy utilisation globally, which has allowed us to continue to push day rates. Overall, the OSV market outlook remains optimistic, though conflict-shifting NOC priorities and energy security concerns continue to shape specific regional developments. Rig rates and demand continue to improve, with Clarkson Research reporting that rig demand has risen by an additional 3% since the start of the year, reaching 526 rigs as of the beginning of October 2026. Thanks. Overall. Clarkson's project rig demand to rise 5% to 532 units by year end, and a further 2% year-on-year to 541 rigs by end 2027, equivalent to 90% utilization. The MOPU sector continues to grow amid the sanctioning of numerous projects targeting remote and deep water oil and gas assets. The E&P sector continues to promote the use of FBSOs, with further tailwinds expected from the ongoing concerns over energy security and diversification of oil and gas supply. So far this year, 11 MOPU contracts have been confirmed. The largest of these involves the $7.8 billion deal between Petrobras and SBM signed in May for the supply of two FBSOs to be deployed offshore Brazil. Moreover, there is an extensive list of credible prospects progressing through to FID. At last count, we have identified 15 FPSOs and FLNGs that we expect to be awarded in 2027, all very positive indicators for the long-term health of the OSV space. With the Wilson's acquisition completed last quarter, we continue to focus on the flight to quality of the fleet, and we now have a total of 226 ships in the Tidewater fleet, of which 212 are OSVs and 67% or 142 OSVs, a high specification, larger deck PSVs, or 16,000 BHP anchor handlers. These high specification vessels are the classes of boats that are primarily driving charter rates in the global market today. as well as being the most sought after by our customers to support their global operations. So the addition of Wilsons to our global scalable operating platform has enhanced our ability to leverage not just OSP rates in contract terms globally, but also to make us the only truly global OSP operator able to support our customers anywhere in the world with a proper boots on the ground regional footprint. Over the last five years, the commercial team has remained very disciplined in delivering on our short-term chartering strategy and pushing day rates, which has been reflected in our composite day rates going from $10,330 per day in 2021 to $23,775 in the last quarter. However, what we perhaps have taken slightly for granted over the last five years. There's been the razor-sharp focus of our operations and technical teams to deliver on our uptime commitments to our customers, which has enabled us to push and maintain day rates compared to our less-focused competitors and deliver a global, world-beating operating platform to our customers. As we move into 2027, we see no reason to deviate from our short-term chartering strategy to push day rates. But there will also be a continued, relentless focus on the marginal gains we feel we can improve upon in our operations and technical teams to deliver even better uptime to our customers. Working through our various regions and starting with Europe, the HGS market in the North Sea remained strong. Although demand for PSVs was a little subdued, we were able to maintain and push day rates as more PSV supply left the market during the quarter. The Mediterranean market did slightly better than we expect in the quarter, with activity supported by a mix of production, construction, and towing requirements. Demand was driven by ongoing support requirements for Romania's Neptune deep development, as well as a couple of new exploration projects kicking off slightly earlier than expected in the region. Moving to Africa, we had a flattish Q3, mainly driven by the larger PSVs being delayed a few weeks, waiting for drilling operations to restart in Namibia in Q4 rather than at the end of Q3. As mentioned on the last call, the expected awards in Angola for long-term production work came through, and that will help utilization as we move into Q4 and beyond for the Africa region. There are still a number of outstanding tenders in the continent, from Nigeria all the way down and across to Mozambique, which we expect to see some awards come through in Q4 to start up through the first half of 2027, which should further tighten the supply-demand balance in the region. In the Middle East, our most challenging region, both Competition-wise and geopolitically, the team managed to still push day rates and increased our total composite fleet rate from $14,555 per day in Q2 2026 to $14,758 per day in Q3 2026. Overall, market sentiment remains cautiously positive, supported by high utilisation, rising tendering activity, and several large EPCI contract awards. However, anticipated redeliveries and scheduled maintenance may soften near-term activity, while incoming vessels could ease supply constraints. Long-term, we remain bullish for the region as we look out to 2027 and beyond. In the Americas, the U.S. Gulf remains soft. However, as mentioned on our last call, we have limited exposure to the U.S. markets, having taken the decision to move some of our U.S. fleets to support our customers in Suriname and Guyana. Some of those contracts did start in Q3, but the remainder of that impact of those contracts will be felt in Q4 onwards. In Brazil, the elections continue to delay Petrobras' renewed tendering activity in Q3, and as such, we expect to start seeing a pickup in tenders being released from Petrobras in Q4 and Q1 next year. We remain very positive about the long-term demand in the country, but expect a slower start to 2027 as Petrobras ramps back up again post-Brazil's elections. Lastly, in Asia Pacific, in Q3, the team continued to sustain impressive rates across the region and increased the composite rates by $845 per day, from $37,013 per day in Q2, 2026, up to $37,858 per day in Q3, 2026. It is worth noting in this region that while day rate momentum has been robust over the years, activity can be lumpy quarter to quarter when we move vessels in and out of work between countries. Overall, however, it looks like the region's activity is expected to pick up significantly in 2027, with several new drilling campaigns slated to kick off in East Malaysia, Thailand, Vietnam and Indonesia from Q2 2027. Overall, we remain very positive for the long-term health of the market, and with discipline, a higher-quality fleet, and the only true global operating platform, we have, as mentioned earlier, been able to consistently move our fleet composite day rate up over the years by over $13,445 per day since the recovery began at the end of 2021. Very positive momentum, we believe, not just for Tidal, but for the whole industry. And with that, I'll hand over to Sam.

Thank you. Thank you, Pierce, and good morning, everyone. I would now like to take you through our Q3 financial results. As in previous calls, my discussion will focus mainly on sequential quarterly comparisons, including key operational factors that affected our third quarter performance. Our quarterly results once again exceeded our expectations, driven by higher day rates, higher utilization, due primarily to time in the dry docks, partially offset by temporary conflict-related operating costs. As noted in our earnings release filed yesterday, we reported net income of $17.5 million, or $0.35 per share. Revenue was $360.4 million compared to $342.3 million in the second quarter. The primary driver of the increase was the addition of the Wilson Sons 22-vessel fleet, which contributed $17.1 million to the increase. Average day rates were 3.6 percent higher than the second quarter, offset by a small decline in active utilization to 79.2 percent from 81.4 percent. Gross margin was $168.8 million in the third quarter compared to $160.5 million in the second quarter. Gross margin percentage was 46.8%, which was above our Q3 expectation and consistent with our Q2 margin. The outperformance versus expectation was primarily driven to higher average day rates and utilization partially offset by slightly higher operating costs. Operating costs for the third quarter were $191.6 million compared to $181.8 million in Q2. An increase was expected due to the addition of the Wilson's operation, which added $7.8 million in operating costs. In the quarter, we also incurred higher dried-off days and higher repair days that contributed to higher R&M and fuel costs. Our operating costs continue to be negatively impacted by the ongoing conflict in the Middle East. Although the amount incurred in Q3 was lower by $1.3 million from Q2, but slightly higher than our estimate. As mentioned earlier on the call, in Q3, we incurred $5.6 million of additional costs due to the continuing impact of Operation Epic Fury. And near today, through September 30th, we have incurred approximately $15 million. Costs directly impacted were higher insurance costs and higher crew wages, primarily war bonus pay. And directly, we continue to see elevated fuel and travel costs due to the increased commodity price. We continue to work to minimize these costs. However, we do expect to incur additional costs as long as the conflict continues. Fuel expense has been heavily impacted since the beginning of the conflict. So, it has leveled off since the large increase we saw in Q2. Importantly, we have taken steps to contractually limit the amount of war-related pay owed to our mariners. This effort led to lower-than-expected crew costs in the second half of Q2, and we saw the full quarter benefit of these savings in Q3, where war-related pay was down approximately 50% compared to Q2. Total, we are forecasting another $5 million or more-related costs in Q4. We estimate direct costs for insurance will be similar to Q3 and expect a decline in crew wages and fuel and travel expenses. We are contractually permitted to invoice customers for reimbursement of direct conflict-related costs, which total approximately $7 million through Q3. Currently, we have invoiced about $2.3 million and have collected about $600,000. We have not included any assumed reimbursements in our guidance. However, we will continue submitting invoices for all contractually allowed amounts. Adjusted EBITDA for Q3 was $140.1 million compared to $135.5 million in the second quarter. Gold J&A cost was $43.8 million in the third quarter, which includes $10.2 million of transaction costs related to the Wilson Sons acquisition. G&A costs in Q2 was $34.8 million, which included $2.7 million of transaction costs. Excluding the transaction costs, G&A increased by $1.5 million, due primarily to the additions of the Wilson Sons business. 2026, excluding M&A transaction costs, we expect Tidewater's full-year G&A costs to be about $132 million. Which includes approximately $13.8 million in non-cash stock compensation and about $7 million related to the Wilson Sons acquisition. In 2027, we are projecting our GAA cost to be about $149 million, which includes approximately $14.6 million in non-stock-based compensation and about $16 million related to the Wilson Sons acquisition. In the third quarter, we incurred 955 drydock days and $28.2 million in drydock costs, of which $3.4 million was incurred by several Wilson's vessels. In Q2, we incurred 750 drydock days and $23.3 million in costs. Drydock days in Q3 impacted utilization by about 5 percentage points compared to 4 percentage points in Q2. We expect our full year 2026 dry dock cost to be approximately $109 million, which includes approximately $8 million of dry dock costs related to Wilson Suns vessels. In Q3, we incur $9.4 million of capital expenditures, mainly from vessel modifications and upgrades. For the full year, 2026, we expect to incur approximately $47 million in capital expenditures. This includes the planned $17 million major upgrade to one of our Norwegian vessels, which is nearing completion, and about $1 million related to the Wilson Suns vessels. For 2027, we are projecting dry dock costs to be $147 million, which includes $18 million related to the Wilson Sons acquisition. The total amount includes $63 million in engine overhauls and approximately $15 million of carryover projects from 2026. The carryover amount could change depending on the vessel and shipyard availability. We are expecting dry dock days to affect utilization by about 4 percentage points. For 2027, we are also projecting $46 million in capital expenditures for vessel equipment and IT upgrades, which include $13 million related to the Wilson vessels, and approximately $5 million in carryover projects from 2026.

We generated $90.9

million of free cash flow in Q3, compared to $64.4 million in Q2. The sequential increase was mainly attributable to higher revenue combined with a substantial working capital benefit combined with lower capital expenditures in the quarter. Prior to the Wilson Sons acquisition, our debt structure required only small principal payments each quarter, approximately $6 million per year that are related to the financing that recently constructed smaller crew transport vessels. We have no principal payments due until 2030 on our unsecured notice issued last year. Following the closing of the Wilson's acquisition during Q3, our debt maturity and repayment profile has changed and will include quarterly debt amortization payments of approximately $13.7 million in Q4 and approximately $11.4 million per quarter in 2027. The assumed debt reflects vessel construction loans, and vessel conversion, and dry dock loans. At September 30, 2026, the total amount of newly assumed debt related to the Wilson's acquisition was $224.5 million. Although we now have quarterly principal payments, the assumed debt carries low interest rates, and debt agreements allow us to finance future dry docks and vessel upgrades with summary low rates. Conduct our business to five operating segments. Please refer to our earnings release and 10Q for detail of our segment results. In Q3, we saw consolidated gross margins stay flat compared to Q2. Originally, gross margin increased by 3.5 percentage points in Europe and the Mediterranean and 2.6 percentage points in the Americas. These were offset by declines in Africa and the Middle East of approximately three percentage points and four percentage point decline in our AIPAC region. While consolidated margins were flat in Q2, they exceeded our expectations overall, particularly in Europe and the Mediterranean and the Middle East, despite challenging circumstances related to the ongoing conflict. The gross margin increased in our Europe and Mediterranean region was primarily due to 6% increase in average day rates, combined with a two-percentage point improvement in utilization, driven primarily by fewer dry dock and mobilization days. The improvement in utilization, together with an increase in day rates, delivered very strong results in Q3. In the Americas, gross margin increased about two percentage points to 43%. The Wilsons' acquisitions positively impacted the results for the quarter. Utilization improved by 4 percentage points versus the previous quarter, while day rates remained flat. Co-operating expense was up $9 million, or 28%, which was primarily due to the addition of the Wilsons' fleet. Excluding the Wilsons' results, the American's gross margin would have been 3.5 percentage points lower, demonstrating the attractive gross margin profile of the acquired fleet. The decrease in West Africa's gross margin of three percentage points was due to a decrease in revenue, resulting from a four percentage points decline in utilization, while day rates remain flat. The decrease in utilization was due to higher idle and dry dock days. Gross margin in our Middle East segment. Decreased by about 3 percentage points, due mainly to a $2 million revenue decline caused by a 5 percentage points decrease in utilization as a result of higher drive-off and repair days. This was slightly offset by a 1% improvement in average day rates. We're pleased that operating costs remain flat versus the previous quarter as we have worked diligently to minimize further water-related increases. Gross margin in the APAC region was 4 percentage points lower than Q2. Revenue fell by about $3.4 million due to a 5 percentage point increase in realization, due mainly to an increase in idle days, partially offset by a 2% improvement in average day rates. Total operating costs remain consistent with Q2. With respect to the Wilson's acquisitions, as previously announced, we closed the transaction on August 31st. Details of the purchase for the acquisition are included in our 10-Q, which was filed yesterday. We also filed the 8-KA, which provides the required pro forma information. The integration has gone well thus far, and as mentioned previously on the call, we expect the Wilson's business to fully be integrated into the Tidewater platform in January 2027. We remain strong believers in the importance of the Brazilian market and are excited about the opportunities there. In summary, we have performed expectations despite challenging geopolitical conditions and rising costs, especially in the Middle East. Industry fundamentals remain strong, demand for vessels is increasing, our balance sheet and liquidity position is in excellent condition, and we remain optimistic for the opportunities to lie ahead for tidewater. With that, I'll turn it back over to Clinton. All right. Thank you, Sam.

Doro, would you please open it up for questions?

We will now open it up for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, Please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Jim Rollison with Raven James. Your line is open. Please go ahead.

Hey, good morning, everyone. Maybe, Quinton, I'd love to, you mentioned 82% is the kind of embedded. I would love to get the day rate kind of range that's embedded there because my recollection were the last year or four quarters you've been talking about rates growing 3,000 to 4,000 on average across the fleet, and it seems like with what Leading Edge is doing, you guys kind of have a running start. So maybe a little context of what's in the guidance and kind of how you see the market shaping up with what's going on today.

Right. So I think if you do the math, the year-over-year increase will be about $2,700 per day. Now, obviously, it's growing throughout the year. And so, yeah, we do have a running start, but as it rolls into the year, I think what we're budgeting for or what we're initiating guidance on for $2,700 is about $2,700 per day.

Okay. And any – just any context on how you kind of see that trending over the course of the year?

Trending up. I mean, as it rolls in over six quarters, I would expect all of that to increase quarter over quarter.

Appreciate that. And then just maybe switching, now that you have Wilson's done, obviously you wanted expansion, more exposure into Brazil market, which you have. And one of the things you talked about previously was the ability to move. Other flagged vessels in under red capacity. Just kind of curious as you assess the market with the delays from elections and kind of how North Sea is shaping up and all that, just how you're evaluating maybe arbitrage opportunities to move capacity into that market.

Yeah, hi, Jim. It's Piers here. Yeah, I mean, I think that's still very much part of our game plan. As I commented, Petrobras has come a little bit later to their tendering activity post-elections. You know, we assessed every single opportunity. I think, you know, there's still going to be opportunities against the latter half of 27, probably for Brazil. It's going to take a little bit of time to get up and running. But there's other areas, you know, as we mentioned, we see some real strength coming out next year. So I think there's going to be some competition for our vessels in different regions. So we may not be moving everything into Brazil, but it's, you know, as we've always said, it's good to have that option value and to be able to pick and choose those contracts as we move through the gears next year.

Hi, class, problem. I'll turn it back. Thank you.

Your next question comes from Greg Lewis with BDIG. Your line is open. Please go ahead.

Yeah, hi. Thank you, and good morning, and thanks for taking my questions. My first question was around, you know, the outlook and the visibility you're seeing. And clearly, You know, we're seeing rigs be contracted for longer durations. I guess two things. One is, it seems like we have some good visibility in 27 already, but as you think about... How that flows through in the utilization? Is there any kind of goalpost you can kind of point to where, you know, we have visibility, durations are getting longer, and maybe how we should think about what that year-over-year impact could be to fleet-wide utilization?

Yeah, I mean, I think as we... And I think as we sort of go through the year, as you mentioned, Greg, we're still going for a short-term contracting strategy because we see lots of opportunity. But we are starting to see, you know, with this layering of some of that development work, you know, we've talked about in the past where, you know, Suriname's coming to play. We're expecting in Namibia, Venus coming in. You know, that tends to be longer-term work that our customers are looking for rather than drilling. So as we get into the second half of the year again, we're starting to expect some of those contracts to additional development type piece of work, and that'll push the... The utilization story as we get into the latter half, the 27th, from where we're seeing it. So, I mean, I think we're very positive about the work that's really starting to layer on top of what we've sort of been building on over the last few years.

Okay, great. And then on the Wilson acquisition, you know, there was that, you know, average vessel step up sequentially. But I guess as we think about, two questions, one is, you know, how should we think about, as we think about Q4, the integration of those vessels? I think when it was disclosed, you know, I think the Wilson fleet was kind of separated out at, like, 700 square meters versus, I think, how you guys report at 900. Is there any kind of, I guess, how should we be thinking about what the PSV fleet in the Americas looks like in Q4 and just as those vessels get integrated? You know, how's that, how do we think that impacts average vessel rates? In Q4, but then as we look ahead to 27 and even 28, what's the type of any kind of cadence around vessel contract resets for some of those vessels that were acquired down in Brazil, which arguably could have some uplift?

Yeah, I think, Greg, it's West. I think to the first part of your question as it relates to the fleet size in the Americas, I think you alluded to it that we had kind of the partial quarters impact in Q3 from the acquisition, but I don't have the number from me, but if you look back into the Q2 fleet count for the Americas and add 22 for the fleet that we acquired in Wilson's, I think that would take it to. Uh, roughly 56 or so again, can, can check that number, but that would be kind of your new, uh, pro forma, uh, fleet count in the Americas as it relates to the, uh, rolling of the day rates for the Wilson's acquisition, which I believe was, you know, the second part of your question, uh, as peers made note, the, uh, the tendering activity from Petrobras has been a little bit slower than anticipated. But as we talked about on prior calls, as it relates to the Wilson's acquisition, you know, the current day rates that the Wilson's fleet are on are a good bit below where the market is in Brazil right now for the PSVs that we acquired. And so we think there's a pretty meaningful uplift that we should see over the next couple of years. Again, a little bit of that is in process as it relates to this tender. The situation with Petrobras, but there's a pretty good runway from where we are today on the implied day rate within the Wilson's fleet as to where the market is currently. So we're still optimistic that we'll see a good bit of rate expansion on the Wilson's fleet. It's just a little hard to quantify at this point in time.

Okay, thank you very much.

Your next question comes from Frederick Stena with Clarkson Securities. Your line is open. Please go ahead.

Hey, Quinton and team. I hope you're all well. I have two questions for you today. And the first one touches a bit on contracting strategy. You already gave a good color on how you recall the assumptions behind your 2027 guidance. And I think, Piers, you also mentioned in the prepared remarks that you are, you know, happy with your, I guess, shorter-term contracting strategy at the moment to be able to push. Day rates faster. But I was wondering, are you kind of meeting any or seeing any changes with your clients, right? One thing is what you guys want to do when you sign contracts. But on the other hand, are you seeing clients offering longer term on certain work at lower rates because they want to lock in what they will believe? It's going to turn out to be a sub market rate in the long run if the market moves as you expect it to. So interested to hear any kind of different or how dynamics have changed in those discussions, maybe over the last, you know, three, six, nine months.

Yeah, hi, Frederick. It's Piers again. It'll be no surprise. Our customers are always looking to try and find ways to bring rates down. But as we've mentioned, we think the supply-demand balance is still in our favor, so we're able to keep pushing. I don't think we've seen any particular change. I mean, as I mentioned earlier, there's a little bit of, you know, a few longer-term needs from some of our customers, but there's, you know, I think as Quentin made in some of his prepared remarks, you know, we've got such a regionalized business that it's different around. different areas of the world. So You know, I think our customers are trying to find ways to go longer and push day rates lower. We have a slightly different attitude, which if they want to go longer, we want to go higher. So there's a sort of disconnect there. But no, the customers are starting to become aware that, you know, rigs are getting dented out. They are starting to think about their long term, how they're going to support those rigs on the exploration development campaigns, and they need big PSPs for that. So there's a little bit of conversation around that, but they're, you know, they don't have much choice at the moment except to accept what we're pushing for. You know, we want to, we're happy to give options, but we price those and, you know, we're not just giving, we're not going to give our vessels away just for a longer contract still. But no, the conversations are. The conversations we're having with our customers are robust, but they're positive as well.

Thanks, I appreciate that. And the second one I wanted to touch briefly on M&A. It's a recurring theme in these Q&As, but you have a long history of doing successful M&A, and now with Wilson Sons being on the way to be fully integrated by the first quarter next year, you've obviously, your Brazil presence, I think, in line with Your strategy that kind of started a couple of years back, and if you were to consider any new opportunities today, is there now any particular region that you would be more interested in than before, or will it be more deal-dependent in terms of what is the most accretive, obviously, for whatever you would consider?

Yes, it was certainly price dependent. I would say a couple of years ago, I was interested in the Americas broadly, both the U.S., Gulf, Caribbean, and Brazil. Obviously, we did the deal in Brazil. I'm less interested today in the U.S. Gulf. It just doesn't seem to be performing as well as other areas around the world. And the pricing, I still find, to be too high. I think there's going to be real opportunities in Africa over the next couple of years, principally in Nigeria. Nigeria is a place we pulled out of about six years ago just because of security and corruption concerns. It's a difficult place to operate. But the supermajors are going back in, and there could be an opportunity to get back in in size in Africa. But there's other fleets around the world, throughout West Africa, but also Asia as well. So I would say that, you know... You know, relative to what I said a couple of years ago, I've been focusing on Americans broadly. I'm less focused on that area now, more focused on Asia and Africa again.

Your next question comes from Keith Beckman with Pickering Energy Partners. Your line is open. Please go ahead.

Hey, good morning, and thanks for taking my question. I just wanted to, you know, leading-edge day rates increased pretty substantially again. I just wanted to unpack that a little bit more and get a sense on maybe what in particular is leading to some of the tightness we've seen with the 3,000 per day increase quarter over quarter, and maybe what regions in particular have been leading the way in that for you guys. Yeah, hi, Keith.

So, I mean, I think, as we mentioned, it's obviously our largest size of vessels have been pushing it. But, you know, it's been fairly across the board. We've had, as Quentin mentioned, Africa has been very good. We've seen a pickup in activity in Namibia, Mozambique, also in Asia Pacific as well on some of the contracts on our bigger PSVs, and then lastly in the Caribbean as well. And then actually, you know, the MED as well has been very positive in terms of that day rate progression as well. You know, and it's a cross between supporting exploration, but also the construction piece as well, supporting the EPCI customers as well. So, you know, they need large anchor handlers and they need large PSVs, and we have lots of them. So we're able to use that to our advantage.

Okay, awesome. Thanks for that, Caller. And then my second question is maybe, you know, much longer term, bigger picture question around, you know, you guys have a fleet attrition slide that's always kind of helpful every quarter, I think. And, you know, close to half the OSV seat is kind of aging beyond 25 years here over the next decade. With not a whole lot of new bill to order book to replace it right now. I mean, how do you guys best position yourself to kind of move into that market environment here over the next, you know, five, five plus years, positioning yourself well for that?

Hey, Keith, it's Wes. I think it's what we've been endeavoring to do over the past five or six years, which is continue to focus on acquiring fleets at, you know, in a value-creatable level. Part of the rationale from M&A, from an M&A perspective, and there's a lot of different facets that go into this, but partly is fleet renewal, for lack of a better term, right? I mean, in each instance, we've bought. Effectively, the youngest vessels in the world that we can find at that, you know, at those various points in time. Now, admittedly, The fleet is aging. There aren't a lot of new builds on order. And so the younger fleet or a younger boat is still relatively old. And so what we've done is been able to kind of piece together a fleet that is disproportionately younger than the rest of the fleets in the world. So in a world where you begin to see real attrition in the global fleet, we should be that much better off than our competitors. So I think that's what has, again, a facet of the M&A process over the past half decade or so is ensuring that we're acquiring the right tonnage of the right value. But part of that, you know, right tonnage definition is that it's young, well built, and has a lot of durability left when we look at the cash flow longevity of that business. So we'll see how that world continues to play out over the coming years. But that's certainly been, you know, part and parcel of our strategy as we've embarked upon this M&A journey is just that, is to make sure that we are, that we have the youngest fleet and we have the most durable earnings capacity. In the world.

Awesome. Really appreciate it. I'll turn it back.

Your next question comes from Josh Jane with Daniel Energy Partners. Your line is open. Please go ahead.

Talk through subsea production and drilling outlooks briefly. And when we match up your guidance outlook for 27 with, you know, when we think about not only next year, but moving forward on the drilling side, is that where the main torque to the business exists moving forward? And maybe you could just comment on if a further increase in exploration in the next couple of years would drive upside to sort of your current expectations, as that's been a little bit slow.

Yeah, I mean, Josh is, you know, as I said, we've always been very open about the fact the main talk for our business is on the drilling side. You know, the more rigs we have on the water, the better for us. You know, that's super important. That's where we can really push day rates. I would say also on the, as I mentioned in some of my comments earlier, I think on the You know, the subsea, supporting the subsea construction side as well is super important as well. That's also an area where we can really push day rates. It tends to be slightly shorter contracts, those guys, and they tend to come late to the market. So, you know, you can really push the day rates on that side. But yeah, no, I think on the drilling side, we're seeing, you know, it's always sometimes slower than we expect, but it's certainly seeing a pickup on. The drilling side, we're seeing more rigs, more floaters going back than jack-ups, so deeper water tends to support us better with our larger vessels, so I think that's going to have a really good positive effect for us as we go into second half of 27 and into 28, we saw more floaters hitting the water around the world, so we're very positive on seeing a lot more exploration coming out or significantly picking up.

Thanks for taking the question. I appreciate it.

Your last call comes from Lucas Dahl with Arctic Securities. Your line is open. Please go ahead.

Thank you. Good morning. Just following up on that last question, I was wondering if you sort of look at your contract over the last year or so, do you see a meaningful delta in terms of the development and exploration campaigns that your vessels are being assigned to?

Yeah, so you mean a reasonable belt in terms of just the contract length or just the amount of contracts?

No, the type of contract. I mean, the type of campaign, whether the campaign is an exploration campaign or whether it's a development campaign. Whether you have sort of seen or you have noticed that there has been a shift in terms of the split in terms of percentages.

Yeah, no, I mean, at the moment, it's still expiration. I mean, I think if you, you know, when we started seeing the pickup in 21, you know, that was a case of production coming back on post-COVID. Then we had a couple of exploration campaigns, things like we were supporting Total in Suriname. We're now going back in to support Total in Suriname, and that's a development campaign. So it's just a layering on that effect. So what we're seeing the uptick in at the moment is a little bit more of that development work coming, but primarily it's still exploration in terms of the regions where we're seeing the work that's coming back. So it's more push-force exploration, which is... You know, from a long-term perspective, that's very positive because, you know, the assumption is that turns into development and then production, and that continues to grow the business as we look out beyond the next sort of one, two years into sort of five-year timeframe and beyond.

Okay, and then you mentioned that you were eligible to recover some of the costs in the Middle East or some of the cost increases in the Middle East. How much have you recovered today?

Yeah, Lucas, this is Sam. We have billed, I think, about $7 million so far. I'm sorry, we billed a little over $2.5 million, and we've recovered $600,000 so far. Now, we're able to bill up to $7 million, but that billing process obviously is taking a little bit longer than we would anticipate. But eventually, we hope to bill everything that we can according to the contracts.

There are no further questions at this time. I will now turn the call back to President and CEO, Quinton Neen, for closing remarks.

Nadara, thank you, and thank everyone for joining us. We look forward to updating you again in February. Goodbye.

This concludes today's call. Thank you for attending. You may now disconnect.