Tidewater’s Quintin Kneen sees “compelling long term market backdrop”
Written by Nick Blenkey
Tidewater president and CEO Quintin Kneen says trends point to “as compelling of a long-term market backdrop for our business as we have ever seen.”
The world’s largest operator of offshore service vessels, Houston-headquartered Tidewater Inc.(NYSE:TDW), yesterday reported its results for the three and six months ended June 30, 2023. Highlights included:
- Revenue of $215.0 million, an 11.3% increase from the first quarter of 2023
- Average day rate increased to $16,042 per day, $1,418 higher than the first quarter of 2023
- Net income of $22.6 million, an increase of nearly $12.0 million from the first quarter of 2023
- Adjusted EBITDA of $72.0 million, an increase of $12.9 million from the first quarter of 2023
- Composite Q2 2023 leading-edge term contract day rate up 10.9% to $23,498
What all this will mean for the company’s share price remains to be seen. But for those who look to Tidewater as a barometer with which to assess the overall outlook for the global offshores services industry there was a lot to unpack in president and CEO Quintin Kneen’s analysis of the results. Here’s some of what he said:
“The second quarter continued the trend of new quarterly cyclical revenue and global average day rate high-water marks. Consolidated global average day rates improved approximately $1,400 per day sequentially, approaching a $5,500 per day increase since the end of 2021. The pace of our day rate improvement picked up from the prior quarter as commercial and tendering activity remained robust and an improvement in seasonal factors helped drive shorter term day rate realization. The momentum in day rates is being driven by a global supply shortage of large and small offshore vessels, and as a result each of our five segments realized meaningful day rate expansions during the second quarter. Expected long-term increases in offshore capital spending, the increasingly constructive tone of conversations with our customers in terms of vessel contract duration and future start dates for projects, coupled with the existing and expected future constraints in vessel supply, point to as compelling of a long-term market backdrop for our business as we have ever seen.”
Kneen’s remarks on offshore capital spending and the tone of customer conversations are consistent with views just expressed by Diamond Offshore Drilling president and CEO Bernie Wolford, Jr. (See earlier report).
“We are excited about the addition of the high-quality, high-specification fleet of PSVs we acquired from Solstad Offshore and have already successfully integrated five of these vessels into the Tidewater vessel operational infrastructure,” continued Kneen. “Driven largely by the completion of the Solstad Offshore vessel acquisition, revenue for the third quarter should be up at least $80.0 million. We updated our view of the combined fleets and of the market for the remainder of the year and we reiterate our 2023 annual guidance of approximately $1.03 billion of revenue and approximately $500.0 million of vessel operating margin.
“Revenue for the quarter totaled $215.0 million, an increase of $21.9 million, or 11.3% sequentially. Gross margin improved materially during the quarter, driven by day rate increases across the fleet. Vessel gross margin expanded over four percentage points to 43.8%, a rate of improvement we anticipate continuing for the remainder of the year. Utilization declined modestly to 79.4% from 80.6% in the prior quarter. Utilization was down modestly during the second quarter as we withheld capacity and repositioned the fleet to maximize long-term day rates on a global basis, which resulted in more days of frictional unemployment as we targeted higher margin geographies for our vessels. The opportunity cost of this strategy to maximize day rates was approximately $8.0 million in the second quarter. Drydock days were up approximately 17.0% sequentially, but drydock expense was down 31.8% to $21.4 million in the second quarter, bringing the total year-to-date drydock spend to $52.7 million. With the additional 37 PSVs we acquired from Solstad Offshore in early July, we now expect to incur approximately $87.0 million in drydock expense for the full year of 2023, up from the approximately $77.0 million we previously anticipated for the Tidewater fleet.
“Turning to our regional operating results, the North Sea experienced a significant improvement in revenue as seasonal factors abated, with day rates up approximately $3,400, or 23.0%, pushing up vessel cash margin by over nine percentage points to 45.8%. West Africa continued to see momentum during the quarter with day rates up approximately $1,400 per day, or 11.0%, and vessel cash margin expanding by over seven percentage points to 53.6%. Interestingly, day rates in the Middle East were up approximately $770 per day, or 8.0%; this movement is particularly notable as the Middle East is a market which typically does not see large day rate movements. Day rate expansion in the Americas and Asia Pacific were up approximately 2.0% and 3.0%, respectively, sequentially following a period of robust day rate expansion in the first quarter driven by a meaningful number of new contracts. Additionally, in the Americas region during the second quarter we reserved approximately $4.0 million related to a special purpose customer receivable balance that we determined to be uncollectible.
“The material improvement in day rates, revenue, and operating margin is possible due to the enormous efforts of our dedicated and high performing employees. We are excited to welcome our new employees from Solstad Offshore and remain committed to providing a safe and rewarding environment for our employees as we move forward together building the safest, most sustainable, most reliable, most profitable, high specification offshore energy support vessel fleet in the world.”
