Q3 2024 Earnings Summary
- Tidewater is improving operational efficiency by reducing down-for-repair (DFR) days from 4% last year to around 3% now, aiming for 2%, which should enhance profitability going forward.
- The company is confident in its future cash flows and is focused on returning value to shareholders through increased share repurchases, having allocated $111 million over the past four quarters to reduce the outstanding share count by over 1.4 million shares.
- Tidewater anticipates utilization to improve in Q4 and into 2025 due to decreased drydock days and expects the market to recover, leading to higher revenues and profitability as the year progresses.
- The company's utilization decreased by almost 4 percentage points from Q2 to Q3 due to operational issues, including 85 more drydock days, engine problems causing 81 additional down for repair days, and vessel repositioning causing idle time, potentially impacting revenues.
- Weakness in the North Sea market is causing lower day rates for high-specification vessels, and technical limitations hinder the company's ability to redeploy these vessels to other regions, which could affect utilization and profitability.
- The company has a lack of visibility into future projects and contract renewals for 2025, acknowledging that they "don't have all those tenders coming through yet," which might hinder revenue growth.
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2025 Outlook Q: Expectations for 2025 day rates and drydocking? A: Management anticipates that day rates should increase next year, though the magnitude is uncertain. They expect a lower drydock year in 2025, which won't reduce operating costs but will improve cash flow. Overall, they anticipate that 2025 will look better than 2024 on an all-in basis.
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M&A Opportunities Q: Is pause in activity creating M&A opportunities? A: It's too early to see sellers becoming more reasonable on asking prices. Management feels confident repurchasing shares at current levels and may focus more on buybacks than M&A, although they remain actively engaged in M&A discussions globally.
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Capital Allocation Q: Plans for debt repayment or share buybacks? A: Management prefers repurchasing shares over deleveraging. They don't feel the need to reduce debt and will return cash to shareholders through share buybacks if they can't find suitable M&A opportunities.
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2025 Backlog Q: What is the contracted backlog for 2025? A: The company has a backlog of approximately $855 million for 2025 as of now.
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Q4 Guidance Q: Why is utilization up but revenue flat? A: Utilization is expected to increase in Q4, but revenue remains flat due to lower average day rates. This is driven by pressures in the North Sea and project delays in the Americas and Asia Pacific, affecting regional mix.
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Drydocking Impact Q: How to think about drydocking in 2025? A: Drydock days increased in Q3 due to longer durations and timing shifts. Management expects fewer drydockings in 2025, which should improve utilization and cash flow.
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Utilization Bottom Q: Is Q3 the bottom for utilization? A: Management believes that Q3 utilization might be the baseline, with expectations for improvement in 2025 due to market recovery and fewer drydocks.
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Industry Newbuilds Q: Any plans for new vessel construction? A: Apart from Petrobras tenders, there are no indications of new PSV builds in the industry.
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M&A and Share Price Volatility Q: Has share price volatility affected M&A? A: Volatile share prices complicate deal processes, but sophisticated sellers understand market fluctuations. Stable prices help M&A, but deals take time and negotiations adjust accordingly.
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Long-term Project Visibility Q: When will long-term project decisions be made? A: Management expects more visibility on long-term plans by end of the year. There are no indications of project cancellations, and they remain positive about developments in regions like Namibia, the Caribbean, and Brazil.