Tidewater, Inc. 2026 Q2 Earnings Call

Good morning, everyone, and welcome to Tidewater's second quarter 2026 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 in 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, August 4th, 2026.

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. Now with that, I'll turn the call over to Quintin.

Thank you, Wes. Good morning, everyone, and welcome to Tidewater's second quarter 2026 earnings conference call. I'll begin today with the quarter's highlights, provide an update on the Wilson Sons transaction, discuss our current views on capital allocation, and share our outlook for the business. Wes will walk through our financial outlook and current guidance considerations. Piers will cover the global market and operations, and Sam will review the consolidated financial results. Collectively, we will also update you on the impacts of Operation Epic Fury. We are pleased to report that second quarter revenue and gross margin exceeded our expectations. Revenue was $342.3 million, supported by both higher day rates and stronger utilization. Gross margin was just under 47%, nearly three percentage points above our prior expectations. Excluding $6.8 million of expenses related to Operation Epic Fury, gross margin would have been approximately 49%.

Day rate momentum was particularly strong in the European and Mediterranean segment. Utilization benefited primarily from the timing of dry docks on seven vessels shifting from the second quarter to later in the year. Operational uptime was also better than expected, which further supported utilization. Most noteworthy, our weighted average leading-edge day rate increased approximately 7.5% sequentially, a clear indication of the relatively tight supply and demand balance in the market today. Turning to Operation Epic Fury, while the intensity of the conflict eased during the quarter, we continued to incur costs above pre-conflict levels, totaling approximately $6.8 million in the second quarter. We did not experience any vessel off-hire associated with the conflict. In fact, our utilization and day rates in the Middle East were the strongest they have been in quite some time.

In our guidance, we continue to include only costs for the current quarter. We are assuming approximately $4 million of costs in the third quarter. We are actively working these costs down as we identify alternative ways to manage through the conflict. We remain encouraged that our activity in the region has been largely unaffected and that the outlook for the region remains robust, particularly once the conflict is resolved. Free cash flow improved meaningfully in the second quarter, nearly doubling from the first quarter to $64 million. That improvement was driven by stronger operational performance and the movement of dry docks on seven vessels to later in the year. Even taking those deferred dry docks into account, we expect free cash flow for the legacy Tidewater business to continue to accelerate in the back half of the year.

We also expect to generate incremental free cash flow from the Wilson's vessels once the acquisition closes. On that note, we now expect to close the Wilson's acquisition around September 1st. As discussed in our recent disclosures, we have completed all necessary regulatory steps and obtained the change of control waivers related to assume the Wilson's debt. We are now working with the banks to finalize documentation for the debt transfer. In parallel, we have continued to deploy Tidewater personnel to work alongside the Wilson's team on pre-closing integration planning, which should allow us to move quickly once the acquisition closes. We believe the ability to effect a smooth and swift integration is a core competency of our organization. We see every reason to expect the Wilson's integration to be as successful as the integrations we have completed in the past.

Our balance sheet remains very strong, with net debt essentially at zero at the end of the second quarter. We expect net leverage to increase to approximately 0.8 times by the end of the third quarter as a result of the Wilson's acquisition. Liquidity was also strong at more than $850 million at quarter end. We intend to fund the equity portion of the acquisition price with cash after assuming the Wilson's debt. We remain very comfortable with both the strength of our balance sheet and our liquidity profile. Our $500 million share repurchase authorization remains outstanding. To date, we have held off on repurchases while we complete the Wilson's debt transfer.

Although we will deploy a substantial amount of cash to fund the Wilson's acquisition, we still expect to be in a strong cash position after closing, and will evaluate the most accretive use of our remaining excess cash for shareholders. Our philosophy on the buyback program has not changed. We remain opportunistic and will consider repurchasing shares when M&A opportunities are not immediately actionable. We do not view carrying excess cash on the balance sheet as an optimal long-term capital allocation strategy, particularly given the liquidity position we have with the revolving credit facility added last summer. We expect free cash flow from the business to continue to grow through the remainder of this year and into 2027. The M&A landscape remains active. A healthy operating environment and an improving outlook are important factors in establishing a productive dialogue with potential targets.

We remain interested in acquiring the right vessels at the prices that create immediate value for our shareholders. At the same time, we are not interested in acquiring vessels that are premium to our view of their current value simply for the sake of adding scale. We are in the advantageous position of being the largest global OSV provider, and we continue to believe that in the absence of value-accretive acquisitions, the best way to increase shareholder value is to run the business efficiently, maximize free cash flow, and repurchase shares when appropriate. With the balance sheet liquidity and expected cash flows all in a healthy position, we will continue to apply the same capital allocation framework we have followed, weighing the relative merits of a given M&A opportunity against the return opportunity from repurchasing our own shares.

Looking ahead, the near-term outcome of the conflict in the Middle East remains uncertain. Market volatility can be challenging to navigate, but we believe there are important underlying reasons to remain optimistic about the offshore activity outlook. For some of our customers, broader strategic considerations such as proximity to hydrocarbon resources and the ability to provide strategic reserves that can help mitigate future supply disruptions are more frequently mentioned in planning discussions. These factors are more difficult to quantify, but they can also be more durable because they are driven less by near-term economics and more by long-term energy security considerations. This backdrop points to a more robust view of the long-term offshore activity environment than we had last year, and we see that momentum continuing to build. Tendering and pre-tendering activity have increased significantly in recent months.

Importantly, this increase in activity is evident across all of our vessel support services. Industry commentary around a strong rig tendering cycle supports this level of activity, and we are seeing similar momentum across all of our subsea support and production support offerings. Our conviction in the next leg up of the cycle is growing, particularly given the strategic resource and energy security elements of the outlook. Most of the activity uplift we have seen to date reflects projects and opportunities that were already taking shape before the conflict in the Middle East began. Discussions regarding future projects in response to the conflict have begun and remain in the early stages, but the tone is urgent and serious. Offshore projects are inherently long lead time investments, and the desire to accelerate these projects is what gives us increased confidence in the duration of the current cycle.

Turning briefly to vessel supply, there has been little movement over the past quarter and frankly, very little over the past two years. To our knowledge, there have been no meaningful new build order activity in recent months. A handful of new build vessels are expected to deliver towards the end of the year, with a few more in early 2027. The laid-up fleet remains essentially unchanged, and we do not anticipate meaningful reactivation given the laid-up fleet's age profile and specification mix. We believe much of the laid-up fleet is effectively scrapped in place, as evidenced by the limited number of reactivations we saw from that fleet in 2023 and 2024.

We continue to believe the state of vessel supply will support increasing day rates as demand again begins to approach parity with available tonnage. We expect day rates to accelerate further from what we saw in the second quarter. We continue to see a realistic path to a year-over-year increase in average day rates of $3,000 to $4,000 per day in both 2027 and 2028. In summary, we are pleased with our second quarter performance. While we will continue to navigate near-term volatility related to the conflict in the Middle East, we are increasingly encouraged by the activity we see ahead. We look forward to completing the Wilson Sons acquisition and to bringing the Wilson Sons organization and fleet onto the Tidewater platform. Always, we will remain disciplined in allocating capital to the opportunities that we believe can create the greatest value for our shareholders.