FOOL CONFERENCE
CALL SYNOPSIS*
By Greg Markus
(TMF Boring)
Tidewater
Inc.
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1440 Canal St.
New Orleans, LA 70112
504-568-1010
ANN ARBOR, Mich., (May 1, 1997) /FOOLWIRE/ -- Tidewater Inc. owns and operates approximately 650 vessels, the world's largest fleet serving the international offshore energy industry, and owns and operates one of the largest rental fleets of natural gas compressors in the U.S. The company today reported its 1997 fiscal fourth quarter results.
OVERVIEW OF FINANCIAL RESULTS
Tidewater has filed its 10-K with the SEC and that statement, which is available through EDGAR (http://www.sec.gov), provides detailed financial information. By way of summary, revenues were $220.8 million, a 37% increase over revenues of $161.2 million in the previous year's fourth quarter. Quarterly net earnings were $45.5 million, or $0.74 per share, including a charge of $1.9 million, or $.03 per share, to establish reserves for losses resulting from one of the company's insurers filing for liquidation.
Tidewater ended the March quarter with slightly over $41 million in cash after spending about $60 million in the quarter on the company's share repurchase program. Tidewater has no long-term debt. Stockholder equity stood at $769.7 million, with 60.3 million shares outstanding.
Depreciation expense for the quarter was $20.9 million versus $20.6 million in the third quarter. General and administrative expense was $17.6 million versus $16.3 million in the third quarter. Gains from asset sales were $3.5 million as compared with $1.0 million in the preceding quarter. Income tax provision of $22.1 million represents an effective tax rate of slightly under 33%.
SEQUENTIAL REVENUE GROWTH. Revenues for the quarter were up 4.0% sequentially, which is noteworthy because the March quarter is historically Tidewater's weakest one. Marine segment revenues of $192.0 million were up 4.3% sequentially. Compression segment revenues of $28.9 million in the fourth quarter compared with $28.3 million for the third quarter.
MARINE SEGMENT
MARINE REVENUES. Revenues from domestic-based vessels totaled $99.8 million in the March quarter, as compared with $91.6 million in the December quarter. Internationally-based vessels provided $88.2 million in revenues, versus $84.7 million in the preceding quarter. Brokered vessel revenues (to meet short-term customer demand) were $2.6 million in Q4 versus $5.5 million in Q3. Shipyard revenues were $250,000 in Q4 as compared with $1.2 million in Q3.
MARINE COSTS. Crew costs increased approximately $1 million over the December quarter to $47.7 million. That included approximately $600,000 in settlements of some crew claims for prior wages. Other cost information is:
Costs (millions) Q4 Q3
----------------------------------------
Crew $ 47.7 $ 46.8
Repair and maintenance 24.8 22.4
Insurance 8.3 8.1
Fuel, lube oil, supplies 8.9 8.2
Other 6.7 6.1
Total operating costs $ 96.5 $ 91.7
As a percentage of revenues, operating costs were 48.6% for the March quarter as compared to 48.0% for the December quarter.
DAY RATES AND UTILIZATION. Day rates improved considerably from the beginning of the fiscal year to its end. Average day rates increased and utilization was extremely strong in the fourth quarter. Selected statistics for the fourth quarter as compared with the preceding one are:
Average day rates($) Q4 Q3
-------------------------------------
Domestic-based:
Towing-supply/Supply 6382 5842
Crew/Utility 1800 1664
Offshore Tugs 6355 5651
Other 3224 3505
Total 5470 4948
International-based:
Towing-supply/Supply 4116 3965
Crew/Utility 1958 1916
Offshore Tugs 3299 3290
Safety/Standby 5906 5290
Other 812 705
Total 3475 3296
Fleet utilization rate(%) Q4 Q3
-------------------------------------
Domestic-based:
Towing-supply/Supply 93.3 90.0
Crew/Utility 86.7 88.6
Offshore Tugs 63.9 62.9
Other 45.1 50.2
Total 84.0 82.4
International-based:
Towing-supply/Supply 92.1 90.9
Crew/Utility 83.6 80.9
Offshore Tugs 85.9 79.3
Safety/Standby 80.1 83.9
Other 82.0 84.4
Total 87.8 86.4
ADDITIONAL FLEET INFORMATION. At the end of March there were 143 supply and towing-supply vessels operating in the domestic market. Tidewater successfully instituted a domestic rate increase effective March 1. As an indication of the trend in day rates, the rate for those vessels averaged $6382 for the entire March quarter, $6400 for the month of March, and as of late April, $6963. Forty-three offshore tugs were assigned to the domestic fleet at the end of March. Day rates and utilization have moved up nicely for that fleet, also. On the international side of the business, Tidewater continues to see good upward movement in the rate structure and in utilization. There were 164 supply and towing-supply vessels and 51 offshore tugs assigned internationally at the end of March.
Additional statistics regarding international markets:
Region # of Average Utili-
vessels dayrate($) zation(%)
---------------------------------------------
Far East 34 3514 84
Mid East 47 3490 96
West Africa 97 3831 87
Latin America 85 3463 82
North Sea 27 6154 84
Most of the improvement in North Sea day rates is due to favorable foreign exchange fluctuations.
O.I.L. ACQUISITION. The pending acquisition of O.I.L. Ltd., which should close by mid-May, will increase the number of Tidewater vessels to 750. O.I.L. has 60 supply and towing-supply vessels, and they are averaging a day rate of $5680. O.I.L.'s 12 crew and utility vessels have an average rate of $2200 per day.
COMPRESSION SEGMENT
RENTALS. Revenue from rentals was slightly better in the fourth quarter as compared with the third. Rental revenue of $19.4 million compared with $18.8 million for the December quarter. Margins decreased somewhat sequentially, to 53.7% from 55.3%. Average utilization of the gas compression fleet has been moving up over the past several quarters. The utilization rate in Q4 was 79%. The average rental rate per horsepower was $16.62, and the fleet size totaled 473,000 horsepower.
SALES. The other side of Tidewater's compression business is sales. The fourth quarter was essentially identical to the third quarter, with revenue of $9.4 million and gross profit of $1.8 million.
GUIDANCE
DOMESTIC DAY RATES. Revenues from the Gulf of Mexico will benefit from the full effect of the recent rate increase, which took rates to just under $8000 for the 160-footers and to just over $8000 for the 180- to 190-footers. Because Tidewater instituted a rate increase of $700-$1000 on March 1, the company probably won't revisit rates for the Gulf of Mexico until around June 1. The company prefers not increase rates more frequently than every two to three months. Demand could likely be very high by June.
INTERNATIONAL DAY RATES. West African day rates could rise to $6500-$7000 over the next quarter for the higher horsepower vessels and to $4500-$5000 for the lower horsepower boats. Utilization should be very high there. In the North Sea, expect a slight increase, due partly to currency exchange, and good utilization. In the Far East, utilization should also be quite high, and rates are looking good, as well. Overall, management expects that rates will rise considerably over the course of the coming year. In certain markets -- West Africa, in particular -- day rates, and certainly profit margins, are likely to approach those in the domestic U.S. market. There is more leverage on the international side of the business than in the Gulf, because 70-75% of contracts on internationally-based vessels will be up for renegotiation over the next two quarters. There will not be any rate increases in Australia, Alaska, or Brazil, because contract renegotiations won't begin until spring/summer 1998 in those locations; but once rates are renegotiated in those areas, they could exceed those for the Gulf of Mexico.
VESSEL MOVEMENT. Tidewater has moved equipment into the West African market from Southeast Asia and the Mideast to respond to demand in the West African market and to strengthen markets in the areas where Tidewater removed the equipment. Even within regions, Tidewater moves equipment to maximize rates -- such as into the Indian market from Dubai.
REPAIR & MAINTENANCE. In the current (June) quarter, the company's best estimate is that repair and maintenance costs will be $29.0 million to $29.5 million due to dry-docking of approximately 45 vessels, including some larger vessels. That compares with approximately 40 vessels during the March quarter. The projected dry-docking and maintenance activity during the June quarter will look much like last year's in terms of having somewhat higher costs as compared with other quarters.
CAPACITY. In the past, Tidewater had averaged 50 to 60 vessel retirements per year, but the average has been well below that recently. Because the company expects to benefit from strong demand for at least the next couple of years, management expects little if any attrition, in spite of the fact that the average age of vessels continues to increase. Management understands that perhaps 25 new drilling rigs have been ordered for delivery over the next two years, and some rigs that had been undergoing conversion will move back into service; these rigs will generate additional demand for vessel capacity, including the new vessels recently ordered by Edison Chouest.
NEW VESSEL. The expected delivery date for Tidewater's new research vessel is January 1998, with sea trials to follow that.
CONTINUED EARNINGS GROWTH. Some analysts may think that the oil service industry is close to being at peak earnings now, but Tidewater management does not see the industry as being anywhere near a peak. For Tidewater, continued earnings growth will come from strengthening market conditions and from internal growth through acquisitions.
* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.