Tidewater Inc. (NYSE:TDW) Q2 2019 Earnings Conference Call - Final Transcript
Aug 13, 2019 • 11:00 am ET
John T. Rynd
noting that our disciplined fleet management is best evidenced by the fact that we are approaching almost 80 vessels sold since the start of 2018. This disposal of lower specification vessels as we simultaneously acquire high specification vessels, like many of the GulfMark vessels and the two vessels we acquired in fourth quarter of 2018, will continue to yield excellent outcomes for our stakeholders.
We firmly believe that a smaller active fleet with the most commercial options in our primary markets where we can benefit from scale, is more valuable than maybe a larger active vessel count with lower margin or the absolute number of countries in which we operate. To briefly highlight our operating segments, the Americas region had margin expansion in both dollar and percentage terms, resulting from improved day rates offset by active utilization declines that is largely attributed to drydocking and good operating cost control.
Cost reduction possibly resulted from one-time favorable adjustment to insurance reserves and reductions associated with disposal of stack vessels that resulted in lower stack cost.
For the Middle East and Asia-Pac region, revenue was flat with the prior quarter, with operating costs slightly higher though about equivalent with the first quarter when accounting for the extra day available in the quarter. Slightly elevated drydock offer [Phonetic] was offset by small improvements in average day rates, which were more reflective of vessel mix than material change in rate progression. As previously noted, the results for the European Mediterranean Sea region saw significant benefits from the seasonally strong North Sea market. The $6.5 million or 23% increase in revenue from the first quarter, yielded an improvement in vessel operating profit of $6.1 million from the prior quarter. The 95% vessel operating profit conversion rate is a testament to the operating leverage and economies of scale embedded in Tidewater's business.
Lastly, the West Africa region was the weakest relative to the first quarter, with vessel operating margins declining almost 10 percentage points, as revenue decreased and operating cost increased. This is attributable to higher maintenance costs and associated downtime, as we ensure vessels are operationally fit for our customers, as well as stacking of four vessels during the quarter that came off contract or came due for a special survey, without immediately visible opportunities to justify the investment in the special survey.
As we projected second half of 2019, we anticipate the average active vessel count to drop by 11 vessels in the third quarter and another six vessels in the fourth quarter as we seek to improve active utilization, which we anticipate to be up by 2 percentage points in third quarter and another 2 percentage points in the fourth quarter in spite of the high drydock schedule.
Further, we project the average day rates to decline just over 1% in the third quarter as the North Sea seasonally tapers off and we realize the effects of legacy contracts that reprice downwards in Mexico and the North Sea. Overall, we expect vessel level