Tidewater Inc.
Q2 2012 Earnings Call Transcript

Published: 2 Nov 2011

[Operator:]

At this time, I would like to welcome everyone to the fiscal 2012 second quarter earnings conference call. (Operator Instructions) Mr. Bennett, you may begin your conference.

[Joe Bennett:]

Good morning, everyone, and welcome to Tidewater's fiscal 2012 second quarter earnings results conference call for the period ended September 30, 2011. I'm Joe Bennett, Tidewater's Executive Vice President and Chief Investor Relations Officer. With me this morning on the call are our Chairman, President and CEO, Dean Taylor; Jeff Platt, Chief Operating Officer; Quinn Fanning, Executive Vice President and CFO; and Bruce Lundstrom, our Executive Vice President, General Counsel and Secretary. We'll follow our usual conference call format. After the formalities, I'll turn the call over to Dean for his initial comments, to be followed by Quinn's review of the financial details for the quarter. Dean will then provide some wrap-up comments before we open the call for questions. During today's conference call, Dean, Quinn, I and other Tidewater management may make certain comments that are forward-looking statements and not statements of historical fact. I know that you understand that there are risks, uncertainties and other factors that may cause the company's actual future performance to be materially different from that stated or implied by any comment that we may make during today's conference call. Additional information concerning the factors that could cause actual results to differ materially from those stated or implied by the forward-looking statements may be found in the Risk Factors section of Tidewater's most recent Form 10-K. With that, I'll turn the call over to Dean.

[Dean Taylor:]

Thank you, Joe. Good morning, everyone. Earlier today, we reported fully diluted loss per share for our second fiscal quarter of $0.09, inclusive of non-cash goodwill impairment charge of $30.9 million, $22.1 million after tax or $0.43 per share. This goodwill impairment charge resulted from the company's decision to change its reportable segments during the September 2011 quarter. Quinn will provide more details regarding the change in segment reporting and the resulting goodwill impairment charge in just a minute. We've re-ramped our reporting disclosure to provide you greater detail about our operations by four geographical regions, rather than our historical presentation of only two regions. This additional information should provide you great visibility and to the performance of our global operations. Exclusive of the goodwill impairment charge, current quarter fully diluted earnings per share was $0.34 per share compared to $0.38 in the year ago quarter and $0.48 reported for our June 2011 quarter. Last year's quarter did include a $0.09 charge for settlement of an FCPA investigation. In our past two quarterly earnings calls, we have commented that we were increasingly confident that we were close to the bottom of the industry. In fact, on our last call we stated that based on that quarter's results we believe we had hit bottom for this cycle. I also cautioned though that the recovery may not be V-shaped, rather we believed that second half of our fiscal year would be better than the first half, recognizing that we could still experience some unforeseen challenges in the near term. Our second quarter reflects some of those challenges. We also felt last quarter that the headwinds we have been sailing into were slowly shifting to tailwinds. We still believe that to be the case today. We believe we're balancing along our bottom and expect it over the next several quarters and improving fundamentals we see for the offshore industry will translate into improved operating results for Tidewater. This prognosis is consistent with our views expressed for more than a year. Improved results would not probably occur until the second half of fiscal 2012 at the early. We continue to believe that will be the case. And we stated in our preannouncement on September 22 and as Quinn will detail, our reported results did not match the guidance of our prior conference call in regard that we had anticipated. But rather specific situations related primarily to contract startups in Saudi Arabia and Australia. Our press release this morning includes an update on the Saudi Aramco work and Quinn will provide additional color in just a second on these matters. And before I turn the call over to Quinn, let me comment that we had another solid quarter of safety performance. There were no lost time accidents in the quarter and our total recordable incident rate for the fiscal year today is 0.13 per 200,000 man hours, matching our previous safety record performance achieved in 2010. Equally noteworthy is that we are now, touchwood, well into our fiscal year with no lost time accidents, an objective we were a part to achieve everyday. Operating safely continues to be one of our top priorities in Nigeria that was unlawfully boarded by pirates, and our vessel captain kidnapped. We're thankful that the captain was safely returned to his family within a few days. That reminds us though that we and others that support the offshore energy business need to remain vigilant. Now, let met turn the call over to Quinn to review the financial details for the quarter. I will then return to discuss our outlook for the market and our business strategy. Quinn?

[Quinn Fanning:]

As Dean indicated, you will see from our earnings press release that beginning in the September quarter our international and United States reporting segments, w changed to form four new operating segments. Americas, which will include the historic U.S. segment, which has been a relatively small part of our business in recent years, particularly post-Macondo together with Brazil, Mexico and Trinidad operations. Asia-Pacific, which includes our Southeast Asia and Australian businesses. Middle East/North Africa or MENA, which includes operations in the Mediterranean Sea and the Arabian Gulf. And finally Sub-Saharan Africa and Europe, which includes our large West African operation, our growing business of the East African coasts and our typically small North Sea operation. Additional information will be included in our quarterly filing on form 10-Q that we expect to file to the EDGAR filing service, some time before the close of business on Friday. Turning to financial results as of and for the three-month period ended September 30, 2011. As usual, I will provide a recap of the quarter just completed, offer few perspectives on what's driving financial results and then provide our near to intermediate term outlook. I'll conclude my remarks with a review of capital commitments and available liquidity. As Dean noted in his introductory remarks, excluding an estimated non-cash goodwill impairment charge of $22.1 million after tax or $0.43 per share, we reported diluted earnings per common share of $0.34 in the September quarter versus diluted earnings per common share of $0.48 in the June quarter. For your period-to-period comparisons, I'll highlight just a few items, a number of which were also addressed in our September 22 press release. First, in regards to the quarterly revenue trend, recall that the June quarter included approximately $2 million of revenue related to retroactive rate increases that had the effect of differing the recognition of revenue from the fourth quarter of fiscal 2011 to the first quarter of fiscal 2012. As adjusted, vessel revenue for the June quarter was approximately $251 million. Vessel revenue for the September quarter was a bit over $248 million. On an adjusted basis, vessel revenue was therefore off about 1% quarter-over-quarter. This was a disappointing outcome for the quarter relative to our expectations at the time of our August 4 earnings conference call, but it's also consistent with the updated guidance that was given in September. Revenue that was not realized in the September quarter, at least relative to our August expectation, partially relates to project delays. Reference in both our both updated guidance in September and again in this morning's earnings press release. In regards to the Saudi Aramco projects, we believe to be the basis for a mutually acceptable resolution with Aramco, of the previously disclosed performance standards issues that were identified with respect to nine newbuild vessels that were previously committed to multi-year charters. One vessel is now on hire with Aramco, and we ultimately expect to have five vessels at the original nine vessel package on multiyear contracts. Tidewater and Aramco have also agreed to a front-running arrangement, whereby currently available Tidewater equipment will active substitute vessels for a number of the newbuild vessels that have not yet been delivered. We expect that this arrangement will allow us to get five vessels on charter sooner than our anticipated newbuild delivery schedule would have otherwise allowed. As of financial impact in the September quarter, the Aramco situation accounts for about $3 million in unrealized revenue, as well as elevated cost in the new Middle East North Africa segment. Prospectively, our agreement with Aramco regarding will be now expect to be a five vessel package includes day rate discount for a period of time, which we believe will total about $1.5 million to $2 million. Concessions with respect to these five vessels will be recognized as lower than originally anticipated vessel revenue, spread over the next several quarters. As noted in this morning's press release, Saudi Aramco has reserved rights in regards to additional potential remedies for the four vessels that it decline to accept. We are hopeful that in due course, we will also reach a positive resolution on these four-vessel contracts. More importantly, we are pleased to reach a mutually satisfactory arrangement on the five vessels. And our primary focus now was building upon the recent constructive dialogue with Aramco and growing our business with this very important customer. In regards to the other projects, reference in our September 22 press release, as Dean noted, projects startup delays were most impact in Australia, which falls within our new Asia-Pacific segment, relative to expectations in August, the September quarter came up about $6 million short in vessel revenue. As noted in the September release, we generally expect these projects to commence in the December quarter and this remains our expectation today. In fact a couple of these vessels are now on hire and a couple of additional large, but currently idled vessels in Australia should commence term charters within the next couple of weeks. To recap, delays in getting vessels on charter with Aramco and other project delays, which were largely in Australia collectively resulted in an estimated $9 million revenue mess for the September quarter. This revenue shortfall is a bit higher than the estimated range that was incorporated in our updated guidance released in September. Second, at $161 million, actual vessel operating cost was reasonably consistent with our revised guidance. And we're up about $9 million quarter-over-quarter. The quarter-over-quarter trend in OpEx largely reflects higher repair and maintenance expense and higher fuel costs. Higher repair and maintenance costs were anticipated in August based on a regulatory drydocking schedule. Fuel costs however were higher than expectation in part reflecting the previously referenced unanticipated downtime as project startups in Asia-Pacific unexpectedly slipped to the right. As many of you know, mobilizations including mobs related to new vessel deliveries and fleet repositioning have also contributed to elevated fuel cost in recent quarters. While we expect that fuel cost may taper off a bit in the December quarter, as a result of improved utilization of vessels already in the fleet and fewer scheduled vessel transfers. Fuel cost will likely remain high by historical standards at least for a few more quarters given a heavy new delivery schedule. For reference, we initiated eight mobs unrelated to new vessel deliveries on September, and average to bit over 14-vessel transfers in the prior four quarter. Third, gains on asset dispositions net, at approximately $9.5 million, reflect to good catch-up quarter in vessel dispositions. With a good quarter now under our belt, average quarterly gains on dispositions net for fiscal 2012 is about $5.5 million through two quarters. This pace is recently consistent which we have seen historically. Fourth, at approximately $38 million, G&A was relatively flat quarter-over-quarter and have a low end of revised guidance, largely reflecting the offsetting effects of higher professional and staff cost on a one-hand, and the normal quarterly revolution of equity-linked incentive awards using a lower start price on the other hand. As the estimated goodwill impairment charge, this is a non-cash charge equal to about 10% of our total pre-charge goodwill of $329 million. And was largely a knock-on effect of our change in reportable segments in the September quarter, rather than the result of the material change of our fundamental outlook. In particular, as we move from one large international segment to the four smaller segments, to some extent, we loose the portfolio effect whereby high and low values relative to carrying values are offsetting. To whatever extent this historic dynamic can be viewed as a positive, we believe that this loss is more than offset by the better visibility that investors will have into our business and operating trends, as a result of the new four segment presentation. For background like many companies, we test goodwill for impairment annually at the reporting level. And we utilize the two-step method for evaluating goodwill for impairment as provided for in the current accounting literature. A normal course goodwill impairment test was prepared at December 31, 2010 and we determined that we had no impairment at that time. We also performed an interim goodwill impairment assessment, prior to changing our reportable segments, using September 30, 2011 carrying values. And we again determined that there was no goodwill impairment. With the more granular presentation of four reportable segments that we have decided to utilize on a go-forward basis, the MENA segment failed step one of our goodwill impairment analysis. And this is the basis for our charge in the September quarter. In December quarter, we will complete the step-two analysis prescribed by ASC 350 and make any appropriate adjustment at that time. Hopefully, the items referenced in our updated guidance and further details here, together with a background on a non-cash impairment charge, will allow you to reconcile actual results for the September quarter, to the results that we had expected when we provided our original guidance in August. To bridge to the June and September quarters, it might be helpful to note a couple of additional items. Number one, the impact of a one day longer quarter was high at revenue of about $2.8 million and foreign exchange movements provided a modest benefit as well. Number two, the incremental revenue contribution of three vessels delivered in the June quarter and five vessels delivered in the September quarter was less than $1 million. Largely reflecting the fact that many of the vessels delivered in the June and September quarters were impacted by the previously referenced project delays. Number three, this revenue benefit of these two items was offset by approximately $4 million in incremental loss revenue from vessels in drydock during the September quarter. And approximately $3 million of lost revenue from previously active vessels that were either stacked or sold in the September quarter, and finally downtime related to vessel mobilizations. Four, the remaining approximate $2.5 million delta, in this case a negative number, is the impact of quarter-over-quarter changes in day rates and utilization for the active fleet. Much of this is detailed in our press release and filing. But the basic story from our perspective is that day rates are generally moving in the right direction. While overall utilization of the active fleet is off a bit quarter-over-quarter, it is largely for the reason that relate more to specific project delays than it does to any identifiable market trend. In regards to overall fleet count, day rates and utilization trends, our active fleet averaged 260 vessels in the quarter, which is down two vessels quarter-over-quarter. Average active new vessels were up four vessels quarter-over-quarter to 198 vessels. Average active older vessels were down six vessels quarter-over-quarter to 62 vessels. After relative financial contribution about 85% of vessel revenue and about 92% of vessel level operating margin was generated by vessels added to the Tidewater fleet since we began our fleet renewal and expansion program in 2000. At September 30, the stack fleet totaled 78 vessels and was down 20 vessels quarter-over-quarter, reflecting just three vessels going to stack in the September quarter and 23 vessel dispositions from the previously stacked fleet. Total vessel dispositions in the September quarter were 28 vessels, including 15 vessels sold to scrappers and 13 third party sales. Over and above the 23 vessels dispositions from the previously stacked fleet, we had two dispositions of vessels previously withdrawn from service and therefore held for sale. And three sales of older vessels that were still within the active fleet. Overall day rates at $12,771 a day were up about 2% quarter-over-quarter. Reported utilization for the fleet, which includes the drag associated with stacked vessels was off 1.3% to 60.2%. Utilization for the active fleet, i.e., excluding stacked vessels was 81% for the September quarter and down about 3 percentage points quarter-over-quarter, again impacted by project delays already discussed. For the non-deepwater towing supply and supply class, day rates were up about 3% quarter-over-quarter to $12,519 a day and reported utilization was down about 2 percentage points quarter-over-quarter to about 49%. Deepwater day rates were also up about 3% quarter-over-quarter to $21,338 a day. Utilization was up about 3.5 percentage points quarter-over-quarter to 79%. Within the deepwater vessel class, as expected utilization for our 11 newer plus 10,000 brake horsepower anchor handlers was up about 8 percentage points quarter-over-quarter until about 77%. Utilization of our 49 newer deepwater PSVs was about 86% in the September quarter, which is up about 2 percentages points quarter-over-quarter. Average day rates for the deepwater anchor handlers at $28,000 a day were down a bit quarter-over-quarter, largely reflecting the mix of vessels working. Day rates for the deepwater PSVs at about $20,000 a day, relatively flat quarter-over-quarter. But rates seem to be trending positively at present. Tuning to our four geographic segments, Americas, Asia/Pacific, MENA and Sub-Saharan Africa and Europe respectively contributed 33%, 12%, 10% and 45% of vessel of revenue. And 34%, 5%, 7% and 54% of vessel level operating margin. In percentage terms, vessel level margin for Americas, Asia-Pac, MENA and Sub-Saharan Africa and Europe were approximately 36%, 15%, 23% and 42% respectively. Overall vessel level margin was about 35%. Relatively weaker result in Asia-Pac and MENA, largely reflect the previously referenced project startup delays. In particular, reported vessel utilization in Asia-Pac and MENA was 43% and 57% respectively. And utilization was down quarter-over-quarter by about 8 percentage points and by about 4 percentage points respectively. Asia-Pac, MENA also had a relatively heavier drydock schedule in 2Q than the other two segments. As previously noted, Asia-Pac was also burdened by higher fuel cost, due to on schedule downtime. And the MENA region had higher than expected fuel, supplies and other costs, largely due to mobilizations to Saudi Arabia, pre-charter provisioning and other efforts to get on hire. Utilization of Americas and Sub-Saharan Africa and Europe was about 57% and about 69% respectively. Americas utilization was up a couple of percentages points quarter-over-quarter and Africa and Europe were relatively flat quarter-over-quarter. With the expectation of Asia-Pac, where we had a number of large vessels of hire, reported day rates were generally up quarter-over-quarter. Wrapping up 2Q results, I'll note that the overall trend in rates is probably more indicative of business health and likely future financial performance, and are the absolute rates in one segment or another. As you might guess, our equipment mix in one region is typically very different than our mix in another region. This is of course while we provide operating information based on both geography and asset class. Now turning to outlook, improving for industry fundamentals and new vessel deliveries will likely be the key drivers in near to intermediate term financial results. As I noted on our first quarter earnings conference call in August, the financial impact of new deliveries to generally neutral to negative for a quarter or two, to the cost and time that is required to get a newly delivered vessel onto its first job. Recent results now withstanding, our recent experience and securing work for new equipment is trending positive. We are also confident that we have added to Tidewater's future revenue and earnings capacity, as we have continue to add new higher specification vessels for the Tidewater fleet. In particular, we have taken delivery of 50 new vessels over the two-year period ended September 30, 2011. We expect to take delivery of 16 additional new vessels in the December quarter, including three deepwater PSVs and 13 shallow-to-mid water anchor handling and towing supply vessels. At present, we expect to take delivery on additional four vessels in the March quarter. Offsetting the contribution from new vessel deliveries, as was the case in the September quarter, we only expect to stack a handful of vessels for the December quarter. More than new vessel deliveries and stacking activity, the trend for vessel revenue going to the December quarter will largely be driven by the ultimate start dates for the five vessels, we expect to go on hire with Aramco and a previously reference projects in Australia. At present, our sense is that we are moving in a positive direction on both fronts that these two items will be less of a drag in the December quarter than was the case in the September quarter. As always, unscheduled downtime is the wild card in any quarterly forecast. With these two caveats, we expect that Tidewater's quarter-over-quarter revenue progression will be positive for the December quarter. The December quarter's results for Tidewater and other OSV operators will likely provide us and the equity market with a clear indication of the intermediate term outlook. As of today, internal estimates peg the December quarter's vessel revenue somewhere between $260 million and $270 million. In regards to OpEx, we presently anticipate modestly lower dry docking costs in 3Q. So absent emergence repairs through a decision to accelerate drydocks, repair and maintenance cost should be down a bit quarter-over-quarter. The timing of 16 scheduled vessel deliveries and cost associated with mobilizations and provisioning for such vessels first jobs, however likely create the greatest uncertainty in regards to our third quarter operating expense outlook. And we expect operating expense for the December quarter to be reasonably flat relative to the September quarter. Uncertainty related to new vessel deliveries in the December quarter leaves us to a view that OpEx will fall within a range of $160 million to $165 million. Like vessel revenue our sense is that vessel level margins are also trending up. But near term uncertainty in regards to both revenue and cost makes a precise forecast in regards to margins somewhat challenging if not a fool's errand. Our best sense today is that vessel level margins in the December quarter will fall somewhere in the range of 35% to 40%. For modeling purposes, a regional estimate for general and administrative expenses is plus or minus $40 million per quarter for the remainder of fiscal 2012. Finally, our estimated effective tax rate for fiscal 2012 including discrete items through 2Q is 28.5%. As always, the geographic mix of pre-tax earnings and margin trends can cause the tax rate to be volatile on a quarter-to-quarter basis. But 28.5% is the best estimate that we have today. Turning to the balance sheet. Capital commitments and available liquidity, cash flow from operations for the first six months of the fiscal year was about $87 million versus about $153 million for the same period in fiscal 2011. CapEx and proceeds from asset dispositions for the first six months of fiscal 2012 were approximately $155 million and approximately $25 million, respectively. New vessel commitments in the September quarter totaled less than $25 million and included four vessel construction projects and one vessel purchase commitments. In total, unfunded vessel commitments at September 30 approximated about $503 million, including 28 vessel construction projects and 12 vessel purchase commitments. CapEx in the December quarter is expected to be about $211 million based on September 30 commitments. CapEx for the March quarter, again based on commitments at September 30 will approximate $95 million. Total debt at September 30 was $825 million and cash at September 30 was about $300 million. As a result, net debt at quarter end was about $525 million. And net debt to net book capital at September 30 was about 17%. We have no debt maturities in fiscal 2012, beyond the $40 million that was paid in July. Total liquidity at September 30, including availability under committed bank facilities, was approximately $875 million. So we remain very well positioned at upon attractive investment opportunities. And with that, I'll turn the call back over to Dean.

[Dean Taylor:]

Thank you, Quinn. Recovery from the cyclical bottom is usually not a smooth one. Trends however are positive. Oil prices remain conducive to investment. And our sense is that our customers are both more optimistic about their long-term futures, and more willing to initiate additional offshore projects. Working rig count is improved during the last quarter by approximately 50 rigs worldwide, including both floaters and jack-ups. We see positive trends across several geographies. Like many of you, we've also noted the recent orders of new drilling rigs to meet customer needs. And we view this as a further positive sign as the long-term industry fundamentals. Setting aside the vessel contracts as previously discussed have experienced startup delays. It would appear that general industry momentum is beginning to build and should equate to further improvements in our fleet utilization rate and eventually in our day rates too. Bidding activity is up. In this context, we have not seen any reason to change our view that our revenue should began to grow as we move into the later part of this fiscal year and next year. One reason as Quinn highlighted is a large number of new Tidewater vessels due to enter service in the December quarter. And the positive impact these vessel deliveries should have on revenue in the March quarter and beyond. Pace of revenue growth is accelerates. Offshore exploration and development activity improves. We're able to operatively adjust day rates. Revenue growth is about half the equation. We also need to control our operating cost to ensure that our revenue gains were translated to the bottomline. In conclusion, we believe our cash flow is on the upswing. Additionally, we have enhanced our financial flexibility by opportunistically raising capital on attractive terms. Low leverage and ample liquidity should provide us with the necessary financial flexibility to continue on attractive investment opportunities. That consistent with the 50 plus vessels required are committed to build over the past 27 months and it will not only grow earnings for our shareholders, but also enhance the debt of service we can provide our customers. With that said, we will continue to evaluate the investment in new equipment relative to other alternatives, including returning capital to our shareholders. We're now ready for your questions.

[Operator:]

(Operator Instructions) And your first question comes from line of Dave Wilson with Howard Weil.

[Dave Wilson:]

Wanted to ask a question regarding the Saudi resolution, the four vessels that are being redeployed? Are those vessels flag such they could be redeployed to the Gulf of Mexico? I guess a related follow-up there is, given the slow and steady recovery in the Gulf of Mexico, do you see any opportunity to redeploy vessels into the Gulf of Mexico? I know it's been a smaller part of your business, but wanted to see how many boats you have there now, as well as how many possibly recall to the Gulf, the demand is there?

[Dean Taylor:]

Dave, the four vessels that will redeploy form Saudi Aramco are not U.S. flag, therefore cannot come to the U.S. Gulf. Jeff, will answer some of the other parts of your question. Jeff?

[Jeff Platt:]

Dave, the vessels with Saudi, they're of class that really wouldn't have a great application here in the Gulf anyway. Here in the Gulf, rig movements are usually done jack-ups by tugs and these are not AHTs, those are AHTSs for Aramco. We are looking there are some opportunities here in the Gulf. Over the years, we have deployed some larger new PSVs internationally that were U.S. flag, and we are looking and trying to fulfill some opportunities back here. But quite honestly those boats are also doing quite well internationally and we're having difficulty freeing that equipment up.

[Dave Wilson:]

So you are seeing some demand here, just a matter of, like you said, freeing up the equipment to get a back here?

[Jeff Platt:]

Yes, absolutely, the operators here domestically, I think, are seeing a little bit a light at the end of the tunnel of the permitting side. There is optimism that the market will continue to rebound from Macondo. And quite honestly over the last year and half with the decrease in the activity here, operators have new equipment out, so right now vessels in the Gulf of Mexico and in other places are primarily large PSVs. It's a very tight market.

[Dave Wilson:]

And then kind of switching gears, Quinn, on the Saudi contract with regards to the $1.5 million to $2 million discount related to the late delivery. Wanted to get, how big that discount was to the original contract, I guess, more precisely that portion of the contract that covers these five vessels. Is that a big discount or small discount on a relative basis?

[Jeff Platt:]

Dave, discount is really figured by the number of days late from the contract delivery date. And there were a couple components to that, the numbers that Quinn had given you that range that's the and/or cumulative that we estimate for the entire package at this point. And again, it's about a 10% discount on the day-rate on the five vessels. But there is another component that is including in that, that's a little bit higher, but overall it's about a 10% reduction that we would be working off over the next two quarters.

[Dave Wilson:]

And then finally, just one more, if I could, in order to gauge your thinking or a change there in as we go through the rough patch as far as generating acceptable levels of return versus cost of capital. Do you think it still make sense that to add capacity, i.e., use that capital to add to the fleet or maybe use that capital in other way such as increased dividends or share buyback. Just checking if your priorities on this capital has changed?

[Dean Taylor:]

As I noted in my remarks, Dave, we're certainly reviewing our alternatives. I don't want to tip our hand to far, but I think as our share prices move down, certainly the share prices become more attractive in terms of range of alternatives. But you know the window for available equipment is still open, some of those prices have come down as well. We've run some numbers on what's more attractive use of our capital, but we still believe in the business. And let me emphasize that the outlook, we think is improving, and we believe, we would not have invested all of this money in new equipment if we didn't think that it was going to generate more than acceptable returns for our shareholders. So in that sense, our outlook hasn't changed. As our stock moves up and down on an opportunistic basis it may makes it maybe perhaps more attractive at times. We think our stock price is attractive, even when it's not in a dip. We think that the business is a good one. We think that investment we've made in people and equipment is going to pay out big time. One quarter we've said frequently, we're not sure in what quarter that when it will start to turn. But I did say in the last call, I do think that we did bottom. And I stand by there, I think we've hit bottom. I think when we will look back and we will look at this quarter and we'll say that was it. But again events pop up that would change that absolutely. And you look at the returns that we generated with the not so new fleet back in 2005 to 2009 time period. I think that the returns that we will eventually provide our shareholders with this new fleet in which we've made such significant investment are going to be really, really positive. So I know that doesn't specifically answer to your question, but that's our outlook.

[Operator:]

Your next question comes from Veny Aleksandrov with Pritchard Capital.

[Veny Aleksandrov:]

My first question is on the four vessels that are not going to go to Saudi. We already know that they are not going to be able to operate in the Gulf. When exactly are they expected to come out of the shipyards? And where are you marketing these vessels geographically?

[Jeff Platt:]

Veny, if I understand your question, you're saying the four vessels that will not be going to the Aramco. Those vessels are already in the Tidewater fleet, they've been delivered. They will be redeployed most likely in our Middle East operation or potentially coming over to West Africa. And we really feel confident that they will remain in the Middle East. And they currently are being used as front runners for the other vessels going on to Saudi.

[Veny Aleksandrov:]

And my second question is the deepwater vessels in Americas, the day rates has declined September over June by 6%. Can you give us any details?

[Jeff Platt:]

We have one vessel that's here in the Gulf of Mexico, it's a mid-level anchor handler, but the day rates in utilization on that boat are quite dramatic. So that one vessel can actually SKU those numbers. And I think that's what you're seeing is, is the utilization. When that boat works, it works at a very high day rate, so that's what causes the swing.

[Dean Taylor:]

It's a towing supply and anchor handling, Veny, vessel. And it typically works very much on a spot basis. The platform supply vessels are more on a term basis and we would say that there's been no deterioration in those rate levels.

[Veny Aleksandrov:]

And lastly, the four vessel that might substitute the newbuild going to Saudi, where are they coming from? Do you have them available close by or we're going to see a lot of mobilization cost?

[Dean Taylor:]

They are actually in the Middle East region for us now. And in fact, we are one of the vessel that Quinn had referenced earlier is gone on contract. The others are currently in the stage of inspection by Aramco, so we're hopeful that they will be coming on contract in a very short amount of time. They were build in the far east and they are newer equipment too. They have been delivered over the last probably six months.

[Operator:]

Your next question comes from the line of Todd Scholl with Clarkson Capital.

[Todd Scholl:]

This is actually David (inaudible) filling in for Todd. Quick one, last quarter you had mention that your Sonatide JV is good until the end of the year. Has there been any progress on that with respect to extending it?

[Dean Taylor:]

Jeff, why don't you go ahead and provide an update.

[Jeff Platt:]

Since the last conference call, we've had a board meeting with our partner and I think very constructive, both sides are working very hard to come to the new structure. And we remain very confident that that's going to happen.

[Unidentified Analyst:]

And another quick one here is that you mentioned that the Americas day rate decline was mostly due to that one in the Gulf of Mexico. But we know that costs are rising in Brazil. Are you able to kind of push day rates higher to the point where you are spending margins or you're just kind of maintaining?

[Jeff Platt:]

Brazils is a tough place, it's not a tough place just for Tidewater, it's a tough place for everyone operating down there. We certainly evaluate contract-by-contract. Yes, we try to push the rates. And also we look at potentially redeploying vessels outside of Brazil. And that's certainly a potential for us to go to better markets. Better markets meaning profitability to end of the day. But Brazil is a very difficult place with respect to labor costs are high, the tax regime in Brazil is challenging and custom also is tied into that. So David, it's difficult for Tidewater as well as everyone down there. Easy to make revenue, hard to make profits.

[Dean Taylor:]

And I'll add a little bit. In the last year or so we have not signed up many vessels to reconsider long-term contracts or I should say long-term contracts that what we consider to be marginal rates. We've actually bid high on some bids, we've lost some bids because we did bid high. We have not locked ourselves into long-term contracts in Brazil at rates that we think a couple years from now are not going to look very good. So we've been very careful on that respect.

[Unidentified Analyst:]

I guess, as you consider taking some of these vessels out of Brazil, where would you be looking to put them?

[Dean Taylor:]

Well, West Africa, Southeast Asia, the North Sea. There are other markets other than Brazil. Mexico we think it could be a potential place for some of those vessels. But it's not as though Brazil is the only market for that equipment.

[Operator:]

Your next question comes from Jud Bailey with Jefferies & Co.

[Jud Bailey:]

Two quick questions. Dean, could you talk a little bit more at maybe about the Saudi market and kind of what you're seeing there? And just expand upon your efforts to get into that market and what you see the long-term potential being there?

[Dean Taylor:]

Long-term potential should be good. I think the tendency is for people to view our hiccup with Saudi Aramco in shades of black rather than gray or white. One of the outcomes that we are hopeful that results from this endeavor in Saudi Aramco is that we actually solidify our relationship with senior Aramco personnel. That's still work in progress and it's possible that we don't. But our objective certainly is to solidify our relationship with senior Saudi Aramco personnel. And there still is going to be a lot of bidding activity there. And we have to have our prices right and we've got to have the right equipment. But on the whole, we are optimistic about our entry into Saudi Aramco. We've got some egg on our face in terms of the initial nine vessel package, four of the vessels will not start as we had envisioned. But on the whole, I think that the work in Saudi Aramco will increase. And I think we are well positioned to take advantage of that. And we've got to get right vessels in the right spots at the right rates, yes. Indeed we do, but we think we are fully capable of doing that.

[Jud Bailey:]

But most of the vessel companies there are local companies or they're other no-region or U.S. based companies there already? Or are you one of the first ones?

[Dean Taylor:]

We're not one of the first ones, but we're one of the few, a non-local company's in the region. That doesn't mean that some other companies couldn't try to get in. but so far we're one of the few non-regional players in the region.

[Jud Bailey:]

And my follow up is, and this is more for Quinn, you may have mentioned this, but I just missed in your comments. You have 16 vessels being delivered in the December quarter. Quinn, did you give any revenue number for that contribution could be, during the quarter the increase from those vessels being delivered?

[Quinn Fanning:]

I didn't, but as we have discussed on previous calls, the contribution either in term of revenue or margin at least in the first quarter for delivery is typically neutrally best. The mobilizations typically and provisioning costs and very little revenue in first quarter on average. So you wouldn't expect that, you'd get a big contribution from those 16 vessels. But certainly the ones that have contributed in the September or the June quarter are now coming on line and expected to be contribute. Many of those are the vessels that have been talked about in regards to these projects, both in Saudi Arabia and the Asia-Pac region.

[Jud Bailey:]

But once those 16 vessels going to pay that's almost double what you delivered in the last two quarters, is that right? So you should see a pretty decent bump in the March quarter, is that a fair assessment?

[Quinn Fanning:]

Actually, if we got into work as anticipated, we would see the bump starting probably in the March quarter and beyond.

[Jud Bailey:]

Did you guys mention what is the term on the Saudi Aramco vessels? Did you mention that?

[Dean Taylor:]

We didn't mention it. But the term is three years, plus a couple of years of options.

[Operator:]

(Operator Instructions) And sir, there are no further questions at this time.

[Dean Taylor:]

Well, we thank everyone for your participation in today's call. We thank you for your interest in our company. And we wish you well and god bless you all. Thank you very much.

[Operator:]

This concludes today's conference call. You may now disconnect.