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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Earnings Conference Call for the Three Months ended December 31, 2017 and the Nine Months Transition Period from April 1, 2017 through December 31, 2017. My name is John, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note the conference is being recorded.
And I will now turn the call over to Jason Stanley.
Thank you, John. Good morning, everyone, and welcome to Tidewater's earnings conference call for the period ended December 31, 2017. I am Jason Stanley, Tidewater's Director, Investor Relations, and I would like to thank you for your time and interest in Tidewater.
With me this morning on the call are our President and CEO, John Rynd; Quinn Fanning, our Chief Financial Officer; Jeff Gorski our Chief Operating Officer; Bruce Lundstrom, our General Counsel and Secretary. Following a few formalities, I will turn the call over to John for his initial comments, to be followed by Quinn's financial review. John will then provide some final wrap-up comments, and we'll then open the call for your questions.
During today's conference call, we may make certain comments that are forward-looking 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.
Also during the call, we present both GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures is included in last evenings press release. 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 will turn the call over to John.
Thank you, Jason. Good morning, everyone and thank you for joining the Tidewater call. I will first say that I am pleased and honored to join Tidewater as the company's President and CEO. I feel strongly that the management team with Larry Rigdon leadership as Interim CEO has set the company on the right track to maintain a solid foundation and market position as the offshore sector improves in the years ahead.
With that I'll provide some highlights on the past quarter, give you a brief summary of our progress to-date, and with the benefit of just a few weeks at the helm, address how I see our current priorities.
For the fourth quarter of 2017, we reported net loss of $23.6 million, or $1.02 per common share, on revenues of $104.5 million. Note that the December's quarter loss included $19.8 million or $0.82 per share of reorganization items and asset impairment charges. Also loss per share or adjusted loss per share is based on $23.1 million weighted average shares outstanding and excludes our Jones Act related New Credit Awards.
EBITDA for the December quarter which includes $2.6 million of stock based compensation expense was $13.3 million. Our results for the quarter reflect continued weakness in the offshore supply vessel market. While oil prices have continue to improve and appear to somewhat stabilize, our customers have begun, at least in some cases to commit to new offshore projects, the increase in spending not yet significant enough to offset the declines over the past several years.
With no intent to dismiss the relatively bullish outlook for the summer season in the North Sea, that has been well articulated by the analyst community, and a modest pickup we have observed in bidding [ph] activity and customer inquiries, we expect the global OSV market to remain challenging in 2018. As a result, the management team will continue to work to position the company for sustained profitability and future growth. During my time as CEO, Tidewater remained committed to safe and compliant operations and to globally supporting our customers with a young modern fleet and with high quality service in all water depths in which they operate.
These core principles will always remain our highest priorities, as we execute our post restructuring business plan. These attributes will also position the company as a possible consolidator if and when the write opportunities present themselves. Having just recently joined the company, I am pleased to say what the team has done to adapt to realities of this lengthy downturn. As you heard from Larry and Quinn last quarter, several significant streamlining initiatives have been underway for several months, including the consolidation of four geography-based reported segments into three reporting segments, and the elimination of management structures that were made redundant as a result of such consolidation.
Staff, wage and benefit reductions have been significant. In addition the company has stacked under-utilized equipment and selectively disposed of vessels in recent quarters. Going forward, while I don't believe we will shrink our way to long-term growth and profitability, we will continue to look at company's operating footprint and associated shore based support cost in order to identify opportunities for additional cost savings and achieve the company's near-term objective of reaching cash flow breakeven.
Due to the nature and scope of several of the changes in process, the company may occur restructuring charges at some point in 2018. It may also affect a couple of quarters for recently implemented cost reductions to be fully reflected in our financial results.
As we exit 2018, run rate G&A, again excluding stock-based compensation expense should be below $25 million per quarter or down 50% from pre-downturn levels. As I mentioned another focus area for our team at the moment is to continue rationalization of our vessel fleet. We are continuing evaluating the status of our stacked fleet and its suitability for our customers' future requirements on a region by region basis.
You have heard from us, our peers and a number of analysts that there is a significant over capacity problem in the OSV sector. As the market leader, Tidewater will do its part to reduce excess vessel capacity, either by scrapping or selling outside of the oil and gas service industry, the older, less capable vessels that can only serve to impede the sustained improvement in OSV utilization and day rates, and ultimately will cause the OSV sector to generally lag expected increases in offshore drilling activity.
Subsequent to the December 31, Tidewater has disposed of 18 vessels, 16 of which were sold as scrap. In the last four years the company has disposed of 76 vessels, 28 of which were sold as scrap. Tidewater will continue to report its progress on further rationalizing the fleet.
A third near-term priority we have is to refine plans to cost effectively reactivate currently idle equipment. Recognizing that the ownership of modern hard [ph] specification but currently inactive tonnage and the ability to fund reactivations when the customers can help us make the business case to do so, are potential comparative advantages for Tidewater.
Now I will turn the call over to Quinn Fanning to cover our financial performance this quarter.
Thank you, John. Good morning, everyone. As you know, we issued our earnings press release after the market close yesterday. A transition report for the period from April 1, 2017 through December 31, 2017 will be filed on Form 10-K through the EDGAR filing service later today. The nine months transition period is consistent with company's previously disclosed decision to change our fiscal year-end from March 31, to December 31.
As was highlighted in our earnings press release, will be more fully explained in the company's December 31, 2017 10-K, upon emergence on July 31, 2017, from a court supervised restructuring, the company adopted "fresh start" accounting and will report its financial position and results of operations through July 31, as predecessor activities. We will report our financial position and results of operations subsequent to July 31, as successor activities.
I also call your attention to the financial tables included with last evening's press release. Financial results, balance sheet data and select operating statistics are presented covering five quarters or equivalent periods, straddling both predecessor and successor activities.
Similarly, operating and financial data is presented by asset class and based on our three geography-based reporting segments. We have also included consolidated EBITDA as a non-GAAP performance and liquidity measure as well as reconciliations to the most directly comparable GAAP financial measures.
With that context, and as John noted, we reported a net loss for the three months ended December 31, 2017 of $23.6 million, or $1.02 per common share. The net loss includes $16.8 million, or $0.72 per share in noncash asset impairment charges that resulted from impairment reviews undertaken during the period, and $2.4 million or $0.10 per share of reorganization items related to the company's Chapter 11 proceedings. John also referenced the exclusion of the Jones Act-related Warrants from the calculation of loss per share which is due to U.S. GAAP's anti-dilution rules.
As previously disclose, with the settlement of the remaining sale leaseback claim as of mid-February 2018, in total the company had approximately $30 million common shares and New Creditor Warrants outstanding. As many of you know the New Creditor Warrants have a strike price of one-tenth of $0.01 per share, so at least in our view, the New Creditor Warrants are economically equivalent to common shares.
Vessel revenue and vessel operating margin for the quarter ended December 31, was $101 million and $33 million respectively. In percentage terms, vessel operating margin for the quarter was approximately 33%. Consolidated EBITDA for the three months ended December 31, 2017, which excludes reorganization items and asset impairment charges but includes $2.6 million of stock-based compensation expense was $13.3 million. For reference consolidated EBITDA for the four quarters or equivalent periods ended December 31, 2017 was $71.6 million.
Again, EBITDA here excludes reorganizational items and asset impairment charges, but for this period includes $4.6 million of stock-based compensation expense and $15.8 million of vessel operating lease expense. The vessel operating lease expense relates to the 16 vessels that will return to the respective owners in connection with our planned reorganization and therefore will not be a factor in go forward financial results. Tables reconciling EBITDA to our net loss and cash provided for use in operating activates are on page 26 of our press release.
Interest expense for the December quarter, which reflects of course reorganization capital structure was $7.8 million. While we recognized the $2.7 million tax benefit in the December quarter, cash paid for taxes during the same period was approximately $3.3 million which is generally consistent with our quarterly outlays for taxes over the last couple of quarters or equivalent periods. As noted in prior earnings calls, cash taxes are primarily driven by revenue based taxation in foreign jurisdictions.
I highlight interest and tax expense in particular to make the point that our fixed charge burden which includes G&A, excluding stock based compensation expense, interest expense and cash taxes is trending at $35 million to $40 million per quarter. We think vessel operating margin relative to our fixed charge burden is a reasonable proxy for cash produced or consumed by operating activities and is the basis upon which we and you can measure the company's quarter-over-quarter progress towards our goal of a cash flow breakeven.
Looking at the fleet, the average number of vessels in our fleet, for the December quarter was 229 vessels, which is down 22 vessels from the average number of vessels for the three months period ended September 30, 2017. Of the 22 vessel decrease quarter-over-quarter, the return of leased vessels to respective owners, in connection with our planned reorganization, accounted for 15 vessels. Note that leased vessels that return to the owners pursuant to our plan had an average age of 12 years.
As John noted, we have scraped and otherwise disposed of a number of vessels subsequent to December 31. So the average owned and operated fleet and the stacked fleet in particular should be further reduced during the March quarter. I'll also note that the impairment charges recognized during the December quarter, were driven by our decision to scrap vessels that are less likely to return to service in the Tidewater fleet over the next couple of years.
Of the 229 owned and operating vessels on average, 140 vessels were active in December quarter. Average active vessels and available days for the active fleet, which were approximately 12,900 days, in the December quarter have been relatively consistent over the last couple of quarters or equivalent periods. Utilization of the active fleet at 78.1% in the December quarter, was up approximately 1 percentage point quarter-over-quarter.
Average day rates for the December quarter were approximately $10,100 and generally consistent with average day rates over the last couple of quarters. Perhaps obviously, vessel revenue is a function of days available for the active fleet, utilization of the active fleet and average day rates, all which we now summarize in the financial schedules which are included with our press release. As noted earlier, additional financial and operating statistics are also included with the press release by asset class and geo-market.
Since our last earnings conference call, I'll also note that the company completed the sales of its ROV assets for approximately $23 million. The company also successful resolved all outstanding disputes with the U.S. shipyard over the construction of two 5,400 deadweight ton PSVs. The first asset has been delivered and the second is scheduled for delivery in early summer which will increase the U.S. flag fleet to 10 vessels, 9 of which are large modern deepwater PSVs.
Finally, as required by the indenture governing of $350 million senior secured notes that are due in 2022, on February 2, 2018, the company commenced an offer to purchase at par up to $24.7 million of such notes using a portion of proceeds that the company has realized from asset dispositions. Less than $50,000 of notes were tendered in accordance with the terms and conditions of the tender offer, and were ultimately purchased by the company. The remainder of the $24.7 million, including $21.3 million that was classified as restricted cash of our balance sheet at December 31, is now available for use by the company in any manner that is not prohibited by the indenture.
To the extent we report restricted cash on our balance sheet, we will likely be related to our ongoing requirement to offer to purchase notes with a portion of asset disposition proceeds. As a result, we think of our net debt position as gross interest bearing debt, net of cash and restricted cash.
In regards to the balance sheet, as mentioned on our last earnings conference call, and again at the top of my remarks today, balance sheet values as of December 31 reflect the delivering associated with our plan of reorganization, merchant's [ph] consideration paid in connection with the plan and fresh start accounting adjustments.
The $453 million of cash, net debt at December 31 was negative $5 million, and net working capital, excluding cash was approximately $172 million. Cash used by operating activities for the five month period following the completion of our finance restructuring was approximately $35.5 million, which includes $4.3 million of reorganization items, $1.2 million of vessel operating lease expense, which again relates to the vessels that return to the respective owners in connection with the plan, and $23.4 million and a net decrease in operating assets net of operating liabilities, $12.2 million of which relates to the payment of previously accrued restructuring related professional services cost.
So consistent with my comments related to the relationship between vessel operating margin and fixed charges, cash provided or used in operating activities was modest in the post restructuring period particularly when results are adjusted for restructuring-related cost and other restructuring related items.
Looking at long-term assets, net properties and equipment, which primarily reflect the carrying value of 227 ships owned at December 31 was $838 million, which equates to approximately $4.6 million per active ship and approximately $2.1 million per-stacked ship.
As additional data points, I will further note that on average, the carrying value of our 42 deepwater PSVs with cargo carrying capacities above 3,800 deadweight tons is approximately $8.6 million per vessel. 21 of those 42 vessels are less than five years old and have an average carrying value of approximately $9.6 million. On average, the carrying value of our 73, 5,500 to 10,000 brake horsepower AHTS vessels is approximately $2.1 million.
46 of those 73 vessels are less than 10 years old and have an average carrying value of approximately $2.6 million. Other than interest bearing long-term debt of $443 million, the right hand side of our post restructuring balance sheet is pretty straight forward with modest pension and similar liabilities and no deferred income taxes. In fact at December 31, 2017, we had a net deferred tax asset position against which we've booked a 100% valuation allowance.
Shareholder's equity at December 31 was approximately $1 billion or approximately $33 per common share and Jones Act-related Warrants outstanding, with essentially zero net debt. On this basis our stock currently trades approximately -- at an approximately 25% discount to post restructuring, post restructure accounting book equity.
With that, I'll turn the call back over to John.
Thanks Quinn. As Quinn mentioned, based on some stability in utilization and average day rates, over the past several quarters, we like several respected analysts we follow feel the market may be reaching a trough. Achieving a cash neutral position by remaining focused on streamlining our business will ensure that the company is prepared to navigate what we expect to be another challenging year in terms of overall offshore activity.
While the worst seems to be behind us at this point, we are looking to 2019 and beyond for any significant increase in offshore exploration and development drilling, particularly in deepwater and ultra deepwater. However, with the competitive fleet, the competitive cost structure, a global operating footprint and a financial profile that is characterized by low leverage and a strong liquidity position, we believe that Tidewater is well positioned for an eventual recovery in the offshore sector.
Thank you for joining us on the call today. And John, we can now open the line for questions.
Thank you. Now we will begin the question-and-answer session. [Operator Instructions] And our first question comes from Joe Gibney from Capital One.
Thanks, good morning. And good morning, John. Good to be talking to you again.
Good morning. Thank you, Joe.
Just a question on the market, not specifically away from the North Sea, just given what we're seeing there on the strength of [indiscernible]. Be curious a little bit more on perspective on what's been going on in the Gulf of Mexico over there and then maybe the Middle East and maybe Jeff, if you can comment what you are seeing from customers on seeking more term, blanket [ph] term, is it broad based? Are you seeing in more in this particular regions would be curious on some perspective there as we come out of trials?
Okay, Joe. There is a lot there that you are asking. So let me circle back. I think first of all in North Sea, the comment is there is an expectation for improvement in spot rates this summer. I hope that happens. We haven't see anything to-date. But we're hoping for the promise to fulfill. In terms of Gulf of Mexico, itself, I think you are aware in the sector that we play in is in the deepwater side of the business, of floating rigs and we're kind of at those continued lows. And even though there is talk about some other activity, we haven't really seeing it.
I hope to see some improvement in 2019, but ultimately we'll see where this oil price stays in terms of stability which is what our customers are looking for. And if that holds out, maybe when people going into what they are forecasting later in this year, we'll look for opportunities in places like to Gulf of Mexico and North Sea and some of the other mature basins.
Middle East continues to be strong for us in utilization. The issue is there is continued movement of our competitors in from Southeast Asia, but very, very strong utilization backed upon not only supporting the drilling activities but also this uptick that we've seen in the construction market, that we hope continues to hold on, as we are looking for improvement in terms of the drilling activity hopefully in 2019 and further on.
Was there any other specific area you are looking for on customer side?
No, that was it. I was just curious in your perspective on term as well, customers seeking a little bit more term here as we come off the trough?
Yes, sorry Joe. So it's really interesting. The places where we have seen the request for term are places where our customers are already doing some sort of longer-term investment. So as you know any type of true further exploration or looking at some sort of greenfield developments is very limited. We have seen a few of those around the world. So across the globe in terms of customers overwhelmingly asking for extended term, we're not seeing that.
Actually in some of the place we're working, we're seeing an increase of spot which could be considered consider a situation where someone's picking up a rig for a one maybe two well program, so this three month to six month activity window which we have seen here recently seems to be more of the interest at least what we are operating globally versus growing this looking forward of the larger longer term or multiyear duration.
Okay helpful. And Quinn just a question for you, just trying to understand, you can said a little bit of CapEx based on, as we think about cost flowing through over the next three quarters and then just curious of the 18 I believe you characterized vessels sold since December 31, '16 and went to scrap were the two that were not sold to scrap coming out of the active fleet, was just trying to get a more granular there. Thanks
My recollection was that maybe one was sold out of the active fleet but and we distinguish between a vessel that we scrapped, which as you know maybe a couple hundred thousand dollar proposition, maybe a million dollar if you get into some larger ASHTS vessels but it’s really they are sold into non-oil and gas markets, typically the low end of the oil and gas markets as operational equipment, where you can maybe do a little bit better in terms of price over scrapping.
But I think the point we are trying to make is that we are committed to rationalizing our fleet. We think that the industry as a whole and particularly the leaders in the industry need to more seriously think about scrapping vessels rather than continuing to sit on idle equipment that again are just going to service or supply overhang as the market tries to recover.
Understood, and CapEx near term?
CapEx near term as I mentioned we took delivery of one of the two deepwater PSVs that we are building in the U.S. Last one will be delivered in probably the June timetable. I think the final delivery payment on that is $4.5 million or something like that and that’s really the last outflow that we expect in connection with our fleet renewal replacement program. CapEx otherwise is very modest typically modification in connection with a specific customer requirement whether its communications package or whatever and the very rare life extension or enhancement to a vessel that already reached its depreciated or assumed economically useful life.
So we would expect CapEx once we takes this last deepwater PSVs to trial a lot significantly unless of course we decided to look at an M&A opportunity. So again CapEx is modest if you look back over last number of quarters our cash flow from financing activities was essentially driven by the completion of the emergence consideration payouts in connection with the realization and our cash from investing activities is in fact then a source of cash as opposed to a typically use for cash because our deposition proceeds, particularly in December quarter which have the RV [ph] dispositions is impact then higher CapEx. So we are actually generating cash from investing activities at least in last couple of quarters.
Okay, I appreciate it, guys, thank you.
Thank Joe.
Our next question is from Turner Holm from Clarkson Platou.
Hey, good morning gentlemen and John congratulation on the new role.
Thank you very much.
Yeah, we will try to take it easy on you, John given that you are just a few weeks in your tenure. So this question I guess be for anyone who wants to chime in. When you all look at the operating utilization it's been pretty steadily increasing up over the last couple of quarters and now you see active utilization in the high 70 approaching 80. So first I am curious if that trend seems to be carrying into the March quarter with the understanding that this is seasonal weak period. And then secondly where do you see the tipping point in terms of potential improvement in day rates. S that 85% on an active basis, is it 90% what sort of the magic number if you will, what are you looking for?
So Turner, this is Jeff Gorski. First of all I think what you are hearing from other operators tends to be more interest in terms of tendering and we are also hearing that on the rig side as well. So in terms of going into the next quarter, in terms of what we think of active utilization's going to be at least from that standpoint, and if you believe those tenders come to fruition and timing I think it will continue.
With regards to at what level do we get to the point that where utilization is actually going to drive pricing, I think because of the complexity and the amount of players in the LSV space you really got to start looking at things from a geographical perspective. I think when we get into the shorter term opportunities and the spot market starts getting tight it really has to do with vessel availability. So you are going to get someone to go ahead and spend the money to drydock a vessel at 1 million, 1.5 million for a three months job. Maybe they will.
But from that perspective we are taking a little bit of a longer term look if we are going to activate vessels for some sort of substantial business, more than three months and that’s how we are looking at it. Maybe it’s not the same exact opportunity but we can back them up and we think we have the business to continue through past three to six or maybe into the next year makes more sense. So I think that’s really what's ultimately going to drive rates as -- and I think it’s going to be by a geographic to geographic area, really has to do with what vessels are available and if you really to the point of reactivation that’s not something we can do overnight. Hopefully that’s helps, Turner.
Yes it does –
I guess to give a little bit more color, I think the historical experience that we and our peer vessel owners have had as overall utilization got into the high 70s, or even into the 80s you would see an ability to push price. And I think the question you are asking relates to should you think about active utilization or overall utilization. There is obviously a 30 percentage point delta between the two. I think what we are experiencing today is maybe little bit different than we have experienced in the last couple of down turns particularly after the financial crises that a lot the equipment, that is idle today is not easily coming back into the market without substantial investment, whether it’s in special surveys or deferred maintenance or whatever.
So again I would expect that as we see utilization trend higher on overall basis that you may see some ability to push price at levels lower than we are seeing historically primarily because of the large investment that's going to be required to make additional equipment available in the market. But I think this recovery is going to be a little bit different than what you have seen in the past, because much of the equipment has been on the sideline for so long.
Yeah I agree, I guess that’s the question which is the right denominator but at least what we are seeing in most…
But I think the supply overhang on paper is substantial. I think the reality is probably lot smaller than most people assume, again largely related to this investment that is to be made in reactivations.
Indeed. Well I will turn it a little bit to consolidation which gets a lot of attention. Tidewater clearly in a very strong position, you got a new CEO in place. What’s sort of going to make you say now is the time to do a deal, is it about getting to cash breakeven, is it about seeing and feeling a turn in the market. Is it an opportunistic approach, just trying to understand what’s driving the thought process there?
Turner, I will take the first short at that. This is John. I think that you can't force consolidation. Obviously, we are in very unique and a good position relative to our peers. So we are in a position to do consolidation and look at it hard which we will and if there is no timeline here and there is no deals on the table but it’s something that any good management team obvious looks at M&A opportunities whether that be another peer and its entire fleet or individual assets that are distressed that you can plug into one of your key markets. So I think this will be ongoing process at Tidewater that we will look to opportunistically take advantage of the market place and the strength of our balance sheet.
Okay, thank you very much John. I appreciate that. I will turn it back. I will jump back in queue.
Our next question is from Sunovi Jones [ph] from Pareto.
Hi Sunovi.
Good morning, guys. Thank you for taking my questions. Two questions from me please. The first one on your cost initiatives and your near term objective on the coming cash-flow break even and how much of that objective is driven by an anticipated improvement in day rates and/or utilization, and how much is expected to be driven by costs? And the second question from me is on scrapping of assets. Where should we expect seeing the most scrapping going forward in terms of regions? And also if you could comment a bit on vessel characteristics in which year you sort of find a good fit for scrapping? Thank you.
Quinn, why don't you go ahead and take that.
Sure. As I highlighted Sunovi, I think the starting point for us is in dealing with the revenue reality as supposed to revenue objective. We are where we are in terms of 100 plus million dollars a quarter in vessel revenue and what we are trying to do is size the cost structure to get to a break even in that context on an after tax and after leverage basis.
I think the mandate from Larry, and now John, and our Board just to be clear, is that where I can get to a cash flow breakeven or something very close to it on the basis of the market that we have today, maybe parenthetically or die trying. So I think the point to look at structural adjustments to the cost structure.
I think we have harvested most of the "low hanging fruit" as John highlighted the wage, benefits and staffing levels have been significant in term of reductions and we are going to continue to look at that kind of stuff on a go forward basis whether it's additional rationalization of our shore base support in a particular area or region, or something like that supply chain is also a significant potential for cost savings on a go forward basis particularly as we start thinking about global purchasing economies, as we think about reactivating vessels in an upturn.
So again we are not banking on some significant recovery in the market to achieve a cash flow breakeven but we are trying to get there based on the current revenue run-rate, will we get there in one quarter or two quarters, I don’t know but we are certainly making decisions form those office closures and the like or downsizing decisions on the basis of the current run-rate of revenue. That said I think we see some positive signs in the market that would point to at least better utilization, potentially better day rates as the year progresses and particularly as we get into 2019 when we see some uptick in drilling activity.
I think that’s -- we will just have to wait to see how the market develops but there is positive signs out there to some extent. In terms of vessel characteristics that we are looking in terms of disposition, as you probably expect it relates to age and specification. We believe that the market is generally focused on vessels that are fifteen years older or younger on a go forward basis. The good news is we don’t have a lot of equipment that’s older than fifteen years and that’s been somewhat driving our decisions when we decide to scrap a vessel here or a vessel there.
I think those were your primarily questions but we are not looking at a region per se in terms of scrapping equipment, as a targeted region. If we got good equipment in one market that would be better utilized in another market we will move it on occasion. But really it's vessel specification and age that drives our decisions to scrap or sell outside of the oil and gas industry.
Okay, clear, thank you. I will hop back to the queue. Thank you.
Our next question is from [indiscernible].
Good morning guys. Thank you for taking my question. I think a lot of them actually got answered but a short one on cost. I think you showed some good progress in Q4. I was just wondering is there any special items or anything that drove down costs sequentially as much as it did in the quarter? Is any drydocks that will bump back in Q2 or Q3 or stuff like that, that changes the picture somewhat or is this all structural?
I think we are primarily seeing is us putting a lot of restructuring related costs behind us at this point. I think at the December quarter we are down to essentially a trickle in terms of restructuring related professional services costs, and when we have a bid in the March quarter potentially but I don't think the numbers will be significant.
I think the other thing that we take comfort in as we look at our particular G&A trends on a go-forward basis, it was a number of the wage and benefit reductions that we have implemented became effective on January 1, 2018. Some of the restructuring related, stay incentive of that we put in place are behind us starting in January.
So I think when John talks about the outlook for costs as getting below on a $25 million per quarter level, in terms of G&A, excluding stock based compensation expense, I think that’s where we see the trend going from, I think 30 in the December quarter and as we exit 2018 I think we are highly confident that we will be at $25 million or below in terms of quarterly G&A. So we are moving in the right direction in part because we are putting lot of the restructure related professional services costs and some of the stay incentives that we put in place during the restructuring are now generally behind us.
Okay, thanks. So we can use the fourth quarter operating costs as a -- going forward into the second or third quarter I guess that’s a good yard stick to use then?
Just to be clear I was referred to SG&A not vessel operating expense.
Okay, so that’s just SG&A. So I was thinking more about the total vessel operating costs.
I am sorry, I spoke over you.
Yeah, I was thinking more about the total vessel operating costs in terms of crew costs and go forward.
Yes, again I think that’s going to be a function of active vessels which we would expect to be relatively stable for next couple of quarters depending upon activity level. I would focus more on the active vessels that you anticipate based on market trends and whatever guidance we are providing you and focus on the vessel level operating margin numbers to back in your operating expenses.
We are trying to manage to that mid-30% vessel operating margin and into the extent that we are going to activate equipment that maybe a lag between cost, particularly crew costs and revenue that we generate on it but we would expect those two to generally move in the same direction.
Okay, thanks, that’s all for me.
Thank you.
Our next question is from John [indiscernible] from Pinnacle.
Hi, good morning,
Good morning.
Just a question on the scrapping. You mentioned you scrapped 18 vessels year-to-date. Where would you think the total scrapping might be by year-end? How many vessels do you anticipate scrapping this year?
So at December quarter end we had 89 stacked vessels. As John highlighted we disposed of 18 vessels subsequent to December 31, 16 of which were scrapped, not 18. We will continue to look at a dispositions, including scrapping on a go forward basis, but as we get into scrap -- excuse me, stacked fleet that is now into the low to mid seventies, I think we are getting closer where we want to be from inactive vessels. That number is never going to get to zero until we see a significant upturn in the market, we are reactivating equipment but at $650 plus or minus a day in terms of cost to maintain an idle vessel, but there is a potential for additional cost savings by eliminating elements of the stack fleet by either disposing or scrapping.
I won't provide you specific guidance in terms of what we plan to scrap or sell beyond the 18 that we have already done year-to-date which John mentioned in his prepared remarks.
Okay, fine. So it’s not going to continue at that rates, it sounds like.
No, at that rate, but I think the other think I would point out is as we dispose the vessels in the stack fleet it's probably reasonable to assume that those are not the highest spec, or youngest vessels. And as a result the average quality and age of the vessels that remain idle is moving up, i.e. it’s a higher quality inactive fleet, just because we are pruning things that we don’t expect to return to service in our fleet and potentially even in the oil and gas market overall.
Okay, got it, that makes sense. And is there two company headquarters now? Has Houston been close or where is the company’s headquarter right now?
As you saw from the press release this quarter it’s issued from Houston as opposed to New Orleans. John mentioned that we are continuing to look at office consolidation but the migration at least of the headquarters staff is toward rather than away from Houston. So we would expect to be downsizing and if not ultimately closing the New Orleans operation.
Okay, great, thank you very much.
Our next question is from Turner Holm from Clarkson Platou.
Hi, guys, my additional questions were asked and answered. So anything else I'll just take offline. So yes, good luck in 2018, thank you.
Thanks, Turner.
Thank you.
[Operator Instruction] And there are no further questions at this time.
Okay we appreciate everybody’s interest in Tidewater and we will stay tune for 2018 as it develops.
Thank you.
Thank you, ladies and gentlemen, that concludes today’s conference. Thank you for participating, and you may now disconnect.