GulfMark Offshore's (GLF) CEO Quintin Kneen on Q2 2016 Results - Earnings Call Transcript

| About: GulfMark Offshore, (GLF)

GulfMark Offshore, Inc. (NYSE:GLF)

Q2 2016 Earnings Conference Call

July 27, 2016, 09:00 ET

Executives

Quintin Kneen - President & CEO

Jay Mitchell - CFO

Cindy Muller - SVP

Analysts

Gregory Lewis - Credit Suisse

Turner Holm - Clarksons Platou

Cole Sullivan - Wells Fargo

Joe Gibney - Capital One

Operator

Welcome, everyone, to the GulfMark Offshore Second Quarter 2016 Earnings Conference Call. My name is Bianca and I will be your conference specialist for this presentation. On the calls today are Quintin Kneen President and Chief Executive Officer, Jay Mitchell, Chief Financial Officer and Cindy Muller, Senior Vice-President and General Counsel. [Operator Instructions].

I would now like to turn the call over to Ms. Muller. Please go ahead.

Cindy Muller

Thank you, Bianca. Before we hear from Quintin and Jay, I would like to remind everyone that this conference call will include comments that are forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all statements reflecting GulfMark's expectations, intentions, assumptions or beliefs about future events or performance that do not solely relate to historical or current facts.

Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or are beyond GulfMark's control. Actual results may differ materially from those expressed or implied in any forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include but are not limited to the price of oil and gas and is effect on offshore drilling; vessel utilization and day rates; industry volatility; fluctuations in the size of the offshore marine vessel fleet in areas where GulfMark operates; changes in competitive factors and other factors described in GulfMark's filings with the SEC.

For additional information concerning some of the risks, uncertainties and assumptions that could affect GulfMark's forward-looking statements, please refer to our annual report on Form 10-K for the year-ended December 31, 2015 and GulfMark's other documents filed with the SEC which may be obtained on our website or through the SEC website at sec.gov.

The forward-looking comments on this conference call should not be regarded as representations that the expected outcomes can or will be achieved. Management cautions that you should not place undue reliance on GulfMark's forward-looking statements and GulfMark does not undertake and disclaims any obligation to update or revise any forward-looking statements based on new information, future events or otherwise and disclaims any written or oral statements made by any third party regarding the subject matter of this call.

Please also remember that the information reported on this call speaks only as of today, July 27, 2016, and therefore you are advised that any time-sensitive information may no longer be accurate at the time of any replay of this call. During our call today we might also discuss non-GAAP financial measures. Please reference or refer to our filings with the SEC for a reconciliation to the most comparable GAAP measures.

With that said, I'll turn the call over to Quintin.

Quintin Kneen

Thank you, Cindy. Hello again, everyone, and welcome to the second quarter 2016 GulfMark earnings conference call. the format for today's call will follow our customary format. I have some prepared remarks on the second quarter and on current market conditions. Then I will hand it over to Jay to go over the quarterly numbers in more detail and then we will open it up for questions.

The offshore market is beginning to show signs of balance as a result of a sufficient number of vessels being withdrawn from the market and put into lay-up. And as a result, within limited geographic areas, working vessels are getting back to covering all-in cash costs which we see as cash operating costs and their proportional G&A and interest expense but the rates are not yet sufficient to cover the cost of the vessel itself or a return to equity holders.

We are referring to the state as the downturn equilibrium and we anticipate the state to continue until the fleet in lay-up is meaningful reduced or increases in demand or physical deterioration to the point that they are essentially scrapped in place. The reduction in marketed supply to the point that leading edge day rates are increasing to just above all-in cash costs is one of the first positive indications that we are on our journey to full recovery.

It's still not a sustainable market for vessels but it's an indication that market forces are continuing to work. Although we suspect that we will see utilization levels begin to increase, and although leading edge day rates are off their bottom, on a consolidated basis, all-in average day rates will continue to decrease as long-term contracts will allow. We will have the usual calendar year seasonality to contend with as we go through the next two quarters. We see the market as off the bottom but we also envision the journey back to earning an acceptable return will be longer than what we have experienced in other recovery cycles.

In addition, to the withdrawal of the vessels from the market we are also seeing the mix of vessels inlay-up rotate and evolve such that the age of the fleet inlay-up is increasing. We are seeing the larger more sophisticated operators begin to get a larger share of the work, albeit at the same leading edge day rates. We see this as another attribute of the balancing of the market.

So it's not much different than you may suspect. Ongoing work which is predominantly production support, is gravitated to newer larger tonnage operated by those operators with the best safety records and the best customer service reputations. The rates are gravitating to a level that cover all-in cash costs which means that in some areas like the North Sea, rates are going up but in areas like the U.S. Gulf of Mexico, rates are still moving down. Of course we will continue to push cost efficiency and operating at a lower cost than the average market should allow us to earn higher than average margins. We continue to find innovative ways, principally through technology, to allow us to be more efficient in vessel operations and more scalable from an administrative standpoint. Fuel management technologies, predictive maintenance technologies, app-based information-gathering technologies, they all add to enhance our competitiveness in the marketplace. From our customers to our employees, these technologies make their jobs easier. It makes it easier for GulfMark to be the Company go with and in this market we are pushing for every inch of advantage.

As the market begins its journey back to a point where vessel owners can earn their cost of capital, we suspect that there will be episodes where day rate increases justify pulling vessels out of lay-up followed by periods where day rate increases are used to fund the normalization of Mariner salaries. The repressed Mariner salaries and the deferred maintenance on vessels and lay-up will be a meaningful hurdle for day rates to jump as we get back to a normal market.

As a result of these cost hurdles we see a market that bumps along for an extended period in this downturn equilibrium. It's a market where although day rates will be increasing, they are still just covering all-in cash costs which we anticipate will be rising to cover increases in mariner salaries and the reactivation of older boats and lay-up whose deferred maintenance obligation is higher than the newer vessels and lay-up.

In this stage of the recover the companies that have managed their fleet and lay-up better will have a cost advantage. Companies that have engaged their mariners through the downturn invested them in the recovery of the business will also have an edge.

Many of the internal initiatives and objectives that we have focused on center on the optimization of managing the fleet and lay-up and working with our employees to build trust and invest them in an optimal recovery. So, the helpful news is that it seems like this extended journey to full recovery has begun. We remain focused on generating positive cash flows from the operations each quarter of the downturn. This quarter we remained EBITDA positive but cash flow from operations was negative. Jay will give you the specifics when he goes through the numbers. We continue to focus on getting the most out of each labor dollar we spend. As we mentioned on the last call, we are continually looking for ways to make our shore-based staff more efficient. We believe that shore-based efficiencies are going to be the driving force behind creating lasting cost savings in our business, continuing to deliver on a high standard of safety and reliability is paramount, and being able to maintain that standard while improving efficiency is key to maximizing value.

The industry is going through a difficult time but I continue to be impressed by the ingenuity and resourcefulness of our onshore and offshore staff. Their focus during these times has been inspiring and my thanks goes out to all of our employees for their dedication in maintaining the GulfMark standard. It's a testament to the quality of our people that they see through the downturn and come together in such a constructive and positive way.

On our vessel sale initiative, we sold three vessels since the last call. We saw a marked increase in interest during the second quarter of 2016 in vessels that we have for sale, and that interest is continuing into the third quarter. Similar to our internal beliefs that we’re off the bottom of the market, I suspect that opportunistic buyers are seeing the same in vessel pricing. If global day rates continue to move as we believe they will, to cover all-in cash costs, the negative carry concern that has kept some buyers away from the market will be lifted.

On the third quarter call last year, we gave an indication of where we saw vessel values. I would say since that time that the value for older vessels, vessels older than 10 years has fallen slightly and the value for vessels older than 15 years has fallen moderately. In the current market, creating value through vessel operations is more about preserving as much value as possible, which we will continue to do. Significant long-term value can be created in the current market through repurchasing our debt at a significant discount, which we have done. Obviously this has to be done in conjunction with maintaining sufficient liquidity and we remain extremely focused on maintaining this balance between creating value and increasing financial risk.

It's a delicate balance but we are comfortable with the trade-off we made this quarter between risk and value creation. The second quarter of the calendar year typically has an increase in activity and many of you will recall that this is the weather in the North Sea that drives this calendar year seasonality for us, but each region usually has a bit of an uptick in the second quarter.

Our market utilization for the second quarter was 86%, consistent with our objective, and our overall utilization was up 3 percentage points, our objective for 2016 is to keep market utilization in the high 80s and to continue to push up overall utilization each quarter. The North Sea showed a nice increase in utilization from the first quarter. We attribute that to the typically better market we see in the North see during the second quarter, along with an improvement in market share as well. Although the average day rate decreased from the second quarter, leading edge day rates have shown strong sequential quarter and year-over-year improvement. The North Sea has the longest contract cover and currently the impact of contract roll-off is more than offsetting the sequential increase in leading edge day rates. We will continue to see the impact of these roll-offs on average day rates for the next few quarters but the underlying trend in the North Sea is year-over-year improvement.

Southeast Asia showed the most improvement from the first quarter. It's the one region that we saw a strong increase in his both utilization and the average day rate. On the first quarter call we mentioned that we were optimistic that the second quarter utilization percentage would be in the high 40s but some projects we anticipated for the second quarter were delayed. The region is still adapting to a lower demand and increased vessel supply. We see the increase in utilization we achieved in the second quarter as an increase in market share consistent with the theme that operators are moving to the more experienced and reputable operators. Our expectation is that we can push utilization into the high 40s but that average day rate may pull back a bit as some of our lower day rate investments go back to work.

The Americas region has been the hardest hit region this downturn and it continues to struggle. It posted both lower utilization and lower average day rates as compared to the first quarter. The region is oversupplied with tonnage including premium tonnage and continues to see an overall reduction in vessel demand driven by lower drilling activity and increased operator efficiency. We delivered our first 300 class vessel in late June, she is the state-of-the-art vessel for the U. S. market. She has not gone to work yet, which is an as a result of a significant number of 300 class vessels available in the market.

Similar to other areas of the world all of this premium tonnage will go to work, but it will put additional pressure on day rates for vessel classes in the region. Aside from our three newer vessels in this area, the average vessel size in the Americas fleet is relatively small for the region. The remaining vessels range from 180 to 260 feet. all of the U. S. vessels under 240 feet are in lay-up and the market for vessels above 240 feet, even upto the 300 class vessel is challenging. We continue to seek out other geographies where these smaller vessels can be redeployed but in a worldwide oversupply situation, the economics of redeployment are challenging as well. So on this journey to full recovery we are focused on maintaining collaborative and positive relationships with our employees and our lenders. We continue to resize the business as quickly as possible, as industry conditions change in each of our primary operating areas.

We continue to look for ways to liquidate older and underutilized tonnage, reduce labor costs, manage our capital expenditure commitments and to achieve greater economies of scale from our general and administrative spending. As we have done each quarter of the downturn I'm confident in our continued ability to respond quickly to changing market conditions and to maintain adequate liquidity.

We have two vessels under construction, one which we can elect not to take delivery. We have no capital expenditures in the second half of 2016. The next vessel to deliver is the Norwegian-built, 216 PSV, scheduled for delivery in early 2017. The Norwegian delivery will result in a payment of $23 million. The final vessel, the second 300 class [indiscernible] PSV is scheduled for delivery in July of 2017. If we elect to take delivery of that vessel, we will have a payment due of $26 million.

And with that, I will turn the call over to Jay to go over the numbers in more detail.

Jay Mitchell

Thank you, Quintin. As Quintin just mentioned we made progress this quarter in reducing debt, continuing to hydrate the fleet and decrease costs. We accomplished all this while maintaining strong liquidity and preserving value in our fleet for the future. Operating results did continue to follow as older contracts completed and we recorded an impairment to long lived assets to reflect the reality of the currently valuations whereas Quintin mentioned we do believe that we've begun the journey to recovery.

During the quarter we repurchased 49.4 million face value of our senior unsecured bonds for 23.6 million which created a gain of 25.8 million before tax on the extinguishment of debt. Tax on this gain was $9 million so the net effect was 16.8 million. As, before the pre-tax gain is included in EBITDA according to our covenant calculations which I will discuss a little bit more in a few moments.

We also wrote down debt issue cost of about 600,000 or $0.02 per share associated with the repurchase of previous [ph] companies bonds. You can find this in the financials as 800,000 of pretax interest expense. During the quarter we sold an older North Sea vessel for $1.4 million and recognized a loss of 5.9 million or $0.24 per share. There was no-tax on the loss. While this vessel sale is relatively small, it reflects a continuation of the trend that Quintin just mentioned where more people are interested in buying vessels.

Subsequent to the end of the quarter we successfully sold two of our vessels in Southeast Asia for total proceeds of 3.6 million which will incremental improve our liquidity position. Importantly we are continuing our cost-cutting efforts and reducing operating and G&A costs to better match operating activity. As a result of this we recorded workforce redundancy and exit charges of about 300,000 or a penny per diluted share net of tax. Similar to the previous quarter we continue to incur these costs as we lay-up vessels and reduce head count.

As buyers finally emerge for vessels, the reality is that the vessel valuation and appraisals are still declining. During the quarter we impaired assets by 46.2 million before tax or 43.3 million after-tax or $1.73 per diluted share. This resulted from the normal U. S. GAAP impairment analysis that we've discussed before. We impaired our non-U.S. Americas fleet by 15.9 million before tax, or 13.0 million after tax. We impaired assets in Southeast Asia by 30.3 million with no tax effect. We did not recognize any impairment in the North Sea. So I'll exclude the effect of these five items, the asset impairment, the extinguishment gain, the write down of debt issue cost, the vessel sale loss and the workforce redundancy charges we discuss the operations.

In the second quarter, we had an average vessel count of 69.8 vessels, our market at vessel utilization was relatively strong at 86%, up from about 81% during Q1 and for the first time since Q2 of 2014 we experienced an overall increase in fleet utilization, increasing from about 38% in Q1 to about 41% in Q2. Average quarterly day rates fell to 10,900 for the first quarter and were down about 16% sequentially. Average rates are falling, even though we are seeing stabilization and leading edge day rates because over contracts are still rolling off.

During the quarter we repriced a handful of vessels in the North Sea which had secured long-term contracts prior to the downturn. We still have a handful, about four vessels that remain on long-term contracts that are above the current leading edge day rate, and those contracts should extend through the middle of 2017.

Direct OpEx excluding certain gains and cost was 20.7 million which is in line with our guided range. The decrease compared to the prior quarter was primarily due to the full quarter impact of wage reductions that took effect in Q1 in some areas. Overall, direct operating expenses were down 1.8 million or 8% compared with Q1, reduced crew wages and salaries drove that decline. Importantly, we were able to decrease this cost at the same time we increased our overall utilization which speaks well for the long-term effects of some of the cost control measures we've put in place.

Since our last earnings call, we've decreased the number of stacked vessels to 30 from 38 as a result of better utilization and vessel sales. We forecast that direct operating expenses will be in the range of 19 million to 21 million in the third quarter of 2016.

Consolidated dry dock expense was about 100,000 during Q2 and we anticipate incurring about 2 million of dry dock expense. During Q4 we anticipate a small amount of dry dock expense that should bring the annual cost to around 3.5 million. General and administrative expenses were 8.9 million in Q2 excluding the severance and exit costs, G&A was about 8.8 million within our guided range. We expect Q3, 2016 general and administrative expense to be relatively flat. Depreciation expense was 14.9 million and we anticipate that it will be down to about 14.1 million in Q3 due to the vessel impairments and sales.

Interest expense for the second quarter was 8.2 million net of the impact of the debt issue cost write-off. Interest expense excluding gains and costs should decline during the third quarter as a result of our bond repurchases and we expect the interest expense should be approximately 7.6 million in Q3.

The tax benefit for Q2 was 3 million exclusive of gains and loss, tax benefit would have been 8.9 million. Going forward we anticipate the income tax rate will be about 20% for the remainder of the year. As I stated earlier, we anticipate that cash taxes will remain near zero for several years. I would like to provide a summary of our covenant compliance including our covenant outlook. For the second quarter, the minimum EBITDA covenants in our credit facilities require us to have $50 million of adjusted EBITDA for the combined quarters of Q4, 2015, Q1 2016, and Q2, 2016. We generated 57.6 million for that period according to this calculation, that is 13.3 million in Q4 of 2015, 17.4 million during Q1, 2016 and 26.9 million in Q2 of 2016. The adjusted EBITDA requirement increases to $20 million for the prior four quarters by Q3 of 2016, and the requirement then stays at that level through Q2 of 2017. Importantly, we've already generated 57.6 million of the 20 million required for us to make this covenant next quarter. According to our forecast we anticipate being able to meet covenants for the foreseeable future and that extends all the way through 2017 at least.

After the repayments and purchases, we had a total of 461.9 million of long-term debt outstanding. Net debt was 451.3 million at the end of the quarter which is decrease of approximately 15 million since the first quarter. Total liquidity at the end of Q2 was 143 million and the total liquidity of the Company today has actually increased slightly and is approximately 145 million. During the second quarter, working capital was a source of cash, but most of the source came from an increase to accrued interest. As a result, the cash flow from operations was lower than EBITDA and we recorded negative cash from operations. The third quarter will be challenging from a working capital perspective as we make our semi-annual bond payment in September but we anticipate returning to positive cash flow from operations by the fourth quarter of this year.

CapEx net of dispositions during the quarter resulted in a net cash outflow of 5 million. During the quarter we spent CapEx dollars of 4.7 million for progress payments on our North Sea new build, 1.4 million on our U.S. Gulf of Mexico new build at delivery, and about 300,000 on other capital expenditures. We have approximately 23 million of committed CapEx to be paid in Q1 of 2017 related to the new build vessel in Norway that Quintin mentioned earlier.

As Quintin also mentioned, we have no other uncancellable CapEx. So to summarize the second quarter, we recorded a loss of $1.90 dollars per diluted share and excluded gains and excluding gains and cost, the adjusted loss was $0.57 per diluted share. We generated minimal but positive EBITDA. Cash on hand at the end of the quarter was 10.6 million and we had 39.2 million outstanding on the revolving credit facilities. Since the end of the quarter we have continued to reduce debt a bit, and we now have 32.8 million outstanding on the revolving credit facility and liquidity remains robust as I mentioned at a 145 million. Importantly, we managed to continue decreasing costs while increasing utilization and this is a trend that we anticipate will continue into the future.

With that, I will turn the call back to Quintin who will summarize and open the call for questions.

Quintin Kneen

Well, thank you, Jay. Bianca, let's just go ahead and open up it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question is from Gregory Lewis with Credit Suisse. Please go ahead.

Gregory Lewis

Jay, you mentioned and this is something that I think is beyond GulfMark but just kind of the overall industry. You mentioned those four North Sea contracts that are on long-term charters. I mean, when we think about long-term charters now, it seems like everyone continues to look for price renegotiations, for the most part, are all of your long-term contracts that you have over the next let's call it 12 months, are customers done looking for discounts for these assets?

Jay Mitchell

I think customers would love to have discounts. The truth is, Greg, that these are not super high above what the actual leading edge rates are. In fact I would guess where Quintin talked about sort of equilibrium prices is on average, these are maybe 40 %to 50% above that level.

Quintin Kneen

And the fact that these contracts are already been renegotiated. And Greg, we saw a lot of pressure in early part of Q1 when oil was in the mid-20s to renegotiate. We haven't seen that pressure throughout Q2.

Gregory Lewis

And then, Quintin, you definitely sounded a little bit more positive than we have heard during the last few quarters about potentially getting equilibrium. If you were to sort of split it out, how much of that do you contribute to the fact that we've just seen a lot of vessels being pulled out of the market and stacked, and how much of it actually may be a little bit of a pickup in activity?

Quintin Kneen

It's definitely more vessels being withdrawn from the market and a little pickup in activity. I mean, worldwide, I still see average vessel demand decreasing. It's been the acceleration and withdrawal from the market which has driven that but just to see the laws of physics working in this market is nice. Just to get to a point where it seems like the knife has stopped falling is nice, but it's a long journey out.

Gregory Lewis

And then just as you've had -- you have a global footprint, are you having any issues collecting revenues from any customers or any customers in sort of slow to pay, unwilling to pay? Have there been any issues there as you kind of unchanged from how it's been?

Jay Mitchell

The customers are a little bit slower to pay in some international locations. We have had problems in Mexico, not unlike some other companies you follow, I'm sure. There, we think it's a question of collection, not a question of credit. It's just taking longer to get the cash in. We did see the DSO tick up quite a bit for us. I think it went from 74 at the end of Q1 to 87 at the end of Q2. And that's part of the reason that the working capital didn't create as much cash as we were hoping to be able to have but yeah, that to me is normal for this point in the cycle, and you know mostly what I'm seeing out there are issues of collecting, and people trying to stretch their days and payables, kind of similar to how we are trying to do at our Company.

Quintin Kneen

And, Jay, what I would add to that is what we're seeing, particularly in Latin America, but other places around the world, is upfront negotiations about payment terms. So people know that they're going to be slow to pay and they're asking for more payments as much as 180 days, which we generally don't do. But being upfront about it from our customers is key too. At least we kind of know what we're getting into from a working capital investment standpoint.

Operator

The next question comes from Turner Holm with Clarksons Platou. Please go ahead.

Turner Holm

So I wanted to get a Brexit update, given that you guys have meaningful exposure to the U.K. I mean, do you see any meaningful impact to the business in terms of the change in the value of the pound? And overtime do you think that the rates will adjust to the weaker currency or is it just a bit of deflation that we kind of have to swallow for the moment?

Jay Mitchell

We have not seen a huge shift so far. There are two pieces that are offsetting against one another, one is the increase in volatility and nobody knows exactly what's going to happen which is offset by the fact that, hey, we just took down the cost structure in the entire North Sea by about 10%. I don't know that people are looking at that as a permanent long-term answer as to where the exchange rate is going to be. But at some point people will settle in on where they believe the cost structure is going to be, the commodity price continues to be priced, as you know, in dollars, to the extent that the pound does stay down at the lower level. That's probably good for everything in the North Sea which is good for our business in the North Sea as we go forward. But it's frankly -- it's too soon to call a victory or anything else, I would say, as what's going on in the North Sea.

Quintin Kneen

And Jay, one thing I would add. I think this is going to influence people's final investment decisions. Unfortunately people really aren't at a point where they're making final investment decisions in the North Sea. The uncertainty about what the trade relationship is going to be, I think, adds to the difficulty, but unfortunately I don't think we're at a point where people are forced to make those decisions at this time.

Turner Holm

And, Quintin, in your prepared remarks you talked a little bit about potential upward pressure in crew costs but just looking at the reported numbers, it looks like costs are still going down in a meaningful way, especially sort of if you look at active vessel OpEx per day. So I guess the question is, in the near to medium term, do you still expect deflation in costs or have we kind of reached a bottom here?

Quintin Kneen

Well, I think that we have reached a bottom in crew costs. We'll continue to be as efficient as we can with crew costs and look for other opportunities. But we've pushed crew costs down so low that I don't believe there's any way we're going to be able to reactivate a meaningful portion of the global fleet without pushing Mariner salaries backup. So what I was trying to portray was a situation where even when this day comes, when we're starting to move day rates up again, I'm worried that the values -- before it goes to our equity holders, it is going to go to our employees and I just was trying to bring out that concept.

Turner Holm

Sure. I guess and then one last one for me, if I may: You mentioned that you took delivery of the U.S. new build, not yet out and working. Just curious, where do you see rates for that kind of premium asset in today's market? And to put it this way is it meaningfully higher than what you recorded in Q2 for the Americas?

Jay Mitchell

Obviously we're looking for any reasonable opportunity to put that boat to work. You're seeing rates as low as $10,000 a day for vessels of that category. I see the range is wide at this point. It's probably $10,000 to $15,000 a day for leading edge day rates at that type of tonnage. So that's higher than our average day rate in the U. S. Gulf of Mexico but I think it's much lower than what you might expect for a vessel of that size.

Operator

The next question comes from Cole Sullivan with Wells Fargo. Please go ahead.

Cole Sullivan

My OpEx question was already covered, on the North Sea activity we saw a pickup here for you guys in the second quarter. What is your visibility for that continuing into the third quarter? And then how do you see the kind of 4Q/1Q seasonality happening this time around? And are you having any discussions on '17 activity?

Quintin Kneen

Well, I do see the activity levels keeping at where they're at from Q2 into Q3. It's going to be interesting to see how that market evolves as we go into the shoulder season and the work dies down a bit in the North Sea.

We've seen people put boats into lay-up much more swiftly this year than we did last year. Last year they really held out and drove prices down through the winter about. I don't know what to expect but my hope is that the industry as a whole is going to be very responsive to adjust and supply and keeping rates above cash flow breakeven but it will be interesting to see myself how it plays out in Q4 and Q1 in the North Sea this year.

We are getting some discussion for contract durations in the 6 to 9 month range at this point, but very few. I wouldn't say that people are anxious to lock up vessels but are looking for an opportunity to lock up vessels at a decent rate and most operators would do that if it could get them through the winter timeframe.

Jay Mitchell

And with respect to just the overall revenues, you know, one of the things we talked about earlier was the fact that we did have a handful of contracts that rolled off in the second quarter. We'll see the full quarter effect of that, which even though activity levels could remain similar to where they are, you may see the revenue come down a bit from where it is at this moment in the North Sea region.

Operator

[Operator Instructions]. Our next question comes from Joe Gibney with Capital One. Please go ahead.

Joe Gibney

Quintin, I was wondering if you could characterize sort of the management of your fleet and lay-up. Obviously this is going to be key as we begin to think about recovery, as you alluded to. It's going to be a long road back, but just tell me what you are doing to differentiate there that's different than others, and better in terms of -- we think about coming out of the bottom and then maybe just some ballpark expectations for costs to bring a vessel out. I understand that varies greatly depending how deep in the weeds it is, and depending on the operator. But some color there would be helpful.

Quintin Kneen

Okay. Well, I break it into three different categories. So we've got a fleet of newer, larger tonnage that is in stack that I would say is in more of a ready stacked position. Ready go to work within a week or two weeks and the cost of pulling a vessel of that category out is very [indiscernible]. It's a couple of weeks of salary and perhaps a little bit of inspection costs but very little and generally the boats that we pulled [indiscernible] have fallen into that category. There's a second category that is a situation where we are deferring some maintenance but certainly all critical features are being maintained. So this would be the second group of vessels that I think would come out of lay-up but I still think we're deep into '17 before this category of vessel comes out.

And then we've got the last class of vessels where it's not a cold lay-up but it's about as close to a cold lay-up as we can get. And so we are deferring most maintenance but certainly keeping all propulsion-related and navigation-related equipment operational. We have developed over the last couple of year's very detailed checklist based on our experience of pulling out vessels of what we should do as we go into lay-up in each of the regions. And each of the regions is a little different just because of the weather conditions that they're going to be in lay-up in.

I would say that for the most part, the cost of bringing in boats out as we get into a more fulsome recovery is going to be substantial. We're going to have some boats that have missed a dry dock and at that point I think you're easily approaching a $1 million for bringing a boat out, and probably a month's worth of labor time. There are older vessels that may approach the 1.5 million to 2 million mark in order to bring about a lay-up. But I would say that's seven of the 30 or so that we have in lay-up, that need that kind of work.

Joe Gibney

On the quarter-to-quarter change in stacked assets in Americas, just trying to get some color on that. I believe your count there went from 24 to 22. There was some moving pieces outside of the [indiscernible]. Could you clarify sort of what changed there on your stack count in the Americas?

Jay Mitchell

You know, I think everything there was in the gong [ph] itself, from one-quarter to the next. And I would have to look and see exactly which class of vessel moved around because you know, Joe, I don't know the answer off the top of my head.

Quintin Kneen

You call offline we will reconcile, I think there's one vessel in Mexico that may have been in lay-up at the end of last quarter that we put in. So that may have been the one outside of the gong but let us get that exact numbering and--

Joe Gibney

Sure, no problem. And then just, Jay, one last question on your sales in Southeast Asia subsequent to quarter end, what is the expectation there on gain or loss? Again, your North Sea vessel sales on older vessel there but you indicated loss around $6 million. Is there any expectation there for the two Southeast Asia boats?

Jay Mitchell

Well, as we did an asset impairment, there will be no gain or loss that hasn't already been recorded. They were written down to what the realizable value was.

Operator

I have no other questions in the queue. So that will conclude today's question and answer session. I would like to turn the conference back over to Mr. Kneen for any closing remarks.

Quintin Kneen

Thank you, Bianca. And thank you, everyone, for your interest in GulfMark. We look forward to updating you again in October. Goodbye.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!