SEACOR Marine Holdings Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited results. SEACOR Marine provides offshore marine support and transportation services across five regions; at quarter-end it operated 146 vessels, including joint-venture and managed vessels.
Financial performance and liquidity
- Revenue: Q2 revenue was $41.9 million, down 20.7% from $52.8 million a year earlier. First-half revenue was $83.6 million, down 14.4% from $97.7 million.
- Profitability: Q2 operating loss was $16.7 million versus $17.6 million; net loss attributable to SEACOR Marine was $6.1 million versus $28.4 million, or $0.24 versus $1.21 loss per share. The improvement in net loss largely reflected a larger tax benefit and improved equity-method results. First-half operating loss widened to $41.3 million from $38.7 million, while attributable net loss narrowed to $22.0 million from $53.9 million. First-half loss per share was $0.90 versus $2.32.
- Margins and vessel performance: Q2 operating loss was about 40% of revenue, compared with 33% in Q2 2019; first-half operating loss was about 49% of revenue, compared with 40%. Direct vessel profit, a company-defined non-GAAP measure, rose to $18.0 million in Q2 from $17.4 million and to $35.1 million for the first half from $27.2 million. Overall fleet utilization was 69% in Q2, unchanged year over year; utilization excluding crew transfer vessels was 57% versus 59%.
- Cash flow: First-half operating cash use was $20.1 million versus $1.7 million in 2019. Investing provided $1.5 million, compared with $25.1 million used; financing used $8.7 million. Cash, restricted cash and cash equivalents declined $29.0 million to $58.1 million, including $4.2 million of construction reserve funds.
- Debt and liquidity: June 30 debt principal was $553.0 million; carrying value, net of discounts and financing costs, was $499.5 million. Current debt was $51.8 million. Current assets of $149.3 million exceeded current liabilities of $116.1 million. The company reported $1.4 million available under subsidiary facilities and a $35 million minimum-cash covenant; covenant cash was $58.1 million.
Material changes and unusual items
- On June 30, SEACOR completed its purchase of the remaining 50% of SEACOSCO Offshore LLC, now SEACOR Offshore Delta, for $28.2 million. It paid $8.4 million at closing; the balance is payable in installments and includes a $13.7 million payment due four years after signing. The acquired business owns eight PSVs. Related shipyard financing had approximately $100.8 million outstanding.
- First-half asset disposition and impairment losses were $16.0 million, versus $3.6 million in 2019. Impairments totaled $12.5 million, including leased and owned liftboats and a specialty vessel.
- Under the CARES Act tax-refund arrangement with former parent SEACOR Holdings, the company expects net refunds of approximately $28.2 million, about $23.7 million within nine months, subject to claims and IRS timing. It paid a $3.0 million transaction fee. Approximately $12.2 million of expected proceeds must be restricted for specified guaranteed obligations; approximately $16.0 million is unrestricted.
- SEACOR acquired the remaining 28% of Falcon Global Holdings in March for 900,000 shares, bringing ownership to 100%.
Outlook, risks and contingencies
- Management gave no specific revenue or earnings guidance. It cited continuing uncertainty from COVID-19, depressed oil and gas prices, weak offshore activity and excess vessel supply. Management warned that prolonged low prices and reduced customer activity could materially harm demand, results and liquidity.
- The company continued a cost-reduction and restructuring plan expected to run through Q3 2020, targeting at least $8 million of annualized recurring savings when complete. First-half charges were $0.9 million; management estimated a further $1.1 million of restructuring costs.
- Debt covenant: SEACOR Marine did not meet the guarantor net financial debt-to-equity covenant under the Sea-Cat Crewzer III facility: 98% versus a required maximum of 70%. It was negotiating a waiver or modification; the related debt was classified as current. The filing says the breach did not trigger cross-defaults or immediate acceleration. The company reported compliance with its other debt covenants.
- Unfunded capital commitments were $27.9 million, with $17.2 million due in the rest of 2020 and $10.7 million in 2021; an additional $9.6 million FSV order was indefinitely deferred. Contractual debt principal maturities include $244.1 million in 2023 and $123.3 million in 2024.
- A material weakness in internal controls over review of estimates using third-party information remained at June 30. Management was implementing enhanced review and documentation procedures and expected remediation before year-end 2020; disclosure controls were deemed ineffective solely because of this weakness.
- Other disclosed matters include a Brazilian tax-deficiency dispute with a stated potential range of $2.4–$3.3 million and $14.6 million of obligations guaranteed by SEACOR Holdings. Management did not expect other litigation matters to have a material effect.
Important facts for investors to verify
- Whether lenders waive or modify the Sea-Cat guarantor covenant, and whether the company maintains required minimum cash.
- Timing and receipt of the expected tax refunds, including restricted proceeds and any effect of delays or claim outcomes.
- Cash burn, receivable collections and vessel utilization amid continued energy-market weakness.
- Additional impairment risk and the cost and timing of reactivating or retiring underutilized vessels.
- Progress toward internal-control remediation and the company’s ability to meet upcoming capital commitments and debt maturities.