SEACOR Marine Holdings Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. The unaudited filing compares results with the corresponding 2016 periods. SEACOR Holdings completed the company’s spin-off on June 1, 2017; SEACOR Marine began operating as an independent public company.
Business context and financial performance
The company provides offshore marine transportation and support services to the oil and gas industry. At quarter-end it operated 182 vessels across five geographic regions. Management described market conditions as difficult, citing weak offshore activity and industry vessel oversupply, with modest improvement from seasonal maintenance and construction activity in the Middle East and U.S. Gulf of Mexico.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Operating revenue | $42.3m | $57.3m | $76.6m | $117.2m |
| Operating loss | $44.8m | $34.5m | $63.4m | $51.1m |
| Net loss attributable to SEACOR Marine | $34.0m | $30.6m | $41.4m | $42.5m |
| Basic and diluted loss per share | $1.93 | $1.73 | $2.34 | $2.41 |
| Operating cash flow | — | $53.7m | $(8.9)m |
Q2 revenue fell 26% year over year; six-month revenue fell 35%. Operating loss was 106% of revenue in Q2 and 83% for the first half, versus 60% and 44%, respectively, in 2016. The six-month attributable net loss narrowed slightly despite the larger operating loss, helped in part by marketable-security gains and improved equity-method results.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $151.0m; restricted cash was $1.8m, marketable securities $0.7m and construction reserve funds $67.8m. Management reported total balances across cash, restricted cash, marketable securities and construction reserves of $221.3m; the reserve funds were non-current and intended for equipment purchases.
- Net cash from operations was $53.7m for the first half, compared with cash use of $8.9m in 2016. The 2017 amount included $51.9m of proceeds from marketable-security sales and benefited from working-capital changes; it should not be read as recurring operating cash generation alone.
- First-half investing cash use was $14.1m, including $29.1m of capital expenditures and hedge payments, partly offset by asset-sale proceeds and MexMar distributions. Financing cash use was $7.1m.
- Debt, net of discount and issuance costs, totaled $315.5m. The balance sheet classified $81.6m as current and $233.9m as long-term. Contractual maturities totaled $351.2m under the filing’s assumption that Falcon Global’s facility could require repayment in 2018.
- Unfunded capital commitments were $76.4m, principally for vessels, with $51.0m expected in 2018. The company also committed to $12.3m of additional equipment purchases after quarter-end. It had $4.6m of availability under subsidiary credit facilities.
Material changes and unusual items
- Falcon Global became consolidated effective March 31 after its partner declined a capital call; the company consequently consolidated $58.3m of its debt. Falcon Global was out of compliance with financial covenants, had waivers through December 31, 2017, and was required to receive a fully funded $14.5m subordinated working-capital loan by that date. The company classified the facility as current given uncertainty about future covenant compliance and performance.
- In April, the company acquired the remaining interests in Sea-Cat Crewzer and Sea-Cat Crewzer II, bringing both under full control and adding their debt. It also acquired an additional 12.5% of Windcat Workboats.
- Q2 administrative and general expense rose $9.8m year over year, primarily due to spin-off costs, including $6.7m for accelerated vesting of awards and $3.4m of reimbursed spin-off expenses. First-half administrative and general expense included these and other transition-related costs.
- First-half asset disposals generated $4.2m of gains, while $5.7m of impairment charges were recorded, primarily for a leased-in supply vessel removed from service. The prior-year first half included substantially larger impairment charges.
- The company recorded a $27.1m conversion-option liability related to its 3.75% convertible senior notes after the spin-off changed the notes’ terms. The notes’ adjusted effective interest rate was 7.95%.
Operating trends, outlook and risks
Management gave no specific numerical earnings or revenue guidance. It said market conditions remained difficult, though seasonal activity had produced modest improvement. Fleet economics remain sensitive to vessel utilization and day rates. First-half overall utilization was 51%, versus 56% in 2016; the overall average rate per day worked was $5,683, versus $7,629. Excluding wind farm utility vessels, utilization was 40% versus 51%. Weak oil prices, reduced customer exploration spending, vessel oversupply, customer suspensions or cancellations, regulatory changes, foreign currency movements and access to credit were among the disclosed risks.
U.S. operations remained pressured: 32 of 42 owned or leased-in U.S. vessels were cold-stacked at quarter-end, versus 25 of 33 a year earlier. Management also disclosed deferred revenue of $9.3m, including $6.8m tied to a customer in Chapter 11 bankruptcy and $2.3m for a charter where collection was not reasonably assured; recognition depends on collection or resolution of the relevant uncertainty.
SEACOR Holdings continued providing transition services for a fixed net fee of $6.3m annually, expected to decline as services are replaced. It had guaranteed $107.7m of company obligations at quarter-end. The filing also reports that disclosure controls were not effective because of material weaknesses involving manual journal-entry controls and impairment assessments; management had no expected remediation completion timetable. Management stated that the financial statements fairly present the company’s position in all material respects.
Important facts for investors to verify
- Whether Falcon Global meets covenant requirements after its waiver expires, and whether the required $14.5m subordinated loan is funded by December 31, 2017.
- The timing and funding of debt maturities, including the potential 2018 Falcon Global repayment, alongside vessel commitments and liquidity that includes restricted or equipment-designated funds.
- Whether operating cash generation improves without reliance on asset sales, security-sale proceeds or working-capital releases.
- Collection prospects for deferred charter revenue and the financial condition of OSV Partners, whose lenders granted covenant waivers through September 30, 2017.
- Progress in remediating the disclosed internal-control material weaknesses and any subsequent changes to liquidity, impairments, vessel utilization or customer demand.