Tidewater Inc. — Q3 2020 Form 10-Q
Business and period: Tidewater provides offshore support vessels and services to the energy industry. This unaudited filing covers the quarter and nine months ended September 30, 2020; comparisons are with the corresponding 2019 periods. Unless stated otherwise, dollar amounts below are in millions.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $86.5 | $119.8 | $305.2 | $367.8 |
| Operating loss | $(25.2) | $(22.6) | $(161.5) | $(36.6) |
| Net loss | $(38.1) | $(43.8) | $(167.3) | $(80.6) |
| Net loss attributable to Tidewater | $(37.9) | $(44.2) | $(167.0) | $(81.9) |
| Loss per share | $(0.94) | $(1.15) | $(4.15) | $(2.17) |
- Q3 operating and net loss margins were approximately (29%) and (44%); nine-month margins were approximately (53%) and (55%), respectively.
- Q3 vessel revenues were $85.4 million. Worldwide active utilization fell to 78.2% from 80.4% in Q3 2019. Average active vessels declined by 45 year over year; average day rate increased to $10,503 from $10,021.
- For the nine months, cash provided by operations was $1.8 million, versus $36.7 million used in 2019. Investing provided $26.8 million, largely from vessel sales; financing used $34.2 million, including debt repurchases and scheduled payments. Cash, cash equivalents and restricted cash ended at $222.0 million, down $5.6 million from year-end 2019.
- At September 30, cash and cash equivalents were $192.2 million, with $29.8 million restricted cash. Current assets were $440.8 million and current liabilities $163.3 million (working capital $277.5 million; current ratio approximately 2.7). Tidewater stated it had no revolving credit facility.
- Debt principal totaled $260.5 million: $197.0 million of 8% senior secured notes due August 2022 and Troms borrowings due 2024–2027. Balance-sheet debt, net of premiums and discounts, was $255.8 million, including $9.6 million current. The company repurchased $27.7 million principal of senior notes during the quarter.
- Total assets were $1.35 billion, down from $1.58 billion at December 31, 2019; equity was $853.6 million. The fleet included 146 active vessels and 24 held for sale at quarter-end.
Material changes and unusual items
- Revenue declined 28% in Q3 and 17% over nine months, primarily from lower activity in West Africa and Europe/Mediterranean. Q3 operating loss widened despite lower revenue and reduced costs; nine-month operating loss increased sharply.
- Nine-month results included $67.6 million of long-lived asset impairments, including $65.7 million related to vessels held for sale; $53.6 million of affiliate credit-loss impairment; and a $2.0 million provision for a joint-venture debt guarantee. These charges were partly offset by $17.2 million of dividend income from Sonatide and $7.5 million of net gains on asset dispositions.
- The company sold 47 vessels during the first nine months and had 24 vessels remaining held for sale, valued at $19.2 million. Q3 also included $1.9 million of obsolete-inventory impairment.
- Sonatide-related credit impairment was $41.5 million. Management said further impairment may be possible, given the joint venture’s liquidity and unresolved allocation of losses from Angolan currency devaluation. DTDW in Nigeria had no company vessels operating, its joint-venture vessel was unemployed, and Tidewater recorded $12.1 million of credit impairment plus the $2.0 million guarantee provision.
- From Q3, revised vessel salvage-value estimates increased depreciation expense by $3.8 million, or $0.09 per share, prospectively.
- Cash from operations was only marginally positive despite the reported amount: it reflected substantial noncash impairment and depreciation add-backs, while cash paid for drydocking and surveys was $29.5 million.
Outlook, risks and contingencies
- Management expected COVID-19 impacts to continue through the remainder of 2020, citing reduced oil demand and prices, customer cuts to offshore spending, contract cancellations or delays, lower vessel utilization, and pressure on rates. The filing provided no quantified earnings or revenue guidance and said the pandemic’s full financial impact could not be reasonably estimated.
- Contract cancellations or delays affected approximately 19% of 2020 contracts with durations over three months. Tidewater postponed drydocks expected to cost approximately $23 million in 2020 and said further postponements were possible. In October, it purchased 11 crew boats in Angola for $5.3 million.
- After quarter-end, Tidewater agreed to prepay approximately $12.4 million of Troms debt in Q4 2020 and another $8 million in the first half of 2021. On November 3, it launched a consent solicitation and tender offer for $50 million aggregate principal amount of senior notes. These actions and any further debt prepayments depend on required consents and terms.
- Other risks include foreign-currency exposure, particularly in Angola; uncertain affiliate collections; offshore industry overcapacity and weak customer demand; vessel impairment risk; debt-covenant compliance; COVID-related crew and operating disruptions; and international tax matters. Management said ordinary-course legal proceedings were not expected to materially adversely affect the company.
- The company reported $280 million of net operating loss carryforwards at September 30 and adopted a tax-benefits preservation plan restricting certain acquisitions of 4.99% or more of its common stock without board approval. The plan is intended to protect tax attributes and is scheduled to expire in April 2023, subject to earlier termination.
Investor verification points
- Track vessel utilization, active fleet levels, day rates, cancellations and offshore customer spending as pandemic and oil-market conditions evolve.
- Verify cash availability and restrictions, operating cash generation, drydock requirements, debt prepayments, covenant status, and the outcome of the senior-note consent and tender process.
- Assess recoverability of Sonatide and DTDW receivables, the potential for further affiliate impairment, and the effect of Angolan currency and liquidity conditions.
- Monitor vessel-sale proceeds, the disposition of the remaining 24 held-for-sale vessels, and future impairment tests and salvage-value assumptions.
- Reconcile the reported cash-flow improvement with noncash charges and required working-capital and drydock spending; confirm the filing’s debt and liquidity details against subsequent filings.