Tidewater Inc. — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The company changed its fiscal year-end from March 31 to December 31. Comparisons are affected by fresh-start accounting adopted upon emergence from Chapter 11 on July 31, 2017, so predecessor and successor periods are not fully comparable.
Business context and significant transaction
Tidewater provides offshore marine support and transportation services to the global energy industry. Revenue depends heavily on vessel utilization and day rates, which are influenced by offshore customer spending, oil and gas prices, and industry vessel supply.
On November 15, 2018, Tidewater completed its all-stock acquisition of GulfMark Offshore for stated purchase consideration of $385.5 million. GulfMark contributed $12.7 million of revenue and a $30.6 million net loss from the closing date through year-end. Tidewater issued shares and assumed warrants; it also repaid GulfMark’s $100 million term loan using cash. Former GulfMark shareholders owned 26% of the combined company immediately after closing.
Financial performance and liquidity
| Metric | FY 2018 | Prior-period context |
|---|---|---|
| Total revenue | $406.5 million | Management says revenue declined versus the combined comparable prior-year periods, principally from lower day rates and a smaller active fleet; the filing’s periods are not directly comparable. |
| Operating loss | $107.5 million; approximately 26% of revenue | Includes $61.1 million of long-lived asset impairments and a $20.1 million impairment of amounts due from an affiliate. |
| Net loss attributable to Tidewater | $171.5 million; loss per share of $6.45 | Includes operating losses, $30.4 million interest and other debt costs, and an $8.1 million debt-extinguishment loss. |
| Vessel operating costs | $269.6 million, or 68% of vessel revenue | Costs were managed down amid reduced activity; accounting for drydock and survey costs changed after fresh-start accounting. |
| Operating cash flow | $3.9 million | Positive for 2018, following cash used in operating activities in the 2017 successor and predecessor periods. |
| Investing cash flow | $68.5 million provided | Included $46.1 million of asset-sale proceeds and $43.8 million of cash acquired in the merger; capital additions were $21.4 million. |
| Cash, cash equivalents and restricted cash | $397.7 million | Down from $453.3 million at December 31, 2017. $107.5 million was held by foreign subsidiaries, subject to some conversion and repatriation constraints. |
| Debt | $439.0 million approximately | Primarily $350 million of 8% secured notes due 2022 and Troms Offshore borrowings; $8.6 million was current debt at year-end. |
| Fleet and utilization | 257 owned vessels, including 92 stacked; 165 active. Worldwide utilization was 52.2%. | Average day rate was $9,809, versus $10,064 in the 2017 successor period; the different period lengths limit comparison. |
Fourth-quarter 2018 revenue was $110.2 million, operating loss was $70.1 million, and net loss attributable to Tidewater was $90.5 million, or $2.83 per share. Fourth-quarter results included $36.9 million of asset impairments and the $20.1 million affiliate impairment.
Material changes and management commentary
- Deepwater vessels provided 57.2% of 2018 vessel revenue, up from 48.9% in the five-month 2017 successor period. Europe/Mediterranean revenue improved with higher utilization and day rates; other regions faced weak rates or activity.
- The five largest customers generated approximately 58% of revenue. Chevron alone contributed 15%.
- Management described offshore markets as challenging, citing sustained low and volatile commodity prices, reduced customer capital spending, and continued vessel oversupply. It reported early-2019 oil prices below $60 per barrel for WTI and slightly above $60 for Brent.
- Management reported progress integrating GulfMark, including consolidating five facilities and continuing fleet optimization. It expected at least $30 million of annualized cost synergies by the fourth quarter of 2019; realization was not assured.
- Tidewater sold or scrapped 38 vessels and recorded $10.6 million of net gains on asset dispositions. It also recorded $61.1 million of asset impairments across 56 vessels and other assets.
Outlook, risks and contingencies
- The filing provides no specific consolidated revenue or earnings guidance. Management emphasized cash-flow generation, cost control, capital discipline, and continuing sale or recycling of stacked vessels.
- Debt agreements impose minimum-liquidity requirements and, beginning June 30, 2019, a minimum interest-coverage covenant, alongside restrictions on additional debt, liens, investments, capital expenditures, and distributions. The notes are secured by substantially all assets. Contractual obligations total approximately $670.1 million, including principal and interest, leases, pension obligations, and uncertain tax positions.
- Sonatide, Tidewater’s 49%-owned Angolan joint venture, remained a key collection and currency risk. The year-end receivable from Sonatide was $109.2 million and payable was $29.3 million; Tidewater recorded a $20.1 million impairment and reduced its equity-method investment to zero. The Angolan kwanza depreciated about 84% against the U.S. dollar during 2018.
- Tidewater holds a $58.1 million arbitral award against Venezuela, accruing approximately $0.6 million of interest quarterly. It accounts for the award as a gain contingency and has not recognized it as income because collection remains uncertain.
- Other major risks include industry overcapacity and weak offshore spending, contract renewals and early terminations, further vessel impairments, international political and regulatory risks, foreign-exchange exposure, customer concentration, cybersecurity, and integration costs. The company does not expect to pay dividends in the foreseeable future.
Most important facts for investors to verify
- Whether GulfMark integration delivers the stated $30 million annualized synergy target by late 2019, net of integration and restructuring costs.
- Whether operating cash flow can remain positive as asset-sale proceeds decline and the fleet’s utilization and day rates evolve.
- Collection and recoverability of Sonatide balances, including exposure to kwanza devaluation and any further impairment.
- Compliance with minimum-liquidity and interest-coverage covenants, and the company’s ability to fund debt service and fleet maintenance.
- Assumptions underlying vessel fair values and impairment testing, given $61.1 million of 2018 impairments and continuing market uncertainty.
- That reported comparisons account for fresh-start accounting, the fiscal-year change, and GulfMark’s inclusion only from November 15, 2018.