Tidewater Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2017; filed November 9, 2017. Tidewater changed its fiscal year-end from March 31 to December 31, beginning with the period ending December 31, 2017. The quarter straddles the July 31, 2017 Chapter 11 emergence and fresh-start accounting date, so results are presented as separate predecessor and successor periods and are not directly comparable.
Business context and operating performance
Tidewater provides offshore support vessels and related services to the energy industry. At September 30, it reported 237 owned or chartered vessels, including 91 stacked, and eight ROVs. Its results depend heavily on offshore exploration and production activity, vessel utilization, and day rates.
- Successor results for August 1–September 30: revenue of $74.3 million, operating loss of $5.8 million, and net loss attributable to Tidewater of $15.7 million ($0.81 per share).
- Predecessor results for July 1–31: revenue of $36.3 million, operating loss of $38.7 million, and net loss attributable to Tidewater of $1.122 billion ($23.82 per share). The loss principally reflects $1.084 billion of reorganization items.
- For April 1–July 31, predecessor revenue was $151.4 million and operating loss was $244.0 million; reorganization items were $1.397 billion. These amounts should not be combined or compared mechanically with successor results.
- For the comparable three months ended September 30, 2016, revenue was $143.7 million, operating loss was $155.3 million, and net loss attributable to Tidewater was $178.5 million. Management attributed lower revenue primarily to the prolonged offshore industry downturn.
- In the successor period, vessel operating costs were $52.3 million, or 74% of vessel revenue; general and administrative expense was $16.2 million. Worldwide utilization was 46.0%, versus 42.8% in the September 2016 quarter, while average vessel day rate was $10,077 versus $13,364. Changes in fleet composition and accounting basis limit direct comparisons.
Cash flow, balance sheet, and debt
- Cash and cash equivalents were $460.0 million at September 30, down from $706.4 million at March 31. Cash included $120.8 million held by foreign subsidiaries; some foreign funds faced conversion or repatriation constraints.
- Net cash used in operating activities was $17.8 million in the successor period and $21.6 million in the April–July predecessor period. Investing activities provided $4.3 million and $5.2 million, respectively; financing activities used $87.4 million and $129.1 million, largely for creditor payments under the reorganization plan.
- Total assets were $1.813 billion and total equity was $1.043 billion. Current assets of $871.2 million exceeded current liabilities of $259.2 million; current assets included $245.1 million due from an affiliate, primarily Sonatide.
- Reported debt was $450.9 million before current/long-term classification: $350 million principal on new 8% senior secured notes due August 2022, plus Troms Offshore borrowings. The balance sheet classified $5.2 million as current and $445.7 million as long-term. The former $600 million revolver and other predecessor debt were eliminated in the restructuring.
Material changes, outlook, risks, and unusual items
- Restructuring and fresh-start accounting: Tidewater emerged from Chapter 11 on July 31. Creditors received $225 million cash, new secured notes, and equity or warrants; predecessor shares were cancelled, with existing holders receiving 5% of successor common equity plus warrants. Fresh-start accounting substantially reduced vessel carrying values and changed the reporting entity, limiting period-to-period comparability.
- Debt terms and liquidity: The new $350 million notes bear fixed interest at 8%, are secured by substantially all company and guarantor assets, mature in 2022, and contain liquidity, covenant, and interest-coverage requirements. The company said available cash and expected operating cash flow were sufficient for requirements, but it had no revolving credit facility after emergence.
- Industry outlook: Management described offshore activity as weak and expected any recovery to lag the onshore recovery; it cited possible improvement in offshore activity beginning in 2018, while emphasizing uncertainty. Potential vessel overcapacity, delayed or cancelled projects, low customer spending, and new vessel deliveries could pressure utilization and rates. No company-specific numerical revenue or earnings guidance was provided.
- Angola exposure: The company had $245 million due from Sonatide and $113 million due to the joint venture. Approximately $91 million of Sonatide cash was held primarily in kwanza pending conversion and expatriation. Angola generated 20% of successor-period vessel revenue; management noted continuing tight U.S.-dollar liquidity in the country.
- Contingencies: One sale-leaseback claim remained unresolved, reserved at a maximum of $94.1 million. Disputes and arbitration concerning two PSV construction contracts remained under settlement discussions; a separate Brazilian vessel arbitration also continued. U.S. Customs could assess additional vessel-repair duties, penalties, and interest, with the final amount unclear.
- Venezuela award: Tidewater reported an enforceable award of $55.5 million, including accrued interest, but treated collection as a gain contingency and warned that collection could be difficult. The filing also described Brazilian customs fines; most of the original assessment was resolved in the company’s favor, while remaining proceedings continued.
- Leadership and other changes: CEO Jeffrey Platt resigned effective October 15, 2017; director Larry Rigdon became interim CEO. The company expected approximately $9.6 million in SERP and $1.1 million in supplemental savings-plan distributions to Platt in April 2018, plus an estimated $0.5 million settlement loss. The company also changed its vessel useful-life assumptions and began deferring qualifying recertification drydocking costs.
Important facts for investors to verify
- Reconcile the predecessor and successor periods and assess performance using comparable post-emergence reporting periods.
- Review cash accessibility, especially the $245 million Sonatide receivable, kwanza conversion constraints, and foreign-subsidiary cash restrictions.
- Confirm compliance with the new notes’ liquidity and financial covenants, upcoming Troms principal payments, and the company’s cash-burn trajectory.
- Track resolution and cash consequences of the remaining sale-leaseback claim, vessel construction disputes, and Customs matters.
- Evaluate whether offshore activity, utilization, and day rates improve enough to support operating cash generation amid industry overcapacity.