Tidewater Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2016; comparison is with the corresponding 2015 periods. Dollar amounts below are in U.S. dollars.
Business context and financial performance
Tidewater provides offshore support vessels and related services to the oil and gas industry. Lower customer exploration and development spending, coupled with industry vessel oversupply, drove lower utilization, day rates and revenue. At December 31, the company owned or chartered 262 vessels, including 116 stacked, and eight ROVs.
- Revenue: Q3 total revenue was $129.2 million, down 40.8% year over year; nine-month revenue was $440.9 million, down 44.5%. Vessel revenue declined 41.2% in Q3 and 44.9% for nine months.
- Profit and margins: Q3 operating loss was $287.0 million and net loss attributable to Tidewater was $297.7 million, or $6.32 per share, versus a $19.5 million net loss and $0.42 per share a year earlier. Nine-month net loss attributable to Tidewater was $565.3 million, or $12.01 per share, versus $78.4 million and $1.67 per share. Results included asset impairment charges of $253.4 million in Q3 and $419.9 million for nine months. Vessel operating costs were 65.8% of vessel revenue in Q3, versus 58.7% a year earlier; the resulting vessel operating margin was about 34.2% versus 41.3%.
- Cash flow: Nine-month operating cash flow was negative $40.3 million, compared with positive $191.4 million in 2015. Investing activities provided $20.8 million, principally from shipyard refunds and asset sales; financing activities used $9.1 million. Cash declined by $28.6 million from March 31.
- Liquidity and debt: Cash and equivalents were $649.8 million, while total debt, net of issuance costs, was $2.036 billion. The $600 million revolving facility was fully drawn, with no remaining capacity. All debt was classified as current following covenant issues. Working capital deficit was approximately $1.2 billion. The company reported compliance with its maximum 55% debt-to-capital covenant but failed the 3.0x minimum interest coverage covenant; net debt to net capitalization was 44.2%, up from 37.3% at March 31.
- Balance sheet and other metrics: Total assets were $4.315 billion, down from $4.984 billion at March 31; equity was $1.748 billion, down from $2.306 billion. Nine-month capital expenditures were $17.1 million. Three vessels under construction carried $46.7 million of remaining commitments.
Material changes and management commentary
- Nine-month vessel utilization fell to 44.3% from 64.3%, and average day rates fell to $13,216 from $16,077. Q3 utilization was 41.4% versus 58.4%, and average day rates were $12,461 versus $14,589.
- Management reduced costs as activity contracted: nine-month vessel operating costs fell 40%, while G&A declined 11%. Professional-service costs increased, substantially due to debt restructuring work. Nine-month interest and debt costs rose 36% to $54.0 million.
- Stacked vessels increased to 116 from 70 a year earlier. Q3 impairments covered 74 vessels; management cautioned that the $2.9 billion carrying value of active and stacked vessels does not necessarily represent proceeds from an expedited sale.
- Management cited oil-price improvement but expected offshore recovery to lag onshore activity; offshore improvement might not occur until late 2017 or 2018. This is market commentary, not quantified company guidance. The filing provides no clear company earnings or revenue guidance.
Debt, risks, contingencies and unusual items
- Restructuring and going concern: Tidewater was negotiating a restructuring with lenders and noteholders. Limited covenant/audit-opinion waivers were extended through March 3, 2017. The filing warns that without waivers, cross-default provisions could permit acceleration of debt, which the company says it could not repay with available liquidity. The financial statements assume continued operation, but management gave no assurance negotiations would succeed. Management stated that likely restructuring or Chapter 11 scenarios could significantly dilute shareholders; expected terms could include collateral, lower borrowing capacity, higher interest and equity issuance.
- Angola exposure: Due from affiliate was $287.6 million, primarily associated with Sonatide; about $112 million was invoiced but unpaid vessel revenue. Approximately $86 million was held in kwanza awaiting conversion and expatriation. Tight U.S.-dollar liquidity and currency risk in Angola continued.
- Other contingencies: A Brazilian customs assessment originally totaling 155 million reais was largely resolved in Tidewater’s favor; remaining disputed or appealed amounts include 3 million reais and 30 million reais, and the company had not paid or accrued the fines. The company is seeking to collect a $53.7 million Venezuela arbitration award, but records it as a gain contingency and warns collection may be difficult. A post-quarter Nigerian settlement approved January 26, 2017 provides for approximately $12 million from TOTAL affiliates; it was not reserved at quarter-end.
- Other liquidity items: No dividends were declared; the quarterly dividend program was suspended in January 2016. Operating leases for 16 sale/leaseback vessels had $183.6 million of future minimum payments. Foreign-subsidiary cash was largely held outside the U.S.; repatriation could create incremental taxes.
Most important facts for investors to verify
- Whether lenders and noteholders extend or replace the waivers and agree to a restructuring before the March 3, 2017 deadline; monitor dilution, collateral and borrowing-capacity terms.
- Whether covenant defaults or cross-defaults arise and whether any debt may be accelerated; verify the company’s cash needs and access to liquidity.
- Collection and convertibility of Sonatide receivables and kwanza balances, and the pace of Angolan cash remittances.
- Whether offshore vessel utilization and day rates stabilize, and whether further stacking or impairments are required.
- Cash realization from the Nigerian settlement and Venezuela award, plus outcomes of the remaining Brazilian customs and other legal matters.