Tidewater Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2015; financial statements are unaudited. Tidewater provides offshore support vessels and related services to the energy industry. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance and liquidity
- Quarter revenue: $218.2 million, down 44% from $387.6 million. Vessel revenue was $212.9 million, down 44%.
- Nine-month revenue: $794.9 million, down 32%; vessel revenue declined 33% to $775.4 million.
- Quarter results: Operating loss was $9.4 million and net loss was $19.6 million, or $0.42 per diluted share. The prior-year quarter’s $161.0 million net loss included a $283.7 million goodwill impairment.
- Nine-month results: Operating loss was $13.0 million versus $62.9 million a year earlier; net loss increased to $78.8 million from $56.5 million, or $1.67 per diluted share. Current-period asset impairments were $61.8 million, up from $8.1 million.
- Vessel operating margin: Vessel revenue less vessel operating costs was $87.8 million, or 41% of vessel revenue, for the quarter, versus $167.8 million, or 44%, in the prior-year quarter. For nine months, it was $312.4 million, or 40%, versus $510.2 million, or 44%.
- Cash flow: Nine-month operating cash flow was $191.4 million versus $275.6 million. Capital expenditures/additions to property and equipment were $152.2 million; investing cash outflow was $107.8 million and financing cash outflow was $114.2 million. Cash declined $30.6 million to $48.0 million.
- Balance sheet: At December 31, cash was $48.0 million, current assets $745.2 million, and current liabilities $407.1 million. Working capital was approximately $338.1 million; current assets include $336.5 million due from affiliate, principally Sonatide-related amounts.
- Debt and liquidity: Current and long-term debt totaled approximately $1.452 billion. The amended credit facility provides a $600 million revolver and $300 million term loan; the full $600 million revolver was available at period-end. Management reported covenant compliance at December 31.
Changes versus the comparable period
- Revenue and vessel activity weakened across all four geographic segments amid lower customer exploration and production spending. Worldwide fleet utilization fell to 58.4% from 78.6%; average day rate fell to $14,589 from $19,024.
- For the first nine months, vessel operating costs fell 28% and general and administrative expense fell 19%, but these reductions did not offset the revenue decline and higher impairments. The company added 49 net vessel stackings; 70 vessels were stacked at December 31.
- Nine-month operating cash flow decreased 31%. Debt principal payments were $109.2 million, compared with $27.2 million in the prior-year period.
- The prior-year quarter included the $283.7 million goodwill impairment; there was no goodwill impairment in the current period. Current-period asset impairments, primarily on stacked vessels, rose substantially.
Outlook, management commentary, risks and unusual items
- Management described a severe offshore downturn and potential near- to intermediate-term vessel overcapacity. In January 2016, WTI and Brent crude traded below $30 per barrel. Industry surveys cited projected 2016 E&P spending reductions of 11%–17%, including offshore reductions of 20%–25%. The filing gives no company-specific earnings or revenue guidance.
- Management warned that interest-coverage covenant noncompliance could occur in future quarters, possibly as early as fiscal 2017. It was negotiating amendments or waivers with lenders and noteholders; relief could require concessions such as collateral or reduced revolver capacity.
- In January 2016, Tidewater suspended its quarterly dividend and share repurchase program. The quarterly dividend had been $0.25 per share; no shares were repurchased during the nine months ended December 31, 2015.
- Nine vessels under construction had $107.2 million of remaining commitments, approximately $64 million net of expected shipyard refunds. Delivery timing, vessel options, construction delays and the recoverability of shipyard payments remain relevant risks.
- Angola/Sonatide: Tidewater reported $336 million due from the affiliate at period-end; much of the related funds were held in kwanza or awaiting conversion and remittance. Angola generated 22% of nine-month vessel revenue. A January 2016 kwanza devaluation was expected to produce an additional approximately $8 million Tidewater share of foreign-exchange loss. The expired split-billing agreement, currency-conversion constraints, possible local-ownership requirements and a potential 10% foreign-exchange levy add uncertainty.
- Impairments and restructuring: Nine-month asset impairments were $61.8 million. A $7.6 million restructuring charge was recorded in the second quarter, primarily associated with Brazil and Australia; $5.8 million was paid in the December quarter.
- Contingencies: Tidewater had a $65 million Venezuelan arbitration award as of December 31, but recognized no gain; enforcement was stayed during annulment proceedings and collection may be difficult. Brazilian customs fines had been reduced from 155 million to 33 million reais (approximately $8.3 million), which the company contested and had not accrued. A Nigerian litigation concerns approximately $16 million of disputed receivables, which was not reserved.
- The interim statements received an independent accountant’s review, not an audit. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and terms of covenant amendments or waivers, and the company’s ability to maintain interest-coverage compliance.
- Collection, conversion and repatriation of Sonatide-related balances, including the impact of further kwanza movements and Angolan regulatory changes.
- Whether weak utilization and day rates persist, and the resulting risk of additional vessel impairments or stackings.
- Actual vessel deliveries, remaining construction spending and refunds, including decisions on optional vessels.
- Developments in the Venezuelan award, Brazilian customs assessment, Nigerian receivable litigation, and any potential U.S. customs duties or penalties related to vessel repairs abroad.
- The company’s cash and financing position following suspension of dividends and buybacks, considering debt service and outstanding commitments.