Tidewater Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2015 (Tidewater fiscal 2016 second quarter). Unless noted otherwise, amounts below are in U.S. dollars.
Business context and financial performance
Tidewater operates offshore support vessels and related services for oil and gas exploration, development and production. Results weakened as lower oil and gas prices reduced customer spending, vessel utilization and day rates. At September 30, the company owned or chartered 273 vessels, including 51 stacked vessels.
| Metric | Quarter ended Sep. 30, 2015 | Six months ended Sep. 30, 2015 |
|---|---|---|
| Total revenue | $271.9 million, down 32% year over year | $576.7 million, down 26% |
| Vessel revenue | $264.1 million, down 32% | $562.4 million, down 27% |
| Operating income (loss) | $(17.6) million | $(3.6) million |
| Net income (loss) attributable to Tidewater | $(43.8) million; $(0.93) per diluted share | $(58.9) million; $(1.25) per diluted share |
| Cash provided by operating activities | Not separately presented in the filing for the quarter | $163.9 million, versus $185.3 million |
| Capital additions to property and equipment | Not separately presented in the filing for the quarter | $139.0 million |
Quarterly vessel operating costs were 60% of vessel revenue, versus 54% a year earlier, leaving vessel operating profit of $105.5 million (about 40% of vessel revenue), compared with $178.1 million (about 46%). For the six months, vessel operating costs were also 60% of vessel revenue, versus 56% in the prior-year period. The filing attributes the deterioration principally to lower utilization and day rates; cost reductions did not keep pace with falling revenue.
For the six months, net cash used in investing activities was $96.7 million and net cash used in financing activities was $57.6 million. Cash increased $9.6 million to $88.2 million. The company declared dividends of $0.25 per share for the quarter ($0.50 per share for the six months).
Liquidity, debt and capital commitments
- At September 30, cash was $88.2 million and current assets were $786.6 million, against current liabilities of $452.6 million. Current assets included $346.9 million due from affiliates, primarily relating to Angola and Sonatide.
- Long-term debt was $1.488 billion and current debt was $10.0 million. The amended credit facility provides $600 million of revolving capacity and a $300 million term loan, matures in June 2019, and had the full $600 million revolver available at period-end.
- The credit arrangements include a maximum debt-to-capitalization ratio of 55% and a minimum interest coverage ratio of 3.0 to 1.0. The filing does not provide a period-end calculation of covenant headroom.
- Nine vessels under construction had $112.2 million of remaining reported commitments. Management said it believed liquidity and financial capacity were adequate to fund these commitments. Separately, vessel sale/leaseback arrangements entail $221.3 million of future minimum lease payments.
Material changes, outlook and risks
- Market contraction: Worldwide vessel utilization fell to 65.7% from 79.3% year over year for the quarter; average day rate fell to $16,039 from $19,415. Management described a risk of near- to intermediate-term industry overcapacity, with weaker demand and substantial new vessel deliveries potentially pressuring utilization and rates further. No specific earnings or revenue guidance was provided.
- Impairments and restructuring: Asset impairment charges were $31.7 million for the quarter and $46.6 million for the six months, mainly reflecting lower values for stacked vessels. The company recorded a $7.6 million restructuring charge for workforce reductions and vessel stacking in Brazil and Australia; no related payments had been made by September 30. Further impairments could result if market conditions persist or worsen.
- Angola exposure: Six-month Angola vessel revenue was approximately $124 million, or 22% of consolidated vessel revenue. The company reported $346 million due from Sonatide and significant kwanza conversion, repatriation and devaluation risks. Its split-payment arrangement was due to expire in November 2015, and the company said an extension might not be possible. A possible 10% surcharge on certain foreign exchange transactions and uncertainty over local ownership requirements add risk.
- Tax and currency: Despite a pretax loss, the company recorded $21.7 million of income tax expense for the six months, reflecting taxes in jurisdictions based on revenue or deemed profit. Sonatide recorded approximately $23 million of foreign exchange losses; Tidewater recognized its 49% share, approximately $11 million, through equity in unconsolidated company results.
- Contingencies: A $64.3 million Venezuela arbitration award had not been collected or recognized as a gain; enforcement was stayed during annulment proceedings, and collection was uncertain. Tidewater was contesting Brazilian customs fines of approximately $39 million and pursuing approximately $16 million associated with Nigerian marketing-agent litigation. The company also disclosed possible duties, fines or interest relating to U.S. customs filings for repairs to U.S.-flagged vessels; the amount was not yet known.
- Other: The company settled or renegotiated certain delayed vessel-construction contracts, including cancellations and refund arrangements. Its previously recorded $283.7 million goodwill impairment had eliminated remaining goodwill. The interim financial statements received an accountant’s review, not an audit opinion.
Important facts for investors to verify
- Whether utilization, day rates and vessel operating margins continue to decline, and how quickly management can reduce costs or stack vessels.
- Collection and convertibility of the $346 million affiliate receivable, including the Angolan payment arrangements, currency exposure and regulatory developments.
- Liquidity and covenant capacity under the credit facility after vessel commitments, lease payments, debt service and dividends.
- Expected vessel deliveries, options and refunds under shipyard settlements, and whether additional impairments or construction disputes arise.
- Developments in the Venezuela award, Brazilian customs assessment, Nigerian receivable litigation and U.S. customs repair filings.