SEACOR Marine Holdings Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; dollar amounts below are in millions unless stated otherwise. SEACOR Marine provides offshore support-vessel and marine services globally, operating 60 vessels across four regions at quarter-end.
Financial performance and liquidity
- Q3 revenue: $59.8, up 37% from $43.7 a year earlier. Time-charter rates averaged $13,340 per day and fleet utilization was 79%, versus $12,120 and 68% in Q3 2021.
- Q3 operating results: Operating loss was $10.9, compared with a $14.3 loss. Direct vessel profit, the company’s segment measure, increased to $15.8 from $10.2. Operating margin was approximately (18.2%), versus (32.7%).
- Q3 net results: Net loss was $24.4, or $0.91 per share, versus a $5.8 loss, or $0.23 per share. The larger net loss included $8.4 of income tax expense and lower equity earnings.
- Nine-month results: Revenue rose 30% to $159.4, but operating loss widened to $43.5 from $22.5. Net loss was $58.3, compared with net income of $49.0 in 2021; the prior year included a $62.0 debt-extinguishment gain and $22.9 of discontinued-operations income. 2022 operating margin was approximately (27.3%), versus (18.3%).
- Cash flow: Operating activities used $12.6 for the nine months, versus $4.9 provided in 2021. Investing provided $52.9, chiefly including $66.0 in joint-venture sale proceeds; financing used $30.8, mainly for debt payments. Cash, cash equivalents and restricted cash ended at $50.8, up from $41.2 at year-end 2021.
- Balance sheet: Total assets were $843.0 and equity $389.0. Current assets of $148.9 exceeded current liabilities of $118.3 (current ratio approximately 1.26). Cash and cash equivalents were $47.5, with $3.3 restricted.
- Debt: Debt principal totaled $371.4 at September 30, down from $401.0 at year-end; carrying value, net of discount and issuance costs, was $340.1. The company reported compliance with debt covenants. Its SMFH covenant calculation used cash and cash equivalents of $71.3, including specified accounts receivable, against a minimum requirement of the greater of $35.0 or 7.5% of total debt.
Material changes and transactions
- Q3 revenue growth reflected higher utilization and rates, fleet repositioning, and fleet additions. Higher operating costs—including drydocking, personnel, and repairs—partly offset improved vessel activity.
- On September 29, the company sold its interests in MexMar and OVH for $66.0 cash, exchanged an AHTS for full ownership of the SEACOR Marlin PSV, and received a hybrid battery system in repayment of a venture loan. It recognized an approximately $0.8 gain on the sale-related transactions.
- The company acquired MexMar’s loan and, after an approximately $8.8 repayment, held a $20.0 note receivable secured by mortgages on 13 vessels. MexMar is scheduled to repay it in four quarterly $5.0 installments by September 30, 2023.
- On October 5, after quarter-end, the company exchanged all $125.0 of its 2023 convertible notes for $90.0 of senior unsecured PIK-toggle notes and $35.0 of new convertible notes, both due July 2026. The new notes carry 8.0% cash or 9.5% hybrid interest and 4.25% interest, respectively; the convertible notes have an $11.75 conversion price. Pro forma 2023 debt maturities fell from $196.1 to $71.1, while 2026 maturities increased to $156.3.
- A September amendment extended $54.9 of the SMFH facility to March 2026; a separate $19.8 tranche remains due September 2023. Another facility’s maturity was extended to July 2024, with its margin increased from 3.75% to 4.75% over SOFR.
Outlook, risks and unusual items
- Management said improving oil and gas prices had supported stronger utilization, day rates and customer charter inquiries, and cited potential demand from deferred offshore maintenance and offshore wind. It gave no numerical earnings or revenue guidance.
- Management highlighted exposure to volatile energy markets, customer spending, vessel oversupply, reactivation costs, inflation, foreign exchange, and the possibility that weaker market conditions could trigger further asset impairments. Two of 58 owned or leased-in in-service vessels were cold-stacked.
- The company recorded $3.4 of impairment charges in the nine months, including charges for a leased-in AHTS not expected to return to service and equipment held for sale. Management warned that uncertain utilization, day rates and reactivation costs could lead to additional impairments.
- The 2021 SEACOR Power capsizing resulted in fatalities and the vessel’s constructive total loss. The NTSB adopted its report on October 18, 2022; a public report was expected approximately four to six weeks later, while Coast Guard report timing was uncertain. Nearly all claims for which the company has financial exposure had been resolved; remaining claims were described as subject to contractual indemnity or insurance. Salvage continued, with costs expected to be covered by insurance.
- A Brazilian tax-deficiency claim has a stated potential levy of R$20.1 million (approximately $3.7 million at the filing’s exchange rate); an administrative appeal remained pending. The filing also notes potential additional funding obligations relating to underfunded UK multi-employer pension plans.
- Management stated that available cash, operating cash flow, the MexMar note collections, subsidiary borrowing capacity and potential capital-market access were expected to meet short- to medium-term needs. It cautioned that market conditions could limit financing access. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether fleet utilization and charter rates continue to improve, particularly in the U.S. Gulf and Middle East and Asia, and whether cost increases absorb the gains.
- Collection timing and credit quality of the $20.0 MexMar note, including the four scheduled $5.0 repayments.
- Post-exchange debt terms, covenant compliance, interest costs and the concentration of maturities in 2026.
- Developments in the SEACOR Power investigations, litigation, insurance coverage and salvage costs.
- Resolution and potential exposure from the Brazilian tax appeal and UK pension matters, as well as further impairment risk.