SEACOR Marine Holdings Inc. — Q2 2019 Form 10-Q
Business and period: Global provider of offshore marine transportation and support services to the oil, gas and wind industries. The filing reports the three and six months ended June 30, 2019, with comparisons to 2018. Its fleet and joint ventures operated 177 vessels across five regions.
Financial performance and liquidity
- Q2 revenue: $64.3 million, up 6.0% from $60.7 million. Operating loss narrowed to $16.5 million from $21.0 million, but net loss attributable to SEACOR Marine widened to $28.4 million from $25.0 million; loss per share was $1.21 versus $1.19.
- First-half revenue and results: Revenue was $120.6 million, up 7.3%. Operating loss improved to $37.5 million from $45.4 million. Net loss attributable to SEACOR Marine was nearly unchanged at $53.9 million versus $53.9 million; loss per share improved to $2.32 from $2.79.
- Margins and fleet activity: Q2 operating loss was 25.6% of revenue, compared with 34.6% in Q2 2018. Overall fleet utilization increased to 72% from 62% in Q2; average daily rate decreased to $7,122 from $7,324. First-half utilization rose to 66% from 58%.
- Cash flow: First-half operating cash flow was positive $0.4 million versus negative $33.7 million. Investing used $26.1 million, including $41.2 million of capital expenditures; financing used $11.4 million. Cash, cash equivalents and restricted cash declined $35.8 million to $61.0 million.
- Balance sheet and debt: At June 30, cash and cash equivalents were $58.8 million; current assets were $147.7 million and current liabilities $119.8 million. Debt totaled $434.7 million before discounts and issuance costs, or $399.7 million net; operating lease liabilities totaled $33.3 million. Management reported compliance with debt covenants at quarter-end.
- Liquidity and obligations: Cash, restricted cash and construction reserve funds totaled $81.1 million, with $2.5 million available under subsidiary credit facilities. Unfunded capital commitments were $58.9 million, mainly for vessels ($23.6 million due in the remainder of 2019 and $35.3 million in 2020); an additional $20.6 million of FSV orders was indefinitely deferred. Debt maturities were concentrated in years after 2022 ($324.1 million).
Material changes and unusual items
- Revenue gains included liftboat additions and improved utilization in some regions; results also reflected vessel repositioning, disposals and uneven regional performance. Q2 direct vessel profit was $20.8 million, versus $14.7 million a year earlier.
- First-half impairment charges were $5.9 million, primarily on AHTS vessels and FSVs, compared with $3.0 million in first-half 2018. Vessel sales generated reported gains, partly offsetting impairments.
- Equity-method losses increased to $10.4 million for the first half from $0.5 million. Mexmar Offshore International losses exceeded SEACOR Marine’s initial $4.9 million investment, which was reduced to zero on its books.
- Adoption of lease accounting standard ASC 842 in January added right-of-use assets and lease liabilities; the filing reports a $10.4 million net-of-tax increase to opening retained earnings, including recognition of previously deferred sale-leaseback gains.
Outlook, risks and contingencies
- Management described offshore market conditions as difficult despite a recovery from the 2016 oil-price lows. It warned that weak exploration and drilling activity, vessel reactivations and new vessel deliveries could sustain oversupply and materially harm results, financial position and cash flows. No quantified general earnings or revenue guidance is provided.
- In Q3 2019, after the reporting period, the company began cost-reduction initiatives covering workforce, management structure, facilities and operations. It expects completion by Q2 2020, annualized recurring savings of at least $8.0 million, and one-time restructuring charges in Q3 2019.
- SEACOSCO was in default on deferred-payment agreements for two PSVs. A May 31 MOU paused lender action on existing defaults until August 31, 2019, and contemplated potential 15% shareholder loans and a possible acquisition of the partners’ 50% interest; discussions remained ongoing at filing. The outcome and potential funding requirements are uncertain.
- An August 6, 2019 amendment to a $130 million credit facility modified certain covenants and vessel collateral arrangements. SEACOR Holdings had guaranteed $32.1 million of company obligations. Management said ordinary-course litigation reserves were recorded and did not expect changes to have a material effect.
Important facts for investors to verify
- Progress and terms of the SEACOSCO default resolution, any capital contributions or shareholder loans, and the status of the MOU after August 31, 2019.
- Actual restructuring charges, timing and realization of the stated $8.0 million annualized savings.
- Cash generation relative to vessel capital commitments, debt maturities and the company’s available liquidity.
- Vessel utilization, day rates and oversupply trends by region, including whether improved fleet-wide utilization translates into sustained profitability.
- Further losses, funding needs or impairments involving equity-method ventures, particularly Mexmar and SEACOSCO.