SEACOR Marine Holdings Inc. annual report, FY2017

Business context and reporting period

SEACOR Marine Holdings Inc. filed this Form 10-K for the fiscal year ended December 31, 2017. It provides offshore marine transportation and support services to oil and gas operations, and operates in five regions. The company became an independent, publicly traded company on June 1, 2017, following its spin-off from SEACOR Holdings; year-over-year comparisons therefore span its transition to standalone operations.

Key financial and operating metrics

Revenue declined about 19% year over year. Operating margin was approximately negative 74% (2016: negative 81%); the reported operating loss includes a $23.5 million net expense for asset dispositions and impairments. Gross impairment charges were $27.5 million, compared with $119.7 million in 2016. Net income attributable to the company improved substantially but remained a loss; the 2017 result included a $74.4 million income tax benefit, including $43.7 million associated with the Tax Cuts and Jobs Act.

Fleet utilization was 54%, unchanged from 2016 and down from 69% in 2015. Average rate per day worked fell to $5,972 from $7,114. Excluding wind-farm vessels, average rates fell to $8,481 from $10,059 and utilization declined to 45% from 47%. The company reported positive operating cash flow, but it included $33.8 million of net income-tax refunds and $51.9 million of proceeds from sales of marketable securities; assess cash generation alongside these items and ongoing capital needs.

At year-end, total assets were $1.01 billion and stockholders’ equity attributable to SEACOR Marine was $508.2 million. Cash, restricted cash, marketable securities and construction reserve funds totaled $157.9 million, including $45.4 million of construction reserve funds intended for qualifying equipment purchases. Debt maturities included $22.9 million due in 2018 and $208.6 million in 2022. Certain debt facilities require at least $50 million of available liquidity.

Material changes versus the prior comparable period

• Revenue decreased by $41.9 million, reflecting persistently weak offshore activity, reduced rates and vessel utilization, and fleet changes.
• Operating loss narrowed by $46.5 million, primarily because asset impairment charges were lower than in 2016; day rates and utilization remained under pressure.
• Cash from operations improved by $63.9 million, from cash use in 2016 to cash generation in 2017. Tax refunds, marketable-security proceeds and working-capital movements contributed materially.
• Debt increased by approximately $76.7 million. Debt assumed with Falcon Global’s consolidation and debt associated with acquired Sea-Cat entities contributed to the change.
• Administrative and general expense rose to $56.2 million from $49.3 million. 2017 included $6.7 million of accelerated SEACOR Holdings share-award vesting costs and $3.4 million of reimbursed spin-off expenses.

Outlook, commentary, risks and unusual items

Management provided no specific revenue, earnings or utilization guidance in the supplied filing text. It described market conditions as difficult despite oil prices recovering to about $60 per barrel at year-end 2017. It cited potential support from deferred maintenance and investment by oil producers, while warning that weak exploration activity and industry vessel oversupply could continue to pressure rates, utilization, cash flow and asset values.

• At December 31, 2017, 37 of 141 owned and leased-in offshore support vessels were cold-stacked; another three owned vessels and one leased-in vessel had been retired and removed from service. Reactivation could require significant drydocking, maintenance and crew costs.
• Customer concentration is material: Perenco UK generated $26.8 million, or 15.2%, of 2017 revenue; the ten largest customers generated about 59%. Many charters can be cancelled on relatively short notice.
• Foreign operations generated 87% of 2017 revenue. The company faces foreign-exchange, political, regulatory, local-content and customer-payment risks, as well as exposure to energy-market cycles.
• Management recorded $27.5 million of tangible-asset impairment charges and an $8.3 million, net-of-tax, impairment of its Dynamic Offshore Drilling investment. Further impairments are possible if market conditions or cash-flow expectations weaken.
• Capital commitments at year-end were $66.7 million. Subsequent commitments included $27.5 million for a 50% interest in SEACOSCO, which contracted for eight new platform supply vessels, and $11.0 million for wind-farm vessels and vessel conversions.
• After year-end, the company completed a liftboat joint venture with Montco Offshore. The company expects to consolidate the venture at approximately 72% ownership. Its related $131.1 million credit facility is generally non-recourse to SEACOR Marine and its subsidiaries other than the borrowing subsidiary, subject to specified guarantees.
• Other notable exposures include $69.1 million of obligations guaranteed by SEACOR Holdings at year-end, U.K. multi-employer pension-fund deficits, environmental and spill liabilities, and debt covenant and refinancing risk.
• Management said disclosure controls and internal control over financial reporting were effective at year-end and that previously identified material weaknesses had been remediated. The 2017 auditor expressed an opinion on the financial statements, but was not engaged to audit internal control over financial reporting.

Most important facts for investors to verify

• Whether rates, utilization and offshore customer spending improve, particularly in the U.S. Gulf of Mexico and Middle East and Asia.
• How much of operating cash flow is repeatable after separating tax refunds, marketable-security proceeds and working-capital effects.
• Debt repayment capacity, covenant headroom, the $50 million minimum-liquidity requirement and the timing and funding of vessel commitments.
• The cost and timing of reactivating cold-stacked vessels, and the assumptions underlying vessel and joint-venture valuations and impairment tests.
• Execution, financing and risk allocation for SEACOSCO and the Montco liftboat joint venture, including the extent of any recourse or guarantees to SEACOR Marine.
• The ultimate tax effects of the 2017 tax law, and any material developments in customer receivables, pension obligations, environmental claims or spin-off-related guarantees.