Tidewater Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021; financial statements are unaudited. Tidewater operates offshore support vessels for oil and gas activities and offshore wind projects. At quarter-end it owned 159 vessels: 145 active and 14 held for sale. Comparisons below are with Q2 2020 or the six months ended June 30, 2020, as indicated. Dollar amounts are in millions unless noted.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $90.0 | $102.3 | $173.5 | $218.7 |
| Operating loss | $(20.2) | $(117.7) | $(46.5) | $(136.3) |
| Net loss | $(29.6) | $(110.7) | $(65.2) | $(129.2) |
| Net loss per share | $(0.72) | $(2.74) | $(1.59) | $(3.21) |
- Q2 revenue fell 12%; first-half revenue declined 21%. The Q2 reported operating margin was approximately negative 22%, compared with negative 115% in Q2 2020; the prior-year result included large impairment charges.
- Vessel operating costs were $64.3 million in Q2 and $125.3 million in the first half. As a share of vessel revenue, they were 73% and 74%, respectively, versus 64% and 67% in the comparable 2020 periods.
- Operating cash flow was $10.6 million for the first half, compared with cash used of $12.8 million in 2020. Investing activities provided $27.7 million, mainly from vessel sales; financing activities used $39.6 million, including debt repayments.
- At June 30, cash and cash equivalents were $131.2 million and current restricted cash was $20.3 million; cash, cash equivalents and restricted cash totaled $153.9 million including $2.5 million of long-term restricted cash. Current assets were $355.2 million and current liabilities $162.7 million.
- Debt was approximately $156.0 million, net of discount, including $7.4 million due within one year. The $135.2 million senior secured notes mature in August 2022. Total equity was $759.7 million.
Material changes versus the prior comparable period
- Revenue decreased mainly because the fleet had fewer active vessels amid pandemic-related contract cancellations and subdued offshore demand. Q2 average active vessels declined by 20 year over year; active utilization improved to 78.4% from 74.5%, while average day rates eased to $10,435 from $10,799.
- The reduction in reported losses largely reflects the absence of 2020 charges: Q2 2020 included $55.5 million of long-lived asset impairment, $53.6 million of affiliate credit-loss impairment and a $2.0 million affiliate guarantee charge. The first half of 2020 included $65.7 million, $53.6 million and $2.0 million, respectively. 2021 included a $1.0 million credit from revaluation of affiliate credit losses.
- Interest expense declined to $3.9 million for Q2 and $8.5 million for the first half, attributed to debt repayments. Since July 1, 2020, the company had paid down $132.8 million of senior notes and Troms debt.
- Segment performance varied: Middle East/Asia Pacific revenue increased, while the Americas and West Africa declined in Q2. West Africa day rates and revenue remained under pressure; Europe/Mediterranean revenue improved in Q2 but fell for the first half.
Outlook, management commentary, risks and unusual items
- Management said oil prices had recovered to above $70 per barrel, but customer offshore activity had not materially increased. It cited lingering pandemic effects and customer shifts toward lower-impact energy plans as constraints on recovery. The filing provides no quantified revenue or earnings guidance.
- The company intends to refinance all or part of the senior secured notes during or before Q4 2021, but cautions that completion is not assured. A trailing-year interest coverage covenant waiver runs through December 31, 2021; minimum liquidity and other covenants remain applicable. Management said cash, operations and asset sales should meet 2021 debt obligations.
- COVID-19-related cancellations or delays reduced revenue by approximately 8% in Q1 2021 and 2% in Q2 2021; related additional operating costs were $3.9 million in the first half. Further cancellations or delays remain possible.
- Affiliate exposures remain important. The net amount due from Sonatide after offsets was approximately $5.2 million; management continues to assess collectability and foreign-exchange loss allocation. Nigerian joint venture DTDW had no employed vessel, insufficient projected funds and effectively ceased activity; Tidewater paid approximately $2.0 million under its share of a debt guarantee.
- Tax expense was $6.0 million in Q2 and $8.0 million in the first half despite consolidated pretax losses, largely because some foreign taxes are based on revenue or deemed profits and profits and losses cannot always be offset across jurisdictions.
- The first half included $29.6 million of proceeds from asset dispositions and a net $2.9 million loss on dispositions. One active vessel was sold for $11.4 million to an operator with an immediate family member of a director in senior management; proceeds were collected and a $4.3 million gain recognized.
- Management reported ordinary-course legal claims not expected to have a material adverse effect. It also cited foreign-currency, customer concentration, industry overcapacity, operational, regulatory, political and cybersecurity risks. Disclosure controls were concluded effective at quarter-end.
Important facts for investors to verify
- Progress, terms and covenant implications of the planned refinancing, including the upcoming 2022 note maturity and the covenant waiver expiration.
- Whether improved utilization and oil prices translate into stronger customer activity, vessel day rates and revenue, particularly in the Americas and West Africa.
- Cash availability after distinguishing unrestricted funds from restricted cash and considering international repatriation constraints.
- Recoverability of affiliate receivables, especially Sonatide balances and the potential effect of Angolan currency devaluation; status of DTDW obligations and guarantees.
- Ongoing asset-sale proceeds, fleet size and stacking levels, and the impact of maintenance and drydocking costs on cash generation.