SEACOR Marine Holdings Inc. annual report, FY2019

Business context and reporting period

SEACOR Marine Holdings Inc. filed this Form 10-K for the fiscal year ended December 31, 2019. It provides offshore marine transportation and support services to oil, gas and windfarm customers. At year-end, the company and its joint ventures operated 149 vessels. Unless noted, financial results below are for continuing operations; the North Sea standby safety business is reported as discontinued operations following its sale.

Financial performance and liquidity

In 2019, direct vessel profit was $77.8 million, or about 39% of revenue; GAAP operating margin was approximately negative 26%. Capital expenditures were $55.5 million, about $46.0 million more than operating cash flow. Investing activities provided $21.2 million, including vessel-sale proceeds and a decrease in construction reserve funds; financing activities used $25.9 million.

At December 31, cash and cash equivalents were $83.9 million, restricted cash $3.1 million, and construction reserve funds $12.9 million. The company reported $99.9 million in combined cash, restricted cash and construction reserve funds, though reserve funds are designated for equipment purchases and may be subject to taxes and penalties if used otherwise. Current assets were $158.5 million and current liabilities $94.8 million.

Debt was $398.1 million carrying value, net of discounts and issuance costs; contractual principal was $429.8 million. Contractual debt payments, including estimated interest, totaled $506.3 million. Principal maturities include $231.7 million in 2023 and $90.8 million in 2024. Certain facilities require at least $35.0 million of available liquidity; the company reported compliance with debt covenants at year-end and $2.5 million available under subsidiary credit facilities.

Changes versus the prior comparable period

• Revenue declined about 1% from 2018, while operating loss narrowed by $16.0 million. The continuing-operations loss widened by $5.8 million and the parent-attributable net loss widened by $15.2 million.
• Fleet utilization rose to 67% from 59%; average daily rate rose to $7,038 from $6,927. Excluding crew-transfer vessels, utilization increased to 60% from 52%.
• Operating cash flow improved by $68.8 million, from a $59.3 million use to $9.4 million provided, driven in part by working-capital movements. The filing does not establish that this improvement represents a recurring trend.
• Interest expense rose to $30.1 million from $27.4 million. Equity losses from 50%-or-less-owned companies increased to $14.3 million from $3.6 million.
• The company sold its North Sea standby safety business for approximately $27.4 million and recorded a $9.1 million disposal loss. Additional consideration of up to £4 million may be earned if revenue targets are met in 2020 and 2021.

Fourth-quarter 2019

Unaudited Q4 revenue was $49.1 million, operating loss $10.5 million, continuing-operations loss $19.2 million, and loss attributable to SEACOR Marine $20.5 million. Continuing-operations loss per share was $0.74; total loss per share, including discontinued operations, was $0.86.

Outlook, commentary, risks and unusual items

• Management described offshore markets as difficult, citing subdued oil and gas exploration, low commodity prices and excess vessel supply. It identified deferred maintenance and capital spending as potential sources of future demand, but provided no specific revenue or earnings guidance.
• A cost-reduction and restructuring program begun in Q3 2019 was expected to conclude by Q2 2020. The company targeted at least $8.0 million of annualized recurring savings after completion; it recorded $3.7 million of 2019 restructuring charges and estimated a further $2.0 million for 2020.
• Year-end capital commitments were $35.9 million for four supply vessels, one crew-transfer vessel and other equipment, expected for delivery in 2020. An additional $30.2 million of commitments for three fast support vessels was indefinitely deferred.
• The company said it believed available liquidity sources would meet obligations for the next 12 months. This assessment is exposed to operating cash generation, access to financing, asset sales, debt service and covenant requirements.
• Subsequent to year-end, the company amended the Falcon Global facility, extending the start of monthly term-loan repayments from March 2020 to March 2021 and extending its limited guaranty. Principal outstanding under that facility was $117.3 million on February 7, 2020.
• The filing reported COVID-19-related delays to new-vessel deliveries and crew preparation, with timing uncertain. Other notable exposures include further vessel or investment impairments, foreign-currency movements, customer cancellations and concentration, environmental and spill liabilities, foreign-operation risks, and potential future deficits in U.K. multi-employer pension plans.
• Fourteen of 98 owned and leased-in vessels were cold-stacked at year-end, and four owned vessels were retired. The company recorded $12.0 million of vessel impairment charges in 2019. Future impairments depend on uncertain utilization, day rates and reactivation costs.

Important facts for investors to verify

• Reconcile customer concentration disclosures: the filing reports the ten largest customers at 44% of continuing-operations revenue in the financial-statement notes, while another business section cites approximately 52% of operating revenue. Seacor Marine Arabia accounted for 15% of continuing-operations revenue.
• Review debt maturity, covenant and refinancing risks, particularly the large 2023–2024 maturities, the minimum-liquidity test and any subsequent amendments or waivers.
• Test whether operating cash flow can sustain committed capital spending and debt service without relying on asset sales, reserve-fund withdrawals or additional financing.
• Track delivery timing and total costs for committed vessels, the deferred fast-support-vessel orders, and whether the targeted recurring savings are achieved.
• Assess the valuation assumptions behind vessel and joint-venture investments, including the potential for additional impairment charges and the extent of support required by investees.
• Confirm the basis for reported customer concentration and the impact of the standby safety disposal on period-to-period comparisons; verify whether the contingent sale consideration is ultimately earned.