SEACOR Marine Holdings Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unaudited results. The company provides global offshore marine transportation and support services; its 179-vessel fleet serves oil and gas customers across five geographic regions.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $60.7m | $42.3m | $112.4m | $76.6m |
| Operating loss | $(21.0)m | $(44.8)m | $(45.4)m | $(63.4)m |
| Net loss attributable to SEACOR Marine | $(25.0)m | $(34.0)m | $(53.9)m | $(41.4)m |
| Loss per share | $(1.25) | $(1.93) | $(3.00) | $(2.34) |
| Operating margin | (34.6)% | (105.9)% | (40.4)% | (82.7)% |
| Operating cash flow | Not separately provided for the quarter | $(33.7)m | $53.7m |
- Q2 revenue rose about 43% year over year; first-half revenue rose about 47%. Management attributed growth principally to fleet additions, including liftboats, as well as higher utilization and improved day rates in some regions.
- Operating losses narrowed, helped by higher revenue and lower administrative and general expense. Q2 net loss also narrowed, but first-half net loss attributable to the company widened, reflecting higher interest and derivative losses and lower equity earnings; the prior-year period included $11.6m of marketable-security gains.
- Fleet utilization was 62% in Q2 versus 56% a year earlier; average daily rate was $7,324 versus $5,649. Excluding wind-farm vessels, utilization was 58% versus 43%, and average rate was $9,742 versus $8,431.
- First-half investing cash outflow was $30.3m, including $25.6m invested in SEACOSCO; financing provided $39.9m. Cash, cash equivalents and restricted cash fell $24.4m to $88.2m.
- At June 30, cash, restricted cash, marketable securities and construction reserve funds totaled $126.3m; $38.2m of construction reserves were non-current and intended for equipment purchases. The company also reported $7.3m available under subsidiary credit facilities. Current assets were $169.6m and current liabilities $103.8m.
- Long-term debt, net of discount and issuance costs, was $371.8m, including $22.9m current. Contractual debt maturities totaled $411.7m, including $240.4m after 2022. Debt fair value was estimated at $357.7m.
Material changes and significant transactions
- In February, SEACOR formed and consolidated Falcon Global Holdings (FGH) with Montco Offshore. The venture combines 15 SEACOR and six Montco liftboats; SEACOR owns 72%. FGH entered into $131.1m of secured credit facilities, generally non-recourse to SEACOR Marine except for specified guarantees. SEACOR recorded a $10m debt discount.
- In April, a private placement of common stock and warrants generated approximately $56.9m gross proceeds. In May, Carlyle exchanged $50m principal amount of convertible notes for long-term warrants. The remaining $125m notes’ coupon increased from 3.75% to 4.25%, and maturity was extended to December 2023. The conversion-option liability generated a $15.1m first-half loss; total derivative losses were $14.2m.
- SEACOSCO, a 50%-owned joint venture, contracted for eight new platform supply vessels costing about $161.1m. SEACOR’s committed investment is approximately $27.5m; it contributed $25.6m during the first half. Seven vessels had been delivered by June 30, with one expected in 2019.
- On July 5, 2018, the company acquired two companies owning contracted AHTS vessels in exchange for assuming $11m debt.
Outlook, risks and unusual items
- Management described market conditions as difficult despite an apparent early recovery and oil prices around $74 per barrel at June 30. It warned that weak offshore exploration and an oversupply of reactivated and newly built vessels could pressure demand, rates, utilization, earnings and cash flows.
- No specific earnings or revenue guidance was provided. Management said liquidity sources—including cash, construction reserves, operating cash flow, subsidiary facilities and potential capital-market access—were expected to cover working capital, capital spending and debt service, while noting that market conditions could constrain financing access.
- Unfunded capital commitments were $43.3m: $12.7m due in the remainder of 2018, $21.6m in 2019 and $9.0m in 2020. A further $20.8m of orders for two fast-support vessels was indefinitely deferred.
- First-half impairment charges included $3.0m for vessels, primarily four anchor-handling vessels removed from service, and $1.2m for an equity-method investment. The company also recorded a $1.19m second-quarter pension-deficit expense for additional Merchant Navy Ratings Pension Fund contributions, payable in four annual installments beginning October 2018.
- SEACOR Holdings guaranteed $51.6m of company obligations and charged a 0.5% fee on guaranteed amounts. Other disclosed exposures include $7.9m of letters of credit securing debt, $1.7m for labor and performance guarantees, and a $0.5m charter-receivable guarantee. Management did not expect ordinary-course litigation changes to have a material effect.
- Key risks include oil and gas market cyclicality, vessel oversupply, customer suspensions or cancellations, foreign-market and currency exposure, interest rates, regulation and Jones Act restrictions. The filing reports no material change in risk factors or market-risk exposure during the period.
Most important facts for investors to verify
- Whether improved revenue, rates and utilization persist and translate into positive operating cash flow; first-half operating cash flow was negative $33.7m.
- Ability to meet debt service and the $43.3m committed capital program without relying on uncertain capital-market access; distinguish usable cash from construction reserves.
- FGH’s operating performance, debt terms and limited-recourse protections, alongside SEACOR’s remaining guarantees and funding obligations.
- SEACOSCO vessel delivery, storage, financing and deployment plans, and the potential returns on SEACOR’s investment.
- Potential dilution and Jones Act ownership implications from the stock placement and warrants; common shares outstanding were 20,441,590 as of August 9, 2018.
- Further vessel or investment impairments, pension contributions, and volatility in the convertible-note conversion liability and derivative results.