SEACOR Marine Holdings Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017. Financial statements are unaudited. Unless noted otherwise, amounts are in U.S. dollars; financial figures below are in millions.
Business context and reporting period
SEACOR Marine operates a global fleet of offshore support and specialty vessels serving the oil and gas industry. It reported 183 vessels at quarter-end across five regions. The company was spun off from SEACOR Holdings on June 1, 2017; the 2016 comparisons predate the spin-off and include results prepared while SEACOR Marine was part of its former parent.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Operating revenue | $47.8 | $54.1 | $124.4 | $171.3 |
| Operating loss | $(29.1) | $(41.1) | $(92.5) | $(92.2) |
| Net loss | $(22.4) | $(28.0) | $(66.4) | $(71.4) |
| Net loss attributable to SEACOR Marine | $(20.5) | $(27.9) | $(61.9) | $(70.5) |
| Basic loss per share | $(1.17) | $(1.58) | $(3.51) | $(3.99) |
- Margins: Operating costs, administrative and general expenses, and depreciation exceeded revenue in both periods; the filing does not present an adjusted operating margin. The operating loss was narrower in Q3, but approximately unchanged for the nine-month period.
- Cash flow: Operating activities provided $35.1 million in the first nine months, versus $16.5 million used in 2016. Investing activities used $15.7 million and financing activities used $8.1 million. Cash and cash equivalents increased $13.0 million to $130.4 million.
- Liquidity: At September 30, cash, restricted cash, and construction reserve funds totaled $177.4 million; marketable securities were zero. Current assets were $202.2 million and current liabilities $109.2 million.
- Debt: Debt carrying value, net of discounts and issuance costs, was $316.7 million. Contractual maturities totaled $351.1 million. The company also reported a $14.1 million conversion-option liability on its 3.75% convertible notes.
- Capital needs: Unfunded capital commitments were $68.9 million, primarily for vessels, with $40.9 million expected in 2018. The company reported $4.7 million of additional borrowing capacity under subsidiary facilities.
Material changes versus prior comparable periods
- Revenue fell 11.7% in Q3 and 27.4% for the first nine months. Management attributed pressure principally to weak offshore activity, lower rates or utilization in several markets, cold-stacked vessels, fleet changes, and, in some regions, currency effects.
- Q3 operating loss improved by $11.9 million year over year, mainly as the net loss on asset dispositions and impairments was smaller. Nine-month operating loss was broadly flat despite the substantial revenue decline.
- Q3 net loss attributable to SEACOR Marine improved by $7.5 million year over year. For the nine months, it improved by $8.6 million.
- Cash from operations improved substantially, but included $51.9 million of proceeds from sales of marketable securities presented within operating cash flows. Marketable securities declined from $40.1 million at year-end 2016 to zero.
- Administrative and general expense rose $8.9 million for the nine months, mainly reflecting one-time spin-off-related costs, including $6.7 million for accelerated share-award vesting and $3.4 million of reimbursed spin-off expenses.
Outlook, management commentary, risks, and unusual items
- Management described offshore market conditions as difficult: the oil-price recovery had not produced an overall recovery in offshore activity, while new vessel deliveries contributed to industry oversupply. It warned that continued weak customer activity and fleet growth could materially harm results, financial position, and cash flows.
- No quantitative earnings or revenue guidance is provided. Management said cash, construction reserve funds, operating cash flow, available subsidiary facilities, and potential access to capital markets should provide sufficient liquidity for obligations and planned capital spending; access to markets may be constrained.
- The company recognized $15.7 million of vessel-related impairment charges for the nine months. It also recorded an $8.3 million, net-of-tax impairment of its Dynamic Offshore investment after that venture failed to win a charter renewal; its existing charter ends in February 2018.
- Q3 included a $13.0 million net derivative gain, primarily from a decline in the fair value of the convertible-note conversion-option liability. Nine-month results also included $10.9 million of marketable-security gains. These items affect comparisons and are not equivalent to vessel operating performance.
- Falcon Global, consolidated from March 31, had $56.4 million of principal debt outstanding at September 30, fully guaranteed by SEACOR Marine. A November 3 amendment added financial covenants for Falcon Global and the guarantor; the filing says the company expected to meet its covenants for the next twelve months.
- OSV Partners was out of compliance with debt-service coverage and leverage covenants and had received lender waivers through September 30, 2017. The company held $30.7 million of remaining principal exposure at the venture, with no recourse to SEACOR Marine under the facility; it also invested $2.3 million in the venture during the nine months.
- Disclosure controls were judged ineffective due to material weaknesses in manual journal-entry controls and impairment valuation controls. Management was implementing remediation; the weaknesses had not yet been considered remediated.
- Other disclosed risks include customer charter suspensions or non-renewals, oil and gas industry cyclicality, foreign-market exposure, weather, regulation, and vessel operating and safety risks. The company reported ordinary-course litigation and said it did not expect related changes in estimates to have a material effect.
Most important facts for investors to verify
- Whether operating cash flow is sustainable, given the $51.9 million of marketable-security sale proceeds included in operating cash flows and the absence of marketable securities at quarter-end.
- Current covenant compliance and liquidity under the Falcon Global amendment, and the status of OSV Partners’ covenant waivers after September 30.
- Charter renewal prospects for Dynamic Offshore before its existing contract ends in February 2018, and any further investment impairment risk.
- The timing, funding, and expected returns on the $68.9 million of vessel commitments, alongside debt maturities and weak market utilization.
- Progress in remediating internal-control weaknesses and the reliability of impairment and fair-value estimates.
- The filing gives inconsistent capital-commitment vessel counts: the note lists two wind-farm utility vessels, while MD&A lists one. Verify the definitive commitment schedule.
- The cover page marks “No” for having filed all required reports during the preceding 12 months; verify the filing-status disclosure and its implications.