Tidewater Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Tidewater operates a global fleet of offshore support vessels serving offshore oil and gas activity and offshore wind projects. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Financial performance and liquidity
| Metric | Q2 2023 | Comparable period |
|---|---|---|
| Total revenue | $215.0 million | $163.4 million in Q2 2022 |
| Operating income | $38.9 million; 18.1% operating margin | $1.8 million in Q2 2022 |
| Net income (loss) | $21.9 million; $22.6 million attributable to Tidewater | $(25.0) million in Q2 2022 |
| Diluted EPS | $0.43 | $(0.61) in Q2 2022 |
- For the first six months, revenue was $408.1 million, operating income was $63.4 million (15.5% margin), and net income attributable to Tidewater was $33.3 million, versus a $37.7 million loss in the first half of 2022. Diluted EPS was $0.64 versus $(0.91).
- Q2 revenue rose 11.3% from Q1 2023, primarily as average day rates increased 9.7% to $16,042 per day. Active utilization eased to 79.4% from 80.6%, largely because of drydock activity.
- Six-month operating cash flow was $22.5 million, compared with cash used of $33.2 million a year earlier. Cash flow reflected $52.7 million of deferred drydock and survey spending and $21.2 million of cash use from combined operating asset and liability changes. Investing cash use was $8.8 million; financing cash use was $6.9 million.
- At June 30, cash, cash equivalents and restricted cash totaled $174.7 million, including long-term restricted cash. Working capital was $204.0 million. The company reported $25 million of undrawn revolving capacity.
- At June 30, reported debt included $175.0 million of 8.50% secured notes due 2026 and $12.2 million of supplier financing; debt carrying value was approximately $182.0 million after discounts and current maturities. The $325 million term loan and $250 million unsecured notes were arranged for the subsequent Solstad acquisition and were not drawn/issued on the June 30 balance sheet.
- Current assets were $410.5 million and current liabilities $206.4 million. Total assets were $1.34 billion and stockholders’ equity was $893.1 million.
Changes versus prior periods
- Compared with Q2 2022, revenue increased 31.5%; the improvement reflected higher day rates and the larger fleet following the 2022 Swire Pacific Offshore (SPO) acquisition. For the first half, revenue increased 51.6%; SPO vessels contributed $123.2 million, compared with $43.2 million in the first half of 2022.
- Worldwide average day rates for the first half increased 30.6% to $15,334. Active utilization declined to 80.0% from 82.5%, attributed mainly to heavier drydock activity and vessel movements between segments.
- Operating results improved substantially, while vessel operating costs and depreciation also rose with the expanded fleet and higher activity. Six-month general and administrative expense increased to $49.6 million from $46.0 million.
- Q2 included a $1.8 million pension settlement gain and $3.8 million of foreign exchange losses. Six-month asset sales generated a $3.6 million net gain. Q2 2022 included a $14.2 million warrant valuation loss, which did not recur in 2023.
Outlook, transactions and risks
- Management expects offshore vessel supply and demand to tighten through the remainder of 2023 and into 2024, citing recovering hydrocarbon demand, proactive OPEC+ supply management and a diminishing vessel supply. It reports that the fleet is close to full utilization and day rates have risen, and sees fundamentals supporting a multi-year increase in offshore upstream spending. This is qualitative outlook, not quantified financial guidance.
- Management cautions that energy prices are volatile and that geopolitical conflict, inflation, interest-rate actions and uncertainty in major economies could affect the market and customer spending.
- On July 5, 2023, after quarter-end, Tidewater completed the acquisition of 37 Solstad platform supply vessels and related interests for approximately $580 million in cash, funded using cash on hand and proceeds from a $325 million secured term loan and $250 million of 10.375% senior unsecured notes. The company expects acquired-vessel cash flows to service the new debt.
- Also after quarter-end, warrant exercises generated $111.5 million in cash and resulted in issuance of approximately 1.9 million shares. This is subsequent-period financing and share dilution, not June 30 cash or share count.
- The term loan and unsecured notes impose liquidity and equity covenants, along with other restrictions; the term loan also has an interest-coverage covenant. Tidewater reported compliance with applicable covenants. Management warns that restrictive debt terms could limit financing, acquisitions, distributions and operational flexibility.
- Other disclosed exposures include foreign-currency losses (the company generally does not hedge routine foreign-currency exposure), customer credit risk, foreign tax and uncertain tax positions, climate and regulatory change, vessel maintenance and personnel costs, and geopolitical and operating risks. The company says ordinary-course legal matters are not expected to materially affect its financial position, results or cash flows.
Important facts for investors to verify
- Solstad acquisition closing adjustments, integration, vessel utilization and realized rates, and whether acquired-vessel cash flows cover scheduled debt service.
- Post-acquisition total debt, interest expense, amortization and covenant headroom, including the effects of the 10.375% unsecured notes and secured term loan.
- Whether higher day rates can continue to offset operating, crew, maintenance and drydock costs; monitor active utilization and regional segment profitability.
- Cash conversion and working-capital trends, especially receivables, credit-loss allowances and deferred drydock spending; assess cash availability given foreign-cash restrictions and subsequent acquisition funding.
- Share dilution and proceeds from July warrant exercises, as well as remaining warrant terms and the updated common-share count.