Tidewater Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Tidewater provides offshore support vessels and related services to the oil and gas industry. Financial amounts below are in U.S. dollars; statement amounts are generally shown in millions.
Financial performance and position
- Revenue: $116.4 million, down 4.7% from $122.1 million in Q1 2019. Vessel revenue was $112.0 million. The filing attributes the decline primarily to weaker West Africa activity and 15 fewer average active vessels company-wide.
- Profit and margins: Operating loss was $18.5 million versus $9.6 million. Net loss was $18.5 million versus $21.3 million; net loss attributable to Tidewater was $18.4 million versus $21.7 million. Basic and diluted loss per share improved to $0.46 from $0.58. Operating margin was approximately negative 15.9%, compared with negative 7.9%.
- Operating costs: Vessel operating costs decreased to $78.8 million from $82.2 million. General and administrative costs declined to $21.4 million from $27.1 million. Depreciation and amortization rose to $27.1 million from $22.9 million.
- Cash flow: Cash used in operating activities was $27.5 million, compared with $3.2 million used in Q1 2019. The 2020 outflow included $24.9 million of deferred drydocking and survey payments. Investing activities provided $7.0 million, mainly from vessel sales; financing activities used $3.1 million. Cash, cash equivalents and restricted cash totaled $204.0 million at quarter-end, down from $227.6 million at year-end 2019.
- Liquidity and debt: Current assets were $518.2 million and current liabilities were $189.6 million. The company reported no revolving credit facility. Debt principal outstanding was $290.2 million before net debt discounts/premiums and current classification; reported current debt was $9.1 million and long-term debt was $273.0 million. The $224.8 million 8.00% senior secured notes mature in August 2022. Management said it considered cash and expected operating cash flow sufficient for liquidity needs.
- Balance sheet: Total assets were $1.55 billion and total equity was $998.9 million at March 31, 2020. Assets held for sale were $26.1 million. Due from affiliates was $128.2 million.
Material changes versus Q1 2019
- Worldwide active utilization slipped to 78.5% from 80.6%, while average day rates increased to $10,267 from $9,806. Average active vessels declined to 153 from 168.
- West Africa revenue fell 27% to $25.8 million; the segment moved from $8.1 million operating profit to a $4.9 million loss. Europe/Mediterranean moved from a $3.3 million loss to $1.5 million profit, and Middle East/Asia Pacific revenue rose 21% to $24.8 million. Americas revenue declined 10% to $31.9 million.
- Operating loss included a $10.2 million impairment charge on vessels held for sale, partly offset by $5.3 million of net gains on asset dispositions. In Q1 2019, disposition gains were $1.3 million and no comparable impairment was recorded.
- The income tax line was a $5.2 million benefit versus $5.8 million expense in Q1 2019. The 2020 benefit included $6.9 million related to CARES Act net operating loss carrybacks.
Outlook, risks and unusual items
- Management expects the COVID-19 pandemic, reduced oil demand, oil-price volatility and customer spending cuts to negatively affect 2020 operations and business. It said the potential financial impact could be material and long-lasting but could not be reasonably estimated.
- Contract cancellations or delays affected approximately 20% of 2020 contracts with durations exceeding one month; such contracts typically represent over 90% of contractual revenue. Further cancellations or delays were possible. The company postponed drydocks expected to cost approximately $20 million in 2020 and planned to reduce costs and idle vessels associated with affected contracts.
- COVID-19-related travel restrictions created crew-change challenges; outbreaks could disrupt staffing or prevent vessels from operating. Shipyard lockdowns could delay vessels returning from drydock.
- The company’s fleet impairment review did not identify an asset group requiring impairment under its cash-flow test, but one approximately $40 million asset group had undiscounted projected cash flows within 10% of its carrying value. Further deterioration could lead to future impairment.
- Amounts due from Sonatide, the Angolan joint venture, were $95.0 million gross and approximately $64.2 million net of amounts due to Sonatide. Tidewater is assessing potential impairment amid kwanza devaluation and discussions over sharing related losses. Sonangol had indicated an intention to seek to divest from the venture.
- On April 13, 2020, Tidewater adopted a tax benefits preservation plan intended to protect tax attributes; among other provisions, it generally restricts unapproved acquisitions reaching 4.99% ownership.
- Management stated ordinary-course legal proceedings were not expected to have a material adverse effect. The filing also identifies foreign-exchange, customer demand, industry overcapacity, debt covenant and international operating risks.
Important facts for investors to verify
- How quickly COVID-19-related contract cancellations, deferrals and oil-market weakness affect vessel utilization, day rates and cash generation.
- Whether the company can maintain liquidity while operating cash flow is negative, given no revolving credit facility and the 2022 secured-note maturity.
- Collection and recoverability of the Sonatide receivable, including foreign-exchange exposure and the joint-venture partner’s proposed divestment.
- Whether the identified vessel asset group or other fleet assets require further impairment if projected cash flows or resale values deteriorate.
- Execution and cash effects of postponed drydocks, vessel stacking and planned cost reductions.