Business context and reporting period
SEACOR Marine Holdings Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2017, comparing results with the first quarter of 2016. The company provides global marine transportation and support services to offshore oil and gas operations; its fleet comprised 186 vessels across five geographic regions. The company completed its spin-off from SEACOR Holdings on June 1, 2017, after the quarter, and began operating as an independent, publicly traded company.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $34.3 million | $59.9 million; down 43% |
| Operating loss | $18.6 million | $16.6 million loss |
| Net loss attributable to SEACOR Marine | $7.4 million; $0.42 per share | $12.0 million; $0.68 per share |
| Operating cash flow | $65.3 million | $0.9 million |
| Cash and cash equivalents | $184.2 million at March 31 | $117.3 million at December 31, 2016 |
| Debt, net of discount and issuance costs | $301.0 million at March 31 | Not directly comparable; $238.2 million at December 31 |
Operating expenses were $57.7 million, including $33.4 million of operating costs, $11.8 million of administrative and general expense, and $12.5 million of depreciation and amortization. The reported operating loss included $4.8 million of gains on asset dispositions; excluding gains or losses on dispositions and impairments, operating loss as a percentage of revenue was 68%, versus 27% a year earlier. Net loss improved despite the weaker operating result, primarily because of $11.7 million in marketable-security gains, compared with $3.6 million of losses in Q1 2016.
Cash flow from operations included $51.9 million of proceeds from marketable-security sales and changes in operating assets and liabilities, including settlements with SEACOR Holdings. It therefore substantially exceeded operating performance. Investing cash outflow was $0.9 million, and financing cash inflow was $2.2 million. At quarter-end, cash, restricted cash, marketable securities and construction reserve funds totaled $270.3 million; $83.5 million of construction reserves were classified as non-current. Current assets were $253.0 million and current liabilities $100.9 million.
Material changes versus the prior period
- Revenue fell $25.6 million amid weak offshore markets, reduced vessel utilization and lower rates. Overall fleet utilization declined to 46% from 56%; average rates per day worked declined to $5,726 from $7,915.
- Time-charter revenue fell $20.8 million. Management cited cold-stacking, vessel retirements and dispositions, lower activity and adverse currency movements. U.S. Gulf of Mexico utilization was particularly weak at 7%, versus 17%.
- Operating costs fell $15.5 million, partly reflecting cold-stacked vessels and smaller or reconfigured fleets, but this did not offset the revenue decline. The company also incurred reactivation costs for vessels.
- In March, the company obtained voting control of Falcon Global after its partner declined a capital call and consolidated it effective March 31. This added $58.3 million of debt and $96.0 million of property and equipment; Falcon Global had two newly constructed foreign-flag liftboats.
- During Q1, the company sold two liftboats, two retired vessels and other equipment for $8.8 million in net proceeds, recognizing $4.8 million in gains. It also received a $7.4 million capital distribution from MexMar.
Outlook, risks and contingencies
Management reported difficult offshore-market conditions continuing through Q1 and expected them to persist in the near term, while noting modest seasonal improvement in the Middle East and U.S. Gulf of Mexico. The filing provides no numerical earnings or revenue guidance. Management warned that weak oil and gas prices, lower exploration activity and an industry-wide oversupply of new offshore support vessels could materially harm results, financial position and cash flows.
Liquidity needs include debt service, working capital and vessel investment. Unfunded capital commitments were $81.9 million, mainly for vessels, with $13.8 million due in the remainder of 2017 and $53.1 million in 2018; the company also committed to $9.7 million of additional equipment purchases after quarter-end. Contractual debt maturities totaled $310.8 million, including $25.5 million for the remainder of 2017. The company reported $7.5 million of additional borrowing capacity under subsidiary facilities. Management believed available liquidity and market access would be sufficient, but noted access could be affected by market conditions.
SEACOR Holdings had guaranteed $134.4 million of company obligations at quarter-end; outstanding letters of credit were $16.8 million, and other labor and performance guarantees were $1.3 million. The company separately guaranteed $22.2 million for certain partly owned companies and had $1.8 million of uncalled capital commitments. Ordinary-course litigation includes property-damage and personal-injury claims; management did not expect changes in estimates to have a material effect.
Disclosure controls were deemed ineffective as of March 31 because of material weaknesses involving review and approval of manual journal entries and controls over vessel and equity-investment impairment assessments, including review of valuation assumptions and specialists. Management had no expected remediation timetable. Management nevertheless stated it believed the financial statements fairly presented the company’s financial condition, results and cash flows.
Important facts for investors to verify
- Whether vessel utilization, charter rates and offshore customer activity recover, and how quickly cold-stacked vessels can return to service.
- How much reported operating cash flow reflects recurring cash generation versus security sales and working-capital or related-party settlements.
- The funding and timing of $81.9 million of capital commitments, post-quarter equipment commitments, and debt maturities.
- Falcon Global’s liftboat utilization, operating performance, debt obligations and valuation assumptions following consolidation.
- Progress and independent evidence of remediation of the disclosed internal-control material weaknesses.
- The continuing effects of the spin-off and related SEACOR Holdings transition, guarantee and service arrangements.