Tidewater Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2019. Financial statements are unaudited. Unless stated otherwise, amounts are in U.S. dollars and millions. Tidewater provides offshore support vessels and related services to the oil and gas industry.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $119.8 | $99.2 | $367.8 | $296.3 |
| Operating loss | $(22.6) | $(25.1) | $(36.6) | $(37.4) |
| Net loss attributable to Tidewater | $(44.2) | $(30.9) | $(81.9) | $(81.0) |
| Basic and diluted loss per share | $(1.15) | $(1.16) | $(2.17) | $(3.23) |
| Operating cash flow | Not presented separately | Not presented separately | $(36.7) | $22.2 |
- Q3 operating loss margin was approximately 18.8% negative, compared with 25.3% negative a year earlier. Nine-month operating loss margin was approximately 9.9% negative, versus 12.6% negative.
- Vessel operating costs were $80.6 million in Q3 and $243.3 million for nine months. Depreciation and amortization were $25.7 million and $73.7 million, respectively.
- Income tax expense was $15.1 million in Q3 and $26.4 million for nine months, despite pretax losses. The company cited discrete tax expense relating to uncertain tax positions and write-offs of certain international-operation assets.
Liquidity, balance sheet and cash flow
- At September 30, cash and cash equivalents were $359.3 million and restricted cash was $3.3 million, versus combined cash and restricted cash of $397.7 million at year-end 2018. Total current assets were $644.9 million and current liabilities $159.9 million.
- Debt had a $423.6 million principal balance and a $429.6 million carrying value, including premiums and discounts; $9.7 million was current. The principal debt includes 8.00% senior secured notes due 2022 and Troms Offshore borrowings. No revolving credit facility was in place.
- Nine-month operating cash outflow of $36.7 million included $43.7 million of cash paid for deferred drydocking and survey costs. Investing activities provided $11.2 million, including $25.1 million of asset-sale proceeds; financing activities used $9.6 million, primarily for debt principal payments and share-award taxes.
- Management stated that cash and future operating cash flow were, in its view, sufficient to meet liquidity needs. However, operating cash flow was negative and cash declined during the period.
Changes versus prior comparable periods
- Revenue increased 21% in Q3 and 24% for the nine-month period. A major comparability factor is the November 2018 GulfMark merger: 2019 results include GulfMark, while 2018 comparative results do not. Management attributed $25.9 million of Q3 and $76.1 million of nine-month revenue to the combination.
- Higher revenue was partly offset by higher costs, including GulfMark-related operating costs and depreciation. Nine-month depreciation and amortization rose to $73.7 million from $38.2 million.
- Q3 net loss attributable to Tidewater increased to $44.2 million from $30.9 million, despite a smaller operating loss; higher tax expense was a key factor. Nine-month attributable net loss was broadly similar year over year.
- Worldwide fleet utilization improved to 57.5% in Q3 from 54.5%, and average day rates increased to $10,021 from $9,616. Regional trends were mixed: Europe/Mediterranean day rates strengthened, while Americas day rates fell 15% in Q3 and West Africa revenue declined 17%.
- Corporate expense presentation changed from January 2019: certain marine-related overhead formerly allocated to segments is now recorded as corporate G&A, limiting comparability of segment G&A. Nine-month corporate expenses included $5.0 million of GulfMark integration costs.
Management commentary, outlook and notable items
- Management described offshore activity as dependent on energy-company spending and volatile oil and gas prices. It said prices in the then-current $50–$65 per barrel range were not expected to support significant increases in exploration and production activity; sustained low prices could materially harm liquidity. The filing gives no numerical financial guidance.
- The company owned 220 vessels at September 30, including 60 stacked vessels; 160 were active. It sold 37 vessels and other assets during the first nine months. Two additional vessels were sold after quarter-end for $3.6 million combined, with a gain expected to be recorded in Q4.
- Q3 included $5.2 million of impairment expense for obsolete marine-service and vessel-supply inventory; no vessel impairment was recorded in 2019. The comparable 2018 quarter included $16.9 million of vessel impairments.
- Q3 G&A included $6.1 million of termination benefits for three former executives, primarily related to stock compensation. Restructuring charges for office closures and severance totaled $5.9 million in the first nine months; $6.5 million of related liabilities remained at quarter-end.
- The final ICSID award for expropriation of Venezuelan operations was $59.9 million at September 30 and accrues about $0.6 million quarterly. Tidewater said collection presents significant practical challenges and will recognize a gain only when the contingency is resolved.
- Net amounts due from the Sonatide Angola joint venture were approximately $64.7 million after offsets. Tidewater continued to assess potential impairment, amid currency-devaluation and liquidity concerns; Sonatide held approximately $52.2 million of cash and $18.4 million of net trade receivables.
- A $118.6 million valuation allowance was recorded against deferred tax assets considered more likely than not to be unrealized. The company also cited foreign-currency, geopolitical, customer-spending, overcapacity, integration, debt-covenant and international-operating risks.
Investor verification priorities
- Assess the underlying trend in vessel utilization, day rates and cash generation separately from GulfMark’s added scale, and monitor whether merger integration produces savings.
- Track drydocking cash requirements and operating cash flow, along with unrestricted cash, debt maturities, and any constraints arising from the lack of a revolving credit facility.
- Verify collections from Sonatide and any developments in the Angolan currency-sharing dispute or the Venezuelan arbitration award.
- Review the drivers of unusually high tax expense, the recoverability of deferred tax assets, and the status of uncertain tax positions.
- Check subsequent vessel-sale proceeds and gains, remaining restructuring costs, and any changes to impairments or other contingencies.