Tidewater Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. Tidewater operates offshore support vessels serving oil and gas exploration, development and production. At quarter-end it owned or chartered 204 vessels, including 66 stacked vessels.
Comparability note: Tidewater emerged from Chapter 11 on July 31, 2017 and adopted fresh-start accounting. The 2018 “Successor” results are not directly comparable with 2017 “Predecessor” results; changes in carrying values and accounting policies affect comparisons.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $105.6 million | $115.1 million | $197.1 million | $275.9 million |
| Operating loss | $0.1 million | $205.4 million | $12.3 million | $274.7 million |
| Net loss | $11.2 million | $524.4 million | $50.2 million | $611.4 million |
| Loss per share | $0.44 | $11.13 | $2.09 | $13.15 |
Q2 vessel operating costs were $68.0 million, or 65% of vessel revenue, compared with $83.8 million, or 75%, in Q2 2017. Six-month vessel operating costs were $129.4 million, or 68% of vessel revenue, versus $164.6 million, or 61%. These ratios are affected by the non-comparable periods and the successor’s revised drydocking-cost policy.
- Cash flow: Six-month operating cash flow was $17.0 million, down from $46.8 million. Investing activities provided $7.2 million; financing activities used $13.0 million. Cash, cash equivalents and restricted cash totaled $464.5 million at June 30.
- Liquidity: Cash and cash equivalents were $459.3 million, including $5.2 million restricted. Current assets were $797.3 million and current liabilities $169.1 million. Tidewater reported no revolving credit facility and said cash and expected operating cash flow were sufficient for liquidity needs.
- Debt: Long-term debt, including current maturities, was approximately $444.8 million before balance-sheet presentation of debt premiums and discounts; $6.3 million was current. The principal notes are 8.00% secured notes due 2022. The company repurchased $46,023 of principal in March under its asset-sale tender offer.
- Balance sheet: Total assets were $1.64 billion and total equity $975.5 million. Net property and equipment was $803.7 million.
Changes and operating developments
- Revenue declined year over year, reflecting the prolonged offshore downturn, fewer active vessels and lower day rates. Six-month 2017 revenue also included a $39.1 million early charter-termination payment.
- Management reported cost reductions: Q2 general and administrative expense fell 26% to $24.4 million; six-month expense fell 36% to $48.0 million, partly because 2017 included restructuring-related professional fees. Q2 2018 included $1.5 million of GulfMark merger-related professional services.
- Impairments fell to $1.2 million in Q2 and $7.4 million for six months, compared with $163.4 million and $228.3 million, respectively, in 2017. Depreciation also declined substantially, largely because fresh-start accounting reduced vessel carrying values.
- Worldwide vessel utilization was 55.5% in Q2 versus 44.0% a year earlier; average day rate was $10,047 versus $10,842. The fleet averaged 64 stacked vessels in Q2, compared with 109 a year earlier.
- Angola remains a significant exposure. Due from Sonatide was approximately $153 million, partly supported by about $67 million of cash held by Sonatide, including the equivalent of $43 million in kwanza awaiting conversion and repatriation. The kwanza devalued about 49% during the first half, contributing approximately $20.6 million of equity-method foreign exchange loss. Sonatide’s investment carrying value fell to zero.
Outlook, risks and contingencies
- Management described offshore recovery as lagging onshore activity and said material offshore improvement might not occur until 2019 or 2020. It cited persistent vessel overcapacity and expected low utilization and day rates in the near to intermediate term absent stronger demand and fleet attrition.
- Oil prices had improved by June 2018, but management noted potential supply surplus and continued customer caution on offshore capital spending. Industry risks include weak demand, new vessel supply, reactivation of stacked vessels and further vessel impairments.
- On July 15, 2018, Tidewater agreed to merge with GulfMark in an all-stock transaction: GulfMark holders would receive 1.1 Tidewater shares per share, with approximate ownership of 74%/26% after closing. Closing was expected in Q4 2018, subject to approvals and other conditions; termination fees could reach $35 million for Tidewater or $13 million for GulfMark. GulfMark later received a non-binding competing proposal from Harvey Gulf, which its board said it would review while continuing to recommend the Tidewater transaction.
- Tidewater is seeking to enforce a $56.9 million arbitral award against Venezuela, accruing about $0.6 million interest per quarter. Collection presents significant practical challenges; the company recognizes no gain until the contingency is resolved.
- The company is contesting Brazilian customs fines of 33 million reais (about $8.5 million); it has not accrued the fines, and deposited about $1.5 million with a court in connection with one appeal. Tidewater also said further U.S. vessel-repair penalties could be material.
- Other risks include foreign-exchange and repatriation constraints, joint-venture and political risk, customer concentration, debt-covenant compliance, merger execution and integration, and industry oversupply. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Assess the quality and collectability of the $153 million Sonatide receivable, including the convertibility and repatriation of kwanza-denominated funds.
- Track utilization, day rates, active and stacked vessel counts, and whether offshore demand improves enough to absorb excess capacity.
- Review operating cash generation against debt service, maintenance and drydocking needs; note that Tidewater has no revolving credit facility.
- Monitor GulfMark merger approvals, the competing proposal, termination-fee exposure, integration costs and expected synergies.
- Verify developments in the Venezuela award and Brazilian customs and U.S. vessel-repair matters; the Venezuela award is not recorded as an asset or gain.
- Interpret year-over-year earnings, margins and cash-flow comparisons in light of fresh-start accounting, lower vessel carrying values, the 2017 termination payment and changes in drydocking accounting.