Tidewater Inc. — Form 10-Q Summary
Business context and period: Tidewater operates offshore support vessels and related services for the global energy industry. This unaudited quarterly report covers the third quarter and first nine months of fiscal 2015, ended December 31, 2014; comparisons are with the periods ended December 31, 2013. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Total revenue | $387.6, up 6.1% | $1,170.8, up 9.7% |
| Vessel revenue | $378.1, up 4.8% | $1,150.6, up 9.0% |
| Operating income (loss) | $(213.6), versus $20.5 | $(62.9), versus $140.5 |
| Net income (loss) | $(161.0), versus $12.6 | $(56.5), versus $96.8 |
| Diluted EPS | $(3.31), versus $0.25 | $(1.14), versus $1.95 |
| Operating cash flow | Not presented for the quarter | $275.6, versus $69.8 |
- Exceptional charge: A $283.7 goodwill impairment in the quarter eliminated all remaining goodwill. Management attributed the reassessment to the sharp decline in oil and gas prices and expected effects on vessel day rates and utilization. The prior-year quarter included a $56.3 impairment.
- Operating performance: Nine-month vessel revenue growth reflected a six-percentage-point increase in utilization and a 10% increase in worldwide average day rates, according to management. Vessel operating costs rose 9% for the nine months, depreciation rose 5%, and vessel operating lease expense rose 47%. Vessel operating profit was $254.6 million, up from $228.4 million; this measure excludes corporate costs, depreciation, and other items.
- Regional trends: Nine-month vessel revenues increased in the Americas (29%) and Middle East/North Africa (16%), while decreasing 4% in Sub-Saharan Africa/Europe. Asia/Pacific revenue increased 4%, but higher costs reduced segment operating profit.
- Cash flow context: The $205.7 million year-over-year increase in nine-month operating cash flow was primarily associated with the change in net amounts due to/from affiliates, including improved Angolan collections. Receivables increased and accounts payable and accrued expenses declined, offsetting cash generation.
Balance sheet, liquidity and capital spending
- At December 31, 2014, cash was $77.4 million, current assets were $873.1 million, and current liabilities were $446.0 million. Cash increased from $60.4 million at March 31, 2014.
- Total debt was approximately $1.491 billion, comprising $7.0 million current and $1.484 billion long-term debt. The company had $300 million outstanding under its term loan and $600 million available under its revolving credit facility. Credit agreements include maximum debt-to-capitalization and minimum interest-coverage covenants.
- Nine-month investing cash use was $115.7 million, including $231.7 million of property and equipment additions, partly offset by $110.7 million of sale-leaseback proceeds. Financing activities used $142.8 million, including $100.0 million for share repurchases and $37.0 million of dividends.
- Unfunded commitments for 28 vessels and two ROVs under construction totaled $503.9 million. Delivery of the final new-build vessel was expected by August 2016. Future construction funding may use operating cash flow, borrowing capacity, additional borrowing, or lease financing.
- The board’s $200 million repurchase authorization had $100 million remaining at period-end. Tidewater repurchased 2.84 million shares during the nine months at an average $35.19 per share. Dividends remained $0.25 per share per quarter.
Outlook, risks and contingencies
- Market outlook: Management described offshore-support-vessel supply and demand as reasonably balanced, but warned that lower oil prices, reduced exploration and production budgets, and a large vessel construction backlog could create near-term overcapacity and pressure utilization and day rates. The filing provides no specific company earnings or revenue guidance.
- Angola and Sonatide: Tidewater reported approximately $422 million due from affiliate, largely related to Angolan operations, and approximately $95 million equivalent in kwanza deposits held in Angolan banks. Currency-conversion, expatriation, payment-delay, devaluation, tax, and regulatory risks could affect cash collection and liquidity. Angola generated about 23% of nine-month vessel revenue. A new maritime decree could require restructuring or full Angolan ownership of local operators; the compliance deadline cited was June 2015.
- Construction delays: A Chinese shipyard was substantially behind schedule on towing-supply vessels; refundment guarantees covered all but approximately $2.5 million of accumulated costs. A Brazilian fast-supply-boat project, originally due in 2009, remained suspended amid arbitration; insurance covered 90% of progress payments, leaving approximately $2.4 million of accumulated costs uncovered.
- Legal and other contingencies: Tidewater disputed Brazilian customs fines of approximately $58.3 million and had obtained administrative decisions disallowing most of the assessed amount, subject to possible further appeals. A Nigerian agent dispute concerns approximately $19 million in customer receivables. The Venezuela arbitration’s merits decision was pending. DRC authorities’ claims related to the Nana Tide sinking were described as approximately $4.5 million; the company had not accrued a liability, citing uncertainty about the claims and their legal basis. Management did not expect these matters, individually, to materially affect the consolidated financial statements.
- Other risks: Crew and maintenance costs, vessel downtime, political and foreign-exchange risks, and possible industry overcapacity may affect margins and cash flows. The filing notes that foreign cash is generally intended to remain abroad; repatriation could trigger incremental taxes. Management reported effective disclosure controls and no material change in internal control that resulted from the quarter’s accounting-system implementation.
Investor verification priorities
- Assess how much of the reported cash-flow improvement depends on affiliate balances and whether the $422 million due from Sonatide can be collected and converted into U.S. dollars.
- Review the assumptions behind the $283.7 million goodwill impairment and the sensitivity of vessel values and utilization to oil prices and customer spending.
- Compare the $503.9 million remaining construction commitments and sale-leaseback obligations with expected operating cash flow, available credit, and covenant headroom.
- Track oil-price-driven changes in customer budgets, vessel supply, utilization, and day rates, including delivery and stacking trends across the industry.
- Monitor Angola’s currency and ownership rules, shipyard delays, and the outcomes of the Brazilian, Nigerian, Venezuelan, and DRC matters.