SEACOR Marine Holdings Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet amounts are as of March 31, 2018. Unless stated otherwise, dollar amounts are in millions. The filing is unaudited.
Business context
SEACOR Marine provides global marine transportation and support services to offshore oil and gas operations. Its 186-vessel fleet operates across five geographic regions. Management said market conditions remained difficult despite oil prices recovering to approximately $65 per barrel, citing customer cost discipline, reduced capital spending and industry vessel oversupply.
Financial highlights
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Operating revenue | $51.7 | $34.3; up 51% |
| Operating loss | $(24.4) | $(18.6) |
| Net loss attributable to SEACOR Marine | $(28.8); $(1.64) per share | $(7.4); $(0.42) per share |
| Operating cash flow | $(11.5) | $65.3 provided |
| Cash, cash equivalents and restricted cash | $65.1 | $112.6 at December 31, 2017 |
| Long-term debt, net of discount and issue costs | $428.1 | $314.9 at December 31, 2017, including current portion |
| Current assets / current liabilities | $135.3 / $105.4 | Working capital: $30.0 |
Revenue growth reflected higher time-charter activity, fleet additions and improved utilization. Average daily rate was $7,001 versus $5,726; utilization was 53% versus 46%. Excluding wind farm vessels, utilization increased to 50% from 38%. Direct vessel profit, a company-defined non-GAAP measure, was $13.4 versus $4.5.
Operating costs rose to $73.5 from $57.7, including depreciation and amortization of $19.5 versus $12.5. The reported operating loss included net asset disposition and impairment losses of $2.6; the company recognized $2.9 of impairment charges, primarily on four anchor-handling vessels removed from service and written down to scrap value.
Net loss also reflected $11.5 of net derivative losses, principally a $12.2 loss from revaluing the convertible notes’ embedded conversion option, and higher interest expense of $6.1 versus $3.2. The prior-year quarter included $11.7 of marketable-security gains and $51.9 of proceeds from security sales, as well as a $21.0 net income-tax refund; these items contributed to the prior-period cash-flow comparison.
Material changes and significant transactions
- In February, the company formed Falcon Global Holdings (FGH) with Montco Offshore (MOI), emerging from MOI’s Chapter 11 restructuring. The consolidated venture combines 15 SEACOR liftboats and six MOI liftboats; SEACOR owns 72%. Its subsidiary entered into a $131.1 credit facility, including a $116.1 term loan and $15.0 revolving facility, bearing a reported variable rate of 6.44% and maturing in 2024. The facility is generally non-recourse to SEACOR Marine, subject to specified guarantees. Scheduled principal payments begin in 2020.
- SEACOR invested $20.0 in the quarter in SEACOSCO, a 50%-owned venture contracting for eight new platform supply vessels at an approximate total purchase price of $161.1. SEACOR’s total committed investment is approximately $27.5; the shipyard is to finance 70% of the vessel cost on a non-recourse basis to SEACOR.
- Investing cash outflow was $28.1, including $20.0 invested in unconsolidated ventures and $8.6 of capital expenditures. Financing cash outflow was $8.5, including scheduled debt repayments and payment of $15.0 of MOI debtor-in-possession obligations, partly offset by new borrowing and a $1.8 private stock placement.
- Property and equipment increased to $820.7 from $689.8 at year-end, while equity declined to $503.2 from $523.2. Adoption of an accounting standard for income taxes on intercompany asset transfers reduced opening retained earnings by $12.1.
Liquidity, debt and commitments
At March 31, the company reported $428.1 of debt, net of discount and issue costs; the debt-maturity table reports $469.5 of contractual maturities. It also reported $45.4 of construction reserve funds and $7.5 available under subsidiary credit facilities. Management’s stated $110.4 of cash, cash equivalents, restricted cash, marketable securities and construction reserves excludes the $56.9 gross proceeds from the April private placement. The filing’s March 31 cash-flow balance includes restricted cash; unrestricted cash and cash equivalents were $62.7.
Unfunded vessel and conversion commitments totaled $48.8: $18.9 due during the remainder of 2018, $21.1 in 2019 and $8.9 in 2020. A further $20.8 of orders for two fast support vessels was indefinitely deferred. SEACOR Holdings had guaranteed $56.5 of specified obligations on the company’s behalf. The company also disclosed $1.8 of outstanding letters of credit.
Management believes cash, reserve funds, operating cash flow, subsidiary borrowing availability and access to capital markets will provide sufficient liquidity. However, Q1 operating cash flow was negative and cash and cash equivalents fell substantially. The filing gives no formal earnings or revenue guidance.
Outlook, risks and subsequent events
Management described recovery as nascent and warned that weak offshore exploration and drilling, vessel reactivations and newbuild deliveries could extend oversupply and materially harm results, financial position and cash flows. Other disclosed risks include oil-price and customer-spending sensitivity, charter suspensions or cancellations, competition, foreign political and currency exposure, regulation, weather, customer concentration, and access to credit markets. The company said there had been no material change in its risk factors or market-risk exposure during the quarter.
- On April 26, 2018, the company completed a private placement of 2,168,586 shares and warrants for 674,164 shares, receiving $56.9 gross proceeds. The warrants have a $0.01 exercise price.
- On May 2, 2018, Carlyle exchanged $50.0 principal amount of convertible notes for warrants to purchase approximately 1.9 million shares. The remaining $125.0 principal amount carries a higher 4.25% coupon, up from 3.75%, and matures in December 2023, one year later than before.
- The company recorded a $1.2 impairment of an investment in SEACOR Grant DIS and estimated that the venture would be unable to meet all its liabilities. A separate $0.3 reserve was recorded against its receivable from that venture.
- The company disclosed ongoing ordinary-course litigation and said it did not expect changes in related estimates to have a material financial effect. Management concluded disclosure controls were effective as of March 31, 2018.
Important facts for investors to verify
- Whether improved rates and utilization can translate into sustained positive operating and free cash flow, given the larger fleet and higher operating and depreciation costs.
- Liquidity after the April equity financing, including the timing and use of proceeds, remaining vessel commitments, reserve-fund restrictions and upcoming debt service.
- FGH’s debt terms, guarantees and cash needs, and the final valuation of contributed assets and assumed debt.
- SEACOSCO’s delivery schedule, shipyard financing, storage arrangements and remaining SEACOR funding commitments.
- The sensitivity of reported earnings to the convertible-note conversion-option valuation, and the dilution and revised interest cost following the May exchange and amendment.
- Potential further impairments or losses involving underperforming vessels and equity-method investments, including SEACOR Grant DIS.