SEACOR Marine Holdings Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; comparisons are to the corresponding 2021 periods. Amounts are in U.S. dollars; financial statement figures below are in millions unless noted.
Business context
SEACOR Marine provides offshore marine transportation and support services to energy and offshore-wind customers. At quarter-end, the company and its joint ventures operated 80 vessels across the U.S. Gulf of Mexico, Africa and Europe, the Middle East and Asia, and Latin America. Vessel utilization and day rates are important drivers of results; three of the company’s 58 owned or leased-in in-service vessels were cold-stacked.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $54.0 | $42.8 | $99.6 | $79.3 |
| Operating income (loss) | $(15.5) | $8.4 | $(32.7) | $(8.2) |
| Net income (loss) attributable to SEACOR Marine | $(19.1) | $48.8 | $(34.0) | $54.8 |
| Basic earnings (loss) per share | $(0.72) | $1.92 | $(1.28) | $2.16 |
| Operating cash flow | Not stated separately | Not stated separately | $(5.8) | $9.5 |
Q2 revenue increased 26% year over year and first-half revenue increased 26%. In Q2, average time-charter rates rose to $12,149 per day from $12,007, and fleet utilization improved to 77% from 67%. However, operating costs rose faster than revenue: Q2 operating expenses before asset gains were $69.6 million, versus $57.1 million a year earlier. Direct vessel profit, the company’s segment profitability measure, was $9.9 million in Q2, down from $10.2 million; as a share of revenue, it declined to about 18% from 24%. Operating margin was approximately negative 29% in Q2 2022, compared with positive 20% in Q2 2021, which included substantial asset-disposition gains.
For the first half, revenue growth reflected improved activity, vessel repositioning and the addition of five PSVs acquired through the OSV Partners merger. Higher personnel, repair and maintenance, drydocking, fuel and other vessel costs weighed on results. First-half net income in 2021 also included a $62.0 million gain on debt extinguishment and $22.9 million of income from discontinued operations; those items did not recur in 2022.
At June 30, cash and cash equivalents were $22.6 million, restricted cash was $3.3 million, and total cash including restricted cash was $25.9 million, down from $41.2 million at year-end 2021. Current assets of $95.8 million were below current liabilities of $97.4 million. Principal long-term debt was $384.8 million, compared with $401.0 million at year-end; debt net of discount and issuance costs, including the current portion, was reported as $352.1 million. First-half interest expense was $13.6 million, versus $15.3 million. The company reported covenant compliance at June 30.
Material changes, outlook and risks
- Credit amendments: A June amendment to the foreign credit facility raised its interest margin from 3.75% to 4.75% through December 31, 2022, then provided for a return to 3.75%; it also modified certain covenants. The company reported $45.3 million for the facility’s minimum-liquidity covenant test, or 15.0% of total debt, against a stated minimum of the greater of $35 million or 7.5% of total debt. On August 2, 2022, a separate amendment extended the 88/888 term-loan maturity to July 1, 2024 and increased its margin over SOFR from 3.75% to 4.75%.
- Cash flow and capital spending: First-half operating cash flow was negative $5.8 million, with the company citing the absence of prior-year tax refunds and working-capital timing. Capital expenditures were less than $0.1 million; asset-sale proceeds were $6.7 million. Scheduled debt payments were $16.5 million. Contractual principal maturities included $241.5 million in 2023. The company said existing cash, operating cash flow, financing availability and capital-market access should meet short- to medium-term needs, while noting liquidity depends on operating markets and access to financing.
- Market outlook: Management said rising oil and gas prices had contributed to improved utilization, day rates and customer inquiries compared with pandemic lows. It also cited potential support from deferred offshore investment and offshore-wind development. No quantified financial guidance was provided. Weak exploration activity or excess vessel supply could adversely affect results; reactivating cold-stacked vessels can increase costs.
- Contingencies and unusual items: The 2021 SEACOR Power capsizing caused fatalities and the constructive total loss of the vessel. Investigations and civil claims remained ongoing, and the company said potential costs and liabilities, timing, reputational effects and business impacts were uncertain; salvage costs were expected to be covered by insurance. A Brazilian tax-deficiency dispute had a potential levy of R$19.6 million (reported as approximately $3.8 million at the stated exchange rate); the administrative appeal was pending. Potential additional obligations from U.K. multi-employer pension plans also remain uncertain.
- Asset impairment: The company recorded a $0.9 million impairment on an FSV classified as held for sale and sold in Q2. Management cautioned that future vessel impairments could result if market conditions or expected cash flows deteriorate.
Investor verification points
- Review the sustainability of improved utilization and rates against vessel operating, drydocking and reactivation costs.
- Check cash generation, working-capital trends and covenant headroom, including the facility’s covenant calculation and any subsequent amendments.
- Examine the 2023 debt maturity concentration, refinancing requirements and the effect of higher borrowing margins.
- Monitor developments in the SEACOR Power litigation and investigations, the Brazilian tax dispute, and U.K. pension-plan assessments.
- Assess whether vessel market conditions support carrying values and whether deferred capital commitments or future investment spending change.