Tidewater Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited interim results. Unless otherwise noted, financial amounts below are in millions of dollars.
Business context
Tidewater operates offshore support vessels serving offshore energy and related industries. On April 22, 2022, it acquired Swire Pacific Offshore Holdings Ltd. (SPO), adding 50 vessels, and acquired the remaining 51% of its Sonatide Angola joint venture in January. At quarter-end, Tidewater reported 187 active vessels.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $191.8 | $92.4 | $460.9 | $265.9 |
| Operating income (loss) | $19.1 | $(21.6) | $13.6 | $(68.0) |
| Net income (loss) | $4.9 | $(26.4) | $(32.4) | $(91.6) |
| Net income (loss) attributable to Tidewater | $5.4 | $(26.3) | $(32.4) | $(91.0) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(5.1) | $8.1 |
Q3 operating margin was approximately 9.9% and net margin 2.6%; nine-month operating margin was approximately 2.9% and net margin approximately negative 7.0% (calculated from reported figures). Q3 basic/diluted EPS was $0.12/$0.10; nine-month EPS was $(0.76).
- Q3 vessel operating costs were $113.0 million; general and administrative expense was $27.3 million; depreciation and amortization was $30.9 million.
- At September 30, cash and cash equivalents were $115.0 million, with $7.5 million of current and long-term restricted cash; total cash, cash equivalents and restricted cash were $122.5 million. Current assets were $346.7 million and current liabilities $184.4 million.
- Long-term debt had a $175.0 million principal balance and $168.6 million carrying value after discounts and issuance costs. The 8.50% senior secured notes mature in November 2026. The $25.0 million revolving facility was undrawn. The company reported compliance with its debt covenants.
- Stockholders’ equity was $846.6 million. Cash and restricted cash declined from $154.3 million at the start of the year to $122.5 million at September 30.
Changes versus prior comparable periods
- Q3 revenue rose $99.4 million year over year; nine-month revenue rose $195.1 million. Management attributed the increase to SPO, higher utilization and improved day rates. Worldwide average day rates increased 32.3% in Q3 and 21.5% year to date; active utilization rose to 83.7% and 83.0%, respectively.
- Operating results improved substantially, moving from operating losses to profits in both comparative periods. Q3 net income was positive, while the first nine months still recorded a net loss.
- Nine-month operating cash flow fell to a $5.1 million use from $8.1 million provided in 2021. Management cited working-capital changes and $43.9 million of cash paid for deferred drydocking and survey costs.
- Cash used in investing activities was $24.0 million, versus $31.4 million provided in the prior-year period, which included greater vessel-sale proceeds. Nine-month capital additions were $11.7 million.
- G&A increased to $73.3 million for nine months, including SPO-related costs; transaction and professional costs attributed to SPO were $14.0 million year to date. Foreign-exchange losses increased to $4.9 million from $1.0 million.
Outlook, risks and unusual items
- No specific financial guidance was provided. Management said the fleet was close to full utilization, day rates had increased, and it expected underlying supply-and-demand fundamentals to support a multi-year increase in offshore upstream development spending. This outlook is expressly subject to volatile industry conditions.
- Management said nine-month 2022 revenue was not significantly affected by COVID-19 and expected related incremental costs to be negligible for the remainder of 2022.
- The $14.2 million nine-month warrant mark-to-market loss related to SPO acquisition warrants was non-cash. Tidewater issued 4.048 million shares in August for gross proceeds of approximately $72.3 million and used $70.6 million net proceeds to redeem the same number of SPO warrants.
- Income tax expense was $18.2 million for nine months despite a consolidated pretax loss of $14.2 million. The filing attributes taxes mainly to foreign deemed-profit, minimum-tax and withholding regimes, and inability to offset profits and losses across countries.
- Other notable items included a $1.3 million bargain-purchase gain on Sonatide, a $1.9 million litigation-related interest and other income item, and a $1.3 million cumulative mark-to-market loss in other comprehensive income on a PEMEX note receivable.
- Risks include exposure to oil and gas activity and prices, geopolitical and currency volatility, inflation and rising rates, customer capital-spending decisions, vessel maintenance and personnel costs, international operations, environmental regulation, and acquisition integration. Ordinary-course legal matters were not expected to have a material adverse effect.
- Management concluded disclosure controls were effective. SPO’s controls were still being assessed and were excluded from the internal-control assessment at September 30, 2022; excluded assets and revenues represented 24.7% and 22.2% of the respective consolidated amounts.
Important facts for investors to verify
- How much of revenue and operating improvement is attributable to SPO versus higher rates and utilization in Tidewater’s legacy fleet, and whether the acquired operations sustain profitability.
- Whether operating cash flow turns positive as working capital and drydocking cash requirements evolve.
- The company’s ability to meet covenant requirements and maintain liquidity, including the availability of cash held abroad and the undrawn revolver.
- The dilution and remaining potential share impact from warrants, equity awards, and any further use of the shelf or at-the-market offering facilities.
- Final purchase-accounting and working-capital adjustments for SPO and Sonatide, which the filing says could be material.
- Foreign tax exposures, currency effects, and the collectability and valuation of receivables, including the PEMEX note.