Tidewater Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Tidewater provides offshore support vessels and services to the oil and gas industry. Unless otherwise indicated, financial amounts below are in U.S. dollars.
Business context and reporting period
The COVID-19 pandemic, lower oil demand and prices, and customer reductions in offshore spending pressured operations during the quarter. At June 30, the company reported 146 active vessels and 46 vessels held for sale; average active fleet age was 10.1 years.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Total revenue | $102.3 million | $125.9 million | $218.7 million | $248.0 million |
| Operating loss | $117.7 million | $4.4 million | $136.3 million | $14.0 million |
| Net loss attributable to Tidewater | $110.6 million | $16.0 million | $129.1 million | $37.7 million |
| Basic and diluted loss per share | $2.74 | $0.42 | $3.21 | $1.01 |
| Cash flow from operations | Not separately stated | Not separately stated | $(12.8) million | $(20.7) million |
- Revenue and utilization: Q2 revenue fell about 19% year over year. Worldwide active utilization declined to 74.5% from 79.3%, while average vessel day rates increased to $10,799 from $10,442. For the first half, active utilization was 76.6% versus 79.9%.
- Operating costs and margins: Q2 vessel operating costs were $64.8 million, or 64% of vessel revenue, compared with $80.4 million, or 65%, a year earlier. First-half costs were $143.6 million, or 67% of vessel revenue, versus $162.6 million, also 67%. Segment vessel operating profit was $0.6 million in Q2 versus $8.3 million; it was a loss of $3.0 million for the first half versus profit of $12.6 million.
- Cash and liquidity: June 30 cash and cash equivalents were $203.1 million, with $19.9 million of restricted cash on the balance sheet. Current assets were $473.8 million and current liabilities $162.2 million. The six-month net change in cash, cash equivalents and restricted cash was a decrease of $1.3 million; the ending cash-flow-statement balance was $226.3 million and includes long-term restricted cash.
- Debt: Debt carrying amounts were approximately $282.7 million, including $9.4 million current and $273.2 million long-term. The 8.00% senior secured notes of $224.8 million are due August 2022; remaining Troms borrowings mature from 2024 to 2027. The company said it has no revolving credit facility.
- Balance sheet: Total assets were $1.416 billion and total equity $890.0 million, down from $1.580 billion and $1.016 billion, respectively, at year-end 2019.
Material changes and unusual items
- Q2 operating results included $55.5 million of long-lived asset impairment expense, $53.6 million of affiliate credit-loss impairment expense, and a $2.0 million affiliate guarantee obligation. For the first half, the corresponding amounts were $65.7 million, $53.6 million and $2.0 million. These charges were major contributors to the larger operating loss.
- Affiliate impairment included $41.5 million related to Sonatide (Angola) and $12.1 million related to DTDW (Nigeria). Tidewater said Sonatide’s remaining net receivable may face further impairment depending partly on the joint venture’s liquidity.
- Sonatide paid Tidewater a $17.1 million dividend, recorded as dividend income because the investment had previously been written down to zero. The dividend reduced Sonatide’s cash balances and contributed to the receivable impairment assessment.
- Long-lived asset impairments included $49.9 million for 22 vessels newly classified as held for sale in Q2, plus revaluation charges on vessels already held for sale. Tidewater sold 25 vessels in the first half and recognized $7.0 million of net gains on asset dispositions.
- General and administrative expense declined to $17.6 million in Q2 from $23.7 million, and to $39.0 million for the first half from $50.8 million, reflecting restructuring and cost reductions. Depreciation and amortization increased to $28.1 million in Q2 and $55.3 million in the first half, in part because of higher deferred drydocking amortization.
- For the first half, interest and other debt costs were $12.1 million, down from $15.3 million. Management attributed lower interest expense partly to the $125 million senior-note paydown in November 2019.
- The first-half tax benefit was $2.4 million versus tax expense of $11.4 million a year earlier. The filing cites the CARES Act, including a $6.9 million benefit from carrying back net operating losses. A $108.1 million valuation allowance was recorded against deferred tax assets considered more likely than not to be unrealized.
Outlook, management commentary and risks
Management expects the pandemic and oil-market conditions to continue negatively affecting the business for the remainder of 2020. It said the potential financial impact cannot be reasonably estimated and could be material and long-lasting. Cancellations and delays affected approximately 19% of 2020 contracts with durations over three months; these contracts typically account for over 90% of contractual revenue.
- The company postponed drydocks expected to cost approximately $28.0 million in 2020 and said further delays or cancellations were possible. It also planned to reduce vessel operations and crews where contracts were cancelled or delayed and continued reviewing overhead costs.
- Six-month cash used in operations was $12.8 million despite substantial noncash impairment charges; operating asset and liability changes and affiliate balances used cash, as did $29.0 million of deferred drydocking and survey costs.
- Management said it had significant cash on hand and that most debt was not due until 2022, but liquidity is exposed to operating deterioration, customer cancellations, limited access to capital, debt covenant compliance, and the absence of a revolver.
- Other material risks include offshore industry overcapacity and weak oil prices; vessel utilization and day-rate declines; COVID-related crew, travel, shipyard and operational disruptions; foreign currency and political exposure; and uncertainty around joint ventures and affiliate collections. Management reported that ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Progress and recoverability of the Sonatide and DTDW receivables, including whether further affiliate impairments or guarantee losses are needed.
- Vessel sales, held-for-sale valuations, and any subsequent impairment indicators for the active fleet.
- Cash availability and restrictions, including the $19.9 million restricted-cash balance, foreign cash constraints, and required uses of asset-sale proceeds under the note indenture.
- Contract cancellations, utilization, day rates, deferred drydocks, and the pace of operating cash generation as 2020 progresses.
- Debt obligations and covenants, including the 2022 senior secured notes and any required tender or debt-repurchase actions.
- The tax-benefit preservation plan: among other provisions, it may dilute an unapproved holder acquiring 4.99% or more of common stock, subject to stated exceptions.