Tidewater Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2016, Tidewater’s first quarter of fiscal 2017. The filing was signed August 9, 2016. Tidewater operates offshore support vessels and related services for oil and gas exploration, development and production.
Financial results and liquidity
| Metric | Quarter ended June 30, 2016 | Prior-year quarter |
|---|---|---|
| Total revenue | $167.9 million | $304.8 million |
| Operating income (loss) | $(66.1) million | $14.1 million |
| Net loss | $(88.6) million | $(15.2) million |
| Net loss attributable to Tidewater | $(89.1) million; $(1.89) per share | $(15.1) million; $(0.32) per share |
| Cash from operating activities | $(10.9) million | $92.7 million |
- Vessel revenue was $162.4 million, down 46% year over year. Worldwide fleet utilization fell to 48.6% from 68.8%, and average vessel day rates declined to $13,727 from $17,379.
- Vessel operating costs fell 39% to $108.9 million, but remained 67% of vessel revenue, compared with 60% a year earlier. General and administrative expense declined 16% to $37.0 million.
- Asset impairments were $36.9 million, primarily related to stacked vessels and weaker vessel values. Depreciation and amortization was $44.6 million. Interest and other debt costs rose to $17.0 million from $13.2 million.
- Cash and cash equivalents were $668.7 million at June 30, down from $678.4 million at March 31. The company reported a $1.2 billion working capital deficit, principally because all debt was classified as current. The $600 million revolving facility was fully drawn, with no available capacity.
- Debt classified as current was $2.041 billion; long-term debt was reported as zero. The company’s net debt-to-net-capitalization ratio was 38.3%, versus 37.3% at March 31. The filing says $664.5 million of cash was held by foreign subsidiaries and available without adverse tax consequences.
- No dividend was declared for the quarter. Tidewater suspended its quarterly dividend program in January 2016 to preserve liquidity.
Material changes versus the prior comparable period
- Revenue fell 45% (about $136.8 million), reflecting lower customer spending, reduced vessel utilization and weaker day rates amid the oil and gas downturn and industry vessel overcapacity.
- Every geographic segment reported lower vessel revenue and an operating loss: Americas revenue was $60.6 million; Asia/Pacific $7.9 million; Middle East $24.2 million; and Africa/Europe $69.7 million. Worldwide active owned or chartered vessels averaged 181, compared with 245 a year earlier; stacked vessels averaged 87, versus 28.
- Operating cash flow shifted from $92.7 million provided to $10.9 million used. Capital additions were $7.6 million, compared with $92.6 million in the prior-year quarter; investing activities provided $5.2 million, including $11.5 million in shipyard refunds.
- Professional-services expense increased, which management attributed in part to negotiations with lenders and noteholders. The company also recorded higher insurance and loss-reserve expense due to a claim reserve increase.
Outlook, risks and unusual items
- Debt covenant and going-concern risk: Tidewater failed the 3.0x minimum interest-coverage covenant at June 30, 2016 and expected further covenant pressure in fiscal 2017. Limited lender and noteholder waivers extended relief through September 18, 2016. Discussions to amend debt arrangements were ongoing, with no assurance of agreement. Potential concessions could include collateral, debt repayment, reduced borrowing capacity, higher interest, or equity-linked compensation. Acceleration under cross-default provisions would exceed available liquidity; the company said it would likely seek Chapter 11 reorganization if it could not reach agreement. The prior-year audit opinion included a going-concern explanatory paragraph; these interim statements nevertheless assume continued operations.
- Market outlook: Management expected subdued offshore activity amid depressed oil prices and lower exploration and production spending. Industry surveys cited projected 2016 overall E&P spending reductions of 11%–17%, including offshore reductions of 20%–25%. New vessel deliveries could add to overcapacity and pressure utilization and day rates. The filing provides no company earnings or revenue guidance.
- Angola exposure: Tidewater reported approximately $342 million due from Sonatide, its 49%-owned joint venture, including about $95 million of invoiced unpaid vessel revenue. Sonatide held approximately $117 million, primarily in kwanza-denominated deposits awaiting conversion and expatriation. Currency controls, dollar shortages, delays, devaluation and regulatory uncertainty could impede collection or reduce value. Angola generated $39 million, or 24%, of Tidewater’s vessel revenue in the quarter.
- Vessel commitments: Four vessels remained under construction, with $57.9 million of remaining commitments, or approximately $41 million net of expected $17 million refunds. A PSV was delivered in July 2016; the other three were expected in January, April and May 2017. The company also had vessel options and shipyard refund exposures not included in the four-vessel commitment total.
- Contingencies and unusual recoveries: A Venezuela arbitration award totaled $66.4 million, but collection remained uncertain; no gain was recognized. The company was contesting Brazilian customs fines; most of the original 155 million reais assessment had been resolved in its favor, while 3 million reais and 30 million reais remained subject to court or administrative proceedings. Tidewater also pursued approximately $13 million from a Nigerian customer-related dispute and was seeking to enforce a $5.5 million UK damages award against former agents’ principals; the receivable was not reserved.
- Other risks include possible additional vessel impairments, foreign-exchange losses, costs or disruption from vessel redeployment, uncertainty over Angolan ownership and payment rules, and possible customs duties or penalties for foreign repairs to U.S.-flag vessels. Management said it could not estimate potential exposure from further customs amendments.
Important facts for investors to verify
- Whether lenders and noteholders reached durable covenant and audit-opinion relief before the September 18, 2016 waiver expiry, and the resulting debt terms and classification.
- Cash availability, including the location and accessibility of foreign-held cash, and whether operating cash flow can cover obligations without revolver capacity.
- Collection, conversion and expatriation of the $342 million due from Sonatide and the value of its kwanza-denominated deposits.
- Subsequent vessel utilization, day rates, stacking, impairment charges and customer spending trends.
- Actual vessel construction spending, deliveries, option decisions and receipt of expected shipyard refunds.
- Progress and recoverability of the Venezuela award, Nigerian receivable and damages, and outstanding Brazilian and U.S. customs matters.