Business context and reporting period
SEACOR Marine Holdings Inc. filed this unaudited Form 10-Q for the three months ended March 31, 2020. It provides offshore marine transportation and support services to oil and gas and wind-energy customers. The company and its joint ventures operated 147 vessels at quarter-end. Results exclude the North Sea standby safety business, sold in December 2019 and reported as discontinued operations.
Financial and operating performance
Unless noted otherwise, amounts are in millions of dollars. Comparative figures are for Q1 2019.
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Operating revenue | $41.7 | $44.9 |
| Operating loss | $(24.6) | $(21.0) |
| Consolidated net loss | $(20.0) | $(28.3) |
| Net loss attributable to SEACOR Marine | $(15.9) | $(25.5) |
| Loss per share, basic and diluted | $(0.66) | $(1.11) |
| Cash used in operating activities | $(8.1) | $(4.9) |
| Cash, cash equivalents and restricted cash, March 31 | $72.6 | $87.0 at Dec. 31, 2019 |
| Long-term debt principal | $423.9 | $429.8 at Dec. 31, 2019 |
- Time-charter revenue was $39.3 million. Fleet utilization was 63%, versus 58%; average daily rate across the fleet was $7,163, versus $7,109. Excluding crew-transfer vessels, utilization was 57% in both periods, while average rate per day worked rose to $11,157 from $9,796.
- Direct vessel profit, a company-defined non-GAAP measure, increased to $17.1 million from $9.7 million. Operating loss nevertheless widened, principally reflecting $9.2 million of impairment charges and other asset-disposition losses; the prior-year quarter included a net gain.
- Operating expenses were $24.6 million, down from $35.2 million, including lower personnel, repair and maintenance, and drydocking costs. Depreciation and amortization was $15.0 million; interest expense was $7.6 million.
- At March 31, current assets were $152.9 million and current liabilities $112.5 million. Cash and cash equivalents were $69.2 million; restricted cash was $3.4 million. Including $3.7 million of construction reserve funds, available balances cited by the company totaled $76.3 million. The company also reported $2.3 million available under subsidiary credit facilities.
- Net cash used in investing activities was $0.8 million, including $11.2 million of capital expenditures, $3.1 million of equipment-sale proceeds and $9.1 million of withdrawals from construction reserve funds. Financing cash outflow was $5.2 million, mainly scheduled debt payments.
Material changes versus the prior comparable period
- Revenue declined 7%, to $41.7 million. Management attributed lower charter revenue to fleet dispositions, vessel repositioning and reduced core-fleet utilization; European and African vessel profit improved, while Latin American vessel profit declined.
- Operating loss increased by $3.6 million, despite lower operating expenses. The quarter included a $9.2 million impairment of liftboat assets and a net $12.6 million loss on asset dispositions and impairments, compared with a $0.3 million net gain in Q1 2019.
- Consolidated net loss narrowed, aided by a $5.1 million derivative gain (versus a $0.9 million loss) and lower equity-method losses. The derivative gain primarily reflected a decline in the fair value of the convertible notes’ conversion-option liability.
- Operating cash outflow increased by $3.3 million. Working-capital movements, including receivables, were a significant use of cash.
- On March 20, the company acquired the remaining 28% of Falcon Global Holdings for 900,000 shares, bringing ownership to 100% and reducing noncontrolling interests.
Outlook, management commentary, risks and unusual items
- Management said COVID-19, the oil-price decline and market uncertainty had not yet materially reduced demand for its services or materially affected liquidity, but warned that prolonged depressed commodity prices could materially harm demand, operations and financial condition. WTI closed at $20.48 per barrel on March 31; the May 2020 futures contract traded below zero on April 20.
- No specific revenue or earnings guidance was provided. The company targeted at least $8.0 million of annualized recurring savings from its transformation plan, expected to be completed by Q2 2020; it incurred $0.5 million of restructuring charges in Q1. It estimated a further $1.5 million of restructuring costs remained.
- The company expected meaningful tax refunds over the next 12 months under the CARES Act, but did not quantify them. It also said lower oil prices and offshore oversupply could depress customer activity, utilization and vessel values. Additional impairments may result if market conditions worsen.
- At March 31, SEACOR Marine was above the 70% net-debt-to-equity limit in a guarantor covenant under the Sea-Cat Crewzer III facility: its ratio was 72%. The borrower was otherwise in compliance; the breach did not trigger cross-defaults or immediate acceleration. The company classified the debt as current pending a waiver or modification and expected one in Q2 2020; receipt was not assured in the filing.
- Unfunded capital commitments were $34.2 million, payable during the remainder of 2020, for three PSVs and two CTVs. A further $16.3 million of previously reported FSV orders had been indefinitely deferred. Debt principal maturities include $231.7 million in 2023.
- SEACOSCO, a 50%-owned investee, had stopped principal and interest payments on its shipyard-financing agreements effective January 2020, with approximately $3.7 million in payments outstanding as of May 1. SEACOR Marine also reported a $13.0 million shareholder loan and $5.6 million due under a ship-management agreement from SEACOSCO.
- After quarter-end, Falcon Global’s audited financial-statement deadline was extended to May 31, 2020, and the statements were not required to be free of a going-concern qualification. The company also reported an April 17 sale of a vessel under construction for $14.5 million, with a $2.1 million gain expected in Q2, and delivery of the SEACOR Andes on April 20.
- Management disclosed a material weakness in financial-reporting controls over review of journal-entry estimates using third-party information. The identified error in accounting for the convertible-note conversion-option liability was detected and corrected before the financial statements were released; management said the statements fairly presented the reported periods. Remediation was being evaluated, with no completion timetable specified.
- Other contingencies include a Brazilian tax dispute with a stated potential levy of $2.3–$3.2 million and $18.5 million of obligations guaranteed by SEACOR Holdings. Management did not expect ordinary-course litigation matters to have a material effect.
Important facts for investors to verify
- Whether lenders waived or modified the Sea-Cat guarantor covenant breach, and the resulting debt classification and liquidity impact.
- Cash generation, working-capital trends and the ability to fund $34.2 million of 2020 capital commitments while servicing debt.
- Whether COVID-19, low oil prices and offshore-vessel oversupply reduce charter rates, utilization or vessel fair values, prompting further impairments.
- Progress collecting SEACOSCO balances and resolving its deferred-payment defaults and ongoing funding needs.
- Implementation and testing of controls remediation, and the expected amount and timing of CARES Act tax refunds.