SEACOR Marine Holdings Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a quarterly filing; selected fourth-quarter results are also summarized below. The company provides offshore marine support and transportation services to oil, gas and offshore wind customers. Its fleet and joint ventures operated 179 vessels at year-end.
Financial performance and liquidity
- Revenue: $253.6 million, up 45.9% from $173.8 million in 2017. Time-charter revenue was $222.3 million; other marine services revenue rose to $26.7 million from $8.6 million.
- Operating results: Operating loss was $66.8 million versus $128.4 million in 2017; operating margin improved to approximately -26.3% from -73.9%. The 2018 result included $14.6 million of vessel impairment charges, partly offset by gains on asset sales.
- Net results: Net loss attributable to SEACOR Marine was $77.6 million, or $3.71 per share, compared with a $32.9 million loss, or $1.87 per share, in 2017. Net interest expense increased to $27.9 million from $14.7 million.
- Cash flow: Operating activities used $53.0 million, compared with $34.7 million provided in 2017. Investing activities used $31.1 million; financing activities provided $69.3 million. Capital expenditures were $52.0 million.
- Year-end liquidity: Cash and cash equivalents were $95.2 million; restricted cash was $1.7 million; construction reserve funds were $28.1 million. The filing reports $124.9 million in combined cash, restricted cash, marketable securities and construction reserve funds. An additional $2.5 million was available under subsidiary credit facilities.
- Debt and commitments: Debt was $404.7 million net of discounts and issuance costs ($443.0 million contractual principal). Long-term debt was $387.9 million, with $16.8 million current. Capital purchase commitments totaled $78.2 million, due primarily in 2019 and 2020; another $20.2 million of orders for two FSVs was indefinitely deferred.
- Operations: Fleet utilization improved to 62% from 54%, and average rate per day worked rose to $7,282 from $5,972. Excluding wind-farm vessels, utilization was 57% versus 45%.
Material changes and unusual items
- Revenue growth and improved utilization reflected fleet additions, vessel reactivations and stronger activity in several regions. The U.S. Gulf remained weak, with 24% utilization, while Africa reached 87% and Middle East and Asia 74%.
- In September 2018, the company entered a $130 million secured syndicated facility, refinancing subsidiary debt and increasing term debt by approximately $30.1 million. The facility matures in 2023 and bears variable LIBOR-based interest; swaps fixed rates on part of the borrowing.
- The company formed a liftboat joint venture, Falcon Global Holdings, in which it holds 72% and consolidates results. It also invested in joint ventures and announced the acquisition of UP Offshore through a 49%-owned venture, with non-recourse debt at the venture level.
- In April 2018, a private placement raised approximately $56.9 million through common shares and warrants. Carlyle exchanged $50 million of convertible notes for warrants; $125 million of notes remained, with the coupon increased to 4.25% and maturity extended to December 2023.
- Tax benefits and expenses were significant: the 2018 tax benefit was $13.3 million, including recognition of $3.9 million of net operating loss tax benefits, while a $3.4 million return-to-provision adjustment increased tax expense.
- Fourth-quarter 2018 revenue was $70.9 million, operating loss $11.2 million, and net loss $8.0 million. In fourth-quarter 2017, revenue was $49.3 million, operating loss $35.8 million, and net income $27.9 million; the prior-year quarter included favorable items, so net-income comparison is not like-for-like.
Outlook, risks and contingencies
- Management said available cash, construction reserves, operating cash flows, existing borrowing capacity and potential capital-market access should be sufficient for obligations, capital spending and debt service over the next 12 months. The company gave no specific revenue, earnings or utilization guidance.
- Management described offshore conditions as difficult and volatile. A fourth-quarter 2018 oil-price decline, weak offshore exploration spending and global vessel oversupply could pressure day rates, utilization, cash flow and asset values. The company warned that additional impairments may arise if conditions deteriorate.
- Liquidity requires monitoring: operating cash flow was negative, debt rose, and certain facilities require at least $35 million of available liquidity. A large portion of contractual debt payments falls in 2023 and later, including $222.9 million due in 2023.
- Other key exposures include customer concentration (Perenco contributed 10.3% of 2018 revenue; the ten largest customers contributed about 47%), foreign operations (79% of revenue), foreign-exchange and interest-rate risk, vessel reactivation and construction costs, and environmental, safety, regulatory and political risks.
- U.K. multi-employer pension plans are in deficit. The company recorded a $1.2 million MNRPF funding charge in 2018; further assessments are possible. Ordinary-course litigation reserves were recorded, and management did not expect changes in estimates to have a material effect.
- New lease accounting effective January 1, 2019 was expected to add $33.9 million of right-of-use assets and $32.1 million of lease liabilities, with additional retained-earnings adjustments. The company also expects higher fuel costs from the IMO sulfur limit taking effect in 2020.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2018. The independent auditor issued an unqualified opinion on the financial statements; it did not audit internal-control effectiveness.
Most important facts for investors to verify
- Whether operating cash flow recovers and the company maintains the $35 million minimum-liquidity covenant.
- Debt maturities, interest expense, collateral and covenant headroom, especially the 2023 maturity concentration and variable-rate exposure.
- Whether utilization and day rates continue to improve, particularly in the U.S. Gulf, and whether vessel oversupply or low oil prices reverse progress.
- Cash requirements and returns from the $78.2 million construction commitments, deferred FSV orders, and joint-venture investments and obligations.
- Potential additional vessel impairments, pension assessments, customer collection issues and the company’s capacity to reactivate cold-stacked vessels.
- Equity dilution from warrants, convertible notes and subsequent share issuances, as well as Jones Act ownership restrictions on non-U.S. holders.