Tidewater Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Tidewater operates offshore support vessels serving offshore energy and wind markets. Unless stated otherwise, amounts below are U.S. dollars in millions.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Total revenue | $193.1 | $105.7 | Up 82.6%; also up from $186.7 in Q4 2022 |
| Operating income (loss) | $24.5 | $(7.3) | Operating margin 12.7%, versus (6.9%) |
| Net income (loss) attributable to Tidewater | $10.7 | $(12.2) | $0.21 diluted earnings per share, versus $(0.29) |
| Operating cash flow | $12.8 | $(11.6) | Improved year over year |
| Capital expenditures | $8.7 | $1.2 | Free cash flow, calculated as operating cash flow less property and equipment additions, was approximately $4.1 |
| Cash, cash equivalents and restricted cash | $172.7 | — | At March 31; includes restricted cash |
| Long-term debt | $169.4 carrying value | — | $175.0 face value of 8.50% senior secured notes due November 2026 |
Current assets were $396.4 million and current liabilities $215.3 million at quarter-end (approximately 1.84 current ratio). Tidewater also had an undrawn $25.0 million revolving facility. It reported compliance with its debt covenants. The filing states that cash, the revolver and expected operating cash flow are sufficient for ongoing operating requirements.
Vessel operating costs were $115.5 million, or 60% of vessel revenue, compared with $68.5 million, or 66%, a year earlier. Depreciation and amortization was $30.7 million. Income tax expense was $12.0 million on pretax income of $22.8 million, reflecting foreign deemed-profit, minimum-tax and withholding-tax regimes, as well as limits on offsetting profits and losses across jurisdictions.
Material changes and operating trends
- The $87.4 million year-over-year revenue increase primarily reflected the 2022 Swire Pacific Offshore (SPO) acquisition, higher day rates and broader fleet activity. SPO vessels contributed $44.5 million of Q1 2023 revenue.
- Worldwide average day rates increased 36.8% year over year to $14,624. Active utilization declined to 80.6% from 82.5%, mainly because of a heavier drydock schedule; the company described its fleet as close to full utilization.
- Revenue increased $6.4 million sequentially from Q4 2022, mainly on higher day rates in the Americas and Asia Pacific, partly offset by seasonal weakness in Europe/Mediterranean and fewer calendar days. Operating income rose from $13.1 million in Q4.
- West Africa was the largest segment by revenue and operating profit: revenue of $59.5 million and vessel operating profit of $17.2 million. The Middle East segment recorded a $0.3 million vessel operating loss.
- Q1 operating cash flow benefited from net income and working-capital movements, but included $31.3 million of cash paid for deferred drydocking and survey costs. Cash paid for income taxes was $17.1 million.
Outlook, transactions and risks
- Management expects offshore vessel supply and demand fundamentals to tighten and offshore upstream spending to increase over multiple years, but emphasized macroeconomic, commodity-price and geopolitical volatility. The filing provides no quantified financial guidance.
- Tidewater agreed to acquire 37 Solstad platform supply vessels for $577.0 million, subject to adjustments and customary extras. Closing was expected in Q2 2023, conditional on customary conditions and acceptable financing. Management expected to use a combination of debt and cash and said acquired-vessel cash flows were expected to service new debt.
- Two offshore tugs were delivered in April 2023; the filing says their delivery resulted in approximately $9.2 million of shipyard debt. Six crew boats were under construction, with approximately $14.1 million of expected shipyard debt upon deliveries in 2023–2024.
- In Q2 2023, the pension plan paid $11.8 million for an insurer to assume remaining liabilities for approximately 500 individuals; management expected to recognize a settlement gain. This is a subsequent-period event, not a Q1 result.
- Key risks include sensitivity to energy prices and customer spending, vessel utilization and day rates, financing and acquisition execution, international operations and foreign exchange, skilled labor availability, vessel maintenance, cybersecurity, regulation and climate-related changes. The company generally does not hedge foreign currency exposure. It reported ordinary-course legal matters that it did not expect to materially affect its financial position, results or cash flows.
- Management concluded disclosure controls were effective at March 31, 2023. Integration of SPO controls remained in progress for the company’s year-end internal-control assessment.
Important facts for investors to verify
- Whether the Solstad acquisition closed, its final financing terms and purchase-price adjustments, and the resulting leverage and liquidity.
- Whether higher day rates and strong utilization persist, particularly as drydock activity and regional seasonal conditions change.
- Cash conversion and working-capital needs, including drydocking outlays, tax payments and the availability of foreign-subsidiary cash.
- The drivers and sustainability of the $12.0 million quarterly tax expense, including uncertain foreign tax positions and valuation allowances on deferred tax assets.
- Post-quarter pension settlement accounting and costs or debt associated with vessel deliveries and construction.