Tidewater Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2016 (the second quarter and first half of fiscal 2017). Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
Tidewater provides offshore support vessels and related services to the oil and gas exploration, development and production industry. At September 30, 2016, it owned or chartered 265 vessels, including 115 stacked vessels, and eight remotely operated vehicles. Weak offshore spending, low utilization and lower day rates continued to pressure results.
Financial performance and liquidity
| Metric | Quarter ended September 30, 2016 | Six months ended September 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Total revenue | $143.7 | $311.6 | $271.9 quarter; $576.7 six months |
| Operating loss | $(155.3) | $(221.5) | $(17.6) quarter; $(3.6) six months |
| Net loss attributable to Tidewater | $(178.5) | $(267.6) | $(43.8) quarter; $(58.9) six months |
| Diluted loss per share | $(3.79) | $(5.69) | $(0.93) quarter; $(1.25) six months |
| Operating cash flow | Not separately presented | $(0.6) | $163.9 for six months |
- Six-month vessel revenue fell 46% to $301.8 million. Worldwide vessel utilization declined to 45.7% from 67.2% and average day rates declined to $13,557 from $16,723.
- Six-month vessel operating costs decreased 42% to $196.0 million, but the vessel operating margin (vessel revenue less vessel operating costs) fell to $105.8 million, or about 35.1% of vessel revenue, from $224.6 million, or about 39.9%.
- Asset impairment charges were $129.6 million in the quarter and $166.4 million for six months, primarily associated with stacked vessels and reduced vessel values. The prior-year comparable charges were $31.7 million and $46.6 million.
- Cash and cash equivalents were $674.9 million, down from $678.4 million at March 31, 2016. Six-month investing activities provided $3.8 million, while financing activities used $6.8 million.
- Debt carrying value was approximately $2.041 billion. All debt was classified as current; the company had a $1.2 billion working-capital deficit. The $600 million revolving facility was fully drawn, with no availability reported.
- Net debt to net capitalization was 40.2%, compared with 37.3% at March 31, 2016. Interest and debt costs rose 34% for the six-month period to $35.4 million.
- The quarterly dividend was suspended in January 2016 to preserve liquidity. Three vessels remained under construction, with approximately $48 million of unfunded commitments, or $33.7 million net of expected shipyard refunds.
Material changes and management commentary
- Management attributed the severe revenue contraction to lower customer offshore spending and industry vessel overcapacity. Six-month revenues decreased by $265.1 million year over year; management reduced vessel operating costs by $141.9 million and general and administrative expenses by $11.2 million.
- All four reporting segments experienced lower six-month vessel revenue: Americas down 44%, Asia/Pacific down 77%, Middle East down 22%, and Africa/Europe down 47%. The Asia/Pacific and Africa/Europe segments reported six-month vessel operating losses of $11.7 million and $27.4 million, respectively.
- Management expected offshore activity and spending to remain suppressed in the near term. It cited analyst expectations that any offshore recovery might not occur until late calendar 2017 or 2018; this is market commentary, not company financial guidance.
- Management continued cost reductions and vessel stacking and redeployment, while prioritizing fleet upkeep, liquidity and completion of the three vessels under construction. No specific revenue or earnings guidance is provided in the filing text.
Debt, going concern and principal risks
- Tidewater failed the 3.0x minimum interest-coverage covenant at June 30 and September 30, 2016. Limited lender and noteholder waivers extended covenant and audit-opinion relief only through November 11, 2016. The filing reports continuing negotiations for amendments.
- Cross-default provisions could allow acceleration of debt across facilities and note classes. The company stated it would not have sufficient liquidity to repay accelerated debt and could likely seek Chapter 11 reorganization if acceptable amendments were not reached. Such a restructuring could result in equity holders losing some or all of their interests.
- The financial statements assume continued operations as a going concern. Debt was classified as current because waivers were limited in duration and the prior-year audit opinion included a going-concern explanatory paragraph.
- Angola creates significant collection, currency-conversion and liquidity exposure: approximately $300 million was due from Sonatide, including amounts supported in part by about $95 million of primarily kwanza-denominated cash awaiting conversion and expatriation. Angola generated 24% of six-month vessel revenue.
- Other notable exposures include the unresolved Brazilian customs assessment (155 million reais originally assessed; most was decided in Tidewater’s favor, with remaining appeals), a Venezuelan arbitration award of $67.1 million that has not been recognized as a gain and may be difficult to collect, and Nigerian litigation involving an approximately $12 million receivable.
- The company warned that its common stock could face NYSE delisting or suspension if it failed applicable continued-listing criteria, including an average closing price below $1 for 30 consecutive trading days.
Most important facts for investors to verify
- Whether lenders and noteholders agreed to durable covenant relief and amended debt terms before the November 11, 2016 waiver deadline, and the collateral, repayment, interest-rate or equity concessions required.
- Liquidity available for operations and debt service, given the fully drawn revolver, current classification of all debt, near-zero operating cash flow and working-capital deficit.
- Progress in converting and remitting Sonatide’s Angolan balances, collecting affiliate receivables, and managing currency and regulatory risks.
- Further vessel utilization and day-rate trends, stacking, vessel values and any additional impairment charges as offshore spending and industry capacity evolve.
- Actual receipt of expected shipyard refunds, remaining vessel-construction spending and delivery timing, as well as developments in the disclosed legal proceedings and NYSE listing status.