Tidewater Inc. — Form 10-Q Summary
Business context and period: Offshore support vessel operator Tidewater reported the three months ended June 30, 2015, its fiscal 2016 first quarter, compared with the three months ended June 30, 2014. The company operated or chartered 272 vessels at quarter-end, excluding joint-venture vessels. Financial amounts below are in U.S. dollars; “million” is used for readability.
Financial performance and position
| Metric | Quarter ended June 30, 2015 | Prior-year quarter |
|---|---|---|
| Total revenue | $304.8 million | $385.7 million |
| Vessel revenue | $298.3 million | $381.5 million |
| Operating income | $14.1 million | $66.0 million |
| Net income (loss) attributable to Tidewater | $(15.1) million | $43.7 million |
| Diluted earnings (loss) per share | $(0.32) | $0.88 |
| Cash from operating activities | $92.7 million | $30.9 million |
- Total revenue fell 21%; vessel revenue declined about 22%. Operating margin was approximately 4.6%, versus 17.1% a year earlier. Vessel operating costs were $179.3 million, 60% of vessel revenue versus 57% previously.
- Net loss before tax was $4.9 million. Income tax expense was $10.3 million; management used a discrete tax-rate method because its usual annual-rate approach was considered unreliable for the quarter.
- Operating cash flow rose to $92.7 million, driven partly by working-capital movements, including receivables and affiliate balances. Cash additions to property and equipment were $92.6 million, leaving operating cash flow less those additions near breakeven before other investing flows. Investing cash flow was $(63.2) million, including $24.2 million of vessel-contract refunds.
- Cash and cash equivalents were $103.0 million at June 30, up from $78.6 million at March 31. Current assets were $834.8 million and current liabilities $492.2 million. The large $385.5 million due-from-affiliate balance is primarily related to Angola.
- Balance-sheet debt was approximately $1.54 billion, including $45.4 million current and $1.50 billion long-term. The May credit-facility amendment provides a $600 million revolver and $300 million term loan, maturing June 2019; the full $600 million revolver was available at quarter-end. Covenants include debt-to-capitalization not above 55% and interest coverage of at least 3.0 to 1.0.
- The company declared a $0.25-per-share dividend. It had $100 million remaining under its share-repurchase authorization, extended through June 30, 2016, but repurchased no shares in the quarter.
Material changes and management commentary
- Management attributed the sharp earnings decline principally to weaker customer exploration and production spending amid lower oil and gas prices, reducing vessel utilization and day rates. Worldwide utilization fell to 68.8% from 79.8%; average day rate fell to $17,379 from $18,701.
- Revenue declined in every geographic segment. Sub-Saharan Africa/Europe was the largest decrease, down $56.8 million, with its vessel operating profit falling to $1.3 million from $37.6 million. Asia/Pacific revenue fell 31%; Americas fell 5%; Middle East/North Africa fell 15%.
- Vessel operating costs declined 18% and general and administrative expense declined 14%, partly offsetting weaker revenue. The fleet had 38 stacked vessels at June 30, compared with 11 a year earlier; 23 additional vessels were stacked during the quarter.
- Net asset-disposition expense was $7.6 million, versus a $2.9 million gain a year earlier. The quarter included about $15.0 million of impairments, partly offset by $5.8 million of deferred sale/leaseback gains and $1.5 million of net asset-sale gains. The filing also cites a $4.1 million company foreign-exchange loss and Tidewater’s share of approximately $6 million of Sonatide foreign-exchange losses.
- Management described the near- to intermediate-term outlook as challenging: depressed commodity prices and reduced E&P spending, together with expected new vessel deliveries, could cause offshore-support-vessel overcapacity, further pressuring utilization and day rates. The filing provides no specific earnings or revenue guidance.
Outlook, risks, commitments, and unusual items
- Angola and Sonatide: Approximately $68 million of quarterly vessel revenue came from Angola, 23% of consolidated vessel revenue. About $385 million was due from Sonatide at June 30; conversion and repatriation of kwanza receipts, currency devaluation, U.S.-dollar liquidity constraints, and regulatory uncertainty create collection and earnings risks. The company also flagged a possible 10% levy on certain foreign-exchange transactions and uncertainty over rules that could require full Angolan ownership of local vessel operators.
- Fleet investment: Sixteen vessels remained under construction, with $223.3 million of unfunded commitments. Management expected to use operating cash flow and borrowing capacity, and possibly further borrowing or lease financing, to complete fleet renewal. Delivery schedules and customer demand remain relevant to the investment decision.
- Shipyard matters: Tidewater settled termination of three delayed towing-supply vessels, recovering $24.2 million in June and reporting a further $12 million returned in July; an additional $3.5 million interest credit is to offset other installments. Two delayed PSVs are subject to delivery elections or potential refunds. A long-delayed Brazilian fast-supply-boat dispute remains in arbitration; the company recorded a $2.4 million impairment for costs not covered by insurance.
- Legal and contingent matters: The company reported a $63.6 million ICSID award against Venezuela, but recognized no gain because it remains uncollected; in July, Venezuela sought annulment and obtained a provisional stay of enforcement. Brazilian customs fines originally assessed at 155 million reais were being contested; 28 million reais remained before an administrative appeal board. A Nigerian dispute involves approximately $16 million of receivables, for which no reserve was recorded. Tidewater also identified possible U.S. customs documentation deficiencies for repairs to U.S.-flagged vessels; potential duties, fines, and interest were not yet quantified.
- The interim financial statements were reviewed, not audited. Management reported disclosure controls and procedures effective and no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Track vessel utilization, day rates, stackings, and regional operating margins as offshore customer spending and vessel supply change.
- Assess collectability and currency exposure of the $385 million Sonatide receivable, including Angolan conversion, repatriation, and regulatory developments.
- Reconcile cash generation with vessel investment needs, the $223 million remaining construction commitments, debt maturities, covenant headroom, and the dividend or repurchase plans.
- Monitor delivery, refund, and arbitration outcomes for delayed or terminated vessel construction contracts, and any additional impairment charges.
- Follow collection and annulment proceedings for the Venezuela award and developments in the Brazil, Nigeria, and U.S. customs matters.