Tidewater Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
Tidewater operates a global fleet of offshore support vessels serving oil and gas exploration, development and production, as well as offshore wind activity. At September 30, 2023, it reported 219 active vessels. On July 5, the company completed its acquisition of 37 Solstad platform supply vessels for approximately $594.2 million.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $299.3 | $191.8 | $707.3 | $460.9 |
| Operating income | $55.7 | $19.1 | $119.1 | $13.6 |
| Net income (loss) attributable to Tidewater | $26.2 | $5.4 | $59.5 | $(32.4) |
| Diluted earnings (loss) per share | $0.49 | $0.10 | $1.13 | $(0.76) |
| Operating cash flow | Not provided for the quarter | $57.5 | $(5.1) |
Revenue increased 56% year over year in Q3 and 53% for the nine-month period. Approximate operating margins were 18.6% in Q3 2023 versus 9.9% in Q3 2022, and 16.8% versus 2.9% for the respective nine-month periods. Nine-month cash from operations turned positive, but receivables and deferred drydock spending were significant cash uses.
Management attributed sequential Q3 revenue growth largely to the Solstad vessels and improved day rates. Worldwide average day rates rose 11.4% sequentially to $17,865; active utilization increased to 82.1% from 79.4%. For the nine months, average day rates were up 31% year over year, while active utilization declined to 80.8% from 83.0%, primarily due to drydock activity and vessel movements between segments.
At September 30, cash and cash equivalents were $275.1 million; cash, cash equivalents and restricted cash totaled $282.1 million. Reported working capital was $242.9 million. Debt principal totaled $761.8 million, including $102.4 million due within 12 months; the balance sheet reported $641.3 million of long-term debt. The undrawn revolving facility provides up to $25 million and matures in 2026. The company reported compliance with its financial covenants.
Material changes and unusual items
- The Solstad acquisition added 37 vessels and materially expanded the fleet and asset base. The acquired vessels contributed $59.1 million of Q3 revenue; associated operating costs and depreciation also increased.
- The acquisition was funded with cash on hand and $575 million of new debt: a $325 million secured term loan and $250 million of 10.375% unsecured notes. Q3 interest and other debt costs rose to $19.3 million from $4.7 million in Q2, reflecting the added borrowing.
- July warrant exercises generated $111.5 million in cash and resulted in issuance of approximately 1.9 million shares; remaining Series A and B warrants expired. Shares outstanding increased to 52.84 million at September 30 from 50.55 million at year-end 2022.
- Nine-month investing cash outflow was $607.8 million, chiefly the Solstad purchase. The company recorded $4.5 million of net gains on asset dispositions for the nine months.
- The company recognized a $1.8 million pension settlement gain in Q2. A $1.2 million reduction in acquired indemnification assets and a corresponding tax-expense decrease had no net-income effect.
Outlook, risks and contingencies
Management expected offshore supply-demand conditions to remain favorable through the remainder of 2023 and into 2024, citing customer investment, higher day rates and a diminishing vessel supply. It said the fleet was close to full utilization, expected the acquired vessels to generate significant operating income, and believed operating cash flow plus cash on hand would cover obligations. This is qualitative outlook, not numerical earnings guidance. Management also cautioned that energy prices and the outlook remain subject to volatility.
Principal risks include energy-market and customer-spending swings, vessel utilization and day rates, integration of acquisitions, higher debt service and restrictive covenants, interest-rate and foreign-exchange exposure, international operating and tax risks, weather and geopolitical events, and regulatory or climate-related changes. Debt agreements impose liquidity and equity requirements, and certain instruments also require interest coverage; covenant breaches could lead to acceleration and enforcement against collateral, including vessels. Distributions are subject to restrictions under the unsecured notes. The company said ordinary-course legal matters were not expected to materially affect its financial position, results or cash flows. It does not generally hedge foreign-currency exposure.
Important facts for investors to verify
- Whether the Solstad fleet sustains the utilization and day rates needed to support acquisition returns and debt service.
- Debt maturities, interest expense, covenant headroom and the conditions restricting distributions.
- Cash conversion, especially receivable collections and continuing drydock and maintenance requirements.
- Regional performance: the Middle East segment reported operating losses, and West Africa utilization declined sequentially.
- Exposure to foreign-currency movements, foreign tax matters and the valuation allowance against deferred tax assets.