TIDEWATER INC quarterly report, Q1 FY2018

Tidewater Inc. — Q1 2018 Form 10-Q

Reporting period: Quarter ended March 31, 2018. Tidewater provides offshore support vessels and related services to the energy industry. The company emerged from Chapter 11 in July 2017 and adopted fresh-start accounting; consequently, Q1 2018 “Successor” results are not directly comparable with Q1 2017 “Predecessor” results.

Key financial metrics

Metric	Q1 2018	Q1 2017
Total revenue	$91.5 million	$160.7 million
Operating loss	$12.2 million	$69.3 million
Net loss	$39.0 million	$87.0 million
Net loss attributable to Tidewater	$39.2 million	$94.9 million
Basic and diluted loss per share	$1.67	$2.01
Cash from operating activities	$(6.0) million	$70.2 million
Cash, cash equivalents and restricted cash at period end	$445.3 million	$706.4 million

Vessel revenue was $87.5 million, down 44% year over year. Vessel operating costs were $61.4 million, or 70% of vessel revenue, versus $80.8 million, or 52%, in Q1 2017. Operating margin was approximately negative 13% of total revenue; net margin was approximately negative 43%.
Interest and other debt costs were $7.6 million. Total debt carrying value was approximately $447.9 million, including $5.2 million current; principal outstanding was approximately $439.1 million. The 8% secured notes mature in 2022. Troms Offshore borrowings had a 5.01% weighted-average interest rate.
At March 31, 2018, total assets were $1.686 billion, current assets $816.1 million and current liabilities $197.2 million. Cash including restricted cash exceeded debt by approximately $2.6 million, before considering operating and other obligations. The company had no revolving credit facility.
Capital expenditures were $1.7 million; asset-sale proceeds were $9.5 million. The company paid $8.4 million to general unsecured creditors and made $1.5 million of debt principal payments during the quarter.

Material changes and operating performance

Revenue fell 43% versus Q1 2017, reflecting the offshore industry downturn, fewer vessels working, and lower utilization and day rates in several markets. Q1 2017 included a $39.1 million early-charter termination fee in the Americas, which significantly inflated the comparison.
Reported net loss improved, but the comparison is affected by fresh-start accounting, lower post-reorganization depreciation, and reduced debt costs. Depreciation and amortization declined to $12.0 million from $37.6 million, primarily because fresh-start accounting reset asset values.
General and administrative expense declined to $23.6 million from $41.7 million; Q1 2017 included $16.8 million of restructuring-related professional fees. Asset impairments were $6.2 million versus $64.9 million.
Worldwide utilization was 44.4%, up from 42.6%, while average day rate was $10,093, down from $15,693; the prior-year rate was materially boosted by the Americas termination fee. The fleet included 207 owned or chartered vessels, of which 70 were stacked, excluding joint-venture vessels.
Angola remained a major exposure: approximately $208 million was due from Sonatide at quarter end, partly offset by approximately $78 million due to it. The kwanza devalued about 27% during the quarter, producing a $14.8 million equity-method foreign exchange loss. Angolan operations generated about $14 million of vessel revenue.

Outlook, risks and unusual items

No formal financial guidance is provided. Management said offshore activity recovery is expected to lag onshore recovery and that material offshore improvement may not occur until 2019 or 2020. It expects low utilization and day rates to persist in the near to intermediate term given industry vessel overcapacity.
Management cited oil prices around $65 per barrel for WTI and $69 for Brent at March 2018 month-end, but emphasized uncertainty around customer offshore spending, oil and gas prices, vessel supply and new-build deliveries.
Management said cash and future operating cash flows should be sufficient for liquidity needs. However, Q1 operating cash flow was negative, and foreign cash is subject to currency conversion, repatriation, partner and tax constraints. Approximately $127.1 million was held by foreign subsidiaries.
Sonatide’s dollar scarcity and kwanza conversion constraints create collection and currency risks. Approximately $66 million of Sonatide-held cash was denominated in kwanzas; Tidewater collected about $8 million from Angolan operations during the quarter and reduced net affiliate balances by about $27 million through agreed netting.
The $56.7 million Venezuela expropriation award, accruing about $0.6 million of interest quarterly, is treated as a gain contingency and has not been recognized. Collection is uncertain; a U.S. judgment was vacated on service-of-process grounds, and a new action was filed in Washington, D.C.
Other matters include contested Brazilian customs fines of approximately $10 million, of which about $1.8 million was deposited with a court, and possible further U.S. Customs penalties related to vessel repair filings. The company also had $4.2 million of remaining capital commitments for a vessel under construction.
The company recorded a $45.3 million valuation allowance against deferred tax assets and reported $18.6 million in uncertain tax position liabilities. Management stated that the Tax Act accounting was incomplete at quarter end.

Important facts for investors to verify

Whether operating cash flow and collections, particularly from Sonatide, improve and whether Angolan currency can be converted and expatriated.
Trends in vessel utilization, day rates, stacked-vessel levels and offshore customer spending; distinguish underlying performance from Q1 2017’s termination-fee comparison.
Debt terms, covenant compliance, liquidity needs and cash availability, including restrictions on foreign-held cash.
Developments in the Venezuela award enforcement, Brazilian customs appeals and potential U.S. Customs penalties.
Fresh-start accounting’s effect on comparability, asset carrying values, depreciation and future impairment charges.