Tidewater Inc. — Form 10-Q Summary
Business context and reporting period
This filing covers the three months ended June 30, 2014, Tidewater’s first quarter of fiscal 2015, compared with the three months ended June 30, 2013. Tidewater operates offshore support vessels and related marine businesses across four geographic segments. At June 30, 2014, it reported 287 owned or chartered vessels (including joint-venture vessels) and six ROVs. Financial amounts below are in U.S. dollars; unless stated otherwise, figures are in millions.
Financial performance and liquidity
- Revenue was $385.7 million, up 15% from $334.1 million. Vessel revenue increased 15% to $381.5 million.
- Operating income rose to $66.0 million from $43.4 million; operating margin was 17.1%, compared with 13.0%. Net earnings attributable to Tidewater were $43.7 million, or $0.88 per diluted share, versus $30.1 million, or $0.61 per share. Net margin was 11.3%, versus 9.0%.
- Vessel operating costs increased 11% to $217.2 million, but declined to 56.9% of vessel revenue from 59.1%, lifting vessel operating margin to 43.1% from 40.9%. Depreciation and amortization was $43.1 million, up 8%; interest and other debt costs, net, increased to $13.1 million from $8.9 million.
- Operating cash flow was $30.9 million, compared with $3.6 million. The quarter’s cash generation was affected by working-capital movements, including slower receivables collections. Investing activities used $22.7 million, including $39.9 million of property and equipment additions, partly offset by $13.4 million of sale-leaseback proceeds. Financing activities used $15.1 million, including $12.5 million of dividends. Cash declined $6.9 million to $53.5 million.
- At quarter-end, current assets were $871.3 million and current liabilities $409.8 million (current ratio approximately 2.1). Total debt was approximately $1.51 billion, including $10.4 million current and $1.50 billion long-term debt. The company had $600 million available under its revolving facility and no revolver borrowings. Debt covenants include maximum debt-to-capitalization of 55% and minimum interest coverage of 3.0x.
- Equity was $2.72 billion. The declared dividend was $0.25 per share. The board authorized up to $200 million in repurchases for July 1, 2014–June 30, 2015; no shares were repurchased under the preceding authorization.
Material changes versus the prior comparable period
- Management attributed higher revenue and earnings primarily to improved utilization, a larger fleet of newer vessels, a full quarter of Troms Offshore operations, and a 10% increase in worldwide average day rates. Worldwide utilization rose to 79.8% from 68.8%, and average day rates to $18,701 from $16,976.
- Americas vessel revenue increased 33%, Middle East/North Africa 35%, and Sub-Saharan Africa/Europe 5%; Asia/Pacific revenue declined 6%. Asia/Pacific reported a $1.0 million vessel operating loss, compared with $10.3 million operating profit a year earlier, as costs rose sharply, including repairs and maintenance.
- Operating cash flow improved year over year, but receivables and other operating asset/liability changes were a significant cash use. The comparable 2013 quarter included Troms acquisition and vessel investment cash outflows; current-quarter investing outflows were substantially lower.
- Vessel operating lease expense increased 62% to $6.5 million. The company sold and leased back one vessel, receiving $13.4 million and deferring a $9.4 million gain for recognition over the lease term.
Outlook, management commentary, risks and contingencies
- The filing provides no specific company earnings or revenue guidance. Management described the global offshore-vessel market as approximately balanced and cited potential support from offshore exploration spending and rig activity, while warning that substantial new vessel construction could pressure utilization and rates. Natural-gas oversupply could weigh on offshore activity, particularly in the Americas.
- Tidewater had $684.97 million of remaining commitments for 33 vessels and two ROVs under construction; expected vessel deliveries run from August 2014 through June 2016. Management expects to fund fleet renewal with operating cash flow, cash, available borrowing capacity and potentially new borrowings or lease financing, while weighing investment against repurchases and other uses of cash.
- Angola is a material collection, currency and political risk. Amounts due from Sonatide were approximately $430 million at June 30, largely unpaid vessel revenue. Angola generated about $87 million, or 23%, of vessel revenue for the quarter; Tidewater reported collecting approximately $91 million from Angolan customers. Local-currency conversion, devaluation, delays, additional costs and taxation remain risks. Nine net vessels were transferred out of Angola from April through July 2014; redeployment costs and downtime could be material.
- Other notable matters include a Brazilian customs fine assessment of approximately $70.3 million, most of which had been disallowed on administrative appeal but remained subject to further appeal; a possible, unquantified Brazilian state tax assessment for which no accrual was recorded; and approximately $19 million of Nigerian customer receivables involved in litigation, for which no reserve was recorded.
- The Venezuela arbitration’s merits hearings concluded in June 2014; the written decision and timing were uncertain. In the DRC, authorities had imposed an approximately $1.2 million fine concerning salvage authorization after the NANA TIDE sinking, and had denied outward clearance for another vessel; Tidewater said related fines or assessments were believed covered by insurance. A long-delayed Brazilian fast-supply-boat construction project remains in arbitration, and $11.7 million related to disputes over two delivered U.S.-built PSVs is held in escrow.
- Other risks identified include oil and gas spending and commodity-price volatility, competition and vessel overcapacity, crew and maintenance cost inflation, shipyard delays, foreign exchange and political risks, and evolving maritime labor requirements. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Recoverability and timing of collection of the approximately $430 million Sonatide receivable, and whether Angola’s currency and payment arrangements improve.
- Execution and funding of the $685 million remaining vessel and ROV commitments, delivery schedules, and the returns those new assets earn.
- Whether higher utilization and day rates persist, especially given new vessel supply and weaker Asia/Pacific segment results.
- Cash conversion and working-capital trends, including receivables, alongside debt service, covenant headroom and use of the $600 million revolver.
- Developments and potential financial exposure in Brazilian tax/customs matters, Nigerian litigation, Venezuela arbitration, DRC proceedings, and shipyard disputes.
- Whether the new $200 million repurchase authorization is used and how repurchases would be balanced against fleet investment and liquidity.
The interim statements are unaudited and were reviewed by the independent registered public accounting firm; its review report states it was not aware of material modifications needed for GAAP conformity.