SEACOR Marine(SMHI) - 2019 Q3 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of loss, and cash flows, for the periods ended September 30, 2019 and 2018 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $125,641 | $179,032 | | Total Assets | $1,040,506 | $1,102,938 | | Total Current Liabilities | $111,397 | $83,617 | | Total Liabilities | $546,359 | $548,003 | | Total Equity | $494,147 | $554,935 | Condensed Consolidated Statements of Loss Highlights (in thousands) | Period | Operating Revenues | Operating Loss | Net Loss | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30, 2019 | $54,700 | $(4,421) | $(18,241) | | Three Months Ended Sep 30, 2018 | $58,169 | $(13,452) | $(15,766) | | Nine Months Ended Sep 30, 2019 | $152,422 | $(45,428) | $(76,778) | | Nine Months Ended Sep 30, 2018 | $144,670 | $(60,665) | $(74,083) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow from | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Operating Activities | $(4,215) | $(56,898) | | Investing Activities | $(30,821) | $(40,643) | | Financing Activities | $(22,383) | $80,918 | | Net Decrease in Cash | $(52,463) | $(8,032) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including ASC 842 adoption, the Transformation Plan, asset sales, and long-term debt, with the North Sea ERRV business now classified as held for sale - The company adopted the new lease standard ASC 842 on January 1, 2019, recording $33.7 million of right-of-use assets, $31.9 million in lease liabilities, and recognizing a cumulative-effect adjustment to retained earnings of $10.4 million (net of tax)[19][76] - In Q3 2019, the company began a Transformation Plan to reduce costs, recognizing $3.3 million in restructuring and severance charges, with the total estimated cost of the plan being $5.7 million[45][46][49] - On November 1, 2019, the company agreed to sell its North Sea emergency response and rescue vessel (ERRV) business (BPOS Group) for approximately £19.5 million ($25.1 million), plus potential earn-outs, now classified as Assets Held for Sale with an anticipated loss on sale of approximately $7.1 million[22][98] Long-Term Debt Summary (in thousands) | Debt Instrument | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Convertible Senior Notes | $125,000 | $125,000 | | SEACOR Marine Foreign Holdings Syndicated Credit Facility | $117,000 | $126,750 | | Falcon Global USA Term Loan Facility | $102,349 | $109,099 | | Other Debt | $87,725 | $82,123 | | Total Debt | $432,674 | $442,972 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses challenging market conditions, the sale of the North Sea ERRV business, a new Transformation Plan, and the company's liquidity position to meet financial obligations - The company continues to face difficult market conditions due to volatile oil prices and an oversupply of offshore support vessels, though it believes a recovery is beginning[105][106] - On November 1, 2019, the company agreed to sell its North Sea ERRV business for approximately £19.5 million ($25.1 million) plus potential earn-outs, with an estimated loss on sale of $7.1 million[108] - In Q3 2019, the company initiated a cost reduction plan targeting at least $8.0 million in annualized recurring savings, incurring $3.3 million in one-time restructuring charges[109] Consolidated Operational Highlights | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $54.7M | $58.2M | $152.4M | $144.7M | | Operating Loss | $(4.4M) | $(13.5M) | $(45.4M) | $(60.7M) | | Fleet Utilization | 74% | 67% | 67% | 58% | | Direct Vessel Profit (DVP) | $27.5M | $19.8M | $54.7M | $44.8M | Operating Income (Loss) by Segment Direct Vessel Profit improved in Q3 2019, with varied performance across segments, including significant DVP increases in Africa, Middle East & Asia, and Europe, while the US and Latin America segments saw decreases Direct Vessel Profit by Region - Q3 2019 vs Q3 2018 (in thousands) | Region | Q3 2019 DVP | Q3 2018 DVP | Change | | :--- | :--- | :--- | :--- | | United States | $4,743 | $6,607 | -28.2% | | Africa | $5,599 | $2,346 | +138.6% | | Middle East & Asia | $8,181 | $3,474 | +135.5% | | Latin America | $2,065 | $6,046 | -65.8% | | Europe | $6,901 | $1,296 | +432.5% | Liquidity and Capital Resources The company's liquidity as of September 30, 2019, totaled $60.3 million, with key requirements including $41.5 million in capital commitments and servicing $399.2 million in outstanding debt - As of September 30, 2019, the company had total liquidity of $60.3 million in cash, restricted cash, and construction reserve funds[165] - The company has unfunded capital commitments of $41.5 million for two CTVs and five PSVs, with $17.7 million payable in the remainder of 2019 and $23.8 million in 2020[164] - Total outstanding debt as of September 30, 2019, was $399.2 million, net of discount and issue costs[165] Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the company's exposure to market risk during the first nine months of 2019 - There has been no material change in the Company's exposure to market risk during the nine months ended September 30, 2019[178] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - The Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2019[179] - There were no changes in the Company's internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the controls[181] Part II. Other Information Legal Proceedings The company is appealing a Brazilian tax-deficiency notice with a potential liability ranging from $3.2 million to $4.4 million - A Brazilian subsidiary received a tax-deficiency notice with a potential liability ranging from R$12.8 million to R$17.5 million (USD $3.2 million – $4.4 million), which the company has appealed[86] Risk Factors There have been no material changes to the company's risk factors as disclosed in its 2018 Annual Report on Form 10-K - There have been no material changes in the Company's risk factors during the nine months ended September 30, 2019[183] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2019, the company withheld 16,861 shares of Common Stock at an average price of $14.22 per share for employee tax withholding obligations Common Stock Withheld for Tax Obligations | Period | Total Shares Withheld | Average Price per Share | | :--- | :--- | :--- | | July 1, 2019 to Sep 30, 2019 | 16,861 | $14.22 | Default Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[185] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[186] Other Information New executive employment agreements were executed on November 5, 2019, for key executives, establishing new base salaries and bonus targets - New executive employment agreements were executed on November 5, 2019, for key executives[187] Executive Base Salaries and Bonus Targets | Executive | Title | Base Salary | Target Annual Bonus | | :--- | :--- | :--- | :--- | | John Gellert | CEO | $450,000 | 100% of base salary | | Jesús Llorca | CFO | $300,000 | 100% of base salary | | Gregory Rossmiller | CAO | $280,000 | 100% of base salary | | Andrew H. Everett II | - | $275,000 | 100% of base salary | Exhibits This section lists the exhibits filed with the Form 10-Q, including the sale agreement for BPOS Group and new executive employment agreements - Key exhibits filed include the sale agreement for the BPOS Group and new employment agreements for John Gellert, Jesús Llorca, Gregory Rossmiller, and Andrew H. Everett II[194]