SEACOR Marine(SMHI) - 2019 Q4 - Annual Report

Part I Business SEACOR Marine Holdings Inc. provides global marine and support transportation services to offshore oil, natural gas, and wind farm facilities, operating a diverse fleet across five key geographic regions Business Overview The company provides global marine transportation services to offshore energy facilities with a diverse fleet of 149 vessels deployed across five main geographic regions, serving a concentrated customer base - The company provides global marine and support transportation services to offshore oil, natural gas, and wind farm facilities worldwide[15] - Fleet Composition as of December 31, 2019 | Vessel Type | Owned | Joint Ventured | Leased-in | Managed | Total | Average Age (Years) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Supply | 4 | 34 | — | 2 | 40 | 8 | | FSV | 30 | 5 | 1 | 1 | 37 | 10 | | Liftboats | 14 | — | 2 | — | 16 | 12 | | Crew transfer | 38 | 5 | — | — | 43 | 9 | | AHTS | 4 | — | 4 | — | 8 | 11 | | Specialty | 1 | 3 | — | 1 | 5 | 9 | | Total | 91 | 47 | 7 | 4 | 149 | 9 | - The company operates its fleet in five principal geographic regions: the United States (primarily Gulf of Mexico), Africa, the Middle East and Asia, Latin America, and Europe[27] - Customer concentration is significant, with the ten largest customers accounting for approximately 52% of operating revenues in 2019[36] Government Regulation The company's operations are subject to extensive international, federal, and state regulations covering vessel ownership, operation, safety, and environmental protection, including the U.S. Jones Act - The company is subject to the Jones Act, restricting vessel ownership and operation in U.S. coastwise trade, with non-U.S. citizen ownership limited to 22.5% of capital stock[44][45] - Operations are governed by international conventions such as MARPOL for pollution prevention, SOLAS for safety, and the ISM Code for safety management systems[46][52] - The company is subject to strict environmental laws like OPA 90 and the Clean Water Act, imposing liability for oil spills and pollutant discharges in U.S. waters[56][62] - Vessel security is regulated by the U.S. Maritime Transportation Security Act of 2002 and the International Ship and Port Facility Security Code, requiring security plans and certifications[83] Risk Factors The company faces significant risks related to its business, industry, and financial structure, including volatile oil and gas prices, intense competition, regulatory compliance, international operations, and substantial debt - The company's business is highly dependent on fluctuating oil and gas prices, impacting customer spending, fleet utilization, revenues, and asset values[90][91] - The offshore marine service industry is highly competitive and faces an oversupply of vessels, depressing charter and utilization rates[101][103] - Compliance with the Jones Act is critical, limiting non-U.S. citizen ownership to 25%; non-compliance could lead to prohibition from U.S. coastwise trade and vessel forfeiture[133] - Significant international operations, accounting for 78% of 2019 revenue, expose the company to political, economic, and regulatory risks including currency fluctuations[121] - The company has a significant debt load of $398.0 million as of December 31, 2019, with servicing dependent on cash flow generation and market conditions[127] Properties The company's principal physical properties consist of its fleet of offshore support vessels, detailed in the "Business" section - The company's principal physical properties are its offshore support vessels[192] Legal Proceedings The company is involved in various litigation matters in the normal course of business, which management does not expect to materially affect its financial position or results - The company is involved in various litigation matters in the normal course of business, which management does not expect to materially affect its financial position or operations[192] Executive Officers of the Registrant This section lists the current executive officers of SEACOR Marine, including their age, position, and professional background - Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | John Gellert | 49 | President, Chief Executive Officer and a director | | Jesús Llorca | 44 | Executive Vice President and Chief Financial Officer | | Gregory Rossmiller | 50 | Senior Vice President and Chief Accounting Officer | | Anthony Weller | 68 | Senior Vice President and Managing Director of the International Division | | Andrew H. Everett II | 37 | Senior Vice President, General Counsel and Secretary | Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities SEACOR Marine's common stock trades on the NYSE under "SMHI," with no current dividend intention, and the company repurchased shares in Q4 2019 - The company's common stock trades on the New York Stock Exchange under the symbol SMHI[197] - The company currently does not intend to pay dividends, retaining earnings to repay debt and fund growth[198] - Issuer Repurchases of Equity Securities (Q4 2019) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | 10/01/19-10/31/19 | — | — | | 11/01/19-11/30/19 | — | — | | 12/01/19-12/31/19 | 4,683 | $11.80 | | Total | 4,683 | $11.80 | Selected Financial Data This section provides a five-year summary of the company's selected historical financial data, showing net operating revenues of $201.5 million in 2019 and a widening net loss from continuing operations - Selected Historical Financial Data (in thousands) | | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Operating Revenues | $201,492 | $203,567 | $123,421 | $157,176 | $292,820 | | Net Loss from Continuing Operations | $(98,334) | $(83,422) | $(39,529) | $(134,715) | $(31,882) | | Total Assets | $1,009,193 | $1,102,938 | $1,008,504 | $1,015,119 | $1,208,150 | | Long-term Obligations | $390,073 | $387,854 | $292,041 | $217,805 | $181,340 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) The MD&A details the company's financial performance and condition, highlighting a $98.3 million net loss in 2019, strategic asset sales, cost reduction initiatives, improved fleet utilization, and liquidity management Overview and Recent Developments The company provides global marine support services, recently selling its North Sea standby safety fleet for $27.4 million and initiating cost reduction initiatives targeting $8.0 million in annualized savings - On December 2, 2019, the company sold its standby safety fleet for approximately $27.4 million, resulting in a $9.1 million loss, with operations now classified as discontinued[210] - In Q3 2019, the company initiated cost reduction initiatives targeting at least $8.0 million in annualized savings, incurring $3.7 million in one-time restructuring charges in 2019[211] - In February 2020, the company amended its Falcon Global credit facility to extend monthly term loan repayments from March 2020 to March 2021[209] Trends and Market Conditions The offshore marine business is highly cyclical and correlated with volatile oil and natural gas prices, leading to reduced customer spending and an oversupply of vessels, prompting the company to cold-stack vessels - Demand for offshore support vessels is highly correlated to volatile oil and natural gas prices, significantly impacting customer exploration and drilling activity[213] - The company cold-stacks vessels during weak utilization periods to reduce operating costs, with 14 of 98 owned and leased-in vessels cold-stacked as of December 31, 2019[217] Consolidated Results of Operations For 2019, net operating revenues were $201.5 million, with an operating loss of $52.5 million and a net loss from continuing operations of $89.2 million, while fleet utilization increased to 67% - Consolidated Results of Operations (in thousands) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating Revenues | $201,492 | $203,567 | $123,421 | | Operating Loss | $(52,526) | $(68,509) | $(129,644) | | Loss from Continuing Operations | $(89,228) | $(83,422) | $(39,529) | | Net Loss attributable to SEACOR Marine | $(92,837) | $(77,608) | $(32,901) | | Fleet Utilization | 67% | 59% | 50% | - Losses on asset dispositions and impairments were $5.4 million in 2019, including $12.0 million in impairment charges on AHTS and FSV fleets[229][274] - Equity in losses from 50% or less owned companies increased significantly to a loss of $14.3 million in 2019, primarily due to increased losses from the SEACOSCO joint venture[229][289] Liquidity and Capital Resources The company's liquidity is sourced from cash balances, operating cash flows, and credit facilities, with $398.1 million in outstanding debt and $35.9 million in capital commitments for 2020 vessel deliveries - Summary of Cash Flows (in thousands) | Activity | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Operating Activities | $9,447 | $(59,345) | $37,636 | | Investing Activities | $21,211 | $(33,467) | $(31,527) | | Financing Activities | $(25,942) | $69,250 | $(11,730) | - As of December 31, 2019, the company had outstanding debt of $398.1 million, net of debt discount and issue costs[299] - The company has capital commitments of $35.9 million for four PSVs and one crew transfer vessel scheduled for 2020 delivery, with an additional $30.2 million for three FSVs indefinitely deferred[299] Critical Accounting Policies and Estimates The company's financial statements rely on critical accounting policies requiring significant management estimates, including revenue recognition from charters and regular impairment analysis of long-lived assets - The company performs impairment analysis of long-lived assets, resulting in impairment charges of $12.0 million in 2019, $14.6 million in 2018, and $27.5 million in 2017 due to difficult market conditions[333][425] - Revenue is primarily generated from time and bareboat charters, recognized as lease revenues ratably over the lease term[325] - Property and equipment, primarily offshore support vessels, are depreciated using the straight-line method over estimated useful lives, typically 20 years for most vessels and 10 years for crew transfer vessels[330][331] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency exchange rates and interest rate fluctuations, with a 1% increase in LIBOR on unhedged variable-rate debt increasing annual interest payments by approximately $1.9 million - The company faces foreign currency exchange risk from international operations; a 10% strengthening of the euro against the pound sterling would result in $1.8 million in foreign currency losses on its €15.0 million debt[343] - For $187.2 million in unhedged variable-rate debt, a 1% increase in LIBOR would increase annual interest payments by approximately $1.9 million[346] Controls and Procedures As of December 31, 2019, management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[349] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO 2013 framework[353] Part III Directors, Compensation, Security Ownership, and Accountant Fees Information for Items 10 through 14, covering directors, executive compensation, security ownership, related transactions, and accounting fees, is incorporated by reference from the company's 2020 Annual Meeting of Stockholders proxy statement - Information on directors, executive officers, compensation, security ownership, related transactions, and accounting fees is incorporated by reference from the 2020 Annual Meeting of Stockholders proxy statement[357][359][360] Part IV Exhibits, Financial Statement Schedules This part includes the company's audited consolidated financial statements for the fiscal year ended December 31, 2019, the independent auditor's report, and a list of all exhibits filed with the Form 10-K - This section contains the company's audited consolidated financial statements, schedules, and a list of exhibits filed with the report[364] - Grant Thornton LLP, the independent registered public accounting firm, opined that the financial statements fairly present the company's financial position in conformity with U.S. GAAP[377]