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TIDEWATER INC - Quarter Report: 2023 September (Form 10-Q)

tdw20230930_10q.htm
 

      

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             .

Commission File Number: 1-6311

Tidewater Inc.

(Exact name of registrant as specified in its charter)

tdw.jpg

Delaware

72-0487776

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

 

842 West Sam Houston Parkway North, Suite 400

Houston, Texas 77024

(Address of principal executive offices) (Zip code)

 

(713) 470-5300

Registrant’s telephone number, including area code

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

TDW

New York Stock Exchange

Warrants to purchase shares of common stock

TDW.WS

NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer  ☒

 

 

Accelerated filer  ☐

Non-accelerated filer  ☐

Emerging Growth Company ☐

 

 

Smaller reporting company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

52,841,838 shares of Tidewater Inc. common stock $0.001 par value per share were outstanding on October 31, 2023. 

 

 

 

 

 

Table of Contents

 

 

PART I

      2
         

ITEM 1.

  FINANCIAL STATEMENTS  

2

    CONDENSED CONSOLIDATED BALANCE SHEETS   2
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  

3

    CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  

4

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  

5

    CONDENSED CONSOLIDATED STATEMENTS OF EQUITY  

7

    Notes to the Condensed Consolidated Financial Statements   8

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

22

ITEM 3.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

40

ITEM 4.

  CONTROLS AND PROCEDURES  

40

         

PART II

     

41

         

ITEM 1.

  LEGAL PROCEEDINGS  

41

ITEM 1A.

  RISK FACTORS  

41

ITEM 6.

  EXHIBITS  

43

 

 

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.       FINANCIAL STATEMENTS

 

TIDEWATER INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands, except share and par value data)

 

 

September 30, 2023

  

December 31, 2022

 

ASSETS

       

Current assets:

       

Cash and cash equivalents

$275,070  $164,192 

Restricted cash

 4,973   1,241 

Trade and other receivables, net of allowance for credit losses of $15,448 and $14,060 at September 30, 2023 and December 31, 2022, respectively

 250,671   156,465 

Marine operating supplies

 27,489   30,830 

Assets held for sale

 565   4,195 

Prepaid expenses and other current assets

 16,598   20,985 

Total current assets

 575,366   377,908 

Net properties and equipment

 1,348,001   796,655 

Deferred drydocking and survey costs

 99,215   61,080 

Indemnification assets

 18,648   28,369 

Other assets

 30,325   33,644 

Total assets

$2,071,555  $1,297,656 
        

LIABILITIES AND EQUITY

       

Current liabilities:

       

Accounts payable

$57,183  $38,946 

Accrued expenses

 119,631   105,518 

Current portion of long-term debt

 102,369    

Other current liabilities

 53,301   50,323 

Total current liabilities

 332,484   194,787 

Long-term debt

 641,301   169,036 

Other liabilities

 66,246   67,843 
        

Commitments and contingencies

         
        

Equity:

       

Common stock of $0.001 par value, 125,000,000 shares authorized, 52,839,862 and 50,554,179 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

 53   51 

Additional paid-in capital

 1,668,392   1,556,990 

Accumulated deficit

 (640,128)  (699,649)

Accumulated other comprehensive income

 4,413   8,576 

Total stockholders’ equity

 1,032,730   865,968 

Noncontrolling interests

 (1,206)  22 

Total equity

 1,031,524   865,990 

Total liabilities and equity

$2,071,555  $1,297,656 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

2

 

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, except per share data)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

September 30, 2022

   

September 30, 2023

   

September 30, 2022

 

Revenues:

                               

Vessel revenues

  $ 296,975     $ 190,247     $ 698,478     $ 456,298  

Other operating revenues

    2,287       1,515       8,849       4,640  

Total revenue

    299,262       191,762       707,327       460,938  

Costs and expenses:

                               

Vessel operating costs

    164,239       113,037       397,962       281,805  

Costs of other operating revenues

    1,481       592       3,005       1,436  

General and administrative

    21,001       27,267       70,559       73,288  

Depreciation and amortization

    57,730       30,856       121,164       89,279  

Long-lived asset impairment and other

          1,214             714  

(Gain) loss on asset dispositions, net

    (863 )     (264 )     (4,483 )     826  

Total costs and expenses

    243,588       172,702       588,207       447,348  

Operating income

    55,674       19,060       119,120       13,590  

Other income (expense):

                               

Foreign exchange loss

    (2,149 )     (3,997 )     (3,620 )     (4,932 )

Equity in net earnings (losses) of unconsolidated companies

    4       9       29       (235 )

Interest income and other, net

    568       581       3,488       4,416  

Loss on warrants

                      (14,175 )

Interest and other debt costs, net

    (19,288 )     (4,391 )     (28,209 )     (12,850 )

Total other expense

    (20,865 )     (7,798 )     (28,312 )     (27,776 )

Income (loss) before income taxes

    34,809       11,262       90,808       (14,186 )

Income tax expense

    9,260       6,352       32,515       18,189  

Net income (loss)

    25,549       4,910       58,293       (32,375 )

Net loss attributable to noncontrolling interests

    (650 )     (470 )     (1,228 )     (6 )

Net income (loss) attributable to Tidewater Inc.

  $ 26,199     $ 5,380     $ 59,521     $ (32,369 )

Basic income (loss) per common share

  $ 0.50     $ 0.12     $ 1.16     $ (0.76 )

Diluted income (loss) per common share

  $ 0.49     $ 0.10     $ 1.13     $ (0.76 )

Weighted average common shares outstanding

    52,230       44,451       51,235       42,570  

Dilutive effect of warrants, restricted stock units and stock options

    1,380       7,069       1,322        

Adjusted weighted average common shares

    53,610       51,520       52,557       42,570  

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

3

 

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In Thousands)

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

September 30, 2022

   

September 30, 2023

   

September 30, 2022

 

Net income (loss)

  $ 25,549     $ 4,910     $ 58,293     $ (32,375 )

Other comprehensive income (loss):

                               

Unrealized loss on note receivable

    (153 )     (429 )     (469 )     (1,275 )

Change in liability of pension plans

          140       (3,694 )     81  

Total comprehensive income (loss)

  $ 25,396     $ 4,621     $ 54,130     $ (33,569 )

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

4

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

  

Nine Months

  

Nine Months

 
  

Ended

  

Ended

 
  

September 30, 2023

  

September 30, 2022

 

Operating activities:

        

Net income (loss)

 $58,293  $(32,375)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

        

Depreciation

  85,989   62,539 

Amortization of deferred drydocking and survey costs

  35,175   26,740 

Amortization of debt premium and discounts

  2,644   1,157 

Amortization of below market contracts

  (1,906)   

Provision for deferred income taxes

  69   134 

(Gain) loss on asset dispositions, net

  (4,483)  826 

Gain on pension settlement

  (1,807)   

Gain on bargain purchase

     (1,300)

Long-lived asset impairment and other

     714 

Loss on warrants

     14,175 

Stock-based compensation expense

  7,247   5,344 

Changes in assets and liabilities, net of effects of business acquisition:

        

Trade and other receivables

  (92,684)  (30,301)

Changes in due to/from affiliates, net

     (20)

Accounts payable

  18,237   9,364 

Accrued expenses

  14,231   (913)

Deferred drydocking and survey costs

  (73,309)  (43,883)

Other, net

  9,778   (17,315)

Net cash provided by (used in) operating activities

  57,474   (5,114)

Cash flows from investing activities:

        

Proceeds from asset dispositions

  9,604   8,475 

Acquisitions, net of cash acquired

  (594,191)  (20,740)

Additions to properties and equipment

  (23,202)  (11,708)

Net cash used in investing activities

  (607,789)  (23,973)

Cash flows from financing activities:

        

Exercise of warrants

  111,483    

Proceeds from issuance of shares

     70,630 

Repurchase of SPO acquisition warrants

     (70,630)

Issuance of long-term debt

  575,000    

Acquisition of non-controlling interest in a majority owned subsidiary

  (1,427)   

Debt issuance costs

  (14,758)  (393)

Tax on share-based awards

  (5,899)  (2,276)

Net cash provided by (used in) financing activities

  664,399   (2,669)

Net change in cash, cash equivalents and restricted cash

  114,084   (31,756)

Cash, cash equivalents and restricted cash at beginning of period

  167,977   154,276 

Cash, cash equivalents and restricted cash at end of period

 $282,061  $122,520 

 

5

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED

(Unaudited)

(In Thousands)

 

   

Nine Months

   

Nine Months

 
   

Ended

   

Ended

 
   

September 30, 2023

   

September 30, 2022

 

Supplemental disclosure of cash flow information:

               

Cash paid during the period for:

               

Interest, net of amounts capitalized

  $ 8,452     $ 7,979  

Income taxes

  $ 36,585     $ 16,143  

Supplemental disclosure of noncash investing activities:

               

Acquisition of SPO

  $     $ 162,648  

Purchase of three vessels

  $ 12,198     $  

Supplemental disclosure of noncash financing activities:

               

Warrants issued for SPO acquisition

  $     $ 162,648  

Repurchase of SPO acquisition warrants

  $     $ 992  

Debt incurred for purchase of three vessels

  $ 12,198     $  

 

Cash, cash equivalents and restricted cash at September 30, 2023 includes $2.0 million in long-term restricted cash, which is included in other assets in our condensed consolidated balance sheet.

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

6

 

 

 

TIDEWATER INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In Thousands)

 

   

Three Months Ended

 
                           

Accumulated

                 
           

Additional

           

other

   

Non

         
   

Common

   

paid-in

   

Accumulated

   

comprehensive

   

controlling

         
   

stock

   

capital

   

deficit

   

income (loss)

   

interest

   

Total

 

Balance at June 30, 2023

  $ 51     $ 1,554,793     $ (666,327 )   $ 4,566     $ (556 )   $ 892,527  

Total comprehensive income (loss)

                26,199       (153 )     (650 )     25,396  

Exercise of warrants into common stock

    2       111,481                         111,483  

Amortization of share-based awards

          2,118                         2,118  

Balance at September 30, 2023

  $ 53     $ 1,668,392     $ (640,128 )   $ 4,413     $ (1,206 )   $ 1,031,524  
                                                 

Balance at June 30, 2022

  $ 42     $ 1,554,561     $ (715,649 )   $ 1,763     $ 930     $ 841,647  

Total comprehensive income (loss)

                5,380       (289 )     (470 )     4,621  

Issuance of common stock

    4       72,253                         72,257  

Repurchase of SPO acquisition warrants

          (73,249 )                       (73,249 )

Amortization of share-based awards

          1,823                         1,823  

Balance at September 30, 2022

  $ 46     $ 1,555,388     $ (710,269 )   $ 1,474     $ 460     $ 847,099  

 

   

Nine Months Ended

 
                           

Accumulated

                 
           

Additional

           

other

   

Non

         
   

Common

   

paid-in

   

Accumulated

   

comprehensive

   

controlling

         
   

stock

   

capital

   

deficit

   

income (loss)

   

interest

   

Total

 

Balance at December 31, 2022

  $ 51     $ 1,556,990     $ (699,649 )   $ 8,576     $ 22     $ 865,990  

Total comprehensive income (loss)

                59,521       (4,163 )     (1,228 )     54,130  

Acquisition of non-controlling interest in a majority owned subsidiary

          (1,427 )                       (1,427 )

Exercise of warrants into common stock

    2       111,481                         111,483  

Amortization of share-based awards

          1,348                         1,348  

Balance at September 30, 2023

  $ 53     $ 1,668,392     $ (640,128 )   $ 4,413     $ (1,206 )   $ 1,031,524  
                                                 

Balance at December 31, 2021

  $ 41     $ 1,376,494     $ (677,900 )   $ 2,668     $ 466     $ 701,769  

Total comprehensive income (loss)

                (32,369 )     (1,194 )     (6 )     (33,569 )

Issuance of common stock

    5       72,252                         72,257  

SPO acquisition warrants

          176,823                         176,823  

Repurchase of SPO acquisition warrants

          (73,249 )                       (73,249 )

Amortization of share-based awards

          3,068                         3,068  

Balance at September 30, 2022

  $ 46     $ 1,555,388     $ (710,269 )   $ 1,474     $ 460     $ 847,099  

 

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

 

7

 

 

(1)

INTERIM FINANCIAL STATEMENTS

 

The accompanying unaudited condensed consolidated financial statements reflect the financial position, results of operations, comprehensive income, cash flows, and changes in stockholders’ equity of Tidewater Inc., a Delaware corporation, and its consolidated subsidiaries, collectively referred to as the “company”, “Tidewater”, “we”, “our”, or “us”.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, certain information and disclosures normally included in our annual financial statements have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023 (2022 Annual Report). In the opinion of management, the accompanying financial information reflects all normal recurring adjustments necessary to fairly state our results of operations, financial position and cash flows for the periods presented and are not indicative of the results that may be expected for a full year.

 

Our financial statements have been prepared on a consolidated basis. Under this basis of presentation, our financial statements consolidate all subsidiaries (entities in which we have a controlling financial interest), and all intercompany accounts and transactions have been eliminated. We use the equity method to account for equity investments over which we exercise significant influence but do not exercise control and are not the primary beneficiary.

 

Certain prior year amounts have been reclassified to conform to the current year presentation. Unless otherwise specified, all per share information included in this document is on a diluted basis.

 

 

(2)

RECENTLY ISSUED OR ADOPTED ACCOUNTING PRONOUNCEMENTS

 

In September 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-04, Disclosures of Supplier Finance Program Obligations, which requires disclosures about supplier finance programs including the nature of the program, activity during the period, changes from period to period and potential magnitude. The guidance is effective for annual periods beginning after December 15, 2022, with early adoption permitted, and most disclosures are applied retrospectively to each period in which a balance sheet is presented. We adopted this standard on January 1, 2023, and it did not have any impact on our consolidated financial statements and related disclosures.

 

In October 2021, the FASB issued ASU 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends Topic 805, Business Combinations, to require an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The guidance is effective for annual and interim periods beginning after December 15, 2022, with early adoption permitted. We adopted this standard on January 1, 2023, and it did not have any impact on our consolidated financial statements and related disclosures.

 

 

8

 
 

(3)

ACQUISITIONS

 

Solstad Vessels

 

On March  7, 2023, we entered into an Agreement for the Sale and Purchase of Vessels, Charter Parties and Other Assets, which was amended on June 30, 2023 (the “Acquisition Agreement”), with certain subsidiaries of Solstad Offshore ASA, a Norwegian public limited company (collectively, the “Sellers”), pursuant to which we agreed to acquire from the Sellers (the “Solstad Acquisition”): (i)  37 platform supply vessels owned by the Sellers (the “Solstad Vessels”); and (ii) the charter parties governing certain of the Solstad Vessels. On July  5, 2023, we completed the Solstad Acquisition for an aggregate cash purchase price of approximately $594.2 million, consisting of the  $577.0 million base purchase price plus an initial $3.0 million purchase price adjustment;  $3.2 million for working capital items comprised of fuel and lubricants; and $11.0 million in estimated transaction costs, consisting primarily of advisory and legal fees. The purchase price was funded through a combination of cash on hand and net proceeds from both the Senior Secured Term Loan and the 10.375% Senior Unsecured Notes due July 2028. See “Note ( 9) Debt” for additional disclosure on these debt instruments.
 
We have determined that, under the provisions of FASB Accounting Standard Codification (ASC) 805, substantially all of the fair value of the gross assets acquired is concentrated in a group of identifiable assets and accordingly, the Solstad Acquisition is considered an asset acquisition. As a result, the assets acquired and liabilities assumed are measured at cost, which consists of the amount of cash paid and direct transaction costs. The cost of a group of assets acquired in an asset acquisition are allocated to the individual assets acquired or liabilities assumed based on their relative fair values and does not give rise to goodwill.
 

As of July 5, 2023, the cost of the asset acquisition was allocated to the following individual assets acquired and liabilities assumed based on their relative fair values.

 

(In Thousands)

    
     
     
  

Estimated Fair Value

 
     

Marine operating supplies

 $1,891 

Net properties and equipment

  601,000 

Total assets

  602,891 
     
     

Other current liabilities (A)

  8,600 

Other liabilities (A)

  1,400 

Total liabilities

  10,000 
     

Net assets acquired

 $592,891 
     

Costs and expenses

    

Vessel operating costs (B)

  1,300 
     

Purchase consideration

 $594,191 

 

 

(A)Current and long-term liabilities related to certain existing charter contracts accompanying the acquired Solstad Vessels that are below current market rates. These liabilities will be ratably amortized into revenue over the life of the related contracts.
(B)The working capital adjustment included $1.3 million for lubricants which are expensed by Tidewater.

 

9

 

Swire Pacific Offshore Holdings LTD

 

On April 22, 2022 (Closing Date), we acquired Swire Pacific Offshore Holdings Ltd., a limited company organized under the laws of Bermuda (SPO), which at closing owned 50 offshore support vessels operating primarily in West Africa, Southeast Asia and the Middle East. On the Closing Date, we paid $42.0 million in cash and issued 8,100,000 warrants, each exercisable at $0.001 per share for one share of our common stock (SPO acquisition warrants). In addition, we paid $19.6 million at closing and received an $8.8 million post-closing working capital refund related to pre-closing working capital adjustments, for a total consideration of $215.5 million. Assets acquired and liabilities assumed in the business combination were recorded at their estimated fair values as of the Closing Date under the acquisition method of accounting.

 

As of March 31, 2023, the following recorded fair value amounts for the assets acquired and liabilities assumed were final, with no material measurement period adjustments made during the year:

 

(In Thousands)

    
     

Assets

    

Cash

 $33,152 

Trade and other receivables

  64,621 

Marine operating supplies

  5,122 

Assets held for sale

  2,500 

Prepaid expenses and other current assets

  4,174 

Net properties and equipment

  174,415 

Indemnification assets (A)

  32,279 

Other assets

  1,153 

Total assets

  317,416 
     

Liabilities

    

Accounts payable

  1,594 

Accrued expenses

  54,924 

Other current liabilities

  28,511 

Other liabilities

  16,886 

Total liabilities

  101,915 
     

Net assets acquired

 $215,501 

 

(A)Consists primarily of tax liabilities existing at the Closing Date recorded in other current liabilities and other liabilities.

 

Business combination related costs were expensed as incurred in general and administrative expense and consist of various advisory, legal, accounting, travel, training, valuation and other professional fees totaling $0.6 million and $1.4 million for the three and nine months ended September 30, 2023, respectivelyBusiness combination related costs totaled $3.4 million and $12.8 million for the three and nine months ended September 30, 2022, respectively.

 

The unaudited supplemental pro forma results present consolidated information as if the business combination were completed on January 1, 2022. The pro forma results include, among others: (i) a reduction in depreciation expense for adjustments to property and equipment; and (ii) the reversal of any income or expense related to assets retained by the seller and SPO’s former parent, Banyan Overseas Limited, a limited company organized under the laws of Bermuda (Banyan). The pro forma results do not include any potential synergies or non-recurring charges that may result directly from the business combination.

 

(In Thousands)

    
  

Period from

 
 

January 1, 2022 to

 
 

September 30, 2022

 

Revenues

 $528,037 
     

Net loss

 $(28,501)
     

 

10

 

 

(4)

ALLOWANCE FOR CREDIT LOSSES

 

Expected credit losses are recognized on the initial recognition of our trade accounts receivable and contract assets. In each subsequent reporting period, even if a loss has not yet been incurred, credit losses are recognized based on the history of credit losses and current conditions, as well as reasonable and supportable forecasts affecting collectability. We developed an expected credit loss model applicable to our trade accounts receivable and contract assets that considers our historical performance and the economic environment, as well as the credit risk and its expected development for each segmented group of customers that share similar risk characteristics. It is our practice to write off receivables when all legal options for collection have been exhausted.

 

Activity in the allowance for credit losses for the nine months ended September 30, 2023 is as follows:

 

  

Trade

 

(In Thousands)

 

and Other

 
  

Receivables

 

Balance at January 1, 2023

 $14,060 

Current period provision for expected credit losses

  2,841 

Write offs

  (1,484)

Recoveries

  407 

Other

  (376)

Balance at September 30, 2023

 $15,448 

 

The balance in our allowance for credit losses at September 30, 2023 and December 31, 2022, includes $11.3 million and $11.7 million respectively, previously reported in the allowance for credit losses related to amounts due from affiliates, which are now combined with trade and other receivables.

 

 

(5)

REVENUE RECOGNITION

 

See “Note (13) Segment and Geographic Distribution of Operations” for revenue by segment and in total for the worldwide fleet.

 

Contract Balances

 

At September 30, 2023, we had $5.6 million of deferred mobilizations costs included within prepaid expenses and other current assets and $3.0 million of deferred mobilization costs included in other assets.

 

At September 30, 2023, we had $6.6 million of deferred mobilization revenue included within accrued expenses related to unsatisfied performance obligations that will be recognized during the remainder of 2023 and 2024

 

11

 
 

(6)

STOCKHOLDERS’ EQUITY AND DILUTIVE EQUITY INSTRUMENTS

 

Earnings per share

 

Until the second quarter of 2022, we reported annual and quarterly losses from operations and reported basic and diluted losses per share based on the actual average shares of common stock outstanding during the relevant period. For the three months ended September 30, 2023 and 2022, and for the nine months ended September 30, 2023, we reported net income from operations. Our diluted earnings per share for the these periods is based on our weighted average common shares outstanding and is computed using the treasury stock method for our outstanding “in-the-money” warrants, restricted stock units and stock options.

 

Accumulated Other Comprehensive Income (Loss)

 

The following tables present the changes in accumulated other comprehensive income (loss) (OCI) by component, net of tax:

 

(In Thousands)

 

Three Months Ended

 
  September 30, 2023  September 30, 2022 

Balance at June 30, 2023 and 2022

 $4,566  $1,763 

Unrealized loss on note receivable

  (153)  (429)

Pension benefits recognized in OCI

     140 

Balance at September 30, 2023 and 2022

 $4,413  $1,474 

 

(In Thousands)

 

Nine Months Ended

 
  

September 30, 2023

  

September 30, 2022

 

Balance at December 31, 2022 and 2021

 $8,576  $2,668 

Unrealized loss on note receivable

  (469)  (1,275)

Pension benefits recognized in OCI

  (3,694)  81 

Balance at September 30, 2023 and 2022

 $4,413  $1,474 

 

Dilutive Equity Instruments

 

The following table presents the changes in the number of common shares, incremental “in-the-money” warrants, restricted stock units and stock options outstanding:

 

Total shares outstanding including warrants, restricted stock units and stock options

 

September 30, 2023

  

September 30, 2022

 

Common shares outstanding

  52,839,862   46,494,323 

New creditor warrants (strike price $0.001 per common share)

  81,244   119,215 

GulfMark creditor warrants (strike price $0.01 per common share)

  95,835   185,126 

SPO acquisition warrants (strike price $0.001 per common share)

     4,003,299 

Restricted stock units and stock options

  1,505,519   1,619,132 

Total

  54,522,460   52,421,095 

 

We also have “out-of-the-money” warrants outstanding exercisable for 861,310 shares of common stock at  September 30, 2023 at an exercise price of $100.00, which expire in November 2024. Prior to August 1, 2023, we had outstanding Series A Warrants, exercise price of $57.06 and Series B Warrants, exercise price of $62.28, both with an expiration date of July 31, 2023. During July 2023, an aggregate of 2.0 million Series A Warrants and Series B Warrants were exercised and 1.9 million shares of common stock were issued in exchange for $111.5 million in cash proceeds. The remaining unexercised Series A Warrants and Series B Warrants, 3.1 million in the aggregate, expired according to their terms on July 31, 2023. No warrants, restricted stock units or stock options, whether in the money or out of the money, are included in our earnings (loss) per share calculations if the effect of such inclusion is antidilutive.

 

12

 
 

(7)

INCOME TAXES

 

Income tax rates and taxation systems in the jurisdictions where we and our subsidiaries conduct business vary and our subsidiaries are frequently subjected to minimum taxation regimes. In some jurisdictions, tax liabilities are based on gross revenues, statutory deemed profits or other factors, rather than on net income. We use a discrete effective tax rate method to calculate taxes for interim periods instead of applying the annual effective tax rate to an estimate of the full fiscal year due to the level of volatility and unpredictability of earnings in our industry, both overall and by jurisdiction.

 

For the nine months ended September 30, 2023, income tax expense reflects tax liabilities in various jurisdictions based on either revenue (deemed profit regimes) or pre-tax profits.

 

The tax liabilities for uncertain tax positions are primarily attributable to permanent establishment issues related to foreign jurisdictions, subpart F income inclusions and withholding taxes on foreign services. Penalties and interest related to income tax liabilities are included in income tax expense. Income tax payable is included in other current liabilities.

 

As of December 31, 2022, our balance sheet reflected approximately $439.7 million of net deferred tax assets prior to a valuation allowance of $441.9 million. As of September 30, 2023, we had net deferred tax assets of approximately $449.6 million prior to a valuation allowance of $451.9 million. The net deferred tax assets amounts as of September 30, 2023 include $64.4 million of deferred tax assets from the SPO acquisition offset by a valuation allowance of $64.4 million.

 

Management assesses all available positive and negative evidence to permit use of existing deferred tax assets.

 

With limited exceptions, we are no longer subject to tax audits by U.S. federal, state, local or foreign taxing authorities for years prior to March 2016. We are subject to ongoing examinations by various foreign tax authorities and do not believe that the results of these examinations will have a material adverse effect on our financial position, results of operations or cash flows.

 

13

 
 

(8)

EMPLOYEE BENEFIT PLANS

 

U.S. Defined Benefit Pension Plan

 

We sponsor a defined benefit pension plan (pension plan) that was frozen in 2010 covering certain U.S. employees. We have not made contributions to the pension plan since 2019. Actuarial valuations are performed annually, and an assessment of the future pension obligations and market value of the assets will determine if contributions are made in the future.

 

During the second quarter of 2023, we entered into an agreement committing the pension plan to use a portion of its assets to purchase an annuity from an insurance company (the “Insurer”) to transfer approximately $11.8 million of the pension plan’s pension liabilities. Under the terms of this agreement, we irrevocably transferred to the Insurer all future pension plan benefit obligations for approximately 500 Tidewater participants (“Transferred Participants”) effective in April 2023. This annuity transaction was funded entirely with existing pension plan assets. The Insurer assumed responsibility for administrative and customer service support of the pension plan, including distribution of payments to the Transferred Participants. We recognized a $1.8 million settlement gain in the second quarter of 2023 in connection with this transaction.

 

Supplemental Executive Retirement Plan

 

We support a non-contributory and non-qualified defined benefit supplemental executive retirement plan (supplemental plan) that was closed to new participants during 2010. We contributed $1.2 million to the supplemental plan during each of the nine months ended September 30, 2023 and 2022, respectively, and expect to contribute $0.4 million during the remainder of 2023. Our obligations under the supplemental plan were $17.0 million and $17.3 million at September 30, 2023 and  December 31, 2022, respectively, and are included in “accrued expenses” and “other liabilities” in the consolidated condensed balance sheet.

 

Net Periodic Benefit Costs

 

The net periodic benefit cost for our defined benefit pension plans and supplemental plan (referred to collectively as “Pension Benefits”) is comprised of the following components:

 

(In Thousands)

 

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2023

  

September 30, 2022

  

September 30, 2023

  

September 30, 2022

 

Pension Benefits:

                

Interest cost

 $750  $578  $2,249  $1,735 

Expected return on plan assets

  (526)  (751)  (1,579)  (2,254)

Amortization of net actuarial (gains) losses

  (36)  15   (106)  47 

Net periodic pension (benefit) cost

 $188  $(158) $564  $(472)

 

The components of the net periodic pension cost are included in the caption “Interest income and other, net.”

 

14

 
 

(9)

DEBT

 

The following is a summary of all debt outstanding:

 

(In Thousands)

        
  

September 30, 2023

  

December 31, 2022

 

Senior bonds:

        

8.50% Senior Secured Notes due November 2026 (A) (B)

 $175,000  $175,000 

Supplier Facility Agreements

  11,844    

Senior Secured Term Loan (C)

  325,000    

10.375% Senior Unsecured Notes due July 2028 (D)

  250,000    
  $761,844  $175,000 

Debt discount and issuance costs

  (18,174)  (5,964)

Less: Current portion of long-term debt

  (102,369)   

Total long-term debt

 $641,301  $169,036 

 

 

(A)

As of September 30, 2023 and  December 31, 2022, the fair value (Level 2) of the Senior Secured Notes was $185.3 million and $177.3 million, respectively.

 

(B)

The $5.0 million restricted cash on the condensed consolidated balance sheet at September 30, 2023, represents the pro rata amount due for our next semiannual interest payment obligation on the 8.50% Senior Secured Notes.

 (C)As of September 30, 2023, the fair value of the Senior Secured Term Loan approximates book value.
 (D)As of September 30, 2023, the fair value (Level 2) of the 10.375% Senior Unsecured Notes due July 2028 was $263.3 million.

 

Supplier Facility Agreements

 

We have signed agreements for the construction of eight new vessels. Upon delivery of each vessel, we may enter into Facility Agreements to finance a portion of the construction and delivery costs. Three vessels have been delivered through September 30, 2023, and we entered into Facility Agreements for approximately EUR11.2 million ($11.8 million) in financing. Each of the three Facility Agreements bear interest at rates ranging from 2.7% to 6.0% and are payable in ten equal principal semi-annual installments, with the first installment commencing six months following delivery of the vessel. Payments for the three delivered vessels begin in the fourth quarter of 2023. The Facility Agreements are secured by the vessels, guaranteed by Tidewater as parent guarantor and contain no financial covenants.

 

Senior Secured Term Loan

 

Tidewater entered into a Credit Agreement, by and among Tidewater, as parent guarantor, TDW International Vessels (Unrestricted), LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“TDW International”), as borrower, certain other unrestricted subsidiaries of Tidewater, as other security parties, the lenders party thereto, DNB Bank ASA, New York Branch (“DNB Bank”), as facility agent and DNB Markets, Inc. (“DNB Markets”), as bookrunner and mandated lead arranger (the “Credit Agreement”), which was fully drawn on  July 5, 2023, in a single advance of $325.0 million yielding net proceeds of approximately $318.3 million, which were used to fund a portion of the purchase price for the Solstad Acquisition.

 

The Senior Secured Term Loan is composed of a $100.0 million Tranche A loan and a $225.0 million Tranche B loan, each maturing on July 5, 2026. The Tranche A loan is required to be repaid by $50.0 million within one year, with the remaining $50.0 million due at maturity. The Tranche B loan amortizes over the three-year term of the Senior Secured Term Loan. The Tranche A loan bears interest at the Secured Overnight Financing Rate (“SOFR”) plus 5% initially, increasing to 8% over the term of the Term Loan. The Tranche B loan bears interest at SOFR plus 3.75%. The Tranche A loan and the Tranche B loan may each be prepaid at any time without premium or penalty. The security for the Senior Secured Term Loan includes mortgages over the Solstad Vessels and associated assignments of insurances and assignments of earnings in respect of such vessels, a pledge of 100% of the equity interests in TDW International, a pledge of 66% of the equity interests in TDW International Unrestricted, Inc., an indirect wholly owned subsidiary of the Company, and negative pledges over certain vessels indirectly owned by TDW International Unrestricted, Inc. The obligations of the borrower are guaranteed by Tidewater, subject to a cap equal to 50% of the purchase price for the Solstad Acquisition.

 

15

 

The Credit Agreement contains three financial covenants: (i) a minimum free liquidity test equal to the greater of $20.0 million or 10% of net interest-bearing debt, (ii) a minimum equity ratio of 30%, in each case for us and our consolidated subsidiaries and (iii) an interest coverage ratio of not less than 2:1. The Credit Agreement also contain certain equity cure rights with respect to such financial covenants. The Credit Agreement also includes (i) customary vessel management and insurance covenants in the vessel mortgages, (ii) negative covenants, and (iii) certain customary events of default. We are currently in compliance with all of these financial covenants.

 

10.375% Senior Unsecured Notes due July 2028

 

On July 3, 2023, Tidewater completed a previously announced offering of $250.0 million aggregate principal amount of senior unsecured bonds in the Nordic bond market (the “Senior Unsecured Notes”). The bonds were privately placed, at an issue price of 99%, outside the United States pursuant to Regulation S under the Securities Act of 1933, as amended. We used the net proceeds from the offering of approximately $243.1 million to fund a portion of the purchase price of the Solstad Acquisition.

 

The Senior Unsecured Notes were issued pursuant to the Bond Terms, dated as of June 30, 2023 (the “Bond Terms”), between the Nordic Trustee AS, as Bond Trustee and us. An application will be made for the Senior Unsecured Notes to be listed on the Nordic ABM. The Senior Unsecured Notes are senior unsecured obligations and are not guaranteed by any of our subsidiaries.

 

The Senior Unsecured Notes will mature on July 3, 2028. Interest on the Senior Unsecured Notes will accrue at a rate of 10.375% per annum payable semi-annually in arrears on January 3 and July 3 of each year in cash, beginning January 3, 2024. Prepayment of the Senior Unsecured Notes prior to July 3, 2025 requires the payment of make-whole amounts, and prepayments after that date are subject to prepayment premiums that decline over time.

 

The Senior Unsecured Notes contain two financial covenants: (i) a minimum free liquidity test equal to the greater of $20.0 million and 10% of net interest-bearing debt, and (ii) a minimum equity ratio of 30%. The Bond Terms also contain certain equity cure rights with respect to such financial covenants. Our ability to make certain distributions to our stockholders after November 16, 2023, is subject to certain limits, including in some circumstances a minimum liquidity test and a maximum net leverage ratio. The Senior Unsecured Notes are also subject to negative covenants as set forth in the Bond Terms. The Bond Terms contain certain customary events of default, including, among other things: (i) default in the payment of any amount when due; (ii) default in the performance or breach of any other covenant in the Bond Terms, which default continues uncured for a period of 20 business days; and (iii) certain voluntary or involuntary events of bankruptcy, insolvency or reorganization. We are currently in compliance with all of these financial covenants.

 

Super Senior Revolver

 

We have entered into a Super Senior Revolving Credit Facility Agreement maturing on November 16, 2026 that provides access to $25.0 million for general working capital purposes. No amounts have been drawn on this credit facility.

 

 

(10)

COMMITMENTS AND CONTINGENCIES

 

Currency Devaluation and Fluctuation Risk

 

Due to our international operations, we are exposed to foreign currency exchange rate fluctuations against the U.S. dollar. For some of our international contracts, a portion of the revenue and local expenses are incurred in local currencies with the result that we are at risk for changes in the exchange rates between the U.S. dollar and foreign currencies. We generally do not hedge against any foreign currency rate fluctuations associated with foreign currency contracts that arise in the normal course of business, which exposes us to the risk of exchange rate losses. To minimize the financial impact of these items, we attempt to contract a significant majority of our services in U.S. dollars. In addition, we attempt to minimize the financial impact of these risks by matching the currency of our operating costs with the currency of our revenue streams when considered appropriate. We continually monitor the currency exchange risks associated with all contracts not denominated in U.S. dollars.

 

Legal Proceedings

 

We are named defendants or parties in certain lawsuits, claims or proceedings incidental to our business and involved from time to time as parties to governmental investigations or proceedings arising in the ordinary course of business. Although the outcome of such lawsuits or other proceedings cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, we do not expect these matters to have a material adverse effect on our financial position, operating results or cash flows.

 

16

 
 

(11)

FAIR VALUE MEASUREMENTS

 

Other Financial Instruments

 

Our primary financial instruments consist of cash and cash equivalents, restricted cash, trade receivables and trade payables with book values that are considered to be representative of their respective fair values. The carrying value for cash equivalents is considered to be representative of its fair value due to the short duration and conservative nature of the cash equivalent investment portfolio. In the second quarter of 2022, we agreed to a transaction with PEMEX, the Mexican national oil company, to exchange $8.6 million in accounts receivable for an equal face amount of seven-year 8.75% PEMEX corporate bonds (PEMEX Note). The PEMEX Note is classified as “available for sale.” For the three and nine months ended  September 30, 2023, we recorded $0.2 million and $0.5 million in mark-to-market losses in other comprehensive income, respectively, valuing the PEMEX Note at $7.6 million in our consolidated balance sheet as of September 30, 2023. The PEMEX Note mark-to-market valuations are considered to be Level 2.

 

17

 
 

(12)

PROPERTIES AND EQUIPMENT, ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

 

As of September 30, 2023, our property and equipment consist primarily of 219 active vessels located around the world, excluding one vessel we have classified as held for sale. As of  December 31, 2022, our property and equipment consisted primarily of 183 active vessels, which excluded eight vessels classified as held for sale. We have five Alucat crew boats under construction for which we have made down payments totaling approximately EUR2.6 million ($2.9 million) in 2022 and 2023 and will incur debt with the shipyard upon deliveries in 2023 and 2024 totaling approximately EUR10.5 million ($11.1 million). These crew boats, upon completion, will be employed in our African market. 

 

A summary of properties and equipment is as follows:

 

(In Thousands)

        
  

September 30, 2023

  

December 31, 2022

 

Properties and equipment:

        

Vessels and related equipment

 $1,704,505  $1,070,821 

Other properties and equipment

  38,168   35,819 
   1,742,673   1,106,640 

Less accumulated depreciation and amortization

  394,672   309,985 

Properties and equipment, net

 $1,348,001  $796,655 

 

A summary of accrued expenses is as follows:

 

(In Thousands)

        
  

September 30, 2023

  

December 31, 2022

 

Payroll and related payables

 $33,901  $35,425 

Accrued vessel expenses

  42,042   47,307 

Accrued interest expense

  19,364   2,037 

Other accrued expenses

  24,324   20,749 
  $119,631  $105,518 

 

A summary of other current liabilities is as follows:

 

(In Thousands)

      
  September 30, 2023  December 31, 2022 

Taxes payable

 $36,089  $39,355 

Other

  17,212   10,968 
  $53,301  $50,323 

 

A summary of other liabilities is as follows:

 

(In Thousands)

      
  September 30, 2023  December 31, 2022 

Pension liabilities

 $19,740  $17,383 

Liability for uncertain tax positions

  30,218   35,468 

Other

  16,288   14,992 
  $66,246  $67,843 

 

18

  
 

(13)

SEGMENT AND GEOGRAPHIC DISTRIBUTION OF OPERATIONS

 

Each of our five operating segments is managed by a senior executive reporting directly to our Chief Executive Officer, the chief operating decision maker. Discrete financial information is available for each of the segments, and our Chief Executive Officer uses the results of each of the operating segments for resource allocation and performance evaluation. 

 

The following table provides a comparison of segment revenues, vessel operating profit (loss), depreciation and amortization, and additions to properties and equipment for the three and nine months ended September 30, 2023 and 2022. Vessel revenues relate to vessels owned and operated by us while other operating revenues relate to other miscellaneous marine-related businesses.

 

19

 

(In Thousands)

 

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2023

  

September 30, 2022

  

September 30, 2023

  

September 30, 2022

 

Revenues:

                

Vessel revenues:

                

Americas

 $70,717  $39,122  $168,780  $105,086 

Asia Pacific

  38,994   23,902   83,603   45,161 

Middle East

  34,685   31,186   97,303   79,800 

Europe/Mediterranean

  78,929   39,702   149,474   96,096 

West Africa

  73,650   56,335   199,318   130,155 

Other operating revenues

  2,287   1,515   8,849   4,640 

Total

 $299,262  $191,762  $707,327  $460,938 

Vessel operating profit (loss):

                

Americas

 $12,586  $2,952  $26,793  $8,800 

Asia Pacific

  14,555   3,260   27,149   4,534 

Middle East

  (1,143)  605   (3,144)  (1,585)

Europe/Mediterranean

  9,576   13,137   19,919   14,970 

West Africa

  28,392   12,322   71,087   24,807 

Other operating profit

  806   922   5,844   3,204 
   64,772   33,198   147,648   54,730 
                 

Corporate expenses

  (9,961)  (13,188)  (33,011)  (39,600)

Long-lived asset impairment and other

     (1,214)     (714)

Gain (loss) on asset dispositions, net

  863   264   4,483   (826)

Operating income (loss)

 $55,674  $19,060  $119,120  $13,590 

Depreciation and amortization:

                

Americas

 $11,945  $7,591  $28,863  $22,210 

Asia Pacific

  3,570   1,518   6,859   4,447 

Middle East

  6,854   6,384   18,954   18,211 

Europe/Mediterranean

  24,660   6,792   39,455   20,512 

West Africa

  10,113   7,720   25,447   21,463 

Corporate

  588   851   1,586   2,436 

Total

 $57,730  $30,856  $121,164  $89,279 

Additions to properties and equipment:

                

Americas

 $935  $2,386  $2,496  $2,924 

Asia Pacific

  1,179   195   6,838   214 

Middle East

  728   862   3,146   2,934 

Europe/Mediterranean

  1,295   815   3,475   1,260 

West Africa

  225   772   15,960   1,462 

Corporate

  1,366   1,298   3,484   2,914 

Total

 $5,728  $6,328  $35,399  $11,708 

 

The following table provides a comparison of total assets at  September 30, 2023 and  December 31, 2022:

 

(In Thousands)

        
  

September 30, 2023

  

December 31, 2022

 

Total assets:

        

Americas

 $432,961  $309,985 

Asia Pacific

  165,373   148,684 

Middle East

  195,757   197,054 

Europe/Mediterranean

  673,419   282,670 

West Africa

  396,861   285,965 

Corporate

  207,184   73,298 
  $2,071,555  $1,297,656 

  

20

 
 

(14)

ASSET DISPOSITIONS, ASSETS HELD FOR SALE AND ASSET IMPAIRMENTS

 

During the nine months ending September 30, 2023, we sold or recycled seven of our vessels held for sale, leaving one vessel valued at $0.6 million remaining in the held for sale account as of September 30, 2023. We also sold four vessels from our active fleet. The total vessel and other sales for the nine-month period ending  September 30, 2023 contributed approximately $9.6 million in proceeds, and we recognized a net $4.5 million gain on the dispositions. In the nine-month period ending September 30, 2022, we added one vessel to assets held for sale, sold or recycled ten of our vessels held for sale, and re-activated one vessel from assets held for sale back into the active fleet, leaving eight vessels valued at $6.8 million remaining in the held for sale account as of September 30, 2022.

 

We consider the valuation approach for our assets held for sale to be a Level 3 fair value measurement due to the level of estimation involved in valuing assets to be recycled or sold. We estimate the net realizable value of our assets held for sale using various methodologies including third party appraisals, sales comparisons, sales agreements and recycle yard tonnage prices. Estimates generally fall in ranges rather than exact numbers due to the nature of sales of offshore vessels and industry conditions. Our value ranges depend on our expectation of the ultimate disposition of the vessel. We will in all circumstances attempt to achieve maximum value for our vessels, but also recognize that certain vessels are more likely to be recycled, especially given the time and effort required to achieve a sale and the costs incurred to maintain a vessel while searching for a buyer. We establish ranges that in many cases have recycle value as the low end of the range and an expected open market sale value at the top of the range. When there is no expectation within the range that is considered more likely than any other, we apply equal probability weighting to the low and high ends of the valuation range. In addition, in conjunction with the reactivation of a vessel from assets held for sale to the active fleet in the first quarter of 2022 and the concurrent valuation of such vessel at its fair value, we recaptured $0.5 million of impairment charged to expense. We do not separate our asset impairment expense by segment because of the significant movement of our assets between segments.

 

The following table presents the activity in our asset held for sale account for the periods indicated:

 

(In Thousands, except number of vessels)

 Three Months Ended 
  Number of Vessels  September 30, 2023  Number of Vessels  September 30, 2022 

Beginning balance

  2  $630   9  $6,862 

Additions

            

Sales

  (1)  (65)  (1)  (47)

Ending balance

  1  $565   8  $6,815 

 

(In Thousands, except number of vessels)

 

Nine Months Ended

 
  

Number of Vessels

  

September 30, 2023

  

Number of Vessels

  

September 30, 2022

 

Beginning balance

  8  $4,195   18  $14,421 

Additions

        1   2,500 

Sales

  (7)  (3,630)  (10)  (8,606)

Transfers

        (1)  (1,500)

Ending balance

  1  $565   8  $6,815 

 

21

 
 

ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

Certain of the statements included in this Form 10-Q constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which includes any statements that are not historical facts. Such statements often contain words such as “expect,” “believe,” “think,” “anticipate,” “predict,” “plan,” “assume,” “estimate,” “forecast,” “goal,” “target,” “projections,” “intend,” “should,” “will,” “shall” and other similar words. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Tidewater Inc. and its subsidiaries. There can be no assurance that future developments affecting Tidewater Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: fluctuations in worldwide energy demand and oil and natural gas prices; industry overcapacity; limited capital resources available to replenish our asset base as needed, including through acquisitions or vessel construction, and to fund our capital expenditure needs; uncertainty of global financial market conditions and potential constraints in accessing capital or credit if and when needed with favorable terms, if at all; changes in decisions and capital spending by customers in the energy industry and the industry expectations for offshore exploration, field development and production; consolidation of our customer base; loss of a major customer; changing customer demands for vessel specifications, which may make some of our older vessels technologically obsolete for certain customer projects or in certain markets; rapid technological changes; delays and other problems associated with vessel maintenance; the continued availability of qualified personnel and our ability to attract and retain them; the operating risks normally incident to our lines of business, including the potential impact of liquidated counterparties; our ability to comply with covenants in our indentures and other debt instruments; acts of terrorism and piracy; the impact of regional or global public health crises or pandemics; the impact of potential information technology, cybersecurity or data security breaches; integration of acquired businesses and entry into new lines of business; disagreements with our joint venture partners; natural disasters or significant weather conditions; unsettled political conditions, war, civil unrest and governmental actions, such as expropriation or enforcement of customs or other laws that are not well developed or consistently enforced; the risks associated with our international operations, including local content, local currency or similar requirements especially in higher political risk countries where we operate; interest rate and foreign currency fluctuations; labor changes proposed by international conventions; increased regulatory burdens and oversight; changes in laws governing the taxation of foreign source income; retention of skilled workers; our participation in industry wide, multi-employer, defined pension plans; enforcement of laws related to the environment, labor and foreign corrupt practices; increased global concern, regulation and scrutiny regarding climate change; increased stockholder activism; the potential liability for remedial actions or assessments under existing or future environmental regulations or litigation; the effects of asserted and unasserted claims and the extent of available insurance coverage; the resolution of pending legal proceedings; and other risks and uncertainties detailed in this Form 10-Q and other filings we make with the SEC. If one or more of these or other risks or uncertainties materialize (or the consequences of any such development changes), or should our underlying assumptions prove incorrect, actual results or outcomes may vary materially from those reflected in our forward-looking statements. Forward-looking and other statements in this Form 10-Q regarding our environmental, social and other sustainability plans, goals or activities are not an indication that these statements are necessarily material to investors or required to be disclosed in our filings with the SEC. In addition, historical, current, and forward-looking environmental, social and sustainability-related statements may be based on standards still developing, internal controls and processes that we continue to evolve, and assumptions subject to change in the future. Statements in this Form 10-Q are made as of the date of this filing, and Tidewater disclaims any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events or otherwise. In addition, see “Risk Factors” included in our Annual Report on Form 10-K and in this Form 10-Q for a discussion of certain risks relating to our business and investment in our securities.

 

In certain places in this Form 10-Q, we may refer to reports published by third parties that purport to describe trends or developments in energy production and drilling and exploration activity and we specifically disclaim any responsibility for the accuracy and completeness of such information and have undertaken no steps to update or independently verify such information.

 

The forward-looking statements should be considered in the context of the risk factors listed above, discussed in this Quarterly Report on Form 10-Q, and discussed in our 2022 Annual Report on Form 10-K (Annual Report) as updated by subsequent filings with the SEC. Investors and prospective investors are cautioned not to rely unduly on such forward-looking statements, which speak only as of the date hereof. Management disclaims any obligation to update or revise any forward-looking statements contained herein to reflect new information, future events, or developments.

 

22

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto included in “Item 1. Financial Statements” and with our 2022 Annual Report. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” in Item 1A of our Annual Report and elsewhere in this Quarterly Report.

 

EXECUTIVE SUMMARY AND CURRENT BUSINESS OUTLOOK

 

Tidewater

 

We are one of the most experienced international operators in the offshore energy industry with a history spanning over 65 years. Our vessels and associated vessel services provide support for all phases of offshore oil and natural gas exploration, field development and production as well as windfarm development and maintenance. These services include towing of, and anchor handling for, mobile offshore drilling units; transporting supplies and personnel necessary to sustain drilling, workover and production activities; offshore construction and seismic and subsea support; geotechnical survey support for windfarm construction, and a variety of other specialized services such as pipe and cable laying. In addition, we have one of the broadest geographic operating footprints in the offshore vessel industry. Our global operating footprint allows us to react quickly to changing local market conditions and to be responsive to the changing requirements of the many customers with which we believe we have strong relationships.

 

On March 7, 2023, we entered into an Agreement for the Sale and Purchase of Vessels, Charter Parties and Other Assets, which was amended on June 30, 2023 (the “Acquisition Agreement”), with certain subsidiaries of Solstad Offshore ASA, a Norwegian public limited company (collectively, the “Sellers”), pursuant to which we agreed to acquire from the Sellers (the “Solstad Acquisition”): (i) 37 platform supply vessels owned by the Sellers (the “Solstad Vessels”); and (ii) the charter parties governing certain of the Solstad Vessels. On July 5, 2023, we completed the Solstad Acquisition for an aggregate cash purchase price of approximately $594.2 million, consisting of the $577.0 million base purchase price plus an initial $3.0 million purchase price adjustment; $3.2 million for working capital items comprised of fuel and lubricants; and $11.0 million in estimated transaction costs, consisting primarily of advisory and legal fees. The purchase price was funded through a combination of cash on hand and net proceeds from both the Senior Secured Term Loan and the 10.375% Senior Unsecured Notes due July 2028.

 

On April 22, 2022, we completed the acquisition of SPO and its 50 offshore support vessels operating primarily in West Africa, Southeast Asia and the Middle East. As consideration for the acquisition, we paid $42.0 million in cash and issued 8,100,000 warrants, each of which was exercisable at $0.001 per share for one share of our common stock (SPO acquisition warrants). In addition, we paid $19.6 million at closing and received an $8.8 million post-closing working capital refund related to pre-closing working capital adjustments, for a total consideration of $215.5 million. In 2022, we completed two public offerings of approximately 8.1 million shares of our common stock and with the proceeds from these offerings coupled with a small redemption of SPO acquisition warrants related to indemnified liabilities, we redeemed 100% of the outstanding SPO acquisition warrants.

 

Prior to August 1, 2023, we had outstanding Series A Warrants, exercise price of $57.06 and Series B Warrants, exercise price of $62.28, both with an expiration date of July 31, 2023. During July 2023, an aggregate of 2.0 million Series A Warrants and Series B Warrants were exercised and 1.9 million shares of common stock were issued in exchange for $111.5 million in cash proceeds. The remaining unexercised Series A Warrants and Series B Warrants, 3.1 million in the aggregate, expired according to their terms on July 31, 2023.

 

At September 30, 2023, we owned 220 vessels with an average age of 11.7 years (including three stacked vessels and one vessel designated as assets held for sale) which are available to serve the global energy industry. At September 30, 2023, the average age of our 219 active vessels was 11.6 years. In addition, at September 30, 2023, we have five crew boats under construction which are scheduled to be delivered in 2023 and 2024.

 

23

 

MD&A Objective and Principal Factors That Drive Our Results, Cash Flows and Liquidity

 

Our MD&A is designed to provide information about our financial condition and results of operations from management’s perspective.

 

Our revenues, net earnings and cash flows from operations are largely dependent upon the activity level of our offshore marine vessel fleet. As is the case with the numerous other vessel operators in our industry, our business activity is largely dependent on the level of exploration, field development and production activity of our customers. Our customers’ business activity, in turn, is dependent on current and expected crude oil and natural gas prices, which fluctuate depending on expected future levels of supply and demand for crude oil and natural gas, and on estimates of the cost to find, develop and produce crude oil and natural gas reserves. Our objective throughout the MD&A is to discuss how these factors affected our historical results and, where applicable, how we expect these factors to impact our future results and future liquidity.

 

Our revenues in all segments are driven primarily by our active fleet size, active vessel utilization and day rates. Because a sizeable portion of our operating and depreciation costs do not change proportionally with changes in revenue, our operating profit is largely dependent on revenue levels.

 

Operating costs consist primarily of crew costs, repair and maintenance costs, insurance costs, fuel, lube oil and supplies costs and other vessel operating costs. Fleet size, fleet composition, geographic areas of operation, supply and demand for marine personnel, and local labor requirements are the major factors impacting overall crew costs in all segments. In addition, our newer, more technologically sophisticated vessels generally require a greater number of specially trained, more highly compensated fleet personnel than our older, smaller and less sophisticated vessels. Crew costs may increase if competition for skilled personnel intensifies.

 

Costs related to the recertification of vessels are deferred and amortized over 30 months on a straight-line basis. Maintenance costs incurred at the time of the recertification drydocking not related to the recertification of the vessel are expensed as incurred. Costs related to vessel improvements that either extend the vessel’s useful life or increase the vessel’s functionality are capitalized and depreciated.

 

Insurance costs are dependent on a variety of factors, including our safety record and pricing in the insurance markets, and can fluctuate over time. Our vessels are generally insured for up to their estimated fair market value in order to cover damage or loss. We also purchase coverage for potential liabilities stemming from third-party losses with limits that we believe are reasonable for our operations, but do not generally purchase business interruption insurance or similar coverage. Insurance limits are reviewed annually, and third-party coverage is purchased based on the expected scope of ongoing operations and the cost of third-party coverage.

 

Fuel and lube costs can fluctuate in any given period depending on the number and distance of vessel mobilizations, the number of active vessels off charter, drydockings, and changes in fuel prices. We also incur vessel operating costs aggregated as “other” vessel operating costs. These costs consist of brokers’ commissions, training costs, satellite communication fees, agent fees, port fees and other miscellaneous costs. Brokers’ commissions are incurred primarily in our non-United States operations where brokers sometimes assist in obtaining work. Brokers generally are paid a percentage of day rates and, accordingly, commissions paid to brokers generally fluctuate in accordance with vessel revenue.

 

We discuss our liquidity in terms of cash flow that we generate from our operations. Our primary sources of capital have been our cash on hand, internally generated funds including operating cash flow, vessel sales and long-term debt financing. From time to time, we also issue stock or stock-based financial instruments either in the open market or as currency in acquisitions. This ability is impacted by existing market conditions.

 

24

 

Industry Conditions and Outlook

 

As we look forward into the remainder of 2023 and into 2024, we expect the supply-demand balance in the global offshore oil and gas markets to continue to be favorable for ongoing offshore activities by the major oil and gas producers. Factors driving this outlook include demand for hydrocarbons continuing to grow internationally, the Organization of the Petroleum Exporting Countries Plus (OPEC+) remaining proactive in maintaining adequate and stable oil prices, combined with a diminishing global supply of vessels to support the offshore energy industry. Energy prices are expected to remain volatile for the remainder of 2023 and into 2024 due to ongoing geopolitical conflicts, global inflationary trends and associated actions from central banks as well as uncertainties surrounding the growth rates expected in key world economies.

 

Our business is directly impacted by the level of activity in worldwide offshore oil and natural gas exploration, development and production, which in turn is influenced by trends in oil and natural gas prices and the condition of the energy markets and, in particular, the willingness of energy companies to spend on operational activities and capital projects. Crude oil and natural gas prices are affected by a host of geopolitical and economic forces, including the fundamental principles of supply and demand. Offshore oil and gas exploration and development activities generally require higher oil or natural gas prices to justify the much higher expenditure levels of offshore activities compared to onshore activities. Prices are subject to significant uncertainty and, as a result, are extremely volatile. Over the past several years, oil and natural gas commodity pricing has been affected by a global pandemic, which included lock downs by major oil consuming nations, a war in eastern Europe between Russia and Ukraine, OPEC+ production quotas, capital discipline within the major oil and gas companies, inflationary economies of major consuming nations and increased activism related to the perceived oil and gas sector responsibility for climate change. Recent events include escalation of the Israeli/Palestinian conflict which could affect oil producing nations in the Middle East and disrupt world oil supplies. These factors have at various times caused or exacerbated significant swings in oil and gas pricing, which in turn has affected the capital budgets of oil and gas companies.

 

Despite the volatility in spot oil prices seen in recent years, our customers tend to consider less volatile medium and long-term prices in making offshore investment decisions. We continue to see positive upstream investment momentum in both the international and domestic markets. We believe these markets are driven by resilient long-cycle offshore developments, production capacity expansions and increased exploration and development activities.

 

We are one of the world’s largest operators of offshore support vessels and we have operations in most of the world’s offshore oil and gas basins. We continue to believe that there will be sufficient opportunities for us to operate our vessels in this sector for many years to come. We have also pursued opportunities in the sustainability arena, including the support of offshore wind energy generation and the improvement of our fleet performance regarding emissions and environmental impact. Although our business is impacted by a number of macro factors, including those factors discussed here, which influence our outlook and expectations given the current volatile conditions in our industry, our fleet is currently close to full utilization and our day rates have increased in recent quarters. We are of the opinion that the underlying fundamentals, particularly energy source supply and demand, will support a multi-year increase in offshore upstream development spending. Our outlook expectations are based on the market as we see it today and subject to changing conditions in and impacting our industry.

 

Climate Change

 

Climate change is expected to increase the frequency and intensity of certain adverse weather patterns, which may impact our business. Due to concern over the risk of climate change, several countries have adopted, or are considering the adoption of, regulatory frameworks to reduce the emission of carbon dioxide, methane and other gases (greenhouse gas emissions). In addition, the increased regulation of greenhouse gas emissions is expected to create greater incentives for the use of alternative energy sources. Consideration of climate change-related issues and the responses to those issues through international agreements and national, regional, or state regulatory frameworks are integrated into our strategy, planning, forecasting and risk management processes, where applicable.

 

In March 2022, the SEC proposed rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks. We expect final rules to be published during the fourth quarter of 2023.

 

For detailed discussion of climate change and related governmental regulation, including associated risks and possible impact on our business, financial conditions and results of operations, please see “Risk Factors” in Item 1A of our 2022 Annual Report.

 

25

 

 

RESULTS OF OPERATIONS

 

Each of our five operating segments is managed by a senior executive reporting directly to our Chief Executive Officer, the chief operating decision maker. Discrete financial information is available for each of the segments, and our Chief Executive Officer uses the results of each of the operating segments for resource allocation and performance evaluation.

 

The following table presents our statement of operations for the periods indicated:

 

(In Thousands)

 

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

June 30, 2023

   

September 30, 2023

   

September 30, 2022

 

Revenues:

                               

Vessel revenues

  $ 296,975     $ 210,323     $ 698,478     $ 456,298  

Other operating revenues

    2,287       4,638       8,849       4,640  

Total revenue

    299,262       214,961       707,327       460,938  

Costs and expenses:

                               

Vessel operating costs

    164,239       118,264       397,962       281,805  

Costs of other operating revenues

    1,481       373       3,005       1,436  

General and administrative

    21,001       26,013       70,559       73,288  

Depreciation and amortization

    57,730       32,768       121,164       89,279  

Long-lived asset impairment and other

                      714  

(Gain) loss on asset dispositions, net

    (863 )     (1,404 )     (4,483 )     826  

Total costs and expenses

    243,588       176,014       588,207       447,348  

Operating income (loss)

    55,674       38,947       119,120       13,590  

Other income (expense):

                               

Foreign exchange loss

    (2,149 )     (3,819 )     (3,620 )     (4,932 )

Equity in net earnings (losses) of unconsolidated companies

    4       25       29       (235 )

Interest income and other, net

    568       2,790       3,488       4,416  

Loss on warrants

                      (14,175 )

Interest and other debt costs, net

    (19,288 )     (4,731 )     (28,209 )     (12,850 )

Total other expense

    (20,865 )     (5,735 )     (28,312 )     (27,776 )

Income (loss) before income taxes

    34,809       33,212       90,808       (14,186 )

Income tax expense

    9,260       11,284       32,515       18,189  

Net income (loss)

    25,549       21,928       58,293       (32,375 )

Net loss attributable to noncontrolling interests

    (650 )     (656 )     (1,228 )     (6 )

Net income (loss) attributable to Tidewater Inc.

  $ 26,199     $ 22,584     $ 59,521     $ (32,369 )

 

26

 

Consolidated Results – Three Months Ended September 30, 2023 compared to June 30, 2023

 

Revenues for the quarters ended September 30, 2023 and June 30, 2023, were $299.3 million and $215.0 million, respectively. The $84.3 million increase in revenue is primarily due to the addition to our fleet of 37 vessels acquired from Solstad in July 2023 and increases in average day rates across most of our vessel fleet. Average day rates increased by 11.4%, from $16,042 per day in the second quarter of 2023 to $17,865 in the third quarter of 2023. Active utilization increased from 79.4% in the second quarter of 2023 to 82.1% in the third quarter of 2023. The 37 vessels acquired from Solstad contributed $59.1 million to the increase in revenue. These vessels had utilization of 93.9% and average day rates of $19,377 in the third quarter.

 

Vessel operating costs for the quarters ended September 30, 2023 and June 30, 2023, were $164.2 million and $118.3 million, respectively. The 37 vessels acquired from Solstad contributed $35.1 million to the increase in vessel operating costs. The remaining increase is primarily due to higher personnel costs and higher repairs and maintenance on our vessels.

 

Depreciation and amortization expense for the quarters ended September 30, 2023 and June 30, 2023, were $57.7 million and $32.8 million, respectively, primarily due to the depreciation on the 37 vessels from Solstad and amortization of an increased deferred drydock balance.

 

General and administrative expenses for the quarters ended September 30, 2023 and June 30, 2023, were $21.0 million and $26.0 million, respectively. The decrease was primarily due to lower personnel related costs, despite a $1.0 million increase in one-time acquisition, restructuring and integration related costs.

 

We reported gains on asset dispositions, net totaling $0.9 million in the third quarter of 2023, primarily as a result of the sales of three vessels and other assets. We reported gains on asset dispositions, net totaling $1.4 million in the second quarter of 2023, primarily as a result of the sales of three vessels and other assets.

 

Interest expense for the quarters ended September 30, 2023 and June 30, 2023, was approximately $19.3 million and $4.7 million, respectively. The increase in interest expense is primarily due to the July 5, 2023, addition of $575.0 million in long term debt, bearing interest in the aggregate at approximately 10.0%, to fund the Solstad vessel acquisition.

 

Interest income and other, net for the quarters September 30, 2023 and June 30, 2023, was $0.6 million and $2.8 million, respectively. We had an increase in interest income in the third quarter associated with the investment of the $111.5 million in cash received from the exercise of Series A and B Warrants in July 2023. The higher interest income was partially offset by a $1.2 million charge resulting from a reduction in certain indemnification assets related to assumed tax liabilities acquired from SPO that were adjusted to reflect the expiration of the statute of limitations. This charge and the corresponding decrease in income tax expense resulted in no impact on net income. In addition, second quarter interest income and other, net included a $1.8 million settlement gain in connection with an agreement committing our pension plan to use a portion of its assets to purchase an annuity from an insurance company so as to transfer its liabilities.

 

During the quarters ended September 30, 2023 and June 30, 2023, we recognized foreign exchange losses of $2.1 million and $3.8 million, respectively, due to the weakening of the U.S. Dollar against other currencies in areas in which we operate.

 

The income tax expense for the three months ended September 30, 2023 was $9.3 million compared to an income tax expense of $11.3 million for the three months ending June 30, 2023. The tax expense for the three months ended September 30, 2023 is mainly attributable to taxes on our operations in foreign countries. Tax expense will vary disproportionally to overall net income due to the mix of profits and losses in these foreign tax regimes.

 

27

 

Consolidated Results – Nine Months Ended September 30, 2023 compared to September 30, 2022

 

Revenues for the nine months ended September 30, 2023 and 2022, were $707.3 million and $460.9 million, respectively. The $246.4 million increase in revenue is primarily due to the full nine month effect of the 49 vessels acquired from SPO in the second quarter of 2022; the third quarter of 2023 effect of the acquisition of 37 vessels from Solstad in July 2023; and increases in average day rates across most of our vessel fleet in 2023. Overall, we had 31 more average active vessels, calculated on a full nine- month basis, in the first nine months of 2023 than in the first nine months of 2022. Average day rates increased by 31.0%, from $12,449 per day in 2022 to $16,313 in 2023. Active utilization decreased from 83.0% in 2022 to 80.8% in 2023, primarily due to a heavy drydock schedule in 2023 and the movement of 22 vessels in 2023 between segments. The SPO vessels added $199.4 million to revenue in the nine months ended September 30, 2023, compared to $101.2 million in the nine months ended September 30, 2022. The vessels acquired from Solstad were part of our fleet for almost all of the third quarter of 2023 but not in our fleet in 2022. The Solstad vessels added $59.1 million to revenue in the nine months ended September 30, 2023.

 

Vessel operating costs for the nine months ended September 30, 2023 and 2022, were $398.0 million and $281.8 million, respectively. The increase is primarily due to the additional active vessels in our fleet from the SPO and Solstad acquisitions in the first nine months of 2023 as compared to the first nine months of 2022 and our continued recovery from the low vessel utilization levels caused by the pandemic and increased activity as higher crude oil prices and improved long-term industry outlook have resulted in more offshore investments from our customers.

 

Depreciation and amortization expense for the nine months ended September 30, 2023 and 2022, were $121.2 million and $89.3 million, respectively. The increase is primarily due to higher depreciation expense from the additional vessels acquired and higher overall amortization due to higher drydock activity in 2023.

 

General and administrative expenses for the nine months ended September 30, 2023 and 2022, were $70.6 million and $73.3 million, respectively, as lower personnel related costs more than offset costs associated with the expansion of the Singapore and Dubai offices in connection with the SPO acquisition, bad debt expense and professional fees incurred in connection with pursuing Solstad acquisition financing options that were ultimately not utilized.

 

We reported gains on asset dispositions, net totaling $4.5 million in the nine months ended September 30, 2023, primarily as a result of the sales of 11 vessels and other assets. We reported losses on asset dispositions, net totaling $0.8 million in the nine months ended September 30, 2022, primarily as a result of the sales of ten vessels and other assets.

 

Long-lived asset impairment during the nine months ended September 30, 2022, was $0.7 million consisting of a $1.2 million of impairment expense related to obsolete marine service and vessel supplies and parts inventory partially offset by a $0.5 million credit related to recovery of impairment on a vessel reclassified from assets held for sale back to the active fleet. There was no long-lived asset impairment expense in the nine months ended September 30, 2023.

 

Interest expense for the nine months ended September 30, 2023 and 2022, was approximately $28.2 million and $12.9 million. The increase in interest expense is primarily due to the July 5, 2023, addition of $575.0 million in long term debt, bearing interest of approximately 10.0%, to fund the Solstad vessel acquisition.

 

Interest income and other, net for the nine months ended September 30, 2023 and 2022, was $3.5 million and $4.4 million, respectively. During the nine months ended September 30, 2023, we recognized a $1.2 million charge resulting from a reduction in certain indemnification assets related to assumed tax liabilities acquired from SPO that were adjusted to reflect the expiration of the statute of limitations. This charge and the corresponding decrease in income tax expense resulted in no impact on net income. We recognized a $1.8 million settlement gain in 2023 in connection with an agreement committing our pension plan to use a portion of its assets to purchase an annuity from an insurance company so as to transfer its liabilities. We also had an increase in interest income in 2023 associated with the investment of the $111.5 million in cash received from the exercise of Series A and B Warrants in July 2023. Interest income for 2022 was largely attributable to the $1.3 million bargain purchase gain on our acquisition of the remaining 51% of Sonatide, our joint venture in Angola of which we previously owned 49%, and $1.9 million in interest and other income related to a litigation settlement for one of our vessels.

 

In the nine months ended September 30, 2022, we recognized a $14.2 million loss to value the warrant liability at fair value on the date that we amended the SPO share purchase agreement to allow us to reclassify the warrants from liabilities to equity based on the difference in the Tidewater common stock price on amendment date and the acquisition date closing common stock price.

 

During the nine months ended September 30, 2023, we recognized foreign exchange losses of $3.6 million due to the strengthening of the U.S. Dollar against other currencies. During the nine months ended September 30, 2022, we recognized foreign exchange losses of $4.9 million.

 

28

 

 

The income tax expense for the nine months ended September 30, 2023, was $32.5 million compared to an income tax expense of $18.2 million for the nine months ending September 30, 2022. The tax expense for the nine months ended September 30, 2023 is mainly attributable to taxes on our operations in foreign countries. Tax expense will vary disproportionally to overall net income due to the mix of profits and losses in these foreign tax regimes.

 

29

 

The following table compares vessel revenues and vessel operating costs by geographic segment for our owned and operated vessel fleet and the related percentage of vessel revenue for the periods indicated:

 

(In Thousands)

 

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

June 30, 2023

   

September 30, 2023

   

September 30, 2022

 

Vessel revenues:

                                                               

Americas

  $ 70,717       24 %   $ 50,376       24 %   $ 168,780       24 %   $ 105,086       23 %

Asia Pacific

    38,994       13 %     22,585       11 %     83,603       12 %     45,161       10 %

Middle East

    34,685       12 %     31,856       15 %     97,303       14 %     79,800       17 %

Europe/Mediterranean

    78,929       26 %     39,295       19 %     149,474       21 %     96,096       21 %

West Africa

    73,650       25 %     66,211       31 %     199,318       29 %     130,155       29 %

Total vessel revenues

  $ 296,975       100 %   $ 210,323       100 %   $ 698,478       100 %   $ 456,298       100 %

Vessel operating costs:

                                                               

Americas:

                                                               

Crew costs

  $ 26,848       38 %   $ 18,033       36 %   $ 62,283       37 %   $ 40,281       38 %

Repair and maintenance

    5,588       8 %     3,973       8 %     13,449       8 %     9,087       9 %

Insurance

    476       1 %     479       1 %     1,365       1 %     1,029       1 %

Fuel, lube and supplies

    4,386       6 %     2,549       5 %     9,934       6 %     7,268       7 %

Other

    5,924       8 %     4,564       9 %     14,060       8 %     8,340       8 %
    $ 43,222       61 %   $ 29,598       59 %   $ 101,091       60 %   $ 66,005       63 %

Asia Pacific:

                                                               

Crew costs

  $ 12,390       32 %   $ 7,062       31 %   $ 26,763       32 %   $ 19,557       43 %

Repair and maintenance

    2,969       8 %     1,517       7 %     6,235       7 %     2,176       5 %

Insurance

    183       0 %     219       1 %     525       1 %     333       1 %

Fuel, lube and supplies

    909       2 %     1,521       7 %     4,060       5 %     2,840       6 %

Other

    2,380       6 %     1,648       7 %     5,706       7 %     3,507       8 %
    $ 18,831       48 %   $ 11,967       53 %   $ 43,289       52 %   $ 28,413       63 %

Middle East

                                                               

Crew costs

  $ 13,914       40 %   $ 13,170       41 %   $ 39,700       41 %   $ 32,472       41 %

Repair and maintenance

    4,828       14 %     3,779       12 %     12,082       12 %     8,994       11 %

Insurance

    385       1 %     465       1 %     1,283       1 %     1,028       1 %

Fuel, lube and supplies

    3,142       9 %     3,470       11 %     9,482       10 %     7,540       10 %

Other

    4,796       14 %     3,756       12 %     12,221       13 %     6,510       8 %
    $ 27,065       78 %   $ 24,640       77 %   $ 74,768       77 %   $ 56,544       71 %

Europe/Mediterranean:

                                                               

Crew costs

  $ 26,632       33 %   $ 13,406       34 %   $ 52,765       35 %   $ 36,699       38 %

Repair and maintenance

    5,342       7 %     2,900       7 %     10,948       7 %     6,172       7 %

Insurance

    689       1 %     354       1 %     1,427       1 %     1,056       1 %

Fuel, lube and supplies

    4,033       5 %     2,363       6 %     7,980       6 %     3,975       4 %

Other

    5,376       7 %     2,292       6 %     10,039       7 %     6,664       7 %
    $ 42,072       53 %   $ 21,315       54 %   $ 83,159       56 %   $ 54,566       57 %

West Africa:

                                                               

Crew costs

  $ 17,502       24 %   $ 16,336       25 %   $ 50,425       25 %   $ 43,656       34 %

Repair and maintenance

    4,868       7 %     4,665       7 %     14,367       7 %     10,053       8 %

Insurance

    626       1 %     651       1 %     1,932       1 %     1,292       1 %

Fuel, lube and supplies

    5,300       7 %     4,055       6 %     13,827       7 %     9,265       7 %

Other

    4,753       6 %     5,037       7 %     15,104       8 %     12,011       9 %
    $ 33,049       45 %   $ 30,744       46 %   $ 95,655       48 %   $ 76,277       59 %

Vessel operating costs:

                                                               

Crew costs

  $ 97,286       32 %   $ 68,007       32 %   $ 231,936       33 %   $ 172,665       38 %

Repair and maintenance

    23,595       8 %     16,834       8 %     57,081       8 %     36,482       8 %

Insurance

    2,359       1 %     2,168       1 %     6,532       1 %     4,738       1 %

Fuel, lube and supplies

    17,770       6 %     13,958       7 %     45,283       7 %     30,888       7 %

Other

    23,229       8 %     17,297       8 %     57,130       8 %     37,032       8 %

Total vessel operating costs

  $ 164,239       55 %   $ 118,264       56 %   $ 397,962       57 %   $ 281,805       62 %

 

30

 

The following table presents general and administrative expenses in our five geographic segments both individually and in total and the related general and administrative expenses as a percentage of the vessel revenues of each segment and in total for the periods indicated:

 

(In Thousands)

 

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

June 30, 2023

   

September 30, 2023

   

September 30, 2022

 

Segment general and administrative expenses:

                                                               

Americas

  $ 2,964       4 %   $ 5,809       12 %   $ 12,033       7 %   $ 8,071       8 %

Asia Pacific

    2,038       5 %     1,768       8 %     6,306       8 %     7,767       17 %

Middle East

    1,909       6 %     2,508       8 %     6,725       7 %     6,630       8 %

Europe/Mediterranean

    2,621       3 %     2,228       6 %     6,941       5 %     6,048       6 %

West Africa

    2,096       3 %     2,180       3 %     7,129       4 %     7,608       6 %

Total segment general and administrative expenses

  $ 11,628       4 %   $ 14,493       7 %   $ 39,134       6 %   $ 36,124       8 %

 

The following table presents segment and total depreciation and amortization expense and the related segment and total vessel depreciation and amortization expense as a percentage of segment and total vessel revenues for the periods indicated:

 

(In Thousands)

 

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

June 30, 2023

   

September 30, 2023

   

September 30, 2022

 

Segment depreciation and amortization expense:

                                                               

Americas

  $ 11,945       17 %   $ 8,724       17 %   $ 28,863       17 %   $ 22,210       21 %

Asia Pacific

    3,570       9 %     1,824       8 %     6,859       8 %     4,447       10 %

Middle East

    6,854       20 %     6,365       20 %     18,954       19 %     18,211       23 %

Europe/Mediterranean

    24,660       31 %     7,445       19 %     39,455       26 %     20,512       21 %

West Africa

    10,113       14 %     7,813       12 %     25,447       13 %     21,463       16 %

Total segment depreciation and amortization expense

  $ 57,142       19 %   $ 32,171       15 %   $ 119,578       17 %   $ 86,843       19 %

 

The following table compares operating income (loss) and other components of income (loss) and its related percentage of total revenue for the periods indicated:

 

(In Thousands)

 

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

June 30, 2023

   

September 30, 2023

   

September 30, 2022

 

Vessel operating profit (loss):

                                                               

Americas

  $ 12,586       4 %   $ 6,245       3 %   $ 26,793       4 %   $ 8,800       2 %

Asia Pacific

    14,555       5 %     7,026       3 %     27,149       4 %     4,534       1 %

Middle East

    (1,143 )     0 %     (1,657 )     (1 )%     (3,144 )     (1 )%     (1,585 )     0 %

Europe/Mediterranean

    9,576       3 %     8,307       4 %     19,919       3 %     14,970       3 %

West Africa

    28,392       10 %     25,474       12 %     71,087       10 %     24,807       5 %

Other operating profit

    806       0 %     4,265       2 %     5,844       1 %     3,204       1 %
      64,772       22 %     49,660       23 %     147,648       21 %     54,730       12 %
                                                                 

Corporate expenses

    (9,961 )     (3 )%     (12,117 )     (6 )%     (33,011 )     (5 )%     (39,600 )     (9 )%

Gain (loss) on asset dispositions, net

    863       0 %     1,404       1 %     4,483       1 %     (826 )     0 %

Long-lived asset impairment and other

          0 %           0 %           0 %     (714 )     0 %

Operating income (loss)

  $ 55,674       19 %   $ 38,947       18 %   $ 119,120       17 %   $ 13,590       3 %

 

31

 

 

Segment results for three months ended September 30, 2023 compared to June 30, 2023

 

Americas Segment Operations.  Vessel revenues in the Americas segment increased 40.4%, or $20.3 million, during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023. This increase is primarily the result of five additional average active vessel from the Solstad acquisition and a 15.9% increase in average day rates, rising from $20,269 in the second quarter to $23,495 in the third quarter. Average utilization increased from 85.4% to 86.3%. The vessels from the Solstad acquisition added $14.3 million in revenue.

 

Vessel operating profit for the Americas segment for the quarter ended September 30, 2023, was $12.6 million, compared to an $6.2 million operating profit for the quarter ended June 30, 2023. The increase in revenue was accompanied by a $2.8 million decrease in general and administrative expenses which were partially offset by a $13.6 million increase in operating expenses and a $3.2 million increase in depreciation and amortization. The decrease in general and administrative costs resulted from decreased bad debt expense related to a single customer that was recorded in the second quarter. We also incurred higher operating costs bringing this vessel which was chartered to this customer back to its home port. Otherwise, the operating expenses and depreciation and amortization expenses increased primarily due to the increase in active vessels primarily associated with the Solstad vessels.

 

Asia Pacific Segment Operations.  Vessel revenues in the Asia Pacific segment increased 72.7%, or $16.4 million, during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023. Average day rates increased 6.7%, rising from $24,250 per day in the second quarter of 2023 to $25,867 in the third quarter of 2023. Average active utilization for the segment increased from 72.4% to 91.3%. and we operated four more active vessels in the third quarter of 2023. The Solstad acquisition added four vessels and $7.3 million in revenue.

 

The Asia Pacific segment reported an operating profit of $14.6 million for the quarter ended September 30, 2023, compared to a $7.0 million operating profit for the quarter ended June 30, 2023. The increase in revenue was offset by a $6.9 million increase in operating expenses and a $1.7 million increase in depreciation and amortization expenses. The increase in operating expenses are mainly attributable to the additional vessels.

 

Middle East Segment Operations.  Vessel revenues in the Middle East segment increased 8.9%, or $2.8 million, during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023. Active vessels increased by one and average day rates increased slightly, rising from $10,449 per day in the second quarter of 2023 to $10,544 per day in the third quarter of 2023. Average active utilization for the segment increased from 76.0% to 79.8%. There were no additional Solstad vessels in the Middle East segment.

 

The Middle East segment reported an operating loss of $1.1 million for the quarter ended September 30, 2023, compared to an operating loss of $1.7 million for the quarter ended June 30, 2023. The increase in revenue was supplemented by a $0.6 million decrease in general and administrative costs and partially offset by a $2.4 million increase in operating costs primarily attributable to repairs and maintenance and a $0.5 million increase in depreciation and amortization attributable to higher drydock activity in 2023.

 

Europe/Mediterranean Segment Operations.  Vessel revenues in the Europe/Mediterranean segment increased 100.9%, or $39.6 million, during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023. This increase was primarily driven by the addition of 24 active vessels from the Solstad acquisition. Day rates increased from $18,990 in the second quarter of 2023 to $19,105 in the third quarter of 2023. Active utilization also increased from 85.7% to 88.8%. Vessels from the Solstad acquisition added $33.5 million in revenue.

 

The Europe/Mediterranean segment reported an operating profit of $9.6 million for the quarter ended September 30, 2023, compared to an operating profit of $8.3 million for the quarter ended June 30, 2023. The revenue increase was largely offset by $20.8 million in higher operating costs and $17.2 million in higher depreciation and amortization resulting primarily from the additional vessel count. General and administrative costs increased by $0.4 million due primarily to the Solstad acquisition.

 

West Africa Segment Operations.  Vessel revenues in the West Africa segment increased 11.2%, or $7.4 million, during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023. Average day rates increased 9.0% from $14,469 to $15,772, while active utilization decreased from 77.8% during the quarter ended June 30, 2023 to 73.9% during the quarter ended September 30, 2023. There were four more active vessels in the segment in the third quarter. The Solstad acquisition added three vessels and $3.9 million in revenue.

 

West Africa reported an operating profit of $28.4 million for the quarter ended September 30, 2023, compared to an operating profit of $25.5 million for the quarter ended June 30, 2023. The increase in operating profit is largely due to the increase in revenue offset by a $2.3 million increase in operating costs and $2.3 million in increased depreciation and amortization associated with the additional vessels.

 

32

 

 

Segment results for nine months ended September 30, 2023 compared to September 30, 2022

 

Americas Segment Operations.  Vessel revenues in the Americas segment increased 60.6%, or $63.7 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. This increase is primarily the result of five additional active vessels and a 30.3% increase in average day rates largely due to demand recovery in the offshore vessel industry. Average utilization increased from 81.0% to 85.7%. The SPO acquisition added two active vessels in the Americas segment with 100.0% utilization and a $27,619 average day rate. The SPO vessels contributed $15.1 million in revenue in the nine months ended September 30, 2023, an increase of $12.0 million over 2022. The Solstad acquisition added six vessels, a $27,527 average day rate and 99.3% utilization beginning on July 5, 2023 which contributed $14.3 million in revenue for the nine months ended September 30, 2023.

 

Vessel operating profit for the Americas segment for the nine months ended September 30, 2023, was $26.8 million, compared to an $8.8 million operating profit for the nine months ended September 30, 2022. The increase in operating profit was largely due to the increase in revenue partially offset by a $35.1 million increase in operating expenses, largely associated with additional vessels, a $6.7 million increase in depreciation and amortization, resulting mainly from additional vessels and higher drydock activity in 2023, and a $4.0 million increase in general and administrative costs due largely to an increase in bad debt expense in 2023.

 

Asia Pacific Segment Operations.  Vessel revenues in the Asia Pacific segment increased 85.1%, or $38.4 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Active vessels increased by two. Average day rates increased 61.5%, rising from $15,344 per day in the nine months ended September 30, 2022 to $24,783 in the nine months ended September 30, 2023. The SPO acquisition added 13 active vessels to the Asia Pacific fleet with 81.9% utilization and a $25,469 average day rate in 2023. The SPO vessels contributed $74.0 million in revenue for the nine months ended September 30, 2023, an increase of $35.4 million over 2022. The Solstad acquisition added four vessels, a $20,249 average day rate and 100.0% utilization beginning on July 5, 2023 which contributed $7.3 million in revenue for the nine months ended September 30, 2023.

 

The Asia Pacific segment reported an operating profit of $27.1 million for the nine months ended September 30, 2023, compared to an operating profit of $4.5 million for the nine months ended September 30, 2022. The increase in revenue was offset by $14.9 million in additional operating expenses and $2.4 million of additional depreciation and amortization expense, all resulting from the additional vessels. General and administrative expenses decreased by $1.5 million.

 

Middle East Segment Operations.  Vessel revenues in the Middle East segment increased 21.9%, or $17.5 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. Active vessels increased by five. Overall, active utilization for the nine months ended September 30, 2023 decreased from 82.5% to 79.4%, but average day rates increased 10.9%. The SPO acquisition added eight active vessels to the Middle East fleet with 64.2% utilization and an $11,407 average day rate. The SPO vessels contributed $15.2 million in revenue for the nine months ended September 30, 2023, an increase of $1.6 million over 2022. The Solstad acquisition added no vessels in 2023.

 

The Middle East segment reported an operating loss of $3.1 million for the nine months ended September 30, 2023, compared to an operating loss of $1.6 million for the nine months ended September 30, 2022 as the increase in revenue was offset by a $18.2 million increase in operating costs and a $0.7 million increase in depreciation and amortization. The increase in costs were primarily a result of the increase in active vessels.

 

Europe/Mediterranean Segment Operations. Vessel revenues in the Europe/Mediterranean segment increased 55.5%, or $53.4 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The increased revenue was attributable to nine more active vessels combined with 19.7% higher average day rates. Active utilization decreased from 91.6% to 86.6%. The SPO acquisition added two active vessels to the Europe/Mediterranean fleet with 61.2% utilization and a $33,084 average day rate. The SPO vessels contributed $8.4 million in revenue for the nine months ended September 30, 2023, an increase of $1.3 million over 2022. The Solstad acquisition added 24 vessels, a $17,096 average day rate and 93.3% utilization beginning on July 5, 2023 which contributed $33.5 million in revenue for the nine months ended September 30, 2023.

 

The Europe/Mediterranean segment reported an operating profit of $19.9 million for the nine months ended September 30, 2023, compared to an operating profit of $15.0 million for the nine months ended September 30, 2022. The higher operating profit was due to the revenue increase offset by $28.6 million in higher operating costs, $18.9 million in higher depreciation and amortization and a $0.9 million increase in general and administrative expenses. The increases in expenses are primarily attributable to the Solstad vessels.

 

33

 

 

West Africa Segment Operations.  Vessel revenues in the West Africa segment increased 53.1%, or $69.2 million, during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The West Africa active vessel fleet increased by ten vessels in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Average day rates increased 36.7% from $10,561 to $14,441, but active utilization decreased from 80.5% to 76.1%. The SPO acquisition added 23 active vessels to the West Africa fleet with 84.0% utilization and a $16,545 average day rate in 2023. The SPO vessels contributed $86.8 million in revenue for the nine months ended September 30, 2023, an increase of $47.9 million over 2022. The Solstad acquisition added three vessels, an $18,916 average day rate and 78.7% utilization beginning on July 5, 2023 which contributed $3.9 million in revenue for the nine months ended September 30, 2023.

 

West Africa reported an operating profit of $71.1 million for the nine months ended September 30, 2023, compared to an operating profit of $24.8 million for the nine months ended September 30, 2022. The increase in operating results is largely due to the increase in revenue which was partially offset by $19.4 million in higher operating costs primarily related to the increase in active vessels. In addition, depreciation and amortization increased by $4.0 million due largely to the increase in vessels and additional drydock activity in 2023. General and administrative expenses decreased by $0.5 million.

 

34

 

Vessel Utilization and Average Day Rates by Segment

 

Vessel utilization is determined primarily by market conditions and to a lesser extent by drydocking requirements. Vessel day rates are determined by the demand created largely through the level of offshore exploration, field development and production spending by energy companies relative to the supply of offshore support vessels. Specifications of available equipment and the scope of service provided may also influence vessel day rates. Vessel utilization rates are calculated by dividing the number of days a vessel works during a reporting period by the number of days the vessel is available to work in the reporting period. As such, stacked vessels depress utilization rates because stacked vessels are considered available to work and are included in the calculation of utilization rates. Average day rates are calculated by dividing the revenue a vessel earns during a reporting period by the number of days the vessel worked in the reporting period.

 

Total vessel utilization is calculated on all vessels in service (which includes stacked vessels, vessels held for sale and vessels in drydock). Active utilization is calculated on active vessels (which excludes vessels held for sale and stacked vessels). Average day rates are calculated based on total vessel days worked.

 

35

 

The following tables compare day-based utilization percentages, average day rates and average total, active and stacked vessels by segment for the periods indicated:

 

   

Three Months Ended

   

Nine Months Ended

 
   

September 30, 2023

   

June 30, 2023

   

September 30, 2023

   

September 30, 2022

 

SEGMENT STATISTICS:

                               

Americas fleet:

                               

Utilization

    84.1 %     82.8 %     83.1 %     69.1 %

Active utilization

    86.3 %     85.4 %     85.7 %     81.0 %

Average vessel day rates

  $ 23,495     $ 20,269     $ 21,348     $ 16,383  

Average total vessels

    38       33       35       34  

Average stacked vessels

    (1 )     (1 )     (1 )     (5 )

Average active vessels

    37       32       34       29  
                                 

Asia Pacific fleet:

                               

Utilization

    91.3 %     72.4 %     80.5 %     77.7 %

Active utilization

    91.3 %     72.4 %     81.4 %     82.4 %

Average vessel day rates

  $ 25,867     $ 24,250     $ 24,783     $ 15,344  

Average total vessels

    18       14       15       14  

Average stacked vessels

                      (1 )

Average active vessels

    18       14       15       13  
                                 

Middle East fleet:

                               

Utilization

    79.8 %     76.0 %     79.4 %     82.3 %

Active utilization

    79.8 %     76.0 %     79.4 %     82.5 %

Average vessel day rates

  $ 10,544     $ 10,449     $ 10,224     $ 9,216  

Average total vessels

    45       44       44       39  

Average stacked vessels

                       

Average active vessels

    45       44       44       39  
                                 

Europe/Mediterranean fleet:

                               

Utilization

    88.8 %     85.7 %     86.6 %     85.1 %

Active utilization

    88.8 %     85.7 %     86.6 %     91.6 %

Average vessel day rates

  $ 19,105     $ 18,990     $ 18,233     $ 15,233  

Average total vessels

    50       26       34       27  

Average stacked vessels

                      (2 )

Average active vessels

    50       26       34       25  
                                 

West Africa fleet:

                               

Utilization

    70.7 %     72.3 %     70.4 %     69.1 %

Active utilization

    73.9 %     77.8 %     76.1 %     80.5 %

Average vessel day rates

  $ 15,772     $ 14,469     $ 14,441     $ 10,561  

Average total vessels

    72       70       72       65  

Average stacked vessels

    (3 )     (5 )     (6 )     (9 )

Average active vessels

    69       65       66       56  
                                 

Worldwide fleet:

                               

Utilization

    80.5 %     76.9 %     78.1 %     75.1 %

Active utilization

    82.1 %     79.4 %     80.8 %     83.0 %

Average vessel day rates

  $ 17,865     $ 16,042     $ 16,313     $ 12,449  

Average total vessels

    223       187       200       179  

Average stacked vessels

    (4 )     (6 )     (7 )     (17 )

Average active vessels

    219       181       193       162  

 

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Average active vessels exclude stacked vessels. We consider a vessel to be stacked if the vessel crew is furloughed or substantially reduced and limited maintenance is ongoing. We reduce operating costs by stacking vessels when management does not foresee opportunities to profitably or strategically operate the vessels in the near future. Vessels are stacked when market conditions warrant and they are no longer considered stacked when they are returned to active service, sold, or otherwise disposed. When economically practical marketing opportunities arise, the stacked vessels can be returned to active service by performing any necessary maintenance on the vessel and either rehiring or returning fleet personnel to operate the vessel. Although not currently fulfilling charters, stacked vessels are included in the calculation of utilization statistics. We also include our assets held for sale in stacked vessels as they continue to incur stacking related costs. We had four (one held for sale) and five (two held for sale) stacked vessels at September 30, 2023 and June 30, 2023, respectively. The decrease in stacked vessels is attributable to vessel sales. Total stacking costs included in vessel operating costs for the three months ended September 30, 2023 and June 30, 2023, were $0.2 million and $0.1 million respectively. 

 

Vessel Dispositions

 

We seek opportunities to sell and/or responsibly recycle our older vessels when market conditions warrant and opportunities arise. The majority of our vessels are sold to buyers who do not compete with us in the offshore energy industry. Vessel sales during the first nine months of 2023 included seven vessels that were classified as assets held for sale and four vessels from the active fleet.

 

Liquidity, Capital Resources and Other Matters

 

As of September 30, 2023, we had $282.1 million in cash and cash equivalents (including restricted cash), including amounts held by foreign subsidiaries, the majority of which is available to us without adverse tax consequences. Included in foreign subsidiary cash are balances held in U.S. dollars and foreign currencies that await repatriation due to various currency conversion and repatriation constraints and tax related matters, prior to the cash being made available for remittance to our domestic accounts. We currently intend that earnings by foreign subsidiaries will be indefinitely reinvested in foreign jurisdictions to fund strategic initiatives (such as investment, expansion and acquisitions), fund working capital requirements and repay third-party and intercompany debt of our foreign subsidiaries in the normal course of business. Moreover, we do not currently intend to repatriate earnings of our foreign subsidiaries to the U. S. because cash generated from our domestic businesses and the repayment of intercompany receivables from foreign subsidiaries are currently deemed to be sufficient to fund the cash needs of our U.S. operations.

 

A key component of our growth strategy is expanding our business and fleets through acquisitions, joint ventures and other strategic transactions. We would expect to use net proceeds from any sale of our securities for general corporate purposes, including capital expenditures, investments, acquisitions, repayment or refinancing of indebtedness, and other business opportunities. In furtherance of this strategy and as discussed elsewhere, on July 5, 2023, we closed the Acquisition Agreement with Solstad pursuant to which we acquired 37 platform supply vessels for an aggregate adjusted cash purchase price of approximately $594.2 million. The purchase price was funded through a combination of cash on hand and net proceeds from both the Senior Secured Term Loan and from the Senior Unsecured Notes.

 

Our objective in financing our business is to maintain and preserve adequate financial resources and sufficient levels of liquidity. In addition to our cash on hand, we also have a $25.0 million revolving credit facility that matures in 2026. No amounts have been drawn on this facility. Working capital, which includes cash on hand, was $242.9 million at September 30, 2023. We have generated $59.5 million in net income and $57.5 million in cash flow from operating activities, which includes our interest payments and drydock costs, during the first nine months of 2023. With the closing of the Solstad vessel acquisition, we added substantially to our debt, including current maturities, drydock obligations and interest costs. We expect to generate significant operating income from the vessels acquired during the remainder of this year and in 2024. Our expectation is that the cash generated by our operations coupled with our cash on hand will be sufficient to fund all of our obligations.


As of September 30, 2023, we had $761.8 million of debt on our consolidated balance sheet, $102.4 million of which is due in the next twelve months. The Senior Secured Notes, the Senior Secured Term Loan and the revolving credit facility contain a combination of the following three financial covenants: (i) a minimum free liquidity test (as defined) equal to the greater of $20.0 million or 10% of net interest-bearing debt; (ii) a minimum equity ratio of 30%, in each case for us and our consolidated subsidiaries; and (iii) an interest coverage ratio of not less than 2:1. We are currently in compliance and anticipate being able to maintain ongoing compliance with these financial covenants.

 

We entered into Facility Agreements to finance a portion of the construction and delivery of three new vessels. The vessels were delivered to us through September 30, 2023, in exchange for approximately EUR11.2 million ($11.8 million) in financing. Each of the Facility Agreements bear interest at rates ranging from 2.7% to 6.0% and are payable in ten equal principal semi-annual installments, with the first Facility Agreement installment commencing in the fourth quarter of 2023. The Facility Agreements are secured by the vessels, guaranteed by Tidewater as parent guarantor and contain no financial covenants.

 

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In addition, some of our Series A and B Warrants were exercised during July 2023 and we received approximately $111.5 million in cash and issued approximately 1.9 million shares of our common stock in exchange for these warrants.

 

Operating Activities

 

Net cash provided by (used in) operating activities for the nine months ended September 30, 2023 and 2022 was $57.5 million and $(5.1) million, respectively.

 

Net cash provided by operations for the nine months ended September 30, 2023 reflects net income of $58.3 million, which includes non-cash depreciation and amortization of $121.2 million and net gains on asset dispositions of $4.5 million. Combined changes in operating assets and liabilities used $50.4 million in cash, and cash paid for deferred drydock and survey costs was $73.3 million.

 

Net cash used in operations for the nine months ended September 30, 2022 reflects a net loss of $32.4 million, which includes non-cash depreciation and amortization of $89.3 million and net losses on asset dispositions of $0.8 million. Combined changes in operating assets and liabilities used $39.2 million in cash, and cash paid for deferred drydock and survey costs was $43.9 million.

 

Investing Activities

 

Net cash outflows in both periods for investing activities for the nine months ended September 30, 2023 and 2022, was $(607.8) million and $(24.0) million, respectively.

 

Net cash used in investing activities for the nine months ended September 30, 2023 reflects the payment of $594.2 million to acquire 37 vessels from Solstad and the receipt of $9.6 million primarily related to the sale of 11 vessels. Additions to properties and equipment were comprised of approximately $17.1 million in capitalized upgrades to existing vessels and equipment, $2.1 million in down payments made on four new vessels and $4.0 million primarily for other property and information technology equipment purchases and development work.

 

Net cash used in investing activities for the nine months ended September 30, 2022 reflects the payment of an aggregate $20.7 million to acquire SPO and the 51% equity interest in Sonatide (net of cash received) and the receipt of $8.5 million primarily related to the sale of ten vessels. Additions to properties and equipment were comprised of approximately $8.8 million in capitalized upgrades to existing vessels and equipment and $2.9 million for other property and Information Technology equipment purchases and development work.

 

Financing Activities

 

Net cash provided by (used in) financing activities for the nine months ended September 30, 2023 and 2022 was $664.4 million and $(2.7) million, respectively.

 

Net cash provided by financing activities for the nine months ended September 30, 2023 included proceeds from long-term debt of $575.0 million, $111.5 million in proceeds from the conversion of warrants into common stock, a $1.4 million payment to acquire the non-controlling interest in a majority owned (now wholly owned) subsidiary, $14.8 million of debt issuance costs and $5.9 million in taxes paid on share-based awards.

 

Net cash used in financing activities for the nine months ended September 30, 2022 included $70.6 million in proceeds from the common stock offering, $70.6 million to redeem 4.1 million SPO acquisition warrants, $0.4 million of debt issuance costs and $2.3 million in taxes paid on share-based awards.

 

Application of Critical Accounting Policies and Estimates

 

Our 2022 Annual Report filed with the SEC on February 27, 2023, describes the accounting policies that are critical to reporting our financial position and operating results and that require management’s most difficult, subjective or complex judgments. This Quarterly Report on Form 10-Q should be read in conjunction with the discussion contained in our 2022 Annual Report regarding these critical accounting policies.

 

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New Accounting Pronouncements

 

For information regarding the effect of new accounting pronouncements, see “Note (2) - Recently Issued or Adopted Accounting Pronouncements” of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

 

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ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

For quantitative and qualitative disclosures about market risk affecting us, see Item 7A. “Quantitative and Qualitative Disclosures about Market Risk,” in our 2022 Annual Report. Our exposure to market risk has not changed materially since December 31, 2022.

 

ITEM 4.       CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed with the objective of ensuring that all information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. However, any control system, no matter how well conceived and followed, can provide only reasonable, and not absolute, assurance that the objectives of the control system are met.

 

We evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

 

Changes in Internal Controls Over Financial Reporting

 

There has been no change in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1.       LEGAL PROCEEDINGS

 

See discussion of legal proceedings in (i) “Note (10) - Commitments and Contingencies” of the Notes to Unaudited Condensed Consolidated Financial Statements in this Quarterly Report; (ii) Item 3 of Part I of our 2022 Annual Report; and (iii) “Note (12) – Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of our 2022 Annual Report.

 

ITEM 1A.       RISK FACTORS

 

In addition to the following risk factor, as of the date of this filing, the company and its operations continue to be subject to the risk factors previously discussed in the “Risk Factors” section contained in the 2022 Annual Report.

 

Restrictive covenants in the Senior Secured Notes, Senior Unsecured Notes, Super Senior Revolver and Senior Secured Term Loan may restrict our ability to raise capital and pursue our business strategies, and may have significant consequences for our operations and future prospects.

 

Our debt instruments, including our (i) 8.50% Senior Secured Notes due in 2026 (the “Senior Secured Notes”), (ii) 10.375% Senior Unsecured Notes due in 2028 (the “Senior Unsecured Notes” and collectively with the Senior Secured Notes, the “Senior Notes”), (iii) Super Senior Revolving Credit Facility Agreement with DNB Bank ASA, New York Branch, as Facility Agent, Nordic Trustee AS, as Security Trustee, and certain other institutions (the “Super Senior Revolver”), and (iv) Senior Secured Term Loan with DNB Bank ASA (the “Senior Secured Term Loan”), contain certain restrictive covenants. These covenants could have important consequences for our strategy and operations, including:

 

 

limiting our ability to incur indebtedness to provide funds for investments or capital expenditures, acquisitions, debt service requirements, general corporate purposes, dividends, and to make other distributions or repurchase or redeem our stock;

 

restricting us from undertaking consolidations, mergers, sales, or other dispositions of all or substantially all our assets; requiring us to dedicate a substantial portion of our cash flow from operations to make required payments on indebtedness, thereby reducing the availability of cash flow for working capital, capital expenditures, such as investing in new vessels, and other general business activities;

 

requiring that we pledge substantial collateral, including vessels, which may limit flexibility in operating our business and restrict our ability to sell assets;

 

limiting management’s flexibility in operating our business including planning for, or reacting to, changes in our business and the industry in which we operate;

 

diminishing our ability to withstand a downturn in our business or worsening of macroeconomic or industry conditions; and

 

placing us at a competitive disadvantage against less leveraged competitors.

 

The Senior Notes, Super Senior Revolver and the Senior Secured Term Loan also require us to comply with certain financial covenants, including maintenance of minimum liquidity and minimum consolidated equity.

 

We may be unable to meet these financial covenants or comply with these covenants, which could result in a default under the Senior Notes, Super Senior Revolver or Senior Secured Term Loan. If a default occurs and is continuing, the secured parties and the lenders under our debt agreements may elect to declare all borrowings thereunder outstanding, together with accrued interest and other fees, to be immediately due and payable. If we are unable to repay our indebtedness when due or declared due, the secured parties and the lenders under the Senior Notes, Super Senior Revolver and Senior Secured Term Loan will also have the right to foreclose on the collateral pledged to them, including the vessels, to secure the indebtedness. If such indebtedness were to be accelerated, our assets may not be sufficient to repay in full our secured indebtedness. Please refer to Note (9) - “Debt” and Note (3) - “Solstad Vessel Acquisition”) to our accompanying unaudited consolidated financial statements for additional information. As a result of the restrictive covenants under the Senior Notes, Super Senior Revolver and Senior Secured Term Loan, we may be prevented from taking advantage of business opportunities. In addition, the restrictions contained in the Senior Notes, Super Senior Revolver and Senior Secured Term Loan, including a substantial make whole premium applicable to a voluntary prepayment of obligations under the Senior Notes, may also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, refinance, enter into acquisitions, execute our business strategy, make capital expenditures, effectively compete with companies that are not similarly restricted or engage in other business activities that would be in our interest.

 

41

 

 

In the future, we may also incur additional debt obligations that might subject us to additional and different restrictive covenants that could further affect our financial and operational flexibility. We cannot assure you that we will be granted waivers or amendments to these agreements if requested to obtain financial or operational flexibility or if for any reason we are unable to comply with these agreements, or that we will be able to refinance our debt on acceptable terms or at all. We may not be able to obtain debt or equity financing if and when needed with favorable terms, if at all.

 

 

42

 

 

ITEM 6.       EXHIBITS

 

Exhibit

Number

 

Description

31.1*

 

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     
31.2*  

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1**

 

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2**   Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     

101.INS*

 

Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema.

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase.

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase.

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*

Filed with this quarterly report on Form 10-Q.

 

**

Furnished with this quarterly report on Form 10-Q.

 

43

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized

 

 

TIDEWATER INC.

 

(Registrant)

 

 

Date:  November 6, 2023

/s/ Samuel R. Rubio

 

Samuel R. Rubio

 

Executive Vice President and Chief Financial Officer

 

(Principal Financial and Accounting Officer and authorized signatory)

 

44