SEACOR Marine Holdings Inc.: Form 10-Q for the period ended Mar 31, 2024

This Form 10-Q includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern management’s expectations, strategic objectives, business prospects, anticipated economic performance and financial condition and other similar matters and involve significant known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. Certain of these risks, uncertainties and other important factors are discussed in the Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2023 Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. However, it should be understood that it is not possible to identify or predict all such risks, uncertainties and factors, and others may arise from time to time. All of these forward-looking statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “estimate,” “expect,” “project,” “intend,” “believe,” “plan,” “target,” “forecast” and similar expressions are intended to identify forward-looking statements. Forward looking statements speak only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. It is advisable, however, to consult any further disclosures the Company makes on related subjects in its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the United States Securities and Exchange Commission.

The following Management’s Discussion and Analysis (the “MD&A”) is intended to help the reader understand the Company’s financial condition and results of operations. The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the 2023 Annual Report.

Overview

The Company provides global marine and support transportation services to offshore energy facilities worldwide. As of March 31, 2024, the Company operated a diverse fleet of 56 support vessels, of which 55 were owned or leased-in and one was managed on behalf of an unaffiliated third party. The primary users of the Company’s services are major integrated national and international oil companies, independent oil and natural gas exploration and production companies, oil field service and construction companies, as well as offshore wind farm operators and offshore wind farm installation and maintenance companies.

The Company operates and manages a diverse fleet of offshore support vessels that (i) deliver cargo and personnel to offshore installations, including offshore wind farms, (ii) assist offshore operations for production and storage facilities, (iii) provide construction, well work-over, offshore wind farm installation and decommissioning support, (iv) carry and launch equipment used underwater in drilling and well installation, maintenance, inspection and repair and (v) handle anchors and mooring equipment for offshore rigs and platforms. Additionally, the Company’s vessels provide emergency response services and accommodations for technicians and specialists.

The Company operates its fleet in four principal geographic regions: the United States (“U.S.”), primarily in the Gulf of Mexico; Africa and Europe; the Middle East and Asia; and Latin America, primarily in Mexico and Guyana. The Company’s vessels are highly mobile and regularly and routinely move between countries within a geographic region. In addition, the Company’s vessels are redeployed among geographic regions, subject to flag restrictions, as changes in market conditions dictate.

Significant items affecting our results of operations

The number and type of vessels operated, their rates per day worked and their utilization levels are the key determinants of the Company’s operating results and cash flows. Unless a vessel is cold-stacked, there is little reduction in daily running costs for the vessels and, consequently, operating margins are most sensitive to changes in rates per day worked and utilization. The Company manages its fleet utilizing a global network of shore side support, administrative and finance personnel.

Offshore oil and natural gas market conditions are highly volatile. Oil prices experienced unprecedented volatility during 2020 due to the COVID-19 pandemic and the related effects on the global economy, with the price per barrel going negative for a short period of time. Oil prices steadily increased since the lows hit at the beginning of the COVID-19 pandemic and hit a multi-year high of $122 per barrel during 2022 primarily as a result of the conflict between Russia and Ukraine as well as the related economic sanctions and economic uncertainty. During the first quarter of 2024, WTI oil prices reached a high of $83 per barrel and a low of $70 per barrel, ending the quarter at $83 per barrel.

While the Company has experienced difficult market conditions over the past few years due to low and volatile oil and natural gas prices and the focus of oil and natural gas producing companies on cost and capital spending budget reductions, the increases since the lows experienced during the COVID-19 pandemic in oil and natural gas prices has led to an increase in utilization, day rates and customer inquiries about potential new charters.

The Company closely monitors the availability of vessels in the offshore support vessel market as the utilization and day rates of the Company’s fleet is dependent on the supply and demand dynamics for its vessels. For example, low oil and natural gas prices and a corresponding decline in offshore exploration may reduce demand for the Company’s vessels and in the past such declines have forced many operators in the industry to restructure, liquidate assets or consolidate with other operators. Additionally, the delivery of newly built offshore support vessels to the industry-wide fleet has in the past contributed to an oversupply of vessels in the market, thereby further decreasing the demand for the Company’s existing offshore support vessel fleet. A combination of low customer exploration and drilling activity levels, and excess supply of offshore support vessels whether from laid up fleets or newly built vessels could, in isolation or together, have a material adverse effect on the Company’s business, financial position, results of operations, cash flows and growth prospects. Alternatively, increasing activity levels and a stable supply of offshore support vessels could support higher utilization and day rates and improved financial performance of the Company’s business.

Certain macro drivers somewhat independent of oil and natural gas prices may support the Company’s business, including: (i) underspending by oil and natural gas producers over the last five to ten years leading to pent up demand for maintenance and growth capital expenditures; (ii) improved extraction technologies; and (iii) the need for offshore wind farm support as the industry grows. While the Company expects that alternative forms of energy will continue to develop and add to the world’s energy mix, especially as governments, supranational groups, institutional investors, and various other parties focus on climate change causes and concerns, the Company believes that for the foreseeable future demand for gasoline and oil will be sustained, as will demand for electricity from natural gas. Some alternative forms of energy such as offshore wind farms support some of the Company’s operations and the Company expects such support to increase as development of renewable energy expands.

The Company adheres to a strategy of cold-stacking vessels (removing from active service) during periods of weak utilization in order to reduce the daily running costs of operating the fleet, primarily personnel, repairs and maintenance costs, as well as to defer some drydocking costs into future periods. The Company considers various factors in determining which vessels to cold-stack, including upcoming dates for regulatory vessel inspections and related docking requirements. The Company may maintain class certification on certain cold-stacked vessels, thereby incurring some drydocking costs while cold-stacked. Cold-stacked vessels are returned to active service when market conditions improve, or management anticipates improvement, typically leading to increased costs for drydocking, personnel, repair and maintenance in the periods immediately preceding the vessels’ return to active service. Depending on market conditions, vessels with similar characteristics and capabilities may be rotated between active service and cold-stack. On an ongoing basis, the Company reviews its cold-stacked vessels to determine if any should be designated as retired and removed from service based on the vessel’s physical condition, the expected costs to reactivate and restore class certification, if any, and its viability to operate within current and projected market conditions. As of March 31, 2024, three of the Company’s 56 owned and leased-in vessels were cold-stacked worldwide, including one vessel classified as held for sale.

Recent Developments

At the Market Program

On November 1, 2023, SEACOR Marine entered into an at-the-market sales agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Sales Agent”), relating to the potential issuance and sale from time to time by SEACOR Marine of shares of SEACOR Marine’s common stock, par value $0.01 per share (the “Common Stock”) for an aggregate gross sales price of up to $25.0 million. During the fourth quarter of 2023, SEACOR Marine sold 7,674 shares of Common Stock at an average price of $13.1891 per share for total gross proceeds to the Company of $101,213 leaving us with approximately $24.9 million of additional capacity under the ATM Program.

Debt Refinancing and Maturity Extension

In September 2023, SEACOR Marine, as parent guarantor, SEACOR Marine Foreign Holdings Inc., as borrower, and certain other wholly-owned subsidiaries of SEACOR Marine, as subsidiary guarantors, entered into a $122.0 million senior secured term loan (the “2023 SMFH Credit Facility”) with certain affiliates of EnTrust Global, as lenders, Kroll Agency Services, Limited, as facility agent, and Kroll Trustee Services Limited, as security trustee. The proceeds of the 2023 SMFH Credit Facility were used to, among other things, refinance approximately $104.8 million of indebtedness under five separate credit and ship financing facilities. As a result, the new maturity of the refinanced debt is September 2028.

In addition, in June 2023 the Company refinanced shipyard financing provided by COSCO Shipping Heavy Industry (Zhoushan) Co. incurred in connection with the delivery of three platform supply vessels during 2019 and 2020 with the proceeds of a $28.0 million senior secured term loan facility entered into by SEACOR Alps LLC, SEACOR Andes LLC, and SEACOR Atlas LLC, each a wholly-owned subsidiary of SEACOR Marine, as borrowers. As a result, the new maturity of the refinanced debt is June 2028.

Consolidated Results of Operations

The sections below provide an analysis of the Company’s results of operations for the three months (“Current Year Quarter”) ended March 31, 2024 compared with the three months (“Prior Year Quarter”) ended March 31, 2023. Except as otherwise noted, there have been no material changes since the end of the Company’s fiscal year ended December 31, 2023, in the Company’s results of operations. For the periods indicated, the Company’s consolidated results of operations were as follows (in thousands, except statistics):

Direct Vessel Profit. Direct vessel profit (defined as operating revenues less operating expenses excluding leased-in equipment, “DVP”) is the Company’s measure of segment profitability. DVP is a critical financial measure used by the Company to analyze and compare the operating performance of its regions, without regard to financing decisions (depreciation and interest expense for owned vessels vs. lease expense for leased-in vessels). See “Note 11. Segment Information” to the Unaudited Consolidated Financial Statements included in Part I. Item 1. “Financial Statements” elsewhere in this Quarterly Report on Form 10-Q.

The following tables summarize the operating results and property and equipment for the Company’s reportable segments for the periods indicated (in thousands, except statistics):

(1) Total Assets by region does not include corporate assets of $57.5 million as of March 31, 2024.

(1) Total Assets by region does not include corporate assets of $54.4 million as of March 31, 2023.

For additional information, the following tables summarize the worldwide operating results and property and equipment for each of the Company’s vessel classes for the periods indicated (in thousands, except statistics):

(1) Anchor handling towing supply vessel (“AHTS”).

(2) Fast support vessel (“FSV”).

(3) Platform support vessel (“PSV”).

Fleet Counts. The Company’s fleet count as of March 31, 2024 and December 31, 2023 was as follows:

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Operating Income (Loss)

United States, primarily Gulf of Mexico. For the three months ended March 31, 2024 and 2023 the Company’s time charter statistics and direct vessel (loss) profit in the U.S. were as follows (in thousands, except statistics):

Current Year Quarter compared with Prior Year Quarter

Operating Revenues. Charter revenues were $0.4 million higher in the Current Year Quarter compared with the Prior Year Quarter. Charter revenues were $2.8 million higher due to increased day rates of the vessels included in the results of this region in both comparative periods (as applicable to each region, the “Regional Core Fleet”) and $2.4 million lower due to the repositioning of vessels between geographic regions. Other marine services were $2.8 million lower primarily due to business interruption insurance revenues recorded in the Prior Year Quarter. As of March 31, 2024 and March 31, 2023, the Company had two of ten owned vessels (one liftboat and one FSV) cold-stacked in this region.

Direct Operating Expenses. Direct operating expenses were $0.2 million higher in the Current Year Quarter compared with the Prior Year Quarter. Direct operating expenses were $2.6 million higher for the Regional Core Fleet primarily due to the timing of drydocking and repairs expenditures, $1.6 million lower due to the repositioning of vessels between geographic regions and $0.8 million lower due to net asset dispositions.

Africa and Europe. For the three months ended March 31, 2024 and 2023 the Company’s time charter statistics and direct vessel profit in Africa and Europe were as follows (in thousands, except statistics):

Current Year Quarter compared with Prior Year Quarter

Operating Revenues. Charter revenues were $1.6 million higher in the Current Year Quarter compared with the Prior Year Quarter. Charter revenues were $1.4 million higher for the Regional Core Fleet due to increased day rates and $0.2 million higher due to the repositioning of vessels between geographic regions. As of March 31, 2024, the Company had one of 20 owned and leased-in vessels (one AHTS) cold-stacked in this region that is classified as held for sale.

Direct Operating Expenses. Direct operating expenses were $0.7 million higher in the Current Year Quarter compared with the Prior Year Quarter. Direct operating expenses were $0.8 million higher due to the repositioning of vessels between geographic regions and $0.1 million lower for the Regional Core Fleet.

Middle East and Asia. For the three months ended March 31, 2024 and 2023 the Company’s time charter statistics and direct vessel profit in the Middle East and Asia were as follows (in thousands, except statistics):

Current Year Quarter compared with Prior Year Quarter

Operating Revenues. Charter revenues were $0.4 million higher in the Current Year Quarter compared with the Prior Year Quarter. Charter revenues were $1.3 million higher for the Regional Core Fleet as a result of increased liftboat and PSV day rates and utilization, and $0.9 million lower due to net asset dispositions. Other marine services were $0.3 million higher due to increased catering revenues. As of March 31, 2024, the Company had no vessels cold-stacked in this region.

Direct Operating Expenses. Direct operating expenses were $4.7 million higher in the Current Year Quarter compared with the Prior Year Quarter. Direct operating expenses were $5.0 million higher for the Regional Core Fleet, primarily due to the timing of drydocking and repair expenditures and insurance reimbursements related to expenses in prior periods and $0.3 million lower due to net asset dispositions.

Latin America (Brazil, Mexico, Central and South America). For the three months ended March 31, 2024 and 2023 the Company’s time charter statistics and direct vessel profit in Latin America were as follows (in thousands, except statistics):

Current Year Quarter compared with Prior Year Quarter

Operating Revenues. Charter revenues were $1.5 million higher in the Current Year Quarter compared with the Prior Year Quarter. Charter revenues were $6.4 million higher due to the repositioning of vessels between geographic regions and $4.9 million lower for the Regional Core Fleet due to reduced fleet utilization. As of March 31, 2024, the Company had no vessels cold-stacked in this region.

Direct Operating Expenses. Direct operating expenses were $3.9 million higher in the Current Year Quarter compared with the Prior Year Quarter. Direct operating expenses were $3.2 million higher due to the repositioning of vessels between geographic regions and $0.7 million higher for the Regional Core Fleet primarily due to the timing of certain drydocking and repair expenditures.

Other Operating Expenses

Lease Expense. Leased-in equipment expense for the Current Year Quarter was $0.2 million lower compared to the Prior Year Quarter due to having one leased-in vessel in 2024 compared to two in 2023.

Administrative and general. Administrative and general expenses for the Current Year Quarter were $0.3 million higher compared to the Prior Year Quarter primarily due to increases in wages and benefits expenses.

Depreciation and amortization. Depreciation and amortization expense for the Current Year Quarter were $0.9 million lower compared to the Prior Year Quarter primarily due to net fleet changes.

Gains (Losses) on Asset Dispositions and Impairments, Net. There were no vessel sales during the Current Year Quarter. During the Prior Year Quarter, the Company sold three liftboats and other equipment, previously classified as held for sale, as well as other equipment not previously classified as such, for net cash proceeds of $7.6 million, after transaction costs, and a gain of $2.6 million.

Other Income (Expense), Net

For the three months ended March 31, 2024 and 2023, the Company’s other income (expense) was as follows (in thousands):

Interest income. Interest income for the Current Year Quarter compared with the Prior Year Quarter was higher due to higher yields on our cash balances.

Interest expense. Interest expense was higher in the Current Year Quarter compared with the Prior Year Quarter primarily due to a higher interest rate on the refinancing of the 2018 SMFH Credit Facility with the 2023 SMFH Credit Facility (which bears interest at a fixed rate of 11.75% per annum).

Derivative losses, net. Net derivative losses for the Current Year Quarter compared with the Prior Year Quarter increased due to the Company entering into an open forward currency exchange contract in the fourth quarter of 2023.

Foreign currency losses, net. Net foreign currency losses for the Current Year Quarter compared with the Prior Year Quarter decreased primarily due to the strengthening of the pound sterling in relation to the U.S. dollar.

Income Tax Expense

During the three months ended March 31, 2024, the Company’s effective income tax rate of 4.4% was primarily due to foreign taxes paid that are not creditable against U.S. income taxes and foreign losses for which there is no benefit for U.S. income tax purposes.

Equity in Earnings of 50% or Less Owned Companies

Equity in earnings of 50% or less owned companies for the Current Year Quarter compared with the Prior Year Quarter were $1.6 million lower due to the following changes in equity earnings (losses) gains (in thousands):

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Liquidity and Capital Resources

General

The Company’s ongoing liquidity requirements arise primarily from working capital needs, capital commitments and its obligations to service outstanding debt and comply with covenants under its debt facilities. The Company may use its liquidity to fund capital expenditures, make acquisitions or to make other investments. Sources of liquidity are cash balances, cash flows from operations and sales under the Company’s ATM Program, which has approximately $24.9 million of authority remaining of sales. From time to time, the Company may secure additional liquidity through asset sales or the issuance of debt, shares of Common Stock or common stock of its subsidiaries, preferred stock or a combination thereof.

As of March 31, 2024, the Company held balances of cash, cash equivalents and restricted cash totaling $62.2 million. As of March 31, 2023, the Company held balances of cash, cash equivalents and restricted cash totaling $43.7 million.

As of March 31, 2024, the Company had outstanding debt of $310.6 million, net of debt discount and issue costs. The Company’s contractual long-term debt maturities as of March 31, 2024, are as follows (in thousands):

As of March 31, 2024, the Company had unfunded capital commitments of $12.5 million for miscellaneous vessel equipment, including $10.5 million in respect of hybrid battery power systems. Of the unfunded capital commitments, $7.3 million is payable during 2024 and $5.2 million is payable during 2025. In addition to the unfunded capital commitments above, the Company has indefinitely deferred an additional $9.2 million of capital commitments with respect to one FSV.

Summary of Cash Flows

The following is a summary of the Company’s cash flows for the three months ended March 31, 2024 and 2023 (in thousands):

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Operating Activities

Cash flows used in operating activities increased by $6.6 million in the Current Year Quarter compared with the Prior Year Quarter primarily due to a decrease in utilization offset by changes in working capital. The components of cash flows provided by and/or used in operating activities during the Current Year Quarter and Prior Year Quarter were as follows (in thousands):

(1) During the Current Year Quarter and the Prior Year Quarter, the Company paid no capitalized interest.

For a detailed discussion of the Company’s financial results for the reported periods, see “Consolidated Results of Operations” included above. Changes in operating assets and liabilities before interest and income taxes are the result of the Company’s working capital requirements.

Investing Activities

During the Current Year Quarter, net cash used in investing activities was $3.4 million, primarily as a result of the following:

• capital expenditures were $3.4 million;

During the Prior Year Quarter, net cash provided by investing activities was $12.1 million, primarily as a result of the following:

• capital expenditures were $0.5 million;
• the Company sold other equipment for net cash proceeds of $7.6 million, after transaction costs, and a gain of $2.6 million; and
• the Company received $5.0 million of principal payments under the MexMar Third A&R Facility Agreement.

Financing Activities

During the Current Year Quarter, net cash used in financing activities was $11.4 million, primarily as a result of the following:

• the Company made scheduled payments on long-term debt and other obligations of $7.5 million;
• the Company made payments on tax withholdings for restricted stock vesting of $3.9 million;

During the Prior Year Quarter, net cash used in financing activities was $11.0 million primarily as a result of the following:

• the Company made scheduled payments on long-term debt and other obligations of $8.6 million;
• the Company made payments on finance leases of $0.1 million; and
• the Company made payments on tax withholdings for restricted stock vesting of $2.3 million.

Short and Long-Term Liquidity Requirements

The Company believes that a combination of cash balances on hand, cash generated from operating activities and access to the credit and capital markets, including the $24.9 million in remaining capacity under the ATM Program, will provide sufficient liquidity to meet its obligations, including to support its capital expenditures program, working capital needs, debt service requirements and covenant compliance over the short to long term. The Company continually evaluates possible acquisitions and dispositions of certain businesses and assets. The Company’s sources of liquidity may be impacted by the general condition of the markets in which it operates and the broader economy as a whole, which may limit its access to or the availability of the credit and capital markets on acceptable terms. Management continuously monitors the Company’s liquidity and compliance with covenants in its credit facilities.

Debt Securities and Credit Agreements

For a discussion of the Company’s debt securities and credit agreements, see “Note 4. Long-Term Debt” in the unaudited consolidated financial statements included in Part I. Item 1. “Financial Statements” elsewhere in this Quarterly Report on Form 10-Q and in “Note 6. Long-Term Debt” in the Company’s audited consolidated financial statements included in its 2023 Annual Report. There has not been any material changes to the agreements governing the Company’s long-term debt during the period.

Future Cash Requirements

For a discussion of the Company’s future cash requirements, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in the Company’s 2023 Annual Report. There has been no material change in the Company’s future cash requirements since our fiscal year ended December 31, 2023, except as described in “Results of Operations - Liquidity and Capital Resources”.

Contingencies

For a discussion of the Company’s contingencies, see “Note 9. Commitments and Contingencies” in the unaudited consolidated financial statements included in Part I. Item 1. “Financial Statements” elsewhere in this Quarterly Report on Form 10-Q.

For a discussion of the Company’s exposure to market risk, refer to “Quantitative and Qualitative Disclosures About Market Risk” included in the Company’s 2023 Annual Report. There has been no material change in the Company’s exposure to market risk during the three months ended March 31, 2024.

Evaluation of Disclosure Controls and Procedures

With the participation of the Company’s principal executive officer and principal financial officer, management evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 31, 2024. Based on their evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2024 to provide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission’s (“SEC”) rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The Company’s disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosures. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems determined to be effective can provide only a level of reasonable assurance with respect to financial statement preparation and presentation.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Current Year Quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

For a discussion of the Company’s risk factors, refer to “Risk Factors” included in the Company’s 2023 Annual Report. There have been no material changes in the Company’s risk factors during the Current Year Quarter.