While the oil market has started to show some signs of life, most of those green shoots are onshore at the moment. Because of that, Atwood Oceanics (NYSE: ATW) still has several offshore drilling rigs sitting idle while it waits for conditions to improve. While the company does see some positives on the horizon, it reported a messy quarter thanks to a slew of one-time events.
Atwood Oceanics results: The raw numbers
|Metric||Fiscal Q2 2017||Fiscal Q2 2016||Year-Over-Year Change|
|Revenue||$167.7 million||$296.4 million||-43.4%|
|Net income||($29.0 million)||$122.4 million||N/M|
Data source: Atwood Oceanics, Inc.
What happened with Atwood Oceanics this quarter?
Atwood Oceanics scrapped another vessel during the quarter:
- Atwood's revenue sank deeply versus last year because of contract expirations. During the quarter, the company didn't bring in any revenue from its deepwater and jackups fleets, which are both idle at the moment. Meanwhile, the company did generate $162 million in revenue from its ultra-deepwater fleet, which was down 14.3% from the year-ago quarter. That said, revenue did increase 9.5% from the fiscal first quarter . However, that's because the company received a one-time $48.1 million payment from a client that exercised an option to revert to the original terms of its contract.
- The slump in revenue, along with the added costs of idling rigs, was one of the drivers of the drop in profitability. In addition, Atwood concluded that the Atwood Eagle was impaired and therefore wrote it down to the salvage value and subsequently sold it to a third-party recycler in early May. Because of that, the company recorded a $59 million, or $0.74 per share, impairment charge.
- The company continued to shore up its balance sheet during the quarter. It issued $181 million in stock and repurchased $13.5 million in principal value of its senior notes for just $5.1 million on the open market. As a result of that repurchase, the company recorded a $8.4 million, or $0.13 per share, gain on the extinguishment of debt.
- After adjusting for the one-time impairment charge and the gain on debt, the company would have earned $21.7 million, or $0.24 per share, which is a slight improvement from last quarter's earnings of $9.7 million or $0.15 per share. Though, take that with a grain of salt considering that the company benefited from the lump-sum payment during the quarter.
What management had to say
On the accompanying quarterly conference call, CFO Mark Smith went into greater detail on the two things that affected the company's results, saying:
The company generated quarterly revenues of $168 million on 273 operating days, versus $158 million on 374 operating days in the previous quarter. The increase in revenue is primarily related to the Atwood Achiever, as the client exercised its option to revert the day rate back to the higher original contracted rate in term beginning in early February. As disclosed in the previous earnings call, the exercise of this option resulted in a one-time make-whole payment of $48.1 million recognized this quarter ... On May 5, 2017, we executed a sale and recycling agreement with respect to the Atwood Eagle, pursuant to which the vessel, together with associated equipment and machinery, will be sold to a third party to be recycled. We do not anticipate further writedowns, given our fleet now has an average age of less than six years excluding the two remaining new builds. The company incurred a diluted loss per share of $0.37 in the second quarter versus earnings of $0.15 in the previous quarter. Excluding the noncash impairment charge of the Atwood Eagle, diluted earnings per share were $0.37.
As Smith points out, the quarter was a bit messy because of some one-time items. Revenue increased because of the one-time payment. Meanwhile, earnings plunged into the red because the company scrapped one of its unused vessels. However, this should be the end of these unique events, because the company's remaining fleet is very young and therefore should not need to be written down.
CEO Robert Saltiel offered a relatively optimistic outlook for the future on the conference call. He noted that one of its customers, Kosmos Energy (NYSE: KOS) , recently reported another major offshore gas discovery in Senegal. Because of that, Saltiel said Atwood is "in discussions with Kosmos Energy to extend the current contract." In addition to that, Saltiel stated:
We are pursuing opportunities for our new-build drill ships that include, but also extend beyond, the exploration opportunity in Brazil for the Atwood Admiral. We are working to close any gaps that may exist on the Osprey and Advantage work schedules. We are also hopeful to be able to restart at least one more jack-up in late 2017 or early 2018 in response to visible operator tenders.
If these awards come through, it should help halt the slide in the company's financial results. However, the offshore drilling industry will likely remain a challenging place until oil prices stabilize in the $60s.
10 stocks we like better than Atwood Oceanics
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and Atwood Oceanics wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of May 1, 2017.