Hornbeck Offshore Announces Third Quarter 2010 Results
COVINGTON, La., Nov. 4, 2010 /PRNewswire-FirstCall/ -- Hornbeck Offshore Services, Inc. (NYSE: HOS) announced today results for the third quarter ended September 30, 2010. Following are highlights for this period and the Company’s future outlook:
-- 2010 earnings guidance updated to reflect 2010 YTD actual results and
prevailing market conditions
-- 3Q2010 revenue increased 39% year-over-year and 12% sequentially due to
larger fleet and oil spill relief efforts
-- Oil spill response in the GoM accounted for roughly 46% of the
Company’s consolidated revenue for 3Q2010
-- OSV, MPSV and TTB vessel-days working in spill response for 3Q2010 were
22%, 96% and 54%, respectively
-- Final five of eight new gen OSVs in Brazil were all on-charter with
Petrobras as of Sep 30, 2010
-- Contract backlog for new gen OSV vessel-days currently at 61%, 40% and
24% for 4Q2010, 2011 and 2012
-- Sixteenth and final vessel under fourth OSV newbuild program, HOS
Wildwing, was delivered in September 2010
-- Quarter-end cash balance of $97m as of Sep 30, 2010 nearly doubles
sequentially from $51m as of Jun 30, 2010
Third quarter 2010 revenues increased 39.2% to $125.4 million compared to $90.1 million for the third quarter of 2009 and increased 12.1% compared to $111.9 million for the second quarter of 2010. Operating income was $43.3 million, or 34.5% of revenues, for the third quarter of 2010 compared to $27.1 million, or 30.1% of revenues, for the prior-year quarter; and $34.5 million, or 30.8% of revenues, for the second quarter of 2010. Net income for the third quarter of 2010 was $18.2 million, or $0.67 per diluted share, compared to $13.8 million, or $0.51 per diluted share for the year-ago quarter; and $13.0 million, or $0.48 per diluted share for the second quarter of 2010. EBITDA for the third quarter of 2010 was $63.1 million compared to third quarter 2009 EBITDA of $43.6 million and second quarter 2010 EBITDA of $54.1 million. The year-over-year increase in revenues, operating income, EBITDA and EPS was primarily due to incremental revenues from the vessels placed in service since September 2009 under the Company’s newbuild and conversion programs. For additional information regarding EBITDA as a non-GAAP financial measure, please see Note 10 to the accompanying data tables.
Upstream Segment. Revenues from the Upstream segment were $112.0 million for the third quarter of 2010, an increase of $38.3 million, or 52.0%, from $73.7 million for the third quarter in 2009 and an increase of $11.5 million, or 11.4%, from $100.5 million for the second quarter of 2010. The vessels placed in service since the third quarter of 2009 under the Company’s newbuild and conversion programs accounted for a $33.3 million increase in Upstream revenues. The remaining $5.0 million increase in Upstream revenues is from the Company’s new generation OSVs and MPSVs that were in service during each of the quarters ended September 30, 2010 and 2009. Upstream operating income increased $16.3 million to $40.1 million, or 35.8% of revenues, for the third quarter of 2010 from $23.8 million, or 32.3% of revenues, for the third quarter of 2009. Average new generation OSV dayrates for the third quarter of 2010 were $21,628 compared to $20,915 for the same period in 2009 and $23,874 for the second quarter of 2010. The Company’s second-quarter 2010 new generation OSV dayrates were favorably impacted by certain non-recurring revenues for one of its specialty service vessels unrelated to the oil spill response efforts in the U.S. Gulf of Mexico (“GoM”). Excluding these revenues for the sake of comparability to other periods, the Company’s new generation OSV average dayrates for the sequential period would have been $20,628. The increase in third-quarter 2010 dayrates over the prior-year quarter and the adjusted sequential quarter was largely due to higher temporary demand related to oil spill response activities. During the third quarter of 2010, the Company had as many as 11 OSVs and four MPSVs assisting with oil spill-related activities, which represented nearly 30% of the total Upstream vessel-days worked. As of November 1, 2010, only seven new generation OSVs and one MPSV remained on charter related to oil spill response activities, which are in various stages of winding down over the next one to six weeks. New generation OSV utilization was 75.7% for the third quarter of 2010 compared to 71.9% during the year-ago quarter and 71.8% for the sequential quarter. The increase in utilization was driven by oil spill response activities, which was partially offset by having 469 days out-of-service related to stacked vessels and approximately 326 days of aggregate downtime related to customer-required modifications and pre-positioning of five vessels that were mobilized to Latin America during 2010 for multi-year charters. These five vessels commenced their charters with Petrobras in late September 2010. The Company had five new generation OSVs stacked as of September 30, 2010 compared to seven vessels stacked as of June 30, 2010. The Company had an average of 5.1 stacked new generation OSVs during the third quarter of 2010 compared to quarterly averages of 6.0 stacked vessels during the year-ago quarter and 7.4 stacked vessels during the sequential quarter. Effective new generation OSV utilization for the Company’s active fleet, which excludes the impact of stacked vessels, was 84.2% for the third quarter of 2010 compared to 83.2% for the year-ago quarter and 84.5% for the sequential quarter.
Downstream Segment. Revenues from the Downstream segment of $13.4 million for the third quarter of 2010 decreased by $3.0 million, or 18.3%, compared to $16.4 million for the same period in 2009, but were higher than the sequential quarter by $2.0 million, or 17.5%. This year-over-year revenue decline was largely due to $5.4 million of incremental revenues related to well-test cancellation fees recognized during the third quarter of 2009. Excluding the well-test cancellation fees, our Downstream revenues would have increased year-over-year by $2.4 million, or 21.8% compared to the third quarter of 2009. The Company’s Downstream revenues for the third quarter of 2010 were favorably impacted by one double-hulled tank barge performing well-test services for an Upstream customer in the GoM and five double-hulled tank barges temporarily supporting oil spill response activities. As of November 1, 2010, only two of the five double-hulled tank barges remained on charter related to oil spill response activities. The Company’s double-hulled tank barge average dayrates were $18,615 for the third quarter of 2010 compared to $28,503 for the same period in 2009. Excluding the incremental well-test revenues and well-test cancellation fee revenues, our average double-hulled tank barge dayrates would have been $16,430 and $18,852 for the third quarters of 2010 and 2009, respectively. Utilization for the double-hulled tank barge fleet was 86.9% for the third quarter of 2010 compared to 67.6% for the same period in 2009. Utilization improved largely due to increased activity related to the oil spill response activities.
General and Administrative (“G&A”). G&A expenses of $9.7 million for the third quarter of 2010 were 7.7% of revenues compared to $6.9 million, or 7.7% of revenues, for the third quarter of 2009. This increase in G&A expense is primarily attributable to higher personnel costs compared to the prior-year quarter commensurate with the Company’s larger, more geographically diverse fleet. Third quarter G&A expense margin was lower than the Company’s 2010 annual guidance range of 9% to 11% of revenues. The Company allocated 93% of its third quarter 2010 G&A expenses to the Upstream segment and 7% to the Downstream segment.
Depreciation and Amortization. Depreciation and amortization expense was $19.8 million for the third quarter of 2010, or $3.3 million higher than the prior-year quarter. This increase was due to the incremental depreciation related to seven new generation OSVs and two MPSVs that were placed in service since the third quarter of 2009. Depreciation and amortization expense is expected to continue to increase from current levels when any recently acquired and newly constructed vessels undergo their initial 30-month and 60-month recertifications.
Interest Expense. Interest expense increased $8.8 million during the three months ended September 30, 2010 compared to the same period in 2009. The increase in interest expense is primarily attributable to incremental interest costs related to the Company’s August 2009 issuance of $250.0 million of 8.000% senior notes due 2017, and lower capitalized interest because the Company had fewer vessels being constructed under its newbuild and conversion programs. The Company capitalized $0.3 million of construction period interest for the third quarter of 2010, which represents 2% of its total interest costs for the quarter, compared to $6.2 million for the year-ago quarter, or 53% of its total interest costs for such quarter. With its newbuild and conversion programs now complete, the Company expects to capitalize annual construction period interest of $3.7 million, or 6% of its estimated total interest costs for the full fiscal year 2010.
Nine Month Results
Revenues for the first nine months of 2010 increased 8.7% to $323.5 million compared to $297.6 million for the same period in 2009. Operating income was $93.5 million, or 28.9% of revenues, for the first nine months of 2010 compared to $77.5 million, or 26.0% of revenues, for the prior-year period. Net income for the first nine months of 2010 decreased 17.8% to $33.8 million, or $1.24 per diluted share, compared to $41.1 million, or $1.52 per diluted share for the first nine months of 2009. Excluding the June 2009 Downstream non-cash impairment charge in the amount of $26.7 million, or $0.62 per diluted share, operating income, net income and diluted EPS for the first nine months of 2009 were $104.2 million, $58.0 million and $2.15 per share, respectively. The year-over-year decrease in adjusted operating income and net income was substantially due to the incremental costs for mobilizing eight vessels to Latin America for multi-year charters. The Company’s revenues for the first nine months of 2010 were higher than the same period in 2009 due to the incremental contributions from vessels added to the Company’s fleet through its newbuild and conversion programs since the third quarter of 2009. The Company’s net income for the first nine months of 2010 included an aggregate pre-tax gain of $1.2 million ($0.8 million after tax or $0.03 per diluted share) for the sale of one conventional OSV and one older, lower horsepower tug. The Company’s net income for the first nine months of 2009 included an aggregate pre-tax gain of $0.3 million ($0.2 million after tax or $0.01 per diluted share) for the sale of one older, lower horsepower tug and three conventional OSVs.
Recent Developments
Status of Pending Legal Actions Against the Department of the Interior (“DOI”). On October 12, 2010, Interior Secretary Salazar lifted the drilling moratoria that were subject to challenge by the Company and others. The Company believes that the early success of its moratorium litigation resulted in the DOI abandoning the moratorium sooner than if it had been left unchallenged. However significant new regulatory requirements must now be met by the oil & gas industry before drilling activity in the GoM resumes in substantial measure.
Status of MC-252 Oil Spill Vessel Decontamination Process. In coordination with the Coast Guard, BP established a vessel decontamination process for all vessels that were impacted by the oil spill or dispersants during the oil spill containment efforts at MC-252. The vessel decontamination process has generally lasted 15 to 30 days for OSVs and 30 days for MPSVs. All of the Company’s vessels have remained on charter while undergoing the decontamination process. In addition, BP has borne the entire shipyard costs related to this effort. Of the vessels that the Company had deployed on the MC-252 oil spill response, seven OSVs, one MPSV, two barges and two tugs have yet to complete their respective decontamination processes. The Company expects that these vessels will be decontaminated and redelivered on various dates within the next one to six weeks.
Future Outlook
Based on the key assumptions outlined below and in the attached data tables, the following statements reflect management’s current expectations regarding future earnings and certain events. These statements are forward-looking and actual results may differ materially. Other than as expressly stated, these statements do not include the potential impact of any future capital transactions, such as vessel acquisitions, divestitures, unexpected vessel repairs, shipyard delays, business combinations, financings and unannounced newbuild programs that may be commenced after the date of this disclosure. Additional information concerning forward-looking statements can be found on page 9 of this news release.
Earnings Outlook
Updated Annual 2010 Guidance. The Company expects total EBITDA for fiscal 2010 to range between $170.0 million and $190.0 million and expects full-year diluted EPS for fiscal 2010 to range between $0.89 and $1.35. Excluding incremental non-cash OID interest expense related to the Company’s convertible senior notes, adjusted EPS for fiscal 2010 is expected to range between $1.12 and $1.58.
Pro Forma Run-Rate Guidance. The two pro forma run-rate illustrations provided in the attached data tables, and further described in Note 11, are intended to demonstrate the hypothetical annual earnings power of the Company’s full-fleet complement operating at normal utilization levels under different market conditions and do not reflect actual or projected results for any specific period. In addition, such guidance reflects an estimated annual run-rate of amortization expense assuming that all vessels in the Company’s current fleet complement have incurred their initial regulatory drydocking, notwithstanding that such event does not typically occur until approximately 30 months after each such vessel’s original acquisition or newbuild delivery date.
Key Assumptions. The Company’s forward earnings guidance, outlined above and in the attached data tables, has been updated to reflect its actual year-to-date results and the substantial uncertainty that exists in the GoM and the expected continuation of weak demand for petroleum products for the remainder of 2010. Market conditions during the third quarter were substantially, and favorably, impacted by demand for oil spill response and containment vessels, which is not expected to continue to the same degree during the fourth quarter.
The Company’s full-year 2010 Upstream guidance includes a partial-year contribution from new vessels delivered in 2010 under its MPSV program and its fourth OSV newbuild program in accordance with the actual newbuild delivery results discussed below. With the September 2010 delivery of the DP-2 HOS Wildwing, the Company now owns 51 new generation OSVs. The vessel additions under the fourth OSV newbuild program, which is now complete, should result in an average new generation OSV fleet complement of 51.0 and 49.9 vessels for the fourth quarter of 2010 and the full fiscal year 2010, respectively. As of September 30, 2010, the Company had five inactive new generation vessels stacked and expects to stack at least four additional new generation OSVs during the fourth quarter as such vessels are released from their oil spill relief spot charters. The current Upstream guidance gives effect to a quarterly average of 7.7 and an annual average of 7.1 new generation OSVs being stacked for the fourth quarter and full fiscal year 2010, respectively. Accordingly, the Company’s active fleet of new generation OSVs, which averaged 39.2 vessels for fiscal 2009, is expected to average 43.3 vessels for the fourth quarter of 2010 and 42.8 vessels for the full fiscal year 2010.
Fleetwide average new generation OSV dayrates are anticipated to be in the $20,000 to $22,000 range and fleetwide new generation OSV utilization for the 49.9-vessel fleet is anticipated to average in the 70% to 75% range during the full fiscal year 2010 guidance period. This average utilization for fiscal 2010 estimate contemplates approximately 2,574 aggregate days out-of-service related to stacked vessels and approximately 962 days of aggregate downtime, all of which were incurred during the first nine months of 2010, related to customer-required modifications and pre-positioning of the eight vessels that have mobilized to Latin America during 2010 for multi-year charters.
The Company expects that cash operating expenses per OSV vessel-day in fiscal 2010 will be in-line with fiscal 2009 levels for vessels that were in service for each of the past two years, excluding contract-related costs-of-sales recoverable through higher dayrates or other revenue. However, the Company may incur repositioning expenses that are not recoverable through charter hire in connection with the relocation of some of its vessels into international markets.
The Company owns and is operating an average MPSV fleet complement of 3.8 vessels in the spot market for the fiscal year 2010. However, the DP-3 HOS Achiever incurred roughly 110 days out-of-service during the first half of 2010 for the installation of a 100-ton crane in Norway. This crane installation downtime reduced the effective MPSV fleet complement for the year to 3.5 vessel-equivalents, up from 1.8 vessels in fiscal 2009. Based on the Company’s current spot dayrate and utilization assumptions for its four MPSVs, these vessels are expected to produce EBITDA in the 23% to 28% range of the mid-point of the company-wide fiscal 2010 guidance range compared to approximately 15% of the Company’s actual EBITDA for fiscal 2009.
The 2010 Downstream guidance reflects an active operating fleet comprised of nine double-hulled tank barges and nine ocean-going tugs for the fiscal year 2010. These vessels are projected to contribute EBITDA in the range of 6% to 7% of the mid-point of the company-wide fiscal 2010 guidance range compared to approximately 8% of the Company’s actual EBITDA for fiscal 2009. The Company will consider stacking one or more double-hulled barges and additional tugs in its Downstream segment during the fourth quarter 2010 to deter further operating margin declines.
G&A expenses are expected to be in the range of 9% to 11% of revenues for the 2010 guidance period. The projected annual stock-based compensation expense, depreciation, amortization and net interest expense that underpin the Company’s diluted EPS guidance for the full-year 2010 are included in the attached data tables. Projected quarterly stock-based compensation expense, depreciation, amortization and net interest expense for the quarter ending December 31, 2010 are expected to be $2.2 million, $15.1 million, $4.9 million and $14.6 million, respectively. The Company’s annual effective tax rate is expected to be 37.2% for fiscal 2010.
Capital Expenditures Outlook
Update on Maintenance and Other Capital Expenditures. Please refer to the attached data table for a summary, by period, of historical and projected data for maintenance and other capital expenditures. Maintenance capital expenditures, which are recurring in nature, primarily include regulatory drydocking charges incurred for the recertification of vessels and other vessel capital improvements that extend a vessel’s economic useful life. Other capital expenditures, which are generally non-recurring, are comprised of the following: (i) commercial-related vessel improvements, such as cranes, remotely operated vehicles (“ROVs”) and other specialized vessel equipment, which costs are typically included in and offset by higher dayrates charged to customers; and (ii) non-vessel related capital expenditures, including costs related to the Company’s shore-based facilities or leasehold improvements and other corporate expenditures, such as information technology or office furniture and equipment. The Company expects maintenance capital expenditures and other capital expenditures to be approximately $30.5 million and $19.4 million, respectively for the full-year 2010. Over the next few years beyond 2010, the Company expects that its annually recurring maintenance capital expenditure budget for its growing fleet of vessels will range between $35.0 million and $45.0 million per year.
Completion of OSV Newbuild Program #4. The Company’s fourth OSV newbuild program consisted of vessel construction contracts with three domestic shipyards to build six 240 ED class OSVs, nine 250 EDF class OSVs and one 290 class OSV, respectively. With the September 2010 delivery of the ninth 250 EDF class OSV, the HOS Wildwing, the Company’s fourth OSV newbuild program is now complete. Inclusive of the vessel delivery referred to above, the aggregate cost of this program was approximately $431.5 million. From the inception of this program through September 30, 2010, the Company has incurred $431.2 million of total expected project costs, including $4.0 million incurred during the third quarter of 2010. The final remaining $0.3 million of project costs was paid during the early fourth quarter of 2010.
Please refer to the attached data tables for a summary, by period, of historical and/or projected data for each of the Company’s recent growth initiatives. The remaining capital costs to be incurred, which are outlined above, are based on the latest available information and are subject to change. All of the figures set forth above represent expected cash outlays and do not include the allocation of construction period interest.
Conference Call
The Company will hold a conference call to discuss its third quarter 2010 financial results and recent developments at 10:00 a.m. Eastern (9:00 a.m. Central) today, November 4, 2010. To participate in the call, dial (480) 629-9773 and ask for the Hornbeck Offshore call at least 10 minutes prior to the start time. To access it live over the Internet, please log onto the web at http://www.hornbeckoffshore.com, on the “IR Home” page of the “Investors” section of the Company’s website at least fifteen minutes early to register, download and install any necessary audio software. Please call the Company’s investor relations firm, DRG&L, at (713) 529-6600 to be added to its e-mail distribution list for future Hornbeck Offshore news releases. An archived version of the web cast will be available shortly after the call for a period of 60 days on the “IR Home” page under the “Investors” section of the Company’s website. Additionally, a telephonic replay will be available through November 11, 2010, and may be accessed by calling (303) 590-3030 and using the pass code 4374724#.
Attached Data Tables
The Company has posted an electronic version of the following three pages of data tables, which are downloadable in Microsoft Excel format, on the “IR Home” page of the “Investors” section of the Hornbeck Offshore website for the convenience of analysts and investors.
Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore supply vessels primarily in the U.S. Gulf of Mexico and Latin America, and is a leading short-haul transporter of petroleum products through its coastwise fleet of ocean-going tugs and tank barges primarily in the northeastern U.S. and the U.S. Gulf of Mexico. Hornbeck Offshore currently owns a fleet of over 80 vessels primarily serving the energy industry.
Forward-Looking Statements
This Press Release contains “forward-looking statements,” as contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company discusses factors it believes may affect its performance in the future. Forward-looking statements are all statements other than historical facts, such as statements regarding assumptions, expectations, beliefs and projections about future events or conditions. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “remain,” “should,” or “will,” or other comparable words or the negative of such words. The accuracy of the Company’s assumptions, expectations, beliefs and projections depends on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The Company’s actual future results might differ from the forward-looking statements made in this Press Release for a variety of reasons, including the effect of the slow-down in the issuance of drilling and other permits in the Gulf of Mexico due to government regulations. Future results may also be impacted by proposed federal legislation or regulations that may be implemented in response to the Deepwater Horizon event. Such regulations or legislation could further aggravate a number of other existing risks, uncertainties and assumptions, including, without limitation: less than anticipated success in marketing and operating the Company’s MPSVs; bureaucratic, administrative or operating barriers that delay vessels chartered in foreign markets from going on-hire or result in contractual penalties imposed by foreign customers; further weakening of demand for the Company’s services; inability to effectively curtail operating expenses from stacked vessels; unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters or failures to finalize commitments to charter vessels; industry risks; further reductions in capital spending budgets by customers; decline in oil and natural gas prices; increases in operating costs; the inability to accurately predict vessel utilization levels and dayrates; the inability to effectively compete in or operate in international markets, less than anticipated subsea infrastructure demand activity in the U.S. Gulf of Mexico and other markets; the level of fleet additions by competitors that could result in over capacity; economic and political risks; weather related risks; the inability to attract and retain qualified marine personnel; regulatory risks; the repeal or administrative weakening of the Jones Act; the imposition of laws or regulations that result in reduced exploration and production activities or that increase the Company’s operating costs or operating requirements, including any such laws or regulations that may arise as a result of the recent drilling and lease moratorium or as a result of the oil spill disaster in the Gulf of Mexico; drydocking delays and cost overruns and related risks; vessel accidents or pollution incidents resulting in lost revenue or expenses that are unrecoverable from insurance policies or other third parties; unexpected litigation and insurance expenses; fluctuations in foreign currency valuations compared to the U.S. dollar and risks associated with expanded foreign operations, such as non-compliance with or the unanticipated effect of tax laws, customs laws, immigration laws, or other legislation that result in higher than anticipated tax rates or other costs. In addition, the Company’s future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it does business resulting in their non-payment or inability to perform obligations owed to the Company, such as the failure of customers to fulfill their contractual obligations or the failure by individual banks to provide expected funding under the Company’s credit agreement. Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts the Company, or should the Company’s underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated in its forward-looking statements, and its business, financial condition and results of operations could be materially and adversely affected. Additional factors that you should consider are set forth in detail in the Risk Factors section of the Company's most recent Annual Report on Form 10-K as well as other filings the Company has made and will make with the Securities and Exchange Commission which, after their filings, can be found on the Company’s website www.hornbeckoffshore.com.
Regulation G Reconciliation
This Press Release also contains references to the non-GAAP financial measures of earnings, or net income, before interest, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA. The Company views EBITDA and Adjusted EBITDA primarily as liquidity measures and, therefore, believes that the GAAP financial measure most directly comparable to such measure is cash flows provided by operating activities. Reconciliations of EBITDA and Adjusted EBITDA to cash flows provided by operating activities are provided in the table below. Management's opinion regarding the usefulness of EBITDA to investors and a description of the ways in which management uses such measure can be found in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, as well as in Note 10 to the attached data tables.
Contacts: Todd Hornbeck, CEO
Jim Harp, CFO
Hornbeck Offshore Services
985-727-6802
Ken Dennard, Managing Partner
DRG&L / 713-529-6600
Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(in thousands, except Other Operating and Per Share Data)
Statement of
Operations
(unaudited):
Three Months Ended Nine Months Ended
September September September
30, June 30, 30, 30, September 30,
2010 2010 2009 2010 2009
Revenues $ 125,351 $ 111,885 $ 90,086 $ 323,482 $ 297,642
Costs and
expenses:
Operating
expenses 53,241 48,507 39,741 146,080 121,191
Depreciation
and
amortization 19,787 19,316 16,514 56,946 75,974
General and
administrative
expenses 9,733 9,640 6,864 28,294 23,302
82,761 77,463 63,119 231,320 220,467
Gain on sale
of assets 725 95 105 1,344 346
Operating
income 43,315 34,517 27,072 93,506 77,521
Other income
(expense):
Interest
income 104 155 179 353 365
Interest
expense (14,422) (14,274) (5,586) (40,353) (12,584)
Other income,
net (1) 22 257 (14) 257 (263)
(14,296) (13,862) (5,421) (39,743) (12,482)
Income before
income taxes 29,019 20,655 21,651 53,763 65,039
Income tax
expense 10,816 7,612 7,877 19,962 23,965
Net income $ 18,203 $ 13,043 $ 13,774 $ 33,801 $ 41,074
Basic earnings
per share of
common stock $ 0.69 $ 0.49 $ 0.53 $ 1.28 $ 1.58
Diluted
earnings per
share of
common stock $ 0.67 $ 0.48 $ 0.51 $ 1.24 $ 1.52
Weighted
average basic
shares
outstanding 26,446 26,388 26,100 26,365 26,013
Weighted
average
diluted shares
outstanding
(2) 27,192 27,156 27,036 27,157 26,955
Other
Operating Data
(unaudited):
Three Months Ended Nine Months Ended
September September September
30, June 30, 30, 30, September 30,
2010 2010 2009 2010 2009
Offshore
Supply
Vessels:
Average number
of new
generation
OSVs (3) 50.3 49.5 44.0 49.5 42.2
Average new
generation
fleet capacity
(deadweight)
(3) 126,323 124,065 108,640 123,890 102,890
Average new
generation
vessel
capacity
(deadweight) 2,510 2,505 2,469 2,504 2,436
Average new
generation
utilization
rate (4) 75.7% 71.8% 71.9% 73.5% 82.5%
Effective new
generation
utilization
rate (5) 84.2% 84.5% 83.2% 85.3% 87.6%
Average new
generation
dayrate (6) $ 21,628 $ 23,874 $ 20,915 $ 21,833 $ 21,829
Effective
dayrate (7) $ 16,372 $ 17,142 $ 15,038 $ 16,047 $ 18,009
Tugs and Tank
Barges:
Average number
of
double-hulled
tank barges
(8) 9.0 9.0 9.0 9.0 9.0
Average
double-hulled
fleet capacity
(barrels) (8) 884,621 884,621 884,621 884,621 884,621
Average
double-hulled
barge size
(barrels) 98,291 98,291 98,291 98,291 98,291
Average
double-hulled
utilization
rate (4) 86.9% 74.2% 67.6% 78.8% 71.5%
Average
double-hulled
dayrate (9) $ 18,615 $ 18,708 $ 28,503 $ 17,765 $ 22,797
Effective
dayrate (7) $ 16,176 $ 13,881 $ 19,268 $ 13,999 $ 16,300
Balance Sheet
Data
(unaudited):
As of
As of
September
30, December 31,
2010 2009
Cash and cash
equivalents $ 96,967 $ 51,019
Working
capital 140,784 85,736
Property,
plant and
equipment, net 1,616,549 1,602,663
Total assets 1,859,779 1,786,348
Total
long-term debt 755,265 746,674
Stockholders'
equity 835,656 797,063
Cash Flow Data
(unaudited):
Nine Months Ended
September September
30, 30,
2010 2009
Cash provided
by operating
activities $ 101,519 $ 142,613
Cash used in
investing
activities (56,349) (214,802)
Cash provided
by financing
activities 678 113,856
Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Other Financial Data
(in thousands, except Financial Ratios)
Other
Financial Data
(unaudited):
Three Months Ended Nine Months Ended
September September
30, June 30, 30, September 30, September 30,
2010 2010 2009 2010 2009
Upstream:
Revenues $ 111,996 $ 100,498 $ 73,710 $ 289,092 $ 247,985
Operating
income $ 40,080 $ 35,522 $ 23,840 $ 92,791 $ 101,372
Operating
margin 35.8% 35.3% 32.3% 32.1% 40.9%
Components of
EBITDA (10)
Net income $ 16,948 $ 14,305 $ 12,225 $ 35,422 $ 57,767
Interest
expense, net 13,084 12,886 4,611 36,463 10,083
Income tax
expense 10,070 8,348 6,991 20,923 33,259
Depreciation 12,897 12,592 8,955 36,883 24,987
Amortization 3,711 3,475 4,183 10,871 11,588
EBITDA (10) $ 56,710 $ 51,606 $ 36,965 $ 140,562 $ 137,684
Adjustments to
EBITDA
Stock-based
compensation
expense $ 1,925 $ 1,945 $ 1,519 $ 5,883 $ 5,204
Interest
income 100 152 169 343 333
Adjusted
EBITDA (10) $ 58,735 $ 53,703 $ 38,653 $ 146,788 $ 143,221
EBITDA (10)
Reconciliation
to GAAP:
EBITDA (10) $ 56,710 $ 51,606 $ 36,965 $ 140,562 $ 137,684
Cash paid for
deferred
drydocking
charges (2,894) (4,534) (2,302) (10,189) (13,784)
Cash paid for
interest (9,204) (9,709) (379) (28,396) (10,564)
Cash paid for
taxes (245) (1,623) (1,738) (2,594) (10,714)
Changes in
working
capital (2,029) (4,610) 8,093 (6,167) 23,506
Stock-based
compensation
expense 1,925 1,945 1,519 5,883 5,204
Changes in
other, net 114 (65) (185) (728) (656)
Net cash
provided by
operating
activities $ 44,377 $ 33,010 $ 41,973 $ 98,371 $ 130,676
Downstream:
Revenues $ 13,355 $ 11,387 $ 16,376 $ 34,390 $ 49,657
Operating
income (loss) $ 3,235 $ (1,005) $ 3,232 $ 715 $ (23,851)
Operating
margin 24.2% (8.8%) 19.7% 2.1% (48.0%)
Components of
EBITDA (10)
Net income $ 1,255 $ (1,262) $ 1,549 $ (1,621) $ (16,693)
Interest
expense, net 1,234 1,233 796 3,537 2,136
Income tax
expense 746 (736) 886 (961) (9,294)
Depreciation 2,115 2,139 2,136 6,392 32,423
Amortization 1,064 1,110 1,240 2,800 6,976
EBITDA (10) $ 6,414 $ 2,484 $ 6,607 $ 10,147 $ 15,548
Adjustments to
EBITDA
Stock-based
compensation
expense $ 298 $ 309 $ 389 $ 952 $ 1,380
Interest
income 4 3 10 10 32
Adjusted
EBITDA (10) $ 6,716 $ 2,796 $ 7,006 $ 11,109 $ 16,960
EBITDA (10)
Reconciliation
to GAAP:
EBITDA (10) $ 6,414 $ 2,484 $ 6,607 $ 10,147 $ 15,548
Cash paid for
deferred
drydocking
charges (659) (1,150) (104) (5,472) (1,255)
Cash paid for
interest (1,119) (1,580) (84) (4,243) (2,350)
Cash paid for
taxes - (5) (41) (5) (4,806)
Changes in
working
capital 1,100 (838) (837) 2,477 3,673
Stock-based
compensation
expense 298 309 389 952 1,380
Changes in
other, net (780) 31 (37) (708) (253)
Net cash
provided by
(used in)
operating
activities $ 5,254 $ (749) $ 5,893 $ 3,148 $ 11,937
Consolidated:
Revenues $ 125,351 $ 111,885 $ 90,086 $ 323,482 $ 297,642
Operating
income $ 43,315 $ 34,517 $ 27,072 $ 93,506 $ 77,521
Operating
margin 34.6% 30.9% 30.1% 28.9% 26.0%
Components of
EBITDA (10)
Net income $ 18,203 $ 13,043 $ 13,774 $ 33,801 $ 41,074
Interest
expense, net 14,318 14,119 5,407 40,000 12,219
Income tax
expense 10,816 7,612 7,877 19,962 23,965
Depreciation 15,012 14,731 11,091 43,275 57,410
Amortization 4,775 4,585 5,423 13,671 18,564
EBITDA (10) $ 63,124 $ 54,090 $ 43,572 $ 150,709 $ 153,232
Adjustments to
EBITDA
Stock-based
compensation
expense $ 2,223 $ 2,254 $ 1,908 $ 6,835 $ 6,584
Interest
income 104 155 179 353 365
Adjusted
EBITDA (10) $ 65,451 $ 56,499 $ 45,659 $ 157,897 $ 160,181
EBITDA (10)
Reconciliation
to GAAP:
EBITDA (10) $ 63,124 $ 54,090 $ 43,572 $ 150,709 $ 153,232
Cash paid for
deferred
drydocking
charges (3,553) (5,684) (2,406) (15,661) (15,039)
Cash paid for
interest (10,323) (11,289) (463) (32,639) (12,914)
Cash paid for
taxes (245) (1,628) (1,779) (2,599) (15,520)
Changes in
working
capital (929) (5,448) 7,256 (3,690) 27,179
Stock-based
compensation
expense 2,223 2,254 1,908 6,835 6,584
Changes in
other, net (666) (34) (222) (1,436) (909)
Net cash
provided by
operating
activities $ 49,631 $ 32,261 $ 47,866 $ 101,519 $ 142,613
Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Other Financial Data
(in millions, except Per Share and Historical Data)
Forward Earnings Guidance and Projected EBITDA Reconciliation: (Unaudited)
2010 Guidance Full-Year 2010 Pro Forma Run-Rate
Estimate Estimate (11)
Low High Low High
(2010 Dayrates) (2008 Dayrates)
Vessel Count:
Average number of active
new generation OSVs 42.8 42.8 51.0 51.0
Average number of active
MPSVs 3.5 3.5 4.0 4.0
Average number of
double-hulled tank barges 9.0 9.0 9.0 9.0
Components of Projected
EBITDA (10)
Adjusted EBITDA (10) $ 179.6 $ 199.6 $ 210.2 $ 426.1
Interest income 0.6 0.6 0.8 0.8
Stock-based compensation
expense 9.0 9.0 9.0 9.0
EBITDA (10) $ 170.0 $ 190.0 $ 200.4 $ 416.3
Depreciation 58.4 58.4 61.0 61.0
Amortization 18.6 18.6 30.6 30.6
Interest expense, net:
Interest expense 48.1 48.1 48.2 48.2
Incremental non-cash OID
interest expense (12) 10.8 10.8 10.8 10.8
Capitalized interest (3.7) (3.7) - -
Interest income (0.6) (0.6) (0.8) (0.8)
Total interest expense,
net 54.6 54.6 58.2 58.2
Income tax expense 14.3 21.7 18.8 99.1
Income tax rate 37.2% 37.2% 37.2% 37.2%
Net income $ 24.1 $ 36.7 $ 31.8 $ 167.4
Weighted average diluted
shares outstanding (13) 27.2 27.2 27.2 27.2
Diluted earnings per
share, as reported $ 0.89 $ 1.35 $ 1.17 $ 6.15
Incremental non-cash OID
interest expense per
share (12) 0.23 0.23 0.25 0.25
Diluted earnings per
share, as adjusted (14) $ 1.12 $ 1.58 $ 1.42 $ 6.40
Projected EBITDA (10)
Reconciliation to GAAP:
EBITDA (10) $ 170.0 $ 190.0 $ 200.4 $ 416.3
Cash paid for deferred
drydocking charges (23.3) (23.3) (35.7) (35.7)
Cash paid for interest (44.2) (44.2) (44.2) (44.2)
Cash paid for taxes (2.8) (2.8) (1.0) (1.0)
Changes in working
capital (15) 7.5 7.5 15.2 3.1
Stock-based compensation
expense 9.0 9.0 9.0 9.0
Changes in other, net
(15) (2.0) (2.0) (2.0) (2.0)
Cash flows provided by
operating activities $ 114.2 $ 134.2 $ 141.7 $ 345.5
Capital
Expenditures Data
(unaudited) (16):
Historical Data
(in thousands):
Three Months Ended Nine Months Ended
September September September
30, June 30, 30, 30, September 30,
2010 2010 2009 2010 2009
Maintenance and
Other Capital
Expenditures:
Maintenance
Capital
Expenditures:
Deferred
drydocking charges $ 3,553 $ 5,684 $ 2,406 $ 15,661 $ 15,039
Other vessel
capital
improvements 497 1,011 1,802 5,107 3,847
4,050 6,695 4,208 20,768 18,886
Other Capital
Expenditures:
Commercial-related
vessel
improvements 868 14,661 96 17,027 597
Non-vessel related
capital
expenditures 153 944 479 1,497 3,509
1,021 15,605 575 18,524 4,106
$ 5,071 $ 22,300 $ 4,783 $ 39,292 $ 22,992
Growth Capital
Expenditures:
MPSV program $ - $ 1,258 $ 33,149 $ 6,471 $ 85,222
OSV newbuild
program #4 4,002 7,040 24,706 25,351 110,931
$ 4,002 $ 8,298 $ 57,855 $ 31,822 $ 196,153
Forecasted Data:
1Q2010A 2Q2010A 3Q2010A 4Q2010E 2010E
Maintenance and
Other Capital
Expenditures:
Maintenance
Capital
Expenditures:
Deferred
drydocking charges $ 6.4 $ 5.7 $ 3.6 $ 7.6 $ 23.3
Other vessel
capital
improvements 3.6 1.0 0.5 2.1 7.2
10.0 6.7 4.1 9.7 30.5
Other Capital
Expenditures:
Commercial-related
vessel
improvements 1.5 14.7 0.8 - 17.0
Non-vessel related
capital
expenditures 0.4 0.9 0.2 0.9 2.4
1.9 15.6 1.0 0.9 19.4
$ 11.9 $ 22.3 $ 5.1 $ 10.6 $ 49.9
Growth Capital
Expenditures:
MPSV program $ 5.2 $ 1.3 $ - $ - $ 6.5
OSV newbuild
program #4 14.3 7.0 4.0 0.3 25.6
$ 19.5 $ 8.3 $ 4.0 $ 0.3 $ 32.1
(1) Represents other income and expenses, including gains or losses related to
foreign currency exchange and minority interests in income or loss from
unconsolidated entities.
(2) Stock options representing rights to acquire 401, 401 and 199 shares of
common stock for the three months ended September 30, 2010, June 30, 2010 and
September 30, 2009, respectively, were excluded from the calculation of diluted
earnings per share, because the effect was antidilutive after considering the
exercise price of the options in comparison to the average market price,
proceeds from exercise, taxes, and related unamortized compensation. For the
nine months ended September 30, 2010 and 2009, stock options representing the
rights to acquire 402 and 419 shares of common stock were excluded from the
calculation of diluted earnings per share because the effect was anti-dilutive.
As of September 30, 2010, June 30, 2010, and September 30, 2009, the 1.625%
convertible senior notes were not dilutive, as the average price of the
Company’s stock was less than the effective conversion price of $62.59 for
such notes.
(3) The Company owned 51 new generation OSVs as of September 30, 2010, five of
which were stacked. Included in this data are a total of 16 newbuild OSVs that
were placed in service under the Company’s fourth OSV newbuild program on
various dates from May 2008 to September 2010. Excluded from this data are four
multi-purpose support vessels owned by the Company that were placed in service
under the Company’s MPSV program on various dates from October 2008 to March
2010. Also excluded from this data are two stacked conventional OSVs that the
Company considers to be non-core assets.
(4) Average utilization rates are average rates based on a 365-day year.
Vessels are considered utilized when they are generating revenues.
(5) Effective utilization rate is based on a denominator comprised only of
vessel-days available for service by the active fleet, which excludes the
impact of stacked vessel days.
(6) Average new generation OSV dayrate represents average revenue per day,
which includes charter hire, crewing services, and net brokerage revenues,
based on the number of days during the period that the OSVs generated revenues.
(7) Effective dayrate represents the average dayrate multiplied by the
utilization rate for the respective period.
(8) The Company owned and operated nine double-hulled tank barges as of
September 30, 2010. Excluded from this data are six single-hulled tank barges
owned by the Company, two of which were sold in October 2010 and four of which
are currently stacked. Also excluded from this data are 15 ocean-going tugs
owned by the Company, six of which are currently stacked.
(9) Average dayrates represent average revenue per day, including time
charters, brokerage revenue, revenues generated on a per-barrel-transported
basis, demurrage, shipdocking and fuel surcharge revenue, based on the number
of days during the period that the tank barges generated revenue. For purposes
of brokerage arrangements, this calculation excludes that portion of revenue
that is equal to the cost paid by customers of in-chartering third party
equipment.
(10)Non-GAAP Financial Measure
The Company discloses and discusses EBITDA as a non-GAAP financial measure in
its public releases, including quarterly earnings releases, investor conference
calls and other filings with the Securities and Exchange Commission. The
Company defines EBITDA as earnings (net income) before interest, income taxes,
depreciation and amortization. The Company’s measure of EBITDA may not be
comparable to similarly titled measures presented by other companies. Other
companies may calculate EBITDA differently than the Company, which may limit
its usefulness as a comparative measure.
The Company views EBITDA primarily as a liquidity measure and, as such,
believes that the GAAP financial measure most directly comparable to it is cash
flows provided by operating activities. Because EBITDA is not a measure of
financial performance calculated in accordance with GAAP, it should not be
considered in isolation or as a substitute for operating income, net income or
loss, cash flows provided by operating, investing and financing activities, or
other income or cash flow statement data prepared in accordance with GAAP.
EBITDA is widely used by investors and other users of the Company’s financial
statements as a supplemental financial measure that, when viewed with GAAP
results and the accompanying reconciliations, the Company believes provides
additional information that is useful to gain an understanding of the factors
and trends affecting its ability to service debt, pay deferred taxes and fund
drydocking charges and other maintenance capital expenditures. The Company also
believes the disclosure of EBITDA helps investors meaningfully evaluate and
compare its cash flow generating capacity from quarter to quarter and year to
year.
EBITDA is also a financial metric used by management (i) as a supplemental
internal measure for planning and forecasting overall expectations and for
evaluating actual results against such expectations; (ii) as a significant
criteria for annual incentive cash bonuses paid to the Company’s executive
officers and other shore-based employees; (iii) to compare to the EBITDA of
other companies when evaluating potential acquisitions; and (iv) to assess the
Company’s ability to service existing fixed charges and incur additional
indebtedness.
In addition, the Company also makes certain adjustments, as applicable, to
EBITDA for losses on early extinguishment of debt, FAS 123R stock-based
compensation expense and interest income, or Adjusted EBITDA, to compute ratios
used in certain financial covenants of its credit agreements with various
lenders and bond investors. The Company believes that these ratios are material
components of such financial covenants and failure to comply with such
covenants could result in the acceleration of indebtedness or the imposition of
restrictions on the Company’s financial flexibility.
Set forth below are the material limitations associated with using EBITDA as a
non-GAAP financial measure compared to cash flows provided by operating
activities.
-- EBITDA does not reflect the future capital expenditure requirements
that may be necessary to replace the Company’s existing vessels as a
result of normal wear and tear,
-- EBITDA does not reflect the interest, future principal payments and
other financing-related charges necessary to service the debt that the
Company has incurred in acquiring and constructing its vessels,
-- EBITDA does not reflect the deferred income taxes that the Company will
eventually have to pay, and
-- EBITDA does not reflect changes in the Company’s net working capital
position.
Management compensates for the above-described limitations in using EBITDA as a
non-GAAP financial measure by only using EBITDA to supplement the Company’s
GAAP results.
(11) These two pro forma run-rate illustrations are intended to demonstrate the
hypothetical earnings power of the Company’s full-fleet complement operating
at normal utilization levels under different market conditions and do not
reflect actual or projected results for any specific period. The “Pro Forma
Run-Rate -- Low” scenario illustrates the estimated operating results from
the Company’s current fleet complement of 51 new generation OSVs, four MPSVs
and nine double-hulled tank barges with associated tugs, assuming all such
vessels (including the reactivation of any vessels that are currently stacked)
were placed in service as of January 1, 2010 and were working at their fiscal
2010 contracted dayrates or projected fiscal 2010 spot market dayrates (that
correlate to the mid-point of the 2010 EBITDA guidance range), as applicable,
commensurate with their relative size and service capabilities. The “Pro
Forma Run-Rate -- High” scenario illustrates the estimated operating results
from the Company’s current fleet complement of 51 new generation OSVs, four
MPSVs and nine double-hulled tank barges with associated tugs, assuming all
such vessels (including the reactivation of any vessels that are currently
stacked) were placed in service as of January 1, 2008 and were working at their
fiscal 2008 contracted dayrates or fiscal 2008 spot market dayrates, as
applicable, commensurate with their relative size and service capabilities.
However, given the current market uncertainty in the U.S. GoM, please note that
this pro forma illustration is not intended to imply that the Company’s 2008
dayrates and utilization levels reflected in the “Pro Forma Run-Rate --
High” case scenario are necessarily achievable within the foreseeable future.
All other key assumptions related to the Company’s current operating fleet,
including cash operating expenses, drydocking costs and scheduled downtime, G&A
and income tax expense, are consistent with the mid-point of the Company’s
updated 2010 guidance above. Assuming the Company’s revolving credit facility
remains undrawn, interest expense is expected to increase to an annual
post-construction period run-rate of $59.0 on a projected debt balance of
$800.0 in face value, offset by $0.8 of interest income to be generated on an
assumed cash balance of $100.0. The interest expense of $59.0 includes $10.8 of
incremental non-cash OID interest expense that resulted from the Company’s
adoption of new accounting rules as discussed in Note 12 below.
(12) Represents incremental non-cash OID interest expense resulting from the
adoption of new accounting standards pertaining to the Company’s convertible
senior notes effective January 1, 2009.
(13) Projected weighted-average diluted shares do not reflect any potential
dilution resulting from the Company’s 1.625% convertible senior notes. The
Company’s convertible senior notes become dilutive when the average price of
the Company’s stock exceeds the effective conversion price for such notes of
$62.59.
(14) Diluted earnings per share, as adjusted, excludes the incremental impact
of the recent adoption of new accounting standards pertaining to the
Company’s convertible senior notes.
(15) Projected cash flows provided by operating activities are based, in part,
on estimated future “changes in working capital” and “changes in other,
net,” that are susceptible to significant variances due to the timing at
quarter-end of cash inflows and outflows, most of which are beyond the
Company’s ability to control. However, any future variances in those two line
items from the above forward looking reconciliations should result in an equal
and opposite adjustment to actual cash flows provided by operating activities.
(16) The capital expenditure amounts included in this table are cash outlays
before the allocation of construction period interest, as applicable.
SOURCE Hornbeck Offshore Services, Inc.
COVINGTON, La., Nov. 4, 2010 /PRNewswire-FirstCall/ -- Hornbeck Offshore Services, Inc. (NYSE: HOS) announced today results for the third quarter ended September 30, 2010. Following are highlights for this period and the Company’s future outlook:
-- 2010 earnings guidance updated to reflect 2010 YTD actual results and
prevailing market conditions
-- 3Q2010 revenue increased 39% year-over-year and 12% sequentially due to
larger fleet and oil spill relief efforts
-- Oil spill response in the GoM accounted for roughly 46% of the
Company’s consolidated revenue for 3Q2010
-- OSV, MPSV and TTB vessel-days working in spill response for 3Q2010 were
22%, 96% and 54%, respectively
-- Final five of eight new gen OSVs in Brazil were all on-charter with
Petrobras as of Sep 30, 2010
-- Contract backlog for new gen OSV vessel-days currently at 61%, 40% and
24% for 4Q2010, 2011 and 2012
-- Sixteenth and final vessel under fourth OSV newbuild program, HOS
Wildwing, was delivered in September 2010
-- Quarter-end cash balance of $97m as of Sep 30, 2010 nearly doubles
sequentially from $51m as of Jun 30, 2010
Third quarter 2010 revenues increased 39.2% to $125.4 million compared to $90.1 million for the third quarter of 2009 and increased 12.1% compared to $111.9 million for the second quarter of 2010. Operating income was $43.3 million, or 34.5% of revenues, for the third quarter of 2010 compared to $27.1 million, or 30.1% of revenues, for the prior-year quarter; and $34.5 million, or 30.8% of revenues, for the second quarter of 2010. Net income for the third quarter of 2010 was $18.2 million, or $0.67 per diluted share, compared to $13.8 million, or $0.51 per diluted share for the year-ago quarter; and $13.0 million, or $0.48 per diluted share for the second quarter of 2010. EBITDA for the third quarter of 2010 was $63.1 million compared to third quarter 2009 EBITDA of $43.6 million and second quarter 2010 EBITDA of $54.1 million. The year-over-year increase in revenues, operating income, EBITDA and EPS was primarily due to incremental revenues from the vessels placed in service since September 2009 under the Company’s newbuild and conversion programs. For additional information regarding EBITDA as a non-GAAP financial measure, please see Note 10 to the accompanying data tables.
Upstream Segment. Revenues from the Upstream segment were $112.0 million for the third quarter of 2010, an increase of $38.3 million, or 52.0%, from $73.7 million for the third quarter in 2009 and an increase of $11.5 million, or 11.4%, from $100.5 million for the second quarter of 2010. The vessels placed in service since the third quarter of 2009 under the Company’s newbuild and conversion programs accounted for a $33.3 million increase in Upstream revenues. The remaining $5.0 million increase in Upstream revenues is from the Company’s new generation OSVs and MPSVs that were in service during each of the quarters ended September 30, 2010 and 2009. Upstream operating income increased $16.3 million to $40.1 million, or 35.8% of revenues, for the third quarter of 2010 from $23.8 million, or 32.3% of revenues, for the third quarter of 2009. Average new generation OSV dayrates for the third quarter of 2010 were $21,628 compared to $20,915 for the same period in 2009 and $23,874 for the second quarter of 2010. The Company’s second-quarter 2010 new generation OSV dayrates were favorably impacted by certain non-recurring revenues for one of its specialty service vessels unrelated to the oil spill response efforts in the U.S. Gulf of Mexico (“GoM”). Excluding these revenues for the sake of comparability to other periods, the Company’s new generation OSV average dayrates for the sequential period would have been $20,628. The increase in third-quarter 2010 dayrates over the prior-year quarter and the adjusted sequential quarter was largely due to higher temporary demand related to oil spill response activities. During the third quarter of 2010, the Company had as many as 11 OSVs and four MPSVs assisting with oil spill-related activities, which represented nearly 30% of the total Upstream vessel-days worked. As of November 1, 2010, only seven new generation OSVs and one MPSV remained on charter related to oil spill response activities, which are in various stages of winding down over the next one to six weeks. New generation OSV utilization was 75.7% for the third quarter of 2010 compared to 71.9% during the year-ago quarter and 71.8% for the sequential quarter. The increase in utilization was driven by oil spill response activities, which was partially offset by having 469 days out-of-service related to stacked vessels and approximately 326 days of aggregate downtime related to customer-required modifications and pre-positioning of five vessels that were mobilized to Latin America during 2010 for multi-year charters. These five vessels commenced their charters with Petrobras in late September 2010. The Company had five new generation OSVs stacked as of September 30, 2010 compared to seven vessels stacked as of June 30, 2010. The Company had an average of 5.1 stacked new generation OSVs during the third quarter of 2010 compared to quarterly averages of 6.0 stacked vessels during the year-ago quarter and 7.4 stacked vessels during the sequential quarter. Effective new generation OSV utilization for the Company’s active fleet, which excludes the impact of stacked vessels, was 84.2% for the third quarter of 2010 compared to 83.2% for the year-ago quarter and 84.5% for the sequential quarter.
Downstream Segment. Revenues from the Downstream segment of $13.4 million for the third quarter of 2010 decreased by $3.0 million, or 18.3%, compared to $16.4 million for the same period in 2009, but were higher than the sequential quarter by $2.0 million, or 17.5%. This year-over-year revenue decline was largely due to $5.4 million of incremental revenues related to well-test cancellation fees recognized during the third quarter of 2009. Excluding the well-test cancellation fees, our Downstream revenues would have increased year-over-year by $2.4 million, or 21.8% compared to the third quarter of 2009. The Company’s Downstream revenues for the third quarter of 2010 were favorably impacted by one double-hulled tank barge performing well-test services for an Upstream customer in the GoM and five double-hulled tank barges temporarily supporting oil spill response activities. As of November 1, 2010, only two of the five double-hulled tank barges remained on charter related to oil spill response activities. The Company’s double-hulled tank barge average dayrates were $18,615 for the third quarter of 2010 compared to $28,503 for the same period in 2009. Excluding the incremental well-test revenues and well-test cancellation fee revenues, our average double-hulled tank barge dayrates would have been $16,430 and $18,852 for the third quarters of 2010 and 2009, respectively. Utilization for the double-hulled tank barge fleet was 86.9% for the third quarter of 2010 compared to 67.6% for the same period in 2009. Utilization improved largely due to increased activity related to the oil spill response activities.
General and Administrative (“G&A”). G&A expenses of $9.7 million for the third quarter of 2010 were 7.7% of revenues compared to $6.9 million, or 7.7% of revenues, for the third quarter of 2009. This increase in G&A expense is primarily attributable to higher personnel costs compared to the prior-year quarter commensurate with the Company’s larger, more geographically diverse fleet. Third quarter G&A expense margin was lower than the Company’s 2010 annual guidance range of 9% to 11% of revenues. The Company allocated 93% of its third quarter 2010 G&A expenses to the Upstream segment and 7% to the Downstream segment.
Depreciation and Amortization. Depreciation and amortization expense was $19.8 million for the third quarter of 2010, or $3.3 million higher than the prior-year quarter. This increase was due to the incremental depreciation related to seven new generation OSVs and two MPSVs that were placed in service since the third quarter of 2009. Depreciation and amortization expense is expected to continue to increase from current levels when any recently acquired and newly constructed vessels undergo their initial 30-month and 60-month recertifications.
Interest Expense. Interest expense increased $8.8 million during the three months ended September 30, 2010 compared to the same period in 2009. The increase in interest expense is primarily attributable to incremental interest costs related to the Company’s August 2009 issuance of $250.0 million of 8.000% senior notes due 2017, and lower capitalized interest because the Company had fewer vessels being constructed under its newbuild and conversion programs. The Company capitalized $0.3 million of construction period interest for the third quarter of 2010, which represents 2% of its total interest costs for the quarter, compared to $6.2 million for the year-ago quarter, or 53% of its total interest costs for such quarter. With its newbuild and conversion programs now complete, the Company expects to capitalize annual construction period interest of $3.7 million, or 6% of its estimated total interest costs for the full fiscal year 2010.
Nine Month Results
Revenues for the first nine months of 2010 increased 8.7% to $323.5 million compared to $297.6 million for the same period in 2009. Operating income was $93.5 million, or 28.9% of revenues, for the first nine months of 2010 compared to $77.5 million, or 26.0% of revenues, for the prior-year period. Net income for the first nine months of 2010 decreased 17.8% to $33.8 million, or $1.24 per diluted share, compared to $41.1 million, or $1.52 per diluted share for the first nine months of 2009. Excluding the June 2009 Downstream non-cash impairment charge in the amount of $26.7 million, or $0.62 per diluted share, operating income, net income and diluted EPS for the first nine months of 2009 were $104.2 million, $58.0 million and $2.15 per share, respectively. The year-over-year decrease in adjusted operating income and net income was substantially due to the incremental costs for mobilizing eight vessels to Latin America for multi-year charters. The Company’s revenues for the first nine months of 2010 were higher than the same period in 2009 due to the incremental contributions from vessels added to the Company’s fleet through its newbuild and conversion programs since the third quarter of 2009. The Company’s net income for the first nine months of 2010 included an aggregate pre-tax gain of $1.2 million ($0.8 million after tax or $0.03 per diluted share) for the sale of one conventional OSV and one older, lower horsepower tug. The Company’s net income for the first nine months of 2009 included an aggregate pre-tax gain of $0.3 million ($0.2 million after tax or $0.01 per diluted share) for the sale of one older, lower horsepower tug and three conventional OSVs.
Recent Developments
Status of Pending Legal Actions Against the Department of the Interior (“DOI”). On October 12, 2010, Interior Secretary Salazar lifted the drilling moratoria that were subject to challenge by the Company and others. The Company believes that the early success of its moratorium litigation resulted in the DOI abandoning the moratorium sooner than if it had been left unchallenged. However significant new regulatory requirements must now be met by the oil & gas industry before drilling activity in the GoM resumes in substantial measure.
Status of MC-252 Oil Spill Vessel Decontamination Process. In coordination with the Coast Guard, BP established a vessel decontamination process for all vessels that were impacted by the oil spill or dispersants during the oil spill containment efforts at MC-252. The vessel decontamination process has generally lasted 15 to 30 days for OSVs and 30 days for MPSVs. All of the Company’s vessels have remained on charter while undergoing the decontamination process. In addition, BP has borne the entire shipyard costs related to this effort. Of the vessels that the Company had deployed on the MC-252 oil spill response, seven OSVs, one MPSV, two barges and two tugs have yet to complete their respective decontamination processes. The Company expects that these vessels will be decontaminated and redelivered on various dates within the next one to six weeks.
Future Outlook
Based on the key assumptions outlined below and in the attached data tables, the following statements reflect management’s current expectations regarding future earnings and certain events. These statements are forward-looking and actual results may differ materially. Other than as expressly stated, these statements do not include the potential impact of any future capital transactions, such as vessel acquisitions, divestitures, unexpected vessel repairs, shipyard delays, business combinations, financings and unannounced newbuild programs that may be commenced after the date of this disclosure. Additional information concerning forward-looking statements can be found on page 9 of this news release.
Earnings Outlook
Updated Annual 2010 Guidance. The Company expects total EBITDA for fiscal 2010 to range between $170.0 million and $190.0 million and expects full-year diluted EPS for fiscal 2010 to range between $0.89 and $1.35. Excluding incremental non-cash OID interest expense related to the Company’s convertible senior notes, adjusted EPS for fiscal 2010 is expected to range between $1.12 and $1.58.
Pro Forma Run-Rate Guidance. The two pro forma run-rate illustrations provided in the attached data tables, and further described in Note 11, are intended to demonstrate the hypothetical annual earnings power of the Company’s full-fleet complement operating at normal utilization levels under different market conditions and do not reflect actual or projected results for any specific period. In addition, such guidance reflects an estimated annual run-rate of amortization expense assuming that all vessels in the Company’s current fleet complement have incurred their initial regulatory drydocking, notwithstanding that such event does not typically occur until approximately 30 months after each such vessel’s original acquisition or newbuild delivery date.
Key Assumptions. The Company’s forward earnings guidance, outlined above and in the attached data tables, has been updated to reflect its actual year-to-date results and the substantial uncertainty that exists in the GoM and the expected continuation of weak demand for petroleum products for the remainder of 2010. Market conditions during the third quarter were substantially, and favorably, impacted by demand for oil spill response and containment vessels, which is not expected to continue to the same degree during the fourth quarter.
The Company’s full-year 2010 Upstream guidance includes a partial-year contribution from new vessels delivered in 2010 under its MPSV program and its fourth OSV newbuild program in accordance with the actual newbuild delivery results discussed below. With the September 2010 delivery of the DP-2 HOS Wildwing, the Company now owns 51 new generation OSVs. The vessel additions under the fourth OSV newbuild program, which is now complete, should result in an average new generation OSV fleet complement of 51.0 and 49.9 vessels for the fourth quarter of 2010 and the full fiscal year 2010, respectively. As of September 30, 2010, the Company had five inactive new generation vessels stacked and expects to stack at least four additional new generation OSVs during the fourth quarter as such vessels are released from their oil spill relief spot charters. The current Upstream guidance gives effect to a quarterly average of 7.7 and an annual average of 7.1 new generation OSVs being stacked for the fourth quarter and full fiscal year 2010, respectively. Accordingly, the Company’s active fleet of new generation OSVs, which averaged 39.2 vessels for fiscal 2009, is expected to average 43.3 vessels for the fourth quarter of 2010 and 42.8 vessels for the full fiscal year 2010.
Fleetwide average new generation OSV dayrates are anticipated to be in the $20,000 to $22,000 range and fleetwide new generation OSV utilization for the 49.9-vessel fleet is anticipated to average in the 70% to 75% range during the full fiscal year 2010 guidance period. This average utilization for fiscal 2010 estimate contemplates approximately 2,574 aggregate days out-of-service related to stacked vessels and approximately 962 days of aggregate downtime, all of which were incurred during the first nine months of 2010, related to customer-required modifications and pre-positioning of the eight vessels that have mobilized to Latin America during 2010 for multi-year charters.
The Company expects that cash operating expenses per OSV vessel-day in fiscal 2010 will be in-line with fiscal 2009 levels for vessels that were in service for each of the past two years, excluding contract-related costs-of-sales recoverable through higher dayrates or other revenue. However, the Company may incur repositioning expenses that are not recoverable through charter hire in connection with the relocation of some of its vessels into international markets.
The Company owns and is operating an average MPSV fleet complement of 3.8 vessels in the spot market for the fiscal year 2010. However, the DP-3 HOS Achiever incurred roughly 110 days out-of-service during the first half of 2010 for the installation of a 100-ton crane in Norway. This crane installation downtime reduced the effective MPSV fleet complement for the year to 3.5 vessel-equivalents, up from 1.8 vessels in fiscal 2009. Based on the Company’s current spot dayrate and utilization assumptions for its four MPSVs, these vessels are expected to produce EBITDA in the 23% to 28% range of the mid-point of the company-wide fiscal 2010 guidance range compared to approximately 15% of the Company’s actual EBITDA for fiscal 2009.
The 2010 Downstream guidance reflects an active operating fleet comprised of nine double-hulled tank barges and nine ocean-going tugs for the fiscal year 2010. These vessels are projected to contribute EBITDA in the range of 6% to 7% of the mid-point of the company-wide fiscal 2010 guidance range compared to approximately 8% of the Company’s actual EBITDA for fiscal 2009. The Company will consider stacking one or more double-hulled barges and additional tugs in its Downstream segment during the fourth quarter 2010 to deter further operating margin declines.
G&A expenses are expected to be in the range of 9% to 11% of revenues for the 2010 guidance period. The projected annual stock-based compensation expense, depreciation, amortization and net interest expense that underpin the Company’s diluted EPS guidance for the full-year 2010 are included in the attached data tables. Projected quarterly stock-based compensation expense, depreciation, amortization and net interest expense for the quarter ending December 31, 2010 are expected to be $2.2 million, $15.1 million, $4.9 million and $14.6 million, respectively. The Company’s annual effective tax rate is expected to be 37.2% for fiscal 2010.
Capital Expenditures Outlook
Update on Maintenance and Other Capital Expenditures. Please refer to the attached data table for a summary, by period, of historical and projected data for maintenance and other capital expenditures. Maintenance capital expenditures, which are recurring in nature, primarily include regulatory drydocking charges incurred for the recertification of vessels and other vessel capital improvements that extend a vessel’s economic useful life. Other capital expenditures, which are generally non-recurring, are comprised of the following: (i) commercial-related vessel improvements, such as cranes, remotely operated vehicles (“ROVs”) and other specialized vessel equipment, which costs are typically included in and offset by higher dayrates charged to customers; and (ii) non-vessel related capital expenditures, including costs related to the Company’s shore-based facilities or leasehold improvements and other corporate expenditures, such as information technology or office furniture and equipment. The Company expects maintenance capital expenditures and other capital expenditures to be approximately $30.5 million and $19.4 million, respectively for the full-year 2010. Over the next few years beyond 2010, the Company expects that its annually recurring maintenance capital expenditure budget for its growing fleet of vessels will range between $35.0 million and $45.0 million per year.
Completion of OSV Newbuild Program #4. The Company’s fourth OSV newbuild program consisted of vessel construction contracts with three domestic shipyards to build six 240 ED class OSVs, nine 250 EDF class OSVs and one 290 class OSV, respectively. With the September 2010 delivery of the ninth 250 EDF class OSV, the HOS Wildwing, the Company’s fourth OSV newbuild program is now complete. Inclusive of the vessel delivery referred to above, the aggregate cost of this program was approximately $431.5 million. From the inception of this program through September 30, 2010, the Company has incurred $431.2 million of total expected project costs, including $4.0 million incurred during the third quarter of 2010. The final remaining $0.3 million of project costs was paid during the early fourth quarter of 2010.
Please refer to the attached data tables for a summary, by period, of historical and/or projected data for each of the Company’s recent growth initiatives. The remaining capital costs to be incurred, which are outlined above, are based on the latest available information and are subject to change. All of the figures set forth above represent expected cash outlays and do not include the allocation of construction period interest.
Conference Call
The Company will hold a conference call to discuss its third quarter 2010 financial results and recent developments at 10:00 a.m. Eastern (9:00 a.m. Central) today, November 4, 2010. To participate in the call, dial (480) 629-9773 and ask for the Hornbeck Offshore call at least 10 minutes prior to the start time. To access it live over the Internet, please log onto the web at http://www.hornbeckoffshore.com, on the “IR Home” page of the “Investors” section of the Company’s website at least fifteen minutes early to register, download and install any necessary audio software. Please call the Company’s investor relations firm, DRG&L, at (713) 529-6600 to be added to its e-mail distribution list for future Hornbeck Offshore news releases. An archived version of the web cast will be available shortly after the call for a period of 60 days on the “IR Home” page under the “Investors” section of the Company’s website. Additionally, a telephonic replay will be available through November 11, 2010, and may be accessed by calling (303) 590-3030 and using the pass code 4374724#.
Attached Data Tables
The Company has posted an electronic version of the following three pages of data tables, which are downloadable in Microsoft Excel format, on the “IR Home” page of the “Investors” section of the Hornbeck Offshore website for the convenience of analysts and investors.
Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore supply vessels primarily in the U.S. Gulf of Mexico and Latin America, and is a leading short-haul transporter of petroleum products through its coastwise fleet of ocean-going tugs and tank barges primarily in the northeastern U.S. and the U.S. Gulf of Mexico. Hornbeck Offshore currently owns a fleet of over 80 vessels primarily serving the energy industry.
Forward-Looking Statements
This Press Release contains “forward-looking statements,” as contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company discusses factors it believes may affect its performance in the future. Forward-looking statements are all statements other than historical facts, such as statements regarding assumptions, expectations, beliefs and projections about future events or conditions. You can generally identify forward-looking statements by the appearance in such a statement of words like “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “remain,” “should,” or “will,” or other comparable words or the negative of such words. The accuracy of the Company’s assumptions, expectations, beliefs and projections depends on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The Company’s actual future results might differ from the forward-looking statements made in this Press Release for a variety of reasons, including the effect of the slow-down in the issuance of drilling and other permits in the Gulf of Mexico due to government regulations. Future results may also be impacted by proposed federal legislation or regulations that may be implemented in response to the Deepwater Horizon event. Such regulations or legislation could further aggravate a number of other existing risks, uncertainties and assumptions, including, without limitation: less than anticipated success in marketing and operating the Company’s MPSVs; bureaucratic, administrative or operating barriers that delay vessels chartered in foreign markets from going on-hire or result in contractual penalties imposed by foreign customers; further weakening of demand for the Company’s services; inability to effectively curtail operating expenses from stacked vessels; unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters or failures to finalize commitments to charter vessels; industry risks; further reductions in capital spending budgets by customers; decline in oil and natural gas prices; increases in operating costs; the inability to accurately predict vessel utilization levels and dayrates; the inability to effectively compete in or operate in international markets, less than anticipated subsea infrastructure demand activity in the U.S. Gulf of Mexico and other markets; the level of fleet additions by competitors that could result in over capacity; economic and political risks; weather related risks; the inability to attract and retain qualified marine personnel; regulatory risks; the repeal or administrative weakening of the Jones Act; the imposition of laws or regulations that result in reduced exploration and production activities or that increase the Company’s operating costs or operating requirements, including any such laws or regulations that may arise as a result of the recent drilling and lease moratorium or as a result of the oil spill disaster in the Gulf of Mexico; drydocking delays and cost overruns and related risks; vessel accidents or pollution incidents resulting in lost revenue or expenses that are unrecoverable from insurance policies or other third parties; unexpected litigation and insurance expenses; fluctuations in foreign currency valuations compared to the U.S. dollar and risks associated with expanded foreign operations, such as non-compliance with or the unanticipated effect of tax laws, customs laws, immigration laws, or other legislation that result in higher than anticipated tax rates or other costs. In addition, the Company’s future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it does business resulting in their non-payment or inability to perform obligations owed to the Company, such as the failure of customers to fulfill their contractual obligations or the failure by individual banks to provide expected funding under the Company’s credit agreement. Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts the Company, or should the Company’s underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated in its forward-looking statements, and its business, financial condition and results of operations could be materially and adversely affected. Additional factors that you should consider are set forth in detail in the Risk Factors section of the Company's most recent Annual Report on Form 10-K as well as other filings the Company has made and will make with the Securities and Exchange Commission which, after their filings, can be found on the Company’s website www.hornbeckoffshore.com.
Regulation G Reconciliation
This Press Release also contains references to the non-GAAP financial measures of earnings, or net income, before interest, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA. The Company views EBITDA and Adjusted EBITDA primarily as liquidity measures and, therefore, believes that the GAAP financial measure most directly comparable to such measure is cash flows provided by operating activities. Reconciliations of EBITDA and Adjusted EBITDA to cash flows provided by operating activities are provided in the table below. Management's opinion regarding the usefulness of EBITDA to investors and a description of the ways in which management uses such measure can be found in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, as well as in Note 10 to the attached data tables.
Contacts: Todd Hornbeck, CEO
Jim Harp, CFO
Hornbeck Offshore Services
985-727-6802
Ken Dennard, Managing Partner
DRG&L / 713-529-6600
Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(in thousands, except Other Operating and Per Share Data)
Statement of
Operations
(unaudited):
Three Months Ended Nine Months Ended
September September September
30, June 30, 30, 30, September 30,
2010 2010 2009 2010 2009
Revenues $ 125,351 $ 111,885 $ 90,086 $ 323,482 $ 297,642
Costs and
expenses:
Operating
expenses 53,241 48,507 39,741 146,080 121,191
Depreciation
and
amortization 19,787 19,316 16,514 56,946 75,974
General and
administrative
expenses 9,733 9,640 6,864 28,294 23,302
82,761 77,463 63,119 231,320 220,467
Gain on sale
of assets 725 95 105 1,344 346
Operating
income 43,315 34,517 27,072 93,506 77,521
Other income
(expense):
Interest
income 104 155 179 353 365
Interest
expense (14,422) (14,274) (5,586) (40,353) (12,584)
Other income,
net (1) 22 257 (14) 257 (263)
(14,296) (13,862) (5,421) (39,743) (12,482)
Income before
income taxes 29,019 20,655 21,651 53,763 65,039
Income tax
expense 10,816 7,612 7,877 19,962 23,965
Net income $ 18,203 $ 13,043 $ 13,774 $ 33,801 $ 41,074
Basic earnings
per share of
common stock $ 0.69 $ 0.49 $ 0.53 $ 1.28 $ 1.58
Diluted
earnings per
share of
common stock $ 0.67 $ 0.48 $ 0.51 $ 1.24 $ 1.52
Weighted
average basic
shares
outstanding 26,446 26,388 26,100 26,365 26,013
Weighted
average
diluted shares
outstanding
(2) 27,192 27,156 27,036 27,157 26,955
Other
Operating Data
(unaudited):
Three Months Ended Nine Months Ended
September September September
30, June 30, 30, 30, September 30,
2010 2010 2009 2010 2009
Offshore
Supply
Vessels:
Average number
of new
generation
OSVs (3) 50.3 49.5 44.0 49.5 42.2
Average new
generation
fleet capacity
(deadweight)
(3) 126,323 124,065 108,640 123,890 102,890
Average new
generation
vessel
capacity
(deadweight) 2,510 2,505 2,469 2,504 2,436
Average new
generation
utilization
rate (4) 75.7% 71.8% 71.9% 73.5% 82.5%
Effective new
generation
utilization
rate (5) 84.2% 84.5% 83.2% 85.3% 87.6%
Average new
generation
dayrate (6) $ 21,628 $ 23,874 $ 20,915 $ 21,833 $ 21,829
Effective
dayrate (7) $ 16,372 $ 17,142 $ 15,038 $ 16,047 $ 18,009
Tugs and Tank
Barges:
Average number
of
double-hulled
tank barges
(8) 9.0 9.0 9.0 9.0 9.0
Average
double-hulled
fleet capacity
(barrels) (8) 884,621 884,621 884,621 884,621 884,621
Average
double-hulled
barge size
(barrels) 98,291 98,291 98,291 98,291 98,291
Average
double-hulled
utilization
rate (4) 86.9% 74.2% 67.6% 78.8% 71.5%
Average
double-hulled
dayrate (9) $ 18,615 $ 18,708 $ 28,503 $ 17,765 $ 22,797
Effective
dayrate (7) $ 16,176 $ 13,881 $ 19,268 $ 13,999 $ 16,300
Balance Sheet
Data
(unaudited):
As of
As of
September
30, December 31,
2010 2009
Cash and cash
equivalents $ 96,967 $ 51,019
Working
capital 140,784 85,736
Property,
plant and
equipment, net 1,616,549 1,602,663
Total assets 1,859,779 1,786,348
Total
long-term debt 755,265 746,674
Stockholders'
equity 835,656 797,063
Cash Flow Data
(unaudited):
Nine Months Ended
September September
30, 30,
2010 2009
Cash provided
by operating
activities $ 101,519 $ 142,613
Cash used in
investing
activities (56,349) (214,802)
Cash provided
by financing
activities 678 113,856
Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Other Financial Data
(in thousands, except Financial Ratios)
Other
Financial Data
(unaudited):
Three Months Ended Nine Months Ended
September September
30, June 30, 30, September 30, September 30,
2010 2010 2009 2010 2009
Upstream:
Revenues $ 111,996 $ 100,498 $ 73,710 $ 289,092 $ 247,985
Operating
income $ 40,080 $ 35,522 $ 23,840 $ 92,791 $ 101,372
Operating
margin 35.8% 35.3% 32.3% 32.1% 40.9%
Components of
EBITDA (10)
Net income $ 16,948 $ 14,305 $ 12,225 $ 35,422 $ 57,767
Interest
expense, net 13,084 12,886 4,611 36,463 10,083
Income tax
expense 10,070 8,348 6,991 20,923 33,259
Depreciation 12,897 12,592 8,955 36,883 24,987
Amortization 3,711 3,475 4,183 10,871 11,588
EBITDA (10) $ 56,710 $ 51,606 $ 36,965 $ 140,562 $ 137,684
Adjustments to
EBITDA
Stock-based
compensation
expense $ 1,925 $ 1,945 $ 1,519 $ 5,883 $ 5,204
Interest
income 100 152 169 343 333
Adjusted
EBITDA (10) $ 58,735 $ 53,703 $ 38,653 $ 146,788 $ 143,221
EBITDA (10)
Reconciliation
to GAAP:
EBITDA (10) $ 56,710 $ 51,606 $ 36,965 $ 140,562 $ 137,684
Cash paid for
deferred
drydocking
charges (2,894) (4,534) (2,302) (10,189) (13,784)
Cash paid for
interest (9,204) (9,709) (379) (28,396) (10,564)
Cash paid for
taxes (245) (1,623) (1,738) (2,594) (10,714)
Changes in
working
capital (2,029) (4,610) 8,093 (6,167) 23,506
Stock-based
compensation
expense 1,925 1,945 1,519 5,883 5,204
Changes in
other, net 114 (65) (185) (728) (656)
Net cash
provided by
operating
activities $ 44,377 $ 33,010 $ 41,973 $ 98,371 $ 130,676
Downstream:
Revenues $ 13,355 $ 11,387 $ 16,376 $ 34,390 $ 49,657
Operating
income (loss) $ 3,235 $ (1,005) $ 3,232 $ 715 $ (23,851)
Operating
margin 24.2% (8.8%) 19.7% 2.1% (48.0%)
Components of
EBITDA (10)
Net income $ 1,255 $ (1,262) $ 1,549 $ (1,621) $ (16,693)
Interest
expense, net 1,234 1,233 796 3,537 2,136
Income tax
expense 746 (736) 886 (961) (9,294)
Depreciation 2,115 2,139 2,136 6,392 32,423
Amortization 1,064 1,110 1,240 2,800 6,976
EBITDA (10) $ 6,414 $ 2,484 $ 6,607 $ 10,147 $ 15,548
Adjustments to
EBITDA
Stock-based
compensation
expense $ 298 $ 309 $ 389 $ 952 $ 1,380
Interest
income 4 3 10 10 32
Adjusted
EBITDA (10) $ 6,716 $ 2,796 $ 7,006 $ 11,109 $ 16,960
EBITDA (10)
Reconciliation
to GAAP:
EBITDA (10) $ 6,414 $ 2,484 $ 6,607 $ 10,147 $ 15,548
Cash paid for
deferred
drydocking
charges (659) (1,150) (104) (5,472) (1,255)
Cash paid for
interest (1,119) (1,580) (84) (4,243) (2,350)
Cash paid for
taxes - (5) (41) (5) (4,806)
Changes in
working
capital 1,100 (838) (837) 2,477 3,673
Stock-based
compensation
expense 298 309 389 952 1,380
Changes in
other, net (780) 31 (37) (708) (253)
Net cash
provided by
(used in)
operating
activities $ 5,254 $ (749) $ 5,893 $ 3,148 $ 11,937
Consolidated:
Revenues $ 125,351 $ 111,885 $ 90,086 $ 323,482 $ 297,642
Operating
income $ 43,315 $ 34,517 $ 27,072 $ 93,506 $ 77,521
Operating
margin 34.6% 30.9% 30.1% 28.9% 26.0%
Components of
EBITDA (10)
Net income $ 18,203 $ 13,043 $ 13,774 $ 33,801 $ 41,074
Interest
expense, net 14,318 14,119 5,407 40,000 12,219
Income tax
expense 10,816 7,612 7,877 19,962 23,965
Depreciation 15,012 14,731 11,091 43,275 57,410
Amortization 4,775 4,585 5,423 13,671 18,564
EBITDA (10) $ 63,124 $ 54,090 $ 43,572 $ 150,709 $ 153,232
Adjustments to
EBITDA
Stock-based
compensation
expense $ 2,223 $ 2,254 $ 1,908 $ 6,835 $ 6,584
Interest
income 104 155 179 353 365
Adjusted
EBITDA (10) $ 65,451 $ 56,499 $ 45,659 $ 157,897 $ 160,181
EBITDA (10)
Reconciliation
to GAAP:
EBITDA (10) $ 63,124 $ 54,090 $ 43,572 $ 150,709 $ 153,232
Cash paid for
deferred
drydocking
charges (3,553) (5,684) (2,406) (15,661) (15,039)
Cash paid for
interest (10,323) (11,289) (463) (32,639) (12,914)
Cash paid for
taxes (245) (1,628) (1,779) (2,599) (15,520)
Changes in
working
capital (929) (5,448) 7,256 (3,690) 27,179
Stock-based
compensation
expense 2,223 2,254 1,908 6,835 6,584
Changes in
other, net (666) (34) (222) (1,436) (909)
Net cash
provided by
operating
activities $ 49,631 $ 32,261 $ 47,866 $ 101,519 $ 142,613
Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Other Financial Data
(in millions, except Per Share and Historical Data)
Forward Earnings Guidance and Projected EBITDA Reconciliation: (Unaudited)
2010 Guidance Full-Year 2010 Pro Forma Run-Rate
Estimate Estimate (11)
Low High Low High
(2010 Dayrates) (2008 Dayrates)
Vessel Count:
Average number of active
new generation OSVs 42.8 42.8 51.0 51.0
Average number of active
MPSVs 3.5 3.5 4.0 4.0
Average number of
double-hulled tank barges 9.0 9.0 9.0 9.0
Components of Projected
EBITDA (10)
Adjusted EBITDA (10) $ 179.6 $ 199.6 $ 210.2 $ 426.1
Interest income 0.6 0.6 0.8 0.8
Stock-based compensation
expense 9.0 9.0 9.0 9.0
EBITDA (10) $ 170.0 $ 190.0 $ 200.4 $ 416.3
Depreciation 58.4 58.4 61.0 61.0
Amortization 18.6 18.6 30.6 30.6
Interest expense, net:
Interest expense 48.1 48.1 48.2 48.2
Incremental non-cash OID
interest expense (12) 10.8 10.8 10.8 10.8
Capitalized interest (3.7) (3.7) - -
Interest income (0.6) (0.6) (0.8) (0.8)
Total interest expense,
net 54.6 54.6 58.2 58.2
Income tax expense 14.3 21.7 18.8 99.1
Income tax rate 37.2% 37.2% 37.2% 37.2%
Net income $ 24.1 $ 36.7 $ 31.8 $ 167.4
Weighted average diluted
shares outstanding (13) 27.2 27.2 27.2 27.2
Diluted earnings per
share, as reported $ 0.89 $ 1.35 $ 1.17 $ 6.15
Incremental non-cash OID
interest expense per
share (12) 0.23 0.23 0.25 0.25
Diluted earnings per
share, as adjusted (14) $ 1.12 $ 1.58 $ 1.42 $ 6.40
Projected EBITDA (10)
Reconciliation to GAAP:
EBITDA (10) $ 170.0 $ 190.0 $ 200.4 $ 416.3
Cash paid for deferred
drydocking charges (23.3) (23.3) (35.7) (35.7)
Cash paid for interest (44.2) (44.2) (44.2) (44.2)
Cash paid for taxes (2.8) (2.8) (1.0) (1.0)
Changes in working
capital (15) 7.5 7.5 15.2 3.1
Stock-based compensation
expense 9.0 9.0 9.0 9.0
Changes in other, net
(15) (2.0) (2.0) (2.0) (2.0)
Cash flows provided by
operating activities $ 114.2 $ 134.2 $ 141.7 $ 345.5
Capital
Expenditures Data
(unaudited) (16):
Historical Data
(in thousands):
Three Months Ended Nine Months Ended
September September September
30, June 30, 30, 30, September 30,
2010 2010 2009 2010 2009
Maintenance and
Other Capital
Expenditures:
Maintenance
Capital
Expenditures:
Deferred
drydocking charges $ 3,553 $ 5,684 $ 2,406 $ 15,661 $ 15,039
Other vessel
capital
improvements 497 1,011 1,802 5,107 3,847
4,050 6,695 4,208 20,768 18,886
Other Capital
Expenditures:
Commercial-related
vessel
improvements 868 14,661 96 17,027 597
Non-vessel related
capital
expenditures 153 944 479 1,497 3,509
1,021 15,605 575 18,524 4,106
$ 5,071 $ 22,300 $ 4,783 $ 39,292 $ 22,992
Growth Capital
Expenditures:
MPSV program $ - $ 1,258 $ 33,149 $ 6,471 $ 85,222
OSV newbuild
program #4 4,002 7,040 24,706 25,351 110,931
$ 4,002 $ 8,298 $ 57,855 $ 31,822 $ 196,153
Forecasted Data:
1Q2010A 2Q2010A 3Q2010A 4Q2010E 2010E
Maintenance and
Other Capital
Expenditures:
Maintenance
Capital
Expenditures:
Deferred
drydocking charges $ 6.4 $ 5.7 $ 3.6 $ 7.6 $ 23.3
Other vessel
capital
improvements 3.6 1.0 0.5 2.1 7.2
10.0 6.7 4.1 9.7 30.5
Other Capital
Expenditures:
Commercial-related
vessel
improvements 1.5 14.7 0.8 - 17.0
Non-vessel related
capital
expenditures 0.4 0.9 0.2 0.9 2.4
1.9 15.6 1.0 0.9 19.4
$ 11.9 $ 22.3 $ 5.1 $ 10.6 $ 49.9
Growth Capital
Expenditures:
MPSV program $ 5.2 $ 1.3 $ - $ - $ 6.5
OSV newbuild
program #4 14.3 7.0 4.0 0.3 25.6
$ 19.5 $ 8.3 $ 4.0 $ 0.3 $ 32.1
(1) Represents other income and expenses, including gains or losses related to
foreign currency exchange and minority interests in income or loss from
unconsolidated entities.
(2) Stock options representing rights to acquire 401, 401 and 199 shares of
common stock for the three months ended September 30, 2010, June 30, 2010 and
September 30, 2009, respectively, were excluded from the calculation of diluted
earnings per share, because the effect was antidilutive after considering the
exercise price of the options in comparison to the average market price,
proceeds from exercise, taxes, and related unamortized compensation. For the
nine months ended September 30, 2010 and 2009, stock options representing the
rights to acquire 402 and 419 shares of common stock were excluded from the
calculation of diluted earnings per share because the effect was anti-dilutive.
As of September 30, 2010, June 30, 2010, and September 30, 2009, the 1.625%
convertible senior notes were not dilutive, as the average price of the
Company’s stock was less than the effective conversion price of $62.59 for
such notes.
(3) The Company owned 51 new generation OSVs as of September 30, 2010, five of
which were stacked. Included in this data are a total of 16 newbuild OSVs that
were placed in service under the Company’s fourth OSV newbuild program on
various dates from May 2008 to September 2010. Excluded from this data are four
multi-purpose support vessels owned by the Company that were placed in service
under the Company’s MPSV program on various dates from October 2008 to March
2010. Also excluded from this data are two stacked conventional OSVs that the
Company considers to be non-core assets.
(4) Average utilization rates are average rates based on a 365-day year.
Vessels are considered utilized when they are generating revenues.
(5) Effective utilization rate is based on a denominator comprised only of
vessel-days available for service by the active fleet, which excludes the
impact of stacked vessel days.
(6) Average new generation OSV dayrate represents average revenue per day,
which includes charter hire, crewing services, and net brokerage revenues,
based on the number of days during the period that the OSVs generated revenues.
(7) Effective dayrate represents the average dayrate multiplied by the
utilization rate for the respective period.
(8) The Company owned and operated nine double-hulled tank barges as of
September 30, 2010. Excluded from this data are six single-hulled tank barges
owned by the Company, two of which were sold in October 2010 and four of which
are currently stacked. Also excluded from this data are 15 ocean-going tugs
owned by the Company, six of which are currently stacked.
(9) Average dayrates represent average revenue per day, including time
charters, brokerage revenue, revenues generated on a per-barrel-transported
basis, demurrage, shipdocking and fuel surcharge revenue, based on the number
of days during the period that the tank barges generated revenue. For purposes
of brokerage arrangements, this calculation excludes that portion of revenue
that is equal to the cost paid by customers of in-chartering third party
equipment.
(10)Non-GAAP Financial Measure
The Company discloses and discusses EBITDA as a non-GAAP financial measure in
its public releases, including quarterly earnings releases, investor conference
calls and other filings with the Securities and Exchange Commission. The
Company defines EBITDA as earnings (net income) before interest, income taxes,
depreciation and amortization. The Company’s measure of EBITDA may not be
comparable to similarly titled measures presented by other companies. Other
companies may calculate EBITDA differently than the Company, which may limit
its usefulness as a comparative measure.
The Company views EBITDA primarily as a liquidity measure and, as such,
believes that the GAAP financial measure most directly comparable to it is cash
flows provided by operating activities. Because EBITDA is not a measure of
financial performance calculated in accordance with GAAP, it should not be
considered in isolation or as a substitute for operating income, net income or
loss, cash flows provided by operating, investing and financing activities, or
other income or cash flow statement data prepared in accordance with GAAP.
EBITDA is widely used by investors and other users of the Company’s financial
statements as a supplemental financial measure that, when viewed with GAAP
results and the accompanying reconciliations, the Company believes provides
additional information that is useful to gain an understanding of the factors
and trends affecting its ability to service debt, pay deferred taxes and fund
drydocking charges and other maintenance capital expenditures. The Company also
believes the disclosure of EBITDA helps investors meaningfully evaluate and
compare its cash flow generating capacity from quarter to quarter and year to
year.
EBITDA is also a financial metric used by management (i) as a supplemental
internal measure for planning and forecasting overall expectations and for
evaluating actual results against such expectations; (ii) as a significant
criteria for annual incentive cash bonuses paid to the Company’s executive
officers and other shore-based employees; (iii) to compare to the EBITDA of
other companies when evaluating potential acquisitions; and (iv) to assess the
Company’s ability to service existing fixed charges and incur additional
indebtedness.
In addition, the Company also makes certain adjustments, as applicable, to
EBITDA for losses on early extinguishment of debt, FAS 123R stock-based
compensation expense and interest income, or Adjusted EBITDA, to compute ratios
used in certain financial covenants of its credit agreements with various
lenders and bond investors. The Company believes that these ratios are material
components of such financial covenants and failure to comply with such
covenants could result in the acceleration of indebtedness or the imposition of
restrictions on the Company’s financial flexibility.
Set forth below are the material limitations associated with using EBITDA as a
non-GAAP financial measure compared to cash flows provided by operating
activities.
-- EBITDA does not reflect the future capital expenditure requirements
that may be necessary to replace the Company’s existing vessels as a
result of normal wear and tear,
-- EBITDA does not reflect the interest, future principal payments and
other financing-related charges necessary to service the debt that the
Company has incurred in acquiring and constructing its vessels,
-- EBITDA does not reflect the deferred income taxes that the Company will
eventually have to pay, and
-- EBITDA does not reflect changes in the Company’s net working capital
position.
Management compensates for the above-described limitations in using EBITDA as a
non-GAAP financial measure by only using EBITDA to supplement the Company’s
GAAP results.
(11) These two pro forma run-rate illustrations are intended to demonstrate the
hypothetical earnings power of the Company’s full-fleet complement operating
at normal utilization levels under different market conditions and do not
reflect actual or projected results for any specific period. The “Pro Forma
Run-Rate -- Low” scenario illustrates the estimated operating results from
the Company’s current fleet complement of 51 new generation OSVs, four MPSVs
and nine double-hulled tank barges with associated tugs, assuming all such
vessels (including the reactivation of any vessels that are currently stacked)
were placed in service as of January 1, 2010 and were working at their fiscal
2010 contracted dayrates or projected fiscal 2010 spot market dayrates (that
correlate to the mid-point of the 2010 EBITDA guidance range), as applicable,
commensurate with their relative size and service capabilities. The “Pro
Forma Run-Rate -- High” scenario illustrates the estimated operating results
from the Company’s current fleet complement of 51 new generation OSVs, four
MPSVs and nine double-hulled tank barges with associated tugs, assuming all
such vessels (including the reactivation of any vessels that are currently
stacked) were placed in service as of January 1, 2008 and were working at their
fiscal 2008 contracted dayrates or fiscal 2008 spot market dayrates, as
applicable, commensurate with their relative size and service capabilities.
However, given the current market uncertainty in the U.S. GoM, please note that
this pro forma illustration is not intended to imply that the Company’s 2008
dayrates and utilization levels reflected in the “Pro Forma Run-Rate --
High” case scenario are necessarily achievable within the foreseeable future.
All other key assumptions related to the Company’s current operating fleet,
including cash operating expenses, drydocking costs and scheduled downtime, G&A
and income tax expense, are consistent with the mid-point of the Company’s
updated 2010 guidance above. Assuming the Company’s revolving credit facility
remains undrawn, interest expense is expected to increase to an annual
post-construction period run-rate of $59.0 on a projected debt balance of
$800.0 in face value, offset by $0.8 of interest income to be generated on an
assumed cash balance of $100.0. The interest expense of $59.0 includes $10.8 of
incremental non-cash OID interest expense that resulted from the Company’s
adoption of new accounting rules as discussed in Note 12 below.
(12) Represents incremental non-cash OID interest expense resulting from the
adoption of new accounting standards pertaining to the Company’s convertible
senior notes effective January 1, 2009.
(13) Projected weighted-average diluted shares do not reflect any potential
dilution resulting from the Company’s 1.625% convertible senior notes. The
Company’s convertible senior notes become dilutive when the average price of
the Company’s stock exceeds the effective conversion price for such notes of
$62.59.
(14) Diluted earnings per share, as adjusted, excludes the incremental impact
of the recent adoption of new accounting standards pertaining to the
Company’s convertible senior notes.
(15) Projected cash flows provided by operating activities are based, in part,
on estimated future “changes in working capital” and “changes in other,
net,” that are susceptible to significant variances due to the timing at
quarter-end of cash inflows and outflows, most of which are beyond the
Company’s ability to control. However, any future variances in those two line
items from the above forward looking reconciliations should result in an equal
and opposite adjustment to actual cash flows provided by operating activities.
(16) The capital expenditure amounts included in this table are cash outlays
before the allocation of construction period interest, as applicable.
SOURCE Hornbeck Offshore Services, Inc.