Hornbeck 3Q Results
Hornbeck third quarter highlights include:
• Hornbeck Offshore Services, Inc. (NYSE: HOS) announced results for the third quarter ended September 30, 2008. Following are highlights for the third quarter and the Company's future outlook:
• Record quarterly OSV revenue, operating income, net income and EBITDA
• Q3 2008 OSV revenues increased 33% over Q3 2007 and 11% over Q2 2008
• Q3 2008 OSV operating income increased 43% over Q3 2007 and 32% over Q2 2008
• Q3 2008 OSV net income increased 43% over Q3 2007 and 35% over Q2 2008
• Fleetwide effective new generation OSV dayrates at new record-levels, up $1,500 over Q2 2008
• Fleetwide effective dayrates for conventional OSVs increased 14% over Q2 2008
• First T-22 class DP-3 MPSV delivered to GoM in October 2008, currently generating $100,000 per day
• Three conventional OSVs sold in August 2008 for $14.7 million in aggregate cash proceeds
• Strategic review of TTB segment results in decision to maintain status quo
• Company updates full-year 2008 EBITDA guidance and reaffirms ample liquidity for newbuild programs
Third quarter 2008 revenues increased 15.2% to $109.1 million compared to $94.7 million for the third quarter of 2007. Operating income was $52.6 million, or 48.2% of revenues, for the third quarter of 2008 compared to $44.9 million, or 47.4% of revenues, for the prior-year quarter. Net income for the third quarter of 2008 was $33.5 million, or $1.24 per diluted share, compared to $28.9 million, or $1.09 per diluted share in the year-ago quarter. EBITDA for the third quarter of 2008 was $65.5 million compared to third quarter 2007 EBITDA of $54.3 million. The primary reasons for the increase in revenues, operating income, net income and EBITDA were the incremental contribution of vessels acquired or newly constructed since June 2007 and continued favorable market conditions for the Company's new generation offshore supply vessels ("OSVs"). Also, included in third quarter 2008 operating income, EBITDA and net income was a $6.4 million ($4.1 million after-tax, or $0.15 per diluted share) gain on the August 2008 sale of three conventional OSVs, the Cape San Lucas, the Cape Spencer and the Cape Cod, that were acquired in August 2007 as part of the Sea Mar Fleet. For additional information regarding EBITDA as a non-GAAP financial measure, please see Note 10 to the accompanying data tables.
OSV Segment. Revenues from the OSV segment were $88.0 million for the third quarter of 2008, an increase of 32.5% from $66.4 million for the same period in 2007. OSV operating income increased 42.9% to $51.3 million for the third quarter of 2008 from $35.9 million for the third quarter of 2007. Excluding the gain on sale of conventional vessels, OSV operating income increased 25.1% to $44.9 million for the third quarter of 2008. The Company's OSV revenues and operating income increased due to the full-quarter contribution from 20 OSVs that were acquired in August 2007, a market-driven increase in new generation OSV dayrates and a full and partial-quarter contribution from two new generation OSVs that were delivered in May 2008 and July 2008, respectively, under the Company's fourth OSV newbuild program. Average new generation OSV dayrates for the third quarter of 2008 improved to $23,884 compared to $22,605 for the same period in 2007. New generation OSV utilization was 96.1% for the third quarter of 2008 compared to 95.2% during the same period in 2007. Effective, or utilization-adjusted, dayrates for the Company's conventional OSVs for the third quarter of 2008 were $9,480, or $1,190 higher than the second quarter of 2008. This 14.4% sequential increase in effective dayrates for these non-core assets was primarily due to stronger market conditions resulting from increased repair and reconstruction activity in the U.S. Gulf of Mexico ("GoM") following Hurricanes Gustav and Ike.
TTB Segment. Revenues from the tug and tank barge ("TTB") segment of $21.0 million for the third quarter of 2008 decreased by $7.4 million, or 26.1%, compared to $28.4 million for the same period in 2007. The decrease in revenues was primarily the result of continued soft demand for the Company's single-hulled vessels. This revenue decrease was partially offset by the full-quarter contribution from three double-hulled tank barge newbuilds, the Energy 6506, the Energy 6507 and the Energy 6508, that were placed in service on various dates during the latter half of 2007 and the first quarter of 2008. The Company's double-hulled tank barge average dayrates were $22,642 for the third quarter of 2008 compared to $23,148 for the same period in 2007. Utilization for the double-hulled tank barge fleet was 80.2% for the third quarter of 2008 compared to 92.1% for the same period in 2007, primarily due to a market-related shift in contract mix from time charters to contracts for affreightment ("COAs") and an increase in days out-of-service for regulatory drydockings. The Company's single-hulled tank barge average dayrates were $15,854 for the third quarter of 2008, an increase of $696, or 4.6%, from $15,158 for the same period in 2007. Single-hulled tank barge utilization was 33.8% for the third quarter of 2008 compared to 90.4% for the same period in 2007. Recent soft market conditions for this type of equipment led to the Company's decision to stack a total of seven single-hulled barges and two lower-horsepower tugs on various dates since April 2008. These cost-cutting measures, along with the non-renewal of three in-chartered tugs, should partially mitigate the near-term effect of demand weakness, which is expected to continue through at least the end of 2008. Effective single-hulled tank barge utilization, which excludes the impact of stacked tank barges, was 50.7% for the three months ended September 30, 2008. In October 2008, the Company was able to reactivate one of the stacked single-hulled barges and one of the stacked lower-horsepower tugs.
The Company and its financial advisor, J.P. Morgan Securities Inc., have recently engaged in a thorough review of strategic alternatives for the downstream TTB business. In light of the turmoil in the credit markets over the past 90 days, the Company has concluded that maintaining the status quo with respect to this stable source of diversified cash flow is in its best interest at this time. The Company will proceed with business as usual for this segment with an emphasis on managing costs and maximizing effective dayrates.
General and Administrative ("G&A"). G&A expenses of $8.7 million for the third quarter of 2008 were 8.0% of revenues compared to $8.8 million, or 9.3% of revenues, for the third quarter of 2007. Third quarter G&A expense margin is below the Company's 2008 annual guidance range of 9% to 10% of revenues. The Company allocated 73% of its third quarter G&A expenses to the OSV segment and 27% to the TTB segment.
Depreciation and Amortization. Depreciation and amortization expense was $12.8 million for the third quarter of 2008, or $3.5 million higher than the third quarter of 2007. This increase was driven by incremental depreciation related to 29 vessels that were placed in service since June 2007 and, to a lesser extent, higher per-unit cost of regulatory drydock events. Depreciation and amortization expense is expected to continue to increase from current levels as the vessels remaining under the Company's current newbuild and conversion programs are placed in service and when these and any other recently acquired and newly constructed vessels undergo their initial 30-month and 60-month recertifications.
Nine Month Results
Revenues for the first nine months of 2008 increased 30.8% to $311.1 million compared to $237.9 million for the same period in 2007. Operating income was $130.3 million, or 41.9% of revenues, for the first nine months of 2008 compared to $105.2 million, or 44.2% of revenues, for the same period in 2007. Net income for the first nine months of 2008 increased 18.8% to $82.0 million, or $3.03 per diluted share, compared to net income of $69.0 million, or $2.61 per diluted share, for the first nine months of 2007. The Company's results for the first nine months of 2008 were positively impacted by the full-period contribution from 20 OSVs that were acquired in August 2007, five newbuild vessels placed in service during the latter half of 2007 and the first nine months of 2008, and a market-driven increase in OSV dayrates, compared to the nine months ended September 30, 2007. The Company's net income for the first nine months of 2008 included an $8.4 million ($5.4 million after tax or $0.20 per share) gain on the sale of four conventional OSVs. In the first nine months of 2007, the Company's net income included a gain on the sale of assets of a fast supply vessel of $1.9 million ($1.2 million after-tax, or $0.05 per diluted share).
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 and shipyard delays, business combinations, financings and unannounced newbuild programs that may be commenced after the date of this disclosure. For additional information concerning forward-looking statements, please see the note at the end of this news release.
Earnings Outlook
Annual 2008 Guidance. In recognition of its actual results for the first nine months of 2008, including year-to-date gains on sale of vessels of $8.4 million, the Company now expects total EBITDA for the full-year 2008 to range between $225.0 million and $235.0 million and diluted EPS for full-year 2008 is now expected to range between $3.94 and $4.18. The TTB segment is projected to contribute 2008 EBITDA in the range of 13% to 15% of the mid-point of the company-wide 2008 guidance range.
Key Assumptions. The Company's forward earnings guidance, outlined above and in the attached data tables, assumes that current OSV and TTB market conditions remain constant. Fleetwide average new generation OSV dayrates are anticipated to remain in the $21,000 to $23,000 range and fleetwide new generation OSV utilization is anticipated to average in the mid-90% range during the remainder of the 2008 guidance period. Fleetwide average TTB dayrates for the nine double-hulled barges are anticipated to remain in the $19,000 to $21,000 range. Double-hulled TTB utilization is expected to be in the mid-80% range for the remainder of the 2008 guidance period, due, in part, to an anticipated aggregate 106 out-of service days planned for the scheduled regulatory drydocking of four of the Company's nine double-hulled tank barges during the fourth quarter of 2008. Average dayrates for the Company's fleet of 12 single-hulled barges are expected to be in the $15,000 to $17,000 range with average utilization for such vessels in the mid-40% range for the fourth quarter of 2008. The effective utilization of the Company's active fleet of six single-hulled barges for the remainder of 2008, after excluding the effect of six stacked vessels, is expected to be in the mid-80% to low-90% range.
The Company's full-year 2008 guidance includes a partial contribution from vessels to be delivered under its MPSV program, the fourth OSV newbuild program and the recently completed second TTB newbuild program in accordance with the estimated newbuild delivery expectations discussed below.
The Company expects cash operating expenses per vessel-day in 2008 for each segment to increase by 5% to 10% over 2007. Annual G&A expenses are expected to be around 9% of revenues for fiscal 2008. The projected FAS 123R stock-based compensation expense, depreciation, amortization and net interest expense that underpin the Company's updated diluted EPS guidance for the full-year 2008 are included in the attached data tables. Projected FAS 123R stock-based compensation expense, depreciation, amortization and net interest expense for the fourth quarter of 2008 are $2.9 million, $10.4 million, $4.8 million and $1.6 million, respectively. The Company's annual effective tax rate is expected to be 36.0% for 2008.
Capital Expenditures Outlook
Update on Maintenance Capital Expenditures. The Company expects total maintenance capital expenditures for 2008 to be approximately $66.4 million, of which only $8.9 million remains to be incurred during the fourth quarter of 2008. Included in the 2008 projection of other vessel capital improvements is approximately $18.0 million, of which $16.1 million has already been spent related to the acquisition of revenue-generating modular equipment, such as remotely operated vehicles ("ROVs"). Included in the 2008 projection of non-vessel related capital expenditures is approximately $20.6 million of non-recurring costs related to the recent expansion of and improvements to HOS Port. Over the next couple of years, the Company expects that its annually recurring maintenance capital expenditure budget, inclusive of regulatory drydockings, for its growing fleet of vessels will range between $40.0 million and $50.0 million per year.
Update on MPSV Program. The Company's MPSV program consists of two U.S.-flagged coastwise sulfur tankers that are being converted at domestic shipyards into 370 class DP-2 new generation MPSVs and two newbuild T-22 class DP-3 new generation MPSVs that have been or are being constructed in foreign shipyards. The Company took on-time delivery of the first newbuild DP-3 MPSV, the HOS Achiever, and promptly mobilized the vessel to the GoM. On October 1, 2008, the vessel went on-hire and began earning a dayrate of $100,000 under a previously reported six-month time charter secured by a letter of credit. As permitted by that time charter, the HOS Achiever is actively being marketed to other domestic and international customers. On November 5, 2008, the vessel went to work for a customer in support of hurricane remediation in the GoM. The first converted DP-2 MPSV has recently been mobilized to the GoM for final commissioning and certification by regulatory authorities and is expected to enter service in early 2009. The second converted DP-2 MPSV and the second newbuild DP-3 MPSV are each expected to be delivered in the fourth quarter of 2009. Based on internal estimates, the aggregate cost of this program is expected to be approximately $450.0 million. From the inception of this program through September 30, 2008, the Company has incurred $373.8 million, or 83.1%, of total expected project costs, including $76.9 million incurred during the third quarter of 2008.
Update on OSV Newbuild Program #4. During the second quarter of 2008, the Company negotiated to upgrade two of the nine 250 EDF class OSVs then under construction into two proprietary 290 class OSVs, one of which was to be committed to a well stimulation customer. However, during the third quarter of 2008, the shipyard informed the Company that it would be unable to meet the customer's required delivery schedule. Therefore, the Company has reverted back to building nine 250 EDF class vessels and has reduced its overall project budget for this program by $30.0 million accordingly. The Company's fourth OSV newbuild program currently consists 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. Eleven of these 16 new generation DP-2 OSVs have been awarded customer contracts prior to their shipyard delivery. Two of the 240 ED class OSVs under this program, the HOS Polestar and the HOS Shooting Star, were delivered in May 2008 and July 2008, respectively. The first of the 250 EDF class vessels, the HOS Mystique, was delivered from the shipyard in April 2008 to undergo conversion for ROV support services under a multi-year charter that will commence in the fourth quarter of 2008. The second 250 EDF class OSV under this program, the HOS Resolution, was placed in service in October 2008.
Based on the above schedule of projected vessel in-service dates, the Company expects to own and operate 40, 46 and 51 new generation OSVs as of December 31, 2008, 2009 and 2010, respectively. These projections result in an average new generation OSV fleet complement of 36.7, 43.4 and 49.1 vessels for the fiscal years 2008, 2009 and 2010, respectively. Inclusive of the vessel deliveries referred to above and the recent change in vessel mix, the aggregate cost of the Company's fourth OSV newbuild program is now expected to be approximately $450.0 million. From the inception of this program through September 30, 2008, the Company has incurred $220.3 million, or 49.0%, of total expected project costs, including $42.5 million incurred during the third quarter of 2008.
Update on TTB Newbuild Program #2. The Company's second TTB newbuild program has now been completed. This program consisted of vessel construction contracts with three domestic shipyards to build three 60,000-barrel double-hulled tank barges and retrofit four 3,000 horsepower ocean-going tugs that were purchased in July 2006. The final vessel delivered under this program, the rebuilt ocean-going tug, Erie Service, was placed in service in July 2008. The final total cost of the Company's second TTB newbuild program, before construction period interest, was approximately $77.9 million.
Update on Liquidity. The Company believes that its current working capital, projected cash flows from operations and available capacity under its existing revolving credit facility, will be sufficient to meet its anticipated operating needs and the remaining cash requirements under its MPSV and OSV newbuild programs of approximately $305.9 million. These construction payments are expected to be incurred over the next couple of years as outlined in the attached data tables, including about $65.4 million that should be incurred in the fourth quarter of 2008. As of September 30, 2008, the Company had $21.3 million of cash and $140.0 million of credit immediately available under its $250.0 million revolving credit facility. The Company is currently in compliance with all of the covenants of its three primary debt obligations, which do not mature until September 2011, December 2014 and October 2026.
(www.hornbeckoffshore.com)
