Hornbeck Offshore Announces Second Quarter 2008 Results

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

31 Jul 2008

Hornbeck Offshore Services, Inc. announced yesterday results for the second quarter ended June 30, 2008. Following are highlights for the second quarter and the Company's future outlook: Record quarterly OSV revenue, operating income, net income and EBITDA Q2 2008 OSV revenues increased 63% over Q2 2007 and 17% over Q1 2008 Q2 2008 OSV operating income increased 44% over Q2 2007 and 34% over Q1 2008 Q2 2008 OSV net income increased 37% over Q2 2007 and 34% over Q1 2008
Fleetwide effective new generation OSV dayrates are at record-levels, up $2,000 over Q1 2008
Fleetwide effective dayrates for conventional OSVs increased 69% over Q1 2008
Two new generation OSVs placed in service under fourth OSV newbuild program
Twelve of 16 newbuild OSVs committed to customer charters in advance of shipyard deliveries
Previously reported strategic review of TTB business is now well underway
Company reaffirms full-year 2008 EBITDA guidance
Second quarter 2008 revenues increased 39.1% to $104.5 million compared to $75.1 million for the second quarter of 2007. Operating income was $40.8 million, or 39.0% of revenues, for the second quarter of 2008 compared to $33.9 million, or 45.1% of revenues, for the prior-year quarter. Net income for the second quarter of 2008 was $25.5 million, or $0.94 per diluted share, compared to $22.6 million, or $0.85 per diluted share in the year-ago quarter. EBITDA for the second quarter of 2008 was $53.8 million compared to second quarter 2007 EBITDA of $41.8 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 favorable market conditions for the Company's new generation offshore supply vessels ("OSVs"). For additional information regarding EBITDA as a non-GAAP financial measure, please see Note 10 to the accompanying data tables.
Included in second quarter 2008 EBITDA and net income was a $2.0 million ($1.3 million after-tax, or $0.05 per diluted share) gain on the May 2008 sale of the Cape Scott, a foreign-flagged conventional vessel that was acquired as part of the Sea Mar Fleet. Similarly, in the year-ago quarter, EBITDA and net income included a gain on the sale of assets of $1.9 million ($1.2 million after-tax, or $0.05 per diluted share) resulting from the April 2007 sale of the HOS Hotshot, the Company's only fast supply vessel.
OSV Segment. Revenues from the OSV segment were $79.0 million for the second quarter of 2008, an increase of 62.6% from $48.6 million for the same period in 2007. OSV operating income increased 43.7% to $38.8 million for the second quarter of 2008 from $27.0 million for the second quarter of 2007. The Company's OSV revenues and operating income increased due to the full-quarter contribution from 20 OSVs (the "Sea Mar Fleet") that were acquired in August 2007, and to a lesser extent, a market-driven increase in new generation OSV dayrates and a partial-quarter contribution from one new generation OSV that was delivered in May 2008 under the Company's fourth OSV newbuild program. Average new generation OSV dayrates for the second quarter of 2008 improved to $22,168 compared to $21,358 for the same period in 2007. New generation OSV utilization was 96.6% for the second quarter of 2008 compared to 96.7% during the same period in 2007. The increase in dayrates was primarily due to favorable market conditions for new generation OSVs in the deepwater and ultra-deepwater U.S. Gulf of Mexico ("GoM"). Effective, or utilization- adjusted, dayrates for the Company's conventional OSVs for the second quarter of 2008 were $8,300, or $3,400 higher than the first quarter of 2008. This 69% sequential increase in effective dayrates for these non-core assets was primarily due to stronger market conditions associated with the seasonal pick- up in offshore construction in the shallow water areas of the GoM, demonstrating the kind of volatility that is typical of the conventional OSV market.
TTB Segment. Revenues from the tug and tank barge ("TTB") segment of $25.5 million for the second quarter of 2008 decreased by $1.0 million, or 3.8%, compared to $26.5 million for the same period in 2007. The decrease in revenues was primarily the result of a softening in demand for the Company's single-hulled vessels, which the Company believes is primarily attributable to high petroleum product inventory levels resulting from weak consumer demand driven by record-high commodity prices. The decrease in revenues was partially offset by the full-quarter contribution from three newbuild double- hulled tank barges, the Energy 6506, Energy 6507 and 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 $22,449 for the second quarter of 2008, which was in-line with the same period in 2007. Utilization for the double-hulled tank barge fleet was 93.6% for the second quarter of 2008 compared to 99.2% for the same period in 2007, primarily due to a market-related shift in contract mix from time charters to contracts for affreightment ("COAs"). The Company's single-hulled tank barge average dayrates were $20,491 for the second quarter of 2008, an increase of $5,794, or 39.4%, from $14,697 for the same period in 2007. The increase in single-hulled tank barge average dayrates was due to a contract that the Company performed for upstream services in the GoM during the second quarter of 2008. Excluding the incremental impact of this upstream job, dayrates for single-hulled tank barges for the second quarter of 2008 would have been $16,303. Single-hulled tank barge utilization was 37.0% for the second quarter of 2008 compared to 86.7% for the same period in 2007. Recent soft market conditions for this type of equipment led to the Company's decision to stack four single-hulled vessels and one lower-horsepower tug on various dates during the second quarter of 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 the second half of 2008. Effective single-hulled tank barge utilization, which excludes the impact of stacked tank barges, was 50.2% for the three months ended June 30, 2008. As reported on June 6, 2008, the Company announced that it had retained J.P. Morgan Securities Inc. to act as its financial advisor in a thorough review of strategic alternatives for its downstream TTB business, which is now well underway.
General and Administrative (G&A). G&A expenses of $9.4 million for the second quarter of 2008 were 9.0% of revenues compared to $7.7 million, or 10.3% of revenues, for the second quarter of 2007. The Company's G&A expenses are in-line with the 2008 annual guidance range of 9% to 10% of revenues.
Depreciation and Amortization. Depreciation and amortization expense was $13.0 million for the second quarter of 2008, or $5.2 million higher than the second quarter of 2007. This increase was due to additional depreciation related to 27 vessels that were placed in service since June 2007 and, to a lesser extent, increased amortization of drydock costs related to accelerated drydockings. 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 and 60 month recertifications.
First Half 2008 Results
Revenues for the first six months of 2008 increased 41.1% to $202.0 million compared to $143.2 million for the same period in 2007. Operating income was $77.7 million, or 38.5% of revenues, for the first six months of 2008 compared to $60.3 million, or 42.1% of revenues, for the same period in 2007. Net income for the first six months of 2008 increased 21.0% to $48.5 million, or $1.79 per diluted share, compared to net income of $40.1 million, or $1.52 per diluted share, for the first six months of 2007. The Company's first-half 2008 results were positively impacted by the full-period contribution from 20 OSVs that were acquired in August 2007, as well as the market-driven increase in OSV dayrates, compared to the six months ended June 30, 2007. The Company's net income for the first six months of 2008 included a $2.0 million ($1.3 million after tax or $0.05 per share) gain on the sale of a foreign-flagged conventional vessel. In the first six 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. The Company reaffirms its EBITDA guidance for the full-year 2008 to range between $220.0 million and $240.0 million and is updating its diluted EPS guidance range solely to reflect current estimates of depreciation, amortization, net interest expense and income taxes. The Company's diluted EPS for fiscal 2008 is now expected to range between $3.72 and $4.20. The TTB segment is expected to contribute EBITDA in the range of 15% to 17% 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 be in the $21,000 to $23,000 range and fleetwide new generation OSV utilization is anticipated to average in the 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 $22,000 to $23,000 range. Double-hulled utilization is expected to dip into the mid to high-80% range for the remainder of the 2008 guidance period, due, in part, to an aggregate 132 out-of service days planned for the scheduled regulatory drydocking of four of the Company's nine double-hulled tank barges during the second half of 2008. Average dayrates for the Company's fleet of 12 single- hulled barges are expected to be in the $16,000 to $17,000 range with average utilization for such vessels in the 50% range for the second half of 2008. The effective utilization of the Company's active fleet of eight single-hulled barges for the remainder of 2008, after excluding the effect of four stacked vessels, is expected to be in the mid-70% to low-80% 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 fiscal 2008 for each segment to increase by 5% to 10% over fiscal 2007. Annual G&A expenses are expected to remain in the range of 9% to 10% 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 third quarter of 2008 are $2.3 million, $8.5 million, $4.4 million and $1.4 million, respectively. The Company's annual effective tax rate is expected to remain at 36.3% for 2008.
Capital Expenditures Outlook
Update on Maintenance Capital Expenditures. Please refer to the attached data table for a summary, by period, of historical and projected data for each of the following three major categories of maintenance capital expenditures: (i) deferred drydocking charges; (ii) other vessel capital improvements and (iii) non-vessel related capital expenditures. The Company expects total maintenance capital expenditures for fiscal 2008 to be approximately $71.7 million. Included in the 2008 projection of other vessel capital improvements is approximately $14.7 million 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 $22.6 million related to the recent expansion of and improvements to HOS Port.
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 are being constructed in foreign shipyards. The first converted DP-2 MPSV is expected to be delivered from the shipyard in the fourth quarter of 2008, while the second converted DP-2 MPSV is expected to be delivered in mid-2009. The first newbuild DP-3 MPSV is now on sea trials and is expected to be delivered from a foreign shipyard during the fourth quarter of 2008, while the second newbuild DP-3 MPSV is expected to be delivered during the fourth quarter of 2009. The Company's current EBITDA guidance assumes a total of four vessel-months of combined contribution from the two MPSVs that are expected to be delivered during 2008. 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 June 30, 2008, the Company has incurred $296.9 million, or 66.0%, of total expected project costs, including $43.1 million incurred during the second quarter of 2008.
Update on OSV Newbuild Program #4. During the second quarter of 2008, the Company negotiated to increase the size and/or capabilities of eight of the 16 vessels currently planned or under construction under its fourth OSV newbuild program, including the upgrade of two previously announced 250 EDF class OSVs into two new proprietary 290 class OSVs, one of which is already committed to a multi-year charter for well-stimulation service in the GoM. While the Company has not experienced any significant cost overruns on this program, it has increased the total project budget by approximately $87 million to reflect the recent change in vessel mix and additional customer-driven, revenue- generating mission equipment and/or design enhancements required by multi-year specialty service time charters already awarded to six other vessels in this program. Examples of incremental new vessel components include a 40-ton crane, a dynamically positioned offshore access system ("OAS"), a cable-reel system for deep-mooring support services and modular units for expanded crew accommodations. Examples of customer-required design-modifications include changes to ready certain vessels for ROV support and military specialty services. In addition, the increased project budget includes pre-positioning costs for mobilization of each military vessel to its initial on-charter location and demonstration testing associated with the on-charter exercise following shipyard delivery.
This newbuild program is now comprised of vessel construction at three domestic shipyards to build six 240 ED class OSVs, seven 250 EDF class OSVs and three 290 class OSVs, respectively. Twelve of these 16 new generation DP-2 OSVs have been awarded contracts prior to their shipyard delivery. The Company accepted delivery of the first two of the 240 ED class OSVs under this program, the HOS Polestar and the HOS Shooting Star, in May 2008 and July 2008, respectively. These vessels were immediately chartered to customers in Brazil and in the GoM. In addition, 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 commencing in the third quarter of 2008. The Company has secured long-term commitments ranging from two to ten years for nine of the remaining 13 vessels, which are expected to be delivered at a rate of about one to two per quarter through 2010. The Company's current guidance assumes an average number of new generation OSVs of 36.6 vessels in service for the full-year 2008. Based on internal estimates, the aggregate cost of this program is expected to be approximately $480.0 million. The Company believes that the 16 vessels built under this program will produce financial results commensurate with its targeted return on investment parameters. From the inception of this program through June 30, 2008, the Company has incurred $177.8 million, or 37.0%, of total expected project costs, including $53.7 million incurred during the second quarter of 2008.
Update on TTB Newbuild Program #2. The Company's second TTB newbuild 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 to be delivered under this program, the rebuilt ocean-going tug, Erie Service, was placed in service in July 2008. The aggregate cost of this now completed program is approximately $77.0 million.
Please refer to the attached data tables for a summary, by period, of historical and projected data for each of the contracted growth initiatives outlined above. All of the above capital costs and delivery date estimates for contracted growth initiatives 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.

Source: Hornbeck Offshore Services, Inc.