May 1, 2008
Hornbeck Offshore Services reports strong first quarter
Soaring day rates for new generation OSVs helped Hornbeck Offshore Services, Inc. (NYSE: HOS) report results for the first quarter ended March 31, 2008 that included a 43.2% increase in revenues to $97.5 million compared to $68.1 million for the first quarter of 2007.
Operating income was $37.0 million, or 37.9% of revenues, for the first quarter of 2008 compared to $26.3 million, or 38.6% of revenues, for the prior-year quarter.
Net income for the first quarter of 2008 was $23.1 million, or $0.86 per diluted share, compared to $17.5 million, or $0.67 per diluted share in the year-ago quarter.
EBITDA for the first quarter of 2008 was $49.2 million compared to first quarter 2007 EBITDA of $33.5 million.
Hornbeck says the primary reasons for the increase in revenues, operating income, net income and EBITDA were the incremental contribution of vessels acquired or newly constructed and favorable market conditions for its new generation offshore supply vessels.
OSV Segment. Revenues from the OSV segment were $67.5 million for the first quarter of 2008, an increase of 64.2% from $41.1 million for the same period in 2007. OSV operating income increased 58.5% to $29.0 million for the first quarter of 2008 from $18.3 million for the first quarter of 2007. The company's OSV revenues and operating income increased primarily due to the full-quarter contribution from 20 OSVs (the "Sea Mar Fleet") that were acquired in August 2007 and a market-driven increase in new generation OSV effective dayrates of approximately $2,000.
Average new generation OSV dayrates for the first quarter of 2008 improved 10.2%, or $1,947 per day, to $21,020 compared to $19,073 for the same period in 2007. New generation OSV utilization was 92.1% for the first quarter of 2008 compared to 91.5% during the same period in 2007. This increase in dayrates and utilization was primarily due to favorable market conditions for new generation OSVs in the deepwater and ultra-deepwater U.S. Gulf of Mexico ("GoM").
By contrast, effective dayrates for the company's ten conventional vessels for the first quarter of 2008 were approximately $4,900, or $1,400 less than the fourth quarter of 2007. This sequential decrease in effective dayrates for these non-core assets was primarily due to soft winter market conditions for conventional OSVs on the continental shelf of the GoM. However, effective dayrates for these vessels have already rebounded, averaging $2,600 higher than first quarter 2008 levels for the month of April 2008, displaying the kind of volatility that is typical of the conventional OSV market.
TTB Segment. Revenues from the tug and tank barge ("TTB") segment of $30.1 million for the first quarter of 2008 increased by $3.2 million, or 11.9%, compared to $26.9 million for the same period in 2007. This revenue increase was primarily the result of full and partial-quarter contributions from three newbuild double-hulled tank barges, the Energy 6506, Energy 6507 and the Energy 6508, which were placed into service in August 2007, November 2007 and March 2008, respectively. Average TTB dayrates rose $1,379 to $19,059 from $17,680 in the first quarter of 2007. This increase in average dayrates was primarily due to higher market dayrates on certain TTB equipment working in upstream services in the GoM. Utilization in the TTB segment for the first quarter of 2008 was 85.6% compared to 94.2% in the prior-year quarter. Operating income for the first quarter of 2008 was $7.9 million, or 26.2% of revenues, compared to operating income for the first quarter of 2007 of $8.0 million, or 29.7% of revenues.
The primary driver for this decrease in fleet utilization and TTB operating margin relates to overall softening in the Northeast U.S. transportation market, which the company believes has resulted from high inventory levels, high crude oil prices and a warmer than normal winter in the Northeast U.S.
General and Administrative (G&A). G&A expenses of $8.6 million for the first quarter of 2008 were 8.8% of revenues compared to $7.4 million, or 10.9% of revenues, for the first quarter of 2007. The company's G&A expenses are in-line with the previously reported guidance range of 9% to 10% of revenues.
Depreciation and Amortization. Depreciation and amortization expense was $12.2 million for the first quarter of 2008, or $5.0 million higher than the first quarter of 2007. This increase was due to additional depreciation related to 26 vessels that were placed in service since March 2007 and, to a lesser extent, increased amortization of drydock costs related to accelerated drydockings. Depreciation and amortization expense is expected to increase from current levels when 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.
Annual 2008 Guidance. The company reaffirms its EBITDA guidance for the full-year 2008 to range between $220.0 million and $240.0 million with diluted EPS expected to range between $3.68 and $4.16. However, the TTB segment is now expected to generate EBITDA in the range of 17% to 20% of the mid-point of the company-wide 2008 guidance range.
Key Assumptions. The company's forward earnings guidance assumes that current OSV and TTB market conditions remain constant. Fleetwide average new generation OSV dayrates are anticipated to be in the $19,000 to $21,000 range and fleetwide new generation OSV utilization is anticipated to average in the 90% range during the 2008 guidance period. Fleetwide average TTB dayrates are generally anticipated to be in the $16,000 to $18,000 range and fleetwide TTB utilization is now anticipated to be in the low-70% to mid-80% range for the remainder of the 2008 guidance period, due to soft market conditions in that segment.
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 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 remain in the range of 9% to 10% of revenues for 2008. The projected FAS 123R stock-based compensation expense, depreciation, amortization and interest expense, net, that underpin the company's guidance for the full-year 2008 are included in the attached data tables. Projected FAS 123R stock-based compensation expense, depreciation, amortization and interest expense, net, for the second quarter of 2008 are $2.7 million, $8.0 million, $4.3 million and $1.1 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. The company expects total maintenance capital expenditures for the full-year 2008 to be approximately $71.7 million, which includes approximately $25.9 million of non-vessel related capital expenditures primarily 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 a domestic shipyard 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 third quarter of 2008, while the second converted DP-2 MPSV is expected to be delivered in early 2009. The first newbuild DP-3 MPSV 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 eight 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 March 31, 2008, the company has incurred $253.8 million, or 56.4%, of total expected project costs, including $107.9 million incurred during the first quarter of 2008.
Update on OSV Newbuild Program No. 4. The company's fourth OSV newbuild program consists of vessel construction contracts with three domestic shipyards to build six proprietary 240 ED class OSVs, nine proprietary 250 EDF class OSVs and one 285 class new generation OSV. The first of the 240ED class DP-2 vessels, the HOS Polestar, is expected to commence its first charter in early May for a customer in Brazil. The first of the 250EDF class vessels was delivered early to undergo conversion for ROV support services under a multi-year charter commencing in the third quarter of 2008. The remaining vessels are expected to be delivered at a rate of about one per quarter through 2010. The company's current guidance assumes an average number of new generation OSVs of approximately 37 vessels in service for the full-year 2008. Based on internal estimates, the aggregate cost of this program is expected to be approximately $393.0 million. From the inception of this program through March 31, 2008, the company has incurred $128.8 million, or 32.8%, of total expected project costs, including $35.2 million incurred during the first quarter of 2008.
Update on TTB Newbuild Program No. 2. The company's second TTB newbuild program consists 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 company has already delivered the three newbuild double-hulled tank barges, the Energy 6506, Energy 6507 and Energy 6508, and the first three retrofitted ocean-going tugs, the Michigan Service, Huron Service and Superior Service, on various dates throughout the latter half of 2007 and the first quarter of 2008. The final retrofitted ocean-going tug, Erie Service, is expected to be delivered during the second quarter of 2008. Based on internal estimates, the aggregate cost of this program is expected to be approximately $77.0 million. From the inception of this program through March 31, 2008, the company has incurred $72.8 million, or 94.5%, of total expected project costs, including $3.8 million incurred during the first quarter of 2008.