Hornbeck Offshore's first newbuild DP-3 MPSV, the HOS Achiever went to work at $100,000 a day
November 6, 2008
Hornbeck reports record OSV revenue
Covington, La., based Hornbeck Offshore Services, Inc. (NYSE: HOS) today announced third quarter results that included record quarterly OSV revenue, operating income, net income and EBITDA. It also said that a strategic review of its TTB (tug and tank barge) business had resulted in a decision to maintain the status quo. And it reaffirmed that it has "ample liquidity" for its 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.
HOS benefited from the incremental contribution of vessels acquired or newly constructed since June 2007 and continued favorable market conditions for its new generation OSV's. Third quarter figures also included a $6.4 million ($4.1 million after-tax)) gain on the sale of three conventional OSVs.
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. OSV revenues and operating income increased due to the full-quarter contribution from 20 OSV's acquired in August 2007, a market-driven increase in new generation OSV dayrates and a full and partial-quarter contribution from two new generation OSV's delivered in May 2008 and July 2008.
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 reflected stronger market conditions resulting from increased repair and reconstruction activity in the U.S. Gulf following Hurricanes Gustav and Ike.
Tug and Tank Barge
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, primarily as a result of continued soft demand for the company's single-hulled vessels. The decrease was partially offset by the full-quarter contribution from three double-hulled tank barge newbuilds, placed in service 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. 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.
Soft market conditions led the company to stack 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.
HOS 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. HOS says it will proceed with business as usual for this segment with an emphasis on managing costs and maximizing effective dayrates.
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.
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 12 single-hulled barges are expected to be in the $15,000 to $17,000 range with average utilization 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.
Capital Expenditures Outlook
HOS 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, HOS 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 No. 4.
During the second quarter of 2008, HOS 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 said that it would be unable to meet the customer's required delivery schedule. HOS has therefore reverted to building nine 250 EDF class vessels and reduced its overall project budget for this program by $30.0 million.
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 projected vessel in-service dates, HOS 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 fourth OSV newbuild program is now expected to be approximately $450.0 million. From the inception of this program through September 30, 2008, tHOS 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 No. 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 second TTB newbuild program, before construction period interest, was approximately $77.9 million.
HOS 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. 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.