Hornbeck Offshore Services, Inc. announced its results for the third quarter ended September 30, 2004.
Third quarter revenues increased 16.7% to $32.9 million compared to $28.2 million for the third quarter of 2003.
Of the $4.7 million increase, $1.0 million was due to an increase in the average number of vessels in the Company's offshore supply vessel ("OSV") fleet from 19.9 in the third quarter 2003 to 23 in the third quarter of 2004, and $3.7 million was due to an increase in demand for the Company's vessels.
Operating income was $9.2 million, or 28.0% of revenues, for the third quarter of 2004 compared to $8.3 million, or 29.3% of revenues, for the same quarter in 2003. Higher than expected OSV dayrates and utilization contributed to an increase in EBITDA to $15.4 million, or 17.7% over the third quarter of 2003, above Hornbeck's guidance range of $13.0 to $14.5 million. For additional information regarding EBITDA, please see more discussion on this subject later in this release.
Third quarter 2004 net income grew 50% to $3.3 million, or $0.15 per diluted share, well above the Company's diluted EPS guidance range of $0.06 to $0.11. This compares to net income of $2.2 million, or $0.15 per diluted share, for the third quarter of 2003. The average number of diluted shares outstanding increased 46% to 21.4 million in the third quarter of 2004 from 14.7 million in the third quarter of 2003, primarily as a result of the Company's March 2004 initial public stock offering
Todd Hornbeck, the Company's President and CEO, stated, "Throughout the third quarter we have seen consistent strengthening in our OSV segment. As our customers devote increasingly more capital to drilling opportunities in the Gulf of Mexico, we are seeing demand for our new generation OSVs starting to outpace supply, which has led to full practical utilization and higher dayrates."
OSV Segment. Revenues from the OSV segment were $20.2 million for the third quarter of 2004, an increase of 16.1% from $17.4 million for the same period in 2003. The net increase in segment revenues is due to the quarter-over-quarter average increase of three OSVs. Hornbeck's utilization rate was 93.2% for the three months ended September 30, 2004, which was higher than the 88.7% achieved in the same period of 2003. The average OSV dayrate in the third quarter of 2004 was $10,096 compared to $10,411 in the same period of 2003, primarily due to a portfolio mix change in the average vessel size following the acquisition of six 220' class OSVs in mid-2003. On a sequential basis, third quarter 2004 business trends showed solid improvement with average fleet utilization increasing 9.4%, from 83.8% to 93.2%, with average dayrates improving 4.7%, or $454 per day, over the second quarter of 2004.
Tug and Tank Barge Segment.
Tug and tank barge segment revenues for the third quarter of 2004 were up 16.6% over the same period in 2003 to $12.7 million, although operating income declined by $0.2 million to $1.5 million. The third quarter 2004 operating margin of 12.1% was flat with the sequential quarter, and down from 15.9% in the year-ago quarter, primarily due to increased costs related to insurance, training, repair and maintenance, and drydocking amortization expense related to vessels recertified during the trailing twelve months. Utilization in the tug and tank barge segment increased to 76.0% from 67.7% in last year's third quarter and average dayrates grew from $10,788 to $11,151 during the same period. This was primarily driven by a boost in gasoline and diesel movements required to restock unusually low inventory levels in the northeastern U.S., which had been depleted by the summer driving season.
Hornbeck added, "We have begun to see some reduction in tank barge capacity in the northeast as OPA 90 gets ready to take effect and vessels that are scheduled to retire at the end of the year leave the market early to avoid recertification costs. In addition, we plan to accelerate the drydocking of one tug and one tank barge between now and the end of the year to position these vessels for the busier winter season."
Year To Date Results
Revenues for the first nine months of 2004 increased 15.8% to $94.5 million compared to $81.6 million for the third quarter of 2003. Operating income was $25.7 million, or 27.2% of revenues, for the nine months of 2004 compared to $27.3 million, or 33.4% of revenues, for the same period in 2003. Net income for the first nine months of 2004 was $7.6 million, or $0.39 per diluted share, compared to net income of $9.1 million, or $0.69 per diluted share, for the first nine months of 2003. The average number of diluted shares outstanding during the first nine months of 2004 increased 47% to 19.4 million from 13.2 million in the first nine months of 2003, primarily as a result of the Company's recent initial public stock offering.
Construction Program Update
Hornbeck continued, "In November 2003, we commenced our fourth new vessel construction program, the first such program for our tug and tank barge segment. Since then, we have contracted with shipyards for the construction of five double-hulled tank barges. These vessels are being built based on a proprietary design developed by our in-house engineering team. In June 2004, we purchased and retrofitted two ocean-going tugs to complement the vessels under construction. These two tugs will be placed into service during the fourth quarter. The primary purpose of our tank barge newbuild and retrofit program is to address our need to replace three of our existing single-hulled tank barges that are required under OPA 90 to be retired from service prior to January 1, 2005. Prior to the allocation of construction period interest, we expect to incur construction, acquisition and retrofit costs of approximately $105 million for the five tank barges and two tugs, of which about $35 million has been incurred through September 30, 2004.
We expect to incur the remaining balance of $70 million as follows: $24 million during the fourth quarter of 2004 and $46 million in 2005. The timing of the incurrence of these costs is subject to change among periods based on the achievement of shipyard milestones. However, the amounts are not expected to change materially in the aggregate. Not included in these figures are the costs of one or two additional higher horsepower tugs that we anticipate possibly purchasing sometime between now and the end of 2005.
"Our first two announced double-hulled tank barges that were scheduled to be delivered by the end of 2004 are now expected to be in service between February and April 2005. Our contractual liquidated damages under the shipyard contracts for these two vessels are expected to allow us to receive a reduction in the cost of the vessels. However, we anticipate that this short- term reduction in planned tank barge capacity, coupled with year-end OPA 90 retirements, could put additional pressure on supply during already seasonally high market demands. We expect to take delivery of the remaining three tank barges near the end of 2005."