Hornbeck Offshore Services, Inc. announced its results for the fourth quarter and year ended December 31, 2004. Fourth quarter revenues increased 29.5% to $37.8 million compared to $29.2 million for the fourth quarter of 2003. The $8.6 million increase was primarily driven by improved OSV market conditions in the U.S. Gulf of Mexico and continued tightening in the supply of single-hulled equipment in the northeast U.S. as a result of fourth quarter retirements mandated by the Oil Pollution Act of 1990 (OPA 90).
Operating income was $10.2 million, or 27.0% of revenues, for the fourth quarter of 2004 compared to $8.4 million, or 28.8% of revenues, for the same quarter in 2003. Higher dayrates and utilization in both segments contributed to an increase in EBITDA to $16.7 million, or 22.8% over the fourth quarter of 2003, and near the high-end of the Company's upwardly revised guidance range of $15.5 to $17.0 million for the fourth quarter of 2004.
For additional information regarding EBITDA, please see more discussion on this subject later in this release.
The Company recorded a $10.1 million loss, or $0.48 loss per share, in the fourth quarter 2004 which included a $22.4 million ($14.7 million after-tax) charge for the early extinguishment of debt. This charge was incurred in connection with the refinancing of the Company's 10.625% senior notes due 2008 with new 6.125% senior notes due 2014.
Excluding this $0.70 per share charge, net income for the fourth quarter of 2004 was $4.7 million, or $0.22 earnings per diluted share. This compares to net income of $2.1 million, or $0.14 per diluted share, for the fourth quarter of 2003. The average number of basic shares outstanding increased 43.4% to 20.8 million in the fourth quarter of 2004 from 14.5 million in the fourth quarter of 2003, primarily as a result of the Company's March 2004 initial public stock offering. For additional information regarding a reconciliation of net income and EPS before and after bond refinancing charges, please see the table at the end of this release.
Todd Hornbeck, the Company's President and CEO, stated, "We are very pleased that we were able to continue the trend of exceeding our own expectations in all key performance measures in our first year as a publicly traded company. A major contributor to this success was our ability to move our utilization-adjusted, or effective, OSV dayrate up nearly 50% since the market trough in April 2004.
"Since May 2004, oil companies have
increased their emphasis on replacing reserves through the drill bit and are devoting significant capital to deepwater, ultra-deepwater and deep-shelf oilfield projects. In the fourth quarter, our OSV segment continued to capitalize on this market recovery as we maintained near full utilization while further increasing fleet average dayrates by roughly $800 over the third quarter. We were also pleased with the performance of our tug and tank barge segment, which finished the year stronger than expected due to improving supply-demand fundamentals related to OPA 90."
OSV Segment. Revenues from the OSV segment were $22.2 million for the fourth quarter of 2004, an increase of 28.3% from $17.3 million for the same period in 2003. The net increase in segment revenues is due to the quarter- over-quarter increase in average dayrates and utilization rates.
Hornbeck's utilization rate was 94.3% for the three months ended December 31, 2004, which was higher than the 85.5% achieved for the same period of 2003. The average OSV dayrate in the fourth quarter of 2004 was $10,926 compared to $9,769 for the same period of 2003. On a sequential basis, fourth quarter 2004 average fleet utilization increased slightly from 93.2%, while average dayrates improved 8.2%, or $830 per day, over the third quarter of 2004. Slightly offsetting the improved market conditions was an increase in segment costs stemming primarily from discretionary vessel maintenance, higher insurance costs and higher than expected general and administrative (G&A) expenses. The net result was a modest improvement in sequential quarterly operating income to $7.8 million from $7.7 million.
Tug and Tank Barge Segment. Tug and tank barge (TTB) segment revenues for the fourth quarter of 2004 were up 30.0% over the same period in 2003 to $15.6 million, and operating income increased by $0.5 million to $2.4 million. Utilization in the tug and tank barge segment increased to 82.1% from 76.1% in last year's fourth quarter and average dayrates grew to $12,642 from $10,537 during the same period. While the fourth quarter 2004 operating margin of 15.5% was down slightly from 16.2% for the same period last year, it was up sequentially from 12.1% in the third quarter of 2004.
Revenues for 2004 increased 19.4% to $132.3 million compared to $110.8 million for 2003, primarily as a result of an increase in the average size the OSV fleet by 5.5 vessels. Operating income was $35.8 million, or 27.1% of revenues, for 2004 compared to $35.7 million, or 32.2% of revenues, for 2003. EBITDA for 2004 grew to $59.5 million, or 9.8% over EBITDA of $54.2 million for 2003. The net loss for 2004 was $2.5 million, or $0.13 loss per share, which included the $22.4 million ($14.7 million after-tax) charge for the early extinguishment of debt. Excluding this $0.75 per share charge, net income for 2004 was $12.2 million, or $0.62 earnings per diluted share. This compares to net income of $11.2 million, or $0.82 per diluted share, for 2003. The average number of basic shares outstanding during 2004 increased 44.0% to 19.3 million from 13.4 million 2003, primarily as a result of the Company's initial public stock offering.
Construction Program Update
Hornbeck continued, "With another round of industry OPA 90 retirements this past quarter, we removed three of our single-hulled barges from service at the end of December as required. To replace these vessels and expand our fleet capacity, we have contracted with shipyards for the construction of five new double-hull tank barges. The first two new barge
s of this program were expected to be delivered in December of last year, just in time to replace the capacity of the retiring barges.
"Last quarter we reported that the construction of the first two barges under our current newbuild program
had been delayed by their respective shipyards to between February and April of 2005. The shipyards are now indicating, however, that the delivery dates may be further delayed and we currently expect to receive one in April and the other in June. The impact of these revised delivery dates has been included in our 2005 guidance provided below. Under the shipyard contracts, we expect to receive liquidated damages for these delays, which will result in a favorable adjustment to the capital cost of the vessels. Based on current shipyard schedules, we still expect to take delivery of the remaining three tank barges near the end of 2005, as originally planned."
Bond Refinancing. On January 14, 2005, Hornbeck Offshore redeemed the remaining balance of $15.5 million in aggregate principal amount of its 10.625% senior notes due 2008. The redemption was funded with proceeds raised in the Company's November 2004 issuance of $225 million in aggregate principal amount of 6.125% senior notes due 2014. As a result, the Company expects to record an additional after-tax loss on early extinguishment of debt of approximately $1.1 million, or $0.05 per diluted share, during the first quarter 2005
On February 7, 2005, the Company commenced an exchange offer whereby
the 6.125% Series A senior notes due 2014, would be exchanged for 6.125% Series B senior notes with substantially similar terms, the offering of which was publicly registered. The exchange offer is expected to be completed in March 2005.
Jim Harp, the Company's Executive Vice President and CFO, stated, "We believe that the pricing of our recent bond refinancing represents the lowest coupon (6.125%) and lowest Treasury spread (T+198 bps) in the history of oil service 'high yield' transactions. As a result, we expect our annualized interest expense, before allocation of construction period interest, to decrease by over $5 million even though our long-term debt has increased by $50 million. This bond refinancing lowered the effective interest rate on our senior notes from 11.2% to 6.4% and extended their maturity by six years. The full benefit of this refinancing will be realized upon the deployment of the approximately $25 million of excess proceeds raised, after deal costs."
Vessel Acquisition. On January 19, 2005 the Company acquired a new generation 240' class, 8,000 brake horsepower, anchor-handling towing supply (AHTS) vessel from a private owner. This vessel, which will be renamed the HOS Saylor, is Hornbeck's first foreign-flagged vessel. Upon acquisition, Hornbeck immediately deployed the vessel under a new three-year time charter with one of its OSV customers in Trinidad.
Hornbeck added, "This strategic vessel acquisition complements our growing market presence in Trinidad. While this vessel has anchor-handling capabilities, we are currently using it primarily as a supply vessel and for towing jackup rigs."
The following statements are based on Hornbeck's current expectations. These statements are forward-looking and actual results may differ materially. These statements do not include the potential impact of any future capital transactions, such as business combinations, divestitures, financings, unannounced newbuilds or vessel acquisitions that may be completed after the date of this news release.
All of the net income and diluted earnings per share guidance ranges contained in this press release are before any non-recurring or special charges, such as the loss on early extinguishment of debt and any expense that will be required to be recorded for stock-based compensation as a result of new accounting rules that will become effective July 2005. The Company is currently evaluating the non-cash financial impact of expensing stock options and will disclose the results in a future press release.
In addition, the Company's guidance ranges are based on the assumption that current market conditions in both of the Company's business segments will last through at least 2006. Any material change in market conditions in either of the Company's two business segments could affect its guidance.
Harp added, "We are extending our guidance to include 2006 since 2005 is such a transitional year in our tug and tank barge fleet with three barges having recently been retired and five barges being constructed for expected delivery at various dates throughout 2005 beginning in the second quarter. This expanded guidance is being presented in our continuing effort to provide investors greater transparency into our near-term outlook."
First Quarter 2005 Guidance. The Company expects EBITDA for the first quarter of 2005 to range between $15.0 million and $16.5 million. As EBITDA is a non-GAAP financial measure, the reconciliation to net income for these figures can be found in the table below. Based on that reconciliation, diluted earnings per share guidance for the first quarter of 2005 is expected to range between $0.17 and $0.21.
Calendar 2005 Guidance. The Company expects total EBITDA for the full year 2005 to range between $70 million and $75 million and diluted earnings per share is expected to range between $0.87 and $1.01.
Calendar 2006 Guidance. The Company expects total EBITDA for the full year 2006 to range between $85 million and $95 million and diluted earnings per share is expected to range between $1.15 and $1.44.