Hornbeck Offshore Q4 2009 Results
Hornbeck Offshore Services, Inc. (NYSE:HOS) announced results for the fourth quarter ended December 31, 2009. Following are highlights for this period and the Company's future outlook:
-- Company initiates 2010 EBITDA and earnings guidance
-- Contract backlog for new generation OSV vessel-days at 56% for 2010, up from 40% as of 3Q 2009
-- Vessel-stacking and fleet rationalization strategy saves $32.1 million in 2009 cash operating expenses
-- Cost-cutting initiatives contribute to lowering G&A to 8.5% of 4Q 2009 revenues, below guidance of 9% to 10%
-- Eight new gen OSVs set to mobilize to Latin America in 1H 2010 to commence multi-year charters
-- Two DP-2 new gen OSVs were placed in service during early 1Q 2010 under fourth OSV newbuild program
-- Only two DP-2 new gen OSVs remain under fourth OSV newbuild program to be placed in service during 2010
-- DP-2 HOS Strongline, the fourth and final vessel under MPSV program to be placed in service in March 2010
Fourth quarter 2009 revenues decreased 27.0% to $88.3 million compared to $121.0 million for the fourth quarter of 2008 and decreased 2.0% compared to $90.1 million for the third quarter of 2009. Operating income was $24.2 million, or 27.4% of revenues, for the fourth quarter of 2009 compared to $56.5 million, or 46.7% of revenues, for the prior-year quarter; and $27.1 million, or 30.1% of revenues, for the third quarter of 2009. Net income for the fourth quarter of 2009 was $9.3 million, or $0.34 per diluted share, compared to $34.6 million, or $1.29 per diluted share for the year-ago quarter; and $13.8 million, or $0.51 per diluted share for the third quarter of 2009. EBITDA for the fourth quarter of 2009 was $41.2 million compared to fourth quarter 2008 EBITDA of $70.5 million and third quarter 2009 EBITDA of $43.6 million. The year-over-year decrease in revenues, operating income and EBITDA was primarily due to a substantial decline in fleetwide average dayrates and utilization for both of the Company's segments. Included in fourth quarter 2009 results was a $0.8 million ($0.5 million after-tax, or $0.02 per diluted share) gain on the sale of six single-hulled tank barges for net cash proceeds of $3.5 million. For additional information regarding EBITDA as a non-GAAP financial measure, please see Note 10 to the accompanying data tables.
Upstream Segment. Revenues from the Upstream segment were $78.7 million for the fourth quarter of 2009, a decrease of $21.2 million, or 21.2%, from $99.9 million for the same period in 2008 and an increase of $5.0 million, or 6.8%, over $73.7 million for the third quarter of 2009. The vessels placed in service since the fourth quarter of 2008 under the company's ongoing newbuild and conversion programs accounted for an $18.4 million year-over-year increase in Upstream revenues. These incremental revenues were offset by a $34.4 million year-over-year decrease in revenue from lower effective dayrates for the Company's new generation offshore supply vessels (OSVs) that were in service since September 30, 2008. In addition, the Company experienced a $5.2 million decrease in revenue from the Company's non-core conventional OSVs that were in service during the quarter ended December 31, 2008, but which were either stacked or sold on various dates since then. Continued soft OSV market conditions in the U.S. Gulf of Mexico ("GoM") contributed to Upstream operating income decreasing 48.3% to $27.5 million, or 35.0% of revenues, for the fourth quarter of 2009 from $53.2 million, or 53.2% of revenues, for the fourth quarter of 2008. Excluding roughly $4.0 million of revenue recognized during the fourth quarter of 2009 related to the final settlement of the Superior Offshore litigation in December, the company's Upstream revenue and operating margin was in-line with the third quarter of 2009. The weak demand for new generation OSVs led to the company's decision to stack ten of these OSVs on various dates since May 2009. In December 2009, two of the previously stacked 200 class vessels were returned to active status and mobilized to Latin America for a long-term contract. Average new generation OSV dayrates for the fourth quarter of 2009 declined to $19,880 compared to $24,385 for the same period in 2008 and $20,915 for the third quarter of 2009. New generation OSV utilization was 73.1% for the fourth quarter of 2009 compared to 96.4% for the same period in 2008 and 71.9% in the third quarter of 2009. Effective new generation OSV utilization for the Company's active fleet, which excludes the impact of stacked vessels, was 89.2% for the fourth quarter of 2009 compared to 83.2% for the third quarter of 2009.
Downstream Segment. Revenues from the Downstream segment of $9.6 million for the fourth quarter of 2009 decreased by $11.5 million, or 54.5%, compared to $21.1 million for the same period in 2008. Downstream revenues were unfavorably impacted by continued lower demand for the company's ocean-going tug and tank barge (TTB) equipment, which was primarily driven by soft market conditions. These conditions resulted in the stacking of all of the company's single-hulled tank barges on various dates since the second quarter of 2008. The company's double-hulled tank barge average dayrates were $16,210 for the fourth quarter of 2009 compared to $20,157 for the same period in 2008. Utilization for the double-hulled tank barge fleet was 71.5% for the fourth quarter of 2009 compared to 75.6% for the same period in 2008. The decrease in the company's double-hulled tank barge utilization was the result of the continued decline in market demand for double-hulled equipment, particularly black-oil barges, driven by the current economic slowdown. The supply-demand imbalance was further affected by the industry's delivery of approximately 1.1 million barrels of newbuild double-hulled tank barge capacity during 2009.
General and Administrative (G&A). G&A expenses of $7.5 million for the fourth quarter of 2009 were 8.5% of revenues compared to $10.4 million, or 8.6% of revenues, for the fourth quarter of 2008. Due to proactive cost-cutting measures and despite lower revenues, fourth quarter G&A expense margin was at the low end of the company's 2009 annual guidance range of 8% to 10% of revenues. The Company allocated 84% of its fourth quarter G&A expenses to the Upstream segment and 16% to the Downstream segment.
Depreciation and Amortization. Depreciation and amortization expense was $17.4 million for the fourth quarter of 2009, or $3.4 million higher than the fourth quarter of 2008. This increase was due to the incremental depreciation related to the full- or partial-quarter contribution from eight new generation OSVs and two MPSVs that were placed in service since the fourth quarter of 2008, partially offset by the reduction in depreciation and amortization following the sale of seven conventional OSVs, six single-hulled tank barges and one older, lower-horsepower tug on various dates during 2008 and 2009. 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-month and 60-month recertifications.
Interest Expense. Interest expense increased $5.5 million during the three months ended December 31, 2009 compared to the same period in 2008. The increase in interest expense is primarily attributable to a decrease in capitalized interest costs and additional interest costs related to the Company's new $250.0 million of 8.000% senior notes due 2017 issued in August 2009. The Company capitalized construction period interest of $23.8 million for 2009, which represents roughly 53% of its total interest costs for the year. With its newbuild and conversion programs scheduled to be completed during 2010, the Company expects to capitalize construction period interest of only 6%, or $3.3 million, of its total interest costs for 2010.
Annual 2009 Results
Revenues for 2009 decreased 10.7% to $385.9 million compared to $432.1 million for 2008. Operating income was $101.7 million, or 26.4% of revenues, for 2009 compared to $186.8 million, or 43.2% of revenues, for 2008. Net income for 2009 decreased 56.5% to $50.4 million, or $1.87 per diluted share, compared to net income of $115.8 million, or $4.29 per diluted share, for 2008. EBITDA for 2009 was $194.5 million compared to 2008 EBITDA of $239.0 million. Excluding the second quarter 2009 Downstream non-cash impairment charges of $26.7 million, or $0.62 per diluted share, operating income, operating margin, net income and diluted EPS for 2009 were $128.4 million, 33.3%, $67.1 million and $2.49 per share, respectively. The decrease in revenues compared to the prior-year period is due to a market-driven decline in effective dayrates for vessels that were operating during both 2008 and 2009, partially offset by the incremental contribution of vessels added to the company's fleet since the fourth quarter of 2008. The company has been able to mitigate the impact of lower revenues by cutting or deferring costs resulting in year-over-year operating expense savings of $45.3 million. These cost savings have been generated principally through headcount reductions achieved by stacking under-utilized vessels and selling certain non-core vessels, among other measures. The company's operating income, EBITDA and net income for 2009 included a $1.1 million ($0.7 million after-tax, or $0.03 per diluted share) gain on the sale of six single-hulled tank barges, one older, lower-horsepower tug and three conventional OSVs. In 2008, the Company's operating income, EBITDA and net income included a gain on the sale of four conventional OSVs of $8.4 million ($5.4 million after-tax, or $0.20 per diluted share).
Accounting for Convertible Senior Notes. In accordance with the required change in method of accounting for convertible debt instruments issued by the Financial Accounting Standards Board, effective January 1, 2009, the company recorded incremental non-cash original issue discount (OID) interest expense, net of capitalized interest, of $1.5 million for the fourth quarter of 2009, or $0.03 per diluted share, and recorded $4.5 million, or $0.10 per diluted share, of such interest for the full-year 2009. In addition, this new accounting treatment required a retrospective application to the company's historical financial results, including long-term debt and stockholders' equity. For the three-month and twelve-month periods ended December 31, 2008, incremental non-cash OID interest expense, net of capitalized interest, was $0.7 million, or $0.02 per diluted share, and $2.0 million, or $0.05 per diluted share, respectively, for each such period.
Favorable Settlement of Superior Offshore Bankruptcy Litigation. In December 2009, the company resolved outstanding litigation pending in the Superior Offshore bankruptcy case. As a result of the settlement, the company achieved a recovery of 92.3% of its total claims, which resulted in the collection of an incremental $7.9 million in cash from the bankruptcy estate and incremental revenue recognition of $4.0 million in December.
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.
Annual 2010 Guidance. The company expects total EBITDA for fiscal 2010 to range between $160.0 million and $200.0 million and expects full-year diluted EPS for fiscal 2010 to range between $0.58 and $1.50. Excluding incremental non-cash OID interest expense related to the Company's convertible senior notes, adjusted EPS for fiscal 2010 is expected to range between $0.81 and $1.73.
Pro Forma Run-Rate Guidance. The two pro forma run-rate illustrations provided in the attached data tables, and further described in Note 11, are intended to demonstrate the hypothetical earnings power of the Company's full-fleet complement under different market conditions and do not reflect actual or projected results for any period.
Key Assumptions. The company's forward earnings guidance, outlined above and in the attached data tables, assumes a continuation throughout 2010 of market conditions that prevailed during the second half of 2009 for each of the Company's business segments.
The company's full-year 2010 Upstream guidance includes a partial-year contribution from additional vessels to be delivered under its MPSV program and its fourth OSV newbuild program in accordance with the estimated newbuild delivery expectations discussed below and gives effect to eight new generation OSVs and three conventional OSVs being stacked throughout 2010. The company expects to own 51 new generation OSVs as of December 31, 2010. The vessel additions under the fourth OSV newbuild program should result in a projected average new generation OSV fleet complement of 49.9 vessels for the fiscal year 2010, which includes eight stacked vessels. Accordingly, the company's active fleet of new generation OSVs, which averaged 39.2 vessels for 2009, is expected to average 41.9 vessels for 2010.
Fleetwide average new generation OSV dayrates are anticipated to be in the $18,000 to $20,000 range and fleetwide new generation OSV utilization for the 49.9-vessel fleet is anticipated to average in the low to mid-70% range during the 2010 guidance period. This average utilization estimate allows for approximately 440 days of aggregate downtime related to customer-required modifications and pre-positioning of the eight vessels expected to mobilize to Latin America during the first half of 2010 for multi-year charters.
With the DP-2 HOS Strongline expected to be placed in service in early-March 2010, the company plans to own and operate an average MPSV fleet complement of 3.8 vessels in the spot market for the fiscal year 2010. However, the DP-3 HOS Achiever is expected to incur roughly 110 days out-of-service during the first half of 2010 for the installation of a 100-ton crane, reducing the effective fleet complement for the year to 3.5 vessel-equivalents, up from 1.8 vessels in 2009. Based on the Company's current spot dayrate and utilization assumptions for its four MPSVs, these vessels are expected to produce EBITDA in the range of 20% to 30% of the mid-point of the company-wide fiscal 2010 guidance range compared to approximately 15% of the Company's actual EBITDA for fiscal 2009.
The 2010 Downstream guidance reflects an operating fleet comprised solely of nine double-hulled tank barges and ten ocean-going tugs for the fiscal year 2010. These vessels are projected to contribute EBITDA in the range of 3% to 6% of the mid-point of the company-wide fiscal 2010 guidance range compared to approximately 8% of the company's actual EBITDA for fiscal 2009.
The company expects that cash operating expenses per OSV vessel-day in fiscal 2010 will be in-line with fiscal 2009 levels for vessels that were in service for each of the past two years, excluding contract-related costs recoverable through higher dayrates or other revenue. The company has mitigated the adverse impact of revenue decreases on its operating margins by stacking under-utilized vessels, which has resulted in significant additional operating cost savings and lowered the company's operating risk profile. The Company will consider stacking additional vessels in each of its operating segments during 2010, if necessary, to deter further operating margin declines.
G&A expenses are expected to be in the range of 9% to 11% of revenues for the 2010 guidance period. The projected annual stock-based compensation expense, depreciation, amortization and net interest expense that underpin the company's diluted EPS guidance for the full-year 2010 are included in the attached data tables. Projected quarterly stock-based compensation expense, depreciation, amortization and net interest expense for the quarter ending March 31, 2010 are expected to be $2.8 million, $14.1 million, $4.7 million and $11.9 million, respectively. The company's annual effective tax rate is expected to be 36.9% for fiscal 2010.
Capital Expenditures Outlook
Update on Maintenance and Other Capital Expenditures. Please refer to the attached data table for a summary, by period, of historical and projected data for maintenance and other capital expenditures. Maintenance capital expenditures, which are recurring in nature, primarily include regulatory drydocking charges incurred for the recertification of vessels and other vessel capital improvements that extend a vessel's economic useful life. Other capital expenditures, which are generally non-recurring, are comprised of the following: (i) commercial-related vessel improvements, such as cranes, remotely operated vehicles (ROVs) and other specialized vessel equipment, which costs are typically included in and offset by higher dayrates charged to customers; and (ii) non-vessel related capital expenditures, including costs related to the company's shore-based facilities or leasehold improvements and other corporate expenditures, such as information technology or office furniture and equipment. The company expects maintenance capital expenditures and other capital expenditures to be approximately $23.4 million and $18.4 million, respectively, for the full-year 2010. Over the next few years beyond 2010, the Company expects that its annually recurring maintenance capital expenditure budget for its growing fleet of vessels will range between $35.0 million and $45.0 million per year.
Update on MPSV Program. The Company's MPSV program consisted of the conversion of two U.S.-flagged coastwise sulfur tankers at domestic shipyards into 370 class DP-2 new generation MPSVs and the construction of two 430 class DP-3 new generation MPSV newbuilds in foreign shipyards. The HOS Iron Horse, the second 430 class DP-3 MPSV delivered under this program, was placed in service in December 2009. The final vessel to be delivered under this program, the 370 class DP-2 MPSV, HOS Strongline, is expected to be placed in service in March 2010. Based on internal estimates, the aggregate cost of this program is expected to be approximately $490.0 million. From the inception of this program through December 31, 2009, the Company has incurred $484.6 million, or 98.9%, of total expected project costs, including $13.8 million incurred during the fourth quarter of 2009.
Update on OSV Newbuild Program #4. The company's fourth OSV newbuild program consisted 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. Fourteen of these 16 new generation DP-2 OSVs have already been added to the company's Upstream fleet on various dates since May 2008, including the HOS Sweet Water, the sixth and final 240 ED class OSV delivered under this program, which was placed in service in the GoM spot market in December 2009; and the HOS Arrowhead, the sixth 250 EDF class OSV delivered under this program, which commenced operations in January 2010 under a multi-year charter performing military support services. The HOS Pinnacle, the seventh 250 EDF class OSV delivered under this program was placed in service during February 2010. The remaining two OSVs under this newbuild program are expected to be placed in service in May and August 2010, respectively. Inclusive of the vessel deliveries referred to above, the aggregate cost of this program is expected to be approximately $445.0 million. From the inception of this program through December 31, 2009, the Company has incurred $405.9 million, or 91.2%, of total expected project costs, including $23.6 million incurred during the fourth quarter of 2009.