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Hornbeck Offshore Announces Second Quarter 2019 Results

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COVINGTON, La., July 31, 2019 /PRNewswire/ -- Hornbeck Offshore Services, Inc. (NYSE:HOS) announced today results for the second quarter ended June 30, 2019.  Following is an executive summary for this period and the Company's future outlook:

  • 2Q2019 revenues were $56.8 million, an increase of $2.8 million, or 5%, from 1Q2019 revenues of $54.0 million
  • 2Q2019 diluted EPS was $(0.84), an improvement of $0.13, or 13%, from 1Q2019 diluted EPS of $(0.97)
  • 2Q2019 net loss was $(31.9) million, an improvement of $4.7 million, or 13%, from 1Q2019 net loss of $(36.6) million
  • 2Q2019 EBITDA was $3.6 million, an increase of $2.1 million, or 140%, from 1Q2019 EBITDA of $1.5 million
  • 2Q2019 average new gen OSV dayrates were $18,198, in-line with 1Q2019
  • 2Q2019 effective new gen OSV dayrates were $5,878, in-line with 1Q2019
  • 2Q2019 utilization of the Company's new gen OSV fleet was 32.3%, in-line with 32.5% sequentially
  • 2Q2019 effective utilization of the Company's active new gen OSVs was 70.4%, down from 72.1% sequentially
  • The Company currently has 35 OSVs and two MPSVs stacked, which are expected to remain stacked through the end of 3Q2019
  • Quarter-end cash and cash equivalents were $143 million, down from $175 million sequentially
  • In June 2019, the Company entered into a new $100 million senior credit facility, all of which was reported as restricted cash at quarter-end
  • On July 30, 2019, the post-closing undertakings were completed and $44 million of the initial $100 million loan proceeds were unrestricted

The Company recorded a net loss for the second quarter of 2019 of $(31.9) million, or $(0.84) per diluted share, compared to a net loss of $(25.1) million, or $(0.67) per diluted share, for the second quarter of 2018; and a net loss of $(36.6) million, or $(0.97) per diluted share, for the first quarter of 2019.  Diluted common shares for the second quarter of 2019 were 37.9 million compared to 37.5 million and 37.8 million for the second quarter of 2018 and the first quarter of 2019, respectively.  GAAP requires the use of basic shares outstanding for diluted EPS when reporting a net loss.  EBITDA for the second quarter of 2019 was $3.6 million compared to $11.2 million for the second quarter of 2018 and $1.5 million for the first quarter of 2019.  For additional information regarding EBITDA as a non-GAAP financial measure, please see Note 10 to the accompanying data tables.

Revenues.  Revenues were $56.8 million for the second quarter of 2019, a decrease of $1.6 million, or 2.7%, from $58.4 million for the second quarter of 2018; and an increase of $2.8 million, or 5.2%, from $54.0 million for the first quarter of 2019.  The year-over-year decrease in revenues primarily resulted from decreased revenues from the Company's MPSVs partially offset by improved market conditions for the Company's OSVs and the full-quarter contribution from four high-spec OSVs acquired in May 2018.  The sequential increase in revenues resulted from increased revenues from the Company's MPSVs and from other non-vessel services.  As of June 30, 2019, the Company had 37 vessels stacked, comprised of 35 OSVs and two MPSVs.  For the three months ended June 30, 2019, the Company had an average of 37.8 vessels stacked compared to 42.0 vessels stacked in the prior-year quarter and 38.5 vessels stacked in the sequential quarter.  Operating loss was $(24.8) million, or (43.6)% of revenues, for the second quarter of 2019 compared to an operating loss of $(15.6) million, or (26.7)% of revenues, for the prior-year quarter; and an operating loss of $(26.7) million, or (49.4)% of revenues, for the first quarter of 2019.  Average new generation OSV dayrates for the second quarter of 2019 were $18,198 compared to $19,566 for the same period in 2018 and $18,156 for the first quarter of 2019.  New generation OSV utilization was 32.3% for the second quarter of 2019 compared to 27.0% for the year-ago quarter and 32.5% for the sequential quarter.  Excluding stacked vessel days, the Company's new generation OSV effective utilization was 70.4%, 76.0% and 72.1% for the same periods, respectively.  Utilization-adjusted, or effective, new generation OSV dayrates for the second quarter of 2019 were $5,878 compared to $5,283 for the same period in 2018 and $5,901 for the first quarter of 2019. 

Operating Expenses.  Operating expenses were $40.2 million for the second quarter of 2019, an increase of $5.3 million, or 15.2%, from $34.9 million for the second quarter of 2018; and a decrease of $0.2 million, or 0.5%, from $40.4 million for the first quarter of 2019.  The year-over-year increase in operating expenses was primarily due to a higher number of active vessels in the Company's fleet during the three months ended June 30, 2019. 

General and Administrative ("G&A").  G&A expense was $13.0 million for the second quarter of 2019 compared to $12.2 million for the second quarter of 2018, and $12.0 million for the first quarter of 2019.  The sequential increase in G&A expense was primarily attributable to higher legal fees recorded during the three months ended June 30, 2019. 

Depreciation and Amortization.  Depreciation and amortization expense was $28.4 million for the second quarter of 2019, or $1.5 million higher than the year-ago quarter and in-line with the sequential quarter.  Depreciation expense was in-line with the year-ago and sequential quarter. The year-over-year increase in amortization expense of $1.5 million is primarily due to costs associated with the initial special surveys for vessels that were placed in service under the Company's fifth OSV newbuild program, costs associated with the drydocking of two vessels that were acquired in the second quarter of 2018 and the amortization of an intangible asset that was included with the acquisition of four OSVs in the second quarter of 2018.  Amortization expense is expected to increase temporarily whenever market conditions warrant reactivation of currently stacked vessels, which will then require the Company to drydock such vessels and, thereafter, to revert to historical average levels.

Interest Expense.  Interest expense was $20.0 million during the second quarter of 2019, which was $3.6 million higher than the same period in 2018 and in-line with the sequential quarter.  The year-over-year increase was primarily due to additional interest expense associated with the issuance of additional first-lien and second-lien term loans since June 30, 2018.

Recent Developments

New Senior Credit Facility.  On June 28, 2019, the Company entered into a new $100.0 million senior secured asset-based revolving credit facility, or the Senior Credit Facility.  The Senior Credit Facility is guaranteed by certain of the Company's domestic and foreign subsidiaries and contains customary representations and warranties, covenants and events of default.  The fully-funded Senior Credit Facility is secured by first-priority liens on certain eligible receivables, certain restricted cash amounts and related assets.  The Senior Credit Facility is comprised of two tranches that will rebalance each month based on a variable receivables-backed borrowing base.  The unrestricted receivables-backed tranche will mature in 2022, whereas the restricted cash-backed tranche will mature in 2025.  The receivables-backed tranche may be used, subject to the completion of applicable eligibility review procedures, for working capital and general corporate purposes, including the refinancing or repayment of existing debt, subject to, among other things, compliance with certain requirements.  The cash-backed tranche may, over time, rebalance to the receivables-backed tranche as eligible receivables increase and may be refinanced over time.

Borrowings under the Senior Credit Facility accrue interest at a floating-rate LIBOR plus a fixed spread of 5.00% for the life of the facility.  The Company may, at its option from time to time, prepay loans under either tranche of the Senior Credit Facility.  Fifty percent of such loans available under the Senior Credit Facility is subject to a prepayment premium (i) at 103% of the principal amount repaid if such repayment occurs on or prior to June 28, 2020; (ii) at 102% of the principal amount repaid if such repayment occurs on or prior to June 28, 2021; (iii) at 101% of the principal amount repaid if such repayment occurs on or prior to December 28, 2021 and (iv) at 100% of the principal amount repaid if such repayment occurs after December 28, 2021, with such premiums subject to adjustments downward under certain circumstances.  The other fifty percent of such loans may be repaid at any time without prepayment penalty.

As of June 30, 2019, the $100.0 million funded under the Senior Credit Facility was presented as restricted cash on the balance sheet, pending completion of certain post-closing undertakings.  The Company considers cash as restricted when there are legal or contractual restrictions on its withdrawal or usage.  On July 30, 2019, the Company met the post-closing conditions precedent required by the Senior Credit Facility resulting in $44.0 million of restricted cash related to the eligible receivables-backed tranche of the Senior Credit Facility being transferred by the Agent to the Company's unrestricted cash account on July 31, 2019.  On July 31, 2019, the Company's restricted cash balance under the Senior Credit Facility was correspondingly reduced to $56.0 million.

The foregoing is only a summary and is not necessarily complete.  For further details, please see the Current Report on Form 8-K filed with the SEC on July 5, 2019.

Future Outlook

Based on the key assumptions outlined below and in the attached data tables, the following statements reflect management's current expectations regarding future operating results and certain events during the Company's guidance period as set forth on pages 12 and 13 of this press release.  These statements are forward-looking and actual results may differ materially, particularly given the volatility inherent in, and the currently depressed market conditions of, the Company's industry.  Other than as expressly stated, these statements do not include the potential impact of any significant further change in commodity prices for oil and natural gas; any additional future repositioning voyages; any additional stacking or reactivation of vessels; unexpected vessel repairs or shipyard delays; or future capital transactions, such as vessel acquisitions, modifications or divestitures, business combinations, possible share or note repurchases or financings that may be commenced after the date of this disclosure.  Additional cautionary information concerning forward-looking statements can be found on page 9 of this news release.

Forward Guidance

The Company's forward guidance for selected operating and financial data, outlined below and in the attached data tables, reflects the current state of commodity prices and the Company's expectations related to the planned capital spending budgets of its customers. 

Vessel Counts.  As of June 30, 2019, the Company's fleet of owned vessels consisted of 66 new generation OSVs and eight MPSVs.  The forecasted vessel counts presented in this press release reflect the two MPSV newbuilds projected to be delivered during fiscal 2020, as discussed further below.  With an average of 35.5 new generation OSVs and 2.1 MPSVs projected to be stacked during fiscal 2019, the Company's active fleet for 2019 is expected to be comprised of an average of 30.5 new generation OSVs and 5.9 MPSVs.  With an assumed average of 35.0 new generation OSVs projected to be stacked during fiscal 2020, the Company's active fleet for fiscal 2020 is expected to be comprised of an average of 31.0 new generation OSVs and 9.0 MPSVs. 

Operating Expenses.  Aggregate cash operating expenses are projected to be in the range of $40.0 million to $45.0 million for the third quarter of 2019, and $160.0 million to $170.0 million for the full-year 2019.  Reflected in the cash opex guidance ranges above are the anticipated continuing results of several cost containment measures initiated by the Company since the fourth quarter of 2014 due to prevailing market conditions, including, among other actions, the stacking of vessels on various dates from October 1, 2014 through June 30, 2019, as well as company-wide headcount reductions and across-the-board pay-cuts for shoreside and vessel personnel.  The Company reactivated one 200 class OSV during the second quarter of 2019.  The Company may choose to stack or reactivate additional vessels as market conditions warrant.  The cash operating expense estimate above is exclusive of any additional repositioning expenses the Company may incur in connection with the potential relocation of more of its vessels into international markets or back to the GoM, and any customer-required cost-of-sales related to future contract fixtures that are typically recovered through higher dayrates.

G&A Expense.  G&A expense is expected to be in the approximate range of $12.0 million to $14.0 million for the third quarter of 2019; and $48.0 million to $53.0 million for the full fiscal year 2019.  During the second quarter of 2019, the Company modified its expected settlement method for nearly all of its outstanding long-term incentive compensation awards, and such awards are now expected to be settled in shares.  These awards were previously accounted for as liabilities as the awards were expected to be settled in cash.  On June 20, 2019, the Company received stockholder approval to increase the maximum number of shares available under the Company's long-term incentive compensation plan, and such shares will be used to settle these awards.  As a result of this modification, the stock-based compensation expense will be fixed in future periods and the Company's G&A expense will not vary quarterly due to "mark-to-market" adjustments based on its stock price as required by GAAP on cash-settled awards. 

Other Financial Data.  Quarterly depreciation, amortization, net interest expense, cash income taxes, cash interest expense, weighted-average basic shares outstanding and weighted-average diluted shares outstanding for the third quarter of 2019 are projected to be $24.6 million, $4.4 million, $16.3 million, $0.5 million, $24.7 million, 38.0 million and 43.1 million, respectively.  As a reminder, please note that GAAP requires the use of basic shares outstanding for diluted EPS when reporting a net loss.  Guidance for depreciation, amortization, net interest expense, cash income taxes and cash interest expense for the full fiscal years 2019 and 2020 is provided on page 13 of this press release.  The Company's annual effective tax benefit rate is expected to be between 20.0% and 25.0% for fiscal years 2019 and 2020. 

Capital Expenditures Outlook

Update on OSV Newbuild Program #5.  During the first quarter of 2018, the Company notified the shipyard that was constructing the remaining two vessels in the Company's nearly completed 24-vessel domestic newbuild program that it was terminating the construction contracts for such vessels.  The Company has worked with the performance bond surety and will select and contract with a shipyard that can finish construction and deliver such vessels.  On October 2, 2018, the shipyard filed suit against the Company in the 22nd Judicial District Court for the Parish of St. Tammany in the State of Louisiana.  The Company has responded to the suit and has alleged counter-claims.  The Company intends to vigorously defend the shipyard's claims and considers them to be without merit.  The surety has authorized the Company to select a completion yard and, subject to a reservation of rights, has offered to fund the cost to complete the vessels in excess of their contract price of up to the full amount of the performance bond.  However, the surety's offer is not in compliance with the terms of the performance bond as the surety has offered to indemnify the Company for payments it makes in excess of the contract price, rather than to pay the completion yard directly.  Consequently, the Company is evaluating its legal options in light of the surety's offer.

As of the date of the contract termination, the two remaining vessels, both of which are domestic 400 class MPSVs, were projected to be delivered in the second and third quarters of 2019, respectively.  Due to the uncertainty of the timing and location of future construction activities, in February 2019, the Company changed its forward guidance for the delivery dates related to these vessels to be the second and third quarters of 2020, respectively.  However, the timing of the remaining construction draws remains subject to change commensurate with any further delays in the delivery dates of such vessels.  The Company will not update its prior guidance related to the delivery dates and the timing of the remaining cash outlays associated with this program during fiscal 2019 and fiscal 2020, as set forth below, until it has more reliable information upon which to base any further changes. 

As noted above, the Company owns 66 new generation OSVs and eight MPSVs as of June 30, 2019.  Based on the projected MPSV in-service dates, the Company expects to own eight and ten MPSVs as of December 31, 2019 and December 31, 2020, respectively. These vessel additions result in a projected average MPSV fleet complement of 8.0, 9.0 and 10.0 vessels for the fiscal years 2019, 2020 and 2021, respectively.  The aggregate cost of the Company's fifth OSV newbuild program, excluding construction period interest, is expected to be approximately $1,335.0 million, of which $22.7 million and $38.2 million are currently expected to be incurred in the fiscal years 2019 and 2020, respectively.  However, the timing of these remaining construction draws remains subject to change commensurate with any potential further delays in the delivery dates of the final two newbuild vessels, as discussed above.  From the inception of this program through June 30, 2019, the Company has incurred $1,276.3 million, or 95.6%, of total project costs.  The Company expects to incur newbuild project costs of $9.4 million during the third quarter of 2019.

Update on Maintenance Capital Expenditures.  Please refer to the attached data table on page 12 of this press release for a summary, by period and by vessel type, of historical and projected data for drydock downtime (in days) and maintenance capital expenditures for each of the quarterly and/or annual periods presented for the fiscal years 2018, 2019 and 2020.  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 or maintain a vessel's economic useful life.  The Company expects that its maintenance capital expenditures for its fleet of vessels will be approximately $35.0 million and $21.0 million for the full fiscal years 2019 and 2020, respectively.  These cash outlays are expected to be incurred over 544 and 321 days of aggregate commercial downtime in 2019 and 2020, respectively, during which the applicable vessels will not earn revenue. 

Update on Other Capital Expenditures.  Please refer to the attached data tables on page 12 of this press release for a summary, by period, of historical and projected data for other capital expenditures for each of the quarterly and/or annual periods presented for the fiscal years 2018, 2019 and 2020.  Other capital expenditures, which are generally non-recurring, are comprised of the following: (i) commercial-related capital expenditures, including vessel improvements, such as the addition of cranes, ROVs, helidecks, living quarters and other specialized vessel equipment, or the modification of vessel capacities or capabilities, such as DP upgrades and mid-body extensions, which costs are typically included in and offset, in whole or in part, by higher dayrates charged to customers; and commercial-related intangibles; and (ii) non-vessel related capital expenditures, including costs related to the Company's shore-based facilities, leasehold improvements and other corporate expenditures, such as information technology or office furniture and equipment.  The Company expects miscellaneous commercial-related capital expenditures and non-vessel capital expenditures to be approximately $0.8 million and $0.5 million, respectively, for the full fiscal years 2019 and 2020, respectively. 

Liquidity Outlook

As of June 30, 2019, the Company had an unrestricted cash balance of $142.7 million, which represents a sequential decrease of $31.9 million.  As discussed above, as of

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