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Hornbeck Offshore Announces Third Quarter 2019 Results

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

  • 3Q2019 revenues were $52.8 million, a decrease of $4.0 million, or 7%, from 2Q2019 revenues of $56.8 million
  • 3Q2019 diluted EPS was $(1.09), a decrease of $0.25, or 30%, from 2Q2019 diluted EPS of $(0.84)
  • 3Q2019 net loss was $(41.4) million, an increase of $9.5 million, or 30%, from 2Q2019 net loss of $(31.9) million
  • 3Q2019 EBITDA was $(1.9) million, a decrease of $5.5 million, or 153%, from 2Q2019 EBITDA of $3.6 million
  • 3Q2019 average new gen OSV dayrates were $19,750, a sequential increase of $1,552, or 9%
  • 3Q2019 effective (utilization-adjusted) new gen OSV dayrates were $4,622, a sequential decrease of $1,256, or 21%
  • 3Q2019 utilization of the Company's new gen OSV fleet was 23.4%, down from 32.3% sequentially
  • 3Q2019 effective utilization of the Company's active new gen OSVs was 49.9%, down from 70.4% sequentially
  • The Company has 35 OSVs and two MPSVs stacked, but plans to reactivate one OSV and one MPSV in 4Q2019 and 1Q2020, respectively
  • Quarter-end cash and cash equivalents were $136 million, down from $143 million sequentially

The Company recorded a net loss for the third quarter of 2019 of $(41.4) million, or $(1.09) per diluted share, compared to a net loss of $(31.2) million, or $(0.83) per diluted share, for the third quarter of 2018; and a net loss of $(31.9) million, or $(0.84) per diluted share, for the second quarter of 2019.  Diluted common shares for the third quarter of 2019 were 38.0 million compared to 37.6 million and 37.9 million for the third quarter of 2018 and the second quarter of 2019, respectively.  GAAP requires the use of basic shares outstanding for diluted EPS when reporting a net loss.  EBITDA for the third quarter of 2019 was $(1.9) million compared to $5.2 million for the third quarter of 2018 and $3.6 million for the second 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 $52.8 million for the third quarter of 2019, a decrease of $5.7 million, or 9.7%, from $58.5 million for the third quarter of 2018; and a decrease of $4.0 million, or 7.0%, from $56.8 million for the second quarter of 2019.  The year-over-year decrease in revenues resulted from continuing soft market conditions for the Company's vessels.  The sequential decrease in revenues resulted from a decline in revenues from the Company's OSVs, partially offset by improved market conditions for the Company's MPSVs.  As of September 30, 2019, the Company had 37 vessels stacked, comprised of 35 OSVs and two MPSVs.  For the three months ended September 30, 2019, the Company had an average of 37.0 vessels stacked compared to 40.7 vessels stacked in the prior-year quarter and 37.8 vessels stacked in the sequential quarter.  Operating loss was $(30.2) million, or (57.2)% of revenues, for the third quarter of 2019 compared to an operating loss of $(22.4) million, or (38.3)% of revenues, for the prior-year quarter; and an operating loss of $(24.8) million, or (43.6)% of revenues, for the second quarter of 2019.  Average new generation OSV dayrates for the third quarter of 2019 were $19,750 compared to $19,446 for the same period in 2018 and $18,198 for the second quarter of 2019.  New generation OSV utilization was 23.4% for the third quarter of 2019 compared to 26.1% for the year-ago quarter and 32.3% for the sequential quarter.  Excluding stacked vessel days, the Company's new generation OSV effective utilization was 49.9%, 65.4% and 70.4% for the same periods, respectively.  Utilization-adjusted, or effective, new generation OSV dayrates for the third quarter of 2019 were $4,622 compared to $5,075 for the same period in 2018 and $5,878 for the second quarter of 2019. 

Operating Expenses.  Operating expenses were $41.1 million for the third quarter of 2019, an increase of $2.9 million, or 7.6%, from $38.2 million for the third quarter of 2018; and an increase of $0.9 million, or 2.2%, from $40.2 million for the second quarter of 2019.  The year-over-year and sequential increases in operating expenses was primarily due to a higher number of active vessels in the Company's fleet during the three months ended September 30, 2019.

General and Administrative ("G&A").  G&A expense was $13.4 million for the third quarter of 2019 compared to $15.1 million for the third quarter of 2018, and $13.0 million for the second quarter of 2019.  The year-over-year decrease was due to lower long-term incentive compensation expense during the three months ended September 30, 2019.  Long-term incentive compensation expense was higher in the prior-year quarter primarily due to a "mark-to-market" adjustment on cash-settled stock-based awards to reflect the increase in the Company's stock price during such quarter.  Nearly all of these cash-settled share-based awards were modified to settle in stock during the second quarter of 2019 at a price that was lower than such awards were valued during the three months ended September 30, 2018.  This favorable variance was partially offset by higher bad debt reserves. 

Depreciation and Amortization.  Depreciation and amortization expense was $28.6 million for the third quarter of 2019, or $1.0 million higher than the year-ago quarter and $0.2 million higher than the sequential quarter.  Depreciation expense was in-line with the year-ago and sequential quarters. The year-over-year increase in amortization expense of $1.3 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 and costs associated with the drydocking of two vessels that were acquired 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 $22.3 million during the third quarter of 2019, which was $5.8 million higher than the same period in 2018 and $2.3 million higher than 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, as well as loans under the Senior Credit Facility, since September 30, 2018.

Nine Month Results

Revenues for the first nine months of 2019 increased 3.3% to $163.7 million compared to $158.5 million for the same period in 2018.  Operating loss was $(81.7) million, or (49.9)% of revenues, for the first nine months of 2019 compared to an operating loss of $(71.8) million, or (45.3)% of revenues, for the prior-year period.  Net loss for the first nine months of 2019 increased $15.1 million to a net loss of $(110.0) million, or $(2.90) per diluted share, compared to a net loss of $(94.9) million, or $(2.53) per diluted share, for the first nine months of 2018.  EBITDA for the first nine months of 2019 decreased 65.2% to $3.2 million compared to $9.2 million for the first nine months of 2018.  The year-over-year increase in vessel revenues is attributable to modestly improved market conditions for the Company's OSVs.  For the nine months ended September 30, 2019, the Company had an average of 36.2 active vessels compared to 29.8 active vessels in the prior-year period.

Recent Developments

Outcome of Shipyard Arbitration Proceedings.  On January 22, 2016, the Company initiated an arbitration demand in accordance with the vessel construction agreement dated November 14, 2011 with VT Halter Marine, Inc. ("Halter") to construct ten 300 class OSVs as part of the Company's fifth OSV newbuild program.  On October 21, 2019, the arbitration panel awarded damages in the amount of $18.0 million related to the Company's claims, offset by $2.1 million awarded to Halter for its counterclaims.  Terms for the award require payment to be made within 60 days to avoid interest charges.  Limited appeal rights are available to the parties.

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 11 and 12 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 8 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 September 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 now projected to be delivered during fiscal 2021, as discussed further below.  With an average of 35.3 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 30.7 new generation OSVs and 5.9 MPSVs.  With an assumed average of 34.0 new generation OSVs and 1.0 MPSV projected to be stacked during fiscal 2020, the Company's active fleet for fiscal 2020 is expected to be comprised of an average of 32.0 new generation OSVs and 7.0 MPSVs. 

Operating Expenses.  Aggregate cash operating expenses are projected to be in the range of $40.0 million to $45.0 million for the fourth quarter of 2019, and $161.7 million to $166.7 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 September 30, 2019, as well as company-wide headcount reductions and across-the-board pay-cuts for shoreside and vessel personnel.  The Company plans to reactivate one 265 class OSV during the fourth quarter of 2019 and one MPSV during the first quarter of 2020.  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 fourth quarter of 2019; and $50.4 million to $52.4 million for the full fiscal year 2019. 

Other Financial Data.  Quarterly depreciation, amortization, net interest expense, cash income tax refunds, cash interest expense, weighted-average basic shares outstanding and weighted-average diluted shares outstanding for the fourth quarter of 2019 are projected to be $24.3 million, $4.7 million, $18.6 million, $(4.0) million, $19.2 million, 38.0 million and 40.9 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 12 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 has initiated legal proceedings against the surety as a third-party claim in the shipyard litigation.

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.  These projected delivery dates were subsequently amended, for guidance purposes, to be the second and third quarters of 2020.  Due to the continued uncertainty of the timing and location of future construction activities, the Company is now updating its forward guidance for the delivery dates related to these vessels to be the second and third quarters of 2021, respectively.  For guidance purposes, the Company has tentatively projected to incur the remaining cash outlays associated with this program during fiscal 2020 and fiscal 2021, as set forth below.  However, the timing of the remaining construction draws remains subject to change commensurate with any further changes in the delivery dates of such vessels. 

As noted above, the Company owns 66 new generation OSVs and eight MPSVs as of September 30, 2019.  Based on the projected MPSV in-service dates, the Company expects to own eight MPSVs as of December 31, 2019 and December 31, 2020, respectively, and ten MPSVs as of December 31, 2021. These vessel additions result in a projected average MPSV fleet complement of 8.0, 8.0, 9.0 and 10.0 vessels for the fiscal years 2019, 2020, 2021 and 2022, 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 $2.2 million and $22.9 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 changes in the delivery dates of the final two newbuild vessels, as discussed above.  From the inception of this program through September 30, 2019, the Company has incurred $1,276.3 million, or 95.6%, of total project costs.  The Company does not expect to incur any newbuild project costs during the fourth quarter of 2019.

Update on Maintenance Capital Expenditures.  Please refer to the attached data table on page 11 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 $35.5 million and $16.1 million for the full fiscal years 2019 and 2020, respectively.  These cash outlays are expected to be incurred over 750 and 228 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 11 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 $2.8 million and $2.6 million, respectively, for the full fiscal years 2019 and 2020, respectively. 

Liquidity Outlook

As of September 30, 2019, the Company had an unrestricted cash balance of $136.4 million, which represents a sequential decrease of $6.3 million.  The Company also had a restricted cash balance of $56.5 million. The Company projects that, even with the currently depressed operating levels, cash generated from operations together with cash on hand should be sufficient to fund its operations and commitments through at least March 31, 2020.  However, absent the combination of a significant recovery of market conditions such that cash flow from operations were to increase materially from currently projected levels, coupled with the refinancing and/or further management of its funded debt obligations, the Company does not currently expect to have sufficient liquidity to fully repay the remaining balance of its 5.875% Senior Notes and its 5.000% Senior Notes as they mature in fiscal years 2020 and 2021, respectively.  The Company remains fully cognizant of the challenges currently facing the offshore oil and gas industry and continues to review its capital structure and assess its strategic options.

Conference Call

The Company will hold a conference call to discuss its third quarter 2019 financial results and recent developments at 10:00 a.m. Eastern (9:00 a.m. Central) tomorrow, October 31, 2019. To participate in the call, dial (412) 902-0030 and ask for the Hornbeck Offshore call at least 10 minutes prior to the start time. To access it live over the Internet, please log onto the web at

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