Hornbeck Offshore Reports Revenue Increase in 2Q
Hornbeck Offshore announced results for the second quarter ended June 30, 2010. Following are highlights for this period and the Company's future outlook:
- Company reaffirms annual EBITDA and earnings guidance for Fiscal 2010
- Contract backlog for new gen OSV vessel-days currently at 56%, 38% and 24% for 2H2010, 2011 and 2012
- Company continues to experience importation delays on five OSVs in Brazil, updates in-service date guidance
- Company currently has 20 vessels temporarily supporting oil spill relief efforts in the GoM
- Company provides update on drilling moratorium litigation
- Sixteenth and final vessel under OSV newbuild program #4 scheduled for September 2010 delivery
Second quarter 2010 revenues increased 14.3% to $111.9 million compared to $97.9 million for the second quarter of 2009 and increased 29.8% compared to $86.2 million for the first quarter of 2010. Operating income was $34.5 million, or 30.8% of revenues, for the second quarter of 2010 compared to $5.0 million, or 5.1% of revenues, for the prior-year quarter; and $15.7 million, or 18.2% of revenues, for the first quarter of 2010. Net income for the second quarter of 2010 was $13.0 million, or $0.48 per diluted share, compared to $0.2 million, or $0.01 per diluted share for the year-ago quarter; and $2.6 million, or $0.09 per diluted share for the first quarter of 2010. Operating income and net income, as reported, for the three months ended June 30, 2009 included a non-cash asset impairment charge of $25.8 million ($16.2 million after-tax, or $0.60 per diluted share) related to certain of the Company's Downstream vessels and a $0.9 million ($0.6 million after-tax, or $0.02 per diluted share) non-cash impairment charge for unamortized goodwill associated with the Company's Downstream segment. Excluding these special non-cash charges, operating income was $31.7 million, or 32.4% of revenues, and net income was $17.3 million, or $0.64 per diluted share, for the second quarter of 2009. EBITDA for the second quarter of 2010 was $54.1 million compared to second quarter 2009 EBITDA of $49.3 million and first quarter 2010 EBITDA of $33.5 million. The year-over-year increase in revenues and EBITDA was primarily due to incremental revenues from the vessels placed in service since June 2009 under the Company's newbuild and conversion programs.
Revenues from the Upstream segment were $100.5 million for the second quarter of 2010, an increase of $16.8 million, or 20.1%, from $83.7 million for the same period in 2009 and an increase of $23.9 million, or 31.2%, from $76.6 million for the first quarter of 2010. The vessels placed in service since the second quarter of 2009 under the Company's newbuild and conversion programs accounted for a $31.6 million increase in Upstream revenues. These incremental revenues were offset by a $13.0 million decrease in revenue from the Company's new generation OSVs that were in service during each of the quarters ended June 30, 2010 and 2009. In addition, the Company experienced a $1.8 million decrease in revenue from one of its non-core conventional OSVs that was in service during the quarter ended June 30, 2009, but has since been sold, and decreased activity at the Company's shore-base port facility. Upstream operating income increased $2.1 million to $35.5 million, or 35.3% of revenues, for the second quarter of 2010 from $33.4 million, or 39.9% of revenues, for the second quarter of 2009. Average new generation OSV dayrates for the second quarter of 2010 increased to $23,874 compared to $21,330 for the same period in 2009. The Company's new generation OSV dayrates were favorably impacted by certain non-recurring revenues for one of its specialty service vessels unrelated to the oil spill relief efforts in the U.S. Gulf of Mexico ("GoM"). Excluding these revenues for the sake of comparability to other periods, the Company's new generation OSV average dayrates would have been $20,628, or 3.3% lower than the prior-year quarter and 3.2% higher than the sequential quarter. New generation OSV utilization was 71.8% for the second quarter of 2010 compared to 83.6% during the year-ago quarter and 72.9% for the sequential quarter. The Company's average OSV utilization was adversely affected by having an average of 7.5 new generation OSVs stacked during the second quarter of 2010 due to continued soft market conditions in the GoM and by approximately 354 days of aggregate downtime related to customer-required modifications and pre-positioning of eight vessels that have mobilized or are mobilizing to Latin America during 2010 for multi-year charters. In addition, utilization for the Company's new generation OSVs during the second quarter of 2010, which would have been significantly lower as a result of the drilling moratorium, was in-line with the sequential quarter on the strength of temporary demand related to oil spill relief activities. As a result of the weak new generation OSV market conditions that have existed since mid 2009, the Company had seven new generation OSVs stacked as of June 30, 2010 compared to eight stacked vessels as of the sequential quarter. The Company has temporarily re-activated three new generation OSVs, one vessel during the second quarter of 2010 and two vessels in July 2010, to support oil spill relief efforts in the GoM. As of July 28, 2010, the Company had eleven OSVs and four MPSVs assisting with these efforts, which are expected to be temporary in nature. Effective new generation OSV utilization for the Company's active fleet, which excludes the impact of stacked vessels, was 84.5% for the second quarter of 2010 compared to 86.6% for the year-ago quarter.
Revenues from the Downstream segment of $11.4 million for the second quarter of 2010 decreased by $2.8 million, or 19.7%, compared to $14.2 million for the same period in 2009, but were higher than the sequential quarter by $1.8 million. Single-hulled tank barges that were in service during the second quarter of 2009, but have been retired or stacked since then, accounted for $3.3 million of the Downstream revenue decline from the year-ago quarter. This revenue decline was partially offset by a $0.5 million increase in revenue from the Company's nine double-hulled tank barges, which were in service during each of the quarters ended June 30, 2009 and 2010. The Company's Downstream revenues for the second quarter of 2010 were favorably impacted by one double-hulled tank barge performing well-test services for an Upstream customer in the GoM and five double-hulled tank barges temporarily supporting oil spill relief efforts. The Company's double-hulled tank barge average dayrates were $18,708 for the second quarter of 2010 compared to $19,810 for the same period in 2009. Excluding the incremental revenues associated with the well-test revenue, dayrates would have been $17,547, a decrease of $2,263 from the prior-year quarter. Utilization for the double-hulled tank barge fleet was 74.2% for the second quarter of 2010 compared to 67.2% for the same period in 2009. Utilization improved largely due to increased activity related to the oil spill relief efforts, which are unrelated to the Company's typical Downstream operations and are expected to be temporary in nature.
First Half 2010 Results
Revenues for the first six months of 2010 decreased 4.6% to $198.1 million compared to $207.6 million for the same period in 2009. Operating income was $50.2 million, or 25.3% of revenues, for the first six months of 2010 compared to $50.4 million, or 24.3% of revenues, for the prior-year period. Net income for the first six months of 2010 decreased 42.9% to $15.6 million, or $0.57 per diluted share, compared to $27.3 million, or $1.01 per diluted share for the first six months of 2009. Excluding the Downstream non-cash impairment charge in the amount of $26.7 million, or $0.62 per diluted share, operating income, net income and diluted EPS for the first half of 2009 were $77.1 million, $44.1 million and $1.63 per share, respectively. The year-over-year decrease in revenues, operating income and net income was primarily due to a substantial decline in fleetwide effective dayrates for each of the Company's segments. The decrease in revenues was partially offset by the incremental revenue contribution of vessels added to the Company's fleet through its newbuild and conversion programs since the second quarter of 2009. The Company's net income for the first six months of 2010 included a $0.5 million pre-tax gain ($0.3 million after tax or $0.01 per diluted share) gain on the March 2010 sale of the Cape Fear, a conventional OSV that was stacked. The Company's net income for the first six months of 2009 included a $0.2 million pre-tax gain ($0.2 million after tax or $0.01 per diluted share) gain on the March 2009 sale of the Stapleton Service, an older tug that was stacked.
In response to the April 20, 2010, Deepwater Horizon incident, the United States Department of the Interior ("DOI") ordered a moratorium on all deepwater drilling on the OCS effective May 30, 2010. On June 7, 2010, the Company challenged the legality of the moratorium in a federal court on the basis that the moratorium is arbitrary and capricious and contrary to law. One day after holding an expedited hearing on June 21, 2010, the U.S. District Court for the Eastern District of Louisiana granted the Company's request to preliminarily enjoin the DOI's moratorium. The DOI launched an immediate appeal to the United States Court of Appeals for the Fifth Circuit. In two subsequent rulings, both the district court and the appellate court denied the DOI's separate requests to stay the district court's injunction pending its appeal. As a result of the moratorium litigation brought by the Company, the May 30 moratorium is no longer legally in effect. On July 12, 2010, the DOI issued a so-called "new" moratorium and filed motions in the district court and in the appellate court seeking dismissal of the moratorium litigation as "moot." The Company has opposed these motions and, in court filings, has asserted that the second moratorium is a de facto extension of the first moratorium, which has already been struck down. Oral arguments related to the mootness issue have been scheduled in district court for August 11, 2010. The government's appeal of the preliminary injunction is scheduled for September 1, 2010. Following the initiation of legal proceedings by the Company, certain drilling companies have brought legal challenges in the same district court against the second moratorium, as well as the de facto moratorium affecting shallow water drilling activities. The Company does not expect that drilling activities in the GoM will recommence until such time that legal issues surrounding the moratorium and the issuance of drilling permits are resolved to the satisfaction of operators.
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.
Update on 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 $29.0 million and $21.7 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 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. The Company has already added 15 of these 16 new generation DP-2 OSVs to its Upstream fleet on various dates since May 2008. The one remaining OSV under this newbuild program, the HOS Wildwing, is expected to be placed in service in September 2010. Inclusive of the vessel deliveries referred to above, the aggregate cost of this program is now expected to be approximately $440.0 million. From the inception of this program through June 30, 2010, the Company has incurred $427.2 million of total expected project costs, including $7.0 million incurred during the second quarter of 2010.
The remaining capital costs to be incurred and the estimated delivery date for the one remaining vessel now under construction, which are outlined above, are based on the latest available information and are subject to change. All of the figures set forth above represent expected cash outlays and do not include the allocation of construction period interest.
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