Q3 2019 Earnings Call
Greetings and welcome to the Hornbeck offshore services third quarter 2019 earnings Conference call.
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Brief question answer session will follow the formal presentation.
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He didn't tell my pleasure to introduce your host candid or thank you Sir you may begin.
Thanks, operator, and good morning, everyone. We appreciate you joining us from fabric Offshores conference call.
Review third quarter 2019 results and recent developments. We also welcome our Internet participants with into the call live over the web.
Please note that information reported on this call speaks only as of today October 31st 2019, and therefore, you are advised the time sensitive information they no longer be accurate as opposed to target any replay listening or transcript greedy.
During today's call talking generally make certain projections about future financial performance liquidity operations and I guess that are not statements of historical fact and does constitute forward looking statements.
These forward looking statements are subject to risks uncertainties and other factors that may cause such future matters, including the companys actual future performance to be materially different from which from that which is projected today.
You can locate additional information about the factors could cause a company results to materially different from those projected in forward looking statements.
That's actually see filings in yesterday's press release under the Investor section of the company's website, which is www hornbeck offshore dotcom or through the FCC website at www as we see that goes.
Earnings call also contains references to EBITDA, which is a non-GAAP financial measure a reconciliation of this financial measure to the most directly comparable GAAP financial measure is provided in the press release issued by the company yesterday afternoon, and finally the company uses its website as a means of disclose the material nonpublic information like.
Complying with disclosure obligations under Sbcs regulation FD.
Such disclosures will be included on the company's website under the heading investors accordingly industry should monitor that portion the company's website. In addition to following the company's press releases actually see filings public conference calls and webcast.
Now I'd like to turn the call over to Todd <unk>, Chairman, President and CEO of Hornbeck offshore.
Thank you Kim.
Good morning, and welcome to our third quarter 2019 conference call.
Joining me today as Mr., Jim Harper Chief Financial Officer.
Our third quarter results were disappointing.
Market conditions for vessels remain soft principally in the U.S. Gulf of Mexico.
We had expected that in a third quarter the positive sentiment that we observe previously would have translated into improved utilization and day rates, but for some of that work was pushed to the right.
[noise] why we're still seeing signs of improving demand fundamentals for offshore exploration production and development activities globally and in our core markets and believed that there are positive indicators for future improvement. We said, we have not seen them turn into improved financial performance yeah.
There was an average of just over 20 deepwater drilling units actively working during the quarter, which is the best number we've seen since the mid middle of last year.
And the greater Gulf of Mexico region that number was just over 26 drilling units actively working during the quarter, which was also an improvement.
So the slope of discovery is very gradual but its attitude is very stopper.
Part of this reality is that there are vessel operating is that value market share more than we values improve long term sustainable race.
That is their prerogative, we frankly don't see the long term business rationale in such an approach.
The challenges that we are playing a game that does not have a shot clock and so we are unable to predict with any certainty when their long term opportunities will reach us well the short term thinking will catch up with them.
The bright spot for us it's been in our non oilfield government business.
Mexico, and Brazil are also each showing promise and we remain committed to their deepwater futures.
We still believe that the markets for our vessels will would cover and that we're seeing early signs of recovery, but our reticent to predict when that will translate into actual business improvement for us, what's sustainable utilization and day rates.
Certainly our expectations for an inflection point in 29 team have been dim.
Nevertheless, our strategy is to remain disciplined with our fleet of HOSMAX vessels in order to negotiate day rates in contract terms more in line with the value proposition that are uniquely provides.
Our fleet of HOSMAX Mpsvs is the largest fleet of vessels greater than 6000 deadweight tons of the world.
Whenever recovery truly arrives this fleet will be among the most attractive on the planet to our customers given its size and capabilities.
On the Jones Act thought we believe it is significant that last week, but a third time in 10 years CPP issued a notice of revocation of improper letter rulings that have authorized sport vessels to engage in Jones Act trade on the Lcs.
These letters so the subject of ongoing litigation in Federal Court.
We would view the revocation proceedings to its conclusion as a significant win for our industry and for Pos in particular, given the rulings in question deal with the types of operations before and bar U.S. flag Mpsvs.
TPP and the department of Homeland Security, whose acting secretary, notably side the revocation water. That's in a strong message that an agenda operations on the owes he has to be Jones Act compliant.
There's a comment period and.
As financial stakeholders and pause we would encourage you to submit comments in favor of the revocations.
Also we are we were recently awarded approximately $18 million and damages related to our claims inner arbitration proceeding against a shipyard, which well which will be offset roughly 2 million awarded to the shipyard for its counterclaims.
Oh limited appeal rights are available for the parties.
Finally, we continue to have constructive dialogue under our non disclosure agreements with the professional advisors to the AD hoc group that reportedly represents represents holders of roughly 80% of our aggregated outstanding 2020, and 2021 senior notes.
We have explored solutions with representatives at these note holders that involve repayment or refinancing of our near term maturities and expect that we will continue to do so.
We are well aware of the challenge is to accomplish that objective with respect to our upcoming 2020 or 2021 maturities.
As noted on our last call. Our practice is to share information concerning the company and in particular regarding these efforts to appropriate channels such as our press releases conference calls or security box.
That is the manner in which we communicate with the investing public.
We caution against any anyone relying upon speculative information that may be published in media outlets that do not use company, providing information that has been appropriately disclosed as its source.
Well the company remains optimistic regarding its ability to to come to a mutually agreeable terms with the noteholders. There can be no assurance that any oh, they talk to plug or transactions will ultimately come to fruition.
That said, let me turn the call over to Jim to take you through the numbers in greater detail.
Thanks, Todd good good morning, everyone yesterday afternoon, we reported our third quarter results and updated the forward looking guidance information contained in the data tables to our press release to provide fourth quarter and updated annual guidance for 2019 and limited annual guidance for 2020 for various categories of financial and operational data.
Keep in mind. This information is based on the current market environment, which is always subject to change.
Moving into our review of the third quarter results I wanted to briefly mentioned that we recently, we paid the remaining $26 million in face value of our outstanding 1.5% convertible senior notes at par on their September 1st maturity date with cash on hand.
Our third quarter net loss was $41 million or one dollar a nine cents per <unk> per diluted share compared to a reported net loss of $32 million or 84 cents per diluted share in the second quarter.
Our reported operating loss was $30 million in the current quarter compared to an operating loss of $25 million in the second quarter of 29 G.
EBITDA for the third quarter was just under a negative $2 million down 5.5 million from a positive second quarter EBITDA of $33.6 million.
While we were disappointed with the results for the third quarter of 2019 based on activity levels for our fleet since the end of the third quarter, we expect EBITDA to trend up from this quarter's levels. During the fourth quarter of 29 team in fact, our effective day rates for the month of October have increased for both our LSB.
And our Mpsvs from third quarter levels.
However, we are the spot market with very little contract coverage. So anything can happen in the next 60 days positively or negatively given historically low levels of EBITDA. We're currently producing it remains prudent to note that short periods of spot contract awards or downtime between spot jobs.
Absolutely bar Mpsvs, Gen skew or swing, our quarterly EBITDA meaningfully either up or down.
We mentioned on our last quarter's call, we calculate the bar active fleet of 31, New generation no sbcs. Each 1000 dollar increase in effect, if our utilization adjusted day rates can yield approximately $11 million of incremental annual EBITDA and for our fleet up eight.
Mpsvs each 5000 dollar increase in affected day rates can yield approximately $15 million of incremental.
Annual EBITDA.
For additional information regarding EBITDA as a non-GAAP financial measure please refer to the data tables in yesterday's earnings release, including note can we have not in the recent past given actual dollar value EBITDA guidance and do not intend to do so in the future.
Revenue for the third quarter of 2019 was $53 million or 7%, but lower than the sequential quarter.
Average new generation to West Me day rates for the third quarter of 2019 were approximately $19800 or about $1600 higher than the sequential quarter utilization for our new generation no recipes for the third quarter of 2019 was 23% down from 32% sequentially.
While utilization for our Mpsvs for the third quarter of 2019 was 39% up from 37% sequentially.
Adjusting for stacked vessel days, the effective utilization of our active fleet of new Gen. Lsts was 50% down from 70% sequentially, whereas the effective utilization of our active MPSV fleet was 52% for the third quarter 2019.
Our effective our utilization adjusted unless the day rates were roughly $4600 or 1200 $50 lower than the sequential quarter.
Geographically, our corn revenue was just under $19 million or 35% of our total revenue for the third quarter 2019, compared to roughly $21 million or 36% of our total revenue for the second quarter of 29 team.
Operating expenses were $41 million for the third quarter inline with the sequential quarter and we're at the low end of our guidance range.
Aggregate cash operating expenses for the full calendar year 20, Nike are projected to be in the range of $162 million to $167 million.
Our operating expenses in each fiscal period can vary based on charter mix specialty job such as flotel work versus the standard LSB Mcglaun for example, geographic footprint and active vessel count.
In each of our quarterly earnings releases, we update our for guidance as these factors and our operations change in a market like we are him today changes or constant and the variable factors are many so our historical quarterly opex is not always a good indicator or predictive run rate for future quarters reflected in the project.
Acted cash opex for the full year of 2090 other continuing affects of several cost containment measures we initiated over the last five years, including among other actions the stacking of new generation or less species in mpsvs on various states since October 1st 2014, as well as a company wide.
Head count reductions and across the board pay cuts for shore side and vessel personnel.
As a reminder, we have provided you with updated full year and fourth quarter 2019, Opex guidance in our press release issued yesterday afternoon, consistent with our cash Opex guidance for prior periods. These estimated ranges are good faith estimates based on best available information as of today and our only intended.
To cover our currently anticipated active fleet complement geographic footprint charter mix and industry market conditions, while our updated guidance is predicated on an assumed average stock leap of 35.3, LSB and 2.1 Mpsvs for the full year just slow twin.
The 19, we may consider stocking or reactivating additional vessels as market conditions warrant.
Our third quarter general and administrative or Gionee expense of just over $13 million was inline with the sequential quarter DNA expense for the third quarter of 2019 was slightly above the midpoint of our guidance range.
Our talent for calendar 2019, DNA expenses are expected to be in the range of $50 million to $52 million.
I will now review some of our other key balance sheet related items for the third quarter.
As previously reported during the first quarter of 2018, we notified the shipyard that we were terminating the construction contracts for the last two vessels under our nearly completed 24 vessel new build program as of the date of the termination. These two remaining vessels were projected to be delivered in the second and third quarters of 20 Nike respectively.
In February 20, Nike, we change our forward guidance for the delivery date. So those two vessels to be the second and third quarter of 2020 perspective.
Due to the continued uncertainty of the timing and location of future construction activities. We're now updating our delivery date guidance related to these vessels to be the second and third quarters of 2021, respectively for guidance purposes, we have tentatively projected doing her roughly 40% of the remaining cash out.
Outlays associated with this program during the second half of 2020.
More specifically the aggregate cost of our fifth or west the new build program is expected to remain on budget at approximately $1.3 billion of which $2 million $23 million and $36 million are expected to be incurred during fiscal 2019 fiscal 2020.
In fiscal 2021, respectively.
Timing of the incurrence of these bottle construction draw us is subject to change based on the ultimate delivery dates of the vessels, which are yet to be determined.
On the adoption of this program through September Thirtyth 2019, we have incurred roughly 96% of the total expected project costs with circa $59 million left to fund.
For an update on our historical and projected regulatory drydocking activity as well as expected cash outlays for maintenance and other Capex I would refer you to the data tables on page 11, a 14 of our earnings release yesterday afternoon.
As of September Thirtyth 2019, the company had an unrestricted cash balance of $136 million, which represents a sequential decrease of $6 million.
As of September Thirtyth 2019, an additional $56 million was presented that restricted cash on the balance sheet.
Our net debt position calculated using our unrestricted cash balance and based on the carrying value and face value of our senior unsecured notes first lien term loans second lien term loans and senior credit facility was approximately $1.1 billion as of September 32019 flat.
The sequential quarter.
As of September 32019, all of our funded that was long term, except for 224 million ups 2020 senior notes due on April 1st 2020, which went high on our balance sheet in the second quarter of 2019.
We currently have a blended average fixed cash coupon of about 5.9% on $796 million total outstanding face value of secured and unsecured debt, resulting in an annual run rate of cash that service for our fixed rate debt and the amount of roughly.
$47 million, we also have a floating cash coupon of 8.4% on $450 million of total outstanding face value of first lien secured loans and the senior credit facility, resulting in an annual run rate of cash debt service for our floating rate debt and the amount.
Out of $38 million based on our current rates, which will vary over time.
Ask your interest on our first lien term loans and senior credit facility is variable based on a floating rate LIBOR plus a fixed spread of 700 basis points and 500 basis points respectively.
A lot more late applicable to the 30 day torches. We currently have outstanding under those two facilities or 1.8% and 2% respectively.
A lot more spread on our first lien term loans is next scheduled to increased to 725 basis points on June 15 2020.
For a detailed guidance and a granular breakdown of our GAAP interest expense as well as our projected cash interest and taxes Blackwater and annually. Please see our guidance tables on page 12 of our earnings release yesterday, which are also available in excel format in the Investor section of our website.
We currently project that even with the currently depressed operating levels cash generated from operations together with cash on hand should be sufficient to fund our operations and commitments to at least March 31st 2020.
However, absent the combination of a significant improvement in market conditions, such as the cash flow from operations were to increase materially from currently projected levels, coupled with a refinancing and or further management of our funded debt obligations. We did not currently expect to have sufficient liquidity to repay the remaining them out of our Bob.
Seven nights senior notes and the full amount of our 5% senior notes as they mature in fiscal years 2020, and 2021, respectively. We remain fully cognizant of the challenge is currently facing the offshore oil and gas industry and we continue to review our capital structure and assess our strategic options.
We may from time to time, depending on market conditions, and other factors repurchase or acquire additional interest in our outstanding indebtedness, whether or not such indebtedness trades above or below its face amount for cash and door in exchange for other securities term loans or other consideration in each case and open market purchases and all.
Or privately negotiated transactions or otherwise with that I'll turn it back to Todd for any further comments or to entertain questions.
Alright. Thank you Jim I think operator, we can open it up two questions now.
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One moment, please let me pull for questions.
[noise].
Gentlemen, it appears we have no questions at this time I would now like to turn the floor back over to you for additional comments.
All right I'd like to thank everyone for joining us and look forward to talking with you as a new year for the fourth quarter conference call Thatll be February 13th.
2020.
Thank you and everyone have a safe holiday.
Ladies and gentlemen, thank you for your participation. This does concludes todays teleconference. You may disconnect. Your lines at this time and have a wonderful day.