Hornbeck Offshore Services, Inc. (HOS)

Q2 2012 Results Earnings Call

August 2, 2012 10:00 AM ET


Ken Dennard – DRG&L, IR

Todd Hornbeck – Chairman, President and CEO

Jim Harp – Chief Financial Officer


James West – Barclays Capital

Gregory Lewis – Credit Suisse

Michael Marino – Stephens Inc.

Jon Donnell – Howard Weil

Todd Scholl – Clarkson Capital Markets

David Anderson – J.P. Morgan

Trey Stolz – IBERIA Capital Market Partners



Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Hornbeck Offshore Services Second Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, Thursday, August 2, 2012. I would now like to turn the conference over to Ken Dennard of DRG&L. Please go ahead.

Ken Dennard

Thanks, Alicia. Good morning, everyone. We appreciate you joining us for the Hornbeck Offshore conference call reviewing the second quarter 2012 results and recent developments. We also welcome our Internet participants listening to the call over the web.

Please note that the information reported on this call speaks only as of today, August 2, 2012 and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay listening.

During today’s call, Todd and Jim will make certain projections about future financial performance, liquidity, operations and events that are not statements of historical fact and thus constitute forward-looking statements.

As noted in today’s press release, these forward-looking statements are subject to risks, uncertainties and other factors that may cause such future matters, including the company’s actual future performance to be materially different than that which is projected today.

In Hornbeck’s 2011 Form 10-K, other SEC filings and in today’s press release announcing second quarter 2012 earnings, you can locate additional information about factors that could cause the company’s results to materially differ from those projected in the forward-looking statements.

Hornbeck’s Form 10-K, other SEC filings and today’s press release, are located under the Investor Relations section of the company’s website, which of course is www.hornbeckoffshore.com, or through the SEC website at www.sec.gov.

This earnings call also contains references to EBITDA, which is the 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 this morning.

Finally, the company uses its website as a means of disclosing material non-public information and for complying with disclosure obligations under SEC Regulation FD. Such disclosures will be included on the company’s website under the heading Investors/IR Home or accordingly, investors should monitor that portion of the company’s website in addition to following the company’s press release, SEC filings, public conference calls and webcasts.

And now with that behind me, I’d like to turn the call over to Todd Hornbeck, Chairman, President and CEO of Hornbeck Offshore. Todd?

Todd Hornbeck

Thank you, Ken. Good morning, everyone. And welcome to our second quarter 2012 investor conference call. Our plan this morning is to spend a few minutes discuss -- discussing the second quarter results and our outlook for the market and then provide you an update on our growth initiatives. Jim Harp, our CFO, will take you through the numbers in detail.

The second quarter results we announced this morning represent another solid quarter and the fourth quarter in a row in which we’ve seen improvement in the average dayrates for our core new generation OSV fleet.

Notwithstanding, the labor cost increases announced last quarter, we were able to increase our upstream operating margin to 29.2%, in line with our expectations and considerably better than what we’ve seen amongst others in the general market.

So, all in all, a good quarter and one in which we continued to experience overall improvement in market conditions, as we expected when we would when we announced the newbuild program last fall.

We believe the market will continue to improve as we see clear demand drivers coming into our primary operating regions of the U.S. Gulf of Mexico, Brazil and Mexico. In the Gulf of Mexico, the steady improvement will continue to be marked by periods of unevenness.

There are still bureaucratic implements -- impediments and delays associated with permitting in the Gulf of Mexico and as a consequence, our activity levels would be impacted from time to time.

About 65% of our new generation vessel days are contracted for the balance of the year, which gives us a healthy base of revenues, while at the same time, we have kept a sizable portion of our fleet in the spot market, so we can capitalize upon periods of market tightness.

Our spot strategy is driven by our market view that steady improvement with some volatility allows for pricing opportunities. We do not mind occasional short periods of under utilization given our confidence in the ability to price up over the long-term.

To highlight the market’s event flow, consider that in the second quarter we reported today, our new generation utilization rates was 88%, compared to 81% in the prior quarter and 84% in the quarter before that one. Currently, our company wide utilization rate is about 84%. However, almost none of the 4 point drop from the second quarter utilization levels of 88% is market related.

As we reported this morning, we have a heavy upstream drydock calendar during the third quarter, as well as about 120 days of commercial downtime that we expect to incur this quarter for the three of the four vessels we are currently mobilizing out of Brazil.

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