Hornbeck Offshore Announces Third Quarter 2018 Results

Nine Month Results
Revenues for the first nine months of 2018 increased 17.2% to $158.5 million compared to $135.2 million for the same period in 2017.  Operating loss was $(71.8) million, or (45.3)% of revenues, for the first nine months of 2018 compared to an operating loss of $(74.5) million, or (55.1)% of revenues, for the prior-year period.  Net loss for the first nine months of 2018 increased $28.6 million to a net loss of $(94.9) million, or $(2.53) per diluted share, compared to a net loss of $(66.3) million, or $(1.80) per diluted share, for the first nine months of 2017.  EBITDA for the first nine months of 2018 decreased 62.3% to $9.2 million compared to $24.4 million for the first nine months of 2017.  Excluding the impact of the previously mentioned $2.2 million of additional G&A expense in the third quarter of 2018, net loss, diluted EPS and EBITDA for the first nine months of 2018 would have been $(93.1) million, $(2.49) per share and $11.4 million, respectively.  Included in the Company's results for the first nine months of 2017 was (i) a $15.5 million gain on early extinguishment of debt, (ii) a $9.4 million redelivery fee related to the completion of a long-term contract for one of the Company's OSVs, and (iii) a $3.8 million increase in G&A expense resulting from additional bad debt reserves.  Excluding the impact of these reconciling items, net loss, diluted EPS and EBITDA for the first nine months of 2017 would have been $(80.7) million, $(2.19) per share and $3.3 million, respectively.  The year-over-year increase in vessel revenues is attributable to improved market conditions for the Company's MPSVs and OSVs added to the Company's fleet during the second quarter of 2018.  For the nine months ended September 30, 2018, the Company had an average of 42.2 vessels stacked compared to 43.4 vessels stacked in the prior-year period.

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 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 planned capital spending budgets of its customers. 

Vessel Counts.  As of September 30, 2018, 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 four-vessel OSV acquisition that was completed in May 2018 and two MPSV newbuilds now projected to be delivered during fiscal 2020, as discussed further below.  With an average of 40.7 new generation OSVs and 0.7 MPSVs projected to be stacked during fiscal 2018, the Company's active fleet for 2018 is expected to be comprised of an average of 23.8 new generation OSVs and 7.3 MPSVs.  With an assumed average of 37.0 new generation OSVs projected to be stacked during fiscal 2019, the Company's active fleet for 2019 is expected to be comprised of an average of 29.0 new generation OSVs and 8.0 MPSVs. 

Operating Expenses.  Aggregate cash operating expenses are projected to be in the range of $38.0 million to $43.0 million for the fourth quarter of 2018, and $147.0 million to $152.0 million for the full-year 2018.  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, 2018, as well as company-wide headcount reductions and across-the-board pay-cuts for shoreside and vessel personnel.  The Company has reactivated one 240 class OSV during the fourth quarter of 2018.  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 $12.5 million to $14.5 million for the fourth quarter of 2018, and $52.8 million to $54.8 million for the full fiscal year 2018.  Included in this full-year estimate is the $2.2 million increase in G&A expense in the third quarter of 2018 due to the previously mentioned "mark-to-market" adjustment required by GAAP on cash-settled awards to reflect the increase in the Company's stock price during the three months ended September 30, 2018.  Future increases or decreases in such average stock price can be highly volatile and will commensurately impact stock-based compensation expense (and thus G&A expense) as cash-settled awards are required to be marked-to-market with cumulative catch-up adjustments at each quarter-end.

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 2018 are projected to be $24.8 million, $3.5 million, $16.1 million, $1.3 million, $14.5 million, 37.6 million and 37.9 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 2018 and 2019 is provided on page 13 of this press release.  The Company's annual effective tax benefit rate is expected to be between 18.0% and 20.0% for fiscal years 2018 and 2019. 

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 intends to work with the performance bond surety to find a shipyard that can finish construction and deliver such vessels.  As of the date of termination, these two remaining vessels, both of which are 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, these vessels are now projected to be delivered in the second and third quarters of 2020, respectively.  The Company has conservatively projected to incur the remaining cash outlays associated with this program during the fourth quarter of 2018 and fiscal 2019, as set forth below.  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 intends to vigorously defend the shipyard's claims, considers them to be without merit, and will respond to the lawsuit in due course.    

The Company owns 66 new generation OSVs and eight MPSVs as of September 30, 2018.  Based on the projected MPSV in-service dates, the Company expects to own eight, eight and ten MPSVs as of December 31, 2018, December 31, 2019 and December 31, 2020, respectively.  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 2018, 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 $3.4 million and $58.9 million are currently expected to be incurred in the full fiscal years 2018 and 2019, 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 September 30, 2018, the Company has incurred $1,274.1 million, or 95.4%, of total project costs, including $0.9 million that was spent during the third quarter of 2018.  The Company expects to incur newbuild project costs of $2.0 million during the fourth quarter of 2018.

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 2017, 2018 and 2019.  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 $24.8 million and $33.9 million for the full fiscal years 2018 and 2019, respectively.  These cash outlays are expected to be incurred over approximately 501 and 466 days of aggregate commercial downtime in 2018 and 2019, 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 2017, 2018 and 2019.  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 $5.9 million and $0.5 million, respectively, for the full fiscal years 2018 and 2019, respectively. 

Liquidity Outlook
As of September 30, 2018, the Company's total liquidity (cash and credit availability) was $244.8 million, comprised of $108.1 million of cash and $136.7 million of availability under its First-Lien Credit Facility, which represents a sequential decrease of $1.0 million.  The Company projects that, even with the currently depressed operating levels, cash generated from operations together with cash on hand and remaining availability under its First-Lien Credit Facility 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 projected levels, coupled with a refinancing and/or further management of its funded debt obligations, the Company does not currently expect to have sufficient liquidity to repay the full amount of its 5.875% Senior Notes and 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 2018 financial results and recent developments at 10:00 a.m. Eastern (9:00 a.m. Central) tomorrow, November 1, 2018. 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 http://www.hornbeckoffshore.com, on the "Investors" homepage of the Company's website at least fifteen minutes early to register, download and install any necessary audio software.  Please call the Company's investor relations firm, Dennard-Lascar, at (713) 529-6600 to be added to its e-mail distribution list for future Hornbeck Offshore news releases. An archived version of the web cast will be available shortly after the call for a period of 60 days on the "Investors" homepage of the Company's website. Additionally, a telephonic replay will be available through November 15, 2018, and may be accessed by calling (201) 612-7415 and using the pass code 13683635#.

Attached Data Tables
The Company has posted an electronic version of the following four pages of data tables, which are downloadable in Microsoft Excel™ format, on the "Investors" homepage of the Hornbeck Offshore website for the convenience of analysts and investors.

In addition, 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."  Accordingly, investors should monitor that portion of the Company's website, in addition to following the Company's press releases, SEC filings, public conference calls and webcasts.

Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America.  Hornbeck Offshore currently owns a fleet of 74 vessels primarily serving the energy industry and expects to add two ultra high-spec MPSV newbuilds to its fleet in 2020.

Forward-Looking Statements

This Press Release contains "forward-looking statements," as contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company discusses factors it believes may affect its performance in the future. Forward-looking statements are all statements other than historical facts, such as statements regarding assumptions, expectations, beliefs and projections about future events or conditions. You can generally identify forward-looking statements by the appearance in such a statement of words like "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "intend," "may," "might," "plan," "potential," "predict," "project," "remain," "should," "will," or other comparable words or the negative of such words. The accuracy of the Company's assumptions, expectations, beliefs and projections depends on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The Company's actual future results might differ from the forward-looking statements made in this Press Release for a variety of reasons, including impacts from oil and natural gas prices in the U.S. and worldwide; continued weakness in demand and/or pricing for the Company's services through and beyond the maturity of any of the Company's long-term debt; unplanned customer suspensions, cancellations, rate reductions or non-renewals of vessel charters or vessel management contracts or failures to finalize commitments to charter or manage vessels; continued weak capital spending by customers on offshore exploration and development; the inability to accurately predict vessel utilization levels and dayrates; sustained weakness in the number of deepwater and ultra-deepwater drilling units operating in the GoM or other regions where the Company operates; the effect of inconsistency by the United States government in the pace of issuing drilling permits and plan approvals in the GoM or other drilling regions; the Company's inability to successfully complete the final two vessels of its current vessel newbuild program on-budget, including any failure or refusal by the issuer of performance bonds to cover cost overruns that may result at a completion shipyard; the inability to successfully market the vessels that the Company owns, is constructing or might acquire; the government's cancellation or non-renewal of the management, operations and maintenance contracts for non-owned vessels; an oil spill or other significant event in the United States or another offshore drilling region that could have a broad impact on deepwater and other offshore energy exploration and production activities, such as the suspension of activities or significant regulatory responses; the imposition of laws or regulations that result in reduced exploration and production activities or that increase the Company's operating costs or operating requirements, including any that may occur due to the results of the pending mid-term U.S. congressional elections on November 6, 2018; environmental litigation that impacts customer plans or projects; disputes with customers; bureaucratic, administrative or operating barriers that delay vessels in foreign markets from going on-hire; administrative barriers to exploration and production activities in Brazil; disruption in the timing and/or extent of Mexican offshore activities or changes in law or policy due to the results of the last presidential election; age or other restrictions imposed on the Company's vessels by customers; unanticipated difficulty in effectively competing in or operating in international markets; less than anticipated subsea infrastructure and field development demand in the GoM and other markets affecting the Company's MPSVs; sustained vessel over-capacity for existing demand levels in the markets in which the Company competes; economic and geopolitical risks; weather-related risks; upon a return to improved operating conditions, the shortage of or the inability to attract and retain qualified personnel, when needed, including vessel personnel for active vessels or vessels the Company may reactivate or acquire; any success in unionizing any of the Company's U.S. fleet personnel; regulatory risks; the repeal or administrative weakening of the Jones Act or adverse changes in the interpretation of the Jones Act; drydocking delays and cost overruns and related risks; vessel accidents, pollution incidents, or other events resulting in lost revenue, fines, penalties or other expenses that are unrecoverable from insurance policies or other third parties; unexpected litigation and insurance expenses; other industry risks; fluctuations in foreign currency valuations compared to the U.S. dollar and risks associated with expanded foreign operations, such as non-compliance with or the unanticipated effect of tax laws, customs laws, immigration laws, or other legislation that result in higher than anticipated tax rates or other costs; the possible loss or material limitation of the Company's tax net operating loss carryforwards and other attributes due to a change in control, as defined in Section 382 of the Internal Revenue Code; or the inability of the Company to refinance or otherwise retire certain funded debt obligations that come due in 2019, 2020 and 2021; or the potential for any impairment charges that could arise in the future and that would reduce the Company's consolidated net tangible assets which, in turn, would further limit the Company's ability to grant certain liens, make certain investments, and incur certain debt under the Company's senior notes indentures and the existing Credit Facility. In addition, the Company's future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it does business resulting in their non-payment or inability to perform obligations owed to the Company, such as the failure of customers to fulfill their contractual obligations or the failure by individual lenders to provide funding under the Company's existing Credit Facility, if and when required.  Further, the Company can give no assurance regarding when and to what extent it will effect common stock or note repurchases.  Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts the Company, or should the Company's underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated in its forward-looking statements, and its business, financial condition and results of operations could be materially and adversely affected and, if sufficiently severe, could result in noncompliance with certain covenants of the Company's existing indebtedness. Additional factors that you should consider are set forth in detail in the "Risk Factors" section of the Company's most recent Annual Report on Form 10-K as well as other filings the Company has made and will make with the Securities and Exchange Commission which, after their filing, can be found on the Company's website www.hornbeckoffshore.com.

Regulation G Reconciliation

This Press Release also contains references to the non-GAAP financial measures of earnings, or net income, before interest, income taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA. The Company views EBITDA and Adjusted EBITDA primarily as liquidity measures and, therefore, believes that the GAAP financial measure most directly comparable to such measure is cash flows provided by operating activities. Reconciliations of EBITDA and Adjusted EBITDA to cash flows provided by operating activities are provided in the table below. Management's opinion regarding the usefulness of EBITDA to investors and a description of the ways in which management uses such measure can be found in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, as well as in Note 10 to the attached data tables.

Hornbeck Offshore Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(in thousands, except Other Operating and Per Share Data)
Statement of Operations (unaudited):
	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2018		2018		2017		2018		2017
Revenues	$              58,468		$              58,431		$              53,666		$            158,486		$            135,171
Costs and expenses:
Operating expenses	38,203		34,858		30,082		109,030		89,385
Depreciation and amortization	27,568		26,886		27,155		81,094		83,501
General and administrative expense	15,134		12,246		12,899		40,255		36,573
	80,905		73,990		70,136		230,379		209,459
Gain (loss) on sale of assets	25		(13)		(197)		55		(178)
Operating loss	(22,412)		(15,572)		(16,667)		(71,838)		(74,466)
Other income (expense):
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