http://ir.hornbeckoffshore.com
Google Finance
Filing
July, 20, 2015
2015 Q1 Data
1.Basic Information
(1) History
Offshore supply vessels company. Provide transportation and services for off shore oil rigs. It was founded by Todd Hornbeck(current CEO)at 1997. Previously in 1980, his dad, Larry Hornbeck founded the original Hornbeck Offshore Services Inc. It went IPO next year and grew to a 100+ vessel company. Todd was working for the original company for several years until it was merged with Tidewater in 1996. In 1997, Todd left tidewater and create the new company from scratch. It went IPO at 2004 and grow to have around 60 vessels now mainly build from new and some acquisitions.
(2) Business related:
Day rate: The rate it charge its customers per vessel per day. Its a very important rate number. However, it is also pretty misleading. For example, different specific vessels have different day rates. So compare historic day rate might be hard because the vessel mix will change a lot as time goes by. Also compare rates between different OSV provider might not show the true picture. Also currently the day rate is under price pressure. But it is hard to tell from the day rate released. So far I still couldn't understand it very well.
Utilization rate: The vessels are really in service compare to total vessels. Usually the company can enjoy over 80% Utilization rate which much higher than its competitors.
Stacking: In a downturn when no demand for service, the company will park some older vessels on shore and laid off all workers. This will significantly reduce the cost. Currently the company stacked 18 vessels.
Drydocking: It is requirement for OSV to be maintained twice in each 5 years period. The cost is capitalized an amortized in 30 months(2.5 years) once the work is done. When a vessel is stacked, the drydocking can be postponed. But it must be done before it can be put back to service again.
(3) Management.
Todd Hornbeck: 47 years old, CEO and founder. He had worked for his dad's old company at a very young age. He found the new company at around 29 years old. The company was create with no vessels and just $1M capital. He managed the company pretty well. From many part, it is much than its competitors. Its vessels is much newer and enjoy a better margin around 50%-60%. SG&A expense, is very consistent at 10% and controlled very well.
The company currently has 3 debts totally around $1B. All mature at around 2020. Average interest rate is around 5% which indicate a $50m annual interest expense currently.
(5) Insider holding, options, Insider trading info, share buy back.
Todd Hornbeck: 830k around 2.3%.
(6) Employee numbers.Around 1640 at 2014 year end.
(7) Auditor
Ernst & Young LLP
(8) Industry comparison.
1) Tidewater: The biggest one which the original Hornbeck merged to at 1996. The company has around 300 vessels. Revenue around 1.5B/year. Current market cap below $1B while book value around $2.5B. It has gross margin around 40% and SG&A ratio around 15%. It seems its vessels is more older than HOS with gross asset value of $4.8B compare to HOS's $2.3B. It seems only a meaningful competitor to HOS in Mexico while not much in GoM.
2) Seacor Holdings: Has over 170 vessels, however, it seems includes a lots of mini vessels. Gross asset value $2.4B compare HOS's $2.3B. Its business is more diversified. The offshore business is not doing good but others seems OK. Annual revenue around $1.3B. Gross margin in 30%'s. SG&A over 10%. Market cap around $1.1B with Book value $1.4m. Also its vessels seems have much lower book value than HOS. it sold 14 vessels in 2014 for less than $180m compare HOS sold 3 vessels for $114m. It seems only a meaningful competitor in Mexico to HOS while not much in GoM.
3) Edison Chouest Offshore: Private company. Over 200 vessels. It also is a ship builder. Major competitor ot HOS in GoM(#1).
4) Harvey Gulf: Family business. Has around 50 OSVs and 3 MPSVs. Major competitor in both US GoM(#3) and Mexico(#2). Roughly has the same market shares as HOS on both area.
(9) Major events.
1) 2013: The company sold all downstream business(Tugs, Tanks) for $227.5m
2) 2015 Q1: The company sold 3 vessels to US military for $114m with 4th pending later this year. Each vessel logged a pretax gain for around $11m.
1) 2013: The company sold all downstream business(Tugs, Tanks) for $227.5m
2) 2015 Q1: The company sold 3 vessels to US military for $114m with 4th pending later this year. Each vessel logged a pretax gain for around $11m.
(1)The amortization charge is soled the deferred drydocking expense. Need more study on this.
3. Valuation
Recent price is $16.5. Shares 35.7m. Market Cap around $600m. Tangible book value around $39/share. Cash $185m. Debt around $1070m. Net debt is about $900m.
The company's result is quite consistent. Before 2010, its gross margin is in the 60%, after that it is in the 50%. SG&A is around 10%. EBITDA is in the 50% and 40% for before and after 2010. Interest Expense currently is around $50m/year. It might go down once the debt is going down. Maintenance CapX is hard to figure out. Using the depreciation and amortization number, it should be around $100m/year currently.
In a recovery case, the company could still get around $600m revenue. Using 45% EBITDA margin, $100m Maintenance CapX, $50m interest, 35% tax rate. It could generate (600*45%-100-50)*(1-35%)=$78m in net income.
In a bad case, assume it gets $400m revenue. 35% EBITDA margin. The rest the same. It will likely to report a loss.
4. Risk
(1)The founder own quite a few shares which is not what I like to see. Also the compensation for management is quite generous although most of them are stocks. On the plus side, he seems pretty good in doing the business with great experience and pretty good control on cost.
(2) Currently there is way more over supply of OSV vessels. Plus the low oil price, the whole OSV industry is in trouble. The company could see serious revenue and margin decrease.
(3) The debt it has is a little bit high, I wish it could be just in the $500m level.
(4) It is harder to understand its maintenance CapX. The drydocking expense is capitalized and amortized. It does provide a number on maintenance CapX, but contains quite some items. Need do more study.
5. Conclusion
(1) The current share price is just several dollars than its IPO in 2004, while the book value tripled, the company has accumulate over $600m in equity during the past 11 years.
(2) If the company can survive current storm, the current price is very attractive. Given the good management and the better shape it has than its competitors, I am quite confident that it will likely to survive. However, it is hard to tell when that will happen and how bad the downturn is, just likes the CEO has said, it is just a matter of a V shape or a U shape. I think it is more likely be a U shape, it might take several years until the company can regain grows again.
6.Links
