Hercules Offshore Announces Second Quarter 2014 Results

HOUSTON, July 23, 2014 /PRNewswire/ -- Hercules Offshore, Inc. (Nasdaq: HERO) today reported income from continuing operations of $6.6 million, or $0.04 per diluted share, on revenue of $243.0 million for the second quarter 2014, compared to income from continuing operations of $16.6 million, or $0.10 per diluted share, on revenue of $211.5 million for the second quarter 2013. As outlined in the Reconciliation of GAAP to Non-GAAP Financial Measures, second quarter 2014 results included a pre-tax gain of $17.9 million, related to the sale of three of our cold-stacked drilling rigs, as well as a pre-tax charge of $4.8 million, related to early debt retirement and issuance costs. On an after-tax basis, these items approximated a net gain of $13.1 million, or $0.08 per diluted share. This compares to second quarter 2013 results that included a non-cash gain of $14.9 million, or $0.09 per diluted share, related to the adjustment of our former investment in Discovery Offshore S.A.  

John T. Rynd, Chief Executive Officer and President of Hercules Offshore stated, "Second quarter results reflect a general slowdown in domestic drilling activity, as well as idle time on certain international rigs. The slowdown in the U.S. Gulf of Mexico has largely been driven by significant property transfers and consolidation among our customer base, which has led to disruptions in their respective drilling programs. Our latest discussions with various domestic customers suggest activity levels will rebound late this year. In the meantime, we have taken proactive measures to reduce costs, including our recent decision to postpone the regulatory survey on one of our domestic rigs until visibility improves. Dayrates remain firm in the U.S. Gulf of Mexico, as stable crude oil prices support customer economics. Our International Offshore segment was impacted by downtime, due in part to the contract termination on the Hercules 267 in Angola. Lastly, International Liftboats experienced wide fluctuations in utilization, principally due to poor weather in West Africa. Customer capital spending reductions in Nigeria has also hindered activity.

While our third quarter results will likely be impacted by the current operational challenges, conditions are expected to improve toward year end. We are also making progress on the construction of our newbuild rig, which holds a five year contract with Maersk Oil. This award demonstrates how we are able to leverage the skillset of our organization to advance the Company's strategic initiatives of expanding our operational footprint and high-grading our fleet."

Domestic Offshore

Revenue generated from Domestic Offshore for the second quarter 2014 increased by 10.5% to $140.4 million from $127.0 million in the second quarter 2013, driven by higher dayrates. Average revenue per rig per day increased by approximately 28.4% to $108,237 in the second quarter 2014 from $84,328 in the comparable 2013 period. Utilization declined to 79.2% in the second quarter 2014 from 88.8% in the second quarter 2013, largely as a result of the Hercules 150, Hercules 201 and Hercules 212 undergoing scheduled regulatory surveys and repairs during the period. Operating expenses of $63.5 million in the second quarter 2014 include a gain of $7.4 million from the sale of the Hercules 250 and Hercules 2002, compared to expenses of $65.6 million in the second quarter 2013. Domestic Offshore generated operating income of $57.3 million in the second quarter 2014 compared to operating income of $39.9 million in the second quarter 2013.

International Offshore

International Offshore revenue increased to $71.7 million in the second quarter 2014 from $48.8 million in the second quarter 2013, largely due to the addition of the Hercules Triumph and Hercules Resilience. The rig additions also contributed to a 35.8% increase in average revenue per rig per day to $157,637 for the second quarter 2014 from $116,079 in the second quarter 2013. Utilization fell to 62.5% in the second quarter 2014 from 78.1% in the second quarter 2013, primarily as a result of the contract termination for the Hercules 267 in Angola, downtime on the Hercules 261 to undergo its scheduled regulatory survey, and transit time between contracts on the Hercules Resilience. Operating expenses for the second quarter 2014 increased to $44.1 million from $33.7 million in the respective 2013 period, primarily due to the incremental operating cost associated with the rig additions, partially offset by a gain of $10.5 million from the sale of the Hercules 258. International Offshore recorded operating income of $6.7 million in the second quarter 2014 compared to an operating loss of $3.3 million in the prior year period.

International Liftboats

International Liftboats revenue was $30.9 million in the second quarter 2014, compared to $35.7 million in the prior year period. This revenue decline was driven by lower utilization, which averaged 61.0% during the second quarter 2014 compared to 70.5% in the same 2013 period, as budget constraints from some of our largest consumers in Nigeria as well as weather related downtime impacted current period demand. Average revenue per liftboat per day was relatively flat at $24,162 in the second quarter 2014 compared to $24,207 in the second quarter 2013. Operating expenses during the second quarter 2014 were $19.1 million, compared to $19.6 million in the second quarter 2013. General and administrative expenses in the second quarter 2014 totaled $6.8 million and include approximately $5.3 million of bad debt expense in our West Africa region.  International Liftboats recorded an operating loss of $0.7 million in the second quarter 2014 compared to operating income of $9.9 million in the second quarter 2013.

Non-GAAP

Certain non-GAAP performance measures and corresponding reconciliations to GAAP financial measures for the Company have been provided for meaningful comparisons between current results and prior operating periods. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position, or cash flows that excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles. In order to fully assess the financial operating results, management believes that the adjusted income (loss) from continuing operations figures included in this release are appropriate measures of the continuing and normal operations of the Company. However, these measures should be considered in addition to, income from continuing operations, and not as a substitute for, or superior to, net income (loss), operating income, cash flows from operations, or other measures of financial performance prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table that follows the financial statements. Please see the attached Reconciliation of GAAP to Non-GAAP Financial Measures for a complete description of the adjustments made to Operating Income, Income from Continuing Operations and Diluted Income per Share.

Conference Call Information

Hercules Offshore will conduct a conference call at 10:00 a.m. CDT (11:00 a.m. EDT) on July 23, 2014, to discuss its second quarter 2014 financial results. To participate in the call, dial 877-703-6103 (Domestic) or 857-244-7302 (International) and reference access code 53625660 approximately 10 minutes prior to the start of the call. The conference call will also be broadcast live via the Internet at http://www.herculesoffshore.com.

A replay of the conference call will be available by telephone on July 23, 2014, beginning at 2:00 p.m. CDT (3:00 p.m. EDT), through July 30, 2014. The phone number for the conference call replay is 888-286-8010 (Domestic) or 617-801-6888 (International) with access code 59712288. Additionally, the recorded conference call will be accessible through our website at http://www.herculesoffshore.com for 7 days after the conference call.

Additional Information

Headquartered in Houston, Hercules Offshore, Inc. operates a fleet of 36 jackup rigs, including one rig under construction, and 24 liftboats. The Company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance, and decommissioning operations in several key shallow water provinces around the world. For more information, please visit our website at http://www.herculesoffshore.com.

The news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are subject to a number of risks, uncertainties and assumptions, including the factors described in Hercules Offshore's most recent periodic reports and other documents filed with the Securities and Exchange Commission, which are available free of charge at the SEC's website at http://www.sec.gov or the Company's website at http://www.herculesoffshore.com. Hercules Offshore cautions you that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected or implied in these statements.

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)




June 30,


December 31,



2014


2013



(Unaudited)



ASSETS






Current Assets:







Cash and Cash Equivalents


$        191,905


$       198,406



Accounts Receivable, Net


198,275


220,139



Prepaids


41,771


20,395



Current Deferred Tax Asset


10,876


10,876



Other


14,153


17,363





456,980


467,179







Property and Equipment, Net


1,819,400


1,808,526


Other Assets, Net


26,512


25,743








$     2,302,892


$    2,301,448






LIABILITIES AND STOCKHOLDERS' EQUITY






Current Liabilities:







Accounts Payable


$           87,584


$         80,018



Accrued Liabilities


65,833


81,500



Interest Payable


32,281


33,067



Insurance Notes Payable


-


9,568



Other Current Liabilities


30,431


35,735



216,129


239,888







Long-term Debt


1,210,796


1,210,676


Deferred Income Taxes


15,394


14,452


Other Liabilities


7,012


12,732









Commitments and Contingencies













Stockholders' Equity


853,561


823,700












$      2,302,892


$    2,301,448

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)














Three Months Ended

June 30,


Six Months Ended

June 30,




2014


2013


2014


2013





















Revenue


$242,963


$211,456


$499,697


$397,651











Costs and Expenses:










Operating Expenses


126,725


118,857


267,477


232,811


Depreciation and Amortization


43,670


37,928


83,753


72,866


General and Administrative


22,519


21,421


40,746


40,537




192,914


178,206


391,976


346,214











Operating Income


50,049


33,250


107,721


51,437











Other Income (Expense):










Interest Expense


(26,069)


(18,040)


(48,970)


(35,135)


Loss on Extinguishment of Debt


(4,767)


-


(19,925)


-


Gain on Equity Investment


-


14,876


-


14,876


Other, Net


214


(1,511)


364


(1,315)











Income Before Income Taxes


19,427


28,575


39,190


29,863

Income Tax Benefit (Provision)


(12,781)


(12,001)


(12,628)


27,009

Income from Continuing Operations


6,646


16,574


26,562


56,872

Loss from Discontinued Operations, Net of Taxes


-


(43,953)


-


(49,089)

Net Income (Loss)


6,646


(27,379)


26,562


7,783

Loss attributable to Noncontrolling Interest


-


18


-


18

Net Income (Loss) attributable to Hercules Offshore, Inc.


$    6,646


$ (27,361)


$  26,562


$    7,801





















Net Income (Loss) attributable to Hercules Offshore, Inc. Per Share:









Basic:










Income from Continuing Operations


$     0.04


$     0.10


$     0.17


$     0.36


Loss from Discontinued Operations


-


(0.27)


-


(0.31)


Net Income (Loss)


$     0.04


$   (0.17)


$     0.17


$     0.05

Diluted:










Income from Continuing Operations


$     0.04


$     0.10


$     0.16


$     0.35


Loss from Discontinued Operations


-


(0.27)


-


(0.30)


Net Income (Loss)


$     0.04


$   (0.17)


$     0.16


$     0.05











Weighted Average Shares Outstanding:










Basic 


160,713


159,574


160,392


159,252


Diluted


161,795


161,442


161,839


161,283

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)










Six Months Ended June 30,




2014


2013

Cash Flows from Operating Activities:






Net Income


$  26,562


$   7,801


Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:






Depreciation and Amortization


83,753


83,764


Stock-Based Compensation Expense


4,771


5,169


Deferred Income Taxes


(5,213)


(20,812)


Gain on Equity Investment


-


(14,876)


Provision for Doubtful Accounts Receivable


5,088


356


(Gain) Loss on Disposal of Assets, Net


(17,003)


1,743


Asset Impairment


-


44,370


Other


4,220


3,585


Net Change in Operating Assets and Liabilities


(37,208)


(19,493)


Net Cash Provided by Operating Activities


64,970


91,607







Cash Flows from Investing Activities:






Acquisition of Assets, Net of Cash Acquired


-


(178,136)


Capital Expenditures


(100,448)


(80,699)


Insurance Proceeds Received


9,067


-


Proceeds from Sale of Assets, Net


23,717


8,797


Net Cash Used in Investing Activities


(67,664)


(250,038)







Cash Flows from Financing Activities:






Long-term Debt Borrowings


300,000


-


Redemption of 7.125% Senior Secured Notes


(300,000)


-


Redemption of 3.375% Convertible Senior Notes


-


(61,274)


Payment of Debt Issuance Costs


(3,914)


-


Other


107


1,170


Net Cash Used In Financing Activities


(3,807)


(60,104)







Net Decrease in Cash and Cash Equivalents


(6,501)


(218,535)

Cash and Cash Equivalents at Beginning of Period


198,406


259,193

Cash and Cash Equivalents at End of Period


$191,905


$ 40,658

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA

(Dollars in thousands, except per day amounts)

(Unaudited)














Three Months Ended

June 30,


Six Months Ended

June 30,




2014


2013


2014


2013











Domestic Offshore:










Number of rigs (as of end of period)


26


29


26


29


Revenue


$ 140,383


$ 126,998


$ 283,648


$ 248,113


Operating expenses


63,538


65,559


136,338


125,310


Depreciation and amortization expense


17,978


19,636


35,349


39,480


General and administrative expenses


1,584


1,902


3,132


3,467


Operating income


$   57,283


$   39,901


$ 108,829


$   79,856











International Offshore:










Number of rigs (as of end of period)


10


11


10


11


Revenue


$   71,725


$   48,753


$ 152,663


$   80,527


Operating expenses


44,061


33,667


91,599


65,578


Depreciation and amortization expense


19,075


12,767


35,701


22,787


General and administrative expenses


1,864


5,652


3,996


7,664


Operating income (loss)


$     6,725


$   (3,333)


$   21,367


$ (15,502)











International Liftboats:










Number of liftboats (as of end of period)


24


24


24


24


Revenue


$   30,855


$   35,705


$   63,386


$   69,011


Operating expenses


19,126


19,631


39,540


41,923


Depreciation and amortization expense


5,616


4,799


10,742


9,151


General and administrative expenses


6,826


1,338


8,253


2,848


Operating income (loss)


$      (713)


$     9,937


$     4,851


$   15,089











Total Company:










Revenue


$ 242,963


$ 211,456


$ 499,697


$ 397,651


Operating expenses


126,725


118,857


267,477


232,811


Depreciation and amortization expense


43,670


37,928


83,753


72,866


General and administrative expenses


22,519


21,421


40,746


40,537


Operating income


50,049


33,250


107,721


51,437


     Interest expense


(26,069)


(18,040)


(48,970)


(35,135)


     Loss on extinguishment of debt


(4,767)


-


(19,925)


-


     Gain on equity investment


-


14,876


-


14,876


     Other, net


214


(1,511)


364


(1,315)


Income before income taxes


19,427


28,575


39,190


29,863


     Income tax benefit (provision)


(12,781)


(12,001)


(12,628)


27,009


Income from continuing operations


6,646


16,574


26,562


56,872


Loss from discontinued operations, net of taxes


-


(43,953)


-


(49,089)


Net income (loss)


6,646


(27,379)


26,562


7,783


Loss attributable to noncontrolling interest


-


18


-


18


Net income (loss) attributable to Hercules Offshore, Inc.


$     6,646


$ (27,361)


$   26,562


$     7,801

 

HERCULES OFFSHORE, INC. AND SUBSIDIARIES

SELECTED FINANCIAL AND OPERATING DATA - (Continued)

(Dollars in thousands, except per day amounts)

(Unaudited)












Three Months Ended June 30, 2014


Operating Days


Available Days


Utilization (1)


Average

Revenue

per Day (2)


Average

Operating

Expense

per Day (3)











Domestic Offshore

1,297


1,638


79.2%


$   108,237


$            38,790

International Offshore

455


728


62.5%


157,637


60,523

International Liftboats

1,277


2,093


61.0%


24,162


9,138












Three Months Ended June 30, 2013


Operating Days


Available Days


Utilization (1)


Average

Revenue

per Day (2)


Average

Operating

Expense per

Day (3)











Domestic Offshore

1,506


1,695


88.8%


$     84,328


$            38,678

International Offshore

420


538


78.1%


116,079


62,578

International Liftboats

1,475


2,093


70.5%


24,207


9,379












Six Months Ended June 30, 2014


Operating Days


Available Days


Utilization (1)


Average

Revenue

per Day (2)


Average

Operating

Expense per

Day (3)











Domestic Offshore

2,641


3,258


81.1%


$   107,402


$            41,847

International Offshore

1,050


1,403


74.8%


145,393


65,288

International Liftboats

2,476


4,163


59.5%


25,600


9,498












Six Months Ended June 30, 2013


Operating Days


Available Days


Utilization (1)


Average

Revenue

per Day (2)


Average

Operating

Expense per

Day (3)











Domestic Offshore

3,054


3,315


92.1%


$     81,242


$            37,801

International Offshore

689


988


69.7%


116,875


66,374

International Liftboats

2,925


4,104


71.3%


23,594


10,215

 

(1)

Utilization is defined as the total number of days our rigs or liftboats, as applicable, were under contract, known as operating days, in the period as a percentage of the total number of available days in the period. Days during which our rigs and liftboats were undergoing major refurbishments, upgrades or construction, and days during which our rigs and liftboats are cold stacked, are not counted as available days. Days during which our liftboats are in the shipyard undergoing drydocking or inspection are considered available days for the purposes of calculating utilization. 



(2)

Average revenue per rig or liftboat per day is defined as revenue earned by our rigs or liftboats, as applicable, in the period divided by the total number of operating days for our rigs or liftboats, as applicable, in the period.



(3)

Average operating expense per rig or liftboat per day is defined as operating expenses, excluding depreciation and amortization, incurred by our rigs or liftboats, as applicable, in the period divided by the total number of available days in the period.  We use available days to calculate average operating expense per rig or liftboat per day rather than operating days, which are used to calculate average revenue per rig or liftboat per day, because we incur operating expenses on our rigs and liftboats even when they are not under contract and earning a dayrate.

 

Hercules Offshore, Inc. and Subsidiaries

 Reconciliation of GAAP to Non-GAAP Financial Measures

 (Unaudited)

 (In thousands, except per share data)


We report our financial results in accordance with generally accepted accounting principles (GAAP). However, management believes that certain non-GAAP performance measures and ratios may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Non-GAAP financial measures we may present from time to time are operating income, net income or diluted earnings per share excluding certain charges or amounts. These adjusted income amounts are not a measure of financial performance under GAAP. Accordingly, they should not be considered as a substitute for operating income, income from continuing operations, net income, earnings per share or other income data prepared in accordance with GAAP. See the table below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and six months ended June 30, 2014 and 2013. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the following table:

 


Three Months Ended

June 30,


Six Months Ended

June 30,



2014


2013


2014


2013











Operating Income:









     GAAP Operating Income

$  50,049


$  33,268


$ 107,721


$  51,455


     Adjustment

(17,879)

(a)

-


(17,879)

(a)

-


     Non-GAAP Operating Income

$  32,170


$  33,268


$   89,842


$  51,455











Other Expense:









     GAAP Other Expense

$ (30,622)


$   (4,675)


$ (68,531)


$ (21,574)


     Adjustment

4,767

(b)

(14,876)

(c)

19,925

(d)

(14,876)

(c)

     Non-GAAP Other Expense  

$ (25,855)


$ (19,551)


$ (48,606)


$ (36,450)











Benefit (Provision) for Income Taxes:









     GAAP Benefit (Provision) for Income Taxes

$ (12,781)


$ (12,001)


$ (12,628)


$  27,009


     Tax Adjustment

-


-


-


(37,729)

(e)

     Non-GAAP Provision for Income Taxes

$ (12,781)


$ (12,001)


$ (12,628)


$ (10,720)











Income (Loss) from Continuing Operations attributable to Hercules Offshore, Inc.:









     GAAP Income from Continuing Operations

$    6,646


$  16,592


$   26,562


$  56,890


     Total Adjustment

(13,112)


(14,876)


2,046


(52,605)


     Non-GAAP Income (Loss) from Continuing Operations

$   (6,466)


$    1,716


$   28,608


$    4,285











Diluted Earnings (Loss) per Share:









     GAAP Diluted Earnings per Share

$      0.04


$      0.10


$       0.16


$      0.35


     Adjustment per Share

(0.08)


(0.09)


0.02


(0.32)


     Non-GAAP Diluted Earnings (Loss) per Share

$     (0.04)


$      0.01


$       0.18


$      0.03


 

(a)

This amount represents a $17.9 million gain on the sale of three cold-stacked drilling rigs.


(b)

This amount represents a charge of $4.8 million related to retirement of the remaining portion of our 7.125% senior secured notes in April 2014.


(c)

This amount represents a non-cash gain of $14.9 million related to the adjustment of our investment in Discovery Offshore to fair market value at the date our controlling interest was obtained.


(d)

This amount represents a charge of $19.9 million related to retirement of our 7.125% senior secured notes and issuance of our 6.75% senior notes.


(e)

This amount represents a tax benefit recognized of $37.7 million related to the change in characterization of the Seahawk acquisition for tax purposes from a purchase of assets to a reorganization.

 

SOURCE Hercules Offshore, Inc.



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