yadayada Posted November 30, 2014 Share Posted November 30, 2014 Operates in the gulf of mexico. The jones seems to be somewhat of a barrier of entry. Basicly for under a billion$ you get a company with a healthy balance sheet with equity of 1.3 billion$. Even if ships get sold of for a big discount, you cannot lose much. If fleet is mostly utilized with non depressed day rates, could get you in 100-200m$ range for FCF. Anyone who knows this one better that can comment? Link to comment Share on other sites More sharing options...
jschembs Posted November 30, 2014 Share Posted November 30, 2014 P/B might not be a worthwhile indicator when a substantial portion of their assets are in vessels and related equipment subject to writedowns/offs if they become uneconomic. I note they've engaged in a $1.25 bn newbuild program scheduled to continue delivering vessels into 2016. Link to comment Share on other sites More sharing options...
ATLValue Posted February 9, 2015 Share Posted February 9, 2015 I really like the bonds, it seems like they have been trading off of their lows as of late. Link to comment Share on other sites More sharing options...
Laxputs Posted February 27, 2015 Share Posted February 27, 2015 Hornbeck Offshore Services The company has one of the largest OSV fleets in the world servicing deepwater and ultra-deepwater rigs. They mainly focus in the Gulf of Mexico. HOS is just finishing up a massive fleet expansion going from 162'000 DWT in 2011 to 291'000 DWT by YE 2016. The Fifth New Build is ~85% paid for and is fully funded for 2015. Given their fleet will be of optimal size for the foreseeable future, there will be a very large difference between accounting D&A compared to FCF. Mgmt bought back 2.5% of company in 4Q14. There is a NCIB for 17% of the company outstanding. Mgmt will repurchase more shares this year. Write ups: http://www.freenpv.com/?p=457 http://seekingalpha.com/article/2941036-hornbeck-offshore-services-and-the-promise-of-the-deepwater Question: How does one calculate Revenue? They don't mention fuel costs in the 10-K so calculating Revenue as DWT * UR * Pricing = Gross Revenue whereas they state a net revenue? Seems like OpEx doesn't account for some major costs? Or am I calculating this wrong? TIA Link to comment Share on other sites More sharing options...
Travis Wiedower Posted February 28, 2015 Share Posted February 28, 2015 Revenue is basically dayrate * # of days * # of ships * utilization. Calculate for both OSVs and MPSVs. If your opex comment is referring to capex not being included, I recommend valuing HOS on a cash flow basis. They break out different capex in the financial notes. I actually just started my investing blog a couple days ago and my first two posts are about HOS. This is currently my top idea. Can read my thesis here: http://traviswiedower.com/2015/02/26/hornbeck-offshore-services-hos/ Link to comment Share on other sites More sharing options...
Laxputs Posted February 28, 2015 Share Posted February 28, 2015 Nice blog. Good luck with it. Spent the last couple days on HOS. I forgot to input "Days" in my revenue calc. And, I used DWT * Price per DWT instead of Day Rate * Number of Ships. But should work out to the same. Interesting they make no mention of fuel costs in their 10-K and how lower diesel prices should help ease the burden of stacking the 12 ships. Link to comment Share on other sites More sharing options...
yadayada Posted February 28, 2015 Author Share Posted February 28, 2015 http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/hos-hornbeck-offshore-services/ I think dayrate is after fuel costs already. Or oil majors pay for that, I dont know. I know that with dry bulk stocks, fuel price is reflected in day rates. So lower fuel cost is a higher dayrate. Also travis, you assume 296m of opex. It will be closer to 265-280 due to some one time training costs dissapearing. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted February 28, 2015 Share Posted February 28, 2015 Good eye, so bottom line is a little better than my post suggests. I know management has brought up the training costs a couple times, they haven't put a dollar amount on it though have they? Link to comment Share on other sites More sharing options...
Travis Wiedower Posted February 28, 2015 Share Posted February 28, 2015 Laxputs, Fuel cost is probably a smaller factor than you're thinking. TDW and CKH both break out opex and fuel is 7-10% of the total for both. My assumption has been that one way or the other, fuel cost gets passed on through dayrate. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted March 2, 2015 Share Posted March 2, 2015 More on the fuel question, I was curious exactly how it worked so I reached out to management. James Harp (CFO) clarified that their customers pay for all fuel and it doesn't pass through Hornbeck's P&L in any way. The only fuel HOS pays for is when they're not under time charter (which falls under opex). Link to comment Share on other sites More sharing options...
Laxputs Posted March 2, 2015 Share Posted March 2, 2015 Nice work. Thanks, Travis. I'm close to purchasing. I think it is very compelling and a base case IRR of 40-60% seems most likely here. Link to comment Share on other sites More sharing options...
kab60 Posted March 2, 2015 Share Posted March 2, 2015 They just announced the sale of three vessels and a gain from the sale (which was expected), but stock is trading down: http://www.twst.com/update/99689-hos-hornbeck-offshore-services-inc-hornbeck-offshore-completes-sale-of-three-vessels-to-us-navy-sale-of-fourth-vessel-expected-by-third-quarter-of-2015 - did I miss something nasty in that announcement? Seems very favorable if they are able to sell ships above stated book value. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted March 2, 2015 Share Posted March 2, 2015 Announcement all looks goods to me. HOS routinely trades up or down a couple percent per day so I wouldn't worry about it. And as you said, the sale (though not all the details) was already known so I can't imagine what in there would surprise anyone in a bad way. Link to comment Share on other sites More sharing options...
HWWProject Posted March 3, 2015 Share Posted March 3, 2015 Great memories here. Bought HOS back in 2010 during the Gulf drilling moratorium crisis caused by the BP spill and made a double - wrote article here: http://healthywealthywiseproject.com/2010/06/buying-when-theres-blood-in-the-street/ Looking at it now, it would seem their maintenance capex is far larger than their reported DDA, need to research this as it is causing very low returns in my DCF model. Need to figure this out. On the positive side, Jeff Hornbeck just bought $200k on the open market at $19. He had good timing back in 2010 as well (I found the stock thru following insider trading). The high debt level is also a big worry if oil prices dont recover soon. Good pick and good luck I'll continue with my due diligence on this. Link to comment Share on other sites More sharing options...
kab60 Posted March 7, 2015 Share Posted March 7, 2015 Great memories here. Bought HOS back in 2010 during the Gulf drilling moratorium crisis caused by the BP spill and made a double - wrote article here: http://healthywealthywiseproject.com/2010/06/buying-when-theres-blood-in-the-street/ Looking at it now, it would seem their maintenance capex is far larger than their reported DDA, need to research this as it is causing very low returns in my DCF model. Need to figure this out. On the positive side, Jeff Hornbeck just bought $200k on the open market at $19. He had good timing back in 2010 as well (I found the stock thru following insider trading). The high debt level is also a big worry if oil prices dont recover soon. Good pick and good luck I'll continue with my due diligence on this. Sorry for the stupid question, DDA? Do you have a take on maintenance capex? I'm not invested, but think it looks cheap. They've been FCF positive 9/10 years, cash flow is higher than reported net income, net income positive 9/10 years (only negative result was $3m). Link to comment Share on other sites More sharing options...
HWWProject Posted March 9, 2015 Share Posted March 9, 2015 Sorry for the stupid question, DDA? Do you have a take on maintenance capex? I'm not invested, but think it looks cheap. They've been FCF positive 9/10 years, cash flow is higher than reported net income, net income positive 9/10 years (only negative result was $3m). Over time DDA (Depreciation, Depletion, Amortization) is often a good proxy for maintenance capex. To check this I use a 5 year average of (Purchase of PPE) and (Purchase of Business) - adjusted into growth/maintenance. With HOS the 5-yr average of maintenance capex is about twice DDA which is a bit unusual. This high 'maintenance capex' is resulting in very low to no 'owner earnings'. Most of the cash seems to be going into PPE and not into shareholders pockets. Which may explain why long-term debt continues to increase. I haven't reviewed the 10-k yet to see more of what's happening here. But even when I use DDA as 'maintenance capex' the cash flows are not that exciting. I want to like this one as I had success before, will need to look further into first. Link to comment Share on other sites More sharing options...
Laxputs Posted March 9, 2015 Share Posted March 9, 2015 They just massively expanded their fleet. They went from 177'000 DWT to 295'000 DWT by 2017. A 5 year view of the cash flows doesn't tell us anything about the business. I think it's important to understand the business not just the financials. Going forward, post 2015, they will likely spend about 30m-80m in capex. Management told us they have about 200m to spend in 2015 on the 5th generation build out. And ~ 90m in capex. All of the former capex increases their earnings power and some of the latter capex increases their earnings power (as in put another crane on a ship allows them to charge a higher day rate) so could be seen as "growth" capex instead of "maintenance" capex. Management guides to about 50m or less in annually recurring m-capex. They see their fleet size as optimal for the locations they are servicing, so they have no plans to expand their fleet much above where it will be in 2016 when the last of the new ships arrive. That is the main thesis here: Cap-ex will be drastically reduced and FCF will sky rocket in 2016. More share buybacks are likely. The market will rerate them on their drastically increased total DWT and their drastically reduced capex. This is very similar to Hawaiian Holdings which I own. I don't own HOS but I think it offers good value. Link to comment Share on other sites More sharing options...
Pelagic Posted March 9, 2015 Share Posted March 9, 2015 Reading through their last conference call I thought this part was interesting. They recently sold assets for more than book value and are able to buy back shares for half book value. http://seekingalpha.com/article/2912906-hornbeck-offshore-services-hos-ceo-todd-hornbeck-on-q4-2014-results-earnings-call-transcript Michael Thompson - BHR Capital So I know if you can't put a lot of detail out, but my guess would be that you sold the vessels to the government assuming it closes in the next month or so at or above book value because it looks like you are booking gain on sale, I am not sure if you can disclose those? Jim Harp - EVP and CFO Yes absolutely yes. Michael Thompson - BHR Capital So your stock trades at more than a 50% discount to book or said differently at around four times cash earnings and I think everyone agrees it's a pretty awful environment. And you're selling assets at or above book. So I would assume given the fact that you have extended your liquidity profile with a move on the revolver you have got good cash flow even in a pretty nasty down cycle. Using cash to buy stock back at $0.50 on the dollar when you are selling vessels at or above a $0.100 on a dollar is a pretty good exercise? Jim Harp - EVP and CFO We don't disagree, look obviously we'll take it a quarter at a time but in general we agree with the philosophy that you are stating. Link to comment Share on other sites More sharing options...
Travis Wiedower Posted March 9, 2015 Share Posted March 9, 2015 Yup, pretty fantastic deal that is! The ships sold to the US Navy were purchased for $27M ~6 years ago and just sold for $38M. They depreciate ships over 25 years and account for 25% salvage value so to back door into the book value of these ships I believe it's $27M cost * .75 (to account for ending salvage value) = $20.25M / 25 years = $0.81M depreciation/yr * 6 years (age of ships) = $4.86M. Subtract that from the $27M purchase price and those ships were on the books for roughly $22.14M each, meaning they sold for 71% above book value! With that being said, I highly doubt this is representative of a normal sale because Congress forced the purchase of these ships--not exactly a great bargaining position for the Navy. HOS did sell another OSV in 4Q14 for above book value (didn't release exact numbers) so I'm very confident their ships are worth above book, though probably not as high as 71%. You can see some more book value calculations I did based on the Navy sale at http://traviswiedower.com/2015/02/27/hornbeck-book-value-update/. Link to comment Share on other sites More sharing options...
Pelagic Posted March 10, 2015 Share Posted March 10, 2015 Yup, pretty fantastic deal that is! The ships sold to the US Navy were purchased for $27M ~6 years ago and just sold for $38M. They depreciate ships over 25 years and account for 25% salvage value so to back door into the book value of these ships I believe it's $27M cost * .75 (to account for ending salvage value) = $20.25M / 25 years = $0.81M depreciation/yr * 6 years (age of ships) = $4.86M. Subtract that from the $27M purchase price and those ships were on the books for roughly $22.14M each, meaning they sold for 71% above book value! With that being said, I highly doubt this is representative of a normal sale because Congress forced the purchase of these ships--not exactly a great bargaining position for the Navy. HOS did sell another OSV in 4Q14 for above book value (didn't release exact numbers) so I'm very confident their ships are worth above book, though probably not as high as 71%. You can see some more book value calculations I did based on the Navy sale at http://traviswiedower.com/2015/02/27/hornbeck-book-value-update/. Excellent write up on your blog, I look forward to reading more of your posts. I kind of assumed the sale to the Navy wasn't representative of what other sales might look like but still, the point remains if they're able to sell assets on the market for somewhere close to what they're on the books for, it seems like that provides a decent margin of safety while they weather the downturn in offshore drilling. Link to comment Share on other sites More sharing options...
Homestead31 Posted March 25, 2015 Share Posted March 25, 2015 just some initial thoughts here (before even cracking the 10k) there has been some commentary about the company performing well in a down cycle... but has the down cycle really hit yet? i'm assuming HOS is dependent on capex from E&P types... E&P budgets were set months if not quarters ago, so it is likely that we won't know how bad things are going to get (earnings and cash flow wise) until the 2H15. note that in the 2010 oil price decline prices snapped back so quickly that capex budgets didn't really roll off the way they may this time. also, if i'm not mistaken, offshore typically has higher production costs than onshore, so when oil comes back, offshore will likely be the last too benefit volume wise. am i missing something here? thanks Link to comment Share on other sites More sharing options...
Travis Wiedower Posted April 1, 2015 Share Posted April 1, 2015 I have no idea if the down cycle has fully hit yet and would not be surprised if it gets worse, but I have modeled some pretty bad case scenarios and HOS will survive. And the worst case scenarios I've looked at are much worse in terms of utilization and dayrates than the situation right now so I'm not too worried. The lowest their P/B has ever been is .4, so considering their ships are selling for above book value right now there should be a floor on the stock not too far below where it is. You may be right on your production comment, but the flip side of offshore being so expensive is that projects are very long-term (10-20+ years) so they're less susceptible to short-term price changes. There's just too much money invested up front to give up on a 20 year project because of a 1-2 year downturn (doesn't mean they won't put pressure on Hornbeck's dayrates though). From an investing standpoint I much prefer the long-term, expensive projects in the Gulf vs something like shale where a project is 1-2 years. Link to comment Share on other sites More sharing options...
crastogi Posted April 30, 2015 Share Posted April 30, 2015 I have no idea if the down cycle has fully hit yet and would not be surprised if it gets worse, but I have modeled some pretty bad case scenarios and HOS will survive. And the worst case scenarios I've looked at are much worse in terms of utilization and dayrates than the situation right now so I'm not too worried. The lowest their P/B has ever been is .4, so considering their ships are selling for above book value right now there should be a floor on the stock not too far below where it is. You may be right on your production comment, but the flip side of offshore being so expensive is that projects are very long-term (10-20+ years) so they're less susceptible to short-term price changes. There's just too much money invested up front to give up on a 20 year project because of a 1-2 year downturn (doesn't mean they won't put pressure on Hornbeck's dayrates though). From an investing standpoint I much prefer the long-term, expensive projects in the Gulf vs something like shale where a project is 1-2 years. Big Pop Today as earnings continue to be good despite revenue drop. Have not checked out all the details yet. So far a good call, Travis Link to comment Share on other sites More sharing options...
Travis Wiedower Posted May 22, 2015 Share Posted May 22, 2015 Anyone going down to NOLA for Hornbeck's analyst day in a couple weeks? Would be great to meet up if so. Link to comment Share on other sites More sharing options...
Evolveus Posted July 22, 2015 Share Posted July 22, 2015 Travis, Did you make it down to analyst day? If so, any new take aways? Link to comment Share on other sites More sharing options...
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