Hercules Offshore, Inc. (HERO)

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Hercules Offshore (HERO)

Q4 2013 Earnings Call

February 06, 2014 11:00 am ET


Son P. Vann - Vice President of Investor Relations & Planning

John T. Rynd - Chief Executive Officer, President and Executive Director

Stephen M. Butz - Chief Financial Officer and Executive Vice President


Collin Gerry - Raymond James & Associates, Inc., Research Division

Gregory Lewis - Crédit Suisse AG, Research Division

Robin E. Shoemaker - Citigroup Inc, Research Division

Ian Macpherson - Simmons & Company International, Research Division

Matthew Marietta - Stephens Inc., Research Division

John Booth Lowe - Cowen and Company, LLC, Research Division

Matthew D. Conlan - Wells Fargo Securities, LLC, Research Division

Judson E. Bailey - ISI Group Inc., Research Division

David Wilson - Howard Weil Incorporated, Research Division

Jeffrey Spittel



Ladies and gentlemen, and welcome to the Fourth Quarter 2013 Hercules Offshore, Inc. Earnings Conference Call. My name is Dave, I'll be your operator for today. [Operator Instructions] As a reminder, the call is being replayed -- is being recorded, I'm sorry, for replay purposes. I'd now like to turn the call over to Mr. Son Vann, Vice President of Investor Relations. Please proceed, sir.

Son P. Vann

Thank you, Dave. Good morning, and welcome everyone, to our fourth quarter and full year 2013 earnings call. With me today are: John Rynd, CEO and President; and Stephen Butz, Executive Vice President and CFO; along with members of our senior management team, including Troy Carson, Senior Vice President, Chief Accounting Officer; Beau Thompson, General Counsel; and Craig Muirhead, Vice President and Treasurer. This morning, we issued our fourth quarter results and filed an 8-K with SEC. The press release is available on our website, herculesoffshore.com. John will begin the call with some broad remarks regarding our quarterly performance, current market conditions and recent company events. Stephen will follow with a more detailed financial discussion and provide cost guidance for 2014. We will then open the call up for Q&A.

Before we begin, let me remind everyone that our call will contain forward-looking statements. Except for statements of historical facts, all statements that address our outlook for 2014 and beyond, as well as activities, events or developments that we expect, estimate, project, believe or anticipate may or will occur in the future, are forward-looking statements. Forward-looking statements involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in such statements. You can obtain more information about these risks and other factors in our SEC filings, which can also be found on the SEC's website, as well as our website, sec.gov., herculesoffshore.com. Now with that, let me turn the call over to John.

John T. Rynd

Good morning, everyone, and thanks for joining us today. This morning, we reported fourth quarter and full year 2013 results. For the fourth quarter, we incurred a loss from continuing operations of $100.8 million or $0.63 per diluted share, compared to income of $2.4 million or $0.01 per share in the fourth quarter 2012. The latest quarterly results include several nonoperational items that reduced our income from continuing operations by $123.4 million or $0.77 per share, which Stephen will discuss in greater detail in his prepared remarks. Excluding the impact of these items, our adjusted fourth quarter 2013 income from continuing operations was $0.14 per share. For the full year 2013, we reported net loss of continuing operations of $26.8 million or $0.17 per diluted share, compared to a loss of $121 million or $0.79 per diluted share for 2012. Excluding nonoperational items, adjusted income from continuing operations was $44 million or $0.27 per share for the full year 2013, versus a loss of $62 million or $0.40 per share for 2012. We had a number of achievements in 2013, along with a few setbacks, but overall, the year marks a pivotal period for Hercules Offshore as we took several steps to modernize our fleet, rationalize our asset mix and reduce our cost to capital. So before I discuss the market outlook, I would like to briefly highlight some of these key accomplishments. The most significant was our acquisition of Discovery Offshore. With Discovery, we now have full ownership of 2 premier super A-class jackups rigs, the Hercules Triumph and Hercules Resilience, that we expect will command premium pricing for many years to come. Since acquiring these rigs, we have placed the Triumph on a high dayrate, short-term contract in India. While we missed on a few long-term opportunities earlier in the year, primarily because we were too bullish on pricing, I believe that we are now close to securing a multiyear opportunity for one of the rigs. The main contract terms have been agreed to, and we are hopeful that we can finalize the contract within the next month. If we are successful securing this work, startup is expected some time during the third quarter of 2014, at a dayrate in the low $200,000 levels. We are also in discussions of the shorter-term opportunities for both rigs. Pricing on these shorter-term jobs can vary by location, ranging from a low of $160,000 per day, to a high of $200,000 plus, depending on the operators' requirements. In keeping with our fleet renewal strategy, we also acquired a relatively new, high-capacity liftboat in West Africa, the Bull Ray. Demand and pricing for the vessel has surpassed our initial expectations. In fact, in its first full year of operations, we estimate that the cash flow generated from the Bull Ray alone is almost as much as what the entire Domestic Liftboat segment generated during our last year of ownership. As many of you know, we sold Domestic Liftboats, as well as the inland barge segment last year, in order to better focus resources on businesses that have more attractive long-term growth and return prospects. The sale of these segments generated over $100 million, or about 10x the annual cash flow generated by these segments. We also recently sold the Hercules 170 for approximately $8 million, a rig that has been stacked in the Middle East since 2009, with limited prospects of returning to service for us. We also continue to make progress on the balance sheet, lengthening our maturity profile and reducing our borrowing cost. Our most recent refinancing lowers our borrowing cost on a quarter of our debt by 300 basis points and over the next 4 years, we have early redemption options on our remaining debt, allowing for the possibility of further reductions in our fixed charges. I am confident that the these strategic moves, coupled with our revenue backlog of over $1 billion, will improve our long-term competitive position and reduce the volatility of our overall operations.

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