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Edited Transcript of HOS earnings conference call or presentation 2-Aug-18 2:00pm GMT

Q2 2018 Hornbeck Offshore Services Inc Earnings Call

COVINGTON Aug 3, 2018 (Thomson StreetEvents) -- Edited Transcript of Hornbeck Offshore Services Inc earnings conference call or presentation Thursday, August 2, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James O. Harp

Hornbeck Offshore Services, Inc. - Executive VP & CFO

* Ken Dennard

Dennard Lascar Associates, LLC - Co-Founder, CEO and Managing Partner

* Todd M. Hornbeck

Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO

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Conference Call Participants

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* Coleman Wayne Sullivan

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Turner Holm

Clarksons Platou Securities AS, Research Division - Director

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Presentation

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Operator [1]

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Greetings, and welcome to the Hornbeck Offshore Services Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ken Dennard. Mr. Dennard, you may begin.

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Ken Dennard, Dennard Lascar Associates, LLC - Co-Founder, CEO and Managing Partner [2]

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Thanks, Sherry, and good morning, everyone. We appreciate you joining us for Hornbeck Offshore's conference call to review second quarter 2018 results and recent developments. We also welcome our Internet participants listening to the call live over the Web.

Please note that the information reported on this call speaks only as of today, August 2, 2018, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening.

During today's conference call, Todd and Jim will make projections about future financial performance, liquidity, operations and events that are not statements of historical fact and thus, constitute forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that may cause such future matters, including the company's actual results or actual future performance, to be materially different from what is being projected today.

You can locate additional information about factors that could cause the company's results to differ materially from those projected in the forward-looking statements in Hornbeck's SEC filings and in yesterday's press release under the -- and under the Investors section on the website, which is hornbeckoffshore.com. Of course, you can go to the SEC website at sec.gov.

This earnings call also contains references to EBITDA, which is a non-GAAP financial measure. A reconciliation of this financial measure to the most direct comparable GAAP financial measure is provided in the press release issued by the company yesterday afternoon.

The company uses its website as a means of disclosing material nonpublic 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.

Now with that behind me, I'd like to turn the call over to Todd Hornbeck, Chairman, President and CEO of Hornbeck Offshore. Todd?

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [3]

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Thank you, Ken. Good morning, everyone, and welcome to the Hornbeck Offshore Second Quarter 2018 Conference Call. With me today is Mr. Jim Harp, our Chief Financial Officer. And after my brief comments, Jim will take you through the numbers in a little bit more detail.

Yesterday evening, we announced second quarter 2018 results, which improved significantly from our first quarter results. While we are pleased with our financial results this quarter, it is important to note that the sequential increase was not driven by an increase in OSV demand in the Gulf of Mexico. The improvement was driven principally by our foreign deployments, some temporary and others permanent, which had the dual effect of driving our overall fleet utilization up as well as tightening the Gulf of Mexico market from a supply point of view, which gave us some traction on spot pricing here, at the last -- at least some temporary spot pricing traction.

In the Gulf of Mexico, there was no movement in the deepwater drilling unit count. We ended the quarter where we began, with an average of 21 floating units drilling in the second quarter. This represents the eighth quarter in a row that the number of deepwater units working has averaged in the low-20s, and it could get worse. We currently project, absent any additional fixtures, that the working rig count in the U.S. Gulf of Mexico could get as low as 19 units at some point during the second half of this year.

Make no mistake, the deepwater drilling market here remains anemic. That is true in our other core markets as well. While there has been a lot of positive sentiment in both Mexico and Brazil over the last year or so, the fact is the number of floating drilling units working has not improved much in those markets yet.

The second quarter was no exception. However, oil prices appeared to be firming in the $65 to $70 range, and there's no shortage of prognostications concerning an impending oil supply crunch due to underinvestment over the last several years.

So I guess, perhaps what we're seeing is the inevitable tug-of-war between oil companies and offshore drillers over contract terms that might endure into the next up cycle. Until that match is concluded, we think that the market for OSVs is going to remain very sloppy and unpredictable.

Short-term fixtures for drilling units will continue to rule the day and should produce modest demand for vessel services, but the market will remain very much in a transitional stage for drillers, many of which would prefer to preserve their optionality by not committing their assets to long-term contracts before rig prices improve. That dynamic affects our short-term outlook acutely. We believe the deepwater drilling market in the Gulf of Mexico and our other core markets will ultimately recover due to the lack of capital investment in those markets for the last several years.

While global demand is a variable factor, depletion is less so. Produced barrels have to be replaced, and deepwater reserves are a robust and efficient source of renewal. The Gulf of Mexico in particular is not only prolific but also [prove] stable, a rare combination around the Gulf volume. This is why we remain committed to the region and believe that we are strategically positioned to take advantage of a recovered market when it eventually materializes.

On the MPSV front, we also saw some slight improvement in utilization in the quarter. That is, for the most part, seasonal. There are some major projects in the Gulf of Mexico that, combined with the ongoing repair, maintenance and upgrading of the offshore oilfield, is creating some demand for a still oversupplied MPSV market.

On the positive side, we have, at least for the time being, not seen an influx of foreign vessels. We believe foreign operators are unlikely to commit MPSVs to this region given the legal challenges currently underway involving vessel activities and their compliance under the Jones Act. Litigation on that front is continuing in the D.C. circuit, and we could see some preliminary rulings issued late this year.

We have recently been awarded a spot contract for HOS Iron Horse and have mobilized the vessel to Mexico. Our other active MPSVs have recently completed their current contracts. If we are not successful in securing additional work for these idle vessels, our MPSV utilization could be negatively impacted in third and fourth quarter.

In May, we closed acquisition of 4 high-spec OSVs from Aries Marine Corporation and are satisfied with the manner in which we have been able to quickly integrate these assets and former Aries mariners into our fleet. We are focused on ensuring that these vessels meet our high standards of safety and quality.

To that end, after closing the acquisition, we took the opportunity to make some enhancements and update 2 of the vessels, one of which also immediately began its regulatory drydocking. All 4 vessels are now operating in the spot market in the Gulf of Mexico and our other core markets. Overall, we are very pleased with the vessels and believe that they will be accretive to our high-spec fleet of DP-2 Jones Act vessels going forward.

In Mexico, we completed the planned reflagging into Mexican registry of 3 formerly Jones Act high-spec vessels to support ongoing customer requirements in that market and to upgrade our Mexican fleet capability as drilling in the Mexican Gulf steps out into the deepwater arena. While we are watching political events very closely, we are committed, as ever, to the Mexican market, which shares a common Gulf of Mexico boundary with our U.S.-based market. We believe that our long operating history in Mexico as well as our fleet complement there provides us strategic advantages to service the exploration and development activities of our customers operating in Mexico over the long term.

In Brazil, we were recently awarded a multi-market contract by a non-Petrobras customer for the HOS Brass Ring, our Brazilian flag HOSMAX 300 vessel. One noteworthy highlight for our OSV fleet was the deployment of 4 HOSMAX vessels to support a frontier drilling program in the Caribbean. Our customer will take full advantage of the unmatched cargo capabilities of these vessels and successfully completing a complex logistics plan that included our HOS Port facility in Port Fourchon.

We continue to work closely with the surety company that issued the shipyard's performance bonds in order to complete the construction of the last 2 MPSVs that we still plan to deliver under OSV Newbuild Program #5. For now, we're not modifying our guidance any further regarding the expected delivery dates for those vessels, so we're not going to modify guidance or the delivery dates for those vessels at this time. We'll announce updated delivery dates once the completion yard has been selected and contract terms are finalized.

As a reminder, there is a total of $62 million of construction draws remaining under the program. We expect the cost overruns resulting from termination of the original contract, if any, will be satisfied from performance bonds that are in effect and under which we have made claims. We will provide further updates on this program as they develop.

As we have discussed previously, a principal strategic objective of ours is to address the 2020 and 2021 maturities of our unsecured bonds. We are evaluating alternative approaches and are continuing our dialogue with financial constituents as well as others as we work to develop a pragmatic solution to extend runway so that we can focus our strategic efforts on opportunities for growth in a recovered market. We'll keep you apprised of any developments when appropriate as we move forward in this process.

With that, let me turn the call over to Jim, and he'll walk you through the numbers in just a little bit more detail. Jim?

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James O. Harp, Hornbeck Offshore Services, Inc. - Executive VP & CFO [4]

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Thanks, Todd, and good morning, everyone. Yesterday afternoon, we reported our second quarter results and updated the forward-looking guidance information contained in the data tables to our press release to provide third quarter and updated annual guidance for 2018 and limited annual guidance for 2019 for various categories of financial and operational data. Keep in mind, this information is based on the current market environment, which is always subject to change.

Before moving into our review of the second quarter results, I want to briefly add to the highlights of the 4-vessel acquisition we announced last quarter and that Todd mentioned in his remarks. On May 18, 2018, we completed the acquisition of 4 high-spec OSVs from Aries Marine and certain of its affiliates for $36.6 million in cash plus $4.3 million for related vessel equipment, certain commercial-related intangibles, the cost of fuel and lube inventory and transaction fees, for a total purchase price of $40.9 million. The acquisition was fully funded with cash on hand, and in accordance with the terms of our First-Lien Credit Facility, the vessels will pledge as additional collateral against that facility.

Our second quarter net loss was $25 million or $0.67 per diluted share compared to a reported net loss of $39 million or $1.04 per diluted share in the first quarter. Our reported operating loss was $16 million in the current quarter -- a negative $16 million in the [current] quarter compared to an operating loss of $34 million in the first quarter of 2018.

EBITDA for the second quarter was a positive $11 million, up $18 million or 257% from first quarter negative EBITDA of $7 million.

Building upon Todd's opening remarks, while we are pleased with the results for the second quarter of 2018, these results are not indicative of a recent shift in our customers' exploration activities or an increase in the fundamental demand for our vessels, particularly in the Gulf of Mexico. We were simply able to capitalize on a temporary swing in the supply/demand equilibrium due to U.S. flag vessels leaving the Gulf of Mexico for other opportunities in this hemisphere, coupled with the typical seasonal uplift. This allowed us to briefly push spot rates for our HOSMAX vessels in the Gulf of Mexico during the second quarter, but we have been unable to sustain them into the third quarter as we had hoped.

As Todd said, we see little that leads us to believe that deep and ultra-deepwater exploration in our core markets will see a sharp rebound in activity in the immediate near term based on: one, actual activity levels for our OSVs and MPSVs since the end of the second quarter; two, the recent and pending return of several U.S. flag vessels to the Gulf of Mexico from spot activities abroad; and three, the off-seasonal decline typically experienced in the winter months of the fourth and first quarters. We expect forward EBITDA levels to directionally trend downward from this quarter's level during the remainder of 2018 and into the first quarter of 2019.

However, as we've said before, we're in the spot market with very little contract coverage, so anything can happen, positively or negatively. Given the historically low levels of EBITDA we are currently producing, it remains prudent to note that short periods of spot contract awards or downtime between spot jobs, especially for our MPSVs, can skew or swing our quarterly EBITDA meaningfully, either up or down, as the last 4 quarters amply illustrate. This quarterly volatility will persist until a more permanent increase in the active floating rig count takes hold above the low-20s. We are more optimistic about a possible demand-based inflection point mid next year at the earliest.

For additional information regarding EBITDA as a non-GAAP financial measure, please refer to the data tables in yesterday's earnings release, including Note 10. We have not, in the recent past, given actual dollar value EBITDA guidance and do not intend to do so in the future.

Revenue for the second quarter of 2018 was $58 million or 38% higher than the sequential quarter. Breaking down our sequential changes in revenue a little more granularly by vessel type. Revenue generated by our OSVs was roughly $31 million or 48% higher than the sequential quarter while revenue generated by our MPSVs was roughly $19 million or 52% higher than the sequential quarter, so pretty evenly split between the 2 vessel types on a percentage increase basis.

Average generation OSV dayrates for the second quarter of 2018 were approximately $19,600 or about $1,600 higher than the sequential quarter. Utilization for our new-generation OSVs for the second quarter of 2018 was 27%, up from 21% sequentially, while utilization for our MPSV in the second quarter of 2018 was 57%, up from 38% sequentially. Adjusting for stacked vessel days, the effective utilization for our active fleet of new-generation OSVs was 76% compared to 71% sequentially. Our effective or utilization-adjusted OSV dayrates were approximately $5,300 or about $1,600 higher than the sequential quarter.

Geographically, our foreign revenue was just under $6 million or 10% of our total revenue for the second quarter of 2018 compared to roughly $8 million or 19% of our total revenue for the first quarter of 2018, which represents a decrease of 25% in our non-U. S. revenue sequentially. This 9 percentage point drop in foreign revenue is primarily attributable to one of our MPSVs completing a charter overseas at the end of the first quarter and returning to the Gulf of Mexico.

Operating expenses of $35 million for the second quarter were down $1 million or 3% from the sequential quarter and were at the low end of our guidance range. Inclusive of the partial contribution of the 4-vessel acquisition that we closed in May, aggregate cash operating expenses for the full year 2018 are now projected to be in the range of $140 million to $150 million. Reflected in that projected cash OpEx for fiscal 2018 are the continuing effects of several cost-containment measures we initiated over the last 4 years, including, among other actions, the stacking of new-generation OSVs and MPSVs on various dates since October 1, 2014, [as well as company-wide] headcount reductions and across-the-board pay cuts for shoreside and vessel personnel. As a reminder, we have provided you with updated full year and third quarter 2018 OpEx guidance in our press release issued yesterday afternoon.

Consistent with our cash OpEx guidance for prior periods, these estimated ranges are good-faith estimates based on best available information as of today and are only intended to cover our currently anticipated active fleet complement, geographic footprint, charter mix and industry market conditions. While our updated guidance is predicated on an assumed average stacked fleet of just under 41 OSVs for the full year fiscal 2018, we may consider stacking or reactivating additional vessels as market conditions warrant.

Our second quarter general and administrative or G&A expense of $12 million was down $1 million or 8% compared to $13 million for the sequential quarter and was just above the midpoint of our quarterly guidance range. This sequential decrease in G&A expense was primarily due to lower long-term incentive compensation expense resulting from a change in mix of cash settled versus equity settled long-term incentive awards and accelerated expense for awards granted to retirement-eligible employees in the first quarter of 2018.

I'd like to go into a little more detail regarding the GAAP treatment of our stock-based compensation expense and how movements in our stock price can materially impact the amount of this type of expense included within our total G&A. Over the last 3 years, the company has had to reissue a greater mix of cash-settled units or phantom stock units than in the past due to a rapidly declining amount of shareholder-authorized equity-settled units. With the company's stock price at such reduced levels, the management and the board has elected, the last couple of years, not to seek shareholder approval for additional shares for use as equity awards to executives, employees and directors.

In addition, a greater proportion of these phantom units have been issued to retirement-eligible employees, which further amplifies the quarter-to-quarter G&A volatility. We added a new footnote to our press release issued yesterday, number 15, that generally describe our cash settled units are marked to market on a quarterly basis.

First of all, for grants to retirement-eligible employees, GAAP requires the full expense for these grants to be recognized at the grant date rather than amortized over the life of grant. Generally, this accelerated expense will materially impact our first quarter expense each year as a long-term incentive compensation is generally approved by the compensation committee and granted to employees in February or March.

Secondly, on a quarterly basis, GAAP requires that expense for all cash-settled awards, including those granted to retirement-eligible employees, be trued up for changes in the stock price during the current quarter from the previous quarter's level, together with a cumulative catch-up to adjust life-to-date expense for each grant to the current stock price.

So to recap and supplement our latest guidance, for the third quarter of 2018, G&A expense is expected to be in the range of $12 million to $14 million, inclusive of roughly $1.5 million of stock-based compensation expense valued at our 10-day trailing average stock price at the end of June 2018 of $3.49 per share. For full calendar 2018, G&A expenses are expected to be in the range of $48 million to $53 million, inclusive of roughly $7.8 million of stock-based compensation expense valued at our 10-day trailing average stock price [at the end of] June 2018 of $3.49 per share.

In order to give you an idea of how much increases or decreases in our stock price could affect the stock-based compensation component of our G&A expense, for the third quarter of 2018, based on the number of unvested grants currently outstanding, each $1 movement in our 10-day trailing average stock price at the end of September 2018 and then again every quarter thereafter above or below $3.49 per share would increase or decrease our G&A expense by roughly $1.8 million from our current third quarter guidance levels. To further illustrate how this variable supplement to our baseline G&A expense guidance will work going forward, perhaps an example would be helpful. If our 10-day trailing average stock price at the end of September 2018 were to equal our closing stock price yesterday of $4.75, the adjustment to our stock-based compensation expense and total G&A expense guidance for the third quarter of 2018 would be $2.3 million higher or the $1.26 increase from $3.49 to $4.75 multiplied by the per dollar amount I just mentioned of $1.8 million.

To be clear, our latest G&A guidance for the third quarter and full calendar year 2018 is predicated on the baseline assumption of no further increase or decrease in our stock price from the second quarter level of $3.49. Therefore, given that our future stock price is almost guaranteed to vary from $3.49 per share, analysts and investors will need to adjust their assumptions for our baseline G&A accordingly using the above formula and our actual 10-day trailing stock price at the end of September 2018, whatever it may be. We will update these supplemental metrics quarterly as part of our new guidance template because the stock prices and the supplemental increase adder will vary each quarter. So those are the supplements for the third quarter.

I will now review some of our other key balance sheet-related items for the first quarter -- I'm sorry, for the second quarter. As Todd previously mentioned, we have no new updates on the ongoing negotiations with the performance bond surety regarding the delivery of the final 2 MPSVs and our fifth OSV newbuild program. When we canceled the construction contract, the vessels were then projected to deliver in the third -- second and third quarters of 2019, respectively, which is still reflected in our guidance. The aggregate cost of our fifth OSV newbuild program is expected to remain on budget at approximately $1.3 billion, of which $17 million and $45 million are expected to be incurred during the remainder of fiscal 2018 and fiscal 2019, respectively.

The timing of the incurrence of these final construction draws is also further -- subject to further change based on the ultimate delivery dates of the vessels, which are yet to be determined. From the inception of this program through June 30, 2018, we have incurred roughly 95% of the total expected project cost for that 24-boat newbuild program, including roughly $100,000 that was spent during the second quarter of 2018, with $62 million left to go. For an update of our historical and projected regulatory drydocking activity as well as expected cash outlays for maintenance and other CapEx, I would refer you to the data tables on Page 12 of 15 of our earnings release yesterday afternoon.

On June 30, 2018, our total liquidity was $246 million, comprised of $109 million in cash and $137 million of availability under our First-Lien Credit Facility, which represents a $62 million or 20% decrease from the end of the first quarter. Our net debt position based on the carrying values of our senior unsecured notes and First-Lien Credit Facility was $974 million as of June 30, 2018, up from $911 million sequentially. Excluding the deferred gain from the carrying value of our First-Lien Credit Facility, which is required by GAAP, net debt would be $956 million.

We currently have a blended average fixed cash coupon of about 5% on $917 million of total outstanding face value of publicly traded long-term unsecured debt, resulting in an annual run-rate cash debt service for our unsecured bonds in the amount of roughly $46 million. We also have a blended average floating cash coupon of about 8.6% on $163 million of total outstanding face value of privately placed long-term secured debt, resulting in an annual-run rate of cash debt service for our secured debt in the amount of [roughly] $14 million based on our current rate and currently outstanding balance, both of which will vary over time.

Cash interest on our First-Lien Credit Facility is variable based on a spread to LIBOR that recently increased to 650 bps from 600 bps on June 15, 2018. This spread is next scheduled to increase further to 700 bps on June 15, 2019. The LIBOR rate applicable to the 2 30-day tranches we currently have outstanding under that facility are averaging 2.1%. For detailed or granular breakdown of our GAAP interest expense as well as our projected cash interest and taxes by quarter and annually, please see our guidance tables on Page 13 of our earnings release yesterday, which are also available in Excel format in the Investors section of our website.

We project that even with the currently depressed operating levels, cash generated from operations, together with cash on hand and availability under our First-Lien Credit Facility, should be sufficient to fund our operations and commitments through at least December 31, 2019. However, absent the combination of a significant improvement in market conditions such that cash flow from operations were to increase materially from [projected levels], coupled with a refinancing and/or further management of our funded debt obligations, we do not currently expect to have sufficient liquidity to repay the full amount of our 5 7/8% senior notes and 5% senior notes as they mature in fiscal years 2020 and 2021, respectively. We remain fully cognizant of the challenges currently facing the oil and gas industry and continue to review our capital structure and assess strategic options. We may, from time to time, depending on market conditions and other factors, repurchase or acquire additional interests in our outstanding [indebtedness], whether or not such indebtedness trade above or below its face amount for cash and/or in exchange for other securities, term loans or other consideration in each case in open-market purchases and/or privately negotiation -- negotiated transactions or otherwise.

With that, I'll turn it back to Todd for any further comments [or to take] questions.

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [5]

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Thank you, Jim. With that, operator, we'll accept questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Turner Holm with Clarksons Platou.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [2]

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Todd, Jim, you talked about some of the factors that -- can you hear me?

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James O. Harp, Hornbeck Offshore Services, Inc. - Executive VP & CFO [3]

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Yes.

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [4]

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Yes, we can.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [5]

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Okay, great. So Todd, you talked about some of the factors that led to a tightening of the spot market during the second quarter, namely the international deployments. Do you see anything on the horizon that may lead to an outflow of vessels from the U.S. side of the Gulf again, whether that's Mexico, Caribbean or northern coast of South America?

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [6]

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I think when we just look at what's happening in the Caribbean and in Mexico and Guyana and the whole northern coast of South America, it's pretty reasonable to expect that as drilling programs come and go in those markets in that region, that the U.S. flag fleet is very, very attractive for those markets. Not only the size of the fleet and the size of the equipment that we have that's attractive, but pretty easy to get in and get out. So I expect that there's going to be some flurries of demand. We all know what's going on in Guyana, and I think that will attract some more vessels down that way. We all know what's going to happen in Mexico in the future with IOCs going into their drilling programs. So I see some vessel movements there, but, to be honest, before mid next year, about that time frame, I just think it's going to be very spotty. And it won't be something that you can really rely that's going to happen -- what quarter it's going to happen and if it's going to happen.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [7]

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Sure. I appreciate that. Another topic. Given that the stock and the bonds have seen some good movements in the last few months, does that perhaps created any more discussions with the creditors about potential refinancings or other transactions? Or has it been pretty quiet on that front?

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [8]

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No, we're in constant dialogues with those constituents, the bondholders and others, and looking at the best path forward to look at taking care of those 2 maturities. So there's a lot of dialogue going on, I can tell you that, but we don't have anything to report right now.

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Turner Holm, Clarksons Platou Securities AS, Research Division - Director [9]

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All right. And one really quick last one for me, just on the newbuilds. I understand you don't have any updates with regards to the timing of these newbuilds, but I was just wondering. Is there a date by which the yard has to deliver those vessels or you have the option to walk away? Or is it just kind of an open-ended situation?

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [10]

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What will happen is we're going through a process right now with the surety. We called on the surety to come forward, the bonding company, and we're looking at evaluating what yard is going to take the vessels over to complete them. So we fully expect to complete the vessels when we finally finish process with the surety and also selecting the yard that will do the completion, and we'll update you guys. But we're full -- there shouldn't be any expectation that we would be walking away from the vessels at all.

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Operator [11]

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(Operator Instructions) Our next question is from Coleman Sullivan with Wells Fargo.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [12]

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On the MPSVs, the utilization picked up a bit in 2Q as expected. It sounds like visibility over the second half is more limited, and it looks like one of the MPSVs is going to be stacked for the entire quarter. It sounds like the seasonal work is not coming in as expected [in the third] quarter. Is that the right way to interpret that?

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [13]

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Yes. I mean, really, it's kind of like the drilling market, we just don't have a lot of visibility. Anything can happen. There's -- with the amount of structure that is in the Gulf of Mexico, there's always things that are being repaired and maintained. But we just don't see a lot of visibility whether that is strategic on the customer's part or whether it's just their planning is not transparent. We really, not having the visibility, can't expect that the third quarter is going to be better than the second quarter. So you are right, we do have one of the MPSVs that has to go through regulatory drydocking and probably won't be available through the balance of the year. But it's spotty. We did land a contract in Mexico, which is one of the big -- Iron Horse, the big 430s out of the Gulf of Mexico, to Mexico, but that's for all topside-type work. It's not deepwater work. So it's just really hard to call that. I mean, it can be a flurry of activity or nothing. So it's

(technical difficulty)

market right now.

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Coleman Wayne Sullivan, Wells Fargo Securities, LLC, Research Division - Senior Analyst [14]

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Okay. On -- and I understand it may be way too early to talk about '19, but are you having at least any initial discussions on work programs for next year for the MPSVs?

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [15]

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I think there's a lot of positive sentiment going forward. A lot of people are having discussions about not only projects -- drilling programs but other projects, but there's been very little inked and very little put in their books when AFEs are approved. So it's -- while we hear a lot of positive news, and I think you're hearing the same thing from the drillers and other companies, to actually have it in the books has been a little bit more problematic.

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Operator [16]

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This concludes the question-and-answer portion of the call. I would like to turn the call back over to Todd Hornbeck for final remarks.

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Todd M. Hornbeck, Hornbeck Offshore Services, Inc. - Co-Founder, Chairman, President & CEO [17]

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Okay. I want to thank everyone for joining us today. [Thanks] for your time. We look forward to talking with you on the next quarter conference call. That will be on November 1. And between now and then, safe sailing. Thank you.

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Operator [18]

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Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.